<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) March 19, 1999
THE IT GROUP, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 1-9037 33-0001212
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No)
2790 Mosside Boulevard
Monroeville, Pennsylvania 15146-2792
(Address of Principal Executive (Zip Code)
Offices)
Registrant's telephone number, including area code (412) 372-7701
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
Item 5. Other Events.
On March 19, 1999, The IT Group, Inc. ("IT"), commenced a private placement
of $200 million of senior subordinated notes due 2009 (the "Offering").
The Offering Memorandum for the Offering contains certain pro forma
financial information and other information giving pro forma effect to the
acquisition by IT of OHM Corporation ("OHM"), Fluor Daniel GTI, Inc. ("GTI"),
certain assets of ICF Kaiser International, Inc.'s Environmental and Facilities
Management Group ("EFM") and Roche Limited Consulting Group ("Roche"). IT has
signed acquisition agreements for the EFM and Roche acquisitions but these
acquisitions have not yet been completed and a portion of the proceeds of the
Offering will be used to finance the EFM and Roche acquisitions.
IT is filing as an exhibit to this Current Report on Form 8-K the following
information from the Offering Memorandum:
1. The Audited Financial Statements of OHM.*
Report of Independent Auditors*
Consolidated Balance Sheets as of December 31, 1997 and 1996*
Consolidated Statements of Operations for the three years ended
December 31, 1997*
Consolidated Statements of Stockholders' Equity for the three
years ended December 31, 1997*
Consolidated Statements of Cash Flows for the three years ended
December 31, 1997*
Notes to Consolidated Financial Statements*
2. The Audited Financial Statements of GTI.
Report of Independent Auditors
Consolidated Statements of Operations for the year ended
October 31, 1998
Consolidated Statements of Cash Flows for the year ended
October 31, 1998
Notes to Consolidated Financial Statements
3. The Audited Statements of EFM.
Report of Independent Accountants
Statement of Assets Acquired and Liabilities Assumed as of
December 31, 1998
Statement of Operating Revenue and Expenses for the year ended
December 31, 1998
Notes to Statements
4. The Audited Financial Statements of Roche.
Auditors' Report
Consolidated Balance Sheets as of December 31, 1998, 1997 and 1996
Consolidated Statements of Operations for the three years ended
December 31, 1998
Consolidated Statements of Stockholders' Equity for the three
years ended December 31, 1998
Consolidated Statements of Cash Flows for the three years ended
December 31, 1998
Notes to Consolidated Financial Statements
5. Unaudited Pro Forma Consolidated Financial Data.
Unaudited Pro Forma Consolidated Balance Sheet as of
December 25, 1998
Unaudited Pro Forma Consolidated Statement of Operations and other
Data for the Twelve Months ended December 25, 1998
Notes to Unaudited Pro Forma Consolidated Statement of Operations
and other Data
6. "The Company" section from the Offering Memorandum Summary.
* Filed as an Exhibit to OHM's Annual Report on Form 10-K for the year ended
December 31, 1997.
2
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements.
1. The Audited Financial Statements of OHM.*
Report of Independent Auditors*
Consolidated Balance Sheets as of December 31, 1997 and 1996*
Consolidated Statements of Operations for the three years ended
December 31, 1997*
Consolidated Statements of Stockholders' Equity for the three
years ended December 31, 1997*
Consolidated Statements of Cash Flows for the three years ended
December 31, 1997*
Notes to Consolidated Financial Statements*
2. The Auditied Financial Statements of GTI.
Report of Independent Auditors
Consolidated Statements of Operations for the year ended
October 31, 1998
Consolidated Statements of Cash Flows for the year ended
October 31, 1998
Notes to Consolidated Financial Statements
3. The Audited Statements of EFM.
Report of Independent Accountants
Statement of Assets Acquired and Liabilities Assumed as of
December 31, 1998
Statement of Operating Revenue and Expenses for the year ended
December 31, 1998
Notes to Statements
4. The Audited Financial Statements of Roche.
Auditors' Report
Consolidated Balance Sheets as of December 31, 1998, 1997 and 1996
Consolidated Statements of Operations for the three years ended
December 31, 1998
Consolidated Statements of Stockholders' Equity for the three
years ended December 31, 1998
Consolidated Statements of Cash Flows for the three years ended
December 31, 1998
Notes to Consolidated Financial Statements
* Filed as an Exhibit to OHM's Annual Report on Form 10-K for the year ended
December 31, 1997.
(b) Pro Forma Financial Information.
1. Unaudited Pro Forma Consolidated Financial Data.
Unaudited Pro Forma Consolidated Balance Sheet as of
December 25, 1998
Unaudited Pro Forma Consolidated Statement of Operations and other
Data for the Twelve Months ended December 25, 1998
Notes to Unaudited Pro Forma Consolidated Statement of Operations
and other Data
(c) Exhibits.
1. "The Company" section from the Offering Memorandum Summary.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
THE IT GROUP, INC.
Date: March 22, 1999 By: /s/ James Redwine
---------------------------
James Redwine
Senior Corporate Counsel
and Assistant Secretary
4
<PAGE>
Exhibit(a)(2)
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of FLUOR DANIEL GTI, Inc.
We have audited the accompanying consolidated statement of operations and
consolidated statement of cash flows of Fluor Daniel GTI, Inc. (the Company)
for the year ended October 31, 1998. These statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the statements. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the statements referred to above present fairly, in all
material respects, the consolidated results of operations and cash flows of
Fluor Daniel GTI, Inc. for the year ended October 31, 1998 in conformity with
generally accepted accounting principles.
Boston, Massachusetts
November 20, 1998,
except for Note 8, as to which
the date is December 3, 1998.
5
<PAGE>
FLUOR DANIEL GTI, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year
Ended
October 31,
1998
-----------
<S> <C>
Revenues............................................................ $200,245
Operating cost of revenues.......................................... 163,382
--------
Gross profit........................................................ 36,863
Selling, general and administrative expenses........................ 31,609
License and other income............................................ 288
Loss on sale of company assets, net................................. (913)
--------
Income before investment and interest income........................ 4,629
Investment and interest income, net................................. 721
--------
Income before provision for income taxes............................ 5,350
Provision for income taxes.......................................... 4,261
--------
Net income.......................................................... $ 1,089
========
Net income per share--basic and diluted............................. $ 0.13
Weighted average shares outstanding--basic.......................... 8,388
Weighted average share outstanding--diluted......................... 8,403
</TABLE>
See accompanying notes to partial financial presentation.
6
<PAGE>
FLUOR DANIEL GTI, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year
Ended
October 31,
1998
-----------
<S> <C>
Cash flows from operating activities:
Net income........................................................ $ 1,089
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................... 3,539
Deferred income taxes............................................ (98)
Write-off of investment.......................................... 178
Changes in operating assets and liabilities, net of effects of
acquisitions:
Accounts receivable and unbilled revenues ...................... 1,978
Other current assets and prepaid expenses....................... 837
Other assets.................................................... 244
Accounts payable................................................ 3,778
Accrued salaries and benefits................................... 1,875
Advance billings on contract.................................... 49
Other accrued liabilities....................................... 1,851
Income taxes payable............................................ 1,889
--------
Net cash provided for operating activities......................... 17,210
Cash flows from investing activities:
Expenditures for property, plant and equipment.................... (5,219)
Sale of fixed assets.............................................. 3,087
Purchase of marketable securities................................. (16,200)
Sale of marketable securities..................................... 9,345
Investments in and advances to joint ventures..................... 33
--------
Net cash used in investing activities.............................. (8,954)
Cash flows from financing activities:
Proceeds from sale of stock under employee stock plans............ 554
--------
Net cash provided by financing activities.......................... 554
--------
Effect of exchange rate changes on cash and cash equivalents....... (273)
--------
Net increase in cash and cash equivalents.......................... 8,537
Cash and cash equivalents at beginning of year..................... 3,588
Cash and cash equivalents at end of year........................... $ 12,125
========
Supplemental disclosures of cash flow information:
Income taxes paid................................................. $ 1,435
</TABLE>
See accompanying notes to partial financial presentation.
7
<PAGE>
FLUOR DANIEL GTI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Description of Business. Fluor Daniel GTI, Inc. provides a broad range of
environmental consulting, engineering and construction management services.
These services currently focus on the assessment and remediation of
contaminated soil and groundwater using a broad range of techniques and
technologies. These services are provided separately or in combination for
customers in a variety of industries and for federal and state governments.
Accordingly, the Company operates in one industry segment.
Basis of Presentation. As discussed in Note 8, the Company was acquired by
the IT Group, Inc. on December 3, 1998. The accompanying consolidated statement
of operations and consolidated statement of cash flows were prepared for
purposes of inclusion in an Offering Memorandum for the placement of $200
million of aggregate principal amount of Senior Subordinated Notes due 2009 to
be issued by the IT Group. These statements are not intended to be a complete
presentation of the Company's financial position. A consolidated balance sheet
and related footnotes have been purposely omitted from this presentation.
On May 10, 1996, the Company closed a series of transactions (the "Change of
Control Transactions") pursuant to which it became a majority-owned subsidiary
of Fluor Daniel, Inc. ("Fluor Daniel"), a global construction, engineering,
maintenance and services company. In addition, the Company entered into a
Marketing Agreement with Fluor Daniel, and the Company changed its name from
"Groundwater Technology, Inc." to "Fluor Daniel GTI, Inc." to emphasize the new
relationship.
Principles of Consolidation. The consolidated financial statements include
the accounts of Fluor Daniel GTI, Inc. and its wholly-owned subsidiaries (the
"Company"). All material intercompany transactions and accounts have been
eliminated. The Company accounts for its investments in unconsolidated
affiliated companies under the equity method.
Translation of Foreign Currencies and Foreign Exchange Transactions. For
non-U.S. operations, the functional currency is the applicable local currency.
The translation of the functional currencies into U.S. dollars is performed for
balance sheet accounts using current exchange rates in effect at the balance
sheet date and for revenue and expense accounts using average rates of exchange
prevailing during the reporting period. Adjustments resulting from the
translation of foreign currency financial statements are accumulated in a
separate component of stockholders' equity until the entity is sold or
substantially liquidated. Gains or losses resulting from foreign currency
transactions are included in the results of operations.
Earnings per Common Share. In 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings per share. Statement 128 was effective for
the fiscal year ending October 31, 1998 and replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts have been presented to
conform to the Statement 128 requirements.
8
<PAGE>
FLUOR DANIEL GTI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth the computation of basic and diluted earnings
per share for the year ended October 31, 1998:
<TABLE>
<S> <C>
Numerator:
Numerator for basic and diluted earnings per share--Net
Income........................................................ 1,089,000
Denominator:
Denominator for basic earnings per share--weighted average
shares........................................................ 8,388,000
Effect of dilutive employee stock options........................ 15,000
----------
Denominator for diluted earnings per share....................... 8,403,000
----------
Basic and diluted earnings per share............................. $ 0.13
==========
</TABLE>
Options to purchase 1,164,000 shares of the company stock were excluded from
the calculation above because their effect would have been antidilutive.
Employee Stock Plans. The Company's stock plans are accounted for under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB25), and related interpretations.
Revenue Recognition. Revenue is recognized when services are performed.
Certain projects are accounted for on the percentage-of-completion method,
primarily based on contract costs incurred to date compared with total
estimated contract costs. Changes to total estimated contract costs and losses,
if any, are recognized in the period in which they are determined. Revenues
recognized in excess of amounts billed are classified as current assets under
unbilled revenues. Amounts billed to clients in excess of revenues recognized
to date are classified as advance billings on contracts.
As of October 31, 1998, the Company was in the process of submitting change
orders against one of its customers of approximately $5,800,000 in excess of
the agreed contract price.
License and Other Income. License and other income includes license and
royalty income earned on the Company's intellectual property and income from
equity investments in the environmental industry.
Depreciation. Depreciation is calculated on the straight-line method over
the estimated useful lives of the assets. Depreciation expense for the fiscal
year ending October 31, 1998 was $2,900,000.
