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 FEBRUARY 28, 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 April 4, 1995 the registrant had issued and outstanding an aggregate of
4,702,936 shares of its common stock.
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INDEX
HARDING ASSOCIATES, INC.
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
February 28, 1995 (Unaudited) and
May 31, 1994...................................................................3
Condensed Consolidated Statements of Income -
Three Months and Nine Months Ended
February 28, 1995 and February 28, 1994 (Unaudited) ...........................4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended February 28, 1995 and
February 28, 1994 (Unaudited)..................................................5
Notes to Condensed Consolidated Financial Statements
February 28, 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..............................................10
SIGNATURES ..............................................................................11
INDEX TO EXHIBITS ..............................................................................12
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2
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HARDING ASSOCIATES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
- - ------------------------------------------------------------------------------------------------------------------------------------
February 28, 1995 May 31, 1994
- - ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
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ASSETS
Current assets:
Cash and cash equivalents .......................................................................... $ 9,268 $ 8,896
Accounts receivable ................................................................................ 30,061 26,842
Unbilled work in progress .......................................................................... 6,764 11,665
Less allowances for receivables and
unbilled work .................................................................................. (1,740) (2,054)
Prepaid expenses ................................................................................... 1,253 1,410
Deferred income taxes .............................................................................. 1,768 2,478
- - ------------------------------------------------------------------------------------------------------------------------------------
Total current assets ........................................................................... 47,374 49,237
- - ------------------------------------------------------------------------------------------------------------------------------------
Property and equipment, net ............................................................................ 4,461 5,336
Deposits and other assets .............................................................................. 7,313 6,913
- - ------------------------------------------------------------------------------------------------------------------------------------
Total assets ................................................................................... $ 59,148 $ 61,486
====================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable ...................................................................................... $ 14 $ 2,030
Accounts payable ................................................................................... 3,723 5,831
Accrued expenses ................................................................................... 5,729 6,412
Accrued compensation ............................................................................... 5,873 5,542
Income taxes payable ............................................................................... 195 28
- - ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities ...................................................................... 15,534 19,843
- - ------------------------------------------------------------------------------------------------------------------------------------
Other liabilities ...................................................................................... 1,730 2,668
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Total liabilities .............................................................................. 17,264 22,511
- - ------------------------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies .......................................................................... -- --
Minority interest in subsidiary ........................................................................ 216 --
- - ------------------------------------------------------------------------------------------------------------------------------------
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--4,702,936
and 4,602,791 at February 28, 1995
and May 31, 1994, respectively ................................................................. 47 46
Paid-in capital .................................................................................... 17,205 16,687
Retained earnings .................................................................................. 24,416 22,242
- - ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity ..................................................................... 41,668 38,975
- - ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity ........................................................................ $ 59,148 $ 61,486
====================================================================================================================================
<FN>
The accompanying notes are an integral part of these financial statements.
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HARDING ASSOCIATES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
- - ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
February 28, February 28,
1995 1994 1995 1994
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Gross revenue .......................................... $ 31,248 $ 28,127 $ 99,073 $ 84,878
Less cost of outside services .......................... 9,079 8,920 29,794 25,462
- - ------------------------------------------------------------------------------------------------------------------------------------
Net revenue ............................................ 22,169 19,207 69,279 59,416
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Costs and expenses:
Payroll and benefits ............................. 15,463 13,056 47,255 39,495
General expenses ................................. 6,170 5,724 18,586 17,548
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Total costs and expenses ......................... 21,633 18,780 65,841 57,043
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Operating income ....................................... 536 427 3,438 2,373
Interest income, net ................................... 92 78 162 244
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Income before income taxes
and minority interest ............................ 628 505 3,600 2,617
Provision for income taxes ............................. 248 201 1,422 1,035
Minority interest ...................................... 4 -- 4 --
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Net income ............................................. $ 376 $ 304 $ 2,174 $ 1,582
====================================================================================================================================
Earnings per share ..................................... $ .08 $ .06 $ .45 $ .33
====================================================================================================================================
Weighted average shares outstanding .................... 4,804 4,908 4,807 4,850
====================================================================================================================================
<FN>
The accompanying notes are an integral part of these financial statements.
