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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
__________
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Fiscal Year Ended January 3, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File No. 0-12588
GILBERT ASSOCIATES, INC.
(Exact name of registrant as specified in its charter)
Delaware 23-2280922
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
P.O. Box 1498, Reading, Pennsylvania 19603
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 856-5500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $1.00 per share
(Title of Class)
Class B Common Stock, par value $1.00 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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 From 10-K. [X]
(Dollar amounts shown in thousands except for share information)
The aggregate market value of the registrant's Class B (voting) Common Stock
held by non-affiliates computed by reference to the NASDAQ National Market
System closing sale price for the registrant's Class A (non-voting) Common
Stock at January 31, 1997, was $7,319.
Class A Class B
Number of shares of each class
of common stock outstanding as
of January 31, 1997 (excluding
2,633,571 treasury shares): 5,869,792 481,937
PART I
ITEM 1. BUSINESS.
Gilbert Associates, Inc. (the "registrant") was organized as a holding
company in 1984. Prior to forming the holding company, the registrant was an
operating company and owner of several subsidiaries. The original Gilbert
Associates, Inc. was organized in 1942. Through its operating subsidiaries,
the registrant is engaged in the businesses of manufacturing and sales of
telecommunication equipment, providing technical services and real estate
leasing and related services. The registrant and its subsidiaries are
sometimes referred to herein collectively as the "Gilbert companies."
The holding company structure separates the administrative and
financing activities of the registrant from the activities of its operating
subsidiaries. The revenues, operating profits and identifiable assets of the
registrant's telecommunications, technical services, and real estate segments
for 1996 are stated in Note 14 to the consolidated financial statements
contained in Part II, Item 8 of this report.
1996 CORPORATE DEVELOPMENTS
On June 5, 1996, the Board of Directors announced that the company had
begun to explore strategic options for its remaining units within the
technical services segment. Separate investment banking firms have been
retained to assist the registrant in the divestiture of both SRA Technologies,
Inc. (SRA) and Resource Consultants, Inc. (RCI). The Company is also continuing
to explore options for monetizing or otherwise disposing of its real estate
holdings. If and when these units are disposed of, the registrant will have
only one segment - Telecommunications.
TELECOMMUNICATIONS
The telecommunications segment of the Gilbert companies consists of the
design, manufacture and marketing of telecommunications equipment for use in
specialized industries, and telecommunications wireline and wireless
networks.
The Telecommunications Act of 1996 ("Act") became law in February 1996.
The Act has and is expected to result in further competition within the
telecommunications industry. Among other things, the Act provides for cable
television rate deregulation, a relaxation of restrictions in the ownership
of television and radio stations, allows local Bell companies to provide long
distance telephone service, and removes certain restrictions to allow cable,
long-distance and other companies to provide local telecommunications
services. The effect of these provisions on the registrant's business is not
certain.
The telecommunications segment of the registrant is comprised of GAI-
Tronics Corporation (GAI-Tronics), XEL Corporation (XEL) and SAFCO
Technologies, Inc. (SAFCO).
GAI-Tronics is principally engaged in the development, assembly and
marketing of communication systems for industrial operations. In serving
such customers, GAI-Tronics provides custom services by adapting
communication systems to operate under extraordinary plant conditions such as
excessive dust and explosive atmospheres. GAI-Tronics also designs and
manufactures land mobile radio communication devices and emergency
notification systems.
On September 30, 1996, the Company acquired the assets of SAFCO
Corporation's Electronic Systems Division (ESD). Terms of the acquisition
called for the Company to pay SAFCO Corporation's shareholders approximately
$5,000 in cash at closing (subject to certain adjustments), issue
approximately $25,000 in notes payable and 7 year warrants exercisable to
purchase 555,555 shares of the Company's stock at $18 per share. Of the
$25,000 in notes payable, $15,000 was paid January 2, 1997 and the remaining
$10,000 is to be paid on September 30, 2001, with interest due quarterly at a
7% annual rate. Also, under the terms of the agreement, the Company will pay
SAFCO Corporation's shareholders additional incremental amounts through 1999
based upon the achievement of certain revenue and operating income levels.
Any additional payments will increase goodwill. The first such payment will
approximate $1,000 and will be paid in the first quarter of 1997.
In connection with the ESD acquisition, $10,300, net of $6,500 income
tax benefit, or $1.63 per share, of in-process research and development costs
was expensed during the fourth quarter of 1996. The purchased in-process
research and development had not yet reached technological feasibility and
the technology had no alternative future use as of the date of closing.
SAFCO's products and services focus on the measurement and analysis of
signal strength, data communications and radio frequency transmitted between
the wireless phone and cellsites. Upon the acquisition of SAFCO, the
registrant's results of operations became significantly more seasonal in
nature. Historically, a significant portion of SAFCO's revenue and operating
profits are earned in the fourth calendar quarter. Due to the increased
seasonality of the business, the registrant expects the first quarter of
1997's income and earnings per share to be significantly lower than those
reported in the fourth quarter of 1996 prior to adjustments. These fourth
quarter 1996 adjustments are discussed in Notes 2 and 9 to the consolidated
financial statements in Part II, Item 8 of this report.
XEL designs, manufactures and markets over 300 voice and data
transmission system products for the telecommunications industry (wireline).
XEL's products provide access to telecommunications services and automated
monitoring and maintenance of telecommunication network performance, and
extend the distance over which network operators are able to offer
telecommunications services.
The value of orders within the telecommunications segment may range from
a minimal amount to over $1 million. The significant classes of products or
services for this segment are (1) the design and assembly of communication
systems for industrial operations (Industrial), (2) transmission system
products (Wireline) and (3) measurement and analysis and land mobile radio
(Wireless).
The following table sets forth for the past three fiscal years the sales
from each of the significant classes of products.
1996 1995 1994
---- ---- ----
Industrial $42,256 $38,296 $38,847
Wireline 35,543 5,679 -
Wireless 18,660 7,873 7,198
The approximate percentage of sales derived from the principal markets
served by the telecommunications segment during 1996 and the approximate
percentage of its backlog as of January 3, 1997 represented by contracts with
clients in such markets, were as follows:
Percentage of Percentage of Backlog
Market for Products 1996 Revenues as of January 3, 1997
- -------------------- ------------- ---------------------
U.S. Private Industry 79% 66%
Foreign Governments and
Businesses 20 32
U.S. Federal, State and Local
Governments and Agencies 1 2
Revenue, operating profit and identifiable assets for the last three years
within the telecommunications segment are disclosed in Note 14 to the
consolidated financial statements in Part II, Item 8 of this report.
The companies within the telecommunications segment are continually
modifying their products and attempting to further expand their product
lines. The companies manufacture few of the basic components employed in
their equipment; instead, they primarily design and assemble their products
and systems by use of standard or special components manufactured by others.
Several sources of supply exist for such components so that the companies are
not dependent upon any single supplier.
The companies within the telecommunications segment maintain a
substantial inventory of components to satisfy their backlog of orders. The
communications systems part of the business requires keeping a significant
amount of inventory on hand due to the fact that many of the orders are
highly customized for specialized uses.
The companies own various patents and trademarks. However, such patents
and trademarks are of less significance to the companies' operations than are
experience and reputation.
During 1996, GTE and Motorola accounted for 18% and 12%, respectively,
of total telecommunication revenue. No other customer accounted for 10% or
more of such revenue in 1996 or 1995.
A substantial part of the registrant's telecommunications business is
obtained from customers to whom it has made previous sales. In 1996 and
1995, telecommunications sales made to customers who had made purchases
within the last four years earlier accounted for approximately 93% and 95%,
respectively, of total sales. There is no assurance that sales to such
customers will account for a similar percentage of total revenues in the
future. Many of the segment's sales are made as a result of proposals
submitted in response to competitive bidding invitations.
As of January 3, 1997 and December 29, 1995, the subsidiaries comprising
the telecommunications segment had backlogs of contracts from which they had
anticipated estimated future revenue of approximately $11,534 and $9,505,
respectively. It is estimated that substantially all of the goods reflected
in the backlog at January 3, 1997 will be shipped in 1997. Also, the vast
majority of revenues earned in 1997 will be from orders received during the
year.
The companies comprising the telecommunications segment compete with a
number of other organizations that develop specialized communication systems,
design and produce transmission system products and test equipment for both
wireline and wireless markets. Some of these competitors have larger total
sales, greater financial resources, larger research and development
organizations and facilities and a more diversified range of
telecommunications services and products. The dominant industry
competitors of GAI-Tronics are believed to be Industronics, Fetre, Motorola,
Federal Signal and ATI. XEL and SAFCO, in particular, compete in an industry
subject to rapid technological changes. Direct competitors of XEL in one or
more of its markets include Adtran, Alcatel, Conklin, Northern Telecom,
Pulsecom, Teltrend, TXPORT, and Westell. SAFCO competes with LCC, Rohde and
Schwarz and Comarco. Management believes that a history of quality,
reputation, experience and service are the most important factors in being
asked to submit bids and in purchasing decisions made by customers.
The companies within this segment spent approximately $7,038, $2,217 and
$1,727 during 1996, 1995, and 1994, respectively, on company-sponsored
product development and improvement. Several professional employees within
these companies routinely engage in company-sponsored product development and
improvement on a full-time basis.
On January 3, 1997, the telecommunications segment had a total of 788
employees, of which 406 employees were professional and technical personnel.
In comparison, this segment had a total of 657 employees on December 29,
1995, of which 289 were professional and technical personnel.
TECHNICAL SERVICES
The technical services business segment consists of RCI and SRA, which
are wholly-owned subsidiaries, and, until December 29, 1995 and June 20,
1995, United Energy Services Corporation (UESC) and Gilbert/Commonwealth, Inc.
(G/C), respectively.
RCI, based in Vienna, Virginia, provides engineering, outplacement
services, technical and other program support services to U.S. defense
agencies, principally the U.S. Navy and Army, and other U.S. Government
agencies. SRA, based in Falls Church, Virginia, is a technical services firm
specializing in providing contract research, analysis and management services
in the biomedical sciences, life and environmental sciences and energy areas.
SRA provides services principally to U.S. Governmental agencies and
commercial pharmaceutical companies.
During the fourth quarter of 1996, the registrant determined that $990,
net of $510 income expense, or $.16 per share of previously established UESC
closure reserve was no longer required and was reversed into income.
As mentioned above, the registrant is seeking to divest the two remaining
units within the Technical Services segment.
The following table sets forth for the past three fiscal years the
revenues derived from the listed categories of technical services rendered:
Technical Services Revenues
---------------------------
1996 1995 1994
---- ---- ----
Design and Related Services $0 $24,100 $111,359
Operations Services 0 18,478 34,921
Defense Related Services 64,744 69,884 63,092
Life and Environmental Sciences Services 20,144 21,073 20,515
The revenue, operating profit and identifiable assets for the last three
years within the technical services segment are disclosed in Note 14 to the
consolidated financial statements in Part II, Item 8 of this report.
The following table sets forth the approximate percentage of operating
revenues derived from the principal markets served by the technical services
segment during 1996 and the approximate percentage of backlog as of January
3, 1997, represented by work arrangements with clients in such markets:
Percentage of Percentage of Backlog
Market for Services 1996 Revenues as of January 3, 1997
- -------------------- ------------- ---------------------
U.S. Private Industry 4 % 3 %
U.S. Federal, State and Local
Governments and Agencies 96 97
Assuming no changes in customers and markets during 1997, the majority of
the technical services revenue will be derived primarily from U. S.
Governmental agencies in 1997.
