EXHIBIT 99.2
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report.............................................. F-2
Consolidated Statements of Financial Position as of March 26, 1999 and
March 27, 1998........................................................... F-3
Consolidated Statements of Operations for the years ended March 26, 1999,
March 27, 1998 and March 28, 1997........................................ F-4
Consolidated Statements of Changes in Shareholders' Equity for the years
ended March 26, 1999, March 27, 1998 and March 28, 1997.................. F-5
Consolidated Statements of Cash Flows for the years ended March 26, 1999,
March 27, 1998 and March 28, 1997........................................ F-6
Notes to Consolidated Financial Statements................................ F-7
Supplementary Financial Information--Selected Quarterly Financial Data
(unaudited).............................................................. F-26
Schedule II--Valuation and Qualifying Accounts............................ F-27
F-1
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
Dames & Moore Group
We have audited the consolidated financial statements of Dames & Moore Group
and subsidiaries as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we have also audited the
financial statement schedule listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Dames &
Moore Group and subsidiaries as of March 26, 1999 and March 27, 1998 and the
results of their operations and their cash flows for each of the years in the
three-year period ended March 26, 1999 in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ KPMG LLP
-------------------------------------
KPMG LLP
Los Angeles, California
May 21, 1999
F-2
DAMES & MOORE GROUP
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands, except share and per share amounts)
March
26, March 27,
1999 1998
-------- ---------
ASSETS
Current:
Cash and cash equivalents................................ $ 15,880 $ 9,493
Marketable securities.................................... 336 1,031
Accounts receivable, net of allowance for doubtful
accounts of: 1999--$9,526 and 1998--$3,408.............. 193,051 135,298
Billed contract retentions............................... 22,071 10,992
Unbilled................................................. 98,256 55,844
-------- --------
Total accounts receivable.............................. 313,378 202,134
Deferred income taxes.................................... 10,705 4,303
Prepaid expenses and inventories......................... 14,841 7,310
Other current assets..................................... 11,366 3,858
-------- --------
Total current assets................................... 366,506 228,129
Property and equipment, net................................ 57,518 23,397
Goodwill of acquired businesses, net of accumulated
amortization of: 1999--$20,070 and 1998--$12,535.......... 159,918 117,849
Investments in affiliates.................................. 10,461 4,868
Other assets............................................... 40,176 12,118
-------- --------
$634,579 $386,361
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current:
Current portion of long-term debt........................ $ 18,433 $ 9,614
Accounts payable......................................... 57,842 31,990
Accrued payroll and employee benefits.................... 38,934 26,364
Current income taxes payable............................. 6,245 6,864
Accrued expenses and other liabilities................... 60,882 23,727
-------- --------
Total current liabilities.............................. 182,336 98,559
Long-term debt............................................. 284,147 132,010
Other long-term liabilities................................ 21,176 5,883
Contingencies (Note 11)
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: 54,000,000; shares issued: 1999--
22,781,000, 1998--22,740,000............................ 108,045 107,512
Retained earnings........................................ 102,264 104,952
Treasury stock: 1999--4,451,000, 1998--4,573,000 shares.. (59,373) (61,157)
Accumulated other comprehensive income................... (3,594) (1,289)
Other shareholders' equity............................... (422) (109)
-------- --------
Total shareholders' equity............................. 146,920 149,909
-------- --------
$634,579 $386,361
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
DAMES & MOORE GROUP
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
March March
March 26, 27, 28,
1999 1998 1997
---------- -------- --------
Gross revenues................................ $1,029,967 $703,902 $653,378
Direct costs of outside services.............. 390,621 221,398 198,970
---------- -------- --------
Net revenues................................ 639,346 482,504 454,408
---------- -------- --------
Operating expenses:
Salaries and related costs.................. 445,594 337,474 315,896
General expenses............................ 123,206 88,401 86,275
Depreciation and amortization............... 12,840 9,216 8,832
Amortization of goodwill.................... 5,504 4,600 3,893
Acquisition related restructuring and other
charges.................................... 28,276 -- 2,651
---------- -------- --------
615,420 439,691 417,547
---------- -------- --------
Earnings from operations...................... 23,926 42,813 36,861
Investment and other income................. 1,231 997 2,014
Interest expense............................ (18,481) (10,292) (7,386)
---------- -------- --------
Earnings before income taxes.................. 6,676 33,518 31,489
Income taxes................................ 4,129 14,188 12,949
---------- -------- --------
Earnings before extraordinary item............ $ 2,547 $ 19,330 $ 18,540
Extraordinary item (less applicable income tax
benefit of $1,737)........................... (2,850) -- --
---------- -------- --------
Net (loss) earnings........................... $ (303) $ 19,330 $ 18,540
========== ======== ========
Basic earnings (loss) per share:
Earnings before extraordinary item.......... $ 0.14 $ 1.08 $ 0.91
Extraordinary item.......................... (0.16) -- --
---------- -------- --------
$ (0.02) $ 1.08 $ 0.91
========== ======== ========
Weighted average number of shares............. 18,237 17,890 20,287
========== ======== ========
Diluted earnings (loss) per share:
Earnings before extraordinary item.......... $ 0.14 $ 1.07 $ 0.91
Extraordinary item.......................... (0.16) -- --
---------- -------- --------
$ (0.02) $ 1.07 $ 0.91
========== ======== ========
Weighted average number of shares............. 18,319 18,048 20,446
========== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
DAMES & MOORE GROUP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
Common Accumulated
Stock & Other Other Comprehensive
Capital in Retained Treasury Comprehensive Shareholders' Earnings
Excess of Par Earnings Stock Income Equity (Loss)
------------- -------- -------- ------------- ------------- -------------
Balances at March 29,
1996.................. $106,804 $ 75,295 $(13,859) $ -- $(293) --
Issued pursuant to
stock
option plan........... 438 -- -- -- (140) --
Net earnings........... -- 18,540 -- -- -- $18,540
Cash dividends, $0.12
