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 28, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the Transition Period from _____ to _____
Commission File Number 1-11075
DAMES & MOORE, INC.
(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 90017
Los Angeles, California (Zip Code)
(Address of principal executive offices)
(213) 683-1560
(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 6, 1997, based on the closing price on the
New York Stock Exchange was $186,910,374. 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 6, 1997, 18,041,348 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 11, 1997 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 28, 1997.
PART I
Item 1. Business
General
Dames & Moore, Inc. (the "Company"), a Delaware corporation, is the successor
to the business of Dames & Moore, a California limited partnership, which was
originally organized in 1938. This incorporation was completed on March 12,
1992, concurrent with a public offer 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. comprises a global network of companies known as the
Dames & Moore Group (D&M Group). The D&M Group companies include: Dames &
Moore, Inc.; Walk Haydel & Associates, Inc.; O'Brien Kreitzberg, Inc.; the
BRW Group; DecisionQuest, Inc.; and Dames & Moore Ventures. These companies
provide discrete as well as integrated full-service multi-disciplinary
engineering, planning, integrated environmental services, program, project,
and construction management, strategic business communications and litigation
support as well as equity investments related to their areas of expertise.
Established in 1938, Dames & Moore has a history of successfully meeting the
needs of its clients, many of whom it has served continuously for decades.
The D&M Group companies and their subsidiaries have 197 offices in major
cities and countries worldwide staffed by over 5,700 employees.
The D&M Group is committed to providing solutions that take advantage of the
individual specialized expertise and integrated capabilities offered by the
group companies, globally as well as locally. The Company serves a broad
range of clients in both the private and public sectors, and over the years
has worked for more than 34,000 clients. The Company seeks to develop a
clientele that recognizes the value of high-quality professional services
delivered in a cost-effective and timely manner.
Acquisition, Equity and Management Participation Activities
Between March 12, 1992, when the Company became publicly traded, and the
close of fiscal year 1997 on March 28, 1997, the Company has acquired a
number of businesses to build the core business, expand strategically,
diversify our specialty engineering and consulting services and increase our
participation in equity ventures. Brief descriptions of significant prior
year and Fiscal Year 1997 activities are as follows:
Midwest Consulting Engineers, a Chicago-based firm specializing in
transportation and municipal design engineering with 75 employees, was
acquired in June 1992.
Aman Environmental Construction, (AECI) a California-based firm specializing
in demolition, environmental remediation, and construction with 60 employees,
was acquired in April 1993.
Bovay Northwest, Inc., a Spokane, Washington-based engineering company with
municipal and civil/environmental engineering expertise with 75 employees,
was acquired in December 1993.
O'Brien-Kreitzberg & Associates, a San Francisco-based company with 700
employees providing construction management, was acquired in March 1995.
Hardcastle & Richards, a 130-employee company based in Melbourne, providing
design engineering and project management services throughout Australia and
South-East Asia, was acquired in March 1995.
Walk, Haydel, & Associates, Inc., a 600-employee company based in New
Orleans, providing project management and process/chemical engineering, was
acquired in April 1995.
Hazelet + Erdal, a Midwest transportation design company with 50 employees
was acquired in May 1995.
Heyward Robinson, a New Jersey engineering firm with 20 staff, was purchased
in April of 1996.
DecisionQuest, a 100-employee Torrance, California based trial strategy
consulting, graphics, litigation support and behavioral science services
firm, was acquired in May 1996.
BRW Group, a Minneapolis based firm specializing in project planning, design
and construction phase services for transportation and infrastructure
projects with 450 employees, was acquired in May 1996.
HYA, a 30-employee engineering firm specializing in water reclamations and
reuse, with offices in Pasadena, Rancho Bernardo, Sacramento and Phoenix, was
acquired in June 1996.
In July 1996, the company completed the acquisition of the remaining 60% of
AACM International, a 50 employee international agriculture and forestry
consulting company in Australia.
The company acquired 40% of Reverse Engineering Ltd. in September 1996.
They are a British high-tech engineering firm with expertise in designing and
modeling the effects of impacts and deformations on critical structures.
In March 1997, the company acquired the bank debt of Cleveland Wrecking
Company (CWE), a demolition contractor. The company provides site
demolition, decommissioning, cleanup closure and redevelopment services on a
nationwide basis. It is the Company's intent to foreclose on the assets of
CWC and to combine the operations of CWC with its own demolition
contracting unit AECI.
Krehbiel Associates, a New York civil and municipal engineering company
providing service to private and municipal clients, was acquired in April
1997.
Weintraub & Associates, a Missouri civil and structural engineering services
firm was acquired in April 1997.
The company has a 50% interest in Dames & Moore/Brookhill (DMB) through its
subsidiary Dames & Moore Ventures. DMB was formed to acquire environmentally
impaired properties and to remediate, develop, redevelop, or reposition, and
to maintain, operate and lease such properties until their disposition.
The company also has a 9.9% interest in Glencoe Insurance Ltd., a company
formed to offer earthquake insurance in California.
Description of Business
Today the D & M Group brings together the resources of preeminent professional
service companies and provides world-class solutions for a wide array of
projects. Serving clients locally and globally, the D&M Group companies
combine their resources seamlessly to meet comprehensive needs and also work
independently to meet specialized needs. The experts at D & M Group bring
vision and value to every stage of project development. Understanding our
clients business to reach their goals, designing creative solutions,
engineering results, reducing risks, managing construction, controlling costs,
delivering results, and superior performance create the very best solutions
for our clients. Company capabilities are described in the following
paragraphs.
Service Areas
The Company provides broad-based expertise, experience and innovation
through a worldwide network of offices to a wide variety of businesses and
industries as well as all levels of government. Key areas of expertise
include:
Engineering - agricultural, chemical, civil, coastal, earthquake, electrical,
environmental, forensic, geotechnical, instrumentation, mechanical, mining,
nuclear, process, structural and transportation.
Environmental and Earth Sciences - air quality, ecology, water resources,
geosciences, permitting and licensing, regulatory compliance, waste
management, remediation, and decommissioning.
Construction - construction management, demolition, design-build, general
contracting, bidding, scheduling, cost control, and value engineering.
Specialized Consulting - architecture, economics, health and safety,
information management, litigation support, planning, public involvement,
risk management, presentation graphics and strategic communications.
Key Client Sectors
Business and Industry - capital projects, portfolio risk assessment, and
contaminated property redevelopment.
Oil and Gas - process design and expansion, infrastructure design, and
offshore platforms.
Power - utility facilities, cogeneration, and independent power producers'
projects.
Manufacturing - facility design, modernization, and waste minimization.
Mining - mine layout and design, mine waste management, and mined land
reclamation.
Infrastructure/Development - livable communities, water resources, and
wastewater/solid waste.
Transportation - airports and mass transit, highways and bridges, and ports
and harbors.
Government - program/project management, military planning and base closure,
and remediation and decommissioning.
Natural Resources - agribusiness, forestry, and sustainable development.
Litigation - expert witnesses, trial strategy and graphics, and dispute
resolution.
General Business
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, and a firmwide marketing program targeting multinational clients.
These multinational clients also benefit from the Company's worldwide
expertise, its breadth of services and the coordination and cross-selling
activities of the D&M Group. These capabilities coupled with the Company's
broad distribution of offices worldwide 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.
