FLUOR DANIEL GTI INC, 10-K, 1998-01-29

FLUOR DANIEL GTI INC
10-K, 1998-01-29
HAZARDOUS WASTE MANAGEMENT

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934

For the fiscal year ended October 31, 1997.

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934

COMMISSION FILE NUMBER 0-15067
------------------------

FLUOR DANIEL GTI, INC.
(Exact name of registrant as specified in its charter)

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DELAWARE 02-0324047
(State or other jurisdiction of incorporation
or organization) (I.R.S. Employer Identification No.)

100 RIVER RIDGE DRIVE,NORWOOD, MASSACHUSETTS 02062
(Address of principal executive offices) (Zip Code)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (781) 769-7600

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
--------------------------------------------- --------------------------------------------
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Common Stock, $.001 par value None
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INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]

INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of
the registrant on January 22, 1998, was $37,103,814 computed on the basis of the
closing price per share of such stock on the Nasdaq National Market. The number
of shares of Common Stock outstanding on January 22, 1998, was 8,370,874 shares.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant intends to file a definitive proxy statement for the 1998
Annual Meeting of Stockholders to be held on March 17, 1998 pursuant to
Regulation 14A within 120 days of the end of the fiscal year ended October 31,
1997. Portions of the proxy statement are incorporated by reference in Part III
hereof.
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FLUOR DANIEL GTI, INC.

INDEX TO ANNUAL REPORT ON FORM 10-K

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PART I
Item 1. Business...................................................................... 1
General....................................................................... 1
Services...................................................................... 1
Remediation and Containment Technologies...................................... 2
Business Strategies........................................................... 3
Governmental Regulation and Market............................................ 4
Customers and Marketing....................................................... 5
Personnel..................................................................... 6
Competition and Seasonal Factors.............................................. 6
Potential Liability and Insurance............................................. 6
Patents and Technology........................................................ 7
Factors Affecting Future Performance.......................................... 7
Item 2. Properties.................................................................... 8
Item 3. Legal Proceedings............................................................. 8
Item 4. Submission of Matters to a Vote of Security Holders........................... 8
Executive Officers of the Company............................................. 9

PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters..... 10
Item 6. Selected Financial Data....................................................... 10
Management's Discussion and Analysis of Financial Condition and Results of
Item 7. Operations.................................................................... 11
Item 8. Consolidated Financial Statements and Supplementary Data...................... 14
Changes in and Disagreements with Accountants on Accounting and Financial
Item 9. Disclosure.................................................................... 15

PART III
Item 10. Directors and Executive Officers of the Registrant............................ 15
Item 11. Executive Compensation........................................................ 15
Item 12. Security Ownership of Certain Beneficial Owners and Management................ 15
Item 13. Certain Relationships and Related Transactions................................ 15

PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............... 16
Signatures.................................................................... 19
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This Report contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Reference is made in
particular to the description of the Company's plans included in the Letter to
Stockholders that accompanies the Annual Report to Stockholders, and the
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" sections in this Report. Certain factors that may affect
these forward- looking statements are discussed on page 7.
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PART I

ITEM 1. BUSINESS

GENERAL

Fluor Daniel GTI, Inc. (formerly Groundwater Technology, Inc.) and its
subsidiaries (collectively, "Fluor Daniel GTI" or the "Company") provide a broad
range of environmental, consulting, engineering and remediation services to a
variety of commercial and industrial customers and federal, state and local
government agencies. The Company was incorporated in Delaware in October 1975
and currently operates from 57 consulting offices throughout the United States
and in four foreign countries including Australia, the United Kingdom, Canada
and Italy.

The principal services provided by the Company are detailed, scientific
environmental assessment and remediation programs, which combine elements of
hydrogeology, geochemistry, chemistry, biochemistry and engineering. The Company
also provides compliance, permitting and other environmental support services. A
typical program generally includes interaction with appropriate governmental
regulatory agencies, detailed site assessments, design and implementation of a
cost-effective remediation system, construction management services and ongoing
monitoring and maintenance of the system for the duration of the program. These
assessments and remediation programs are generally in response to regulatory
programs adopted by state agencies as well as U.S. Environmental Protection
Agency ("EPA") programs, such as the Resource Conservation and Recovery Act of
1976 ("RCRA") and the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA" or "Superfund Act"). The Company does not own or operate
a hazardous waste landfill or any other hazardous waste treatment, storage or
disposal facility.

On May 10, 1996, the Company closed a series of transactions (the "Change
of Control Transactions") pursuant to which it became a majority-owned
subsidiary of Fluor Daniel, Inc. ("Fluor Daniel"), a global construction,
engineering, maintenance and services company. The Change of Control
Transactions included a recapitalization of the Company's common stock, and the
merger of one of the Company's subsidiaries and Fluor Daniel Environmental
Services, Inc. ("FDESI"), a wholly-owned subsidiary of Fluor Daniel that
provides environmental services primarily to agencies of the federal government.
In exchange for FDESI and $35 million in cash, Fluor Daniel received 4,400,000
shares of the Company's "new" common stock and an option to purchase 1,768,970
additional shares at $13.1274 per share that expires on December 11, 1998. In
the recapitalization, each holder of "old" common stock received $8.62 in cash
and .5274 of a share of "new" common stock of the Company. In addition, the
Company entered into a Marketing Agreement with Fluor Daniel, and the Company
changed its name from "Groundwater Technology, Inc." to "Fluor Daniel GTI, Inc."
to emphasize the new relationship.

On May 10, 1996, the Company changed its year end from April 30 to October
31; accordingly, the Company began a new 12-month fiscal year on November 1,
1996. The six month period resulting from this change, May 1, 1996 through
October 31, 1996, is referred to as the "Transition Period."

Financial results for the Transition Period ended October 31, 1996 include
the operations of GTI as if the merger had occurred on May 1, 1996. Financial
activity for the period May 1, 1996 through May 9, 1996 was not significant.

SERVICES

Fluor Daniel GTI provides a broad range of environmental consulting,
engineering and construction management services, which currently focus on the
assessment, remediation and monitoring of soil and groundwater using a broad
range of techniques and technologies. These services are provided separately or
in combination.

Remedial Investigation and Assessment. Fluor Daniel GTI prepares
environmental profiles of sites, including hydrogeological and chemical
evaluations. A team of the Company's hydrogeologists, geologists, engineers,
chemists and technicians may use a variety of techniques, such as soil gas
mapping or the installation of a diagnostic monitoring well system. These
techniques provide the data necessary to determine

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the extent of the contamination, as well as soil characteristics and groundwater
chemistry, flow and direction, and form the basis for the selection of a
remediation program.

Fluor Daniel GTI also offers health and environmental risk assessment
services. Working in multi-disciplinary teams of toxicologists, environmental
scientists and industrial hygienists, the staff ascertains the health hazards
and risks produced by chemicals in the environment and the workplace. The risk
assessment services include site-specific exposure modeling and quantitative
risk assessment, hazard and risk communication programs, human health monitoring
and regulatory compliance, education, training and industrial hygiene services.

Design and Remediation. The Company has particular experience in the design
and installation of remedial systems for the removal of contaminants from soil
and groundwater. Using information obtained in a site investigation and
assessment, and an evaluation of risks to human health, the Company designs a
remedial solution appropriate to the particular conditions present at the site.
These analyses help to define the appropriate level of remedial response and are
used as the basis for negotiating remediation goals with regulatory authorities.

The Company evaluates alternatives, often conducting feasibility studies,
and the most appropriate response is selected. If action is required, a
cost-effective remediation system is engineered for the specific site. In some
instances, systems designed to contain existing contamination are appropriate.
Where remediation is required, the Company uses a wide range of physical,
chemical, biological and thermal treatment technologies in performing its
services, which are usually applied either on site or in situ. With on-site
restoration, the contaminated media, soil or groundwater is removed and treated.
With in situ restoration, the contaminants themselves are directly removed or
treated in place, without removing the soil or groundwater.

Monitoring. The Company performs ongoing sampling and analysis of
groundwater, soils and air to regulate and adjust the remediation system. The
analysis also provides the data necessary to respond in a timely fashion to
changes in the levels of contaminants and other variables, and forms the basis
for ongoing reports to the appropriate governmental regulatory agencies.

The Company generally charges its customers for its services on a time and
materials basis, typically with strict adherence to "not to exceed" limitations
contained in contracts for projects billed on this basis. Moreover, services are
subject to competitive bidding and are increasingly being performed on a fixed
contract or unit price basis. The Company is also increasing the marketing of
its services on a "pay for performance" incentive basis, and anticipates that
this will become a larger portion of its business in the future. Revenues are
also realized when the Company subcontracts for drilling, well materials,
electrical installation, laboratory analysis and other outside services. The fee
for a typical restoration program (including equipment) ranges from $100,000 to
$750,000, but for complex and lengthy programs the Company has billed as much as
several million dollars. Typical restoration programs generally require one to
five years to complete, and certain programs may take as long as ten or more
years.

REMEDIATION AND CONTAINMENT TECHNOLOGIES

Fluor Daniel GTI has substantial experience in the commercialization and
practical field application of new and existing technologies for the treatment
or containment of hazardous wastes and uses many technologies to restore
contaminated groundwater, soils and air to acceptable standards. The primary
approaches used by the Company -- physical, chemical, biological and thermal --
are usually used for on-site and in situ treatment. These techniques are often
used in combination to achieve desired results.

Physical treatments include those technologies that physically impact the
contaminants and the media, and include air stripping, vapor extraction and air
sparging. Air stripping involves pumping contaminated groundwater through either
a stripping tower or an air stripper system, which increases the evaporation
rate of hydrocarbon contaminants. Air flows through the unit countercurrent to
the water flow, "stripping" off the dissolved hydrocarbons at an increased rate.

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Soil vapor extraction is the removal of volatile organic compounds by
induced air flow. The air flow is induced by the application of a vacuum to
subsurface soils and may be enhanced by the simultaneous injection of air. An
important part of vapor extraction is treating the extracted contaminants.

Air sparging is a process for treating soils and groundwater below the
water table by injecting air into the formation under pressure. The air
displaces the water in the soil and volatilizes the organic compounds present.
These compounds are then carried by the air stream out of the water table into
the soil above the water table, where they are captured by a vapor extraction
system. The Company has pioneered the use of ozone to enhance air sparging by
direct oxidation of contaminants.

In situ bioremediation involves treating contaminated soil and groundwater
by adding an oxygen source and nutrients into the aquifer, where naturally
occurring bacteria biochemically break down the contaminants into non-toxic
materials. The added oxygen and nutrients enhance the population of natural
bacteria which normally feed on contaminants. By stimulating the growth of
selected bacteria, soil and groundwater quality is restored to acceptable
levels.

Thermal treatment technologies take a number of forms. The principal form
of this technology used by the Company has been thermal desorption, which uses
heat to remove volatile compounds from a waste without oxidation of the
compounds. The Company has used steam injection and hot air injection to enhance
soil vapor extraction techniques on selected sites. Fluor Daniel GTI is also
exploring the use of co-burning of coal tar impacted soils.

For certain wastes that are not amenable to biological or chemical
degradation, such as metals, the Company uses several in situ technologies that
can be used to reduce or prevent further leaching of contamination from soil to
groundwater or surface water, or to reduce or prevent further migration of the
contamination horizontally. These technologies can be used in combination with
control measures such as capping, which involves placing a physical barrier
above the contaminated area, and slurry walls, which involves placing a physical
barrier adjacent to the contaminated area.

In situ fixation is a process that involves mixing chemical reagents with a
smaller volume of pumped groundwater, and then reinjecting the treated water
around the perimeter of a contaminated area. As the treated water moves through
the contaminated area, it promotes subsurface reactions that cause metals to fix
onto soil particles, thus rendering them immobile. The Company has used as
reagents lime and ferrous sulfate, and has also developed proprietary reagents
for in situ metals fixation.

BUSINESS STRATEGIES

Between 1992 and 1995, the Company diversified its core environmental
consulting and engineering services away from a dependence on retail petroleum
customers and into government and industrial markets with the intention to have
its customer base roughly equate with the proportions of the total market for
soil and groundwater remediation services being purchased by those customers.
During this period, the Company perceived an evolving shift from governmental
enforcement of environmental laws and regulations to commercial considerations
as the primary source of demand for the Company's services, and the Company
increasingly faced strong price competition as a result of this shift. The
Company also divested non-core businesses -- its drilling operations and
equipment manufacturing business in 1993 and 1994, respectively, and its
analytical laboratories in December 1995. During this period the Company changed
its business mix through a combination of internal focus and two acquisitions,
and pursued teaming arrangements with larger engineering and construction firms
for specific projects in the government market.