per share............. -- (2,366) -- -- -- --
Treasury stock
acquired.............. -- -- (58,675) -- -- --
Treasury stock issued.. -- (3,490) 9,464 -- -- --
Amortization of
deferred
compensation.......... -- -- -- -- 218 --
Change in foreign
currency translation,
net of tax - $190..... -- -- -- (313) -- (313)
-------- -------- -------- ------- ----- -------
Balances at March 28,
1997.................. $107,242 $ 87,979 $(63,070) $ (313) $(215) $18,227
-------- -------- -------- ------- ----- =======
Issued pursuant to
stock
option plan........... 450 -- -- -- (100) --
Restricted shares
repurchased........... (180) -- -- -- 15 --
Net earnings........... -- 19,330 -- -- -- 19,330
Cash dividends, $0.12
per share............. -- (2,168) -- -- -- --
Treasury stock
acquired.............. -- -- (350) -- -- --
Treasury stock issued.. -- (189) 2,263 -- -- --
Amortization of
deferred
compensation.......... -- -- -- -- 191 --
Unrealized gain on
securities,
net of tax - $17...... -- -- -- 30 -- 30
Change in foreign
currency translation,
net of tax - $613..... -- -- -- (1,006) -- (1,006)
-------- -------- -------- ------- ----- -------
Balances at March 27,
1998.................. $107,512 $104,952 $(61,157) $(1,289) $(109) $18,354
-------- -------- -------- ------- ----- =======
Issued pursuant to
stock
option plan........... 578 -- -- -- (140) --
Restricted shares
repurchased........... (60) -- (14) -- 20 --
Net (loss)............. -- (303) -- -- -- (303)
Cash dividends, $0.12
per share............. -- (2,203) -- -- -- --
Treasury stock
acquired.............. -- -- (745) -- -- --
Treasury stock issued.. 15 (182) 2,543 -- (412) --
Amortization of
deferred
compensation.......... -- -- -- -- 219 --
Unrealized loss on
securities, net of tax
- $110................ -- -- -- (196) -- (196)
Change in foreign
currency translation,
net of tax,
net of tax - $641..... -- -- -- (1,052) -- (1,052)
Minimum pension
liability,
net of tax - $678..... -- -- -- (1,057) -- (1,057)
-------- -------- -------- ------- ----- -------
Balances at March 26,
1999.................. $108,045 $102,264 $(59,373) $(3,594) $(422) $(2,608)
======== ======== ======== ======= ===== =======
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
DAMES & MOORE GROUP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Fiscal Year Ended
-------------------------------
March 26, March 27, March 28,
1999 1998 1997
--------- --------- ---------
Cash flows from operating activities:
Net earnings (loss)............................ $ (303) $ 19,330 $ 18,540
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation and amortization............... 20,789 14,032 12,943
Non-cash special charges.................... 26,976 -- --
Losses (earnings) from equity investments... 859 252 (80)
Deferred income taxes....................... (7,672) (354) (2,437)
Change in assets and liabilities net of
effects of purchases of businesses:
Marketable securities..................... -- 5,984 8,952
Accounts receivable....................... (48,130) (21,725) (24,297)
Prepaid expenses and other assets......... (13,319) (2,496) 1,285
Income tax receivable..................... (413) 593 121
Accounts payable and accrued expenses..... 23,116 3,404 (9,247)
--------- -------- --------
Net cash provided by operating activities....... 1,903 19,020 5,780
--------- -------- --------
Cash flows from investing activities:
Purchases of businesses, net of cash acquired.. (128,146) (13,463) (22,118)
Purchases of property and equipment............ (18,615) (11,958) (9,524)
Investments and other assets................... (10,188) (3,600) (18,630)
Proceeds from sales of investments and other
property...................................... 7,354 7,387 --
--------- -------- --------
Net cash used in investing activities........... (149,595) (21,634) (50,272)
--------- -------- --------
Cash flows from financing activities:
Repayments on lines of credit.................. (194,561) (21,000) --
Debt issuance costs............................ (3,867) -- --
Proceeds from debt instruments................. 355,080 22,700 62,551
Issuance of common stock....................... 428 364 357
Stock repurchased.............................. (798) (515) (58,675)
Dividends...................................... (2,203) (2,168) (2,366)
--------- -------- --------
Net cash (used) provided by financing
activities..................................... 154,079 ( 619) 1,867
--------- -------- --------
Net (decrease) increase in cash and cash
equivalents.................................... 6,387 (3,233) (42,625)
Cash and cash equivalents, beginning of year.... 9,493 12,726 55,351
--------- -------- --------
Cash and cash equivalents, end of year.......... $ 15,880 $ 9,493 $ 12,726
========= ======== ========
Supplemental disclosures of cash flow
information:
Interest paid.................................. $ 13,897 $ 9,785 $ 3,263
Income taxes paid.............................. 11,276 10,751 14,810
Non cash investing activities--business
acquisitions................................... 16,027 5,110 9,879
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
DAMES & MOORE GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
Note 1--Summary of Significant Accounting Policies:
Basis of Presentation:
The consolidated financial statements include the accounts of all majority-
owned domestic and foreign subsidiaries. Investments in companies in which
Dames & Moore Group (the "Company") 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 1999 presentation.
Use of Estimates in the Preparation of Consolidated Financial Statements:
The preparation of the consolidated financial statements, in conformity with
generally accepted accounting principles, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenue and expenses
during the reporting period. Actual results may differ from the estimates and
assumptions used in preparing the consolidated financial statements.
Cash and Cash Equivalents:
Cash and cash equivalents consist of unrestricted deposits with banks and
highly liquid investments with an original maturity of three months or less.
Marketable Securities:
Marketable securities consist of equity and debt securities that are
considered either available-for-sale or trading securities as defined by
Statement of Financial Accounting Standard (SFAS) No. 115. Debt securities
with maturity dates beyond a year are classified as Other Assets. Marketable
securities are recorded at fair market value. Changes in unrealized gains and
losses for trading securities are included in earnings; for available-for-sale
securities, they are charged or credited as a component of accumulated other
comprehensive income, net of tax. A decline in the fair value of an available-
for-sale security below cost that is deemed other than temporary is charged to
earnings. Management determines the appropriate classifications of investments
at the time of purchase and reevaluates such designations as of each balance
sheet date.
Depreciation and Amortization:
Property and equipment are depreciated on a straight-line basis over
estimated useful lives ranging from 3 to 10 years and leasehold improvements
are amortized over the lesser of estimated useful lives or the term of the
lease.
