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, 1997 or
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _____________ to _____________
Commission file number 0-16169
HARDING LAWSON ASSOCIATES GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 68-0132062
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7655 Redwood Boulevard
Novato, California 94945
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 892-0821
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
At January 7, 1998 the registrant had issued and outstanding an aggregate of
4,991,936 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, 1997 (Unaudited) and
May 31, 1997...................................................3
Condensed Consolidated Statements of Income -
Three and Six Months Ended November 30, 1997 and
November 30, 1996 (Unaudited)..................................4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended November 30, 1997 and
November 30, 1996 (Unaudited)..................................5
Notes to Condensed Consolidated Financial Statements
November 30, 1997 (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...........10
Item 6. Exhibits and Reports on Form 8-K..............................11
SIGNATURES..................................................................12
INDEX TO EXHIBITS...........................................................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)
November 30, 1997 May 31, 1997
- -------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $24,441 $24,464
Accounts receivable 25,419 22,911
Unbilled work in progress 4,999 6,221
Less allowances for receivables and
unbilled work (1,356) (1,387)
Prepaid expenses 1,371 1,073
Deferred income taxes 2,429 2,691
- ----------------------------------------------------------------------------------------------------------
Total current assets 57,303 55,973
- ----------------------------------------------------------------------------------------------------------
Equipment 22,281 21,701
Less accumulated depreciation (18,148) (17,299)
- -----------------------------------------------------------------------------------------------------------
Net equipment 4,133 4,402
- ----------------------------------------------------------------------------------------------------------
Deposits and other assets 6,109 5,980
- ----------------------------------------------------------------------------------------------------------
Total assets $67,545 $66,355
==========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $5,609 $4,538
Accrued expenses 4,204 4,845
Accrued compensation 6,161 6,632
Income taxes payable 785 1,962
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 16,759 17,977
Other liabilities 1,365 1,453
- ----------------------------------------------------------------------------------------------------------
Total liabilities 18,124 19,430
- ----------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Minority interest in subsidiaries 279 323
- ----------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock--$.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--4,978,317
and 4,864,503 at November 30, 1997
and May 31, 1997, respectively 50 49
Additional paid-in capital 18,710 17,982
Retained earnings 30,382 28,571
- ----------------------------------------------------------------------------------------------------------
Total shareholders' equity 49,142 46,602
- ----------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $67,545 $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 Six Months Ended
November 30, November 30,
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross revenue $33,628 $32,286 $65,446 $63,230
Less: Cost of outside services 12,348 11,004 22,485 20,969
- ----------------------------------------------------------------------------------------------------------------
Net revenue 21,280 21,282 42,961 42,261
- ----------------------------------------------------------------------------------------------------------------
Costs and expenses:
Payroll and benefits 13,917 14,220 28,509 29,007
General expenses 6,098 5,832 11,860 11,720
- ----------------------------------------------------------------------------------------------------------------
Total costs and expenses 20,015 20,052 40,369 40,727
- ----------------------------------------------------------------------------------------------------------------
Operating income 1,265 1,230 2,592 1,534
Interest in loss of unconsolidated subsidiaries -- (57) (50) (110)
Interest income, net 243 157 507 341
- ----------------------------------------------------------------------------------------------------------------
Income before provision for income taxes
and minority interest 1,508 1,330 3,049 1,765
Provision for income taxes 637 558 1,282 763
Minority interest (20) 22 (44) 26
- ----------------------------------------------------------------------------------------------------------------
Net income $891 $750 $1,811 $976
================================================================================================================
Net income per common share $0.17 $0.15 $0.36 $0.20
================================================================================================================
Shares used in per share calculation 5,133 4,996 5,031 4,958
================================================================================================================
</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)
Six Months Ended November 30,
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,811 $ 976
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,246 1,267
Net increase in current assets (1,353) (7,560)
Net increase (decrease) in current liabilities (478) 4,009
Other increase (decrease) (216) 306
- ----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 1,010 (1,002)
- -----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net purchase of equipment (1,009) (1,109)
- -----------------------------------------------------------------------------------------------------------
NET CASH USED IN
INVESTING ACTIVITIES (1,009) (1,109)
- -----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from sale of common stock 156 58
Repurchase of common stock (180) (159)
- -----------------------------------------------------------------------------------------------------------
NET CASH USED IN
FINANCING ACTIVITIES (24) (101)
- -----------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (23) (2,212)
Cash and cash equivalents at beginning of period 24,464 19,012
- ----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $24,441 $16,800
==========================================================================================================
</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)
November 30, 1997
NOTE 1: BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared
without audit by Harding Lawson Associates Group, Inc. (the "Company") in
accordance with generally accepted accounting principles for interim financial
statements and pursuant to the rules of the Securities and Exchange Commission
for Form 10-Q. Certain information and footnotes required by generally accepted
accounting principles for complete financial statements have been omitted. It is
the opinion of management that all adjustments considered necessary for a fair
presentation have been included, and that all such adjustments are of a normal
and recurring nature. For further information, refer to the audited financial
statements and footnotes included in the Company's Annual Report on Form 10-K
dated May 31, 1997. Reclassification of certain balances for the fiscal year
ended May 31, 1997 have been made to conform to the November 30, 1997
presentation.
