SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarter ended December 31, 1994
OR
___ 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 January 31, 1995 the registrant had issued and outstanding an
aggregate of 35,535,810 shares of its common stock.
1
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED DECEMBER 31, 1994
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets
as of December 31, 1994 (unaudited) and
March 31, 1994. 3
Condensed Consolidated Statements of
Operations for the Three Months and
Nine Months Ended December 31,
1994 and 1993 (unaudited). 4
Condensed Consolidated Statements
of Cash Flows for the Nine Months
Ended December 31, 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. 10-17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 18
Item 6. Exhibits and Reports on Form 8-K. 19
Signature. 20
2
<PAGE>
PART I
Item 1. Financial Statements.
INTERNATIONAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, March 31,
1994 1994
----------- ----------
(Unaudited)
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 5,075 $ 10,646
Receivables, net 145,792 126,910
Prepaid expenses and other current assets 5,826 7,674
Deferred income taxes 9,329 9,329
------- -------
Total current assets 166,022 154,559
------- -------
Property, plant and equipment, at cost:
Land and land improvements 1,759 2,127
Buildings and leasehold improvements 9,594 25,930
Machinery and equipment 122,597 154,929
------- -------
133,950 182,986
Less accumulated depreciation
and amortization 76,807 91,557
------- -------
Net property, plant and equipment 57,143 91,429
------- -------
Construction-in-progress 19,069 19,451
Investment in Quanterra 37,198 -
Other assets 45,329 52,059
Long-term assets of discontinued operations 41,705 41,705
------- -------
Total assets $366,466 $359,203
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 31,921 $ 27,314
Accrued liabilities 35,465 32,662
Billings in excess of revenues 10,326 9,315
Short-term debt, including current
portion of long-term debt 2,450 5,268
Net current liabilities of
discontinued operations 14,352 16,478
------- -------
Total current liabilities 94,514 91,037
------- -------
Long-term debt 79,265 68,625
Long-term accrued liabilities of
discontinued operations 26,417 32,547
Other long-term accrued liabilities 6,280 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; 35,537,562
and 35,201,052 shares issued and
outstanding, respectively 35,538 35,201
Additional paid-in capital 171,786 168,817
Deficit (49,734) (45,870)
------- -------
Total stockholders' equity 159,990 160,548
------- -------
Total liabilities and
stockholders' equity $366,466 $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 Nine months ended
December 31, December 31,
------------------ -----------------
1994 1993 1994 1993
---- ---- ---- ----
(Unaudited)
Revenues $102,403 $ 92,524 $313,480 $295,738
Cost and expenses:
Cost of revenues (85,714) (79,144) (264,445) (248,790)
Selling, general and
administrative expenses (10,140) (10,519) (32,012) (33,159)
Equity in net income
(loss) of Quanterra (319) - 188 -
Integration charge related
to the formation of
Quanterra - - (9,264) -
-------- ------- -------- -------
Operating income 6,230 2,861 7,947 13,789
Interest, net (1,996) (1,691) (5,099) (6,725)
------- ------- ------- -------
Income before income taxes 4,234 1,170 2,848 7,064
Provision for income taxes (1,553) (444) (3,562) (2,684)
------- ------- ------- -------
Net income (loss) 2,681 726 (714) 4,380
Less preferred stock dividends (1,050) (1,050) (3,150) (1,085)
------- ------- ------- -------
Net income (loss) applicable
to common stock $ 1,631 $ (324) $ (3,864) $ 3,295
======= ======= ======= =======
Net income (loss) per share $ .05 $ (.01) $ (.11) $ .10
======= ======= ======= =======
See accompanying notes.
