Transcription
EmployeeOwnershipUnderstanding HDR’sEmployee Stock Ownership Plan
Date of Information: February 2018. The information in this brochure is current as of this date.THIS DOCUMENT IS NEITHER AN OFFER TO SELL, NOR A SOLICITATION OF AN OFFER TO BUY,ANY SECURITIES OF HDR, INC. AND SUBSIDIARIES.If there is any difference between this document and the Plan documents, the Plan documents willcontrol and govern.Please keep in mind that personal circumstances vary and you should consult with your financial advisorto make decisions that are best for you.If you choose to print this document, please remember to print on both sides of the page.1
Message from Eric Keen,Chairman and Chief Executive OfficerFor over 100 years, HDR has been working to improve the placespeople call home. While we value our remarkable history, we lookforward to the many opportunities ahead of us.We believe employee ownership is integral to our future. It’s a keypillar of our culture – a culture that differentiates us in anincreasingly competitive marketplace. At HDR, there is anatmosphere and an attitude of “we’re all in this together.” Becauseas employee owners, we have a shared sense of purpose: to useour skills and knowledge to change the world for the better.We know that the road ahead will be full of new challenges andexciting opportunities, and we will continue to adapt with ourmarkets and our clients. We intend for HDR to be around for the long-term, which is why we considerHDR stock to be a long-term investment.As we look to our future, our culture and our clients will remain at the center. Through it all, we will protectour employee-ownership model by fulfilling the very promise that we used to get here: doing things rightto make great things possible. I consider our employee-ownership model one of those great things, andwe will do the right thing when it comes to each individual shareholder.As employee owners, we are accountable for the ultimate success of our company. Whether you ownshares of HDR Stock or are considering purchasing shares for the first time, this document is intended tohelp you understand the value of our employee stock ownership program – not just as a business model,but as a vehicle for you to contribute to our company. Please read the information presented in thefollowing pages carefully, and be sure to let us know if you have any questions.Thank you for your contributions to HDR.Eric L. KeenChairman and Chief Executive Officer2
Table of ContentsChapter 1: The Value of Employee Ownership . 6Introduction . 6Culture of Ownership . 6Chapter 2: Stock Valuation . 8Stock Valuation History . 8Valuation Process for HDR Stock . 8Types of Equity within HDR . 10HDR common stock . 10Phantom stock . 10Stock Appreciation Rights . 11Deferred Share Units. 11The Value Enhancement Incentive Plan . 11Splitting HDR stock . 11Chapter 3: HDR Information . 12Assurance of Ethical Business Practices . 12Management of HDR . 13HDR Board of Directors . 13Programs to Ensure Fiduciary Responsibility to Shareholders . 15Audit Committee. 15Integrity in Action Hotline Reporting . 15Compensation Committee . 15Conduct & Ethics Training . 16Purchase of HDR Stock . 16Sale of HDR Stock . 16Officers of HDR. 16Expectations Set by Chairman and CEO . 17Comparison to Publicly Traded Companies . 17The Effect of HDR’s Subchapter S Status on the BEST Plan . 18Management of the Repurchase Liability for HDR Stock. 19Repurchase Requirements for Equity within HDR . 19HDR’s Plan for Managing the Repurchase Obligation . 21HDR’s 5-year Projection of Repurchase Obligation and Cash Balances. 223
Understanding HDR’s Financial Management Philosophy . 23Creating and managing our financial plan . 23Acquisitions . 24Global growth . 24Chapter 4: History of Ownership. 25History of Employee Ownership . 25Summary of Ownership Prior to 1996 . 25Employee Buy-Back in 1996 through ESOP . 25Chapter 5: Ownership through the ESOP . 28Investing through HDR BEST Plan and ESOP. 28Assistance for Investing in the BEST Plan . 28Employee Purchases of HDR Stock . 28Buy/Sell Opportunities . 29HDR Matching Contributions . 30Services Provided by Schwab, the Plan Administrator . 30Customer Service Center . 30Online Retirement Plan Center . 31New Hire Enrollment . 31Annual Automatic Savings Increase . 31Guided Choice . 32Other Educational Opportunities. 32Access to Your Funds in the Plan While Working . 33Diversification of HDR Contributed Stock . 33Options for Withdrawal of Funds in Your Account as an Active Employee . 33Voluntary Contributions (After Tax) Withdrawals . 33In-Service Withdrawals . 34Hardship Withdrawals . 34Questions? . 34American Taxpayer Relief Act of 2012 . 34Planning to Retire or Leave the Company. 34Understand Your Options Before You Make Your Election . 36HDR Stock Converted to Cash within the Plan . 36HDR Stock Distribution and Required Put Option . 364
Questions & Answers About Selling Your Stock. 37Why do I need to know this before I make an election? . 37How does this special tax treatment benefit me?. 37How is NUA determined for my shares of HDR stock? . 37What is the capital gains tax rate used for NUA? . 37Does NUA apply to shares of HDR stock in the 401(k) Roth account? . 37How can cost basis affect my taxes? . 38Will the tax be automatically withheld from my distribution? . 38Does cost basis change? . 38Where can I find the cost basis of my HDR shares? . 39What if I request a partial rollover? . 39What if I request a distribution and later want to roll over all or part of it to an IRA?. 39Can I roll over the cash received from the sale of the stock to a Roth IRA? . 40Reminder . 40If You Do Nothing with Regard to Your HDR Stock . 40Distribution Timeline . 40Completing Your Taxes After You Receive Your Distribution . 41If you elected a stock distribution. 41If you elected a rollover . 42Important Notes:. 42Management of the HDR, Inc. BEST Plan and ESOP . 43Administrative Committee and Trustee . 43Committee Members and Advisors . 44BEST Plan Communication . 44Questions? . 455
