<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q/A
AMENDMENT NO. 1
(MARK ONE)
[ X ] AMENDMENT TO QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 27, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM____________________TO____________________________
COMMISSION FILE NUMBER 1-9037
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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.)
2790 Mosside Boulevard, Monroeville, Pennsylvania 15146-2792
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (412) 372-7701
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, 1997 the registrant had issued and outstanding an aggregate of
9,740,304 shares of its common stock.
This report is an amendment to the Registrant's quarterly report on Form 10-Q
for the quarter ended June 27, 1997. The report is being amended to revise the
presentation of cash flows relating to discontinued operations in the
Consolidated Statements of Cash Flows, modify the disclosures in footnotes 3, 5
and 7 of the Notes to Condensed Consolidated Financial Statements of this
report, add the disclosures in footnotes 6 and 10 of the Notes to Condensed
Consolidated Financial Statements of this report and modify the Results of
Operations-Income Taxes and Financial Condition sections of Management's
Discussion and Analysis of Results of Operations and Financial Condition.
1
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INTERNATIONAL TECHNOLOGY CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED JUNE 27, 1997
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Page
----
<S> <C> <C>
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets
as of June 27, 1997 (unaudited) and
March 28, 1997. 3
Condensed Consolidated Statements of Operations
for the First Fiscal Quarters ended
June 27, 1997 and June 28, 1996 (unaudited). 4
Condensed Consolidated Statements of Cash Flows
for the First Fiscal Quarters ended June 27, 1997
and June 28, 1996 (unaudited). 5
Notes to Condensed Consolidated Financial
Statements (unaudited). 6-8
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition. 9-18
Signatures 19
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 27, March 28,
1997 1997
----------- ---------
(Unaudited)
ASSETS (In thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 64,277 $ 78,897
Receivables, net 109,685 108,207
Prepaid expenses and other current assets 4,120 4,077
Deferred income taxes 11,324 11,324
-------- --------
Total current assets 189,406 202,505
Property, plant and equipment, at cost:
Land and land improvements 691 1,330
Buildings and leasehold improvements 7,842 9,232
Machinery and equipment 133,761 140,630
-------- --------
142,294 151,192
Less accumulated depreciation and amortization 101,319 106,891
-------- --------
Net property, plant and equipment 40,975 44,301
Investment in Quanterra 16,300 16,300
Other assets 50,551 39,377
Long-term assets of discontinued operations 40,048 40,048
-------- --------
Total assets $337,280 $342,531
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 36,415 $ 29,571
Accrued liabilities 30,439 32,640
Billings in excess of revenues 3,561 7,227
Short-term debt, including current portion of long-term debt 5,607 5,343
Net current liabilities of discontinued operations 17,846 17,019
-------- --------
Total current liabilities 93,868 91,800
Long-term debt 65,608 65,874
Long-term accrued liabilities of discontinued operations, net 5,970 9,280
Other long-term accrued liabilities 6,735 6,724
Commitments and contingencies
Stockholders' equity:
Preferred stock, $100 par value; 180,000 shares authorized:
7% cumulative convertible exchangeable, 20,556 shares issued
and outstanding 2,056 2,056
6% cumulative convertible participating, 45,000 shares
issued and outstanding 4,267 4,204
Common stock, $.01 par value; 50,000,000 shares authorized;
9,741,715 and 9,738,375 shares issued and outstanding, respectively 97 97
Treasury stock at cost, 8,078 and 6,208 shares, respectively (74) (74)
Additional paid-in capital 244,917 244,287
Deficit (86,164) (81,717)
-------- --------
Total stockholders' equity 165,099 168,853
-------- --------
Total liabilities and stockholders' equity $337,280 $342,531
======== ========
</TABLE>
See accompanying notes
3
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INTERNATIONAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
First fiscal quarter ended
--------------------------
June 27, June 28,
1997 1996
------ ------
(Unaudited)
<S> <C> <C>
Revenues $98,181 $81,416
Cost and expenses:
Cost of revenues 86,757 73,637
Selling, general and administrative expenses 7,419 9,080
Special charges 4,611 --
------- -------
Operating loss (606) (1,301)
Interest, net (1,028) (1,356)
------- -------
Loss before income taxes (1,634) (2,657)
(Provision) benefit for income taxes (1,280) 1,116
------- -------
Net loss (2,914) (1,541)
Less preferred stock dividends (1,533) (1,050)
------- -------
Net loss applicable to common stock $(4,447) $(2,591)
======= =======
Net loss per share $ (.46) $ (.28)
======= =======
</TABLE>
See accompanying notes.
