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 June 28, 1996
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 July 31, 1996 the registrant had issued and outstanding an aggregate
of 36,602,401 shares of its common stock.
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INTERNATIONAL TECHNOLOGY CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED JUNE 28, 1996
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets
as of June 28, 1996 (unaudited) and
March 29, 1996. 3
Condensed Consolidated Statements of Operations
for the First Fiscal Quarters ended June 28, 1996
June 30, 1995 (unaudited). 4
Condensed Consolidated Statements of Cash Flows
for the First Fiscal Quarters ended June 28, 1996
and June 30, 1995 (unaudited). 5
Notes to Condensed Consolidated Financial
Statements (unaudited). 6-7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition. 8-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 17
Item 6. Exhibits and Reports on Form 8-K. 18
Signatures. 19
2
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PART I
Item 1. Financial Statements.
INTERNATIONAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
June 28, March 29,
1996 1996
---------- ---------
(Unaudited)
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 25,104 $ 24,493
Restricted cash 3,977 -
Receivables, net 112,847 126,832
Prepaid expenses and other current assets 4,638 4,315
Deferred income taxes 12,149 12,149
------- -------
Total current assets 158,715 167,789
Property, plant and equipment, at cost:
Land and land improvements 1,780 1,783
Buildings and leasehold improvements 10,955 10,961
Machinery and equipment 144,695 144,218
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157,430 156,962
Less accumulated depreciation and amortization 104,559 101,201
------- -------
Net property, plant and equipment 52,871 55,761
Investment in Quanterra 13,450 12,975
Other assets 38,017 37,084
Long-term assets of discontinued operations 41,705 41,705
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Total assets $304,758 $315,314
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 23,322 $ 27,091
Accrued liabilities 31,279 32,157
Billings in excess of revenues 1,062 2,044
Short-term debt, including current portion of
long-term debt 65,259 97
Net current liabilities of discontinued operations 17,094 17,226
------- -------
Total current liabilities 138,016 78,615
Long-term debt 392 65,611
Long-term accrued liabilities of
discontinued operations 22,610 24,771
Other long-term accrued liabilities 5,351 5,452
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; 36,601,778 and 36,598,207 shares
issued and outstanding, respectively 36,602 36,598
Treasury stock, at cost (27,811 shares) (84) (84)
Additional paid-in capital 170,069 169,958
Deficit (70,598) (68,007)
------- -------
Total stockholders' equity 138,389 140,865
------- -------
Total liabilities and stockholders' equity $304,758 $315,314
======= =======
See accompanying notes.
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INTERNATIONAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
First fiscal quarter ended
--------------------------
June 28, June 30,
1996 1995
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(Unaudited)
Revenues $ 81,416 $100,292
Cost and expenses:
Cost of revenues 73,637 83,348
Selling, general and administrative expenses 9,080 10,023
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Operating income (loss) (1,301) 6,921
Equity in net loss of Quanterra - (955)
Interest, net (1,356) (1,991)
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Income (loss) before income taxes (2,657) 3,975
(Provision) benefit for income taxes 1,116 (1,630)
------- -------
Net income (loss) (1,541) 2,345
Less preferred stock dividends (1,050) (1,050)
------- -------
Net income (loss) applicable to common stock $ (2,591) $ 1,295
======= =======
Net income (loss) per share $ (.07) $ .04
======= =======
See accompanying notes.
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INTERNATIONAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
First fiscal quarter ended
--------------------------
June 28, June 30,
1996 1995
------- -------
(Unaudited)
Cash flows from operating activities:
Net income (loss) $ (1,541) $ 2,345
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Equity in net loss of Quanterra - 955
Depreciation and amortization 4,027 3,874
Deferred income taxes (1,225) 1,554
Changes in assets and liabilities,
net of effects from acquisitions
and dispositions of businesses:
Decrease (increase) in receivables, net 13,985 (1,951)
Increase in prepaid expenses and other
current assets (323) (537)
(Decrease) increase in accounts payable (3,769) 813
Decrease in accrued liabilities (878) (5)
Decrease in billings in excess of
revenues (982) (1,822)
Decrease in other long-term accrued
liabilities (101) (171)
------- -------
Net cash provided by operating activities 9,193 5,055
Cash flows from investing activities:
Capital expenditures (592) (1,868)
Investment in Quanterra (475) -
Restricted cash (3,977) -
Other, net (148) (574)
Investment activities of discontinued
operations (2,293) (2,522)
------- -------
Net cash used for investing activities (7,485) (4,964)
Cash flows from financing activities:
Repayments of long-term borrowings (57) (10,933)
Long-term borrowings - 13,000
Dividends paid on preferred stock (1,050) (1,050)
Repurchases of common stock - (740)
Issuances of common stock 10 150
------- -------
Net cash (used for) provided by
financing activities (1,097) 427
------- -------
Net increase in cash and cash equivalents 611 518
Cash and cash equivalents at beginning
of period 24,493 6,547
------- -------
Cash and cash equivalents at end of period $ 25,104 $ 7,065
======= =======
See accompanying notes.
5
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INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The condensed consolidated financial statements included herein have
been prepared by International Technology Corporation (Company or IT),
without audit, and include all adjustments of a normal, recurring nature
which are, in the opinion of management, necessary for a fair presentation
of the results of operations for the first fiscal quarter ended June 28,
1996, pursuant to the rules of the Securities and Exchange Commission.
The Company's fiscal year includes four thirteen-week fiscal quarters with
the fourth quarter ending on the last Friday in March. Certain informa-
tion 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 29, 1996. The results of operations for the fiscal
period ended June 28, 1996 are not necessarily indicative of the results
for the full fiscal year.
