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 29, 1996 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 0-16169
HARDING LAWSON ASSOCIATES GROUP, 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, 1996 the registrant had issued and outstanding an aggregate of
4,845,207 shares of its common stock.
<PAGE>
INDEX
HARDING LAWSON ASSOCIATES GROUP, INC.
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
February 29, 1996 (Unaudited) and
May 31, 1995...............................................3
Condensed Consolidated Statements of Income -
Three and Nine Months Ended February 29, 1996 and
February 28, 1995 (Unaudited)..............................4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended February 29, 1996 and
February 28, 1995 (Unaudited).............................5
Notes to Condensed Consolidated Financial Statements
February 29, 1996 (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
EXHIBIT INDEX ..........................................................12
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<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HARDING LAWSON ASSOCIATES GROUP, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
- --------------------------------------------------------------------------------
Feb. 29, 1996 May 31, 1995
- --------------------------------------------------------------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $17,396 $12,648
Accounts receivable 24,934 28,343
Unbilled work in progress 4,593 6,935
Less allowances for receivables
and unbilled work (1,503) (1,553)
Deferred income taxes 823 2,235
- --------------------------------------------------------------------------------
Total current assets 48,072 49,533
Net equipment 4,259 4,442
Deposits and other assets 6,687 6,813
- --------------------------------------------------------------------------------
Total assets $59,018 $60,788
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,013 $3,383
Accrued expenses 4,737 5,642
Accrued compensation 4,500 6,518
Income taxes payable --- 621
- --------------------------------------------------------------------------------
Total current liabilities 11,250 16,164
Other liabilities 2,131 1,715
- --------------------------------------------------------------------------------
Total liabilities 13,381 17,879
- --------------------------------------------------------------------------------
Commitments and Contingencies --- ---
Minority interest in subsidiary 260 224
- --------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock--$.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--4,845,090 and 4,719,320
at February 29, 1996 and May 31, 1995,
respectively 48 47
Additional paid-in capital 18,142 17,424
Retained earnings 27,187 25,214
- --------------------------------------------------------------------------------
Total shareholders' equity 45,377 42,685
- --------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $59,018 $60,788
================================================================================
The accompanying notes are an integral part of these financial statements.
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<PAGE>
HARDING LAWSON ASSOCIATES GROUP, INC.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
Feb. 29, Feb. 28, Feb. 29, Feb. 28,
1996 1995 1996 1995
- --------------------------------------------------------------------------------
Gross revenue $27,091 $31,248 $94,393 $99,073
Less: Cost of outside services 6,854 9,079 28,747 29,794
- --------------------------------------------------------------------------------
Net revenue 20,237 22,169 65,646 69,279
- --------------------------------------------------------------------------------
Costs and expenses:
Payroll and benefits 14,150 15,463 44,504 47,255
General expenses 6,250 6,170 18,574 18,586
- --------------------------------------------------------------------------------
Total costs and expenses 20,400 21,633 63,078 65,841
- --------------------------------------------------------------------------------
Operating income (loss) (163) 536 2,568 3,438
Interest income, net 248 92 618 162
- --------------------------------------------------------------------------------
Income before provision for income taxes
and minority interest 85 628 3,186 3,600
Provision for income taxes 34 248 1,257 1,422
Minority interest (28) 4 (44) 4
- --------------------------------------------------------------------------------
Net income $ 79 $ 376 $ 1,973 $ 2,174
================================================================================
Net income per common share $ .02 $ .08 $ .41 $ .45
================================================================================
Shares used in per share calculation 4,866 4,804 4,847 4,807
================================================================================
The accompanying notes are an integral part of these financial statements.
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<PAGE>
HARDING LAWSON ASSOCIATES GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
- --------------------------------------------------------------------------------
Nine Months Ended
Feb. 29, Feb. 28,
1996 1995
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $1,973 $2,174
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,877 2,493
Net decrease in current assets 6,209 3,162
Net decrease in current liabilities (4,196) (2,567)
Other increase (decrease) 272 (547)
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 6,135 4,715
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net purchase of equipment (1,387) (752)
Investment in acquisition (net of acquired cash) --- (1,683)
- --------------------------------------------------------------------------------
NET CASH USED IN
INVESTING ACTIVITIES (1,387) (2,435)
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES
Repayment of debt --- (2,024)
Proceeds from sale of common stock --- 116
- --------------------------------------------------------------------------------
NET CASH USED IN
FINANCING ACTIVITIES --- (1,908)
- --------------------------------------------------------------------------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 4,748 372
Cash and cash equivalents
at beginning of period 12,648 8,896
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $17,396 $9,268
================================================================================
The accompanying notes are an integral part of these financial statements.
