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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 ....... May 31, 1999.............................
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 June 30, 1999 4,128,618
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GZA GEOENVIRONMENTAL TECHNOLOGIES, INC. AND AFFILIATE
TABLE OF CONTENTS
<TABLE>
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Page
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PART I FINANCIAL INFORMATION
Item 1 Financial Statements
o Consolidated Balance Sheets -
May 31, 1999 (unaudited) and February 28, 1999 3
o Consolidated Statements of Operations and Comprehensive Income - (unaudited)
Three Months Ended May 31, 1999 and 1998 4
o Consolidated Statements of Cash Flows - (unaudited)
Three Months Ended May 31, 1999 and 1998 5
o 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 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>
MAY 31, 1999 FEBRUARY 28, 1999
-------------------- ------------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 742,000 $ 894,000
Available-for-sale securities 3,783,000 3,837,000
Accounts receivable, net 13,308,000 13,503,000
Costs and estimated earnings in excess of billings on
uncompleted contracts, net 7,224,000 8,018,000
Prepaid expenses and other current assets 245,000 149,000
Refundable income taxes 263,000 -
Deferred income taxes 1,570,000 1,450,000
-------------------- ------------------
Total current assets 27,135,000 27,851,000
Property and equipment, net 6,040,000 5,901,000
Other assets, net 1,532,000 1,505,000
==================== ==================
Total assets $ 34,707,000 $ 35,257,000
==================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable $ 100,000 $ -
Accounts payable, trade 3,053,000 4,776,000
Accrued payroll and expenses 4,452,000 3,900,000
Billings in excess of costs and estimated earnings
on uncompleted contracts 1,938,000 1,313,000
Income taxes payable - 311,000
-------------------- ------------------
Total current liabilities 9,543,000 10,300,000
Deferred income taxes 880,000 816,000
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) - 4,125,018 at
May 31, 1999 and 4,078,104 at February 28, 1999 41,000 41,000
Capital in excess of par value 14,822,000 14,650,000
Accumulated other comprehensive income (loss) (30,000) (10,000)
Retained earnings 11,893,000 11,902,000
-------------------- ------------------
Subtotal 26,726,000 26,583,000
Less: Common stock held in treasury, at cost (500,000 shares at
May 31, 1999 and February 28, 1999) (2,442,000) (2,442,000)
==================== ==================
Total liabilities and stockholders' equity $ 34,707,000 $ 35,257,000
==================== ==================
</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 AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Three Months Ended May 31,
1999 1998
(Unaudited) (Unaudited)
------------------ ------------------
<S> <C> <C>
Revenues $ 15,533,000 $ 13,504,000
Reimbursable expenses 4,849,000 3,903,000
------------------ ------------------
Net revenues 10,684,000 9,601,000
Costs and expenses:
Salaries and related costs 8,028,000 6,850,000
General and administrative expenses 2,741,000 2,094,000
------------------ ------------------
Income (loss) from operations,
before other income and taxes (85,000) 657,000
------------------ ------------------
Other income (expense)
Interest income 63,000 97,000
Gain on sale of equipment and other assets - 3,000
Equity in net income of joint venture 12,000 30,000
Interest expense (6,000) -
------------------ ------------------
Total other income, net 69,000 130,000
------------------ ------------------
Income (loss) from operations before
provision for income taxes (16,000) 787,000
(Benefit) provision for income taxes (7,000) 315,000
------------------ ------------------
Net income(loss) $ (9,000) $ 472,000
Other comprehensive income-change in
unrealized gains (losses) on securities (20,000) (5,000)
------------------ ------------------
Comprehensive income (loss) $ (29,000) $ 467,000
================== ==================
Basic earnings per share:
Earnings per share $ (0.00) $ 0.13
------------------ ------------------
Basic weighted average shares 3,612,000 3,646,000
------------------ ------------------
Diluted earnings per share:
Earnings per share $ (0.00) $ 0.13
------------------ ------------------
Diluted weighted average shares 3,612,000 3,728,000
------------------ ------------------
</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>
Three Months Ended May 31,
1999 1998
(Unaudited) (Unaudited)
----------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (9,000) $ 472,000
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Depreciation and amortization 407,000 303,000
Equity in net income of joint venture (12,000) (30,000)
Benefit for deferred income taxes (56,000) -
Gain on disposal of equipment - (3,000)
Changes in assets and liabilities:
Decrease in accounts receivable, net 195,000 112,000
Decrease (increase) in costs and estimated earnings
in excess of billings on uncompleted contracts 1,419,000 (2,098,000)
Increase in prepaid expenses (96,000) (207,000)
Increase in refundable income taxes (263,000) -
Decrease in accounts payable, trade (1,723,000) (1,539,000)
Increase (decrease) in accrued payroll and expenses 552,000 (140,000)
(Decrease) increase in income taxes payable (311,000) 47,000
----------------- ----------------
Net cash provided (used) by operating activities 103,000 (3,083,000)
----------------- ----------------
Cash flows from investing activities:
Decrease (increase) in available-for-sale securities 34,000 (141,000)
Proceeds from sale of equipment - 153,000
Acquisition of property and equipment (525,000) (608,000)
Decrease (increase) in other assets (36,000) 19,000
----------------- ----------------
Net cash used by investing activities (527,000) (577,000)
----------------- ----------------
Cash flows from financing activities:
Borrowings on the line of credit 100,000 -
Proceeds from issuance of common stock, net 172,000 165,000
----------------- ----------------
Net cash provided by financing activities 272,000 165,000
----------------- ----------------
Net decrease in cash and cash equivalents (152,000) (3,495,000)
Cash and cash equivalents at beginning of year 894,000 4,594,000
================= ================
Cash and cash equivalents at end of period $ 742,000 $ 1,099,000
================= ================
</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
May 31, 1999
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, 1999, as filed with the
Securities and Exchange Commission on May 26, 1999. Operating results for the
three months ended May 31, 1999 are not necessarily indicative of the results
that may be expected for succeeding periods or for the year ending February 28,
2000.