2. For the first fiscal quarters ended June 28, 1996 and June 30, 1995,
the Company had an effective income tax benefit rate of 42% and an income
tax rate of 41%, respectively, both of which exceed the 34% federal statu-
tory rate primarily due to state income taxes and nondeductible expenses.
3. 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:
Average common and common
Fiscal quarter ended equivalent shares outstanding
____________________ _____________________________
June 28, 1996 36,601,836
June 30, 1995 35,758,245
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 antidilutive.
4. In anticipation of the loss reported by the Company for its current
first fiscal quarter, the Company, prior to June 28, 1996, obtained a
waiver through August 1996 of certain covenants in its lending arrange-
ments which allows it to maintain compliance with those arrangements as of
the end of the first quarter of fiscal year 1997. In connection with this
waiver, the Company has agreed to restrict the usage of its credit line to
letters of credit during the period of the waiver. The Company is
negotiating with its lenders additional modifications to the lending
arrangement which will be required upon the expiration of the waiver. In
the event such modifications are not obtained, there would be a material
adverse effect on the consolidated financial condition of the Company.
Additionally, due to the short-term nature of the waiver, the Company's
$65,000,000 senior secured notes, which otherwise would have been classi-
fied as long-term, have been classified as current in the June 28, 1996
condensed consolidated balance sheet.
5. 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 operations through sale of some
facilities and closure of certain other facilities. As of June 28, 1996,
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, from December 1987 through March 31, 1996, the
Company recorded a provision for loss on disposition of transportation,
treatment and disposal discontinued operations (including the initial
provision and three subsequent adjustments) in the amount of $160,192,000,
net of income tax benefit of $32,879,000. The adjustments principally
related to a writeoff of the contingent purchase price from the earlier
6
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INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
sale of certain assets, increased closure costs principally due to delays
in the regulatory approval process, and costs related to certain waste
disposal sites where IT has been named a potentially responsible party
(PRP). At June 28,1996, the Company's condensed consolidated balance
sheet included accrued liabilities of $39,704,000 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 provision for loss has been currently
evaluated in light of 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 significant-
ly 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.
6. For information regarding legal proceedings of the Company's
continuing operations, please see the note "Commitments and contingencies"
in the Notes to Consolidated Financial Statements in the Company's Annual
Report on Form 10-K for the fiscal year ended March 29, 1996; current
developments regarding continuing operations' legal proceedings are
discussed in Part II of this filing. See Management's Discussion and
Analysis of Results of Operations and Financial Condition - Financial
Condition for information regarding the legal proceedings of the discon-
tinued operations of the Company.
7. Unbilled receivables of $21,063,000 at June 28, 1996 ($20,945,000 at
March 29, 1996) 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, negotiation of change
orders or completion of the project.
Included in unbilled receivables at June 28 and March 29, 1996 is
approximately $8,500,000 of claims related to the Helen Kramer project,
which is subject to a governmental investigation.
8. In March 1995, the FASB issued Statement of Financial Accounting
Standards No. 121 (SFAS No. 121), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the
assets' carrying amount. SFAS No. 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company has
adopted SFAS No. 121 in the first quarter of fiscal year 1997 which did
not result in any material impact on the results of operations or
financial position of the Company. Long-term assets of discontinued
operations are accounted for under APB Opinion No. 30, "Reporting the
Results of Operations," and are not subject to SFAS No. 121.
7
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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 28, 1996
RESULTS OF OPERATIONS
Overview
- --------
The Company's services are provided to a broad array of governmental and
commercial entities predominantly in the U.S. market. Additionally, the
Company pursues selected international business opportunities on a
project-specific basis. The Company's business strategy is to provide its
environmental services on a full-service basis, particularly by focusing
on its capabilities to manage complex environmental issues from the
initial assessment of the level and extent of contamination through the
design, engineering and execution of a solution which minimizes the
client's total cost.
Revenues
- --------
The Company experienced an 18.8% decrease in revenues from $100,292,000 in
the first quarter of fiscal year 1996 to $81,416,000 in the first quarter
of fiscal year 1997, primarily reflecting weak demand throughout the
industry, combined with ongoing delays in the funding of major existing
U.S. Department of Defense contracts. Although revenues are expected to
increase progressively from the first quarter level over the course of the
year, the impact of the difficult industry-wide trends is expected to
cause the Company to continue to show a year-to-year decline in revenues
in its second fiscal quarter and possibly beyond.
The following table shows, for the first fiscal quarters ended June 28,
1996 and June 30, 1995, the Company's revenues attributable to federal,
state and local governmental contracts as a percentage of the Company's
consolidated revenues:
Fiscal quarter ended
--------------------------
June 28, June 30,
Source 1996 1995
------- -------
Federal government:
U.S. Department of Defense (DOD)....... 46% 50%
U.S. Department of Energy (DOE)........ 14 12
Other federal agencies................. 2 4
---- ----
62 66
State and local governments............... 6 4
---- ----
Total..................................... 68% 70%
==== ====
The portion of the Company's revenues derived from the DOD decreased from
52% to 46% primarily due to delays in the funding of the Company's major
indefinite delivery order programs over the past several quarters. The
Company expects to continue to derive a substantial portion of its
revenues from these contracts, which are primarily related to remedial
action type of work. Additionally, an expected transition by the DOE over
the next several years to emphasize remediation over studies is expected
to be positive for the Company based on the Company's favorable experience
in winning and executing similar work for the DOD, the Company's experi-
ence with the DOE related to its past performance of DOE studies and
recent contract awards for such work.