Risk and Uncertainties. Credit is extended based on an evaluation of the
customer's financial condition, with terms consistent in the industry and
normally collateral is not required. Losses from credit sales are provided for
in the financial statements and have been generally within the allowance
provided. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant estimates include collectability of accounts
receivable and unbilled revenues and recovery of intangible assets and deferred
tax assets. Actual results could differ from those estimates and would impact
future results of operations and cash flows.
9
<PAGE>
FLUOR DANIEL GTI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Income Taxes
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
Year Ended
October 31,
1998
--------------
(In thousands)
<S> <C>
Current:
Federal..................................................... $3,655
State....................................................... 727
Foreign..................................................... 60
------
4,442
Deferred (prepaid):
Federal..................................................... (305)
State....................................................... (83)
Foreign..................................................... 207
------
(181)
------
$4,261
======
</TABLE>
The provisions for income taxes were at rates other than the U.S. federal
statutory income tax rate for the following reasons:
<TABLE>
<CAPTION>
Year Ended
October 31,
1998
--------------
(In thousands)
<S> <C>
U.S. federal statutory income tax rate %.................... 34.0%
State income taxes net of federal income tax benefit........ 7.7
Foreign income taxes........................................ 2.4
Meals and entertainment..................................... 2.0
Goodwill.................................................... 2.0
Interest income exempt from federal tax..................... (3.1)
Non-benefitable loss on the sale of Canadian subsidiary..... 1.3
Provision for income tax contingencies and other tax
matters.................................................... 33.3
----
79.6%
</TABLE>
The net change in the total valuation allowance during the fiscal year
ended October 31, 1998 was $30,000.
The Company is currently contesting issues before the Internal Revenue
Service for the tax years 1991 and 1992, primarily relating to issues of
substantiation of certain deductions. The Company has been cooperating with
the IRS to resolve these issues and is currently awaiting a report from the
IRS regarding the Company's efforts on these issues. In the opinion of
management, adequate provision has been recorded for taxes that may arise from
IRS adjustments, penalties and interest.
3. Related Parties
The Company provides certain environmental consulting services to Fluor
Daniel and other affiliated entities. Revenues from these consulting services
have been reflected in the accompanying statements in accordance with a
Marketing Agreement (the "Agreement") signed in conjunction with the
Investment Agreement between the Company and Fluor Daniel. Under the terms of
the Agreement, affiliates are charged for
10
<PAGE>
FLUOR DANIEL GTI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
labor cost plus established multipliers on base compensation. Due to the
variable and often unpredictable nature of the Company's work load, consulting
services are provided to Fluor Daniel as conditions allow. Revenues from Fluor
Daniel and other affiliated entities were $4,184,000 for the fiscal year ended
October 31, 1998.
4. Commitments and Contingencies
Lease Commitments. The Company leases virtually all of its facilities under
operating leases. Most of these leases have renewal options, and certain of
them require increasing rent payments over the term of the lease and payments
for additional expenses such as taxes and maintenance. One of the leases also
contains a purchase option. Additionally, the Company leases equipment and
vehicles under operating leases.
Future minimum payments under all noncancelable leases are as follows:
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
1999.......................................................... $3,262
2000.......................................................... 2,585
2001.......................................................... 2,097
2002.......................................................... 1,074
2003 and thereafter........................................... 249
------
$9,267
======
</TABLE>
Rent expense charged to operations was $4,658,000 for the fiscal year ended
October 31, 1998.
Other Commitments. A substantial number of the Company's contracts with its
customers require the Company to indemnify the customer for claims, damages or
losses for personal injury or property damage relating to the Company's
performance of the contracts unless such injury or damage is solely the result
of the customer's negligent or willful acts or omissions. A number of the
insurance policies maintained by the Company for this purpose are provided
through arrangements which require the Company to indemnify the insurance
carrier for all losses and expenses under the policies and to support its
indemnity commitments with letters of credit. At October 31, 1998, such letters
of credit aggregated $7,848,155. Management believes an adequate level of
insurance coverage has been provided. The Company has guaranteed a $700,000
line of credit for Enterprise Environmental and Earthworks, Inc., an investee
accounted for under the equity method.
Contingencies. In the ordinary course of conducting its business, the
Company becomes involved in a number of lawsuits and administrative
proceedings, including environmentally related matters. Some of these
proceedings may result in fines, penalties or judgments being assessed against
the Company which, from time to time, may have an impact on earnings for a
particular quarter. The Company does not believe that these matters,
individually or in the aggregate, will have a material adverse effect on its
operations, cash flows or financial condition.
5. Employee Benefit Plans.
Profit Sharing Plan and Bonus Performance Plan. During the fiscal year ended
October 31, 1998, the Company had a profit sharing plan for the benefit of all
employees meeting certain minimum service requirements. The plan provided for
20% of adjusted pre-tax operating income to be distributed to employees at the
end of the fiscal year.
The Company has bonus performance programs covering eligible employees under
which awards are made at the discretion of the Compensation Committee of the
Board of Directors. Bonus expense was approximately $1,508,000, for the fiscal
year ended October 31, 1998.
11
<PAGE>
FLUOR DANIEL GTI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Retirement Savings Plan. The Company has a Retirement Savings Plan under
Section 401(k) of the Internal Revenue Code for the benefit of all U.S.
employees meeting certain minimum service requirements. Eligible employees may
elect to contribute to the plan up to 12% of their cash compensation, subject
to limitations established by the Internal Revenue Code. The trustees of the
plan select investment opportunities from which participants may choose to
contribute.
The plan requires a matching contribution by the Company of 100% on the
first 1%, and 25% on the next 4% of each participant's contribution, but not
greater than the maximum allowable under the Internal Revenue Code. The Company
may also contribute a discretionary amount to the plan which may be allocated
to employees based upon employees' contributions to the plan. The Company's
matching contributions currently vest at a rate of 25% per year based upon
years of service. The Company's contributions to this plan were $949,000, for
the fiscal year ended October 31, 1998.
The Company has various defined contribution plans covering substantially
all non-U.S. employees. The Company's contributions to these plans were
approximately $224,000 for the fiscal year ended October 31, 1998.
6. Industry Segment Information
The Company provides a wide range of environmental services to both the
private and government sectors including scientific and engineering
applications from environmental assessment, permitting and remediation through
design and construction to operations and maintenance services. These services
are provided to a variety of different industries including petroleum,
chemical, power, pharmaceutical and others.
In fiscal year ending October 31, 1998, no single customer accounted for
more than 10% of the Company's revenues. Income before income taxes was
$4,750,000 and $600,000 from the Company's domestic and foreign operations,
respectively.
7. Special Charges
In the first quarter of fiscal 1998, the Company took a charge of $406,000
in other expense related to a write off for uncollectible advances made in
prior years to the current owner of the former Fluor Daniel GTI analytical
laboratory business.
In the third quarter of fiscal 1998, the Company recorded, within other
expense, a loss on the sale of its Wichita, Kansas laboratory building of
approximately $500,000 as well as a $206,000 loss on the sale of its Canadian
subsidiary. These losses in other expense were offset by a gain of $199,000 on
the sale of the Company's Australian laboratory assets.
8. Subsequent Events
On December 3, 1998, the Company agreed to be acquired by The IT Group, Inc.
("IT") at a per share price of $8.25. The Company became a wholly-owned
subsidiary of The IT Group, Inc. and changed its name to Groundwater
Technology, Inc.
In connection with the Company's entry into the Acquisition Agreement and by
resolution of the company's Board of Directors, the Company's Stock Option
Plans were amended to immediately vest each non-vested stock option issued
under such plans and to exchange such options for a cash payment equal to $0.10
per share if the exercise price of the option was greater than $8.25 per share
or the difference between $8.25 per share and the respective exercise price of
each option if the exercise price of the option was less than $8.25 per share.
12
<PAGE>
Exhibit(a)(3)
REPORT OF INDEPENDENT ACCOUNTANTS
To ICF Kaiser International, Inc.
We have audited the accompanying statement of assets acquired and
liabilities assumed of the Environment and Facilities Management Group (the EFM
Group) of ICF Kaiser International, Inc. (the Company) as of December 31, 1998,
and the related statement of operating revenue and expenses, for the year then
ended. The Statement of Assets Acquired and Liabilities Assumed and the related
Statement of Operating Revenue and Expenses (the Statements) are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the Statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the Statements. We believe that
our audit provides a reasonable basis for our opinion.
As discussed in Note 1, pursuant to the terms of the Asset Purchase
Agreement dated March 8, 1999, the accompanying Statements have been prepared
solely to present the assets acquired and liabilities assumed of the EFM Group
as of December 31, 1998, and its operating revenue and expenses for the year
then ended, and are not intended to be a complete presentation of the financial
statements of the EFM Group.
In our opinion, the Statement of Assets Acquired and Liabilities Assumed and
the Statement of Operating Revenue and Expenses referred to above present
fairly, in all material respects, the assets acquired and liabilities assumed
of the EFM Group as of December 31, 1998, and its operating revenue and
expenses for the year then ended pursuant to the Asset Purchase Agreement
referred to in Note 1, in conformity with generally accepted accounting
principles.
PricewaterhouseCoopers LLP
McLean, Virginia
March 11, 1999
13
<PAGE>
ENVIRONMENT AND FACILITIES MANAGEMENT GROUP
Statement of Assets Acquired and Liabilities Assumed
(In thousands)
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
Assets Acquired
Fixed Assets
Furniture and equipment........................................... 460
Less accumulated depreciation.................................... (225)
-----
235
Other Assets
Investments in and advances to affiliates......................... 155
-----
Total assets acquired.......................................... 390
Liabilities Assumed
Current Liabilities
Accrued vacation.................................................. 778
-----
Total liabilities assumed...................................... 778
-----
Commitments and Contingencies
Deficit of Assets Acquired
Over Liabilities Assumed.......................................... $(388)
=====
</TABLE>
See notes to the statements
14
<PAGE>
ENVIRONMENT AND FACILITIES MANAGEMENT GROUP
STATEMENT OF OPERATING REVENUE AND EXPENSES
(In thousands)
<TABLE>
<CAPTION>
Year Ended
December 31,
1998
------------
<S> <C>
Gross Revenue
Third parties..................................................... $104,085
Related parties................................................... 1,221
Equity in income of joint ventures................................ 600
--------
105,906
--------
Operating Expenses
Subcontract and direct material costs............................. 53,362
Direct labor and fringe benefits.................................. 26,553
Group overhead.................................................... 18,863
Related parties................................................... 945
Depreciation and amortization..................................... 58
--------
99,781
--------
Operating Income................................................... $ 6,125
========
</TABLE>
See notes to the statements
15
<PAGE>
NOTES TO THE STATEMENTS FOR
THE ENVIRONMENT AND FACILITIES MANAGEMENT GROUP
1. Basis of Presentation
The Environment and Facilities Management Group (the EFM Group) of ICF
Kaiser International, Inc (the Company) performs contracts for the oversight of
major program management and technical support activities for U.S. government
agencies, as well as private-sector environmental clients. Client contracts
generally fall into two categories, either environmental remediation, which
covers the spectrum of environmental consulting, characterization, remediation,
design, and construction or facilities management, which involves engineering,
environmental operations, and architecture.
The EFM Group is not a legal entity and the assets and liabilities
associated with the EFM Group are components of the larger business and other
legal entities of the Company. As a result, while separate financial
information is maintained for the EFM Group's operating revenue and operating
expenses as well as for certain of its asset and liability balances, no
complete set of separate financial statements is prepared or maintained. The
accompanying statements are presented pursuant to the terms of an Asset
Purchase Agreement dated March 8, 1999 between the Company and The IT Group,
Inc. (IT). The statements present the operating revenue and expenses of the EFM
Group for the year ended December 31, 1998, as well as the balances on December
31, 1998 of assets and liabilities that are subject to acquisition. This
information is not intended to be a complete presentation of the financial
statements of the EFM Group.