4
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INTERNATIONAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
First fiscal quarter ended
--------------------------
June 27, June 28,
1997 1996
------ ------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,914) $ (1,541)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 3,009 4,027
Loss on disposal of remediation business 1,800 --
Minority interest in subsidiary 50 --
Deferred income taxes 1,280 (1,225)
Changes in assets and liabilities, net of effects
from acquisitions and dispositions of business
(Increase) decrease in receivables, net (6,522) 13,985
Increase in prepaid expenses and other current assets (265) (323)
Increase (decrease) in accounts payable 7,645 (3,769)
Decrease in accrued liabilities (2,440) (878)
Decrease in billings in excess of revenues (3,683) (982)
Decrease in other long-term accrued liabilities (39) (101)
Decrease in liabilities of discontinued operations (2,633) (2,293)
-------- --------
Net cash (used for) provided by operating activities (4,712) 6,900
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposition of remediation business 2,800 --
Acquisition of business (1,250) --
Capital expenditures (1,025) (592)
Investment in Quanterra -- (475)
Cash on deposit as collateral (9,794) (3,977)
Other, net 275 (148)
-------- --------
Net cash used for investing activities (8,994) (5,192)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term borrowings (15) (57)
Dividends paid on preferred stock (899) (1,050)
Issuances of common stock -- 10
-------- --------
Net cash used for financing activities (914) (1,097)
-------- --------
Net (decrease) increase in cash and cash equivalents (14,620) 611
Cash and cash equivalents at beginning of period 78,897 24,493
-------- --------
Cash and cash equivalents at end of period $ 64,277 $ 25,104
======== ========
</TABLE>
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 fiscal quarter ended June 27, 1997, 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 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, as amended, for
the fiscal year ended March 28, 1997. The results of operations for the
fiscal period ended June 27, 1997 are not necessarily indicative of the
results for the full fiscal year.
2. Net loss per common share is computed by dividing net loss applicable to
common stock by the weighted average number of outstanding common shares
during each period as follows:
<TABLE>
<CAPTION>
Average
First Fiscal quarter ended common shares outstanding
-------------------------- -------------------------
<S> <C>
June 27, 1997 9,741,715
June 28, 1996 9,150,459
</TABLE>
Common stock equivalents relate to dilutive stock options. For all periods
presented, the computation of net loss per share, assuming conversion into
common shares of the Company's preferred stock and common stock equivalents
is antidilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December
31, 1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact of
Statement 128 on the calculation of basic earnings per share and fully
diluted earnings per share for the first fiscal quarters of 1998 and 1997
is not expected to be materially different.
3. 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 the sale of some
facilities and closure of certain other facilities. As of June 27, 1997,
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, 1995, 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 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 27, 1997,
the Company's condensed consolidated balance sheet included accrued
6
<PAGE> 7
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
liabilities of $23,816,000 to complete the closure and related post-closure
of its inactive disposal sites and related matters, net of certain trust
fund and annuity investments which are legally restricted by trust
agreements with the California EPA Department of Toxic Substance Control to
closure and post-closure use.
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 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.
4. 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, as amended, for the fiscal year ended March 28, 1997; 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 - Transportation, Treatment and Disposal Discontinued Operations
for information regarding the legal proceedings of the discontinued
operations of the Company.
5. Included in accounts receivable at June 27, 1997 are billed receivables,
unbilled receivables and retention in the amounts of $90,710,000,
$12,489,000 and $8,522,000, respectively. Billed receivables, unbilled
receivables and retention from the U.S. Government as of June 27, 1997 were
$41,729,000, $9,430,000 and $4,170,000, respectively. At March 28, 1997,
billed receivables, unbilled receivables and retention were $89,975,000,
$12,305,000 and $7,982,000, respectively. Billed receivables, unbilled
receivables and retention from the U.S. Government as of March 28, 1997
were $42,501,000, $9,162,000 and $4,105,000, respectively.
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 27, 1997 is approximately $9,200,000 of claims
related to the Helen Kramer project, which is subject to a governmental
investigation. Remedies which the government could pursue include damages,
penalties, and forfeiture of all or part of the Company's claim. The
Company is currently engaged in settlement discussions concerning this
matter.
6. The cost of property, plant and equipment is depreciated using primarily
the straight-line method over the following useful lives of the individual
assets: buildings-20 to 30 years, land improvements-3 to 20 years, and
machinery and equipment-5 to 10 years including salvage value. The Hybrid
Thermal Treatment System(R) (HTTS(R)) transportable incineration units are
depreciated over the shorter of in-production operating days or on an
8-year straight-line basis (idle basis) to salvage value. The HTTS units
are currently idle and continue to be depreciated as described.
Amortization of leasehold improvements is provided using the straight-line
method over the term of the respective lease.
7. The special charges for the fiscal quarter ended June 27, 1997 resulted
from the relocation of the Company's corporate headquarters from Torrance,
California to Monroeville (Pittsburgh), Pennsylvania and the sale of its
California based small project remediation services business. The
headquarters relocation locates corporate overhead functions with the
Company's largest operations office and closer to its lenders and largest
shareholders which are located in the Eastern United States. As a result of
this relocation, the Company incurred a pre-tax charge of $2,811,000.
In May 1997, the Company incurred a non-cash charge of $1,800,000 to sell
its unprofitable California based small projects remediation services
business.
