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 May 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number 0-16169
HARDING LAWSON ASSOCIATES GROUP, INC.
(formerly Harding Associates, Inc.)
(Exact name of registrant as specified in its charter)
Delaware 68-0132062
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
7655 Redwood Boulevard, P.O. Box 578, Novato, California 94948
(Address of principal executive office)
Registrant's telephone number, including area code: (415) 892-0821
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class: Name of each exchange on which registered:
Common Stock, $0.01 par value The Nasdaq Stock Market
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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates
of the registrant on August 5, 1997: $35,735,113
Number of shares of the registrant's Common Stock outstanding as of
August 5, 1997: 4,873,554.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held on November 5, 1997, to be filed pursuant to Regulation
14A under the Securities Exchange Act of 1934, are incorporated by reference in
Part III.
Page 1 of 43 pages
The Index to Exhibits is located at page 37.
<PAGE>
PART I
ITEM 1. BUSINESS.
Cautionary Statement Regarding Forward-Looking Statements
The statements in this business section that are forward-looking are based on
current expectations, and actual results may differ materially. The
forward-looking statements include those regarding future adoption of
regulations and statutes having an impact on the Company's business, and the
possible impact of current and future claims against the Company based upon
negligence and other theories of liability. Forward-looking statements involve
numerous risks and uncertainties that could cause actual results to differ
materially, including, but not limited to, the possibilities that the demand for
the Company's services may decline as a result of possible changes in general
and industry specific economic conditions and the effects of competitive
services and pricing; one or more current or future claims made against the
Company may results in substantial liabilities; and such other risks and
uncertainties as are described in reports and other documents filed by the
Company from time to time with the Securities and Exchange Commission.
Harding Lawson Associates Group, Inc. provides comprehensive engineering,
environmental, and construction services related to the development and
implementation of environmental management systems for maintaining compliance
with environmental regulations, limiting the potential for unplanned discharges,
and managing, minimizing or eliminating waste streams from industrial and
agricultural operations, and the assessment and remediation of contaminated
sites. The Company also provides civil, transportation, and geotechnical
engineering services, and services during construction, either independently or
in support of the Company's environmental, waste management, and civil services.
The Company was originally incorporated in California in 1959, and
reincorporated in Delaware in July 1987. Its principal executive offices are
located at 7655 Redwood Boulevard, Novato, California 94945, and its telephone
number is (415) 892-0821. Unless the context otherwise requires, the term
"Company" as used herein refers to Harding Lawson Associates Group, Inc. and its
wholly owned subsidiaries Harding Lawson Associates, Inc., Harding Lawson
Associates Infrastructure, Inc., Harding Lawson Associates International, Inc.
and its subsidiaries Harding Lawson Australia Pty. Ltd., Harding Lawson
Singapore Pte Ltd, Harding Lawson de Mexico S.A. de C.V., Harding Lawson
Australia Pty. Ltd., 78% ownership in HLA-Envirosciences Pty Limited, and
Harding Lawson de Mexico's 51% ownership in Grupo Industrial de Ingenieria
Ecologica ("GRIECO").
The Company provides its clients a full range of environmental services to
comprehensively support management of hazardous materials, hazardous wastes,
solid wastes and waste waters, and effect the remediation of environmental
problems related to the management of these types of wastes. The Company
provides these services to clients that are constructing, operating or closing
facilities and/or properties and also to clients that have ownership or
responsibility for abandoned or historical industrial operations or hazardous
waste disposal sites. These services may be performed for new, expanding, or
discontinued operations or in connection with the transfer of ownership.
During the early stage of a project, the Company might be asked to perform site
assessments or audits and to prepare site characterization reports or
environmental planning and permitting documents in response to federal, state or
local regulations. Following site characterization, the Company may assist its
clients to evaluate cleanup options, select and negotiate remedies with
regulatory agencies, and provide a design for site remediation. Once a
remediation plan is established, the Company is able to provide its clients with
construction and/or construction management services and may provide operation
and maintenance of remedial systems.
The Company also provides engineering services with a focus on civil engineering
related to infrastructure, which includes civil, transportation, process,
sanitary, structural, electrical, and mechanical engineering disciplines from
planning through construction administration. The Company's engineering services
are most frequently applied to the design of highways, bridges and other
transportation systems, and to the design and construction of industrial waste
water treatment and air pollution control equipment.
The Company's services are provided to private and public sector clients through
a staff of nearly 900 professional and support personnel staff located in 30
U.S. cities in Alabama, Alaska, Arizona, California, Colorado, Florida, Hawaii,
Illinois, Nevada, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania,
Texas, Utah, Virginia, and Washington, seven cities in Australia, and one in
Mexico. During the fiscal year ended May 31, 1997 the Company performed services
for over 1,200 industrial and governmental clients.
The Company often provides services for its major clients under arrangements
involving continuing service agreements. Such arrangements are usually on a
"Time-and-Materials," "Cost-Plus-Fixed-Fee," or a "Fixed-Price" basis, and are
usually terminable on advance notice by either party. The majority of the
Company's projects are on a Time-and-Materials basis, under which the Company
bills its clients at fixed hourly rates plus subcontracted services and
materials used. Fixed-Price arrangements, under which the Company agrees to
perform a stated service for a set price regardless of the time and materials
cost involved, carry the risk that the cost to the Company for performing the
agreed-upon services may exceed the set price, but also carry the benefit of
potentially higher profit.
The Company provides consulting and engineering services to clients through its
staff of engineers and scientists who possess a diverse range of education and
professional experience. Project teams are organized to utilize applicable
talent from the Company's staff. Qualified subcontractors are utilized to
provide special technical resources that the Company either does not possess or
has determined not to develop internally in a specific geographic area.
Environmental Services
The Company's clients require engineering, environmental, and construction
services to comply with environmental regulations, manage risk associated with
environmental emissions, and/or reduce their cost of operations. From 1980 until
the early 1990s the demand for the Company's services was largely driven by the
need to comply with environmental regulations. More recently, as enforcement of
environmental regulations has decreased and environmental regulations have been
relaxed, the Company's services are more frequently required in response to risk
management or economic drivers. Because the U.S. regulatory framework is still
the dominant driver for the Company's services, the primary environmental
statutes causing this demand are described below.
o Regulatory Background
Public concern over human health and the environment has led federal, state and
local governments to enact legislation to correct and prevent environmental
problems with particular emphasis on the generation, handling, disposal and
cleanup of hazardous waste and hazardous substances. These laws and their
implementing regulations affect industries and governmental bodies that
manufacture, use, store, or dispose of toxic substances and other waste
materials. Significant changes in policies affecting these programs or
administrative actions affecting the sponsorship or funding of these programs
could have a material adverse effect on the Company's business. The following
federal legislation most affects the Company's business:
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
("CERCLA," also known as "Superfund") and Superfund Amendments and
Reauthorization Act of 1986 ("SARA"). Superfund addresses problems created by
past waste disposal practices by providing a means for identifying and cleaning
up hazardous substances at designated sites. Superfund authorizes the
Environmental Protection Agency ("EPA") to compel responsible parties to
remediate hazardous substances and places responsibility for this remediation on
the owners and operators of such sites and generators of the waste (identified
as potentially responsible parties, or "PRPs") and provides for penalties for
non-compliance with EPA orders.
Superfund was reauthorized as part of the 1991 federal budget appropriating $5.1
billion through 1994. Since then, funding has been authorized by Congress
annually while debate over reauthorization has carried on. Significant changes
to the statute are expected when or if reauthorized. The Company is not able at
this time to ascertain the effect of any such reauthorization or of Congress'
failure to reauthorize Superfund.
Resource Conservation and Recovery Act of 1976 ("RCRA") and Hazardous and Solid
Waste Amendments of 1984 ("HSWA"). RCRA was the first federal effort to regulate
the treatment, storage and disposal of hazardous waste. It places
"cradle-to-grave" responsibility for hazardous waste on the generators of such
wastes and provides regulations for permitting, transporting, treating, storing
and disposing of hazardous wastes in controlled facilities.
The Clean Air Act ("CAA") and the Clean Air Act Amendments ("CAAA"). The CAA
empowered the EPA to establish and enforce national air quality standards and to
require states to set toxic air emission limits on facilities not meeting these
national standards. The CAAA of 1990 require certain facilities which emit air
pollutants to obtain operating permits and mandate that the EPA develop
guidelines and procedures relating to acid rain, urban air pollution, and air
toxic emissions by the year 2000. Although implementation and enforcement of the
CAAA have been slow, the CAAA increased demand for the Company's air quality
services during the past two fiscal years.
Other Federal and State Regulations. The Company's services are also utilized by
its clients in complying with, among others, the following federal laws: the
Toxic Substances Control Act, the Clean Water Act, the National Environmental
Policy Act, the Safe Drinking Water Act, the Occupational Safety and Health Act
and the Hazardous Material Transportation Act. Many other federal regulations
and policies have been established to cover more detailed aspects of hazardous
waste legislation. Complimentary state laws have also been enacted. The State of
California, for example, has consistently been a leader in passing and
implementing state hazardous waste legislation. Similar laws in other states
address such topics as air pollution control, underground storage tanks, water
quality, solid waste, hazardous materials, surface impoundments, site cleanup
and waste discharge.
o Hazardous Waste Management
In the 1997 fiscal year, 55% of the Company's gross revenue has been derived
from domestic services relating to the restoration (assessment and remediation)
of contaminated sites. Projects where Superfund, RCRA or similar enforcement
regulations are driving the need for site restoration comprise the majority of
these revenues, while sites where "leaking underground tank" regulations are
causing the need for remediation comprise a smaller portion of these revenues.
The Company's hazardous waste management services include the following:
Site Characterization. The Company provides a range of services needed to
determine the nature and extent of contamination at hazardous waste sites.
Risk Assessment. Assessing the risks which hazardous chemicals pose to human
health and the environment is critical to selecting appropriate remedial
technologies. Risk assessment involves quantifying the hazard posed by the
presence and movement of chemicals in disposal or release areas, and expected
concentrations to which people or the environment may be exposed.