Goodwill of Acquired Businesses:
The goodwill of acquired businesses represents the difference between the
purchase cost and the fair value of the net assets of acquired businesses, and
is being amortized on a straight-line basis over 3 to 40 years. The Company
annually evaluates the realizability of goodwill based upon undiscounted
forecasted operating earnings over the remaining amortization period for each
investment having a significant goodwill balance. If an impairment in the
value of the goodwill were to occur, the Company would reflect the impairment
through a reduction in the carrying value of the goodwill based upon the
estimated fair value of the investment.
F-7
DAMES & MOORE GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands, except share and per share amounts)
Note 1--Summary of Significant Accounting Policies: (continued)
Foreign Currency Translation:
The functional currencies for the Company's significant foreign subsidiaries
and branches are their respective local currencies. The assets and liabilities
of these entities are translated into U.S. dollars using exchange rates in
effect at period end. Revenue and expenses are translated at the average rates
of exchange prevailing during the period. The resulting translation
adjustments are reported as a component of accumulated other comprehensive
income, net of tax. In situations where the functional currency is the U.S.
dollar, translation adjustments are included in earnings.
The Company enters into forward foreign currency exchange contracts to
reduce the impact of foreign currency fluctuations on certain project revenues
and costs, and the asset and liability positions of foreign subsidiaries. The
terms of the currency derivatives are generally one year or less. Commencing
in fiscal 1997 the gains or losses from these contracts are generally also
reported as a separate component of shareholders' equity; previously they were
included in earnings.
Recognition of Revenue:
The Company recognizes revenue generally at the time services are performed.
On fixed price contracts, revenue is recognized on the basis of the estimated
percentage of completion of services rendered. On cost reimbursement
contracts, revenue is recognized as costs are incurred and includes applicable
fees earned essentially in the proportion that costs incurred bear to total
estimated final costs. Materials and subcontract costs reimbursed by clients
are included in gross revenues. Anticipated losses are recognized in the
period in which the losses are reasonably determinable. Substantially all
unbilled receivables are expected to be collected within the next 12 months
and retentions at the close of the respective project. Approximately $7,157 of
unbilled receivables and contract retentions not collectible within 12 months
have been classified as other assets.
A major portion of contracts with the United States Government, are subject
to audit and adjustment. Revenue has been recorded in amounts expected to be
realized on final settlement.
Income Taxes:
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Tax provisions are recorded at statutory rates
for taxable items included in the consolidated statements of earnings
regardless of the period such items are reported for tax purposes. Deferred
income taxes are recognized for temporary differences between financial
statement and income tax bases of assets and liabilities for which income tax
effects will be realized in future years.
Stock-Based Compensation:
Prior to March 30, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. As such, compensation expense would be recorded on the date
of grant only if the current market price of the underlying stock exceeded the
exercise price. On March 30, 1996, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation," which permits entities to recognize
as expense over the vesting period the fair value of all stock-based awards on
the date of grant. Alternatively, SFAS No. 123 also allows entities to
continue to apply the provisions of APB Opinion No. 25 and provide pro forma
net income and proforma earning 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.
F-8
DAMES & MOORE GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands, except share and per share amounts)
Note 1--Summary of Significant Accounting Policies: (continued)
Earnings Per Share:
Basic earnings per share is computed by dividing net earnings by the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share adjusts the weighted-average number of common shares to
reflect the potential dilution that could occur if restricted stock was
unrestricted and the assumed exercise of the dilutive stock options
outstanding. This change did not have a material impact on the computation of
the earnings per share data.
Comprehensive Income:
The Financial Accounting Standards Board issued SFAS No. 130, "Reporting
Comprehensive Income," which establishes new standards for reporting and
display of comprehensive income and its components. Other comprehensive income
refers to revenues, expenses, gains and losses that under generally accepted
accounting principles are included in comprehensive income but are excluded
from net earnings as these amounts are recorded directly as an adjustment to
shareholders' equity. The Company adopted SFAS No. 130 in fiscal 1999. The
Company's other comprehensive income is primarily comprised of foreign
currency translation adjustments, unrealized gain or loss on securities, and
adjustments made to recognize additional minimum liabilities associated with
the Company's defined benefit pension plans. Reclassifications related to the
components of other comprehensive income were not significant.
Segment and Related Information:
In 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
established new standards for reporting information about operating segments
in interim and annual financial statements, in accordance with the "management
approach," The management approach designates the internal reporting that is
used by management for making operating decisions and assessing performance as
the source of the Company's reportable segments. The Company adopted SFAS No.
131 with its annual financial statements ending March 26, 1999 which did
affect the disclosure of segment information but did not affect results of
operations or the financial position of the Company.
Recent Accounting Pronouncements:
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which requires
that an entity recognize all derivatives as either assets or liabilities in
the statement of financial position and measure all derivatives at fair value.
Implementation of this statement is effective for fiscal years beginning after
June 15, 1999 commencing with interim periods. The Company is in the process
of determining the impact that the adoption of SFAS No. 133 will have on its
financial position and results of operations.
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 1999, 1998 and 1997.
F-9
DAMES & MOORE GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands, except share and per share amounts)
Note 2--Acquisitions:
On July 31, 1998, the Company acquired all of the membership interests of
Radian International LLC ("Radian"), a multinational engineering, consulting
and construction firm. The purchase price of $117 million in cash is subject
to a post-closing adjustment which is currently under discussion with the
seller. The purchase price in excess of the fair value of the net assets
acquired, plus estimated office closure costs and severance costs are
classified as goodwill and are being amortized over 40 years.
The Company also completed thirteen smaller acquisitions during fiscal 1999
for $16,555 one of which included the issuance of 157,991 shares of the
Company's treasury stock. Seven of the acquisitions have additional future
payments contingent on future earnings. The total purchase cost in excess of
fair value of identifiable assets acquired is classified as goodwill and is
being amortized over the period of expected benefit, which range from 3 to 25
years.
The Company also completed six smaller acquisitions during fiscal 1998 for
$5,740 one of which included the issuance of 163,107 shares of the Company's
treasury stock. Four of the acquisitions have additional future payments
contingent on future earnings. The total purchase cost in excess of fair value
of identifiable assets acquired is classified as goodwill and is being
amortized over the period of expected benefit, which range from 3 to 20 years.
