SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarter ended June 30, 1994
OR
X TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ________________
Commission file number 1-9037
International Technology Corporation
(Exact name of registrant as specified in its charter)
Delaware 33-0001212
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
23456 Hawthorne Boulevard, Torrance, California 90505
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 378-9933
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 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 ........
At July 29, 1994 the registrant had issued and outstanding an
aggregate of 35,532,861 shares of its common stock.
1
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INTERNATIONAL TECHNOLOGY CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED JUNE 30, 1994
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets
as of June 30, 1994 (unaudited) and
March 31, 1994. 3
Condensed Consolidated Statements of
Operations for the Three Months ended
June 30, 1994 and 1993 (unaudited). 4
Condensed Consolidated Statements of
Cash Flows for the Three Months
Ended June 30, 1994 and 1993 (unaudited). 5
Notes to Condensed Consolidated Financial
Statements (unaudited). 6-9
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial
Condition. 10-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 17
Item 6. Exhibits and Reports on Form 8-K. 18
Signature. 19
2
<PAGE>
PART I
Item 1. Financial Statements.
INTERNATIONAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, March 31,
1994 1994
------- --------
(Unaudited)
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 8,505 $ 10,646
Receivables, net 134,556 126,910
Prepaid expenses and other current
assets 7,121 7,674
Deferred income taxes 9,329 9,329
------- -------
Total current assets 159,511 154,559
------- -------
Property, plant and equipment, at cost:
Land and land improvements 1,759 2,127
Buildings and leasehold improvements 9,590 25,930
Machinery and equipment 123,210 154,929
------- -------
134,559 182,986
Less accumulated depreciation
and amortization 70,768 91,557
------- -------
Net property, plant and equipment 63,791 91,429
------- -------
Construction-in-progress 16,777 19,451
Investment in Quanterra 37,010 -
Other assets 49,001 52,059
Long-term assets of discontinued operations 41,705 41,705
------- -------
Total assets $367,795 $359,203
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 32,388 $ 27,314
Accrued liabilities 36,713 32,662
Billings in excess of revenues 9,239 9,315
Short-term debt, including current
portion of long-term debt 4,933 5,268
Net current liabilities of
discontinued operations 16,425 16,478
------- -------
Total current liabilities 99,698 91,037
------- -------
Long-term debt 75,369 68,625
Long-term accrued liabilities of
discontinued operations 29,874 32,547
Other long-term accrued liabilities 6,342 6,446
Commitments and contingencies
Stockholders' equity:
Preferred stock, $100 par value;
180,000 shares authorized;
24,000 shares issued and outstanding 2,400 2,400
Common stock, $1 par value;
100,000,000 shares authorized;
35,534,052 and 35,201,052 shares
issued and outstanding, respectively 35,534 35,201
Additional paid-in capital 171,784 168,817
Deficit (53,206) (45,870)
------- -------
Total stockholders' equity 156,512 160,548
------- -------
Total liabilities and
stockholders' equity $367,795 $359,203
======= =======
See accompanying notes.
3
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INTERNATIONAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three months ended
June 30,
-----------------------
1994 1993
---- ----
(Unaudited)
Revenues $108,568 $102,549
Cost and expenses:
Cost of revenues 92,650 85,300
Selling, general and administrative
expenses 11,471 11,486
Integration charge related to the
formation of Quanterra 9,264 -
------- -------
Operating income (loss) (4,817) 5,763
Interest, net 1,469 2,547
------- -------
Income (loss) before income taxes (6,286) 3,216
Provision for income taxes - 1,254
------- -------
Net income (loss) (6,286) 1,962
Less preferred stock dividends 1,050 -
------- -------
Net income (loss) applicable
to common stock $ (7,336) $ 1,962
======= =======
Net income (loss) per share $ (.21) $ .06
======= =======
See accompanying notes.
4
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INTERNATIONAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three months ended
June 30,
----------------------
1994 1993
---- ----
(Unaudited)
Cash flows from operating activities:
Net income (loss) $ (6,286) $ 1,962
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Integration charge related to the
formation of Quanterra 9,264 -
Depreciation and amortization 5,671 5,001
Deferred income taxes (165) 797
Changes in assets and liabilities,
net of effects from acquisitions
and dispositions of businesses:
(Increase) decrease in
receivables, net (17,809) 19
Increase in prepaid expenses
and other current assets (1,005) (1,025)
Increase (decrease) in
accounts payable 6,246 (4,683)
Increase in accrued liabilities 4,635 2,147
(Decrease) increase in billings
in excess of revenues (76) 1,665
Decrease in other long-term
accrued liabilities (104) (344)
-------- -------
Net cash provided by operating
activities 371 5,539
-------- -------
Cash flows from investing activities:
Capital expenditures (4,716) (3,852)
Investment in Quanterra (1,208) -
Other, net 392 176
Investment activities of transportation,
treatment and disposal discontinued
operations (2,726) (1,973)
------- -------
Net cash used for investing activities (8,258) (5,649)
------- -------
Cash flows from financing activities:
Repayments of long-term borrowings (6,204) (7,089)
Long-term borrowings 13,000 6,000
Dividends paid on preferred stock (1,050) -
Issuances of common stock - 127
------- -------
Net cash provided by (used for)
financing activities 5,746 (962)
------- -------
Net decrease in cash and cash equivalents (2,141) (1,072)
Cash and cash equivalents at
beginning of period 10,646 8,659
------- -------
Cash and cash equivalents at
end of period $ 8,505 $ 8,659
======= =======
See accompanying notes.
