-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LuWRJhthMHu60lHyAiC4fPjHWE9QpKYm9kMsQkPRUdaKoVpNSzy11HobdoKQRJFL 4gWdhNjcKK/u6n+RHAhKog== 0000878549-98-000009.txt : 19980622 0000878549-98-000009.hdr.sgml : 19980622 ACCESSION NUMBER: 0000878549-98-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980327 FILED AS OF DATE: 19980619 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAMES & MOORE INC /DE/ CENTRAL INDEX KEY: 0000878549 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING SERVICES [8711] IRS NUMBER: 954316617 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11075 FILM NUMBER: 98650575 BUSINESS ADDRESS: STREET 1: 911 WILSHIRE BLVD STE 700 CITY: LOS ANGELES STATE: CA ZIP: 90017 BUSINESS PHONE: 2136831560 MAIL ADDRESS: STREET 1: 911 WILSHIRE BLVD STREET 2: STE 700 CITY: LOS ANGELES STATE: CA ZIP: 90017 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended March 27, 1998 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 1-11075 DAMES & MOORE GROUP (Exact name of registrant as specified in its charter) Delaware 95-4316617 (State of incorporation) (I.R.S. Employer Identification No.) 911 Wilshire Boulevard, Suite 700 Los Angeles, California 90017 (Address of principal executive offices) (Zip Code) (213) 996-2200 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class: Name of each exchange on which registered: Common Stock, $0.01 par value New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 this Form 10-K. [ ] The aggregate market value of the registrant's voting stock held by non-affiliates on June 5, 1998, based on the closing price on the New York Stock Exchange was $212,502,889. For this purpose, all executive officers and directors of the registrant were considered affiliates, as were all beneficial owners of more than 10% of the registrant's common stock. As of June 5, 1998, 18,358,430 shares of the registrant's common stock were outstanding. Documents Incorporated by Reference Portions of the registrant's definitive proxy statement for the annual meeting of shareholders of the registrant to be held on August 10, 1998 are incorporated by reference into Part III hereof. The definitive proxy statement will be filed with the Securities and Exchange Commission within 120 days after March 27, 1998. PART I Item 1. Business Development of Business Dames & Moore Group (the "Company") is the successor to the businesses of Dames & Moore, Incorporated, a Delaware corporation, and Dames & Moore, a California limited partnership. Originally organized in 1938, the Dames & Moore partnership incorporated on March 12, 1992, concurrent with a public offering and sale of 2,500,000 shares of its common stock. The Company's common stock has been publicly traded since that date and is currently listed on the New York Stock Exchange. Dames & Moore, Inc. changed its name to Dames & Moore Group in August 1997 to reflect the expanding nature of the overall company and its services in becoming a preeminent full-service engineering, consulting and construction management organization. Dames & Moore Inc. now exists as one of the Dames & Moore Group companies, focused on the general engineering and consulting business. Since Dames & Moore's incorporation in 1992, the Company has acquired and formed a number of businesses to expand and diversify its service areas. Dames & Moore Group is currently comprised of a global network of companies including: Dames & Moore; Walk Haydel; O'Brien Kreitzberg, BRW; DecisionQuest; SRA Technologies; and Dames & Moore Ventures. Significant acquisitions and activities contributing to this expansion within the last five years are listed below: Aman Environmental Construction (AECI), a firm based in Covina, California, specializing in demolition, environmental remediation, and construction was acquired in April 1993. Hardcastle & Richards, a company based in Melbourne, Australia providing design engineering and project management services throughout Australia and South-East Asia, was acquired in March 1995. O'Brien Kreitzberg, a San Francisco-based company providing project and construction management, was acquired in March 1995. Walk Haydel, a New Orleans-based company providing project management and process/chemical engineering, was acquired in April 1995. Dames & Moore Ventures was established in April 1996 to make equity investments in areas which the Company has expertise. DecisionQuest, a Torrance, California-based company providing strategic business communications, trial strategy consulting, graphics, litigation support and behavioral science services, was acquired in May 1996. BRW, a Minneapolis-based firm, specializing in project planning, design and construction-phase services for transportation and infrastructure projects, was acquired in May 1996. HYA, an engineering firm specializing in water reclamation and reuse with main offices in Pasadena, California, was acquired in June 1996. Cleveland Wrecking Company (CWC), one of the largest demolition contractors in the U.S., control was obtained in March 1997 by acquiring their bank debt, secured by all assets of CWC, and foreclosing on certain assets. LeBron Associates, a San Juan, Puerto Rico-based firm specializing in transportation, civil, architectural, industrial and environmental engineering, was acquired in June 1997. SRA Technologies, a Falls Church, Virginia-based company providing research, services and products for the life sciences industry, was acquired in June 1997. Fourth Dimension Interactive, Inc., (4DI), providing and deploying applications for Web technology, was formed in September 1997. LRE Engineering, Inc., an Atlanta, Georgia-based firm specializing in civil engineering for infrastructure and transportation projects, was acquired in March 1998. With regards to dispositions, Dames & Moore Ventures 9.9% interest in Glencoe Insurance Ltd., a company originally formed to offer earthquake insurance in California, was sold in August 1997. Glencoe's majority partner, Renaissance Reinsurance, Ltd., shifted the emphasis of the Glencoe portfolio away from the earthquake insurance market which no longer aligned with the Company's objectives. Financial Information Consolidated financial statements are provided in Item 8 of this Annual Report on Form 10-K. Description of Business The Dames & Moore Group of companies combines the resources of preeminent professional service companies and provides world-class solutions for a wide array of projects both globally and locally. These companies and their associated subsidiaries provide discrete as well as integrated full-service capabilities. Service Areas Dames & Moore Group's expertise spans a wide range of businesses and industries. Significant service areas include: General Engineering and Consulting: architecture, civil and structural engineering, geotechnical engineering, seismic risk management and earthquake engineering, mining engineering, radiological engineering, offshore engineering, electrical and instrumentation engineering, mechanical engineering, power systems engineering, water and wastewater engineering, agricultural policy and strategy, strategic environmental management, air quality and atmospheric services, environmental health and toxicology, project financial analysis, permitting and licensing, regulatory compliance, remediation, and contaminated property rehabilitation. Process and Chemical Engineering: process selection and optimization, conceptual designs, process engineering and design of advanced process controls, facility start-up, process safety management, pollution prevention system design, and economic feasibility studies. Transportation: transportation planning, traffic engineering, roadway/highway design, bridge design, transit design, intelligent transportation systems, intermodal facilities, pedestrian facilities/urban design, railroads, airports and ports and harbors. Construction and Program Management: program and project management, construction management, value engineering, design-build, general contracting, demolition, estimating, cost and schedule control, contract administration, quality assurance/control, dispute resolution and litigation support, and community relations. Specialty Engineering and Consulting in the areas of: clinical laboratory services, including contract research, analysis and management services; and communications and information services, including strategic communications, information management and technology, expert witness support, litigation support, and presentation graphics. Dames & Moore Group marketing and business development activities take place through personnel assigned to each of the Company's offices. In addition to these local efforts, there are marketing activities focused on U.S. Federal government agencies, as well as a firmwide marketing program targeting multinational clients. These multinational clients benefit from the Company's worldwide expertise, its breadth of services, and the coordination and cross-selling activities of the Dames & Moore Group companies. These capabilities, coupled with the Company's broad distribution of global offices, allow the Company to mobilize quickly and provide timely advice to clients whose sites and decision makers are located in widely dispersed geographic areas. The Company's global resources are particularly valuable when clients find it necessary to react quickly to changing economic conditions, merger or acquisition opportunities, natural or environmental crises, or pressures imposed by governmental agencies and/or the public. Much of the Company's environmental business is generated either directly or indirectly as a result of Federal and state laws, regulations, and programs related to environmental issues. Accordingly, a reduction of these laws and regulations, or changes in governmental policies regarding the funding, implementation or enforcement of these programs, could have a material effect on the Company's business. Environmental laws, regulations and enforcement policies remained essentially unchanged during fiscal year 1998, including further deferral of congressional reauthorization of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (Superfund Act). The outlook for congressional action on Superfund legislation in fiscal year 1999 remains unclear. The experts at Dames & Moore Group bring vision and value to every stage of project development. We understand our clients' business and help them to reach their goals, design creative solutions, engineer results, reduce risks, manage construction, control costs, and deliver results. Clients The Company serves a broad range of clients in both the private and public sectors, and has a history of successfully meeting the needs of its clients, many of whom it has served continuously for decades. The Company seeks to develop clientele that recognize the value of high-quality professional services delivered in a cost-effective and timely manner. Dames & Moore Group's client base is diverse spanning numerous sectors and industries. Examples of our services for specific industries are: General Business and Industry: capital project development and implementation; environmental due diligence for mergers, acquisitions, and divestitures; portfolio risk assessment; information technology applications; and contaminated property development. Oil and Gas: process design for expanding and debottlenecking refineries; engineering and environmental support for developing production fields and pipelines; infrastructure design; and offshore platform top-side design and decommissioning. Power: complete engineering and related services for utilities, independent power producers, natural gas transporters and industrial power generators. Manufacturing: facility design, modernization, and waste minimization. Infrastructure/Development: urban design for livable communities, water resource development, wastewater treatment and reclamation, and solid waste management. Transportation: engineering and program and construction management for airports and mass transit, highways and bridges, and ports and harbors. Government: program/project management, military planning and base closure support, remediation and decommissioning. Natural Resources: mine planning and engineering, and policy and strategy development for the agribusiness and forestry sectors. Litigation: expert witnesses, trial strategy and graphics, and dispute resolution. Pharmaceutical and Biotechnology: clinical laboratory analyses, biomedical research and drug development support. Given the wide variety of Dames & Moore Group's clients, the Company continually monitors markets and industries to identify the greatest areas of growth and revenue potential. Businesses in general are continuing to reduce costs by downsizing and outsourcing non-core activities. This trend creates significant opportunities for Dames & Moore Group and is expanding the ways the Company provides value and services to our clients. Dames & Moore Group, with its wide array of capabilities and expertise, is able to provide the full spectrum of capabilities required to maximize participation in this outsourcing trend. Additionally, while the market for environmental consulting and remediation services is generally flat, business in some sectors is expected to grow. Growth is predicted in the commercial sectors primarily driven by financial institutions, property transfer activity and the high-technology industries. Another emerging growth area is civil and facilities engineering where the Company is well positioned to serve clients with site development, water, wastewater, and solid waste management services. Other examples of markets presenting growth potential are the energy, infrastructure and transportation sectors. There continues to be many opportunities in the energy industry where companies refocus their operations through a combination of major capital projects, mergers, acquisitions and divestitures as well as internal improvement. These trends result in a variety of new assignments for Dames & Moore Group with opportunities in high-value oil and gas services, new options for power producers and customers resulting from privatization activities and growth in Asia where some of the largest energy, manufacturing and infrastructure, projects in the world are being carried out. Infrastructure markets are also strong with the solid domestic and international economies continuing to fuel record levels of capital spending in both the U.S. and abroad. Dames & Moore Group's full-service engineering, environmental program and construction management services along with our demolition and property redevelopment capabilities provide clients with comprehensive solutions on an international level. Government funding for non-highway transportation projects continues to trend upward, with significant resources being directed toward mass transit, intelligent transportation systems, airport upgrades and other projects. Transportation agencies continue to extend their resources by outsourcing work. Opportunities with railroads also are increasing due to consolidation and outsourcing in the U.S. and the trend toward privatization in the international arena. With the majority of the funding allocated by state and local governments, a presence in local markets is fundamental to winning a substantial portion of the transportation business. For larger projects, however, a company with a national presence, financial stability and management expertise has a significant advantage. Dames & Moore Group brings both the local and national strengths necessary to this industry. Finally, Dames & Moore Group continually searches for other diverse opportunities with the development of new markets and advanced technologies that extend our business. Some examples of these activities are the application of behavioral science capabilities to help clients factor public perceptions of possible actions into their initial planning and decision-making; the development of technology for new gene expression methods; and the customization of existing information technology to provide clients with cost-efficient data base solutions. Backlog As of March 27, 1998, the Company estimates that the backlog of future net revenues, from contracts in existence and authorized funded orders, was approximately $345,000,000. The entire backlog is expected to be substantially completed within the next twelve months. There can be no assurance, however, that some of this work will not be postponed or canceled. Competition The Company believes that the principal competitive factors in the areas of services it offers are reputation, experience, breadth and quality of services offered, technical proficiency, proximity of offices, consulting fees and total project costs, and ability to provide clear statements of problems, alternative solutions and definitive recommendations. The Company is engaged in highly competitive markets in all of its service areas. Given the expanding demand for some of the services provided by the Company, it is likely that additional competitors will emerge. At the same time, consolidation continues to occur in the environmental business, particularly in the United States due to mergers. The Company believes that it will retain the ability to compete effectively with other firms that provide similar services by continuing to offer a broad range of high-quality consulting and environmental, transportation, and engineering and construction management services through its worldwide network of offices. Regulation The Company's clients and, to a lesser extent, the Company are subject to environmental laws and regulations. These laws and regulations are directly related to the demand for many of the services offered by the Company. In addition, the laws and regulations often subject the Company to stringent regulation in the conduct of its operations. The principal environmental legislation affecting the Company and its clients are: National Environment Policy Act of 1969 ("NEPA") Resource Conservation and Recovery Act of 1976 ("RCRA") Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("Superfund") The Superfund Amendments and Reauthorization Act of 1986 ("SARA") Although the liabilities imposed by the Superfund Act (and other environmental legislation) are more directly related to the Company's clients, they could under certain circumstances give rise to liability on the part of the Company as a result of the Company's efforts in completing clients' assignments that involve transportation or disposal of contaminated samples or other hazardous materials belonging to its clients. Liabilities imposed by the Superfund Act can be joint and several where other parties are involved. In the opinion of management, it is unlikely that the Company's activities will result in any liability under either the Superfund Act or other environmental legislation in an amount which will have a material adverse effect on the Company's results of operations or financial condition, and management is not aware of any current activity by the Company which is likely to result in any such liability. In the ordinary course of its business, the Company and members of its professional staff are subject to a variety of state, local, and foreign licensing and permit requirements. The Company believes that it is in substantial compliance with those requirements. The Company's consulting services involve professional judgments about the nature of soil conditions and other physical conditions, including the extent to which toxic and hazardous materials are present, and about the probable effect of procedures to mitigate problems or otherwise impact those conditions. If those judgments and resulting recommendations do not result in the anticipated consequences, losses to the Company's clients can occur for which the Company may be liable. In addition, the Company's projects often involve hazardous and highly regulated materials, the improper characterization, handling, or disposal of which could constitute violations of Federal, state or local statutes, and result in criminal fines and penalties. The Company through a wholly owned subsidiary insures the Company's risks for professional liability, workers compensation, and general and automobile claims up to certain policy limits. Claims in excess of these limits are covered by unrelated insurance carriers. Management believes its self insurance reserves combined with its insurance coverage are adequate for its present operations. Management has no reason to believe that adequate coverage will not continue to be available, but there can be no assurance that it will be. There also can be no assurance that the Company's liabilities will not exceed the policy limits. However, insurance has been provided without lapse for many years for limits far in excess of losses sustained. Employees As of March 27, 1998, the Company had approximately 5,550 employees worldwide. Approximately 70% perform professional or technical services, while the remaining 30% perform administrative and support services. The company considers its relations with its employees to be excellent. International Business Dames & Moore Group currently derives 14.5% of its net revenues from international operations, continuing its strong upward trend. The Company is focused on expanding its clientele and business operations for a variety of services in Europe, Latin America, Australia, the Middle East, the former Soviet Union and Asia. The Company, however, cannot provide any guaranty of future growth from international operations. Risks inherent in foreign operations, such as foreign currency fluctuations, exchange controls and changes in governments resulting in delays and/or canceled projects, contribute to uncertainty regarding future growth. Dames & Moore Group, however, has achieved its third straight year of revenue growth from international operations, and carefully monitors all foreign markets in which it is involved to be able to respond quickly to any changing conditions. Further financial information regarding revenues generated from international business can be found in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 2. Properties The Company operates entirely in leased premises. The Company leases 124 office properties in the United States and 39 office properties in foreign countries. Item 3. Legal Proceedings The Company in the ordinary course of business is a defendant in various lawsuits involving claims typically filed against engineering and consulting professionals, primarily alleging professional errors or omissions. The Company through a wholly owned subsidiary insures the Company's risks for professional liability, workers compensation, and general and automobile claims up to certain policy limits. Claims in excess of these limits are covered by unrelated insurance carriers. Management makes estimates and assumptions that affect the reported amount of liability and the disclosure of contingent liabilities. As claims develop, it is possible that the ultimate results of these claims may differ from management's estimates. In the opinion of management, based upon information it presently possesses, the resolution of these claims will not have a material adverse effect on the Company's consolidated financial position or results of operations. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of the Company's security holders during the fourth quarter of the fiscal year ended March 27, 1998. Item S-K 401(b). Executive Officers of the Company Set forth below is certain information about the Company's executive officers as of June 5, 1998. Each executive officer holds office until his or her resignation or removal by the Board of Directors.
