SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
__________
FORM 10-K/A NO. 2
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
P.O. Box 1498, Reading, Pennsylvania 19603
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 775-5900
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $1.00 per share
(Title of Class)
Class B Common Stock, par value $1.00 per share
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this From 10-K. [X]
<PAGE>
PART I
ITEM 1. BUSINESS.
Gilbert Associates, Inc. (the "registrant") was organized as a
holding company in 1984. Through its operating subsidiaries, the
largest of which is Gilbert/Commonwealth, Inc. ("G/C"), the registrant
is engaged in the businesses of providing professional services and
the manufacture and sale of communication equipment. G/C, formerly
known as "Gilbert Associates, Inc.," was organized in 1942. The
registrant and its subsidiaries are sometimes referred to herein
collectively as the "Gilbert companies."
The holding company structure separates the administrative and
financing activities of the registrant from the activities of its
operating subsidiaries. The revenues, operating profits and
identifiable assets of the registrant's professional services and
communication equipment segments for each of the last three years are
stated in Note 14 to the consolidated financial statements contained
in Part II, Item 8 of this report.
PROFESSIONAL SERVICES
The professional services business segment, formerly called the
engineering and consulting segment and renamed to more accurately
reflect the revenue stream, consists of the registrant's largest
subsidiary, G/C, and its subsidiaries, together with United Energy
Services Corporation ("UESC"), Resource Consultants, Inc. ("RCI") and
SRA Technologies, Inc. ("SRA"), which are wholly-owned subsidiaries of
the registrant. The operations of these subsidiaries have been
consolidated for reporting purposes.
<PAGE>
G/C, based in Reading, Pennsylvania, provides a wide range of
engineering and consulting services, including electrical, mechanical,
structural and nuclear engineering, construction management,
procurement, and consulting services. G/C's major services are the
design, engineering and supervision of the construction of electric
power generating stations and electric transmission and distribution
systems as well as upgrading and retrofitting existing power plants.
It also renders services to industrial clients and various
governmental agencies. UESC, based in Atlanta, Georgia, primarily
provides operations and engineering consulting services to the
nuclear power industry. RCI, based in Vienna, Virginia,
provides engineering, outplacement services, technical and other
program support services to U.S. defense agencies, principally the
U.S. Navy and Army, and other U.S. Government agencies. SRA, based in
Falls Church, Virginia, provides research and consulting services in
life and environmental sciences, engineering and related technical
areas, principally to U.S. Government agencies.
During 1994, the registrant recorded 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.
<PAGE>
The $12,200,000 goodwill write-off represents the entire goodwill
amount associated with United Energy Services Corporation and
its subsidiaries.
The goodwill write-off stems primarily from the deterioration of
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 for 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 1994. For these reasons, and the continued
uncertainty surrounding UESC's nuclear business returning to a level
of profitability sufficient to recover the carrying value of
goodwill, it became apparent to management that UESC's goodwill was
permanently impaired and no longer had any value.
There were no other significant new business developments relating
to the professional services segment during the fiscal year ended
December 30, 1994.*
The services of G/C and UESC in the professional services industry
are not divisible into classes because the projects undertaken by G/C
and UESC require the utilization, in varying proportions depending
upon the project, of the skills and talents of staff members who are
qualified in a variety of disciplines. For example, a single project
may involve the utilization of the services of mechanical engineers,
electrical engineers, structural engineers, draftspeople, clerical
personnel and others.
* All references to particular years in the balance of this report
refer to the fiscal year ended on or about December 31 of such
year. Thus, the fiscal year ended December 30, 1994 is from time
to time referred to as simply "1994" elsewhere in this report.
<PAGE>
The following table sets forth for the past three fiscal years the
revenues derived from the listed categories of professional services
rendered.
Professional Services Revenues
(in thousands of dollars)
1994 1993 1992
Design and Related Services $111,359 $123,945 $127,844
Operations Services 34,921 61,834 85,351
Defense Related Services 63,092 57,624 51,027
Life and Environmental Sciences Services 20,515 - -
Operating profit and identifiable assets for the last three years
within the professional services segment are disclosed in Note 14 to
the consolidated financial statements in Part II, Item 8 of this
report.
The following table sets forth the approximate percentage of
operating revenues derived from the principal markets served by the
professional services segment during 1994 and the approximate
percentage of backlog as of December 30, 1994 represented by work
arrangements with clients in such markets:
Percentage of Percentage of Backlog
Market for Services 1994 Revenues as of December 30, 1994
U.S. Private Industry 39% 16%
U.S. Federal, State and Local
Governments and Agencies 58 82
Foreign Governments and
Businesses 3 2
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The work arrangements of this segment, while varying, are
essentially either "cost-plus" or "fixed-price". Under a cost-plus
arrangement, the registrant is reimbursed for its costs plus an agreed upon
fee, whereas under a fixed-price arrangement, the entire price to be paid
to the registrant is established at the beginning of the job. G/C, UESC, RCI
and SRA have limited the number and extent of their fixed-price commitments in
light of their experience that extended periods of performance and
changes in governmental requirements tend to make it difficult to make
adequate allowance for escalation and contingencies in fixed-price
quotations. The majority of the Gilbert companies' professional
services revenues was attributable to contracts other than fixed-price
arrangements in each of the last three years. In addition, fixed-
price contracts represent less than a majority of the backlog
attributable to such segment at December 30, 1994. The ability to
continue to sell services on a basis other than fixed-price will,
however, depend upon a number of factors including the state of the
national economy, the level of actual and planned capital and
operating expenditures by prospective clients, and the trend of
contracting practices in the markets in which such services are
rendered.
Inventory is not essential to the operations of the Gilbert
companies' professional services segment.
The subsidiaries comprising the Gilbert companies' professional
services segment own various patents and trademarks and have pending
applications for other patents. However, such patents and trademarks
are not individually or cumulatively significant to the business of
such segment.
Although the professional services segment is not dependent upon
any single client, its five largest clients have generally accounted
for approximately three-fifths of its total revenues. During 1994,
the United States Government and the Tennessee Valley Authority
("TVA") accounted for 34% and 13%, respectively, of total professional
<PAGE>
services revenues. During 1993, the United States Government and TVA
accounted for 24% and 16%, respectively, of total professional services
revenues. These amounts represent revenue earned by the registrant as
prime contractor. No other client or its affiliate accounted for 10%
or more of such revenues in 1994 or 1993.
A substantial portion of the business of the professional services
segment is obtained from clients served for a number of years. In the
years 1994 and 1993, services rendered to clients who had been served
at least four years earlier accounted for 89% and 83%, respectively,
of the Gilbert companies' professional services revenues. There is no
assurance that work authorizations from such clients will account for
a similar percentage of total revenues in the future.
As of December 30, 1994 and December 31, 1993, respectively, the
subsidiaries comprising the Gilbert companies' professional services
segment had backlogs of contracts or work authorizations from which
they had then anticipated estimated aggregate future revenues of
approximately $301,000,000 and $407,000,000. Backlog is recognized as
revenue when work is performed. The backlog of RCI and
SRA accounted for approximately 77% of the total segment backlog at
December 30, 1994 and December 31, 1993. Substantially all of the
backlog of RCI and SRA at such dates represents work to be performed
on government contracts for which funding has not yet been authorized.
Such funding authorizations are generally issued by the government in
periodic increments during the contract term. The subsidiaries
comprising the professional services segment anticipate that
approximately $138,000,000 of the revenues to be recognized by them
under work authorizations outstanding at December 30, 1994 will be
earned within the fiscal year ending December 29, 1995 and that
additional revenues will be earned in 1995 from work authorizations
received during the year.
<PAGE>
Consistent with standard industry practice for professional services
organizations, work authorizations for the Gilbert companies' professional
services segment are terminable by their clients upon relatively brief notice,
whether by the express terms of such work authorizations or otherwise.
The completion dates for a number of projects have been extended in
the past, thereby lengthening the period of time during which the
backlog of estimated revenues for those projects was to be earned.
