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 29, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File 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 29, 1995 (excluding 2,692,327
Class A treasury shares): 5,822,498 470,475
<PAGE>
Part I. Financial Information
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
ASSETS Sept. 29, 1995 Dec. 30, 1994
Current assets:
Cash and cash equivalents $ 5,293,000 $ 7,427,000
Short-term investments 28,974,000 -
Accounts receivable, net of allowance
for doubtful accounts of $1,667,000 and
$2,677,000, respectively 20,874,000 33,452,000
Unbilled revenue 12,671,000 19,570,000
Inventories 6,563,000 6,761,000
Deferred income taxes 3,605,000 4,420,000
Other current assets 5,543,000 5,918,000
---------- ----------
Total current assets 83,523,000 77,548,000
---------- ----------
Property, plant and equipment 65,892,000 93,602,000
Less accumulated depreciation and amortization 29,417,000 51,534,000
---------- ----------
36,475,000 42,068,000
Deferred income taxes 735,000 1,610,000
Other assets 1,321,000 1,566,000
Intangible assets 23,577,000 24,293,000
----------- -----------
TOTAL ASSETS $145,631,000 $147,085,000
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Note payable $ - $ 2,000,000
Accounts payable 3,470,000 3,784,000
Salaries and wages 4,704,000 8,239,000
Income taxes 4,212,000 1,496,000
Estimated liability for contract losses 2,703,000 5,272,000
Contractual billings in excess of
recognized revenue 740,000 2,474,000
Other accrued liabilities 10,786,000 11,400,000
---------- ----------
Total current liabilities 26,615,000 34,665,000
---------- ----------
Long-term debt 801,000 871,000
Self-insured retention 2,806,000 5,331,000
Other long-term liabilities 6,618,000 6,704,000
Stockholders' equity:
Common stock 8,985,000 8,985,000
Capital in excess of par value 38,497,000 38,707,000
Retained earnings 101,761,000 83,854,000
Treasury stock (40,452,000) (32,032,000)
----------- -----------
Total stockholders' equity 108,791,000 99,514,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $145,631,000 $147,085,000
=========== ===========
See accompanying notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Nine Months Ended Three Months Ended
Sept. 29, 1995 Sept. 30, 1994 Sept. 29, 1995 Sept. 30, 1994
<S> <C> <C> <C> <C>
Revenue:
Technical services revenue $ 106,184,000 $177,748,000 $ 26,955,000 $ 54,505,000
Telecommunications sales 35,083,000 34,490,000 11,267,000 11,651,000
Other income 7,345,000 4,591,000 2,666,000 1,763,000
----------- ----------- ----------- -----------
148,612,000 216,829,000 40,888,000 67,919,000
Costs and expenses: ----------- ----------- ----------- -----------
Technical services costs 87,058,000 137,885,000 22,966,000 42,900,000
Telecommunications costs 23,333,000 23,572,000 7,573,000 7,973,000
Selling, general and
administrative expenses 28,839,000 62,704,000 7,627,000 31,204,000
Depreciation and amortization 3,676,000 5,158,000 967,000 1,737,000
Interest expense 134,000 143,000 43,000 45,000
----------- ----------- ----------- -----------
143,040,000 229,462,000 39,176,000 83,859,000
Income(Loss) before gain on sale ----------- ----------- ----------- -----------
of subsidiary and provision(benefit)
for taxes on income(loss) 5,572,000 (12,633,000) 1,712,000 (15,940,000)
Gain on sale of subsidiary 26,542,000 - - -
----------- ----------- ----------- -----------
Income(Loss) before provision(benefit)
for taxes on income(loss) 32,114,000 (12,633,000) 1,712,000 (15,940,000)
Provision(Benefit) for taxes on
income(loss) 10,168,000 (180,000) 713,000 (1,190,000)
----------- ----------- ----------- -----------
Net income(loss) $ 21,946,000 $(12,453,000) $ 999,000 $(14,750,000)
=========== =========== =========== ===========
Per share of common stock:
Net income(loss) $3.28 $(1.78) $.16 $(2.11)
Cash dividends $.60 $.60 $.20 $.20
Average number of shares of common
stock outstanding 6,692,720 7,011,935 6,279,366 6,993,917
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
Sept. 29, 1995 Sept. 30, 1994
Cash flows from operating activities:
Net income(loss) $ 21,946,000 $(12,453,000)
Adjustments to reconcile net income(loss)
to net cash provided by operating activities:
Gain on sale of Gilbert/Commonwealth, Inc. (26,542,000) -
Other items not affecting cash 5,712,000 21,043,000
Changes in current assets and
current liabilities (3,216,000) 40,000
Other, net 245,000 (85,000)
---------- ----------
Net cash provided by(used for) operating
activities (1,855,000) 8,545,000
---------- ----------
Cash flows from investing activities:
Payment for acquisition of GENSYS Corporation - (1,500,000)
Net increase in short-term investments (28,974,000) -
Proceeds from sale of Gilbert/Commonwealth, Inc. 45,932,000 -
Payments for property, plant and equipment (2,250,000) (3,921,000)
---------- ---------
Net cash provided by(used for) investing
activities 14,708,000 (5,421,000)