4
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INTERNATIONAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine months ended
December 31,
--------------------
1994 1993
------ ------
(Unaudited)
Cash flows from operating activities:
Net income (loss) $ (714) $ 4,380
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Equity in net income of Quanterra (188) -
Integration charge related to
the formation of Quanterra 9,264 -
Depreciation and amortization 12,894 16,576
Deferred income taxes 3,311 2,277
Changes in assets and liabilities,
net of effects from acquisitions
and dispositions of businesses:
(Increase) decrease in
receivables, net (29,045) 8,601
Decrease (increase) in prepaid
expenses and other current assets 290 (2,344)
Increase (decrease) in
accounts payable 5,779 (11,595)
Increase (decrease) in
accrued liabilities 3,387 (6,634)
Increase in billings in
excess of revenues 1,011 6,635
Decrease in other long-term
accrued liabilities (166) (800)
------- -------
Net cash provided by
operating activities 5,823 17,096
------- -------
Cash flows from investing activities:
Capital expenditures (7,922) (10,314)
Investment in Quanterra (1,208) -
Other, net 927 742
Investment activities of
transportation, treatment and
disposal discontinued operations (8,256) (9,336)
------- -------
Net cash used for investing activities (16,459) (18,908)
------- -------
Cash flows from financing activities:
Repayments of long-term borrowings (33,593) (80,434)
Long-term borrowings 41,802 27,010
Dividends paid on preferred stock (3,150) (1,085)
Net proceeds from public offering
of depositary shares - 57,130
Issuances of common stock 6 270
------- -------
Net cash provided by financing
activities 5,065 2,891
------- -------
Net (decrease) increase in cash
and cash equivalents (5,571) 1,079
Cash and cash equivalents at
beginning of period 10,646 8,659
------- -------
Cash and cash equivalents at
end of period $ 5,075 $ 9,738
======= =======
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 and nine-month
periods ended December 31, 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 information 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 and nine-month periods ended
December 31, 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 quarter ended June 30, 1994, IT's portion
of the charge for integration was $9,264,000. In the initial
six months of Quanterra operations ended December 31, 1994,
the Company's equity interest in the net income of Quanterra
was $188,000.
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 nine months ended December 31, 1994, in which the
Company reported income before income taxes of $2,848,000, the
Company recorded a $3,562,000 income tax provision due
principally to the partial nondeductibility of the integration
charge recorded by the Company in the first quarter of fiscal
year 1995 (see Note 2 above). In the corresponding first nine
months of the prior fiscal year, the effective income tax rate
of 38% exceeded the 34% federal statutory rate due primarily
to nondeductible expenses and state income taxes.
6
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INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
5. Net income (loss) per common share is computed by dividing net
income (loss) applicable to common stock by the weighted
average number of outstanding common shares and common share
equivalents during each period as follows:
Three months ended Average common and common
December 31, equivalent shares outstanding
----------------- -----------------------------
1994 35,759,437
1993 34,994,557
Nine months ended Average common and common
December 31, equivalent shares outstanding
----------------- ----------------------------
1994 35,552,109
1993 34,617,879
Common stock equivalents relate to dilutive stock options using
the treasury stock method. For all periods presented, the
computation of net income (loss) per share, assuming conversion
into common shares of the Company's Preferred Stock, is antidil-
utive.
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 December 31, 1994, two of the
Company's inactive disposal sites have been formally closed
and the other two are in the process of closure. In connec-
tion with the plan of divestiture at December 31, 1987, the
Company recorded a provision for loss on disposition of
transportation, 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 December 31, 1994, the Company's
condensed consolidated balance sheet included accrued liabili-
ties of $40,769,000 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. Management believes the
provision, as adjusted, is reasonable; however, the ultimate
effect of the divestiture on the consolidated financial condi-
tion 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 condition 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 and in the Company's
7
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INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Quarterly Report on Form 10-Q for the quarters ended September
30, 1994 and June 30, 1994. Current developments are dis-
cussed in Part II of this filing.
8. Unbilled receivables of $15,318,000 at December 31, 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 December 31 and March 31,
1994 are approximately $8,000,000 and $7,000,000, respective-
ly, of claims related to the Helen Kramer project, which is
subject to an audit by the Defense Contract Audit Agency and
a federal civil and criminal investigation into the claims.
9. Noncurrent other assets at December 31 and March 31, 1994
include a claim amount of approximately $31,000,000 represent-
ing 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
potentially 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.
On December 14, 1994, the court ruled that IT was entitled to
a judgment in the amount of $43,700,000 plus prejudgment
interest and attorneys' fees. The court's order reduced the
jury's previous compensatory damage award by $9,100,000 and
set aside the jury's award of $28,550,000 in punitive damages.
On January 27, 1995, the court ruled on the Company's and Mon-
santo's motions to determine the amount of prejudgment
interest to be awarded to the Company. The court rejected
both Monsanto's and the Company's arguments as to the amount
of prejudgment interest due and ordered the Company to submit
revised interest calculations within 30 days. The court
directed the Company to compute the interest on the contract
costs as and when incurred by the Company and outstanding from
the original date of the contract, less certain specified
deductions and less payments when made by Monsanto, utilizing
a 10% interest rate compounded annually. The Company is
unable to determine what amount of prejudgment interest will
be awarded or when final judgment will be entered. The
entering of final judgment is subject to the filing of post
judgment motions by the parties. The final judgment is
8
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INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
subject to appeal by the parties and accrues postjudgment
interest at the intermediate term U.S. Treasury rate (current-
ly approximately 7.25%) in effect at the time of judgment from
the date the judgment is entered until paid.
