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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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Form 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 1998
Commission File No. 1-12248
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ICF KAISER INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 54-1437073
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
9300 Lee Highway, Fairfax, Virginia
(Address of principal executive offices)
22031-1207
(Zip Code)
Registrant's telephone number, including area code: (703) 934-3600
Name of each exchange on which registered:
New York Stock Exchange
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $0.01 per share
Preferred Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes No. X
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of Common Stock held by non-affiliates of the
registrant was $14.5 million based on the New York Stock Exchange Composite
Tape closing price of $0.75 on March 31, 1999.
On March 31, 1999, there were 24,270,978 shares of Common Stock outstanding.
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PART I
Item 1. Business
ICF Kaiser International, Inc., through its operating subsidiaries, is one
of the nation's largest engineering, construction, program management, and
consulting services companies. In 1998, the Company's Environment and
Facilities Management (EFM), ICF Kaiser Engineers and Constructors (E&C), and
Consulting Groups provided fully integrated services in the public and private
sectors in a variety of areas, including the environment, infrastructure,
transportation, industry, energy, information technology, housing, economic
development, and microelectronics markets. In 1999, the Company sold certain
of its assets and, as a result, ceased certain of its operations. The
"Company" or "ICF Kaiser" in this Report refers to ICF Kaiser International,
Inc. and/or any of its consolidated subsidiaries.
In the second half of 1998, the Board of Directors formed a Special
Committee to consider strategic alternatives for the Company. The Committee
was formed in response to strains brought about by cost overruns associated
with certain Nitric Acid Projects. The Special Committee engaged a financial
advisor and, with its assistance, evaluated various opportunities available to
the Company, including the sale of one or more of the Company's operating
groups.
In March 1999, the Company entered into an agreement pursuant to which it
agreed to sell the majority of its active contracts, and to transfer certain
personnel--all related to its EFM Group--to The IT Group, Inc. of Monroeville,
Pennsylvania, for proceeds of $82 million, less $8 million retained by The IT
Group, Inc. for working capital. The sale closed on April 9, 1999. The Company
retained the net working capital assets of the EFM Group and its 50% ownership
interest in Kaiser-Hill Company, LLC, the entity that serves as the
integrating management contractor at the U.S. Department of Energy's Rocky
Flats Environmental Technology Site near Denver, Colorado.
Also in March 1999, the Company signed a letter of intent to sell its
Consulting Group to certain members of that Group's current management and CM
Equity Partners, L.P. (CMEP), an equity investment firm based in New York
City, for aggregate consideration of approximately $75 million. As of the date
of this Annual Report Form 10-K, the Company expects the sale to be completed
by mid-1999.
Upon completion of the Consulting Group sale, management will focus on
efforts to realign and restructure its remaining operations, largely the E&C
operations, to return the Company to profitability. The E&C Group has
performed a mixture of public- and private-sector engineering and construction
work since the inception of its predecessor, Kaiser Engineers, in 1914.
Unless otherwise noted, all discussions contained in this Report reflect the
historical business operations of the Company during 1998 and prior.
Specifically, the Company's financial information included in this Report does
not give effect to the transactions discussed above or any other events that
have occurred since December 31, 1998.
Certain financial data as of and for the years ended December 31 is as
follows:
1998 1997 1996
---------- ---------- ----------
(in thousands)
Gross revenue................................ $1,210,421 $1,108,116 $1,248,443
Service revenue.............................. $ 345,462 $ 426,086 $ 532,116
Operating income (loss)...................... $ (78,361) $ 18,069 $ 21,180
Assets....................................... $ 419,836 $ 399,288 $ 365,973
Most of the Company's contract backlog is related to public- and private-
sector engineering and construction projects that span from one to five years.
The Company ended 1998 with $3.2 billion in contract backlog. The backlog of
the EFM and Consulting Groups totaled $658 million and $540 million,
respectively, at December 31, 1998. The Company expects to work off 42% of the
$2 billion backlog of the E&C Group and
1
Kaiser-Hill. The reduction from $4.1 billion at December 31, 1997 is due
primarily to the completion of another year of the Kaiser-Hill Rocky Flats
contract, resulting in the conversion of approximately $632.6 million of the
1997 backlog into revenue in 1998. Exclusive of the Rocky Flats backlog at
December 31, 1998, the Company's backlog decreased by 5.8% from December 31,
1997.
The Company's headquarters is located at 9300 Lee Highway, Fairfax, Virginia
22031-1207, and its telephone number is (703) 934-3600. The Company's four
regional headquarters are located as follows:
Western United States Eastern United States Asia/Pacific Europe/Africa/Middle East
- --------------------- --------------------- ------------ -------------------------
2101
Webster
Street Gateway View Plaza Q.V. 1 Building, Regal House,
Suite
1000 1600 West Carson St George's Terrace, London Road,
Oakland,
CA Pittsburgh, PA Perth, WA 6000 Australia Twickenham, Middlesex,
94612-
3060 15219 61-89-366-5366 TW1-3QQ, England
(510)
419-
6000 (412) 497-2000 44-181-892-4433
Other domestic offices include Tempe, Arizona; Los Angeles, Sacramento, San
Diego, San Rafael, and Sherman Oaks, California; Mystic, Connecticut; Golden,
Colorado; Washington, DC; Brooksville, Ft. Lauderdale, Jacksonville, Lake
City, Miami, Orlando, Ruskin, and Tampa, Florida; Atlanta, Georgia; Boise,
Idaho; Ashland and Hawesville, Kentucky; Ruston, Louisiana; Baltimore,
Beltsville and Lexington Park, Maryland; Boston, Massachusetts; Kansas City,
Missouri; Albuquerque, New Mexico; New York City; Greensboro and Research
Triangle Park, North Carolina; Middletown, Pennsylvania; Baytown and Houston,
Texas; Lehi and Ogden, Utah; Richmond, Virginia; and Seattle, Washington. The
Company's other international offices include Brisbane and Sydney, Australia;
Toronto, Ontario, Canada; Ostrava and Prague, Czech Republic; Paris, France;
Hong Kong; Budapest, Hungary; Mexico City, Mexico; Rio de Janeiro, Brazil;
Manila, the Philippines; Lisbon, Portugal; Moscow, Russia; and Istanbul,
Turkey. Before the sale of its Environment and Facilities Management Group,
the Company also had offices at Sacramento, California; Lakewood, Colorado;
Titusville, Florida; Savannah, Georgia; Chicago, Illinois; Edgewood and
Hollywood, Maryland; Las Vegas, Nevada; Iselin and Mount Arlington, New
Jersey; Los Alamos and Santa Fe, New Mexico; Albany and Tonawanda, New York;
Greensboro, North Carolina; and Richland, Washington.
ICF Kaiser International, Inc. is a Delaware corporation incorporated in
1987 under the name American Capital and Research Corporation. It is the
successor to ICF Incorporated, a nationwide consulting firm organized in 1969.
In 1988, the Company acquired the Kaiser Engineers business, which dates from
1914. As of March 31, 1999, ICF Kaiser had 4,854 employees. Following the
completion of the EFM sale on April 9, 1999, there were 583 fewer employees.
Overview of Markets Served by the Company
Environmental. In the environmental market in 1998, the Company provided
services in connection with the remediation of hazardous and radioactive
waste, waste minimization and disposal, risk assessment, global
warming and acid rain, alternative fuels, and clean up of harbors and
waterways. Demand for ICF Kaiser's environmental services was driven by a
number of factors, including the need to restore contaminated sites formerly
used for weapons production or military bases; the need to comply with
federal, state, and municipal environmental regulation and enforcement
regarding the quality of the environment; the need to bring aging production
facilities into compliance with current environmental regulations; the need to
minimize waste generation on an ongoing basis; and the need to reduce or
forestall liability associated with pollution-related injury and damage. In
addition, there is a growing international market arising from the increased
awareness of the need for additional and/or initial environmental regulations,
studies, and remediation.
A significant portion of future U.S. Departments of Defense (DOD) and Energy
(DOE) environmental expenditures will be directed to cleaning up hundreds of
military bases with thousands of contaminated sites and to restoring
contaminated former nuclear weapons facilities. DOD has stated that there is
an urgent need to ensure that the hazardous wastes present at these sites
(often located near population centers) do not pose a threat
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to the surrounding population, and, in connection with the closure of many
military bases, there is an economic incentive to make sure that the
environmental restoration enables these sites to be developed commercially by
the private sector. DOE has long recognized the need to stabilize and safely
store nuclear weapons materials such as plutonium, to clean up areas
contaminated with hazardous and radioactive waste, and restore the weapons
sites to the public.
Significant environmental laws have been enacted in the United States in
response to public concern about the environment. These laws and the
implementing regulations affected nearly every industrial activity, and
efforts to comply with the requirements of these laws, create demand for the
Company's services. The principal federal legislation that has created a
substantial market for the Company, and therefore has the most significant
effect on the Company's business, includes the following: The Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) of 1980, as
amended by the Superfund Amendments and Reauthorization Act (SARA) of 1986,
established the Superfund program to clean up existing, often abandoned,
hazardous waste sites and provides for penalties and punitive damages for
noncompliance with U.S. Environmental Protection Agency (EPA) orders. The
Resource Conservation and Recovery Act (RCRA) of 1976, as amended by the
Hazardous and Solid Waste Amendments of 1984 (HSWA), provides a comprehensive
scheme for the regulation of hazardous waste from the time of generation to
its ultimate disposal (and sometimes thereafter), as well as the regulation of
persons engaged in the treatment, storage, and disposal of hazardous waste.
The Clean Air Act as amended in 1970 empowered EPA to establish and enforce
National Ambient Air Quality Standards, National Emission Standards for
Hazardous Air Pollutants, and limits on the emission of various pollutants.
The 1990 amendments to the Clean Air Act substantially increased the number of
sources emitting a regulated air pollutant which will be required to obtain an
operating permit; the amendments also address the issues of acid rain and
ozone protection. The Clean Water Act of 1972, originally the Federal Water
Pollution Control Act of 1948, established a system of standards, permits, and
enforcement procedures for the discharge of pollutants to surface water from
industrial, municipal, and other wastewater sources. The Toxic Substance
Control Act, enacted in 1976, established requirements for identifying and
controlling toxic chemical hazards to human health and the environment.
Infrastructure and Transportation. Both the domestic and international
infrastructure and transportation markets are driven by the need to maintain
and expand ports, roads, highways, rail and bus systems, bridges, people
movers, airports, and water resource facilities. Increasingly, environmental
concerns, such as wastewater treatment and the reduction of automotive air
pollutant emissions, have become a driving force behind new infrastructure and
transportation initiatives. These markets primarily are funded by government
dollars, although the private sector is seeking an increased role,
particularly in international projects where there is a critical need for
infrastructure and transportation projects because of the population growth of
major cities.
Industry. The industry market in a modern, global economy provides the base
for the production of industrial metals and chemicals. This market is driven
by the need to maintain and retrofit existing plants, to build new facilities
such as those required for the burgeoning microelectronics industry, to
replace aging production capacity with newer, more efficient and more
environmentally responsible facilities, and to reduce costs, improve quality,
and enhance competitiveness. Basic industrial materials include iron, steel,
alumina/aluminum, chemicals, and copper.
Other Markets. Traditionally DOD has maintained most of its own facilities
and performed its own facility activities, but it is now in the process of
transferring many of these responsibilities to private contractors and private
owners. The "privatization" market has been created by the government's
selling an asset or revenue stream--such as military housing and electric,
water, and wastewater utilities on a military base--to a private company,
which is then responsible for maintenance and operation. The "outsourcing"
market has been created by private contractors' taking over site activities
currently conducted by government, often military, personnel. The information
technology market is driven by the increasing need for software and software
tools to manage such diverse activities as financial management, accounting,
and reporting capabilities; forecasting wholesale power pricing by independent
and electric bulk power marketers; energy-use patterns; and energy use,
billing, and monitoring.
3
Business Groups
During the fiscal year ended December 31, 1998, the Company was organized
into three business groups: Environment and Facilities Management (EFM); ICF
Kaiser Engineers and Constructors (E&C); and Consulting. Please refer to the
Company's consolidated financial statements for information concerning the
historical financial performance of each of these Groups. In April 1999, the
Company sold certain assets related to its EFM Group. See above. Following is
a description of each business group's activities.
Environment and Facilities Management (EFM)
Before the sale of the EFM Group, the Company's largest single contract was
managed by the EFM Group and performed through Kaiser-Hill Company, LLC, a
limited liability company owned equally by the Company and CH2M Hill
Companies, Ltd. (Kaiser-Hill). After the EFM sale, the Company retained its
50% ownership of Kaiser-Hill. In 1995, Kaiser-Hill won DOE's Performance Based
Integrating Management contract at DOE's Rocky Flats Environmental Technology
Site near Denver, Colorado. Rocky Flats is a former DOE nuclear weapons-
production facility, and under the five-year contract, Kaiser-Hill is working
to stabilize and safely store more than 14 tons of plutonium at the site, to
clean up areas contaminated with hazardous and radioactive waste, and to
restore much of the 6,000-acre site to the public.
The EFM Group oversaw major program management and technical support
contracts for U.S. government agencies, particularly DOE and DOD. Examples of
the Group's projects in 1998 include providing technical support for
environmental restoration projects at certain of DOE's former weapons
production facilities; conducting hazardous, toxic, and radioactive waste
cleanups for the U.S. Army under two Total Environmental Restoration Contracts
(TERC); and providing technical and analytical support to the EPA Superfund,
RCRA, and other environmental programs. Another focus of this Group was to
provide support to DOD's privatization and outsourcing initiatives. As part of
a joint venture, the group provided facilities management support to NASA and
the U.S. Air Force at the Kennedy Space Center and nearby rocket launch sites
under a $2.2 billion contract.
Under the multi-year TERC contracts, the EFM Group provided environmental
restoration services to the U.S. Army Corps of Engineers (USACE) at federal
installations in California, Arizona, Nevada, and Utah (USACE South Pacific
Division) and in the Eastern Atlantic states encompassing USACE's Baltimore,
Maryland, District. The services provided under the TERCs include remedial
investigation and feasibility studies of contaminated sites and performing
remedial action and site cleanup activities. The Group also provided
environmental services to USACE, Savannah (Georgia) District, under several
contracts, including a contract to support the Corps' South Atlantic Division.
Tasks performed by the Group under this contract include site assessments,
risk assessments, remedial investigations, feasibility studies, remedial
design, and construction support at sites throughout the Savannah District,
especially at the Milan Army Ammunition Plant in Tennessee. Under a similar
contract with the U.S. Army Environmental Center, the Group provided a full
range of technical support for site investigation and remediation projects at
Aberdeen Proving Ground and other Army facilities. Under contracts with DOE,
the Group also conducted environmental restoration and cleanup activities at
DOE's Los Alamos National Laboratory in New Mexico and provided support
services for major projects at DOE's Hanford Site in Richland, Washington.
The Environment and Facilities Management Group was responsible for all of
the Company's environmental services to private-sector businesses, including
compliance planning, audits, and permitting; risk assessment, site
investigations, and feasibility studies; remedial design, construction, and
construction management; operation and maintenance of remedial systems;
decontamination and decommissioning of facilities; and community relations,
Clean Air Act strategies, and expert witness support. Private-sector
environmental clients include chemical plants; aerospace manufacturers; iron,
steel, and aluminum producers; oil and gas refineries; pharmaceutical
companies; the communications industry; and heavy industrial manufacturers.
Representative projects included providing remedial design, procurement, and
construction management services for a Superfund site remediation project; and
engineering and specification development for an in-situ groundwater
remediation system at a paint manufacturing facility in Maryland.
4
ICF Kaiser Engineers and Constructors (E&C)
All of the E&C Group's markets are global in nature, and the Group provides
engineering, procurement, construction, program management, and consulting
services in numerous technology sectors through companies managed and staffed
by local professionals in Australia, Brazil, the Czech Republic, England,
France, the Philippines, Portugal, Taiwan, Turkey, and the United States, as
well as through project offices throughout the world. To capitalize on
international opportunities while minimizing its business development risks,
the Group has established international business relationships through joint
ventures, marketing agreements, and direct equity investments.
Industry Services. The E&C Group's engineering, procurement, construction,
project management, and consulting services to the industrial market involve
work with the iron, steel, alumina/aluminum, copper, and other minerals and
metals industries, as well as chemicals and heavy manufacturing. Current
projects include detailed design engineering, procurement, and construction
management for the expansion of an alumina refinery in Western Australia;
engineering and design services for an aluminum smelter expansion project in
the Midwestern United States; and upgrades for coke manufacturing operations
at a major steelmill in China.
The Group assists clients in private industry by providing the engineering,
construction, and program management skills needed to maintain and retrofit
existing plants and replace aging production capacity with newer, more
environmentally responsible facilities. A very significant international
industrial project is a mini-mill project for Nova Hut, a.s., an integrated
steel maker based in the Ostrava region of the Czech Republic. In March 1996,
ICF Kaiser was awarded a contract to provide turnkey engineering and
construction of the first phase of a facility that will receive liquid steel
from Nova Hut's existing steelmaking facilities. The facility will include a
ladle metallurgy furnace and a single-strand dual slab caster. ICF Kaiser also
is responsible for site development and related infrastructure. The successful
startup in late 1997 included preliminary acceptance of the first phase of the
facility by the owners, as well as production of steel ahead of schedule.
Under a second-phase contract awarded in 1997, the E&C Group is installing an
equalizing furnace, a reversing two-stand steckel mill, and associated
facilities. It is expected that the second phase will be completed in late
1999.
Infrastructure Services. The E&C Group provided engineering and construction
management services to build rail and bus systems, highways and bridges,
airports, high-speed rail, peoplemovers, and water resources projects in
domestic and international markets. Infrastructure funding at the federal,
state, and local levels is expected to increase in 1999, which will provide
opportunity for growth in the Group's infrastructure services business. The
Group currently is active in major U.S. metropolitan areas, providing
planning, design, construction management, and program management services in
Seattle (light rail project), San Francisco (commuter rail system renovation),
and Orlando (light rail initiative).
In the international infrastructure market, the Group's large-scale
construction infrastructure skills are at work in Manila, the Philippines,
where it is the program manager for the construction of a light rail transit
line, a project for which ICF Kaiser supported development and financing since
inception; in Portugal, where the Group provides program management of the
overhaul and upgrade of Portugal's main intercity freight and passenger rail
lines; and in Turkey, where the Group is providing construction management
services for the first phase of a light rail system as part of a joint
venture.
The major ports of many of the world's cities have serious water pollution
problems, and the E&C Group is helping to improve the condition of many
harbors and waterways. In its largest harbor project, the Group continues as
the construction manager of the cleanup of Boston Harbor, one of the largest
environmental projects in the country, under a contract extension that runs
through 2002. Since the inception of the project in 1988, the Group has served
as its construction manager and currently manages construction workers,
engineers, architects, and support personnel working to construct a wastewater
treatment plant on Deer Island in Boston Harbor,
5
Massachusetts. The Group also is providing construction management services
for the construction of the Walnut Hill Water Treatment Facility for the
metropolitan Boston area. In Brazil, the E&C Group is providing program
management services for the construction of sanitation and wastewater systems
for communities surrounding Guanabara Bay.
Consulting
The Consulting Group serves customers in domestic and international markets,
including both public- and private-sector organizations. Among its major
customers are U.S. government agencies, especially EPA; U.S. private-sector
organizations, particularly major energy producers, such as utilities and oil
companies; and governments and businesses around the world, as well as
multinational banks, development organizations, and treaty organizations. The
Consulting Group draws upon the talents of its multidisciplinary professional
staff to support customers within five lines of business.
In March 1999, the Company signed a letter of intent to sell its Consulting
Group to certain members of that Group's current management and CM Equity
Partners, L.P. (CMEP), an equity investment firm based in New York City, for
aggregate consideration of approximately $75 million. The Company expects the
sale to be completed by mid-1999.
Energy. This line of business supports the development of corporate and
technical plans for managing power resources and energy projects (including
transmission and distribution, power generation, and customer service),
provides economic assessments of short- and long-term market conditions for
various fuels, and provides expert support in litigation and regulatory
proceedings. The Consulting Group assists its customers in identifying market
opportunities, commercializing new technologies, and developing public policy;
it links energy markets with energy technology.
Environmental. This line of business assists customers in developing plans
and policies, evaluating options for managing environmental responsibilities
in the most cost-effective manner, and identifying and employing the best
available technologies and practices. The Group has special expertise in such
areas as industrial and municipal waste management, air pollution control,
chemical accident prevention, and groundwater and drinking water management.
The Consulting Group also provides technical and regulatory support to EPA's
Office of Solid Waste, focusing on human health and ecological risk assessment
and waste characterization.
Global environmental issues are also a particular area of focus within the
Consulting Group. The Consulting Group works with U.S., international, and
private-sector organizations that fund global environmental work and has been
actively involved in supporting international environmental treaties. Working
on global change issues for EPA for 16 years, the Company supports the EPA's
Global Change Division, providing services related to the reduction of methane
and other greenhouse gases.
Transportation. Transportation-related capabilities include an in-depth
working knowledge of the legislative and policy issues facing the
transportation industry; broad modeling and economic analytical capabilities
that evaluate the full range of economic and policy trade-offs inherent in
transportation decisions; and extensive planning and mission support
experience with multinational and government organizations that operate in
transportation-related areas throughout the globe.
Economic and Community Development. This practice provides training,
technical assistance, program support, and research services related to
affordable housing and community development. Additionally, the Consulting
Group helps federal agencies, cities, states, and nonprofit organizations to
design and implement programs that provide affordable, cost-effective housing,
to promote business and economic development, and to help revitalize
deteriorated neighborhoods.
Information Management. The Group assists clients in developing decision
support systems that facilitate the collection and use of information to track
performance, identify opportunities, and improve decision making.
6
The Group offers a number of simulation models and proprietary applications.
By combining consulting expertise with information technology skills, the
Group helps its customers deal with the unique challenges of their business
environments.
General Information about the Company
Competition and Contract Award Process
The market for the Company's services is highly competitive. The Company and
its consolidated subsidiaries compete with many other engineering,
construction, program management, and consulting services firms ranging from
small firms to large multinational firms having substantially greater
financial, management, and marketing resources than the Company. Other
competitive factors include quality of services, technical qualifications,
reputation, geographic presence, price, and the availability of key
professional personnel.
Private-Sector Work. Competition for private-sector work generally is based
on several factors, including quality of work, reputation, price, and
marketing approach. The Company's objective is to establish and maintain a
strong competitive position in its areas of operations by adhering to its
basic philosophy of delivering high-quality work in a timely fashion within
its clients' budget constraints.
Public-Sector Work. Most of the Company's contracts with public-sector
clients are awarded through a competitive bidding process that places no limit
on the number or type of offerors. The process usually begins with a
government Request for Proposal (RFP) that delineates the size and scope of
the proposed contract. Proposals are evaluated by the government on the basis
of technical merit (for example, response to mandatory solicitation
provisions, corporate and personnel qualifications, and experience) and cost.
The Company believes that its experience and ongoing work strengthen its
technical qualifications and, thereby, enhance its ability to compete
successfully for future government work.
Teaming Arrangements and Joint Ventures. In both the private and public
sectors, the Company, acting either as a prime contractor or as a
subcontractor, may join with other firms to form a team or a joint venture
that competes for a single contract or submits a single proposal. Because a
team of firms or a joint venture almost always can offer a stronger set of
qualifications than any firm standing alone, these arrangements often are very
important to the success of a particular competition or proposal. The Company
maintains a large network of business relationships with other companies and
has drawn repeatedly upon these relationships to form winning teams.
Contract Structure. The Company's consolidated subsidiaries operate under a
number of different types of contract structures with its private- and public-
sector clients, the most common of which are Cost Plus and Fixed Price. Under
Cost-Plus contracts, the Company's costs are reimbursed with a fee (either
fixed or percentage of cost) and/or an incentive or award fee offered to
provide inducement for effective project management. A variation of Cost Plus
contracts are time-and-materials contracts under which the Company is paid at
a specified fixed hourly rate for direct labor hours worked. Under Fixed-Price
contracts, the Company is paid a predetermined amount for all services
provided as detailed in the design and performance specifications agreed to at
the project's inception, and under which the Company retains more performance
risk than under Cost-Plus contracts. While these Fixed-Price contracts can
result in higher profit margins, they also can be costly if the Company
experiences cost overruns that are not recoverable from the client.
Customers
The Company's domestic clients include DOE and other federal departments and
agencies; major corporations in the energy, transportation, chemical, steel,
aluminum, mining, and manufacturing industries; utilities; and a variety of
state and local government agencies throughout the United States. DOE
accounted for approximately 54% of the Company's consolidated gross revenue
for the year ended December 31, 1998, approximately 56% for the year ended
December 31, 1997, and approximately 69% for the year ended December 31, 1996.
7
The Company's international clients include both private firms and foreign
government agencies. For the years ended December 31, 1998, 1997, and 1996,
foreign clients accounted for approximately 10.1%, 14.2%, and 5.8% of the
Company's consolidated gross revenue, respectively. For information concerning
gross revenue, operating income, and identifiable assets of the Company's
business by geographic area, see Note 12 to the consolidated financial
statements.
Backlog
Backlog refers to the aggregate amount of gross contract revenue remaining
to be earned pursuant to signed contracts extending beyond one year. The
Company ended 1998 with $3.2 billion in contract backlog. The backlog of the
EFM and Consulting Groups totaled $658 million and $540 million, respectively,
at December 31, 1998. The Company expects to work off 42% of the $2 billion
backlog. The reduction from $4.1 billion at December 31, 1997 is due primarily
to the completion of another year of the Kaiser-Hill Rocky Flats contract,
resulting in the conversion of approximately $632.6 million of the 1997
backlog into revenue in 1998. Exclusive of the Rocky Flats backlog at December
31, 1998, the Company's backlog decreased by 5.6% from December 31, 1997.
Because of the nature of its contracts, the Company does not calculate the
amount or timing of service revenue that might be earned pursuant to these
contracts. The Company believes that backlog is not a predictor of future
gross or service revenue.
Differences in contracting practices between the public and private sectors
result in the Company's backlog being weighted heavily toward contracts
associated with departments and agencies of the federal government. Backlog
under contracts with the federal government that extend beyond the
government's current fiscal year includes the full contract amount, including,
in many cases, amounts anticipated to be earned in option periods and certain
performance fees, even though annual funding of the amounts under such
contracts generally must be appropriated by Congress before funds can be
expended during any year under such contracts. In addition, departments and/or
agencies must allocate the appropriated funds to these specific contracts and
thereafter authorize work or task orders to be performed under these specific
contracts. Such authorizations are generally for periods considerably shorter
than the duration of the work the Company expects to perform under a
particular contract and generally cover only a percentage of the contract
revenue. Because of these factors, the amount of federal government contract
backlog for which funds have been appropriated and allocated, and task orders
issued, at any given date is a substantially smaller amount than the total
federal government contract backlog as of that date. In the event that option
periods under any given contract are not exercised or funds are not
appropriated, allocated, or authorized to be spent under any given contract,
the amount of backlog attributable to that contract would not result in
revenue to the Company. All contracts and subcontracts with departments and/or
agencies of the federal government are subject to termination, reduction, or
modification at any time at the discretion of the government.
Potential Environmental Liability
The assessment, analysis, remediation, handling, management, and disposal of
hazardous substances necessarily involve significant risks, including the
possibility of damages or personal injuries caused by the escape of hazardous
materials into the environment, and the possibility of fines, penalties, or
other regulatory action. These risks include potentially large civil and
criminal liabilities for violations of environmental laws and regulations, and
liabilities to customers and to third parties for damages arising from
performing services for clients.
Potential Liabilities Arising Out of Environmental Laws and Regulations
All facets of the Company's business are conducted in the context of a
rapidly developing and changing statutory and regulatory framework. The
Company's operations and services are affected by and subject to regulation by
a number of federal agencies, including EPA and the Occupational Safety and
Health Administration, as well as applicable state and local regulatory
agencies.
8
CERCLA addresses cleanup of sites at which there has been a release or
threatened release of hazardous substances into the environment. Increasingly,
there are efforts to expand the reach of CERCLA to make environmental
contractors responsible for cleanup costs by claiming that environmental
contractors are owners or operators of hazardous waste facilities or that they
arranged for treatment, transportation, or disposal of hazardous substances.
Several recent court decisions have accepted these claims. Should the Company
be held responsible under CERCLA for damages caused while performing services
or otherwise, it may be forced to bear such liability by itself,
notwithstanding the potential availability of contribution or indemnity from
other parties.
RCRA governs hazardous waste generation, treatment, transportation, storage,
and disposal. RCRA, or EPA-approved state programs at least as stringent,
govern waste handling activities involving wastes classified as "hazardous."
Substantial fees and penalties may be imposed under RCRA and similar state
statutes for any violation of such statutes and the regulations thereunder.
Potential Liabilities Involving Clients and Third Parties
In performing services for its clients, the Company could potentially be
liable for breach of contract, personal injury, property damage, and
negligence (including improper or negligent performance or design, failure to
meet specifications, and breaches of express or implied warranties). The
damages available to a client, should it prevail in its claims, are
potentially large and could include consequential damages.
Environmental contractors, in connection with work performed for clients,
potentially face liabilities to third parties from various claims, including
claims for property damage or personal injury stemming from a release of
hazardous substances or otherwise. Claims for damage to third parties could
arise in a number of ways, including through a sudden and accidental release
or discharge of contaminants or pollutants during the performance of services;
through the inability, despite reasonable care, of a remedial plan to contain
or correct an ongoing seepage or release of pollutants; through the
inadvertent exacerbation of an existing contamination problem; or through
reliance on reports or recommendations prepared by the Company. Personal
injury claims could arise contemporaneously with performance of the work or
long after completion of the project as a result of alleged exposure to toxic
or hazardous substances. In addition, increasing numbers of claimants assert
that companies performing environmental remediation should be adjudged
strictly liable, i.e., liable for damages even though its services were
performed using reasonable care, on the grounds that such services involved
"abnormally dangerous activities."
Clients frequently attempt to shift various liabilities arising out of
remediation of their own environmental problems to contractors through
contractual indemnities. Such provisions seek to require the Company to assume
liabilities for damage or personal injury to third parties and property and
for environmental fines and penalties. The Company has endeavored to protect
itself from potential liabilities resulting from pollution or environmental
damage by obtaining indemnification from its private-sector clients and
intends to continue this practice in the future. Under most of these
contracts, the Company has been successful in obtaining such indemnification;
however, such indemnification generally is not available if such liabilities
arise as a result of breaches by the Company of specified standards of care or
if the indemnifying party has insufficient assets to cover the liability. The
Company will continue its efforts to minimize the risks and potential
liability associated with its remediation activities by performing all
remediation contracts in a professional manner and by carefully reviewing any
and all remediation contracts it signs in an effort to ensure that its
environmental clients accept responsibility for their own environmental
problems.
For EPA contracts involving field services in connection with Superfund
response actions, the Company is eligible for indemnification under Section
119 of CERCLA for pollution and environmental damage liability resulting from
release or threatened release of hazardous substances. Some of the Company's
clients (including private clients, DOE, and DOD) are Potentially Responsible
Parties (PRPs) under CERCLA. Under the Company's contracts with these PRPs,
the Company has the right to seek contribution from these PRPs for liability
imposed on the Company in connection with its work at these clients' CERCLA
sites and generally
9
qualifies for the limitations on liabilities under CERCLA Section 119(a). In
addition, in connection with contracts involving field services at certain of
DOE's weapons facilities, the Company is indemnified under the Price-Anderson
Act, as amended, against liability claims arising out of contractual
activities involving a nuclear incident. Recently, EPA has constricted
significantly the circumstances under which it will indemnify its contractors
against liabilities incurred in connection with CERCLA projects. There are
other proposals both in Congress and at the regulatory agencies to further
restrict indemnification of contractors from third-party claims.
Under Kaiser-Hill's contract with DOE, Kaiser-Hill is not responsible for,
and DOE pays all costs associated with, any liability (including without
limitation, a claim involving strict or absolute liability and any civil fine
or penalty, expense, or remediation cost, but limited to those of a civil
nature), which may be incurred by, imposed on, or asserted against Kaiser-Hill
arising out of any act or failure to act, condition, or exposure which
occurred before Kaiser-Hill assumed responsibility on July 1, 1995 ("pre-
existing conditions"). To the extent the acts or omissions of Kaiser-Hill
constitute willful misconduct, lack of good faith, or failure to exercise
prudent business judgment on the part of Kaiser-Hill's managerial personnel
and cause or add to any liability, expense, or remediation cost resulting from
pre-existing conditions, Kaiser-Hill is responsible, but only for the
incremental liability, expense, or remediation caused by Kaiser-Hill.
The Kaiser-Hill contract further provides that Kaiser-Hill shall be
reimbursed for the reasonable cost of bonds and insurance allocable to the
Rocky Flats contract and for liabilities (and expenses incidental to such
liabilities, including litigation costs) to third parties not compensated by
insurance or otherwise. The exception to this reimbursement provision applies
to liabilities caused by the willful misconduct or lack of good faith of
Kaiser-Hill's managerial personnel or the failure to exercise prudent business
judgment by Kaiser-Hill's managerial personnel.