In conjunction with the corporate restructuring which was initiated in the
second quarter of fiscal year 1997, the Company
7
<PAGE> 8
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
incurred a pre-tax restructuring charge of $8,403,000. The restructuring
charge included $3,400,000 of costs for severance, $4,100,000 of costs for
closing and reducing the size of a number of the Company's offices, and
$900,000 of costs for other related items. As part of the plan of
termination, the Company laid-off 133 employees and paid over $2,460,000 in
termination benefits. In addition, the Company approved a plan to close 5
leased facilities and reduce the size of 11 other leased facilities by
either sublease or abandonment. Most of the remaining costs to be paid
relate to the facility closures and office space reductions which will be
paid out over the terms of the lease. One of these facility closures has a
remaining lease obligation of about 8 years. At June 27, 1997, $2,120,000
of the charge remained to be paid.
8. At the November 20, 1996 Annual Meeting of Stockholders, IT's shareholders
voted to approve a $45,000,000 investment (the Carlyle Investment) by The
Carlyle Group (Carlyle), a Washington, D.C. based merchant banking firm.
The Carlyle Investment consists of 45,000 shares of 6% Cumulative
Convertible Participating Preferred Stock, par value $100 per share
(Convertible Preferred Stock) and warrants to purchase 1,250,000 shares of
IT common stock, par value $.01 per share. The net proceeds to IT (after
related offering costs of $4,391,000) from the Carlyle Investment were
$40,609,000.
The Convertible Preferred Stock and warrants may at any time, at the option
of Carlyle, be converted into IT common shares. The conversion price of the
Convertible Preferred Stock is $7.59 per share and the exercise price of
the warrants is $11.39 per share. Carlyle presently owns approximately 38%
of the voting power of the Company , and assuming the conversion of all of
the Convertible Preferred Stock into IT common stock and the exercise of
all of the warrants, would own approximately 43% of the voting power of the
Company.
The terms of the Convertible Preferred Stock provide that, to November 20,
2001, the holders of the Convertible Preferred Stock have the right to
elect a majority of the Board of Directors of the Company, provided that
Carlyle continues to own at least 20% of the voting power of the Company.
The Convertible Preferred Stock ranks, as to dividends and liquidation,
pari passu to the Company's 7% Preferred Stock and prior to the Company's
common stock. The Convertible Preferred Stock is entitled to cumulative
annual dividends. No dividends will be payable in the first year, dividends
will be paid quarterly in kind for the second year at the rate of 3% per
annum. Thereafter, dividends will be paid quarterly in cash at the rate of
6% per annum. The Convertible Preferred Stock is entitled to a liquidation
preference of $1,000 per share. The Company will be entitled at its option
to redeem all of the Convertible Preferred Stock at its liquidation
preference plus accumulated and unpaid dividends on or after November 21,
2003.
9. For the first quarter ended June 27, 1997, the Company recorded an income
tax provision of $1,280,000. This tax provision reflects a 43% tax rate on
income excluding special charges of $4,611,000. The income tax benefit
related to the special charge was offset by an increase in IT's deferred
tax valuation allowance based on the tax attributes of the special charges
and the Company's assessment of the uncertainty as to when it will generate
a sufficient level of future earnings to realize the deferred tax asset
created by the first quarter special charges.
10. For fiscal year 1998, the Company adopted SOP 96-1, Environmental
Remediation Liabilities, which provides new guidance for the recognition,
measurement and disclosure of environmental remediation liabilities. The
adoption of SOP 96-1 had no material effect on the Company's financial
condition, liquidity and results of operations. The Company accrues for
losses associated with environmental remediation obligations when such
losses are probable and reasonably estimable. Such accruals are adjusted as
further information develops or circumstances change. Costs of future
expenditures for environmental remediation obligations are generally not
discounted to their present value.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION.
INTERNATIONAL TECHNOLOGY CORPORATION
FOR QUARTER ENDED JUNE 27, 1997
RESULTS OF OPERATIONS
OVERVIEW
The Company provides a full range of technology-driven, value-added consulting,
engineering and construction capabilities through a network of more than 40
offices in the U.S. and selected international locations. The Company's business
strategy is to be a global provider of environmental solutions to both
government and private industry clients. Turnkey capabilities include
information management, risk assessment, air quality management, pollution
prevention and waste minimization, construction and remediation, land-use
planning, decontamination and decommissioning, design/build, wastewater
treatment and facility operation and maintenance.
REVENUES
Revenues for the first quarter of fiscal year 1998 increased 20.6% to
$98,181,000, compared to revenues of $81,416,000 reported in the first quarter
of fiscal year 1997. This revenue growth is primarily attributable to the
historical low level of revenue reported in the first quarter of the prior year
due to the federal budget uncertainties that reduced funding in late fiscal year
1996 and early fiscal year 1997. Although revenues are expected to modestly
increase from the first quarter levels over time, the impact of the generally
weak demand in both the governmental and commercial markets is expected to
restrict revenue growth in the near term, exclusive of the revenue of acquired
businesses. The Company is actively exploring such acquisitions (see Financial
Condition). The Company took an initial step in this strategy by making a 50.1%
majority investment in Chi Mei Entech/Scientech, Ltd., a Taiwan-based wastewater
treatment design/build firm in November 1996. The consolidated revenues of the
Company in the quarter ended June 27, 1997, include approximately $3,100,000 of
revenue from this firm. In May 1997, the Company acquired PHR Environmental
Consultants, Inc., a niche company that provides environmental historical
research and investigation.
