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, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securitie
Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number 0-16169
HARDING LAWSON ASSOCIATES GROUP, 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. [ X]
Aggregate market value of the voting stock held by non-affiliates
of the registrant on August 19, 1998: $32,116,872
Number of shares of the registrant's Common Stock outstanding as of
August 19, 1998: 4,863,279
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held on November 4, 1998, to be filed pursuant to Regulation
14A under the Securities Exchange Act of 1934, are incorporated by reference in
Part III.
Page 1 of 62 pages
The Index to Exhibits is located at page 38.
<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, the impact
of current regulations and statutes, the possible impact of current and future
claims against the Company based upon negligence and other theories of
liability, and the ability to successfully complete one or more acquisitions as
part of the Company's growth strategy. 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.
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 ES, Inc., Harding Lawson Associates Infrastructure, Inc., HLA
Environmental Services of Michigan, 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.'s, 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 effects 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 including 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 approximately 1,125 professional and support personnel located in 44
U.S. cities in Alabama, Alaska, Arizona, California, Colorado, Connecticut,
Florida, Georgia, Hawaii, Illinois, Maine, Massachusetts, Michigan, Missouri,
Montana, Nevada, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania,
Tennessee, Texas, Utah, Virginia, and Washington, six cities in Australia, and
one in Mexico. During the fiscal year ended May 31, 1998 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. Contracts acquired in the ABB Environmental Services,
Inc. acquisition and the Company's growing construction practice will increase
the percentage of fixed price projects in the firm.
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 that 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.
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 1998 fiscal year, 48% of the Company's gross revenue was 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 that 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 extensive 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 accounted for 29% of the Company's
gross revenue in the 1998 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, spatial data management technologies
such as geographic information systems ("GIS"), 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 its 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 that 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 5% of the Company's services were 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 and Mexican operations.
Infrastructure
Infrastructure and geotechnical services accounted for 18% of the Company's
gross revenue in the 1998 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 recently signed TEA21 bill authorizing $218 billion of funding
over the next six years. This bill is an increase of nearly 40% over the
previous funding bill (ISTEA) signed in 1991. 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 54%
of gross revenue in fiscal 1998. Federal governmental bodies, primarily
non-regulatory, provided 21% of gross revenue, including Department of Defense
agencies, 20% of gross revenue was derived from state and local governments, and
5% from international clients. The Company's 15 largest clients accounted for
approximately 34% of the Company's revenue in fiscal 1998, 44% in fiscal 1997
and 45% in fiscal 1996. Approximately 24% of its revenue during fiscal 1998 were
derived from the Company's five largest clients compared to 32% and 33% in
fiscal 1997 and 1996 respectively.
In fiscal 1998, the Department of the Army accounted for approximately 12% of
the Company's gross revenue. Revenue from this client, which accounted for 19%
of gross revenue in fiscal 1997 and 20% in fiscal 1996, 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. No other client accounted
for 10% or more of gross revenue in fiscal 1998, 1997 or 1996.
The Company's marketing efforts are carried out by a full-time staff of
marketing and sales 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, 1998, the Company had approximately $105 million of
authorized gross revenue backlog, of which approximately $38 million resulted
from the Company's acquisition of the former ABB Environmental Services, Inc.
Backlog was $70 million at May 31, 1997, and $65 million at May 31, 1996.
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. There can be no assurances, however, that work represented by
backlog will not be delayed or canceled. Because the backlog figures include
only those portions of contracts where 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 1999.
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, and 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 $10 million per occurrence/$15 million aggregate
contractor's operations and professional services policy through an unrelated,
rated carrier. The Company also maintains general liability insurance with an
unrelated, rated carrier.
Personnel
At May 31, 1998, the Company employed approximately 1,125 regular, full-time
employees, (780 prior to the May 8, 1998 acquisition of ABB Environmental
Services, Inc.) including 710 engineers, scientists, and construction
contractors, 265 production support staff and 150 administrative and clerical
personnel. In addition to its full-time staff, the Company employs approximately
200 temporary or variable personnel at any time as required, most of whom are
technical support personnel. Temporary or variable personnel constitute
approximately 50 full-time equivalents. Although the Company has undergone
selective downsizing over the past few years, it nevertheless maintains a
continuous recruiting program to attract key 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, Connecticut, Florida, Georgia, Hawaii, Illinois, Maine,
Massachusetts, Michigan, Missouri, Montana, Nevada, New Jersey, New Mexico,
North Carolina, Oregon, Pennsylvania, Tennessee, Texas, Utah, Virginia,
Washington, and in Australia and Mexico. At May 31, 1998 these facilities had a
combined area of approximately 496,000 square feet. Aggregate lease expense for
all of the Company's facilities during the fiscal year ended May 31, 1998 was
approximately $4.7 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 in the Company's Consolidated Financial Statement 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, 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
Fiscal year ended May 31, 1998:
First Quarter $ 8.50 $ 6.38
Second Quarter 10.75 8.00
Third Quarter 10.25 8.88
Fourth Quarter 10.50 9.00
</TABLE>
Holders
As of August 19, 1998 there were 575 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, 1994 through 1998. 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)
<CAPTION>
Fiscal Years Ended May 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Gross revenue $123,270 $123,412 $120,708 $130,554 $115,561
Net revenue 83,451 84,276 85,655 92,455 79,944
Operating income 3,220 4,112 839 4,595 1,353
Income before provision
for income taxes and
minority interest 4,262 4,288 1,647 4,907 1,656
Net income 2,488 2,404 953 2,972 1,002
Basic net income per
share $0.50 $0.49 $0.20 $0.63 $0.21
Shares used in computing
basic net income
per share 4,959 4,926 4,824 4,684 4,667
Diluted net income per
share $0.49 $0.49 $0.20 $0.63 $0.21
Shares used in computing
diluted net income
per share 5,087 4,950 4,844 4,700 4,701
Balance Sheet Data:
Working capital $34,680 $37,780 $35,521 $33,369 $29,394
Total assets 76,618 67,366 60,364 60,788 61,486
Short-term debt --- --- --- --- 2,030
Shareholders' equity 49,788 46,602 44,357 42,685 38,975
</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 the continued growth of the
construction division, the possible impact of current and future claims against
the Company based upon negligence and other theories of liability, the
possibility of the Company's making acquisitions during the next 12 to 18
months, and the impact of becoming year 2000 compliant. 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 that 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>
<CAPTION>
Percentage of Percentage
Net Revenue Increase/(Decrease)
Fiscal Year Fiscal Year
1998 1997
vs. vs.
1998 1997 1996 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net revenue 100.0% 100.0% 100.0% (1.0)% (1.6)%
Costs and expenses
Payroll and benefits 68.2 67.2 68.9 0.5 (4.0)
General expenses 27.9 27.9 30.1 (0.8) (8.8)
Operating income/margin 3.9 4.9 1.0 (21.7) 390.1
Interest in loss of unconsolidated
subsidiaries (0.1) (0.6) --- (90.8) ---
Net interest income 1.3 0.8 0.9 51.4 (10.8)
Income before provision for
taxes and minority interest 5.1 5.1 1.9 (0.6) 160.4
Provision for taxes 2.1 2.2 0.8 (5.9) 152.3
Net income 3.0 2.9 1.1 3.5 152.3
</TABLE>
Gross Revenue--Gross revenue, not presented in the table above, includes 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. Gross revenue related to outside services as a percent of total
gross revenue was 34.5%, 33.2%, and 30.4% in 1998, 1997, and 1996, respectively.
The increase in outside services revenue as a percent of total gross revenue in
1998, compared to 1997 and 1996, is due primarily to an increase in construction
services. The Company believes that its construction services will continue to
grow and represent a larger percentage of gross revenue. 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.
Net Revenue--Net revenue totaled $83.5 million in fiscal 1998, a decrease of
$0.8 million or 1.0% from 1997. The decrease in net revenue in fiscal 1998 was
due primarily to a 13% decline in international and a 21% decline in
infrastructure net revenue respectively, partially offset by an increase of 4%
in domestic environmental net revenue. The Company experienced lower demand
partially offset by higher prices for its services compared to 1997 and 1996.
Net revenue derived from public sector clients in fiscal 1998 was down 9% from
the prior year and accounted for 43% of total net revenue for fiscal 1998
compared to 46% and 45% for fiscal 1997 and 1996, respectively. Net revenue from
the federal sector declined by 14% from fiscal 1997 while revenue from state and
local sources declined by 2% over the same period. Net revenue from private
sector clients increased by 7% over 1997. International sales accounted for 6%
of the Company's net revenue in fiscal 1998 compared with 7% and 6% in fiscal
1997 and 1996 respectively. Virtually all international revenue was attributable
to operations in Australia.
Fiscal 1997 net revenue was $84.3 million, a decrease of $1.4 million or 1.6%
from 1996. The decrease in fiscal 1997 was due primarily to a 4% decline in
domestic environmental net revenue partially offset by an increase of 11% and
25% 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. 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% for
fiscal 1996. 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% in 1996. Virtually all international revenue was attributable
to operations in Australia.
Costs, Expenses and Operating Income--Operating income in fiscal 1998 of $3.2
million and an operating margin of 3.9% were both lower than fiscal 1997
results. Operating income in fiscal 1998 was lower by $0.9 million or
approximately 22% compared to the prior year. The decrease in operating income
and margin primarily reflects lower net revenue as the Company's total operating
cost remained essentially unchanged from the prior fiscal year. Labor expense in
fiscal 1998 was negatively impacted by $0.5 million in severance expenses,
incurred primarily during the Company's fourth quarter of fiscal 1998. The
Company's international operations improved over fiscal 1997 and contributed
slightly to the Company's operating income but still negatively impacted the
operating margin.
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 reflected lower labor and
benefit costs and lower indirect expenses. Labor and benefit costs were lower
due to staff reductions in the fourth quarter of fiscal 1996 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.
Interest in Loss of Unconsolidated Subsidiaries--Losses from unconsolidated
subsidiaries were $50,000 in fiscal 1998. The loss was the final investment in
Standards Training Corporation (STC) a limited liability company focused on ISO
14000 training that was made and expensed in the first fiscal quarter of fiscal
1998. Losses from unconsolidated subsidiaries were $0.5 million in fiscal 1997.
The loss recorded in fiscal 1997 consisted of $0.3 in losses from operations and
$0.2 in write-downs of impaired assets. The losses resulted from the operations
of STC and Integrated Software Systems, LLC which specialized in software for
the mining industry. There was no activity in these subsidiaries prior to 1997.
The Company's investment in both entities was accounted for using the equity
method.
Interest Income (Expense)--Net interest income in 1998 of $1.1 million was $0.4
million higher than fiscal 1997. The increase in net interest income primarily
reflects higher average cash balances throughout the fiscal year and to a lesser
extent higher interest rates on invested cash. Net interest income in 1997 and
1996 was $0.7 million and $0.8 million, respectively.
Income Taxes--The effective tax rate was 39.8% for fiscal 1998, 44.1% and 45.5%
for fiscal years 1997 and 1996 respectively. The effective tax rate in fiscal
1998 reflects the improvement in the Company's foreign operations and a
corresponding realization of prior year tax losses for which no tax benefit had
been accrued and to a lesser extent an increase in the Company's non-taxable
interest income. 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 was recorded.
Net Income--Net income of $2.5 million in fiscal 1998 was $0.1 million higher
than the prior year. The increase was primarily due to increased interest income
and lower income taxes partially offset by lower net revenue and operating
income. Net income of $2.4 million in 1997 was $1.4 million higher than the
prior year primarily due to lower labor and general expenses.
