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, 1998 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 2, 1998 the registrant had issued and outstanding an aggregate of
4,986,690 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, 1998 (Unaudited) and
May 31, 1997.................................................................3
Condensed Consolidated Statements of Income -
Three and Nine Months Ended February 28, 1998 and
February 28, 1997 (Unaudited)................................................4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended February 28, 1998 and
February 28, 1997 (Unaudited)...............................................5
Notes to Condensed Consolidated Financial Statements
February 28, 1998 (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..................................11
SIGNATURES....................................................................12
EXHIBIT INDEX.................................................................13
<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)
February 28, 1998 May 31, 1997
- -------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $26,864 $24,464
Accounts receivable 21,208 22,911
Unbilled work in progress 3,843 6,221
Less allowances for receivables and
unbilled work (1,356) (1,387)
Prepaid expenses 1,211 1,073
Deferred income taxes 2,864 2,691
- ----------------------------------------------------------------------------------------------------------
Total current assets 54,634 55,973
- ----------------------------------------------------------------------------------------------------------
Equipment 23,604 21,701
Less accumulated depreciation (19,312) (17,299)
- -----------------------------------------------------------------------------------------------------------
Net equipment 4,292 4,402
- ----------------------------------------------------------------------------------------------------------
Deposits and other assets 6,178 5,980
- ----------------------------------------------------------------------------------------------------------
Total assets $65,104 $66,355
==========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $3,654 $4,538
Accrued expenses 4,528 4,845
Accrued compensation 5,229 6,632
Income taxes payable 561 1,962
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 13,972 17,977
Other liabilities 1,412 1,453
- ----------------------------------------------------------------------------------------------------------
Total liabilities 15,384 19,430
- ----------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Minority interest in subsidiaries 336 323
- ----------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock--$.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--4,986,193
and 4,864,503 at February 28,1998
and May 31, 1997, respectively 50 49
Additional paid-in capital 18,698 17,982
Retained earnings 30,636 28,571
- ----------------------------------------------------------------------------------------------------------
Total shareholders' equity 49,384 46,602
- ----------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $65,104 $66,355
==========================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
HARDING LAWSON ASSOCIATES GROUP, INC.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
February 28, February 28,
1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross revenue $28,040 $28,364 $93,486 $91,594
Less: Cost of outside services 8,959 8,844 31,444 29,813
- ----------------------------------------------------------------------------------------------------------
Net revenue 19,081 19,520 62,042 61,781
- ----------------------------------------------------------------------------------------------------------
Costs and expenses:
Payroll and benefits 13,250 13,102 41,759 42,109
General expenses 5,629 5,605 17,489 17,325
- ----------------------------------------------------------------------------------------------------------
Total costs and expenses 18,879 18,707 59,248 59,434
- ----------------------------------------------------------------------------------------------------------
Operating income 202 813 2,794 2,347
Interest in loss of unconsolidated
subsidiaries -- (180) (50) (290)
Interest income, net 277 183 784 524
- ----------------------------------------------------------------------------------------------------------
Income before provision for income taxes
and minority interest 479 816 3,528 2,581
Provision for income taxes 168 370 1,450 1,133
Minority interest 57 (16) 13 10
- ----------------------------------------------------------------------------------------------------------
Net income $254 $462 $2,065 $1,438
==========================================================================================================
Basic and diluted earnings
per common share $ .05 $ .09 $ .41 $ .29
=========================================================================================================
Shares used in basic
per share calculation 4,986 4,942 5,016 4,938
==========================================================================================================
Shares used in diluted per share calculation 5,142 4,974 5,097 4,963
==========================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
HARDING LAWSON ASSOCIATES GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
February 28,
1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $2,065 $1,438
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,899 1,920
Net (increase) decrease in current assets 3,738 (4,626)
Net increase (decrease) in current liabilities (3,258) 1,974
Other (decrease) (249) (127)
- -----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 4,195 579
- ----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net purchase of equipment (1,738) (1,804)
- -----------------------------------------------------------------------------------------------------------
NET CASH USED IN
INVESTING ACTIVITIES (1,738) (1,804)
- -----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from sale of common stock 348 95
Repurchase of common stock (405) (577)
- -----------------------------------------------------------------------------------------------------------
NET CASH USED IN
FINANCING ACTIVITIES (57) (482)
- -----------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 2,400 (1,707)
Cash and cash equivalents
at beginning of period 24,464 19,012
- ----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $26,864 $17,305
==========================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
HARDING LAWSON ASSOCIATES GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
February 28, 1998
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, 1997. Reclassification of certain balances for the fiscal year
ended May 31, 1997 have been made to conform to the February 28, 1998
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 28) was issued and is effective for the year ending
May 31, 1998. The Company has changed its method for computing earnings per
share for both the three months and nine months ended February 28, 1998, and
restated the same periods in the prior year. The new method requires calculation
of basic earnings per share excluding the dilutive effect of common stock
equivalents such as stock options and warrants. The impact of this change was
not material.