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<PAGE>
HARDING LAWSON ASSOCIATES GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
February 29, 1996
NOTE 1: BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared
without audit by Harding Lawson Associates Group, 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, 1995. Reclassification of certain balances for the fiscal year
ended May 31, 1995 have been made to conform to the February 29, 1996
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 suits filed in Jefferson and
Orange Counties have been dismissed or stayed. Subsequently, a counterclaim
containing similar allegations was filed against the Company in the Harris
County suit. The Company believes it has meritorious defenses to these
allegations. 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.
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<PAGE>
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 Percentage
3 Mos Ended 9 Mos Ended Inc./(Dec.)
Feb. 29, Feb. 29, Feb. 29,
3 Mos 9 Mos
1996 1996
vs vs
1996 1995 1996 1995 1995 1995
---- ---- ---- ---- ---- ----
Net revenue 100.0% 100.0% 100.0% 100.0% (8.7)% (5.2)%
Costs and expenses
Payroll and benefits 69.9 69.8 67.8 68.2 (8.5) (5.8)
General expenses 30.9 27.8 28.3 26.8 1.2 (.3)
Operating income
(loss)/margin (.8) 2.4 3.9 5.0 (130.4) (25.3)
Net interest income 1.2 .4 .9 .2 169.6 281.5
Income before income
taxes and minority
interest .4 2.8 4.8 5.2 (86.5) (11.5)
Provision for taxes .1 1.1 1.9 2.1 (86.3) (11.6)
Minority interest (.1) --- (.1) --- --- ---
Net income .4 1.7 3.0 3.1 (79.0) (9.2)
Third Quarter Comparison for Fiscal Years 1996 and 1995
Net revenue for the fiscal quarter ended February 29, 1996 totaled $20,237, a
decrease of 9 percent from net revenue of $22,169 for the third quarter of the
prior fiscal year. The shortfall in net revenue was primarily due to a decrease
in revenue from public agency contracts of approximately $2.5 million resulting
from a decline in awards of new public agency contracts and funding on existing
federal agency contracts, as well as government inefficiencies due to shutdowns
and the lengthy budget impasse and continuing legislative gridlock with regard
to environmental regulations. Net revenue from such public sector clients
decreased by approximately 22 percent from the same period in the prior year.
Overall, net revenue from public sector clients accounted for 43 percent of
total net revenue compared to 50 percent in the same period of the prior year.
Net revenue from industrial sector clients increased approximately 2 percent
over the prior year. In domestic operations, the lower demand for services was
partially offset by slightly improved pricing compared to the third quarter of
fiscal 1995. International operations were virtually unchanged from the third
quarter of fiscal 1995, accounting for approximately 5 percent of net revenue in
both years.
The Company recorded an operating loss of $163 or 0.8 percent of net revenue
compared to operating income of $536 and margin of 2.4 percent for the same
period in fiscal 1995. The lower operating income and margin were primarily due
to the lower net revenue discussed above and slightly higher general expenses.
General expenses were higher than the previous year due mainly to costs
-7-
<PAGE>
associated with the relocation of a principal operating unit to less expensive
space. Labor expenses were lower than in the prior year due to staff reductions.
As in the first and second quarters, the performance on several firm fixed price
contracts favorably contributed to operating results. There can be no assurance
that such contracts will continue to be available to the Company in the future
or that the performance of such contracts will have a favorable outcome.
Net interest income for the third quarter of fiscal 1996 was $248 compared to
net interest income of $92 for the third quarter of the prior fiscal year. Net
interest income was higher due to the Company's increased cash position that
resulted in higher balances of invested cash, and to a lesser extent, improved
interest rates.
The effective tax rate was 39.9 percent for the third quarter of fiscal 1996 and
39.5 percent in the same period last year.
Net income for the quarter was $79 compared with $376 in the third quarter of
fiscal 1995, a decrease of 79 percent. Earnings per share were $0.02 on
4,865,560 weighted average shares outstanding compared to $0.08 per share on
4,803,732 weighted average shares outstanding in the same period last year.
Nine Month Comparison for Fiscal Years 1996 and 1995
Net revenue for the nine months ended February 29, 1996 (39 weeks) amounted to
$65,646, a decrease of 5 percent from net revenue of $69,279 for the nine months
ended February 28, 1995 (40 weeks). On a comparable basis with the prior year,
the Company experienced lower demand for its services, partially offset by
slightly improved pricing for those services. The lower demand was primarily
related to public sector work. Net revenues from international operations was 5
percent in fiscal 1996 compared to 2 percent in the prior year. The increase was
due primarily to an acquisition completed in November of the prior fiscal year.
