<PAGE>
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
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EXCHANGE ACT OF 1934
For the quarterly period ended January 28, 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 number 0-15067
GROUNDWATER TECHNOLOGY, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 02-0324047
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
100 River Ridge Drive, Norwood, MA 02062
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (617) 769-7600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x NO
------ ------
At March 13, 1995 the registrant had issued and outstanding an aggregate of
6,961,522 shares of its common stock.
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GROUNDWATER TECHNOLOGY, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NUMBER
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<S> <C> <C>
Item 1 Financial Statements
Consolidated Balance Sheets
January 28, 1995 (Unaudited) and April 30, 1994................................................. 1-2
Consolidated Statements of Operations
Thirteen weeks ended January 28, 1995 (Unaudited) and January 29, 1994 (Unaudited).............. 3
Consolidated Statements of Operations
Thirty-nine weeks ended January 28, 1995 (Unaudited) and January 29, 1994 (Unaudited)........... 4
Consolidated Statements of Cash Flows
Thirty-nine weeks ended January 28, 1995 (Unaudited) and January 29, 1994 (Unaudited)........... 5
Notes to Consolidated Financial Statements (Unaudited)............................................ 6
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations............. 7-9
<CAPTION>
PART II OTHER INFORMATION
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<S> <C> <C>
Item 6 Exhibits and Reports on Form 8-K.................................................................. 10
Signatures........................................................................................ 11
</TABLE>
<PAGE>
GROUNDWATER TECHNOLOGY, INC.
PART I
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
January 28, April 30,
1995 1994
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,284 $ 4,909
Marketable securities 19,077 25,614
Accounts receivable, less allowances of $3,135 at January 28, 1995
and $3,245 at April 30, 1994 67,915 53,899
Other current assets 7,508 7,647
--------- ---------
Total Current Assets 95,784 92,069
Property, plant and equipment, at cost 48,088 45,685
Less accumulated depreciation 33,444 28,302
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14,644 17,383
Other assets, net 4,706 3,474
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$115,134 $112,926
========= =========
</TABLE>
See accompanying notes.
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<PAGE>
GROUNDWATER TECHNOLOGY, INC.
PART I (cont.)
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
January 28, April 30,
1995 1994
--------- ----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 8,073 $ 6,174
Accrued salaries and benefits 4,489 3,330
Other accrued liabilities 6,733 9,647
Income taxes payable 213 125
-------- --------
Total Current Liabilities 19,508 19,276
Stockholders' Equity
Preferred stock, $.01 par value, 1,000,000 shares authorized,
none issued -- --
Common stock, $.01 par value, 25,000,000 authorized, 8,078,748
issued at January 28, 1995 and 8,061,996 at April 30, 1994 81 80
Capital in excess of par value 54,315 54,113
Retained earnings 59,236 55,525
Treasury stock, at cost, 1,109,838 shares at January 28, 1995 and
947,500 at April 30, 1994 (16,886) (14,804)
Cumulative currency translation adjustment (1,120) (1,264)
-------- --------
Total Stockholders' Equity 95,626 93,650
-------- --------
$115,134 $112,926
======== ========
</TABLE>
See accompanying notes.
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<PAGE>
GROUNDWATER TECHNOLOGY, INC.
PART I (cont.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Thirteen weeks ended
--------------------
January 28, January 29,
1995 1994
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<S> <C> <C>
Gross revenue $47,352 $43,722
Cost of subcontracted services 17,208 13,457
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Net revenue 30,144 30,265
Cost of net revenue 18,822 19,598
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Gross profit 11,322 10,667
Selling, general and administrative expenses (9,775) (9,276)
Licenses and other income 172 452
------- -------
Income before investment and other income 1,719 1,843
Investment and other income, net 268 408
------- -------
Income before provision for income taxes 1,987 2,251
Provision for income taxes 795 855
------- -------
Net income $ 1,192 $ 1,396
======= =======
Earnings per common share $ .17 $ .19
======= =======
Shares used to compute earnings per common share 7,017 7,455
======= =======
</TABLE>
See accompanying notes.
