SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
(Amendment No. 1)
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): May 8, 1998
HARDING LAWSON ASSOCIATES GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
0-16169 68-0132062
(Commission File Number) (I.R.S. Employer Identification No.)
7655 Redwood Boulevard, Novato, California 94945
(Address of Principal Executive Offices)
(415) 892-0821
(Registrant's Telephone Number, Including Area Code)
<PAGE>
The undersigned Registrant hereby amends the following item of its Current
Report on Form 8-K for the event of May 8, 1998:
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) AUDITED FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
(i) Independent Auditor's Report
(ii) ABB Environmental Services, Inc. Balance Sheet as of
December 31, 1997
(iii) ABB Environmental Services, Inc. Statement
of Operations for the Years Ended December
31, 1997 and 1996
(iv) ABB Environmental Services, Inc. Statements
of Changes in Stockholder's Equity for the
years ended December 31, 1997 and 1996
(v) ABB Environmental Services, Inc. Statements of Cash
Flows for the Years Ended December 31, 1997 and 1996
(vi) ABB Environmental Services, Inc. Notes to Financial
Statements
(b) UNAUDITED CONDENSED FINANCIAL STATEMENTS AND EXHIBITS
(i) ABB Environmental Services, Inc. Unaudited Condensed
Balance Sheet as of March 31, 1998
(ii) ABB Environmental Services, Inc. Unaudited Condensed
Statement of Operations for the Three Months Ended
March 31, 1998
(iii) ABB Environmental Services, Inc. Unaudited Condensed
Statement of Cash Flows for the Three Months Ended
March 31, 1998
(iv) ABB Environmental Services, Inc. Notes to Unaudited
Condensed Financial Statements
(c) PRO FORMA FINANCIAL INFORMATION
(i) Harding Lawson Associates Group, Inc. and ABB
Environmental Services, Inc. Unaudited Condensed Pro
Forma Combined Balance Sheet as of February 28, 1998
(ii) Harding Lawson Associates Group, Inc. and ABB
Environmental Services, Inc. Unaudited Condensed Pro
Forma Combined Statement of Income for the Nine
Months Ended February 28, 1998
(iii) Harding Lawson Associates Group, Inc. and ABB
Environmental Services, Inc. Unaudited Condensed Pro
Forma Combined Statement of Income for the Year
Ended May 31, 1997
(iv) Harding Lawson Associates Group, Inc. and ABB
Environmental Services, Inc. Notes to Unaudited
Condensed Pro Forma Combined Financial Statements
(d) EXHIBITS
23.1 Consent of Independent Certified Public Accountants
<PAGE>
Independent Auditors' Report
The Board of Directors
ABB Environmental Services, Inc.:
We have audited the accompanying balance sheet of ABB Environmental Services,
Inc. (a wholly owned subsidiary of ABB Service Inc.) as of December 31, 1997,
and the related statements of operations, changes in stockholder's equity, and
cash flows for each of the years in the two-year period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ABB Environmental Services,
Inc. as of December 31, 1997, and the results of its operations and its cash
flows for each of the years in the two-year period ended December 31, 1997, in
conformity with generally accepted accounting principles.
Boston, Massachusetts KPMG Peat Marwick LLP
January 19, 1998
<PAGE>
ABB ENVIRONMENTAL SERVICES, INC.
(A Wholly Owned Subsidiary of ABB Service Inc.)
Balance Sheet
December 31, 1997
(Dollars in thousands)
1997
----
Assets
Current assets:
Cash and cash equivalents $ 139
Receivables from clients, net (note 2):
Billed 10,203
Unbilled 3,651
Employee advances 41
Due from affiliated companies (note 5) 439
Prepaid expenses 302
Other current assets 26
--------
Total current assets 14,801
Equipment and leasehold improvements, net (note 3) 1,367
Other assets, net 95
--------
$ 16,263
========
Liabilities and Stockholder's Equity
Current liabilities:
Current installments of long-term debt $ 25
Accounts payable 2,085
Accrued expenses (note 6) 911
Accrued salaries and wages 2,670
Due to affiliated companies (note 5) 844
Billings in excess of costs and estimated earnings on
uncompleted contracts 1,379
Borrowings from affiliates (note 5) 2,252
-------
Total current liabilities 10,166
Postretirement health and life insurance benefit obligation 657
Long-term postemployment benefit obligation 638
-------
Total liabilities 11,461
-------
Stockholder's equity:
Common stock, no par value. Authorized, issued and
outstanding 1,000 shares -
Additional paid-in capital 14,530
Accumulated deficit (9,728)
-------
Total stockholder's equity 4,802
-------
Commitments and contingencies (notes 7 and 8)
$ 16,263
========
See accompanying notes to financial statements.
<PAGE>
ABB ENVIRONMENTAL SERVICES, INC.
