<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________________TO_________________
COMMISSION FILE NUMBER 0-4643
ROY F. WESTON, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1501990
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1400 WESTON WAY
P.O. BOX 2653
WEST CHESTER, PENNSYLVANIA 19380
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 701-3000
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
SERIES A COMMON STOCK (PAR VALUE $.10 PER SHARE)
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No _
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of 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.[X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of Series A Common Stock reported
in the NASDAQ National Market System on March 10, 1999, was approximately
$13,901,000. Solely for the purposes of calculation, all executive officers and
directors of the Company and all beneficial owners of more than 10% of the
Company's stock were considered affiliates. As of March 10, 1999, the Registrant
had outstanding 7,857,973 shares of Series A Common Stock ($.10 par value) and
2,089,019 shares of Common Stock ($.10 par value).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's 1998 Annual Report to Shareholders are incorporated by
reference into Part II of this report. Portions of the Company's Proxy Statement
to be filed with the Securities and Exchange Commission for the Annual Meeting
of Shareholders expected to be held on May 10, 1999, are incorporated by
reference into Part III of this report.
<PAGE> 2
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS 3
ITEM 2. PROPERTIES 11
ITEM 3. LEGAL PROCEEDINGS 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 12
ITEM 6. SELECTED FINANCIAL DATA 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 12
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS 13
ITEM 11. EXECUTIVE COMPENSATION 13
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 13
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K 14
1
<PAGE> 3
FORWARD LOOKING STATEMENTS
From time to time, the Company, its management, or other company
representatives may make or publish statements which contain projections,
beliefs, expectations, predictions or intentions relating to anticipated
financial performance, business prospects, potential contract value, business
strategy and plans, technological developments, and other matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for these
forward looking statements. In order to comply with the terms of the safe
harbor, the Company notes that a number of risk factors and uncertainties could
cause the Company's actual results, experience or outcome to differ materially
from projections, beliefs, expectations, predictions or intentions expressed in
forward looking statements, including such statements included or incorporated
by reference in this report. These risks and uncertainties, which may affect the
operations, performance, development and results of the Company's business,
include, but are not limited to, the following (as well as those identified
elsewhere in this report):
- - The highly competitive marketplace in which the Company's operates.
- - Changes in and levels of enforcement of federal, state, and local
environmental legislation and regulations.
- - The Company's ability to obtain new contracts from existing as well as new
clients, and the uncertain timing of awards and contracts.
- - The Company's ability to execute new projects and those in backlog within
reasonable cost estimates, as well as other contract performance risks.
- - Funding appropriation, funding delay, and the issuance of work orders on
government projects.
- - The Company's ability to achieve any planned overhead or other cost
reductions while maintaining adequate work flow.
- - The Company's ability to successfully implement its readiness program for
Y2K issues.
- - The Company's ability to obtain adequate financing for its current
operations and future expansion, including adequate financing for the
Company's acquisition strategy.
- - The Company's ability to execute its strategic plan through successful
marketing activities and continued cost containment.
- - The nature of the Company's work with hazardous materials, toxic wastes,
and other pollutants, and the potential for uninsured claims or claims in
excess of insurance limits, including professional liability and pollution
claims.
- - The Company's ability to conclude and implement acquisitions of other
businesses consistent with the Company's acquisition strategy.
- - The Company's ability to retain key personnel.
The Company disclaims any intent or obligation to update forward
looking statements.
2
<PAGE> 4
PART I
ITEM 1. BUSINESS
GENERAL
Roy F. Weston, Inc. (the Company) is a professional services
organization that provides a broad range of consulting, engineering and design,
environmental construction, and facilities, program and business management
services to solve problems associated with air, water and land pollution;
hazardous material and toxic waste treatment and disposal; workplace hazards;
product use; and energy conservation. The Company's services include development
of cost-effective technologies and solutions to environmental problems;
selection of sites, obtaining of governmental permits, and the preparation of
specifications and designs for constructing remedial systems and facilities; and
construction, startup and operation of facilities. These services are made
available to governmental and industrial clients through the Company's staff of
professional and support personnel in offices worldwide. The Company assists its
clients from the initial identification and definition of a problem, through the
planning, evaluation and design stages, to the implementation of cost-effective,
technologically feasible, and politically acceptable solutions.
Since its incorporation in 1957, the Company has been a pioneer in
providing solutions to environmental, health and safety problems. As
environmental concerns have grown in complexity and become the subject of
heightened public awareness and extensive governmental regulation, the Company's
strategy has been to build an organization with a high level of sophisticated
professional skills and a broad range of scientific, technological and
management resources. The Company uses a total systems approach that involves
studying its clients' needs and providing cost-effective, customized solutions
that address those needs.
The Company's business strategy includes regular evaluation of
opportunities to acquire, make investments in, or enter into joint ventures or
other strategic alliances with, companies whose business complement the
Company's business, some of which could be material.
SERVICES
The Company is pursuing infrastructure redevelopment as its primary
market focus. Infrastructure involves physical resources - structures,
facilities, plants and equipment, as well as land and other natural resources
that are vital to the economic life of society. Redevelopment entails undoing
the adverse consequences of past development activities and restoring damaged
resources to productive uses. Infrastructure redevelopment helps clients decide
whether and how to make positive changes in the character or condition of
something they own.
Infrastructure redevelopment is being pursued by the Company for a
number of reasons. Demand for regulatory-driven environmental services, which
are still a major source of business for the Company, has been declining. While
the Company intends to maintain such services, it sees its long term
opportunities in infrastructure redevelopment services where the market has been
growing at an average rate of nearly 10% annually.
3
<PAGE> 5
The Company provides its services by combining its professional skills
and technological resources in an integrated systems approach, which uses
technical information and program management capabilities as well as cost
control systems. The Company's service lines include infrastructure
redevelopment, federal program management, and knowledge systems and solutions.
Information about net revenues, segment profit (loss) and total assets for 1998
is included in Note 17 to the Consolidated Financial Statements on page 36 of
the Company's 1998 Annual Report to Shareholders and is incorporated herein by
reference.
INFRASTRUCTURE REDEVELOPMENT
The Company's services involve the identification and characterization
of a client's problems; the evaluation of alternative solutions; and the
selection, design and development of a technologically feasible, cost-effective,
and politically acceptable solution. The Company's trained professionals who
provide these services are drawn from many different scientific and
technological disciplines to assess the long-term effects and the risks
associated with the environmental impact of clients' activities and products. In
performing feasibility studies and environmental impact and risk assessments,
the Company's professionals examine the relative effectiveness of various
technological approaches for achieving permanent solutions and ensuring that
additional environmental concerns are not created in the course of solving the
primary problem.
The Company applies its skills to all phases of environmental matters
and other problems, including those relating to infrastructure redevelopment,
major program management, compliance and air quality management services.
INFRASTRUCTURE REDEVELOPMENT CONSULTING. Infrastructure redevelopment
consulting comprises a broad range of managerial and technical consulting
services that allow federal, municipal and industrial clients to revitalize
systems and facilities to profitable and sustainable use. Infrastructure,
including water/wastewater systems, commercial and industrial real estate,
waterways and transportation systems, are expected to require continually
increasing redevelopment to maintain economic growth, private investment and
commerce. In addition, the Company provides the ability for clients to outsource
the operation and maintenance of water and wastewater facilities that are not
part of the client's core business.
COMPLIANCE SERVICES. Compliance services include identification and
interpretation of regulations, technical assessment of environmental issues,
technology identification and evaluation, implementation planning/management,
emergency response and control, and long-term monitoring and maintenance of
compliance. The Company believes that much of the compliance consulting market,
driven primarily by regulatory issues, faces increasing price-sensitivity and
slow growth.
AIR QUALITY MANAGEMENT SERVICES. The Company's air quality management
services include air quality management consulting (permitting, dispersion
modeling, and management consulting); ambient monitoring (meteorological, air
quality, and air toxics monitoring); and emission testing (continuous emission
monitoring, compliance testing performance guarantee testing, and air pollution
control design testing).
4
<PAGE> 6
INFRASTRUCTURE REDEVELOPMENT CONSTRUCTION. In infrastructure
redevelopment construction, the Company is primarily focused on two areas, which
the Company believes are likely to experience strong growth in the near future:
alternative delivery systems for water/wastewater and dredged materials
management. The emerging nature of these markets and the prospective
design-build-own-operate structure could yield significant high margin
opportunities for the Company.
REMEDIATION CONSTRUCTION. Remediation construction services include site
investigation, engineering, design, construction, cleanup, and operations and
maintenance.
IMPAIRED PROPERTIES REDEVELOPMENT. Impaired properties redevelopment is
at present a relatively small market, but a very attractive one. The Company
believes it can establish a leadership position in this emerging market where
there is no current entrenched leader. The Company expects to focus on projects
where net liabilities can be shifted to net assets through innovative regulatory
and remediation approaches.
HIGH HAZARD MANAGEMENT AND REMEDIATION. High-hazard remediation and
management services include cleanup of unexploded ordnance (UXO), humanitarian
demining, nuclear decontamination and decommissioning (D&D), chemical
demilitarization, and radioactive waste remediation. The Company's experience
and relationships position it to capitalize on the growing funding devoted to
solving these most difficult environmental problems.
FEDERAL PROGRAMS
Federal program management involves all phases of large-scale
environmental, health and safety problems of industry and government. The
Company has the resources and technical abilities to accept overall
responsibility for siting, evaluating, designing, implementing, and managing
environmental programs, and to apply its diversified services, as appropriate,
in an integrated systems approach. The Company provides the management systems
and the direct involvement of its most senior management to deal with the
complexities of the underlying environmental problems, as well as the commitment
of large numbers of personnel at geographically dispersed sites for extended
time frames. The Company typically bids for contracts as the prime contractor
and forms subcontractor teams in those instances where subcontractors provide
expertise and staffing that substantially enhance the Company's ability to
obtain and perform contracts. Subcontractors may, from time to time, include
certain competitors of the Company.
KNOWLEDGE SYSTEMS AND SOLUTIONS
Knowledge Systems and Solutions services include decision support
systems (DSS), such as Geographic Information Systems (GIS), Facilities
Management Systems (FM), and Workflow Automation to assist clients with managing
geographically distributed assets (e.g., water utilities, gas transmission
companies, etc.) The Company's strategic management consulting helps clients
manage health, safety, environmental quality, and resource sustainability issues
for increased efficiency and cost effectiveness, as well as evaluate and
implement development and redevelopment options. On-line products and services,
such as Internet-based virtual communities, intranet- or extranet-based virtual
private networks, and other sophisticated on-line products and services help
clients more effectively collaborate, access information, and transact business
over electronic networks.
5
<PAGE> 7
CUSTOMERS AND MARKETING
The Company's marketing strategy emphasizes its ability to offer a broad
range of specialized services designed to meet the needs of its clients in a
timely and cost-efficient manner. The Company has the capability to undertake
not only small tasks requiring a few professionals, but also management,
staffing, design and implementation of major projects that may last for several
years and involve many employees in several geographic locations.
The Company's marketing efforts are directed from offices nationwide to
three client sectors: private industry; public works and local government; and
the federal government. The Company's senior professionals are responsible for
directing the execution of projects, monitoring quality assurance, and
integrating the delivery of the Company's services. They also develop and
maintain long-term working relationships with clients' management. The Company
participates in industrial trade shows and technical conferences concerning
environmental and health and safety issues, and sponsors related technical
seminars.
FEDERAL
In the federal sector, the Company performs contracts for the U.S.
Department of Defense (DOD), the U.S. Environmental Protection Agency (EPA) and
the U.S. Department of Energy (DOE), as well as for other federal agencies. The
Company develops comprehensive waste management and remediation programs at many
priority sites throughout the country.
The Company derived 55%, 54% and 56% of its consolidated gross revenues
from the federal government for the years ended December 31, 1996, 1997 and
1998, respectively. Gross revenue percentages from the DOD, EPA and DOE for each
of the fiscal years are as follows:
PERCENTAGES OF CONSOLIDATED GROSS REVENUES
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1996 1997 1998
--- ----- ------
<S> <C> <C> <C>
DOD 21% 21% 25%
EPA 18% 20% 21%
DOE 13% 11% 8%
OTHER 3% 2% 2%
--- ----- -----
55% 54% 56%
</TABLE>
The Company is a major provider of services to the federal government
and thus is subject to audit with respect to costs and fees charged to the
federal government. Revenues associated with federal overhead rates under
government cost reimbursable contracts are adjusted when variances are
determined on at least an annual basis. Provisions for losses on contracts are
recorded when they are identified. As a result of its government contracting
business, the Company is, has been, and may in the future be subject to audits
and investigations by government agencies. In addition to potential damage to
the Company's business reputation, the failure by the Company to comply with the
terms of any of its government contracts could also result in fines, or
penalties or in the Company's suspension or debarment from future government
contracts for a significant period of time. Such fines and penalties, or the
Company's suspension or
6
<PAGE> 8
debarment could have a material adverse effect on the Company's business,
particularly in light of the importance to the Company of its work for various
government agencies.
INDUSTRY
The Company provides a full range of services for industrial clients.
Service to industrial clients provided 30%, 30% and 26% of the Company's gross
revenues in 1996, 1997 and 1998, respectively. In addition to complying with
regulatory requirements, companies are recognizing that the environmental impact
must be considered from the inception of a product, throughout its use and final
disposal. Corporate clients, which range from small business concerns to Fortune
100 companies, are offered a wide range of consulting, construction, remediation
and redevelopment; and knowledge systems and solutions services. Market segments
served include manufacturing, chemicals and allied products, petroleum, forest
products, and utilities.
PUBLIC WORKS AND LOCAL GOVERNMENT
The Company provides consulting and construction redevelopment services
to many state and local governments and agencies. Services to public works and
local government clients provided 15%, 16% and 18% of the Company's gross
revenues in 1996, 1997 and 1998, respectively. A growing number of cities,
regional authorities, and state governments are instituting long-range programs
to update essential facilities. Because these projects require comprehensive
planning and engineering, they are expected to continue to be an important
component of the Company's business. Typical projects include the design of
water supply and wastewater systems; solid waste management; asbestos
management; computer-based geographic mapping, and landfill design.
COMPETITION
The Company's markets are very competitive and require highly skilled,
experienced technical and management personnel. Competition is based on, among
other things, reputation, quality of service, price, expertise and local
presence. In each of its specific service areas, the Company competes with many
firms that are both larger and smaller than the Company, although no firm
currently dominates any significant portion of those service areas. Many of
these competitors have greater financial resources than the Company.
PATENTS AND TECHNOLOGY
The Company owns six patents on certain remediation technologies and has
filed additional patent applications. The Company also claims copyright and
trade secret protection on certain of its computer software, publications and
technologies. The Company does not believe that such patents and copyrights are
a material factor in its business.
BACKLOG
7
<PAGE> 9
The Company's net contract backlog (excluding estimated project expenses
that are directly passed through to customers) was $61.0 million and $65.3
million at December 31, 1998 and 1997, respectively. Additionally, the Company
derives revenues from open order contracts and from activities related to
emergency response. As work assignments are approved and funded, the Company
includes these amounts in the net contract backlog. As is customary in the
industry, contracts are subject to cancellation by the customer, changes in
scope of work, and delays in project startup, therefore all amounts reflected in
backlog may not be realized as net revenues. The Company anticipates that the
majority of its backlog will be realized in the current fiscal year.
POTENTIAL LIABILITY AND INSURANCE
A substantial portion of the Company's gross revenues is derived from
work involving hazardous materials, toxic wastes, and other pollutants. Such
efforts frequently entail significant risks of liability to the Company for
environmental damage, personal injury, and fines and costs imposed by regulatory
agencies. A substantial number of the Company's contracts require
indemnification of a client for performance claims, damages or losses incurred
during the performance of the Company's operations.
The Company has been able to insure against most liabilities it incurs
in connection with the conduct of its business. The Company has obtained
coverage with commercial carriers to insure against pollution liability claims.
Although this insurance covers many of the Company's environmental exposures,
there are instances where project-specific pollution insurance policies are
necessary. The Company will continue to evaluate exposures associated with each
project to determine if additional coverage is necessary. The Company continues
to be partially self-insured through its subsidiary, Cardinal Indemnity Company
of North America (Cardinal), a wholly-owned insurance company. Cardinal provides
professional liability and pollution coverage for deductible amounts under the
Company's commercial insurance coverage.
While the insurance carried by the Company may not be sufficient to
cover all claims that may arise, and while insurance carriers may not continue
to make coverage available to the Company, management believes it has provided
an adequate level of insurance.
The Company has also attempted to contractually protect itself through
agreements with its clients to limit its liability and indemnify the Company,
although the Company has not always been successful in obtaining such
agreements. Most of the Company's contracts with EPA involving Superfund monies
and some state contracts that employ federal Superfund dollars contain
provisions whereby the respective governmental agency agrees to indemnify the
Company for third-party claims to the extent that such claims are not covered by
insurance and appropriated funds are available, although the Company does not
receive any assurance that any such appropriated funds will be made available.
EPA has issued Final Response Action Contractor Indemnification Guidance (the
Indemnification Guidance) applicable to contracts signed on or after October 16,
1986, the terms of which limit EPA's contractor indemnification under certain
Superfund contracts retroactively to 1986, and prospectively, under certain
circumstances. The Indemnification Guidance states that future contracts will
not provide for indemnification unless EPA is unable to obtain responsible,
competitive proposals without such an indemnification.
8
<PAGE> 10
The Company sometimes contracts with DOE to perform remedial work at
various DOE facilities within the United States. On occasion, these contracts
may involve the handling or other disposition of radioactive materials. In these
contracts, DOE typically provides the Company with protection from potential
third party claims arising out of "nuclear incidents," by including an
indemnification clause authorized under the Price Anderson Act of 1988. The
indemnity provides over $9 billion in "nuclear hazards" coverage. Congress is
currently considering an extension of the Price Anderson Act, which will expire
on August 1, 2002.
The Company has also developed and implemented improvements to its
quality assurance and health and safety programs. These programs establish
certain minimum requirements for all project work and provide guidance for the
development of quality assurance plans and health and safety plans on all
projects. The objective of the quality assurance program is to provide assurance
that project performance is of appropriate quality for the project requirements.