The accompanying statements have been prepared from the historical
accounting records of the Company and do not purport to reflect the assets and
liabilities or results of operations that would have resulted if the EFM Group
had operated as an unaffiliated independent company. The financial information
presented herein is based on the Company's historical costs and does not give
consideration to the adjustments that may result from acquisition by IT. Since
only certain assets and liabilities are subject to acquisition, a statement of
cash flows for the EFM Group is not applicable.
Certain expenses incurred by the Company, directly on behalf of the EFM
Group have been allocated to the EFM Group on various bases (See Note 8),
which, in the opinion of management, are reasonable. However, such allocated
expenses are not necessarily indicative of the EFM Group results had it been
operated as a separate company. Additionally, it is not practicable for
management to estimate the level of such expenses which might have been
incurred had the EFM Group been operated on a stand-alone basis for the year
ended December 31, 1998.
The accompanying Statement of Operating Revenue and Expenses does not
include allocations of the Company's overhead and general and administrative
expenses, which did not directly benefit the operations of the EFM Group.
Additionally, interest expense and income tax expense were not allocated to the
EFM Group as it is impracticable to arbitrarily allocate such expenses on a
retroactive basis.
2. Summary of Significant Accounting Policies
Principles of Consolidation: The Statement of Assets Acquired and
Liabilities Assumed and Statement of Operating Revenue and Expenses of the
Environment and Facilities Management Group of the Company are comprised of
several wholly-owned legal entities and investments as well as certain selected
assets, liabilities and operations of another of the Company's subsidiaries.
Investments in unconsolidated joint ventures and affiliated companies are
accounted for using the equity method. The difference between the cost of joint
venture investments and the EFM Group's underlying equity is amortized on a
straight-line basis over the estimated lives of the related investments. All
significant intercompany balances and transactions within the EFM Group have
been eliminated.
Use of Estimates: The preparation of these statements requires management to
make estimates and assumptions about the amounts that affect the reported
amounts of assets at the date of the statements and the
16
<PAGE>
NOTES TO THE STATEMENTS FOR
THE ENVIRONMENT AND FACILITIES MANAGEMENT GROUP--(Continued)
reported amounts of operating revenue and expenses during the reporting period.
Actual results may differ from those estimates.
Revenue Recognition: The EFM Group's revenue is derived principally from
long- term contracts of various types. Revenue on time-and-materials contracts
is recognized based on actual hours delivered times the contracted hourly
billing rate, plus the costs incurred for any materials. Revenue on fixed-
priced contracts is recognized using the percentage-of-completion method and is
comprised of the portion of expected total contract earnings represented by
actual costs incurred to date as a percentage of the contract's total estimated
costs at completion. Revenue on cost-reimbursable contracts is recognized to
the extent of costs incurred plus a proportionate amount of the contracted fee.
Certain cost-reimbursable contracts also include provisions for earning
performance-based incentive fees. Such incentive fees are included in revenue
at the time the amounts can be reasonably determined. Provisions for
anticipated contract losses are recognized at the time they become estimable.
Fixed Assets: Furniture and equipment are carried at cost and are
depreciated using the straight-line method over their estimated useful lives,
ranging from three to ten years.
3. Investments in Affiliates
The EFM Group has ownership interests in certain unconsolidated corporate
joint ventures. The EFM Group's net investments in and advances to these
corporate joint ventures totaled $155,000 at December 31, 1998. The ownership
percentages range from 20% to 50%. The EFM Group's share of the joint ventures'
operating results is reflected in the Statement of Operating Revenue and
Expense.
4. Contingencies and Commitments
In the course of the EFM Group's normal business activities:
. various claims or charges may be asserted and litigation commenced
against the EFM Group arising from or related to properties, injuries to
persons, and breaches of contract;
. the EFM Group may from time to time, either individually or in
conjunction with other government contractors operating in similar types
of businesses, be involved in U.S. government investigations for alleged
violations of procurement regulations or other federal laws and
regulations; and lastly, since
. the EFM Group has a substantial number of cost reimbursement contracts
with the U.S. government, the costs to execute such contracts will be
subject to audit by the U.S. government.
Any potential amounts claimed in the future, resulting from the risks
identified above, may not bear any reasonable relationship to the merits of
potential claims, final court awards, or investigation and audit results. No
provision has been included in these financial statements for any final results
that might be rendered against the EFM Group for any claims or matters existing
prior to December 31, 1998, because the Company has retained the risk of such
claims and contingencies.
One of the EFM Group subsidiaries, ICF Kaiser Remediation Company, along
with eleven of the Company's other subsidiaries, is a guarantor of the
Company's senior and subordinated indebtedness. This indebtedness consists of
$15 million and $125 million, respectively, of 12% notes due in 2003. As a
condition precedent to closing the sale transaction with IT (See Note 1), the
Company will need to secure the release of ICF Kaiser Remediation Company as a
guarantor to such indebtedness.
17
<PAGE>
NOTES TO THE STATEMENTS FOR
THE ENVIRONMENT AND FACILITIES MANAGEMENT GROUP--(Continued)
5. Lease Commitments
Future minimum payments on noncancelable operating leases, subject to
acquisition by IT, for office space and equipment with initial or remaining
terms in excess of one year were as follows at December 31, 1998 (in
thousands):
<TABLE>
<S> <C>
1999.................................................................. $4,138
2000.................................................................. 2,548
2001.................................................................. 1,257
2002.................................................................. 350
2003.................................................................. 285
Thereafter............................................................ 320
------
$8,898
======
</TABLE>
The total rent expense, included in Group Overhead in the accompanying
Statement of Operating Revenue and Expenses, for all of the acquired and
nonacquired EFM operating leases was $2,245,000 for the year ended December 31,
1998.
6. Employee Benefit Plans
The EFM Group's employees, meeting minimum length of service requirements,
participate in most of the Company's benefit plans. These plans included a
defined contribution retirement plan that provide for contributions by the
Company based on a percentage of covered compensation and a 401(k) Plan that
allows employees to defer portions of their salary, subject to certain
limitations, and receive a matching component from the Company. The total
expense charged to the EFM Group for these plans was $1,387,000 for the year
ended December 31, 1998.
7. Business Segment and Major Customers
Business Segment: The EFM Group operates predominantly in one industry in
which it oversees major program and technical support contracts for U.S.
government agencies, particularly the U.S. Departments of Energy (DOE) and
Defense (DOD), as well as for private-sector environmental concerns.
Major Customers: All of EFM Group's revenues are derived from customers
within the United States. Gross revenues for the year ended December 31, 1998
from various contracts with the U.S. Department of Energy and U.S. Department
of Defense were $13,049,000 and $61,489,000, respectively.
8. Allocations
The Company allocated costs for certain services provided on behalf of the
EFM Group which are included in the accompanying statements for the EFM Group.
General Services costs: The EFM Group uses office space, telecommunication
services and other office related items that are leased or purchased by the
Company. The Company allocates these costs ("location allocation") back to the
EFM Group based on dedicated square feet occupied by the EFM Group. Rent
expense, net of sublease income, allocated to the EFM Group totaled $2,011,000
for the year ended December 31, 1998. Additionally, the Company allocated the
EFM Group (as part of the "location allocation") other facility related
expenses such as, utilities, property taxes, furniture and office equipment
expense, telecommunications costs, office supplies, purchasing and facilities
management. The allocation basis for these other facility related costs is also
based on dedicated square feet occupied by the EFM Group. These other
18
<PAGE>
NOTES TO THE STATEMENTS FOR
THE ENVIRONMENT AND FACILITIES MANAGEMENT GROUP--(Continued)
facility related costs allocated to the EFM Group totaled $2,391,000 for the
year ended December 31, 1998. Lastly, the EFM Group used computers that were
leased by the Company and derived computing and network management services
from the Company. The costs allocated to the EFM Group, based on direct usage
of leased computer equipment, for the technology services totaled $1,239,000
for the year ended December 31, 1998. All of these allocated costs are included
in Group Overhead in the Statement of Operating Revenue and Expenses.
Depreciation expense: The EFM Group shares in certain fixed assets
maintained by the Company, primarily capitalized software costs and software
licenses. The Company allocated $58,000 in depreciation and amortization
expense related to the use of such assets during the year ended December 31,
1998.
In the opinion of management, these allocations of operating expenses were
made on a reasonable basis. However, such expenses are not necessarily
indicative of the level of expenses which might have been incurred had the EFM
Group been operated as a separate company.
19
<PAGE>
Exhibit(a)(4)
AUDITORS' REPORT
To the Directors of Roche ltee, Groupe conseil
We have audited the consolidated balance sheets of ROCHE LTEE, GROUPE
CONSEIL as at December 31, 1998, 1997 and 1996 and the consolidated statements
of operations, stockholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards in Canada. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the corporation as at December
31, 1998, 1997 and 1996 and the results of its operations and the changes in
its financial position for the years then ended in accordance with generally
accepted accounting principles as set out in note 2 to the financial
statements.
On February 22, 1999, we reported separately to the stockholders of Roche
ltee, Groupe conseil on the same consolidated financial statements for the 1998
and 1997 periods (March 14, 1997 for 1996), prepared in accordance with
generally accepted accounting principles in Canada.