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<PAGE>
GROUNDWATER TECHNOLOGY, INC.
PART I (cont.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Thirty-nine weeks ended
-----------------------
January 28, January 29,
1995 1994
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<S> <C> <C>
Gross revenue $142,286 $126,980
Cost of subcontracted services 49,009 37,472
-------- --------
Net revenue 93,277 89,508
Cost of net revenue 58,154 59,633
-------- --------
Gross profit 35,123 29,875
Selling, general and administrative expenses (29,652) (28,156)
Provision for restructuring and consolidation -- (5,000)
Licenses and other income 443 1,220
-------- --------
Income (loss) before investment and other income 5,914 (2,061)
Investment and other income, net 893 1,329
-------- --------
Income (loss) from continuing operations before provision (benefit) for
income taxes 6,807 (732)
Provision (benefit) for income taxes 2,723 (239)
-------- --------
Income (loss) from continuing operations 4,084 (493)
Loss from operations of discontinued manufacturing operations, net of
tax benefit -- (605)
Loss on disposal of manufacturing operations, net of tax benefit -- (1,058)
-------- --------
-- (1,663)
-------- --------
Net income (loss) $ 4,084 $ (2,156)
======== ========
Earnings (loss) per common share
Income (loss) from continuing operations $ .58 $ (.06)
Loss from discontinued operations -- (.22)
-------- --------
$ .58 $ (.28)
======== ========
Shares used to compute earnings per common share 7,085 7,600
======== ========
</TABLE>
See accompanying notes.
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<PAGE>
GROUNDWATER TECHNOLOGY, INC.
PART I (cont.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Thirty-nine weeks ended
January 28, January 29,
1995 1994
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<S> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $ 4,084 $ (2,156)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 6,118 5,305
Loss from discontinued operations -- 1,663
Changes in operating assets and liabilities, net of effects
of discontinued operations:
Accounts receivable (14,016) (12,175)
Other current assets 139 (1,407)
Other assets -- (2,123)
Accounts payable 1,899 588
Accrued salaries and benefits 1,159 494
Other accrued liabilities (2,914) (436)
Income taxes payable 88 296
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Net Cash used in Operating Activities (3,443) (9,951)
Cash Flows From Investing Activities
Expenditures for property, plant and equipment (3,268) (3,480)
Purchase of marketable securities (450) (16,987)
Sale of marketable securities 6,687 15,162
Net assets of discontinued operations -- 2,474
Assets acquired, net of cash (1,007) --
Other (97) 313
-------- --------
Net Cash Provided by (used in) Investing Activities 1,865 (2,518)
Cash Flows From Financing Activities
Purchase of treasury stock (2,735) (6,124)
Proceeds from sale of stock under employee stock plans 544 601
-------- --------
Net Cash used in Financing Activities (2,191) (5,523)
Effect of Exchange Rate Changes on Cash and Cash Equivalents 144 (320)
-------- --------
Decrease in Cash and Cash Equivalents (3,625) (18,312)
Cash and Cash Equivalents at Beginning of Fiscal Year 4,909 21,234
-------- --------
Cash and Cash Equivalents at End of Period $ 1,284 $ 2,922
======== ========
</TABLE>
See accompanying notes.
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<PAGE>
GROUNDWATER TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Consolidated Financial Statements
---------------------------------
The consolidated balance sheets as of January 28, 1995 and the related
consolidated statements of operations for the thirteen and thirty-nine weeks
ended January 28, 1995 and January 29, 1994, and the related consolidated
statements of cash flows for the thirty-nine weeks ended January 28, 1995 and
January 29, 1994, have been prepared by the Company without audit. In the
opinion of management, all adjustments (which were of a normal and recurring
nature, except for the provision for restructuring and consolidation and the
effect of the discontinued operations as discussed in the management's
discussion and analysis) necessary to present fairly the financial position,
results of operations and changes in cash flows at January 28, 1995 and for all
periods presented have been made.
