UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 25, 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 1-11075
DAMES & MOORE GROUP
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 95-4316617
- ---------------------------- ----------------------------------
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
911 Wilshire Blvd., Suite 700, Los Angeles, California 90017
-------------------------------------------------------------
(Address, including Zip Code, of Principal Executive Offices)
(213) 996-2200
----------------------------------------------------
(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
---- ----
As of October 31, 1998, 18,327,767 shares of the registrant's common stock,
$0.01 par value, were issued and outstanding.
Part I. Financial Information
Item 1. Financial Statements
DAMES & MOORE GROUP
Condensed Consolidated Statements of Financial Position
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Sept. 25, March 27,
Assets 1998 1998
--------- ---------
<S> <C> <C>
Current:
Cash and cash equivalents $ 19,708 $ 9,493
Marketable securities 493 1,031
Accounts receivable, net of allowance
for doubtful accounts of: $5,733 and $3,408 197,932 135,298
Billed contract retentions 14,579 10,992
Unbilled 92,646 55,844
-------- -------
305,157 202,134
Deferred income taxes 7,261 4,303
Prepaid expenses and other assets 26,250 11,168
Inventories 6,112 -
-------- -------
Total current assets 364,981 228,129
Property and equipment, net 56,386 23,397
Goodwill of acquired businesses, net 143,102 117,849
Investments in affiliates 8,835 4,868
Other assets 34,611 12,118
-------- --------
$607,915 $386,361
======== ========
Liabilities and shareholders' equity
Current:
Current portion of long-term debt $ 9,177 $ 9,614
Accounts payable 46,669 31,990
Accrued payroll and employee benefits 39,033 26,364
Current income taxes payable 5,391 6,864
Accrued expenses and other liabilities 51,083 23,727
-------- --------
Total current liabilities 151,353 98,559
Long-term debt 301,622 132,010
Other long-term liabilities 14,629 5,883
Contingencies
Shareholders' equity:
Preferred stock, $0.01 par value,
shares authorized: 1,000,000
shares issued: none - -
Common stock and capital in excess of $0.01
par value, shares authorized: 54,000,000
shares issued: 22,777,000 and 22,740,000 108,000 107,512
Retained earnings 93,215 104,952
Treasury stock: 4,419,000 and 4,573,000 (59,059) (61,157)
Accumulated other comprehensive income (1,286) (1,289)
Other shareholders' equity ( 559) (109)
--------- ----------
Total shareholders' equity 140,311 149,909
--------- ----------
$607,915 $386,361
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
DAMES & MOORE GROUP
Condensed Consolidated Statements of Earnings and Loss
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------- --------------------
Sept. 25, Sept. 26, Sept. 25, Sept. 26,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Gross revenues $263,606 $176,214 $452,756 $347,985
Direct costs of
outside services 110,619 52,960 170,965 104,946
--------- --------- --------- --------
Net revenues 152,987 123,254 281,791 243,039
--------- --------- --------- --------
Operating expenses:
Salaries and related costs 107,412 85,338 197,425 169,784
General expenses 27,610 23,623 51,900 45,063
Depreciation and amortization 2,963 2,283 5,214 4,417
Amortization of goodwill 1,247 1,097 2,434 2,305
Acquisition related restruct-
uring and other charges 28,276 - 28,276 -
--------- --------- --------- --------
167,508 112,341 285,249 221,569
--------- --------- --------- --------
(Loss) earnings from operations (14,521) 10,913 (3,458) 21,470
Investment and other income 288 453 133 346
Interest expense (4,579) (2,541) (7,242) (5,004)
--------- --------- --------- ---------
(Loss) earnings before income
taxes (18,812) 8,825 (10,567) 16,812
Income taxes (6,523) 3,674 (2,965) 6,976
--------- --------- --------- ---------
(Loss) earnings before
extraordinary item (12,289) 5,151 (7,602) 9,836
Extraordinary item (less
applicable income taxes
of $1,737) (2,850) - (2,850) -
--------- --------- --------- ---------
Net (loss) earnings $(15,139) $ 5,151 $(10,452) $ 9,836
========= ========= ========= =========
Cash dividends declared
per share $ 0.03 $ 0.03 $ 0.06 $ 0.06
========= ========= ========= =========