On June 24, 1997, the Company acquired SRA Technologies, Inc., a
professional services company providing specialized clinical laboratory
services, contract research, analysis and management services in the areas of
life sciences, environmental health service studies, and energy. The purchase
price of $8,924 was paid in cash, and no additional payments are due. The
purchase price in excess of the fair value of the identifiable assets acquired
is classified as goodwill and is being amortized over 30 years.
The following schedule summarizes the unaudited pro forma results of
operations as if the acquisition of Radian had occurred at the beginning of
fiscal 1998. Certain adjustments, such as amortization of goodwill, increased
interest expense and income tax have been reflected.
1999 1998
-------- --------
Net revenues............................................. $693,000 $655,042
======== ========
Earnings (loss) before extraordinary item................ $ (8,560) $ 7,618
======== ========
Earnings (loss) per share before extraordinary item
Basic.................................................. $ (.47) $ 0.43
======== ========
Diluted................................................ $ (.47) $ 0.42
======== ========
Net earnings (loss)...................................... $(11,410) $ 7,618
======== ========
Earnings (loss) per share
Basic.................................................. $ (.63) $ 0.43
======== ========
Diluted................................................ $ (.63) $ 0.42
======== ========
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.
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.
F-10
DAMES & MOORE GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands, except share and per share amounts)
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. At March 26, 1999, $5,804 of debt
and equity securities were classified as other assets. At March 27, 1998,
$4,536 of the U.S. Government securities have a maturity greater than 1 year
but within 5 years, and are classified as other assets.
Estimated
Fair
Cost Value
------ ---------
At March 26, 1999:
Available-for-sale:
Debt securities.......................................... $2,126 $2,122
Equity securities........................................ 4,302 4,018
------ ------
$6,428 $6,140
====== ======
At March 27, 1998:
Available-for-sale:
Securities of the U.S. Government........................ $4,502 $4,536
Equity securities........................................ 1,018 1,031
------ ------
$5,520 $5,567
====== ======
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. DMB acquires an interest in assets by
purchasing either a fee interest or a property-related mortgage note. At March
26, 1999, DMB holds 6 assets. Effective January 1, 1999, DMB agreed to
complete the redevelopment and disposition of existing assets, and to cease
the acquisition of any new assets.
Acquisitions have been financed 75% with senior debt, 20% subordinated debt
and 5% equity from DMB. The senior debt bears interest at London Interbank
Offshore Rate (LIBOR) plus 275 basis points, and requires monthly payments of
principal and interest. Cash flow from the properties, including sale proceeds
will generally be distributed 80% to the subordinated lender and 20% to DMB,
until the subordinated lender and DMB each receives its loan advances or
capital contributions, and a return on investment of 20% per annum.
Thereafter, cash flow will be distributed 50% to the subordinated lender and
DMB. The borrowings are all due on December 31, 1999, but may be extended
under certain terms and conditions.
F-11
DAMES & MOORE GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands, except share and per share amounts)
Note 4--Investments in Affiliates: (continued)
The Company accounts for its investment of $1,388 in fiscal 1999 and $3,144
in fiscal 1998 in DMB under the equity method of accounting. Condensed
financial information follows:
March 26, March 27,
1999 1998
---------- ----------
Mortgage notes receivables........................... $ 1,316 $ 4,137
Property............................................. 28,877 33,508
Other assets......................................... 3,426 17,038
------- -------
Total assets....................................... $33,619 $54,683
======= =======
Mortgages payable.................................... $27,676 $41,958
Other liabilities.................................... 4,191 6,726
Shareholders' equity................................. 1,752 5,999
------- -------
Total liabilities and equity....................... $33,619 $54,683
======= =======
Company's share of equity............................ $ 1,330 $ 3,000
======= =======
Year Ended Year Ended
March 26, March 27,
1999 1998
---------- ----------
Revenues............................................. $ 209 $ 18
Costs and expenses................................... (2,280) (1,450)
Net gain on asset dispositions....................... 733 1,061
------- -------
Net loss........................................... $(1,338) $ (371)
======= =======
Company's share of net loss (investments and other
income)............................................. $ (756) $ (179)
======= =======
Equity investments in other unconsolidated investments amounted to $9,131 at
fiscal 1999 and $1,868 in fiscal 1998.
F-12
DAMES & MOORE GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands, except share and per share amounts)
Note 5--Composition of Certain Financial Statement Captions:
1999 1998
-------- -------
Property and equipment, at cost:
Computer equipment........................................ $ 54,713 $36,145
Office equipment and furniture............................ 18,064 13,719
Technical and field equipment............................. 27,780 13,482
Leasehold improvements.................................... 10,799 5,847
-------- -------
111,356 69,193
Less accumulated depreciation and amortization............ 53,838 45,796
-------- -------
$ 57,518 $23,397
======== =======
Other assets:
Notes and other receivables............................... $ 26,705 $ 5,457
Other assets.............................................. 13,471 6,661
-------- -------
$ 40,176 $12,118
======== =======
Accrued payroll and employee benefits:
Salaries, wages and related taxes......................... $ 21,940 $12,901
Accrued vacation.......................................... 16,377 12,192
Accrued pension costs..................................... 617 1,271
-------- -------
$ 38,934 $26,364
======== =======
Accrued expenses and other liabilities:
Accrued insurance costs................................... $ 17,833 $ 6,913
Accrued occupancy......................................... 4,413 4,232
Accrued interest.......................................... 8,700 4,283
Deferred acquisition payments............................. 2,440 1,639
Restructuring and acquisition reserves.................... 10,174 --
Deferred income and client advances....................... 3,435 2,700
Other accrued expenses.................................... 3,987 837
Other liabilities......................................... 9,900 3,123
-------- -------
$ 60,882 $23,727
======== =======
F-13
DAMES & MOORE GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands, except share and per share amounts)
Note 6--Long-Term Debt:
1999 1998
-------- --------
Long-term debt consists of the following:
Term loan................................................ $265,000 $ --
Revolving lines of credit................................ 37,232 20,015
Other notes payable...................................... 348 1,609
Senior Notes:
6.54% Series A notes, due March 29, 2001................ -- 40,000
6.87% Series B notes, due March 29, 2003................ -- 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
7.25% Series E notes, due September 29, 2006............ -- 15,000
-------- --------
302,580 141,624
Current portion of long-term debt......................... 18,433 9,614
-------- --------
$284,147 $132,010
======== ========
The funding of the Radian acquisition resulted in the early extinguishment
of the Company's Senior Notes and certain bank lines of credit. Pre-payment
obligations and deferred financing costs resulted in a pretax charge of
$4,587; after the tax benefit of $1,737, the extraordinary charge was $2,850,
or ($.16) per share, basic and diluted.