NOTE 2: COMMITMENTS AND CONTINGENCIES
The Company is currently subject to certain claims and lawsuits arising in the
ordinary course of its business. In the opinion of management, adequate
provision has been made for all known liabilities that are currently expected to
result from these claims and lawsuits, and in the aggregate such claims are not
expected to have a material effect on the financial position of the Company. The
estimates used in establishing these provisions could differ from actual
results. Should these provisions change significantly, the effect on operations
for any quarterly or annual reporting period could be material.
NOTE 3: NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Statement of Financial Accounting Standards No. 128
"Earnings per Share," (FAS 128) was issued and is effective for the year ending
May 31, 1998. The Company will change its method for computing earnings per
share and restate all periods to reflect the change in its consolidated
statements of income effective with the issuance of the Company's third and
fourth quarters and annual report for 1998. The new method requires calculation
of earnings per share excluding the dilutive effect of common stock equivalents
such as stock options and warrants. The impact of FAS 128 on basic earnings per
share and diluted earnings per share would not have had a material effect on
earnings per share for the six months ended November 30, 1997 and 1996.
<PAGE>
HARDING LAWSON ASSOCIATES GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Cautionary Statement Regarding Forward Looking Statements
- ---------------------------------------------------------
The statements in this report that are forward-looking are based on current
expectations, and actual results may differ materially. The forward-looking
statements include those regarding the level of future purchases of fixed
assets, the possible impact of current and future claims against the Company
based upon negligence and other theories of liability and the possibility of the
Company 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.
<TABLE>
<CAPTION>
Percentage of Net Revenue Percentage
Three Months Ended Six Months Ended Increase (Decrease)
November 30, November 30, November 30,
Three Months Six Months
1997 1996 1997 1996 1997 vs 1996 1997 vs 1996
---- ---- ---- ---- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue 100.0% 100.0% 100.0% 100.0% 0.0% 1.7%
Costs and expenses
Payroll and benefits 65.4 66.8 66.4 68.7 (2.1) (1.7)
General expenses 28.7 27.4 27.6 27.7 4.6 1.2
Operating income/margin 5.9 5.8 6.0 3.6 2.9 69.0
Interest income, net and
interest in loss of uncon-
solidated subsidiaries 1.2 0.4 1.1 0.6 142.7 97.7
Income before income taxes
and minority interest 7.1 6.2 7.1 4.2 13.4 72.7
Provision for income taxes
and minority interest 2.9 2.7 2.9 1.9 6.4 56.9
Net income 4.2 3.5 4.2 2.3 18.8 85.5
</TABLE>
Second Quarter Comparison for Fiscal Years 1998 and 1997
- --------------------------------------------------------
Net revenue for the fiscal quarter ended November 30, 1997 totaled $21,280,
virtually unchanged from net revenue of $21,282 for the second quarter of the
prior fiscal year. Although net revenue was unchanged for the quarter ended
November 30, 1997, the Company did experience a 3 percent decline in net revenue
from domestic industrial contracts, and a 26 percent decline in net revenue from
international operations compared to the same quarter in the prior year, offset
by an 8 percent increase in net revenue from public sector contracts. The
increase in public sector net revenue was due to an increase in net revenue from
state and local agency's contracts. Revenue from this component of the public
sector derived significant benefit from certain contracts that were completed or
suspended in the first half of fiscal 1998. This increase was partially offset
by a decline in net revenue from federal contracts. Overall, net revenue from
public sector clients accounted for 46 percent of total net revenue compared to
43 percent in the prior year. Although net revenue from domestic industrial
clients was 3 percent lower than in the second quarter of the prior fiscal year,
it was 3 percent higher than the prior fiscal quarter. Domestic revenue in the
second quarter was positively affected by higher prices for the Company's
services compared to the same period in the prior fiscal year, offset by
slightly lower demand. International net revenue for the fiscal quarter ended
November 30, 1997 was $1,253 or 6 percent of total net revenue compared to
$1,700 or 8 percent of total net revenue in the same quarter of the prior fiscal
year.
