ITEM 1. BUSINESS.
Gilbert Associates, Inc. (the "registrant") was organized as a
holding company in 1984. Through its operating subsidiaries, the
largest of which is Gilbert/Commonwealth, Inc. ("G/C"), the registrant
is engaged in the businesses of providing engineering and consulting
services and the manufacture and sale of communication equipment.
G/C, formerly known as "Gilbert Associates, Inc." was organized in
1942. 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 engineering and consulting
services and communication equipment segments for each of the last
three years are stated in Note 14 to the consolidated financial
statements contained in Part II, Item 8 of this report.
ENGINEERING AND CONSULTING SERVICES
The engineering and consulting services business segment consists
of the registrant's largest subsidiary, G/C, and its subsidiaries,
together with United Energy Services Corporation ("UESC"), Resource
Consultants, Inc. ("RCI") and SRA Technologies, Inc. ("SRA"), wholly-
owned subsidiaries of the registrant. The operations of these
subsidiaries have been consolidated for reporting purposes.
G/C, based in Reading, Pennsylvania, provides a wide range of
engineering and consulting services, including electrical, mechanical,
structural and nuclear engineering, construction management,
procurement, and consulting services. G/C's major services are the
design, engineering and supervision of the construction of electric
power generating stations and electric transmission and distribution
systems as well as upgrading and retrofitting existing power plants.
It also renders services to industrial clients and various
governmental agencies. UESC primarily provides operations and
engineering consulting services to the electric power generation
industry. RCI 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.
Effective December 10, 1993, the registrant acquired all of the
outstanding capital stock of SRA Technologies, Inc. for $6,500,000 in
cash. The registrant also paid $1,500,000 in cash for other
intangible assets, which resulted in a total purchase price of
$8,000,000. SRA provides research and consulting services in life and
environmental sciences, engineering and related technical areas.
There were no other significant new business developments relating
to the engineering and consulting segment during the fiscal year ended
December 31, 1993.*
* All references to particular years in the balance of this Report refer to the fiscal year ended on or about December 31 of such year. Thus, the fiscal year ended December 31, 1993 is from time to time referred to as simply "1993" elsewhere in this Report.
The services of G/C and UESC in the engineering and consulting
industry are not divisible into classes because the projects
undertaken by G/C and UESC require the utilization, in varying
proportions depending upon the project, of the skills and talents of
staff members who are qualified in a variety of disciplines. For
example, a single project may involve the utilization of the services
of mechanical engineers, electrical engineers, structural engineers,
draftspeople, clerical personnel and others.
The following table sets forth for the past three fiscal years the
revenues derived from the listed categories of engineering and
consulting services rendered.
Engineering and Consulting Revenues (in thousands of dollars)
1993 1992 1991
Design and Related Services $123,945 $127,844 $142,234
Operations Services 61,834 85,351 61,874
Defense Related Services 57,624 51,027 35,801
Operating profit and identifiable assets for the last three years within
the engineering and consulting 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
engineering and consulting segment during 1993 and the approximate
percentage of backlog as of December 31, 1993 represented by work
arrangements with clients in such markets:
Percentage of Percentage of Backlog Market for Services 1993 Revenues as of December 31, 1993
U.S. Private Industry 42% 11%
U.S. Federal, State and Local Governments and Agencies 52 87
Foreign Governments and Businesses 6 2
The work arrangements of this segment, while varying, are
essentially either cost-plus or fixed-price. G/C, UESC, 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' engineering and
consulting 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 December 31, 1993. 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, the level of
actual and planned capital and operating expenditures by prospective
clients, 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' engineering and consulting segment.
The subsidiaries comprising the Gilbert companies' engineering and
consulting 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.
Although the engineering and consulting segment is not dependent
upon any single client, its five largest clients have generally
accounted for approximately one-half of its total revenues. During 1993,
the United States Government and the Tennessee Valley Authority ("TVA")
accounted for 24% and 16%, respectively, of total engineering and consulting
revenues. During 1992, the United States Government and TVA accounted
for 20% and 10%, respectively, of total engineering and consulting
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 1993 or 1992.
A substantial portion of the business of the engineering and
consulting segment is obtained from clients served for a number of
years. In the years 1993 and 1992, services rendered to clients who
had been served at least four years earlier accounted for 83% and 81%,
respectively, of the Gilbert companies' engineering and consulting
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 December 31, 1993 and January 1, 1993, respectively, the
subsidiaries comprising the Gilbert companies' engineering and
consulting segment had backlogs of contracts or work authorizations
from which they had then anticipated estimated aggregate future
revenues of approximately $407,000,000 and $308,000,000. The backlog
of RCI and SRA accounted for approximately 77% of the total segment
backlog at December 31, 1993. The backlog of RCI accounts for 54% of
the total backlog of the engineering and consulting segment at January
1, 1993. Substantially all of the backlog of RCI at such dates and
SRA as of December 31, 1993 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 engineering and consulting segment anticipate that
approximately $133,000,000 of the revenues to be recognized by them
under work authorizations outstanding at December 31, 1993 will be
earned within the fiscal year ending December 30, 1994 and that
additional revenues will be earned in 1994 from work authorizations
received during the year.
Consistent with standard industry practice for professional service
organizations, work authorizations for the Gilbert companies'
engineering and consulting 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 in the engineering and consulting industry, it is possible
that one or more projects included in the backlog at December 31, 1993
might be extended or even cancelled. Work authorizations from the
largest client included in such backlog total $143,000,000 for work on
several U.S. Navy programs, of which $130,000,000 is subject to
government funding.
