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 November 30, 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 January 8, 1997 the registrant had issued and outstanding an aggregate of
4,963,769 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 -
November 30, 1996 (Unaudited) and
May 31, 1996...........................................................3
Condensed Consolidated Statements of Income -
Three and Six Months Ended November 30, 1996 and
November 30, 1995 (Unaudited)..........................................4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended November 30, 1996 and
November 30, 1995 (Unaudited)..........................................5
Notes to Condensed Consolidated Financial Statements
November 30, 1996 (Unaudited)..........................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders............11
Item 6. Exhibits and Reports on Form 8-K...............................12
SIGNATURES...................................................................13
INDEX TO EXHIBITS............................................................14
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HARDING LAWSON ASSOCIATES GROUP, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
November 30, 1996 May 31, 1996
- --------------------------------------------------------------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $16,800 $19,012
Accounts receivable 28,358 24,080
Unbilled work in progress 7,787 4,903
Less allowances for receivables and
unbilled work (1,397) (1,476)
Prepaid expenses 1,769 1,304
Deferred income taxes 1,339 1,474
- --------------------------------------------------------------------------------
Total current assets 54,656 49,297
- --------------------------------------------------------------------------------
Equipment 21,784 21,021
Less accumulated depreciation (17,380) (16,677)
- --------------------------------------------------------------------------------
Net equipment 4,404 4,344
- --------------------------------------------------------------------------------
Deposits and other assets 6,744 6,723
- --------------------------------------------------------------------------------
Total assets $65,804 $60,364
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $5,092 $2,754
Accrued expenses 4,981 5,936
Accrued compensation 6,329 5,086
Income taxes payable 718 ---
- --------------------------------------------------------------------------------
Total current liabilities 17,120 13,776
Other liabilities 2,457 1,983
- --------------------------------------------------------------------------------
Total liabilities 19,577 15,759
- --------------------------------------------------------------------------------
Commitments and Contingencies
Minority interest in subsidiaries 325 248
- --------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock--$.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--4,963,769
and 4,845,207 at November 30, 1996
and May 31, 1996, respectively 50 48
Additional paid-in capital 18,709 18,142
Retained earnings 27,143 26,167
- --------------------------------------------------------------------------------
Total shareholders' equity 45,902 44,357
- --------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $65,804 $60,364
================================================================================
The accompanying notes are an integral part of these financial statements.
<PAGE>
HARDING LAWSON ASSOCIATES GROUP, INC.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
November 30, November 30,
1996 1995 1996 1995
- --------------------------------------------------------------------------------
Gross revenue $32,286 $35,554 $63,230 $67,302
Less: Cost of outside services 11,004 12,853 20,969 21,893
- --------------------------------------------------------------------------------
Net revenue 21,282 22,701 42,261 45,409
- --------------------------------------------------------------------------------
Costs and expenses:
Payroll and benefits 14,220 15,044 29,007 30,354
General expenses 5,832 6,282 11,720 12,324
- --------------------------------------------------------------------------------
Total costs and expenses 20,052 21,326 40,727 42,678
- --------------------------------------------------------------------------------
Operating income 1,230 1,375 1,534 2,731
Interest in loss of unconsolidated
subsidiaries (57) --- (110) ---
Interest income, net 157 194 341 370
- --------------------------------------------------------------------------------
Income before provision for income
taxes and minority interest 1,330 1,569 1,765 3,101
Provision for income taxes 558 621 763 1,223
Minority interest 22 (11) 26 (16)
- --------------------------------------------------------------------------------
Net income $ 750 $ 959 $ 976 $ 1,894
================================================================================
Net income per common share $ 0.15 $ 0.20 $ 0.20 $ 0.39
================================================================================
Shares used in per share
calculation 4,996 4,871 4,958 4,837
================================================================================
The accompanying notes are an integral part of these financial statements.
<PAGE>
HARDING LAWSON ASSOCIATES GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended November 30,
1996 1995
OPERATING ACTIVITIES
Net income $ 976 $1,894
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,267 1,236
Net increase in current assets (7,560) (1,215)
Net increase in current liabilities 4,009 158
Other increase 346 153
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (962) 2,226
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net purchase of equipment (1,109) (1,043)
- --------------------------------------------------------------------------------
NET CASH USED IN
INVESTING ACTIVITIES (1,109) (1,043)
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from sale of common stock 58 --
Repurchase of common stock (159) --
Principal payments on capital lease
obligations (40) --
- --------------------------------------------------------------------------------
NET CASH USED IN
FINANCING ACTIVITIES (141) --
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (2,212) 1,183
Cash and cash equivalents at
beginning of period 19,012 12,648
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $16,800 $13,831
================================================================================
The accompanying notes are an integral part of these financial statements.