The Company currently derives approximately 14% of its net revenues from
work performed outside the United States. The Company is focused on expanding
its clientele and business operations in Europe and the former Soviet Union,
the Asia Pacific region, and Latin America. Reference is made to Note 14 of
the Notes to Company's Consolidated Financial Statements, which are included
in this Annual Report on Form 10-K, for additional information regarding the
Company's foreign and domestic operations.
Much of the Company's 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
adverse effect on the Company's business. In fiscal year 1995, in the
United States, regulatory enforcement weakened, and one of the key
environmental laws affecting the company's business opportunities, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
("Superfund") did not receive congressional reauthorization. For further
information on regulatory issues, see the Results of Operations section of
Management's Discussion and Analysis of Financial Condition and Results of
Operations, which is included in this Annual Report on Form 10-K.
Backlog
The Company estimates that, as of March 28, 1997, the backlog of future net
revenues, from contracts in existence and authorized funded orders, including
those of recent acquisitions, was approximately $290,000,000, substantially
all of which is expected to be completed within the next twelve months.
However, there can be no assurance 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 cost, 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 the types of services provided by the Company, it is
likely that additional competitors will emerge. At the same time, a fair
amount of consolidation is occurring 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, engineering, and construction management services
through its worldwide network of offices.
Market Demand Factors
Virtually everywhere, business is experiencing a drive to reduce costs and
a concomitant trend to contract or outsource non-core activities. This trend
is creating significant opportunities for D&M Group and is expanding the ways
the Company provides value and services to our clients. Through the
aggressive acquisition of quality professional services companies, D&M Group
is able to provide the full spectrum of capabilities required to maximize
participation in this outsourcing trend. D&M Group is participating in a
growing number of alliances, extensions of staff, turnkey and venture
activities.
These activities are enabling D&M Group to secure larger scale assignments
and to significantly expand the business beyond traditional, fee-for-service
project work. These efforts are directed at one goal: increasing value to
clients and shareholders. Growing opportunities on the horizon are expected
in growth markets -- including energy, manufacturing and mining, water
and transportation -- as well as several emerging markets.
The quest for enhanced profitability and competitiveness is leading many
companies in the energy sector to refocus their operations through a
combination of major capital projects, mergers, acquisitions and divestitures
as well as internal improvement. These trends are resulting in a variety of
new assignments for D&M 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.
Growing demand for consumer goods in many overseas markets and attractive
metals prices are contributing to expanded business activities with the
manufacturing and mining sectors. These sectors are investing heavily in
new projects and facility improvements to lower production costs and enhance
performance. D&M Group is responding to these needs and the emerging market.
Many manufacturing clients have broad-based facilities and value the
Company's ability to provide rapid support on a nationwide and worldwide basis.
A dynamic aspect of D&M Group's business with manufacturers and other major
property owners are growing demolition and property redevelopment
activities. The mining sector is experiencing a resurgence in projects
worldwide.
A global trend toward adopting "best practices" for meeting municipal,
environmental, industrial and agricultural water needs is expanding business
opportunities with these markets. D&M Group has offices in a large number
of heavily industrialized areas and major population centers, as well as
areas with extensive agricultural needs and important environmental
resources. Proximity to clients in many locations positions the firm to
respond to broad-based opportunities domestically and internationally. The
market for municipal water and waste-water services encompasses a wide range
of stakeholders, including municipalities, private water companies, and land
developers. D&M Group provides these sectors with design/build/operate and
equity participation capabilities for their projects.
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.
Many transportation agencies are extending 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. D&M Group expects a greater need for services in the
U.S. under the administration's proposed transportation bill, the National
Economic Crossroads Transportation Efficiency Act, which is likely to be
enacted this year. Business opportunities also are growing in Asia, Latin
America and Australia, where transportation infrastructure is being expanded.
Diverse opportunities are seen in the areas of comprehensive services for
institutional facilities relating to the development, expansion and
renovation of education, health care and corrections facilities. An
adjunct to the professional services offered by D&M Group is the development
of advanced technologies that extend the business. Other emerging markets
include unique capabilities to serve needs related to offshore platform
decommissioning and the application of behavioral science capabilities to
help clients factor public perceptions of possible actions into their
initial planning and decision-making.
Regulation
Environmental 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:
o National Environmental Policy Act of 1969 ("NEPA")
o Resource Conservation and Recovery Act of 1976 ("RCRA")
o Comprehensive Environmental Response, Compensation and Liability Act
of 1980 ("Superfund")
o 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
client 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.
Other Regulations
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.
Potential Liability and Insurance
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 recommendations based upon them 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 material, 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 insurance
coverage to be 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 in excess
of losses sustained.
Employees
As of March 28, 1997, the company had approximately 5,700 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.
Item 2. Properties
The Company operates entirely in leased premises. The Company leases 99
office properties in the United States and 34 office properties in foreign
countries.
Item 3. Legal Proceedings
In 1994, Haseko-JDO Associates, a developer, and Lakeshore Townhomes
Community Association, a townhome association, filed an action against the
Company and two other co-defendants in the San Mateo Superior Court alleging
settlement problems with the foundation of townhomes. The Company recently
reached agreement to settle this matter, and received a good faith
determination from the court dismissing all cross-claims for implied
indemnification and contribution. The developers have indicated that they do
not intend to pursue any other claims against the Company. There was no
earnings impact in the current year resulting from this settlement.
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 28, 1997.
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 2, 1997. Each executive officer holds
office until his resignation or removal by the Board of Directors.
Name Age Position
George D. Leal 63 Chairman of the Board
Arthur C. Darrow 53 Chief Executive Officer, President
and Director
Robert M. Perry 65 Executive Vice President -
Corporate Affairs and Director
Henry Klehn, Jr. 60 Executive Vice President -
Corporate Development
Mark A. Snell 40 Executive Vice President and
Chief Financial Officer
Leslie S. Puget 42 Corporate Controller
Kevin J. Freeman 47 Senior Vice President and
Manager - Western North America
Division
Glenn D. Martin 47 Senior Vice President and Manager
- Central U.S. and Latin America
Division
Peter G. Rowley 46 Senior Vice President and Manager -
International Division
William D. Webb 51 Senior Vice President and
Manager - Eastern North America
Division
Richard C. Tucker 55 Senior Vice President and Manager -
Government Services Division and
Director
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. He is a director of BW/IP, Inc. 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.
ROBERT M. PERRY has been employed by the Company since 1955. He has served as
a director since 1981, and as Executive Vice President - Corporate Affairs
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.
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.
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.
KEVIN J. FREEMAN has been employed by the Company since 1987, and has
served as Senior Vice President and Manager - Western North America Division
since 1993. He served as a director of the Company from 1993 to 1995.
Between 1990 and 1993, he served as the Company's Northwest Region General
Manager and, from 1992 to 1993 as the Department of Energy (West) Group
General Manager. Prior to 1990, he managed the Northwest Geosciences Group.
He has bachelor's and master's degrees in geology from Michigan State
University.
GLENN D. MARTIN has been employed by the Company since 1972, and has served
as Senior Vice President and Manager - Central U.S. and Latin America
Division since 1994. Between 1989 and 1994, he served as the Company's
Mid-Continent Region General Manager. Prior to 1989, he was the Chicago
office Managing Principal-in-Charge. He has a bachelor's degree in geology
from the University of Cincinnati.
PETER G. ROWLEY has been employed by the Company since 1979, and has served
as Senior Vice President and Manager - International Division since 1993.
