-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EGTO683GS1ZvUpC3d8fLrLXoWImbyNg/3by39IRw6TlcHIoBhZPloVNTdzG2fkSK 7S827DO2RpUH54eu/geQuA== 0000950135-97-002547.txt : 19970530 0000950135-97-002547.hdr.sgml : 19970530 ACCESSION NUMBER: 0000950135-97-002547 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970228 FILED AS OF DATE: 19970529 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GZA GEOENVIRONMENTAL TECHNOLOGIES INC CENTRAL INDEX KEY: 0000852004 STANDARD INDUSTRIAL CLASSIFICATION: HAZARDOUS WASTE MANAGEMENT [4955] IRS NUMBER: 043051642 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-17882 FILM NUMBER: 97615881 BUSINESS ADDRESS: STREET 1: 320 NEEDHAM ST CITY: NEWTON UPPER FALLS STATE: MA ZIP: 02164 BUSINESS PHONE: 6179690700 MAIL ADDRESS: STREET 1: 320 NEEDHAM STREET CITY: NEWTON UPPER FALLS STATE: MA ZIP: 02164 10-K405 1 GZA GEOENVIRONMENTAL TECHNOLOGIES, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION ---------------------------------- WASHINGTON, D.C. 20549 ---------------------- FORM 10-K --------- Annual Report Pursuant to Section 13 or 15(d) --------------------------------------------- of the Securities Exchange Act of 1934 -------------------------------------- FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1997 Commission File No. 0-13965 ----------------- GZA GEOENVIRONMENTAL TECHNOLOGIES, INC. ------------------------------------------------------ (Exact Name of Registrant as Specified in its Charter) Delaware 04-3051642 (State of Incorporation) (I.R.S. Employer Identification No.) 320 Needham Street, Newton Upper Falls, Massachusetts 02164 ------------------------------------------------------------------ (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (617) 969-0050 ` -------------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of each class ------------------- Common stock, par value $.01 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 of 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 ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] Number of Shares of Common Stock outstanding at May 20, 1997 4,013,548 --------- The aggregate market value of voting stock of the registrant held by non-affiliates of the registrant (i.e., stockholders who are not directors, officers or employees of the registrant and are not otherwise persons who control or are controlled by or under common control with the registrant) was $6,334,043 as of May 20, 1997. Documents Incorporated by Reference ----------------------------------- Portions of the Annual Report to Stockholders of the registrant for fiscal year 1997 are incorporated by reference in Part II. Portions of the definitive proxy statement for the Annual Meeting of Stockholders of the registrant to be held on July 15, 1997 are incorporated by reference in Part III. 1 2 The Index to Exhibits is located at Page 17. PART I ------ ITEM 1. BUSINESS - ---------------- GENERAL - ------- GZA GeoEnvironmental Technologies, Inc. ("GZA" or the "Company") provides geotechnical engineering, environmental consulting and remediation services to industrial, commercial, financial, public service and government clients. Environmental services range from the initial assessment and evaluation of contaminated sites to the design, construction and operation of remediation systems to treat, control or remove contamination. GZA also helps clients to plan, coordinate and implement effective environmental and occupational health and safety management programs. Geotechnical services involve the evaluation of soil, rock and groundwater conditions for the design and construction of buildings, highways, tunnels, dams, piers and other structures. GZA also provides drilling, laboratory and instrumentation services in support of its environmental and geotechnical activities. GZA's strategy is to provide vertically integrated services that range from the identification of a potential problem through the design and implementation of a solution, although the Company often enters into contracts requiring only one of its services. Management believes that the Company's ability to combine environmental and geotechnical capabilities differentiates GZA from many of its competitors. Environmental problems frequently involve soil and groundwater contamination. Often, geotechnical expertise is essential in developing the best remedial solutions, which may involve excavation and removal of contaminated soil and groundwater, containment by subsurface and surface hydraulic barriers, and management of groundwater flow through soil and rock. In such situations, GZA's geotechnical and environmental personnel work together to evaluate and develop engineered solutions to environmental problems. Management believes that these complementary skills enable GZA to offer a broad technical approach and efficient solutions to clients' problems. The Company provides services to clients through its subsidiaries and affiliates. Environmental consulting, environmental remediation and geotechnical services are performed primarily by GZA GeoEnvironmental, Inc. (GZA GeoEnvironmental), and drilling operations by GZA Drilling, Inc. (GZA Drilling), both wholly owned subsidiaries. Certain services in New York are provided by the Company's affiliate, Goldberg-Zoino Associates of New York, P.C. (GZANY), doing business as GZA GeoEnvironmental of New York, a professional corporation owned by officers, directors and stockholders of the Company. Aquaterra Environmental Consultants Limited, the Company's 50%-owned joint venture in the United Kingdom, provides environmental services in Europe. SERVICES - -------- The Company's services can be divided into three broad categories: environmental consulting, environmental restoration and geotechnical engineering. Any given project may involve activities in more than one of these categories. ENVIRONMENTAL CONSULTING SERVICES The Company provides a wide variety of services which deal with environmental issues, seeking solutions that address regulatory requirements that are acceptable to clients in terms of both cost and risk. 2 3 ENVIRONMENTAL MANAGEMENT AND REGULATORY COMPLIANCE SERVICES. GZA's integrated services help clients to plan, coordinate and implement effective strategies to comply with current environmental and occupational health and safety regulations. Services include: - Compliance Audits - Regulatory Training - Occupational Health & Safety - Wastewater Management - Pollution Prevention - Strategic Planning - ISO 14000 Services - Permitting Assistance - Air Quality Engineering - Community Relations PROPERTY TRANSFER STUDIES/ENVIRONMENTAL SITE ASSESSMENTS. GZA helps clients assess the risks associated with the purchase and/or management of real estate and businesses. Services include: - Phase I and Phase II Environmental Site Assessments - Regulatory Compliance Audits of Operating Facilities ENVIRONMENTAL INVESTIGATIONS OF CONTAMINATED SITES AND FACILITIES. GZA performs all aspects of environmental investigation for projects ranging from individual leaking underground storage tanks to Superfund sites. Services include: - Hydrogeologic and Remedial Studies - Facility Evaluation and Voluntary Corrective Actions - Feasibility Studies and Remedial Design RISK ASSESSMENT. GZA helps clients evaluate environmental data and quantify the level of risk of various activities to human or ecological receptors. Services include: - Human Health and Ecological Risk Assessment - Development of Risk-Based Cleanup Levels NATURAL RESOURCE EVALUATION AND PERMITTING. GZA identifies potential risks posed to natural resources and develops solutions that are environmentally acceptable and economically viable. Environmental, geotechnical and civil engineering services include: - Water Resource Evaluation and Aquifer Protection - Erosion Control and Stormwater Management - Wildlife and Aquatic Habitat Evaluation - Wetland Impact Assessment and Mitigation Design 3 4 SOLID WASTE MANAGEMENT SERVICES. GZA assists the owners and operators of landfills in the siting, design, construction, operation, maintenance, remediation, and closure of solid waste landfills. Services include: - Feasibility Studies - Environmental Impact Studies - Geologic and Hydrogeologic Evaluations - Permitting - Facility Design - Facility Operation - Closure/Post Closure - Environmental Remediation ENVIRONMENTAL RESTORATION SERVICES GZA provides engineering and construction services to help clients locate, identify and remediate environmental contamination. GZA can either design and implement its own restoration plan or can construct and operate cleanup systems designed by others. DESIGN AND CONSTRUCTION OF ENVIRONMENTAL TREATMENT SYSTEMS. GZA performs some or all aspects of design, construction, installation, and start-up of remedial treatment systems. These systems utilize remediation techniques such as: soil stabilization/fixation, soil vapor extraction, counter-current aeration, carbon absorption, thermal desorption and bioremediation. OPERATION AND MAINTENANCE SERVICES. GZA provides operation and maintenance services for treatment systems as well as performance evaluations, including periodic sampling and analyses of contaminants to monitor cleanup progress. DESIGN AND CONSTRUCTION OF CONTAINMENT SYSTEMS. GZA designs and constructs containment systems, using a variety of techniques to physically isolate contaminants from the surrounding environment. HAZARDOUS MATERIALS MANAGEMENT. GZA acts as a general contractor on assignments where the chosen remedial alternative is removal and off-site disposal of hazardous or contaminated material. GZA oversees excavation, performs testing and waste characterization, evaluates and monitors transportation and disposal vendors, and assists with administration and regulatory compliance. REMOVAL AND/OR REPLACEMENT OF TANKS AND PIPING SYSTEMS. GZA provides underground storage tank testing and assessment; regulatory compliance audit and planning services; and management of tank or piping upgrade, removal and installation. ASBESTOS AND LEAD MANAGEMENT AND ABATEMENT. GZA provides a variety of services including asbestos surveys, and lead risk assessments, management of the abatement process, air quality monitoring and development and periodic review of asbestos management programs. FACILITY CLOSURE AND RESTORATION. GZA provides integrated remediation services to clients who are closing facilities and/or restoring contaminated sites for redevelopment. Multi-phase services include environmental assessments, cost-benefit analysis, and remedial design and construction management. Applications include facility/equipment decontamination and decommissioning as well as lagoon and landfill closures. 4 5 GEOTECHNICAL ENGINEERING SERVICES The Company's geotechnical engineers analyze the properties of soil and rock to develop recommendations and specifications for the design and construction of structures and civil works projects. Clients include engineers and architects, construction firms, public agencies, real estate developers and property owners. SOIL AND ROCK ENGINEERING. GZA provides engineering services for analysis, design and construction monitoring of geotechnical construction challenges such as earthwork, braced excavations, dewatering, slope stability, geosynthetics and ground improvement. FOUNDATION ENGINEERING. GZA makes recommendations to other design professionals concerning foundation design and construction. To formulate its recommendations, the Company performs geological studies, subsurface exploration and laboratory testing and analysis to determine the engineering properties of subsurface materials and to identify related engineering and construction issues. DAMS. GZA provides consulting, design and inspection services in connection with new construction and the rehabilitation of concrete and embankment dams, dikes and levees. MARINE FACILITIES. GZA provides specialized geotechnical engineering and structural design for the construction of new marine facilities, both marginal and off-shore, and the rehabilitation and remediation of existing facilities. TUNNELS. GZA provides geotechnical engineering for the design and construction of shafts, tunnels and underground chambers in soil and rock for mass transit programs, utilities, water supply systems, highways and other uses. Services range from geological investigations and mapping to recommendations for structural design and construction to installation and monitoring of instrumentation. TRENCHLESS CONSTRUCTION. GZA helps owners, engineers and contractors make decisions regarding the use of trenchless construction for utility development and other projects. Services include equipment applicability evaluations, subsidence evaluations and groundwater control, and involve use of pipe jacking, microtunneling and directional drilling. SERVICES TO CONTRACTORS. GZA assists construction companies with specialized technical services that deal with design, safety, environmental and quality control issues. Examples of these services include: - Pile Driving Studies/Testing - Earthwork Control - Cofferdam/Underpinning Design - Dewatering System Design - Vibration/Noise Monitoring - Health and Safety Plans - Environmental Monitoring and Reporting INFORMATION SERVICES The Company has recently formed an Information Systems Division ("ISD") to develop and deliver information management solutions to its existing and future clients, as well as administer the Company's internal information management strategy. This division was formed in recognition of the Company's traditional role as a services firm, largely in the business of acquiring, accumulating and processing data, and presenting information to, or on behalf of, its clients. 