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 provided 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.
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 respects
and engaged in negotiations with the former Chairman concern-
ing the proposed modifications.
Those negotiations resulted in an amended agreement which
reduced the present value of the contractual benefits by
approximately $500,000. The amended agreement was approved by
the noninterested directors of the Board on the recommendation
of the special committee of the Board and on the advice of
counsel and an independent compensation consulting firm and
executed on January 6, 1995.
9
<PAGE>
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition.
INTERNATIONAL TECHNOLOGY CORPORATION
FOR QUARTER ENDED DECEMBER 31, 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 are
categorized as Environmental Services and Construction and
Remediation Services; however, the Company's principal strategy is
to market its services on a turnkey basis. There are operating and
economic synergies between the Company's services, 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 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 Consoli-
dated 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 account-
ing systems. The Company expects these actions will result in
productivity gains achieved through economies of scale. Substan-
tial portions of the plan have been implemented with additional
actions to occur over the next year. IT reported a charge of
$9,264,000 related to the integration in its condensed consolidated
statement of operations for the quarter ended June 30, 1994. Upon
completion of the integration process, Quanterra will have
estimated annual revenues of $125,000,000 and employ approximately
1,200 people in its laboratory network throughout the United
States.
In the six months ended December 31, 1994, the initial period of
Quanterra's operations, the Company reported equity in net income
of Quanterra of $188,000. The analytical services business
continues to be intensely competitive and has historically been
negatively impacted by weather-related and other cyclical factors
during the Company's fourth fiscal quarter.
<TABLE>
Comparison of the Three Months Ended December 31, 1994
to the Three Months Ended December 31, 1993
<CAPTION>
Three months ended December 31,
---------------------------------------------------------------------
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 $ 66,184 17.8% 14.4% $ 57,832 15.5%
Analytical Services - - (100.0) 13,393 8.4
Construction and Remediation 36,219 13.6 70.1 21,299 15.6
------- -------
Total $102,403 16.3 $ 92,524 14.5
======= =======
</TABLE>
10
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INTERNATIONAL TECHNOLOGY CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
Comparison of the Nine Months Ended December 31, 1994
to the Nine Months Ended December 31, 1993
Nine months ended December 31,
--------------------------------------------------------------------
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 $197,212 17.8% 5.2% $187,482 17.5%
Analytical Services 13,075 3.1 (69.4) 42,708 11.7
Construction and Remediation 103,193 13.1 57.4 65,548 14.0
------- -------
Total $313,480 15.6 $295,738 15.9
======= =======
</TABLE>
Revenues
========
Revenues for the third quarter of fiscal year 1995 increased
$9,879,000 or 10.7% from the level of the related quarter of the
prior fiscal year. For the first nine months of fiscal year 1995,
revenues increased by $17,742,000 or 6.0% from the amount reported
in the corresponding period of fiscal year 1994. Effective with
the inception of operations for Quanterra in the second quarter of
fiscal year 1995, the Company no longer records any revenue in the
Analytical Services area. However, since approximately 30 percent
of Analytical Services area revenue has been derived from Environ-
mental Services or Construction and Remediation projects, addition-
al revenue now is being recorded in those two business areas
related to analytical services subcontracts performed by Quanterra
for IT, similar to other third party subcontracts. After excluding
current and prior year Analytical Services revenues other than
those provided to Environmental Services or Construction and
Remediation projects, revenues for the Company increased 21.7% and
14.0% in the third quarter and first nine months of fiscal year
1995, respectively.
For the three and nine months ended December 31, 1994, the
Environmental Services division experienced increases of $8,352,000
and $9,730,000 or 14.4% and 5.2%, respectively, from the related
revenue levels of the prior fiscal year. The increases in
Environmental Services during fiscal year 1995 were due principally
to the start-up of work at the Department of Energy (DOE) site in
Hanford, Washington under the Environmental Restoration Management
Contract (ERMC) program and the recording of analytical services
subcontract revenue.
Due to a general increase in governmental civil remediation
delivery order programs and significant seasonal activity in
certain of these programs, the Construction and Remediation
division reported increased revenues for the current three-month
and nine-month periods of $14,920,000 and $37,645,000, or 70.1% and
57.4%, respectively, in comparison to the corresponding periods of
the prior fiscal year.