The work arrangements of this segment, while varying, are essentially
either cost-plus or fixed-price. RCI and SRA have limited the number and
extent of their fixed-price commitments in light of their experience that
extended periods of performance and changes in governmental requirements tend
to make it difficult to make adequate allowance for escalation and
contingencies in fixed-price quotations. The majority of the Gilbert
companies' technical services revenues was attributable to contracts other
than fixed-price arrangements in each of the last three years. In addition,
fixed-price contracts represent less than a majority of the backlog
attributable to such segment at January 3, 1997. The ability to continue to
sell services on a basis other than fixed-price will, however, depend upon a
number of factors including the state of the national economy and the trend
of contracting practices in the markets in which such services are rendered.
Inventory is not essential to the operations of the Gilbert companies'
technical services segment.
The subsidiaries comprising the Gilbert companies' technical services
segment own various patents and trademarks and have pending applications for
other patents. However, such patents and trademarks are not individually or
cumulatively significant to the business of such segment.
The technical services segment's five largest clients have accounted for
approximately 90% and 70% in 1996 and 1995, respectively, of its total
revenues. In 1996 and 1995, the United States Government accounted for 90%
and 60%, respectively, of total technical services revenues. These amounts
represent revenue earned by the registrant as prime contractor. No other
client or its affiliate accounted for 10% or more of such revenues in 1996 or
1995.
A substantial portion of the business of the technical services segment
is obtained from clients served for a number of years. In the years 1996 and
1995, services rendered to clients who had been served within the last four
years earlier accounted for 96% and 91%, respectively, of the Gilbert
companies' technical services revenues. There is no assurance that work
authorizations from such clients will account for a similar percentage of
total revenues in the future.
As of January 3, 1997 and December 29, 1995, respectively, the
subsidiaries comprising the Gilbert companies' technical services segment had
backlogs of contracts or work authorizations from which they had anticipated
estimated aggregate future revenues of approximately $249,000 and $201,000.
Backlog is recognized as revenue when work is performed. Substantially all
of the backlog of RCI and SRA at such dates represents work to be performed
on government contracts for which funding has not yet been authorized. Such
funding authorizations are generally issued by the government in periodic
increments during the contract term. The subsidiaries comprising the
technical services segment anticipate that approximately $71,000 of the
revenues to be recognized by them under work authorizations outstanding at
January 3, 1997 will be earned within the fiscal year ending January 2, 1998
and that additional revenues will be earned in 1997 from work authorizations
received during the year. However, depending upon the timing of divestitures
of RCI and SRA, the registrant's revenue amount could be much lower.
Consistent with standard industry practice for technical services
organizations, work authorizations for the Gilbert companies' technical
services segment are terminable by their clients upon relatively brief
notice, whether by the express terms of such work authorizations or
otherwise. The completion dates for a number of projects have been extended
in the past, thereby lengthening the period of time during which the backlog
of estimated revenues for those projects was to be earned. With the
continued unsettled conditions within the governmental agencies served by
this segment, it is possible that one or more projects included in the
backlog at January 3, 1997 might be extended or even canceled. Work
authorizations from the largest client included in such backlog total $85,000
for work on several U.S. Navy programs, of which $77,000 is subject to
government funding.
Since the majority of the operating costs of the subsidiaries comprising
the Gilbert companies' technical services segment are payroll and payroll-
related costs, and since their business is dependent upon the reputation and
experience of their personnel, the quality of the services they render and
their ability to maintain an organization which is qualified and adequately
staffed to undertake and efficiently discharge assignments in the various
fields in which such subsidiaries render services, a reasonable backlog is
important for the scheduling of their operations and for the maintenance of a
reasonably staffed level of operations.
To the best of the knowledge of the registrant, no reliable data is
available with respect to the total size of the market for technical services
for the full range of fields in which the registrant's subsidiaries are
engaged. The registrant's technical services subsidiaries compete with a
number of firms in each of the fields in which they are active, and some of
their competitors have substantially larger total revenues, greater financial
resources and more diversified businesses. The registrant's competitors
include SAIC, Booz Allen Hamilton, Drake Beam & Morin and major universities
containing schools of public health. Competition is based primarily on
quality, price, reputation, experience and available skills and services.
Since there are a great many firms rendering similar services as a portion of
their businesses or to affiliated companies only, the registrant believes it
does not constitute a substantial part of the total market for such services.
Future business of the technical services segment of the Gilbert
companies will be affected by the level of U.S. Governmental agency
expenditures and to the extent pharmaceutical companies outsource laboratory
work.
The registrant's technical services subsidiaries spent approximately $700
in 1996 on company-sponsored research activities relating to the development
of new products or services or the improvement of existing products or
services.
The registrant's technical services is not seasonal to any material
extent.
On January 3, 1997, the technical services segment had a total of 1,071
employees, of which 818 employees were professional and technical personnel.
In comparison, such segment had a total of 1,446 employees on December 29,
1995, of which 1,069 employees were professional and technical personnel.
REAL ESTATE
The revenue, operating profit, and identifiable assets for the real
estate segment are disclosed in Note 14 to the consolidated financial
statements in Part II, Item 8 of this report.
The real estate segment consists of the operations of Green Hills
Management Company (GHMC), an operating division of the registrant. GHMC
leases office space in five commercial buildings to tenants and provides
facility management and construction services in the suburban Reading,
Pennsylvania market. Of over 550,000 square feet of space available for
lease to outside parties, GHMC leases 476,000 square feet to outside parties,
or 86% as of January 3, 1997. The registrant leases approximately 21,000
square feet of space within the buildings. Including this space, 90% of the
entire leaseable space is occupied.
The real estate segment derives its main source of revenues from lease
income; however a portion of income is derived from facility management and
construction services provided to tenants and other parties. Total revenue
for 1996 was $8,767, including rent from related tenants, which is eliminated
in consolidation. Two tenants accounted for 80% of the total outside party
rent for 1996. These tenants have leases which extend through 2004 and 2005.
These buildings reside on approximately 50 acres of a total 530 acres
owned by the registrant. The registrant is reviewing several alternatives
regarding the real estate operations and assets in order to monetize the real
estate value. GHMC had 26 employees at January 3, 1997 compared to 31
employees at December 29, 1995.
MISCELLANEOUS
The registrant expects no material effect on the capital expenditures,
earnings and competitive position of the registrant and its subsidiaries from
its or their compliance with federal, state or local laws or regulations
controlling the discharge of materials into the environment or otherwise
relating to the protection of the environment.
A portion of the revenue of the Gilbert companies is derived from
customers or projects located outside the United States. All foreign
revenues were from work authorizations with customers unaffiliated with the
Gilbert companies. The countries providing the largest portion of foreign
revenues in 1996 were China and Saudi Arabia.
ITEM 2. PROPERTIES.
The physical properties owned and leased within the telecommunications
and technical services segments consist primarily of office, manufacturing,
and laboratory space and furniture and equipment. See Item 1 in the Real
Estate section for discussion of property managed by GHMC, the registrant's
real estate segment.
RCI leases a total of 130,000 square feet of office space, primarily in
the Washington, D.C. area, used for engineering and technical support
activities under leases expiring between 1997 and 2001. Of this total,
36,000 square feet is leased under a separate agreement with limited
partnerships in which certain officers of RCI hold limited partnership
interests representing approximately 22% of the total equity of the
partnerships, which existed prior to the registrant's acquisition of RCI.
This lease expires in 2001.
SRA leases from unrelated parties a total of 75,000 square feet of both
office and laboratory space primarily in the Washington, D.C. area used for
various engineering and biomedical research activities under leases expiring
between 1997 and 2005.
UESC leases approximately 31,000 square feet of office space in the
Atlanta, Georgia area which expires in 1999. All of the space is currently
subleased to unrelated parties.
GAI-Tronics' manufacturing and office facilities are located near
Reading, Pennsylvania, and in Memphis, Tennessee. The facility near Reading,
Pennsylvania, which is used to design and assemble communication systems, is
owned by GAI-Tronics and consists of approximately 103,000 square feet and is
located on a 17 acre tract of land owned by GAI-Tronics. The facility
located in Memphis, Tennessee, which is used to design and assemble land
mobile radio communication devices is leased by GAI-Tronics and consists of
approximately 50,000 square feet with the lease expiring in 2000.
XEL owns its office and manufacturing facility located in Aurora,
Colorado. The entire facility is approximately 112,000 square feet. All of
XEL's manufacturing of telecommunication transmission products is performed
there, as are XEL's executive and administrative functions.
SAFCO leases approximately 30,000 square feet of office and
manufacturing space in Chicago, Illinois which expires in 2001.
Certain subsidiaries of the registrant lease, from unrelated parties,
facilities used for branch and project offices. None of these leased
facilities is material in relation to the total space occupied by the
registrant and its subsidiaries.
The registrant and its subsidiaries believe that their existing
facilities are suitable and adequate for their present purposes.
The registrant and its subsidiaries own the majority of the office
furniture and equipment used by them; however, they also lease a substantial
amount of equipment under agreements generally for terms not in excess of
five years.
ITEM 3. LEGAL PROCEEDINGS.
On October 18, 1996, the Company announced the settlement of a $12,000
trial verdict against the Company and Gilbert/Commonwealth, Inc. of Michigan
relative to a dispute concerning construction management work performed by a
former subsidiary of Gilbert/Commonwealth, Inc. (G/C) in 1987 for Alaska-
based Homer Electric Association. Terms of settlement call for the Company
to be released from all liabilities in exchange for assignment of Company's
insurance rights to the Plaintiffs. As a result of this settlement, the
Alaska Trial Court released the $15,300 security bond previously posted by
the Company. This settlement had no impact on the Company's results of
operations.
The registrant and its subsidiaries are involved in various other
disputes which have resulted in pending litigation arising in the ordinary
course of business which, in the opinion of the management of the registrant,
will not materially affect the registrant's financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter required to be reported pursuant to this item was submitted to
security holders in the fourth quarter of 1996.
ITEM 4A. EXECUTIVE OFFICERS OF REGISTRANT.
The names, ages, positions and previous experience to the extent
required to be presented herein of all current executive officers of the
registrant are as follows:
Name Position and Previous Experience Age
- ---- -------------------------------- ---
Timothy S. Cobb Mr. Cobb has been Chairman of the Board of 55
Directors since July 1995. He was Chief
Executive Officer since March 1994 and President
and Chief Operating Officer since October 1993.
Mr. Cobb served as President of Gilbert/
Commonwealth, Inc. (former subsidiary of
registrant) from January 1991 to September
1993. He served as President of GAI-Tronics
Corporation (subsidiary of registrant) from
October 1988 to December 1990. Upon joining
the Gilbert companies, Mr. Cobb had 22 years
experience in the telecommunications industry,
culminating with being President of the major
systems subsidiary of Ameritech in Chicago, Illinois.
Paul H. Snyder Mr. Snyder has been Senior Vice President and 49
Chief Financial Officer since February 1997 and
Vice President and Chief Financial Officer since
August 1995 to January 1997. From August 1994
to July 1995, Mr. Snyder was Vice President and
Chief Financial Officer of The Dreyfus Corporation,
a subsidiary of Mellon Bank Corporation. From 1988
through 1994, he was Senior Vice President and Chief
Financial Officer of Mellon PSFS, Mellon Bank
Corporation's affiliate in Philadelphia, Pennsylvania.
Thomas F. Hafer Mr. Hafer has been Senior Vice President since 48
February 1997 and Vice President from September
1995 to January 1997. He has served as General
Counsel and Corporate Secretary since February 1994.
Mr. Hafer was named President of Green Hills
Management Co., a division of the registrant in
September 1993. He was named Vice President
of Green Hills Management Co. in February 1991.