Net income per diluted common share was $0.49 in 1998 unchanged from 1997, and
$0.20 in 1996. Diluted shares used in the per share calculation were 5,087,255,
4,949,700 and 4,843,570 in 1998, 1997, and 1996, respectively.
Liquidity and Capital Resources
Net cash provided by operating activities was $5.1 million in fiscal 1998
compared to $8.8 million in 1997 and $8.0 million in 1996. The decrease in cash
provided by operations in fiscal 1998 compared to 1997 was primarily related to
a decrease in certain current liabilities. The decrease in certain current
liabilities reflect payment under the incentive compensation program in fiscal
1998 for fiscal 1997 performance and increases in payments of income taxes and
was partially offset by increases in billings in excess of costs and estimated
earnings on uncompleted contracts. 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 in fiscal
1997 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 Company currently has a $20 million line of credit with a commercial bank,
at prime or LIBOR rates, that expires in November 1999. At May 31, 1998, 1997
and 1996 the Company had no borrowings under the line of credit, therefore, the
entire $20 million was available to the Company. Had the Company borrowed under
its line at May 31 of fiscal 1998, 1997 and 1996, the interest rate would have
been 5.7%, 5.7% and 5.4% respectively. The Company's credit agreement has
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 line of credit agreement at May 31, 1998, 1997 and
1996.
The Company invested $14.4 million and $2.4 million in the purchase of capital
assets, including the cost of acquisitions, in fiscal 1998 and 1997
respectively. The Company used $12.4 million in fiscal 1998 for the acquisition
of ABB Environmental Services, Inc. The Company paid $0.2 and $0.1 million in
fiscal 1998 and 1997 respectively, as additional purchase price under the terms
of a fiscal 1994 and 1995 acquisition agreements, respectively.
In fiscal 1998, the Company generated net cash of $0.1 million for financing
activities, that primarily consisted of the sale of common stock to employees
offset by 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 plans. The Company repurchased 46,300 shares for $0.4 million in fiscal
1998 under this plan. The Company repurchased 139,200 shares for $1.0 million in
fiscal 1997 under this plan. In fiscal 1997 the Company used net cash of $0.9
million for financing activities that primarily consisted of the repurchase of
common stock.
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 $10 million per occurrence, $15 million aggregate contractor's
operations and professional services 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 fiscal 1998. During fiscal 1999, 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. There can be no assurances that
the Company will be able to identify suitable acquisition candidates, and if
such are identified, that the Company will be able to successfully negotiate and
consumate a transaction.
Other Matters
On May 8, 1998 the Company acquired all the outstanding shares of ABB
Environmental Services, Inc. ("ABB ES"), a consulting and engineering firm. The
acquisition was accounted for as a purchase and the operating results of ABB ES
were included in the Company's consolidated results from the date of the
acquisition. Such results were not material to the Company's fiscal 1998 results
(see Note 8).
The Company is in the process of upgrading its accounting and management
software systems to versions that are year 2000 compliant. In addition, the
Company is assessing its other computer systems and equipment and business
processes to ensure its systems will be capable of processing data in the year
2000 and beyond. The Company believes the cost of becoming year 2000 compliant
will not have a material adverse impact on the Company's financial position or
results of operation.
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)
<CAPTION>
Years Ended May 31,
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross revenue $123,270 $123,412 $120,708
Less: Cost of outside services 39,819 39,136 35,053
- ---------------------------------------------------------------------------------------------------------------
Net revenue 83,451 84,276 85,655
- ---------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Payroll and benefits 56,911 56,647 59,033
General expenses 23,320 23,517 25,783
- ---------------------------------------------------------------------------------------------------------------
Total costs and expenses 80,231 80,164 84,816
- ---------------------------------------------------------------------------------------------------------------
Operating income 3,220 4,112 839
Interest in loss of unconsolidated
subsidiaries (50) (545) ---
Interest income,
net of interest expense of
$34 in 1998, $38 in 1997 and
$39 in 1996 1,092 721 808
- ---------------------------------------------------------------------------------------------------------------
Income before provision for income
taxes and minority interest 4,262 4,288 1,647
Provision for income taxes 1,696 1,892 750
Minority interests in net income (loss)
of subsidiaries 78 (8) (56)
- ----------------------------------------------------------------------------------------------------------------
Net income $2,488 $2,404 $953
===============================================================================================================
Basic net income per share $0.50 $0.49 $0.20
===============================================================================================================
Shares used in computing basic
net income per share 4,959 4,926 4,824
===============================================================================================================
Diluted net income per share $0.49 $0.49 $0.20
===============================================================================================================
Shares used in computing diluted
net income per share 5,087 4,950 4,844
===============================================================================================================
</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)
<CAPTION>
May 31, 1998 May 31, 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $15,118 $24,464
Accounts receivable,
less allowance for doubtful accounts of
$1085 in 1998 and $637 in 1997 and including
retentions of $981 in 1998 and $1,866 in 1997 27,891 22,275
Unbilled work in progress,
less allowance for amounts unbillable
of $751 in 1998 and 1997 13,112 6,481
Prepaid expenses 1,196 1,073
Deferred income taxes 2,708 2,691
- ----------------------------------------------------------------------------------------------------------
Total current assets 60,025 56,984
- ----------------------------------------------------------------------------------------------------------
Equipment 24,892 21,701
Less accumulated depreciation (19,571) (17,299)
- -----------------------------------------------------------------------------------------------------------
Net equipment 5,321 4,402
- ----------------------------------------------------------------------------------------------------------
Other assets 11,272 5,980
- ----------------------------------------------------------------------------------------------------------
Total assets $76,618 $67,366
==========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $6,381 $4,538
Accrued expenses 5,350 5,061
Accrued compensation 7,794 6,632
Billings in excess of costs and estimated
earnings on uncompleted contracts 5,352 1,011
Income taxes payable 468 1,962
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 25,345 19,204
- ----------------------------------------------------------------------------------------------------------
Other liabilities 1,084 1,237
- ----------------------------------------------------------------------------------------------------------
Total liabilities 26,429 19,430
- ----------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 10)
Minority interests in subsidiaries 401 323
- ----------------------------------------------------------------------------------------------------------
Shareholders' Equity:
Preferred stock--$.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 5,009,018
in 1998 and 4,864,503 in 1997 50 49
Additional paid-in capital 18,891 17,982
Retained earnings 31,059 28,571
Foreign currency translation adjustment (212) ---
- ----------------------------------------------------------------------------------------------------------
Total shareholders' equity 49,788 46,602
- ----------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $76,618 $67,366
==========================================================================================================
</TABLE>
The balances in fiscal 1998 reflect an acquisition completed on May 8, 1998.
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)
<CAPTION>
Foreign
Additional Cumulative Total
Common Stock Paid-in Translation Retained Shareholders'
Shares Amount Capital Adjustment Earnings Equity
<S> <C> <C> <C> <C> <C> <C>
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
- ------------------------------------------------------------------------------------------------------------------
Stock options exercised 59,750 --- 433 --- --- 433
Common stock issued to
employees, directors or to a
defined contribution pension
plan for the benefit of
employees 131,065 1 880 --- --- 881
Shares repurchased and
retired (46,300) (404) --- --- (404)
Foreign currency translation
adjustment (212) (212)
Net income --- --- --- 2,488 2,488
Balance May 31, 1998 5,009,018 $50 $18,891 $(212) $31,059 $49,788
- ------------------------------------------------------------------------------------------------------------------
</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)
<CAPTION>
Years Ended May 31,
1998 1997 1996
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $2,488 $2,404 $953
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 2,589 2,566 2,522
Deferred income tax 68 (922) 670
Changes in operating assets and liabilities:
Receivables and billings on uncompleted contracts 3315 (238) 6,218
Prepaid expenses 76 242 (378)
Accrued compensation (1,289) 1,546 (1,433)
Accounts payable and other liabilities (278) 1,328 301
Income taxes payable (1,495) 1,962 (621)
Other, net (328) (184) (279)
- ----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,146 8,788 8,048
- ---------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of equipment, net (2,045) (2,267) (1,591)
Investment in acquisitions, net of cash acquired (12,350) (122) ---
- ---------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (14,395) (2,389) (1,591)
- ----------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from sale of common stock 519 108 2
Repurchase of common stock (404) (971) ---
- ---------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 115 (947) (93)
- ----------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes
on cash and cash equivalents (212) --- ---
- ---------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (9,346) 5,452 6,364
Cash and cash equivalents at beginning of year 24,464 19,012 12,648
- ---------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $15,118 $24,464 $19,012
===============================================================================================================
</TABLE>
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, 1998
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 principally 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 represents gross revenue excluding the cost of services
subcontracted to third parties. Revenue from fixed price contracts are
recognized on a percentage of completion basis which is determined using the
percentage of the costs incurred to the total costs expected. Overruns or
efficiencies on all contracts 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.
Net Income per Share - The Company adopted Financial Accounting Standards Board
Statement No. 128, "Earnings Per Share" ("SFAS 128") in the third quarter of
fiscal 1998. SFAS 128 requires companies to present both basic net income per
share and diluted net income per share. Basic net income per share excludes
dilutive common stock equivalents and is calculated as net income divided by the
weighted average number of common shares outstanding. Diluted net income per
share is computed using the weighted average number of common shares outstanding
and dilutive common stock equivalents outstanding during the period.
Cash and Cash Equivalents - Cash and cash equivalents include short-term AAA
rated investments with an effective maturity 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. Actual results could differ from those estimates.
Industry Segment Information - The Company is a single segment entity providing
primarily environmental and infrastructure engineering consulting services. The
Company also provides construction management, construction and geotechnical
services. Approximately 6% of the Company's net revenue was recognized in
foreign countries in fiscal 1998, 7% in fiscal 1997, and 6% in fiscal 1996.
Unconsolidated Subsidiaries - The Company uses the equity method of accounting
for investments in unconsolidated subsidiaries. During fiscal 1998 and 1997, the
Company reported $50,000 and $500,000 in losses respectively.
There was no activity in fiscal 1996.
Accounting for Stock-Based Compensation - The Company accounts for its employee
stock plans under the intrinsic-value-based method under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees."
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 15 to 40
years. Other intangible assets, 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.
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. Services to one client, the Department of the Army,
accounted for approximately 12%, 19% and 20% of the Company's revenue in fiscal
1998, 1997 and 1996, 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. Services to Federal Government bodies,
primarily non-regulatory, amounted to 21%, 25% and 31% of gross revenue in
fiscal 1998, 1997 and 1996, respectively.
Fiscal Year - The Company uses a 52 - 53 week fiscal year that ends on May 31.
Fiscal years 1998, 1997, and 1996 consisted of 52 weeks.
Reclassifications - Certain amounts have been reclassified to conform to current
year presentations.
Recently Issued Accounting Standards - In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," which establishes standards for reporting and
displaying comprehensive income and its components in a full set of
general-purpose financial statements and is required to be adopted by the
Company beginning in its fiscal year 1999. Additionally, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"), which establishes standards for the way public business
enterprises report information in annual statements and interim financial
reports regarding operating segments, products and services, geographic areas,
and major customers. SFAS 131 will first be reflected in the Company's fiscal
year 1999 Annual Report and will apply to both annual and interim financial
reporting subsequent to this date. The Company is currently evaluating the
impact of SFAS 130 and SFAS 131 on its financial disclosures.