In connection with its services to its environmental, infrastructure, and
industrial clients, the Company works closely with federal and state
government environmental compliance agencies, and occasionally contests the
conclusions those agencies reach regarding the Company's compliance with
permits and related regulations. To date, the Company never has paid a fine in
a material amount or had material liability imposed on it for pollution or
environmental damage in connection with its services; however, there can be no
assurance that the Company will not have substantial liability imposed on it
for any such damage in the future.
Insurance
The Company has a comprehensive risk management and insurance program that
provides a structured approach to protecting the Company. Included in this
program are coverages for general, automobile, pollution impairment, and
professional liability; for workers' compensation; and for employers and
property liability. The Company believes that the insurance it maintains,
including self-insurance, is in such amounts and protects against such risks
as is customarily maintained by similar businesses operating in comparable
markets. At this time, the Company expects to continue to be able to obtain
general, automobile, and professional liability; workers' compensation; and
employers and property insurance in amounts generally available to firms in
its industry. There can be no assurance that this situation will continue, and
if insurance of these types is not available, it could have a material adverse
effect on the Company.
The Company has pollution insurance coverage on a claims-made basis, in
amounts and on terms that are economically reasonable, against possible
liabilities that may be incurred in connection with its conduct of its
environmental business. An uninsured claim arising out of the Company's
environmental activities, however, if successful and of sufficient magnitude,
could have a material adverse effect on the Company.
Government Regulation
The Company has a substantial number of cost-reimbursement contracts with
the U.S. government, the costs of which are subject to audit by the U.S.
government. As a result of pending audits related to fiscal years 1986
forward, the government has asserted, among other things, that certain costs
claimed as reimbursable under
10
government contracts either were not allowable or not allocated in accordance
with federal procurement regulations. The Company is actively working with the
government to resolve these issues. The Company has provided for its estimate
of the potential effect of issues that have been quantified, including its
estimate of disallowed costs for the periods currently under audit and for
periods not yet audited. Many of the issues, however, have not been quantified
by the government or the Company, and others are qualitative in nature, and
their potential financial impact, if any, is not quantifiable by the
government or the Company at this time. This provision will be reviewed
periodically as discussions with the government progress.
The Company may, from time to time, either individually or in conjunction
with other government contractors operating in similar types of businesses, be
involved in U.S. government investigations for alleged violations of
procurement or other federal laws and regulations. The Company currently is
the subject of a number of U.S. government investigations and is cooperating
with the responsible government agencies involved. No charges presently are
known to have been filed against the Company by these agencies. Management
does not believe that there will be any material adverse effect on the
Company's financial position, results of operations, or cash flows as a result
of these investigations.
Federal agencies that are the Company's regular customers (including DOE,
EPA, and DOD) have formal policies against awarding contracts that would
present actual or potential conflicts of interest with other activities of the
contractor. Because the Company provides a broad range of services in
environmental and related fields for the federal government, state
governments, and private customers, there can be no assurance that government
conflict-of-interest policies will not restrict the Company's ability to
pursue business in the future.
Because some of the Company's consolidated subsidiaries provide the federal
government with nuclear energy and defense-related services, these
subsidiaries and a substantial number of their employees are required to have
and maintain security clearances from the federal government. These
subsidiaries and their employees have been able to obtain these security
clearances in the past, and the Company has no reason to believe that there
would be any problems in this area in the future; however, there can be no
assurance that the required security clearances will be obtained and
maintained in the future. Because of its nuclear energy and defense-related
services, the Company is subject to foreign ownership, control, and influence
(FOCI) regulations imposed by the federal government and designed to prevent
the release of classified information to contractors who are under foreign
control or influence. FOCI issues arise particularly in connection with
foreign ownership of the Company's Common Stock, foreign bank participation in
the Company's credit line, and increased foreign sources of the Company's
gross revenue. The Company has implemented procedures designed to insulate
such subsidiaries from any FOCI that might affect the Company. There can be no
assurance that such measures will prevent FOCI policies from affecting the
ability of the Company's subsidiaries to secure and maintain certain types of
federal government contracts.
Employees
As of March 31, 1999, ICF Kaiser had 4,854 employees, and the Company
believes that its relations with its employees are good. Following the
completion of the EFM sale on April 9, 1999, there were 583 fewer employees.
Of the total remaining employees, 1,763 persons are employed at Kaiser-Hill's
Rocky Flats site in Colorado. A total of 1,357 of the Rocky Flats employees
are represented by the United Steelworkers of America, Local 8031; almost all
of the union employees are contracted out to other companies working at Rocky
Flats. The Company believes that its relations with the union are good.
Item 2. Properties
The Company's operations are conducted in leased facilities or in facilities
provided by the federal government or other clients. The Company's
headquarters is located at 9300 Lee Highway, Fairfax, Virginia 22031-1207, and
its telephone number is (703) 934-3600. The Company's regional headquarters
and other offices are listed on page 2 of this Report. Because the Company's
operations generally do not require the maintenance of unique facilities,
suitable office space is available for lease in all of the geographic areas
currently served. The
11
Company believes that adequate space to conduct its operations will be
available for the foreseeable future. For information concerning an investment
by the Company in the Fairfax, Virginia, land and buildings where the
Company's headquarters are located, see Notes 4 and 9 to the consolidated
financial statements.
Item 3. Legal Proceedings
In the course of the Company's normal business activities, various claims or
charges have been asserted and litigation commenced against the Company
arising from or related to properties, injuries to persons, and breaches of
contract, as well as claims related to acquisitions and dispositions. Claimed
amounts may not bear any reasonable relationship to the merits of the claim or
to a final court award. In the opinion of management, an adequate reserve has
been provided for final judgments, if any, in excess of insurance coverage,
that might be rendered against the Company in such litigation. See Item 1--
"General Information about the Company--Potential Environmental Liability" and
"Government Regulation," Item 7--"Other Items," and Note 13 to the
consolidated financial statements.
Item 4. Submission of Matters to a Vote of Security Holders--None
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Since September 14, 1993, the Common Stock has traded on the New York Stock
Exchange (NYSE) under the symbol "ICF". At March 31, 1999, there were 1,501
shareholders of record. On March 31, 1999, the closing price of the Common
Stock as reported by the NYSE was $0.75. The following table sets forth, for
the periods indicated, the high and low sales prices for the Common Stock as
reported by the NYSE:
Common Stock Price
-------------------
High Low
--------- ---------
Year Ended December 31, 1997
First Quarter............................................ $ 2.625 $ 1.875
Second Quarter........................................... 2.750 1.875
Third Quarter............................................ 2.875 2.125
Fourth Quarter........................................... 2.813 2.000
Year Ended December 31, 1998
First Quarter............................................ $ 3.000 $ 2.063
Second Quarter........................................... 3.063 2.188
Third Quarter............................................ 2.313 1.125
Fourth Quarter........................................... 1.813 1.188
The Company's Transfer Agent and Registrar is EquiServe, First Chicago Trust
Division (formerly First Chicago Trust Company of New York), P.O. Box 2536,
Jersey City, NJ 07303-2536. The Shareholder Relations telephone number is
(201) 324-0498, and the First Chicago Web site address is http://www.fctc.com.
The Company has never paid cash dividends on its Common Stock. The Board of
Directors anticipates that no cash dividends will be paid on its Common Stock
for the foreseeable future and that the Company's earnings will be retained
for use in the business.
The Board of Directors determines the Company's Common Stock dividend policy
based on the Company's results of operations, payment of dividends on
preferred stock, financial condition, capital requirements, and other
circumstances. The Company's debt agreements currently do not permit dividends
to be paid on its capital stock. See Note 6 to the consolidated financial
statements.
12
Item 6. Selected Financial Data
The selected consolidated financial data of the Company for the years ended
December 31, 1998, 1997, and 1996, the ten months ended December 31, 1995, and
the year ended February 28, 1995, have been derived from the Company's audited
consolidated financial statements. This information should be read in
conjunction with the consolidated financial statements and the related notes
thereto appearing elsewhere in this Report and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Certain
reclassifications have been made to the prior period financial statements to
conform to the presentation used in the December 31, 1998, financial
statements.
Selected Consolidated Financial Data
(in thousands, except per share data)
Ten
Months Year
Ended Ended
December February
Year Ended December 31, 31, 28,
1998 1997 1996 1995 1995
---------- ---------- ---------- -------- --------
Statement of Operations Data:
Gross revenue............................... $1,210,421 $1,108,116 $1,248,443 $916,744 $861,518
Service revenue(1).......................... 345,462 426,086 532,116 425,896 459,786
Operating income (loss)..................... (78,361) 18,069 21,180 17,505 13,688
Income (loss) before income taxes, minority
interest, and extraordinary item and
cumulative effect of accounting change..... (97,101) 2,561 14,484 6,303 1,239
Net income (loss) before extraordinary item
and cumulative effect of accounting
change..................................... (93,442) (4,987) 5,834 2,252 (1,661)
Basic and Diluted Earnings (Loss) Per Share:
Before extraordinary item and cumulative
effect of accounting change................ $ (3.87) $ (0.22) $ 0.17 $ 0.02 $ (0.18)
Extraordinary item......................... (0.05) -- -- -- --
Cumulative effect of accounting change, net
of tax..................................... (0.25) -- -- -- --
---------- ---------- ---------- -------- --------
Total..................................... $ (4.17) $ (0.22) $ 0.17 $ 0.02 $ (0.18)
========== ========== ========== ======== ========
Weighted average common shares outstanding--
basic...................................... 24,092 22,382 22,035 21,132 20,957
Weighted average common shares outstanding--
diluted.................................... 24,092 22,382 22,057 21,606 20,957
Balance Sheet Data (end of period):
Total assets................................ $ 429,053 $ 399,288 $ 369,462 $370,179 $281,422
Working capital............................. 2,289 91,121 113,898 84,589 91,640
Long-term liabilities....................... 147,152 145,590 161,951 125,818 133,130
Redeemable preferred stock.................. -- -- 19,787 19,617
Shareholders' equity (deficit).............. (63,118) 27,327 34,892 28,427 27,624
- --------
(1) Service revenue is derived by deducting the costs of subcontracted
services and direct project costs from gross revenue and adding the
Company's share of the equity in income of unconsolidated joint ventures
and affiliated companies.
13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Complications resulting from difficulties in executing several large fixed
price contracts involving the construction of plants to produce nitric acid
(the Nitric Acid Projects) caused the Company to recognize provisions for
total contract cost overruns totaling $66.0 million in 1998. A significant
amount of management's activities in 1998 were focused on responding to the
myriad of ramifications stemming from the substantial loss. As discussed in
the following overview, management has now addressed the predominant issues
related to completing the Nitric Acid Projects and financing the related cost
overruns.
Initially, the Company believed that it would incur cost overruns on only
one of the four Nitric Acid Projects being performed by the Company's
Engineers & Constructors (E&C) Group. Accordingly, as of December 1997, it
reversed all profit previously recognized on that specific project. However,
as time passed and as progress was made toward completion of all of the
contracts, it became apparent that the other contracts would incur sizeable
cost overruns as well. The Company's inability to control effectively many
conditions surrounding the projects--including issues involving subcontractor
productivity, reengineering work, customer demands and changes in project
management--paired with other inherent difficulties in large project cost
estimation processes, resulted in the Company's recording cost overrun charges
of $40.0 million, $7.0 million, and $19.0 million in the second, third, and
fourth quarters of 1998, respectively. On April 15, 1999, the last plant began
initial operations and the other three plants were operating and producing
nitric acid above contract-specific minimums. The Company entered into
settlement arrangements with several of the Nitric Acid Project customers and
subcontractors in order to minimize the remaining uncertainties associated
with these projects and to enable the Company to make a reasonable
determination of completion estimates. The Company will also continue to
pursue claims recoveries against certain subcontractors but has not included
any estimate for recoveries in the total recorded $66.0 million cost overrun.
The Company performed extensive reviews and analyses aimed at identifying
the causes of the Nitric Acid Project problems in an effort to mitigate the
risk of similar problems occurring in the future. Partly as a result of these
reviews, the Company recognized an additional charge totaling $10.2 million to
reflect the adjustment of the earned progress to date on several other large
fixed-price projects as well as to provide for reasonable estimates of
reserves for certain risks associated with those projects.
In anticipation of the cash flow and liquidity issues that likely would
result from the Nitric Acid Project cost overruns and intentions for
restructuring actions, in the latter part of 1998, management began to seek
additional sources of financing. Additionally, in the second half of 1998, the
Board of Directors formed a Special Committee to consider strategic
alternatives for the Company. The Special Committee retained a financial
advisor to assist with the potential sale of a portion(s) of the Company. The
Special Committee and senior management have since been focused on completing
both processes, i.e., securing and preserving the short-term financing and the
simultaneous sale of corporate operating assets.
In December 1998, the Company secured an alternate revolving line of credit,
which provided access to increased working capital. However, continued erosion
on the Nitric Acid Projects, combined with growth in the Company's federal
government business areas, soon pushed the Company to maximum available
borrowing levels. Since December 1998, the Company has had to amend the
revolver, resulting in cash borrowing and letter of credit access up to an
aggregate of $30 million with a requirement to provide $10 million in cash
collateral for existing letters of credit and an accelerated expiration date
of June 30, 1999. Additionally the Company has had to extend the average age
of its vendor obligations and carefully manage all cash disbursement activity.
The payment delays to trade creditors may, at least in the short term, have a
negative impact upon the Company's current and future ability to generate and
secure business opportunities.
Also in December 1998, the Company received proposals for the purchase of
several of its major operating activities. After reviewing recommendations
from its financial advisor, the Board of Directors instructed management to
enter into negotiations for the sale of the majority of the assets associated
with two of its operating groups.
14
On March 9, 1999, the Company entered into a definitive asset purchase
agreement (the EFM Agreement) with The IT Group, Inc. (IT) for the sale of the
Company's Environment and Facilities Management Group (EFM). Pursuant to the
terms of the EFM Agreement, on April 9, 1999, the Company sold the majority of
the active contracts and investments, and transferred a substantial number of
employees to IT for a purchase price of $82 million, less $8 million to be
retained by IT for EFM's working capital requirements. IT also acquired the
Company's interest in various operating leases for equipment and facilities
used by EFM. The Company retained its 50% ownership in Kaiser-Hill.
In March 1999, the Company also announced its intentions to sell its
Consulting Group. On March 8, 1999, a non-binding letter of intent was signed
with CM Equity Partners, L.P. (CMEP), an equity investment firm based in New
York City, and the Group's management for the sale of the majority of the
assets associated with the Consulting Group for $75 million, which is
currently expected to be completed by mid-year 1999.
The cash proceeds from the completed sale of EFM and the pending Consulting
Group sale, net of income taxes and transaction costs, and from the
liquidation of the remaining EFM assets will be used to pay down the cash
borrowings on the Company's revolving line of credit and contribute to
resolving existing liquidity constraints. The Company also will continue to
pursue the realignment of its capital structure, the continued reductions of
its cost structure, and the increased focus on risk mitigation and effective
resource allocation, all of which are aimed at improving the profitability of
the Company's remaining operations. The Company is committed to implementing
proper management controls and the processes necessary to deliver high-
quality, profitable projects throughout its operations. A plan that management
began implementing late in 1998 provides for the discontinuance of
unprofitable market areas, the realignment of staff within the Company to meet
current needs, and the reduction of significant overhead costs in light of the
divestitures of two of its operating groups. At the inception of the plan's
execution in 1998, the Company recognized a $7.7 million charge for the costs
of office realignment and discontinuing operations in certain markets and a
$9.4 million charge for severance and other restructuring costs. Management
expects to complete execution of the plan by June 30, 1999.
Despite the severe financing constraints experienced by the Company, the
Company has continued to secure new projects, including several major
contracts. Significant examples include:
. the third quarter EFM award of a five-year, $1.1 billion contract to a
new joint venture among Northrop Grumman, Wackenhut Corporation, and the
Company to manage base operations for NASA and the U.S. Air Force at
Kennedy Space Center, Cape Canaveral Air Station, and several other Air
Force bases
. E&C's award of the $44.0 million follow-on operations and maintenance
contract to the Boston Harbor Wastewater Treatment construction project
that it performed over the last 11 years.
. EFM's award of a $9.7 million contract by the Indiana Department of
Environment for decontamination and demolition at the former Continental
Steel Superfund Site in Kokomo, Indiana.
. E&C's award of the $25.0 million Walnut Hill Water Treatment contract to
provide construction management services for the construction of the
largest water-treatment facility in New England to be located in
Marlborough, Massachusetts.
The Company ended 1998 with $3.2 billion in contract backlog. The backlog of
the EFM and Consulting Groups totaled $658 million and $540 million,
respectively, at December 31, 1998. The Company expects to work off 42% of the
$2 billion backlog. The reduction from $4.1 billion at December 31, 1997 is
due primarily to the completion of another year of the Kaiser-Hill Rocky Flats
contract, resulting in the conversion of approximately $632.6 million of the
1997 backlog into revenue in 1998. Exclusive of the Rocky Flats backlog at
December 31, 1998, the Company's backlog decreased by 5.6% from December 31,
1997.
Results of Operations
The following discussion describes the Company's results of operations for
the years ended December 31, 1998, 1997, and 1996. Due to the magnitude of the
effect of many of the nonrecurring adjustments and transactions described
above, many of the analyses that follow have been adjusted to focus on the
Company's core operations.
15
Gross Revenue(1)(2)
The Company's gross revenue by operating group for each of the years ended
December 31 are as follows (in millions):
1998 1997 1996
-------- -------- --------
Kaiser-Hill....................................... $ 632.6 $ 588.7 $ 544.0
Engineering and Construction (E&C)................ 374.1 337.8 266.8
Environment and Facilities Management (EFM)....... 105.3 88.1 355.6
Consulting Group.................................. 105.4 93.1 86.9
Eliminations...................................... (7.0) (0.4) (4.9)
-------- -------- --------
Total........................................... $1,210.4 $1,108.1 $1,248.4
======== ======== ========
- --------
(1) Gross revenue represents services provided to customers with whom the
Company has a primary contractual relationship. Included in gross revenue
are costs of certain services subcontracted to third parties and other
reimbursable direct project costs such as materials procured by the
Company on behalf of its customers.
(2) Certain reclassifications have been made to the prior period information
to conform to the current period presentation.
Kaiser-Hill
Kaiser-Hill is a 50% owned joint venture between ICF Kaiser International,
Inc. and CH2M Hill formed solely to perform the U.S. Department of Energy's
Rocky Flats Closure Project awarded in late 1995. The contract is cost-plus
incentive fee in nature, accordingly, the changes in gross revenue earned by
Kaiser-Hill during the comparable periods are largely reflective of increased
levels of reimburseable subcontractor costs being incurred as the contract
progress continues.
Environment and Facilities Management Group (EFM)
The EFM Group derived revenues primarily from large environmental and
facilities management projects with federal government and commercial
customers. Fluctuations in the historic annual results above are attributable
to:
. an increase in 1998 gross revenue of $18.3 million and $43.1 million
compared to 1997 and 1996, respectively, predominantly from large
environmental restoration contracts for the Baltimore and Sacramento
districts of the U.S. Army Corps of Engineers, and
. the termination in September 1996 of the Company's then largest contract,
the Hanford contract, which generated $293.4 million in gross revenue
that year.
Engineers & Constructors Group (E&C)
The E&C Group provides design engineering, procurement, and construction
services to domestic and international clients in the industrial, water,
transportation and transit, and infrastructure markets. Fluctuations in the
historic annual results above are attributable to:
. the acquisition on March 19, 1998, of ICT Spectrum Constructors, Inc., a
construction contractor, based in Boise, Idaho, specializing in
construction management of fabrication plants and other facilities for
semiconductor and microelectronics customers resulting in $87.2 million
in gross revenue from January 1, 1998.
16
. a reduction of $22.5 million of revenue recognized in 1998 compared to
1997 from the Nitric Acid Projects, partially reflective of the
decreasing volume of activity on the projects as they neared completion
and partially of the reversal of revenue as a result of changes in
estimates of contract losses at completion and an increase of $39.8
million in 1998 over 1996 earnings, reflective of the start-up phase of
several of those projects in late 1996.
. a reduction of $4.3 million in 1998 revenue compared to 1997 generated by
the Company's Australia, and Asian activities. The decline was largely
due to the winding down of certain large projects and due to the negative
impacts of foreign currency volatility in the region, both during the
third quarter of 1998. The effects of these decreases in gross revenue on
operating income, however, were offset in 1998 and 1997 as a major new
joint venture project was secured and began operating in late 1997, the
equity results of which are reflected as a component of the Company's
service revenue and not as gross revenue.
. a decrease of $14.5 million in revenue in 1998 compared to 1997 resulting
from the 1997 completion of contracts for a major U.S. industrial client.
. total gross revenue of $77.8 million, $76.7 million and $27.2 million
generated by the Nova Hut steel mini-mill contract in the Czech Republic
in 1998, 1997 and 1996, respectively. The increases reflect the
contract's inception in 1996 and the ensuing advancement in 1997 and 1998
to stages of the project involving the procurement of significant amounts
of subcontracted labor and direct materials. Currently contracted
portions of this project are expected to be completed during late 1999.
. a decrease of $4.0 million was also experienced in 1998 versus 1997 on
the Boston Harbor project which progressed toward completion of the more
construction-laden phases and into the operations and maintenance phases.
Consulting Group
The Consulting Group provides energy, information technology, environmental,
economic, and community development consulting services to governmental and
commercial clients. The Consulting Group completed 1998 with the highest gross
revenue, $105.4 million, and the largest work force, now totaling nearly 750
employees, in its history. The Group's headcount and labor base both grew by
18% during 1998 compared to 1997 and by 13% in 1997 compared to 1996 in
response to growth experienced in contract awards. Historically, revenue from
the U.S. Environmental Protection Agency (the EPA) represented a majority of
the Group's total business. In 1998 and 1997, the percentage of the Group's
revenues derived from the EPA represented 45.5% and 49.0% of total Consulting
Group revenue, respectively, yet increased by $1.3 million in absolute terms
in 1998 over 1997.
17
Service Revenue(1)
The Company's service revenue by operating group for each of the three years
ended December 31 is as follows (in millions):
1998 1997
1998 (2) 1997 (2) Change 1996 (2) Change
------ --- ------ --- ------ ------ --- ------
Kaiser-Hill............. $154.5 24% $167.5 28% (8)% $168.0 31% 0%
Environment and
Facilities Management
(EFM).................. 52.0 49% 53.8 61% (3)% 155.4 44% (65)%
Engineering and
Construction (E&C)..... 55.0 15% 131.8 39% (58)% 138.2 52% (5)%
Consulting.............. 81.7 77% 71.3 77% 15 % 68.4 79% 5 %
Equity in income of
joint ventures and
affiliated companies... 6.0 -- 2.3 -- 161% 4.0 -- (43)%
Eliminations............ (3.7) -- (0.6) -- -- (1.9) -- --
------ ------ ------
$345.5 29% $426.1 38% (19)% $532.1 43% (20)%
====== ====== ======
Adjusted for all effects
of the Nitric Acid
projects............... $412.6 35% $420.7 40% (2)% $530.5 43% (21)%
====== ====== ======
Adjusted for the effects
of acquisitions and the
Nitric Acid projects... $402.9 37% $420.7 40% (4)% $530.5 43% (21)%
====== ====== ======
- --------
(1) Service revenue is derived by deducting the costs of subcontracted
services and materials from gross revenue and adding the Company's share
of the equity in income of unconsolidated joint ventures and affiliated
companies.
(2) This column reflects each operating group's service revenue as a
percentage of its gross revenue.
Service revenue decreased by $80.6 million during 1998 compared to 1997. The
majority of the decrease was due to the $76.2 million loss reserve established
primarily in E&C to cover estimated cost overruns on the Nitric Acid Projects
and also for revised profit margin estimates at completion on other large
fixed price projects. Although management believes that adequate provision for
loss reserves and profit estimates for these fixed-price contracts has been
reflected in these results, no assurance can be given that there will be no
additional future adjustments.
Service revenue from the Rocky Flats contract decreased by $13.0 million
during 1998 compared to 1997. This decrease is attributable to Kaiser-Hill's
continuing strategy to subcontract more of the overall contract tasks and to
emphasize its primary role as the overall services integrator on the Rocky
Flats contract. Because the contract primarily reimburses Kaiser-Hill for its
actual costs incurred plus an incentive fee on performance-based completion
milestones, the shift from direct labor to subcontracted costs has no impact
to Kaiser-Hill's actual profitability. As with all contracts involving
incentive-based fee arrangements, the Company estimates the amount of fees it
believes it will earn and recognizes revenue equal to the estimated fee
percentage multiplied by the related base of costs. During the third quarter
of 1998, the Company determined that Kaiser-Hill was not going to earn the
same amount of fees as in 1997, and accordingly adjusted the fee revenue on a
cumulative basis down to the revised estimate.
Decline in service revenue of $9.6 million from the Nova Hut contract
compared to 1997 is as a result of progression into a phase of the contract
that is subcontractor-intensive and as a result, the Company recognized a $5.7
million negative adjustment in the third quarter of 1998. The revenue
adjustment was necessary to reflect earned progress resulting from the loss of
a change order modification which was previously considered highly probable of
being attained.
The service revenue decreases discussed above were somewhat offset by $9.7
million of service revenue generated by the 1998 acquisition of ICF Kaiser
Advanced Technology. Increases for both periods in service revenue from the
Consulting Group paralleled the increases in, and remained a relatively
consistent percentage of, that group's gross revenue.
18
Equity in income from joint ventures and affiliated companies increased by
$3.7 million in 1998 compared to 1997 due primarily to a joint venture
contract awarded in late 1997 for an alumina refinery expansion project in
Australia. The sale in 1996 of the Company's interest in a pulverized coal
injection operation accounted for the 1997 decline in joint venture equity
from 1996 of $1.7 million.
Service revenue as a percentage of gross revenue, adjusted for the effects
of the Nitric Acid Projects and acquisitions, decreased to 37% for 1998
compared to 40% for 1997 and 43% for 1996. Kaiser-Hill's service revenue
percentage to gross revenue decreased to 24% for 1998 compared to 29% and 31%
for 1997 and 1996, respectively. Adjusting service revenue further to exclude
the effects of Kaiser-Hill, the percentage to gross revenue increased to 66%
for 1998 compared to 63% and 53% for 1997 and 1996, respectively. This
increase is largely driven by a migration in the mix of the Company's E&C
contracts which are less construction intensive and more professional services
oriented compared to recent history.
Operating Expenses
The Company's operating expenses as a percentage of service revenue by
operating group for each of the years ended December 31 are as follows (in
millions):
1998 1997 1996
---- ---- ----
Service Revenue(1)............................................ 100% 100% 100%
Operating Expenses
Direct labor and fringe benefits............................ 68% 68% 71%
Group overhead(2)........................................... 22% 21% 18%
Corporate general and administrative (3).................... 6% 5% 5%
Depreciation and amortization............................... 2% 2% 2%
--- --- ---
Operating Income(4)........................................... 2% 4% 4%
=== === ===
- --------
(1) Service revenue has been adjusted to exclude all of the effects of the
Nitric Acid Projects.
(2) Group overhead represents those general and administrative costs incurred
by the Company's operating groups for which an indirect benefit is
generally not derived by any other operating group.
(3) Corporate general and administrative expenses consist of costs incurred by
the Company which provide some indirect benefit to all operating groups.
(4) Operating Income as presented here excludes the effects of the severance
and restructuring and unusual charges recorded during 1998.
The acquisition of ICF Kaiser Advanced Technology in 1998 added direct labor
and fringe benefits expense of $5.8 million. Apart from acquired direct labor,
other direct labor spending decreased by $12.8 million, or 4%, in 1998
compared to 1997, resulting in total direct labor and fringe benefit expense
during 1998 of to $106.7 million. This reduction is due primarily to decreases
in Kaiser-Hill's direct labor of $8.0 million and $16.8 compared to 1997 and
1996, respectively. These reductions reflect Kaiser-Hill's migration to using
more subcontractors to execute work on the Rocky Flats contract. Another
$102.1 million of the 1998 decrease in direct labor from 1996 was due to the
loss of EFM's Hanford contract, which terminated in September, 1996.
Adjusting to exclude the Rocky Flats and the Hanford contracts, the
Company's direct labor and fringe benefit costs as a percentage of service
revenue were 76.0%, 56.0%, and 50.0% for the fiscal periods ended December 31,
1998, 1997, and 1996 respectively.
General and administrative, or indirect, expenses are incurred within each
of the operating groups and at the corporate level. Total group overhead
represents those general and administrative costs incurred by the Company's
operating groups for which an indirect benefit is generally not derived by or
allocated to any other
19
operating group. Conversely, corporate general and administrative costs are
not allocated to group results and consist of expenses incurred by the Company
which provide some indirect benefit to all operating groups.
Group overhead expenses increased by $5.4 million, or 6.0%, during 1998
compared to 1997. The 1998 group overhead increase reflects the inclusion of
$3.0 million in general and administrative costs incurred by ICF Kaiser
Advanced Technology during 1998, a $0.7 million charge in the first quarter of
1998 to establish reserves for contingencies; and lastly, a combination of
other increases in expenses related to marketing, administration, and
unbillable technical labor, which were not incurred at similar levels during
the same periods in 1997. Group overhead decreased by $9.0 million, or 9.4%,
in 1997 compared to 1996 as a result of the Company's cost-reduction
initiatives undertaken in late 1996 and 1997. Significant reductions were
realized in indirect salaries, facilities expenses, consultants' costs, and
amortization expense.
Corporate general and administrative expense increased by $0.9 million, or
4.0%, in 1998 versus 1997. The positive effects of reductions in corporate
general and administrative costs were more than offset by administrative cost
increases undertaken for matters that are non-recurring in nature.
Specifically, numerous activities were undertaken by management and the Board
of Directors in 1998 as a precursor to realigning the Company's unprofitable
operations.
Management believes it can significantly reduce the Company's current annual
overhead and general and administrative cost structures and began execution
late in 1998 of its cost reduction plan. Also in 1998 the Company recognized a
$7.7 million charge for the costs of office realignment and discontinuing
operations in certain markets and a $9.4 million charge for severance and
other restructuring costs and has presented the charges individually on the
Consolidated Statements of Operations.
Gain on Sale of Investment
In December 1996, the Company sold the majority of its investment in a
pulverized coal injection operation for $16.6 million, resulting in a $9.4
million pretax gain. The buyer exercised an option on January 5, 1998, to
purchase the remaining investment for $2.4 million. The Company recognized a
total pretax gain on the option of $1.0 million during 1997 as the carrying
value of the option was increased to reflect its then current fair market
value. The Company's investment in this operation generated $0.8 million and
$2.8 million in equity income in 1997 and 1996, respectively.
Interest Expense
The Company's average annual outstanding debt and the related average
effective interest rates for 1998, 1997, and 1996 were $151.7 million and
13.3%, $140.8 million and 13.0%, and $131.0 million and 13.2%, respectively.
Interest expense increased by $2.0 million in 1998 compared to 1997,
primarily as a result of additional borrowings to fund the Nitric Acid
Projects overruns. Interest expense increased $0.9 million in 1997 from 1996,
a $1.8 million increase of which was the result of the Company's late 1996
issuance of $15 million in 12% Senior Notes due in 2003. The proceeds from
these Senior Notes were used primarily to redeem preferred stock, which
carried an annual dividend requirement of $1.95 million. The 1997 increase was
then offset partially by a one-time, $0.9 million reduction in interest
expense realized from the Company's favorable resolution and reversal of a
previously established liability for potential interest costs associated with
a foreign income tax matter.
Interest income is earned on available cash balances generated primarily by
Kaiser-Hill and foreign operations. All other cash flows not required for
operations are used to pay down outstanding cash borrowings.
Income Tax Expense
The income tax provision for all periods presented excludes the minority's
interest in Kaiser-Hill's operating income because it is owned partially by
another company and is a flow-through entity for income tax purposes.
20
In 1998, the Company recognized a tax benefit of $11.4 million on a loss
before taxes of $97.1 million. This loss can be used as a future tax benefit
totaling $35.1 million; however, due to uncertainty over the ability to
realize the entire amount, the Company provided a valuation allowance of $22.4
million against the future benefit. However, management believes that future
earnings, including anticipated gains from the sale of portions of the
Company's operating assets, will generate sufficient taxable income within the
next year to realize the entire net $34.7 million deferred tax asset currently
reflected on the balance sheet, in addition to the $22.4 million of benefit
currently included in the valuation allowance.
Other 1998 changes in income tax expense versus 1997 include a $1.8 million
foreign income tax expense established for the anticipated repatriation to the
U.S. of Australian earnings, used for domestic working capital needs, and a
$0.7 million provision for the permanent book-tax difference expected for the
redemption of $1.8 million in non-recourse loans to officers and former
employees, which were collateralized solely by shares of the Company's common
stock. At the inception of the loans, the collateral value exceeded the loans'
face value.
