<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, 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.
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(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
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(Address of principal executive offices) (Zip Code)
(617) 969-0050
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(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, 1999 4,138,923
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GZA GEOENVIRONMENTAL TECHNOLOGIES, INC. AND AFFILIATE
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
- - Consolidated Balance Sheets -
November 30, 1999 (unaudited) and February 28, 1999 3
- - Consolidated Statements of Operations and Comprehensive Income - (unaudited)
Three and Nine Months Ended November 30, 1999 and 1998 4
- - Consolidated Statements of Cash Flows - (unaudited)
Nine Months Ended November 30, 1999 and 1998 5
- - Notes to Consolidated Financial Statements - (unaudited) 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 11
SIGNATURES 12
</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>
NOVEMBER 30, 1999 FEBRUARY 28, 1999
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(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,831,000 $ 894,000
Available-for-sale securities 3,904,000 3,837,000
Accounts receivable, net 14,501,000 13,503,000
Costs and estimated earnings in excess of billings on
uncompleted contracts, net 6,539,000 8,018,000
Prepaid expenses and other current assets 222,000 149,000
Refundable income taxes -- --
Deferred income taxes 1,548,000 1,450,000
----------- -----------
Total current assets 28,545,000 27,851,000
Property and equipment, net 5,772,000 5,901,000
Other assets, net 1,829,000 1,505,000
----------- -----------
Total assets $36,146,000 $35,257,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 3,071,000 $ 4,776,000
Accrued payroll and expenses 4,601,000 3,900,000
Billings in excess of costs and estimated earnings
on uncompleted contracts 2,029,000 1,313,000
Income taxes payable 311,000 311,000
----------- -----------
Total current liabilities 10,012,000 10,300,000
Deferred income taxes 894,000 816,000
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) - 4,138,923 at
November 30, 1999 and 4,078,104 at February 28, 1999 41,000 41,000
Capital in excess of par value 14,848,000 14,650,000
Accumulated other comprehensive (loss) (52,000) (10,000)
Retained earnings 12,845,000 11,902,000
----------- -----------
Subtotal 27,682,000 26,583,000
Less: Common stock held in treasury, at cost (500,000 shares) (2,442,000) (2,442,000)
----------- -----------
Total liabilities and stockholders' equity $36,146,000 $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 NOVEMBER 30, NINE MONTHS ENDED NOVEMBER 30,
1999 1998 1999 1998
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $18,118,000 $17,146,000 $50,705,000 $45,980,000
Reimbursable expenses 7,119,000 6,472,000 17,691,000 15,188,000
----------- ----------- ----------- -----------
Net revenues 10,999,000 10,674,000 33,014,000 30,792,000
Costs and expenses:
Salaries and related costs 7,800,000 7,420,000 23,842,000 21,851,000
General and administrative expenses 2,479,000 2,454,000 7,799,000 6,802,000
----------- ----------- ----------- -----------
Income from operations,
before other income (expense) and taxes 720,000 800,000 1,373,000 2,139,000
----------- ----------- ----------- -----------
Other income (expense)
Interest income 82,000 39,000 201,000 197,000
Gain on sale of equipment and other assets -- -- -- 3,000
Equity in net income of joint venture -- 40,000 12,000 120,000
Interest expense -- (26,000) (11,000) (35,000)
----------- ----------- ----------- -----------
Total other income, net 82,000 53,000 202,000 285,000
----------- ----------- ----------- -----------
Income from operations before
provision for income taxes 802,000 853,000 1,575,000 2,424,000
Provision for income taxes 321,000 341,000 630,000 970,000
----------- ----------- ----------- -----------
Net income 481,000 $ 512,000 $ 945,000 $ 1,454,000
Other comprehensive income-change in
unrealized gains (losses) on securities (3,000) 21,000 (42,000) 26,000
----------- ----------- ----------- -----------
Comprehensive income $ 478,000 $ 533,000 $ 903,000 $ 1,480,000
=========== =========== =========== ===========
Basic earnings per share:
Earnings per share $ 0.13 $ 0.14 $ 0.26 $ 0.40
----------- ----------- ----------- -----------
Basic weighted average shares 3,639,000 3,569,000 3,627,000 3,614,000
----------- ----------- ----------- -----------
Diluted earnings per share:
Earnings per share $ 0.13 0.14 $ 0.26 $ 0.39
----------- ----------- ----------- -----------
Diluted weighted average shares 3,675,000 3,625,000 3,674,000 3,688,000
----------- ----------- ----------- -----------
</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>
Nine Months Ended November 30,
1999 1998
(Unaudited) (Unaudited)
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 943,000 $ 1,454,000
