0000950005-95-000188.txt : 19950828
0000950005-95-000188.hdr.sgml : 19950828
ACCESSION NUMBER: 0000950005-95-000188
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 6
CONFORMED PERIOD OF REPORT: 19950531
FILED AS OF DATE: 19950825
SROS: NASD
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: HARDING ASSOCIATES 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: 95567092
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
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, 1995
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 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 NASDAQ National Market System
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates
of the registrant on August 8, 1995: $25,838,000
Number of shares of the registrant's Common Stock outstanding
as of August 8, 1995: 4,844,554.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held on November 1, 1995, to be filed pursuant to Regulation
14A under the Securities Exchange Act of 1934, are incorporated by reference in
Part III.
Page 1 of 48 pages
The Index to Exhibits is located at page 36.
PART I
ITEM 1. BUSINESS.
Harding Associates, Inc. provides comprehensive engineering, environmental, and
construction services related to the protection of environmental media
potentially impacted by industrial and agricultural operations, the assessment
and remediation of contaminated sites, and the management of hazardous and solid
wastes. 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 Associates, Inc. and its wholly owned
subsidiaries Harding Lawson Associates, Inc., Harding Lawson Associates
Infrastructure, Inc. (formerly Alpha Engineering Group, Inc.), Harding
International, Inc. and its subsidiaries Harding Lawson de Mexico, Harding
Lawson Australia Pty. Ltd., and Harding Lawson Australia's 76% ownership in
HLA-Envirosciences Pty. Limited.
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 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 may perform site assessments or
audits, and may prepare site characterization reports or environmental planning
and permitting documents in response to federal, state or local regulations.
Following site characterization, the Company may provide risk assessment and
regulatory services to develop and negotiate cleanup standards. The Company may
assist its clients to evaluate cleanup options, select and negotiate remedies
with regulatory agencies, and provide a design for site remediation. The Company
may 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 1,050 full time professional and support personnel located in
29 U.S. cities in Alaska, Arizona, California, Colorado, Florida, Hawaii,
Illinois, Nevada, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania,
Texas, Utah, Virginia, and Washington, and five cities in Australia, and one in
Indonesia. During the fiscal year ended May 31, 1995, the Company performed
services for over 1,100 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",
2
or a "Fixed-Price" basis, and are usually terminable on advance notice by either
party. Most 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 of
performing the agreed-upon services may exceed the set price, but also carry the
benefit of potentially higher profit.
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, or dispose of toxic substances and other waste materials. Due
to the complex nature of these regulations, demand is created for the Company's
services. A significant portion of the Company's business is driven by federal,
state, and local programs and regulations. 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. Superfund is currently scheduled for reauthorization in
1995 or 1996. Over the past year there has been considerable debate regarding
several key provisions of the statute. Superfund has been perceived by many to
have been largely ineffective since 1980. Significant changes to the statute are
expected when reauthorized. The Company is not able to ascertain the effect of
the proposed reauthorization at this time.
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 Company believes that responding to the needs of industry under RCRA could
result in additional demand for the Company's services. RCRA was scheduled for
reauthorization in 1994, but will likely be delayed until 1996 or beyond.
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
pollution 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 significantly increased demand for the Company's
air quality services during the 1995 fiscal year.
3
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.
SERVICES
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 which the Company either does not possess or
cannot cost effectively provide its clients in a specific geographic area.
The Company's environmental and waste services, carried out primarily through
Harding Lawson Associates, include: remedial programs (site characterization and
risk assessment, remedial engineering, design and construction management);
waste disposal facility siting, permitting, design and closure; air quality
management; site audits and assessments; regulatory compliance and environmental
permitting and monitoring. The Company's infrastructure services include:
transportation, structural, municipal, electrical and mechanical engineering and
construction administration. Other services include: geotechnical engineering
and water resources engineering. The Company has broad capabilities in computer
applications and technical information management to support its consulting and
engineering services.
* HAZARDOUS WASTE MANAGEMENT
In the 1995 fiscal year, 70% of the Company's gross revenues have been derived
from 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 to design integrated remedial systems,
prepare detailed construction drawings and specifications and develop
operating manuals and maintenance programs for remedial systems.
4
* Construction Management. The Company manages construction of remedial
and pollution control systems and waste disposal facilities through
its construction management group.
* OTHER ENVIRONMENTAL SERVICES.
All other environmental services have accounted for 17% of the Company's gross
revenues in the 1995 fiscal year. These services include:
* 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.
* Environmental 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.
* 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 which are
provided by the Company.
* 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.
* 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.
* Lead Paint/Asbestos Management. The asbestos and lead-based paint
markets are highly competitive with limited barriers for new entrants.
The Company offers this service to select clients as part of its
comprehensive environmental services.
* CIVIL ENGINEERING SERVICES.
Other engineering services have accounted for 13% of the Company's gross
revenues in the 1995 fiscal year. These services include:
* Infrastructure/Transportation Engineering. The Company's civil
engineers provide services relating to transportation including
streets, road and highway design, traffic engineering, interchanges
and high occupancy vehicle lane design; design of structures including
bridges, peers and docks, water reservoirs and miscellaneous buildings
and other structures; seismic retrofit; municipal engineering
including water and sewer system design; storm drainage studies and
design; storm water treatment and pump stations and transmission pipe
lines design; electrical and mechanical engineering; and construction
administration. 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. The Company
5
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 46%
of gross revenue in fiscal 1995. Non-regulatory governmental bodies provided 41%
of gross revenues, including Department of Defense agencies, and 13% came from
state and local governments. The Company's 15 largest clients accounted for
approximately 49% of the Company's revenues in fiscal 1995, 53% in fiscal 1994
and 45% in fiscal 1993. Approximately 39% of its revenues during fiscal 1995
were derived from the Company's five largest clients compared to 39% in fiscal
1994 and 32% in fiscal 1993.
In fiscal 1995, the Department of the Army accounted for approximately 26% of
the Company's gross revenue. Revenue from this client, which accounted for 29%
of gross revenue in fiscal 1994 and 19% in fiscal 1993, was generated under
various contracts in various locations which were negotiated independent 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, certain of these
Department of the Army contracts were substantially concluded, and others began
to diminish and will be substantially completed in fiscal 1996. 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 5% or
more of gross revenues in fiscal 1995, 1994, or 1993.
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, 1995, the Company had over $70 million of authorized
gross revenue backlog compared with $59 million at May 31, 1994, and $58 million
at May 31, 1993. 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 such
authorizations are generally for periods considerably shorter than the duration
of the work the Company expects to perform for a particular client, the Company
does not feel that backlog figures are necessarily indicative of future
revenues. In addition to authorized backlog, the Company has certain contracting
vehicles which include substantial unauthorized amounts which are not included
in backlog. Tasks under these contracts may or may not be authorized during
fiscal 1996.
6
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, none of which currently
dominates any particular market segment. 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
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. Both environmental and
non-environmental services provided by the Company also involve other
significant risks. 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. 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 may 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.
Prior to May 1994, the Company was provided a professional liability insurance
policy through a wholly owned subsidiary of the Company, and as such, was self
insured for the liabilities covered by that policy. Currently, 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
At the end of fiscal 1995, the Company employed approximately 1,045 regular,
full-time employees, including 600 engineers and scientists, 320 production
support staff and 125 administrative and clerical personnel. In addition to its
full-time staff, the Company employs approximately 50 part-time personnel at any
time and utilizes temporary personnel as required, most of whom are technical
support personnel. The Company maintains a continuous recruiting program to
attract selected 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 Alaska, Arizona,
California, Colorado, Florida, Hawaii, Illinois, Nevada, New Mexico, New Jersey,
North Carolina, Oregon, Pennsylvania, Texas, Utah,
7
Virginia, Washington, and Australia. These facilities have a combined area of
approximately 397,421 square feet. Aggregate lease expense for all of the
Company's facilities during the fiscal year ended May 31, 1995 was approximately
$5,494,000. The lease terms expire at various times through October 2003.
Historically, the Company has not experienced any difficulty in renewing leases
which have expired.
ITEM 3. LEGAL PROCEEDINGS.