The Company's amended long-term debt facility includes a term commitment of
$265,000 and a revolving commitment of $75,000. Interest is charged under
several options, including a base rate or at LIBOR, plus the applicable
margin, at the Company's option. Interest is payable quarterly for base rate
borrowings and for LIBOR borrowings the earlier of the last day of the
interest rate period or three months from the first day of the interest rate
period. The effective interest rate was 6.8% at March 26, 1999. The agreement
contains limitations on additional indebtedness, sales of assets, acquisitions
and capital expenditures, as well as maintenance of certain financial ratios.
The Company was in compliance with all such ratios at March 26, 1999. The term
loan requires quarterly principal payments commencing on June 30, 1999, with
$40,000 of the unpaid balance due on June 30, 2004 and the remaining unpaid
balance of $94,500 due in full on December 31, 2004. The revolving commitment
matures on June 30, 2004. Furthermore, mandatory principal pre-payments or
commitment reductions are required in the event of the occurrence of certain
transactions, as defined in the agreement. As of March 26, 1999, under these
lines, the Company had borrowings of $302,232, and standby letters of credit
totaling $14,156 principally for project performance, advance payment
guarantees and the Company's domestic insurance program. 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: 2000--$18,433; 2001--$16,147; 2002--$26,000; 2003--$36,000; and
2004--$41,000.
F-14
DAMES & MOORE GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands, except share and per share amounts)
Note 7--Foreign Currency Contracts:
In the past, the Company has entered into foreign exchange forward
contracts, all having maturities of less than one year. The 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 gain
of $3 in 1999, a loss of $206 in 1998, and a loss of $222 in 1997. The Company
did not have any open foreign currency contracts at March 26, 1999.
1998
------
Australian dollars.................................................. $1,000
United States dollars............................................... $ 644
Note 8--Fair Values of Financial Instruments:
The carrying amount of marketable securities is based on quoted market
prices at the reporting date for those investments and as such equal fair
value. The fair value of the Company's long-term debt is estimated based on
current rates offered to the Company for debt of the same remaining
maturities, which approximates carrying value. All other financial instruments
bear relatively short-term maturities, and accordingly, the carrying amount of
these investments approximates fair value.
Note 9--Income Taxes:
Income taxes consist of the following:
1999 1998 1997
------- ------- -------
U.S. Federal taxes:
Current.......................................... $ 5,643 $ 9,560 $11,761
Deferred......................................... (5,583) (478) (1,736)
------- ------- -------
60 9,082 10,025
State and local taxes:
Current.......................................... 1,117 1,706 1,841
Deferred......................................... (749) (115) (166)
------- ------- -------
368 1,591 1,675
Non-U.S. taxes:
Current.......................................... 4,003 3,541 1,249
Deferred......................................... (302) (26) --
------- ------- -------
3,701 3,515 1,249
------- ------- -------
$ 4,129 $14,188 $12,949
======= ======= =======
The sources of earnings before income taxes consist of the following:
1999 1998 1997
------ ------- -------
U.S. earnings before income taxes.................... $3,937 $27,438 $31,178
Non-U.S. earnings before income taxes................ 2,739 6,080 311
------ ------- -------
Earnings before income taxes....................... $6,676 $33,518 $31,489
====== ======= =======
F-15
DAMES & MOORE GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands, except share and per share amounts)
Note 9--Income Taxes: (continued)
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:
1999 1998 1997
------ ------- -------
Statutory U.S. Federal income tax................... $2,337 $11,731 $11,021
State income taxes, net of Federal benefit.......... 240 1,034 1,089
Goodwill............................................ 682 653 499
Foreign operations.................................. 1,009 538 603
Other............................................... (139) 232 (263)
------ ------- -------
Total income taxes................................ $4,129 $14,188 $12,949
====== ======= =======
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:
1999 1998
------- -------
Current deferred net tax assets:
Compensation expense...................................... $ 6,174 $ 3,975
Litigation reserve........................................ 788 410
Accrued expenses.......................................... 2,367 171
Allowance for doubtful accounts........................... 1,353 918
Other..................................................... 529 433
------- -------
Total current deferred tax assets....................... 11,211 5,907
------- -------
Cash to accrual adjustments from acquisitions............. 60 1,106
Other..................................................... 446 498
------- -------
Total current deferred tax liabilities.................. 506 1,604
------- -------
Net current deferred tax assets......................... $10,705 $ 4,303
======= =======
Noncurrent deferred net tax liabilities:
Foreign currency translation.............................. $ 1,502 836
Foreign tax credits....................................... 1,301 --
Other..................................................... 1,878 735
------- -------
Total noncurrent deferred tax assets.................... 4,681 1,571
------- -------
Depreciation and amortization............................. 3,457 2,481
Other..................................................... 1,020 569
------- -------
Total noncurrent deferred tax liabilities............... 4,477 3,050
------- -------
Net noncurrent deferred tax assets (liabilities)........ $ 204 $(1,479)
======= =======
F-16
DAMES & MOORE GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands, except share and per share amounts)
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 26, 1999:
Fiscal Year(s) Total
-------------- --------
2000.......................................................... $28,890
2001.......................................................... 25,934
2002.......................................................... 18,591
2003.......................................................... 13,871
2004.......................................................... 9,164
Thereafter.................................................... 11,455
--------
Total minimum lease payments................................ $107,905
========
The following schedule shows the composition of total rental expenses for
all operating leases:
1999 1998 1997
------- ------- -------
Total rental expense............................. $32,986 $24,365 $23,617
Less sublease rentals.......................... 319 140 324
------- ------- -------
$32,667 $24,225 $23,293
======= ======= =======
Note 11--Contingencies:
The Company in the ordinary course of business is a defendant in various
lawsuits involving claims typically filed against the engineering and
consulting professions, primarily alleging professional errors or omissions.