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 a draft strategy imposing additional
requirements and costs on incineration facilities, the effect of
which was a "freeze" on the permitting of any new fixed-base
hazardous waste incinerators or cement kilns. In November 1994,
the USEPA finalized its strategy, which continued the draft
strategy's policy of granting a lower priority to consideration of
new fixed-base hazardous waste incinerators or cement kilns. The
11
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
final strategy also finalized the USEPA's direction of favoring
waste minimization over combustion and of increasing regulatory
burdens upon combustion and incineration facilities. Additionally,
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. 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 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 $33,500,000. If alternative uses, such
as foreign installations, were not found or were uneconomical,
there could be a material adverse effect to the Company's consoli-
dated financial condition due to impairment of HTTS assets as well
as lost project opportunities.
Although the impact upon the Company of the failure, to-date, of
the U.S. Congress to reauthorize CERCLA cannot be determined,
additional delays may result in lack of funding for certain
government-funded projects. Failure of interested parties and
Congress to agree to the terms of CERCLA reauthorization, or
substantial changes in or uncertainty concerning the details of the
legislation and cleanup standards, may result in project delays
and/or the failure of clients to initiate or proceed with projects.
Additionally, any changes in federal government policies resulting
from the November 1994 election may impact the environmental
industry if they lead to a reduction in the enforcement of
environmental regulations or in reductions in the environmental
restoration budgets of the Department of Defense (DOD) and DOE
which have been suggested both by Members of Congress and the
Executive Branch as part of attempts to achieve a balanced federal
budget.
The Company's total contract backlog, which excludes Analytical
Services, at December 31, 1994 was approximately $1,112,000,000
including approximately $620,000,000 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. Included in contract
backlog above is approximately $140,000,000 related to the Hanford
ERMC program. The Hanford ERMC backlog includes a substantial
amount of subcontract costs. The scope of work and the Company's
role at Hanford ERMC are undergoing review by DOE and the prime
contractor. Such review may result in different or less work for
the Company, including elimination of its subcontract procurement
responsibilities, which could reduce the currently reported
backlog. A change in the Company's role may or may not impact the
profitability of the contract.
Gross Margin
============
Gross margin percentage for the third quarter of fiscal year 1995
increased to 16.3% of revenues from 14.5% of revenues for the
corresponding period of the prior fiscal year. For the first nine
months of fiscal year 1995, gross margin of 15.6% of revenues
compared with 15.9% of revenues reported for the corresponding
period of the prior fiscal year.
Gross margin percentage for the current three-month period
increased from the related prior year level primarily because of
higher productivity in the Environmental Services division and the
cessation of reporting the low-margin Analytical Services revenues
in the consolidated revenues. The improved labor utilization
experienced in Environmental Services more than offset declining
prices.
12
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
For the current nine-month period, gross margin percentage was
adversely impacted by a significant decline in Analytical Services
gross margin during the first quarter of fiscal year 1995 prior to
the formation of Quanterra on June 28, 1994 (see Overview above).
During the first fiscal quarter ended June 30, 1994, the decline in
Analytical Services gross margin percentage from the prior year
level was due to competitive market conditions as well as opera-
tional inefficiencies experienced related to the planned start-up
of Quanterra. Additionally, Construction and Remediation margins
have declined over the past year since the projects currently being
executed, primarily major DOD programs, have lower margins than
those executed previously. In the third fiscal quarter of both
years, margin was favorably affected by a profit adjustment on a
major fixed-price contract.
Selling, General and Administrative Expenses
============================================
For the three months and nine months ended December 31, 1994,
selling, general and administrative expenses represented 9.9% of
revenues and 10.2% of revenues, respectively. These levels compare
favorably to the related 11.4% and 11.2% of revenues reported for
the two corresponding periods of the prior fiscal year as a result
of continued management attention to expenses. During the second
and third quarters of the current fiscal year, the Company
experienced a decline in selling, general and administrative
expenses as certain expenses were eliminated or transferred from
the Company upon the formation of Quanterra.
Interest, Net
=============
Net interest expense represented 1.9% of revenues in the third
quarter of fiscal year 1995, compared with 1.8% of revenues
reported in the third quarter of fiscal year 1994. The increase in
interest expense, which is expected to continue in the fourth
quarter of fiscal year 1995, was due to increasing interest rates
being experienced on the Company's floating rate bank borrowings
and due to the cessation of capitalized interest on the Company's
major financial and project management software project which was
substantially completed at September 30, 1994.