Mallette Maheu
General Partnership
Chartered Accountants
Quebec City, Canada
February 22, 1999
20
<PAGE>
ROCHE LTEE, GROUPE CONSEIL
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
(in thousands of US dollars)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments......... $ 587 $ 905 $ 721
Accounts receivable (note 5)............ 6,783 8,891 11,018
Income taxes receivable (note 3)........ 1,182 1,021 1,958
Contracts in process.................... 3,682 5,050 6,375
Prepaid expenses........................ 398 761 336
Future income taxes..................... -- 208 159
--------- --------- ---------
12,632 16,836 20,567
INVESTMENTS (note 6)...................... 3,175 4,190 4,435
FIXED ASSETS (note 7)..................... 1,805 2,150 2,442
FUTURE INCOME TAXES....................... 907 -- --
GOODWILL.................................. 43 56 176
--------- --------- ---------
$18,562 $23,232 $27,620
========= ========= =========
LIABILITIES
CURRENT LIABILITIES
Bank loan (note 8)...................... $ 887 $ 734 $ 1,503
Accounts payable (note 9)............... 11,143 12,619 12,949
Current portion of long-term debt (note
10).................................... 114 119 214
Deferred revenues....................... 1,690 1,185 1,801
Future income taxes..................... 110 -- --
--------- --------- ---------
13,944 14,657 16,467
LONG-TERM DEBT (note 10).................. 599 730 736
FUTURE INCOME TAXES....................... -- 21 --
MINORITY INTEREST......................... 65 12 77
--------- --------- ---------
14,608 15,420 17,280
--------- --------- ---------
STOCKHOLDERS' EQUITY
Capital stock (note 11)................. 7 7 7
Retained earnings....................... 4,772 8,220 10,385
Exchange adjustments.................... (825) (415) (52)
--------- --------- ---------
3,954 7,812 10,340
--------- --------- ---------
$18,562 $23,232 $27,620
========= ========= =========
COMMITMENTS AND CONTINGENCIES (note 13)
</TABLE>
21
<PAGE>
ROCHE LTEE, GROUPE CONSEIL
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
(in thousands of US dollars)
<S> <C> <C> <C>
GROSS REVENUES............................ $ 28,250 $ 49,829 $ 44,488
DIRECTS COSTS (schedule A)................ 16,925 36,082 30,593
--------- --------- ---------
GROSS PROFIT.............................. 11,325 13,747 13,895
--------- --------- ---------
OTHER OPERATING EXPENSES
Selling (schedule B).................... 1,823 1,855 2,042
Administrative (schedule C)............. 9,738 11,379 12,173
--------- --------- ---------
11,561 13,234 14,215
--------- --------- ---------
INCOME (LOSS) FROM OPERATIONS............. (236) 513 (320)
FINANCIAL EXPENSES (schedule D)........... 271 323 197
OTHER EXPENSES (schedule E)............... 4,575 2,737 1,331
--------- --------- ---------
LOSS BEFORE INCOME TAXES AND MINORITY
INTEREST................................. (5,082) (2,547) (1,848)
--------- --------- ---------
INCOME TAXES
Recoverable............................. (989) (423) (1,315)
Future.................................. (660) 42 743
--------- --------- ---------
(1,649) (381) (572)
--------- --------- ---------
LOSS BEFORE SHARE OF MINORITY INTEREST.... (3,433) (2,166) (1,276)
MINORITY INTEREST......................... (15) 1 1
--------- --------- ---------
NET LOSS.................................. $ (3,448) $ (2,165) $ (1,275)
========= ========= =========
</TABLE>
22
<PAGE>
ROCHE LTEE, GROUPE CONSEIL
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years ended December 31, 1998, 1997 and 1996
------------------------------------------------------
Capital Retained Exchange
stock earnings adjustments Total
---------- ------------ --------------- ------------
(in thousands of US dollars)
<S> <C> <C> <C> <C>
BALANCE RESTATED AT
DECEMBER 31, 1995...... $ 7 $ 13,056 $ -- $ 13,063
Net loss.............. -- (1,275) -- (1,275)
Exchange adjustments.. -- -- (52) (52)
Dividends............. -- (1,396) -- (1,396)
-------- ------------ ----------- ------------
BALANCE AT DECEMBER 31,
1996................... 7 10,385 (52) 10,340
Net loss.............. -- (2,165) -- (2,165)
Exchange adjustments.. -- -- (363) (363)
-------- ------------ ----------- ------------
BALANCE AT DECEMBER 31,
1997................... 7 8,220 (415) 7,812
Net loss.............. -- (3,448) -- (3,448)
Exchange adjustments.. -- -- (410) (410)
-------- ------------ ----------- ------------
BALANCE AT DECEMBER 31,
1998................... $ 7 $ 4,772 $ (825) $ 3,954
======== ============ =========== ============
</TABLE>
23
<PAGE>
ROCHE LTEE, GROUPE CONSEIL
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
(in thousands of US dollars)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................ $ (3,448) $ (2,165) $ (1,275)
Operating items not involving cash (note
12).................................... 276 1,980 4,092
--------- --------- ---------
(3,172) (185) 2,817
Changes in non-cash operating working
capital items (note 12)................ 2,707 1,419 (6,737)
--------- --------- ---------
(465) 1,234 (3,920)
--------- --------- ---------
FINANCING ACTIVITIES
Short-term financing.................... 153 (769) 1,503
Long-term financing..................... 53 169 461
Repayment of long-term debt............. (132) (230) (796)
Redemption of non-controlling
stockholders........................... -- (62) --
Excluded net assets under the S.P.A..... 30 (38) 144
--------- --------- ---------
104 (930) 1,312
--------- --------- ---------
INVESTING ACTIVITIES
Acquisition of fixed assets............. (207) (322) (271)
Proceeds from disposal of fixed assets.. 73 39 55
Short-term investments.................. (82) 620 2,726
Acquisition of investments.............. (492) (1,148) (402)
Proceeds from investments............... 669 1,311 225
--------- --------- ---------
(39) 500 2,333
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.............................. (400) 804 (275)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR..................................... 905 101 376
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.. $ 505 $ 905 $ 101
========= ========= =========
Cash and cash equivalents consist of:
Cash...................................... $385 $904 $101
Term deposits............................. 297 1 --
Bank overdraft............................ (177) -- --
--------- --------- ---------
$ 505 $ 905 $ 101
========= ========= =========
</TABLE>
24
<PAGE>
ROCHE LTEE, GROUPE CONSEIL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Statutes of Incorporation and Nature of Activities
The corporation, incorporated under the Canada Business Corporations Act, is
a wholly-owned subsidiary of Corporoche Canada Inc.
It is an integrated multidisciplinary firm that offers through its
subsidiaries services of studies, engineering and construction, projects'
management and supplying. These professional services cover most of the
specialties of engineering and many related activities of applied sciences.
2. Adjustments to United States Generally Accepted Accounting Principles
The consolidated financial statements of the corporation have been prepared
in accordance with generally accepted accounting principles in Canada (Canadian
GAAP) and adjusted to conform to generally accepted accounting principles in
the United States of America (US GAAP). The herein consolidated financial
statements are identical to those prepared in accordance with Canadian GAAP and
addressed to the corporation's stockholders on February 22, 1999, with the
exception of these changes:
. The herein consolidated financial statements were translated in United
States of America dollars using the current rate method. Under this
method, the assets and liabilities are translated at the rate of
exchange in effect at year- end and the earnings at average year rate.
The adjustments resulting from the exchange rate fluctuations are
accounted for in the "Exchange adjustments" account in the stockholders'
equity section.
. The investments in limited partnerships, joint ventures and real estate
venture are accounted for using the equity method instead of the
proportionate consolidation method that is used to prepare the financial
statements in accordance with Canadian GAAP. Notes 4 and 15, that
presents information about the consolidation policies and the effect of
the use of the proportionate consolidation under Canadian GAAP, have
been adjusted to present the information required under US GAAP about
the consolidated subsidiaries and the investments accounted for using
the equity method.
. The consolidated statements of retained earnings presented under
Canadian GAAP have been replaced, to conform to US GAAP, with the
consolidated statements of stockholders' equity that presents the
variation of all the stockholders' equity accounts.
The corporation's management considers that any other differences between
Canadian GAAP and US GAAP do not have a material impact on the herein
consolidated financial statements and has determined that no other adjustment
was necessary.
3. Important Subsequent Event
On February 5, 1999, the shareholders of Corporoche Canada inc. (hereafter
the "share vendors"), the parent corporation of Roche ltee, Groupe conseil, IT
Holdings Canada Inc. and The IT Group Inc., a public corporation in the United
States of America, signed a share purchase agreement (S.P.A.) committing the
share vendors to realize a corporate reorganization that will allow certain
assets, as described in the next paragraph, to be excluded from the
transaction. Following the reorganisation, the share vendors will dispose of
all shares of Roche ltee, Groupe conseil that they will then own.
The assets of Roche ltee, Groupe conseil excluded from the transaction under
the S.P.A. will be transferred, prior to the transaction, to a new corporation
to be owned by the share vendors. The investments of Roche ltee, Groupe conseil
in Solutions technologiques internationales STI inc., in Societe immobiliere
Metroplan, societe en commandite, in 2758-3525 Quebec inc. and in 174878 Canada
inc. and the related future
25
<PAGE>
ROCHE LTEE, GROUPE CONSEIL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
income taxes have been aggregated and reclassified in Investments as "Excluded
net assets under the S.P.A.". In addition, the long-term debt payable to the
limited partners of Societe immobiliere Metroplan, societe en commandite has
been reclassified with the Excluded net assets under the S.P.A. as this debt
will be transferred to the new corporation. Finally, as the pension plan has
been terminated prior to the transaction, the deferred pension costs and the
related future income taxes have been reclassified as Excluded net assets under
the S.P.A.
A portion of the initial payment of the purchase price, that shall be
received no later than March 31, 1999, will be allocated to the settlement of
the engagements related to the RBW Group joint venture, as set out in note 13,
which will improve the corporation's working capital by an amount of
approximately $5,200,000.
The corporation has accounted for a tax benefit related to the RBW Group
project. This tax benefit of $1,174,000, is reserved to redeem a part of
Corporoche Canada inc. share capital.
To conclude the transaction, two conditions still have to be met: i)
shareholders of Corporoche Canada inc. shall unanimously agree to dispose of
their shares; ii) the corporation shall conduct its business in the ordinary
course and in a manner consistent with past practices. In corporation's
management opinion, these conditions will be respected and the transaction will
be concluded.
4. Significant Accounting Policies
Basis of consolidation
The consolidated financial statements include the accounts of the
corporation and its wholly-owned and majority-owned subsidiaries. The
corporation use the equity method to account for investments in corporations
subject to significant influence, limited partnerships, joint ventures and a
real estate venture. All significant intercompany balances and transactions are
eliminated in consolidation and in measuring the investments accounted for
using the equity method and the related earnings. Other investments are
accounted for at cost.
The consolidated subsidiaries are as follows:
. A.C.T. International inc. 80.0%
. CFCL Roche inc. 100.0%
. Evimbec ltee 97.5%
(and its subsidiaries, Evaluation J.M. Fournier inc., 100.0%
and Chevalier Hughes & Ass. (1992) inc., 100.0%)
. Impressions Integrales inc. 100.0%
. Les Consultants en environnement Argus 2000 inc. 100.0%
. Roche Construction inc. 100.0%
. Roche Gestion services publics inc. 70.0%
. Roche International inc. 100.0%
. Rosaire Despres et associes inc. 100.0%
(and its subsidiary, Groupe-conseil Forchemex inc., 70.0%)
. Soderoc Developpement ltee 100.0%
The investments accounted for using the equity method are as follows:
Corporations subject to significant influence
. Consortium BPA/Roche inc. 50.0%
. Consortium GLD-Roche inc. 50.0%
26
<PAGE>
ROCHE LTEE, GROUPE CONSEIL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
. Consultants BPR/Roche inc. 50.0%
. Groupe-conseil TDA inc. 36.4%
. Poly-Energie inc. 50.0%
. Nouvelle technologie (Tekno) inc. 33.3%
. LID Experts Conseil (2000) inc. 50.0%
. Les Consultants Roche/Deluc ltee 50.0%
. 2644-0958 Quebec inc. (Energie Conseil inc.) 50.0%
. Groupe-conseil Saguenay inc. 29.8%
. Ressau Groupe conseil inc. 50.0%
. Canora Brunei Environnement Ltd 36.7%
. Pluritec ltee 50.0%
. Plaveco Gerance ltee 40.0%
Limited partnership
. Place du Commerce 50.0%
Joint ventures
. Consortium Burmex/Regie/Roche 43.0%
. Consortium Dmitrov 30.0%
. Consortium DPA/Roche 50.0%
. Consortium Dupont-Desmeules/Roche 48.0%
. Consortium PCRB 24.0%
. Consortium Roche/BPR 50.0%
. Consortium Roche/BPR (Saint-Raymond) 60.0%
. Consortium Roche/BPR (SEBJ) 60.0%
. Consortium Roche/BPR/Solivar 42.0%
. Consortium Roche/Cegir II 50.0%
. Consortium Roche/Deloitte/Sirtec 25.0%
. Consortium Roche/Lavalin 50.0%
. Consortium Roche/Uma/Intelec 80.0%
. Consortium Tecsult/Roche 50.0%
. Consortium Vaughan/Roche/EVS 42.5%
. RBW Group 50.0%
. RTCS Group 50.0%
. Societe Sert/Roche (Burkina) 80.0%
Real estate venture
. Megacentre Laurentien 5.0%
Use of estimates
The preparation of consolidated financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingencies at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
27
<PAGE>
ROCHE LTEE, GROUPE CONSEIL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Contract accounting and contracts in process
The corporation performs its services under time-and-material and cost-
reimbursement, fixed-price and unit-bid contracts. Revenues from time-and-
material and cost-reimbursement contracts are recognized as costs are incurred.
Revenues from fixed-price and unit-bid contracts are recognized under the
percentage of completion method, computed using the ratio of total costs
incurred to date to total estimated costs at completion. When a terminal loss
on a contract is anticipated, the total estimated amount of loss is accounted
for as an expense of the period.
Contracts in process typically represents amounts earned under the
corporation's contracts but not billable according to the contracts terms,
which usually consider the passage of time, achievement of certain milestones
or completion of the projects. Contracts in process is valued at lesser of
invoiced value or net realizable value and are expected to be billed and
collected in the subsequent reporting year.
Fixed assets
Fixed assets are accounted for at cost.
Depreciation is based on their estimated useful lives using the following
methods and rates:
<TABLE>
<CAPTION>
Methods Rates
----------------- --------------
<S> <C> <C>
Buildings Declining balance 4%
Straight-line 2.5%
Furniture, tools and equipment Declining balance 15% and 20%
Computer hardware Declining balance 30%
Computer software Straight-line 25% and 33.33%
Leasehold improvements Straight-line 10%
Vehicles Declining balance 30%
</TABLE>
Goodwill
Goodwill is valued at cost and amortized over its estimated useful life
using the straight-line method over terms not exceeding ten years.