The objective of the health and safety program is to protect project personnel
from exposure to hazardous substances and situations. The scope of both programs
includes the establishment of policy and procedures, staff training and
operational review and audit.
The Company and its employees are subject to various state, local, and
federal licenses, laws and regulations, and believes that it is in substantial
compliance with those requirements.
PERSONNEL
As of December 31, 1998, the Company had approximately 1,600 employees,
many of whom had advanced degrees in a variety of technical disciplines. Of
these, 34 employees held doctorates, 246 held master's degrees, 110 were
registered professional engineers, and 14 were diplomates of the American
Academy of Environmental Engineers. The Company's ability to remain competitive
depends on its ability to attract and retain qualified personnel.
REGULATIONS
Demand for the Company's services is affected by laws and regulations,
the reauthorization, modification or elimination of which could significantly
affect the Company's business. The reauthorization of several major federal
environmental laws that have a significant impact on the work of the Company
remains on the agenda of Congress. These include statutes that:
- Protect the chemical, physical and biological integrity of water in
the United States (the Clean Water Act of 1977 and associated laws);
- Regulate the handling of hazardous waste and mandate state oversight
of solid waste (the Resource Conservation and Recovery Act of 1976);
and,
- Regulate the identification, remediation and accountability for
hazardous waste sites (the Superfund Amendments and Reauthorization
Act of 1986).
In addition, administrative regulations mandated by the 1990 amendments
to the Clean Air Act are likely to play a significant role in the Company's
services to its industrial clients in the areas of emission
9
<PAGE> 11
and ambient air monitoring, air quality modeling and permitting, and assistance
with compliance certification. In addition, new federal and state regulations
are continually being considered which, if adopted, could materially impact the
Company's business.
The principal federal laws that affect the Company's business are:
THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION, AND LIABILITY
ACT OF 1980 (CERCLA OR SUPERFUND) AND SUPERFUND AMENDMENTS AND REAUTHORIZATION
ACT (SARA) OF 1986: CERCLA addresses past waste disposal practices by providing
means for identifying and remediating hazardous waste sites. The law authorizes
EPA to compel responsible parties to remediate abandoned sites. Where initial
enforcement actions would result in lengthy delays or where responsible parties
cannot readily be identified, CERCLA authorizes funds for cleanups. Congress
enacted SARA in 1986 to amend CERCLA and reauthorize Superfund. SARA strengthens
EPA's authority to conduct short- and long-term enforcement and expands state
involvement in the cleanup process. SARA also expands EPA's commitment to
research and development, training, health assessments, and public
participation. Sites considered to be most in need of remediation are ranked on
EPA's National Priorities List (NPL). By March 1999, some 1,204 federal and
nonfederal sites were listed or proposed for the NPL, and some 10,500 other
hazardous waste sites remained on the CERCLA inventory of potential trouble
spots.
THE CLEAN WATER ACT (CWA): Amended in February 1987, the CWA authorized
federal revolving loan funds through 1996 for construction grants and startup
money to build wastewater treatment plants. Additional funds were appropriated
for fiscal years 1997, 1998 and 1999. The Company believes that the CWA is
accelerating the market for the municipal wastewater treatment plant design and
construction services provided by the Company. Controls imposed by the CWA on
toxic effluents also are stimulating industrial expenditures.
THE RESOURCE CONSERVATION AND RECOVERY ACT OF 1976 (RCRA): RCRA controls
the present and future management of newly generated hazardous wastes by
mandating that private industry -- generators, transporters and disposers --
monitor and regulate their disposal of such wastes. As a result of the growing
emphasis on the minimization of industrial process wastes, the increasing
shortage of hazardous waste management facilities, and the considerable costs
associated with disposal, RCRA will continue to be a key regulatory program.
THE CLEAN AIR ACT (CAA) AND CLEAN AIR ACT AMENDMENTS (CAAA): The CAAA of
1990 charged EPA with promulgating more than 400 regulations and developing
guidelines and procedures in the ensuing 10 years. The sweeping provisions of
the CAAA are designed to diminish three major threats to the environment: acid
rain, urban air pollution, and air toxic emissions. The revisions also establish
a national permit program and a stronger enforcement program to make the CAA
easier to monitor and ensure compliance. The CAA and the CAAA should continue to
increase the Company's activities in emission and ambient air monitoring, air
quality modeling, and permitting assistance to its industrial clients.
Compliance certification, including the development and implementation of data
management and reporting systems, should expand the Company's services to
industry.
The Company is pursuing business opportunities related to the
restoration and development of environmentally impaired properties, sometimes
referred to as "Brownfields." To the extent it does so as an investor or lender,
it and other companies in this arena may be affected by the "Asset
10
<PAGE> 12
Conservation, Lender Liability and Deposit Insurance Protection Act of 1996."
This federal law, and similar state laws, may limit to some degree the Company's
potential liability under CERCLA, and RCRA (and State counterparts) as related
to its brownfields work, should it ultimately need to take title to or obtain an
ownership interest in the property in connection with efforts to recover on its
loan or investment.
The Company believes that in addition to services required by CERCLA,
RCRA, CWA and CAA, other federal laws affect demand for the Company's services
in the private and public sectors. These include the Safe Drinking Water Act,
the National Environmental Policy Act, the Nuclear Waste Policy Act, the Toxic
Substances Control Act, the Occupational Safety and Health Act, the Intermodal
Surface Transportation and Efficiency Act, the Federal Facilities Compliance
Act, and the Energy Policy Act.
ITEM 2. PROPERTIES
The Company's principal offices are located on a 53-acre tract in West
Whiteland Township, Chester County, Pennsylvania, in the suburbs of
Philadelphia, and include five major buildings providing a total of
approximately 150,000 square feet of space.
The Company also leases an aggregate of approximately 460,000 square
feet of office space in offices located in 25 states and the District of
Columbia. Aggregate lease payments in 1998 were $12.2 million, of which $7.5
million were subject to direct reimbursement from projects. Approximately
116,000 square feet of such space has been subleased to third parties. These
leases for office facilities are generally for 5 years or less.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to certain claims and lawsuits in connection with
work performed in the ordinary course of its business. In the opinion of
management, such claims and lawsuits currently pending are either adequately
covered by insurance or will not result in a material adverse effect on the
financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
11
<PAGE> 13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information with respect to this item is incorporated by reference
herein from the information in the Company's 1998 Annual Report to Shareholders
in Notes 6 and 7 to the Consolidated Financial Statements on pages 25 to 27 and
under the headings "Company Stock Listing" and "Stock History" on the inside
back cover.
ITEM 6. SELECTED FINANCIAL DATA
Information with respect to this item is incorporated by reference
herein from the information in the Company's 1998 Annual Report to Shareholders
on page 15.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information with respect to this item is incorporated by reference
herein from the information in the Company's 1998 Annual Report to Shareholders
on pages 9 to 14.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) Information with respect to this item is incorporated by reference
herein from the information in the Company's 1998 Annual Report to Shareholders
on pages 15 to 37.
(b) Selected Quarterly Financial Data (Unaudited) are set forth in Note
18 to the Consolidated Financial Statements contained in the Company's 1998
Annual Report to Shareholders on page 37 and are incorporated by reference
herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
12
<PAGE> 14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information with respect to this item is set forth in the Company's
definitive Proxy Statement, (the "Proxy Statement") to be filed with the
Securities and Exchange Commission, for the Annual Meeting of Shareholders
expected to be held on May 10, 1999, under the headings "Election of Directors",
"Executive Management" and "Section 16(a) Beneficial Ownership Reporting
Compliance" and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this item is set forth in the Proxy
Statement under the heading "Executive Management" and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to the ownership of securities of the Company
by certain persons is set forth in the Proxy Statement under the heading
"Principal Shareholders" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to transactions with management and others is
set forth in the Proxy Statement under the headings "Executive Management -
Compensation Committee Interlocks and Insider Participation" and "Executive
Management - Other Relationships and Related Transactions" and is incorporated
herein by reference.
13
<PAGE> 15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. Consolidated Financial Statements:
The information appearing in the Company's 1998 Annual Report to
Shareholders as described in Item 8 is incorporated herein by
reference.
2. Financial Statement Schedule:
- Report of Independent Accountants
- Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
With the exception of the consolidated financial statements and the
independent accountants' report thereon listed in the above index, the
information referred to in Items 5, 6, and 7, and the supplementary
quarterly financial information referred to in Item 8, all of which are
included in the 1998 Annual Report to Shareholders of Roy F. Weston,
Inc. and incorporated by reference into this Annual Report on Form
10-K, the 1998 Annual Report to Shareholders is not to be deemed
"filed" as part of this report.
3. Exhibits:
The following exhibits are filed herewith unless otherwise indicated:
EXHIBIT NO. DESCRIPTION
3.1 Articles of Incorporation of the Company. Incorporated by
reference to Exhibit 3(a) to the Company's Registration
Statement on Form S-1 (Registration No. 33-20834) ("No.
33-20834").
3.2 Amended By-Laws of the Company.
4.1 Indenture between the Company and Mellon Bank, N.A. relating
to the 7% Convertible Subordinated Debentures due April 15,
2002. Incorporated by reference to Exhibit 4 to the Company's
Registration Statement on Form S-1 (Registration No. 33-13020)
("No. 33-13020").
14
<PAGE> 16
EXHIBIT NO. DESCRIPTION
4.2 Trusteeship Transfer Agreement between PNC Bank, N. A., First
Trust of New York, N.A. and the Company dated March 1, 1996,
relating to the 7% Convertible Subordinated Debentures due
April 15, 2002. Incorporated by reference to Exhibit 4.3 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
10.1 Form of the Company's Retirement Supplement to Split Dollar
Life Insurance Agreement. Incorporated by reference to Exhibit
10 (c) to the Company's Registration Statement on Form S-1
(Registration No. 33-5914) ("No. 33-5914").
10.2 Form of the Company's Executive Supplemental Benefit Plan -
Supplemental Retirement Agreement. Incorporated by reference
to Exhibit 10(d) to No. 33-5914.
10.3 The Company's Stock-Based Incentive Compensation Plan.
10.4 The Company's Retirement Income Restoration Plan, as amended.
Incorporated by reference to Exhibit 10.11 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1997.
10.5 Employment Agreement between William L. Robertson and the
Company dated as of July 14, 1997. Incorporated by reference
to Exhibit 10.10 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997.
10.6 Amendment to Employment Agreement between William L. Robertson
and the Company dated May 19, 1998. Incorporated by reference
to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998.
10.7 Elective Deferred Compensation Agreement between William L.
Robertson and the Company dated December 23, 1997.
Incorporated by reference to Exhibit 10.20 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1997.
10.8 Continuing Services/Retirement Agreement between Roy F. Weston
and the Company dated July 19, 1997. Incorporated by reference
to Exhibit 10.11 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997.
10.9 Consulting Services Agreement between Globequest International
Ltd. and the Company for the services of Tom Harvey, dated May
23, 1997. Incorporated by reference to Exhibit 10.7 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997.
10.10 Consulting/Marketing Services Agreement between Armitage
Associates L.C. and the Company dated September 1, 1997.
Incorporated by reference to Exhibit 10.27 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1997.
10.11 Stock Pooling Agreement among the Company and certain holders
of the Company's Common Stock effective January 2, 1998.
Incorporated by reference to Exhibit 10.29 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1997.
15
<PAGE> 17
EXHIBIT NO. DESCRIPTION
10.12 Credit Agreement between the Company and Bank of America
National Trust and Savings Association dated as of June 5,
1998. Incorporated by reference to Exhibit 10.5 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998.
10.13 First Amendment to Credit Agreement between the Company and
Bank of America National Trust and Savings Association dated
August 14, 1998. Incorporated by reference to Exhibit 10.6 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998.
10.14 Employment Agreement between the Company and Patrick G. McCann
dated as of March 11, 1998. Incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998.
10.15 Consulting Services Agreement between the Company and
Katherine W. Swoyer effective July 1, 1998. Incorporated by
reference to Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998.
10.16 Travel Management Services Agreement between International
Corporate Travel Services, Inc. and the Company dated March
15, 1996. Incorporated by reference to Exhibit 10.24 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
10.17 Termination Agreement between International Corporate Travel
Services and the Company dated May 28, 1998. Incorporated by
reference to Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998.
11 Computation of Basic and Diluted Earnings (Loss) per Share.
13 The Company's 1998 Annual Report to Shareholders.
21 Subsidiaries of the Company.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
fourth quarter of 1998.
Note: Any of the exhibits listed in the foregoing index not included with this
Annual Report on Form 10-K may be obtained without charge by writing to Arnold
P. Borish, Esq., Corporate Secretary, Roy F. Weston, Inc., 1400 Weston Way, P.O.
Box 2653, West Chester, Pennsylvania 19380.
16
<PAGE> 18
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Roy F. Weston, Inc.
Our report on the consolidated financial statements of Roy F. Weston,
Inc. and Subsidiaries has been incorporated by reference in this Form 10-K from
page 15 of the 1998 Annual Report to Shareholders of Roy F. Weston, Inc. and
Subsidiaries. In connection with our audits of such financial statements, we
have also audited the related financial statement schedule listed in the index
on page 14 of this Form 10-K.
In our opinion, the financial statement schedule referred to above,
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.
PRICEWATERHOUSECOOPERS, LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 4, 1999
17
<PAGE> 19
ROY F. WESTON, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
AMOUNTS DEDUCTIONS -
BALANCE AT CHARGED TO CHARGED TO WRITE-OFF OF BALANCE
BEGINNING COSTS AND OTHER UNCOLLECTIBLE AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS ACCOUNTS PERIOD
<S> <C> <C> <C> <C> <C>
YEAR ENDED
DECEMBER 31, 1998:
Allowance for
Doubtful Accounts $1,750 $704 $ -- $572 $1,882
YEAR ENDED
DECEMBER 31, 1997:
Allowance for
Doubtful Accounts $1,510 $511 $ -- $271 $1,750
YEAR ENDED
DECEMBER 31, 1996:
Allowance for
Doubtful Accounts $1,800 $291 $ -- $581 $1,510
</TABLE>
18
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, ROY F. WESTON, INC. has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized:
ROY F. WESTON, INC.
By: WILLIAM L. ROBERTSON
William L. Robertson
Chairman of the Board
Date: March 26, 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 indicated on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
WILLIAM L. ROBERTSON Chairman of the Board and March 26, 1999
____________________________________ Chief Executive Officer
William L. Robertson (Principal Executive Officer)
PATRICK G. MCCANN President and March 26, 1999
____________________________________ Chief Operating Officer
Patrick G. McCann (Principal Operating Officer)
WILLIAM G. MECAUGHEY Vice President and March 26, 1999
____________________________________ Chief Financial Officer
William G. Mecaughey (Principal Financial Officer)
RICHARD L. ARMITAGE Director March 26, 1999
____________________________________
Richard L. Armitage
JESSE BROWN Director March 26, 1999
____________________________________
Jesse Brown
THOMAS E. CARROLL Director March 26, 1999
____________________________________
Thomas E. Carroll
THOMAS HARVEY Director March 26, 1999
____________________________________
Thomas Harvey
WAYNE F. HOSKING, JR. Director March 26, 1999
____________________________________
Wayne F. Hosking, Jr.
KATHERINE W. SWOYER Vice Chair and March 26, 1999
____________________________________ Director
Katherine W. Swoyer
</TABLE>
<PAGE> 21
<TABLE>
<S> <C> <C>
THOMAS M. SWOYER, JR. Director March 26, 1999
____________________________________
Thomas M. Swoyer, Jr.
A. FREDERICK THOMPSON Director March 26, 1999
____________________________________
A. Frederick Thompson
ROY F. WESTON Director March 26, 1999
____________________________________
Roy F. Weston
JAMES H. WOLFE Director March 26, 1999
____________________________________
James H. Wolfe
</TABLE>
<PAGE> 1
Exhibit 3.2
Current as of 05/18/98
Last amendment: 05/18/98
ROY F. WESTON, INC.
BY-LAWS
ARTICLE I - OFFICES
1. The registered office of the Company shall be at 1
Weston Way, West Chester, Chester County,
Pennsylvania.
2. The Company may also have offices at such other
places as the Board of Directors may from time to
time appoint or the business of the Company may
require.
ARTICLE II - SEAL
1. The Corporate seal shall have inscribed thereon the
name of the Company, the year of its organization and
the words "Corporate Seal, Pennsylvania".
ARTICLE III - SHAREHOLDERS MEETING
1. Meetings of the shareholders shall be held at the
office of the Company at 1 Weston Way, West Chester,
Chester County, Pennsylvania or at such other place
or places, either within or without the Commonwealth
of Pennsylvania, as may from time to time be
selected.
2. The annual meeting of the shareholders shall be held
on the second Monday of the month of May in each
year, if not a legal holiday, and if a legal holiday,
then on the next secular day following, at 11:00
a.m., or at such other date and time as shall be
designated from time to time by the Board of
Directors and stated in the Notice of the Meeting, at
which they shall elect a Board of Directors and
transact such other business as may properly be
brought before the meeting. If the annual meeting
shall not be called and held within six months after
the designated time, any shareholder may call such
meeting.
1
<PAGE> 2
3. The presence, in person or by proxy, of shareholders entitled
to cast at least a majority of the votes which all
shareholders are entitled to cast on a particular matter(s)
being considered at a meeting shall constitute a quorum at all
meetings of the shareholders except as otherwise provided by
law, by Articles of Incorporation or these By-Laws. If,
however, such quorum shall not be present at any meeting of
the shareholders, those entitled to vote thereat shall have
power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until the requisite
number of shares shall be present. In the case of any meeting
called for the election of directors, adjournment or
adjournments may be taken only from day to day, or for such
longer periods not exceeding fifteen days each, as the holders
of a majority of the shares present in person or by proxy
shall direct, until such directors have been elected, and
those who attend the second of such adjourned meetings,
although less than a quorum, shall nevertheless constitute a
quorum for the purpose of electing directors.
4. At each meeting of the shareholders every shareholder having
the right to vote shall be entitled to vote in person or by
proxy appointed by an instrument in writing subscribed by such
shareholder and delivered to the Secretary at the meeting. No
unrevoked proxy shall be valid after eleven months from the
date of its execution, unless a longer time is expressly
provided therein, but in no event shall a proxy, unless
coupled with an interest, be voted on after three years from
the date of its execution. Shareholders shall not have the
right to vote cumulatively in the election of directors. Upon
demand made by a shareholder at any election for directors
before the voting begins, the election shall be by ballot. No
share shall be voted at any meeting upon which any installment
is due and unpaid. The original share ledger or transfer book,
or a duplicate thereof kept in this Commonwealth, shall be
prima facie evidence of the right of the person named therein
to vote thereon.