In May, 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". The statement is
effective for fiscal years beginning after December 15, 1993 and expands the
use of fair value accounting and reporting for certain investments in debt
and equity securities. The Company has adopted the Statement effective May 1,
1994. In accordance with the Statement, prior period financial statements
have not been restated to reflect the change in accounting principle. The
effect of adopting Statement 115 on the Company's financial statements was not
material.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested this information be read in
conjunction with the Annual Report on Form 10-K for fiscal year ended April 30,
1994 (SEC File No. 0-15067). The results of operations for the period ended
January 28, 1995 are not necessarily indicative of the operating results for the
year.
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<PAGE>
GROUNDWATER TECHNOLOGY, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
- ---------------------
The Company's principal markets for its services include hydrocarbon
contaminated sites, RCRA facilities and Superfund sites. The Company's services
are primarily related to the assessment and remediation of contaminated soil and
groundwater. The demand for the Company's services is a result of governmental
regulation and enforcement related to hazardous contaminants in the environment
and increased public awareness of environmental issues.
The Company, in the course of providing its services, routinely subcontracts
for certain specialized services. These costs are passed through to customers
and, in accordance with industry practice, are included in gross revenue.
Because subcontractor services can vary significantly from project to project,
changes in gross revenue may not be truly indicative of business activity or
trends. Accordingly, the Company views net revenue, which excludes the cost of
services performed by subcontractors, as a more meaningful measure of business
performance.
Net revenue includes fees billed for services provided directly by the
Company, fees charged by the Company for arranging and managing subcontractor
services, fees for laboratory services, and fees for the rental and service of
equipment. Cost of net revenue includes professional salaries incurred in
rendering services to customers, other direct labor, purchases of equipment and
materials and certain direct and indirect overhead costs. Selling, general and
administrative expenses include management salaries, clerical and administrative
overhead. Licenses and other income includes license and royalty income earned
on the Company's intellectual property and income from direct equity investments
in the environmental industry.
The Company's operating results may fluctuate from quarter to quarter.
Factors influencing such variations include: spending decisions by major
customers, delays in the release of committed projects, modifications of
delivery orders issued by contracting government entities, and holidays and
vacation time which limit the amount of time that both Company personnel and
subcontracted services have in the field.
The Company ended the third quarter with 63 consulting offices and four
laboratories in 31 states and five foreign countries. Additionally, the
Company's joint venture with a German company has offices in Germany, Austria
and Hungary. Total employees as of January 28, 1995 was 1,612 as compared to
1,572 as of April 30, 1994 and 1,505 as of January 29, 1994.
Gross revenue increased to $47.4 million for the third quarter of fiscal
1995, an increase of 8% as compared to gross revenue of $43.7 million for the
same period last year, and decreased 4% from $49.0 million in the second quarter
of fiscal 1995. Historically, the third quarter of the fiscal year generally
results in reduced hours billed due to weather conditions, vacations and
holidays. Gross revenue for the nine months ended January 28, 1995 was $142.3
million, an increase of 12% compared to $127.0 million for the nine months ended
January 29, 1994. Net revenue was $30.1 million for the three month period,
compared to $30.3 million for the corresponding period last year, and down 8%
from $32.6 million in the previous quarter. Laboratory revenues were down
significantly from the third quarter of fiscal 1994 primarily due to the non-
recurrence of a major, short term, contract with a large commercial customer.
Net revenue increased to $93.3 million for the nine months ended January 28,
1995, an increase of 4% from $89.5 million for the nine months ended January 29,
1994. Management believes the increase in gross revenues for the third quarter
as compared to the same quarter of the prior year reflects improved economic
conditions, as well as the Company's success in increasing work with industrial,
commercial and government customers.
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<PAGE>
Rebillable activity in the first nine months of fiscal 1995 has increased
primarily due to the elimination of the Company's internal drilling resources
and the sale of the Company's internal equipment manufacturing division during
fiscal 1994.
Gross profit for the three months ended January 28, 1995 was $11.3 million,
an increase of 6% compared to $10.7 million for the same quarter last year.