Operating income amounted to $2,568, a decrease of 25 percent from operating
income of $3,438 for the first nine months of the prior year. The operating
margin decreased to 4 percent from 5 percent a year ago. While the Company
continued to lower its operating costs, such reductions were not sufficient to
offset the effect of lower revenue discussed above.
Net interest income for the nine months ended February 29, 1996 was $618, up
from $162 in the same period in the prior year. The increase in net interest
income was due primarily to the Company's increased cash position that resulted
in higher balances of invested cash and, to a lesser extent, improved interest
rates.
The effective tax rate was 39.5 percent for the first nine months of fiscal 1996
and fiscal 1995.
Net income for the nine months ended February 29, 1996 was $1,973, down from net
income of $2,174 for the nine month period in the prior year, a decrease of 9
percent. Earnings per share were $0.41 on 4,846,675 weighted average shares
outstanding compared to $0.45 per share on 4,806,964 weighted average shares
outstanding in the first nine month period of the prior year.
Due to seasonal factors, operating results for the nine month period ended
February 29, 1996 are not necessarily indicative of the results that may be
expected for the entire fiscal year ending May 31, 1996.
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<PAGE>
Liquidity and Capital Resources
For the nine months ended February 29, 1996, net cash provided by operations was
$6,135 compared with net cash provided by operations of $4,715 for the same
period last year. The increase in cash provided by operations was primarily due
to improved accounts receivable balances.
The Company made net capital expenditures of $1,387 in the first nine months of
fiscal 1996 compared to net capital expenditures of $752 in the first nine
months of the prior year. The Company anticipates that its capital expenditures,
excluding investments in acquisitions, for the current fiscal year will continue
to 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 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. The Company is provided a $5 million
professional liability insurance policy through an unrelated, rated carrier.
At February 29, 1996, the Company had cash on hand and cash equivalents of
$17,396. The Company has a $20 million revolving credit line agreement which
expires in October 1997. At February 29, 1996, the Company had no borrowings
outstanding under its line of credit leaving $20 million available to the
Company. Borrowings were available to the Company at 5.3 percent at February 29,
1996, and at 6.1 percent at May 31, 1995. The Company is in compliance with all
covenants pertaining to the credit line agreement.
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, from time to time, considers acquisitions to expand its geographical
representation and to 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 possible investments in acquisitions.
Forward-Looking Statements
Except for the historical information contained herein, certain of the matters
discussed in this report are forward-looking statements that involve risks and
uncertainties, including the demand for the Company's services and the strength
of the economy domestically and internationally, and such risks and
uncertainties as are described in the reports and other documents filed by the
Company from time to time with the Securities and Exchange Commission.
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<PAGE>
HARDING LAWSON ASSOCIATES GROUP, 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 29, 1996:
Exhibit No. 11 Computation of Per Share Earnings
Exhibit No. 27 Financial Data Schedule
b. Reports on Form 8-K
None
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<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 LAWSON ASSOCIATES GROUP, INC.
Date: April 5, 1996 /s/ Donald L. Schreuder
-----------------------
Donald L. Schreuder
President and Chief Executive Officer
(Principal Executive Officer)
Date: April 5, 1996 /s/ Gregory A. Thornton
-----------------------
Gregory A. Thornton
Vice President and Chief Financial Officer
(Principal Accounting Officer)
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<PAGE>
HARDING LAWSON ASSOCIATES GROUP, INC.
EXHIBIT INDEX
Exhibit No.
11 Computation of Per Share Earnings
27 Financial Data Schedule
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Exhibit No. 11
HARDING LAWSON ASSOCIATES GROUP, INC.
Computation of Per Share Earnings
(In thousands, except per share data)
(Unaudited)
- --------------------------------------------------------------------------------
Three Mos Ended Nine Mos Ended
Feb. 29, Feb. 28, Feb. 29, Feb. 28,
1996 1995 1996 1995
- --------------------------------------------------------------------------------
PRIMARY
Average shares outstanding 4,845 4,703 4,817 4,677
Net effect of dilutive stock options
based on the modified treasury stock
method using the average market price 21 101 30 130
- --------------------------------------------------------------------------------
TOTAL 4,866 4,804 4,847 4,807
================================================================================
Net income $ 79 $376 $1,973 $2,174
================================================================================
Net income per share $.02 $.08 $ .41 $ .45
================================================================================
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<PERIOD-START> JUN-01-1995
<PERIOD-END> FEB-29-1996
<CASH> 17396
<SECURITIES> 0
<RECEIVABLES> 29527
<ALLOWANCES> 1503
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<COMMON> 48
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</TABLE>
