-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QVJxdD2HR6tZnFvk/lzlC6SQg5VhzAsya1QxOVDQzEXQCtqT/RDGcNr6p5rvlI8n ZdH4xKHXLWfyvGrkdAKtZA== 0000818968-97-000006.txt : 19970822 0000818968-97-000006.hdr.sgml : 19970822 ACCESSION NUMBER: 0000818968-97-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970531 FILED AS OF DATE: 19970821 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARDING LAWSON ASSOCIATES GROUP INC CENTRAL INDEX KEY: 0000818968 STANDARD INDUSTRIAL CLASSIFICATION: HAZARDOUS WASTE MANAGEMENT [4955] IRS NUMBER: 680132062 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-16169 FILM NUMBER: 97667761 BUSINESS ADDRESS: STREET 1: 7655 REDWOOD BLVD CITY: NOVATO STATE: CA ZIP: 94945 BUSINESS PHONE: 4158920821 MAIL ADDRESS: STREET 1: 7655 REDWOOD BLVD CITY: NOVATO STATE: CA ZIP: 94945 FORMER COMPANY: FORMER CONFORMED NAME: HARDING ASSOCIATES INC DATE OF NAME CHANGE: 19920703 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended May 31, 1997 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to __________ Commission File Number 0-16169 HARDING LAWSON ASSOCIATES GROUP, INC. (formerly Harding Associates, Inc.) (Exact name of registrant as specified in its charter) Delaware 68-0132062 (State or other jurisdiction of (IRS Employer Identification No.) incorporation of organization) 7655 Redwood Boulevard, P.O. Box 578, Novato, California 94948 (Address of principal executive office) Registrant's telephone number, including area code: (415) 892-0821 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of each class: Name of each exchange on which registered: Common Stock, $0.01 par value The Nasdaq Stock Market Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. [ ] Aggregate market value of the voting stock held by non-affiliates of the registrant on August 5, 1997: $35,735,113 Number of shares of the registrant's Common Stock outstanding as of August 5, 1997: 4,873,554. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on November 5, 1997, to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, are incorporated by reference in Part III. Page 1 of 43 pages The Index to Exhibits is located at page 37. PART I ITEM 1. BUSINESS. Cautionary Statement Regarding Forward-Looking Statements The statements in this business section that are forward-looking are based on current expectations, and actual results may differ materially. The forward-looking statements include those regarding future adoption of regulations and statutes having an impact on the Company's business, and the possible impact of current and future claims against the Company based upon negligence and other theories of liability. Forward-looking statements involve numerous risks and uncertainties that could cause actual results to differ materially, including, but not limited to, the possibilities that the demand for the Company's services may decline as a result of possible changes in general and industry specific economic conditions and the effects of competitive services and pricing; one or more current or future claims made against the Company may results in substantial liabilities; and such other risks and uncertainties as are described in reports and other documents filed by the Company from time to time with the Securities and Exchange Commission. Harding Lawson Associates Group, Inc. provides comprehensive engineering, environmental, and construction services related to the development and implementation of environmental management systems for maintaining compliance with environmental regulations, limiting the potential for unplanned discharges, and managing, minimizing or eliminating waste streams from industrial and agricultural operations, and the assessment and remediation of contaminated sites. The Company also provides civil, transportation, and geotechnical engineering services, and services during construction, either independently or in support of the Company's environmental, waste management, and civil services. The Company was originally incorporated in California in 1959, and reincorporated in Delaware in July 1987. Its principal executive offices are located at 7655 Redwood Boulevard, Novato, California 94945, and its telephone number is (415) 892-0821. Unless the context otherwise requires, the term "Company" as used herein refers to Harding Lawson Associates Group, Inc. and its wholly owned subsidiaries Harding Lawson Associates, Inc., Harding Lawson Associates Infrastructure, Inc., Harding Lawson Associates International, Inc. and its subsidiaries Harding Lawson Australia Pty. Ltd., Harding Lawson Singapore Pte Ltd, Harding Lawson de Mexico S.A. de C.V., Harding Lawson Australia Pty. Ltd., 78% ownership in HLA-Envirosciences Pty Limited, and Harding Lawson de Mexico's 51% ownership in Grupo Industrial de Ingenieria Ecologica ("GRIECO"). The Company provides its clients a full range of environmental services to comprehensively support management of hazardous materials, hazardous wastes, solid wastes and waste waters, and effect the remediation of environmental problems related to the management of these types of wastes. The Company provides these services to clients that are constructing, operating or closing facilities and/or properties and also to clients that have ownership or responsibility for abandoned or historical industrial operations or hazardous waste disposal sites. These services may be performed for new, expanding, or discontinued operations or in connection with the transfer of ownership. During the early stage of a project, the Company might be asked to perform site assessments or audits and to prepare site characterization reports or environmental planning and permitting documents in response to federal, state or local regulations. Following site characterization, the Company may assist its clients to evaluate cleanup options, select and negotiate remedies with regulatory agencies, and provide a design for site remediation. Once a remediation plan is established, the Company is able to provide its clients with construction and/or construction management services and may provide operation and maintenance of remedial systems. The Company also provides engineering services with a focus on civil engineering related to infrastructure, which includes civil, transportation, process, sanitary, structural, electrical, and mechanical engineering disciplines from planning through construction administration. The Company's engineering services are most frequently applied to the design of highways, bridges and other transportation systems, and to the design and construction of industrial waste water treatment and air pollution control equipment. The Company's services are provided to private and public sector clients through a staff of nearly 900 professional and support personnel staff located in 30 U.S. cities in Alabama, Alaska, Arizona, California, Colorado, Florida, Hawaii, Illinois, Nevada, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania, Texas, Utah, Virginia, and Washington, seven cities in Australia, and one in Mexico. During the fiscal year ended May 31, 1997 the Company performed services for over 1,200 industrial and governmental clients. The Company often provides services for its major clients under arrangements involving continuing service agreements. Such arrangements are usually on a "Time-and-Materials," "Cost-Plus-Fixed-Fee," or a "Fixed-Price" basis, and are usually terminable on advance notice by either party. The majority of the Company's projects are on a Time-and-Materials basis, under which the Company bills its clients at fixed hourly rates plus subcontracted services and materials used. Fixed-Price arrangements, under which the Company agrees to perform a stated service for a set price regardless of the time and materials cost involved, carry the risk that the cost to the Company for performing the agreed-upon services may exceed the set price, but also carry the benefit of potentially higher profit. The Company provides consulting and engineering services to clients through its staff of engineers and scientists who possess a diverse range of education and professional experience. Project teams are organized to utilize applicable talent from the Company's staff. Qualified subcontractors are utilized to provide special technical resources that the Company either does not possess or has determined not to develop internally in a specific geographic area. Environmental Services The Company's clients require engineering, environmental, and construction services to comply with environmental regulations, manage risk associated with environmental emissions, and/or reduce their cost of operations. From 1980 until the early 1990s the demand for the Company's services was largely driven by the need to comply with environmental regulations. More recently, as enforcement of environmental regulations has decreased and environmental regulations have been relaxed, the Company's services are more frequently required in response to risk management or economic drivers. Because the U.S. regulatory framework is still the dominant driver for the Company's services, the primary environmental statutes causing this demand are described below. o Regulatory Background Public concern over human health and the environment has led federal, state and local governments to enact legislation to correct and prevent environmental problems with particular emphasis on the generation, handling, disposal and cleanup of hazardous waste and hazardous substances. These laws and their implementing regulations affect industries and governmental bodies that manufacture, use, store, or dispose of toxic substances and other waste materials. Significant changes in policies affecting these programs or administrative actions affecting the sponsorship or funding of these programs could have a material adverse effect on the Company's business. The following federal legislation most affects the Company's business: Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA," also known as "Superfund") and Superfund Amendments and Reauthorization Act of 1986 ("SARA"). Superfund addresses problems created by past waste disposal practices by providing a means for identifying and cleaning up hazardous substances at designated sites. Superfund authorizes the Environmental Protection Agency ("EPA") to compel responsible parties to remediate hazardous substances and places responsibility for this remediation on the owners and operators of such sites and generators of the waste (identified as potentially responsible parties, or "PRPs") and provides for penalties for non-compliance with EPA orders. Superfund was reauthorized as part of the 1991 federal budget appropriating $5.1 billion through 1994. Since then, funding has been authorized by Congress annually while debate over reauthorization has carried on. Significant changes to the statute are expected when or if reauthorized. The Company is not able at this time to ascertain the effect of any such reauthorization or of Congress' failure to reauthorize Superfund. Resource Conservation and Recovery Act of 1976 ("RCRA") and Hazardous and Solid Waste Amendments of 1984 ("HSWA"). RCRA was the first federal effort to regulate the treatment, storage and disposal of hazardous waste. It places "cradle-to-grave" responsibility for hazardous waste on the generators of such wastes and provides regulations for permitting, transporting, treating, storing and disposing of hazardous wastes in controlled facilities. The Clean Air Act ("CAA") and the Clean Air Act Amendments ("CAAA"). The CAA empowered the EPA to establish and enforce national air quality standards and to require states to set toxic air emission limits on facilities not meeting these national standards. The CAAA of 1990 require certain facilities which emit air pollutants to obtain operating permits and mandate that the EPA develop guidelines and procedures relating to acid rain, urban air pollution, and air toxic emissions by the year 2000. Although implementation and enforcement of the CAAA have been slow, the CAAA increased demand for the Company's air quality services during the past two fiscal years. Other Federal and State Regulations. The Company's services are also utilized by its clients in complying with, among others, the following federal laws: the Toxic Substances Control Act, the Clean Water Act, the National Environmental Policy Act, the Safe Drinking Water Act, the Occupational Safety and Health Act and the Hazardous Material Transportation Act. Many other federal regulations and policies have been established to cover more detailed aspects of hazardous waste legislation. Complimentary state laws have also been enacted. The State of California, for example, has consistently been a leader in passing and implementing state hazardous waste legislation. Similar laws in other states address such topics as air pollution control, underground storage tanks, water quality, solid waste, hazardous materials, surface impoundments, site cleanup and waste discharge. o Hazardous Waste Management In the 1997 fiscal year, 55% of the Company's gross revenue has been derived from domestic services relating to the restoration (assessment and remediation) of contaminated sites. Projects where Superfund, RCRA or similar enforcement regulations are driving the need for site restoration comprise the majority of these revenues, while sites where "leaking underground tank" regulations are causing the need for remediation comprise a smaller portion of these revenues. The Company's hazardous waste management services include the following: Site Characterization. The Company provides a range of services needed to determine the nature and extent of contamination at hazardous waste sites. Risk Assessment. Assessing the risks which hazardous chemicals pose to human health and the environment is critical to selecting appropriate remedial technologies. Risk assessment involves quantifying the hazard posed by the presence and movement of chemicals in disposal or release areas, and expected concentrations to which people or the environment may be exposed. Remedial