The Company's revenues from commercial clients declined in the first
quarter of fiscal year 1997 compared to the prior year period. The
Company believes this is partly due to commercial clients delaying certain
work until final Congressional action is taken on the reauthorization of
8
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INTERNATIONAL TECHNOLOGY CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
the Comprehensive Environmental Response, Compensation and Liability Act
of 1980 (CERCLA). Funding authority under CERCLA lapsed on December 31,
1995, and it is uncertain when reauthorization will occur or what the
details of the legislation, including retroactive liability, cleanup
standards, and remedy selection, may include. Uncertainty regarding
possible Congressional rollbacks of environmental regulation and enforce-
ment have led commercial clients to delay projects as well, although there
are recent indications that significant rollbacks are less likely than
previously believed. Contemplated changes in regulations could decrease
the demand for certain of the Company's services, as customers anticipate
and adjust to the new regulations. However, the proposed legislation
could also result in increased demand for certain of the Company's
services if regulatory changes decrease the cost of remediation projects
or result in more funds being spent for actual remediation. The ultimate
impact of the proposed changes will depend upon a number of factors,
including the overall strength of the U.S. economy and customers' views on
the cost effectiveness of remedies available under the changed regula-
tions.
A significant portion of IT's revenues (approximately 14% in the first
quarter of fiscal year 1997) continue to be derived from large, complex
thermal remediation contracts utilizing the Company's Hybrid Thermal
Treatment System (HTTS) incineration technology. Incineration as an
allowable remedy under CERCLA continues to come under legislative and
regulatory pressures. If policies were implemented or regulations were
changed such that the Company was unable to permit and use thermal
treatment on remediation projects due to either regulatory or market
factors, the Company would have to find alternative uses for its HTTS
equipment. If alternative uses, such as foreign installations, were not
found or were uneconomical, there could be a negative effect to the
Company due to impairment of HTTS assets as well as lost project opportu-
nities. The Company's backlog of contracts which utilize HTTS equipment
was approximately $14,000,000 at June 28, 1996. The Company is actively
pursuing other contract opportunities which utilize HTTS equipment. At
June 28, 1996, IT's HTTS equipment had a net book value of approximately
$14,000,000.
The Company's total contract backlog at June 28, 1996 was approximately
$1,196,000,000, of which approximately $815,000,000 is future project work
the Company estimates it will receive (based on historical experience)
under existing governmental indefinite delivery order (IDO) programs which
provide for a general undefined scope of work. Revenues from backlog and
IDO contracts are expected to be earned over the next one to five years.
Backlog increased during the current first fiscal quarter due principally
to the $325,000,000 award to IT in May 1996 of the Savannah Total Environ-
mental Restoration Contract IDO Program by the U.S. Army Corps of
Engineers. Continued funding of existing backlog could be negatively
impacted in the future due to reductions in current and future federal
government environmental restoration budgets.
Gross Margin
- ------------
Gross margin percentage for the first quarter of fiscal year 1997 declined
to 9.6% of revenues from 16.9% of revenues for the corresponding period of
the prior fiscal year. In the current quarter, gross margin was adversely
impacted by the declining level of revenues as certain overhead cost
elements are fixed in the short term, by lower staff utilization, and by
lower pricing due to competitive industry conditions. The Company expects
gross margin to improve from the first quarter level upon the anticipated
progressive revenue increase noted above as fixed overhead costs are
reduced due to organizational streamlining and spread over higher revenues
and as staff utilization improves, but competitive pricing is expected to
continue to adversely affect gross margin.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses of $9,080,000 for the first
quarter of fiscal year 1997 were $943,000 or 9.4% lower than the prior
year level, principally due to continued management attention to expenses.
Selling, general and administrative expenses increased from 10.0% to 11.1%
of revenues due to the lower revenue level. Selling, general and adminis-
trative expenses are expected to decline due to cost savings resulting
from the reduction of a number of significantly compensated positions
9
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INTERNATIONAL TECHNOLOGY CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
occurring in the second fiscal quarter. As a result, the Company
anticipates taking a special charge during that quarter, reflecting
severance and other associated costs.
Interest, Net
- -------------
For the first quarter of fiscal year 1997, net interest expense represent-
ed 1.7% of revenues compared to the 2.0% of revenues reported in the first
quarter of fiscal year 1996. The lower first quarter net interest expense
level compared to a year ago is due principally to an increased level of
cash and cash equivalents generating more interest income.
Income Taxes
- ------------
For the first fiscal quarters ended June 28, 1996 and June 30, 1995, the
Company had an effective income tax benefit rate of 42% and an income tax
rate of 41%, respectively, both of which exceed the 34% federal statutory
rate primarily due to state income taxes and nondeductible expenses.
The Company's future tax rate is subject to the full realization of its
deferred tax asset of $33,701,000 (net of a valuation allowance of
$4,869,000). Realization of the tax asset is expected by management to
occur principally as closure expenditures related to the Company's
inactive disposal sites (see Note 5 to Condensed Consolidated Financial
Statements) over the next several years are deductible in the year the
expenditures are made and upon the ultimate tax disposition of the Com-
pany's 19% interest in Quanterra (see Management's Discussion and Analysis
of Results of Operations and Financial Condition - Financial Condition),
but is subject to the Company having a sufficient level of taxable income
and taxable capital gains. The Company evaluates the adequacy of the
valuation allowance and the realizability of the deferred tax asset
on an ongoing basis.
10
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INTERNATIONAL TECHNOLOGY CORPORATION
FINANCIAL CONDITION
Working capital of $20,699,000 at June 28, 1996 decreased by $68,475,000
or 76.8% from $89,174,000 at March 29, 1996 due principally to the
classification of the Company's $65,000,000 of senior secured notes as
current in the June 28, 1996 condensed consolidated balance sheet (see
Note 4 to Condensed Consolidated Financial Statements). Consequently, the
current ratio at June 28, 1996 decreased to 1.15:1 from 2.13:1 at March
29, 1996.
Cash provided by operating activities for the first quarter of fiscal year
1997 totaled $9,193,000, compared to $5,055,000 provided by operating
activities in the corresponding first quarter of the prior fiscal year.