5
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The condensed consolidated financial statements included
herein have been prepared by International Technology Corpora-
tion (Company or IT), without audit, and include all adjust-
ments of a normal, recurring nature which are, in the opinion
of management, necessary for a fair presentation of the
results of operations for the three-month periods ended June
30, 1994 and 1993, pursuant to the rules of the Securities and
Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and
regulations although the Company believes that the disclosures
in such financial statements are adequate to make the informa-
tion presented not misleading.
These condensed consolidated financial statements should be
read in conjunction with the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1994. The results of
operations for the three-month period ended June 30, 1994 are
not necessarily indicative of the results for the full fiscal
year.
2. On June 28, 1994, pursuant to a definitive agreement signed on
May 2, 1994, the Company and an affiliate of Corning Incorpo-
rated (Corning) combined the two companies' environmental
analytical services businesses into a newly formed 50/50
jointly-owned company (Quanterra). Quanterra operates
independently with a separate board of directors comprised of
representation from IT and Corning, and provides services to
the Company on a competitive basis.
In connection with the transaction, the Company contributed
the net assets of approximately $38,800,000 of its analytical
laboratory business into Quanterra. Additionally, IT incurred
cash costs of $1,208,000 and issued to Corning 333,000 shares
of IT common stock and a five-year warrant to purchase
2,000,000 shares of IT common stock at $5.00 per share which
are valued in the aggregate at $3,300,000.
IT's 50 percent investment in Quanterra is accounted for under
the equity method. Upon closing of the transaction, implemen-
tation of an aggressive integration plan was begun to elimi-
nate redundant laboratory facilities and duplicative overhead
and systems. In the fiscal quarter ended June 30, 1994, IT's
portion of the charge for integration was $9,264,000.
3. In a September 1993 public offering, the Company issued
2,400,000 depositary shares, each representing a 1/100th
interest in a share of the Company's 7% Cumulative Exchange-
able Preferred Stock (Preferred Stock). The depositary shares
entitle the holder to all proportional rights and preferences
of the Preferred Stock, including dividend, liquidation,
conversion, redemption, and voting rights and preferences.
The net proceeds from the issuance were $57,130,000.
4. For the quarter ended June 30, 1994, in which the Company
reported a loss before income taxes of $6,286,000, the Company
recorded no income tax benefit due principally to the partial
nondeductibility of the integration charge recorded by the
Company (see Note 2 above). In the corresponding quarter of
the prior fiscal year, the effective income tax rate of 39%
exceeded the 34% federal statutory rate due primarily to
nondeductible expenses and state income taxes.
5. Net income (loss) per common share is computed by dividing net
income applicable to common stock by the weighted average
number of outstanding common shares and common share equiva-
lents during each period as follows:
6
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Three months ended Average common and common
June 30, equivalent shares outstanding
------------------ -----------------------------
1994 35,256,552
1993 34,316,849
Common stock equivalents relate to dilutive stock options and
warrants using the treasury stock method. In fiscal year
1995, the computation of net income (loss) per share, assuming
conversion into common shares of the Company's Preferred
Stock, is antidilutive.
6. In December 1987, the Company's Board of Directors adopted a
strategic restructuring program which included a formal plan
to divest the transportation, treatment and disposal opera-
tions through sale of some facilities and closure of certain
other facilities. As of June 30, 1994, two of the Company's
inactive disposal sites have been formally closed and the
other two are in the process of closure. In connection with
the plan of divestiture at December 31, 1987, the Company
recorded a provision for loss on disposition of transporta-
tion, treatment and disposal discontinued operations in the
amount of $110,069,000, net of income tax benefit of
$24,202,000, which included the estimated net loss on sale or
closure and the results of operations of the active disposal
sites and the transportation business through the then
estimated sale date. At March 31, 1992, the Company increased
the provision for loss on disposition by the amount of
$32,720,000, net of income tax benefit of $2,280,000, princi-
pally due to the write off of the $30,400,000 contingent
purchase price from the earlier sale of certain assets. At
March 31, 1993, the Company increased the provision for loss
on disposition by $6,800,000, with no offsetting income tax
benefit, related to estimated additional costs resulting from
delays in the regulatory approval process and associated
closure plan revisions. At June 30, 1994, the Company's
condensed consolidated balance sheet included accrued liabili-
ties of $46,299,000 to complete the closure and related post-
closure of its inactive disposal sites and related matters.
The provision for loss on disposition of transportation,
treatment and disposal discontinued operations is based on
various assumptions and estimates. The adequacy of the provi-
sion for loss has been recently reevaluated in light of the
developments since the adoption of the divestiture plan, and
management believes the provision, as adjusted, is reasonable;
however, the ultimate effect of the divestiture on the
consolidated financial condition of the Company is dependent
upon future events, the outcome of which cannot be determined
at this time. Outcomes significantly different from those
used to estimate the provision for loss could result in a
material adverse effect on the consolidated financial condi-
tion of the Company.