Design Engineering. The Company has particular experience in designing and implementing systems for removing contaminants from soil and water. The Company utilizes data acquired in site characterization and risk assessment studies to design integrated remedial systems, prepare detailed construction drawings and specifications and develop operating manuals and maintenance programs for remedial systems. Construction and Construction Management. The Company self performs or manages construction of remedial and pollution control systems and waste disposal facilities. o Other Environmental Services. All other domestic environmental services have accounted for 24% of the Company's gross revenue in the 1997 fiscal year. These services include: Operating Facilities Services. The Company provides a broad range of services to industrial clients to help them comply with federal or state environmental regulations, to reduce their costs of environmental compliance, and to employ more efficient processes to reduce, recover, or recycle industrial waste or by-products. Waste Disposal Facility Permitting, Design and Closure. The Company provides a comprehensive range of services related to siting, permitting, designing, operating, closing and post closure monitoring of solid and hazardous waste disposal facilities such as landfills, landfarms and incinerators. Applied Information Technology. Drawing on the Company's past experience in collecting and managing environmental data for our clients, this service involves applying data management skills, statistical techniques, numerical modeling and sophisticated two-and three-dimensional imaging technology to solve technical problems and to address general management issues. Environmental Planning, Permitting and Monitoring. The Company's services are frequently required to comply with the National Environmental Policy Act and other state and local regulations related to the assessment of environmental impacts or anticipated environmental impacts. The Company performs environmental resource investigations and monitoring, prepares environmental documents and reports, and secures environmental permits on behalf of our clients. Air Quality Management. Air pollution is increasingly recognized as the type of contamination that has the greatest impact on human health and the environment. The Clean Air Act Amendments of 1990 are expected to increase the market for air quality related services that are provided by the Company. The Company provides air quality planning, permitting, monitoring, reporting, and process engineering services. Site Assessments and Site Audits. The site assessment market is large but fluctuates with the real estate market. It is highly competitive and price driven. The Company seeks to provide these services only to responsible clients where the scope of the engagement and fees can be negotiated, and liability risks properly managed. The Company performs records searches, site investigations, due diligence evaluations, and audits. Regulatory Compliance. Regulatory compliance, evaluations, audits and support are a viable market which the Company expects will show modest growth as more facilities are brought under regulatory controls and more companies decide that an ongoing environmental auditing program will reduce environmental liabilities. The Company assists clients with strategic compliance planning, develops environmental management systems, and performs compliance permitting, monitoring, and reporting. Lead Paint/Asbestos Management. The asbestos and lead-based paint markets are highly competitive with limited barriers for new entrants. The Company performs asbestos/lead paint surveys, inspections, and abatement. The Company offers these services to select clients as part of its comprehensive environmental services. o International Services. Approximately 6% of the Company's services are environmental services performed outside the United States. These services include contaminated site assessment and remediation, occupational health and hygiene, mine rehabilitation, environmental management systems, and environmental planning and permitting and are primarily performed through the Company's Australian operations. Infrastructure Infrastructure and geotechnical services have accounted for 15% of the Company's gross revenue in the 1997 fiscal year. These services include: Infrastructure/Transportation Engineering. The Company's civil engineers provide services relating to transportation including street, road and highway design, traffic engineering and traffic signal design, corridor studies, and construction administration; design of structures including bridges, piers and marine terminal facilities and other structures; design services including drainage basin studies and hydrologic analysis and storm water treatment; and railroad engineering including design of railroad trackage, railroad bridges, railroad yard design, and intermodal facilities. The Company believes that these services will be in increasing demand in the future as the country moves to repair its deteriorating infrastructure and as funding becomes available as a result of the Intermodal Surface Transportation Efficiency Act ("ISTEA"), which Congress signed into law in December of 1991. The $155 billion, six year ISTEA provides federal aid to states on highway and mass transit projects. ISTEA was scheduled for renewal in October of 1997, but may be delayed until later in the year. The Company anticipates that its civil/infrastructure practice may benefit from this legislation and additional proposed legislation in the future. Geotechnical Engineering. The Company's geotechnical engineers use advanced exploration tools, laboratory testing and analytical methods to evaluate soil and rock for foundations and for use in construction. Customers and Marketing The Company's client base includes private-sector companies that comprised 51% of gross revenue in fiscal 1997. Non-regulatory federal governmental bodies provided 25% of gross revenues, including Department of Defense agencies, 18% came from state and local governments, and 6% from international clients. The Company's 15 largest clients accounted for approximately 44% of the Company's revenue in fiscal 1997, 45% in fiscal 1996 and 49% in fiscal 1995. Approximately 32% of its revenues during fiscal 1997 were derived from the Company's five largest clients compared to 33% and 39% in fiscal 1996 and 1995, respectively. In fiscal 1997, the Department of the Army accounted for approximately 19% of the Company's gross revenue. Revenue from this client, which accounted for 20% of gross revenue in fiscal 1996 and 26% in fiscal 1995, was generated under various contracts in various locations that were negotiated independently of each other. While the loss of all work related to this client could have a material adverse effect on the Company, the contracts are with separate divisions or units of the Army and the loss of one contract would not necessarily affect other contracts at other locations. During fiscal 1995 and 1996, certain of these Department of the Army contracts began to diminish and were substantially completed in fiscal 1997. The Company has been successful in replacing some of these contracts although tasking and/or funding under the new contracting vehicles has been slow in developing. If the Company is unsuccessful in replacing a significant portion of the remainder of these contracts, or if funding is delayed under current contracting vehicles, a material decline in revenues could result. No other client accounted for 10% or more of gross revenue in fiscal 1997, 1996 or 1995. The Company's marketing efforts are carried out by a full-time staff of marketing personnel and by senior technical and management professionals. The Company also participates in industrial trade shows and technical conferences, and publishes certain technical literature to support its marketing program. Backlog The Company often provides services on major long-term contracts or continuing service agreements that provide for authorization of funding on a task or fiscal period basis. At May 31, 1997, the Company had over $70 million of authorized gross revenue backlog compared with $65 million at May 31, 1996, and $71 million at May 31, 1995. Authorized gross revenue backlog, most of which is expected to be completed within the next 12 months, includes only such contracts where work authorization has been received. The Company can make no assurances, however, that work represented by backlog will not be delayed or cancelled. Because the backlog figures include only those portions of contracts for which spending has been authorized to date, the Company does not feel that backlog figures are necessarily indicative of future revenue. In addition to authorized backlog, the Company has certain contracting vehicles that include substantial unauthorized amounts not included in backlog. Tasks under these contracts may or may not be authorized during fiscal 1997. Seasonal Factors Due primarily to more holidays and inclement weather conditions, the Company's third quarter operating results are generally lower in comparison to other quarters. Competition The Company competes with many companies of all sizes. Although no company currently dominates any particular market segment, the market in general suffers from over capacity and as a result can be characterized as intensely competitive. While the Company competes primarily on the basis of its reputation, a significant proportion of its projects are competitively bid and the Company believes its services to be price competitive. Potential Liability and Insurance In performing consulting and engineering services for its clients, the Company could potentially be liable for breach of contract, personal injury, property damage, or negligence. The Company generally indemnifies its clients for losses and expenses incurred by them as a result of the Company's negligence and, in certain instances, the concurrent negligence of such clients. A significant portion of the Company's activities relate to environmental and waste services. These services involve significant risks to the Company for environmental damage, personal injury, fines and costs imposed by regulatory agencies. Although liabilities arising from environmental regulations are more directly applicable to the Company's clients, such regulations under certain circumstances could impose liability on the Company resulting, for example, from a release or exacerbation of contamination or the improper handling of contaminants during the course of the Company's work. Such liabilities can be joint and several where other parties are involved. The Company maintains both a health and safety program and a quality assurance and quality control program to assist in reducing the risk of damage to persons and property and the potential for resulting losses. In the opinion of management, adequate provision has been made for all known liabilities that are currently expected to result from these matters, and, in the aggregate, such claims are not expected to have a material adverse impact on the financial position of the Company. The estimates used in establishing these provisions could differ from actual results and there can be no assurances that the Company will not be materially affected by existing or future claims. Should these provisions change significantly, the effect on operations for any quarterly or annual reporting period could be material. The Company is provided a $5 million per occurrence professional liability and contractor's pollution liability insurance policy through an unrelated, rated carrier. The Company also maintains general liability insurance with an unrelated, rated carrier. Personnel The Company employed approximately 835 regular, full-time employees, including 540 engineers, scientists, and construction contractors, 239 production support staff and 56 administrative and clerical personnel. In addition to its full-time staff, the Company employs approximately 130 temporary or variable personnel at any time as required, most of whom are technical support personnel. Temporary or variable personnel constituted approximately 45 full-time equivalents. Although the Company has undergone selected downsizing over the past few years, it nevertheless maintains a continuous recruiting program to attract qualified personnel. None of the Company's employees are presently represented by a labor union. The Company believes it has good employee relations. ITEM 2. PROPERTIES. The Company leases facilities at various locations in Alabama, Alaska, Arizona, California, Colorado, Florida, Hawaii, Illinois, Nevada, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania, Texas, Utah, Virginia, Washington, and in Australia, Mexico and Singapore. These facilities have a combined area of approximately 315,850 square feet. Aggregate lease expense for all of the Company's facilities during the fiscal year ended May 31, 1997 was approximately $4.9 million. The lease terms expire at various times through October 2003. Historically, the Company has not experienced any difficulty in renewing leases that have expired. ITEM 3. LEGAL PROCEEDINGS. The Company is currently subject to certain claims and lawsuits arising in the ordinary course of business. In the opinion of management, adequate provision has been made for all known liabilities that are currently expected to result from these claims and lawsuits, and in the aggregate such claims are not expected to have a material effect on the financial position of the Company. The estimates used in establishing these provisions could differ from actual results. Should these provisions change significantly, the effect on operations for any quarterly or annual reporting period could be material. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted during the fourth quarter of the fiscal year covered by this report to a vote of the security holders through the solicitation of proxies or otherwise. 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.