Note 2 - Borrowings
Bank Credit Line - The Company has a line of credit with a bank under which it
can borrow amounts up to $20 million.
Under the terms of the line of credit that expires in November 1999, 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% at May 31, 1998 and 1997, and 5.4% at May 31, 1996.
At May 31, 1998, 1997, and 1996, there were no borrowings under the Company's
line of credit and therefore the entire $20 million was available to the
Company.
At May 31, 1998, 1997, and 1996, the Company was in compliance with all debt
covenants relating to its credit agreements.
Interest paid by the Company was $34,000, $38,000 and $52,000 in fiscal years
1998, 1997, and 1996, respectively.
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>
<CAPTION>
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, 1998
Allowance for doubtful accounts $1,087 $30 $(32) $1,085
Allowance for amounts unbillable 751 --- --- 751
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
</TABLE>
The beginning balance for fiscal 1998 has been adjusted to reflect $450 of
acquired reserves from the acquisition of ABB Environmental Services, Inc.
<PAGE>
Note 4 - Income Taxes
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
Years Ended May 31,
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $1,295 $2,104 $(4)
Foreign 61 177 78
State and Local 272 533 6
- -----------------------------------------------------------------------------------------------------------
1,628 2,814 80
- -----------------------------------------------------------------------------------------------------------
Deferred:
Federal 94 (756) 639
Foreign (28) (30) (56)
State and Local 2 (136) 87
- -----------------------------------------------------------------------------------------------------------
68 (922) 670
- -----------------------------------------------------------------------------------------------------------
TOTAL $1,696 $1,892 $750
===========================================================================================================
</TABLE>
<PAGE>
Note 4 - Income Taxes (continued)
Income (loss) before provision for income taxes and minority interest is as
follows (in thousands):
<TABLE>
<CAPTION>
Years Ended May 31,
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $4,107 $4,331 $1,808
Foreign 155 (43) (161)
- -------------------------------------------------------------------------------------------------------------
Total $4,262 $4,288 $1,647
============================================================================================================
</TABLE>
A reconciliation between the statutory federal income tax rate and the effective
income tax rates is as follows: Years Ended May 31, 1998 1997 1996
<TABLE>
<CAPTION>
Years Ended May 31,
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<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 5.9 6.1 6.8
Foreign taxes (0.4) 3.0 5.1
Tax exempt interest (5.3) (3.0) (6.5)
Goodwill amortization 0.8 0.6 1.6
Other, net 4.8 3.4 4.5
- -------------------------------------------------------------------------------------------------------------
Effective income tax rates 39.8% 44.1% 45.5%
=============================================================================================================
</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>
<CAPTION>
Years Ended May 31,
1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred Tax Liabilities:
Prepaid expenses $(32) $(59)
Deferred revenue --- (51)
Deferred state income taxes (328) (354)
- ----------------------------------------------------------------------------------------------------------
Total Deferred Tax Liabilities (360) (464)
- ----------------------------------------------------------------------------------------------------------
Deferred Tax Assets:
Deferred revenue $36 ---
Allowances for doubtful accounts
and amounts unbillable 535 663
Depreciation and amortization of intangibles 449 393
Employee benefits 2,250 2,035
Claims reserves 627 819
Rental inducements 346 329
Deferred tax assets resulting from the
acquisition of ABB Environmental
Services, Inc. 1,391 ---
Other, net 289 465
- ---------------------------------------------------------------------------------------------------------
Total Deferred Tax Assets 5,923 4,704
- ---------------------------------------------------------------------------------------------------------
Less: Valuation allowance on deferred tax
assets resulting from the acquisition of
ABB Environmental Services, Inc. (1,391) ---
- ---------------------------------------------------------------------------------------------------------
Net Deferred Assets $4,172 $4,240
=========================================================================================================
</TABLE>
<PAGE>
Note 4 - Income Taxes (continued)
The Company recorded a valuation allowance of $1.4 million related to deferred
taxes at May 31, 1998, representing a full reserve against the deferred tax
assets resulting from the acquisition of ABB Environmental Services, Inc.
Realization of ABB Environmental Services, Inc.'s underlying tax assets would
result in a decrease of the goodwill associated with this acquisition.
Income taxes paid were as follows (in thousands):
1998 $1,947
1997 945
1996 1,069
Note 5 - Other Assets
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
May 31,
1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Goodwill and other intangible assets, net of
accumulated amortization of $3,150 in 1998
and $2,796 in 1997 $9,287 $3,995
Non-current deferred income taxes 1,464 1,549
Deposits and other 521 436
- -------------------------------------------------------------------------------------------------
Total $11,272 $5,980
=================================================================================================
</TABLE>
Note 6 - Other Liabilities
Other liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
May 31,
1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Claims reserves $1,083 $1,237
=================================================================================================
</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 $824,000 for fiscal 1998,
$615,000 for fiscal 1997, and $633,000 for fiscal 1996. The increase in fiscal
1998 compared to 1997 and 1996 was due to an increase of up to $200 per employee
in Company matching contributions and the addition of employees eligible for the
Company match due to the acquisition of ABB Environmental Services, Inc. The
contributions for 1998, 1997 and 1996 were made with the Company's common stock.
Note 8 - Acquisitions
On May 8, 1998 the Company acquired all the outstanding shares of ABB
Environmental Services, Inc., a consulting and engineering firm, from ABB
Services, Inc. Total consideration of $12.0 million, excluding transaction
costs, was paid entirely in cash. The acquisition was accounted for using the
purchase method and accordingly the purchase price was allocated to the assets
and liabilities acquired based upon their fair market value. The excess of
purchase price of the acquisition over the fair market value of the net assets
acquired was recorded as goodwill. The final determination of such excess amount
is subject to a final assessment of the value of the consideration paid and the
net assets acquired. The goodwill will be amortized on a straight line basis
over 20 years.
<PAGE>
The net purchase price was allocated as follows (in thousands):
Working capital, net $ 5,670
Equipment 1,114
Other assets 116
Goodwill 5,450
--------
Purchase price, net of cash received $12,350
=======
The results of operation for ABB Environmental Services, Inc. have been included
in the Company's financial statements for the period of May 9, 1998 through May
31, 1998 and such results were not material to the Company's 1998 performance.
The following table presents summarized unaudited pro forma operating results
assuming that the Company had acquired ABB Environmental Services, Inc. on June
1, 1996 (in thousands):
<TABLE>
<CAPTION>
Fiscal Years Ended May 31,
1998 1997
<S> <C> <C>
Net revenue $116,788 $123,564
Income before income taxes 6,250 4,465
Net income 3,560 2,413
Basic net income per share $0.72 $0.49
Shares used in computing basic net income
per share 4,959 4,926
Diluted net income per share $0.70 $0.49
Shares used in computing diluted net income
per share 5,087 4,950
</TABLE>
Note 9 - Shareholders Equity
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 that 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 provided 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 was reserved for issuance under this plan. The 1987 plan
expired in July 1997 and no further options may be granted under that plan. As
of May 31, 1998, 18,000 options remained outstanding and unexercised.
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. Since the 1988 plan will expire in October 1998 and no
options may be granted under the 1988 plan, the Company will seek approval from
the Company's shareholders for a new Stock Option Plan.
<PAGE>
Following is a summary of options granted under the 1987 and 1988 stock option
plans:
<TABLE>
<CAPTION>
Optioned Shares
Range Weighted
Number of Average
of Exercise Exercise
Shares Prices Price
<S> <C> <C> <C> <C>
BALANCE MAY 31, 1995 1,033,250 $1.00 $14.30 $9.08
- ---------------------------------------------------------------------------------------------------
Options granted 57,000 5.88 6.88 6.21
Options canceled (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 canceled (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
- ---------------------------------------------------------------------------------------------------
Options granted 171,000 6.75 9.94 7.10
Options canceled (27,687) 6.13 14.13 10.00
Options expired (121,500) 8.33 8.33 8.33
Options exercised (59,750) 1.00 8.17 7.26
- ---------------------------------------------------------------------------------------------------
BALANCE MAY 31, 1998 802,500 $1.00 $14.30 $8.64
- ---------------------------------------------------------------------------------------------------
</TABLE>
Under the Company's stock option plans, 550,375 and 670,249 options were
exercisable at May 31, 1998 and 1997, respectively, at exercise prices ranging
from $1.00 to $14.30. The contractual life at May 31, 1998, was one to ten
years, with a weighted average contractual life of six years.
The following is a summary of fixed stock options outstanding and exercisable by
price range at May 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted
Shares Average Shares
Out- Remaining Weighted Exer- Weighted
standing Contrac- Average cisable Average
Range of as of tual Exercise as of Exercise
Exercise Prices 5/31/98 Life Price 5/31/98 Price
<S> <C> <C> <C> <C> <C> <C>
$1.0000 - $1.0000 2,000 1.13 $1.00 2,000 $1.00
5.5000 - 6.6250 164,250 6.62 5.82 107,125 5.78
6.7500 - 7.0000 163,000 8.82 6.77 11,000 6.98
7.2500 - 8.7500 193,000 5.33 7.51 190,000 7.51
9.5000 - 11.5000 74,500 4.22 10.67 44,500 10.97
12.3750 - 14.3000 205,750 3.35 12.79 195,750 12.72
- --------------------------------------------------------------------------------------------------------
$1.000 - $14.3000 802,500 5.68 $8.64 550,375 $9.27
</TABLE>
Employee Stock Purchase Plan - The 1991 Employee Stock Purchase Plan ("ESPP
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 that is 85% of the
stock's fair market value. As of May 31, 1998, a total of 180,963 shares has
been purchased through this plan.
1995 Executive Stock Incentive Plan - In November 1995, the Company's
shareholders approved a stock incentive plan that 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. As of May 31, 1998, a total of
21,330 shares have been issued through this plan.
Non-employee Directors Stock Compensation Plan - In December 1996, the Company
established a non-employee directors stock compensation plan that 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
14,016 shares has been issued under this plan as of May 31, 1998.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123 and is 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, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
May 31, 1998 May 31, 1997
Option Plan ESPP Plan Option Plan ESPP Plan
<S> <C> <C> <C> <C>
Volatility 48.10% 48.10% 70.08% 70.08%
Risk-free interest rate 6.52% 5.69% 6.08% 5.51%
Expected lives 5.0 yrs 0.5 yrs 4.2 yrs 0.5 yrs
Fair value of grants $3.56 $3.55 $3.85 $1.78
</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 $2,291 or
$0.46 basic net income per share and $0.45 diluted net income per share, and
$2,351, or $0.47 basic and diluted net income per share for the fiscal years
1998 and 1997, respectively.
Note 10 - Commitments and Contingencies
The Company leases certain premises and equipment under operating lease
agreements. Future minimum commitments under leasing arrangements at May 31,1998
were as follows (in thousands):
Operating
Leases
Year ending May 31:
1999 $ 5,886
2000 4,379
2001 3,032
2002 2,065
2003 andreafter 1,843
- ----------------------------------------------------------------------------
Minimum commitments $17.205
Rental expense was $5.5 million in 1998, $5.4 million in 1997, and, $5.6 million
in 1996. Lease terms expire between June, 1998 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.