Between 1990 and 1993, he served as the General Manager - Europe, Africa, and
Middle East Region. Between 1988 and 1990, he was the Managing Principal-
in-Charge of the Company's offices in Sydney, Melbourne and Brisbane. He has
a bachelor's degree in science and a doctorate degree in chemistry from the
University of New South Wales.
WILLIAM D. WEBB has been employed by the Company since 1968, and has served
as Senior Vice President and Manager, Eastern North America Division since
April 1996. Between April 1995 and March 1996, he served as Regional
Manager - Southern California and Nevada, and between 1988 and March 1995,
he served as Manager of Design and Construction Services - Western North
America Division. He has a bachelor of science degree in civil engineering
from the University of Missouri-Rolla.
RICHARD C. TUCKER has been employed by the Company since 1974. He has
served as a director since 1992 and as Senior Vice President and Manager -
Government Services Division since 1994. Between 1990 and March 1994, he
served as the Company's Middle Atlantic Region and Government Services
(East) Group General Manager. Prior to 1990, he was the Washington, D.C.
office Managing Principal-in-Charge. He has bachelor's and master's degrees
in civil engineering from the Georgia Institute of Technology.
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 2, 1997, the Company's common stock was held by
366 holders of record. The following table reflects the high and low sales
prices and cash dividends per share for fiscal years 1997 and 1996:
High Low Dividends
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
1996
Fourth quarter $13 1/8 $10 1/2 $0.03
Third quarter 16 11 7/8 0.03
Second quarter 16 12 1/4 0.03
First quarter 13 1/8 11 1/2 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 April 1, 1996, the Company issued from its treasury 5,340 shares of its
common stock to its non-employee directors. A portion of the directors' fees
and meeting fees, in the amount of $25,813, and cash of $33,595 was the
consideration for this purchase. 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.
On May 17, 1996, the Company issued from its treasury 800,000 shares of its
common stock as part of the consideration for its acquisition of all of the
issued and outstanding shares of BRW Group, 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 28, March 29, March 31, March 25, March 26,
1997 1996 1995 1994 1993
--------- --------- --------- --------- --------
Earnings data:
Gross revenues $653,378 $556,763 $382,681 $370,646 $343,768
Net revenues 455,258 397,682 268,969 253,817 251,910
Earnings from operations 36,861 36,901 28,797 33,956 36,588
Net earnings 18,540 22,098 17,879 21,878 23,134
Net earnings per share $ 0.91 $ 0.98 $ 0.79 $ 0.97 $ 1.03
Cash dividends per share 0.12 0.12 0.12 0.12 0.12
Weighted average number
of shares 20,418 22,541 22,593 22,561 22,523
Financial position data:
Current assets $208,254 $216,191 $155,338 $154,702 $145,838
Current liabilities 92,864 70,377 59,115 34,398 35,729
Net working capital 115,390 145,814 96,223 120,304 110,109
Total assets 358,282 317,279 224,627 180,119 161,401
Long-term debt 128,542 75,000 2,336 - -
Shareholders' equity 131,623 167,947 161,630 144,650 125,394
Backlog: $290,000 $252,000 $120,100 $116,356 $112,509
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 consulting services relating to toxic and hazardous
materials and the ability to insure such risks; (c) 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; (d)
increasing competition faced by the Company in its service areas; and (e)
periodic fluctuations in general business conditions and in demand for the
types of services provided by the Company.
Acquisitions and Operations
The Company continued to implement its strategy of growth and diversification
through acquisition during fiscal 1997. Two acquisitions were completed
early in the fiscal year. Acquisitions completed in fiscal 1996 and in
prior years were more fully integrated into the operations of the Dames &
Moore Group of affiliated companies.
The most significant events affecting the comparability of fiscal 1997
results with those of the prior year were the acquisition of BRW Group (BRW)
and DecisionQuest, Inc. (DQ). BRW provides project planning, design and
construction-phase engineering services for transportation and infrastructure
projects. DQ specializes in litigation support services for corporate
clients and individuals, including strategy consulting, development of case
themes, juror analysis and selection, preparation of demonstrative trial
graphics, and witness preparation. These two acquisitions serve unique
markets and, in combination with other group companies, will facilitate
further access to both public sector and private sector markets served by the
Company. In fiscal 1997, the combined revenues of BRW and DQ represented
approximately 9% and other smaller acquisitions approximately 1% of the
Company's total net revenues.
O'Brien Kreitzberg (OK) and Walk Haydel (WH) were acquired by the Company
near the beginning of fiscal 1996, and completed their second year of
operations in fiscal 1997. OK, which provides project and construction
management services, experienced stable revenues but profitability was
negatively impacted by overstaffing due to delayed start-up on certain
major projects. In fiscal 1997, the Company initiated a restructuring which
reduced OK staff levels and closed offices that are not actively involved in
projects. WH, which provides process engineering and design services, took
advantage of increased activity in the oil and gas, petrochemical, and pulp
and paper industries, to substantially increase its revenue base and
profitability. Together, OK and WH produced approximately 27% of the
Company's fiscal 1997 total net revenues.
The business units of the Company, which account for the remaining 63% of
fiscal 1997 revenues, provide environmental and specialized engineering
services through a worldwide network of offices. These business units
continued to be affected by constraints on environmental expenditures by both
private sector clients and government agencies in the United States. While
business volume continued at essentially the same level as in the previous
two fiscal years, two trends affecting the Company's business also continued.
Environmental laws, regulations and enforcement policies remained essentially
unchanged during fiscal 1997, 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 1998 remains unclear. A second
factor was the continued modest decline in the percentage of revenues derived
from U.S. Government projects. As a percentage of the Company's total
business, net revenues attributable to U.S. Government projects were 13.9% in
fiscal 1997, 15.9% in fiscal 1996, and 20.0% in fiscal 1995. A portion of
the decline was attributable to three newly acquired companies, OK, BRW and
DQ, whose U.S. Government revenues are relatively minor.
Offsetting these trends in domestic markets, the Company's international
revenues grew by approximately 14% in fiscal 1997, continuing the strong
growth of the previous two years. This sustained growth trend reflects
increased worldwide demand for engineering and environmental services related
to major capital investment projects, as well as increased opportunities in
developing countries. The Company's partially owned international affiliates
generally performed well. One such affiliate, an agricultural consulting
group in Australia, became totally owned through the Company's acquisition
of the majority owners' shareholdings. In spite of the growth in business
volume, the profitability of international operations declined due to the
inability to efficiently match staffing levels with project staffing needs
in certain international venues. In fiscal 1997, the Company initiated a
restructuring which included employee reductions to bring staff levels in
line with current project requirements. The restructuring also included the
closing of a small number of international offices.
As a means of diversifying its business interests while drawing upon the
skills of the core business, the Company established a new subsidiary in
fiscal 1997. Dames & Moore Ventures (DMV) was formed to make equity
investments related to the Company's areas of expertise. One of DMV's
interests is a 50% interest in Dames & Moore/Brookhill L.L.C. (DMB), which
was formed with the intent of identifying environmentally distressed
properties, acquiring an equity position in selected properties, undertaking
on-site remediation, and developing or selling the remediated properties.
DMB acquired a portfolio of contaminated real estate consisting of 24 assets
located throughout the United States. Dames & Moore expects to remediate the
properties, after which they will be offered for resale. The purchase of
the contaminated properties was financed through a credit facility available
to DMB. The Company intends to pursue further activities of this type in
fiscal 1998 and beyond. DMV's other activity was its minority equity
participation in Glencoe Insurance, Ltd., a company formed to offer
earthquake insurance in California. DMV revenues were insignificant in
fiscal 1997.