5. Written notice of the annual meeting shall be mailed to each
shareholder entitled to vote thereat, at such address as
appears on the books of the Company, at least ten days prior
to the meeting.
6. In advance of any meeting of shareholders, the Board of
Directors may appoint judges of election, who need not be
shareholders, to act at such meeting or any adjournment
thereof. If judges of election be not so appointed, the
chairman of any such meeting may, and on the request of any
shareholder or his proxy shall, make such appointment at the
meeting. The number of judges shall be one or three. If
appointed at a meeting on the request of one or more
shareholders or proxies, the majority of shares
2
<PAGE> 3
present and entitled to vote shall determine whether one or
three judges are to be appointed. On request of the chairman
of the meeting, or of any shareholder or his proxy, the judges
shall make a report in writing of any challenge or question or
matter determined by them, and execute a certificate of any
fact found by them. No person who is a candidate for office
shall act as a judge.
7. Special meetings of the shareholders may be called at any time
by the Chairman of the Board, or the Board of Directors, or
the holders of not less than one-fifth of all the shares
outstanding and entitled to vote. At any time, upon written
request of any person entitled to call a special meeting, it
shall be the duty of the Secretary to call a special meeting
of the shareholders, to be held at such time as the Secretary
may fix, not less than ten nor more than sixty days after
receipt of the request.
8. Business transacted at all special meetings shall be confined
to the objects stated in the call and matters germane thereto.
9. Written notice of a special meeting of shareholders stating
the time and place and object thereof, shall be mailed,
postage prepaid, to each shareholder entitled to vote thereat
at such address as appears on the books of the Company, at
least ten days before such meeting, unless a greater period of
notice is required by statute in a particular case.
10. The officer or agent having charge of the transfer books shall
make, at least five days before each meeting of shareholders,
a complete list of the shareholders entitled to vote at the
meeting, arranged in alphabetical order, with the address of
and the number of shares held by each, which list shall be
subject to inspection by any shareholder at any time during
usual business hours. Such list shall also be produced and
kept open at the time and place of the meeting, and shall be
subject to the inspection of any shareholder during the whole
time of the meeting. The original share ledger or transfer
book, or a duplicate thereof kept in this Commonwealth, shall
be prima facie evidence as to who are the shareholders
entitled to examine such list or share ledger or transfer
book, or to vote in person or by proxy, at any meeting or
shareholders.
3
<PAGE> 4
ARTICLE IV - DIRECTORS
1. The business of this Company shall be managed by its Board of
Directors, the members of which need not be residents of the
Commonwealth of Pennsylvania or shareholders of the Company.
Subject to the preceding sentence and the provisions of
applicable law, the Board of Directors shall have the
authority to (i) determine the number of directors to
constitute the Board and (ii) if such number is increased
between annual meetings of the shareholders, fill the vacancy
or vacancies thereby created. Except as otherwise hereinbefore
provided with respect to interim vacancies, directors shall be
elected by plurality vote at the annual meeting of
shareholders, and each director shall be elected for a term
extending until the next following annual meeting of
shareholders and, except in the event of death, resignation or
removal, shall serve until such director's successor shall be
elected and shall qualify.
2. In addition to the powers and authorities by these By-Laws
expressly conferred upon them, the Board may exercise all such
powers of the Company and do all such lawful acts and things
as are not by statute or by the Articles or by these By-Laws
directed or required to be exercised or done by the
shareholders.
3. The meetings of the Board of Directors may be held at such
place within this Commonwealth, or elsewhere, as a majority of
the directors may from time to time appoint, or as may be
designated in the notice calling the meeting.
4. Each newly-elected Board may meet at such place and time as
shall be fixed by the shareholders at the meeting at which
such directors are elected, and no notice shall be necessary
to the newly elected directors in order to legally constitute
the meeting, or they may meet at such place an time as may be
fixed by the consent in writing of all the directors.
5. Regular meetings of the Board may be held without notice at
such time and place as shall be determined by the Board.
6. Special meetings of the Board may be called by the Chairman of
the Board on one day's notice to each director, either
personally or by mail or by telegram; special meetings shall
be called by the President or Secretary in like manner on like
notice on the written request of two directors.
7. A majority of the directors in office shall be necessary to
constitute a quorum for the transaction of business, and the
acts of a majority of the
4
<PAGE> 5
directors present at a meeting at which a quorum is
present shall be the acts of the Board of Directors.
If all the directors shall severally or collectively
consent in writing to any action to be taken by the
Company, such action shall be as valid corporate
action as though it had been authorized at a meeting
of the Board of Directors.
8. The Board of Directors shall have the authority, by
resolution, to fix the compensation of Directors for
their services as Directors.
9. The Board of Directors may elect an Executive
Committee consisting of such directors as may from
time to time be designated as members thereof by
resolution of the Board, which Committee shall have,
between meetings of the Board, all of the powers of
the Board except such as may not be lawfully
delegated to a committee.
In addition, the Board of Directors may form other
committees of service of the Board, consisting of
such directors as may from time to time be designated
as members thereof by resolution of the Board.
Each committee member shall be a member of the Board.
10. One or more directors may participate in a meeting of
the Board or of a committee of the Board by means of
conference telephone or similar communications
equipment by means of which all persons participating
in the meeting can hear each other, and any director
so participating in a meeting shall be deemed to be
present at the meeting for all purposes.
ARTICLE V - OFFICERS
1. The Executive Officers of the Company shall be chosen
by the Board of Directors and shall consist of a
Chairman of the Board, a President, one or more Vice
Presidents, a Secretary and a Treasurer. The Board of
Directors may also choose one or more Vice Chairmen
and Vice Presidents and such other officers and
agents as it deems necessary, who shall hold their
offices for such terms and shall have such authority
and shall perform such duties as from time to time
shall be prescribed by the Board. Any two or more
offices may be held by the same person, except the
combination of the Offices of President and
Secretary. It shall not be necessary for the officers
to be directors.
2. The salaries of all officers and agents of the
Company shall be fixed by the Board of Directors.
5
<PAGE> 6
3. The officers of the Company shall hold office for one
year and until their successors are chosen and have
qualified. Any officer elected or appointed by the
Board of Directors may be removed by the Board of
Directors whenever, in their judgement, the best
interests of the Company will be served thereby.
4. The Chairman of the Board shall preside at all
meetings of the shareholders and directors. The Vice
Chairman (or, if more than one, in the order
designated by the Board) shall, in the absence of the
Chairman, preside at all meetings of the shareholders
and directors and shall have such other duties,
responsibilities and authority as are from time to
time, assigned to him by the Chairman.
5. The President shall exercise such responsibilities as
may from time to time be assigned to him by the
Chairman of the Board or the Board of Directors, and
shall, in the absence of the Chairman of the Board
and Vice Chairman, assume the responsibilities and
discharge the duties of the Chairman.
6. The Secretary shall attend all sessions of the Board
and all meetings of the shareholders and act as clerk
thereof, and record all votes of the Company and the
minutes of all its transactions in a book to be kept
for that purpose; and shall perform like duties for
all committees of the Board of Directors when
required. He shall give, or cause to be given, notice
of all meetings of the shareholders and of the Board
of Directors, and shall perform such other duties as
may be prescribed by the Board of Directors or
Chairman of the Board, under whose supervision he
shall be. He shall keep in safe custody the company
seal of the Company, and when authorized by the Board
affix the same to any instrument requiring it. The
Board may also choose one or more Assistant
Secretaries.
7. The Treasurer shall direct the financial planning,
procurement, and investment of corporate funds. He
shall have responsibility for the protection and
custody of securities and financial instruments and
other assets of the Company and shall advise
management about insurance coverage, protection
against property losses, and potential liability. He
shall analyze financial records to forecast the
future financial position and financing requirements,
and evaluate the need for procurement of funds and
investment of surplus and shall advise management on
investments and loans for short and long range
financial plans. He shall sign or countersign notes
of indebtedness approved by management.
8. The Board of Directors shall designate from among the
Executive Officers
6
<PAGE> 7
of the Company the Chief Executive Officer, the Chief
Operations Officer and the Chief Financial Officer.
9. The Chief Executive Officer shall be the Chairman of
the Board or the President of the Company, shall be
appointed by the Board, and shall have general and
active management of the business of the Company and
shall see that all orders and resolutions of the
Board are carried into effect, subject however to the
right of the directors to delegate any specific
powers to any other officer or officers of the
Company. He shall be an ex-officio member of all
committees, and shall have the general powers and
duties of supervision and management usually vested
in the Chief Executive Officer of a Company.
10. The Chief Operations Officer shall exercise such
responsibilities as may from time to time be assigned
to him by the Chief Executive Officer or the Board of
Directors.
11. The Chief Financial Officer shall exercise such
responsibilities as may from time to time be assigned
to him by the Chief Executive Officer or the Board of
Directors, including the preparation of reports which
outline the Company's financial position in areas of
income, expenses, and earnings, based on past,
present and future operation. He shall direct the
preparation of operating budgets and financial
forecasts, determine depreciation rates to apply to
capitalized items, prepare governmental reports, and
arrange for audits of the Company's accounts. He
shall advise management on desirable operational
adjustments due to budgetary variations. He shall
render to the Chief Executive Officer and the Board
of Directors, at the regular meetings of the Board,
or whenever they may require it, an account of the
financial condition of the Company. He shall prepare
all reports to the shareholders and, as authorized by
the Board of Directors, shall direct the payment of
dividends on the stock of the Company.
ARTICLE VI - VACANCIES
1. If the office of any officer or agent, one or more,
becomes vacant for any reason, the Board of Directors
may choose a successor or successors, who shall hold
office for the unexpired term in respect of which
such vacancy
7
<PAGE> 8
occurred.
2. Vacancies in the Board of Directors shall be filled
by a majority of the remaining members of the Board
though less than a quorum, and each person so elected
shall be a director until his successor is elected by
the shareholders, who may make such election at the
next annual meeting of the shareholders or at any
special meeting duly called for that purpose and held
prior thereto.
ARTICLE VII - CORPORATE RECORDS
1. There shall be kept at the registered office of the
Company an original or duplicate record of the
proceedings of the shareholders and of the directors,
and the original or a copy of its By-Laws, including
all amendments or alterations thereto to date,
certified by the Secretary of the Company. An
original or duplicate share register shall also be
kept at the registered office, or at the office of a
transfer agent or registrar within the Commonwealth,
giving the names of the shareholders in alphabetical
order, and showing their respective addresses, the
number and classes of shares held by each, the number
and date of certificates issued for the shares, and
the number and date of cancellation of every
certificate surrendered for cancellation.
2. Every shareholder shall have a right to examine, in
person or by agent or attorney, at any reasonable
time or times, for any reasonable purpose, the share
register, books or records of account, and records of
the proceedings of the shareholders and directors,
and make extracts therefrom.
ARTICLE VIII - CAPITAL STOCK
1. The share certificates of the Company shall be
numbered and registered in the share ledger and
transfer books of the Company, as they are issued.
They shall be signed, by facsimile or otherwise, by
the Chairman of the Board or President and the
Secretary or Assistant Secretary and shall bear the
corporate seal. In case any officer who has executed,
or whose facsimile signature has been placed upon,
any share certificate shall have ceased to be such
officer, because of death, resignation or otherwise,
before the Certificate is issued, it may be issued by
the Company with the same effect as if the officer
had not ceased to be such at the time of its issue.
2. Transfers of shares shall be made on the books of the
Company upon surrender of the certificates therefor,
endorsed by the person named in the
8
<PAGE> 9
certificate or by attorney, lawfully constituted in
writing. No transfer shall be made inconsistent with
the provisions of Article 8 of the Uniform Commercial
Code, approved the sixth day of April, One Thousand
Nine Hundred Fifty-Three (Act No. 1), and its
amendments and supplements.
3. The Board of Directors may fix a time, not more than
seventy days, prior to the date of any meeting of
shareholders, or the date fixed for the payment of
any dividend or distribution, or the date for the
allotment of rights, or the date when any change or
conversion or exchange of shares will be made or go
into effect, as a record date for the determination
of the shareholders entitled to notice of, and to
vote at, any such meeting, or entitled to receive
payment of any such dividend or distributions, or to
receive any such allotment of rights, or to exercise
the rights in respect to any such change, conversion,
or exchange of shares. In such case, only such
shareholders as shall be shareholders of record on
the date so fixed shall be entitled to notice of, and
to vote at, such meeting, or to receive payment of
such dividend, or to receive such allotment of
rights, or to exercise such rights as the case may
be, notwithstanding any transfer of any shares on the
books of the Company after any record date fixed as
aforesaid. The Board of Directors may close the books
of the Company against transfers of shares during the
whole or any part of such period, and in such case,
written or printed notice thereof shall be mailed at
least ten days before the closing thereof to each
shareholder of record at the address appearing on the
records of the Company or supplied by him to the
Company for the purpose of notice. While the stock
transfer books of the Company are closed, no transfer
of shares will be made thereon. If no record date if
fixed for the determination of shareholders entitled
to receive notice of, or vote at, a shareholders
meeting, transfers of shares which are transferred on
the books of the Company within ten days next
preceding the date of such meeting shall not be
entitled to notice of, or vote at, such meeting.
4. Any person claiming a share certificate to be lost or
destroyed shall make an affidavit or affirmation of
that fact and advertise the same in such manner as
the Board of Directors may require, and shall give
the Company a bond of indemnity with sufficient
surety to protect the Company or any person injured
by the issue of a new certificate from any liability
or expense which it or they may incur by reason of
the original certificate remaining outstanding,
whereupon a new certificate may be issued by the same
tenor and for the same number of shares as the one
alleged to be lost or destroyed, but always subject
to the approval of the Board of Directors.
5. Subject to the provisions of the statutes, the Board
of Directors may declare
9
<PAGE> 10
any pay dividends upon the outstanding shares of the
Company out of its surplus from time to time and to
such extent as they may deem advisable, in cash, in
property, or in shares of the Company.
6. Before payment of any dividend there may be set aside
out of the net profits of the Company such sums as
the directors, from time to time, in their absolute
discretion, think proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Company,
or for such other purpose as the directors shall
think conducive to the interest of the Company, and
the directors may abolish any such reserve in the
manner in which it was created.
ARTICLE IX - MISCELLANEOUS PROVISIONS
1. All checks or demands for money and notes of the
Company shall be signed by such officer or officers
as the Board of Directors may from time to time
designate.
2. The fiscal year shall begin the 1st day of January
each year.
3. Whenever written notice is required to be given to
any person, it may be given to such person, either
personally or by sending a copy thereof through the
mail, or by telegram, charges prepaid, to his address
appearing on the books of the Company, or supplied by
him to the Company for the purpose of notice. If the
notice is sent by mail or by telegraph, it shall be
deemed to have been given to the person entitled
thereto when deposited in the United States mail or
with a telegraph office for transmission to such
person. Such notice shall specify the place, day, and
hour of the meeting and, in the case of a special
meeting, the general nature of the business to be
transacted.
4. Whenever any written notice is required by statute,
or by the Articles or By-Laws of this Company, a
waiver thereof in writing, signed by the person or
persons entitled to such notice, whether before or
after the time stated therein, shall be deemed
equivalent to the giving of such notice. Except in
the case of a special meeting, neither the business
to be transacted at, nor the purpose of the meeting
need be specified in the waiver of notice of such
meeting. Attendance of a person, either in person or
by proxy, at any meeting shall constitute a waiver of
notice of such meeting, except where a person attends
a meeting for the express purpose of objecting to the
transaction of any business because the meeting was
not lawfully called or convened.
10
<PAGE> 11
5. The Company shall indemnify its directors, officers,
employees, and agents to the full extent permitted by
Section 410 of the Business Corporation Law.
6. All engineering decisions pertaining to any project
or engineering activities in the State of Washington,
or any other state where the laws require that the
Board of Directors designate a responsible engineer,
shall be made by designated engineer in responsible
charge named in the resolution of the Board of
Directors.
ARTICLE X - ANNUAL STATEMENT
1. The Chairman of the Board and Board of Directors
shall present at each annual meeting a full and
complete statement of the business and affairs of the
Company for the preceding year. Such statement shall
be prepared and presented in whatever manner the
Board of Directors shall deem advisable and need not
be verified by a certified public accountant.
ARTICLE XI - AMENDMENTS
1. These By-Laws may be altered, amended, or repealed by
the affirmative vote of a majority of the shares
issued and outstanding and entitled to vote thereat
at any regular or special meeting of the shareholders
or by the affirmative vote of a majority of all of
the directors then in office at any regular or
special meeting of the directors, if notice of the
proposed alteration, amendment, or repeal be
contained in the notice of the meeting.
ARTICLE XII - LIMITATION ON LIABILITY
1. A director shall not be personally liable for
monetary damages for any action taken on or after
January 27, 1987, or for the failure to take any
action on or after the date, unless (i) the director
has breached or failed to perform the duties of his
office under Section 8363 of the Pennsylvania
Directors' Liability Act (Act 145 of 1986, P.L.
1458), relating to standard of care and justifiable
reliance, and (ii) the breach or failure to perform
constitutes self-dealing, willful misconduct or
recklessness. The provisions of this Section 1 of
Article XII shall not apply to (i) the responsibility
or liability of a director pursuant to any criminal
statute, or (ii) the liability of a director for the
payment of taxes pursuant to local, state or federal
law. Any repeal or modification of any provision of
this Section 1 of Article XII shall be prospective
only and shall not affect, to the detriment of any
director, any limitation on the personal liability of
a director of the existing at the time of
11
<PAGE> 12
such repeal or modification.
