<PAGE>
AS FILED ON MAY 30, 2000
Registration Statement No. 333-36822
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
Amendment No. 1
To
FORM S-1
REGISTRATION STATEMENT
Under The Securities Act of 1933
---------------
CH2M HILL Companies, Ltd.
(Exact name of registrant as specified in its charter)
Oregon 8711 93-0549963
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
6060 South Willow Drive,
Greenwood Village, CO 80111-5142
(303) 771-0900
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
Samuel H. Iapalucci
CH2M HILL Companies, Ltd.
6060 South Willow Drive
Greenwood Village, CO 80111-5142
(303) 771-0900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copy to:
Mashenka Lundberg, Esq.
Holme Roberts & Owen LLP
1700 Lincoln Street
Denver, CO 80203
(303) 861-7000
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective and from time
to time thereafter.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
---------------
The prospectus included in this Registration Statement also relates to the
Registrant's Registration Statement on Form S-1 (File No. 333-74427).
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
[LOGO OF CH2M HILL APPEARS HERE]
23,677,150 Shares of Common Stock
----------------
CH2M HILL Companies, Ltd. and its shareholders are offering up to
23,677,150 shares of common stock, including:
. Up to 2,000,000 shares that CH2M HILL may offer to its employees
directly or through its internal market
. Up to 2,600,000 shares that CH2M HILL may offer to its employees through
its employee benefit plans
. Up to 1,578,317 shares that officers and directors may offer through the
internal market
. Up to 15,498,833 shares that other shareholders may offer through the
internal market
. Up to 2,000,000 shares that our employee benefit plans may offer through
the internal market
This offering of common stock is designed to allow trading of the common
stock among CH2M HILL employees, directors, consultants and employee benefit
plans up to four times each year on the internal market. No exchange lists the
common stock. For more details on how the internal market functions, see
"Internal Market Information" beginning on page 6.
All of the shares being offered for sale by this prospectus will be sold
through the internal market at the price set by the Board of Directors from
time to time. On May 11, 2000, the Board of Directors established the price for
the common stock at $7.06 per share.
----------------
Investing in the common stock involves risks. See "Risk Factors" beginning
on page 3.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
----------------
Prospectus dated May 30, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 3
Securities Offered by this Prospectus.................................... 6
Internal Market Information.............................................. 7
Use of Proceeds.......................................................... 11
Dividend Policy.......................................................... 11
Dilution................................................................. 11
Selected Financial Data.................................................. 12
Business................................................................. 13
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Employee Benefit Plans and Direct Stock Purchases........................ 30
Management............................................................... 51
Executive Compensation................................................... 53
Security Ownership of Certain Shareholders and Management................ 57
Related Transaction...................................................... 58
Policy Relating to Affiliated Transactions............................... 58
Securities Offered by the Current Shareholders........................... 59
Description of Capital Stock............................................. 60
Shares Eligible for Future Sale.......................................... 64
Validity of Common Stock................................................. 64
Experts.................................................................. 64
Available Information.................................................... 65
</TABLE>
----------------
i
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
Before investing in the common stock, you should read the entire prospectus
carefully, including the "Risk Factors" section and the financial statements
and the notes to those statements.
General
CH2M HILL, an Oregon corporation founded in 1946, provides engineering,
consulting, design, construction, procurement, operations, maintenance, and
project management services to our clients in the public and private sectors.
We provide services to our domestic and foreign clients through three operating
segments:
. Environmental, Energy and Infrastructure
. Water
. Industrial
For the year ended December 31, 1999, CH2M HILL had gross revenues of
approximately $1.2 billion.
Environmental, Energy and Infrastructure consists of two businesses:
Environmental, Nuclear, Energy & Systems and Transportation. The Environmental,
Nuclear, Energy & Systems business provides integrated environmental and waste
management consulting and engineering services, and performs design and build,
remediation, construction and implementation of infrastructure and
telecommunications systems for a variety of public and private clients. The
Transportation business provides planning, siting, permitting, design, program
and construction management, transportation management and consulting services
for aviation, ports, highways, bridges and transit systems.
Water consists of two businesses: Water & Wastewater and Operations &
Maintenance. The Water & Wastewater business focuses on the planning, design,
construction and implementation of water supply systems and wastewater
treatment facilities. The Operations & Maintenance business provides services
to water and wastewater operators, including startup, performance testing,
facility operations, maintenance and management.
Industrial provides design, construction, specialized precision
manufacturing support and facility services to high-technology manufacturing
companies, food and beverage processing businesses and fine chemical and
pharmaceutical manufacturers.
Business Strategy
CH2M HILL is seeking to grow through increasing market share in each of our
operating segments both domestically and internationally. The key elements of
our strategy include:
. Increasing the number and the dollar value of our contracts
. Expanding and diversifying our client base
. Increasing the number of large, longer-term projects with the potential
for higher profit margins
. Encouraging ownership in our common stock across a greater proportion of
our workforce
Operation of the Internal Market
CH2M HILL common stock is not traded publicly. Ownership is restricted to
employees, directors, consultants and benefit plans. Our common stock is traded
through the internal market maintained by an independent broker engaged by CH2M
HILL. Through the internal market, any eligible shareholder and the 401(k) Plan
may offer shares of common stock for sale to eligible buyers up to four times
each year on pre-determined trade dates. Shares will be bought and sold through
the internal market at a price determined by the Board of Directors that is
intended to represent fair market value. The stock price is determined by the
Board of Directors based upon our after-tax profits, otherwise referred to as
net income, and shareholders' equity as well as a subjective analysis of market
factors the Board of Directors considers relevant.
1
<PAGE>
CH2M HILL may purchase or sell shares of common stock on the internal market on
any trade date to balance the supply and demand for common stock between
sellers and buyers, but we are not obligated to do so.
Principal Executive Offices
Our principal executive offices are located at 6060 South Willow Drive,
Greenwood Village, Colorado 80111-5142. Our telephone number is (303) 771-0900.
2
<PAGE>
RISK FACTORS
You should carefully consider the following factors and other information
contained in this prospectus before deciding to invest in our common stock.
Government Contracts Present Risks of Termination for Convenience, Adjustment
of Payments Received, Restrictions on Ability to Compete for Government Work
and Funding Constraints
In 1999, we derived approximately 61% of our total revenues from contracts
with federal, state, local and foreign government agencies. In addition, we own
equity interests in joint ventures with revenues attributable primarily or
entirely to contracts with governmental clients. The following risks are
inherent in government contracts:
. Because federal law and some state laws permit government agencies to
terminate a contract for convenience, our government clients may
terminate or decide not to renew our contracts with little or no prior
notice.
. Federal government clients may audit contract payments we receive for
several years after these payments are made. Based on these audits, the
clients may adjust or demand repayment of payments we previously
received. Audits have been completed on our federal contracts through
December 31, 1995 and are continuing for subsequent periods. None of the
audits performed to date on our federal contracts have resulted in any
significant adjustments to our financial statements. We believe, on the
basis of the information that we currently have about the ongoing audits,
that the ongoing audits will not result in material adjustments to our
financial statements. However, we cannot be sure that an audit in the
future will not result in a material adjustment to our financial
statements.
. Federal government contract regulations provide that any company
convicted of a crime or indicted on a violation of statutes related to
federal contracting may lose its right to receive future contract awards
or extensions.
. Our ability to earn revenues from our existing and future government
projects will depend upon the availability of funding from various
federal, state, local and foreign government agencies and private sector
clients. We cannot control whether those clients will fund or continue
funding our outstanding projects.
Our ability to secure new government contracts and our revenues from
existing government contracts could be adversely affected by any one or a
combination of the factors listed above.
We Could Sustain Losses on Our Contracts If Our Costs Exceed the Fixed Price or
the "Not to Exceed" Provisions
Under "fixed price" contracts, we agree to deliver the project for a
definite, predetermined price regardless of our actual costs incurred over the
life of the project. Under time-and-materials contracts with "not to exceed"
provisions, we are compensated for the labor hours expended at agreed-upon
hourly rates plus cost of materials used; however, there is a stated maximum
amount for the services to be provided under the contract. Many fixed price and
"not to exceed" contracts involve large industrial facilities and public
infrastructure projects and present the risk that our costs to complete a
project may exceed the fixed price or "not to exceed" price agreed to with the
client. The fixed or maximum fees negotiated for such projects may not cover
our actual costs and desired profit margins. If our actual costs for a fixed or
"not to exceed" price project are higher than we expect, our profit margins on
the project will be reduced or we could suffer a loss.
A Reduction in the Scope of Environmental Regulations or Changes in Government
Policies Could Adversely Affect Our Revenues
A substantial portion of our business is generated either directly or
indirectly as a result of
3
<PAGE>
federal, state, local and foreign laws and regulations related to environmental
matters. Changes in environmental regulations could affect our business more
significantly than they would affect some other engineering firms. Accordingly,
a reduction in the number or scope of these laws and regulations, or changes in
government policies regarding the funding, implementation or enforcement of
such laws and regulations, could significantly reduce the size of one of our
most important markets and limit our opportunities for growth or reduce our
revenues below their current levels. In addition, any significant effort by
government agencies to reduce the role of private contractors in regulatory
programs, including environmental compliance projects, could have the same
adverse effects.
Our Environmental Remediation Work May Expose Us to Environmental Liability
We could become subject to liabilities or fines for our environmental
activities. The assessment, analysis, remediation, handling, management, and
disposal of hazardous substances represent a significant portion of our
business and involve significant risks, including the possibility of property
damages, personal injuries, fines and penalties and other regulatory sanctions.
Civil and criminal liabilities and liabilities to clients and third parties for
environmental violations and damages can be very large. Although we have never
been subject to any significant fines relating to environmental matters, it is
possible that we could be subject to substantial fines or liabilities in the
future. The fines and penalties could reduce our net income, cause a loss, or
could adversely affect our ability to compete for new business.
Our Projects May Result in Liability for Faulty Engineering Services
Because our projects are often large and can affect many people, our
failure to make judgments and recommendations in accordance with applicable
professional standards could result in large damages and, perhaps, punitive
damages. Our engineering practices involve professional judgments regarding the
planning, design, development, construction, operation and management of
industrial facilities and public infrastructure projects. Although we have
adopted a range of insurance, risk management and risk avoidance programs
designed to reduce potential liabilities, there can be no assurance that such
programs will protect us fully from all risks and liabilities.
Our Inability to Attract and Retain Professional Personnel Could Adversely
Affect our Business
Our ability to attract, retain and expand our staff of qualified engineers
and technical professionals will be an important factor in determining our
future success and growth. A shortage of qualified technical professionals
currently exists in the engineering and design industry. The market for these
professionals is competitive in the United States and internationally. We
cannot assure you that we will continue to be successful in attracting and
retaining such professionals. Since we derive a significant part of our
revenues from services performed by our professional staff, our failure to
retain and attract professional staff could adversely affect our business by
impacting our ability to complete our projects and secure new contracts.
Absence of a Public Market May Prevent You from Selling Your Stock and Cause
You to Lose All or Part of Your Investment
There is no public market for our common stock. While we intend the
internal market to provide liquidity to shareholders, there can be no assurance
that there will be enough orders to purchase shares to permit shareholders to
resell their shares on the internal market, or that a regular trading market
will develop or be sustained in the future. The price in effect on any trade
date may not be attractive enough to both buyers and sellers to result in a
balanced market because the price will be fixed in advance by the Board of
Directors, using their judgment of the fair market value of the common stock,
and not by actual market trading activity. Moreover, although CH2M HILL may
enter the internal market as a buyer of common stock if there are more sell
orders than buy orders, we have no obligation to engage in internal market
transactions and will not guarantee market liquidity. Consequently,
insufficient buyer demand could cause sell orders to be prorated, or could
prevent the internal market from opening on
4
<PAGE>
any particular trade date. Insufficient buyer demand could cause shareholders
to suffer a total loss of investment or substantial delay in their ability to
sell their common stock. No assurance can be given that shareholders desiring
to sell all or a portion of their shares of common stock will be able to do so.
Accordingly, the investment in CH2M HILL common stock is suitable for you only
if you have limited need for liquidity in your investment.
Investors in the Offering Will Experience Immediate and Substantial Dilution
The offering price per share of common stock exceeds CH2M HILL's net
tangible book value per share. Accordingly, the purchasers of shares sold in
the offering will experience immediate and substantial dilution. The stock
price currently in effect until changed by the Board of Directors, is $7.06 per
share. Based on our net tangible book value per share of $2.62 as of March 31,
2000, new investors will experience immediate dilution of $3.86 per share, or
55%.
Transfer Restrictions on the Common Stock Could Prevent You from Selling Your
Stock and Cause You to Lose All or Part of Your Investment
The transfer restrictions applicable to the common stock could cause you to
lose all or part of your investment. Since all of the shares of common stock
will be subject to transfer restrictions, you will generally only be able to
sell your stock on one of the four trade dates for the internal market in each
year. Unlike shares that are actively traded in the public markets, you may not
be able to sell at a particular time even though you would like to do so. The
stock price could decline between the time you want to sell and the time you
become able to sell.
The Offering Price Is Determined by the Board of Directors' Judgment of Fair
Market Value and Not by Market Trading Activity
The offering price is, and subsequent offering prices at each trade date
will be, established by the Board of Directors approximately 30 days before the
trade date. In establishing the price, the Board will take into consideration
the factors which are described in the section of this prospectus called
"Internal Market Information." However, since the Board of Directors will set
the offering price in advance of the trade date, market trading activity on any
given trade date can not affect the price on that trade date. This is a risk to
you because our stock price will not change to reflect supply of and demand for
shares on a given trade date as it would in a public market. You may not be
able to sell shares or you may have to sell your shares at a price that is
lower than the price that would prevail if the internal market price could
change on a given trade date to reflect supply and demand. Our Board of
Directors intends the common stock valuation methods used to result in offering
prices for the common stock that represent fair market value. The valuation
method for common stock is subject to change at the discretion of the Board of
Directors.
The Limited Market and Transfer Restrictions on the Common Stock Will Likely
Have Anti-Takeover Effects
Only CH2M HILL employees, directors, consultants and employee benefit plans
may own CH2M HILL common stock and participate in the internal market. In
addition, we have imposed significant restrictions on the transfer of our
common stock other than through sales on the internal market. These limitations
make it extremely difficult for a potential acquirer who does not have the
prior consent of our Board of Directors to acquire control of our company,
regardless of the price per share the acquirer were willing to pay and whether
or not shareholders were willing to sell at that price. As a result, it is
unlikely that a hostile bidder would try to take control of our company.
Actual Results May Differ From Results Discussed in Forward-Looking Statements
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ significantly from the results
discussed in the forward-looking statements. Factors that might cause such
differences include, but are not limited to:
. the continuance of and funding for certain governmental regulation and
enforcement programs which create demand for our services
5
<PAGE>
. our ability to attract, finance and perform large, longer-term projects
. our ability to insure against or otherwise cover the liability risks
inherent in our business, including environmental liabilities and
professional engineering liabilities
. our ability to manage the risks inherent in the government contracting
business
. our ability to manage the costs associated with our fixed-price and "not
to exceed" price contracts
. our ability to attract and retain professional personnel
. general economic conditions
SECURITIES OFFERED BY THIS PROSPECTUS
The shares of common stock offered by CH2M HILL may be offered to present
and future employees, including executive officers, directors and consultants,
of CH2M HILL through the internal market or through the employee benefit plans
listed below and summarized in the section of this Prospectus called "Employee
Benefit Plans."
CH2M HILL EMPLOYEE BENEFIT PLANS
--------------------------------------------------------------------------------
. Retirement and Tax-Deferred Savings Plan (401(k) Plan)
. Stock Option Plan
. Pre-Tax and After-Tax Deferred Compensation Plans
. Payroll Deduction Stock Purchase Plan
This offering of common stock is not intended to raise capital for CH2M
HILL. CH2M HILL will offer common stock to its employees through bonuses,
through the various employee benefit plans and, if necessary, in case of an
over-subscribed market, as described in the section called "Internal Market
Information."
Officers, including officers who are also directors, may sell up to an
aggregate of 1,578,317 shares of common stock through the internal market.
Other employees of CH2M HILL may sell up to an aggregate of 15,498,833 shares
of common stock on the internal market. We do not know whether these officers
and other employees will offer or sell some, none or all of such shares. The
shares offered by officers and other employees may include shares they hold
directly and also shares they hold indirectly through the employee benefit
plans. The officers and other employees will not be treated more favorably than
other shareholders participating on the internal market.
Pursuant to our Restated Bylaws, all shares of common stock are subject to
CH2M HILL's repurchase right, right of first refusal, and other restrictions on
transferability.
6
<PAGE>
INTERNAL MARKET INFORMATION
This section contains a summary of the material provisions of our internal
market. We encourage you to read the internal market rules, which are included
as an exhibit to the registration statement filed in 1999 with the Securities
and Exchange Commission.
The internal market permits shareholders, certain employees, directors,
consultants and the benefit plans to buy and sell shares of common stock up to
four times each year on predetermined trade dates.
Authorized Buyers. All sales of common stock on the internal market are
restricted to the following authorized buyers:
Authorized Buyers of Common Stock
--------------------------------------------------------------------------------
. Employees, directors and consultants of CH2M HILL
. Trustees of the 401(k) Plan
. Administrator of the Payroll Deduction Stock Purchase Plan
. Participants in the Deferred Compensation Plans
Limitations on the number of shares which an individual may purchase may be
imposed when there are more buy orders than sell orders for a particular trade
date.
Broker. The internal market is managed through an independent broker, Buck
Investment Services, Inc., which acts upon instructions from the buyers and
sellers. Buck Investment Services, Inc. is not affiliated with CH2M HILL.
Individual stock ownership account records are maintained by the broker.
Subsequent to determination of the applicable stock price for use on the next
trade date, and at approximately 30 days prior to such trade date, we will
advise all shareholders, employees, directors, and eligible consultants as to
the new stock price and the next trade date, inquiring whether such individuals
wish to purchase or sell shares on the internal market and advising them on how
to deliver written buy and sell orders approximately five days prior to such
trade date.
CH2M HILL May Purchase Shares if Market is Under-Subscribed. CH2M HILL may,
but is not obligated to, purchase shares of common stock on the internal market
on any trade date at the price in effect on that trade date, but only to the
extent that the number of shares offered for sale by shareholders exceeds the
number of shares sought to be purchased by authorized buyers. CH2M HILL will
consider a variety of factors including, but not limited to, CH2M HILL's cash
position, financial performance and number of shares outstanding in making the
determination of whether to participate in an under-subscribed market.
If the aggregate number of shares offered for sale on the internal market
on any trade date is greater than the number of shares sought to be purchased,
shareholder offers to sell will be accepted as follows:
. If enough orders to buy are received to purchase all the shares offered
by each seller selling fewer than 500 shares and at least 500 shares from
each other seller, then all sell orders will be accepted up to the first
500 shares and the portion of any sell orders exceeding 500 shares will
be accepted on a pro-rata basis.
. If not enough orders to buy are received to purchase all the shares
offered by each seller selling fewer than 500 shares and at least 500
shares from each other seller, then the purchase orders will be allocated
equally to each seller.
CH2M HILL May Sell Shares if Market is Over-Subscribed. To the extent that
the aggregate number of shares sought to be purchased exceeds the aggregate
number of shares offered for sale, CH2M HILL may, but is not obligated to, sell
authorized but unissued shares of common stock on the internal market on any
trade date at the price in effect on that trade date to satisfy purchase
demands. CH2M HILL will consider a variety of factors including, but not
limited to, CH2M HILL's cash position, financial performance and number of
shares outstanding in making the determination of whether to participate in an
over-subscribed market.
7
<PAGE>
If the aggregate purchase orders exceed the number of shares available for
sale, the following prospective purchasers will have priority, in the order
listed:
. Administrator of the Payroll Deduction Stock Purchase Plan
. Trustees of the 401(k) Plan
. Individual employees, directors and consultants on a pro rata basis which
includes participants through the pre-tax and after-tax deferred
compensation plans
Sellers Pay Sales Commission. All sellers on the internal market, other
than CH2M HILL and the employee benefit plans, will pay the broker, Buck
Investment Services, Inc., a commission equal to 2% of the proceeds from such
sales. Employees who sell their common stock upon retirement from CH2M HILL
will have the option to sell the common stock they own on the internal market
and pay a commission on the sale or to sell to CH2M HILL in exchange for a
four-year note at the market interest rate. No commission is paid by buyers on
the internal market.
Stock Price Determined by Board of Directors. The Board of Directors will
determine the price, which is intended to be the fair market value, of the
shares of common stock on each trade date pursuant to the formula and valuation
process described below. The price per share of common stock is as follows:
Share Price = [(7.8 x M x P) + (SE)] / CS
In order to determine the fair market value of the stock in the absence of
a public trading market, the Board of Directors felt it appropriate to develop
a formula to use as a tool to determine a price that would be within a fair
market value range. In determining the fair market value stock price, the Board
believes that the use of a formula incorporating a going concern component
(i.e., net income, which we call profit after tax) and a book value component
(i.e., total shareholders' equity) is important. The Board of Directors
believes that the process CH2M HILL has developed reflects modern equity
valuation techniques and is based on those factors that are generally used in
the valuation of equity securities.
The constant 7.8 is a multiple necessary for the stock price derived by the
new formula to approximate our historical estimate of the fair market value of
the common stock as derived by the old formula. The 7.8 constant is the factor
required to derive a fair market value stock price using an "M" factor of 1.0
at the beginning of the internal market.
"M" is the market factor, which is subjectively determined in the sole
discretion of the Board of Directors. In determining the market factor, the
Board of Directors will take into account factors the directors consider to be
relevant in determining the fair market value of the common stock, including:
. the market for publicly traded equity securities of companies comparable
to CH2M HILL
. the merger and acquisition market for companies comparable to CH2M HILL
. the prospects for CH2M HILL's future performance
. general economic conditions
. general capital market conditions
. other factors the Board of Directors deems appropriate
CH2M HILL started the internal market program with a market factor equal to
1.0 to make it easier for shareholders to understand future changes, if any, to
the market factor.
In setting the market factor, the Board of Directors may take into account
the company appraisal information obtained by the trustees of the benefit
plans. The existence of an over-subscribed or under-subscribed market on any
given trade date will not affect the stock price on that trade date. However,
the Board of Directors, when determining the stock price for a future trade
date, may take into account the fact that there have been under-subscribed or
over-subscribed markets on prior trade dates.
The Board has not assigned predetermined weights to the various factors it
may consider in determining the market factor. A market factor greater than one
would increase the price per share and a market factor less than one would
decrease the price per share.
8
<PAGE>
In its discretion, the Board of Directors may change, from time to time,
the market factor component of the formula used in the valuation process. The
Board of Directors could change the market factor, for example, following a
change in general market conditions that either increased or decreased stock
market equity values generally, if the Board of Directors felt that the market
change were appropriately applicable to the common stock as well. The Board of
Directors will not make any other change in the method of determining the price
per share of common stock unless in the good faith exercise of its fiduciary
duties and, if appropriate, after consultation with its professional advisors,
the Board of Directors determines that the method for determining the price per
share of common stock no longer results in a stock price that reasonably
reflects the fair market value of CH2M HILL on a per share basis.
"P" is profit after tax, otherwise referred to as net income, for the four
fiscal quarters immediately preceding the trade date. Nonrecurring or unusual
transactions could be excluded from the calculation at the discretion of the
Board of Directors. Nonrecurring or unusual transactions are unforeseen
developments that the market would not generally take into account in valuing
an equity security. A change in accounting rules, for example, could increase
or decrease net income without changing the fair market value of the common
stock. Similarly, such a change could fail to have an immediate impact on the
value of the common stock, but still have an impact on the value of the common
stock over time. As a result, the Board of Directors feels that in order to
determine the fair market value of the common stock, it needs the ability to
review unusual events that affect net income.
"SE" is total shareholders' equity, which includes intangible items, as set
forth on CH2M HILL's most recently available quarterly or annual financial
statements. Nonrecurring or unusual transactions could be excluded from the
calculation at the discretion of the Board of Directors.
"CS" is the weighted average number of shares of common stock outstanding
during the four fiscal quarters immediately preceding the trade date,
calculated on a fully diluted basis. By "fully diluted" we mean that the
calculations are made as if all outstanding options to purchase common stock
had been exercised and as if other "dilutive" securities were converted into
shares of common stock.
The stock price is reviewed by the Board of Directors up to four times each
year. This review is made in conjunction with Board of Directors meetings,
currently scheduled for February, May, August and November. The Board of
Directors believes that the process described above will result in a stock
price that will reasonably reflect the fair market value of CH2M HILL on a per
share basis.
Quarterly Trade Timeline
Trade Date Confirma-
Fiscal Board of Set and Buy/ Buy/Sell tions
Quarter Directors Sell Orders Orders Due TRADE and Checks
Ends Meets Solicited to Broker DATE Mailed
-------------------------------------------------------------------------------
Approxi- Approxi- Approxi- Approxi- Buy/Sell Approxi-
mately 75 mately 30 mately 30 mately 5 Orders mately 5
Days Before Days Before Days Before Days Before Effective Days After
Trade Date Trade Date Trade Date Trade Date Trade Date
We intend to publish the current stock price and upcoming trade date prior
to each trade date to all participants in the internal market through internal
communications, including bulletins, electronic mail communications or mailed
reports. Trade dates are expected to occur approximately 75 days after the end
of each fiscal quarter.
9
<PAGE>
We will also distribute our audited annual financial statements to all
shareholders, as well as other employees, and to participants in the internal
market through the employee benefit plans. Such information will be distributed
at the same time as our annual reports, proxy information and solicitations are
distributed for voting instructions from shareholders and participants in the
employee benefit plans each year.
Current Price of Common Stock
Because the common stock has not been publicly traded, there has not been
any historical market-determined price. Prior to 2000, the Board of Directors
has periodically (usually once per year) determined the price of the common
stock for purposes of awards of common stock made pursuant to the annual
incentive bonus to selected employees under the company's "key employee
policy," which was terminated and replaced with the internal market. Starting
in 2000 with the introduction of the internal market and its quarterly trades,
the Board of Directors now reviews the common stock price quarterly and uses
the internal market valuation methodology to set the price for the common
stock. The stock prices established by the Board of Directors during 2000 are
as follows:
Price Per
Effective Share
Date (New Formula)
------------------------------------------------
2/18/2000 $6.34
5/11/2000 7.06
Historical Price Range of Common Stock
The price per share figures shown below for 1989 through 1999 are the stock
prices established by the Board of Directors pursuant to the old valuation
methodology used for purposes of transactions under the key employee policy
that has been replaced with the internal market.
Because of the change from the old valuation methodology to the new
valuation methodology starting in the first quarter of 2000 for determining the
price, the historical prices for the common stock are not directly comparable
to the stock prices that are determined under the new valuation process. Since
the determination of the price includes market analyses that are applied by the
Board of Directors at the time of making its determinations, we do not know
what the historical prices for the common stock would have been under the new
valuation methodology.
There can be no assurance that the common stock will, in the future,
provide returns comparable to past returns.
Price
per Share % Increase
Date (Old Formula) (Decrease)
-------------------------------------------------
1989 $2.05 --%
1990 2.25 9.8
1991 2.52 12.0
1992 2.77 9.9
1993 2.99 7.9
1994 2.95 (1.3)
1995 3.07 4.1
1996 3.31 7.8
1997 3.59 8.5
1998 3.82 6.4
1999 4.31 12.8
10
<PAGE>
USE OF PROCEEDS
The shares of common stock which may be offered by CH2M HILL are
principally being offered to permit the acquisition of shares by the employee
benefit plans as described herein and to permit CH2M HILL to offer shares of
common stock on the internal market if necessary because there are more buy
orders than sell orders on a trade date. We do not intend or expect this
offering to raise significant capital. Any net proceeds received by CH2M HILL
from the sale of the common stock offered, after paying expenses of the
offering, will be added to our general funds and used for working capital and
general corporate purposes. It is anticipated that the majority of the sales of
common stock on the internal market will be made by shareholders and the
employee benefit plans. All shareholders selling common stock through the
internal market, other than CH2M HILL and the employee benefit plans, will pay
a commission equal to 2% of the proceeds of the sale of any shares of common
stock. The commission will be used by the broker to defray the costs of
establishing and maintaining the internal market.
DIVIDEND POLICY
We do not currently anticipate paying any cash dividends on the common
stock and intend to retain any future earnings to finance the growth and
development of our business.
DILUTION
The tangible book value of CH2M HILL on March 31, 2000 was $77,375,254 or
$2.62 per share. Tangible book value per share represents the amount of total
tangible assets less total liabilities, divided by the shares of common stock
then outstanding. Total common stock outstanding at March 31, 2000 was
29,535,430 shares. As the following table demonstrates, after giving effect to
the sale of 4,600,000 shares of common stock by CH2M HILL in the offering at a
price per share of common stock of $7.06, and after deducting anticipated
expenses that had not been paid as of March 31, 2000, the pro forma book value
of the common stock on March 31, 2000 would have been $109,316,254 or $3.20 per
share, representing an immediate dilution of $3.86 per share to new investors
purchasing shares of common stock at the price per share of common stock.
"Dilution per share" represents the difference between the price per share to
be paid by new investors for shares issued in this offering and the net pro
forma book value per share as of March 31, 2000.
<TABLE>
<S> <C> <C>
Price per share of common stock..................................... $7.06
Net tangible book value per share before the offering............. $2.62
Increase per share attributable to new investors.................. 0.58
-----
Pro forma net tangible book value per share after the offering...... 3.20
-----
Dilution per share to new investors................................. $3.86
=====
</TABLE>
11
<PAGE>
SELECTED FINANCIAL DATA
The following data has been derived from the Consolidated Financial
Statements of CH2M HILL, which have been reported on by Arthur Andersen LLP,
independent public accountants, for each of the last five years. During the
periods presented, CH2M HILL paid no cash dividends on its common stock. The
following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and related notes thereto, included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
Years Ended December 31,
(dollars in thousands
except per share data) 1995 1996 1997 1998 1999
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Revenues................... $804,614 $937,198 $917,578 $935,030 $1,184,528
Operating income........... 12,699 13,444 13,946 14,802 25,987
Net income................. 5,371 4,709 4,716 5,812 13,626
Net income per common and
preferred share...........
basic.................... 0.19 0.17 0.17 0.21 0.46
diluted.................. 0.19 0.17 0.17 0.21 0.46
Balance Sheet Data:
Total assets............... 304,136 309,364 311,117 298,325 357,155
Long-term debt including
current maturities........ 44,576 39,987 34,414 27,388 21,296
Total temporary
shareholders' equity...... 56,171 58,130 62,303 75,132 97,092
Total permanent
shareholders' equity...... -- -- -- -- --
<CAPTION>
(Unaudited)
Quarters Ended
(dollars in thousands March 31,
except per share data) 1999 2000
--------------------------------------------------
<S> <C> <C>
Statement of
Operations Data:
Revenues................... $274,176 $372,221
Operating income........... 3,929 9,544
Net income................. 1,879 5,185
Net income per common and
preferred share...........
basic.................... 0.07 0.18
diluted.................. 0.07 0.17
Balance Sheet Data:
Total assets............... 326,167 365,577
Long-term debt including
current maturities........ 36,197 19,479
Total temporary
shareholders' equity...... 79,195 --
Total permanent
shareholders' equity...... -- 98,233
</TABLE>
12
<PAGE>
BUSINESS
Overview
CH2M HILL is a project delivery firm founded in 1946. We provide
engineering, consulting, design, construction, procurement, operations and
maintenance, and program and project management services to clients in the
private and public sector in the United States and abroad.
We are an employee-owned Oregon corporation with approximately 9,200
employees working in 66 offices throughout the United States and 33 offices
abroad.
Business Strategy
Our business strategy is to grow domestically and internationally through
increasing market share in each of our operating segments. The key elements of
this strategy are:
. Increasing the number and the dollar value of our contracts
. Expanding and diversifying our client base by attracting new private and
public sector clients and developing a diversified mix of projects
. Increasing the number of large, longer-term projects with the potential
for higher profit margins
. Encouraging ownership in our common stock across a greater proportion of
our workforce
Operating Segments
We provide services to our clients through three operating segments:
. Environmental, Energy and Infrastructure
. Water
. Industrial
Environmental, Energy and Infrastructure
Our Environmental, Energy and Infrastructure ("EE&I") operating segment
consists of two businesses: Environmental, Nuclear, Energy & Systems ("ENE&S")
and Transportation. These two businesses are described below.