Basic (loss) earnings per share
(Loss) earnings before
extraordinary item $ (0.67) $ 0.29 $ (0.41) $ 0.55
Extraordinary item (0.16) - (0.16) -
--------- --------- --------- ---------
$ (0.83) $ 0.29 $ (0.57) $ 0.55
========= ========= ========= =========
Weighted average number
of shares 18,252 17,884 18,257 17,887
========= ========= ========= =========
Diluted (loss) earnings per share
(Loss) earnings before
extraordinary item $ (0.67) $ 0.28 $ (0.41) $ 0.55
Extraordinary item (0.16) - (0.16) -
--------- --------- --------- ---------
$ (0.83) $ 0.28 $ (0.57) $ 0. 55
========= ========= ========= =========
Weighted average number
of shares 18,252 18,047 18,257 18,044
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
DAMES & MOORE GROUP
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION> Six Months Ended
---------------------
Sept. 25, Sept. 26,
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) earnings $(10,452) $ 9,836
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 7,876 6,883
Non-cash special charges 12,099 -
Loss from equity investments 618 284
Deferred income taxes (2,187) 474
Change in assets and liabilities, net of
effects of purchases of businesses:
Marketable securities - 5,984
Accounts receivable (32,484) (21,737)
Prepaid expenses and other assets 444 (1,078)
Income tax receivable (9,618) (41)
Accounts payable and accrued expenses 1,542 4,900
--------- ---------
Net cash (used in) provided by operating activities (32,162) 5,505
--------- ---------
Cash flows from investing activities:
Purchases of businesses, net of cash acquired (106,622) (9,490)
Purchases of property and equipment (7,019) (3,776)
Investments and other assets (9,161) (472)
Proceeds from sales of investments and other property 500 6,068
--------- ---------
Net cash (used in) investing activities (122,302) (7,670)
--------- ---------
Cash flows from financing activities:
Repayments on lines of credit (175,507) (16,121)
Debt issuance costs (3,675) -
Proceeds from lines of credit 345,080 21,000
Issuance of common stock 382 323
Stock repurchased (498) (310)
Dividends (1,103) (1,082)
--------- ---------
Net cash provided by financing activities 164,679 3,810
--------- ---------
Net increase in cash and cash equivalents 10,215 1,645
Cash and cash equivalents, beginning of period 9,493 12,726
--------- ---------
Cash and cash equivalents, end of period $ 19,708 $ 14,371
========= =========
Supplemental disclosures of cash flow information:
Interest paid $ 9,945 $ 4,602
Income tax paid 7,863 7,192
Non-cash investing activities-business acquisitions 17,615 2,551
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
DAMES & MOORE GROUP
Notes to Condensed Consolidated Financial Statements
(In thousands, except share amounts)
Note 1 - Basis of Presentation:
The accompanying condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements and disclosures
included in the Company's 1998 annual report to shareholders and Form 8-K/A
dated July 31, 1998. The condensed consolidated financial statements include
all adjustments (consisting only of normal recurring items) which management
considers necessary to present fairly the financial position of the Company
as of September 25, 1998 and March 27, 1998; and the results of operations
for the three-month periods and the six-month periods ended September 25,
1998 and September 26, 1997. Certain items in the prior year's financial
statements have been reclassified to be consistent with the 1998 fiscal year
presentation.
The results of operations for the interim periods are not necessarily
indicative of operating results to be expected for the full year.
Fiscal Year:
The Company uses a 52-53 week fiscal year ending the last Friday in March.
The six-month periods ended September 25, 1998 and September 26, 1997 were
each comprised of 26 weeks.
Note 2 - Radian Acquisition:
On July 31, 1998, the Company acquired all of the membership interests of
Radian International LLC ("Radian"), a multinational engineering, consulting
and construction firm. The purchase price of $117 million in cash is subject
to a post-closing adjustment. The purchase price in excess of the fair value
of the net assets acquired, plus estimated office closure costs of $2,912
and severance costs of $382 are classified as goodwill and are being
amortized over 40 years.