(A Wholly Owned Subsidiary of ABB Service Inc.)
Statements of Operations
Years ended December 31, 1997 and 1996
(Dollars in thousands, except per share data)
1997 1996
---- ----
Fees from professional services (notes 1, 5 and 9) $ 51,348 58,708
------ ------
Cost of professional services:
Direct salaries and wages 12,749 13,563
Overhead 15,568 18,094
Other direct costs 15,055 20,885
------ ------
Total cost of professional services 43,372 52,542
------ ------
Gross profit 7,976 6,166
------- -------
Operating expenses:
General and administrative 2,917 6,103
Marketing and selling 3,091 1,634
Other operating expenses 191 250
------ ------
Total operating expenses 6,199 7,987
Income (loss) from operations 1,777 (1,821)
------ -------
Other income (expense):
Interest income 4 1
Interest expense (372) (446)
------- ---------
Total other expense, net (368) (445)
-------- --------
Income (loss) before provision for
income taxes 1,409 (2,266)
Provision for income taxes (note 4) 615 62
------ -------
Net income (loss) $ 794 (2,328)
======= =======
Basic and diluted earnings (loss) per share $ 794 (2,328)
======= =======
Weighted average common shares outstanding 1,000 1,000
======= =======
See accompanying notes to financial statements.
<PAGE>
ABB ENVIRONMENTAL SERVICES, INC.
(A Wholly Owned Subsidiary of ABB Service Inc.)
Statements of Changes in Stockholder's Equity
Years ended December 31, 1997 and 1996
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Additional Total
Common stock paid-in Accumulated stockholder's
Shares Amount capital deficit equity
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 1,000 $ - 14,557 (8,194) 6,363
Net loss - - - (2,328) (2,328)
Dividend paid to Parent
($545 per share) - - (545) - (545)
------ ------ ------- ------ -------
Balance at December 31, 1996 1,000 - 14,012 (10,522) 3,490
Net income - - - 794 794
Contribution from Parent
(note 4) - - 518 - 518
------ ------ ----- ------ -----
Balance at December 31, 1997 1,000 $ - 14,530 (9,728) 4,802
====== ====== ====== ======= =====
</TABLE>
See accompanying notes to financial statements.
<PAGE>
ABB ENVIRONMENTAL SERVICES, INC.
(A Wholly Owned Subsidiary of ABB Service Inc.)
Statements of Cash Flows
Years ended December 31, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 794 $(2,328)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 906 1,028
Charge in lieu of income taxes (note 4) 518 --
Loss on disposal of fixed assets 8 75
Changes in operating assets and liabilities:
Decrease in client and other receivables, net 3,562 2,430
Decrease in due from/to affiliated companies 899 204
(Increase) decrease in prepaid expenses and other
current assets (18) 96
Decrease in other assets 31 313
Decrease in accounts payable, accrued salaries and wages,
benefit obligations and accrued expenses (2,562) (688)
Decrease in billings in excess of costs and estimated
earnings on uncompleted contracts (113) (896)
-------- --------
Net cash provided by operating activities 4,025 234
------- --------
Cash flows from investing activities:
Capital expenditures (239) (729)
Proceeds from sale of fixed assets - 7
------- -------
Net cash used in investing activities (239) (722)
Cash flows from financing activities:
Principal payments on long-term debt (52) (61)
Dividend payments - (545)
Increase (decrease) in borrowings from affiliates (3,843) 1,100
------- -----
Net cash (used in) provided by
financing activities (3,895) 494
------- ------
Net change in cash and cash equivalents (109) 6
Cash and cash equivalents, beginning of year 248 242
------ ------
Cash and cash equivalents, end of year $ 139 $ 248
======= =======
Supplemental disclosures of cash flow information:
Cash paid for interest $ 270 380
======= =======
Cash paid for income taxes, net of refunds $ 38 $ 44
======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
ABB ENVIRONMENTAL SERVICES, INC.
(A Wholly Owned Subsidiary of ABB Service Inc.)
Notes to Financial Statements
December 31, 1997 and 1996
(Dollars in thousands)
(1) Summary of Significant Accounting Policies
(a) Description of Business
ABB Environmental Services, Inc. is a wholly owned subsidiary
of ABB Service Inc. which, in turn, is a wholly owned
subsidiary of Asea Brown Boveri Inc. (the "Parent"). The
primary business of ABB Environmental Services, Inc. (the
Company) is to provide environmental consulting services.
Government entities account for approximately 63% of the
Company's business and the remaining portion is spread evenly
among industries and geographic regions in the United States.
The Company grants credit under credit terms that are
customary in the industry.
(b) Cash Equivalents
Cash equivalents include amounts invested with ABB Treasury
Center (USA), Inc. with original maturities of less than
ninety days from issue date.