---------- ---------
Cash flows from financing activities:
Payments under note payable (2,000,000) (5,000,000)
Issuance of treasury stock in connection
with stock option and award plans 793,000 884,000
Payments to acquire treasury stock (9,423,000) (1,844,000)
Cash dividends paid (4,040,000) (4,209,000)
Other, net (317,000) (777,000)
---------- ----------
Net cash used for financing activities (14,987,000) (10,946,000)
---------- ----------
Net decrease in cash and cash equivalents (2,134,000) (7,822,000)
Cash and cash equivalents at beginning of period 7,427,000 10,716,000
---------- ----------
Cash and cash equivalents at end of period $ 5,293,000 $ 2,894,000
========== ==========
Supplemental cash flow disclosure:
Income taxes paid, net of refunds received $ 5,762,000 $ 1,219,000
See accompanying notes to consolidated condensed financial statements.
<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. Such adjustments
are of a normal recurring nature. The consolidated condensed balance sheet at
December 30, 1994 has been reclassified to conform with the current year
presentation.
2. Net income per share of common stock was determined using the average number
of Class A and Class B shares outstanding. Earnings per share are computed
independently for each of the quarters presented. Therefore, the sum of the
quarterly earnings per share in 1995 does not equal the total computed for the
year due to the timing of stock repurchases throughout the nine month period
ended September 29, 1995 and the large gain relative to the G/C sale which was
recorded in the second quarter. The effect on net income per share resulting
from dilution upon exercise of outstanding stock options is not material, and
therefore is not shown.
3. On October 20, 1995, the Company announced a $12,000,000 trial court judgment
against the Company and Gilbert/Commonwealth, Inc. of Michigan relative to a
dispute concerning construction management work performed by the former
subsidiary of Gilbert/Commonwealth, Inc. (G/C), in 1987 for Alaska-based Homer
Electric Association. As previously reported, in June 1995 the Company sold its
G/C subsidiary to The Parsons Corporation. Pursuant to the Stock Purchase
Agreement, Parsons agreed to indemnify, defend and hold harmless, the Company
against any litigation, claim or judgment brought or continued against the
Company arising out of the actions or operations of its former G/C subsidiary.
Both the Company and Gilbert/Commonwealth, Inc. of Michigan will appeal the
Court's judgment on independent grounds.
Although there can be no assurance as to the ultimate outcome of these
proceedings, the Company believes that the jury finding regarding its liability
in the case is contrary to established law and that it has substantial
justification for appeal. The Company further believes that its insurance
policies should provide coverage for liability arising from this lawsuit. Given
these factors and The Parsons Corporation's indemnification, no provision for
losses has been recorded as of September 29, 1995.
4. On October 5, 1995, the Company announced the signing of an agreement under
which the Company will acquire all of the common stock of XEL Corporation (XEL).
Under the terms of the agreement, the Company will pay XEL shareholders $30
million in cash at closing and additional incremental amounts through 1998 based
upon the achievement of certain earnings and revenue objectives. Any additional
amounts will increase goodwill. The acquisition was consummated on October 30,
1995. The Company plans to expense, after income taxes, up to $3,000,000 of
estimated in-process research and development acquired from XEL during the
fourth quarter of 1995.
5. Other accrued liabilities as of September 29, 1995 and December 30, 1994
include a $2,200,000 reserve for costs associated with resolving a series of
claims filed by a former employee of a subsidiary which was closed in 1988.
Also included in other accrued liabilities are accruals relating to workers'
compensation which amounted to $2,391,000 and $2,138,000 at September 29, 1995
and December 30, 1994, respectively.
6. On June 16, 1995, the Company's Class B shareholders approved the sale of the
Gilbert/Commonwealth, Inc. (G/C) subsidiary to The Parsons Corporation (Parsons)
and on June 20, 1995, the Company completed the sale for a total purchase price
of $45,932,000. The purchase price was adjusted downward by $1,227,000 from the
amount previously disclosed in the Company's Proxy Statement dated May 26, 1995
primarily due to unanticipated severance costs incurred by G/C subsequent to
May 26, 1995. The sale of G/C resulted in a $18,742,000 gain, net of income
taxes of $7,800,000, or $2.74 per share. The tax benefit of a $8,758,000
capital loss carryforward, for which a valuation allowance was previously
recorded, was recognized to reflect utilization of the carryforward associated
with this transaction.