5 6 The information related services and systems that GZA's ISD will provide to its clients fall into one of three general categories: 1) services and products that enhance communication between GZA and its client, 2) services and products that enhance communication between a client and the outside world, and 3) services and products that enhance the ability of a client to utilize data within its own organization and improve operational and management efficiency, particularly in the area of environmental information management. SUPPORT SERVICES To support its services to clients, GZA maintains a geotechnical instrumentation group, an environmental laboratory, a geotechnical laboratory and a drilling operation. Management believes that internal availability of these support services enables the Company to control quality and to provide faster results than could generally be obtained from independent commercial providers of such services. GEOTECHNICAL INSTRUMENTATION. GZA's Soil and Rock Instrumentation Division ("SRI") supports the Company's geotechnical and environmental projects, and also provides specialty geotechnical instrumentation and engineering services to the heavy construction industry and other clients. SRI maintains an instrumentation laboratory and a fabrication shop. On geotechnical projects, SRI designs, installs and monitors instruments to observe excavation support systems, tunnels, and deep foundations during construction. On environmental projects, SRI performs automated pump tests to determine the characteristics of aquifers. SRI also develops custom software to be used in automatic data acquisition systems for dams and construction projects where rapid collection and analysis of data are required. LABORATORIES. GZA's Environmental Chemistry Laboratory analyzes soil, water, air and waste samples in connection with GZA's environmental studies. GZA's Mobile Laboratory and Vibratory Drill Rig provide field sampling and small diameter well installation as well as on-site, real-time chemical analysis. GZA's Geotechnical Laboratory performs analyses to determine the permeability, strength, compressibility and other engineering properties of rock cores and soil samples. The Geotechnical Laboratory also has the equipment necessary to determine geomembrane seam strength as well as frictional resistance between geomembranes and soils or other geosynthetics. DRILLING. GZA performs drilling, sampling and installation of monitoring and recovery wells for clients who have engaged GZA to provide other services, for other contractors and for government agencies. Drilling to obtain samples usually forms part of the subsurface investigation phase of both environmental and geotechnical projects. The drilling operation also provides dewatering and pump testing support services. JOINT VENTURES - -------------- AQUATERRA (U.K.) In 1991, the Company entered into a joint venture with Carl Bro Group (U.K.) Limited to form Aquaterra Environmental Consultants Limited, a limited liability company whose stock is owned equally by the Company and Carl Bro. Located in Leeds, Great Britain, Aquaterra provides services related to contaminated land and groundwater and to environmental concerns of operating facilities. GEOAMBIENTE (MEXICO) In July 1994, the Company and Grupo Sacmag, S de RL de CV (Sacmag), one of the five largest engineering firms in Mexico, established a new Mexican company called GeoAmbiente, SA de CV to perform environmental consulting, engineering and construction services for public and private sector clients throughout Mexico. 6 7 GeoAmbiente's stock is owned 50 percent by the Company and 50 percent by Sacmag and its affiliates. In August 1995, the shareholders of GeoAmbiente agreed to suspend operations as of October 1, 1995, and that GeoAmbiente would be inactive until at least September 30, 1996. In December, 1996, the Company agreed to sell its interest in GeoAmbiente to its joint venture partner and three individual investors. CUSTOMERS - --------- The Company's client base includes industrial companies, owners and operators of solid waste landfills, real estate developers, architects and engineers, construction firms, parties to property transfers and financings (lenders, law firms, corporations and developers) and public agencies. The Company derives most of its revenues from the private sector, which accounted for approximately 83% of net revenues during the past year. In fiscal 1997, the Company was actively engaged in approximately 3,600 assignments for approximately 1,700 clients. These assignments ranged from brief projects (of one month or less) such as environmental site assessments and geotechnical foundation evaluations to long-term projects such as multi-year hazardous waste cleanups and geotechnical infrastructure projects. Most assignments of the Company were short-term (less than six months in duration), and management estimates that 43% of net revenues in fiscal 1997 were derived from projects for which net revenues were $50,000 or less. In fiscal year 1997, no one customer accounted for more than 10% of the Company's net revenues. BACKLOG - ------- As of April 30, 1997, the Company had a backlog of orders it believed to be firm of approximately $38 million. This amount includes estimated amounts under orders on a time and materials, unit price or other basis without a fixed price, and represents gross revenues, including cost of services and materials subcontracted to third parties. Management anticipates that approximately $29 million of the total backlog will be completed in the current fiscal year. As of April 30, 1996, the Company had a backlog of orders of approximately $41 million. The $3 million difference in backlog from April 1996 to April 1997 is attributable principally to a decline in remedial construction and contractor support services backlog. Because work under the Company's orders generally can be terminated by the client at any time, there is no assurance that all amounts included in backlog will ultimately be realized, even if covered by written contracts. COMPETITION - ----------- The markets for environmental and geotechnical services have become increasingly competitive. At each district office and for each service offered, the Company competes with many different firms, ranging from small local firms to large regional and national firms having substantially greater financial and marketing resources than the Company. Competition in both the environmental and geotechnical services markets is based primarily on quality, diversity of services, geographic location, price and reputation. In some geographic markets, GZA provides environmental engineering and consulting, geotechnical engineering design and contractor support services. Some state and local statutes and regulations may inhibit the Company's ability to compete for construction work in areas at or near sites where the Company has formerly provided engineering or design services. Management believes the Company is one of the few firms based in the New England region that offers a combination of environmental consulting, remediation services, and geotechnical engineering. Management believes that its ability to provide this range of services enhances the Company's competitive position in the New England market. IMPACT OF ENVIRONMENTAL REGULATION - ---------------------------------- 7 8 The business of the Company and its clients is subject to a wide range of overlapping federal, state and local laws and regulations concerned with protection of the environment. These laws and regulations have helped to create a demand for many of the services offered by the Company. Changes in environmental laws and regulations, in the regulatory climate generally, and in the resources available to and priorities of the federal, state and local agencies responsible for enforcement of environmental laws and regulations could materially affect demand for the Company's services. Recent federal actions significantly reducing the budget of the U.S. Environmental Protection Agency (EPA) and ongoing legislative proposals to narrow the scope of the federal Superfund and Clean Water Acts and delays in EPA rule making could result in reduced demand for the Company's services. Conversely, regulatory reform initiatives designed to shift responsibility for environmental compliance and enforcement from government agencies to private parties could create new opportunities for the Company. Such privatization initiatives have been taken in Massachusetts and Connecticut where, under a statute analogus to the federal Superfund Act, supervision of the clean-up of contaminated sites has for the most part been delegated by state regulatory officials to "Licensed Site Professionals" or "Licensed Environmental Professionals" employed by private entities. The Company employs a number of individuals qualified and licensed in these and other states in which the Company provides services. Regulatory reform initiatives may also reduce the cost of environmental cleanups and therefore activate private remediation projects that have been pending. Whether such initiatives will lead to increased need for the Company's services is not yet known, and there can be no assurance that changes in the regulatory climate and in environmental statutes and regulations will not result in reduced demand for such services. The principal statutes affecting the Company's business and the markets it serves include the following: RESOURCE CONSERVATION AND RECOVERY ACT OF 1976 ("RCRA"). RCRA, as amended by the Hazardous and Solid Waste Amendments of 1984, establishes a comprehensive regulatory scheme for the handling, transportation, treatment, storage and disposal of hazardous waste. Although "cradle-to-grave" responsibility for hazardous wastes rests with generators of the material, every facility that treats, stores or disposes of specified minimum amounts of hazardous waste must comply with specific operating, design, financial responsibility and closure requirements. These requirements have contributed to demand for the Company's consulting services, permitting assistance, remedial design and implementation and waste management services. COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT OF 1980 ("CERCLA" OR "SUPERFUND"). CERCLA, as amended by the Superfund Amendments and Re-authorization Act of 1986 ("SARA"), addresses problems created by past handling and disposal of hazardous substances. It requires the EPA to identify contaminated sites and to compel a wide array of "responsible parties" to pay for necessary cleanup activities. CERCLA also authorizes multiple damages and penalties for non-compliance with EPA orders and provides funds (hence the name "Superfund") for the EPA to perform cleanup activities in appropriate circumstances. The Company's related services include site investigations, feasibility studies, development and implementation of alternative remediation plans, oversight of contractors and support and expert testimony for related litigation. FEDERAL WATER POLLUTION CONTROL ACT OF 1972 (THE "CLEAN WATER ACT"). The Clean Water Act establishes a system of standards, permits and enforcement procedures for the discharge to water of pollutants from industrial and municipal sources. The law sets treatment standards for industries and wastewater treatment plants. The law also regulates and requires permits for development and construction activities involving wetlands and navigable waters. The Company provides a range of services in connection with this regulatory scheme, including regulatory permitting assessments, conceptual design planning, assistance with environmental impact studies, reports and applications for environmental permits and construction services. 8 9 CLEAN AIR ACT AMENDMENTS OF 1990 (THE "CLEAN AIR ACT"). The Clean Air Act consists of major initiatives to attain and maintain National Ambient Air Quality Standards, to ensure that all new sources of potential atmospheric emissions are equipped with appropriate pollution control technology and to ensure that emissions of hazardous air pollutants are controlled to the maximum extent possible. The law established a comprehensive new operating permit program known as the Title V program. The Company provides a range of air quality services including emission inventories and preparation of permit applications. OTHER REGULATIONS. In addition to federal environmental regulations, many states and local authorities have enacted laws regulating activities affecting the environment, some of which impose differing, and sometimes stricter, standards than their federal counterparts. Examples include a variety of statutes related to "Brownfields" initiatives. Brownfields are abandoned or underutilized properties where actual or perceived contamination may interfere with redevelopment. Many states are encouraging reuse of such sites through the promulgation of regulations that establish clean-up standards based on current risks and reasonably foreseeable future site use, rather than theoretical risks and unlikely end uses that always require "clean closure" prior to redevelopment. Some states may also provide covenants not to sue or "no further action required" agreements that document the regulators' acceptance of the clean-up process. Such covenants and agreements may be transferable with the property. The Company is working on a number of projects involving Brownfields sites, providing services ranging from initial investigation through final construction. POTENTIAL LIABILITY, RISK MANAGEMENT AND INSURANCE - -------------------------------------------------- The Company's professional environmental consulting, remediation design and geotechnical engineering services, as well as its remedial construction, drilling and test boring operations, involve risks of significant liability for environmental and property damage, personal