In connection with the Change of Control Transactions, the Company entered
into a Marketing Agreement with Fluor Daniel, pursuant to which the Company has
access to Fluor Daniel's worldwide marketing, engineering and construction, and
program management resources, which is intended to better enable the Company to
penetrate potential markets and, more generally, to respond to the competitive
challenges posed by current and anticipated developments in the environmental
services market. Fluor Daniel GTI serves as the preferred supplier for
environmental assessment, permitting and remediation services to Fluor Daniel
and its affiliates. However, there are no assurances provided in the Marketing
Agreement. Fluor

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Daniel will continue to provide its customers with engineering and construction
services, as well as certain environmental services, such as Department of
Energy Management and Operations, Operating and Management, Management and
Integration services.

The term of the Marketing Agreement expires in May 2006 unless further
extended by the parties. In the event Fluor Daniel ceases to own at least 20% of
the issued and outstanding equity of the Company, (a) Fluor Daniel, provided it
is not in breach of its obligations pursuant to Section 6.3(d) of the Investment
Agreement (described below), or the Company may terminate the Marketing
Agreement prior to expiration of the term; and (b) Fluor Daniel may revoke the
license of the Company and its subsidiaries to use the name "Fluor Daniel" in
the Company's corporate name. Section 6.3(d) of the Investment Agreement
provides that, until April 30, 1999, and with very limited exception, Fluor
Daniel is not permitted to dispose of any of its shares of the Company's common
stock without the prior approval of a majority of the independent directors
serving on the Company's Board of Directors.

In addition to developing its new relationship with Fluor Daniel, the
Company will continue to hire and train geologists, engineers, chemists and
hydrogeologists in the specialized fields of environmental services and cleanup
of soil and groundwater in order to staff local offices. It is the Company's
belief that a local presence increases understanding of local environmental
statutes, regulations and regulatory agencies and fosters a constructive working
relationship with local agency personnel. The Company spends significant time
and resources on in-house educational programs at all levels to maintain and
improve the quality of its operations; and it has invested in information
systems to connect all of its U.S. offices by a computer network that allows
employees to share resources.

GOVERNMENTAL REGULATION AND MARKET

Public concern over health, safety and preservation of the environment has
resulted in the enactment of federal, state and local environmental laws and the
implementing regulations that affect nearly every industry. The enforcement of
these laws and regulations is responsible for creating much of the demand for
the services offered by the Company, and the renewal, modification or
elimination of these laws and regulations could significantly affect the
Company's business. Recently, the level of enforcement has waned due to
governmental budgeting constraints, and a number of laws set for reauthorization
for some time have not been reauthorized. The Company believes that, even apart
from cleanup activity attributable directly to funding authorized by these laws,
industry and governmental entities will continue to attempt to resolve hazardous
waste problems in order to comply with other statutory requirements and to avoid
liabilities to private parties.

The principal legislation that affect the Company's business are as
follows:

RCRA. The Resource Conservation and Recovery Act of 1976 established a
framework for federal and state regulation of hazardous wastes. In 1988, the EPA
issued regulations under RCRA that govern underground storage tanks containing
certain hazardous substances or petroleum. These regulations require the owners
of underground storage tanks to upgrade or close existing deficient tanks and to
install release detection equipment on existing tanks. In addition, these
regulations prescribe the procedures by which tank owners and operators should
investigate and report confirmed or suspected releases from tanks, and if
applicable, proceed with corrective actions.

Superfund Act (CERCLA). The Comprehensive Environmental Response,
Compensation and Liability Act of 1980 generally addresses cleanup of inactive
sites at which hazardous treatment, storage or disposal occurred in the past.
The Superfund Act authorizes the federal government to cleanup or order cleanup
of these sites. As of September 1997, there were approximately 1,250 sites on
the National Priority List ("NPL") subject to extensive monitoring and cleanup
work.

In 1986, the Superfund Amendment and Reauthorization Act ("SARA") was
enacted and increased environmental remediation activities significantly. SARA,
among other things, authorized additional federal expenditures and expanded the
EPA's enforcement powers, which encouraged and facilitated settlements with
potentially responsible parties. Superfund authorization for fiscal year 1996
was $1.3 billion. The trust fund balance was $3.1 billion in unappropriated
funds at the end of fiscal year 1996.

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Other Federal Legislation. The Company believes that in addition to RCRA
and CERCLA, other federal laws will affect demand for its services. These laws
include the Toxic Substances Control Act, the Clean Water Act, the Clean Air Act
and the Safe Drinking Water Act.

State Legislation. The federal statutes summarized above presuppose
significant state involvement in their administration and enforcement. Many
states have enacted their own statutes designed to protect and restore
environmental quality and to deal directly with the problem of soil and
groundwater contamination; and in some cases these statutes are different or
more stringent than the federal statutes. In addition, states have adopted
reimbursement programs to assist customers who are required to use the Company's
services. Some examples of these state reimbursement programs include the
Florida Inland Protection Trust Fund, the Massachusetts Underground Storage Tank
Petroleum Product Cleanup Fund, the Texas Petroleum Storage Tank Remediation
Fund and the California Underground Storage Tank Cleanup Fund.

Permits, Licenses and Regulatory Approvals. The installation and operation
of remediation systems are subject to various licensing, permitting, approval
and reporting requirements imposed by federal, state and local laws.

For example, National Pollutant Discharge Elimination System ("NPDES")
permits and other regulatory program permits are typically required in
connection with the installation of the recovery system, and the terms of these
permits often require ongoing reporting to governmental agencies concerning the
operation of the recovery system. Approvals of corrective action plans by the
appropriate regulatory agency is increasingly being required before a recovery
system can be installed to address contaminated soil or groundwater due to a
release from an underground storage tank.

Various state and local laws require the monitoring wells and wells used in
the recovery process to be installed by licensed well drillers, and installation
of the recovery system may also require compliance with applicable provisions of
construction and zoning laws. Some states have also adopted testing and
licensing programs to regulate professionals who typically conduct subsurface
investigations and propose remedial action work plans.

Fluor Daniel GTI employs individuals who specialize in obtaining the
required federal, state and local environmental and operational permits
necessary for the Company and its customers to install and operate remediation
systems. The Company also provides the documentation of the recovery process
necessary to assist its customers in satisfying applicable reporting
requirements.

CUSTOMERS AND MARKETING

The Company provides services to a broad range of customers, including
petroleum companies, industrial companies, government agencies and international
customers. The Company has also worked with a number of engineering and
consulting firms in both the private and public sectors that manage projects
requiring the Company's services; however, given the new affiliation with Fluor
Daniel, the Company anticipates that it will have fewer opportunities to work as
a subcontractor with other engineering and construction firms.

Industrial customers principally include large companies in the chemicals,
manufacturing, utility, electronics, real estate and transportation industries.
In the public sector, the Company's principal customers are federal government
agencies, including the Department of Defense and the U.S. Army Corps of
Engineers, and other federal and state agencies. FDESI's primary clients include
the Department of Defense and the EPA.

The Company anticipates that the affiliation with Fluor Daniel will create
new opportunities for the Company to market its services. The government market
has recently begun to indicate a preference for awarding substantial work to
single source providers. In addition, customers in the industrial markets are
moving from the assessment phase of their environmental projects into the
remediation phase. In this next phase of the environmental projects, substantial
resources in engineering and construction capabilities will be required. Under
the Marketing Agreement, the Company has access to the program management and
engineering and construction capabilities of Fluor Daniel necessary to compete
for this work.

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Within the North American operations, the Company focuses its marketing and
operational staff on three major markets -- petroleum, industrial/commercial and
government. Fluor Daniel GTI believes this market-centered focus, along with its
geographic diversification, allows it to provide responsive services to its
customers. Currently, most of the Company's jobs are performed for repeat
customers, and in the case of large petroleum and certain industrial customers,
pursuant to year-to-year, non-exclusive national buying contracts. There are no
minimum purchase requirements associated with these contracts.

During the fiscal year, no single customer accounted for more than 10% of
the Company's revenues; and approximately 28% of revenues were derived from
petroleum customers, 42% from industrial/commercial customers and 22% from
federal, state and local government agencies. In addition, approximately 8% of
revenues in the fiscal year were derived from international customers. During
the Transition Period approximately 32% of revenues were derived from petroleum
customers, 39% from industrial/commercial customers, 22% from federal, state and
local government agencies, and approximately 7% of revenues from international
customers.

Although Fluor Daniel GTI relies on repeat customers and work generated
through referrals and seminar appearances for a significant portion of its new
business, the Company maintains a dedicated sales force. At the end of the
fiscal year, the Company had 28 professionals dedicated to sales, and it has a
National Accounts Program to develop and maintain long-term relationships with
customers.

In the last several years, an increasing amount of work has been done on a
competitive basis in response to customer requests for proposals. This has
required the dedication of significantly greater resources to proposal writing
and general business development. In addition, the Company has instituted an
extensive training and marketing program featuring internal and external
seminars and a comprehensive sales incentive plan. The Company is focusing its
direct sales and marketing efforts towards retaining its position in the retail
petroleum market and achieving continued growth in the upstream petroleum,
industrial and government markets.

PERSONNEL

As of October 31, 1997, the Company had 1,216 employees. Of these 821 are
skilled professionals (geologists, hydrogeologists, engineers, chemists and
environmental scientists) who perform services in the field, 28 in sales and 367
in administrative support, financial, legal and accounting functions.

The soil and groundwater remediation services market is very competitive
and requires highly skilled, experienced technical and management personnel. The
Company's ability to remain competitive is partially dependent on its ability to
attract and retain qualified personnel. None of the Company's employees are
represented by a labor organization. The Company considers its relations with
its employees to be satisfactory.

COMPETITION AND SEASONAL FACTORS

The markets in which the Company competes are very competitive. The company
continues to face increasingly strong price competition. In each specific
service area of its business the Company competes with many engineering and
consulting firms that are both larger and smaller than the Company, although no
firm currently dominates any significant portion of those services. The Company
competes primarily on the basis of differentiated service quality, reputation,
expertise, geographic location and, to a lesser extent, price.

The Company's quarterly results may fluctuate. Factors influencing such
variations include: spending decisions by major customers; delays in the release
of committed projects; weather; holidays and vacation time, which limit the
amount of time Company professional and technical personnel have in the field;
and the level of subcontracted services.

POTENTIAL LIABILITY AND INSURANCE

A majority of the Company's revenues are derived from work involving
hazardous materials, toxic wastes and other pollutants that present significant
risks of liability for environmental damage, personal injury, fines and costs
imposed by regulatory agencies. Although liabilities arising from environmental
regulations are more

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directly applicable to the Company's customers, these regulations, under certain
circumstances, could impose liability on the Company, and these liabilities can
be joint and several where other parties are involved. Although the Company does
not believe its services generally fall within any of these categories, when the
Company's remedial activities at any site involve the treatment, storage or
disposal of hazardous waste, it must adhere to the permitting and substantive
requirements of these regulations. Fluor Daniel GTI, through its in situ and
on-site capabilities, attempts to minimize for its customers the need to
transport hazardous substances. When transportation is required, the customers
themselves generally arrange for the disposal of hazardous substances. In
certain circumstances, however, the Company may subcontract for the
transportation and disposal of hazardous substances to treatment, storage or
disposal facilities for certain customers.

The non-environmental liabilities associated with the Company's services
also involve a significant degree of risk. In addition, a substantial number of
the Company's contracts with its customers require the Company to indemnify the
customer for claims, damages or losses for personal injury or property damage
relating to the Company's performance of the contracts, unless such injury or
damage is the result of the customer's negligent or willful acts or omissions.

Fluor Daniel GTI maintains health and safety and quality assurance/quality
control programs to reduce the risk of potential damage to persons and property,
as well as other losses. During the fiscal year, the Company maintained its
environmental impairment liability coverage with its professional liability
coverage under one policy. While the Company believes it operates safely and
prudently, there are various exclusions under its insurance policies and there
can be no assurance that all possible liabilities that may be incurred by the
Company are covered by its insurance or that the dollar amount of such
liabilities will not exceed the Company's policy limits. Further, the cost and
limited availability of insurance has resulted in the Company's use of
self-insurance under certain policies. Management believes an adequate level of
insurance coverage has been provided. Prior to the Change in Control
Transactions, FDESI's insurance was provided by Fluor Daniel. This coverage
ceased to be provided by Fluor Daniel at completion of the merger.

PATENTS AND TECHNOLOGY

Fluor Daniel GTI believes that its intellectual property and know-how are
important to its business and have been established by the Company through its
technical expertise, understanding of regulations, skill in the design and
implementation of treatment processes, and investment in technology development.
The Company has filed several patent applications covering remediation processes
and claims copyright and trade secret protection on certain computer software,
publications and technical standard operating procedures. The Company does not
believe that such patent applications and copyrights are a material factor in
its business.

FACTORS AFFECTING FUTURE PERFORMANCE

Any of the comments in this annual report on Form 10-K that refer to the
Company's estimated or future results, such as future cost controls and
improvement in profitability, are forward-looking and reflect the Company's
current analysis of existing trends and information. Actual results may differ
materially from current expectations or projections based on a number of factors
affecting the Company's businesses. These factors include those items disclosed
above under the heading "Competition and Seasonal Factors" and "Potential
Liability and Insurance", as well as the following factors.