Since the majority of the operating costs of the subsidiaries
comprising the Gilbert companies' engineering and consulting 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
are available with respect to the total size of the market for
engineering and consulting services for the full range of fields in
which the registrant's subsidiaries are engaged. The registrant's
engineering and consulting 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. Competition is
based primarily on quality, reputation, experience and available
skills and services. Frequently, however, formal or informal bidding
procedures result in price competition. In terms of the number of
employees rendering professional engineering and related services
(excluding those incident to construction and technician services),
the registrant believes that its engineering and consulting segment is
one of the largest firms, but it is unable to determine its relative
size within this group. Moreover, 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.
A number of the engineering and consulting segment's clients
utilize their own staffs to do all or a major part of their own
engineering work. Thus, the future business of the engineering and
consulting segment of the Gilbert companies will be affected by the
extent to which clients and potential clients utilize the services of
outside engineering and consulting firms. Such future business will
also be affected by the rate of growth of the electric utility
industry, the demand for new power generation facilities, and the
level of expenditure for capital goods in the United States.
Reductions in United States government defense expenditures have
recently been made and further reductions may follow. Although the
registrant has not been adversely affected by these events, it is
unable to estimate the degree or nature of the impact of any such
reductions on the engineering and consulting segment.
The Energy Policy Act of 1992, which became law in October 1992,
includes various provisions which are expected to result in further
deregulation of, and competition within, the electric utility industry
and development of independent power production facilities. The
effect of these provisions on the registrant's business is not
certain. In addition, the Act contains amendments to the Atomic
Energy Act designed to provide for standardization of nuclear plant
designs and to otherwise simplify the nuclear power plant licensing
process and thereby encourage development of nuclear power reactors by
utilities. No new nuclear power plants have been ordered by utilities
since 1978, and the effect of these amendments to the Atomic Energy
Act on the registrant's business is considered to be uncertain pending
satisfactory resolution of nuclear waste disposal issues.
The registrant's engineering and consulting subsidiaries do not
engage in any material company-sponsored research activities relating
to the development of new products or services or the improvement of
existing products or services. In the process of performing
engineering and consulting services, some personnel of such
subsidiaries are periodically involved in customer-sponsored research
activities for the improvement of products or services, but few
employees are engaged in such activities on a full-time basis and they
are not a material part of the Gilbert companies' engineering and
consulting business.
On December 31, 1993, the engineering and consulting segment had a
total of 3,428 employees, of which 2,459 employees were professional
and technical personnel. In comparison, such segment had a total of
3,253 employees on January 1, 1993, of which 2,567 employees were
professional and technical personnel.
COMMUNICATION EQUIPMENT
The communication equipment segment of the business of the Gilbert
companies consists of the sale and customizing of communications
equipment and related systems by GAI-Tronics Corporation ("GAI-
Tronics"), a wholly-owned subsidiary of the registrant.
GAI-Tronics is principally engaged in the development, assembly and
marketing of communication and radio-controlled systems for industrial
operations. In serving such customers, GAI-Tronics provides custom
services by adapting communications systems to operate under
extraordinary plant conditions such as excessive dust and explosive
atmospheres.
The value of orders for GAI-Tronics' systems may range from a
minimal amount to several hundred thousand dollars. GAI-Tronics'
significant class of products or services is the design and assembly
of communication and radio-controlled systems.
Effective December 28, 1993, GAI-Tronics acquired the net assets of
Instrument Associates, Inc. (IAI), for $5,704,000 in cash plus an
additional amount to be paid based upon the achievement of certain
earnings objectives. Any additional amount will increase excess cost
over equity in net assets and will not exceed $1,000,000. IAI designs
and manufactures land mobile radio communications devices.
There were no other significant new business developments relating
to GAI-Tronics during 1993.
The approximate percentage of GAI-Tronics' sales derived from the
principal markets for its products during 1993 and the approximate
percentage of its backlog as of December 31, 1993 represented by
contracts with clients in such markets, were as follows:
Percentage of Percentage of Backlog Market for Products 1993 Revenues as of December 31, 1993
U.S. Private Industry 80% 73%
Foreign Governments and Businesses 20 27
Revenue, operating profit and identifiable assets for the last three
years within the communications equipment segment are disclosed in
Note 14 to the consolidated financial statements in Part II, Item 8 of this
report.
GAI-Tronics is continually modifying its products and attempting to
further expand its product line. GAI-Tronics manufactures relatively
few of the basic components employed in its equipment; instead, it
primarily designs and assembles its equipment and systems by use of
standard or special components manufactured by others. Several
sources of supply exist for such components so that GAI-Tronics is not
dependent upon any single supplier.
GAI-Tronics maintains a substantial inventory of components to
satisfy its customers' requirements because GAI-Tronics provides
mainly customized communication systems for specialized uses.
GAI-Tronics owns various patents and trademarks. However, such
patents and trademarks are of less significance to GAI-Tronics'
operations than its experience and reputation.
GAI-Tronics' business is not dependent upon a single customer or a
very few customers. An insubstantial amount of GAI-Tronics' sales in
1993 were made for installation in projects or to customers for which
subsidiaries comprising the engineering and consulting segment had
served as consulting engineer. (See "Business - Engineering and
Consulting Services".)
A substantial part of GAI-Tronics' business is obtained from
customers to whom it has made previous sales. In 1993 and 1992, sales
made to customers who had made purchases at least four years earlier
accounted for approximately 94% of GAI-Tronics' total net sales.
There is no assurance that sales from such customers will account for
a similar percentage of total revenues in the future. Many of GAI-
Tronics' sales are made as a result of proposals submitted in response
to competitive bidding invitations.
As of December 31, 1993 and January 1, 1993, GAI-Tronics had a
backlog of contracts from which it had anticipated estimated future
revenue of approximately $6,850,000 and $7,079,000, respectively.
GAI-Tronics anticipates that substantially all of the goods reflected
in its backlog at December 31, 1993, will be shipped in 1994. GAI-
Tronics anticipates that the vast majority of its revenues earned in
1994 will be from orders received during the year.
GAI-Tronics competes with a number of other organizations that
develop and market specialized telephonic and communications systems.