Gross profit for the first nine months of fiscal 1995 was $35.1 million, an
increase of 18% compared to $29.9 million for the same period last year. As a
percentage of net revenue, gross profit for the three and nine months ended
January 28, 1995 was 38% compared to 35% and 33%, respectively, for the same
periods in fiscal 1994. The increase in gross profit for the periods primarily
reflects improved utilization of the Company's work force, as well as a decrease
in health and commercial insurance expenses.
Selling, general and administrative expenses were $9.8 million, or 32% of net
revenue, in the three months ended January 28, 1995 compared to $9.3 million, or
31% of net revenue, in the same period of the prior year. Selling, general and
administrative expenses were $29.7 million, or 32% of net revenue, in the nine
months ended January 28, 1995 compared to $28.2 million, or 32% of net revenue,
for the same period of the prior year. During the second quarter of fiscal
1995, the Company completed the consolidation of five operating locations.
Management believes this action will contribute to the reduction of operating
costs as a percentage of net revenue in the future. The Company introduced a
profit sharing program in May 1994 that distributes 10% of pre-tax operating
income to its employees at the end of the second and fourth quarters of each
fiscal year, which management believes will motivate employees to further reduce
overall operating costs as a percentage of net revenue. In the third quarter,
the profit sharing cost was approximately $183,000 and for the nine months
ending January 28, 1995, a total of $619,000. Contributing to the increase in
selling, general and administrative costs for the third quarter were increases
in depreciation expense for computer equipment.
A provision for restructuring and consolidation of $5.0 million was recorded
by the Company in July 1993. The amount remaining on the provision for
restructuring and consolidation at January 28, 1995 was approximately $316,000,
which represents management's estimate of remaining costs related to unoccupied
facilities.
On May 26, 1994, the Company acquired all of the outstanding stock of Hall
Southwest Corporation, an environmental consulting firm based in Austin, Texas.
The accompanying financial statements include the accounts of Hall Southwest
since the date of acquisition, the overall impact of which is not material to
the Company. The stock purchase agreement provided for the payment of cash and
stock on the closing date, and provides for contingent cash and stock payments
over three years from the closing date.
On February 15, 1995, the Company entered into an agreement to acquire the
assets of the Hazardous Waste Division of Chester Environmental, Inc., based in
Pittsburgh, Pennsylvania. The acquisition, which is not material to the
Company's financial position, was completed and effective as of February 28,
1995 and will be accounted for using the purchase method of accounting. The
asset purchase agreement provides for the payment of cash on the closing date,
and provides for contingent cash payments over two years from the closing date.
License and other income was $172,000 in the third quarter ended January 28,
1995 compared to $452,000 for the same period of the prior year. License and
other income decreased to $443,000 in the first nine months of fiscal 1995
compared to $1.2 million for the same period of the prior year. These decreases
primarily reflect the completion of the transfer of technology and related
training associated with the Company's licensing agreement with Kurita Water
Industries Ltd. during fiscal 1994.
Investment and other income, net, was $268,000 in the third quarter of fiscal
1995 compared to $408,000 in the third quarter of fiscal 1994. Other income,
net, decreased to $893,000 in the nine months ended January 28, 1995 from $1.3
million for the same period in the prior year. These decreases in investment
income are primarily due to a decrease in cash and cash equivalents.
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<PAGE>
The Company's effective tax rate was 40% for the three months and nine months
ended January 28, 1995 as compared to a 38% tax rate for the three and nine
months ended January 29, 1994. This increase in the tax rate was principally
due to a decrease in tax exempt interest income and increases in non-deductible
expenses.
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents decreased $3.6 million in the nine months ending
January 28, 1995 from $4.9 million at April 30, 1994. Marketable securities
decreased $6.5 million during the same period. At January 28, 1995, the
Company's primary source of liquidity was $20.4 million in cash, cash
equivalents and marketable securities. The Company has no long-term borrowings.