During the current period, the increase in cash provided by operating
activities is principally due to a net reduction in receivables reflecting
the significantly lower revenue level. Additionally, capital expenditures
of $592,000 for the current first fiscal quarter were $1,276,000 lower
than the $1,868,000 reported for the corresponding period of the prior
fiscal year principally due to a lower level of capital requirements
reflecting the lower revenue level during the quarter. Management
believes capital expenditures for fiscal year 1997 will increase slightly
from the $4,696,000 level of fiscal year 1996, excluding any business
acquisitions or strategic investments which might be made by the Company.
With regard to the Company's transportation, treatment and disposal
discontinued operations, the Company has previously completed closure of
its Montezuma Hills and Benson Ridge facilities and is pursuing closure of
its inactive Panoche and Vine Hill Complex facilities. On November 17,
1995, the California EPA, Department of Toxic Substances Control (DTSC)
approved the final closure plan and post-closure plan for the Vine Hill
Complex facility. The approved final closure plan provides for solidifi-
cation and capping of waste sludges and installation of underground
barriers and groundwater control systems. Substantial remediation has
already been completed over the past several years based upon interim ap-
provals by DTSC, and the final closure is scheduled to be completed in
fiscal year 1998.
On June 28, 1996, DTSC released a Draft Environmental Impact Report (DEIR)
and Draft Closure Plan for public comment for the Panoche facility. The
DEIR evaluates the Company's preferred closure plan as well as several
alternative plans and states that the Company's preferred closure plan is
the environmentally superior alternative. The alternative plans involve
excavation and on-site relocation of substantial quantities of waste
materials in addition to landfill capping and groundwater controls which
are common to all alternatives. If selected, the alternative plans would
extend the closure construction schedule and increase the cost of closure.
The DEIR and Draft Closure Plan are subject to a 90-day public comment
period during which the Company expects interested parties to support
alternative plans. After the completion of the public comment period,
DTSC, after considering all comments received, will approve a final
closure plan and certify the final EIR. The Company expects the plan and
all necessary permits to be approved during fiscal year 1997. Closure
construction for the Company's preferred plan is scheduled to be completed
within three years of approval of the plan. Although not anticipated, if
DTSC were to approve an alternative plan or fail to timely approve any
plan, the Company's cost to close the site would increase, which could
have a material adverse impact on the consolidated financial condition of
the Company.
Closure construction was completed for the Montezuma Hills and Benson
Ridge facilities in December 1991 and December 1992, respectively. Upon
completion of closure construction, the Company is required to perform
post-closure monitoring and maintenance of its disposal facilities for at
least 30 years. Operation of the facilities 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
facilities in the future or to pay penalties for alleged noncompliance
with regulatory permit conditions.
Regulations of the DTSC and the United States Environmental Protection
Agency (USEPA) require that owners and operators of hazardous waste
treatment, storage and disposal facilities provide financial assurance for
closure and post-closure costs of those facilities. The Company has
provided such financial assurance equal to its estimate for closure costs
at March 1, 1996, which could be subject to increase at a later time as a
result of regulatory requirements, in the form of a corporate guarantee of
approximately $14,900,000, letters of credit totaling approximately
$6,700,000 and a trust fund containing approximately $11,500,000, and has
purchased annuities which will ultimately mature over the next 30 years to
pay for its estimates of post-closure costs.
11
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INTERNATIONAL TECHNOLOGY CORPORATION
FINANCIAL CONDITION (CONTINUED)
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 DTSC, USEPA, the California State Water Resources
Control Board, the California Air Resources Board, Regional Water Quality
Control Boards (RWQCBs), Air Quality Management Districts, various other
state authorities and certain applicable local regulatory agencies. Such
closure costs are comprised principally of engineering, design and
construction costs and of caretaker and monitoring costs during closure.
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 or if there are additional delays in
the closure plan approval process. 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 28, 1996 is
principally comprised of residual land at the inactive disposal facilities
(a substantial component of which is adjacent to those facilities and was
never used for waste disposal) and assumes that sales will occur at
current market prices estimated by the Company based on certain assump-
tions (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 has been delayed
pending approval of the Company's closure plan for its adjacent disposal
facility 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.
In June 1986, USEPA notified a number of entities, including the Company,
that they were PRPs under CERCLA with respect to the Operating Industries,
Inc. (OII) Superfund site in Monterey Park, California, and as such, faced
joint and several liability for the cost to investigate and clean up this
site. Subsequently, USEPA alleged that the Company had generated approxi-
mately 2% by volume of the hazardous wastes disposed of at the site and
that the Company's share of certain past costs totaled not less than
$8,500,000. Between October 1994 and May 1995, the Company was served
with summons and complaints in two lawsuits (National Railroad Passenger
Corporation, et al. v. Harshaw Filtrol, U.S.D.C., Central District,
California, Case No. CV 94-2861 WMB (GHKx) and National Railroad Passenger
Corporation v. ACF United, U.S.D.C., Central District, California, Case
No. CV 95-2050 LGB (RMBx)) brought by members of a group of PRPs ( the
Steering Committee), which sought from the Company at least $2,700,000 for
costs incurred by Steering Committee members pursuant to the first three
settlements (partial consent decrees) negotiated between the USEPA and the
Steering Committee. (The Company has not been named as a defendant in any
of the several personal injury and property damage lawsuits brought by
area residents.)
In October 1995, the Company and the USEPA agreed to a settlement of the
Company's alleged liability for response costs incurred by the USEPA
pursuant to the first three partial consent decrees entered into in
connection with the OII site. The settlement with USEPA, in the form of
a consent decree (the Fifth Partial Consent Decree), was approved by the
U.S. District Court on July 10, 1996. Pursuant to the settlement, the
Company made an initial payment of $1,000,000 in July 1996 and will pay to
the USEPA approximately $4,400,000 in three additional installments
within one year, which amounts had been previously accrued by the Company.
