<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1997
-----------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission file number 0-17882
GZA GEOENVIRONMENTAL TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3051642
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
320 Needham Street, Newton Upper Falls, Massachusetts 02164
-----------------------------------------------------------------
(Address of principal executive officers) (Zip Code)
(617) 969-0700
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed 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
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Number of Shares of Common Stock outstanding at August 31, 1997 4,011,848
-------------
<PAGE> 2
INDEX
GZA GEOENVIRONMENTAL TECHNOLOGIES, INC. AND AFFILIATE
Page
----
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
- - Consolidated Balance Sheets -
August 31, 1997 (unaudited) and February 28, 1997 3
- - Consolidated Statements of Operations - (unaudited)
Three and Six Months Ended August 31, 1997 and 1996 4
- - Consolidated Statements of Cash Flows - (unaudited)
Six Months Ended August 31, 1997 and 1996 5
- - Notes to Consolidated Financial Statements
August 31, 1997 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-9
PART II OTHER INFORMATION
Item 1 Legal Proceedings 10
Item 4 Submission of Matters to a Vote of Security Holders 10
Item 6 Exhibits and Reports on Form 8-K 10
SIGNATURES 11
2
<PAGE> 3
PART 1: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
GZA GEOENVIRONMENTAL TECHNOLOGIES, INC. AND AFFILIATE
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31, 1997 FEBRUARY 28, 1997
--------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,481,000 $ 4,229,000
Available-for-sale securities 3,452,000 3,456,000
Accounts receivable, net 12,679,000 13,059,000
Costs and estimated earnings in excess of billings
on uncompleted contracts 7,692,000 6,953,000
Prepaid expenses and other current assets 300,000 371,000
Deferred income taxes 1,057,000 1,057,000
----------- -----------
Total current assets 28,661,000 29,125,000
Property and equipment, net 5,262,000 5,514,000
Other assets, net 927,000 896,000
----------- -----------
Total assets $34,850,000 $35,535,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Account payable, trade $ 4,420,000 $ 5,255,000
Accrued payroll and expenses 3,488,000 4,064,000
Billings in excess of costs and estimated earnings
on uncompleted contracts 2,244,000 2,266,000
Income taxes payable 297,000 363,000
----------- -----------
Total current liabilities 10,449,000 11,948,000
Deferred income taxes 330,000 330,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
Authorized shares 1,000,000;
Issued and outstanding - none
Common stock, $.01 par value;
Authorized shares 14,000,000;
Issued and outstanding - 4,011,848 at
August 31, 1997 and 3,948,794 at
February 28, 1997 40,000 39,000
Capital in excess of par value 14,373,000 14,202,000
Unrealized gains/(losses) on available-for-sale
securities 4,000 (7,000)
Retained earnings 9,669,000 9,023,000
Treasury stock (15,000) -
----------- -----------
Total stockholders' equity 24,071,000 23,257,000
----------- -----------
Total liabilities and stockholders' equity $34,850,000 $35,535,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
GZA GEOENVIRONMENTAL TECHNOLOGIES, INC. AND AFFILIATE
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31, SIX MONTHS ENDED AUGUST 31,
1997 1996 1997 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $15,384,000 $15,042,000 $28,239,000 $28,511,000
Reimbursable expenses 5,819,000 5,351,000 9,085,000 8,861,000
----------- ----------- ----------- -----------
Net revenues 9,565,000 9,691,000 19,154,000 19,650,000
Costs and expenses:
Salaries and related costs 6,805,000 7,052,000 13,600,000 14,214,000
General and administrative expenses 2,362,000 2,358,000 4,618,000 4,811,000
----------- ----------- ----------- -----------
Income from continuing operations 398,000 281,000 936,000 625,000
----------- ----------- ----------- -----------
Other income (expense)
Interest income 79,000 52,000 151,000 115,000
Loss on sale of assets (10,000) - (10,000) -
Interest expense - (35,000) - (65,000)
----------- ----------- ----------- -----------
Total other income, net 69,000 17,000 141,000 50,000
----------- ----------- ----------- -----------
Income from continuing operations before
provision for income taxes 467,000 298,000 1,077,000 675,000
Provision for income taxes 187,000 119,000 431,000 270,000
----------- ----------- ----------- -----------
Net income $ 280,000 $ 179,000 $ 646,000 $ 405,000
=========== =========== =========== ===========
Net income per share $ 0.07 $ 0.04 $ 0.16 $ 0.10
----------- ----------- ----------- -----------
Weighted average common and