On March 24, 1997, the Company acquired the bank debt of Cleveland Wrecking
Company (CWC), a demolition contractor. It is the Company's intent to
foreclose on the assets of CWC and to combine the operations of CWC with
its own demolition contracting unit AECI (previously known as Aman
Environmental Construction, Inc.) to provide site demolition,
decommissioning, cleanup, closure and redevelopment services on a nationwide
basis. In calendar year 1996, the gross revenues of CWC were approximately
$50 million.
The Company believes that it has continued to position itself to address
existing and emerging markets. Its continuing investment in strategic growth
initiatives, combined with the complementary services offered by recently
acquired companies, future acquisitions, new ventures, and limited
restructuring should produce increased earnings in fiscal 1998 and the years
ahead. However, the ultimate demand for the Company's services will be
dependent on a continuation of economic growth, private and public sector
investment, enforcement of environmental regulations, and the Company's
ability to meet the competitive demands of the market for full-service
engineering, environmental, construction management, and litigation support
services.
Dames & Moore has a worldwide network of 197 offices located in 28 countries.
The Company is staffed by over 5,700 employees.
New Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share," which
establishes standards for computing and presenting "basic" and "diluted"
earnings per share. This statement simplifies the standards for computing
earnings per share (as currently required by Accounting Principles
Board Opinion No. 15) and makes them comparable to international standards.
Implementation of this statement is required for the Company's interim
statements for the quarterly period ended December 26, 1997; earlier
application is not permitted. No significant impact on earnings per share is
expected.
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 in 1997, 52 weeks in 1996 and 53
weeks in 1995. The following discussion of operating results does not
normalize or adjust results to account for this difference unless noted.
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.
1997 Increase 1996 Increase 1995
Net Revenues $455,258 14.5% $397,682 47.9% $268,969
The increase 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 12.1%. The remaining increase of $9,357, or 2.4%,
represents growth from the Company's existing lines of business.
The 47.9% increase in net revenues in fiscal 1996 as compared to fiscal 1995
was principally a result of the Company's acquisition of OK and WH, which
contributed $111,380 for the year, representing a 41.4% increase from fiscal
1995. Other acquisitions increased net revenues by $16,131, or 6.0%.
Adjusting fiscal 1995's net revenues to a 52-week year results in core
business growth of $6,277, or 2.4%, in fiscal 1996.
1997 Increase 1996 Increase 1995
Salaries and
Related Costs $315,267 13% $278,946 58.1% $176,479
Salaries and related costs increased by 13% in fiscal 1997 as compared to
fiscal 1996. Acquisitions accounted for $31,429 of the increase, or 11.3%.
The remaining increase of $4,892, or 1.7%, consists of increased 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 69.3% of net revenues.
Of the 58.1% increase in salaries and related costs in fiscal 1996, the
acquisitions of OK and WH accounted for $85,915, or 48.7%, with $11,862, or
6.7%, from other acquisitions. The remaining increase relates to additional
project hiring by the Company's construction unit and 4.0% salary raises
granted at the beginning of the Company's 1996 fiscal year. Excluding the
Company's acquisitions, salaries and related costs represent 67.1% of net
revenues. For the acquisitions, salaries and related costs represent 76.7%
of their net revenues.
1997 Increase 1996 Increase 1995
General Expenses $87,754 21.3% $72,344 25.3% $57,729
General expenses in fiscal 1997 increased by 21.3%; of this amount $10,873,
or 15%, 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 19.3% in fiscal 1997.
The increase in fiscal 1996 in general expenses is entirely attributable to
the acquisitions and has been minimized by savings achieved through sharing
of costs. As a percentage of net revenues, general expenses represent 18.2%
in fiscal 1996, a reduction from 21.5% in fiscal 1995.
1997 Increase 1996 Increase 1995
Depreciation and
Amortization $8,832 41.2% $6,257 28.2% $4,881
New acquisitions were responsible for $1,455, or 23%, 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.
Substantially all of the increase in depreciation and amortization from
fiscal 1995 to fiscal 1996 relates to acquisitions completed in fiscal 1996.
Depreciation and amortization represents 1.6% of net revenues for fiscal 1996.
1997 Increase 1996 Increase 1995
Amortization of
Goodwill $3,893 20.4% $3,234 198.6% $1,083
Amortization of goodwill increased in both fiscal 1997 and 1996 due to the
Company's acquisitions. Any future acquisitions will continue this trend.
1997 Decrease 1996 Increase 1995
Earnings from
Operations $36,861 (.11)% $36,901 28.2% $28,797
The Company's operating margin as a percentage of net revenues was 8.1% for
fiscal 1997, 9.3% for fiscal 1996, and 10.7% for fiscal 1995. The
restructuring charge to eliminate staffing that does not match project
needs, closure of certain offices and losses on assets primarily in its Dames
& Moore core business International Division and at OK, and the staffing
imbalance that developed during the year, adversely impacted the operating
margin in fiscal 1997. 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% without the restructuring
charge. The decline in operating margin for fiscal 1996 was attributable to
lower margins from OK and WH.
1997 Decrease 1996 Increase 1995
Investment and
Other Income $2,014 (38.5%) $3,274 4.8% $3,124
The decline in investment and other income 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.
1997 Increase 1996 Increase 1995
Interest Expense $7,386 159.7% $2,844 1,808.0% $149
The Company has utilized borrowings to fund acquisitions, related business
ventures and purchases of treasury stock, including the 3,700,000 shares from
Hochtief. Accordingly, interest expense has increased, and it is
anticipated that it will continue to increase. See Liquidity and Capital
Resources.
1997 Decrease 1996 Increase 1995
Income Taxes $12,949 (15)% $15,233 16.3% $13,098
Income tax expense as a percentage of earnings before income taxes and the
cumulative effect of accounting changes was 41.1% in fiscal 1997, 40.8% in
fiscal 1996, and 41.2% in fiscal 1995.
1997 Decrease 1996 Increase 1995
Net Earnings $18,540 (16.1)% $22,098 23.6% $17,879
Net earnings as a percentage of net revenues was 4.1% in fiscal 1997, 5.6%
in fiscal 1996 and 6.65% in fiscal 1995. The decrease in fiscal 1997 is a
result of the restructuring charge, administrative charges previously
mentioned, increased interest costs and reduced income from the Company's
captive insurance investment portfolio.
Liquidity and Capital Resources:
Cash and cash equivalents totaled $12,726 at March 28, 1997, compared to
$55,351 at March 29, 1996. Working capital at March 28, 1997 was $115,390 as
compared to $145,814 at March 29, 1996. The primary sources of cash in
fiscal 1997 consisted of funds from operations of $5,780 and proceeds from
issuance of debt of $62,551. The primary uses of cash in fiscal 1997
consisted of acquisitions totaling $22,118, investments and other ventures
of $18,630, repurchases of common stock totaling $58,675 (including $51,158
for the Hochtief shares) and capital expenditures of $9,524.
The changes in the balance sheet accounts are primarily due to the inclusion
of the newly acquired companies. The increase in accounts receivable is
also due to increased business activity at two of the Company's subsidiaries
and the Company's international operations. The increase in other assets is
attributable to the classification of $5,503 of U.S. Government securities
with a maturity beyond one year and a note purchased by the Company for
$5.4 million due from Cleveland Wrecking.
Accrued expenses and other liabilities increased due to the accrual of interest
due on the debt, the restructuring charge taken and several client advances
received. Long-term liabilities reflect an increase in the Company's
deferred income taxes.