None of the above officers has a family relationship with another such
officer. None of the officers was selected as a result of any arrangement or
understanding with any other person other than directors of the registrant
acting solely in their capacities as such.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SECURITY HOLDER MATTERS.
Private Placement
In connection with the acquisition of the assets of the Electronic
Systems Division of SAFCO Corporation on September 30, 1996, the Company
issued a warrant to SAFCO to purchase 555,555 shares of Common Stock at a
purchase price of $18.00 per share (the "Warrant"). The Warrant expires on
October 1, 2003. The Company has agreed to register the shares of Common
Stock purchasable upon exercise of the Warrant for resale by SAFCO under the
Securities Act of 1933 (the "Act") under certain conditions. The sale of the
Warrant was exempt from the registration provisions of the Act pursuant to
Section 4(2) of the Act for transactions not involving a public offering,
based on the fact that the private placement was made to one accredited
investor who had access to financial and other relevant data concerning the
Company, its financial condition, business and assets.
The registrant's Class A Common Stock is traded in the over-the-counter
market. Price quotations are available through the NASDAQ National Market
system under the symbol GILBA. The following tabulation sets forth the high
and low price quotations by quarter as reported by the NASDAQ Stock Market
and cash dividends declared on each share of Class A and Class B Common
Stock. Prices quoted represent high and low closing sale prices on the
NASDAQ National Market System.
1996 1995 Dividends
High Low High Low 1996 1995
------------ ------------ ---- ----
$14.00 $11.00 $13.75 $11.50 First Quarter $.20 $.20
14.25 11.00 13.25 12.00 Second Quarter .20 .20
13.25 11.00 14.38 11.75 Third Quarter .10 .20
14.25 11.88 15.50 12.25 Fourth Quarter .10 .20
At January 3, 1997, the approximate number of shareholders of Class A
and Class B common stock was 3,500 and 450, respectively.
ITEM 6. SELECTED FINANCIAL DATA.
Financial Review
Gilbert Associates, Inc. and Subsidiaries
Five Year Summary / Selected Financial Data
(000's except for share and per share information and number of employees)
Summary of Operations: 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Total Revenue $190,066 $193,495 $282,495 $291,606 $301,209
Costs and Expenses 194,865 188,487 293,655 280,444 286,243
Net Income(Loss) (1,884)(1) 16,950(2) (11,620)(3) 6,452(4) 9,057
Per Share of Class A and Class B
Common Stock:
Net Income(Loss) (0.30) 2.57 (1.66) 0.87 1.19
Dividends to Stockholders 0.60 0.80 0.80 0.76 0.72
Average Shares Outstanding 6,299,127 6,592,174 7,002,834 7,417,272 7,605,567
Summary of Financial Position:
Total Assets $164,327 $147,789 $147,085 $170,247 $165,424
Long-Term Debt 26,549 2,226 871 1,066 1,097
Stockholders' Equity 97,620 102,481 99,514 118,114 124,042
Stockholders' Equity Per Share 15.37 16.30 14.30 16.82 16.65
Number of Employees 1,885 2,154 3,427 3,848 3,645
(1) Decreased by $10,300 resulting from the write-off of purchased in-process research and
development associated with the SAFCO acquisition (Note 2). Increased by $990 (Note 2)
and $435 (Note 9), respectively, for the reversal of a charge associated with the
closure of United Energy Services Corporation, and for the settlement of a claim filed
by a former employee.
(2) Increased by a gain of $18,742 from the sale of Gilbert/Commonwealth, Inc., and decreased
by $3,630 relative to the closure of United Energy Services Corporation (Note 2).
Also, decreased by $2,500 resulting from the write-off of purchased in-process research
and development associated with the XEL acquisition (Note 2).
(3) Decreased by $15,800 for expenses associated with the nuclear service business, including
the write-off of goodwill, severance and idled leased facilities costs, and the increase
of reserves to cover contractual issues on contracts completed in prior years
and increased by $75 for closure of foreign subsidiaries and settlement of certain
contractual issues (Note 9).
(4) Decreased by $1,320 to increase reserves for costs associated with resolving a series of
claims filed by former employees of a subsidiary which was closed in 1988 and $200 for
changes in accounting principles.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
Results of Operations
1996 vs. 1995
In the last two years, there have been a number of changes and
adjustments related to actions taken by the Company to reposition itself
as a leading telecommunications company and other unusual adjustments.
During the fourth quarter of 1996, the Company recorded a non-cash
charge to income of $10,300, net of $6,500 income tax benefit, or $1.63
per share, associated with purchased in-process research and development
(Note 2). The Company also recorded income of $990, net of $510 income
taxes, or $.16 per share, for the reversal of previously accrued
expenses associated with the closing of United Energy Services
Corporation (UESC) in 1995 (Note 2). Also during 1996, the Company
recorded income of $435, net of taxes of $265, or $.07 per share related
to the settlement of a claim involving a former employee (Note 9).
Adjustments to income for 1995 include a gain of $18,742, net of taxes
of $7,800, or $2.74 per share relating to the sale of
Gilbert/Commonwealth, Inc. (G/C) (Note 2). The results of G/C's
operations are excluded from the consolidated statement of operations
from April 1, 1995 forward. Also in 1995, the Company recorded a $3,630
charge to income, net of a $1,870 income tax benefit, or $.57 per share,
to reflect costs associated with closing UESC (Note 2). In addition, a
non-cash charge to income of $2,500 or $.40 per share, was recorded in
1995 related to purchased in-process research and development (Note 2).
All of the aforementioned adjustments, excluding the sale of G/C and
closure of UESC, are reflected in selling, general and administrative
expenses.
Excluding all adjustments, net income for 1996 was $6,991 or $1.11 per
share compared to $4,338 or $.66 per share in 1995, a 61% and 68%
increase, respectively. Income before provision for taxes on income and
net gain on dispositions increased to $11,301 in 1996 from $7,508 in
1995, or 51%. The improved results are primarily due to higher
operating profits within the telecommunications and real estate
segments, offset in part by lower interest income and technical services
segment profit. Revenue declined 2% due to the absence of G/C and UESC,
offset in part by higher revenue within the telecommunications and real
estate segments. On a percentage basis, excluding adjustments, earnings
per share increased greater than net income due to fewer shares
outstanding.
1995 vs. 1994
In 1994, results of operations included a charge to income of $15,800 or
$2.26 per share associated with the Company's nuclear service business,
and were increased by $75 or $.01 per share relative to closing foreign
subsidiaries and settlement of certain contractual issues.
Excluding all adjustments, net income increased $233 or 6%, and earnings
per share increased $.07 or 12% in 1995 as compared to 1994. Income
before provision for taxes on income and net gain on dispositions of
subsidiaries increased 5% from 1994 to 1995. The increases primarily
related to improved results within the telecommunications segment,
higher interest income derived from the proceeds on the sale of G/C and
improved UESC operations, offset in part by the absence of G/C's
earnings in the last three quarters of 1995. Revenue declined 32% due
primarily to the aforementioned exclusion of G/C. On a percentage
basis, excluding adjustments, earnings per share increased greater than
net income due to fewer shares outstanding.
Telecommunications Segment
The current year telecommunications segment operating profit increased
84% on a revenue increase of 86% over 1995. The gross profit percentage
increased from 37% in 1995 to 39% in 1996. The large revenue increase
is primarily due to having a full year of operations from XEL (wireline
business) included in 1996, whereas 1995 included only two months of
XEL's operations. Revenue also increased due to the acquisition of the
assets of SAFCO Corporation's Electronic Systems Division (ESD),
purchased September 30, 1996, and increases in industrial
telecommunications sales. Higher industrial sales is attributed to new
product sales and increased international shipments. The gross profit
percentage increase is due to the addition of ESD, which is a highly
seasonal business with a large majority of revenues and profits being
generated in the fourth quarter. Historically, approximately 65% of
ESD's operating profits are earned in the fourth quarter.
The telecommunications segment's sales increased 13% in 1995 as compared
to 1994. The increase relates primarily to the acquisition of XEL
Corporation, which was acquired on October 30, 1995. The gross profit
percentage increased to 37% in 1995 from 36% in 1994. This increase is
primarily due to the benefits realized from consolidating manufacturing
facilities within the industrial business.
Technical Services Segment
The technical services segment revenue declined 36% in 1996 compared to
1995. Gross profit declined from 18% in 1995 to 13% in 1996. These
declines are attributed to the absence of G/C and UESC. The revenue of
the remaining units declined 7% and the gross profit margin increased to
13% in 1996 from 12% in 1995. The favorable relationship between the
change in revenue and gross profit is due to higher margin work.
The technical services segment reported a 42% decrease in revenue in
1995 as compared to 1994. The large decrease was due primarily to the
sale of G/C. The gross profit percentage declined to 18% in 1995 from
22% in 1994, due primarily to the absence of G/C and lower margins
realized on services provided to the U.S. Government.
Real Estate Segment
Real estate segment revenue increased 39% and operating profit increased
over 350% in 1996 as compared to 1995 due to a full year of The Parsons
Corporation lease and a 67,000 square foot office lease which began
February 1, 1996. As part of the G/C sale agreement, The Parsons
Corporation has signed a ten year lease with the Company for 200,000
square feet of office space effective April 1, 1995. The total square
feet available for lease is approximately 550,000 of which approximately
90% was leased as of January 3, 1997. Approximately 4% is leased to
related subsidiaries.
Rental income derived from unrelated tenants amounted to $4,920 in 1995
compared to $2,284 in 1994. The increase is largely due to the Parsons
lease mentioned above.
As previously disclosed, the Company continues to evaluate its options
for monetizing its real estate assets.
Other income
Other income decreased from $2,795 in 1995 to $298 in 1996 due primarily
to lower interest income and the discontinuation of certain activities
within the real estate segment in 1995.
Included in other income in 1995 is $1,439 of interest income which
compares to $144 earned in 1994. The increase was due to the proceeds
received from the G/C sale. Despite higher interest income, other
income declined $1,688 in 1995 to $2,795 as compared to 1994. The
decline was due primarily to including rental income as other income in
1994. In 1995, rental income is presented separately within the real
estate segment.
Selling, General and Administration
Excluding all adjustments, selling, general and administrative expenses
increased 3% from 1995 to 1996. The increase is primarily due to the
inclusion of XEL for a full year in 1996 and the acquisition of ESD,
offset in part by the absence of G/C and UESC. Research and development
costs, which are included in selling, general and administrative
expenses, increased from $3,822 in 1995 to $7,771 in 1996. The increase
is primarily due to the inclusion of XEL for a full year in 1996.
Also, excluding the adjustments mentioned above, selling, general and
administrative expenses decreased 42% from 1994 to 1995 primarily due to
the absence of G/C for the last three quarters of 1995. Research and
development costs increased from $2,324 in 1994 to $3,822 in 1995,
primarily due to the acquisition of XEL.
Provision for taxes on income
Excluding the aforementioned adjustments, the provision for taxes on
income decreased from an effective rate of 42% in 1995 to 38% in 1996.
The decrease relates primarily to lower state taxes.
The provision for taxes on income, prior to all adjustments, decreased
from an effective rate of 43% in 1994 to 42% in 1995.
Liquidity and Capital Resources
Working capital decreased $2,571 or 7% from 1996 to 1995. Cash and cash
equivalents declined $9,637. Amounts generated from operations,
combined with the available cash and cash equivalents and lines of
credit should provide adequate working capital to satisfy contingent
payments to former IAI principals and future payments to former XEL and
SAFCO Corporation's shareholders.