7. Litigation to which IT is a party is discussed in Item 3,
Legal Proceedings, in the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1994. Current develop-
ments are discussed in Part II of this filing.
8. Unbilled receivables of $17,072,000 at June 30, 1994
($16,316,000 at March 31, 1994) are included in accounts
receivable. Unbilled receivables typically represent amounts
earned under the Company's contracts but not yet billable
according to the contract terms, which usually consider the
passage of time, achievement of certain milestones, negotia-
tion of change orders or completion of the project.
Included in unbilled receivables at June 30 and March 31, 1994
are approximately $8,000,000 and $7,000,000, respectively, of
claims related to the Helen Kramer project, which is subject
to an audit by the Defense Contract Audit Agency and a federal
7
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
civil and criminal investigation into the claims. Current
developments on the Helen Kramer matter are discussed in Part
II of this filing.
9. Noncurrent other assets at June 30 and March 31, 1994 include
a claim amount of approximately $31,000,000 representing
direct costs incurred in excess of those recovered under the
Motco Site Trust Fund contract, a major fixed-price
remediation contract. On December 4, 1991, the Company
announced the suspension of work on the Motco project and the
filing of a $56,000,000 breach of contract lawsuit to recover
direct costs, overhead and profit from Motco Trust, the poten-
tially responsible party (PRP) group that agreed to finance
remediation of the site, and Monsanto Company, the leader of
the PRP group.
On December 26, 1991, the Motco Trust and Monsanto filed an
answer to IT's lawsuit and asserted a counterclaim against IT.
In its counterclaim, the Motco Trust seeks recovery of
$27,000,000 of monetary damages including all payments to
third parties to complete performance of the project, all
penalties or other liabilities to any governmental entity, and
any related damages which occur as a result of the breach of
contract by IT which is alleged to have occurred upon the
filing of the lawsuit by IT and concurrent suspension of work
at the site.
The case was tried to a jury during March and April of 1994.
As a result of that trial, the jury rendered a special verdict
in IT's behalf wherein they found that Monsanto had breached
its contract with IT, had defrauded IT and had provided IT
with information which constituted a negligent misrepresenta-
tion as to the waste characteristics at the Motco site. The
jury found that the amount of damages caused IT as a result of
these acts was in the amount of $52,800,000. The jury also
found that Monsanto should pay punitive damages in the amount
of $28,550,000, together with attorneys' fees in the amount of
approximately $2,300,000. The jury further found that IT did
not commit fraud against the defendants, that any breach of
contract IT may have committed was excused, and that Motco
Trust should not recover on its $27,000,000 counterclaim.
Post-trial motions contesting the verdict have been filed with
the court by Monsanto. The Company is awaiting the trial
judge's rulings on the motions and the entry of judgment for
which no time frame has been announced. The trial judge's
decision is also subject to appeal.
After consideration of the merits of the Company's position in
the lawsuit and after consultations with its outside counsel,
management believes that, subject to the inherent uncertain-
ties of litigation, the Company more likely than not will
recover the contract claim receivable recorded to date and
prevail on Motco Trust's counterclaim. However, if this
matter is resolved in an amount significantly lower than the
contract claim receivable recorded by IT or if the Motco Trust
prevails in its counterclaim and recovers any significant
amount of damages, a material adverse effect to the consoli-
dated financial condition of the Company would result.
10. In the fourth quarter of fiscal year 1994, the Company
recorded a nonrecurring charge of $4,500,000 related to the
actuarially determined present value of contractual retirement
benefits to be provided to its former Chairman of the Board
(who was also Chief Executive Officer from 1975 through 1992)
who retired from that position effective April 1, 1994. The
retirement agreement was approved by the Board of Directors,
following approval by the Compensation Committee and advice of
an independent compensation consulting firm. Terms of the
retirement agreement provide for total payments by the Company
of approximately $400,000 per year through the year 2003 and
approximately $300,000 per year thereafter for the duration of
the former executive's lifetime.
8
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
As a result of concerns expressed by shareholders, in June
1994 the Board of Directors formed a special committee
comprised of four non-employee directors to review this
retirement agreement. The special committee engaged indepen-
dent legal counsel and a new independent compensation consult-
ing firm to assist it in the review process. Following its
review of the retirement agreement, the special committee
recommended that the agreement be modified in various re-
spects. As of the date hereof, no agreement has been reached
concerning such proposed modifications.
10
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Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition.
INTERNATIONAL TECHNOLOGY CORPORATION
FOR QUARTER ENDED JUNE 30, 1994
RESULTS OF OPERATIONS
Overview
- - --------
The Company operates in one industry segment and provides a range
of services to clients principally in the United States which,
through June 28, 1994, were Environmental Services, Analytical
Services, and Construction and Remediation. The Company may
compete for contracts which utilize only one of its services;
however, the Company's principal strategy is to market its services
on a turnkey basis. There are operating and economic synergies
between these service areas, as they are complementary and often
used in combination.