For information regarding the Company's long-term debt and purchase of
stock from Hochtief, see Notes 6 and 15 to the Consolidated Financial
Statements.
The Company's annual plan for fiscal 1998 includes a budget for capital
expenditures of approximately $9,900.
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.
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 . . . . . . . . . . . . . . . . . . . . 19
Consolidated Statements of Financial Position as of
March 28, 1997 and March 29, 1996 . . . . . . . . . . . . . . . . . 20
Consolidated Statements of Earnings for the Years Ended
March 28, 1997, March 29, 1996 and March 31, 1995 . . . . . . . . . 21
Consolidated Statements of Changes in Shareholders'
Equity for the Years Ended March 28, 1997, March 29,
1996 and March 31, 1995 . . . . . . . . . . . . . . . . . . . . . . 22
Consolidated Statements of Cash Flows for the Years Ended
March 28, 1997, March 29, 1996 and March 31, 1995 . . . . . . . . . 23
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 24
Supplementary Financial Information - Selected Quarterly
Financial Data (Unaudited). . . . . . . . . . . . . . . . . . . . . 38
Schedule II -- Valuation and Qualifying Accounts . . . . . . . . . . 44
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, Inc.
We have audited the consolidated financial statements of Dames & Moore, Inc.
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, Inc. and subsidiaries as of March 28, 1997 and March 29, 1996 and
the results of their operations and their cash flows for each of the years
in the three-year period ended March 28, 1997 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.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standard No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," effective
March 26, 1994.
KPMG Peat Marwick LLP
Los Angeles, California
May 15, 1997
DAMES & MOORE
Consolidated Statements of Financial Position
(In thousands, except share and per share amounts)
March 28, March 29,
Assets 1997 1996
- ------ --------- ---------
Current
Cash and cash equivalents $ 12,726 $ 55,351
Marketable securities 5,984 14,936
Billed accounts receivable, net of
allowance for doubtful accounts
of: 1997-$3,001 and 1996-$1,886 114,126 84,616
Billed contract retentions 5,095 7,295
Unbilled 56,491 43,813
Total accounts receivable 175,712 135,724
Deferred income taxes 4,135 -
Prepaid expenses and other assets 9,697 10,180
Total current assets 208,254 216,191
Property and equipment, net 19,594 14,871
Goodwill of acquired business, net of
accumulated amortization of:
1997-$8,907 and 1996-$5,014 109,626 84,294
Investments in affiliates 9,270 1,394
Other assets 11,538 529
$358,282 $317,279
Liabilities and shareholders' equity
Current:
Current portion of long-term debt $ 11,560 $ -
Accounts payable 23,021 20,162
Accrued payroll and employee benefits 24,784 26,733
Current income taxes payable 3,145 2,800
Accrued expenses and other liabilities 30,354 20,682
Total current liabilities 92,864 70,377
Long-term debt 128,542 75,000
Other long-term liabilities 5,253 3,955
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: 1997-22,726,000;
1996-22,686,000 107,242 106,804
Retained earnings 87,979 75,295
Treasury stock: 1997-4,714,000; 1996-
1,150,000 shares (63,070) (13,859)
Other shareholders' equity (528) (293)
Total shareholders' equity 131,623 167,947
$358,282 $317,279
The accompanying notes are an integral part of the consolidated financial
statements.
DAMES & MOORE
Consolidated Statements of Earnings
(In thousands, except per share amounts)
March 28, March 29, March 31,
1997 1996 1995
--------- --------- ---------
Gross revenues $653,378 $556,763 $382,681
Direct costs of outside services 198,120 159,081 113,712
Net revenues 455,258 397,682 268,969
Operating expenses:
Salaries and related costs 315,267 278,946 176,479
General expenses 87,754 72,344 57,729
Depreciation and amortization 8,832 6,257 4,881
Amortization of goodwill 3,893 3,234 1,083
Restructuring costs 2,651 - -
418,397 360,781 240,172
Earnings from operations 36,861 36,901 28,797
Investment and other income 2,014 3,274 3,124
Interest expense (7,386) (2,844) (149)
Earnings before income taxes and cumulative
effect of accounting change 31,489 37,331 31,772
Income taxes 12,949 15,233 13,098
Earnings before cumulative effect of
accounting change 18,540 22,098 18,674
Cumulative effect of accounting change - - (795)
Net earnings $ 18,540 $ 22,098 $ 17,879
Earnings per share:
Earnings before cumulative effect of
accounting change $ 0.91 $ 0.98 $ 0.83
Cumulative effect of accounting change - - (0.04)
Net earnings $ 0.91 $ 0.98 $ 0.79
Cash dividends declared per share $ 0.12 $ 0.12 $ 0.12
Weighted average number of shares 20,418 22,541 22,593
The accompanying notes are an integral part of the consolidated financial
statements.
DAMES & MOORE
Consolidated Statements of Changes in Shareholders' Equity
(In thousands)
Cumulative Unrealized
Common Stock Retained Translation Treasury Loss on Deferred
Shares Amount Earnings Adjustment Stock Investments Compensation
Balances at March 25, 1994 22,578 $105,381 $40,749 $ - $ - (1,169) $ (311)
Restricted shares issued to
employees 34 660 - - - - (220)
Restricted shares repurchased (4) (80) - - - - 40
Net earnings - - 17,879 - - -
Cash dividends - - (2,713) - - - -
Change in unrealized loss - - - - - 1,169 -
Amortization of deferred
compensation - - - - - - 245
Balances at March 31, 1995 22,608 $105,961 $55,915 - $ - $ - $(246)
Restricted shares issued to
employees 90 1,080 - - - - (360)
Restricted shares repurchased (12) (237) - - - - 81
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 - - - (313) - - -
Balances at March 28, 1997 22,726 $107,242 $87,979 $(313) $(63,070) $ - $(215)
The accompanying notes are an integral part of the consolidated
financial
statements.
DAMES & MOORE
Consolidated Statements of Cash Flows
(In thousands)
Fiscal Year Ended
March 28, March 29, March 31,
1997 1996 1995
Cash flows from operating activities:
Net earnings $18,540 $22,098 $ 17,879
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 12,943 9,723 6,209
Unrealized loss (gain) on marketable
securities - (1,424) (401)
Earnings of equity investments (80) (47) (200)
Deferred income taxes (2,437) 5,461 (2,107)
Cumulative effect of accounting change - - 795
Change in assets and liabilities net
of effects of purchases of businesses:
Marketable securities 8,952 487 17,717
Accounts receivable (24,297) (4,162) (4,640)
Prepaid expenses and other assets 1,285 (1,578) (624)
Income tax receivable 121 (1,122) -
Accounts payable and accrued expenses (9,247) 2,398 11,507
Net cash provided by operating activities 5,780 31,834 46,135
Cash flows from investing activities:
Purchases of businesses, net of cash
acquired (22,118) (37,127) (58,135)
Purchases of property and equipment (9,524) (7,344) (4,946)
Investments, net (7,690) 204 44
Other assets (10,940) - -
Net cash (used in) investing activities (50,272) (44,267) (63,037)
Cash flows from financing activities:
Net repayments on current portion of
long-term debt - (1,638) -
Debt issuance costs - (529) -
Proceeds from issuance of debt 62,551 118,347 2,628
Principal payments on debt - (45,683) -
Issuance of common stock 298 720 440
Treasury stock issued 59 - -
Restricted stock repurchased - (156) (40)
Treasury stock purchased (58,675) (13,859) -
Dividends paid (2,366) (2,718) (2,713)
Net cash provided by financing activities 1,867 54,484 315
Net (decrease) increase in cash and cash
equivalents (42,625) 42,051 (16,587)
Cash and cash equivalents, beginning of year 55,351 13,300 29,887
Cash and cash equivalents, end of year $12,726 $55,351 $ 13,300
Supplemental disclosures of cash flow
information:
Interest paid $ 3,263 $ 2,844 $ 150
Income taxes paid 14,810 16,405 12,438
Non cash investing activities-business
acquisitions 9,879 2,595 -
The accompanying notes are an integral part of the consolidated financial
statements.