The Company used $3.4 million in net cash to fund operating activities during
the first nine months of fiscal 1995. The use of cash to fund operating
activities was principally due to the continued increase in accounts receivable
balances and the reduction in other accrued liabilities, including the payment
of claims for prior years' insurance reserves and expenses for unoccupied space
related to the fiscal 1994 restructuring charge. The increase in accounts
receivable balances was attributed to the increase in revenue and the
centralization of invoicing. While the centralization of invoicing, as well as
credit and collection activities, is intended to result in a more efficient and
effective process, management expects the Company's cash position will be
negatively impacted before beginning to improve in the next fiscal year. The
Company used approximately $10 million to fund operating activities for the same
period in fiscal 1994. The use of cash to fund operating activities for the
period ended January 29, 1994 was primarily due to the $5.0 million
restructuring charge and a $1.7 million loss from discontinued operations. At
January 28, 1995, the Company's working capital increased to $76.3 million from
$72.8 million at April 30, 1994. Total assets increased to $115.1 million at
January 28, 1995 from $112.9 million at April 30, 1994. Changes in working
capital and total assets are principally attributed to the Company's purchase of
Hall Southwest Corporation and the centralization of the Company's invoicing
system.
Cash flows from investing activities were impacted by expenditures in
property, plant and equipment that were made to upgrade the Company's computer,
laboratory and rental equipment. The Company had no material commitments for
capital expenditures as of January 28, 1995. The maturing and/or sale of
available-for-sale marketable securities provided cash flows from investing
activities in which the funds were primarily utilized for operations and the
funding of acquisitions.
Cash flows from financing activities were provided from the sale of stock
under the Company's employee stock purchase plan and the exercise of previously
awarded stock options. In August 1993, the Board of Directors authorized the
Company to repurchase an aggregate of 2,173,500 shares of its common stock
(including previous authorization of shares not yet repurchased) from time to
time through open market purchases or privately negotiated transactions. While
the Company used cash to finance the purchase of 210,000 shares during the nine
months ended January 28, 1995, there were no purchases during the third quarter.
Funding requirements for operations and repurchases of the Company's common
stock are expected to be met from existing cash, cash equivalents, marketable
securities and cash generated from operations. The Company believes that cash
provided from these sources will be sufficient to meet its operating
requirements for the near term.
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GROUNDWATER TECHNOLOGY, INC.
PART II
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a.) The exhibit listed on the accompanying index to exhibits is filed
herewith.
b.) No reports on Form 8-K were filed during the quarter ended
January 28, 1995.
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<PAGE>
GROUNDWATER TECHNOLOGY, INC.
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.
GROUNDWATER TECHNOLOGY, INC.
----------------------------
Date: March 13, 1995 /s/ Walter C. Barber
-------------- ------------------------------------------
Walter C. Barber
President and Chief Executive Officer
Date: March 13, 1995 /s/ Robert E. Sliney, Jr.
-------------- ------------------------------------------
Robert E. Sliney, Jr.
Vice President, Treasurer and
Chief Financial Officer
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<PAGE>
EXHIBIT INDEX
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EX27 - Financial Data Schedule
Period Ended January 28, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q
FOR PERIOD ENDED JANUARY 28,1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-29-1995
<PERIOD-START> MAY-01-1994
<PERIOD-END> JAN-28-1995
<CASH> 1,284
<SECURITIES> 19,077
<RECEIVABLES> 67,915
<ALLOWANCES> 3,135
<INVENTORY> 0
<CURRENT-ASSETS> 95,784
<PP&E> 48,088
<DEPRECIATION> 33,444
<TOTAL-ASSETS> 115,134
<CURRENT-LIABILITIES> 19,508
<BONDS> 0
<COMMON> 81
0
0
<OTHER-SE> 95,545
<TOTAL-LIABILITY-AND-EQUITY> 115,134
<SALES> 142,286
<TOTAL-REVENUES> 142,286
<CGS> 58,154
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 29,652
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,807
<INCOME-TAX> 2,723
<INCOME-CONTINUING> 4,084
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,084
<EPS-PRIMARY> .58
<EPS-DILUTED> 0
</TABLE>
