1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended .... August 31, 2000.............................
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
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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 September 30, 2000 4,244,644
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GZA GEOENVIRONMENTAL TECHNOLOGIES, INC. AND AFFILIATE
TABLE OF CONTENTS
Page
----
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
- Consolidated Balance Sheets -
August 31, 2000 (unaudited) and February 29, 2000 3
- Consolidated Statements of Operations and Comprehensive Income -
(unaudited) Three and Six Months Ended August 31, 2000 and 1999 4
- Consolidated Statements of Cash Flows - (unaudited)
Six Months Ended August 31, 2000 and 1999 5
- Notes to Consolidated Financial Statements - (unaudited) 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 8
PART II OTHER INFORMATION
Item 1 Legal Proceedings 10
Item 6 Exhibits and Reports on Form 8-K 11
SIGNATURES 12
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PART 1: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
GZA GEOENVIRONMENTAL TECHNOLOGIES, INC. AND AFFILIATE
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31, FEBRUARY 29,
2000 2000
------------ ------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,880,000 $ 5,966,000
Available-for-sale securities 3,112,000 3,829,000
Accounts receivable, net 16,405,000 13,924,000
Costs and estimated earnings in excess of billings on
uncompleted contracts, net 6,864,000 5,669,000
Prepaid expenses and other current assets 259,000 215,000
Deferred income taxes 1,747,000 1,399,000
------------ ------------
Total current assets 33,267,000 31,002,000
Property and equipment, net 5,145,000 5,973,000
Investments in real estate 457,000 501,000
Investment in net assets of and advances to equity affiliate 670,000 --
Other assets, net 854,000 883,000
------------ ------------
Total assets $ 40,393,000 $ 38,359,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 4,336,000 $ 6,516,000
Accrued payroll and expenses 5,191,000 3,958,000
Billings in excess of costs and estimated earnings
on uncompleted contracts 3,113,000 1,539,000
Income taxes payable 457,000 213,000
------------ ------------
Total current liabilities 13,097,000 12,226,000
Deferred income taxes 546,000 516,000
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) - 4,205,122
at August 31, 2000 and 4,134,999 at February 29, 2000 42,000 41,000
Capital in excess of par value 15,159,000 14,892,000
Accumulated other comprehensive (loss) (26,000) (51,000)
Retained earnings 14,017,000 13,177,000
------------ ------------
Subtotal 29,192,000 28,059,000
Less: Common stock held in treasury, at cost (500,000 shares) (2,442,000) (2,442,000)
------------ ------------
Total liabilities and stockholders' equity $ 40,393,000 $ 38,359,000
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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GZA GEOENVIRONMENTAL TECHNOLOGIES, INC. AND AFFILIATE
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31, SIX MONTHS ENDED AUGUST 31,
2000 1999 2000 1999
(unaudited) (unaudited) (unaudited) (unaudited)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 21,481,000 $ 17,055,000 $ 39,160,000 $ 32,587,000
Subcontractor costs and other direct expenses 9,751,000 5,724,000 16,101,000 10,572,000
------------ ------------ ------------ ------------
Net revenues 11,730,000 11,331,000 23,059,000 22,015,000
Costs and expenses:
Salaries and related costs 8,308,000 8,013,000 16,607,000 16,042,000
General and administrative expenses 2,641,000 2,580,000 5,416,000 5,321,000
------------ ------------ ------------ ------------
Income from operations,
before other income and taxes 781,000 738,000 1,036,000 652,000
------------ ------------ ------------ ------------
Other income (expense)
Interest income 107,000 56,000 210,000 119,000
Equity in net income of joint venture 171,000 -- 171,000 12,000
Interest expense -- (5,000) (1,000) (10,000)
------------ ------------ ------------ ------------
Total other income, net 278,000 51,000 380,000 121,000
------------ ------------ ------------ ------------
Income from operations before
provision for income taxes 1,059,000 789,000 1,416,000 773,000
Provision for income taxes 434,000 316,000 576,000 309,000
------------ ------------ ------------ ------------
Net income $ 625,000 $ 473,000 $ 840,000 $ 464,000
Other comprehensive income-change in
unrealized gains (losses) on securities (20,000) (20,000) (40,000) (40,000)
------------ ------------ ------------ ------------
Comprehensive income $ 605,000 $ 453,000 $ 800,000 $ 424,000
============ ============ ============ ============
Basic earnings per share:
Earnings per share $ 0.17 $ 0.13 $ 0.23 $ 0.13
------------ ------------ ------------ ------------
Basic weighted average shares 3,705,000 3,689,000 3,691,000 3,673,000
------------ ------------ ------------ ------------
Diluted earnings per share:
Earnings per share $ 0.16 $ 0.13 $ 0.22 $ 0.13
------------ ------------ ------------ ------------
Diluted weighted average shares 3,905,000 3,689,000 3,873,000 3,673,000
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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GZA GEOENVIRONMENTAL TECHNOLOGIES, INC. AND AFFILIATE
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended August 31,
2000 1999
(unaudited) (unaudited)
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 840,000 $ 464,000
Adjustments to reconcile net income
to net cash used by operating activities:
Depreciation and amortization 1,008,000 899,000
Equity in net income of joint venture (171,000) (12,000)
Decrease in accounts payable, trade (2,180,000) (2,520,000)
Benefit for deferred income taxes - 109,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net (2,481,000) 378,000