injury, economic loss, and costs, fines and penalties assessed by regulatory agencies. Liability for environmental contamination and for the provision of environmental services is a rapidly developing area of the law, and it is difficult to assess accurately the areas and magnitude of potential risks to the Company. Some statutes and judicial decisions impose strict liability on a party who causes or contributes to the release of contaminants into the environment, even if the party acted without negligence or fault. Under certain circumstances, a government or private party might allege that the Company's own analytical, consulting or remedial activities subject the Company to liability under various statutes or regulations. Services by the Company's environmental consultants as Licensed Site and Licensed Environmental Professionals may expose the Company to additional liability. In addition to its potential liability under statutes and common law, the Company sometimes agrees to indemnify clients for losses and expenses they may incur as a result of the Company's services, some of which may not be covered by the Company's insurance. The Company maintains comprehensive programs for risk management, health and safety training and medical monitoring of its field employees, quality assurance and quality control and loss prevention. The Company seeks to include in its contracts with clients provisions that limit GZA's liability to the client and that require the client to indemnify GZA for costs and liabilities not caused by the Company's negligence or misconduct. However, not all contracts include these provisions and there is no assurance that such provisions can be enforced or that the client will have adequate financial resources to stand behind its indemnity. The Company has a broad-range insurance program with large commercial insurers designed to limit exposure arising out of its activities. It maintains comprehensive general, automobile and excess liability coverage with aggregate limits of $15 million written on an occurrence basis. It also maintains an environmental professional liability policy which covers professional liability, contractor's environmental liability and completed operations, with an aggregate 9 10 limit of $3 million in excess of a deductible of $500,000, written on a claims-made basis for occurrences since 1986. The law concerning the extent of coverage available under the Company's liability insurance policies in the context of environmental claims is unsettled and is likely to remain so in the foreseeable future. All of the Company's policies permit termination by the insurer without cause. There is no assurance that the Company will be able to maintain or replace its insurance policies, that premiums will remain at levels which economically permit the maintenance of such coverage, that all claims that may be asserted against the Company will be covered by insurance or that such claims will not exceed the coverage limits. EMPLOYEES - --------- On April 30, 1997, the Company had 455 employees, including 369 technical personnel. The Company's technical staff consists of civil and environmental engineers, geologists, drillers and a number of specialists in such fields as hydrology, chemistry, toxicology, biology and industrial hygiene. Management believes that the future success of the Company depends in large part on its ability to continue to attract and retain qualified professional staff. The market for such professionals is competitive. ITEM 2. PROPERTIES - ------------------ The Company's corporate and administrative headquarters, and one of its district offices, are located in Newton Upper Falls, Massachusetts, where the Company occupies two buildings. One of the buildings is approximately 42,000 square feet and has a lease which extends through February 2001. During fiscal 1997, the Company paid approximately $714,000 in base rent for this facility. The other location in Newton Upper Falls is for approximately 10,880 square feet. In fiscal 1997, the Company paid approximately $126,000 in base rent for this facility. The Company leases 21 other principal facilities located in Phoenix, Arizona; Vernon, Connecticut; Duluth, Georgia; Portland, Maine; Brockton, Massachusetts; West Newton, Massachusetts; Springfield, Massachusetts; Worcester, Massachusetts; Livonia, Michigan; Grand Rapids, Michigan; Manchester, New Hampshire; Lyndhurst, New Jersey; Marlton, New Jersey; Buffalo, New York; Annapolis, Maryland; Charlotte, North Carolina; Providence, Rhode Island; Dallas, Texas; Rutland, Vermont; South Burlington, Vermont; and Pewaukee, Wisconsin. These other facilities have a combined square footage of approximately 107,000 square feet. Aggregate base rent for all facilities leased by the Company (other than its facilities in Newton Upper Falls) during fiscal 1997 totalled approximately $1,378,000. The lease terms expire at various times through September 30, 2001. The Company believes that its existing facilities are adequate to meet current requirements and that suitable additional or substitute space will be available on reasonable terms as needed to accommodate any expansion of operations and for additional offices as required. In addition to its leasehold interests in real property, the Company also owns computer equipment, vehicles, drilling rigs, laboratory equipment and instrumentation, remediation treatment equipment and other machinery, equipment and furniture. ITEM 3. 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 results of operations or financial condition of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ----------------------------------------------------------- Not Applicable 10 11 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS - -------------------------------------------------------------------------------- The information appearing under the caption "Supplemental Information" in the Annual Report to Stockholders of the Company for the fiscal year ended February 28, 1997 (the "1997 Annual Report"), in the form included as Exhibit 13.1 to this Annual Report on Form 10-K, is incorporated herein by reference. RECENT SALES OF UNREGISTERED SECURITIES. During the three fiscal year period ended February 28, 1997, the Company issued to 18 employees an aggregate of 35,881 shares of the Company's Common Stock ("Restricted Stock") pursuant to the Company's 1995 Stock Incentive Plan. The Restricted Stock was awarded as additional compensation in the nature of a bonus, and no separate consideration was paid by the recipients. The issuances of Restricted Stock were exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended (the "Act"), by virtue of the exception set forth in Section 4(2) of the Act. ITEM 6. SELECTED FINANCIAL DATA - ------------------------------- The information appearing under the caption "Summary Financial Information" in the 1997 Annual Report is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------------------------------------------------------------------------------- OF OPERATIONS - ------------- The information appearing under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 1997 Annual Report is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - --------------------------------------------------- The information appearing under the captions "Consolidated Balance Sheets," "Consolidated Statements of Operations," "Consolidated Statements of Stockholders' Equity," "Consolidated Statements of Cash Flows," and "Notes to Consolidated Financial Statements" in the 1997 Annual Report Exhibit 13.1 of Form 10-K is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ----------------------------------------------------------------------- FINANCIAL DISCLOSURE - -------------------- None PART III -------- ITEMS 10, 11, 12 AND 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; - ---------------------------------------------------------------------------- EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND - --------------------------------------------------------------------------- MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------------- The information called for by Items 10, 11, 12 and 13 is incorporated by reference to the definitive proxy statement relating to the Annual Meeting of Stockholders of the Company to be held on July 15, 1997 (the "1997 Proxy Statement"), as filed or to be filed with the Commission no later than 120 days after the end of the fiscal year covered by this report. 11 12 PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K(a)(1) - ------------------------------------------------------------------------------ AND (2) - ------- The following consolidated financial statements of GZA GeoEnvironmental Technologies, Inc. and its Subsidiaries and Affiliate included in the 1997 Annual Report are incorporated by reference in Item 8: Report of Independent Accountants. Consolidated Balance Sheets at February 28, 1997, and February 29, 1996. Consolidated Statements of Operations for the fiscal years ended February 28, 1997, February 29, 1996 and February 28, 1995. Consolidated Statements of Changes in Stockholders' Equity for the fiscal years ended February 28, 1997, February 29, 1996 and February 28, 1995. Consolidated Statements of Cash Flows for the fiscal years ended February 28, 1997, February 29, 1996 and February 28, 1995. Notes to Consolidated Financial Statements for the fiscal years ended February 28, 1997, February 29, 1996 and February 28, 1995. The following consolidated financial statement schedules of GZA GeoEnvironmental Technologies, Inc. and its Subsidiaries and Affiliate are included as exhibits to this report: Page ---- Schedule II Valuation and Qualifying Accounts 16 (a)(3) EXHIBIT LIST. The documents listed below are filed as exhibits with this report or are incorporated by reference to documents previously filed with the Commission as exhibits. The Company's file number under the Act is 0-13965. 3.1 Restated Certificate of Incorporation of the Company(1) 3.3 Amended and Restated By-Laws of the Company(2) 4 Specimen certificate for the Common Stock of the Company(1) 10.2 Indenture of Lease dated September 5, 1984 and effective as of December 1, 1981, and First Amendment to Indenture of Lease, between GZA and Donald T. Goldberg and William S. Zoino, for the GEO Building, Newton Upper Falls, Massachusetts(1) 10.6 1989 Incentive Stock Option Plan of the Company(1) 10.7 1989 Non-Qualified Stock Option Plan of the Company(1) 12 13 10.21 Support Services Agreement among the Company, Goldberg-Zoino Associates of New York, P.C. ("GZANY") and GZA, dated July 26, 1989(1) 10.22 Stockholders' Agreement among GZANY, Richard M. Simon and Joseph D. Guertin, Jr. dated May 1, 1996, together with related Powers of Attorney(3) 10.23 Voting Trust Agreement among the Company, GZANY, Messrs. Simon and Guertin, and Richard M. Simon, as Trustee, dated May 1, 1996(3) 10.24 Indemnification Agreement among the Company, GZA GeoEnvironmental, Inc. and Messrs. Simon and Guertin dated May 1, 1996(3) 10.25 Security Agreement between GZANY and the Company dated July 26, 1989(1) 10.26 Credit Agreement among the Company, GZANY and GZA dated July 26, 1989(1) 10.30 Revolving Credit and Term Loan Agreement among Fleet Bank and the Company and its subsidiaries and affiliate dated February 28, 1994(2) 10.34 Amendment No. 1 to 1989 Incentive Stock Option Plan of the Company(2) 10.35 GZA 1995 Stock Incentive Plan(2) 10.37 Lease Agreement dated January 1, 1992 between GZRI Associates and GZA GeoEnvironmental, Inc. for the Providence, Rhode Island district office(2) 10.38 Lease Agreement dated March 1, 1992 between GZAIAT Associates and GZA Drilling, Inc. for the Brockton, Massachusetts facilities of GZA Drilling, Inc.(2) 10.39 Second Amendment dated December 11, 1991 to Indenture of Lease listed as Exhibit 10.2 hereto(2) 10.40 Form of Confidentiality, Non-Disclosure and Restrictive Covenant Agreement between the Company and, respectively, Donald T. Goldberg, Andrew P. Pajak, M. Joseph Celi, Richard M. Simon, John E. Ayres, William E. Hadge, Lawrence Feldman, Joseph P. Hehir, Joseph D. Guertin, Jr., and certain other employees(2) 10.42 Form of Group Life Insurance Plan for key employees; letter describing coverage levels(2) 10.43 Form of Indemnity Agreement between the Company and its respective directors(2) 10.51 Form of Assignment of Beneficial Interest between GZA GeoEnvironmental, Inc. ("Assignee") and, respectively, John E. Ayres, Joseph D. Guertin, Jr., and Steven J. Trettel ("Assignors"), dated June, 1996, to transfer each Assignor's one sixth (1/6) beneficial interest in the GZA Investment Associates Trust to Assignee. 10.52 Form of Assignment of Beneficial Interest and Indemnity Agreement between GZA GeoEnvironmental, Inc. ("Assignee") and Donald T. Goldberg ("Assignor"), dated June, 13 14 1996, to transfer Assignor's one sixth (1/6) beneficial interest in the GZA Investment Associates Trust to Assignee. 13.1 Annual Report to Stockholders of the Company for the fiscal year ended February 28, 1997 22.1 Subsidiaries of the Registrant 23.1 Consent of Independent Accountants 27.1 Financial Data Schedule (1) Incorporated by reference to the similarly numbered exhibits 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 exhibits 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. (3) Incorporated by reference to similarly numbered exhibits included in the Company's Annual Report on Form 10-K for the fiscal year ended February 29, 1996, filed with the Commission on May 24, 1996. (b) Reports on Form 8-K ------------------- None 14 15 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed in its behalf by the undersigned, thereunto duly authorized. GZA GEOENVIRONMENTAL TECHNOLOGIES, INC. Date: May 29, 1997 /s/ ----------------------------------- Andrew P. Pajak Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Signature Title Date - --------- ----- ---- /s/ Andrew P. Pajak Principal Executive May 29, 1997 - ---------------------- Officer and Director Andrew P. Pajak /s/ Joseph P. Hehir Chief Financial Officer May 29, 1997 - ---------------------- (Principal Financial and Accounting Joseph P. Hehir Officer) /s/ Donald T. Goldberg Director May 29, 1997 - ---------------------- Donald T. Goldberg /s/ M. Joseph Celi Director May 29, 1997 - ---------------------- M. Joseph Celi /s/ Lawrence Feldman Director May 29, 1997 - ---------------------- Lawrence Feldman /s/ Joseph D. Guertin Director May 29, 1997 - ---------------------- Joseph D. Guertin Director May __, 1997 - ---------------------- Irvine G. Reinig, II /s/ Paul F. Gorman Director May 29, 1997 - ---------------------- Paul F. Gorman Director May __, 1997 - ---------------------- Dr. Lewis Mandell Director May __, 1997 - ---------------------- Dr. Thomas W. Philbin Director May __, 1997 - ---------------------- Timothy W. Devitt 15 16 SCHEDULE II GZA GEOENVIRONMENTAL TECHNOLOGIES, INC. AND AFFILIATE VALUATION AND QUALIFYING ACCOUNTS Years Ended February 28, 1995, February 29, 1996, and February 28, 1997