As part of the agreement, the buyer has signed a ten year lease with the Company
for 200,000 square feet of office space. The consolidated condensed statements
of operations exclude the results of G/C subsequent to March 31, 1995, the
effective date of sale pursuant to the agreement with Parsons.
7. On March 13, 1995, the Company announced that the Board of Directors
authorized the repurchase of up to $15,000,000 worth of its common stock of
which $5,654,000 remains available for repurchase. The Company has subsequently
suspended this program.
8. 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.
9. 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 before provision for taxes on income 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
was reduced by $600,000 primarily due to a federal income tax deduction
associated with the closure of foreign subsidiaries.
10. The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" during the
second quarter of 1995. This pronouncement had no cumulative effect on the
consolidated condensed financial statements. The market value of the short-term
investments, which are classified as available for sale, closely approximates
amortized cost, and therefore no adjustment has been made to their carrying
value.
<PAGE>
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Results of Operations
Results of operations for the nine month period ended September 29, 1995 include
a $18,742,000 gain, or $2.74 per share relative to the sale of
Gilbert/Commonwealth, Inc. (G/C). In accordance with the sales agreement, G/C's
results of operations are excluded from the consolidated condensed statement of
operations from April 1, 1995 forward. This sales transaction is more fully
discussed in Note 6. Results of operations for the nine month period ended
September 30, 1994, include a charge to income of $15,800,000, or $2.26 per
share associated with the Company's nuclear service business (Note 8), and are
increased by $75,000, or $.01 per share relative to closing foreign subsidiaries
and settlement of certain contractual issues (Note 9).
Excluding the aforementioned adjustments, net income decreased 2% and 5% for the
nine and three month periods of 1995, respectively, as compared to the same
periods in 1994. The decreases are primarily due to the absence of G/C's
earnings since April 1, 1995, offset in part by increased interest income
derived from the sale of G/C, improved UESC operations and, for the nine month
period, improved results within the telecommunications segment. Excluding the
aforementioned items, as well as the per share effect of the stock repurchases
on the gain on sale of G/C, earnings per share increased $.01 to $.48, or 2% for
the nine month period of 1995 as compared to the same period in 1994. Earnings
per share increased $.01 to $.16, or 7% in the current quarter as compared to
the same quarter last year. The favorable relationship between the changes in
earnings per share and net income are due to fewer average shares outstanding.
The technical services segment revenue decreased 40% and 51% for the nine and
three month periods of 1995, respectively, as compared to the same periods in
1994. These decreases are primarily due to the sale of G/C and, to a much
lesser extent, declines in services provided to the nuclear power market. The
gross profit percentage decreased to 18% from 22% in the nine month period as
compared to the same period in 1994. Current quarter gross profit declined to
15% from 21% last year. These declines are primarily due to the absence of G/C
and lower margins realized on services provided to the U.S. Government.
The telecommunications segment sales increased 2% for the nine month period in
1995 versus the same period in 1994. The increase relates to increased revenue
from Instrument Associates, Inc. Sales for the current quarter decreased 3%
compared to the third quarter in the prior year due to lower domestic sales.
The gross profit percentage increased from 32% to 33% for both the current
quarter and nine month periods of 1995, respectively, as compared to the same
periods in 1994. These improvements are due primarily to benefits realized from
consolidating operations.
Other income increased 60% and 51% for the nine and three month periods of 1995,
respectively, as compared to the same periods in 1994. The increases relate
primarily to higher office space rental revenue and interest income offset in
the three month period by the absence of joint venture earnings related to G/C.
Rental income from unrelated tenants was $3,479,000 and $1,426,000 for the nine
and three month periods of 1995, respectively. This compares to $1,695,000
and $577,000 for the same periods in 1994. The increases are largely due
to the fact that The Parsons Corporation, as part of the G/C sales
agreement, agreed to lease 200,000 square feet for ten years. Rental income
will increase further beginning in 1996 due to an additional 60,000 square feet
of office space leased to unrelated tenants. The Company's office facility is
approximately 90% leased, primarily by unrelated tenants. Interest income was
$1,219,000 and $590,000 for the first nine months of 1995 and current quarter of
1995 compared to $111,000 and $23,000, respectively, in the same periods of
1994. Interest income increased as a result of investing the proceeds from the
G/C sale in short-term investments.