The Company through a wholly owned subsidiary insures the Company's risks for
professional liability, workers compensation, and general and automobile
claims up to certain policy limits. Claims in excess of these limits are
covered by unrelated insurance carriers. Management makes estimates and
assumptions that affect the reported amount of liability and the disclosure of
contingent liabilities. As claims develop, it is possible that the ultimate
results of these claims may differ from management's estimates. In the opinion
of management, based upon information it presently possesses, the resolution
of these claims will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
Note 12--Stock Option Plans:
Long-Term Incentive Plan
The Company's Amended and Restated 1991 Long-Term Incentive Plan (the
"Plan"), which provides for the granting of stock options and the sale of
restricted stock to officers and key employees of the Company, has authorized
and reserved a total of 2,700,000 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 existing
officers, these shares 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
F-17
DAMES & MOORE GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands, except share and per share amounts)
Note 12--Stock Option Plans: (continued)
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
for newly elected officers and at no cost to existing officers, the stock
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
26, 1999, 290,863 shares of restricted stock have been issued under the Plan.
1999 1998 1997
------------------- ------------------- -------------------
Restricted stock
issued................. 65,891 23,300 37,751
Weighted-average fair
value of restricted
stock granted during
the year............... $12.62 $12.88 $11.13
Non-qualified stock options are granted at fair value at the date of grant
and generally vest 25% per year commencing on the first anniversary after the
grant date. Options expire 10 years after the grant date, and all awards need
to be made by May 22, 2005.
1999 1998 1997
------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- -------- --------- --------
Outstanding at beginning
of the year............ 1,593,009 $16.08 1,678,856 $16.09 1,517,823 $16.87
Granted................. 286,039 12.45 8,000 12.88 276,554 11.24
Exercised............... (13,373) 11.85 (6,902) 11.78 (2,737) 12.00
Canceled................ (85,215) 15.90 (86,945) 16.17 (112,784) 14.83
--------- --------- ---------
Outstanding at the end
of the year............ 1,780,460 $15.54 1,593,009 $16.08 1,678,856 $16.09
========= ========= =========
Exercisable at year-
end.................... 1,255,314 $16.99 1,166,549 $17.69 970,941 $18.58
Weighted-average fair
value of options
granted during the
year................... $ 4.89 $ 5.46 $ 4.40
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997, respectively: expected
volatility of 27.91%, 28.28%, and 27.15%; risk-free interest rates of 5.53%,
6.81%, and 6.24%; expected lives of 6, 6, and 5.6 years and no dividends.
F-18
DAMES & MOORE GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands, except share and per share amounts)
Note 12--Stock Option Plans: (continued)
Directors' Stock Option Plan
The Company's amended and restated 1995 Stock Option Plan for Non-Employee
Directors of the Company (the "Plan") has 100,000 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.
1999 1998 1997
--------------- --------------- ---------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------
Outstanding at beginning of
the year.................. 40,000 $13.20 23,000 $12.97 15,000 $13.63
Granted.................... 10,000 12.63 17,000 13.50 8,000 $11.75
Exercised.................. -- -- -- -- -- --
------ ------ ------
Outstanding at the end of
the year.................. 50,000 $13.08 40,000 $13.20 23,000 $12.97
====== ====== ======
Exercisable at year-end.... 25,995 $13.21 12,664 $13.23 4,998 $13.63
Weighted-average fair value
of options granted during
the year.................. $ 4.91 $ 5.59 $ 4.90
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1999, 1998, and 1997, respectively: expected
volatility of 27.82%, 28.51%, and 27.97%; risk-free interest rates of 5.4%,
6.3%, 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 26, 1999:
Options Outstanding Options Exercisable
-------------------------------- ------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 3/26/99 Life Price at 3/26/99 Price
--------------- ----------- ----------- -------- ----------- --------
$11.13 to $13.63.. 977,755 7.3 $12.01 428,604 $11.88
$16.65 to $19.50.. 589,818 4.5 18.96 589,818 18.96
$20.00 to $21.75.. 262,887 3.0 20.53 262,887 20.53
Pro-Forma Disclosure
The Company continues to apply APB Opinion No. 25 in accounting for both of
its stock-based compensation plans. Accordingly, no compensation cost has been
recognized for the stock option plans. There was no material difference in the
Company's earnings or earnings per share had the stock option plans determined
compensation cost based on the fair value at the grant dates consistent with
the method of SFAS No. 123.
F-19
DAMES & MOORE GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands, except share and per share amounts)
Note 13--Employee Retirement Plans:
The Company and its domestic subsidiaries have several defined contribution
retirement plans covering substantially all of the Company's U.S. employees
with a minimum service requirement. Depending upon the plan, eligible
employees can invest up to 15% of their earnings; certain plans will match by
an equal amount from the Company generally up to the first 3% to 4.5% of the
employee's contribution. Employer matching contributions for fiscal years
1999, 1998, and 1997 were $6,641, $2,930 and $3,315, respectively. Profit-
sharing contributions to all plans are currently discretionary. However, prior
to January 1, 1997 the largest of the plans had a profit-sharing contribution
that was computed in accordance with a formula (set forth in the Plan) to
provide for an annual contribution of 6% of pre-tax earnings, as defined. The
contributions for 1999, 1998, and 1997 were $218, $1,381 and $1,684,
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 1999, 1998 and 1997 were $1,711, $1,498, and $1,719,
respectively.
The Company, upon acquiring Radian, assumed certain of Radian's defined
benefit pension plans, including several post-retirement benefit plans. These
plans cover a select group of Radian employees and former employees who will
continue to be eligible to participate in the plans.
The defined benefit plans include a Supplemental Executive Retirement Plan
(SERP) and Salary Continuation Agreement (SCA) which are intended to
supplement retirement benefits provided by other benefit plans upon the
participant's meeting minimum age and years of service requirements. The plans
are unfunded, however, at March 26, 1999, the Company had designated and
deposited $6,309 in a trust account for the SERP. Radian also has a post-
retirement benefit program that provides certain medical insurance benefits to
participants upon meeting minimum age and years of service requirements, this
plan is also unfunded.