High Low Fiscal year ended May 31, 1996: First Quarter $ 7.50 $ 5.38 Second Quarter 7.63 6.63 Third Quarter 7.50 5.88 Fourth Quarter 7.00 5.63 Fiscal year ended May 31, 1997: First Quarter $ 6.63 $ 5.00 Second Quarter 7.13 5.63 Third Quarter 7.50 6.13 Fourth Quarter 7.75 6.63
Holders As of August 5, 1997 there were 618 record holders of the Company's common stock. Dividends The Company has not paid any cash dividends on its common stock during the last ten years. The Board of Directors currently intends to retain all earnings for reinvestment in the Company's business and has no present intention of paying cash dividends in the foreseeable future. ITEM 6. SELECTED FINANCIAL DATA. The following table sets forth selected financial data of the Company for the years ended May 31, 1993 through 1997. The data presented below should be read in conjunction with the consolidated financial statements of the Company, including notes thereto. Summary Financial Information (In thousands, except per share data) Fiscal Years Ended May 31, 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Income Statement Data: Gross revenue $123,412 $120,708 $130,554 $115,561 $115,657 Net revenue 84,276 85,655 92,455 79,944 82,605 Operating income 4,112 839 4,595 1,353 580 Income before provision for income taxes and minority interest 4,288 1,647 4,907 1,656 821 Net income 2,404 953 2,972 1,002 497 Net income per common share $0.49 $0.20 $ 0.62 $0.21 $0.10 Average common shares outstanding 4,953 4,851 4,806 4,851 4,856 Balance Sheet Data: Working capital $37,996 $35,521 $33,369 $29,394 $32,729 Total assets 66,355 60,364 60,788 61,486 59,812 Short-term debt --- --- --- 2,030 --- Shareholders' equity 46,602 44,357 42,685 38,975 39,541
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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Cautionary Statement Regarding Forward-Looking Statements The statements in this management's discussion and analysis of financial condition and results of operations section that are forward-looking are based on current expectations, and actual results may differ materially. The forward-looking statements include those regarding continued downward pressure on net revenue, the possible impact of current and future claims against the Company based upon negligence and other theories of liability, and the possibility of the Company's making acquisitions during the next 12 to 18 months. Forward-looking statements involve numerous risks and uncertainties that could cause actual results to differ materially, including, but not limited to, the possibilities that the demand for the Company's services may decline as a result of possible changes in general and industry specific economic conditions and the effects of competitive services and pricing; one or more current or future claims made against the Company may result in substantial liabilities; and such other risks and uncertainties as are described in reports and other documents filed by the Company from time to time with the Securities and Exchange Commission. Results of Operations General--The following table sets forth, for the periods indicated, (i) the percentage which certain items in the consolidated income statements of the Company bear to net revenue, and (ii) the percentage increase (decrease) in the dollar amount of such items from year to year. Percentage of Percentage Net Revenue Increase/(Decrease) Fiscal Year Fiscal Year 1997 1996 vs. vs. 1997 1996 1995 1996 1995 ---- ---- ---- ---- ---- Net revenue 100.0% 100.0% 100.0% (1.6)% (7.4)% Costs and expenses Payroll and benefits 67.2 68.9 68.1 (4.0) (6.2) General expenses 27.9 30.1 26.9 (8.8) 3.5 Operating income/margin 4.9 1.0 5.0 390.1 (81.7) Interest in loss of unconsolidated subsidiaries (0.6) --- --- --- --- Net interest income 0.8 0.9 0.3 (10.8) 158.6 Income before provision for taxes and minority interest 5.1 1.9 5.3 160.4 (66.4) Provision for taxes 2.2 0.8 2.1 152.3 (61.3) Net income 2.9 1.1 3.2 152.3 (67.9)
Gross Revenue--Gross revenue includes, as an adjunct to the Company's labor services, the revenue on services subcontracted to third parties that will be reimbursed under terms of the Company's contracts and revenue from the utilization of certain non-labor items. Due to competitive market conditions, the contribution to net revenue derived from the sale of subcontracted services and certain non-labor items has declined to 6.2% of net revenue in fiscal 1997 compared with 6.4% and 6.8% in fiscal 1996 and 1995 respectively. The Company believes there will continue to be downward pressure on net revenue derived from such sources. Net revenue, which is a more accurate measure of revenue earned for services provided directly by the Company, is recorded by deducting from gross revenue the costs of services contracted to third parties. Gross revenue related to outside services as a percent of total gross revenue was 33.2%, 30.4%, and 30.7% in 1997, 1996, and 1995, respectively. The increase in outside services revenue as a percent of total gross revenue in 1997, compared to 1996 and 1995, is due primarily to an increase in construction activities. Net Revenue--Net revenue totaled $84.3 million in fiscal 1997, a decrease of $1.4 million or 1.6% from 1996. The decrease in fiscal 1997 was due primarily to a 4.0% decline in domestic environmental net revenue partially offset by an increase of 10.8% and 24.5% in infrastructure and international net revenue, respectively. Domestic operations of the Company experienced lower demand and slightly higher prices for its services compared to 1996 and 1995. Net revenue derived from public sector clients in fiscal 1997 was virtually unchanged from the prior fiscal year and accounted for 46% of total net revenue for fiscal 1997 compared to 45% and 54% for fiscal 1996 and 1995, respectively. Net revenue from the federal sector declined by 17% from fiscal 1996 while revenue from state and local sources increased by 41% over the same period. Net revenue from private sector clients declined by 6% over 1996. International sales accounted for 7% of the Company's net revenue in fiscal 1997 compared with 6% and 2% in fiscal 1996 and 1995 respectively. Virtually all international sales were attributable to operations in Australia acquired by the Company in November 1994. Fiscal 1996 net revenue was $85.7 million, a decrease of $6.8 million from net revenue of $92.5 million in fiscal 1995. The decrease in fiscal 1996 was due primarily to an 11% decline in domestic net revenue partially offset by an increase of 127% in international net revenue. Excluding international operations, the Company experienced both lower demand and lower prices for its services. Net revenue derived from public sector clients in fiscal 1996 declined by approximately 23% from the prior year and accounted for 45% of total net revenue for fiscal 1996 compared to 54% for fiscal 1995. The decline in net revenue from public sector clients was essentially due to a decrease in revenue from public agency contracts resulting from a decline in awards of new public agency contracts and funding on existing federal agency contracts as well as government inefficiencies due to shutdowns and the lengthy budget impasse and continuing legislative gridlock with regard to environmental regulations. Net revenue from private sector clients improved by 1% over 1995. Operations in Southern California and in the Midwest experienced particular improvement. International sales accounted for 6% of the Company's net revenue in fiscal 1996 compared with 2% in fiscal 1995. Virtually all international sales were attributable to operations in Australia acquired by the Company in November 1994. Costs, Expenses and Operating Income--Operating income in fiscal 1997 of $4.1 million and an operating margin of 4.9% were both higher than fiscal 1996 results. Operating income in fiscal 1997 was higher by $3.3 million or approximately 390% compared to the prior year. The operating margin in fiscal 1996 was 1.0% or $0.8 million. Excluding downsizing charges of $1.4 million, the operating margin in fiscal 1996 was 2.6%. The increase in operating income and margin primarily reflects lower labor and benefit costs and lower indirect expenses. Labor and benefit costs were lower due to staff reductions in the fourth quarter of last year and the first quarter of fiscal 1997 and, to a lesser extent, the utilization of variable employees who are not eligible for fringe benefits. The Company's international operations improved over fiscal 1996 but still negatively impacted operating margin. Operating income in fiscal 1996 of $0.8 million and an operating margin of 1.0% were both lower than fiscal 1995 results. The fiscal 1996 results were negatively impacted by certain downsizing expenses including expenses of $0.4 million related to staff reductions and $1.0 million from the write-down of facility leases in the fourth quarter. Excluding those items, operating income in fiscal 1996 was lower by $2.4 million or approximately 52% compared to the prior year. Operating margin excluding downsizing charges was 2.6% compared to 5.0% in the previous fiscal year. The decline in operating income and margin primarily reflects lower revenues without a commensurate decline in operating expenses. The Company's international operations negatively impacted both operating income and margins in fiscal 1996. Interest in Loss of Unconsolidated Subsidiaries--Losses in unconsolidated subsidiaries were $0.5 million in fiscal 1997. There was no activity in these subsidiaries prior to 1997. The recorded loss consisted of $0.3 in losses from operations and $0.2 in write-downs of impaired assets. At the end of the prior fiscal year, the Company invested in the start-up of a limited liability company, Integrated Software Systems, which specializes in software for the mining industry. In addition, the Company has invested in the start-up of another limited liability company, Standards Training Corporation, which focuses on ISO 14000 training. The Company's position in both entities is accounted for using the equity method. The investments in both companies were written down to zero in fiscal 1997 due to uncertainty regarding the financial viability of the respective companies. Interest Income (Expense)--Net interest income in 1997 of $0.7 million was lower by $0.1 million from fiscal 1996. The decrease in net interest income primarily reflects lower average cash balances during the first three quarters of the year and to a lesser extent lower interest rates on invested cash. Net interest income in 1996 and 1995 was $0.8 million and $0.3 million, respectively. Income Taxes--The effective tax rate was 44.1% for fiscal 1997, 45.5% and 39.5% for fiscal years 1996 and 1995. The effective tax rate in fiscal 1997 and 1996 reflects the impact of losses from the start-up of certain international operations for which no tax benefit has been realized. Net Income--Net income of $2.4 million in fiscal 1997 was $1.4 million higher than the prior year. The increase was primarily due to lower labor and general expenses. Net income of $1.0 million in 1996 was $2.0 million lower than the prior year primarily due to lower net revenue. Net income per common share was $.49 in 1997 compared to $.20 in 1996, and $.62 in 1995. Weighted average shares outstanding were 4,953,000, 4,851,000 and 4,806,000 in 1997, 1996, and 