Some of its competitors have larger total sales, greater financial
resources, larger research and development organizations and
facilities and a more diversified range of communications services and
products. GAI-Tronics' management believes that GAI-Tronics' history
of quality, its reputation, experience and service are the most
important factors in its being asked to submit bids and in purchasing
decisions made by its customers.
GAI-Tronics spent approximately $1,734,000, $1,309,000 and
$1,596,000 during 1993, 1992 and 1991, respectively, on company-
sponsored product development and improvement. Several of GAI-
Tronics' professional employees routinely engage in company-sponsored
product development and improvement on a full-time basis. GAI-Tronics
has not made material expenditures on product development and
improvement projects sponsored by customers in the last three years.
On December 31, 1993, GAI-Tronics had a total of 420 employees, of
which 174 employees were professional and technical personnel. In
comparison, GAI-Tronics had a total of 392 employees on January 1,
1993, of which 169 were professional and technical personnel.
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, although it does expect its engineering and consulting
subsidiaries to undertake engineering work for many of their clients
to support them in complying with such provisions.
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. Certain services rendered to foreign
clients have been undertaken in association with financing supplied or
guaranteed by the U.S. Government or by U.S. or international banking
institutions such as the U.S. Agency for International Development.
Curtailment of such financing or guarantees could tend to reduce
revenues from foreign sources. The countries providing the largest
portion of foreign revenues in 1993 were the United Kingdom and
Canada.
The businesses of the registrant's subsidiaries are not seasonal
to any material extent.
ITEM 2.
ITEM 2. PROPERTIES.
The physical properties owned and leased within the engineering
and consulting segment consist primarily of office space and furniture
and equipment. Certain subsidiaries of the registrant own land and
several buildings containing approximately 618,000 square feet of
office space, located in and near Reading, Pennsylvania and in
Huntsville, Alabama. Most of this office space is in buildings
situated on approximately 40 acres of a 530 acre tract. Located in
these buildings are the headquarters of the registrant and G/C, as
well as G/C's engineering and design and related operations, and
offices of UESC and GAI-Tronics.
RCI leases a total of 146,000 square feet of office space,
primarily in the Washington, D.C. area, used for engineering and
technical support activities under leases expiring between 1994 and
1996. Of this total, 78,600 square feet is leased under two separate
agreements with limited partnerships in which certain officers and an
employee of RCI hold limited partnership interests representing
approximately 26% of the total equity of the partnerships which
existed prior to the registrant's acquisition of RCI. These leases
expire in 1995 and 1996.
SRA leases from unrelated parties a total of 98,000 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 1994 and 2003.
UESC leases, from unrelated parties, approximately 61,000 square
feet of office space primarily in the Louisville, Tennessee and
Atlanta, Georgia areas used for engineering activities under leases
expiring in 1995 and 1999, respectively.
GAI-Tronics' plants are located near Reading, Pennsylvania,
Archdale, North Carolina, and in Memphis, Tennessee. The plant near
Reading, Pennsylvania is in a building which it leases from an
industrial development authority under a non-cancellable lease
expiring in 1994. The lease includes an option for GAI-Tronics to
purchase the building at the expiration of the lease for a nominal
amount. The plant, which is used to design and assemble
communications systems, consists of approximately 74,000 square feet
and is located on a 17-acre tract of land owned by GAI-Tronics. The
plants located in Archdale, North Carolina, and Memphis, Tennessee,
which are also used to design and assemble communications systems are
leased by GAI-Tronics and consist of approximately 20,000 and 50,000
square feet with leases expiring in 1998 and 2000, respectively.
Green Hills Management Company, the registrant's wholly-owned real
estate development and management subsidiary, owns a 130,000 square
foot office building to be leased to third parties. As of the end of
1993, approximately 44,000 square feet of space is occupied under
leases which expire in 2003. In addition, Green Hills Management
Company leases to unrelated parties approximately 105,000 square feet
of space within the buildings in the Reading, Pennsylvania area
described earlier. These leases expire in 2004.
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.
ITEM 3. LEGAL PROCEEDINGS.
The registrant and its subsidiaries are involved in various
disputes which have resulted in pending litigation arising in the
ordinary course of business as to which, in the opinion of the
management of the registrant, no material adverse effect on the
registrant's financial statements is expected to result.
On June 18, 1993, following a trial, a Michigan Circuit Court jury
found that one of the registrant's subsidiaries had unlawfully
discriminated against a former employee on the basis of age when the
registrant closed its Jackson, Michigan office in 1988 without
offering the employee another position. The jury awarded the
plaintiff compensatory damages of $1.4 million plus interest. The
registrant has appealed the decision but cannot estimate when the case
will be resolved. There can be no assurance as to the outcome of this
case.
ITEM 4.
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 1993.
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 Chief Executive Officer 52 since March 1994 and President and Chief Operating Officer since October 1993. Mr. Cobb served as President of Gilbert/ Commonwealth, Inc. (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 1991.
James R. Itin Mr. Itin has been Vice President and 61 Chief Financial Officer since May 1979.
* On March 1, 1994, Timothy S. Cobb succeeded Alexander F. Smith as Chief Executive Officer. Mr. Smith remains Chairman of the Board of Directors.
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.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SECURITY HOLDER MATTERS.
The registrant's Class A Common Stock is traded in the over-the-
counter market. Price quotations are available through the NASDAQ
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.