In 1997, the Company recognized a tax benefit of $3.3 million on pre-tax
income of $2.6 million primarily as a result of completing a study of historic
research and experimental expenditures for certain open tax years, enabling
the Company to recognize a benefit for research tax credits of $1.9 million.
Extraordinary Item
In December 1998, initial proceeds totaling $25.0 million from the new
revolver were used to repay all outstanding amounts from the former revolving
credit facility. Accordingly, the Company wrote off the unamortized balance of
the capitalized costs related to the original issue of the debt and recognized
an extraordinary charge of $1.1 million. The Company did not recognize any
income tax benefit associated with this charge
Cumulative Effect of Accounting Change
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued a Statement of Position 98-5
Reporting on the Costs of Start-Up Activities (SOP 98-5). The SOP requires
costs of organization and start-up activities to be expensed as incurred. The
Company elected early adoption of the Statement effective April 1, 1998 and,
at that time, reported the cumulative effect of the change as a one-time, non-
cash charge of $6.0 million after tax, or $0.25 per share. The Company's
amortization expense in 1998 was reduced by $1.6 million because the
cumulative charge included balances for items that were previously amortizing.
Liquidity and Capital Resources
Operating activities: As of December 31, 1998, the Company had funded
approximately $40 million of the total estimated $66 million Nitric Acid
Project cost overruns. This use of cash was in part offset by the effects on
cash balances of increasing the average age of vendor payables, resulting in a
total net operating use of cash of $29.4 million in 1998.
The Company generated significant cash flows from operations during 1997,
due in part to increased activity in large commercial projects that had
provisions in the contract terms for milestone-based payments which were
collected prior to contract performance. Differences in the timing of the cash
payments made to suppliers on some of these large projects versus the
collection of customer trade receivables also contributed favorably to the
1997 operating cash flows. Cash flows generated from operations in 1996 were
impacted favorably by similar timing differences and impacted negatively by
the Company's timing of supplier payments made related to the termination of
the Hanford contract in late 1996.
21
Investing activities: Proceeds totaling $2.4 million and $16.5 million from
the December 31, 1996 installment sale of the Company's ownership interest in
a pulverized coal injection operation were collected in 1998 and 1997,
respectively. Investments, including capitalized labor, were made in 1998 and
1997 totaling $4.5 million and $4.9 million, respectively, for capital
purchases. Such investment levels remained relatively consistent with that of
recent history and included the implementation costs of new accounting and
project management software, which began in 1995 and will continue in various
phases throughout 1999. In light of the planned completion of the software
project in 1999, which is a critical factor in the Company's Year-2000
readiness plan, and of the sale of two of its operating groups, the Company
anticipates reductions in future requirements for purchased capital
expenditures.
With the intent significantly restructuring fixed operating leases for the
Company's corporate headquarters, the Company paid $1.5 million on November
12, 1997, for a 40% ownership interest in a limited liability company (the
LLC) that leases the land and owns the buildings leased primarily by the
Company for its corporate headquarters. The Company is committed to make
additional annual capital contributions to the L.L.C. totaling $600,000
annually during each of the first three years and $700,000 annually during
each of the fourth through ninth years of the LLC. The ownership in the LLC
will increase to 16% in fixed annual 2.4% increments in each of the eleventh
through fifteenth years of the agreement. Transaction costs totaling $1.7
million were capitalized and will be amortized over the estimated 15-year life
of the LLC.
Financing activities: In 1998, the Company realized that it was going to
incur significant cost overruns on the Nitric Acid Projects. Due to the
significant risks, difficulties and uncertainties involved in estimating the
total costs to complete these large fixed price projects, the Company
increased the total completed project cost estimates several times in 1998.
Given the completion cost uncertainties and the inability to finitely
determine the impact of the losses on the Company's liquidity and financing
sources, management immediately pursued options for additional financing
sources and flexibilities. In addition to seeking a replacement working
capital facility, the Company's Board of Directors also began considering and
pursuing other strategic alternatives, including, but not limited to, the sale
of portions of the Company.
As a result of the activities, the Company successfully entered into a new
revolving credit facility (the Revolver) on December 18, 1998 which offered
additional flexibility and access to additional cash borrowings compared to
the predecessor revolving facility. The new Revolver provides for cash
borrowings and letters of credit up to an aggregate of $60 million. The total
available credit is based on a percentage of the Company's eligible billed and
unbilled accounts receivable, up to the $60 million maximum. The Company and
certain of its subsidiaries, which are guarantors of the Revolver, have
granted a security interest in certain accounts receivable and other assets
and pledged their respective stock to the lenders. The Revolver limits the
payment of cash dividends on common stock, prohibits the issuance of certain
types of additional indebtedness, limits certain investments and acquisitions,
limits the amount of outstanding letters of credit to $35 million, prohibits
the sale of certain assets, and requires the maintenance of specified
financial ratios.
The Revolver contains provisions for prime interest rate borrowings with
margins dependent upon the Company's financial operating results, and expires
on December 31, 2000. As of December 31, 1998, the Company had $30.7 million
in cash borrowings and $26.7 million in letters of credit outstanding under
the Revolver. The letters of credit outstanding under the Revolver are in
support of contract performance guarantees, primarily on international
projects. The weighted average interest rate incurred on revolver borrowings
for 1998 and 1997 was 8.9% and 8.5%, respectively. As of December 31, 1998,
the Company had $2.6 million of additional credit available from the Revolver.
Soon after obtaining the Revolver, the Company again increased the estimate
of the total Nitric Acid Projects cost overruns by an additional $19 million.
This material adverse change to the Company's financial condition triggered a
technical event of default pursuant to the Revolver's terms. Apart from the
financial effects of this latest increased estimate of the Nitric Acid Project
overruns, the Company was in compliance with all other of the Revolver's
restrictive financial covenants at December 31, 1998. Subsequent to the event
of default, the lender has permitted the Company to borrow and obtain letters
of credit pursuant to all other terms of the
22
Revolver, primarily conditioned on the Revolver provision that proceeds from
asset sales be used to repay outstanding cash borrowings. That provision
combined with the fact that the Company was actively pursuing the sale of
significant operating assets was sufficient assurance for the lenders to
continue to permit the use of the facility until such time as an asset sale
was completed. On April 9, 1999, the Company completed the sale of its EFM
Group (see Note 3 to the Consolidated Financial Statements) and used $36
million of the sale proceeds to extinguish outstanding Revolver cash
borrowings. The Company has also received an amendment to the Revolver (the
Amended Revolver) providing for cash borrowing and letters of credit up to an
aggregate of $30 million. The Amended Revolver will expire on June 30, 1999
and will also require the Company to provide $10.0 million in cash collateral
for existing letters of credit.
The distributions of Kaiser-Hill earnings to the minority interest owner in
1998, 1997, and 1996 totaled $10.3 million, $13.9 million, and $2.4 million,
respectively. Kaiser-Hill currently has a $50 million receivables purchase
facility to support its working capital requirements. The receivables purchase
facility contains certain program fees, specified minimum tangible net worth
requirements, and default provisions for delinquent receivables. The
receivables purchase facility expires on June 30, 1999, and is non-recourse to
Kaiser-Hill's owners. The Company anticipates being able to renegotiate the
purchase facility in annual increments beyond the 1999 expiration.
Liquidity and Capital Resource Outlook
Management believes that the cash proceeds from the completed EFM sale and
the pending Consulting Group sale will yield sufficient short-term liquidity
to bridge the Company's financing needs until such time as the Company can
secure other longer-term alternatives. Specifically, the cash proceeds from
divestitures will be used to retire outstanding cash borrowings from the
revolving credit facility, provide required collateral for contract
performasnce guarantees, pay overdue vendor obligations and contribute to
supporting the future realigned working capital requirements and capital
expenditures of the Company's remaining operations including required interest
obligations of the Series B Senior and the Senior Subordinated Notes.
Subsequent to the sale of the EFM and Consulting Groups, however, as well as
between the closing dates of the sales, the Company's remaining E&C operations
will require access to a revolving credit line containing provisions for
access to letters of credit typically required to support certain contract
performance obligations. The Company has obtained an amended, $30 million,
revolver (the Amended Revolver) from its current lenders through June 30,
1999. The terms of the Amended Revolver include similar restrictive financial
covenants as the Revolver and in addition required the Company to
collateralize $10.0 million of its total contract performance guarantees which
are currently addressed by noncollateralized letters of credit. In the event
that access to a replacement revolving line cannot be secured by June 30,
1999, the Company will have to use available cash, generated largely from
asset sales: to collateralize its contract performance guarantees.
In the event the Consulting Group sale is not consummated, the Company
believes the cash flows from ongoing operations of the Consulting Group,
Kaiser-Hill, and the E&C Group would most likely generate sufficient
collateral, in the form of current trade accounts receivable, to adequately
support a borrowing base to secure the size of revolving credit line needed to
fund short-term borrowing needs of the Company's remaining operations, as well
as the letter-of-credit capacity needed primarily by the E&C Group. A factor
critical, however, to the Company's success in securing a sufficient and
affordable working capital facility in the near term, in all of the above
scenarios, is its ability to remove sufficient overhead costs from remaining
operations and demonstrate improved operating results. Although management
believes it will be able to accomplish these milestones, there can be no
assurance that it will be able to do so.
Regardless of the outcome of the pending Consulting Group sale, over the
long term the Company will need to realign its capital structure. Assuming the
sale of the Consulting Group is completed, the net proceeds may be used to
reinvest in the Company's business, pay down debt on the Amended Revolver or
offer to purchase the Company's outstanding Notes. The Company is considering
alternatives for the use of the net proceeds of the Consulting group sale and
the realignment of its capital structure. These alternatives will include
means by which the Company's outstanding debt may be reduced to levels that
can be supported by cash flows of the remaining operations.
23
The Company will continue to explore options that would provide additional
capital for longer-term objectives and operating needs, including the
possibility for divestiture of additional operating assets, replacements for
the Company's long-term debt, and additional equity infusions.
Other Matters
Bath Contingency: In March 1998, the Company entered into a $187 million
maximum price contract to construct a ship building facility. In May 1998, the
Company subsequently learned that estimated costs to perform the contract as
reflected in actual proposed subcontracts were approximately $30 million
higher than the cost estimates originally used as the basis for contract
negotiation between the Company and the customer. After learning this, the
Company advised the customer that it was not required to perform the contract
in accordance with its terms as a result of a mutual mistake among them in
negotiating that contract. In October 1998, the customer presented an initial
draft of a claim against the Company requesting payment for estimated damages
and entitlements pursuant to the terminated contract. The Company and the
customer are currently discussing the customer's draft claim. No provision for
loss for this matter has been included in the Company's financial results to
date as management does not believe that it has sufficient information at this
time to reasonably estimate the outcome of the negotiations.
Acquisition Contingency: The ICF Kaiser common shares exchanged for the
stock of ICT Spectrum in the March, 1998 acquisition, carry the guarantee that
the fair market value of each share of stock will reach $5.36 by March 1,
2001. In the event that the fair market value does not attain the guaranteed
level, the Company is obligated to make up the shortfall either through the
payment of cash or by issuing additional shares of common stock with a total
value equal to the shortfall, depending upon the Company's preference.
Pursuant to the terms of the Agreement, however, the total number of
contingently issuable shares of common stock cannot exceed an additional 1.5
million. Given that the quoted fair market value of the stock at December 31,
1998 was $1.44 per share, and that the Company's current debt instruments
restrict the amount of cash that can be used for acquisitions, the assumed
issuance of an additional 1.5 million shares would not completely extinguish
the purchase price contingency. The Company therefore would be required to
obtain an amendment to current debt instruments or replace them in order to
complete a cash fill-up. Any future distribution of cash or common stock would
be recorded as a charge to the Company's paid-in-capital.
Until the earlier of the contingent purchase price resolution or March 1,
2001, any additional shares assumed to be issued because of shortfalls in fair
market value will be included in the Company's diluted earnings per share
calculations, unless they are antidilutive. The exchanged shares also contain
restrictions preventing their sale prior to March 1, 2001.
On March 29, 1999, one ex-ICT Spectrum shareholder, individually and on
behalf of all others similarly situated, filed a class action lawsuit alleging
false and misleading statements made in a private offering memorandum, and
otherwise, in connection with the Company's acquisition of ICT Spectrum in
1998.
Year-2000 Readiness: Similar to many organizations that use computer
programs in their operations, the Company is addressing the impact of the
Year-2000 issue on its business. The Year-2000 issue is the result of computer
programs that were written using two digits rather than four to identify the
year in a date field. Although it is possible that certain programs could
function if left uncorrected, there is a significant risk that computer
programs will recognize any two digit date containing "00" to be referring to
the year 1900 rather than the year 2000. This could result in system failures
and miscalculations causing disruptions to regular operations.
The Company has developed and implemented a plan to achieve Year-2000
readiness. The Year-2000 program, led and coordinated at the corporate level,
consists of senior management from all Company disciplines, and is being
executed and implemented by teams in each of the Company's operating groups
throughout the world. The Company has identified the following five areas in
which Year-2000 readiness and/or risk assessment are critical operations:
24
(1) software applications used by management to run and monitor the
business ("Internal Systems");
(2) the hardware and related software used internally to run the core
business--such as desk-top hardware and software applications,
communications networks, and systems used in the operation of office
facilities ("Hardware, Network, and Facilities Systems");
(3) software that the Company has either purchased, designed, developed,
written, or interfaced, and sold to customers ("Customer Systems");
(4) software used by the Company's significant vendors or subcontractors
that could disrupt the flow of the Company's activities in the event that
the system malfunctions ("Vendor Systems"); and
(5) systems critical to the operations of Kaiser-Hill ("Kaiser-Hill
Systems").
Within each category, the Company has identified and assigned criticality
priorities to the various systems. Levels of system criticality were defined
as those that might have a significant adverse effect to the Company in any of
the areas of safety, environmental, legal, financial, and service-delivery
capabilities.
Internal Systems: Management's ongoing assessment of the majority of its
Internal Systems began in 1995 and 1996 with the replacement of its main-frame
based financial and project management software systems with new client-server
applications. The phased conversion to the new systems began in 1996 and will
be completed by September 1999. The costs of the new software, external
consultants, and the internal cost of implementation labor is being
capitalized and amortized over a period of five years. This investment in the
new software applications was $1.7 million, $0.9 million, and $2.6 million in
1998, 1997, and 1996, respectively. Depreciation expense related to these
investments totaled $1.2 million, $0.9 million and $0.6 million in 1998, 1997,
and 1996, respectively. The total remaining costs, excluding internal labor,
of this aspect of the Year-2000 project, including nonrecurring costs
associated with the historical archival of main-frame-based computer data, is
estimated to be less than $1.0 million.
Hardware, Network and Facilities Systems: The Company has completed the
inventory and assessment of these systems and is currently in the replacement
mode. Estimated costs of $0.2 million will be incurred to replace these
critical systems, primarily including the replacement of embedded technology
in items such as telephone switches. The Company will most likely finance the
majority of this obligation through operating leases just as it does for the
majority of its annual ongoing needs for technology updates for desk-top
hardware and software. Accordingly, the charges will be expensed as the lease
financing is paid.
Customer Systems: The Company also is assessing the risk surrounding Year-
2000 readiness in its customer systems, i.e. risk that may have been created
through the Company's contracts for services in which the Company's
professionals wrote and delivered software source code, or procured third
party software for modification and/or resale to customers. Based on the
service orientations of the Company's business, which historically did not
make wide use of computer software applications, management does not
anticipate significant contract exposures emanating from the improper
functioning of delivered source code that would still be covered under
nonexpired contract warranty provisions. There can be no assurances that the
Company's customers would be unable to seek such compensation even if the
contracts do not provide for it.
Vendor Systems: The Company is also corresponding with all vendors and
subcontractors related to the Vendor Systems that have been identified through
reasonable risk assessment techniques as critical to the Company's operations
regarding their Year-2000 readiness. Compliance assessment in this area will
be ongoing throughout 1999. The Company will devise contingency plans in the
event it believes significant risk to a disruption of service to the Company
is not being adequately mitigated. Currently, management does not anticipate
the need for contingency plans. Of course, the ability of parties to be
compensated for monetary or other damages resulting from Year-2000 readiness
risks is unknown.
Kaiser-Hill Systems: Kaiser-Hill also has a Year-2000 readiness program,
separate from that of the Company. The United States Department of Energy
(DOE) owns all property and equipment at the Rocky Flats Environmental
Technology Site near Denver, Colorado. While DOE bears the Year-2000 risk at
Rocky Flats,
25
Kaiser-Hill manages and uses the DOE property in its execution of the site
closure contract. One work element of the Rocky Flats contract requires that
Kaiser-Hill plan and execute DOE's Year-2000 readiness activities at the site.
Costs incurred by Kaiser-Hill in the execution of the readiness activities are
fully reimbursed by the DOE. Additionally, Kaiser-Hill is eligible for
performance award fees for attaining certain plan performance milestones, and
is succeptible to penalties in the event certain plan milestones are not
attained. Total contract expenses incurred by Kaiser-Hill for these Year-2000
activities totaled approximately $17.0 million through 1998. Successful
progress on the plan execution to date has resulted in Kaiser-Hill being
awarded $0.5 million in performance award fees through March 31, 1999, as well
as attaining reductions to the total amount of potential penalties, limiting
the remaining potential penalty exposure to $0.5 million.
Although there can be no guarantee of complete readiness by the beginning of
the year 2000, the Company believes each of the business areas described above
will be Year-2000 ready or be substantially ready by November 1999 such that
further remediation and testing, if any, will not be significant. In the event
the Company does not complete its program, or fails to properly identify and
modify critical business applications, there may be an interruption to the
Company's business that may have a material adverse affect on its business,
future financial condition and results of operations. In addition, Year-2000-
related disruptions in the general economy may also have a materially adverse
effect on the Company's future financial condition and results of operations.
At this time, the Company has not developed a "worst case" scenario or an
overall Year-2000 contingency plan but will do so when, if ever, management
believes such plans are warranted. Management believes that the majority of
the risks to its critical business operations are within the Company's control
and ability to address. (see "Forward-Looking Information" below).
Market Risk
The Company does not believe that it has significant exposures to market
risk. The majority of its foreign contracts are denominated and executed in
the applicable local currency. The interest rate risk associated with the
majority of the Company's borrowing activities is fixed, however, a 10%
increase or decrease in the average annual prime rate would result in an
increase or decrease of .72% multiplied by the weighted-average amount of
fluctuating rate borrowings outstanding during a period.
Forward-Looking Statements
From time to time, certain disclosures in reports and statements released by
the Company, or statements made by its officers or directors, will be forward-
looking in nature. These forward-looking statements may contain information
related to the Company's intent, belief, or expectation with respect to
contract awards and performance, potential acquisitions and joint ventures,
and cost-cutting measures. In addition, these forward-looking statements
contain a number of factual assumptions made by the Company regarding, among
other things, future economic, competitive, and market conditions. Because the
accurate prediction of any future facts or conditions may be difficult and
involve the assessment of events beyond the Company's control, actual results
may differ materially from those expressed or implied in such forward-looking
statements.
The Company is availing itself of the safe harbor provisions provided in the
Private Securities Litigation Reform Act of 1995 by cautioning readers that
the forward-looking statements that use words such as the Company "believes,"
"anticipates," "expects," "estimates," and "believes" are subject to certain
risks and uncertainties which could cause actual results of operations to
differ materially from expectations. These forward-looking statements will be
contained in the Company's federal securities laws filings or in written or
oral statements made by the Company's officers and directors to press,
potential investors, securities analysts, and others. Any such written or oral
forward-looking statements should be considered in context with the risk
factors discussed below:
. the Company requires access to a revolving credit line to fund short-term
borrowing needs of the Company's total remaining operations, as well as
the letter of credit capacity needed primarily by the
26
E&C Group. The Company may not be able to generate collateral to support a
borrowing base of sufficient size to obtain such credit or may not be able
to improve operating results enough, by removing overhead costs or
otherwise, to be able to obtain such credit.
. the Company may be precluded from attaining other satisfactory contract
performance guarantee mechanisms, such as performance bonding
capabilities.
. the Company may consider the sale of various operating groups in order to
generate liquidity sufficient to meet its obligations. In the event that
planned sales of operations cannot be consummated on a timely basis, the
Company will need access to other sources of working capital to
adequately fund its remaining operations.
. the Company may not be able to maintain existing contracts at current
levels and may not be able to realize increased contract performance
levels assumed for contracts. The Company is involved in a number of
fixed-price contracts under which the Company can benefit from cost
savings or performance efficiencies, but if certain pricing and
performance assumptions prove inaccurate, unrecoverable cost overruns can
occur.
. the Company may not be awarded new contracts for which it is competing in
its established markets or these awards may be delayed; in addition, the
Company may not be able to win contracts in the new markets it is
targeting. General economic conditions in the international arena,
especially Asia and Latin America, could negatively impact the Company's
current international business and its ability to expand in international
markets.
. the Company's EFM and Consulting Groups are very dependent on federal
government contracts, which are subject to annual funding approvals and
cost audits, and may be terminated at any time, with or without cause; a
large number of federal government contracts are included in the
Company's contract backlog, which potentially means that not all contract
backlog will become future revenue of the Company;
. the Company may not be able to make acquisitions and or enter into joint
ventures, and if made, acquisitions and joint ventures may take more time
to contribute favorably to the Company's financial results than was
formerly assumed. The Company is highly leveraged and is subject to
restrictive covenants that limit its ability to fund potential
acquisitions and joint ventures beyond certain levels established in its
debt agreements.
. a large portion of the Company's business has been and is generated
either directly or indirectly as a result of federal and state
environmental laws, regulations, and programs; a reduction in the number
or scope of these laws, regulations, or programs could materially affect
the Company's business. In addition, environmental work poses risks of
large civil and criminal liabilities for violations of environmental laws
and regulations, and liabilities to customers and to third parties for
damages arising from the Company's performing environmental services to
its clients. A large fine or penalty imposed on the Company could
negatively impact contract performance fees under certain existing
contracts or otherwise negatively affect the Company's financial results.
Item 7.a Quantitative and Qualitative Information about Market Risk
See "Market Risk" in Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Item 8. Financial Statements and Supplementary Data
The Financial Statements and Supplementary Data appear on pages F-1 through
F-33 and S-1 hereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None
27
PART III
Item 10. Directors and Executive Officers of the Registrant
The Board of Directors currently consists of the following eight directors.
Term to Expire
--------------
Thomas C. Jorling......................................... 1999
Hazel R. O'Leary.......................................... 1999
Tony Coelho............................................... 2000
Jarrod M. Cohen........................................... 2000
James T. Rhodes........................................... 2000
James O. Edwards.......................................... 2001
Keith M. Price............................................ 2001
Michael E. Tennenbaum..................................... 2001
Effective July 1, 1998, the Company enlarged the class of directors whose
terms expire at the 2000 Annual Meeting of Shareholders and elected Mr. Cohen
to fill the resulting vacancy. Mr. Cohen's election was pursuant to a written
agreement among the Company and Mr. Cohen.
Directors Whose Terms Expire in 1999
Thomas C. Jorling, 58, has been Vice President, Environmental Affairs, of
International Paper Company since 1994. Mr. Jorling was the Commissioner of
the New York State Department of Environmental Conservation from 1987 to 1994.
Prior to that, Mr. Jorling was a professor of environmental studies and
director of the center for environmental studies at Williams College in
Massachusetts. In addition, Mr. Jorling served from 1977 to 1979 as Assistant
Administrator for Water and Hazardous Material at the U.S. Environmental
Protection Agency. Mr. Jorling has been a Director of ICF Kaiser
International, Inc. since 1995. Mr. Jorling graduated from the University of
Notre Dame (B.S.), Washington State University (M.S.), and Boston College
(LL.B.).
Hazel R. O'Leary, 60, has been Chairman of the firm of O'Leary Associates,
Inc. since she left her position as Secretary of the Department of Energy
(DOE) in January 1997. President Clinton selected Mrs. O'Leary to be the
Secretary of Energy in December 1992, and she assumed her duties in January
1993. During her four-year tenure as Secretary, Mrs. O'Leary effectively
downsized DOE's number of employees by 27 percent and its budget by $10
billion over five years and focused all of DOE's activities around five areas:
science and technology, national security, energy research, environmental
quality, and economic productivity. Immediately before her appointment as
Secretary of Energy, Mrs. O'Leary was president of the wholly owned natural
gas subsidiary of Northern States Power (NSP), a $2 billion diversified
utility holding company headquartered in Minneapolis; she had been executive
vice president of the holding company from 1989 to 1992. Mrs. O'Leary has over
25 years of experience in sustainable energy policy and large project
development. She has been a Director of ICF Kaiser International, Inc. since
March 1997. She also currently serves on the Board of Directors of AES
Company, the global power company, and on the non-profit Boards of Africare,
Morehouse College (Atlanta), and The Keystone Center where she chairs the
Energy Policy Group. Mrs. O'Leary graduated from Fisk University (B.A.) and
Rutgers University Law School (J.D.).
28
Directors Whose Terms Expire in 2000
Tony Coelho, 56, former Congressman and Majority Whip of the U.S. House of
Representatives, is a consultant to Tele-Communications, Inc. and Chairman of
the Board of International Thoroughbred Breeders, Inc. From October 1995 to
September 1997, he served as Chairman and CEO of ETC w/tci, Inc., an education
and training technology company. From 1989 to June 1995, Mr. Coelho was a
Managing Director of the New York investment banking firm Wertheim Schroder &
Company, and from 1990 to June 1995 he also served as President and CEO of
Wertheim Schroder Investment Services. Mr. Coelho has been a Director of ICF
Kaiser International, Inc. since 1990. In addition, he is a director of
Service Corporation International, Cyberonics, Inc., Kistler Aerospace
Corporation, AutoLend Group, Inc., and Pinnacle Global Group, Inc. He is also
a member of Fleishman-Hillard, Inc.'s international advisory board. Since his
appointment by President Clinton in 1994, Mr. Coelho has served as Chairman of
the President's Committee on Employment of People with Disabilities.
Mr. Coelho represented California's Central Valley in Congress from 1979 to
1989.
Jarrod M. Cohen, 32, is the Managing Director of J.M. Cohen and Company
since January 1999. He was the Managing Director, head of Proprietary
Investing, and head of Risk Management for Cowen and Company from April 1996
to December 1998. Previously, from September 1989 until April 1996, Mr. Cohen
was the Portfolio Manager for the Cowen Opportunity Fund and Co-head of Cowen
Small Cap Approach. Cowen and Company is one of the Company's significant
shareholders. An agreement between Mr. Cohen and the Company is described on
page 42 of this Report.
James T. Rhodes, 57, has been the Chairman and Chief Executive Officer of
the Institute of Nuclear Power Operations (INPO) since March 1998. INPO is a
nonprofit corporation established by the nuclear utility industry in 1979 to
promote the highest levels of safety and reliability in the operation of
nuclear electric generating plants. Dr. Rhodes retired as President and Chief
Executive Officer of Virginia Power in August 1997. He joined Virginia Power
in 1971 as a nuclear physicist and held increasingly responsible positions
throughout that company. In 1985 he became senior vice president-power
operations and in 1988, senior vice president-finance; in 1989 he was elected
President and CEO. Prior to joining Virginia Power, Dr. Rhodes worked as a
project engineer in the U.S. Army Nuclear Power Program from 1964 to 1968.
Prior to his retirement from Virginia Power, Dr. Rhodes was a director of the
Edison Electric Institute, NationsBank, N.A., the Nuclear Energy Institute,
the Southeastern Electric Exchange, and Virginia Power. Dr. Rhodes has been a
Director of ICF Kaiser International, Inc. since February 1998. Dr. Rhodes
graduated from North Carolina State University (B.S.), Catholic University
(M.S.), and Purdue University (Ph.D., Atomic Energy Commission Fellow ).
Directors Whose Terms Expire in 2001
James O. Edwards, 55, was Chairman of the Board and Chief Executive Officer
of ICF Kaiser International, Inc. or its predecessors from 1985 to 1998. In
1974, he joined ICF Incorporated, the predecessor of ICF Kaiser International,
Inc., and was its Chairman and Chief Executive Officer from 1985 until the
1987 establishment of ICF Kaiser International, Inc. Mr. Edwards graduated
from Northwestern University (B.S.I.E.) and Harvard University (M.B.A., High
Distinction, George F. Baker Scholar).
Keith M. Price, 62, has been President and Chief Executive Officer of ICF
Kaiser International, Inc. since November 1998. Mr. Price has been a Director
of ICF Kaiser International, Inc. since May 1997. He has been a consultant to
various U.S. and international engineering and construction companies since
1994. From 1991 to 1994, he was first Managing Director of Transportation
Systems and Engineering and then Managing Director of Operations for
Transmanche-Link, a joint venture of ten major European contractors that held
a contract to design, manufacture, and construct the tunnel transportation for
the Chunnel, an $11 billion project that links England to France. Prior to his
positions with Transmanche-Link, Mr. Price had a 27-year career with Morrison-
Knudsen where he held a number of senior management positions and was a
director. Mr. Price graduated from Pepperdine University (M.B.A.). In addition
to Mr. Price whose positions with the company and business experience are
described above, the names of the Company's other executive officers, who are
elected annually, and their ages (as of March 31, 1999), principal corporate
positions, and business experience are set forth below.
29
Michael E. Tennenbaum, 63, has been the Managing Member of Tennenbaum & Co.,
LLC since June 1996. Mr. Tennenbaum also is currently the Chief Executive of
Tennenbaum Securities, LLC, and he has held this position since May 1997.
Previously, from February 1993 until June 1996, Mr. Tennenbaum was a Senior
Managing Director of Bear, Stearns & Co., Inc. In addition, Mr. Tennenbaum was
previously a member of the Board of Directors of Bear, Stearns & Co., Inc. and
also held the position of Vice Chairman, Investment Banking. Mr. Tennenbaum's
responsibilities at Bear, Stearns & Co., Inc. included managing the firm's
Risk Arbitrage, Investment Research, and Options Departments. Mr. Tennenbaum
has served on the Boards of Directors of Arden Group, Inc.; Bear, Stearns &
Co., Inc.; Jenny Craig, Inc.; Sun Gro Horticulture, Inc.; and Tosco
Corporation. Mr. Tennenbaum graduated from the Georgia Institute of Technology
(B.S.I.E.) and Harvard University (M.B.A., with Distinction).
Executive Officers
Thomas P. Grumbly, 49, has been President of the Environment & Facilities
Management Group of ICF Kaiser International, Inc. since January 1, 1998. He
joined the Company in April 1997 as President of the Federal Programs Group
and was responsible for combining the Company's private environmental practice
with its federal programs practice into the E&FM Group in late 1997. From 1996
to April 1997, Mr. Grumbly was Under Secretary of the U.S. Department of
Energy; prior to becoming Under Secretary, he was DOE's Assistant Secretary
for Environmental Management. Mr. Grumbly graduated from Cornell University
(B.A.), University of Toronto (M.A.), and the University of California,
Berkeley (Master in Public Policy).
Sudhakar Kesavan, 44, has been an Executive Vice President of the Company
and President of the Company's Consulting Group since December 1996. He has
held senior management positions in the Company's Consulting Group since 1983.
Prior to joining the Company, Mr. Kesavan worked for the Indian subsidiary of
the Royal Dutch/Shell Company. Mr. Kesavan graduated from the Indian Institute
of Technology (B. Tech), Indian Institute of Management (P.G.D.M.) and the
Massachusetts Institute of Technology. (S.M.).
Richard A. Leupen, 45, has been President of the Engineers & Constructors
Group of ICF Kaiser International, Inc. since August, 1998. He has held senior
management positions in the Company's Engineers & Constructors Group since
1995. Prior to joining the Company, Mr. Leupen worked for Protech Pty. Ltd.
Mr. Leupen graduated from the University of South Wales in Australia (B.S.).
Timothy P. O'Connor, 34, has been Senior Vice President and Chief Financial
Officer of ICF Kaiser International, Inc. since December 1998. He had been
Treasurer of the Company since May 1997. From 1990 until 1995, Mr. O'Connor
was employed by Lockheed Martin Corporation of Bethesda, Maryland, where he
held a number of financial positions. Prior to that, Mr. O'Connor worked for
General Electric Company and Lazard Freres and Co. of New York. Mr. O'Connor,
who is a Certified Cash Manager, graduated from the University of Delaware
(B.S.).
Paul Weeks, II, 55, has been Senior Vice President, General Counsel, and
Secretary of ICF Kaiser International, Inc. since 1990. He joined ICF
Incorporated in May 1987 as its Vice President, General Counsel, and
Secretary. From 1973 to 1987 he was employed by Communications Satellite
Corporation, where from 1983 to 1987 he was Assistant General Counsel for
Corporate Matters. Mr. Weeks graduated from Princeton University (B.S.E.E.)
and The National Law Center of George Washington University (J.D.).