The following schedule summarizes unaudited pro forma results of operations
as if the acquisition of Radian had occurred at the beginning of fiscal 1998.
Certain adjustments, such as goodwill, increased interest expense and income
tax have been reflected.
<TABLE>
<CAPTION> Three Months Ended Six Months Ended
-------------------- -------------------
Sept. 25, Sept. 26, Sept. 25, Sept. 26,
1998 1997 1998 1997
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Net revenues $169,329 $168,744 $343,445 $331,787
========= ======== ========= ========
(Loss) earnings before
extraordinary item $(14,279) $ 3,556 $ (9,149) $ 4,551
========= ======== ========= ========
Earnings per share before
extraordinary item
Basic and Diluted $ (0.78) $ 0.20 $ (0.50) $ 0.25
========= ======== ========= ========
Net (loss) earnings $(17,129) $ 3,556 $(11,999) $ 4,551
========= ======== ========= ========
Earnings per share - Basic
and Diluted $ (0.94) $ 0.20 $ (0.66) $ 0.25
========= ======== ========= ========
</TABLE>
The pro forma information is intended to show how the acquisitions might have
affected historical results of operations if the transaction had occurred at
the beginning of the periods presented. The pro forma results are not
necessarily indicative of the periods presented or to be expected in the
future.
The acquisition has been accounted for as a purchase. Results of operations
have been included in the consolidated financial statements from the date of
acquisition.
DAMES & MOORE GROUP
Notes to Condensed Consolidated Financial Statements
(In thousands, except share amounts)
Note 3 - Acquisition Restructuring and Other Charges:
During the second quarter, the Company took a charge for purchased in-process
research and development technology that had not reached technological
feasibilitiy of $15,271. Additionally, the Company began consolidation
of certain facilities and operations primarily as a result of the Radian
acquisition, resulting in a charge of $9,213. This charge consisted of
$2,699 for lease termination, $3,635 for severance costs, and $2,879 for
unamortized goodwill and other costs related to the closure of certain
business units that were operating at a loss and were duplicative of Radian's
capabilities. Other charges also included $3,792 for consolidation of
certain of the Company's operational activities and other job related costs.
Note 4 - Inventories:
Inventories at September 25, 1998 consisted of the following:
Raw materials and supplies $ 2,659
Work-in-progress 2,378
Finished goods 1,075
---------
Total $ 6,112
=========
Note 5 - Long-Term Debt:
The funding of the Radian acquisition resulted in the early extinguishment of
the Company's Senior Notes and certain bank lines of credit. Pre-payment
obligations and deferred financing costs resulted in a pretax charge of
$4,587; after the tax effect of $1,737, the extraordinary charge was $2,850,
or ($.16) per share, basic and diluted.
The Company's new long-term debt facility includes a term commitment of
$265,000 and a revolving commitment of $75,000. Interest is charged under
several options, including the bank's reference rate or at LIBOR plus a
spread, at the Company's option. Interest is payable quarterly for
reference rate borrowings and for LIBOR borrowings the earlier of the last
day of the interest rate period or three months from the first day of the
interest rate period. The agreement contains limitations on additional
indebtedness, sales of assets, acquisitions and capital expenditures, as well
as maintenance of certain financial ratios. The term loan requires quarterly
principal payments commencing on June 30, 1999, with the unpaid balance of
$140,000 due in full on June 30, 2004. The revolving commitment also matures
on June 30, 2004. Furthermore, mandatory principal pre-payments or
commitment reductions are required in the event of the occurrence of certain
transactions, as defined in the agreement.
Note 6 - Shareholders' Equity:
During the first two quarters of fiscal year 1999, the Company declared
quarterly cash dividends of $0.03 per share on its common stock, totaling
$1,103. Under the Company's Amended and Restated 1991 Long-Term Incentive
Plan, it issued 65,891 shares of Restricted Stock of which 33,110 shares were
from treasury stock and repurchased 5,393 shares of Restricted Stock; and
stock options for 9,536 common shares were exercised.