(c) Revenue Recognition
The Company recognizes revenues as services are performed for
clients, using the percentage of completion method of
accounting measured by the percentage of costs incurred to
date to the estimated total costs for each contract. Changes
in estimated profits on contracts are reflected during the
period in which the change in estimate is made. Anticipated
losses on contracts are charged to earnings when such losses
can be reasonably estimated.
(d) Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost.
Equipment is depreciated using the straight-line method over
the estimated useful lives of the assets. Leasehold
improvements are amortized using the straight-line method over
the shorter of their estimated useful lives or the lease
terms.
(e) Income Taxes
The Company uses the asset and liability method of accounting
for income taxes. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases.
<PAGE>
ABB ENVIRONMENTAL SERVICES, INC.
(A Wholly Owned Subsidiary of ABB Service Inc.)
Notes to Financial Statements, Continued
(Dollars in thousands)
(1) Summary of Significant Accounting Policies, Continued
The Company is included in the consolidated federal and
certain state income tax returns of the Parent. Current taxes
provided in these financial statements that exceed any
allocated liability under the tax sharing provisions of the
Parent plus any tax liability arising from separately filed
tax returns are not liabilities of the Company and are shown
in the financial statements as a contribution to capital. Tax
attributes related to carrybacks and carryforwards for those
returns filed on a consolidated basis are not retained at the
subsidiary level. Tax sharing provisions followed by the
Parent and its affiliates provide for the allocation of
liability based upon the consolidated current tax paying
position of the Parent.
(f) Long-Lived Assets
In 1996, the Company adopted Financial Accounting Standards
Board Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of
("SFAS 121"). SFAS 121 establishes accounting standards for
the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to (1) those assets to be
held and used in the business, and (2) for assets to be
disposed of. There was no effect on the Company's financial
statements as a result of the adoption of SFAS 121.
(g) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and
liabilities to prepare these financial statements in
conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
(h) Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash,
accounts receivable and accounts payable approximate fair
value as of December 31, 1997 because of the relatively short
maturity of these instruments.
<PAGE>
ABB ENVIRONMENTAL SERVICES, INC.
(A Wholly Owned Subsidiary of ABB Service Inc.)
Notes to Financial Statements, Continued
(Dollars in thousands)
(1) Summary of Significant Accounting Policies, Continued
(i) Earnings Per Share
In 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, Earnings Per Share, which requires
computation and presentation of basic and diluted earnings per
share. Basic earnings per share (EPS) is calculated by
dividing net income applicable to common stockholders by the
weighted average number of common shares outstanding during
the period. Diluted EPS is the same as basic EPS since there
were no potentially dilutive common shares that were
outstanding during any of the two years.
(j) Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income (SFAS 130). SFAS 130 requires
that all items that are required to be recognized under
accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the
same prominence as other financial statements. The Company
plans to adopt this statement on January 1, 1998, as required.
In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information (SFAS-131). This statement
established standards for reporting information about
operating segments in interim and annual financial reports
issued to shareholders. It also established standards for
related disclosure about products and services, geographic
areas, and major customers. The Company plans to adopt this
statement on January 1, 1998, as required.
In February 1998, the FASB issued Statement of Financial
Accounting Standard No. 132, Employers' Disclosure about
Pension and Other Postretirement Benefits (SFAS 132), which
revises employers' disclosures about pensions and other
postretirement benefit plans, and does not change the
measurement or recognition of those plans. The Company plans
to adopt this statement on January 1, 1998, as required.
In June 1998, the FASB issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133). This statement
established the accounting and reporting standards for
derivative instruments embedded in other contracts and for
hedging activities. At December 31, 1997, the Company was not
engaged in derivative or hedging activities.
<PAGE>
ABB ENVIRONMENTAL SERVICES, INC.
(A Wholly Owned Subsidiary of ABB Service Inc.)
Notes to Financial Statements, Continued
(Dollars in thousands)
(2) Receivables from Clients
Receivables from clients at December 31, 1997 are comprised of the
following:
1997
Receivables billed:
Currently receivable $ 8,531
Retainage 2,122
--------
10,653
Less allowance for doubtful accounts 450
--------
$ 10,203
========
Retainage at December 31, 1997, includes approximately $277 which is
not expected to be collected within one year.
Unbilled receivables consist of revenues earned on contracts in process
as of December 31, 1997 which had not yet been invoiced as of that
date.
(3) Equipment and Leasehold Improvements
The components of equipment and leasehold improvements are as follows
at December 31, 1997:
1997
Equipment $ 6,721
Leasehold improvements 543
-------
7,264
Less accumulated depreciation and amortization (5,897)
-------
$ 1,367
=======
Depreciation is calculated using the straight-line method over the
following estimated useful lives:
Equipment 3-8 years
Leasehold improvements 6 years (or over the lease terms
whichever is less)
<PAGE>
ABB ENVIRONMENTAL SERVICES, INC.