The Company recorded an additional minimum liability net of tax of $1,057 at
March 26, 1999 as a component of comprehensive income. This amount represents
the excess of the accumulated benefit obligations over the fair value of plan
assets to the extent possible because the asset recognized may not exceed the
amount of unrecognized prior service cost.
Management's estimate of accumulated benefits for the SERP and SCA as of
March 26, 1999 were as follows:
Actuarial present value of accumulated benefits:
Vested.......................................................... $10,464
Non-vested...................................................... 857
-------
Total......................................................... $11,321
=======
F-20
DAMES & MOORE GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands, except share and per share amounts)
Note 13--Employee Retirement Plans: (continued)
The weighted-average discount rate used for the period was 6.75%.
1999
-------
Change in benefit obligation:
Benefit obligation at August 1, Acquisition..................... $ 9,787
Service Cost.................................................... 57
Interest cost................................................... 451
Amortization of unrecognized service cost....................... 20
-------
Net period cost............................................... 528
-------
Acturial loss................................................... 1,814
Benefit payments................................................ (808)
-------
Benefit obligation at March 26, 1999............................ $11,321
=======
The funded status of the plans at March 26, 1999:
1999
-------
Projected benefit obligation.................................. $11,321
Plan assets available for benefits............................ --
-------
Deficiency of assets over projected benefit obligations....... 11,321
Unrecognized actuarial loss................................... 1,814
Unrecognized prior service costs.............................. --
-------
Accrued pension liability..................................... $ 9,507
=======
The funded status of the post-retirement program at March 26, 1999 is as
follows:
Accumulated post-retirement benefit obligation ("APBO"):
Retirees.................................................... $ 200
Active plan participants, fully eligible.................... 134
Active plan participants, not yet fully eligible............ 542
-------
Total APBO................................................ $ 876
Unrecognized net loss from past experience different from that
assumed and from changes in assumptions...................... (79)
-------
Accrued post-retirement benefits.............................. $ 797
=======
The weighted-average discount rate used in determining the APBO was 6.75% as
of December 31, 1998.
F-21
DAMES & MOORE GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands, except share and per share amounts)
Note 14--Segment and Related Information:
Management has organized the Company by type of services provided. The
general engineering and consulting division ("GE&C") provides environmental
and specialized engineering services throughout the world to private sector
clients and governmental agencies. Construction services division ("CSD")
provides program, project and construction management services for public
sector projects of all sizes and complexity. The process and chemical
engineering division ("P&CE") provides process engineering and design services
to the oil and gas, petrochemical, pulp and paper industries, and to the
federal government. Transportation service division ("TSD") provides project
planning, design and construction-phase engineering services for the
transportation and infrastructure projects throughout the United States.
Specialty companies ("SC") include other business units which provide services
to both private sector clients and government agencies.
Accounting policies for each of the reportable segments are the same as
those described in Note 1, Notes to Consolidated Financial Statements.
Management evaluates the performance of its business segments based on
earnings from operations before acquisition-related restructuring and other
charges.
The following table shows summarized financial information on the Company's
reportable segments. Included in the "Other" column are corporate-related
items, results of shared operations, income and expense items from reportable
segments not reported to management, and eliminations of inter-segment sales
which are not significant.
GE&C CSD P&CE TSD SC Other Total
1999: -------- -------- -------- ------- ------- -------- --------
Net revenues from U.S.
Government agencies
and departments....... $ 36,967 $ 38,027 $ 34,721 $ 275 $ 4,838 $ -- $114,828
Other net revenues..... 228,813 139,563 83,958 55,651 16,961 (428) 524,518
Segment profit (loss).. 40,314 10,352 10,638 5,089 (25) (14,166) 52,202
Total assets........... 182,080 241,663 115,500 38,114 46,851 10,371 634,579
Total accounts
receivable............ 125,932 122,117 32,743 25,259 9,732 (2,405) 313,378
Depreciation and
amortization.......... 6,069 6,507 2,482 1,660 1,181 445 18,344
GE&C CSD P&CE TSD SC Other Total
1998: -------- -------- -------- ------- ------- -------- --------
Net revenues from U.S.
Government agencies
and departments....... $ 35,225 $ 6,559 $ 16,377 $ 791 $ 7,488 $ -- $ 66,440
Other net revenues..... 230,601 87,414 36,060 46,476 15,670 (157) 416,064
Segment profit (loss).. 47,666 5,412 1,759 3,793 1,029 (16,846) 42,813
Total assets........... 162,336 103,291 46,789 31,381 34,857 7,707 386,361
Total accounts
receivable............ 115,205 48,184 11,878 19,114 8,702 (949) 202,134
Depreciation and
amortization.......... 6,228 2,639 1,675 1,613 1,130 531 13,816
GE&C CSD P&CE TSD SC Other Total
1997: -------- -------- -------- ------- ------- -------- --------
Net revenues from U.S.
Government agencies
and departments....... $ 41,931 $ 3,647 $ 16,284 $ 1,321 $ -- $ -- $ 63,183
Other net revenues..... 220,253 77,919 36,480 42,937 13,637 (1) 391,225
Segment profit (loss).. 39,402 2,628 3,960 3,428 1,372 (11,278) 39,512
Total assets........... 145,779 88,147 49,042 29,037 28,425 17,852 358,282
Total accounts
receivable............ 100,878 34,843 15,427 17,785 7,576 (797) 175,712
Depreciation and
amortization.......... 6,078 2,239 1,560 1,458 869 521 12,725
F-22
DAMES & MOORE GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands, except share and per share amounts)
The next table provides a reconciliation of segment profit to consolidated
earnings before income taxes and extraordinary items.
March 26, March 27, March 28,
1999 1998 1997
--------- --------- ---------
Segment profit ............................ $ 52,202 $ 42,813 $39,512
Acquisition-related restructuring & other
charges................................... (28,276) -- (2,651)
Investment & other income.................. 1,231 997 2,014
Interest expense........................... (18,481) (10,292) (7,386)
-------- -------- -------
Earnings before income taxes............... $ 6,676 $ 33,518 $31,489
======== ======== =======
The company provides services throughout the world. Services to other
countries may be performed within the United States, generally net revenues
are classified within the geographic area where the services were performed.
