<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For quarter ended October 1, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission file number 1-9037
---------
The IT Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 33-0001212
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2790 Mosside Boulevard, Monroeville, Pennsylvania 15146-2792
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 372-7701
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
______ _____
At November 5, 1999 the registrant had issued and outstanding an aggregate of
22,763,652 shares of its common stock.
<PAGE>
THE IT GROUP, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED OCTOBER 1, 1999
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets
as of October 1, 1999 (unaudited) and
December 25, 1998..................................... 3
Condensed Consolidated Statements of
Operations for the Fiscal Quarters and
Three Fiscal Quarters ended October 1,
1999 and September 25, 1998 (unaudited)............... 4
Condensed Consolidated Statements of
Cash Flows for the Three Fiscal Quarters
ended October 1, 1999 and September 25,
1998 (unaudited)...................................... 5
Notes to Condensed Consolidated Financial
Statements (unaudited)................................ 6-15
Item 2 Management's Discussion and Analysis of
Results of Operations and Financial Condition......... 16-26
Item 3 Quantitative and Qualitative Disclosures about
Market Risk........................................... 28
PART II. OTHER INFORMATION
Item 1 Legal Proceedings..................................... 29
Item 6 Exhibits and Reports on Form 8-K...................... 30
Signatures............................................ 31
2
<PAGE>
PART I
Item 1. Financial Statements
THE IT GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 1, December 25,
1999 1998
-------------- -------------
(Unaudited)
(In thousands)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents....................................... $ 21,509 $ 21,265
Receivables, net................................................ 473,911 338,589
Prepaid expenses and other current assets....................... 24,781 17,308
Deferred income taxes........................................... 19,504 15,919
---------- ---------
Total current assets........................................... 539,705 393,081
Property, plant and equipment, at cost:
Land and land improvements...................................... 617 2,166
Buildings and leasehold improvements............................ 14,601 15,072
Machinery and equipment......................................... 104,048 81,763
---------- ---------
119,266 99,001
Less accumulated depreciation and amortization................. 57,533 51,331
---------- ---------
Net property, plant and equipment............................. 61,733 47,670
Cost in excess of net assets of acquired businesses.............. 491,976 356,619
Other assets..................................................... 45,750 17,469
Deferred income taxes............................................ 89,594 93,719
Long-term assets of discontinued operations...................... 40,048 40,048
---------- ---------
Total assets $1,268,806 $ 948,606
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable................................................ $ 196,412 $ 150,912
Accrued liabilities............................................. 81,621 96,087
Billings in excess of revenues.................................. 18,121 8,219
Short-term debt, including current portion of long-term debt.... 19,818 17,603
---------- ---------
Total current liabilities...................................... 315,972 272,821
Long-term debt................................................... 628,119 364,824
8% convertible subordinated debentures........................... 35,935 40,235
Other long-term accrued liabilities.............................. 28,203 32,558
Stockholders' equity:
Common stock, $.01 par value; 50,000,000 shares authorized;
22,916,909 and 22,675,917 shares issued........................ 229 227
Preferred stock, $100 par value; 180,000 shared authorized:
7% cumulative convertible exchangeable, 20,556 shares issued
and outstanding, 24,000 shares authorized..................... 2,056 2,056
6% cumulative convertible participating, 46,095 shares issued
and outstanding............................................... 4,609 4,609
Additional paid-in capital...................................... 349,995 348,794
Deficit......................................................... (94,847) (116,984)
---------- ---------
262,042 238,702
Treasury stock at cost, 67,059 and 47,484 shares................ (943) (74)
Accumulated other comprehensive loss............................ (522) (460)
---------- ---------
Total stockholders' equity..................................... 260,577 238,168
---------- ---------
Total liabilities and stockholders' equity..................... $1,268,806 $ 948,606
