<PAGE> 1
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 26, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
-------------------- -------------------
COMMISSION FILE NUMBER 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.)
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, 1998 the registrant had issued and outstanding an aggregate of
22,628,433 shares of its common stock.
1
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INTERNATIONAL TECHNOLOGY CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED JUNE 26, 1998
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets
as of June 26, 1998 (unaudited) and
March 27, 1998. 3
Condensed Consolidated Statements of Operations
for the First Fiscal Quarters ended
June 26, 1998 and June 27, 1997 (unaudited). 4
Condensed Consolidated Statements of Cash Flows
for the First Fiscal Quarters ended June 26, 1998
and June 27, 1997 (unaudited). 5
Notes to Condensed Consolidated Financial
Statements (unaudited). 6-10
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition. 11-19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K. 22
Signatures 23
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 26, March 27,
1998 1998
-------- ---------
(Unaudited)
ASSETS (In thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 21,958 $ 24,765
Receivables, net 252,398 210,630
Prepaid expenses and other current assets 20,309 25,523
Deferred income taxes 14,164 12,750
--------- ---------
Total current assets 308,829 273,668
Property, plant and equipment, at cost:
Land and land improvements 456 846
Buildings and leasehold improvements 13,497 18,222
Machinery and equipment 82,818 159,433
--------- ---------
96,771 178,501
Less accumulated depreciation and amortization 49,018 102,480
--------- ---------
Net property, plant and equipment 47,753 76,021
Cost in excess of net assets of acquired businesses 332,621 211,878
Investment in Quanterra - 16,300
Other assets 16,856 17,557
Deferred income taxes 88,050 73,745
Long-term assets of discontinued operations 40,048 40,048
--------- ---------
Total assets $ 834,157 $ 709,217
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 93,365 $ 82,597
Accrued liabilities 74,277 80,486
Billings in excess of revenues 4,718 3,723
Short-term debt, including current portion of long-term debt 13,239 16,738
Current liabilities of discontinued operations, net 15,200 15,200
--------- ---------
Total current liabilities 200,799 198,744
Long-term debt 324,659 240,147
8% convertible subordinated debentures 44,550 44,550
Long-term accrued liabilities of discontinued operations, net 1,226 3,773
Other long-term accrued liabilities 33,878 23,755
Minority interest 434 50,098
Commitments and contingencies
Stockholders' equity:
Preferred stock, $100 par value; 180,000 shared authorized:
7% cumulative convertible exchangeable, 20,556 shares issued
and outstanding 2,056 2,056
6% cumulative convertible participating, 45,544 and 45,271 shares issued
and outstanding, respectively 4,511 4,451
Common stock, $.01 par value; 50,000,000 shares authorized;
22,645,852 and 9,737,589 shares issued, respectively 226 97
Treasury stock at cost, 8,078 shares (74) (74)
Additional paid-in capital 347,903 246,681
Deficit (126,011) (105,061)
--------- ---------
Total stockholders' equity 228,611 148,150
--------- ---------
Total liabilities and stockholders' equity $ 834,157 $ 709,217
========= =========
</TABLE>
See accompanying notes
3
<PAGE> 4
INTERNATIONAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
First fiscal quarter ended
--------------------------
June 26, June 27,
1998 1997
-------- --------
(Unaudited)
<S> <C> <C>
Revenues $225,188 $98,181
Cost and expenses:
Cost of revenues 198,130 86,757
Selling, general and administrative expenses 13,878 7,419
Special charges 24,971 4,611
-------- -------
Operating loss (11,791) (606)
Other income 189 -
Interest, net (8,902) (1,028)
-------- -------
Loss before income taxes (20,504) (1,634)
(Provision) benefit for income taxes 1,213 (1,280)
-------- -------
Net loss (19,291) (2,914)
Less preferred stock dividends (1,569) (1,533)
-------- -------
Net loss applicable to common stock $(20,860) $(4,447)
======== =======
Per share data (basic and diluted):
Historical (1998 includes OHM merger) $ (1.76) $ (.46)
======== =======
Common share data:
Historical (weighted average number of common shares
outstanding for basic and dilutive includes the 12,911,000
shares issued for OHM merger as of June 11, 1998.
See footnote 4.) 11,880,888 9,741,715
========== ==========
</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 26, June 27,
1998 1997
-------- --------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(19,291) $ (2,914)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 8,556 3,009
Special charges 24,971 1,800
Deferred income taxes (1,463) 1,280
Other 119 50
Changes in assets and liabilities, net of effects from acquisitions and
dispositions of businesses:
Changes in assets and liabilities (22,907) (583)
Effects of acquisition and sale of businesses (32,231) (4,721)
Decrease in site closure costs of discontinued operation (2,547) (2,633)
-------- --------
Net cash used for operating activities (44,793) (4,712)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposition of remediation business - 2,800
Acquisition of businesses (38,193) (1,250)
Capital expenditures (1,466) (1,025)
Proceeds from sale of Quanterra 5,750 -
Cash on deposit as collateral - (9,794)
Other, net 493 275
-------- --------
Net cash used for investing activities (33,416) (8,994)
CASH FLOWS FROM FINANCING ACTIVITIES:
Financing costs (4,694) -
Net borrowing (repayments) of long-term debt 81,001 (15)
Dividends paid on preferred stock (905) (899)
-------- --------
Net cash provided by (used for) financing activities 75,402 (914)
-------- --------
Net decrease in cash and cash equivalents (2,807) (14,620)
Cash and cash equivalents at beginning of period 24,765 78,897
-------- --------
Cash and cash equivalents at end of period $ 21,958 $ 64,277
======== ========
</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 26, 1998, pursuant
to the rules of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations although the
Company believes that the disclosures in such financial statements are
adequate to make the information presented not misleading.
The Company's fiscal year included four thirteen-week fiscal quarters with
the fourth quarter ending on the last Friday in March. On June 9, 1998, the
Board of Directors of IT approved a change in IT's fiscal year end from the
last Friday in March of each year to the last Friday of December of each
year. The report covering the transition period will be IT's Annual Report
on Form 10-K for the nine month period ending December 25, 1998.
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 27, 1998. The results of operations for the
fiscal period ended June 26, 1998 are not necessarily indicative of the
results for the full fiscal year.
2. In January 1998, the Company entered into a merger agreement to
acquire OHM Corporation (OHM), an environmental and hazardous waste
remediation services company servicing primarily industrial, federal
government and local government agencies located primarily in the United
States. The transaction was effected through a two-step process for a total
purchase price of approximately $303,400,000 consisting of (a) the
acquisition of 54% of the total outstanding shares through a cash tender
offer, which was consummated on February 25, 1998, at $11.50 per share for
13,933,000 shares of OHM common stock, for a total consideration of
approximately $160,200,000 plus, approximately $4,600,000 in asset
acquisition costs and (b) the acquisition on June 11, 1998 of the remaining
46% of the total outstanding shares through the exchange of approximately
12,900,000 shares of Company common stock valued at $8.04 per share, or
$103,800,000 and payment of approximately $30,800,000 plus approximately
$4,000,000 in asset acquisition costs.
This transaction was accounted for as a step acquisition purchase and
therefore the effects of the first step of the merger were included in the
March 27, 1998 financial statements and the effects of both steps were
included in the June 26, 1998 financial statements. The excess of the
purchase price over the fair value of assets acquired and liabilities
assumed in the merger of approximately $317,000,000 is classified as cost
in excess of net assets of acquired businesses and is being amortized over
forty years. Results of operations include OHM assuming 100% ownership for
the entire first fiscal quarter ended June 26, 1998.
The estimated fair value of the assets acquired and liabilities assumed of
OHM are as follows:
Description Amount
----------- ------
(In thousands)
Current assets $138,431
Property and equipment 21,295
Cost in excess of net assets of acquired businesses 317,093
Other long term assets 58,030
Current liabilities 124,096
Long term liabilities, primarily debt 107,268
As a result of the Merger, the Company has plans to close specific
overlapping properties and reduce consolidated employment. The acquired
balance sheet includes an accrual of approximately $13,300,000 for the
estimated OHM severance, office closure costs and lease termination costs
of which $4,203,000 has been paid through June 26, 1998.
6
<PAGE> 7
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
The purchase price allocation is preliminary and based upon information
currently available. Management is continuing to gather and evaluate
information regarding the valuation of assets and liabilities at the dates
of both the first and second steps of the acquisition. Management does not
anticipate material changes to the preliminary allocation.
The following unaudited pro forma condensed statement of operations gives
effect to the OHM merger as if the transaction occurred at the beginning of
the first fiscal quarter ended June 27, 1997.
June 27, 1997
Pro Forma
-------------
(In thousands, except per share data)
Revenues $236,862
Net loss (26,300)
Net loss applicable to common stock (27,833)
Loss per share:
Basic and diluted (1.23)
The above amounts are based upon certain assumptions and estimates which
the Company believes are reasonable. The pro forma results do not reflect
anticipated cost savings and do not necessarily represent results which
would have occurred if the merger had taken place at the date and on the
basis assumed above.
3. In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statements No. 130, "Reporting Comprehensive Income," and Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information."
Statement No. 130 which does not materially impact the Company and is
effective for fiscal years beginning after December 15, 1997, requires
separate reporting of certain items affecting shareholders' equity outside
of those included in arriving at net earnings. Statement No. 131, effective
for the period ending December 25, 1998, establishes requirements for
reporting information about operating segments in annual and interim
statements. This statement may require additional footnote disclosure
relating to certain operating segments of the Company, however, the extent
of this change, if any, has not been determined.