Remedial Design Engineering. The Company has particular experience in designing
and implementing systems for removing contaminants from soil and water. The
Company utilizes data acquired in site characterization and risk assessment
studies to design integrated remedial systems, prepare detailed construction
drawings and specifications and develop operating manuals and maintenance
programs for remedial systems.
Construction and Construction Management. The Company self performs or manages
construction of remedial and pollution control systems and waste disposal
facilities.
o Other Environmental Services.
All other domestic environmental services have accounted for 24% of the
Company's gross revenue in the 1997 fiscal year. These services include:
Operating Facilities Services. The Company provides a broad range of services to
industrial clients to help them comply with federal or state environmental
regulations, to reduce their costs of environmental compliance, and to employ
more efficient processes to reduce, recover, or recycle industrial waste or
by-products.
Waste Disposal Facility Permitting, Design and Closure. The Company provides a
comprehensive range of services related to siting, permitting, designing,
operating, closing and post closure monitoring of solid and hazardous waste
disposal facilities such as landfills, landfarms and incinerators.
Applied Information Technology. Drawing on the Company's past experience in
collecting and managing environmental data for our clients, this service
involves applying data management skills, statistical techniques, numerical
modeling and sophisticated two-and three-dimensional imaging technology to solve
technical problems and to address general management issues.
Environmental Planning, Permitting and Monitoring. The Company's services are
frequently required to comply with the National Environmental Policy Act and
other state and local regulations related to the assessment of environmental
impacts or anticipated environmental impacts. The Company performs environmental
resource investigations and monitoring, prepares environmental documents and
reports, and secures environmental permits on behalf of our clients.
Air Quality Management. Air pollution is increasingly recognized as the type of
contamination that has the greatest impact on human health and the environment.
The Clean Air Act Amendments of 1990 are expected to increase the market for air
quality related services that are provided by the Company. The Company provides
air quality planning, permitting, monitoring, reporting, and process engineering
services.
Site Assessments and Site Audits. The site assessment market is large but
fluctuates with the real estate market. It is highly competitive and price
driven. The Company seeks to provide these services only to responsible clients
where the scope of the engagement and fees can be negotiated, and liability
risks properly managed. The Company performs records searches, site
investigations, due diligence evaluations, and audits.
Regulatory Compliance. Regulatory compliance, evaluations, audits and support
are a viable market which the Company expects will show modest growth as more
facilities are brought under regulatory controls and more companies decide that
an ongoing environmental auditing program will reduce environmental liabilities.
The Company assists clients with strategic compliance planning, develops
environmental management systems, and performs compliance permitting,
monitoring, and reporting.
Lead Paint/Asbestos Management. The asbestos and lead-based paint markets are
highly competitive with limited barriers for new entrants. The Company performs
asbestos/lead paint surveys, inspections, and abatement. The Company offers
these services to select clients as part of its comprehensive environmental
services.
o International Services.
Approximately 6% of the Company's services are environmental services performed
outside the United States. These services include contaminated site assessment
and remediation, occupational health and hygiene, mine rehabilitation,
environmental management systems, and environmental planning and permitting and
are primarily performed through the Company's Australian operations.
Infrastructure
Infrastructure and geotechnical services have accounted for 15% of the Company's
gross revenue in the 1997 fiscal year. These services include:
Infrastructure/Transportation Engineering. The Company's civil engineers provide
services relating to transportation including street, road and highway design,
traffic engineering and traffic signal design, corridor studies, and
construction administration; design of structures including bridges, piers and
marine terminal facilities and other structures; design services including
drainage basin studies and hydrologic analysis and storm water treatment; and
railroad engineering including design of railroad trackage, railroad bridges,
railroad yard design, and intermodal facilities. The Company believes that these
services will be in increasing demand in the future as the country moves to
repair its deteriorating infrastructure and as funding becomes available as a
result of the Intermodal Surface Transportation Efficiency Act ("ISTEA"), which
Congress signed into law in December of 1991. The $155 billion, six year ISTEA
provides federal aid to states on highway and mass transit projects. ISTEA was
scheduled for renewal in October of 1997, but may be delayed until later in the
year. The Company anticipates that its civil/infrastructure practice may benefit
from this legislation and additional proposed legislation in the future.
Geotechnical Engineering. The Company's geotechnical engineers use advanced
exploration tools, laboratory testing and analytical methods to evaluate soil
and rock for foundations and for use in construction.
Customers and Marketing
The Company's client base includes private-sector companies that comprised 51%
of gross revenue in fiscal 1997. Non-regulatory federal governmental bodies
provided 25% of gross revenues, including Department of Defense agencies, 18%
came from state and local governments, and 6% from international clients. The
Company's 15 largest clients accounted for approximately 44% of the Company's
revenue in fiscal 1997, 45% in fiscal 1996 and 49% in fiscal 1995. Approximately
32% of its revenues during fiscal 1997 were derived from the Company's five
largest clients compared to 33% and 39% in fiscal 1996 and 1995, respectively.
In fiscal 1997, the Department of the Army accounted for approximately 19% of
the Company's gross revenue. Revenue from this client, which accounted for 20%
of gross revenue in fiscal 1996 and 26% in fiscal 1995, was generated under
various contracts in various locations that were negotiated independently of
each other. While the loss of all work related to this client could have a
material adverse effect on the Company, the contracts are with separate
divisions or units of the Army and the loss of one contract would not
necessarily affect other contracts at other locations. During fiscal 1995 and
1996, certain of these Department of the Army contracts began to diminish and
were substantially completed in fiscal 1997. The Company has been successful in
replacing some of these contracts although tasking and/or funding under the new
contracting vehicles has been slow in developing. If the Company is unsuccessful
in replacing a significant portion of the remainder of these contracts, or if
funding is delayed under current contracting vehicles, a material decline in
revenues could result. No other client accounted for 10% or more of gross
revenue in fiscal 1997, 1996 or 1995.
The Company's marketing efforts are carried out by a full-time staff of
marketing personnel and by senior technical and management professionals. The
Company also participates in industrial trade shows and technical conferences,
and publishes certain technical literature to support its marketing program.
Backlog
The Company often provides services on major long-term contracts or continuing
service agreements that provide for authorization of funding on a task or fiscal
period basis. At May 31, 1997, the Company had over $70 million of authorized
gross revenue backlog compared with $65 million at May 31, 1996, and $71 million
at May 31, 1995. Authorized gross revenue backlog, most of which is expected to
be completed within the next 12 months, includes only such contracts where work
authorization has been received. The Company can make no assurances, however,
that work represented by backlog will not be delayed or cancelled. Because the
backlog figures include only those portions of contracts for which spending has
been authorized to date, the Company does not feel that backlog figures are
necessarily indicative of future revenue. In addition to authorized backlog, the
Company has certain contracting vehicles that include substantial unauthorized
amounts not included in backlog. Tasks under these contracts may or may not be
authorized during fiscal 1997.
Seasonal Factors
Due primarily to more holidays and inclement weather conditions, the Company's
third quarter operating results are generally lower in comparison to other
quarters.
Competition
The Company competes with many companies of all sizes. Although no company
currently dominates any particular market segment, the market in general suffers
from over capacity and as a result can be characterized as intensely
competitive. While the Company competes primarily on the basis of its
reputation, a significant proportion of its projects are competitively bid and
the Company believes its services to be price competitive.
Potential Liability and Insurance
In performing consulting and engineering services for its clients, the Company
could potentially be liable for breach of contract, personal injury, property
damage, or negligence. The Company generally indemnifies its clients for losses
and expenses incurred by them as a result of the Company's negligence and, in
certain instances, the concurrent negligence of such clients. A significant
portion of the Company's activities relate to environmental and waste services.
These services involve significant risks to the Company for environmental
damage, personal injury, fines and costs imposed by regulatory agencies.
Although liabilities arising from environmental regulations are more directly
applicable to the Company's clients, such regulations under certain
circumstances could impose liability on the Company resulting, for example, from
a release or exacerbation of contamination or the improper handling of
contaminants during the course of the Company's work. Such liabilities can be
joint and several where other parties are involved. The Company maintains both a
health and safety program and a quality assurance and quality control program to
assist in reducing the risk of damage to persons and property and the potential
for resulting losses. In the opinion of management, adequate provision has been
made for all known liabilities that are currently expected to result from these
matters, and, in the aggregate, such claims are not expected to have a material
adverse impact on the financial position of the Company. The estimates used in
establishing these provisions could differ from actual results and there can be
no assurances that the Company will not be materially affected by existing or
future claims. Should these provisions change significantly, the effect on
operations for any quarterly or annual reporting period could be material.
The Company is provided a $5 million per occurrence professional liability and
contractor's pollution liability insurance policy through an unrelated, rated
carrier. The Company also maintains general liability insurance with an
unrelated, rated carrier.
Personnel
The Company employed approximately 835 regular, full-time employees, including
540 engineers, scientists, and construction contractors, 239 production support
staff and 56 administrative and clerical personnel. In addition to its full-time
staff, the Company employs approximately 130 temporary or variable personnel at
any time as required, most of whom are technical support personnel. Temporary or
variable personnel constituted approximately 45 full-time equivalents. Although
the Company has undergone selected downsizing over the past few years, it
nevertheless maintains a continuous recruiting program to attract qualified
personnel.
None of the Company's employees are presently represented by a labor union. The
Company believes it has good employee relations.
ITEM 2. PROPERTIES.
The Company leases facilities at various locations in Alabama, Alaska, Arizona,
California, Colorado, Florida, Hawaii, Illinois, Nevada, New Jersey, New Mexico,
North Carolina, Oregon, Pennsylvania, Texas, Utah, Virginia, Washington, and in
Australia, Mexico and Singapore. These facilities have a combined area of
approximately 315,850 square feet. Aggregate lease expense for all of the
Company's facilities during the fiscal year ended May 31, 1997 was approximately
$4.9 million. The lease terms expire at various times through October 2003.
Historically, the Company has not experienced any difficulty in renewing leases
that have expired.