ARTICLE XIII - INDEMNIFICATION
1. The Company shall indemnify to the extent not
prohibited by applicable law, any person who was or
is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or
was a director, officer, employee or agent of the
Company or is or was serving at the request of the
Company as a director, officer, employee or agent of
another corporation, partnership, joint venture,
trust or other enterprise, including an employee
benefit plan, against expenses (including attorneys'
fees), judgments, fines and amounts paid in
settlement actually and reasonable incurred by him in
connection with such action, suit or proceeding,
whether or not the indemnified liability arises or
arose from any threatened, pending or completed
action by or in the right of the Company. The Board
of Directors may, and on request of any such person
shall be required to, determine in each case whether
the applicable standards in the Pennsylvania
Directors' Liability Act or any other applicable
statute have been met, or such determination shall be
made by independent legal counsel if the Board so
directs or if the Board is not empowered by law to
make such determination. If there has been a change
in control of the Company between (1) the time of the
action or failure to act giving rise to the claim for
indemnification and (2) the time such claim is made
at the option of the person seeking indemnification
the permissibility of indemnification shall be
determined by special legal counsel selected jointly
by the Company and the person seeking
indemnification. The fees and expenses of such
counsel shall be paid by the Company. The obligations
of the Company to indemnify a director, officer,
employee or agent under this Article XIII, including
the duty to advance expenses, shall be a contract
between the Company and such person, and no
modification or repeal of any provision of this
Article XIII shall affect, to the detriment of the
Director, officer, employee or agent such obligations
of the Company in connection with a claim based on
any act or failure to act occurring before such
modification or repeal.
2. Expenses incurred by an officer, director, employee
or agent of the Company in defending a civil or
criminal action, suit or proceeding shall be paid by
the Company in advance of the final disposition of
such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director, officer,
employee or agent to repay such amount if it shall
ultimately be determined that he is not entitled to
be indemnified by the Company.
12
<PAGE> 13
3. The indemnification and advancement of expenses
provided by this Article XIII shall not be deemed
exclusive of any other right to which one indemnified
may be entitled under any agreement, vote of
shareholders or otherwise, both as to action in his
official capacity and as to action in another
capacity while holding such office, and shall inure
to the benefit of the heirs, executors and
administrators of any such person.
4. The Board of Directors shall have the power to (a)
authorize the Company to purchase and maintain, at
the Company's expense, insurance on behalf of the
Company and others to the extent that power to do so
has been or may be granted by statute, (b) create any
fund of any nature, whether or not under the control
of a trustee, or otherwise secure any of its
indemnification obligations and (c) give other
indemnification to the extent not prohibited by
statute.
13
<PAGE> 1
Exhibit 10.3
APPENDIX A
[AMENDED AND RESTATED AS OF MARCH 15,
1991, TO BE EFFECTIVE AS OF MAY 13, 1991
ROY F. WESTON, INC.
STOCK-BASED INCENTIVE COMPENSATION PLAN
DEFINITIONS
1.01 "AFFILIATE" means any entity other than a Subsidiary in which Parent
has a substantial direct or indirect equity interest, as determined by
the Board.
1.02 "AWARD" means an award of Deferred Stock, Restricted Stock, Options or
SARs under the Plan.
1.03 "AWARD DATE" means the date on which an Award is made.
1.04 "BOARD" means the Board of Directors of Parent.
1.05 "Code" means the Internal Revenue Code of 1986, as amended. Reference
to a specific section of the Code shall include any successor to such
section.
1.06 "COMMITTEE" means the Committee designated by the Board to administer
the Plan under Section 4.
1.07 "COMPANY" means Parent and its Subsidiaries, collectively, including
any successor to any thereof.
1.08 "DEFERRED STOCK" means an Award made under Section 6 to receive Stock
at the end of a specified Deferral Period.
1.09 "DEFERRAL PERIOD" Means the period during which the receipt of a
Deferred Stock Award under Section 6 will be deferred.
1.10 "DISINTERESTED PERSON" MEANS A person defined in Rule l6b-3(c)(2)(i)
promulgated by the SEC under the 1934 Act, or any successor definition
adopted by the SEC.
1.11 "Employee" means an officer or key employee of the Company or an
Affiliate including a director who is such an employee.
1.12 "FAIR MARKET VALUE" means, on any given date, the closing sale price of
the Stock reported in the NASDAQ National Market System (or on the
principal national securities exchange on which the Stock is listed if
it is then so listed) on such date or, if the Stock was not traded on
such date, on the next preceding day on which the Stock was traded.
1.13 "HOLDER" means an Employee to whom an Award is made.
1.14 "INCENTIVE STOCK OPTION" OR "ISO" means a stock option intended to meet
the requirements of an incentive stock option as defined in Section 422
of the Code and designated as such.
1.14 "1934 ACT" means the Securities Exchange Act of 1934, as amended.
1.16 "NON-QUALIFIED OPTION" OR "NQO" means a stock option not intended to be
an Incentive Stock Option, and designated as a Non-Qualified Option.
1.17 "OPTION" means any stock option granted by the Committee under Section
8.
1.18 "PARENT" means Roy F. Weston, Inc. and any successor thereto.
1.19 "PLAN" means the Stock-Based Incentive Compensation Plan herein set
forth, as amended from time to time.
1.19 "RESTRICTED STOCK" means Stock awarded by the Committee under Section
7.
<PAGE> 2
1.21 "RESTRICTION PERIOD" means the period during which Restricted Stock
awarded under Section 7 is subject to forfeiture.
1.22 "RETIREMENT" means - retirement from the active employment of the
Company or an Affiliate pursuant to the relevant provisions of the
applicable retirement plan of the employing entity or as otherwise
determined by the Board.
1.23 "SEC" means the U.S. Securities and Exchange Commission.
1.24 "STOCK" means the Series A Common Stock of Parent or such other class
or kind of shares of capital stock or other securities as may result
from the application of Section 10.
1.25 "STOCK APPRECIATION RIGHT" or "SAR" means a stock appreciation right
awarded by the Committee under Section 9.
1.26 "SUBSIDIARY" means any corporation (other than Parent) in an unbroken
chain of corporations beginning with Parent if each of the corporations
other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
1.27 "TEN PERCENT SHAREHOLDER" means a person who on any given date owns,
either directly or within the meaning of the attribution rules
contained in Section 424(d) of the Code, stock possessing more than ten
percent of the total combined voting power of all classes of stock of
Parent, a Subsidiary or Affiliate.
2. AWARDS
2.01 Awards that may be granted under the Plan are:
(a) Deferred Stock Awards, giving the Holder the right to receive,
without payment, a specified number of shares of Stock at the end of a
specified Deferral Period or Periods.
(b) Restricted Stock Awards, giving the Holder the right to
receive, without payment, a specified number of shares of
Stock subject to forfeiture upon the occurrence of specified
events.
(c) Incentive Stock Options, giving the Holder the right for a
specified time period to purchase a specified number of shares
of Stock for a price per share not less than Fair Market Value
on the Award Date.
(d) Non-Qualified Options, giving the Holder the right for a
specified time period to purchase a specified number of shares
of Stock for a price per share that may be less than Fair
Market Value on the Award Date.
(e) Stock Appreciation Rights, giving the Holder the right to
receive, upon exercise of the SAR, the increase in the Fair
Market Value of a specified number of shares of Stock from the
Award Date to the date of exercise.
2.02 Each Award shall be evidenced by an appropriate agreement with
the Holder which shall conform to the requirements of the Plan
and may contain such other provisions as the Committee shall
deem advisable.
3. ELIGIBILITY
Any Employee is eligible to receive an Award, provided that an
Incentive Stock Option shall not be granted to a Ten Percent
Shareholder except on such terms concerning the option price and
period of exercise as are provided in Paragraphs 8.01, 8.02 and 8.03.
4. ADMINISTRATION OF PLAN
4.01 The Plan shall be administered and interpreted by the
Committee, which shall have full authority to act in selecting
Employees to whom Awards will be granted, in determining the
type and amount of Awards to be granted to each such Employee,
the terms and conditions of Awards and the terms of agreements
which will be entered into with Holders in connection with
Awards. The Committee shall
<PAGE> 3
have at least two members, each of whom shall be a
Disinterested Person.
4.02 The Committee's powers shall include, but not be limited to,
the power to (a) determine whether. to what extent and under
what circumstances (i) an option may be exchanged for cash.
Restricted Stock, Deferred Stock or some combination thereof;
(ii) an Award is made and operates on a tandem basis with
other Awards made hereunder; (iii) Stock or cash payable with
respect to an Award shall be deferred either automatically or
at the election of the Holder (including the power to add
deemed earnings to any such deferral); (b) condition an Award
upon the attainment of specified performance goals; and (c)
determine the effect, if any, of a change in control of Parent
upon outstanding Awards.
4.03 The Committee shall have the power to adopt regulations for
carrying out the Plan and to make such changes in such
regulations as it shall from time to time deem advisable. The
Committee shall have the power unilaterally and without
approval of a Holder to amend an existing Award in order to
carry out the purposes of the Plan so long as such amendment
does not deprive the Holder of any benefit granted by the
Award and so long as the amended Award comports with the terms
of the Plan. Amendments adverse to the interests of the Holder
must be approved by the Holder. Any interpretation by the
Committee of the terms and provisions of the Plan and the
administration thereof, and all action taken by the Committee,
shall be final and binding on Plan participants.
5. SHARES OF STOCK SUBJECT TO THE PLAN
5.01 Subject to adjustment as provided in Section 10, the total
number of shares of Stock available for Awards under the Plan
shall be 625,000 shares.
5.02 Any shares issued by Parent in a business combination
transaction through the assumption or substitution of
outstanding awards made by an acquired company shall not
reduce the shares available for Awards under the Plan. If any
shares subject to any Award granted hereunder are forfeited or
such Award otherwise terminates without the issuance of such
shares or the payment of other consideration in lieu of such
shares, the shares subject to such Award, to the extent of any
such forfeiture or termination, shall again be available for
Awards under the Plan.
6. DEFERRED STOCK
An Award of Deferred Stock shall be subject to the following terms and
conditions:
6.01 Upon determination of the number of shares of Deferred Stock
to be awarded to a Holder, the Committee shall direct that the
same be credited to the Holder's account on the books of
Parent but that issuance and delivery of the same shall be
deferred until the date or dates provided in Section 6.03
hereof. Prior to such issuance and delivery, the Holder shall
have no rights as a shareholder with respect to any shares of
Deferred Stock credited to the Holder's account.
6.02 Amounts equal to any dividends declared and paid during the
Deferral Period with respect to the number of shares covered
by a Deferred Stock Award will be paid to the Holder
currently, or deferred and deemed to be reinvested in
additional Deferred Stock, or otherwise reinvested on such
terms, as determined at the time of the Award by the
Committee, in its sole discretion.
6.03 The Deferred Stock agreement shall specify the duration of the
Deferral Period taking into account termination of employment
on account of death, disability, Retirement or other cause.
The Deferral Period may consist of one or more installments.
At the end of the Deferral Period or any installment thereof,
certificates representing the Shares of Deferred Stock
applicable to such Period or installment credited to the
account of a Holder shall be issued and delivered to the
Holder (or, where appropriate, the Holder's legal
representative) in accordance with the terms of the Deferred
Stock agreement. The Committee may, in its sole discretion,
accelerate the delivery of all or any part of a Deferred Stock
Award or waive the deferral limitations for all or any part of
a Deferred Stock Award.
<PAGE> 4
7. RESTRICTED STOCK
An Award of Restricted Stock shall be subject to the following terms
and conditions:
7.01 Upon determination of the number of shares of Restricted Stock
to be granted to a Holder. the Committee shall direct that a
certificate or certificates representing such number of shares
be issued to the Holder and registered in the Holder's name.
The certificate(s) representing such shares shall be legended
as to sale, transfer, assignment, pledge or other encumbrance
during the Restriction Period and deposited by the Holder,
together with a stock power with respect to the transfer
thereof endorsed in blank, with Parent, to be held in escrow
during the Restriction Period.
7.02 During the Restriction Period the Holder shall have the right
to receive dividends from and to vote the shares of Restricted
Stock.
7.03 The Restricted Stock agreement shall specify the duration of
the Restriction Period and the performance. employment or
other conditions (including termination of employment on
account of death, disability. Retirement or other cause) under
which the Restricted Stock may be forfeited to Parent. At the
end of the Restriction Period, the restrictions imposed
hereunder shall lapse with respect to the number of shares of
Restricted Stock as determined by the Committee, and the
legend shall be removed and the certificates for such number
of shares delivered to the Holder (or, where appropriate, the
Holder's legal representative). The Committee may, in its sole
discretion, modify or accelerate the vesting of shares of
Restricted Stock.
8. OPTIONS
An Award of Options shall be subject to the following terms and
conditions:
8.01 OPTION PRICE: The price per share at which Stock may be
purchased upon exercise of an Option shall be determined by
the Committee, but in the case of grants of ISOs, shall be not
less than the Fair Market Value on the Award Date. In the case
of any ISO granted to a Ten Percent Shareholder, the Option
price per share shall not be less than 110% of the Fair Market
Value on the Award Date. The Option price per share for NQOs
may be less than the Fair Market Value on the Award Date.
8.02 TERM OF OPTIONS: The Option agreement shall specify when an
Option may be exercisable and the terms and conditions
applicable thereto and whether the Option is an ISO or an NQO.
The term of an Option shall in no event be longer than ten
years (five years in the case of an ISO granted to a Ten
Percent Shareholder) and no Option may be exercisable earlier
than six months from the Award Date.
8.03 INCENTIVE STOCK OPTIONS: Each provision of the Plan and each
Option agreement relating to an ISO shall be construed so that
each ISO shall be an Incentive Stock Option as defined in
Section 422 of the Code, and any provisions of THE OPTION
AGREEMENT thereof that cannot be so construed shall be
disregarded. In no event may an ISO be granted after March 14,
2001. ISOs may not be granted to Employees of Affiliates.
8.04 RESTRICTION ON TRANSFERABILITY: No Option shall be
transferable otherwise than by will or the laws of descent and
distribution and, during the lifetime of the Holder, shall be
exercisable only by the Holder. Upon the death of a Holder,
the person to whom the rights have passed by will or by the
laws of descent and distribution may exercise an Option only
in accordance with this Section 8.
8.05 PAYMENT OF OPTION PRICE: The Option price of the shares of
Stock payable upon the exercise of an Option shall be paid in
full in cash at the time of the exercise or, with the consent
of the Committee, in whole or in part in shares of Stock
valued at Fair Market Value on the date of exercise. With the
consent of the Committee, payment upon the exercise of a NQO
may be made in whole or in part (as determined by the
Committee) by Restricted Stock based on Fair Market Value on
the date of exercise. In such case, the shares of Stock to
which the Option relates shall be subject to the same
forfeiture restrictions originally imposed on the shares of
Restricted Stock exchanged therefor.
<PAGE> 5
8.06 TERMINATION BY DEATH: If a Holder's employment by the Company
or Affiliate terminates by reason of death, any Option held by
such Holder may thereafter be exercised, to the extent
exercisable at the time of death or on such accelerated basis
as the Committee may determine at or after grant, by the legal
representative of the Holder until the earlier to occur of the
expiration of (i) the period of six months from the date of
death or (ii) the stated term of such Option.
8.07 TERMINATION BY REASON OF RETIREMENT OR DISABILITY: If a
Holder's employment by the Company or Affiliate terminates by
reason of disability (as determined by the Committee) or
Retirement, any Option held by such Holder may thereafter be
exercised by the Holder (or, where appropriate, the Holder's
legal representative), to the extent exercisable at the time
of termination or on such accelerated basis as the Committee
may determine at or after grant, until the earlier to occur of
the expiration of (i) the period of three months from the date
of termination or (ii) the stated term of such option.
8.08 OTHER TERMINATION: If a Holder's employment by the Company or
Affiliate terminates for any reason other than death,
disability or Retirement, the Option shall terminate on the
date of such termination of employment.
9. STOCK APPRECIATION RIGHTS
An Award of SARs shall be subject to the following terms and
conditions:
9.01 An SAR may be granted in tandem with all or a portion of a
related Option ("Tandem SAR"), or may be granted separately
("Freestanding SAR"). A Tandem SAR may be granted either at
the Award Date of the Option or at any time thereafter during
the term of the Option and shall be exercisable only to the
extent that the related Option is exercisable. In no event
shall any SAR be exercisable within the first six months of
its grant.
9.02 The base price of a Tandem SAR shall be the option price under
the related Option. The base price per share of a Freestanding
SAR shall be not less than 100% of Fair Market Value, as
determined by the Committee, on the Award Date of the
Freestanding SAR.
9.03 An SAR shall entitle the Holder to receive a payment equal to
the excess of the aggregate Fair Market Value of the shares of
Stock covered by the SAR on the date of exercise over the base
price of the SAR. Such payment may be in cash or in shares of
Stock, Deferred Stock, or Restricted Stock, or in any
combination thereof, as the Committee shall determine. Upon
exercise of a Tandem SAR as to some or all of the shares of
Stock covered, the related Option shall be canceled
automatically to the extent of the number of shares of Stock
covered by such exercise, and such shares shall no longer be
available for purchase under the Option pursuant to Section 8.
Conversely, if the related Option is exercised as to some or
all of the shares of Stock covered thereby, the related Tandem
SAR, if any, shall be canceled automatically to the extent of
the number of shares of Stock covered by the Option exercise.
9.04 SARs shall be subject to the same terms and conditions
applicable to Options as stated in Paragraphs 8.02, 8.04,
8.06, 8.07, and 8.08. SARs shall also be subject to such other
terms and conditions not inconsistent with the Plan as shall
be determined by the Committee.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event of a reorganization, recapitalization, stock split,
spin-off, split-off, split-up, stock dividend. issuance of stock
rights, combination of shares, merger, consolidation or any other
change in the corporate structure of Parent affecting Stock, or any
distribution to shareholders other than a cash dividend, the Board
shall make appropriate adjustment in the number and kind of shares
authorized by the Plan and such adjustments to outstanding Awards as
it determines appropriate. No fractional shares of Stock shall be
issued pursuant to such an adjustment, but an amount equivalent to the
portion of Fair Market Value attributable to any such fractional
shares shall, where appropriate, be paid in cash to the Holder.
11. TERMINATION AND AMENDMENT
<PAGE> 6
The Plan shall remain in full force and effect until terminated by the
Board. The Board shall have the power to amend, suspend or terminate
the Plan at any time, provided that no such amendment shall be made
without shareholder approval which shall:
(a) Increase (except as provided in Section 10) the total number
of shares available for issuance pursuant to the Plan;
(b) Change the class of Employees eligible to be Holders;
(c) Change the provisions of this Section 11; or
(d) Effect other change for which shareholder approval would be
required under Rule 16b-3 under the 1934 Act or any successor
provision promulgated by the SEC.