On June 28, 1994, pursuant to a definitive agreement signed on May
2, 1994, the Company and an affiliate of Corning Incorporated
(Corning) combined the two companies' environmental analytical
services businesses into a newly formed 50/50 jointly-owned company
(Quanterra). Quanterra operates independently with a separate
board of directors comprised of representation from IT and Corning,
and provides services to the Company on a competitive basis. (See
Note 2 to Condensed Consolidated Financial Statements.) The
financing of Quanterra is provided by a $60,000,000 bank line of
credit. IT's 50 percent investment in Quanterra is accounted for
under the equity method. An aggressive integration plan is being
implemented in the early stages of Quanterra's operations. The
plan includes consolidation and closure of redundant laboratory
facilities and equipment, a reduction in force to eliminate
duplicative overhead and excess capacity and a consolidation of
laboratory management and accounting systems. The Company expects
these actions will result in productivity gains achieved through
economies of scale. Consequently, IT reported a charge of
$9,264,000 related to the integration in its condensed consolidated
statement of operations for the current fiscal quarter. Upon
completion of the integration process, Quanterra will have
estimated annual revenues of $150,000,000 and employ approximately
1,300 people in its laboratory network throughout the United
States.
<TABLE>
Comparison of the Three Months
Ended June 30, 1994
to the Three Months
Ended June 30, 1993
<CAPTION>
Three months ended June 30,
-----------------------------------------------------------------------------------
1994 1993
------------------------ -----------------------------
(Dollars in thousands)
Gross Percentage revenue Gross
Margin increase (decrease) Margin
Revenues Percentage 1993 to 1994 Revenues Percentage
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Environmental Services $ 63,315 18.1% (2.5%) $ 64,913 17.3%
Analytical Services 13,075 3.1 (15.2) 15,424 17.7
Construction and Remediation 32,178 12.7 44.9 22,212 14.9
Total $108,568 14.7 5.9 $102,549 16.8
</TABLE>
10
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INTERNATIONAL TECHNOLOGY CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
Revenues
- - --------
Revenues for the first quarter of fiscal year 1995 increased
$6,019,000 or 5.9% from the level of the related quarter of the
prior fiscal year, entirely due to continuing higher levels of work
performed on large thermal remediation projects and various federal
governmental programs in the Construction and Remediation division.
The year-to-year decline in Environmental Services' revenues of
$1,598,000 or 2.5% resulted primarily from market weakness
experienced in the Pollution Control Engineering area.
In the current fiscal quarter, Analytical Services experienced
lower revenues due to highly competitive market conditions and
delays in sample receipts on certain radiochemical mixed waste
contracts. Effective with the inception of operations for
Quanterra beginning with the second quarter of fiscal year 1995,
the Company will no longer record any revenue in the Analytical
Services area. However, since roughly 30 percent of Analytical
Services area revenue has been derived from Environmental Services
or Construction and Remediation projects, revenue will now be
recorded in those two business areas related to analytical services
subcontracts performed by Quanterra for IT, similar to other third
party subcontracts.
A significant portion of the revenues of the Construction and
Remediation division continue to be derived from large, complex
thermal remediation contracts utilizing the Company's Hybrid
Thermal Treatment System (HTTS) incineration technology.
However, incineration as an allowable remedy under the Comprehen-
sive Environmental Response, Compensation and Liability Act
(CERCLA) continues to come under legislative and regulatory
pressures. In May 1993, the U.S. Environmental Protection Agency
(USEPA), citing its authority under the Resource Conservation and
Recovery Act, announced the Draft Strategy imposing additional
requirements and costs on incineration facilities, the effect of
which has been a "freeze" on the permitting of any new fixed-base
hazardous waste incinerators or cement kilns. Although the
"freeze" is presently scheduled to expire in late 1994, the effects
of the USEPA policy may continue for an undetermined period
thereafter. In May 1994, the USEPA issued a new policy which,
while seemingly affirming incineration as an allowable remedy under
CERCLA, calls for additional procedures and studies to be conducted
before incineration may be selected as a remedy, or which may
result in the deselection of incineration as a remedy, at a
Superfund site. The Company was advised in July 1994 by the USEPA
and the Texas Natural Resources Conservation Commission that
incineration at the Texarkana Wood Processing Co. (Texarkana)
Superfund site will be delayed until the Congressional Office of
Technology Assessment (OTA) completes a study on the safety of
incineration and the assessment of possible alternatives to
incineration and that all offerors' bids, including IT's, have been
allowed to expire. Additionally, during July 1994, an amendment to
proposed legislation in the U.S. House of Representatives has been
offered that would require General Accounting Office and OTA
studies on the safety of incineration prior to IT proceeding on the
Times Beach Superfund project. The impact upon the Company's
business of these actions cannot yet be predicted. If policies
were implemented or regulations were changed such that the Company
was unable to permit and use incinerators at Texarkana and Times
Beach and at future remediation projects due to either regulatory
or market factors, the Company would have to find alternative uses
for its HTTS equipment, which currently has a net book value of
approximately $37,000,000. If alternative uses, such as foreign
installations, were not found or were uneconomical, there could be
a material adverse effect to the Company's consolidated financial
condition due to impairment of HTTS assets as well as lost project
opportunities.