Name Age Position - ---------------- --- ------------------------ George D. Leal 64 Chairman of the Board Arthur C. Darrow 54 Chief Executive Officer, President and Director Henry Klehn, Jr. 61 Executive Vice President - Corporate Development Robert M. Perry 66 Executive Vice President - Corporate Affairs and Director Mark A. Snell 41 Executive Vice President and Chief Financial Officer Leslie S. Puget 43 Corporate Controller
GEORGE D. LEAL has been employed by the Company since 1959, and has served as Chairman of the Board since 1981 and as Chief Executive Officer from 1981 through 1994. Mr. Leal has bachelor's and master's degrees in civil engineering from Santa Clara University and the California Institute of Technology, respectively, and a master's degree in business administration from the University of Chicago. ARTHUR C. DARROW has been employed by the Company since 1973. He has served as a director since 1994 and as Chief Executive Officer and President since January 1995. Between 1993 and 1994, he served as President and Chief Operating Officer; between 1991 and 1993, as Senior Vice President - Western North America Division; and between 1988 and 1991, as the Company's Western Region General Manager and Division Manager - Western North America. He has bachelor's and master's degrees in geology from the University of California- Santa Barbara. HENRY KLEHN, Jr. has been employed by the Company since 1960. He has served as Executive Vice President - Corporate Development since 1993. Between 1983 and 1993, he served as Chief Operating Officer and as an Executive Vice President since 1991. He has a bachelor's degree in geological engineering and a master's degree in engineering science from the University of California-Berkeley. ROBERT M. PERRY has been employed by the Company since 1955. He has served as a director since 1981, and as Executive Vice President since 1995. Between 1978 and 1995, he served as Chief Financial Officer. He has a bachelor's degree in civil engineering from the University of Michigan. MARK A. SNELL has served as Executive Vice President and Chief Financial Officer of the Company since September, 1996. Prior to joining the Company, he served as Executive Director and Chief Financial Officer at the international law firm of Latham & Watkins from 1993 to 1996, and as Executive Vice President and Chief Financial Officer at World Oil Corporation from 1990 to 1993. Mr. Snell, a CPA, holds a bachelor of science degree from San Diego State University. LESLIE S. PUGET has served as Corporate Controller of the Company since 1995. Prior to a two-year professional sabbatical, she served as Vice President of Finance for Cushman Realty Corporation from 1985 to 1993 and as Controller from 1982 to 1985. Ms. Puget, a CPA, holds a bachelor of science degree from the University of Illinois at Urbana-Champaign. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters The Company's common stock is traded on the New York Stock Exchange under the symbol DM. As of June 5, 1998, the Company's common stock was held by 321 holders of record. The following table reflects the high and low sales prices and cash dividends per share for fiscal years 1998 and 1997:
High Low Dividends -------- ------- ----------- 1998 Fourth quarter $13 1/2 $12 1/8 $0.03 Third quarter 13 3/8 11 15/16 0.03 Second quarter 13 7/8 11 3/4 0.03 First quarter 13 1/4 11 3/8 0.03 1997 Fourth quarter $14 3/4 $11 5/8 $0.03 Third quarter 15 1/8 12 3/8 0.03 Second quarter 13 10 5/8 0.03 First quarter 12 7/8 10 7/8 0.03
The Company expects to continue its policy of paying regular quarterly cash dividends, subject to the right of the Board of Directors to change the policy depending on future earnings and financial condition of the Company, capital requirements and other factors. On March 4, 1998, the Company issued from its treasury 163,107 shares of its common stock as consideration for its acquisition of all of the issued and outstanding shares of LRE Engineering, Inc. The securities were exempt from registration under Section 4(2) of the Securities Act of 1933 because they were offered and sold in a transaction that did not involve a public offering. Item 6. Selected Financial Data The following table sets forth selected financial data for the Company (in thousands, except per share amounts):
Fiscal Year Ended -------------------------------------------------- March 27, March 28, March 29, March 31, March 25, 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- Earnings data: Gross revenues $703,902 $653,378 $556,763 $382,681 $370,646 Net revenues 482,504 454,408 396,495 268,969 253,817 Earnings from operations 42,813 36,861 36,901 28,797 33,956 Net earnings 19,330 18,540 22,098 17,879 21,878 Earnings per share -Basic $ 1.08 $ 0.91 $ 0.99 $ 0.79 $ 0.97 Earnings per share -Diluted 1.07 0.91 0.98 0.79 0.97 Cash dividends per share 0.12 0.12 0.12 0.12 0.12 Weighted average share -Basic 17,890 20,287 22,385 22,500 22,500 Weighted average shares -Diluted 18,048 20,446 22,537 22,586 22,561 Financial position data: Current assets $228,129 $208,254 $216,191 $155,338 $154,702 Current liabilities 98,559 92,837 70,377 59,115 34,398 Net working capital 129,570 115,417 145,814 96,223 120,304 Total assets 386,361 358,282 317,279 224,627 180,119 Long-term debt 132,010 128,542 75,000 2,336 - Shareholders' equity 149,909 131,623 167,947 161,630 144,650 Backlog: $345,000 $290,000 $252,000 $120,000 $116,000
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in thousands) From time to time, the Company or its representatives may make forward-looking statements in this report or elsewhere relating to such matters as anticipated financial performance, including projections of revenues, expenses, earnings, liquidity, capital resources or other financial items; business plans, objectives and prospects; technological developments; and similar matters. Forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 frequently are identified by the use of terms such as "expect", "believe", "estimate", "may", "should", "will" or similar expressions. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experiences to differ materially from the anticipated results or other expectations expressed in the forward-looking statements made by the Company or its representatives. The risks and uncertainties that may affect the operations, performance, development and results of the Company's business include the following, among other factors: (a) the ability to attract and retain qualified professional personnel; (b) potential liability for engineering services; (c) potential liability for consulting services relating to toxic and hazardous materials and the ability to insure such risks; (d) dependence on environmental regulation including decreased revenues that may result from a reduction in laws, regulations and programs related to environmental issues or from changes in governmental policies regarding the funding, implementation or enforcement of such laws, regulations and programs; (e) increasing competition faced by the Company in its service areas; (f) periodic fluctuations in general business conditions and in demand for the types of services provided by the Company; and (g) foreign operations which expose the Company to political, economic and other uncertainties such as fluctuating currency values and exchange controls of foreign countries. Operations and Acquisitions Dames & Moore Group (the "Group") operating results during fiscal 1998 were affected by increasingly competitive market conditions in its environmental business sector, by the acquisitions of complementary professional service and contracting businesses, and by the continued integration of the service capabilities of companies acquired in previous years. The overall net revenue base of the Group increased 6.2% in fiscal 1998, with 5.2% attributable to acquisitions, and 1.0% resulting from internal growth. General Engineering and Consulting: The general engineering and consulting division of the Group provides environmental and specialized engineering services to private sector clients and government agencies through a worldwide network of offices. Demand for environmental services is influenced by expenditures of private sector clients and public agencies for site and environmental studies related to the construction of new facilities, remediation of contaminated sites and facilities, modernization and upgrading of existing facilities, and engineering and environmental due diligence related to acquisitions, mergers and property transfers. Specialized services provided by the general engineering and consulting division include structural and earthquake engineering, geotechnical engineering, and other services. During fiscal 1998, a principal factor affecting the demand for these services was the restraint on environmental spending exercised by both public sector and private sector clients. Environmental laws, regulations and enforcement policies remained essentially unchanged during fiscal 1998, and Congress once again failed to act on reauthorization of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (Superfund Act). As a result, net revenues of the company's general engineering and consulting division remained virtually unchanged in the United States. However, international net revenues continued the growth of the previous three years, increasing approximately 6.4% during fiscal 1998. This sustained growth trend reflects increased worldwide demand for engineering and environmental services related to major capital investment projects and increased opportunities in developing countries. The engineering and environmental services of the Group have experienced little growth in domestic markets over the last three fiscal years. This is due to the market conditions and regulatory factors discussed above, and to intense competition for available projects in both the private and public sector. On the other hand, demand for services in international markets has increased, and our general engineering and consulting units operating in international markets achieved record levels of revenues and profits in fiscal 1998. Profitability of international operations was enhanced by a restructuring undertaken last fiscal year, and the cost reductions and other improvements achieved will also serve to enhance international profitability in future years. Assuming that no specific action will be taken to reauthorize Superfund legislation or require stricter enforcement of existing environmental regulations, the outlook for the foreseeable future is that domestic business volume of the Group's general engineering and consulting division will remain relatively stable and profit margins will remain under pressure. International business opportunities primarily in Europe are expected to remain strong and to produce increased revenues and profits once again in fiscal 1999. However, the increase will likely be reduced by the continued instability in Southeast Asia. In fiscal 1998, the net revenues of Dames & Moore Group's general engineering and consulting services division constituted 57.9% of the Group's total net revenues, compared to 61.1% of net revenues in fiscal 1997. Construction Services: The construction services division provides program, project and construction management services for public sector projects of all sizes and complexity. The division continued its domestic public sector work in fiscal 1998 and, as part of the Group's strategic plan, was successful in expanding its services internationally and into the private sector. A restructuring initiated last fiscal year reduced staff levels and closed some offices, and was successful in contributing to the division's increased profitability during the year. Net revenues increased by 9.1% as a result of the award of several significant construction management contracts. The division's backlog is strong, and revenues are expected to increase further during fiscal 1999. At the close of fiscal 1997, the Company acquired control of Cleveland Wrecking Company (CWC), a demolition contractor. CWC's operations together with Aman Environmental Construction, Inc. (AECI) now provide a full range of site demolition, decommissioning, clean-up, closure and redevelopment services on a nationwide basis. During fiscal 1998, the net revenues for construction services were 19.5% of the Group's total net revenues compared to fiscal 1997 net revenues of 18.0% Process and Chemical Engineering: The process and chemical engineering division provides process engineering and design services to the oil and gas, petrochemical, and pulp and paper industries, and to the federal government. During fiscal 1998, the division's revenues were adversely impacted by a slowdown in oil and gas drilling in the Gulf of Mexico, but various other developments in the petroleum and petrochemical industries produced increased business opportunities. Overall, the division's net revenues in fiscal 1998 declined slightly from fiscal 1997. Profitability also declined due to retention of staff in anticipation of the start-up of major projects. Initiation of these projects and other new opportunities are expected to result in increased revenues and profits in fiscal 1999. Net revenues from process and chemical engineering accounted for 10.9% of total Group net revenues in fiscal 1998, compared to 11.6% in the proceeding year. Transportation: The transportation division provides project planning, design and construction-phase engineering services for transportation and infrastructure projects throughout the United States. During fiscal 1998, market conditions for transportation engineering services remained strong but competitive. The division was successful in being awarded several important projects. A direct comparison of this division's net revenues in fiscal 1998 with the previous year's net revenues is not possible since BRW was acquired during the first quarter of fiscal 1997. However, partial year revenues have been essentially equivalent to those of the comparable period of the prior year. Transportation services represents 7.0% of the Group's net revenues in fiscal 1998, compared to 6.5% in fiscal 1997. Specialty Companies: DecisionQuest (DQ) specializes in support services for corporate clients involved in litigation. These services include strategy consulting, development of case themes, juror analysis and selection, preparation of demonstrative trial graphics, and witness preparation. Since its acquisition in fiscal 1997, DQ has also pursued joint activities with other Group companies and has completed joint projects for selected clients. A full year-to-year comparison is not possible since DQ was acquired in the first quarter of fiscal 1997. The company's outlook is for expanded business opportunities in fiscal 1999 and in future years. The principal acquisition completed in fiscal 1998 was SRA Technologies (SRA), a company which provides life science services to both government agencies and private sector clients. The company's services, which are based on biological processes, range from clinical laboratory testing to contract research analysis. In fiscal 1998, SRA revenues were affected by funding pressures on existing government contracts and lower than anticipated revenues from clinical trials contracts. Nevertheless, the company operated profitably, and expects increased opportunity and slowly growing revenues in fiscal 1999. During the year, the company formed Fourth Dimension Interactive, Inc. (4DI), a new company, using technology developed in the general engineering and consulting division. 4DI develops management systems for large data bases using Internet technology. The specialty companies constituted 4.7% of the Group's net revenues in fiscal 1998 while net revenues were 2.9% of the Group's total net revenues in fiscal 1997. Dames & Moore Ventures: As a means of diversifying its business interests while drawing upon the skills of the Company's general engineering and consulting business, Dames & Moore Ventures (DMV) was established in fiscal 1997, to make equity investments in areas related to the Company's expertise. One such investment is Dames & Moore/Brookhill L.L.C.(DMB), whose principal business activity is to acquire environmentally distressed properties, perform on-site remediation, and develop or sell the remediated properties. During fiscal 1998, DMB acquired, remediated, and sold properties, and at year-end continued to hold ten properties for future development and/or sale. Expenses incurred during the year exceeded profits from the sale of the properties. DMV also divested its equity interest in Glencoe Insurance, Ltd., a company formed to offer earthquake insurance in California. Acquisitions: The Group companies that have been acquired in recent years provide a wide variety of engineering and specialized services. The principal acquired companies providing construction and related services include O'Brien Kreitzberg, Aman Environmental Construction, Inc., and Cleveland Wrecking Company. Process and chemical engineering consists primarily of Walk Haydel, transportation consists primarily of BRW (although O'Brien Kreitzberg also provides services to this sector) and specialty businesses which are comprised of DecisionQuest and SRA Technologies. SRA was acquired in fiscal 1998, and the other companies were acquired in previous years. Outlook In addition to the operations and acquisitions discussed above, Dames & Moore Group made several smaller acquisitions and initiated a number of internal activities during fiscal 1998 that are expected to produce increased revenues in future years. The Group's continuing investment in strategic growth initiatives, combined with the complementary services offered by newly acquired companies, new ventures, and limited restructuring of ongoing operations, should produce broader business opportunities in fiscal 1999 and the years ahead. However, the ultimate demand for the Company's services will be dependent on a continuation of economic growth in the United States and worldwide, public and private sector capital investment, enforcement of environmental regulations, and the Group's ability to meet the competitive demands of the market for full-service engineering, environmental, transportation, construction management, and litigation support services. Dames & Moore Group has a worldwide network of 233 offices located in 29 countries. The company is staffed by over 5,500 employees. Year 2000 The Company has been evaluating and working to resolve the potential impact, if any, caused by the year 2000 on the processing of date-sensitive information by the Company's and other computerized information systems which affect the Company's operations. Based on preliminary information, costs of addressing potential problems and the affects of becoming year 2000 compliant is not currently expected to have a materially adverse impact on the Company's financial position, results of operations or cash flows in future periods. Results of Operations The Company uses a 52-53 week fiscal year ending the last Friday in March. The fiscal years were comprised of 52 weeks each for 1998, 1997 and 1996. In performing its services, the Company routinely incurs direct project costs for services subcontracted to third parties, equipment purchases for its clients and travel expenses. The Company is generally reimbursed by its clients for a handling fee plus the direct project costs. In accordance with traditional practices of the engineering and consulting industry, the Company deducts these costs from gross revenues to arrive at net revenues. The Company believes net revenues are a more accurate measure of revenues derived directly from the Company's services.
1998 Increase 1997 Increase 1996 -------- -------- ------ -------- ------- Net Revenues $482,504 6.2% $454,408 14.6% $396,495
During fiscal 1998 the growth in net revenues of 6.2%, as compared to fiscal 1997 was a result of completed acquisitions which contributed $23,606 of the increase, or 5.2%. The remaining increase of $4,490, or 1%, represents growth in the Company's construction and project management, demolition, and international business groups. The growth in net revenues in fiscal 1997 as compared to fiscal 1996 was primarily a result of acquisitions during the year, which contributed $48,219 of the increase, or 12.2% The remaining increase of $9,694, or 2.4%, represents growth from the Company's existing lines of business.
1998 Increase 1997 Increase 1996 ------- -------- ------ -------- ------ Salaries and Related Costs $337,474 6.8% $315,896 13.2% $278,989
The increase in salaries and related costs in fiscal 1998 as compared to fiscal 1997 was primarily a result of acquisitions which represents $15,668, or 5%. The remaining increase represents additional hiring, primarily where net revenues have been growing, and annual salary increases. As a percentage of net revenues, salaries and related costs represent 69.9% of net revenues. Salaries and related costs increased by 13.2% in fiscal 1997 as compared to fiscal 1996. Acquisitions accounted for $31,429 of the increase, or 11.3%. The remaining increase of $5,478, or 1.9%, consists of expanded hiring in our international operations and annual salary increases, which were offset by lower profit-sharing contributions and incentive bonuses. Salaries and related costs represent 69.5% of net revenues.
1998 Increase 1997 Increase 1996 ------- -------- ------ -------- ------ General Expenses $88,401 2.5% $86,275 21.3% $71,114
General expenses increased by 2.5% in fiscal 1998 as compared to fiscal 1997. Acquisitions previously completed represent the entire increase in fiscal 1998. Due to one-time costs noted below, fiscal 1997 general expenses were higher than normal. General expenses represent 18.3% of net revenues. General expenses in fiscal 1997 increased by 21.3%; of this amount $10,873, or 15.3%, was due to new acquisitions. Expansion of business development activities, new offices and one-time costs for an image program and consultant fees all contributed to increased costs. As a percentage of net revenues, general expenses represent 19% in fiscal 1997.
1998 Increase 1997 Increase 1996 ------ -------- ------ -------- ------ Depreciation and Amortization $9,216 4.3% $8,832 41.2% $6,257
The depreciation and amortization increase of 4.3% in fiscal 1998 as compared to fiscal 1997 was also a result of completed acquisitions. As a percentage of net revenues, depreciation and amortization represent 1.9% in fiscal 1998. New acquisitions were responsible for $1,455, or 23.2%, of the increase in depreciation and amortization in fiscal 1997. The balance of the increase is due to new purchases of office equipment, computer equipment and leasehold improvements, mostly for companies acquired in fiscal 1996 and 1995. Depreciation and amortization represents 1.9% of net revenues for fiscal 1997.
1998 Increase 1997 Increase 1996 ------ -------- ------ -------- ------ Amortization of Goodwill $4,600 18.2% $3,893 20.4% $3,234
Amortization of goodwill grew $371, or 9.5%, due to fiscal 1998 and 1997 acquisitions; future acquisitions will continue this trend. The balance of the increase is due to the write-off of the remaining goodwill of a previously acquired small business, which has been discontinued, and the capitalization of additional goodwill related to contingent amounts due on previously acquired companies. The increase in fiscal 1997 as compared to fiscal 1996 was entirely due to completed acquisitions.
1998 Increase 1997 Decrease 1996 ------ -------- ------ -------- ------ Earnings from Operations $42,813 16.1 $36,861 (0.1%) $36,901
The Company's operating margin as a percentage of net revenues was 8.9% for fiscal 1998, 8.1% for fiscal 1997, and 9.3% for fiscal 1996. Adversely impacting the operating margin in fiscal 1997 is the restructuring charge and associated costs including the staffing imbalance that led up to the restructuring. Other previously mentioned administrative charges also contributed to the decline. The Company's operating margin as a percentage of net revenues would have been 8.7% in fiscal 1997 without the restructuring charge.
1998 Decrease 1997 Decrease 1996 ------ -------- ------ -------- ------ Investment and Other Income $997 (50.5%) $2,014 (38.5%) $3,274
Investment and other income declined in fiscal 1998, as compared to fiscal 1997 due to a reduction of interest income from the interim investment of long-term borrowings that was awaiting deployment to fund acquisitions and stock repurchases. In fiscal 1997 the Company acquired the majority interest in a company which it previously held a minority interest; as a result their operating results are now a part of earnings from operations. The decline in investment and other income in fiscal 1997 as compared to fiscal 1996 is a result of the Company's liquidation of the captive insurance subsidiary's equity portfolio during fiscal 1997 and the subsequent reinvestment in less volatile but lower yielding investments.
1998 Increase 1997 Increase 1996 ------ -------- ------ -------- ------ Interest Expense $10,292 39.3% $7,386 159.7% $2,844
The Company has utilized borrowings to fund acquisitions, related business ventures and purchases of treasury stock, including the 3,700,000 shares from Hochtief A.G. in fiscal 1997. Accordingly, interest expense has increased, and it is anticipated that it will continue to increase. See Liquidity and Capital Resources.
1998 Increase 1997 Decrease 1996 ------ -------- ------- -------- ------- Income Taxes $14,188 9.6% $12,949 (15.0%) $15,233
Income tax expense as a percentage of earnings before income taxes was 42.3% in fiscal 1998, 41.1% in fiscal 1997, and 40.8% in fiscal 1996. Goodwill amortization related to stock acquisitions is not deductible for tax purposes, which has resulted in an increasingly higher income tax rate as a percentage of earnings.