(A Wholly Owned Subsidiary of ABB Service Inc.)
Notes to Financial Statements, Continued
(Dollars in thousands)
(4) Income Taxes
The components of the income tax provision consist of the following:
1997 1996
---- ----
Current:
Federal $ 470 $ -
State 145 62
------ ------
Provision for income taxes $ 615 $ 62
====== ======
The provision for income taxes differs from the amount that would be
computed using the 35% U.S. federal income tax rate due to state taxes.
For federal and certain state income tax reporting purposes, the
Company's results are included in its Parent's consolidated tax
returns.
Under the tax sharing provisions of the Parent, current taxes provided
in excess of the sum of any allocated consolidated liability and state
tax returns filed on a stand-alone basis are reported as contributions
to capital. Accordingly, $518 and $0 are reported as a contribution to
capital in 1997 and 1996, respectively.
Deferred income taxes are recorded based upon differences between the
financial statements and the tax basis of assets and liabilities, net
of a valuation allowance. At December 31, 1997, the Company had no
deferred tax liabilities. A deferred tax asset of $1,828 is recorded at
December 31, 1997 as follows:
Deferred tax assets:
Fixed assets $397
Allowance for bad debts 180
Worker's compensation 22
Accrued vacation 440
Postretirement health and life
insurance benefit obligation 263
Postemployment benefit obligation 368
Other 158
-------
Total gross deferred tax asset 1,828
Less valuation allowance 1,828
-------
Net deferred tax asset $ -
=======
A valuation allowance of $1,828 is recorded against the deferred tax
asset at December 31, 1997, since management believes that it is more
probable than not that the deferred tax asset will not be realized.
There was a decrease in the valuation allowance of $30 during 1997 due
to a decrease in nondeductible accruals and an increase in the
valuation allowance of $604 during 1996 due to an increase in
nondeductible accruals.
<PAGE>
ABB ENVIRONMENTAL SERVICES, INC.
(A Wholly Owned Subsidiary of ABB Service Inc.)
Notes to Financial Statements, Continued
(Dollars in thousands)
(5) Related Party Transactions
Included in fees from professional services are revenues from
affiliates for the years ended December 31, 1997 and 1996 of $1,941 and
$3,576, respectively.
Notes payable to ABB Treasury Center (USA), Inc. consist of the follow-
ing at December 31, 1997:
Amount $ 1,300 $400
Interest rate 6.225% 6.0375%
Date due January 6, 1998 January 7, 1998
The Company participates in a cash pooling arrangement with its Parent.
The net borrowing was $552 at December 31, 1997.
Due from/to affiliated companies results from services provided to/by
related companies.
(6) Benefit Plans
Pension Plan
Substantially all of the Company's employees are included in a
noncontributory defined benefit pension plan (the "Plan") provided by
the Parent. The Company makes payments to the Parent to cover its
allocated expense, therefore, there is no accrued pension liability or
asset recorded by the Company at December 31, 1997. The expense
associated with the Plan was $815 in 1997 and $910 in 1996. Under the
terms of the Plan, retirement benefit calculations take into
consideration, among other things, years of credited service and
compensation levels.
401(k) Plan
Company employees may participate in the Parent-sponsored 401(k)
retirement savings plan whereby 50% of each employee's contribution is
matched to a maximum of 3% of the employee's annual compensation. For
the years ended December 31, 1997 and 1996, the Company's expense
related to the 401(k) Plan totaled $538 and $494, respectively.
Retiree Health and Life Insurance Benefits
The Company, in conjunction with a Parent-sponsored plan, provides
health care and life insurance benefits for eligible retired employees,
generally those with ten or more years of service who meet certain
minimum age criteria. Significant plan provisions include flexible
benefit coverage, retiree contributions and limitations on the
Company's contributions.
<PAGE>
ABB ENVIRONMENTAL SERVICES, INC.
(A Wholly Owned Subsidiary of ABB Service Inc.)
Notes to Financial Statements, Continued
(Dollars in thousands)
(6) Benefit Plans, Continued
The Company recognizes the cost of postretirement health care benefits
on the accrual basis as employees render service, based on an
allocation from the Parent. The accrued postretirement health and life
insurance benefit obligation was $657 at December 31, 1997. The net
periodic postretirement benefit cost was $216 and $205 for 1997 and
1996, respectively.
Postemployment Benefits
The Company, in connection with a Parent-sponsored plan, provides
certain postemployment benefits, primarily severance, to qualifying
former or inactive employees following employment but before
retirement. The Company accrues for the cost of the benefits based on
an allocation from the Parent. At December 31, 1997, the Company had
accrued an obligation for postemployment benefits of $920; the current
portion of the obligation, $282, is included in accrued expenses.