Excluding the adjustments mentioned above, selling, general and administrative
costs decreased 35% and 43% for the nine and three month periods in 1995,
respectively, as compared to the same periods in 1994. The decreases relate
primarily to the sale of G/C and, to a lesser extent, lower business activity
within the nuclear power market. Depreciation and amortization declined 29% and
44% for the nine and three month periods of 1995, respectively, as compared to
the same periods in 1994. The decreases relate primarily to the sale of G/C.
Excluding the 1994 adjustments mentioned above, income before the gain on sale
of subsidiary and provision for taxes on income decreased 2% and 8% for both the
nine and three month periods of 1995, respectively, as compared to the same
periods in 1994. The decreases relate to the lack of G/C's results of
operations from April 1, 1995 forward, offset in part by increased interest
income, improved UESC operations, and in the nine month period, improvement
within the telecommunications segment.
Excluding the sale of G/C and the 1994 adjustments mentioned above, the
effective tax rate for the nine month period in 1995 as compared to 1994 was
unchanged at 43%. The current quarter effective tax rate was 42%, down from 44%
in the third quarter last year.
The Company's results of operations should improve once the acquisition of XEL
is consummated. This assumes XEL's operations will offset the lost interest
income and the additional goodwill amortization associated with the acquisition
of XEL.
Liquidity and Capital Resources
Working capital increased $14,025,000 in the first nine months of 1995 primarily
due to the G/C sale. Cash and cash equivalents decreased $2,137,000 during the
nine months ended September 29, 1995. Amounts generated from operations,
combined with the available cash and cash equivalents and short-term lines of
credit should provide adequate working capital to satisfy the pending purchase
of XEL and contingent payments to former IAI principals and XEL shareholders.
Lines of credit with two banks aggregating $13,000,000 are also available for
short-term cash needs. The short-term lines of credit consist of the following:
Meridian Bank, $10,000,000, which expires April 30, 1996; and The Chase
Manhattan Bank, N.A., $3,000,000, which expires June 30, 1996. At September 29,
1995, the entire Chase line was available and $8,884,000 was available under the
Meridian line. Outstanding borrowings under these lines bear interest at a
function of the prime rate. The Chase line is used primarily to secure stand-by
letters of credit posted by the Company. The current Meridian line is used to
fund short-term working capital requirements as well as secure stand-by letters
of credit. The Company expects to establish a credit facility during the fourth
quarter of 1995 which would be used to fund further acquisitions as well as
other working capital requirements. The Company estimates that capital
expenditures in 1995 will be approximately $4,500,000. No restrictions on cash
transfers between the Company and its subsidiaries exist.
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
The Company announced a $12,000,000 trial court judgment against the
Company and a former subsidiary. This is more fully discussed in Note 3 to
the consolidated condensed financial statements in Part I.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
(1) The registrant filed Form 8-K on July 5, 1995 regarding
the incorporation by reference of Pro Forma Financial
Information and Exhibits to the Company's Proxy Statement
dated May 26, 1995.
(2) The registrant filed Form 8-K on August 2, 1995 which
announced that Timothy S. Cobb, the Company's President
and Chief Executive Officer, has been named Chairman of
the Board of Directors. This filing also reported that
Paul H. Snyder has been named Vice President and Chief
Financial Officer.
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/Paul H. Snyder
Paul H. Snyder
Vice President and
Chief Financial Officer
Date: November 8, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-29-1995
<PERIOD-END> SEP-29-1995
<CASH> 5,293,000
<SECURITIES> 28,974,000
<RECEIVABLES> 35,212,000
<ALLOWANCES> 1,667,000
<INVENTORY> 6,563,000
<CURRENT-ASSETS> 83,523,000
<PP&E> 65,892,000
<DEPRECIATION> 29,417,000
<TOTAL-ASSETS> 145,631,000
<CURRENT-LIABILITIES> 26,615,000
<BONDS> 0
<COMMON> 8,985,000
0
0
<OTHER-SE> 99,806,000
<TOTAL-LIABILITY-AND-EQUITY> 145,631,000
<SALES> 35,083,000
<TOTAL-REVENUES> 148,612,000
<CGS> 23,333,000
<TOTAL-COSTS> 110,391,000
<OTHER-EXPENSES> 32,515,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 134,000
<INCOME-PRETAX> 5,572,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 26,542,000
<CHANGES> 0
<NET-INCOME> 21,946,000
<EPS-PRIMARY> 3.28
<EPS-DILUTED> 3.28
</TABLE>
