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 August 31, 1995 or
Transition Report Pursuant to Section 13 or 15(d) of
----- of the Securities Exchange Act of 1934
For the transition period from to
---------- ----------
Commission file number 0-16169
HARDING ASSOCIATES, INC.
(Exact name of registrant as specified in its charter)
Delaware 68-0132062
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7655 Redwood Boulevard
Novato, California 94945
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 892-0821
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No
--- ---
At October 6, 1995 the registrant had issued and outstanding an aggregate of
4,844,656 shares of its common stock.
1
<PAGE>
INDEX
HARDING ASSOCIATES, INC.
Page
PART I. FINANCIAL INFORMATION ----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
August 31, 1995 (Unaudited) and May 31, 1995....................3
Condensed Consolidated Statements of Income -
Three Months Ended August 31, 1995
and August 31, 1994 (Unaudited) ................................4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended August 31, 1995 and
August 31, 1994 (Unaudited).....................................5
Notes to Condensed Consolidated Financial Statements
August 31, 1995 (Unaudited).....................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................9
SIGNATURES ...........................................................10
INDEX TO EXHIBITS ...........................................................11
2
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HARDING ASSOCIATES, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
- -------------------------------------------------------------------------------
August 31, 1995 May 31, 1995
- -------------------------------------------------------------------------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $12,253 $12,648
Accounts receivable 27,929 28,343
Unbilled work in progress 7,521 6,935
Less allowances for receivables and
unbilled work (1,522) (1,553)
Prepaid expenses 1,560 925
Deferred income taxes 2,214 2,235
- -------------------------------------------------------------------------------
Total current assets 49,955 49,533
- -------------------------------------------------------------------------------
Equipment 21,512 21,208
Less accumulated depreciation (17,118) (16,766)
- -------------------------------------------------------------------------------
Net equipment 4,394 4,442
- -------------------------------------------------------------------------------
Deposits and other assets 6,831 6,813
- -------------------------------------------------------------------------------
Total assets $61,180 $60,788
- -------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,054 $ 3,383
Accrued expenses 4,833 5,642
Accrued compensation 4,488 6,518
Income taxes payable 1,191 621
- -------------------------------------------------------------------------------
Total current liabilities 14,566 16,164
- -------------------------------------------------------------------------------
Other liabilities 2,059 1,715
- -------------------------------------------------------------------------------
Total liabilities 16,625 17,879
- -------------------------------------------------------------------------------
Commitments and Contingencies -- --
Minority interest in subsidiary 219 224
- -------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock--$.01 par value;
authorized shares 1,000,000;
issued and outstanding--none -- --
Common stock--$.01 par value;
authorized shares 10,000,000;
issued and outstanding--4,844,656
and 4,719,320 at August 31, 1995
and May 31, 1995, respectively 48 47
Additional paid-in capital 18,139 17,424
Retained earnings 26,149 25,214
- -------------------------------------------------------------------------------
Total shareholders' equity 44,336 42,685
- -------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $61,180 $60,788
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
HARDING ASSOCIATES, INC.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
- -------------------------------------------------------------------------------
Three Months Ended August 31,
1995 1994
- -------------------------------------------------------------------------------
Gross revenue $31,748 $33,380
Less: Cost of outside services 9,040 10,369
- -------------------------------------------------------------------------------
Net revenue 22,708 23,011
- -------------------------------------------------------------------------------
Costs and expenses:
Payroll and benefits 15,310 15,392
General expenses 6,042 6,167
- -------------------------------------------------------------------------------
Total costs and expenses 21,352 21,559
- -------------------------------------------------------------------------------
Operating income 1,356 1,452
Interest income, net 176 19
- -------------------------------------------------------------------------------
Income before provision for income taxes
and minority interest 1,532 1,471
Provision for income taxes 602 581
Minority interest (5) ---
- -------------------------------------------------------------------------------
Net income $ 935 $ 890
- -------------------------------------------------------------------------------
Net income per common share $ .19 $ .18
- -------------------------------------------------------------------------------
Weighted average common shares outstanding 4,804 4,824
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
4
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<TABLE>
<CAPTION>
HARDING ASSOCIATES, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
- --------------------------------------------------------------------------------------------------
Three Months Ended August 31,
1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 935 $ 890
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 606 849
Net increase in current assets (837) (3,471)
Net decrease in current liabilities (788) (369)
Other increase (decrease) 146 (93)
- --------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 62 (2,194)
- --------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net purchase of equipment (457) (209)
- --------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (457) (209)
- --------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Repayment of debt -- (1,007)
- --------------------------------------------------------------------------------------------------
NET CASH USED IN
FINANCING ACTIVITIES -- (1,007)
- --------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (395) (3,410)
Cash and cash equivalents at
beginning of period 12,648 8,896
- --------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $12,253 $5,486
- --------------------------------------------------------------------------------------------------
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
5
<PAGE>
HARDING ASSOCIATES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
August 31, 1995
NOTE 1: BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared
without audit by Harding Associates, Inc. (the "Company") in accordance with
generally accepted accounting principles for interim financial statements and
pursuant to the rules of the Securities and Exchange Commission for Form 10-Q.