(7) Leases
The Company rents various office facilities and certain equipment under
noncancellable operating leases. The office facility leases contain a
renewal option for periods ranging from month-to-month to 5 years, at
substantially the same lease payments, and require the Company to pay
all executory cost such as maintenance, taxes, and insurance. In most
cases, management expects that in the normal course of business, leases
will be renewed or replaced by others. Future minimum annual lease
payments (principally office facilities) at December 31, 1997, are as
follows:
1998 $ 1,292
1999 756
2000 711
2001 514
-------
$ 3,273
=======
Rent expense for the years ended December 31, 1997 and 1996
approximated $2,884 and $3,106, respectively.
(8) Contingencies
The Company is involved with various claims and legal action arising in
the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the Company's financial position, results of operations or
liquidity.
<PAGE>
ABB ENVIRONMENTAL SERVICES, INC.
(A Wholly Owned Subsidiary of ABB Service Inc.)
Notes to Financial Statements, Continued
(Dollars in thousands)
(9) Business and Credit Concentrations
The Company's primary line of business, environmental services, is
significantly impacted by the United States defense and environmental
research and clean-up budgets. As the government continues to reduce
budget allocations for defense and environmental research and clean-up
expenditures, sales to customers operating in these industries may be
adversely affected.
A single customer represented 35% and 28% of the Company's revenues in
1997 and 1996, respectively. No other single customer represented 10%
or more of the Company's revenues in 1997 or 1996.
(10) Subsequent Event (Unaudited)
On May 8, 1998, Harding Lawson Associates Group, Inc. acquired all of
the outstanding shares of ABB Environmental Services, Inc. from ABB
Service Inc. The total consideration of $13,500,000 was paid entirely
in cash.
ABB Service Inc. retained all obligations with respect to the Company's
employee benefit plans, including pension, 401(k), postemployment and
retiree health and life insurance obligations as of the closing date.
ABB Service Inc. also retained the Company's payroll related
liabilities, certain accrued intercompany fees, the Company's net cash
position to the Parent and prepaid insurance assets, all as of the
closing date.
<PAGE>
ABB Environmental Services, Inc.
(a wholly owned subsidiary of ABB Service Inc.)
Unaudited Condensed Balance Sheet
March 31, 1998
(Dollars in thousands)
Assets
Current assets:
Cash and cash equivalents $ 168
Receivables from clients, less allowance
for doubtful accounts of $450:
Billed 6,906
Unbilled 4,382
Employee advances 85
Due from affiliated companies 241
Prepaid expenses 567
-------
Total current assets 12,349
Equipment and leasehold improvements, net 1,194
Other assets, net 95
-------
$ 13,638
=======
Liabilities and stockholder's equity Current liabilities:
Current installments of long-term debt $ 16
Accounts payable 2,012
Accrued expenses 635
Accrued salaries and wages 2,238
Due to affiliated companies 339
Billings in excess of costs and estimated earnings on
uncompleted contracts 1,514
Borrowings from affiliates 708
-------
Total current liabilities 7,462
Benefit obligations 1,332
-------
8,794
Commitments and contingencies
Stockholder's equity:
Common stock, no par value; authorized, issued and outstanding
1,000 shares -
Additional paid-in capital 14,530
Accumulated deficit (9,686)
-------
Total stockholder's equity 4,844
-------
$13,638
=======
See accompanying notes to unaudited condensed financial statements.
<PAGE>
ABB Environmental Services, Inc.
(a wholly owned subsidiary of ABB Service Inc.)
Unaudited Condensed Statement of Operations
Three months ended March 31, 1998
(Dollars in thousands, except per share data)
Fees from professional services $11,258
Cost of professional services 9,728
------
Gross profit 1,530
Operating expenses 1,481
------
Income from operations 49
Other expense:
Interest expense 7
------
Net income $ 42
======
Basic and diluted earnings per share $ 42
======
Weighted average common shares outstanding 1,000
======
See accompanying notes to unaudited condensed financial statements.
<PAGE>
ABB Environmental Services, Inc.
(a wholly owned subsidiary of ABB Service Inc.)
Unaudited Condensed Statement of Cash Flows
Three months ended March 31, 1998
(Dollars in thousands)
Operating activities
Net income $ 42
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 173
Changes in operating assets and liabilities 1,367
------
Net cash provided by operating activities 1,582
Financing activities
Principal payments on long-term debt (9)
Decrease in borrowings from affiliates (1,544)
------
Net cash used in financing activities (1,553)
------
Net increase in cash and cash equivalents 29
Cash and cash equivalents, beginning of period 139
------
Cash and cash equivalents, end of period $ 168
======
Supplemental disclosure of cash flow information:
Cash paid for interest $ 7
======
See accompanying notes to unaudited condensed financial statements.