The Company's Board of Directors authorized the Company to purchase up to
2,500,000 shares of its common stock on the open market. During the first
two quarters the Company reacquired 36,535 shares of its common stock. As of
September 25, 1998, the Company has repurchased 1,883,922 shares and reissued
1,131,538 shares.
DAMES & MOORE GROUP
Notes to Condensed Consolidated Financial Statements
(In thousands, except share amounts)
Note 7 - Comprehensive (Loss) Income:
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
130 "Reporting of Comprehensive Income", effective with its fiscal year 1999.
SFAS No. 130 established standards for the reporting and display of
comprehensive income and its components. Other comprehensive income of the
Company consists of unrealized losses on marketable securities, foreign
currency translation adjustments, and minimum pension liability adjustment.
SFAS No. 130 does not affect the measurement of the items included in other
comprehensive income; it affects only where those items are displayed and how
they are described.
Comprehensive income is as follows:
<TABLE>
<CAPTION> Six Months Ended
-----------------------
Sept. 25, Sept. 26,
1998 1997
---------- ----------
<S> <C> <C>
Net (loss) earnings $(10,452) $ 9,836
Other comprehensive (loss) income, net of tax:
Unrealized (losses) gain on marketable
securities (416) 27
Foreign currency translation adjustments 347 (478)
Minimum pension liability adjustment 72 -
--------- ---------
3 (451)
--------- ---------
Comprehensive (loss) income $(10,449) $ 9,385
========= =========
</TABLE>
Part I. Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in thousands)
From time to time, the Company or its representatives may make forward-looking
statements in this report or elsewhere relating to such matters as anticipated
financial performance, including projections of revenues, expenses, earnings,
liquidity, capital resources or other financial items; business plans,
objectives and prospects; technological developments; and similar matters.
Forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 frequently are identified by the use of terms
such as "expect", "believe", "estimate", "may", "should", "will" or similar
expressions.
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In order to comply with the terms of the safe
harbor, the Company notes that a variety of factors could cause the Company's
actual results and experiences to differ materially from the anticipated results
or other expectations expressed in the forward-looking statements made by the
Company or its representatives. The risks and uncertainties that may affect the
operations, performance, development and results of the Company's business
include the following, among other factors: (a) the ability to attract and
retain qualified professional personnel; (b) potential liability for engineering
services; (c) potential liability for consulting services relating to toxic and
hazardous materials and the ability to insure such risks; (d) dependence on
environmental regulation including decreased revenues that may result from a
reduction in laws, regulations and programs related to environmental issues or
from changes in governmental policies regarding the funding, implementation or
enforcement of such laws, regulations and programs; (e) increasing competition
faced by the Company in its service areas; (f) periodic fluctuations in general
business conditions and in demand for the types of services provided by the
Company; and (g) foreign operations which expose the Company to political,
economic and other uncertainties such as fluctuating currency values and
exchange controls of foreign countries.
Acquisitions and Operations
During the first quarter of fiscal year 1999, the Company acquired Signet
Testing Laboratories, Inc., a materials engineering and testing firm focused on
the areas of structural steel and concrete testing and inspections. During the
second quarter of fiscal year 1999, the Company acquired all of the membership
interests of Radian International LLC ("Radian"), a leading multinational
engineering, consulting and construction firm. Several other smaller
acquisitions were also completed in the second quarter.
All acquisitions are accounted for as purchases; accordingly, the difference
between the purchase cost and the fair value of the net assets of acquired
businesses are amortized on a straight-line basis over various periods not
exceeding 40 years. Results of operations for all acquisitions have been
included in the consolidated financial statements from the date of the
respective acquisition.
Results of Operations
Second Quarter 1999 Compared with Second Quarter 1998
The Company uses a 52-53 week fiscal year ending the last Friday in March. The
second quarter for both fiscal years 1999 and 1998 were comprised of 13 weeks.
