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, 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 October 3, 1997 the registrant had issued and outstanding an aggregate of
4,970,167 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 -
August 31, 1997 (Unaudited) and May 31, 1997........................3
Condensed Consolidated Statements of Income -
Three Months Ended August 31, 1997
and August 31, 1996 (Unaudited).....................................4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended August 31, 1997 and
August 31, 1996 (Unaudited).........................................5
Notes to Condensed Consolidated Financial Statements
August 31, 1997 (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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<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
HARDING LAWSON ASSOCIATES GROUP, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
August 31, 1997 May 31, 1997
- -------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $23,066 $24,464
Accounts receivable 22,457 22,911
Unbilled work in progress 6,452 6,221
Less allowances for receivables and
unbilled work (1,408) (1,387)
Prepaid expenses 1,386 1,073
Deferred income taxes 2,859 2,691
- ----------------------------------------------------------------------------------------------------------
Total current assets 54,812 55,973
- ----------------------------------------------------------------------------------------------------------
Equipment 21,870 21,701
Less accumulated depreciation (17,762) (17,299)
- -----------------------------------------------------------------------------------------------------------
Net equipment 4,108 4,402
- ----------------------------------------------------------------------------------------------------------
Deposits and other assets 6,262 5,980
- ----------------------------------------------------------------------------------------------------------
Total assets $65,182 $66,355
==========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,981 $ 4,538
Accrued expenses 4,352 4,845
Accrued compensation 5,273 6,632
Income taxes payable 1,538 1,962
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 15,144 17,977
- ----------------------------------------------------------------------------------------------------------
Other liabilities 1,524 1,453
- ----------------------------------------------------------------------------------------------------------
Total liabilities 16,668 19,430
- ----------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Minority interest in subsidiaries 299 323
- ----------------------------------------------------------------------------------------------------------
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--4,970,167
and 4,864,503 at August 31, 1997
and May 31, 1997, respectively 50 49
Additional paid-in capital 18,674 17,982
Retained earnings 29,491 28,571
- ----------------------------------------------------------------------------------------------------------
Total shareholders' equity 48,215 46,602
- ----------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $65,182 $66,355
==========================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
<TABLE>
<CAPTION>
HARDING LAWSON ASSOCIATES GROUP, INC.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
Three Months Ended August 31,
1997 1996
--------------------------------
<S> <C> <C>
Gross revenue $31,818 $30,944
Less: Cost of outside services 10,137 9,965
- ----------------------------------------------------------------------------------------------------------
Net revenue 21,681 20,979
- ----------------------------------------------------------------------------------------------------------
Costs and expenses:
Payroll and benefits 14,592 14,787
General expenses 5,762 5,888
- ----------------------------------------------------------------------------------------------------------
Total costs and expenses 20,354 20,675
- ----------------------------------------------------------------------------------------------------------
Operating income 1,327 304
Interest in loss of unconsolidated subsidiaries (50) (53)
Interest income, net 264 184
- ----------------------------------------------------------------------------------------------------------
Income before provision for income taxes
and minority interest 1,541 435
Provision for income taxes 645 205
Minority interest (24) 4
- ----------------------------------------------------------------------------------------------------------
Net income $ 920 $ 226
==========================================================================================================
Net income per common share $ 0.19 $ 0.05
==========================================================================================================
Shares used in per share calculation 4,928 4,920
==========================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
<TABLE>
<CAPTION>
HARDING LAWSON ASSOCIATES GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended August 31,
1997 1996
-------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 920 $ 226
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 625 624
Net increase in current assets (237) (6,486)
Net increase (decrease) in current liabilities (2,105) 3,054
Other, net (110) 294
- ----------------------------------------------------------------------------------------------------------
NET CASH USED IN
OPERATING ACTIVITIES (907) (2,288)
- -----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of equipment, net (251) (649)
Investment in acquisition (197) --
- ----------------------------------------------------------------------------------------------------------
NET CASH USED IN
INVESTING ACTIVITIES (448) (649)
- -----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from sale of stock 37 58
Repurchase of common stock (80) --
- ----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY
(USED IN) FINANCING ACTIVITIES (43) 58
- ----------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,398) (2,879)
Cash and cash equivalents at
beginning of period 24,464 19,012
- ----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $23,066 $16,133
==========================================================================================================
</TABLE>
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)
August 31, 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
for the fiscal year ended May 31, 1997. Reclassification of certain balances for
the fiscal year ended May 31, 1997 have been made to conform to the August 31,
1997 presentation.