1993 1992 Dividends High Low High Low 1993 1992
$21.50 $19.25 $22.38 $18.50 First Quarter $.18 $.18 21.75 20.25 19.25 15.50 Second Quarter .18 .18 21.50 16.25 19.25 15.75 Third Quarter .20 .18 17.00 14.50 20.00 18.00 Fourth Quarter .20 .18
At December 31, 1993, the approximate number of record holders of common stock was 3,500.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Net income decreased by $2,605,000 or $.32 per share in 1993 as
compared to 1992. Net income in 1993 was decreased by $1,320,000 (net of
$880,000 income tax benefit) or $.18 per share to increase reserves for
claims filed by former employees, and by $200,000, or $.03 per share for
the cumulative effect of changes in accounting principles. Note 9 to the
consolidated financial statements more fully discusses the claims filed by
former employees, while Notes 3 and 6 discuss the cumulative effect of
changes in accounting principles. Excluding the charges, net income and
earnings per share decreased 12% and 9%, respectively, in 1993 as compared
to 1992 on a revenue decrease of 3%. The unfavorable relationship between
the change in net income and revenue relates primarily to overhead expenses
remaining at the same level as last year despite a decline in revenue
volume. The decline in net income was greater than the decline in earnings
per share due to a fewer number of shares outstanding. After excluding the
1991 charge as described in Note 9, net income and earnings per share increased
11% and 12%, respectively, in 1992 as compared to 1991 on a revenue increase of
7%. The favorable relationship between the change in net income and earnings
per share and revenue resulted from lower overhead expenses in the
engineering and consulting segment.
The engineering and consulting segment reported an 8% decrease in
revenue in 1993 compared to 1992. The decrease is due primarily to
declines in the volume of services provided to the nuclear power market.
These declines are partially offset by increases in U.S. defense related
revenue. The gross profit percentage was 24% in 1993 and 1992. Revenue
increased 9% in 1992 compared to 1991 after excluding $3,125,000 associated
with the 1991 charge. The increase was due primarily to the acquisition of
GENSYS Corporation and Digital Engineering, Inc. and a U.S. defense
contract relating to a job assistance program. The increased revenue was
partially offset by the loss of an engineering
services contract with Tennessee Valley Authority late in 1991. Gross
profit declined to 24% in 1992 from 25% in 1991, excluding the 1991 charge.
The communication equipment segment revenue increased 30% in 1993 as
compared to 1992. The increase relates primarily to revenue derived from
the acquisition of the Femco Division of Mark IV Industries in late 1992.
The gross profit percentage decreased 2% in 1993 to 34% due primarily to
sales of lower margin products. Revenue volume increased 3% in 1992 as
compared to 1991 due to a higher level of goods sold. The gross profit
percentage was 36% in both 1992 and 1991.
Interest and other income, net, increased 31% in 1993 compared to
1992 due primarily to fees earned on a joint venture within the engineering
and consulting segment. Interest and other income, net, decreased 26% in
1992 as compared to 1991 after exclusion of $250,000 associated with the
1991 charge. The decrease relates primarily to lower interest rates on
lower investment balances offset in part by fees earned on a joint venture.
Selling, general and administrative expenses were substantially unchanged
in 1993 compared to 1992 after exclusion of expenses related to the claims
filed by former employees. Selling, general and administrative expenses
decreased 2% in 1992 from 1991 after excluding $3,975,000 associated with
the 1991 charge. The decrease is related primarily to lower overhead
payroll expenses within the engineering and consulting segment.
Depreciation and amortization increased 12% in 1993 compared to 1992 due
primarily to depreciation on the office facility completed in late 1992.
Depreciation and amortization increased 12% in 1992 as compared to 1991
after excluding $50,000 associated with the 1991 charge due primarily to
additions to property, plant and equipment within the engineering and
consulting segment. Interest expense was not significant in either 1993 or
1992. Interest expense decreased in 1992 from 1991 due to the
capitalization of interest, as well as prepayment of debt in early 1992.
Income before provision for taxes on income and cumulative effect of
changes in accounting principles decreased 11% compared to the prior year
after excluding expenses related to the claims filed by former employees.
The decrease relates primarily to lower volume in the engineering and
consulting segment, particularly the nuclear services market, offset in
part by higher volume in the communication equipment segment. In order to
improve results, higher revenue volume must be attained within the
engineering and consulting segment and overhead cost reductions must be
made where appropriate. Income before provision for taxes on income and
cumulative effect of changes in accounting principles increased 17% in 1992
compared to the prior year after excluding $7,400,000 associated with the
1991 charge. The increase relates primarily to improved performance within
the engineering and consulting segment offset in part by a decline in
interest and other income, net.
The provision for taxes on income increased from an effective tax rate
of 39% in 1992 to 40% in 1993 due primarily to the enacted increase in the
statutory federal income tax rate to 35%. The provision for taxes on income
increased from an effective tax rate of 36% in 1991 to 39% in 1992 after
exclusion of the $2,480,000 tax benefit relative to the 1991 charge. The
increase relates primarily to a decline in utilization of capital losses to
reduce federal income taxes during 1992 offset in part by a lower effective
state income tax rate.
Working capital decreased $10,088,000, or 18% in 1993. Cash and cash
equivalents and short-term investments declined $2,365,000 during the year.
The declines relate primarily to the recent acquisitions of SRA
Technologies, Inc., and Instrument Associates, Inc. (IAI), as well as
payments to repurchase company stock. The company does not anticipate
requiring long-term financing during the next year. Available cash and
cash equivalents, combined with amounts generated from operations, should
provide adequate working capital to satisfy operating requirements and the
contingent payouts to former GENSYS stockholders and IAI principals.
Unused lines of credit with three banks aggregating $11,475,000 are
also available for short-term cash needs. No material restrictions on cash
transfers between the company and its subsidiaries exist.
In 1992 the FASB issued Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Postemployment Benefits" (SFAS 112), which
requires companies under certain circumstances to recognize costs currently
for postemployment benefits. This statement becomes effective in 1994.
The company's current method of accounting for these costs is in accordance
with SFAS 112.
ITEM 8.
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 Coopers & Lybrand, independent 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 Coopers & Lybrand all of the company's financial records and related data, as well as the minutes of stockholders' and directors' meetings.