common equivalent shares outstanding 4,007,000 3,932,000 4,000,000 3,916,000
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
GZA GEOENVIRONMENTAL TECHNOLOGIES, INC. AND AFFILIATE
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED AUGUST 31,
1997 1996
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income from continuing operations $ 646,000 $ 405,000
Adjustments to reconcile net income from continuing
operations to net cash used by operating activities:
Depreciation and amortization 608,000 570,000
Loss on sale of equipment 10,000 2,000
Changes in assets and liabilities:
Decrease in accounts receivable, net 380,000 1,724,000
Increase in costs and estimated earnings
in excess of billings on uncompleted contracts (761,000) (1,332,000)
Decrease (increase) in prepaid expenses 71,000 (95,000)
Decrease in refundable income taxes - 15,000
Decrease in accounts payable, trade (835,000) (1,623,000)
Decrease in accrued payroll and expenses (576,000) (148,000)
Decrease in income taxes payable (66,000) -
---------- -----------
Net cash used by operating activities (523,000) (482,000)
---------- -----------
Cash flows from investing activities:
Decrease in available-for-sale securities 4,000 51,000
Decrease in due from affiliate - 394,000
Proceeds from disposal of equipment 78,000 118,000
Acquisition of property and equipment (435,000) (469,000)
Increase in other assets (28,000) (46,000)
---------- -----------
Net cash (used) provided by investing activities (381,000) 48,000
---------- -----------
Cash flows from financing activities:
Net repayments under notes payable - (712,000)
Repayment of long-term debt - (398,000)
Proceeds from issuance of common stock, net 171,000 177,000
Acquisition of treasury stock (15,000) -
---------- -----------
Net cash provided (used) by financing activities 156,000 (933,000)
---------- -----------
Net decrease in cash and cash equivalents (748,000) (1,367,000)
Cash and cash equivalents at beginning of year 4,229,000 3,318,000
---------- -----------
Cash and cash equivalents at end of period $3,481,000 $ 1,951,000
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
GZA GEOENVIRONMENTAL TECHNOLOGIES, INC. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements were prepared without
audit by GZA GeoEnvironmental Technologies, Inc. and Affiliate (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 are omitted. It is the opinion of management that the
accompanying consolidated financial statements reflect all adjustments
(which are normal and recurring) considered necessary for a fair
presentation. For further information refer to the audited financial
statements and footnotes included in the Company's Annual Report to
Stockholders for the year ended February 28, 1997, as filed with the
Securities and Exchange Commission on May 29, 1997. Operating results for
the three month period ended August 31, 1997 are not necessarily
indicative of the results that may be expected for succeeding periods or
for the year ending February 28, 1998.
NOTE 2 - CONTINGENCIES
The Company is a party to several legal actions arising in the normal
course of business. Management believes that the outcomes of legal actions
to which it is a party will not, in the aggregate, have a material adverse
effect on the results of operations or financial condition of the Company.
The Company's services involve risks of significant liability for
environmental and property damage, personal injury, economic loss, and
costs assessed by regulatory agencies. Claims may potentially be asserted
against the Company under federal and state statutes, common law,
contractual indemnification agreements or otherwise.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTH COMPARISON FOR FISCAL YEARS 1998 AND 1997
- - NET REVENUES. The Company's net revenues for the three months ended
August 31, 1997 decreased by approximately $126,000 (1.3%) compared with
the corresponding period in the prior fiscal year. The decrease is
primarily attributable to lower prices received for professional staff
hours charged to contracts for geotechnical and environmental engineering
consulting services. The decrease was offset by an increase in net
revenues for the Company's drilling services and an increase in the
chargeable hours of the professional staff for time charged to contracts.
- - SALARIES AND RELATED COSTS. Salaries and related costs for the three
months ended August 31, 1997 decreased by approximately $247,000 (3.5%)
compared with the corresponding period in the prior fiscal year. The
decrease primarily reflects a $131,000 reduction in salary and health
insurance costs as a result of management's decision to close and
consolidate offices during fiscal year 1997 and a $120,000 reduction in
incentive compensation expense for the comparable period in fiscal year
1998.
- - GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expense
for the three months ended August 31, 1997 increased by approximately
$4,000 (.2%) compared with the corresponding period in the prior fiscal
year. The increase reflects approximately $159,000 in costs to upgrade
information systems technology, to train staff to optimize use of hardware
and software upgrades, to implement a training program for project
managers, to update the Company's service and recruiting brochures, and to
expand client services in the Mid Atlantic and Central New England regions
and throughout the Company for the Information Systems Division. In
addition, the Company experienced an increase in claims and legal expenses
of approximately $239,000. These costs were offset by a reduction in
reserves for bad debts of $148,000, a reduction in occupancy expense of
$61,000, and the elimination of certain costs incurred in the comparable
period of fiscal 1997, including $55,000 in CEO transition expenses and
the $121,000 charge attributable to management's decision to close the
Gainesville, Florida drilling operation.
7
<PAGE> 8
SIX MONTH COMPARISON FOR FISCAL YEARS 1998 AND 1997
- - NET REVENUES. The Company's net revenues for the six months ended August
31, 1997 decreased by $496,000 (2.5%) compared with the corresponding
period in prior fiscal year. The decrease is attributable primarily to
lower prices received for professional staff hours charged to contracts
for geotechnical and environmental consulting services, partially offset
by an increase in net revenues for the Company's drilling services and an
increase in the chargeable hours of the professional staff for time
charged to contracts.
- - SALARIES AND RELATED COSTS. Salaries and related costs for the six months
ended August 31, 1997 decreased by $614,000 (4.3%) compared with the
corresponding period in the prior fiscal year. The decrease primarily
reflects a reduction in salary and health insurance costs of $439,000 as a
result management's decision to consolidate and close offices in fiscal
year 1997 and a reduction in incentive compensation expense of
approximately $147,000 for the comparable period in fiscal 1998.
- - GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the six months ended August 31, 1997 decreased by $193,000 (4.0%)
compared with the corresponding period in the prior fiscal year. The
decrease primarily reflects a reduction in occupancy expense of $65,000,
and the elimination of certain costs incurred in the comparable period of
fiscal 1997, including approximately $55,000 in CEO transition expenses
and the $296,000 charge attributable to management's decision to close the
Gainesville, Florida drilling operation. These reductions were offset in
part by expenses of approximately $232,000 to upgrade information systems
technology, to train staff to optimize hardware and software upgrades, to
implement a training program for project managers, to update the Company's
service and recruiting brochures, and to recruit senior technical and
sales personnel to expand services in the Mid Atlantic and Central New
England regions and for the Information Systems Division.
8
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
For the six month period ended August 31, 1997, $523,000 of net cash was
used by operations. The Company made capital expenditures of approximately
$435,000 for the first six months of fiscal 1998.
The Company's working capital increased from $17,177,000 at February 28,
1997 to $18,212,000 at August 31, 1997.
At August 31, 1997, the Company had cash on hand and cash equivalents of
$3,481,000, and short-term investments of $3,452,000. These investments
consist primarily of tax-exempt municipal bonds, taxable U.S. Treasury
Notes and other bonds and commercial paper. The Company believes that its
cash on hand and cash equivalents and future cash generated from
operations will be sufficient to meet its cash requirements for at least
the next twelve months.
9
<PAGE> 10
PART II. OTHER INFORMATION
ITEM I. LEGAL PROCEEDINGS.
The Company is party to several legal proceedings arising in the normal course
of business. Management believes that the outcome of these actions will not,
individually or in the aggregate, have a material adverse effect on the
financial condition of the Company. In addition, in March 1997, Nationwide Life
Insurance Company ("Nationwide") initiated an action in the Massachusetts
Superior Court for Suffolk County, entitled Nationwide Life Insurance Company v.
San-Vel Concrete Corporation, LoneStar Industries, Inc., GZA Geo-Environmental
Technologies, Inc. and Finegold Alexander & Associates, Inc. (the "Action"). The
Action arises out of the 1995 collapse of a seven-story office building
constructed in the early 1980's at 303 Congress Street in Boston, Massachusetts.