========== =========
</TABLE>
See accompanying notes
3
<PAGE>
THE IT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal quarters ended Three fiscal quarters ended
-------------------------- ---------------------------
October 1, September 25, October 1, September 25,
1999 1998 1999 1998
---------- ------------- ---------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues....................................... $394,148 $260,187 $953,412 $621,413
Cost and expenses:
Cost of revenues............................. 339,068 229,756 820,428 546,535
Selling, general and administrative expenses. 19,525 13,350 50,429 37,820
Special charges................................ - - - 30,665
-------- -------- -------- --------
Operating income............................... 35,555 17,081 82,555 6,393
Interest expense, net.......................... 17,048 7,969 39,763 21,454
-------- -------- -------- --------
Income (loss) before income taxes.............. 18,507 9,112 42,792 (15,061)
Provision for income taxes..................... 6,171 3,644 15,885 2,290
-------- -------- -------- --------
Net income (loss) from continuing operations... 12,336 5,468 26,907 (17,351)
Discontinued operations - closure costs
(net of $3,040 income tax benefit)........... - - - 4,960
-------- -------- -------- --------
Income (loss) before extraordinary item........ 12,336 5,468 26,907 (22,311)
Extraordinary item - loss on early
extinguishment of debt
(net of $3,497 income tax benefit)........... - - - 5,706
-------- -------- -------- --------
Net income (loss).............................. 12,336 5,468 26,907 (28,017)
Preferred stock dividends...................... (1,590) (1,569) (4,770) (4,696)
-------- -------- -------- --------
Net income (loss) applicable to common stock... $ 10,746 $ 3,899 $ 22,137 $(32,713)
======== ======== ======== ========
Net income (loss) per share basic:
Earnings (loss) from continuing operations
(net of preferred stock dividends).......... $ 0.47 $ 0.17 $ 0.98 $ (1.49)
Loss from discontinued operations............ - - - (0.34)
Extraordinary item - early extinguishment of
debt........................................ - - - (0.39)
-------- -------- -------- --------
$ 0.47 $ 0.17 $ 0.98 $ (2.22)
======== ======== ======== ========
Net income (loss) per common share diluted..... $ 0.39 $ 0.16 $ 0.83 $ (2.22)
======== ======== ======== ========
Weighted average common shares outstanding:
Basic.......................................... 22,758 22,631 22,703 14,750
======== ======== ======== ========
Diluted........................................ 31,228 28,646 29,348 14,750
======== ======== ======== ========
</TABLE>
See accompanying notes
4
<PAGE>
THE IT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three fiscal quarters ended
--------------------------------
October 1, September 25,
1999 1998
-------------- -------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................ $ 26,907 $ (28,017)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 22,967 20,163
Deferred income taxes..................................... 13,515 (1,419)
Special charges........................................... - 24,971
Net loss from disposition of discontinued operations...... - 4,960
Extraordinary charge for early retirement of debt......... - 3,640
Other..................................................... 309 (996)
Changes in assets and liabilities, net of effects
from acquisitions:
Changes in assets and liabilities......................... (78,789) (33,915)
Decrease in site closure costs of discontinued operation.. (4,391) (10,749)
--------- ---------
Net cash used for operating activities....................... (19,482) (21,362)
Cash flows from investing activities:
Capital expenditures......................................... (14,461) (5,730)
Acquisition of businesses.................................... (195,704) (215,482)
Proceeds from sale of assets................................. 2,040 5,750
Other, net................................................... (5,773) (945)
--------- ---------
Net cash used for investing activities....................... (213,898) (216,407)
Cash flows from financing activities:
Financing costs.............................................. (8,392) (9,530)
Net borrowing of long-term debt.............................. 247,036 227,234
Net issuance of common stock................................. 648 -
Dividends paid on preferred stock............................ (5,668) (2,713)
--------- ---------
Net cash provided by financing activities.................... 233,624 214,991
--------- ---------
Net increase (decrease) in cash and cash equivalents............ 244 (22,778)
Cash and cash equivalents at beginning of period................ 21,265 54,128
--------- ---------
Cash and cash equivalents at end of period...................... $ 21,509 $ 31,350
========= =========
</TABLE>
See accompanying notes.