Uncertainty of Government Market for Environmental Services. The Company's
affiliation with Fluor Daniel is intended to increase the ability of the Company
to further penetrate the market for environmental services, particularly
services for the federal government. The size of the government market and the
extent of that market's demand for environmental services, however, is subject
to change based on, among other factors, legislative and regulatory developments
and budget and spending decisions of governmental bodies. There can be no
assurance that the demand for environmental services in the government market
will achieve or remain at levels that will permit the Company to grow by
penetration of such market, and any reduction in the size of the government
market could have an adverse effect on the Company's financial condition and
operating results.

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Difficulty of Implementing Marketing Strategy. Growth of the Company
through further penetration of the environmental services market, particularly
services for the federal government, is dependent upon the Company's ability to
realize the benefits of the relationship with Fluor Daniel contemplated by the
Marketing Agreement and the integration of FDESI with the Company. Substantial
attention and a high level of coordination from management of both the Company
and Fluor Daniel will be required to realize the anticipated benefits of the
relationship. Further, the attention and resources devoted by Fluor Daniel to
the implementation and realization of the potential benefits of the relationship
are not within the control of the Company, and there can be no assurance that
Fluor Daniel will either devote the necessary attention and resources to
successfully implement the Marketing Agreement or that it will perform its
obligations under the Marketing Agreement. The diversion of the attention of the
Company's management from other aspects of the Company's business, and any
difficulties encountered in the implementation process, could have an adverse
impact on the revenues and operating results of the Company. There can be no
assurance that the anticipated benefits of the relationship will be realized.

Deterrence of Potential Customers. The Company anticipates that its close
affiliation with Fluor Daniel could deter other large engineering and
construction firms that compete with Fluor Daniel from retaining the Company as
a subcontractor or teaming partner for projects requiring environmental
services.

Other Factors. Other risk factors affecting the Company's estimated or
future results include but are not limited to, cost overruns on fixed, maximum,
or unit-priced contracts; contract performance risks; the uncertain timing of
awards and contracts; and changes in environmental regulations; as well as,
changes in the enforcement of those regulations. Any forward-looking statements
represent the Company's judgement only as the date of this Form 10-K. As a
result, the reader is cautioned not to rely on these forward-looking statements.
The Company disclaims any intent or obligation to update these forward-looking
statements. Additional information concerning these and other factors can be
found in the Company's public periodic filings with the Securities and Exchange
Commission.

ITEM 2. PROPERTIES

The Company's executive offices are located in a 40,340 square foot office
leased in Norwood, Massachusetts, a suburb of Boston. The term of the Company's
lease for this office space expires July 31, 2002.

The Company owns two buildings -- a 15,540 square foot, one-story brick and
concrete building in Wichita, Kansas, which is leased to a third party, and a
6,050 square foot, two-story building in Kingsgrove, Australia, which houses
consulting and administrative staff. The Company leases space for offices and
warehouses in 57 cities in the United States, as well as Canada, the United
Kingdom, Australia and Italy. Sizes of leased space range from 150 square feet
to 42,000 square feet. Lease terms for offices typically range from one to seven
years.

The Company believes that its existing facilities are adequate to meet
current requirements and that suitable additional or substitute space will be
available as needed to accommodate any expansion of operations and for
additional offices.

ITEM 3. LEGAL PROCEEDINGS

The Company is a party to a number of claims and lawsuits incidental to the
ordinary conduct of its business. Based upon analyses of the facts underlying
these matters and upon discussions with counsel, management does not believe
that the outcome of any or all of these matters will have a material adverse
effect upon its business or financial condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

8
<PAGE> 11

EXECUTIVE OFFICERS OF THE COMPANY

The executive officers of the Registrant are listed below:

<TABLE>
<S> <C> <C>
Walter C. Barber.......................... 56 President and Chief Executive Officer
Vice President and General Manager, North
Glenn V. Batchelder....................... 36 Region
Vice President and General Manager, South
J. Steven Paquette........................ 43 Region
Vice President and General Manager, West
David L. Backus........................... 56 Region
Anne M. Nolan............................. 49 Vice President, Business Administration
Gregory E. Meyer.......................... 45 Vice President, Sales and Marketing
</TABLE>

Walter C. Barber has served as President and Chief Executive Officer since
joining the Company in 1989. From 1983 to 1989, Mr. Barber was Vice President of
Environmental Management and Administration of Chemical Waste Management Inc., a
hazardous waste management services company. Previously, Mr. Barber was Director
of Research and Technology Development for the Uranium Mill Tailings Project of
Jacobs Engineering Group, Inc., an engineering and construction firm. Mr. Barber
was also an executive with the U.S. Environmental Protection Agency, holding
positions as its Director of the Office of Air Quality Planning and Standards
and as Director of the Standards and Regulations Division.

Glenn V. Batchelder is the Vice President North Region. Between 1986 and
1997, he served the Company in several capacities, including Vice President
Sales & Marketing from 1995-1997, Manager of the Company's former ORS
Environmental Equipment Division from 1992 until its sale in 1994, Vice
President of Engineering from 1989 to 1992, and District Manager from 1986 to
1989.

J. Steven Paquette is Vice President and General Manager, South Region for
the Company. Between 1993 and May 1996, he served as President of Groundwater
Technology Government Services, Inc., a subsidiary of the Company. Prior to
joining the Company, from 1990 to 1992, he served as Senior Vice President and
Northeast Division Manager, and from 1987 to 1990, he served as Vice President
of Eastern Operations, for CDM Federal Programs Corporation, a wholly-owned
subsidiary of Camp Dresser & McKee, Inc., a provider of environmental
engineering and consulting services to agencies and departments of the Federal
government.

David L. Backus joined the Company in June 1996 as Vice President and
General Manager, West Region. Since June 1994, Mr. Backus has served as Vice
President of Environmental Strategies for Fluor Daniel, Inc., a global
construction, engineering, maintenance and services company. From 1991 to 1994,
he served as Vice President of Operations in charge of environmental operations
in the western United States for Dow Chemical Corporation; and from 1972 to
1991, he served as Senior Vice President and then President of Morrison Knudsen
Environmental Services, a unit of Morrison Knudsen Corporation, an engineering
and construction firm. Mr. Backus continues to be employed by Fluor Daniel while
serving the Company on a part time basis.

Anne M. Nolan is the Vice President of Business Administration. From 1994
to 1995, she served the Company as the Director of Human Resources and was
elected Vice President of Human Resources in 1995. Prior to joining the Company,
from August 1989 to April 1994, Ms. Nolan served as Senior Vice President and
Director of Training and Organizational Development for Fleet Financial Group,
Inc., and from June 1987 to August 1989, she served as Human Resources Manager
for Digital Equipment Corporation.

Gregory Meyer has been Vice President of Sales and Marketing of Fluor
Daniel GTI, Inc., since June 1997. From 1995 to 1997, he was General Manager of
Fluor Daniel Chicago, and from 1991 to 1995, he was Senior Director of
Marketing, Fluor Daniel GmbH.

9
<PAGE> 12

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Company's common stock is traded under the symbol "FDGT" on the Nasdaq
National Market. The following table sets forth, by quarter, the high and low
bid prices of the Company's common stock as reported by the Nasdaq National
Market.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
OCTOBER 31, 1997
------------------
HIGH LOW
------ -----
<S> <C> <C>
Quarter ended January 31, 1997............................ $ 9.00 $7.25
Quarter ended April 30, 1997.............................. 8.88 6.25
Quarter ended July 31, 1997............................... 7.63 6.13
Quarter ended October 31, 1997............................ 9.25 6.88
</TABLE>

<TABLE>
<CAPTION>
TRANSITION PERIOD
ENDED
OCTOBER 31, 1996
------------------
<S> <C> <C>
Quarter ended July 31, 1996............................... $14.00 $9.00
Quarter ended October 31, 1996............................ 10.75 7.00
</TABLE>

Share price information for the periods prior to the merger has been
omitted since Fluor Daniel Environmental Services, Inc. (FDESI), the predecessor
entity for accounting purposes, had no publicly traded equity securities.

As of January 22, 1998, the Company's common stock was held by 600 holders
of record. The Company has never paid cash dividends on its common stock and
currently has no intention to pay cash dividends in the foreseeable future. The
Company currently intends to retain any future earnings to finance the growth of
the Company.

ITEM 6. SELECTED FINANCIAL DATA

(In thousands, except per share amounts)

<TABLE>
<CAPTION>
FISCAL
YEAR ENDED TRANSITION
OCTOBER PERIOD ENDED FISCAL YEARS ENDED APRIL 30,(1)
31, OCTOBER 31, ----------------------------------------
1997 1996 1996 1995 1994 1993(3)
---------- ------------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenues................................ $190,536 $ 89,063 $34,497 $35,425 $52,755 $41,253
Income before provision for income
taxes................................. 1,290 215 1,728 1,076 1,118 513
Net income.............................. 755 91 1,054 656 682 316
Earnings per share of common stock(2)... .09 .01 N/A N/A N/A N/A
Working capital......................... 59,779 56,955 4,536 2,661 1,155 1,515
Total assets............................ $103,136 $100,393 $ 5,365 $ 3,022 $ 1,475 $ 1,658
Weighted average shares
outstanding(2)........................ 8,267 8,141 N/A N/A N/A N/A
</TABLE>

- ---------------

(1) Reflects the historical results of Fluor Daniel Environmental Services, Inc.
(FDESI), the predecessor entity for accounting purposes.

(2) Share price information for the periods prior to the merger has been omitted
since Fluor Daniel Environmental Services, Inc. (FDESI), the predecessor
entity for accounting purposes, had no publicly traded equity securities.

(3) Unaudited.

The Company has never paid cash dividends on its common stock and has no
present intention to pay cash dividends in the foreseeable future.

10
<PAGE> 13

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS

A. General -- Fluor Daniel GTI, Inc.

The merger of GTI and FDESI was treated as a reverse acquisition for
accounting purposes, and therefore, the statements of operations, cash flows and
parent company investment for each of the two years in the period ended April
30, 1996 represent the historical results of FDESI, which is the predecessor
entity.

The Company's services are primarily related to the assessment and
remediation of contaminated soil and groundwater for customers in a variety of
industries and for federal and state governments. The demand for the Company's
services is a result of governmental regulation and enforcement related to
hazardous contaminants in the environment.

Revenue includes fees billed for services provided directly by the Company
and fees charged by the Company for arranging and managing subcontractor
services. Cost of sales includes professional salaries incurred in rendering
services to customers, other direct labor, purchases of equipment and materials
and certain direct and indirect overhead costs. Selling, general and
administrative expenses includes management salaries, facility costs, and
clerical and administrative overhead. License and other income includes license
and royalty income earned on the Company's intellectual property and income from
direct equity investments in the environmental industry.

As of October 31, 1997, the Company had 57 consulting offices in 32 states
and 4 foreign countries, including Australia, the United Kingdom, Canada, and
Italy. Total employees as of October 31, 1997 were 1,216.

11
<PAGE> 14

Fiscal year ended October 31, 1997 compared with the proforma results for the
year ended October 31, 1996.

The proforma period reflects the historical results of the predecessor
entity Fluor Daniel Environmental Services (FDESI) for the six months ended
April 30, 1996, Groundwater Technology, Inc. for the six months ended April 30,
1996 and Fluor Daniel GTI, Inc. for the six months ended October 31, 1996 and
are summarized as follows:

<TABLE>
<S> <C>
Revenues......................................................... $187,508
Gross profit..................................................... 42,331
Selling, general and administrative expense...................... 43,057
License and other income......................................... 1,610
Tax expense...................................................... 866
Net income....................................................... 1,223
</TABLE>

Revenues for the fiscal year were $190.5 million versus $187.5 for the
proforma comparable period last year. The company continues to experience
heightened competition within almost all assessment and remediation markets.

Gross profit for the fiscal year was $39.7 million versus $42.3 million for
the proforma comparable period last year. As a percentage of revenues, gross
profit for the fiscal year was 20.8% versus 22.6% for the proforma comparable
period ended October 31, 1996. The gross profit for the fiscal year has been
impacted by continued pricing pressures for services performed and a charge of
$1.5 million in labor and salary costs associated with writing government
proposals. These additional costs had an adverse impact on gross margin. The
Company's gross margin will continue to be impacted by pricing pressure in the
near term.

Selling, general and administrative expenses for the fiscal year were $39.8
million versus $43.0 for the proforma comparable period last year. Included in
such costs for this fiscal year is $583,000 in outside vendor costs associated
with the preparation of government proposals. Also included is a charge of
$830,000 for payroll and benefits related to an overhead cost reduction plan.

License and other income for the fiscal year was $576,000 versus $1.6
million for the proforma comparable period ended October 31, 1996. In the twelve
months ended October 31, 1996, other income contained a receipt of $889,000 from
the sale of an investment, this did not occur in fiscal year ended October 31,
1997.

The tax rate at 41.5% for the fiscal year as compared to 41.4% for the
proforma comparable period last year. The rate for the year ended October 31,
1996 was adversely impacted by state taxes. This impact does not reoccur in this
fiscal year. The realization of deferred tax assets related to foreign operating
losses is dependent on maintaining existing levels of pretax earnings at each
location.