Adjustments to reconcile net income
to net cash used by operating activities:
Depreciation and amortization 1,419,000 934,000
Equity in net income of joint venture (12,000) (120,000)
Benefit for deferred income taxes (20,000) (22,000)
Gain on disposal of equipment (1,000) (37,000)
Changes in assets and liabilities:
Increase in accounts receivable, net (998,000) (4,160,000)
Decrease (increase) in costs and estimated earnings
in excess of billings on uncompleted contracts 2,195,000 (1,966,000)
Increase in prepaid expenses (73,000) (155,000)
Decrease in accounts payable, trade (1,705,000) (863,000)
Increase in accrued payroll and expenses 701,000 1,987,000
Increase in income taxes payable -- 281,000
----------- -----------
Net cash provided (used) by operating activities 2,449,000 (2,667,000)
----------- -----------
Cash flows from investing activities:
Increase in available-for-sale securities (109,000) (245,000)
Proceeds from sale of equipment 5,000 153,000
Acquisition of property and equipment (1,232,000) (1,655,000)
(Increase) decrease in other assets (374,000) 8,000
----------- -----------
Net cash used by investing activities (1,710,000) (1,739,000)
----------- -----------
Cash flows from financing activities:
Borrowings on the line of credit -- 1,800,000
Proceeds from issuance of common stock, net 198,000 164,000
Acquisition of treasury stock -- (470,000)
----------- -----------
Net cash provided by financing activities 198,000 1,494,000
----------- -----------
Net increase (decrease) in cash and cash equivalents 937,000 (2,912,000)
Cash and cash equivalents at beginning of year 894,000 4,594,000
----------- -----------
Cash and cash equivalents at end of period $ 1,831,000 $ 1,682,000
=========== ===========
</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
NOVEMBER 30, 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 on Form 10-K for the year ended February 28, 1999, as filed
with the Securities and Exchange Commission on May 26, 1999. Operating
results for the nine months ended November 30, 1999 are not necessarily
indicative of the results that may be expected for succeeding periods or
for the year ending February 29, 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
<PAGE> 7
NOTE 3 - PROPERTY ACQUISITION
On July 21, 1999 Environmental Real Estate Investors, Inc., (EREI), a joint
venture by GZA GeoEnvironmental, Inc. and Southborough Ventures, Inc.,
acquired a former industrial property and plans to transform the parcel
into a site suitable for commercial development. The acquisition is
consistent with the joint venture's goal of targeting environmentally
impaired properties for development.
The Company's investment in EREI is reflected in "Other assets" on the
Company's balance sheet. Gains or losses, if any, from joint venture
transactions are recorded as "Other Income" on the Company's Consolidated
Statements of Operations and Comprehensive Income. Due to the terms of the
joint venture 100% of the assets, liabilities, and equity will be recorded
by the Company.
NOTE 4 - PROPOSED SALE OF SHARES AND DISCONTINUANCE OF JOINT VENTURE WITH
CARL BRO GROUP (UK) LIMITED.
An agreement in principle has been reached for the sale of 5,000 "B"
shares, 1 (pound) each, held by GZA GeoEnvironmental, Inc. ("GZA") in
Aquaterra Environmental Consultants Limited ("Aquaterra") to Carl Bro Group
(UK) Limited ("Carl Bro").
Under the proposed agreement, the consideration for the shares will consist
of cash in the amount equal to 210,000 (pound). Outstanding indebtedness of
Aquaterra to GZA in the amount of approximately 87,500 (pound) will be paid
at the closing of the transaction. Carl Bro will assume full responsibility
for, and indemnify GZA against, any liability arising out of professional
services rendered by Aquaterra, any employment matters, tax or debt
obligations, and any other obligations and liabilities arising out of the
operation of Aquaterra's business before or after the sale. No material
gain or loss is anticipated from the sale of shares to Carl Bro. Gains and
losses from GZA's investment in Aquaterra have been reflected in the
Company's financial statements on the equity basis. The transaction is
expected to close in the fourth quarter of fiscal 2000.
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 2000 AND 1999
- - NET REVENUES. The Company's net revenues for the three months ended
November 30, 1999 increased by approximately $325,000 (3.1%) compared with
the corresponding period in the prior fiscal year. The increase in net
revenues is attributable to increases in demand for our services in the
Northeast and Great Lakes Regions. The increase in the Northeast Region
includes approximately $204,000 attributable to the Company's December,
1998 acquisition of Raamot Associates, PC of New York, NY, a
Manhattan-based consulting and engineering firm. The increase in net
revenues was offset by a $249,000 decline in net revenues in the Southeast
Region based primarily on management's decision to close the Atlanta office
in the first quarter of the current fiscal year.