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 has a $10 million per occurrence, $15 million aggregate contractor's
operations and professional services insurance policy through an unrelated
insurance 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 1998 and 1997 are
summarized as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Quarterly Data
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
YEAR ENDED MAY 31, 1998
Net revenue $21,681 $21,280 $19,081 $21,409
Operating income 1,327 1,265 202 426
Net income 920 891 254 423
Basic net income per share $0.19 $0.18 $0.05 $0.08
Shares used in computing basic net
income per share 4,887 4,971 4,986 4,992
Diluted net income per share $0.19 $0.17 $0.05 $0.08
Shares used in computing diluted net
income per share 4,928 5,133 5,142 5,145
- --------------------------------------------------------------------------------------------------------------
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
Basic net income per share $0.05 $0.15 $0.09 $0.20
Shares used in computing basic net
income per share 4,892 4,980 4,942 4,889
Diluted net income per share $0.05 $0.15 $0.09 $0.20
Shares used in computing diluted net
income per share 4,902 5,002 4,974 4,921
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Board of Directors and Shareholders
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, 1998 and 1997, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended May 31, 1998. 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, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended May 31, 1998, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
San Francisco, California
July 3,1998
<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 8, 1998, that 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, 1998 and 1997
Consolidated Statements of Income for the years ended May 31, 1998,
1997, and 1996
Consolidated Statements of Shareholders' Equity for the years ended
May 31, 1998, 1997, and 1996
Consolidated Statements of Cash Flows for the years ended
May 31, 1998, 1997, and 1996
Notes to Consolidated Financial Statements
Report of Ernst and Young LLP, 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, (e) the Company's 1996 Annual Report on
Form 10-K, as filed with the Commission on August 29, 1996, or (f) the Company's
1997 report on Form 10-K, as filed with the Commission of August 19, 1997 and
are incorporated herein by reference. Exhibits marked with a single asterisk are
attached as Exhibits to this Annual Report.
2.1 Stock Purchase Agreement effective May 8, 1998 by and among
the Company and ABB Services, Inc., incorporated by reference
from the Company's Form 8-K, as filed with the Commission on
May 21, 1998, where it appeared as Exhibit 2.1 thereto.
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, that 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 reference 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.
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.as amended
October 31, 1997.
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,
incorporated by reference from the 1997 Form 10-K, where it
appears as Exhibit 10.10 thereto.
10.11* Non-qualified Deferred Compensation Plan as amended
June 2, 1998.
11.* Computation of Per Share Earnings.
21.* Subsidiaries of the Registrant.
23.* Consent of Ernst and Young LLP, Independent Auditors
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).
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
May 21, 1998 Item 2: Acquisition of ABB Environmental
Services, Inc.
July 17, 1998 8-K/A for May 21, 1998 Form 8-K
<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 24, 1998 By: /s/ Donald L. Schreuder
-----------------------
Donald L. Schreuder
President and Chief Executive Officer
Date: August 24, 1998 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 21, 1998
- ------------------------
James M. Edgar
Director and Chairman
Richard S. Harding Emeritus
/s/ Stuart F. Platt Director August 22, 1998
- -------------------------
Adm. Stuart F. Platt (Ret.)
/s/ Richard D. Puntillo Chairman of the Board August 24, 1998
- -------------------------
Richard D. Puntillo
/s/ Donald L. Schreuder President, Chief Executive August 24, 1998
- -------------------------
Donald L. Schreuder Officer, and Director
/s/ Donald K. Stager Director August 26, 1998
- -------------------------
Donald K. Stager
<PAGE>
Index to Exhibits
Exhibit No. Exhibit
10.8 Line of credit agreement with Wells Fargo Bank, N.A.
as amended October 31, 1997.
10.11 Non-qualified Deferred Compensation Plan as amended
June 2, 1998.
11. Computation of Per Share Earnings.
21. Subsidiaries of the Registrant
23. Consent of Ernst and Young LLP, Independent Auditors
27. Financial Data Schedule (Electronic filing only)
Exhibit No. 10.8
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered
into as of October 31, 1997, by and between HARDING LAWSON ASSOCIATES GROUP,
INC., a Delaware corporation, formerly known as HARDING ASSOCIATES, INC., a
Delaware corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION
("Bank").
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms
and conditions of that certain Credit Agreement between Borrower and Bank dated
as of October 31, 1995, as amended from time to time ("Credit Agreement").
WHEREAS, Bank and Borrower have agreed to certain changes in the terms
and conditions set forth in the Credit Agreement and have agreed to amend the
Credit Agreement to reflect said changes.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree that the Credit
Agreement shall be amended as follows:
1. Section 1.1 is hereby amended by deleting "October 31, 1997" as the
last day on which Bank will make advances under the Line of Credit, and by
substituting for said date "November 30, 1999," with such change to be effective
upon the execution and delivery to Bank of a promissory note substantially in
the form of Exhibit A attached hereto (which promissory note shall replace and
be deemed the Line of Credit Note defined in and made pursuant to the Credit
Agreement) and all other contracts, instruments and documents required by Bank
to evidence such change.
2. Section 1.1(d) Term Loan Subfeature is hereby deleted in its
entirety, without substitution.
3. Section 1.1(e) is hereby amended (a) by deleting "October 30, 1997"
as the last day on which Bank will issue Letters of Credit under the subfeature
therefor under the Line of Credit, and by substituting for said date "November
30, 1999," and (b) by deleting "April 30, 1998" as the last date any such Letter
of Credit may expire, and by substituting for said date "May 30, 2000."
4. Section 1.2(a) is hereby deleted in its entirety, and the following
substituted therefor:
"(a) Foreign Exchange Facility. Subject to the terms
and conditions of this Agreement, Bank hereby agrees to make
available to Borrower a facility (the "Foreign Exchange
Facility") under which Bank, from time to time up to and
including November 30, 1999, will enter into foreign exchange
contracts for the account of Borrower for the purchase and/or
sale by Borrower in United States dollars of foreign
currencies designated by borrower provided however, that the
maximum amount of all outstanding foreign exchange contracts
shall not at any time exceed an aggregate of One Million and
No/100 United States Dollars (US$1,000,000.00). No foreign
exchange contract shall be executed for a term in excess of
three (3) months or for a term which extends beyond November
30, 1999. Borrower shall have a "Delivery Limit" under the
Foreign Exchange Facility not to exceed at any time the
aggregate principal amount of Three Hundred Thousand and
No/100 United States dollars (US$300,000.00), which Delivery
Limit reflects the maximum principal amount of Borrower's
foreign exchange contracts which may mature during any two (2)
day period. All foreign exchange transactions shall be subject
to the additional terms of a Foreign Exchange Agreement,
substantially in the form of Exhibit B attached hereto
("Foreign Exchange Agreement"), all terms of which are
incorporated herein by this reference."
5. Sections 1.3(a) and (b) are hereby deleted in their entirety, and
the following substituted therefor:
"(a) Interest. The outstanding principal balance of
the Line of Credit shall bear interest at the rate of interest
set forth in the Line of Credit Note.
"(b) Computation and Payment. Interest shall be
computed on the basis of a 360-day year, actual days elapsed.
Interest shall be payable at the times and place set forth in
the Line of Credit Note (collectively, the "Notes")."
6. Section 4.8(b) Working Capital is hereby deleted in its entirety,
without substitution.
7. Section 4.8(c) is hereby deleted in its entirety, and the following
substituted therefor:
"(c) Tangible Net Worth not at any time less than
$30,000,000.00, with "Tangible Net Worth" defined as the
aggregate of total stockholders' equity plus subordinated debt
less any intangible assets."
8. Section 4.8(f) is hereby deleted in its entirety, and the following
substituted therefor:
"(f) Net income after taxes not less than $1.00 on an
annual basis, determined as of each fiscal year end, with loss
not to exceed $1,000,000.00 in any one fiscal quarter and with
combined loss not to exceed $1,000,000.00 in any two
consecutive fiscal quarters."
9. The following is hereby added to the Credit Agreement as Section
7.10:
"SECTION 7.10. Waiver of Jury Trial.
TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, BORROWER AND
BANK HEREBY EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER
THIS CREDIT AGREEMENT OR ANY OF THE LOAN DOCUMENTS, AS DEFINED
THEREIN, AS AMENDED RENEWED OR RESTATED OR (B) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE
PARTIES OR ANY OF THEM WITH RESPECT TO THIS CREDIT AGREEMENT
OR ANY OF SUCH LOAN DOCUMENTS, OR THE TRANSACTIONS RELATED
HERETO OR THERETO, IN EACH CASE WHETHER SUCH CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION IS NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE; AND EITHER PARTY MAY FILE AN ORIGINAL COUNTERPART
OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE
OF THE CONSENT OF THE PARTIES TO THE WAIVER OF ANY RIGHT THEY
MIGHT OTHERWISE HAVE TO TRAIL BY JURY.
10. Commitment Fee. Borrower shall pay to Bank a non-refundable
commitment fee for the Line of Credit equal to $30,000.00, which fee shall be
due and payable in full on the date Borrower acknowledges this letter.
11. Except as specifically provided herein, all terms and conditions of
the Credit Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Credit Agreement shall have the same
meaning when used in this Amendment. This Amendment and the Credit Agreement
shall be read together, as one document.
12. Borrower hereby remakes all representations and warranties
contained in the Credit Agreement and reaffirms all covenants set forth therein.
Borrower further certifies that as of the date of this Amendment there exists no
Event of Default as defined in the Credit Agreement, nor any condition, act or
event which with the giving of notice or the passage of time or both would
constitute any such Event of Default.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
HARDING LAWSON ASSOCIATES WELLS FARGO BANK,
GROUP, INC. NATIONAL ASSOCIATION
By: /s/Gregory A. Thornton By: /s/ Alex McCombs
Gregory A. Thornton Alex McCombs
Vice President/Chief Financial Officer Vice President
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CREDIT AGREEMENT
THIS AGREEMENT is entered into as of October 31, 1995, by and between
HARDING ASSOCIATES, INC., a Delaware corporation ("Borrower"), and WELLS FARGO
BANK, NATIONAL ASSOCIATION ("Bank").
RECITAL
Borrower has requested from Bank the credit accommodations described
below (collectively, the "Credits"), and Bank has agreed to provide the Credits
to Borrower on the terms and conditions contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Bank and Borrower hereby agree as follows:
ARTICLE I
THE CREDITS
SECTION 1.1. LINE OF CREDIT.
(a) Line of Credit. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower from time to time up
to and including October 31, 1997, not to exceed at any time the aggregate
principal amount of Twenty Million and No/100 Dollars ($20,000,000.00) ("Line of
Credit"), the proceeds of which shall be used for short term working capital and
other general uses. Borrower's obligation to repay advances under the Line of
Credit shall be evidenced by a promissory note substantially in the form of
Exhibit A attached hereto ("Line of Credit Note"), all terms of which are
incorporated herein by this reference.
(b) Borrowing and Repayment. Borrower may from time to time during the
term of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note; provided however,
that the total outstanding borrowings under the Line of Credit shall not at any
time exceed the maximum principal amount available thereunder, as set forth
above.
(c) Prepayment. Borrower may prepay principal on the Line of Credit
solely in accordance with the provisions of the Line of Credit Note.