The Action alleges that concrete pilings designed, fabricated and installed by
GZA's co-defendants were defective and caused the building's foundation to
settle, ultimately requiring its condemnation and demolition. GZA had been
engaged to perform certain geotechnical engineering services with respect to the
building. The Action alleges that GZA's services were negligent and contributed
to the defective design and construction of the concrete pilings. Nationwide
seeks damages in an unspecified amount from GZA and the other defendants. GZA is
vigorously defending the Action and believes that it has meritorious defenses.
Among other things, the Company believes the Action (which was brought more than
twelve years after the building was opened for occupancy) is barred by the
six-year statute of repose provided in Chapter 260, Section 2B of the
Massachusetts General Laws, and that, even if the Action is not time-barred, the
contract between GZA and Nationwide's predecessor-in-interest limits the
liability of GZA to a maximum of $50,000. There can be no assurance, however,
that the Company will be successful in asserting these defenses. Further, the
Company's professional liability insurance carrier has to date disclaimed any
obligation to defend or indemnify the Company in respect of the Action. The cost
to the Company of litigating the Action on the merits may be substantial. The
Company believes that it has established adequate reserves for the Action in
light of the circumstances known to the Company at this time. However,
protracted litigation, or an adverse outcome in the Action, which could include
an award of substantial damages against the Company, could have a material
adverse effect on the financial position and results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held the Annual Meeting of Stockholders (the "Annual Meeting") on
July 15, 1997. At the Annual Meeting, M. Joseph Celi, Lewis Mandell, Andrew P.
Pajak and William E. Hadge were elected to three-year terms as Class II
directors of the Company. Following the Annual Meeting Donald T. Goldberg,
Thomas W. Philbin and Irvine G. Reinig II continued in office as Class I
directors of the Company and Timothy W. Devitt, Paul F. Gorman and Joseph D.
Guertin, Jr. continued in office as Class III directors of the Company.
The number of votes cast in favor of and withheld from each nominee for election
as a director at the Annual Meeting were as follows:
Nominee Votes For Votes Withheld
- ------- --------- --------------
M. Joseph Celi 2,855,375 616,904
Lewis Mandell 2,653,408 818,871
Andrew P. Pajak 3,406,634 65,645
William E. Hadge 3,416,530 55,749
At the Annual Meeting, the stockholders of the Company also ratified the
appointment of Coopers & Lybrand as the Company's independent public
accountants for the fiscal year ending February 28, 1998. The number of votes
cast for, against and abstaining from voting on such proposal were as follows:
Proposal Votes For Votes Against Abstaining
- -------- --------- ------------- ----------
Ratification of Independent
Public Accountants 3,413,706 20,834 37,739
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27. Financial Data Schedule
(b) REPORTS ON FORM 8-K
The Company did not file any report on Form 8-K during the three month
period ended August 31, 1997.
10
<PAGE> 11
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.
GZA GEOENVIRONMENTAL TECHNOLOGIES, INC.
Date: October 3, 1997 /s/ JOSEPH P. HEHIR
--------------------------------------------
JOSEPH P. HEHIR, Chief Financial Officer
and Treasurer (Chief Accounting Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS OF THE REGISTRANT AT AUGUST 31, 1997 AND
FEBRUARY 28,1997 AND CONSOLIDATED STATEMENTS OF OPERATIONS OF THE REGISTRANT
FOR THE THREE AND SIX MONTH PERIOD ENDED AUGUST 31, 1997 AND 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS IN THE FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> AUG-31-1997
<CASH> 3,481,000
<SECURITIES> 3,452,000
<RECEIVABLES> 12,679,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 28,661,000
<PP&E> 5,262,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 34,850,000
<CURRENT-LIABILITIES> 10,449,000
<BONDS> 0
0
0
<COMMON> 40,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 34,850,000
<SALES> 0
<TOTAL-REVENUES> 28,239,000
<CGS> 0
<TOTAL-COSTS> 27,303,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,077,000
<INCOME-TAX> 431,000
<INCOME-CONTINUING> 646,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 646,000
<EPS-PRIMARY> .16
<EPS-DILUTED> 0
</TABLE>