4. In February 1997, FASB issued Statement No. 128, Earnings per Share, which
was required to be adopted for periods ending after December 14, 1997. The
Company has changed the method used to compute earnings per share and
restated all prior periods. Under the new requirements for calculating
basic earnings per share, the dilutive effect of stock options is excluded.
For all periods presented, shares of common stock issuable upon conversion
of the Company's convertible preferred stock, common stock warrants and
common stock options are antidilutive, and therefore excluded from the
diluted earnings per share calculation.
The weighted average number of common shares outstanding increased
significantly on June 11, 1998 as a result of the Company issuing
12,911,000 common shares in exchange for the remaining 46% of the
outstanding OHM shares. As of June 26, 1998, the number of IT common shares
outstanding is 22,637,774. Generally Accepted Accounting Principals require
per share data be calculated utilizing the weighted average number of
shares outstanding during the reporting period. For IT, this calculation
results in a weighted average number of common shares outstanding of
11,880,888 for the quarter ending June 26, 1998.
The weighted monthly average number of shares outstanding during the
quarter ended June 26, 1998 are as follows:
Number of
common shares
outstanding
-----------
April 1998 9,729,511
May 1998 9,729,511
June 1998 16,183,643
----------
Average 11,880,888
Assuming on a proforma basis the June 11, 1998 newly issued shares were
issued at the beginning of the June 1998 quarter, the weighted average
common shares outstanding for the quarter would be 22,637,774.
Excluding special charges of $24,971,000 and non-recurring tender loan
origination costs of $2,198,000 for the quarter ended June 26, 1998 and
special charges of $4,611,000 for the quarter ended June 27, 1997, the net
income applicable to common stock on a proforma basis would be $2,430,000
and $164,000, respectively. This proforma information is summarized below:
<TABLE>
<CAPTION>
Proforma net income per share
Average excluding special charges
Fiscal quarter ended common shares outstanding basic and diluted
-------------------- ------------------------- -----------------------------
<S> <C> <C>
June 26, 1998 22,637,774 $ .11
June 27, 1997 9,741,715 $ .02
</TABLE>
Per share information discussed above is the same for basic and dilutive.
7
<PAGE> 8
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
On June 11, 1998, the Company issued approximately 12,911,000 IT common
shares in exchange for the remaining 46% of the outstanding OHM common
shares. Assuming these shares were issued on March 28, 1998, the weighted
average number of common shares outstanding and the basic and diluted
earnings (loss) per common share would be:
<TABLE>
<CAPTION>
Average Net loss per share
Fiscal quarter ended common shares outstanding basic and diluted
-------------------- ------------------------- -----------------
<S> <C> <C>
June 26, 1998 22,640,598 $(.92)
June 27, 1997 9,741,715 $(.46)
</TABLE>
The weighted average number of common shares outstanding and the basic and
diluted earnings (loss) per common share excluding special charges are as
follows:
<TABLE>
<CAPTION>
Net income per share
Average excluding special charges
Fiscal quarter ended common shares outstanding basic and diluted
-------------------- ------------------------- -----------------
<S> <C> <C>
June 26, 1998 11,880,888 $.20
June 27, 1997 9,741,715 $.02
</TABLE>
Assuming the 12,911,000 IT common shares were issued on March 28, 1998, the
weighted average number of common shares outstanding and the basic and
diluted earnings (loss) per common share excluding special charges would
be:
<TABLE>
<CAPTION>
Net income per share
Average excluding special charges
Fiscal quarter ended common shares outstanding basic and diluted
-------------------- ------------------------- -----------------
<S> <C> <C>
June 26, 1998 22,640,598 $.11
June 27, 1997 9,741,715 $.02
</TABLE>
For the quarter ended June 26, 1998, special charges of $23,290,000 (net of
taxes) were excluded from the net loss in the calculation of the net income
(loss) per share basic and diluted excluding special charges. For the
quarter ended June 27, 1997, special charges of $4,611,000 (net of taxes)
were excluded from the net income (loss) per share basic and diluted
excluding special charges.
The weighted monthly average number of shares for the quarter ended June
26, 1998 are as follows:
Number of
common shares
outstanding
-----------
April 1998 9,729,511
May 1998 9,729,511
June 1998 16,183,643
----------
Average 11,880,888
==========
The weighted average number of common shares outstanding increased
significantly on June 11, 1998 as a result of the Company issuing
12,911,000 common shares in exchange for the remaining 46% of the
outstanding OHM shares. As of June 26, 1998, the number of IT common shares
outstanding is 22,640,598.
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 the sale of some
facilities and closure of certain other facilities. Subsequent to this
date, the Company ceased obtaining new business for these operations. As of
June 26, 1998, 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
27, 1998, the Company recorded a provision for loss on disposition of
transportation, treatment and disposal discontinued operations
8
<PAGE> 9
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
(including the initial provision and three subsequent adjustments) in the
amount of $168,192,000, net of income tax benefit of $35,919,000. 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 26, 1998, the Company's
condensed consolidated balance sheet included accrued liabilities of
$16,426,000 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, liquidity and results of operations 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, liquidity and results of operations 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, as amended, for the fiscal year ended March 27, 1998; 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.
7. Included in accounts receivable, net at June 26, 1998 are billed
receivables, unbilled receivables and retention in the amounts of
$209,761,000, $30,509,000 and $12,128,000, respectively. Billed
receivables, unbilled receivables and retention from the U.S. Government as
of June 26, 1998 were $115,742,000, $11,570,000 and $2,481,000,
respectively. At March 27, 1998, billed receivables, unbilled receivables
and retention were $172,747,000, $26,996,000 and $10,887,000, respectively.
Billed receivables, unbilled receivables and retention from the U.S.
Government as of March 27, 1998 were $93,111,000, $9,908,000 and
$2,201,000, 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 the completion of the projects. Generally,
receivables are expected to be billed and collected in the subsequent year.
Included in accounts receivable at June 26, 1998 is approximately
$18,000,000 associated with unapproved change order claims performed by the
Company, which management believes to be probable of realization. This
approximate $18,000,000 includes contract claims in litigation (see Note 6
to the Condensed Consolidated Financial Statements). While management
believes no material loss will be incurred related to these unapproved
change order claims the actual amounts realized could be materially
different than the amounts recorded.
8. On May 27, 1998, IT's Board of Directors considered and approved the
divestiture of certain non-core assets. The non- core assets primarily
include the Company's 19% common stock ownership interest in Quanterra,
Inc., an environmental laboratory business, and the assets associated with
IT's Hybrid Thermal Treatment System (HTTS(R)) business. As a result of
these actions, the Company recorded a non-cash charge of $24,971,000 in the
quarter ending June 26, 1998 including $10,550,000 (net of cash proceeds of
$5,750,000) related to the sale of the Quanterra investment and
$14,421,000, primarily related to assets associated with IT's HTTS(R)
business.
Special charges of $4,611,000 were recorded in the fiscal quarter ended
June 27, 1997. These special items included a $2,811,000 charge associated
with the relocation of the Company's corporate headquarters, and a
$1,800,000 loss from the sale of a small remediation services business. The
relocation of the Company's headquarters from Torrance,
9
<PAGE> 10
INTERNATIONAL TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
California to Monroeville (Pittsburgh), Pennsylvania has enabled the
Company to consolidate corporate overhead functions. As a result of
this relocation, the Company incurred a pre-tax charge of $2,811,000. The
relocation charge included $790,000 of costs for severance, $953,000 of
costs for the relocation of IT employees, $710,000 of costs related to the
closure of the offices in Torrance, California and $358,000 of other
related costs. As part of this relocation, 32 employees were laid off,
primarily corporate management and administrative support personnel. As of
June 26, 1998, $271,000 of the charge remained to be paid.
9. For the first quarter ended June 26, 1998, the Company recorded an
income tax benefit of $1,213,000, reflecting an income tax rate of 40% on
income of $2,977,000 excluding special charges of $24,971,000. The income
tax benefit related to the special charges was offset by an increase in
IT's deferred tax valuation allowance of $6,889,000 based on the Company's
assessment of the uncertainty as to when it will generate a sufficient
level of future earnings of applicable character to realize a portion of
the deferred tax asset created by the special charges.
For the first quarter ended June 27, 1997, the Company recorded an income
tax charge of $1,280,000, on income of $2,977,000, excluding special
charges of $4,611,000. The related income tax benefit from the special
charge in the prior quarter was offset by an increase in IT's deferred tax
valuation allowance of $1,826,000.
Based on a net deferred tax asset of $102,214,000 (net of a valuation
allowance of $44,863,000), at June 26, 1998, and assuming a net federal and
state effective tax rate of 40%, the level of future earnings necessary to
fully realize the deferred tax asset would be approximately $256,000,000.
The Company evaluates the adequacy of the valuation allowance and the
realizability of the deferred tax asset on an ongoing basis. Because of the
Company's position in the industry, recent acquisitions, restructuring and
existing backlog, management expects that its future taxable income will
more likely than not allow the Company to fully realize its net deferred
tax asset.
10. On June 11, 1998, upon consummation of the second step of the OHM
acquisition (see Note 2 above), the Company effected a $378,000,000
refinancing (the "Merger Credit Facilities").
The Merger Credit Facilities consist of an eight-year amortizing term loan
(term loans) of $228,000,000 and a six-year revolving credit facility
(revolving loans) of $150,000,000 that contains a sublimit of $50,000,000
for letter of credit issuance. The term loans made under the Merger Credit
Facilities bear interest at a rate equal to LIBOR plus 2.50% per annum (or
Citibank's base rate plus 1.50% per annum) and amortize on a semi annual
basis in aggregate annual installments of $4,500,000 for the first six
years after the Merger, with the remainder payable in eight equal quarterly
installments in the seventh and eighth years after the Merger. The
revolving loans made under the Merger Credit Facilities bear interest at a
rate equal to LIBOR plus 2.00% per annum (or Citibank's base rate plus
1.00% per annum). Six months after completion of the merger, adjustments to
the interest rates will be made based on the ratio of IT's consolidated
total debt to consolidated earnings before interest, taxes, depreciation
and amortization. The Merger Credit Facilities are secured by a security
interest in substantially all of the assets of the Company and its
subsidiaries. In addition, the facilities also contain certain restrictive
covenants that, among other things, prohibit the payment of cash dividends
on common stock, limit capital expenditures, and require the Company to
meet certain financial targets.