Balance at Charged to beginning costs and Balance at Description of year expenses Write-offs end of year ----------- ------- -------- ---------- ----------- Year ended February 28, 1995 Allowance for doubtful accounts (deducted from accounts receivable) .... $460,000 $392,000 $168,000 $684,000 Year ended February 29, 1996 Allowance for doubtful accounts (deducted from accounts receivable) .... $684,000 $240,000 $150,000 $774,000 Year ended February 28, 1997 Allowance for doubtful accounts (deducted from accounts receivable) .... $774,000 $525,000 $455,000 $844,000
16 17 EXHIBIT INDEX ------------- Exhibit Number Description Page - ------ ----------- ---- 10.51 Form of Assignment of Beneficial Interest between GZA GeoEnvironmental, Inc. ("Assignee") and, respectively, John E. Ayres, Joseph D. Guertin, Jr., and Steven J. Trettel ("Assignor"), dated June, 1996, to transfer each Assignee's one sixth (1/6) beneficial interest in the GZA Investment Associates Trust to GZA GeoEnvironmental, Inc. 10.52 Form of Assignment of Beneficial Interest and Indemnity Agreement between GZA GeoEnvironmental, Inc. ("Assignee") and Donald T. Goldberg ("Assignor"), dated June, 1996, to transfer Assignee's one sixth (1/6) beneficial interest in the GZA Investment Associates Trust to GZA GeoEnvironmental, Inc. 13.1 Annual Report to Stockholders of the Company for the fiscal year ended February 28, 1997 22.1 Subsidiaries of the Registrant 23.1 Consent of Independent Accountants 27.1 Financial Data Schedule 17 EX-10.51 2 ASSIGNMENT OF BENEFICIAL INTEREST 1 Exhibit 10.51 GZA INVESTMENT ASSOCIATES TRUST ASSIGNMENT OF BENEFICIAL INTEREST FOR AND IN CONSIDERATION of the payment of Twelve Thousand Dollars ($12,000), the receipt of which is hereby acknowledged, JOHN E. AYRES, holder and owner of a one sixth (1/6) Interest ("the Interest") in the GZA Investment Associates Trust, under declaration of trust dated November 21, 1984 and recorded at Plymouth County Registry of Deeds, Book 5887, Page 95 ("the Trust"), hereby assigns and transfers to GZA GEOENVIRONMENTAL, INC. ("Assignee"), and its successors and assigns, all of Assignor's right, title and interest in and to the Interest and as beneficiary of the Trust, for Assignee to hold forever. Assignor hereby covenants with Assignee that (i) Assignor is the owner of the Interest, (ii) Assignor has good and marketable title thereto, (iii) the Interest is free from all liens, encumbrances and charges, (iv) Assignor has good right to assign and transfer the Interest, and (v) Assignor will warrant and defend his title to the Interest, and his transfer to Assignee, against the claims and demands of all persons. Assignee does hereby accept such assignment and transfer of the Interest and the powers, rights and obligations as beneficiary of the Trust. IN WITNESS WHEREOF, Assignor and Assignee have respectively executed this document as of this day of June 25, 1996. Assignor: Assignee: GZA GEOENVIRONMENTAL, INC. /s/ By: /s/ - ------------------------- -------------------------------- JOHN E. AYRES LEONARD M. SEALE /s/ - ------------------------- JOSEPH D. GUERTIN /s/ - ------------------------- STEVEN J. TRETTEL EX-10.52 3 ASSIGNMENT OF BENEFICIAL INTEREST 1 Exhibit 10.52 GZA INVESTMENT ASSOCIATES TRUST ASSIGNMENT OF BENEFICIAL INTEREST FOR AND IN CONSIDERATION of the payment of Twelve Thousand Dollars ($12,000), the receipt of which is hereby acknowledged, DONALD T. GOLDBERG, holder and owner of a one sixth (1/6) Interest ("the Interest") in the GZA Investment Associates Trust, under declaration of trust dated November 21, 1984 and recorded at Plymouth County Registry of Deeds, Book 5887, Page 95 ("the Trust"), hereby assigns and transfers to GZA GEOENVIRONMENTAL, INC. ("Assignee"), and its successors and assigns, all of Assignor's right, title and interest in and to the Interest and as beneficiary of the Trust, for Assignee to hold forever. Assignor hereby covenants with Assignee that (i) Assignor is the owner of the Interest, (ii) Assignor has good and marketable title thereto, (iii) the Interest is free from all liens, encumbrances and charges, (iv) Assignor has good right to assign and transfer the Interest, and (v) Assignor will warrant and defend his title to the Interest, and his transfer to Assignee, against the claims and demands of all persons. Assignee does hereby accept such assignment and transfer of the Interest and the powers, rights and obligations as beneficiary of the Trust. IN WITNESS WHEREOF, Assignor and Assignee have respectively executed this document as of this day of June 25, 1996. Assignor: Assignee: GZA GEOENVIRONMENTAL, INC. /s/ By: /s/ - ------------------------- -------------------------------- DONALD T. GOLDBERG LEONARD M. SEALE INDEMNITY The undersigned hereby agrees to indemnify and hold harmless the above-described Assignor, Donald T. Goldberg, from and against all claims, damages, expenses, obligations, payments, debts and any amount owing to People's Savings Bank of Brockton and its successors and assigns as a result of, or accruing from, any failure by the above-described Trust on or after the date hereof to pay when due the principal or interest on, or to perform any obligation to be performed on or after the date hereof in connection with, the loan by the Bank to the Trust as evidenced by Note dated December 24, 1985. EX-13.1 4 ANNUAL REPORT TO SHAREHOLDERS 1 Exhibit 13.1 SUMMARY OF FINANCIAL INFORMATION
Years ended 2/28/97 2/29/96 2/28/95 2/28/94 2/28/93 - --------------------------------------------------------------------------------------------------- (In thousands except per share amounts) STATEMENT OF OPERATIONS DATA: Net revenues $38,211 $40,158 $40,995 $40,620 $37,641 Income from continuing operations 593 1,250 1,222 2,420 1,567 Income from continuing operations before taxes 821 1,283 1,272 2,718 1,770 Net income from continuing operations 529 798 822 1,672 1,091 Net income (loss) from discontinued operations - (99) (2,216) 4 (151) Net income (loss) 529 699 (1,394) 1,676 940 Net income per share from continuing operations $ .13 $ .21 $ .22 $ .45 $ .29 Net loss per share from discontinued operations - $ (.03) $ (.59) - $ (.04) Net income (loss) per share $ .13 $ .18 $ (.37) $ .45 $ .25 Weighted average shares outstanding 3,929 3,857 3,780 3,732 3,714 Dividends per common share - - - - - BALANCE SHEET DATA: Working capital $17,177 $18,175 $16,582 $17,745 $14,704 Total assets 35,535 37,614 39,111 38,294 32,854 Long-term debt (less current portion) - 1,860 2,730 3,409 790 Stockholders' equity $23,257 $22,465 $21,685 $22,807 $20,837
2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, (i) the percentage which certain items in the consolidated statements of operations of the Company bear to net revenues, and (ii) the percentage increase (decrease) in the dollar amount of such items from year to year.
Year-to-Year Percentage Percentage Increase of Net Revenues (Decrease) - ----------------------------------------------------------------------------------- Year Ended Fiscal Years - ----------------------------------------------------------------------------------- February February February 1997 vs. 1996 vs. 28, 1997 29, 1996 28, 1995 1996 1995 - ----------------------------------------------------------------------------------- Net revenues 100% 100% 100% (5)% (2)% Salaries and related costs 73 72 73 (4) (3) General and administrative expenses 26 25 24 (2) - Income from continuing operations 2 3 3 (53) 2 Other income, net 1 - - 591 (34) Provision for income taxes 1 1 1 (40) 8 Net income from continuing operations 1 2 2 (34) (3) Net loss from discontinued operations - - (5) (100) 96 Net income (loss) 1 2 (3) (24) 150
GENERAL The Company's gross revenues include the cost of services and materials subcontracted to third parties and certain expenditures such as equipment purchases, laboratory testing, use of Company-owned field and technical equipment, travel, telephone and reproduction charges that, under the terms of the Company's contracts, are billed to clients, generally with an added service and handling charge. Net revenues exclude the amount of such reimbursable costs and expenditures but include the corresponding service and handling charges. Accordingly, the Company regards net revenues, which reflect services provided and revenues earned directly by the Company, as the primary measure of its business growth. Salaries and related costs include the cost of professional, clerical and administrative salaries, and related costs such as taxes, insurance, performance-based bonuses and other fringe benefits. General and administrative expenses include costs of marketing, professional development and training, professional and general liability insurance, claims and legal proceedings, occupancy, depreciation, amortization, and clerical and administrative overhead. In May 1995, the Company discontinued its specialty construction business; accordingly, the financial statements for the year ended February 29, 1996 have been reclassified and prior years' results have been restated to report separately the operating results of this business. The following discussion and analysis relate to the continuing operations of the Company. FISCAL 1997 AND 1996 VERSUS PRIOR YEARS Net Revenues. The Company's net revenues decreased by approximately $1,947,000 (4.8%) in fiscal 1997 and by approximately $837,000 (2.0%) in fiscal 1996. The decrease in fiscal 1997 is attributable to lower prices due to increasingly competitive market conditions for geotechnical and environmental consulting services and to a decrease in net revenues for drilling services of approximately $1,519,000. The decline in drilling services net revenues resulted from the closure of the Gainesville, Florida drilling operation and the decreased demand and lower prices received for drilling services in the Central New England Region. The reduction in drilling service net revenues was impacted by the Company's decision to write off $500,000 for obsolete drilling equipment and inventory which cannot be billed in future periods. 19 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FISCAL 1997 AND 1996 VERSUS PRIOR YEARS (CONTINUED) The decrease in net revenues for fiscal 1997 was offset partially by the Company's receipt of long-term contract settlements in the first and fourth quarters of fiscal 1997 totaling $644,000 after payment of legal, expert witness and consulting fees. These included a $575,000 settlement received by the Company in the fourth quarter of fiscal 1997, which was offset by expenses of $211,000 (including $128,000 incurred in the fourth quarter). The settlement resulted in the addition of $447,000 to the Company's net revenues for the fourth quarter, but a net recovery with respect to the matter for fiscal 1997 of only $364,000. The $280,000 balance of long-term contract settlements was added to net revenues in the first quarter of fiscal 1997. The decrease in fiscal 1996 was attributable to decreased demand for services and lower prices paid by clients for the Company's consulting and drilling services which were offset partially by increased demand and higher profit margins for remedial construction contract activities. Salaries and Related Costs. Salaries and related costs decreased by approximately $1,136,000 (3.9%) in fiscal 1997 and decreased by approximately $833,000 (2.8%) in fiscal 1996. The decrease for fiscal 1997 reflects reduced salary and benefit costs caused by staff reductions and reduced performance-based bonus payments as a result of the Company's not meeting budgeted operating goals for fiscal 1997. This decrease was offset partially by severance payments and salary costs associated with the hiring and transition to a new Chief Executive Officer. The decrease in fiscal 1996 reflects reduced salary and benefit costs caused by staff reductions and reduced medical and health insurance costs which were offset partially by increased performance-based bonus payments and increased workers' compensation insurance costs. General and Administrative Expenses. General and administrative expenses decreased by approximately $154,000 (1.5%) in fiscal 1997 and by approximately $32,000 (0.3% ) in fiscal 1996. The decrease in fiscal 1997 reflects decreases in professional liability insurance premium cost, claims and legal defense cost, and financial and general management consulting fees which were offset partially by the Company's decision to write off $400,000 of goodwill based on current and projected operating results of prior years' acquisitions. In addition, fiscal 1997 reflects $511,000 in costs related