The Company's total contract backlog, which excludes Analytical
Services, at June 30, 1994 was approximately $517,000,000 compared
to approximately $500,000,000 at March 31, 1994. In addition,
based on prior experience, the Company estimates it will receive
approximately $590,000,000 of future project work under existing
governmental indefinite delivery order contracts. Revenues from
backlog and delivery order contracts are expected to be earned over
the next one to five years.
11
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
Gross Margin
- - ------------
Gross margin percentage for the first quarter of fiscal year 1995
declined to 14.7% of revenues from 16.8% of revenues for the
corresponding period of the prior fiscal year.
Analytical Services reported a significant decline in gross margin
percentage due to competitive market conditions as well as
operational inefficiencies experienced related to the planned
start-up of Quanterra. Gross margin percentage for Construction
and Remediation decreased from the level reported in the corre-
sponding period of the prior fiscal year due to the continuation of
a trend toward lower margin projects which began in fiscal year
1994.
The lower gross margin percentages for Analytical Services and
Construction and Remediation were somewhat offset by an improvement
experienced in Environmental Services. A higher level of staff
utilization was the primary reason for the increase in Environmen-
tal Services' gross margin percentages to 18.1% of revenues in the
current quarter from 17.3% of revenues in the first quarter of
fiscal year 1994 despite the lower pricing levels experienced on
Environmental Services' contracts.
Selling, General and Administrative Expenses
- - --------------------------------------------
Selling, general and administrative expenses for the first quarter
of fiscal year 1995 represented 10.6% of revenues, which compared
favorably with the related 11.2% of revenues reported for the
corresponding period of the prior year. The Company supported a
higher level of revenues in the current quarter with no increase in
administrative costs, principally due to continued management
attention to expenses. The Company expects to reduce selling,
general and administrative expenses essentially proportionally to
the lost revenues from Analytical Services as a result of the
formation of Quanterra.
Interest, Net
- - -------------
For the first quarter of fiscal year 1995, net interest expense
declined to 1.4% of revenues from the 2.5% of revenues reported for
the corresponding period of the prior fiscal year.
The decline in net interest expense is due principally to lower
levels of outstanding debt resulting principally from debt
prepayments which occurred during the second half of fiscal year
1994. The net proceeds received by the Company from the public
offering of 2,400,000 depositary shares (see Note 3 to Condensed
Consolidated Financial Statements) were utilized to prepay
$25,000,000 of the Company's 9 3/8% senior notes on November 15,
1993. Additionally, the Company received approximately $100,000 of
interest income related to an income tax refund.
Income Taxes
- - ------------
For the quarter ended June 30, 1994, in which the Company reported
a loss before income taxes of $6,286,000, the Company recorded no
income tax benefit due principally to the partial nondeductibility
of the integration charge recorded by the Company (see Note 2 to
Condensed Consolidated Financial Statements). In the corresponding
quarter of the prior fiscal year, the effective income tax rate of
39% exceeded the 34% federal statutory rate due primarily to
nondeductible expenses and state income taxes.
12
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
FINANCIAL CONDITION
Working capital of $59,813,000 at June 30, 1994 decreased by
$3,709,000 or 5.8% from $63,522,000 at March 31, 1994. The current
ratio at June 30, 1994 declined to 1.60:1 from 1.70:1 at
March 31, 1994.
Cash provided by operating activities for the first three months of
fiscal year 1995 totaled $371,000, a $5,168,000 decrease from the
$5,539,000 cash provided by operating activities in the correspond-
ing three-month period of the prior fiscal year. This decrease in
cash provided by operating activities resulted principally from an
increase in working capital in the current period generally
corresponding to the increase in the Company's revenues. Capital
expenditures of $4,716,000 for the current three-month period were
$864,000 higher than the $3,852,000 amount reported for the
corresponding period of the prior fiscal year due primarily to
spending on the completion of a major company-wide systems project.
With regard to the Company's transportation, treatment and disposal
discontinued operations, the Company has closed two of the inactive
disposal sites and is pursuing formal permanent closure of its
Panoche and Vine Hill disposal sites, for which there will be
significant closure and post-closure costs over the next several
years. During the first three months of the current fiscal year,
the Company spent $2,726,000 relating to closure plans and
construction costs for the sites compared to $1,973,000 in the
corresponding period of the prior fiscal year. At June 30, 1994,
the Company's condensed consolidated balance sheet included accrued
liabilities of $46,299,000 to complete the closure and post-closure
of its inactive disposal sites and related matters.
