<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 ________ 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 0-17882
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 offices) (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 December 31, 1997 3,793,365
------------
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INDEX
GZA GEOENVIRONMENTAL TECHNOLOGIES, INC. AND AFFILIATE
Page
----
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
- Consolidated Balance Sheets -
November 30, 1997 (unaudited) and February 28, 1997 3
- Consolidated Statements of Operations - (unaudited)
Three and Nine Months Ended November 30, 1997 and 1996 4
- Consolidated Statements of Cash Flows - (unaudited)
Nine Months Ended November 30, 1997 and 1996 5
- Notes to Consolidated Financial Statements
November 30, 1997 6 - 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 10
PART II OTHER INFORMATION
Item 1 Legal Proceedings 11
Item 6 Exhibits and Reports on Form 8-K 12
SIGNATURES 13
2
<PAGE> 3
PART 1: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
GZA GEOENVIRONMENTAL TECHNOLOGIES, INC. AND AFFILIATE
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 30, 1997 FEBRUARY 28, 1997
----------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,498,000 $ 4,229,000
Available-for-sale securities 3,140,000 3,456,000
Accounts receivable, net 12,927,000 13,059,000
Costs and estimated earnings in excess of
billings on uncompleted contracts 9,305,000 6,953,000
Prepaid expenses and other current assets 213,000 371,000
Deferred income taxes 1,057,000 1,057,000
----------- -----------
Total current assets 30,140,000 29,125,000
Property and equipment, net 5,221,000 5,514,000
Other assets, net 900,000 896,000
----------- -----------
Total assets $36,261,000 $35,535,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 3,731,000 $ 5,255,000
Accrued payroll and expenses 4,885,000 4,064,000
Billings in excess of costs and estimated
earnings on uncompleted contracts 3,106,000 2,266,000
Income taxes payable 611,000 363,000
----------- -----------
Total current liabilities 12,333,000 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 - 4,019,840 (including
treasury shares) at November 30, 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 6,000 (7,000)
Retained earnings 10,171,000 9,023,000
----------- -----------
24,590,000 23,257,000
----------- -----------
Less: common stock held in treasury, at cost
(205,475 and 0 shares, respectively) (992,000) --
----------- -----------
Total stockholders' equity 23,598,000 23,257,000
----------- -----------
Total liabilities and stockholders' equity $36,261,000 $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 November 30, Nine Months Ended November 30,
1997 1996 1997 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $15,900,000 $15,376,000 $44,139,000 $43,887,000
Reimbursable expenses 6,214,000 6,342,000 15,299,000 15,203,000
----------- ----------- ----------- -----------
Net revenues 9,686,000 9,034,000 28,840,000 28,684,000
Costs and expenses:
Salaries and related costs 6,889,000 6,721,000 20,489,000 20,935,000
General and administrative expenses 2,050,000 3,027,000 6,668,000 7,838,000
=========== =========== =========== ===========
Income from continuing operations 747,000 (714,000) 1,683,000 (89,000)
----------- ----------- ----------- -----------
Other income (expense)
Interest income 91,000 81,000 242,000 196,000
Gain (loss) on sale of assets 1,000 2,000 (9,000) 2,000
Interest expense -- (21,000) -- (86,000)
=========== =========== =========== ===========
Total other income (expense), net 92,000 62,000 233,000 112,000
----------- ----------- ----------- -----------
Income from continuing operations before
provision for income taxes 839,000 (652,000) 1,916,000 23,000
Provision (credit) for income taxes 336,000 (161,000) 766,000 109,000
----------- ----------- ----------- -----------
Net income $ 503,000 $ (491,000) $ 1,150,000 $ (86,000)
=========== =========== =========== ===========
Net income per share $ 0.12 $ (0.12) $ 0.28 $ (0.02)
----------- ----------- ----------- -----------
Weighted average common and
common equivalent shares outstanding 4,158,000 3,949,000 4,052,000 3,927,000
----------- ----------- ----------- -----------
</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>
Nine Months Ended November 30,
1997 1996
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) from continuing operations $ 1,150,000 $ (86,000)
Adjustments to reconcile net income from continuing
operations to net cash used by operating activities:
Depreciation and amortization 919,000 879,000
Provision for inventory writedown -- 500,000
Loss on sale of equipment 10,000 108,000
Changes in assets and liabilities:
Decrease in accounts receivable, net 132,000 1,375,000
Increase in costs and estimated earnings
in excess of billings on uncompleted contracts (1,512,000) (889,000)
Decrease in prepaid expenses 158,000 3,000
Increase in refundable income taxes -- (184,000)
Decrease in accounts payable, trade (1,524,000) (577,000)
Increase in accrued payroll and expenses 821,000 659,000
Increase in income taxes payable 248,000 --
----------- -----------
Net cash provided by operating activities 402,000 1,788,000
----------- -----------
Cash flows from investing activities:
Decrease in available-for-sale securities 316,000 244,000
Decrease in due from affiliate -- 399,000
Proceeds from disposal of equipment 77,000 159,000
Acquisition of property and equipment (702,000) (759,000)
(Increase) decrease in other assets (4,000) 184,000
----------- -----------
Net cash (used) provided by investing activities (313,000) 227,000
----------- -----------
Cash flows from financing activities:
Net repayments under notes payable -- (163,000)
Repayment of long-term debt -- (599,000)
Proceeds from issuance of common stock, net 172,000 178,000
Acquisition of treasury stock (992,000) --
----------- -----------
Net cash (used) provided by financing activities (820,000) (584,000)
----------- -----------
Net (decrease) increase in cash and cash equivalents (731,000) 1,431,000
Cash and cash equivalents at beginning of year 4,229,000 3,318,000
----------- -----------
Cash and cash equivalents at end of period $ 3,498,000 $ 4,749,000
=========== ===========
</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
NOVEMBER 30, 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 quarter and nine month periods ended November 30, 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 - ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128 (SFAS 128), "Earnings Per Share," which establishes new
standards for computing and presenting earnings per share. SFAS 128 is
effective for financial statements issued for periods ending after December
15, 1997, including interim periods. Management has not yet determined
whether the implementation of SFAS 128 will have any impact on the
Company's financial reporting.
In February 1997, the FASB issued Statement No. 129 (SFAS 129), "Disclosure
of Information about Capital Structure," which eliminates the exemption of
nonpublic entities from certain disclosure requirements of APB Opinion No.
15 as provided by FASB Statement No. 21. SFAS 129 is effective for periods
ending after December 15, 1997. Management has determined that the
implementation of SFAS 129 will have no impact on the Company's financial
reporting.
In June 1997, the FASB issued Statement No. 130 (SFAS 130), "Reporting
Comprehensive Income, " which establishes standards for reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. SFAS 130 is effective for fiscal years
beginning after December 15, 1997. Management has not yet determined
whether the implementation of SFAS 130 will have any impact on the
Company's financial reporting.
6
<PAGE> 7
In July 1997, the FASB issued Statement No. 131 (SFAS 131), "Disclosures
About Segments of an Enterprise and Related Information," which establishes
a new approach for determining segments within a company and reporting
information on those segments. SFAS 131 is effective for fiscal years
beginning after December 15, 1997. Management has not yet determined
whether the implementation of SFAS 131 will have any impact on the
Company's current method of disclosing business segment information.
NOTE 3 - TREASURY STOCK; STOCK REPURCHASE PROGRAM
In July 1997, the Board of Directors authorized a stock repurchase
program under which management of the Company was authorized to repurchase
up to 250,000 shares of the Company's common stock in the open market at
prevailing prices. The amount and timing of stock repurchases depends on
market conditions, shares prices and other factors. During the nine-month
period ended November 30, 1997, the Company repurchased 205,475 shares of
common stock, at a cost of $992,000. In December 1997, the Board of
Directors increased the aggregate number of shares that management was
authorized to repurchase, including shares repurchased to date, from
250,000 to 500,000. The Company may suspend or discontinue its stock
repurchase program at any time.
NOTE 4 - 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.
7
<PAGE> 8
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
November 30, 1997 increased by $653,000 (7.2%) compared with the
corresponding period in the prior fiscal year. The increase is primarily
attributable to a $634,000 increase in net revenues from the Company's
drilling operations which were affected negatively in the prior year by a
$500,000 non-recoverable inventory write-down.
- - SALARIES AND RELATED COSTS. Salaries and related costs for the three months
ended November 30, 1997 increased by $168,000 (2.5%) compared with the
corresponding period in the prior fiscal year. The increase is primarily
attributable to $133,000 in lower base salary costs which were offset by an
increase in Incentive Compensation Plan expense of $159,000 and an increase
in medical claims expense of $155,000.
- - GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expense for
the three months ended November 30, 1997 decreased by $977,000 (32.3%)
compared with the corresponding period in the prior fiscal year. The
decrease primarily reflects reduced occupancy cost of $169,000 based on
management's decision to close or consolidate offices last fiscal year and
a $250,000 goodwill expense incurred in fiscal 1997 to write off goodwill
for a March 1992 acquisition. In addition, employee relocation, bad debt,
claims and legal expenses were $286,000 lower in the three months ended
November 30, 1997 than in the corresponding period of fiscal 1997.