DAMES & MOORE
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, Inc. (the "Company") 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
1997 presentation.
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.
Effective March 26, 1994 the Company adopted SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
Under the new standard the Company classified all of its marketable
securities as trading securities or available-for-sale. Prior to
1995, the Company's marketable securities were carried at fair
value, with unrealized gains and losses reported as a separate
component of shareholders' equity. The adoption of SFAS No.
115 resulted in a one-time charge for the cumulative effect of a
change in accounting principle, net of tax benefit, of $795,000.
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 when 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.
Under a major portion of contracts with the United States
Government, all contract costs 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 28, 1997, the Company has
$3,700,000 of claims receivable.
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.
Foreign Currency Translation:
The Company's foreign subsidiaries and branches have been using
the U.S. dollar as their functional currency. The Company has
determined, that due to growth and expansion in certain countries,
the majority of these entities have become self-contained and are
integrated within the countries' economic environment.
Accordingly, effective during the fiscal year ending March 28,
1997, the functional currencies for these certain entities are
their respective local currency. In these circumstances assets
and liabilities 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 remains 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.
Depreciation:
Property and equipment are depreciated on a straight-line basis over
estimated useful lives ranging from 3 to 10 years or, in the case
of leasehold improvements, 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.
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.
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.
Earnings Per Share:
Earnings per share are computed based on the weighted average
number of common shares outstanding during each period presented.
Outstanding stock options considered to be common stock equivalents
have not been included because the effect would be immaterial.
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 1997, 52
weeks in 1996 and 53 weeks in 1995.
Note 2 - Acquisitions:
During fiscal 1997, the Company acquired two new companies that
will operate 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 $25,284,000. The purchase cost in excess of book value of
the net 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 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)
1996
Net revenues $438,964
Net earnings 22,193
Earnings per share $ 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 $7,237,000 plus future payments contingent on
future earnings. The total costs in excess of net tangible
assets acquired are being amortized over the period of expected
benefit, generally 15 to 40 years.
The Company acquired Walk, Haydel & Associates, Inc., a process
engineering and design company, on April 6, 1995, for a purchase
price of $33,870,000. Additional payments are due during each of
the three twelve-month periods following the acquisition based
on 50% of its pre-tax earnings, as defined. The purchase price
in excess of the net assets acquired is being amortized over 40
years.
On March 31, 1995, the Company, through a newly formed, wholly
owned subsidiary, O'Brien-Kreitzberg, Inc., acquired substantially
all the assets and assumed substantially all the liabilities of
O'Brien-Kreitzberg & Associates, Inc., a project and construction
management company. The purchase price included cash payments
of $40,428,000 plus the assumption of certain liabilities of
$22,383,000. The purchase price in excess of the net assets
acquired is being amortized over 40 years.
During fiscal 1996, the Company also purchased two small firms
for $2,339,000, and for one, additional payments contingent on
future earnings. The total costs in excess of net tangible
assets acquired are being amortized over periods of expected
benefit, generally 4 to 8 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.
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,
$5,503,000 of the available-for-sale 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 28, 1997:
Available-for-sale:
Securities of the U.S. Government $11,487 $11,487
At March 29, 1996:
Trading securities:
Equity securities $12,879 $14,936
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. During March 1997, DMB acquired an interest in 24
assets by purchasing either a fee interest or a property-related
mortgage note.
The acquisition was financed with senior debt of $54,082,000,
subordinated debt of $14,922,000 and cash of $3,714,000. 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 $2,324,000 in DMB under
the equity method of accounting. Condensed financial information
follows (in thousands):
March
28, 1997
Mortgage notes receivables $54,693
Property 17,156
Other assets 4,371
Total assets $76,220
Mortgages payable $69,004
Other liabilities 2,681
Shareholders' equity 4,535
Total liabilities and equity $76,220
Year ended
March 28, 1997
Revenues $ 482
Costs and expenses 1,661
Net (loss) income $(1,179)
The Company also has a 9.9% interest in Glencoe Insurance Ltd., a
company formed to offer earthquake insurance in California. The
Company accounts for its investment of $5,144,000 under the equity
method of accounting. Equity investments in other unconsolidated
investments amounted to $1,802,000.
Note 5 - Composition of Certain Financial Statement Captions: (in thousands)
1997 1996
Property and equipment, at cost:
Office equipment and furniture $42,809 $34,554
Technical and field equipment 9,848 9,753
Leasehold improvements 4,790 3,516
57,447 47,823
Less accumulated depreciation and
amortization 37,853 32,952
$19,594 $14,871
Accrued payroll and employee benefits:
Salaries, wages and related taxes $11,530 $13,894
Accrued vacation 11,585 10,042
Accrued pension costs 1,669 2,797
$24,784 $26,733
Accrued expenses and other liabilities:
Deferred acquisition payments $4,661 $ 5,440
Accrued insurance costs 6,909 8,462
Accrued occupancy 3,240 2,395
Accrued interest 3,973 -
Client advances 3,186 79
Deferred income 1,912 1,665
Accrued expenses 2,785 407
Other liabilities 3,688 2,234
$30,354 $20,682
Note 6 - Long-Term Debt:
Long-term debt consists of the following (in thousands):
1997 1996
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 -
7.19% Series F notes, due December 16, 2004 10,000 -
7.23% Series G notes, due December 16, 2005 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 -
Lines of credit 18,560 -
Other notes payable, due July 1998 1,542 -
140,102 75,000
Current portion of long-term debt 11,560 -
$128,542 $75,000
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. All such requirements were satisfied as of March 28, 1997.
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 $79,903,000 available for borrowing 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 6.2% at March 28, 1997. 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 28, 1997. As of March 28,
1997, under these lines, the Company had borrowings of $18,560,000,
and standby letters of credit totaling $15,565,000 principally for
project performance, advance payment guarantees and the Company's
domestic insurance program. The lines of credit mature as follows:
$5,093,000 in February 1998, $14,810,00 in March 1998, and
$60,000,000 in January 1999. 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: 1998-$11,560,000, 1999-$8,542,000, 2000-none, 2001-
$40,000,000, and 2002-none.
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 $222,000 in 1997, a loss of $433,000 in 1996, and a gain
of $500,000 in 1995. (Foreign currency amounts in thousands.)