A. F. Smith Chairman
T. S. Cobb President and Chief Executive Officer
J. R. Itin Vice President and Chief Financial Officer
Report of Independent Accountants
To the Stockholders and Board of Directors, Gilbert Associates, Inc.: We have audited the accompanying consolidated balance sheets of Gilbert Associates, Inc. and Subsidiaries as of December 31, 1993 and January 1, 1993, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1993. 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 31, 1993 and January 1, 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles.
As discussed in Notes 3 and 6 to the consolidated financial statements, the company changed its method of accounting for income taxes and postretirement benefits other than pensions in 1993.
2400 Eleven Penn Center Philadelphia, Pennsylvania February 4, 1994 COOPERS & LYBRAND
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets December 31, 1993 and January 1, 1993
ASSETS Dec. 31, 1993 Jan. 1, 1993
Current assets: Cash and cash equivalents $ 10,716,000 $ 6,952,000 Short-term investments - 6,129,000 Accounts receivable, net of allowance for doubtful accounts of $3,427,000 in 1993 and $2,796,000 in 1992 38,526,000 44,383,000 Unbilled revenue 23,480,000 23,335,000 Inventories 6,402,000 5,877,000 Deferred income taxes 6,115,000 2,080,000
Other current assets 5,751,000 4,965,000 ----------- ----------- Total current assets 90,990,000 93,721,000 ----------- ----------- Property, plant and equipment, at cost: Land 3,702,000 3,847,000 Buildings 41,885,000 42,470,000 Furniture and equipment 43,888,000 39,526,000 ----------- ----------- 89,475,000 85,843,000 Less accumulated depreciation and amortization 46,924,000 41,158,000 ----------- ----------- 42,551,000 44,685,000 ----------- ----------- Deferred income taxes - 825,000
Other assets 2,117,000 734,000
Excess of cost of investment in subsidiaries over equity in net assets at dates of acquisition 35,399,000 25,459,000 ----------- ----------- Total Assets $171,057,000 $165,424,000 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
GILBERT ASSOCIATES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets December 31, 1993 and January 1, 1993
LIABILITIES Dec. 31, 1993 Jan. 1, 1993
Current liabilities: Note payable $ 5,000,000 $ - Current maturities of long-term debt 280,000 546,000 Accounts payable 5,593,000 4,434,000 Salaries and wages 9,469,000 8,282,000 Income taxes, currently payable 1,868,000 3,475,000 Estimated liability for contract losses 3,813,000 3,862,000 Other accrued liabilities 15,814,000 13,942,000 Contractual billings in excess of recognized revenue 2,194,000 2,133,000 ----------- ----------- Total current liabilities 44,031,000 36,674,000 ----------- ----------- Long-term debt 1,066,000 1,097,000 Other long-term liabilities, principally retirement programs 7,036,000 3,611,000 Deferred income taxes 810,000 - Commitments and contingencies - -
STOCKHOLDERS' EQUITY
Capital stock: Class A common stock, nonvoting, par value $1 per share Issued: 1993, 7,625,566 shares; 1992, 7,699,632 shares 7,625,000 7,699,000 Class B common stock, voting, par value $1 per share Issued and outstanding: 1993, 1,359,734 shares; 1992, 1,285,668 shares 1,360,000 1,286,000 Capital in excess of par value 38,932,000 38,899,000 Retained earnings 101,081,000 100,279,000 Foreign currency translation adjustments 83,000 94,000 Class A common stock held in treasury, at cost: 1993, 1,961,474 shares; 1992, 1,533,618 shares (30,967,000) (24,215,000) ----------- ----------- 118,114,000 124,042,000 ----------- ----------- Total Liabilities and Stockholders' Equity $171,057,000 $165,424,000 =========== ===========
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 1993, 1992 and 1991
Common Stock -------------------- Class A Class B ------- ------- Shares Amount Shares Amount ------ ------ ------ ------
Balances at December 28, 1990 7,714,639 $7,714,000 1,270,661 $1,271,000 Conversion from Class B to Class A, net 129,387 130,000 (129,387) (130,000) --------- --------- --------- --------- Balances at January 3, 1992 7,844,026 7,844,000 1,141,274 1,141,000 Conversion from Class A to Class B, net (144,394) (145,000) 144,394 145,000 --------- --------- --------- --------- Balances at January 1, 1993 7,699,632 7,699,000 1,285,668 1,286,000 Conversion from Class A to Class B, net (74,066) (74,000) 74,066 74,000 --------- --------- --------- --------- Balances at December 31, 1993 7,625,566 $7,625,000 1,359,734 $1,360,000 ========= ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements.
Notes to Consolidated Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES:
FISCAL YEAR: The company uses a 52-53 week fiscal year ending on the Friday nearest December 31. The 1993 fiscal year is comprised of 52 weeks and ended on December 31, 1993. The 1992 and 1991 fiscal years were comprised of 52 and 53 weeks and ended on January 1, 1993 and January 3, 1992, respectively.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of the company and its subsidiaries. All material intercompany transactions have been eliminated. Investments in joint ventures where the company does not have a controlling interest are accounted for under the equity method.
RECOGNITION OF REVENUE: The company recognizes revenue on contracts entered into for engineering and consulting 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 determined.
INSURANCE PROGRAMS: The company is insured for professional liability, health care costs and workers' compensation through the combination of various commercial insurance companies and self- insurance. The self-insurance reserves for reported claims and claims incurred but not yet reported are estimated based upon historical claims experience. The self-insurance reserves total $6,925,000 and $5,970,000 as of December 31, 1993 and January 1, 1993, respectively, and are included in other accrued liabilities on the consolidated balance sheets.
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.
Cost of maintenance and repairs is 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.
Interest cost capitalized in 1992 and 1991 amounted to $420,000 and $226,000, respectively. The company incurred $205,000, $515,000 and $1,150,000 of interest expense in 1993, 1992 and 1991, respectively.