<PAGE>
ABB ENVIRONMENTAL SERVICES, INC.
(A Wholly Owned Subsidiary of ABB Service Inc.)
Notes to Unaudited Condensed Financial Statements
March 31, 1998
1. Basis of Presentation
The Company
The accompanying condensed financial statements have been prepared without audit
by ABB Environmental Services, Inc. (a wholly owned subsidiary of ABB Service
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 (for the
year ended December 31, 1997) included in the Harding Lawson Associates Group,
Inc. filing on Form 8-K/A, dated July 17, 1998.
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 or results of
operations of the Company.
3. Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
4. Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. The Company adopted this statement on January 1,
1998. No material differences between the Company's reported net income and
comprehensive net income existed for the three-month period ended March 31,
1998.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). This statement established standards for reporting information
about operating segments in interim and annual financial reports issued to
shareholders. It also established standards for related disclosure about
products and services, geographic areas, and major customers. The Company
adopted this statement on January 1, 1998 and operates in one operating segment.
In February 1998, the FASB issued Statement of Financial Accounting Standards
No. 132, "Employers' Disclosure about Pension and Other Postretirement Benefits"
("SFAS 132"), which revised employers' disclosures about pensions and other
postretirement benefit plans, and does not change the measurement or recognition
of those plans. The Company adopted this statement on January 1, 1998. The
adoption of this statement had no effect on the Company's results of operations
or financial position for the three-month period ended March 31, 1998.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). This statement established the accounting and reporting standards for
derivative instruments embedded in other contracts and for hedging activities.
At March 31, 1998, the Company was not engaged in derivative or hedging
activities.
5. Subsequent Event
On May 8, 1998, Harding Lawson Associates Group, Inc. acquired all of the
outstanding shares of ABB Environmental Services, Inc. from ABB Service Inc. The
total consideration of approximately $12,000,000 (purchase price of $13,500,000
less certain adjustments at close) is expected to be paid entirely in cash.
ABB Service Inc. retained all obligations with respect to the Company's employee
benefit plans, including pension, 401(k), postemployment and retiree health and
life insurance obligations as of the closing date. ABB Service Inc. also
retained the Company's payroll related liabilities, certain accrued intercompany
fees, the Company's net cash position to the Parent and prepaid insurance
assets, all as of the closing date.
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Financial Information
HARDING LAWSON ASSOCIATES GROUP, INC. and ABB ENVIRONMENTAL SERVICES, INC.
Unaudited Condensed Pro Forma Combined Balance Sheet
Nine months ended February 28, 1998
(In thousands, except share data)
Historical Note 2 Pro Forma
HLA ABB-ES Adjustments Combined
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $26,864 $211 $(11,275) $15,800
Accounts receivable 21,208 7,933 29,141
Unbilled work in progress 3,843 3,962 7,805
Less allowances for receivables
and unbilled work (1,356) -- (1,356)
Prepaid expenses 1,211 274 (41) 1,444
Deferred income taxes 2,864 2,864
- -------------------------------------------------------------------------------------------------------------------
Total current assets 54,634 12,380 (11,316) 55,698
- -------------------------------------------------------------------------------------------------------------------
Equipment 23,604 7,290 30,894
Less accumulated depreciation (19,312) (6,038) (25,350)
- --------------------------------------------------------------------------------------------------------------------
Net equipment 4,292 1,252 5,544
- -------------------------------------------------------------------------------------------------------------------
Deposits and other assets 6,178 95 5,469 11,742
- -------------------------------------------------------------------------------------------------------------------
Total assets $65,104 $13,727 $(5,847) $72,984
===================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion long-term debt $ $16 $ $16
Accounts payable 3,654 2,584 6,238
Accrued expenses 4,528 903 584 6,015
Accrued compensation 5,229 2,295 (66) 7,458
Income taxes payable 561 55 (55) 561
Billings in excess of costs and
estimated earnings on contracts 1,564 1,564
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 13,972 7,417 463 21,852
- -------------------------------------------------------------------------------------------------------------------
Other liabilities 1,412 1,666 (1,666) 1,412
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 15,384 9,083 (1,203) 23,264
- -------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Minority interest in subsidiaries 336 -- 336
- -------------------------------------------------------------------------------------------------------------------
Shareholders' Equity:
Preferred stock--$.01 par value;
authorized 1,000,000 shares;
issued and outstanding--none
Common stock--$.01 par value;
authorized 10,000,000 shares;
issued and outstanding 4,986,193
and 4,864,503 at February 28, 1998
and May 31, 1997, respectively 50 3,774 (3,774) 50
Additional paid-in capital 18,698 18,698
Retained earnings 30,636 870 (870) 30,636
- -------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 49,384 4,644 (4,644) 49,384
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $65,104 $13,727 $(5,847) $72,984
===================================================================================================================
</TABLE>
See notes to unaudited condensed pro forma financial information.