Lines of credit with CoreStates Bank, N.A., are available to fund both
short-term cash needs as well as future acquisitions. These lines are
more fully discussed in Note 4.
The Company estimates that its total capital expenditures in 1997,
excluding acquisitions, will be approximately $6,000. No restrictions
on cash transfers between the Company and its subsidiaries exist.
Other
Upon the acquisition of ESD, the Company's results of operations became
significantly more seasonal in nature. A large majority of ESD's
revenue and operating profits (65%) are earned in the fourth calendar
quarter. The results of the Company for 1996 include the revenues and
earnings of ESD for only the fourth quarter of 1996. Due to the
increased seasonality of the business, the Company expects the first
quarter of 1997 income and earnings per share on a consolidated basis to
be significantly lower than those reported in the fourth quarter of 1996
prior to the aforementioned adjustments.
On June 5, 1996, the Board of Directors announced that the Company has
begun to explore strategic options for its remaining units within the
technical services segment. Separate investment banking firms have been
retained to develop strategies for both SRA and RCI. The Company is
continuing to explore options for monetizing and disposing of its real
estate holdings. Alternatives could include an outright sale, a spin-
off or leveraging. As a result of the steps taken, the Company could
adopt discontinued operations treatment for all but its
telecommunications business in early 1997. Results for the first
quarter of 1997 from continuing operations may be in a loss position
because of the allocation of all corporate overhead just to the
remaining segment and the increased seasonality of its telecommunication
segment.
The Form 10-K contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the
Company. Such statements are only predictions and involve risks and
uncertainties, and actual events or performance may differ materially.
Potential risks and uncertainties include, without limitation: the
effect of general economic conditions, the impact of competitive
products, services and pricing, and demand and market acceptance risks
of current and new products and services; with respect to the Technical
Services segment, its dependence on the U.S. government as a customer;
and with respect to the Telecommunications segment, the uncertain effect
of the Telecommunications Act of 1996, technology change, and risks of
product development and commercialization difficulties.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Management's Report on Responsibility for Financial Reporting
The accompanying consolidated financial statements and notes thereto are
the responsibility of, and have been prepared by, management of the Company
in accordance with generally accepted accounting principles. Management
believes the consolidated financial statements reflect fairly the results of
operations and financial position of the Company in all material respects.
The consolidated financial statements include certain amounts that are based
upon management's best estimates and judgment regarding the ultimate outcome
of transactions which are not yet complete.
Management believes that the accounting systems and related systems of
internal control are sufficient to provide reasonable assurance that assets
are safeguarded, transactions are properly authorized and included in the
accounting records, and that those records provide a reliable basis for
preparation of the Company's consolidated financial statements. Reasonable
assurance is based upon the concept that the cost of a system of internal
control must be related to the benefits derived. The Company maintains an
internal audit function that periodically assesses the effectiveness of the
systems of internal control and makes recommendations for possible
improvement.
The Company's financial statements have been audited by Arthur Andersen
LLP, independent public accountants, as stated in their report below. They
have been elected to perform this function by the stockholders of the
Company. Management has made available to Arthur Andersen LLP all of the
Company's financial records and related data, as well as the minutes of
stockholders' and directors' meetings.
T. S. Cobb
Chairman, President
and Chief Executive Officer
P. H. Snyder
Senior Vice President and Chief Financial Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors, Gilbert Associates, Inc.:
We have audited the accompanying consolidated balance sheet of Gilbert
Associates, Inc. and Subsidiaries as of January 3, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for the fiscal year then ended. 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 audit 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 audit provides 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
Gilbert Associates, Inc. and Subsidiaries as of January 3, 1997, and the
consolidated results of their operations and their cash flows for the fiscal
year then ended, in conformity with generally accepted accounting principles.
Philadelphia, Pennsylvania
January 28, 1997 Arthur Andersen LLP
To the Stockholders and Board of Directors of Gilbert Associates, Inc.:
We have audited the accompanying consolidated balance sheet of Gilbert
Associates, Inc. and Subsidiaries as of December 29, 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the two years in the period ended December 29, 1995. 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
Gilbert Associates, Inc. and Subsidiaries as of December 29, 1995, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 29, 1995 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
January 31, 1996
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the years 1996, 1995 and 1994
(000's except for per share information)
1996 1995 1994
------ ------ ------
Total revenue $190,066 $193,495 $282,495
-------- -------- --------
Costs and expenses:
Cost of revenue 138,727 147,132 208,640
Selling, general and administration 56,138 41,355 85,015
------- ------- -------
Total costs and expenses 194,865 188,487 293,655
------- ------- -------
Income(Loss) before provision(benefit) for taxes
on income(loss) and net gain on dispositions
of subsidiaries (4,799) 5,008 (11,160)
Net gain on dispositions of subsidiaries 1,500 21,042 -
------- ------ --------
Income(Loss) before provision(benefit) for taxes
on income(loss) (3,299) 26,050 (11,160)
Provision(Benefit) for taxes on income(loss) (1,415) 9,100 460
-------- ------- ---------
Net income(loss) $(1,884) $16,950 $(11,620)
======== ======= =========
Net income(loss) per average number of
Class A and Class B shares
outstanding ($0.30) $2.57 ($1.66)
======== ======= =========
The accompanying notes are an integral part of the consolidated
financial statements.
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years 1996, 1995 and 1994
(000's)
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net income(loss) $(1,884) $16,950 $(11,620)
Adjustments to reconcile net income(loss) to net
cash provided by operating activities:
Gain on sale of Gilbert/Commonwealth, Inc. - (26,542) -
Disposition of United Energy Services
Corporation (1,500) 5,500 -
Depreciation and amortization 5,770 4,976 6,922
Goodwill write-off - - 12,200
Purchased research & development write-off 16,800 2,500 -
Provision for doubtful accounts, net 37 54 (164)
Provision for estimated liability for
contract losses, net 185 49 3,700
Provision for self-insured retention - 136 825
Benefit from deferred income taxes (3,880) (68) (725)
Changes in current assets and current
liabilities, net of effects from
acquisitions and dispositions:
Accounts receivable and unbilled revenue 828 1,069 9,148
Inventories (2,794) (112) (359)
Other current assets 605 (244) (287)
Accounts payable and salaries and wages (101) (600) (3,039)
Other accrued liabilities (3,827) (1,859) (862)
Income taxes, currently payable 1,435 2,334 68
Estimated liability for contract losses (232) (2,750) (1,241)
Contractual billings in excess of
recognized revenue (151) (461) 280
Other, net 257 245 (492)
-------- -------- -------
Net cash provided by operating activities 11,548 1,177 14,354
-------- -------- -------
Cash flows from investing activities:
Payments for acquisitions, net of cash
acquired (22,162) (23,164) (1,500)
Proceeds from sale of Gilbert/Commonwealth, Inc. - 45,932 -
Payments for property, plant and equipment (7,766) (4,406) (5,513)
Proceeds from sale of property, plant
and equipment 1,102 665 202
-------- -------- -------
Net cash provided by (used for)
investing activities (28,826) 19,027 (6,811)
-------- -------- -------
Cash flows from financing activities:
Payments of long-term debt (1,689) (162) (364)
Net repayments under note payable - (2,000) (3,000)
Proceeds from issuance of debt 14,800 - -
Issuance of treasury stock in connection
with stock option, award and purchase
plans 341 825 916
Payments to acquire treasury stock (857) (9,511) (2,206)
Cash dividends paid (3,785) (5,297) (5,607)
Other, net (1,169) (367) (571)
--------- -------- -------
Net cash provided by (used for)
financing activities 7,641 (16,512) (10,832)
--------- -------- --------
Net increase(decrease) in cash and
cash equivalents (9,637) 3,692 (3,289)
Cash and cash equivalents at beginning
of year 11,119 7,427 10,716
--------- --------- --------
Cash and cash equivalents at end of year $ 1,482 $ 11,119 $ 7,427
========= ========= ========
Supplemental cash flow disclosures:
Interest paid $ 586 $ 122 $ 103
======== ======== =======
Income taxes paid, net of refunds received $ 1,030 $ 6,834 $ 1,117
======== ======== =======
Non-cash investing and financing activities:
The Company purchased the assets of the Electronic Systems Division of
SAFCO Corporation. In conjunction with the acquisition,
liabilities were assumed as follows:
Fair value of assets acquired $ 32,078
Cash paid to date (20,618)
---------
Liabilities assumed $ 11,460
=========
The accompanying notes are an integral part of the consolidated
financial statements.
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
January 3, 1997 and December 29, 1995
(000's)
January 3, December 29,
1997 1995
ASSETS -------------- ---------------
Current assets:
Cash and cash equivalents $ 1,482 $11,119
Accounts receivable, net of allowance
for doubtful accounts of $1,654 in
1996 and $2,005 in 1995 31,932 24,717
Unbilled revenue 5,419 10,086
Inventories 16,244 11,548
Deferred income taxes 4,370 5,860
Other current assets 4,113 4,601
------- -------
Total current assets 63,560 67,931
------- -------
Property, plant and equipment, at cost:
Land 4,177 4,362
Buildings 46,376 43,838
Furniture and equipment 34,178 29,626
------- -------
84,731 77,826
Less accumulated depreciation and
amortization 37,156 33,855
------- -------
47,575 43,971
------- -------
Deferred income taxes 6,395 605
Other assets 1,280 1,320
Intangible assets 45,517 33,962
--------- ---------
Total Assets $164,327 $147,789
========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
January 3, 1997 and December 29, 1995
(000's except for share information)
January 3, December 29,
1997 1995
LIABILITIES -------------- ----------------
Current liabilities:
Accounts payable $ 9,961 $ 7,588
Salaries and wages 3,858 4,158
Income taxes, currently payable 3,265 1,670
Estimated liability for contract losses 2,674 3,171
Other accrued liabilities 11,376 16,196
Contractual billings in excess of
recognized revenue 488 639
------- -------
Total current liabilities 31,622 33,422
------- -------
Long-term debt 26,549 2,226
Other long-term liabilities 6,127 7,068
Self-insured retention 2,409 2,592
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock, nonvoting, par value
$1 per share, 1,000,000 shares
authorized, 0 shares outstanding. - -
Class A common stock, nonvoting, par value
$1 per share; Issued: 1996, 8,516,812
shares; 1995, 8,532,528 shares 8,517 8,532
Class B common stock, voting, par value
$1 per share; Issued and outstanding:
1996, 468,488 shares; 1995, 452,772 shares 468 453
Capital in excess of par value 38,091 38,492
Warrants outstanding 1,180 -
Retained earnings 89,838 95,507
Deferred compensation-restricted stock (287) -
Class A common stock held in treasury, at cost:
1996, 2,633,137 shares; 1995, 2,696,476 shares (40,187) (40,503)
-------- --------
97,620 102,481
--------- ---------
Total Liabilities and Stockholders' Equity $164,327 $147,789
========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the years 1996, 1995 and 1994
(000's except for share information)
Common Stock
----------------------------------------------------------
Class A Class B
---------------------------- ------------------------
Shares Amount Shares Amount
---------- ---------- ---------- ----------
Balances at December 31, 1993 7,625,566 $7,625 1,359,734 $1,360
Conversion from Class B to
Class A, net 72,918 73 (72,918) (73)
--------- ------- --------- --------
Balances at December 30, 1994 7,698,484 7,698 1,286,816 1,287
Conversion from Class B to
Class A, net 834,044 834 (834,044) (834)
--------- ------- --------- --------
Balances at December 29, 1995 8,532,528 8,532 452,772 453
Conversion from Class A to
Class B, net (15,716) (15) 15,716 15
---------- -------- --------- --------
Balances at January 3, 1997 8,516,812 $8,517 468,488 $468
========== ======== ========= ========
The accompanying notes are an integral part of the consolidated
financial statements.