AMORTIZATION OF EXCESS COST: Substantially all of the excess of cost of investment in certain subsidiaries over equity in net assets at the dates of acquisition is being amortized by charges to
operations on a straight-line basis over 40 years, and such amortization amounted to $778,000 in 1993, $605,000 in 1992 and $543,000 in 1991. Accumulated amortization amounted to $4,775,000 at December 31, 1993 and $3,997,000 at January 1, 1993.
INVENTORIES: Inventory values are determined on the first-in, first-out (FIFO) method and are stated at the lower of cost or market.
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.
STATEMENTS OF CASH FLOWS: For purpose 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.
At January 3, 1992, approximately $1,200,000 of accounts payable relating to the acquisition of property, plant and equipment was excluded from the consolidated statement of cash flows.
FOREIGN CURRENCY TRANSLATION: Adjustments resulting from the translation of financial statements of foreign subsidiaries into U.S. dollars are excluded from the determination of income and accumulated in a separate component of stockholders' equity. Gains or losses on foreign currency transactions are reported in income. Such amounts were not significant during any of the periods presented.
RECLASSIFICATION: The consolidated balance sheet and consolidated statements of cash flows have been reclassified to conform with current year presentation.
2. ACQUISITIONS/DISPOSITION:
On December 10, 1993, the company acquired all of the outstanding capital stock of SRA Technologies, Inc. (SRA) for $6,500,000 in cash. The company also paid $1,500,000 in cash for other intangible assets, which resulted in a total purchase price of $8,000,000. On December 28, 1993, the company acquired the net assets of Instrument Associates, Inc. (IAI) for $5,704,000 in cash plus an additional amount to be paid based upon the achievement of certain earnings objectives. Any additional amount will increase excess cost over equity in net assets and will not exceed $1,000,000.
The following unaudited consolidated pro forma results of operations for the years 1993 and 1992 include SRA and IAI as if they were
acquired at the beginning of 1992:
1993 1992 ----------- ----------- Revenue $313,951,000 $322,251,000 Net income $7,046,000 $9,854,000 Net income per average number of Class A and Class B shares $.95 $1.29
The pro forma results of operations include adjustments for elimination of interest income on cash used in the acquisitions, amortization of intangible assets and lower compensation costs.
On December 21, 1992, the company acquired the net assets of the Femco Division of Mark IV Industries, Inc. (Femco) for $8,782,000 in cash.
On July 19, 1991, the company acquired all of the outstanding capital stock of Digital Engineering, Inc. for $6,800,000 in cash. On April 1, 1991, the company acquired all of the outstanding capital stock of GENSYS Corporation for $1,021,000 in cash. During the first quarters of 1993 and 1992, the company paid the former stockholders of GENSYS an additional $1,250,000 and $1,000,000, respectively, in cash as part of the purchase agreement resulting in an increase in excess cost over equity in net assets. An additional amount may be paid to the former stockholders of GENSYS next year based upon the achievement of certain earnings objectives. Any additional amount will increase excess cost over equity in net assets and will not exceed $1,500,000.
All acquisitions were accounted for as purchases, and excess cost over equity in net assets was determined based upon the fair values of assets acquired and liabilities assumed. At the dates of acquisition, such liabilities aggregated $6,336,000, $1,342,000 and $4,602,000 in 1993, 1992 and 1991, respectively. After considering the additional payments made to former GENSYS stockholders through 1993, the excess cost over equity in net assets for SRA, IAI, Femco, Digital Engineering and GENSYS was $3,563,000, $5,639,000, $5,752,000, $3,358,000 and $1,856,000, respectively, which is being amortized on a straight-line basis over 40 years. The company's consolidated statements of income include the results of operations of the acquired businesses since the dates of acquisition.
During the first quarter of 1991, the company sold the stock of Gilbert/Commonwealth Inc. of Michigan ("Michigan"), a wholly-owned subsidiary, to an unrelated party for $9,325,000 in cash. Michigan assets totaled $9,366,000 which included a note receivable from the company in the amount of $8,545,000, which was paid in full during 1992. The sale of Michigan had no material impact on the results of operations of the company, but resulted in a capital loss for federal income tax purposes of $10,225,000. This loss is deductible only to the extent of capital gains and may be carried forward until expiration in 1996.
3. INCOME TAXES:
In the first quarter of 1993, the company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). As a result of this change, net income increased $700,000 or $.09 per share due to the recording of deferred income tax assets not previously recognized. This adjustment was recorded as a cumulative effect of change in accounting principles.
Income tax provisions consist of the following:
1993 1992 1991 ---- ---- ---- Current: Federal $ 5,035,000 $ 6,585,000 $ 2,809,000 State and foreign 475,000 829,000 405,000 ---------- ---------- ---------- 5,510,000 7,414,000 3,214,000 ---------- ---------- ----------
Deferred: Federal (900,000) (1,285,000) (1,275,000) State (100,000) (220,000) 155,000 ---------- ---------- ---------- (1,000,000) (1,505,000) (1,120,000) ---------- ---------- ---------- $ 4,510,000 $ 5,909,000 $2,094,000 ========== ========== ==========
The components of the net deferred income tax asset at December 31, 1993 are as follows:
Net current deferred income tax asset $ 6,115,000 Net non-current deferred income tax liability (810,000) ---------- Net deferred income tax asset $ 5,305,000 ========== The tax effects of temporary differences which comprise the deferred tax assets and liabilities at December 31, 1993 are as follows:
Deferred income tax assets:
Reserves for contract disallowances and bad debts $ 2,940,000 Self-insurance reserves 2,817,000 Retirement liabilities 2,366,000 Vacation accrual 1,276,000 Legal claims reserves 950,000 Other 1,926,000 ---------- 12,275,000 ----------
Deferred income tax liabilities:
Depreciation 2,937,000 Retention 2,509,000 Other 1,524,000 ---------- 6,970,000 ---------- Net deferred income tax asset $ 5,305,000 ==========
A reconciliation of the statutory income tax rate to the effective tax rate follows:
1993 1992 1991
Federal statutory tax rate 35.0% 34.0% 34.0% Utilization of capital losses - (.4) (7.8) State and foreign taxes 2.2 2.7 7.0 Amortization of excess cost 2.1 1.4 3.6 Other, net 1.1 1.8 2.4 ---- ---- ---- Effective tax rate 40.4% 39.5% 39.2% ==== ==== ====
The 1991 sale of stock of Gilbert/Commonwealth Inc. of Michigan resulted in a capital loss for federal income tax purposes of $10,225,000. As of December 31, 1993, $8,825,000 of capital loss remains available to offset future capital gains before its expiration in 1996. Due to the uncertainty of future utilization of this capital loss, no deferred income tax asset has been recorded.