ITEM 3. LEGAL PROCEEDINGS.
The Company is currently subject to certain claims and lawsuits arising in the
ordinary course of business. In the opinion of management, adequate provision
has been made for all known liabilities that are currently expected to result
from these claims and lawsuits, and in the aggregate such claims are not
expected to have a material effect on the financial position of the Company. The
estimates used in establishing these provisions could differ from actual
results. Should these provisions change significantly, the effect on operations
for any quarterly or annual reporting period could be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted during the fourth quarter of the fiscal year covered
by this report to a vote of the security holders through the solicitation of
proxies or otherwise.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information
The Company's common stock is traded on the Nasdaq Stock Market under the symbol
HRDG. The following table sets forth the range of high and low sale prices of
the Company's common stock.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
Fiscal year ended May 31, 1996:
First Quarter $ 7.50 $ 5.38
Second Quarter 7.63 6.63
Third Quarter 7.50 5.88
Fourth Quarter 7.00 5.63
Fiscal year ended May 31, 1997:
First Quarter $ 6.63 $ 5.00
Second Quarter 7.13 5.63
Third Quarter 7.50 6.13
Fourth Quarter 7.75 6.63
</TABLE>
Holders
As of August 5, 1997 there were 618 record holders of the Company's common
stock.
Dividends
The Company has not paid any cash dividends on its common stock during the last
ten years. The Board of Directors currently intends to retain all earnings for
reinvestment in the Company's business and has no present intention of paying
cash dividends in the foreseeable future.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected financial data of the Company for the
years ended May 31, 1993 through 1997. The data presented below should be read
in conjunction with the consolidated financial statements of the Company,
including notes thereto.
<TABLE>
Summary Financial Information
(In thousands, except per share data)
Fiscal Years Ended May 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Gross revenue $123,412 $120,708 $130,554 $115,561 $115,657
Net revenue 84,276 85,655 92,455 79,944 82,605
Operating income 4,112 839 4,595 1,353 580
Income before provision
for income taxes and
minority interest 4,288 1,647 4,907 1,656 821
Net income 2,404 953 2,972 1,002 497
Net income per
common share $0.49 $0.20 $ 0.62 $0.21 $0.10
Average common shares
outstanding 4,953 4,851 4,806 4,851 4,856
Balance Sheet Data:
Working capital $37,996 $35,521 $33,369 $29,394 $32,729
Total assets 66,355 60,364 60,788 61,486 59,812
Short-term debt --- --- --- 2,030 ---
Shareholders' equity 46,602 44,357 42,685 38,975 39,541
</TABLE>
Dividends
The Company has not paid any cash dividends on its common stock during the last
ten years. The Board of Directors currently intends to retain all earnings for
reinvestment in the Company's business and has no present intention of paying
cash dividends in the foreseeable future.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Cautionary Statement Regarding Forward-Looking Statements
The statements in this management's discussion and analysis of financial
condition and results of operations section that are forward-looking are based
on current expectations, and actual results may differ materially. The
forward-looking statements include those regarding continued downward pressure
on net revenue, the possible impact of current and future claims against the
Company based upon negligence and other theories of liability, and the
possibility of the Company's making acquisitions during the next 12 to 18
months. Forward-looking statements involve numerous risks and uncertainties that
could cause actual results to differ materially, including, but not limited to,
the possibilities that the demand for the Company's services may decline as a
result of possible changes in general and industry specific economic conditions
and the effects of competitive services and pricing; one or more current or
future claims made against the Company may result in substantial liabilities;
and such other risks and uncertainties as are described in reports and other
documents filed by the Company from time to time with the Securities and
Exchange Commission.
Results of Operations
General--The following table sets forth, for the periods indicated, (i) the
percentage which certain items in the consolidated income statements of the
Company bear to net revenue, and (ii) the percentage increase (decrease) in the
dollar amount of such items from year to year.
<TABLE>
Percentage of Percentage
Net Revenue Increase/(Decrease)
Fiscal Year Fiscal Year
1997 1996
vs. vs.
1997 1996 1995 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net revenue 100.0% 100.0% 100.0% (1.6)% (7.4)%
Costs and expenses
Payroll and benefits 67.2 68.9 68.1 (4.0) (6.2)
General expenses 27.9 30.1 26.9 (8.8) 3.5
Operating income/margin 4.9 1.0 5.0 390.1 (81.7)
Interest in loss of unconsolidated
subsidiaries (0.6) --- --- --- ---
Net interest income 0.8 0.9 0.3 (10.8) 158.6
Income before provision for
taxes and minority interest 5.1 1.9 5.3 160.4 (66.4)
Provision for taxes 2.2 0.8 2.1 152.3 (61.3)
Net income 2.9 1.1 3.2 152.3 (67.9)
</TABLE>
Gross Revenue--Gross revenue includes, as an adjunct to the Company's labor
services, the revenue on services subcontracted to third parties that will be
reimbursed under terms of the Company's contracts and revenue from the
utilization of certain non-labor items. Due to competitive market conditions,
the contribution to net revenue derived from the sale of subcontracted services
and certain non-labor items has declined to 6.2% of net revenue in fiscal 1997
compared with 6.4% and 6.8% in fiscal 1996 and 1995 respectively. The Company
believes there will continue to be downward pressure on net revenue derived from
such sources. Net revenue, which is a more accurate measure of revenue earned
for services provided directly by the Company, is recorded by deducting from
gross revenue the costs of services contracted to third parties. Gross revenue
related to outside services as a percent of total gross revenue was 33.2%,
30.4%, and 30.7% in 1997, 1996, and 1995, respectively. The increase in outside
services revenue as a percent of total gross revenue in 1997, compared to 1996
and 1995, is due primarily to an increase in construction activities.
Net Revenue--Net revenue totaled $84.3 million in fiscal 1997, a decrease of
$1.4 million or 1.6% from 1996. The decrease in fiscal 1997 was due primarily to
a 4.0% decline in domestic environmental net revenue partially offset by an
increase of 10.8% and 24.5% in infrastructure and international net revenue,
respectively. Domestic operations of the Company experienced lower demand and
slightly higher prices for its services compared to 1996 and 1995. Net revenue
derived from public sector clients in fiscal 1997 was virtually unchanged from
the prior fiscal year and accounted for 46% of total net revenue for fiscal 1997
compared to 45% and 54% for fiscal 1996 and 1995, respectively. Net revenue from
the federal sector declined by 17% from fiscal 1996 while revenue from state and
local sources increased by 41% over the same period. Net revenue from private
sector clients declined by 6% over 1996. International sales accounted for 7% of
the Company's net revenue in fiscal 1997 compared with 6% and 2% in fiscal 1996
and 1995 respectively. Virtually all international sales were attributable to
operations in Australia acquired by the Company in November 1994.
Fiscal 1996 net revenue was $85.7 million, a decrease of $6.8 million from net
revenue of $92.5 million in fiscal 1995. The decrease in fiscal 1996 was due
primarily to an 11% decline in domestic net revenue partially offset by an
increase of 127% in international net revenue. Excluding international
operations, the Company experienced both lower demand and lower prices for its
services. Net revenue derived from public sector clients in fiscal 1996 declined
by approximately 23% from the prior year and accounted for 45% of total net
revenue for fiscal 1996 compared to 54% for fiscal 1995. The decline in net
revenue from public sector clients was essentially due to a decrease in revenue
from public agency contracts resulting from a decline in awards of new public
agency contracts and funding on existing federal agency contracts as well as
government inefficiencies due to shutdowns and the lengthy budget impasse and
continuing legislative gridlock with regard to environmental regulations. Net
revenue from private sector clients improved by 1% over 1995. Operations in
Southern California and in the Midwest experienced particular improvement.
International sales accounted for 6% of the Company's net revenue in fiscal 1996
compared with 2% in fiscal 1995. Virtually all international sales were
attributable to operations in Australia acquired by the Company in November
1994.
Costs, Expenses and Operating Income--Operating income in fiscal 1997 of $4.1
million and an operating margin of 4.9% were both higher than fiscal 1996
results. Operating income in fiscal 1997 was higher by $3.3 million or
approximately 390% compared to the prior year. The operating margin in fiscal
1996 was 1.0% or $0.8 million. Excluding downsizing charges of $1.4 million, the
operating margin in fiscal 1996 was 2.6%. The increase in operating income and
margin primarily reflects lower labor and benefit costs and lower indirect
expenses. Labor and benefit costs were lower due to staff reductions in the
fourth quarter of last year and the first quarter of fiscal 1997 and, to a
lesser extent, the utilization of variable employees who are not eligible for
fringe benefits. The Company's international operations improved over fiscal
1996 but still negatively impacted operating margin.
Operating income in fiscal 1996 of $0.8 million and an operating margin of 1.0%
were both lower than fiscal 1995 results. The fiscal 1996 results were
negatively impacted by certain downsizing expenses including expenses of $0.4
million related to staff reductions and $1.0 million from the write-down of
facility leases in the fourth quarter. Excluding those items, operating income
in fiscal 1996 was lower by $2.4 million or approximately 52% compared to the
prior year. Operating margin excluding downsizing charges was 2.6% compared to
5.0% in the previous fiscal year. The decline in operating income and margin
primarily reflects lower revenues without a commensurate decline in operating
expenses. The Company's international operations negatively impacted both
operating income and margins in fiscal 1996.
Interest in Loss of Unconsolidated Subsidiaries--Losses in unconsolidated
subsidiaries were $0.5 million in fiscal 1997. There was no activity in these
subsidiaries prior to 1997. The recorded loss consisted of $0.3 in losses from
operations and $0.2 in write-downs of impaired assets. At the end of the prior
fiscal year, the Company invested in the start-up of a limited liability
company, Integrated Software Systems, which specializes in software for the
mining industry. In addition, the Company has invested in the start-up of
another limited liability company, Standards Training Corporation, which focuses
on ISO 14000 training. The Company's position in both entities is accounted for
using the equity method. The investments in both companies were written down to
zero in fiscal 1997 due to uncertainty regarding the financial viability of the
respective companies.