Decrease in costs and estimated earnings
in excess of billings on uncompleted contracts 379,000 3,106,000
Increase in prepaid expenses (44,000) (78,000)
Increase in refundable income taxes - (117,000)
Prepaid income taxes (318,000) -
Increase in accrued payroll and expenses 1,225,000 807,000
Increase (decrease) in income taxes payable 244,000 (311,000)
----------- -----------
Net cash provided (used) by operating activities (1,498,000) 2,725,000
----------- -----------
Cash flows from investing activities:
Decrease (increase) in available-for-sale securities 742,000 (65,000)
Acquisition of property and equipment (638,000) (800,000)
Investment in real estate 44,000 -
Decrease (increase) in other assets (4,000) (374,000)
----------- -----------
Net cash provided (used) by investing activities 144,000 (1,239,000)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 268,000 197,000
----------- -----------
Net cash provided by financing activities 268,000 197,000
----------- -----------
Net increase (decrease) in cash and cash equivalents (1,086,000) 1,683,000
Cash and cash equivalents at beginning of year 5,966,000 894,000
----------- -----------
Cash and cash equivalents at end of period $ 4,880,000 $ 2,577,000
=========== ===========
Non-cash investing activities:
Reclass of assets held in joint venture $ 490,000 $ -
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
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GZA GEOENVIRONMENTAL TECHNOLOGIES, INC. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000
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 fair
presentation. For further information refer to the audited financial
statements and footnotes included in the Company's Form 10-K for the fiscal
year ended February 29, 2000, as filed with the Securities and Exchange
Commission on May 26, 2000. Operating results for the six months ended
August 31, 2000 are not necessarily indicative of the results that may be
expected for succeeding periods or for the year ending February 28, 2001.
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
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTH COMPARISON FOR FISCAL YEARS 2001 AND 2000
- NET REVENUES. The Company's net revenues for the three months ended August
31, 2000 increased by approximately $399,000 (3.5%) compared with the
corresponding period in the prior fiscal year. The increase reflects a
$554,000 (5.1%) increase in demand for services in the Northeast and Great
Lakes Regions which were offset by a $154,000 decrease in services as the
result of management's decision to close the Atlanta and Dallas offices and
discontinue the Information System Division operations.
- SALARIES AND RELATED COSTS. Salaries and related costs for the three months
ended August 31, 2000 increased by $295,000 (3.7%). The salaries and
related costs increase is attributable to a $605,000 (8.2%) increase in
annual salary and fringe benefit costs for continuing operations. The
increase was offset by approximately $310,000 in decreased salaries and
related cost from closed operations.
- GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for three months ended August 31, 2000 increased by $61,000 (2.4%) compared
with the corresponding period in the prior fiscal year. The increase
includes approximately $67,000 in cost attributable to the activities
associated with the Board-appointed Special Committee to consider the
acquisition of all outstanding shares of GZA by Futureco Environmental,
Inc. a privately-held company organized by certain members of GZA's senior
management. Additional Special Committee expenses will be incurred in
future periods.
- In December 2000 the Company plans to relocate and expand its corporate
headquarters and its Massachusetts regional office in a new facility in
Norwood, Massachusetts, and to relocate its laboratory operations to a new
facility in Hopkinton, Massachusetts. The costs of the relocation, most of
which are expected to be recorded in the quarter ending February 28, 2001
will include moving expenses of approximately $170,000, and fees of
approximately $300,000 for the termination of current leases. In addition,
the Company expects to expend approximately $810,000 for leasehold
improvements, furniture and fixtures at the two new facilities during the
next several months. The Company has executed a seven-year lease for
50,827 square feet of space for its new offices in Norwood, Massachusetts
and a five-year lease for approximately 12,000 square feet of space for its
new laboratory in Hopkinton, Massachusetts. The Company expects that its
total annual expenditure for office rental will increase by approximately
$225,000 as a result of the expansion and relocation of its corporate
headquarters, its Massachusetts regional office and its laboratory
operations.
SIX MONTH COMPARISON FOR FISCAL YEARS 2001 AND 2000
- NET REVENUES. The Company's net revenues for the six months ended August
31, 2000 increased by approximately $1,044,000 (4.7%) compared with the
corresponding period in the prior fiscal year. The increase reflects a
$1,656,000 (8.1%) increase in demand for services in the Northeast and
Great Lakes Regions which was offset by a $612,000 decrease in services as
the result of management's decision to close the Atlanta and Dallas
offices and discontinue the Information Systems Division operations.
- SALARIES AND RELATED COSTS. Salaries and related costs for the six months
ended August 31, 2000 increased by approximately $565,000 (3.5%) compared
with the corresponding period in the prior fiscal year. The increase
reflects a $1,287,000 (8.8%) increase in salaries and fringe benefit costs
for continuing operations. The increase was offset by a $718,000 decrease
in salaries and related cost from closed and discontinued operations.