On May 19, 1995, the Company filed a lawsuit in Texas State Court, Harris
County, Texas, entitled Harding Lawson Associates, Inc., a wholly owned
-----------------------------------------------------
subsidiary of Harding Associates, Inc. vs. Bailey Site Settlors Committee, an
--------------------------------------------------------------------------------
unincorporated association, seeking collection of approximately $1.0 million in
--------------------------
fees billed for engineering services performed. On June 21, 1995, a lawsuit was
filed against the Company in Federal District Court, Jefferson County, Texas,
and in Texas State Court, Orange County, Texas, entitled Bailey Site Settlors
--------------------
Committee vs. Harding Lawson Associates. The suit seeks monetary damages in the
---------------------------------------
amount of $7.9 million for alleged breach of contract and negligence in the
performance of certain engineering services. The Company believes it has
meritorious defenses to this suit. The Company is currently subject to other
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 impact on
the financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters 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.
8
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 National Market System 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 ending May 31, 1994:
First Quarter $ 9.75 $ 6.50
Second Quarter 8.75 7.25
Third Quarter 10.50 8.00
Fourth Quarter 9.25 5.75
Fiscal year ending May 31, 1995:
First Quarter $ 7.00 $ 5.25
Second Quarter 8.00 5.75
Third Quarter 7.25 5.25
Fourth Quarter 6.50 5.25
Fiscal year ending May 31, 1996:
First Quarter through August 8, 1995 $ 6.50 $ 5.50
HOLDERS
As of August 8, 1995 there were 790 record holders of the Company's common
stock. The closing price of the Company's stock on August 8, 1995 was $6.00 as
reported on the National Association of Securities Dealers Automated Quotations
National Market System.
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.
9
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected financial data of the Company for the
years ended May 31, 1991 through 1995. 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,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Income Statement Data:
Gross revenue $130,554 $115,561 $115,657 $112,386 $97,968
Net revenue 92,455 79,944 82,605 83,257 72,449
Operating income 4,595 1,353 580 7,147 6,688
Income before provision for
income taxes and minority
interest 4,907 1,656 821 6,473 7,593
Net income 2,972 1,002 497 3,917 4,522
Net income per common
share $ 0.62 $0.21 $0.10 $0.81 $0.94
Average common shares
outstanding 4,806 4,851 4,856 4,827 4,787
Balance Sheet Data:
Working capital $33,369 $29,394 $32,729 $29,230 $24,448
Total assets 60,788 61,486 59,812 59,717 50,075
Short-term debt --- 2,030 --- --- 20
Long-term debt,
net of current portion --- --- --- --- ---
Shareholders' equity 42,685 38,975 39,541 37,761 32,422
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.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
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 revenues, and (ii) the percentage increase (decrease) in the
dollar amount of such items from year to year.
Percentage of Percentage
Net Revenues Increase/(Decrease)
Fiscal Year Fiscal Year
------------- -------------
1995 1994
vs vs
1995 1994 1993 1994 1993
---- ---- ---- ---- ----
Net revenue 100.0% 100.0% 100.0% 15.6% (3.2)%
Costs and expenses
Payroll and benefits 68.1 66.8 64.6 17.9 0.1
General expenses 26.9 31.5 34.7 (1.1) (12.2)
Operating income/margin 5.0 1.7 0.7 239.6 133.4
Net interest income 0.3 0.4 0.3 3.0 25.8
Income before provision for
taxes and minority interest 5.3 2.1 1.0 196.3 101.8
Provision for taxes 2.1 0.8 0.4 196.5 101.8
Net income 3.2 1.3 0.6 196.6 101.8
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 6.8% of net revenue in fiscal 1995
compared with 8.4% and 10.6% in fiscal 1994 and 1993 respectively. The Company
believes there will continue to be downward pressure on net revenue derived from
such services. 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 30.7%,
33.4%, and 31.2% in 1995, 1994, and 1993, respectively.
Net Revenue--Net revenue totaled $92.5 million in fiscal 1995, an increase of
$12.5 million or 15.6% from 1994. The increase in fiscal 1995 was due primarily
to acquisitions completed in May of 1994 and in the second fiscal quarter of
1995 and, to a lesser extent, the fact that fiscal 1995 consisted of 53 weeks
versus 52 weeks in the prior fiscal year. Excluding the effect of acquisitions,
the Company experienced slightly higher prices for its services which were
partially offset by lower demand. Net revenue derived from public sector clients
in fiscal 1995 increased by approximately 25% over the prior year and accounted
for 54% of total net revenue for fiscal 1995 compared to 51% and 41% for fiscal
1994 and 1993, respectively. The growth in net revenue from public sector
clients was essentially due to the acquisition of Alpha Engineering Group in
April of 1994. Net revenue from private sector clients began to benefit from
improved economic conditions in the latter part of fiscal 1995. Overall, private
sector sales were up slightly compared to the prior year, reversing the trend of
declining private sector sales experienced in the previous two years. Operations
in Southern California and in the East experienced particular improvement.
International sales accounted for 2% of the Company's net revenue in fiscal
11
1995 and were attributable entirely to operations in Australia acquired by the
Company during the fiscal year.
Fiscal 1994 net revenue was $79.9 million, a decrease of 3.2% from net revenue
of $82.6 million in fiscal 1993. The decline in net revenue in fiscal 1994 was
due to a continued decline in demand for the Company's services, principally
from the Company's private sector clients, particularly in California. The lower
demand was partially offset by slightly higher prices for its services. Net
revenue derived from public sector clients in fiscal 1994 increased by
approximately 19% over the prior year, but was more than offset by a decrease of
approximately 19% from private sector clients.
A significant portion of the services provided by the Company to its public
sector clients are performed under a relatively small number of larger contracts
compared to private sector clients. During fiscal 1996, certain of these public
sector contracts will be substantially completed. The Company has been awarded
certain contracts which potentially could offset revenue which will be lost
under nearly completed contracts. However, if the Company is unsuccessful in
realizing the full potential of these contracts or winning new contracts, or if
funding delays are experienced on previously awarded federal contracts, a
material decline in revenue could result. Further, while the Company has seen
improved private sector activity, management believes that this sector will be
strongly influenced by general economic conditions and congressional action on
pending environmental regulations in the U.S.
Site restoration work, which encompasses characterization through feasibility
studies, design engineering, and remediation, continued to represent the most
significant portion of the Company's activity, representing approximately 66% of
net revenue in 1995 compared to approximately 68% in 1994 and 66% in 1993.
Civil/infrastructure work contributed approximately 12% of net revenue in fiscal
1995. The balance of net revenue was divided among environmental services
related to waste disposal facilities design, environmental permitting and
monitoring, regulatory compliance including process engineering and air quality,
site assessments and audits (including property transfer assessments), asbestos
management and geotechnical engineering projects.
Operating Income--Operating income in fiscal 1995 of $4.6 million and an
operating margin of 5.0% were both improved from fiscal 1994 results. The prior
year results were negatively impacted by certain downsizing and reorganization
expenses in the fourth quarter. Excluding those items, operating income in
fiscal 1995 improved by $1.4 million or approximately 43% from the prior year
with the operating margin improving from 4.0% in fiscal 1994. The operating
margin improvement primarily reflects lower operating costs, which resulted from
the Company's cost reduction and downsizing efforts. These efforts produced
lower general expenses and a higher efficiency in staff utilization in fiscal
1995 compared to fiscal 1994. Operations acquired in May 1994 and during fiscal
1995 did not have a material impact on operating income but did negatively
impact operating margins for the year. Subject to normal business risks, it is
anticipated that these acquisitions will show margin improvement in fiscal 1996.
Operating income in fiscal 1994 of $1.4 million and an operating margin of 1.7%
were higher than the fiscal 1993 results of $0.6 million and an operating margin
of 0.7%. Fiscal 1994 results were negatively impacted by expenses in the fourth
quarter related to the disposal of excess leased facilities ($0.5 million), the
reorganization, downsizing and consolidation of certain operations ($0.8
million), and the write-down of the carrying value of certain intangibles
acquired in acquisitions ($0.5 million). Fiscal 1993 operating income included a
charge related to downsizing operations ($0.9 million) and a $3.0 million charge
to increase the Company's reserves for legal claims. Excluding these items,
operating income in fiscal 1994 declined by $1.3 million or approximately 29%
from the prior year with the operating margin declining to 3.9% from 5.4% in
fiscal 1993. The operating margin decline reflects the $2.7 million reduction in
revenue discussed above, partially offset by lower operating cost resulting from
the Company's cost reduction efforts which held labor related expense at the
1993 level and reduced general expenses compared with the prior year.