1995, respectively. Liquidity and Capital Resources Net cash provided by operating activities was $8.8 million in fiscal 1997 compared to $8.0 million in 1996 and $8.7 million in 1995. The increase in cash provided by operations in fiscal 1997 compared to 1996 was primarily related to the Company's higher earnings and improved working capital. The improved working capital primarily reflected an improvement in the days sales held in receivables, including collections of retentions on certain federal projects nearing completion, and, to a lesser extent, higher trade payables. The decrease in cash provided by operations in fiscal 1996 compared to 1995 was primarily related to the Company's lower earnings offset by a significant improvement in the Company's collection of accounts receivable compared to fiscal 1995. The Company currently has a $20 million line of credit with a commercial bank, at prime or LIBOR rates, that expires in October 1997. At May 31, 1997, 1996 and 1995 the Company had no borrowings under the line, and as such, the entire $20 million was available to the Company. Had the Company borrowed under its line in May of fiscal 1997, 1996, and 1995, the interest rate would have been 5.7%, 5.4% and 6.1%, respectively. The Company's credit agreement provides certain covenants relating to, among other things, financial performance and the maintenance of certain financial ratios. The Company was in compliance with all covenants pertaining to the credit line agreement at May 31, 1997, 1996 and 1995. The Company fully expects to renew its credit facility at the same or similar terms and conditions. The Company invested $2.4 million and $1.6 million in the purchase of capital assets, including acquisitions, in 1997 and 1996 respectively. During fiscal 1997 the Company paid $0.1 million as additional purchase price under the terms of a fiscal 1995 acquisition agreement. The Company invested $3.1 million in the purchase of capital assets, including acquisitions, in 1995. In fiscal 1997, the Company used net cash of $0.9 million for financing activities, which primarily consisted of the repurchase of common stock. The Board of Directors of the Company has approved a Common Stock Repurchase Program that authorizes the Company to purchase up to a maximum of 500,000 shares of stock on the open market from time to time for the purpose of providing shares for the Company's various employee stock programs. The Company has repurchased 139,200 shares for $1.0 million in the current fiscal year under this program. No repurchases were made in the prior fiscal year. The Company used net cash of $0.1 million for financing activities in fiscal year 1996 and $1.8 million in fiscal 1995. In fiscal 1996, the Company used net cash of $0.1 million for financing activities, which primarily consisted of capital lease payments recorded in the Company's Australia operations. The cash used in financing activities in 1995 included approximately $2.0 million for the repayment of the Company's borrowings in 1994. The Company is a consulting engineering services firm engaged in providing environmental, infrastructure and geotechnical related services, and encounters potential liability including claims for errors and omissions resulting from construction defects, construction cost overruns, or environmental or other damage in the normal course of business. The Company is a party to lawsuits and is aware of potential exposure related to certain claims. In the opinion of management, adequate provision has been made for all known liabilities that are currently expected to result from these matters and, in the aggregate, such claims are not expected to have a material impact on the financial position and liquidity of the Company although there can be no assurances that the Company will not be affected by existing or future claims. Currently, the Company is provided a $5 million per occurrence professional liability and a $5 million per occurrence contractor's pollution liability insurance policy through an unrelated, rated carrier. The Company also maintains general liability insurance with an unrelated, rated carrier. The Company believes that its available cash and cash equivalents as well as cash generated from operations and its available credit line will be sufficient to meet the Company's cash requirements for the current fiscal year. During fiscal 1998, the Company intends to actively continue its search for acquisitions to expand its geographical representation and enhance its technical capabilities. The Company expects to utilize a portion of its liquidity over the next 12 to 18 months for capital expenditures, including acquisitions. Inflation The Company's operations have not been, and in the foreseeable future are not expected to be, materially affected by inflation. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. HARDING LAWSON ASSOCIATES GROUP, INC. Consolidated Statements of Income (In thousands, except per share data) Years Ended May 31, 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------- Gross revenue $123,412 $120,708 $130,554 Less: Cost of outside services 39,136 35,053 38,099 - --------------------------------------------------------------------------------------------------------------- Net revenue 84,276 85,655 92,455 - --------------------------------------------------------------------------------------------------------------- Costs and Expenses: Payroll and benefits 56,647 59,033 62,945 General expenses 23,517 25,783 24,915 - --------------------------------------------------------------------------------------------------------------- Total costs and expenses 80,164 84,816 87,860 - --------------------------------------------------------------------------------------------------------------- Operating income 4,112 839 4,595 Interest in loss of unconsolidated subsidiaries (545) --- --- Interest income, net of interest expense of $38 in 1997, $39 in 1996 and $47 in 1995 721 808 312 - --------------------------------------------------------------------------------------------------------------- Income before provision for income taxes and minority interest 4,288 1,647 4,907 Provision for income taxes 1,892 750 1,939 Minority interest in net loss of subsidiaries (8) (56) (4) - ---------------------------------------------------------------------------------------------------------------- Net income $2,404 $ 953 $2,972 ================================================================================================================ Net income per common share $0.49 $0.20 $0.62 ================================================================================================================ Shares used in per-share calculation 4,953 4,851 4,806 ================================================================================================================
The accompanying notes are an integral part of the consolidated financial statements. HARDING LAWSON ASSOCIATES GROUP, INC. Consolidated Balance Sheets (In thousands, except share data) May 31, 1997 May 31, 1996 - ------------------------------------------------------------------------------------------------------------ ASSETS Current Assets: Cash and cash equivalents $24,464 $19,012 Accounts receivable, less allowance for doubtful accounts of $637 in 1997 and $725 in 1996 and including retentions of $1,866 in 1997 and $4,355 in 1996. 22,275 23,355 Unbilled work in progress, less allowance for amounts unbillable of $751 in 1997 and 1996 5,470 4,152 Prepaid expenses 1,073 1,304 Deferred income taxes 2,691 1,474 - ---------------------------------------------------------------------------------------------------------- Total current assets 55,973 49,297 - ---------------------------------------------------------------------------------------------------------- Equipment 21,701 21,021 Less accumulated depreciation (17,299) (16,677) - ----------------------------------------------------------------------------------------------------------- Net equipment 4,402 4,344 - ---------------------------------------------------------------------------------------------------------- Deposits and other assets 5,980 6,723 - ---------------------------------------------------------------------------------------------------------- Total assets $66,355 $60,364 ========================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable 4,538 $2,754 Accrued expenses 4,845 5,936 Accrued compensation 6,632 5,086 Income taxes payable 1,962 --- - ---------------------------------------------------------------------------------------------------------- Total current liabilities 17,977 13,776 - ---------------------------------------------------------------------------------------------------------- Other liabilities 1,453 1,983 - ---------------------------------------------------------------------------------------------------------- Total liabilities 19,430 15,759 - ---------------------------------------------------------------------------------------------------------- Commitments and Contingencies (Note 10) Minority interest in subsidiaries 323 248 - ---------------------------------------------------------------------------------------------------------- Shareholders' Equity: Preferred stock--$.01 par value; authorized 1,000,000 shares; issued and outstanding--none --- --- Common stock--$.01 par value; authorized 10,000,000 shares; issued and outstanding 4,864,503 in 1997 and 4,845,207 in 1996. 49 48 Additional paid-in capital 17,982 18,142 Retained earnings 28,571 26,167 - ---------------------------------------------------------------------------------------------------------- Total shareholders' equity 46,602 44,357 - ---------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $66,355 $60,364 ==========================================================================================================