1998 Increase 1997 Decrease 1996 ------- -------- ------ -------- ------ Net Earnings $19,330 4.3% $18,540 (16.1%) $22,098
Net earnings as a percentage of net revenues was 4.0% in fiscal 1998, 4.1% in fiscal 1997 and 5.6% in fiscal 1996. Fiscal 1998 and fiscal 1997 are lower than fiscal 1996 primarily due to increased interest costs and reduced income from the investment and other income, previously mentioned. Fiscal 1997 was also affected by the restructuring charge, and administrative charges previously mentioned. Liquidity and Capital Resources Cash and cash equivalents total $9,493 at March 27, 1998, compared to $12,726 at March 28, 1997. The Company's working capital of $129,570 at March 27, 1998 has grown from $115,417 at March 28, 1997. The primary sources of cash during fiscal 1998 consisted of funds from operations of $19,020, and proceeds from sales of investments and other property of $7,387. The primary uses of cash in fiscal 1998 consisted of acquisitions totaling $13,463 and capital expenditures of $11,958. Net cash provided by operating activities for fiscal 1998 totaled $19,020 as compared to $5,780 for fiscal 1997. The most significant factor affecting this increase is the growth in accounts payable, due to a higher dollar amount for direct costs of outside services and a correlation of the payment of payables with the Company's longer receivable collection cycle. Advance payments for rents, insurance and deposits somewhat offset the increase in operating cash. Net cash provided by operating activities for fiscal 1997 totaled $5,780 as compared to $31,834 for fiscal 1996. The decline in cash provided by operations in fiscal 1997 is attributable to several factors: revenue growth provided a corresponding increase in accounts receivables, and the Company settled an obligation of one of its fiscal 1997 acquisitions. Fluctuations in the deferred tax accounts further reduced cash from operating activities. Offsetting these uses of cash is the change in the composition of the Company's marketable securities, which resulted in classifying a portion of the portfolio as other assets which is reflected as a source of cash. Investing activities reflects the Company's acquisition and venture programs. Acquisitions made by the Company in fiscal 1998 and fiscal 1997 have been smaller-sized companies than those purchased in fiscal 1996, and accordingly, required less cash. In fiscal 1997 the Company's venture programs reflected an investment of $5,100 for Glencoe Insurance, Ltd., which was sold in fiscal 1998 generating proceeds of approximately $5,200. Other investments in fiscal 1997 included the purchase of the bank debt of CWC and funding for DMB. During fiscal 1998 the Company's bank credit agreements were amended and the termination dates extended. The amendments also provide more flexibility on limitations on additional indebtedness, and maintenance of certain financial ratios. In fiscal 1996 the Company secured long-term debt which was used to repay lines of credit, fund acquisitions and other investments, purchase treasury stock, including the repurchase of 3,700,000 shares from Hochtief AG. For information regarding the Company's long-term debt and purchase of stock from Hochtief AG, see Notes 6 and 16 to the Consolidated Financial Statements. The Company's annual plan for fiscal 1999 includes a budget for capital expenditures of approximately $12,000. While the Company anticipates continuing capital requirements to support growth and diversification of services, fund acquisitions and new ventures, management believes that cash generated from operations and existing lines of credit will be sufficient to meet requirements for the foreseeable future. Future acquisition opportunities for larger businesses may require additional financing, which management believes can be obtained by increasing the existing lines of credit. Impact of Inflation The Company's operations have not been and are not expected to be materially affected by inflation or changing prices in the foreseeable future. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not applicable. Item 8. Financial Statements and Supplementary Data Page Index to Consolidated Financial Statements and Financial Statement Schedules Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . 18 Consolidated Statements of Financial Position as of March 27, 1998 and March 28, 1997 . . . . . . . . . . . . . . . . . 19 Consolidated Statements of Earnings for the Years Ended March 27, 1998, March 28, 1997 and March 29, 1996 . . . . . . . . . 20 Consolidated Statements of Changes in Shareholders' Equity for the Years Ended March 27, 1998, March 28, 1997 and March 29, 1996 . . . . . . . . . 21 Consolidated Statements of Cash Flows for the Years Ended March 27, 1998, March 28, 1997 and March 29, 1996 . . . . . . . . . 22 Notes to Consolidated Financial Statements . . . . . . . . . . . . . 23 Supplementary Financial Information - Selected Quarterly Financial Data (Unaudited). . . . . . . . . . . . . . . 38 Schedule II -- Valuation and Qualifying Accounts . . . . . . . . . . 45 All other schedules are omitted because they are not required, are not applicable or because the information is included in the Company's Consolidated Financial Statements or the Notes thereto. INDEPENDENT AUDITORS' REPORT The Shareholders and Board of Directors Dames & Moore Group We have audited the consolidated financial statements of Dames & Moore Group and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule 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 financial position of Dames & Moore Group and subsidiaries as of March 27, 1998 and March 28, 1997 and the results of their operations and their cash flows for each of the years in the three-year period ended March 27, 1998 in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG Peat Marwick LLP Los Angeles, California May 15, 1998 DAMES & MOORE GROUP Consolidated Statements of Financial Position (In thousands, except share and per share amounts)
March 27, March 28, Assets 1998 1997 -------- -------- Current: Cash and cash equivalents $ 9,493 $ 12,726 Marketable securities 1,031 5,984 Accounts receivable, net of allowance for doubtful accounts of: 1998-$3,408 and 1997-$3,001 135,298 114,126 Billed contract retentions 10,992 5,095 Unbilled receivables 55,844 56,491 ------- ------- Total accounts receivable 202,134 175,712 Deferred income taxes 4,303 4,135 Prepaid expenses and other current assets 11,168 9,697 ------- ------- Total current assets 228,129 208,254 Property and equipment, net 23,397 19,594 Goodwill of acquired businesses, net of accumulated amortization of: 1998-$12,535 and 1997-$8,907 117,849 109,626 Investments in affiliates 4,868 9,270 Other assets 12,118 11,538 ------- ------- $386,361 $358,282 ======== ======== Liabilities and shareholders' equity Current: Current portion of long-term debt $ 9,614 $ 11,560 Accounts payable 31,990 23,021 Accrued payroll and employee benefits 26,364 24,784 Current income taxes payable 6,864 3,145 Accrued expenses and other liabilities 23,727 30,327 ------- ------- Total current liabilities 98,559 92,837 Long-term debt 132,010 128,542 Other long-term liabilities 5,883 5,280 Contingencies Shareholders' equity: Preferred stock, $0.01 par value, shares authorized: 1,000,000 shares issued: none - - Common stock and capital in excess of $0.01 par value, shares authorized: 27,000,000 shares issued: 1998-22,740,000; 1997-22,726,000 107,512 107,242 Retained earnings 104,952 87,979 Treasury stock: 1998-4,573,000; 1997-4,714,000 shares (61,157) (63,070) Other shareholders' equity (1,398) (528) -------- -------- Total shareholders' equity 149,909 131,623 -------- -------- $386,361 $358,282 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. DAMES & MOORE GROUP Consolidated Statements of Earnings (In thousands, except per share amounts)
March 27, March 28, March 29, 1998 1997 1996 --------- --------- --------- Gross revenues $703,902 $653,378 $556,763 Direct costs of outside services 221,398 198,970 160,268 ------- ------- ------- Net revenues 482,504 454,408 396,495 ------- ------- ------- Operating expenses: Salaries and related costs 337,474 315,896 278,989 General expenses 88,401 86,275 71,114 Depreciation and amortization 9,216 8,832 6,257 Amortization of goodwill 4,600 3,893 3,234 Restructuring costs - 2,651 - ------- -------- ------- 439,691 417,547 359,594 ------- -------- ------- Earnings from operations 42,813 36,861 36,901 Investment and other income 997 2,014 3,274 Interest expense (10,292) (7,386) (2,844) ------- -------- ------- Earnings before income taxes 33,518 31,489 37,331 Income taxes 14,188 12,949 15,233 ------- -------- ------- Net earnings $ 19,330 $ 18,540 $ 22,098 ======== ======== ======== Earnings per share: Basic $ 1.08 $ 0.91 $ 0.99 ======== ======== ======== Diluted $ 1.07 $ 0.91 $ 0.98 ======== ======== ======== Cash dividends declared per share $ 0.12 $ 0.12 $ 0.12 ======== ======== ======== Weighted average number of shares-Basic 17,890 20,287 22,385 ======== ======== ======== Weighted average number of shares-Diluted 18,048 20,446 22,537
======== ======== ======== The accompanying notes are an integral part of the consolidated financial statements. DAMES & MOORE GROUP Consolidated Statements of Changes in Shareholders' Equity (In thousands)
Cumulative Unrealized Common Stock Retained Treasury Translation Loss on Deferred Shares Amount Earnings Stock Adjustment Investments Compensation ------ ------ -------- ------- ----------- ----------- ------------ Balances at March 31, 1995 22,608 $105,961 $ 55,915 $ - $ - $ - $(246) Restricted shares issued to employees 90 1,080 - - - - Restricted shares repurchased (12) (237) - - - - (360) - Net earnings - - 22,098 - - - - Cash dividends - - (2,718) - - - - Treasury stock acquired-1,150 - - - (13,859) - - - Amortization of deferred compensation - - - - - - 232 ------ -------- -------- -------- ------- -------- ------- Balances at March 29, 1996 22,686 $106,804 $ 75,295 $(13,859) $ - $ - $(293) ------ -------- -------- -------- ------- -------- ------- Restricted shares issued to employees 38 420 - - - - (140) Exercise of stock options 2 18 - - - - - Net earnings - - 18,540 - - - - Cash dividends - - (2,366) - - - - Treasury stock acquired-4,369 - - - (58,675) - - - Treasury stock issued-805 - - (3,490) 9,464 - - - Amortization of deferred compensation - - - - - - 218 Foreign currency translation net of tax - - - - (313) - - ------ -------- -------- -------- ------ ------- ------ Balances at March 28, 1997 22,726 $107,242 $ 87,979 $(63,070) $ (313) $ - $(215) ------ -------- -------- -------- ------ ------- ------ Restricted shares issued to employees 23 365 - - - - (100) Restricted shares repurchased (15) (180) - - - - 15 Exercise of stock options 6 85 - - - - - Net earnings - - 19,330 - - - - Cash dividends - - (2,168) - - - - Treasury stock acquired-28 - - - (350) - - - Treasury stock issued-169 - - (189) 2,263 - - - Amortization of deferred compensation - - - - - - 191 Unrealized gain on securities - - - - - 30 - Foreign currency translation net of tax - - - - (1,006) - - ------- -------- -------- -------- ------- -------- ------ Balances at March 27, 1998 22,740 $107,512 $104,952 $(61,157) $(1,319) $ 30 $(109) ======= ======== ======== ======== ======= ======== ======
The accompanying notes are an integral part of the consolidated financial statements. DAMES & MOORE GROUP Consolidated Statements of Cash Flows (In thousands)
Fiscal Year Ended ------------------------------- March 27, March 28, March 29, 1998 1997 1996 -------- -------- -------- Cash flows from operating activities: Net earnings $ 19,330 $ 18,540 $ 22,098 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 14,032 12,943 9,723 Unrealized gain on marketable securities - - (1,424) (Earnings) losses from equity investments 252 (80) (47) Deferred income taxes (354) (2,437) 5,461 Change in assets and liabilities net of effects of purchases of businesses: Marketable securities 5,984 8,952 487 Accounts receivable (21,725) (24,297) (4,162) Prepaid expenses and other assets (2,496) 1,285 (1,578) Income tax receivable 593 121 (1,122) Accounts payable and accrued expenses 3,404 (9,247) 2,398 ------- ------- ------- Net cash provided by operating activities 19,020 5,780 31,834 ------- ------- ------- Cash flows from investing activities: Purchases of businesses,net of cash acquired (13,463) (22,118) (37,127) Purchases of property and equipment (11,958) (9,524) (7,344) Investments and other assets (3,600) (18,630) 204 Proceeds from sales of investments and other property 7,387 - - ------ ------- ------- Net cash used in investing activities (21,634) (50,272) (44,267) ------ ------- ------- Cash flows from financing activities: Repayments on lines of credit (21,000) - (1,638) Debt issuance costs - - (529) Proceeds from debt instruments 22,700 62,551 118,347 Principal payments on debt - - (45,683) Issuance of common stock 364 357 720 Stock repurchased (515) (58,675) (14,015) Dividends (2,168) (2,366) (2,718) ------- ------- ------- Net cash (used) provided by financing activities (619) 1,867 54,484 ------- ------- ------- Net (decrease) increase in cash and cash equivalents (3,233) (42,625) 42,051 Cash and cash equivalents, beginning of year 12,726 55,351 13,300 ------- ------- ------ Cash and cash equivalents, end of year $ 9,493 $ 12,726 $ 55,351 ======== ======== ======== Supplemental disclosures of cash flow information: Interest paid $ 9,785 $ 3,263 $ 2,844 Income taxes paid 10,751 14,810 16,405 Non cash investing activities- business acquisitions 5,110 9,879 2,595
The accompanying notes are an integral part of the consolidated financial statements. DAMES & MOORE GROUP Notes to Consolidated Financial Statements Note 1 - Summary of Significant Accounting Policies: Basis of Presentation: The consolidated financial statements include the accounts of all majority-owned domestic and foreign subsidiaries. Investments in companies in which Dames & Moore Group (the "Company") (formerly known as Dames & Moore,Inc.) does not have control, but has the ability to exercise significant influence over operating and financial policies are accounted for by the equity method. Other investments are accounted for by the cost method. All significant intercompany transactions and balances have been eliminated. Certain items in the prior years' financial statements have been reclassified to be consistent with the 1998 presentation. Use of Estimates in the Preparation of Consolidated Financial Statements: The preparation of the consolidated financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from the estimates and assumptions used in preparing the consolidated financial statements. Cash and Cash Equivalents: Cash and cash equivalents consist of unrestricted deposits with banks and highly liquid investments with an original maturity of three months or less. Marketable Securities: Marketable securities consist of equity and debt securities that are considered either available-for-sale or trading securities as defined by Statement of Financial Accounting Standard (SFAS) No. 115. Debt securities with maturity dates beyond a year are classified as Other Assets. Marketable securities are recorded at fair market value. Changes in unrealized gains and losses for trading securities are included in earnings; for available-for-sale securities, they are charged or credited to shareholders' equity, net of tax. A decline in the fair value of an available-for-sale security below cost that is deemed other than temporary is charged to earnings. Management determines the appropriate classifications of investments at the time of purchase and reevaluates such designations as of each balance sheet date. Depreciation and Amortization: Property and equipment are depreciated on a straight-line basis over estimated useful lives ranging from 3 to 10 years and leasehold improvements are amortized over the lesser of estimated useful lives or the term of the lease. Goodwill of Acquired Businesses: The goodwill of acquired businesses represents the difference between the purchase cost and the fair value of the net assets of acquired businesses, and is being amortized on a straight-line basis over 3 to 40 years. The Company annually evaluates the realizability of goodwill based upon undiscounted forecasted operating earnings over the remaining amortization period for each investment having a significant goodwill balance. If an impairment in the value of the goodwill were to occur, the Company would reflect the impairment through a reduction in the carrying value of the goodwill based upon the estimated fair value of the investment. Based upon its most recent analysis, the Company believes that there is no impairment of goodwill. Foreign Currency Translation: The functional currencies for the Company's significant foreign subsidiaries and branches are their respective local currencies. The assets and liabilities of these entities are translated into U.S. dollars using exchange rates in effect at period end. Revenue and expenses are translated at the average rates of exchange prevailing during the period. The resulting translation adjustments are reported as a separate component of shareholders' equity. In situations where the functional currency is the U.S. dollar, translation adjustments are included in earnings. The Company enters into forward foreign currency exchange contracts to reduce the impact of foreign currency fluctuations on certain project revenues and costs, and the asset and liability positions of foreign subsidiaries. The terms of the currency derivatives are generally one year or less. Commencing in fiscal 1997 the gains or losses from these contracts are generally also reported as a separate component of shareholders' equity; previously they were included in earnings. Recognition of Revenue: The Company recognizes revenue generally at the time services are performed. On fixed price contracts, revenue is recognized on the basis of the estimated percentage of completion of services rendered. On cost reimbursement contracts, revenue is recognized as costs are incurred and includes applicable fees earned essentially in the proportion that costs incurred bear to total estimated final costs. Materials and subcontract costs reimbursed by clients are included in gross revenues. Anticipated losses are recognized in the period in which the losses are reasonably determinable. Substantially all unbilled receivables are expected to be collected within the next 12 months and retentions at the close of the respective project. Approximately $796,000 relates to unbilled receivables and contract retentions not collectible within 12 months, which have been classified as other assets. A major portion of contracts with the United States Government, are subject to audit and adjustment. Revenue has been recorded in amounts expected to be realized on final settlement. Included in accounts receivable are revenues from claims where recovery is probable in the opinion of management. At March 27, 1998, the Company has $3,756,000 of claims receivable which is management's best estimate. Facts and circumstances may change that could result in the Company receiving amounts different than those recorded. Income Taxes: The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Tax provisions are recorded at statutory rates for taxable items included in the consolidated statements of earnings regardless of the period such items are reported for tax purposes. Deferred income taxes are recognized for temporary differences between financial statement and income tax bases of assets and liabilities for which income tax effects will be realized in future years. Stock-Based Compensation: Prior to March 30, 1996, the Company accounted for its stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On March 30, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation," which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in fiscal 1996 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. Earnings Per Share: In February of 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share," which establishes new requirements for computing and presenting earnings per share information. The Company, as required, adopted this statement in the third quarter of fiscal 1998. All earnings per share and weighted average common shares outstanding information presented in these financial statements and footnotes has been restated to conform to the new statement. Basic earnings per share is computed by dividing net earnings by the weighted-average number of common shares outstanding for the period. Diluted earnings per share adjusts the weighted-average number of common shares to reflect the potential dilution that could occur if restricted stock was unrestricted and the assumed exercise of the dilutive stock options outstanding. This change did not have a material impact on the computation of the earnings per share data. New Accounting Pronoucements: During 1997, the Financial Accounting Standards Board issued two new pronouncements: SFAS No. 130, "Reporting Comprehensive Income," which establishes standards for reporting and display of comprehensive income and its components; and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes new standards for reporting information about operating segments in interim and annual financial statements. Implementation of these statements are effective for fiscal years beginning after December 15, 1997, although SFAS No. 131 does not need to be implemented for interim periods. In the initial year of application, comparative information for earlier years is to be restated. The Company does not expect that adoption of these standards will have a material effect on its financial position or results of operations. However, commencing in fiscal 1999 the Company has realigned its businesses into similar lines of services which will differ from the current segment disclosures. Fiscal Year: The Company uses a 52-53 week fiscal year ending the last Friday in March. The fiscal years were comprised of 52 weeks in 1998, 1997 and 1996. Note 2 - Acquisitions: On June 24, 1997, the Company acquired SRA Technologies, Inc., a professional services company providing specialized clinical laboratory services, contract research, analysis and management services in the areas of life sciences, environmental health service studies, and energy. The purchase price of $8,924,000 was paid in cash, and no additional payments are due. The purchase price in excess of the fair value of the identifiable assets acquired is classified as goodwill and is being amortized over 30 years. The Company also completed six smaller acquisitions during fiscal 1998 for $5,740,000, one of which included the issuance of 163,107 shares of the Company's treasury stock. Four of the acquisitions have additional future payments contingent on future earnings. The total purchase cost in excess of fair value of identifiable assets acquired is classified as goodwill and being amortized over the period of expected benefit, which range from 3 to 20 years. During fiscal 1997, the Company acquired two companies that have been operating through newly formed, wholly owned subsidiaries. DecisionQuest, Inc., acquired on May 3, 1996, is a company engaged in the business of providing trial strategy, consultation, jury research, graphic presentations, and other litigation support services to minimize adverse findings or financial loss in litigation or other legal proceedings. DecisionQuest, Inc., was acquired for cash plus additional future payments contingent on future earnings. BRW Group, Inc., acquired on May 17, 1996, is a company that provides project planning, design and construction-phase services for transportation and infrastructure projects. BRW Group, Inc., was acquired with a combination of cash, 800,000 shares of the Company's treasury stock and an additional payment contingent on future earnings. The combined purchase costs total $25,962,000. The purchase cost in excess of the fair value of the identifiable assets acquired including contingent payments earned to date is classified as goodwill and is being amortized over 40 years. The following schedule summarizes the unaudited pro forma results of operations as if the acquisitions of SRA Technologies, Inc. had occurred at the beginning of fiscal 1997 and DecisionQuest, Inc., and BRW Group, Inc., had occurred at the beginning of fiscal 1996. Certain adjustments, such as amortization of goodwill, increased interest expense and income tax have been reflected. (In thousands, except per share amounts)