Interest Income (Expense)--Net interest income in 1997 of $0.7 million was lower
by $0.1 million from fiscal 1996. The decrease in net interest income primarily
reflects lower average cash balances during the first three quarters of the year
and to a lesser extent lower interest rates on invested cash. Net interest
income in 1996 and 1995 was $0.8 million and $0.3 million, respectively.
Income Taxes--The effective tax rate was 44.1% for fiscal 1997, 45.5% and 39.5%
for fiscal years 1996 and 1995. The effective tax rate in fiscal 1997 and 1996
reflects the impact of losses from the start-up of certain international
operations for which no tax benefit has been realized.
Net Income--Net income of $2.4 million in fiscal 1997 was $1.4 million higher
than the prior year. The increase was primarily due to lower labor and general
expenses. Net income of $1.0 million in 1996 was $2.0 million lower than the
prior year primarily due to lower net revenue.
Net income per common share was $.49 in 1997 compared to $.20 in 1996, and $.62
in 1995. Weighted average shares outstanding were 4,953,000, 4,851,000 and
4,806,000 in 1997, 1996, and 1995, respectively.
Liquidity and Capital Resources
Net cash provided by operating activities was $8.8 million in fiscal 1997
compared to $8.0 million in 1996 and $8.7 million in 1995. The increase in cash
provided by operations in fiscal 1997 compared to 1996 was primarily related to
the Company's higher earnings and improved working capital. The improved working
capital primarily reflected an improvement in the days sales held in
receivables, including collections of retentions on certain federal projects
nearing completion, and, to a lesser extent, higher trade payables. The decrease
in cash provided by operations in fiscal 1996 compared to 1995 was primarily
related to the Company's lower earnings offset by a significant improvement in
the Company's collection of accounts receivable compared to fiscal 1995.
The Company currently has a $20 million line of credit with a commercial bank,
at prime or LIBOR rates, that expires in October 1997. At May 31, 1997, 1996 and
1995 the Company had no borrowings under the line, and as such, the entire $20
million was available to the Company. Had the Company borrowed under its line in
May of fiscal 1997, 1996, and 1995, the interest rate would have been 5.7%, 5.4%
and 6.1%, respectively. The Company's credit agreement provides certain
covenants relating to, among other things, financial performance and the
maintenance of certain financial ratios. The Company was in compliance with all
covenants pertaining to the credit line agreement at May 31, 1997, 1996 and
1995. The Company fully expects to renew its credit facility at the same or
similar terms and conditions.
The Company invested $2.4 million and $1.6 million in the purchase of capital
assets, including acquisitions, in 1997 and 1996 respectively. During fiscal
1997 the Company paid $0.1 million as additional purchase price under the terms
of a fiscal 1995 acquisition agreement. The Company invested $3.1 million in the
purchase of capital assets, including acquisitions, in 1995.
In fiscal 1997, the Company used net cash of $0.9 million for financing
activities, which primarily consisted of the repurchase of common stock. The
Board of Directors of the Company has approved a Common Stock Repurchase Program
that authorizes the Company to purchase up to a maximum of 500,000 shares of
stock on the open market from time to time for the purpose of providing shares
for the Company's various employee stock programs. The Company has repurchased
139,200 shares for $1.0 million in the current fiscal year under this program.
No repurchases were made in the prior fiscal year. The Company used net cash of
$0.1 million for financing activities in fiscal year 1996 and $1.8 million in
fiscal 1995. In fiscal 1996, the Company used net cash of $0.1 million for
financing activities, which primarily consisted of capital lease payments
recorded in the Company's Australia operations. The cash used in financing
activities in 1995 included approximately $2.0 million for the repayment of the
Company's borrowings in 1994.
The Company is a consulting engineering services firm engaged in providing
environmental, infrastructure and geotechnical related services, and encounters
potential liability including claims for errors and omissions resulting from
construction defects, construction cost overruns, or environmental or other
damage in the normal course of business. The Company is a party to lawsuits and
is aware of potential exposure related to certain claims. In the opinion of
management, adequate provision has been made for all known liabilities that are
currently expected to result from these matters and, in the aggregate, such
claims are not expected to have a material impact on the financial position and
liquidity of the Company although there can be no assurances that the Company
will not be affected by existing or future claims. Currently, the Company is
provided a $5 million per occurrence professional liability and a $5 million per
occurrence contractor's pollution liability insurance policy through an
unrelated, rated carrier. The Company also maintains general liability insurance
with an unrelated, rated carrier.
The Company believes that its available cash and cash equivalents as well as
cash generated from operations and its available credit line will be sufficient
to meet the Company's cash requirements for the current fiscal year. During
fiscal 1998, the Company intends to actively continue its search for
acquisitions to expand its geographical representation and enhance its technical
capabilities. The Company expects to utilize a portion of its liquidity over the
next 12 to 18 months for capital expenditures, including acquisitions.
Inflation
The Company's operations have not been, and in the foreseeable future are not
expected to be, materially affected by inflation.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
HARDING LAWSON ASSOCIATES GROUP, INC.
Consolidated Statements of Income
(In thousands, except per share data)
Years Ended May 31,
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross revenue $123,412 $120,708 $130,554
Less: Cost of outside services 39,136 35,053 38,099
- ---------------------------------------------------------------------------------------------------------------
Net revenue 84,276 85,655 92,455
- ---------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Payroll and benefits 56,647 59,033 62,945
General expenses 23,517 25,783 24,915
- ---------------------------------------------------------------------------------------------------------------
Total costs and expenses 80,164 84,816 87,860
- ---------------------------------------------------------------------------------------------------------------
Operating income 4,112 839 4,595
Interest in loss of unconsolidated
subsidiaries (545) --- ---
Interest income,
net of interest expense of
$38 in 1997, $39 in 1996 and
$47 in 1995 721 808 312
- ---------------------------------------------------------------------------------------------------------------
Income before provision for income
taxes and minority interest 4,288 1,647 4,907
Provision for income taxes 1,892 750 1,939
Minority interest in net loss of subsidiaries (8) (56) (4)
- ----------------------------------------------------------------------------------------------------------------
Net income $2,404 $ 953 $2,972
================================================================================================================
Net income per common share $0.49 $0.20 $0.62
================================================================================================================
Shares used in per-share
calculation 4,953 4,851 4,806
================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
HARDING LAWSON ASSOCIATES GROUP, INC.
Consolidated Balance Sheets
(In thousands, except share data)
May 31, 1997 May 31, 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $24,464 $19,012
Accounts receivable,
less allowance for doubtful accounts
of $637 in 1997 and $725 in 1996
and including retentions of $1,866
in 1997 and $4,355 in 1996. 22,275 23,355
Unbilled work in progress,
less allowance for amounts unbillable
of $751 in 1997 and 1996 5,470 4,152
Prepaid expenses 1,073 1,304
Deferred income taxes 2,691 1,474
- ----------------------------------------------------------------------------------------------------------
Total current assets 55,973 49,297
- ----------------------------------------------------------------------------------------------------------
Equipment 21,701 21,021
Less accumulated depreciation (17,299) (16,677)
- -----------------------------------------------------------------------------------------------------------
Net equipment 4,402 4,344
- ----------------------------------------------------------------------------------------------------------
Deposits and other assets 5,980 6,723
- ----------------------------------------------------------------------------------------------------------
Total assets $66,355 $60,364
==========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable 4,538 $2,754
Accrued expenses 4,845 5,936
Accrued compensation 6,632 5,086
Income taxes payable 1,962 ---
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 17,977 13,776
- ----------------------------------------------------------------------------------------------------------
Other liabilities 1,453 1,983
- ----------------------------------------------------------------------------------------------------------
Total liabilities 19,430 15,759
- ----------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 10)
Minority interest in subsidiaries 323 248
- ----------------------------------------------------------------------------------------------------------
Shareholders' Equity:
Preferred stock--$.01 par value;
authorized 1,000,000 shares;
issued and outstanding--none --- ---
Common stock--$.01 par value;
authorized 10,000,000 shares;
issued and outstanding 4,864,503 in 1997
and 4,845,207 in 1996. 49 48
Additional paid-in capital 17,982 18,142
Retained earnings 28,571 26,167
- ----------------------------------------------------------------------------------------------------------
Total shareholders' equity 46,602 44,357
- ----------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $66,355 $60,364
==========================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
HARDING LAWSON ASSOCIATES GROUP, INC.
Consolidated Statements of Shareholders' Equity
(In thousands, except share data)
Additional Total
Common Stock Paid-in Retained Shareholders'
Shares Amount Capital Earnings Equity
<S> <C> <C> <C> <C> <C>
Balance May 31, 1994 4,602,791 $46 $16,687 $22,242 $38,975
- -------------------------------------------------------------------------------------------------------------
Stock options exercised 4,000 --- 4 --- 4
Common stock issued to
employees or to a defined
contribution pension plan for
the benefit of employees 112,529 1 733 --- 734
Net income --- --- --- 2,972 2,972
Balance May 31, 1995 4,719,320 $47 $17,424 $25,214 $42,685
- -------------------------------------------------------------------------------------------------------------
Stock options exercised 1,000 --- 1 --- 1
Common stock issued to
employees or to a defined
contribution pension plan for
the benefit of employees 124,887 1 717 --- 718
Net income --- --- --- 953 953
Balance May 31, 1996 4,845,207 $48 $18,142 $26,167 $44,357
- -------------------------------------------------------------------------------------------------------------
Stock options exercised 6,000 --- 24 --- 24
Common stock issued to
employees, directors or to a
defined contribution pension
plan for the benefit of
employees 152,496 2 786 --- 788
Shares repurchased and
retired (139,200) (1) (970) --- (971)
Net income --- --- --- 2,404 2,404
Balance May 31, 1997 4,864,503 $49 $17,982 $28,571 $46,602
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
HARDING LAWSON ASSOCIATES GROUP, INC.