The Merger Credit Facilities include certain representations, warranties
and covenants customary for facilities of this type. The Merger Credit
Facilities also include customary events of default as well as upon a
change of control of IT including among other things, on or after the
funding of the Merger Credit Facilities on June 11, 1998, the disposition
of the 6% Cumulative Convertible Participating Preferred Stock or the
Carlyle Warrants to a person other than the Preferred Stock Group (any
person or group of persons other than the Convertible Preferred Stock or
the Carlyle Warrants to a person other than the Parent Stockholders or
certain persons affiliated with the Parent Stockholders).
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION.
INTERNATIONAL TECHNOLOGY CORPORATION
FOR QUARTER ENDED JUNE 26, 1998
RESULTS OF OPERATIONS
OVERVIEW
The Company provides a full range of technology-driven, value-added consulting,
engineering and construction capabilities through a network of 67 offices in the
United States and selected international locations. The Company's services
include construction and remediation, risk assessment, air quality management,
pollution prevention and waste minimization, information management, land-use
planning and restoration services of impaired properties, decontamination and
decommissioning, design/build, wastewater treatment, historical research and
investigation, environmental consulting and advocacy services, engineering
services and facility outsourcing for operation, maintenance and construction.
The Company's business strategy is to be a global provider of environmental and
infrastructure solutions to both the government and private industry clients. As
part of this strategy, the Company entered into a definitive agreement to
acquire OHM Corporation (OHM) on January 15, 1998 and the first step of the
Merger Agreement was completed through a tender offer on February 25, 1998 at
which time the Company owned approximately 54% of the outstanding shares of OHM.
The second step of the acquisition was completed on June 11, 1998. During fiscal
year 1998, the Company has also diversified through several acquisitions of
specialized consulting companies primarily serving targeted commercial markets.
REVENUES
Revenues for the three months ended June 26, 1998 increased $127,007,000 or
129.4% to $225,188,000, compared to revenues of $98,181,000 reported in the
first quarter of fiscal year 1998. This revenue growth is primarily attributable
to revenues generated by the OHM acquisition.
Revenue from the Company's federal government contracts increased 155 percent in
the first quarter ended June 26, 1998 when compared to the same period last
year. Revenue from the Company's federal government contracts excluding OHM,
increased 12.6 percent during these same comparative periods.
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 26, 1998 and June 27, 1997 is outlined
in the table below:
FISCAL QUARTER ENDED
--------------------
JUNE 26, JUNE 27,
1998 1997
-------- --------
U.S. Department of Defense (DOD)............. 53% 45%
U.S. Department of Energy (DOE)............... 8 10
Other federal agencies........................ 6 2
-- --
67 57
State and local governments..................... 4 6
-- --
Total........................................... 71% 63%
== ==
11
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INTERNATIONAL TECHNOLOGY CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
The Company's revenues attributable to U.S. federal, state and local government
contracts as a percentage of the Company's consolidated revenues increased to 71
percent in the three months ended June 26, 1998 compared to 63 percent in the
first quarter of last year. In the quarter ended June 26, 1998, DOD revenues of
$119,267,000 were $75,226,000 higher than the $44,041,000 in revenues reported
in the first quarter of the prior year. This increase is attributable to the OHM
acquisition. 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.
DOE revenues increased by 90 percent from $9,529,000 in the first quarter of
fiscal year 1998 to $18,088,000 in the first quarter of this year. The increase
in the DOE revenues is due to the OHM acquisition and to the Fernald OU1 Project
that was awarded to the Company in October 1997. Revenues from other federal
agencies increased by $10,535,000 in the first quarter this year compared to
last year primarily related to the OHM merger.
The Company's revenues from commercial clients and international operations were
$66,525,000 for the quarter ended June 26, 1998 compared to $35,956,000 in
revenues during the first fiscal quarter of last year. Revenues from the
commercial and international sectors were $36,094,000 excluding OHM, or about
the same as last year. Revenue growth from the commercial and international
markets is uncertain partly due to increased emphasis on competitively bid lower
cost solutions and partly due to uncertainty regarding possible rollbacks of
environmental regulation and /or delaying certain work until final Congressional
action is taken on the reauthorization of CERCLA. 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, 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. The Company believes that, as a result of greater
flexibility by regulators on acceptable cleanup standards, the overall strength
of the U.S. economy and increased corporate profits, in the near term at least,
commercial opportunities are expanding. It is uncertain, however, how long and
to what extent this perceived expansion will continue.
The Company's total contract backlog at June 26, 1998 was approximately
$3,657,000,000 of which approximately $2,891,000,000 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.
GROSS MARGIN
Gross margin for the first quarter ended June 26, 1998 increased slightly to 12%
of revenues from 11.6% of revenues for the corresponding period of the prior
fiscal year. The improvement in gross margin is primarily due to the overhead
cost efficiencies achieved as a result of the OHM acquisition. In the short
term, the Company expects to maintain the improved gross margin levels achieved
as a result of this acquisition. The Company's ability to maintain or improve
its gross margin 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
In the three months ended June 26, 1998, selling, general and administrative
(SG&A) expenses as a percentage of revenues decreased to 6.2% from the 7.5%
reported during the same period last year. Excluding goodwill amortization
resulting from the OHM acquisition, SG&A expenses were 5.1% of revenues in the
three months ended June 26, 1998. This decrease is primarily due to the
elimination of certain duplicative overhead functions and other synergies
achieved as a result of the OHM acquisition. In total, selling, general and
administrative expenses increased by $6,459,000 or 87% during these same
comparative periods as a result of the OHM acquisition. In the near term,
selling, general and administrative expenses are expected to decrease as a
percentage of revenue due to spreading fixed overhead costs over higher revenue
levels.
12
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INTERNATIONAL TECHNOLOGY CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
SPECIAL CHARGES
On May 27, 1998, IT's board of Directors considered and approved the divestiture
of certain non-core assets. The non-core assets primarily include the Company's
19% common stock ownership interest in Quanterra, Inc., an environmental
laboratory business, and the assets associated with IT's Hybrid Thermal
Treatment System (HTTS(R)) business. As a result of these actions, the Company
recorded a non-cash charge of approximately $24,971,000 in the quarter ending
June 26, 1998 including $10,550,000 (net of cash proceeds of $5,750,000) related
to the sale of the Quanterra investment and $14,421,000, primarily related to
assets associated with IT's HTTS(R) business.
Special charges of $4,611,000 were recorded in the fiscal quarter ended June 27,
1997. These special items included a $2,811,000 charge associated with the
relocation of the Company's corporate headquarters, and a $1,800,000 loss from
the sale of a small remediation services business. The relocation of the
Company's headquarters from Torrance, California to Monroeville (Pittsburgh),
Pennsylvania has enabled the Company to consolidate corporate overhead
functions. As a result of this relocation, the Company incurred a pre-tax charge
of $2,811,000. The relocation charge included $790,000 of costs for severance,
$953,000 of costs for the relocation of IT employees, $710,000 of costs related
to the closure of the offices in Torrance, California and $358,000 of other
related costs. As part of this relocation, 32 employees were laid off, primarily
corporate management and administrative support personnel. As of June 26, 1998,
$271,000 of the charge remained to be paid.
INTEREST, NET
For the first quarter ended June 26, 1998, net interest expense represented 4.0%
of revenues compared to the 1.0% of revenues reported in the first quarter of
last year. The increase in the first quarter net interest expense level compared
to a year ago is due principally to an increased level of debt required to
finance the OHM acquisition and also due to nonrecurring amortization of debt
origination costs of $1,909,000 related to the Tender Offer Credit Facilities
utilized by the Company to finance step one of the OHM acquisition from February
25, 1998 through June 11, 1998.
INCOME TAXES
For the first quarter ended June 26, 1998, the Company recorded an income tax
benefit of $1,213,000, reflecting an income tax rate of 40% on income of
$2,977,000 excluding special charges of $24,971,000. The income tax benefit
related to the special charges was offset by an increase in IT's deferred tax
valuation allowance of $6,889,000 based on the Company's assessment of the
uncertainty as to when it will generate a sufficient level of future earnings of
applicable character to realize a portion of the deferred tax asset created by
the special charges.
For the first quarter ended June 27, 1997, the Company recorded an income tax
charge of $1,280,000, on income of $2,977,000, excluding special charges of
$4,611,000. The related income tax benefit from the special charge in the prior
quarter was offset by an increase in IT's deferred tax valuation allowance of
$1,826,000.
Based on a net deferred tax asset of $102,214,000 (net of a valuation allowance
of $44,863,000), at June 26, 1998, and assuming a net federal and state
effective tax rate of 40%, the level of future earnings necessary to fully
realize the deferred tax asset would be approximately $256,000,000. The Company
evaluates the adequacy of the valuation allowance and the realizability of the
deferred tax asset on an ongoing basis. Because of the Company's position in the
industry, recent acquisitions, restructuring and existing backlog, management
expects that its future taxable income will more likely than not allow the
Company to fully realize its deferred tax asset.