Certain information and footnotes required by generally accepted accounting
principles for complete financial statements have been omitted. It is the
opinion of management that all adjustments considered necessary for a fair
presentation have been included, and that all such adjustments are of a normal
and recurring nature. For further information, refer to the audited financial
statements and footnotes included in the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1995. Reclassification of certain balances for
the fiscal year ended May 31, 1995 have been made to conform to the August 31,
1995 presentation.
NOTE 2: COMMITMENTS AND CONTINGENCIES
On May 19, 1995, the Company filed a lawsuit in Texas State Court, Harris
County, Texas, entitled Harding Lawson Associates, Inc., a wholly owned
subsidiary of Harding Associates, Inc., vs. Bailey Site Settlors Committee, an
unincorporated association, seeking collection of approximately $1.0 million in
fees billed for engineering services performed. On June 21, 1995, a lawsuit was
filed against the Company in Federal District Court, Jefferson County, Texas,
and in Texas State Court, Orange County, Texas, entitled Bailey Site Settlors
Committee vs. Harding Lawson Associates. The suit seeks monetary damages in the
amount of $7.9 million for alleged breach of contract and negligence in the
performance of certain engineering services. The Company believes it has
meritorious defenses to this suit. The Company is currently subject to certain
other claims and lawsuits arising in the ordinary course of its business. In the
opinion of management, adequate provision has been made for all known
liabilities that are currently expected to result from these claims and
lawsuits, and in the aggregate such claims are not expected to have a material
effect on the financial position of the Company.
6
<PAGE>
HARDING ASSOCIATES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
- ---------------------
(In thousands, except share data)
The following table sets forth, for the periods indicated, (i) the percentage
that certain items in the condensed consolidated income statements of the
Company bear to net revenues, and (ii) the percentage increase (decrease) in
dollar amount of such items from year to year.
Percentage of
Net Revenue
For Three Months Percentage
Ended August 31, Increase/(Decrease)
----------------- -------------------
1995 1994
---- ----
Net revenue 100.0% 100.0% (1.3)%
Costs and expenses
Payroll and benefits 67.4 66.9 (0.5)
General expenses 26.6 26.8 (2.0)
Operating income/margin 6.0 6.3 (6.6)
Interest income, net 0.7 0.1 826.3
Income before income taxes
and minority interest 6.7 6.4 4.1
Provision for income taxes 2.6 2.5 3.6
Net income 4.1 3.9 5.1
First Quarter Comparison for Fiscal Years 1996 and 1995
- -------------------------------------------------------
Net revenue for the fiscal quarter ended August 31, 1995 totaled $22,708, a
decrease of one percent from net revenue of $23,011 for the first quarter of the
prior fiscal year. Net revenue for the quarter was adversely affected by lower
public sector work that was attributed primarily to reduced infrastructure
spending in the California and Washington markets, and a slowdown in federal
funding for environmental contracts. The decline in revenue was partially offset
by an acquisition completed in November of the prior fiscal year. The decrease
in net revenue, excluding the impact of acquisitions, was primarily due to lower
demand for the Company's services, partially offset by slightly improved pricing
compared to the first quarter of fiscal 1995. Sales of services to public sector
clients decreased by approximately 24 percent from the same period in the prior
year, partially offset by an increase of approximately 13 percent in net revenue
from industrial sector clients. Overall, net revenue from public sector clients
accounted for 47 percent of total net revenue compared to 59 percent in the
prior year. International operations accounted for five percent of net revenue
in the first fiscal quarter of 1996. There were no international sales in the
first quarter of the prior year.
Operating income amounted to $1,356, a decrease of 6.6 percent from $1,452 for
the same period in fiscal 1995. Operating margin decreased to 6.0 percent of net
revenue in the current quarter compared to 6.3 percent in the first quarter of
1995. While the Company continued to lower its operating costs, such reductions
were not sufficient to offset the effect of lower revenue discussed above.
Interest income for the first quarter of fiscal 1996 of $177 before interest
expense of $1 was higher compared to interest income of $45 before interest
expense of $26 for the first quarter of the last fiscal year. Net interest
income was higher due to the Company's increased cash position which resulted in
higher balances of invested cash, and to a lessor extent, improved interest
rates.
7
<PAGE>
HARDING ASSOCIATES, INC.
The effective tax rate was 39.3 percent for the first quarter of fiscal 1996 and
was 39.5 percent in the first quarter of the prior year.
Net income for the quarter was $935 compared with $890 in the first quarter of
1995, an increase of 5 percent. Earnings per share were $0.19 on 4,804,000
weighted average shares outstanding compared to $0.18 per share on 4,824,000
weighted average shares outstanding in the same period last year.