With the continued unsettled conditions in the industries served by
this segment, it is possible that one or more projects included in the
backlog at December 30, 1994 might be extended or even canceled. Work
authorizations from the largest client included in such backlog total
$88,000,000 for work on several U.S. Navy programs, of which
$70,000,000 is subject to government funding.
Since the majority of the operating costs of the subsidiaries
comprising the Gilbert companies' professional services segment are
payroll and payroll-related costs, and since their business is
dependent upon the reputation and experience of their personnel, the
quality of the services they render and their ability to maintain an
organization which is qualified and adequately staffed to undertake
and efficiently discharge assignments in the various fields in which
such subsidiaries render services, a reasonable backlog is important
for the scheduling of their operations and for the maintenance of a
reasonably staffed level of operations.
To the best of the knowledge of the registrant, no reliable data
are available with respect to the total size of the market for
professional services for the full range of fields in which the
registrant's subsidiaries are engaged. The registrant's professional
services subsidiaries compete with a number of firms in each of the
fields in which they are active, and some of their competitors have
<PAGE>
substantially larger total revenues, greater financial resources and
more diversified businesses. The registrant believes that the dominant
competitors in the professional services fields are Stone & Webster,
Ratheon, Sargeant & Lundy, Black & Veatch and Bechtel. Competition is based
primarily on quality, reputation, experience and available skills and services.
Frequently, however, formal or informal bidding procedures result in price
competition. In terms of the number of employees rendering professional
services (excluding those incident to construction and technician services),
the registrant believes that its professional services segment is one of
the largest firms, but it is unable to determine its relative size
within this group. Moreover, since there are a great many firms
rendering similar services as a portion of their businesses or to
affiliated companies only, the registrant believes it does not
constitute a substantial part of the total market for such services.
A number of the professional services segment's clients utilize
their own staffs to do all or a major part of their own engineering
work. Thus, the future business of the professional services segment
of the Gilbert companies will be affected by the extent to which
clients and potential clients utilize the services of outside
professional services firms. Such future business will also be
affected by factors such as the rate of growth of the electric utility
industry, the demand for new power generation facilities, and the
level of expenditure for capital goods in the United States.
Reductions in United States government defense expenditures have
recently been made and further reductions may follow. Although the
registrant has not been adversely affected by these events, it is
unable to estimate the degree or nature of the future impact of any
such reductions on the professional services segment.
The Energy Policy Act of 1992 includes various provisions
which are expected to result in further deregulation of, and
competition within, the electric utility industry and
<PAGE>
development of independent power production facilities. The
effect of these provisions on the registrant's business is not
certain. In addition, the Act contains amendments to the Atomic Energy Act
designed to provide for standardization of nuclear plant designs and to
otherwise simplify the nuclear power plant licensing process and
thereby encourage development of nuclear power reactors by utilities.
No new nuclear power plants have been ordered by utilities since 1978,
and the effect of these amendments to the Atomic Energy Act on the
registrant's future business is considered to be uncertain pending
satisfactory resolution of, among other things, nuclear waste disposal issues.
The registrant's professional services subsidiaries do not engage
in any material company-sponsored research activities relating to the
development of new products or services or the improvement of existing
products or services. In the process of performing professional
services, some personnel of such subsidiaries are periodically
involved in customer-sponsored research activities for the improvement
of products or services, but few employees are engaged in such
activities on a full-time basis and they are not a material part of
the Gilbert companies' professional services business.
On December 30, 1994, the professional services segment had a total
of 3,033 employees, of which 2,126 employees were professional and
technical personnel. In comparison, such segment had a total of 3,428
employees on December 31, 1993, of which 2,459 employees were
professional and technical personnel.
COMMUNICATION EQUIPMENT
The communication equipment segment of the business of the Gilbert
companies consists of the sale and customizing of communications
equipment and related systems by GAI-Tronics Corporation ("GAI-
Tronics"), a wholly-owned subsidiary of the registrant.
<PAGE>
GAI-Tronics is principally engaged in the development, assembly and
marketing of communication systems for industrial operations. In
serving such customers, GAI-Tronics provides custom services by
adapting communication systems to operate under extraordinary plant
conditions such as excessive dust and explosive atmospheres. GAI-
Tronics also designs and manufactures land mobile radio
communication devices.
The value of orders for GAI-Tronics' systems may range from a
minimal amount to several hundred thousand dollars. GAI-Tronics'
significant class of products or services is the design and assembly
of communication systems.
The approximate percentage of GAI-Tronics' sales derived from the
principal markets for its products during 1994 and the approximate
percentage of its backlog as of December 30, 1994 represented by
contracts with clients in such markets, were as follows:
Percentage of Percentage of Backlog
Market for Products 1994 Revenues as of December 30, 1994
U.S. Private Industry 79% 53%
Foreign Governments and
Businesses 21 47
Revenue, operating profit and identifiable assets for the last three
years within the communication equipment segment are disclosed in Note
14 to the consolidated financial statements in Part II, Item 8 of this
report.
GAI-Tronics is continually modifying its products and attempting to
further expand its product line. GAI-Tronics manufactures relatively
<PAGE>
few of the basic components employed in its equipment; instead, it
primarily designs and assembles its equipment and systems by use of
standard or special components manufactured by others. Several sources
of supply exist for such components so that GAI-Tronics is not
dependent upon any single supplier.
GAI-Tronics maintains a substantial inventory of components to
satisfy its customers' requirements because GAI-Tronics provides
mainly customized communication systems for specialized uses.
GAI-Tronics owns various patents and trademarks. However, such
patents and trademarks are of less significance to GAI-Tronics'
operations than its experience and reputation.
GAI-Tronics' business is not dependent upon a single customer or a
very few customers. An insubstantial amount of GAI-Tronics' sales in
1994 were made for installation in projects or to customers for which
subsidiaries comprising the professional services segment had served
as consulting engineer. (See "Business - Professional Services".)
A substantial part of GAI-Tronics' business is obtained from
customers to whom it has made previous sales. In 1994 and 1993, sales
made to customers who had made purchases at least four years earlier
accounted for approximately 94% of GAI-Tronics' total net sales.
There is no assurance that sales to such customers will account for a
similar percentage of total revenues in the future. Many of GAI-
Tronics' sales are made as a result of proposals submitted in response
to competitive bidding invitations.
As of December 30, 1994 and December 31, 1993, GAI-Tronics had a
backlog of contracts from which it had anticipated estimated future
revenue of approximately $5,954,000 and $6,850,000, respectively.
<PAGE>
GAI-Tronics anticipates that substantially all of the goods reflected in its
backlog at December 30, 1994, will be shipped in 1995. GAI-Tronics
anticipates that the vast majority of its revenues earned in 1995 will be
from orders received during the year.
GAI-Tronics competes with a number of other organizations that
develop and market specialized telephonic and communication systems.
Some of its competitors have larger total sales, greater financial
resources, larger research and development organizations and
facilities and a more diversified range of communications services and
products. The dominant industry competitors of GAI-Tronics are believed to
be Comtrol, Industronics, Fetre, Motorola, Federal Signal and ATI.
GAI-Tronics' management believes that GAI-Tronics' history
of quality, its reputation, experience and service are the most
important factors in its being asked to submit bids and in purchasing
decisions made by its customers.
GAI-Tronics spent approximately $1,727,000, $1,734,000 and
$1,309,000 during 1994, 1993 and 1992, respectively, on company-
sponsored product development and improvement. Several of GAI-
Tronics' professional employees routinely engage in company-sponsored
product development and improvement on a full-time basis. GAI-Tronics
has not made material expenditures on product development and
improvement projects sponsored by customers in the last three years.
On December 30, 1994, GAI-Tronics had a total of 394 employees, of
which 169 employees were professional and technical personnel. In
comparison, GAI-Tronics had a total of 420 employees on December 31,
1993, of which 174 were professional and technical personnel.
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MISCELLANEOUS
The registrant expects no material effect on the capital
expenditures, earnings and competitive position of the registrant and
its subsidiaries from its or their compliance with federal, state or
local laws or regulations controlling the discharge of materials into
the environment or otherwise relating to the protection of the
environment, although it does expect its professional services
subsidiaries to undertake engineering work for many of their clients
to support them in complying with such provisions.