DIVIDENDS
The reported dividends for the three months ended June 26, 1998 and June 27,
1997 were $1,569,000 and $1,533,000, respectively. The reported dividends in the
first quarter ended June 26, 1998 include imputed dividends of $330,000, which
are never payable in cash or stock.
13
<PAGE> 14
INTERNATIONAL TECHNOLOGY CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
Commencing with November 21, 1997, the 6% Cumulative Preferred Stock outstanding
accrues an annual 3% in kind stock dividend payable quarterly for one year
during which the statement of operations will also include an imputed dividend
expense at a rate of approximately 3% per annum. This additional imputed
dividend of approximately 3% will never be paid in cash and simply represents
the amortization of the fair market value adjustment recorded at the date of
issuance. After November 21, 1998, the outstanding 6% Preferred Stock is
entitled to a 6% cumulative cash dividend payable quarterly.
The Company's dividends are summarized below:
Fiscal quarter ended
------------------------
June 26, June 27,
Dividend Summary 1998 1997
---------------- -------- --------
Cash 7% Preferred $ 899,000 $ 899,000
Non-cash 6%
Imputed 330,000 -
In kind common 3% stock dividend 340,000 634,000
---------- ----------
Total $1,569,000 $1,533,000
========== ==========
14
<PAGE> 15
INTERNATIONAL TECHNOLOGY CORPORATION
FINANCIAL CONDITION
Working capital at June 26, 1998 was $108,030,000 which is an increase of
$33,106,000 from the March 27, 1998 working capital of $74,924,000. The current
ratio at June 26, 1998 was 1.54:1 which compares to 1.38:1 at March 27, 1998.
Cash used by operating activities, which includes cash outflows related to
discontinued operations, for the first quarter ended June 26, 1998 totaled
$44,793,000 compared to $4,712,000 used by operating activities in the prior
year first quarter primarily due to the increase in accounts receivable
resulting from the seasonal increase in revenues, payment of liabilities accrued
in connection with the merger and payment of certain transaction and financing
costs previously accrued. Capital expenditures of $1,466,000 for the current
first fiscal quarter were $441,000 greater than the prior fiscal year
principally due to increased capital expenditure requirements due to the
acquisition of OHM. On June 25, 1998 the Company sold its investment in
Quanterra and received cash proceeds of $5,750,000.
In addition to the OHM acquisition, the Company acquired four specialty
consulting firms during the year ended March 27, 1998. The acquisition
agreements related to these firms, along with the acquisition of Beneco by OHM,
include potential future earnout payments ranging from a low of zero to a
maximum of approximately $19,600,000 of which $13,600,000 can be payable in the
Company's common stock over the next three years.
On June 11, 1998, the Company completed the second step of the Merger Agreement
to acquire OHM. At that time, the Company replaced the $240,000,000 credit
facility ("Tender Offer Credit Facilities") with a $378,000,000 refinancing
("Merger Credit Facilities") and initially borrowed $228,000,000 under the term
loan provisions and approximately $87,000,000 through the revolving credit
facility. The proceeds of the loans made under the Merger Credit Facilities were
used to finance the cash consideration paid in the Merger, to pay related
expenses and costs, to refinance loans outstanding under the Tender Offer Credit
Facilities and OHM's loans outstanding under its then existing credit facility.
The Merger Credit Facilities consist of an eight-year amortizing term loan of
$228,000,000 and a six-year revolving credit facility of $150,000,000. The
$150,000,000 revolving facility provides working capital for IT and its
subsidiaries (including OHM and its subsidiaries) and for general corporate
purposes. The Merger Credit Facilities are secured by an interest in
substantially all of the assets of IT and its subsidiaries.
The term loans made under the Merger Credit Facilities bear interest at a rate
equal to LIBOR plus 2.50% per annum (or Citibank's base rate plus 1.50% per
annum), and revolving loans made under the Merger Credit Facilities bear
interest at a rate equal to LIBOR plus 2.00% per annum (or Citibank's base rate
plus 1.00% per annum), from June 11, 1998 through January 25, 1999, with upward
or downward adjustments thereafter based on the ratio of IT's consolidated total
debt to consolidated earnings before interest and taxes and depreciation and
amortization, as defined by the Merger Credit Facilities loan agreement.
The Merger Credit Facilities amortize on a semi annual basis in aggregate annual
installments of $4,500,000 during the first six years after the Merger, with the
remainder payable in eight equal quarterly installments in the seventh and
eighth years after the Merger. IT is required to prepay the loans under the
Merger Credit Facilities with the net proceeds of asset sales and certain debt
and equity financing, and with a portion of IT's consolidated excess cash flow.
In addition, the terms of OHM's 8% Convertible Subordinated Debentures
(guaranteed by IT) require annual sinking fund payments in an amount equal to
approximately $4,300,000. The Company has satisfied the sinking fund
requirements for this year. These Debentures are callable by the Company at par
and are convertible at the option of the holders into a combination of IT common
stock that converts each $1,000 8% debenture into 45.04 IT common shares and
$107.50 in cash.
The Credit Facilities include certain representations, warranties and covenants
customary for facilities of this type. The Credit Facilities also include
customary events of default as well as upon a change of control of IT including
among other
15
<PAGE> 16
INTERNATIONAL TECHNOLOGY CORPORATION
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
things, on or after the funding of the Merger Credit Facilities on June 11,
1998, the disposition of the 6% Cumulative Convertible Participating Preferred
Stock or the Carlyle Warrants to a person other than the Preferred Stock Group
(any person or group of persons other than the Convertible Preferred Stock or
the Carlyle Warrants to a person other than the Parent Stockholders or certain
persons affiliated with the Parent Stockholders).
Long-term debt (including the 8% convertible subordinated debentures) of
$369,209,000 at June 26, 1998 increased from the $284,697,000 at March 27, 1998
primarily due to the acquisition of OHM and increased working capital
requirements resulting from the acquisition. The Company's ratio of debt
(including current portion) to equity decreased to 1.67:1 at June 26, 1998 from
2.03:1 at March 27, 1998.
With regard to the transportation, treatment and disposal discontinued
operations, a number of items could potentially affect the liquidity and capital
resources of the Company, including changes in closure and post-closure costs,
realization of excess and residual land values, demonstration of financial
assurance and resolution of other regulatory and legal contingencies.
(See Transportation, Treatment and Disposal Discontinued Operations.)
On June 26, 1998, giving effect to borrowings made in connection with the
consummation of the Merger, the Company had $26,400,000 of availability under
its revolving credit facility and $4,400,000 in cash and short-term investments.
The Company continues to have significant cash requirements, including
expenditures for the closure of its inactive disposal sites and PRP matters (see
Transportation, Treatment and Disposal Discontinued Operations), interest,
required term loan and subordinated debenture principal payments, preferred
dividend obligations, operating lease payments, contingent liabilities and
potential future acquisitions. The Company's liquidity position with the
availability of the Merger Credit Facilities and cash generated from operations
is expected to be sufficient to meet the foreseeable requirements, as well as to
in part fund expansion and diversification of the Company's business through
both internal growth and acquisitions but will require careful management,
particularly during periods of integration of major acquisitions. In connection
with the Company's plans for continued growth through acquisition, additional
capital sources will be required. The Merger Credit Facility permits
$150,000,000 of senior subordinated debt, and Carlyle has the option to invest
an additional $15,000,000 as part of the November 20, 1996 investment.
TRANSPORTATION, TREATMENT AND DISPOSAL DISCONTINUED OPERATION
As a part of the Company's discontinued transportation, treatment, and disposal
operations, the Company operated a series of treatment, storage and disposal
facilities in California, including four (4) major disposal facilities. Closure
plans for all four of these facilities have now been approved by all applicable
regulatory agencies. Closure construction has been completed at two of these
facilities (Montezuma Hills and Benson Ridge) and is substantially completed at
a third (Vine Hill), with final completion expected by the spring of 1999.
On March 18, 1998, the DTSC certified the Environmental Impact Report and
approved the Closure Plan for the Panoche facility. The approved plans provide
for submittal of technical studies that will be utilized to determine final
aspects, details and costs of closure construction and monitoring programs.
While IT believes that the approved closure plans substantially reduce future
cost uncertainties to complete the closure of the Panoche facility, the ultimate
costs will depend upon the results of the technical studies called for in the
approved plans. Closure construction for the plan is scheduled to be completed
within three years of approval of the plan. As a part of the closure process,
the Company will 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 and post-closure costs are incurred over a significant number of years
and are subject to a number of variables including, among others, negotiations
regarding the details of site closure and post-closure, 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. Operation of the facilities in the closure and post-closure
periods is also subject to regulation by the same agencies. Closure costs are
comprised principally of engineering, design and construction costs and of
caretaker and monitoring costs during closure. 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. The Company has
estimated the impact of closure
16
<PAGE> 17
INTERNATIONAL TECHNOLOGY CORPORATION
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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 approved plans, or if the Company is required to perform
unexpected remediation work at the facilities in the future or to pay penalties
for alleged noncompliance with regulations or 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 and post closure costs at March 1, 1998, 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 $18,000,000,
and approximately $25,600,000 in trust funds and purchased annuities which will
ultimately mature over the next 30 years to pay for its estimates of
post-closure costs. Following the Merger and write down of certain assets in
June 1998, the Company has notified DTSC that it will no longer use the
financial test and corporate guarantee. Although the Company believes that the
ongoing closure work at the Panoche and Vine Hill Complex facilities will reduce
the amount of required financial assurance to a level less than the balance in
the trust funds prior to any requirement to replace the guarantee with alternate
mechanisms, it may be required to provide additional financial assurance on an
interim basis.