TRANSITION PERIOD ENDED OCTOBER 31, 1996 COMPARED WITH SIX MONTHS ENDED OCTOBER
31, 1995

Revenues for the Transition Period were $89.1 million. The Company
continued to experience a decrease in work from petroleum customers and the
federal government as well as continued competition within almost all assessment
and remediation markets.

Gross profit for the Transition Period was $19.1 million. As a percentage
of revenues, gross profit for the Transition Period was 21.5%. The gross profit
for the Transition Period has been impacted by continued pricing pressures for
services performed and it is not expected that the Company's performance will
significantly improve in the near term.

Selling, general and administrative for the Transition Period was $20.4
million. There were no unusual expenses in selling, general and administrative
during this period.

License and other income for the Transition Period was $1.1 million.
License and other income was impacted by the receipt of $889,000 from the sale
of an investment.

The tax rate at 57.7% for the Transition Period was unusually high, mainly
due to the impact of state taxes. State taxes were not reduced significantly
relative to the low income for the period because their computation is based on
a number of components such as equity and revenue. The tax rate was also
adversely

12
<PAGE> 15

affected by expense items which are not tax deductible, such as meals and
entertainment and certain portions of goodwill.

Pro forma results for the six months ended October 31, 1995, presented as
though the merger of FDESI and GTI had occurred on May 1, 1995, were net income
of approximately $1.0 million on revenues of approximately $105.0 million.

Inflation/Foreign Currency Transactions

The Company's operations have not been, and in the foreseeable future are
not expected to be, materially affected by inflation, changing prices or
fluctuations in the exchange rates for foreign currency transactions.

B. General -- Fluor Daniel Environmental Services, Inc. (Predecessor Entity)

The financial data presented herein reflects the financial position and
results of operations as if the contracts and personnel which constitute the
environmental remediation business of Fluor Daniel had been operating entirely
through FDESI for all periods presented. Operations reflect environmental
remediation contract work performed by Fluor Daniel personnel for federally
funded non-Department of Energy contracts, remediation projects for other
government agencies and environmental risk assessment, permitting and
remediation for commercial clients, for the periods presented. Additionally,
FDESI provides certain environmental consulting services to Fluor Daniel and
other affiliated entities.

Indirect expenses include non-project costs of environmental services
personnel assigned to the environmental operations of Fluor Daniel who are
available to provide services to FDESI's clients and other Fluor Daniel clients.
Additionally, other indirect expenses primarily include charges from Fluor
Daniel for the fair value of rent for occupied space, computer usage and other
costs. There has been no allocation of corporate general and administrative
expenses by Fluor Daniel as management believes that no significant general and
administrative expenses were incurred with respect to FDESI's operations beyond
those reflected in the financial statements.

FDESI's operations include projects in both the commercial and government
sectors. Although the mix of projects fluctuates from year to year, government
projects represent a significant portion of total revenues. The uncertain timing
of project awards can create variability in FDESI's operations, consequently,
trends are difficult to predict with certainty.

The effective tax rate on earnings is essentially unchanged for all periods
presented. Under a tax allocation practice, FDESI is charged or credited by
Fluor Daniel for federal income taxes, if any, generally at the U.S. statutory
rate. FDESI is also charged or credited for state income taxes.

Fiscal 1996 Compared with Fiscal 1995

Revenues and net income for the year ended April 30, 1996 were $34.5
million and $1.1 million respectively, compared with $35.4 million and $656,000
for the year ended April 30, 1995. The decrease in revenues is primarily
attributable to lower revenues on Department of Defense ("DOD") contracts in
1996 compared with 1995. This decrease was partially offset by higher revenues
on commercial projects in 1996 compared with 1995. Government projects
contributed 50% of total revenues for the year ended April 30, 1996 compared
with 39% for the same period of 1995.

Total indirect expenses increased to $6.9 million for the year ended April
30, 1996 from $5.9 million for the same period of 1995, due primarily to
increased proposal costs for environmental remediation on DOD prospects.

C. Financial Position and Liquidity

At October 31, 1997, the Company's primary source of liquidity was $11.0
million in cash, cash equivalents and marketable securities. The Company has no
long-term borrowings. At October 31, 1997, the Company had a line of credit with
a bank providing for borrowings up to $10.0 million through April 30, 1999.
There have been no borrowings under the line of credit.

13
<PAGE> 16

Approximately $7.3 million in net cash was generated from operating
activities during the fiscal year ended October 31, 1997. At October 31, 1997,
the Company's working capital was $59.8 million. Total assets were $103.1
million at the end of the same period.

Cash flows from investing activities were impacted by approximately $2.5
million of expenditures in property, plant and equipment that were made to
upgrade the Company's computer and rental equipment. The Company had no material
commitments for capital expenditures as of October 31, 1997 and estimates
spending for the next twelve months to be approximately $2.5 million,
principally for the general expansion of operations and replacement of
depreciated assets.

Prior to the Change of Control Transactions, FDESI, the predecessor
company, was dependent upon Fluor Daniel for continued financing, including
funding required, if any, for settlement of claims, working capital requirements
and third party bid and performance guarantees made in the ordinary course of
business; and FDESI advanced to and received non-interest bearing funds from
Fluor Daniel. The funding mechanism ceased to exist at completion of the Change
of Control Transactions.

Funding requirements for operations are expected to be met from existing
cash, cash equivalents, marketable securities and cash generated from
operations. The Company believes that cash provided from these sources will be
sufficient to meet its operating requirements for the near term.

D. Impact Year 2000

The Company initiated a review of its software systems in early 1996 in
view of the fact that certain systems will not recognize dates after the year
1999, which could cause those systems to produce invalid results. This is
commonly referred to as "the Year 2000 problem." The company has substantially
completed the assessment phase of all major systems and, in some cases, has made
the required changes and is in the process of completing the installation phase.
Based upon the results of the work done to date, the company believes that the
remaining work will be completed in a timely manner and that the overall cost of
such work will not be material. The company expenses such costs when incurred.
There can be no assurance, however, that further work will not identify issues
which could change the company's present assessment of the cost of addressing
this issue.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information called for by this item is set forth in the Company's
Consolidated Financial Statements and supplementary data contained in this
report and is incorporated herein by this reference. Specific financial
statements and supplementary data can be found at the pages listed in the
following index.

<TABLE>
<CAPTION>
INDEX PAGE
- ------------------------------------------------------------------------------------- -----
<S> <C>
Reports of Independent Auditors...................................................... F-2
Consolidated Statements of Operations for the year ended October 31, 1997, the
Transition Period ended October 31, 1996 and for each of the two years ended April
30, 1996 and 1995.................................................................. F-5
Consolidated Balance Sheets at October 31, 1997 and October 31, 1996................. F-6
Consolidated Statements of Cash Flows for the year ended October 31, 1997, the
Transition Period ended October 31, 1996 and for each of the two years ended April
30, 1996 and 1995.................................................................. F-7
Consolidated Statements of Stockholders' Equity and Parent Company Investment for the
year ended October 31, 1997, the Transition Period ended October 31, 1996 and for
each of the two years ended April 30, 1996 and 1995................................ F-8
Notes to Consolidated Financial Statements........................................... F-9
Selected Quarterly Financial Data (unaudited)........................................ F-19
Schedule II - Valuation and Qualifying Accounts...................................... F-20
</TABLE>

All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are not applicable, and, therefore,
have been omitted.

14
<PAGE> 17

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

On December 12, 1996, the Company dismissed the accounting firm of Coopers
& Lybrand LLP ("C&L") and engaged the accounting firm of Ernst & Young LLP
("E&Y") to be the Company's independent auditors for the fiscal year ending
October 31, 1997. The Company's Board of Directors approved the decision to
change accountants upon the recommendation of the Company's Audit Committee.

E&Y serves as independent auditors for the Company's parent company, Fluor
Daniel, Inc. and Fluor Daniel, Inc.'s former subsidiary, Fluor Daniel
Environmental Services, Inc. ("FDESI"), which was merged with and became a
subsidiary of the Company on May 10, 1996.

On July 26, 1995, the Company had dismissed E&Y and engaged C&L to be the
Company's independent accountants for the fiscal year ended April 27, 1996. C&L
also was engaged to be the independent accountants for the Transition Period May
1, 1996 through October 31, 1996, which resulted from the Company changing its
fiscal year end to October 31, the fiscal year-end of Fluor Daniel, Inc.

During the period of engagement of E&Y there have been no "disagreements"
between the Company and E&Y on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, or any
"reportable events", as those terms are defined in Item 304 of Regulation S-K.

C&L's reports on the consolidated financial statements for the fiscal year
ended April 27, 1996 and the Transition Period ended October 31, 1996 contained
no adverse opinion or disclaimer of opinion and were not qualified or modified
as to uncertainty, audit scope or accounting principles.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information with respect to this item, other than the information appearing
in Part I hereof under the heading "Executive Officers", may be found in the
section captioned, "Election of Directors" in the Company's definitive Proxy
Statement in connection with the 1998 Annual Meeting of Stockholders to be held
on March 17, 1998. Such information is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

Information with respect to this item may be found in the section
captioned, "Executive Compensation" in the Company's definitive Proxy Statement
in connection with the 1998 Annual Meeting of Stockholders to be held on March
17, 1998. Such information is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information with respect to this item may be found in the sections
captioned, "Share Ownership of Principal Holders and Management" and "Election
of Directors" in the definitive Proxy Statement in connection with the 1998
Annual Meeting of Stockholders to be held on March 17, 1998. Such information is
incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information with respect to this item may be found in the section
captioned, "Executive Compensation" in the definitive Proxy Statement in
connection with the 1998 Annual Meeting of Stockholders to be held on March 17,
1998. Such information is incorporated herein by reference.

15
<PAGE> 18

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(A) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT:

(1) Financial Statements:

The list of financial statements required by this item is set forth in Item
8 "Consolidated Financial Statements and Supplementary Data" and is incorporated
herein by reference.

(2) Financial Statement Schedule:

<TABLE>
<CAPTION>
LOCATION IN
THIS REPORT
-----------
<S> <C>
Schedule II - Valuation and Qualifying Accounts........................... F-20
</TABLE>

All other schedules are omitted because they are inapplicable, not
required, or the information is included elsewhere in the Consolidated Financial
Statements or the notes thereto.

(3) Exhibits:

The following exhibits are filed herewith or incorporated by reference as
indicated below.

<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT
- ------ ------------------------------------------------------------------------------------
<C> <S>
3.01 Amended and Restated Certificate of Incorporation (filed as Exhibit 3.1 to Current
Report on Form 8-K for May 10, 1996 with the Securities and Exchange Commission and
incorporated herein by reference.)
3.02 By-Laws, as amended (filed as Exhibit 3.2 to Current Report on Form 8-K for May 10,
1996 with the Securities and Exchange Commission and incorporated herein by
reference.)
10.01* Amended and Restated 1986 Employee Stock Purchase Plan, as amended (filed as Exhibit
10.01 to Annual Report on Form 10-K for the year ended April 27, 1996 with the
Securities and Exchange Commission and incorporated herein by reference.)
10.02* Amended and Restated 1986 Employee Stock Purchase Plan Enrollment Form (filed as
Exhibit 10.02 to Annual Report on Form 10-K for the year ended April 27, 1996 with
the Securities and Exchange Commission and incorporated herein by reference.)
10.03* Amended and Restated 1987 Stock Plan, as amended (filed as Exhibit 10.03 to Annual
Report on Form 10-K for the year ended April 27, 1996 with the Securities and
Exchange Commission and incorporated herein by reference.)
10.04* Form of Non-qualified Stock Option Agreement under the Company's Amended and
Restated 1987 Stock Plan (filed as Exhibit 10.04 to Annual Report on Form 10-K for
the year ended April 27, 1996 with the Securities and Exchange Commission and
incorporated
herein by reference.)
10.05* Amended and Restated 1995 Director Stock Option Plan, as amended (filed as Exhibit
10.05 to Annual Report on Form 10-K for the year ended April 27, 1996 with the
Securities and Exchange Commission and incorporated herein by reference.)
10.06* Form of Option Agreement under the Company's Amended and Restated 1995 Director
Stock Option Plan (filed as Exhibit 10.06 to Annual Report on Form 10-K for the year
ended April 27, 1996 with the Securities and Exchange Commission and incorporated
herein by reference.)
10.07* Retirement Savings Plan of the Company, as amended (filed as Exhibit 10.10 to Annual
Report on Form 10-K for the year ended May 2, 1993 with the Securities and Exchange
Commission and incorporated herein by reference.)
10.08* Amendment to Retirement Savings Plan of the Company (filed as Exhibit 10.11 to
Annual Report on Form 10-K for the year ended April 29, 1995 with the Securities and
Exchange Commission and incorporated herein by reference.)
</TABLE>