4. LONG-TERM DEBT:
Long-term debt consists of the following obligations:
December 31, January 1, 1993 1993 --------- --------- Note payable, $15,000 due monthly to 1995 including interest at 7.15% $248,000 $ - Mortgage, $6,000 due monthly including interest at 10 1/8% - 414,000 Note payable, $6,000 due monthly to 1996, including interest at 8% 171,000 234,000 Capital lease obligations, with principal payments not exceeding $12,000 due monthly to 2007, plus interest at variable rates not exceeding prime + 1/2%. 927,000 995,000 --------- ---------- 1,346,000 1,643,000 Less current maturities (280,000) (546,000) --------- ---------- $1,066,000 $1,097,000 ========= ==========
The aggregate maturities of long-term debt, including capital lease obligations, in each of the five years subsequent to 1993 are as follows:
1994 $280,000 1995 194,000 1996 87,000 1997 48,000 1998 53,000
The company leases buildings under noncancelable capital leases expiring through 2007. The agreements include options to purchase the assets for nominal amounts upon expiration of each lease's term.
In connection with the aforementioned capital leases, the company has pledged as collateral the following: December 31, January 1, 1993 1993 ----------- --------- Land and buildings $2,738,000 $2,738,000 Less accumulated depreciation (990,000) (913,000) --------- --------- $1,748,000 $1,825,000 ========= =========
At December 31, 1993, minimum future lease payments under the capital leases and the present value of minimum lease payments are as follows:
1994 $ 110,000 1995 96,000 1996 97,000 1997 98,000 1998 99,000 1999 and thereafter 904,000 --------- Total minimum lease payments 1,404,000 Less amount representing interest (477,000) --------- Present value of minimum lease payments $ 927,000 =========
The company and its subsidiaries have arrangements with several banks whereby unused lines of credit aggregating $11,475,000 are available at December 31, 1993 for short-term financing, with interest charges based upon the banks' prime lending rates.
5. INVENTORIES:
Inventories consist of the following:
December 31, January 1, 1993 1993 ---------- ---------- Raw materials $2,985,000 $2,660,000 Work in process and finished goods 3,417,000 3,217,000 --------- --------- $6,402,000 $5,877,000 ========= =========
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 1993, 1992 and 1991 totaled $4,369,000 $5,121,000, and $5,653,000, respectively. The company has accrued contributions amounting to $1,336,000 and $2,153,000 as of December 31, 1993 and January 1, 1993, respectively. These amounts are included in other accrued liabilities on the consolidated balance sheets.
In the first quarter of 1993, the company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS 106). As a result, a $900,000 charge (net of $600,000 income tax benefit) or
$.12 per share was recorded by the company as a cumulative effect of a change in accounting principles. This statement requires an accrual of the cost of providing postretirement benefits during the active service period of employees. Certain subsidiaries of the company currently provide life insurance benefits for retirees. The company is self-insured for these benefits, which consist primarily of $5,000 policies. Under the current program, the accumulated benefit obligation related to the life insurance policies is approximately $1,800,000 as of December 31, 1993. The accumulated benefit obligation is primarily unfunded. The discount factor used in computing the accumulated benefit obligation is 6%. Excluding the cumulative effect, the adoption of SFAS 106 did not have a material impact on current operations.
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 31, 1993 and January 1, 1993.
8. STOCK OPTION, AWARD AND PURCHASE PLANS:
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 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 57,000 shares were granted at fair market value during 1993 and are exercisable between March 13, 1995 and March 12, 1998 at $21.00 per share. At December 31, 1993, 94,813 shares remain available for future grants.
A summary of stock option activity related to this plan and the 1982 and 1987 stock option plans which are no longer granting options is as follows:
Number of Number of Option Price Shares Shares Per Share Exercisable --------- ------------ ----------- Outstanding at Dec. 28, 1990 319,945 $ 8.16-$23.20 196,432 Granted 44,750 $18.88-$26.50 Exercised (48,750) $ 8.16-$23.20 Expired (20,600) $23.20-$26.50 -------
Outstanding at Jan. 3, 1992 295,345 $ 8.16-$26.50 213,137 Granted 52,050 $20.00 Exercised (12,500) $ 8.16-$17.20 Expired (8,375) $17.20-$26.50 -------
Outstanding at Jan. 1, 1993 326,520 $11.84-$26.50 240,321 Granted 57,000 $21.00 Exercised (18,375) $11.84-$17.20 Expired (32,424) $17.20-$26.50 ------- Outstanding at Dec. 31, 1993 332,721 $11.84-$26.50 237,172 =======
The company has an Equity Award Plan whereby the company may grant to officers and other key management employees, awards to purchase an aggregate of 234,375 shares of common stock at a price equal to fair market value on the date of purchase. Unless accepted, the awards expire fifteen days from the date of grant. To date, awards to purchase 195,331 shares of the company's common stock have been granted and accepted at prices ranging from $11.04 to $22.20 per share. As a result of subsequent sales by participants, 120,713 of these shares remain outstanding at December 31, 1993. For a period of ten years subsequent to the date of purchase, the company is required, if requested by the participant, to repurchase shares under the plan for an amount equal to 90% of the original purchase price.