The carrying value of the long-term assets of transportation, treatment and
disposal discontinued operations of $40,048,000 at June 26, 1998 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. A portion of the residual land is the subject of a local
community review of growth strategy. This review has recommended strategies for
limiting growth in the area applicable to certain of the Company's property,
which have been incorporated in a draft general plan and environmental impact
report which were released for public comment in the spring of 1998. Ultimately,
if development plans are materially restricted or acceptable entitlements are
unobtainable, the carrying value of this property could be significantly
impaired. The Company is also pursuing favorable planning changes with respect
to certain other nearby property. None of these strategies or changes have been
finalized but are anticipated to be formally considered by the community in the
fall of 1998. There is no assurance as to the timing of development or sales of
any of the Company's residual land, or the Company's ability to ultimately
liquidate the land for the sale prices assumed. If the assumptions used to
determine such prices are not realized, the value of the land could be
materially different from the current carrying value.
The Company maintains Environmental Impairment Liability coverage for the
Northern California facilities through the Company's captive insurance company.
The limits of the policy are $32,000,000 which meet the current requirements of
both federal and state law.
In June 1986, USEPA notified a number of entities, including the Company, that
they were PRPs with respect to the Operating Industries, Inc. (OII) Superfund
site in Monterey Park, California. Subsequently, USEPA alleged that the Company
had generated approximately 2% by volume of the manifested 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).
Between October 1995 and April 1996, the Company, the USEPA and the Steering
Committee agreed to settlements 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 and $250,000 to the Steering Committee. While resolving
the Company's alleged liability for these response costs, the settlement did 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. The USEPA has requested, and the Steering Committee and the Company have
submitted, proposals to work cooperatively with interested parties respect to
the final remedy.
17
<PAGE> 18
INTERNATIONAL TECHNOLOGY CORPORATION
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Should the costs of the final remedy be greater than the amounts recognized 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, failure of other
PRPs to pay their proportionate shares, or otherwise), the cost to the Company
of concluding this matter could materially increase.
In September 1987, the Company and 17 other companies were 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. (Additional
PRPs, consisting primarily of known waste generators, were subsequently served
with amended RAOs by the DTSC.) From the 1960's through 1974, a predecessor to
IT Corporation operated a portion of one of the two parcels 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.
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. As part of the
RAP, the DTSC also advised the PRP group of its position that all PRPs,
including the Company, 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 DTSC and the USEPA also seek approximately
$1,000,000 and $250,000, respectively, in oversight costs from all PRPs.) 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 in part because the studies conducted by the PRP group indicate
that any impacts are not affecting drinking water supplies or other groundwater
uses and it has 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 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 PRP group and the DTSC have agreed
to stay this litigation and implementation of major RAP elements pending the
RWQCB's review of the containment zone application.
In the final RAP the DTSC assigned the Company and the other members of the PRP
group collective responsibility for 50% of the site's response costs. The DTSC's
allocation of responsibility is not binding except in very limited
circumstances. The PRP group continues to believe that the DTSC allocation is
inappropriate and current owner/operators should pay a larger portion of the
site's response costs because, among other things, any ground water quality
impacts are not attributable solely to the portion of the site previously
operated by IT's predecessor, and 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.D.C., N.D. CA, Case No.
C96-03147SI) against the owner/operators of the site and other non-cooperating
PRPs to cause them to bear their proportionate share of site remedial costs. The
owner/operators of the site have denied responsibility and 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 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 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 substantially increase the cost to
the Company of remediating the site.
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<PAGE> 19
INTERNATIONAL TECHNOLOGY CORPORATION
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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. 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 operation and it was a minority
shareholder in EPC for a period of its operations. Because of the early stage of
the matter, the potential costs associated with the remediation of the Eastside
facility cannot be reasonably estimated.
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 obligations
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, denoted by the words "anticipate", "believe",
"estimate", "expect", "project", "imply", "intend", "foresee", and similar
expressions are forward-looking statements that reflect the current views of the
Company and its management about future events and are subject to certain risks,
uncertainties and assumptions. Such risks, uncertainties and assumptions include
those identified in the "Business - Operations" - "Regulations", -
"Environmental Contractor Risks", - "Insurance and Risk Management", "Risk of
Achievement of Synergies and Integration of Operations", - "Leverage" - "History
of Losses", and "Legal Proceedings" sections of the Company's Report on Form
10-K (as amended) for the year ended March 27, 1998, and the business
opportunities (or lack thereof) that may be presented to and pursued by the
Company, changes in laws or regulations affecting the Company's operations, as
well as competitive factors and pricing pressures, bidding opportunities and
success, project results, management's judgment regarding revenue recognition
and adequacy of reserves, success in pursuing claims and change orders, results
of litigation, funding of backlog, matters affecting contracting and engineering
businesses generally, such as the seasonality of work and weather and clients'
timing of projects, the ability to generate a sufficient level of future
earnings to utilize the Company's deferred tax assets, and the ultimate costs
and results of closure and divestiture of the Company's discontinued operations,
the effects of the integration of OHM and any other major acquisitions, and
achievement of expected synergies therefrom, and industry-wide market factors
other general economic and business conditions and other factors, many of which
are beyond the control of the Company. The Company's actual results could differ
materially from those projected in such forward-looking statements as a result
of such factors.
19
<PAGE> 20
PART II
INTERNATIONAL TECHNOLOGY CORPORATION
ITEM 1. LEGAL PROCEEDINGS.
The continuing operations litigation to which the Company is a party is 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,
as amended, for the fiscal year ended March 27, 1998. See also Management's
Discussion and Analysis of Results of Operations and Financial Condition -
Transportation, Treatment and Disposal Discontinued Operations for information
regarding litigation related to the discontinued operations of the Company.
Sikes Claims Action
In July 1998 IT- Davy, a joint venture of which IT Corporation is a member,
filed suit against the State of Texas' agency (the Texas Natural Resources
Conservation Commission) for which the joint venture performed the Sikes
Disposal Pits incineration project beginning in 1990 (IT-Davy v. Texas Natural
Resources Conservation Commission, Travis County District Court, 200th Judicial
District, Case No. 98-07589). The joint venture's lawsuit seeks recovery of
approximately $6,450,000 in claims for additional costs and/or lost profits
resulting from the performance of the project. Due to the early stage of the
case, the ultimate outcome of the matter cannot be predicted.
Coakley Landfill Action
Although discovery in the case is ongoing, and a trial date of March 2000 has
been set, due to the early stage of the matter, its ultimate outcome cannot yet
be predicted.
Occidental Chemical Litigation
OHM Remediation Services Corporation and Occidental Chemical Corporation have
filed cross-motions for summary judgement on their various claims and anticipate
rulings on the motions in the late summer of 1998.
GM - Hughes Massena Litigation
The parties have agreed to non-binding mediation, commencing in the fall of
1998, with respect to the case.
20
<PAGE> 21
INTERNATIONAL TECHNOLOGY CORPORATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In connection with the Company's Special Meeting of Shareholders, held June 11,
1998, the Company submitted the following three (3) matters to a vote of the
holders of its Common and Convertible Preferred Stock. The holders of shares of
Common Stock and Convertible Preferred Stock voted together as a class with
respect to all three proposals. Only holders of any such shares of Common Stock
or Convertible Preferred Stock at the close of business on May 20, 1998 were
entitled to notice of and to vote at the Special Meeting.
Proposal 1: To consider and vote upon the issuance of Common Stock, $0.01
par value of the Company pursuant to the Agreement and Plan of
Merger, dated as of January 15, 1998 relating to the merger of
IT-Ohio, Inc., an Ohio corporation and a wholly owned
subsidiary of the Company (the "Merger"), with and into OHM
Corporation, an Ohio corporation ("OHM"), pursuant to which
each outstanding share of common stock, $0.10 par value, of
OHM would be converted into a combination of cash and shares
of Common Stock as more fully set forth in the Joint Proxy
Statement/Prospectus dated May 11, 1998 and in the Merger
Agreement included therewith.
Proposal 1 was approved by the affirmative vote of the holders of shares of
capital stock representing a majority of the voting power of the Company, as
follows:
For Withheld Abstained
- --- -------- ---------
11,642,649 49,158 61,514
Proposal 2: To consider and vote upon amendments to the Company's 1996
Stock Incentive Plan to: (a) increase the number of authorized
shares issuable thereunder after the consummation of the
Merger; and (b) change the date of annual automatic increases
in the number of authorized shares issuable thereunder.
Proposal 2 was approved by the affirmative vote of the holders of shares of
capital stock representing a majority of the voting power of the Company, as
follows:
For Withheld Abstained
- --- -------- ---------
10,415,989 1,272,153 65,179
Proposal 3: To consider and vote upon an amendment to the Company's
Certificate of Incorporation to eliminate provisions therein
that provide for a classified board of directors with respect
to directors elected by common stockholders.
Proposal 3 was approved by the affirmative vote of the holders of shares of
capital stock representing not less than two-thirds of the voting power of the
Company, as follows:
For Withheld Abstained
- --- -------- ---------
11,637,353 44,650 71,318
21
<PAGE> 22
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) 24. Stock Redemption Agreement dated as of June 26,
1998, between Quanterra Incorporated, the
registrant, and IT Corporation.
10(iii) 40. Amendment Number Four to the OHM Corporation
Retirement Savings Plan, as amended and
restated as of January 1, 1994.*
27 1. Financial Data Schedule for the quarter ended
June 26, 1998.
* Filed as a management compensation plan or
arrangement per Item 14(a)(3) of the Securities
Exchange Act.
- ----------------
(b) Reports on Form 8-K
1. Current Report on Form 8-K/A, dated May 11, 1998, under Item 7
amending and supplementing the Current Report on Form 8-K
filed by the Registrant on March 5, 1998.