12
Interest Income (Expense)--Net Interest income in 1995 of $0.3 million was
virtually unchanged from fiscal 1994 as a slightly lower average cash balance
was offset by slightly higher interest rates. Net interest income in 1994 was
$0.3 million versus approximately $0.2 million in fiscal 1993. Included in
fiscal 1993 was interest expense of $0.1 million related to certain tax
adjustments.
Income Taxes--The effective tax rate was 39.5% for fiscal years 1995, 1994 and
1993.
Net Income--Net income of $3.0 million in fiscal 1995 was $2.0 million higher
than the prior year. The improvement was primarily due to lower operating
expenses. Net income of $1.0 million in fiscal 1994 was $0.5 million higher than
the prior year primarily due to lower overall expenses, partially offset by
lower net revenue.
Net income per common share was $.62 in 1995, compared to $.21 in 1994, and $.10
in 1993. Weighted average shares outstanding were 4,806,000, 4,851,000, and
4,856,000 in 1995, 1994, and 1993, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $8.7 million in fiscal 1995
compared to $2.5 million in 1994 and $0.7 million in 1993. The increase in cash
provided by operations in fiscal 1995 compared to 1994 was primarily related to
the Company's improved earnings together with a significant improvement in the
Company's net accounts receivable compared to a year ago, and lower tax payments
in fiscal 1995. The lower tax payments resulted primarily from the realization
of certain deferred tax assets. The increase in cash provided by operations in
fiscal 1994 compared to 1993 was primarily related to a decrease in billed
accounts receivable, partially offset by a decline in certain other liabilities
compared to fiscal 1993, and the payment in 1993 of certain taxes payable. The
decline in other liabilities in 1994 reflects, among other things, payment made
in settlement of certain legal claims.
The Company currently has a $20.0 million line of credit with a commercial bank,
at prime or LIBOR rates, that expires in October 1995. There were no borrowings
under the line as of May 31, 1995, and as such, the entire $20 million was
available to the Company. Had the Company borrowed under its line in May of
fiscal 1995, the interest rate would have been 6.1%. In connection with an
acquisition completed in May 1994, the Company borrowed $2 million under its
line of credit and retired debt in a similar amount assumed with the
acquisition. Such amount remained outstanding as of May 31, 1994, leaving $18
million available to the Company. The effective interest rate was 5.8%. Amounts
outstanding at the end of fiscal 1994 were fully repaid by the end of the second
quarter of fiscal 1995. The Company is in compliance with all covenants
pertaining to the credit line agreement and the Company expects to renew its
credit line facility in fiscal 1996 under substantially the same terms and
conditions as its existing facility.
The Company invested $3.1 million and $3.6 million in the purchase of capital
assets, including acquisitions, in 1995 and 1994 respectively. The Company
invested $3.7 million in the purchase of capital assets, including acquisitions,
in 1993.
In fiscal year 1995, the Company used net cash of $1.8 million for financing
activities, which primarily consisted of $2.0 million in repayment of money
borrowed against the Company's line of credit, partially offset by $0.2 received
from common stock sold to employees. The Company used net cash of $2.2 million
for financing activities in fiscal year 1994 and generated $0.3 million in 1993.
The cash used in financing activities in 1994 included approximately $2.2
million for the repurchase of the Company's common stock and approximately $0.3
million reflecting the net reduction in acquired debt offset by $0.3 million
received from common stock sold to employees. In 1993, the net cash provided by
financing activities resulted from approximately $0.6 million received from the
sale of common stock to
13
employees offset by approximately $0.3 utilized in the repurchase of the
Company's common stock. In fiscal 1993, the Company announced a plan to
repurchase, under certain conditions, up to 500,000 of its common shares.
Approximately 301,500 and 27,600 common shares were repurchased under this
program during fiscal 1994 and 1993, respectively. There were no repurchases of
stock in fiscal 1995, and the authorized repurchase program expired in November
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. Prior to May 1994, the Company was provided a
professional liability insurance policy through a wholly owned subsidiary of the
Company, and as such, was self insured for the liabilities covered by that
policy. Currently, the Company is provided a $5 million professional liability
insurance policy through 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 upcoming fiscal year. During
fiscal 1996, 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.
14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
HARDING ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
--------------------------------------------------------------------------------
Years Ended May 31,
1995 1994 1993
--------------------------------------------------------------------------------
Gross revenue $130,554 $115,561 $115,657
Less: Cost of outside services 38,099 35,617 33,052
--------------------------------------------------------------------------------
Net revenue 92,455 79,944 82,605
--------------------------------------------------------------------------------
Costs and Expenses:
Payroll and benefits 62,945 53,409 53,346
General expenses 24,915 25,182 28,679
--------------------------------------------------------------------------------
Total costs and expenses 87,860 78,591 82,025
--------------------------------------------------------------------------------
Operating income 4,595 1,353 580
Interest income,
net of interest expense of
$47 in 1995, $1 in 1994,
and $100 in 1993 312 303 241
--------------------------------------------------------------------------------
Income before provision for income taxes
and minority interest 4,907 1,656 821
Provision for income taxes 1,939 654 324
Minority interest (4) --- ---
--------------------------------------------------------------------------------
Net income $2,972 $1,002 $ 497
================================================================================
Net income per common share $ 0.62 $ 0.21 $ 0.10
================================================================================
Weighted average common
shares outstanding 4,806 4,851 4,856
================================================================================
The accompanying notes are an integral part
of the consolidated financial statements.
15
HARDING ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
--------------------------------------------------------------------------------
May 31, 1995 May 31, 1994
--------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $12,648 $ 8,896
Accounts receivable,
less allowance for doubtful accounts
of $802 in 1995 and $1,303 in 1994
and including retentions of $4,741
in 1995 and $2,982 in 1994 27,540 25,539
Unbilled work in progress,
less allowance for amounts unbillable
of $751 in 1995 and 1994 6,185 10,914
Prepaid expenses 925 1,410
Deferred income taxes 2,235 2,478
--------------------------------------------------------------------------------
Total current assets 49,533 49,237
--------------------------------------------------------------------------------
Equipment 21,208 19,739
Less accumulated depreciation (16,766) (14,403)
--------------------------------------------------------------------------------
Net equipment 4,442 5,336
--------------------------------------------------------------------------------
Deposits and other assets 6,813 6,913
--------------------------------------------------------------------------------
Total assets $60,788 $61,486
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ --- $ 2,030
Accounts payable 3,383 5,831
Accrued expenses 5,642 6,412
Accrued compensation 6,518 5,542
Income taxes payable 621 28
--------------------------------------------------------------------------------
Total current liabilities 16,164 19,843
--------------------------------------------------------------------------------
Other liabilities 1,715 2,668
--------------------------------------------------------------------------------
Total liabilities 17,879 22,511
--------------------------------------------------------------------------------
Commitments and Contingencies (Note 10) --- ---
Minority interest in subsidiary 224 ---
--------------------------------------------------------------------------------
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
4,719,320 in 1995 and 4,602,791
in 1994 47 46
Additional paid-in capital 17,424 16,687
Retained earnings 25,214 22,242
--------------------------------------------------------------------------------
Total shareholders' equity 42,685 38,975
--------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $60,788 $61,486
================================================================================
The accompanying notes are an integral part
of the consolidated financial statements.
16
HARDING ASSOCIATES, 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, 1992 4,691,856 $47 $16,971 $20,743 $37,761
-----------------------------------------------------------------------------------------------------------------
Stock options exercised 25,800 --- 225 225
Common stock issued to
employees 95,199 1 1,079 1,080
Common stock issued in
acquisition 23,140 --- 284 284
Shares repurchased and
retired (27,600) --- (306) (306)
Net income 497 497
-----------------------------------------------------------------------------------------------------------------
Balance May 31, 1993 4,808,395 $48 $18,253 $21,240 $39,541
-----------------------------------------------------------------------------------------------------------------
Common stock issued to 95,896 1 618 619
employees
Shares repurchased and
retired (301,500) (3) (2,184) (2,187)
Net income 1,002 1,002
-----------------------------------------------------------------------------------------------------------------
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 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
-----------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part
of the consolidated financial statements.