Income taxes
Income taxes are accounted for using the future income taxes method. Under
this method, future income taxes are recognized whenever recovery or settlement
of the carrying amount of an asset or liability would result in future income
tax outflow or reduction.
Cash and cash equivalents
Cash and cash equivalents include cash, bank overdraft representing
outstanding cheques and highly liquid financial instruments with an original
maturity of three months or less.
5. Accounts Receivable
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ----------
(in thousands of US dollars)
<S> <C> <C> <C>
Trade......................................... $4,084 $5,916 $ 7,001
Affiliates.................................... 2,298 2,000 3,507
Retainage..................................... 254 294 341
Other......................................... 147 681 169
--------- --------- ----------
$6,783 $8,891 $11,018
========= ========= ==========
</TABLE>
28
<PAGE>
ROCHE LTEE, GROUPE CONSEIL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Investments
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(in thousands of US dollars)
<S> <C> <C> <C>
Excluded net assets under the S.P.A.......... $ 504 $ 1,119 $ 787
Corporations subject to significant
influence................................... 1,520 1,807 2,120
Limited partnerships......................... 303 382 414
Joint ventures............................... 198 192 582
Real estate venture.......................... 370 390 403
Shares of private corporations............... 194 208 33
Other........................................ 86 92 96
--------- --------- ---------
$3,175 $4,190 $4,435
========= ========= =========
</TABLE>
7. Fixed Assets
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- ------ ------
Accumulated Net Net Net
Cost depreciation value value value
------ ------------ ------ ------ ------
(in thousands of US dollars)
<S> <C> <C> <C> <C> <C>
Land............................... $ 151 $ -- $ 151 $ 162 $ 140
Buildings.......................... 743 150 593 662 631
Furniture, tools and equipment..... 2,150 1,654 496 556 786
Computer........................... 1,650 1,430 220 292 316
Leasehold improvements............. 1,050 715 335 473 558
Vehicles........................... 15 5 10 5 11
------ ------ ------ ------ ------
$5,759 $3,954 $1,805 $2,150 $2,442
====== ====== ====== ====== ======
</TABLE>
Maintenance and repairs are expensed as incurred.
8. Bank Loan
The bank loan at December 31, 1998, authorized for an amount of $5,283,000
at the prime rate plus 1/2%, is secured by a mortgage without depossession on
receivables and a mortgage of $13,239,000 on non-pledged present and future
assets.
Under the terms of its bank loan agreement, the corporation must satisfy
certain covenants as to certain minimum financial ratios and must also satisfy
certain conditions prior to the payment of dividends.
At December 31, 1998, the corporation does not meet all of these
obligations.
9. Accounts Payable
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(in thousands of US dollars)
<S> <C> <C> <C>
Trade......................................... $ 2,956 $ 4,305 $ 7,382
Affiliates.................................... 5,719 4,547 2,438
Retainage..................................... 52 832 771
Salaries and accrued vacation................. 1,528 1,351 1,460
Withholding taxes, taxes and contributions.... 608 654 716
Clients' deposits............................. 280 930 182
--------- --------- ---------
$11,143 $12,619 $12,949
========= ========= =========
</TABLE>
29
<PAGE>
ROCHE LTEE, GROUPE CONSEIL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Long-Term Debt
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(in thousands of US dollars)
<S> <C> <C> <C>
Loans secured by mortgages on land and
buildings at rates ranging from 6.5% to 8.0%,
maturing from 2009 to 2016................... $588 $653 $637
Other loans, variable rates, maturing from
1997 to 2001................................. 125 196 313
--------- --------- ---------
713 849 950
Current portion............................... 114 119 214
--------- --------- ---------
$599 $730 $736
========= ========= =========
</TABLE>
Long-term debt principal repayments to be made during the next five years
are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999--$114,000 2002--$32,000
2000--$61,000 2003--$32,000
2001--$28,000
</TABLE>
11. Capital Stock
Authorized
Unlimited number of Class A voting, participating shares, without par
value
Unlimited number of Classes B, D and E shares, without par value,
preferential non-cumulative fixed trimestrial dividend of 2%, redeemable at
the price paid
Unlimited number of Class C shares, without par value, preferential non-
cumulative fixed trimestrial dividend of 2%, redeemable at the price paid
plus a premium determined at issue date
Unlimited number of Class F shares, without par value, giving right to a
dividend from the capital dividend account of life insurance policies,
redeemable at the price paid
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(in thousands of US dollars)
<S> <C> <C> <C>
Issued
9,290 Class A shares...................... $7 $7 $7
========= ========= =========
</TABLE>
30
<PAGE>
ROCHE LTEE, GROUPE CONSEIL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. Additional Information to the Statements of Cash Flows
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ----------
(in thousands of US dollars)
<S> <C> <C> <C>
Items not involving cash
Depreciation............................... $ 386 $ 460 $ 549
Future income taxes........................ (660) 42 743
Loss (gain) on disposal of fixed assets.... (22) 53 13
Loss (gain) on sale of investments......... 42 (194) --
Share of net earnings and losses of joint
ventures.................................. 81 2,119 3,467
Share of net earnings of limited
partnerships.............................. (46) (34) --
Share of net earnings of corporations
subject to significant influence.......... 21 (55) (150)
Minority interest.......................... 15 (1) (1)
Share of net earnings of real estate
venture................................... (29) (30) (10)
Loss (revenue) from the excluded net assets
under the S.P.A........................... 526 (83) (121)
Exchange adjustements...................... (38) (297) (398)
--------- --------- ----------
$ 276 $ 1,980 $ 4,092
========= ========= ==========
Changes in non-cash working capital items
Accounts receivable........................ $ 2,108 $2,127 $ (288)
Contracts in process....................... 1,368 1,325 (793)
Prepaid expenses........................... 363 (425) (67)
Accounts payable........................... (1,476) (1,929) (2,692)
Deferred revenues.......................... 505 (616) (39)
Income taxes receivable.................... (161) 937 (2,858)
--------- --------- ----------
$ 2,707 $1,419 $(6,737)
========= ========= ==========
</TABLE>
31
<PAGE>
ROCHE LTEE, GROUPE CONSEIL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
13. Commitments and Contingencies
Leases
The corporation has lease commitments for terms originally ranging from two
to ten years. Total minimum rent payable is $9,770,000. At December 31, 1998,
the value of these commitments is $2,457,000 and minimum payments payable over
the next three years are as follows:
<TABLE>
<S> <C> <C>
1999 -- $1,107,000
2000 -- $ 986,000
2001 -- $ 364,000
</TABLE>
Letters of surety and bonds
At December 31, 1998 the corporation has signed letters of surety amounting
to $1,353,000 in favor of organizations working in foreign countries. The
maturing dates range from 1999 to 2002.
RBW Group settlement
During the year ended December 31, 1998, the joint venture RBW Group, in
which the corporation was a 50% venturer, reached final agreements with its
client and major sub-contractors and vendors. The effects of those agreements
as well as all the other costs related to the completion of the joint venture
project are considered in the herein financial statements. The 1998 statement
of operations includes the corporation's share of the loss incurred by RBW
Group of approximately $4,218,000, including a bad debt expense of
approximately $2,448,000 on accounts receivable from RBW Group (1997--
$3,128,000, including bad debts for $962,000; 1996--$2,682,000 including bad
debts for $378,000). The corporations earnings also include direct and overhead
costs associated to the RBW Group project.
In February 1999, the venturers' insurance companies paid an amount of $
6,500,000, to a creditor of RBW Group to settle this sub-contractor's claims
against the corporation and the joint venture. An amount of $4,900,000 shall be
reimbursed by the corporation, no later than March 31, 1999 with the cash to be
injected by the purchaser of Roche ltee, Groupe conseil as discussed in note 3,
in accordance with the S.P.A. terms and the promissory notes issued by the
purchaser. This amount is included in the provision recorded as at December 31,
1998. The corporation has no further obligations with regards to the other
$1,600,000 paid by one of the insurers.
In the event that the corporation is unable to reimburse the $4,900,000 to
the insurance companies on March 31, 1999, the terms and conditions of the
repayment will have to be negotiated between the corporation's management and
the insurance companies.
Under the S.P.A., any liabilities arising from the RBW Group joint venture
that may have not been sufficiently provisioned for as at December 31, 1998
will be supported by the share vendors.
32
<PAGE>
ROCHE LTEE, GROUPE CONSEIL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
14. Related Party Transactions
During the year, the corporation has concluded the following transactions
with affiliated corporations. The transactions with these affiliates are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(in thousands of US dollars)
<S> <C> <C> <C>
Gross revenues
Professional services........................... $1,762 $4,577 $3,529
Administrative expenses
Professional fees............................... 1,216 1,538 1,585
</TABLE>
These transactions are carried in the ordinary course of business and are
measured at the exchange amount.
15. Information About Investments Accounted for Using the Equity Method
The corporation has an important investment in the joint venture RBW Group,
accounted for using the equity method. Summarized financial information about
the financial statements of this investment is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ---------
(in thousands of US dollars)
<S> <C> <C> <C>
RBW Group
Assets, all of which are current............... $ 1,647 $ 5,719 $ 8,721
Liabilities, all of which are current.......... 6,834 14,057 12,457
Revenues....................................... -- 5,623 85,737
Expenses....................................... 1,771 9,954 89,150
Net loss....................................... 1,771 4,331 4,013
</TABLE>
The corporation has a 50% interest in this joint venture but has accounted
for more than its share of the losses as the other venturer was not able to
bear its share.
16. Uncertainty Due to the Year 2000 Issue
Most entities depend on computerized systems and therefore are exposed to
the Year 2000 conversion risk, which, if not properly addressed, could affect
an entity's ability to conduct normal business operations. Management is
addressing this issue, however, given the nature of this risk, it is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
corporation and those with whom it deals such as clients, suppliers or other
third parties, will be fully resolved without adverse impact on the
corporation's operation.
17. Comparative Figures
Certain comparative figures have been reclassified to conform with the
presentation used in the current year.