EE&I's business strategy is to grow by increasing market share in each of
its two businesses, expanding its client base and obtaining large, longer-term
projects with the potential for higher profit margins. While maintaining its
focus on its traditional services, EE&I is expanding its expertise into related
industries such as telecommunications, and into related business concepts such
as "sustainable development." Sustainable development is a design approach
used, for example, in power plant design. Sustainable development addresses
environmental issues throughout the life of a project, from design and
construction to decommissioning. Sustainable development seeks to minimize
total environmental impact.
ENE&S. ENE&S provides integrated environmental and waste management
consulting and engineering services, and performs design and build,
remediation, construction and implementation of infrastructure and
telecommunications systems for a variety of public and private clients.
1. Environmental. Our Environmental group provides environmental consulting
for remedial construction projects, ecological and natural resource damage
assessments, strategic environmental management and permitting services,
environmental liability management services, site investigations, remedial
design, implementation and construction services, treatment systems for
hazardous, toxic and radioactive waste contaminated properties, and sustainable
development planning, design and construction services. Representative
Environmental projects include:
. Environmental consulting, engineering and remedial activities for the
U.S. Air Force Center for Environmental Excellence
. Remediation of contaminated sites on Naval and Marine Corps
installations in 26 domestic states and several foreign countries
. Program management and remedial design of a refinery for a large oil
company
. Environmental impact studies for a number of proposed industrial
projects and municipal programs on behalf of the Beijing city government
in China
13
<PAGE>
2. Nuclear. Our Nuclear group provides program management, integration,
engineering, construction and operations and maintenance services for the U.S.
Department of Energy and commercial nuclear power plants. We manage
decommissioning and closure of weapons production facilities and design nuclear
waste treatment and handling facilities in the United States, Western, Central
and Eastern Europe and the former Soviet Union. Representative Nuclear projects
include:
. Management and integration of decontamination, decommissioning, and
closure of the nuclear weapons production facility at Rocky Flats in
Golden, Colorado, on behalf of the U.S. Department of Energy
. Engineering, design and technical services to support decontamination,
decommissioning and remedial activities at the Department of Energy
Hanford Reservation in Richland, Washington
. Decontamination and decommission planning and engineering for a
university research center in Atlanta, Georgia
3. Energy. Our Energy group provides full lifecycle energy services for
power projects around the world. The Energy group's services range from design
to decommissioning, including consulting, engineering, design, construction,
operations and maintenance services. Representative Energy projects include:
. Expert consulting on utility deregulation
. Consulting and design for photovoltaic manufacturing process
. The design and construction of energy efficiency upgrades
. Development of generation services in renewable energy
. Management projects for carbon and other greenhouse gasses
4. Systems. For the communications industry, our Systems group provides
program management, planning, design, and construction management of local and
regional fiber optic and hybrid fiber/coaxial systems for voice, video and data
communications. In other markets, our Systems group develops and implements
environmental management information systems, total energy management and
information technology systems and industrial process design/build. It provides
military base operation services for government agencies, and other outsourcing
services for industrial and government clients. Representative Systems projects
include:
. Program management, design and construction management of voice, video
and data networks for a large telecommunications company in Europe
. Design, construction and installation of an industrial process system for
metal plating facility.
. Program management for the upgrade of a hybrid fiber/coaxial network for
voice, video and high-speed data services in several domestic cities
Transportation. Transportation provides planning, siting, permitting,
design, program and construction management, intermodal transportation planning
and consulting services for aviation, ports, highways, bridges and transit
systems. Representative Transportation projects include:
. Master planning and program management for a large international airport
in the northwest region of the U.S., including terminal, financial and
airport environmental planning
. Developing lighting control systems for another large international
airport in the U.S., including touch-screen controls, runway incursion
protection and automatic safety measures
. Designing and providing project management and engineering services for
the expansion of a container shipping terminal in the Eastern U.S.,
including berths, wharf and cranes
. Seismic retrofit design of seven bridges along an interstate highway in
California
. Design of the Eastern Transportation Corridor for the Orange County,
California transportation authority including 27 miles of highway and 58
bridges
. Designing parking structure and bridge for major U.S. airport
14
<PAGE>
Water
Our Water operating segment consists of two businesses: Water & Wastewater
and Operations & Maintenance. The business strategy of the Water operating
segment is to grow through increasing market share in each of its businesses,
both domestically and internationally, to diversify its client base, and to
pursue larger projects. We seek to attract new clients by leveraging our
reputation for providing quality services, and by taking advantage of the
current trends for outsourcing operations and maintenance activities to
specialized service providers.
Water & Wastewater. Our Water & Wastewater business focuses on the
planning, design, construction and implementation of water supply systems and
wastewater treatment facilities. Representative Water & Wastewater projects
include:
. Design and construction of a water treatment plant expansion in Tampa,
Florida
. Design, construction and commissioning of a wastewater treatment facility
in Manakau, New Zealand
. Program management for design and construction of a deep tunnel sewage
project in the Republic of Singapore
. Design, construction and commissioning of a water treatment plant in
Halifax, Nova Scotia
Operations & Maintenance. Our Operations & Maintenance business provides
water, wastewater and public works operations and maintenance services to water
and wastewater facility operators, including startup and performance testing,
consulting, facility operations, on-going maintenance and management. The
facility management services include water and wastewater treatment,
collection, and distribution, equipment and process maintenance, and site
grounds maintenance. Representative Operations & Maintenance projects include:
. Operations and maintenance of a water reclamation center in Fairfield,
California
. Operations of the wastewater facilities in Hoboken, New Jersey
. Operations of the wastewater plant for a large brewery in Jacarei, Brazil
Industrial
Our Industrial operating segment provides design, construction, specialized
precision manufacturing support and facility services support to high-
technology manufacturing companies, food and beverage processing businesses,
and fine chemical and pharmaceutical manufacturers.
The business strategy of the Industrial operating segment is to diversify
its client base beyond the microelectronics industry, capitalizing on a strong
professional reputation in project delivery of complex manufacturing facilities
and leadership in the area of single-source design, engineering and
construction of industrial manufacturing facilities.
The Industrial operating segment built its reputation primarily in the
microelectronics industry, where it offers a single source for a broad range of
integrated design and construction services. The Industrial segment's clients
typically require design and installation services for complex systems that
comprise many of their facilities, including clean rooms, ultrapure water and
wastewater treatment systems, chemical and gas systems, and production tools.
Representative Industrial projects include:
. Design and construction services for the development of multiple U.S. and
foreign production facilities for a major microelectronics manufacturer
. Design and construction services for a soy sauce production facility in
California for a Japanese food processing manufacturer
. Complete engineering and construction services for an ultrapure water
system for a multi-national pharmaceutical manufacturer
. Continuous facility engineering, maintenance and operations support
services for several microelectronics manufacturers under multi-year
contracts
Clients
Our clients include:
. Corporations in the energy, transportation, chemical, steel, aluminum,
mining, forest products, electronics, food, pharmaceuticals and
manufacturing
15
<PAGE>
industries in the United States and more than 20 foreign countries
. The U.S. Agency for International Development, U.S. Department of
Defense, U.S. Department of Energy and U.S. Environmental Protection
Agency
. A variety of state and local government agencies in the United States and
abroad
Kaiser-Hill
In 1995, through Kaiser-Hill, we won the U.S. Department of Energy's
Performance Based Integrating Management Contract for the Rocky Flats Closure
Project in Golden, Colorado. Kaiser-Hill is a joint venture with Kaiser Group
International, Inc. CH2M HILL holds a 50 percent interest in the joint venture.
Rocky Flats is a former U.S. Department of Energy nuclear weapons production
facility. Under the contract, Kaiser-Hill oversees plutonium stabilization and
storage, environmental restoration, waste management, decontamination and
decommissioning, site safety and security, and construction activities of
subcontractor companies.
Under the initial performance-based contract signed by Kaiser-Hill, a
concept that was developed in the U.S. Department of Energy's 1994 Contract
Reform Initiative, 85% of Kaiser-Hill's fees are based on performance, while
only 15% are fixed. Kaiser-Hill's contract commits it to dealing with urgent
risks first. Achievement of measurable results in the following "urgent risk"
areas determines Kaiser-Hill's incentive fee: stabilize plutonium and plutonium
residues for specific time frames; consolidate plutonium in a single building;
and clean up and remove all high-risk "hot spot" contamination.
Effective February 1, 2000, the U.S. Department of Energy extended Kaiser-
Hill's Rocky Flats contract. Although the new contract is a closure contract
and does not have a defined term, we anticipate that closure of the site would
be in 2006. Under the new contract, Kaiser-Hill is compensated through a base
fee affected, up or down, by its performance against the agreed site target
closure costs. Outside a negotiated range, for every dollar that the U.S.
Department of Energy saves with earlier clean-up, Kaiser-Hill receives a 30
cent increase in fee. At the same time, for every dollar the clean-up is over
budget, the fee is reduced by 30 cents up to an agreed minimum. The ultimate
fee will also be impacted by the project schedule and safety of our performance
to achieve the site closure.
Backlog
At December 31, 1999, our backlog was approximately $2,292 million,
compared to a backlog of approximately $1,337 million at December 31, 1998. We
define backlog as contracted task orders less previously recognized revenue on
such task orders. U.S. government agencies operate under annual fiscal
appropriations by Congress and fund various federal contracts only on an
incremental basis. The same is true of many state, local and foreign contracts.
Our ability to earn revenues from our backlog depends on the availability of
funding for various U.S., state, local and foreign government agencies.
Government Contracting
Overall, we received 17% of our revenues in 1999 from U.S. federal
government contracts. Typically, a federal contract has an initial term of one
year combined with two to five one-year renewal periods, exercisable at the
discretion of the federal government. The government is not obligated to
exercise its option to renew a federal contract. At the expiration of the term
of a federal contract, the contract in its entirety is resubmitted for
competitive bids by all interested service providers. The government's failure
to renew, or the early termination of, any significant portion of our federal
contracts would adversely affect our business and prospects.
Contracts with the federal government and its prime contractors usually
contain standard provisions for termination at the convenience of the
government or such prime contractors. Upon such a termination, we are generally
entitled to recover costs incurred, settlement expenses and profit on work
completed prior to termination. Our federal contracts do not provide for
renegotiation of profits. Terminations of federal contracts may occur, and such
terminations could adversely affect our business and prospects.
Federal contract payments we receive in excess of allowable direct and
indirect costs are
16
<PAGE>
subject to adjustment and repayment after audit by government auditors. The
U.S. government has completed audits on our incurred contract costs through
December 31, 1995, and audits are continuing for subsequent periods.
As a U.S. government contractor, we are subject to federal regulations
under which our right to receive future awards of new federal contracts may be
unilaterally suspended or barred if CH2M HILL is convicted of a crime or
indicted based on allegations of a violation of specific federal statutes.
Suspensions, or debarment actions even if temporary, can result in the loss of
valuable contract awards for which we would otherwise be eligible. While
suspension and debarment actions may be limited to that division or subsidiary
of a company engaged in the improper activity, government agencies have
authority to impose debarment and suspension on affiliated entities that were
not involved in the improper activity. Any suspension or debarment action
against us or any of our affiliates could have a material adverse impact upon
our business and prospects.
Many similar regulations are also applicable to our contracts with state,
local and foreign governments.
Our Environmental Activities and Potential Liabilities
A substantial portion of our business has been generated either directly or
indirectly as a result of federal, state, local and foreign laws and programs
related to protection of the environment. Our environmental activities are
conducted in the context of a rapidly developing and changing statutory and
regulatory framework. Such activities are subject to regulation by a number of
federal agencies, including the U.S. Environmental Protection Agency ("EPA"),
the U.S. Nuclear Regulatory Commission and the U.S. Occupational Safety and
Health Administration, as well as similar state, local and foreign regulatory
agencies.
Several federal statutes govern our environmental activities. The
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA")
established the "superfund" program to clean up hazardous waste sites, and
provides for penalties and punitive damages for noncompliance with EPA orders.
CERCLA may impose strict liability (joint and several as well as individual) on
hazardous substance waste owners, operators, disposal arrangers, transporters
and disposal facility owners and operators (collectively, "Potentially
Responsible Parties" or "PRPs"). Liabilities under CERCLA may include payment
of the costs of removal or remedial action, for other necessary response costs,
for damages for injury, destruction or loss of natural resources, and for the
cost of health effects studies.
Although the liabilities imposed by environmental legislation are generally
intended to remedy and prohibit pollution by industrial companies, we could
face liability under environmental laws in some circumstances. Increasingly,
there are efforts to expand the reach of CERCLA to make environmental
contractors responsible for cleanup costs by claiming that environmental
contractors are owners or operators of hazardous waste facilities or that they
arranged for treatment, transportation, or disposal of hazardous substances.
Should we be held responsible under CERCLA for damages caused while performing
services or otherwise, CH2M HILL could be forced to bear such liability by
itself, if contribution or indemnification is not available from other parties.
The Resources Conservation and Recovery Act ("RCRA") governs hazardous
waste generation, treatment, transportation, storage, and disposal. RCRA, or
similar EPA-approved state programs, govern waste-handling activities involving
wastes classified as "hazardous." Substantial fees and penalties may be imposed
under RCRA and similar state statutes for any violation.
In addition to civil and criminal liabilities under environmental laws, we
could face liabilities to clients and other private parties for property
damage, personal injury and other claims. Such claims could arise in a number
of ways, including:
. An accidental release of pollutants during our performance of services
. The inability of one of our remedial plans to contain or correct an
ongoing seepage or release of pollutants
17
<PAGE>
. The inadvertent exacerbation by us of an existing contamination problem
. Reliance by others on reports or recommendations we prepare that turn out
to be incorrect
In the environmental field, personal injury claims may arise in connection
with our work while it is being done or long after completion of the project.
In addition, claimants may assert that we should be strictly liable for
performing environmental remediation services -- that is, liable for damages
even though our services may have been performed using reasonable care -- on
the grounds that such services involve "abnormally dangerous activities."
Our Contractual Obligations and Potential Liabilities
We operate under a number of different types of contracts with our private
and public sector clients, including cost reimbursement contracts, time-and-
materials contracts, and fixed price contracts. The most common type is the
fixed price contract, which accounted for 30% of our revenues in 1999. Under
fixed price contracts, we are paid a predetermined amount for all services
provided as determined at the project's inception. Under time-and-materials
contracts, we are paid at an agreed-upon hourly rate for direct labor hours
worked. Under cost reimbursement contracts, our costs are reimbursed, often
with a negotiated cost ceiling and also with an incentive fee to provide
inducement for effective project management. We assume the greatest financial
risk on fixed price contracts because we assume the risk of performing those
contracts at the stipulated prices regardless of actual costs incurred. We also
incur some financial risks under time-and-materials contracts because we
contract to complete the work at negotiated hourly rates. The failure to
accurately estimate ultimate costs or to control costs during performance of
the work could result in losses or reduced anticipated profits.
When we perform services for our clients, we can become liable for breach
of contract, personal injury, property damage, and negligence. Such claims
could include improper or negligent performance or design, failure to meet
specifications, and breaches of express or implied warranties. Because our
projects are typically large enough to affect the lives of many people, the
damages available to a client or third parties are potentially large and could
include punitive and consequential damages. For example, our transportation
projects and manufacturing facility projects involve services and products that
affect not only our client, but also the many end users of those services and
products. In addition, our clients often require us to be responsible for
liabilities through contractual indemnities. Such provisions typically require
us to assume liabilities for damage or personal injury to the client, third
parties and their property, and also for fines and penalties.
We seek to protect CH2M HILL from potential liabilities by obtaining
indemnification where possible from our private sector clients. Under most of
our private sector contracts, we have been successful in obtaining such
indemnification, but such indemnification generally is not available if we fail
to satisfy specified standards of care in performing our services or if the
indemnifying party has insufficient assets to cover the liability.
We also try to obtain available indemnities from our public sector clients.
For example, some of our clients, including some U.S. government agencies, are
Potentially Responsible Parties under CERCLA. Under our contracts with these
clients, we usually try to seek contribution from the client for liability
imposed on us in connection with our work at these clients' CERCLA sites. In
addition, when we perform superfund related work for our U.S. government
clients, CERCLA generally permits us to limit our potential liabilities.
However, the EPA recently has significantly narrowed the circumstances under
which it will indemnify contractors against liabilities incurred in connection
with CERCLA projects. There are also proposals both in Congress and at various
regulatory agencies to further restrict indemnification of contractors from
third-party claims. In connection with services at the Rocky Flats closure
project and the Hanford waste tanks remediation project, CH2M HILL is
indemnified by its U.S. government client against liability claims arising out
of contractual activities involving a nuclear incident.
18
<PAGE>
International Operations Pose Risks and Complexities
We routinely conduct operations outside of the United States. Overall, we
derived approximately $114 million or 10% of our service revenues in 1999 from
such operations. International operations entail additional business risks and
complexities such as foreign currency exchange fluctuations, different taxation
methods, restrictions on financial and business practices and political
instability. Our international clients include both private sector firms and
foreign government agencies in more than 20 countries, with significant
projects in Egypt, Italy, New Zealand, Singapore, and Spain.
Our Industry Is Highly Competitive
The market for the design, consulting, engineering and construction
services that we offer is highly competitive. We compete with many firms,
including large multinational firms having substantially greater financial,
management, and marketing resources. Some of the competitors are small firms
with lower cost structures enabling them to offer lower prices for particular
services. We also compete with government agencies, including our own clients,
that can utilize their internal resources to perform services that we might
otherwise perform.
Most contracts between public sector clients and our EE&I and Industrial
operating segments are awarded through a competitive bidding process that
places no limit on the number or type of potential service providers. The
process usually begins with a government agency request for proposal that
delineates the size and scope of the proposed contract. The government agency
evaluates the proposals on the basis of technical merit and cost. For the Water
operating segment, most contracts are awarded through qualification selection
processes that vary among projects.
In both the private and public sectors, acting either as a prime contractor
or as a subcontractor, we may join with other firms that we otherwise compete
with to form a team to compete for a single contract. Because a team can often
offer stronger combined qualifications than any firm standing alone, these
teaming arrangements can be very important to the success of a particular
contract competition or proposal. Consequently, we maintain a network of
relationships with other companies to form teams that compete for particular
contracts and projects.
Conflicts of Interest May Limit Opportunities
Many of our clients and potential clients are concerned about actual or
possible conflicts of interest in retaining professional services consultants.
Governmental agencies and some private sector clients have contracting policies
that may, from time to time, prevent us from seeking or performing contracts
for other clients if there is a conflict of interest. We have, on occasion,
declined to bid on particular projects because of actual or perceived conflicts
of interest, and we are likely to continue encountering such conflicts of
interest in the future.
Our Properties are Leased
Our corporate headquarters, a 131,000 square foot facility, is located at
6060 South Willow Drive, Greenwood Village, Colorado 80111. We lease all of our
significant facilities, including our corporate headquarters and 66 domestic
and 33 foreign office locations, under many separate leases. We believe that
comparable facilities are available for lease and therefore that the loss of
any such leases would not have a material adverse impact on our operations. We
believe that our facilities are adequate for the present needs of our business.
We Are Not Involved in any Material Lawsuits
CH2M HILL is party to various legal actions arising in the normal course of
its business, some of which involve claims of substantial sums. Damages
assessed in connection with and the cost of defending any such actions could be
substantial. CH2M HILL's management believes that the levels of insurance
coverage are generally adequate to cover CH2M HILL's liabilities, if any, with
regard to such claims. CH2M HILL generally accrues amounts for retentions and
deductibles based on advice from legal counsel when it is probable that a loss
will be incurred and can be estimated. Gain contingencies or recoveries are
rare and are usually recorded when the cash is collected.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis explains our general financial
condition, changes in financial condition and results of operations for CH2M
HILL as a whole and each of our operating segments including:
. Factors affecting our business
. Our revenues and profits
. Where our revenues and profits came from
. Why those revenues and profits were different from year to year
. Where our cash came from and how it was used
. How all of this affects our overall financial condition
The following discussion contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. Our actual
results may differ significantly from the results discussed in the forward-
looking statements. As you read this section, you should also refer to our
consolidated financial statements and the accompanying notes. These
consolidated financial statements provide additional information regarding our
financial activities and condition. This analysis may be important to you in
making decisions about your investments in CH2M HILL.
Introduction
The engineering and construction industry has been undergoing substantial
change as public and private clients privatize and outsource many of the
services that were formerly provided internally. Numerous mergers and
acquisitions in the industry have resulted in a group of larger firms that
offer a full complement of single-source services including studies, designs,
construction, operations, and in some instances, facility ownership. Included
in the current trend is the movement towards longer-term contracts for the
expanded array of services, e.g., 5 to 20 year contracts for facility
operations. These larger, longer contracts require us to have substantially
greater financial capital to remain competitive.
We believe we provide our clients with innovative project delivery using
cost-effective approaches and advanced technologies. We continuously monitor
acquisition and investment opportunities that will expand our portfolio of
services, add value to the projects undertaken for clients, or enhance capital
strength. We believe that we are well positioned geographically, technically
and financially to compete worldwide in the markets we have elected to pursue
and clients we serve.
Overall
Net income after tax for the three-month period ended March 31, 2000 was
$5.2 million compared with $1.9 million in the same period of 1999. Our diluted
earnings per share in 2000 was $0.17, compared with $0.07 in 1999. Revenues and
pre-tax profit for the three-month periods ended March 31, 2000 and 1999 by
operating segment were as follows:
<TABLE>
<CAPTION>
For the three-month period For the three-month period
ended March 31, 2000 ended March 31, 1999
--------------------------------------------------------
(in Pre-Tax Pre-Tax
millions) Revenues Profit Revenues Profit
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EE&I $ 204.3 55% $ 7.0 $ 119.3 44% $ 2.6
Water 115.5 31% 5.2 104.7 38% 2.7
Industrial 52.4 14% 0.7 50.2 18% -
Corporate - - (2.5) - - (1.6)
--------------------------------------------------------
Total $ 372.2 100% $ 10.4 $ 274.2 100% $ 3.7
</TABLE>
20
<PAGE>
Results of Operations for the Three-Month Period Ended March 31, 2000 Compared
to the Same Period of 1999
Revenues for the three-month period ended March 31, 2000 were $372.2
million compared to $274.2 million for the same period in 1999. The increase of
$98.0 million or 35.7% is comprised of an acquisition and improvements in the
Environmental, Energy & Infrastructure ("EE&I") segment of $85.0 million, and
improvements in the Water segment of $10.8 million, and the Industrial segment
of $2.2 million.
Pre-tax profit for the three-month period ended March 31, 2000 was $10.4
million compared to $3.7 million in the same period of 1999. The increase of
$6.7 million was comprised of increases in the EE&I segment of $4.4 million,
the Water segment of $2.5 million, and the Industrial segment of $0.7 million.
Corporate expenses increased by $0.9 million.
Environmental, Energy and Infrastructure
Revenues in the EE&I segment for the three-month period ended March 31,
2000 were $204.3 million compared to $119.3 million for the same period in
1999. This increase of $85.0 million or 71.2% was primarily attributable to the
acquisition of the Lockheed Martin Hanford Corporation in December 1999, which
aligns with the nuclear business. Subsequently changed to CH2M HILL Hanford
Group, Inc., this entity provides engineering, design and technical services to
support decontamination, decommissioning and remedial activities at the U.S.
Department of Energy's Hanford Reservation in Richland, Washington. We also
experienced growth in both our telecommunications and traditional environmental
businesses in 2000. Clients are continuing to build or upgrade new
infrastructure to keep pace with advances in technology in the
telecommunications business.
During the first quarter of 2000, we also reported increased revenues in
the transportation markets. This increase came from market-driven demand and
added delivery capacity. The market demand is primarily the result of the
Transportation Equity Act for the 21st Century (TEA-21) which was adopted by
Congress in 1998. TEA-21 provides federal funding to the various states for
transportation infrastructure improvement projects for highways, highway
safety, and transit for the six-year period from 1998 to 2003.
Pre-tax profit for the EE&I segment was $7.0 million for the three-month
period ended March 31, 2000 compared to $2.6 million in the same period of
1999. Pre-tax profit as a percent of revenue for the same period in 2000 was
3.4% compared to 2.2% for 1999. The most significant impact on profits was from
the Kaiser-Hill joint venture, which is attributable to the nuclear business
and is more fully discussed in the "Joint Ventures" section below. The
environmental business had a net decrease of $1.1 million due to an adjustment
to the carrying value of the receivable on a large, energy efficiency
modification project, for which negotiations with the client are ongoing,
offset by the revenue increase mentioned above. The nuclear business achieved
increased profits for the first quarter of 2000 versus the same period in 1999
due to CH2M HILL Hanford Group, Inc. reporting its first full quarter of
operations in 2000. EE&I also had an increase in pre-tax profit from the
transportation business due to growth and indirect cost control, offset by
negative performance on a fixed price telecommunications project resulting from
the withdrawal of a major subcontractor, for a net decrease in profit of $0.4
million.
Water
The Water segment reported revenues of $115.5 million for the three-month
period ended March 31, 2000 compared to revenues of $104.7 million in the same
period of 1999. This increase of $10.8 million or 10.3% was attributable to
growth in several areas. Revenues from operations and maintenance services
increased by $5.4 million from the initiation of several new contracts
subsequent to March 31, 1999. Design build revenues were $1.5 million lower
than the same period in 1999 due to the delay in the start up of some larger
design build contracts in 2000. Traditional engineering consulting revenues
were $7.4 million higher than the first three months of 1999, propelled by
prior business development investment in domestic operations as well as the
strong domestic economy.
21
<PAGE>
The Water segment reported $5.2 million of pre-tax profit for the three-
month period ending March 31, 2000 compared to $2.7 million of pre-tax profit
for the same period of 1999. Pre-tax profit as a percent of revenues was 4.5%
compared to 2.6% in the same period of 1999. The pre-tax profit increase of
$2.5 million was attributable to revenue growth as well as improving margins
within domestic traditional engineering and design build businesses.
Industrial
The Industrial segment reported revenues of $52.4 million for the three-
month period ended March 31, 2000, of which $32.6 was generated from the
microelectronics industry. The revenues for the same period of 1999 were $50.2
million, of which $33.4 was generated from the microelectronics industry. The
increase of $2.2 million was comprised of a net increase in revenues of $3.0
million from other industries, including food, biopharmaceutical, fine
chemical, and facility services, offset by a $0.8 million decrease in revenues
from the microelectronics industry. The revenue mix between construction costs
versus services for engineering and construction management also changed
significantly in 2000 versus 1999. The construction cost component of revenues
decreased from $28.7 million, which was 57.2% of 1999 revenues, to $22.7
million, which was 43.3% of 2000 revenues. This $6.0 million decrease in
construction revenues was offset by an increase in service revenues, which went
from $21.5 million in 1999 to $29.7 million in 2000. The construction revenue
decrease was due to two significant construction projects that were started in
first quarter 1999 but were near completion by first quarter 2000.
The Industrial segment reported $0.7 million pre-tax profit for the three-
month period ended March 31, 2000 versus virtually no profit for the same
period 1999. Profit, as a percent of revenues for 2000 was 1.3%. This profit
increase was primarily due to an increase in the volume of self-performed
services provided during 2000. Direct project costs, as a percentage of
revenues, decreased 7.4% in 2000 versus 1999. This decrease in direct project
costs resulted from the decrease in construction revenues. The combination of a
decrease in direct project costs coupled with an increase in service revenues
in 2000 results in an increase in project margins. Indirect labor expenses,
which are made up of salaries and benefits of all administrative personnel,
plus salaries and benefits of technical personnel for hours not working on
billable client services, decreased. Indirect labor costs decreased, as a
percent of the services portion of gross revenues, 26.2% in 2000 versus 1999,
due to the increase in staff utilization. Other overhead, general and
administrative costs were approximately the same in 2000 versus 1999.
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------------------------------
Pre-Tax Pre-Tax Pre-Tax
(in millions) Revenues Profit Revenues Profit Revenues Profit
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Environmental, Energy
and Infrastructure $497.5 42% $17.4 $386.1 41% $9.3 $360.2 39% $5.8
Water 438.0 37% 16.3 362.8 39% 7.2 309.9 34% 5.0
Industrial 249.0 21% - 186.1 20% 3.6 247.5 27% 7.2
Corporate - - (6.9) - - (5.7) - - (6.0)
------------------------------------------------------------------
Total $1,184.5 100% $26.8 $935.0 100% $14.4 $917.6 100% $12.0
</TABLE>
Results of Operations for the Year Ended December 31, 1999 Compared to 1998
Revenues for the year ended December 31, 1999 were $1,184.5 million
compared to $935.0 million for the same period in 1998. The increase of $249.5
million or 26.7% is comprised of growth in the Environmental, Energy &
Infrastructure ("EE&I") segment of $111.4 million, the Water segment of $75.2
million, and the Industrial segment of $62.9 million.
Pre-tax profit for the year ended December 31, 1999 was $26.8 million
compared to $14.4 million in the same period of 1998. The increase of $12.4
million was comprised of increases in the
22
<PAGE>
EE&I segment of $8.1 million and the Water segment of $9.1 million, offset by a
decline in the Industrial segment of $3.6 million. Corporate expenses increased
by $1.2 million.
Environmental, Energy and Infrastructure
Revenues in the EE&I segment for the year ended December 31, 1999 were
$497.5 million compared to $386.1 million for the same period in 1998. This
increase of $111.4 million was primarily attributable to growth of $26.2
million in the telecommunications markets, $30.3 million in the construction
services market, and $22.0 million in the transportation markets. The growth in
the telecommunications markets has occurred domestically and internationally.
Clients are building new infrastructure or upgrading existing infrastructure to
keep pace with the advancements in information technology. The growth in
revenues from construction services is indicative of our commitment to
diversify our business. Construction services revenues generated in the year
ended December 31, 1999 were primarily from remedial action contracts with the
U.S. Navy. The increase in the transportation markets is primarily the result
of the Transportation Equity Act for the 21st Century (TEA-21) which was
adopted by Congress in 1998. TEA-21 provides federal funding to the various
states for transportation infrastructure improvement projects for highways,
highway safety, and transit for the six-year period from 1998 to 2003.
Pre-tax profit for the EE&I segment was $17.4 million for the year ended
December 31, 1999 compared to $9.3 million in the same period of 1998. Profit
as a percent of revenue in 1999 was 3.5% compared to 2.4% in 1998. The increase
in pre-tax profit of $8.1 million was primarily generated by increased project
margins of $6.4 million from the telecommunications markets offset by an
increase in indirect costs of $2.8 million. The remaining increase of $4.5
million was achieved in the construction services and transportation markets
due to the increase in volume of contracts.
Water
The Water segment reported revenues of $438.0 million for the year ended
December 31, 1999 compared to revenues of $362.8 million in the same period of
1998. The increase of $75.2 million was attributable to significant growth in
several market areas. In general, $37.7 million of the increase in the Water
segment revenue resulted from prior traditional engineering consulting
development efforts, as well as new business obtained from our existing clients
due to the strong domestic economy. Revenues from design/build projects
increased by $24.8 million, as a result of our ongoing efforts to provide a
full array of services to our customers. Revenues from operations and
maintenance services increased by $12.7 million due to the addition of new
infrastructure support contracts, primarily with municipalities.
The Water segment reported $16.3 million of pre-tax profit for the year
ended December 31, 1999 compared to $7.2 million of pre-tax profit for the same
period of 1998. Profit as a percent of revenue for 1999 was 3.7% compared to
2.0% for 1998. The increase of $9.1 million in profit is attributable to the
strong revenue growth within all of our Water businesses discussed earlier. In
addition, spending increased due to continued investment in design/build
infrastructure and development, and focused investment in strategic business
development opportunities throughout the world.
Industrial
The Industrial segment reported revenues of $249.0 million for the year
ended December 31, 1999, of which $164.4 million was generated from the
microelectronics industry. The revenues for 1998 were $186.1 million, of which
$129.0 million was generated from the microelectronics industry. The increase
of $62.9 million was comprised of $35.4 million increase in revenues from the
microelectronics industry and an increase in revenues of $27.5 million from
other industries, including food, biopharmaceutical, fine chemical and facility
services.
The mix of the revenues between construction costs versus services for
engineering and construction management also changed significantly from 1999
versus 1998. The construction cost component of revenues increased from $46.8
million, which was 25.1% of 1998 revenues, to $153.4 million, which was 61.6%
of 1999 revenues. The construction
23
<PAGE>
revenue increase was due to two large construction projects that were started
in first quarter 1999. This increase in construction revenues of $106.6 million
offset the decrease in service revenues, which declined from $139.3 million in
1998, to $95.6 million in 1999. This service revenue decrease of $43.7 million
was due to the significant decline in non-construction related services
provided to microelectronics businesses.
