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, 1997 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 7, 1997 the registrant had issued and outstanding an aggregate of
4,870,431 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 28, 1997 (Unaudited) and
May 31, 1996................................................................3
Condensed Consolidated Statements of Income -
Three and Nine Months Ended February 28, 1997 and
February 29, 1996 (Unaudited)...............................................4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended February 28, 1997 and
February 29, 1996 (Unaudited)..............................................5
Notes to Condensed Consolidated Financial Statements
February 28, 1997 (Unaudited)...............................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................11
Item 6. Exhibits and Reports on Form 8-K...................................11
SIGNATURES....................................................................12
EXHIBIT INDEX.................................................................13
-2-
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HARDING LAWSON ASSOCIATES GROUP, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
February 28, 1997 May 31, 1996
- --------------------------------------------------------------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $17,305 $19,012
Accounts receivable 25,545 24,080
Unbilled work in progress 8,181 4,903
Less allowances for receivables and
unbilled work (1,720) (1,476)
Prepaid expenses 1,402 1,304
Deferred income taxes 1,514 1,474
- --------------------------------------------------------------------------------
Total current assets 52,227 49,297
- --------------------------------------------------------------------------------
Equipment 21,844 21,021
Less accumulated depreciation (17,379) (16,677)
- --------------------------------------------------------------------------------
Net equipment 4,465 4,344
- --------------------------------------------------------------------------------
Deposits and other assets 5,961 6,723
- --------------------------------------------------------------------------------
Total assets $62,653 $60,364
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $4,467 $2,754
Accrued expenses 4,986 5,936
Accrued compensation 5,126 5,086
Income taxes payable 459 ---
- --------------------------------------------------------------------------------
Total current liabilities 15,038 13,776
Other liabilities 1,323 1,983
- --------------------------------------------------------------------------------
Total liabilities 16,361 15,759
- --------------------------------------------------------------------------------
Commitments and Contingencies
Minority interest in subsidiaries 309 248
- --------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock--$.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--4,911,131
and 4,845,207 at February 28,1997
and May 31, 1996, respectively 49 48
Additional paid-in capital 18,329 18,142
Retained earnings 27,605 26,167
- --------------------------------------------------------------------------------
Total shareholders' equity 45,983 44,357
- --------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $62,653 $60,364
================================================================================
The accompanying notes are an integral part of these financial statements.
-3-
<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. 28, Feb. 29, Feb. 28, Feb. 29,
1997 1996 1997 1996
- --------------------------------------------------------------------------------
Gross revenue $28,364 $27,091 $91,594 $94,393
Less: Cost of outside services 8,844 6,854 29,813 28,747
- --------------------------------------------------------------------------------
Net revenue 9,520 20,237 61,781 65,646
- --------------------------------------------------------------------------------
Costs and expenses:
Payroll and benefits 13,102 14,150 42,109 44,504
General expenses 5,605 6,250 17,325 18,574
- --------------------------------------------------------------------------------
Total costs and expenses 18,707 20,400 59,434 63,078
- --------------------------------------------------------------------------------
Operating income (loss) 813 (163) 2,347 2,568
Interest in loss of unconsoli-
dated subsidiaries (180) -- (290) --
Interest income, net 183 248 524 618
- --------------------------------------------------------------------------------
Income before provision for income
taxes and minority interest 816 85 2,581 3,186
Provision for income taxes 370 34 1,133 1,257
Minority interest (16) (28) 10 (44)
- --------------------------------------------------------------------------------
Net income $ 462 $ 79 $1,438 $ 1,973
================================================================================
Net income per common share $ .09 $ .02 $ .29 $ .41
================================================================================
Shares used in per share
calculation 4,974 4,866 4,963 4,847
================================================================================
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
HARDING LAWSON ASSOCIATES GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
February 28, February 29,
1997 1996
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $1,438 $1,973
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,920 1,877
Net (increase) decrease in current assets (4,626) 6,209
Net increase (decrease) in current
liabilities 1,974 (4,196)
Other increase (decrease) (66) 272
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 640 6,135
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net purchase of equipment (1,804) (1,387)
- --------------------------------------------------------------------------------
NET CASH USED IN
INVESTING ACTIVITIES (1,804) (1,387)
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from sale of common stock 95 ---
Repurchase of common stock (577) ---
Principal payments on capital lease obligations (61) ---
- --------------------------------------------------------------------------------
NET CASH USED IN
FINANCING ACTIVITIES (543) ---
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (1,707) 4,748
Cash and cash equivalents
at beginning of period 19,012 12,648
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $17,305 $17,396
================================================================================
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
HARDING LAWSON ASSOCIATES GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
February 28, 1997
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, 1996. Reclassification of certain balances for the fiscal year
ended May 31, 1996 have been made to conform to the February 28, 1997
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, lawsuits were
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 suits sought monetary damages in
the amount of $7.9 million for alleged breach of contract and negligence in the
performance of certain engineering services. During the third quarter of fiscal
1997, the Company settled both its suit against the Bailey Site Settlors
Committee and the lawsuits filed by the Bailey Site Settlors Committee against
the Company. The settlement was completed within the quarter and was within
management's expectations.