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HARDING ASSOCIATES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
- - ------------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended February 28,
1995 1994
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OPERATING ACTIVITIES
Net income .................................................................... $ 2,174 $ 1,582
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ............................................. 2,493 2,641
Net decrease in current assets ............................................ 3,162 1,085
Net decrease in current liabilities ....................................... (2,567) (2,296)
Other decrease ............................................................ (547) (782)
- - ------------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES ...................................................... 4,715 2,230
- - ------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net purchase of equipment ..................................................... (752) (1,382)
Investment in acquisition (net of acquired cash) .............................. (1,683) (552)
- - ------------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES ..................................... (2,435) (1,934)
- - ------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Repayment of debt ............................................................. (2,024) --
Proceeds from sale of common stock ............................................ 116 156
Repurchase of common stock .................................................... -- (1,684)
- - ------------------------------------------------------------------------------------------------------------------------------------
CASH USED IN
FINANCING ACTIVITIES ...................................................... (1,908) (1,528)
- - ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ............................................................... 372 (1,232)
Cash and cash equivalents at
beginning of period ........................................................... 8,896 12,175
- - ------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ......................................... $ 9,268 $ 10,943
===================================================================================================================================
<FN>
The accompanying notes are an integral part of these financial statements.
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HARDING ASSOCIATES, INC.
HARDING ASSOCIATES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
February 28, 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
dated May 31, 1994. Reclassification of certain balances for the fiscal year
ended May 31, 1994 have been made to conform to the February 28, 1995
presentation.
6
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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)
Third Quarter Comparison for Fiscal Years 1995 and 1994
The following table sets forth, for the periods indicated, (i) the percentage
which 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
Three Months Ended Nine Months Ended Increase/(Decrease)
February 28, February 28, February 28,
Three Months Nine Months
1995 1994 1995 1994 1995 vs 1994 1995 vs 1994
---- ---- ---- ---- ------------ ------------
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Net revenue 100.0% ..................... 100.0% 100.0% 100.0% 15.4% 16.6% 16.6%
Costs and expenses
Payroll and benefits ............... 69.8 68.0 68.2 66.5 18.4 19.6
General expenses ................... 27.8 29.8 26.8 29.5 7.8 5.9
Operating income/margin ................. 2.4 2.2 5.0 4.0 25.5 44.9
Interest income, net .................... .4 .4 .2 .4 17.9 (33.6)
Income before income taxes
and minority interest .............. 2.8 2.6 5.2 4.4 24.4 37.6
Provision for income taxes .............. 1.1 1.0 2.1 1.7 23.4 37.4
Net income .............................. 1.7 1.6 3.1 2.7 23.7 37.4
</TABLE>
Third Quarter Comparison for Fiscal Years 1995 and 1994
Net revenue for the fiscal quarter ended February 28, 1995 totaled $22,169, an
increase of 15.4 percent over net revenue of $19,207 for the third quarter of
the prior fiscal year. The increase in net revenue was due primarily to the
acquisition of Alpha Engineering Group, Inc. in May 1994 and, to a lesser
extent, the acquisition of Envirosciences Pty. Ltd. in the prior fiscal quarter.
Excluding the impact of acquisitions, net revenue was essentially unchanged from
the third quarter of the prior fiscal year, as slightly lower demand was offset
by a minor increase in prices for the Company's services. Firmwide, sales to
private sector clients increased by 8 percent compared to the same quarter of
the prior year with public sector sales increasing approximately 12 percent. Net
revenue from public sector sales accounted for 50 percent of total net revenue
compared to 52 percent in the third quarter of the prior year. Net revenue from
California operations in the third quarter improved approximately 2% over the
prior year, accounting for 36 percent of total net revenue compared to 42
percent in the third quarter of 1994.