5
<PAGE>
THE IT GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of significant account policies:
The condensed consolidated financial statements included herein have been
prepared by The IT Group, Inc. (IT or the Company), without audit, and
include all adjustments of a normal, recurring nature that are, in the
opinion of management, necessary for a fair presentation of the results of
operations for the fiscal quarter and year to date period ended October 1,
1999, pursuant to the rules of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations although the Company believes that the disclosures in such
financial statements are adequate to make the information presented not
misleading.
The Company follows the 52/53 week fiscal year convention. The 1999 fiscal
year includes 53 weeks, with the additional week included in the quarter
ending October 1, 1999. As previously reported, during the nine-month
transition period ended December 25, 1998 the Company changed its fiscal
year-end from the last Friday in March to the last Friday in December.
Consequently, unaudited financial statements for the nine months ended
September 25, 1998 have not been previously reported.
Certain items previously reported in specific financial statement captions
have been reclassified to conform to the current year's presentation. The
reclassifications had no impact on income or total assets.
These condensed consolidated financial statements should be read in
conjunction with the Company's transition report on Form 10-K for the nine
months ended December 25, 1998. The results of operations for the fiscal
period ended October 1, 1999 are not necessarily indicative of the results
for the full fiscal year. The December 25, 1998 balance sheet amounts were
derived from audited financial statements.
2. Business acquisitions:
EMCON
On June 15, 1999, the Company acquired all of the outstanding capital stock
of EMCON, Inc. (EMCON) for approximately $61.9 million plus the assumption of
approximately $13.3 million in debt. EMCON, based in San Mateo, California,
was a fully integrated environmental consulting, engineering, design,
construction and related outsourced services firm serving primarily the
private sector with a focus on the solid waste service market. For the
twelve months ended December 31, 1998, EMCON had revenues of $151.3 million
and net income of $1.6 million.
The transaction was accounted for as a purchase in accordance with Accounting
Principles Board (APB) Opinion No. 16, "Business Combinations". The excess
of the purchase price over the fair value of assets acquired and liabilities
assumed of $29.3 million is classified as cost in excess of net assets of
acquired businesses and is being amortized over twenty five years.
The estimated fair value of the assets acquired and liabilities assumed of
EMCON, as adjusted, are as follows:
Description Amount
----------- ---------
(In thousands)
Current assets.............................................. $46,640
Property and equipment...................................... 11,576
Cost in excess of net assets of acquired businesses......... 29,333
Other long term assets...................................... 13,173
Current liabilities......................................... 27,432
Long term liabilities, primarily debt....................... 10,378
6
<PAGE>
THE IT GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As a result of the acquisition of EMCON, the Company has adopted a plan and
commenced the process of closing specific overlapping facilities and reducing
consolidated employment. The acquired balance sheet includes an accrual of
$6.6 million for the estimated EMCON severance, office closure and lease
termination costs of which $4.4 million has been paid through October 1,
1999. The balance will be paid over the next four years.
EFM Group
On April 9, 1999, the Company acquired specified assets of EFM Group (EFM)
from ICF Kaiser International, Inc. (Kaiser) for $74.0 million in cash net of
$8.0 million representing working capital retained by Kaiser. EFM provides
environmental remediation, program management and technical support for
United States Government agencies including the DOD, NASA and the DOE as well
as private sector environmental clients. EFM had revenues of approximately
$106.0 million for the calendar year ended December 31, 1998.
The transaction was accounted for as a purchase in accordance with APB
Opinion No. 16. The excess of the purchase price over the fair value of
assets acquired and liabilities assumed of $77.7 million is classified as
cost in excess of net assets of acquired businesses, and is being amortized
over twenty five years. The EFM net assets acquired were $2.2 million.