Section 16(a) Beneficial Ownership Reporting Compliance
The U.S. Securities and Exchange Commission (SEC) requires the Company to
tell its shareholders when certain persons fail to report their transactions
in the Company's equity securities to the SEC on a timely basis. During the
fiscal year ended December 31, 1998, Messrs. Rhodes and Cohen failed to timely
file an initial report on Form 3 and Mr. Edwards failed to timely file a
report on Form 4. All of such filings have since been made. Based upon a
review of SEC Forms 3, 4, and 5, and based on representations that no Forms 3,
4, and 5 other than those already filed were required to be filed, the Company
believes that all Section 16(a) filing requirements
30
applicable to its officers, directors, and beneficial owners of more than 10%
of its equity securities other than the delinquencies disclosed in this
paragraph were timely met.
Item 11. Executive Compensation
The following table shows the compensation received by each person who served
as the Company's Chief Executive Officer ("CEO") during fiscal 1998, the four
other most highly compensated executive officers of the Company who were
serving as of December 31, 1998 and two other most highly compensated executive
officers who were no longer serving the Company as of December 31, 1998 (the
"Named Executive Officers") for the three years ended December 31, 1998.
31
SUMMARY COMPENSATION TABLE
Long-term Compensation
Annual Compensation Awards
------------------------------ ------------------------------
(g)
(a) (b) (e) (f) Securities (i)
Name, Principal (c) (d) Other Annual Restricted Underlying All Other
Position, and Salary Bonus Compensation Stock Award(s) Options Compensation
Fiscal Period ($) ($)(a) ($)(a) ($)(a) (#)(a) (c)
--------------- -------- -------- ------------ -------------- --------------- ------------
Keith M. Price, Current
President and CEO(d)
Fiscal 1998............ $141,347 $ 50,000 (b) 0 200,000 options $ 52,068
James O. Edwards, Former
Chairman and CEO(e)
Fiscal 1998............ $375,006 0 $49,520(b) $362,600(e) 0 $155,402
Fiscal 1997............ $386,542 0 (b) 0 0 $ 15,243
Fiscal 1996............ $350,000 $175,000 (b) $ 47,500(e) 40,000 options $ 13,098
Michael F. Gaffney,
Executive Vice
President(f)
Fiscal 1998............ $250,016 0 (b) 0 40,000 options $ 3,938
Fiscal 1997............ $239,050 $ 15,000 (b) 0 40,000 options $ 14,266
Fiscal 1996............ $197,897 $ 80,000 (b) 0 9,900 options $ 14,893
Sudhakar Kesavan,
Executive Vice
President(g)
Fiscal 1998............ $274,052 $ 69,656 (b) 0 0 $ 3,031
Fiscal 1997............ $225,014 $ 27,000 (b) $ 14,515(g) 50,000 options $ 12,696
Fiscal 1996............ $164,492 $ 72,771 (b) $ 28,538(g) 56,600 options $ 12,127
Thomas P. Grumbly,
Executive Vice
President(h)
Fiscal 1998............ $257,312 0 (b) 0 0 $ 3,926
Fiscal 1997............ $163,472 $ 75,000 (b) $ 14,784(h) 100,000 options $ 13,453
Richard Leupen,
Executive Vice
President(i)
Fiscal 1998............ $207,357 $146,000 (b) 0 200,000 options $ 57,514
Fiscal 1997............ $168,064 $ 80,000 (b) 0 0 $ 25,151
Fiscal 1996............ $132,185 $ 12,500 (b) 0 0 $ 23,732
Marc Tipermas, Former
President and Chief
Operating Officer(j)
Fiscal 1998............ $231,613 0 $142,909(b) 0 0 $736,857
Fiscal 1997............ $336,545 $ 50,000 $ 42,593(b) 0 0 $ 13,989
Fiscal 1996............ $293,285 $100,000 (b) $ 28,463(j) 26,400 options $ 13,800
David Watson, Former
Executive Vice
President(k)
Fiscal 1998............ $239,313 0 (b) $ 59,850(k) 0 $318,453
Fiscal 1997............ $275,018 $ 60,000 (b) $104,832(k) 0 $ 90,662
Fiscal 1996............ $227,899 $115,000 $ 8,376(b) $ 18,975(k) 94,800 options $ 29,574
- --------
(a) Cash bonuses are reported for the year of service, for which the cash
bonus was earned, even if pre-paid or paid in a subsequent year.
Restricted stock and options are reported for the year of service for
which the stock and/or options were earned, even if the grant date falls
in a subsequent fiscal year. No dividends are paid on any shares of
restricted stock.
(b) Any amounts shown in the "Other Annual Compensation" column do not include
any perquisites or other personal benefits because the aggregate amount of
such compensation for each of the Named Executive Officers did not exceed
the lesser of (i) $50,000 or (ii) 10% of the combined salary and bonus for
the Named Executive Officer for the stated fiscal period. The amount shown
in column (e) of the table for Dr. Tipermas for Fiscal 1997 and Mr. Watson
for Fiscal 1996 were amounts reimbursed for the payment of taxes.
32
(c) The Company's 1998 contributions to the Named Executive Officers pursuant
to the Company's Retirement Plan will not be determined or made until
September 1999. The Company will disclose these contributions for the
Named Executive Officers in the Report for the 2000 Annual Meeting of
Shareholders if the Named Executive Officer is the CEO or one of the other
four most highly compensated executive officers in Fiscal 1999.
(d) Mr. Price was appointed President and CEO of the Company as of August 5,
1998. As a result, the information for Fiscal 1998, represents all
compensation paid to or earned by Mr. Price during the five-month period
commencing on his hire date through December 31, 1998. On August 27, 1998,
Mr. Price entered into an employment agreement with the Company, pursuant
to which he is entitled to receive an annual base salary of $375,000
through August 4, 1999, subject to adjustment. For a fuller description of
the terms of this agreement, please refer to the discussion under "Certain
Relationships and Related Transactions--Current Directors" at page 43 of
this Report. The amount in column (a) represents a signing bonus paid to
Mr. Price in connection with his agreeing to serve as President and CEO of
the Company. The amounts in column (i) of the table for Mr. Price comprise
the following:
Fiscal 1998 $ 1,757 Company match under the Company's Section 401(k) Plan
$ 3,770 Spouse travel
$ 943 Car allowance
$45,598 Relocation expenses
(e) Mr. Edwards resigned as Chairman and CEO of the Company effective November
6, 1998. As a result, the information for fiscal 1998, represents all
compensation paid to or earned by Mr. Edwards during the eleven months of
such year during which the Company employed him, including amounts paid
pursuant to Mr. Edwards' severance arrangements with the Company. Mr.
Edwards also was paid $49,520 in fiscal 1998 and $49,039 in fiscal 1999
for consulting services. See "Certain Relationships and Related
Transactions--Current Directors" at page 42 of this Report. These shares
fully vest on November 6, 1999 or, if earlier, on a change of control. For
his service in 1998, Mr. Edwards was awarded 200,000 shares of Restricted
Stock on November 6, 1998. The closing price of the Company's Common Stock
on November 6, 1998 was $1.813. For his service in fiscal 1996, Mr.
Edwards was awarded 20,000 shares of Restricted Stock on March 4, 1997.
The closing price of the Company's Common Stock on March 4, 1997, was
$2.375. As of December 31, 1998, Mr. Edwards owned a total of 220,000
Restricted Shares; the closing price of the Company's Common Stock on
December 31, 1998, was $1.438; the aggregate value of these holdings is
$316,360. The amounts shown in column (i) of the table for Mr. Edwards
comprise the following:
Fiscal 1998 $ 2,545 Spouse travel
$ 2,857 Company match under the Company's Section 401(k) Plan
$150,000 Severance payments
Fiscal 1997 $ 2,731 Company match under the Company's Section 401(k) Plan
$ 10,184 Company Retirement Plan Contribution for 1997 made in
September 1998
$ 2,328 Spouse travel
Fiscal 1996 $ 9,492 Company Retirement Plan contribution for 1996 made in
September 1997
$ 2,731 Company match under the Company's Section 401(k) Plan
$ 875 Imputed income for Company-paid life insurance
33
(f) Mr. Gaffney resigned from his position effective March 17, 1999. The
amounts shown in column (i) of the table for Mr. Gaffney comprise the
following:
Fiscal 1998 $ 361 Spouse travel
$ 3,304 Company match under the Company's Section 401(k) Plan
$ 273 Imputed income for Company-paid life insurance
Fiscal 1997 $ 3,225 Company match under the Company's Section 401(k) Plan
$ 273 Imputed income for Company-paid life insurance
$10,184 Company Retirement Plan Contribution for 1997 made in
September 1998
$ 584 Spouse travel
Fiscal 1996 $ 9,492 Company Retirement Plan contribution for 1996 made in
September 1997
$ 3,188 Company match under the Company's Section 401(k) Plan
$ 660 Imputed income for Company-paid life insurance
$ 1,553 Spouse travel
(g) For his service in fiscal 1997, Mr. Kesavan was awarded 5,400 shares of
Restricted Stock on March 9, 1998. The closing price of the Company's
Common Stock on March 9, 1998, was $2.688. These Restricted Shares fully
vest on March 9, 2001, provided Mr. Kesavan remains an employee of the
Company. For his service in fiscal 1996, Mr. Kesavan was awarded 12,016
Restricted Shares on March 4, 1997. The closing price of the Company's
Common Stock on March 4, 1997, was $2.375. These Restricted Shares vest on
January 1, 2000, provided Mr. Kesavan remains an employee of the Company.
As of December 31, 1998, Mr. Kesavan owned a total of 17,416 Restricted
Shares; the closing price of the Company's Common Stock on December 31,
1998, was $1.438 the aggregate value of these holdings is $25,044. The
amounts shown in column (i) of the table for Mr. Kesavan comprise the
following:
Fiscal 1998 $ 2,500 Company match under the Company's Section 401(k) Plan
$ 531 Spouse travel
Fiscal 1997 $ 2,423 Company match under the Company's Section 401(k) Plan
$10,184 Company Retirement Plan Contribution for 1997 made in
September 1998
$ 89 Imputed income for Company-paid life insurance
Fiscal 1996 $ 9,492 Company Retirement Plan contribution for 1996 made in
September 1997
$ 2,405 Company match under the Company's Section 401(k) Plan
$ 230 Imputed income for Company-paid life insurance
(h) Mr. Grumbly joined the Company in April 1997. As a result, compensation
for 1997 represents amounts paid during an only eight month period. For
his service in fiscal 1997, Mr. Grumbly was awarded 5,500 shares of
Restricted Stock on March 9, 1998. The closing price of the Company's
common stock on March 9, 1998, was $2.688. These Restricted Shares fully
vest on March 9, 2001, provided Mr. Grumbly remains an employee of the
Company. The amounts show in column (i) of the table for Mr. Grumbly
comprise the following:
Fiscal 1998 $ 3,346 Company match under the Company's Section 401(k) Plan
$ 580 Spouse travel
Fiscal 1997 $ 3,269 Company match under the Company's Section 401(k) Plan
$10,184 Company Retirement Plan contribution for 1997 made in
September 1998
34
(i) The amounts shown in column (i) of the table for Leupen comprise the
following:
Fiscal 1998 $ 1,385 Company match under the Company's Section 401(k) Plan
$ 7,897 Company Retirement Plan contribution for 1997 made in
September 1998
$31,452 Relocation expenses
$11,191 Car Allowance
$ 5,589 Spouse travel
Fiscal 1997 $10,247 Company Retirement Plan contribution for 1997
$14,904 Car Allowance
Fiscal 1996 $ 8,828 Company Retirement Plan contribution for 1996
$14,904 Car allowance
(j) Dr. Tipermas ceased to be employed by the Company as of August 7, 1998. As
a result, the amounts shown for fiscal 1998 represent all compensation
paid or earned during the 12 months of fiscal 1998 that the Company
employed Dr. Tipermas, including amounts paid pursuant to Dr. Tipermas'
severance arrangements with the Company. Dr. Tipermas also was paid
$142,909 in fiscal 1998 and $43,269 in fiscal 1999 for consulting
services. See "Certain Relationships and Related Transactions." For his
service in fiscal 1996, Dr. Tipermas was awarded 9,900 shares of
Restricted Stock on March 20, 1997. The closing price of the Company's
Common Stock on March 20, 1997, was $2.875. Of these Restricted Shares,
3,300 shares are vested, subject to a restriction on sale prior to March
4, 2000, and the balance were forfeited upon termination of Dr. Tipermas'
employment. As of December 31, 1998, Dr. Tipermas owned a total of 3,300
Restricted Shares; the closing price of the Company's Common Stock on
December 31, 1998, was $1.438; the aggregate value of these holdings is
$4,745. The amounts shown in column (i) of the table for Dr. Tipermas
comprise the following:
Fiscal 1998 $ 3,400 Company match under the Company's Section 401(k) Plan
$ 515 Spouse travel
$ 442 Imputed income for Company-paid life insurance
$732,500 Severance payment
Fiscal 1997 $ 3,231 Company match under the Company's Section 401(k) Plan
$ 10,184 Company Retirement Plan contribution for 1997 made in
September 1998
$ 429 Imputed income for Company-paid life insurance
$ 145 Spouse travel
Fiscal 1996 $ 9,492 Company Retirement Plan contribution for 1996 made in
September 1997
$ 3,202 Company match under the Company's Section 401(k) Plan
$ 706 Imputed income for Company-paid life insurance
$ 400 Spouse travel
(k) Mr. Watson ceased to be employed by the Company, effective August 17,
1998. As a result, the information set forth in the table shows all
compensation paid to or earned by Mr. Watson during the 10-month period of
fiscal 1998 that he was employed, including amounts paid pursuant to
Watson's severance arrangements with the Company. See "Certain
Relationships and Related Transactions--Former Directors/Executive
Officers" at page 45 of this Report. For his service in fiscal 1997, Mr.
Watson was awarded 39,000 shares of Restricted Stock on March 9, 1998. The
closing price of the Company's Common Stock on March 9, 1998, was $2.688.
For his service in fiscal 1996, Mr. Watson was awarded 6,600 Restricted
Shares on March 20, 1997. The closing price of the Company's Common Stock
on March 20, 1997, was $2.875. All of the Restricted Shares granted to Mr.
Watson were fully vested upon the termination of his employment by the
Company. As of December 31, 1998, Mr. Watson owned a total of 45,600
Restricted Shares; the closing price of the Company's Common Stock on
December 31, 1998, was $1.438; the aggregate value of these holdings is
$65,573. The amounts shown in column (i) of the table for Mr. Watson
comprise the following:
35
Fiscal 1998 $ 4,886 Lump-sum relocation payment made in 1998
$ 3,400 Company match under the Company's Section 401(k) Plan
$ 10,148 Spouse travel
$300,019 Lump-sum severance payment
Fiscal 1997 $ 77,160 Lump-sum relocation payment made in 1997
$ 3,173 Company match under the Company's Section 401(k) Plan
$ 10,184 Company Retirement Plan Contribution for 1997 made in
September 1998
$ 145 Spouse travel
Fiscal 1996 $ 9,492 Company Retirement Plan contribution for 1996 made in
September 1997
$ 3,192 Company match under the Company's Section 401(k) Plan
$ 908 Imputed income for Company-paid life insurance
$ 15,982 Reimbursed relocation expense
The following table shows all individual grants of stock options made during
the fiscal year ended December 31, 1998 to each of the named executive
officers identified in the summary compensation table on page 32 of this
report. No grants were made during such period to Messrs. Edwards, Grumbly,
Tipermas or Watson.
OPTION GRANTS IN LAST FISCAL YEAR
(a) (b) (c) (d) (e) (f)
Number of % of Total
Securities Options Granted Grant Date
Underlying Options to Employees in Exercise Price Present Value
Name Granted (#) Fiscal Year(a) ($/Sh)(b) Expiration Date $(c)
---- ------------------ --------------- -------------- ------------------ -------------
Michael F. Gaffney(d)... 40,000 3.7% $2.50 February 27, 2003 $ 62,900
Sudhakar Kesavan(d)..... 50,000 4.7% $2.50 February 27, 2003 $ 78,625
Richard Leupen(d)....... 50,000 4.7% $2.50 February 27, 2003 $ 84,425
Richard Leupen(e)....... 150,000 14.0% $1.33 September 14, 2001 $100,815
Keith M. Price(f)....... 150,000 14.0% $1.39 September 3, 2001 $105,360
Keith M. Price(g)....... 50,000 4.7% $1.24 November 4, 2001 $ 31,330
- --------
(a) The Company granted a total of 1,075,500 options to its employees in the
last fiscal year.
(b) The exercise price is the average closing price of the Company's common
stock on each of the 20 trading days prior to the date of grant, with the
20th day being the trading date immediately preceeding the date of grant.
(c) Grant date present value is determined using the Black-Scholes Model.
Since the Model makes assumptions about future variables, the actual value
of the options may be greater or less than the values stated in the table.
The calculations from which the above values were derived assume no
dividend yield, volatility of approximately 71.6%, exercise at or near the
expiration date, and a risk-free rate of return of 5.2% based on the
average monthly U.S. Treasury bill rate for five-year maturities on the
date of grant. No downward adjustments were made to the grant date option
values stated in the table to account for potential forfeiture or the
nontransferable nature of these options.
(d) Five-year options, granted February 27, 1998, vesting in equal increments
over four years, with the first 25% vesting one year from the date of
grant.
(e) Three-year options granted September 14, 1998, vesting 50% on the date of
grant and 50% on January 1, 1999.
(f) Three-year options granted September 3, 1998, vesting 50% on February 5,
1999 and 50% on August 4, 1999.
(g) Three-year options granted November 4, 1998, vesting 50% on May 4, 1999
and 50% on November 4, 1999.
36
The following table shows certain information concerning the value as of
December 31, 1998 of unexercised options held by each of the Named Executive
Officers identified in the Summary Compensation Table on page 32 of this
Report. None of such Named Executive Officers exercised stock options during
the fiscal year ended December 31, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
(a) (b) (c) (d) (e)
Shares Number of Securities Value of Unexercised
Acquired on Value Underlying Unexercised In-the-Money Options
Exercise Realized Options at 12/31/98 (#) at 12/31/98 ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable*
---- ----------- -------- ------------------------- --------------------------
Keith M. Price.......... 0 0 0/200,000 $0/$17,100(1)
James O. Edwards........ 0 0 190,000/0 N/A(2)
Michael F. Gaffney...... 0 0 50,475/59,425 N/A(2)
Sudhakar Kesavan........ 0 0 20,621/94,606 N/A(2)
Thomas P. Grumbly....... 0 0 25,000/75,000 N/A(2)
Richard Leupen.......... 0 0 75,000/125,000 8,100/$8,100(3)
Marc Tipermas........... 0 0 151,400/0 N/A(2)
David Watson............ 0 0 42,450/77,350 N/A(2)
- --------
The exercise price of all options is the average closing price of the
Company's Common Stock on each of the 20 trading days prior to the date of
grant, with the 20th day being the trading date immediately preceding the date
of grant. The closing price of the Company's Common Stock on December 31,
1998, was $1.38 per share.
(1) 150,000 of the in-the-money options held by Mr. Price were granted at an
exercise price of $1.39 per share on September 14, 1998 and 50,000 were
granted at an exercise price of $1.24 per share on November 4, 1998.
(2) None of the options held by this person were in-the-money as of December
31, 1998.
(3) All of the in-the-money options held by Mr. Leupen were granted at an
exercise price of $1.33 per share on September 3, 1998.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
In connection with their employment with the Company during the year ended
December 31, 1998, seven of the executive officers, who are named in the
Summary Compensation Table have or had employment contracts. In connection
with the termination of their employment with the Company, three of these
executive officers received severance packages. These arrangements are
described under "Certain Relationships and Related Transactions--Current
Directors" and "--Former Directors/Executive Officers" on pages 41-5 of this
Report.
In April 1994, the then-named Compensation Committee of the Board of
Directors approved the adoption of the Company's Senior Executive Officers
Severance Plan (the "SEOSP"). In December 1994, the SEOSP was amended to
clarify (a) that once an officer becomes a participant in the SEOSP, he or she
will continue to be eligible for SEOSP benefits throughout his or her
employment by the Company and (b) that the SEOSP is intended to set a minimum
severance benefit for the participant. If a participant is entitled to a
greater benefit under his or her employment agreement with the Company, then
such arrangement prevails over the lower SEOSP benefit. In May 1997, the SEOSP
was further amended to increase the minimum benefit under the SEOSP from three
months to six months of the participant's average monthly salary. This
amendment reflects the fact that six months is the practical minimum severance
for senior executives; the Company has never paid less. The 1997 amendment
also removed the 18-month overall cap on the SEOSP benefit to provide the same
severance (one month of severance for each year of service) across all years
worked; to require that the Company and a SEOSP participant execute mutual
general releases in order to obtain the SEOSP benefit; and to clarify what is
meant by "continuing directors" in the definition of "good cause."
37
The eligible participants in the SEOSP are the Chief Executive Officer, the
President, the Chief Operating Officer, the Chief Financial Officer, the
Executive Vice President (Corporate Development), the Group Presidents, the
Treasurer, the General Counsel, and any officer as designated by the
Compensation & Human Resources Committee. As of March 31, 1999, there were
four persons whose severance payments are governed by the SEOSP.
A participant is eligible to receive severance payments if the Company
terminates his or her employment without "cause" or if the participant
terminates his or her employment for "good reason." "Cause" and "good reason"
are defined in the SEOSP. Average monthly salary is defined in the SEOSP as
the participant's average monthly gross salary excluding all bonuses for the
six months prior to employment termination. Severance benefits may be paid
under the SEOSP in two installments or, with the approval of the Compensation
& Human Resources Committee, in a lump sum. The SEOSP provides that severance
pay will not be considered compensation for purposes of the Retirement Plan or
the Section 401(k) Plan; severance pay will not increase Years of Service for
those Plans' purposes. As of March 31, 1999, severance benefits have been paid
under the SEOSP to three participants.
Compensation and Human Resources Committee Interlocks and Insider
Participation
The members of the Compensation & Human Resources Committee are Hazel
O'Leary (Chairperson), Thomas C. Jorling, and James T. Rhodes, none of whom
are employed by the Company. For the year ended December 31, 1998, there were
no director relationships that require disclosure under this section.
Compensation of Non-employee Directors Effective March 1, 1997
Directors who are not employees of the Company ("Non-employee Directors")
are paid $1,000 for attendance at each meeting of the Board of Directors; they
are paid $1,000 for attendance at each meeting of a committee of the Board of
Directors of which the Director is a member. In addition, each Non-employee
Director receives an annual retainer of $20,000, payable in advance in
quarterly installments, and is reimbursed for his or her expenses incurred in
connection with his or her Board service. Directors of the Company who are
employees of the Company are not compensated separately for their service as
Directors.
On February 28, 1997, the Board of Directors adopted the ICF Kaiser
International, Inc. Non-employee Directors Compensation and Phantom Stock
Plan, which provides for the cash compensation discussed in the preceding
paragraph. In addition, in lieu of option grants under the Non-employee
Directors Stock Option Plan adopted in 1991, each Non-employee Director of the
Company is granted a Phantom Stock Award ("PSA") equal to $20,000 worth of
Common Stock on the date of grant; the date of grant is the date of the annual
board meeting which occurs immediately following the conclusion of the Annual
Meeting of Shareholders. Three years after the PSA grant, the Company will pay
each Non-employee Director in cash the value of the shares to which the PSA
relates. The number of shares of Common Stock to which the PSA relates will be
determined using the average closing prices of the Common Stock for the 20
trading days immediately prior to the date of grant. The same method will be
used to determine the value of the phantom stock as of the date of the cash
payout.
In lieu of receiving cash compensation pursuant to the terms of the ICF
Kaiser International, Inc. Non-employee Directors Compensation and Phantom
Stock Plan described above, beginning January 1, 1999, Mr. Coelho is being
paid an annual fee of $120,000. In addition, Mr. Coelho was granted 100,000
options, expiring November 4, 2001, vesting 50% on May 4, 1999 and 50% on
November 4, 1999 with an exercise price of $1.24. These amounts are being paid
to Mr. Coelho as consideration for his services as Chairman of the Board of
Directors.
38
In 1998, the Non-employee Directors were awarded the following Phantom Stock
Units under the ICF Kaiser International, Inc. Non-employee Directors
Compensation and Phantom Stock Plan:
Per Share Price
Total Value of (20-trading day Total Number of
Common Stock average at Phantom Stock Date of
Non-employee Director on Date of Grant May 1, 1998) Units Granted Cash Payout
- --------------------- ---------------- --------------- --------------- -----------
Tony Coelho............. $20,001 $2.85 7,018 May 4, 2001
Maynard H. Jackson,
Jr.(1)................. $20,001 $2.85 7,018 May 4, 2001
Thomas C. Jorling....... $20,001 $2.85 7,018 May 4, 2001
Hazel R. O'Leary........ $20,001 $2.85 7,018 May 4, 2001
Keith M. Price(2)....... $20,001 $2.85 7,018 May 4, 2001
James T. Rhodes......... $20,001 $2.85 7,018 May 4, 2001
Michael E. Tennenbaum... $20,001 $2.85 7,018 May 4, 2001
- --------
(1) Mr. Jackson resigned from the Board of Directors effective February 8,
1999.
(2) Subsequent to the date these Phantom Stock Units were granted, Mr. Price
was appointed to serve as President and Chief Executive Officer of the
Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of the April 12, 1999,
regarding each person known by the Company to beneficially own 5% or more of
the outstanding Common Stock of the Company. A person is deemed to be a
beneficial owner of the Company's Common Stock if that person has voting or
investment power (or voting and investment powers) over any shares of Common
Stock or has the right to acquire such shares pursuant to exercisable options
or warrants within 60 days from April 12, 1999.
Name and Address of Beneficial
Owners Amount and Nature of Beneficial Percent of
of More Than 5% of the Ownership of Shares of Common Common Stock
Common Stock of the Company Stock of the Company(a) of the Company
------------------------------ ------------------------------- --------------
Cowen and Company; Cowen
Incorporated;.................... 1,627,000(b) 7.0%
Joseph M. Cohen; Jarrod M. Cohen
Financial Square
New York, NY 10005-3597
State of Wisconsin Investment
Board............................ 2,092,200(c) 8.62%
P.O. Box 7842
Madison, WI 53707
Tennenbaum & Co., LLC;............ 2,100,000(d) 8.65%
Michael E. Tennenbaum
1999 Avenue of the Stars
Los Angeles, CA 90067
- --------
(a) For the purposes of this table, a person or group is deemed to have
"beneficial ownership" of any shares of Common Stock which such person has
the right to acquire within 60 days after the date set forth in the
introductory paragraph above. However, for purposes of computing the
percentage of outstanding shares of Common Stock held by each person or
group of persons named above, any security which such person or group of
persons has or have the right to acquire from the Company within 60 days
from the date set forth in the introductory paragraph above is not deemed
to be outstanding for the purposes of computing the percentage ownership
of any other person.
(b) Includes 49,000 shares held by Jarrod Cohen directly and 1,578,000 shares
held by SG Cowen Securities, of which Joseph Cohen is Chairman. Jarrod
Cohen is the son of Joseph Cohen. The information with respect to the
shares of Common Stock beneficially owned by Joseph M. Cohen, and Jarrod
M. Cohen is based on information from Mr. Jarrod Cohen and is current as
of March 31, 1999. Mr. Joseph Cohen is an individual who may be deemed to
control SG Cowen Securities Corporation.
39
(c) The information with respect to the shares of Common Stock beneficially
owned by the State of Wisconsin Investment Board is based on a Report on
Schedule 13G, Amendment No. 2 , which was filed with the SEC reporting
share ownership information as of December 31, 1998.
(d) The information with respect to the shares of Common Stock beneficially
owned by Tennenbaum & Co., LLC and Michael E. Tennenbaum is based on a
Report on Schedule 13D dated December 19, 1997, which was filed with the
SEC reporting share information as of December 18, 1997. Based on
information from Mr. Tennenbaum, this information also is current as of
the date of this Report.
The following table sets forth information regarding the beneficial
ownership of shares of Common Stock of the Company by each director, and by
executive officers named in the Summary Compensation Table on page 32 of this
Report, and by all directors and current executive officers as a group. The
information set forth below is current as of April 12, 1999, except that
information with respect to ownership of shares of Common Stock in the
Company's Employee Stock Ownership Plan, Section 401(k) Plan, and Retirement
Plan is current as of December 31, 1998. The information is based on the
Company's review of public reports filed by each director/executive officer.
Certain Beneficial
Owners Amount and Nature of Percent of
of Shares of Common Beneficial Ownership Common Stock
Stock of Shares of Common of the Company
of the Company Stock of the Company(a) (*Less than 1%)
------------------- ----------------------- ---------------
(i) Directors
Tony Coelho.......................... 77,727(b) *
Jarrod M. Cohen...................... 1,627,000(c) 6.70%
James O. Edwards..................... 593,613(d) 2.45%
Thomas C. Jorling.................... 22,727(e) *
Hazel R. O'Leary..................... 16,727(f) *
Keith M. Price....................... 117,569(g) *
James T. Rhodes...................... 7,018(h) *
Michael E. Tennenbaum................ 2,107,018(i) 8.65%
(ii) Executive Officers Named in the
Summary Compensation Table
Michael F. Gaffney................... 75,536(j) *
Former Executive Vice President
Thomas Grumbly....................... 50,412(k) *
Executive Vice President
Sudhakar Kesavan..................... 63,416(l) *
Executive Vice President
Richard A. Leupen.................... 162,500(m) *
Executive Vice President
Marc Tipermas........................ 185,422(n) *
Former President and Chief Operating
Officer
David Watson......................... 118,997(o) *
Former Executive Vice President
(iii) All Directors and Current Execu-
tive Officers as a Group (13 Per-
sons) 4,970,496(p) 20.48%
- --------
(a) For the purposes of this table, a person or group is deemed to have
"beneficial ownership" of any shares of Common Stock which such person has
the right to acquire within 60 days after the date set forth in the
introductory paragraph above. However, for purposes of computing the
percentage of outstanding shares of Common Stock held by each person or
group of persons named above, any security which such person or group of
persons has or have the right to acquire from the Company within 60 days
from the date set forth in the introductory paragraph above is not deemed
to be outstanding for the purposes of computing the percentage ownership
of any other person.
40
(b) Mr. Coelho's share ownership includes 59,000 shares that may be acquired
within 60 days of April 12, 1999 upon the exercise of stock options. He
also owns directly 2,000 other shares. Mr. Coelho has 16,727 Phantom Stock
Units which are fully described on pages 38-9 of this Report.
(c) Mr. Cohen's share ownership includes 49,000 shares owned by him directly
and 1,578,000 shares held by SG Cowen Securities Corporation ("SG Cowen").
The shares held by SG Cowen are included in the table, because Mr. Cohen's
father is Chairman of SG Cowen and, as a result may be deemed to control
SG Cowen. The information in the table is based on information received
from Mr. Cohen and is current as of March 31, 1999.
(d) Mr. Edwards' share ownership includes 2,882 shares allocated to his ESOP
account, 2,505 shares allocated to his Section 401(k) Plan account, 75,293
shares allocated to his Retirement Plan account, and 190,000 shares that
may be acquired within 60 days of April 12, 1999 upon the exercise of
stock options. Mr. Edwards owns 20,000 Restricted Shares. Mr. Edwards also
owns directly 302,933 other shares.
(e) Mr. Jorling's share ownership includes 6,000 shares that may be acquired
within 60 days of April 12, 1999 upon the exercise of stock options. Mr.
Jorling has 16,727 Phantom Stock Units which are fully described on pages
38-9 of this Report.
(f) Ms. O'Leary has 16,727 Phantom Stock Units which are fully described on
pages 38-9 of this Report.
(g) Mr. Price has 16,727 Phantom Stock Units which are fully described on
pages 38-9 of this Report. Mr. Price's share ownership includes 842 shares
allocated to his Sectioni 401(k) account and 100,000 shares that may be
acquired within 60 days of April 12, 1999, upon the exercise of stock
options.
(h) Mr. Rhodes has 7,018 Phantom Stock Units which are fully described on
pages 38-9 of this Report.
(i) Mr. Tennenbaum is the Managing Member of and may be deemed to control
Tennenbaum & Co., LLC, which owns 2,100,000 shares of Common Stock. Mr.
Tennenbaum also has 7,018 Phantom Stock Units which are fully described on
page 38-9 of this Report.
(j) Mr. Gaffney's share ownership includes 586 shares allocated to his
Retirement Plan account and 74,950 shares that may be acquired within 60
days of April 12, 1999 upon exercise of option.
(k) Mr. Grumbly's share ownership includes 412 shares allocated to his Section
401(k) Plan and 50,000 shares that may be acquired within 60 days of April
12, 1999 upon exercise of options.
(l) Mr. Kesavan's share ownership includes 4,321 shares allocated to his ESOP
account, 2,049 allocated to his Retirement Plan account, and 47,552 shares
that may be acquired within 60 days of the April 12, 1999 upon the
exercise of options. Mr. Kesavan also owns 9,494 other shares.
(m) Mr. Leupen's shares ownership includes 162,500 shares that may be acquired
within 60 days of April 12, 1999.
(n) Dr. Tipermas' share ownership includes 7,955 shares allocated to his ESOP
account, 16,267 shares allocated to his Retirement Plan account and
151,400 shares that may be acquired within 60 days of April 12, 1999,
upon exercise of optioins. He also owns 3,300 Restricted Shares and 6,500
other shares.