1997 1996 -------- -------- Net revenues $468,450 $438,964 Net earnings 19,032 22,193 ======== ======== Earnings per share - Basic $ 0.94 $ 0.99 ======== ======== Earnings per share - Diluted $ 0.93 $ 0.98 ======== ========
The pro forma information is intended to show how the acquisitions might have affected historical results of operations if the transactions had occurred at an earlier time. The pro forma results are not necessarily indicative of the periods presented or to be expected in the future. The Company also completed several smaller acquisitions during fiscal 1997 for $7,939,000 plus future payments contingent on future earnings. The total purchase cost in excess of fair value of identifiable assets acquired is classified as goodwill and being amortized over the period of expected benefit, 15 to 40 years. All acquisitions have been accounted for as purchases. Results of operations for all acquisitions have been included in the consolidated financial statements from the date of the respective acquisition. Subsequent to year-end, the Company acquired the business of Signet Testing Labs, a company engaged in providing materials testing and inspection services to the construction industry. The purchase price of $5,700,000 included the issuance of 156,991 shares of the Company's treasury stock. Additional future payments are contingent upon future earnings. Note 3 - Investments in Debt and Equity Securities: The cost and estimated fair value of equity and debt securities by classification and major category follow. Approximately, $4,536,000 at March 27, 1998 and $5,503,000 at March 28, 1997 of the U.S. Government securities have a maturity greater than 1 year but within 5 years, and are classified as other assets (in thousands):
Estimated Cost Fair Value -------- ---------- At March 27, 1998: Available-for-sale: Securities of the U.S. Government $ 4,502 $ 4,536 Equity securities 1,018 1,031 ------- ------- $ 5,520 $ 5,567 ======= ======= At March 28, 1997: Available-for-sale: Securities of the U. S. Government $11,487 $11,487
======= ======= Note 4 - Investments in Affiliates: The Company through its subsidiary Dames & Moore Ventures has a 50% interest in Dames & Moore/Brookhill L.L.C. (DMB) and affiliated companies. DMB was formed to acquire environmentally impaired properties and to remediate; to develop, redevelop, or reposition; and to maintain, operate and lease such properties until their disposition. In March, 1997, DMB acquired an interest in 24 assets by purchasing either a fee interest or a property-related mortgage note. During fiscal 1998 DMB acquired 5 additional assets and sold 19 assets, resulting in a portfolio of 10 assets as of March 27, 1998. The March 1997 acquisition was financed with senior debt of $54,082,000, subordinated debt of $14,922,000 and cash of $3,714,000. Subsequent acquisitions have been financed 75% with senior debt, 20% subordinated debt and 5% equity from DMB. The senior debt bears interest at London Interbank Offshore Rate (LIBOR) plus 275 basis points, and requires monthly payments of principal and interest. Cash flow from the properties, including sale proceeds will generally be distributed 80% to the subordinated lender and 20% to DMB, until the subordinated lender and DMB each receives its loan advances or capital contributions, and a return on investment of 20% per annum. Thereafter, cash flow will be distributed 50% to the subordinated lender and DMB. The borrowings are all due on December 31, 1999, but may be extended under certain terms and conditions. The Company accounts for its investment of $3,144,000 in fiscal 1998 and $2,324,000 in fiscal 1997 in DMB under the equity method of accounting. Condensed financial information follows (in thousands):
March 27, March 28, 1998 1997 --------- -------- Mortgage notes receivables $ 4,137 $ 54,693 Property 33,508 17,156 Other assets 17,038 4,371 --------- -------- Total assets $ 54,683 $ 76,220 ========= ======== Mortgages payable $ 41,958 $ 69,004 Other liabilities 6,726 2,681 Shareholders' equity 5,999 4,535 --------- -------- Total liabilities and equity $ 54,683 $ 76,220 ========= ======== Company's share of equity $ 3,000 $ 2,268 ========= ======== Year Ended Year Ended March 27, 1998 March 28, 1997 -------------- -------------- Revenues $ 18 $ 482 Costs and expenses (1,450) (1,661) Net gain on asset dispositions 1,061 - --------- -------- Net loss $ (371) $ (1,179) ========= ======== Company's share of net loss $ (185) $ (590)
========= ======== During fiscal 1998 the Company sold, for approximately book value, its 9.9% interest in Glencoe Insurance Ltd., a company formed to offer earthquake insurance in California. The Company accounted for its investment of $5,144,000 in fiscal 1997 under the equity method of accounting. Equity investments in other unconsolidated investments amounted to $1,722,000 at fiscal 1998 and $1,802,000 in fiscal 1997. Note 5 - Composition of Certain Financial Statement Captions: (in thousands)
1998 1997 ------- ------- Property and equipment, at cost: Computer equipment $36,145 $30,411 Office equipment and furniture 13,719 12,398 Technical and field equipment 13,482 9,848 Leasehold improvements 5,847 4,790 ------- ------- 69,193 57,447 Less accumulated depreciation and amortization 45,796 37,853 ------- ------- $23,397 $19,594 ======= ======= 1998 1997 ------- -------- Accrued payroll and employee benefits: Salaries, wages and related taxes $12,901 $11,530 Accrued vacation 12,192 11,585 Accrued pension costs 1,271 1,669 ------- ------- $26,364 $24,784 ======= ======= Accrued expenses and other liabilities: Accrued insurance costs $ 6,913 $ 6,909 Accrued occupancy 4,232 3,240 Accrued interest 4,283 3,973 Deferred acquisition payments 1,639 4,661 Client advances 1,060 3,186 Deferred income 1,640 1,912 Accrued expenses 837 2,785 Other liabilities 3,123 3,661 ------- ------- $23,727 $30,327
======= ======= Note 6 - Long-Term Debt: Long-term debt consists of the following (in thousands):
1998 1997 ------ ------ Senior Notes: 6.54% Series A notes, due March 29, 2001 $ 40,000 $ 40,000 6.87% Series B notes, due March 29, 2003 30,000 30,000 6.92% Series C notes, due September 29, 2003 10,000 10,000 7.19% Series F notes, due December 16, 2004 10,000 10,000 7.23% Series G notes, due December 16, 2005 10,000 10,000 7.20% Series D notes, due March 29, 2006 5,000 5,000 7.25% Series E notes, due September 29, 2006 15,000 15,000 Lines of credit 20,015 18,560 Other notes payable, due July 1998 1,609 1,542 ------- ------- 141,624 140,102 Current portion of long-term debt 9,614 11,560 ------- ------- $132,010 $128,542 ======== ========
The Senior Notes agreement contains limitations on additional indebtedness, sales of assets, loans and advances, as well as minimum net worth requirements and maintenance of certain financial ratios. Company management believes all such requirements were satisfied as of March 27, 1998. As a result of a completed interest rate hedge, the effective interest rate on the Senior Notes will be 6.78% through 2001, then 6.94% through 2003, 7.07% in 2004, 7.09% in 2005, 7.04% in 2006 and 7.25% in 2007. The Company has $74,310,000 available for borrowing under the lines of credit in U.S. dollars, offshore foreign currencies or foreign domestic currencies, and for the issuance of letters of credit and purchase of foreign currency exchange contracts. Interest is charged under several options, including the bank's reference rates or at LIBOR plus a spread, at the Company's option. The weighted-average interest rate on short-term borrowings was 6.4% at March 27, 1998. The agreements contain limitations on additional indebtedness, sales of assets, acquisitions and capital expenditures, as well as maintenance of certain financial ratios and minimum net worth requirements. Such requirements were satisfied as of March 27, 1998. As of March 27, 1998, under these lines, the Company had borrowings of $20,015,000, and standby letters of credit totaling $19,709,000 principally for project performance, advance payment guarantees and the Company's domestic insurance program. The lines of credit come due as follows: $6,797,000 in July 1998, $14,310,000 in February 1999, and $53,203,000 in January 2001. The fair value of the Company's long-term debt approximates carrying value based on current rates offered to the Company for debt of the same remaining maturities. Annual maturities of long-term debt over the next five fiscal years are as follows: 1999-$9,614,000; 2000-$10,000; 2001-$52,000,000; 2002-none; and 2003-$30,000,000. Note 7 - Foreign Currency Contracts: The Company has entered into foreign exchange forward contracts, all having maturities of less than one year. The notional amounts noted below serve solely as a basis for the calculation of payment streams to be exchanged. The Company is exposed to credit loss in the event of nonperformance by counter parties for these contracts. The Company selects major international banks and financial institutions as counter parties to manage this credit risk. Transaction gains and losses including the effect of foreign currency contracts and currency exchange rate conversion were a loss of $206,000 in 1998, a loss of $222,000 in 1997, and a loss of $433,000 in 1996. (Foreign currency amounts in thousands)
1998 1997 ------ ------ Australian dollar 1,000 3,000 United States dollar 644 850 British pound - 2,000
Note 8 - Fair Values of Financial Instruments: The carrying amount of marketable securities is based on quoted market prices at the reporting date for those investments and as such equal fair value. The fair value of the Company's long-term debt is estimated based on current rates offered to the Company for debt of the same remaining maturities, which approximates carrying value. All other financial instruments bear relatively short-term maturities, and accordingly, the carrying amount of these investments approximates fair value. Note 9 - Income Taxes: (in thousands) Income taxes consist of the following:
1998 1997 1996 ------- ------- ------- U.S. Federal taxes: Current $ 9,560 $11,761 $11,126 Deferred (478) (1,736) (529) ------- ------- ------- 9,082 10,025 10,597 State and local taxes: Current 1,706 1,841 2,053 Deferred (115) (166) (97) ------- ------- ------- 1,591 1,675 1,956 Non-U.S. taxes: Current 3,541 1,249 2,680 Deferred (26) - - ------- ------- ------- 3,515 1,249 2,680 ------- ------- ------- $14,188 $12,949 $15,233 ======= ======= =======
The sources of earnings before income taxes consist of the following:
1998 1997 1996 ------- ------- ------- U.S. earnings before income taxes $27,438 $31,178 $35,146 Non-U.S. earnings before income taxes 6,080 311 2,185 ------- ------- ------- Earnings before income taxes $33,518 $31,489 $37,331 ======= ======= ======= Income taxes differ from amounts computed by applying the statutory U.S. Federal income tax rate of 35% to earnings before income taxes as follows: Statutory U.S. Federal income tax $11,731 $11,021 $13,066 State income taxes, net of Federal benefit 1,034 1,089 1,271 Goodwill 653 499 410 Other 770 340 486 ------- ------- ------- Total income taxes $14,188 $12,949 $15,233 ======= ======= =======
Deferred income taxes result from temporary differences in the timing of the recognition of revenues and expenses for financial statement and tax return purposes. Management believes that it is more likely than not, that the results of future operations will generate sufficient taxable income to realize the deferred tax assets. The significant components of deferred taxes were as follows:
1998 1997 ------- ------- Current deferred net tax assets: Compensation expense $ 3,975 $ 3,698 Litigation reserve 410 718 Accrued expenses 171 960 Allowance for doubtful accounts 918 558 Other 433 344 ------- ------- Total current deferred tax assets 5,907 6,278 ------- ------- Cash to accrual adjustments from acquisitions 1,106 1,993 Other 498 150 ------- ------- Total current deferred tax liabilities 1,604 2,143 ------- ------- Net current deferred tax assets $ 4,303 $ 4,135 ======= ======= Noncurrent deferred net tax liabilities: Foreign currency translation $ 836 $ - Other 735 - ------- ------- Total noncurrent deferred tax assets 1,571 - ------- ------- Depreciation and amortization 2,481 1,840 Other 569 - ------- ------- Total noncurrent deferred tax liabilities 3,050 1,840 ------- ------- Net noncurrent deferred tax liabilities $ 1,479 $ 1,840
======= ======= Note 10 - Lease Commitments: The Company is obligated under various noncancelable leases for office facilities, furniture and equipment. Certain leases contain renewal options, escalation clauses and certain other operating expenses of the properties. In the normal course of business, leases that expire are expected to be renewed or replaced by leases for other properties. The following is a schedule by year of future rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of March 27, 1998 (in thousands):
Fiscal Year(s) Total -------------- ----- 1999 $20,852 2000 17,622 2001 14,768 2002 11,430 2003 8,733 Thereafter 14,950 ------- Total minimum lease payments $88,355
======= The following schedule shows the composition of total rental expenses for all operating leases (in thousands):
1998 1997 1996 ------- ------- ------- Total rental expense $24,365 $23,617 $20,189 Less sublease rentals 140 324 232 ------- ------- ------- $24,225 $23,293 $19,957 ======= ======= =======
Note 11 - Contingencies: The Company in the ordinary course of business is a defendant in various lawsuits involving claims typically filed against the engineering and consulting professions, primarily alleging professional errors or omissions. The Company through a wholly owned subsidiary insures the Company's risks for professional liability, workers compensation, and general and automobile claims up to certain policy limits. Claims in excess of these limits are covered by unrelated insurance carriers. Management makes estimates and assumptions that affect the reported amount of liability and the disclosure of contingent liabilities. As claims develop, it is possible that the ultimate results of these claims may differ from management's estimates. In the opinion of management, based upon information it presently possesses, the resolution of these claims will not have a material adverse effect on the Company's consolidated financial position or results of operations. Note 12 - Stock Option Plans: Long-Term Incentive Plan The Company's Amended and Restated 1991 Long-Term Incentive Plan (the "Plan"), which provides for the granting of stock options and the sale of restricted stock to officers and key employees of the Company, has authorized and reserved a total of 2,500,000 shares of common stock for issuance under this Plan. Stock options granted or restricted stock sold under the Plan may be granted or sold at a price and for such terms as determined by the Compensation Committee of the Board of Directors. Restricted stock sales are offered to newly elected officers and are subject to restrictions on transfer and risk of forfeiture until earned by continued employment. Should employment terminate before ownership vests, shares are repurchased by the Company at the lesser of the price originally paid for the stock or its market value on the date of termination. During the restriction period, holders have the rights of shareholders, including the right to vote and receive dividends, but cannot transfer ownership. Restricted stock is generally being issued at 67% of market value on the date of issuance and vests 3 years after the issue date. These restricted stock sales give rise to unearned compensation that is amortized over the vesting period. Through March 27, 1998, 231,715 shares of restricted stock have been issued under the Plan.
1998 1997 1996 ------ ------ ------ Restricted stock issued 23,300 37,751 90,000 Weighted-average fair $12.88 $11.13 $12.00 value of restricted stock granted during the year
Non-qualified stock options are granted at fair value at the date of grant and generally vest 25% per year commencing on the first anniversary after the grant date. Options expire 10 years after the grant date, and all awards need to be made by May 22, 2005.
1998 1997 1996 ------------------------ ---------------------- ---------------------- Weighted Avg. Weighted Avg. Weighted Avg. Shares Exercise Price Shares Exercise Price Shares Exercise Price --------- -------------- ------ -------------- -------- ------------- Outstanding at beginning of the year 1,678,856 $16.09 1,517,823 $16.87 1,619,874 $17.03 Granted 8,000 12.88 276,554 11.24 40,000 12.63 Exercised (6,902) 11.78 (2,737) 12.00 - Canceled (90,628) 16.00 (112,784) 14.83 (142,051) 17.48 --------- ---------- --------- Outstanding at the end of the year 1,589,326 $16.09 1,678,856 $16.09 1,517,823 $16.87 ========= ========= ========= Exercisable at year-end 1,166,549 $17.70 970,941 $18.58 705,678 $19.47 Weighted-average fair value of options granted during the year $ 5.46 $ 4.40 $ 5.05
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 1998, 1997 and 1996, respectively: expected volatility of 28.28%, 27.15%, and 26.59%; risk-free interest rates of 6.81%, 6.24%, and 6.04%; expected lives of 6, 5.6, and 6 years and no dividends. Directors' Stock Option Plan The Company's amended and restated 1995 Stock Option Plan for Non-Employee Directors of the Company (the "Plan") has 50,000 shares of common stock authorized for issuance under the Plan. Shares of common stock awarded under this Plan are non-qualified stock options, are granted at fair value at the date the option is granted, vest and become exercisable in three equal annual installments commencing on the first anniversary after the grant date. Options expire 10 years after the grant date.
1998 1997 1996 ---------------------- ---------------------- ----------------------- Weighted Avg. Weighted Avg. Weighted Avg. Shares Exercise Price Shares Exercise Price Shares Exercise Price ------ -------------- ------ -------------- ------ -------------- Outstanding at beginning of the year 23,000 $12.97 15,000 $13.63 - Granted 17,000 13.50 8,000 11.75 15,000 $13.63 Exercised - - - - ------ ------ ------ Outstanding at the end of the year 40,000 $13.20 23,000 $12.97 15,000 $13.63 ====== ====== ====== Exercisable at year-end 12,664 $13.23 4,998 $13.63 None Weighted-average fair value of options granted during the year $ 5.59 $ 4.90 $ 5.60
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 1998, 1997, and 1996, respectively: expected volatility of 28.51%, 27.97%, and 26.87%; risk-free interest rates of 6.3%, 6.4%, and 6.44%; expected lives of 6 years and no dividends. The following table summarizes both stock option plans' information on stock options outstanding at March 27, 1998:
Options Outstanding Options Exercisable ----------------------- --------------------- Number Weighted Avg. Number Range of Outstanding Remaining Weighted Avg. Exercisable Weighted Avg. Exercise Prices at 3/27/98 Contractual Life Exercise Price at 3/27/98 Exercise Price - --------------- ---------- ---------------- -------------- ------------ -------------- $11.13 to $13.63 731,879 7.5 $11.81 281,766 $11.90 $16.65 to $19.50 625,910 5.5 18.97 625,910 18.97 $20.00 to $21.75 271,537 4.0 20.57 271,537 20.57
Pro-Forma Disclosure The Company continues to apply APB Opinion No. 25 in accounting for both of its stock-based compensation plans. Accordingly, no compensation cost has been recognized for the stock option plans. There was no material difference in the Company's earnings or earnings per share had the stock option plans determined compensation cost based on the fair value at the grant dates consistent with the method of SFAS No. 123. Note 13 - Employee Retirement Plans: The Company and its domestic subsidiaries have several defined contribution retirement plans covering substantially all of the Company's U.S. employees with a minimum service requirement. Depending upon the plan, eligible employees can invest up to 15% of their earnings; certain plans will match by an equal amount from the Company generally up to the first 3% of the employee's contribution. Employer matching contributions for fiscal years 1998, 1997 and 1996 were $2,930,000, $3,315,000 and $2,957,000, respectively. Profit-sharing contributions to all plans are currently discretionary. However, prior to January 1, 1997 the largest of the plans had a profit-sharing contribution that was computed in accordance with a formula (set forth in the Plan) to provide for an annual contribution of 6% of pre-tax earnings, as defined. The contributions for 1998, 1997 and 1996 were $1,381,000, $1,684,000 and $2,553,000, respectively. Certain of the Company's foreign subsidiaries have trusteed retirement plans covering substantially all of their employees. These pension plans are not required to report to government agencies pursuant to ERISA and do not otherwise determine the actuarial value of accumulated benefits or net assets available for benefits. The aggregate pension expense for these plans for fiscal years 1998, 1997 and 1996 were $1,498,000, $1,719,000 and $1,369,000, respectively. Note 14 - Segment Information: The Company is a worldwide provider of comprehensive engineering, consulting and construction management services. The Company serves a broad range of clients in both the private and public sectors. Net revenues from all agencies and departments of the United States Government were approximately $66,440,000, $63,183,000 and $63,313,000 during fiscal years 1998, 1997 and 1996, respectively. Selected geographic information is summarized as follows (in thousands):
United Other Executive States Countries Office Total -------- --------- --------- -------- Net revenues 1998 $412,585 $69,919 $ - $482,504 1997 388,671 65,737 - 454,408 1996 340,128 56,367 - 396,495 Earnings from Operations 1998 $ 48,662 $ 8,223 $(14,072) $ 42,813 1997 49,493 2,330 (14,962) 36,861 1996 45,519 4,480 (13,098) 36,901 Identifiable Assets 1998 $287,182 $63,310 $35,869 $386,361 1997 268,236 53,435 36,611 358,282 1996 216,510 37,233 63,536 317,279
Note 15 - Earnings Per Share (EPS): (in thousands) The following is a reconciliation of the weighted average shares outstanding used for computing basic and diluted EPS.