(d) Term Loan Subfeature. Subject to the terms and conditions of the
Line of Credit, Bank hereby agrees to convert advances under the Line of Credit
to a loan or series of loans to Borrower in the aggregate principal amount of
TEN MILLION AND NO/100 DOLLARS ($10,000,000.00) (each, a "Term Loan" and
collectively, the "Term Loans"). Borrower's obligation to repay each Term Loan
shall be evidenced by a promissory note substantially in the form of Exhibit B
attached hereto (each, a "Term Note" and collectively, the "Term Notes"), all
terms of which are incorporated herein by this reference. Bank's commitment to
grant Term Loans shall terminate on October 31, 1997. The principal amount of
each Term Loan shall be repaid in accordance with the provisions of the
respective Term Note and shall be amortized over a five (5) year term; provided
however, that no Term Loan shall have a maturity date occurring later than
October 31, 2002. Each Term Loan shall be in the minimum principal amount of
FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000.00). The aggregate
outstanding principal balance of all Term Loans shall be reserved under the Line
of Credit and shall not be available for advances thereunder. Borrower may
prepay principal on the Term Loans solely in accordance with the provisions of
the Term Note.
(e) Letter of Credit Subfeature. As a subfeature under the Line of
Credit, Bank agrees from time to time during the term thereof to issue stand-by
letters of credit for the account of Borrower to finance insurance and
performance bond requirements (each, a "Letter of Credit" and collectively,
"Letters of Credit"); provided however, that the form and substance of each
Letter of Credit shall be subject to approval by Bank, in its sole discretion;
and provided further, that the aggregate undrawn amount of all outstanding
Letters of Credit shall not at any time exceed Five Million and No/100 Dollars
($5,000,000.00), provided however, that no Letter of Credit shall have an
expiration date subsequent to April 30, 1998. The undrawn amount of all Letters
of Credit shall be reserved under the Line of Credit and shall not be available
for borrowings thereunder. Each Letter of Credit shall be subject to the
additional terms and conditions of the Letter of Credit Agreement and related
documents, if any, required by Bank in connection with the issuance thereof
(each, a "Letter of Credit Agreement" and collectively, "Letter of Credit
Agreements"). Each draft paid by Bank under a Letter of Credit shall be deemed
an advance under the Line of Credit and shall be repaid by Borrower in
accordance with the terms and conditions of this Agreement applicable to such
advances; provided however, that if advances under the Line of Credit are not
available, for any reason whatsoever, at the time any draft is paid by Bank,
then the full amount of such draft shall be immediately due and payable,
together with interest thereon, from the date such amount is paid by Bank to the
date such amount is fully repaid by Borrower, at the rate of interest applicable
to advances under the Line of Credit. In such event Borrower agrees that Bank,
at Bank's sole discretion, may debit any demand deposit account maintained by
Borrower with Bank for the amount of any such draft.
SECTION 1.2. FOREIGN EXCHANGE FACILITY.
(a) Foreign Exchange Facility. Subject to the terms and conditions of
this Agreement, Bank hereby agrees to make available to Borrower a facility (the
"Foreign Exchange Facility") under which Bank, from time to time up to and
including October 31, 1997, will enter into foreign exchange contracts for the
account of Borrower for the purchase and/or sale by Borrower in United States
dollars of foreign currencies designated by borrower provided however, that the
maximum amount of all outstanding foreign exchange contracts shall not at any
time exceed an aggregate of One Million and No/100 United States Dollars
(US$1,000,000.00). No foreign exchange contract shall be executed for a term
inexcess of three (3) months or for a term which extends beyond October 31,
1997. Borrower shall have a "Delivery Limit" under the Foreign Exchange Facility
not to exceed at any time the aggregate principal amount of Three Hundred
Thousand and No/100 United States Dollars (US$300,000.00), which Delivery Limit
reflects the maximum principal amount of Borrower's foreign exchange contracts
which may mature during any two (2) day period. All foreign exchange
transactions shall be subject to the additional terms of a Foreign Exchange
Agreement, substantially in the form of Exhibit C attached hereto ("Foreign
Exchange Agreement"), all terms of which are incorporated herein by this
reference.
(b) Settlement. Each foreign exchange contract under the Foreign
Exchange Facility shall be settled on its maturity date by Bank's debit to any
demand deposit account maintained by Borrower with Bank.
SECTION 1.3. INTEREST/FEES.
(a) Interest. The outstanding principal balance of the Line of Credit
and Term Loan(s) shall bear interest at the respective rates of interest set
forth in the Line of Credit Note and Term Note(s).
(b) Computation and Payment. Interest shall be computed on the basis of
a 360-day year, actual days elapsed. Interest shall be payable at the times and
place set forth in the Line of Credit Note and Term Note(s) (collectively, the
"Notes").
(c) Documentation Fee. Borrower shall pay to Bank a non-refundable
documentation fee for the Line of Credit equal to $40,000.00, which
documentation fee shall be due and payable in full upon execution of this
agreement.
(d) Letter of Credit Fees. Borrower shall pay to Bank (i) fees upon the
issuance of each Letter of Credit equal to one and one-quarter percent (1.25%)
per annum (computed on the basis of a 360-day year, actual days elapsed) of the
face amount thereof, (ii) fees upon the payment or negotiation by Bank of each
draft under any Letter of Credit equal to the greater of two percent (2%) of the
amount of such draft or $540.00 and (iii) fees upon the occurrence of any other
activity with respect to any Letter of Credit (including without limitation, the
transfer, amendment or cancellation of any Letter of Credit) determined in
accordance with Bank's standard fees and charges then in effect for such
activity.
SECTION 1.4. COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect all
principal, interest and fees due under each Credit by charging Borrower's demand
deposit account number 4518050042 with Bank, or any other demand deposit account
maintained by Borrower with Bank, for the full amount thereof. Should there be
insufficient funds in any such demand deposit account to pay all such sums when
due, the full amount of such deficiency shall be immediately due and payable by
Borrower.
SECTION 1.5. COLLATERAL. As security for all indebtedness of Borrower to Bank
pursuant to this Agreement, Borrower grants to Bank security interests of first
priority in all Borrower's accounts receivable and other rights to payment and
all proceeds of the foregoing. All of the foregoing shall be evidenced by and
subject to the terms of such security agreements, financing statements, deeds of
trust and other documents as Bank shall reasonably require, all in form and
substance satisfactory to Bank. Borrower shall reimburse Bank immediately upon
demand for all costs and expenses incurred by Bank in connection with any of the
foregoing security, including without limitation, filing and recording fees and
costs of appraisals, audits and title insurance.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to
Bank, which representations and warranties shall survive the
execution of this Agreement and shall continue in full force
and effect until the full and final payment, and satisfaction
and discharge, of all obligations of Borrower to Bank subject
to this Agreement.
SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized and
existing and in good standing under the laws of the State of Delaware, and is
qualified or licensed to do business (and is in good standing as a foreign
corporation, if applicable) in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so licensed
could have a material adverse effect on Borrower.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Notes, and each
other document, contract and instrument required hereby or at any time hereafter
delivered to Bank in connection herewith (collectively, the "Loan Documents")
have been duly authorized, and upon their execution and delivery in accordance
with the provisions hereof will constitute legal, valid and binding agreements
and obligations of Borrower or the party which executes the same, enforceable in
accordance with their respective terms.
SECTION 2.3. NO VIOLATION. The execution, delivery and performance by Borrower
of each of the Loan Documents do not violate any provision of any law or
regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower or result in any breach of or default under any contract,
obligation, indenture or other instrument to which Borrower is a party or by
which Borrower may be bound.
SECTION 2.4. LITIGATION. There are no pending, or to the best of Borrower's
knowledge threatened, actions, claims, investigations, suits or proceedings by
or before any governmental authority, arbitrator, court or administrative agency
which could have a material adverse effect on the financial condition or
operation of Borrower other than those disclosed by Borrower to Bank in writing
prior to the date hereof.
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement of
Borrower dated May 31, 1995, a true copy of which has been delivered by Borrower
to Bank prior to the date hereof, (a) is complete and correct and presents
fairly the financial condition of Borrower, (b) discloses all liabilities of
Borrower that are required to be reflected or reserved against under generally
accepted accounting principles, whether liquidated or unliquidated, fixed or
contingent, and (c) has been prepared in accordance with generally accepted
accounting principles consistently applied. Since the date of such financial
statement there has been no material adverse change in the financial condition
of Borrower, nor has Borrower mortgaged, pledged, granted a security interest in
or otherwise encumbered any of its assets or properties except in favor of Bank
or as otherwise permitted by Bank in writing.
SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any pending
assessments or adjustments of its income tax payable with respect to any year.
SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture, contract or
instrument to which Borrower is a party or by which Borrower may be bound that
requires the subordination in right of payment of any of Borrower's obligations
subject to this Agreement to any other obligation of Borrower.
SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will hereafter
possess, all permits, franchises and licenses required and rights to all
trademarks, trade names, patents, and fictitious names, if any, necessary to
enable it to conduct the business in which it is now engaged in compliance with
applicable law.
SECTION 2.9. ERISA. Borrower is in compliance in all material respects with all
applicable provisions of the Employee Retirement Income Security Act of 1974, as
amended or recodified from time to time ("ERISA"); Borrower has not violated any
provision of any defined employee pension benefit plan (as defined in ERISA)
maintained or contributed to by Borrower (each, a "Plan"); no Reportable Event
as defined in ERISA has occurred and is continuing with respect to any Plan
initiated by Borrower; Borrower has met its minimum funding requirements under
ERISA with respect to each Plan; and each Plan will be able to fulfill its
benefit obligations as they come due in accordance with the Plan documents and
under generally accepted accounting principles.
SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any obligation
for borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower toBank in
writing prior to the date hereof, Borrower is in compliance in all material
respects with all applicable Federal or state environmental, hazardous waste,
health and safety statutes, and any rules or regulations adopted pursuant
thereto, which govern or affect any of Borrower's operations and/or properties,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act
of 1976, the Federal Toxic Substances Control Act and the California Health and
Safety Code, as any of the same may be amended, modified or supplemented from
time to time. None of the operations of Borrower is the subject of any Federal
or state investigation evaluating whether any remedial action involving a
material expenditure is needed to respond to a release of any toxic or hazardous
waste or substance into the environment. Borrower has no material contingent
liability in connection with any release of any toxic or hazardous waste or
substance into the environment.
ARTICLE III
CONDITIONS
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of Bank
to grant any of the Credits is subject to the fulfillment to Bank's satisfaction
of all of the following conditions:
(a) Approval of Bank Counsel. All legal matters incidental to the
granting of each of the Credits shall be satisfactory to Bank's counsel.
(b) Documentation. Bank shall have received, in form and substance
satisfactory to Bank, each of the following, duly executed: (i) This Agreement
and the Notes; (ii) Corporate Borrowing Resolution; (iii) Sweep Authorization
Agreement; and (iv) Such other documents as Bank may require under any other
Section of this Agreement.
(c) Financial Condition. There shall have been no material adverse
change, as determined by Bank, in the financial condition or business of
Borrower, nor any material decline, as determined by Bank, in the market value
of any collateral required hereunder or a substantial or material portion of the
assets of Borrower.
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of Bank to
make each extension of credit requested by Borrower hereunder shall be subject
to the fulfillment to Bank's satisfaction of each of the following conditions:
(a) Compliance. The representations and warranties contained herein and
in each of the other Loan Documents shall be true on and as of the date of the
signing of this Agreement and on the date of each extension of credit by Bank
pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
Event of Default as defined herein, and no condition, event or act which with
the giving of notice or the passage of time or both would constitute such an
event of Default, shall have occurred and be continuing or shall exist.
(b) Documentation. Bank shall have received all additional documents
which may berequired in connection with such extension of credit.