<PAGE>
<TABLE>
<CAPTION>
HARDING LAWSON ASSOCIATES GROUP, INC. and ABB ENVIRONMENTAL SERVICES, INC.
Unaudited Condensed Combined Pro Forma Statement of Income
Nine months ended February 28, 1998
(In thousands, except per share data)
Historical Note 3 Pro Forma
HLA ABB-ES Adjustments Combined
<S> <C> <C> <C> <C>
Gross revenue $93,486 $38,466 $131,952
Less: Cost of outside services 31,444 11,279 42,723
- -------------------------------------------------------------------------------------------------------------------
Net revenue 62,042 27,187 89,229
- -------------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Payroll and benefits 41,759 19,251 (31) 60,979
General expenses 17,489 6,564 (626) 23,427
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 59,248 25,815 (657) 84,406
- -------------------------------------------------------------------------------------------------------------------
Operating income 2,794 1,372 657 4,823
Interest in loss of unconsolidated
subsidiaries (50) (6) (56)
Interest income/(expense), net 784 (225) 86 645
- -------------------------------------------------------------------------------------------------------------------
Income before provision for income
taxes and minority interest 3,528 1,141 743 5,412
Provision for income taxes 1,450 143 703 2,296
Minority interest in net income of subsidiaries 13 13
- -------------------------------------------------------------------------------------------------------------------
Net income $2,065 $998 $40 $3,103
===================================================================================================================
Basic and diluted earnings per share $0.41 $0.61
Shares used in diluted per share calculation 5,097 5,097
</TABLE>
See notes to unaudited condensed pro forma financial information.
<PAGE>
<TABLE>
<CAPTION>
HARDING LAWSON ASSOCIATES GROUP, INC. and ABB ENVIRONMENTAL SERVICES, INC.
Unaudited Condensed Combined Pro Forma Statement of Income
Year ended May 31,1997
(In thousands, except per share data)
Historical Note 3 Pro Forma
HLA ABB-ES Adjustment Combined
<S> <C> <C> <C> <C>
Gross revenue $123,412 $56,047 $179,459
Less: Cost of outside services 39,136 16,759 55,895
- -------------------------------------------------------------------------------------------------------------------
Net revenue 84,276 39,288 123,564
- -------------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Payroll and benefits 56,647 28,289 (29) 84,907
General expenses 23,517 11,401 (1,025) 33,893
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 80,164 39,690 (1,054) 118,800
- -------------------------------------------------------------------------------------------------------------------
Operating income 4,112 (402) 1,054 4,764
Interest in loss of unconsolidated
subsidiaries (545) (139) (684)
Interest income/(expense), net 721 (440) 104 385
- -------------------------------------------------------------------------------------------------------------------
Income before provision for income
taxes and minority interest 4,288 (981) 1,158 4,465
Provision for income taxes 1,892 59 109 2,060
Minority interest in net loss of subsidiaries (8) (8)
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $2,404 $(1,040) $1,049 $2,413
===================================================================================================================
Basic and diluted earnings per share $0.49 $0.49
Shares used in per share calculation 4,953 4,953
</TABLE>
See notes to unaudited condensed pro forma financial information.
<PAGE>
HARDING LAWSON ASSOCIATES GROUP, INC. and ABB ENVIRONMENTAL SERVICES, INC.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
(in thousands, except per share data)
Note 1 - Periods Presented
On May 8, 1998, Harding Lawson Associates Group, Inc. ("HLA") purchased all of
the outstanding capital stock of ABB Environmental Services, Inc. ("ABB-ES"), a
wholly owned subsidiary of ABB Services, Inc. The final purchase price for the
acquisition of ABB-ES is expected to be approximately $12,000 (purchase price of
$13,500 less certain adjustments at close). The ABB-ES acquisition has been
accounted for using the purchase method of accounting.
The Unaudited Condensed Pro Forma Combined Balance Sheet as of February 28, 1998
has been prepared by combining the historical unaudited balance sheets of HLA
and ABB-ES at February 28, 1998, and has been adjusted to reflect events
directly attributable to the acquisition, as described in Note 2, Pro Forma
Balance Sheet Adjustments Related to the Acquisition.
The Unaudited Condensed Pro Forma Combined Statements of Income have been
prepared by combining the historical statements of income of HLA and ABB-ES and
has been adjusted to assume the acquisition had taken place at the beginning of
HLA's prior fiscal year (June 1, 1996), and to reflect events directly
attributable to the acquisition, as described in Note 3, Pro Forma Statement of
Income Adjustments Related to the Acquisition. The Unaudited Condensed Pro Forma
Combined Statement of Income for the Year Ended May 31, 1997 has been prepared
by combining HLA's historical audited statements of income for the year ended
May 31, 1997 and nine months ended February 28, 1998 and ABB-ES's historical
unaudited statement of operations for the same periods.