The Company's revenues attributable to U.S. federal, state and local
governmental contracts as a percentage of the Company's consolidated revenues
for the first fiscal quarters ended June 27, 1997 and June 28, 1996 is outlined
in the table below:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
--------------------
JUNE 27, JUNE 28,
1997 1996
------ ------
<S> <C> <C>
U.S. Department of Defense (DOD) ............................ 45% 46%
U.S. Department of Energy (DOE) ............................. 10 14
Other federal agencies ...................................... 2 2
-- --
57 62
State and local governments................................. 6 6
-- --
Total ....................................................... 63% 68%
== ==
</TABLE>
9
<PAGE> 10
INTERNATIONAL TECHNOLOGY CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
During the quarter ended June 27, 1997 DOD revenues of $44,041,000 were
$6,701,000 higher than the first quarter of the prior year. This increase is
primarily due to consistent funding of the Company's DOD indefinite delivery
order programs during the second half of fiscal year 1997 and the reduced
funding experienced during the later part of fiscal year 1996 when disputes over
the federal budget approval caused delays in government-sponsored cleanup
programs, resulting from delays in the authorization of the federal budget. The
Company expects to continue to derive a substantial portion of its revenues from
the DOD indefinite delivery order contracts, which are primarily related to
remedial action work. In addition, management believes future revenues from the
DOE will increase due to an expected transition by the DOE from study and design
to field remediation and because of the Company's favorable experience in
winning and executing similar work for the DOD.
The Company's revenues from commercial clients and international operations were
$35,956,000 for the quarter ended June 27, 1997. This is an increase of
$9,821,000 from the prior year first quarter. The Company believes that this
increase reflects its strategy to pursue targeted commercial industry
opportunities including those in the chemical industry and expansion into
selected international markets.
Revenue growth from the commercial sector could be restricted in the near term
partly due to increased emphasis by commercial clients on cost-effective
solutions and partly due to commercial clients delaying certain work until final
Congressional action is taken on the reauthorization of Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA). As for CERCLA,
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 rollbacks of
environmental regulation and/or reduced enforcement have led commercial clients
to delay projects as well. Contemplated changes in regulations could further
decrease the demand for certain of the Company's services, as customers
anticipate and adjust to the new regulations. However, legislative or regulatory
changes could also result in increased demand for certain of the Company's
services if such changes decrease the cost of remediation projects or result in
more funds being spent for actual remediation. The ultimate impact of any such
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 the remedies
available.
A portion of IT's revenues (approximately 6% in the first quarter of fiscal year
1998) continue to be derived from large, complex thermal remediation contracts
utilizing the Company's Hybrid Thermal Treatment System(R) (HTTS(R))
incineration technology. Incineration as a remedy under the CERCLA continues to
come under legislative and regulatory pressures as well as commercial pressures
due to its relatively high cost. If the Company is unable to permit and use
thermal treatment on future remediation projects in the United States due to
either regulatory or market factors, the Company would have to find alternative
uses for its HTTS equipment, such as foreign installations. In July 1997, the
Company announced the formation of a 50/50 joint venture with KOHAP Group, a
South Korean diversified multinational company. The joint venture company,
KOHAP-IT, expects its first major project to involve the design, supply,
construction and start-up of an incineration facility that will utilize IT's
HTTS technology and equipment. The Company will continue to seek alternative
uses similar to the anticipated KOHAP-IT project in South Korea. If the KOHAP-IT
project is not executed and additional opportunities are not found or are
uneconomical, there could be a negative effect to the Company due to impairment
of HTTS assets as well as lost project opportunities. The Company's backlog of
contracts which utilize HTTS equipment was approximately $4,400,000 at June 27,
1997. This backlog will be completed during the next three to six months. At
June 27, 1997, IT's HTTS equipment had a net book value of approximately
$10,400,000.
The Company's total contract backlog at June 27, 1997 was approximately
$1,153,000,000 of which approximately $780,000,000 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. Continued funding of
existing backlog could be negatively impacted in the future due to reductions in
current and future federal government environmental restoration budgets.
10
<PAGE> 11
INTERNATIONAL TECHNOLOGY CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
GROSS MARGIN
Gross margin percentage for the first quarter of fiscal year 1998 increased to
11.6% of revenues from 9.6% of revenues for the corresponding period of the
prior fiscal year. Gross margin continued to improve in the first quarter as
overhead costs were reduced due to organizational streamlining resulting from
the corporate restructuring in the second quarter of fiscal year 1997. Gross
margin also improved as a result of spreading fixed overhead costs over higher
revenue levels. In the near term, the Company expects to continue to maintain
the improved gross margins of the past nine months. The Company's ability to
maintain or improve its gross margins is heavily dependent on increasing
utilization of professional staff, properly executing projects, and successfully
bidding new contracts at adequate margin levels.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses of $7,419,000 for the first quarter
of fiscal year 1998 were $1,661,000 or 18.3% lower than the prior year level
primarily due to the favorable impact of the corporate restructuring initiated
in the second fiscal quarter of 1997. The recent selling, general and
administrative expense trends are expected to continue to reflect additional
cost reductions.