17
HARDING ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
-----------------------------------------------------------------------------------------------
Years Ended May 31,
1995 1994 1993
-----------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $2,972 $1,002 $ 497
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 3,264 3,957 3,302
Deferred income tax 862 (938) (2,401)
Changes in operating assets and liabilities:
Net accounts receivable and unbilled work in progress 3,556 190 (1,857)
Prepaid expenses 548 (618) 1,941
Accrued compensation 976 324 (578)
Accounts payable and other liabilities (2,866) (710) 3,754
Income taxes payable and accrued interest 464 (994) (4,015)
Other, net (1,067) 327 60
-----------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,709 2,540 703
-----------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of equipment, net (1,431) (1,914) (2,429)
Proceeds from sale of equipment --- --- 74
Investment in acquisitions, net of cash acquired (1,683) (1,688) (1,327)
-----------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (3,114) (3,602) (3,682)
-----------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from sale of common stock 195 286 620
Repurchase of common stock --- (2,187) (306)
Proceeds from notes payable --- 2,000 ---
Repayment of debt (2,038) (2,316) ---
-----------------------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (1,843) (2,217) 314
-----------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 3,752 (3,279) (2,665)
Cash and cash equivalents at beginning of year 8,896 12,175 14,840
-----------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $12,648 $ 8,896 $12,175
===============================================================================================
The accompanying notes are an integral part of the consolidated financial statements.
18
HARDING ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, MAY 31, 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and its wholly 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. Project overruns are recognized in their entirety in the period
when the loss is 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 - Effective June 1, 1993 the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109).
Under Statement 109, the liability method is used to account for 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. Prior to adoption of
Statement 109, the Company accounted for income taxes under Financial Accounting
Standards No. 96, "Accounting for Income Taxes". The adoption of SFAS No. 109
did not have a material effect on the consolidated financial position or
operations of the Company.
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 modified treasury stock method using the
average market price.
Cash and Cash Equivalents - Cash and cash equivalents include short-term
investments with a maturity at acquisition of less than three months.
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 for not more than 15
years. The Company regularly reviews the individual components of its intangible
assets and recognizes, on a current basis, any diminution in value.
Industry Segment Information - The Company is a single segment entity providing
engineering consulting services, including environmental, construction
management, civil/infrastructure and geotechnical services. Approximately 2.0%
of the Company's net revenue was recognized in foreign countries in fiscal 1995.
There were no revenues recognized in foreign countries in 1994 or 1993.
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 26%, 29% and 19% of the Company's revenue in fiscal 1995,
19
1994 and 1993, 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 year 1995 was comprised of 53 weeks, and fiscal years 1994 and 1993 were
comprised of 52 weeks.
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 which expires in October 1995, 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 6.1%, 5.8% and 6.0% at May 31, 1995, 1994, and 1993,
respectively.
At May 31, 1995, there were no borrowings under the Company's line of credit,
and as such, the entire $20 million was available to the Company. In connection
with an acquisition completed in May 1994, the Company borrowed $2.0 million
under its line of credit and retired debt in a similar amount assumed with the
acquisition. Such amount remained outstanding as of May 31, 1994, leaving $18
million available to the Company. Amounts outstanding at the end of fiscal 1994
were fully repaid by the end of the second quarter of fiscal 1995. There were no
borrowings against the line at May 31, 1993 or for the year then ended. At May
31, 1993, the Company had outstanding letters of credit totaling $1.8 million.
These letters of credit were secured by the Company's line of credit and reduced
amounts available under the line by a like amount.
At May 31, 1995, 1994 and 1993, the Company was in compliance with all debt
covenants relating to its credit agreements. The credit facility is subject to
renewal in fiscal 1996 and the Company anticipates to renew the line under
substantially the same terms and conditions as its existing facility.
Interest paid by the Company was $52,000, $1,000 and $1.4 million in fiscal
years 1995, 1994 and 1993, respectively. Interest paid in 1993 represented a
portion of the cash bond posted by the Company relating to interest assessed on
certain tax adjustments proposed by the Internal Revenue Service.
20
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 Uncollectible End
Description of Period Expense Accounts of Period
-------------------------------------------------------------------------------------------
Year ended May 31, 1995
Allowance for doubtful accounts $1,303 $ 154 $(655) $ 802
Allowance for amounts unbillable 751 --- --- 751
Year ended May 31, 1994
Allowance for doubtful accounts $1,407 $ 82 $(186) $1,303
Allowance for amounts unbillable 801 --- (50) 751
Year ended May 31, 1993
Allowance for doubtful accounts $1,148 $ 566 $(307) $1,407
Allowance for amounts unbillable 885 --- (84) 801
NOTE 4 - INCOME TAXES
---------------------
The provision for federal, state, and foreign income taxes consisted of the
following (in thousands):
------------------------------------------------------------------------------------------
Years Ended May 31,
1995 1994 1993
Current Deferred Current Deferred Current Deferred
------------------------------------------------------------------------------------------
Federal $ 964 $655 $1,496 $(938) $2,390 $(2,401)
State 150 170 96 --- 335 ---
Foreign --- --- --- --- --- ---
------------------------------------------------------------------------------------------
Total $1,114 $825 $1,592 $(938) $2,725 $(2,401)
==========================================================================================
In May 1992, the Internal Revenue Service (the "Service") concluded a field
audit of the Company's income tax returns for the fiscal years ending in 1988
and 1989 and proposed certain adjustments relating primarily to the timing, for
tax purposes, of the Company's recognition of income on unbilled work in
progress. The Company deposited approximately $4.7 million with the Service
during its second fiscal quarter of 1993 in order to stop the further accrual of
interest. This issue was settled in fiscal 1995 with no further effect on the
Company's operations or financial position. The Service is currently auditing
fiscal years ending 1990, 1991, and 1992. In the opinion of management, the
outcome of these audits will not have a material effect on the Company's
operations or financial position.
21
NOTE 4 - INCOME TAXES (continued)
---------------------------------
The effective income tax rate varied from the statutory federal income tax rate
as follows:
Years Ended May 31,
1995 1994 1993
--------------------------------------------------------------------------------
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income taxes 5.5 5.5 5.5
--------------------------------------------------------------------------------
Effective tax rate 39.5% 39.5% 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,
1995 1994
--------------------------------------------------------------------------------
Deferred Tax Liabilities:
Employee benefits $ --- $(221)
Prepaid expenses (77) (76)
Deferred state taxes (284) (355)
--------------------------------------------------------------------------------
Total Deferred Tax Liability (361) (652)
--------------------------------------------------------------------------------
Deferred Tax Assets:
Allowances for doubtful accounts
and amounts unbillable 610 918
Depreciation and amortization of intangibles 575 296
Employee benefits 1,490 1,541
Interest on tax audit 74 613
Claims reserves 958 1,117
Rental inducements 310 367
Other, net 332 613
--------------------------------------------------------------------------------
Total Deferred Tax Assets 4,349 5,465
--------------------------------------------------------------------------------
Net Deferred Assets $3,988 $4,813
================================================================================
Deferred income taxes result from temporary differences in recognition of
revenues and expenses for financial statement and tax return purposes. The
principal sources of these differences and the related effect of each on the
provision for income taxes for the year ended May 31, 1993 are as follows (in
thousands):
--------------------------------------------------------------------------------
Accrued employee benefits $ (679)
Allowance for doubtful accounts and
amounts unbillable (69)
Claims reserves (1,894)
Unbilled work in progress ---
Other, net 241
--------------------------------------------------------------------------------
Total $(2,401)
================================================================================
22
NOTE 4 - INCOME TAXES (continued)
---------------------------------
The Company recorded no valuation allowance related to deferred taxes at May 31,
1995 and 1994. 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):
1995 $ 521
1994 2,449
1993 5,119
NOTE 5 - DEPOSITS AND OTHER ASSETS
----------------------------------
Deposits and other assets consist of the following (in thousands):
--------------------------------------------------------------------------------
May 31,
1995 1994
--------------------------------------------------------------------------------
Goodwill and other intangibles, net of
accumulated amortization of $2,069 in 1995
and $1,691 in 1994 $4,570 $3,762
Investments, at cost --- 407
Deferred income taxes 1,753 2,335
Deposits and other 490 409
--------------------------------------------------------------------------------
Total $6,813 $6,913
================================================================================
The Company recorded a charge of $512 in fiscal 1994 for the writedown of
certain intangibles acquired in acquisitions.