to the closure of the Gainesville, Florida drilling operation and accruals for lease costs associated with closing and consolidation of additional facilities and recruiting expenses associated with the hiring of a new Chief Executive Officer. The decrease in fiscal 1996 reflects reductions in professional liability claims and related legal expenses, business development cost and bad debt expenses which were offset partially by lower billings to clients for equipment usage charges, higher occupancy cost, increased consulting fees, and increased general and professional liability insurance premiums. Other Income, Net. Other income, net increased by approximately $195,000 in fiscal 1997 due primarily to a significant decrease in cost of borrowing and increased income realized from short-term investment securities. In fiscal 1996, other income, net decreased by approximately $17,000 due in part to a net increase in borrowing cost of approximately $134,000 which was offset partially by a gain on sale of securities of $151,000. Provision for Income Taxes. The provision for income taxes reflects effective tax rates for fiscal 1997, 1996, and 1995 of 36%, 38%, and 35%, respectively. Differences from the 34% federal statutory rate resulted primarily from the combined effect of the addition of provisions for state taxes (net of federal tax benefit), tax-exempt interest income, and other non-deductible items. Quarterly Fluctuations and Seasonality. The Company's results may fluctuate from quarter to quarter due to such factors as weather, the timing of major contracts, the mix of projects and the level of subcontracted services involved, the timing of additions to the Company's professional and support staff (who may require health and safety training and technical and project management training and, therefore, may initially charge clients a lower percentage of their time), and the opening or closing of offices. Operating results for any one fiscal quarter may not be indicative of the results that will be achieved in any subsequent quarter or for the year. Inflation. Management does not believe that inflation has had a significant effect on the results of operations. Future Operating Results. The volume of the Company's services will continue to be adversely impacted by reduced federal and state government spending and changes in environmental regulations. In addition, the industry is continuing to experience a period of consolidation and significant price competition. These trends are expected to continue through the foreseeable future. To offset these trends, the Company closed three offices in fiscal 1997, consolidated geotechnical engineering, remedial construction and environmental consulting activities, and downsized technical and support staff in select offices. In addition, the Company established a Leadership Team to focus on operational and business development issues including strategic acquisitions, geographic expansion, and new service areas. The Leadership Team will also evaluate the impact of discontinuing limited-growth and low-margin commodity services and products . 20 4 MANAGEMENT'S DISCUSSION AND ANAYLSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FISCAL 1997 AND 1996 VERSUS PRIOR YEARS (CONTINUED) Liquidity and Capital Resources. Cash provided by operating activities was $5,246,000 in fiscal 1997 compared with $387,000 in 1996. The Company made capital expenditures of $995,000 in fiscal 1997 and $929,000 in 1996. The increase in capital expenditures in fiscal 1997 reflects the Company's increased investment in computer technology to improve internal communications, increase efficiency and expand client services. The Company has a Revolving Credit and Term Loan Agreement with Fleet Bank which provides for unsecured borrowings in the aggregate amount of $10,000,000. The facility consists of a revolving credit line of $5,500,000 and a term loan facility of $4,500,000. Revolving credit advances bear interest at the bank's floating base rate (8.25% at February 28, 1997) or, at the Company's option, at LIBOR plus 200 basis points. Term loans bear interest at the bank's floating rate or, at the Company's option, at a fixed rate equal to the bank's cost of funds plus 200 basis points. At February 28, 1997, the Company had no borrowings under the revolving credit line and no term loans. The Company's cash and cash equivalents were $4,229,000 at the end of fiscal 1997 compared with $3,318,000 at the end of fiscal 1996. Short-term investments were $3,456,000 at the end of fiscal 1997 compared with $2,752,000 at the end of fiscal 1996. These investments consist primarily of tax-exempt municipal bonds, taxable U. S. Treasury Notes and other bonds and commercial paper. In addition to routine new, replacement, and facility improvement capital expenditures, the Company anticipates spending in excess of $1,000,000 during fiscal 1998 to upgrade the Company's computer technology, software, and management information systems. This is in response to professional and support staff information needs and client data information transfer and shared data management expectations, and to support business development opportunities. Funding requirements for operations and for future growth are expected to be met from existing cash and investments and funds generated from operations. The Company believes that these sources will enable it to meet its cash requirements for at least the next twelve months. Newly Issued Accounting Standards. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per share". SFAS No. 128 establishes a different method of computing net income per share than is currently required under the provisions of Accounting Principles Board Opinion No. 15. Under SFAS No. 128, the Company will be required to present both basic and diluted net income per share. The Company plans to adopt SFAS No. 128 in its fiscal quarter ending February 28, 1998 and at that time all historical net income per share data presented will be restated to conform to the provisions of SFAS No. 128. 21 5 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of GZA GeoEnvironmental Technologies, Inc. and Affiliate: We have audited the accompanying consolidated balance sheets of GZA GeoEnvironmental Technologies, Inc. and its subsidiaries and affiliate as of February 28, 1997 and February 29, 1996 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended February 28, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of GZA GeoEnvironmental Technologies, Inc. and its subsidiaries and affiliate as of February 28, 1997 and February 29,1996 and the consolidated results of their operations and their cash flows for each of the three years in the period ended February 28, 1997 in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand LLP. Boston, Massachusetts May 2, 1997 22 6 CONSOLIDATED BALANCE SHEETS
February 28, 1997 and February 29, 1996 1997 1996 ------------------------------------------------------------------------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 4,229,000 $ 3,318,000 Available-for-sale securities 3,456,000 2,752,000 Accounts receivable, net 13,059,000 15,655,000 Due from affiliate - 676,000 Costs and estimated earnings in excess of billings on uncompleted contracts 6,953,000 5,834,000 Prepaid expenses and other current assets 371,000 1,365,000 Refundable income taxes - 138,000 Deferred income taxes 1,057,000 993,000 ------------------------------------------------------------------------------ Total current assets 29,125,000 30,731,000 Property and equipment, net 5,514,000 5,690,000 Other assets, net 896,000 1,193,000 ------------------------------------------------------------------------------ Total assets $35,535,000 $37,614,000 ------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ - $ 990,000 Current portion of long-term debt - 799,000 Accounts payable, trade 5,255,000 5,485,000 Accrued payroll and expenses 4,064,000 4,383,000 Billings in excess of costs and estimated earnings on uncompleted contracts 2,266,000 899,000 Income taxes payable 363,000 - ------------------------------------------------------------------------------ Total current liabilities 11,948,000 12,556,000 ------------------------------------------------------------------------------ Long-term debt, less current portion - 1,860,000 ------------------------------------------------------------------------------ Deferred income taxes 330,000 733,000 ------------------------------------------------------------------------------ Commitments and contingencies STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; authorized - 1,000,000 shares; none issued or outstanding - - Common stock, $.01 par value; authorized - 14,000,000 shares; issued and outstanding - 3,948,794 shares at February 28, 1997 and 3,865,610 shares at February 29, 1996 39,000 39,000 Capital in excess of par value 14,202,000 13,949,000 Unrealized losses on available-for-sale securities (7,000) (17,000) Retained earnings (includes $885,000 and $1,263,000 of retained earnings of the Company's consolidated affiliate at February 28, 1997 and February 29, 1996, respectively) 9,023,000 8,494,000 ------------------------------------------------------------------------------ Total stockholders' equity 23,257,000 22,465,000 ------------------------------------------------------------------------------ Total liabilities and stockholders' equity $35,535,000 $37,614,000 ==============================================================================
The accompanying notes are an integral part of these consolidated financial statements. 23 7 CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended February 28, 1997, February 29, 1996, and February 28, 1995 1997 1996 1995 - ---------------------------------------------------------------------------------------------- Revenues $59,340,000 $69,825,000 $64,831,000 Reimbursable expenses 21,129,000 29,667,000 23,836,000 - ---------------------------------------------------------------------------------------------- Net revenues 38,211,000 40,158,000 40,995,000 Costs and expenses: Salaries and related costs 27,782,000 28,918,000 29,751,000 General and administrative expenses 9,836,000 9,990,000 10,022,000 - ---------------------------------------------------------------------------------------------- Income from continuing operations 593,000 1,250,000 1,222,000 - ---------------------------------------------------------------------------------------------- Other income (expense): Interest income 311,000 176,000 272,000 Gain on sale of equipment 27,000 - 41,000 Gain on insurance settlement - 16,000 - Gain on sale of other assets - 151,000 - Interest expense (110,000) (310,000) (263,000) - ---------------------------------------------------------------------------------------------- Total other income, net 228,000 33,000 50,000 - ---------------------------------------------------------------------------------------------- Income from continuing operations before provision for income taxes 821,000 1,283,000 1,272,000 Provision for income taxes 292,000 485,000 450,000 - ---------------------------------------------------------------------------------------------- Net income from continuing operations 529,000 798,000 822,000 Discontinued operations (Note 11): Loss from discontinued operations, net of income tax - (99,000) (2,216,000) - ---------------------------------------------------------------------------------------------- Net income (loss) $ 529,000 $ 699,000 $(1,394,000) ============================================================================================== Net income per share from continuing operations $ .13 $ .21 $ .22 ============================================================================================== Net (loss) per share from discontinued operations - $ (.03) $ (.59) ============================================================================================== Net income (loss) per share $ .13 $ .18 $ (.37) ============================================================================================== Weighted average common and common equivalent shares outstanding 3,929,000 3,857,000 3,780,000 ==============================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 24 8 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Unrealized For the Years Ended Common Stock Losses on February 28, 1997, ------------------ Capital in Available- Total February 29, 1996, and Number Par Excess of for-Sale Retained Stockholders' February 28, 1995 of Shares Value Par Value Securities Earnings Equity - ----------------------------------------------------------------------------------------------------------- Balance, February 28, 1994 3,762,839 $38,000 $13,580,000 $9,189,000 $22,807,000 Issuance of common stock 61,705 - 286,000 286,000 Change in unrealized losses on available-for-sale securities $(14,000) (14,000) Net loss (1,394,000) (1,394,000) - -------------------------------------------------------------------------------------------------------- Balance, February 28, 1995 3,824,544 38,000 13,866,000 (14,000) 7,795,000 21,685,000 Issuance of common stock 41,066 1,000 83,000 84,000 Change in unrealized losses on available-for-sale securities (3,000) (3,000) Net income 699,000 699,000 - -------------------------------------------------------------------------------------------------------- Balance, February 29, 1996 3,865,610 39,000 13,949,000 (17,000) 8,494,000 22,465,000 Issuance of common stock 83,184 - 253,000 253,000 Change in unrealized losses on available-for-sale securities 10,000 10,000 Net income 529,000 529,000 - -------------------------------------------------------------------------------------------------------- Balance, February 28, 1997 3,948,794 $39,000 $14,202,000 $(7,000) $9,023,000 $23,257,000 ========================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 25 9 CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended February 28, 1997, February 29, 1996, and February 28, 1995 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income from continuing operations $ 529,000 $ 798,000 $ 822,000 Adjustments to reconcile net income from continuing operations to net cash provided by operating activities: Discontinued operations -- (99,000) (2,216,000) Depreciation and amortization 2,295,000 1,166,000 1,325,000 Gain on sale of equipment (27,000) -- (41,000) Gain on insurance settlement -- (16,000) -- Gain on sale of other assets -- (151,000) -- (Benefit) provision for deferred income taxes (461,000) 69,000 (184,000) Changes in assets and liabilities: Decrease (increase) in accounts receivable 2,596,000 (83,000) 370,000 Decrease in costs and estimated earnings in excess of billings on uncompleted contracts 248,000 188,000 2,000 Decrease (increase) in prepaid expenses and other current assets 114,000 (174,000) 456,000 Decrease (increase) in refundable income taxes 138,000 355,000 (493,000) (Decrease) increase in accounts payable, trade (230,000) (601,000) 2,181,000 (Decrease) increase in accrued payroll and expenses (319,000) (1,065,000) 168,000 Increase (decrease) in income taxes payable 363,000 -- (305,000) - -------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 5,246,000 387,000 2,085,000 - -------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Decrease (increase) in restricted cash -- 1,900,000 (1,880,000) (Increase) decrease in available-for-sale securities (700,000) (709,000) 1,832,000 Proceeds from disposal of equipment 216,000 23,000 59,000 Proceeds from sale of securities -- 703,000 -- Acquisition of property and equipment (995,000) (929,000) (1,284,000) (Increase) decrease in other assets (136,000) 380,000 915,000 Decrease (increase) in due from affiliates 676,000 243,000 (919,000) - -------------------------------------------------------------------------------------------------------------------------- Net cash (used) provided by investing activities (939,000) 1,611,000 (1,277,000) - -------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (repayments) borrowings of notes payable (990,000) (879,000) 1,050,000 Repayments of long-term debt (2,659,000) (906,000) (1,051,000) Proceeds from issuance of common stock, net 253,000 84,000 286,000 - -------------------------------------------------------------------------------------------------------------------------- Net cash (used) provided by financing activities (3,396,000) (1,701,000) 285,000 - -------------------------------------------------------------------------------------------------------------------------- Net increase in cash and cash equivalents 911,000 297,000 1,093,000 Cash and cash equivalents at beginning of year 3,318,000 3,021,000 1,928,000 - -------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 4,229,000 $ 3,318,000 $ 3,021,000 ========================================================================================================================== Supplemental disclosure of cash flow information: Interest expense paid $ 110,000 $ 310,000 $ 263,000 Income taxes paid (refunded), net $ 248,000 $ (14,000) $ 984,000
The accompanying notes are an integral part of these consolidated financial statements. 26 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Summary of Significant Accounting Policies Basis of Presentation. The consolidated financial statements include the accounts of GZA GeoEnvironmental Technologies, Inc. ("the Company"), its wholly owned subsidiary GZA GeoEnvironmental, Inc. ("GZA"), GZA's wholly owned subsidiaries GZA Drilling, Inc., ("GZAD") and GZA Texas, Inc., ("Texas") and GZAD's wholly owned subsidiary Delta Geotechnical Services, Inc., the Company's wholly owned subsidiary GZA Remediation, Inc. and its wholly owned subsidiary Grover Enterprises, Inc., the Company's wholly owned subsidiary GZA Securities Corporation, and the Company's affiliate, through common ownership and control, Goldberg-Zoino Associates of New York, P.C., doing business as GZA GeoEnvironmental of New York ("GZANY"). All material intercompany transactions and balances have been eliminated. Nature of the Business. The Company provides consulting services in geotechnical engineering, applied geosciences and related environmental disciplines, environmental seminar training, drilling and test boring services. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Revenues and Cost Recognition. Revenue from engineering service contracts is recognized as the services are provided. Revenues from long-term contracts are recognized on the percentage-of-completion method. Under this method, the Company recognizes the proportion of the total profit anticipated from the contract which the cost of the work completed bears to the estimated total cost of the work covered under the contract. For contracts which extend over more than one year, revisions in cost and earnings estimates during the course of the work are reflected in the period in which the facts which require the revision become known. Provisions for estimated losses on uncompleted contracts are made in the period in which it is determined a loss will occur. For purposes of determining the percentage of completion, contract costs include all material and labor costs and those indirect costs related to contract performance. Contracts relating to government-funded projects may include clauses under which the contract may be terminated for the convenience of the government, or be subject to renegotiation at the request of the government based upon certain contractual conditions. If such contracts are terminated or renegotiated, the Company will reflect any adjustments in the period they become known. Cash and Cash Equivalents. Cash and cash equivalents consist of cash on hand and investments in fixed income securities with original maturity dates of three months or less. Concentration of Credit Risk. Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of trade accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts. The Company has not experienced significant losses related to receivables from individual customers or groups of customers in a particular industry or geographic area. Due to these factors, no additional credit risk beyond amounts provided for collection losses is believed inherent in the Company's accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts. Available-for-Sale Securities. Available-for-sale securities, consisting primarily of municipal bonds with original maturity dates of three months or more, are carried at fair value. The Company limits the amount of its investments in any one institution to minimize exposure to loss. The investment portfolio is reviewed monthly and investments are purchased and sold on a regular basis. Pursuant to Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities", which the Company adopted as of March 1, 1994, the Company has classified its debt securities as "available-for-sale". Under the provisions of SFAS No. 115, the securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported as an adjustment to stockholders' equity. Property, Equipment and Depreciation. Property and equipment are stated at cost. Additions and improvements, unless of a relatively minor amount, are capitalized. Expenditures for normal maintenance and repairs are charged to expense as incurred. The cost and related accumulated depreciation of property and equipment sold or otherwise disposed of are eliminated from the accounts and the resulting gains or losses are reflected in income. For financial reporting purposes, depreciation is provided using various straight-line and accelerated methods over the estimated useful lives of the individual assets which range from three to ten years. Leasehold improvements are amortized on a straight-line basis over the estimated useful life of the improvement or the remaining life of the lease, whichever is shorter. Other Assets. Other assets consist principally of investments in unconsolidated companies and the excess of cost over net assets acquired resulting from acquisitions of businesses (goodwill). Amortization of these costs is computed on a straight-line basis over the estimated useful life of the asset, generally twenty-five years. For the fiscal years ended February 28, 1997 and February 29, 1996, the Company recorded goodwill amortization expense of $439,000 and $49,000, respectively. In accordance with SFAS No. 121, "Accounting for Long-Lived Assets", the Company periodically reviews the propriety of carrying amounts of its long-lived and intangible assets, as well as reviews the amortization periods to determine whether current events and circumstances warrant adjustments to the carrying value or estimated useful lives. At each balance sheet date, management evaluates 27 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS whether there has been a permanent impairment in the value of such assets by assessing the carrying value against anticipated future operating results. Factors which management considers in performing the assessment include past and projected operating results, trends and prospects. Income Taxes. Federal and state income taxes are based upon financial statement income using the liability method of accounting for income taxes. Certain items of income and expense are recognized for income tax purposes in different periods than for financial reporting purposes. Temporary differences result primarily from the use of accelerated depreciation methods for tax reporting purposes. Newly Issued Accounting Standards. In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128, "Earnings per share". SFAS No. 128 establishes a different method of computing net income per share than is currently required under the provisions of Accounting Principles Board ("APB") Opinion No. 15. Under SFAS No. 128, the Company will be required to present both basic and diluted net income per share. The Company plans to adopt SFAS No. 128 in its fiscal quarter ending February 28, 1998 and at that time all historical net income per share data presented will be restated to conform to the provisions of SFAS No. 128. Reclassifications. Certain reclassifications have been made to the prior years' financial statements to conform to the current presentation. 28 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2. Condensed Financial Information of Affiliate The condensed financial information of the Company's affiliate, GZANY, at February 28, 1997 and February 29, 1996 and for each of the three years in the period ended February 28, 1997 is as follows:
Condensed Balance Sheets February 28, 1997 and February 29, 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------ Assets Cash $ 105,000 $ 28,000 Accounts receivable, net 566,000 358,000 Costs and estimated earnings in excess of billings on uncompleted contracts 163,000 113,000 Due from affiliates 285,000 876,000 Refundable income taxes 44,000 128,000 Other current assets 82,000 13,000 Total current assets 1,245,000 1,516,000 Property and equipment, net 34,000 55,000 Other assets, net 25,000 4,000 - ------------------------------------------------------------------------------------------------------------------ Total assets 1,304,000 $1,575,000 ================================================================================================================== Liabilities and Stockholders' Equity Accounts payable and accrued expenses $ 418,000 $ 240,000 Deferred income taxes - 71,000 - ------------------------------------------------------------------------------------------------------------------ Total current liabilities 418,000 311,000 - ------------------------------------------------------------------------------------------------------------------ Common stock 1,000 1,000 Retained earnings 885,000 1,263,000 - ------------------------------------------------------------------------------------------------------------------ Total stockholders' equity 886,000 1,264,000 - ------------------------------------------------------------------------------------------------------------------ Total liabilities and stockholders' equity $1,304,000 $1,575,000 ==================================================================================================================
Condensed Statements of Operations
For the Years Ended February 28, 1997, February 29, 1996 and February 28, 1995 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------- Net revenues $1,227,000 $1,390,000 $1,596,000 Costs and expenses 1,834,000 1,752,000 1,705,000 - ------------------------------------------------------------------------------------------------------------- Loss from operations (607,000) (362,000) (109,000) Benefit for income taxes (229,000) (145,000) (52,000) - ------------------------------------------------------------------------------------------------------------- Net loss $ (378,000) $ (217,000) $ (57,000) - -------------------------------------------------------------------------------------------------------------