- - SALARIES AND RELATED COSTS. Salaries and related costs for the three months
ended November 30, 1999 increased by $ 380,000 (5.1%) 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. The increase
was offset by a reduction in the Incentive Compensation Plan expense
accruals which are based on total Company performance and individual
performance goals.
The increase in salary and related expenses reflects hiring of senior staff
for initiatives undertaken to increase net revenues and expand engineering
and consulting services outside of New England.
- - GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the three months ended November 30, 1999 increased by approximately
$25,000 (1.0%) compared with the prior fiscal year. The increase in general
and administrative expenses is attributable to higher occupancy costs due
to the Raamot Associates acquisition, greater amortization expense for
leasehold improvements, and increased professional liability claims
expenses. The increase in general and administrative expenses was offset by
a decrease in bad debt expense, professional liability insurance premiums
and employee placement and recruiting fees.
8
<PAGE> 9
NINE MONTH COMPARISON FOR FISCAL YEARS 2000 AND 1999
- - NET REVENUES. The Company's net revenues for the nine months ended November
30, 1999 increased by $2,221,000 (7.2%) compared with the corresponding
period in prior fiscal year. The increase in net revenues is attributable
primarily to increases in demand for the Company's services in the
Northeast and Great Lakes Regions. The increase in the Northeast Region
includes approximately $722,000 attributable to the Company's December,
1998 acquisition of Raamot Associates. The increase was offset by a
$403,000 decline in net revenues for our Southern Region based primarily on
management's decision to close the Atlanta office in the first quarter of
the current fiscal year.
- - SALARIES AND RELATED COSTS. Salaries and related costs for the nine months
ended November 30, 1999 increased by $ 1,990,000 (9.1%) 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. The increase is offset, in part, by
a reduction in Incentive Compensation Plan expense accruals which are based
on total Company and individual performance goals.
The increase in salary and related expenses reflects the hiring of senior
staff for initiatives undertaken to increase net revenues and expand
engineering and consulting services outside of New England.
- - GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the nine months ended November 30, 1999 increased by $997,000 (14.7%)
compared with the corresponding period in the prior fiscal year. The
increase in general and administrative expenses includes $235,000 in costs
related to management's decision to close the Atlanta office. The closing
cost estimate for Atlanta includes lease settlement expenses and other
legal, contractual and administrative costs.
The increase in general and administrative expenses is also attributable to
higher occupancy cost due to the Raamot Associates acquisition, greater
amortization expense for leasehold improvements and increases in
professional liability claims expenses and depreciation expense. The
increase in general and administrative expenses was offset by decreases in
bad debt expense, temporary help expense, general and professional
liability insurance premiums, employee placement and recruiting expense and
management consulting services.
9
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LIQUIDITY AND CAPITAL RESOURCES
For the nine month period ended November 30, 1999, $2,449,000 of net cash
was provided by operations, whereas for the nine month period ended
November 30, 1998 $2,667,000 of net cash was used by operations. The
increase in fiscal 2000 is the result of improving billing practices and
the collection of receivables for several large projects where we are a
third party subcontractor.
The Company made capital expenditures of approximately $1,232,000 and
$1,655,000 for the first nine months of fiscal 2000 and 1999, respectively.
The capital expenditures for fiscal 2000 include approximately $847,000 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 $ 18,533,000 at November 30, 1999.
At November 30, 1999, the Company had cash on hand and cash equivalents of
$1,831,000, and short-term investments of $3,904,000, 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.
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.
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, 1999.
(b) REPORTS ON FORM 8-K
The Company did not file any report on Form 8-K during the nine-month
period ended November 30, 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.
11
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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: January 14, 2000 /s/ Joseph P. Hehir
--------------------------------------------
JOSEPH P. HEHIR, Chief Financial Officer
and Treasurer (Chief Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS OF THE REGISTRANT AT NOVEMBER 30, 1999 AND FEBRUARY
28, 1999 AND CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME OF
THE REGISTRANT FOR THE THREE AND NINE MONTHS PERIOD ENDED NOVEMBER 30, 1999 AND
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS IN THE
FORM 10Q FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-29-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> NOV-30-1999
<CASH> 1,831,000
<SECURITIES> 3,904,000
<RECEIVABLES> 14,501,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 28,545,000
<PP&E> 5,772,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 36,146,000
<CURRENT-LIABILITIES> 10,012,000
<BONDS> 0
0
0
<COMMON> 41,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 36,146,000
<SALES> 0
<TOTAL-REVENUES> 50,705,000
<CGS> 0
<TOTAL-COSTS> 49,332,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,575,000
<INCOME-TAX> 630,000
<INCOME-CONTINUING> 945,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 945,000
<EPS-BASIC> .26
<EPS-DILUTED> .26
</TABLE>