Additionally, the Company has received from the USEPA contribution protec-
tion and a covenant not to sue as to the matters addressed in the Fifth
Partial Consent Decree. While resolving the Company's alleged liability
for response costs incurred by the USEPA pursuant to the first three
partial consent decrees, the settlement does not include any costs for
future or final OII remedies. The USEPA has released a feasibility study
and proposed the final remedy for the site. Selection of the final remedy
is subject to public notice and comment. Response costs for the final
12
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
FINANCIAL CONDITION (CONTINUED)
remedy are estimated by USEPA to range from $96,000,000 to $115,000,000
for the USEPA's preferred alternative to $234,000,000 for the most
expensive alternative.
In April 1996, the Company and the Steering Committee reached a settlement
of the Harshaw Filtrol and the ACF United lawsuits, pursuant to which the
Company will pay $250,000 in settlement of the Steering Committee's
claims. The Company and the Steering Committee also agreed, as a part of
the settlement, to cooperate and share on a pro-rata basis certain
response and other defense costs with respect to certain groundwater
cleanup actions which may be a part of the final remedy for the site. The
Company and the Steering Committee have not agreed to share all costs
related to the final remedy at the site, inasmuch as the Steering
Committee claims that pursuant to earlier consent decrees it is excused
from paying for or performing certain actions which may be required as a
part of any final remedy and for which the Company and other persons
who settled with USEPA pursuant to the Fifth Partial Consent Decree may be
liable. The Company does not agree with these claims. The Company's
agreement with the Steering Committee to cooperate and share costs with
respect to certain groundwater cleanup actions may be terminated volun-
tarily by either party, including in the event of a dispute as to the
parties' respective obligations to pay for or perform the final remedy for
the site.
Should the costs of the final remedy be greater than expected, or should
the Company be forced to assume a disproportionate share of the costs of
the final remedy (whether because of differences in the protections
obtained by the Steering Committee and the Company under the various
consent decrees, or otherwise), the cost to the Company of concluding this
matter could materially increase.
In September 1987, the Company was served with a Remedial Action Order
(RAO) issued by the DTSC, concerning the GBF Pittsburg landfill site near
Antioch, California, a site which had been proposed by the USEPA to be
added to the National Priorities List under CERCLA. IT and 17 other firms
and individuals were characterized as responsible parties in the RAO and
directed to undertake investigation and potential remediation of the site
which consists of two contiguous parcels. From the 1960's through 1974,
a predecessor to IT Corporation operated a portion of one parcel as a
liquid hazardous waste site. The activity ceased in 1974, and the
disposal facility was closed pursuant to a closure plan approved by the
appropriate RWQCB. Both of the parcels were then operated by other
parties as a municipal and industrial waste site (overlying the former
liquid hazardous waste site) and, until 1991, continued to accept
municipal waste. Water quality samples from monitoring wells in the
vicinity of the site were analyzed by the property owner in August 1986
and indicated the presence of volatile organics and heavy metals along the
periphery of the site.
Additional PRPs, consisting primarily of known waste generators, were
subsequently served with an amended RAO by the DTSC. IT and other PRPs
(the PRP group) are participating to further investigate the nature and
extent of any subsurface contamination beneath the site and beyond its
borders. The PRP group has submitted Remedial Investigation and Feasibil-
ity Study (RI/FS) reports to the DTSC. The studies indicate that
groundwater quality impact is not affecting drinking water supplies and is
not attributable solely to the portion of the site previously operated by
IT's predecessor.
In July 1993, the Company, along with the other PRPs at the site, was
issued a revised RAO and Imminent and Substantial Endangerment Order that,
although it appears primarily to restate previous RAOs, also directs all
previously named PRPs to undertake specific additional tasks including the
closure of the municipal landfill.
In November 1995, the DTSC, by letter, required the PRP group to submit
for public comment and DTSC approval a draft Remedial Action Plan (RAP)
describing a remedial alternative not supported by the PRP group. The PRP
group disputed the timing and content of the draft RAP as required by DTSC
as not justified by the RI/FS process, but in January 1996 submitted a
draft RAP discussing a number of remedial alternatives. In its November
1995 letter, the DTSC estimated that the costs of the remedial alterna-
tives to range from approximately $4,100,000 for the PRP group's preferred
alternative to between $18,300,000 to $32,600,000 for DTSC's favored
alternative depending upon whether certain options for discharge of
produced waters were available. The options range from continued limited
site monitoring to actively pumping and treating groundwater from both the
alleged source points of contamination and the allegedly contaminated
13
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
FINANCIAL CONDITION (CONTINUED)
groundwater plume emanating from the site. The DTSC has advised the PRP
group that it has reviewed the group's data and arguments, and neverthe-
less intends to complete and release for public review and comment by the
second quarter of fiscal year 1997 a draft RAP selecting DTSC's preferred
alternative. The PRP group received this draft RAP on June 26, 1996 and
submitted its comments in late July 1996. The PRP group is evaluating its
potential remedies with respect to the DTSC's action.
As a part of the draft RAP that the PRP group submitted in January 1996,
the group asserted that other PRPs at the site (principally, the current
and past owner/operators of the site) were responsible for approximately
85% of the site's remediation costs, and that the PRP group was responsi-
ble for no more than approximately 15% of such costs. The current
owner/operators recently submitted to DTSC their own proposal in which
they claim that the Company and other members of the PRP group are
responsible for at least 89% of the site's remediation costs and that they
are responsible for only a small percentage of the site's remediation
costs, and have demanded indemnity from the Company pursuant to the lease
agreement under which IT Corporation's predecessor operated the site. The
DTSC has not adopted either allocation. The Company has paid approximate-
ly 50% of the PRP group's costs to-date on an interim basis. The PRP
group is initiating litigation against the current owner/operators of the
site and other non-cooperating PRPs to cause them to bear their propor-
tionate share of site remedial costs. The current owner/operators of the
site have not cooperated with the PRP group in its efforts to study and
characterize the site, except for limited cooperation which was offered
shortly after the September 1987 RAO. The current owner/operators are
expected to vigorously defend the PRP group's litigation, and the outcome
of the litigation cannot be determined at this time.