8
<PAGE> 9
NINE MONTH COMPARISON FOR FISCAL YEARS 1998 AND 1997
- - NET REVENUES. The Company's net revenues for the nine months ended November
30, 1997 increased by $156,000 (.5%) compared with the corresponding fiscal
period. The increase is attributable primarily to a $789,000 increase in
net revenues for drilling services which were affected negatively in the
prior year by a $500,000 non-recoverable inventory write-down. The increase
in net revenues from drilling operations was offset by a $633,000 reduction
in net revenues from consulting activities in fiscal 1998.
- - SALARIES AND RELATED COSTS. Salaries and related costs for the nine months
ended November 30, 1997 decreased by $446,000 (2.1%) compared with the
corresponding period in the prior fiscal year. The decrease primarily
reflects a $307,000 reduction in base salary costs and a $111,000 decrease
in medical claims expense.
- - GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the nine months ended November 30, 1997 decreased by $1,170,000 (14.9%)
compared with the corresponding period in the prior fiscal year. The
decrease primarily reflects reduced occupancy cost of $232,000 based on
management's decision to close or consolidate offices last fiscal year,
$250,000 in goodwill expense incurred in fiscal 1997 to writeoff goodwill
for a March 1992 acquisition, and $300,000 in expenses incurred in fiscal
1997 as a result of closing the Gainesville, Florida drilling operation. In
addition, bad debt, claims, legal and insurance expenses were $439,000
lower in the nine months ended November 30, 1997 than in the corresponding
period of fiscal 1997.
9
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
For the nine month period ended November 30, 1997, $402,000 of net cash was
provided by operations. The Company made capital expenditures of
approximately $702,000 for the first nine months of fiscal 1998.
The Company's working capital increased from $17,177,000 at February 28,
1997 to $17,807,000 at November 30, 1997.
Pursuant to stock repurchase program authorized by the Board of Directors
in July 1997, the Company expended $992,000 for the purchase of 205,475
shares for the first nine months of fiscal 1998. In December 1997 the Board
of Directors increased the aggregate number of shares that management is
authorized to repurchase (including shares purchased to date) from 250,000
to 500,000.
At November 30, 1997, the Company had cash on hand and cash equivalents of
$3,498,000, and short-term investments of $3,140,000. 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.
OTHER ACCOUNTING MATTERS
The Company evaluated its present in-house computer applications and their
functionality with respect to the "year 2000" and determined that no
material cost will be incurred in the current or future fiscal years to
maintain the quality and integrity of data generated currently.
FORWARD LOOKING STATEMENTS
The Company may make or publish statements or 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
<PAGE> 11
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.
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. The Company's professional liability insurance carrier
has to date disclaimed any obligation to defend or indemnify the Company in
respect of the Action.
On November 28, 1997, the Company's motion for summary judgment was granted by
the Court, on the ground that the action is barred by the six-year statute of
repose. That order has not been appealed by the plaintiffs. However, the time
for appeal has not yet expired, and a final judgment in favor of the Company has
not yet been entered. If an appeal from the Court's summary judgment order in
favor of the Company is timely filed and is successful and if the matter
proceeds to trial, there can be no assurance that the Company will be successful
in defending the Action on the merits, and the cost of such a defense could 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.
11
<PAGE> 12
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 November 30, 1997.
(b) REPORTS ON FORM 8-K
The Company did not file any report on Form 8-K during the three month
period ended November 30, 1997.
(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
<PAGE> 13
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: January 13, 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 NOVEMBER 30, 1997 AND
FEBRUARY 28, 1997 AND CONSOLIDATED STATEMENTS OF OPERATIONS OF THE REGISTRANT
FOR THE THREE AND NINE MONTH PERIOD ENDED NOVEMBER 30, 1997 AND 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS IN THE FORM 10-Q FOR
THE QUARTERLY PERIOD ENDED NOVEMBER 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 3,498,000
<SECURITIES> 3,140,000
<RECEIVABLES> 12,927,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 30,140,000
<PP&E> 5,221,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 36,261,000
<CURRENT-LIABILITIES> 12,333,000
<BONDS> 0
0
0
<COMMON> 40,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 36,261,000
<SALES> 0
<TOTAL-REVENUES> 44,139,000
<CGS> 0
<TOTAL-COSTS> 42,456,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,916,000
<INCOME-TAX> 766,000
<INCOME-CONTINUING> 1,150,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,150,000
<EPS-PRIMARY> .28
<EPS-DILUTED> 0
</TABLE>