1998 1997 1996 ------ ------ ------ Weighted average shares - Basic EPS 17,890 20,287 22,385 Dilutive securities: Restricted stock 127 124 130 Stock options 31 35 22 ------ ------ ------ Weighted average shares - Diluted EPS 18,048 20,446 22,537 ====== ====== ======
Stock options to purchase 941, 965, and 1,539 shares of common stock as of March 27, 1998, March 28, 1997 and March 29, 1996, respectively, were outstanding but were not included in the computation of diluted EPS because the stock options' exercise price was greater than the average market price of the common shares. Note 16 - Stock Repurchases: The Company's Board of Directors authorized the Company to purchase up to 2,500,000 shares of its common stock on the open market. During fiscal 1998 the Company repurchased 28,700 shares of its common stock and reissued 169,200 shares of treasury stock. As of March 27, 1998 the Company had repurchased 1,847,400 shares and reissued 974,500 shares. The Company may continue to purchase shares on the open market. On November 19, 1996, the Company acquired all 3,700,000 shares of the Company's common stock owned by Hochtief Aktiengesellschaft vorm. Gebr. Helfmann (Hochtief AG). The Company may use the reacquired shares to facilitate acquisitions or remarket them if market conditions permit. Note 17 - Common and Preferred Stock: The Company adopted a Shareholder's Rights Agreement on March 28, 1997 granting, for each outstanding share of common stock, one stock purchase right ("Right"). Each Right entitles the common stockholder to purchase, in certain circumstances generally relating to a change in control of the Company, one two-hundredth of a share of the Company's Series A Junior Participating Preferred Stock, par value $0.01 per share (the "Series A Preferred Stock") at the exercise price of $65 per share, subject to adjustment. Alternatively, the Right holder may purchase common stock of the Company having a market value equal to two times the exercise price, or may purchase shares of common stock of the acquiring corporation having a market value equal to two times the exercise price. The Series A Preferred Stock confers to its holders rights as to dividends, voting and liquidation that are in preference to common stockholders. The Rights are nonvoting, are not presently exercisable and currently trade in tandem with the common shares. The Rights may be redeemed at $0.01 per Right by the Company in accordance with the Rights Agreement. The Rights will expire on March 28, 2007, unless earlier exchanged or redeemed. Note 18 - Restructuring Costs: In fiscal 1997 the Company determined it was necessary to restructure its international operations, and construction and project management subsidiary. Included in the restructuring cost are employee severance and termination costs, costs associated with office closures, losses on work in progress where there was extensive employee turnover and losses on other current assets, all of which impact the Company's working capital. The remaining balance represents losses on long-term assets. Approximately $464,000 remains to be expended at March 27, 1998 to complete the restructuring. DAMES & MOORE GROUP Supplementary Financial Information Selected Quarterly Financial Data (Unaudited) (In thousands, except per share amounts):
First Second Third Fourth 1998: Quarter Quarter Quarter Quarter ------- ------- ------- ------- Gross revenues $171,771 $176,214 $174,974 $180,943 Net revenues 120,075 123,390 119,233 119,806 Earnings from operations 10,556 10,913 11,244 10,100 Net earnings 4,685 5,151 5,153 4,341 ======== ======== ======== ======== Earnings per share-Basic $ 0.26 $ 0.29 $ 0.29 $ 0.24 ======== ======== ======== ======== Earnings per share-Diluted $ 0.26 $ 0.28 $ 0.29 $ 0.24 ======== ======== ======== ======== Weighted average number of shares-Basic 17,890 17,884 17,873 17,914 ======== ======= ======= ======= Weighted average number of shares-Diluted 18,041 18,047 18,031 18,074 ======== ======= ======= ======= 1997: Gross revenues $154,839 $163,110 $168,350 $167,079 Net revenues 108,116 115,373 114,709 116,210 Earnings from operation 9,209 11,528 10,800 5,324 Net earnings 4,981 6,022 5,636 1,901 ======== ======== ======== ======== Earnings per share-Basic $ 0.23 $ 0.28 $ 0.28 $ 0.11 ======== ======== ======== ======== Earnings per share-Diluted $ 0.23 $ 0.28 $ 0.28 $ 0.10 ======== ======== ======== ======== Weighted average number of shares-Basic 21,456 21,698 20,063 17,933 ======== ======== ======== ======= Weighted average number of shares-Diluted 21,581 21,832 20,253 18,119
======== ======== ======== ======= Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant* Item 11. Executive Compensation* Item 12. Security Ownership of Certain Beneficial Owners and Management* Item 13. Certain Relationships and Related Transactions* * Information regarding the Executive Officers of the Company is included in Part I of this Annual Report on Form 10-K. For other information called for by Items 10-13, reference is made to the Company's definitive proxy statement for its annual meeting of shareholders, to be held on August 10, 1998, which will be filed with the Securities and Exchange Commission within 120 days after March 27, 1998, and which is incorporated herein by reference, except that the information included under the captions "Report of the Compensation Committee on Executive Compensation" and "Stock Performance Graph" is not incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) Financial Statements and Financial Statement Schedules Financial statements and financial statement schedules that are filed as part of this Annual Report on Form 10-K are listed in Item 8 hereof. (b) Reports on Form 8-K There have been no reports on Form 8-K filed during the quarter for which this report on Form 10-K is being filed. (c) Exhibits The following exhibits are filed as part of this Annual Report on Form 10-K or are incorporated by reference herein: Exhibit Number Description - ------- ----------- 2.1 Purchase Agreement dated April 6, 1995 for the purchase of shares of Walk, Haydel & Associates, Inc. (incorporated herein by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K [File No. 1-11075] filed on April 11, 1995). 3.1 Restated Certificate of Incorporation of Dames & Moore Group as Amended (incorporated herein by reference to Exhibit 3(i) of the Company's Quarterly Report on Form 10-Q [File No. 1-11075] for the quarter ended September 26, 1997). 3.2 Restated Bylaws of Dames & Moore Group (incorporated herein by reference to Exhibit 3(ii) of the Company's Quarterly Report on Form 10Q [File No. 1-11075], for the quarter ended September 26, 1997). 4.1 Note Purchase Agreement dated as of March 15, 1996 between the Company and the Noteholders (incorporated herein by reference to Exhibit 4.1 of the Company's Annual Report on Form 10-K [File No. 1-11075] for the year ended March 29, 1996). 4.2 First Amendment dated as of April 15, 1996, to the Note Purchase Agreement dated as of March 15, 1996 (incorporated herein by reference to Exhibit 4.2 of the Company's Annual Report on Form 10-K [File No. 1-11075] for the year ended March 28, 1997). 4.3 Second Amendment dated as of November 18, 1996 to the Note Purchase Agreement dated as of March 15, 1996 (incorporated herein by reference to Exhibit 4.3 of the Company's Annual Report on Form 10-K [File No. 1-11075] for the year ended March 28, 1997). 4.4 Note Purchase Agreement dated as of December 16, 1996 between the Company and the Noteholders (incorporated herein by reference to Exhibit 4.4 of the Company's Annual Report on Form 10-K [File No. 1-11075] for the year ended March 28, 1997). 4.5 Third Amendment dated as of December 16, 1996, to the Note Purchase Agreement dated as of March 15, 1996 (incorporated herein by reference to Exhibit 4.5 of the Company's Annual Report on Form 10-K [File No. 1-11075] for the year ended March 28, 1997). 4.6 Rights Agreement, dated as of March 28, 1997 between Dames & Moore, Inc. and ChaseMellon Shareholder Services LLC, which includes the form of Certificate of Designations of Series A Junior Participating Preferred Stock of Dames & Moore, Inc. as Exhibit A, the form of Right Certificate as Exhibit B and the Summary of Share Purchase Rights Plans as Exhibit C. (Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on March 24, 1997 [Commission File No. 1-11075]). 10.1* Trust Agreement for the Deferred Compensation Plan dated December 4, 1993 (incorporated herein by reference to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q [File No. 1-11075] for the quarter ended December 24, 1993). 10.2 First Amended and Restated Credit Agreement dated as of May 24, 1996 between Bank of America National Trust and Savings Association and the Company (incorporated herein by reference to Exhibit 10.6 of the Company's Annual Report on Form 10-K [File No. 1-11075] for the year ended March 29, 1996). 10.3* Dames & Moore, Inc. Amended and Restated 1991 Long-Term Incentive Plan (incorporated herein by reference to Exhibit 10.4 of the Company's Annual Report on Form 10-K [File No. 1-11075] for the year ended March 28, 1997). 10.4* Dames & Moore, Inc. 1995 Stock Option Plan for Non-Employee Directors (incorporated herein by reference to Exhibit 10.5 of the Company's Annual Report on Form 10-K [File No. 1-11075] for the year ended March 28, 1997). 10.5 First Amendment to First Amended and Restated Credit Amendment, between Bank of America National Trust and Savings Association and the Company (incorporated herein by reference to Exhibit 10.7 of the Company's Annual Report on Form 10-K [File No. 1-11075] for the year ended March 28, 1997). 10.6 Second Amendment to First Amended and Restated Credit Agreement, between Bank of America National Trust and Savings Association and the Company (incorporated herein by reference to Exhibit 10.8 of the Company's Annual Report on Form 10-K [File No. 1-11075] for the year ended March 28, 1997). 10.7 Third Amendment to First Amended and Restated Credit Agreement, dated November 12, 1997, between Bank of America National Trust and Savings Association and the Company (incorporated herein by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q [File No. 1-11075] for the quarter ended December 26, 1997). 10.8* Employment Agreement dated April 1, 1997 between Dames & Moore, Inc. and Arthur C. Darrow (incorporated herein by reference to Exhibit 10.9 of the Company's Annual Report on Form 10-K [File No. 1-11075] for the year ended March 28, 1997). 10.9* Agreement Regarding Severance Payments dated April 1, 1997, 1997 by and between Dames & Moore, Inc. and Mark A. Snell (incorporated herein by reference to Exhibit 10.10 of the Company's Annual Report on Form 10-K [File No. 1-11075] for the year ended March 28, 1997). 10.10 Senior Loan Agreement between DMB/Remediation LLC as Borrower and PPA Funding Corp., as Senior Lender dated March 11, 1997 (incorporated herein by reference to Exhibit 10.11 of the Company's Annual Report on Form 10-K [File No. 1-11075] for the year ended March 28, 1997). 10.11 Greenfields Funding Corp. and DMB/Remediation LLC Subordinated Loan Agreement dated March 11, 1997 (incorporated herein by reference to Exhibit 10.12 of the Company's Annual Report on Form 10-K [File No. 1-11075] for the year ended March 28, 1997). 10.12 Revised Exhibit "D" Waterfall to Greenfields Funding Corp. and DMB/Remediation LLC Subordinated Loan Agreement. 10.13* Dames & Moore Group Deferred Compensation Plan effective May 2, 1998. 21.1 List of Subsidiaries of the Company. 23.1 Consent of KPMG Peat Marwick LLP, independent certified public accountants. 27.1 Financial Data Schedule (included only in the electronic filing). 27.1A Restated Financial Data Schedule for the interim period of December 27, 1996, in the fiscal year ended March 28, 1997 (included only in the electronic filing). *Management compensation agreement. Exhibits filed herewith or incorporated by reference herein will be furnished to shareholders of the Company upon written request and for a fee of $.20 per page, payable in advance. This fee covers only the Company's reasonable expenses in furnishing such exhibits. Written requests should be addressed to: Dames & Moore Group Investor Relations Department 911 Wilshire Boulevard, Suite 700 Los Angeles, California 90017 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DAMES & MOORE GROUP Date: June 12, 1998 By /s/ ARTHUR C. DARROW Arthur C. Darrow President and Chief Executive Officer Date: June 12, 1998 By /s/ MARK A. SNELL Mark A. Snell Executive Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities indicated on June 12, 1998. By /s/ ARTHUR C. DARROW Arthur C. Darrow Director President and Chief Executive Officer (Principal Executive Officer) By /s/ MARK A. SNELL Mark A. Snell Executive Vice President and Chief Financial Officer (Principal Financial Officer) By /s/ LESLIE S. PUGET Leslie S. Puget Corporate Controller (Principal Accounting Officer) By /s/ GEORGE D. LEAL George D. Leal, Director By /s/ ROBERT M. PERRY Robert M. Perry, Director By /s/ HARALD PEIPERS Harald Peipers, Director By /s/ MICHAEL R. PEEVEY Michael R. Peevey, Director By /s/ ANTHONY R. MOORE Anthony R. Moore, Director By /s/ URSULA BURNS Ursula Burns, Director By /s/ ROBERT E. CLARKE Robert E. Clarke, Director By /s/ GARY R. KRIEGER Gary R. Krieger, Director By /s/ A. EWAN MACDONALD A. Ewan Macdonald, Director By /s/ ARTHUR E. WILLIAMS Arthur E. Williams, Director DAMES & MOORE GROUP SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS Fiscal Years Ended March 27, 1998, March 28, 1997 and March 29, 1996
Additions ------------------ Balance at Charged to Charged to Balance at beginning costs and other end of Description of year expenses accounts Deductions year ____________ --------- --------- ---------- ---------- ---------- Year Ended March 27, 1998 Allowance for doubtful accounts $3,001,000 $ 915,000 $ - $(508,000) $3,408,000 ========== ========== ========= ========== ========== Year Ended March 28, 1997 Allowance for doubtful accounts $1,886,000 $1,208,000 $465,000(1) $(558,000) $3,001,000 ========== ========== ======== ========= ========== Year Ended March 29, 1996 Allowance for doubtful accounts $1,701,000 $ 378,000 $350,000(1) $(543,000) $1,886,000 ========== ========== ======== ========= ==========
(1) Amount recorded on books of acquired entities at date of acquisition. EX-10 2 EXHIBIT "D" WATERFALL Notwithstanding anything to the contrary in the Borrower Operating Agreement (including Sections 4.1, 4.2 and 4.3), all Borrower Cash shall be allocated and applied as follows: 1. Applications of Property-Specific Borrower Cash. To the extent attributable to or arising from specific Approved Property(ies) (including the operations and dispositions thereof), Borrower Cash for each calendar month of Borrower shall be applied and disbursed on each Payment Date as follows (provided, however, that all sums otherwise payable to DMB shall be subject to any provisions of the Senior Loan Documents that require such sums to be applied or used instead in a particular manner, such as on account of Release Shortfalls or to fund the Retained Earnings Reserve): 1.1 First: to reimburse Subordinated Lender in full for any Subordinated Loan Advances made by Subordinated Lender to cure any Event of Default by Borrower; 1.2 Cash Flow from Sales or Refinancing. (a) Pay 80% toward repayment of any outstanding principal of any Subordinated Loan Advances relating to the Approved Property which is the subject of the Sale or Refinancing and 20% to DMB as return of its Capital Contribution allocated to such Approved Property until DMB has received the total return of such Capital Contribution allocated to such Approved Property. (b) Pay 80% toward repayment of any outstanding principal of any Subordinated Loan Advance from any Approved Property which has a Loan Recovery Shortfall and 20% to DMB as return of its Capital Contribution allocated to any Approved Property which has been previously sold where it has any outstanding Capital Contributions until said Capital Contributions are fully returned. (c) Pay 80% to the Subordinated Lender and 20% to DMB towards all accrued and unpaid Basic Interest Disbursement and Supplemental Interest Disbursement relating to the Approved Property which is the subject of the Sale or Refinancing. (d) To pay Administrative Expenses and to repay any Capital Contributions previously made by DMB to Borrower, or Subordinated Loan Advances previously made by Subordinated Lender, to pay Administrative Expenses, in proportion to such Capital Contributions and Subordinated Loan Advances (the "Administrative Expense Disbursements"); (e) The total remaining amount (the "Net Property Profit") shall be paid fifty percent (50%) to DMB as additional return on its equity investment in Borrower and fifty percent (50%) to Subordinated Lender as Contingent Subordinated Loan Interest. In the event of a Refinancing or prepayment without a sale of the Approved Property, the Net Property Profit will be Fair Market Value of the Approved Property as defined herein. The Fair Market Value shall be in its "as is" condition, which may include the fact that the Approved Property is subject to Environmental Risks. Fair Market Value will be determined by three appraisals. The Subordinated Lender and DMB shall each select an appraiser, each within fifteen (15) days of the notice of the prepayment or Refinancing. Those appraisers will select a third appraiser within ten (10) days thereafter. All three appraisers shall perform appraisals of the Approved Property. The Fair Market Value will be equal to the average of the two appraisals whose valuation is closest together in their determination. The third appraisal will be disregarded. 1.3 Cash Flow from Operations. (a) To pay 80% to any unpaid Subordinated Loan Advance and 20% DMB's Capital Contribution from any Approved Property which has been previously sold; (b) (i) Eighty percent (80%) to Subordinated Lender on account of Basic Subordinated Loan Interest attributable to Subordinated Loan Advances relating to such Property; and (ii) twenty percent (20%) to DMB; but only until such time as Subordinated Lender and DMB have received (taking into account the current and all prior Basic Return Disbursements and Supplemental Return Disbursements) a cumulative annual return of ten percent simple interest (10%) per annum (calculated based on actual days elapsed divided by 360) as to its Capital Contribution in such Approved Property(ies) (and Subordinated Lender has received Basic Subordinated Loan Interest proportionate thereto) (the "Basic Return Disbursements" payable to DMB); (c) To pay Administrative Expenses and to repay any Capital Contributions previously made by DMB to Borrower, or Subordinated Loan Advances previously made by Subordinated Lender, to pay Administrative Expenses, in proportion to such Capital Contributions and Subordinated Loan Advances (the "Administrative Expense Disbursements"); (d) (i) Eighty percent (80%) to Subordinated Lender on account of Basic Subordinated Loan Interest; and (ii) twenty percent (20%) to DMB until Subordinated Lender and DMB have received up to an additional cumulative annual return of ten percent (10%) simple interest per annum (calculated based on actual days elapsed divided by 360), on such Approved Property until twenty (20%) percent simple interest has been paid on the Approved Property plus ten percent (10%) simple interest per annum on all of its other Subordinated Loan Advances (and DMB has received return on all its Capital Contributions proportionate thereto) (the "Supplemental Return Disbursements"); (e) Eighty percent (80%) to Subordinated Lender on account of Subordinated Loan Advances attributable to such Approved Property and twenty percent (20%) to DMB, to be applied against DMB'S Capital Contributions on account of Capital Contributions with respect to such Approved Property, until such time as the principal balance of the Subordinated Loan allocable to such Approved Property, and DMB's Capital Contribution with respect to such Capital Contributions in such Approved Property, has each been reduced to zero; (f) Eighty percent (80%) to Subordinated Lender and twenty percent (20%) to DMB, until the Loan Recovery Shortfall has been reduced to zero; (g) The total remaining amount (the "Net Property Profit") shall be paid fifty percent (50%) to DMB as additional return on its equity investment in Borrower and fifty percent (50%) to Subordinated Lender as Contingent Subordinated Loan Interest. 2. Disagreements Regarding Amount of Borrower Cash. If at any time, pursuant to a good faith dispute, Borrower and Subordinated Lender fail to agree as to the amount of Borrower Cash available for distribution pursuant to the Waterfall, then pending resolution of such disagreement, the Waterfall shall apply only as to the amount of Borrower Cash that is not in dispute. EX-10 3 DAMES & MOORE GROUP DEFERRED COMPENSATION PLAN MASTER PLAN DOCUMENT Effective May 2, 1998 Copyright 1998 By Compensation Resource Group, Inc. All Rights Reserved TABLE OF CONTENTS Page ---- ARTICLE 1 Definitions 1 ARTICLE 2 Selection, Enrollment, Eligibility 7 2.1 Selection by Committee 7 2.2 Enrollment Requirements 7 2.3 Eligibility; Commencement of Participation 7 2.4 Termination of Participation and/or Deferrals 7 ARTICLE 3 Deferral Commitments/Company Matching/Crediting Taxes 8 3.1 Minimum Deferrals 8 3.2 Maximum Deferral 8 3.3 Election to Defer; Effect of Election Form 9 3.4 Withholding of Annual Deferral Amounts 9 3.5 Annual Company Matching Amount 9 3.6 Rollovers 10 3.7 Investment of Trust Assets 10 3.8 Vesting 10 3.9 Crediting/Debiting of Account Balances 11 3.10 FICA and Other Taxes 14 3.11 Distributions 14 ARTICLE 4 Short-Term Payout; Unforeseeable Financial Emergencies; Withdrawal Election 15 4.1 Short-Term Payout 15 4.2 Other Benefits Take Precedence Over Short-Term 15 4.3 Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies 15 4.4 Withdrawal Election 15 ARTICLE 5 Retirement Benefit 16 5.1 Retirement Benefit 16 5.2 Payment of Retirement Benefit 16 5.3 Death Prior to Completion of Retirement Benefit 16 ARTICLE 6 Pre-Retirement Survivor Benefit 17 6.1 Pre-Retirement Survivor Benefit 17 6.2 Payment of Pre-Retirement Survivor Benefit 17 ARTICLE 7 Termination Benefit 17 7.1 Termination Benefit 17 7.2 Payment of Termination Benefit 17 ARTICLE 8 Disability Waiver and Benefit 17 8.1 Disability Waiver 17 8.2 Continued Eligibility; Disability Benefit 18 ARTICLE 9 Beneficiary Designation 18 9.1 Beneficiary 18 9.2 Beneficiary Designation; Change; Spousal Consent 18 9.3 Acknowledgement 19 9.4 No Beneficiary Designation 19 9.5 Doubt as to Beneficiary 19 9.6 Discharge of Obligations 19 ARTICLE 10 Leave of Absence 19 10.1 Paid Leave of Absence 19 10.2 Unpaid Leave of Absence 19 ARTICLE 11 Termination, Amendment or Modification 20 11.1 Termination 20 11.2 Amendment 20 11.3 Effect of Payment 21 ARTICLE 12 Administration 21 12.1 Committee Duties 21 12.2 Administration Upon Change In Control 21 12.3 Agents 22 12.4 Binding Effect of Decisions 22 12.5 Indemnity of Committee 22 12.6 Employer Information 22 ARTICLE 13 Other Benefits and Agreements 22 13.1 Coordination with Other Benefits 22 ARTICLE 14 Claims Procedures 23 14.1 Presentation of Claim 23 14.2 Notification of Decision 23 14.3 Review of a Denied Claim 23 14.4 Decision on Review 24 14.5 Legal Action 24 ARTICLE 15 Trust 24 15.1 Establishment of the Trust 24 15.2 Interrelationship of the Plan and the Trust 24 15.3 Distributions From the Trust 24 ARTICLE 16 Miscellaneous 25 16.1 Status of Plan 25 16.2 Unsecured General Creditor 25 16.3 Employer's Liability 25 16.4 Nonassignability 25 16.5 Not a Contract of Employment 25 16.6 Furnishing Information 26 16.7 Terms 26 16.8 Captions 26 16.9 Governing Law 26 16.10 Notice 26 16.11 Successors 26 16.12 Spouse's Interest 26 16.13 Validity 27 16.14 Incompetent 27 16.15 Court Order 27 16.16 Distribution in the Event of Taxation 27 16.17 Insurance 28 16.18 Legal Fees To Enforce Rights After Change in Control 28 DAMES & MOORE GROUP DEFERRED COMPENSATION PLAN Effective May 2, 1998 PURPOSE The purpose of this Plan is to provide specified benefits to a select group of management and highly compensated Employees and Directors who contribute materially to the continued growth, development and future business success of Dames & Moore Group, a Delaware corporation, and its subsidiaries, if any, that sponsor this Plan. This Plan shall be unfunded for tax purposes and for purposes of Title I of ERISA, and shall be deemed to constitute two separate plans, one for Employees and one for Directors. ARTICLE 1 Definitions For purposes of this Plan, unless otherwise clearly apparent from the context, the following phrases or terms shall have the following indicated meanings: 1.1 "Account Balance" shall mean, with respect to a Participant, a credit on the records of the Employer equal to the sum of (i) the vested Deferral Account balance (ii) the vested Company Contribution Account balance and (iii) the Rollover Account balance. The Account Balance, and each other specified account balance, shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant, or his or her designated Beneficiary, pursuant to this Plan. 1.2 "Annual Bonus" shall mean the sum of the Annual Cash Bonus and the Annual Stock Bonus. 