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. The
estimates used in establishing these provisions could differ from actual
results. Should these provisions change significantly, the effect on operations
for any quarterly or annual reporting period could be material.
-6-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Cautionary Statement Regarding Forward Looking Statements
- ---------------------------------------------------------
The statements in this report that are forward-looking are based on current
expectations, and actual results may differ materially. The forward-looking
statements include those regarding costs controls and reductions, the expected
resolution of delays in billing of certain projects, the possible impact of
current and future claims against the Company based upon negligence and other
theories of liability, and the possibility of the Company making acquisitions
during the next 12 to 18 months. Forward-looking statements involve numerous
risks and uncertainties that could cause actual results to differ materially,
including, but not limited to, the possibilities that the demand for the
Company's services may decline as a result of possible changes in general and
industry specific economic conditions and the effects of competitive services
and pricing; one or more current or future claims made against the Company may
result in substantial liabilities; and such other risks and uncertainties as are
described in reports and other documents filed by the Company from time to time
with the Securities and Exchange Commission.
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
Three Mos Ended Nine Mos Ended Increase/(Decrease)
February 28, February 28, February 28,
Three Mos Nine Mos
1997 1997
1997 1996 1997 1996 vs 1996 vs 1996
---- ---- ---- ---- ------- -------
Net revenue 100.0% 100.0% 100.0% 100.0% (3.5)% (5.9)%
Costs and expenses
Payroll and benefits 67.1 69.9 68.2 67.8 (7.4) (5.4)
General expenses 28.7 30.9 28.0 28.3 (10.3) (6.7)
Operating income/margin 4.2 (.8) 3.8 3.9 * (8.6)
Interest in loss of uncon-
solidated subsidiaries (.9) -- (.4) -- N/A N/A
Interest income (net) .9 1.2 .8 .9 (26.2) (15.2)
Income before income taxes
and minority interest 4.2 .4 4.2 4.8 * (19.0)
Provision for income taxes
and minority interest 1.8 -- 1.9 1.8 * (5.7)
Net income 2.4 .4 2.3 3.0 484.8 (27.1)
* Not meaningful
-7-
<PAGE>
Third Quarter Comparison for Fiscal Years 1997 and 1996
- -------------------------------------------------------
Net revenue for the fiscal quarter ended February 28, 1997 totaled $19,520, a
decrease of 3.5 percent from net revenue of $20,237 for the third quarter of the
prior fiscal year. The decline in net revenue for the quarter ended February 28,
1997 was primarily due to an 18 percent decline in net revenue from federal
contracts and an 8 percent decline in net revenue from domestic industrial
sector clients, partially offset by a 67 percent increase in state and local
revenue. The increased sales to state and local agencies reflected an improved
market for the Company's infrastructure unit, and the award of a waste disposal
citing project for the State of North Carolina. Sales of services to all public
sector clients increased by approximately 5 percent from the same period in the
prior year due to the increase in state and local revenues as stated above.
Overall, net revenue from public sector clients accounted for 46 percent of
total net revenue compared to 43 percent in the prior year. The decrease in net
revenue reflected both lower demand for the Company's services and lower prices
compared to the same period in the prior fiscal year. International net revenue
for the fiscal quarter ended February 28, 1997 was $1,323, an increase of 15
percent from net revenue of $1,148 in the same quarter of the prior fiscal year.
A significant portion of the services provided by the Company to its public
sector clients are performed under a relatively small number of larger contracts
compared to private sector contracts. The Company has been awarded certain new
or rebid contracts that could potentially offset revenue which has and will be
lost under nearly completed contracts. However, if the Company is unsuccessful
in realizing the full potential of these contracts or winning new contracts, or
if funding delays are experienced on these or previously awarded federal
contracts, a material decline in revenue could result. Further, management
believes that the outlook for the industrial sector is uncertain and will
continue to be strongly influenced by general economic conditions and, to a
lesser extent, any congressional action on pending environmental regulations.