Termination of the Plan pursuant to this Section II shall not affect
Awards outstanding under the Plan at the time of termination.
12. NON-ASSIGNABILITY
Awards may not be pledged, assigned or transferred for any reason
during the Holder's lifetime, and any attempt to do so shall be void
and the relevant Award shall be forfeited.
13. GENERAL PROVISIONS
13.01 Nothing contained in the Plan, or an Award granted pursuant to
the Plan, shall confer upon an Employee any right with respect
to continuance of employment by the Company or Affiliate, nor
interfere in any way with the right of the Company or Affiliate
to terminate such employment at any time.
13.02 For purposes of this Plan, transfer of employment between any
of Parent, Subsidiaries and Affiliates shall not be deemed
termination of employment.
13.03 Holders shall be responsible to make appropriate provision for
all taxes required to be withheld in connection with any Award,
the exercise thereof and the transfer of shares of Stock
pursuant to this Plan. Such responsibility shall extend to all
applicable federal, state, local or foreign withholding taxes.
In the case of payment of Awards in the form of Stock, or
exercise of Options or SARs, Parent shall. at the election of
the Holder, have the right to retain the number of shares of
Stock whose aggregate Fair Market Value equals the amount to be
withheld in satisfaction of the applicable withholding taxes.
Agreements evidencing such Awards shall contain appropriate
provisions to effect withholding in this manner.
13.04 Without amending the Plan, Awards may be granted to Employees
who are foreign nationals or employed outside the United States
or both, on such terms and conditions different from those
specified in the Plan as may, in the judgment of the Committee,
be necessary or desirable to further the purpose of the Plan.
13.05 To the extent that federal laws (such as the 1934 Act, the
Code or the Employee Retirement Income Security Act of 1974)
do not otherwise control, the Plan and all determinations made
and actions taken pursuant hereto shall be governed by the law
of the Commonwealth of Pennsylvania and construed accordingly.
<PAGE> 1
Exhibit 11
ROY F. WESTON, INC. AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF BASIC AND DILUTED EARNINGS
(LOSS) PER SHARE
<TABLE>
<CAPTION>
Years Ended December 31
1998 1997 1996
----------- ----------- -----------
Thousands of Dollars,
Except Share and Per Share Amounts
<S> <C> <C> <C>
Basic
Net income (loss) ........................... $ 858 $ (11,425) $ (16,655)
Weighted average shares ..................... 9,914,379 9,712,752 9,562,945
Basic earnings (loss) per share ............. $ .09 $ (1.18) $ (1.74)
Diluted
Net income (loss) ........................... $ 858 $ (11,425) $ (16,655)
Weighted average shares with dilutive options 9,936,379 9,712,752 9,562,945
Diluted earnings (loss) per share ........... $ .09 $ (1.18) $ (1.74)
</TABLE>
<PAGE> 1
Exhibit 13
ROY F. WESTON, INC. AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS [LOGO]
The following table sets forth for the years indicated the percentage of net
revenues represented by certain elements of the Company's consolidated
statements of operations. The table and subsequent discussion should be read in
conjunction with the Consolidated Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
For the years ended December 31
----------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0%
- --------------------------------------------------------------------------------
Expenses
Direct salaries and other operating costs 86.5% 94.5% 87.9%
General and administrative expenses 12.7% 17.8% 15.2%
Pension curtailment gain -- (2.7)% --
Restructuring charges (credits) -- (1.2)% 8.2%
Impairment of long-lived assets -- 0.9% 1.8%
- --------------------------------------------------------------------------------
Income (loss) from operations 0.8% (9.3)% (13.1)%
Other income (expense) 0.2% 0.3% 0.2%
- --------------------------------------------------------------------------------
Income (loss) before income taxes 1.0% (9.0)% (12.9)%
Income taxes 0.4% (1.0)% (3.5)%
- --------------------------------------------------------------------------------
Net income (loss) 0.6% (8.0)% (9.4)%
</TABLE>
The Company incurs a substantial amount of direct project costs, which are
passed through to the Company's clients, resulting principally from the use of
subcontractors on projects. Consequently, the Company measures its operating
performance on the basis of net revenues, which are determined by deducting such
direct project costs from gross revenues. Direct project costs were 42%, 40% and
33% of gross revenues in 1998, 1997 and 1996, respectively. The increases in
1998 and 1997 are primarily due to greater subcontracting of laboratory analysis
beginning in May 1997 as a result of divestiture of the Company's analytical
laboratories.
RESULTS OF OPERATIONS
1998 Compared to 1997
Net revenues decreased 1% to $140,386,000 from $142,359,000 in 1997. The Company
had no net revenues from its analytical laboratory operations in 1998 as it
completed the sale of these operations in May 1997. Analytical laboratory
operations provided $5,624,000 of net revenues in 1997. Dedicated site federal
program net revenues decreased $2,215,000 due to lower margins on one project
and a 3% decrease in total direct labor. One of the Company's dedicated site
federal programs, which provided $6,619,000 of the Company's 1998 net revenues,
is being rebid in 1999. Net revenues for the Company's other operations
increased $6,137,000 due to both higher utilization of direct labor and
increased multipliers. The increased direct labor was primarily due to
additional projects obtained through enhanced selling efforts.
9
<PAGE> 2
ROY F. WESTON, INC. AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS
The Company had income from operations of $1,145,000 in 1998 compared to a loss
from operations of $13,216,000 in 1997. The 1998 results included a $1,000,000
reduction in the Company's estimated insurance claim liability and $800,000 of
net revenues for work performed on a contract in prior years, resulting from a
settlement of that contract. The 1997 loss was reduced by a gain of $3,899,000
from curtailment of the Company's defined benefit pension plan and by
restructuring credits of $1,668,000 resulting from the sales of the net assets
of two subsidiaries. Included in the 1997 loss were charges of $1,245,000 for
the writedown of financial and project software costs, approximately $3,400,000
related to reductions in the Company's workforce, changes in senior management,
and election of new directors in May, 1997, and approximately $1,000,000 for
excess office lease space.
Margins were significantly improved in 1998 as the Company realized the benefit
of staff and cost reductions initiated in the second half of 1997. Operations
personnel utilization was up nearly two full percentage points in 1998.
General and administrative expenses declined $7,545,000, or 30%, in 1998,
decreasing to 12.7% of net revenues from 17.8% in 1997. Expenditures in 1997
included approximately $2,500,000 for reductions in the Company's administrative
workforce and changes to its Board of Directors and senior management. The
workforce reductions resulted in substantially lower administrative salaries and
expenses in 1998. In addition, expenses for the Company's computer systems were
much lower in 1998 due to the 1997 writedown of financial and project software
costs. The Company is developing replacement systems which are currently
expected to be placed in service in early 1999.
The Company had an effective income tax rate of 40% in 1998 compared to an
effective income tax benefit rate of 11% in 1997. The 1997 rate included an
income tax charge of $3,000,000 to provide for the uncertain realizability of a
portion of the Company's deferred tax assets. The charge increased the Company's
1997 basic net loss per share by $.31, or 26% of its 1997 basic net loss per
share.
The Company had other income of $285,000 in 1998 compared to $341,000 in 1997.
Interest and dividend income decreased $356,000 in 1998 primarily due to
significantly lower average amounts invested. This decrease was partially offset
by a 1998 increase of $174,000 in gains on sales of investments. In addition,
the Company realized gains of $157,000 and $21,000 on redemptions of $3,971,000
and $186,000 of its 7% Convertible Subordinated Debentures in 1998 and 1997,
respectively. Interest expense decreased $252,000 from 1997 due primarily to the
repurchase of 7% Convertible Subordinated Debentures and the repayment of a
five-year term loan.
1997 Compared To 1996
Net revenues decreased 19% to $142,359,000 from $176,530,000 in 1996. Consulting
net revenues were impacted by reduced levels of available business.
Non-dedicated-site federal government projects and industrial projects accounted
for 52% and 33%, respectively, of the decline in net revenues. Net revenues from
analytical services declined $13,100,000 as the Company completed the sale of
its analytical laboratory assets in May 1997. Construction and remediation
project net revenues were lower in 1997 due primarily to the lack of an active
thermal incineration project.
The Company had losses from operations of $13,216,000 in 1997 and $23,181,000 in
1996. The 1997 loss was reduced by a gain of $3,899,000 from curtailment of the
Company's defined benefit pension plan and by restructuring credits of
$1,668,000 resulting from the sales of the net assets of two subsidiaries.
Included in the 1997 loss were charges of $1,245,000 for the writedown of
financial and project software costs,
10
<PAGE> 3
ROY F. WESTON, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
approximately $3,400,000 related to reductions in the Company's workforce,
changes in senior management, and election of new directors in May 1997, and
approximately $1,000,000 for excess office lease space. The 1996 loss included
restructuring charges of $14,421,000 consisting principally of asset writedowns
and other expenses associated with a plan to withdraw from the analytical
laboratory business, costs to close or reduce the size of certain office
facilities and severance costs associated with workforce reductions. Also, 1996
included a charge of $3,146,000 to recognize the impairment in value of
transportable thermal treatment systems and a minority interest in a
bioremediation company.
Margins were lower in 1997 as staff and cost reductions could not fully offset
revenue declines in both consulting and construction and remediation activities.
Operations personnel utilization was slightly higher for the full year 1997 than
in 1996, reflecting improvement in the second half of the year. Margins were
lower in 1997 than in 1996, reflecting the continuing impacts of significant
competition, heightened by industry consolidation and the impact of cost
overruns on certain construction and remediation projects.
General and administrative expenses declined $1,596,000, or 6%, in 1997,
although increasing to 17.8% of net revenues from 15.2% in 1996. Expenditures in
1997 included approximately $2,500,000 for reductions to the Company's
administrative workforce and changes to its Board of Directors and senior
management. Expenditures in 1996 included $944,000 relating to severance
benefits for two of the Company's former senior officers.
The Company had an effective income tax benefit rate of 11% in 1997 compared to
an effective income tax benefit rate of 27% in 1996. This rate change was due to
a 1997 income tax charge of $3,000,000 to provide for the uncertain
realizability of a portion of the Company's deferred tax assets. The charge
increased the Company's basic net loss per share by $.31, or 26% of its 1997
basic net loss per share.
The Company had other income of $341,000 in 1997 compared to $381,000 in 1996.
The Company realized gains of $21,000 and $273,000 on redemptions of $186,000
and $3,715,000 of its 7% Convertible Subordinated Debentures in 1997 and 1996,
respectively. Interest expense decreased $328,000 from 1996 due primarily to the
repurchase of 7% Convertible Subordinated Debentures and scheduled repayments of
a five-year term loan.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $6,774,000 in 1998 to $3,993,000 from
$10,767,000 at December 31, 1997. Marketable securities decreased $2,621,000 in
1998 to $1,547,000 from $4,168,000 at December 31, 1997.
Operating activities used cash of $4,167,000 in 1998 and provided cash of
$2,275,000 in 1997. The total of accounts receivable and work in process, net of
advance billings, increased $9,639,000 in 1998, due primarily to increased gross
revenues in the fourth quarter of 1998 and significant billing delays arising
from contract modification issues on one large federal construction project. The
Company expects the contract issues to be resolved in 1999, resulting in
collection of the related unbilled receivables. However, in the event of an
unfavorable resolution, the Company would sustain a significant loss and an
impairment to its cash flow. In addition, the Company had net repayments of
$2,898,000 and $2,411,000 of its short-term and long-term debt in 1998 and 1997,
respectively.
Net cash investments in property and equipment and other assets were $3,180,000
in 1998 and $2,780,000 in 1997. Investments in 1998 and 1997 consisted primarily
of computers and other
11
<PAGE> 4
ROY F. WESTON, INC. AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS
equipment. The Company plans to invest approximately $3,000,000 to $4,500,000 in
capital expenditures in 1999. The Company's capital expenditures are generally
financed through operating cash flow, but some borrowing may be required in
1999.
The Company is required to make annual redemptions of 10% of its 7% Convertible
Subordinated Debentures in the principal amount of $3,140,000 by April 15 of
each year. Repurchases of $1,398,000 need to be made to satisfy the 1999
requirement.
The Company has an $18,000,000 revolving credit facility with a bank to provide
cash borrowings and letters of credit. The facility is collateralized by liens
on substantially all of the Company's tangible and intangible assets, excluding
real estate. The facility expires on June 5, 2000 with a one-year renewal option
and is available for working capital and general corporate purposes, including
permitted acquisitions. Cash borrowings bear interest at 1% over the prime
interest rate or, at the Company's option, other variable rates. Cash borrowings
for purposes other than acquisitions are limited to 125% of cash and marketable
securities pledged by the Company. The agreement requires the Company to
maintain minimum levels of cash and marketable securities, tangible net worth
and certain financial ratios and restricts dividend payments, certain
expenditures and debt outside the agreement. At December 31, 1998, the Company
had $1,900,000 of outstanding cash borrowings under the facility and had
outstanding letters of credit aggregating $2,592,000.
The Company received $235,000 in 1998 and $583,000 in 1997 from shares of Series
A common stock issued through its Employee Stock Purchase Plan. Substantially
all of the shares reserved for issuance under this plan have been distributed as
of July 1, 1998 and the plan has terminated in accordance with its terms.
YEAR 2000 ISSUES
Year 2000 Readiness Disclosure
Many computer systems and other equipment with embedded chips or processors use
only two digits to represent the year and may be unable to accurately process
data and transactions on and after January 1, 2000 (Y2K Issues). As a result,
there are risks of miscalculations or system failures, which could cause
disruptions of business operations.
The Company is in the process of implementing a readiness program with the
objective of having all significant exposures under its direct control
functioning properly with respect to Y2K Issues before January 1, 2000. The
Company expects that its readiness program will achieve this objective and that
the costs of Y2K readiness will not have a material effect on the Company's
results of operations or financial condition.
The Y2K readiness program is organized into functional areas including business
systems; computer hardware infrastructure; office facilities and equipment;
legal and insurance matters; and communications with clients and vendors. The
Company has formed a Y2K Readiness team, which is addressing the following:
o Inventorying Y2K Issues;
o Assigning priorities to identified Y2K Issues;
o Assessing Y2K compliance of material items;
o Repair or replacement of any items found to be non-compliant;
o Testing of repaired or replaced items;
o Design and implementation of contingency and business continuation
plans.
The Company has substantially completed its inventory of Y2K Issues and has
assigned priorities
12
<PAGE> 5
ROY F. WESTON, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
to the identified Issues. The assessment of compliance is more than 80% complete
and the process of repair and replacement of non-compliant systems is underway
and is expected to be completed by August 1999. In addition, the Company is in
the process of identifying and contacting service providers, suppliers and
clients whose activities are believed to be critical to business operations to
determine their compliance with Y2K Issues.
The Company has begun the process of developing contingency plans intended to
mitigate possible disruptions in business that may result from Y2K Issues. These
plans will address special payment considerations from clients, alternate
suppliers and alternate methods of processing business transactions. The
contingency plans are expected to be completed by November 30, 1999.
As part of the Company's ongoing plan to reduce overhead costs, the Company is
in the process of installing new business systems, which are designed to more
efficiently manage the Company's operations. The new systems are expected to be
fully operational during 1999, and the vendor of these systems has warranted
that they are Y2K compliant. The cost of implementation of the new business
systems is expected to be $4,250,000 to $5,250,000 of which approximately
$2,200,000 was expended as of December 31, 1998.
In addition to the cost of implementation of the new business systems, the
Company currently estimates that the cost of identifying, evaluating and
correcting Y2K Issues will be $500,000 to $1,000,000. Expenditures as of
December 31, 1998 were approximately $100,000. The costs of replacing systems,
including hardware and software packages, will be capitalized and amortized over
their useful lives, while all other costs will be expensed as incurred.
The Company's Y2K readiness program is an ongoing process and the estimates of
costs and completion dates, as well as the Company's expectations, described
above are subject to uncertainties. For example, the total costs which the
Company will incur in connection with Y2K Issues will be influenced by the
Company's ability to successfully complete its Y2K readiness program, including
identification of issues, the nature and amount of programming required to fix
affected programs, the related labor and/or consulting costs for such
remediation and the ability of third parties with whom the Company has business
relationships to successfully address their own Y2K Issues. The failure of the
Company to successfully identify and fix all Y2K Issues in critical operations,
or the failure of critical customers or critical systems vendors to continue
operations due to their Y2K Issues, could have a material adverse effect on the
Company's results of operations and financial condition.
OTHER
The Company had net contract backlog of $61,000,000 and $65,300,000 on December
31, 1998 and 1997, respectively. In addition to backlog, the Company can
generate additional revenues from open order contracts and activities related to
emergency responses, which are excluded from contract backlog until approved and
funded. Contracts are subject to cancellation by the client, changes in the
scope of work, and delays in project startup. The maintenance of adequate
contract backlog is dependent on continued generation of new contract bookings.
In 1998, new contract bookings were $145,000,000, a 2% increase from 1997. New
contract bookings had declined in each of the previous four years.
Management believes that inflationary increases in its operating costs and
expenses can generally be
13
<PAGE> 6
ROY F. WESTON, INC. AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS
absorbed by increased rates the Company can bill for its services. To date,
inflationary effects have had little impact on the Company.
FORWARD LOOKING STATEMENTS
From time to time, the Company, its management or other company representatives
may make or publish statements that contain projections, beliefs, expectations,
predictions or intentions relating to anticipated financial performance,
business prospects, potential contract value, business strategy and plans,
technological developments and other matters. The Private Securities Litigation
Reform Act of 1995 provides a safe harbor for these forward looking statements.
In order to comply with the terms of the safe harbor, the Company notes that a
number of risk factors and uncertainties could cause the Company's actual
results, experience or outcome to differ materially from projections, beliefs,
expectations, predictions or intentions expressed in forward looking statements.