Consolidated Statements of Cash Flows
(In thousands)
Years Ended May 31,
1997 1996 1995
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,404 $ 953 $2,972
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 2,566 2,522 3,264
Deferred income tax (922) 670 862
Changes in operating assets and liabilities:
Net accounts receivable and unbilled work in progress (238) 6,218 3,556
Prepaid expenses 242 (378) 548
Accrued compensation 1,546 (1,433) 976
Accounts payable and other liabilities 1,328 301 (2,866)
Income taxes payable 1,962 (621) 464
Other, net (100) (184) (1,067)
- ----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,788 8,048 8,709
- ---------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of equipment, net (2,267) (1,591) (1,431)
Investment in acquisitions, net of cash acquired (122) --- (1,683)
- ----------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (2,389) (1,591) (3,114)
- ----------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from sale of common stock 108 2 195
Repurchase of common stock (971) --- ---
Principal payments on capital lease obligations (84) (95) ---
Repayment of debt --- --- (2,038)
- ----------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (947) (93) (1,843)
- ----------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 5,452 6,364 3,752
Cash and cash equivalents at beginning of year 19,012 12,648 8,896
- ---------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $24,464 $19,012 $12,648
===============================================================================================================
</TABLE>
During fiscal 1997 and 1996 the Company recorded capital lease obligations of
$111 and $423, respectively.
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
HARDING LAWSON ASSOCIATES GROUP, INC.
Notes to Consolidated Financial Statements, May 31, 1997
Note 1 - Summary of Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and its majority owned subsidiaries. All intercompany
accounts and transactions have been eliminated.
Revenue Recognition - Gross revenue is recognized as in-house labor hours are
incurred on projects. It also includes the revenue from services subcontracted
to third parties that will be reimbursed under terms of the Company's contracts
and revenue from the utilization of certain non-labor items. Net revenue is
recorded by deducting from gross revenue the cost of services subcontracted to
third parties. Fixed price and cost type contract overruns or efficiencies are
recognized in the period when such results are reasonably determinable.
Depreciation - Equipment is recorded at cost. Depreciation is computed by the
straight-line method based on the estimated useful lives of the assets,
primarily between three and seven years.
Income Taxes - The Company accounts for income taxes pursuant to the Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" under
which the liability method is used to account for deferred income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
Earnings Per Share - The calculation of earnings per share is based upon the
average shares outstanding during the year plus the net effect of dilutive stock
options. The calculation uses the treasury stock method in fiscal 1997 and the
modified treasury stock method in 1996 and 1995. In February 1997, the Statement
of Financial Accounting Standards No. 128 "Earnings per Share", (FAS 128) was
issued and is effective for the year ending May 31, 1998. The Company will
change its method for computing earnings per share and restate all periods to
reflect the change in its consolidated statements of income, effective with the
issuance of the Company's third and fourth quarters and annual report for 1998.
The new method requires calculation of earnings per share excluding the dilutive
effect of common stock equivalents such as stock options and warrants. The
impact of FAS 128 on basic earnings per share and fully diluted earnings per
share for years ending May 31, 1997, 1996 and 1995 is not expected to be
material.
Cash and Cash Equivalents - Cash and cash equivalents include short-term AAA
rated investments with an effective maturity at acquisition of less than three
months.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Accounts that require the use of significant judgment by
management include, but are not limited to, allowances for doubtful accounts and
amounts unbillable and claims reserves. Actual results could differ from those
estimates.
Industry Segment Information - The Company is a single segment entity providing
engineering consulting services, including environmental, construction
management, civil/infrastructure and geotechnical services. Approximately 7% of
the Company's net revenue was recognized in foreign countries in fiscal 1997,
approximately 6% in 1996 and 2% in 1995.
Unconsolidated Subsidiaries - The Company uses the equity method of accounting
for investments in common stock. During fiscal 1997, the Company reported $0.5
million in losses in two separate investments. There was no activity in fiscal
1996 or 1995.
Accounting for Stock-Based Compensation - In October 1995, the Financial
Accounting Standards Board issued Statement No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), which will be effective for years beginning
after December 15, 1995. SFAS No. 123 allows a company to adopt a new fair value
based method or continue to measure compensation cost for its stock-based
compensation plans using the intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion No. 25 ("APB No. 25"). The
Company has elected to continue to follow APB No. 25 in its fiscal 1997
financial statements and has made pro forma disclosures of net income or loss as
if the fair value based method had been applied.
Long-Lived Assets - In March 1995, the Financial Accounting Standards Board
issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," which requires impairment losses
to be recorded on long-lived assets used in operations such as property,
equipment and improvements and intangible assets, when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amount of the assets. The Company's adoption
of SFAS No. 121 had no effect on the Company's operations.
Intangible Assets - Goodwill represents the excess of the purchase price over
the fair value of the net assets of various entities acquired by the Company.
The Company currently amortizes goodwill on a straight line basis over its
expected useful life, which is between 15 to 40 years. Other intangibles, if
any, recorded in connection with acquisitions are amortized on a straight line
basis over the estimated useful lives of the respective assets, but not
exceeding 15 years. The Company regularly reviews the individual components of
its intangible assets and recognizes, on a current basis, any diminution in
value as required under SFAS No. 121.
Concentrations of Credit Risk - The Company's receivables reflect its client
mix, which includes a variety of industrial concerns and various agencies of the
Federal Government. One client, the Department of the Army, accounted for
approximately 19%, 20% and 26% of the Company's revenue in fiscal 1997, 1996 and
1995, respectively. Credit is extended based on evaluation of the client's
financial condition and generally collateral is not required. Credit losses are
provided for in the financial statements and consistently have been within
management's expectations.
Fiscal Year - The Company uses a 52 - 53 week fiscal year that ends on May 31.
Fiscal years 1997, 1996, and 1995 were 52, 52 and 53 weeks respectively.
Note 2 - Borrowings
Bank Credit Line - The Company has a line of credit with its bank under which it
can borrow amounts up to $20 million.
Under the terms of the line of credit that expires in October 1997, the Company
is required, among other things, to maintain minimum working capital, current
ratio and tangible net worth levels and is not to exceed a defined maximum debt
to tangible net worth ratio. Borrowings under the line will be secured by
certain of the Company's assets and will be at either the bank's prime rate or
LIBOR at the Company's option. The interest rate at which the Company could
borrow funds was 5.7%, 5.4% and 6.1% at May 31, 1997, 1996, and 1995,
respectively.
At May 31, 1997, 1996, and 1995, there were no borrowings under the Company's
line of credit, and as such, the entire $20 million was available to the
Company.
At May 31, 1997, 1996 and 1995, the Company was in compliance with all debt
covenants relating to its credit agreements.
Interest paid by the Company was $38,000, $52,000 and $1,000 in fiscal years
1997, 1996, and 1995.
Note 3 - Valuation and Qualifying Accounts
The activity for the past three fiscal years in the allowance for doubtful
accounts, which is deducted from accounts receivable, and the allowance for
amounts unbillable, which is deducted from unbilled work in progress, is as
follows (in thousands):
<TABLE>
Write-offs Balance
Balance at Charged of at
Beginning to Uncollectable End
Description of Period Expense Accounts of Period
<S> <C> <C> <C> <C>
Year ended May 31, 1997
Allowance for doubtful accounts $ 725 $ 160 $(248) $ 637
Allowance for amounts unbillable 751 --- --- 751
Year ended May 31, 1996
Allowance for doubtful accounts $ 802 $ 68 $(145) $ 725
Allowance for amounts unbillable 751 --- --- 751
Year ended May 31, 1995
Allowance for doubtful accounts $1,303 $ 154 $(655) $ 802
Allowance for amounts unbillable 751 --- --- 751
</TABLE>
<PAGE>
Note 4 - Income Taxes
The provision for income tax consists of the following (in thousands):
<TABLE>
Years Ended May 31,
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $2,104 $ (4) $ 964
Foreign 177 78 ---
State & Local 533 6 150
- -----------------------------------------------------------------------------------------------------------
2,814 80 1,114
- -----------------------------------------------------------------------------------------------------------
Deferred:
Federal (756) 639 655
Foreign (30) (56) ---
State & Local (136) 87 170
- -----------------------------------------------------------------------------------------------------------
(922) 670 825
- -----------------------------------------------------------------------------------------------------------
TOTAL $1,892 $ 750 $1,939
===========================================================================================================
</TABLE>
<PAGE>
Note 4 - Income Taxes (continued)
Income (loss) before provision for income taxes and minority interest is as
follows (in thousands):
<TABLE>
Years Ended May 31,
1997 1996 1995
<S> <C> <C> <C>
Domestic $4,331 $1,808 $5,073
Foreign (43) (161) (166)
- -------------------------------------------------------------------------------------------------------------
Total $4,288 $1,647 $4,907
============================================================================================================
</TABLE>
A reconciliation between the statutory federal income tax rate and the effective
income tax rates is as follows:
<TABLE>
Years Ended May 31,
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
State and local income taxes, net of
federal tax benefits 6.1 6.8 5.5
Foreign taxes 3.0 5.1 ---
Tax exempt interest (3.0) (6.5) (0.7)
Goodwill amortization 0.6 1.6 0.5
Other, net 3.4 4.5 0.2
- ------------------------------------------------------------------------------------------------------------
Effective income tax rates 44.1% 45.5% 39.5%
=============================================================================================================
</TABLE>
Deferred income taxes reflect the net tax effects 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 liabilities and assets are as follows (in thousands):
<TABLE>
Years Ended May 31,
1997 1996
<S> <C> <C>
Deferred Tax Liabilities:
Prepaid expenses $ (59) $ (95)
Deferred revenue (51) (817)
Deferred state taxes (354) (378)
- ----------------------------------------------------------------------------------------------------------
Total Deferred Tax Liabilities (464) (1,290)
- ----------------------------------------------------------------------------------------------------------
Deferred Tax Assets:
Allowances for doubtful accounts
and amounts unbillable 663 575
Depreciation and amortization of intangibles 393 534
Employee benefits 2,035 1,678
Claims reserves 819 1,030
Rental inducements 329 316
Other, net 465 475
- ---------------------------------------------------------------------------------------------------------
Total Deferred Tax Assets 4,704 4,608
- ---------------------------------------------------------------------------------------------------------
Net Deferred Assets $4,240 $3,318
=========================================================================================================
</TABLE>
<PAGE>
Note 4 - Income Taxes (continued)
The Company recorded no valuation allowance related to deferred taxes at May 31,
1997 and 1996. Management believes that the Company will be able to realize the
recorded balance of the net deferred tax assets through future taxable income.