Operating income amounted to $813, an increase of $976 from a loss of $163 for
the same period in fiscal 1996. Operating margin increased to 4.2 percent of net
revenue in the current quarter compared to an 0.8 percent loss in the third
quarter of fiscal 1996. The increase in operating income and margin was due to
lower labor costs and general expenses. Labor costs were lower compared to the
prior year due to staff reductions of approximately 120 employees since the
third quarter of fiscal 1996. General expenses in fiscal 1996 included costs
associated with the relocation of a principal operating unit to less expensive
space. In addition, general expenses were lower overall due to management's
continuing efforts to better align the Company's cost structure with current
revenue levels.
Net interest income for the third quarter ended February 28, 1997 was $183, a
decrease of $65 or 26 percent from the same quarter in the previous year. Net
interest income was lower due to interest expense on capital leases in our
Australian subsidiary, lower amounts of invested cash and, to a lesser extent, a
reduction in effective interest rates on that cash.
At the end of the prior fiscal year, the Company invested in the start-up of a
limited liability company, Integrated Software Systems, which specializes in
software for the mining industry. In addition, the Company has invested in the
start-up of another limited liability company, Standards Training Corporation,
which focuses on ISO 14000 training. The Company's minority position in both
entities is accounted for using the equity method. A portion of the third
quarter loss for these investments was attributed to an $80 write-down
reflecting an impairment of the investment in the software company.
<PAGE>
The effective tax rate was 45.4 percent for the third quarter of fiscal 1997 and
was 40.0 percent in the third quarter of the prior year. The effective tax rate
in fiscal 1997 reflects the impact of losses from the start-up of certain
international operations for which no tax benefit has been realized.
Net income for the quarter was $462 compared with $79 in the third quarter of
fiscal 1996, an increase of 484.8 percent. Earnings per share were $0.09 on
4,974,000 weighted average shares outstanding compared to $0.02 per share on
4,866,000 weighted average shares outstanding in the same period last year.
Nine Month Comparison for Fiscal Years 1997 and 1996
- ----------------------------------------------------
Net revenue for the nine months ended February 28, 1997 amounted to $61,781 a
decrease of 5.9 percent from net revenue of $65,646 for the nine months ended
February 29, 1996. The decrease in net revenue was due primarily to 25 percent
lower federal agency work and a 4 percent decline in domestic industrial sales
compared to the nine months ended February 29, 1996, partially offset by higher
state and local, and international sales. Domestically the Company continued to
experience lower demand for its services with prices for those services
remaining essentially unchanged from the prior year.
Operating income amounted to $2,347 a decrease of 8.6 percent from operating
income of $2,568 for the first nine months of the prior year. The operating
margin decreased to 3.8 percent from 3.9 percent a year ago as the Company's
continued efforts to lower its operating expenses were offset by lower revenues.
Net interest income for the nine months ended February 28, 1997 was $524, a
decrease of 15 percent from net interest income of $618 for the third quarter of
the prior fiscal year. The decrease was due primarily to interest expense on
capital leases in our Australian operations and, to a lesser extent, a decline
in interest rates.
The effective tax rate for the nine months ended February 28, 1997 was 43.9
percent and for the nine months ended February 29, 1996 was 39.5 percent. The
effective tax rate in fiscal 1997 reflects the impact of losses from the
start-up of certain international operations for which no tax benefit has been
realized.
Net income for the nine months was $1,438, down from net income of $1,973 for
the nine month period in the prior year, a decrease of 27 percent. Earnings per
share were $0.29 on 4,963,000 weighted average shares outstanding compared to
$0.41 on 4,847,000 weighted average shares outstanding in the first nine month
period of the prior year.
Liquidity and Capital Resources
- -------------------------------
For the nine months ended February 28, 1997, net cash provided by operations was
$640 compared to net cash provided by operations of $6,135 for the same period
last year. The decrease in cash provided by operations was primarily due to an
increase in the Company's receivables, and to a lesser extent the settlement of
a legal claim, partially offset by an increase in trade payables in the current
fiscal year. The increase in trade receivables was primarily due to delays in
billing certain remedial construction projects in the third quarter of fiscal
1997. Such delays are expected to be resolved in the Company's fourth quarter.
<PAGE>
The Company made capital expenditures of $1,804 in the first nine months of
fiscal 1997 compared to capital expenditures of $1,387 in the first nine months
of the prior year. Capital expenditures for the current fiscal year, excluding
acquisitions, were higher than the same period in fiscal 1996 due primarily to
upgrading of computer and network equipment in many of the Company's offices.