16
<PAGE> 19

<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT
- ------ ------------------------------------------------------------------------------------
<C> <S>
10.09* Employment Agreement between the Company and Walter C. Barber (filed as Exhibit
10.09 to Annual Report on Form 10-K for the year ended April 27, 1996 with the
Securities and Exchange Commission and incorporated herein by reference.)
10.10* Form of Employment Agreement between the Company and each of its Executive Officers
(filed as Exhibit 10.10 to Annual Report on Form 10-K for the year ended April 27,
1996 with the Securities and Exchange Commission and incorporated herein by
reference.)
10.11* Restricted Stock Award Agreement under the Company's Amended and Restated 1987 Stock
Plan between the Company and Walter C. Barber (filed as Exhibit 10.11 to Annual
Report on Form 10-K for the year ended April 27, 1996 with the Securities and
Exchange Commission and incorporated herein by reference.)
10.12* Non-Qualified Option Agreement under the Company's Amended and Restated 1987 Stock
Plan between the Company and Walter C. Barber (filed as Exhibit 10.12 to Annual
Report on Form 10-K for the year ended April 27, 1996 with the Securities and
Exchange Commission and incorporated herein by reference.)
10.13* Profit Sharing Plan (filed as Exhibit 10.14 to Annual Report on Form 10-K for the
year ended April 29, 1995 with the Securities and Exchange Commission and
incorporated herein by reference.)
10.14 Lease for 100 River Ridge Drive, Norwood, Massachusetts (filed as Exhibit 10.15 to
Annual Report on Form 10-K for the year ended May 2, 1992 with the Securities and
Exchange Commission and incorporated herein by reference.)
10.15 Third Amendment to Lease for 100 River Ridge Drive, Norwood, Massachusetts (filed as
Exhibit 10.13 to Annual Report on Form 10-K for the year ended April 29, 1995 with
the Securities and Exchange Commission and incorporated herein by reference.)
10.16 Fourth Amendment to Lease for 100 River Ridge Drive, Norwood, Massachusetts (filed
as Exhibit 10.16 to Annual Report on Form 10-K for the year ended April 27, 1996
with the Securities and Exchange Commission and incorporated herein by reference.)
10.17 Revolving Credit Agreement and Revolving Time Note, each dated April 4, 1996 between
the Company and Fleet National Bank (filed as Exhibit 10.17 to Annual Report on Form
10-K for the year ended April 27, 1996 with the Securities and Exchange Commission
and incorporated herein by reference.)
10.18 Investment Agreement dated as of December 11, 1995 between the Company and Fluor
Daniel, Inc. (with respect to Section 6.3 thereof) (filed as Exhibit 2.1 to
Quarterly Report on Form 10-Q for the period ended January 27, 1996 with the
Securities and Exchange Commission and incorporated herein by reference.)
10.19 Option Agreement dated as of December 11, 1995 between the Company and Fluor Daniel,
Inc. (filed as Exhibit 10.1 to Quarterly Report on Form 10-Q for the period ended
January 27, 1996 with the Securities and Exchange Commission and incorporated herein
by reference.)
10.20 First Amendment to Option Agreement dated as of May 30, 1996 between the Company and
Fluor Daniel, Inc. (filed as Exhibit 10.20 to Annual Report on Form 10-K for the
year ended April 27, 1996 with the Securities and Exchange Commission and
incorporated herein by reference.)
10.21 Marketing Agreement dated as of May 10, 1996 between the Company and Fluor Daniel,
Inc. (filed as Exhibit 10.2 to Current Report on Form 8-K for May 10, 1996 with the
Securities and Exchange Commission and incorporated herein by reference.)
10.22* 1997 Stock Plan (filed as Exhibit 10.22 to Annual Report on Form 10-K for the year
ending October 31, 1996 with the Securities and Exchange Commission and incorporated
herein by reference).
10.23* Form of Non-Qualified Stock Options Agreement under the Company's 1997 Stock Plan
(filed as Exhibit 10.23 to Annual Report on Form 10-K for the year ending October
31, 1996 with the Securities and Exchange Commission and incorporated herein by
reference).
</TABLE>

17
<PAGE> 20

<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT
- ------ ------------------------------------------------------------------------------------
<C> <S>
21.1 Subsidiaries of the Company.
23.1 Consent of Coopers & Lybrand LLP
23.2 Consents of Ernst & Young LLP
27 Financial Data Schedule.
</TABLE>

- ---------------

* Indicates a management contract or compensatory plan or arrangement required
to be filed as an exhibit to this form pursuant to Item 14(c) of Form 10-K.

(B) REPORTS ON FORM 8-K. None for the quarter ended October 31, 1997.

(C) EXHIBITS. The Company hereby files as exhibits to this Annual Report on
Form 10-K those exhibits listed in Item 14(a)(3) above.

(D) FINANCIAL STATEMENT SCHEDULES. The response to this portion of Item 14 is
submitted as a separate section of this report.

18
<PAGE> 21

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

FLUOR DANIEL GTI, INC.

By: /s/ WALTER C. BARBER

----------------------------------
WALTER C. BARBER
President and Chief Executive
Officer

January 29, 1998

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------- --------------------------------------- -----------------
<C> <S> <C>

/s/ WALTER C. BARBER President, Chief Executive Officer and January 29, 1998
- --------------------------------- Director (Principal Executive Officer)
WALTER C. BARBER

/s/ MARY C. STACK Vice President and Treasurer (Principal January 29, 1998
- --------------------------------- Financial Officer and Principal
MARY C. STACK Accounting Officer)

/s/ DAVID L. MYERS Director January 29, 1998
- ---------------------------------
DAVID L. MYERS

/s/ ERNIE GREEN Director January 29, 1998
- ---------------------------------
ERNIE GREEN

/s/ ALLAN S. BUFFERD Director January 29, 1998
- ---------------------------------
ALLAN S. BUFFERD

/s/ RONALD G. PETERSON Chairman of the Board January 29, 1998
- ---------------------------------
RONALD G. PETERSON

/s/ J. MICHAL CONAWAY Director January 29, 1998
- ---------------------------------
J. MICHAL CONAWAY
</TABLE>

19
<PAGE> 22

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES (ITEM 14(A)(1)
AND (2))

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports of Independent Auditors...................................................... F-2
Consolidated Statements of Operations for the year ended October 31, 1997,
the Transition Period ended October 31, 1996 and for each of the two
years ended April 30, 1996 and 1995................................................ F-5
Consolidated Balance Sheets at October 31, 1997, October 31, 1996.................... F-6
Consolidated Statements of Cash Flows for the year ended October 31, 1997,
the Transition Period ended October 31, 1996 and for each of the two
years ended April 30, 1996 and 1995................................................ F-7
Consolidated Statements of Stockholders' Equity and Parent Company
Investment for the year ended October 31, 1997, the Transition
Period ended October 31, 1996 and for each of the two years ended
April 30, 1996 and 1995............................................................ F-8
Notes to Consolidated Financial Statements........................................... F-9
Selected Quarterly Financial Data (unaudited)........................................ F-19
Schedule II -- Valuation and Qualifying Accounts..................................... F-20
</TABLE>

F-1
<PAGE> 23

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of
FLUOR DANIEL GTI, Inc.

We have audited the accompanying consolidated balance sheet of Fluor Daniel
GTI, Inc. as of October 31, 1997, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended. Our
audit also included the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Fluor Daniel GTI, Inc. at October 31, 1997, and the consolidated results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

/s/ ERNST & YOUNG LLP

Boston, Massachusetts
November 25, 1997

F-2
<PAGE> 24

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of
FLUOR DANIEL GTI, Inc.

We have audited the accompanying consolidated balance sheet of Fluor Daniel
GTI, Inc. as of October 31, 1996 and the related consolidated statements of
operation, stockholders' equity, and cash flow and the financial statement
schedule listed in Item 14(a) of the Report on Form 10-K for the Transition
Period then ended. These financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audit.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Fluor Daniel GTI, Inc. at October 31, 1996, and the consolidated results of its
operations and its cash flows for the Transition Period then ended in conformity
with generally accepted accounting principles. In addition, In our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.

/s/ COOPERS & LYBRAND LLP

Boston, Massachusetts
December 11, 1996

F-3
<PAGE> 25

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
FLUOR DANIEL ENVIRONMENTAL SERVICES, Inc.

We have audited the accompanying balance sheets of Fluor Daniel
Environmental Services, Inc. as of April 30, 1996 and 1995 (not separately
presented herein), and the related statements of operations, cash flows and
parent company investment for each of the three years in the period ended April
30, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

As more fully described in Notes 1 and 7, the Company was a wholly owned
subsidiary of Fluor Daniel, Inc. and has material transactions with Fluor
Daniel, Inc. and its affiliates.

In our opinion, the financial statements referred to above, present fairly,
in all material respects, the financial position of Fluor Daniel Environmental
Services, Inc. at April 30, 1996 and 1995 and results of its operations and its
cash flows for each of the three years in the period ended April 30, 1996, in
conformity with generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

Orange County, California
December 10, 1996

F-4
<PAGE> 26

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FISCAL TRANSITION FISCAL YEARS
YEAR ENDED PERIOD ENDED ENDED APRIL 30,(1)
OCTOBER 31, OCTOBER 31, -------------------
1997 1996 1996 1995
----------- ------------ ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues............................................ $ 190,536 $ 89,063 $34,497 $35,425
Cost of revenues.................................... 150,826 69,951 25,834 28,410
----------- ------------ ------- -------
Gross profit........................................ 39,710 19,112 8,663 7,015
Selling, general and administrative expenses........ 39,766 20,382 -- --
Indirect expenses................................... -- -- 6,935 5,939
License and other income............................ 576 1,132 -- --
----------- ------------ ------- -------
Income (loss) before investment and interest
income............................................ 520 (138) 1,728 1,076
Investment and interest income, net................. 770 353 -- --
----------- ------------ ------- -------
Income before provision for income taxes............ 1,290 215 1,728 1,076
Provision for income taxes.......................... 535 124 674 420
----------- ------------ ------- -------
Net income.......................................... $ 755 $ 91 $ 1,054 $ 656
======== ========= ======= =======
Earnings per common share(2)........................ $ 0.09 $ 0.01 N/A N/A
Shares used to compute earnings per common share.... 8,267 8,141 N/A N/A
</TABLE>

- ---------------

(1) Represents the historical results of Fluor Daniel Environmental Services,
Inc. (FDESI), the predecessor entity for accounting purposes.

The accompanying notes are an integral part of these consolidated financial
statements.

F-5
<PAGE> 27

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
OCTOBER 31, 1997 OCTOBER 31, 1996
---------------- ----------------
(IN THOUSANDS, EXCEPT SHARE
AMOUNTS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 3,588 $ 2,552
Marketable securities......................................... 7,396 4,101
Accounts receivable, less allowance of $2,049 and $1,740 at
October 31, 1997 and 1996, respectively.................... 38,548 46,438
Unbilled revenues............................................. 25,567 18,917
Deferred income taxes......................................... 1,328 937
Other current assets and prepaid expenses..................... 3,125 2,525
-------- --------
Total current assets....................................... 79,552 75,470
Deferred income taxes......................................... 3,508 2,967
Property, plant and equipment, net............................ 6,624 7,776
Goodwill, net of accumulated amortization of $1,456 and $860
at October 31, 1997 and 1996, respectively................. 11,654 10,218
Other assets.................................................. 1,798 3,962
-------- --------
Total assets.................................................. $103,136 $100,393
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................. $ 8,266 $ 8,034
Accrued salaries and benefits................................. 5,553 4,023
Advance billings on contracts................................. 380 452
Other accrued liabilities..................................... 5,465 5,905
Income taxes payable.......................................... 109 101
-------- --------
Total current liabilities.................................. 19,773 18,515
Commitments and contingencies (note 8)
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
none issued at October 31, 1997 and 1996................... -- --
Common stock, $.001 par value, 25,000,000 shares authorized,
8,323,790 issued and outstanding at October 31, 1997;
8,155,832 issued and outstanding at October 31, 1996....... 8 8
Capital in excess of par value................................ 82,163 81,003
Retained earnings............................................. 1,580 825
Cumulative currency translation adjustment.................... (388) 42
-------- --------
Total stockholders' equity................................. 83,363 81,878
-------- --------
Total liabilities and stockholders' equity................. $103,136 $100,393
======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 28