(o) Mr. Watson's share ownership includes 23,298 shares allocated to his
Section 401(k) Plan account, 66,150 shares that may be acquired within 60
days of April 12, 1999, upon exercise of options and 29,549 other shares
directly.
(p) This total includes 80,944 Phantom Stock Units, 13,618 shares allocated to
ESOP accounts, 3,759 shares in Section 401(k) Plan accounts, 80,654 shares
allocated to individuals under the Retirement Plan or held in directed
investment accounts under the Retirement Plan, 701,419 shares that may be
acquired within 60 days of April 12, 1999, upon the exercise of stock
options, and 20,000 Restricted Shares that will be vested within 60 days
of April 12, 1999, and 4,070,102 other shares.
Item 13. Certain Relationships and Related Transactions
Current Directors
Tony Coelho. In lieu of receiving cash compensation pursuant to the terms of
the ICF Kaiser International, Inc. Non-employee Directors Compensation and
Phantom Stock Plan described above, beginning January 1, 1999, Mr. Coelho is
being paid an annual fee of $120,000. In addition, Mr. Coelho was granted
100,000 options, expiring November 4, 2001, vesting 50% on May 4, 1999 and 50%
on November 4, 1999 with an exercise price
41
of $1.24. These amounts are being paid to Mr. Coelho as consideration for his
services as Chairman of the Board of Directors.
Jarrod M. Cohen. On March 13, 1998, the Company and Mr. Jarrod M. Cohen (for
himself, Cowen and Company, Cowen Incorporated, and Joseph M. Cohen,
collectively, the "Cohen Parties") signed an agreement pursuant to which the
Company agreed, upon receipt of Mr. Cohen's written request at any time
between July 1 and December 31, 1998, to enlarge the class of directors whose
terms expire at the 2000 Annual Meeting of Shareholders and elect Mr. Cohen to
fill the resulting vacancy. The Cohen Parties agreed (i) to withdraw any
previous consents and agreed not to consent to be a nominee for election to
the Board of Directors at the Company's 1998 Annual Meeting of Shareholders,
(ii) to vote in favor of the Company-proposed nominees for election at the
1998 Annual Meeting of Shareholders, and (iii) to be present, in person or by
Report, or otherwise be deemed to be present (to the extent permitted by law)
at meetings for which they were given notice for the purpose of determining
the presence of a quorum at such meetings. In addition, the Cohen Parties
agreed (a) not to subject any of the Company's voting securities to a voting
trust or voting agreement; (b) not to solicit proxies or become a participant
in a solicitation in opposition to any recommendation of the Board of
Directors of the Company; (c) not to join with others or otherwise act in
concert with others for the purpose of acquiring, holding,
voting, or disposing of voting securities of the Company; (d) not to become,
alone or in conjunction with others, an acquiring person as defined in the
Company's Shareholders Rights Plan; and (e) not to dispose of any voting
securities of the Company to any person who, to the knowledge of the Cohen
Parties, as a result of acquiring such voting securities would become an
acquiring person as defined in the Company's Shareholder Rights Plan. The
provisions of (a) through (e) above apply during the period from March 13,
1998 to the date Mr. Cohen or any other designee of the Cohen Parties ceases
to be a member of the Board of Directors. It was agreed that if the Cohen
Parties obtained the express written consent of a majority of the directors of
the Company who are not designated by the Cohen Parties, then the provisions
of (a) through (e) above would not apply.
James O. Edwards. Effective May 1, 1997, the Company entered into an
employment agreement with Mr. Edwards for his services as Chairman and Chief
Executive Officer of the Company through December 31, 1999. In addition to
delineating Mr. Edwards' areas of responsibility and reporting line, the
agreement provided for a base annual salary of $400,000 beginning on April 1,
1997 (with $25,000 increases in each of the next two years); annual bonus
compensation to be determined by the Compensation & Human Resources Committee
of the Company's Board of Directors; severance payments as provided under the
Company's Senior Executive Officers Severance Plan; eligibility under the
Company's employee benefit plans; and a one-year non-competition period
following voluntary or "for cause" employment termination. The agreement also
provided for the grant on December 31, 1998, of 200,000 shares of Restricted
Stock under the Company's Stock Incentive Plan; 100,000 of these shares to
vest on December 31, 1999, with the balance vesting on December 31, 2000.
Vesting terms in the event of termination of Mr. Edwards' employment or his
death also are outlined in the agreement.
As part of his employment agreement with the Company, Mr. Edwards'
outstanding indebtedness to the Company on May 1, 1997, was restructured.
On November 6, 1998, Mr. Edwards entered into an agreement with the Company,
pursuant to which the parties mutually agreed to terminate Mr. Edwards'
employment agreement. In consideration of Mr. Edwards agreeing to terminate
his employment agreement, the Company agreed to compensate him with cash in
the aggregate amount of $850,000, all of which has been paid. The Company
further agreed (i) to provide Mr. Edwards and his dependents with continued
health, welfare, and life insurance benefits through April 30, 1999, (ii) to
accelerate the vesting of 30,000 options previously granted pursuant to the
Company's Stock Incentive Plan, (iii) consistent with the terms of his
employment agreement, to award 200,000 shares of restricted Common Stock,
which shares vest upon the earlier of November 6, 1999, or the merger,
consolidation, sale of stock, or sale of substantially all of the assets of,
the Company, and (iv) to forgive approximately $1,396,139 of indebtedness
previously owed by Mr. Edwards to the Company. In addition, Mr. Edwards agreed
to provide
42
certain consulting services to the Company through January 31, 1999, for which
he was compensated with approximately $98,559 of cash payments. The Company
will pay on Mr. Edwards' behalf the amount of $10,000 for legal fees incurred
by him in connection with the negotiation of this Agreement. In exchange for
the benefits received by Mr. Edwards which are described in this paragraph,
Mr. Edwards agreed to terminate his employment agreement and execute a full
general release as to the Company and its affiliated parties.
Keith M. Price. Effective August 5, 1998, the Company entered into an
employment agreement with Mr. Price for his services as President and Chief
Operating Officer of the Company through August 5, 1999. In addition to
delineating Mr. Price's areas of responsibility and reporting line, the
agreement provided for a base annual salary of $375,000; a signing bonus of
$100,000, $50,000 of which was paid upon commencement of employment and
$50,000 on January 1, 1999; annual bonus compensation of not less than 50% of
base annual salary; severance payments equal to the balance of base annual
compensation for the one year contract term; eligibility under the Company's
employee benefit plans, and a one-year, non-competition period following
termination of employment for any reason other than employment through the
term of the contract. The agreement also provided for the grant of three-year
options to purchase 150,000 shares of the Company's common stock, 50% of the
options to vest on February 5, 1999 and 50% on August 4, 1999.
Effective August 5, 1998, Mr. Price was promoted to Chief Executive Officer
and the Company agreed to extend the term of Mr. Price's contract to two years
commencing August 5, 1998 and to grant Mr. Price three year options to
purchase an additional 50,000 share of the Company's common stock, 50% of the
options to vest on May 4, 1999 and 50% to vest on November 4, 1999, subject to
his continued employment through such dates.
Michael E. Tennenbaum. On March 13, 1998, the Company and Mr. Michael E.
Tennenbaum signed an agreement pursuant to which the Company agreed to
nominate, recommend, and solicit proxies for Mr. Tennenbaum's election as a
Director of the Company at the May 1, 1998, Annual Meeting of Shareholders for
a three-year term expiring at the 2001 Annual Meeting of Shareholders, and
until his successor is duly elected. The Company and Mr. Tennenbaum agreed
that during the period from March 13, 1998, to the earlier of (i) March 13,
2003, and (ii) the day after the date Mr. Tennenbaum, Tennenbaum & Co., LLC,
and their affiliates cease to be the beneficial owners of any of the Company's
voting securities (the "Restricted Securities"), Mr. Tennenbaum and Tennenbaum
& Co., LLC (the "Tennenbaum Parties") shall not acquire, directly or
indirectly, any voting securities of the Company if, following such
acquisition, the Tennenbaum Parties and their affiliates would, directly or
indirectly, be the beneficial owners of more than 19.5% of the total combined
voting power of all issued and outstanding securities of the Company. The
agreement states that the limitation set forth in the immediately preceding
sentence shall not be violated if the Tennenbaum Parties and their affiliates
become entitled to exercise voting power in excess of 19.5% as a result of any
event or circumstance other than the acquisition by the Tennenbaum Parties or
their affiliates of beneficial ownership of additional voting securities of
the Company. The Company agreed not to take any action, including without
limitation, any amendment to its Shareholders Rights Plan that would prevent
the Tennenbaum Parties from acquiring additional securities within the
limitations set forth above. The Tennenbaum Parties agreed that they (a) would
not subject any Restricted Securities to any voting trust or voting agreement;
(b) would not recruit or engage in organizing persons not nominated by the
Board of Directors to oppose the Board of Directors nominated candidates in an
election; (c) would not financially support a Report contest for Board of
Directors candidates to oppose the candidates nominated by the Board of
Directors; (d) would not provide any material, non-public information gained
in Mr. Tennenbaum's position as a Director to opposing Board candidates,
except as required by law, and then only after giving notice to the Company;
(e) would not join a partnership, limited partnership, syndicate, or other
group or otherwise act in concert with others for the purpose of acquiring,
holding, voting, or disposing of voting securities of the Company; and (f)
would be present, in person or by Report, or otherwise be deemed to be present
(to the extent permitted by law), at meetings for which they were given notice
for the purpose of determining the presence of a quorum as such meetings. The
provisions of (a) through (f) above apply during the period during which Mr.
Tennenbaum (or another affiliate of the Tennenbaum Parties) is a member of the
Board of Directors, and for a period of 90 days thereafter. It was agreed that
if the Tennenbaum Parties obtained the express written consent of a majority
of the directors of the Company who are not designated by the Tennenbaum
Parties, then the 19.5% ownership limitation and the provisions of (a) through
(f) above would not apply. Finally, the Company agreed to reimburse the
Tennenbaum Parties for reasonable and necessary documented out-of-pocket
expenses incurred by them in connection with their proposals to the Board of
Directors of the Company and the potential solicitation of proxies for the
election of directors of the Company, which reimbursement was made in the
amount of $16,307.
43
Current Executive Officers
Thomas P. Grumbly On April 7, 1997, the Company entered into an employment
agreement with Mr. Grumbly for his services as Executive Vice President and
President, Federal Programs Group. In addition to delineating Mr. Grumbly's
areas of responsibility and reporting line, the agreement provides for: a base
annual salary of $250,000 beginning April 28, 1997, subject to annual
increases of $10,000; signing bonus of $50,000 for the period ended December
31, 1997; an additional bonus opportunity to be determined by the Compensation
& Human Resources Committee and based on Company performance; eligibility
under the Company's employee benefit plans and 12 months severance in the
event Mr. Grumbly is terminated other than for cause. The agreement also
provided for the grant of 100,000 options, 25% of which vest on each of the
first four anniversaries of the grant date.
On March15, 1999, in consideration for Mr. Grumbly's remaining in the employ
of the Company for a period of at least 30 days after the closing of the sale
of EFM, the Company agreed to: increase Mr. Grumbly's annual compensation to
$270,000 effective February 1, 1999; pay health insurance for a 12-month
period following termination; pay a bonus of $50,000; payout the 12-month
severance upon the closing of the EFM transaction; vest ICF Kaiser common
stock options; and waive the non-competition provisions of the April 1997
employment agreement.
Richard A. Leupen The Company entered into an employment agreement with Mr.
Leupen for his services as President of the Engineers and Constructors Group
and Executive Vice President of the Company for the period October 5, 1998
through August 4, 2001. In addition to delineating Mr. Leupen's areas of
responsibility and reporting line, the agreement provides for a base annual
salary of $300,000 beginning on October 5, 1998, subject to annual increases
to be determined by the Compensation & Human Resources Committee; a relocation
bonus of $46,000; bonus compensation of $35,000 for the period ended June 30,
1998, not less than $75,000 for the period ended December 31, 1998, not less
than $150,000 for the period ended August 4, 1999; signing bonus of $100,000,
payable in two equal increments on August 4, 1998 and January 1, 1999;
eligibility under the Company's employee benefit plans; reimbursement of
relocation and related expenses for Mr. Leupen and his family; and a one-year
non-competition following termination for "cause" of Mr. Leupen's employment.
The agreement also provided for the grant of 150,000 options, 50% of which
vested immediately and the remainder vested on January 1, 1999. In addition,
Mr. Leupen has the right to elect to be reinstated in his prior position with
Kaiser Engineers Pty. Ltd., headquartered in Perth, Western Australia. Either
party may terminate the agreement upon thirty (30) days' prior written notice;
the Company may terminate the agreement for "cause", or Mr. Leupen may
terminate the agreement for "good reason". In the event that the agreement is
terminated without "cause" by the Company or by Mr. Leupen without "good
reason" in the event that his responsibilities are substantially reduced or
materially changed or in the event that the Company is the subject of a
voluntary or involuntary bankruptcy, Mr. Leupen is entitled to receive a
severance payment equal to two times his annual base salary in effect of such
termination. In the event that Mr. Leupen terminated the agreement for other
"good reason" (as defined in the agreement), he is entitled to receive a
severence payment equal to one time his annual base salary then in effect.
Former Directors/Executive Officers
Michael F. Gaffney. Effective January 1, 1997, the Company entered into an
employment agreement with Mr. Gaffney for his services as Senior Vice
President of the Company through December 31, 1999. In addition to delineating
Mr. Gaffney's areas of responsibility and reporting line, the agreement
provides for a base annual salary of $230,000 for the 15-month period
beginning January 1, 1997 (with a $20,000 annual increase for the next 12-
month period and a $25,000 annual increase for the remaining months); annual
bonus compensation to be determined by reference to sales targets, operating
group revenue and profit targets, and other qualitative factors as determined
by the Compensation & Human Resources Committee of the Company's Board of
Directors; a specified severance payment; eligibility under the Company's
employee benefit plans; and a six month non-competition period following
employment termination.
On March 8, 1999, Mr Gaffney entered into an agreement with the Company,
pursuant to which the parties mutually agreed to terminate Mr. Gaffney's
employment agreement. In consideration of Mr. Gaffney agreeing to terminate
his employment agreement, the Company agreed to compensate him with cash in
the aggregate amount of $200,000 and to continue health, welfare, and life
insurance benefits for Mr. Gaffney and his dependents through April 30, 1999.
In exchange for the benefits received by Mr. Gaffney which are described in
this paragraph, Mr. Gaffney agreed to terminate his employment agreement;
enter into a six-month non-competition agreement, and execute a full general
release as to the Company and its affiliated parties.
44
Marc Tipermas. Effective May 1, 1997, the Company entered into an employment
agreement with Dr. Tipermas for his services as President and Chief Operating
Officer of the Company through December 31, 1999. Dr. Tipermas also was a
Director of the Company at the time of such agreement. In addition to
delineating Dr. Tipermas' areas of responsibility and reporting line, the
agreement provided for a minimum base salary of $350,000 from April 1, 1997,
with $25,000 increases in each of the following two years; annual bonus
compensation to be determined by the Compensation & Human Resources Committee
of the Company's Board of Directors; severance payments as provided under the
Company's Senior Executive Officers Severance Plan (with a minimum of two
years); eligibility under the Company's employee benefit plans; a cash payment
of $50,000 (net of taxes) in return for an agreement not to sell shares of
Common Stock without Compensation Committee approval; and a one-year non-
competition period following voluntary or "for cause" employment termination.
The agreement also provided for the grant on December 31, 1998, of 150,000
shares of Restricted Stock under the Company's Stock Incentive Plan; 75,000 of
these shares vest on December 31, 1999, with the balance vesting on December
31, 2000. Vesting terms in the event of termination of Dr. Tipermas'
employment or his death also are outlined in the agreement.
On August 7, 1998, Dr. Tipermas entered into an agreement with the Company,
pursuant to which the parties mutually agreed to terminate Dr. Tipermas'
employment agreement. In consideration of Dr. Tipermas agreeing to terminate
his employment agreement, the Company paid him $732,500 in cash. The Company
further agreed (i) to provide Dr. Tipermas and his dependents with continued
health, welfare and life insurance benefits through January 31, 1999, (ii) to
accelerate the vesting of 19,800 options previously granted pursuant to the
Company's Stock Incentive Plan, and (iii) consistent with the terms of his
Employment Agreement, to award 150,000 shares of restricted Common Stock,
which shares vest upon the earlier of November 6, 1999, or the merger,
consolidation, sale of stock, or sale of substantially all of the assets of
the Company. All unexercised options held by Dr. Tipermas on November 6, 1999
will expire. In addition, Dr. Tipermas agreed to provide certain consulting
services to the Company through January 31, 1999, for which he was compensated
with approximately $186,178 of cash payments. The Company also will pay on Dr.
Tipermas' behalf the amount of $8,781 for legal fees incurred by him in
connection with the negotiation of this agreement. In exchange for the
benefits received by Dr. Tipermas which are described in this paragraph, Dr.
Tipermas agreed to terminate his employment agreement and execute a full
general release as to the Company and its affiliated parties.
David Watson. Effective November 13, 1995, the Company entered into an
employment agreement with Mr. Watson for his services as Executive Vice
President and President of the International Operations Group of the Company
through November 13, 1998. This agreement was subsequently amended, effective
December 1, 1996, to provides for Mr. Watson's services as Executive Vice
President, and President of the ICF Kaiser Engineers & Constructors Group
through December 1, 1999. In addition to delineating Mr. Watson's areas of
responsibility, the amended agreement provides for a minimum base annual
salary of $275,000, and bonuses in the range of $25,000 to $100,000 for fiscal
1996 and in amounts to be determined by the Compensation Committee for future
years; severance payments as provided under the Company's Senior Executive
Officers Severance Plan; and reimbursement of relocation expenses up to a
maximum of $50,000. The amended agreement also provided for the grant (i) on
December 15, 1995 of 20,000 stock options, 6,250 of which were vested
immediately and the remainder to vest in three equal increments on each annual
anniversary of the grant date, and (ii) on January 24, 1997 of 75,000
additional options, 18,750 of which vested upon grant, and the remainder to
vest in three equal increments on each annual anniversary of the grant date.
In return for the benefits afforded Mr. Watson in his employment agreement,
Mr. Watson agreed to a one-year non-competition and non-solicitation period
following termination of his employment for any reason.
On August 17, 1998, Mr. Watson entered into an agreement with the Company,
pursuant to which the parties mutually agreed to terminate Mr. Watson's
employment agreement. In consideration of Mr. Watson agreeing to terminate his
employment agreement, the Company paid him $300,019 in cash in October 1998.
The Company further agreed (i) to enable Mr. Watson to use the Company's
Corporate Membership at a private club through December 31, 1999, (ii) to
accelerate the vesting of 45,600 shares of restricted stock previously
granted, and (iii) reimburse up to $2,500 of legal fees incurred by Mr. Watson
in connection with the negotiation of this agreement. In exchange for the
benefits received by Mr. Watson which are described in this paragraph,
Mr. Watson agreed to terminate his employment agreement, execute a full
general release as to the Company and its affiliated parties, and further
agreed not to compete with the Company for a period of one year following the
termination of his employment by the Company.
45
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as part of this Report
Page
----
1. Consolidated Financial Statements of ICF Kaiser International, Inc. and
Subsidiaries
a. Report of Independent Accountants.................................... F-1
b. Consolidated Balance Sheets as of December 31, 1998 and December 31,
1997................................................................. F-2
c. Consolidated Statements of Operations for the years ended December
31, 1998, 1997 and 1996.............................................. F-3
d. Consolidated Statements of Shareholders' Equity (Deficit) and
Comprehensive Income (Loss) for the years ended December 31, 1998,
1997 and 1996........................................................ F-4
e. Consolidated Statements of Cash Flows for the years ended December
31, 1998, 1997 and 1996.............................................. F-5
f. Notes to Consolidated Financial Statements........................... F-6
2. Supplemental Schedule Relating to the Consolidated Financial Statements
of ICF Kaiser International, Inc. and Subsidiaries for the years ended
December 31, 1998, 1997 and 1996.
a.Schedule II: Valuation and Qualifying Accounts........................ S-1
All Schedules except the one listed above have been omitted because they are
not applicable or not required or because the required information is included
elsewhere in the financial statements in this filing.
(b) Exhibits
3. Exhibits (listed according to the number assigned in the table in Item 601
of Regulation S-K).
Exhibit No. 3--Articles of Incorporation and By-laws of the Registrant
3(a) Restated Certificate of Incorporation of ICF Kaiser International, Inc.
(restated through June 26, 1993) (Incorporated by reference to Exhibit
No. 3(a) to Quarterly Report on Form 10-Q (Registrant No. 1-12248) for
the second quarter of fiscal 1994 filed with the Commission on October
15, 1993)
3(b) Amended and Restated By-laws of ICF Kaiser International, Inc. (as
amended through June 23, 1995) (Incorporated by reference to Exhibit No.
3(b) to Quarterly Report on Form 10-Q (Registrant No. 1-12248) for the
second quarter of fiscal 1995 filed with the Commission on October 13,
1995)
Exhibit No. 3--Articles of Incorporation and By-laws of the Subsidiary
Guarantors
3(c) Articles of Incorporation of Cygna Consulting Engineers and Project
Management, Inc. (Incorporated by reference to Exhibit No. 3(c) to
Registration Statement on Form S-1 Registration No. 333-19519 filed with
the Commission on January 10, 1997)
3(d) By-laws of Cygna Consulting Engineers and Project Management, Inc.
(Incorporated by reference to Exhibit No. 3(d) to Registration Statement
on Form S-1 Registration No. 333-19519 filed with the Commission on
January 10, 1997)
3(e) Certificate of Incorporation of ICF Kaiser Government Programs, Inc.
(Incorporated by reference to Exhibit No. 3(e) to Registration Statement
on Form S-1 Registration No. 333-19519 filed with the Commission on
January 10, 1997)
3(f) By-laws of ICF Kaiser Government Programs, Inc. (Incorporated by
reference to Exhibit No. 3(f) to Registration Statement on Form S-1
Registration No. 333-19519 filed with the Commission on January 10, 1997)
46
3(g) Certificate of Incorporation of Systems Applications International, Inc.
(Incorporated by reference to Exhibit No. 3(i) to Registration Statement
on Form S-1 Registration No. 333-19519 filed with the Commission on
January 10, 1997)
3(h) By-laws of Systems Applications International, Inc. (Incorporated by
reference to Exhibit No. 3(j) to Registration Statement on Form S-1
Registration No. 333-19519 filed with the Commission on January 10, 1997)
3(i) Certificate of Incorporation of EDA, Incorporated (Incorporated by
reference to Exhibit No. 3(k) to Annual Report on Form 10-K (Registrant
No. 1-12248) for fiscal year 1997 filed with the Commission on March 31,
1998)
3(j) Amended and Restated By-laws of EDA, Incorporated (Incorporated by
reference to Exhibit No. 3(l) to Annual Report on Form 10-K (Registrant
No. 1-12248) for fiscal year 1997 filed with the Commission on March 31,
1998)
3(k) Certificate of Incorporation of Global Trade & Investment, Inc.
(Incorporated by reference to Exhibit No. 3(o) to Annual Report on Form
10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the
Commission on March 31, 1998)
3(l) Amended and Restated By-laws of Global Trade & Investment, Inc.
(Incorporated by reference to Exhibit No. 3(p) to Annual Report on Form
10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the
Commission on March 31, 1998)
3(m) Certificate of Incorporation of ICF Kaiser Europe, Inc. (Incorporated by
reference to Exhibit No. 3(q) to Annual Report on Form 10-K (Registrant
No. 1-12248) for fiscal year 1997 filed with the Commission on March 31,
1998)
3(n) By-laws of ICF Kaiser Europe, Inc. (Incorporated by reference to Exhibit
No. 3(r) to Annual Report on Form 10-K (Registrant No. 1-12248) for
fiscal year 1997 filed with the Commission on March 31, 1998)
3(o) Certificate of Incorporation of ICF Kaiser / Georgia Wilson, Inc.
(Incorporated by reference to Exhibit No. 3(s) to Annual Report on Form
10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the
Commission on March 31, 1998)
3(p) By-laws of ICF Kaiser / Georgia Wilson, Inc. (Incorporated by reference
to Exhibit No. 3(t) to Annual Report on Form 10-K (Registrant No. 1-
12248) for fiscal year 1997 filed with the Commission on March 31, 1998)
3(q) Certificate of Incorporation of ICF Kaiser Overseas Engineering, Inc.
(Incorporated by reference to Exhibit No. 3(u) to Annual Report on Form
10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the
Commission on March 31, 1998)
3(r) Amended and Restated By-laws of ICF Kaiser Overseas Engineering, Inc.
(Incorporated by reference to Exhibit No. 3(v) to Annual Report on Form
10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the
Commission on March 31, 1998)
3(s) Certificate of Incorporation of ICF Kaiser Engineers Pacific, Inc.
(Incorporated by reference to Exhibit No. 3(w) to Annual Report on Form
10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the
Commission on March 31, 1998)
3(t) Amended and Restated By-laws of ICF Kaiser Engineers Pacific, Inc.
(Incorporated by reference to Exhibit No. 3(x) to Annual Report on Form
10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the
Commission on March 31, 1998)
3(u) Certificate of Incorporation of ICF Kaiser Remediation Company
(Incorporated by reference to Exhibit No. 3(y) to Annual Report on Form
10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the
Commission on March 31, 1998)
3(v) By-laws of ICF Kaiser Remediation Company (Incorporated by reference to
Exhibit No. 3(z) to Annual Report on Form 10-K (Registrant No. 1-12248)
for fiscal year 1997 filed with the Commission on March 31, 1998)
47
3(w) Certificate of Incorporation of ICF Kaiser Advanced Technology, Inc.
(Incorporated by reference to Exhibit No. 3(y) to Annual Report on Form
10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the
Commission on March 31, 1998) (incorporated by reference to Exhibit E No.
3 (aa) to Quarterly Report on Form 10-Q (Registrant No. 1-12248) for the
third quarter of fiscal 1997 filed with the Commission on November 16,
1998).
3(x) By-laws of ICF Kaiser Advanced Technology, Inc. (Incorporated by
reference to Exhibit No. 3(z) to Annual Report on Form 10-K (Registrant
No. 1-12248) for fiscal year 1997 filed with the Commission on March 31,
1998) (incorporated by reference to Exhibit No. 3 (bb) to Quarterly
Report on Form 10-Q (Registrant No. 1-12248) for the third quarter of
fiscal 1997 filed with the Commission on November 16, 1998).
Exhibit No. 4--Instruments Defining the Rights of Security Holders, including
Indentures
4(a) Indenture dated as of January 11, 1994, between ICF Kaiser International,
Inc. and The Bank of New York, as Trustee (Incorporated by reference to
Exhibit No. 4(a) to Quarterly Report on Form 10-Q (Registrant No. 1-
12248) for the third quarter of fiscal 1994 filed with the Commission on
January 14, 1994)
1. First Supplemental Indenture dated as of February 17, 1995
(Incorporated by reference to Exhibit No. 4(a)(1) to Annual Report on
Form 10-K (Registrant No. 1-12248) for fiscal year 1995 filed with the
Commission on May 23, 1995)
2. Second Supplemental Indenture dated September 1, 1995 (Incorporated by
reference to Exhibit No. 4(a) (2) to Registration Statement on Form S-
1 Registration No. 33-64655 filed with the Commission on November 30,
1995)
3. Third Supplemental Indenture dated October 20, 1995 (Incorporated by
reference to Exhibit No. 4(a)(3) to Registration Statement on Form S-1
Registration No. 33-64655 filed with the Commission on November 30,
1995)
4. Fourth Supplemental Indenture dated as of March 8, 1996 (Incorporated
by reference to Exhibit No. 4 (a)(4) to Transition Report on Form 10-K
(Registrant No. 1-12248) for the transition period from March 1, 1995
to December 31, 1995 filed with the Commission on March 29, 1996)
5. Fifth Supplemental Indenture dated as of June 24, 1996 (Incorporated
by reference to Exhibit No. 4 (a)(5) to Registration Statement on Form
S-1 Registration No. 333-16937 filed with the Commission on November
27, 1996)
6. Sixth Supplemental Indenture dated as of December 3, 1997
(Incorporated by reference to Exhibit No. 4(a)(6) to Annual Report on
Form 10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the
Commission on March 31, 1998)
7. Seventh Supplemental Indenture dated as of August 13, 1998.
(incorporated by reference to Exhibit No. 4(a)(7) to Quarterly Report
on Form 10-Q (Registrant No. 1-12248) for the third quarter of fiscal
1997 filed with the Commission on November 16, 1998).
4(b) Form of 12% Senior Subordinated Note due 2003 (Incorporated by reference
to Exhibit No. 4(b) to Quarterly Report on Form 10-Q (Registrant No. 1-
12248) for the third quarter of fiscal 1994 filed with the Commission on
January 14, 1994)
4(c) Form of Common Stock Purchase Warrant expiring May 15, 1999 (as amended
and restated through January 11, 1994) (Incorporated by reference to
Exhibit No. 4(e) to Quarterly Report on Form 10-Q (Registrant No. 1-
12248) for the third quarter of fiscal 1994 filed with the Commission on
January 14, 1994)
48
4(d) Rights Agreement, dated as of January 13, 1992, between ICF Kaiser
International, Inc. and Office of the Secretary, ICF Kaiser
International, Inc. as Rights Agent, including (1) Form of Certificate of
Designations of Series 4 Junior Preferred Stock; (2) Form of Rights
Certificate; and (3) Summary of Rights to Purchase Preferred Stock
(Incorporated by reference to Exhibit No. 4(h) to Quarterly Report on
Form 10-Q (Registrant No. 0-18025) for the third quarter of fiscal 1992
filed with the Commission on January 14, 1992)
4(e) Warrant Agreement dated as of January 11, 1994, between the Registrant
and The Bank of New York, as Warrant Agent (Incorporated by reference to
Exhibit No. 4(c) to Quarterly Report on Form 10-Q (Registrant No. 1-
12248) for the third quarter of fiscal 1994 filed with the Commission on
January 14, 1994)
4(f) Indenture dated as of December 23, 1996, between ICF Kaiser
International, Inc. and The Bank of New York, as Trustee, including
Guarantees, dated December 23, 1996, by each of the Subsidiary Guarantors
(Incorporated by reference to Exhibit No. 4(g) to Registration Statement
on Form S-1 Registration No. 333-19519 filed with the Commission on
January 10, 1997)
1. First Supplemental Indenture dated as of December 3, 1997
(Incorporated by reference to Exhibit No. 4(a)(6) to Annual Report on
Form 10-K (Registrant No. 1-12248) for fiscal year 1997 filed with the
Commission on March 31, 1998.
2. Second Supplemental Indenture dated as of August 13, 1998.
(Incorporated by reference to Exhibit No. 4(g)(2) to Quarterly Report
on Form 10-Q (Registrant No. 1-12248) for the third quarter of fiscal
/1997/ filed with the Commission on November /16/, /1998/).
4(g) Form of 12% Senior Note due 2003, Series B (Incorporated by reference to
Exhibit No. 4(i) to Registration Statement on Form S-1 Registration No.
333-19519 filed with the Commission on January 10, 1997)
4(h) Warrant Agreement dated as of December 23, 1996, between ICF Kaiser
International, Inc. and The Bank of New York, as Warrant Agent
(Incorporated by reference to Exhibit No. 4(j) to Registration Statement
on Form S-1 Registration No. 333-19519 filed with the Commission on
January 10, 1997)
4(i) Form of Warrant expiring December 31, 1999 issued under Warrant Agreement
dated as of December 23, 1996 (Incorporated by reference to Exhibit No.
4(k) to Registration Statement on Form S-1 Registration No. 333-19519
filed with the Commission on January 10, 1997)
Exhibit No. 10 -- Material Contracts
10(a) Loan and Security Agreement dated as of December 18, 1998, with
Madeleine L.L.C, as agent
10(b) ICF Kaiser International, Inc. Employee Stock Ownership Plan (as amended
and restated as of March 1, 1993) (and further amended with respect to
name change only as of June 26, 1993) (Incorporated by reference to
Exhibit No. 10(c) to Quarterly Report on Form 10-Q (Registrant No. 1-
12248) for the second quarter of fiscal 1994 filed with the Commission
on October 15, 1993)
1. Amendment No. 1 dated April 24, 1995 (Incorporated by reference to
Exhibit No. 10(l)(1) to Annual Report on Form 10-K (Registrant No. 1-
12248) for fiscal 1995 filed with the Commission on May 23, 1995)
2. Amendment No. 2 dated December 15, 1995 (Incorporated by reference to
Exhibit No. 10(b)(2) to Transition Report on Form 10-K (Registrant No.