Operating income was $1,265 in the second quarter of fiscal 1998, an increase of
2.9 percent from $1,230 for the same period in fiscal 1997. Operating margin
increased to 5.9 percent of net revenue in the current quarter compared to 5.8
percent in the second quarter of fiscal 1997. The increase in operating income
and margin was the result of lower payroll costs due primarily to a lower full
time equivalent staff count. General expenses were 6.0 percent higher than the
prior year reflecting in part the Company's spending on new marketing
initiatives begun in the current fiscal year.
Net interest income for the second quarter ended November 30, 1997 rose by $86
compared to the prior year due primarily to a $7.3 million increase in the
average cash balance compared to the second quarter of last year.
The effective tax rate was 42.2 percent for the second quarter of fiscal 1998
and was 41.9 percent in the second quarter of the prior year.
Net income for the quarter was $891 compared with $750 in the second quarter of
fiscal 1997, an increase of 18.8 percent. Earnings per share were $0.17 on
5,133,000 weighted average shares outstanding compared to $0.15 per share on
4,996,000 weighted average shares outstanding in the same period last year. The
increase in weighted average 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.
Six Month Comparison for Fiscal Years 1998 and 1997
- ---------------------------------------------------
Net revenue for the six months ended November 30, 1997 amounted to $42,961, an
increase of 1.7 percent from net revenue of $42,261 for the six months ended
November 30, 1996. The increase in net revenue was due primarily to a 10 percent
increase in public sector work offset by a decline in commercial and
international sales compared to the six months ended November 30, 1996.
Domestically the Company received higher prices for its services sufficient to
offset slightly lower demand.
Operating income amounted to $2,592, an increase of 69.0 percent from operating
income of $1,534 for the first six months of the prior year. The operating
margin increased to 6.0 percent from 3.6 percent a year ago. The improved
operating income and margin was due primarily to lower payroll costs combined
with improved revenue compared to the same six months in the prior year,
partially offset by higher general expenses.
Net interest income for the six months ended November 30, 1997 was $507, an
increase of 48.6 percent from net interest income of $341 for the same period of
the prior fiscal year. The increase was primarily due to a $6.5 million increase
in the average cash balance compared to the prior year.
The effective tax rate for the six months ended November 30, 1997 was 42.0
percent, and for the six months ended November 30, 1996 was 43.2 percent. The
effective tax rate in fiscal 1997 reflects the impact of losses from the
start-up of certain international operations for which no tax benefit has been
realized.
Net income for the six months was $1,811, higher than net income of $976 for the
six month period in the prior year, an increase of 85.6 percent. Earnings per
share were $0.36 on 5,031,000 weighted average shares outstanding compared to
$0.20 on 4,958,000 weighted average shares outstanding in the first six month
period of the prior year. The increase in weighted average shares outstanding
was primarily due to the increase in the price per share of the Company's stock
resulting in an increase in share equivalents used in the per share calculation.