The accompanying notes are an integral part of the consolidated financial statements. HARDING LAWSON ASSOCIATES GROUP, INC. Consolidated Statements of Shareholders' Equity (In thousands, except share data) Additional Total Common Stock Paid-in Retained Shareholders' Shares Amount Capital Earnings Equity Balance May 31, 1994 4,602,791 $46 $16,687 $22,242 $38,975 - ------------------------------------------------------------------------------------------------------------- Stock options exercised 4,000 --- 4 --- 4 Common stock issued to employees or to a defined contribution pension plan for the benefit of employees 112,529 1 733 --- 734 Net income --- --- --- 2,972 2,972 Balance May 31, 1995 4,719,320 $47 $17,424 $25,214 $42,685 - ------------------------------------------------------------------------------------------------------------- Stock options exercised 1,000 --- 1 --- 1 Common stock issued to employees or to a defined contribution pension plan for the benefit of employees 124,887 1 717 --- 718 Net income --- --- --- 953 953 Balance May 31, 1996 4,845,207 $48 $18,142 $26,167 $44,357 - ------------------------------------------------------------------------------------------------------------- Stock options exercised 6,000 --- 24 --- 24 Common stock issued to employees, directors or to a defined contribution pension plan for the benefit of employees 152,496 2 786 --- 788 Shares repurchased and retired (139,200) (1) (970) --- (971) Net income --- --- --- 2,404 2,404 Balance May 31, 1997 4,864,503 $49 $17,982 $28,571 $46,602 - -------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. HARDING LAWSON ASSOCIATES GROUP, INC. Consolidated Statements of Cash Flows (In thousands) Years Ended May 31, 1997 1996 1995 OPERATING ACTIVITIES Net income $ 2,404 $ 953 $2,972 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,566 2,522 3,264 Deferred income tax (922) 670 862 Changes in operating assets and liabilities: Net accounts receivable and unbilled work in progress (238) 6,218 3,556 Prepaid expenses 242 (378) 548 Accrued compensation 1,546 (1,433) 976 Accounts payable and other liabilities 1,328 301 (2,866) Income taxes payable 1,962 (621) 464 Other, net (100) (184) (1,067) - ---------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 8,788 8,048 8,709 - --------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Purchase of equipment, net (2,267) (1,591) (1,431) Investment in acquisitions, net of cash acquired (122) --- (1,683) - ---------------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (2,389) (1,591) (3,114) - ---------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from sale of common stock 108 2 195 Repurchase of common stock (971) --- --- Principal payments on capital lease obligations (84) (95) --- Repayment of debt --- --- (2,038) - ---------------------------------------------------------------------------------------------------------------- NET CASH USED IN FINANCING ACTIVITIES (947) (93) (1,843) - ---------------------------------------------------------------------------------------------------------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 5,452 6,364 3,752 Cash and cash equivalents at beginning of year 19,012 12,648 8,896 - --------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $24,464 $19,012 $12,648 ===============================================================================================================
During fiscal 1997 and 1996 the Company recorded capital lease obligations of $111 and $423, respectively. The accompanying notes are an integral part of the consolidated financial statements. HARDING LAWSON ASSOCIATES GROUP, INC. Notes to Consolidated Financial Statements, May 31, 1997 Note 1 - Summary of Significant Accounting Policies Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All intercompany accounts and transactions have been eliminated. Revenue Recognition - Gross revenue is recognized as in-house labor hours are incurred on projects. It also includes the revenue from services subcontracted to third parties that will be reimbursed under terms of the Company's contracts and revenue from the utilization of certain non-labor items. Net revenue is recorded by deducting from gross revenue the cost of services subcontracted to third parties. Fixed price and cost type contract overruns or efficiencies are recognized in the period when such results are reasonably determinable. Depreciation - Equipment is recorded at cost. Depreciation is computed by the straight-line method based on the estimated useful lives of the assets, primarily between three and seven years. Income Taxes - The Company accounts for income taxes pursuant to the Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" under which the liability method is used to account for deferred income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Earnings Per Share - The calculation of earnings per share is based upon the average shares outstanding during the year plus the net effect of dilutive stock options. The calculation uses the treasury stock method in fiscal 1997 and the modified treasury stock method in 1996 and 1995. In February 1997, the Statement of Financial Accounting Standards No. 128 "Earnings per Share", (FAS 128) was issued and is effective for the year ending May 31, 1998. The Company will change its method for computing earnings per share and restate all periods to reflect the change in its consolidated statements of income, effective with the issuance of the Company's third and fourth quarters and annual report for 1998. The new method requires calculation of earnings per share excluding the dilutive effect of common stock equivalents such as stock options and warrants. The impact of FAS 128 on basic earnings per share and fully diluted earnings per share for years ending May 31, 1997, 1996 and 1995 is not expected to be material. Cash and Cash Equivalents - Cash and cash equivalents include short-term AAA rated investments with an effective maturity at acquisition of less than three months. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Accounts that require the use of significant judgment by management include, but are not limited to, allowances for doubtful accounts and amounts unbillable and claims reserves. Actual results could differ from those estimates. Industry Segment Information - The Company is a single segment entity providing engineering consulting services, including environmental, construction management, civil/infrastructure and geotechnical services. Approximately 7% of the Company's net revenue was recognized in foreign countries in fiscal 1997, approximately 6% in 1996 and 2% in 1995. Unconsolidated Subsidiaries - The Company uses the equity method of accounting for investments in common stock. During fiscal 1997, the Company reported $0.5 million in losses in two separate investments. There was no activity in fiscal 1996 or 1995. Accounting for Stock-Based Compensation - In October 1995, the Financial Accounting Standards Board issued Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), which will be effective for years beginning after December 15, 1995. SFAS No. 123 allows a company to adopt a new fair value based method or continue to measure compensation cost for its stock-based compensation plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25 ("APB No. 25"). The Company has elected to continue to follow APB No. 25 in its fiscal 1997 financial statements and has made pro forma disclosures of net income or loss as if the fair value based method had been applied. Long-Lived Assets - In March 1995, the Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires impairment losses to be recorded on long-lived assets used in operations such as property, equipment and improvements and intangible assets, when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of the assets. The Company's adoption of SFAS No. 121 had no effect on the Company's operations. Intangible Assets - Goodwill represents the excess of the purchase price over the fair value of the net assets of various entities acquired by the Company. The Company currently amortizes goodwill on a straight line basis over its expected useful life, which is between 15 to 40 years. Other intangibles, if any, recorded in connection with acquisitions are amortized on a straight line basis over the estimated useful lives of the respective assets, but not exceeding 15 years. The Company regularly reviews the individual components of its intangible assets and recognizes, on a current basis, any diminution in value as required under SFAS No. 121. Concentrations of Credit Risk - The Company's receivables reflect its client mix, which includes a variety of industrial concerns and various agencies of the Federal Government. One client, the Department of the Army, accounted for approximately 19%, 20% and 26% of the Company's revenue in fiscal 1997, 1996 and 1995, respectively. Credit is extended based on evaluation of the client's financial condition and generally collateral is not required. Credit losses are provided for in the financial statements and consistently have been within management's expectations. Fiscal Year - The Company uses a 52 - 53 week fiscal year that ends on May 31. Fiscal years 1997, 1996, and 1995 were 52, 52 and 53 weeks respectively. Note 2 - Borrowings Bank Credit Line - The Company has a line of credit with its bank under which it can borrow amounts up to $20 million. Under the terms of the line of credit that expires in October 1997, the Company is required, among other things, to maintain minimum working capital, current ratio and tangible net worth levels and is not to exceed a defined maximum debt to tangible net worth ratio. Borrowings under the line will be secured by certain of the Company's assets and will be at either the bank's prime rate or LIBOR at the Company's option. The interest rate at which the Company could borrow funds was 5.7%, 5.4% and 6.1% at May 31, 1997, 1996, and 1995, respectively. At May 31, 1997, 1996, and 1995, there were no borrowings under the Company's line of credit, and as such, the entire $20 million was available to the Company. At May 31, 1997, 1996 and 1995, the Company was in compliance with all debt covenants relating to its credit agreements. Interest paid by the Company was $38,000, $52,000 and $1,000 in fiscal years 1997, 1996, and 1995. Note 3 - Valuation and Qualifying Accounts The activity for the past three fiscal years in the allowance for doubtful accounts, which is deducted from accounts receivable, and the allowance for amounts unbillable, which is deducted from unbilled work in progress, is as follows (in thousands): Write-offs Balance Balance at Charged of at Beginning to Uncollectable End Description of Period Expense Accounts of Period Year ended May 31, 1997 Allowance for doubtful accounts $ 725 $ 160 $(248) $ 637 Allowance for amounts unbillable 751 --- --- 751 Year ended May 31, 1996 Allowance for doubtful accounts $ 802 $ 68 $(145) $ 725 Allowance for amounts unbillable 751 --- --- 751 Year ended May 31, 1995 Allowance for doubtful accounts $1,303 $ 154 $(655) $ 802 Allowance for amounts unbillable 751 --- --- 751
Note 4 - Income Taxes The provision for income tax consists of the following (in thousands): Years Ended May 31, 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------- Current: Federal $2,104 $ (4) $ 964 Foreign 177 78 --- State & Local 533 6 150 - ----------------------------------------------------------------------------------------------------------- 2,814 80 1,114 - ----------------------------------------------------------------------------------------------------------- Deferred: Federal (756) 639 655 Foreign (30) (56) --- State & Local (136) 87 170 - ----------------------------------------------------------------------------------------------------------- (922) 670 825 - ----------------------------------------------------------------------------------------------------------- TOTAL $1,892 $ 750 $1,939 ===========================================================================================================
Note 4 - Income Taxes (continued) Income (loss) before provision for income taxes and minority interest is as follows (in thousands): Years Ended May 31, 1997 1996 1995 Domestic $4,331 $1,808 $5,073 Foreign (43) (161) (166) - ------------------------------------------------------------------------------------------------------------- Total $4,288 $1,647 $4,907 ============================================================================================================
A reconciliation between the statutory federal income tax rate and the effective income tax rates is as follows: Years Ended May 31, 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------ Statutory federal income tax rate 34.0% 34.0% 34.0% State and local income taxes, net of federal tax benefits 6.1 6.8 5.5 Foreign taxes 3.0 5.1 --- Tax exempt interest (3.0) (6.5) (0.7) Goodwill amortization 0.6 1.6 0.5 Other, net 3.4 4.5 0.2 - ------------------------------------------------------------------------------------------------------------ Effective income tax rates 44.1% 45.5% 39.5% =============================================================================================================