33
<PAGE>
ROCHE LTEE, GROUPE CONSEIL
SCHEDULES A AND B--OTHER INFORMATION
December 31, 1998, 1997 and 1996
A. Direct Costs
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
(in thousands of US dollars)
<S> <C> <C> <C>
Direct salaries and fringe benefits......... $ 8,108 $ 9,708 $ 10,781
Costs of subcontractors..................... 466 16,014 11,134
Insurance................................... 73 105 117
Equipment expenses.......................... 245 334 209
Professional fees........................... 3,945 4,548 3,988
Telecommunications.......................... 313 452 286
Traveling expenses.......................... 2,555 3,407 2,609
Printing.................................... 423 473 479
Rent--building sites........................ 46 22 40
Products and supplies....................... 751 1,019 950
--------- --------- ---------
$ 16,925 $ 36,082 $ 30,593
========= ========= =========
B. Selling Expenses
<CAPTION>
Years ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
(in thousands of US dollars)
<S> <C> <C> <C>
Indirect salaries--proposals................ $ 705 $ 796 $ 767
Disbursements--proposals.................... 290 270 286
--------- --------- ---------
995 1,066 1,053
Cost of proposals recovered................. (46) (85) (9)
--------- --------- ---------
949 981 1,044
Salaries--business development.............. 628 618 722
Promotion................................... 246 256 276
--------- --------- ---------
$ 1,823 $ 1,855 $ 2,042
========= ========= =========
</TABLE>
34
<PAGE>
ROCHE LTEE, GROUPE CONSEIL
SCHEDULES C AND D--OTHER INFORMATION
December 31, 1998, 1997 and 1996
C. Administrative Expenses
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
1998 1997 1996
--------- --------- ---------
(in thousands of US dollars)
<S> <C> <C> <C>
Indirect salaries............................ $ 4,191 $ 4,320 $ 4,414
Fringe benefits.............................. 1,854 2,388 2,436
Insurance.................................... 235 338 324
Bad debts.................................... 201 359 833
Equipment expenses........................... 307 428 479
Communication and freight expenses........... 197 285 275
Traveling expenses........................... 430 561 593
Audit and legal fees......................... 173 194 222
Printing..................................... 8 10 7
Office rent and business taxes............... 1,245 1,411 1,479
Stationery and office expenses............... 295 374 346
Products and supplies........................ 23 34 23
Advertising.................................. 30 41 40
Property taxes............................... 52 43 31
Capital taxes................................ 111 133 122
Depreciation................................. 386 460 549
-------- --------- ---------
$ 9,738 $ 11,379 $ 12,173
======== ========= =========
D. Financial Expenses
<CAPTION>
Years ended December 31,
------------------------------
1998 1997 1996
--------- --------- ---------
(in thousands of US dollars)
<S> <C> <C> <C>
Interest and bank charges.................... $ 187 $ 254 $ 77
Interest on long-term debt................... 91 99 132
Interest income.............................. (7) (30) (12)
-------- --------- ---------
$ 271 $ 323 $ 197
======== ========= =========
</TABLE>
35
<PAGE>
ROCHE LTEE, GROUPE CONSEIL
SCHEDULE E--OTHER INFORMATION
December 31, 1998, 1997 and 1996
E. Other Expenses (Revenues)
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
(in thousands of US dollars)
<S> <C> <C> <C>
Share of net earnings and losses of joint
ventures (note 13)....................... $ 4,083 $ 3,080 $ 1,599
Share of net earnings of limited
partnerships............................. (46) (34) --
Share of net earnings of corporations
subject to significant influence......... 21 (55) (150)
Share of net earnings of real estate
venture.................................. (29) (30) (10)
Loss (revenue) from the excluded net
assets under the S.P.A................... 526 (83) (121)
Loss (gain) on sale of investments........ 42 (194) --
Loss (gain) on disposal of fixed assets... (22) 53 13
--------- --------- ---------
$ 4,575 $ 2,737 $ 1,331
========= ========= =========
</TABLE>
36
<PAGE>
Exhibit(b)(1)
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data is derived
from the historical consolidated financial statements of the IT Group, the
consolidated financial statements of OHM, the consolidated financial statements
of GTI, the statement of assets acquired and liabilities assumed and the
statement of operating revenue and expenses of EFM and the consolidated
financial statements of Roche.
The unaudited pro forma consolidated statement of operations for the twelve
months ended December 25, 1998 and the unaudited pro forma consolidated balance
sheet as of December 25, 1998 are adjusted to give effect to this Offering and
the application of its net proceeds, and the acquisitions of OHM, GTI, EFM and
Roche as if such transactions had occurred as of December 27, 1997 with respect
to the unaudited pro forma consolidated statement of operations, and December
25, 1998 with respect to the unaudited pro forma consolidated balance sheet.
The unaudited pro forma adjustments are based upon available information and
certain assumptions which we believe are factually supportable. The unaudited
pro forma consolidated financial data does not purport to represent what our
consolidated results of operations or consolidated financial position would
have been had the transactions described above actually occurred at the
beginning of the relevant period. In addition, the unaudited pro forma
consolidated financial data does not purport to project our consolidated
results of operations or consolidated financial position for the current year
or any future date or period.
The unaudited pro forma consolidated financial data should be read in
conjunction with the consolidated financial statements of the IT Group, OHM,
GTI and Roche, and the statement of assets acquired and liabilities assumed and
the statement of operating revenue and expenses of EFM, and the related notes
included in this Offering Memorandum.
37
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
December 25, 1998
(In thousands)
<TABLE>
<CAPTION>
IT Group EFM Roche Acquisition
December 25, December 31, December 31, and Offering
1998 1998 1998 Adjustments Pro Forma
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents........... $ 21,265 $ -- $ 587 $ -- $ 21,852
Accounts receivable.... 338,589 -- 6,783 -- 345,372
Prepaid expenses and
other current assets.. 17,308 -- 5,262 (1,182)(a) 21,388
Deferred income taxes.. 15,919 -- -- -- 15,919
-------- ----- ------- --------- ----------
Total current assets.... 393,081 -- 12,632 (1,182) 404,531
Net property, plant, and
equipment.............. 47,670 235 1,805 -- 49,710
Intangible assets, net.. 356,619 -- 43 83,057(a) 439,719
Deferred income taxes... 93,719 -- 907 630(a) 95,256
Other assets............ 17,469 155 3,175 (504)(a) 28,795
8,500(b)
Long-term assets of
discontinued
operations............. 40,048 -- -- -- 40,048
-------- ----- ------- --------- ----------
Total assets............ $948,606 $ 390 $18,562 $ 90,501 $1,058,059
======== ===== ======= ========= ==========
Liabilities and
Stockholders' Equity
Current liabilities:
Accounts payable....... $150,912 $ -- $11,143 $ (5,083)(a) $ 156,972
Accrued liabilities.... 88,183 778 110 750(a) 94,321
4,500(a)
Billings in excess of
revenues.............. 8,219 -- 1,690 -- 9,909
Short-term debt,
including current
portion of
long-term debt........ 17,603 -- 1,001 -- 18,604
Net current liabilities
of discontinued
operations............ 7,904 -- -- -- 7,904
-------- ----- ------- --------- ----------
Total current
liabilities............ 272,821 778 13,944 167 287,710
Long-term debt.......... 364,824 -- 599 (106,100)(b) 259,323
Senior subordinated
notes.................. -- -- -- 200,000(b) 200,000
8% convertible
subordinated
debentures............. 40,235 -- -- -- 40,235
Other long-term accrued
liabilities............ 31,979 -- -- -- 31,979
Minority interest....... 579 -- 65 -- 644
Commitments and
contingencies.......... -- -- -- -- --
Stockholders' equity
(deficit).............. 238,168 (388) 3,954 (3,566)(c) 238,168
-------- ----- ------- --------- ----------
Total liabilities and
stockholders' equity... $948,606 $ 390 $18,562 $ 90,501 $1,058,059
======== ===== ======= ========= ==========
</TABLE>
See notes to unaudited pro forma consolidated balance sheet.
38
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
December 25, 1998
(a)--The estimated net purchase price and preliminary adjustments to
historical book value of EFM and Roche as a result of the acquisition together
with the financing and offer are as follows (in thousands):
<TABLE>
<CAPTION>
EFM Roche Total
<S> <C> <C> <C>
Purchase price:
Estimated cash consideration........................ $74,000 $10,000 $84,000
Transaction costs................................... 1,050 350 1,400
Book value (deficit) of net assets of businesses
acquired........................................... (388) 3,954 3,566
------- ------- -------
$75,438 $ 6,396 $81,834
======= ======= =======
</TABLE>
We will acquire EFM for $82.0 million in cash, reduced by $8.0 million
representing working capital retained by ICF Kaiser.
Preliminary allocation of purchase price in excess of net assets acquired (in
thousands):
<TABLE>
<CAPTION>
EFM Roche Total
<S> <C> <C> <C>
Prepaid and other current assets.................. $ -- $(1,182)* $(1,182)
Other assets...................................... -- (504)* (504)
Accounts Payable.................................. -- 5,083** 5,083
Increase in deferred tax assets related to
acquired assets and liabilities having new
basis............................................ 630 -- 630
Accrued liabilities, including claims and legal
costs............................................ (750) -- (750)
Accrued liabilities, including severance ($2.0
million) and lease termination cost ($2.5
million) recognized in accordance with
EITF 95-3........................................ (4,500) -- (4,500)
Estimated adjustment for costs in excess of net
assets of acquired business...................... 80,058 2,999 83,057
------- ------- -------
$75,438 $ 6,396 $81,834
======= ======= =======
</TABLE>
- --------
* We did not acquire these assets from Roche.
** These liabilities are included in the initial payment of $10.0 million
to Roche.
The unaudited pro forma consolidated balance sheet includes an estimated
accrued liability of $4.5 million for severance and lease termination for the
EFM acquisition. The transition plans will be finalized, approved, and
communicated as soon as practical. There are no known significant unresolved
liabilities anticipated by us in the transition plan.
Because EFM and Roche both operate within the same industry as we do, we do
not believe that identifiable intangibles, other than residual goodwill, will
be acquired in the transactions.
(b)--Represents the issuance of senior subordinated notes offered hereby as
follows (in thousands):
<TABLE>
<S> <C>
Senior subordinated notes offered................................ $200,000
Capitalized debt issue costs, including initial purchasers'
discount........................................................ (8,500)
Portion used in the EFM and Roche acquisitions................... (85,400)
--------
Represents amount of paydown on revolving credit facility........ $106,100
========
</TABLE>
(c)--Represents elimination of owners equity of EFM and Roche.
39
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS AND OTHER DATA
Twelve Months ended December 25, 1998
(In thousands, except ratios)
<TABLE>
<CAPTION>
IT Group IT Group OHM GTI
Nine months Three months Two months Eleven months EFM Roche Acquisition
ended ended ended ended Year ended Year ended and
December 25, March 27, February 24, October 31, December 31, December 31, Offering
1998 (1) 1998 (1) 1998 (2) 1998 (3) 1998 (4) 1998 (5) Adjustments (6) Pro Forma
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues......... $757,435 $136,038 $59,449 $182,243 $105,906 $28,250 $ -- $1,269,321
Cost and
expenses:
Cost of
revenues....... 666,474 119,554 56,668 148,209 80,918 16,925 (887)(a) 1,081,361
(6,500)(b)
Selling,
general, and
administrative
expenses....... 41,828 10,592 6,893 28,705 18,863 11,171 3,377 (c) 91,879
(12,200)(b)
(11,700)(b)
(5,650)(b)
Special
charges........ 24,971 5,694 -- -- -- -- -- 30,665
-------- -------- ------- -------- -------- ------- -------- ----------
Operating income
(loss).......... 24,162 198 (4,112) 5,329 6,125 154 33,560 65,416
Interest
expense......... (25,876) (5,197) (1,071) -- -- (278) (18,891)(d) (51,313)
Interest income.. 981 614 292 649 -- 7 -- 2,543
Other income
(expense), net.. -- 716 (2,774) (625) -- (236) -- (2,919)
-------- -------- ------- -------- -------- ------- -------- ----------
Income (loss)
from continuing
operations
before income
taxes........... (733) (3,669) (7,665) 5,353 6,125 (353) 14,669 13,727
(Provision)
benefit for
income taxes.... (6,694) 141 3,066 (4,257) -- 435 (4,421)(e) (11,730)
-------- -------- ------- -------- -------- ------- -------- ----------
Net income
(loss).......... (7,427) (3,528) (4,599) 1,096 6,125 82 10,248 1,997
Less preferred
dividends....... (4,664) (1,558) -- -- -- -- -- (6,222)
-------- -------- ------- -------- -------- ------- -------- ----------
Net income (loss)
applicable to
common stock.... $(12,091) $ (5,086) $(4,599) $ 1,096 $ 6,125 $ 82 $ 10,248 $(4,225)
======== ======== ======= ======== ======== ======= ======== ==========
Other data:
Adjusted EBITDA
(7)............ $ 69,227 $ 11,522 $(1,923) $ 8,573 $ 6,183 $ 540 $ 36,050 $ 130,172
Depreciation and
amortization... 20,094 5,630 2,189 3,244 58 386 2,490(a)(c) 34,091
Capital
expenditures... 6,860 2,226 1,612 4,784 -- 207 -- 15,689
Interest expense............................................................................................... 51,313
Cash interest expense (8)...................................................................................... 49,950
Ratio of adjusted EBITDA to cash interest expense.............................................................. 2.6x
Ratio of net total debt to adjusted EBITDA..................................................................... 3.8
Ratio of earnings to fixed charges (9)......................................................................... 1.2
</TABLE>
See notes to unaudited pro forma consolidated statement of operations and other
data.