2. Current Report on Form 8-K, dated May 28, 1998, reporting
under Item 5 relating to the announcement of the registrant's
financial results for the fourth fiscal quarter and the year
ended March 27, 1998 and its intention to divest itself of
certain non-core assets.
3. Current Report on Form 8-K, dated June 11, 1998, reporting
under Item 2 the merger of the registrant's wholly owned
subsidiary, IT-Ohio, Inc. ("IT-Ohio") into OHM Corporation
("OHM") pursuant to the previously announced Agreement and
Plan of Merger dated as of January 15, 1998, among the
registrant, IT-Ohio and OHM and Item 7 the Financial
Statements of Businesses Acquired and Pro Forma Financial
Information. In addition, reported under Item 8 is the change
in the registrant's fiscal year end.
22
<PAGE> 23
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 10, 1998
------------------------------------- ---------------
Anthony J. DeLuca
President and Chief Executive Officer
and Duly Authorized Officer
PHILIP O. STRAWBRIDGE August 10, 1998
------------------------------------- ---------------
Philip O. Strawbridge
Senior Vice President, Chief
Administrative Officer and
Principal Financial Officer
HARRY J. SOOSE, JR. August 10, 1998
------------------------------------- ---------------
Harry J. Soose, Jr.
Vice President, Finance and
Principal Accounting Officer
23
<PAGE> 1
EXHIBIT 10(ii)
STOCK REDEMPTION AGREEMENT
--------------------------
AGREEMENT dated as of June 26 1998, between Quanterra Incorporated, a
Delaware corporation with a principal place of business at 5251 DTC Parkway,
Suite 415, Englewood, Colorado 80111 ("Quanterra"), IT Corporation, a California
corporation with a principal place of business at 2790 Mosside Boulevard,
Monroeville, Pennsylvania 15146 ("IT"), and International Technology Corporation
("ITX"), a Delaware corporation with a principal place of business at 2790
Mosside Boulevard, Monroeville, Pennsylvania 15146.
INTRODUCTION:
IT owns certain shares of the common stock in Quanterra, a company
engaged in certain environmental testing services. IT and Quanterra both desire
that IT transfer all of the common stock of Quanterra owned by IT consisting of
1,890 shares of the Class B common stock (the "Class B Common Stock") to
Quanterra, in consideration of the payments to be made as provided herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises contained herein and intending to be legally bound, the Parties hereby
agree as follows:
1. Definitions. The following terms when used in this
Agreement shall have the-meanings set forth below:
"Affiliate" shall mean a corporation, any other business
entity or a trust, in whatever country organized, which directly or
indirectly controls, is controlled by or is under common control with a
Party, where such control is exercised through majority ownership of
outstanding stock or equity interest, including without limitation the
ultimate corporate parent of each entity and in the case of IT or ITX,
any business entity in which IT or ITX owns more than twenty-five
percent (25%) of the total voting equity, including joint ventures in
which IT or ITX has the right to receive more than twenty-five percent
(25%) of the total profits.
"Class B Common Stock" shall have the meaning set forth in the
introduction to this Agreement.
"Closing" shall have the meaning set forth in Section 2(e).
"Closing Date" shall have the meaning set forth in Section
2(e).
"Contingent Payment" shall have the meaning set forth in
Section 2 (b) below.
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<PAGE> 2
"Encumbrance" shall mean any pledge, lien, charge,
encumbrance, security interest, equity, assessment or claim of any kind
whatsoever.
"IT" shall have the meaning set forth in the first paragraph
to this Agreement.
"ITX" shall have the meaning set forth in the first paragraph
of this Agreement.
"Party" shall mean Quanterra, IT or ITX as the context
requires and if used in the plural, Quanterra, IT and ITX.
"Quanterra" shall have the meaning set forth in the first
paragraph of this Agreement.
"Revenues" shall mean the price or compensation (net of all
applicable discounts and credits) received by Quanterra for
environmental testing services performed by or on behalf of Quanterra
or its Affiliates in the ordinary course of business as a result of
orders or requests made by IT or its Affiliates as set forth on a
proper customer invoice for such testing services.
"1998 Revenues Base" shall have the meaning set forth in
Section 2 (b) (ii) (1) below.
"1999 Revenues" shall have the meaning set forth in Section 2
(b) (ii) (1) below.
"Shareholders' Agreement" shall mean the Amended and Restated
Shareholders Agreement among Corning Incorporated, IT, ITX and
Quanterra, dated as of January 1, 1996.
2. Stock Acquisition and Closing. Subject to the terms and conditions
of this Agreement:
(a) At the Closing, for the consideration set forth in
subsection (b), IT shall transfer and deliver to Quanterra share
certificates representing 1,890 shares of Class B Common Stock of
Quanterra constituting all of IT's ownership of or equity in Quanterra
and all authorized and outstanding shares of capital stock of Quanterra
held or owned by IT.
(b) Upon the terms and subject to the conditions set forth in
this Agreement, as consideration for the Class B Common Stock to be
transferred to it, Quanterra shall: (i) pay IT Five Million Seven
Hundred Fifty Thousand Dollars ($5,750,000) at the Closing by wire
transfer to an account designated by IT; and (ii) on or before March
26, 2000, Quanterra shall make an additional payment to IT (the
"Contingent Payment") (not to
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<PAGE> 3
exceed, in any event, One Million Three Hundred Fifty Thousand Dollars
($1,350,000)); calculated as follows:
(1) $250,000 If the total amount of Revenues
received by Quanterra for
environmental testing services
commercially supplied by Quanterra
to IT, ITX and their Affiliates and
any successor company to IT in 1999
(the "1999 Revenues") exceed
$8,000,000 or the amount of Revenues
received by Quanterra for
environmental testing commercially
supplied by Quanterra to IT, ITX or
their Affiliates and any successor
company to ITX in 1998, whichever is
higher (the "1998 Revenues Base") by
ten percent (10%) but less than
twenty-five percent (25%); or
(2) $600,000 If the 1999 Revenues exceed the 1998
Revenues Base by twenty-five percent
(25%) or more but less than forty
percent (40%); or
(3) $900,000 If the 1999 Revenues exceed the 1998
Revenues Base by forty percent (40%)
but less than fifty percent (50%);
or
(4) $1,350,000 If the 1999 Revenues exceed the 1998
Revenues Base by more than fifty
percent (50%).
All services provided by Quanterra to IT or ITX and ordered by IT, ITX
or their Affiliates from Quanterra in 1998 will be consistent with the
levels achieved during the first half of 1998 and Quanterra, IT and ITX
will at all times act in good faith and consistent with their
respective contractual commitments in purchasing from Quanterra and
supplying to IT and ITX environmental testing services in 1998 and
1999.
(d) Quanterra and its Affiliates, as may be appropriate, shall
keep records of all 1998 Revenues Base and 1999 Revenues on which the
Contingent Payment is calculated in a suitable book or books provided
for this purpose in sufficient detail to enable the Contingent Payment
payable under this Agreement to be accurately determined. Within ninety
(90) days after the end of each calendar quarter from the date of this
Agreement up to and including December 31, 1999, Quanterra shall
deliver to ITX written reports of all transactions used to calculate
the 1998 Revenues Base and the, 1999 Revenues, and with the last report
the manner and amount of the Contingent Payment calculation. If ITX
materially disagrees with any report or the calculation of the
Contingent Payment, ITX and Quanterra shall meet within thirty (30)
days to resolve any dispute amicably. If the Parties do not resolve any
such dispute at this meeting, then Price Waterhouse & Co. shall be
hired to audit the records of Quanterra and verify its reports or if it
cannot, to calculate the 1999 Revenues and 1998 Revenues Base and
report the result to the Parties
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<PAGE> 4
in writing no later than sixty (60) days from the date of the meeting
described above. ITX and Quanterra shall each pay fifty percent (50%)
of total costs and fees of Price Waterhouse & Co. to perform this
service.
(e) Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of
Quanterra, 5251 DTC Parkway, Suite 415, Englewood, Colorado, or such
other place as may be mutually agreed upon, at nine thirty o'clock a.m.
on June 26, 1998, or such other date as may be mutually agreed upon
(the "Closing Date').
(f) All of the obligations of ITX, IT and their Affiliates
under this Agreement shall be binding upon and apply to any successor
or surviving corporation of ITX or IT whether or not resulting from any
merger or combination with any other entity and whether or not IT is
the surviving entity for a period ending on June 26, 2001.
3. Representation and Warranties by IT and ITX. IT and ITX represent
and warrant to Quanterra that:
(a) Corporate Organization and Authority. IT and ITX are
corporations duly organized, validly existing and in good corporate
standing under the laws of California and Delaware respectively; that
each has the full corporate power and authority to execute and deliver
this Agreement and the other agreements and instruments executed or to
be executed and delivered by them in connection herewith and to
consummate the transactions contemplated hereby and thereby.
(b) Corporate Proceedings; Validity; Enforceability. All
corporate acts and other proceedings required to be taken by or on the
part of IT and ITX to authorize them to carry out this Agreement and
transfer the Class B Common Stock to Quanterra and the other agreements
and instruments executed or to be executed and delivered by them in
connection herewith and the transactions contemplated hereby and
thereby have been duly and properly taken prior to the Closing Date.
This Agreement has been duly executed and delivered by IT and ITX and
constitutes, and each such other agreement and instrument constitutes,
or when duly executed and delivered, shall constitute, the legal, valid
and binding obligation of IT and ITX, enforceable in accordance with
its terms.