These risks and uncertainties, which may affect the operations, performance,
development and results of the Company's business, include, but are not limited
to, the following (as well as those identified elsewhere in this report):
o The highly competitive marketplace in which the Company operates.
o Changes in and levels of enforcement of federal, state, and local
environmental legislation and regulations.
o The Company's ability to obtain new contracts from existing as well
as new clients, and the uncertain timing of awards and contracts.
o The Company's ability to execute new projects and those in backlog
within reasonable cost estimates, as well as other contract
performance risks.
o Funding appropriation, funding delay, and the issuance of work
orders on government projects.
o The Company's ability to achieve any planned overhead or other cost
reductions while maintaining adequate work flow.
o The Company's ability to successfully implement its readiness
program for Y2K Issues.
o The Company's ability to obtain adequate financing for its current
operations and future expansion, including adequate financing for
the Company's acquisition strategy.
o The Company's ability to execute its strategic plan through
successful marketing activities and continued cost containment.
o The nature of the Company's work with hazardous materials, toxic
wastes and other pollutants, and the potential for uninsured claims
or claims in excess of insurance limits, including professional
liability and pollution claims.
o The Company's ability to conclude and implement acquisitions of
other businesses consistent with the Company's acquisition strategy.
o The Company's ability to retain key personnel.
The Company disclaims any intent or obligation to update forward looking
statements.
14
<PAGE> 7
ROY F. WESTON, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA [LOGO]
<TABLE>
<CAPTION>
For the years ended December 31
------------------------------------------------------------
(Thousands of dollars, 1998 1997 1996 1995 1994
except per share amounts)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gross revenues $ 241,192 $ 238,103 $ 263,388 $ 309,858 $ 290,081
Net revenues $ 140,386 $ 142,359 $ 176,530 $ 206,273 $ 200,304
Income (loss) from operations $ 1,145 $ (13,216) $ (23,181)* $ 2,623 $ (730)
Net income (loss) $ 858 $ (11,425) $ (16,655) $ 1,514 $ (1,103)
Basic earnings (loss) per share $ .09 $ (1.18) $ (1.74) $ .16 $ (.12)
</TABLE>
* Includes restructuring and impairment charges aggregating $17,567.
<TABLE>
<CAPTION>
At December 31
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital $ 44,854 $ 46,239 $ 58,956 $ 67,875 $ 74,352
Total assets $ 121,356 $ 125,248 $ 141,472 $ 163,406 $ 156,730
Short-term debt $ 3,600 $ 2,914 $ 2,159 $ 2,261 $ 2,431
Long-term debt (less current portion) $ 12,997 $ 15,884 $ 18,922 $ 24,673 $ 29,843
Stockholders' equity $ 56,324 $ 55,367 $ 66,090 $ 82,901 $ 80,892
- ---------------------------------------------------------------------------------------------------------
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Roy F. Weston, Inc.
We have audited the accompanying consolidated balance sheets of Roy F. Weston,
Inc. and Subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, cash flows and stockholders' equity for
each of the three years in the period ended December 31, 1998. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Roy F. Weston,
Inc. and Subsidiaries as of December 31, 1998 and 1997, and the consolidated
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.
/s/ PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 4, 1999
15
<PAGE> 8
ROY F. WESTON, INC. AND SUBSIDIARIES
[LOGO] FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
-------------------
(Thousands of dollars) 1998 1997
<S> <C> <C>
ASSETS
- ----------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $ 3,993 $ 10,767
Marketable securities 1,547 4,168
Accounts receivable, trade, net of allowance for doubtful accounts 60,476 54,497
Unbilled costs and estimated earnings on contracts in process 20,540 20,920
Prepaid and refundable income taxes -- 1,000
Deferred income taxes 2,470 3,104
Other 4,376 2,643
- ----------------------------------------------------------------------------------------
Total current assets 93,402 97,099
- ----------------------------------------------------------------------------------------
Property and Equipment
Land 215 215
Buildings and improvements 11,500 11,625
Furniture and equipment 30,544 38,803
Leasehold improvements 1,787 2,849
Construction in progress -- 8
- ----------------------------------------------------------------------------------------
Total property and equipment 44,046 53,500
Less accumulated depreciation and amortization 34,852 43,248
- ----------------------------------------------------------------------------------------
Property and equipment, net 9,194 10,252
- ----------------------------------------------------------------------------------------
Other Assets
Goodwill, net of accumulated amortization of $4,138 in 1998
and $4,076 in 1997 1,816 1,878
Deferred income taxes 5,528 5,125
Other 11,416 10,894
- ----------------------------------------------------------------------------------------
Total other assets 18,760 17,897
- ----------------------------------------------------------------------------------------
TOTAL ASSETS $121,356 $125,248
===================
</TABLE>
See notes to consolidated financial statements.
16
<PAGE> 9
ROY F. WESTON, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31
-------------------
(Thousands of dollars) 1998 1997
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------
Current Liabilities
Borrowings under line of credit $ 1,900 $ --
Current maturities of long-term debt 1,700 2,914
Accounts payable and accrued expenses 17,579 13,879
Billings on contracts in process in excess of costs and
estimated earnings 10,939 14,275
Employee compensation, benefits and payroll taxes 8,445 8,721
Income taxes payable 202 59
Other 7,783 11,012
- ------------------------------------------------------------------------------------------
Total current liabilities 48,548 50,860
- ------------------------------------------------------------------------------------------
Long-Term Debt 12,997 15,884
- ------------------------------------------------------------------------------------------
Other Liabilities 3,487 3,137
- ------------------------------------------------------------------------------------------
Contingencies
- ------------------------------------------------------------------------------------------
Stockholders' Equity
Common stock, $.10 par value, 10,500,000 shares authorized;
3,170,294 shares issued in 1998; 3,170,494 shares issued in 1997 317 317
Series A common stock, $.10 par value, 20,500,000 shares authorized;
8,650,778 shares issued in 1998; 8,581,821 shares issued in 1997 865 858
Unrealized gain on investments 597 733
Additional paid-in capital 55,928 55,700
Retained earnings 3,707 2,849
- ------------------------------------------------------------------------------------------
61,414 60,457
Less treasury stock at cost, 1,081,275 Common shares in 1998
and 1997; 792,805 Series A common shares in 1998 and 1997 5,090 5,090
- ------------------------------------------------------------------------------------------
Total stockholders' equity 56,324 55,367
- ------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $121,356 $125,248
===================
</TABLE>
17
<PAGE> 10
ROY F. WESTON, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended December 31
-----------------------------------------
(Thousands of dollars, except per share amounts) 1998 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross revenues $ 241,192 $ 238,103 $ 263,388
Direct project costs 100,806 95,744 86,858
- --------------------------------------------------------------------------------------------
Net revenues 140,386 142,359 176,530
- --------------------------------------------------------------------------------------------
Expenses
Direct salaries and other operating costs 121,441 134,552 155,203
General and administrative expenses 17,800 25,345 26,941
Pension curtailment gain -- (3,899) --
Restructuring charges (credits) -- (1,668) 14,421
Impairment of long-lived assets -- 1,245 3,146
- --------------------------------------------------------------------------------------------
139,241 155,575 199,711
- --------------------------------------------------------------------------------------------
Income (loss) from operations 1,145 (13,216) (23,181)
- --------------------------------------------------------------------------------------------
Other income (expense)
Investment income 1,662 1,844 1,965
Interest expense (1,371) (1,623) (1,951)
Other (6) 120 367
- --------------------------------------------------------------------------------------------
285 341 381
- --------------------------------------------------------------------------------------------
Income (loss) before income taxes 1,430 (12,875) (22,800)
Provision (benefit) for income taxes 572 (1,450) (6,145)
- --------------------------------------------------------------------------------------------
Net income (loss) $ 858 $ (11,425) $ (16,655)
=========================================
Basic earnings (loss) per share $ .09 $ (1.18) $ (1.74)
=========================================
Weighted average shares outstanding - basic 9,914,379 9,712,752 9,562,945
=========================================
Diluted earnings (loss) per share $ .09 $ (1.18) $ (1.74)
=========================================
Weighted average shares outstanding - diluted 9,936,379 9,712,752 9,562,945
=========================================
</TABLE>
See notes to consolidated financial statements.
18
<PAGE> 11
ROY F. WESTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31
--------------------------------
(Thousands of dollars) 1998 1997 1996
- ---------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) $ 858 $(11,425) $(16,655)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 3,770 5,396 7,833
Provision for losses on accounts receivable 704 511 291
Pension curtailment gain -- (3,899) --
Restructuring charges -- -- 14,421
Impairment of long-lived assets -- 1,245 3,146
Other (438) (174) (1,040)
Change in assets and liabilities:
Accounts receivable, trade (6,683) 10,472 12,803
Unbilled costs and estimated earnings on contracts
in process 380 (2,769) (216)
Other current assets (1,733) (60) 164
Accounts payable and accrued expenses 3,700 2,010 (36)
Billings on contracts in process in excess of costs
and estimated earnings (3,336) 2,042 (3,113)
Employee compensation, benefits and payroll taxes (276) (4,605) 1,488
Income taxes 1,143 1,558 (1,338)
Deferred income taxes 301 424 (4,130)
Other current liabilities (2,793) (1,927) (2,166)
Other assets and liabilities 236 3,476 (1,823)
- ---------------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities (4,167) 2,275 9,629
- ---------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Proceeds from sale of investments 9,912 15,381 21,663
Payments for purchase of investments (6,676) (12,075) (24,539)
Purchase of property and equipment (2,036) (2,670) (3,052)
Investments in other assets (1,144) (110) (388)
- ---------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities 56 526 (6,316)
- ---------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Borrowings under line of credit 1,900 -- --
Principal payments under long-term debt (4,798) (2,411) (6,187)
Proceeds from issuance of Series A common stock 235 583 971
Purchase of Series A common treasury stock -- (84) (1,199)
- ---------------------------------------------------------------------------------------------
Net cash used for financing activities (2,663) (1,912) (6,415)
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (6,774) 889 (3,102)
- ---------------------------------------------------------------------------------------------
Cash and Cash Equivalents
Beginning of year 10,767 9,878 12,980
- ---------------------------------------------------------------------------------------------
End of year $ 3,993 $ 10,767 $ 9,878
================================
</TABLE>
See notes to consolidated financial statements.
19
<PAGE> 12
ROY F. WESTON, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Series A
Common Stock Common Stock Unrealized Gain
---------------- --------------- (Loss on)
(Thousands of dollars and shares) Shares Amount Shares Amount Investments
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
At January 1, 1996 3,193 $ 319 8,028 $ 803 $ 514
Shares issued under employee
stock purchase plan -- -- 291 29 --
Purchase of treasury stock -- -- -- -- --
Other -- -- -- -- 27
Net loss -- -- -- -- --
- --------------------------------------------------------------------------------------
At December 31, 1996 3,193 319 8,319 832 541
Shares issued under employee
stock purchase plan -- -- 240 24 --
Purchase of treasury stock -- -- -- -- --
Other (23) (2) 23 2 192
Net loss -- -- -- -- --
- --------------------------------------------------------------------------------------
At December 31, 1997 3,170 317 8,582 858 733
Shares issued under employee
stock purchase plan -- -- 69 7 --
Other -- -- -- -- (136)
Net income -- -- -- -- --
- --------------------------------------------------------------------------------------
At December 31, 1998 3,170 $ 317 8,651 $ 865 $ 597
==================================================
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 13
ROY F. WESTON, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Treasury Stock
-------------------------------------
Additional
Paid-in Retained Common Series A
Capital Earnings Shares Common Shares Amount Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 54,143 $ 30,929 (1,081) (513) $ (3,807) $ 82,901
942 -- -- -- -- 971
-- -- -- (257) (1,199) (1,199)
45 -- -- -- -- 72
-- (16,655) -- -- -- (16,655)
- --------------------------------------------------------------------------------
55,130 14,274 (1,081) (770) (5,006) 66,090
559 -- -- -- -- 583
-- -- -- (23) (84) (84)
11 -- -- -- -- 203
-- (11,425) -- -- -- (11,425)
- --------------------------------------------------------------------------------
55,700 2,849 (1,081) (793) (5,090) 55,367
228 -- -- -- -- 235
-- -- -- -- -- (136)
-- 858 -- -- -- 858
- --------------------------------------------------------------------------------
$ 55,928 $ 3,707 (1,081) (793) $ (5,090) $ 56,324
================================================================================
</TABLE>
21
<PAGE> 14
ROY F. WESTON, INC. AND SUBSIDIARIES
[LOGO] FOOTNOTES
Note 1 - Nature of Operations
The Company provides services to industry, the federal government, and public
works and local government markets. Services provided include infrastructure
redevelopment, federal program management, and knowledge systems and solutions.
The Company's services are provided primarily in the United States, although
services in foreign nations are performed.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All material intercompany accounts and transactions have been
eliminated in consolidation. 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 and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash Equivalents and Investments
The Company considers all highly liquid investments with a remaining maturity of
three months or less at the time of purchase to be cash equivalents. Cash and
cash equivalents consist of cash on hand, demand deposit accounts, and
investments in corporate commercial paper and U.S. Government securities.
Marketable securities are stated at fair value. Realized gains and losses are
computed based on specific identification.
Marketable equity and debt securities available for current operations include
investments in corporate commercial paper and U.S. Government debt securities,
and are classified as current assets in the accompanying consolidated balance
sheets. Investments held by the Company's wholly-owned captive insurance
subsidiary include equity and bond mutual funds, and are classified as
noncurrent assets in the accompanying consolidated balance sheets.
Property and Equipment
Property and equipment are carried at cost. Depreciation is provided primarily
on the straight-line method over the assets' estimated useful lives of 10 to 40
years for buildings and improvements and 3 to 10 years for furniture and
equipment. Leasehold improvements are amortized over the shorter of the lease
period or estimated useful life on the straight-line method. Property and
equipment leased under capital leases are recorded at the lower of fair market
value or the present value of future lease payments. Property and equipment
under these leases are amortized on a straight-line basis, generally over the
assets' estimated useful lives. When property or equipment is sold or retired,
the cost of the asset and related accumulated depreciation are removed from the
balance sheet and any gain or loss is included in results of operations.
Goodwill
Goodwill arising from the excess of purchase price over the underlying fair
value of net assets of acquired subsidiaries is amortized on the straight-line
method over a 40-year period. The Company annually evaluates whether changes
have occurred that would require revision of the remaining estimated useful life
of goodwill.
Long-Lived Asset Impairment
The Company reviews its long-lived assets for impairment on an exception basis
whenever events or changes in circumstances indicate that the carrying amount of
the assets may not be recoverable through future cash flows. If it is determined
that an impairment loss has occurred, the loss is recognized in the consolidated
statement of operations.
22
<PAGE> 15
ROY F. WESTON, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Income Taxes
The Company provides deferred income taxes on all temporary differences between
the tax and financial reporting bases of its assets and liabilities. A valuation
allowance is recorded to reduce deferred tax assets to the amount that is
expected to more likely than not be realized.
Contract Revenue Recognition
The Company provides professional engineering, consulting and other services
under cost-plus-fee, time and materials, and fixed-price contracts. Revenues
from contracts are recorded on the percentage-of-completion method of
accounting, determined by relating contract costs incurred to date to total
estimated contract costs at completion. Estimated award fees on certain
long-term federal contracts are included in revenues at the time the amounts can
be reasonably determined. Revenues associated with U.S. Government indirect
rates are adjusted when variances are determined on at least an annual basis.
Provisions for estimated contract losses are recorded when identified.
Stock-Based Compensation
The Company has elected not to adopt Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation," but continues to use
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," to account for its stock-based compensation programs, including its
Stock-Based Incentive Compensation Plan and Employee Stock Purchase Plan. Under
Opinion No. 25, no compensation expense is recognized for grants of stock
options if the exercise price is not less than market value at the date of
grant, and employee stock purchase plans that qualify under Section 423 of the
Internal Revenue Code are considered noncompensatory. Proforma disclosures
required under Statement No. 123 are included in Note 9 to the consolidated
financial statements.
Note 3 - Restructuring and Impairment Charges
During the third quarter of 1996, the Company adopted plans to withdraw from the
analytical laboratory business, close or reduce the size of certain office
facilities, and reduce the size of its workforce. The Company recorded
restructuring charges aggregating $14,421,000, consisting principally of
writedown of assets, severance costs for terminated employees, costs of idle
facilities, and estimated loss on disposal of the analytical laboratory
business. At December 31, 1998 and 1997, respectively, the Company had accruals
aggregating $593,000 and $1,433,000, respectively, included as other current
liabilities in the accompanying consolidated balance sheets, for costs,
principally lease payments, to be incurred in future periods as a result of the
restructuring.
During 1997, the Company completed the sale of net assets of its analytical
laboratory business and the sale of another subsidiary. The proceeds from these
transactions exceeded amounts anticipated in recording the 1996 restructuring
charge. The excess is included as restructuring credits in the accompanying
consolidated statement of operations for the year ended December 31, 1997.
In addition, the Company recorded impairment charges of $1,245,000 and
$3,146,000 in 1997 and 1996, respectively, in accordance with Statement of
Financial Accounting Standards No. 121. The impairment charges reduced the
carrying value of the Company's financial and project software in 1997 and its
thermal incineration assets and a minority interest in a bioremediation company
in 1996 to their estimated fair values.
23
<PAGE> 16
ROY F. WESTON, INC. AND SUBSIDIARIES
FOOTNOTES
Note 4 - Investments
The Company's investments are classified as available-for-sale securities and
recorded at current market value with an offsetting adjustment included in
stockholders' equity.
Investments in debt and equity securities at December 31 consisted of the
following:
<TABLE>
<CAPTION>
=========================
(Thousands of dollars) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Fair Value:
Current $ 1,547 $ 4,168
Noncurrent 3,853 4,344
- --------------------------------------------------------------------------------
5,400 8,512
Gross unrealized holding gains (950) (1,130)
Gross unrealized holding losses 45 19
- --------------------------------------------------------------------------------
Cost basis of investments $ 4,495 $ 7,401
=========================
</TABLE>
Investment activity for the years ended December 31 was as follows:
<TABLE>
<CAPTION>
=================================
(Thousands of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds from sale of investments $ 9,912 $ 15,381 $ 21,663
- --------------------------------------------------------------------------------
Gross realized gains $ 461 $ 270 $ 294
- --------------------------------------------------------------------------------
Gross realized losses $ -- $ -- $ (15)
- --------------------------------------------------------------------------------
Change in unrealized holding gain $ (206) $ 291 $ 41
Deferred income taxes 70 (99) (14)
- --------------------------------------------------------------------------------
Net change in unrealized holding gain $ (136) $ 192 $ 27
=================================
</TABLE>
Realized gains and losses are determined on a specific identification basis and
included in investment income in the accompanying consolidated statements of
operations.