A portion of the revenue of the Gilbert companies is derived from
customers or projects located outside the United States. All foreign
revenues were from work authorizations with customers unaffiliated
with the Gilbert companies. Certain services rendered to foreign
clients have been undertaken in association with financing supplied or
guaranteed by the U.S. Government or by U.S. or international banking
institutions such as the U.S. Agency for International Development.
Curtailment of such financing or guarantees could tend to reduce
revenues from foreign sources. The countries providing the largest
portion of foreign revenues in 1994 were Egypt and Canada.
The businesses of the registrant's subsidiaries are not seasonal
to any material extent.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SECURITY HOLDER MATTERS.
The registrant's Class A Common Stock is traded in the over-the-
counter market. Price quotations are available through the NASDAQ National
Market system under the symbol GILBA. The following tabulation sets forth
the high and low price quotations by quarter as reported by the NASDAQ
National Market system and cash dividends declared on each share of Class A
and Class B Common Stock. Prices quoted represent high and low closing
sale prices on the NASDAQ National Market System.
1994 1993 Dividends
High Low High Low 1994 1993
$18.75 $16.50 $21.50 $19.25 First Quarter $.20 $.18
17.75 14.75 21.75 20.25 Second Quarter .20 .18
15.50 14.00 21.50 16.25 Third Quarter .20 .20
15.00 12.00 17.00 14.50 Fourth Quarter .20 .20
At December 30, 1994, the approximate number of record holders of
Class A common stock and Class B common stock was 3,500 and 264, respectively.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Excluding all adjustments, net income decreased $3,867,000 and
earnings per share decreased $.49, or 49% and 45%, respectively, in
1994 as compared to 1993. Prior to adjustments, net income for 1993
decreased $1,085,000, or 12% from 1992, and earnings per share
decreased $.11 or 9% in the same period. The decreases relate
primarily to lower operating results within the professional services
segment, formerly called the engineering and consulting segment. The
decline in net income was greater than the decline in earnings per
share due to fewer shares outstanding. Revenue declined 3% in both
1994 and 1993 due to declines within the professional services
segment, offset in part by higher revenue within the communication
equipment segment. Adjustments for 1994 included a third 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 (Note 9).
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 9).
Adjustments for 1993 included 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 9), and a $200,000 reduction in
net income or $.03 per share in the first quarter of 1993 for changes
in accounting principles (Notes 3 and 6).
The professional services segment, renamed to more accurately
reflect the revenue stream, reported a 6% decrease in revenue in 1994
as compared to 1993. The decrease is due primarily to large declines
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in volume of services provided to the nuclear power market, offset
largely by revenue derived from SRA Technologies, Inc. (SRA), which
was acquired on December 10, 1993. Nuclear power related revenue declined
approximately $36,000,000 in 1994 compared to 1993 which was largely offset
by $19,000,000 of additional revenue from SRA. The decline in nuclear power
related revenue relates primarily to lower revenues from United Energy
Services Corporation ("UESC"). The gross profit percentage was
22% in 1994, a decrease from 24% in the prior year. The decrease is
due primarily to competitive pressures within the nuclear market and the
professional services segment in general. Revenue decreased 8% in 1993
as compared to 1992, due primarily to declines in the volume of services
provided to the nuclear power market, offset by increases in U.S. defense
related revenue. Nuclear power related revenue declined approximately
$29,000,000 which was partially offset by higher revenue from non-nuclear
power customers and U.S. defense related revenue. The decline in nuclear
power related revenue relates primarily to UESC. The gross profit percentage
was 24% in 1993 and 1992.
The communication equipment segment revenue increased 10% in 1994
as compared to 1993. The increase relates primarily to revenue
derived from Instrument Associates, Inc. (IAI), which was acquired on
December 28, 1993. The gross profit percentage decreased to 32% in
1994 from 34% in 1993 due primarily to IAI, and to a lesser extent,
costs associated with consolidating manufacturing operations. IAI is
structured to operate on lower margins than other operations within
this segment, but has lower selling, general and administrative
expenses which more than offset the impact of lower gross profit.
Revenue volume increased 30% in 1993 as compared to 1992 due primarily
to revenue derived from the acquisition of the Femco Division of Mark
IV Industries in late 1992. The gross profit margin decreased 2% in
1993 to 34% due primarily to sales of lower margin products.
Other income increased 6% in 1994 as compared to 1993, and 31% in
1993 as compared to 1992. The increases relate primarily to income
derived from a joint venture within the professional services segment
which has earned income, prior to income taxes, of $2,080,000,
$1,406,000 and $715,000 in 1994, 1993 and 1992, respectively.
<PAGE>
Selling, general and administrative expenses decreased 1% in 1994
as compared to 1993 after excluding the adjustments mentioned above.
Selling, general and administrative expenses relative to the recent
acquisitions of SRA and IAI were offset by lower expenses within the
professional services segment. Also excluding the above adjustments,
these expenses were substantially unchanged in 1993 from 1992.
Depreciation and amortization increased 8% in 1994 as compared to 1993
due primarily to amortization associated with the recent acquisitions.
Depreciation and amortization increased 12% in 1993 compared to 1992
due primarily to depreciation on the office facility completed in late
1992. Interest expense was not significant in 1994, 1993 or 1992.
Income before provision for taxes on income and cumulative effect
of changes in accounting principles decreased 46% from 1993 to 1994,
excluding the adjustments mentioned above. The decrease relates
primarily to lower operating results within the professional services
segment, particularly the nuclear power market. Income before
provision for taxes on income and cumulative effect of changes in
accounting principles in 1993 decreased 11% compared to 1992 after
excluding the aforementioned adjustments. The decrease relates
primarily to lower operating results within the professional services
segment, particularly the nuclear power market, offset in part by
higher operating results within the communication equipment segment.
The provision for taxes on income, prior to all adjustments,
increased to an effective tax rate of 43% in 1994 from 40% in 1993.
The increase is due primarily to a higher effective state tax rate,
which in part is due to limitations in loss carrybacks and
carryforwards in certain jurisdictions. In 1993, the effective tax
rate increased to 40% from 39% in 1992 due primarily to the enacted
increase in the statutory federal income tax rate to 35%.
<PAGE>
Deregulation in the domestic power utility industry, excess power
generation capacity, demand side management programs, and aversion to
nuclear power will continue to put downward pressures on the level of
services provided by the company particularly to nuclear power related
customers, until additional power generation capacity is needed.
Liquidity and Capital Resources
Working capital decreased $6,829,000, or 14% in 1994. The decline
relates primarily to lower operating results. Cash and cash
equivalents declined $3,289,000 during the year due primarily to lower
borrowings. The company does not anticipate requiring long-term
financing during the next year. Available cash and cash equivalents,
combined with amounts generated from operations 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, the contingent payout
to 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 $14,205,000 are also
available for short-term cash needs. No restrictions on cash transfers
between the company and its subsidiaries exist. The short-term lines
of credit consist of the following: Meridian Bank, $10 million, which
expires April 30, 1995; Chemical Bank, $5 million, which expires June 30,
1995; and the Chase Manhattan Bank, N.A., $3 million, which expires June 30,
1995. At December 30, 1994, the entire Chase line was available, and $7.1
million and $4.1 million, respectively, were available under the Meridian and
Chemical lines. Outstanding borrowings under these lines bear interest at
a function of the prime rate. The Chemical and Chase lines are used
primarily to secure letters of credit posted by the company; the Meridian
line is used to fund short-term working capital requirements. Capital
expenditures declined $7,600,000 in 1993 compared to 1992 largely due to a
$6,273,000 reduction in expenditures for an office facility, which was
substantially completed by the end of 1992.