The Industrial segment reported no pre-tax profit for the year ended
December 31, 1999 versus $3.6 million for 1998. Profit as a percent of revenues
for 1998 was 1.9%. The most significant factor causing this profit decline was
the decrease in volume of services sold during 1999 and decline in project
margins. These were results of the significant decline in services provided to
the microelectronics industry and an increase in low-margin construction
projects.
1998 Results of Operations Compared to 1997
Revenues for 1998 were $935.0 million compared to $917.6 million in 1997.
The increase of $17.4 million or 1.9% is comprised of significant improvements
in the EE&I segment of $25.9 million and the Water segment of $52.9 million.
These gains were reduced by the decrease of $61.4 million in the Industrial
segment revenues.
Pre-tax profit for 1998 was $14.4 million compared to $12.0 million in
1997. The increase of $2.4 million or 20.0% was primarily due to volume
increases in the EE&I and Water segments as well as a reduction in corporate
expenses. Contracts in the EE&I and Water segments generally have a lower
margin than the contracts in the Industrial segment, but increases in the
volume of contracts offset any decline generated by the Industrial segment.
Bad debt expense was $57,000 in 1996, $1.4 million in 1997, and $5.2
million in 1998, which also impacts pre-tax profit. The increases in 1997 and
1998 relate to specific projects in the EE&I and Water segments that needed to
be reserved for due to the uncertainty of collection. At December 31, 1997, the
outstanding receivables related to these projects were $2.2 million of unbilled
and $1.2 million of billed. No amounts were outstanding at December 31, 1998.
The entire outstanding receivable balances were reserved for as the projects
were halted due to poor economic conditions in Latin America. Currently, future
collection of these receivables is not probable.
The loss on the sale of assets in 1998 of $1.7 million also negatively
impacted pre-tax profit. This loss related to assets that were sold in closing
two of our offices.
Environmental, Energy and Infrastructure
Revenues in the EE&I segment increased $25.9 million or 7.2% to $386.1
million in 1998, compared to $360.2 million in 1997. EE&I revenues accounted
for 39.0% of our total operating revenues in 1997 and 41.0% in 1998. During
1998 we benefited from the business development efforts undertaken in 1997. We
reported a full year of revenues in 1998 for public sector hazardous waste
remediation contracts awarded in 1997 by the U.S. Department of Defense and the
U.S. Department of Energy. Revenue growth from the U.S. Department of Defense
was strong in part due to legislation requiring military base closure and
remediation. The initial assessment phases are complete and the environmental
remediation and clean-up phases have begun.
The telecommunications markets, both domestically and internationally, also
attributed to the increase in revenues in 1998. We obtained several major
clients in this market providing program management oversight, site development
and construction management services to install or upgrade cable and wireless
networks and related infrastructure. With the technological advances in
wireless telecommunications, the ability to communicate rapidly via voice,
data, and video have become a necessity for business enterprises and
individuals around the world. We believe this market will provide continued
revenue growth in future years.
Although the private sector of the environmental and infrastructure market
slowed in 1997, we realized some recovery from this sector in 1998. We
attribute this growth to the strong domestic economy, which is affording
larger, multinational corporations the opportunity to
24
<PAGE>
improve their environmental performance and sustainability.
The transportation market also contributed to the increase in revenues in
1998. We have benefited from the growth generated by the Intermodal Surface
Transportation Efficiency Act (ISTEA) adopted by Congress in 1991, which caused
significant increases in federal funding to the states for transportation
projects. We believe that we are also well positioned in the market to benefit
from the TEA-21 legislation.
The EE&I segment reported higher pre-tax profit in 1998, increasing from
$5.8 million in 1997 to $9.3 million in 1998, an increase of 60.3%. Profit as a
percent of revenues was 2.4% in 1998 compared to 1.7% in 1997. The growth in
the telecommunications markets contributed $2.8 million in profit while the
remaining net increase of $0.7 million was attained by successful cost
containment efforts. The demand for services is high in the telecommunications
market, which can return higher gross margins than the public and private
sector environmental and infrastructure contracts.
During 1998, cost containment measures enacted in prior years reduced
overhead costs as administrative functions have been consolidated to enable us
to manage our resources more effectively.
Water
Water segment revenues were $362.8 million in 1998 versus $309.9 million in
1997, an increase of $52.9 million or 17.1%. Approximately 30% of the increase
came from new contracts, with terms up to 15 years, in the utility plant
operations market for public and private clients. The balance of the increase
came from contract activities in water and wastewater infrastructure
improvement projects undertaken by municipalities and other utility authorities
across the United States and abroad. The desire by municipalities to preserve
the environment and provide clean water creates a demand for services we offer.
Profitability in the Water segment increased from $5.0 million in 1997 to
$7.2 million in 1998, an increase of 44.0%. Profit as a percent of revenues was
2.0% in 1998 compared to 1.6% in 1997. Profitability continues to improve as we
continue to win significant new contracts as reflected by the increase in
revenues mentioned above. Additionally, the Water segment reported an increase
of $1.0 million in profit due to lower business development expenditures. From
year to year, we achieved increasing margins by focusing on improvements in
project delivery and effective cost management, even though competition in this
industry is increasing as a result of rapid consolidation. We believe that our
future success in the Water segment is dependent on continuing improvements in
our project delivery performance and our ability to win significant new
contracts.
Industrial
The Industrial segment's revenues for 1998 were $186.1 million, of which
$141.4 million or 76.0% was generated from the microelectronics industry. The
Industrial segment's revenues for 1997 were $247.5 million, of which $222.8
million or 90.0% was generated from the microelectronics industry. Total
revenues from the Industrial segment declined $61.4 million from 1997 to 1998
due to declines in the microelectronics industry offset by an increase in
revenues from other industries including, food, biopharmaceutical, fine
chemical, and facility services. The microelectronics industry began to reduce
capital spending in 1997 which has continued into 1999, resulting in a sharp
decline in purchases of engineering and construction services by our
microelectronics clients. In order to reduce its dependence on the
microelectronics industry, the Industrial segment has reallocated some of its
workforce to focus on diversifying into other industries mentioned above.
Pre-tax profit in the Industrial segment was $3.6 million in 1998 versus
$7.2 million in 1997. Profit as a percent of revenues was 2.0% in 1998 compared
to 2.9% in 1997. The decrease in the profit as a percentage of revenues was
2.0% in 1998 compared to 29% in 1997. The decrease in the total volume of
services sold during 1998 to the microelectronics industry caused this profit
decline. In addition to the impact of reduced volume, direct project costs as
well as overhead expenses affected profitability. Direct project costs, as a
percentage of revenues, decreased 2.0% in 1998 versus 1997, slightly improving
gross margins. Indirect labor costs, included in overhead
25
<PAGE>
expenses, as a percentage of gross revenues, increased 4.0% from 1997 to 1998
because of the significant decline in revenue during 1998.
Joint Ventures
We routinely enter into joint ventures to service the needs of our clients.
Such arrangements are customary in the engineering and construction industry
and generally are for one specific project. Our largest joint venture is
Kaiser-Hill Company, LLC, in which we own a 50% interest. This joint venture is
in our EE&I operating segment. The earnings from this joint venture, along with
other joint ventures that are individually insignificant, are reported as
equity in earnings of investees accounted for under the equity method.
For the three-month period ended March 31, 2000, we reported equity in
earnings of investees accounted for under the equity method of $5.7 million
compared to $0.7 million in the same period of 1999. Our equity in earnings
from the Kaiser-Hill joint venture for the first quarter of 2000 were $4.8
million compared to $0.5 million for 1999. This increase was primarily
attributable to performance fees earned under the old contract, which expired
on January 31, 2000, for achieving milestones such as the demolition of a
significant building at the Rocky Flats site. The first quarter results also
include two months of fees under the new contract, which was effective February
1, 2000.
For the year ended December 31, 1999, we reported equity in earnings of
investees accounted for under the equity method of $12.4 million compared to
$8.4 million in 1998 and $8.7 million in 1997. The earnings from the Kaiser-
Hill joint venture for the same period of 1999 were $6.4 million compared to
$7.8 million for 1998. Under the Performance Based Management contract, as
discussed below, fees are earned based upon specific negotiated performance
incentives which are heavily weighted to the U.S. Government's fiscal year end
of September 30. Due to the timing of specific work scopes and the completion
of these activities, earnings may not be comparable from period to period.
Equity in earnings of investees accounted for by the equity method
generated $12.4 million of revenues in 1999 which represents 47.6% of operating
income and 91.0% of net income. For 1998, the $8.4 million of revenues
represents 56.7% of operating income and 144.5% of net income. Although Kaiser-
Hill achieved the negotiated performance measures for 1999 in the performance
based contract, the revenues from the contract for 1999 were expected to be
lower than in 1998 due to the fee structure in this contract. This was due to
the types of tasks required to be performed in 1999 to decommission the site
and the corresponding fee levels negotiated based on the difficulty and risks
of those tasks. No one specific task was material to the fee structure in this
contract year over year. The original contract was set to expire on June 30,
2000. This contract was a Performance Based Management Contract, which means
that the fees on the contract were dependent on Kaiser-Hill's performance
measured against safety, budget, and schedule.
Effective February 1, 2000, the U.S. Department of Energy extended Kaiser-
Hill's Rocky Flats contract. Although the new contract is a closure contract
and does not have a defined term, we anticipate closure of the site in 2006.
Under the new contract, Kaiser-Hill is compensated through a base fee affected,
up or down, by its performance against the agreed site target closure costs.
Outside of a negotiated range, for every dollar that the U.S. Department of
Energy saves with earlier cleanup, Kaiser-Hill receives a 30 cent increase in
fee. At the same time, for every dollar the cleanup is over budget, the fee is
reduced by 30 cents down to an agreed minimum. The ultimate fee will also be
impacted by the schedule to achieve site closure and the safety of our
performance. Until the results of the performance measures become more
estimable, earnings are expected to be comparable from quarter to quarter.
Corporate Expenses
Corporate expenses for the three-month period ended March 31, 2000 were
$2.5 million compared to $1.6 million for the same period of 1999. During the
first quarter of 2000, we incurred expenses to buy out a supplemental
retirement plan associated with the old key employee program and to accrete the
value of certain equity
26
<PAGE>
instruments related to our compensation plans to the current stock price.
Corporate expenses represent centralized management costs that are not
allocable to individual operating segments and primarily include expenses
associated with administrative compliance functions such as legal, treasury,
accounting, tax and general business development efforts.
Corporate expenses for the year ended December 31, 1999 were $6.9 million
compared to $5.7 million in 1998 and $6.0 million in 1997. The increase of $1.2
million in 1999 is primarily related to the registration of our stock with the
Securities and Exchange Commission.
Income Taxes
The income tax provision for the three-month period ended March 31, 2000
was $5.2 million, or an effective tax rate of 49.9%, compared to $1.8 million,
or an effective tax rate of 48.9%, for the same period of 1999. Our effective
tax rate continues to be higher than the U.S. statutory income tax rate of
35.0% due to the effect of state income taxes, disallowed portions of meals and
entertainment expenses and non-deductible foreign net operating losses.
The income tax provision for the year ended December 31, 1999 was $13.1
million, or an effective tax rate of 49.1%, compared to $8.6 million, or an
effective tax rate of 59.6%, for 1998. The decrease in the effective tax rate
in 1999 is primarily due to the reduction of non-deductible foreign net
operating losses as we have been able to improve the financial performance of
our international operations. The effective tax rate in 1998 was substantially
the same as 1997. Our effective tax rate continues to be higher than the U.S.
statutory income tax rate of 35.0% due to disallowed portions of meals and
entertainment expenses and non-deductible foreign net operating losses. Our
income tax provisions for the last several years were as follows:
<TABLE>
<CAPTION>
Income Tax Effective
Year Provision Tax Rate
--------------------------------------------------------------------------------
<S> <C> <C>
1999 $13,144 49.1%
1998 $ 8,571 59.6%
1997 $ 7,295 60.7%
</TABLE>
Liquidity and Capital Resources
Cash Flows from Operating Activities
For the three-month period ended March 31, 2000, operations provided $18.7
million of cash primarily due to growth in our operations. Working capital
changes included a decrease of $10.2 million in accounts payable as we no
longer incurred pass-through costs for two significant construction projects. A
comparable decrease in accounts receivable due to the completion of these
projects is offset by an increase in accounts receivable and billings in excess
of revenues as a result of improved operations, providing a net increase in
cash of $5.2 million. The remaining net increase in working capital is
primarily due to the increase in employee related and other accrued liabilities
due to the improvement in operations and due to the accrual of payroll and
related benefit expenses.
During the first quarter of 1999, we used $17.7 million of cash. During
this period, our receivables and payables increased due to the pass-through of
revenues and expenses related to new, large construction projects. Offsetting
this net increase was the reduction of accrued incentive compensation and the
settlement of accrued liabilities.
For the year ended December 31, 1999, operations provided $29.6 million of
cash and used $4.4 million of cash in 1998. During 1999, our receivables,
payables and billings in excess of revenues increased due to growth and due to
the pass-through of revenues and expenses related to new, large construction
projects. Other current liabilities decreased primarily due to the payment of
accrued incentive compensation and the settlement of accrued liabilities.
Operations generated $38.9 million of cash flows in 1997. The decrease of $43.3
million from 1997 to 1998 was attributable to the following working capital
changes:
. Revenue growth provided a corresponding increase in accounts receivable
. Prepaids increased as we contributed cash to our largest pension plan to
maintain its funded status
. Billings in excess of revenues decreased due to a reduction in advance
payments on contracts formerly realized in the Industrial operating
segment
27
<PAGE>
Cash Flows from Investing Activities
Our business does not require significant capital expenditures. The capital
expenditures are generally for purchases of office equipment and leasehold
improvements. We spent $4.7 million in 1999, $4.7 million in 1998, and $2.6
million in 1997 on such expenditures. We have now established a formal
operating lease program under which most of our computing and related equipment
is procured on an ongoing basis. The increase in capital expenditures from 1997
to 1998 reflects leasehold improvements for large regional office moves for
which the leases had expired.
In 1999, we made three acquisitions, one of which was significant. We
purchased the common stock of Lockheed Martin Hanford Corporation ("Hanford")
for $17.1 million. Hanford is an environmental management contractor that
provides tank waste remediation services to the U.S. Department of Energy. The
acquisition resulted in $16.9 million in goodwill that will be amortized over
the anticipated life of the contract of seven years.
Cash Flows from Financing Activities
For the first quarter of 2000, we used $11.4 million of cash in financing
activities, of which $9.5 million was used to purchase stock presented on the
internal market. CH2M HILL purchased $3.3 million of stock on the internal
market to fund its Employee Stock Plan and exercised its right to purchase the
remaining $6.2 million in order to provide liquidity to its employees by
clearing the internal market. These transactions were funded by cash flows from
operations. During the first quarter of 2000, our net borrowings were
negligible compared to the first quarter of 1999, in which we had a net
increase of $9.3 million against our line of credit to fund operations.
During 1999, we borrowed an average of $0.6 million at a weighted average
interest rate of 5.9% against our line of credit to fund operations. At
December 31, 1999, no amounts were outstanding. In June 1999, we entered into a
new credit facility for a $100.0 million revolving line of credit maturing June
2002, which may be extended for an additional one-year period, and the maximum
amount of credit available may be increased by $25.0 million, under certain
conditions. The facility may be used for general corporate purposes and
permitted acquisitions. At the option of CH2M HILL, the facility bears interest
at a rate equal to either the London Inter-Bank Offering Rate for interest
periods of 1, 2, 3 or 6 months, plus applicable margins ranging from 1.0% to
2.0%, the lender's prime rate, or the sum of 0.5% plus the federal fund rate,
if greater than the lender's prime rate. Borrowings under the credit agreement
are available on a revolving basis through the final maturity date. The credit
facility is guaranteed by each direct and indirect wholly-owned subsidiary of
CH2M HILL whose gross revenues account for greater than 5% of the consolidated
annual revenues of CH2M HILL. The credit agreement contains usual and customary
representations and warranties, and affirmative and negative covenants and
financial covenants for credit facilities of like size, type and purpose. CH2M
HILL is in compliance with such covenants.
At December 31, 1999, under our unsecured loan agreement, we had an
outstanding term loan for $2.0 million, which will be paid in full during 2000.
The interest rate on the loan is 7.1% and payments are made quarterly. We also
had $18.8 million in 1999, $20.6 million in 1998, and $22.5 million in 1997, in
notes payable to over 300 former shareholders in varying amounts over the next
ten years.
CH2M HILL believes its current sources of funds will be sufficient to
satisfy its current operations and anticipated growth through 2000.
Derivatives and Financial Instruments
We occasionally enter into forward contracts to hedge foreign currency
risks and not for speculative purposes. At March 31, 2000 and 1999 and at
December 31, 1999 and 1998, there were no significant forward contracts
outstanding. Generally, we do not have derivative type instruments.
Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss from adverse changes in market prices and
interest rates. We manage our market risk by matching projected cash inflows
from operations, financing activities and investing activities with projected
cash outflows to fund debt payments, capital
28
<PAGE>
expenditures and other cash requirements. We may utilize debt or equity
financing for general corporate purposes and acquisitions. Historically, we
have used short-term variable rate borrowings under our unsecured revolving
credit agreement although we do have $1.0 million currently outstanding on a
term note to be repaid by June 30, 2000. Our earnings and cash flows are
affected by changes in interest rates affecting our variable rate borrowings
under our bank credit facility. During the first quarter of 2000 there were no
significant amounts outstanding on the bank credit facility. The interest rates
on CH2M Hill's short-term and long-term borrowings approximate fair value.
New Accounting Standards Not Yet Adopted
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," establishes fair value accounting and reporting standards for
derivative instruments and hedging activities. CH2M HILL will adopt SFAS No.
133 in the first quarter of fiscal 2001. CH2M HILL is currently assessing the
effect of adoption, if any, on its financial position, results of operations,
and cash flows.
29
<PAGE>
EMPLOYEE BENEFIT PLANS AND DIRECT STOCK PURCHASES
CH2M HILL maintains a number of plans that provide benefits to employees of
CH2M HILL and its affiliates. Under some of these plans, employees of CH2M HILL
and most of our affiliates may acquire common stock or beneficial interests in
common stock held in trusts. Employees may also purchase stock directly through
the internal market. The material provisions of the plans are summarized below
in general terms. We encourage you to read the plan documents, which will be
made available to you on request and which have been filed as exhibits with the
Securities and Exchange Commission.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Plans at a Glance How Plan Works CH2M HILL Contribution
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Stock Stock Purchase Plan Payroll withholding In 2000, 10% of purchase
Purchase and (1%-10% of price; thereafter as
Deferred compensation) to determined by the Board
Compensation purchase common stock of Directors
with after-tax dollars
------------------------------------------------------------------------
Pre-Approved Direct Purchase 5,000 shares None
Stock Purchase or less on any trade
date
------------------------------------------------------------------------
Direct Stock Request approval from None
Purchase through Ownership and
offer cycle Incentive Compensation
Committee to purchase
over 5,000 shares
------------------------------------------------------------------------
Deferred Deferral of For payroll deductions
Compensation Plans compensation to be into the pre-tax
paid at a later date deferred compensation
in shares of common plan, in 2000, 10% of
stock purchase price;
thereafter as determined
by the Board of
Directors
----------------------------------------------------------------------------------------
Retirement 401(k) Plan Invest pre-tax for Matching contributions
Plans retirement via payroll determined by each
withholding member employer limited
to a percentage of
compensation or a
specified dollar amount
Meet eligibility Defined contribution
requirements determined by each
member employer, subject
to Board approval and
limitations set forth in
the plan
----------------------------------------------------------------------------------------
Stock Stock Bonus Grant of shares Full value of shares
Incentives directly or through awarded by CH2M HILL
deferred compensation,
with or without
vesting restrictions
------------------------------------------------------------------------
Stock Options Right to purchase Right to appreciation on
shares or equivalents option shares over the
within 5 years at the option period
stock price on the
grant date, subject to
3-year vesting
----------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
Retirement and Tax-Deferred Savings Plan
The Retirement and Tax-Deferred Savings Plan, a 401(k) plan, is a profit
sharing plan that includes a cash or deferred arrangement that is intended to
qualify under Sections 401(a) and 401(k) of the Internal Revenue Code. This
means that contributions to the 401(k) plan receive favorable federal income
tax treatment.
Employees Eligible to Participate in the 401(k) Plan
All of our employees are eligible to participate in the 401(k) plan,
except:
. Leased employees
. Temporary employees
. Employees of affiliates that have not adopted the 401(k) plan
As of January 1, 2000, none of CH2M HILL's foreign affiliates have adopted
the 401(k) plan. Most domestic affiliates of CH2M HILL have adopted the 401(k)
plan but some of those domestic affiliates have not adopted the provisions of
the 401(k) plan relating to defined contributions or matching contributions.
CH2M HILL and its affiliates that have adopted the 401(k) plan are referred to
in this description as "member employers."
Timing of Participation in the 401(k) Plan
Each eligible employee can participate in the 401(k) plan with respect to
employee contributions and matching contributions, if applicable, beginning on:
. The first date of hire, or
. The first day of the first full pay period that begins on or after the
employee's date of hire
Each eligible employee begins to participate in the 401(k) plan with
respect to defined contributions (if applicable), as of the first day of the
first month that begins on or after the eligible employee completes a twelve-
month period of service during which the employee is credited with at least
1,000 hours of service.
Contributions to the 401(k) Plan
Employee Contributions. The 401(k) plan allows a participant to elect to
defer a portion of the participant's compensation for a calendar year, subject
to limits, and to have that deferred amount contributed to the participant's
employee contribution account in the 401(k) plan.
Matching Contributions. Each member employer may, but is not required to,
make matching contributions each calendar quarter. Matching contributions may
be made in an amount that is based on a percentage of the employee's
contributions for the calendar quarter up to 4% of the employee's compensation,
or limited to a specified dollar amount per employee. Matching contributions to
the 401(k) plan are generally made in cash.
Defined Contributions. Each member employer may, but is not required to,
make defined contributions to the 401(k) plan on behalf of that member
employer's employees. The amount of each member employer's annual defined
contribution, if any, is determined by the Board of Directors of CH2M HILL.
Each member employer's defined contributions to the 401(k) plan are
allocated to the defined contribution accounts of eligible employees of that
member employer. A participant in the 401(k) plan is eligible to receive a
defined contribution for a calendar year if any of the following apply:
. The participant completed 1,000 hours of service during the calendar year
and was employed by the member employer at the end of the calendar year
. The participant retired during the calendar year at or after age 65, or
age 55 if the participant has at least five years of service
. The participant died during the calendar year
. The participant became permanently disabled during the calendar year
Each eligible participant receives a proportionate share of the member
employer's
31
<PAGE>
defined contribution for the calendar year. Each eligible participant's
proportionate share is determined by dividing that participant's eligible
compensation for the calendar year by the total eligible compensation for the
calendar year of all eligible participants. Eligible compensation is an
employee's basic hourly wage, times the number of regular hours worked during
the year. Eligible compensation for 2000 is limited to $170,000 under Section
401(a)(17) of the Internal Revenue Code.
Rollover Contributions. Participants or potential participants may transfer
a rollover contribution from another qualified retirement plan to the 401(k)
plan.
Contribution Limitations. The maximum contribution for any calendar year
which CH2M HILL or its affiliates may make to the 401(k) plan for the benefit
of a participant, (including employee contributions, but excluding rollover
contributions), plus forfeitures, may not exceed the lesser of $30,000 or 25%
of the participant's compensation for the calendar year. The $30,000 limit will
be adjusted for cost of living in accordance with rules of the Secretary of the
Treasury.
Investment of Contributions to the 401(k) Plan
Defined contributions to the 401(k) plan are normally invested entirely in
CH2M HILL common stock.
Employee contributions, rollover contributions, and matching contributions
to the 401(k) plan are invested in various investment alternatives selected by
the trustees, as directed by the participants.
As of January 1, 2000, the investment alternatives offered by the trustees
are as follows:
Fidelity Retirement Government Money Market Portfolio
CH2M HILL Fixed Income Fund
Fidelity Balanced Fund
Fidelity Equity-Income Fund
Spartan U.S. Equity Index Fund
Fidelity Magellan Fund
Fidelity Growth Company Fund
PIMCO Mid Cap Growth Fund
Janus Worldwide Fund
Company Stock Fund (invested in common stock of CH2M HILL)
The following tables summarize, as of the dates indicated, the investment
performance of each of the investment funds for the last four years, except for
the Company Stock Fund, which did not exist during the last four years. The
summary is based on an initial investment of $100 in each investment fund as of
December 31, 1996. Past performance is not a guarantee of future results. The
funds may, therefore, perform worse or better in the future than they performed
in the past.
Fidelity Retirement Government Money Market Portfolio
<TABLE>
<CAPTION>
Percent
Increase
Valuation as of Unit Value for Year
--------------- ---------- --------
<S> <C> <C>
December 31, 1996........................................ $100.00 --
December 31, 1997........................................ $105.38 5.38%
December 31, 1998........................................ $110.96 5.30%
December 31, 1999........................................ $116.41 4.91%
CH2M HILL Fixed Income Fund
<CAPTION>
Percent
Increase
Valuation as of Unit Value for Year
--------------- ---------- --------
<S> <C> <C>
December 31, 1996........................................ $100.00 --
December 31, 1997........................................ $106.13 6.13%
December 31, 1998........................................ $112.62 6.12%
December 31, 1999........................................ $120.20 6.73%
</TABLE>
32
<PAGE>
Fidelity Balanced Fund
<TABLE>
<CAPTION>
Percent
Increase
Valuation as of Unit Value for Year
--------------- ---------- --------
<S> <C> <C>
December 31, 1996........................................ $100.00 --
December 31, 1997........................................ $123.45 23.45%
December 31, 1998........................................ $148.41 20.22%
December 31, 1999........................................ $161.55 8.85%
Fidelity Equity-Income Fund
<CAPTION>
Percent
Increase
Valuation as of Unit Value for Year
--------------- ---------- --------
<S> <C> <C>
December 31, 1996........................................ $100.00 --
December 31, 1997........................................ $129.98 29.98%
December 31, 1998........................................ $146.26 12.53%
December 31, 1999........................................ $156.73 7.16%
Spartan U.S. Equity Index Fund
<CAPTION>
Percent
Increase
Valuation as of Unit Value for Year
--------------- ---------- --------
<S> <C> <C>
December 31, 1996........................................ $100.00 --
December 31, 1997........................................ $133.04 33.04%
December 31, 1998........................................ $170.93 28.48%
December 31, 1999........................................ $206.24 20.66%
Fidelity Magellan Fund
<CAPTION>
Percent
Increase
Valuation as of Unit Value for Year
--------------- ---------- --------
<S> <C> <C>
December 31, 1996........................................ $100.00 --
December 31, 1997........................................ $122.79 22.79%
December 31, 1998........................................ $169.16 33.63%
December 31, 1999........................................ $209.84 24.05%
Fidelity Growth Company Fund
<CAPTION>
Percent
Increase
Valuation as of Unit Value for Year
--------------- ---------- --------
<S> <C> <C>
December 31, 1996........................................ $100.00 --
December 31, 1997........................................ $118.91 18.91%
December 31, 1998........................................ $151.29 27.23%
December 31, 1999........................................ $271.52 79.47%
PIMCO Mid Cap Growth Fund
<CAPTION>
Percent
Increase
Valuation as of Unit Value for Year
--------------- ---------- --------
<S> <C> <C>
December 31, 1996........................................ $100.00 --
December 31, 1997........................................ $133.87 33.87%
December 31, 1998........................................ $144.33 7.81%
December 31, 1999........................................ $162.60 12.66%
</TABLE>
33
<PAGE>
Janus Worldwide Fund
<TABLE>
<CAPTION>
Percent
Increase
Valuation as of Unit Value for Year
--------------- ---------- --------
<S> <C> <C>
December 31, 1996........................................ $100.00 --
December 31, 1997........................................ $120.51 20.51%
December 31, 1998........................................ $151.69 25.87%
December 31, 1999........................................ $249.33 64.37%
</TABLE>
Except for investments in the Company Stock Fund, participants may transfer
amounts among the investment alternatives in accordance with rules established
by the trustees.
Amounts invested in the Company Stock Fund, other than defined
contributions, which are always invested in common stock, may be transferred
into other investment alternatives only as of a trade date. If a participant
wishes to transfer amounts invested in the Company Stock Fund into another
investment alternative as of a trade date, the trustees will direct the sale in
the internal market of an appropriate number of shares of common stock held in
the Company Stock Fund on that trade date. If only a portion of the common
stock offered for sale by the 401(k) plan in the internal market is sold, only
that portion of the participant's investment in the Company Stock Fund will be
transferred into the other investment alternatives. The remaining portion of
the participant's investment in the Company Stock Fund will remain in the
Company Stock Fund. Thus, a participant's ability to transfer amounts out of
the Company Stock Fund may be restricted. A participant considering an
investment in the Company Stock Fund should read this entire Prospectus,
particularly the sections entitled "Risk Factors" and "Internal Market
Information."
Amounts invested in investment alternatives other than the Company Stock
Fund may not ordinarily be transferred into the Company Stock Fund. However,
the trustees may from time to time permit the transfer of amounts held in other
investment alternatives into the Company Stock Fund, subject to any
restrictions and conditions that the trustees deem to be appropriate.
It is the current intent of the trustees to keep all amounts allocated to
the Company Stock Fund invested in common stock, except for cash reserves for
distributions and expenses.
Vesting in Accounts in the 401(k) Plan
Each participant in the 401(k) plan is, at all times, 100% vested in
amounts allocated to the participant's rollover contribution account and
employee contribution account.
Amounts allocated to a participant's defined contribution account and
matching contribution account are subject to the following vesting schedule
depending on whether the participant is employed by Operations Management
International, Inc. ("OMI").:
<TABLE>
<CAPTION>
Completed Amount Vested
Years of Amount Vested (Non-OMI
Service (OMI Employees) Employees)
<S> <C> <C>
1 20% 0%
-------------------------------------------
2 40% 20%
-------------------------------------------
3 60% 40%
-------------------------------------------
4 80% 60%
-------------------------------------------
5 100% 80%
-------------------------------------------
6 100% 100%
</TABLE>
A participant's defined contribution account and matching contribution
account become fully vested if the participant is still employed by CH2M HILL
or an affiliate and any of the following occurs:
. The participant reaches age 65, or age 55 if the participant has at least
five years of service
. The participant becomes permanently disabled
. The participant dies
Loans from the 401(k) Plan
Loans from the 401(k) plan are available to any participant who is an
active employee of CH2M HILL or an affiliate. The total amount of a loan to a
participant from the 401(k) plan may not exceed $50,000. This $50,000 limit is
reduced by the participant's highest outstanding loan balance
34
<PAGE>
during the twelve months before the date on which a loan is obtained. The total
amount of a loan to a participant in the 401(k) plan is further limited to 50%
of the participant's vested interest in the participant's employee
contribution, matching contribution and rollover contribution accounts in the
401(k) plan. The loan may not exceed the portion of the combined amount in
these accounts invested in investment alternatives other than the Company Stock
Fund. The minimum loan amount is $1,000. A participant may only have one loan
outstanding at any time.
A loan must be repaid within five years, unless the loan is used to acquire
the principal residence of the participant, in which case the term of the loan
may be up to 25 years. Loan payments must be repaid through payroll deductions.
Loans are secured by up to 50% of the participant's vested account balance in
the 401(k) plan. Loans bear interest at the interest rates in effect at the
CH2M HILL Federal Credit Union at the time the loan is granted.
Distributions and Withdrawals from the 401(k) Plan
If a participant in the 401(k) plan terminates employment with us and if
the value of the vested portion of the participant's account in the 401(k) plan
does not exceed $5,000, the vested portion of the participant's account in the
401(k) plan will be distributed to the participant in a lump sum cash payment
as soon as reasonably practicable.
If a participant in the 401(k) plan terminates employment with us and if
the value of the vested portion of the participant's account in the 401(k) plan
is greater than $5,000, the participant may request an immediate distribution
or may elect to defer distribution until a later date. If distribution is
deferred, the participant's account will remain invested in accordance with the
401(k) plan until the participant requests distribution. In any case,
distribution from the 401(k) plan must begin when the participant reaches age
70 1/2.
A participant who has reached age 59 1/2 may request a distribution of the
participant's employee contribution account or the participant's rollover
account even if the participant has not terminated employment with CH2M HILL
and its affiliates.
When a participant requests a distribution from the 401(k) plan, the
distribution will be made in cash in a lump sum as soon as reasonably
practicable. If the participant's account in the 401(k) plan includes common
stock, the portion of the participant's account invested in common stock will
be distributed in cash as soon as reasonably practicable after the common stock
is sold on the internal market or to CH2M HILL. CH2M HILL intends to purchase
from the 401(k) plan on each trade date sufficient common stock to permit
distributions to all participants whose requests for distributions are pending.