For the nine months ended December 31, 1994, net interest expense
declined to 1.6% of revenues from the 2.3% of revenues reported in
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 repayments 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 repay $30,000,000 of bank
debt at September 30, 1993 and to prepay $25,000,000 of the
Company's 9 3/8% senior notes on November 15, 1993. Additionally,
the Company received a combined $278,000 of interest income
resulting from the settlement of a lawsuit and an income tax refund
during the first six months of the current fiscal year.
Income Taxes
============
For the nine months ended December 31, 1994, in which the Company
reported income before income taxes of $2,848,000, the Company
recorded a $3,562,000 income tax provision due principally to the
partial nondeductibility of the integration charge recorded by the
Company. (See Note 2 to Condensed Consolidated Financial State-
ments.) In the corresponding nine-month period of the prior fiscal
year, the effective income tax rate of 38% exceeded the 34% federal
statutory rate due primarily to nondeductible expenses and state
income taxes.
13
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
FINANCIAL CONDITION
Working capital of $71,508,000 at December 31, 1994 increased by
$7,986,000 or 12.6% from $63,522,000 at March 31, 1994. The
current ratio at December 31, 1994 increased to 1.76:1 from 1.70:1
at March 31, 1994.
Cash provided by operating activities for the first nine months of
fiscal year 1995 totaled $5,823,000, compared to $17,096,000 cash
provided by operating activities in the corresponding nine-month
period of the prior fiscal year. Cash was utilized in the current
nine-month period to maintain increased accounts receivable levels
due to the increase in revenues in the current quarter compared to
the level being experienced at March 31, 1994 and to slower cash
collections. Capital expenditures of $7,922,000 for the current
nine-month period were $2,392,000 lower than the $10,314,000 amount
reported for the corresponding period of the prior fiscal year due
primarily to the cessation of spending in the Analytical Services
area due to the formation of Quanterra.
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 nine months of the current fiscal year,
the Company spent $8,256,000 relating to closure plans and
construction costs for the sites compared to $9,336,000 in the
corresponding period of the prior fiscal year. At December 31,
1994, the Company's condensed consolidated balance sheet included
accrued liabilities of $40,769,000 to complete the closure and
post-closure of its inactive Northern California 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 fiscal year 1996 or early
in fiscal year 1997. 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 substantially which would have a material
adverse effect on the consolidated 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 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
1997; however, delays in DTSC approval of interim construction work
may delay closure completion. Ongoing delays in the closure
process at this site or at the Panoche site may result in an
increase in the provision for loss on discontinued operations.
Additionally, the impact to the sites of the abnormally heavy rains
in the Northern California area during January 1995 will likely
cause increased expenditures to maintain compliance with the
Company's site permits. (See Note 6 to Condensed Consolidated
Financial Statements.)
14
<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 delay the closure plan approval process or 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
December 31, 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. The Company has 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 continues to be 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 and certain past
response costs total approximately $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.) Neither set of
claims include 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
15
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
FINANCIAL CONDITION (CONTINUED)
committee. Accordingly, the Company has not been able to agree to
USEPA's or the PRP steering committee's claims. IT had previously
met with the USEPA to propose and negotiate a release from alleged
liability for past costs in return for IT undertaking remediation
work at the site. The USEPA has responded to the Company's
proposal advising that it was not acceptable and providing the
Company with an opportunity to submit additional data in support of
its position. The USEPA has also offered the Company, along with
the other PRPs who have not as yet settled with USEPA, the
opportunity to have reviewed on limited grounds, the volumes of
waste attributed to it and, subsequently, 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 (subject to any adjustments in the volumes attributed to
the Company as a result of the volumetric review process referenced
above). The Company has filed with the USEPA a request for review
of the volumes of waste attributed to it (to which no reply has yet
been received) and is also engaged in discussions with the USEPA
concerning settlement of the USEPA's claims. On October 11, 1994,
the Company was served with a summons and complaint in the PRP
steering committee's cost recovery action (National Railroad
Passenger Corporation, et al v. Harshaw Filtrol, U.S.D.C. Central
District, No. CV 94 2861 WMB (GHK)). The action seeks the
committee's past response costs of approximately $2,700,000 plus a
declaration as to the Company's share of future costs at the site.