<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 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 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 Percentage
Three Months Ended Nine Months Ended Increase/(Decrease)
February 28, February 28, February 28,
Three Months Nine Months
1998 1997 1998 1997 1998 vs 1997 1998 vs 1997
---- ---- ---- ---- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue 100.0% 100.0% 100.0% 100.0% (2.3%) 0.4%
Costs and expenses
Payroll and benefits 69.4 67.1 67.3 68.2 1.1 (0.8)
General expenses 29.5 28.7 28.2 28.0 0.4 0.9
Operating income/margin 1.1 4.2 4.5 3.8 (75.2) 19.0
Interest income, net and
interest in loss of uncon-
solidated subsidiaries 1.4 0.0 1.2 0.4 N/A 214.6
Income before income taxes
and minority interest 2.5 4.2 5.7 4.2 (41.3) 36.7
Provision for income taxes
and minority interest 1.2 1.8 2.4 1.9 (36.3) 28.0
Net income 1.3 2.4 3.3 2.3 (45.1) 43.6
</TABLE>
<PAGE>
Third Quarter Comparison for Fiscal Years 1998 and 1997
- -------------------------------------------------------
Net revenue for the fiscal quarter ended February 28, 1998 totaled $19,081, a
decrease of 2.3% from net revenue of $19,520 for the third quarter of the prior
fiscal year. The decline in net revenue was primarily due to a 21% decline from
the public sector net revenue, and a 3% decline in net revenue from
international operations, partially offset by a 13% increase in revenue from
domestic industrial contracts. The decrease in public sector net revenue was
reflected equally in both federal and state and local contracts. Overall, net
revenue from public sector contracts accounted for 38% of total net revenue
compared to 46% in the prior year. Net revenue from domestic industrial clients
has increased over the previous quarter for each of the three quarters this
fiscal year. The improvement in the industrial sector was primarily due to
growth in environmental services outside the site restoration market.
Domestically, net revenue declined in the third quarter due to lower demand for
the Company's services, partially offset by higher prices compared to the same
period in the prior year. Net revenue from international operations for the
fiscal quarter ended February 28, 1998 was $1,266 or 7% of total net revenue
compared to $1,323 or 7% in the prior fiscal year.
Operating income was $202 in the third quarter of fiscal 1998, a decrease of 75%
from $813 for the same period in fiscal 1997. Operating margin decreased to 1.1%
of net revenue in the current quarter compared to 4.2% in the third quarter of
fiscal 1997. The decrease in operating income and margin was primarily due to
the lower net revenue discussed above, compounded by slightly higher payroll
costs and general expenses.
During the third quarter of the prior fiscal year the Company recorded losses of
$180 from operations of two limited liability companies. The Company has since
written off the remaining investment and as such no losses have been recognized
in the third quarter of fiscal 1998.
Net interest income for the third quarter ended February 28, 1998 rose by $94
compared to the prior year due primarily to a $8.7 million increase in the
average cash balance compared to the third quarter of last year.
The effective tax rate was 35% for the third quarter of fiscal 1998 and was 45%
in the third quarter of fiscal 1997. The decrease in the tax rate was
attributable to profits from the international operations for which the Company
had prior year losses where no tax benefits had been recorded.
Net income for the quarter was $254 compared with $462 in the third quarter of
fiscal 1997, a decrease of 45%. Basic and diluted earnings per share were $0.05
on 4,986,000 and 5,142,000 weighted average shares outstanding, respectively
compared to $0.09 per share on 4,942,000 and 4,974,000 weighted average shares
outstanding, respectively in the same period last year. The increase in the
weighted average diluted shares outstanding was primarily due to the increase in
the price per share of the Company's common stock, resulting in an increase in
share equivalents used in the per share calculation
<PAGE>
Nine Month Comparison for Fiscal Years 1998 and 1997
- ----------------------------------------------------
Net revenue for the nine months ended February 28, 1998 was $62,042, slightly
higher than for the nine months ended February 28, 1997 of $61,781. The increase
in net revenue was due primarily to an increase in both public sector and
industrial sales, partially offset by a decline in international sales.
Domestically, the Company received higher prices for its services sufficient to
offset lower demand. Net revenue from international operations was down 17%
compared to the same nine months in the prior fiscal year.
Operating income was $2,794, an increase of 19% from operating income of $2,347
for the nine months ended February 28, 1998. The operating margin increased to
4.5% from 3.8% a year ago. The improved operating income and margin was due
primarily to lower payroll costs experienced earlier in the fiscal year compared
to the prior year, and to a lesser extent, improved pricing for the Company's
services.