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 2000 and 1999
o Net Revenues. The Company's net revenues for the three months ended May 31,
1999 increased by approximately $1,083,000 (11.3%) compared with the
corresponding period in the prior fiscal year. Increased demand for our
services in the Northeast and Great Lakes Regions and for services performed
by our Information Systems Division led to a $1.1 million increase in net
revenue from those business units. This increase in net revenues was offset by
a $23,000 decline in net revenues in the Southeast Region. The increase in the
Northeast Region includes approximately $224,000 attributable to the Company's
December, 1999 acquisition of Raamot Associates, PC of New York, NY, a
Manhattan-based consulting and engineering firm.
o Salaries and Related Costs. Salaries and related costs for the three months
ended May 31, 1999 increased by $1,178,000 (17.2%) compared with the
corresponding period in the prior fiscal year. The increase in salaries and
related costs is attributable primarily to the increase in the number of
full-time equivalent professional and support staff employees, including the
increase in staff from the Raamot Associates acquisition, annual salary
increases and Incentive Compensation Plan expenses, which are based on total
company and individual performance goals.
The increase in salary and related expenses reflects a significant investment
in hiring senior staff for initiatives being undertaken to increase net
revenues and expand engineering and consulting services and capabilities.
o General and Administrative Expenses. General and administrative expenses for
the three months ended May 31, 1999 increased by approximately $647,000
(30.9%) compared with the prior fiscal year. The increase in general and
administrative expenses includes estimated costs of $235,000 attributable to
management's decision to close the Atlanta office. The closing cost estimate
for the Atlanta office includes lease settlement expenses and other legal,
contractual and administrative costs. The increase in general and
administrative expenses is also attributable to higher occupancy costs due to
the Raamot Associates acquisition, greater amortization expense for leasehold
improvements for several offices, and increased professional liability claims
expenses and bad debt reserves.
7
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LIQUIDITY AND CAPITAL RESOURCES
For the three month period ended May 31, 1999, $103,000 of net cash was provided
by operations, whereas for the three month period ended May 31, 1998 $3,083,000
of net cash was used by operations. The $3,186,000 increase in fiscal 2000 is
due primarily to decreases in accounts receivable and costs and estimated
earnings in excess of billings on uncompleted contracts.
The Company made capital expenditures of approximately $525,000 and $608,000 for
the first three months of fiscal 2000 and 1999, respectively. The capital
expenditures for fiscal 2000 include approximately $304,000 in computer
hardware/software and specialty drilling equipment rigs and accessories.
The Company's working capital increased from $17,551,000 at February 28, 1999 to
$17,592,000 at May 31, 1999.
At May 31, 1999, the Company had cash on hand and cash equivalents of $742,000,
and short-term investments of $3,783,000, compared with $894,000 and $3,837,000
respectively, at February 28, 1999. 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 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 Matters
Year 2000
GZA has established a comprehensive Year 2000 compliance program (Y2K Program)
designed to (1) identify computer systems (hardware and software) and non-IT
equipment (telecommunications equipment, laboratory instruments, technical
equipment, etc.) that may fail to recognize or properly process dates after
January 1, 2000, (2) upgrade or replace non-compliant components, systems, and
software, and (3) evaluate the Year 2000 readiness of our critical suppliers and
service providers. The progress of the Y2K Program is as follows.
Mission-Critical Business Systems
We have completed the remediation of the primary business systems with the
appropriate Y2K fixes/upgrades deployed and tested. The following upgraded
(Y2K-ready) systems are currently in production use:
Accounting System - Our accounting software has been updated to a later version
that reads any date with a two-digit year of 00 to 68 as a 21st century date and
any date with a two-digit year of 69 to 99 as a 20th century date. We believe
that the re-compiled software is fully Y2K-ready with respect to the handling
and processing of date information. The cost of the accounting software update
was approximately $2,000. Full verification and testing of the updated software
has been completed.