(c) No Violation. The execution and delivery by IT and ITX of
this Agreement and the other agreements and instruments executed or to
be executed and delivered by it in connection herewith and their
consummation of the transactions contemplated hereby and thereby shall
not (i) violate any provision of law, (ii) violate the provisions of
any order, judgment or decree of any court or governmental agency or
authority applicable to IT or ITX or its property or business or
violate the Certificate of Incorporation or ByLaws of Quanterra or
(iii) result in a breach of or constitute a default (or an event that
with the giving of notice or lapse of time or both would become a
default) under, or result
-4-
<PAGE> 5
in the creation of an Encumbrance on the Class B Common Stock pursuant
to any indenture, mortgage, lease, agreement or other instrument to
which IT or ITX is a party or by which either is bound.
(d) Approvals. No approval, consent, waiver or other order or
action of or filing or registration with any court or other
governmental authority is required for the execution and delivery by IT
and ITX of this Agreement and the other agreements and instruments
executed or to be executed and delivered by IT and ITX in connection
herewith and the consummation by IT and ITX of the transactions
contemplated hereby and thereby, including without limitation the
transfer of the Class B Common Stock.
(e) Class B Common Stock. The Class B Common Stock constitutes
all of the stock in Quanterra owned or controlled by IT, ITX or their
Affiliates and is all of the equity or other interest or right IT, ITX
or their Affiliates have in Quanterra and is free and clear of any
Encumbrance.
(f) Finders; Brokers. IT and ITX are not parties to any
understanding with, or in any way obligated to, any finder or broker
for any commissions, fees, or expenses in connection with the
origination, negotiation, execution or performance of this Agreement.
4. Representations by Quanterra. Quanterra represents and warrants to
IT and ITX that:
(a) Corporate Existence and Power. Quanterra is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware; it has the full corporate power and authority to execute and
deliver of this Agreement and the other agreements and instruments
executed or to be executed and delivered by it in connection herewith
and it consummate the transactions contemplated hereby and thereby.
(b) Corporate Proceedings; Validity; Enforceability. All
corporate acts and other proceedings required to be taken by or on the
part of Quanterra to authorize it to carry out this Agreement and the
other agreements and instruments executed or to be executed and
delivered by it in connection herewith and the transactions
contemplated hereby and thereby have been duly and properly taken prior
to the Closing Date. This Agreement has been duly executed and
delivered by Quanterra and constitutes, and each such other agreement
and instrument constitutes, or when duly executed and delivered, shall
constitute, the legal, valid and binding obligation of Quanterra,
enforceable in accordance with its terms.
(c) Approvals. No approval, consent, waiver or other order or
action of or filing or registration with any court or other
governmental authority is required for the execution and delivery by
Quanterra of this Agreement and the other agreements and
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<PAGE> 6
instruments to be executed and delivered by Quanterra pursuant hereto
and the consummation by Quanterra of the transactions contemplated
hereby and thereby.
(d) Finders; Brokers. Quanterra is not a party to any
understanding with any finder or broker which would subject Quanterra
to liability for any commissions, fees or expenses in connection with
the origination, negotiation, execution or performance of this
Agreement.
(e) No Violation. The execution and delivery by Quanterra of
this Agreement and the other agreements and instruments executed or to
be executed and delivered by it in connection herewith and its
consummation of the transactions contemplated hereby and thereby shall
not (i) violate any provision of law, (ii) violate the Provisions of
any order, judgment or decree of any court or other governmental agency
or authority applicable to Quanterra or its property or business or
violate the Articles of Incorporation, as amended and restated, of
Quanterra or (iii) result in a breach of or constitute a default (or an
event that with the giving of notice or lapse of time or both would
become a default) under any indenture, mortgage, lease, agreement or
other instrument to which Quanterra is a party or by which it is bound.
5. Additional Covenants.
(a) Termination of the Shareholders' Agreement. Quanterra, IT
and ITX hereby agree that effective on the Closing Date, the
Shareholders Agreement shall be terminated and each of Quanterra, IT
and ITX hereby release each other and Corning Incorporated from any
claim whatsoever arising out of or related to that Agreement and any
other instrument or agreement executed in connection therewith.
(b) Except as expressly set forth in this Agreement, nothing
contained in this Agreement shall be deemed to amend the Asset Transfer
Agreement dated as of May 2, 1994 among MetPath, ITX and IT, as amended
as of June 25, 1994 (the "'Asset Transfer Agreement"), or the other
documents delivered at the closing thereunder, or to relieve any Party
thereto of any obligation set forth in the Asset Transfer Agreement or
such other documents, including without limitation, Sections 12 (b) and
12 (c) of the Asset Transfer Agreement.
(c) For a period of three (3) years from the date of this
Agreement, IT, ITX and any successor to IT and ITX shall use all
reasonable efforts consistent with past practices to cause their
Affiliates and their respective customers, to utilize the services of
laboratories owned and operated by Quanterra, including, whenever
possible, by referring clients and others to Quanterra's laboratories
and by providing for the use of Quanterra's laboratories in their
contracts with their clients. In furtherance of the foregoing, IT and
ITX shall send to its Affiliates and the headquarters of its major
operations a letter in
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<PAGE> 7
substantially the form of Exhibit A hereto within fifteen (15) days of
the date of this Agreement.
(d) During the three (3) year period described in subsection
(c) above, IT and ITX shall, within thirty (30) days of the end of each
calendar quarter, send to Quanterra a written report setting forth the
extent of its Affiliates' purchase of environmental services of the
type supplied by Quanterra and the percentage of such services which
IT, ITX and their Affiliates have purchased from Quanterra.
(e) During the three (3) year period described in subsection
(c) Above, Quanterra shall use all reasonable efforts to maintain
sufficient capacity to process all samples originating from IT, ITX or
their Affiliates and their customers, and to actually process such
samples on bases at least as favorable as those Quanterra offers to
similar clients for similar testing at similar volumes. In furtherance
of the foregoing, Quanterra agrees to use all reasonable efforts to
offer to IT, ITX and their Affiliates and their clients, prices,
turnaround times, and other terms and conditions at least as favorable
as those offered to similar clients of Quanterra which purchase similar
services in similar volumes. Quanterra also agrees to maintain such
quality assurance/quality control and similar programs as ITX may
reasonably request in its efforts to utilize and refer business to
Quanterra laboratories.
(f) IT and ITX shall cause their Affiliates to pay Quanterra
no later than sixty (60) days after the date of an invoice, all
environmental testing services ordered by and on behalf of IT, ITX or
their Affiliates and performed by Quanterra. Nothing contained in this
Section 5(f) shall prejudice any right IT or ITX may have not to pay
for services that have not been satisfactorily performed.
6. Conditions.
(a) Obligations of IT. The obligations of IT to close and to
transfer the Class B Common Stock shall be subject to the following:
(1) Consideration. IT shall have received the payment
required to be made in accordance with Section 2 (a).
(2) Representations and Warranties True at Closing.
The representations and warranties made by Quanterra in this
Agreement and in any certificate or document delivered
pursuant to the provisions hereof shall be true in all
material respects at and as of the Closing Date as though such
representations and warranties were made at and as of such
time.
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<PAGE> 8
(3) Performance. Quanterra shall have performed and
complied in all material respects with all agreements and
conditions required by this Agreement to be performed complied
with by it prior to or at the Closing Date.
(4) Legal Matters. All legal matters incident to the
consummation of the transactions contemplated hereby shall be
satisfactory to counsel for IT.
(5) Certificate of Officer, IT shall have received a
certificate of an officer for Quanterra, dated the Closing
Date and addressed to IT, to the effect that (a) Quanterra has
been duly organized and is validly existing and in good
standing under the laws of California and has the corporate
power to execute, deliver and carry out the terms and
provisions of this Agreement; (b) this Agreement has been
executed and delivered by Quanterra and is the legal, valid
and binding obligation of Quanterra enforceable in accordance
with its terms.
(6) Action or Proceeding. No suit, action or
proceeding, or governmental investigation or inquiry against
or concerning,. directly or indirectly, IT or Quanterra, or
any of the properties of any of the foregoing shall have been
instituted or threatened, nor shall any basis therefor have
arisen that might result in any order or judgment of any court
or other governmental agency or authority which in the opinion
of IT is of such significance or materiality and of such a
nature as to render it inadvisable, to consummate the
transactions contemplated by this Agreement.
(7) Consent to Termination. Corning Incorporated has
executed a consent to the termination of the Shareholders
Agreement substantially in the form of Exhibit B hereto.
(b) Obligations of Quanterra. The obligations of Quanterra to
close and to acquire the Class B Common Stock shall be subject to the
following:
(1) Receipt of Class B Common Stock. Quanterra shall
have received from IT certificates evidencing an aggregate of
1,890 shares of Class B Common Stock.
(2) Representations and Warranties at Closing. The
representations and warranties made by IT and ITX in this
Agreement and in any certificate or document delivered
pursuant to the provisions hereof shall be true in all
material respects at and as of the Closing Date as though such
representations and warranties were made at and as of such
time.
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<PAGE> 9
(3) Performance. IT and ITX shall have performed and
complied in all material respects with all agreements and
conditions required by this Agreement to be performed or
complied with by it prior to or at the Closing Date.
(4) Legal Matters. All legal matters incident to the
consummation of the transactions contemplated hereby shall be
satisfactory to counsel for Quanterra.
(5) Certificate of Officer. Quanterra shall have
received a certificate of an officer for IT and an officer of
ITX, dated the Closing Date and addressed to Quanterra, to the
effect that (a) IT and ITX have been duly organized and are
validly existing and in good standing under the laws of
California and Delaware respectively and that each has the
corporate power to execute, deliver and carry out the terms
and provisions of this Agreement; (b) this Agreement has been
executed and delivered by IT and ITX and is the legal, valid
and binding obligation of IT and ITX enforceable in accordance
with its terms.