<PAGE>
HARDING LAWSON ASSOCIATES GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
November 30, 1996
NOTE 1: BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared
without audit by Harding Lawson Associates Group, Inc., formerly 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, 1996. Reclassification of
certain balances for the fiscal year ended May 31, 1996 have been made to
conform to the November 30, 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, 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. 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. 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.
<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 cost 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, the anticipation that capital expenditures will be
approximately the same as in fiscal 1996, 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 revenue, and (ii) the percentage increase (decrease) in
dollar amount of such items from year to year.
Percentage of Net Revenue Percentage
Three Mos Ended Six Mos Ended (Decrease)
November 30, November 30, November 30,
Three Mos Six Mos
1996 1996
1996 1995 1996 1995 vs 1995 vs 1995
---- ---- ---- ---- --------- -------
Net revenue 100.0% 100.0% 100.0% 100.0% (6.3%) (6.9%)
Costs and expenses
Payroll and benefits 66.8 66.3 68.7 66.9 (5.5) (4.4)
General expenses 27.4 27.7 27.7 27.1 (7.1) (4.9)
Operating income/margin 5.8 6.0 3.6 6.0 (10.5) (43.8)
Interest income, net and
interest in loss of uncon-
solidated subsidiaries .4 .9 .6 .8 (48.5) (37.6)
Income before income taxes
and minority interest 6.2 6.9 4.2 6.8 (15.2) (43.1)
Provision for income taxes
and minority interest 2.7 2.7 1.9 2.7 (4.9) (34.6)
Net income 3.5 4.2 2.3 4.1 (21.8) (48.5)
Second Quarter Comparison for Fiscal Years 1997 and 1996
- --------------------------------------------------------
Net revenue for the fiscal quarter ended November 30, 1996 totaled $21,282, a
decrease of 6.3 percent from net revenue of $22,701 for the second quarter of
the prior fiscal year. The decline in net revenue for the quarter ended November
30, 1996 was primarily due to a 29 percent decline in net revenue from federal
contracts, partially offset by a 49 percent increase in net revenue from
international operations. Sales of services to all public sector clients
decreased by approximately 18 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 48 percent in the prior year. Net revenue from
domestic industrial sector clients, while virtually unchanged from the prior
fiscal quarter, was 5 percent lower than in the second quarter of the prior
fiscal year. Excluding international, the decrease in net revenue was due to
lower demand for the Company's services while prices were essentially unchanged
compared to the same period in the prior fiscal year. International net revenue
for the fiscal quarter ended November 30, 1996 was $1,700 or 8 percent of total
net revenue compared to $1,138 or 5 percent of total net revenue 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 clients. During fiscal 1997, certain of these public
sector contracts will be substantially completed. The Company has been awarded
certain 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 any
congressional action on pending environmental regulations.
Operating income amounted to $1,230, a decrease of 10.5 percent from $1,375 for
the same period in fiscal 1996. Operating margin decreased to 5.8 percent of net
revenue in the current quarter compared to 6.0 percent in the second quarter of
fiscal 1996. While the Company continued to lower its operating costs, such
reductions were not sufficient to offset the effect of lower net revenue
discussed above. Management is continuing efforts to better align the Company's
cost structure with current revenue levels.
Net interest income for the second quarter ended November 30, 1996 was $157, a
decrease of $37 or 19 percent from the same quarter in the previous year. Net
interest income is lower due to interest expense on capital leases in our
Australian subsidiary and a reduction in interest rates on our invested 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,
in the second fiscal quarter. The Company's minority position in both entities
is accounted for using the equity method. The Company's portion of the second
quarter loss for these investments was $57.
The effective tax rate was 41.9 percent for the second quarter of fiscal 1997
and was 39.6 percent in the second 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 $750 compared with $959 in the second quarter of
fiscal 1996, a decrease of 21.8 percent. Earnings per share were $0.15 on
4,996,000 weighted average shares outstanding compared to $0.20 per share on
4,871,000 weighted average shares outstanding in the same period last year.
Six Month Comparison for Fiscal Years 1997 and 1996
- ---------------------------------------------------
Net revenue for the six months ended November 30, 1996 amounted to $42,261 a
decrease of 6.9 percent from net revenue of $45,409 for the six months ended
November 30, 1995. The decrease in net revenue was due primarily to lower
federal agency work and a 4 percent decline in commercial sales compared to the
six months ended November 30, 1995, partially offset by higher international
sales. Domestically the Company experienced lower demand for its services with
virtually no change in pricing for those services.
Operating income amounted to $1,534 a decrease of 43.8 percent from operating
income of $2,731 for the first six months of the prior year. The operating
margin decreased to 3.6 percent from 6.0 percent a year ago. The Company
continued to lower its operating expenses, but the reductions were not
sufficient to offset the effect of lower revenue discussed above.