On some trade dates, however, CH2M HILL may not purchase from the 401(k) plan
sufficient common stock to permit distributions to all participants whose
requests for distributions are pending. In that case, distribution of some or
all of the portion of a participant's account invested in common stock may be
delayed until a subsequent trade date.
If a participant dies while employed by CH2M HILL or an affiliate,
distribution of the participant's account in the 401(k) plan will be made to
the participant's spouse or, if the participant's spouse has given proper
consent or if the participant has no spouse, to the beneficiary designated by
the participant. A surviving spouse of a deceased participant may delay
distribution of the participant's account in the 401(k) plan for up to five
years from the date of death. A distribution from the account will be made in
accordance with the procedures described in the previous paragraph.
The 401(k) plan permits a participant to obtain a hardship withdrawal from
the participant's employee contribution account or rollover contribution
account if there is an immediate and heavy financial need which may not
reasonably be met by the participant's other resources. The amount of a
hardship withdrawal may not exceed the amount required to meet the immediate
financial need, including any taxes or penalties resulting from the withdrawal,
and may be subject to various other limitations.
Administration
The 401(k) plan is administered by the trustees. The trustees have the
power to
35
<PAGE>
supervise the 401(k) plan operations, including the power and authority to do
all of the following:
. Allocate fiduciary responsibilities among the fiduciaries of the 401(k)
plan
. Designate agents to carry out responsibilities relating to the 401(k)
plan
. Employ legal, actuarial, accounting, and other assistance as the trustees
may deem appropriate in carrying out the terms of the 401(k) plan
. Establish rules and regulations for the administration of the 401(k) plan
. Administer, interpret, construe and apply the plan and determine
questions relating to eligibility, the amount of any participant's
service and the amount of benefits to which any participant or
beneficiary is entitled
. Determine the manner in which the 401(k) plan's assets are disbursed
Pass-Through Voting and Tendering of Common Stock
Each participant in the 401(k) plan has the right to instruct the trustees
on a confidential basis how to vote the participant's interest in common stock
held in the 401(k) plan. The trustees will vote all allocated shares held in
the 401(k) plan as to which no voting instructions are received, together with
all unallocated shares held in the 401(k) plan, in the same proportion as the
allocated shares for which voting instructions have been received are voted.
The trustees are required to notify participants of their pass-through voting
rights prior to each meeting of shareholders.
In the event of a tender or exchange offer for the common stock, each
participant in the 401(k) plan has the right to instruct the trustees on a
confidential basis whether or not to tender or exchange the participant's
proportionate interest in common stock held in the 401(k) plan. The trustees
will not tender or exchange any allocated shares unless instructions are
received from participants. Shares held in the 401(k) plan which have not yet
been allocated to the accounts of participants will be tendered or exchanged by
the trustees in the same proportion as the allocated shares held in the 401(k)
plan are tendered or exchanged.
The trustees' duties with respect to voting and tendering of common stock
are governed by the fiduciary provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA"). These fiduciary provisions of ERISA may
require, in limited circumstances, that the trustees override the votes, or
decisions whether or not to tender, of participants with respect to common
stock and to determine, in the trustees' best judgment, how to vote the shares
or whether or not to tender the shares.
Trustees of the 401(k) Plan
The current trustees of the 401(k) plan are Fred K. Berry, Samuel H.
Iapalucci, Stan Vinson, Sharon Schlechter, and Cliff Thompson, all of whom are
officers of the Company or its affiliates.
Generally, the trustees have all the rights afforded a trustee under
applicable law. Subject to limitations in the 401(k) plan, the trustees' rights
include, but are not limited to, the right to:
. Invest and reinvest the funds held in the 401(k) plan's trust in any
investment of any kind
. Retain or sell the securities and other property held in the 401(k)
plan's trust
. Consent or participate in any reorganization or merger in regard to any
corporation whose securities are held in the 401(k) plan's trust
-- In the case of the common stock, such rights are subject to the
participants' pass-through voting rights and right to instruct the
trustees in the event of a tender or exchange offer
. Exercise all the rights of the holder of any security held in the 401(k)
plan's trust, including the right to vote such securities
-- In the case of the common stock, such rights are subject to the
participants' pass-through voting rights
. Vote proxies and exercise any other similar rights of ownership
36
<PAGE>
. Lend to participants in the 401(k) plan such amounts as may be permitted
under the 401(k) plan
The trustees receive no compensation from the 401(k) plan for their service
as trustees of the 401(k) plan. Expenses incurred in the establishment,
administration and operation of the 401(k) plan are paid by the 401(k) plan
unless CH2M HILL elects to pay such expenses.
Administrative Services
CH2M HILL has entered into an agreement with Fidelity Institutional
Retirement Services Company to provide recordkeeping and other administrative
services to the 401(k) plan. Fidelity's fees for these services are paid by the
401(k) plan.
Account Statements
Each participant is furnished with a quarterly statement of the
participant's account in the 401(k) plan.
Amendment and Termination
CH2M HILL has reserved the right to amend the 401(k) plan at any time, for
any reason and without prior notice, except that no such amendment may have the
effect of:
. Generally causing any assets of the 401(k) plan's trust to be used for or
diverted to any purpose other than providing benefits to participants and
their beneficiaries and defraying expenses of the 401(k) plan, except as
permitted by applicable law
. Depriving any participant or beneficiary, on a retroactive basis, of any
benefit to which they would otherwise be entitled had the participant's
employment with us terminated immediately prior to the amendment
. Increasing the liabilities or responsibilities of the trustees without
their written consent
CH2M HILL has also retained the right to terminate the 401(k) plan at any
time and for any reason. In addition, CH2M HILL may discontinue contributions
to the 401(k) plan, but any such discontinuation does not automatically
terminate the 401(k) plan as to funds and assets then held by the trustees.
ERISA
The 401(k) plan is subject to ERISA, including reporting and disclosure
obligations, fiduciary standards and prohibited transaction rules. Since the
401(k) plan is an individual account plan under ERISA, it is not subject to the
jurisdiction of the Pension Benefit Guaranty Corporation under Title IV of
ERISA and none of the 401(k) plan's benefits are guaranteed by the Pension
Benefit Guaranty Corporation.
Federal Income Tax Consequences
The following paragraphs summarize the material federal income tax
consequences of participating in the 401(k) plan. This summary is intended to
be general and is not intended to address every federal income tax issue that
may arise from participation in the 401(k) plan. This summary does not address
state or local tax issues, which may be significant. Each participant in the
401(k) plan should consider obtaining professional tax advice with respect to
the plan's tax impact on that participant.
The 401(k) plan is intended to qualify under Section 401(a) of the Internal
Revenue Code. Qualification under Section 401(a) of the Internal Revenue Code
generally produces the following federal income tax results with respect to
contributions, income and earnings, and distributions and loans from, the
401(k) plan.
Contributions to the 401(k) Plan. A participant will not be subject to
federal income tax on CH2M HILL contributions to the 401(k) plan at the time
those contributions are made.
A participant in the 401(k) plan who makes employee contributions will
exclude the amount of those employee contributions from the participant's gross
income.
Neither the participant nor CH2M HILL will be subject to federal employment
taxes on CH2M HILL contributions to the 401(k) plan. Employee
37
<PAGE>
contributions to the 401(k) plan will be subject to federal employment taxes.
The 401(k) plan will not be subject to federal income tax on contributions
made to the 401(k) plan by CH2M HILL.
Subject to limits contained in the 401(k) plan, CH2M HILL will be able to
deduct the amounts that it contributes to the 401(k) plan, including amounts
contributed to the 401(k) plan as employee contributions. The amount of CH2M
HILL's deduction will generally be equal to the amount of the contributions.
Income and Appreciation of the 401(k) Plan. Participants will not be
subject to federal income tax on income or appreciation in their accounts in
the 401(k) plan until distributions are made or deemed to be made to the
participant.
The 401(k) plan will not be subject to federal income tax on its income or
appreciation, except to the extent that the 401(k) plan realizes unrelated
business taxable income.
Distributions from the 401(k) Plan. Distributions from the 401(k) plan
will be subject to federal income tax under complex rules that apply generally
to distributions from all tax-qualified retirement plans.
In general, a distribution from the 401(k) plan will be taxable in the year
of receipt as ordinary income unless the recipient is eligible for and elects
to make a qualifying "rollover" to an individual retirement account or to
another qualified plan.
An early distribution from the 401(k) plan will result in an additional 10%
tax on the taxable portion of the distribution. Early distributions are all
distributions made before the participant has reached age 59 1/2 unless:
. The participant is permanently disabled
. The distribution is made after termination of employment due to the death
of the participant
. The distribution is made after termination of employment to a participant
who terminated employment during or after the calendar year the
participant attained the age of 55
Exceptions from the 10% additional tax apply to distributions that are
rolled over to an individual retirement account or to another qualified plan
and to distributions that are used for deductible medical expenses.
A participant, or the participant's spouse in the event of the
participant's death, who receives a distribution from the 401(k) plan, other
than mandatory distributions after age 70 1/2, and wishes to defer immediate
tax on the distribution, may transfer or "rollover" all or part of the
distribution to an individual retirement account. The participant may rollover
the distribution to another qualified retirement plan. To be effective, the
rollover must be completed within 60 days of receipt of the distribution.
Alternatively, the participant or spouse may request a direct transfer from the
401(k) plan to an individual retirement account or, in the case of the
participant, to another qualified retirement plan.
A participant or a participant's spouse who does not arrange a direct
transfer to an individual retirement account or to another qualified plan will
be subject to federal income tax withholding at a rate of 20% of the
distribution, even if the participant or spouse later makes a rollover.
A participant or the participant's spouse who makes a valid rollover to an
individual retirement account or to another qualified plan will defer payment
of federal income tax until such time as such participant or spouse actually
begins to receive distributions from the individual retirement account or other
qualified plan.
Loans from the 401(k) Plan. A loan from the 401(k) plan is generally not
considered to be a distribution and is not subject to federal income tax when
made. Interest paid by the participant on a loan from the 401(k) plan will
generally not be deductible.
1999 Stock Option Plan
The Board adopted the 1999 Stock Option Plan on November 6, 1998. The stock
option plan is not subject to ERISA. The shareholders of CH2M HILL approved the
stock option plan on December 18, 1998. The stock option plan was effective as
of January 1, 1999.
38
<PAGE>
What is an Option?
--------------------------------------------------------------------------------
A stock option is a contract between CH2M HILL and you, which allows you to buy
common stock at a price set when you receive the option, even if the value of
the stock has changed by the time you exercise the option. When you exercise
stock options, you are simply buying shares of common stock.
Shares issued when an option is exercised will be subject to the same transfer
restrictions as other shares of common stock.
Administration of the Stock Option Plan
The stock option plan is administered by the Ownership and Incentive
Compensation Committee ("O&IC Committee"). The O&IC Committee is appointed by
the Board of Directors. The O&IC Committee consists of two or more members of
the Board of Directors and other individuals appointed by the Board of
Directors.
The following individuals are the current members of the O&IC Committee:
Joseph A. Ahearn, Kenneth F. Durant, Donald S. Evans, James J. Ferris, Steve D.
Guttenplan, Philip G. Hall, Michael D. Kennedy, Susan D. King, Michael Y.
Marcussen, Ralph R. Peterson, Jill T. Shapiro Sideman and Cliff G. Thompson.
The O&IC Committee decides which of our eligible participants, who are
employees, directors and consultants of CH2M HILL will be granted options to
buy common stock under the stock option plan. The O&IC Committee also
determines all of the terms and conditions of each stock option granted under
the stock option plan, such as:
. The manner in which the stock option may be exercised
. Whether there are conditions that must be met before the stock option may
be exercised
. The exercise price that must be paid in order to buy common stock upon
exercise of each stock option
. When the stock option becomes vested and may be exercised
. Whether or under what circumstances the optionee will receive interests
in the pre-tax or after-tax deferred compensation trusts in lieu of
common stock upon exercise of the stock option
We intend to grant stock options at the fair market value of the common
stock on the day that a stock option is granted, which is the price for the
common stock in effect at the time of the grant. In any case, the exercise
price cannot be less than 90% of the fair market value of the common stock on
the day that the stock option is granted. Although the Stock Option Plan
permits the issuance of both "incentive" and "nonqualified" stock options, the
O&IC Committee does not intend to issue incentive stock options, and no
incentive stock options will be granted unless we first provide appropriate
disclosure to potential recipients.
The O&IC Committee is not required to provide the same terms and conditions
in each stock option agreement. Stock options granted to different participants
or at different times may contain different terms and conditions, including
different exercise prices.
Limits on Stock Options Granted Under the Stock Option Plan
Under the stock option plan, the O&IC Committee may grant cancellable stock
options for up to 8,000,000 shares of common stock, subject to adjustments. As
of March 31, 2000, 3,299,360 stock options had been issued under the stock
option plan.
Stock Options May Be Restricted
The O&IC Committee may provide in the grant of a stock option that the
exercise of the stock option is restricted or conditional. For example, the
O&IC Committee may provide in the grant of a stock option that the stock option
cannot be exercised unless the optionee agrees to sell the common stock
acquired as a result of the exercise in the internal market on the next trade
date or agrees to transfer the common stock acquired to a deferred compensation
trust.
39
<PAGE>
--------------------------------------------------------------------------------
What is Vesting?
--------------------------------------------------------------------------------
A participant who receives options usually has to "earn" them over time by
staying with CH2M HILL.
We expect that most options will be vested ("earned") over three years:
. 25% vested one year from the date of grant
. 25% more vested two years from the date of grant
. The remaining 50% vested three years from the date of grant
You may not exercise an option until it is vested.
Exercise of Stock Options
If the O&IC Committee grants a stock option to a participant, the
participant may exercise the stock option after all conditions described in the
stock option agreement, including vesting, have been met and before the stock
option expires.
The participant may exercise a stock option by following the procedures for
exercise described in the stock option agreement. These procedures will include
providing written notice of exercise to CH2M HILL, paying the exercise price,
and paying any amount required for federal, state, or local income tax
withholding as a result of the employee's exercise of the stock option as
described below. The procedures may also include other requirements imposed by
the O&IC Committee from time to time.
Payment for Common Stock Bought Pursuant to the Exercise of a Stock Option
Granted Under the Stock Option Plan
Payment for shares of common stock bought pursuant to the exercise of a
stock option may be made in cash or a personal check payable to CH2M HILL.
Unless the O&IC Committee provides otherwise, payment for stock option
exercises may also be made by surrendering to CH2M HILL shares of common stock
already owned by the participant and held for more than six months. The O&IC
Committee may also permit payment to be made by transferring interests in the
pre-tax or after-tax deferred compensation trust representing shares of common
stock held for more than six months. If the participant uses shares of common
stock (or interests in a deferred compensation trust) that the participant
already owns as payment for the exercise of a stock option, then the number of
shares given to the participant upon exercise will be the difference between
the number of shares bought through the stock option exercise and the number of
shares already owned by the participant.
40
<PAGE>
--------------------------------------------------------------------------------
Examples of Option Exercises
--------------------------------------------------------------------------------
Assumptions:
. Participant was granted 100 options at an exercise price of $10 per share
. Participant exercises 100 options with an exercise price of $10 per share
when the price per share of common stock is $20 per share
. Participant already owns 200 shares of common stock
. Combined federal, state and FICA tax rate is 42%
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Stock for Stock Transaction: Cash Transaction:
<S> <C> <C> <C>
1. Number of Options to be 1. Number of Options to be Exercised 100
Exercised 100 2. Option Exercise Price $ 10
2. Option Exercise Price $ 10 3. Cost to Participant (1 x 2) $1,000
3. Cost to Participant (1 x 2) $1,000 4. Current Stock Price $ 20
4. Current Stock Price $ 20 5. Value of Options Exercised (1 x 4) $2,000
5. Number of Shares to be 6. Gain (5 - 3) $1,000
Exchanged (3/4) 50 7. Applicable Tax (6 x 42%) $ 420
6. Newly Acquired Shares (1 - 5) 50 8. Total Amount Owed by Participant to
7. Value of Options Exercised (1 x 4) $2,000 CH2M Hill (3 + 7) $1,420
8. Gain (5 - 3) $1,000 9. Cash to be Paid by Participant as
9. Applicable Tax (6 x 42%) $ 420 Payment for Option Exercise $1,420
10. Stock Sold to Pay Taxes (9/4) 21
11. Total Additional Shares to be
Received by Employee (6 - 10) 29
------------------------------------------------------------------------------------------------------
</TABLE>
The shares exchanged in a stock-for-stock transaction are treated as a "Like
Kind" exchange which does not trigger the recognition of capital gains. The
shares exchanged carry their original tax basis and acquisition date. Newly
acquired shares have a basis equal to the fair market value at the time of
exercise. The shares sold to pay taxes represent new shares acquired through
the exercise of the option and would therefore not trigger any capital gains.
--------------------------------------------------------------------------------
Payment may also be made in a combination of cash, a personal check, and
shares of common stock, unless the O&IC Committee provides that payment by
shares of common stock will not be allowed. If shares of common stock owned by
the participant are used to pay all or part of the purchase price, the value
assigned to each share will be equal to the price of the common stock on the
date of exercise of the stock option.
Expiration of Stock Options Granted Under the Stock Option Plan
A stock option granted to a participant may not be exercised after the
stock option expires. A stock option expires on the expiration date set forth
in the stock option agreement. The O&IC Committee generally intends to grant
stock options that expire five years after the date on which the stock options
are granted.
Regardless of the date stated in the stock option agreement, a stock option
granted under the stock option plan and not previously exercised will terminate
when the participant terminates employment with us voluntarily, unless the
stock option agreement provides that the stock option may be exercised after
termination of employment.
The O&IC Committee generally intends to permit the exercise of a stock
option granted under the stock option plan within ninety days after termination
of employment with us due to retirement. If a participant terminates employment
with us due to disability or death, the O&IC Committee generally intends to
permit the stock
41
<PAGE>
option to be exercised within one year after the date on which the
participant's employment terminates due to the disability or death.
A participant may work for an affiliate of CH2M HILL that becomes
ineligible to participate in the stock option plan. For example, an affiliate
may become ineligible to participate because CH2M HILL's interest in the
affiliate is sold. In that case, stock options held by the participant will
become immediately exercisable, but the participant will be considered to
terminate employment with us on the day that the affiliate becomes ineligible
to participate in the stock option plan. Therefore, the participant will be
able to exercise the stock options only if and to the extent that the stock
option agreement permits the participant to exercise the stock options on
termination of employment.
Amendment and Termination of the Stock Option Plan
The Board of Directors may amend or terminate the stock option plan at any
time. Any amendment or termination of the stock option plan will not change the
terms of any stock option agreement already in place at the time of such
amendment or termination unless the participant agrees to such change. The
following changes may not be made by the Board without shareholder approval:
. Increasing the number of shares of common stock available under the stock
option plan
. Reducing the minimum price at which stock options may be granted under
the stock option plan
. Changing the class of participants who may be granted stock options under
the stock option plan
The stock option plan will terminate on December 31, 2008. No stock options
will be granted under the stock option plan after that date. Any stock option
agreement already in place on December 31, 2008, will remain in effect until
the stock options covered by that stock option agreement are exercised or
expire.
Corporate Reorganization, Sale of Assets, or Change in Control
If CH2M HILL experiences a stock split, a stock dividend, a
recapitalization, or a similar transaction that changes the number of
outstanding shares of common stock without receipt of payment by CH2M HILL, the
O&IC Committee will adjust the number of shares of common stock that may be
bought under outstanding stock options and the exercise price that must be paid
to buy shares of common stock under outstanding stock options, in order to
reflect the change in the common stock.
If a change in control of CH2M HILL occurs, then all outstanding stock
options granted under the stock option plan may be exercised immediately, even
if the conditions on exercise stated in the stock option agreement have not
been met. Currently, a change in control of CH2M HILL occurs when one person or
a group of persons, other than an employee benefit plan, acting jointly,
acquires at least 50% of the common stock. The Board of Directors intends to
lower the percentage from 50% to 25% in 2000. A change in control can also
occur when CH2M HILL agrees to a merger in which CH2M HILL is not the surviving
company, or when CH2M HILL disposes of a majority of its assets. The O&IC
Committee will determine whether a change in control of CH2M HILL has occurred.
For example, if CH2M HILL experiences a merger, liquidation,
reorganization, or similar transaction in which CH2M HILL is not the surviving
corporation, the O&IC Committee will either:
. Convert outstanding stock options into comparable options to buy stock in
the surviving corporation; or
. Require that outstanding stock options be exercised within a specific
period of time before the effective date of the transaction or be
forfeited.
In connection with the transaction, if there is not a change in control of
CH2M HILL, the O&IC Committee may, but is not required to, provide that any
outstanding stock options granted under the stock option plan may be exercised
immediately, even if the conditions on exercise stated in the stock option
agreement have not been met.
42
<PAGE>
Federal, State, and Local Income Tax Withholding
The federal income tax consequences of the grant and exercise of stock
options under the stock option plan are described below. Sometimes the exercise
of a stock option or the sale of shares of common stock bought through the
exercise of a stock option may produce compensation income to a participant. In
that case, your employer may be required to withhold federal, state, and local
income taxes with respect to the amount of compensation income you recognized,
as though that amount was paid to you by your employer. Your employer may
satisfy this withholding obligation by withholding the required amount from
other amounts, such as other compensation or wages, your employer paid to you.
Alternatively, your employer may require you to pay the amount necessary to
satisfy the withholding obligation. The payment of the amount necessary to
satisfy the withholding obligation may be a prerequisite to the exercise of a
stock option granted under the stock option plan.
--------------------------------------------------------------------------------
Are Options Taxable?
--------------------------------------------------------------------------------
No. For tax purposes, options are not treated as having monetary value when
they are granted to employees. Thus, they do not have an impact on your taxes
when granted. After you exercise an option, however, the difference between the
exercise price and the formula price in effect at that time is taxed as
ordinary income.
--------------------------------------------------------------------------------
Federal Income Tax Consequences of Stock Options Granted Under the Stock Option
Plan
This summary of the material federal income tax consequences of the grant
and exercise of stock options under the stock option plan does not address
every federal income tax issue that may arise and does not address foreign,
state or local tax issues, which may be significant.
This summary does not address the tax consequences for incentive stock
options because the O&IC Committee does not intend to grant incentive stock
options.
Each holder of stock options granted under the stock option plan should
consider obtaining professional tax advice with respect to the tax impact of
their stock options.
Exercise of Nonqualified Stock Options With Cash. Generally, an individual
will not be taxed when a stock option is granted. Instead, at the time the
individual exercises a stock option, the individual will recognize ordinary
income for federal income tax purposes. The amount of ordinary income
recognized by the individual will be equal to the excess of the fair market
value of the common stock at the time of exercise over the exercise price. CH2M
HILL generally will be entitled to a federal income tax deduction at that time
and in the same amount that the individual realizes as ordinary income.
If common stock bought through the exercise of a stock option is later sold
or exchanged, then the difference between the sale price and the fair market
value of the common stock on the date of exercise will be recognized as gain or
loss to the seller. If the common stock is a capital asset in the seller's
hands, the gain or loss on the sale will be long-term or short-term capital
gain or loss, depending on whether the holding period for the common stock at
the time of sale is more than 12 months or 12 months or less, respectively.
When an individual exercises a stock option into interests in a deferred
compensation trust, the individual does not recognize any gain or loss as a
result of the exercise of the stock option. However, when the interests in a
deferred compensation trust which were obtained through the exercise of stock
options are surrendered and the underlying shares of stock are sold resulting
in a cash payment to the individual that event will be taxed as ordinary income
in an amount equal to the fair market value of the stock less the exercise
price previously paid by the individual.
Exercise of Nonqualified Stock Options With Shares of Common Stock. If
payment of the exercise price under a stock option is made by surrendering
previously owned shares of common stock, the following rules apply:
. No gain or loss will be recognized as a result of the tendering of shares
in
43
<PAGE>
exchange for an equal number of shares available through the exercise of
nonqualified stock options
. Any additional shares received will be taxed as ordinary income in an
amount equal to the fair market value of the shares at the time of
exercise
Exercise of Nonqualified Stock Options With Interests in a Deferred
Compensation Trust. If payment of the exercise price under a stock option is
made by surrendering previously owned interests in a deferred compensation
trust, the following rules apply:
. No gain or loss will be recognized as a result of the exercise of
nonqualified stock options into interests in a deferred compensation
trust
. If interests in a pre-tax deferred compensation trust are surrendered by
the individual to pay the exercise price such interests will be taxed as
ordinary income
. If interests in a post-tax deferred compensation trust are surrendered by
the individual to pay the exercise price, gain on such interests will be
taxed as ordinary income
. When the interests in a deferred compensation trust which were obtained
through the exercise of stock options are sold resulting in a cash
payment to the individual, that event will be taxed as ordinary income in
an amount equal to the fair market value of the stock delivered to the
individual less the exercise price previously paid by the individual
through the surrender of previously owned interests in the deferred
compensation trust.
1999 Payroll Deduction Stock Purchase Plan
We have recently established the stock purchase plan for the benefit of our
employees and employees of certain of our affiliates. The stock purchase plan
provides for the purchase of common stock through payroll deductions by
participating employees. The stock purchase plan is intended to qualify under
Section 423 of the Internal Revenue Code. The stock purchase plan is not
subject to ERISA.
Administration of the Stock Purchase Plan
The stock purchase plan is administered by the O&IC Committee, which is the
same committee that administers the stock option plan, described above.
The O&IC Committee decides which affiliates of CH2M HILL will be eligible
to participate in the stock purchase plan. The O&IC Committee also decides
whether employees must meet eligibility requirements in order to participate in
the stock purchase plan.
The O&IC Committee may adopt rules for the administration of the stock
purchase plan. The O&IC Committee interprets the stock purchase plan. The O&IC
Committee's decisions on any questions that arise under the stock purchase plan
are binding on all persons, including CH2M HILL and any employee who
participates in the stock purchase plan.
Employees Eligible to Participate in the Stock Purchase Plan
Generally, all employees of CH2M HILL and any participating affiliate may
participate in the stock purchase plan. The O&IC Committee decides which
affiliates of CH2M HILL may participate in the stock purchase plan.
The O&IC Committee intends to exclude employees who normally work less than
20 hours per week and employees who normally work five or fewer months in a
year from participating in the stock purchase plan.
Any employee who owns five percent or more of CH2M HILL or of any
subsidiary of CH2M HILL is excluded from participating in the stock purchase
plan.
An employee who terminates employment with CH2M HILL and all participating
affiliates is no longer eligible to participate in the stock purchase plan. For
this purpose, termination of employment includes death, disability, retirement,
transfer to an affiliate that is not eligible to
44
<PAGE>
participate in the stock purchase plan, or any other termination of employment.
If an employee becomes ineligible to continue participating in the stock
purchase plan, any amount held in the employee's stock purchase account will be
distributed to the employee.
Participating in the Stock Purchase Plan
In order to participate in the stock purchase plan, an employee must
deliver a written payroll deduction authorization form to the plan
administrator of the stock purchase plan. The payroll deduction authorization
form will tell the eligible employee's employer to withhold a specific
percentage of the eligible employee's pay to be used to buy common stock under
the stock purchase plan. The payroll deduction authorization form must provide
for the deduction of at least 1% of the employee's pay, but no more than 10% of
the employee's pay, in a whole number percentage. The employee may change the
specified percentage at any time. However, an employee cannot purchase more
than $25,000 of common stock under the stock purchase plan in any calendar
year.
Purchases of Common Stock Under the Stock Purchase Plan
CH2M HILL uses the amount in the employee's stock purchase account to buy
common stock for the employee on each trade date.
Each year, the Board of Directors will decide what percentage of the
purchase price of common stock CH2M HILL will contribute toward the purchase of
common stock under the stock purchase plan during that year. CH2M HILL's
percentage may be as low as 0% or as high as 15%. As of January 1, 2000, CH2M
HILL's percentage will be 10%. We will not actually contribute any amount to
the employee's payroll deduction stock purchase account. Instead, we will add
the contribution percentage to the amount in the employee's stock purchase
account and use the combined amount to purchase common stock on each trade
date. We will either buy the common stock on each trade date in the internal
market, if available, or we will issue new shares of common stock.
Reservation of Common Stock for Purchase Under the Stock Purchase Plan
CH2M HILL has reserved 1,000,000 shares of common stock to be sold under
the stock purchase plan. This is in addition to any shares of common stock
bought in the internal market under the stock purchase plan. The number of
shares of common stock reserved for sale under the stock purchase plan can be
changed by the O&IC Committee to reflect any stock split, stock dividend,
recapitalization, or similar transaction that CH2M HILL may experience.
Distribution of Common Stock Bought Through the Stock Purchase Plan
When shares of common stock are bought through the stock purchase plan,
they will initially be held by CH2M HILL in the name of the employee. Before
the next vote of shareholders, the shares of common stock bought through the
stock purchase plan will be distributed to the employee. The employee may
petition the O&IC Committee for an earlier distribution of the shares.
Restrictions on Common Stock Bought Through the Stock Purchase Plan
All shares of common stock bought through the stock purchase plan will be
subject to the restrictions on common stock contained in CH2M HILL's Restated
Bylaws. Those restrictions are described below, in the section of this
Prospectus called "Description of Capital Stock."
An employee is not permitted to purchase common stock under the stock
purchase plan if doing so would cause the employee to own more shares of common
stock than the employee is permitted to own under CH2M HILL's Restated Bylaws.
Amendment and Termination of the Stock Purchase Plan
The Board of Directors of CH2M HILL may amend or terminate the stock
purchase plan at any time. However, the Board of Directors may not increase the
number of shares of common stock reserved for sale under the stock purchase
plan unless the shareholders of CH2M HILL also approve that change.
45
<PAGE>
Unless previously terminated by CH2M HILL, the stock purchase plan will
terminate on December 31, 2008.
Federal, State, and Local Income Tax Withholding
The federal income tax consequences of purchasing common stock under the
stock purchase plan are described below. Sometimes the sale of shares of
common stock bought through the stock purchase plan may produce compensation
income to an employee. In that case, the employee's employer may be required
to withhold federal, state, and local income tax with respect to the amount of
compensation income recognized by the employee, as though that amount was paid
to the employee by the employer as wages. The employer may satisfy this
withholding obligation by withholding the required amount from other amounts,
such as other compensation or wages, paid by the employer to the employee or
by having CH2M HILL withhold the required amount from any amount that CH2M
HILL may owe the employee upon a repurchase of the shares of common stock.
Federal Income Tax Consequences of Purchases of Common Stock Under the Stock
Purchase Plan
The following paragraphs summarize the material federal income tax
consequences of participation in the stock purchase plan. This summary is
intended to be general and is not intended to address every federal income tax
issue that may arise from participation in the stock purchase plan. This
summary does not address foreign, state or local tax issues, which may be
significant. Each participant in the stock purchase plan should consider
obtaining professional tax advice with respect to the tax impact on that
participant of participation in the stock purchase plan.
Federal Income Tax Consequences for the Participant. With respect to most
of the participating affiliates, the stock purchase plan is intended to
qualify as an employee stock purchase plan under Section 423 of the Internal
Revenue Code. This means that, with respect to purchases of common stock under
the stock purchase plan by employees of those affiliates:
. The participant will not recognize income for federal income tax purposes
when the participant buys shares of common stock under the stock purchase
plan.
. The participant will recognize ordinary income when the participant
disposes of the common stock bought under the stock purchase plan.
. The amount of ordinary income recognized by the participant when the
participant disposes of shares of common stock bought under the stock
purchase plan depends on whether the participant held the shares for at
least two years before disposing of them. If the participant held the
shares for at least two years after the date on which the shares were
bought for the participant's account under the stock purchase plan, the
participant will recognize ordinary income when the shares are sold or
otherwise disposed of. The amount of the ordinary income is equal to the
smaller of:
(i) the amount by which the fair market value on the purchase date
exceeded the amount paid for the shares, or
(ii) the amount by which the fair market value on the date of
disposition exceeds the amount paid for the shares.
If the participant dies while owning shares of common stock bought under
the stock purchase plan, ordinary income is recognized in the year of
death in the amount described in the previous sentence.
. If the participant disposes of shares of common stock bought under the
stock purchase plan before the two year holding period expires, the
participant will recognize ordinary income at the time of the
disposition. The amount of the ordinary income recognized by the
participant will be the amount by which the fair market value of the
shares on the purchase date exceeded the amount paid for the shares, even
if the disposition is at a loss.