ARTICLE IV
AFFIRMATIVE COVENANTS
Borrower covenants that so long as Bank remains committed to
extend credit to Borrower pursuant hereto, or any liabilities
(whether direct or contingent, liquidated or unliquidated) of
Borrower to Bank under any of the Loan Documents remain
outstanding, and until payment in full of all obligations of
Borrower subject hereto, Borrower shall, unless Bank otherwise
consents in writing:
SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest, fees or
other liabilities due under any of the Loan Documents at the times and place and
in the manner specified therein.
SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time, to inspect, audit
and examine such books and records, to make copies of the same, and to inspect
the properties of Borrower.
SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the following, in form
and detail satisfactory to Bank:
(a) not later than 120 days after and as of the end of each fiscal
year, an audited financial statement of Borrower, prepared by an independent
certified public accountant acceptable to Bank, to include income statement,
balance sheet, Incident of Loss Report and 10K's;
(b) not later than 60 days after and as of the end of each fiscal
quarter, a financial statement of Borrower, prepared by Borrower, to include
income statement, balance sheet, Incident of Loss Report and 10Q's; and
(c) from time to time such other information as Bank may reasonably
request.
SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern Borrower's continued
existence and with the requirements of all laws, rules, regulations and orders
of any governmental authority applicable to Borrower and/or its business.
SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the types and in
amounts customarily carried in lines of business similar to that of Borrower,
including but not limited to fire, extended coverage, public liability, flood,
property damage and workers' compensation, with all such insurance carried with
companies and in amounts satisfactory to Bank, and deliver to Bank from time to
time at Bank's request schedules setting forth all insurance then in effect.
SECTION 4.6. FACILITIES. Keep all properties useful or necessary to Borrower's
business in good repair and condition, and from time to time make necessary
repairs, renewals and replacements thereto so that such properties shall be
fully and efficiently preserved and maintained.
SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any and all
indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation Federal and state income taxes and state and local
property taxes and assessments, except such
(a) as Borrower may in good faith contest or as to which a bona fide
dispute may arise, and
(b) for which Borrower has made provision, to Bank's satisfaction, for
eventual payment thereof in the event Borrower is obligated to make such
payment.
SECTION 4.8. FINANCIAL CONDITION. Maintain Borrower's financial condition as
follows using generally accepted accounting principles consistently applied and
used consistently with prior practices, except to the extent modified by the
following definitions:
(a) Current Ratio not at any time less than 1.5 to 1.0, with "Current
Ratio" defined as total current assets divided by total current liabilities.
(b) Working Capital not at any time less than $21,000,000.00, with
"Working Capital" defined as total current assets minus total current
liabilities.
(c) Tangible Net Worth not at any time less than $26,000,000.00, with
"Tangible Net Worth" defined as the aggregate of total stockholders' equity plus
subordinated debt less any intangible assets.
(d) Total Liabilities divided by Tangible Net Worth not at any time
greater than 1.0 to 1.0, with "Total Liabilities" defined as the aggregate of
current liabilities and non-current liabilities less subordinated debt, and with
"Tangible Net Worth" defined as the aggregate of total equity plus subordinated
debt less any intangible assets.
(e) EBITDA Coverage Ratio not less than 1.5 to 1.0 as of each fiscal
year end, with "EBITDA" defined as net profit before tax plus interest expense
(net of capitalized interest expense), depreciation expense and amortization
expense, and with "EBITDA Coverage Ratio" defined as EBITDA divided by the
aggregate of total interest expense plus the prior period current maturity of
long-term debt and the prior period current maturity of subordinated debt.
(f) Profitable operations on an annual basis, with no two quarters of
consecutive losses.
SECTION 4.9. NOTICE TO BANK. Promptly (but in no event more than five (5) days
after the occurrence of each such event or matter) give written notice to Bank
in reasonable detail of:
(a) the occurrence of any Event of Default, or any condition, event or
act which with the giving of notice or the passage of time or both would
constitute an Event of Default;
(b) any change in the name or the organizational structure of Borrower;
(c) the occurrence and nature of any Reportable Event or Prohibited
Transaction, each as defined in ERISA, or any funding deficiency with respect to
any Plan; or
(d) any termination or cancellation of any insurance policy which
Borrower is required to maintain, or any uninsured or partially uninsured loss
through liability or property damage, or through fire, theft or any other cause
affecting Borrower's property.
ARTICLE V
NEGATIVE COVENANTS
Borrower further covenants that so long as Bank remains
committed to extend credit to Borrower pursuant hereto, or any
liabilities (whether direct or contingent, liquidated or
unliquidated) of Borrower to Bank under any of the Loan
Documents remain outstanding, and until payment in full of all
obligations of Borrower subject hereto, Borrower will not
without Bank's prior written consent:
SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any of the Credits except
for the purposes stated in Article I hereof.
SECTION 5.2. CAPITAL EXPENDITURES. Make any additional investment in fixed
assets in any fiscal year in excess of an aggregate of $7,000,000.00, except for
those acquired through mergers and acquisitions. Investments in fixed assets not
prohibited by this Section, and not made through mergers and acquisitions, shall
consist only of
(a) cash purchases by Borrower (no financing) and/or
(b) purchases subject to purchase money security interests including
capital lease transactions.
SECTION 5.3. OTHER INDEBTEDNESS. Create, incur, assume or permit to exist any
indebtedness or liabilities resulting from borrowings, loans or advances,
whether secured or unsecured, matured or unmatured, liquidated or unliquidated,
joint or several, except the liabilities of Borrower to Bank and any other
liabilities of Borrower existing as of the date of this Agreement and previously
disclosed to Bank and except for stock option loans not in excess of an
aggregate of $1,000,000.00.
SECTION 5.4. INDEBTEDNESS OF WHOLLY OWNED SUBSIDIARIES. Permit wholly owned
subsidiaries of Borrower to create, incur, assume or permit to exist any
indebtedness or liabilities resulting from borrowings, loans, advances, whether
secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or
several, except for working capital lines of credit with commercial banks to
wholly owned subsidiaries of Borrower not to exceed an aggregate principal
amount of $1,000,000.00.
SECTION 5.5. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any corporation or other entity; make any substantial change in
nature of Borrower's business; acquire all or substantially all of the assets of
any corporation or other entity where such acquisition occurs on a "hostile"
basis (that is, not approved by the target company's board of directors).
SECTION 5.6. GUARANTIES. Guarantee or become liable in any way as surety,
endorser, accommodation endorser or otherwise for, nor pledge or hypothecate any
assets of Borrower as security for, any liabilities or obligations of any other
person or entity other than a wholly owned subsidiary of Borrower not to exceed
an aggregate amount of $5,000,000.00.
SECTION 5.7. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to or
investments in any person or entity, except to various joint ventures or general
partnerships in which Borrower is a joint venturer or general partner in the
ordinary course of business.
SECTION 5.8. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to exist a
security interest in, or lien upon, all or any portion of Borrower's assets now
owned or hereafter acquired, except any of the foregoing in favor of Bank or
which is existing as of, and disclosed to Bank in writing prior to, the date
hereof.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. The occurrence of any of the following shall constitute an "Event
of Default" under this Agreement: (a) Borrower shall fail to pay when
due any principal, interest, fees or other amounts payable under any
of the Loan Documents.
(b) Any representation or warranty made by Borrower hereunder shall
prove to be incorrect in any material respect when made.
(c) Any material default in the performance of or compliance with any
obligation, agreement or other provision contained herein (other than those
referred to in subsections (a) and (b) above), and with respect to any such
default which by its nature can be cured, such default shall continue for a
period of twenty (20) days from its occurrence.
(d) Any material default in the payment or performance of any
obligation, or any defined event of default, under the terms of any contract or
instrument (other than any of the Loan Documents) pursuant to which Borrower has
incurred any debt or other liability to any person or entity, including Bank.
(e) Any material default in the payment or performance of any
obligation, or any defined event of default, under any of the Loan Documents
other than this Agreement.
(f) The filing of a notice of judgment lien against Borrower; or the
recording of any abstract of judgment against Borrower in any county in which
Borrower has an interest in real property; or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process, against the
assets of Borrower; where such liens, levies and/or like processes exceed an
aggregate of ONE MILLION AND NO/100 DOLLARS ($1,000,000.00) and are not
satisfied, or discharged or stayed within ten (10) days from filing or
recordation thereof; or the entry of any judgement(s) against Borrower where
such judgement(s) exceed(s) an aggregate of FIVE MILLION AND NO/100 DOLLARS
($5,000,000.00) and is (are) not satisfied or discharged or stayed within 90
days from filing or recordation thereof.
(g) Borrower shall become insolvent, or shall suffer or consent to or
apply for the appointment of a receiver, trustee, custodian or liquidator of
itself or any of its property, or shall generally fail to pay its debts as they
become due, or shall make a general assignment for the benefit of creditors;
Borrower shall file a voluntary petition in bankruptcy, or seeking
reorganization, in order to effect a plan or other arrangement with creditors or
any other relief under the Bankruptcy Reform Act, Title 11 of the United States
Code, as amended or recodified from time to time ("Bankruptcy Code"), or under
any state or federal law granting relief to debtors, whether now or hereafter in
effect; or any involuntary petition or proceeding pursuant to said Bankruptcy
Code or any other applicable state or federal law relating to bankruptcy,
reorganization or other relief for debtors is filed or commenced against
Borrower, or Borrower shall file an answer admitting the jurisdiction of the
court and the material allegations of any involuntary petition; or Borrower
shall be adjudicated a bankrupt, or an order for relief shall be entered by any
court of competent jurisdiction under said Bankruptcy Code or any other
applicable state or federal law relating to bankruptcy, reorganization or other
relief for debtors.
(h) There shall exist or occur any material event or condition which
Bank in good faith believes, impairs, or is substantially likely to materially
impair, the prospect of payment or performance by Borrower of its obligations
under any of the Loan Documents.
(i) The dissolution or liquidation of Borrower; or Borrower, or any of
its directors, stockholders or members, shall take action seeking to effect the
dissolution or liquidation of Borrower.
(j) Litigation loss estimates for claims involving litigation against
Borrower as reflected in Borrower's and/or Redwood Insurance Ltd's (a Bermuda
corporation and a wholly owned subsidiary of Borrower) Incidence of Loss Report
(currently shown by Borrower as "HLA Reserves") shall at any time be estimated
(based on a determination made by Borrower's management and outside counsel) to
exceed $7,500,000.00 as of the most recent fiscal quarter's end.
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default:
(a) all indebtedness of Borrower under each of the Loan Documents, any
term thereof to the contrary notwithstanding, shall at Bank's option and without
notice become immediately due and payable without presentment, demand, protest
or notice of dishonor, all of which are hereby expressly waived by Borrower;
(b) the obligation, if any, of Bank to extend any further credit under
any of the Loan Documents shall immediately cease and terminate; and
(c) Bank shall have all rights, powers and remedies available under
each of the Loan Documents, or accorded by law, including without limitation the
right to resort to any or all security for any of the Credits and to exercise
any or all of the rights of a beneficiary or secured party pursuant to
applicable law. All rights, powers and remedies of Bank may be exercised at any
time by Bank and from time to time after the occurrence of an Event of Default,
are cumulative and not exclusive, and shall be in addition to any other rights,
powers or remedies provided by law or equity.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent or approval of any
kind by Bank of any breach of or default under any of the Loan Documents must be
in writing and shall be effective only to the extent set forth in such writing.
SECTION 7.2. NOTICES. All notices, requests and demands which any party is
required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following address:
BORROWER: HARDING ASSOCIATES, INC.
