<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, 1998..........................
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ...........to....................................
Commission file number 0-17882
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 02464
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(617) 969-0050
-------------------
(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 September 30, 1998 4,068,672
--------------
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GZA GEOENVIRONMENTAL TECHNOLOGIES, INC. AND AFFILIATE
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
PART I FINANCIAL INFORMATION
<S> <C>
Item 1 Financial Statements
Consolidated Balance Sheets -
August 31, 1998 (unaudited) and February 28, 1998 3
Consolidated Statements of Operations - (unaudited)
Six Months Ended August 31, 1998 and 1997 4
Consolidated Statements of Cash Flows - (unaudited)
Six Months Ended August 31, 1998 and 1997 5
Notes to Consolidated Financial Statements - (unaudited)
6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 10
PART II OTHER INFORMATION
Item 1 Legal Proceedings 11
Item 4 Submission of Matters to a Vote of Security Holders 11- 12
Item 6 Exhibits and Reports on Form 8-K 12
SIGNATURES 13
</TABLE>
2
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PART 1: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
GZA GEOENVIRONMENTAL TECHNOLOGIES, INC. AND AFFILIATE
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31, 1998 FEBRUARY 28, 1998
-------------------------------------------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 796,000 $ 4,594,000
Available-for-sale securities 3,694,000 3,519,000
Accounts receivable, net 14,259,000 11,423,000
Costs and estimated earnings in excess of billings on
uncompleted contracts, net 7,938,000 7,261,000
Prepaid expenses and other current assets 434,000 133,000
Deferred income taxes 1,029,000 1,029,000
--------------------- ------------------
Total current assets 28,150,000 27,959,000
Property and equipment, net 5,786,000 5,344,000
Other assets, net 979,000 918,000
===================== ==================
Total assets $ 34,915,000 $ 34,221,000
===================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable $ 1,715,000 $ -
Accounts payable, trade 3,060,000 4,373,000
Accrued payroll and expenses 3,879,000 4,283,000
Billings in excess of costs and estimated earnings
on uncompleted contracts 1,765,000 1,835,000
Income taxes payable 254,000 102,000
--------------------- ------------------
Total current liabilities 10,673,000 10,593,000
Deferred income taxes 742,000 742,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; authorized - 1,000,000 shares;
issued and outstanding - none
Common stock, $.01 par value; authorized - 14,000,000 shares;
issued and outstanding (including treasury shares) - 4,066,968 at
August 31, 1998 and 4,027,440 at February 28, 1998 41,000 40,000
Capital in excess of par value 14,592,000 14,430,000
Unrealized losses on available-for-sale securities - (6,000)
Retained earnings 11,335,000 10,393,000
--------------------- ------------------
Subtotal 25,968,000 24,857,000
Less: Common stock held in treasury, at cost (500,000 shares at
August 31, 1998 and 400,475 shares at February 28, 1998) (2,468,000) (1,971,000)
===================== ==================
Total liabilities and stockholders' equity $ 34,915,000 $ 34,221,000
===================== ==================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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GZA GEOENVIRONMENTAL TECHNOLOGIES, INC. AND AFFILIATE
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31, SIX MONTHS ENDED AUGUST 31,
1998 1997 1998 1997
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues $ 15,330,000 $ 15,384,000 $ 28,835,000 $ 28,239,000
Reimbursable expenses 4,813,000 5,819,000 8,716,000 9,085,000
-------------- -------------- -------------- --------------
Net revenues 10,517,000 9,565,000 20,119,000 19,154,000
Costs and expenses:
Salaries and related costs 7,581,000 6,805,000 14,431,000 13,600,000
General and administrative expenses 2,254,000 2,362,000 4,349,000 4,648,000
-------------- -------------- -------------- --------------
Income from operations,
before other income and taxes 682,000 398,000 1,339,000 906,000
-------------- -------------- -------------- --------------
Other income (expense)
Interest income 60,000 79,000 157,000 151,000
Gain(loss)on sale of equipment and other assets - (10,000) 3,000 (10,000)
Equity in net income of joint venture 50,000 - 80,000 30,000
Interest expense (9,000) - (9,000) -
-------------- -------------- -------------- --------------
Total other income, net 101,000 69,000 231,000 171,000
-------------- -------------- -------------- --------------
Income from operations before
provision for income taxes 783,000 467,000 1,570,000 1,077,000
Provision for income taxes 313,000 187,000 628,000 431,000
============== ============== ============== ==============