Operating income amounted to $536, an increase of 25.5 percent from $427 for the
third quarter in 1994. Operating margin increased slightly to 2.4 percent of net
revenue in the current quarter compared to 2.2 percent in the third quarter of
the prior fiscal year. The improvement in operating income and operating margin
7
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HARDING ASSOCIATES, INC.
was the result of cost reductions implemented during the Company's prior fiscal
year and increased efficiencies in the area of staff utilization.
Interest income for the third quarter of $97, before interest expense of $5, was
higher compared to interest income of $78 for the third quarter of the prior
fiscal year. Net interest income was higher due primarily to improved interest
rates.
The effective tax rate was 39.5 percent for the third quarter of both fiscal
1995 and 1994.
Net income for the quarter was $376 compared with $304 in the third quarter of
1994, an increase of 23.7 percent. Earnings per share were $0.08 on 4,803,732
weighted average shares outstanding compared to $0.06 per share on 4,907,807
weighted average shares outstanding in the third quarter last year. The decrease
in the weighted average shares outstanding was primarily related to a reduction
in the number of stock options outstanding in the third quarter of fiscal 1995
versus the third quarter of the prior fiscal year.
Nine Month Comparison for Fiscal Years 1995 and 1994
Net revenue for the nine months (40 weeks) ended February 28, 1995 amounted to
$69,279 an increase of 16.6 percent over net revenue of $59,416 for the nine
months (39 weeks) ended February 28, 1995. Essentially all the increase in net
revenue was due to acquisitions completed since the third quarter of fiscal 1994
and, to a lesser extent, an additional week of operating activity in the second
quarter of fiscal 1995. On a comparable basis with the prior year, the Company
experienced a slight improvement in both demand and prices for its services.
Operating income amounted to $3,438, an increase of almost 45 percent from
operating income of $2,373 for the first nine months of last year. The operating
margin of 5.0 percent was improved from 4.0 percent a year ago. The increase in
operating income reflects reductions in the Company's cost structure effected in
the prior fiscal year, and an overall improvement in staff utilization.
Interest income for the nine months was $205 before interest expense of $43,
down from interest income of $244 in the same period last year. The decrease in
net interest income was due primarily to the Company's decreased cash position
which resulted in lower balances of invested cash, partially offset by improved
interest rates and the impact of borrowings under the Company's line of credit
earlier in the fiscal year.
The effective tax rate for the nine months ended February 28, 1995 and for the
nine months ended February 28, 1994 was 39.5 percent.
Net income for the nine months was $2,174, up from net income of $1,582 for the
nine month period in the prior year, an increase of 37.4 percent. Earnings per
share were $0.45 on 4,806,964 weighted average shares outstanding compared to
$0.33 per share on 4,849,586 weighted average shares outstanding in the nine
month period last year. The decrease in the weighted average shares outstanding
was primarily related to the reduction in the number of stock options
outstanding in the first nine months of fiscal 1995 versus the first nine months
of the prior year.
Due to seasonal factors, operating results for the nine month period ending
February 28, 1995 are not necessarily indicative of the results that may be
expected for the entire fiscal year ending May 31, 1995.
8
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HARDING ASSOCIATES, INC.
Liquidity and Capital Resources
For the nine months ended February 28, 1995, net cash provided by operations was
$4,715 compared to net cash provided by operations of $2,230 for the same period
last year. The increase in cash provided by operations was primarily due to
improvement in the Company's net accounts receivable in the current fiscal year
compared to the prior fiscal year, and lower tax payments this fiscal year which
resulted from the realization of certain deferred tax assets.