<TABLE>
<CAPTION>
1999 Increase 1998
-------- -------- --------
<S> <C> <C> <C>
Net Revenues $152,987 24.1% $123,254
</TABLE>
The 24.1% increase in net revenues in the second quarter of fiscal 1999 as
compared to the second quarter of fiscal 1998 is a result of the Company's
fiscal 1998 and 1999 acquisitions, which contributed $33,705 of the increase, or
27.3%. Net revenue growth was experienced in the construction services and
transportation divisions; however, general engineering and consulting and
process and chemical engineering declined.
<TABLE>
<CAPTION>
1999 Increase 1998
-------- -------- --------
<S> <C> <C> <C>
Salaries and Related Costs $107,412 25.9% $ 85,338
</TABLE>
Salaries and related costs increased by 25.9% in the second quarter of fiscal
1999 as compared to the second quarter of fiscal 1998. Acquisitions completed
in fiscal 1998 and 1999 represent $24,869 of the increase, or 29.1%. Staffing
has been adjusted based on the net revenue pattern, which resulted in a net
reduction of salaries, bonuses and profit sharing. Salaries and related costs
represent 70.2% and 69.2% of net revenues for the second quarters of fiscal 1999
and 1998, respectively.
<TABLE>
<CAPTION>
1999 Increase 1998
-------- -------- --------
<S> <C> <C> <C>
General Expenses $ 27,610 16.9% $ 23,623
</TABLE>
Acquisitions completed in fiscal 1998 and 1999 accounted for the entire increase
in general expenses. As a percentage of net revenues, general expenses
represent 18.0% and 19.2% of net revenues for the second quarters of fiscal 1999
and fiscal 1998, respectively.
<TABLE>
<CAPTION>
1999 Increase 1998
-------- -------- --------
<S> <C> <C> <C>
Depreciation and Amortization $ 2,963 29.8% $ 2,283
</TABLE>
Acquisitions completed in fiscal 1998 and 1999 accounted for the increase in
depreciation and amortization, which has been offset by a decline in
depreciation and amortization expense for the Company's remaining assets as they
become fully depreciated. Depreciation and amortization represents 1.9% of net
revenues for the second quarters of fiscal 1999 and 1998.
<TABLE>
<CAPTION>
1999 Increase 1998
-------- -------- --------
<S> <C> <C> <C>
Amortization of Goodwill $ 1,247 13.7% $ 1,097
</TABLE>
Amortization of goodwill increased $150, or 13.7%, due to fiscal 1998 and 1999
acquisitions; future acquisitions will continue this trend.
<TABLE>
<CAPTION>
1999 Increase 1998
-------- -------- --------
<S> <C> <C> <C>
Acquisition Related Restructuring
and Other Charges $ 28,276 100.0% -
</TABLE>
See Note 3 to the Condensed Consolidated Financial Statements.
<TABLE>
<CAPTION>
1999 Decrease 1998
-------- -------- --------
<S> <C> <C> <C>
(Loss) Earnings from Operations $(14,521) (233.1%) $ 10,913
</TABLE>
The Company's loss from operations for the second quarter of fiscal 1999
resulted principally from the acquisition related restructuring and other
charges of $28,276 (see Note 3 to the Condensed Consolidated Financial
Statements). The Company's operating margin before these charges, as a
percentage of net revenues, was 9.0% and 8.9% for the second quarters of fiscal
1999 and fiscal 1998, respectively.
<TABLE>
<CAPTION>
1999 Decrease 1998
-------- -------- --------
<S> <C> <C> <C>
Investment and Other Income $ 288 (36.4%) $ 453
</TABLE>
The decrease in investment and other income reflects a decline in earnings from
the Company's joint ventures.
<TABLE>
<CAPTION>
1999 Increase 1998
-------- -------- --------
<S> <C> <C> <C>
Interest Expenses $ 4,579 80.2% $ 2,541
</TABLE>
The Company's funding of acquisitions and joint ventures have been financed with
long-term debt. The Company's borrowings have increased from $144,983 at
September 26, 1997 to $310,799 at September 25, 1998, resulting in higher
interest costs. See "Liquidity and Capital Resources."