Income taxes paid were as follows (in thousands):
1997 $ 945
1996 1,069
1995 521
Note 5 - Deposits and Other Assets
Deposits and other assets consist of the following (in thousands):
<TABLE>
May 31,
1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Goodwill and other intangibles, net of
accumulated amortization of $2,796 in 1997
and $2,478 in 1996 $3,995 $4,189
Non-current deferred income taxes 1,549 1,844
Deposits and other 436 690
- -------------------------------------------------------------------------------------------------
Total $5,980 $6,723
=================================================================================================
</TABLE>
Note 6 - Other Liabilities
Other liabilities consist of the following (in thousands):
<TABLE>
May 31,
1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Claims reserves $1,237 $1,736
Long-term portion of capital
lease obligations 216 247
- -------------------------------------------------------------------------------------------------
Total $1,453 $1,983
=================================================================================================
</TABLE>
Note 7 - Defined Contribution Pension Plan
The Company has a defined contribution pension plan that covers substantially
all of its employees. The Company's contributions to the plan are discretionary
and may be in the form of cash payments or the Company's common stock. The
amounts charged to operations for this plan were $615,000 for 1997, $633,000 for
1996, and $739,000 for 1995. The contributions for 1997, 1996 and 1995 were made
in the form of the Company's common stock.
<PAGE>
Note 8 - Acquisitions
The Company did not make any acquisitions of a material nature in fiscal 1997 or
1996. The Company paid $0.1 million in additional purchase price in fiscal 1997
in accordance with the terms of an acquisition completed in fiscal 1995.
In November 1994, the Company acquired 76.3% of the outstanding common stock of
Envirosciences Pty Limited ("EPL"), an Australian company, for cash, plus future
payments contingent on future earnings of EPL. In fiscal 1997 the Company
purchased additional shares of EPL raising its ownership interest to 78.2%. EPL
provides a wide range of environmental services through a network of five
offices located in the major metropolitan areas of New South Wales and
Queensland, Australia. This acquisition was accounted for as a purchase and,
accordingly, the results of operations from the date of the acquisition have
been included in the Company's consolidated financial statements. Had this
acquisition taken place on June 1, 1994, the Company's 1995 results of
operations would not have been materially different. The acquisition completed
in fiscal 1995 was not material to the Company's operations or financial
position.
Note 9 - Common Stock
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 the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," ("SFAS No. 123") requires use of
option valuation models that were developed for use in estimating the fair value
of traded options which have no vesting restrictions and are fully transferable
and not for use in valuing employee stock options. 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 grant, no compensation expense is
recognized.
Stock Option Plans - In July 1987, the Company adopted, and the shareholders
approved, the 1987 Stock Option Plan that provides for the granting of stock
options to employees and non-employee directors at no less than the fair market
value of the common stock on the grant date. A total of 525,000 shares of the
Company's common stock has been reserved for issuance under this plan.
In August 1988, the Company adopted the 1988 Stock Option and Restricted Stock
Option Plan that provides for the granting of stock options to employees. In
November 1989, the plan was amended to provide for the granting of options to
non-employee directors. Stock options may be incentive or non-statutory.
Non-statutory stock options may be either restricted or non-restricted. All
incentive stock options and non-restricted non-statutory stock options are to be
granted at no less than the fair market value of the common stock on the grant
date. Restricted stock options may be granted at a price determined by the Board
of Directors, but shall not be less than $1.00 per share. A total of 1,050,000
shares of the Company's common stock has been reserved for issuance under this
plan. All options granted under the 1987 and 1988 Stock Option Plans have 10
year terms, and vest and become fully exercisable after three or four years of
continued employment.
<PAGE>
Following is a summary of options granted under the 1987 and 1988 stock option
plans:
<TABLE>
Optioned Shares
Range Weighted
Number of Average
of Exercise Exercise
Shares Prices Price
<S> <C> <C> <C> <C>
BALANCE MAY 31, 1994 1,129,750 $1.00 $15.25 $9.70
- ---------------------------------------------------------------------------------------------------
Options granted 167,000 5.50 7.25 5.78
Options cancelled (259,500) 5.50 15.25 9.80
Options exercised (4,000) 1.00 1.00 1.00
- ---------------------------------------------------------------------------------------------------
BALANCE MAY 31, 1995 1,033,250 $1.00 $14.30 $9.08
- ---------------------------------------------------------------------------------------------------
Options granted 57,000 5.88 6.88 6.21
Options cancelled (79,250) 5.50 14.13 9.43
Options exercised (1,000) 1.00 1.00 1.00
- ---------------------------------------------------------------------------------------------------
BALANCE MAY 31, 1996 1,010,000 $1.00 $14.30 $8.90
- ---------------------------------------------------------------------------------------------------
Options granted 10,500 6.25 7.25 6.63
Options cancelled (174,063) 5.50 14.13 9.13
Options exercised (6,000) 1.00 5.50 4.00
- ---------------------------------------------------------------------------------------------------
BALANCE MAY 31, 1997 840,437 $1.00 $14.30 $8.85
- ---------------------------------------------------------------------------------------------------
</TABLE>
Under the Company's stock option plans, 670,249 and 648,625 options were
exercisable at May 31, 1997 and 1996, respectively, at exercise prices ranging
from $1.00 to $14.30. The contractual life at May 31, 1997, was 0.2 to 9.6
years, with a weighted average contractual life of 4.8 years.
The following is a summary of fixed stock options outstanding and exercisable by
price range at May 31, 1997:
<TABLE>
Options Outstanding Options Exercisable
Weighted
Number Average Number
Out- Remaining Weighted Exer- Weighted
standing Contrac- Average cisable Average
Range of as of tual Exercise as of Exercise
Exercise Prices 5/31/97 Life Price 5/31/97 Price
<S> <C> <C> <C> <C> <C> <C>
$1.0000 - $1.0000 3,000 2.13 $1.0000 3,000 $1.0000
5.5000 - 6.5000 178,500 7.54 5.8051 70,500 5.7498
6.6250 - 7.8750 233,187 6.40 7.4593 170,999 7.4734
8.1667 - 10.8333 176,500 0.70 8.6686 176,500 8.6686
11.1250 - 14.3000 249,250 4.41 12.5692 249,250 12.5692
$1.000 - $14.3000 840,437 4.84 $8.8543 670,249 $9.4729
</TABLE>
Employee Stock Purchase Plan - The 1991 Employee Stock Purchase Plan was
approved and subsequently amended by the Company's Board of Directors and
Shareholders. A total of 250,000 shares of the Company's common stock has been
reserved for issuance pursuant to this plan at a price which is 85% of the
stock's fair market value. As of May 31, 1997, a total of 166,349 shares has
been purchased through this plan
1995 Executive Stock Incentive Plan - In November 1995, the Company's
shareholders approved a stock incentive plan which reserved 200,000 shares of
common stock to be awarded to selected executives of the Company in lieu of, or
in addition to, regular or bonus compensation. No shares were issued under this
plan as of May 31, 1997 or 1996.
Non-employee Directors Stock Compensation Plan - In December 1996, the Company
established a non-employee directors stock compensation plan which reserved
100,000 shares to be issued to non-employee directors of the Company. Directors
can elect to have all or a portion of their director compensation paid in the
form of common stock of the Company in lieu of cash compensation. A total of
5,072 shares has been issued under this plan as of May 31, 1997.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of SFAS No. 123. The fair
value of each option grant under the fixed price option plans and the fair value
of the employee's purchase rights under the employee stock purchase plan were
estimated at the date of grant using a Black-Scholes option-pricing model. The
dividend yield was assumed to be zero for both periods below. The
weighted-average of all other significant assumptions and the weighted-average
fair value of grants made during the years ended May 31, 1997 and 1996 are as
follows:
<TABLE>
May 31, 1997 May 31, 1996
Option Plan ESPP Plan Option Plan ESPP Plan
<S> <C> <C> <C> <C>
Volatility 70.08% 70.08% 70.08% 70.08%
Risk-free interest rate 6.08% 5.51% 6.30% 5.16%
Expected lives 4.23 yrs 0.5 yrs 4.51 yrs 0.5 yrs
Fair value of grants $3.85 $1.78 $3.73 $1.91
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma net income (in thousands) and earnings per share would have been $2,351,
or $0.47 per share and $930, or $0.19 per share, for the fiscal years 1997 and
1996, respectively.
<PAGE>
Note 10 - Commitments and Contingencies
The Company leases certain premises under operating lease agreements, and
equipment under operating lease and capital lease agreements.
The following assets were capitalized under capital lease arrangements (in
thousands):
<TABLE>
May 31,
1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Vehicles $306 $341
Equipment 173 93
- --------------------------------------------------------------------------------------------------------------
479 434
Accumulated amortization (139) (109)
- ---------------------------------------------------------------------------------------------------------------
$340 $325
==============================================================================================================
</TABLE>
Future minimum commitments under leasing arrangements at May 31,1997 were as
follows (in thousands):
<TABLE>
Capital Operating
Leases Leases
Year ending May 31:
<S> <C> <C>
1998 $144 $4,157
1999 149 3,562
2000 54 2,770
2001 25 1,631
2002 and thereafter 12 2,459
- --------------------------------------------------------------------------------------------------------------
Minimum commitments $384 $14,579
=======
Less amount representing interest 53
Present value of minimum lease
obligations 331
Less current portion of lease obligations
included in accrued expenses 115
Long term lease obligations included in
other liabilities $216
</TABLE>
Rental expense was $4.9 million in 1997 $5.6 million in 1996, and, $5.5 million
in 1995. Lease terms expire between June, 1997 and October, 2003. Most leases
contain a renewal option at fair market value.