The Company is defending this action vigorously while continuing to
attempt a settlement with the PRP steering committee and the USEPA
and is engaged in discussions with the PRP steering committee
concerning settlement of the committee's claims. Trial in this
action is set for July 17, 1995. Inability of the Company to
effect satisfactory settlement with the PRP steering committee and
the USEPA could have a material adverse effect on the consolidated
financial condition of the Company. 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. 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 December 31, 1994, a deferred tax asset in the amount of
$11,479,000 (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
carryforwards. The asset will be realized principally as closure
expenditures related to the Company's inactive 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.
At December 31, 1994, the Company utilized approximately
$24,000,000 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 December 31, 1994, letters
of credit totaling approximately $53,000,000 were outstanding
against the Company's $95,000,000 bank line of credit which has an
expiration date of January 2, 1996. Additionally, the Company had
outstanding $29,000,000 of cash advances under the line, leaving
approximately $13,000,000 unused at December 31, 1994. The amount
of the Company's current availability is limited to the amount of
16
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
FINANCIAL CONDITION (CONTINUED)
collateral available in accordance with the loan agreement,
principally accounts receivable; however, collateral available at
December 31, 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. The credit
agreements for Quanterra prohibit the Company from pledging its
interest in Quanterra to other lenders, including the Company's
current lenders.
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 three 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.)
17
<PAGE>
PART II
INTERNATIONAL TECHNOLOGY CORPORATION
Item 1. Legal Proceedings.
The following matters and other litigation to which the
Company is a party 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 and in the Company's
Quarterly Report on Form 10-Q for the quarters ended September
30, 1994 and June 30, 1994. See Note 9 to Condensed Consoli-
dated 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.
Class Action Lawsuits
=====================
Mancino et al. v. International Technology Corporation, et
al., U.S.D.C. - Central District No. 89-7244 RMT. Discovery
concerning the facts underlying the action was completed as of
January 31, 1995 and trial in this action is now set for July
10, 1995.
Central Garden
==============
The Company anticipates that all of the litigation related to
this matter will be submitted to nonbinding arbitration in
October 1995 and that trial will be set for the second
calendar quarter of 1996.
18
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. This exhibit is numbered in accordance with the
Exhibit Table of Item 601 of Regulation S-K.
Exhibit No. Description
----------- ------------
10(iii) First Amendment dated January 6, 1995 to the Re-
tirement Agreement dated March 3, 1994 between
Murray H. Hutchison and the registrant.
(b) Reports on Form 8-K.
None.
19
<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 February 14, 1995
-------------------------- -----------------
Anthony J. DeLuca
Senior Vice President, Chief Financial Officer
and Duly Authorized Officer
20
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. These exhibits are numbered in accordance
with the Exhibit Table of Item 601 of Regulation S-K.
Exhibit No. Description
----------- -----------
10(iii) 1. First Amendment dated January 6, 1995 to the
Retirement Agreement dated March 3, 1994
between Murray H. Hutchison and the regis-
trant.
27 1. Financial Data Schedule for the quarter ended
December 31, 1994.
(b) Reports on Form 8-K.
None.
EXHIBIT 10(iii).1
FIRST AMENDMENT TO RETIREMENT AGREEMENT
EXECUTED MARCH 3, 1994
=======================================
This FIRST AMENDMENT TO RETIREMENT AGREEMENT EXECUTED MARCH 3,
1994 (hereinafter "Amendment") is entered into this 6th day of
January, 1995 by Murray Hutchison (hereinafter "Hutchison"), an
individual, and International Technology Corporation, a Delaware
corporation, and its subsidiaries and affiliates (collectively
referred to as the "Company").
NOW, THEREFORE, in consideration of the mutual covenants and
conditions set forth below, Hutchison and the Company hereby agree
as follows:
1. Except as expressly provided in this Amendment, all terms,
provisions, conditions and other content of the RETIREMENT
AGREEMENT executed March 3, 1994 (attached hereto as "Exhibit A")
remain unaltered and in full force and effect.
2. Paragraph 2 of the RETIREMENT AGREEMENT is amended by the
addition of the following subparagraph c:
c. The Company shall pay to Hutchison the sum of
$45,833.33 on or before January 10, 1995, representing the
difference between the $25,000.00 per month to be paid under
Paragraph 2 a. above and the sums actually paid by the Company
to Hutchison from August 1, 1994 through January 1, 1995, less
any required deductions for federal and state tax withholding.
3. Subparagraphs a. and b. of Paragraph 5 of the RETIREMENT
AGREEMENT are amended to delete the words "age 65" on line two of
each of said subparagraphs and to substitute in place of the
deleted language the words "December 31, 1994".