Failure of the PRP group to effect a satisfactory resolution with respect
to the choice of appropriate remedial alternatives or to obtain an
appropriate contribution towards site remedial costs from the current
owner/operators of the site and other non-cooperating PRPs, could substan-
tially increase the cost to the Company of remediating the site, which
would have a material adverse effect on the Company's consolidated
financial condition.
In March 1995, IT was notified by the DTSC that it was among 13 companies
identified as potentially responsible for costs associated with investiga-
tion and cleanup of the Environmental Protection Corporation (EPC) site
known as the Eastside Facility near Bakersfield, California. The DTSC
notice letter states that IT is believed to have arranged for disposal of
hazardous substances at the Eastside Facility during the period between
1972 and 1985 when it was permitted and operated as a land treatment
facility.
IT transported various waste streams both generated by IT and on behalf of
its customers to the Eastside Facility at various times during that
facility's operations and it was a minority shareholder in EPC for a
period of its operations. In its March 1995 letter, the DTSC directed IT
and the other parties which were notified to form a group and to respond
to a proposed administrative order directing them to characterize the
facility and undertake any appropriate remedial action to deal with any
releases or threatened releases identified. In January 1996, the PRP
group (of which the Company is a member) and the DTSC entered into an
agreement for the performance of a RI/FS for the site, as well as for cost
sharing for the RI/FS among the group and the DTSC. IT is cooperating
with other group members to perform the work outlined in the agreement.
Because of the early stage of the matter, IT has no estimate of its
potential costs associated with the remediation of the Eastside Facility.
The provision for loss on disposition of transportation, treatment and
disposal discontinued operations is based on various assumptions 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
consolidated financial condition of the Company.
The Company's shareholder agreements relating to Quanterra (an environmen-
tal analytical services business 81% owned by an affiliate of Corning
Incorporated and 19% owned by IT) contain certain provisions which have
14
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
FINANCIAL CONDITION (CONTINUED)
affected and, in the future, could affect liquidity. IT was required by
these agreements to contribute $2,500,000 to Quanterra in October 1995
and an additional $2,500,000 to Quanterra in January 1996. In connection
with a recapitalization of Quanterra in January 1996, the Company
committed to contribute up to an additional $2,500,000 to Quanterra (of
which $475,000 was paid in each of March, April and July 1996) and has the
option to contribute more in order to maintain its 19% interest. Due to
the operating losses which Quanterra has been incurring and the require-
ment to contribute additional capital to Quanterra, the Company will
continue to evaluate the ultimate recoverability of its investment in
Quanterra, which is carried at $13,450,000 on the June 28, 1996 condensed
consolidated balance sheet. As a result of Quanterra's continuing
operating losses, the Company will assess the value of its investment in
Quanterra on an ongoing basis and will recognize any impairment in value
should it occur.
The Company's lending arrangements, consisting of $65,000,000 of senior
secured notes and a $60,000,000 bank line of credit, contain various
financial ratio and net worth covenants. In addition, the facilities
contain certain other restrictive covenants, including prohibitions on the
payment of cash dividends on common stock (and, if the Company is in
default under the facilities, on the preferred stock), and on the
repurchase of stock other than to fund IT's compensation plans, limita-
tions on capital expenditures, the incurrence of other debt and the
purchase or sale of assets and a negative pledge on substantially all of
the Company's assets not pledged to the facilities.
In anticipation of the loss reported by the Company for its current first
fiscal quarter, the Company, prior to June 28, 1996, obtained a waiver
through August 1996 of certain covenants which allows it to maintain
compliance with the lending arrangements as of the end of the first
quarter of fiscal year 1997. (See Note 4 to Condensed Consolidated
Financial Statements.) The Company is negotiating with its lenders
additional modifications to the lending arrangement which will be required
subsequent to the expiration of the waiver. In the event such modifica-
tions are not obtained, there would be a material adverse effect on the
consolidated financial condition of the Company.
In aggregate, at June 28, 1996, letters of credit totaling approximately
$29,000,000 related to the Company's insurance program, financial
assurance requirements and bonding requirements were outstanding against
the Company's bank line of credit. There were no borrowings under the
credit line. Due to the significant reduction in the Company's accounts
receivable (which are the principal collateral to the lending arrange-
ments) during the three months ended June 28, 1996 related to the
reduction in revenue, the Company posted $3,977,000 of cash as additional
collateral to its lending arrangements during the quarter, and there was
no availability under the line of credit. Excluding this cash collateral,
the Company had invested cash of approximately $21,000,000 at June 28,
1996.
The Company continues to have significant cash requirements, including
working capital, capital expenditures, expenditures for the closure of its
inactive disposal sites and PRP matters (which are expected to increase
from recent levels over the next several years), dividend obligations on
the depositary shares and contingent liabilities. The recent decline in
the Company's business combined with these significant cash requirements
has reduced and is expected to further reduce the Company's combined cash
position and availability under its bank line; however, subject to the
anticipated progressive recovery of the Company's business during the
remainder of fiscal year 1997, the Company's liquidity position is
expected to be sufficient to meet the foreseeable requirements.