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- GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the six months ended August 31, 2000 increased by $95,000 (1.8%)
compared with the corresponding period in the prior fiscal year. The
increase in general and administrative expense is attributable to
approximately $135,000 in cost to discontinue GZA's operations of its
Dallas Office and approximately $272,000 in costs associated with
activities of the Board-appointed Special Committee considering the
acquisition of all outstanding shares of GZA by Futureco Environmental,
Inc. Additional Special Committee expenses will be incurred in future
periods.
The increase in expenses was offset by a reduction in bad debt reserves,
lower technical equipment cost and a reduction in general and
administrative expenses of $305,000 in fiscal 2001 from closing the Atlanta
office in the first quarter of fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
For the six month period ended August 31, 2000, $1,498,000 of net cash was
used by operations versus $ 2,725,000 provided by operations for the six
month period ended August 31, 1999. The decrease is due to the increase in
accounts receivable and costs and estimated earnings in excess of billings
on uncompleted contracts. Management expects cash flow improvements from
operating activities in subsequent quarters.
The Company made capital expenditures of approximately $638,000 and
$800,000 for the first six months of fiscal 2001 and 2000, respectively.
The Company's working capital increased from $18,776,000 at February 29,
2000 to $ 20,170,000 at August 31, 2000.
At August 31, 2000, the Company had cash on hand and cash equivalents of
$4,880,000 and short-term investments of $3,112,000 compared with $
5,966,000 and $3,829,000 respectively, at February 29, 2000. 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.
8
9
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.
9
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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 material adverse effects on the financial
condition of the Company.
10
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
2.1 Agreement and Plan of Merger dated as of August 16, 2000 among GZA
GeoEnvironmental Technologies, Inc., Future Environmental, Inc., and
GeoEnvironmental Acquisitions, Inc. (1)
3.1 Restated Certificate of Incorporation of the Company (2)
3.3 Amended and Restated By-Laws of the Company (3)
27 Financial Data Schedule for the period ended August 31, 2000.
(b) REPORTS ON FORM 8-K
On August 23, 2000, the Company filed with the Securities and Exchange
Commission (the "Commission") a Current Report on Form 8-K which attached,
as Exhibit 99 a press release dated August 17, 2000 in which the Company
announced that it had executed an Agreement and Plan of Merger with
Futureco Environmental, Inc. ("Futureco") and a wholly owned subsidiary of
Futureco, pursuant to which Futureco would acquire all the outstanding
shares of the Company's common stock that Futureco does not own or have the
rights to acquire for cash consideration consisting of $6.40 per share (the
"Merger").
On September 19, 2000, the Company filed with the Commission a Rule 13-E
Transaction Statement on Schedule 13E-3 (the "Schedule 13E-3") with respect
to the proposed Merger, and preliminary proxy materials for a special
meeting of stockholder (the "Stockholder Meeting") to be held on November
9, 2000 to consider and approve the Merger. On September 23, 2000, the
Company announced in a press release that its Board of Directors had
postponed the Stockholder Meeting until mid to late December 2000, to
accommodate review by the Commission of the preliminary proxy materials and
the Schedule 13E-3 filed by the Company with the Commission on September
19, 2000, and to provide sufficient time for stockholder evaluation of the
Merger. The Company expects to receive the comments of the Commission staff
on the preliminary proxy materials and Schedule 13E-3 on or about October
19, 2000.
(1) Incorporated by reference to Appendix A to the Company's Preliminary Proxy
Statement filed with the Commission on September 19, 2000.
(2) 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.
(3) 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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GZA GEOENVIRONMENTAL TECHNOLOGIES, INC.
Date: October 16, 2000 /s/ Joseph P. Hehir
-----------------------------------------
JOSEPH P. HEHIR, Chief Financial Officer
and Treasurer (Chief Accounting Officer)
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
GZA GEOENVIRONMENTAL TECHNOLOGIES, INC. THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF THE REGISTRANT AT
AUGUST 31, 2000 AND FEBRUARY 29, 2000 AND THE CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME OF THE REGISTRANT FOR THE SIX MONTH PERIOD
ENDED AUGUST 31, 2000 AND 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH STATEMENTS IN THE FORM 10-Q FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2000.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-2001
<PERIOD-START> MAR-01-2000
<PERIOD-END> AUG-31-2000
<CASH> 4,880,000
<SECURITIES> 3,112,000
<RECEIVABLES> 16,405,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 33,267,000
<PP&E> 5,145,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 40,393,000
<CURRENT-LIABILITIES> 13,097,000
<BONDS> 0
<PREFERRED-MANDATORY> 0
<PREFERRED> 0
<COMMON> 42,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 40,393,000
<SALES> 0
<TOTAL-REVENUES> 39,160,000
<CGS> 0
<TOTAL-COSTS> 37,743,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,000
<INCOME-PRETAX> 1,416,000
<INCOME-TAX> 576,000
<INCOME-CONTINUING> 840,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 840,000
<EPS-BASIC> .23
<EPS-DILUTED> .22
</TABLE>