1.3 "Annual Cash Bonus" shall mean any cash compensation, in addition to Base Annual Salary relating to services performed during any fiscal year, whether or not paid in such fiscal year or included on the Federal Income Tax Form W-2 for such fiscal year, payable to a Participant as an Employee under any Employer's annual bonus and cash incentive plans, excluding stock options. 1.4 "Annual Company Contribution Amount" for any one Plan Year shall be the amount determined in accordance with Section 3.5. 1.5 "Annual Deferral Amount" shall mean that portion of a Participant's Base Annual Salary, Annual Bonus and Directors Fees that a Participant elects to have, and is deferred, in accordance with Article 3, for any one Plan Year. In the event of a Participant's Retirement, Disability (if deferrals cease in accordance with Section 8.1), death or a Termination of Employment prior to the end of a Plan Year, such year's Annual Deferral Amount shall be the actual amount withheld prior to such event. 1.6 "Annual Installment Method" shall be an annual installment payment over the number of years selected by the Participant in accordance with this Plan, calculated as follows: The Account Balance of the Participant shall be calculated as of the close of business on the last business day of the Plan Year. The annual installment shall be calculated by multiplying this balance by a fraction, the numerator of which is one, and the denominator of which is the remaining number of annual payments due the Participant. By way of example, if the Participant elects a 10-Year Annual Installment Method, the first payment shall be 1/10 of the Account Balance, calculated as described in this definition. The following year, the payment shall be 1/9 of the Account Balance, calculated as described in this definition. Each annual installment shall be paid no later than 60 days after the end of the applicable Plan Year. 1.7 "Annual Stock Bonus" shall mean any Stock compensation, in addition to Base Annual Salary relating to services performed during any fiscal year, whether or not paid in such fiscal year or included on the Federal Income Tax Form W-2 for such fiscal year, payable to a Participant as an Employee under any Employer's annual bonus and cash incentive plans, excluding stock options. 1.8 "Base Annual Salary" shall mean the annual cash compensation relating to services performed during any fiscal year, whether or not paid in such fiscal year or included on the Federal Income Tax Form W-2 for such fiscal year, excluding bonuses, commissions, overtime, fringe benefits, stock options, relocation expenses, incentive payments, non-monetary awards, directors fees and other fees, automobile and other allowances paid to a Participant for employment services rendered (whether or not such allowances are included in the Employee's gross income). Base Annual Salary shall be calculated before reduction for compensation voluntarily deferred or contributed by the Participant pursuant to all qualified or non-qualified plans of any Employer and shall be calculated to include amounts not otherwise included in the Participant's gross income under Code Sections 125, 402(e)(3), 402(h), or 403(b) pursuant to plans established by any Employer; provided, however, that all such amounts will be included in compensation only to the extent that, had there been no such plan, the amount would have been payable in cash to the Employee. 1.9 "Beneficiary" shall mean one or more persons, trusts, estates or other entities, designated in accordance with Article 9, that are entitled to receive benefits under this Plan upon the death of a Participant. 1.10 "Beneficiary Designation Form" shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to designate one or more Beneficiaries. 1.11 "Board" shall mean the board of directors of the Company. 1.12 "Change in Control" shall mean the first to occur of any of the following events: (a) Any "person" (as that term is used in Section 13 and 14(d)(2) of the Securities Exchange Act of 1934 ("Exchange Act")) becomes the beneficial owner (as that term is used in Section 13(d) of the Exchange Act), directly or indirectly, of 25% or more of the Company's capital stock entitled to vote in the election of directors, provided that such acquisition shall not be deemed to constitute a Change in Control if such acquisition is approved by a majority of the directors in office immediately prior to the date that such 25% threshold is exceeded; or (b) During any period of two consecutive years, individuals who at the beginning of such period constitute the Board of the Company cease for any reason to constitute at least a majority thereof, unless the election or the nomination for election by the Company's shareholders of each new director was approved by a vote of at least three-quarters of the directors still in office who were directors at the beginning of the period. 1.13 "Claimant" shall have the meaning set forth in Section 14.1. 1.14 "Code" shall mean the Internal Revenue Code of 1986, as it may be amended from time to time. 1.15 "Committee" shall mean the committee described in Article 12. 1.16 "Company" shall mean Dames & Moore Group, a Delaware corporation, and any successor to all or substantially all of the Company's assets or business. 1.17 "Company Contribution Account" shall mean (i) the sum of all of a Participant's Annual Company Contribution Amounts, plus (ii) amounts credited in accordance with all the applicable crediting provisions of this Plan that relate to the Participant's Company Contribution Account, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Participant's Company Contribution Account. 1.18 "Deduction Limitation" shall mean the following described limitation on a benefit that may otherwise be distributable pursuant to the provisions of this Plan. Except as otherwise provided, this limitation shall be applied to all distributions that are "subject to the Deduction Limitation" under this Plan. If an Employer determines in good faith prior to a Change in Control that there is a reasonable likelihood that any compensation paid to a Participant for a taxable year of the Employer would not be deductible by the Employer solely by reason of the limitation under Code Section 162(m), then to the extent deemed necessary by the Employer to ensure that the entire amount of any distribution to the Participant pursuant to this Plan prior to the Change in Control is deductible, the Employer may defer all or any portion of a distribution under this Plan. Any amounts deferred pursuant to this limitation shall continue to be credited/debited with additional amounts in accordance with Section 3.9 below, even if such amount is being paid out in installments. The amounts so deferred and amounts credited thereon shall be distributed to the Participant or his or her Beneficiary (in the event of the Participant's death) at the earliest possible date, as determined by the Employer in good faith, on which the deductibility of compensation paid or payable to the Participant for the taxable year of the Employer during which the distribution is made will not be limited by Section 162(m), or if earlier, the effective date of a Change in Control. Notwithstanding anything to the contrary in this Plan, the Deduction Limitation shall not apply to any distributions made after a Change in Control. 1.19 "Deferral Account" shall mean (i) the sum of all of a Participant's vested Annual Deferral Amounts, plus (ii) amounts credited in accordance with all the applicable crediting provisions of this Plan that relate to the Participant's Deferral Account, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to his or her Deferral Account. 1.20 "Director" shall mean any member of the board of directors of any Employer. 1.21 "Directors Fees" shall mean the annual fees paid by any Employer, including retainer fees and meetings fees, as compensation for serving on the board of directors. 1.22 "Disability" shall mean a period of disability during which a Participant qualifies for permanent disability benefits under the Participant's Employer's long-term disability plan, or, if a Participant does not participate in such a plan, a period of disability during which the Participant would have qualified for permanent disability benefits under such a plan had the Participant been a participant in such a plan, as determined in the sole discretion of the Committee. If the Participant's Employer does not sponsor such a plan, or discontinues to sponsor such a plan, Disability shall be determined by the Committee in its sole discretion. 1.23 "Disability Benefit" shall mean the benefit set forth in Article 8. 1.24 "Election Form" shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to make an election under the Plan. 1.25 "Employee" shall mean a person who is an employee of any Employer. 1.26 "Employer(s)" shall mean the Company and/or any of its subsidiaries (now in existence or hereafter formed or acquired) that have been selected by the Board to participate in the Plan and have adopted the Plan as a sponsor. 1.27 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time. 1.28 "First Plan Year" shall mean the period beginning May 2, 1998 and ending on the last Friday of March, 1999. 1.29 "Participant" shall mean any Employee or Director (i) who is selected to participate in the Plan, (ii) who elects to participate in the Plan, (iii) who signs an Election Form and a Beneficiary Designation Form, (iv) whose signed Election Form and Beneficiary Designation Form are accepted by the Committee, (v) who commences participation in the Plan, and (vi) whose entire Account Balance has not been distributed. A spouse or former spouse of a Participant shall not be treated as a Participant in the Plan or have an account balance under the Plan, even if he or she has an interest in the Participant's benefits under the Plan as a result of applicable law or property settlements resulting from legal separation or divorce. 1.30 "Plan" shall mean the Company's Deferred Compensation Plan, which shall be evidenced by this instrument and by each Plan Agreement, as they may be amended from time to time. 1.31 "Plan Year" shall, except for the First Plan Year, mean a period beginning on the first day following the end of the preceding Plan Year and continuing through the last Friday of March of the next year. 1.32 "Pre-Retirement Survivor Benefit" shall mean the benefit set forth in Article 6. 1.33 "Retirement", "Retire(s)" or "Retired" shall mean, with respect to an Employee, severance from employment from all Employers for any reason other than a leave of absence, death or Disability on or after the earlier of the attainment of (a) age sixty-five (65) or (b) age fifty-five (55) with ten (10) Years of Service; and shall mean with respect to a Director, ceasing to be a Director). If a Participant is both an Employee and a Director, Retirement shall not occur until he or she Retires as both an Employee and a Director, which Retirement shall be deemed to be a Retirement as a Director; provided, however, that such a Participant may elect, at least three years prior to Retirement and in accordance with the policies and procedures established by the Committee, to Retire for purposes of this Plan at the time he or she Retires as an Employee, which Retirement shall be deemed to be a Retirement as an Employee. 1.34 "Retirement Benefit" shall mean the benefit set forth in Article 5. 1.35 "Rollover Account" shall mean (i) the sum of all of a Participant's Rollover Amount, plus (ii) amounts credited in accordance with all the applicable crediting provisions of this Plan that relate to the Participant's Rollover Account, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to his or her Rollover Account. 1.36 "Rollover Amount" shall mean the amount determined in accordance with Section 3.6. 1.37 "Short-Term Payout" shall mean the payout set forth in Section 4.1. 1.38 "Stock" shall mean Dames & Moore Group common stock, $.01 par value, or any other equity securities of the Company designated by the Committee. 1.39 "Stock Ownership Guidelines" shall mean the Stock ownership guidelines established by the Company for a Participant from time to time. 1.40 "Termination Benefit" shall mean the benefit set forth in Article 7. 1.41 "Termination of Employment" shall mean the severing of employment with all Employers, or service as a Director of all Employers, voluntarily or involuntarily, for any reason other than Retirement, Disability, death or an authorized leave of absence. If a Participant is both an Employee and a Director, a Termination of Employment shall occur only upon the termination of the last position held; provided, however, that such a Participant may elect, at least three years before Termination of Employment and in accordance with the policies and procedures established by the Committee, to be treated for purposes of this Plan as having experienced a Termination of Employment at the time he or she ceases employment with an Employer as an Employee. 1.42 "Trust" shall mean one or more trusts that may be established between the Company and a trustee pursuant to the Plan. 1.43 "Unforeseeable Financial Emergency" shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant that would result in severe financial hardship to the Participant resulting from (i) a sudden and unexpected illness or accident of the Participant or a dependent of the Participant, (ii) a loss of the Participant's property due to casualty, or (iii) such other extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as determined in the sole discretion of the Committee. 1.44 "Years of Service" shall mean the total number of full years in which a Participant has been employed by one or more Employers. For purposes of this definition, a year of employment shall be a 365 day period (or 366 day period in the case of a leap year) that, for the first year of employment, commences on the Employee's date of hiring and that, for any subsequent year, commences on an anniversary of that hiring date. Any partial year of employment shall not be counted. ARTICLE 2 Selection, Enrollment, Eligibility 2.1 Selection by Committee. Participation in the Plan shall be limited to a select group of management and highly compensated Employees and Directors of the Employers, as determined by the Committee in its sole discretion. From that group, the Committee shall select, in its sole discretion, Employees and Directors to participate in the Plan. 2.2 Enrollment Requirements. As a condition to participation, each selected Employee or Director shall complete, execute and return to the Committee, an Election Form and a Beneficiary Designation Form, in accordance with the guidelines of the Committee, after he or she is selected to participate in the Plan. In addition, the Committee shall establish from time to time such other enrollment requirements as it determines in its sole discretion are necessary. 2.3 Eligibility; Commencement of Participation. Provided an Employee or Director selected to participate in the Plan has met all enrollment requirements set forth in this Plan and required by the Committee, including returning all required documents to the Committee within the specified time period, that Employee or Director shall commence participation in the Plan on the first day of the accounting period following the month in which the Employee or Director completes all enrollment requirements. If an Employee or a Director fails to meet all such requirements within the period required, in accordance with Section 2.2, that Employee or Director shall not be eligible to participate in the Plan until the first day of the Plan Year following the delivery to and acceptance by the Committee of the required documents. 2.4 Termination of Participation and/or Deferrals. If the Committee determines in good faith that a Participant no longer qualifies as a member of a select group of management or highly compensated employees, as membership in such group is determined in accordance with Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, the Committee shall have the right, in its sole discretion, to (i) terminate any deferral election the Participant has made for the remainder of the Plan Year in which the Participant's membership status changes, (ii) prevent the Participant from making future deferral elections and/or (iii) immediately distribute the Participant's then Account Balance as a Termination Benefit and terminate the Participant's participation in the Plan. ARTICLE 3 Deferral Commitments/Company Contribution/Crediting/Taxes 3.1 Minimum Deferrals. (a) Base Annual Salary, Annual Bonus and Director's Fees. For each Plan Year, a Participant may elect to defer, as his or her Annual Deferral Amount, Base Annual Salary, Annual Bonus, and/or Director's Fees, provided that the amounts so elected for the Plan Year total, in the aggregate, at least $3,000. If an election is made for less than stated minimum amounts, or if no election is made, the amount deferred shall be zero. (b) Short Plan Year. Notwithstanding the foregoing, if a Participant first becomes a Participant after the first day of a Plan Year, or in the case of the first Plan Year of the Plan itself, the minimum Base Annual Salary deferral shall be an amount equal to the minimum set forth above, multiplied by a fraction, the numerator of which is the number of complete months remaining in the Plan Year and the denominator of which is 12. 3.2 Maximum Deferral. (a) Base Annual Salary, Annual Bonus and Directors Fees. For each Plan Year, a Participant may elect to defer, as his or her Annual Deferral Amount, Base Annual Salary, Annual Bonus and/or Directors Fees up to the following maximum percentages for each deferral elected: Deferral Maximum Amount Base Annual Salary 75% Annual Bonus 100% Directors Fees 100% Notwithstanding the foregoing, (i) the Committee in is sole discretion may announce additional limitations on a Participant's maximum deferral elections for a Plan Year, and (ii) if a Participant first becomes a Participant after the first day of a Plan Year, or in the case of the first Plan Year of the Plan itself, the maximum Annual Deferral Amount, with respect to Base Annual Salary, Annual Bonus and Directors Fees shall be limited to the amount of compensation not yet earned by the Participant as of the date the Participant submits a Plan Agreement and Election Form to the Committee for acceptance. 3.3 Election to Defer; Effect of Election Form. (a) First Plan Year. In connection with a Participant's commencement of participation in the Plan, the Participant shall make an irrevocable deferral election for the Plan Year in which the Participant commences participation in the Plan, along with such other elections as the Committee deems necessary or desirable under the Plan. For these elections to be valid, the Election Form must be completed and signed by the Participant, timely delivered to the Committee (in accordance with Section 2.2 above) and accepted by the Committee. (b) Subsequent Plan Years. For each succeeding Plan Year, an irrevocable deferral election for that Plan Year, and such other elections as the Committee deems necessary or desirable under the Plan, shall be made by timely delivering to the Committee, in accordance with its rules and procedures, before the end of the Plan Year preceding the Plan Year for which the election is made, a new Election Form. If no such Election Form is timely delivered for a Plan Year, the Annual Deferral Amount shall be zero for that Plan Year. 3.4 Withholding of Annual Deferral Amounts. For each Plan Year, the Base Annual Salary portion of the Annual Deferral Amount shall be withheld from each regularly scheduled Base Annual Salary payroll in equal amounts, as adjusted from time to time for increases and decreases in Base Annual Salary. The Annual Bonus portion of the Annual Deferral Amount shall be withheld at the time the Annual Bonus is or otherwise would be paid to the Participant, whether or not this occurs during the Plan Year itself. One quarter (25%) of the Directors Fees portion of the Annual Deferral Amount shall be deemed withheld and credited to the Deferral Account each fiscal quarter of the Plan Year. 3.5 Annual Company Contribution Amount. For each Plan Year, an Employer, in its sole discretion, may, but is not required to, credit any amount it desires to any Participant's Company Contribution Account under this Plan, which amount shall be for that Participant the Annual Company Contribution Amount for that Plan Year. The amount so credited to a Participant may be smaller or larger than the amount credited to any other Participant, and the amount credited to any Participant for a Plan Year may be zero, even though one or more other Participants receive an Annual Company Contribution Amount for that Plan Year. The Annual Company Contribution Amount, if any, shall be credited as of the close of business on the day selected by the Committee, in its sole discretion. If a Participant is not employed by an Employer as of the last day of a Plan Year other than by reason of his or her Retirement or death, the Annual Company Contribution Amount for that Plan Year shall be zero. 3.6 Rollovers. If a Participant is a participant in the Dames & Moore Group deferred compensation plan effective December 4, 1993 (the "1993 Plan") and has an account balance in the 1993 Plan on May 1, 1998, that account balance, as determined as of that date, shall be transferred on such date to and added to the Participant's Account Balance under this Plan, and shall thereafter be governed by the terms and conditions of this Plan, and shall be referred to as the "Rollover Amount." In addition, any elections made by the Participant with respect to his or her account balance under the 1993 Plan shall apply to the Rollover Amount under this Plan and any elections made by the Participant with respect to his or her 1998 annual deferral amount under the 1993 Plan shall apply to the Participant's 1998 Annual Deferral Amount under this Plan. 3.7 Investment of Trust Assets. The Trustee of the Trust shall be authorized, upon written instructions received from the Committee or investment manager appointed by the Committee, to invest and reinvest the assets of the Trust in accordance with the applicable Trust Agreement, including the disposition of stock and reinvestment of the proceeds in one or more investment vehicles designated by the Committee. 3.8 Vesting. (a) A Participant shall at all times be 100% vested in (i) the Base Annual Salary and Annual Cash Bonus portion of his or her Annual Deferral Amount, and (ii) his or her Rollover Account. (b) A Participant shall be vested in (i) the Annual Stock Bonus portion of his or her Annual Deferral Amount and (ii) his or her Annual Company Contribution Amount in accordance with the following schedule: Years of Service subsequent to the date the Vested Percentage of Annual Stock Bonus portion of the Annual Annual Stock Bonus Portion of Deferral Amount or the Annual Company the Annual Deferral Amount or Contribution Amount is first credited to the Annual Company Participant's Account Balance Contribution Amount Less than 3 years 0% 3 years or more 100% (c) Notwithstanding anything to the contrary contained in this Section 3.8, in the event of a Participant's (i) death, (ii) Disability, (iii) Retirement or (iv) Termination of the Plan, a Participant's nonvested Annual Stock Bonus portion of his or her Annual Deferral Amount and nonvested Annual Company Contribution Amount shall become vested in accordance with the following schedule: Years of Service subsequent to the date the Vested Percentage of Annual Annual Stock Bonus portion of the Annual Stock Bonus Portion of the Deferral Amount or the Annual Company Annual Deferral Amount or Contribution Amount is first credited to the Annual Company Participant's Account Balance Contribution Amount Less than 1 year 0% 1 or more, but less than 2 33 1/3% 2 or more, but less than 3 66 2/3% 3 or more 100% (d) Notwithstanding anything to the contrary contained in this Section 3.8, in the event of a Change in Control, a Participant's Company Contribution Account and Annual Stock Bonus portion of his or her Annual Deferral Amount shall immediately become 100% vested (if it is not already vested in accordance with the above vesting schedule). (e) Notwithstanding subsection (e), the vesting schedule for a Participant's Company Contribution Account and Annual Stock Bonus portion of his or her Annual Deferral Amount shall not be accelerated to the extent that the Committee determines that such acceleration would cause the deduction limitations of Section 280G of the Code to become effective. In the event that all of a Participant's Annual Stock Bonus portion of his or her Annual Deferral Amount is not vested pursuant to such a determination, the Participant may request independent verification of the Committee's calculations with respect to the application of Section 280G. In such case, the Committee must provide to the Participant within 15 business days of such a request an opinion from a nationally recognized accounting firm selected by the Participant (the "Accounting Firm"). The opinion shall state the Accounting Firm's opinion that any limitation in the vested percentage hereunder is necessary to avoid the limits of Section 280G and contain supporting calculations. The cost of such opinion shall be paid for by the Company. 