Net income $ 470,000 $ 280,000 $ 942,000 $ 646,000
============== ============== ============== ==============
Basic earnings per share:
Earnings per share $ 0.13 $ 0.07 $ 0.26 $ 0.16
-------------- -------------- -------------- --------------
Basic weighted average shares 3,629,000 4,007,000 3,637,000 4,000,000
-------------- -------------- -------------- --------------
Diluted earnings per share:
Earnings per share $ 0.13 $ 0.07 $ 0.25 $ 0.16
-------------- -------------- -------------- --------------
Diluted weighted average shares 3,711,000 4,007,000 3,719,000 4,000,000
-------------- -------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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GZA GEOENVIRONMENTAL TECHNOLOGIES, INC. AND AFFILIATE
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended August 31,
1998 1997
(Unaudited) (Unaudited)
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 942,000 $ 646,000
Adjustments to reconcile net income
to net cash used by operating activities:
Depreciation and amortization 615,000 608,000
Equity in net income of joint venture (80,000) (30,000)
(Gain)loss on disposal of equipment (3,000) 10,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net (2,836,000) 380,000
Increase in costs and estimated earnings
in excess of billings on uncompleted contracts (747,000) (761,000)
(Increase) decrease in prepaid expenses (301,000) 71,000
Decrease in accounts payable, trade (1,313,000) (835,000)
Decrease in accrued payroll and expenses (404,000) (576,000)
(Increase) decrease in income taxes payable 152,000 (66,000)
----------------- ----------------
Net cash used by operating activities (3,975,000) (553,000)
----------------- ----------------
Cash flows from investing activities:
(Increase) decrease in available-for-sale securities (169,000) 4,000
Proceeds from sale of equipment 153,000 78,000
Acquisition of property and equipment (1,202,000) (435,000)
Increase in other assets 14,000 2,000
----------------- ----------------
Net cash used by investing activities (1,204,000) (351,000)
----------------- ----------------
Cash flows from financing activities:
Borrowings under note payable 1,715,000 -
Proceeds from issuance of common stock, net 163,000 171,000
Acquisition of treasury stock (497,000) (15,000)
----------------- ----------------
Net cash provided by financing activities 1,381,000 156,000
----------------- ----------------
Net decrease in cash and cash equivalents (3,798,000) (748,000)
Cash and cash equivalents at beginning of year 4,594,000 4,229,000
================= ================
Cash and cash equivalents at end of period $ 796,000 $ 3,481,000
================= ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
5
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GZA GEOENVIRONMENTAL TECHNOLOGIES, INC. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1998
NOTE 1 - BASIS OF PRESENTATION
- ------ ----------------------
The accompanying unaudited consolidated financial statements of GZA
GeoEnvironmental Technologies, Inc. and Affiliate (the "Company") have
been prepared 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,
1998, as filed with the Securities and Exchange Commission on May 29,
1998. Operating results for the six months ended August 31, 1998 are
not necessarily indicative of the results that may be expected for
succeeding periods or for the year ending February 28, 1999.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.
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
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTH COMPARISON FOR FISCAL YEARS 1999 AND 1998
NET REVENUES. The Company's net revenues for the three months ended
August 31, 1998 increased by approximately $952,000 (10.0%) compared
with the corresponding period in the prior fiscal year. The increase in
net revenue is attributable to the increase in demand for the Company's
services in the Great Lakes and Northeast Regions.
SALARIES AND RELATED COSTS. Salaries and related costs for the three
months ended August 31, 1998 increased by $776,000 (11.4%) compared
with the corresponding period in the prior fiscal year. The increase is
attributable to the Company-wide increase in the number of full-time
equivalent professional and support staff employees and annual salary
increases. In addition, Incentive Compensation Plan expense accurals,
which are based on total Company and individual performance goals,
increased from the prior fiscal year.
GENERAL AND ADMINISTRATIVE EXPENSS. General and administrative
expenses for the three months ended August 31, 1998 decreased by
approximately $108,000 (4.6%) compared with the prior fiscal year. The
decrease primarily reflects reductions in general and professional
liability insurance premiums, professional liability claims and legal
expenses. The cost reductions were offset, in part, by an increase in
recruiting, temporary help and consulting expenditures and an increase
in bad debt reserves.