Paragraph 5 of the RETIREMENT AGREEMENT is also amended by the
addition of the following subparagraph c:
c. Hutchison shall pay to the Company on or before
January 10, 1995 the sum advanced by the Company to him as
payment under paragraph 5 a. above for the period January 1,
1995 through March 31, 1995, totaling $1,462.50.
4. Paragraph 7 of the RETIREMENT AGREEMENT is amended to delete
the words "he reaches the age of 65" on line four of said paragraph
and to substitute in place of the deleted language the words
"December 31, 1994". Further, the current content of said
Paragraph 7, as amended, starting with the beginning words "The
Company agrees" shall be subparagraph a. of paragraph 7.
1
<PAGE>
Paragraph 7 of the RETIREMENT AGREEMENT is also amended by the
addition of the following subparagraph b:
b. Hutchison shall pay the Company on or before January
10, 1995 the sum advanced by the Company to him as payment
under paragraph 7 a. above for the period January 1, 1995
through March 31, 1995, totaling $7,500.00.
5. Paragraph 10 of the RETIREMENT AGREEMENT is amended by
deleting the first sentence thereof and substituting in its place
the following sentence:
This Agreement, the Amendment and their provisions are
intended to be confidential.
6. Paragraph 12 of the RETIREMENT AGREEMENT is amended by adding
the words "and the Amendment" after the word "Agreement" on the
last line thereof.
7. Paragraph 13 of the RETIREMENT AGREEMENT is amended by
deleting the word "was" on the first line thereof and substituting
in its place the words "and the Amendment were". In addition, the
words "or the Amendment" shall be inserted after the words
"concerning this Agreement" on line three, page 8 of that para-
graph.
8. Paragraph 14 of the RETIREMENT AGREEMENT is amended by
deleting the word "constitutes" on the first line thereof and
substituting in its place the words "and the Amendment constitute".
In addition, the words "and the Amendment" shall be inserted after
the word "Agreement" on line nine of that paragraph.
9. Paragraph 15 of the RETIREMENT AGREEMENT is amended by
deleting the word "is" on the first line thereof and substituting
in its place the words "and the Amendment are".
10. Paragraph 16 of the RETIREMENT AGREEMENT is amended by
inserting the words "and the Amendment" after the word "Agreement"
on line two thereof on page 8 and line one of page 9.
11. Paragraph 17 of the RETIREMENT AGREEMENT is amended by adding
the words "or the Amendment" after the word "Agreement" on line six
of that paragraph.
12. Paragraph 18 of the RETIREMENT AGREEMENT is amended by adding
the following thereto:
In the event any FICA taxes are due from Hutchison by reason
of this Agreement or the Amendment, such sum shall be advanced
to Hutchison by the Company. The sum so advanced will be
repaid, without interest, by deducting 1/24th of the same from
each semi-monthly payment made to Hutchison during 1995
pursuant to paragraph 2 a. hereof.
2
<PAGE>
13. Paragraph 19 of the RETIREMENT AGREEMENT is amended by adding
the words "and the Amendment" after the word "Agreement" on line
one of that paragraph.
14. Paragraph 20 of the RETIREMENT AGREEMENT is amended by adding
the words "or the Amendment" after the word "Agreement" on line two
of page 9 and lines three and six on page 10 of that paragraph.
15. Paragraph 21 of the RETIREMENT AGREEMENT is amended by adding
the words "or the Amendment" after the words "this Agreement" on
page 10, lines two and five of that paragraph.
16. Paragraph 22 of the RETIREMENT AGREEMENT is amended by adding
the words "or the Amendment" after the word "Agreement" on line
three of that paragraph. In addition, the words "and the Amend-
ment" shall be added after the word "Agreement" on lines seven and
eight of that paragraph.
17. The following paragraphs shall be added to the RETIREMENT
AGREEMENT:
23. Indemnification for Costs of Defense. If any claim,
demand or liability is asserted by any third party against the
Company or Hutchison (including without limitation any claim
asserted derivatively on behalf of the Company against Hutchison)
which challenges the validity or enforceability of, or seeks
damages based upon, this Agreement or any amendment hereto,
(hereinafter any such claim, demand or liability a "Third Party
Claim") the Company shall promptly pay all out-of-pocket costs and
expenses reasonably incurred by Hutchison, including without
limitation his attorney fees, in the defense thereof, upon
submission of appropriate and customary bills or invoices and
supporting documentation therefor. For purposes of this paragraph,
an hourly rate for attorney fees which shall not exceed the sum
which would be charged if computed under the hourly rates of Latham
& Watkins at the time such legal services are rendered shall be
considered a reasonable hourly rate. Nothing contained in this
paragraph 23 impairs or restricts any right Hutchison may have to
insurance, indemnification or contribution pursuant to Delaware or
any other applicable law, the charter or bylaws of the Company, any
insurance policy, any preexisting indemnification agreement between
Hutchison and the Company or any other indemnification which may
include Hutchison.