7655 Redwood Boulevard
Novato, California 94945
Attn: Gregory A. Thornton
Vice President/Chief Financial Officer
BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION
San Francisco Regional Commercial Banking
Office
420 Montgomery Street, 1st Floor
San Francisco, California 94163
Attn: Drew Metcalfe, Vice President
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows:
(a) if sent by hand delivery, upon delivery;
(b) if sent by mail, upon the earlier of the date of receipt or three
(3) days after deposit in the U.S. mail, first class and postage prepaid; and
(c) if sent by telecopy, upon receipt.
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), incurred by
Bank in connection with
(a) the negotiation and preparation of this Agreement and the other
Loan Documents, Bank's continued administration hereof and thereof, and the
preparation of any amendments and waivers hereto and thereto,
(b) the enforcement of Bank's rights and/or the collection of any
amounts which become due to Bank under any of the Loan Documents, and
(c) the prosecution or defense of any action in any way related to any
of the Loan Documents, including without limitation, any action for declaratory
relief, and including any of the foregoing incurred in connection with any
bankruptcy proceeding relating to Borrower.
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interest hereunder without Bank's prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate or
grant participations in all or any part of, or any interest in, Bank's rights
and benefits under each of the Loan Documents. In connection therewith, Bank may
disclose all documents and information which Bank now has or may hereafter
acquire relating to any of the Credits, Borrower or its business, or any
collateral required hereunder.
SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other Loan
Documents constitute the entire agreement between Borrower and Bank with respect
to the Credits and supersede all prior negotiations, communications, discussions
and correspondence concerning the subject matter hereof. This Agreement may be
amended or modified only by a written instrument executed by each party hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered
into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any other of the Loan Documents
to which it is not a party.
SECTION 7.7. TIME. Time is of the essence of each and every provision of this
Agreement and each other of the Loan Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this Agreement
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or any remaining provisions of this
Agreement.
SECTION 7.9. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, except to the extent Bank
has greater rights or remedies under Federal law, whether as a national bank or
otherwise, in which case such choice of California law shall not be deemed to
deprive Bank of any such rights and remedies as may be available under Federal
law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day and year first written above.
HARDING ASSOCIATES, INC. WELLS FARGO BANK, NATIONAL
ASSOCIATION
By: /s/ Gregory A. Thornton By: /s/ Drew Metcalfe
Gregory A. Thornton Drew Metcalfe
Vice President/ Chief Financial Officer Vice President
Exhibit 10.11
HARDING LAWSON ASSOCIATES GROUP, INC.
NON-QUALIFIED DEFERRED-COMPENSATION PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
The Plan was adopted by the Board effective as of November 1987. The
Plan was amended and restated by the Board as of January 1, 1989, January 1,
1995, April 24, 1997, and June 2, 1998. The Plan is intended to provide Eligible
Participants with an opportunity to defer payment of a portion of their salaries
and directors' compensation and of any bonus awards they receive under the
Company's Incentive Compensation, 1995 Incentive Stock and Non-Employee Director
Compensation Stock Plans. Deferred amounts will be credited with an investment
return linked to the return on selected mutual funds or on the Company's common
stock.
SECTION 2. DEFINITIONS.
(a) "Account" means a Mutual Fund Account or a Stock Account.
(b) "Beneficiary" means the person or persons designated by the
Eligible Participant or by the Plan under Section 8(b) to receive the balance in
the Eligible Participant's Account(s) in the event of his or her death.
(c) "Board" means the Board of Directors of the Company, as constituted
from time to time.
(d) "Committee" means the Salary Deferral Committee, as appointed by
the Board of Directors.
(e) "Company" means Harding Lawson Associates Group, Inc., a Delaware
corporation.
(f) "Compensation" means:
(i) The amount payable by the Company or a subsidiary of the
Company to an Eligible Employee as a bonus award under the Company's
Incentive Compensation Plan or 1995 Incentive Stock Plan;
(ii) The amount of the Eligible Employee's base salary from
the Company or a subsidiary of the Company; and
(iii) In the case of an Eligible Board Member, the amount of
his or her director's fees from the Company (including, without
limitation, annual retainers and meeting fees, but not including
expense reimbursements), which are payable either in cash or in Stock
under the Company's Non-Employee Director Compensation Stock Plan.
(g) "Election Period" means the month of December of each Year.
(h) "Eligible Board Member" means a member of the Board who is not a
common-law employee of the Company or a subsidiary of the Company.
(i) "Eligible Employee" means:
(i) An officer of the Company or of a domestic subsidiary
wholly owned (directly or indirectly by the Company; or
(ii) A common-law employee of the Company, or of any of its
direct or indirect subsidiaries, who has continuously participated in
the Plan since December 31, 1994. Once the active participation of such
employee terminates for any reason, it shall not resume thereafter
(unless such employee is eligible to resume active participation as an
Eligible Board Member or as an officer).
(j) "Eligible Participant" means an Eligible Board Member or an
Eligible Employee.
(k) "Mutual Fund Account" means a bookkeeping account established
pursuant to Section 5(a) for Compensation which (i) is subject to an Eligible
Participant's deferral election and (ii) is not payable under either the 1995
Incentive Stock Plan or the Non-Employee Director Compensation Stock Plan.
(l) "Plan" means this Non-Qualified Deferred-Compensation Plan of
Harding Lawson Associates Group, Inc., as amended from time to time.
(m) "Retirement Date" means:
(i) The first day of the month coinciding with or next
following the Eligible Participant's 65th birthday; or
(ii) The first day of the month coinciding with or next
following the earliest date when the Eligible Participant has both
attained age 55 and completed 10 years of Service.
(n) "Service" means:
(i) Service as a common-law employee of the Company or a
subsidiary of the Company; or
(ii) Service as a member of the Board.
(o) "Stock" means the Company's Common Stock.
(p) "Stock Account" means a bookkeeping account established pursuant to
Section 5(a) for Compensation which (i) is subject to an Eligible Participant's
deferral election and (ii) is payable under either the 1995 Incentive Stock Plan
or the Non-Employee Director Compensation Stock Plan.
(q) "Total Disability" means that the Eligible Participant is unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted, or can be expected to last, for a continuous period
of not less than 12 months. The existence of a Total Disability shall be
confirmed by the Committee.
(r) "Unforeseeable Emergency" means a severe financial hardship to the
Eligible Participant resulting from a sudden and unexpected illness or accident
of the Eligible Participant or of a dependent of the Eligible Participant, from
a loss of the Eligible Participant's property due to casualty or from other
similar extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the Eligible Participant. A hardship shall not
constitute an Unforeseeable Emergency under the Plan to the extent that it is or
may be relieved:
(i) Through reimbursement or compensation, by insurance or
otherwise;
(ii) By liquidation of the Eligible Participant's assets, to
the extent that the liquidation of such assets would not itself cause
severe financial hardship; or
(iii) By discontinuing deferrals under this Plan or under any
other plan of the Company as soon as permissible.
An Unforeseeable Emergency under the Plan shall in no event include the need to
send a child to college or the desire to purchase a home.
(s) "Year" means a calendar year.
SECTION 3. ELIGIBILITY.
Participation in the Plan shall be limited to Eligible Participants.
Eligible Participants shall be excluded from the Plan after a withdrawal
described in Section 7(d).
SECTION 4. ELECTION TO PARTICIPATE IN PLAN.
(a) Initial Deferral Election. An Eligible Participant may elect to
participate in the Plan by filing a written election of deferral of Compensation
with the Company during any Election Period. Such election shall apply to all
Compensation to be paid in payroll periods commencing after the close of such
Election Period. The election shall specify the percentage of the Eligible
Participant's Compensation to which it applies, which may be any whole
percentage between the minimum and the maximum prescribed by the Committee from
time to time. Such minimum and maximum may be different for salaries, bonuses
and directors' fees.
(b) Revised Deferral Election. An Eligible Participant may change his
or her deferral percentage (or reduce it to zero) by filing a new deferral
election with the Company during any Election Period. The change shall be
effective with respect to all Compensation to be paid in payroll periods
commencing after the close of such Election Period.
(c) Election Form. All deferral elections under this Section 4 shall be
made on the form(s) prescribed for this purpose by the Committee.
SECTION 5. ACCOUNTS.
(a) Establishment of Accounts. The Company shall establish a Mutual
Fund Account or a Stock Account, or both, for each Eligible Participant who has
duly filed a deferral election with respect to his or her Compensation. A Mutual
Fund Account may include more than one sub-account for investment purposes.
(b) Credits to Accounts. An Eligible Participant's Mutual Fund Account
shall be credited with an amount equal to that percentage of his or her
Compensation which would have been payable currently but for the terms of his or
her deferral election, excluding Compensation which would have been payable
under the 1995 Incentive Stock Plan or the Non-Employee Director Stock Plan. An
Eligible Participant's Stock Account shall be credited with an amount equal to
that percentage of his or her Compensation which would have been payable
currently under the 1995 Incentive Stock Plan or the Non-Employee Director Stock
Plan but for the terms of his or her deferral election. Deferred Compensation
shall be credited to the Eligible Participant's Account(s) as soon as reasonably
practicable after the applicable payment date.
SECTION 6. INVESTMENT INCREMENTS.
(a) Investment Selection. The Committee shall select one or more mutual
funds for the purposes of the Plan. The investment return on all Mutual Fund
Accounts shall be linked to the investment return on one or more of such mutual
funds. If the Committee has selected more than one mutual fund, the Eligible
Participant may elect from time to time to which mutual fund(s) the investment
return on his or her Mutual Fund Account shall be linked. The frequency and
content of such elections shall be subject to rules adopted by The Committee.
The investment return on all Stock Accounts shall be linked to the investment
return on Stock.
(b) Investment Return and Expenses. The balance in each Mutual Fund
Account shall be adjusted at such intervals as the Committee may determine to
reflect changes in the value of the mutual fund(s) to which such Account is
linked. Any commissions, sales loads or other charges related to a mutual fund
shall be charged to the Mutual Fund Accounts linked to such mutual fund. The
balance in each Stock Account shall be adjusted at such intervals as the
Committee may determine to reflect changes in the value of Stock. Any
commissions or other charges related to the acquisition or holding of shares of
Stock shall be charged to the Stock Accounts linked to such shares. Any
investment increments shall become part of the applicable Account and shall be
distributed at the same time or times as the rest of such Account.
(c) Statements. At such intervals as the Committee may determine, each
Eligible Participant who has one or more Accounts shall receive one or more
written statements showing the balance credited to such Accounts as of the
applicable date.
(d) Effective Date. Subsection (a) above notwithstanding, the
investment return on the Mutual Fund Accounts of individuals who were not active
employees of the Company or members of the Board on or after January 1, 1995,
shall be linked in equal proportions to the investment return on each of the
mutual funds selected by the Committee for this purpose. Such individuals shall
not be entitled to make elections with respect to the mutual funds.
SECTION 7. FORM AND TIME OF DISTRIBUTION OF ACCOUNTS.
(a) Termination Before Retirement Date. In the case of an Eligible
Participant whose Service terminated before his or her Retirement Date, such
Eligible Participant's Account(s) shall be distributed to him or her as soon as
reasonably practicable after his or her Service has terminated. Mutual Fund
Accounts shall be distributed in cash, and Stock Accounts shall be distributed
in the form of certificates for Stock or electronic transfer.