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FISCAL TRANSITION FISCAL YEARS ENDED
YEAR ENDED PERIOD ENDED APRIL 30,
OCTOBER 31, OCTOBER 31, ------------------
1997 1996 1996(1) 1995(1)
----------- ------------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 755 $ 91 $ 1,054 $ 656
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization......................... 3,915 2,354 -- --
Deferred income taxes................................. (932) (111) -- --
Loss on fixed assets.................................. -- 45 -- --
Allowance for doubtful accounts, net.................. 309 -- -- --
Changes in operating assets and liabilities, net of
effects of acquisitions:
Accounts receivable and unbilled revenues.......... 931 (6,532) (2,343) (1,547)
Other current assets and prepaid expenses.......... (600) 3,070 -- --
Other assets....................................... 1,615 102 -- --
Accounts payable................................... 232 (1,720) -- --
Accrued salaries and benefits...................... 1,530 1,233 -- --
Advance billings on contract....................... (72) (285) 376 41
Other accrued liabilities.......................... (440) (1,101) 92 --
Income taxes payable............................... 8 (273) -- --
Advances from (to) parent............................. -- -- 821 850
------- -------- ------- -------
Net cash provided (used) for operating activities......... 7,251 (3,127) -- --
Cash flows from investing activities:
Expenditures for property, plant and equipment.......... (2,493) (2,065) -- --
Sale of fixed assets.................................... 335 815 -- --
Purchase of marketable securities....................... (9,950) (5,451) -- --
Sale of marketable securities........................... 6,655 1,350 -- --
Investments in and advances to joint ventures........... 558 102 -- --
Other................................................... (1,687) 263 -- --
Cash acquired in merger with Groundwater Technology,
Inc................................................... -- 36,729 -- --
Cash paid to shareholders............................... -- (60,102) -- --
------- -------- ------- -------
Net cash used in investing activities..................... (6,582) (28,359) -- --
Cash flows from financing activities:
Proceeds from sale of stock under employee stock
plans................................................. 799 646 -- --
Cash received from Fluor Daniel, Inc.................... -- 33,350 -- --
------- -------- ------- -------
Net cash provided by financing activities................. 799 33,996 -- --
Effect of exchange rate changes on cash and cash
equivalents............................................. (432) 42 -- --
Net increase in cash and cash equivalents................. 1,036 2,552 -- --
Cash and cash equivalents at beginning of year............ 2,552 -- -- --
------- -------- ------- -------
Cash and cash equivalents at end of year.................. $ 3,588 $ 2,552 $ -- $ --
======= ======== ======= =======
Supplemental disclosures of cash flow information:
Received net assets from merger with Groundwater
Technology, Inc....................................... -- $ 70,858 -- --
Income taxes paid....................................... $ 1,085 $ 513 -- --
Issuance of common stock in connection with previous
business combinations................................. $ 361 -- -- --
</TABLE>

- ---------------
(1) Represents the historical results of Fluor Daniel Environmental Services,
Inc. (FDESI), the predecessor entity for accounting purposes.

The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 29

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND PARENT COMPANY INVESTMENT

YEAR ENDED OCTOBER 31, 1997, THE TRANSITION PERIOD ENDED OCTOBER 31, 1996 AND
YEARS ENDED APRIL 30, 1996 AND 1995

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED CURRENCY
------------------- PAID IN EARNINGS ADVANCES (TO) TRANSLATION
SHARES AMOUNT CAPITAL (DEFICIT) FROM PARENT ADJUSTMENT TOTAL
--------- ------ ---------- -------- ------------- ----------- -------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, APRIL 30, 1994(1)........ 1,000 $1 $ 335 $ (976) $ 1,795 $ 0 $ 1,155
Advances from parent.............. 850 850
Net income........................ 656 656
--
--------- ------- ------ ------ ----- -------
BALANCE, APRIL 30, 1995(1)........ 1,000 1 335 (320) 2,645 0 2,661
Advances from parent.............. 821 821
Net income........................ 1,054 1,054
--
--------- ------- ------ ------ ----- -------
BALANCE, APRIL 30, 1996(1)........ 1,000 1 335 734 3,466 0 4,536
Contribution of advances to
capital......................... 2,359 (2,359)
Advances to parent................ (1,107) (1,107)
Return of capital................. (1,000) (1) (2,694) (2,695)
Transaction related costs......... (1,569) (1,569)
Issuance of new common stock(2)... 8,076,466 8 81,565 81,573
Issuance of common stock to
employees....................... 79,366 988 988
Restricted stock repayment........ 19 19
Cumulative translation
adjustment...................... 42 42
Net income........................ 91 91
--
--------- ------- ------ ------ ----- -------
BALANCE, OCTOBER 31, 1996......... 8,155,832 8 81,003 825 0 42 81,878
Issuance of common stock.......... 167,958 1,160 1,160
Cumulative translation
adjustment...................... (430) (430)
Net income........................ 755 755
--
--------- ------- ------ ------ ----- -------
BALANCE, OCTOBER 31, 1997......... 8,323,790 $8 $ 82,163 $1,580 $ 0 $ (388) $83,363
========= == ======= ====== ====== ===== =======
</TABLE>

- ---------------

(1) Reflects the historical results of Fluor Daniel Environmental Services, Inc.
(FDESI), the predecessor entity for accounting purposes.

(2) In the recapitalization, the former Groundwater Technology stockholders
received an aggregate of $60,102,000 in cash in addition to 3,676,000 shares
of "new" common stock of the Company.

The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1

Summary of Significant Accounting Policies

DESCRIPTION OF BUSINESS. Fluor Daniel GTI, Inc. provides a broad range of
environmental consulting, engineering, and construction management services.
These services currently focus on the assessment and remediation of contaminated
soil and groundwater using a broad range of techniques an technologies. These
services are provided separately or in combination for customers in a variety of
industries and for federal and state governments. Accordingly, the Company
operates in one industry segment.

PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of Fluor Daniel GTI, Inc. and its wholly owned subsidiaries (the
"Company"). All material intercompany transactions and accounts have been
eliminated. Certain prior period amounts have been reclassified to conform with
current period presentation. The Company accounts for its investments in
unconsolidated affiliated companies under the equity method.

BASIS OF PRESENTATION. On May 10, 1996, the Company closed a series of
transactions (the "Change of Control Transactions") pursuant to which it became
a majority-owned subsidiary of Fluor Daniel, Inc. ("Fluor Daniel"), a global
construction, engineering, maintenance and services company. The Change of
Control Transactions included a recapitalization of the Company's common stock,
and the merger of one of the Company's subsidiaries and Fluor Daniel
Environmental Services, Inc. ("FDESI"), a wholly-owned subsidiary of Fluor
Daniel that provides environmental services primarily to agencies of the federal
government. In exchange for FDESI and $35 million in cash, Fluor Daniel received
4,400,000 shares of the Company's "new" common stock and an option to purchase
1,768,970 additional shares at $13.1274 per share that expires on December 11,
1998. In the recapitalization, each holder of "old" common stock received $8.62
in cash and .5274 of a share of "new" common stock of the Company. In addition,
the Company entered into a Marketing Agreement with Fluor Daniel, and the
Company changed its name from "Groundwater Technology, Inc." to "Fluor Daniel
GTI, Inc." to emphasize the new relationship.

The merger was treated as a reverse acquisition for accounting purposes,
and therefore, the related statements of operations, cash flows and parent
company investment for the period ended April 30, 1996, represent the historical
results of FDESI, which is the predecessor entity.

The historical financial statements of FDESI have been adjusted to reflect
the "carved out" financial position, results of operations and cash flows of
FDESI as if the contracts and personnel that constitute the environmental
remediation business of Fluor Daniel had been operating as a separate entity.
Operations reflect the environmental remediation contract work performed by
Fluor Daniel personnel for federally funded non-Department of Energy contracts,
remediation projects for other government agencies and environmental risk
assessment, permitting and remediation for commercial clients. Additionally, the
Company provides certain environmental consulting services to Fluor Daniel and
other affiliated entities. The historical financial statements do not include an
allocation of corporate general and administrative expenses by Fluor Daniel as
management believes that no significant general and administrative expenses were
incurred with respect to FDESI's operations beyond those reflected in the
accompanying financial statements.

CASH AND CASH EQUIVALENTS. Cash and cash equivalents consist of cash on
hand, demand deposit accounts and investments in tax-exempt money market funds
and tax-exempt municipal bonds having original maturities of three months or
less or which contain a put option which can be exercised at par within three

F-9
<PAGE> 31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

months of the date of acquisition. These investments are highly liquid and are
considered cash equivalents. Cash equivalents are stated at cost which
approximates market.

MARKETABLE SECURITIES. The Company accounts for its investments under the
provision of Statement of Financial Accounting Standard (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The
Company's investments are classified as available-for-sale securities and
recorded at current market value.

PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION. Property, plant and
equipment are stated at cost. Repairs and maintenance costs are charged to
operations when incurred, while betterments are capitalized. Depreciation and
amortization are computed on the straight-line method over the estimated useful
lives of the assets. The estimated useful life of each class of asset is as
follows:

<TABLE>
<S> <C>
Buildings and equipment..................................... 25 years
Leasehold improvements...................................... 1-7 years
Machinery and equipment..................................... 3 years
Laboratory equipment........................................ 7 years
Furniture, fixtures and computer equipment.................. 3-5 years
Rental equipment............................................ 2 years
</TABLE>

Upon retirement or disposal, the cost of the asset disposed of and the
related accumulated depreciation are removed from the accounts and any gain or
loss is reflected in income.

INTANGIBLES. Intangibles consist principally of goodwill and other
intangible assets resulting from acquisitions. Amortization is computed on a
straight-line basis not to exceed twenty years. The carrying value of intangible
assets is periodically reviewed by the Company and impairments are recognized
when the expected future operating cash flows derived from such intangible
assets is less than their carrying value.

INDIRECT EXPENSES. Indirect expenses include indirect non-project costs of
environmental services personnel assigned to the environmental operations of
FDESI, who were available to provide services to FDESI's clients while it was a
subsidiary of Fluor Daniel. Additionally, FDESI was charged by Fluor Daniel for
the fair value of rent for occupied space, computer usage and rental and
reproduction costs.

TRANSLATION OF FOREIGN CURRENCIES AND FOREIGN EXCHANGE TRANSACTIONS. For
non-U.S. operations, the functional currency is the applicable local currency.
The translation of the functional currencies into U.S. dollars is performed for
balance sheet accounts using current exchange rates in effect at the balance
sheet date and for revenue and expense accounts using average rates of exchange
prevailing during the reporting period. Adjustments resulting from the
translation of foreign currency financial statements are accumulated in a
separate component of stockholders' equity until the entity is sold or
substantially liquidated. Gains or losses resulting from foreign currency
transactions are included in the results of operations.

EARNINGS PER COMMON SHARE. Earnings per share is based on the weighted
average number of shares of common stock and common stock equivalents
outstanding. Fully diluted earnings per share has not been presented as the
amount does not differ significantly from primary earnings per share.

Earnings per share information for periods prior to the merger between
FDESI and GTI has been omitted since FDESI, the predecessor entity for
accounting purposes, had no publicly traded equity securities.

EMPLOYEE STOCK PLANS. Proceeds from the sale of common stock issued under
the employee stock option and purchase plans are credited to common stock at the
par value. The excess of the share price over par value is credited to
additional paid-in capital. The Company's stock plans are accounted for under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB25), and related interpretations (see Note 9.)

REVENUE RECOGNITION. Revenue is recognized when services are performed.
Certain projects are accounted for on the percentage-of-completion method,
primarily based on contract costs incurred to date

F-10
<PAGE> 32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

compared with total estimated contract costs. Changes to total estimated
contract costs and losses, if any, are recognized in the period in which they
are determined. Revenues recognized in excess of amounts billed are classified
as current assets under unbilled revenues. Amounts billed to clients in excess
of revenues recognized to date are classified as advance billings on contracts.

LICENSE AND OTHER INCOME. License and other income includes license and
royalty income earned on the Company's intellectual property and income from
equity investments in the environmental industry.

RISK AND UNCERTAINTIES. Credit is extended based on an evaluation of the
customer's financial condition, with terms consistent in the industry and
normally collateral is not required. Losses from credit sales are provided for
in the financial statements and have been generally within the allowance
provided. 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. Significant estimates include collectability of accounts
receivable and unbilled revenues and recovery of intangible assets and deferred
tax assets. Actual results could differ from those estimates and would impact
future results of operations and cash flows.

EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS. In February 1997, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (SFAS No. 128.) SFAS No. 128 redefines
the standards for computing earnings per share and is effective for the
Company's fiscal year 1998. Accordingly, earnings per share information included
in the accompanying financial statements are based upon Accounting Board Opinion
No. 15, not SFAS No. 128. The Company believes adoption of the new standards
will not have a material impact on future earnings per share calculations.

In June 1997, The Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income," which is effective for the Company's
fiscal year 1999. The Statement establishes standards for the reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. Adoption of this standard is not expected to have
a material impact on the Company's financial statements or results of
operations.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131. Disclosures about Segments of an
Enterprise and Related Information (Statement 131), which is effective for years
beginning after December 15, 1997. Statement 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports. It
also establishes standards for related disclosures about products and services,
geographic areas, and major customers. Statement 131 is effective for financial
statements for fiscal years beginning after December 15, 1997, and therefore the
company will adopt the new requirements retroactively in its fiscal year ending
October 31, 1999. Management has not fully completed its review of Statement
131, but does not anticipate that the adoption of this statement will have a
significant effect on the Company.