The pro forma financial information does not purport to represent what the
company's results of operations or financial position would actually have been
had the ABB-ES acquisition actually occurred on any of the dates set forth above
or to project the company's results of operations or financial position for any
future period or of any date, respectively. The pro forma information included
herein should be read in conjunction with the Consolidated Financial Statements
and Related Notes thereto of HLA filed on Form 10-K and Form 10-Q on August 21,
1997 and April 3, 1998 respectively, and ABB-ES included herein.
Note 2 - Pro Forma Balance Sheet Adjustments Related to the Acquisition
The adjustments to the Unaudited condensed Pro Forma Combined Balance Sheet as
of February 28, 1998 relate primarily to the exclusion of the assets and
liabilities not purchased or assumed by HLA and adjustments reflecting the
goodwill recorded in connection with the acquisition. Adjustments made to
reflect the assets and liabilities not acquired or assumed in the acquisition
include the following adjustments to the specified accounts.
Assets not acquired:
Cash and cash equivalents $178
Prepaid expenses 41
----
219
Liabilities not assumed:
Accrued expenses 411
Accrued compensation 66
Income taxes payable 55
Other liabilities 1,666
------
2,198
The total estimated purchase price for the ABB-ES acquisition has been allocated
on a preliminary basis to assets and liabilities based on management's best
estimates of their fair value with the excess costs over the net assets acquired
allocated to goodwill. Each of the allocations is subject to revision when
additional information concerning asset and liability valuation is obtained.
This allocation is subject to change pending a final analysis of the value of
the assets acquired and liabilities assumed. The impact of such changes could be
material. The estimated allocation of the purchase price to the assets acquired
and liabilities assumed is as follows:
Net working capital $4,281
Net equipment 1,252
Goodwill 5,469
Deposits and other assets 95
---------
Net assets $11,097
The adjustment to cash for $11,097 reflects the purchase price that would have
been paid had the acquisition occurred on February 28, 1998 according to the
terms of the acquisition agreement. The adjustment to deposits and other assets
of $5,469 relates to the goodwill recorded in connection with the acquisition.
The total adjustment to liabilities of $1,203 reflects liabilities not assumed
of $2,198 (primarily postretirement benefits retained by the seller) less $995
of liabilities incurred as a result of the acquisition.
Note 3 - Pro Forma Statements of Income Adjustments Related to the Acquisition.
For the unaudited condensed pro forma combined statement of operations for the
nine months ended February 28, 1998, the adjustment of ($31) to payroll and
benefits reflects the service cost related to the postretirement benefits
liability not acquired. The ($626) adjustment to general expenses relates to the
fees charged for the use of the ABB name which will not be paid by HLA
subsequent to the transaction net of pro forma amortization of the goodwill
associated with the acquisition. The goodwill will be amortized on a
straight-line basis over a 20-year estimated life. The adjustment of $86 to net
interest income/expense relates to the interest charges for the postretirement
benefits liability not assumed by HLA. The $703 adjustment to provision for
income taxes relates to adjustments necessary to provide for income taxes on
combined income before taxes at HLA's effective tax rate adjusted for
nondeductible amortization expense.
For the Unaudited Condensed Pro Forma Combined Statement of Income for the Year
Ended May 31, 1997, the adjustment of ($29) to payroll and benefits reflects the
service costs related to the postretirement benefits liability not assumed by
HLA. The ($1,025) adjustment to general expenses relates to the fees charged for
the use of the ABB name which will not be paid by HLA subsequent to the
transaction net of pro forma amortization of the goodwill associated with the
acquisition. The adjustment of $104 to net interest income/(expense) relates to
the interest charge for the postretirement benefits liability not assumed by
HLA. The $109 adjustment to the provision for income taxes relates to
adjustments necessary to provide for income tax expense on combined income
before taxes at HLA's effective tax rate adjusted for nondeductible amortization
expense.
<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 hereunto duly authorized.
HARDING LAWSON ASSOCIATES GROUP, INC.
Date July 17, 1998 By /s/ Gregory A. Thornton
-----------------------------
Gregory A. Thornton, Vice President
and Chief Financial Officer
<PAGE>
Consent of Independent Certified Public Accountants
The Board of Directors
ABB Environmental Services, Inc.:
We consent to the inclusion of our report dated January 19, 1998, with respect
to the balance sheets of ABB Environmental Services, Inc. as of December 31,
1997, and the related statements of operations, changes in stockholders' equity
and cash flows for each of the years in the two-year period ended December 31,
1997, which report appears in the Form 8-K/A of Harding Lawson Associates Group,
Inc. dated July 17, 1998.
Boston, Massachusetts KPMG Peat Marwick
July 17, 1998