40
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT
OF OPERATIONS AND OTHER DATA
Twelve Months ended December 25, 1998
General
(1) In June 1998, we changed our fiscal year-end from the last Friday in
March to the last Friday in December of each year effective with the nine
months ended December 25, 1998. Therefore, our statements of operations for the
nine months ended December 25, 1998 and the three months ended March 27, 1998
were used for purposes of preparing the unaudited pro forma consolidated
statement of operations to present a complete twelve months of our operations.
(2) In January 1998, we entered into a merger agreement to acquire OHM. The
transaction was effected through a two-step process consisting of (a) the
acquisition on February 25, 1998 of 54% of OHM through a cash tender offer for
a total consideration of approximately $160.2 million plus approximately $4.6
million in asset acquisition costs and (b) the acquisition of the remaining 46%
of the outstanding OHM stock in the merger providing for the issuance of
12,900,000 shares of our common stock and cash payment of approximately $30.8
million. OHM was included in our historic statement of operations from February
25, 1998 to December 25, 1998. OHM operations for the two months ended February
24, 1998 have been included in the unaudited pro forma consolidated statement
of operations to present a complete twelve months of OHM's operations.
(3) On December 2, 1998, we acquired GTI for a total consideration of $69.4
million plus approximately $2.0 million in transaction costs. GTI was included
in our historic statement of operations from December 2, 1998 to December 25,
1998. The GTI eleven months ended October 31, 1998 historic statement of
operations has been included in the unaudited pro forma consolidated statement
of operations to present a complete twelve months of GTI's operations.
(4) On March 8, 1999, we signed an agreement to purchase specified assets of
EFM for $82.0 million in cash, reduced by $8.0 million representing working
capital retained by ICF Kaiser. We also agreed to assume certain liabilities of
EFM. The EFM December 31, 1998 historic statement of assets acquired and
liabilities assumed and statement of operating revenue and expenses have been
included in the unaudited pro forma consolidated statement of operations
assuming the acquisition occurred as of the beginning of the period presented.
(5) On February 5, 1999, we signed an agreement to acquire all of the
capital stock of Roche for $10.0 million in cash. The final purchase price is
subject to a net book value adjustment and future earnout consideration. The
December 31, 1998 historic financial statements of Roche have been included in
the unaudited pro forma consolidated statements of operations assuming the
acquisition occurred as of the beginning of the period presented. The historic
statement of operations has been adjusted for a contract and certain assets and
liabilities that we did not acquire as follows (in thousands):
<TABLE>
<CAPTION>
Historic year Year ended
ended December 31,
December 31, 1998 Adjustments 1998, as adjusted
<S> <C> <C> <C>
Selling, general and
administrative expenses...... $11,561 $ (390) $11,171
Other income (expense), net... (4,590) 4,354 (236)
Income (loss) from continuing
operations before income
taxes........................ (5,097) 4,744 (353)
(Provision) benefit for income
taxes........................ 1,649 (1,214) 435
------- ------- -------
Net income (loss)............. $(3,448) $ 3,530 $ 82
======= ======= =======
</TABLE>
41
<PAGE>
(6) Adjustments to reflect the OHM, GTI, EFM and Roche acquisitions (the
final purchase price allocation will be based upon a final determination of the
fair values of the net assets acquired):
(a) The following represents decreased depreciation expense related to
the write-down of duplicate property, plant and equipment acquired in the
OHM and GTI acquisitions (dollars in thousands):
<TABLE>
<CAPTION>
Months not included in
Write-down of Twelve-Month IT Group
Property, Plant, Statement Adjusted
and Equipment of Operations Depreciation
<S> <C> <C> <C>
OHM..................... $33,000 2 $(458)
GTI..................... 2,341 11 (429)
-----
$(887)
=====
</TABLE>
The average historic remaining useful life of property, plant and
equipment written down to estimated fair value is between five and twelve
years.
(b) Represents net cost reductions resulting from the elimination of
duplicative personnel and the closure of certain OHM, GTI and EFM
facilities that have not been included in the historic financial
statements. We have formulated a restructuring plan and accrued the
liability pursuant to EITF Issue No. 95-3, "Recognition of Liabilities in
Connection with a Purchase Business Combination." This includes the
following costs (in thousands):
<TABLE>
<CAPTION>
Cost Reductions
----------------------------------
OHM (i) GTI (ii) EFM (iii) Total
<S> <C> <C> <C> <C>
Facility costs...................... $ 500 $ 4,500 $1,500 $ 6,500
Corporate selling, general and
administrative costs............... 1,500 8,100 2,600 12,200
Business development and bid
proposal costs..................... 4,500 3,900 3,300 11,700
Regional costs...................... 1,250 2,200 2,200 5,650
------ ------- ------ -------
Net cost savings.................... $7,750 $18,700 $9,600 $36,050
====== ======= ====== =======
</TABLE>
--------
(i) The OHM cost savings are attributable to the reduction of over
500 personnel in the corporate, selling, general and administration areas,
business development and proposal preparation, and from elimination of a
regional operating structure, which resulted in the combination or closure
of 14 existing facilities.
(ii) The GTI cost savings are attributable to the reduction of over
300 personnel in the corporate, selling, general and administration areas,
business development and proposal preparation and from elimination of a
regional operating structure, which resulted in the combination or closure
of 15 existing facilities.
(iii) The planned EFM cost savings are attributable to the
reduction of more than 75 personnel and the combination or closure of 12
existing offices.
42
<PAGE>
(c) The following represents the amortization expense related to the
increase in goodwill which is amortized over a period of 40 years (dollars
in thousands).
<TABLE>
<CAPTION>
Months not Included in
Estimated Twelve Month IT
Goodwill Group Statement Adjusted
Adjustment of Operations Amortization
<S> <C> <C> <C>
OHM........................... $282,350 2 $1,177
GTI........................... 5,392 11 124
EFM........................... 80,058 12 2,001
Roche......................... 2,999 12 75
------
$3,377
======
</TABLE>
(d) Reflects adjustments for additional interest expense assuming the
Offering and acquisitions occurred on December 27, 1997. The increase in
interest expense and the addition to amortization of deferred financing
costs reflects the change in term loans and revolving credit facility
(dollars in thousands):
<TABLE>
<CAPTION>
Additional Interest
Drawn Expense
Rate Amount Adjustment(i)
<S> <C> <C> <C>
Credit facilities:
Term loan................................. 8.5% $191,000 $ 3,360
Revolving credit facility................. 8 71,397 5,236
Senior Subordinated Notes due 2009 (ii)..... 11 200,000 22,000
Reduction of revolving credit facility...... 8 (106,100) (8,488)
Amortization of capitalized financing fees
for this Offering.......................... 850
Tender loan origination costs(iii).......... (4,067)
-------
Total adjustment............................ $18,891
=======
</TABLE>
--------
(i) Interest expense adjustment reflects months not included in our
actual statement of operations for the twelve months ended December
25, 1998 and timing of actual borrowing.
(ii) We used an estimated 11% interest rate for the Notes. The actual
rate will be established when the Notes are sold. Each 12.5 basis
point change in the assumed interest rate on the Notes would
result in an approximate corresponding $0.3 million change in cash
interest expense.
(iii) The tender loan origination costs were expensed by the IT Group
during the twelve months ended December 25, 1998 since the
facility was refinanced. These costs would not have been incurred
had the OHM transaction been completed on December 27, 1997.
Financing fees capitalized are being amortized over the life of the
senior subordinated notes.
Pro forma consolidated debt of $263 million has variable interest rates.
The effect on the results of operations of a change in the assumed interest
rates of 12.5 basis points would be approximately $0.3 million for the
twelve months ended December 25, 1998.
43
<PAGE>
(e) Adjustment to reflect income taxes as the amount which would have
been recognized on a consolidated basis assuming the merged entity would
generate future taxable income sufficient to realize the deferred tax
benefit recognized. The difference between the statutory rate and the
effective rate is primarily related to nontax-deductible goodwill
amortization and increases to the deferred tax valuation allowance as
follows (in thousands):
<TABLE>
<CAPTION>
Year ended
December 25,
1998
<S> <C>
Pro forma income before income taxes............................ $13,727
Permanent difference related to goodwill amortization........... 6,800
-------
Estimated pro forma taxable income.............................. 20,527
Estimated statutory rate........................................ 40%
-------
8,211
Research and development tax credits............................ (2,540)
Deferred tax asset valuation allowance adjustment............... 6,059
-------
Pro forma tax expense........................................... $11,730
=======
</TABLE>
Adjustments Reflected in Other Data
(7) Adjusted EBITDA represents earnings from continuing operations before
interest expense, net, income taxes and depreciation and amortization expenses
and excludes special charges and other income, net. Adjusted EBITDA should not
be considered as an alternative to cash provided by operations as a measure of
liquidity, or to net income as a measure of profitability. Adjusted EBITDA and
related ratios have been included because we use them as one means of analyzing
our ability to service our debt, our lenders use them for the purpose of
analyzing our performance with respect to the credit agreement and the senior
subordinated notes, and we understand that they are used by certain investors
as one measure of a company's historical ability to service debt. Not all
companies calculate Adjusted EBITDA in the same fashion and therefore Adjusted
EBITDA as presented may not be comparable to other similarly titled measures of
other companies.
(8) Cash interest expense excludes noncash amortization of financing fees as
follows (in thousands):
<TABLE>
<S> <C>
Interest expense................................................. $51,313
Amortization of financing costs.................................. (1,363)
-------
$49,950
=======
</TABLE>
(9) The ratio of earnings to fixed charges is computed by dividing earnings
by fixed charges. For this purpose, "earnings" include net income (loss) before
taxes and fixed charges (adjusted for interest capitalized during the period)
and "fixed charges" include interest, whether expensed or capitalized,
amortization of debt expenses and the portion of rental expense that is
representative of the interest factor in these rentals.
44
<PAGE>
Exhibit(c)(1)
OFFERING MEMORANDUM SUMMARY
The following is a summary of the more detailed information appearing
elsewhere in this Offering Memorandum and in the documents we incorporate
herein by reference. This summary is not complete and does not contain all the
information you should consider. You should read the entire Offering Memorandum
carefully, including the "Risk Factors," and the financial statements and the
related notes. Unless the context otherwise requires, "we," "us," "our" and
similar terms, as well as references to "the Company" and "the IT Group,"
include all of our consolidated subsidiaries. Also, unless the context
otherwise requires, the information contained in this Offering Memorandum gives
pro forma effect to the acquisition by us of OHM Corporation, Fluor Daniel GTI,
Inc., specified assets and specified liabilities of ICF Kaiser International,
Inc.'s Environment and Facilities Management group and Roche Limited,
Consulting Group as of the beginning of the period stated for income statement
data and at the date stated for balance sheet data. We obtained the industry
data used throughout this Offering Memorandum from industry publications that
we believe to be reliable, but we have not independently verified this
information.
The Company
Overview
We are a leading provider of diversified, value-added services in the areas
of environmental consulting, engineering and construction and remediation. In
addition, we are leveraging our core project management competencies to offer
our clients a variety of outsourcing services such as facilities management. We
have a strong reputation for both the high quality of our work and the breadth
of the services we provide.
Our clients are federal, state and local governments in the U.S. and
commercial businesses worldwide. We obtained 60% of our pro forma revenues for
the twelve months ended December 25, 1998 from the federal government under
more than 120 contracts that range in length from one to ten years. In
addition, we serve more than 1,600 commercial clients on projects that range in
length from one month to more than one year. As of December 25, 1998, we
employed more than 6,000 persons in a network of more than 80 domestic and ten
international offices. For the twelve months ended December 25, 1998, our pro
forma revenues were $1.3 billion and our adjusted EBITDA was $130.2 million. As
of December 25, 1998, our pro forma backlog was $4.0 billion. Ninety percent of
our backlog is related to federal government programs and approximately 84% is
expected to be charged to our clients on a cost-reimbursable basis. Many of our
commercial contracts are evergreen contracts that are typically not part of our
backlog.