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the years 1996, 1995 and 1994
(000's except for share information)
Deferred Foreign Class A
Capital in Compensation - Currency Treasury Stock
Excess of Warrants Retained Restricted Translation --------------------
Par Value Outstanding Earnings Stock Adjustments Shares Amount
---------- ----------- -------- --------------- ----------- ------ ------
Balances at December 31, 1993 $38,932 $ - $101,081 $ - $ 83 1,961,474 $(30,967)
Net loss (11,620)
Cash dividends paid, $.80 per
share (5,607)
Translation adjustments (83)
Purchase of treasury stock (8) 134,624 (2,198)
Issuance of treasury stock in
connection with stock option,
award and purchase plans (217) (71,702) 1,133
--------- ------------ --------- --------------- ----------- ---------- --------
Balances at December 30, 1994 38,707 - 83,854 - - 2,024,396 (32,032)
Net income 16,950
Cash dividends paid, $.80 per
share (5,297)
Purchase of treasury stock 738,734 (9,511)
Issuance of treasury stock in
connection with stock option,
award and purchase plans (215) (66,654) 1,040
--------- ------------- -------- --------------- ----------- ---------- --------
Balances at December 29, 1995 38,492 - 95,507 - - 2,696,476 (40,503)
Net loss (1,884)
Cash dividends paid, $.60 per
share (3,785)
Issuance of restricted stock (86) (431) (34,500) 517
Restricted stock amortization 144
Issuance of warrants 1,180
Purchase of treasury stock 69,418 (857)
Issuance of treasury stock in
connection with stock option,
award and purchase plans (315) (98,257) 656
----------- ------------ ------- --------------- ----------- --------- ---------
Balances at January 3, 1997 $ 38,091 $ 1,180 $89,838 $ (287) $ - 2,633,137 $(40,187)
=========== ============ ======= =============== =========== ========= =========
The accompanying notes are an integral part of the consolidated financial statements.
Gilbert Associates, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(000's except for share and per share information)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
FISCAL YEAR: The Company uses a 52-53 week fiscal year ending on the
Friday nearest December 31. The 1996 fiscal year included 53 weeks and
ended on January 3, 1997, whereas 1995 and 1994 fiscal years included 52
weeks each and ended on December 29, 1995, and December 30, 1994,
respectively.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the Company and its subsidiaries. All material
intercompany transactions have been eliminated.
RECOGNITION OF REVENUE: The Company recognizes revenue and accrues costs
associated with the training and installation upon shipment of goods for
the telecommunications segment. The Company recognizes revenue on
contracts entered into for technical services as the work is performed.
Costs and expenses are charged to operations as incurred. Losses,
estimated to be sustained upon completion of contracts, are charged to
income in the year such estimates are determinable.
INSURANCE PROGRAMS: The Company's overall insurance coverages contain
provisions for significant deductibles and funding on a claims paid basis.
Accruals, which relate primarily to workers' compensation, aggregate $2,426
and $2,698 at January 3, 1997, and December 29, 1995, respectively, and are
included in other accrued liabilities on the consolidated balance sheets.
The accrual for reported claims and for claims incurred but not yet
reported relating to professional liability exposures is estimated on the
basis of historical claims experience. This accrual is reflected on the
consolidated balance sheets as self-insured retention.
INVENTORIES: Inventories, which consist of material, labor and overhead,
are determined on the first-in, first-out (FIFO) method and are stated at
the lower of cost or market.
PROPERTY, PLANT AND EQUIPMENT AND ACCUMULATED DEPRECIATION AND
AMORTIZATION: For financial reporting purposes, the Company provides for
depreciation and amortization of property, plant and equipment, including
assets under capital leases, on the straight-line method over the estimated
useful lives of the various classes of assets. For income tax purposes,
the Company uses accelerated depreciation where permitted. Useful lives of
depreciable assets, by class, are as follows:
Buildings 30 to 40 years
Furniture and equipment 3 to 10 years
Costs of maintenance and repairs are charged to expense as incurred.
Renewals and improvements are capitalized. Upon retirement or other
disposition of items of plant and equipment, cost of the item and related
accumulated depreciation are removed from the accounts and any gain or loss
is included in income.
INTANGIBLE ASSETS: Goodwill is being amortized by charges to operations on
a straight-line basis over periods of 20 to 40 years, and such amortization
amounted to $1,173 in 1996, $713 in 1995, and $842 in 1994. Accumulated
amortization amounted to $5,150 at January 3, 1997, and $3,977 at December
29, 1995. Goodwill, after accumulated amortization, amounted to $44,942
and $33,087 at January 3, 1997, and December 29, 1995, respectively.
The Company periodically reviews goodwill to assess recoverability, and
impairments would be recognized in operating results if a permanent
diminution in value were to occur. The Company's primary financial
indicator for assessing recoverability of goodwill is whether a subsidiary
is projected to generate sufficient income and cash flow on an undiscounted
basis.
Other intangible assets include covenants not to compete and are amortized
on a straight-line basis over five years.
INCOME TAXES: The Company utilizes the liability method of accounting for
income taxes. Under this method, deferred income taxes are determined
based on the difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates.
RESEARCH AND DEVELOPMENT: Expenditures relating to the development of new
products and processes, including significant improvements, refinements and
engineering support to existing products and purchased in-process research
and development, are expensed as incurred, and are included in selling,
general and administrative expenses. The amounts charged against income
were $24,571 in 1996, which includes a pre tax charge of $16,800 of
purchased in-process research and development, $6,322 in 1995, which
includes a $2,500 charge of purchased in-process research and development,
and $2,324 in 1994.
STATEMENTS OF CASH FLOWS: For purposes of the consolidated statements of
cash flows, the Company considers all highly liquid investments with a
maturity of three months or less at the time of purchase to be cash
equivalents.
ESTIMATES: The preparation of financial statements in conformity with
Generally Accepted Accounting Principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements. Also, estimates are made for reported amounts
of revenues and expenses during the reporting period. The ultimate results
could differ from those estimates.
RECLASSIFICATIONS: The consolidated financial statements have been
reclassified to conform with current year presentation.
2. ACQUISITIONS/DISPOSITIONS:
On September 30, 1996, the Company acquired the assets of SAFCO
Corporation's Electronic Systems Division (ESD). Terms of the acquisition
called for the Company to pay SAFCO Corporation's shareholders
approximately $5,000 in cash at closing (subject to certain adjustments),
issue approximately $25,000 in notes payable and 7 year warrants
exercisable to purchase 555,555 shares of Company's stock at $18 per share.
Of the $25,000 in notes payable, $15,000 was paid January 2, 1997 and the
remaining $10,000 is to be paid on September 30, 2001, with interest due
quarterly at a 7% annual rate. Under the terms of the agreement, the
Company will also pay SAFCO Corporation's shareholders additional
incremental amounts through 1999 based upon the achievement of certain
revenue and operating income levels. Any additional payments will increase
goodwill. The first such payment approximates $1,000 and will be paid in
the first quarter of 1997.
In connection with the ESD acquisition, $10,300, net of $6,500 income tax
benefit, or $1.63 per share, of in-process research and development costs
was expensed during the fourth quarter of 1996. The purchased in-process
research and development had not yet reached technological feasibility and
the technology had no alternative future use as of the date of closing.
Historically, ESD, which was subsequently renamed SAFCO Technologies,
Inc.(SAFCO), has been a highly seasonal business with up to 40% and 65% of
its revenues and operating income, respectively, generated in the last
quarter of the calendar year.
In the last quarter of 1995, the Company decided to close its United Energy
Services Corporation (UESC) subsidiary. Total reserves recorded in
connection with the disposition of assets and liabilities were $3,630, net
of an income tax benefit of $1,870, or $.57 per share. The majority of
these reserves were recorded in other accrued liabilities. In the fourth
quarter of 1996, the Company determined that $990, net of $510 income tax
expense, or $.16 per share, of these reserves was no longer required and
was reversed to income.
On October 27, 1995, the Company acquired all of the outstanding capital
stock of XEL Corporation (XEL) for $30,000. As part of the stock purchase
agreement, the Company paid XEL shareholders approximately $954 in the
first quarter of 1996. Also, under the terms of the agreement, the Company
will pay XEL shareholders additional incremental amounts through 1998 based
upon the achievement of certain earnings and revenue objectives. Any
additional amounts paid will increase goodwill. In connection with the XEL
acquisition, the Company acquired in-process research and development with
a fair market value of $2,500. Accordingly, the Company expensed $2,500,
or $.40 per share, in the fourth quarter of 1995 with no associated tax
benefit.
On June 16, 1995, the Company's Class B shareholders approved the sale of
the Gilbert/Commonwealth, Inc. (G/C) subsidiary to the Parsons Corporation
(Parsons) and on June 20, 1995, the Company completed the sale for a price
of $45,932. The purchase price was adjusted downward by $1,227 from the
amount previously disclosed in the Company's Proxy Statement dated May 26,
1995 primarily due to unanticipated severance costs incurred by G/C
subsequent to May 26, 1995. The sale of G/C resulted in a $18,742 gain,
net of income taxes of $7,800, or $2.74 per share. The tax benefit on a
$8,758 capital loss carryforward, for which a valuation allowance was
previously recorded, was recognized to reflect utilization of the
carryforward associated with this transaction.
As part of the agreement, Parsons signed a ten year lease with the Company
for 200,000 square feet of office space. The consolidated statements of
operations exclude the results of G/C subsequent to March 31, 1995, the
effective date of sale pursuant to the agreement with Parsons.
All acquisitions were accounted for as purchases, and goodwill was
determined based upon the fair values of assets acquired and liabilities
assumed. At the dates of acquisition, such liabilities aggregated $3,031
and $6,807 in 1996 and 1995, respectively. Goodwill for SAFCO and XEL was
$10,405 and $10,382, respectively. The Company's consolidated statements
of operations include the results of operations of the acquired businesses
since the dates of acquisition.
The following unaudited consolidated pro forma statements of operations for
the years 1996 and 1995 include SAFCO and XEL as if they had been acquired
at the beginning of each of the respective periods:
1996 1995
----- -----
Revenue $202,765 $243,983
Net income(loss) $ (2,252) $ 7,601
Net income(loss) per
average number of
Class A and Class B
shares outstanding $(.36) $1.15
The pro-forma statements of operations include adjustments for elimination
of interest income on cash used in the acquisitions, interest expense and
amortization of intangible assets.