1-12248) for the transition period from March 1, 1995 to December 31,
1995 filed with the Commission on March 29, 1996)
3. Amendment No. 3 dated December 13, 1996 (Incorporated by reference to
Exhibit No. 10(b)(3) to Registration Statement on Form S-1
Registration No. 333-19519 filed with the Commission on January 10,
1997)
49
10(c) Trust Agreement with Vanguard Fiduciary Trust Company dated as of August
31, 1995, for ICF Kaiser International, Inc. Employee Stock Ownership
Plan (Incorporated by reference to Exhibit No. 10(c) to Registration
Statement on Form S-1 Registration No. 33-64655 filed with the
Commission on November 30, 1995)
10(d) ICF Kaiser International, Inc. Retirement Plan (as amended and restated
as of March 1, 1993) (and further amended with respect to name change
only as of June 26, 1993) (Incorporated by reference to Exhibit No.
10(d) to Quarterly Report on Form 10-Q (Registrant No. 1-12248) for the
second quarter of fiscal 1994 filed with the Commission on October 15,
1993)
1. Amendment No. 1 dated April 24, 1995 (Incorporated by reference to
Exhibit No. 10(d)(1) to Annual Report on Form 10-K (Registrant No. 1-
12248) filed with the Commission on May 23, 1995.)
2. Amendment No. 2 dated December 15, 1995 (Incorporated by reference to
Exhibit No. 10(d)(2) to Transition Report on Form 10-K (Registrant No.
1-12248) for the transition period from March 1, 1995 to December 31,
1995 filed with the Commission on March 29, 1996)
3. Amendment No. 3 dated December 13, 1996 (Incorporated by reference to
Exhibit No. 10(d)(3) to Registration Statement on Form S-1
Registration No. 333-19519 filed with the Commission on January 10,
1997)
10(e) Trust Agreement with Vanguard Fiduciary Trust Company dated as of August
31, 1995, for ICF Kaiser International, Inc. Retirement Plan
(Incorporated by reference to Exhibit No. 10(e) to Registration
Statement on Form S-1 Registration No. 33-64655 filed with the
Commission on November 30, 1995)
10(f) Consolidated, Amended and Restated Deed of Lease Agreement between HMCE
Associates Limited Partnership R.L.L.P. (as Landlord) and ICF Kaiser
Hunters Branch Leasing, Inc. (as Tenant), dated November 12, 1997, for
the lease of the Registrant's headquarters in Fairfax, Virginia known as
Hunters Branch--Phase I (Incorporated by reference to Exhibit No. 10(g)
to Annual Report on Form 10-K (Registrant No. 1-12248) filed with the
Commission on March 25, 1997).
10(g) Consolidated, Amended and Restated Deed of Lease Agreement between HMCE
Associates Limited Partnership R.L.L.P. (as Landlord) and ICF Kaiser
Hunters Branch Leasing, Inc. (as Tenant), dated November 12, 1997, for
the lease of space in the building adjacent to the Registrant's
headquarters in Fairfax, Virginia known as Hunters Branch--Phase II
(Incorporated by reference to Exhibit No. 10(h) to Annual Report on Form
10-K (Registrant No. 1-12248) filed with the Commission on March 25,
1997).
10(h) Contribution Agreement by and among HMCE Associates Limited Partnership
R.L.L.P.; ICF Kaiser Hunters Branch Leasing, Inc.; and IFA Nutley
Partners, LLC dated November 3, 1997 (Incorporated by reference to
Exhibit No. 10(i) to Annual Report on Form 10-K (Registrant No. 1-12248)
filed with the Commission on March 25, 1997).
10(i) ICF Kaiser International, Inc. Stock Incentive Plan (as amended and
restated through March 1, 1996) (Incorporated by reference to Exhibit
No. 10(j) to Registration Statement on Form S-1 Registration No. 333-
16937 filed with the Commission on November 27, 1996)
10(j) Contract (#DE-AC3495RF00825) between Kaiser-Hill Company, LLC, a
subsidiary of the Corporation, and the U.S. Department of Energy dated
as of April 4, 1995. [IN ACCORDANCE WITH RULE 202 OF REGULATION S-T,
THIS EXHIBIT NO. 10(k) WAS FILED IN PAPER ON MAY 23, 1995, ON FORM SE
PURSUANT TO A CONTINUING HARDSHIP EXEMPTION is incorporated herein by
reference thereto]
1. Modifications 1 to 40 to Contract #DE-AC3495RF00825 (Incorporated by
reference to Exhibit No. 10(p)(l) to Registration Statement on Form S-
1 Registration No. 333-16937 filed with the Commission on November 27,
1996)
50
2. Modifications 42 to 46 to Contract #DE-AC3495RF00825 (Modification 41
not received) (Incorporated by reference to Exhibit No. 10(p)(2) to
Annual Report on Form 10-K (Registrant No. 1-12248) filed with the
Commission on March 25, 1997)
3. Modifications 47 to 81 to Contract #DE-AC3495RF00825 (Modifications 72
and 78 not received)
10(k) ICF Kaiser International, Inc. Section 401(k) Plan (as amended and
restated as of March 1, 1993) (and further amended with respect to name
change only as of June 26, 1993) (Incorporated by reference to Exhibit
No. 10(f) to Quarterly Report on Form 10-Q (Registrant No. 1-12248) for
the second quarter of fiscal 1994 filed with the Commission on October
15, 1993)
1. Amendment No. 1 dated April 24, 1995 (Incorporated by reference to
Exhibit No. 10(p)(1) to Annual Report on Form 10-K (Registrant No. 1-
12248) for fiscal 1995 filed with the Commission on May 23, 1995)
2. Amendment No. 2 dated December 15, 1995 (Incorporated by reference to
Exhibit No. 10(p)(2) to Transition Report on Form 10-K (Registrant No.
1-12248) for the transition period from March 1, 1995 to December 31,
1995 filed with the Commission on March 29, 1996)
3. Amendment No. 3 dated December 13, 1996 (Incorporated by reference to
Exhibit No. 10(q)(3) to Registration Statement on Form S-1
Registration No. 333-19519 filed with the Commission on January 10,
1997)
10(l) Trust Agreement with Vanguard Fiduciary Trust Company dated as of March
1, 1989, for the ICF Kaiser International, Inc. Section 401(k) Plan
(Incorporated by reference to Exhibit No. 28(b) to Registration
Statement on Form S-8 Registration No. 33-51460 filed with the
Commission on August 31, 1992)
Exhibit No. 10--Material Contracts (management contracts, compensatory plans,
or arrangements.)
10(aa) Agreement dated as of May 19, 1997 with James O. Edwards, Chairman and
Chief Executive Officer of the Registrant (Incorporated by reference to
Exhibit No. 10(ll) to Quarterly Report on Form 10-Q (Registrant No. 1-
12248) for the second quarter of fiscal 1997 filed with the Commission
on August 14, 1997)
1. Agreement dated as of November 6, 1998, terminating Mr. Edwards'
employment agreement .
10(bb) ICF Kaiser International, Inc. 1998 Compensation (IC) Plan for Senior
Executives (adopted by the Board of Directors on February 27, 1998)
(Incorporated by reference to Exhibit No. 10(bb) to Annual Report on
Form 10-K (Registrant No. 1-12248) filed with the Commission on March
25, 1997).
10(cc) ICF Kaiser International, Inc. Non-employee Director Stock Option Plan
(as amended and restated as of June 26, 1993) (Incorporated by
reference to Exhibit No. 10(bb) to Quarterly Report on Form 10-Q
(Registrant No. 1-12248) for the second quarter of fiscal 1994 filed
with the Commission on October 15, 1993)
10(dd) Agreement dated as of May 19, 1997 with Marc Tipermas, President and
Chief Operating Officer of the Registrant (Incorporated by reference to
Exhibit No. 10(mm) to Quarterly Report on Form 10-Q (Registrant No. 1-
12248) for the second quarter of fiscal 1997 filed with the Commission
on August 14, 1997)
1. Agreement dated as of August 7, 1998, terminating Dr. Tipermas'
employment agreement.
10(ee) ICF Kaiser International, Inc. Senior Executive Officers Severance Plan
as approved by the Compensation Committee of the Board of Directors on
April 4, 1994, and adopted by the Board of Directors on May 5, 1994, as
further amended through May 1, 1997 (Incorporated by reference to
Exhibit No. 10(ee) to Annual Report on Form 10-K (Registrant No. 1-
12248) filed with the Commission on March 25, 1997).
51
10(ff) Employment Agreement with Thomas P. Grumbly, Executive Vice President
of the Registrant, effective as of April 7, 1997.
1. Letter dated March 15, 1999, amending Mr. Grumbly's employment
agreement.
10(gg) ICF Kaiser International, Inc. Consultants, Agents and Part-Time
Employees Stock Plan dated as of June 23, 1995 (Incorporated by
reference to Exhibit No. 99 to Registration Statement on Form S-8
Registration No. 33-60665 filed with the Commission on June 28, 1995)
10(hh) ICF Kaiser International, Inc. Stock Incentive Plan (as amended and
restated through March 1, 1996) (Incorporated by reference to Exhibit
No. 10 (j) to Registration Statement on Form S-1 Registration No. 333-
16937 filed with the Commission on November 27, 1996)
10(ii) Amended Employment Agreement dated as of December 1, 1996, with David
Watson, Executive Vice President and President, ICF Kaiser Engineers
and Constructors Group of the Registrant (Incorporated by reference to
Exhibit No. 10(kk) to Annual Report on Form 10-K (Registrant No. 1-
12248) filed with the Commission on March 25, 1997).
1. Agreement and Mutual Release dated August 17, 1998, terminating Mr.
Watson's employment agreement.
10(jj) Intentionally Omitted.
10(kk) Employment Agreement with Michael F. Gaffney, Executive Vice President
of the Registrant, effective as of January 1, 1997 (Incorporated by
reference to Exhibit No. 10(kk) to Annual Report on Form 10-K
(Registrant No. 1-12248) for fiscal year 1997 filed with the Commission
on March 31, 1998).
1. Agreement dated March 8, 1999, terminating Mr. Gaffney's employment
agreement.
10(ll) Letter Agreement with Cowen Incorporated and Jarrod M. Cohen, dated as
of March 13, 1998 (Incorporated by reference to Exhibit No. 10(ll) to
Annual Report on Form 10-K (Registrant No. 1-12248) for fiscal year
1997 filed with the Commission on March 31, 1998) (Incorporated by
reference to Exhibit No. 10(mm) to Annual Report on Form 10-K
(Registrant No. 1-12248) filed with the Commission on March 25, 1997).
10(mm) ICF Kaiser International, Inc. Non-employee Directors Compensation and
Phantom Stock Plan as adopted by the Board of Directors on February 28,
1997, with an effective date of March 1, 1997
10(nn) Letter Agreement with Tennenbaum & Co., L.L.C. and Michael E.
Tennenbaum, dated as of March 13, 1998 (Incorporated by reference to
Exhibit No. 10(nn) to Annual Report on Form 10-K (Registrant No. 1-
12248) for fiscal year 1997 filed with the Commission on March 31,
1998)
10(oo) Employment Agreement with Keith M. Price, President and Chief
Executive Officer of the Registrant, effective as of August 27, 1998
(Incorporated by reference to Exhibit No. 10(oo) to Quarterly Report
on Form 10-Q (Registrant No. 1-12248) for the Third quarter of 1998
filed with the Commission on November 16, 1998).
1. Terms of Promotion for Mr. Price effective as of November 4, 1998.
Exhibit No. 21--Consolidated Subsidiaries of the Registrant as of April 12,
1999
Exhibit No. 23--Consent of PricewaterhouseCoopers, LLP
Exhibit No. 27--Financial Data Schedule. This schedule contains summary
financial information extracted from the consolidated financial statements of
ICF Kaiser International, Inc. as of December 31, 1998 and 1997 and for the
three years ended December 31, 1998 and is qualified in its entirety by
reference to such financial statements.
(c) Reports on Form 8-K
On November 6, 1998, the Company filed a Current Report on Form 8-K.
Pursuant to Item 5 of its Report, the Company disclosed that James O. Edwards
had resigned as its Chief Executive Officer, effective November 4, 1998.
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ICF Kaiser International, Inc.
(Registrant)
/s/ Keith M. Price
By: _________________________________
Keith M. Price,
President and Chief Executive
Officer
Date: April 15, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
(1) Principal executive officer
/s/ Keith M. Price President and Chief April 15, 1999
______________________________________ Executive Officer
Keith M. Price
(2) Principal financial and accounting officer
/s/ Timothy P. O'Connor Senior Vice President and April 15, 1999
_____________________________________ Chief Financial Officer
Timothy P. O'Connor
(3) Board of Directors
/s/ Tony Coelho Director April 15, 1999
______________________________________
Tony Coelho
/s/ Jarrod M. Cohen Director April 15, 1999
______________________________________
Jarrod M. Cohen
/s/ James O. Edwards Director April 15, 1999
______________________________________
James O. Edwards
/s/ Thomas C. Jorling Director April 15, 1999
______________________________________
Thomas C. Jorling
/s/ Hazel R. O'Leary Director April 15, 1999
______________________________________
Hazel R. O'Leary
/s/ Keith M. Price Director April 15, 1999
______________________________________
Keith M. Price
/s/ James T. Rhodes Director April 15, 1999
______________________________________
James T. Rhodes
Director April 15, 1999
______________________________________
Michael E. Tennebaum
53
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of ICF Kaiser International, Inc.
In our opinion, the consolidated financial statements listed in Item 14(a) of
this Form 10-K present fairly, in all material respects, the financial
position of ICF Kaiser International, Inc. and Subsidiaries at December 31,
1998 and 1997, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above. In
addition, in our opinion, the financial statement schedule referred to in
Item 14(a), when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be included therein.
Due to substantial operating losses incurred in 1998 and the resulting
liquidity constraints, the Company engaged in an evaluation of strategic
alternatives available to it, including the sale of one or more of the
Company's operating groups. Management's progress to date and future plans
regarding these matters are discussed more fully in Note 2 to the consolidated
financial statements.
PricewaterhouseCoopers LLP
April 15, 1999
McLean, Virginia
F-1
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
------------------
1998 1997
-------- --------
(In thousands,
except share
amounts)
ASSETS
Current Assets
Cash and cash equivalents.................................. $ 15,267 $ 20,020
Contract receivables, net.................................. 284,078 264,030
Prepaid expenses and other current assets.................. 12,841 15,090
Deferred income taxes...................................... 34,673 15,281
-------- --------
Total Current Assets.................................... 346,859 314,421
-------- --------
Fixed Assets
Furniture, equipment, and leaseholds....................... 43,996 45,681
Less depreciation and amortization......................... (37,411) (37,968)
-------- --------
6,585 7,713
-------- --------
Other Assets
Goodwill, net.............................................. 49,292 47,323
Investments in and advances to affiliates.................. 7,728 7,038
Capitalized software development costs..................... 5,062 4,085
Other...................................................... 13,527 18,708
-------- --------
75,609 77,154
-------- --------
Total Assets............................................ $429,053 $399,288
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Debt currently payable..................................... $ 30,729 $ 15
Accounts payable........................................... 189,906 121,190
Accrued salaries and benefits.............................. 37,931 37,654
Other accrued expenses..................................... 43,846 26,902
Deferred revenue........................................... 40,011 36,527
Income taxes payable....................................... 2,147 1,012
-------- --------
Total Current Liabilities............................... 344,570 223,300
Long-term Liabilities
Long-term debt............................................. 137,488 141,004
Other...................................................... 9,664 4,586
-------- --------
Total Liabilities....................................... 491,722 368,890
-------- --------
Commitments and Contingencies
Minority Interest.......................................... 449 3,071
Shareholders' Equity (Deficit)............................. -- --
Preferred stock............................................ -- --
Common stock, par value $.01 per share:
Authorized--90,000,000 shares
Issued and outstanding-- 24,257,828 and 22,475,904
shares.................................................. 242 225
Additional paid-in capital................................. 75,422 67,116
Notes receivable collateralized by common stock............ (638) (2,422)
Accumulated deficit........................................ (134,757) (34,225)
Accumulated other comprehensive income (loss).............. (3,387) (3,367)
-------- --------
Total Shareholders' Equity (Deficit).................... (63,118) 27,327
-------- --------
Total Liabilities and Shareholders' Equity (Deficit).... $429,053 $399,288
======== ========
See notes to consolidated financial statements.
F-2
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
-------------------------------------------
1998 1997 1996
------------- ------------- -------------
(In thousands, except per share amounts)
Gross Revenue..................... $ 1,210,421 $ 1,108,116 $ 1,248,443
Subcontract and direct material
costs.......................... (794,794) (677,431) (720,342)
Provision for contract losses... (76,210) (6,900) --
Equity in income of joint
ventures and affiliated
companies...................... 6,045 2,301 4,015
------------- ------------- -------------
Service Revenue................... 345,462 426,086 532,116
Operating Expenses
Direct labor and fringe
benefits....................... 282,562 289,571 380,400
Group overhead.................. 92,151 86,792 95,747
Corporate general and
administrative................. 22,983 22,059 24,441
Depreciation and amortization... 9,048 9,595 10,348
Severance and restructuring
charges........................ 9,407 -- --
Other unusual charges........... 7,672 -- --
------------- ------------- -------------
Operating Income (Loss)........... (78,361) 18,069 21,180
Other Income (Expense)
Gain on sale of investment...... -- 1,018 9,384
Interest income................. 1,539 1,750 1,254
Interest expense................ (20,279) (18,276) (17,334)
------------- ------------- -------------
Income (Loss) Before Income Tax,
Minority Interest, Extraordinary
Item, and Cumulative Effect of
Accounting Change................ (97,101) 2,561 14,484
Income tax expense (benefit).... (11,357) (3,319) 2,607
------------- ------------- -------------
Income (Loss) Before Minority
Interest, Extraordinary Item, and
Cumulative Effect of Accounting
Change........................... (85,744) 5,880 11,877
Minority interest in net income
of subsidiaries................ 7,698 10,867 6,043
------------- ------------- -------------
Income (Loss) Before Extraordinary
Item and Cumulative Effect of
Accounting Change................ (93,442) (4,987) 5,834
Extraordinary item.............. 1,090 -- --
------------- ------------- -------------
Income (Loss) Before Cumulative
Effect of Accounting Change...... (94,532) (4,987) 5,834
Cumulative Effect of Accounting
Change, net of tax............. 6,000 -- --
------------- ------------- -------------
Net Income (Loss)................. (100,532) (4,987) 5,834
Preferred stock dividends and
accretion...................... -- -- 2,178
------------- ------------- -------------
Net Income (Loss) Available for
Common Shareholders.............. $ (100,532) $ (4,987) $ 3,656
============= ============= =============
Basic and Fully Diluted Earnings
(Loss) Per Share:
Income (Loss) Before
Extraordinary Item and of
Cumulative Effect of Accounting
Change......................... $ (3.87) $ (0.22) $ 0.17
Extraordinary item............ (0.05) -- --
------------- ------------- -------------
Income (Loss) Before Cumulative
Effect of Accounting Change.... (3.92) (0.22) 0.17
Cumulative effect of
accounting change, net of
tax.......................... (0.25) -- --
------------- ------------- -------------
Net Income (Loss) Per Share..... $ (4.17) $ (0.22) $ 0.17
============= ============= =============
Weighted average shares for basic
earnings (loss) per share........ 24,092 22,382 22,035
Effect of dilutive stock
options........................ -- -- 22
------------- ------------- -------------
Weighted average shares for
diluted earnings (loss) per
share............................ 24,092 22,382 22,057
============= ============= =============
See notes to consolidated financial statements.
F-3
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock
--------------------- Accumulated
Additional Accumulated Other Shareholders'
Paid-in Notes Earnings Comprehensive Equity
Shares Par Value Capital Receivable (Deficit) Income (Deficit)
---------- --------- ---------- ---------- ----------- ------------- -------------
(In thousands, except share amounts)
Balance, January 1,
1996................... 21,263,828 $213 $64,654 $(1,732) $ (32,894) $(1,814) $ 28,427
Net income............. -- -- -- -- 5,834 -- 5,834
Preferred stock
dividends............. -- -- -- -- (1,965) -- (1,965)
Preferred stock
accretion............. -- -- -- -- (213) -- (213)
Issuances of common
stock................. 1,153,014 11 2,650 -- -- -- 2,661
Reacquisition of common
stock................. (105,000) (1) (426) -- -- -- (427)
Foreign currency
translation
adjustment............ -- -- -- -- -- 470 470
Other.................. -- -- 105 -- -- -- 105
---------- ---- ------- ------- --------- ------- --------
Balance, December 31,
1996................... 22,311,842 223 66,983 (1,732) (29,238) (1,344) 34,892
Net loss............... -- -- -- (4,987) -- (4,987)
Issuances of common
stock................. 319,300 3 644 -- -- -- 647
Reacquisition of common
stock................. (155,238) (1) (511) -- -- -- (512)
Foreign currency
translation
adjustment............ (2,023) (2,023)
Other.................. -- -- -- (690) -- -- (690)
---------- ---- ------- ------- --------- ------- --------
Balance, December 31,
1997................... 22,475,904 225 67,116 (2,422) (34,225) (3,367) 27,327
---------- ---- ------- ------- --------- ------- --------
Net loss............... -- -- -- (100,532) -- (100,532)
Issuances of common
stock................. 1,941,446 19 8,856 -- -- 8,875
Reacquisition of common
stock................. (159,522) (2) (550) -- -- -- (552)
Foreign currency
translation
adjustment............ (20) (20)
Other.................. -- -- -- 1,784 -- -- 1,784
---------- ---- ------- ------- --------- ------- --------
Balance, December 31,
1998................... 24,257,828 $242 $75,422 $ (638) $(134,757) $(3,387) $(63,118)
========== ==== ======= ======= ========= ======= ========
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Year Ended December 31,
--------------------------
1998 1997 1996
--------- ------- ------
Net Income (Loss) .................................. $(100,532) $(4,987) $5,834
Other Comprehensive Income (Loss)
Foreign currency translation adjustments.......... (20) (2,023) 470
--------- ------- ------
Total Comprehensive Income (Loss)............... $(100,552) $(7,010) $6,304
========= ======= ======
See notes to consolidated financial statements.
F-4
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
----------------------------
1998 1997 1996
--------- -------- -------
(In thousands)
Operating Activities
Net income (loss)............................... $(100,532) $ (4,987) $ 5,834
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization................... 9,048 9,595 10,348
Provision for losses............................ 29,679 1,195 1,881
Provision for deferred income taxes............. (13,210) (4,586) 2,127
Charge for cumulative effect of accounting
change......................................... 6,000 -- --
Note receivable write-off....................... 1,784 -- --
Extraordinary item.............................. 1,090 -- --
Earnings in excess of cash distributions from
joint ventures and affiliated companies........ (1,044) (91) (374)
Minority interest in net income of
subsidiaries................................... 7,698 10,867 6,043
Gain on sale of investment...................... -- (1,018) (9,384)
Changes in operating assets and liabilities,
net of acquisitions and dispositions:
Contract receivables, net...................... (23,679) (42,494) 2,638
Prepaid expenses and other current assets...... 506 (2,268) 1,843
Accounts payable and accrued expenses.......... 45,403 41,573 (24,781)
Deferred revenue............................... 3,484 14,698 7,727
Income tax payable............................. 1,129 160 --
Other liabilities.............................. 5,954 3,296 (2,202)
Other operating activities...................... (2,748) 251 (334)
--------- -------- -------
Net Cash Provided by (Used in) Operating
Activities................................... (29,438) 26,191 1,366
--------- -------- -------
Investing Activities
Investments in subsidiaries and affiliates, net
of cash acquired............................... 3,456 (4,074) (1,317)
Sales of subsidiaries and/or investments........ 2,400 17,028 --
Purchases of fixed assets....................... (4,494) (4,888) (4,910)
--------- -------- -------
Net Cash Provided by (Used in) Investing
Activities................................... 1,362 8,066 (6,227)
--------- -------- -------
Financing Activities
Borrowings under revolving credit facility...... 139,629 104,500 114,000
Principal payments on revolving credit
facility....................................... (112,875) (121,000) (98,500)
Proceeds from issuance of senior notes.......... -- -- 14,700
Repurchase of preferred stock................... -- -- (20,000)
Distribution of income to minority interest..... (10,320) (13,950) (2,428)
Change in book overdraft........................ 8,395 (2,667) 2,827
Proceeds from issuances of common stock......... 155 213 383
Repurchases of common stock..................... -- (251) --
Preferred stock dividends....................... -- -- (2,615)
Debt issuance costs............................. (1,380) (624) (1,427)
Other financing activities...................... -- -- 924
--------- -------- -------
Net Cash Provided by (Used in) Financing
Activities................................... 23,604 (33,779) 7,864
--------- -------- -------
Effect of Exchange Rate Changes on Cash.......... (281) (708) 228
--------- -------- -------
Increase (Decrease) in Cash and Cash
Equivalents..................................... (4,753) (230) 3,231
Cash and Cash Equivalents at Beginning of
Period.......................................... 20,020 20,250 17,019
--------- -------- -------
Cash and Cash Equivalents at End of Period....... $ 15,267 $ 20,020 $20,250
========= ======== =======
Supplemental cash flow information is as follows:
Cash payments for interest...................... $ 20,051 $ 18,649 $24,701
Cash payments for income taxes.................. 936 402 765
Non-cash transactions:
Issuance of common stock........................ 8,720 434 2,175
Reacquisition of common stock................... (552) (261) (427)
See notes to consolidated financial statements.
F-5
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
Nature of Operations: ICF Kaiser International, Inc. and subsidiaries (the
Company) provides engineering, construction, program management, and
consulting services primarily to the public and private environmental,
infrastructure, industry, and energy markets domestically and internationally.
Principles of Consolidation: The consolidated financial statements include
all majority-owned or controlled subsidiaries. Investments in unconsolidated
joint ventures and affiliated companies are accounted for using the equity
method. The difference between the cost of joint venture investments and the
Company's underlying equity is amortized on a straight-line basis over the
estimated lives of the related investments. All significant intercompany
balances and transactions have been eliminated.
Revenue Recognition: The Company's revenue is derived primarily from long-
term contracts of various types. Revenue on time-and-materials contracts is
recognized based on actual hours delivered times the contracted hourly billing
rate, plus the costs incurred for any materials. Revenue on fixed-priced
contracts is recognized using the percentage-of-completion method and is
comprised of the portion of expected total contract earnings represented by
actual costs incurred to date as a percentage of the contract's total
estimated costs at completion. Revenue on cost-reimbursable contracts is
recognized to the extent of costs incurred plus a proportionate amount of the
contracted fee. Certain cost-reimbursable contracts also include provisions
for earning performance-based incentive fees. Such incentive fees are included
in revenue at the time the amounts can be reasonably determined. Provisions
for anticipated contract losses are recognized at the time they become
estimable.
Use of Estimates: The preparation of 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,
the disclosed amounts of contingent assets and liabilities at the date of the
financial statements, and the amounts of revenues and expenses recognized
during the reporting period. Actual results could differ from those estimates.
Foreign Currency Translation: Results of operations for foreign entities are
translated using the average exchange rates during the period. Assets and
liabilities are translated to U.S. dollars using the exchange rate in effect
at the balance sheet date. Resulting translation adjustments are reflected net
of tax in shareholders' equity (deficit) as cumulative translation
adjustments.
Cash Equivalents and Restricted Cash: The Company considers all highly
liquid financial instruments purchased with maturities of three months or less
at date of purchase to be cash equivalents. A short-term restricted cash
equivalent of $600,000, supporting an outstanding letter of credit at December
31, 1998, as well as restricted cash balances of the wholly owned insurance
subsidiary, totaling $2,441,000 and $1,165,000 at December 31, 1998 and 1997,
respectively, were included in prepaid expenses and other current assets on
the balance sheet.
Fixed Assets: Furniture and equipment are carried at cost or fair value at
acquisition if acquired through the purchase of a business, and are
depreciated using the straight-line method over their estimated useful lives,
ranging from three to ten years. Leasehold improvements are carried at cost
and are amortized using the straight-line method over the remaining lease
terms.
Capitalized Software Development Costs: Certain costs, including consulting
expenses and internal labor, incurred to develop major software applications
for internal Company use, as well as for external software
F-6
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
product sales are capitalized and amortized over the estimated useful or
economic lives of the software, respectively. Amortization expense of
$1,260,000 and $1,049,000 was recognized during 1998 and 1997, respectively.
1998 1997
------ ------
Internal use software........................................ $7,136 $5,444
External use software........................................ 816 321
------ ------
Total capitalized software................................. 7,952 5,765
Accumulated amortization..................................... (2,890) (1,680)
------ ------
$5,062 $4,085
====== ======
Goodwill: Goodwill represents the excess of cost of acquired businesses over
the fair value of the identifiable net tangible and intangible assets
acquired. Goodwill is amortized using the straight-line method over the period
for which the Company estimates it will benefit directly from the
acquisitions. The range of estimated benefit from the Company's historical
acquisitions ranges from five to forty years. The Company periodically
evaluates these ranges and the recoverability of goodwill by comparing the
estimated future undiscounted operating cash flows for each underlying
acquisition to the respective carrying value of goodwill. Management does not
believe there has been any impairment in the value of goodwill at December 31,
1998. Accumulated amortization was $20,145,000 and $17,463,000, at December
31, 1998 and 1997, respectively.
Income Taxes: Deferred tax assets and liabilities represent the tax effects
of differences between the financial statement carrying amounts and the tax
basis carrying amounts of the Company's assets and liabilities. These
differences are calculated based upon the statutory tax rates in effect in the
years in which the differences are expected to reverse. The effect of
subsequent changes in tax rates on deferred tax balances is recognized in the
period in which a tax rate change is enacted. The Company evaluates its
ability to realize future benefit from all deferred tax assets and establishes
reserve allowances for amounts that may not be realizable.
Unless otherwise noted, provisions are not made for U.S. income taxes for
the undistributed earnings of the Company's foreign subsidiaries because the
Company intends to reinvest such earnings in continuing operations
indefinitely. Undistributed earnings of foreign subsidiaries for which income
taxes have not been provided approximated $3.8 million at December 31, 1998.
Concentrations of Credit Risk: The Company maintains cash balances primarily
in overnight Eurodollar deposits, investment-grade commercial paper, bank
certificates of deposit, and U.S. government securities. The Company grants
uncollateralized credit to its customers. Approximately 63% of the Company's
contract receivables at December 31, 1998, were from agencies of the U.S.
government (see Note 4).
Recent Accounting Pronouncements: In 1998, and for all comparable periods,
the Company adopted the Financial Accounting Standards Board Statement of
Financial Accounting Standards (SFAS) No. 130 --Reporting Comprehensive
Income. Comprehensive income is defined as the change in equity during a
period from transactions and other events and circumstances with non-owner
sources.
Also in 1998, the Company adopted SFAS No. 131--Disclosures About Segments
of an Enterprise and Related Information. SFAS No. 131 superseded SFAS 14,
Financial Reporting for Segments of a Business Enterprise, replacing the
"industry segment" approach with the "management" approach. Pursuant to the
management approach, the determination of reportable segments is based on the
internal organizational formats and management reporting formats used by the
Company in making operating, investing, resource allocation and performance
assessment. SFAS 131 also requires disclosures about products and services,
geographic areas, and major customers.
F-7
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In February 1998, the Financial Accounting Standards Board issued SFAS
Statement No. 132--Employers' Disclosures about Pensions and Other Post-
retirement Benefits. The Statement merely revises employers' disclosures about
pension and other post-retirement benefit plans. The Company adopted the new
SFAS No. 132 disclosure requirements in its financial statements for the year
ended December 31, 1998 and for all comparable periods.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5--
Reporting on the Costs of Start-Up Activities (SOP 98-5). The SOP requires
costs of organization and start-up activities to be expensed as incurred. The
Company elected early adoption of SOP 98-5 effective April 1, 1998 and, at
that time, reported the cumulative effect of the change as a one-time, non-
cash charge of $6,000,000, net of a tax benefit of $2,930,000.
Reclassifications: Certain reclassifications have been made to the prior-
period financial statements contained herein in order to conform to the 1998
presentation.
2. Liquidity and Capital Resource Outlook
Management believes that the cash proceeds from the completed EFM sale and
the pending Consulting Group sale will yield sufficient short-term liquidity
to bridge the Company's financing needs until such time as the Company can
secure other longer-term alternatives. Specifically, the cash proceeds from
divestitures will be used to retire outstanding cash borrowings from the
revolving credit facility, provide required collateral for contract
performance guarantees, pay overdue vendor obligations and contribute to
supporting the future realigned working capital requirements and capital
expenditures of the Company's remaining operations including required interest
obligations of the Series B Senior and the Senior Subordinated notes.
Subsequent to the sale of the EFM and Consulting Groups, however, as well as
between the closing dates of the sales, the Company's remaining E&C operations
will require access to a revolving credit line containing provisions for
access to letters of credit typically required to support certain contract
performance obligations. The Company has obtained an amended, $30 million,
revolver (the Amended Revolver) from its current lenders through June 30,
1999. The terms of the Amended Revolver include similar restrictive financial
covenants as the Revolver and in addition required the Company to
collateralize $10.0 million of its total contract performance guarantees which
are currently addressed by noncollateralized letters of credit. In the event
that access to a replacement revolving line cannot be secured by June 30,
1999, the Company will have to use available cash, generated largely from
asset sales; to collateralize its contract performance guarantees.