46
<PAGE>
. If the common stock is a capital asset in the hands of the participant,
additional gain on the disposition of the shares of common stock, if any,
will be short-term or long-term capital gain depending on whether the
participant held the shares of common stock for 12 months or less, or for
more than 12 months, respectively.
In the cases discussed above, other than in the case of the participant's
death, the amount of ordinary income recognized by the participant is added to
the purchase price paid by the participant in order to determine the amount of
gain or loss from the disposition of the shares.
With respect to the portion of the stock purchase plan that is not intended
to be qualified as an employee stock purchase plan under Section 423 of the
Internal Revenue Code, a participant purchasing shares will recognize
compensation income at the time of the purchase of shares of common stock under
the stock purchase plan. The amount of this compensation income will be the
amount by which the fair market value of the shares on the purchase date
exceeds the amount of the purchase price paid by the participant.
Tax Consequences for CH2M HILL. CH2M HILL will not be entitled to a
deduction at any time with respect to shares sold under the portion of the
stock purchase plan that is intended to qualify as an employee stock purchase
plan under Section 423 of the Internal Revenue Code, if the participant buying
the shares does not dispose of the shares before the two-year holding period
expires. If the participant disposes of the shares prior to the expiration of
the two-year holding period, CH2M HILL is allowed a federal income tax
deduction that is equal to the amount of ordinary income recognized by the
participant.
Pre-Tax and After-Tax Deferred Compensation Plans
CH2M HILL has adopted the CH2M HILL Companies, Ltd. Pre-Tax Deferred
Compensation Plan and the CH2M HILL Companies, Ltd. After-Tax Deferred
Compensation Plan, referred to in this description as the "deferred
compensation plans." In connection with the deferred compensation plans, CH2M
HILL has established the CH2M HILL Companies, Ltd. Pre-Tax Deferred
Compensation Trust and the CH2M HILL Companies, Ltd. After-Tax Deferred
Compensation Trust, referred to in this description as the deferred
compensation trusts. Neither deferred compensation plan is subject to ERISA.
Two deferred compensation plans separately handle pre-tax contributions in
one plan and after-tax contributions in the other plan. In effect, the pre-tax
plan will hold contributions made through deferred compensation and deferred
bonus payments. CH2M HILL administers deferred compensation by participants in
the pre-tax plan under the same terms and conditions as the stock purchase
plan. In contrast, the after-tax plan holds contributions made directly by
employees eligible to participate. All of the terms of the pre-tax plan and the
after-tax plan are generally the same, however the tax treatment of
distributions from the pre-tax plan and the after-tax plan are different.
Employees who are eligible to participate in the deferred compensation plan
may elect to invest by making after-tax contributions to the after-tax deferred
compensation plan. An employee who is eligible to participate in the pre-tax
deferred compensation plan may elect to defer a portion of his or her
compensation by entering into a deferred compensation agreement and by filing
an annual election to defer compensation in accordance with that agreement. In
addition, CH2M HILL or its affiliates may provide that bonuses to employees who
are eligible to participate in the pre-tax deferred compensation plan will be
deferred in accordance with the provisions of the plan.
Administration of the Deferred Compensation Plans
CH2M HILL appointed a committee called the deferred compensation committee
to administer the deferred compensation plans. The deferred compensation
committee designated the affiliates of CH2M HILL whose employees are eligible
to participate in the deferred compensation plans.
The Deferred Compensation Trusts
The deferred compensation trusts are irrevocable trusts established by CH2M
HILL.
47
<PAGE>
Copies of the agreements establishing the deferred compensation trusts are
included as exhibits to the registration statement filed in 1999 with the
Securities and Exchange Commission.
Contributions to the Deferred Compensation Trusts
Under the agreement between CH2M HILL and the Trustee, the Trustee receives
and holds common stock contributed to the deferred compensation trusts by CH2M
HILL. When an eligible employee elects under the pre-tax deferred compensation
plan to defer compensation, we use the compensation that would have been paid
to the employee to purchase common stock, and contribute that common stock to
the pre-tax deferred compensation trust. We may also contribute common stock to
the pre-tax deferred compensation trust as bonuses on behalf of eligible
employees.
When an eligible employee elects to make voluntary contributions to the
after-tax deferred compensation plan, we use the cash contribution to purchase
common stock and contribute the common stock to the after-tax deferred
compensation trust.
Each contribution to the deferred compensation trusts is allocated to an
account in the name of the employee on behalf of whom the contribution is made.
However, the employee does not have a direct ownership interest in the shares
of common stock held in the deferred compensation trusts.
Nature of the Deferred Compensation Trusts
All assets of the deferred compensation trusts are held by the Trustee for
the benefit of the participants in the deferred compensation plans and for the
benefit of the general creditors of CH2M HILL in the event CH2M HILL becomes
insolvent. CH2M HILL is considered to be insolvent if it is unable to pay its
debts as they become due or if it is the subject of a bankruptcy proceeding. If
CH2M HILL becomes insolvent, the assets of the deferred compensation trusts
will be available to pay the debts of CH2M HILL. In that case, a participant in
the deferred compensation plans will not have any priority rights with respect
to the assets of the deferred compensation trusts or with respect to any other
assets of CH2M HILL. Rather, in the event of insolvency, a participant in the
deferred compensation plans will have only a claim against CH2M HILL for the
amount of compensation previously deferred and the amount of any after-tax
contribution made by the participant. This claim will be treated like any other
claim of a general unsecured creditor of CH2M HILL. The assets of the deferred
compensation trusts are not guaranteed or insured by any party, including CH2M
HILL.
Voting of Common Stock Held in the Deferred Compensation Trusts
Shares of common stock held in the deferred compensation trusts are voted
by the Trustee, not by the participants in the deferred compensation plans. The
Trustee votes the shares of common stock held in the deferred compensation
trusts in accordance with instructions given to the Trustee by the deferred
compensation committee.
Dividends on Common Stock Held in the Deferred Compensation Trusts
Cash dividends, if any, paid with respect to shares of common stock held in
the deferred compensation trusts will be returned to CH2M HILL and will not be
held in the deferred compensation trusts or made available to participants in
the deferred compensation plans. Other dividends, if any, paid with respect to
shares of common stock held in the deferred compensation trusts will be
credited to the account in the deferred compensation trusts in which the shares
of common stock are held.
Distributions from the Deferred Compensation Trusts
The common stock held in the deferred compensation trusts in the name of a
participant in the deferred compensation plans will be distributed to the
participant when a distribution event under the deferred compensation plans
occurs. The following events are distribution events under each deferred
compensation plan:
. The termination of the participant's affiliation with us, as defined in
the Restated Bylaws.
48
<PAGE>
. The death of the participant. In this case, the distribution will be made
to the beneficiary of the participant, as designated on a form signed by
the participant and filed with the deferred compensation committee before
the death of the participant. If the participant does not file a signed
designation of beneficiary with the deferred compensation committee
before the participant's death, the distribution will be made to the
participant's estate.
. A change in the participant's employment status that makes the
participant ineligible to participate in the deferred compensation plans.
. A request by the participant to exercise the participant's interest in
the deferred compensation trusts. In this case a distribution will be
made only if:
(i) the deferred compensation committee approves the participant's
request, and
(ii) the common stock held in the deferred compensation trusts in the
name of the participant can be sold in the internal market on the
next trade date.
. The termination of the deferred compensation plans. This will occur no
later than January 2, 2008. CH2M HILL, in its discretion, may terminate
the deferred compensation plans before that date.
. The date specified by the participant at the date of election to
participate in the deferred compensation plans.
Distributions from the deferred compensation trusts will be made in the
form of common stock. Shares of common stock distributed to a participant from
the deferred compensation trusts will be subject to the restrictions on
ownership of common stock set forth in our Restated Bylaws.
Removal or Resignation of Trustee
CH2M HILL may remove the Trustee of the deferred compensation trusts at any
time and for any reason, upon thirty days' notice to the Trustee. The Trustee
may resign at any time and for any reason, upon thirty days' notice to CH2M
HILL. If the Trustee is removed or resigns, CH2M HILL will appoint a new
Trustee.
Amendment of the Deferred Compensation Trusts
CH2M HILL and the Trustee may amend either deferred compensation trust at
any time by executing a written amendment to the corresponding deferred
compensation trust agreement.
Federal Income Tax Consequences
We have designed the deferred compensation trusts to be grantor trusts
under the federal income tax laws. This means that CH2M HILL's contribution of
common stock to the pre-tax deferred compensation trust should not cause a
participant in the pre-tax deferred compensation plan to recognize income at
the time of the contribution. Instead, the participant will recognize
compensation income when an amount is distributed or made available to the
participant from the pre-tax deferred compensation trust. The assets of both
deferred compensation trusts will be treated as assets of CH2M HILL for federal
income tax purposes.
In contrast, participants in the after-tax deferred compensation trust will
recognize compensation equal to the difference between the amount they
contributed and the value of cash or other property when it is distributed or
made available from the after-tax deferred compensation trust.
This treatment of participants in the deferred compensation plans for
federal income tax purposes is based on private letter rulings issued by the
Internal Revenue Service. The deferred compensation plans and the deferred
compensation trusts are not identical to the arrangements involved in those
private letter rulings, however, and a private letter ruling is binding on the
Internal Revenue Service only with respect to the specific taxpayer to whom the
private letter ruling is issued. We do not plan to seek a private letter ruling
on the federal income tax consequences of participation in the deferred
compensation plans. Therefore, while we believe that the federal income tax
consequences of
49
<PAGE>
participation in the deferred compensation plans should be as described above,
there is no definite assurance that this will in fact be the case. If the
federal income tax consequences of participation in the deferred compensation
plans are ultimately determined to be different from those described above,
participants in the deferred compensation plans may be liable for additional
income taxes, interest, and penalties for tax years during which they
participate in the deferred compensation plans.
This description summarizes the material federal income tax consequences of
participation in the deferred compensation plans, but is not intended to be a
complete discussion of all federal income tax or other tax consequences of
participation in the deferred compensation plans. Each participant in the
deferred compensation plans should consider discussing the federal, state, and
local tax consequences of participation in the deferred compensation plans with
that participant's tax advisors.
50
<PAGE>
MANAGEMENT
Directors and Executive Officers
The current directors and executive officers of CH2M HILL are:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Joseph A. Ahearn........ 63 Director and Senior Vice President
Robert G. Card.......... 47 Director and Senior Vice President
Kenneth F. Durant....... 62 Senior Vice President
Donald S. Evans......... 50 Senior Vice President
James J. Ferris......... 56 Director and Senior Vice President
Jerry D. Geist.......... 66 Director
Philip G. Hall.......... 58 Director and Senior Vice President
Samuel H. Iapalucci..... 47 Senior Vice President, Chief Financial Officer and Secretary
Michael D. Kennedy...... 50 Director and Senior Vice President
Susan D. King........... 44 Director
Michael Y. Marcussen.... 48 Director
Ralph R. Peterson....... 55 Chairman of the Board of Directors, President and Chief
Executive Officer
E. Kent Robinson........ 60 Senior Vice President
Jill T. Shapiro 61 Director
Sideman................
Barry L. Williams....... 55 Director
</TABLE>
Joseph A. Ahearn was elected as a director in May 2000 to complete Craig
Zeien's remaining term. He served as a Director of CH2M HILL for one previous
term from May 1996 to April 1999, and as Senior Vice President since 1995. Mr.
Ahearn has served as President of the Transportation business of CH2M HILL,
Inc. since 1996 and as the Eastern Regional Manager of CH2M HILL, Inc. from
1994 until 1996.
Robert G. Card was elected as a director in May 2000. He served on the Board
of Directors for two previous terms from 1992 to 1994 and from 1996 to 1998.
Since 1997, Mr. Card has served as the President of Kaiser-Hill, LLC, the CH2M
HILL joint venture company with Kaiser Group International, Inc. managing the
Rocky Flats Project. Kaiser-Hill, LLC recently signed an extension contract
with the U.S. Department of Energy for the closure of the Rocky Flats site,
anticipated to be 2006. Mr. Card has also served as a Senior Vice President of
CH2M HILL since 1995.
Kenneth F. Durant served as a Director of CH2M HILL from May 1995 to April
1999 and as a Senior Vice President since 1997. Mr. Durant has served as the
President of CH2M Hill Industrial Design Corporation, a subsidiary of CH2M
HILL, since its formation in 1985.
Donald S. Evans served as a Director of CH2M HILL from May 1997 to April
1999 and as a Senior Vice President since 1997. Mr. Evans has served as the
President of the Water business and the Operations and Maintenance business
since 1985.
James J. Ferris has served as a Director of CH2M HILL since 1998, and as a
Senior Vice President since 1995. Dr. Ferris has served as President of the
Energy, Environment and Systems business since 1995 and President of CH2M HILL
Constructors, Inc. since 1994. He served as President and Chief Executive
Officer of Ebasco Environmental from 1989 until 1994. Dr. Ferris also serves as
a director of Kaiser-Hill, LLC.
Jerry D. Geist has served as a Director of CH2M HILL since 1989. Mr. Geist
has been Chairman of Santa Fe Center Enterprises, Inc. since 1990 and Chief
Executive Officer of Howard International Utilities from 1990 through 1999. Mr.
Geist is also Chairman and CEO of Energy & Technology Company, Ltd. and he
serves on the Board of Directors of the Davis Family of Mutual Funds.
Phillip G. Hall has served as Chairman of the Board of Directors of CH2M
HILL from 1992
51
<PAGE>
until May 2000 and as a director since 1987. Mr. Hall has served as Senior Vice
President of CH2M HILL since 1995, and as its Southwest Regional Manager since
1997.
Samuel H. Iapalucci has served as Senior Vice President, Chief Financial
Officer and Secretary of CH2M HILL since 1994.
Michael D. Kennedy has served as a Director of CH2M HILL since 1998 and as
a Senior Vice President since 1995. Mr. Kennedy served as the Northwest
Regional Manager of CH2M HILL, Inc. from 1993 to 1998. Mr. Kennedy served as
the Portland Regional Manager of CH2M HILL, Inc. from 1987 until 1992 and the
Western Regional Business Development Director from 1992 until 1993.
Susan D. King has served as a Director of CH2M HILL since 1997. Ms. King
has served as the Chief Financial Officer of CH2M HILL Industrial Design
Corporation since 1993, and as its Secretary and Treasurer since 1995.
Michael Y. Marcussen has served as a Director of CH2M HILL since 1998. Mr.
Marcussen has served as the European Manager for CH2M HILL IDC Industrial Ltd.,
Dublin, Ireland since 1997 and has been an employee of Industrial Design
Corporation since 1993.
Ralph R. Peterson has served as President and Chief Executive Officer of
CH2M HILL since 1991 and as Chairman of the Board of Directors since May 2000.
Mr. Peterson also serves as a Director of Kaiser-Hill, LLC and of Standard
Insurance Company.
E. Kent Robinson has served as a Senior Vice President of CH2M HILL since
February 2000 and as a Senior Vice President of CH2M HILL, Inc. since 1995.
Jill T. Shapiro Sideman has served as a Director since 1999 and has served
as a Vice President and Client Service Manager of CH2M HILL, Inc. since 1993.
Barry L. Williams has served as a Director of CH2M HILL since 1995. He has
been President of Williams Pacific Ventures, Inc., a consulting firm, since
1987. Mr. Williams has served as Senior Mediator for JAMS/Endispute since 1993
and a visiting lecturer for the Hass Graduate School of Business, University of
California since 1993. Mr. Williams has acted as a general partner of WDG, a
California limited partnership, since 1987 and a general partner of Oakland
Coliseum Joint Venture since 1998. He also serves on the board of directors of
PG&E, Corp., Northwestern Mutual Life Insurance Company, Newhall Land & Farming
Company, Simpson Manufacturing Company, USA Group, Inc., R.H. Donnelley & Co.
and several not-for-profit organizations.
52
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information regarding annual incentive
compensation for the chief executive officer and the other four most highly
compensated executive officers of CH2M HILL.
Summary Compensation Table(1)
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
----------------------- ------------
(a) (b) (c) (d) (g) (i)
Securities
Name and principal Underlying All other
position Year Salary(2) Bonus(2) Options compensation(3)
------------------ ---- --------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Ralph R. Peterson......... 1999 $471,435 $290,000 28,350 $ 9,381
President & Chief
Executive Officer 1998 471,138 344,802 -- 9,352
1997 456,715 293,631 -- 18,599
Donald S. Evans........... 1999 305,219 185,000 24,750 6,998
Senior Vice President 1998 305,654 148,860 -- 6,874
1997 278,640 95,538 -- 6,621
James J. Ferris........... 1999 302,519 185,000 24,750 7,893
Senior Vice President 1998 278,191 165,400 -- 9,764
1997 256,868 122,264 -- 73,252
Samuel H. Iapalucci....... 1999 299,645 165,000 24,750 7,013
Senior Vice President, 1998 308,389 190,404 -- 7,147
CFO, Secretary 1997 275,520 148,162 -- 71,880
Philip G. Hall............ 1999 305,053 110,000 17,780 8,556
Senior Vice President 1998 316,786 128,157 -- 8,112
1997 299,120 175,687 -- 29,285
</TABLE>
--------
(1) Certain columns have been omitted because they are not applicable to CH2M
HILL.
(2) Amounts shown include compensation earned by executive officers, whether
paid during or after such year, or deferred at the election of those
officers.
(3) Amounts shown for 1999 include:
<TABLE>
<CAPTION>
Group Term Life
and Split-
Employee Defined dollar Life
Stock 401(k) Contribution Insurance
Plan Plan Pension Plan Premiums
-------- ------ ------------ ---------------
<S> <C> <C> <C> <C>
Ralph R. Peterson.............. $1,753 $1,248 $2,400 $3,980
Donald S. Evans................ 1,563 1,248 2,400 1,787
James J. Ferris................ 1,563 1,248 2,400 2,682
Samuel H. Iapalucci............ 1,753 1,248 2,400 1,612
Philip G. Hall................. 1,563 1,248 2,400 3,345
</TABLE>
CH2M HILL has not entered into employment agreements with its executive
officers who serve at the pleasure of CH2M HILL's Board of Directors.
Therefore, since compensation for executive officers is comprised of salary,
bonus and other incentive compensation, some of which are based on year-end
performance results, CH2M HILL does not know the aggregate amount of
compensation that will be paid to its executive officers in the current fiscal
year.
53
<PAGE>
Option Grants in the Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable Value
Number of at Assumed Annual Rates
Securities Percent of Total of Stock Price Appreciation
Underlying Options Granted Exercise or for Option Term
Options Granted to Employees in Base Price Expiration ----------------------------
Name (#) Fiscal Year ($/sh) Date 5% 10%
---- --------------- ---------------- ----------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Ralph R. Peterson....... 28,350 * $4.31 2/12/04 $33,758 $74,597
Donald S. Evans......... 24,750 * $4.31 2/12/04 $29,471 $65,125
James J. Ferris......... 24,750 * $4.31 2/12/04 $29,471 $65,125
Samuel H. Iapalucci..... 24,750 * $4.31 2/12/04 $29,471 $65,125
Philip G. Hall.......... 17,780 * $4.31 2/12/04 $21,172 $46,784
</TABLE>
--------
* Less than 1%
Option Exercises and Fiscal Year-End Option Values
No options were exercised by the Chief Executive Officer and the other four
most highly compensated executive officers of CH2M HILL during the fiscal year
ended December 31, 1999. No options listed in this table were in-the-money at
the end of the fiscal year ended December 31, 1999.
<TABLE>
<CAPTION>
Number of Securities Underlying Unexercised
Options at End of Fiscal Year (#)
-------------------------------------------
Name Exercisable Unexercisable
---- -------------------- -----------------------
<S> <C> <C>
Ralph R. Peterson....... -- 28,350
Donald S. Evans......... -- 24,750
James J. Ferris......... -- 24,750
Samuel H. Iapalucci..... -- 24,750
Phillip G. Hall......... -- 17,780
</TABLE>
1999 Long-Term Incentives
The following table sets forth information regarding Long-Term Incentive
Plan opportunities that were granted to the chief executive officer and the
other four most highly compensated executive officers of CH2M HILL. This long-
term incentive plan was established effective January 1, 1999 and will be paid
out on or after the 3 year award period ending December 31, 2001. There are no
payouts in years 1999 and 2000. The payment of the awards will be 60% in common
stock, valued at the date of payment, and 40% cash. The criteria for payout is
based on specific long-term goals of earnings growth and strategic imperatives
for CH2M HILL as well as individual goals.
Long-Term Incentive Plan Awards in 1999(1)(2)
<TABLE>
<CAPTION>
Estimated future payouts
under non-stock price-based
plans
-----------------------------
(a) (c) (d) (e) (f)
Period Until
Name Payout Threshold Target Maximum
---- ------------ --------- -------- ----------
<S> <C> <C> <C> <C>
Ralph R. Peterson................ 3 years $0 $542,400 $1,084,800
Donald S. Evans.................. 3 years $0 $171,000 $ 343,200
James J. Ferris.................. 3 years $0 $174,000 $ 348,000
Samuel H. Iapalucci.............. 3 years $0 $174,000 $ 348,000
Philip G. Hall................... 3 years $0 $183,000 $ 366,000
</TABLE>
--------
(1) Certain columns have been omitted because they are not applicable.
(2) The Target amounts for the first two years of the Long-Term Incentive Plan
are adjusted to reflect 1.5 times what the Target will be when it begins
the payouts in year 3 and thereafter. For example, beginning in year 3 the
Target and Maximum amounts for the Chief Executive Officer and the other
four most highly compensated executive officers, based on 1999 salaries,
are estimated to be the following beginning in 2001:
<TABLE>
<CAPTION>
Name Threshold Target Maximum
---- --------- -------- --------
<S> <C> <C> <C>
Ralph R. Peterson................................ $0 $361,600 $723,200
Donald S. Evans.................................. $0 $114,400 $228,800
James J. Ferris.................................. $0 $116,000 $232,000
Samuel H. Iapalucci.............................. $0 $116,000 $232,000
Philip G. Hall................................... $0 $122,000 $244,000
</TABLE>
54
<PAGE>
Retirement Plans
Messrs. Peterson and Hall are participants in the CH2M HILL Pension Plan.
Benefits under the CH2M HILL Pension Plan are equal to 1% of 1987-1991 average
base compensation (up to $150,000) multiplied by years of credited service
prior to 1992 plus 1% of each year's base compensation (up to $150,000) for
each year of credited service from January 1, 1992 through December 31, 1993.
Plan benefits were frozen as of December 31, 1993. The estimated annual
benefits payable at the earliest age when a participant may retire with an
unreduced benefit (age 65) are $37,849 to Mr. Peterson, and $34,955 to Mr.
Hall.
Mr. Evans is a participant in the CH2M HILL Pension Plan with respect to
credited service prior to May 1, 1986 and he is a participant in the OMI
Retirement Plan with respect to credited service from May 1, 1986 through
December 31, 1995. The normal retirement benefits under the OMI Retirement Plan
are equal to 1.5% of average compensation (up to the IRS limit) for the first
20 years of credited service plus 0.5% of average compensation (up to the IRS
limit) for years of service in excess of 20. Mr. Evans' benefit under the OMI
plan was frozen as of December 31, 1995 upon his transfer from employment
covered by the plan. The estimated annual benefits payable to Mr. Evans at the
earliest age when a participant may retire with an unreduced benefit (age 65)
are $12,771 from the CH2M HILL Pension Plan and $23,521 from the OMI Retirement
Plan, or a total of $36,292.
Mr. Ferris and Mr. Iapalucci do not participate in a CH2M HILL Pension
Plan.
Change of Control Arrangements
The Board of Directors authorized CH2M HILL to enter into Change of Control
Arrangements with the Chief Executive Officer; his direct reports, who are
Joseph A. Ahearn, Keith Alexander, Kenneth F. Durant, Donald S. Evans, James J.
Ferris, Philip G. Hall, Samuel H. Iapalucci, Michael D. Kennedy, and Kent
Robinson; employee-directors of CH2M HILL who are Susan D. King, Michael Y.
Marcussen, and Jill T. Shapiro Sideman, and Wyatt McCallie, the General Counsel
of CH2M HILL (each hereafter a "COC Executive"). CH2M Hill is in the process of
negotiating the terms of these change of control arrangements which are
expected to contain the following provisions. The provisions of these
arrangements will become effective if and when there is a Change of Control (as
that term is defined below) of CH2M HILL and, with respect to most benefits,
only if the COC Executive is terminated within twenty four months of such
Change of Control. All of the Change of Control Arrangements will continue in
effect through March 31, 2001. The Arrangements will automatically renew for
successive one-year terms unless CH2M HILL gives notice to the COC Executives
that it does not intend to extend the Arrangements or intends to change its
terms (such notice cannot be given during the pendency of a potential Change of
Control). If a Change of Control occurs, the expiration date of the
Arrangements will automatically extend for twenty-four months beyond the month
in which the Change of Control occurs.
Under the Change of Control Arrangements, CH2M HILL will provide each COC
Executive with the following benefits at the time a Change of Control event
occurs:
. Immediate vesting in all retirement plans and of all outstanding options
. Pro-rata payout of amounts payable under the Short Term Incentive Plan
for the year of termination
. Pro-rata payout of amounts payable under the Long Term Incentive Plan
CH2M HILL will provide each COC Executive with the following additional
benefits in the event of termination of their employment (actual or
constructive and other than for cause) by CH2M HILL or its successor in
interest within twenty-four months of a Change of Control:
For the Chief Executive Officer and direct reports:
. Lump-sum payment in the amount equal to 2.99 times the sum of (i) annual
base salary in effect at the time the Change of Control occurs and (b)
target annual incentive bonus payable under the Short Term Incentive Plan
. Continuation of health benefits for 36 months
55
<PAGE>
For other COC Executives:
. Lump-sum payment in the amount equal to 1.5 times the sum of (i) annual
base salary in effect at the time the Change of Control occurs and (b)
target annual incentive bonus payable under the Short Term Incentive Plan
. Continuation of health benefits for 18 months
For purposes of the Change of Control Arrangements, a "Change of Control" is
defined generally to include:
. Acquisition of 25% (or more) of the voting securities of CH2M HILL
. A significant merger or consolidation where CH2M HILL shareholders hold
less than 75% of all shares outstanding of the surviving company; a
change in the majority of the Board of Directors, not otherwise
recommended by the Board of Directors, during the course of one fiscal
year
. Liquidation or dissolution of CH2M HILL, or direct or indirect sale or
other disposition of all or substantially all of the assets of CH2M HILL
Board of Directors
The Bylaws provide that the Board of Directors shall consist of at least
nine and no more than thirteen directors and shall be subject to change
pursuant to resolutions of the Board of Directors. The current number of
directors is eleven. The Bylaws provide that the directors shall be elected to
three-year staggered terms by dividing the directors into three classes as
equal in number as possible. At each annual meeting the same number of
directors shall be elected for a three-year term as the number whose term
expires. Each director shall serve until his respective successor is elected
and qualified. A decrease in the number of directors shall not shorten the term
of any incumbent director.
Compensation of Directors
Non-employee directors of CH2M HILL receive an annual retainer fee of
$21,000 and an additional $4,000 for each committee on which they serve as the
chairman. CH2M HILL also pays non-employee directors a meeting fee of $1,000
for attendance at each Board of Directors meeting and $1,000 per day for
attendance at committee meetings. Directors are reimbursed for expenses
incurred in connection with attendance at meetings and other CH2M HILL
functions. Non-employee directors are eligible to receive a discretionary cash
bonus each year which for 1999 was $12,600.
Directors and Officers Liability Insurance
CH2M HILL pays the premium for insurance in respect of claims against its
directors and officers and in respect of losses for which CH2M HILL may be
required or permitted by law to indemnify such directors and officers. The
directors to be insured are the directors named herein and all directors of
CH2M HILL's subsidiaries. The officers to be insured are all officers and
assistant officers of CH2M HILL and its subsidiaries. CH2M HILL does not expect
to allocate or segregate the premium with regard to specific subsidiaries or
individual directors and officers.
Compensation Committee Interlocks and Insider Participation
The members of CH2M HILL's Compensation and Work Force Committee of the
Board of Directors are Joseph A. Ahearn, Ralph F. Cox, Kenneth F. Durant,
Donald S. Evans, James F. Ferris, Jerry D. Geist, Philip G. Hall and Barry L.
Williams. All members of the Compensation and Work Force Committee except Ralph
F. Cox, Jerry D. Geist and Barry L. Williams are officers of CH2M HILL.
SECURITY OWNERSHIP OF CERTAIN SHAREHOLDERS AND MANAGEMENT
The following tables set forth information regarding the ownership of all
classes of CH2M HILL's securities as of March 31, 2000, by (a) any person or
group known to have ownership of more than five percent of the common stock and
(b) beneficial ownership by directors and executive officers individually and
as a group.
56
<PAGE>
Security Ownership of Certain Shareholders
The following table presents information as of March 31, 2000, concerning
the only known shareholder who owns five percent or more of common stock.
<TABLE>
<CAPTION>
Number of
Shares Percent of
Naemand Address of Shareholder Title of Class Held Class
------------------------------- -------------- ---------- ----------
<S> <C> <C> <C>
Trustees of the CH2M HILL Employee Common 10,947,180(1) 37.1%
Stock Plan........................
6060 S. Willow Dr.
Greenwood Village, CO
80111
</TABLE>
--------
(1) Common shares are held of record by the Trustees for the accounts of
participants in the Employee Stock Plan and will be voted in accordance
with instructions received from participants. Shares as to which no
instructions are received will be voted in the same proportions.
Security Ownership of Directors and Executive Officers
The following table sets forth information as of March 31, 2000 as to the
beneficial ownership of CH2M HILL's equity securities by each director,
executive officer and by all directors and executive officers as a group. None
of the individuals listed below owns more than one percent of the outstanding
shares of CH2M HILL. As a group, all directors and executive officers directly
own approximately five percent of the outstanding shares of CH2M HILL.
<TABLE>
<CAPTION>
Total
Common Common Common
Stock Stock Stock
Name of Beneficial Owner Held Directly Held Indirectly(1) Held
------------------------ ------------- ------------------ ---------
<S> <C> <C> <C>
Joseph A. Ahearn................... 44,002 3,501 47,503
Robert G. Card(2).................. 128,300 29,287 157,587
Kenneth F. Durant.................. 250,622 27,733 278,355
Donald S. Evans.................... 194,406 511 194,917
James J. Ferris.................... 73,174 3,158 76,332
Jerry D. Geist..................... -- -- --
Philip G. Hall..................... 256,940 32,225 289,165
Samuel H. Iapalucci................ 77,639 3,077 80,716
Michael D. Kennedy................. 76,957 17,793 94,750
Susan D. King...................... 63,778 7,525 71,303
Michael Y. Marcussen............... 13,420 -- 13,420
Ralph R. Peterson.................. 279,515 30,570 310,085
E. Kent Robinson................... 104,529 16,746 121,275
Jill T. Shapiro Sideman............ 15,035 5,448 20,483
Barry L. Williams.................. -- -- --
All directors or executive officers
as a group (15 people)............ 1,578,317 177,574 1,755,891
</TABLE>
--------
(1) Includes common stock held through the 401(k) Plan. Shares are vested,
except for shares held indirectly by Mr. Iapalucci, who indirectly holds
312 unvested shares.
(2) The number of shares held indirectly by Robert G. Card includes 16,000
shares held in the pre-tax deferred compensation plan trust.
57
<PAGE>
RELATED TRANSACTION
CH2M HILL owns a 40% interest in Dan Engineering A/S, a Dutch company. The
aggregate purchase price of our interest in Dan Engineering was $255,000.
Michael Y. Marcussen, who is one of our directors, owns 40% of Dan Engineering.
Dan Engineering was founded in 1985 by Mr. Marcussen and a partner and
specializes in the design, construction and operation of non-ferrous metal
smelting equipment and plants, particularly tin and lead smelters.
POLICY RELATING TO AFFILIATED TRANSACTIONS
CH2M HILL has adopted the following policy relating to affiliated
transactions:
CH2M HILL will make or enter into all future material affiliated
transactions and loans, if any, on terms that are no less favorable to CH2M
HILL than those that can be obtained from unaffiliated third parties. A
majority of CH2M HILL's independent directors who do not have an interest in
the transactions and who have had access, at CH2M HILL's expense, to legal
counsel will approve all future material affiliated transactions, loans and
forgiveness of loans, if any.
58
<PAGE>
SECURITIES OFFERED BY THE CURRENT SHAREHOLDERS
The current shareholders may sell up to an aggregate of 17,061,150 shares
of common stock. While we are registering all of the shares held by our current
shareholders, including all the shares currently held by our directors and
executive officers, we do not know whether they intend to sell any of their
common stock, but they may sell some, none or all of their shares.