3.9 Crediting/Debiting of Account Balances. In accordance with, and subject to, the rules and procedures that are established from time to time by the Committee, in its sole discretion, amounts shall be credited or debited to a Participant's Account Balance in accordance with the following rules: (a) Election of Measurement Funds. Except as otherwise provided in Section 3.9(f) below, a Participant, in connection with his or her initial deferral election in accordance with Section 3.3(a) above, shall elect, on the Election Form, one or more Measurement Fund(s) (as described in Section 3.9(c) below) to be used to determine the additional amounts to be credited to his or her Account Balance for the first Plan Year or portion thereof in which the Participant commences participation in the Plan and continuing thereafter for each subsequent Plan Year in which the Participant participates in the Plan, unless changed in accordance with the next sentence. Except as otherwise provided in Section 3.9(f) below, commencing with the first Plan Year that follows the Participant's commencement of participation in the Plan and continuing thereafter for each Plan Year in which the Participant participates in the Plan, no later than the next to last business day of the Plan Year, the Participant may (but is not required to) elect, by submitting an Election Form to the Committee that is accepted by the Committee, to add or delete one or more Measurement Fund(s) to be used to determine the additional amounts to be credited to his or her Account Balance, or to change the portion of his or her Account Balance allocated to each previously or newly elected Measurement Fund. If an election is made in accordance with the previous sentence, it shall apply to the next Plan Year and continue thereafter for each subsequent Plan Year in which the Participant participates in the Plan, unless changed in accordance with the previous sentence. (b) Proportionate Allocation. In making any election described in Section 3.9(a) above, the Participant shall specify on the Election Form, in increments of five percentage points (5%), the percentage of his or her Account Balance to be allocated to a Measurement Fund (as if the Participant was making an investment in that Measurement Fund with that portion of his or her Account Balance). (c) Measurement Funds. Except as otherwise provided in Section 3.9(f) below, the Participant may elect one or more of the following measurement funds (the "Measurement Funds"), for the purpose of rediting additional amounts to his or her Account Balance: (1) The Moody's Fund (described as a fund earning interest at the rate determined by the Committee that is equal to the average of the twelve "Moody's Seasoned Corporate Bond" rates that are most recently published prior to the beginning of that Plan Year. The "Moody's Seasoned Corporate Bond" rate is an arithmetic average of yields of representative bonds, including industrials, public utilities, Aaa, Aa, A and Baa bonds, published by Moody's Investors Service, Inc. or any successor to that service); or (2) The Company Stock Fund (described as a fund deemed fully invested in Company Stock with any dividends deemed reinvested in additional shares of Stock). As necessary, the Committee may, in its sole discretion, discontinue, substitute or add a Measurement Fund. Each such action will take effect as of the first day of the Plan Year that follows by thirty (30) days the day on which the Committee gives Participants advance written notice of such change. (d) Crediting or Debiting Method. The performance of each elected Measurement Fund (either positive or negative) will be determined by the Committee, in its reasonable discretion, based on the performance of the Measurement Funds themselves. A Participant's Account Balance shall be credited or debited on a daily basis based on the performance of each Measurement Fund selected by the Participant, as determined by the Committee in its sole discretion, as though (i) a Participant's Account Balance on the first day of a Plan Year were invested in the Measurement Fund(s) selected by the Participant, in the percentages applicable to such Plan Year, as of the close of business on the first business day of such Plan Year, at the closing price on such date; (ii) the Base Annual Salary and Annual Bonus portion of the Annual Deferral Amount that was actually deferred during any Plan Year were invested in the Measurement Fund(s) selected by the Participant, in the percentages applicable to such Plan Year, no later than the close of business on the third business day after the day on which such amounts are actually deferred from the Participant's Base Annual Salary or Annual Bonus, as the case may be, through reductions in his or her payroll, at the closing price on such date; and (iii) any distribution made to a Participant that decreases such Participant's Account Balance ceased being invested in the Measurement Fund(s), in the percentages applicable to such Plan Year, no earlier than three business days prior to the distribution, at the closing price on such date. The Participant's Annual Company Contribution Amount shall be credited to his or her Company Contribution Account for purposes of this Section 3.9(d) as of the close of business on the day selected by the Committee, in its sole discretion. One quarter (25%) of the Directors Fees portion of the Participant's Annual Deferral Amount shall be credited to his or her Deferral Account for purposes of this Section 3.9(d) each fiscal quarter of the Plan Year, as of the close of business on a business day in such fiscal quarter of the Plan Year selected by the Committee, in its sole discretion. (e) No Actual Investment. Notwithstanding any other provision of this Plan that may be interpreted to the contrary, the Measurement Funds are to be used for measurement purposes only, and a Participant's election of any such Measurement Fund, the allocation to his or her Account Balance thereto, the calculation of additional amounts and the crediting or debiting of such amounts to a Participant's Account Balance shall not be considered or construed in any manner as an actual investment of his or her Account Balance in any such Measurement Fund. In the event that the Company or the Trustee (as that term is defined in the Trust), in its own discretion, decides to invest funds in any or all of the Measurement Funds, no Participant shall have any rights in or to such investments themselves. Without limiting the foregoing, a Participant's Account Balance shall at all times be a bookkeeping entry only and shall not represent any investment made on his or her behalf by the Company or the Trust; the Participant shall at all times remain an unsecured creditor of the Company. (f) Special Rule for the Annual Stock Bonus Portion of the Annual Deferral Amount. Notwithstanding any provision of this Plan that may be construed to the contrary, the Participant's Annual Stock Bonus portion of his or her Annual Deferral Amount must be allocated to the Company Stock Fund at all times prior to distribution from the Plan. 3.10 FICA and Other Taxes. (a) Base Annual Salary and Annual Cash Bonus Portion of the Annual Deferral Amount. For each Plan Year in which the Base Annual Salary and Annual Cash Bonus portion of the Annual Deferral Amount is being withheld from a Participant, the Participant's Employer(s) shall withhold from that portion of the Participant's Base Annual Salary and Annual Cash Bonus that is not being deferred, in a manner determined by the Employer(s), the Participant's share of FICA and other employment taxes on such Base Annual Salary and/or Annual Bonus portion of the Annual Deferral Amount. If necessary, the Committee may reduce the Annual Deferral Amount in order to comply with this Section 3.10. (b) Annual Stock Bonus Portion of the Annual Deferral Amount and Annual Company Contribution Amount: When a participant becomes vested in a portion of his or her Annual Company Contribution Amount or Annual Stock Bonus portion of his or her Annual Deferral Amount or Annual Company Contribution Amount, the Participant's Employer(s) shall withhold from the Participant's Base Annual Salary and/or Annual Bonus that is not deferred, in a manner determined by the Employer(s), the Participant's share of FICA and other employment taxes. If necessary, the Committee may reduce the Account Balance in order to comply with this Section 3.10. 3.11 Distributions. The Participant's Employer(s), or the trustee of the Trust, shall withhold from any payments made to a Participant under this Plan all federal, state and local income, employment and other taxes required to be withheld by the Employer(s), or the trustee of the Trust, in connection with such payments, in amounts and in a manner to be determined in the sole discretion of the Employer(s) and the trustee of the Trust. ARTICLE 4 Short-Term Payout; Unforeseeable Financial Emergencies; Withdrawal Election 4.1 Short-Term Payout. In connection with each election to defer an Annual Deferral Amount, a Participant may irrevocably elect to receive a future "Short-Term Payout" from the Plan with respect to such Annual Deferral Amount. Subject to the Deduction Limitation, the Short-Term Payout shall be a lump sum payment in an amount that is equal to the Annual Deferral Amount plus amounts credited or debited in the manner provided in Section 3.9 above on that amount, determined at the time that the Short-Term Payout becomes payable (rather than the date of a Termination of Employment). Subject to the Deduction Limitation and the other terms and conditions of this Plan, each Short-Term Payout elected shall be paid out during a 60 day period commencing immediately after the last day of any Plan Year designated by the Participant that is at least five Plan Years after the Plan Year in which the Annual Deferral Amount is actually deferred. 4.2 Other Benefits Take Precedence Over Short-Term. Should an event occur that triggers a benefit under Article 5, 6, 7 or 8, any Annual Deferral Amount, plus amounts credited or debited thereon, that is subject to a Short-Term Payout election under Section 4.1 shall not be paid in accordance with Section 4.1 but shall be paid in accordance with the other applicable Article. 4.3 Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies. If the Participant experiences an Unforeseeable Financial Emergency, the Participant may petition the Committee to (i) suspend any deferrals required to be made by a Participant and/or (ii) receive a partial or full payout from the Plan. The payout shall not exceed the lesser of the Participant's Account Balance, calculated as if such Participant were receiving a Termination Benefit, or the amount reasonably needed to satisfy the Unforeseeable Financial Emergency. If, subject to the sole discretion of the Committee, the petition for a suspension and/or payout is approved, suspension shall take effect upon the date of approval and any payout shall be made within 60 days of the date of approval. The payment of any amount under this Section 4.3 shall not be subject to the Deduction Limitation. 4.4 Withdrawal Election. A Participant (or, after a Participant's death, his or her Beneficiary) may elect, at any time, to withdraw all of his or her Account Balance, calculated as if there had occurred a Termination of Employment as of the day of the election, less a withdrawal penalty equal to 10% of such amount (the net amount shall be referred to as the "Withdrawal Amount"). This election can be made at any time, before or after Retirement, Disability, death or Termination of Employment, and whether or not the Participant (or Beneficiary) is in the process of being paid pursuant to an installment payment schedule. If made before Retirement, Disability or death, a Participant's Withdrawal Amount shall be his or her Account Balance calculated as if there had occurred a Termination of Employment as of the day of the election. No partial withdrawals of the Withdrawal Amount shall be allowed. The Participant (or his or her Beneficiary) shall make this election by giving the Committee advance written notice of the election in a form determined from time to time by the Committee. The Participant (or his or her Beneficiary) shall be paid the Withdrawal Amount within 60 days of his or her election. Once the Withdrawal Amount is paid, the Participant's participation in the Plan shall terminate and the Participant shall not be eligible to participate in the Plan in the future. The payment of this Withdrawal Amount shall not be subject to the Deduction Limitation. ARTICLE 5 Retirement Benefit 5.1 Retirement Benefit. Subject to the Deduction Limitation, a Participant who Retires shall receive, as a Retirement Benefit, his or her Account Balance. 5.2 Payment of Retirement Benefit. A Participant, in connection with his or her commencement of participation in the Plan, shall elect on an Election Form to receive the Retirement Benefit in a lump sum or pursuant to an Annual Installment Method of 5, 10 or 15 years. The Participant may annually change his or her election to an allowable alternative payout period by submitting a new Election Form to the Committee, provided that any such Election Form is submitted at least 3 years prior to the Participant's Retirement and is accepted by the Committee in its sole discretion. The Election Form most recently accepted by the Committee shall govern the payout of the Retirement Benefit. If a Participant does not make any election with respect to the payment of the Retirement Benefit, then such benefit shall be payable in a lump sum. The lump sum payment shall be made, or installment payments shall commence, no later than 60 days after the last day of the Plan Year in which the Participant Retires. Any payment made shall be subject to the Deduction Limitation. 5.3 Death Prior to Completion of Retirement Benefit. If a Participant dies after Retirement but before the Retirement Benefit is paid in full, the Participant's unpaid Retirement Benefit payments shall continue and shall be paid to the Participant's Beneficiary (a) over the remaining number of years and in the same amounts as that benefit would have been paid to the Participant had the Participant survived, or (b) in a lump sum, if requested by the Beneficiary and allowed in the sole discretion of the Committee, that is equal to the Participant's unpaid remaining Account Balance. ARTICLE 6 Pre-Retirement Survivor Benefit 6.1 Pre-Retirement Survivor Benefit. Subject to the Deduction Limitation, the Participant's Beneficiary shall receive a Pre-Retirement Survivor Benefit equal to the Participant's Account Balance if the Participant dies before he or she Retires, experiences a Termination of Employment or suffers a Disability. 6.2 Payment of Pre-Retirement Survivor Benefit. The Pre-Retirement Survivor Benefit shall be paid in a lump sum. Despite the foregoing, if the Participant's Account Balance at the time of his or her death is more than $25,000, payment of the Pre-Retirement Survivor Benefit may be made, in the sole discretion of the Committee, in a lump sum or pursuant to an Annual Installment Method of not more than 5 years. The lump sum payment shall be made, or installment payments shall commence, no later than 60 days after the Committee is provided with proof that is satisfactory to the Committee of the Participant's death. Any payment made shall be subject to the Deduction Limitation. ARTICLE 7 Termination Benefit 7.1 Termination Benefit. Subject to the Deduction Limitation, the Participant shall receive a Termination Benefit, which shall be equal to the Participant's Account Balance if a Participant experiences a Termination of Employment prior to his or her Retirement, death or Disability. 7.2 Payment of Termination Benefit. The lump sum payment shall be made no later than 60 days after the last day of fiscal quarter during which the Participant experiences the Termination of Employment. Any payment made shall be subject to the Deduction Limitation. ARTICLE 8 Disability Waiver and Benefit 8.1 Disability Waiver. (a) Waiver of Deferral. A Participant who is determined by the Committee to be suffering from a Disability shall be excused from fulfilling that portion of the Annual Deferral Amount commitment that would otherwise have been withheld from a Participant's Base Annual Salary, Annual Bonus and/or Directors Fees for the remainder of the Plan Year during which the Participant first suffers a Disability. During the period of Disability, the Participant shall not be allowed to make any additional deferral elections, but will continue to be considered a Participant for all other purposes of this Plan. (b) Return to Work. If a Participant returns to employment, or service as a Director, with an Employer, after a Disability ceases, the Participant may elect to defer an Annual Deferral Amount for the Plan Year following his or her return to employment or service and for every Plan Year thereafter while a Participant in the Plan; provided such deferral elections are otherwise allowed and an Election Form is delivered to and accepted by the Committee for each such election in accordance with Section 3.3 above. 8.2 Continued Eligibility; Disability Benefit. A Participant suffering a Disability shall, for benefit purposes under this Plan, continue to be considered to be employed, or in the service of an Employer as a Director, and shall be eligible for the benefits provided for in Articles 4, 5, 6 or 7 in accordance with the provisions of those Articles. Notwithstanding the above, the Committee shall have the right to, in its sole and absolute discretion and for purposes of this Plan only, and must in the case of a Participant who is otherwise eligible to Retire, deem the Participant to have experienced a Termination of Employment, or in the case of a Participant who is eligible to Retire, to have Retired, at any time (or in the case of a Participant who is eligible to Retire, as soon as practicable) after such Participant is determined to be suffering a Disability, in which case the Participant shall receive a Disability Benefit equal to his or her Account Balance at the time of the Committee's determination; provided, however, that should the Participant otherwise have been eligible to Retire, he or she shall be paid in accordance with Article 5. The Disability Benefit shall be paid in a lump sum within 60 days of the last day of the Plan Year in which the Committee exercises such right. Any payment made shall be subject to the Deduction Limitation. ARTICLE 9 Beneficiary Designation 9.1 Beneficiary. Each Participant shall have the right, at any time, to designate his or her Beneficiary(ies) (both primary as well as contingent) to receive any benefits payable under the Plan to a beneficiary upon the death of a Participant. The Beneficiary designated under this Plan may be the same as or different from the Beneficiary designation under any other plan of an Employer in which the Participant participates. 9.2 Beneficiary Designation; Change; Spousal Consent. A Participant shall designate his or her Beneficiary by completing and signing the Beneficiary Designation Form, and returning it to the Committee or its designated agent. A Participant shall have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Committee's rules and procedures, as in effect from time to time. If the Participant names someone other than his or her spouse as a Beneficiary, a spousal consent, in the form designated by the Committee, must be signed by that Participant's spouse and returned to the Committee. Upon the acceptance by the Committee of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be canceled. The Committee shall be entitled to rely on the last Beneficiary Designation Form filed by the Participant and accepted by the Committee prior to his or her death. 9.3 Acknowledgment. No designation or change in designation of a Beneficiary shall be effective until received and acknowledged in writing by the Committee or its designated agent. 9.4 No Beneficiary Designation. If a Participant fails to designate a Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above or, if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant's benefits, then the Participant's designated Beneficiary shall be deemed to be his or her surviving spouse. If the Participant has no surviving spouse, the benefits remaining under the Plan to be paid to a Beneficiary shall be payable to the executor or personal representative of the Participant's estate. 9.5 Doubt as to Beneficiary. If the Committee has any doubt as to the proper Beneficiary to receive payments pursuant to this Plan, the Committee shall have the right, exercisable in its discretion, to cause the Participant's Employer to withhold such payments until this matter is resolved to the Committee's satisfaction. 9.6 Discharge of Obligations. The payment of benefits under the Plan to a Beneficiary shall fully and completely discharge all Employers and the Committee from all further obligations under this Plan with respect to the Participant, and that Participant's Plan Agreement shall terminate upon such full payment of benefits. ARTICLE 10 Leave of Absence 10.1 Paid Leave of Absence. If a Participant is authorized by the Participant's Employer for any reason to take a paid leave of absence from the employment of the Employer, the Participant shall continue to be considered employed by the Employer and the Annual Deferral Amount shall continue to be withheld during such paid leave of absence in accordance with Section 3.3. 10.2 Unpaid Leave of Absence. If a Participant is authorized by the Participant's Employer for any reason to take an unpaid leave of absence from the employment of the Employer, the Participant shall continue to be considered employed by the Employer and the Participant shall be excused from making deferrals until the earlier of the date the leave of absence expires or the Participant returns to a paid employment status. Upon such expiration or return, deferrals shall resume for the remaining portion of the Plan Year in which the expiration or return occurs, based on the deferral election, if any, made for that Plan Year. If no election was made for that Plan Year, no deferral shall be withheld. ARTICLE 11 Termination, Amendment or Modification 11.1 Termination. Although each Employer anticipates that it will continue the Plan for an indefinite period of time, there is no guarantee that any Employer will continue the Plan or will not terminate the Plan at any time in the future. Accordingly, each Employer reserves the right to discontinue its sponsorship of the Plan and/or to terminate the Plan at any time with respect to any or all of its participating Employees and Directors, by action of its board of directors. Upon the termination of the Plan with respect to any Employer, the Plan Agreements of the affected Participants who are employed by that Employer, or in the service of that Employer as Directors, shall terminate and their Account Balances, determined as if they had experienced a Termination of Employment on the date of Plan termination or, if Plan termination occurs after the date upon which a Participant was eligible to Retire, then with respect to that Participant as if he or she had Retired on the date of Plan termination, shall be paid to the Participants as follows: Prior to a Change in Control, if the Plan is terminated with respect to all of its Participants, an Employer shall have the right, in its sole discretion, and notwithstanding any elections made by the Participant, to pay such benefits in a lump sum or pursuant to the Annual Installment Method of up to 15 years, with amounts credited and debited during the installment period as provided herein. If the Plan is terminated with respect to less than all of its Participants, an Employer shall be required to pay such benefits in a lump sum. After a Change in Control, the Employer shall be required to pay such benefits in a lump sum. The termination of the Plan shall not adversely affect any Participant or Beneficiary who has become entitled to the payment of any benefits under the Plan as of the date of termination; provided however, that the Employer shall have the right to accelerate installment payments without a premium or prepayment penalty by paying the Account Balance in a lump sum or pursuant to an Annual Installment Method using fewer years (provided that the present value of all payments that will have been received by a Participant at any given point of time under the different payment schedule shall equal or exceed the present value of all payments that would have been received at that point in time under the original payment schedule). 