In 1997, the Company adopted Financial Accounting Standards Board Statement
No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). In accordance
with the provisions of SFAS 123, the Company applies Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its stock-based compensation plans. Under APB
25, because the exercise price of the Company's employee stock options equals
the market price of the underlying stock on the date of the grant, no
compensation expense is recognized. Note 9 to the Consolidated Financial
Statements contains a summary of the pro forma effects on reported net income
and earnings per share in 1997 and 1996 as if the Company had elected to
recognize compensation expense based on the fair value at grant date of the
stock options granted and the fair value at the beginning of the plan period for
stock issued under its employee stock purchase plan, as prescribed by SFAS 123.

F-11
<PAGE> 33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2

Marketable Securities

Marketable securities consisted principally of municipal obligations which
contain a put option that can be exercised at par with various maturity dates.
The Company considers these investments, which represent funds available for
current operations, an integral component of its cash management activities. The
investments in municipal obligations represent principally "A" rated or better
investment grade securities with no significant concentrations in any one issue.

Available-for-sale securities mature as follows:

<TABLE>
<CAPTION>
CURRENT MARKET VALUE
--------------------
<S> <C>
Within 1 year................................ $ --
1 to 5 years................................. 200
6 to 10 years................................ 1,000
Greater than 10 years........................ 6,196
------
$7,396
======
</TABLE>

At October 31, 1997 and October 31, 1996, there were no significant
unrealized holding gains or losses. No gains or losses were realized.

NOTE 3

Unbilled Revenues

Unbilled revenues represent amounts earned under the Company's contracts
but not billed or not yet billable to customers according to contract terms,
which usually consider passage of time, achievement of certain project
milestones or completion of the project. The majority of unbilled revenues at
October 31, 1997 are expected to be billed within one year.

NOTE 4

Property, plant and equipment

Property, plant and equipment consisted of the following:

<TABLE>
<CAPTION>
OCTOBER 31, 1997 OCTOBER 31, 1996
---------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Land, buildings and improvements........................ $ 1,879 $ 1,932
Leasehold improvements.................................. 2,083 1,773
Machinery and equipment................................. 2,653 2,872
Laboratory equipment.................................... 613 610
Furniture, fixtures and computer equipment.............. 24,361 23,417
Rental equipment........................................ 8,752 8,802
-------- --------
40,341 39,406
Less accumulated depreciation........................... (33,717) (31,630)
-------- --------
$ 6,624 $ 7,776
======== ========
</TABLE>

Depreciation expense was $3,309,500 and $2,182,000 for the fiscal year
ended October 31, 1997 and the Transition Period ended October 31, 1996,
respectively.

NOTE 5

Line of Credit

At October 31, 1997, the Company had a line of credit with a bank providing
for borrowings up to $10,000,000 through April 30, 1999. Borrowings under the
line bear interest at the prime rate (8.5% at

F-12
<PAGE> 34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

October 31, 1997). There have been no borrowings under the line of credit. The
full amount of the line of credit was available to the Company at October 31,
1997. The line of credit is unsecured; however, the Company is required to
maintain certain financial ratios and minimum level of net worth, and the
Company's ability to pay dividends to shareholders is restricted.

NOTE 6

Income Taxes

The provision for income taxes consisted of the following:

<TABLE>
<CAPTION>
TRANSITION FISCAL YEARS
FISCAL YEAR PERIOD ENDED
ENDED ENDED APRIL 30,
OCTOBER 31, OCTOBER 31, -------------
1997 1996 1996 1995
----------- ----------- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Federal......................................... $ 1,016 $ 58 $605 $366
State........................................... 438 177 69 54
Foreign......................................... 13
----------- ----------- ---- ----
1,467.... 235 674 420
Deferred (prepaid):
Federal......................................... (789) 105 -- --
State........................................... (215) 52 -- --
Foreign......................................... 72 (268) -- --
----------- ----------- ---- ----
(932) (111) -- --
----------- ----------- ---- ----
$ 535 $ 124 $674 $420
======== ======== ==== ====
</TABLE>

The provisions for income taxes were at rates other than the U.S. federal
statutory income tax rate for the following reasons:

<TABLE>
<CAPTION>
TRANSITION FISCAL YEARS
FISCAL YEAR PERIOD ENDED
ENDED ENDED APRIL 30,
OCTOBER 31, OCTOBER 31, -------------
1997 1996 1996 1995
----------- ----------- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. federal statutory income tax rate %............. 34.0% 34.0% 34.0% 34.0%
State income taxes net of federal income tax
benefit............................................ 15.0 70.4 5.0 5.0
Foreign income taxes................................. (16.2) (87.0) -- --
Meals & entertainment................................ 9.6 25.5 -- --
Goodwill............................................. 8.9 25.8 -- --
Interest income exempt from federal tax.............. (10.0) (6.1) -- --
Other, net........................................... .2 (4.9) -- --
----------- ----------- ---- ----
41.5% 57.7% 39.0% 39.0%
======== ======== ==== ====
</TABLE>

F-13
<PAGE> 35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred assets reflect the net tax effect of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets as of October 31, 1997 and October 31, 1996 are as
follows:

<TABLE>
<CAPTION>
OCTOBER 31, 1997 OCTOBER 31, 1996
---------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets
Depreciation....................................... $1,589 $1,440
Allowance for doubtful accounts.................... 871 612
Other accrued liabilities.......................... 2,108 1,334
Net operating loss carryforwards of international
subsidiaries..................................... 715 894
------ ------
Total deferred tax assets.......................... 5,283 4,280
Valuation allowance attributable to net operating
loss.............................................
carryforwards of international subsidiaries........ (447) (376)
------ ------
Net deferred tax assets................................. $4,836 $3,904
====== ======
</TABLE>

Net operating loss carryforwards of international subsidiaries have varying
expiration dates. The valuation allowance is attributable to foreign net
operating losses which are likely to expire before being utilized.

The operations of FDESI were included in the consolidated federal income
tax return of Fluor Corp., the ultimate parent company of Fluor Daniel, Inc.
Under a tax allocation practice, FDESI was charged by Fluor Daniel for federal
and state income taxes, if any, generally at statutory rates.

As a result of the tax allocation practice, tax benefits associated with
pre-1993 losses were recognized in the year the loss occurred. If FDESI had
filed a separate return, these tax benefits would have been recognized in later
years, resulting in the elimination of substantially all of the income tax
expense for the years 1993 through 1995.

NOTE 7

Related Parties

The Company provides certain environmental consulting services to Fluor
Daniel and other affiliated entities. Revenues from these consulting services
have been reflected in the accompanying statements in accordance with a
Marketing Agreement ("the Agreement") signed in conjunction with the Investment
Agreement between the Company and Fluor Daniel. Under the terms of the
Agreement, affiliates are charged for labor cost plus established multipliers on
base compensation. Due to the variable and often unpredictable nature of the
Company's work load, consulting services are provided to Fluor Daniel as
conditions allow. Revenues from Fluor Daniel and other affiliated entities were
$10,222,000 for the fiscal year ended October 31, 1997, $1,058,000 for the
Transition Period ended October 31, 1996 and $4,507,000 and $4,941,000 for the
years ended April 30, 1996 and 1995, respectively.

Prior to the change of control transactions, FDESI, the predecessor
company, was dependent upon Fluor Daniel for continued financing, including
funding required, if any, for settlement of claims, working capital requirements
and third party bid and performance guarantees made in the ordinary course of
business; and FDESI advanced and received non-interest bearing funds from Fluor
Daniel. The funding mechanism ceased to exist upon completion of the merger.

NOTE 8

Commitments and Contingencies

LEASE COMMITMENTS. The Company leases virtually all of its facilities
under operating leases. Most of these leases have renewal options, and certain
of them require increasing rent payments over the term of the

F-14
<PAGE> 36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

lease and payments for additional expenses such as taxes and maintenance. One of
the leases also contains a purchase option. Additionally, the Company leases
equipment and vehicles under operating leases.

Future minimum payments under all noncancellable leases are as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998...................................................... $3,363
1999...................................................... 2,459
2000...................................................... 1,875
2001...................................................... 1,388
2002 and thereafter....................................... 523
-------
$9,608
=============
</TABLE>

Rent expense charged to operations was $4,858,000 for the fiscal year ended
October 31, 1997 and $2,530,000 for the Transition Period.

OTHER COMMITMENTS. A substantial number of the Company's contracts with
its customers require the Company to indemnify the customer for claims, damages,
or losses for personal injury or property damage relating to the Company's
performance of the contracts unless such injury or damage is solely the result
of the customer's negligent or willful acts or omissions. A number of the
insurance policies maintained by the Company for this purpose are provided
through arrangements which require the Company to indemnify the insurance
carrier for all losses and expenses under the policies and to support its
indemnity commitments with letters of credit. At October 31, 1997, such letters
of credit aggregated $7,968,702. In addition, provisions for losses expected
under these and other policies of $2,074,000 are included in other accrued
liabilities at October 31, 1997. Management believes an adequate level of
insurance coverage has been provided. The Company has guaranteed a $700,000 line
of credit for Enterprise Environmental and Earthworks, Inc., an investee
accounted for under the equity method.

CONTINGENCIES. In the ordinary course of conducting its business, the
Company becomes involved in a number of lawsuits and administrative proceedings,
including environmentally related matters. Some of these proceedings may result
in fines, penalties or judgments being assessed against the Company which, from
time to time, may have an impact on earnings for a particular quarter. The
Company does not believe that these matters, individually or in the aggregate,
will have a material adverse effect on its operations, cash flows or financial
condition.

NOTE 9

Capital Stock and Stock Plans

The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options or employee stock purchase plans. Under APB 25, because the
exercise price of the Company's stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.

AMENDED AND RESTATED 1987 STOCK PLAN. Pursuant to the plan, as amended,
1,917,089 shares of common stock have been reserved for issuance upon the
exercise of options or in connection with awards or authorizations to make
direct purchases of stock. The plan provides for the granting of both
nonstatutory stock options and incentive stock options. The recipients, terms,
and option prices are to be determined by the Compensation Committee of the
Board of Directors and, in the case of incentive stock options, may not be less
than the fair market value of the common stock at the date of grant. The
exercise of incentive stock options is limited by the provisions of the plan,
but in no case may the exercise period extend beyond ten years

F-15
<PAGE> 37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

from the date of grant. All options outstanding under the plan on May 10, 1996
have been adjusted pursuant to the Change of Control Transactions.

AMENDED AND RESTATED 1986 EMPLOYEE STOCK PURCHASE PLAN. Under the
Company's Amended and Restated 1986 Employee Stock Purchase Plan, up to 600,000
shares of common stock may be sold to eligible employees. Those individuals
employed a minimum of 20 hours per week are eligible to participate in the plan.
Shares are issuable at the lesser of 85% of the average market price of the
Company's common stock on the first day or last day of semi-annual payment
periods. At October 31, 1997, 136,015 shares were available for issuance under
the plan.

AMENDED AND RESTATED 1995 DIRECTOR STOCK OPTION PLAN. Pursuant to the
plan, as amended, 108,114 shares of common stock are reserved for issuance upon
the exercise of options. Each non-employee director who satisfies certain other
requirements is granted an initial option to purchase 5,000 shares of the
Company's common stock. Once per year each non-employee director will receive an
option to purchase an additional 2,500 shares of common stock. To be eligible, a
director cannot be an employee of the Company or any affiliate of the Company.
The purchase price of the option granted is the fair market value of the shares
on the day the option is granted. Each option becomes exercisable with respect
to one third of the shares subject to such option on each anniversary of the
date of the grant. Options expire seven years after the date of grant and are
nonassignable and nontransferable. All options outstanding under the plan on May
10, 1996 have been adjusted pursuant to the Change of Control Transactions.

PREFERRED STOCK. Terms of the preferred stock will be established at time
of issuance.

1997 STOCK PLAN. Pursuant to the plan, 290,000 shares of common stock has
been reserved for issuance upon the exercise of options or in conjunction with
awards or authorizations to make direct purchase of stock. The plan provides for
the granting of both nonstatutory stock options and incentive stock options
(ISOs). The recipients, terms and option price are to be determined by the
Compensation Committee of the Board of Directors. The exercise price of the ISO
cannot be less than the fair market value of the common stock on the date of
grant. The exercise of incentive stock options is limited by the provisions of
the plan, but in no case may the exercise period extend more than ten years.
During the fiscal year, 5,000 shares under option with a weighted average
exercise price of $6.38 were granted under this plan and remain outstanding at
October 31, 1997. At October 31, 1997, 285,000 shares were available for grant
and zero shares were exercisable under the 1997 Stock Plan.

Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock option awards (stock options) and employee
stock purchase plan (stock purchase shares) under the fair value method of that
Statement. The fair value for stock options granted during 1997 was estimated at
the date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions: risk-free interest rates of approximately 6%,
volatility factor of the expected market price of the Company's common stock of
.44: weighted-average expected life of the options of 5 years, and no dividends.
There were no stock options granted during the Transition Period ended October
31, 1996.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options and stock purchase
shares have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options or its stock purchase shares.