Other
On December 9, 1994, the registrant announced that it had engaged
a New York investment banking firm to assist the registrant in
assessing various potential opportunities to enhance shareholder
values. The investment bankers' assistance includes a wide range of
investigation and analysis of alternative business strategies
including an in-depth review of our subsidiary operations to determine
whether any divestitures might be appropriate, identifying possible
acquisition candidates and consideration of possible joint venture
partners.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Management's Report on Responsibility for Financial Reporting
The accompanying consolidated financial statements and notes
thereto are the responsibility of, and have been prepared by,
management of the company in accordance with generally accepted
accounting principles. Management believes the consolidated financial
statements reflect fairly the results of operations and financial
position of the company in all material respects. The consolidated
financial statements include certain amounts that are based upon
management's best estimates and judgment regarding the ultimate
outcome of transactions which are not yet complete.
Management believes that the accounting systems and related
systems of internal control are sufficient to provide reasonable
assurance that assets are safeguarded, transactions are properly
authorized and included in the accounting records, and that those
records provide a reliable basis for preparation of the company's
consolidated financial statements. Reasonable assurance is based upon
the concept that the cost of a system of internal control must be
related to the benefits derived. The company maintains an internal
audit function that periodically assesses the effectiveness of the
systems of internal control and makes recommendations for possible
improvement.
The company's financial statements have been audited by Coopers &
Lybrand, independent accountants, as stated in their report below.
They have been elected to perform this function by the stockholders of
the company. Management has made available to Coopers & Lybrand all
of the company's financial records and related data, as well as the
minutes of stockholders' and directors' meetings.
T. S. Cobb
President, Chief Executive Officer
and acting Chief Financial Officer
<PAGE>
Report of Independent Accountants
To the Stockholders and Board of Directors, Gilbert Associates, Inc.:
We have audited the accompanying consolidated balance sheets of
Gilbert Associates, Inc. and Subsidiaries as of December 30, 1994 and
December 31, 1993, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three
years in the period ended December 30, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Gilbert Associates, Inc. and Subsidiaries as of December 30, 1994
and December 31, 1993, and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended December 30, 1994 in conformity with generally accepted
accounting principles.
As discussed in Notes 3 and 6 to the consolidated financial
statements, the Company changed its method of accounting for income
taxes and postretirement benefits other than pensions in 1993.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 3, 1995 COOPERS & LYBRAND L.L.P.
<PAGE>
<TABLE>
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the years 1994, 1993 and 1992
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Revenue:
Professional services revenue $229,887,000 $243,403,000 $264,222,000
Communication equipment sales 46,045,000 41,987,000 32,233,000
Other income 6,563,000 6,216,000 4,754,000
----------- ----------- -----------
282,495,000 291,606,000 301,209,000
----------- ----------- -----------
Costs and expenses:
Professional services costs 179,216,000 185,233,000 200,892,000
Communication equipment costs 31,215,000 27,632,000 20,490,000
Selling, general and administrative
expenses 76,116,000 60,958,000 59,041,000
Depreciation and amortization 6,922,000 6,416,000 5,725,000
Interest expense 186,000 205,000 95,000
----------- ----------- -----------
293,655,000 280,444,000 286,243,000
----------- ----------- -----------
Income(Loss) before provision for taxes
on income(loss) and cumulative effect
of changes in accounting principles (11,160,000) 11,162,000 14,966,000
Provision for taxes on income(loss) 460,000 4,510,000 5,909,000
----------- ----------- -----------
Income(Loss) before cumulative effect
of changes in accounting principles (11,620,000) 6,652,000 9,057,000
Cumulative effect of changes in
accounting principles - (200,000) -
----------- ----------- -----------
Net income(loss) $(11,620,000) $ 6,452,000 $ 9,057,000
=========== =========== ===========
Net income(loss) per average number of
Class A and Class B shares
outstanding:
Income(Loss) before cumulative effect
of changes in accounting principles $(1.66) $.90 $1.19
Cumulative effect of changes in
accounting principles - (.03) -
----------- ----------- -----------
Net income(loss) $(1.66) $.87 $1.19
=========== =========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
<PAGE>
<TABLE>
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years 1994, 1993 and 1992
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating activities:
Net income(loss) $(11,620,000) $ 6,452,000 $ 9,057,000
Adjustments to reconcile net income(loss) to net
cash provided by operating activities:
Depreciation and amortization 6,922,000 6,416,000 5,725,000
Goodwill write-off 12,200,000 - -
Provision for doubtful accounts, net (164,000) 810,000 121,000
Provision for estimated liability for
contract losses, net 3,700,000 223,000 135,000
Provision for self-insured retention 825,000 1,018,000 978,000
Benefit from deferred income taxes (725,000) (1,000,000) (1,505,000)
Cumulative effect of changes in accounting
principles - 200,000 -
Gain on sale of short-term investments - (20,000) (155,000)
Changes in current assets and current
liabilities, net of effects from
acquisitions:
Accounts receivable and unbilled revenue 9,148,000 9,542,000 4,094,000
Inventories (359,000) 482,000 2,097,000
Other current assets (287,000) (183,000) 310,000
Accounts payable and salaries and wages (3,039,000) (1,401,000) (649,000)
Other accrued liabilities (862,000) 290,000 3,300,000
Income taxes, currently payable 68,000 (505,000) 1,544,000
Estimated liability for contract losses (1,241,000) (572,000) (617,000)
Contractual billings in excess of
recognized revenue 280,000 61,000 21,000
Other, net (492,000) 601,000 (168,000)
---------- ---------- ----------
Net cash provided by operating activities 14,354,000 22,414,000 24,288,000
---------- ---------- ----------
Cash flows from investing activities:
Payments for acquisitions, net of cash
acquired (1,500,000) (14,161,000) (9,782,000)
Net decrease in short-term investments - 6,149,000 15,354,000
Payments for property, plant and equipment (5,513,000) (4,441,000) (12,041,000)
Proceeds from sale of property, plant
and equipment 202,000 1,263,000 169,000
---------- ---------- ----------
Net cash used for investing activities (6,811,000) (11,190,000) (6,300,000)
---------- ---------- ----------
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
<PAGE>
<TABLE>
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years 1994, 1993 and 1992 (continued)
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Cash flows from financing activities:
Payments of long-term debt (364,000) (545,000) (7,582,000)
Net (repayments)borrowings under note payable (3,000,000) 5,000,000 -
Issuance of treasury stock in connection
with stock option, award and purchase
plans 916,000 543,000 509,000
Payments to acquire treasury stock (2,206,000) (7,262,000) (5,138,000)
Cash dividends paid (5,607,000) (5,650,000) (5,480,000)
Other, net (571,000) 454,000 34,000
---------- ---------- ----------
Net cash used for financing activities (10,832,000) (7,460,000) (17,657,000)
---------- ---------- ----------
Net increase(decrease) in cash and
cash equivalents (3,289,000) 3,764,000 331,000
Cash and cash equivalents at beginning
of year 10,716,000 6,952,000 6,621,000
---------- ---------- ----------
Cash and cash equivalents at end of year $ 7,427,000 $10,716,000 $ 6,952,000
========== ========== ==========
Supplemental cash flow disclosures:
Interest paid, net of interest capitalized $ 103,000 $ 122,000 $ 91,000
Income taxes paid, net of refunds received $ 1,117,000 $ 6,015,000 $ 5,870,000
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
<PAGE>
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 30, 1994 and December 31, 1993
ASSETS December 30, December 31,
1994 1993
Current assets:
Cash and cash equivalents $ 7,427,000 $ 10,716,000
Accounts receivable, net of allowance
for doubtful accounts of $2,677,000 in 1994
and $3,427,000 in 1993 33,452,000 38,526,000
Unbilled revenue 19,570,000 23,480,000
Inventories 6,761,000 6,402,000