Chapter 1: The Value of Employee OwnershipIntroductionHDR is a unique company in many ways. The most important aspect of our culture is thecompany’s broad-based employee ownership. It is rare when employees of a company areafforded this opportunity. HDR’s philosophy is that employee ownership makes sense from theperspectives of both net worth and self-worth.Each day we go to work, contribute our best, and use our skills to add excellence to the projects ofour clients. Everything we do is a service to the public: the roadways on which people drive, thewater they drink, the hospitals that take care of them, the facilities used for research, and theenvironment in which they live. As stockholders, we are not just working on an assignment for aclient; we are working for ourselves and our future. It has been clearly demonstrated that, whengiven the opportunity to “own a piece of the action,” employees will give their very best.Under our ownership structure, many employees have the opportunity to make an informed choiceto become employee owners. This is done with common stock shares in the HDR, Inc. BEST Planand ESOP in the United States, phantom stock in the deferred compensation plan in the UnitedStates, phantom stock in Germany and Australia, and with a form of phantom stock in the DeferredShare Units Plan in Canada. As you save for your retirement, you can evaluate and determinewhat investments are appropriate for you. Each year you may purchase stock in the company youknow the most about – HDR. This company is not just your employer; it is your own company.Culture of OwnershipEveryone has numerous choices when it comes to investing. HDR stock is one option within theHDR BEST Plan and ESOP and should be viewed as a long-term investment.One of the biggest reasons employees choose to invest in HDR stock is that ownership providesa chance to benefit from their hard work by sharing in the profits as the company prospers.Employee owners, all working toward the same goal, providing focused teamwork andcollaborating on behalf of our clients. HDR ownership is more than an investment; it is thecommunity of employee owners to which you belong.As an employee of HDR, you have more detailed knowledge about the company’s business model,potential growth prospects and company direction. This “strength of knowledge” is an inherentadvantage in working for, and owning a part of, an ESOP-structured private company. Generally,employee owners believe they can make better judgments about the overall valuation of theirbusiness and how sound it is financially.While purchasing HDR stock is a personal decision, it is important that each HDR employeeunderstands the philosophy of senior management relative to employee ownership.6
Integral to the success of HDR is the individual perspective of each employee who is committed toliving our values. These individual values translate into action and performance and fuel a culturewhere individuals have a vested interest in HDR. The strengths of HDR cited by employee ownersinclude our focus on quality, the diversity of our services, and our reputation in the marketplace.Focusing on achieving the highest quality work brings pride of achievement, delighted clients, therecognition of our peers and a reputation for excellence in the marketplace.Recent hires say they like HDR’s character, its values-based culture, and the professional respectfor clients and colleagues. Our strongest selling point to prospective employees is our employeeownership model because they can help increase the company’s value and their own futuresthrough their hard work.While ownership in HDR does not change the hierarchy or responsibility of positions within thecompany and ownership is not possible in all locations, employees are encouraged to be activeparticipants in the operation of our company. HDR seeks the input of employees in setting its goalsand direction, trusts and empowers its employees to push boundaries, excel in their field, expandtheir skills and find the best solutions for their clients. This includes contributing to the growth of thecompany, sharing knowledge with others, meeting the needs of clients, improving processes andmaking suggestions for the betterment of clients, shareholders, and employees. Employees focuson the business results of their actions, no matter who is watching. They have the guts to ask toughquestions and hold each other accountable. They aren’t afraid to challenge others with, “How canwe make it better?” They value the matrix structure of the company, live the network and goingbeyond narrow functional boundaries to consider what is good for the company as a whole. Theylisten, pay attention to details, care about the outcome and make things happen.As stated in our strategic plan, as each one of us does our best we are all responsible for andshare in the success of HDR because we believe that what we do matters.At HDR, we do things right to make great things possible.7