Closure and post-closure plans for the Panoche facility were
revised to incorporate regulatory agency comments in March 1991 and
an Environmental Impact Report (EIR), required by California law
prior to plan approval, is being prepared by the California EPA
Department of Toxic Substances Control (DTSC). The Company expects
final determination on closure plans in time for implementation of
closure construction beginning in fiscal year 1996. The California
Supreme Court in December 1991 reversed a lower court decision
regarding an aspect of the closure plan at Panoche relating to the
county of Solano's authority in the closure process and the method
of closure of peripheral waste areas at the facility (the Buffer
Zone Areas). During fiscal year 1993, the Company was required to
submit additional information and closure designs for the Buffer
Zone Areas, including a design for excavation and relocation on-
site of significant quantities of wastes and soils. Clean closure
by excavation and relocation on-site of materials in the Buffer
Zone Areas will be evaluated in the EIR. The additional study of
this and other alternatives has resulted in delays to the closure
plan approval. The delays have resulted in additional costs for
monitoring and maintaining the facility, conducting engineering and
permitting activities, and charges for the EIR contractor. A
determination to excavate and relocate a substantial amount of
materials in the Buffer Zone Areas would increase costs substan-
tially which would have a material adverse effect on the consoli-
dated financial condition of the Company.
Progress on the Vine Hill Complex facility closure plan continues,
with a revised closure plan submitted to the DTSC in August 1991.
In April 1992, the Company received and subsequently responded to
comments on the plan from DTSC. An EIR is being prepared by DTSC.
The Company expects the plan to be approved late in fiscal year
1995 or early in fiscal year 1996; however, significant work which
will ultimately be required for closure will have occurred prior to
that time. The Company has been targeting completion of the
closure by the end of fiscal year 1996; however, recent discussions
with DTSC regarding approvals of interim construction work indicate
that the timing of closure completion may be delayed. Delay in the
closure plan approval process at this site or further delays at the
Panoche site would cause an increase in the provision for discon-
tinued operations. (See Note 6 to Condensed Consolidated Financial
Statements.)
13
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
FINANCIAL CONDITION (CONTINUED)
The California Toxic Pits Cleanup Act of 1984 (TPCA) required
operators of certain surface impoundments to cease discharging
liquid hazardous wastes into these units by a statutory deadline,
unless the units were retrofitted to meet minimum technology
requirements. The Company has taken reasonable measures and has
made substantial progress toward compliance at the Vine Hill
Complex, but cannot fully meet statutory requirements until final
closure plans have been approved. The Company has discussed its
TPCA compliance activities with the applicable Regional Water
Quality Control Board. Although substantial civil penalties are
available for noncompliance with TPCA, the Company does not expect
that penalties, if imposed, would be material to the Company's
financial condition, given the circumstances and the Company's good
faith efforts to achieve compliance and conclude closure.
The Company is required to perform post-closure monitoring and
maintenance of its disposal sites for at least 30 years. Operation
of the sites in the closure and post-closure periods is subject to
numerous federal, state and local regulations. The Company may be
required to perform unexpected remediation work at the sites in the
future or to pay penalties for alleged noncompliance with regulato-
ry permit conditions.
Closure and post-closure costs are incurred over a significant
number of years and are subject to a number of variables including,
among others, completion of negotiations regarding specific site
closure and post-closure plans with applicable regulatory agencies.
The Company has estimated the impact of closure and post-closure
costs in the provision for loss on disposition of transportation,
treatment and disposal discontinued operations; however, closure
and post-closure costs could be higher than estimated if regulatory
agencies were to require closure and/or post-closure procedures
significantly different than those in the plans developed by the
Company. Certain revisions to the closure procedures could also
result in impairment of the residual land values attributed to
certain of the sites.
The carrying value of the long-term assets of transportation,
treatment and disposal discontinued operations of $41,705,000 at
June 30, 1994 is principally comprised of residual land at the
inactive disposal sites and assumes that sales will occur at
current market prices estimated by the Company based on certain
assumptions (entitlements, development agreements, etc.), taking
into account market value information provided by independent real
estate appraisers. During fiscal year 1992, the Company entered
into an agreement with a real estate developer to develop some of
this property as part of a larger development in the local area
involving a group of developers. The entitlement process has been
delayed due to uncertainties over the Company's closure plans for
its adjacent disposal site and local community review of growth
strategy. If the developers' plans change or the developers are
unable to obtain entitlements as planned, the carrying value of
this property could be significantly impaired. With regard to this
property or any of the other residual land, there is no assurance
as to the timing of sales or the Company's ability to ultimately
liquidate the land for the sale prices assumed. If the assumptions
used to determine such prices are not realized, the value of the
land could be materially different from the current carrying value.
The USEPA and the DTSC are investigating certain transportation and
disposal activities conducted by numerous companies, including the
Company or its predecessors, involving certain disposal sites in
California, including the Operating Industries, Inc. (OII)
Superfund site. In connection with the OII action, the Company did
not elect to join various proposed settlements with the USEPA for
the first three interim remedial measures (IRMs). The claims
against the Company by the USEPA for these costs total approximate-
ly $8,500,000 (not including interest). The claims by the PRP
steering committee for costs associated with the first two IRMs
approximate $2,700,000. (The Company believes there is substantial
duplication between the USEPA's and the PRP steering committee's
claims.) The claims to date do not include certain future costs
for site remediation and long-term monitoring and maintenance which
are expected to be substantial. Based on the nature of the waste
streams handled by the Company's subsidiaries and their conduct in
handling the wastes, the Company believes its proper share of
responsibility for the site is less than the share attributed to it
by the USEPA and the PRP steering committee. Accordingly, the
Company has not been able to agree to USEPA's or the PRP steering
committee's claims. IT has met with the USEPA to propose and
14
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
FINANCIAL CONDITION (CONTINUED)
negotiate a release from alleged liability for past costs in return
for IT undertaking remediation work at the site but the USEPA has
not responded to the proposal. The Company has recently been
advised by the PRP group's counsel that the PRP committee intends
to name the Company as a defendant in the committee's pending cost
recovery litigation. In addition, the Company has been advised
that the USEPA intends to reject the Company's previously submitted
proposal and to offer the Company the opportunity to settle
response cost claims for the first three IRMs at a substantial
premium over the amount of its previous claims to effect a
settlement. The Company has advised its liability insurance
carriers as to the pendency of the USEPA's and the PRP steering
committee's claims and requested indemnification and legal
representation. The carriers dispute the scope of their coverage
obligations to IT. The Company has also been named as a PRP in
several other investigations, and has either denied responsibility
and/or is participating with others named by the USEPA and/or the
DTSC in conducting investigations as to the nature and extent of
contamination at the sites.