NOTE 2: COMMITMENTS AND CONTINGENCIES
The Company is currently subject to certain 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.
NOTE 3: NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Statement of Financial Accounting Standards No. 128
"Earnings per Share," (FAS 128) was issued and is effective for the year ending
May 31, 1998. The Company will change its method for computing earnings per
share and restate all periods to reflect the change in its consolidated
statements of income effective with the issuance of the Company's third and
fourth quarters and annual report for 1998. The new method requires calculation
of earnings per share excluding the dilutive effect of common stock equivalents
such as stock options and warrants. The impact of FAS 128 on basic earnings per
share and fully diluted earnings per share is not expected to be material.
-6-
<PAGE>
HARDING LAWSON ASSOCIATES GROUP, INC.
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 the level of future purchases of fixed
assets, 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's 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.
<TABLE>
<CAPTION>
Percentage of
Net Revenue
For Three Months Percentage
Ended August 31, Increase/(Decrease)
Three Months
1997 1996 1997 vs. 1996
---- ---- -------------
<S> <C> <C> <C>
Net revenue 100% 100.0% 3.3%
Costs and expenses
Payroll and benefits 67.3 70.4 1.3
General expenses 26.6 28.1 (2.1)
Operating income/margin 6.1 1.5 336.0
Interest income, net, and interest in loss
of unconsolidated subsidiaries 1.0 0.6 62.6
Income before income taxes
and minority interest 7.1 2.1 254.0
Provision for income taxes 3.0 1.0 214.0
Net income 4.1 1.1 306.8
</TABLE>
First Quarter Comparison for Fiscal Years 1998 and 1997
- -------------------------------------------------------
Net revenue for the fiscal quarter ended August 31, 1997 totaled $21,681, an
increase of 3.3 percent from net revenue of $20,979 for the first quarter of the
prior fiscal year. The increase in net revenue for the quarter ended August 31,
1997 was primarily due to a 13 percent increase in public sector net revenue,
partially offset by a seven percent decline in net revenue from domestic
industrial clients and an 18 percent decline in international net revenue. The
increase in public sector net revenue was due to a 46 percent increase in state
and local net revenue partially offset by a seven percent decline in federal net
revenue. Excluding international, the increase in net revenue was due to higher
prices for the Company's services while demand was essentially unchanged
compared to the same period in the prior fiscal year. International net revenue
for the fiscal quarter ended August 31, 1997 was $1,314 or six percent of total
net revenue compared to $1,607 or eight percent of total net revenue in the same
quarter of the prior fiscal year.
Operating income for the first quarter of fiscal 1998 was $1,327, an increase of
336 percent from $304 for the same period in fiscal 1997. Operating margin
increased to 6.1 percent of net revenue in the current quarter compared with 1.5
percent in the first quarter of fiscal 1997. The Company has reduced both its
payroll and general expenses compared to the prior fiscal year. Payroll expenses
as a percent of net revenue was lower due primarily to the utilization of
variable and part-time staff. General expenses were two percent lower than the
prior year primarily due to the lower staff levels.
Interest income for the first quarter of fiscal 1998 was $269 before interest
expense of $5 compared to interest income of $194 before interest expense of $10
for the first quarter of the prior fiscal year. Net interest income was higher
primarily due to the Company's increased cash position that resulted in higher
balances of invested cash.
In fiscal 1997 the Company invested in the start-up of a limited liability
company, Standards Training Corporation, that specializes in ISO 14000 training.
The minority position in this entity is accounted for using the equity method.
The Company elected to fund the venture in the first quarter of fiscal 1998 with
an additional $50,000 which was expensed in the first quarter of fiscal 1998.