The Company has a substantial number of U.S. Government contracts, under which
the costs are subject to audit. Management believes that the effect of
disallowed costs, if any, will not have a material adverse effect on the
financial position or results of operations of the Company.
<PAGE>
Note 10 - Commitments and Contingencies (continued)
The Company is currently subject to certain claims and lawsuits arising in the
ordinary course of its business. In the opinion of management, adequate
provision has been made for all known liabilities that are currently expected to
result from these claims and lawsuits and in the aggregate such claims will not
have a material effect on the financial position of the Company. The estimates
used in establishing these provisions could differ from actual results. Should
these provisions change significantly, the effect on operations for any
quarterly or annual reporting period could be material.
The Company is provided a $5 million per occurrence professional liability and a
$5 million per occurrence contractor's pollution liability insurance policy
through an unrelated, rated carrier. The Company also maintains general
liability insurance with an unrelated, rated carrier.
Note 11 - Selected Quarterly Financial Data (Unaudited)
The Company's fiscal quarters end on August 31, November 30, February 28, and
May 31. Selected quarterly financial data for fiscal 1997 and 1996 are
summarized as follows (in thousands, except per share data):
<TABLE>
Quarterly Data
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
YEAR ENDED MAY 31, 1997
Net revenue $20,979 $21,282 $19,520 $22,495
Operating income 304 1,230 813 1,765
Net income 226 750 462 966
Net income per common share $ 0.05 $ 0.15 $ 0.09 $ 0.20
Weighted average shares outstanding 4,920 4,996 4,974 4,921
- --------------------------------------------------------------------------------------------------------------
YEAR ENDED MAY 31, 1996
Net revenue $22,708 $22,701 $20,237 $20,009
Operating income (loss) 1,356 1,375 (163) (1,729)
Net income (loss) 935 959 79 (1,020)
Net income (loss) per common share $ 0.19 $ 0.20 $ 0.02 $(0.21)
Weighted average shares outstanding 4,804 4,871 4,866 4,865
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The Company recorded $1.4 million in expenses in the fourth quarter of fiscal
1996 associated with downsizing of certain operations.
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Shareholders and Board of Directors
Harding Lawson Associates Group, Inc.
Novato, California
We have audited the accompanying consolidated balance sheets of Harding Lawson
Associates Group, Inc. as of May 31, 1997 and 1996, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended May 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Harding
Lawson Associates Group, Inc. at May 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended May 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
San Francisco, California
July 3, 1997
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information set forth under the caption "Proposal No. 1: Election of
Directors" under the sections entitled "General," "Security Ownership of
Management," "The Directors", and "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" of the definitive Proxy Statement for the
Annual Meeting of Shareholders to be held on November 5, 1997, which is to be
filed pursuant to regulation 14A under the Securities Exchange Act of 1934 (the
"Proxy Statement"), is incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under the caption "Proposal No. 1: Election of
Directors -- Compensation of Directors and Executive Officers" of the Proxy
Statement is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the caption "Proposal No. 1: Election of
Directors" under the headings "Security Ownership of Management" and "Principal
Shareholders" of the Proxy Statement is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth under the caption "Proposal No. 1: Election of
Directors -- Certain Relationships and Related Transactions" of the Proxy
Statement is incorporated by reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (i) Consolidated Financial Statements
The following consolidated financial statements of the Company are
included in Item 8, above.
Consolidated Balance Sheets, May 31, 1997 and 1996
Consolidated Statements of Income for the years ended May 31,
1997, 1996, and 1995
Consolidated Statements of Shareholders' Equity for the years
ended May 31, 1997, 1996, and 1995
Consolidated Statements of Cash Flows for the years ended
May 31, 1997, 1996, and 1995
Notes to Consolidated Financial Statements
Report of Independent Auditors
(ii) Financial Statement Schedules
All 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 inapplicable, and therefore have been omitted.
(iii) Exhibits
All of the Exhibits listed below, other than those marked with an
asterisk, were filed as Exhibits to (a) the Company's Registration Statement on
Form S-1 (Registration No. 33-15852), as filed with the Securities and Exchange
Commission (the "Commission") on July 16, 1987 (the Registration Statement) and
subsequently amended on August 14, 18, and 19, 1988, (b) the Company's 1988
Annual Report on Form 10-K, as filed with the Commission on August 28, 1988, (c)
the Company's 1994 Annual Report on Form 10-K, as filed with the Commission on
August 25, 1994, (d) the Company's 1995 Annual Report on Form 10-K, as filed
with the Commission on August 25, 1995, or (e) the Company's 1996 Annual Report
on Form 10-K, as filed with the Commission on August 29, 1996 and are
incorporated herein by reference. Exhibits marked with a single asterisk are
attached as Exhibits to this Annual Report.
3.1 Restated Certificate of Incorporation of the Company,
incorporated by reference from amendment No. 1 to the
Company's Registration Statement on Form S-1 under the 1933
Act, Registration No. 33-15852, which was filed with the
Commission on August 14, 1987 ("Amendment No. 1"), where it
appears as Exhibit 3(a) thereto.
3.2 Amendment to Restated Certificate of Incorporation changing
the Company's name from Harding Associates, Inc. to Harding
Lawson Associates Group, Inc., incorporated by references from
the Company's 1996 Annual Report on Form 10-K, as filed with
the Commission on August 29, 1996 ("1996 Form 10-K"), where it
appears as Exhibit 3.2 thereto,
<PAGE>
3.3 Bylaws of the Company, incorporated by reference from
Amendment No. 1, where they appear as Exhibit 3(c) thereto.
10.1@ Harding Lawson Associates Group, Inc. 1987 Stock Option Plan,
incorporated by reference from the Company's 1988 Annual
Report on Form 10-K, as filed with the Commission on August
28, 1988 ("1988 Form 10-K"), where it appears as Exhibit 4(b)
thereto.
10.2@ Harding Lawson Associates Group, Inc. revised 1988 Stock
Option and Restricted Stock Option Plan incorporated by
reference from the Company's 1994 Annual Report on Form 10-K,
as filed with the Commission on August 25, 1994 ("1994 Form
10-K"), where it appears as Exhibit 10.2 thereto.
10.3 Amendment to the Harding Lawson Associates Group, Inc. 1991
Employee Stock Purchase Plan, incorporated by reference from
the 1996 Form 10-K, where it appears as Exhibit 10.3 thereto.
10.4@ Amendment to the Non-Qualified Deferred Compensation Plan of
the Company (formerly referred to as the Non-Qualified
Deferred Bonus Plan II) incorporated by reference from the
Company's 1995 Annual Report on Form 10-K, as filed with the
Commission on August 25, 1995 ("1995 Form 10-K"), where it
appears as Exhibit 10.7 thereto.
10.5@ Employment Agreement between the Company and Donald L.
Schreuder dated June 29, 1994, incorporated by reference from
the Company's 1994 Form 10-K.
10.6@ Form of Directors' and Officers' Indemnification Agreements,
incorporated by reference from the Registration Statement
where it appears as Exhibit 10(a) thereto.
10.7 Insurance policy issued to the Company by American
International Specialty Lines Insurance Company for the period
May 1, 1994 to June 30, 1995, incorporated by reference from
the 1994 Form 10-K, where it appears as Exhibit 10.11 thereto.
10.8 Line of credit agreement with Wells Fargo Bank, N.A. dated
October 31, 1995, incorporated by reference from the 1996 Form
10-K, where it appears as Exhibit 10.8 thereto.
10.9@ 1995 Executive Stock Incentive Plan approved by the Company's
Shareholders in November 1995, incorporated by reference from
the 1996 Form 10-K, where it appears as Exhibit 10.9 thereto.
10.10* Non-employee Director Compensation Plan dated April 27, 1997.
11.* Computation of Per Share Earnings.
21.* Subsidiaries of the Registrant.
23.* Consent of Ernst and Young LLP.
27. Financial Data Schedule (electronic filing only).
* Exhibits are attached to this Annual Report.
@ Management contracts and compensatory plans or arrangements required to be
filed as Exhibits in compliance with Item 14(a)(3).
<PAGE>
The Company will provide a copy of any exhibit upon request and payment of the
Company's reasonable expenses of furnishing such exhibit.
(b) Reports on Form 8-K
Date of Report Item Reported
None
<PAGE>
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.
HARDING LAWSON ASSOCIATES GROUP, INC.
Date: August 15, 1997 By: /s/ Donald L. Schreuder
-----------------------
Donald L. Schreuder
President and Chief Executive Officer
Date: August 18, 1997 By: /s/ Gregory A. Thornton
------------------------
Gregory A. Thornton
Vice President and Chief Financial
Officer
(Principal Accounting Officer)
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ James M. Edgar Director August 17, 1997
- -------------------------
James M. Edgar
/s/ Donald K. Stager Director August 12, 1997
- -------------------------
Donald K. Stager
Director and Chairman
Richard S. Harding Emeritus
/s/ Stuart F. Platt Director August 12, 1997
- -------------------------
Adm. Stuart F. Platt (Ret.)
/s/ Richard D. Puntillo Chairman of the Board August 15, 1997
- -------------------------
Richard D. Puntillo
/s/ Donald L. Schreuder President, Chief Executive August 8, 1997
- -------------------------
Donald L. Schreuder Officer, and Director
/s/ Barton W. Shackelford Director August 14, 1997
- -------------------------
Barton W. Shackelford
<PAGE>
Index to Exhibits
Exhibit No. Exhibit
10.10 Non-employee Director Compensation Plan dated
April 27, 1997.
11. Computation of Per Share Earnings.
21. Subsidiaries of the Registrant
23. Consent of Ernst and Young LLP
27. Financial Data Schedule (Electronic filing only)
Exhibit 10.10
HARDING LAWSON ASSOCIATES GROUP, INC.