Accounts receivable, net, include $37,000 due from GZA at February 28, 1997 and $42,000 due at February 29, 1996. Substantially all the amounts shown as due from affiliates at February 28, 1997 and February 29, 1996 were due from GZA. In addition, approximately $235,000, $335,000 and $361,000 of net revenues were billed to GZA in fiscal 1997, 1996 and 1995, respectively. 29 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 3. Restricted Cash In July 1994, the Company deposited $1,900,000 into a bank account, of which funds $1,690,000 were restricted in response to a court order pending the outcome of legal action. In May 1995, the case was settled and the restricted funds were released. Note 4. Available-for-Sale Securities On March 1, 1994, the Company adopted SFAS No. 115. The effect on the Company's financial statements of adoption of SFAS No. 115 was immaterial. Unrealized losses on available-for-sale securities at February 28, 1997 were approximately $7,000, net of deferred taxes. The maturities of available-for-sale securities held at February 28, 1997 are $2,402,000 within one year and $1,054,000 from one to five years. Certain of these available-for-sale securities have maturities in excess of one year but are classified as current assets consistent with their use. Gross realized gains and losses from available-for-sale securities were immaterial to the Company's operating results. Note 5. Accounts Receivable Accounts receivable consists of the following:
February 28, February 29, 1997 1996 - ------------------------------------------------------------------------- Accounts receivable $12,737,000 $12,710,000 Retainage 1,166,000 3,719,000 - ------------------------------------------------------------------------- 13,903,000 16,429,000 Less - Allowance for doubtful accounts 844,000 774,000 - ------------------------------------------------------------------------- $13,059,000 $15,655,000 =========================================================================
All amounts billed under retainage provisions of long-term contracts are expected to be collected within one year of completion of the contracts. Note 6. Unbilled Costs and Estimated Earnings on Uncompleted Contracts Unbilled costs and estimated earnings on uncompleted contracts, which represent revenues earned but not billed as of February 28, 1997 and February 29, 1996, respectively, under the terms of the related contracts, are as follows:
February 28, February 29, 1997 1996 - ----------------------------------------------------------------------------- Costs incurred on uncompleted contracts $3,945,000 $3,449,000 Estimated earnings 3,008,000 2,385,000 - ----------------------------------------------------------------------------- $6,953,000 $5,834,000 =============================================================================
Included in unbilled costs and estimated earnings on uncompleted contracts are reserves of $678,000 and $1,200,000 as of February 28, 1997 and February 29, 1996, respectively, based on management's estimates of the contract values. Management continuously evaluates and adjusts specific reserves based on progress of contract negotiations and management's judgment of the ultimate contract value. At the point when material changes are renegotiated or known, the Company will reflect the appropriate adjustments. Costs incurred on uncompleted contracts are typically billed at the end of a two-week or four-week billing cycle. 30 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7. Property and Equipment Property and equipment are stated at cost and consist of the following:
February 28, 1997 February 29, 1996 - ---------------------------------------------------------------------------- Machinery and equipment $ 2,959,000 $ 2,470,000 Laboratory and technical equipment 3,334,000 3,208,000 Furniture, fixtures and computer equipment 6,734,000 6,124,000 Motor vehicles, rigs and trucks 661,000 645,000 Leasehold improvements 2,463,000 2,408,000 - ---------------------------------------------------------------------------- 16,151,000 14,855,000 Less - Accumulated depreciation and amortization 10,637,000 9,165,000 - ---------------------------------------------------------------------------- $ 5,514,000 $ 5,690,000 ============================================================================
Depreciation expense for the years ended February 28, 1997, February 29, 1996 and February 28, 1995 was $1,857,000, $1,117,000, and $1,247,000, respectively. Note 8. Financing and Other Obligations On February 28, 1994, the Company entered into a Revolving Credit and Term Loan Agreement which replaced its previous credit facility with the same bank. Notes Payable. Notes payable represent borrowings from a bank pursuant to a revolving line of credit. The Company has available an unsecured revolving line of credit under which it can borrow up to $5,500,000 in a combination of cash and letters of credit, with interest payable monthly at the bank's corporate base rate (8.25% at February 28, 1997) or the applicable LIBOR rate plus 200 basis points. Under the terms of the line of credit, the Company is required to maintain a minimum net worth, working capital, current ratio, quick ratio, tangible net worth and cash flow coverage ratio. Borrowings under this revolving credit agreement totaled $0 at February 28, 1997 and $990,000 at February 29, 1996. The Company had no letters of credit outstanding at February 28, 1997. Long-Term Debt. Long-term debt consists of the following:
February 28, February 29, 1997 1996 - ------------------------------------------------------------------------------- Term facility with interest rates ranging from 6.99% to 8.25% at February 29, 1996, payable in monthly installments of $66,565 - $2,659,000 Less - Current portion - 799,000 - ------------------------------------------------------------------------------- - $1,860,000 ===============================================================================
The Company also has available a $4,500,000 term loan facility, providing for term borrowings amortized through July 31, 2000 bearing interest at a variable rate equal to the bank's corporate base rate or a fixed rate over the term of the loan. Borrowings under the term loan facility totaled $0 at February 28, 1997 and $2,659,000 at February 29, 1996. The term loan facility requires maintenance of the same ratios and financial covenants as the revolving line of credit. 31 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 9. Accrued Payroll and Expenses. Accrued payroll and expenses consist of the following: February 28, February 29, 1997 1996 - ----------------------------------------------------------------------- Accrued payroll and related benefits $2,723,000 $2,830,000 Legal and claims reserves 739,000 743,000 Reserve for discontinued operations - 481,000 Other 602,000 329,000 - ----------------------------------------------------------------------- $4,064,000 $4,383,000 ======================================================================= Note 10. Stockholders' Equity Stock Option Plans. Under the Company's 1989 Incentive Stock Option Plan, as amended (the "Incentive Plan"), incentive stock options (as defined in Section 422A of the Internal Revenue Code of 1986, as amended) to purchase shares of common stock may be issued to key employees including executive officers and directors who are employees. The Incentive Plan is administered by the Company's Board of Directors, which designates the optionees, option prices (which may not be less than fair market value on the date of grant), date of grant, and terms of options (which may not be more than ten years). All Incentive Plan options are non-assignable. The Incentive Plan terminates when all options issuable thereunder have been exercised. During fiscal 1994, the shareholders voted to increase the number of shares reserved for issuance under the Incentive Plan from 310,000 to 510,000 shares. During fiscal 1994, fiscal 1996 and fiscal 1997, the Board of Directors approved reductions, from $6.28 to $5.25, $5.70 to $5.25 and $5.25 to $3.50 respectively, in the exercise price of outstanding options under the Incentive Plan. The reduced exercise prices were not less than fair market value of the Company's common stock on the date of the reductions and the reductions of the exercise prices of the options did not result in compensation expense charges. 32 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Information related to the Incentive Plan is summarized as follows:
Incentive Stock Options Outstanding ----------------------------------- Shares Exercise Price per Share - -------------------------------------------------------------------------- Balance at February 28, 1993 196,034 $ 6.28 Granted 98,600 6.28 Cancelled (18,700) 5.25 - 6.28 - -------------------------------------------------------------------------- Balance at February 28, 1994 275,934 5.25 Granted 36,000 5.25 - 5.70 Cancelled (27,378) 5.25 - -------------------------------------------------------------------------- Balance at February 28, 1995 284,556 5.25 - 5.70 Granted 23,600 5.25 Cancelled (59,878) 5.25 - 5.70 - -------------------------------------------------------------------------- Balance at February 29, 1996 248,278 5.25 Granted 89,200 3.50 - 5.25 Cancelled (32,600) 3.50 - 5.25 - -------------------------------------------------------------------------- Balance February 28, 1997 304,878 $ 3.50 ==========================================================================
As of February 28, 1997 and February 29, 1996, options for 199,438 and 168,498 shares, with weighted average exercise prices of $3.50, were exercisable, and options for 205,122 and 261,722 shares, respectively, were available to be granted under the Incentive Plan. Under the Company's 1989 Non-Qualified Stock Option Plan (the "Non-Qualified Plan"), up to 15,000 common stock options, which are not "incentive stock options" as defined in Section 422A, may be issued to key employees, executive officers and directors of the Company, including directors who are not employees. The Non-Qualified Plan is administered by the Company's Board of Directors, which designates the optionees, option price, date of grant, and terms of options (which may not be more than ten years). All Non-Qualified Plan options are non-assignable. The Non-Qualified Plan terminates when all options issuable thereunder have been exercised. During fiscal 1994 and fiscal 1997, the Board of Directors approved a reduction, from $7.00 to $5.25 and from $5.25 to $3.50, respectively, in the exercise price of outstanding options under the Non-Qualified Plan. The reduction of the exercise price of these options did not result in compensation expense charges. At February 28, 1997, options to purchase 10,000 shares of common stock at an exercise price of $3.50 per share were outstanding under the Non-Qualified Plan. All such options were exercisable. On March 14, 1995, the Company's Board of Directors approved the GZA 1995 Stock Incentive Plan (the "Stock Plan"), and such Stock Plan was subsequently approved by the shareholders on July 11, 1995. Pursuant to the Stock Plan, the Company may grant certain key employees, at no cost, shares of "restricted stock" of the Company in appreciation of services. A condition of receipt of any award under the Stock Plan is that the employee must either own, or agree to acquire within one year, an equivalent number of shares. All shares awarded under the Stock Plan vest over a five-year period. The maximum number of shares that may be granted under the Stock Plan is 200,000. Pursuant to the Stock Plan, in November 1996, March 1996 and April 1995, 10,000, 5,053 and 12,418 shares, respectively, were issued to certain employees. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS No. 123 is effective for periods beginning after December 15, 1995. SFAS No. 123 requires that companies either recognize compensation expense for grants of stock, stock options, and other equity instruments based on fair value, or provide pro forma disclosure of net income and earnings per share in the notes to the financial statements. The Company adopted the disclosure provisions of SFAS No. 123 in fiscal 1997 and has applied APB Opinion No. 25 and related Interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its stock option plans. Had compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant dates as calculated in accordance with SFAS No. 123, the impact on the Company's net income and earnings per share for the fiscal years ended February 28, 1997 and February 29, 1996 would not have been material. The weighted average fair value of the common stock at date of grant for options granted during 1997 and 1996 was $3.66 and $3.28 per option, respectively. The fair value of these options at date of grant was estimated using the Black-Scholes model with the following weighted average assumptions for 1997 and 1996: risk free interest rates of 6.92% and 6.85%, respectively; dividend yields 33 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS of 0%; volatility factors of the expected market price of the Company's common stock of 30%; and a weighted average expected life of the options of 5 years. Note 11. Discontinued Operations The Company and P&P Service, Inc. ("P&P") were equal joint venture partners of Fonditek International, Inc. ("Fonditek"), which performed specialty construction services. As reported in financial statements for fiscal 1995, the Company adopted a plan of complete liquidation and abandoned the specialty construction business and reports results of that business as discontinued operations. The loss from discontinued operations for fiscal year ended February 28, 1995, net of tax benefit, was $704,000 and the estimated loss from liquidation and disposal of the specialty construction business, net of tax benefit, for the fiscal year ended February 28, 1995 was approximately $1,512,000. Revenue from discontinued operations for the year ended February 28, 1995 was $1,129,000. In fiscal 1996 a settlement agreement for liquidation of the assets and satisfaction or assumption of liabilities and settlement of related disputes was entered into by P&P, Fonditek and the Company. To reflect the net effect of the settlement for the Company's investment and related rights and obligations, the Company recorded an additional loss from discontinued operations of $99,000, net of tax benefit of $68,000, in fiscal 1996. Note 12. Income Taxes Provision for income taxes from continuing operations consisted of the following:
February 28, February 29, February 28, 1997 1996 1995 - ------------------------------------------------------------------------------------- Currently payable: State $ 151,000 $162,000 $ 189,000 Foreign - 147,000 - Federal 602,000 32,000 445,000 - ------------------------------------------------------------------------------------ Total current 753,000 341,000 634,000 - ------------------------------------------------------------------------------------ Deferred (prepaid): State (121,000) 23,000 (44,000) Federal (340,000) 121,000 (140,000) - ----------------------------------------------------------------------------------- Total deferral (prepaid) (461,000) 144,000 (184,000) - ------------------------------------------------------------------------------------ Total provision for income taxes $ 292,000 $485,000 $ 450,000 ====================================================================================
Deferred income taxes are provided to account for temporary differences between the financial reporting basis and income tax basis of the Company's assets and liabilities using the liability method of accounting for income taxes. Deferred taxes represent the future income tax effect of reported differences between the book and tax bases of the Company's assets and liabilities. Reconciliations of the U.S. federal statutory income tax rate to the effective income tax rate are as follows:
1997 1996 1995 - ------------------------------------------------------------------------------- U.S. federal statutory income tax rate 34% 34% 34% State and foreign income tax, net of federal income tax benefit 3 11 (10) Interest income exempt from federal tax (3) (4) 6 Reduction of valuation allowance - (4) - Non-deductible expenses 2 1 5 - ------------------------------------------------------------------------------- Effective income tax rate 36% 38% 35% ===============================================================================
34 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GZA's net deferred tax asset at February 28, 1997 and February 29, 1996 consists of gross deferred tax liabilities of $347,000 and $687,000 and deferred tax assets of $1,514,000 and $1,402,000, respectively. The components of GZA's net deferred tax assets as of February 28, 1997 and February 29, 1996 are as follows:
1997 1996 - ------------------------------------------------------------------ Cash versus accrual method of accounting $ 140,000 $ 92,000 Depreciation and amortization 207,000 594,000 Net operating loss carryforwards (211,000) -- Allowance for doubtful accounts (317,000) (497,000) Restructuring reserve (321,000) (319,000) Accrued vacation (278,000) (258,000) Other accrued expenses (387,000) (327,000) Valuation allowance 440,000 455,000 - ------------------------------------------------------------------ Total net deferred tax assets $(727,000) $(260,000) ==================================================================
The components of GZA's deferred income tax provision (benefit) from continuing operations for the years ended February 28, 1997 and February 29, 1996 are as follows:
1997 1996 - -------------------------------------------------------------------- Cash versus accrual method of accounting $ 47,000 $(71,000) Net operating loss carryforwards (211,000) -- Depreciation and amortization (390,000) 72,000 Allowance for doubtful accounts 181,000 (31,000) Restructuring reserves - 10,000 Other accrued expenses (88,000) 164,000 - -------------------------------------------------------------------- Total deferred income tax provision (benefit) $(461,000) $144,000 ====================================================================
Note 13. Retirement and Benefit Plans The Company maintains a Profit Sharing Plan under Section 401(k) of the Internal Revenue Code which covers all employees who meet minimum age and service requirements. Annual Company contributions are determined by the Board of Directors. The year end for the profit sharing plan is December 31. Amounts contributed by the Company under the plan vest according to a seven-year vesting schedule. To participate in the plan, an employee must contribute a minimum of 2% of his or her base salary, and may contribute additional amounts. Participant contributions are fully vested at all times. The Company's contributions to the plan were $682,000, $709,000 and $707,000 in fiscal 1997, 1996 and 1995, respectively. In fiscal 1997, 1996 and 1995, the Board of Directors voted to make 25% of the Company's contribution to the Plan in stock of the Company. As a result, in fiscal years 1997, 1996 and 1995, respectively, 58,064, 50,663 and 38,999 shares of the Company's stock (having a total fair value of approximately $171,000, $177,000 and $176,000 on the date of contribution) were contributed in addition to cash contributions of $511,000, $532,000 and $531,000, respectively. The Company also maintains an employee stock purchase plan under which up to 220,000 shares of the Company's common stock are available for purchase by its employees. Eligible employees can purchase shares of the stock at the lower of 85% of the fair market value of the stock on the first or last day of each six month period beginning on March 1 or September 1. Monies to purchase the shares are withheld from an employee's pay through payroll deductions. Under the plan, 12,998, 22,510 and 26,542 shares were purchased for fiscal 1997, 1996 and 1995, respectively. 35 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 14. Related Party Transactions The Company leases office space from certain stockholders and from entities owned by certain stockholders and employees. Lease payments, net of sublease income, to these entities totaled $957,000, $990,000 and $1,027,000 in fiscal 1997, 1996 and 1995, respectively. Note 15. Commitments and Contingencies Commitments. The Company leases certain facilities under the terms of various noncancellable operating leases, including leases with related parties described in Note 14. Lease terms generally range from two to five years. Additionally, the Company leases certain equipment under operating leases. Future minimum lease payments under noncancellable operating leases are as follows: 1998 $1,922,000 1999 1,473,000 2000 1,187,000 2001 939,000 2002 79,000 - ------------------------------------------------------------------------------- Total minimum lease payments $5,600,000 ===============================================================================
Rent expense charged to operations was $2,312,000, $2,224,000 and $2,201,000 in fiscal 1997, 1996 and 1995, respectively. Contingencies. The Company is a party to several legal actions arising in the normal course of business. Management believes that the outcomes of the 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. 36 20 SUPPLEMENTAL INFORMATION PRICE RANGE OF COMMON STOCK The Company's common stock is traded in the over-the-counter market under the symbol "GZEA" and is included in the National Association of Securities Common Dealers, Inc. National Market System ("NASDAQ"). The following table sets forth the quarterly range of high and low prices per share of common stock for fiscal year 1997, as reported by NASDAQ.
Fiscal 1997: High Low - ----------------------------------------------------------------- First Quarter 3-3/4 3-1/8 Second Quarter 3-3/4 2-11/16 Third Quarter 3-1/2 2-3/4 Fourth Quarter 3-1/2 2-7/8
As of May 20, 1997, the Company's common stock was held by 352 holders of record. The Company has never paid cash dividends on its common stock, and does not intend to pay cash dividends in the foreseeable future. The Company currently intends to retain any future earnings to finance growth. SELECTED QUARTERLY FINANCIAL DATA
Three months ended 2/28/97 11/30/96 8/31/96 5/31/96 - ------------------------------------------------------------------------------------------------------- In thousands except per share amounts (unaudited) Revenues $15,453 $15,376 $15,042 $13,469 Net revenues 9,527 9,034 9,691 9,959 Income (loss) from continuing operations 682 (714) 281 344 Net income (loss) from continuing operations 615 (491) 179 226 Net loss from discontinued operations -- -- -- -- Net income (loss) 615 (491) 179 226 Net income (loss) per share from continuing operations $ .15 $ (.12) $ .04 $ .06 Net income (loss) per share from discontinued operations -- -- -- -- Net income (loss) per share $ .15 $ (.12) $ .04 $ .06 Weighted average common and common equivalent shares outstanding 3,947 3,949 3,932 3,901
Three months ended 2/29/96 11/30/95 8/31/95 5/31/95 - ------------------------------------------------------------------------------------------------------- In thousands except per share amounts (unaudited) Revenues $16,480 $19,743 $17,327 $16,275 Net revenues 9,303 10,601 10,177 10,077 Income (loss) from continuing operations (247) 1,031 99 367 Net income (loss) from continuing operations (32) 568 72 190 Net income (loss) from discontinued operations 66 -- (165) -- Net income (loss) 34 568 (93) 190 Net income (loss) per share from continuing operations $ (.01) $ .15 $ .02 $ .05 Net income (loss) per share from discontinued operations $ .01 -- $ (.04) -- Net income (loss) per share -- $ .15 $ (.02) $ .05 Weighted average common and common equivalent shares outstanding 3,866 3,865 3,850 3,839
37 21 CORPORATE INFORMATION DIRECTORS AND EXECUTIVE OFFICERS Donald T. Goldberg Joseph D. Guertin Paul F. Gorman Chairman of the Board of Directors Director Director Senior Vice President, Andrew P. Pajak GZA GeoEnvironmental, Inc. Lewis Mandell Director Director President and Lawrence Feldman Chief Executive Officer Director Thomas W. Philbin Senior Vice President, Director Joseph P. Hehir GZA GeoEnvironmental, Inc. Chief Financial Officer John E. Ayres Irvine G. Reinig II Executive Vice President, M. Joseph Celi Director Business Development Director Executive Vice President, Timothy W. Devitt Richard M. Simon Remediation Services Director Executive Vice President, Professional Practice STOCKHOLDER INFORMATION Independent Accountants Annual Meeting Operations Coopers & Lybrand LLP The Annual Meeting of Stockholders The Company conducts all Boston, Massachusetts will be held at 10:00 a.m. on its operations through its July 15, 1997 at the Sheraton wholly owned subsidiaries Counsel Needham Hotel, 100 Cabot Street, GZA GeoEnvironmental, Foley, Hoag & Eliot LLP Needham, Massachusetts. Inc. (GZA) and GZA Boston, Massachusetts Remediation, Inc. (GZAR); Stockholder Reports and through GZA's wholly Registrant and Transfer Agent A copy of the Company's 10-K, owned subsidiary GZA American Stock Transfer as filed with the Securities and Drilling, Inc.; through & Trust Company Exchange Commission, may be the Company's affiliate 40 Wall Street obtained without charge by Aquaterra Environmental New York, New York 10005 writing to Investor Relations, Consultants Limited, a joint Tel 212/936-5100 GZA GeoEnvironmental venture of the Company and Technologies, Inc., Carl Bro Group (UK) Ltd.; Common Stock Listing 320 Needham Street, and through the Company's The common stock of Newton Upper Falls, affiliate Goldberg-Zoino GZA GeoEnvironmental Massachusetts 02164 Associates of New York, Technologies, Inc. P.C. (doing business as GZA is traded over the counter Coporate Headquarters GeoEnvironmental of New in the NASDAQ national GZA GeoEnvironmental York), a New York professional market quotation system Technologies, Inc. service corporation under the symbol GZEA. 320 Needham Street wholly owned by officers, Newton, Upper Falls directors, and stockholders Massachusetts 02164 of the Company. The Tel 617/969-0050 Company was incorporated Fax 617/969-0715 in Delware on May 5, 1989.
38 EX-22.1 5 SUBSIDIARIES OF THE REGISTRANT 1 Exhibit 22.1 Subsidiaries of the Registrant ------------------------------ Name of Subsidiary Jurisdiction of - ------------------ --------------- Incorporation ------------- 1. GZA GeoEnvironmental, Inc. Massachusetts 2. GZA Remediation, Inc. Massachusetts 3. GZA Securities Corporation Massachusetts 4. GZA Drilling, Inc. (a wholly owned Massachusetts subsidiary of GZA GeoEnvironmental, Inc.) 5. Delta Geotechnical Services, Inc., (a wholly owned Massachusetts subsidiary of GZA Drilling, Inc.) 6. Grover Enterprises, Inc. (a wholly owned subsidiary Massachusetts of GZA Remediation, Inc.) 7. GZA Texas, Inc. (a wholly owned subsidiary of GZA Massachusetts GeoEnvironmental, Inc.) EX-23.1 6 CONSENT OF COOPERS & LYBRAND L.L.P. 1 Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of GZA GeoEnvironmental Technologies, Inc. on Form S-8 (File No. 33-63940 and File No. 33-75688) of our report dated May 2, 1997, on our audits of the consolidated financial statements and financial statement schedule of GZA GeoEnvironmental Technologies, Inc. as of February 28, 1997 and February 29, 1996, and for the three years in the period ended February 28, 1997, which report is included and incorporated by reference in the Company's 1997 Form 10-K, Exhibit 13.1. COOPERS & LYBRAND L.L.P. Boston, Massachusetts May 2, 1997 EX-27.1 7 FINANCIAL DATA SCHEDULE
5 EXHIBIT 27 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS OF THE REGISTRANT AT FEBRUARY 28, 1997 AND FEBRUARY 29, 1996 AND CONSOLIDATED STATEMENTS OF OPERATIONS OF THE REGISTRANT FOR THE TWELVE MONTHS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996, AND FEBRUARY 28, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS IN THE FORM 10-K FOR THE TWELVE MONTH PERIOD ENDED FEBRUARY 28, 1997. YEAR FEB-28-1997 MAR-01-1996 FEB-28-1997 4,229,000 3,456,000 13,059,000 0 0 29,125,000 5,514,000 0 35,535,000 11,948,000 0 0 0 39,000 0 35,535,000 0 59,340,000 0 58,747,000 0 0 110,000 821,000 292,000 529,000 0 0 0 529,000 .13 0
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