As a result of the acquisition of EFM, the Company has adopted a plan and
commenced the process of closing specific overlapping facilities and reducing
consolidated employment. The acquired balance sheet includes an accrual of
$4.5 million for the estimated EFM severance, office closure and lease
termination costs of which $3.0 million has been paid through October 1,
1999. The balance will be paid over the next two years.
Roche
On March 31, 1999, the Company acquired all of the outstanding capital stock
of Roche Limited Consulting Services (Roche) for $10.2 million plus potential
future earnout payments ranging from zero to $9.0 million. Roche is based in
Quebec City, Canada and provides engineering and construction services to
wastewater, paper, mining and transportation industries worldwide. Roche had
revenues of approximately $28.0 million for the year ended December 31, 1998.
The transaction was accounted for as a purchase in accordance with APB
Opinion No. 16. The excess of the purchase price over the fair value of
assets acquired and liabilities assumed of $4.6 million is classified as cost
in excess of net assets of acquired businesses, and is being amortized over
twenty years.
The estimated fair value of the assets acquired and liabilities assumed of
Roche as adjusted are as follows:
Description Amount
----------- ----------
(In thousands)
Current assets................................................ $12,583
Property and equipment........................................ 1,711
Cost in excess of net assets of acquired businesses........... 4,632
Other long term assets........................................ 3,616
Current liabilities........................................... 11,340
Long term liabilities, primarily debt......................... 664
Fluor Daniel GTI, Inc.
On December 3, 1998, the Company acquired the outstanding common stock of
Fluor Daniel GTI, Inc. (GTI), an environmental consulting, engineering and
construction management services company. GTI operates mainly throughout the
United States with minor foreign operations. Total consideration amounted to
$69.4 million plus approximately $2.0
7
<PAGE>
THE IT GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
million in transaction costs. This transaction was accounted for as a
purchase in accordance with APB Opinion No. 16. The excess of the purchase
price over the fair value of assets acquired and liabilities assumed in the
merger of $16.3 million is primarily classified as cost in excess of net
assets of acquired businesses, and is being amortized over twenty years.
The estimated fair value of the assets acquired and liabilities assumed of
GTI are as follows:
Description Amount
----------- ----------
(In thousands)
Current assets............................................ $91,644
Property and equipment.................................... 3,587
Intangibles, primarily cost in excess of net assets
of acquired businesses.................................. 16,324
Other long term assets.................................... 5,972
Current liabilities....................................... 46,130
As a result of the acquisition of GTI, the Company has adopted a plan and
commenced the process of closing specific overlapping facilities and reducing
consolidated employment. The acquired balance sheet includes an accrual of
$9.0 million for the estimated GTI severance, office closure costs and lease
termination costs of which $8.1 million has been paid through October 1,
1999. The balance, relating primarily to office lease costs, will be paid
over the next three years.
OHM Acquisition
In January 1998, the Company entered into a merger agreement to acquire OHM
Corporation (OHM), an environmental and hazardous waste remediation company
servicing primarily industrial, federal government and local government
agencies located in the United States. The transaction was effected through a
two-step process for a total purchase price of $303.4 million consisting of
(a) the acquisition of 54% of the total outstanding shares through a cash
tender offer, which was consummated on February 25, 1998, at $11.50 per share
for 13.9 million shares of OHM common stock, for a total consideration of
$160.2 million plus $4.6 million in acquisition costs and (b) the acquisition
on June 11, 1998 of the remaining 46% of the total outstanding shares through
the exchange of 12.9 million shares of Company common stock valued at $8.04
per share, or $103.8 million and payment of $30.8 million plus $4.0 million
in acquisition costs.
This transaction was accounted for as a step acquisition and therefore the
effects of the first phase of the merger were included in the quarter ended
March 27, 1998 financial statements and the effects of both phases were
included in the quarter ended June 26, 1998 financial statements. The excess
of the purchase price over the fair value of assets acquired and liabilities
assumed in the merger of $346.3 million is classified as cost in excess of
net assets of acquired businesses with amortization over forty years.
