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.
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.
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.
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.
PART II
ITEM 5.
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.
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.
ITEM 6.
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.
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.
ITEM 7.
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.
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.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The accompanying notes are an integral part of the consolidated financial statements.
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.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
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):
The beginning balance for fiscal 1998 has been adjusted to reflect $450 of acquired reserves from the acquisition of ABB Environmental Services, Inc.
Note 4 - Income Taxes
The provision for income taxes consists of the following (in thousands):
Note 4 - Income Taxes (continued)
Income (loss) before provision for income taxes and minority interest is as follows (in thousands):
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
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):
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):
Note 6 - Other Liabilities
Other liabilities consist of the following (in thousands):
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.
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):
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.
Following is a summary of options granted under the 1987 and 1988 stock option plans:
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:
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:
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):
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
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10.
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.
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.
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.
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.
PART IV
ITEM 14.
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
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)
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
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)