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): Years Ended May 31, 1997 1996 Deferred Tax Liabilities: Prepaid expenses $ (59) $ (95) Deferred revenue (51) (817) Deferred state taxes (354) (378) - ---------------------------------------------------------------------------------------------------------- Total Deferred Tax Liabilities (464) (1,290) - ---------------------------------------------------------------------------------------------------------- Deferred Tax Assets: Allowances for doubtful accounts and amounts unbillable 663 575 Depreciation and amortization of intangibles 393 534 Employee benefits 2,035 1,678 Claims reserves 819 1,030 Rental inducements 329 316 Other, net 465 475 - --------------------------------------------------------------------------------------------------------- Total Deferred Tax Assets 4,704 4,608 - --------------------------------------------------------------------------------------------------------- Net Deferred Assets $4,240 $3,318 =========================================================================================================
Note 4 - Income Taxes (continued) The Company recorded no valuation allowance related to deferred taxes at May 31, 1997 and 1996. Management believes that the Company will be able to realize the recorded balance of the net deferred tax assets through future taxable income. Income taxes paid were as follows (in thousands): 1997 $ 945 1996 1,069 1995 521 Note 5 - Deposits and Other Assets Deposits and other assets consist of the following (in thousands): May 31, 1997 1996 - ------------------------------------------------------------------------------------------------ Goodwill and other intangibles, net of accumulated amortization of $2,796 in 1997 and $2,478 in 1996 $3,995 $4,189 Non-current deferred income taxes 1,549 1,844 Deposits and other 436 690 - ------------------------------------------------------------------------------------------------- Total $5,980 $6,723 =================================================================================================
Note 6 - Other Liabilities Other liabilities consist of the following (in thousands): May 31, 1997 1996 - ------------------------------------------------------------------------------------------------ Claims reserves $1,237 $1,736 Long-term portion of capital lease obligations 216 247 - ------------------------------------------------------------------------------------------------- Total $1,453 $1,983 =================================================================================================
Note 7 - Defined Contribution Pension Plan The Company has a defined contribution pension plan that covers substantially all of its employees. The Company's contributions to the plan are discretionary and may be in the form of cash payments or the Company's common stock. The amounts charged to operations for this plan were $615,000 for 1997, $633,000 for 1996, and $739,000 for 1995. The contributions for 1997, 1996 and 1995 were made in the form of the Company's common stock. Note 8 - Acquisitions The Company did not make any acquisitions of a material nature in fiscal 1997 or 1996. The Company paid $0.1 million in additional purchase price in fiscal 1997 in accordance with the terms of an acquisition completed in fiscal 1995. In November 1994, the Company acquired 76.3% of the outstanding common stock of Envirosciences Pty Limited ("EPL"), an Australian company, for cash, plus future payments contingent on future earnings of EPL. In fiscal 1997 the Company purchased additional shares of EPL raising its ownership interest to 78.2%. EPL provides a wide range of environmental services through a network of five offices located in the major metropolitan areas of New South Wales and Queensland, Australia. This acquisition was accounted for as a purchase and, accordingly, the results of operations from the date of the acquisition have been included in the Company's consolidated financial statements. Had this acquisition taken place on June 1, 1994, the Company's 1995 results of operations would not have been materially different. The acquisition completed in fiscal 1995 was not material to the Company's operations or financial position. Note 9 - Common Stock The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB 25") and related Interpretations in accounting for its employee stock options because the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock-Based Compensation," ("SFAS No. 123") requires use of option valuation models that were developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable and not for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Stock Option Plans - In July 1987, the Company adopted, and the shareholders approved, the 1987 Stock Option Plan that provides for the granting of stock options to employees and non-employee directors at no less than the fair market value of the common stock on the grant date. A total of 525,000 shares of the Company's common stock has been reserved for issuance under this plan. In August 1988, the Company adopted the 1988 Stock Option and Restricted Stock Option Plan that provides for the granting of stock options to employees. In November 1989, the plan was amended to provide for the granting of options to non-employee directors. Stock options may be incentive or non-statutory. Non-statutory stock options may be either restricted or non-restricted. All incentive stock options and non-restricted non-statutory stock options are to be granted at no less than the fair market value of the common stock on the grant date. Restricted stock options may be granted at a price determined by the Board of Directors, but shall not be less than $1.00 per share. A total of 1,050,000 shares of the Company's common stock has been reserved for issuance under this plan. All options granted under the 1987 and 1988 Stock Option Plans have 10 year terms, and vest and become fully exercisable after three or four years of continued employment. Following is a summary of options granted under the 1987 and 1988 stock option plans: Optioned Shares Range Weighted Number of Average of Exercise Exercise Shares Prices Price BALANCE MAY 31, 1994 1,129,750 $1.00 $15.25 $9.70 - --------------------------------------------------------------------------------------------------- Options granted 167,000 5.50 7.25 5.78 Options cancelled (259,500) 5.50 15.25 9.80 Options exercised (4,000) 1.00 1.00 1.00 - --------------------------------------------------------------------------------------------------- BALANCE MAY 31, 1995 1,033,250 $1.00 $14.30 $9.08 - --------------------------------------------------------------------------------------------------- Options granted 57,000 5.88 6.88 6.21 Options cancelled (79,250) 5.50 14.13 9.43 Options exercised (1,000) 1.00 1.00 1.00 - --------------------------------------------------------------------------------------------------- BALANCE MAY 31, 1996 1,010,000 $1.00 $14.30 $8.90 - --------------------------------------------------------------------------------------------------- Options granted 10,500 6.25 7.25 6.63 Options cancelled (174,063) 5.50 14.13 9.13 Options exercised (6,000) 1.00 5.50 4.00 - --------------------------------------------------------------------------------------------------- BALANCE MAY 31, 1997 840,437 $1.00 $14.30 $8.85 - ---------------------------------------------------------------------------------------------------
Under the Company's stock option plans, 670,249 and 648,625 options were exercisable at May 31, 1997 and 1996, respectively, at exercise prices ranging from $1.00 to $14.30. The contractual life at May 31, 1997, was 0.2 to 9.6 years, with a weighted average contractual life of 4.8 years. The following is a summary of fixed stock options outstanding and exercisable by price range at May 31, 1997: Options Outstanding Options Exercisable Weighted Number Average Number Out- Remaining Weighted Exer- Weighted standing Contrac- Average cisable Average Range of as of tual Exercise as of Exercise Exercise Prices 5/31/97 Life Price 5/31/97 Price $1.0000 - $1.0000 3,000 2.13 $1.0000 3,000 $1.0000 5.5000 - 6.5000 178,500 7.54 5.8051 70,500 5.7498 6.6250 - 7.8750 233,187 6.40 7.4593 170,999 7.4734 8.1667 - 10.8333 176,500 0.70 8.6686 176,500 8.6686 11.1250 - 14.3000 249,250 4.41 12.5692 249,250 12.5692 $1.000 - $14.3000 840,437 4.84 $8.8543 670,249 $9.4729
Employee Stock Purchase Plan - The 1991 Employee Stock Purchase Plan was approved and subsequently amended by the Company's Board of Directors and Shareholders. A total of 250,000 shares of the Company's common stock has been reserved for issuance pursuant to this plan at a price which is 85% of the stock's fair market value. As of May 31, 1997, a total of 166,349 shares has been purchased through this plan 1995 Executive Stock Incentive Plan - In November 1995, the Company's shareholders approved a stock incentive plan which reserved 200,000 shares of common stock to be awarded to selected executives of the Company in lieu of, or in addition to, regular or bonus compensation. No shares were issued under this plan as of May 31, 1997 or 1996. Non-employee Directors Stock Compensation Plan - In December 1996, the Company established a non-employee directors stock compensation plan which reserved 100,000 shares to be issued to non-employee directors of the Company. Directors can elect to have all or a portion of their director compensation paid in the form of common stock of the Company in lieu of cash compensation. A total of 5,072 shares has been issued under this plan as of May 31, 1997. Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of SFAS No. 123. The fair value of each option grant under the fixed price option plans and the fair value of the employee's purchase rights under the employee stock purchase plan were estimated at the date of grant using a Black-Scholes option-pricing model. The dividend yield was assumed to be zero for both periods below. The weighted-average of all other significant assumptions and the weighted-average fair value of grants made during the years ended May 31, 1997 and 1996 are as follows: May 31, 1997 May 31, 1996 Option Plan ESPP Plan Option Plan ESPP Plan Volatility 70.08% 70.08% 70.08% 70.08% Risk-free interest rate 6.08% 5.51% 6.30% 5.16% Expected lives 4.23 yrs 0.5 yrs 4.51 yrs 0.5 yrs Fair value of grants $3.85 $1.78 $3.73 $1.91
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma net income (in thousands) and earnings per share would have been $2,351, or $0.47 per share and $930, or $0.19 per share, for the fiscal years 1997 and 1996, respectively. Note 10 - Commitments and Contingencies The Company leases certain premises under operating lease agreements, and equipment under operating lease and capital lease agreements. The following assets were capitalized under capital lease arrangements (in thousands): May 31, 1997 1996 - -------------------------------------------------------------------------------------------------------------- Vehicles $306 $341 Equipment 173 93 - -------------------------------------------------------------------------------------------------------------- 479 434 Accumulated amortization (139) (109) - --------------------------------------------------------------------------------------------------------------- $340 $325 ==============================================================================================================