24. Certain Consulting Services. During his lifetime,
Hutchison shall, upon the written request of the General Counsel of
the Company, consult with the Company and/or its counsel in
connection with litigation matters pertaining to i) Northern
California sites operated by the Company ii) the MOTCO litigation,
and iii) discontinued operations of the Company, or transactions
and events pertaining thereto, occurring prior to the date of this
Agreement, of which he has knowledge, but shall not be entitled to
additional compensation therefor, except as hereinafter provided.
Hutchison shall be reimbursed his travel, hotel, meals and other
out-of-pocket expenses incurred in connection with any such
consulting. Any consulting required hereunder shall be limited in
respect of amount of time required and scheduling therefor, so that
it shall not unreasonably interfere with Hutchison's business or
personal activities or employment.
3
<PAGE>
The Company shall provide reasonable notice in advance of any consulting
required hereunder and shall, to the extent possible, schedule such
consulting to avoid conflict with Hutchison business, personal or
other plans and commitments.
25. The Company will promptly reimburse Hutchison for all
of his attorneys fees, costs (including, but not limited to, the
$5,000.00 non-refundable filing fee paid to the American Arbitra-
tion Association) and expenses incurred, and not previously
reimbursed, subsequent to March 3, 1994 in connection with this
Agreement, the Amendment, advice, negotiations, preparation and
closing leading to the same, the dispute leading to the pending
arbitration between Hutchison and the Company and the pending
Arbitration proceeding, upon submission of appropriate and
customary bills or invoices and supporting documentation therefor
to the Company. Such reimbursement for the period through December
31, 1994 for such fees, costs and expenses not previously reim-
bursed will not exceed $30,000 plus the $5,000 fee paid to the
American Arbitration Association. The total for fees, costs and
expenses for the subsequent period from December 31, 1994 through
the approval and execution of the Amendment will be supplied to the
Company for payment when available.
26. The Amendment shall be effective upon its execution by
the Company and Hutchison and upon its approval by the Special
Committee of the Board of Directors Concerning Retirement Agreement
With Murray H. Hutchison and the Board of Directors of Company, and
upon approval as to form by the Company's General Counsel, Gibson,
Dunn & Crutcher, and O'Melveny & Myers. If such execution
approvals are not obtained by January 6, 1995, then the Amendment
shall not be effective.
27. The arbitration proceeding commenced pursuant to
paragraph 21 of the RETIREMENT AGREEMENT by Murray Hutchison
against the Company on or about November 15, 1994 shall be
dismissed promptly after the Amendment is approved and executed as
provided in paragraph 26 hereof. If such execution and approvals
do not occur, then the arbitration may proceed.
18. Subparagraph a. of paragraph 2 of the RETIREMENT AGREEMENT is
amended by adding the words "whichever is longer" to the end of the
first sentence thereof.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date stated by each signature.
INTERNATIONAL TECHNOLOGY CORPORATION
By: /s/ Eric Schwartz
- ---------------------------
Eric Schwartz, Senior Vice President and General Counsel
MURRAY H. HUTCHISON
/s/ Murray H. Hutchison
- ----------------------------
Murray H. Hutchison
5
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the Company's
condensed financial statements filed with the SEC on February 14, 1995 on Form
10-Q for the quarter ended December 31, 1994 (commission file number 1-9037) and
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> QTR-3
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> DEC-31-1994
<CASH> 5,075
<SECURITIES> 0
<RECEIVABLES> 145,792
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 166,022
<PP&E> 133,950
<DEPRECIATION> 76,807
<TOTAL-ASSETS> 366,466
<CURRENT-LIABILITIES> 94,514
<BONDS> 79,265
<COMMON> 35,538
0
2,400
<OTHER-SE> 122,052
<TOTAL-LIABILITY-AND-EQUITY> 366,466
<SALES> 0
<TOTAL-REVENUES> 102,403
<CGS> 0
<TOTAL-COSTS> 96,173
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,996
<INCOME-PRETAX> 4,234
<INCOME-TAX> 1,553
<INCOME-CONTINUING> 2,681
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,681
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0
</TABLE>