The provision for loss on disposition of transportation, treatment
and disposal discontinued operations is based on various assump-
tions and estimates, including those discussed above. The adequacy
of the provision for loss has been recently reevaluated in light of
the developments since the adoption of the divestiture plan, and
management believes that the provision, as adjusted, is reasonable;
however, the ultimate effect of the divestiture on the consolidated
financial condition of the Company is dependent upon future events,
the outcome of which cannot be determined at this time. Outcomes
significantly different from those used to estimate the provision
for loss could result in a material adverse effect on the consoli-
dated financial condition of the Company.
At June 30, 1994, a deferred tax asset in the amount of $14,955,000
(net of a valuation allowance of $13,519,000) is included in the
Company's condensed consolidated balance sheet. The asset
represents the tax benefit of future tax deductions and net
operating loss, alternative minimum and investment tax carryfor-
wards. The asset will be realized principally as closure expendi-
tures related to the Company's Northern California disposal sites
are made over the next several years, as such expenditures are
deductible in the year made, but only to the extent the Company has
sufficient levels of taxable income. The Company will evaluate the
adequacy of the valuation allowance and the realizability of the
deferred tax asset on an ongoing basis.
The Company is using approximately $29,000,000 of letters of
credit, as well as a trust fund and annuities to fulfill regulatory
financial assurance requirements for the closure and post-closure
care of the Company's inactive disposal facilities. In aggregate,
at June 30, 1994, letters of credit totaling approximately
$58,000,000 were outstanding against the Company's $95,000,000 bank
line of credit. Additionally, the Company has outstanding
$25,000,000 of cash advances under the line, leaving approximately
$12,000,000 unused at June 30, 1994. The amount of the Company's
current availability is limited to the amount of collateral
available in accordance with the loan agreement, principally 80% of
eligible accounts receivable; however, collateral available at June
30, 1994 allowed for use of the entire line.
The Company's agreements with Corning relating to Quanterra contain
general provisions which could affect liquidity including restric-
tions on dividends to the partners, buy-sell provisions obligating
the Company to sell its interests in Quanterra in certain circum-
stances and to contribute up to an additional $5,000,000 to
Quanterra under certain circumstances, and requirements that the
Company indemnify Quanterra and Corning from certain liabilities
arising prior to the closing of the transaction. In connection
with the transaction, the Company transferred to Quanterra the
accounts receivable of its Analytical Services division in the
approximate amount of $10,000,000, which, pursuant to the terms of
the Company's credit agreements, decreased the receivables
available as collateral for borrowing by approximately $7,000,000.
The credit agreements for Quanterra prohibit the Company from
pledging its interest in Quanterra to other lenders, including the
Company's current lenders.
15
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
FINANCIAL CONDITION (CONTINUED)
Although the Company paid down $25,000,000 of its senior notes in
November 1993, the remaining $50,000,000 of senior notes outstand-
ing will come due on July 1, 1996, if not paid off prior to that
time. Management is currently evaluating its strategic alterna-
tives for repaying or refinancing the senior notes.
Over the past two years, the Company's liquidity has required
careful management. Although consummation of the September 1993
public offering and application of the net proceeds principally to
reduce debt has improved the Company's financial leverage and
provided it with greater liquidity and flexibility to address its
cash needs, the Company will continue to have significant cash
requirements, including working capital, capital expenditures,
expenditures for the closure of its inactive disposal sites, debt
service including repayment or refinancing of the remaining
$50,000,000 of the senior notes, dividend obligations on the
depositary shares and contingent liabilities. Any proceeds related
to the disposition of the Motco litigation could be used to address
the above cash needs of the Company. (See Note 9 to Condensed
Consolidated Financial Statements.)
16
<PAGE>
PART II
INTERNATIONAL TECHNOLOGY CORPORATION
Item 1. Legal Proceedings.
The following matters are more fully discussed in Item 3,
Legal Proceedings, in the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1994. See Note 9 to
Condensed Consolidated Financial Statements for a discussion
of current developments related to the Motco litigation. See
also Management's Discussion and Analysis of Results of
Operations and Financial Condition - Financial Condition for
current developments related to the Operating Industries, Inc.
Superfund site matter.