NOTE 6 - OTHER LIABILITIES
--------------------------
Other liabilities consist of the following (in thousands):
--------------------------------------------------------------------------------
May 31,
1995 1994
--------------------------------------------------------------------------------
Claims reserves $1,564 $2,641
Other liabilities 151 27
--------------------------------------------------------------------------------
Total $1,715 $2,668
================================================================================
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
23
common stock. The amounts charged to operations for this plan were $739,000 for
1995, $450,000 for 1994, and $309,000 for 1993. The contributions for 1995, 1994
and 1993 were made in the form of common stock.
NOTE 8 - ACQUISITIONS
---------------------
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. 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.
In May 1994, the Company acquired certain assets and assumed certain liabilities
of Alpha Engineering Group, Inc. ("Alpha"), a Washington corporation for cash
plus future payments, contingent on future earnings of the unit. Alpha provides
consulting services specializing in civil, transportation and municipal
engineering. In September 1993, the Company acquired the outstanding common
stock of Cross/Tessitore & Associates, Inc. ("CTA"), a Florida corporation, for
cash. CTA is a south Florida firm providing multidisciplinary expertise in air
quality management and air pollution control. These acquisitions were accounted
for as purchases and, accordingly, the results of operations from the dates of
acquisitions were included in the Company's consolidated financial statements.
Had these acquisitions taken place on June 1, 1993, the Company's 1994 results
of operations would not have been materially different.
In February 1993, the Company acquired certain assets and assumed certain
liabilities of EEC Environmental, Inc. ("EEC"), a Pennsylvania corporation for a
combination of cash and common stock. EEC provides environmental engineering and
consulting services to private sector clients primarily in the Northeast. The
acquisition was accounted for as a purchase and, accordingly, the results of
operations from the date of acquisition are included in the Company's
consolidated financial statements. Had the acquisition taken place on June 1,
1992, the Company's 1993 results of operations would not have been materially
different.
The acquisitions completed in fiscal 1995, 1994, and 1993 were not material to
the Company's operations or financial position either individually or in the
aggregate in the year acquired.
NOTE 9 - COMMON STOCK
---------------------
Stock Option Plans - In July 1987, the Company adopted, and the shareholders
approved, the 1987 Stock Option Plan which 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 have been reserved for issuance under this plan.
In August 1988, the Company adopted the 1988 Stock Option and Restricted Stock
Option Plan which 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 restricted or non-restricted options. 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 have been reserved for issuance under this
plan.
24
NOTE 9 - COMMON STOCK (continued)
---------------------------------
Under the Company's stock option plans, 514,064 options were exercisable at May
31, 1995 at exercise prices ranging from $1.00 to $14.30.
--------------------------------------------------------------------------------
Reserved Optioned Shares
but Number Range of
Unoptioned of Exercise
Shares Shares Prices
--------------------------------------------------------------------------------
BALANCE MAY 31, 1992 586,000 816,300 $1.00 $15.75
--------------------------------------------------------------------------------
Shares reserved 0
Options granted (131,000) 131,000 8.75 14.13
Options cancelled 77,750 (77,750) 9.67 15.75
Options exercised 0 (25,800) 8.17 9.67
--------------------------------------------------------------------------------
BALANCE MAY 31, 1993 532,750 843,750 $1.00 $15.25
--------------------------------------------------------------------------------
Shares reserved 0
Options granted (397,000) 397,000 6.50 9.125
Options canceled 111,000 (111,000) 7.00 15.25
Options exercised 0 0
--------------------------------------------------------------------------------
BALANCE MAY 31, 1994 246,750 1,129,750 $1.00 $15.25
--------------------------------------------------------------------------------
Shares reserved 0
Options granted (167,000) 167,000 5.50 7.25
Options canceled 259,500 (259,500) 5.50 15.25
Options exercised 0 (4,000) 1.00 1.00
--------------------------------------------------------------------------------
BALANCE MAY 31, 1995 339,250 1,033,250 $1.00 $14.30
--------------------------------------------------------------------------------
Of the 131,000 options granted in fiscal 1993, 10,000 were restricted options
issued at $11.125 at a time when the fair market value of the stock was $14.125.
These shares vest at 0%, 50%, 75%, and 100% on the first, second, third, and
fourth anniversary of the grant date, respectively. Restrictions on the
underlying shares expired on the second anniversary of the grant.
Employee Stock Purchase Plan - The 1991 Employee Stock Purchase Plan was
-------------------------------
approved by the Company's Board of Directors. A total of 150,000 shares of the
Company's common stock have been reserved for issuance pursuant to this plan at
a price which is 85% of the stock's fair market value, of which 149,432 shares
have been purchased through fiscal 1995.
25
NOTE 10 - COMMITMENTS AND CONTINGENCIES
---------------------------------------
Minimum annual commitments under non-cancelable operating leases for premises,
vehicles and equipment having initial terms in excess of one year are as follows
(in thousands):
1996 $ 5,462
1997 4,295
1998 2,900
1999 2,242
2000 and after 6,453
---------------------------
Total $21,352
---------------------------
Rental expense was $5.5 million in 1995, $5.1 million in 1994 and $5.3 million
in 1993. Lease terms expire between June 1995 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 of the Company.
On May 19, 1995 the Company filed a lawsuit in Texas State Court, Harris County,
Texas, entitled Harding Lawson Associates, Inc. a wholly owned subsidiary of
--------------------------------------------------------------
Harding Associates, Inc., vs. Bailey Site Settlors Committee, an unincorporated
-------------------------------------------------------------
association, seeking collection of approximately $1.0 million in fees billed for
engineering services performed. On June 21, 1995, a lawsuit was filed against
the Company in Federal District Court, Jefferson County, Texas and in Texas
State Court, Orange County, Texas, entitled Bailey Site Settlors Committee vs.
----------------------------------
Harding Lawson Associates. The suit seeks monetary damages in the amount of $7.9
-------------------------
million for alleged breach of contract and negligence in the performance of
certain engineering services. The Company believes it has meritorious defenses
to this suit. The Company is currently subject to certain other 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.
Prior to May 1994, the Company was provided a professional liability insurance
policy through a wholly owned subsidiary of the Company, and as such, was self
insured for the liabilities covered by that policy. Currently, the Company is
provided a $5 million professional liability claims made insurance policy
through an unrelated, rated carrier. Insurance coverage is provided when a claim
settlement exceeds the deductible amount set forth in the policy provided that
work related to that claim occured after May 1, 1992.
26
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 1995 and 1994 are
summarized as follows (in thousands, except per share data):
Quarterly Data
--------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------------------------------------------------------------------------------------------
YEAR ENDED MAY 31, 1995
Net revenue $23,011 $24,099 $22,169 $23,176
Operating income 1,452 1,450 536 1,157
Net income 890 908 376 798
Net income per common share $ 0.18 $ 0.19 $ 0.08 $ 0.17
Weighted average shares outstanding 4,824 4,793 4,804 4,804
-------------------------------------------------------------------------------------------
YEAR ENDED MAY 31, 1994
-------------------------------------------------------------------------------------------
Net revenue $19,889 $20,320 $19,207 $20,528
Operating income (loss) 1,065 881 427 (1,020)
Net income (loss) 694 584 304 (580)
Net income (loss) per common share $ 0.15 $ 0.12 $ 0.06 $(0.12)
Weighted average shares outstanding 4,751 4,890 4,908 4,857
-------------------------------------------------------------------------------------------
The Company recorded $1.8 million in expenses in the fourth quarter of fiscal
1994 associated with the downsizing and consolidation of certain operations and
the write-down of the carrying value of certain acquired intangibles.
27
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Directors
Harding Associates, Inc.
Novato, California
We have audited the accompanying consolidated balance sheets of Harding
Associates, Inc. as of May 31, 1995 and 1994, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended May 31, 1995. 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
Associates, Inc. at May 31, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
May 31, 1995, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
San Francisco, California
July 20, 1995
28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
29
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 1, 1995, 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.