The Company has determined that it will make no further investments under this
joint venture arrangement.
The effective tax rate was 41.9 percent for the first quarter of fiscal 1998 and
was 47.2 percent in the first quarter of the prior year. The effective tax rate
in fiscal 1998 reflects the impact of increased domestic earnings relative to
the results of international operations compared to last fiscal year.
Net income for the quarter was $920 compared with $226 in the first quarter of
1997, an increase of 307 percent. Earnings per share were $0.19 on 4,928,000
weighted average shares outstanding compared to $0.05 per share on 4,920,000
weighted average shares outstanding in the same period last year.
Liquidity and Capital Resources
- -------------------------------
For the three months ended August 31, 1997, net cash used in operations was $907
compared to net cash used in operations of $2,288 for the same period last year.
The decrease in cash used in operations was primarily due to a reduction in days
sales in the Company's receivables in the current fiscal year compared to a year
ago.
The Company made capital expenditures of $251 in the first three months of
fiscal 1998 compared to capital expenditures of $649 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 approximately the
same as those made in the prior fiscal year. The Company made a payment of $197
under the terms of an acquisition agreement related to an acquisition completed
in fiscal 1994.
At August 31, 1997, the Company had cash on hand and cash equivalents of
$23,066. The Company has a $20 million revolving credit line agreement that
expires in October 1997. At August 31, 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 5.7 percent at August
31, 1997 and at May 31, 1997. The Company has a commitment from its bank
renewing the credit agreement for a two-year period under substantially the same
terms as the current 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 for the purpose of funding the Company's
various employee stock programs. The Company repurchased 10,500 shares during
the quarter ended August 31, 1997 at a price of $7.63. There were no repurchases
during the first quarter of the prior fiscal year.
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 design or 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 impact on the
financial position and liquidity of the Company. The Company maintains a $5
million per occurrence professional liability policy and a $5 million per
occurrence contractor's pollution liability insurance policy through an
unrelated, rated carrier. The Company also maintains a general liability
insurance policy with an unrelated, rated carrier.
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 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, 1997:
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: 10-9-97 /s/ Donald L. Schreuder
Donald L. Schreuder
President and Chief Executive Officer
(Principal Executive Officer)
Date: 10-9-97 /s/ Gregory A. Thornton
Gregory A. Thornton
Vice President and Chief Financial Officer
(Principal Accounting Officer)
-11-
<PAGE>
HARDING LAWSON ASSOCIATES GROUP, INC.
EXHIBIT INDEX
Exhibit No.
11 Computation of Per Share Earnings
27 Financial Data Schedule
-12-
<TABLE>
<CAPTION>
HARDING LAWSON ASSOCIATES GROUP, INC.
Computation of Per Share Earnings
(In thousands, except per share data)
(Unaudited)
Three Months Ended August 31,
1997 1996
<S> <C> <C>
PRIMARY
Average shares outstanding 4,887 4,892
Net effect of dilutive stock options
based on the treasury stock method
in fiscal 1998 and the modified treasury
stock method using the average market
price in fiscal 1998 41 28
- ----------------------------------------------------------------------------------------------------------
TOTAL 4,928 4,920
==========================================================================================================
Net income $ 920 $ 226
==========================================================================================================
Net income per share $ 0.19 $ 0.05
==========================================================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> AUG-31-1997
<CASH> 23066
<SECURITIES> 0
<RECEIVABLES> 28909
<ALLOWANCES> 1408
<INVENTORY> 0
<CURRENT-ASSETS> 54812
<PP&E> 21870
<DEPRECIATION> 17762
<TOTAL-ASSETS> 65182
<CURRENT-LIABILITIES> 15144
<BONDS> 0
0
0
<COMMON> 50
<OTHER-SE> 48165
<TOTAL-LIABILITY-AND-EQUITY> 65182
<SALES> 0
<TOTAL-REVENUES> 31818
<CGS> 0
<TOTAL-COSTS> 10137
<OTHER-EXPENSES> 20354
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> 1541
<INCOME-TAX> 645
<INCOME-CONTINUING> 920
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 920
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