Deferred income taxes 4,420,000 4,205,000
Other current assets 5,918,000 5,751,000
----------- -----------
Total current assets 77,548,000 89,080,000
----------- -----------
Property, plant and equipment, at cost:
Land 3,693,000 3,702,000
Buildings 43,002,000 41,885,000
Furniture and equipment 46,907,000 43,888,000
----------- -----------
93,602,000 89,475,000
Less accumulated depreciation and
amortization 51,534,000 46,924,000
----------- -----------
42,068,000 42,551,000
----------- -----------
Deferred income taxes 1,610,000 1,100,000
Other assets 2,441,000 2,117,000
Goodwill 23,418,000 35,399,000
----------- -----------
Total Assets $147,085,000 $170,247,000
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
<TABLE>
Consolidated Balance Sheets
December 30, 1994 and December 31, 1993
<CAPTION>
LIABILITIES December 30, December 31,
1994 1993
<S> <C> <C>
Current liabilities:
Note payable $ 2,000,000 $ 5,000,000
Accounts payable 3,784,000 5,593,000
Salaries and wages 8,239,000 9,469,000
Income taxes, currently payable 1,496,000 1,868,000
Estimated liability for contract losses 5,272,000 2,813,000
Other accrued liabilities 11,400,000 12,431,000
Contractual billings in excess of
recognized revenue 2,474,000 2,194,000
----------- -----------
Total current liabilities 34,665,000 39,368,000
----------- -----------
Long-term debt 871,000 1,066,000
Other long-term liabilities 6,704,000 7,036,000
Self-insured retention 5,331,000 4,663,000
Commitments and contingencies - -
STOCKHOLDERS' EQUITY
Capital stock:
Class A common stock, nonvoting, par value $1 per share
Issued: 1994, 7,698,484 shares;
1993, 7,625,566 shares 7,698,000 7,625,000
Class B common stock, voting, par value $1 per share
Issued and outstanding: 1994, 1,286,816 shares;
1993, 1,359,734 shares 1,287,000 1,360,000
Capital in excess of par value 38,707,000 38,932,000
Retained earnings 83,854,000 101,081,000
Foreign currency translation adjustments - 83,000
Class A common stock held in treasury, at cost:
1994, 2,024,396 shares; 1993, 1,961,474 shares (32,032,000) (30,967,000)
----------- -----------
99,514,000 118,114,000
----------- -----------
Total Liabilities and Stockholders' Equity $147,085,000 $170,247,000
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
<PAGE>
<TABLE>
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the years 1994, 1993 and 1992
<CAPTION>
Common Stock
--------------------
Class A Class B
------- -------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balances at January 3, 1992 7,844,026 $7,844,000 1,141,274 $1,141,000
Conversion from Class A to
Class B, net (144,394) (145,000) 144,394 145,000
--------- --------- --------- ---------
Balances at January 1, 1993 7,699,632 7,699,000 1,285,668 1,286,000
Conversion from Class A to
Class B, net (74,066) (74,000) 74,066 74,000
--------- --------- --------- ---------
Balances at December 31, 1993 7,625,566 7,625,000 1,359,734 1,360,000
Conversion from Class B to
Class A, net 72,918 73,000 (72,918) (73,000)
--------- --------- --------- ---------
Balances at December 30, 1994 7,698,484 $7,698,000 1,286,816 $1,287,000
========= ========= ========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
<PAGE>
<TABLE>
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the years 1994, 1993 and 1992
<CAPTION>
Foreign Class A
Capital in Currency Treasury Stock
Excess of Retained Translation --------------
Par Value Earnings Adjustments Shares Amount
--------- -------- ----------- ------ ------
<S> <C> <C> <C> <C> <C>
Balances at January 3, 1992 $38,888,000 $ 96,702,000 $ 268,000 1,275,066 $(19,575,000)
Net Income 9,057,000
Cash dividends paid, $.72 per
share (5,480,000)
Translation adjustments (174,000)
Purchase of treasury stock 290,682 (5,138,000)
Issuance of treasury stock in
connection with stock option,
award and purchase plans 11,000 (32,130) 498,000
---------- ----------- ------- --------- ----------
Balances at January 1, 1993 38,899,000 100,279,000 94,000 1,533,618 (24,215,000)
Net income 6,452,000
Cash dividends paid, $.76 per
share (5,650,000)
Translation adjustments (11,000)
Purchase of treasury stock 459,947 (7,262,000)
Issuance of treasury stock in
connection with stock option,
award and purchase plans 33,000 (32,091) 510,000
---------- ----------- ------- --------- -----------
Balances at December 31, 1993 38,932,000 101,081,000 83,000 1,961,474 (30,967,000)
Net income(loss) (11,620,000)
Cash dividends paid, $.80 per
share (5,607,000)
Translation adjustments (83,000)
Purchase of treasury stock (8,000) 134,624 (2,198,000)
Issuance of treasury stock in
connection with stock option,
award and purchase plans (217,000) (71,702) 1,133,000
---------- ----------- ------- --------- -----------
Balances at December 30, 1994 $38,707,000 $ 83,854,000 $ - 2,024,396 $(32,032,000)
========== =========== ======= ========= ===========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES:
FISCAL YEAR: The company uses a 52-53 week fiscal year ending on the
Friday nearest December 31. The 1994, 1993 and 1992 fiscal years
comprised 52 weeks each and ended on December 30, 1994, December 31,
1993 and January 1, 1993, respectively.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements
include the accounts of the company and its subsidiaries. All
material intercompany transactions have been eliminated. Investments
in joint ventures where the company does not have a controlling
interest are accounted for under the equity method.
RECOGNITION OF REVENUE: The company recognizes revenue on contracts
entered into for professional services as the work is performed.
Costs and expenses are charged to operations as incurred. Losses,
estimated to be sustained upon completion of contracts, are charged to
income in the year such estimates are determinable.
INSURANCE PROGRAMS: The company's overall insurance coverages,
excluding professional liability, contain provisions for large
deductibles and funding on a claims paid basis. Necessary accruals,
which relate primarily to health care and workers' compensation,
aggregate $3,494,000 and $3,262,000 at December 30, 1994 and December
31, 1993, respectively, and are included in other accrued liabilities
on the consolidated balance sheets.
The accrual for reported claims and for claims incurred but not yet
reported relating to professional liability insurance is estimated on
the basis of historical claims experience. This accrual is reflected
on the consolidated balance sheets as self-insured retention.
PROPERTY, PLANT AND EQUIPMENT AND ACCUMULATED DEPRECIATION AND
AMORTIZATION: For financial reporting purposes, the company provides
for depreciation and amortization of property, plant and equipment,
including assets under capital leases, on the straight-line method
over the estimated useful lives of the various classes of assets. For
income tax purposes, the company uses accelerated depreciation where
permitted.
Cost of maintenance and repairs is charged to expense as incurred.
Renewals and improvements are capitalized. Upon retirement or other
disposition of items of plant and equipment, cost of the item and
related accumulated depreciation are removed from the accounts and any
gain or loss is included in income.
Interest cost capitalized in 1992 amounted to $420,000.
<PAGE>
GOODWILL: Substantially all of the goodwill is being amortized by
charges to operations on a straight-line basis over 40 years, and such
amortization amounted to $842,000 in 1994, $778,000 in 1993 and
$605,000 in 1992. Accumulated amortization amounted to $3,264,000 at
December 30, 1994 and $4,775,000 at December 31, 1993.
The company periodically reviews goodwill to assess recoverability,
and impairments would be recognized in operating results if a
permanent diminution in value were to occur. The company's primary
financial indicator for assessing recoverability of goodwill is
whether the subsidiaries are generating a sufficient amount of income
and cashflow on an undiscounted basis.
INVENTORIES: Inventory values are determined on the first-in, first-
out (FIFO) method and are stated at the lower of cost or market.
INCOME TAXES: The company utilizes the liability method of accounting
for income taxes. Under this method, deferred income taxes are
determined based on the difference between the financial statement and
tax bases of assets and liabilities using enacted tax rates.
STATEMENTS OF CASH FLOWS: For purposes of the consolidated statements
of cash flows, the company considers all highly liquid investments
with a maturity of three months or less at the time of purchase to be
cash equivalents.
RECLASSIFICATION: The consolidated balance sheets and consolidated
statements of cash flows have been reclassified to conform with
current year presentation.
2. ACQUISITIONS:
On December 10, 1993, the company acquired all of the outstanding
capital stock of SRA Technologies, Inc. (SRA) for $6,500,000 in cash.