Chapter 2: Stock ValuationStock Valuation History4025%3520%302515%2010%15105%500%12/31/08 12/31/09 12/31/10 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17Stock PricePercent IncreaseValuation Process for HDR StockVery simply, HDR stock represents the value of the company divided by the sum of the totalnumber of common shares issued and outstanding and any synthetic equity (discussed in Types ofEquity within HDR found on the Stock Performance page). HDR common stock, both the“Employee Purchased” shares (those purchased in HDR Buy/Sell Arrangements) and the“Employer Contributed” shares, and synthetic equity have the same value per share.It’s beneficial for employee owners to understand the appraisal process and the factors influencingit. The process used is based on sound, widely accepted principals.Argent Trust Company is the Trustee for the HDR BEST Plan and ESOP. The Trustee is engagedby HDR, but operates independently and is governed by laws that are solely focused on the bestinterests of the ESOP Participants. The Trustee’s primary activities include: Annually selecting the firm who performs the annual stock price valuation;Reviewing the evaluation firm’s analysis before approving it for release to HDR’s Board ofDirectors;Conducting regular reviews of HDR’s performance metrics throughout the year to monitorsituations that may represent significant impacts to our employee owners; andMonitoring HDR’s ability to purchase shares from employees leaving the company orwishing to sell and the Company’s financial ability to do so.8
The valuation company provides its independent and expert opinion on the fair market value of theequity of the company at the end of each fiscal year for ESOP operation and administrativepurposes. Fair market value is defined as the price at which an asset would change hands betweena buyer and seller, both of whom are willing and able to purchase and well-informed about theasset and the market for the asset.The firm used to conduct the valuation of HDR is Stout, formerly called Stout Risius Ross. Stout isa financial advisory firm specializing in investment banking, valuation and financial opinions. Theirclients include ESOP companies and range from Fortune 500 corporations to privately heldcompanies in many industries around the world.Argent conducts a formal process annually and creates a short list of firms that Argent considersqualified for use across their book-of-business.Stout’s overall company qualifications are very strong as judged against the leading global firms.The professionals who will conduct the valuation are highly credentialed and experienced and havesignificant tenure in both the industry and with Stout. There are no business or relationshipconflicts-of-interest between Argent, Stout, HDR or the Plan. Stout is not the subject of any civil orcriminal proceedings material to the valuation.Stout remains, as they have for a number of years, as a highly qualified firm on Argent’s short list.Argent strongly recommended Stout for HDR’s most recent valuation.Argent and Stout both indicated that their firms have a strong commitment to ethics. Seniorexecutives of their organizations drive policies of integrity and compliance and have formal,documented ethics programs. There is regular communication to employees regarding ethicscompliance. The credentialing organizations of senior valuation professionals have extensiverequirements of professional ethics, integrity and compliance.Argent continues to strongly recommend Stout for HDR’s valuation based on their overall companyqualifications and the highly credentialed, experienced professionals who conduct the valuation.The valuation thoroughly explains the process used to establish how the HDR stock value isdetermined. The analysis takes into consideration regulations outlining the general approaches,methods, and factors to be considered in the valuation. In addition, it’s conducted under thepremise that HDR will continue to operate as an income producing entity, that the shareholders andmanagement of HDR will act rationally and they will employ financial and operational strategies thatwill maximize its value.The analysis includes a review of: (1) the most recent audited financial statements, (2) draftfinancial statements for the most recent fiscal year as prepared for the auditors of HDR, and (3)projected financial statements for the next five fiscal years as prepared by HDR. Discussions areheld with members of senior management and the Plan trustee regarding the operations, financialcondition, future prospects, and projected operations and performance of the company. Informationis obtained from other private and public sources. The analysis of Stout is based upon market,economic, and other considerations as they existed on and could be evaluated on the valuationdate.9
Stout arrives at their opinion using generally accepted valuation approaches, including the marketapproach and the income approach. Within these approaches, they used the guideline publiclytraded company method and the discounted cash flow method.Rather than paraphrase this detailed report, employee owners are encouraged to read thedocument published on the page Employee Ownership Stock Performance page: the Stoutmethodology for the valuation process for HDR stock and the recent Valuation Reports. Uponreview, you will see that HDR accepts the fair market value determined by Stout and does notapply any other factors to alter that value.HDR recognizes that each ESOP company makes its own choice about its management practicesand valuation process. HDR should not be evaluated on the practices of other companies. HDRstrives to provide appropriate information for individual investors and is committed to openness andhonesty in its business dealings. It continuously works toward providing