The Company made capital expenditures of $752, excluding $1,683 for
acquisitions, in the first nine months of fiscal 1995 compared to capital
expenditures of $1,382, excluding $552 for acquisitions, in the first nine
months of the prior year. The Company anticipates that its capital expenditures
excluding acquisitions for the current fiscal year will be at lower levels than
those incurred in the prior fiscal year.
During the first nine months of fiscal 1994, the Company spent $1,684 under its
previously announced plan to repurchase, under certain conditions, up to 500,000
of its common shares. There were no repurchases made during the first nine
months of fiscal 1995.
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 may
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 February 28, 1995, the Company had cash on hand and cash equivalents of
$9,268. The Company has a $20 million revolving credit line agreement which
expires in October 1995. The Company is in compliance with all covenants
pertaining to its credit agreement. At February 28, 1995, the Company had no
borrowings outstanding under its line of credit, leaving $20 million available
to the Company. There were no borrowings under the line of credit during the
first nine months of fiscal 1994. Borrowings were available to the Company at
7.5 percent at February 28, 1995, and at 6.0 percent at May 31, 1994.
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 and
well into the next 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.
9
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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 February 28, 1995:
Exhibit No. 11 Computation of Per Share Earnings (Page 13)
Exhibit No. 27 Financial Data Schedule (Electronic Filing Only)
b. Reports on Form 8-K
None
10
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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: April 7, 1995 /s/ Donald L. Schreuder
------------------------------------------
Donald L. Schreuder
President and Chief Executive Officer
(Principal Executive Officer)
Date: April 7, 1995 /s/ Gregory A. Thornton
------------------------------------------
Gregory A. Thornton
Vice President and Chief Financial Officer
(Principal Accounting Officer)
11
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HARDING ASSOCIATES, INC.
EXHIBIT INDEX
Sequential
Page No.
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11 Computation of Per Share Earnings. 13
27 Financial Data Schedule (Electronic Filing Only)
12
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HARDING ASSOCIATES, INC.
Exhibit No. 11
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
(Unaudited)
- - ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
February 28, February 28,
1995 1994 1995 1994
- - ------------------------------------------------------------------------------------------------------------------------------------
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PRIMARY
Average shares outstanding ................................. 4,703 4,659 4,677 4,628
Net effect of dilutive stock options
based on the modified treasury stock
method using the average market price ................. 101 249 130 222
- - ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ................................................. 4,804 4,908 4,807 4,850
====================================================================================================================================
Net income ................................................. $ 376 $ 304 $2,174 $1,582
====================================================================================================================================
Net income per share ....................................... $ .08 $ .06 $ .45 $ .33
====================================================================================================================================
FULLY DILUTED
Average shares outstanding ................................. 4,703 4,659 4,677 4,628
Net effect of dilutive stock options
based on the modified treasury stock
method using ending market prices if
higher than the average market price .................. 101 249 130 222
- - ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ................................................. 4,804 4,908 4,807 4,850
====================================================================================================================================
Net income ................................................. $ 376 $ 304 $2,174 $1,582
====================================================================================================================================
Net income per share ....................................... $ .08 $ .06 $ .45 $ .33
====================================================================================================================================
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUN-01-1994
<PERIOD-END> FEB-28-1995
<CASH> 9268
<SECURITIES> 0
<RECEIVABLES> 36825
<ALLOWANCES> 1740
<INVENTORY> 0
<CURRENT-ASSETS> 47374
<PP&E> 20805
<DEPRECIATION> 16344
<TOTAL-ASSETS> 59148
<CURRENT-LIABILITIES> 15534
<BONDS> 0
<COMMON> 47
0
0
<OTHER-SE> 41621
<TOTAL-LIABILITY-AND-EQUITY> 59148
<SALES> 0
<TOTAL-REVENUES> 99073
<CGS> 0
<TOTAL-COSTS> 29794
<OTHER-EXPENSES> 65841
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43
<INCOME-PRETAX> 3600
<INCOME-TAX> 1422
<INCOME-CONTINUING> 2174
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2174
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
</TABLE>