<TABLE>
<CAPTION>
1999 Decrease 1998
-------- -------- --------
<S> <C> <C> <C>
Income Taxes $(6,523) (277.5%) $ 3,674
</TABLE>
Income tax (benefit) expense as a percentage of (loss) earnings before income
taxes were 34.7% and 41.6% for the second quarters of fiscal 1999 and fiscal
1998, respectively. Goodwill amortization related to stock acquisitions, not
deductible for tax purposes, coupled with losses from foreign corporations where
no tax benefit has been recognized, reduces the benefit rate as a percentage of
net loss.
<TABLE>
<CAPTION>
1999 Increase 1998
-------- -------- --------
<S> <C> <C> <C>
Extraordinary Item $ 2,850 100.0% -
</TABLE>
See Note 5 to the Condensed Consolidated Financial Statements.
<TABLE>
<CAPTION>
1999 Decrease 1998
-------- -------- --------
<S> <C> <C> <C>
Net (Loss) Earnings $(15,139) (393.9%) $ 5,151
</TABLE>
The Company's net loss for the second quarter of fiscal year 1999 was primarily
a result of the acquisition related restructuring and other charges and
extraordinary item previously discussed.
First Two Quarters 1999 Compared with First Two Quarters 1998
The Company uses a 52-53 week fiscal year ending the last Friday in March. The
first two quarters for both fiscal years 1999 and 1998 were each comprised of 26
weeks.
<TABLE>
<CAPTION>
1999 Increase 1998
-------- -------- --------
<S> <C> <C> <C>
Net Revenues $281,791 15.9% $243,039
</TABLE>
The 15.9% increase in net revenues in the first two quarters of fiscal 1999 as
compared to the first two quarters of fiscal 1998 is primarily a result of
fiscal 1998 and 1999 acquisitions, which contributed $42,225 of the increase,
or 17.4%. Growth in net revenues was also experienced in the transportation
and construction divisions, which were offset by declines in the general
engineering and consulting, and process and chemical engineering divisions.
<TABLE>
<CAPTION>
1999 Increase 1998
-------- -------- --------
<S> <C> <C> <C>
Salaries and Related Costs $197,425 16.3% $169,784
</TABLE>
Salaries and related costs increased by 16.3% in the first two quarters of
fiscal 1999 as compared to the first two quarters of fiscal 1998. Acquisitions
completed in fiscal 1998 and 1999 represent $30,773 of this increase, or 18.1%.
Staffing has been adjusted based on the net revenue pattern, which resulted in a
net reduction of salaries, bonuses and profit sharing. Salaries and related
costs represent 70.1% and 69.9% of net revenues for the first two quarters of
fiscal 1999 and fiscal 1998, respectively.
<TABLE>
<CAPTION>
1999 Increase 1998
-------- -------- --------
<S> <C> <C> <C>
General Expenses $ 51,900 15.2% $ 45,063
</TABLE>
Acquisitions completed in fiscal 1998 and 1999 accounted for the increase in
general expenses. As a percentage of net revenues, general expenses represent
18.4% and 18.5% of net revenues for the first two quarters of fiscal 1999 and
fiscal 1998, respectively.
<TABLE>
<CAPTION>
1999 Increase 1998
-------- -------- --------
<S> <C> <C> <C>
Depreciation and Amortization $ 5,214 18.0% $ 4,417
</TABLE>
Fiscal 1998 and 1999 acquisitions were responsible for $887 of the increase, or
20.1% in depreciation and amortization. This increase is offset by a decline in
depreciation and amortization expense for the Company's remaining assets as they
become fully depreciated. Depreciation and amortization represents 1.9% and
1.8% of net revenues for the first two quarters of fiscal 1999 and fiscal 1998,
respectively.
<TABLE>
<CAPTION>
1999 Increase 1998
-------- -------- --------
<S> <C> <C> <C>
Amortization of Goodwill $ 2,434 5.6% $ 2,305
</TABLE>
Amortization of goodwill increased due to the Company's fiscal 1998 and 1999
acquisitions; future acquisitions will continue this trend.