Based on its stock transfer records, CH2M HILL will provide specific
information upon request, regarding the selling shareholders who are not
individually named at a particular point in time, in connection with a legal
proceeding filed under the federal securities laws.
We are also registering up to 2,000,000 shares of common stock that may be
sold by our employee benefit plans through the internal market.
The following table sets forth, as of March 31, 2000, the number of shares
of common stock directly owned by the current CH2M HILL shareholders, with all
directors and executive officers and all shareholders who own 0.5% or more of
common stock individually identified. The table does not reflect the sale of
any shares of common stock being offered by CH2M HILL. All of the shares are
owned of record.
<TABLE>
<CAPTION>
Number
Number of Percent of Of Shares
Name of Beneficial Owner Shares Owned Ownership Registered(1)
------------------------ ------------ ---------- -------------
<S> <C> <C> <C>
Joseph A. Ahearn........................ 44,002 * 44,002
Robert G. Card.......................... 128,300 * 128,300
Kenneth F. Durant....................... 250,622 * 250,622
Donald S. Evans......................... 194,406 * 194,406
James J. Ferris......................... 73,174 * 73,174
Jerry D. Geist.......................... -- -- --
Philip G. Hall.......................... 256,940 * 256,940
Samuel H. Iapalucci..................... 77,639 * 77,639
Michael D. Kennedy...................... 76,957 * 76,957
Susan D. King........................... 63,778 * 63,778
Michael Y. Marcussen.................... 13,420 * 13,420
Ralph R. Peterson....................... 279,515 * 279,515
Kent E. Robinson........................ 104,529 * 104,529
Jill T. Shapiro Sideman................. 15,035 * 15,035
Barry L. Williams....................... -- -- --
All directors and executive officers as
a group (15 people).................... 1,578,317 5.40 1,578,317
E. Wayne Hanson......................... 238,979 * 238,979
Cliff G. Thompson....................... 216,917 * 216,917
Richard S. Reid......................... 214,861 * 214,861
Robert L. Chapman....................... 211,678 * 211,678
Jerry D. Boyle.......................... 208,030 * 208,030
John W. Filbert......................... 197,279 * 197,279
David R. Evans.......................... 189,202 * 189,202
John W. Lee, Jr......................... 168,500 * 168,500
Roger R. Bissell........................ 167,748 * 167,748
Jay A. Mackie........................... 152,055 * 152,055
All shareholders (other than directors
and executive officers) who own 0.5% or
more of common stock as a group (10
people)................................ 1,965,249 6.65 1,965,249
All other current shareholders.......... 13,517,584 45.77 13,517,584
</TABLE>
--------
* Less than one percent.
(1) The shares of common stock registered by the current shareholders represent
the maximum number of shares that they may sell. Based on the currently
available information, these shareholders intend to sell significantly less
than this maximum number of shares.
59
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
The following is a summary of the material provisions of CH2M HILL's
Restated Articles of Incorporation and Restated Bylaws regarding CH2M HILL's
capital stock. You may find more detailed information by reading the Restated
Articles of Incorporation and the Restated Bylaws, copies of which are filed as
exhibits to the registration statement filed with the Securities and Exchange
Commission.
CH2M HILL is authorized to issue 150,000,000 shares of capital stock, of
which 100,000,000 shares are common stock, par value $.01 per share, and
50,000,000 shares are Class A preferred stock, par value $.02 per share. As of
March 31, 2000, 29,535,430 shares of common stock were outstanding and held of
record by approximately 2,724 shareholders and the employee benefit plan
trusts.
Common Stock
General. Holders of common stock are entitled to one vote per share on all
matters submitted to the shareholders of CH2M HILL. Each share of common stock
is equal in respect of voting rights, liquidation rights and rights to
dividends and to distributions. Shareholders of CH2M HILL do not and will not
have any preferred or preemptive rights to subscribe for, purchase or receive
additional shares of any class of capital stock of CH2M HILL, or any securities
convertible into or exchangeable for such shares.
Restrictions on Common Stock. All the shares of common stock presently
outstanding are, and all shares of common stock offered hereby will be, subject
to restrictions set forth in the Restated Bylaws:
1. Right of Repurchase upon Termination of Employment or Affiliation. All
shares of common stock are subject to CH2M HILL's right of repurchase upon the
termination of the shareholder's employment or affiliation with CH2M HILL. Such
right of repurchase will also be applicable to all shares of common stock which
such person has the right to acquire after his or her termination of employment
or affiliation pursuant to any of CH2M HILL's employee benefit plans or
pursuant to any option or other contractual right to acquire shares of common
stock which was outstanding at the date of such termination of employment or
affiliation. Such right of repurchase will not be applicable to shares of
common stock held by an employee benefit plan or any other retirement or
pension plan adopted by CH2M HILL or any of its subsidiaries which pursuant to
applicable law or by its terms does not provide for CH2M HILL's right to
repurchase shares issued thereunder upon termination of employment or
affiliation.
CH2M HILL's right of repurchase is exercised by mailing a written notice to
such holder within 60 days following termination of employment or affiliation.
If CH2M HILL repurchases the shares, the price will be the price per share:
. in effect on the date of such termination of employment or affiliation,
in the case of shares owned by the holder at that date and shares
issuable to the holder after that date pursuant to any option or other
contractual right to acquire shares of common stock which were
outstanding at that date; or
. in effect on the date such shares are distributed to the holder, in the
case of shares distributable to the holder after his or her termination
of employment or affiliation pursuant to any of CH2M HILL's employee
benefit plans.
CH2M HILL will, in the event it exercises its right of repurchase upon
termination of employment or affiliation, pay for such shares in cash or
promissory notes.
CH2M HILL and any holder of shares may agree to extend the time period of
CH2M HILL's right to repurchase such holder's shares or to alter the payment
terms.
2. Right of First Refusal. If a holder of common stock desires to sell any
of his or her shares to a third party other than in the internal
60
<PAGE>
market, such holder must first give notice to the Secretary of CH2M HILL
including:
. A signed statement indicating that such holder desires to sell his or her
shares of common stock and that he or she has received a bona fide offer
to purchase such shares
. A statement signed by the intended purchaser containing:
(i) the intended purchaser's full name, address and taxpayer
identification number
(ii) the number of shares to be purchased
(iii) the price per share to be paid
(iv) the other terms under which the purchase is intended to be made
(v) a representation that the offer, under the terms specified, is bona
fide; and
. If the purchase price is payable in cash, in whole or in part, a copy of
a certified check, cashier's check or money order payable to such holder
from the purchaser in the amount of the purchase price to be paid in cash
CH2M HILL then has the right, exercisable within 14 days, to purchase all
of the shares specified in the notice at the offer price and upon the same
terms as set forth in the notice. In the event CH2M HILL does not exercise such
right, the holder may sell the shares specified in the notice within 30 days
thereafter to the person specified in the notice at the price and upon the
terms and conditions set forth therein. The holder may not sell such shares to
any other person or at any different price or on any different terms without
first re-offering the shares to CH2M HILL.
If circumstances occur which would permit CH2M HILL to exercise its right
of repurchase upon termination of employment or affiliation and its right of
first refusal, then CH2M HILL may, in its sole discretion, elect which of these
rights it will exercise.
3. Other Transfers. Except for sales in the internal market or pursuant to
the repurchase right or right of first refusal procedure described above, no
holder of common stock may sell, assign, pledge, transfer or otherwise dispose
of or encumber any shares of common stock without the prior written approval of
CH2M HILL. Any attempt to do so without such prior approval will be null and
void. If any transfer of CH2M HILL's shares is not a sale by an employee,
director or consultant, or is by a person who acquired such shares other than
by purchase, directly or indirectly, from an employee, director or consultant,
CH2M HILL may condition its approval of such transfer upon the transferee's
agreement to hold such shares subject to CH2M HILL's right to repurchase such
shares upon the termination of employment or affiliation of the employee,
director or consultant.
4. Ownership Limit. The Restated Bylaws provide that no person may own more
than 350,000 shares of common stock, excluding such person's beneficial
interest in common stock held indirectly by an employee benefit trust.
Class A Preferred Stock
CH2M HILL has no Class A preferred stock outstanding.
Limitation of Liability and Indemnification
Under the Oregon Business Corporation Act (the "Act"), a corporation may
provide for the limitation of liability of directors and indemnification of
directors and officers under some circumstances. CH2M HILL's Restated Articles
of Incorporation provide that directors are not personally liable to the
corporation or its shareholders for monetary damages for conduct as a director,
except for any act or omission for which the elimination of liability is not
permitted under the Act. Section 60.047(2)(d) of the Act sets forth the
following actions for which limitation of liability is not permitted,
including;
. any breach of a director's duty of loyalty to the corporation or its
shareholders
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law
. any unlawful distributions to shareholders; or
. any transaction from which the director received an improper or illegal
personal benefit.
61
<PAGE>
The Restated Bylaws allow CH2M HILL to indemnify any person who is or was a
party, or is threatened to be made a party, to any civil, administrative, or
criminal proceeding by reason of the fact that the person is or was a director
or officer of CH2M HILL or any of its subsidiaries, or is or was serving at
CH2M HILL's request as a director, officer, partner, agent, or employee of
another corporation or entity. The indemnification may include expenses,
including attorneys' fees, judgments, fines, and amounts paid in settlement,
actually and reasonably incurred by that person. Under the Section 60.391(1) of
the Act, indemnification is available if:
. the person acted in good faith
. the person reasonably believed the conduct was in the corporation's best
interests, or at least was not opposed to its best interests; and
. in the case of a criminal proceeding, the person had no reasonable cause
to believe the conduct was unlawful.
In addition, a person who is wholly successful, on the merits or otherwise,
in the defense of a proceeding in which the person was a party because the
person was a director, is entitled to indemnification for expenses actually and
reasonably incurred by the person in connection with the proceeding.
Commission Position on Indemnification
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of CH2M HILL pursuant to provisions described
above, or otherwise, CH2M HILL has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities is asserted
by such director, officer or controlling person in connection with the
securities being registered, CH2M HILL will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
Anti-Takeover Provisions -- Legislation
The Act provides that corporate directors, when evaluating a proposed
tender or exchange offer, merger, acquisition, or similar proposal, "may, in
determining what they believe to be in the best interests of the corporation,
give due consideration to the social, legal, and economic effects on employees,
clients, and suppliers of the corporation and on the communities and
geographical areas in which the corporation and its subsidiaries operate, the
economy of the state and nation, the long-term as well as short-term interests
of the corporation and its shareholders, including the possibility that these
interests may be best served by the continued independence of the corporation
and other relevant factors." Consequently, when evaluating a proposal for the
merger, consolidation, or sale of CH2M HILL, the Board of Directors may
consider the interests of groups or constituents other than CH2M HILL's
shareholders. Such consideration may cause the Board of Directors to reject an
acquisition proposal for reasons other than the price being offered.
CH2M HILL is also subject to the Oregon Business Combination Act (the
"OBCA"). The OBCA generally provides that if a person (an "Interested
Shareholder") acquires voting stock of an Oregon corporation in a transaction
resulting in such person owning 15% or more of the total voting stock of such
corporation, then the corporation and the Interested Shareholder may not engage
in business combination transactions for three years following the date of such
acquisition. "Business combination transactions" include:
. a merger or plan of share exchange
. any sale, lease, mortgage, or other disposition of corporate assets where
the assets have an aggregate market value of 10% or more of the aggregate
market value of the corporation's assets or outstanding capital stock;
and
. certain transactions that result in the issuance of capital stock of, or
loans by, the corporation to the Interested Shareholder.
62
<PAGE>
These restrictions do not apply if:
. the Interested Shareholder, as a result of the acquisition, owns at least
85% of the outstanding voting stock of the corporation, excluding shares
owned by directors who are also officers, and certain employee benefit
plans
. prior to the completion of the acquisition the Board of Directors
approves either the business combination transaction or the acquisition
. after the completion of the acquisition the Board of Directors and the
holders of at least two-thirds of the outstanding voting stock of the
corporation, excluding shares owned by the Interested Shareholder,
approve the business combination transaction
A corporation may provide in its Articles of Incorporation or bylaws that
the OBCA does not apply to its shares. CH2M HILL has not adopted such a
provision and does not presently plan to do so.
In addition, the Oregon Control Share Act (the "OCSA") also applies to CH2M
HILL. The OCSA provides that a person or persons who acquire no less than 20%
of the voting shares of a corporation in a "control share acquisition," lose
the right to vote the shares unless such voting rights are restored through a
majority vote of the remaining shareholders. A person (the "Acquiring Person")
who acquires voting stock of an Oregon corporation in a transaction which
results in such Acquiring Person holding more than 20%, 33%, or 50% of the
total voting power of the corporation (a "Control Share Acquisition") cannot
vote such shares ("Control Shares") unless voting rights are accorded to the
Control Shares by the holders of a majority of the outstanding voting shares,
excluding such Control Shares and shares held by insiders. The vote is required
at the time an Acquiring Person's holdings exceed 20% of the total voting power
of a company, and again at the time the Acquiring Person's holdings exceed 33%
and 50%, respectively. "Acquiring Person" is broadly defined to include persons
acting as a group. The Acquiring Person may, but is not required to, submit to
CH2M HILL an "Acquiring Person Statement" setting forth information about the
Acquiring Person and its plans with respect to CH2M HILL. The Acquiring Person
Statement may also request that CH2M HILL call a special meeting of
shareholders to determine whether the Control Shares will be allowed to retain
voting rights. If the Acquiring Person does not request a special meeting of
shareholders, the issue of voting rights of Control Shares will be considered
at the next annual meeting or special meeting of shareholders that is held more
than 60 days after the date of the Control Share Acquisition. If the Acquiring
Person's Control Shares are accorded voting rights and represent a majority of
all voting power, shareholders who vote against restoring such voting rights
are entitled to the appraised "fair value" of their shares, which may not be
less than the highest price paid per share by the Acquiring Person for the
Control Shares.
The OCSA and the OBCA effectively encourage any potential acquirer to
negotiate with CH2M HILL's Board of Directors, and discourage potential
acquirers unwilling to comply with their provisions. A corporation may provide
in its Articles of Incorporation or bylaws that these laws shall not apply to
its shares. CH2M HILL has not adopted such provisions and does not currently
intend to do so. These laws may make CH2M HILL less attractive for takeover,
and shareholders, therefore, may not benefit from a rise in the price of the
common stock that could result from a takeover.
Anti-Takeover Provisions -- Restated Articles of Incorporation and Restated
Bylaws
In addition to the laws discussed above, CH2M HILL's Restated Articles of
Incorporation and Restated Bylaws contain provisions that could make the
acquisition of CH2M HILL through a tender offer, proxy contest, or merger
difficult for a potential suitor opposed by the Board of Directors. These
provisions are:
. The restriction on the sale of common stock outside of the internal
market
. CH2M HILL's right to repurchase shares of common stock upon the holder's
termination of employment with CH2M HILL
. CH2M HILL's right of first refusal on shares of common stock, except for
shares sold in the internal market
63
<PAGE>
. CH2M HILL's right to refuse to allow the transfer of shares of common
stock to proposed transferees, except for shares sold in the internal
market or pursuant to the right of first refusal
. The Restated Bylaws' prohibition on any shareholder owning more than
350,000 shares of the common stock
. The existence of staggered terms for directors of CH2M HILL
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, CH2M HILL will have outstanding up to
34,135,430 shares of common stock. Of these shares, the maximum 23,677,150
shares sold in the offering will be freely tradable in the internal market
without restriction or further registration under the Securities Act except for
any shares purchased by an "affiliate" of CH2M HILL, as defined in Rule 144
under the Securities Act. The remaining 10,458,280 shares of common stock are
held by our employee benefit plan trusts and may be sold in the internal market
either under Rule 144, subject to volume or holding period limitations, or
pursuant to a future registration statement declared effective under the
Securities Act.
As of March 31, 2000, 3,299,360 options to purchase common stock were
outstanding. A total of 4,700,640 shares of common stock are currently
available for future grants of options.
VALIDITY OF COMMON STOCK
The validity of the common stock offered hereby will be passed upon for
CH2M HILL by Holme Roberts & Owen LLP.
EXPERTS
The financial statements and schedules included in this prospectus and
elsewhere in this registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
64
<PAGE>
AVAILABLE INFORMATION
CH2M HILL has filed with the Securities and Exchange Commission (the
"Commission") a registration statement (which term shall include any amendments
thereto) on Form S-1 under the Securities Act, with respect to the common stock
offered hereby. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the
registration statement, certain items of which are contained in exhibits to the
registration statement as permitted by the rules and regulations of the
Commission. For further information with respect to CH2M HILL and the common
stock offered hereby, reference is made to the registration statement,
including the exhibits thereto, and the financial statements and notes and
schedules filed as a part thereof. Statements made in this prospectus
concerning the contents of any document referred to herein are not necessarily
complete. With respect to each such document filed with the Commission as an
exhibit to the registration statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference.
CH2M HILL is subject to the requirements of the Exchange Act and in
accordance therewith, files reports, proxy statements, and other information
with the Commission. Such reports, proxy statements and other information filed
with the Commission, may be read and copied at the SEC's Public Reference Room
at 450 Fifth Street, N.W., Washington, D.C. 20549. Information on
the operation of the Public Reference Room
may be obtained by calling the Commission at 1-800-SEC-0330. The Commission
maintains a Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission.
65
<PAGE>
CH2M HILL COMPANIES, LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants--Arthur Andersen LLP.............. F-2
Independent Auditor's Report--KPMG LLP..................................... F-3
Consolidated Financial Statements:
Audited Consolidated Balance Sheets at December 31, 1998 and 1999, and
Unaudited Consolidated Balance Sheet at March 31, 2000.................. F-4
Audited Consolidated Statements of Income for the Years Ended December
31, 1997, 1998 and 1999 and Unaudited Consolidated Statements of Income
for the Three-Month Periods Ended March 31, 1999 and 2000............... F-5
Audited Consolidated Statements of Temporary Shareholders' Equity for the
Years Ended December 31, 1997, 1998 and 1999............................ F-6
Audited Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999 and Unaudited Consolidated Statements
of Cash Flows for the Three-Month Periods Ended March 31, 1999 and
2000.................................................................... F-7
Notes to Consolidated Financial Statements............................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CH2M HILL Companies, Ltd.:
We have audited the accompanying consolidated balance sheets of CH2M HILL
Companies, Ltd. (an Oregon corporation) and subsidiaries as of December 31,
1998 and 1999 and the related consolidated statements of income, temporary
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
CH2M HILL's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of CH2M HILL Industrial Design Corporation, which statements reflect
total assets and total revenues of 17 percent and 27 percent in 1997, 8 percent
and 20 percent in 1998, and 21 percent and 21 percent in 1999, respectively, of
the related consolidated totals. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for this entity, is based solely on the report
of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those statements 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 and the report of
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of CH2M HILL Companies, Ltd. and subsidiaries
as of December 31, 1998 and 1999, and the results of their operations and their
flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Denver, Colorado,
February 18, 2000
F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
CH2M HILL INDUSTRIAL DESIGN CORPORATION:
We have audited the consolidated balance sheets of CH2M HILL INDUSTRIAL
DESIGN CORPORATION AND SUBSIDIARIES as of December 31, 1999 and 1998, and the
related consolidated statements of income and retained earnings, comprehensive
income, and cash flows for each of the years in the three-year period ended
December 31, 1999 (not presented separately herein). These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CH2M HILL
INDUSTRIAL DESIGN CORPORATION and subsidiaries as of December 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1999 in conformity with
generally accepted accounting principles.
KPMG LLP
Portland, Oregon
January 21, 2000
F-3
<PAGE>
CH2M HILL COMPANIES, LTD.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, December 31, March 31,
1998 1999 2000
------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $ 16,595 $ 12,557 $ 17,936
Receivables, net--
Client accounts........................ 136,882 164,914 164,644
Unbilled revenue....................... 87,635 96,610 97,019
Other.................................. 4,567 4,930 8,180
Prepaid expenses and other.............. 8,059 7,912 7,431
-------- -------- --------
Total current assets................... 253,738 286,923 295,210
-------- -------- --------
Property, plant and equipment, at cost
Land................................... 229 219 219
Building and land improvements......... 2,845 2,813 2,813
Furniture, fixtures and equipment...... 31,466 30,198 30,343
Leasehold improvements................. 7,522 7,920 8,420
-------- -------- --------
42,062 41,150 41,795
Less: Accumulated depreciation and
amortization........................... (28,072) (26,876) (25,911)
-------- -------- --------
Net property, plant and equipment...... 13,990 14,274 15,884
-------- -------- --------
Goodwill, net........................... 1,203 18,697 20,045
Other assets, net....................... 28,853 35,301 32,478
Deferred income taxes................... 541 1,960 1,960
-------- -------- --------
Total assets........................... $298,325 $357,155 $365,577
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt....... $ 4,512 $ 2,221 $ 1,221
Current portion of notes payable to
former shareholders..................... 4,527 4,154 4,154
Accounts payable........................ 29,187 60,107 49,914
Billings in excess of revenues.......... 30,556 49,143 54,301
Accrued incentive compensation.......... 18,065 13,330 9,024
Employee related liabilities............ 42,013 43,100 52,284
Other accrued liabilities............... 27,725 13,278 17,015
Current deferred income taxes........... 23,855 26,907 30,914
-------- -------- --------
Total current liabilities.............. 180,440 212,240 218,827
Other long-term liabilities............. 24,404 32,902 34,413
Long-term debt.......................... 2,286 313 384
Notes payable to former shareholders.... 16,063 14,608 13,720
-------- -------- --------
Total liabilities...................... 223,193 260,063 267,344
-------- -------- --------
Commitments and contingencies (Notes 4,
7 and 16)
Temporary shareholders' equity:
Preferred stock, Class A $.02 par value,
50,000,000 shares authorized; 11,068,580
and 12,095,220 issued and outstanding at
December 31, 1998 and 1999,
respectively; redeemable for $52,130 at
December 31, 1999....................... 221 242 --
Common stock, $.01 par value,
100,000,000 shares authorized;
16,957,360 and 17,234,170 issued and
outstanding at December 31, 1998 and
1999, respectively; redeemable for
$74,279 at December 31, 1999............ 170 172 --
Additional paid-in capital.............. 20,283 29,234 --
Retained earnings....................... 56,148 69,774 --
Accumulated other comprehensive loss.... (1,690) (2,330) --
-------- -------- --------
Total temporary shareholders' equity... 75,132 97,092 --
-------- -------- --------
Permanent shareholders' equity:
Common stock, $.01 par value,
100,000,000 shares authorized;
29,535,430 issued and outstanding at
March 31, 2000.......................... -- -- 295
Additional paid in capital.............. -- -- 26,535
Retained earnings....................... -- -- 74,392
Accumulated other comprehensive loss.... -- -- (2,989)
-------- -------- --------
Total permanent shareholders' equity... -- -- 98,233
-------- -------- --------
Total liabilities and shareholders'
equity................................ $298,325 $357,155 $365,577
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CH2M HILL COMPANIES, LTD.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share)
<TABLE>
<CAPTION>
Three-Month Three-Month
Period Period
Ended Ended
December 31, December 31, December 31, March 31, March 31,
1997 1998 1999 1999 2000
------------ ------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Gross revenue........... $ 908,854 $ 926,630 $1,172,153 $ 273,436 $ 366,515
Equity in earnings of
joint ventures and
affiliated companies... 8,724 8,400 12,375 740 5,706
---------- ---------- ---------- ---------- ----------
Total revenues........ 917,578 935,030 1,184,528 274,176 372,221
Operating expenses:
Direct cost of
services and
overhead............. (617,356) (629,468) (845,050) (198,611) (279,227)
General and
administrative....... (286,276) (290,760) (313,491) (71,636) (83,450)
---------- ---------- ---------- ---------- ----------
Operating income........ 13,946 14,802 25,987 3,929 9,544
Other income (expense):
Interest income....... 570 1,735 1,977 224 1,044
Interest expense...... (2,505) (2,154) (1,194) (476) (217)
---------- ---------- ---------- ---------- ----------
Income before provision
for income taxes....... 12,011 14,383 26,770 3,677 10,371
Provision for income
taxes.................. (7,295) (8,571) (13,144) (1,798) (5,186)
---------- ---------- ---------- ---------- ----------
Net income.............. $ 4,716 $ 5,812 $ 13,626 $ 1,879 $ 5,185
========== ========== ========== ========== ==========
Net income per common
and preferred share:
Basic................. $ 0.17 $ 0.21 $ 0.46 $ 0.07 $ 0.18
Diluted............... $ 0.17 $ 0.21 $ 0.46 $ 0.07 $ 0.17
Weighted average number
of common and preferred
shares:
Basic................. 27,688,780 28,330,940 29,451,100 28,340,840 29,604,280
Diluted............... 27,688,780 28,330,940 29,737,145 28,340,840 30,200,172
</TABLE>
The accompanying notes are an intergral part of these consolidated financial
statements.
F-5
<PAGE>
CH2M HILL COMPANIES, LTD.
CONSOLIDATED STATEMENTS OF TEMPORARY SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Class A Total Class A Accumulated
Preferred Stock Common Stock Preferred and Additional Other
------------------ ------------------ Common Paid-in Comprehensive Retained Comprehensive
Shares Amount Shares Amount Shares Capital Income Earnings Loss
---------- ------ ---------- ------ ------------- ---------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December
31, 1996.......... 8,742,010 $175 18,212,450 $182 26,954,460 $13,282 $ -- $45,620 $(1,129)
Shares issued in
connection with
stock based
compensation and
employee benefit
plans............. 1,210,540 24 1,218,390 12 2,428,930 9,151 -- -- --
Shares purchased
and retired....... (40,840) (1) (2,083,840) (20) (2,124,680) (7,411) -- -- --
Comprehensive
income:
Net income........ -- -- -- -- -- -- 4,716 4,716 --
Other
comprehensive
loss:
Foreign currency
translation
adjustments..... -- -- -- -- -- -- (2,298) -- (2,298)
-------
Comprehensive
income......... -- -- -- -- -- -- 2,418 -- --
---------- ---- ---------- ---- ---------- ------- ======= ------- -------
Balances, December
31, 1997.......... 9,911,710 198 17,347,000 174 27,258,710 15,022 50,336 (3,427)
Shares issued in
connection with
stock based
compensation and
employee benefit
plans............. 1,203,830 24 1,341,720 13 2,545,550 11,693 -- -- --
Shares purchased
and retired....... (46,960) (1) (1,731,360) (17) (1,778,320) (6,432) -- -- --
Comprehensive
income:
Net income........ -- -- -- -- -- -- 5,812 5,812 --
Other
comprehensive
loss:
Foreign currency
translation
adjustments..... -- -- -- -- -- -- 1,737 -- 1,737
-------
Comprehensive
income......... -- -- -- -- -- -- 7,549 -- --
---------- ---- ---------- ---- ---------- ------- ======= ------- -------
Balances, December
31, 1998.......... 11,068,580 221 16,957,360 170 28,025,940 20,283 56,148 (1,690)
Shares issued in
connection with
stock based
compensation and
employee benefit
plans............. 1,310,930 26 1,322,480 13 2,633,410 14,181 -- -- --
Shares purchased
and retired....... (284,290) (5) (1,045,670) (11) (1,329,960) (5,230) -- -- --
Comprehensive
income:
Net income........ -- -- -- -- -- -- 13,626 13,626 --
Other
comprehensive
income:
Foreign currency
translation
adjustments..... -- -- -- -- -- -- (640) -- (640)
-------
Comprehensive
income.......... -- -- -- -- -- -- $12,986 -- --
---------- ---- ---------- ---- ---------- ------- ======= ------- -------
Balances, December
31, 1999.......... 12,095,220 $242 17,234,170 $172 29,329,390 $29,234 $69,774 $(2,330)
========== ==== ========== ==== ========== ======= ======= =======
<CAPTION>
Total
Shareholders'
Equity
-------------
<S> <C>
Balances, December
31, 1996.......... $58,130
Shares issued in
connection with
stock based
compensation and
employee benefit
plans............. 9,187
Shares purchased
and retired....... (7,432)
Comprehensive
income:
Net income........ 4,716
Other
comprehensive
loss:
Foreign currency
translation
adjustments..... (2,298)
Comprehensive
income......... --
-------------
Balances, December
31, 1997.......... 62,303
Shares issued in
connection with
stock based
compensation and
employee benefit
plans............. 11,730
Shares purchased
and retired....... (6,450)
Comprehensive
income:
Net income........ 5,812
Other
comprehensive
loss:
Foreign currency
translation
adjustments..... 1,737
Comprehensive
income......... --
-------------
Balances, December
31, 1998.......... 75,132
Shares issued in
connection with
stock based
compensation and
employee benefit
plans............. 14,220
Shares purchased
and retired....... (5,246)
Comprehensive
income:
Net income........ 13,626
Other
comprehensive
income:
Foreign currency
translation
adjustments..... (640)
Comprehensive
income.......... --
-------------
Balances, December
31, 1999.......... $97,092
=============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
CH2M HILL COMPANIES, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three-Month Three-Month
Period Ended Period Ended
December 31, December 31, December 31, March 31, March 31,
1997 1998 1999 1999 2000
------------ ------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net Income.............. $ 4,716 $ 5,812 $ 13,626
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities--
Depreciation and
amortization.......... 9,605 8,558 6,343
Stock based
compensation for
employees and employee
benefit plans......... 8,520 10,725 14,164
Allowance for doubtful
accounts.............. 1,441 3,189 2,907
Deferred income taxes
and other............. 829 2,983 10,256
Loss (gain) on sale of
assets................ 217 1,727 (5)
Change in--
Receivables........... 10,288 (5,301) (37,844)
Prepaid expenses and
other................ (1,713) (9,327) (8,010)
Accounts payable...... (10,479) (5,373) 28,943
Billings in excess of
revenues............. 12,990 (13,226) 18,671
Other current
liabilities.......... 2,448 (4,143) (19,446)
-------- -------- -------- -------- --------
Net cash provided by
(used in) operating
activities............. 38,862 (4,376) 29,605 $(17,656) $ 18,688
Cash flows from
investing activities:
Proceeds from the sale
of assets.............. 75 372 248 332 --
Capital expenditures.... (2,612) (4,723) (4,401) (1,341) (2,151)
Other investing
activities............. (898) -- -- -- --
Acquisitions............ -- -- (18,406) -- --
-------- -------- -------- -------- --------
Net cash used in
investing activities... (3,435) (4,351) (22,559) (1,009) (2,151)
Cash flows from
financing activities:
Borrowing on long-term
debt................... 843 111 331 32 --
Borrowing on line of
credit................. -- -- 32,000 9,300 --
Payments on line of
credit................. -- -- (32,000) -- --
Principal payments on
notes payable to former
shareholders........... (4,968) (4,966) (5,039) (337) (888)
Principal payments on
long-term debt......... (5,652) (5,274) (4,595) (1,005) (929)
Purchases and
retirements of stock... (2,561) (2,342) (1,979) (25) (9,545)
-------- -------- -------- -------- --------
Net cash used in
financing activities... (12,338) (12,471) (11,282) 7,965 (11,362)
Cash effect of
cumulative translation
adjustment............. (437) (534) 198 159 204
-------- -------- -------- -------- --------
Increase (decrease) in
cash and cash
equivalents............ 22,652 (21,732) (4,038) (10,541) 5,379
Cash and cash
equivalents, beginning
of year................ 15,675 38,327 16,595 16,595 12,557
-------- -------- -------- -------- --------
Cash and cash
equivalents, end of
year................... $ 38,327 $ 16,595 $ 12,557 $ 6,054 $ 17,936
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(1) Summary of Business and Significant Accounting Policies
CH2M HILL Companies, Ltd. and its wholly owned subsidiaries are a
multinational infrastructure and environmental services firm. CH2M HILL's
predominant line of business is providing engineering and construction
management services related to water, environmental, transportation,
infrastructure and management services. CH2M HILL also provides facility
design and construction management services to the electronics, food
processing and biopharmaceutical related industries and provides utility
system operations and maintenance services primarily for water and wastewater
treatment facilities.
CH2M HILL provides the above services for clients in private industry,
federal government agencies, as well as state, municipal and local government
entities. A substantial portion of professional fees arises from projects that
are funded directly or indirectly by governmental entities.
Unaudited Interim Financial Statements
The Consolidated interim financial statements included with the annual
financial statements herein have been prepared in accordance with the interim
reporting rules and regulations of the Securities and Exchange Commission, and
therefore does not necessarily include all information and footnotes necessary
for a fair presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles. 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 the disclosure
of contingencies at the date of the financial statements as well as the
reported amounts of revenues and expenses during the reporting period.