7
<PAGE> 8
SIX MONTH COMPARISON FOR FISCAL YEARS 1999 AND 1998
NET REVENUES. The Company's net revenues for the six months ended
August 31, 1998 increased by $965,000 (5.0%) compared with the
corresponding period in prior fiscal year. The increase in net fees is
attributable to increases in demand for the Company's services in the
Great Lakes and Northeast Regions.
SALARIES AND RELATED COSTS. Salaries and related costs for the six
months ended August 31, 1998 increased by $831,000 (6.1%) compared with
the corresponding period in the prior fiscal year. The increase is
attributable to the increase in full-time equivalent professional and
support staff employees and annual salary increases. In addition,
Incentive Compensation Plan expense accurals, which are based on total
Company and individual performance goals, increased from the prior
fiscal year.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses for the six months ended August 31, 1998 decreased by $299,000
(6.4%) compared with the corresponding period in the prior fiscal year.
The decrease primarily reflects reductions in general and professional
liability insurance premiums, professional liability claims and legal
expenses. The reductions were offset, in part, by an increase in
recruiting, temporary help and consulting costs and an increase in bad
debt reserves.
8
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
For the six month period ended August 31, 1998, $3,975,000 of net cash
was used by operations, whereas for the six month period ended August
31, 1997, $553,000 of net cash was used by operations. The increase in
fiscal 1999 was primarily due to a $2,836,000 increase in accounts
receivable. The Company has initiated a billing and collections program
with the goal of reducing the number of days required to process bills
and collect funds from clients.
The Company made capital expenditures of approximately $1,202,000 and
$435,000 for the first six months of fiscal 1999 and 1998,
respectively. The capital expenditures for fiscal 1999 include
approximately $574,000 in revenue-producing testing and sampling
equipment and specialty drilling equipment rigs and accessories.
The Company's working capital increased from $17,366,000 at February
28, 1998 to $17,477,000 at August 31, 1998.
On August 11, 1998 the Company completed the 500,000 share buyback
program announced during fiscal 1998. The Company expended
approximately $497,000 for the purchase of 99,525 shares in fiscal
1999. The Company may continue to purchase shares from time to time at
prevailing market prices in the open market.
At August 31, 1998, the Company had cash on hand and cash equivalents
of $796,000, and short-term investments of $3,694,000 compared with
$4,594,000 and $3,519,000 respectively, at February 28, 1998. 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.
OTHER ACCOUNTING MATTERS
The Company has established a comprehensive Year 2000 compliance
program (Y2K Program) designed to (1) identify computer systems
(hardware and software) that may fail at the turn of the century, (2)
upgrade or replace non-compliant systems, and (3) evaluate the Year
2000 readiness of our critical suppliers and service providers. The
progress of the Y2K Program is as follows.
9
<PAGE> 10
ACCOUNTING SYSTEM - All centrally run program files were upgraded. All
accounting software that is installed and operating is being tested
similarly and will be upgraded by the end of the calendar year.
PAYROLL/HR SYSTEMS - The current Payroll and Human Resource systems
will be upgraded. New hardware and software were received, configured
and installed. The Company anticipates the system conversion will be
completed by March 1,1999.
CRITICAL SUPPLIERS AND SERVICE PROVIDERS - The Company is soliciting
input from its key suppliers and service providers including
subcontractors, financial services firms (banks, insurance companies),
communications providers (telephone, dedicated data lines, internet
service providers), public utilities (electric, gas, water), service
bureaus, and third-party administrators regarding their Year-2000
status. The Company will determine which, if any, pose a threat to the
uninterrupted operation of GZA's business in the event that they
experience system errors or failures.
Although the Company expects that it will need to upgrade or replace
various additional computer systems, we do not expect operating costs
or capital investments to be materially affected by Year 2000 related
expenditures. The Company estimates that operating and capital costs
directly related to its Year 2000 Compliance Program, through its
completion, will be $75,000 to $150,000 and $250,000 to $350,000,
respectively. The Company plans to complete the testing of all systems
by September 30, 1999.