30
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, 1995 and 1994
Consolidated Statements of Income for the years ended May 31,
1995, 1994, and 1993
Consolidated Statements of Shareholders' Equity for the years
ended May 31, 1995, 1994, and 1993
Consolidated Statements of Cash Flows for the years ended May
31, 1995, 1994, and 1993
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, 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 1989 Annual
Report on Form 10-K, as filed with the Commission on August 28, 1989, (d) the
Company's 1990 Annual Report on Form 10-K, as filed with the Commission on
August 27, 1990, (e) the Company's 1991 Annual Report on Form 10-K, as filed
with the Commission on August 28, 1991, (f) the Company's 1992 Annual Report on
Form 10-K, as filed with the Commission on August 21, 1992, (g) the Company's
1993 Annual Report on Form 10-K, as filed with the Commission on August 21,
1993, or (h) the Company's 1994 Annual Report on Form 10-K, as filed with the
Commission on August 25, 1994, 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 mendment 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 Bylaws of the Company, incorporated by reference from
Amendment No. 1, where they appear as Exhibit 3(c) thereto.
31
10.1@ Harding Associates, 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 Associates, 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 Form10-K"), where it
appears as Exhibit 10.2 thereto.
10.3 Harding Associates, Inc. [1987] Employee Stock Purchase Plan,
incorporated by reference from the 1988 Form 10-K, where it
appears as Exhibit 4(d) thereto.
10.4 Harding Associates, Inc. 1991 Employee Stock Purchase Plan,
incorporated by reference from the 1992 Form 10-K, where it
appears as Exhibit 10.4 thereto.
10.5@ Non-Qualified Deferred Bonus Plan II of the Company, and
related trust agreement, dated November 30, 1987, incorporated
by reference from the 1988 Form 10-K, where it appears as
Exhibit 10(e) thereto.
10.6@ Amendment to the Non-Qualified Deferred Bonus Plan II of the
Company, effective January 1, 1989, approved by the Board of
Directors on February 1, 1989, incorporated by reference from
the 1989 Form 10-K, as filed with the Commission on August 28,
1989 ("1989 Form 10-K"), where it appears as Exhibit 10(c)(ii)
thereto.
10.7*@ Amendments to the Non-Qualified Deferred Bonus Plan II of the
Company, effective January 1, 1994, approved by the Board of
Directors on December 29, 1994.
10.8@ Employment Agreement between the Company and Donald L.
Schreuder dated June 29, 1994.
10.9 Form of Directors' and Officers' Indemnification Agreements,
incorporated by reference from the Registration Statement
where it appears as Exhibit 10(a) thereto.
10.10 Insurance policy endorsement issued to the Company by Redwood
Insurance, Ltd., for the period July 1, 1993 to July 1, 1994,
incorporated by reference from the 1992 Annual Report on Form
10-K, as filed with the Commission on August 21, 1993 (the
'1993 Form 10-K).
10.11 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..
10.12 Line of credit agreement with Wells Fargo Bank, N.A., dated
March 1, 1992, incorporated by reference from the 1992 Form
10-K, where it appears as Exhibit 10.17 thereto.
10.13 Line of credit agreement with Wells Fargo Bank, N.A. dated
March 8, 1994, incorporated by reference from the 1994 Form
10-K, where it appears as Exhibit 10.13 thereto.
11.* Computation of Per Share Earnings.
22.* Subsidiaries of the Registrant.
32
24.* Consent of Ernst and Young.
27.* Financial Data Schedule.
* 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
-------------- -------------
June 20, 1994 Report on Form 8-K announcing that Donald L.
Schreuder was named President and Chief
Executive Officer of Harding Associates,
Inc. Mr. Schreuder succeeded Richard P.
Prezio who left the Company and the Board of
Directors to pursue other business
interests, Richard D. Puntillo succeeded
Prezio as Chairman of the Board. The Company
also announced preliminary fourth quarter
and year end results for the period ending
May 31, 1994.
33
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 ASSOCIATES, INC.
Date: August 23, 1995 By: /s/ Donald L. Schreuder
--------------- -----------------------------------------------
Donald L. Schreuder
President and Chief Executive Officer
Date: August 23, 1995 By: /s/ Gregory A. Thornton
--------------- -----------------------------------------------
Gregory A. Thornton
Vice President and Chief Financial Officer
(Principal Accounting Officer)
34
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/ Richard S. Harding Director and Chairman Emeritus 8-18-95
--------------------------- -------
Richard S. Harding
/s/ Stuart F. Platt Director 8-17-95
--------------------------- -------
Adm. Stuart F. Platt (Ret.)
/s/ Richard D. Puntillo Chairman of the Board 8-20-95
--------------------------- -------
Richard D. Puntillo
/s/ Donald L. Schreuder President, Chief Executive Officer, 8-23-95
--------------------------- -------
Donald L. Schreuder and Director
/s/ Barton W. Shackelford Director 8-17-95
--------------------------- -------
Barton W. Shackelford
/s/ Tamara L. Williams Vice President of Subsidiary 8-18-95
--------------------------- -------
Tamara L. Williams and Director
35
INDEX TO EXHIBITS
-----------------
Sequentially
Numbered
Exhibit No. Exhibit Page Number
----------- ------- -------------
10.7 Amendments to the Non-Qualified Deferred Bonus
Plan II of the Company, effective January 1, 1994,
approved by the Board of Directors on December 29,
1994. 37
11. Computation of Per Share Earnings. 46
22. Subsidiaries of the Registrant. 47
24. Consent of Ernst and Young. 48
27. Financial Data Schedule (Electronic filing only)
36
EX-10.7
2
EX-10.7
Exhibit No. 10.7
HARDING ASSOCIATES, INC.
------------------------
NON-QUALIFIED DEFERRED-COMPENSATION PLAN
----------------------------------------
SECTION 1. ESTABLISHMENT AND PURPOSE.
---------- --------------------------
The Plan was adopted by the Board effective as of November 1987. The
Plan was amended and restated by the Board as of January 1, 1989, and January 1,
1995. The Plan is intended to provide Eligible Participants with an opportunity
to defer payment of a portion of their salaries and directors' fees and of any
bonus awards they receive under the Company's Incentive Compensation and 1995
Incentive Stock Plans. Deferred amounts will be credited with an investment
return linked to the return on selected mutual funds or on the Company's common
stock.
SECTION 2. DEFINITIONS.
---------- ------------
(a) "Account" means a Mutual Fund Account or a Stock Account.
-------
(b) "Beneficiary" means the person or persons designated by the
-----------
Eligible Participant or by the Plan under Section 8(b) to receive the balance in
the Eligible Participant's Account(s) in the event of his or her death.
(c) "Board" means the Board of Directors of the Company, as constituted
-----
from time to time.
(d) "Committee" means the Salary Deferral Committee appointed by the
---------
Board from time to time.
(e) "Company" means Harding Associates, Inc., a Delaware corporation.
-------
(f) "Compensation" means:
------------
(i) The amount payable by the Company or a subsidiary of the
Company to an Eligible Employee as a bonus award under the Company's
Incentive Compensation Plan or 1995 Incentive Stock Plan;
(ii)The amount of the Eligible Employee's base salary from the
Company or a subsidiary of the Company; and
(iii) In the case of an Eligible Board Member, the amount of
his or her director's fees from the Company (including, without
limitation, annual retainers and meeting fees, but not including
expense reimbursements).
37
(g) "Election Period" means the month of December of each Year.
---------------
(h) "Eligible Board Member" means a member of the Board who is not a
-----------------------
common-law employee of the Company or a subsidiary of the Company.
(i) "Eligible Employee" means:
-----------------
(i) An officer of the Company or a wholly owned domestic
subsidiary of the Company; or
(ii) A common-law employee of the Company, or of any of its
direct or indirect subsidiaries, who has continuously participated in
the Plan since December 31, 1994. Once the active participation of such
employee terminates for any reason, it shall not resume thereafter
(unless such employee is eligible to resume active participation as an
Eligible Board Member or as an officer of the Company).
(j) "Eligible Participant" means an Eligible Board Member or an
---------------------
Eligible Employee.
(k) "Mutual Fund Account" means a bookkeeping account established
---------------------
pursuant to Section 5(a) for Compensation which (i) is subject to an Eligible
Participant's deferral election and (ii) is not payable under the 1995 Incentive
Stock Plan.
(l) "Plan" means this Non-Qualified Deferred-Compensation Plan of
----
Harding Associates, Inc., as amended from time to time.