SPECIAL CHARGES
The special charges for the fiscal quarter ended June 27, 1997 resulted from the
relocation of the Company's corporate headquarters from Torrance, California to
Monroeville (Pittsburgh), Pennsylvania and the sale of the Company's California
based small project remediation services business. The relocation of IT's
headquarters, which the Company believes will further reduce overhead, has
enabled the Company to integrate and consolidate management and corporate
functions into the Company's largest facility. It also locates IT's headquarters
closer to its key constituencies, including major shareholders, lenders and
investment and client communities. As a result of this relocation, the Company
incurred a pre-tax charge of $2,811,000; however the Company expects this
relocation will result in reduced lease expense and labor cost.
In May 1997, the Company incurred a non-cash charge of $1,800,000 to sell its
unprofitable California based small projects remediation services business.
INTEREST, NET
For the first quarter of fiscal year 1998, net interest expense represented 1.0%
of revenues compared to the 1.7% of revenues reported in the first quarter of
fiscal year 1997. 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, as a result of the Carlyle Investment, generating more interest
income.
INCOME TAXES
For the first fiscal quarter ended June 27, 1997, the Company recorded an income
tax provision of $1,280,000. This tax provision reflects a 43% tax rate on
income excluding special charges of $4,611,000. The income tax benefit related
to the special charge was offset by an increase in IT's deferred tax valuation
allowance based on the tax attributes of the special charges and the Company's
assessment of the uncertainty as to when it will generate a sufficient level of
future earnings to realize the deferred tax asset created by the first quarter
special charges.
11
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INTERNATIONAL TECHNOLOGY CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
Based upon a net deferred tax asset of $30,836,000 (net of a valuation allowance
of $11,297,000) at June 27, 1997, and assuming a net 38% federal and state
effective tax rate, the level of future earnings necessary to fully realize the
deferred tax asset would be approximately $81,000,000. Because of the Company's
position in the industry, recent restructuring, existing backlog and acquisition
strategies, management expects that its future taxable income and the use of
tax-planning strategies (principally the maturing of any future capital gains
and losses during the relevant carryforward or carryback period) will more
likely than not allow the Company to fully realize its deferred tax asset of
$30,836,000. The Company evaluates the adequacy of the valuation allowance and
the realizability of the deferred tax asset on an ongoing basis.
DIVIDENDS
Dividends for the quarter ended June 27, 1997 include cash dividends of $899,000
on the Company's outstanding depositary shares (each representing 1/100 of a
share of the Company's 7% Convertible Exchangeable Preferred Stock) and a
non-cash imputed dividend of $634,000 on the Cumulative Convertible
Participating Preferred Stock (Convertible Preferred Stock) purchased by the
Carlyle Group in November 1996 (The "Carlyle Investment"). Imputed dividends are
based on a market value adjustment and will not result in cash being paid or
additional stock being issued. During the first two years ended November 21,
1998 in which the Convertible Preferred Stock is outstanding the stated annual
cash dividends are 0% and the stock dividends are 3%, respectively; thereafter
cash dividends will be calculated and presented in the statement of operations
at a rate of approximately 6% per annum.
12
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INTERNATIONAL TECHNOLOGY CORPORATION
FINANCIAL CONDITION
Working capital at June 27, 1997 was $95,538,000 which is a decrease of
$15,167,000 from March 28, 1997 principally due to the Company placing
$9,794,000 cash on deposit as additional collateral for its lending
arrangements. The current ratio at June 27, 1997 was 2.02:1 which compares to
2.21:1 at March 28, 1997.
Cash used by operating activities, which includes cash outflows related to
discontinued operations, for the first quarter of fiscal year 1998 totaled
$4,712,000 compared to $6,900,000 provided by operating activities in the prior
year first quarter primarily due to the increase in accounts receivable
resulting from the increase in revenues. Cash (used for) provided by operating
activities, excluding cash flows related to discontinued operations, are
$(2,079,000) and $9,193,000 for the first quarter ended June 27, 1997 and June
28, 1996, respectively. Cash outflows related to discontinued operations for the
fiscal quarter ended June 27, 1997 and June 28, 1996 were $2,633,000 and
$2,293,000, respectively and relate to previously accrued closure and
post-closure costs for permitting and construction to close inactive treatment
and disposal sites and payments made related to matters where the Company has
been named as a potentially responsible party on certain sites. These activities
are more fully described in the section on Transportation, Treatment and
Disposal Discontinued Operations. Capital expenditures of $1,025,000 for the
current first fiscal quarter were $433,000 greater than the prior fiscal year
principally due to increased revenues, however management believes capital
expenditures for fiscal year 1998 will be approximately the same as the
$3,400,000 spent during fiscal year 1997, excluding any business acquisitions.