<TABLE>
<CAPTION>
1999 Decrease 1998
-------- -------- --------
<S> <C> <C> <C>
(Loss) Earnings from Operations $(3,458) (116.1%) $ 21,470
</TABLE>
Earnings from operations decreased 116.1% for the first two quarters of fiscal
1999 as compared to the first two quarters of fiscal 1998 due primarily to
acquisition related restructuring and other charges of $28,276 (see Note 3 to
the Condensed Consolidated Financial Statements). The Company's operating
margin as a percentage of net revenues before these charges was 8.8% for the
first two quarters of fiscal 1999 and fiscal 1998.
<TABLE>
<CAPTION>
1999 Decrease 1998
-------- -------- --------
<S> <C> <C> <C>
Investment and Other Income $ 133 (61.6%) $ 346
</TABLE>
The decline in investment and other income reflects a decline in earnings from
the Company's joint ventures.
<TABLE>
<CAPTION>
1999 Increase 1998
-------- -------- --------
<S> <C> <C> <C>
Interest Expenses $ 7,242 44.7% $ 5,004
</TABLE>
The Company's funding of acquisitions and joint ventures have been financed with
long-term debt. Accordingly, interest expense has increased. See "Liquidity
and Capital Resources."
<TABLE>
<CAPTION>
1999 Decrease 1998
-------- -------- --------
<S> <C> <C> <C>
Income Taxes $(2,965) (142.5%) $ 6,976
</TABLE>
Income tax (benefit) expense as a percentage of (loss) earnings before income
taxes were 28.1% and 41.5% for the first two quarters of fiscal 1999 and fiscal
1998, respectively. The decrease in the benefit rate from the expense rate is a
result of non-deductible expenses for tax purposes.
<TABLE>
<CAPTION>
1999 Decrease 1998
-------- -------- --------
<S> <C> <C> <C>
Net (Loss) Earnings $(10,452) (206.3%) $ 9,836
</TABLE>
The Company's net loss for the first two quarters of fiscal 1999 was primarily a
result of the acquisition related restructuring and other charges and
extraordinary item previously discussed.
Liquidity and Capital Resources
Cash and cash equivalents totaled $19,708 at September 25, 1998, compared to
$9,493 at March 27, 1998. The Company's working capital of $213,628 at
September 25, 1998 has grown from $129,570 at March 27, 1998. The primary
sources of cash during the first two quarters of fiscal 1999 consisted of funds
from the new credit facilities net of issuance costs and existing borrowings of
$165,898. The primary uses of cash in the first two quarters of fiscal 1999
consisted of acquisitions totaling $106,622.
Net cash used by operating activities for the first two quarters of fiscal 1999
totaled $32,162 as compared to cash provided of $5,505 for the first two
quarters of fiscal 1998. The extraordinary item, acquisition restructuring, and
other charges used cash of approximately $20,764. Estimated income taxes paid
for fiscal 1999 are now a receivable due to the Company's net loss position.
The balance of the use of funds is from growth of accounts receivable in fiscal
1999 from the construction and transportation divisions which have also
experienced revenue growth. In fiscal 1998, marketable securities were sold,
while none were sold in fiscal 1999.
Investing activities reflects the Company's acquisition and venture programs.
The Company's acquisition of Radian in fiscal 1999 was the largest use of funds
and a significantly larger purchase price than fiscal 1998 acquisitions.
Funding of several ventures was also larger in fiscal 1999 as compared to fiscal
1998.
The new financing obtained by the Company to repay existing indebtedness and
fund the purchase of the Radian acquisition provided the funds from financing
activities.
The Company has a credit facility of $340,000 in U.S. dollars, offshore foreign
currencies or foreign domestic currencies, and for the issuance of letters of
credit and purchase of foreign currency exchange contracts. As of September 25,
1998, under these lines, the Company had borrowings and guaranteed obligations
of $310,667, and standby letters of credit totaling $17,183 principally for
project performance, advance payment guarantees and the Company's domestic
insurance program.
While the Company anticipates continuing capital requirements to support growth
and diversification of services, management believes cash generated from
operations and the existing debt structure will be sufficient to meet operating
requirements for the foreseeable future.