Industry sources estimate that the total domestic environmental services
industry in 1997 had approximately $186.0 billion in revenues. We believe that
the market we serve is approximately $26.5 billion in 1997 revenues. A
significant portion of our market consists of projects for the Department of
Defense, the Department of Energy and the Environmental Protection Agency.
According to federal government publications, the DOD's budget for remediation
will be approximately $2.5 billion annually for the next five years, and the
DOE's budget will be approximately $5.7 billion annually for the same period.
From 1991 to 1998, our industry experienced substantial consolidation.
According to industry sources, the top ten firms in the environmental services
industry accounted for approximately 46% of the industry measured by 1998
revenue, up from approximately one third in 1991. This consolidation has been
driven by:
. the benefits of economies of scale, including reduced overhead as a
percentage of sales; and
. growing demand for full-service, business-oriented solutions.
We are actively involved in this consolidation. Since March 1996, we have
acquired ten firms, including EFM and Roche, representing an aggregate $0.9
billion in revenue at the time of acquisition.
45
<PAGE>
Our common stock is traded on the New York Stock Exchange and the Pacific
Exchange under the symbol "ITX." On March 18, 1999, the closing sales price for
our common stock as reported on the NYSE Composite Transaction reporting system
was $14.75 per share, and there were 29,483,168 shares outstanding on a diluted
basis.
Services
We provide services through four business platforms: Engineering &
Construction, Consulting & Ventures, Outsourced Services and International. We
do not own or operate facilities involved in the ongoing commercial disposal of
hazardous waste.
<TABLE>
<CAPTION>
Percentage of
Pro Forma Pro Forma
Revenue for Revenue for
the Twelve the Twelve
Months Ended Months Ended
December 25, December 25,
Platform 1998 1998 Clients Primary Services Provided
- --------------------------------------------------------------------------------------------------------------------
($ in millions)
<S> <C> <C> <C> <C>
Engineering & $894 70.5% DOD . Hazardous waste design and remediation
Construction DOE . Decontamination and
EPA decommissioning
State and local agencies . Civil construction
Private sector clients
- --------------------------------------------------------------------------------------------------------------------
Consulting & $230 18.1% Federal government . Environmental permitting
Ventures Private sector clients . Facility siting and design
. Environmental compliance auditing
. Risk assessment/management
. Health and safety program design
- --------------------------------------------------------------------------------------------------------------------
Outsourced $85 6.7% DOD . Facilities operation, maintenance and
Services State and local agencies construction
Private sector clients . Construction management services
- --------------------------------------------------------------------------------------------------------------------
International $59 4.7% U.S. and international . Engineering, remediation and consulting
governments . Wastewater treatment/design
Private sector clients . Infrastructure engineering and construction
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Competitive Strengths
We believe that we benefit from the following competitive strengths:
Leading Market Position. We believe that we have developed a reputation for
delivering cost-effective, high-quality services. During the last five years,
we have managed in excess of $5.0 billion of contracts, and we have been cited
as a high-quality provider by many of our clients for completing work on time
and on budget, including consistent level one award fee designations by the
U.S. Navy for work performed on complex projects. We are the largest provider
of environmental engineering and construction services to the DOD.
Significant Backlog. Our total pro forma backlog at December 25, 1998 was
approximately $4.0 billion, including approximately $0.9 billion of funded
backlog of which $0.7 billion is scheduled to be completed during 1999. Many of
our commercial contracts are evergreen contracts and are typically not part of
our backlog. We believe that the predictability and stability of our backlog
permits us to manage efficiently our overhead and marketing costs by bidding
selectively on new work. As of March 1999, we have approximately $1.4 billion
of pending proposals, and we expect to consider more than $5.0 billion of
additional bidding opportunities in 1999.
46
<PAGE>
Low-Cost Matrix Organization Structure. In mid-1996, we implemented our
matrix organization structure and completed a significant investment in our
comprehensive management information system to manage both the operating and
financial aspects of our business. The key to this structure is our shared
services group, which is responsible for supplying our four business platforms
with technical expertise and administrative support functions, such as project
management and contract administration. Approximately 70% of our employees are
part of this group. As a result of this structure, we believe we are
particularly effective in competing for the larger federal and private sector
contracts, where significant personnel resources, strong management systems and
cost control are important competitive factors. We believe that our matrix
organization allows us to maximize the utilization of our employees through the
sharing of technical resources across business platforms. In addition, our
management information system helps us track the utilization of our personnel
and minimize the non-billable time per employee. Employee utilization is a
significant determinant of operating management compensation. Since we
implemented our matrix organization structure, employee utilization, defined as
total dollars billed to a client project divided by total dollars paid to
employees, has increased meaningfully. In addition, as a percentage of
revenues, selling, general and administrative expenses declined from 9.5% for
the twelve months ended March 29, 1996 to 5.5% for the nine months ended
December 25, 1998, on an actual basis.
Full Range of High-Quality Services. Many of our clients, both government
and commercial, require full-service, business-oriented solutions to
environmental issues, in which a single service provider manages the entire
process from identification and assessment through remediation. Successful
remediation of environmentally impacted sites requires a multidisciplinary
approach, since these sites typically involve air, soil and/or water
contamination. Depending on the circumstances, the skills required to address
these problems may include:
. risk assessment,
. process and design engineering,
. computer modeling,
. ambient air monitoring,
. land-use planning, and
. construction/remediation.
We believe we have the breadth and depth of operational knowledge, technical
capabilities and track record of experience to service our client base
effectively.
Proven, Experienced Management Team. Our management team, led by our Chief
Executive Officer Anthony J. DeLuca, has significant experience in the
industry. In 1996, in connection with an investment by The Carlyle Group, a
private investment firm based in Washington, D.C. which owns approximately 21%
of our common stock, Mr. DeLuca assumed the role of President and CEO. Mr.
DeLuca joined us in 1990 as Chief Financial Officer and his financial
discipline helped to improve our competitive position. Since his promotion to
CEO, we have increased our adjusted EBITDA margins from 5.3% for the twelve
months ended March 28, 1997 to 9.1% for the nine months ended December 25,
1998. In 1998, as a result of our merger with OHM, Philip O. Strawbridge joined
our management team as Senior Vice President and Chief Administrative Officer
after fifteen years of industry experience with OHM and Fluor Corporation. In
addition, our senior vice presidents have significant experience in the
industry with each having over 30 years of relevant industry experience.
Business Strategy
Our goal is to maintain and enhance our position as a leading provider of
environmental and infrastructure solutions to governments and private industry
on a global basis, and to leverage our core competencies into growth markets,
principally through our existing clients. Our strategies to achieve this goal
are outlined below:
47
<PAGE>
Achieve Cost Savings. We believe that our matrix organization and our
comprehensive management information system allow us to:
. efficiently integrate acquired operations,
. eliminate duplicative costs,
. centralize common functions,
. consolidate locations that serve the same areas, and
. use our low cost structure to bid successfully on new projects.
In connection with the OHM acquisition, we implemented a cost reduction program
that eliminated approximately $32.0 million in costs on an annualized basis
within six months of acquiring the business, principally through elimination of
duplicative management overhead, bidding costs and facilities. In connection
with the GTI acquisition, we executed a similar plan that has resulted in
approximately $18.7 million of annualized cost savings being realized. We have
devised a similar plan with respect to the EFM acquisition that we believe will
produce approximately $9.6 million in annualized cost savings. See "Unaudited
Pro Forma Consolidated Financial Data."
Increase Market Share. We plan to continue to improve our market position in
existing markets by:
. offering our clients new services gained through our acquisitions;
. providing our clients with full-service, business-oriented solutions;
. leveraging our matrix organization structure to be a low-cost provider;
and
. aggressively pursuing large scale government and private sector
programs.
Execute Disciplined Acquisition Program. We acquire companies of varying
sizes, including relatively large companies to enhance our qualifications and
areas of expertise and leverage our matrix organization, as well as smaller
companies to broaden the services we offer our clients. The following table
presents data on our most recent and pending acquisitions.
<TABLE>
<CAPTION>
Most Recent
Fiscal Year Revenues
Acquisition Prior to Acquisition Date Strategic Benefit
- ----------------------------------------------------------------------------------------------------------------
($ in millions)
<S> <C> <C> <C>
OHM $527 June 1998 . Expanded and diversified our government backlog
. Established Outsourced Services platform
. $32 million of annual cost savings achieved
- ----------------------------------------------------------------------------------------------------------------
GTI $200 December 1998 . Enhanced our consulting and engineering skills
. Added a number of Fortune 500 clients
. $19 million of annual cost savings achieved
- ----------------------------------------------------------------------------------------------------------------
EFM $106 April 1999 . Adds new skills that qualify us for additional work for
(pending) government and commercial clients including non-environmental
facilities management services
. Approximately $10 million of planned annual cost savings
- ----------------------------------------------------------------------------------------------------------------
Roche $28 April 1999 . Adds strategic consulting capabilities in the wastewater area
(pending) . Adds infrastructure project capabilities
. Enhances international expertise
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Continue to Diversify into New Service Areas. We believe that our project
management skills can be leveraged into a number of different areas. There is a
general trend towards outsourcing in the U.S., especially for government
facilities, where the federal government has announced plans to outsource a
variety of operations and maintenance services, including housing, at many of
its facilities. We believe that we can provide additional project management
services to our government clients by utilizing our track record
48
<PAGE>
of success in environmental project management for these same clients.
Currently, we are focusing on providing full-service facility infrastructure
services, including repair and maintenance, at government facilities. For
example, through EFM, we will have a 23% participation in a joint venture led
by Northrop Grumman Corporation to provide all non-launch related services
including project, environmental and information management, public works,
logistics and protective and other services at the Kennedy Space Center. We
estimate that this contract will provide an aggregate $2.2 billion in revenues
to the joint venture over the next ten years.
Expand Service Offerings Internationally. According to industry sources, the
size of the total environmental services market outside the U.S. was
approximately $450.0 billion in 1996 revenues. We have had limited exposure to
this market to date, but we intend to grow internationally by offering our
clients the "one-stop-shopping" service they require as they conduct their
business globally. We intend to manage this growth in a disciplined manner by
gradually increasing our international exposure and selectively taking
advantage of the opportunities presented through:
. assisting our federal government and U.S. multinational clients with
their international environmental services and infrastructure needs; and
. leveraging the international expertise we acquired in the GTI and Roche
acquisitions.
The Acquisitions
We have entered into definitive agreements to acquire two companies that
will help us execute our business strategy and enhance our competitive
strengths.
EFM. We signed an agreement with ICF Kaiser on March 8, 1999 to purchase
specified assets and assume specified liabilities of EFM for a purchase price
of $82.0 million reduced by $8.0 million representing working capital retained
by ICF Kaiser.
EFM primarily oversees major program management and technical support
contracts for federal agencies, particularly the DOE and DOD. EFM provides two
principal services: environmental consulting and remediation and facilities
management. EFM also conducts cleanups under two large contracts for the Army
Corps of Engineers, and is a member of a joint venture that provides
outsourcing services to NASA. For the twelve months ended December 31, 1998,
EFM had revenues of $105.9 million and adjusted EBITDA of $6.2 million. In
addition, we have devised a plan that we believe will result in approximately
$9.6 million in annualized savings. See "Unaudited Pro Forma Consolidated
Financial Data" for more details on this plan.
Roche. We signed an agreement with Roche on February 5, 1999 to purchase all
of its issued and outstanding capital stock for an initial payment of $10.0
million in cash, plus two potential earnout payments.
Roche, an engineering, construction and consulting company based in Canada,
is primarily focused on infrastructure development including transportation and
water/wastewater treatment facilities. Roche operates exclusively outside the
U.S. We expect Roche to provide us with access to international clients as well
as a mobile workforce to respond to our U.S.-based, multinational clients'
needs on a global basis. For the twelve months ended December 31, 1998, Roche
had revenues of $28.3 million and adjusted EBITDA of $0.5 million.
A portion of the net proceeds of this Offering will be used to fund these
two acquisitions.
49