Estimates have been prepared on the basis of the most current and best
available information and actual results could differ from those estimates.
In the opinion of CH2M HILL's management, the accompanying unaudited
consolidated condensed financial statements of the interim period contain all
adjustments necessary to present fairly the financial position of CH2M HILL as
of March 31, 2000 and the results of operations and cash flows for the periods
presented. All such adjustments are of a normal recurring nature. The results
of operations for the three-month period ended March 31, 2000 are not
necessarily indicative of the results that may be achieved for a full fiscal
year and cannot be used to indicate financial performance for the entire year.
Shareholders' Equity
On November 6, 1998, the Board of Directors approved a new ownership
program for CH2M HILL and certain resolutions that were subsequently ratified
by a vote of the shareholders on December 18, 1998. Such resolutions were
effective January 1, 2000 and included, but were not limited to, adopting
amendments to the Restated Bylaws and Articles of Incorporation which provide
for the:
. authorization to convert all outstanding Class A preferred stock into
shares of common stock on a one-for-one basis,
. increase in the authorized shares of common stock to 100,000,000, par
value $.01 per share, and Class A preferred stock to 50,000,000, par
value $.02 per share,
. authorization of a ten-for-one stock split on CH2M HILL's common stock
and Class A preferred stock,
. imposition of certain restrictions on the stock including, but not
limited to, the right but not the obligation to repurchase shares upon
termination of employment or affiliation, the right of first refusal,
and ownership limits.
F-8
<PAGE>
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands)
As a result of the above changes, the temporary shareholders' equity is now
classified as permanent shareholders' equity. Common and preferred stock
amounts, equivalent share amounts and per share amounts have been adjusted
retroactively to give effect to the stock split.
The significant changes in shareholders' equity for the three-month period
ended March 31, 2000 is as follows:
<TABLE>
<CAPTION>
Shares Amount
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Temporary Shareholders' Equity, December 31,
1999............................................ 29,329,390 $97,092
Net Income....................................... -- 5,185
Shares Issued.................................... 1,174,882 6,160
Shares Redeemed.................................. (968,842) (9,545)
Foreign Currency Translation Adjustment.......... -- (659)
---------- -------
Permanent Shareholders' Equity, March 31, 2000... 29,535,430 $98,233
========== =======
</TABLE>
Principles of Consolidation
The consolidated financial statements include the accounts of CH2M HILL and
all of its wholly owned subsidiaries after elimination of all intercompany
accounts and transactions. Investments in affiliates which are 50 percent or
less owned are reported using the equity method. Certain amounts in prior years
have been reclassified to conform with the current year presentation.
Currency Translation
All assets and liabilities of CH2M HILL's foreign subsidiaries are
translated into U.S. dollars at the period-end exchange rate. Revenues and
expenses are translated at the average exchange rate for the year. Translation
gains and losses are reflected in shareholders' equity as part of accumulated
other comprehensive loss. Taxes are not provided on the translation gains and
losses as deferred taxes are not provided on the unremitted earnings of the
foreign subsidiaries to which they relate. Gains and losses on foreign currency
transactions are not significant.
Accounting for Revenue
Contract revenue is recognized primarily on a percentage-of-completion
basis by relating the actual cost of work performed to date to the current
estimated total cost of the respective contracts. Unbilled revenue represents
the excess of contract revenue recognized over billings to date. Billings in
excess of revenues represent the excess of billings to date over revenue
recognized. Losses on contracts in process are recognized in their entirety
when the loss becomes evident and the amount of loss can be reasonably
estimated.
The federal government accounted for 15.8% and 17.2% of our net receivables
in 1998 and 1999, respectively. Receivables are stated at net realizable
values, reflecting reserves of $2,977, $6,166 and $7,805 in 1997, 1998 and
1999, respectively. The changes in the allowance for uncollectible accounts
consisted of the following:
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ -------
<S> <C> <C> <C>
Balance at beginning of year.......................... $1,536 $2,977 $ 6,166
Provision charged to expense.......................... 1,441 3,189 2,907
Accounts written off.................................. -- -- (1,268)
------ ------ -------
Balance at end of year................................ $2,977 $6,166 $ 7,805
====== ====== =======
</TABLE>
F-9
<PAGE>
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands)
Cash and Cash Equivalents
CH2M HILL maintains a cash management system which provides for cash in the
bank sufficient to pay checks as they are submitted for payment and invests
cash in excess of this amount in interest bearing short-term investments such
as certificates of deposit, commercial paper and repurchase agreements. These
investments are principally invested with original short-term maturities of
less than three months and are considered cash equivalents in the consolidated
balance sheets and statements of cash flows.
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- ------
<S> <C> <C> <C>
Cash paid for interest............................... $ 2,431 $ 1,777 $1,217
Cash paid for income taxes........................... $11,869 $16,352 $5,775
</TABLE>
The following noncash transactions have been excluded from the accompanying
statements of cash flows:
. Stock purchases for debt of $4,204, $3,103 and $3,211 in 1997, 1998 and
1999, respectively
. Decrease of an additional minimum pension liability and related asset at
December 31, 1997, 1998 and 1999, of $2,122, $198 and $125, respectively.
Property, Plant and Equipment
All additions, including betterments to existing facilities, are recorded
at cost. Maintenance and repairs are charged to expense as incurred. When
assets are retired or otherwise disposed of, the cost of the assets and the
related accumulated depreciation are removed from the accounts. Any gain or
loss on retirements is reflected in income in the year of disposition.
Depreciation for owned property is based on the estimated useful lives of
the assets using both straight-line and accelerated methods for financial
statement purposes. Useful lives for buildings and land improvements range from
15 to 30 years with an average life of 25 years. Leasehold improvements are
depreciated over the remaining term of the associated lease. Useful lives on
other assets range from two to ten years with an average of approximately five
years.
Goodwill
Goodwill is based on the excess of cost (purchase price) over the fair
value of net assets of businesses acquired. At December 31, 1999, $16,862 of
goodwill related to the acquisition of Lockheed Martin Hanford Corporation.
This goodwill is being amortized on a straight-line basis over the total
estimated life of the contract, including options, of seven years. At December
31, 1998 and 1999, accumulated amortization related to goodwill was $590 and
$742, respectively.
Other Assets
Other Assets includes capitalized software costs, investments in
unconsolidated joint ventures, and prepaid pension expenses. The related
amortization reflected in the statements of income and the statements of cash
flows totaled $2,145 in 1997, $2,188 in 1998 and $1,973 in 1999.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities approximate fair value due to the
short-term maturities of these assets and liabilities. The interest rates on
CH2M HILL's bank borrowings are adjusted regularly to reflect current market
rates.
F-10
<PAGE>
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands)
Accordingly, the carrying amount of CH2M HILL's short-term and long-term
borrowings also approximate fair value. At December 31, 1998 and 1999, the fair
value of CH2M HILL's notes payable to former shareholders was $19,237 and
$16,613, respectively, based on a discount rate that is estimated using the
rates currently offered for debt with similar remaining maturities.
Pervasiveness of 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 and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Asset Impairment
CH2M HILL reviews its assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Assets which are held and used in operations would be impaired if
the undiscounted future cash flows related to the asset did not exceed the net
book value.
Stock-Based Compensation Plans
The Financial Accounting Standards Board has issued SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 requires that stock-
based compensation plans be accounted for based on the fair value based method
of accounting. CH2M HILL continues to measure compensation cost using the
intrinsic value based method of accounting prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," as permitted
by SFAS No. 123 and discloses the difference between the two methods in Note
11. CH2M HILL accounts for its stock-based employee compensation agreements
using the intrinsic value method under which no compensation is generally
recognized for equity instruments granted to employees with an exercise price
equal to or greater than the fair market value of the underlying stock.
New Accounting Standards
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," establishes fair value accounting and reporting standards for
derivative instruments and hedging activities. CH2M HILL will adopt SFAS No.
133 in the first quarter of fiscal 2001. CH2M HILL is currently assessing the
effect of adoption, if any, on its financial position, results of operations,
and cash flows.
(2) Segment Information
CH2M HILL operates in three reportable segments that offer different
services to different customer bases. They are managed separately because each
business requires different business and marketing strategies. Environmental,
Energy, and Infrastructure (EE&I) includes management, consulting, design,
construction, procurement, and operations and maintenance services to the
environmental, nuclear, energy, systems, and transportation industries. Water
focuses on the planning, design and implementation of water supply systems and
wastewater treatment facilities as well as providing operations and maintenance
services to water and wastewater facility operators. Industrial provides
design, construction,
F-11
<PAGE>
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands)
specialized manufacturing support and sustained facility services support to
high-technology manufacturing companies, food and beverage processing
businesses, and fine chemical and pharmaceutical manufacturers.
CH2M HILL evaluates performance based on several factors, of which the
primary financial measure is profit before tax. The accounting policies of the
segments are the same as those described in the summary of significant
accounting policies. Intersegment sales are accounted for at fair value as if
the sales were to third parties. Other includes the elimination of intersegment
sales and unallocable corporate expenses.
Certain financial information for each segment is provided below:
<TABLE>
<CAPTION>
Financial
Statement
1997 EE&I Water Industrial Other Balances
---- -------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers................. $352,343 $310,014 $246,497 $ -- $ 908,854
Intersegment sales......... 16,025 22,764 1,088 (39,877) --
Equity in earnings of
investees accounted for by
the equity method......... 7,886 (144) 982 -- 8,724
Depreciation and
amortization.............. 4,729 2,684 2,192 -- 9,605
Interest income............ 159 159 252 -- 570
Interest expense........... 804 736 965 -- 2,505
Segment profit............. 5,853 5,011 7,174 (6,027) 12,011
Segment assets............. 136,119 113,725 61,273 -- 311,117
<CAPTION>
Financial
Statement
1998 EE&I Water Industrial Other Balances
---- -------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers................. $378,276 $362,668 $185,686 $ -- $ 926,630
Intersegment sales......... 21,301 18,586 1,342 (41,229) --
Equity in earnings of
investees accounted for by
the equity method......... 7,785 124 491 -- 8,400
Depreciation and
amortization.............. 4,034 3,423 1,101 -- 8,558
Interest income............ 582 720 433 -- 1,735
Interest expense........... 928 677 549 -- 2,154
Segment profit............. 9,259 7,230 3,648 (5,754) 14,383
Segment assets............. 142,124 128,967 27,234 -- 298,325
<CAPTION>
Financial
Statement
1999 EE&I Water Industrial Other Balances
---- -------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers................. $488,043 $435,757 $248,353 $ -- $1,172,153
Intersegment sales......... 32,379 9,949 2,589 (44,917) --
Equity in earnings of
investees accounted for by
the equity method......... 9,505 2,233 637 -- 12,375
Depreciation and
amortization.............. 5,269 708 366 -- 6,343
Interest income............ 521 1,062 394 -- 1,977
Interest expense........... 511 460 223 -- 1,194
Segment profit............. 17,412 16,304 (80) (6,866) 26,770
Segment assets............. 159,874 143,444 53,837 -- 357,155
</TABLE>
CH2M HILL derived approximately 15% in 1997, 16% in 1998 and 17% in 1999,
of its total revenues from contracts with federal government agencies.
F-12
<PAGE>
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands)
Revenues are attributed to the country in which the services are performed.
Although CH2M HILL provides services in numerous countries, no single country
outside of the United States accounted for a significant portion of the total
consolidated revenues.
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- ----------
<S> <C> <C> <C>
United States................................... $803,844 $877,794 $1,072,015
International................................... 113,734 57,236 112,513
-------- -------- ----------
Total......................................... $917,578 $935,030 $1,184,528
======== ======== ==========
</TABLE>
Certain financial information relating to the three-month period ended March
31, 1999 and 2000 for each segment is provided below:
<TABLE>
<CAPTION>
Financial
Three-month period ended Statement
March 31, 1999 EE&I Water Industrial Other Balances
------------------------ -------- -------- ---------- -------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues from external
customers.................. $118,801 $104,395 $50,240 $ -- $273,436
Intersegment sales.......... 7,571 2,516 1,004 (11,091) --
Equity in earnings of
investees accounted for by
the equity method.......... 472 334 (66) -- 740
Segment profit.............. 2,595 2,748 3 (1,669) 3,677
<CAPTION>
Financial
Three-month period ended Statement
March 31, 2000 EE&I Water Industrial Other Balances
------------------------ -------- -------- ---------- -------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues from external
customers.................. $198,478 $115,722 $52,315 $ -- $366,515
Intersegment sales.......... 9,490 3,409 462 (13,361) --
Equity in earnings of
investees accounted for by
the equity method.......... 5,795 (180) 91 -- 5,706
Segment profit.............. 7,001 5,187 664 (2,481) 10,371
</TABLE>
(3) Comprehensive Income
Comprehensive income for the three-month period ended March 31, 1999 and
2000 is as follows:
<TABLE>
<CAPTION>
Three-Month Period Ended
March 31,
--------------------------
1999 2000
------------ ------------
<S> <C> <C>
Net income....................................... $ 1,879 $ 5,185
Foreign currency translation adjustment.......... (513) (659)
------------ ------------
Comprehensive income............................. $ 1,366 $ 4,526
============ ============
</TABLE>
(4) Lines of Credit
CH2M HILL has an unsecured revolving credit agreement, as amended, with a
line-of-credit facility with a maximum borrowing capacity of $100,000, and a
$25,000 commercial paper facility. The line-of-credit facility expires on June
18, 2002. The commercial paper facility has a term of one year and may be
renewed annually. Interest accrues on outstanding borrowings at variable rates,
which as of December 31, 1999, ranged from 7.1% to 7.7%, based on maturity and
a liabilities to earnings ratio. Additionally, a commitment fee is payable
based on the liabilities to earnings ratio. At December 31, 1998 and 1999, no
amounts were outstanding under this line.
F-13
<PAGE>
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands)
The agreement requires CH2M HILL to maintain, among other restrictions,
prescribed liabilities to earnings, tangible net worth, working capital, and
fixed cost coverage ratios.
The agreement allows CH2M HILL to issue letters of credit to back various
trade activities. Issued letters of credit are reserved against the borrowing
base of the line of credit. As of December 31, 1998 and 1999, there were $5,125
and $5,735 issued and outstanding letters of credit, respectively.
(5) Notes Payable to Former Shareholders
CH2M HILL issues interest-bearing notes to former shareholders for the
purchase price of stock redeemed by CH2M HILL. The total amount outstanding for
notes payable to former shareholders at December 31, 1998 and 1999 was $20,590
and $18,762, respectively. The interest on the notes is adjusted annually (on
the anniversary dates of the notes) to 3/4 of the U.S. Federal Reserve Discount
Rate on the first business day of each calendar year. At January 1, 1999 the
interest rate on the notes was 3.4%. The notes are unsecured, and payable in
varying annual installments through 2009.
Future minimum principal payments on notes payable to former shareholders
are as follows:
<TABLE>
<CAPTION>
Year Ending
-----------
<S> <C>
2000............................................................ $ 4,154
2001............................................................ 3,832
2002............................................................ 3,379
2003............................................................ 2,328
2004............................................................ 1,799
Thereafter...................................................... 3,270
-------
$18,762
=======
</TABLE>
(6) Long-Term Debt
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1999
------ ------
<S> <C> <C>
Note payable to bank, 7.1%, payable in quarterly installments
through 2000................................................ $6,000 $2,000
Other notes payable, various rates between 7.1% and 7.8%,
payable through 2001........................................ 798 534
------ ------
Total long-term debt......................................... 6,798 2,534
Less: current portion of long-term debt...................... 4,512 2,221
------ ------
$2,286 $ 313
====== ======
</TABLE>
Future minimum principal payments on long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending
-----------
<S> <C>
2000............................................................. $2,221
2001............................................................. 313
------
$2,534
======
</TABLE>
F-14
<PAGE>
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands)
(7) Operating Lease Obligations
CH2M HILL has entered into certain noncancelable leases, which are being
accounted for as operating leases. At December 31, 1999, future minimum
operating lease payments are as follows:
<TABLE>
<CAPTION>
Year Ending
-----------
<S> <C>
2000........................................................... $ 36,813
2001........................................................... 30,648
2002........................................................... 24,420
2003........................................................... 17,397
2004........................................................... 14,335
Thereafter..................................................... 37,707
--------
$161,320
========
</TABLE>
Total lease and rental expense charged to operations was $40,561, $41,475
and $43,028 during 1997, 1998 and 1999, respectively.
Certain of CH2M HILL's operating leases contain provisions for a specific
rent-free period. In accordance with generally accepted accounting principles,
CH2M HILL accrues rental expense during the rent-free period based on total
expected rent payments to be made over the life of the related lease. The
excess of expense over actual cash payments to date is shown in the
accompanying balance sheets in other long-term liabilities. The cash payments
expected to exceed rental expense in the next year are included in other
accrued liabilities.
(8) Shareholders' Equity
As discussed in Note 1, CH2M HILL and the shareholders have approved
changes to the features of its stock that took effect on January 1, 2000.
Prior to January 1, 2000, the bylaws and key employee agreements of CH2M HILL
restricted ownership of CH2M HILL's Class A preferred and CH2M HILL common
stock to active employees and provided the following:
. Upon death, withdrawal, legal incapacity, retirement or discharge, a
shareholder's shares must be sold back to CH2M HILL.
. Upon death, legal incapacity or retirement, the purchase price was
determined by a formula calculated as of December 31 of each year, based
on the net book value of CH2M HILL and a multiple of the average of the
past five years' earnings.
. The purchase price of stock from employees withdrawing to compete or who
were discharged is the greater of the net book value of the shares or
the price of the shares at acquisition by the employee.
. The purchase price of stock returned to CH2M HILL became interest-
bearing debt to be paid over a ten-year period. Subject to Board of
Directors approval, the payout period could have been shortened upon
occurrence of certain criteria.
(9) Income Taxes
CH2M HILL accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 uses an asset and liability
approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax effects of events that have been recognized in the
financial statements or tax returns. In estimating future tax consequences,
CH2M HILL generally considers all expected future events other than enactment
of changes in the tax laws or rates.
F-15
<PAGE>
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands)
Income (loss) from continuing operations before income taxes includes the
following:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
U.S. income....................................... $13,703 $14,461 $27,538
Foreign loss...................................... (1,692) (78) (768)
------- ------- -------
Net income before taxes........................... $12,011 $14,383 $26,770
======= ======= =======
</TABLE>
The provision for income taxes for the years ended December 31 is comprised
of the following:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------ -------
<S> <C> <C> <C>
Current income tax expense:
Federal............................................. $ 9,343 $4,195 $ 6,969
Foreign............................................. 1,224 1,458 2,994
State & local....................................... 2,012 903 1,548
------- ------ -------
Total current taxes................................. 12,579 6,556 11,511
Deferred income tax benefit......................... (5,284) 2,015 1,633
------- ------ -------
Total tax expense................................... $ 7,295 $8,571 $13,144
======= ====== =======
</TABLE>
The reconciliation of income tax computed at the U.S. federal statutory tax
rate to CH2M HILL's effective income tax rate for the years ended December 31
were as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Pretax income................................... $12,011 $14,383 $26,770
Federal statutory rate.......................... 35% 35% 35%
------- ------- -------
Expected tax expense............................ 4,204 5,034 9,370
Reconciling items:
State income taxes.............................. 1,358 610 1,055
Disallowance of meals and entertainment ex-
penses......................................... 1,589 1,665 1,384
Foreign operating losses........................ 630 991 668
Other........................................... (486) 271 667
------- ------- -------
Provision for income taxes...................... $ 7,295 $ 8,571 $13,144
======= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31 were as
follows:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Deferred tax assets:
Foreign net operating losses............................. $ 2,800 $ 3,100
Depreciation and amortization............................ 1,133 --
Investments in affiliates................................ 4,413 2,447
------- -------
Total deferred tax assets................................ 8,346 5,547
Valuation allowance...................................... (2,800) (3,100)
Net deferred tax assets.................................. 5,546 2,447
------- -------
Deferred tax liabilities:
Deferred recognition of net income until collection of
payment occurs.......................................... 28,860 26,955
Depreciation and amortization............................ -- 439
------- -------
Total deferred tax liabilities........................... 28,860 27,394
------- -------
Net deferred tax liability............................... $23,314 $24,947
======= =======
</TABLE>
F-16
<PAGE>
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands)
A valuation allowance is required to be established for those deferred tax
assets that it is more likely than not that they will not be realized based
upon certain estimated circumstances. The above valuation allowances relate to
foreign net operating losses of $9,000 and $9,500 for the years ended December
31, 1998 and 1999, respectively, which will require taxable income within the
applicable foreign subsidiary in order for the deferred tax asset to be
realized. The foreign net operating losses generally may be carried forward
indefinitely.
At December 31, 1999, CH2M HILL has no material tax carryforwards.
Undistributed earnings of CH2M HILL's foreign subsidiaries amounted to
approximately $9,215 at December 31, 1999. Those earnings are considered to be
indefinitely reinvested and accordingly, no provision for U.S. federal and
state income taxes or foreign withholding taxes has been made. Upon
distribution of those earnings, CH2M HILL would be subject to U.S. income taxes
(subject to a reduction for foreign tax credits) and withholding taxes payable
to the various foreign countries. Determination of the amount of unrecognized
deferred U.S. income tax liability is not practicable; however, unrecognized
foreign tax credit carryovers would be available to reduce some portion of the
U.S. tax liabilities.
(10) Earnings Per Share
The computation of basic earnings per share is based on the weighted
average number of common and preferred shares outstanding during the year. The
outstanding preferred shares are included in the basic earnings per share
calculation since the preferred shares do not have any preferences over common
shares, other than in liquidation, and CH2M HILL converted all preferred stock
to common shares on a one-for-one basis on January 1, 2000. Diluted income per
share is based on the weighted average number of common and preferred shares
outstanding during the year and, to the extent dilutive, common stock
equivalents consisting of stock options, stock awards subject to restrictions
and stock appreciation rights. The difference between the basic and diluted
shares relates to the dilutive effect of outstanding stock options of 2,569,108
and 3,299,360 at December 31, 1999 and March 31, 2000, respectively. At
December 31, 1997 and 1998 and March 31, 1999, CH2M HILL did not have dilutive
securities outstanding.
(11) Employee Incentive and Benefit Plans
Incentive Plan
CH2M HILL, at the discretion of the Board of Directors, provides stock
bonuses to employees of CH2M HILL through short-term and long-term incentive
plans. Expenses under these programs amounted to $4,784, $5,550 and $9,621 in
1997, 1998 and 1999, respectively.
Employee Stock Plan
CH2M HILL has a profit sharing plan ("ESP") for all eligible employees and
has established an Employee Stock Plan and Trust to administer the ESP.
Contributions to the ESP are made to the Trust as determined by the Board of
Directors. Contributions to the ESP were $2,804, $3,513, and $3,436 in 1997,
1998 and 1999, respectively. The contributions are to be made primarily through
the issuance of common stock.
Retirement and Tax-Deferred Savings Plan (the "401(k) Plan")
CH2M HILL has a 401(k) Plan that provides for company matching
contributions, which range from 0.5% to 2.0% of eligible employees' base pay.
Contributions for 1997, 1998 and 1999 were $1,589,
F-17
<PAGE>
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands)
$1,996 and $1,107, respectively, and vest equally over a five-year period,
beginning with the employees' second year of service. The contributions were
made primarily through the issuance of common stock.
Defined Contribution Savings Plan
CH2M HILL has a defined contribution plan that provides for contributions
generally equal to 1.5% of eligible employees' base pay. These contributions
vest equally over a five-year period, beginning with the employees' second year
of service. For the years ended December 31, 1997, 1998 and 1999, CH2M HILL
recorded $6,045, $5,084 and $5,418 in expense, respectively. Contributions are
generally made in cash.
(12) Stock Option Plan
CH2M HILL's 1999 Stock Option Plan was approved by the Board of Directors
on November 6, 1998 to reserve 8,000,000 shares of CH2M HILL common stock for
issuance upon exercise of options granted under this plan.
Options have been granted at an exercise price equal to the fair market
value of CH2M HILL's common stock at the date of the grant and vest over 36
months. Options generally have a term of five years from date of grant.
The following table summarizes the activity relating to options:
<TABLE>
<CAPTION>
Year Ended
December 31,
---------------------------
Weighted Average
Shares Exercise Price
--------- ----------------
<S> <C> <C>
Options outstanding, beginning of year......... -- $ --
Granted........................................ 2,740,215 4.31
Exercised...................................... -- --
Terminated..................................... (171,107) 4.31
--------- -----
Options outstanding, end of year............... 2,569,108 $4.31
========= =====
Options exercisable, end of year............... -- $ --
========= =====
Weighted average fair value of options granted
during the year............................... $0.74
=====
</TABLE>
The total fair value of options granted was computed to be approximately
$2,165 for the year ending December 31, 1999. For purposes of the fair value
pro forma disclosures, this amount will be amortized over the vesting period of
the options. Cumulative compensation cost recognized in pro forma net income
with respect to options that are forfeited prior to vesting is adjusted as a
reduction of pro forma compensation expense in the period of forfeiture. Pro
forma stock-based compensation, net of the effect of forfeitures and tax, was
approximately $285 for the year ended December 31, 1999.
F-18
<PAGE>
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands)
If the fair value method were used to account for employee stock option
grants, CH2M HILL's net income and earnings per share for the year ended
December 31, 1999 would have decreased by the following pro forma amounts:
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
-----------------
<S> <C>
Net income:
As reported.............................................. $13,626
Pro forma................................................ $13,341
Earnings per share:
As reported.............................................. $ 0.46
Pro forma................................................ $ 0.45
</TABLE>
There was no compensation expense related to SFAS No. 123 as of December
31, 1997 and 1998.
The fair value of each option grant was determined using the minimum value
method. The assumptions used to determine the fair market value of each option
grant are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
-----------------
<S> <C>
Risk-free interest rates................................... 6.47%
Expected dividend yield rates.............................. 0.00%
Expected lives............................................. 3 years
Expected volatility........................................ .001%
</TABLE>
The following table summarizes information about the stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------- --------------------
Weighted Average Weighted
Remaining Weighted Average
Exercise Number Contractual Average Number Exercise
Price Outstanding Life Exercise Price Exercisable Price
-------- ----------- ---------------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
$4.31 2,569,108 4.17 years $4.31 -- $4.31
</TABLE>
(13) Other Employee Benefits
Pension and Other Postretirement Benefits
CH2M HILL has several noncontributory defined benefit pension plans, of
which one remains active. Benefits are based on years of service and
compensation during the span of employment. Funding for these plans is
provided through contributions based on recommendations from the plans'
independent actuary. Plan assets consist primarily of CH2M HILL common stock,
corporate debt instruments and U.S. government securities.
CH2M HILL sponsors a medical benefit plan for retired employees of three
subsidiaries. The plan is contributory, with retiree premiums based on service
at retirement. The benefits contain limitations and a
F-19
<PAGE>
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands)
cap on future cost increases. CH2M HILL continues to fund postretirement
medical benefits on a pay-as-you-go basis.
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
-------------------- ------------------
1998 1999 1998 1999
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Plan Assets in Excess of Benefit
Obligations:
Benefit obligation at December 31.. $ (59,054) $ (56,983)
Fair value of plan assets at
December 31....................... 59,808 62,053
--------- ---------
Funded status...................... $ 754 $ 5,070
========= =========
Benefit Obligations in Excess of Plan
Assets:
Benefit obligation at December 31.. $ (14,759) $ (15,584) $(11,680) $(12,004)
Fair value of plan assets at
December 31....................... 10,566 12,638 -- --
--------- --------- -------- --------
Unfunded status.................... $ (4,193) $ (2,946) $(11,680) $(12,004)
========= ========= ======== ========
Prepaid (accrued) benefit cost
recognized in the balance sheet... $ 8,155 $ 9,959 $ (6,104) $ (7,612)
Weighted-average assumptions at
December 31:
Discount rate...................... 6.75-7.20% 7.75% 7.20% 7.75%
Expected return on plan assets..... 8.00-9.00% 8.00-9.00% -- --
</TABLE>
For measurement purposes, 10.73% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1999. The rate was assumed
to decrease gradually to 6.00% for 2010 and remain at that level thereafter.
<TABLE>
<CAPTION>
Pension Other
Benefits Benefits
-------------- --------------
1998 1999 1998 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net periodic benefit cost.................... $2,396 $2,378 $1,633 $1,766
Employer contributions....................... 8,593 4,182 -- --
Participant contributions.................... -- -- 257 241
Benefit payments............................. (1,996) (2,780) (514) (499)
</TABLE>
(14) Investments in Unconsolidated Affiliates
CH2M HILL has the following investments in affiliated companies that are
50% or less owned, which are accounted for under the equity method:
<TABLE>
<CAPTION>
% of Ownership
<S> <C>
Domestic:
Kaiser-Hill Company, LLC ("Kaiser-Hill").................. 50%
MK/IDC (PSI).............................................. 50%
Foreign:
CH2M Gore and Storrie Limited............................. 49%
CH2M HILL/CSA............................................. 50%
Sembawang-IDC............................................. 25%
CH2M HILL BECA, Ltd. ..................................... 50%
TDC International of Israel............................... 50%
</TABLE>
F-20
<PAGE>
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands)
As of December 31, 1998 and 1999 and March 31, 2000, the total investments
in these material unconsolidated affiliates were approximately $2,629, $5,763
and $5,222, respectively, and are included in other assets in the accompanying
consolidated balance sheets. As of December 31, 1998 and 1999, CH2M HILL
received distributions from Kaiser-Hill Company, LLC of $7,750 and $3,300,
respectively.
Kaiser-Hill's revenues are derived from the U.S. Department of Energy's
Performance Based Integrating Management Contract for the Rocky Flats Closure
Project in Golden, Colorado. Under this contract, performance based incentive
fees and cost reduction proposal fees are accrued when management believes the
contract performance milestones have been achieved and are therefore earned.
Summarized financial information for these affiliates is as follows:
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1999
-------- --------
<S> <C> <C>
Financial position:
Current assets............................................... $148,784 $143,036
Noncurrent assets............................................ 9,339 11,712
-------- --------
$158,123 $154,748
======== ========
Current liabilities.......................................... $139,561 $131,501
Noncurrent liabilities....................................... 7,041 2,385
Shareholders' equity......................................... 11,521 20,862
-------- --------
$158,123 $154,748
======== ========
</TABLE>
<TABLE>
<CAPTION>
Three-Month Period
Year Ended December 31, Ended March 31,
-------------------------- -----------------------
1997 1998 1999 1999 2000
-------- -------- -------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Results of Operations:
Revenues.................. $874,534 $873,524 $757,434 $144,129 $195,808
Direct costs.............. 835,562 836,302 712,746 138,200 178,842
-------- -------- -------- -------- --------
Gross margin.............. 38,972 37,222 44,688 5,929 16,966
General and administrative
expenses................. 21,860 19,579 22,370 3,713 6,207
-------- -------- -------- -------- --------
Operating income.......... 17,112 17,643 22,318 2,216 10,759
Other income (expense).... 483 348 (391) (748) (412)
-------- -------- -------- -------- --------
Net income................ $ 17,595 $ 17,991 $ 21,927 $ 1,468 $ 10,347
======== ======== ======== ======== ========
</TABLE>
(15) Acquisition
Effective December 22, 1999, CH2M HILL acquired all of the outstanding
common stock of Lockheed Martin Hanford Corporation ("Hanford"), a wholly-owned
subsidiary of Lockheed Martin Corporation. Hanford is an environmental
management contractor that provides tank waste remediation services to the U.S.
Department of Energy. The acquisition was accounted for under the purchase
method of accounting. Total consideration was for $17.1 million and resulted in
$16.9 million in goodwill. The goodwill will be amortized on a straight-line
basis over the total estimated life of the contract, including options, of
seven years. Contingent consideration is determined based upon the additional
contract years awarded under the option period and net fee awarded under those
option years. It is not included as part of the initial purchase price as it is
not readily determinable.
F-21
<PAGE>
CH2M HILL COMPANIES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Dollars in thousands)
The initial purchase price is allocated to the acquired assets and
liabilities as follows:
<TABLE>
<S> <C>
Initial consideration of cash.......................................... $17,145
Allocated to:
Other assets........................................................... (364)
Current working capital................................................ (916)
Pension liability...................................................... 997
-------
Goodwill............................................................... $16,862
=======
</TABLE>
The following unaudited pro forma financial data represent the acquisition
as if it had occurred on January 1, 1998 and 1999, respectively:
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1999
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Professional fees.................................... $1,215,190 $1,477,589
Net Income........................................... 7,400 15,916
Earnings per share................................... $ 0.26 $ 0.54
</TABLE>
(16) Contingencies
General
CH2M HILL is party to various legal actions arising in the normal course of
its business, some of which may involve claims for substantial sums. Damages
assessed in connection with and the cost of defending any such actions could be
substantial. CH2M HILL's management believes that the levels of insurance
coverage (after retentions and deductibles) are generally adequate to cover
CH2M HILL's liabilities, if any, with regard to such claims. Any amounts that
are probable of payment by CH2M HILL related to retentions and deductibles are
accrued when such amounts are estimable.