Future minimum commitments under leasing arrangements at May 31,1997 were as follows (in thousands): Capital Operating Leases Leases Year ending May 31: 1998 $144 $4,157 1999 149 3,562 2000 54 2,770 2001 25 1,631 2002 and thereafter 12 2,459 - -------------------------------------------------------------------------------------------------------------- Minimum commitments $384 $14,579 ======= Less amount representing interest 53 Present value of minimum lease obligations 331 Less current portion of lease obligations included in accrued expenses 115 Long term lease obligations included in other liabilities $216
Rental expense was $4.9 million in 1997 $5.6 million in 1996, and, $5.5 million in 1995. Lease terms expire between June, 1997 and October, 2003. Most leases contain a renewal option at fair market value. The Company has a substantial number of U.S. Government contracts, under which the costs are subject to audit. Management believes that the effect of disallowed costs, if any, will not have a material adverse effect on the financial position or results of operations of the Company. Note 10 - Commitments and Contingencies (continued) The Company is currently subject to certain claims and lawsuits arising in the ordinary course of its business. In the opinion of management, adequate provision has been made for all known liabilities that are currently expected to result from these claims and lawsuits and in the aggregate such claims will not have a material effect on the financial position of the Company. The estimates used in establishing these provisions could differ from actual results. Should these provisions change significantly, the effect on operations for any quarterly or annual reporting period could be material. The Company is provided a $5 million per occurrence professional liability and a $5 million per occurrence contractor's pollution liability insurance policy through an unrelated, rated carrier. The Company also maintains general liability insurance with an unrelated, rated carrier. Note 11 - Selected Quarterly Financial Data (Unaudited) The Company's fiscal quarters end on August 31, November 30, February 28, and May 31. Selected quarterly financial data for fiscal 1997 and 1996 are summarized as follows (in thousands, except per share data): Quarterly Data First Second Third Fourth Quarter Quarter Quarter Quarter YEAR ENDED MAY 31, 1997 Net revenue $20,979 $21,282 $19,520 $22,495 Operating income 304 1,230 813 1,765 Net income 226 750 462 966 Net income per common share $ 0.05 $ 0.15 $ 0.09 $ 0.20 Weighted average shares outstanding 4,920 4,996 4,974 4,921 - -------------------------------------------------------------------------------------------------------------- YEAR ENDED MAY 31, 1996 Net revenue $22,708 $22,701 $20,237 $20,009 Operating income (loss) 1,356 1,375 (163) (1,729) Net income (loss) 935 959 79 (1,020) Net income (loss) per common share $ 0.19 $ 0.20 $ 0.02 $(0.21) Weighted average shares outstanding 4,804 4,871 4,866 4,865 - --------------------------------------------------------------------------------------------------------------
The Company recorded $1.4 million in expenses in the fourth quarter of fiscal 1996 associated with downsizing of certain operations. Report of Ernst & Young LLP, Independent Auditors Shareholders and Board of Directors Harding Lawson Associates Group, Inc. Novato, California We have audited the accompanying consolidated balance sheets of Harding Lawson Associates Group, Inc. as of May 31, 1997 and 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended May 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Harding Lawson Associates Group, Inc. at May 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended May 31, 1997, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP San Francisco, California July 3, 1997 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information set forth under the caption "Proposal No. 1: Election of Directors" under the sections entitled "General," "Security Ownership of Management," "The Directors", and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" of the definitive Proxy Statement for the Annual Meeting of Shareholders to be held on November 5, 1997, which is to be filed pursuant to regulation 14A under the Securities Exchange Act of 1934 (the "Proxy Statement"), is incorporated by reference. ITEM 11. EXECUTIVE COMPENSATION. The information set forth under the caption "Proposal No. 1: Election of Directors -- Compensation of Directors and Executive Officers" of the Proxy Statement is incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information set forth under the caption "Proposal No. 1: Election of Directors" under the headings "Security Ownership of Management" and "Principal Shareholders" of the Proxy Statement is incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information set forth under the caption "Proposal No. 1: Election of Directors -- Certain Relationships and Related Transactions" of the Proxy Statement is incorporated by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) (i) Consolidated Financial Statements The following consolidated financial statements of the Company are included in Item 8, above. Consolidated Balance Sheets, May 31, 1997 and 1996 Consolidated Statements of Income for the years ended May 31, 1997, 1996, and 1995 Consolidated Statements of Shareholders' Equity for the years ended May 31, 1997, 1996, and 1995 Consolidated Statements of Cash Flows for the years ended May 31, 1997, 1996, and 1995 Notes to Consolidated Financial Statements Report of Independent Auditors (ii) Financial Statement Schedules All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. (iii) Exhibits All of the Exhibits listed below, other than those marked with an asterisk, were filed as Exhibits to (a) the Company's Registration Statement on Form S-1 (Registration No. 33-15852), as filed with the Securities and Exchange Commission (the "Commission") on July 16, 1987 (the Registration Statement) and subsequently amended on August 14, 18, and 19, 1988, (b) the Company's 1988 Annual Report on Form 10-K, as filed with the Commission on August 28, 1988, (c) the Company's 1994 Annual Report on Form 10-K, as filed with the Commission on August 25, 1994, (d) the Company's 1995 Annual Report on Form 10-K, as filed with the Commission on August 25, 1995, or (e) the Company's 1996 Annual Report on Form 10-K, as filed with the Commission on August 29, 1996 and are incorporated herein by reference. Exhibits marked with a single asterisk are attached as Exhibits to this Annual Report. 3.1 Restated Certificate of Incorporation of the Company, incorporated by reference from amendment No. 1 to the Company's Registration Statement on Form S-1 under the 1933 Act, Registration No. 33-15852, which was filed with the Commission on August 14, 1987 ("Amendment No. 1"), where it appears as Exhibit 3(a) thereto. 3.2 Amendment to Restated Certificate of Incorporation changing the Company's name from Harding Associates, Inc. to Harding Lawson Associates Group, Inc., incorporated by references from the Company's 1996 Annual Report on Form 10-K, as filed with the Commission on August 29, 1996 ("1996 Form 10-K"), where it appears as Exhibit 3.2 thereto, 3.3 Bylaws of the Company, incorporated by reference from Amendment No. 1, where they appear as Exhibit 3(c) thereto. 10.1@ Harding Lawson Associates Group, Inc. 1987 Stock Option Plan, incorporated by reference from the Company's 1988 Annual Report on Form 10-K, as filed with the Commission on August 28, 1988 ("1988 Form 10-K"), where it appears as Exhibit 4(b) thereto. 10.2@ Harding Lawson Associates Group, Inc. revised 1988 Stock Option and Restricted Stock Option Plan incorporated by reference from the Company's 1994 Annual Report on Form 10-K, as filed with the Commission on August 25, 1994 ("1994 Form 10-K"), where it appears as Exhibit 10.2 thereto. 10.3 Amendment to the Harding Lawson Associates Group, Inc. 1991 Employee Stock Purchase Plan, incorporated by reference from the 1996 Form 10-K, where it appears as Exhibit 10.3 thereto. 10.4@ Amendment to the Non-Qualified Deferred Compensation Plan of the Company (formerly referred to as the Non-Qualified Deferred Bonus Plan II) incorporated by reference from the Company's 1995 Annual Report on Form 10-K, as filed with the Commission on August 25, 1995 ("1995 Form 10-K"), where it appears as Exhibit 10.7 thereto. 10.5@ Employment Agreement between the Company and Donald L. Schreuder dated June 29, 1994, incorporated by reference from the Company's 1994 Form 10-K. 10.6@ Form of Directors' and Officers' Indemnification Agreements, incorporated by reference from the Registration Statement where it appears as Exhibit 10(a) thereto. 10.7 Insurance policy issued to the Company by American International Specialty Lines Insurance Company for the period May 1, 1994 to June 30, 1995, incorporated by reference from the 1994 Form 10-K, where it appears as Exhibit 10.11 thereto. 10.8 Line of credit agreement with Wells Fargo Bank, N.A. dated October 31, 1995, incorporated by reference from the 1996 Form 10-K, where it appears as Exhibit 10.8 thereto. 10.9@ 1995 Executive Stock Incentive Plan approved by the Company's Shareholders in November 1995, incorporated by reference from the 1996 Form 10-K, where it appears as Exhibit 10.9 thereto. 10.10* Non-employee Director Compensation Plan dated April 27, 1997. 11.* Computation of Per Share Earnings. 21.* Subsidiaries of the Registrant. 23.* Consent of Ernst and Young LLP. 27. Financial Data Schedule (electronic filing only). * Exhibits are attached to this Annual Report. @ Management contracts and compensatory plans or arrangements required to be filed as Exhibits in compliance with Item 14(a)(3). The Company will provide a copy of any exhibit upon request and payment of the Company's reasonable expenses of furnishing such exhibit. (b) Reports on Form 8-K Date of Report Item Reported None SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HARDING LAWSON ASSOCIATES GROUP, INC. Date: August 15, 1997 By: /s/ Donald L. Schreuder ----------------------- Donald L. Schreuder President and Chief Executive Officer Date: August 18, 1997 By: /s/ Gregory A. Thornton ------------------------ Gregory A. Thornton Vice President and Chief Financial Officer (Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ James M. Edgar Director August 17, 1997 - ------------------------- James M. Edgar /s/ Donald K. Stager Director August 12, 1997 - ------------------------- Donald K. Stager Director and Chairman Richard S. Harding Emeritus /s/ Stuart F. Platt Director August 12, 1997 - ------------------------- Adm. Stuart F. Platt (Ret.) /s/ Richard D. Puntillo Chairman of the Board August 15, 1997 - ------------------------- Richard D. Puntillo /s/ Donald L. Schreuder President, Chief Executive August 8, 1997 - ------------------------- Donald L. Schreuder Officer, and Director /s/ Barton W. Shackelford Director August 14, 1997 - ------------------------- Barton W. Shackelford Index to Exhibits Exhibit No. Exhibit 10.10 Non-employee Director Compensation Plan dated April 27, 1997. 