1997 1996
Australian dollar 3,000 1,000
British pound 2,000 -
Canadian dollar - 2,000
Note 8 - Fair Values of Financial Instruments:
The carrying amount of marketable securities are 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:
1997 1996 1995
U.S. Federal taxes:
Current $11,761 $11,126 $11,433
Deferred (1,736) (529) (1,939)
10,025 10,597 9,494
State and local taxes:
Current 1,841 2,053 2,524
Deferred (166) (97) (168)
1,675 1,956 2,356
Non-U.S. taxes:
Current 1,249 2,680 1,248
$12,949 $15,233 $13,098
The sources of earnings before income taxes consist of the following:
1997 1996 1995
U.S. earnings before income taxes $31,178 $35,146 $29,174
Non-U.S. earnings before income taxes 311 2,185 2,598
Earnings before income taxes $31,489 $37,331 $31,772
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 $11,021 $13,066 $11,120
State income taxes, net of Federal
benefit 1,089 1,271 1,531
Other 839 896 447
Total income taxes $12,949 $15,233 $13,098
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:
1997 1996
Deferred tax assets:
Compensation expense $ 3,698 $1,942
Litigation reserve 718 1,339
Accrued expenses 960 -
Allowance for doubtful accounts 558 200
Other 344 185
Total current deferred tax assets$ 6,278 $3,666
Deferred tax liabilities:
Cash to accrual adjustments from
acquisitions $ 1,993 $3,038
Unrealized gains - 841
Other 150 -
Total current deferred tax
liabilities 2,143 3,879
Noncurrent:
Depreciation and amortization 1,840 494
Total deferred tax liabilities $ 3,983 $4,373
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 28,
1997 (in thousands):
Fiscal Year(s) Total
1998 $18,136
1999 14,803
2000 11,888
2001 8,907
2002 5,484
Thereafter 10,233
Total minimum lease payments $69,451
The following schedule shows the composition of total rental
expenses for all operating leases (in thousands):
1997 1996 1995
Total rental expense $23,617 $20,189 $15,807
Less sublease rentals 324 232 110
$23,293 $19,957 $15,697
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 result of
operations.
During the year the Company reached an agreement to settle with a
townhome association an action filed in 1994 alleging settlement
problems with the foundation of the townhomes. The developers of
the townhomes have indicated that they do not intend to pursue any
other claims against the Company. There was no earnings impact
in the current year resulting from this settlement.
At March 28, 1997, the Company was contingently liable as guarantor
for $407,000 of borrowings by various individual officers.
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 28, 1997,
223,808 shares of restricted stock have been issued under the Plan.
1997 1996 1995
Restricted stock issued 37,751 90,000 33,836
Weighted-average fair $11.125 $12.00 $19.50
value of restricted stock
granted during the year
Non-qualified stock options are granted at fair value at the date
of grant and 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.
1997 1996 1995
----------------------- ------------------------ -------------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
Outstanding at beginning 1,517,823 $16.87 1,619,874 $17.03 1,176,941 $ 19.48
of the year
Granted 276,554 11.24 40,000 12.625 532,045 12.00
Exercised (2,737) 12.00 - -
Canceled (112,784) 14.83 (142,051) 17.48 (89,112) 19.39
Outstanding at the end
of the year 1,678,856 $16.09 1,517,823 $16.87 1,619,874 $17.03
Exercisable at year-end 970,941 $18.58 705,678 $19.47 502,829 $19.44
Weighted-average fair $ 4.40 $ 5.05 $ 4.94
value of options granted
during the year
The fair value of each option grant is estimated on the date of grant
using the Block-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1995, 1996 and 1997,
respectively: expected volatility of 27.58%, 26.59% and 27.15%; risk-
free interest rates of 7.13%, 6.04%, and 6.24%; expected lives
of 5.5, 6 and 5.6 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.
1997 1996
------------------------- ------------------------
Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price
Outstanding at beginning
of the year 15,000 $13.625 -
Granted 8,000 11.75 15,000 $13.625
Exercised - -
Outstanding at the end of
the year 23,000 $12.97 15,000 $13.625
Exercisable at year-end 4,998 $13.625 None
Weighted-average fair $ 4.90 $ 5.60
value of options granted
during the year
The fair value of each option grant is estimated on the date of grant
using the Block-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1996 and 1997,
respectively: expected volatility of 26.87% and 27.97%; risk-free
interest rates of 6.44% and 6.4%; expected lives of 6 years and no
dividends.
The following table summarizes both stock option plans' information
on stock options outstanding at March 28, 1997:
Options Outstanding Options Exercisable
-------------------------------------------------- ---------------------------------
Number Weighted-Avg. Number
Range of Outstanding Remaining Weighted-Avg. Exercisable at Weighted-Avg.
Exercise Prices at 3/28/97 Contractual Life Exercise Price 3/28/97 Exercise Price
$11.125 to $13.625 755,786 8.4 $11.76 116,978 $12.07
$16.65 to $19.50 660,996 6.5 18.98 573,887 18.90
$20.00 to $21.75 285,074 5.0 20.59 285,074 20.59
Pro-Forma Disclosure
The Company continues to apply APB Opinion 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 from 12% 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
1997, 1996 and 1995 were $3,315,000, $2,957,000 and $2,134,000,
respectively. In addition, the largest of the plans has 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; during the year this was modified
to be discretionary. Profit-sharing contributions to the other
plans are discretionary. The contributions for 1997, 1996 and 1995
were $1,684,000, $2,553,000 and $1,927,000, 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 1997, 1996 and 1995 were $1,719,000, $1,369,000 and
$783,000, 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 $63,183,000,
$63,313,000 and $53,794,000 during fiscal years 1997, 1996 and
1995, respectively.
Selected geographic information is summarized as follows (in
thousands):
United Other Executive
States Countries Office Total
Net revenues 1997 $389,521 $65,737 $ - $455,258
1996 341,315 56,367 - 397,682
1995 232,899 36,070 - 268,969
Earnings from
Operations 1997 $ 49,493 $ 2,330 $(14,962) $ 36,861
1996 45,519 4,480 (13,098) 36,901
1995 38,223 3,756 (13,182) 28,797
Identifiable
Assets 1997 $268,236 $53,435 $36,611 $358,282
1996 216,510 37,233 63,536 317,279
1995 166,200 33,195 25,232 224,627
Note 15 - 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 1997 the Company repurchased 668,700 shares for a
total of 1,819,000 shares through March 28, 1997. 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 16 - 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 17- Restructuring Costs
In the fourth quarter 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. At March 28, 1997,
approximately $2.3 million remains to be expended to complete the
restructuring.
DAMES & MOORE
Supplementary Financial Information
Selected Quarterly Financial Data (Unaudited) (In thousands, except
per share amounts):
First Second Third Fourth
1997: Quarter Quarter Quarter Quarter
Gross revenues $154,839 $163,110 $168,350 $167,079
Net revenues 108,116 115,373 114,709 117,060
Earnings from operations 9,209 11,528 10,800 5,324
Net earnings 4,981 6,022 5,636 1,901
Earnings per share $ 0.23 $ 0.28 $ 0.28 $ 0.11
Weighted average number of
shares 21,597 21,823 20,188 18,061
1996:
Gross revenues $141,856 $141,786 $139,969 $133,152
Net revenues 100,654 100,492 97,840 98,696
Earnings from operations 9,607 9,477 9,605 8,212
Net earnings 5,727 5,803 5,335 5,233
Earnings per share $ 0.25 $ 0.26 $ 0.24 $ 0.24
Weighted average number of
shares 22,681 22,662 22,660 22,154
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 11,
1997, which will be filed with the Securities and Exchange Commission
within 120 days after March 28, 1997, 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
The Company filed a Current Report on Form 8-K dated March 24, 1997
reporting under Item 5 the adoption of a Rights Agreement. No
financial statements were 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 Asset Purchase Agreement dated March 31, 1995 among O'Brien-
Kreitzberg Inc., O'Brien-Kreitzberg & Associates, Inc., Fred C.