Guarantor
CH2M HILL has guaranteed a $10,000 credit facility between a subsidiary and
a joint venture partner. The facility is secured by assets of the joint venture
and is used for general project purposes. CH2M HILL has joint and several
liabilities with the joint partner for the full amount. At December 31, 1998
and 1999, $2,400 and $7,491 was outstanding on the credit facility which bears
interest at varying rates, based upon the chosen LIBOR rate plus 1.25%. The
rate at December 31, 1999 was 7.46%.
Performance Bonds
In the normal course of business, CH2M HILL purchases performance bonds to
comply with client mandated contractual obligations. At December 31, 1998 and
1999, the performance bonds purchased were $229,000 and $342,684.
F-22
<PAGE>
KAISER-HILL COMPANY, LLC AND SUBSIDIARY
Consolidated Financial Statements
as of March 31, 2000 (unaudited), December 31, 1999 and 1998 and for the three
months ended March 31, 2000 and 1999 (unaudited) and each of the three years in
the period ended December 31, 1999 together with Report of Independent
Accountants
F-23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of
Kaiser-Hill Company, LLC:
We have audited the accompanying consolidated balance sheets of Kaiser-Hill
Company, LLC (a Colorado limited liability company) (the "Company") and
Subsidiary as of December 31, 1999 and 1998, and the related consolidated
statements of income, members' equity and cash flows for each of the three
years in the period ended December 31, 1999. These consolidated financial
statements and the supplementary consolidating information referred to below
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and supplementary
consolidating information based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Kaiser-Hill Company, LLC and Subsidiary as of December 31, 1999 and 1998,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the
consolidated financial statements taken as a whole. The consolidating
information contained in Schedules I and II is presented for purposes of
additional analysis of the consolidated financial statements, rather than to
present the financial position, results of operations and cash flows of the
individual companies. This information has been subjected to the auditing
procedures applied in our audits of the consolidated financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Denver, Colorado
January 25, 2000
F-24
<PAGE>
KAISER-HILL COMPANY, LLC AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of dollars)
<TABLE>
<CAPTION>
December 31,
March 31, -----------------
2000 1999 1998
----------- -------- --------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 7,833 $ 5,336 $ 3,644
Contract receivables........................... 128,183 107,267 124,352
Receivable from Member......................... -- -- 396
-------- -------- --------
Total current assets......................... 136,016 112,603 128,392
Deferred financing and organization costs, net of
accumulated amortization of $7 and $2,578,
respectively.................................... 496 518 1,004
-------- -------- --------
$136,512 $113,121 $129,396
======== ======== ========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable and payables to
subcontractors................................ $110,242 $ 90,472 $114,988
Accrued vacation............................... 7,620 7,947 7,627
Accrued salaries and employee benefits......... 14,751 6,770 5,039
Payable to Members............................. -- 732 742
-------- -------- --------
Total current liabilities.................... 132,613 105,921 128,396
Contingencies (Note 6)
Members' equity.................................. 3,899 7,200 1,000
-------- -------- --------
$136,512 $113,121 $129,396
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
<PAGE>
KAISER-HILL COMPANY, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands of dollars)
<TABLE>
<CAPTION>
For the three
months ended For the years ended
March 31, December 31,
----------------------- -------------------------------
2000 1999 1999 1998 1997
----------- ----------- --------- --------- ---------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Gross revenue........... $193,614 $167,892 $ 646,398 $ 636,190 $ 584,739
Subcontractor costs and
direct material costs.. (125,276) (130,181) (456,015) (464,692) (421,800)
-------- -------- --------- --------- ---------
Service revenue..... 68,338 37,711 190,383 171,498 162,939
Direct cost of service
and overhead........... (58,821) (35,996) (176,898) (155,962) (145,598)
-------- -------- --------- --------- ---------
Operating income.... 9,517 1,715 13,485 15,536 17,341
Other income (expense):
Interest income....... 116 70 539 295 661
Interest expense...... (34) (46) (385) (331) (238)
-------- -------- --------- --------- ---------
Net income before
cumulative effect
of adoption of a
new accounting
principle.......... 9,599 1,739 13,639 15,500 17,764
Cumulative effect of
adoption of a new
accounting principle
(Note 2)............. -- (839) (839) -- --
-------- -------- --------- --------- ---------
Net income.......... $ 9,599 $ 900 $ 12,800 $ 15,500 $ 17,764
======== ======== ========= ========= =========
Pro forma net income
amounts assuming change
in the adoption of a
new accounting
principle is applied
retroactively (Note
2)..................... -- -- $ 13,639 $ 16,177 $ 18,281
======== ======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-26
<PAGE>
KAISER-HILL COMPANY, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
For the Years Ended December 31, 1999, 1998 and 1997
(Amounts in thousands of dollars)
<TABLE>
<CAPTION>
Kaiser K-H CH2M Hill
Holdings, Constructors,
Inc. Inc. Total
---------- ------------- --------
<S> <C> <C> <C>
Members' equity, December 31, 1996........... $ 6,153 $ 6,153 $ 12,306
Net income................................. 8,882 8,882 17,764
Distributions.............................. (13,950) (13,950) (27,900)
-------- -------- --------
Members' equity, December 31, 1997........... 1,085 1,085 2,170
Net income................................. 7,750 7,750 15,500
Distributions.............................. (8,335) (8,335) (16,670)
-------- -------- --------
Members' equity, December 31, 1998........... 500 500 1,000
Net income................................. 6,400 6,400 12,800
Distributions.............................. (3,300) (3,300) (6,600)
-------- -------- --------
Members' equity, December 31, 1999........... $ 3,600 $ 3,600 $ 7,200
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-27
<PAGE>
KAISER-HILL COMPANY, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands of Dollars)
<TABLE>
<CAPTION>
For the three months For the years ended
ended March 31, December 31,
----------------------- ----------------------------
2000 1999 1999 1998 1997
----------- ----------- -------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............. $ 12,800 $ 15,500 $ 17,764
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Cumulative effect of
adoption of a new
accounting
principle............ 839 -- --
Amortization.......... 172 787 627
Changes in assets and
liabilities:
Decrease (increase)
in contract
receivables......... 17,085 (36,963) (12,402)
Decrease (increase)
in receivable from
Member.............. 396 (396) --
(Decrease) increase
in accounts payable
and payables to
subcontractors...... (24,741) 36,597 18,987
Increase (decrease)
in other accrued
expenses............ 2,051 (3,479) 627
Increase (decrease)
in payable to
Members............. (10) (1,914) 511
-------- ------ -------- -------- --------
Net cash provided by
operating
activities......... $ 15,397 $4,048 8,592 10,132 26,114
-------- ------ -------- -------- --------
Cash flows from
financing activities:
Distributions to
Members.............. (12,900) -- (6,600) (16,670) (27,900)
Payment of financing
costs................ -- -- (300) -- --
-------- ------ -------- -------- --------
Net cash used in
financing
activities......... (12,900) -- (6,900) (16,670) (27,900)
-------- ------ -------- -------- --------
Net increase (decrease)
in cash and cash
equivalents............ 2,497 4,408 1,692 (6,538) (1,786)
Cash and cash
equivalents, beginning
of year................ 5,336 3,644 3,644 10,182 11,968
-------- ------ -------- -------- --------
Cash and cash
equivalents, end of
year................... $ 7,833 $7,692 $ 5,336 $ 3,644 $ 10,182
======== ====== ======== ======== ========
Supplemental cash flow
information:
Cash paid for
interest.............. $ 12 $ 46 $ 212 $ 221 $ 128
======== ====== ======== ======== ========
Supplemental noncash
financing activity:
Accrued financing
costs................. $ -- $ -- $ 225 $ -- $ --
======== ====== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
<PAGE>
KAISER-HILL COMPANY, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
Kaiser-Hill Company, LLC (the "Company") was formed on October 24, 1994.
The principal business of the Company is to procure, execute, deliver, and
perform under a contract with the Department of Energy ("DOE") to manage the
programs and operate the DOE facilities at Rocky Flats Environmental Technology
Site ("RFETS") in Golden, Colorado. The mission of the RFETS is directed toward
cleanup, deactivation, and preparation for decontamination and disposition of
these DOE facilities.
The Company is a limited liability company owned equally by Kaiser K-H
Holdings, Inc. (formerly known as ICF Kaiser Government Programs, Inc.), a
wholly owned subsidiary of Kaiser Group International, Inc. (formerly known as
ICF Kaiser International, Inc.) ("Kaiser"), and CH2M Hill Constructors, Inc.,
an indirect wholly owned subsidiary of CH2M Hill Companies, Ltd. ("CH2M Hill")
(collectively, the "Members"). Net profits and/or losses and distributions
thereof are allocated equally to the Members.
At December 31, 1999, the Company employed 1,733 hourly workers and 315
salaried workers. Approximately 84% of the hourly employees are represented by
United Steel Workers of America (the "Union") under a collective bargaining
agreement which expires on October 3, 2001.
The Company maintains its cash accounts primarily with banks located in
Colorado, New York and Washington D.C. Cash balances are insured by the FDIC up
to $100,000 per bank and cash equivalents are not insured by the FDIC. As of
December 31, 1999, the majority of the cash balance was made up of cash
equivalents.
On January 24, 2000, the Company and the DOE entered into a new contract
effective February 1, 2000. The new contract is in effect until the physical
completion of the Rocky Flats Closure Project including closure, disposal of
nuclear material, demolition of facilities, environmental remediation, waste
disposal, infrastructure and general site operations. Under the new contract,
the Company has the opportunity to earn incentive fee if the total costs
incurred are below the contract target cost or the completion of the site
closure is before March 31, 2007. In addition, the Company can lose incentive
fees if the costs exceed an amount equal to $200 million above the contract
target cost or the site closure is after March 31, 2007. The maximum and
minimum incentive fee available to be earned by the Company through the date of
closure is $460 million and $130 million, respectively.
2. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the Company and its wholly
owned subsidiary Kaiser-Hill Funding Company, LLC. All intercompany accounts
and transactions have been eliminated in the consolidated financial statements.
Unaudited Interim Financial Statements
The consolidated interim financial statements included with the annual
financial statements herein have been prepared by the Company pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures relating to the interim period normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures included herein
are adequate to make the information presented not misleading. In the
F-29
<PAGE>
KAISER-HILL COMPANY, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
opinion of management, the accompanying unaudited condensed consolidated
financial statements of the interim period contain all adjustments necessary
to present fairly the financial position of the Company as of March 31, 2000
and the results of operations and cash flows for the periods presented. All
such adjustments are of a normal recurring nature. The results of operations
for the quarter ended March 31, 2000 are not necessarily indicative of the
results that may be achieved for a full fiscal year and cannot be used to
indicate financial performance for the entire year.
Revenue Recognition
Revenue is recognized using the percentage of completion method whereby
revenue is accrued in an amount equal to cost plus management's best estimate
of base fee, performance based incentive fees and cost reduction proposal fees
to be received.
Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers cash in
checking and short-term investments with original maturities of three months
or less to be cash and cash equivalents.
New Accounting Policy
Effective January 1, 1999, the Company adopted Statement of Position 98-5
("SOP 98-5"), Reporting on the Costs of Start-up Activities, which states that
costs of start-up activities, including organizational costs, be expensed when
incurred. Upon adoption, the Company recorded a cumulative effect of a change
in accounting principle of $839,000 in the accompanying consolidated
statements of income. Assuming SOP 98-5 was not adopted in 1999, amortization
on start-up activities would have been approximately $609,000 and the
remaining $203,000 would have been expensed in 2000. The pro forma amounts
shown on the income statement have been adjusted for the effect of retroactive
application had SOP 98-5 been in effect during the years presented.
Income Taxes
The financial statements do not include a provision for income taxes
because the Company is treated as a partnership for income tax purposes and
does not incur federal or state income taxes. Instead, its earnings and losses
are included in the Members' separate income tax returns.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. Related Party Transactions
In 1999 and 1998, the Members were subcontracted by the Company to perform
certain tasks under the DOE contract. The "Payable to Members" in the
accompanying balance sheets as of December 31, 1999 and 1998 consists of
$297,000 and $742,000, respectively, to Kaiser and $435,000 and $0,
respectively, to CH2M Hill for these subcontracted tasks. These payables are
non-interest bearing. The "Receivable from Member" in the accompanying
consolidated balance sheet as of December 31, 1998
F-30
<PAGE>
KAISER-HILL COMPANY, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
consists of $396,000 due from CH2M Hill relating to advance payment of general
and administrative expenses, less operating payables.
In addition, costs incurred related to work performed by Kaiser and CH2M
Hill, the majority of which are reimbursable and billed under the DOE contract,
were approximately $609,000 and $938,000 in 1999, respectively, $3,600,000 and
$960,000 in 1998, respectively, and $2,600,000 and $1,100,000 in 1997,
respectively.
4. Contract Receivables
Contract receivables as of December 31, 1999 and 1998 represent unbilled
receivables due under the DOE contract. Unbilled receivables result from
revenue that has been earned by the Company but not billed to the DOE as of the
end of the period. The unbilled receivables can be invoiced at contractually
defined intervals and milestones. Management anticipates that the unbilled
receivables will be billed and collected in less than one year.
The Company's contract receivables result primarily from its long-term
contract with the DOE. As a consequence, management believes that credit risk
is minimal.
5. Business Loan and Security Agreement
Effective November 2, 1999, the Company, including its wholly owned
subsidiary Kaiser-Hill Funding Company, LLC, entered into a Business Loan and
Security Agreement (the "Agreement") with Bank of America, N.A. ("BOA")
replacing its previous agreement with NationsBank, N.A. The Company, Kaiser and
CH2M Hill granted a first lien security interest to BOA in all of the ownership
and equity interest of the Company.
Under the agreement, the Company has financing available which provides
temporary financing for the payment of the Company's costs incurred under the
DOE contract. This financing is utilized throughout the year for periods of
less than one month as, under the terms of the DOE contract, the DOE must pay
the Company's invoices within three business days of receipt. The funding level
under the agreement can not exceed a Maximum Borrowing Base calculated on the
lesser of eligible billed and unbilled government accounts receivable, as
defined, or $35,000,000. Under the terms of the agreement, interest on the
advances is calculated either under a rate based upon LIBOR or a rate based
upon the higher of the Federal Funds Rate or the Prime Rate.
The agreement also contains various covenants, including tangible net
worth, fixed charge ratio and minimum cash balances requirements, among other
restrictions. Management believes the Company was in compliance with all
restrictive covenants.
6. Contingencies
The Company's reimbursable costs are subject to audit in the ordinary
course of business by various U.S. Government agencies. Management is not
presently aware of any significant costs, which have been, or may be,
disallowed by any of these agencies.
7. Employee Benefit Plans
In accordance with the DOE contract, the Company sponsors several benefit
plans covering substantially all employees who meet length of service
requirements. These plans include the following
F-31
<PAGE>
KAISER-HILL COMPANY, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
defined benefit pension plans: The Rocky Flats Multiple Employer Salaried
Retirement Plan and the Kaiser-Hill Retirement Plan for Hourly Production and
Maintenance Employees. The Company also sponsors the following defined
contribution plans: Kaiser-Hill Company, LLC Savings Plan for Hourly Employees,
which includes no Company matching; and Rocky Flats Multiple Employer Salaried
Thrift Plan, which includes Company matching. The Company contribution amounts
for the Savings Plan/Thrift Plan were approximately $454,000, $413,000 and
$482,000 for 1999, 1998 and 1997, respectively. No amounts were contributed to
the Retirement Plans during 1999, 1998 and 1997 because the Plans were
overfunded.
The Company administers these benefit plans with benefits equivalent to the
RFETS contractor benefit plans maintained by the contractor that preceded the
Company at RFETS. Under the DOE contract, the Company recognizes the cost of
benefit plans when paid, and such costs are reimbursed by the DOE. Any excess
pension plan assets or unfunded pension plan liability which may currently
exist or is remaining at the end of the DOE contract is the responsibility of
the DOE.
F-32
<PAGE>
SCHEDULE I
KAISER-HILL COMPANY, LLC AND SUBSIDIARY
Supplementary Consolidating Information to
Consolidated Financial Statements
Balance Sheet
As of December 31, 1999
(Amounts in thousands of dollars)
<TABLE>
<CAPTION>
Kaiser- Kaiser-Hill
Hill Funding
Company Company
LLC LLC Eliminations Consolidated
-------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents.... $ 5,287 $ 49 $ -- $ 5,336
Contract receivables......... 107,272 84 (89) 107,267
-------- ---- ----- --------
Total current assets....... 112,559 133 (89) 112,603
Investment in Kaiser-Hill
Funding Company, LLC.......... 106 -- (106) --
Financing costs, net of
accumulated amortization of
$7............................ 518 -- -- 518
-------- ---- ----- --------
$113,183 $133 $(195) $113,121
======== ==== ===== ========
Liabilities and Members'
Equity:
Current liabilities:
Accounts payable and payable
to subcontractors........... $ 90,451 $ 21 $ -- $ 90,472
Accrued vacation............. 7,947 -- -- 7,947
Accrued salaries and employee
benefits.................... 6,770 -- -- 6,770
Intercompany amounts......... 83 6 (89) --
Payable to Members........... 732 -- -- 732
-------- ---- ----- --------
Total current liabilities.. 105,983 27 (89) 105,921
Members' equity................ 7,200 106 (106) 7,200
-------- ---- ----- --------
$113,183 $133 $(195) $113,121
======== ==== ===== ========
</TABLE>
F-33
<PAGE>
SCHEDULE II
KAISER-HILL COMPANY, LLC AND SUBSIDIARY
Supplementary Consolidating Information to
Consolidated Financial Statements
Statement of Income
For the Year Ended December 31, 1999
(Amounts in thousands of dollars)
<TABLE>
<CAPTION>
Kaiser- Kaiser-Hill
Hill Funding
Company Company
LLC LLC Eliminations Consolidated
--------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Gross revenue................ $ 646,398 $ -- $ -- $ 646,398
Intercompany revenue......... -- 360 (360) --
Intercompany expense......... (360) -- 360 --
Subcontractor costs and
direct material costs....... (456,017) 2 -- (456,015)
--------- ----- ----- ---------
Service revenue............ 190,021 362 -- 190,383
Direct cost of service and
overhead.................... (176,757) (141) -- (176,898)
--------- ----- ----- ---------
Operating income........... 13,264 221 -- 13,485
Other income (expense):
Interest income............ 539 -- -- 539
Interest expense........... (173) (212) -- (385)
--------- ----- ----- ---------
Net income before cumulative
effect of adoption of a new
accounting principle........ 13,630 9 -- 13,639
Cumulative effect on adoption
of a new accounting
principle (Note 2).......... (839) -- -- (839)
--------- ----- ----- ---------
Net income................... $ 12,791 $ 9 $ -- $ 12,800
========= ===== ===== =========
</TABLE>
F-34
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
23,677,150 Shares
CH2M HILL Companies, Ltd.
Common Stock
[LOGO OF CH2M HILL APPEARS HERE]
--------
PROSPECTUS
--------
May 30, 2000
Prospective investors may rely only on the information contained in this
prospectus. CH2M HILL has not authorized anyone to provide prospective
investors with information different from that contained in this prospectus.
This prospectus is not an offer to sell nor is it seeking an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted. The
information contained in this prospectus is correct only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or any sale
of these securities.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Estimated expenses payable by CH2M HILL in connection with the sale of the
common stock offered hereby are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 25,000
Blue Sky fees and expenses....................................... 75,000
Legal fees and expenses.......................................... 100,000
Accounting fees and expenses..................................... 25,000
Directors' and Officers' liability insurance premium............. 110,000
Printing and engraving expenses.................................. 100,000
Miscellaneous.................................................... 100,000
--------
Total.......................................................... $535,000
========
</TABLE>
Item 14. Indemnification of Directors and Officers
Under the Oregon Business Corporation Act (the "Act"), a corporation's
Articles of Incorporation may provide for the limitation of liability of
directors and indemnification of directors and officers under some
circumstances. In accordance with Oregon law, CH2M HILL's Restated Articles of
Incorporation provide that directors are not personally liable to the
corporation or its shareholders for monetary damages for conduct as a director,
except for any act or omission for which the elimination of liability is not
permitted under the Act. Section 60.047(2)(d) of the Act sets forth the
following actions for which limitation of liability is not permitted, including
(i) any breach of a director's duty of loyalty to the corporation or its
shareholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law; (iii) any unlawful
distributions to shareholders; or (iv) any transaction from which the director
received an improper or illegal personal benefit.
CH2M HILL's Restated Bylaws allow it to indemnify any person who is or was
a party, or is threatened to be made a party, to any civil, administrative, or
criminal proceeding by reason of the fact that the person is or was a director
or officer of CH2M HILL or any of its subsidiaries, or is or was serving at
CH2M HILL's request as a director, officer, partner, agent, or employee of
another corporation or entity. The indemnification may include expenses,
including attorneys' fees, judgments, fines, and amounts paid in settlement,
actually and reasonably incurred by that person. Under the Section 60.391(1) of
the Act, indemnification is available if (i) the person acted in good faith;
(ii) the person reasonably believed the conduct was in the corporation's best
interests, or at least was not opposed to its best interests; and (iii) in the
case of a criminal proceeding, the person had no reasonable cause to believe
the conduct was unlawful. In addition, a person who is wholly successful, on
the merits or otherwise, in the defense of a proceeding in which the person was
a party because the person was a director, is entitled to indemnification for
expenses actually and reasonably incurred by the person in connection with the
proceeding.
CH2M HILL intends to purchase and pay the premium for insurance in respect
of claims against its directors and officers and in respect of losses for which
CH2M HILL may be required or permitted by law to indemnify such directors and
officers. The directors to be insured are the directors named herein and all
directors of CH2M HILL's subsidiaries. The officers to be insured are all
officers and assistant officers of CH2M HILL and its subsidiaries. CH2M HILL
does not expect to allocate or segregate the premium with regard to specific
subsidiaries or individual directors and officers.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities
As of December 31, 1997, CH2M HILL sold 783 shares of common stock to
Robert G. Card for $28,081.11 and 300 shares of common stock to Nancy R. Tuor
for $10,758.00. As of December 31, 1998, CH2M HILL sold 1,318 shares of common
stock to Robert G. Card for $50,373.96 and 184 shares of common stock to Nancy
R. Tuor for $7,032.48. Mr. Card and Ms. Tuor are former employees of CH2M HILL
who were key employee shareholders when employed by CH2M HILL and who currently
work for its affiliate, Kaiser-Hill Company, LLC. The issuance of such shares
was exempt from registration under Section 4(2) of the Securities Act of 1933,
as amended, as a transaction by the issuer not involving a public offering.
In the fiscal years ended December 31, 1997, 1998 and 1999, CH2M HILL
issued 2,428,930, 2,545,550 and 1,058,058 shares of common stock, respectively,
as bonuses to its employees for no consideration. The issuances of these shares
were exempt from registration under the Securities Act of 1933, as amended,
since there was no sale of the securities.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits. The following is a list of exhibits to this Registration
Statement:
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2.1 Stock Purchase Agreement, dated as of November 29, 1999, by and
between CH2M HILL Companies, Ltd. and Lockheed Martin Corporation
[certain portions of the Stock Purchase Agreement have been
omitted pursuant to a request for confidential treatment filed
separately with the Securities and Exchange Commission](4)
3.1 Restated Articles of Incorporation of CH2M HILL Companies, Ltd.(1)
3.2 Restated Bylaws of CH2M HILL Companies, Ltd.(1)
+5.1 Opinion of Holme Roberts & Owen LLP with respect to legality of
Securities being issued.
10.1 CH2M HILL Retirement and Tax-Deferred Savings Plan, as amended and
restated effective January 1, 2000(1)
10.2 CH2M HILL Employee Stock Plan, as amended and restated effective
January 1, 2000(1)
10.3 CH2M HILL Companies, Ltd. 1999 Stock Option Plan, as amended and
restated on November 12, 1999(1)
10.4 CH2M HILL Companies, Ltd. Payroll Deduction Stock Purchase Plan(1)
10.5 CH2M HILL Companies, Ltd. Pre-Tax Deferred Compensation Plan(1)
10.6 Trust Under CH2M HILL Companies, Ltd. Pre-Tax Deferred
Compensation Plan(2)
10.7 CH2M HILL Companies, Ltd. After-Tax Deferred Compensation Plan(1)
10.8 Trust Under CH2M HILL Companies, Ltd. After-Tax Deferred
Compensation Plan(2)
10.9 Contract with Buck Investment Services, Inc.(2)
10.10 Contract (#DE-AC3495RF00825) between Kaiser-Hill Company, LLC, a
subsidiary of the Corporation, and the U.S. Department of Energy
dated as of April 4, 1995, along with Modifications 1 to 81 to
Contract #DE-AC3495RF00825 (Modifications 41, 72 and 78 not
received)(3)
10.11 Contract between Kaiser-Hill Company, LLC, a subsidiary of the
Corporation, and the U.S. Department of Energy dated January 24,
2000(1)
10.12 $100,000,000 Senior Unsecured Revolving Credit Agreement dated as
of June 18, 1999, Wells Fargo Bank, National Association, as
Agent(2)
10.13 Deferred Compensation Retirement Program Arrangement effective
December 1, 1995(1)
10.14 Executive Deferred Compensation Program Arrangement effective
January 1, 1997(1)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
*10.15 Retention Compensation Arrangement effective December 1, 1999
21 Subsidiaries of CH2M HILL Companies, Ltd.(1)
*23.1 Consent of Arthur Andersen LLP
*23.2 Consent of KPMG LLP
+23.3 Consent of Holme Roberts & Owen LLP (included in Exhibit 5.1)
99.1 Internal Market Rules(2)
</TABLE>
-------
* Filed herewith.
+ Previously filed.
(1) Incorporated by reference from Registrant's Annual Report on Form 10-K
dated March 30, 2000 (File No. 000-27261).
(2) Incorporated by reference from the Registrant's Registration Statement on
Form S-1 (File No. 333-74427).
(3) Incorporated by reference from ICF Kaiser International Inc.'s (i) Form
10-K for the fiscal year ended February 28, 1995 filed on March 29, 1996
(File No. 1-12248); (ii) Registration Statement on Form S-1 filed on
November 27, 1996 (File No. 333-16937); (iii) Form 10-K for the fiscal
year ended December 31, 1996 filed on March 31, 1998 (File No. 1-12248).
(4) Incorporated by reference from the Registrant's Current Report on Form 8-
K, dated January 5, 2000 (File No. 000-27261).
(b) Financial Statement Schedules.
All financial statement schedules have been omitted because such schedules
are not applicable.
Item 17. Undertakings
The undersigned hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously enclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that any claim for indemnification
against such liabilities (other than the payment by the
II-3
<PAGE>
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City and County of Denver, State
of Colorado, on the 26th day of May, 2000.
CH2M HILL Companies, Ltd.
/s/ Ralph R. Peterson
By: ____________________________________
Ralph R. Peterson
President and Chief Executive
Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated. Each person whose signature appears below
does hereby make, constitute and appoint each of Ralph R. Peterson and Samuel
H. Iapalucci as such person's true and lawful attorney-in-fact and agent, with
full power of substitution, resubstitution and revocation to execute, deliver
and file with the Securities and Exchange Commission, for and on such person's
behalf, and in any and all capacities, a Registration Statement on Form S-1,
any and all amendments (including post-effective amendments) thereto and any
abbreviated registration statement in connection with this Registration
Statement pursuant to Rule 462(b) under the Securities Act of 1933, with all
exhibits thereto and other documents in connection therewith, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done as fully to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or such
person's substitute or substitutes may lawfully do or cause to be done by
virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ralph R. Peterson Chairman of the Board, May 26, 2000
______________________________________ President and Chief
Ralph R. Peterson Executive Officer
(Principal Executive
Officer)
/s/ Samuel H. Iapalucci Chief Financial Officer May 26, 2000
______________________________________ (Principal Financial and
Samuel H. Iapalucci Principal Accounting
Officer)
* Director May 26, 2000
______________________________________
Joseph A. Ahearn
* Director May 26, 2000
______________________________________
Robert G. Card
* Director May 26, 2000
______________________________________
James J. Ferris
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director May 26, 2000
______________________________________
Jerry D. Geist
* Director May 26, 2000
______________________________________
Philip G. Hall
* Director May 26, 2000
______________________________________
Michael D. Kennedy
* Director May 26, 2000
______________________________________
Susan D. King
* Director May 26, 2000
______________________________________
Michael Y. Marcussen
* Director May 26, 2000
______________________________________
Jill T. Shapiro Sideman
* Director May 26, 2000
______________________________________
Barry L. Williams
By: /s/ Samuel H. Iapalucci
______________________________________
Samuel H. Iapalucci, as attorney-in-
fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2.1 Stock Purchase Agreement, dated as of November 29, 1999, by and
between CH2M HILL Companies, Ltd. and Lockheed Martin Corporation
[certain portions of the Stock Purchase Agreement have been omitted
pursuant to a request for confidential treatment filed separately with
the Securities and Exchange Commission](4)
3.1 Restated Articles of Incorporation of CH2M HILL Companies, Ltd.(1)
3.2 Restated Bylaws of CH2M HILL Companies, Ltd.(1)
+5.1 Opinion of Holme Roberts & Owen LLP with respect to legality of
securities being issued.
10.1 CH2M HILL Retirement and Tax-Deferred Savings Plan, as amended and
restated effective January 1, 2000(1)
10.2 CH2M HILL Employee Stock Plan, as amended and restated effective
January 1, 2000(1)
10.3 CH2M HILL Companies, Ltd. 1999 Stock Option Plan, as amended and
restated on November 12, 1999(1)
10.4 CH2M HILL Companies, Ltd. Payroll Deduction Stock Purchase Plan(1)
10.5 CH2M HILL Companies, Ltd. Pre-Tax Deferred Compensation Plan(1)
10.6 Trust Under CH2M HILL Companies, Ltd. Pre-Tax Deferred Compensation
Plan(2)
10.7 CH2M HILL Companies, Ltd. After-Tax Deferred Compensation Plan(1)
10.8 Trust Under CH2M HILL Companies, Ltd. After-Tax Deferred Compensation
Plan(2)
10.9 Contract with Buck Investment Services, Inc.(2)
10.10 Contract (#DE-AC3495RF00825) between Kaiser-Hill Company, LLC, a
subsidiary of the Corporation, and the U.S. Department of Energy dated
as of April 4, 1995, along with Modifications 1 to 81 to Contract #DE-
AC3495RF00825 (Modifications 41, 72 and 78 not received)(3)
10.11 Contract between Kaiser-Hill Company, LLC, a subsidiary of the
Corporation, and the U.S. Department of Energy dated January 24,
2000(1)
10.12 $100,000,000 Senior Unsecured Revolving Credit Agreement dated as of
June 18, 1999, Wells Fargo Bank, National Association, as Agent(2)
10.13 Deferred Compensation Retirement Program Arrangement effective
December 1, 1995(1)
10.14 Executive Deferred Compensation Program Arrangement effective January
1, 1997(1)
*10.15 Retention Compensation Arrangement effective December 1, 1999
21 Subsidiaries of CH2M HILL Companies, Ltd.(1)
*23.1 Consent of Arthur Andersen LLP
*23.2 Consent of KPMG LLP
+23.3 Consent of Holme Roberts & Owen LLP (included in exhibit 5.1)
99.1 Internal Market Rules(2)
</TABLE>
--------
* Filed herewith.
+ Previously filed.
(1) Incorporated by reference from Registrant's Annual Report on Form 10-K
dated March 30, 2000 (File No. 000-27261).
(2) Incorporated by reference from the Registrant's Registration Statement on
Form S-1 (File No. 333-74427).
(3) Incorporated by reference from ICF Kaiser International Inc.'s (i) Form 10-
K for the fiscal year end ed February 28, 1995 filed on March 29, 1996
(File No. 1-12248); (ii) Registration Statement on Form S-1 filed on
November 27, 1996 (SEC File No. 333-16937); (iii) Form 10-K for the fiscal
year ended December 31, 1996 filed on March 31, 1998 (File No. 1-12248).
(4) Incorporated by reference from the Registrant's Current Report on Form 8-K,
dated January 5, 2000 (File No. 000-27261).