11.2 Amendment. Dames & Moore Group may, at any time, amend or modify the Plan in whole or in part with respect to that Employer by the action of its board of directors; provided, however, that: (i) no amendment or modification shall be effective to decrease or restrict the value of a Participant's Account Balance in existence at the time the amendment or modification is made, calculated as if the Participant had experienced a Termination of Employment as of the effective date of the amendment or modification or, if the amendment or modification occurs after the date upon which the Participant was eligible to Retire, the Participant had Retired as of the effective date of the amendment or modification, and (ii) no amendment or modification of this Section 11.2 or Section 12.2 of the Plan shall be effective. The amendment or modification of the Plan shall not affect any Participant or Beneficiary who has become entitled to the payment of benefits under the Plan as of the date of the amendment or modification; provided, however, that the Employer shall have the right to accelerate installment payments by paying the Account Balance in a lump sum or pursuant to an Annual Installment Method using fewer years (provided that the present value of all payments that will have been received by a Participant at any given point of time under the different payment schedule shall equal or exceed the present value of all payments that would have been received at that point in time under the original payment schedule). 11.3 Effect of Payment. The full payment of the applicable benefit under Articles 4, 5, 6, 7 or 8 of the Plan shall completely discharge all obligations to a Participant and his or her designated Beneficiaries under this Plan and the Participant's Plan participation shall terminate. ARTICLE 12 Administration 12.1 Committee Duties. Except as otherwise provided in this Article 12, this Plan shall be administered by a Committee that shall consist of the Board, or such committee as the Board shall appoint. Members of the Committee may be Participants under this Plan. The Committee shall also have the discretion and authority to (i) make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan and (ii) decide or resolve any and all questions including interpretations of this Plan, as may arise in connection with the Plan, or any facts relating to the Plan. Any individual serving on the Committee who is a Participant shall not vote or act on any matter relating solely to himself or herself. When making a determination or calculation, the Committee shall be entitled to rely on information furnished by a Participant or the Company. 12.2 Administration Upon Change In Control. For purposes of this Plan, the Company shall be the "Administrator" at all times prior to the occurrence of a Change in Control. Upon and after the occurrence of a Change in Control, the "Administrator" shall be an independent third party selected by the Trustee and approved by the individual who, immediately prior to such event, was the Company's Chief Executive Officer or, if not so identified, the Company's highest ranking officer (the "Ex-CEO"). The Administrator shall have the discretionary power to determine all facts and questions arising in connection with the administration of the Plan and the interpretation of the Plan and Trust including, but not limited to benefit entitlement determinations; provided, however, upon and after the occurrence of a Change in Control, the Administrator shall have no power to direct the investment of Plan or Trust assets or select any investment manager or custodial firm for the Plan or Trust. Upon and after the occurrence of a Change in Control, the Company must: (1) pay all reasonable administrative expenses and fees of the Administrator; (2) indemnify the Administrator against any costs, expenses and liabilities including, without limitation, attorney's fees and expenses arising in connection with the performance of the Administrator hereunder, except with respect to matters resulting from the gross negligence or willful misconduct of the Administrator or its employees or agents; and (3) supply full and timely information to the Administrator or all matters relating to the Plan, the Trust, the Participants and their Beneficiaries, the Account Balances of the Participants, the date of circumstances of the Retirement, Disability, death or Termination of Employment of the Participants, and such other pertinent information as the Administrator may reasonably require. Upon and after a Change in Control, the Administrator may be terminated (and a replacement appointed) by the Trustee only with the approval of the Ex-CEO. Upon and after a Change in Control, the Administrator may not be terminated by the Company. 12.3 Agents. In the administration of this Plan, the Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit (including acting through a duly appointed representative) and may from time to time consult with counsel who may be counsel to any Employer. 12.4 Binding Effect of Decisions. The decision or action of the Administrator with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Plan. 12.5 Indemnity of Committee. All Employers shall indemnify and hold harmless the members of the Committee, any Employee to whom the duties of the Committee may be delegated, and the Administrator against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Plan, except in the case of willful misconduct by the Committee, any of its members, any such Employee or the Administrator. 12.6 Employer Information. To enable the Committee and/or Administrator to perform its functions, the Company and each Employer shall supply full and timely information to the Committee and/or Administrator, as the case may be, on all matters relating to the compensation of its Participants, the date and circumstances of the Retirement, Disability, death or Termination of Employment of its Participants, and such other pertinent information as the Committee or Administrator may reasonably require. ARTICLE 13 Other Benefits and Agreements 13.1 Coordination with Other Benefits. The benefits provided for a Participant and Participant's Beneficiary under the Plan are in addition to any other benefits available to such Participant under any other plan or program for employees of the Participant's Employer. The Plan shall supplement and shall not supersede, modify or amend any other such plan or program except as may otherwise be expressly provided. ARTICLE 14 Claims Procedures 14.1 Presentation of Claim. Any Participant or Beneficiary of a deceased Participant (such Participant or Beneficiary being referred to below as a "Claimant") may deliver to the Committee a written claim for a determination with respect to the amounts distributable to such Claimant from the Plan. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within 60 days after such notice was received by the Claimant. All other claims must be made within 180 days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant. 14.2 Notification of Decision. The Committee shall consider a Claimant's claim within a reasonable time, and shall notify the Claimant in writing: (a) that the Claimant's requested determination has been made, and that the claim has been allowed in full; or (b) that the Committee has reached a conclusion contrary, in whole or in part, to the Claimant's requested determination, and such notice must set forth in a manner calculated to be understood by the Claimant: (i) the specific reason(s) for the denial of the claim, or any part of it; (ii) specific reference(s) to pertinent provisions of the Plan upon which such denial was based; (iii) a description of any additional material or information necessary for the Claimant to perfect the claim, and an explanation of why such material or information is necessary; and (iv) an explanation of the claim review procedure set forth in Section 14.3 below. 14.3 Review of a Denied Claim. Within 60 days after receiving a notice from the Committee that a claim has been denied, in whole or in part, a Claimant (or the Claimant's duly authorized representative) may file with the Committee a written request for a review of the denial of the claim. Thereafter, but not later than 30 days after the review procedure began, the Claimant (or the Claimant's duly authorized representative): (a) may review pertinent documents; (b) may submit written comments or other documents; and/or (c) may request a hearing, which the Committee, in its sole discretion, may grant. 14.4 Decision on Review. The Committee shall render its decision on review promptly, and not later than 60 days after the filing of a written request for review of the denial, unless a hearing is held or other special circumstances require additional time, in which case the Committee's decision must be rendered within 120 days after such date. Such decision must be written in a manner calculated to be understood by the Claimant, and it must contain: (a) specific reasons for the decision; (b) specific reference(s) to the pertinent Plan provisions upon which the decision was based; and (c) such other matters as the Committee deems relevant. 14.5 Legal Action. A Claimant's compliance with the foregoing provisions of this Article 14 is a mandatory prerequisite to a Claimant's right to commence any legal action with respect to any claim for benefits under this Plan. ARTICLE 15 Trust 15.1 Establishment of the Trust. The Company may establish a Trust, and may at least annually transfer over to the Trust such assets as the Company determines, in its sole discretion, are necessary to provide, on a present value basis, for its respective future liabilities created with respect to the Annual Deferral Amounts and Company Contribution Amounts for such Company's Participants for all periods prior to the transfer, as well as any debits and credits to the Participants' Account Balances for all periods prior to the transfer, taking into consideration the value of the assets in the trust at the time of the transfer. 15.2 Interrelationship of the Plan and the Trust. The provisions of the Plan shall govern the rights of a Participant to receive distributions pursuant to the Plan. The provisions of the Trust shall govern the rights of the Employers, Participants and the creditors of the Employers to the assets transferred to the Trust. The Company shall at all times remain liable to carry out its obligations under the Plan. 15.3 Distributions From the Trust. Dames & Moore Group's obligations under the Plan may be satisfied with Trust assets distributed pursuant to the terms of the Trust, and any such distribution shall reduce the Company's obligations under this Plan. ARTICLE 16 Miscellaneous 16.1 Status of Plan. The Plan is intended to be a plan that is not qualified within the meaning of Code Section 401(a) and that "is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employee" within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1). The Plan shall be administered and interpreted to the extent possible in a manner consistent with that intent. 16.2 Unsecured General Creditor. Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interests or claims in any property or assets of an Employer. For purposes of the payment of benefits under this Plan, any and all of an Employer's assets shall be, and remain, the general, unpledged unrestricted assets of the Employer. An Employer's obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future. 16.3 Employer's Liability. An Employer's liability for the payment of benefits shall be defined only by the Plan, as entered into between the Employer and a Participant. An Employer shall have no obligation to a Participant under the Plan except as expressly provided in the Plan. 16.4 Nonassignability. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate, alienate or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are expressly declared to be, unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure, attachment, garnishment or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency or be transferable to a spouse as a result of a property settlement or otherwise. 16.5 Not a Contract of Employment. The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between any Employer and the Participant. Such employment is hereby acknowledged to be an "at will" employment relationship that can be terminated at any time for any reason, or no reason, with or without cause, and with or without notice, unless expressly provided in a written employment agreement. Nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of any Employer, either as an Employee or a Director, or to interfere with the right of any Employer to discipline or discharge the Participant at any time. 16.6 Furnishing Information. A Participant or his or her Beneficiary will cooperate with the Committee by furnishing any and all information requested by the Committee and take such other actions as may be requested in order to facilitate the administration of the Plan and the payments of benefits hereunder, including but not limited to taking such physical examinations as the Committee may deem necessary. 16.7 Terms. Whenever any words are used herein in the masculine, they shall be construed as though they were in the feminine in all cases where they would so apply; and whenever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply. 16.8 Captions. The captions of the articles, sections and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions. 16.9 Governing Law. Subject to ERISA, the provisions of this Plan shall be construed and interpreted according to the internal laws of the State of California without regard to its conflicts of laws principles. 16.10 Notice. Any notice or filing required or permitted to be given to the Committee under this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to the address below: Controller Dames & Moore Group 911 Wilshire Blvd., Suite 700 Los Angeles, CA 90017 Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Participant. 16.11 Successors. The provisions of this Plan shall bind and inure to the benefit of the Participant's Employer and its successors and assigns and the Participant and the Participant's designated Beneficiaries. 16.12 Spouse's Interest. The interest in the benefits hereunder of a spouse of a Participant who has predeceased the Participant shall automatically pass to the Participant and shall not be transferable by such spouse in any manner, including but not limited to such spouse's will, nor shall such interest pass under the laws of intestate succession. 16.13 Validity. In case any provision of this Plan shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal or invalid provision had never been inserted herein. 16.14 Incompetent. If the Committee determines in its discretion that a benefit under this Plan is to be paid to a minor, a person declared incompetent or to a person incapable of handling the disposition of that person's property, the Committee may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or incapable person. The Committee may require proof of minority, incompetence, incapacity or guardianship, as it may deem appropriate prior to distribution of the benefit. Any payment of a benefit shall be a payment for the account of the Participant and the Participant's Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Plan for such payment amount. 16.15 Court Order. The Committee is authorized to make any payments directed by court order in any action in which the Plan or the Committee has been named as a party. In addition, if a court determines that a spouse or former spouse of a Participant has an interest in the Participant's benefits under the Plan in connection with a property settlement or otherwise, the Committee, in its sole discretion, shall have the right, notwithstanding any election made by a Participant, to immediately distribute the spouse's or former spouse's interest in the Participant's benefits under the Plan to that spouse or former spouse. 16.16 Distribution in the Event of Taxation. (a) In General. If, for any reason, all or any portion of a Participant's benefits under this Plan becomes taxable for federal or state income tax purposes to the Participant prior to receipt, a Participant may petition the Committee before a Change in Control, or the trustee of the Trust after a Change in Control, for a distribution of that portion of his or her benefit that has become taxable. Upon the grant of such a petition, which grant shall not be unreasonably withheld (and, after a Change in Control, shall be granted), a Participant's Employer shall distribute to the Participant immediately available funds in an amount equal to the taxable portion of his or her benefit (which amount shall not exceed a Participant's unpaid Account Balance under the Plan). If the petition is granted, the tax liability distribution shall be made within 90 days of the date when the Participant's petition is granted. Such a distribution shall affect and reduce the benefits to be paid under this Plan. (b) Trust. If the Trust terminates and benefits are distributed from the Trust to a Participant, the Participant's benefits under this Plan shall be reduced to the extent of such distributions. 16.17 Insurance. The Employers, on their own behalf or on behalf of the trustee of the Trust, and, in their sole discretion, may apply for and procure insurance on the life of the Participant, in such amounts and in such forms as the Trust may choose. The Employers or the trustee of the Trust, as the case may be, shall be the sole owner and beneficiary of any such insurance. The Participant shall have no interest whatsoever in any such policy or policies, and at the request of the Employers shall submit to medical examinations and supply such information and execute such documents as may be required by the insurance company or companies to whom the Employers have applied for insurance. 16.18 Legal Fees To Enforce Rights After Change in Control. The Company and each Employer is aware that upon the occurrence of a Change in Control, the Board or the board of directors of a Participant's Employer (which might then be composed of new members) or a shareholder of the Company or the Participant's Employer, or of any successor corporation might then cause or attempt to cause the Company, the Participant's Employer or such successor to refuse to comply with its obligations under the Plan and might cause or attempt to cause the Company or the Participant's Employer to institute, or may institute, litigation seeking to deny Participants the benefits intended under the Plan. In these circumstances, the purpose of the Plan could be frustrated. Accordingly, if, following a Change in Control, it should appear to any Participant that the Company, the Participant's Employer or any successor corporation has failed to comply with any of its obligations under the Plan or any agreement thereunder or, if the Company, such Employer or any other person takes any action to declare the Plan void or unenforceable or institutes any litigation or other legal action designed to deny, diminish or to recover from any Participant the benefits intended to be provided, then the Company and the Participant's Employer irrevocably authorize such Participant to retain counsel of his or her choice at the expense of the Company and the Participant's Employer (who shall be jointly and severally liable) to represent such Participant in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company, the Participant's Employer or any director, officer, shareholder or other person affiliated with the Company, the Participant's Employer or any successor thereto in any jurisdiction. IN WITNESS WHEREOF, the Company has signed this Plan document as of May 2, 1998. "Company" Dames & Moore Group, a Delaware corporation By:/s/ Mark A. Snell Title: Executive Vice President and Chief Financial Officer EX-21 4 DAMES & MOORE GROUP EXHIBIT 21.1 LIST OF SUBSIDIARIES The following is a list of subsidiaries of Dames & Moore Group, except as indicated, each of the subsidiaries is wholly owned by the Company, unless otherwise noted. State or other jurisdiction Name of incorporation or organization ---- -------------------------------- Domestic Subsidiaries: Aman Environmental Construction, Inc. California Bovay Northwest, Inc. Washington BRW Group, Inc. Delaware Cleveland Wrecking Company California Color Cave, Inc. California Contracting Resources International, Inc. Delaware DM Investors, Inc. Delaware Dames & Moore America, L.P.* California Dames & Moore Foreign Branch Operations, Inc. Delaware Dames & Moore Group (NY), Inc. New York Dames & Moore Group, Ohio Ohio Dames & Moore, Inc. Delaware Dames & Moore Lebron, LLP Delaware Dames & Moore Management Company California Dames & Moore Servicing Company California Dames & Moore Ventures California DecisionQuest Inc. California DQ Squared, Inc. California Fourth Dimension Interactive, Inc. Delaware O'Brien-Kreitzberg Inc. California Seismic Risk Insurance Services, Inc. California Signet Testing Laboratories, Inc. Delaware SRA Technologies, Inc. District of Columbia Walk, Haydel & Associates, Inc. Louisiana Foreign Subsidiaries: AACM Central Europe Limited Hungary Ashact, Dames & Moore Ltd. United Kingdom Ashact Projects Ltd. United Kingdom Bureau voor Milieumanagement BV The Netherlands Dames & Moore Argentina S.A.** Argentina Dames & Moore B.V. The Netherlands Dames & Moore (BVI) Ltd British Virgin Islands Dames & Moore, Canada Canada Dames & Moore Chile Ltda. Chile Dames & Moore Foreign Sales Corporation, Ltd. Bermuda Dames & Moore GmbH & Co KG Germany Dames and Moore Iberia SA Spain Dames & Moore International SRL Italy Dames & Moore International SRL Venezuela Dames & Moore (Malaysia) Sdn Bhd Malaysia Dames & Moore Puerto Rico Puerto Rico Dames & Moore Pty. Ltd. Australia Dames & Moore SRL France Dames & Moore Singapore Singapore Dames & Moore Thailand Thailand Dames & Moore United Kingdom United Kingdom Food & Agriculture International Ltd. United Kingdom Forestry Technical Services PTY Limited Australia HDML Pty Ltd. Australia Hollingsworth Dames & Moore (PNG) Pty Ltd Papua New Guinea International Agriculture Pty. LTD. Australia Norecol, Dames & Moore, Inc. Canada O'Brien Kreitzberg Ltd. United Kingdom Professional Insurance Limited Bermuda PT Dames & Moore Indonesia Indonesia Saudi Arabian Dames & Moore Saudi Arabia * Dames & Moore America: Dames & Moore Management Company 92% - General partner and Professional Insurance Limited 8% - Limited partner. ** Dames & Moore, Inc. has a 70% interest in this Company. EX-27 5
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES. THIS SCHEDULE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES. 1,000 12-MOS MAR-27-1998 MAR-27-1998 9,493 1,031 205,542 3,408 0 228,129 69,193 45,796 386,361 98,559 0 0 0 107,512 42,397 386,361 703,902 703,902 0 221,398 439,691 0 10,292 33,518 14,188 19,330 0 0 0 19,330 1.08 1.07
EX-27 6
5 THIS SCHEDULE CONTAINS RESTATED SUMMARY INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES. THIS SCHEDULE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS AND NOTES. EARNINGS PER SHARE DATE HAS BEEN RESTATED TO CONFORM WITH SFAS 123 WHICH ESTABLISHES NEW REQUIREMENTS FOR COMPUTING EPS INFORMATION. 1,000 9-MOS MAR-28-1997 DEC-27-1996 22,708 9,007 176,087 3,060 0 219,447 19,682 0 356,598 99,851 0 0 0 107,242 24,627 356,598 486,299 486,299 0 148,101 306,661 0 4,990 28,245 11,606 16,639 0 0 0 16,639 .79 .78
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