On February 6, 1996, the Company announced that it had retained an
investment banking firm and a consultant to advise it on ways to actively
participate in the current environmental management industry consolida-
tion, with the ultimate goal of maximizing shareholder value. This
ongoing effort is directed toward responding to the challenges facing the
environmental industry and seeking to reposition IT to create a platform
which provides competitive advantage in its existing businesses and
facilitates the exploitation of new and existing markets. The Company's
chairman and its president and acting chief executive officer are jointly
and actively leading this effort and all opportunities have been and are
being aggressively explored, including possible mergers, acquisitions,
opportunities for capital infusion, and strategic alliances. There can be
no assurance, however, that any transaction will occur or what the timing
of any such transaction may be.
15
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
FINANCIAL CONDITION (CONTINUED)
FORWARD LOOKING STATEMENTS
All statements in the preceding discussion that are not historical are
forward looking statements. Such statements are subject to certain risks
and uncertainties that could cause actual results to differ materially
from those expressed in any of the forward looking statements. Such risks
and uncertainties include, but are not limited to, additional delays in
federal budget authorization and in the funding of federal government
contracts, ongoing regulatory uncertainties which affect both governmental
and commercial clients, industrywide market factors, liabilities and
regulatory developments related to the Company's discontinued operations,
negotiations with lenders, and financial and liquidity trends.
16
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
Item 1. Legal Proceedings.
The following matter and other continuing operations litigation to which
the Company is a party are more fully discussed in the note "Commitments
and contingencies" in the Notes to Consolidated Financial Statements in
the Company's Annual Report on Form 10-K for the fiscal year ended March
29, 1996. See also Management's Discussion and Analysis of Results of
Operations and Financial Condition - Financial Condition for information
regarding litigation related to the discontinued operations of the
Company.
Class Action Lawsuit
- --------------------
Pursuant to the tentative settlement of the litigation, the Company paid
$3,000,000 into an escrow account on July 23, 1996, such amount plus
accrued interest thereon to be released to plaintiffs upon completion of
the settlement and approval by the class and the court.
17
<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(ii) 15. Consent and Waiver, dated as of June
27, 1996 to the Credit Agreement and
the Note Purchase Agreement, both dated
October 24, 1995, among IT Corporation
and the Several Lenders from Time to Time
Parties to the Credit Agreement and the
respective Purchasers under the Note
Purchase Agreement.
27 1. Financial Data Schedule for the quarter
ended June 28, 1996.
(b) Reports on Form 8-K.
Current report on Form 8-K, dated June 27, 1996, reporting
under Item 5, "Other Events," related to a press release,
dated July 2, 1996, announcing the appointment of a new
president and acting chief executive officer for the
Company.
18
<PAGE>
INTERNATIONAL TECHNOLOGY CORPORATION
SIGNATURES
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 12, 1996
____________________________________________ _______________
Anthony J. DeLuca
President and Acting Chief Executive Officer
and Duly Authorized Officer
PHILIP H. OCKELMANN August 12, 1996
____________________________________________ _______________
Philip H. Ockelmann
Vice President, Finance, Treasurer
and Principal Accounting Officer
19
<PAGE>
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 International
Technology Corporation's Consolidated Balance Sheet as of June 28, 1996, and
its Consolidated Statement of Operations for the First Fiscal Quarter
Ended June 28, 1996, which were filed with the SEC on August 12, 1996 on
Form 10-Q for the quarter ended June 28, 1996 (commission file number 1-9037)
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> MAR-28-1997
<PERIOD-END> JUN-28-1996
<CASH> 25104
<SECURITIES> 0
<RECEIVABLES> 112847
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 158715
<PP&E> 157430
<DEPRECIATION> 104559
<TOTAL-ASSETS> 304758
<CURRENT-LIABILITIES> 138016
<BONDS> 392
<COMMON> 36602
0
2400
<OTHER-SE> 99387
<TOTAL-LIABILITY-AND-EQUITY> 304758
<SALES> 0
<TOTAL-REVENUES> 81416
<CGS> 0
<TOTAL-COSTS> 82717
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1356
<INCOME-PRETAX> (2657)
<INCOME-TAX> (1116)
<INCOME-CONTINUING> (1541)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1541)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> 0
</TABLE>
Exhibit 10(ii) 15
-----------------
CONSENT and WAIVER, dated as of June 27, 1996 (this
"Consent and Waiver"), to (i) the Credit Agreement, dated as of
October 24, 1995 (as amended, supplemented or otherwise modified
from time to time, the "Credit Agreement"), among IT CORPORATION,
a California corporation (the "Borrower"), the several banks and
other financial institutions from time to time parties thereto (the
"Lenders") and Chemical Bank, a New York banking corporation, as
administrative agent for the Lenders thereunder (in such capacity,
the "Agent") and (ii) the several Note Purchase Agreements, each
dated as of October 24, 1995 (collectively, the "Note Agreements"),
between the Borrower and the respective Purchasers thereunder.
W I T N E S S E T H :
-------------------
WHEREAS, the parties hereto wish to waive certain
provisions of the Credit Agreement and the Note Agreements on the
terms set forth herein;
NOW, THEREFORE, in consideration of the premise contained
herein, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings ascribed to
them in the Credit Agreement and the Note Agreements (collectively,
the "Agreements").
2. Consent. Notwithstanding anything to the contrary
contained in the Loan Documents (as defined in the Credit Agree-
ment), the Note Agreements, the Senior Notes or the Intercreditor
Agreement, the parties hereby consent and authorize Chemical Bank,
as Collateral Agent (the "Collateral Agent"), to release to the
Borrower any cash posted as collateral by the Borrower for
inclusion in the Borrowing Base (including the amount so posted on
the Closing Date and subsequently released), provided that the
Collateral Agent shall have determined, in its discretion, that
upon giving effect to such release, the Borrowing Base will be at
least equal to the sum of the then Aggregate Outstanding Extensions
of Credit and the aggregate then outstanding principal amount of
the Senior Notes. The parties hereto acknowledge that the
Collateral Agent, in making such determination, may rely on
certifications or representations of the Borrower, including in the
Borrowing Base Certificate then in effect and, provided, further,
that at the time of such release (and after giving effect thereto),
no Default or Event of Default has occurred and is continuing.