(m) "Retirement Date" means:
---------------
(i) The first day of the month coinciding with or next
following the Eligible Participant's 65th birthday; or
(ii) The first day of the month coinciding with or next
following the earliest date when the Eligible Participant has both
attained age 55 and completed 10 years of Service.
(n) "Service" means:
-------
(i) Service as a common-law employee of the Company or a
subsidiary of the Company; or
(ii) Service as a member of the Board.
(o) "Stock" means the Company's Common Stock.
-----
38
(p) "Stock Account" means a bookkeeping account established pursuant to
-------------
Section 5(a) for Compensation which (i) is subject to an Eligible
Participant's deferral election and (ii) is payable under the 1995
Incentive Stock Plan.
(q) "Total Disability" means that the Eligible Participant is unable to
----------------
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted, or can be expected to last, for a continuous period
of not less than 12 months. The existence of a Total Disability shall be
confirmed by the Committee.
(r) "Unforeseeable Emergency" means a severe financial hardship to the
------------------------
Eligible Participant resulting from a sudden and unexpected illness or accident
of the Eligible Participant or of a dependent of the Eligible Participant, from
a loss of the Eligible Participant's property due to casualty or from other
similar extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the Eligible Participant. A hardship shall not
constitute an Unforeseeable Emergency under the Plan to the extent that it is or
may be relieved:
(i) Through reimbursement or compensation, by insurance or
otherwise;
(ii) By liquidation of the Eligible Participant's assets, to
the extent that the liquidation of such assets would not itself cause
severe financial hardship; or
(iii) By discontinuing deferrals under this Plan or under any
other plan of the Company as soon as permissible.
An Unforeseeable Emergency under the Plan shall in no event include the need to
send a child to college or the desire to purchase a home.
(s) "Year" means a calendar year.
----
SECTION 3. ELIGIBILITY.
---------- ------------
Participation in the Plan shall be limited to Eligible Participants.
Eligible Participants shall be excluded from the Plan after a withdrawal
described in Section 7(d).
SECTION 4. ELECTION TO PARTICIPATE IN PLAN.
---------- --------------------------------
(a) Initial Deferral Election. An Eligible Participant may elect to
---------------------------
participate in the Plan by filing a written election of deferral of Compensation
with the
39
Company during any Election Period. Such election shall apply to all
Compensation to be paid in payroll periods commencing after the close of such
Election period. The election shall specify the percentage of the Eligible
Participant's Compensation to which it applies, which may be any whole
percentage between the minimum and the maximum prescribed by the Committee from
time to time. Such minimum and maximum may be different for salaries, bonuses
and directors' fees.
(b) Revised Deferral Election. An Eligible Participant may change his
-------------------------
or her deferral percentage (or reduce it to zero) by filing a new deferral
election with the Company during any Election Period. The change shall be
effective with respect to all Compensation to be paid in payroll periods
commencing after the close of such Election Period.
(c) Election Form. All deferral elections under this Section 4 shall
-------------
be made on the form(s) prescribed for this purpose by the Committee.
SECTION 5. ACCOUNTS.
---------- ---------
(a) Establishment of Accounts. The Company shall establish a Mutual
--------------------------
Fund Account or a Stock Account, or both, for each Eligible Participant who has
duly filed a deferral election with respect to his or her Compensation. A Mutual
Fund Account may include more than one sub-account for investment purposes.
(b) Credits to Accounts. An Eligible Participant's Mutual Fund Account
-------------------
shall be credited with an amount equal to that percentage of his or her
Compensation which would have been payable currently but for the terms of his or
her deferral election, excluding Compensation which would have been payable
under the 1995 Incentive Stock Plan. An Eligible participant's Stock Account
shall be credited with an amount equal to that percentage of his or her
Compensation which would have been payable currently under the 1995 Incentive
Stock Plan but for the terms of his or her deferral election. Deferred
Compensation shall be credited to the Eligible Participant's Accounts as soon as
reasonably practicable after the applicable payment date.
SECTION 6. INVESTMENT INCREMENTS.
---------- ----------------------
(a) Investment Selection. The Committee shall select one or more mutual
--------------------
funds for the purposes of the Plan. The investment return on all Mutual Fund
Accounts shall be linked to the investment return on one or more of such mutual
funds. If the Committee has selected more than one mutual fund, the Eligible
Participant may elect from time to time to which mutual fund(s) the investment
return on his or
40
her Mutual Fund Account shall be linked. The frequency and content of such
elections shall be subject to rules adopted by the Committee. The investment
return on all Stock Accounts shall be linked to the investment return on Stock.
(b) Investment Return and Expenses. The balance in each Mutual Fund
--------------------------------
Account shall be adjusted at such intervals as the Committee may determine to
reflect changes in the value of the mutual fund(s) to which such Account is
linked. Any commissions, sales loads or other charges related to a mutual fund
shall be charged to the Mutual Fund Accounts linked to such mutual fund. The
balance in each Stock Account shall be adjusted at such intervals as the
Committee may determine to reflect changes in the value of Stock. Any
commissions or other charges related to the acquisition or holding of shares of
Stock shall be charged to the Stock Accounts linked to such shares. Any
investment increments shall become part of the applicable Account and shall be
distributed at the same time or times as the rest of such Account.
(c) Statements. At such intervals as the Committee may determine, each
----------
Eligible Participant who has one or more Accounts shall receive one or more
written statements showing the balance credited to such Accounts as of the
applicable date.
(d) Effective Date. Subsection (a) above notwithstanding, the
---------------
investment return on the Mutual Fund Accounts of individuals who were not active
employees of the Company or members of the Board on or after January 1, 1995,
shall be linked in equal proportions to the investment return on each of the
mutual funds selected by the Committee for this purpose. Such individuals shall
not be entitled to make elections with respect to the mutual funds.
SECTION 7. FORM AND TIME OF DISTRIBUTION OF ACCOUNTS.
---------- ------------------------------------------
(a) Termination Before Retirement Date. In the case of an Eligible
-------------------------------------
Participant whose Service terminates before his or her Retirement Date, such
Eligible Participant's Account(s) shall be distributed to him or her as soon as
reasonably practicable after his or her Service has terminated. Mutual Fund
Accounts shall be distributed in cash, and Stock Accounts shall be distributed
in the form of certificates for Stock.
(b) Termination After Retirement Date. In the case of an Eligible
------------------------------------
Participant whose Service terminates on or after his or her Retirement Date,
such Eligible Participant's Account(s) shall be distributed to him or her in one
of the following forms, as such Eligible Participant has elected at the time of
enrolling in the Plan (as amended effective January 1, 1995):
41
(i) A single lump sum; or
(ii) A series of quarterly installments over such period of
years (not more than 10 years) as the Eligible Participant has elected
at the time of enrollment.
The lump sum shall be distributed, or the installments shall commence, either as
soon as reasonably practicable after the Eligible Participant's Service has
terminated or, if later, on a specified date, as the Eligible Participant has
elected at the time of enrollment. Mutual Fund Accounts shall be distributed in
cash, and Stock Accounts shall be distributed in the form of certificates for
Stock. The amount of any installment to be distributed from an Account shall be
determined by dividing the balance remaining in such Account by the number of
installments then remaining to be distributed from such Account.
(c) Disability or Emergency. In the event of an Eligible Participant's
-----------------------
Total Disability or an Unforeseeable Emergency, upon application by such
Eligible Participant, the Committee may determine in its sole discretion that
distribution of all or part of such Eligible Participant's Account(s) shall be
made in a different form or on an earlier date than the time or times specified
in Subsections (a) and (b) above. Distributions on account of Total Disability
or an Unforeseeable Emergency shall be permitted only to the extent reasonably
needed to satisfy the Eligible Participant's need.
(d) Early Distribution With Penalty. Upon application by an Eligible
---------------------------------
Participant, the Committee may determine in its sole discretion that
distributions from such Eligible Participant's Account(s) shall be made in a
different form or on an earlier date than the time or times specified in
Subsections (a) and (b) above (even in the absence of a Total Disability or
Unforeseeable Emergency). All distributions under this Subsection (d) shall be
reduced by a penalty equal to eight percent of the amount otherwise
distributable, which penalty shall be forfeited to the Company. An Eligible
Participant who has received a distribution under this Subsection (d) thereafter
shall not make any additional deferral under the Plan.