Selected geographic information is summarized as follows:
United Other
States Countries Total
-------- --------- --------
Net revenues............................... 1999 $558,511 $80,835 $639,346
1998 412,751 69,753 482,504
1997 388,671 65,737 454,408
Earnings from operations................... 1999 $ 21,819 $ 2,107 $ 23,926
1998 34,756 8,057 42,813
1997 34,531 2,330 36,861
Identifiable assets........................ 1999 $553,398 $81,181 $634,579
1998 329,256 57,105 386,361
1997 304,847 53,435 358,282
Note 15--Earnings Per Share (EPS):
The following is a reconciliation of the weighted average shares outstanding
used for computing basic and diluted EPS.
1999 1998 1997
---------- ---------- ----------
Weighted average shares--Basic EPS......... 18,237,000 17,890,000 20,287,000
Dilutive securities:
Restricted stock......................... 65,000 127,000 124,000
Stock options............................ 17,000 31,000 35,000
---------- ---------- ----------
Weighted average shares--Diluted EPS....... 18,319,000 18,048,000 20,446,000
========== ========== ==========
Stock options to purchase 1,144,000 941,000 and 965,000 shares of common
stock as of March 26, 1999, March 27, 1998 and March 28, 1997, respectively,
were outstanding but were not included in the computation of diluted EPS
because the stock options' exercise price was greater than the average market
price of the common shares.
F-23
DAMES & MOORE GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands, except share and per share amounts)
Note 16--Stock Repurchases:
The Company's Board of Directors authorized the Company to purchase up to
2,500,000 shares of its common stock on the open market. During fiscal 1999
the Company reacquired 67,000 shares of its common stock. As of March 26, 1999
the Company had repurchased 1,914,000 shares and reissued 1,132,000 shares.
The Company may continue to purchase shares on the open market.
Note 17--Common and Preferred Stock:
The Company adopted a Shareholder's Rights Agreement on March 28, 1997
granting, for each outstanding share of common stock, one stock purchase right
(each a "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.
The Rights Agreement was amended on May 5, 1999 excepting from the
definition of a change in control of the Company, the contemplated Agreement
and Plan of Merger of the Company with URS Corporation and Demeter Acquisition
Corporation.
Note 18--Acquisition Restructuring and Other Charges:
During the second quarter of fiscal 1999, the Company took a charge for
purchased in-process research and development technology that had not reached
technological feasibility of $15,271. Additionally, the Company began
consolidation of certain facilities and operations primarily as a result of
the Radian acquisition, resulting in a charge of $9,213. This charge consisted
of $2,699 for lease termination, $3,635 for severance costs, and $2,879 for
unamortized goodwill and other costs related to the closure of certain
business units that were operating at a loss and were duplicative of Radian's
capabilities. Other charges also included $3,792 for consolidation of certain
of the Company's operational activities and other job related costs.
Approximately $5,892 remains to be expended at March 26, 1999 to complete the
restructuring.
In fiscal 1997 the Company determined it was necessary to restructure its
international operations, and construction and project management subsidiary.
Included in the 1997 restructuring costs 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.
F-24
DAMES & MOORE GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands, except share and per share amounts)
Note 19--Subsequent Events:
On May 5, 1999, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with URS Corporation ("URS").
The Merger Agreement provides that URS will make a tender offer to purchase
100% of the outstanding common stock of the Company. Shares validly tendered
shall be entitled to receive $16.00 in cash.
Consummation of the Tender Offer and the merger is subject to certain
conditions as specified in the Merger Agreement.
F-25
Selected Quarterly Financial Data (Unaudited) (In thousands, except per
share amounts):
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
1999:
Gross revenues........................ $189,150 $263,606 $287,434 $289,777
Net revenues.......................... 128,804 152,987 172,298 185,257
Earnings (loss) from operations....... 11,063 (14,521) 14,089 13,295
Net earnings (loss)................... 4,687 (15,139) 5,291 4,858
======== ======== ======== ========
Earnings (loss) per share--Basic...... $ 0.26 $ (0.83) $ 0.29 $ 0.27
======== ======== ======== ========
Earnings (loss) per share--Diluted.... $ 0.26 $ (0.83) $ 0.29 $ 0.27
======== ======== ======== ========
Weighted average number of shares--
Basic................................ 18,262 18,252 18,218 18,215
======== ======== ======== ========
Weighted average number of shares--
Diluted.............................. 18,336 18,252 18,299 18,291
======== ======== ======== ========
1998:
Gross revenues........................ $171,771 $176,214 $174,974 $180,943
Net revenues.......................... 119,785 123,254 118,725 120,740
Earnings from operations.............. 10,556 10,913 11,244 10,100
Net earnings.......................... 4,685 5,151 5,153 4,341
======== ======== ======== ========
Earnings per share--Basic............. $ 0.26 $ 0.29 $ 0.29 $ 0.24
======== ======== ======== ========
Earnings per share--Diluted........... $ 0.26 $ 0.28 $ 0.29 $ 0.24
======== ======== ======== ========
Weighted average number of shares--
Basic................................ 17,890 17,884 18,873 17,914
======== ======== ======== ========
Weighted average number of shares--
Diluted.............................. 18,041 18,047 18,031 18,074
======== ======== ======== ========
F-26
DAMES & MOORE GROUP
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Fiscal Years Ended March 26, 1999, March 27, 1998 and March 28, 1997
Additions
---------------------
Balance at Charged to Charged to Balance at
beginning costs and other end of
Description of year expenses accounts Deductions year
----------- ---------- ---------- ---------- ---------- ----------
Year Ended March 26,
1999
Allowance for doubtful
accounts.............. $3,408 $1,456 $5,210(1) $(548) $9,526
====== ====== ====== ===== ======
Year Ended March 27,
1998
Allowance for doubtful
accounts.............. $3,001 $ 915 $ -- $(508) $3,408
====== ====== ====== ===== ======
Year Ended March 28,
1997
Allowance for doubtful
accounts.............. $1,886 $1,208 $ 465(1) $(558) $3,001
====== ====== ====== ===== ======
- --------
(1)Amount recorded on books of acquired entities at date of acquisition.
F-27