Additionally in May 1997, the Company acquired PHR Environmental Consultants,
Inc., a niche company that provides environmental historical research and
investigation, for an initial payment and related expenses of $1,250,000. Also
in May 1997, the Company sold its California based remediation services business
and received an initial payment of $2,800,000.
The Company's shareholder agreements relating to Quanterra (an environmental
analytical services business 81% owned by an affiliate of Corning Incorporated
and 19% owned by IT) contain certain provisions which have 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 an additional $2,500,000 to Quanterra, of
which $475,000 was paid in each of March, April and July 1996 and $1,075,000 was
paid in December 1996, completing the commitment. Additionally, in the third
fiscal quarter of fiscal 1997, the Company made a one-time $1,300,000
contribution to Quanterra in the form of work performed related to the
decommissioning/closure of a Quanterra laboratory facility. IT is not committed
to make, and does not presently intend to make, additional contributions to
Quanterra, but it has the option to make future pro rata contributions to
maintain its 19% interest. Although Quanterra has experienced net losses in the
past several years, the level of net loss has decreased over the past several
quarters, and Quanterra has recently produced break-even operations. The Company
will continue to evaluate the ultimate recoverability of its investment in
Quanterra (which is carried at $16,300,000 on the June 27, 1997 condensed
consolidated balance sheet) on an ongoing basis and will recognize any
impairment in value should it occur.
On October 25, 1995, the Company executed a combined $125,000,000 financing
which includes $65,000,000 of senior secured notes with a group of major
insurance companies and a $60,000,000 syndicated bank revolving credit facility.
The financing package, which is subject to a borrowing base, financial ratio and
net worth covenants, is secured by the accounts receivable and certain fixed
assets of the Company. The senior secured notes have an eight-year final
maturity with no principal payments until the sixth year, and the bank line has
a term of five years. In addition, the financing includes certain other
restrictive covenants, including prohibitions on the payment of cash dividends
on common stock (and, if the Company is in default under the financing
agreement, on the preferred stock) and on the repurchase of stock other than to
fund IT's compensation plans, limitations 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. The Company is presently in compliance with its covenants and has no
outstanding cash advances under the credit line. During the third quarter of
fiscal year 1997, the Company negotiated amendments to its lending arrangements
to provide enhanced flexibility in the Company's operations in conjunction with
the Carlyle Investment (see below). Among other things, the changes modify
certain financial covenants, permit the Carlyle Investment and the payment of
dividends on such investment, increase the Company's allowable debt and permit
proceeds from borrowings to be used to finance acquisitions in certain
circumstances, and increase the cost of the senior secured notes and credit line
based upon certain leverage thresholds.
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INTERNATIONAL TECHNOLOGY CORPORATION
FINANCIAL CONDITION (CONTINUED)
During the first fiscal quarter ended June 27, 1997, the Company was required to
maintain cash on deposit with its credit providers, due to the Company's
borrowing base being insufficient to cover the collateral required for the
$65,000,000 senior notes and the outstanding letters of credit. The Company
believes this insufficiency was primarily the result of improved cash
collections, which reduced the amount of its accounts receivable, which are the
principal component of the borrowing base. At June 27, 1997 the Company had cash
collateral on deposit with its lenders of $9,794,000, which bears interest for
the Company. The Company's mid July updated borrowing base calculation and the
release of certain financial assurance letters of credit resulted in a reduction
in cash collateral on deposit to $5,610,000.
In aggregate, at June 27, 1997, letters of credit totaling approximately
$20,100,000 related to the Company's insurance program, financial assurance
requirements and bonding requirements were outstanding against the Company's
bank line of credit. Subsequent to June 27, 1997 letters of credit outstanding
for financial assurance were reduced by $4,000,000. The Company had invested
cash of approximately $69,000,000 on June 27,1997 including the cash on deposit
as collateral.
The Company has total bonding capacity of $135,000,000 at present, of which
approximately $104,000,000 is currently being utilized. The Company's bonding
lines generally require 5-10% collateral in the form of letters of credit.
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 consolidation, with the ultimate
goal of maximizing shareholder value. As a result of this effort, at the
November 20 1996 Annual Meeting of Stockholders, IT's shareholders voted to
approve the Carlyle Investment. The Company issued to Carlyle 45,000 shares of
Convertible Preferred Stock having a liquidation preference of $1,000 per share,
and warrants to purchase 1,250,000 shares of IT common stock at $11.39 per
share. The $40,609,000 net proceeds to the Company (after related offering costs
of $4,391,000) will be used by IT to finance business acquisitions, as well as
for working capital and general corporate purposes (see Note 7 to the Condensed
Consolidated Financial Statements for additional information regarding the
Carlyle Investment).
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 (see Transportation, Treatment and Disposal
Discontinued Operations below), preferred dividend obligations and contingent
liabilities. As a result of the completion of the Carlyle Investment, the
Company's current liquidity position is expected to be sufficient to meet
foreseeable requirements, as well as to fund expansion and diversification of
the Company's business through both internal growth and acquisitions.