The company also paid $1,500,000 in cash for other intangible assets,
which resulted in a total purchase price of $8,000,000. On December
28, 1993, the company acquired the net assets of Instrument
Associates, Inc. (IAI) for $5,704,000 in cash plus an additional
amount not to exceed $1,000,000, to be paid if the business acquired
from IAI earns, prior to income taxes, $1,655,000 in a consecutive
four month period. The contingency payment period remains in effect
indefinitely and when made, will increase goodwill.
On December 21, 1992, the company acquired the net assets of the Femco
Division of Mark IV Industries, Inc. (Femco) for $8,782,000 in cash.
During the first quarter of 1994, the company paid the former
stockholders of GENSYS Corporation $1,500,000 in cash as part of the
April 1, 1991 purchase agreement, which resulted in an increase in
goodwill.
All acquisitions were accounted for as purchases, and goodwill was
determined based upon the fair values of assets acquired and
liabilities assumed. At the dates of acquisition, such liabilities
aggregated $6,336,000 and $1,342,000 in 1993 and 1992, respectively.
Goodwill for SRA, IAI and Femco was $3,563,000, $5,639,000 and
$5,752,000, respectively, which is being amortized on a straight-line
basis over 40 years. The company's consolidated statements of
operations include the results of operations of the acquired
businesses since the dates of acquisition.
<PAGE>
3. INCOME TAXES:
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, net income increased $700,000
or $.09 per share due to the recording of deferred income tax assets
not previously recognized. This adjustment was recorded as a
cumulative effect of change in accounting principles.
Income tax provisions consist of the following:
1994 1993 1992
---- ---- ----
Current:
Federal $ 790,000 $ 5,035,000 $ 6,585,000
State and
foreign 395,000 475,000 829,000
---------- ---------- ----------
1,185,000 5,510,000 7,414,000
---------- ---------- ----------
Deferred:
Federal (620,000) (900,000) (1,285,000)
State (105,000) (100,000) (220,000)
---------- ---------- ----------
(725,000) (1,000,000) (1,505,000)
---------- ---------- ----------
$ 460,000 $ 4,510,000 $5,909,000
========== ========== ==========
The components of the net deferred income tax asset are as follows:
December 30, December 31,
1994 1993
------------ ------------
Net current deferred income tax asset $ 4,420,000 $ 4,205,000
Net non-current deferred income tax asset 1,610,000 1,100,000
---------- ---------
Net deferred income tax asset $ 6,030,000 $ 5,305,000
========== =========
The tax effects of temporary differences which comprise the deferred
tax assets and liabilities are as follows:
December 30, December 31,
1994 1993
Deferred income tax assets: ------------ ------------
Reserves for contract disallowances
and bad debts $ 3,295,000 $ 2,540,000
Retirement liabilities 2,634,000 2,366,000
Self-insured retention 2,239,000 1,865,000
Vacation accrual 995,000 1,276,000
Legal claims reserves 934,000 950,000
Workers' compensation reserves 898,000 682,000
Other 1,971,000 2,596,000
---------- ----------
12,966,000 12,275,000
---------- ----------
<PAGE>
December 30, December 31,
1994 1993
Deferred income tax liabilities: ------------ ------------
Depreciation $ 2,936,000 $ 2,937,000
Contract retention 2,214,000 2,509,000
Other 1,786,000 1,524,000
---------- ----------
6,936,000 6,970,000
---------- ----------
Net deferred income tax asset $ 6,030,000 $ 5,305,000
========== ==========
A reconciliation of the statutory income tax rate to the effective tax
rate follows:
1994 1993 1992
---- ---- ----
Federal statutory tax rate (34.0)% 35.0% 34.0%
Closure of foreign subsidiaries (4.1) - -
State and foreign taxes 2.1 2.2 2.7
Amortization and write-off of goodwill 39.0 2.1 1.4
Other, net 1.1 1.1 1.4
---- ---- ----
Effective tax rate 4.1% 40.4% 39.5%
==== ==== ====
The 1991 sale of stock of Gilbert/Commonwealth Inc. of Michigan
resulted in a capital loss for federal income tax purposes of
$10,225,000. As of December 30, 1994, $8,758,000 of capital loss
remains available to offset future capital gains before its expiration
in 1996. Due to the uncertainty of future utilization of this capital
loss, no deferred income tax asset has been recorded.
4. LONG-TERM DEBT:
Long-term debt consists of the following obligations:
December 30, December 31,
1994 1993
--------- ---------
Note payable, $15,000 due monthly
including interest at 7.15% $ - $ 248,000
Note payable, $6,000 due monthly to
1996, including interest at 8% 111,000 171,000
Capital lease obligation, with principal
payments not exceeding $9,000
due monthly to 2007, plus interest
at variable rates not exceeding
prime + 1/2%. 871,000 927,000
-------- ---------
982,000 1,346,000
Less current maturities (111,000) (280,000)
-------- ---------
$ 871,000 $1,066,000
======== =========
<PAGE>
The aggregate maturities of long-term debt, including the capital
lease obligation, in each of the five years subsequent to 1994 are as
follows:
1995 $111,000
1996 81,000
1997 48,000
1998 53,000
1999 58,000
The company leases a building under a noncancelable capital lease
which expires in 2007. The agreement includes an option to purchase
the building for a nominal amount upon expiration of the lease.
In connection with the aforementioned capital lease, the company has
pledged as collateral the following:
December 30,
1994
-----------
Land and building $ 980,000
Less accumulated depreciation (227,000)
---------
$ 753,000
=========
At December 30, 1994, minimum future lease payments under the capital
lease and the present value of minimum lease payments are as follows:
1995 $ 117,000
1996 117,000
1997 117,000
1998 117,000
1999 117,000
2000 and thereafter 862,000
---------
Total minimum lease payments 1,447,000
Less amount representing interest (576,000)
---------
Present value of minimum lease payments $ 871,000
=========
The company and its subsidiaries have arrangements with several banks
whereby unused lines of credit aggregating $14,205,000 are available
at December 30, 1994 for short-term financing, with interest charges
based upon the banks' prime lending rates.
<PAGE>
5. INVENTORIES:
Inventories consist of the following:
December 30, December 31,
1994 1993
---------- ----------
Raw materials $3,278,000 $2,985,000
Work in process and
finished goods 3,483,000 3,417,000
--------- ---------
$6,761,000 $6,402,000
========= =========
6. POSTRETIREMENT BENEFITS:
Substantially all regular, full-time employees of the company and its
subsidiaries are participants in various defined contribution
retirement plans. Employer contributions under these plans are
generally at the discretion of the company, based upon profits and
employees' voluntary contributions to the plans. Company
contributions charged to operations in 1994, 1993 and 1992 totaled
$4,231,000, $4,369,000 and $5,121,000, respectively.
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,
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 a change
in accounting principles. This statement requires an accrual of the
cost of providing postretirement benefits during the active service
period of employees. Certain subsidiaries of the company currently
provide life insurance benefits for retirees. The company is self-
insured for these benefits, which consist primarily of $5,000
policies. Under the current program, the accumulated benefit
obligation related to the life insurance policies is approximately
$1,800,000 as of December 30, 1994. The accumulated benefit
obligation is primarily unfunded. The discount factor used in
computing the accumulated benefit obligation is 6%. The adoption of
SFAS 106 did not have a material impact on current operations.
7. CAPITAL STOCK:
Except for voting privileges, shares of Class A and Class B common
stock are identical. Class B stockholders must be either directors of
the company, or active employees of the company or its subsidiaries.
They may not sell or transfer such stock without having first extended
an offer of sale to the company. There were 12,000,000 authorized
shares of Class A and Class B common stock as of December 30, 1994 and
December 31, 1993.