FORWARD LOOKING STATEMENTS
This report may contain projections, estimates, and predictions
relating to anticipated financial performance, potential contract
value, pending claims or litigation, business strategy, plans,
acquisitions, or technological developments and other matters. A number
of risks and uncertainties could materially affect these forward
looking statements, and the Company's results of operations. These
risks and uncertainties include, but are not limited to competition,
market pricing pressures, changes in federal, state, and local
legislation and regulations, ability of the Company to execute projects
within contracted cost estimates, current or future claims made against
the Company, ability of the Company to resolve contract and change
order disputes favorably and availability of qualified personnel to
execute contracts and work plans.
10
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PART II. OTHER INFORMATION
ITEM 1. 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. As noted in the Quarterly Report for the
period ending November 30, 1997, 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 GeoEnvironmental
Technologies, Inc. and Finegold Alexander & Associates, Inc. (the "Action"). On
November 28, 1997, the Company's motion for summary judgment was granted by the
Court, on the ground that the action was barred by the six-year statute of
repose. Nationwide appealed the decision, an appeal which was voluntarily
dismissed with prejudice on August 12, 1998. On June 15, 1998, during the
pendency of the appeal, Executive Headquarters, Inc. (a former tenant at 303
Congress Street) filed suit in Suffolk County Superior Court (C.A. No.98-3018-A)
against GZA, and others, in a complaint mirroring the Nationwide pleading. After
dismissal of the appeal by Nationwide, Executive Headquarters on September 2,
1998 filed its notice of dismissal with prejudice on the sole claim against GZA.
At this time, there is no further litigation involving GZA with respect to the
303 Congress Street matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held the Annual Meeting of Stockholders (the "Annual Meeting") on
July 14, 1998. At the Annual Meeting, Donald T. Goldberg and Thomas W. Philbin
were re-elected and RoseAnn Giordano was elected, in each case, to a three-year
term as Class I director of the Company. Following the Annual Meeting M. Joseph
Celi, Lewis Mandell, Andrew P. Pajak and William E. Hadge continued in office as
Class II directors of the Company and Timothy W. Devitt, Joseph D. Guertin, Jr.
and David B. Perini continued in office as Class III directors.
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
Donald T. Goldberg 2,962,097 58,581
Thomas W. Philbin 2,944,991 75,687
Rose Ann Giordano 2,969,350 51,328
11
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At the Annual Meeting, the stockholders of the Company also ratified the
appointment of PricewaterhouseCoopers as the Company's independent public
accountants for the fiscal year ending February 28, 1999. 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 2,886,418 95,538 38,722
Accountants
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3.1 Restated Certificate of Incorporation of the Company (1)
3.3 Amended and Restated By-Laws of the Company (2)
27. Financial Data Schedule for the period ended August 31, 1998.
(b) REPORTS ON FORM 8-K
The Company did not file any report on Form 8-K during the six-month
period ended August 31, 1998.
(1) Incorporated by reference to the similarly numbered exhibit included in the
Company's Form S-1 Registration Statement, File No. 33-29369, filed with the
Commission on June 16, 1989.
(2) Incorporated by reference to the similarly numbered exhibit included in the
Company's Annual Report on Form 10-K for the fiscal year ended February 28,
1995, filed with the Commission on June 12, 1995.
12
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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 1, 1998 /s/ JOSEPH P. HEHIR
----------------------------------------
JOSEPH P. HEHIR, Chief Financial Officer
and Treasurer (Chief Accounting Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS OF THE REGISTRANT AT AUGUST 31, 1998 AND FEBRUARY
28, 1998 AND CONSOLIDATED STATEMENTS OF OPERATIONS OF THE REGISTRANT FOR THE
THREE AND SIX MONTH PERIOD ENDED AUGUST 31, 1998 AND 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS IN THE FORM 10-Q FOR THE
QUARTERLY PERIOD ENDED AUGUST 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> AUG-31-1998
<CASH> 796,000
<SECURITIES> 3,694,000
<RECEIVABLES> 14,259,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 28,150,000
<PP&E> 5,786,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 34,915,000
<CURRENT-LIABILITIES> 10,673,000
<BONDS> 0
0
0
<COMMON> 41,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 34,915,000
<SALES> 0
<TOTAL-REVENUES> 28,835,000
<CGS> 0
<TOTAL-COSTS> 27,496,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,570,000
<INCOME-TAX> 628,000
<INCOME-CONTINUING> 942,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 942,000
<EPS-PRIMARY> .26
<EPS-DILUTED> .25
</TABLE>