(6) Action or Proceeding. No suit, action or
proceeding, or governmental investigation or inquiry against
or concerning, directly or indirectly, Quanterra, IT or ITX,
or any of the properties of any of the foregoing shall have
been instituted or threatened, nor shall any basis therefor
have arisen that might result in any order or judgment of any
court or other governmental agency or authority which in the
opinion of Quanterra is of such significance or materiality
and of such a nature as to render it inadvisable, to
consummate the transactions contemplated by this Agreement.
7. Notices. All notices and communications hereunder given by any Party
to any other Party shall be in writing (including by telex, confirmed in
writing) and shall be deemed to have been duly given when received if delivered
in person or by mail, first-class, postage and certified mail prepaid, and when
sent, if sent by telex, answer back received, addressed to the respective
Parties hereto as follows:
If to Quanterra: Quanterra Incorporated
5251 DTC Parkway, Suite 415
Englewood, CO 80111
Attention: President
If to IT: IT Corporation
2790 Mosside Boulevard
Monroeville, PA 15146
Attention:
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<PAGE> 10
If to ITX: International Technology Corporation
2790 Mosside Boulevard
Monroeville, PA 15146
Attention:
or to such other address as to either Party as such Party shall designate by
written notice to the other Party hereto.
8. Further Assurances. Upon request from time to time, each Party shall
execute and deliver all documents, take all rightful oaths, and do all other
acts that may be reasonably necessary or desirable, in the opinion of counsel
for the other Party, to perfect the title of Quanterra, to the Class B Common
Stock to be acquired under this Agreement, or to aid in the presentation,
defense or other litigation of any rights arising from such Class B Common Stock
or the resolution of any claims arising out of the operations of Quanterra
during the period in which IT was a shareholder of Quanterra or otherwise to
effect the transactions contemplated by this Agreement.
9. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
10. Nonassignability. This Agreement shall not be assigned by either
Party hereto without the express prior written consents of the other Parties
hereto, provided however, Quanterra may assign it interest in this Agreement on
a one time basis in connection with sale of all or substantially all of its
business or assets. Any attempted assignment in breach of this section, and
without such consents as are required hereby, shall be null and void.
11. Captions; Exhibits. The captions appearing herein are f or the
convenience of the Parties only, and shall not be construed to affect the
meaning of the provisions of this Agreement. All Exhibits referred to herein are
annexed hereto and hereby made a part of this Agreement, and any document or
matter referenced in any Exhibit shall be deemed referred to in every Exhibit.
12. Arbitration. All disputes or differences arising out of or related
in any way to this Agreement shall be submitted to the decision of three (3)
arbitrators, one to be chosen by each party, and the third to be chosen by the,
two previously selected arbitrators. If either of the parties fails to appoint
an arbitrator within one (1) month after receipt of a demand to arbitrate, such
arbitrator shall at the request of either party be appointed by application to
the courts of New York having competent jurisdiction therefor.
The arbitration proceedings shall take place in New York. The applicant
shall submit its case within one (1) month after the appointment of the
arbitration panel, and the respondent shall
-10-
<PAGE> 11
submit his reply within one (1) month after receipt of a claim. The arbitrators
shall apply the rules of evidence and law applicable in courts sitting in New
York.
The arbitration panel shall be empowered to award provisional (i.e.,
injunctive) relief upon proper application, but a party shall be entitled,
pending the appointment of all such arbitrators and the convening of such
arbitration, to seek such relief from any court otherwise having competent
jurisdiction of such matter.
The arbitration panel shall render a written, reasoned decision on each
issue before it, in which decision it shall also state bow each arbitrator
voted. Any decision by the arbitration panel shall be binding upon the parties
and may be entered as a final judgment in any court having jurisdiction. The
cost of any arbitration proceeding shall be borne by the parties as the
arbitrator shall determine if the parties have not otherwise agreed.
13. Entire Agreement. This Agreement including the exhibits attached
hereto contains the entire understanding between the Parties with regard to the
subject matter hereof and shall be binding and enforceable by the Parties and
their respective successors. Except as otherwise provided herein, neither this
Agreement nor any provisions hereunder may be amended, modified, waived or
discharged unless such amendment, modification, waiver or discharge is agreed to
in a writing, duly subscribed and acknowledged with the same formality as this
Agreement, and signed by each of Quanterra, IT and ITX. Any waiver of a right,
term or provision hereunder by a Party hereto shall not be deemed a continuing
waiver unless so specified and shall not prevent or stop a Party hereto from
thereafter enforcing such right, term or provision, and the failure of a Party
hereto to insist in one or more instances upon strict performance by another
Party hereto, of any of the terms and provisions of this Agreement shall not be
construed as a waiver or relinquishment for the future of any such right, terms
or provision, but the same shall continue in full force and effect.
14. Severability. If any provision contained in this Agreement shall to
any extent be held invalid or unenforceable, such invalidity or unenforceability
shall not affect the validity or enforceability of any other provision of this
Agreement which shall remain in full force and effect. Any provision contained
in this Agreement which is held to be invalid or unenforceable under applicable
law shall be, if possible, modified or altered to conform to such applicable
law, or if not possible, shall be deemed to be omitted herefrom.
15. Execution in Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, and it shall not
be deemed necessary in making proof of this Agreement to produce or account for
more than one counterpart signed by the Party to be charged thereby.
16. Expenses. Each Party to this Agreement shall pay its own expenses
incurred in connection with this Agreement and the transactions contemplated
hereunder.
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<PAGE> 12
17. Interpretation. Neither the captions of the various sections of
this Agreement which are for convenience or reference only, nor the identity of
the Party which drafted this Agreement shall be accorded weight in the
interpretation of this Agreement.
18. Specific Enforcement. Notwithstanding any other provision of this
Agreement, it is understood and agreed that damages and any other remedies at
law may be inadequate in the case of any breach by any Party hereto of any of
the provisions hereof, and each Party hereto agrees that the other Parties shall
be entitled to equitable relief and the remedy of specific performance with
respect to any breach or attempted breach of any of the provisions hereof.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
executed as of the date first above written.
QUANTERRA INCORPORATED
By: /s/ BRAD S. FIGLEY
-----------------------------------------------
Brad S. Figley
Senior Vice President
INTERNATIONAL TECHNOLOGY CORPORATION
By: /s/ ANTHONY J. DELUCA
-----------------------------------------------
Anthony J. DeLuca, President and
Chief Executive Officer
IT CORPORATION
By: /s/ ANTHONY J. DELUCA
-----------------------------------------------
Anthony J. DeLuca, President
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<PAGE> 13
CONSENT TO THE TERMINATION
OF THE AMENDED AND RESTATED
SHAREHOLDERS AGREEMENT AMONG
CORNING INCORPORATED, INTERNATIONAL
TECHNOLOGY CORPORATION, IT CORPORATION
AND QUANTERRA INCORPORATED
In connection with the Amended and Restated Shareholders Agreement
dated as of January 1, 1996 among Corning Incorporated ("Corning"),
International Technology Corporation ("ITX"), IT Corporation ("IT") and
Quanterra Incorporated ("Quanterra") (the "Shareholders Agreement"), Corning
hereby agrees to the termination of such Agreement and releases each and every
party to such Shareholders Agreement from any claim whatsoever arising out of or
related to the Shareholders Agreement.
CORNING INCORPORATED
By:
------------------------------------------
Dated: June 26, 1998
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<PAGE> 1
EXHIBIT 10(iii) 40
AMENDMENT NUMBER FOUR
TO THE
OHM CORPORATION RETIREMENT SAVINGS PLAN
(As Amended and Restated Effective January 1, 1994)
WHEREAS, OHM Corporation (the "Company") previously adopted
the OHM Corporation Retirement Savings Plan (the "Plan"); and
WHEREAS, Section 15.1 of the Plan provides that the Company
may amend the Plan at any time.
NOW, THEREFORE, the Company hereby amends the Plan to read as
follows:
I.
Effective June 11, 1998, Section 1.10 shall be amended in its
entirety to read as follows:
1.10 "Company Stock" means the voting common stock of
the Company or of International Technology
Corporation.
II.
Effective June 11, 1998, Section 1.11 shall be amended in its
entirety to read as follows:
1.11 "Company Stock Fund" means one of the Investment
Funds which shall be invested in Company stock.
Notwithstanding the foregoing, any cash received in
exchange for common stock of the Company in
connection with the merger of the Company and a
subsidiary of International Technology Corporation on
or about June 11, 1998, however, will be reinvested
in other Investment Funds according to the investment
elections on file for the Participants with respect
to such Participant's Before Tax Contributions to the
Plan.
IN WITNESS WHEREOF, this instrument of amendment is executed
this 9th day of June 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 26, 1998 AND ITS
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE FIRST FISCAL QUARTER
ENDED JUNE 26, 1998 FILED AUGUST 10, 1998 ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-25-1998
<PERIOD-START> MAR-28-1998
<PERIOD-END> JUN-26-1998
<CASH> 21,958
<SECURITIES> 0
<RECEIVABLES> 252,398
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 308,829
<PP&E> 96,771
<DEPRECIATION> 49,018
<TOTAL-ASSETS> 834,157
<CURRENT-LIABILITIES> 200,799
<BONDS> 369,209
0
6,567
<COMMON> 226
<OTHER-SE> 221,818
<TOTAL-LIABILITY-AND-EQUITY> 834,157
<SALES> 0
<TOTAL-REVENUES> 225,188
<CGS> 0
<TOTAL-COSTS> 198,130
<OTHER-EXPENSES> 24,971
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,902
<INCOME-PRETAX> (20,504)
<INCOME-TAX> (1,213)
<INCOME-CONTINUING> (19,291)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,291)
<EPS-PRIMARY> (1.76)
<EPS-DILUTED> (1.76)
</TABLE>