<PAGE>
8. STOCK OPTION, AWARD AND PURCHASE PLANS:
Under the 1989 Gilbert Stock Option Plan, the company may grant to
officers and other key management employees, incentive or non-
qualified stock options to purchase an aggregate of 250,000 shares of
Class B common stock at a price not less than seventy-five percent of the fair
market value at the date of grant. Fair market value of the Class B shares
is deemed to be the closing price, as quoted on the NASDAQ National Market
System, of the Class A common stock on the date of the grant. The term within
which each option may be exercised is at the discretion of the company. In no
case shall this term exceed ten years. Options to purchase 63,550 Class B
shares were granted at fair market value during 1994 and are exercisable
between March 18, 1996 and March 18, 1999 at $17.50 per share. At
December 30, 1994, 77,150 shares remain available for future grants.
A summary of stock option activity related to this plan and the 1982
and 1987 stock option plans which are no longer granting options is as
follows:
Number of
Number of Option Price Shares
Shares Per Share Exercisable
--------- ------------ -----------
Outstanding at
Jan. 3, 1992 295,345 $ 8.16-$26.50 213,137
Granted 52,050 $20.00
Exercised (12,500) $ 8.16-$17.20
Expired (8,375) $17.20-$26.50
-------
Outstanding at
Jan. 1, 1993 326,520 $11.84-$26.50 240,321
Granted 57,000 $21.00
Exercised (18,375) $11.84-$17.20
Expired (32,424) $17.20-$26.50
-------
Outstanding at
Dec. 31, 1993 332,721 $11.84-$26.50 237,172
Granted 63,550 $17.50
Exercised (62,500) $11.84-$17.20
Expired (54,824) $17.50-$26.50
-------
Outstanding at
Dec. 30, 1994 278,947 $12.00-$26.50 178,098
=======
The company has an Equity Award Plan whereby the company may grant to
officers and other key management employees, awards to purchase an
aggregate of 234,375 shares of common stock at a price equal to fair
market value on the date of purchase. Unless accepted, the awards
expire fifteen days from the date of grant. To date, awards to
purchase 195,331 shares of the company's common stock have been
granted and accepted at prices ranging from $11.04 to $22.20 per
share. As a result of subsequent sales by participants, 72,495 of
these shares remain outstanding at December 30, 1994. For a period of
ten years subsequent to the date of purchase, the company is required,
if requested by the participant, to repurchase shares under the plan
for an amount equal to 90% of the original purchase price.
<PAGE>
Under the Stock Bonus Purchase Plan, employees may use up to 50% of
their annual incentive compensation to purchase shares of common stock
at fair market value. Employees purchasing shares will receive a
stock bonus as determined by the Board of Directors each year. The
company may grant an aggregate of 200,000 shares under this plan.
During 1994, 6,202 shares were issued under this plan. To date,
41,104 shares have been issued, and 158,896 shares remain available
for future grants as of December 30, 1994.
9. SPECIAL CHARGES:
In the third quarter of 1994, the company recorded 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 majority
of this charge related to a specific audit issue for a contract completed
in 1991. The audit issue was not known by the company until the third
quarter of 1994. 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 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 became apparent to management that UESC's goodwill is
permanently impaired and no longer has any value.
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 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 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.
<PAGE>
In the second quarter of 1993, the company recorded a charge to income
of $2,200,000 to increase reserves for costs associated with resolving
a series of claims filed by former employees of a subsidiary which was
closed in 1988. This reserve is recorded in other accrued liabilities
on the consolidated balance sheet. After the income tax benefit of
$880,000, net income was reduced by $1,320,000 or $.18 per share. The
company is contesting these matters vigorously and is in the process
of pursuing various legal actions. The timing of the final resolution
is not yet known.
10. OPERATING LEASES:
The company leases, as lessee, facilities, data processing equipment,
office equipment, automobiles and aircraft charter services under
leases expiring during the next eleven years. Total rental expense
under operating lease agreements amounted to $7,000,000 in 1994,
$5,900,000 in 1993 and $5,700,000 in 1992. Minimum future rentals
under noncancelable operating leases with initial or remaining terms
in excess of one year at December 30, 1994 are as follows:
1995 $ 5,999,000
1996 4,488,000
1997 2,576,000
1998 2,019,000
1999 1,754,000
2000 and thereafter 6,256,000
----------
Total minimum rentals $23,092,000
==========
The company leases, as lessor, office space to unrelated parties under
leases expiring between 1995 and 2004. Minimum future rentals under
noncancelable operating leases at December 30, 1994 are as follows:
1995 $ 2,714,000
1996 2,531,000
1997 2,461,000
1998 2,520,000
1999 2,492,000
2000 and thereafter 11,108,000
----------
Total minimum rentals $23,826,000
==========
11. FINANCIAL INSTRUMENTS:
Letters of credit and performance bonds are issued by the company
during the ordinary course of business through major domestic banks
and insurance companies. The company has outstanding letters of
credit and performance bonds, not reflected in the consolidated
financial statements, in the amount of $5,814,000 at December 30, 1994
and $5,369,000 at December 31, 1993.
<PAGE>
Financial instruments which potentially subject the company to the
concentration of credit risk, as defined by SFAS No. 105, consist
principally of accounts receivable. Concentration of credit risk with
respect to receivables is limited due to the majority of customers
being comprised of either public utilities or the U.S. Government.
12. CONTINGENCIES:
Various lawsuits, claims and other contingent liabilities arise in the
ordinary course of the company's business. While the ultimate
disposition of these contingencies is not determinable at this time,
management believes that any liability resulting therefrom will not
materially affect the consolidated financial statements of the
company.
<PAGE>
13. QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
The following is a tabulation of the unaudited quarterly financial
data for each of the four quarters of the years 1994 and 1993:
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------
April 1, 1994 July 1, 1994 Sept. 30, 1994 Dec. 30, 1994
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $74,852,000 $74,058,000 $67,919,000 $65,666,000
Income(Loss) before provision for
taxes on income(loss) 1,977,000 1,330,000 (15,940,000) 1,473,000
Net income(loss) 1,167,000 1,130,000 (14,750,000) 833,000
Net income(loss) per share
of common stock $.17 $.16 $(2.11) $.12
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------
April 2, 1993 July 2, 1993 Oct. 1, 1993 Dec. 31, 1993
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $75,295,000 $74,274,000 $70,825,000 $71,212,000
Income before provision for taxes
on income and cumulative effect
of changes in accounting principles 3,704,000 1,221,000 3,323,000 2,914,000
Income before cumulative effect of
changes in accounting principles 2,223,000 751,000 1,925,000 1,753,000
Cumulative effect of changes in
accounting principles (200,000) - - -
Net income 2,023,000 751,000 1,925,000 1,753,000
Per share of common stock:
Income before cumulative effect
of changes in accounting
principles $.30 $.10 $.26 $.24
Cumulative effect of changes in
accounting principles (.03) - - -
Net income $.27 $.10 $.26 $.24
</TABLE>
NOTES:
The results of operations for the quarter ended September 30, 1994 includes
a charge to income of $15,800,000 (net of $2,000,000 income tax benefit) or
$2.26 per share, associated with the nuclear service business.
Results of operations for the quarter ended July 1, 1994 was increased by
$75,000 or $.01 per share due to the closure of foreign subsidiaries and
the settlement of certain contractual issues.
Results of operations for the quarter ended July 2, 1993 includes a charge
to income of $1,320,000 (net of $880,000 income tax benefit), or $.18 per
share, for costs associated with resolving a series of claims filed by
former employees.
The changes in accounting principles result from the company's
adoption of Statements of Financial Accounting Standards for Income
Taxes and Postretirement Benefits Other Than Pensions.