24
<PAGE> 17
ROY F. WESTON, INC. AND SUBSIDIARIES
Note 5 - Accounts Receivable and Unbilled Costs and Estimated Earnings
Trade accounts receivable at December 31 consisted of the following:
<TABLE>
<CAPTION>
======================
(Thousands of dollars) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Industrial clients $16,003 $15,185
State and municipal governments 13,913 12,304
U.S. Government agencies 31,674 28,393
Retentions 768 365
- --------------------------------------------------------------------------------
62,358 56,247
Less allowance for doubtful accounts 1,882 1,750
- --------------------------------------------------------------------------------
$60,476 $54,497
======================
</TABLE>
Unbilled costs and estimated earnings consisted of the following:
<TABLE>
<CAPTION>
======================
(Thousands of dollars) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Industrial clients $ 2,564 $ 5,447
State and municipal governments 6,751 5,260
U.S. Government agencies 10,952 9,695
Retentions 273 518
- --------------------------------------------------------------------------------
$20,540 $20,920
======================
</TABLE>
The Company does not believe there is any undue credit risk in connection with
realization of its accounts receivable.
Unbilled costs and estimated earnings can be invoiced upon attaining certain
milestones under fixed-price contracts, completion of federal government
indirect rate audits, final approval of design plans for engineering services,
and completion of construction on certain projects. Billed and unbilled
retentions of $1,041,000 at December 31, 1998 include $534,000 which is expected
to be collected during 2000 and thereafter.
Note 6 - Line of Credit Agreement
The Company has an $18,000,000 revolving credit facility with a bank to provide
cash borrowings and letters of credit that expires on June 5, 2000. The facility
is collateralized by liens on substantially all of the Company's tangible and
intangible assets, excluding real estate. The facility is for a two-year period
with a one-year renewal option and is available for working capital and other
general corporate purposes, including permitted acquisitions.
Under the terms of the agreement, cash borrowings bear interest at 1% over the
prime interest rate or, at
25
<PAGE> 18
ROY F. WESTON, INC. AND SUBSIDIARIES
FOOTNOTES
the Company's option, other variable rates. Cash borrowings for purposes other
than acquisitions are limited to 125% of cash and marketable securities pledged
by the Company. The Company is subject to a 3/8% annual charge on the unused
portion of the facility. The agreement requires the Company to maintain minimum
levels of cash and marketable securities, tangible net worth and certain
financial ratios and restricts dividend payments, certain expenditures and debt
outside the agreement.
The Company had $1,900,000 of outstanding cash borrowings under the facility at
December 31, 1998 and had outstanding letters of credit aggregating $2,592,000.
Note 7 - Long-Term Debt
Long-term debt at December 31 consisted of the following:
<TABLE>
<CAPTION>
=================
(Thousands of dollars) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
7% Convertible Subordinated Debentures due April 15, 2002 $13,958 $17,929
Bank term loan, payable in quarterly installments of
$500,000 plus interest at 5.85% through January 1, 1998 -- 500
Capitalized lease obligations 739 369
- --------------------------------------------------------------------------------
Total debt 14,697 18,798
Less current maturities 1,700 2,914
- --------------------------------------------------------------------------------
$12,997 $15,884
=================
</TABLE>
The 7% Convertible Subordinated Debentures (the Debentures) are due April 15,
2002 and are convertible into the Company's Series A common stock at a
conversion price of $21.13 per share. The Company has the option to redeem the
Debentures at a redemption price of 100%.
The Company is required to redeem annually 10% of the principal amount of the
Debentures, so as to retire 80% of the Debentures prior to maturity. During
1998, 1997 and 1996, the Company repurchased $3,971,000, $186,000 and $3,715,000
principal amount of Debentures, respectively, thus satisfying redemption
requirements through 1998 and a portion of the 1999 redemption requirement.
Debentures aggregating $1,398,000 need to be repurchased by April 15, 1999. The
gains on redemption of $157,000, $21,000 and $273,000 in 1998, 1997 and 1996,
respectively, have been included in other income in the consolidated statements
of operations. The Debentures are uncollateralized and subordinated to all
senior indebtedness. The costs of issuing the Debentures have been deferred and
are being amortized over the life of the debt.
The Debenture Indenture limits the amount of dividends the Company may declare
and limits the funds the Company and its subsidiaries may use to
26
<PAGE> 19
ROY F. WESTON, INC. AND SUBSIDIARIES
purchase, redeem or retire the Company's capital stock. The Indenture also
provides that the Company must maintain a minimum tangible net worth or offer to
purchase 10% of the principal amount of the Debentures issued at their principal
amount plus accrued interest.
The fair value of the Debentures based on quoted market price at December 31,
1998 and 1997 was $12,946,000 and $16,226,000, respectively.
Maturities of long-term debt are as follows:
Years Ending December 31 (Thousands of dollars)
<TABLE>
<S> <C>
1999 $ 1,700
2000 3,436
2001 3,250
2002 6,300
2003 11
- --------------------------------------------------------------------------------
$ 14,697
==========
</TABLE>
Note 8 - Leases
The Company leases certain office facilities and equipment under operating
leases. These leases generally provide for renewal options, and the office
leases include escalation clauses based on increases in real estate taxes and
operating expenses. For certain office facilities, the Company obtains
reimbursements for rental expense under long-term U.S. Government projects.
Minimum annual lease commitments under noncancelable leases principally for
office facilities are as follows:
Years ending December 31 (Thousands of dollars)
<TABLE>
<S> <C>
1999 $ 3,369
2000 2,675
2001 2,019
2002 1,418
2003 1,614
Thereafter 13,637
- --------------------------------------------------------------------------------
$ 24,732
==========
</TABLE>
The following is a summary of rental expense for the years ended December 31:
<TABLE>
<CAPTION>
=======================================
(Thousands of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross rental expense $ 12,210 $ 15,068 $ 18,331
Reimbursed as
direct project expenses (7,497) (6,897) (6,585)
- --------------------------------------------------------------------------------
Net rental expense $ 4,713 $ 8,171 $ 11,746
=======================================
</TABLE>
27
<PAGE> 20
ROY F. WESTON, INC. AND SUBSIDIARIES
FOOTNOTES
Note 9 - Common Stock
The Company's Common stock and Series A common stock are equivalent except that
each share of Common stock has one vote per share and each share of Series A
common stock has one-tenth of one vote per share.
The Company has a Stock-Based Incentive Compensation Plan (Option Plan) that
provides for the grant to employees of nonqualified stock options and options
designed to qualify as "incentive stock options" under the Internal Revenue
Code. An option gives the participant the right to purchase from the Company a
specified number of shares of Series A common stock for a specified price during
a specified period not exceeding 10 years. A total of 1,075,000 shares of Series
A common stock have been reserved for issuance under the Option Plan pursuant to
the exercise of options. All options must have an exercise price of not less
than fair market value of the underlying shares on the date of grant. Options
granted under the Option Plan have all had a life of 10 years and generally vest
at the rate of 20% on each of the first 5 anniversary dates of the grant.
Payment by option holders upon exercise of an option may be made in cash, or by
delivering previously owned shares of Common stock, Series A common stock, or
any combination thereof.
Option activity under the Option Plan is summarized as follows:
<TABLE>
<CAPTION>
======================================================
Option Price Weighted Average
Number of Shares per Share Price per Share
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at January 1, 1996 630,720 $4.44 - $14.50 $ 8.93
Granted 159,600 $4.00 - $ 4.75 $ 4.61
Exercised -- -- --
Canceled (134,420) $4.75 - $14.50 $ 8.85
- --------------------------------------------------------------------------------------------
Outstanding at December 31, 1996 655,900 $4.00 - $14.50 $ 7.89
Granted 689,016 $2.75 - $ 4.25 $ 3.84
Exercised -- -- --
Canceled (492,300) $3.75 - $14.50 $ 8.14
- --------------------------------------------------------------------------------------------
Outstanding at December 31, 1997 852,616 $2.75 - $14.50 $ 4.47
Granted -- -- --
Exercised -- -- --
Canceled (83,467) $3.75 - $14.50 $ 6.12
- --------------------------------------------------------------------------------------------
Outstanding at December 31, 1998 769,149 $2.75 - $14.50 $ 4.29
======================================================
Exercisable at December 31, 1996 346,580 $4.44 - $14.50 $ 9.05
Exercisable at December 31, 1997 120,600 $4.00 - $14.50 $ 7.13
Exercisable at December 31, 1998 149,710 $3.75 - $14.50 $ 5.70
</TABLE>
At December 31, 1998 there were 191,551 shares of Series A common stock
available for further grants under the Option Plan. The weighted average
remaining contractual life of options outstanding at December 31, 1998 was 7.95
years.
Options granted during 1997 include options for 435,000 shares which will vest
if the fair market value of the Company's Series A common stock attains certain
thresholds, and remains at or above the prescribed market value for at least 90
days.
28
<PAGE> 21
ROY F. WESTON, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
There are five incremental thresholds, and 20% of the options will vest as each
condition is met. These options will fully vest 9 years from the date of grant,
if not vested or terminated at an earlier date. Also included in 1997 grants are
options for 22,216 shares at an exercise price of $4.25 per share. These options
replaced options for 124,300 shares originally issued in 1990, 1992, and 1993 at
exercise prices ranging from $7.75 to $14.50 per share.
The Company also has an Employee Stock Purchase Plan (Purchase Plan), which
provides for the purchase of Series A common stock by eligible employees. The
Purchase Plan is designed to qualify as a noncompensatory employee stock
purchase plan as defined in Section 423 of the Internal Revenue Code. A total of
2,425,000 shares of Series A common stock have been reserved for issuance under
the Purchase Plan. The price per share of Series A common stock is equal to 85%
of the lower of the closing market price of Series A common stock on the first
trading day of each semi-annual purchase period, or the last trading day of such
purchase period. During the years ended December 31, 1998, 1997, and 1996,
respectively, 68,737, 240,054 and 291,120 shares were issued under the Purchase
Plan at prices ranging from $2.34 per share to $3.83 per share. Substantially
all of the shares reserved for issuance under the Purchase Plan have been
distributed as of July 1, 1998, and the Purchase Plan has terminated in
accordance with its terms.
Statement of Financial Accounting Standards No. 123, which the Company has
elected not to adopt, would require the determination of compensation cost for
awards under the Option Plan and issuances under the Purchase Plan based on
their fair value. If the 1996, 1997 and 1998 awards and issuances had been
accounted for in accordance with Statement No. 123, the Company's proforma net
income (loss) and basic earnings (loss) per share for the years ended December
31 would approximate the amounts below:
<TABLE>
<CAPTION>
=========================================
(Thousands of dollars,
except per share amounts) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) $ 557 $ (11,823) $ (16,834)
Basic earnings
(loss) per share $ .06 $ (1.22) $ (1.76)
================================================================================
</TABLE>
The impacts of applying Statement No. 123 in the proforma disclosure are not
indicative of future amounts. Statement No. 123 does not apply to awards and
issuances prior to 1995, and additional awards and issuances in future years are
anticipated.
Fair values used in calculating the proforma disclosures under Statement No. 123
were determined using the Black-Scholes option pricing model. There were no
option grants in 1998. Significant assumptions used and results follow:
<TABLE>
<CAPTION>
================================================================================
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Risk-free interest rates 6.28% - 6.78% 6.28% - 7.33%
Volatility 59% - 96% 48% - 59%
Dividends None None
Fair value $2.19 - $3.85 $2.82 - $3.43
================================================================================
</TABLE>
Note 10 - Employee Benefit Plans
The Company has a defined benefit pension plan (Retirement Income Plan) which
covered substantially all of its employees until July 1, 1997. Effective that
date, benefits under the Retirement Income Plan were frozen resulting in the
recognition of a curtailment gain of $3,899,000. In addition, the Company has
nonqualified supplementary retirement plans (Supplemental Plans) that provide
additional benefits to certain executives. The Company also provides certain
postretirement medical benefits.
29
<PAGE> 22
ROY F. WESTON, INC. AND SUBSIDIARIES
FOOTNOTES
The following provides a reconciliation of benefit obligations, plan assets and
funded status of the plans:
<TABLE>
<CAPTION>
==============================================
Retirement Supplemental Postretirement
Income Plan Plans Medical
- ------------------------------------------------------------------------------------------------
(Thousands of dollars)
<S> <C> <C> <C>
Change in benefit obligation
Benefit obligation at January 1, 1997 $ 33,942 $ 2,932 $ 776
Service cost 979 76 51
Interest cost 2,435 220 68
Plan amendments (4,391) (110) --
Special termination benefits -- 119 --
Benefits paid (524) (197) (64)
Actuarial (gain) or loss 505 28 169
- ------------------------------------------------------------------------------------------------
Benefit obligation at December 31, 1997 $ 32,946 $ 3,068 $ 1,000
Service cost -- 40 68
Interest cost 2,360 212 77
Plan amendments -- -- --
Special termination benefits -- 58 --
Benefits paid (1,133) (204) (161)
Actuarial (gain) or loss 2,734 (29) 213
Participant contributions -- -- 8
- ------------------------------------------------------------------------------------------------
Benefit obligation at December 31, 1998 $ 36,907 $ 3,145 $ 1,205
==============================================
Change in plan assets
Fair value of plan assets at January 1, 1997 $ 26,209 $ -- $ --
Actual return on plan assets 5,843 -- --
Employer contributions 2,823 197 64
Benefits paid (524) (197) (64)
Expenses (88) -- --
- ------------------------------------------------------------------------------------------------
Fair value of plan assets at December 31, 1997 $ 34,263 -- --
- ------------------------------------------------------------------------------------------------
Actual return on plan assets 6,774 -- --
Employer contributions 796 204 153
Participant contributions -- -- 8
Benefits paid (1,133) (204) (161)
Expenses (147) -- --
- ------------------------------------------------------------------------------------------------
Fair value of plan assets at December 31, 1998 $ 40,553 -- --
==============================================
Reconciliation of funded status:
At December 31, 1997
Funded status $ 1,317 $ (3,068) $ (1,000)
Unrecognized actuarial (gain) loss (474) 939 (800)
Unrecognized transition (asset) obligation -- 73 1,110
Unrecognized prior service cost -- 24 --
Net amount recognized $ 843 $ (2,032) $ (690)
- ------------------------------------------------------------------------------------------------
At December 31, 1998
Funded status $ 3,646 $ (3,145) $ (1,205)
Unrecognized actuarial (gain) loss (1,558) 869 (528)
Unrecognized transition (asset) obligation -- 55 1,036
Unrecognized prior service cost -- 19 --
- ------------------------------------------------------------------------------------------------
Net amount recognized $ 2,088 $ (2,202) $ (697)
==============================================
</TABLE>
30
<PAGE> 23
ROY F. WESTON, INC. AND SUBSIDIARIES
The components of net periodic benefit cost for the years ended December 31 are
as follows:
<TABLE>
<CAPTION>
==============================
(Thousands of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Retirement income plan:
Service cost $ -- $ 979 $ 2,352
Interest cost 2,360 2,435 2,421
Expected return on plan assets (2,809) (2,500) (1,960)
Amortization of prior service cost -- (7) (15)
Amortization of transitional obligation -- 16 32
Recognized actuarial loss -- -- 310
- --------------------------------------------------------------------------------
Net periodic benefit cost (credit) $ (449) $ 923 $ 3,140
==============================
Supplemental plans
Service cost $ 40 $ 76 $ 105
Interest cost 211 220 200
Amortization of prior service cost 5 13 21
Amortization of transitional obligation 18 18 18
Recognized actuarial loss 41 54 78
- --------------------------------------------------------------------------------
Net periodic benefit cost $ 315 $ 381 $ 422
==============================
Postretirement medical:
Service cost $ 68 $ 51 24
Interest cost 77 68 54
Amortization of transition obligation 74 74 74
Recognized actuarial gain (59) (79) (106)
- --------------------------------------------------------------------------------
Net periodic benefit cost $ 160 $ 114 $ 46
==============================
</TABLE>
In addition, the Company recorded charges under the Supplemental Plans of
$58,000, $129,000 and $134,000 in 1998, 1997 and 1996, respectively, for vested
benefits of former executives.
Significant assumptions used in the benefit plans at December 31 were:
<TABLE>
<CAPTION>
===================
1998 1997
<S> <C> <C>
Retirement income plan:
Weighted average discount rate 6.90% 7.25%
Expected long-term rate of return on plan assets 9.25% 9.25%
Rate of compensation increase 5.00% 5.00%
Supplemental plans:
Weighted average discount rate 6.90% 7.25%
Postretirement medical:
Weighted average discount rate 6.90% 7.25%
Initial health care cost trend rate 9.00% 10.00%
Ultimate health care cost trend rate 5.50% 5.50%
Grading period 5 years 6 years
===================
</TABLE>
31
<PAGE> 24
ROY F. WESTON, INC. AND SUBSIDIARIES
FOOTNOTES
Assumed health care cost trend rates can have a significant effect on amounts
reported for the postretirement medical plan. A 1% change in the assumed health
care cost trend rates would increase the aggregate of service cost and interest
cost for 1998 by $8,000 and the accumulated postretirement benefit obligation at
December 31, 1998 by $78,000.
The Company also has a Retirement Savings Plan (Savings Plan) which provides
that the Company will supplement an employee's contribution (which may not
exceed 12% of compensation). Employees are eligible to participate in the
Savings Plan at the beginning of the quarter after their hire but do not receive
the supplement until the quarter after completion of one year of service. The
Company has agreed to contribute to the Savings Plan an amount equal to 50% of
the first 6% of an employee's contributions. Company contributions resulted in
charges to earnings of $1,653,000, $1,951,000 and $2,335,000 for the years ended
December 31, 1998, 1997 and 1996, respectively. In addition, effective July 1,
1997, the Company began making an additional contribution to the Plan. The
additional contribution, which aggregated $1,508,000 in 1998 and $879,000 in
1997, is made for the benefit of all eligible employees and is not dependent on
an employee contribution.
The Company maintains medical and dental plans for its eligible employees on a
primarily self-funded basis. Claims in excess of specified individual and
aggregate amounts are covered by insurance. Costs and premiums in the financial
statements for the years ended December 31, 1998, 1997 and 1996 for these plans
were $2,771,000, $3,181,000 and $3,363,000, respectively.