(e) Special Rule for Stock Accounts. Any other provision of the Plan
notwithstanding, the Committee (at its absolute discretion) may vary the time of
distributions from Stock Accounts in order to accommodate the requirements of
section 16 of the Securities Exchange Act of 1934, as amended, and the rules
issued thereunder by the Securities and Exchange Commission.
42
(f) Effective Date. The provisions of this Section 7 shall apply to all
--------------
Accounts of Eligible Participants who elected to participate in the Plan on or
after January 1, 1995, including Account balances held under the Plan as of
December 31, 1994.
SECTION 8. EFFECT OF DEATH OF PARTICIPANT.
---------- -------------------------------
(a) Distributions. Upon the death of an Eligible Participant, any
-------------
balance remaining in his or her Account(s) shall be distributed to his or her
Beneficiary. The distribution(s) shall be made in the form in which the
distribution(s) to the Eligible Participant would have been made. The
distribution(s) shall be made at the time when the distribution(s) to the
Eligible Participant would have been made, unless the Committee determines in
its sole discretion that distribution(s) shall be made at an earlier date.
(b) Beneficiary Designation. Upon enrollment in the Plan, each Eligible
-----------------------
Participant shall, by filing the prescribed form with the Company, name a person
or persons as the Beneficiary who will receive any distribution under the Plan
in the event of the Eligible Participant's death. If the Eligible Participant
has not named a Beneficiary or if none of the named Beneficiaries is living when
any distribution is to be made, then:
(i) The spouse of the deceased Eligible Participant shall be
the Beneficiary; or
(ii) If the Eligible Participant has no spouse living at the
time of such distribution, the then living children of the deceased
Eligible Participant shall be the Beneficiaries in equal shares; or
(iii) If the Eligible Participant has neither spouse nor
children living at the time of such distribution, the estate of the
Eligible Participant shall be the Beneficiary.
The Eligible Participant may change the designation of a Beneficiary from time
to time in accordance with procedures established by the Committee. Any
designation of a Beneficiary (or an amendment or revocation thereof) shall be
effective only if it is made in writing on the prescribed form and is received
by the Company prior to the Eligible Participant's death.
43
SECTION 9. WITHHOLDING TAXES.
---------- ------------------
All distributions under the Plan shall be subject to reduction to
reflect any withholding tax obligations imposed by law.
SECTION 10. PARTICIPANT'S RIGHTS UNSECURED.
----------- -------------------------------
The interest under the Plan of any Eligible Participant, and such
Eligible Participant's right to receive distributions from his or her
Account(s), shall be an unsecured claim against the general assets of the
Company. The Accounts shall be unfunded bookkeeping entries only, and the
Company intends that the Plan be considered unfunded for tax purposes and for
purposes of Title I of the Employee Retirement Income Security Act of 1974, as
amended. No Eligible Participant shall have an interest in or claim against any
specific asset of the Company pursuant to the Plan.
SECTION 11. NONASSIGNABILITY OF INTERESTS.
----------- ------------------------------
The interest and property rights of an Eligible Participant under the
Plan shall not be subject to option nor be assignable either by voluntary or
involuntary assignment or by operation of law, including (without limitation)
bankruptcy, garnishment, attachment or other creditor's process, and any act in
violation of this Section 11 shall be void.
SECTION 12. LIMITATION OF RIGHTS.
----------- ---------------------
(a) Bonuses. Nothing in the Plan shall be construed to give any
-------
Eligible Employee any right to be granted a bonus award.
(b) Employment Rights. Neither the Plan nor the deferral of any
------------------
Compensation, nor any other action taken pursuant to the Plan, shall constitute
or be evidence of any agreement or understanding, express or implied, that the
Company or any subsidiary of the Company will employ an Eligible Employee for
any period of time, in any position or at any particular rate of compensation.
The Company and its subsidiaries reserve the right to terminate an Eligible
Employee's employment at any time and for any reason, except as otherwise
expressly provided in a written employment agreement.
SECTION 13. ADMINISTRATION OF THE PLAN.
----------- ---------------------------
The Plan shall be administered by the Committee. The Committee shall have full
power and authority to administer and interpret the Plan, to establish
procedures for administering the Plan, to prescribe forms and to take any
44
and all necessary actions in connection with the Plan. The Committee's
interpretation and construction of the Plan shall be conclusive and binding on
all persons.
SECTION 14. AMENDMENT OR TERMINATION OF THE PLAN.
----------- -------------------------------------
The Board may amend, suspend or terminate the Plan at any time. In the
event of a termination of the Plan, the Accounts of Eligible Participants shall
be distributed at such time and in such form as shall be determined pursuant to
Section 7, unless the Board prescribes an earlier time or different form for the
distribution of such Accounts.
SECTION 15. CHOICE OF LAW AND CLAIMS PROCEDURE.
----------- -----------------------------------
(a) Choice of Law. The validity, interpretation, construction and
-------------
performance of the Plan shall be governed by the Employee Retirement Income
Security Act of 1974 and, to the extent they are not preempted, by the laws of
the State of California (other than their choice-of-law provisions).
(b) Claims and Review Procedure. In accordance with the regulations
-----------------------------
of the U.S. Secretary of Labor, the Committee shall:
(i) Provide adequate notice in writing to any Eligible
Participant or Beneficiary whose claim for benefits under the Plan has
been denied, setting forth the specific reasons for such denial and
written in a manner calculated to be understood by such Eligible
Participant or Beneficiary; and
(ii) Afford a reasonable opportunity to any Eligible
Participant or Beneficiary whose claim for benefits has been denied for
a full and fair review by the Board of the decision denying the claim.
SECTION 16. EXECUTION.
----------- ---------
To record the amendment of the Plan by the Board, the Company has
caused its duly authorized officer to affix the corporate name hereto.
HARDING ASSOCIATES, INC.
By
---------------------------
45
EX-11
3
EX-11
Exhibit No. 11
HARDING ASSOCIATES, INC.
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
--------------------------------------------------------------------------------
Years Ended May 31,
1995 1994 1993
--------------------------------------------------------------------------------
PRIMARY
Average shares outstanding 4,684 4,667 4,776
Net effect of dilutive stock options based
on the modified treasury stock method
(fiscal 1995 and 1994) and the treasury
stock method (fiscal 1993) of using
average market price 122 184 80
--------------------------------------------------------------------------------
TOTAL 4,806 4,851 4,856
================================================================================
Net income $2,972 $1,002 $ 497
================================================================================
Net income per common share $ 0.62 $ 0.21 $ 0.10
================================================================================
46
EX-22
4
EX-22
Exhibit No. 22
HARDING ASSOCIATES, 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. (formerly Infrastructure, Inc.
Alpha Engineering Group, Inc.)
Harding International, Inc. Delaware Harding International, Inc.
Harding Lawson Australia, Pty. Ltd. New South Wales, Harding Lawson Australia, Pty.
(wholly owned subsidiary of Australia Ltd.
Harding 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 International, Inc.)
Harding Construction Services, Inc. Delaware (Dormant)
Redwood Company, Ltd. Bermuda Redwood Company, Ltd.
Redwood Insurance, Ltd. Bermuda (Dormant)
(wholly owned subsidiary of
Redwood Company, Ltd.)
47
EX-24
5
EX-24
Exhibit No. 24
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements on
Form S-8 dated April 14, 1989, as amended on December 24, 1991 and July 25,
1990, pertaining to the 1988 Stock Option and Restricted Stock Option Plan; Form
S-8 dated April 17, 1988 pertaining to the Employee Stock Purchase Plan, as
amended on December 24, 1991; Form S-8 dated August 15, 1988 pertaining to the
Deferred Compensation and Profit Sharing Plan of Harding Associates, Inc., of
our report dated July 20, 1995, with respect to the consolidated financial
statements of Harding Associates, Inc., included in the Annual Report on the
Form 10-K for the year ended May 31, 1995.
San Francisco, California
August 23, 1995
48
EX-27
6
FINANCIAL DATA SCHEDULE
5
1000
YEAR
MAY-31-1995
MAY-31-1995
12648
0
35278
1553
0
49533
21208
16766
60788
16164
0
47
0
0
42638
60788
0
130554
0
38099
87860
0
47
4907
1939
2972
0
0
0
2972
.62
.62