In the event the Consulting Group sale is not consummated, the Company
believes the cash flows from ongoing operations of the Consulting Group,
Kaiser-Hill, and the E&C Group would most likely generate sufficient
collateral, in the form of current trade accounts receivable, to adequately
support a borrowing base to secure the size of revolving credit line needed to
fund short-term borrowing needs of the Company's remaining operations, as well
as the letter-of-credit capacity needed primarily by the E&C Group. A factor
critical, however, to the Company's success in securing a sufficient and
affordable working capital facility in the near term, in all of the above
scenarios, is its ability to remove sufficient overhead costs from remaining
operations and demonstrate improved operating results. Although management
believes it will be able to accomplish these milestones, there can be no
assurance that it will be able to do so.
Regardless of the outcome of the pending Consulting Group sale, over the
long term the Company will need to realign its capital structure. Assuming the
sale of the Consulting Group is completed, the net proceeds may be used to
reinvest in the Company's business, pay down debt on the Amended Revolver or
offer to purchase the Company's outstanding Notes. The Company is considering
alternatives for the use of the net proceeds of the Consulting Group sale and
the realignment of its capital structure. These alternatives will include
means by which the Company's outstanding debt may be reduced to levels that
can be supported by cash flows of the remaining operations.
The Company also will continue to explore options that would provide
additional capital for longer-term objectives and operating needs, including
the possibility for divestiture of additional operating assets, replacements
for the Company's long-term debt, and additional equity infusions.
F-8
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Acquisitions and Dispositions
Acquisition of ICT Spectrum: On February 17, 1998, the Company's Board of
Directors approved the acquisition of ICT Spectrum Constructors, Inc., a
construction contractor, based in Boise, Idaho, specializing in construction
management of fabrication plants and other facilities for semiconductor and
microelectronics customers. Each share of ICT Spectrum stock was exchanged for
shares of ICF Kaiser stock, resulting in the issuance of 1.5 million shares of
ICF Kaiser common stock and a total purchase price of $8,040,000. The
acquisition of $18.5 million in total assets and $13.7 million in total
liabilities accounted for as a purchase, resulted in approximately $4.8
million in goodwill, which is being amortized over 12 years. The purchase was
completed on March 19, 1998 and the Company's Consolidated Statement of
Operations includes the operating results of the acquired entity from January
1, 1998.
The exchanged ICF Kaiser shares carry the guarantee that the fair market
value of each share of stock will reach $5.36 by March 1, 2001. In the event
that the fair market value does not attain the guaranteed level, the Company
is obligated to make up the shortfall either through the payment of cash or by
issuing additional shares of common stock, depending upon the Company's
preference. Pursuant to the terms of the Agreement, however, the total number
of contingently issuable shares of common stock cannot exceed an additional
1.5 million. Given the quoted fair market value of the Company's common stock
at December 31, 1998 was $1.44 per share, and that the Company's current debt
instruments restrict the amount of cash that can be used for acquisitions, the
assumed issuance of an additional 1.5 million shares would not completely
extinguish the purchase price contingency. Any future distribution of cash or
common stock would be recorded as a charge to the Company's paid-in-capital.
Until the earlier of the contingent purchase price resolution or March 1,
2001, any additional shares assumed to be issued because of shortfalls in fair
market value will be included in the Company's diluted earnings per share
calculations, unless they are antidilutive. The exchanged shares also contain
restrictions preventing their sale prior to March 1, 2001.
Sale of the Environment and Facilities Management Group (EFM): On March 9,
1999, the Company entered into a definitive asset purchase agreement (the EFM
Agreement) with The IT Group, Inc. (IT) for the sale of the Company's
Environment and Facilities Management Group (EFM), exclusive of the Kaiser-
Hill subsidiary. Pursuant to the terms of the EFM Agreement, on April 9, 1999,
the Company sold the majority of the active contracts and investments, and
transferred a substantial number of employees of EFM to IT for a cash purchase
price of $82 million, less $8 million retained by IT for EFM's working capital
requirements.
Intent to sell the Consulting Group: In March 8, 1999, the Company signed a
non-binding letter of intent for the sale of its Consulting Group to CM Equity
Partners, L.P. and the Group's management. While final terms of the sale are
being negotiated, the transaction is expected to be completed by mid-year
1999.
Sale of Gary PCI: In December 1996, the Company sold the majority of its
investment in Gary PCI Ltd. L.P. (owners of pulverized coal injection
operations) and a related entity and certain related contractual rights for
$16.6 million resulting in a $9.4 million pretax gain. The buyer exercised an
option on January 5, 1998, to purchase the remaining equity investment for
$2.4 million. The Company recognized a total pretax gain of $1.0 million
during 1997 as the carrying value of the option was increased to reflect fair
market value. The sales price for both installments was included in other
current assets in the accompanying balance sheets and was collected in January
of each of the subsequent years.
F-9
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Contract Receivables
Contract receivables consisted of the following at December 31 (in
thousands):
1998 1997
-------- --------
U.S. government agencies:
Currently due......................................... $ 20,193 $ 19,650
Retention............................................. 3,030 2,695
Unbilled.............................................. 156,025 114,921
-------- --------
179,248 137,266
-------- --------
Commercial clients and state and municipal governments:
Currently due......................................... 74,184 97,909
Retention............................................. 21,267 18,952
Unbilled.............................................. 20,229 17,045
-------- --------
115,680 133,906
-------- --------
294,928 271,172
Less allowances for uncollectible receivables........... (10,850) (7,142)
-------- --------
$284,078 $264,030
======== ========
Unbilled receivables result from revenue that has been earned but not
billed. The unbilled receivables can be invoiced at contractually defined
intervals or milestones, as well as upon completion of the contract or the
U.S. government cost audit. Retention balances are billable at contract
completion or upon attainment of other specified contract milestones. Other
unbilled amounts consist primarily of indirect costs that will be billed on
cost-reimbursable government contracts upon completion of applicable cost
audits by the government. Consistent with industry practice, these receivables
are classified as current assets. The balance of unbilled receivables with
U.S. government agencies includes $5.3 million in claims to which the Company
believes it is entitled, and recovery of which may take more than one year.
The Company anticipates that the remaining unbilled receivables will be
substantially billed and collected within one year.
In 1996, the Company accelerated its process for obtaining approval from the
U.S. government to invoice certain indirect costs on cost-reimbursable
contracts, prior to the completion of government audits of such costs. The net
effect of the accelerated ability to invoice these costs resulted in the
recognition of approximately $3.3 million of Consulting Group gross revenue
and operating income in 1996.
5. Joint Ventures and Affiliated Companies
The Company has ownership interests in certain unconsolidated corporate
joint ventures and affiliated companies. The Company's net investments in and
advances to these corporate joint ventures and affiliated companies totaled
$7.7 million and $7.0 million at December 31, 1998 and 1997, respectively.
Combined
F-10
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
summarized financial information of all of the Company's unconsolidated
corporate joint ventures and affiliated companies as of December 31, was as
follows (in thousands):
1998 1997 1996
------- ------- -------
Current assets...................................... $20,390 $23,661 $26,558
Non-current assets.................................. 12,462 10,182 7,887
Current liabilities................................. 21,602 20,479 13,314
Non-current liabilities............................. 2,641 -- 53
Gross revenue....................................... 24,546 41,285 28,742
Net income.......................................... 5,318 7,522 11,930
With the intent of significantly restructuring fixed operating leases for
the Company's corporate headquarters, the Company paid $1.5 million on
November 12, 1997, for a 40% ownership interest in a limited liability company
(the LLC) that leases the land and owns the buildings leased primarily by the
Company for its corporate headquarters. The Company is committed to make
additional annual capital contributions to the LLC totaling $600,000 annually
during each of the first three years and $700,000 annually during each of the
fourth through ninth years of the LLC. The ownership in the LLC will increase
to 16% in fixed annual 2.4% increments in each of the eleventh through
fifteenth years of the agreement. Transaction costs totaling $1.7 million were
capitalized and will be amortized over the estimated 15-year life of the LLC.
6. Debt
The Company's long-term debt was as follows at December 31 (in thousands):
1998 1997
-------- --------
12% Senior Subordinated Notes due 2003.................... $125,000 $125,000
12% Senior Notes due 2003, Series B....................... 15,000 15,000
Revolving credit facility................................. 30,729 4,000
Other notes............................................... -- 15
-------- --------
170,729 144,015
Less unamortized discount................................. 2,512 2,996
-------- --------
168,217 141,019
Less current maturities................................... 30,729 15
-------- --------
$137,488 $141,004
======== ========
All long-term debt, net of current maturities, outstanding at December 31,
1998, is due in 2003.
Background to 1998 financing developments: In 1998, the Company realized
that it was going to incur significant cost overruns on four large fixed-price
contracts to construct plants to produce nitric acid (the Nitric Acid
Projects). Due to the significant risks, difficulties and uncertainties
involved in estimating the total costs to complete these large fixed price
projects, the Company increased the total completed project cost estimates
several times in 1998. Given the completion cost uncertainties and the
inability to finitely determine the impact
F-11
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of the losses on the Company's liquidity and financing sources, management
immediately pursued options for additional financing sources and
flexibilities. In addition to seeking a replacement revolving credit facility,
the Company's Board of Directors also began considering and pursuing other
potential alternatives, including, but not limited to, the sale of a portion
of the Company.
Revolving Credit Facility: As a result of the sourcing activities, the
Company successfully entered into a new revolving credit facility (the
Revolver) on December 18, 1998 which offered additional flexibility and access
to additional cash borrowings as compared to the predecessor revolving
facility. The new Revolver provides for cash borrowings and letters of credit
up to an aggregate of $60 million. The total available credit is based on a
percentage of eligible billed and unbilled accounts receivable, up to the $60
million maximum. The Company and certain of its subsidiaries, which are
guarantors of the Revolver, have pledged their stock and granted a security
interest in certain accounts receivable and other assets. The Revolver limits
the payments of cash dividends on common stock, prohibits the issuance of
certain types of additional indebtedness, limits certain investments and
acquisitions, limits the amount of outstanding letters of credit to $35
million, prohibits the sale of certain assets, and requires the maintenance of
specified financial ratios.
The Revolver contains provisions for prime interest rate borrowings with
margins dependent upon the Company's financial operating results, and expires
on December 18, 2000. As of December 31, 1998, the Company had $30.7 million
in cash borrowings and $26.7 million of letters of credit outstanding under
the Revolver. The letters of credit outstanding under the Revolver are in
support of contract performance guarantees, primarily on international
projects. The weighted average interest rate incurred on revolver borrowings
for 1998 and 1997 was 8.9% and 8.5%, respectively. As of December 31, 1998,
the Company had $2.6 million of additional credit available from the Revolver.
Soon after obtaining the Revolver, the Company again increased the estimate
of the total Nitric Acid Projects cost overruns by an additional $19 million.
This material adverse change to the Company's financial condition triggered a
technical event of default pursuant to the Revolver's terms. Subsequent to the
event of default, the lender did permit the Company to borrow and obtain
letters of credit pursuant to all other terms of the Revolver, primarily
conditioned on the Revolver provision that proceeds from asset sales be used
to repay outstanding cash borrowings. That provision combined with the fact
that the Company was actively pursuing the sale of significant operating
assets was sufficient assurance for the lenders to continue to permit the use
of the facility until such time as an asset sale was completed. On April 9,
1999, the Company completed the sale of its EFM Group (Note 3) and used $36
million of the sale proceeds to extinguish outstanding Revolver cash
borrowings. The Company has also received a commitment from the Revolver's
financial institutions for an amendment to the Revolver (the Amended Revolver)
providing for cash borrowing and letters of credit up to an aggregate of $30
million. The Amended Revolver will expire on June 30, 1999 and will also
require the Company to provide $10.0 million in cash collateral for existing
letters of credit.
Extraordinary Item: Proceeds totaling $25,000,000 from the Revolver were
used to repay all outstanding amounts from the former revolving credit
facility. Accordingly, the Company wrote off the unamortized balance of the
capitalized costs related to the original issue the debt and recognized an
extraordinary charge of $1,090,000. The Company did not recognize any income
tax benefit associated with this charge.
Senior and Subordinated Notes: On December 23, 1996, the Company privately
issued 15,000 Units, each Unit consisting of $1,000 principal amount of 12%
Senior Notes due in 2003, Series A (Series A Senior Notes), and 7 warrants,
each to purchase one share of the Company's common stock at an exercise price
of $2.30 per share. The warrants contain certain anti-dilution provisions and
expire on December 31, 1999. Payment of the
F-12
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
principal, premium if any and interest on the Series A Senior Notes are
unconditionally guaranteed by 10 of the Company's wholly owned subsidiaries
(Note 16). The discounted issue price of $14.7 million was allocated to the
warrants and the notes in the amounts of $0.1 million and $14.6 million,
respectively.
In January 1997, the Company registered $15.0 million of 12% Senior Notes
due in 2003, Series B (Series B Senior Notes) with the U.S. Securities and
Exchange Commission. In March 1997 the Company completed the exchange of the
Series B Senior Notes for Series A Senior Notes. The terms of the Series B
Senior Notes are substantially identical (including principal amount, interest
rate, and maturity) to the terms of the Series A Senior Notes. Interest has
and will continue to accrue at 13% until the Company achieves and maintains a
specified level of earnings.
On January 11, 1994, the Company issued 125,000 Units, each consisting of
$1,000 principal amount of the Company's 12% Senior Subordinated Notes due
2003 (Subordinated Notes) and 4.8 warrants, each to purchase one share of the
Company's common stock at an exercise price of $5.00 per share. The warrants
expired on December 31, 1998. In March 1996, the interest rate on the
Subordinated Notes was increased by 1% until the Company achieves and
maintains a specified level of earnings. The Company's obligations under the
Subordinated Notes are subordinate to its obligations under the Company's
revolving credit facility and the Series B Senior Notes.
Interest payments are due semiannually on the Series B Senior Notes and the
Subordinated Notes (collectively, the Notes). Subsequent to December 31, 1998,
the Company may prepay the Notes at a premium. The indentures governing the
Notes contain business and financial covenants, including restrictions on
additional indebtedness, dividends, acquisitions and certain types of
investments, and asset sales. At December 31, 1998, the fair value, derived
from the average of quoted financial institution market prices, of the Series
B Senior Notes and Subordinated Notes was approximately $15.0 million and
$75.0 million, respectively. The capitalized balance of Note issuance costs
totaled $3.3 million and $4.0 million, respectively, at December 31, 1998 and
1997, and are being amortized over the Note terms.
Kaiser Hill Receivables Purchase Facility: The Company's Kaiser-Hill
subsidiary has a $50 million receivables purchase facility to support its
working capital requirements for a U.S. Department of Energy contract. The
receivables purchase facility contains certain program fees, requires the
subsidiary to maintain a specified tangible net worth, and contains certain
letter-of-credit and default provisions for delinquent receivables. The
receivables purchase facility expires on June 30, 1999, and is non-recourse to
the Company and its other consolidated subsidiaries.
7. Capital Stock
Notes Receivable Collateralized by Common Stock: Certain current and former
members of senior management have outstanding notes to the Company for which
396,849 shares of the Company's common stock serve as the primary collateral.
Several of the managers left the employ of the Company in 1998 and the related
amount of note principal in excess of the then fair market value of the
collateral shares totaling $1,784,000 was expensed. Subsequent to December 31,
1998, all of the notes were called or came due and all of the collateral
shares were tendered to the Company in lieu of note payment.
Shareholder Rights Plan: The Shareholder Rights Plan (Rights Plan) provides
the Board of Directors (the Board) with the ability to negotiate with a person
or group that might, in the future, make an unsolicited attempt to acquire
control of the Company. The Rights Plan provides for one Right (Right) for
each outstanding share of the Company's common stock. Each right entitles the
holder to purchase 1/100 of a share of Series 4 Junior Preferred Stock at a
purchase price of $50. The Rights generally may cause substantial dilution to
a person or
F-13
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
group that attempts to acquire the Company on terms not approved by the Board.
The Rights expire on January 13, 2002.
Preferred Stock: The Company's 200 shares of Series 2D Senior Preferred
Stock were redeemed in 1996 for $20 million. The other authorized classes of
preferred stock consist of 200 shares of Series 1 Junior Convertible Preferred
Stock, par value $0.01 per share and 500,000 shares of Series 4 Junior
Preferred Stock, par value $0.01 per share. There were no preferred shares
issued or outstanding as of December 31, 1998 or 1997.
8. Earnings Per Share
Basic EPS excludes dilution and is computed on the basis of the weighted-
average number of common shares outstanding for the period. Diluted EPS
includes the weighted-average effect of dilutive securities outstanding during
the period. Summary information of other common stock equivalents not included
in the 1998 and 1997 per share calculations because of their anti-dilutive
impact is as follows:
Weighted-
Year Ended Number of Average Range of
December Other Common Remaining Exercise Weighted-Average
31, Stock Equivalents Contract Life Prices Exercise Price
---------- ----------------- ------------- ------------- ---------------- ---
1998...... 3,390,290 2.5 years $1.24 - $6.87 $2.96
1997...... 3,475,077 2.1 years $1.90 - $6.90 $3.83
F-14
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9 Income Taxes
The components of income (loss) used to compute the provision (benefit) for
income taxes for the years ended December 31 were as follows (in thousands):
1998 1997 1996
-------- ------- -------
Income (loss) before income taxes and minority
interests:
Domestic.................................... $(97,791) $ 675 $13,900
Foreign..................................... 690 1,886 584
-------- ------- -------
$(97,101) $ 2,561 $14,484
======== ======= =======
Provision (benefit) for income taxes:
Federal:
Current................................... $ -- $ 129 $ --
Deferred.................................. (10,341) (4,231) 1,660
-------- ------- -------
(10,341) (4,102) 1,660
-------- ------- -------
State:
Current................................... 232 374 55
Deferred.................................. (2,747) (854) 864
-------- ------- -------
(2,515) (480) 919
-------- ------- -------
Foreign:
Current................................... 1,621 764 425
Deferred.................................. (122) 499 (397)
-------- ------- -------
1,499 1,263 28
-------- ------- -------
$(11,357) $(3,319) $ 2,607
======== ======= =======
The effective income tax provision (benefit) varied from the federal
statutory income tax provision (benefit) because of the following differences
(in thousands):
1998 1997 1996
-------- ------- ------
Income tax (benefit) computed at federal
statutory tax rate............................ $(33,014) $ 896 $5,069
Change in tax (benefit) from:
Goodwill amortization........................ 1,102 1,024 996
Minority interest earnings................... (2,617) (3,803) (2,115)
State income taxes........................... (2,548) (312) 597
Foreign taxes................................ 2,908 316 (427)
Valuation allowance.......................... 22,031 -- (2,100)
Stock redemption............................. 646 -- --
Business meals and entertainment............. 455 342 449
Research and experimentation credits......... (551) (1,881) --
Other........................................ 231 99 138
-------- ------- ------
21,657 (4,215) (2,462)
-------- ------- ------
$(11,357) $(3,319) $2,607
======== ======= ======
F-15
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The tax effects of the principal temporary differences and carryforwards
that give rise to the Company's deferred tax asset (net) are as follows (in
thousands):
1998 1997
-------- -------
Reserves for adjustments and allowances................... $ 23,686 $13,162
Vacation and incentive compensation accruals.............. 5,264 3,275
Tax credit carryforwards.................................. 3,008 2,472
Net operating loss carryforwards.......................... 25,899 555
Gain on sale of investment................................ 155 (767)
Restricted stock.......................................... 2,669 --
Unbilled revenue.......................................... (2,616) (1,680)
Other..................................................... 253 (516)
-------- -------
58,318 16,501
Valuation allowance....................................... (23,645) (1,220)
-------- -------
$ 34,673 $15,281
======== =======
Certain components of the deferred tax asset at December 31, 1998 are
subject to expiration: $0.5 million of the $25.9 million of net operating loss
carryforwards expire within the next five years, and the remaining
$25.4 million expire by 2018; $1.0 million of the $3.0 million tax credit
carryforwards have no expiration and $2.0 million expire by 2012. The ability
to derive benefit from these carryforwards in the future is dependant on the
Company's ability to generate sufficient taxable income prior to the
expiration dates.
The Company provided for an additional valuation allowance of $22.4 million
in 1998 as management believes that the Company is not currently assured of
being able to derive future benefit from a portion of the deferred tax asset.
The Company believes that expected levels of pretax earnings, including
anticipated gains from the divestiture of portions of the Company will
generate sufficient future taxable income to be able to realize the net $34.7
million deferred tax asset within the next year. Until such sales are
finalized, however, the valuation allowance is deemed necessary. Additionally,
in the event that the Company does not generate significant additional taxable
income, either through asset sales or through profitable operations, the
Company's ability to fully utilize the deferred tax assets could be reduced.
The remaining $1.2 million of the valuation allowance at December 31, 1998 is
attributed to foreign income tax benefits also not currently assured of
realization.
10. Leases
Annual future minimum payments and corresponding receipts on noncancelable
operating leases and subleases, respectively, for office space and equipment
with initial or remaining terms in excess of one year at December 31, 1998 are
as follows, net of the amount of EFM Lease commitments sold on April 9, 1999
(Note 3) (in thousands):
Lease Sublease
Year Amount Amount
---- -------- --------
1999....................................................... $ 16,781 $ 4,512
2000....................................................... 14,304 2,346
2001....................................................... 11,113 524
2002....................................................... 9,611 535
2003....................................................... 8,823 498
Thereafter................................................. 71,203 2,715
-------- -------
$131,835 $11,130
======== =======
F-16
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The total rental expense for all operating leases was $28,733,000,
$27,576,000, and $31,686,000 for the years ended December 31, 1998, 1997, and
1996, respectively. Sublease rental income was $5,482,000, $4,617,000, and
$3,887,000 for the years ended December 31, 1998, 1997, 1996, respectively.
11. Benefits and Compensation Plans
Employee Stock Purchase Plan: The Company's Stock Purchase Plan provides for
the sale of up to 2.0 million shares of common stock to all eligible
employees. Employees may elect to withhold up to 10% of annual base earnings
for the purchase of the Company's common stock. Options to purchase shares of
common stock are offered quarterly with a purchase price equal to 90% of the
lower of the closing market price on the first trading day of the month
preceding the quarter or the last trading day of the quarter. During the years
ended December 31, 1998 and 1997, respectively, 98,551 and 101,927 shares were
sold under the plan. Operation of the Plan was suspended effective March 31,
1999.
Fixed Stock Option Plans: A Stock Incentive Plan (Incentive Plan) provides
for the issuance of options, stock appreciation rights, restricted shares, and
restricted stock units of up to an aggregate of 6.0 million shares of the
Company's common stock. Awards are made to employees at the discretion of the
Compensation and Human Resources Committee of the Board (Committee). Vesting
periods, determined by the Committee, are generally in equal installments over
three to six years. At December 31, 1998, 1,114,738 shares were available for
grant under this plan.
On February 28, 1997, the Board of Directors adopted the Non-Employee
Directors Compensation and Phantom Stock Plan under which non-employee
directors are given phantom stock awards (PSA's). In lieu of option grants,
each non-employee director of the Company will be granted a PSA equal to
$20,000 worth of common stock on the date of grant. Three years after the PSA
grant, the Company will pay each non-employee director, in cash, the value of
the shares to which the PSA relates. Any increases in value of the PSA after
the date of grant and prior to the cash payment will be expensed in the period
of the value increase. PSA's granted in 1998 and 1997 totaled 49,126 and
48,545, respectively, with initial share values of $2.85 and $2.06,
respectively. Expense associated with this plan of $76,000 and $83,000 was
recognized in 1998 and 1997, respectively.
The precursor to the above plan was the Non-Employee Directors Stock Option
Plan (Non-Employee Plan) which provided each non-employee director of the
Company an immediately exercisable option to purchase 3,000 shares of the
Company's common stock for each year of service. The Non-Employee Plan does
not specify a maximum number of available shares. As of December 31, 1998,
there are 135,000 shares of common stock reserved for issuance upon the
exercise of options granted under this plan and 60,000 are outstanding. This
Plan was suspended following adoption of the Non-Employee Directors
Compensation and Phantom Stock Plan.
The Company's Consultants, Agents, and Part-Time Employees Stock Option Plan
(Consultants Plan) provides for the issuance of options or restricted shares
of up to 1.0 million shares of the Company's common stock to consultants,
agents, and part-time employees. The vesting period is a minimum of one year.
In 1998, 100,000 options were granted and 200,000 options were granted in
1997. At December 31, 1998, there were 688,200 options available for grant. In
1997, 100,000 of the options granted contained a provision for a cash payment
equal to one half of the difference between $4.00 and the lesser average
market price through December 19, 1998.
All three plans provide that the option or grant price is not to be less
than the fair market value on the date of grant. Under the Incentive and Non-
Employee Directors Plans, an option's maximum term is 10 years. As of December
31, 1998, there have been no options granted under these plans with terms
greater than five years. An option's maximum term under the Consultants Plan
is five years.
F-17
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of stock option activity under all option plans is as follows:
Weighted-Average
Shares Option Price Exercise Price
--------- --------------- ----------------
Balance, January 1, 1996........ 2,451,673 $2.34 to $17.00 $5.16
Granted......................... 187,200 $1.90 to $3.77 $3.30
Expired......................... (451,940) $2.50 to $17.00 $8.69
Exercised....................... (4,002) $3.00 to $3.50 $2.68
---------
Balance, December 31, 1996...... 2,182,931 $1.90 to $9.59 $4.29
Granted......................... 885,019 $1.91 to $4.00 $2.39
Expired......................... (572,961) $2.23 to $9.59 $5.77
---------
Balance, December 31, 1997...... 2,494,989 $1.90 to $6.90 $3.27
Granted......................... 1,175,500 $1.24 to $2.99 $1.95
Expired......................... (659,957) $1.90 to $6.07 $3.92
Exercised....................... (330) $2.23 $2.23
---------
Balance, December 31, 1998...... 3,010,202 $1.24 to $4.42 $2.62
========= =============== =====
Options exercisable at December 31, 1998 and 1997, were 1,408,203 and
1,217,617, respectively. The weighted-average remaining contractual life on
options outstanding at December 31, 1998, was 2.8 years. There were 87,501
exercisable options outstanding at a price below the fair market value of the
Company's common stock at December 31, 1998.
The following is a summary of fixed stock options outstanding at December
31, 1998:
Options Outstanding Options Exercisable
-------------------------------------------------- ----------------------------
Weighted-Average
Range of Number Remaining Weighted-Average Number Weighted-Average
Exercise Prices Outstanding Contract Life (years) Exercise Price Exercisable Exercise Price
--------------- ----------- --------------------- ---------------- ----------- ----------------
<$1.90 560,000 3.5 years $1.34 87,501 $1.34
$1.90 to $2.50 1,292,830 3.7 years $2.31 342,621 $2.19
$2.51 to $3.50 451,234 1.4 years $2.91 373,409 $2.90
$3.51 to $5.00 706,138 1.5 years $4.01 604,672 $3.99
Pro Forma Compensation Cost: Statement of Financial Accounting Standards No.
123, Accounting for Stock-based Compensation (SFAS No. 123), encourages
companies to adopt a fair value method of accounting for employee stock
options and similar equity instruments. The fair value method requires
compensation cost to be measured at the grant date based on the value of the
award and to be recognized over the service period. As alternatively provided
by SFAS No. 123, however, the Company elects to provide pro forma fair value
disclosures for stock-based compensation. Accordingly, had compensation cost
been recognized for awards granted under the Company's stock plans during the
years ended December 31, 1998, 1997, and 1996, respectively, the net loss
would have been $(101.3) million, [$(4.20) per share], $(5.7) million,
[$(0.26) per share], and $5.2 million [$0.14 per share]. These per share
amounts reflect basic and diluted earnings per share.
The fair value of each option grant under the fixed-price option plans and
the fair value of the employees' purchase rights under the employee stock
purchase plan are estimated on the date of grant for pro forma computations
using the Black-Scholes option-pricing model. The dividend yield was assumed
to be zero for both
F-18
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
periods below. The weighted-average of all other significant assumptions of
weighted-average fair value of grants made during the years ended December 31
are as follows:
1998 1997 1996
--------- --------- ---------
Fixed Stock Option Plans:
Volatility................................ 71.6% 61.4% 63.4%
Risk-free interest rate................... 5.2% 6.2% 5.8%
Expected lives............................ 5.0 years 5.0 years 5.0 years
Fair value of grants...................... $1.20 $1.22 $1.92
Employee Stock Purchase Plan:
Volatility................................ 71.6% 61.4% 63.4%
Risk-free interest rate................... 4.7% 5.1% 5.0%
Expected lives............................ 0.3 years 0.3 years 0.3 years
Fair value of grants...................... $0.36 $1.40 $0.95
Retirement Benefits Plans: The Company sponsors several retirement benefit
plans covering substantially all employees who meet minimum length of service
requirements. These plans include a defined-contribution retirement plan that
provides for contributions by the Company based on a percentage of covered
compensation, and a 401(k) Plan that allows employees to defer portions of
their salary, subject to certain limitations. Total expense for these plans
for the years ended December 31, 1998, 1997, and 1996, was $7,383,000,
$7,266,000, and $7,427,000, respectively. As of December 31, 1998, the
Retirement Plan, 401(k) Plan, and a discontinued Employee Stock Ownership Plan
owned 849,908, 417,176, and 1,519,200 shares, respectively, of the Company's
common stock.
Collective Bargaining Agreements: Certain of the Company's employees are
covered by union-sponsored, collectively bargained, multi-employer benefit
plans. Contributions and costs are determined in accordance with the
provisions of negotiated labor contracts or terms of the plans. Pension
expense for these plans was $413,000, $482,000, and $9,097,000 for the years
ended December 31, 1998, 1997, and 1996, respectively.
Postemployment Benefit Plan: The Company also continues to fulfill the
provisions of a previously curtailed plan which provides certain medical and
dental benefits to a group of former retirees. The benefits, which are limited
to a fixed amount, are funded to the insurance company as participants'
insurance claims are reimbursed. The benefit cost for this curtailed plan for
the years ended December 31 consisted of the following (in thousands):
1998 1997 1996
----- ----- ------
Interest cost.......................................... $ 359 $ 412 $ 525
Amortization of transition obligation.................. 980 980 980
Amortization of unrecognized net gain.................. (591) (563) (409)
----- ----- ------
Net benefit charge..................................... $ 748 $ 829 $1,096
===== ===== ======
F-19
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Because there are no new particpants in this plan, there is no current
service cost. The change in the status of the plan as of December 31 was as
follows (in thousands):
1998 1997
------- -------
Benefit obligation at January 1,.......................... $ 5,508 $ 6,161
Service cost............................................ -- --
Interest cost........................................... 359 412
Benefits paid........................................... (740) (856)
Actuarial gain.......................................... (248) (209)
------- -------
Benefit obligation at December 31,........................ 4,879 5,508
Unamortized transition obligation....................... (8,487) (9,467)
Unrecognized net gain................................... 5,920 6,263
------- -------
Net benefit obligation liability at December 31,.......... $(2,312) $(2,304)
======= =======
The discount rate for both 1998 and 1997 was 7%. The 1998 health-care cost
trend rate is 5%, effective until 2013 when the cost will be in excess of the
Company's maximum obligation. If the trend rate were increased by 1% for each
year, the benefit obligation as of December 31, 1998 would increase by
approximately $148,000 or 3%. The transition obligation is being amortized
over 14.5 years.
12. Major Customers, Business Segments, and Foreign Operations
Major Customers: Gross revenue from the U.S. Department of Energy totaled
$653,631,000, $622,190,000, and $866,361,000 for the years ended December 31,
1998, 1997 and 1996, respectively.
Business Segments: In 1998, the Company adopted Statement of Financial
Accounting Standards No. 131--Disclosures About Segments of an Enterprise and
Related Information (SFAS 131) which requires the reporting of certain
financial information by business segment. For purposes of providing segment
information, the Company's four business segments are:
. the Engineers and Constructors Group (E&C) which provides engineering and
construction services to commercial and state and local entities in the
areas of industry, infrastructure, transportation, and microelectronics;
. the Environment and Facilities Management Group (EFM) which oversees
major program management and technical support contracts for U.S.
government agencies;
. the Kaiser-Hill Company, LLC (Kaiser-Hill) which performs and manages the
Department of Energy's multibillion-dollar management contract at Rocky
Flats;
. the Consulting Group (Consulting) which provides energy, information
technology, environmental, economic, and community development consulting
services to industry and governmental clients as well as private-sector
environmental clients.