For purposes of pro forma disclosures, the estimated fair value of the
options and stock purchase shares is amortized to expense over the options'
vesting period or during the period in which the employee stock purchase plan
begins, respectively. Had compensation expense for the Company's stock-based
compensation

F-16
<PAGE> 38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

plans been determined based upon the fair market value at the grant date for
stock option awards and at the beginning of the plan period for stock purchased
under its Employee Stock Purchase Plan, consistent with the methodology
prescribed under SFAS 123, the Company's net income and earnings per share would
have been $636,000 or $.08 per share, and $80,000, or $.01 per share, in 1997
and 1996, respectively. The effects on net income and earnings per share of
expensing the estimated fair value of stock options and stock purchase shares
are not necessarily representative of the effects on reported net income for
future years due to such factors as the vesting period of the stock options and
the potential for additional stock options in future years. Additionally, the
disclosure requirements of Statement 123 are presently applicable only to stock
options and stock purchase shares granted subsequent to October 31, 1996 and
their effect will not be fully reflected until later periods.

A summary of the Company's stock option activity and related information
follows:

AMENDED AND RESTATED 1987 STOCK PLAN

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------
SHARES WEIGHTED AVERAGE
UNDER OPTION EXERCISE PRICE
------------ ----------------
<S> <C> <C>
Adjusted Options as of May 1, 1996......................... 1,410,550 $ 9.69
Exercises.................................................. 4,341 $ 9.33
Grants..................................................... 0 --
Cancellations.............................................. 34,291 $ 9.72
--------- ------
Balance at October 31, 1996................................ 1,371,918 $ 9.69
--------- ------
Exercisable at October 31, 1996............................ 621,237 $ 9.68
--------- ------
Exercises.................................................. 0 --
Grants..................................................... 100,500 $ 8.25
Cancellations.............................................. 151,336 $ 9.69
--------- ------
Balance at October 31, 1997................................ 1,321,082 $ 9.58
--------- ------
Exercisable at October 31, 1997............................ 820,879 $ 9.68
--------- ------
</TABLE>

At October 31, 1997, no shares were available for grant due to expiration
of the plan.

AMENDED AND RESTATED 1995 DIRECTOR STOCK PLAN

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------
SHARES WEIGHTED AVERAGE
UNDER OPTION EXERCISE PRICE
------------ ----------------
<S> <C> <C>
Adjusted Options as of May 1, 1996....................... 19,425 $10.33
Exercises................................................ 0 --
Grants................................................... 7,500 $11.50
Cancellations............................................ 0 --
------ ------
Balance at October 31, 1996.............................. 26,925 $10.66
------ ------
Exercisable at October 31, 1996.......................... 6,478 $10.23
------ ------
Exercises................................................ 0 --
Grants................................................... 5,000 $ 8.38
Cancellations............................................ 0 --
------ ------
Balance at October 31, 1997.............................. 31,925 $10.30
------ ------
Exercisable at October 31, 1997.......................... 17,612 $10.41
------ ------
</TABLE>

At October 31, 1997, 76,189 shares were available for grant under the plan.

F-17
<PAGE> 39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The weighted average fair value of stock options granted during 1997 was
$3.82. The weighted average fair value of stock purchase shares issued during
1997 and the Transition Period ended October 31, 1996 was $1.05 and $1.32,
respectively.

Exercise prices for options outstanding under the Plans as of October 31,
1997 ranged from $6.38 to $12.63. The range of the remaining contractual life of
those options is 3 to 12 years.

NOTE 10

Employee Benefit Plans

PROFIT SHARING PLAN AND BONUS PERFORMANCE PLAN. During the fiscal year
ended October 31, 1997, the Company had a profit sharing plan for the benefit of
all employees meeting certain minimum service requirements. The plan provided
for a 2% of pre-tax operating income to be distributed to employees at the end
of the fiscal year.

The Company has bonus performance programs covering eligible employees
under which awards are made at the discretion of the Compensation Committee of
the Board of Directors. Bonus expense was approximately $397,000, for the fiscal
year ended October 31, 1997. Bonus expense for the Transition Period was
$415,000.

RETIREMENT SAVINGS PLAN. The Company has a Retirement Savings Plan under
Section 401(k) of the Internal Revenue Code for the benefit of all U. S.
employees meeting certain minimum service requirements. Eligible employees may
elect to contribute to the plan up to 12% of their cash compensation, subject to
limitations established by the Internal Revenue Code. The trustees of the plan
select investment opportunities from which participants may choose to
contribute.

The plan requires a matching contribution by the Company of 100% on the first
1%, and 25% on the next 4% of each participant's contribution, but not greater
than the maximum allowable under the Internal Revenue Code. The Company may also
contribute a discretionary amount to the plan which may be allocated to
employees based upon employees' contributions to the plan. The Company's
matching contributions currently vest at a rate of 25% per year based upon years
of service. The Company's contributions to this plan were $983,000, for the
fiscal year ended October 31, 1997 and $464,000 for the Transition Period ended
October 31, 1996.

The Company has various defined contribution plans covering substantially
all non-U. S. employees. The Company's contributions to these plans were
$258,000 for the fiscal year ended October 31, 1997 and $115,000 for the
Transition Period ended October 31, 1996.

Prior to the merger, employees of FDESI who met certain eligibility
requirements participated in a non-contributory defined contribution retirement
plan of Fluor Daniel. Contributions to this plan were based on a percentage of
the participants' gross salaries. In addition, eligible employees were allowed
to contribute up to 10 percent of their salaries to a savings investment plan
with Fluor Daniel providing a matching contribution up to 4 percent of their
salaries. The cost of these plans was included in the payroll burden rate
charged to FDESI by Fluor Daniel.

NOTE 11

Industry Segment Information

The Company provides a wide range of environmental services to both the
private and government sectors including scientific and engineering applications
from environmental assessment, permitting and remediation through design and
construction to operations and maintenance services. These services are provided
to a variety of different industries including petroleum, chemical, power,
pharmaceutical and others.

F-18
<PAGE> 40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Revenues from U.S. Federal agencies were as follows ($ in thousands):

<TABLE>
<CAPTION>
YEAR ENDED APRIL 30
---------------------
1996 1995
------- -------
<S> <C> <C>
Department of Defense................................. $10,075 $10,255
Percent of total revenues............................. 29.2% 28.9%
Environmental Protection Agency....................... $ 7,045 $ 3,712
Percent of total revenues............................. 20.4% 10.5%
</TABLE>

In Fiscal year ending October 31, 1997 and in Transition Period, no single
customer accounted for more than 10% of the Company's revenues.

F-19
<PAGE> 41

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
INCOME
(LOSS) NET EARNINGS(2) WEIGHTED(2)
GROSS FROM INCOME INCOME (LOSS) AVERAGE
REVENUES PROFIT OPERATIONS TAXES (LOSS) PER SHARE SHARES
-------- ------- ---------- ------ ------ ----------- -----------
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<S> <C> <C> <C> <C> <C> <C> <C>
TWELVE MONTHS ENDED OCTOBER 31, 1997
First quarter $47,594 $ 9,253 $ 114 $ 52 $ 62 $ .01 8,213
Second quarter 48,052 10,464 (1,271) (515) (756) (.09) 8,213
Third quarter 46,884 11,175 1,941 792 1,149 .14 8,314
Fourth quarter 48,006 8,818 506 206 300 .03 8,324
TRANSITION PERIOD ENDED OCTOBER 31, 1996
First quarter $42,056 $ 9,388 $ 23 $ 0 $ 23 $ .00 8,229
Second quarter 47,007 9,724 192 124 68 .01 8,156
SIX MONTHS ENDED OCTOBER 31, 1995(1)
First quarter 8,397 2,112 430 168 262 N/A N/A
Second quarter 9,614 2,363 601 234 367 N/A N/A
TWELVE MONTHS ENDED APRIL 30, 1996(1)
First quarter 8,397 2,112 430 168 262 N/A N/A
Second quarter 9,614 2,363 601 234 367 N/A N/A
Third quarter 8,308 1,290 (229) (89) (140) N/A N/A
Fourth quarter 8,178 2,898 926 361 565 N/A N/A
TWELVE MONTHS ENDED APRIL 30, 1995(1)
First quarter 9,597 1,755 901 351 550 N/A N/A
Second quarter 11,208 1,637 517 202 315 N/A N/A
Third quarter 4,084 1,547 (188) (73) (115) N/A N/A
Fourth quarter 10,536 2,076 (154) (60) (94) N/A N/A
</TABLE>

(1) Reflects the historical results of Fluor Daniel Environmental Services, Inc.
(FDESI), the predecessor entity for accounting purposes.

F-20
<PAGE> 42

SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
FISCAL TRANSITION
YEAR ENDED PERIOD ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996
---------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Allowance for Doubtful Accounts and Credit Memos................
Balance at beginning of period.................................. $1,740 $ --
Additions....................................................... 387 2,063
Deductions...................................................... (78) (323)
------ ------
Balance at end of period........................................ $2,049 $1,740
====== ======
</TABLE>

F-21

<PAGE> 1

Exhibit 21.1

SUBSIDIARIES OF THE REGISTRANT

The following is a list of the Subsidiaries of the Company:

Subsidiary Place of Incorporation
---------- ----------------------

Groundwater Technology Government Services, Inc. Delaware
GTI Investment Company, Inc. Delaware
Fluor Daniel GTI International, Inc. Delaware
Fluor Daniel GTI Canada, Inc.* Province of Ontario,
Canada
Fluor Daniel GTI International Limited* United Kingdom
Fluor Daniel GTI Australia PTY, Limited* Australia
Groundwater Technology Italia S.r.l.* Italy
Fluor Daniel Environmental Services, Inc. California

* Fluor Daniel GTI Canada, Inc. ("Canada"), Fluor Daniel GTI International
Limited ("UK"), Fluor Daniel GTI Australia PTY, Limited ("Australia") and
Fluor Daniel GTI Italia S.r.l. ("Italy") are indirect or "second-tier"
subsidiaries of the Company. Canada, UK, Australia and Italy are
subsidiaries of Fluor Daniel GTI International, Inc., which, in turn, is a
wholly-owned subsidiary of the Company.

<PAGE> 1

Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the registration statements
of Fluor Daniel GTI, Inc. on Form S-8 (File Nos. 33-9756, 33-19289, 33-28059,
33-43156 and 33-65363) of our report dated December 11, 1996, on our audit of
the consolidated financial statements and financial statement schedule of Fluor
Daniel GTI, Inc. as of and for the Transition Period ended October 31, 1996,
which report is incorporated by reference or included in this Annual Report on
Form 10-K.

/s/ COOPERS & LYBRAND LLP

Boston, Massachusetts
January 27, 1998

<PAGE> 1

Exhibit 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the Registration Statements
(Form S-8 File Nos. 33- 9756, 33-19289, 33-28059, 33-43156 and 33-65363)
pertaining to the 1986 Employee Stock Purchase Plan, the 1987 Stock Plan, the
1987 Stock Plan, as amended, the 1986 Employee Stock Purchase Plan as amended,
and the Amended and Restated 1986 Employee Stock Purchase Plan and 1995 Director
Stock Option Plan, respectively, of Fluor Daniel GTI, Inc., formerly Groundwater
Technology, Inc., of our report dated December 10, 1996, with respect to the
consolidated financial statements of Fluor Daniel Environmental Services, Inc.
included in the Annual Report (Form 10-K) of Fluor Daniel GTI, Inc. for the year
ended October 31, 1997.

/s/ ERNST & YOUNG LLP

Orange County, California
January 27, 1998

<PAGE> 2

Exhibit 23.2

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statements
(Form S-8 File Nos. 33- 9756, 33-19289, 33-18059, 33-43156 and 33-65363)
pertaining to the 1986 Employee Stock Purchase Plan, the 1987 Stock Plan, the
1987 Stock Plan, as amended, the 1986 Employee Stock Purchase Plan as amended,
and the Amended and Restated 1986 Employee Stock Purchase Plan and 1995 Director
Stock Option Plan, respectively, of Fluor Daniel GTI, Inc., formerly Groundwater
Technology, Inc., of our report dated November 25, 1997, with respect to the
consolidated financial statements and schedule of Fluor Daniel GTI, Inc.
included in the Annual Report (Form 10-K) for the year ended October 31, 1997.

/s/ ERNST & YOUNG LLP

Boston, Massachusetts
January 27, 1998

<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<EXCHANGE-RATE> 1
<CASH> 3,588
<SECURITIES> 7,396
<RECEIVABLES> 40,597
<ALLOWANCES> 2,049
<INVENTORY> 0
<CURRENT-ASSETS> 79,552
<PP&E> 6,624
<DEPRECIATION> 0
<TOTAL-ASSETS> 103,136
<CURRENT-LIABILITIES> 19,773
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 82,163
<TOTAL-LIABILITY-AND-EQUITY> 103,136
<SALES> 190,536
<TOTAL-REVENUES> 190,536
<CGS> 150,826
<TOTAL-COSTS> 150,826
<OTHER-EXPENSES> 39,766
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,290
<INCOME-TAX> 535
<INCOME-CONTINUING> 755
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 755
<EPS-PRIMARY> .09
<EPS-DILUTED> 0

</TABLE>