Year 2000
The Company operates on several information technology systems. Two of the
major information technology systems have successfully completed the necessary
upgrades to be year 2000 compliant. The third major information technology
system is expected to be completed in June 1999. Non-information technology
used by the Company is also being assessed for year 2000 compliance. Inventories
and evaluations of the Company's systems are being completed and systems
identified which will need to be replaced or migrated to year 2000 compliant
systems. The Company expects this process to be completed in September 1999.
Relationships with third-party vendors and suppliers are presently being
inventoried and queried as to their readiness for the year 2000. We are being
advised by parties contacted that they are in the process of implementing
changes to be year 2000 compliant. In the event a vendor or supplier fails to
complete this implementation in a timely manner, management believes a likely
scenario will potentially be a delay in transaction processing, which is not
expected to materially impact the Company's operations.
A contingency plan has not yet been formally adopted by management. Based upon
information to date, the costs to become year 2000 compliant are not expected to
be material.
Item 3. Quantitative and Qualitative Disclosures About Market Risk:
Not applicable.
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held on August 10, 1998. Ten directors
were elected to hold office for the coming year. The following table lists the
number of votes cast for or withheld from each:
FOR WITHHELD
---------- ---------
U. M. Burns 14,617,740 1,217,247
R. F. Clarke 14,657,102 1,177,885
A. C. Darrow 14,650,705 1,184,282
G. R. Krieger 14,508,286 1,326,701
G. D. Leal 14,654,340 1,180,647
A. E. Macdonald 14,616,343 1,218,644
A. R. Moore 13,913,220 1,921,767
M. R. Peevey 14,233,543 1,601,444
H. Peipers 14,547,679 1,287,308
A. E. Williams 14,658,374 1,176,613
A proposal to amend the Restated Certificate of Incorporation to increase the
number of authorized shares of common stock, from 27,000,000 to 54,000,000, was
ratified and received the following votes:
VOTES
----------
For: 12,487,586
Against: 3,368,238
Abstain: 8,912
A proposal to amend the 1995 Stock Option Plan for Non-Employee Directors to
increase the number of shares available for grant from 50,000 to 100,000, was
ratified and received the following votes:
VOTES
----------
For: 12,370,051
Against: 3,451,540
Abstain: 46,195
A proposal to amend the Amended and Restated Long-Term Incentive Plan to
increase the number of shares available for grant from 2,500,000 to 2,700,000,
was ratified and received the following votes:
VOTES
----------
For: 11,358,052
Against: 4,459,797
Abstain: 49,937
There were no broker non-votes for the election of directors or any of the
proposals.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27.1 Financial Data Schedule (included only in the electronic
filing).
Exhibit 27.1A Restated Financial Data Schedule for the interim period
of September 26, 1997, in the fiscal year ended March 27, 1998
(included only in the electronic filing).
(b) The Company filed a Current Report on Form 8-K on August 19, 1998 and
Form 8-K/A filed on October 9, 1998 reporting under Item 2, the
acquisition of Radian International LLC. Included in the Form 8-K/A
are financial statements for Radian International LLC for the years
ended December 31, 1997 and 1996; and the six-month periods ended
June 30, 1998 and 1997. Also included in the Form 8-K/A are unaudited
pro forma combined statement of financial position as of June 26, 1998,
and unaudited pro forma combined statement of earnings for the three-
month period ended June 26, 1998 and the year ended March 27, 1998.
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.
DAMES & MOORE GROUP
Date: November 4, 1998 /s/ ARTHUR C. DARROW
-----------------------------------
Arthur C. Darrow
Chairman and
Chief Executive Officer
(Principal Executive Officer)
Date: November 4, 1998 /s/ MARK A. SNELL
-----------------------------------
Mark A. Snell
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: November 4, 1998 /s/ LESLIE S. PUGET
-----------------------------------
Leslie S. Puget
Corporate Controller
(Principal Accounting Officer)
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
27.1 Financial Data Schedule, which is included only in the electronic
submission to the Securities and Exchange Commission.
27.1A Restated Financial Data Schedule for the interim period of
September 26, 1997, in the fiscal year ended March 27, 1998, which
is included only in the electronic submission to the Securities and
Exchange Commission.
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