3. INCOME TAXES:
Income tax provisions(benefits) consist of the following:
1996 1995 1994
---- ---- ----
Current:
Federal $ 2,100 $ 6,635 $ 790
State and foreign 365 2,533 395
------- ------- -------
2,465 9,168 1,185
------- ------- -------
Deferred:
Federal (2,790) (440) (620)
State (1,090) 372 (105)
--------- -------- --------
(3,880) (68) (725)
--------- -------- --------
$ (1,415) $ 9,100 $ 460
========= ======== ========
The tax effects of temporary differences which comprise the deferred tax
assets and liabilities are as follows:
January 3, 1997 December 29, 1995
----------------- -----------------
Deferred income tax assets:
Intangible assets $ 5,671 $ -
Retirement liabilities 2,115 3,074
Reserves for contract disallowances
and bad debts 1,671 2,347
Self-insured retention 915 1,089
Workers' compensation reserves 791 958
Closure of United Energy Services Corp. 687 1,670
Legal claims reserves - 1,323
Other 3,406 3,160
---------- ----------
$15,256 $13,621
---------- ----------
January 3, December 29,
1997 1995
------------ ------------
Deferred income tax liabilities:
Depreciation $ 3,193 $ 3,114
Contract retention 699 1,703
Other 599 2,339
---------- ----------
4,491 7,156
---------- ----------
Net deferred income tax asset $10,765 $ 6,465
========== ==========
A reconciliation of the statutory income tax rate to the effective tax rate
follows:
1996 1995 1994
---- ---- ----
Federal statutory tax rate (34.0)% 35.0% (34.0)%
Utilization of capital loss - (11.8) -
Purchased research & development
write-off - 3.4 -
Closure of foreign subsidiaries - - (4.1)
State and foreign taxes (14.5) 7.0 2.1
Amortization and write-off of goodwill 7.8 .6 39.0
Other, net (2.2) .7 1.1
------ ---- ---
Effective tax rate (42.9)% 34.9% 4.1%
====== ==== ===
The 1991 sale of stock of Gilbert/Commonwealth Inc. of Michigan resulted in
a capital loss for federal income tax purposes of $10,225. During 1995,
the remaining $8,758 of the original $10,225 of capital loss for which a
valuation allowance was previously recorded, was recognized to offset taxes
on the gain on the sale of Gilbert/Commonwealth, Inc.
4. LONG-TERM DEBT:
Long-term debt consists of the following obligations:
January 3, December 29,
1997 1995
--------- ---------
Acquisition line of credit(see below) $14,800 $ -
Note payable, interest due quarterly at 7%,
principal due 2001 10,000 -
Mortgage obligation, $21 due monthly
to 2001 including interest at 8.5% 1,026 1,188
Note payable, $6 due monthly to
1996, including interest at 8% - 37
Notes payable, interest and principal due
at maturity, with maturity dates from
1997-1999 and interest rates from 6% to 9% 320 390
Capital lease obligations, with monthly
payments not exceeding $33
with maturity dates from 1997 to 2001 and
interest rates ranging from 8.0% to 14.5% 725 1,012
-------- --------
26,871 2,627
Less current maturities (322) (401)
-------- --------
$26,549 $ 2,226
======== ========
The aggregate maturities of long-term debt, including the capital lease
obligations, are as follows:
1997 $ 322
1998 2,316
1999 3,554
2000 3,294
2001 and thereafter 17,385
In connection with the aforementioned capital leases and mortgage
obligation, the Company has pledged as collateral the following:
January 3,
1997
-----------
Land and building $4,925
Equipment 1,624
Less accumulated depreciation (1,201)
-------
$5,348
=======
Under terms of a 1996 loan agreement, agented by CoreStates Bank, N.A., the
Company has a working capital line of credit of $28,000 and an acquisition
line of credit of $50,000, of which up to $5,000 could be used for
additional working capital. The agreement requires maintenance of certain
financial covenants, and the Company pays a commitment fee of one-eighth of
one percent on the unused portion of the lines. Due to loan covenants and
outstanding borrowing, approximately $25,000 of the acquisition line was
available for additional use at January 3, 1997. The loan agreement
contains a number of financial and other covenants that, among other
things, place restrictions on funded debt to tangible net worth.
The working capital line of credit is available through June 3, 1997. At
January 3, 1997 and December 29, 1995, $1,554 and $20,206, respectively,
was committed for stand-by letters of credit or other reservations.
The acquisition line of credit is available through June 3, 1998. Any
balance outstanding at that time will convert to a term loan and be
amortized in equal principal payments over the following 60 months.
Interest charges are based, at the Company's option, on a function of LIBOR
or the Prime Rate.
Although the aforementioned lines of credit are presently unsecured, the
Company has granted to its lender the right to use the assets of the
Company to secure the outstanding indebtedness of the Company to its lender
upon violation of any of the terms or conditions of such lending
arrangement and/or loan agreement. The Company is in compliance with all
covenants related to the existing borrowings.
5. INVENTORIES:
Inventories consist of the following:
January 3, December 29,
1997 1995
---------- ----------
Raw materials $10,755 $ 6,789
Work in process 1,768 1,732
Finished goods 3,721 3,027
---------- ----------
$16,244 $11,548
========== ==========
6. POSTRETIREMENT BENEFITS:
Substantially all regular, full-time employees of the Company and its
subsidiaries are participants in various defined contribution retirement
plans. Employer contributions under these plans are generally at the
discretion of the Company, based upon profits and employees' voluntary
contributions to the plans. Company contributions charged to operations in
1996, 1995, and 1994, totaled $2,103, $2,734, and $4,231, respectively.
In 1996, the Company completed arrangements with an insurance carrier to
assume the liability for certain five thousand dollar postretirement death
benefit obligations. In early 1995, the Company discontinued this plan for
most employees.
7. CAPITAL STOCK:
Except for voting privileges, shares of Class A and Class B common stock
are identical. Class B stockholders must be either directors of the
Company, or active employees of the Company or its subsidiaries. They may
not sell or transfer such stock without having first extended an offer of
sale to the Company. There were 12,000,000 authorized shares of Class A
and Class B common stock as of December 29, 1995.
An amendment to the Company's Certificate of Incorporation was approved
during the second quarter of 1996 to reduce the number of authorized shares
from 24,000,000 shares to 11,000,000 shares, 10,000,000 shares of which are
common stock and 1,000,000 shares of which are preferred stock. No
preferred stock was outstanding as of January 3, 1997.
In 1996, the Board of Directors adopted a Stock Purchase Assistance Plan,
subsequently approved by the shareholders. The plan authorizes the Company
to extend loans to officers and other key employees for the purpose of
acquiring Company stock. The loans bear market rate interest, due
quarterly, with principal payments due in 10 equal annual installments. As
of January 3, 1997, loans aggregating $818 were outstanding and are
reflected as an element of treasury stock.
On October 30, 1996, the Board of Directors adopted a Shareholder Rights
Plan and declared a distribution of one Nonvoting Common Stock Right for
each outstanding share of Class A Common Stock and one Voting Common Stock
Right for each outstanding share of Class B Common Stock to stockholders of
record at the close of business on November 14, 1996 and for each share of
Company Common Stock issued (including shares distributed from Treasury) by
the Company thereafter and prior to the Distribution Date. The threshold
for triggering subsequent distribution of the Rights is ten days following
the acquisition by a person of a certain percent of the Company's stock.
Each Nonvoting and Voting Common Stock Right entitles the registered
holder, subject to the terms of the Rights Agreement, to purchase from the
Company one one-thousandth of a share (a "Unit") of Series A and Series B,
respectively, Junior Participating Preferred Stock, par value $1.00 per
share, at a Purchase Price of $60.00 per Unit, subject to adjustment.
8. STOCK OPTION, AWARD AND PURCHASE PLANS:
In 1996, the Board of Directors of the Company adopted, and shareholders
subsequently approved, the 1996 Long Term Incentive Plan. The Plan
provides for various types of stock awards, including stock options, stock
appreciation rights and restricted stock. The maximum number of shares
which may be issued under the Plan for all purposes is 500,000. During
1996, 142,500 stock options were granted, at fair market value, with terms
not exceeding ten years. These stock options vest over a three year
period.
As part of the Plan, 34,500 shares of restricted stock were granted during
1996. These shares vest over a three to ten year period, depending upon
certain financial achievements. The value of the shares at the time of
issuance is recorded in stockholders' equity, of which $144 was expensed
during the year.
At January 3, 1997, 323,000 shares remain available for future grants.
Also in 1996, shareholders approved a Directors' Stock Option Plan. This
plan permits the Company to grant stock options at an exercise price of 75%
of market value at the date of grant, as an alternative to the cash payment
of directors' fees. During 1996, 18,000 stock options were granted under
this plan. Terms of options under this plan will not exceed twenty years.
A maximum of 50,000 shares are available under this plan.
Under the 1989 Gilbert Stock Option Plan, the Company may grant to officers
and other key management employees, incentive or non-qualified stock
options to purchase an aggregate of 250,000 shares of Class B common stock
at a price not less than seventy-five percent of the fair market value at
the date of grant. The term within which each option may be exercised is
at the discretion of the Company. In no case shall this term exceed ten
years. Options to purchase 25,000 Class B shares were granted at fair
market value during 1996 and are exercisable between March 16, 1998 and
March 16, 2006. At January 3, 1997, 27,450 shares remain available for
future grants.
A summary of stock option activity related to the plans mentioned above and
other plans under which the Company is no longer granting options is as
follows:
Weighted Number of
Number of Option Price Average Price Shares
Shares Per Share Per Share Exercisable
--------- ------------ ---------- -----------
Outstanding at
Dec. 31, 1993 332,721 $11.84-$26.50 237,172
Granted 63,550 $17.50
Exercised (62,500) $11.84-$17.20
Expired (54,824) $17.50-$26.50
-------
Outstanding at
Dec. 30, 1994 278,947 $12.00-$26.50 178,098
Granted 139,000 $12.00-$13.25
Exercised (34,325) $12.00-$12.80
Expired (102,698) $12.80-$26.50
-------
Outstanding at
Dec. 29, 1995 280,924 $12.00-$26.50 $16.40 95,475
Granted 185,500 $ 9.00-$13.25 $12.15
Exercised - - -
Expired (64,625) $12.50-$26.50 $18.88
-------
Outstanding at
Jan. 3, 1997 401,799 $ 9.00-$23.20 $13.42 81,000
=======
The weighted average price per share of exercisable options at January 3,
1997 is $19.98. The weighted average option lives remaining at January 3,
1997 and December 30, 1995 are approximately 6 and 3 years, respectively.
The Company has elected to continue to follow the Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations to account for its stock options.
The following pro forma amounts, in accordance with the disclosure
requirements of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123), were determined as if
the Company had accounted for its stock options using the fair value method
as described in that statement:
1996 1995
--------- ---------
Net Income(Loss) $(1,999) $16,926
Net income(loss) per average
number of Class A and
Class B shares outstanding $(0.32) $2.57
Because the method of accounting under SFAS 123 has not been applied to
stock options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of compensation cost to be
disclosed in future years.
The fair value was estimated at the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions for
1996 and 1995, respectively: risk free interest rates of 6.3% and 6.5%;
dividend yields of 3.2% and 6.3%; volatility factor of 17.7% and 18%; and
average stock option expected life of 5 and 4.5 years.
The weighted average fair value of stock options granted was $2.39 and
$1.41 per share in 1996 and 1995, respectively.
Under the Stock Bonus Purchase Plan, employees and directors may use up to
50% of their annual incentive compensation and directors fees,
respectively, to purchase shares of common stock at fair market value.
Employees purchasing shares will receive a stock bonus as determined by the
Board of Directors each year. The Company may grant an aggregate of
200,000 shares under this plan. During 1996, 8,010 shares were issued
under this plan. To date, 49,114 shares have been issued, and 150,886
shares remain available for future grants as of January 3, 1997.
9. SPECIAL CHARGES:
During the third quarter of 1996, the Company settled a claim filed by a
former employee, for which it had reserved approximately $2,200. The
actual settlement was approximately $1,500. Accordingly, the Company
reversed the remaining $700 reserve to income in the third quarter,
increasing net income by $435, or $.07 per share.
In the third quarter of 1994, the Company recorded a charge to income of
$15,800 (net of $2,000 income tax benefit) or $2.26 per share, associated
with its nuclear service business. The charge was comprised of a $12,200
or $1.74 per share goodwill write-off and $1,025 or $.15 per share for
severance and idled leased facility costs to reflect the current market
conditions. The charge also included $2,575 or $.37 per share to increase
reserves to cover contractual issues on contracts completed in prior years.