Net interest income for the six months ended November 30, 1996 was $341, a
decrease of 8 percent from net interest income of $370 for the second quarter of
the prior fiscal year. The decrease was due to interest expense on capital
leases in our Australian operations and a decline in interest rates offset by an
increase in invested cash.
The effective tax rate for the six months ended November 30, 1996 was 43.2
percent and for the six months ended November 30, 1995 was 39.4. 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 six months was $976, down from net income of $1,894 for the
six month period in the prior year, a decrease of 48.5 percent. Earnings per
share were $0.20 on 4,958,000 weighted average shares outstanding compared to
$0.39 on 4,837,000 weighted average shares outstanding in the first six month
period of the prior year.
Liquidity and Capital Resources
- -------------------------------
For the six months ended November 30, 1996, net cash used in operations was $962
compared to net cash provided by operations of $2,226 for the same period last
year. The increase in cash used in operations was primarily due to an increase
in the Company's receivables, 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 second
quarter of fiscal 1996 resulting in delays in collection of the billed fees.
Such delays are expected to be resolved in the Company's third quarter.
The Company made capital expenditures of $1,109 in the first six months of
fiscal 1997 compared to capital expenditures of $1,043 in the first six 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 incurred in 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 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 is provided a $5
million per occurrence professional liability policy and a $5 million per
occurrence contractor's pollution insurance policy through an unrelated, rated
carrier. The Company also maintains general liability insurance policy with an
unrelated, rated carrier.
At November 30, 1996, the Company had cash on hand and cash equivalents of
$16,800. The Company has a $20 million revolving credit line agreement which
expires in October 1997. At November 30, 1996 and 1995, 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 5.6 percent at November
30, 1996, and 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 repurchased 23,500
shares for $159 in the second fiscal quarter of 1997 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the Registrant was held on October 30, 1996 and two
proposals were presented to security holders for a vote; election of two
directors and ratification of independent auditors.
The seven-member Board of Directors is divided into three classes. Each
year one of the classes stands for election to a term of three years. The class
standing for election at the 1996 annual meeting was Class III, consisting of
two incumbent directors: Richard S. Harding and Donald L. Schreuder. The terms
for Class I Directors, Retired Rear Admiral Stuart F. Platt, Barton W.
Shackelford, and Donald K. Stager expire in 1997, and the terms for Class II
Directors, Richard D. Puntillo and James M. Edgar expire in 1998.
The following table lists the votes cast:
For Withheld
Proposal 1
Election of Directors
Richard S. Harding 3,909,188 106,920
Donald L. Schreuder 3,906,167 109,941
For Against Abstain
Proposal 2
Ratification of Ernst & Young, LLP
Independent Auditors 3,986,873 23,825 5,410
<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
November 30, 1996:
Exhibit No. 11 Computation of Per Share Earnings
Exhibit No. 27 Financial Data Schedule
b. Reports on Form 8-K
None
<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: January 10, 1997 /s/ Donald L. Schreuder
-----------------------
Donald L. Schreuder
President and Chief Executive Officer
(Principal Executive Officer)
Date: January 10, 1997 /s/ Gregory A. Thornton
-----------------------
Gregory A. Thornton
Vice President and Chief Financial
Officer
(Principal Accounting Officer)
<PAGE>
HARDING LAWSON ASSOCIATES GROUP, INC.
EXHIBIT INDEX
Exhibit No.
11 Computation of Per Share Earnings
27 Financial Data Schedule
Exhibit No. 11
HARDING LAWSON ASSOCIATES GROUP, INC.
Computation of Per Share Earnings
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
November 30, November 30,
1996 1995 1996 1995
- --------------------------------------------------------------------------------
PRIMARY
Average shares outstanding 4,980 4,845 4,933 4,803
Net effect of dilutive stock options
based on the modified treasury stock
method using the average market price 16 26 25 34
- --------------------------------------------------------------------------------
TOTAL 4,996 4,871 4,958 4,837
================================================================================
Net income $ 750 $ 959 $ 976 $1,894
================================================================================
Net income per share $ 0.15 $ 0.20 $ 0.20 $ 0.39
================================================================================
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<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 16800
<SECURITIES> 0
<RECEIVABLES> 36145
<ALLOWANCES> 1397
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<CURRENT-ASSETS> 54656
<PP&E> 21784
<DEPRECIATION> 17380
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0
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<COMMON> 50
<OTHER-SE> 45852
<TOTAL-LIABILITY-AND-EQUITY> 65804
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<TOTAL-REVENUES> 63230
<CGS> 0
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<INCOME-TAX> 763
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