Note 11 - Contingencies
As collateral for performance on contracts, the Company is contingently liable
at December 31, 1998 in the amount of $2,592,000, under standby letters of
credit. A substantial portion of the Company's gross revenues is derived from
work involving hazardous materials, toxic wastes and other pollutants. Such
efforts frequently entail significant risks of liability for environmental
damage, personal injury, and fines and costs imposed by regulatory agencies. A
substantial number of the Company's contracts require indemnification of a
client for performance claims, damages or losses unless such injury or damage
is solely the result of the client's negligence or willful acts. The Company
has been able to insure against most liabilities it may incur in this regard.
The Company has obtained coverage with commercial carriers to insure against
pollution liability claims. Although this insurance covers many of the Company's
environmental exposures, there are instances where project-specific pollution
insurance policies are necessary. The Company will continue to evaluate
exposures associated with each project to determine if additional coverage is
necessary. The Company is partially self-insured through its subsidiary,
Cardinal Indemnity Company of North America, a captive insurance company.
Cardinal provides professional liability and pollution coverage for deductible
amounts of the commercial insurance coverage.
While the insurance carried by the Company may not be sufficient to cover all
claims that may arise, and while insurance carriers may not continue to make
coverage available to the Company, management believes it has provided an
adequate level of insurance coverage.
The Company is subject to certain claims and lawsuits in connection with work
performed in the ordinary course of its business. In the opinion of management,
such claims and lawsuits will not have a material adverse effect on the
financial position or results of operations of the Company.
32
<PAGE> 25
ROY F. WESTON, INC. AND SUBSIDIARIES
Note 12 - Income Taxes
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
=====================================
(Thousands of dollars) 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 149 $(1,905) $(2,061)
State 122 30 46
- -------------------------------------------------------------------------------
271 (1,875) (2,015)
- -------------------------------------------------------------------------------
Deferred
Federal 301 425 (4,729)
State -- -- 599
- -------------------------------------------------------------------------------
301 425 (4,130)
- -------------------------------------------------------------------------------
$ 572 $(1,450) $(6,145)
=====================================
</TABLE>
Temporary differences that give rise to deferred tax assets and liabilities at
December 31 are as follows:
<TABLE>
<CAPTION>
========================
(Thousands of dollars) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Uncollectible accounts $ 110 $ --
Net operating loss carryforwards 6,626 5,331
Pensions 1,419 1,400
Self insurance 1,647 2,202
Other accruals 1,299 702
Depreciation -- 423
Facility closure 1,450 2,571
State tax loss carryforwards 2,942 2,156
Other 1,925 1,773
- --------------------------------------------------------------------------------
$ 17,418 $ 16,558
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Amortization $ -- $ (24)
Retainage (174) (635)
Award fees (312) (168)
Other (1,192) (577)
- --------------------------------------------------------------------------------
(1,678) (1,404)
Valuation allowance (7,742) (6,925)
- --------------------------------------------------------------------------------
Net deferred income taxes $ 7,998 $ 8,229
========================
</TABLE>
33
<PAGE> 26
ROY F. WESTON, INC. AND SUBSIDIARIES
FOOTNOTES
At December 31, 1998, the Company has federal net operating loss carryforwards
of approximately $19,488,000, principally expiring in 2012. The Company's net
deferred tax assets include substantial amounts of net operating loss
carryforwards. Failure to achieve forecasted amounts of taxable income in future
periods could affect the ultimate realization of net deferred tax assets. A
valuation allowance has been established for certain deferred tax assets since,
based on the weight of available evidence, it is more likely than not that a
portion of these assets will not be realized.
The reconciliations of the effective tax rate to that based on the federal
statutory rate for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
===========================
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0%
Valuation allowance 2.5 (23.3) --
State income taxes, net of federal taxes 5.7 (0.2) (1.9)
Amortization of goodwill 1.5 (0.2) (4.2)
Travel-related meals 5.7 (0.8) (0.5)
Officers life insurance (5.8) (0.1) 0.1
Other, net (3.6) 1.9 (0.5)
- --------------------------------------------------------------------------------
Effective tax rate 40.0% 11.3% 27.0%
===========================
</TABLE>
Note 13 - Major Customer Information
The Company's largest customer is the U.S. Government and its agencies which
provided the following gross revenues for the years ended December 31:
====================================
(Thousands of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Department of Defense $ 60,892 $ 50,146 $ 55,488
Environmental Protection Agency 50,842 47,285 46,285
Department of Energy 20,229 25,379 35,230
Other 4,600 6,528 8,204
- --------------------------------------------------------------------------------
Total U.S. Government $136,563 $129,338 $145,207
====================================
34
<PAGE> 27
ROY F. WESTON, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Note 14 - Supplemental Cash Flow Information
Cash payments for income taxes were $51,000, $192,000 and $101,000 in the years
ended December 31, 1998, 1997 and 1996, respectively. The Company received
refunds of previously paid income taxes aggregating $1,136,000, $3,672,000 and
$759,000 in the years ended December 31, 1998, 1997 and 1996, respectively.
Cash payments for interest were $1,218,000, $1,464,000 and $1,859,000 in the
years ended December 31, 1998, 1997 and 1996, respectively.
Capital lease obligations of $697,000, $128,000 and $334,000 were incurred
during the years ended December 31, 1998, 1997 and 1996, respectively, when the
Company entered into leases for office equipment.
Note 15 - Related Party Transactions
The Company used the services of a travel agency that was owned by one of its
directors. Under an agreement entered into in early 1996, the Company paid the
travel agency a monthly fee and received rebates from the travel agency of the
commissions earned from providers of transportation and other travel-related
services. Net expenses for the travel agency included in general and
administrative expenses in the accompanying consolidated statements of
operations in 1998, 1997 and 1996 were $285,000, $280,000 and $286,000,
respectively.
In June 1998 the above arrangement was terminated, and the Company's travel
requirements are handled internally using contracted labor. The director has
been retained as a consultant to the travel department and in 1998 was paid
$75,000 in this capacity.
Also, in 1997 the Company entered into consulting contracts with several of its
directors. Fees charged under these consulting contracts aggregated $349,000 in
1997.
Note 16 - Comprehensive Income
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." The statement,
which became effective January 1, 1998, establishes rules for the reporting of
comprehensive income and its components in financial statements. Comprehensive
income consists of net income, adjusted for other increases and decreases
affecting stockholders' equity that, under generally accepted accounting
principles, are excluded from the determination of net income.
Comprehensive income (loss) for the years ended December 31 follows:
<TABLE>
<CAPTION>
================================
Thousands of dollars 1998 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) $ 858 $(11,425) $(16,655)
Change in unrealized gain on investments, net of tax (136) 192 27
- ---------------------------------------------------------------------------------------
Comprehensive income (loss) $ 722 $(11,233) $(16,628)
================================
</TABLE>
35
<PAGE> 28
ROY F. WESTON, INC. AND SUBSIDIARIES
FOOTNOTES
Note 17 - Segments
The Financial Accounting Standards Board has adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information," effective for fiscal years ending after December 15, 1998.
Under Statement No. 131, the Company has defined its reportable segments as
Infrastructure Redevelopment, Federal Programs, and Knowledge Systems and
Solutions. Federal Programs is segregated primarily because its services are
delivered to clients at dedicated site Federal government locations, while
Knowledge Systems and Solutions is segregated due to differences in its products
and services from the Company's other businesses.
The following information for the year ended December 31, 1998 is required by
Statement No. 131. Information for prior periods is not presented as it is
impractical to develop such information as the Company undertook a significant
reorganization in 1997.
<TABLE>
<CAPTION>
================================================================================
(Thousands of dollars) Infrastructure Federal Knowledge Corporate Consolidated
Redevelopment Programs Systems and
Solutions
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $110,937 $ 24,806 $ 3,690 $ 953 $140,386
Segment profit (loss) $ 11,426 $ 3,524 $ (792) $(12,728) $ 1,430
Total assets $ 74,810 $ 11,283 $ 1,021 $ 34,242 $121,356
Depreciation and amortization $ 1,880 $ 107 $ 134 $ 1,649 $ 3,770
Interest expense $ 1,195 $ 200 $ 13 $ (37) $ 1,371
Capital expenditures $ 421 $ 36 $ 139 $ 2,584 $ 3,180
================================================================================
</TABLE>
36
<PAGE> 29
ROY F. WESTON, INC. AND SUBSIDIARIES
Note 18 - Quarterly Financial Data (Unaudited)
Quarterly financial information for 1998 and 1997 is presented in the following
tables:
<TABLE>
<CAPTION>
==========================================================
First Second Third Fourth
(Thousands of dollars, except per share data) Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Gross revenues $ 54,677 $ 58,780 $ 62,416 $ 65,319
Net revenues $ 32,751 $ 34,936* $ 36,552 $ 36,147
Income (loss) from operations $ 348 $ 168 $ 155 $ 474**
Net income (loss) $ 207 $ 152 $ 104 $ 395
Basic earnings (loss) per share $ .02 $ .02 $ .01 $ .04
- --------------------------------------------------------------------------------------------------------------
1997
Gross revenues $ 61,480 $ 55,777 $ 60,463 $ 60,383
Net revenues $ 39,618 $ 34,091 $ 36,225 $ 32,425
Income (loss) from operations $ 417*** $ (8,100)*** $ 1,460+ $ (6,993)++
Net income (loss) $ 396 $ (5,394) $ 1,042 $ (7,469)+++
Basic earnings (loss) per share $ .04 $ (.56) $ .11 $ (.76)
==========================================================
</TABLE>
* Includes $800 for work performed in an earlier period resulting from a
contract settlement.
** Includes a reduction in estimated insurance claim liabilities of $1,000.
*** Includes restructuring credits of $1,071 in the first quarter and $597 in
the second quarter relating to proceeds from asset sales exceeding amounts
anticipated in recording a 1996 restructuring charge.
+ Includes a pension curtailment gain of $3,899.
++ Includes an impairment charge of $1,245 relating to unamortized financial
and project software.
+++ Includes an income tax charge of $3,000 to provide for the uncertain
realizability of a portion of the Company's deferred tax assets.
37
<PAGE> 30
ROY F. WESTON, INC. AND SUBSIDIARIES
[LOGO] OFFICE LOCATIONS
Corporate Headquarters
Roy F. Weston, Inc.
1400 Weston Way, P.O. Box 2653 o West Chester, PA 19380
Phone: (610) 701-3000 o Fax: (610) 701-3186 o Website: http://www.rfweston.com
[Map of office locations]
Full-Service Office Locations
Alabama: Auburn
California: Concord, Sherman Oaks
Colorado: Denver
Connecticut: Hartford
Georgia: Atlanta, Norcross
Illinois: Chicago, Vernon Hills
Maryland: Rockville
Massachusetts: Boston
Michigan: Detroit, Okemos
New Hampshire: Manchester
New Jersey: Edison
New Mexico: Albuquerque
New York: Carle Place, New York
North Carolina: Raleigh
Ohio: Miamisburg
Oregon: Portland
* Pennsylvania: Philadelphia, West Chester
Tennessee: Oak Ridge
Texas: Austin, Houston, San Antonio
Washington: Seattle
Washington, DC
International Offices
Weston International de Mexico, S.A. de C.V.
(WIMSA)
Weston Poland Sp. zo.o
Weston International Taiwan Branch Office
PROJECT OFFICES WORLDWIDE
38
<PAGE> 31
ROY F. WESTON, INC. AND SUBSIDIARIES
[LOGO]
SENIOR MANAGEMENT
William L. Robertson
Chairman of the Board and Chief Executive Officer
Patrick G. McCann
President and Chief Operating Officer
William G. Mecaughey, CPA
Vice President, Chief Financial Officer, and
Treasurer
Robert B. Biggs
Vice President and Manager, Quality Assurance/
Quality Control
Arnold P. Borish, Esq.
Vice President, General Counsel,
Corporate Secretary, and
Manager, Mergers and Acquisitions
John R. Brooks
Vice President and Manager,
Construction Remediation and
Redevelopment Group
John D. DiFilippo, P.E.
Vice President and Manager, Southern Division
Raymond J. Griffin
Vice President and Manager, Human Resources
John Hammond
Vice President and Manager, Eastern Division
Vincent A. Laino, Jr.
Vice President and Chief Information Officer
Thomas C. Lewis, CPA
Vice President and Manager, Knowledge Systems
and Solutions Group
Frank Monahan
Vice President and Manager, Western Division
Edmund B. Pettiss, Jr.
Vice President and Manager, Marketing
Alan Solow, CHP
Vice President and Manager, Federal Group
Kurt Stimpson
Vice President and Manager, Midwest Division
John W. Thorsen, P.E.
Vice President and Manager,
Project Management Initiative
39
<PAGE> 32
ROY F. WESTON, INC. AND SUBSIDIARIES
[LOGO] BOARD OF DIRECTORS
William L. Robertson(1)
Chairman of the Board and Chief Executive
Officer, Roy F. Weston, Inc.
Ambassador Richard L. Armitage(1)
President, Armitage Associates, L.C.
Jesse Brown(2)
President and Chief Executive Officer,
Brown and Associates
Thomas E. Carroll(1)
President and Chief Executive Officer,
MEDIQ Incorporated
Tom Harvey(1)
President, A-55, Inc.
Chairman, Global Environment and Technology
Foundation, Global Initiatives, Inc., and
GlobeQuest International, Inc.
Wayne F. Hosking, Jr., Esq.(1)
Government Relations Director,
Roy F. Weston, Inc.
Katherine W. Swoyer(1)
Vice Chair, Roy F. Weston, Inc.
Thomas M. Swoyer, Jr.(2)
Client Service Manager, Roy F. Weston, Inc.
A. Frederick Thompson, Ph.D., P.E.(2)
Program Director, Environmental Technologies,
National Science Foundation
Roy F. Weston, P.E., DEE (1,2)
Retired, (Chairman Emeritus), Roy F. Weston, Inc.
James H. Wolfe, CPA(2)
Retired, PricewaterhouseCoopers, LLP
- ----------
Committees:
(1) Member, Executive Committee
(2) Member, Audit Committee
40
<PAGE> 33
ROY F. WESTON, INC. AND SUBSIDIARIES
[LOGO]
Financial Information
Analysts, investors and others seeking information about WESTON's financial
performance or copies of financial reports, including SEC Forms 10-K and 10-Q,
may contact the company. Requests should be directed to:
William G. Mecaughey, CPA
Chief Financial Officer & Treasurer
Roy F. Weston, Inc.
1400 Weston Way, P.O. Box 2653
West Chester, Pennsylvania 19380
Telephone: (610) 701-4556
Company Information
News media and others seeking general information about WESTON may contact:
Corporate Marketing
Roy F. Weston, Inc.
1400 Weston Way, P.O. Box 2653
West Chester, Pennsylvania 19380
Telephone: (610) 701-3182
Company Stock Listing
WESTON's Series A common stock is traded in the Nasdaq National Market System
under the symbol "WSTNA". There is no established public trading market for the
Company's Common stock. The table displayed sets forth the range of high and low
per share sales prices for the Series A common stock as reported by the Nasdaq.
As of December 31, 1998, there were 2,394 holders of record of Series A common
stock and 26 holders of Common stock. WESTON has not paid any cash dividends
since 1978. The Board of Directors intends to retain earnings for the
foreseeable future for the expansion of WESTON's business.
STOCK HISTORY
Series "A" Nasdaq Price
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
1998
First Quarter $4.25 $2.75
Second Quarter $4.38 $3.38
Third Quarter $4.31 $2.25
Fourth Quarter $3.06 $2.25
1997
First Quarter $4.38 $3.50
Second Quarter $3.88 $2.13
Third Quarter $6.38 $2.50
Fourth Quarter $5.38 $3.75
</TABLE>
Annual Meeting
The annual meeting of stockholders will be held on May 10, 1999, 11:00 a.m. at
WESTON headquarters:
Roy F. Weston, Inc.
1400 Weston Way, P.O. Box 2653
West Chester, Pennsylvania 19380
Certified Public Accountants
PricewaterhouseCoopers, LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania 19103-2962
Transfer Agent and Registrar
American Stock Transfer and Trust Company
40 Wall Street
New York, New York 10005-2392
Internet Address
For up-to-date information on WESTON's service capabilities, environmental
issues and information, corporate developments and investor relations, click to
http://www.rfweston.com.
<PAGE> 1
Exhibit 21
LIST OF SUBSIDIARY COMPANIES
State of Incorporation
Cardinal Indemnity Company of North America Vermont
Roy F. Weston (Delaware), Inc. Delaware
Weston International Holdings, Inc. (d/b/a Weston International) Delaware
Roy F. Weston of New York, Inc. New York
Roy F. Weston (IPR), Inc. Delaware
Moorstein, Inc. Delaware
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Roy F. Weston, Inc. and Subsidiaries on Forms S-8 (File Nos. 33-56755 and
33-13915) of our reports dated February 4, 1999 on our audits of the
consolidated financial statements and financial statement schedule of Roy F.
Weston, Inc. and Subsidiaries as of December 31, 1998 and 1997 and for the years
ended December 31, 1998, 1997, and 1996 which reports are either included in or
incorporated by reference into this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 23, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of December 31, 1998 and the consolidated statement
of operations for the year ended December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,993
<SECURITIES> 1,547
<RECEIVABLES> 81,016<F1>
<ALLOWANCES> 1,882
<INVENTORY> 0
<CURRENT-ASSETS> 93,402
<PP&E> 44,046
<DEPRECIATION> 34,852
<TOTAL-ASSETS> 121,356
<CURRENT-LIABILITIES> 48,548
<BONDS> 12,997
0
0
<COMMON> 1,182
<OTHER-SE> 55,142
<TOTAL-LIABILITY-AND-EQUITY> 121,356
<SALES> 0
<TOTAL-REVENUES> 241,192
<CGS> 0
<TOTAL-COSTS> 240,047
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 704
<INTEREST-EXPENSE> 1,371
<INCOME-PRETAX> 1,430
<INCOME-TAX> 572
<INCOME-CONTINUING> 858
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 858
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
<FN>
<F1>Includes 20,540 of unbilled costs and estimated earnings thereon.
</FN>
</TABLE>