The majority of this charge related to a specific audit issue for a
contract completed in 1991. The audit issue was not known by the Company
until the third quarter of 1994. The total charge was included in selling,
general and administrative expenses. The entire charge, including the
goodwill write-off, will not have a material impact on future results of
operations. The $12,200 goodwill write-off represented the entire goodwill
amount associated with United Energy Services Corporation (UESC) and its
subsidiaries.
During the second quarter of 1994, the Company closed foreign subsidiaries
and settled certain contractual issues which had been previously reserved.
The combination of these two events increased net income by $75 or $.01 per
share. Income(Loss) before provision for taxes on income(loss) was reduced
by $525. Of this amount, $1,100 related primarily to a reserve for a lease
obligation and severance costs, which was partially offset by a $700
favorable outcome on the aforementioned contract settlement. These amounts
were recorded in selling, general and administrative expenses. The
provision for taxes on income(loss) was reduced by $600 primarily due to a
federal income tax deduction associated with the closure of foreign
subsidiaries.
10. OPERATING LEASES:
The Company leases, as lessee, facilities, data processing equipment,
office equipment and automobiles under leases expiring during the next ten
years. Total rental expense under operating lease agreements amounted to
$4,800 in 1996, $5,200 in 1995, and $7,000 in 1994. Minimum future rentals
under noncancelable operating leases with initial or remaining terms in
excess of one year at January 3, 1997 are as follows:
1997 $ 4,276
1998 3,444
1999 3,043
2000 2,477
2001 1,614
2002 and thereafter 4,580
----------
Total minimum rentals $19,434
==========
The Company leases, as lessor, office space to unrelated parties under
leases expiring between 1997 and 2005. Future minimum rental income under
noncancelable operating leases at January 3, 1997 are as follows:
1997 $ 7,653
1998 7,806
1999 7,812
2000 7,443
2001 7,267
2002 and thereafter 20,556
----------
Total minimum rentals $58,537
==========
11. FINANCIAL INSTRUMENTS:
Letters of credit and performance bonds are issued by the Company during
the ordinary course of business through major domestic banks and insurance
companies. The Company has outstanding letters of credit and performance
bonds, not reflected in the consolidated financial statements, in the
amount of $1,774 at January 3, 1997 and $20,206 at December 29, 1995. Long
term debt recorded at January 3, 1997 approximates fair market value.
Financial instruments which potentially subject the Company to the
concentration of credit risk, as defined by SFAS No. 105, consist
principally of accounts receivable. Concentration of credit risk with
respect to receivables is limited, as the majority of the balance
represents billings for work performed for the U.S. Government and various
financially secure companies.
12. COMMITMENTS AND CONTINGENCIES:
On October 18, 1996, the Company announced the settlement of a $12,000
trial verdict against the Company and Gilbert/Commonwealth, Inc. of
Michigan relative to a dispute concerning construction management work
performed by a former subsidiary of Gilbert/Commonwealth, Inc. (G/C) in
1987 for Alaska-based Homer Electric Association. Terms of settlement call
for the Company to be released from all liabilities in exchange for
assignment of the Company's insurance rights to the Plaintiffs. As a
result of this settlement, the Alaska Trial Court released the $15,300
security bond previously posted by the Company. This settlement had no
impact on the Company's results of operations.
Various other lawsuits, claims and contingent liabilities arise in the
ordinary course of the Company's business. While the ultimate disposition
of these contingencies is not determinable at this time, management
believes that any liability resulting therefrom will not materially affect
the Company's financial position or results of operations.
13. QUARTERLY FINANCIAL DATA (UNAUDITED):
The following is a tabulation of the unaudited quarterly financial data for each of the four quarters of
the years 1996 and 1995:
QUARTER ENDED
------------------------------------------------------------------
March 29, 1996 June 28, 1996 Sept. 27, 1996 Jan. 3, 1997
------------------------------------------------------------------
Revenue $43,897 $44,264 $46,502 $55,403
Gross profit 10,457 10,821 11,141 18,920
Income(Loss) before taxes on
income(loss) and net gain on
dispositions of subsidiaries 1,686 1,934 3,166 (11,585)
Net income(loss) 1,046 1,194 1,956 (6,080)
Net income(loss) per share
of common stock $.17 $.19 $.31 $(.96)
QUARTER ENDED
-------------------------------------------------------------------
March 31, 1995 June 30, 1995 Sept. 29, 1995 Dec. 29, 1995
-------------------------------------------------------------------
Revenue $64,584 $43,140 $40,888 $44,883
Gross profit 16,574 9,812 9,615 10,362
Income(Loss) before taxes on
income(loss) and net gain on
dispositions of subsidiaries 2,019 1,841 1,712 (564)
Net income(loss) 1,134 19,813 999 (4,996)
Net income(loss) per share
of common stock $.16 $2.90 $.16 $(.79)
NOTES:
The results of operations for the quarter ended January 3, 1997 include a gain of $990, net of income
taxes of $510, or $.16 per share, for the reversal of previously accrued expenses related to the
closure of United Energy Services Corporation and a charge of $10,300, net of income tax benefit of
$6,500, or $1.63 per share, relative to the write-off of purchased in-process research and development
associated with the SAFCO transaction.
The results of operations for the quarter ended September 27, 1996 include a gain of $435, net of
income taxes of $265, or $.07 per share, relative to a settled claim filed by a former employee of a
subsidiary that was closed in 1988.
The results of operations for the quarter ended December 29, 1995 include charges to income of $3,630,
net of income tax benefit of $1,870, or $.57 per share, for closing the Company's United Energy
Services Corporation subsidiary and $2,500 or $.40 per share relative to the write-off of purchased
in-process research and development associated with the XEL transaction.
The results of operations for the quarter ended June 30, 1995 include a gain of $18,742 (net of $7,800
income tax expense), or $2.74 per share, relative to the sale of Gilbert/Commonwealth, Inc.
Earnings per share are computed independently for each of the quarters presented. Therefore, the sum
of the quarterly earnings per share does not equal the total computed for the year due to the timing
of stock repurchases throughout the year.
14. SEGMENT INFORMATION:
The Company segregates its business into three segments- Telecommunications, Technical Services and Real
Estate. The Telecommunications segment develops, manufactures and markets industrial communication
products, external transmission products, and electronic measurement devices for both wireline and
wireless customers. The Technical Services segment provides electronic, engineering, and human resource
services, as well as life and environmental science services primarily to U.S. government agencies. In
1995, as a result of the Gilbert/Commonwealth sale, the real estate operations became significant enough
to warrant separate segment disclosure. Information about the Company's operations by segment for the
years 1996, 1995 and 1994 is as follows:
Tele- Technical Real
communications Services Estate Eliminations Consolidated
- --------------------------------------------------------------------------------------------------
Year ended January 3, 1997:
Revenue $ 96,459 $84,888 $8,767 $ (346) $189,768
======== ======= ====== ======= ========
Operating profit $ 11,464 $ 5,059 $ 2,427 $ 18,950
======== ======= =======
Interest expense (688)
General corporate expenses (7,259)
Reversal of reserve for lawsuit 700
Purchased in-process research and development (16,800)
Other income 298
---------
Income(Loss) before income taxes
and net gain on dispositions
of subsidiaries $ (4,799)
=========
Identifiable assets $ 91,882 $29,528 $29,695 $151,105
======== ======= =======
Corporate assets 13,222
--------
Total assets, January 3, 1997 $164,327
========
Depreciation and amortization $ 3,051 $ 1,252 $ 1,398
======= ======= =======
Capital expenditures $ 5,292 $ 671 $ 1,772
======= ======= =======
14. SEGMENT INFORMATION (continued)
Tele- Technical Real
communications Services Estate Eliminations Consolidated
- --------------------------------------------------------------------------------------------------
Year ended December 29, 1995:
Revenue $51,848 $133,535 $ 6,319 $(1,002) $190,700
======= ======== ======= ======== ========
Operating profit $ 6,244 $ 6,150 $ 538 $ 12,932
======= ======== =======
Interest expense (210)
General corporate expenses (6,647)
Other expenses (1,362)
Purchased in-process research and development (2,500)
Other income 2,795
---------
Income(Loss) before income taxes
and net gain on dispositions
of subsidiaries $ 5,008
=========
Identifiable assets $59,525 $ 39,684 $29,720 $128,929
======= ======== =======
Corporate assets 18,860
---------
Total assets, December 29, 1995 $147,789
=========
Depreciation and amortization $ 1,510 $ 1,988 $ 1,420
======= ======== =======
Capital expenditures $ 2,018 $ 1,805 $ 411
======= ======== =======
14. SEGMENT INFORMATION (continued)
Tele- Technical
communications Services Consolidated
- --------------------------------------------------------------------------------
Year ended December 30, 1994:
Revenue $46,045 $229,887 $275,932
======= ======== ========
Operating profit(loss) $ 4,872 $(13,686) $ (8,814)
======= =========
Interest expense (186)
General corporate expenses (6,024)
Other expenses (619)
Other income 4,483
--------
Income(Loss) before income taxes
and net gain on disposition of
subsidiaries $(11,160)
=========
Identifiable assets $ 32,534 $ 83,028 $115,562
======== ========
Corporate assets 31,523
-------
Total assets, December 30, 1994 $147,085
========
Depreciation and amortization $ 1,222 $ 5,081
======== ========
Capital expenditures $ 876 $ 4,244
======== ========
14. SEGMENT INFORMATION (continued)
Revenue for the telecommunications and technical services segments consists of
sales to unaffiliated customers; intersegment sales are not significant. The
real estate segment includes revenue derived from certain affiliated tenants
which is eliminated in consolidation. Operating profit(loss) is total revenue
less operating expenses, and excludes interest expense, general corporate
expenses and other income. Other expenses for 1995 include costs associated
with non-recurring operations related to the sale of Gilbert/Commonwealth Inc.
Revenue associated with this operation is reflected in other income, and the
amount approximates the expenses identified as other expenses. Other expenses
for 1994 represents depreciation on the office facility. In 1996 and 1995, this
depreciation is included in the real estate segment above. Although the Company
receives technical services revenue from many customers, in 1996 and 1995, the
United States government accounted for revenues of $77,000 and $82,000,
respectively. In 1994, the Company had two major customers that accounted for
revenues of $107,000. Of this amount, approximately $77,000 was received from
several United States governmental agencies.
Identifiable assets by segment are those assets that are used in the operations
of each segment. Corporate assets are those assets not used in the operations
of a specific segment and consist primarily of cash and cash equivalents,
deferred income taxes, short-term investments, and in 1994, an office facility.
Capital expenditures for the office facility were $393, in 1994, and are
excluded from the capital expenditures above.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On May 6, 1996, Form 8-K was filed announcing the appointment of
Arthur Andersen LLP as independent public accountants to
undertake the audit of the registrant's financial statements for
the fiscal year ended January 3, 1997. There have been no
disagreements between the registrant and Arthur Andersen LLP or
Coopers & Lybrand L.L.P., the registrant's former independent
public accountants.
PART III
Other than portions of Item 10, which are included in Item 4A hereof,
this part (i.e. Item 10 - Directors and Executive Officers of the Registrant;
Item 11 - Executive Compensation; Item 12 - Security Ownership of Certain
Beneficial Owners and Management; Item 13 - Certain Relationships and Related
Transactions) is incorporated by reference to an amendment of this Form 10-K,
to be filed.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The financial statements filed herewith under Part II, Item 8,
include the consolidated balance sheets at January 3, 1997 and
December 29, 1995, and the consolidated statements of
operations, consolidated statements of stockholders' equity
and consolidated statements of cash flows for the years 1996,
1995 and 1994 of Gilbert Associates, Inc. and its
subsidiaries.