Kreitzberg, The Kreitzberg 1994 Revocable Trust, and Richard
Sklar (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 6, 1995).
2.2 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).
2.3 Stock Purchase Agreement dated November 5, 1996 for the
purchase of shares of DM Investors, Inc., (Hochtief)
(incorporated herein by reference to Exhibit 2.1 of the
Company's Current Report on Form 8-K [File No. 1-11075]
filed on November 19, 1996).
3.1 Restated Certificate of Incorporation of Dames & Moore, Inc.
dated December 7, 1993 (incorporated herein by reference to
Exhibit 3.1 of the Company's Quarterly Report on Form 10-Q
[File No. 1-11075] for the quarter ended December 24, 1993).
3.2 Restated Bylaws of Dames & Moore, Inc. (incorporated herein by
reference to Exhibit 3.2 of Amendment No. 3 to the Company's
Registration Statement on Form S-1 [File No. 33-42220], filed
on February 7, 1992).
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.
4.3 Second Amendment dated as of November 18, 1996 to the Note
Purchase Agreement dated as of March 15, 1996.
4.4 Note Purchase Agreement dated as of December 16, 1996 between
the Company and the Noteholders.
4.5 Third Amendment dated as of December 16, 1996, to the Note
Purchase Agreement dated as of March 15, 1996.
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 Dames & Moore, Inc. Deferred Compensation Plan dated December
4, 1993 (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 24, 1993).
10.2 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).
10.3 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).
10.4 Dames & Moore, Inc. Amended and Restated 1991 Long-Term
Incentive Plan.
10.5 Dames & Moore, Inc. 1995 Stock Option Plan for Non-Employee
Directors.
10.6 Amendment No. 1 to Dames & Moore, Inc. Deferred Compensation
Plan.
10.7 First Amendment to First Amended and Restated Credit Amendment,
between Bank of America National Trust and Savings Association
and the Company.
10.8 Second Amendment to First Amended and Restated Credit
Agreement, between Bank of America National Trust and Savings
Association and the Company.
10.9 Employment Agreement dated April 1, 1997 between Dames & Moore,
Inc. and Arthur C. Darrow.
10.10 Agreement Regarding Severance Payments dated April 1, 1997
by and between Dames & Moore, Inc. and Mark A. Snell.
10.11 Senior Loan Agreement between DMB/Remediation LLC as Borrower
and PPA Funding Corp., as Senior Lender dated March 11, 1997.
10.12 Greenfields Funding Corp. and DMB/Remediation LLC Subordinated
Loan Agreement dated March 11, 1997.
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).
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, Inc.
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, INC.
Date: June 16, 1997 By ARTHUR C. DARROW
------------------------------
Arthur C. Darrow
President and
Chief Executive Officer
Date: June 16, 1997 By 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 16, 1997.
By ARTHUR C. DARROW
-------------------------------
Arthur C. Darrow
Director
President and
Chief Executive Officer
(Principal Executive Officer)
By MARK A. SNELL
------------------------------
Mark A. Snell
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
By LESLIE S. PUGET
------------------------------
Leslie S. Puget
Corporate Controller
(Principal Accounting Officer)
By GEORGE D. LEAL
------------------------------
George D. Leal, Director
By ROBERT M. PERRY
------------------------------
Robert M. Perry, Director
By RICHARD C. TUCKER
------------------------------
Richard C. Tucker, Director
By HARALD PEIPERS
------------------------------
Harald Peipers, Director
By MICHAEL R. PEEVEY
------------------------------
Michael R. Peevey, Director
By JOHN P. TRUDINGER
------------------------------
John P. Trudinger, Director
By ANTHONY R. MOORE
------------------------------
Anthony R. Moore, Director
DAMES & MOORE
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Fiscal Years Ended March 28, 1997, March 29, 1996 and March 31, 1995
Additions
------------------------
Balance at Charged to Charged to Balance at
beginning costs and other end of
Description year expenses accounts Deductions year
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
Year Ended March 31, 1995
Allowance for doubtful
accounts $ 957,000 $ 264,000 $593,000(1) $(113,000) $1,701,000
(1) Amount recorded on books of acquired entities at date of acquisition.
DAMES & MOORE
INDEX TO EXHIBITS
Exhibit
Number Description Page
2.1 Asset Purchase Agreement dated March 31, 1995
among O'Brien-Kreitzberg Inc., O'Brien-Kreitzberg
& Associates, Inc., Fred C. Kreitzberg, The
Kreitzberg 1994 Revocable Trust, and Richard Sklar
(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 6, 1995).
2.2 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).
2.3 Stock Purchase Agreement dated November 5, 1996 for
the purchase of shares of DM Investors, Inc.,
(Hochtief) (incorporated herein by reference to Exhibit
2.1 of the Company's Current Report on Form 8-K [File
No. 1-11075] filed on November 19, 1996).
3.1 Restated Certificate of Incorporation of Dames & Moore,
Inc. dated December 7, 1993 (incorporated herein by
reference to Exhibit 3.1 of the Company's Quarterly
Report on Form 10-Q [File No. 1-11075] for the quarter
ended December 24, 1993).
3.2 Restated Bylaws of Dames & Moore, Inc. (incorporated
herein by reference to Exhibit 3.2 of Amendment No. 3
to the Company's Registration Statement on Form S-1
[File No. 33-42220], filed on February 7, 1992).
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 Filed
Note Purchase Agreement dated as of March 15, 1996. Electronically
4.3 Second Amendment dated as of November 18, 1996 to Filed
the Note Purchase Agreement dated as of March 15, Electronically
1996.
4.4 Note Purchase Agreement dated as of December 16, Filed
1996 between the Company and the Noteholders. Electronically
4.5 Third Amendment dated as of December 16, 1996, to the
Note Purchase Agreement dated as of March 15, 1996.
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 Dames & Moore, Inc. Deferred Compensation Plan dated
December 4, 1993 (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 24, 1993).
10.2 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).
10.3 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).
10.4 Dames & Moore, Inc. Amended and Restated Filed
1991 Long-Term Incentive Plan. Electronically
10.5 Dames & Moore, Inc. 1995 Stock Option Plan for Filed
Non-Employee Directors. Electronically
10.6 Amendment No. 1 to Dames & Moore, Inc. Deferred Filed
Compensation Plan. Electronically
10.7 First Amendment to First Amended and Restated Filed
Credit Amendment, between Bank of America National Electronically
Trust and Savings Association and the Company.
10.8 Second Amendment to First Amended and Restated Filed
Credit Agreement, between Bank of America National Electronically
Trust and Savings Association and the Company.
10.9 Employment Agreement dated April 1, 1997 between Filed
Dames & Moore, Inc. and Arthur C. Darrow. Electronically
10.10 Agreement Regarding Severence Payments dated Filed
April 1, 1997 by and between Dames & Moore, Electronically
Inc. and Mark A. Snell.
10.11 Senior Loan Agreement between DMB/Remediation Filed
LLC as Borrower and PPA Funding Corp., as Senior Electronically
Lender dated March 11, 1997.
10.12 Greenfields Funding Corp. and DMB/Remediation Filed
LLC Subordinated Loan Agreement dated March 11, Electronically
1997.
21.1 List of Subsidiaries of the Company. Filed
Electronically
23.1 Consent of KPMG Peat Marwick LLP, independent Filed
certified public accountants. Electronically
27.1 Financial Data Schedule. Filed
Electronically