TRANSPORTATION, TREATMENT AND DISPOSAL DISCONTINUED OPERATION
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 solidification and capping of waste sludges and
installation of underground barriers and groundwater control systems.
Substantial remediation has already been completed over both the past year since
approval of the plan and over the prior several years based upon interim
approvals by DTSC, and the final closure is scheduled to be substantially
completed in fiscal year 1998 with final completion in fiscal year 1999.
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 environmentally
superior. 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 implemented, the
alternative plans would extend the closure construction schedule and increase
the cost of closure. The DEIR and Draft Closure Plan were subject to a 90-day
comment period which ended September 30, 1996, during which interested parties
presented comments including some supporting alternative plans. DTSC, after
considering all comments received, will approve a final closure plan and certify
the final EIR. The DTSC
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INTERNATIONAL TECHNOLOGY CORPORATION
FINANCIAL CONDITION (CONTINUED)
continues to consider comments by the Company, and by other interested parties
supporting alternative plans, and it is uncertain what plan DTSC may ultimately
approve. The Company expects a plan and all necessary permits to be approved in
mid-fiscal year 1998. Closure construction for the Company's preferred plan is
scheduled to be completed within three years of approval of the plan. If DTSC
were to approve an alternative plan or fail to timely approve any plan or if
implementation of any plan is delayed by litigation or appeals, 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. Pending approval
of a closure plan, the Company has requested permission, and the DTSC has agreed
through the amendment of a previously issued consent order, to allow the Company
to promptly excavate drums buried in a portion of the facility. The drums are
the alleged source of low levels of contaminants which have migrated through
groundwater underneath a portion of municipally-owned land adjacent to the
facility.
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, 1997 (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
$12,200,000, and has purchased annuities which will ultimately mature over the
next 30 years to pay for its estimates of post-closure costs. Subsequent to June
27, 1997, the Company's outstanding letters of credit for financial assurance
were reduced by $4,000,000 as a result of closure progress and the improved
financial condition of the Company as measured by the regulations of the DTSC.
This has resulted in a modification in the methods by which financial assurance
is provided such that IT now posts a corporate guarantee of $18,000,000, letters
of credit totaling $2,700,000 and a trust fund containing $13,300,000.
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 from 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 $40,048,000 at June 27, 1997 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 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 has been delayed
pending approval of the Company's closure plan for its adjacent disposal
facility
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INTERNATIONAL TECHNOLOGY CORPORATION
FINANCIAL CONDITION (CONTINUED)
and local community review of growth strategy. This review is proceeding and
initially recommends, on a non-binding basis, strategies for limiting growth in
the area. Ultimately, if the developers' plans change or the developers are
unable to obtain entitlements, 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 liabilities for the cost to investigate and clean up this site.
Subsequently, USEPA alleged that the Company had generated approximately 2% by
volume of the hazardous wastes disposed of at the site, and the Company was also
served with lawsuits brought by members of a group of PRPs (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 pursuant to which the Company paid $5,400,000 to the USEPA. 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 a release of liability for future or final OII remedies. In September
1996, the USEPA released a final record of decision selecting the final remedy
for the site. Response costs for the final remedy are estimated by USEPA to be
approximately $161,800,000. The Company believes that this estimate does not
take into account the benefits of certain work to be performed under the
previous consent decrees and therefore substantially overstates the remaining
cost.
In April 1996, the Company reached a settlement of the lawsuits with the
Steering Committee, pursuant to which the Company paid $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. The Company
does not agree with these claims. The Company's agreement with the Steering
Committee to cooperate and share costs may be terminated voluntarily 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 to which
Steering Committee members and the Company are subject, 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 Company's predecessor's 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 1992,
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.
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INTERNATIONAL TECHNOLOGY CORPORATION
FINANCIAL CONDITION (CONTINUED)
Additional PRPs, consisting primarily of known waste generators, were
subsequently served with an amended RAO by the DTSC. IT and these other PRPs
(the PRP group) further investigated the nature and extent of any subsurface
contamination beneath the site and beyond its borders. The PRP group submitted
Remedial Investigation and Feasibility Study (RI/FS) reports which were accepted
by 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 restated
previous RAOs and directed all previously named PRPs to undertake specific
additional tasks including the closure of the municipal landfill.
After a period of public review and comment, in June 1997, the DTSC completed
and released a final Remedial Action Plan (RAP) selecting DTSC's preferred
alternative of actively pumping and treating groundwater from both the alleged
source points of contamination and the edge of the allegedly contaminated
groundwater plume emanating from the site, which DTSC estimated to cost between
$18,000,000 and $33,000,000, depending upon whether certain options for
discharge of produced waters are available. The PRP group continues to believe
that its preferred alternative of continued limited site monitoring, which was
estimated to cost approximately $4,000,000, is appropriate. As part of the RAP,
the DTSC also advised the PRP group of its position that both the group and the
current owner/operators are responsible for paying the future closure and
postclosure costs of the overlying municipal landfill, which have been estimated
at approximately $4,000,000.