(b) Reports on Form 8-K.
During the last quarter of 1996, the registrant filed the
following reports on Form 8-K:
(1) Form 8-K dated October 10, 1996 regarding the execution of
the definitive Asset Purchase Agreement of SAFCO's Electronic
Systems Division.
(2) Form 8-K dated October 18, 1996 regarding the announcement
that the registrant reached a settlement of a $12 million
verdict arising from a contract dispute.
(3) Form 8-K dated November 8, 1996 announcing the approval of
a Shareholders Right Plan.
(4) Form 8-KA dated December 9, 1996 regarding pro forma and
audited financial statements required as a result of the SAFCO
acquisition.
(c) Exhibits.
3.1 Restated Certificate of Incorporation of Gilbert
Associates, Inc. as currently in effect. Incorporated
by reference to Exhibit 3 to the Quarterly Report of
the registrant on Form 10-Q for the period ended
September 27, 1996 (File No. 0-12588).
3.2 By-laws of Gilbert Associates, Inc. as currently in
effect. Incorporated by reference to Exhibit 28 to the
Quarterly Report of the registrant on Form 10-Q for the
period ended March 30, 1990 (File No. 0-12588).
The following Exhibits 10.1 through 10.5 are
compensatory plans or arrangements required to be filed
as exhibits to this Annual Report on Form 10-K pursuant
to Item 14(c):
10.1 Gilbert Associates, Inc. Equity Award Plan.
Incorporated by reference to Exhibit 4 to Registration
Statement on Form S-8 filed by registrant under the
Securities Act of 1933 (No. 33-15289).
10.2 1989 Gilbert Stock Option Plan. Incorporated by
reference to Exhibit 4(a) to Registration Statement on
Form S-8 filed by registrant under the Securities Act
of 1933 (No. 33-32288).
10.3 Gilbert Associates, Inc. Stock Bonus Purchase Plan.
Incorporated by reference to Exhibit 4 to Registration
Statement on Form S-8 filed by registrant under the
Securities Act of 1933 (No. 33-37793).
10.4 Gilbert Associates, Inc. Benefit Equalization Plan,
effective January 1, 1989. Incorporated by reference
to Exhibit 10(g) of Annual Report of the registrant on
Form 10-K for the fiscal year ended January 1, 1993
(File No. 0-12588).
10.5 Gilbert Associates, Inc. split dollar life insurance
policy for a former officer of the Company. Incorporated by
reference to Exhibit 10(h) of Annual Report of the
registrant on Form 10-K for the fiscal year ended
January 1, 1993 (File No. 0-12588).
10.6 Gilbert Associates, Inc. Long Term Incentive Plan.
Incorporated by reference to Exhibit 4 to Registration
Statement on Form S-8 filed by the registrant under
Securities Exchange Act of 1933 (No. 333-09639).
10.7 Gilbert Associates, Inc. Directors' Stock Option Plan.
Incorporated by reference to Exhibit 4 to registration
Statement on Form S-8 filed by the registrant under
Securities Act of 1933 (No. 333-09635).
16 Change in independent accountants. Incorporated by
reference to Form 8-K filed on May 6, 1996.
21 A complete list of the registrant's subsidiaries.
23.1 Consent of Arthur Andersen LLP, registrant's
independent public accountants, to the use of their
report on the consolidated financial statements.
23.2 Consent of Coopers & Lybrand LLP, registrant's former
independent public accountants, to the use of their
report on the consolidated financial statements.
27 Financial Data Schedules for the year ended January 3,
1997.
99.1 Annual Report on Form 11-K, pursuant to Section 15(d)
of the Securities Exchange Act of 1934, of the Stock
Purchase Program for Employees of Gilbert Associates,
Inc. and its subsidiaries for the year ended December
31, 1996. (To be filed by amendment.)
99.2 Annual Report on Form 11-K, pursuant to Section 15(d)
of the Securities Exchange Act of 1934, of the
Retirement Savings Plan for Employees of Gilbert
Associates, Inc. and its subsidiaries for the year
ended December 31, 1996. (To be filed by amendment.)
99.3 Annual Report on Form 11-K, pursuant to Section 15(d)
of the Securities Exchange Act of 1934, of United
Energy Services Corporation 401(k) Profit Sharing Plan
for the year ended November 30, 1996. (To be filed by
amendment.)
99.4 Annual Report on Form 11-K, pursuant to Section 15(d)
of the Securities Exchange Act of 1934, of Resource
Consultants, Inc. 401(k) Profit Sharing Plan for the
year ended December 31, 1996. (To be filed by
amendment.)
(d) Financial Statement Schedules, as required, are filed herewith.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To: Gilbert Associates, Inc.
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements included in Gilbert
Associates, Inc.'s Annual Report to Stockholders incorporated by reference in
this Form 10-K, and have issued our report thereon dated January 28, 1997.
Our audit was made for purpose of forming an opinion on those statements
taken as a whole. The schedules referred to in Item 14(d) in this Form 10-K
are the responsibility of the Company's management and are presented for the
purposes of complying with the Securities and Exchange Commission's rules and
are not part of the basic consolidated financial statements. These schedules
have been subjected to the auditing procedures applied in the audit of the
basic consolidated financial statements and, in our opinion, fairly state in
all material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
January 28, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Gilbert Associates, Inc.:
Our report of the consolidated financial statements of Gilbert
Associates, Inc. and Subsidiaries is included in Part II of this Form 10-K.
In connection with our audits of such financial statements, we have also
audited the related financial statement schedules included on Part IV, item
14 of this Form 10-K.
In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a
whole, present fairly, in all material respects, the information required to
be included therein.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
January 31, 1996
Schedule II Valuation and Qualifying Accounts and Reserves
For the years 1996, 1995 and 1994
(000's)
Column A Column B Column C Column D Column E Column F
Balance at Additions Balance at
Beginning Charged to Other End of
Description of Period Costs and Expenses Deductions Changes Period
- ---------------------------------------------------------------------------------------------------
1996:
Allowance for doubtful accounts $2,005 $ 87 $ 438 (A) - $1,654
Estimated liability for
contract losses $3,171 $ 185 $ 682 (B) - $2,674
Inventory reserves $ 936 $ 376 $ 249 $ 300 (C) $1,363
1995:
Allowance for doubtful accounts $2,677 $ 479 $ 251 (A) $(900) (D) $2,005
Estimated liability for
contract losses $5,272 $ 649 $2,750 (B) - $3,171
Inventory reserves $ 430 $ 33 $ 23 $ 496 (E) $ 936
1994:
Allowance for doubtful accounts $3,427 $ (164) $ 586 (A) - $2,677
Estimated liability for
contract losses $2,813 $3,700 $ 1,241 (B) - $5,272
Inventory reserves $ 790 $ 60 $ 420 - $ 430
(A) Uncollectible accounts written off.
(B) Contract losses realized.
(C) Reclassification of reserves.
(D) Sale of Gilbert/Commonwealth, Inc.
(E) Acquisition of XEL Corporation.
Gilbert Associates, Inc. and Subsidiaries
Schedule III
Real Estate and Accumulated Depreciation
January 3, 1997
(000's)
Cost capitalized
Initial cost to subsequent to Gross amount at which
Company acquisition carried at close of period
------------------- --------------------- --------------------------
Buildings and Carrying Buildings and Accumulated
Description Encumbrances Land improvements Improvements costs Land improvements Total depreciation
- ----------- ------------ ---- ------------- ------------ -------- ---- ------------- ----- ------------
Office Buildings (2) N/A $2,426 $22,119 $ 69 $ 69 $2,426 $22,188 $24,614 $9,966
Office Buildings N/A 756 11,702 2,558 2,421 756 14,123 14,879 2,340
Life on which
depreciation in
latest income
Date of construction Date Acquired statement is computed
- -------------------- ------------- ---------------------
Prior to 1982 N/A (1) 40 years
1992 N/A (1) 30 years
(1) Buildings were constructed by the registrant.
(2) These buildings were originally constructed prior to 1982 for use by the registrant.
The initial costs shown are as of December 29, 1995.
The following shows the changes in the total amounts at which real estate was carried during the period:
Balances at December 29, 1995 $ 38,233
Additions during the period:
Purchases -
Improvements 1,460
------
Total Additions 1,460
Deductions during the period:
Cost of real estate sold (200)
--------
Balances at January 3, 1997 $39,493
========
The following shows changes in accumulated depreciation during the period:
Balances at December 29, 1995 $11,157
Depreciation during the period 1,191
Deductions for real estate sold (42)
--------
Balance at January 3, 1997 $12,306
========
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
on its behalf by the undersigned, thereunto duly authorized this 17th day of
March, 1997.
GILBERT ASSOCIATES, INC.
By /s/T. S. Cobb
T. S. Cobb
Chairman, President and 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 dates indicated.
Signature Title Date
Chairman, President and Chief
Executive Officer
(Principal Executive
/s/T. S. Cobb Officer) and Director March 18, 1997
T. S. Cobb
Senior Vice President and Chief
Financial Officer
(Principal Financial
and Accounting Officer)
/s/P. H. Snyder and Director March 18, 1997
P. H. Snyder
/s/A. F. Smith. Director March 18, 1997
A. F. Smith
/s/J. W. Boyer, Jr. Director March 18, 1997
J. W. Boyer, Jr.
/s/D. E. Lyons Director March 18, 1997
D. E. Lyons
/s/J. A. Sutton Director March 18, 1997
J. A. Sutton
/s/D. K. Wilson, Jr. Director March 18, 1997
D. K. Wilson, Jr.
EXHIBIT 21
SUBSIDIARIES
The following list includes all significant subsidiaries of the
registrant and their state or jurisdiction of incorporation. The
registrant owns 100% of the outstanding voting stock of all of the
subsidiaries listed. The consolidated financial statements include the
registrant and all subsidiaries. Except as noted below, none of the
subsidiaries does business under a trade name different from its
corporate name.
State or
Jurisdiction in
which
Name of Subsidiary Incorporated
GAI-Tronics Corporation * Delaware
XEL Corporation * Colorado
Resource Consultants, Inc. Virginia
SRA Technologies, Inc. District of Columbia
SAFCO Technologies, Inc. Illinois
* GAI-Tronics Corporation, in addition to doing business under its
corporate name, does business under the Instrument Associates,
Inc. (IAI) trade name.
XEL Corporation, in addition to doing business under its corporate
name, does business under the XEL Communications, Inc. trade name.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To: Gilbert Associates, Inc.
As independent public accountants, we hereby consent to the
incorporation of our reports included or incorporated by reference in
this Form 10-K, into the Company's previously filed Registration
Statements on Form S-8 (File Nos. 333-09639, 333-09635, 33-55139, 33-11693,
33-15289, 33-32288, 33-37792, 33-37793, 33-37795, 33-43113, 33-44939 and
33-71242).
ARTHUR ANDERSEN LLP
1601 Market Street
Philadelphia, Pennsylvania
March 18, 1997
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statements of Gilbert Associates, Inc. on Form S-8 (File Nos. 333-
09639, 333-09635, 33-55139, 2-91939, 2-91940, 33-11693, 33-15289, 33-
32288, 33-37792, 33-37793, 33-37795, 33-43113, 33-44939 and 33-71242)
of our report dated January 31, 1996, on our audits of the consolidated
financial statements and financial statement schedules of Gilbert
Associates, Inc. and Subsidiaries as of December 29, 1995 and for each
of the two years in the period ended December 29, 1995, which reports
are included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 17, 1997