11. Computation of Per Share Earnings. 21. Subsidiaries of the Registrant 23. Consent of Ernst and Young LLP 27. Financial Data Schedule (Electronic filing only) EX-10 2 NON-EMPLOYEE DIRECTOR COMPENSATION STOCK PLAN Exhibit 10.10 HARDING LAWSON ASSOCIATES GROUP, INC. NON-EMPLOYEE DIRECTOR COMPENSATION STOCK PLAN Section 1. Purpose This Non-employee Director Compensation Stock Plan (the "Plan") is intended to encourage stock ownership by Non-employee Directors of Harding Lawson Associates Group, Inc., a Delaware corporation (the "Company") so that they may increase their proprietary interest in the success of the Company. The Non-employee Directors may be issued shares of the common stock of the Company ("Shares") in lieu of cash compensation as part of their annual compensation and they may choose, at their discretion, to receive all, or any portion of the balance of their Director's Compensation in the form of Shares. In this way, the Company will be assisted in its efforts to attract and retain highly qualified independent directors and to further align the directors' interest with that of the Company's stockholders. Section 2. Administration The Plan shall be administered by the Company through the Salary Deferral Committee (the "Committee") which is appointed by the Board of Directors, or such other committee as may be specified by the Company and whose membership shall be appointed or ratified by the Board of Directors. Section 3. Participation in the Plan (a) Participation in the Plan shall be limited to Non-employee Directors of the Company. (b) No member of the Board of Directors who is also an officer or employee of the Company shall be eligible to participate in the Plan. Section 4. Common Stock Subject to the Plan (a) The maximum number of Shares that may be issued pursuant to the Plan shall be Two Hundred Thousand (200,000). Such Shares shall be reserved for this purpose. The limitation on the number of Shares which may be issued under the Plan shall be subject to adjustment as provided in Section 4(b), below. The Shares to be issued pursuant to the Plan may be unissued shares or treasury shares. Notwithstanding anything to the contrary contained herein, no more than Twenty-five Thousand (25,000) Shares may be issued pursuant to the Plan unless and until the Plan has been approved by the affirmative vote of the holders of a majority of the shares of the common stock of the Company present in person or by proxy and entitled to vote at a duly held meeting of shareholders. (b) In the event of any merger, consolidation, reorganization, stock dividend, stock split, or other change in corporate structure or capitalization affecting the Company, the Board of Directors shall make such adjustments as shall be just and equitable in the number and kind of Shares to be issued under the Plan (including the aggregate number of Shares which may be issued under the Plan). Section 5. Elections; Delivery of Shares (a) Each Non-employee Director may elect, in such person's sole discretion, to receive in the form of Shares rather than in cash all or any portion of any compensation that would otherwise be payable in cash to such person for services as a director of the Company. To make such an election with respect to any calendar year, a Non-employee Director shall provide written notice of election to the Company in the month of December of the preceding year. Such notice shall designate the amount of compensation which the Non-employee Director elects to receive in Shares ("Designated Compensation"). (b) Any Shares issuable with respect to Designated Compensation shall be issued to the Non-employee Director during the first month of the calendar quarter in which the Payment Date, as defined below, occurs, or at such other time as the Board of Directors may specify and approve. Notwithstanding the preceding sentence, Non-employee Directors may elect to defer their receipt of Shares pursuant to the terms of the Company's Non-qualified Deferred Compensation Plan (the "Deferred Compensation Plan"), and, in the event of such an election, the Shares will be issued in accordance with the terms of the Deferred Compensation Plan. "Payment Date" with respect to any Designated Compensation means the day on which the Designated Compensation would have been paid assuming that the recipient had not elected either to receive the compensation in Shares or to defer receipt of the compensation pursuant to the Deferred Compensation Plan. (c) The number of Shares to be issued with respect to any Designated Compensation shall be calculated by dividing the amount of the Designated Compensation by the Fair Market Value of a Share. The Fair Market Value of a Share shall be deemed to equal the closing price of the Shares on the business day preceding the day the Shares are issued, as reported by the Nasdaq Stock Market. If no trades took place on the business day preceding the day the Shares are issued, the Fair Market Value of a Share shall be deemed to equal the closing price on the latest preceding day that the Shares traded. Section 6. Securities Law Considerations Neither the Plan nor the Company shall be obligated to issue any Shares pursuant to the Plan at any time unless and until all applicable requirements imposed by any federal and state securities and other laws, rules and regulations, by any regulatory agencies, or by any stock exchange upon which the common stock may be listed, have been fully met. As a condition precedent to any issuance of Shares and delivery of certificates or proof of electronic transmission evidencing such shares pursuant to the Plan, the Committee may require Non-employee Directors to take any such action and to make any such representation as the Committee or the Board of Directors in its discretion deems necessary or advisable to insure compliance with such requirements. Non-employee Directors are responsible for complying with all applicable federal and state securities and other laws, rules and regulations in connection with any offer, sale or other transfer by them of any Shares issued pursuant to the Plan or any interest therein. Section 7. Amendment The Board of Directors may suspend or discontinue the Plan or revise or amend it in any respect whatsoever; provided, however, that without approval of the shareholders no revision or amendment shall change the number of Shares subject to the Plan (except as provided in Section 4(b)), change the designation of the class of persons eligible to receive Shares, or materially increase the benefits accruing to participants under the Plan. Section 8. Withholding Taxes All taxes, if any, required to be withheld and payable with respect to the issuance of Shares will be deducted from the Non-employee Director's compensation. If at any time such amounts are not adequate to cover taxes required to be withheld, the participant shall make adequate and timely arrangement with the Company for the payment of the excess as a condition of such award. Section 9. Effectiveness of the Plan The Plan shall become effective on the date the Board of Directors of the Company approve the Plan. The Plan will terminate ten (10) years after the effective date unless sooner terminated by the Board. Date Plan approved by Board: April 27, 1997 EX-11 3 COMPUTATION OF PER SHARE EARNINGS Exhibit No. 11 HARDING LAWSON ASSOCIATES GROUP, INC. COMPUTATION OF PER SHARE EARNINGS (In thousands, except per share data) Years Ended May 31, 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------- Average shares outstanding 4,926 4,824 4,684 Net effect of dilutive stock options based on the treasury stock method in fiscal 1997 and the modified treasury stock method in fiscal years 1996 and 1995 27 27 122 - --------------------------------------------------------------------------------------------------------------- TOTAL 4,953 4,851 4,806 =============================================================================================================== Net income $2,404 $ 953 $2,972 =============================================================================================================== Net income per common share $ 0.49 $ 0.20 $ 0.62 ===============================================================================================================
EX-21 4 SUBSIDIARIES OF THE REGISTRANT Exhibit No. 21 HARDING LAWSON ASSOCIATES GROUP, INC. SUBSIDIARIES OF THE REGISTRANT State or Country Name of Incorporation Doing Business Under Harding Lawson Associates, Inc. Delaware Harding Lawson Associates, Inc. Harding Lawson Associates Delaware Harding Lawson Associates Infrastructure, Inc. Infrastructure, Inc. Harding Lawson Associates Delaware Harding Lawson Associates International, Inc. International, Inc. Harding Lawson Australia, Pty. Ltd. New South Wales, Harding Lawson Australia, Pty. (wholly owned subsidiary of Australia Ltd. Harding Lawson Associates International, Inc.) HLA-Envirosciences Pty Limited New South Wales, HLA-Envirosciences Pty Limited (majority owned subsidiary of Australia Harding Lawson Australia, Pty. Ltd.) Harding Lawson de Mexico S.A. de C.V. City of Mexico Harding Lawson de Mexico S.A. (wholly owned subsidiary of Federal District de C.V. Harding Lawson Associates International, Inc.) Grupo Industrial de Ingenieria Ecologica III, City of Mexico GRIECO HLA & Iconsa S.A. de C.V. Federal District (majority owned subsidiary of Harding Lawson de Mexico S.A. de C.V.) Harding Lawson Singapore Pte Ltd Singapore Harding Lawson Singapore Pte Ltd HLA Venture, Inc. Delaware HLA Venture, Inc. Harding Construction Services, Inc. Delaware (Dormant) Redwood Company, Ltd. Bermuda (Dormant) Redwood Insurance, Ltd. Bermuda (Dormant) (wholly owned subsidiary of Redwood Company, Ltd.) Integrated Software Systems, LLC Colorado Integrated Software Systems, LLC (Harding Lawson Associates, Inc. has a minority interest in LLC) Standards Training Corporation, LLC Ohio Standards Training Corporation, LLC (HLA Venture, Inc. has a 50% ownership interest in LLC)
EX-23 5 CONSENT OF AUDITORS Exhibit No. 23 Consent of Ernst & Young LLP, Independent Auditors We consent to the incorporation by reference in the Registration Statements on Form S-8 dated August 15, 1988 pertaining to the 1987 Stock Option Plan; Form S-8 dated April 14, 1989, as amended on July 25, 1990 and December 24, 1991, pertaining to the 1988 Stock Option and Restricted Stock Option Plan; Form S-8 dated June 5, 1996 pertaining to the Executive Stock Incentive Plan; Form S-8 dated April 17, 1988 pertaining to the Employee Stock Purchase Plan as amended on December 24, 1991 and June 5, 1996; Form S-8 dated August 15, 1988 pertaining to the Deferred Compensation and Profit Sharing Plan of Harding Lawson Associates Group, Inc., of our report dated July 3, 1997, with respect to the consolidated financial statements of Harding Lawson Associates Group, Inc., included in its Annual Report on Form 10-K for the year ended May 31, 1997. San Francisco, California August 15, 1997 EX-27 6 FINANCIAL DATA SCHEDULE
5 1000 YEAR MAY-31-1997 JUN-01-1996 MAY-31-1997 24464 0 29133 1388 0 55973 21701 17299 66355 17977 0 0 0 49 46553 66355 0 123412 0 39136 80164 0 38 4288 1892 2404 0 0 0 2404 0.49 0.49
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