In 1990, the Board of Directors approved the Stock Bonus Purchase Plan. Under this plan, employees may use up to 50% of their annual incentive compensation 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 1993, 9,066 shares were issued under this plan. To date, 34,902 shares have been issued, and 165,098 shares remain available for future grants as of December 31, 1993.
9. SPECIAL CHARGES:
In the second quarter of 1993, the company recorded a charge to income of $2,200,000 to increase reserves for costs associated with resolving a series of claims filed by former employees of a subsidiary which was closed in 1988. This reserve is recorded in other accrued liabilities on the consolidated balance sheet. After the income tax benefit of $880,000, net income was reduced by $1,320,000 or $.18 per share. The company intends to contest these matters vigorously and is in the process of pursuing various legal actions. The timing of the final resolution is not yet known.
In the third quarter of 1991, the company recorded expenses of $4,920,000 (net of income tax benefit of $2,480,000) or $.64 per share associated with the realizability of certain assets, anticipated losses on certain contracts and restructuring charges to address the current business environment within the engineering and consulting segment. Expenses associated with the realizability of certain assets and anticipated losses on certain contracts approximated $3,590,000 (net of income tax benefit of $1,810,000) or $.47 per share. The contract loss provision includes amounts related to a contract in the Middle East. Restructuring expenses approximated $1,330,000 (net of income tax benefit of $670,000) or $.17 per share. The restructuring charge primarily includes costs for severance, employee relocation and facilities consolidation.
10. OPERATING LEASES:
The company leases, as lessee, facilities, data processing equipment, office equipment, automobiles and aircraft charter services under leases expiring during the next twelve years. Total rental expense under operating lease agreements amounted to $5,900,000 in 1993, $5,700,000 in 1992 and $5,600,000 in 1991. Minimum future rentals under noncancelable operating leases with initial or remaining terms in excess of one year at December 31, 1993 are as follows:
1994 $ 6,635,000 1995 4,820,000 1996 3,101,000 1997 1,819,000 1998 1,465,000 1999 and thereafter 4,781,000 ---------- Total minimum rentals $22,621,000 ==========
The company leases, as lessor, office space to unrelated parties under leases expiring between 1994 and 2004. Minimum future rentals
under noncancelable operating leases at December 31, 1993 are as follows:
1994 $ 2,511,000 1995 2,352,000 1996 2,290,000 1997 2,238,000 1998 2,295,000 1999 and thereafter 13,196,000 ---------- Total minimum rentals $24,882,000 ==========
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 $5,369,000 at December 31, 1993 and $3,675,000 at January 1, 1993.
The company records short-term investments at cost less amortized premium. Premium is amortized on a straight-line basis through the maturity of the investment. The fair value of short-term investments based on quoted market prices amounted to $6,132,000 at January 1, 1993.
Financial instruments which potentially subject the company to the concentration of credit risk, as defined by SFAS No. 105, consist principally of short-term investments and receivables. The company limits its exposure with respect to short-term investments by investing primarily in U.S. Treasury obligations. Concentration of credit risk with respect to receivables is limited due to the majority of customers being comprised of either public utilities or the U.S. Government.
12. CONTINGENCIES:
Various lawsuits, claims and other 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 consolidated financial statements of the company.
ITEM 9.
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure, are inapplicable to the registrant.
PART III
Other than portions of Item 10, which are included in Item 4A
hereof, this Part (i.e., Item 10
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 December 31, 1993
and January 1, 1993, and the consolidated statements of income,
consolidated statements of stockholders' equity and consolidated
statements of cash flows for the years 1993, 1992 and 1991 of
Gilbert Associates, Inc. and its subsidiaries.
(b) Reports on Form 8-K.
Reports on Form 8-K filed by the registrant during the
last quarter of 1993 were as follows:
Current report on Form 8-K dated October 29, 1993
relating to election of William K. Burkhart to succeed
Timothy S. Cobb as President of Gilbert/Commonwealth, Inc.
(c) Exhibits.
3.1 Restated Certificate of Incorporation of Gilbert
Associates, Inc. as currently in effect.
Incorporated by reference to Exhibit 3(a) of Annual
Report of the registrant on Form 10-K for the fiscal
year ended December 29, 1989 (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(iii) 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 an 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).
21 A complete list of the registrant's subsidiaries.
23 Consent of Coopers & Lybrand, registrant's
independent accountants, to the use of their report
on the consolidated financial statements.
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, 1993. (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, 1993. (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 December 31, 1993.
(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, 1993.
(To be filed by amendment.)
(d) Financial Statement Schedules
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Gilbert Associates, Inc.:
Our report on the consolidated financial statements of Gilbert Associates, Inc. and subsidiaries is included in Part II, Item 8 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
2400 Eleven Penn Center Philadelphia, Pennsylvania February 4, 1994
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 28th day of March 1994.
GILBERT ASSOCIATES, INC.
By /s/T. S. Cobb T. S. Cobb 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 of the Board /s/A. F. Smith and Director March 28, 1994 A. F. Smith President and Chief Executive Officer (Principal Executive /s/T. S. Cobb Officer) and Director March 28, 1994 T. S. Cobb
Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) /s/J. R. Itin and Director March 28, 1994 J. R. Itin
/s/J. W. Boyer, Jr. Director March 28, 1994 J. W. Boyer, Jr.
/s/D. E. Lyons Director March 28, 1994 D. E. Lyons
/s/J. W. Stratton Director March 28, 1994 J. W. Stratton
/s/J. A. Sutton Director March 28, 1994 J. A. Sutton
/s/D. K. Wilson, Jr. Director March 28, 1994 D. K. Wilson, Jr.