clarity and ease inaccessing company information. Questions about company performance and the informationprovided are welcome and should be directed to your manager or another appropriate member ofmanagement.It’s up to each individual investor to determine whether investing in HDR stock is appropriate and, ifso, how much HDR stock is appropriate to hold in his/her portfolio within the HDR BEST Plan andESOP.Types of Equity within HDRHDR has several types of equity tied to the value of HDR stock.HDR common stock Employees may receive HDR common stock via HDR matching contributions or ESOPallocations. These shares may not be sold by employees while they are actively at workwith one exception. Active employees will be required to sell the shares in their HDR stockaccount (both employee purchased and employer contributed) in the buy/sell activityfollowing any year in which they work less than 500 hour. Employees may purchase HDR common stock with 401(k) monies. Employees may sellemployee purchased shares at their discretion during any buy/sell process.Phantom stockPhantom share units are synthetic equity used to measure the value of deferred compensationunder HDR’s deferred compensation plans. The value of a phantom share unit is equal to themarket value of a share of HDR common stock. U.S. Phantom Share Unitso The deferred compensation plan provides for grants in the form of phantom stockunits for certain officers and other designated employees of the company. Thegrants are generally used as hiring incentives, performance incentives and formeeting certain profit and HDR, Inc. common stock market value increases.o Participants in the Diamond Executive Deferred Compensation Plan are allowed touse compensation deferred under the plan to purchase phantom shares.10
HDR must convert these securities to a lump sum payment or installment paymentsbased on the election of the participant when a distributable event occurs.Australia and Germany Phantom Shareso Australian and German employees may purchase phantom shares through deferredcompensation. HDR may also grant phantom shares as performance incentives tocertain officers and other designated employees of the company.o Stock Appreciation RightsSARs are part of HDR’s deferred compensation plan and are like a phantom stock option in thatthey measure the value of an investment in an employee’s deferred compensation account. EachSAR provides the holder with the economic benefit of the appreciation of HDR stock from a fixedstrike price. For example, based on HDR’s December 2017 stock price, 36.00, a SAR with a strikeprice of 9.01 would have a current value of 26.99.Deferred Share UnitsDSUs are synthetic securities, similar to phantom stock, used by HDR in its Canadian operations.Annually Canadian employees have an election to purchase DSUs. The value of any DSU is equalto the market value of a share of HDR common stock. HDR may also grant phantom shares asperformance incentives to certain officers and other designated employees of the company.The Value Enhancement Incentive PlanVEIP was created upon the recommendation of the Board’s Compensation Committee in 2003 toprovide deferred compensation, convertible to phantom shares, to certain executives achievingtargeted growth in the value of the company. In 2006, HDR granted all remaining units and allawards are now vested.The number and value of each of these types of equity are accounted for in the valuation conducted by Stout.Splitting HDR stockHDR Stock has been split twice in its history; on Jan. 24, 2014, and on Dec. 31, 2005. Both splitswere a five for one (5:1) ratio. At the time of each split, each shareholder received five shares ofcommon stock for every one held and the value of each share was reduced to one-fifth the priorvalue, so that the shareholder’s total investment in the Company remained the same.What is a Stock Split?A stock split is a corporate action that increases the number of shares of its stock without changingshareholder equity. When each share is multiplied and its value is divided, the number of sharesincreases and the price per share decreases. The stock's market capitalization, however, remainsthe same. It’s like exchanging a 100 bill for five 20s; after the exchange, you still have 100.After a stock split, how many shares will a participant have?After the split in January 2014, for example, for every share owned previous to that date aparticipant owned five shares. For example, if an employee owned 20 shares prior to the split, heor she held 100 shares after the split.11
After a split, what is the stock price be?Along with the split in shares, the value of each common share will be one-fifth of its value prior toa split. HDR’s price per share was 106.30 as of Dec. 31, 2013. The price after the January 2014split was 21.26 ( 106.30 5) per share.After the split, what will the value of a participant’s account be?After a split, the value of a participant’s account is the same as before the split. The price per shareof common stock as of Dec. 31, 2013, was 106.30. Continuing from the previous example, thevalue of an employee’s 20 shares was 2,126. After the split, the stock price was 21.26 per share( 106.30 5) and the employee had 100 shares (20 * 5). The value of the stock was 2,126( 21.26 *
Chapter 1: The Value of Employee Ownership Introduction HDR is a unique company in many ways. The most important aspect of our culture is the company's broad-based employee ownership. It is rare when employees of a company are afforded this opportunity. HDR's philosophy is that employee ownership makes sense from the