Liquidity and Capital Resources
- -------------------------------
For the six months ended November 30, 1997, net cash provided by operations was
$1,010 compared to net cash used in operations of $1,002 for the same period
last year. The increase in cash provided by operations was primarily due to a
decrease in the Company's receivables 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 better management of billing
and collections this fiscal year compared with the same period in the prior
fiscal year.
The Company made capital expenditures of $1,009 in the first six months of
fiscal 1998 compared to capital expenditures of $1,109 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 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 November 30, 1997 the Company had cash on hand and cash equivalents of
$24,441. The Company has a $20 million revolving credit line agreement that
expires in November 1999. At November 30, 1997 and 1996, the Company had no
borrowings outstanding under its line of credit leaving $20 million available to
the Company. Borrowings were available to the Company at an interest rate of 6.0
percent at November 30, 1997, and 5.7 percent at May 31, 1997. The Company is in
compliance with all covenants 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 a party to
lawsuits and is aware of potential exposure related to certain claims. In the
opinion of management, adequate provision has been made for all known
liabilities that are currently expected to result from these matters, and in the
aggregate such claims are not expected to have a material impact on the
financial position and liquidity of the Company. The Company maintains a $5
million per occurrence professional liability policy and a $5 million per
occurrence contractor's pollution 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 repurchased 21,300
shares for $180 in the first six months of fiscal 1998 under this program
compared to 23,500 shares for $159 in 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the Registrant was held on November 5, 1997 and three
proposals were presented to security holders for a vote; election of two
directors, approval of the Non-employee Director Compensation Stock Plan, and
ratification of independent auditors.
The six-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 1997 annual meeting was Class I, consisting of two incumbent
directors: Retired Rear Admiral Stuart F. Platt and Donald K. Stager. The terms
for Class II Directors, Richard D. Puntillo and James M. Edgar expire in 1998,
and the terms for Class III Directors, Richard S. Harding and Donald L.
Schreuder expire in 1999.
The following table lists the votes cast:
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C> <C> <C>
Proposal 1
Election of Directors
Stuart F. Platt 4,031,949 294,164
Donald K. Stager 4,191,366 134,747
For Against Abstain
Proposal 2
Approval of Non-employee Director
Compensation Stock Plan 4,310,041 14,395 1,677
For Against Abstain Non-Vote
Proposal 3
Ratification of Ernst & Young, LLP
Independent Auditors 4,162,352 46,118 32,925 84,718
</TABLE>
<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, 1997:
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 12, 1998 /s/ Donald L. Schreuder
-----------------------
Donald L. Schreuder
President and Chief Executive Officer
(Principal Executive Officer)
Date: January 12, 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
Sequential
Exhibit No. Page No.
11 Computation of Per Share Earnings 14
27 Financial Data Schedule (Electronic Filing Only)
<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 Six Months Ended
November 30, November 30,
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY
Average shares outstanding 4,971 4,980 4,974 4,933
Net effect of dilutive stock options
based on the treasury stock method 162 16 56 25
- ------------------------------------------------------------------------------------------------------------
TOTAL 5,133 4,996 5,030 4,958
============================================================================================================
Net income $891 $750 $1,811 $976
============================================================================================================
Net income per share $0.17 $0.15 $0.36 $0.20
============================================================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 24441
<SECURITIES> 0
<RECEIVABLES> 30418
<ALLOWANCES> 1356
<INVENTORY> 0
<CURRENT-ASSETS> 57303
<PP&E> 22281
<DEPRECIATION> 18148
<TOTAL-ASSETS> 67545
<CURRENT-LIABILITIES> 16759
<BONDS> 0
0
0
<COMMON> 50
<OTHER-SE> 49092
<TOTAL-LIABILITY-AND-EQUITY> 67545
<SALES> 0
<TOTAL-REVENUES> 65446
<CGS> 0
<TOTAL-COSTS> 22485
<OTHER-EXPENSES> 40369
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> 3049
<INCOME-TAX> 1282
<INCOME-CONTINUING> 1811
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1811
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
</TABLE>