Central Garden
--------------
The Company has entered into a standstill agreement with its
insurance carrier pursuant to which the Company has dismissed
its lawsuit (International Technology Corporation et al. v.
National Union Fire Insurance Company, etc., et al., Los
Angeles County, California Superior Court, #BC079193) against
the carrier and both the Company and the carrier reserve their
rights to contest the issue of coverage at a later date.
Helen Kramer
------------
In October 1993, a shareholder of the Company alleged that the
acts giving rise to the Helen Kramer investigation constitut-
ed, among other things, a waste of the Company's assets and
demanded that the Company institute an action against those
responsible for the alleged wrongdoing.
The Audit Committee (Committee) of the Board of Directors has
completed its investigation into the allegations of the Office
of the Inspector General of the USEPA. The Committee, acting
with the assistance of outside counsel and experts, determined
that there was no evidence of intentional wrongdoing or
negligence by the Company or any employee. The Board has
approved the report of the Committee and has advised counsel
to the shareholder who demanded that the Company institute an
action against those responsible for the alleged wrongdoing of
its findings.
GBF Pittsburg Landfill PRP Matter
---------------------------------
In July 1994 the DTSC issued to the Company and 49 other
alleged PRPs a proposed determination of non-compliance with
a July 1993 DTSC order to prepare a work plan for specified
remediation at the GBF Pittsburg landfill site in Antioch,
California (the Site). The Company and a group of cooperating
PRPs had previously submitted a draft work plan for the
portion of the site where a predecessor of the Company
operated. The July 1994 DTSC notice asserts that each of the
PRPs is responsible for submitting a work plan for the entire
site and states that, unless the required draft work plan is
submitted by August 26, 1994, DTSC intends to seek $15,000 per
day in penalties for each day the respondents under the DTSC's
order fail or refuse to submit the draft work plan. The
Company is currently determining with other cooperating PRPs
how to proceed and intends to take measures to avoid a
determination of non-compliance. To the extent that compli-
ance with the DTSC's July 1994 notice or the conduct of any
past or future work results in costs in excess of those
associated with the portion of the Site previously operated by
IT's predecessor, the Company intends to seek reimbursement
from PRPs who do not contribute.
17
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
18
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
INTERNATIONAL TECHNOLOGY CORPORATION
(Registrant)
ANTHONY J. DELUCA August 15, 1994
----------------- ---------------
Anthony J. DeLuca
Senior Vice President, Chief Financial Officer
and Duly Authorized Officer
19
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
Item 6. Exhibits and Reports on Form 8-K.
(a) This exhibit is numbered in accordance with the
Exhibit Table of Item 601 of Regulation S-K.
Exhibit
No. Description
------- -----------
27 Financial Data Schedule for the
quarter ended June 30, 1994
(b) Reports on Form 8-K.
None.
18
<PAGE>
Exhibit 27
----------
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
International Technology Corporation's Condensed Consolidated
Balance Sheet as of June 30, 1994, Condensed Consolidated Statement
of Operations for the Three Months Ended June 30, 1994 and related
Notes to Condensed Consolidated Financial Statements, all of which
were filed with the Securities and Exchange Commission on August
15, 1994 on Form 10-Q for the quarter ended June 30, 1994 (commis-
sion file number 1-9037) AND QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
(Amounts in thousands except per share data)
Item Number Item Description Amount
- - ----------- ---------------- ------
5-02 (1) cash and cash items $ 8,505
5-02 (2) marketable securities -
5-02 (3)(a)(1) notes and accounts receivable
- trade 134,556
5-02 (4) allowance for doubtful accounts -
5-02 (6) inventory -
5-02 (9) total current assets 159,511
5-02 (13) property, plant and equipment 134,559
5-02 (14) accumulated depreciation 70,768
5-02 (18) total assets 367,795
5-02 (21) total current liabilities 99,698
5-02 (22) bonds, mortgages and similar debt 75,369
5-02 (28) preferred stock - mandatory
redemption -
5-02 (29) preferred stock - no mandatory
redemption 2,400
5-02 (30) common stock 35,534
5-02 (31) other stockholders' equity 118,578
5-02 (32) total liabilities and stockholders'
equity 367,795
5-03 (b)(1)(a) net sales of tangible products -
5-03 (b)(1) total revenues 108,568
5-03 (b)(2)(a) cost of tangible goods sold -
5-03 (b)(2) total costs and expenses applicable
to sales and revenues 113,385
5-03 (b)(3) other costs and expenses -
5-03 (b)(5) provision for doubtful accounts
and notes -
5-03 (b)(8) interest and amortization of
debt discount 1,469
5-03 (b)(10) income (loss) before taxes and
other items (6,286)
5-03 (b)(11) income tax expense -
5-03 (b)(14) income (loss) continuing operations (6,286)
5-03 (b)(15) discontinued operations -
5-03 (b)(17) extraordinary items -
5-03 (b)(18) cumulative effects - changes in
accounting principles -
5-03 (b)(19) net income (loss) (6,286)
5-03 (b)(20) earnings (loss) per share - primary $ (0.21)
5-03 (b)(20) earnings (loss) per share -
fully diluted -
<PAGE>