8
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Payroll/HR Systems - Our payroll and human resource systems have been upgraded
from legacy DOS systems to ADP Payroll for Windows and ADP HR Perspective,
respectively. The cost of these upgrades, including new server hardware and
related equipment was approximately $30,000. The conversion of both the Payroll
and HR systems was complete as of December 31, 1998. Full verification and
testing of the new software was complete as of March 31, 1999.
Company Headquarters' Voice Mail System - The voice mail system that serves the
Newton Upper Falls, Massachusetts locations was replaced by a Y2K compliant
Octel Communications Model 200 Message Server at a cost of approximately
$30,000. We cut over to the new system on April 9, 1999. The Octel Model 200
has been certified Y2K compliant by the vendor.
Desktop Computing Environment (Desktop Computers, Servers And Network Devices)
We have completed a physical inventory and assessment of our computers and
computer-related hardware (PCs, servers and network components). With the
assistance of external consultants and the use of two Y2K assessment tools, we
have identified Y2K compliance problems with hardware (BIOS/RTC chips), software
applications, and data files (databases, spreadsheets, etc.). We are currently
in the process of planning client/server hardware, operating system software and
application upgrades/replacements to address the Y2K compliance issues. The
client/server remediation process is planned for completion on or before
September 30, 1999.
Non-IT Equipment
We have completed a physical inventory of our non-IT equipment. With the
assistance of an outside consultant, we have made significant progress in
assessing the Y2K status of various laboratory instruments and various pieces of
technical equipment. The assessment involves contact with the manufacturer of
each piece of equipment, by various means of inquiry, to determine compliance
status, test procedures and upgrade options. As of this report date, the
assessment is approximately 90 percent complete. Progress to date indicates that
most items checked are either compliant by design or do not rely on dates to
function or process data. To date, only seven items (2.3 percent of the
equipment inventory) have been found to be non-compliant. An additional ten
items (3.3 percent of the equipment inventory) may require a software upgrade
depending upon the software revision currently installed. The non-IT equipment
remediation process is scheduled for completion on or before September 30, 1999.
Installed Systems (Environmental Monitoring, Treatment And Process
Control Systems)
We have compiled an inventory of environmental monitoring, treatment and process
control systems installed at client sites. Many of these systems were designed
and built with electronic control components that could be subject to
Y2K-related functional problems. Although our contracts do not include Year 2000
warranties, the failure of such installed systems to operate properly, after
January 1, 2000, could lead to disruption of our clients' business and
substantial claims against us by our clients. The nature and magnitude of the
potential claims cannot be predicted at this time. We are currently in the
9
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process of informing each client, in writing, of the potential exposure and
recommending that their environmental systems be included in their Y2K
assessment and remediation plans.
Critical Suppliers And Service Providers
We have solicited input from our 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
benefits administrators regarding their Year 2000 status. We will determine
which, if any, pose a threat to the uninterrupted operation of our business in
the event that they experience system errors or failures. To date, approximately
50 percent of our key suppliers and service providers have responded to our Y2K
inquiry.
Contingency Planning
We have not developed Y2K contingency plans. Following (1) the internal
assessment, remediation and testing of all computer and non-IT equipment, and
(2) the evaluation of external dependencies, we will consider contingency
planning in areas where significant uncertainties remain.
Estimated Total Cost
Although we expect that we will need to upgrade or replace various additional
computer systems, and possibly some non-IT equipment, we do not expect operating
costs or capital investments to be materially affected by Year 2000 related
expenditures. We estimate that operating and capital costs directly related to
our Y2K Program, through its completion, will range from $75,000 to $150,000 and
from $250,000 to $350,000, respectively. We plan to complete the remediation and
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.
11
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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 May 31, 1999.
(b) Reports on Form 8-K
The Company did not file any report on Form 8-K during the three-month
period ended May 31, 1999.
- ----------
(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: July 12, 1999 /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 MAY 31, 1999 AND FEBRUARY 28,
1999 AND CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME OF THE
REGISTRANT FOR THE THREE MONTH PERIOD ENDED MAY 31, 1999 AND 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENT IN THE FORM 10-Q FOR
THE QUARTERLY PERIOD ENDED MAY 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> MAY-31-1999
<CASH> 742,000
<SECURITIES> 3,783,000
<RECEIVABLES> 13,308,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 27,135,000
<PP&E> 6,040,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 34,707,000
<CURRENT-LIABILITIES> 9,543,000
<BONDS> 0
0
0
<COMMON> 41,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 34,707,000
<SALES> 0
<TOTAL-REVENUES> 15,533,000
<CGS> 0
<TOTAL-COSTS> 15,618,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (16,000)
<INCOME-TAX> (7,000)
<INCOME-CONTINUING> (9,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,000)
<EPS-BASIC> .00
<EPS-DILUTED> .00
</TABLE>