3. Limited Waiver: Limitation on Loans. (a) Subject to
the provisions of paragraph 3(d) hereof, compliance with Section 2
of Schedule III is hereby waived to the extent, and only to the
extent, that such non-compliance results from the inclusion of the
Senior Notes as Current Liabilities, solely for the purpose of
calculating the Current Ratio as at June 28, 1996.
1
<PAGE>
(b) Subject to the provisions of paragraph 3(d) hereof,
compliance with Section 5(a) of Schedule III of the Agreements is
hereby waived to the extent, and only to the extent, that the ratio
of (i) EBIT for the nine-month period ending June 28, 1996 to (ii)
the sum of (A) Interest Expense for such period plus (B) all
dividends on Preferred Stock paid during such period is less than
1.50 to 1.00, provided that such ratio is not less than 0.65 to
1.00.
(c) Subject to the provisions of paragraph 3(d) hereof,
compliance with Section 5(b) of Schedule III of the Agreements is
hereby waived to the extent, and only to the extent, that the ratio
of (i) EBIT for the nine-month period ending June 28, 1996 to (ii)
the sum of (A) Interest Expense net of interest income for such
period plus (B) all dividends on Preferred Stock paid during such
period is less than 2.00 to 1.00, provided that such ratio is not
less than 0.65 to 1.00.
(d) Notwithstanding any of the foregoing, the waivers
described in paragraphs 3(a), (b) and (c) hereof shall only be
effective through and including August 31, 1996, and any Event of
Default that would have existed and been continuing but for the
effect of this Consent and Waiver shall be reinstated and shall
thereafter continue to constitute an Event of Default unless
further expressly waived in writing in accordance with the Credit
Agreement and the Note Agreements.
(e) Notwithstanding anything in the Credit Agreement to
the contrary, during the period from the date hereof to and
including August 31, 1996, no Loans may be made or requested under
the Credit Agreement. During such period, the Commitments
thereunder shall only be available for the issuance of Letters of
Credit, subject to all the other provisions of the Credit Agreement
and to the extent available to be issued in accordance with the
Credit Agreement.
(f) It is agreed that the phrase "such fiscal quarter" in
clause (ii)(A) of Section 5(a) of Schedule III of the Agreements
was intended to be, and is hereby amended to be, the phrase "such
period".
4. Effective Date. This Consent and Waiver will become
effective as of the date hereof upon (i) its execution by the Agent
and the Majority Creditors and its acknowledgment by the Borrower,
(ii) receipt by the Agent, for the ratable benefit of each Lender,
of a non-refundable fee in the aggregate amount of $60,000.00 in
immediately available funds and (iii) receipt by each Noteholder,
of a non-refundable fee in the aggregate amount of $20,000.00 in
immediately available funds, provided that for the purpose of
distributing such fee, (i) John Hancock Mutual Life Insurance
Company and John Hancock Life Insurance Company of America shall be
deemed to be a single Noteholder and (ii) The Mutual Life Insurance
Company of New York and MONY Life Insurance Company of America
shall be deemed to be a single Noteholder.
2
<PAGE>
5. Representations and Warranties: No Default. On and
as of the date hereof, and after giving effect to this Consent and
Waiver, the Borrower confirms, reaffirms and restates that the
representations and warranties set forth in Section 4 of the Credit
Agreement, in the other Loan Documents (as defined in the Credit
Agreement) and in the Note Agreements are true and correct in all
material respects, provided that the references to the Credit
Agreement or the Note Agreements therein shall be deemed to be
references to this Consent and Waiver and to the Credit Agreement
or the Note Agreements, as the case may be, as amended by this
Consent and Waiver.
6. Limited Waiver. Except as expressly waived herein,
the Credit Agreement and each of the Note Agreements shall continue
to be, and shall remain, in full force and effect. This Consent and
Waiver shall not be deemed to be a waiver of, or consent to, or a
modification or amendment of, any other term or condition of the
Credit Agreement, any other Loan Document, any of the Note Agree-
ments or any Senior Note or to prejudice any other right or rights
which the Lenders may now have or may have in the future under or
in connection with any thereof or any of the instruments or
agreements referred to therein, as the same may be amended from
time to time.
7. GOVERNING LAW. THIS CONSENT AND WAIVER SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.
8. Counterparts. This Consent and Waiver may be
executed by the parties hereto in any number of separate counter-
parts and all of said counterparts taken together shall be deemed
to constitute one and the same instrument.
3
<PAGE>
IN WITNESS HEREOF, the parties hereto have caused this
Consent and Waiver to be duly executed and delivered by their
properly and duly authorized officers as of the day and year first
above written.
CHEMICAL BANK,
as Administrative Agent and as a
Lender
By:
--------------------------------
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON
By:
--------------------------------
Title: Vice President
SOCIETE GENERALE
By:
--------------------------------
Title: First Vice President
JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY
By:
--------------------------------
Title:
JOHN HANCOCK LIFE INSURANCE
COMPANY OF AMERICA
By:
--------------------------------
Title:
4
<PAGE>
ALLSTATE LIFE-INSURANCE COMPANY
By:
--------------------------------
Title:
By:
--------------------------------
Title:
THE MUTUAL LIFE INSURANCE COMPANY
OF NEW YORK
By:
--------------------------------
Title:
MONY LIFE INSURANCE COMPANY OF
AMERICA
By:
--------------------------------
Title:
ACKNOWLEDGED AND AGREED:
IT CORPORATION
By:
--------------------------------
Title: Senior Vice President
5
<PAGE>