NON-EMPLOYEE DIRECTOR COMPENSATION STOCK PLAN
Section 1. Purpose
This Non-employee Director Compensation Stock Plan (the "Plan") is
intended to encourage stock ownership by Non-employee Directors of Harding
Lawson Associates Group, Inc., a Delaware corporation (the "Company") so that
they may increase their proprietary interest in the success of the Company. The
Non-employee Directors may be issued shares of the common stock of the Company
("Shares") in lieu of cash compensation as part of their annual compensation and
they may choose, at their discretion, to receive all, or any portion of the
balance of their Director's Compensation in the form of Shares. In this way, the
Company will be assisted in its efforts to attract and retain highly qualified
independent directors and to further align the directors' interest with that of
the Company's stockholders.
Section 2. Administration
The Plan shall be administered by the Company through the Salary
Deferral Committee (the "Committee") which is appointed by the Board of
Directors, or such other committee as may be specified by the Company and whose
membership shall be appointed or ratified by the Board of Directors.
Section 3. Participation in the Plan
(a) Participation in the Plan shall be limited to Non-employee
Directors of the Company.
(b) No member of the Board of Directors who is also an officer or
employee of the Company shall be eligible to participate in
the Plan.
Section 4. Common Stock Subject to the Plan
(a) The maximum number of Shares that may be issued pursuant to the
Plan shall be Two Hundred Thousand (200,000). Such Shares shall be reserved for
this purpose. The limitation on the number of Shares which may be issued under
the Plan shall be subject to adjustment as provided in Section 4(b), below. The
Shares to be issued pursuant to the Plan may be unissued shares or treasury
shares. Notwithstanding anything to the contrary contained herein, no more than
Twenty-five Thousand (25,000) Shares may be issued pursuant to the Plan unless
and until the Plan has been approved by the affirmative vote of the holders of a
majority of the shares of the common stock of the Company present in person or
by proxy and entitled to vote at a duly held meeting of shareholders.
(b) In the event of any merger, consolidation, reorganization, stock
dividend, stock split, or other change in corporate structure or capitalization
affecting the Company, the Board of Directors shall make such adjustments as
shall be just and equitable in the number and kind of Shares to be issued under
the Plan (including the aggregate number of Shares which may be issued under the
Plan).
Section 5. Elections; Delivery of Shares
(a) Each Non-employee Director may elect, in such person's sole
discretion, to receive in the form of Shares rather than in cash all or any
portion of any compensation that would otherwise be payable in cash to such
person for services as a director of the Company. To make such an election with
respect to any calendar year, a Non-employee Director shall provide written
notice of election to the Company in the month of December of the preceding
year. Such notice shall designate the amount of compensation which the
Non-employee Director elects to receive in Shares ("Designated Compensation").
(b) Any Shares issuable with respect to Designated Compensation shall
be issued to the Non-employee Director during the first month of the calendar
quarter in which the Payment Date, as defined below, occurs, or at such other
time as the Board of Directors may specify and approve. Notwithstanding the
preceding sentence, Non-employee Directors may elect to defer their receipt of
Shares pursuant to the terms of the Company's Non-qualified Deferred
Compensation Plan (the "Deferred Compensation Plan"), and, in the event of such
an election, the Shares will be issued in accordance with the terms of the
Deferred Compensation Plan. "Payment Date" with respect to any Designated
Compensation means the day on which the Designated Compensation would have been
paid assuming that the recipient had not elected either to receive the
compensation in Shares or to defer receipt of the compensation pursuant to the
Deferred Compensation Plan.
(c) The number of Shares to be issued with respect to any Designated
Compensation shall be calculated by dividing the amount of the Designated
Compensation by the Fair Market Value of a Share. The Fair Market Value of a
Share shall be deemed to equal the closing price of the Shares on the business
day preceding the day the Shares are issued, as reported by the Nasdaq Stock
Market. If no trades took place on the business day preceding the day the Shares
are issued, the Fair Market Value of a Share shall be deemed to equal the
closing price on the latest preceding day that the Shares traded.
Section 6. Securities Law Considerations
Neither the Plan nor the Company shall be obligated to issue any Shares
pursuant to the Plan at any time unless and until all applicable requirements
imposed by any federal and state securities and other laws, rules and
regulations, by any regulatory agencies, or by any stock exchange upon which the
common stock may be listed, have been fully met. As a condition precedent to any
issuance of Shares and delivery of certificates or proof of electronic
transmission evidencing such shares pursuant to the Plan, the Committee may
require Non-employee Directors to take any such action and to make any such
representation as the Committee or the Board of Directors in its discretion
deems necessary or advisable to insure compliance with such requirements.
Non-employee Directors are responsible for complying with all applicable federal
and state securities and other laws, rules and regulations in connection with
any offer, sale or other transfer by them of any Shares issued pursuant to the
Plan or any interest therein.
Section 7. Amendment
The Board of Directors may suspend or discontinue the Plan or revise or
amend it in any respect whatsoever; provided, however, that without approval of
the shareholders no revision or amendment shall change the number of Shares
subject to the Plan (except as provided in Section 4(b)), change the designation
of the class of persons eligible to receive Shares, or materially increase the
benefits accruing to participants under the Plan.
Section 8. Withholding Taxes
All taxes, if any, required to be withheld and payable with respect to
the issuance of Shares will be deducted from the Non-employee Director's
compensation. If at any time such amounts are not adequate to cover taxes
required to be withheld, the participant shall make adequate and timely
arrangement with the Company for the payment of the excess as a condition of
such award.
Section 9. Effectiveness of the Plan
The Plan shall become effective on the date the Board of Directors of
the Company approve the Plan. The Plan will terminate ten (10) years after the
effective date unless sooner terminated by the Board.
Date Plan approved by Board: April 27, 1997
<TABLE>
Exhibit No. 11
HARDING LAWSON ASSOCIATES GROUP, INC.
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
Years Ended May 31,
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Average shares outstanding 4,926 4,824 4,684
Net effect of dilutive stock options based
on the treasury stock method in
fiscal 1997 and the modified treasury
stock method in fiscal years 1996 and 1995 27 27 122
- ---------------------------------------------------------------------------------------------------------------
TOTAL 4,953 4,851 4,806
===============================================================================================================
Net income $2,404 $ 953 $2,972
===============================================================================================================
Net income per common share $ 0.49 $ 0.20 $ 0.62
===============================================================================================================
</TABLE>
<TABLE>
Exhibit No. 21
HARDING LAWSON ASSOCIATES GROUP, INC.
SUBSIDIARIES OF THE REGISTRANT
State or Country
Name of Incorporation Doing Business Under
<S> <C> <C>
Harding Lawson Associates, Inc. Delaware Harding Lawson Associates, Inc.
Harding Lawson Associates Delaware Harding Lawson Associates
Infrastructure, Inc. Infrastructure, Inc.
Harding Lawson Associates Delaware Harding Lawson Associates
International, Inc. International, Inc.
Harding Lawson Australia, Pty. Ltd. New South Wales, Harding Lawson Australia, Pty.
(wholly owned subsidiary of Australia Ltd.
Harding Lawson Associates
International, Inc.)
HLA-Envirosciences Pty Limited New South Wales, HLA-Envirosciences Pty Limited
(majority owned subsidiary of Australia
Harding Lawson Australia, Pty. Ltd.)
Harding Lawson de Mexico S.A. de C.V. City of Mexico Harding Lawson de Mexico S.A.
(wholly owned subsidiary of Federal District de C.V.
Harding Lawson Associates
International, Inc.)
Grupo Industrial de Ingenieria Ecologica III, City of Mexico GRIECO
HLA & Iconsa S.A. de C.V. Federal District
(majority owned subsidiary of
Harding Lawson de Mexico S.A. de C.V.)
Harding Lawson Singapore Pte Ltd Singapore Harding Lawson Singapore
Pte Ltd
HLA Venture, Inc. Delaware HLA Venture, Inc.
Harding Construction Services, Inc. Delaware (Dormant)
Redwood Company, Ltd. Bermuda (Dormant)
Redwood Insurance, Ltd. Bermuda (Dormant)
(wholly owned subsidiary of
Redwood Company, Ltd.)
Integrated Software Systems, LLC Colorado Integrated Software Systems, LLC
(Harding Lawson Associates, Inc.
has a minority interest in LLC)
Standards Training Corporation, LLC Ohio Standards Training Corporation, LLC
(HLA Venture, Inc. has a 50% ownership
interest in LLC)
</TABLE>
Exhibit No. 23
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statements on
Form S-8 dated August 15, 1988 pertaining to the 1987 Stock Option Plan; Form
S-8 dated April 14, 1989, as amended on July 25, 1990 and December 24, 1991,
pertaining to the 1988 Stock Option and Restricted Stock Option Plan; Form S-8
dated June 5, 1996 pertaining to the Executive Stock Incentive Plan; Form S-8
dated April 17, 1988 pertaining to the Employee Stock Purchase Plan as amended
on December 24, 1991 and June 5, 1996; Form S-8 dated August 15, 1988 pertaining
to the Deferred Compensation and Profit Sharing Plan of Harding Lawson
Associates Group, Inc., of our report dated July 3, 1997, with respect to the
consolidated financial statements of Harding Lawson Associates Group, Inc.,
included in its Annual Report on Form 10-K for the year ended May 31, 1997.
San Francisco, California
August 15, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 24464
<SECURITIES> 0
<RECEIVABLES> 29133
<ALLOWANCES> 1388
<INVENTORY> 0
<CURRENT-ASSETS> 55973
<PP&E> 21701
<DEPRECIATION> 17299
<TOTAL-ASSETS> 66355
<CURRENT-LIABILITIES> 17977
<BONDS> 0
0
0
<COMMON> 49
<OTHER-SE> 46553
<TOTAL-LIABILITY-AND-EQUITY> 66355
<SALES> 0
<TOTAL-REVENUES> 123412
<CGS> 0
<TOTAL-COSTS> 39136
<OTHER-EXPENSES> 80164
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38
<INCOME-PRETAX> 4288
<INCOME-TAX> 1892
<INCOME-CONTINUING> 2404
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2404
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.49
</TABLE>