These segments are used for internal management purposes primarily because
of the similarities in products and services, customers, and regulatory
environments. The operating results include all activities that had sole
direct benefit to the respective segment. Operating activities that are deemed
to benefit more than one segment are managed by the Company and are not
allocated to the segments. Asset information by reportable segment is not
reported, because the Company does not maintain or use such information for
internal management purposes.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies except that the
Company allocates some expenses to the operating segments
F-20
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
according to a methodology designed by management for internal reporting
purposes and involves estimates and assumptions. Financial data for the
business segments are as follows (in thousands):
Intersegment
Kaiser-Hill E&C EFM Consulting Eliminations Other Total
----------- --------- --------- ---------- ------------ ------- ----------
1998
Gross Revenue............... $ 632,600 $ 374,100 $ 105,300 $105,400 $(6,979) $ $1,210,421
Subcontracts and
materials................. (478,100) (242,890) (53,300) (23,700) 3,196 (794,794)
Provision for contract
losses.................... -- (76,210) -- -- -- (76,210)
Equity income of
affiliates................ -- -- -- -- -- 6,045 6,045
--------- --------- --------- -------- ------- ------- ----------
Service Revenue............. 154,500 55,000 52,000 81,700 (3,783) 6,045 345,462
Operating Expenses:
Direct labor and fringe.... 138,300 78,300 26,600 38,100 1,262 282,562
General and
administrative............ -- 48,800 19,800 29,800 (6,249) -- 92,151
--------- --------- --------- -------- ------- ------- ----------
Segment Income/(Loss)....... $ 16,200 $ (72,100) $ 5,600 $ 13,800 1,204 6,045 (29,251)
========= ========= ========= ======== =======
Corporate overhead......... 22,983 22,983
Depreciation/amortization.. 9,048 9,048
Severance and
restructuring............. 9,407 9,407
Other unusual charges...... 7,672 7,672
----------
Operating Income/(Loss)..... $ (78,361)
==========
1997
Gross Revenue............... $ 588,700 $ 337,800 $ 88,100 $ 93,100 $ 416 $ $1,108,116
Subcontracts and
materials................. (421,200) (199,100) (34,300) (21,800) (1,031) (677,431)
Provision for contract
losses.................... (6,900) (6,900)
Equity income of
affiliates................ -- -- -- -- -- 2,301 2,301
--------- --------- --------- -------- ------- ------- ----------
Service Revenue............. 167,500 131,800 53,800 71,300 (615) 2,301 426,086
Operating Expenses:
Direct labor and fringe.... 145,500 80,100 30,800 33,300 (129) 289,571
General and
administrative............ -- 42,700 18,900 26,100 (908) -- 86,792
--------- --------- --------- -------- ------- ------- ----------
Segment Income/(Loss)....... $ 22,000 $ 9,000 $ 4,100 $ 11,900 422 2,301 49,723
========= ========= ========= ======== =======
Corporate overhead......... 22,059 22,059
Depreciation/amortization.. 9,595 9,595
----------
Operating Income............ $ 18,069
==========
1996
Gross Revenue............... $ 544,000 $ 266,800 $ 355,600 $ 86,900 $(4,857) $ $1,248,443
Subcontracts and
materials................. (376,000) (128,600) (200,200) (18,500) 2,958 (720,342)
Equity income of
affiliates................ -- -- -- -- -- 4,015 4,015
--------- --------- --------- -------- ------- ------- ----------
Service Revenue............ 168,000 138,200 155,400 68,400 (1,899) 4,015 532,116
Operating Expenses:
Direct labor and fringe.... 155,100 75,300 121,600 28,900 (500) 380,400
General and
administrative............ -- 53,100 14,800 26,000 1,847 -- 95,747
--------- --------- --------- -------- ------- ------- ----------
Segment Income/(Loss)....... $ 12,900 $ 9,800 $ 19,000 $ 13,500 (3,246) 4,015 55,969
========= ========= ========= ======== =======
Corporate overhead......... 24,441 24,441
Depreciation/amortization.. 10,348 10,348
----------
Operating Income............ $ 21,180
==========
F-21
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Foreign Operations: Gross revenue and operating income from foreign
operations and foreign assets of all consolidated subsidiaries were as follows
for the years ended December 31 (in thousands):
1998 1997 1996
---------- ---------- ----------
Foreign gross revenue:
Europe.................................. $ 89,155 $ 86,937 $ 37,105
Asia-Pacific............................ 31,460 44,871 31,327
Other................................... 1,387 25,876 3,676
---------- ---------- ----------
122,002 157,684 72,108
Domestic gross revenue.................... 1,088,419 950,432 1,176,335
---------- ---------- ----------
Total gross revenue................... $1,210,421 $1,108,116 $1,248,443
========== ========== ==========
Foreign operating income (loss):
Europe.................................. $ 2,106 $ 11,153 $ 1,346
Asia-Pacific............................ 2,068 2,209 1,002
Other................................... (22,457) 785 (422)
---------- ---------- ----------
(18,283) 14,147 1,926
Domestic operating income (loss).......... (60,078) 3,922 19,254
---------- ---------- ----------
Total operating income (loss)......... $ (78,361) $ 18,069 $ 21,180
========== ========== ==========
Foreign assets:
Europe.................................. $ 42,241 $ 34,900 $ 17,666
Asia-Pacific............................ 18,312 15,071 13,562
Other................................... 1,649 833 24
---------- ---------- ----------
62,202 50,804 31,252
Domestic assets........................... 366,851 348,484 338,210
---------- ---------- ----------
Total assets.......................... $ 429,053 $ 399,288 $ 369,462
========== ========== ==========
F-22
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Contingencies
Certain Contracts: In March 1998, the Company entered into a $187 million
maximum price contract to construct a ship-building facility. The Company
subsequently learned that estimated costs to perform the contract as reflected
in actual proposed subcontracts were approximately $30 million higher than the
cost estimates used as the basis for contract negotiation between the Company
and the customer. After learning this, the Company advised the customer that
it was not required to perform the contract in accordance with its terms.
Negotiations with the customer resulted in an interim agreement under which
both parties reserved their rights and, on a day-to-day basis, the Company
continued to execute certain transitional on-site activities. The customer
terminated the interim agreement with the Company effective August 14, 1998.
In October 1998, the customer presented an initial draft of a claim against
the Company requesting payment for estimated damages and entitlements pursuant
to the terminated contract. The Company and the customer are currently
discussing the customer's draft claim. No provision for loss for this matter
has been included in the Company's financial results to date as management
does not believe that it has sufficient information at this time to reasonably
estimate the outcome of the negotiations.
As a result of uncertainties surrounding the costs to complete certain large
fixed-price contracts, including the Nitric Acid Projects, the Company
recorded a $76.2 million charge during the year ended December 31, 1998 to
establish $66.0 million in reserves intended to cover its estimate of the
nitric acid contract cost overruns and charges totaling $10.2 million to
reflect the adjustment of the earned progress to date on several other fixed
price projects. Although management believes that, based on information
currently available, an adequate provision for loss reserves for these fixed-
price contracts has been reflected in the financial statements, no assurance
can be given that the full amount of any claims will be realized or that the
loss provision is entirely adequate.
Litigation, Claims and Assessments: In the course of the Company's normal
business activities, various claims or charges have been asserted and
litigation commenced against the Company arising from or related to
properties, injuries to persons, and breaches of contract, as well as claims
related to acquisitions and dispositions. Claimed amounts may not bear any
reasonable relationship to the merits of the claim or to a final court award.
In the opinion of management, adequate reserves have been provided for final
judgments, if any, in excess of insurance coverage, that might be rendered
against the Company in such litigation. The continued adequacy of reserves is
reviewed periodically as progress on such matters ensues.
The Company may from time to time, either individually or in conjunction
with other government contractors operating in similar types of businesses, be
involved in U.S. government investigations for alleged violations of
procurement or other federal laws and regulations. The Company currently is
the subject of a number of U.S. government investigations and is cooperating
with the responsible government agencies involved. No charges presently are
known to have been filed against the Company by these agencies. The Company
has provided for its estimate of the potential effect of these investigations,
and the continued adequacy of reserves is reviewed periodically as progress on
such matters ensues.
The Company has a substantial number of cost-reimbursement contracts with
the U.S. government, the costs of which are subject to audit by the U.S.
government. As a result of pending audits related to fiscal years 1986
forward, the government has asserted, among other things, that certain costs
claimed as reimbursable under government contracts either were not allowable
or not allocated in accordance with federal procurement regulations. The
Company is actively working with the government to resolve these issues. The
Company has provided for its estimate of the potential effect of issues that
have been quantified, including its estimate of disallowed costs for the
periods currently under audit and for periods not yet audited. The government
or the Company, however, has not quantified many of the issues,, and others
are qualitative in nature, and their potential financial impact, if any, is
not quantifiable by the government or the Company at this time. The continued
F-23
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
adequacy of provisions for reserves is reviewed periodically as progress with
the government on such matters ensues.
Contract warranties and performance guarantees: In the course of the
Company's normal business activities, many of its contracts contain provisions
for warranties and performance guarantees. As progress on contracts ensues,
the Company regularly updates the estimates of the costs to perform such
contingencies and reserves a proportionate amount of the total related
contract value until such time as the contingency is resolved.
14. Unusual Items
Severance and restructuring: Largely as a result of significant changes in
senior management positions of the Company in 1998 as well as enacted Company-
wide profitability improvement initiatives, the Company recorded charges
totaling $9.4 million. These charges included $7.6 million related to employee
separation costs, substantially all of which was for estimated management
position reductions and terminations. The charge was based on plans that
identified the number and functions of employees to be terminated. As of March
31, 1998, less than $1.0 million of the reduction plan remained to be settled.
Remaining terminations and settlements will occur in 1999.
Other unusual charges: A $7.7 million charge was also taken in 1998 to
address:
. cost estimates for discontinuing certain E&C markets in 1998, including
Taiwan, Panama and Mexico, and
. increased provisions for estimated settlement costs of certain existing
litigation.
15. Selected Quarterly Financial Information (Unaudited)
Quarterly financial information for fiscal quarters for the years ended
December 31 is presented in the following tables (in thousands, except per
share amounts):
Fourth Third Second First
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
1998
Gross revenue........................ $300,625 $292,528 $312,012 $305,256
Service revenue...................... 89,761 82,476 65,962 107,263
Operating income (loss).............. (19,357) (31,444) (36,020) 8,460
Net income (loss) before
extraordinary item and cumulative
effect of accounting change......... (25,928) (38,291) (29,668) 445
Net income (loss).................... (27,018) (38,291) (35,668) 445
Basic and fully diluted per share
amounts for:
Income (loss) before cumulative
effect of accounting change $ (1.08) $ (1.58) $ (1.23) $ .02
Extraordinary item................. (.05) -- -- --
Cumulative effect of accounting
change............................ -- -- (.25) --
-------- -------- -------- --------
Net income (loss).................. $ (1.13) $ (1.58) $ (1.48) $ .02
======== ======== ======== ========
F-24
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fourth Third Second First
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
1997
Gross revenue........................ $268,400 $332,173 $241,586 $265,957
Service revenue...................... 96,424 116,103 109,581 103,978
Operating income (loss).............. (3,112) 7,194 7,389 6,598
Net income (loss).................... (5,157) 120 3 47
Basic and fully diluted per share
amounts for net income (loss)....... $ (.23) $ (.01) $ -- $ --
At March 31, 1999, there were 24,270,978 shares of common stock outstanding
held by 1,501 holders of record.
16. Guarantor Subsidiaries
Pursuant to U.S. Securities and Exchange Commission rules regarding publicly
held debt, the Company is required to provide financial information for wholly
owned subsidiaries of ICF Kaiser International, Inc. (Subsidiary Guarantors)
that unconditionally guarantee the payment of the principal, premium, if any,
and interest on the Company's Subordinated Notes and its Series B Senior
Notes. Subsequent to the sale of EFM, the Subsidiary Guarantors are Cygna
Consulting Engineers and Project Management, Inc; ICF Kaiser Government
Programs, Inc; Systems Applications International, Inc; EDA, Incorporated;
Global Trade & Investment, Inc; ICF Kaiser Europe, Inc; ICF Kaiser/Georgia
Wilson, Inc; ICF Kaiser Overseas Engineering, Inc; ICF Kaiser Engineers
Pacific, Inc; and ICF Kaiser Advanced Technology, Inc.
Presented below is condensed consolidating financial information for ICF
Kaiser International, Inc. (Parent Company), the Subsidiary Guarantors, and
the Non-Guarantor Subsidiaries. The information, except for the December 31,
1998 condensed consolidating balance sheet, is unaudited.
Investments in subsidiaries have been presented using the equity method of
accounting. The Company does not have a formal tax-sharing arrangement with
its subsidiaries and has allocated taxes to its subsidiaries based on the
Company's overall effective tax rate. In the Company's opinion, presentation
of separate financial statements for each individual Subsidiary Guarantor
would not provide additional information that is material to investors.
Therefore, the Subsidiary Guarantors are combined in the presentation below.
F-25
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 1998
(In thousands)
ICF Kaiser
Parent Subsidiary Non-Guarantor International, Inc.
Company Guarantors Subsidiaries Eliminations Consolidated
-------- ---------- ------------- ------------ -------------------
ASSETS
Current Assets
Cash and cash
equivalents............ $ 2,414 $ 3,822 $ 9,031 $ -- $ 15,267
Contract receivables,
net.................... (5,283) 134,256 155,105 -- 284,078
Intercompany
receivables, net....... 184,700 10,030 (194,730) -- --
Prepaid expenses and
other current assets... 2,185 448 10,208 -- 12,841
Deferred income taxes... 30,367 3,245 1,061 -- 34,673
-------- -------- -------- ------- --------
Total Current Assets.... 214,383 151,801 (19,325) -- 346,859
-------- -------- -------- ------- --------
Fixed Assets
Furniture, equipment,
and leasehold
improvements........... 4,589 3,456 35,951 -- 43,996
Less depreciation and
amortization........... (4,040) (3,155) (30,216) -- (37,411)
-------- -------- -------- ------- --------
549 301 5,735 -- 6,585
-------- -------- -------- ------- --------
Other Assets
Goodwill, net........... -- 8,745 40,547 -- 49,292
Investment in and
advances to
affiliates............. (64,556) 116 6,189 65,979 7,728
Capitalized software
development costs...... 4,296 766 5,062
Other................... 4,910 523 8,094 -- 13,527
-------- -------- -------- ------- --------
(55,350) 9,384 55,596 65,979 75,609
-------- -------- -------- ------- --------
Total Assets............ $159,582 $161,486 $ 42,006 $65,979 $429,053
======== ======== ======== ======= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities
Current portion of long-
term debt.............. $ 30,729 $ -- $ -- $ -- $ 30,729
Accounts payable and
other accrued
expenses............... 39,759 121,833 72,160 -- 233,752
Accrued salaries and
employee benefits...... 7,818 13,999 16,114 -- 37,931
Other................... 1,910 1,335 38,913 -- 42,158
-------- -------- -------- ------- --------
Total Current
Liabilities............ 80,216 137,167 127,187 -- 344,570
Long-term Liabilities
Long-term debt, less
current portion........ 137,487 -- 1 -- 137,488
Other................... 2,000 26 7,638 -- 9,664
-------- -------- -------- ------- --------
Total Liabilities....... 219,703 137,193 134,826 -- 491,722
-------- -------- -------- ------- --------
Minority interests in
subsidiaries........... -- 449 -- -- 449
Shareholders' Equity
Common stock............ 230 8,179 121 (8,288) 242
Additional paid-in
capital................ 75,200 2,596 58,544 (60,918) 75,422
Accumulated earnings
(deficit).............. (134,913) 13,339 (148,368) 135,185 (134,757)
Accumulated other
comprehensive income
(loss)................. (638) (270) (3,117) -- (4,025)
-------- -------- -------- ------- --------
Total Shareholders'
Equity (Deficit)....... (60,121) 23,844 (92,820) 65,979 (63,118)
-------- -------- -------- ------- --------
Total Liabilities and
Shareholders' Equity
(Deficit).............. $159,582 $161,486 $ 42,006 $65,979 $429,053
======== ======== ======== ======= ========
F-26
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Year Ended December 31, 1998
(In thousands)
ICF Kaiser
Parent Subsidiary Non-Guarantor International, Inc.
Company Guarantors Subsidiaries Eliminations Consolidated
--------- ---------- ------------- ------------ -------------------
Gross Revenue........... $ 1,120 $737,546 $ 471,755 $ -- $1,210,421
Subcontract and direct
material costs....... (527) (564,284) (229,983) -- (794,794)
Provision for contract
losses............... -- -- (76,210) -- (76,210)
Equity in income of
joint ventures and
affiliated
companies............ (101,187) -- 6,621 100,611 6,045
--------- -------- --------- -------- ----------
Service Revenue......... (100,594) 173,262 172,183 100,611 345,462
Operating Expenses
Operating expenses.... (16,750) 156,584 257,862 -- 397,696
Depreciation and
amortization......... 2,513 1,340 5,195 -- 9,048
Severance and
restructuring
charges.............. 9,407 -- -- -- 9,407
Other unusual
charges.............. 2,882 -- 4,790 -- 7,672
--------- -------- --------- -------- ----------
Operating Income
(Loss)................. (98,646) 15,338 (95,664) 100,611 (78,361)
Other Income (Expense)
Gain on sale of
investment........... -- -- -- -- --
Interest and
investment income.... 248 516 775 -- 1,539
Interest expense...... (280) (1,722) (18,277) -- (20,279)
--------- -------- --------- -------- ----------
Income (Loss) Before
Income Taxes, Minority
Interests,
Extraodrinary Item, and
Cumulative Effect of
Accounting Change...... (98,678) 14,132 (113,166) 100,611 (97,101)
Income tax expense
(benefit)............ 764 727 (12,848) -- (11,357)
--------- -------- --------- -------- ----------
Income Before Minority
Interests,
Extraordinary Item, and
Cumulative Effect of
Accounting Change...... (99,442) 13,405 (100,318) 100,611 (85,744)
Minority interest in
net income of
subsidiaries......... -- 7,698 -- -- 7,698
--------- -------- --------- -------- ----------
Income Before
Extraordinary Item, and
Cumulative Effect of
Accounting Change...... (99,442) 5,707 (100,318) 100,611 (93,442)
Extraordinary item..... 1,090 -- -- -- 1,090
Cumulative effect of
accounting change, net
of tax................ -- 754 5,246 -- 6,000
--------- -------- --------- -------- ----------
Net Income (Loss)....... $(100,532) $ 4,953 $(105,564) $100,611 $ (100,532)
========= ======== ========= ======== ==========
F-27
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended December 31, 1998
(In thousands)
ICF Kaiser
Parent Subsidiary Non-Guarantor International, Inc.
Company Guarantors Subsidiaries Eliminations Consolidated
--------- ---------- ------------- ------------ -------------------
Net Cash Provided by
(Used in) Operating
Activities............. $ (28,568) $ 3,899 $(4,769) $-- $ (29,438)
--------- -------- ------- ---- ---------
Investing Activities
Sales of subsidiaries
and subsidiary
assets............... -- -- 2,400 -- 2,400
Purchases of fixed
assets............... (2,208) (15) (2,271) -- (4,494)
Investments in
subsidiaries and
affiliates, net of
cash acquired........ 4,094 -- (638) -- 3,456
--------- -------- ------- ---- ---------
Net Cash Provided by
(Used in) Investing
Activities......... 1,886 (15) (509) -- 1,362
--------- -------- ------- ---- ---------
Financing Activities
Borrowings under
credit facility...... 139,629 -- -- -- 139,629
Principal payments on
credit facility...... (112,860) -- (15) -- (112,875)
Distribution of income
to minority
interest............. -- (10,320) -- -- (10,320)
Change in book
overdraft............ 8,395 -- -- -- 8,395
Proceeds from
issuances of common
stock................ 155 -- -- -- 155
Debt issuance costs... (1,380) -- -- -- (1,380)
--------- -------- ------- ---- ---------
Net Cash Provided by
(Used in) Financing
Activities......... 33,939 (10,320) (15) -- 23,604
--------- -------- ------- ---- ---------
Effect of Exchange Rate
Changes on Cash........ -- -- (281) -- (281)
--------- -------- ------- ---- ---------
Increase (Decrease) in
Cash and Cash
Equivalents............ 7,257 (6,436) (5,574) -- (4,753)
Cash and Cash
Equivalents at
Beginning of Period.... (4,843) 10,258 14,605 -- 20,020
--------- -------- ------- ---- ---------
Cash and Cash
Equivalents at End of
Period................. $ 2,414 $ 3,822 $ 9,031 $-- $ 15,267
========= ======== ======= ==== =========
F-28
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 1997
(In thousands)
ICF Kaiser
Parent Subsidiary Non-Guarantor International, Inc.
Company Guarantors Subsidiaries Eliminations Consolidated
-------- ---------- ------------- ------------ -------------------
ASSETS
Current Assets
Cash and cash
equivalents............ $ (4,843) $ 10,258 $ 14,605 $ -- $ 20,020
Contract receivables,
net.................... 3,210 96,921 163,899 -- 264,030
Intercompany
receivables, net....... 136,629 (2,529) (134,100) -- --
Prepaid expenses and
other current assets... 4,781 476 9,833 -- 15,090
Deferred income taxes... 14,749 -- 532 -- 15,281
-------- -------- --------- -------- --------
Total Current Assets.... 154,526 105,126 54,769 -- 314,421
-------- -------- --------- -------- --------
Fixed Assets
Furniture, equipment,
and leasehold
improvements........... 4,284 2,505 38,892 -- 45,681
Less depreciation and
amortization........... (3,729) (2,275) (31,964) -- (37,968)
-------- -------- --------- -------- --------
555 230 6,928 -- 7,713
-------- -------- --------- -------- --------
Other Assets
Goodwill, net........... -- 4,793 42,530 -- 47,323
Investment in and
advances to
affiliates............. 45,584 54 4,983 (43,583) 7,038
Capitalized software
development costs...... 3,812 273 4,085
Other................... 4,344 1,794 12,570 -- 18,708
-------- -------- --------- -------- --------
53,740 6,641 60,356 (43,583) 77,154
-------- -------- --------- -------- --------
Total Assets............ $208,821 $111,997 $ 122,053 $(43,583) $399,288
======== ======== ========= ======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities
Current portion of long-
term debt.............. $ -- $ -- $ 15 $ -- $ 15
Accounts payable and
other accrued
expenses............... 26,852 80,315 40,925 -- 148,092
Accrued salaries and
employee benefits...... 6,938 16,722 13,994 -- 37,654
Other................... 1,294 426 35,819 -- 37,539
-------- -------- --------- -------- --------
Total Current
Liabilities............ 35,084 97,463 90,753 -- 223,300
Long-term Liabilities
Long-term debt, less
current portion........ 141,004 -- -- -- 141,004
Other................... 2,437 26 2,123 -- 4,586
-------- -------- --------- -------- --------
Total Liabilities....... 178,525 97,489 92,876 -- 368,890
-------- -------- --------- -------- --------
Minority interests in
subsidiaries........... -- 3,071 -- -- 3,071
Shareholders' equity
Common stock............ 214 148 129 (266) 225
Additional paid-in
capital................ 66,888 2,796 58,548 (61,116) 67,116
Accumulated earnings
(deficit).............. (34,384) 8,757 (26,397) 17,799 (34,225)
Accumulated other
comprehensive income
(loss)................. (2,422) (264) (3,103) -- (5,789)
-------- -------- --------- -------- --------
Total Shareholders'
Equity................. 30,296 11,437 29,177 (43,583) 27,327
-------- -------- --------- -------- --------
Total Liabilities and
Shareholders' Equity... $208,821 $111,997 $ 122,053 $(43,583) $399,288
======== ======== ========= ======== ========
F-29
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Year Ended December 31, 1997
(In thousands)
ICF Kaiser
Parent Subsidiary Non-Guarantor International, Inc.
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------- ------------ -------------------
Gross Revenue........... $ 727 $ 608,156 $ 499,233 $ -- $1,108,116
Subcontract and direct
material costs....... (608) (428,582) (248,241) -- (677,431)
Provision for contract
losses............... -- -- (6,900) -- (6,900)
Equity in income of
joint ventures and
affiliated
companies............ (6,059) -- 2,328 6,032 2,301
------- --------- --------- ------ ----------
Service Revenue......... (5,940) 179,574 246,420 6,032 426,086
Operating Expenses
Operating expenses.... (3,982) 156,273 246,131 -- 398,422
Depreciation and
amortization......... 2,350 1,092 6,153 -- 9,595
------- --------- --------- ------ ----------
Operating Income
(Loss)................. (4,308) 22,209 (5,864) 6,032 18,069
Other Income (Expense)
Gain on sale of
investment........... -- -- 1,018 -- 1,018
Interest and
investment income.... 570 671 567 (58) 1,750
Interest expense...... (570) (984) (16,775) 53 (18,276)
------- --------- --------- ------ ----------
Income (Loss) Before
Income Taxes and
Minority Interests..... (4,308) 21,896 (21,054) 6,027 2,561
Income tax expense
(benefit)............ 679 4,513 (8,511) -- (3,319)
------- --------- --------- ------ ----------
Income Before Minority
Interests.............. (4,987) 17,383 (12,543) 6,027 5,880
Minority interest in
net income of
subsidiaries......... -- 10,867 -- -- 10,867
------- --------- --------- ------ ----------
Net Income (Loss) ...... $(4,987) $ 6,516 $ (12,543) $6,027 $ (4,987)
======= ========= ========= ====== ==========
F-30
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended December 31, 1997
(In thousands)
ICF Kaiser
Parent Subsidiary Non-Guarantor International, Inc.
Company Guarantors Subsidiaries Eliminations Consolidated
--------- ---------- ------------- ------------ -------------------
Net Cash Provided by
(Used in) Operating
Activities............. $ 21,088 $ 12,153 $(7,544) $ 494 $ 26,191
Investing Activities
Sales of subsidiaries
and subsidiary
assets............... -- -- 17,028 -- 17,028
Purchases of fixed
assets............... (1,871) (53) (2,964) -- (4,888)
Investments in
subsidiaries and
affiliates, net of
cash acquired........ -- (100) (3,974) -- (4,074)
--------- -------- ------- ----- ---------
Net Cash Provided by
(Used in) Investing
Activities......... (1,871) (153) 10,090 -- 8,066
--------- -------- ------- ----- ---------
Financing Activities
Borrowings under
credit facility...... 104,500 -- -- -- 104,500
Principal payments on
credit facility...... (121,000) -- -- -- (121,000)
Distribution of income
to minority
interest............. -- (13,950) -- -- (13,950)
Change in book
overdraft............ (2,667) -- -- -- (2,667)
Proceeds from
issuances of common
stock................ 213 -- -- -- 213
Repurchases of common
stock................ (251) -- -- -- (251)
Debt issuance costs... (624) -- -- -- (624)
--------- -------- ------- ----- ---------
Net Cash Used in
Financing
Activities......... (19,829) (13,950) -- -- (33,779)
--------- -------- ------- ----- ---------
Effect of Exchange Rate
Changes on Cash........ -- -- (708) -- (708)
--------- -------- ------- ----- ---------
Increase (Decrease) in
Cash and Cash
Equivalents............ (612) (1,950) 1,838 494 (230)
Cash and Cash
Equivalents at
Beginning of Period.... (4,231) 12,208 12,767 (494) 20,250
--------- -------- ------- ----- ---------
Cash and Cash
Equivalents at End of
Period................. $ (4,843) $ 10,258 $14,605 $ -- $ 20,020
========= ======== ======= ===== =========
F-31
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Year Ended December 31, 1996
(In thousands)
ICF Kaiser
Parent Subsidiary Non-Guarantor International, Inc.
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------- ------------ -------------------
Gross Revenue........... $ 2,024 $ 560,609 $ 685,810 $ -- $1,248,443
Subcontract and direct
material costs....... (777) (384,061) (335,504) -- (720,342)
Equity in income of
joint ventures and
affiliated
companies............ 5,081 -- 2,895 (3,961) 4,015
------- --------- --------- ------- ----------
Service Revenue......... 6,328 176,548 353,201 (3,961) 532,116
Operating Expenses
Operating expenses.... (1,835) 166,552 335,874 (3) 500,588
Depreciation and
amortization......... 2,065 1,175 7,108 -- 10,348
------- --------- --------- ------- ----------
Operating Income........ 6,098 8,821 10,219 (3,958) 21,180
Other Income (Expense)
Gain on sale of
investment........... -- -- 9,384 -- 9,384
Interest and
investment income.... 284 376 863 (269) 1,254
Interest expense...... (284) (934) (16,324) 208 (17,334)
------- --------- --------- ------- ----------
Income (Loss) Before
Income Taxes and
Minority Interests..... 6,098 8,263 4,142 (4,019) 14,484
Income tax expense
(benefit)............ 264 520 1,823 -- 2,607
------- --------- --------- ------- ----------
Income Before Minority
Interests.............. 5,834 7,743 2,319 (4,019) 11,877
Minority interest in
net income of
subsidiaries......... -- 6,043 -- -- 6,043
------- --------- --------- ------- ----------
Net Income.............. 5,834 1,700 2,319 (4,019) 5,834
Preferred stock
dividends and
accretion............ 2,178 -- -- -- 2,178
------- --------- --------- ------- ----------
Net Income Available for
Common Shareholders.... $ 3,656 $ 1,700 $ 2,319 $(4,019) $ 3,656
======= ========= ========= ======= ==========
F-32
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended December 31, 1996
(In thousands)
ICF Kaiser
Parent Subsidiary Non-Guarantor International, Inc.
Company Guarantors Subsidiaries Eliminations Consolidated
-------- ---------- ------------- ------------ -------------------
Net Cash Provided by
(Used in) Operating
Activities............. $(16,387) $13,954 $ 2,929 $ 870 $ 1,366
-------- ------- ------- ------- --------
Investing Activities
Purchases of fixed
assets............... (2,002) (102) (2,828) -- (4,932)
Investments in
subsidiaries and
affiliates, net of
cash acquired........ -- (225) (1,092) -- (1,317)
Sale of fixed assets.. -- -- 22 -- 22
-------- ------- ------- ------- --------
Net Cash Used in
Investing
Activities......... (2,002) (327) (3,898) -- (6,227)
-------- ------- ------- ------- --------
Financing Activities
Borrowings under
credit facility...... 114,000 -- -- -- 114,000
Principal payments on
credit facility...... (98,500) -- -- -- (98,500)
Proceeds from issuance
of senior notes ..... 14,700 -- -- -- 14,700
Repurchases of
preferred stock...... (20,000) -- -- -- (20,000)
Distribution of income
to minority
interest............. -- (2,428) -- -- (2,428)
Change in book
overdraft............ 2,827 -- -- -- 2,827
Proceeds from
issuances of common
stock................ 383 -- -- -- 383
Preferred stock
dividends............ (2,615) -- -- -- (2,615)
Debt issuance costs... (1,427) -- -- -- (1,427)
Other financing
activities........... -- -- 924 -- 924
-------- ------- ------- ------- --------
Net Cash Provided by
(Used in) Financing
Activities......... 9,368 (2,428) 924 -- 7,864
-------- ------- ------- ------- --------
Effect of Exchange Rate
Changes on Cash........ -- -- 228 -- 228
-------- ------- ------- ------- --------
Increase (Decrease) in
Cash and Cash
Equivalents............ (9,021) 11,199 183 870 3,231
Cash and Cash
Equivalents at
Beginning of Period.... 4,790 1,009 12,584 (1,364) 17,019
-------- ------- ------- ------- --------
Cash and Cash
Equivalents at End of
Period................. $ (4,231) $12,208 $12,767 $ (494) $ 20,250
======== ======= ======= ======= ========
F-33
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ICF KAISER INTERNATIONAL, INC AND SUBSIDIARIES
(in thousands)
Column A Column B Column C Column D Column E
-------- -------------------- ----------------------- ---------- --------------
Add itions
-----------------------
Balance at beginning Charged to costs Balance at end
Description of Period and expenses Other Deductions of period
----------- -------------------- ---------------- ------ ---------- --------------
Year Ended December 31,
1998
Deducted from asset ac-
count:
Allowance for doubtful
accounts $ 7,142 15,111 1,756(5) 13,159(1) $10,850
Deducted from asset
account and included in
other liabilities:
provision for future
losses on contracts 1,199 76,210 47,730 29,679
------- ------- ------ ------- -------
$ 8,341 $91,321 $1,756 $60,889 $40,529
======= ======= ====== ======= =======
Year Ended December 31,
1997
Deducted from asset ac-
count:
Allowance for doubtful
accounts $ 9,450 1,195 1,150(5) 4,653(1) $ 7,142
Deducted from asset
account and included in
other liabilities:
provision for future
losses on contracts 1,517 494 812 1,199
------- ------- ------ ------- -------
$10,967 $ 1,689 $1,150 $ 5,465 $ 8,341
======= ======= ====== ======= =======
Year Ended December 31,
1996
Deducted from asset
account:
Allowance for doubtful
accounts $ 9,435 1,881 175(3) 3,490(1) $ 9,450
1,449(5)
Deducted from asset
account and included in
other liabilities:
provision for future
losses on contracts 2,274 300 491(4) 1,548(2) 1,517
------- ------- ------ ------- -------
$11,709 $ 2,181 $2,115 $ 5,038 $10,967
======= ======= ====== ======= =======
- --------
(1) Reflects amounts written off against the allowance and related accounts
receivable accounts and settlement of doubtful accounts.
(2) Reflects losses charged against the provision for contract losses.
(3) Reflects net allowance for doubtful accounts from the purchase of a
subsidiary.
(4) Reflects provision for future contract losses provided for in connection
with the purchase of a subsidiary.
(5) Reflects other additions to reserves.
S-1