Interest in the loss of unconsolidated subsidiaries was $50 for the nine months
ended February 28, 1998 compared to a loss of $290 in the same period of the
prior fiscal year. The $50 represents the final write down of such investments,
and the Company does not intend to make further investments in these companies.
Net interest income for the nine months ended February 28, 1998 was $784, an
increase of 50% from net interest income of $524 for the same period of the
prior fiscal year. The increase was primarily due to a $7.4 million increase in
the average cash balance compared to the prior year.
The effective tax rate for the nine months ended February 28, 1998 was 41% and
for the nine months ended February 28, 1997 was 44%. The effective tax rate in
fiscal 1997 reflected the impact of losses from the start-up of certain
international operations for which no tax benefit was realized.
Net income for the nine months was $2,065, higher than net income of $1,438 for
the nine month period in the prior year, an increase of 44 percent. Basic and
diluted earnings per share were $0.41 on 5,016,000 and 5,097,000 weighted
average shares outstanding, respectively compared to $0.29 on 4,938,000 and
4,963,000 weighted average shares outstanding, respectively in the first nine
month period of the prior year. The increase in weighted average diluted shares
outstanding was primarily due to the increase in the price per share of the
Company's common stock, resulting in an increase in share equivalents used in
the per share calculation.
<PAGE>
Liquidity and Capital Resources
- -------------------------------
For the nine months ended February 28, 1998, net cash provided by operations was
$4,195 compared to $579 for the first nine months of the prior year. The
increase in cash provided by operations was primarily due to a decrease in the
Company's receivables, partially offset by a decrease in current liabilities,
and by an increase in prepaid taxes in the current fiscal year. The decrease in
trade receivables was primarily due to more focused management of billing and
collections this fiscal year compared with the same period in the prior fiscal
year.
The Company made net capital expenditures of $1,738 in the first nine months of
fiscal 1998 compared to net capital expenditures of $1,804 in the first nine
months of the prior year. The Company anticipates that its capital expenditures,
excluding acquisitions, for the current fiscal year will be approximately the
same as those incurred in the prior fiscal year. The Company made a payment of
$197 in the first fiscal quarter of 1998 under terms of an acquisition agreement
related to an acquisition completed in fiscal 1994.
At February 28, 1998 the Company had cash on hand and cash equivalents of
$26,864. The Company has a $20 million revolving credit line agreement that
expires in November 1999. At February 28, 1998 and 1997, 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 an interest rate of
5.7% at February 28, 1998 and May 31, 1997. The Company is in compliance with
all convenants pertaining to the credit line agreement.
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, 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 contractor's pollution insurance policy through an unrelated, rated
carrier. The Company also maintains a general liability insurance policy with an
unrelated, rated carrier.
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
46,300 shares for $405 in the first nine months of fiscal 1998 under this
program compared to 83,500 shares for $577 in the same period of the prior 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 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, 1998:
Exhibit No. 11 Computation of Per Share Earnings
Exhibit No. 27 Financial Data Schedule (Electronic copy only)
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: April 3, 1998 /s/ Donald L. Schreuder
-----------------------
Donald L. Schreuder
President and Chief Executive Officer
(Principal Executive Officer)
Date: April 3, 1998 /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
<TABLE>
<CAPTION>
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
February 28, February 28,
1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average basic shares outstanding 4,986 4,942 5,016 4,938
Net effect of dilutive stock options
based on the treasury stock
method. 156 32 81 25
- --------------------------------------------------------------------------------------------------------------
Average diluted shares outstanding 5,142 4,974 5,097 4,963
==============================================================================================================
Net income $ 254 $ 462 $2,065 $1,438
==============================================================================================================
Basic and diluted earnings per
common share $ .05 $ .09 $ .41 $ .29
==============================================================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 26864
<SECURITIES> 0
<RECEIVABLES> 25051
<ALLOWANCES> 1356
<INVENTORY> 0
<CURRENT-ASSETS> 54634
<PP&E> 23604
<DEPRECIATION> 19312
<TOTAL-ASSETS> 65104
<CURRENT-LIABILITIES> 13972
<BONDS> 0
0
0
<COMMON> 50
<OTHER-SE> 49334
<TOTAL-LIABILITY-AND-EQUITY> 65104
<SALES> 0
<TOTAL-REVENUES> 93486
<CGS> 0
<TOTAL-COSTS> 31444
<OTHER-EXPENSES> 59248
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23
<INCOME-PRETAX> 3528
<INCOME-TAX> 1450
<INCOME-CONTINUING> 2065
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2065
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.41
</TABLE>