(b) Termination After Retirement Date. In the case of an Eligible
Participant whose Service terminates on or after his or her Retirement Date,
such Eligible Participant's Account(s) shall be distributed to him or her in one
of the following forms, as such Eligible Participant has elected at the time of
enrolling in the Plan (as amended effective January 1, 1995):
(i) A single lump sum; or
(ii) A series of quarterly installments over such period of
years (not more than 10 years) as the Eligible Participant has elected
at the time of enrollment.
The lump sum shall be distributed, or the installments shall commence, either as
soon as reasonably practicable after the Eligible Participant's Service has
terminated or, if later, on a specified date, as the Eligible Participant has
elected at the time of enrollment. Mutual Fund Accounts shall be distributed in
cash, and Stock Accounts shall be distributed in the form of certificates for
Stock or electronic transfer. The amount of any installment to be distributed
from an Account shall be determined by dividing the balance remaining in such
Account by the number of installments then remaining to be distributed from such
Account.
(c) Disability or Emergency. In the event of an Eligible Participant's
Total Disability or an Unforeseeable Emergency, upon application by such
Eligible Participant, the Committee may determine in its sole discretion that
distribution of all or part of such Eligible Participant's Account(s) shall be
made in a different form or on an earlier date than the time or times specified
in Subsections (a) and (b) above. Distributions on account of Total Disability
or an Unforeseeable Emergency shall be permitted only to the extent reasonably
needed to satisfy the Eligible Participant's need.
(d) Early Distribution With Penalty. Upon application by an Eligible
Participant, the Committee may determine in its sole discretion that
distributions from such Eligible Participant's Account(s) shall be made in a
different form or an earlier date than the time or times specified in
Subsections (a) and (b) above (even in the absence of a Total Disability or
Unforeseeable Emergency). All distributions under this Subsection (d) shall be
reduced by a penalty equal to eight percent of the amount otherwise
distributable, which penalty shall be forfeited to the Company. An Eligible
Participant who has received a distribution under this Subsection (d) thereafter
shall not make any additional deferral under the Plan.
(e) Special Rule for Stock Accounts. Any other provision of the Plan
notwithstanding, the Committee (at its absolute discretion) may vary the time of
distributions from Stock Accounts in order to accommodate the requirements of
section 16 of the Securities Exchange Act of 1934, as amended, and the rules
issued thereunder by the Securities and Exchange Commission.
(f) Effective Date. The provisions of this Section 7 shall apply to all
Accounts of Eligible Participants who elected to participate in the Plan on or
after January 1, 1995, including Account balances held under the Plan as of
December 31, 1994.
SECTION 8. EFFECT OF DEATH OR PARTICIPANT.
(a) Distributions. Upon the death of an Eligible Participant, any
balance remaining in his or her Account(s) shall be distributed to his or her
Beneficiary. The distribution(s) shall be made in the form in which the
distribution(s) to the Eligible Participant would have been made. The
distribution(s) shall be made at the time when the distribution(s) to the
Eligible Participant would have been made, unless the Committee determines in
its sole discretion that distribution(s) shall be made at an earlier date.
(b) Beneficiary Designation. Upon enrollment in the Plan, each Eligible
Participant shall, by filing the prescribed form with the Company, name a person
or persons as the Beneficiary who will receive any distribution under the Plan
in the event of the Eligible Participant's death. If the Eligible Participant
has not named a Beneficiary or if none of the named Beneficiaries is living when
any distribution is to be made, then:
(i) The spouse of the deceased Eligible Participant shall be
the Beneficiary; or
(ii) If the Eligible Participant has no spouse living at the
time of such distribution, the then living children of the deceased
Eligible Participant shall be the Beneficiaries in equal shares; or
(iii) If the Eligible Participant has neither spouse nor
children living at the time of such distribution, the estate of the
Eligible Participant shall be the Beneficiary.
The Eligible Participant may change the designation of a Beneficiary from time
to time in accordance with procedures established by the Committee. Any
designation of a Beneficiary (or an amendment or revocation thereof) shall be
effective only if it is made in writing on the prescribed form and is received
by the Company prior to the Eligible Participant's death.
SECTION 9. WITHHOLDING TAXES.
All distributions under the Plan shall be subject to reduction to
reflect any withholding tax obligations imposed by law.
SECTION 10. PARTICIPANT'S RIGHTS UNSECURED.
The interest under the Plan of any Eligible Participant, and such
Eligible Participant's right to receive distributions from his or her
Account(s), shall be an unsecured claim against the general assets of the
Company. The Accounts shall be unfunded bookkeeping entries only, and the
Company intends that the Plan be considered unfunded for tax purposes and for
purposes of Title I of the Employee Retirement Income Security Act of 1974, as
amended. No Eligible Participant shall have an interest in or claim against any
specific asset of the Company pursuant to the Plan.
SECTION 11. NONASSIGNABILITY OF INTERESTS.
The interest and property rights of an Eligible Participant under the
Plan shall not be subject to option nor be assignable either by voluntary or
involuntary assignment or by operation of law, including (without limitation)
bankruptcy, garnishment, attachment or other creditor's process, and any act in
violation of this Section 11 shall be void.
SECTION 12. LIMITATION OF RIGHTS.
(a) Bonuses. Nothing in the Plan shall be construed to give any
Eligible Employee any right to be granted a bonus award.
(b) Employment Rights. Neither the Plan nor the deferral of any
Compensation, nor any other action taken pursuant to the Plan, shall constitute
or be evidence of any agreement or understanding, express or implied, that the
Company or any subsidiary of the Company will employ an Eligible Employee for
any period of time, in any position or at any particular rate of compensation.
The Company and its subsidiaries reserve the right to terminate an Eligible
Employee's employment at any time and for any reason, except as otherwise
expressly provided in a written employment agreement.
SECTION 13. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Committee. The Committee shall
have full power and authority to administer and interpret the Plan, to establish
procedures for administering the Plan, to prescribe forms and to take any and
all necessary actions in connection with the Plan. The Committee's
interpretation and construction of the Plan shall be conclusive and binding on
all persons.
SECTION 14. AMENDMENT OR TERMINATION OF THE PLAN.
The Board may amend, suspend or terminate the Plan at any time. In the
event of a termination of the Plan, the Accounts of Eligible Participants shall
be distributed at such time and in such form as shall be determined pursuant to
Section 7, unless the Board prescribes an earlier time or different form for the
distribution of such Accounts.
SECTION 15. CHOICE OF LAW AND CLAIMS PROCEDURE.
(a) Choice of Law. The validity, interpretation, construction and
performance of the Plan shall be governed by the Employee Retirement Income
Security Act of 1974 and, to the extent they are not preempted, by the laws of
the State of California (other than their choice-of-law provisions).
(b) Claims and Review Procedure. In accordance with the regulations of
the U.S. Secretary of Labor, the Committee shall:
(i) Provide adequate notice in writing to any Eligible
Participant or Beneficiary whose claim for benefits under the Plan has
been denied, setting forth the specific reasons for such denial and
written in a manner calculated to be understood by such Eligible
Participant or Beneficiary; and
(ii) Afford a reasonable opportunity to any Eligible
Participant or Beneficiary whose claim for benefits has been denied for
a full and fair review by the Board of the decision denying the claim.
SECTION 16. EXECUTION.
To record the amendment of the Plan by the Board, the Company has
caused its duly authorized officer to affix the corporate name hereto.
HARDING LAWSON ASSOCIATES GROUP, INC.
By /s/ Patricia A. England
Corporate Secretary
<TABLE>
<CAPTION>
Exhibit No. 11
HARDING LAWSON ASSOCIATES GROUP, INC.
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
Years Ended May 31,
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average basic shares outstanding 4,959 4,926 4,824
Effect of dilutive stock options based
on the treasury stock method 128 24 20
- ---------------------------------------------------------------------------------------------------------------
Diluted shares outstanding 5,087 4,950 4,844
===============================================================================================================
Net income $2,488 $2,404 $ 953
===============================================================================================================
Basic net income per share $ 0.50 $ 0.49 $ 0.20
===============================================================================================================
Diluted net income share $ 0.49 $ 0.49 $ 0.20
===============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
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 ES, Inc. Delaware Harding Lawson Associates, Inc.
HLA Environmental Services Delaware HLA Environmental Services of
of Michigan, Inc. Michican, Inc.
(wholly owned subsidiary of
Harding Lawson Associates ES, 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
(wholly owned subsidiary of Pte Ltd
Harding Lawson Associates
International, Inc.)
HLA Venture, Inc. Delaware HLA Venture, Inc.
Standards Training Corporation, LLC Ohio Standards Training Corporation, LLC
(HLA Venture, Inc. has a 50% ownership
interest in LLC)
Harding Lawson Associates Delaware Harding Lawson Associates
Acquisition, Inc. Acquisition, 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 (Dormant)
(Harding Lawson Associates, Inc.
has a minority 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, 1998.
San Francisco, California
August 21, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> MAY-31-1998 MAY-31-1997
<PERIOD-START> JUN-01-1997 JUN-01-1996
<PERIOD-END> MAY-31-1998 MAY-31-1997
<CASH> 15118 24464
<SECURITIES> 0 0
<RECEIVABLES> 42839 30144
<ALLOWANCES> 1836 1388
<INVENTORY> 0 0
<CURRENT-ASSETS> 60025 56984
<PP&E> 24892 21701
<DEPRECIATION> 19571 17299
<TOTAL-ASSETS> 76618 67366
<CURRENT-LIABILITIES> 25345 19204
<BONDS> 0 0
0 0
0 0
<COMMON> 50 49
<OTHER-SE> 49738 46553
<TOTAL-LIABILITY-AND-EQUITY> 76618 67366
<SALES> 0 0
<TOTAL-REVENUES> 123270 123412
<CGS> 0 0
<TOTAL-COSTS> 39819 39136
<OTHER-EXPENSES> 80231 80164
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 34 38
<INCOME-PRETAX> 4262 4288
<INCOME-TAX> 1696 1892
<INCOME-CONTINUING> 2488 2404
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2488 2404
<EPS-PRIMARY> 0.50 0.49
<EPS-DILUTED> 0.49 0.49
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> MAY-31-1998 MAY-31-1998 MAY-31-1998
<PERIOD-START> JUN-01-1997 JUN-01-1997 JUN-01-1997
<PERIOD-END> FEB-28-1998 NOV-30-1997 AUG-31-1997
<CASH> 26864 24441 23066
<SECURITIES> 0 0 0
<RECEIVABLES> 25051 30418 28909
<ALLOWANCES> 1356 1356 1408
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 54634 57303 54812
<PP&E> 23604 22281 21870
<DEPRECIATION> 19312 18148 17762
<TOTAL-ASSETS> 65104 67545 65182
<CURRENT-LIABILITIES> 13972 16759 15144
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 50 50 50
<OTHER-SE> 49334 49092 48165
<TOTAL-LIABILITY-AND-EQUITY> 65104 67545 65182
<SALES> 0 0 0
<TOTAL-REVENUES> 93486 65446 31818
<CGS> 0 0 0
<TOTAL-COSTS> 31444 22485 10137
<OTHER-EXPENSES> 59248 40369 20354
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 23 17 5
<INCOME-PRETAX> 3528 3049 1541
<INCOME-TAX> 1450 1282 645
<INCOME-CONTINUING> 2065 1811 920
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 2065 1811 920
<EPS-PRIMARY> 0.42 0.37 0.19
<EPS-DILUTED> 0.41 0.36 0.19
</TABLE>