The Company and the PRP group initiated litigation (Members of the GBF/Pittsburg
Landfill(s) Respondents Group, etc., et al, v. State of California Environmental
Protection Agency Contra Costa County, California Superior Court Case No.
C97-02936) challenging the final RAP, and the ultimate outcome of the litigation
and any other available remedies cannot be predicted at this time.
The PRP group has also filed an application with the appropriate RWQCB for
designation of the site as a containment zone which, if approved, would
facilitate the PRP group's preferred remedial alternative. The DTSC has advised
the PRP group that if, at some point, the RWQCB designates all or part of the
site as a containment zone, DTSC will work with the PRPs to either amend or
modify the final RAP as appropriate. The DTSC has advised, in response to the
Respondents Group's legal challenge to the RAP, that compliance with remedial
design and other requirements of the RAP would be deferred until at least April,
1998, to allow the RWQCB time to evaluate the Respondents Group containment zone
application.
In the final RAP the DTSC also assigned the Company and the other members of the
PRP group collective responsibility for 50% of the site's response costs.
Although the DTSC's allocation of responsibility is not binding except in very
limited circumstances, the PRP group continues to believe that the current
owner/operators should pay a larger portion of the site's response costs and the
Company is attempting to continue to cooperate with the generators and other
members of the PRP group to affect an appropriate allocation of responsibility
for site costs.
The PRP group has initiated litigation (Members of the GBF/Pittsburg Landfill(s)
Respondents Group, etc., et al, v. Contra Costa Waste Service, etc., et al, U.S.
District Court N. Dist Cal, Case No. C96-03147SI) against the current
owner/operators of the site and other non-cooperating PRPs to cause them to bear
their proportionate 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 and, currently, with respect to DTSC's attempts to
cause the selection of its preferred remedial alternative. The current
owner/operators also demanded indemnity from the Company pursuant to the lease
agreement under which IT Corporation's predecessor operated the site, which
demand the Company has rejected. The current owner/operators are vigorously
defending the PRP group's litigation, and the outcome of the litigation cannot
be determined at this time.
Failure of the PRP group to affect 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
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INTERNATIONAL TECHNOLOGY CORPORATION
FINANCIAL CONDITION (CONTINUED)
non-cooperating PRPs, could substantially increase the cost to the Company of
remediating the site, which could have a material adverse effect on the
Company's consolidated financial condition, liquidity and results of operations.
In March 1995, IT was notified by the DTSC that it was among 13 companies
identified as potentially responsible for costs associated with investigation
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. In March 1997, the Company was
notified by a potentially responsible party which performed work at another site
near Bakersfield, California, formerly operated by EPC known as the Westside
Facility, that IT was considered a potentially responsible party to share in the
costs of that cleanup, which has been completed.
IT transported various waste streams both generated by IT and on behalf of its
customers to the Eastside Facility and the Westside Facility at various times
during those facilities' operations and it was a minority shareholder in EPC for
a period of its operations. In January 1996, the PRP group for the Eastside
Facility (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, the potential costs associated with the remediation
of the Eastside Facility will not be reasonably estimable until completion of
the RI/FS.
The Company, as a major provider of hazardous waste transportation, treatment
and disposal operations in California prior to the December 1987 adoption of its
strategic restructuring program, has been named a PRP at a number of other sites
and may from time to time be so named at additional sites and may also face
damage claims by third parties for alleged releases or discharges of
contaminants or pollutants arising out of its transportation, treatment and
disposal discontinued operations. The Company 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. Based on the Company's experience in resolving claims against it at a
number of sites and upon current information, in the opinion of management, with
advice of counsel, claims with respect to sites not described above at which the
Company has been notified of its alleged status as a PRP will not individually
or in the aggregate result in a material adverse effect on the consolidated
financial condition, liquidity and results of operations of the Company.
The Company has initiated against a number of its past insurers claims for
recovery of certain damages and costs with respect to both its Northern
California sites and certain PRP matters. The carriers dispute their allegations
to the Company and the Company expects them to continue to contest the claims.
The Company has included in its provision for loss on disposition of
discontinued operations (as adjusted) an amount that, in the opinion of
management, with advice of counsel, represents a probable recovery with respect
to those claims.
FORWARD LOOKING STATEMENTS
Statements of the Company's or management's intentions, beliefs, expectations or
predictions for the future are forward-looking statements that involve risk and
uncertainties. The Company's actual results could differ materially from those
projected in such forward-looking statements as a result of the above and other
factors including projected financial results, funding of backlog, the effects
of the Company's restructuring and industry-wide market factors.
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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 March 20, 1998
- --------------------------------------- -----------------
Anthony J. DeLuca
President and Chief Executive Officer
and Duly Authorized Officer
HARRY J. SOOSE, JR. March 20, 1998
- --------------------------------------- -----------------
Harry J. Soose, Jr.
Vice President, Finance and
Principal Accounting Officer
19