<PAGE>
14. SEGMENT INFORMATION:
The company and its subsidiaries are primarily engaged in providing
professional services to public utilities, governmental agencies and a
variety of other customers. GAI-Tronics Corporation, a subsidiary, is
engaged in the development, assembly and marketing of communication
equipment. Information about the company's operations by segment for
the years 1994, 1993 and 1992 is as follows:
<TABLE>
<CAPTION>
Professional Communication
Services Equipment Consolidated
---------------------------------------------------------------------------------------------------------------
Year ended December 30, 1994:
<S> <C> <C> <C>
Revenue $229,887,000 $ 46,045,000 $275,932,000
=========== =========== ===========
Operating profit(loss) $(13,686,000) $ 4,872,000 $ (8,814,000)
=========== ===========
Interest expense (186,000)
General corporate expenses (6,643,000)
Other income 4,483,000
-----------
Income(Loss) before income taxes
and cumulative effect of
changes in accounting
principles $(11,160,000)
===========
Identifiable assets $ 83,028,000 $ 32,534,000 $115,562,000
=========== ===========
Corporate assets 31,523,000
-----------
Total assets, December 30, 1994 $147,085,000
===========
Depreciation and amortization $ 5,081,000 $ 1,222,000
=========== ===========
Capital expenditures $ 4,244,000 $ 876,000
=========== ===========
</TABLE>
<PAGE>
14. SEGMENT INFORMATION (continued)
<TABLE>
<CAPTION>
Professional Communication
Services Equipment Consolidated
--------------------------------------------------------------------------------------------------------------
Year ended December 31, 1993:
<S> <C> <C> <C>
Revenue $243,403,000 $ 41,987,000 $285,390,000
=========== =========== ===========
Operating profit $ 9,389,000 $ 3,914,000 $ 13,303,000
=========== ===========
Interest expense (205,000)
General corporate expenses (6,746,000)
Other income 4,810,000
-----------
Income before income taxes and
cumulative effect of changes
in accounting principles $ 11,162,000
===========
Identifiable assets $101,472,000 $ 34,062,000 $135,534,000
=========== ===========
Corporate assets 34,713,000
-----------
Total assets, December 31, 1993 $170,247,000
===========
Depreciation and amortization $ 4,651,000 $ 1,167,000
=========== ===========
Capital expenditures $ 2,916,000 $ 694,000
=========== ===========
</TABLE>
<PAGE>
14. SEGMENT INFORMATION (continued)
<TABLE>
<CAPTION>
Professional Communication
Services Equipment Consolidated
--------------------------------------------------------------------------------------------------------------
Year Ended January 1, 1993:
<S> <C> <C> <C>
Revenue $264,222,000 $ 32,233,000 $296,455,000
=========== =========== ===========
Operating profit $ 14,154,000 $ 3,348,000 $ 17,502,000
=========== ===========
Interest expense (95,000)
General corporate expenses (6,480,000)
Other income 4,039,000
-----------
Income before income taxes and
cumulative effect of changes
in accounting principles $ 14,966,000
===========
Identifiable assets $100,977,000 $ 28,614,000 $129,591,000
=========== ===========
Corporate assets 35,833,000
-----------
Total assets, January 1, 1993 $165,424,000
===========
Depreciation and amortization $ 4,592,000 $ 969,000
=========== ===========
Capital expenditures $ 3,113,000 $ 639,000
=========== ===========
</TABLE>
Revenue by segment consists of sales to unaffiliated customers;
intersegment sales are not significant. Operating profit(loss) is
total revenue less operating expenses, and excludes interest expense,
general corporate expenses and other income. Other income excludes
$2,080,000, $1,406,000 and $715,000 in 1994, 1993 and 1992,
respectively, relative to a joint venture, which is reflected in the
professional services operating profit. Prior year segment
information has been restated to be consistent with current year
presentation. Although the company receives professional services
revenue from many customers, two major customers accounted for
revenues of $107,000,000, $98,000,000 and $79,000,000 in 1994, 1993
and 1992, respectively. Of these amounts, approximately $77,000,000,
$58,000,000 and $54,000,000 was received from several United States
governmental agencies in 1994, 1993 and 1992, respectively.
Identifiable assets by segment are those assets that are used in the
operations of each segment. Corporate assets are those assets not
used in the operations of a specific segment and consist primarily of
cash and cash equivalents, an office facility and in prior years,
short-term investments. Capital expenditures for the office facility
were $393,000, $831,000 and $7,104,000 in 1994, 1993 and 1992,
respectively, and are excluded from the capital expenditures above.
Depreciation on the office facility amounted to $619,000, $598,000 and
$164,000 in 1994, 1993 and 1992, respectively, and is also excluded
from the depreciation and amortization above.
<PAGE>
PART III
Item 10 - Directors and Executive Officers of the Registrant
The present positions of directors and executive officers with the Company
as well as other relevant information are set forth below:
Year in Which
First Became
Name Age Position With Company Director
John F. Boyer 66 ----- 1984
Timothy S. Cobb 53 President and Chief 1988
Executive Officer
James R. Itin 62 Vice President and Chief 1983 *
Financial Officer
Donald E. Lyons 65 ----- 1989
Alexander F. Smith 66 Chairman of the Board 1970
James W. Stratton 58 ----- 1984
James A. Sutton 60 ----- 1986
Donald K. Wilson, Jr. 59 ----- 1990
* - As previously reported, on April 19, 1995, Mr. Itin, 62, elected to take
early retirement and resigned as a member of the board and Chief Financial
Officer of the Company. He will be a consultant to the Company for two years.
Mr. Itin's decision to elect early retirement is not due to a disagreement
with management regarding the sale of G/C or otherwise. The Company
anticipates that it will take approximately four months to retain a successor.
In the interim, Mr. Cobb has assumed Mr. Itin's duties as Chief Financial
Officer.
Mr. Smith, Mr. Cobb. and Mr. Itin have served as officers of the
Company or its subsidiaries for at least five years.
For more than five years prior to his retirement as President in
October of 1993 and as Chief Executive Officer of the Company in March
of 1994, Mr. Smith served as President and Chief Executive Officer of the
Company, and also serves as a director of Stratton Monthly Dividend Shares,
Inc., Stratton Growth Fund, Inc, and Stratton Small Cap Yield Fund.
Mr. Cobb has been Chief Executive Offier of the Company since March,
1994 and President and Chief Operating Officer of the Company since October,
1988. He served as President of Gilbert/Commonwealth, Inc., a subsidiary of the
Company, from January, 1991 to September, 1988 and as President of GAI-Tronics
also a subsidiary of the Company, from June, 1988 to Decemeber, 1991.
Since 1981, Mr. Boyer had been a director and a senior executive officer of
Philadelphia Suburban Corporation. He retired in May, 1993 as Chairman of the
Corporation whose principal subsidiary, Philadelphia Suburban Water Company,
is a regulated water utility. He continues as a director of Philadelphia
Suburban Corporation. Mr. Boyer is also a director of Betz Laboratories, Inc.
and Rittenhouse Trust company.
For five years prior to his retirement in 1987, Mr. Lyons served as Chief
Executive Officer and President of the Power Systems Group of Combustion
Engineering, Inc., a supplier of technology, equipment and services to the
power and process industries. Mr. Lyons is also a director of Nuclear Support
Services, Inc.
Mr. Stratton has been Chairman and Chief Executive Officer of Findatex, a
financial services firm, and President of the Stratton Management Company,
investment advisors, since 1972. Mr. Stratton is also a director of Stratton
Growth Fund, Inc., Stratton Monthly Dividend Shares, Inc., Stratton Small
Cap Yield Fund, UGI Corporation, Petrolane Incorporated, Alco Standard Corp.
and Teleflex Inc.
Mr. Sutton is Chairman of the Board of Directors and Chief Executive
Officer of UGI Corporation, a diversified Pennsylvania-based natural gas and
electric utility with non-utility operations in industrial gases and propane.
He has served in various executive positions with UGI since 1982. Mr. Sutton
is also a director of Petrolane Inc. and a member of Mellon PSFS Regional
Advisory Board.
Mr. Wilson retired in 1994 as Executive Vice President of The Hartford
Steam Boiler Inspection and Insurance Company, which is engaged in insurance
underwriting, investments and engineering. Mr. Wilson had served in various
executive positions with that company since 1970. He is also a director
of Mechanics Savings Bank in Hartford, Connecticut, and Spencer Turbine
Company in Windsor, Connecticut. He is presently serving as a consultant
with Goodwin, Loomis & Britton Inc., an insurance brokerage firm.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 this 24th day of May 1995.
GILBERT ASSOCIATES, INC.
By /s/T. S. Cobb
T. S. Cobb
President, Chief Executive Officer
and acting Chief Financial Officer