The Company is a consulting engineering services firm engaged in providing
environmental, infrastructure, geotechnical and construction 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 impact on the
financial position and liquidity of the Company. The Company is provided a $5
million per occurrence professional liability policy and a $5 million per
occurrence contractors pollution insurance policy through an unrelated, rated
carrier. The Company also maintains a general liability insurance policy with an
unrelated, rated carrier.
At February 28, 1997, the Company had cash on hand and cash equivalents of
$17,305. The Company has a $20 million line of credit agreement which expires in
October 1997. At February 28, 1997 and 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 5.4 percent at February 28,
1997, and at 5.4 percent at May 31, 1996. The Company is in compliance with all
covenants pertaining to the credit line agreement.
The Board of Directors of the Company has approved a Common Stock Repurchase
Program that authorizes the Company to purchase up to a maximum of 500,000
shares of stock on the open market from time to time for the purpose of funding
the Company's various employee stock programs. The Company has repurchased
83,500 shares for $577 in the first three quarters of the current fiscal year
under this program. No repurchases were made in the same period of the prior
fiscal year.
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 and investments in aligned
businesses.
<PAGE>
HARDING LAWSON ASSOCIATES GROUP, INC.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 15, 1997, the Company entered into a settlement
agreement with the Bailey Site Settlors Committee related to
lawsuits entitled Harding Lawson Associates, Inc., a wholly
owned subsidiary of Harding [Lawson] Associates [Group], Inc.
vs., Bailey Site Settlors Committee and Bailey Site Settlors
Committee vs. Harding Lawson Associates, which were originally
reported in the 1995 Annual Report on Form 10-K filed with the
Securities and Exchange Commission on August 25, 1995. The
settlement of these claims did not have an impact on results
of operations in the current quarter due to reserves
previously recorded.
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, 1997:
Exhibit No. 11 Computation of Per Share
Earnings
Exhibit No. 27 Financial Data Schedule
b. Reports on Form 8-K
None
-11-
<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 10,1997 /s/ Donald L. Schreuder
-----------------------
Donald L. Schreuder
President and Chief Executive Officer
(Principal Executive Officer)
Date: April 10, 1997 /s/ Gregory A. Thornton
-----------------------
Gregory A. Thornton
Vice President and Chief Financial
Officer
(Principal Accounting Officer)
-12-
<PAGE>
HARDING LAWSON ASSOCIATES GROUP, INC.
EXHIBIT INDEX
Exhibit No.
11 Computation of Per Share Earnings
27 Financial Data Schedule
-13-
Exhibit No. 11
HARDING LAWSON ASSOCIATES GROUP, INC.
Computation of Per Share Earnings
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
Feb. 28, Feb. 29, Feb. 28, Feb. 29,
1997 1996 1997 1996
- --------------------------------------------------------------------------------
PRIMARY
Average shares outstanding 4,942 4,845 4,938 4,817
Net effect of dilutive stock options
based on the treasury stock
method (or modified treasury stock
method) using the average market price 31 21 25 30
- --------------------------------------------------------------------------------
TOTAL 4,974 4,866 4,963 4,847
================================================================================
Net income $ 462 $ 79 $1,438 $1,973
================================================================================
Net income per share $ .09 $ .02 $ .29 $ .41
================================================================================
<TABLE> <S> <C>
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> FEB-28-1997
<CASH> 17305
<SECURITIES> 0
<RECEIVABLES> 33726
<ALLOWANCES> 1720
<INVENTORY> 0
<CURRENT-ASSETS> 52227
<PP&E> 21844
<DEPRECIATION> 17379
<TOTAL-ASSETS> 62653
<CURRENT-LIABILITIES> 15038
<BONDS> 0
0
0
<COMMON> 49
<OTHER-SE> 45934
<TOTAL-LIABILITY-AND-EQUITY> 62653
<SALES> 0
<TOTAL-REVENUES> 91594
<CGS> 0
<TOTAL-COSTS> 29813
<OTHER-EXPENSES> 59434
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29
<INCOME-PRETAX> 2581
<INCOME-TAX> 1133
<INCOME-CONTINUING> 1438
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</TABLE>