Liquidity and Capital Resources
- -------------------------------
For the three months ended August 31, 1995, net cash provided by operations was
$62 compared to net cash used in operations of $2,194 for the same period last
year. The increase in cash provided by operations was primarily due to
improvement in the Company's receivables in the current fiscal year compared to
the prior fiscal year. Receivable balances in the prior fiscal year were
adversely affected by delays in invoicing certain public sector projects due to
contractual restraints.
The Company made capital expenditures of $457 in the first three months of
fiscal 1996 compared to capital expenditures of $209 in the first three months
of the prior year. The Company anticipates that its capital expenditures,
excluding acquisitions, for the current fiscal year will be at slightly higher
levels than those incurred in the prior fiscal year.
The Company is a consulting engineering services firm engaged in providing
environmental, infrastructure and geotechnical related services, and encounters
potential liability including claims for errors and omissions resulting from
construction defects, construction cost overruns or environmental or other
damage in the normal course of business. The Company is a party to lawsuits and
is aware of potential exposure related to certain claims. In the opinion of
management, adequate provision has been made for all known liabilities that are
currently expected to result from these matters and, in the aggregate, such
claims are not expected to have a material adverse impact on the financial
position and liquidity of the Company. Prior to May 1994, the Company was
provided a professional liability insurance policy through a wholly owned
subsidiary of the Company, and as such, was self insured for the liabilities
covered by that policy. Currently, the Company is provided a $5 million
professional liability insurance policy through an unrelated, rated carrier.
At August 31, 1995, the Company had cash on hand and cash equivalents of
$12,253. The Company has a $20 million revolving credit line agreement which
expires in October 1995. At August 31, 1995, the Company had no borrowings
outstanding under its line of credit leaving $20 million available to the
Company. At August 31, 1994, the Company had $1 million in borrowings under the
credit line. Borrowings were available to the Company at 5.9 percent at August
31, 1995, and at 6.1 percent at May 31, 1995. The Company is in compliance with
all covenants pertaining to the credit line agreement, and the Company expects
to renew its credit line facility under substantially the same terms and
conditions as its existing facility.
The Company believes that its available cash and cash equivalents, as well as
cash generated from operations and its available credit line, will be sufficient
to meet the Company's cash requirements for the balance of the fiscal year. The
Company intends to actively continue its search for acquisitions to expand its
geographical representation and enhance its technical capabilities. The Company
expects to utilize a portion of its liquidity over the next 12 to 18 months for
capital expenditures, including acquisitions.
8
<PAGE>
HARDING ASSOCIATES, INC.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
--------
The following exhibits are furnished along with this Form 10-Q
Quarterly Report for the period ended August 31, 1995:
Exhibit No. 11 Computation of Per Share Earnings (Page 12)
Exhibit No. 27 Financial Data Schedule (Electronic Filing Only)
b. Reports on Form 8-K
-------------------
None
9
<PAGE>
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.
HARDING ASSOCIATES, INC.
Date: October 11, 1995 /s/ Donald L. Schreuder
------------------------------------------
Donald L. Schreuder
President and Chief Executive Officer
(Principal Executive Officer)
Date: October 11, 1995 /s/ Gregory A. Thornton
------------------------------------------
Gregory A. Thornton
Vice President and Chief Financial Officer
(Principal Accounting Officer)
10
<PAGE>
EXHIBIT INDEX
Sequential
Page No.
----------
11 Computation of Per Share Earnings. 12
27 Financial Data Schedule (Electronic Filing Only)
11
Exhibit No. 11
Computation of Per Share Earnings
(In thousands, except per share data)
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended August 31,
1995 1994
- --------------------------------------------------------------------------------
PRIMARY
Average shares outstanding 4,761 4,646
Net effect of dilutive stock options
based on the modified treasury stock
method using the average market price 43 178
- --------------------------------------------------------------------------------
TOTAL 4,804 4,824
- --------------------------------------------------------------------------------
Net income $ 935 $ 890
- --------------------------------------------------------------------------------
Net income per share $ .19 $ .18
- --------------------------------------------------------------------------------
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> AUG-31-1995
<CASH> 12,253
<SECURITIES> 0
<RECEIVABLES> 35,450
<ALLOWANCES> 1,522
<INVENTORY> 0
<CURRENT-ASSETS> 49,955
<PP&E> 21,512
<DEPRECIATION> 17,118
<TOTAL-ASSETS> 61,180
<CURRENT-LIABILITIES> 14,566
<BONDS> 0
<COMMON> 48
0
0
<OTHER-SE> 44,288
<TOTAL-LIABILITY-AND-EQUITY> 61,180
<SALES> 0
<TOTAL-REVENUES> 31,748
<CGS> 0
<TOTAL-COSTS> 9,040
<OTHER-EXPENSES> 21,352
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,532
<INCOME-TAX> 602
<INCOME-CONTINUING> 935
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 935
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