The estimated fair value of the assets acquired and liabilities assumed of
OHM as adjusted are as follows:
Description Amount
----------- ----------
(In thousands)
Current assets................................................. $105,096
Property and equipment......................................... 18,344
Cost in excess of net assets of acquired businesses............ 346,299
Other long term assets......................................... 78,229
Current liabilities............................................ 136,558
Long term liabilities, primarily debt.......................... 107,924
8
<PAGE>
THE IT GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As a result of the merger with OHM (the OHM Merger), the Company adopted a
plan and completed the process of closing specific overlapping facilities and
reducing consolidated employment. The acquired balance sheet includes an
accrual of $14.8 million for the estimated OHM severance, office closure
costs and lease termination costs of which $12.6 million has been paid
through June 25, 1999. The balance relating primarily to office lease costs
is anticipated to be paid over the next seven years.
Summary
The purchase price allocations for the GTI, EFM, Roche and EMCON acquisitions
are preliminary and based upon information currently available. Management
is continuing to gather and evaluate information regarding the valuation of
assets and liabilities at the dates of the acquisitions. Management does not
anticipate material changes to the preliminary allocations.
The following unaudited pro forma condensed statement of operations gives
effect to the OHM, GTI, EFM, Roche and EMCON acquisitions as if the
transactions had occurred at the beginning of the nine-month periods ended
October 1, 1999 and September 25, 1998.
<TABLE>
<CAPTION>
October 1, 1999 September 25, 1998
Pro Forma Pro Forma
--------------- ------------------
(In thousands, except per share data)
<S> <C> <C>
Revenues........................................... $1,045,076 $1,038,053
Income (loss) from continuing operations........... 23,457 (29,195)
Net income (loss) applicable to common stock....... 18,687 (44,557)
Income (loss) per share:
Basic........................................... 0.82 (1.97)
Diluted......................................... 0.71 (1.97)
</TABLE>
The above amounts are based upon certain assumptions and estimates, which the
Company believes are reasonable. The pro forma results do not reflect
anticipated cost savings and do not necessarily represent results, which
would have occurred if the OHM, GTI, EFM, Roche and EMCON acquisitions had
taken place at the dates and on the basis assumed above.
9
<PAGE>
THE IT GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Earnings per share:
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
For the three fiscal
For the fiscal quarter ended quarters ended
----------------------------- --------------------------
October 1, September 25, October 1, September 25,
1999 1998 1999 1998
---------- -------------- ---------- -------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) from
continuing operations......... $12,336 $ 5,468 $26,907 $(17,351)
Preferred stock dividends...... (1,590) (1,569) (4,770) (4,696)
------- ------- ------- --------
Numerator for basic earnings
per share - net income (loss)
available to common
stockholders................. 10,746 3,899 22,137 (22,047)
Discontinued operations -
closure costs (net of income
tax benefit).................. - - - (4,960)
Extraordinary charge for early
retirement of debt (net of
income tax benefit)........... - - - (5,706)
------- ------- ------- --------
Net income (loss) applicable
to common stock............... $10,746 $ 3,899 $22,137 $(32,713)
Effect of conversion of
dilutive securities:
Preferred stock dividends..... 692 670 2,076 -
Convertible subordinated
debentures................... 597 - - -
------- ------- ------- --------
Numerator for diluted earnings
per share - net income
(loss) applicable to common
stock........................ $12,035 $ 4,569 $24,213 $(32,713)
======= ======= ======= ========
Denominator:
Denominator for basic earnings
per share-
weighted average shares....... 22,758 22,631 22,703 14,750
Effect of conversion of
dilutive securities:
Common equivalent shares...... 391 - 572 -
Convertible preferred stock... 6,073 6,015 6,073 -
Convertible subordinated
debentures................... 2,006 - - -
------- ------- ------- --------
Denominator for diluted
earnings per
share-adjusted
weighted-average shares
and assumed conversions....... 31,228 28,646 29,348 14,750
======= ======= ======= ========
Net income (loss) per share basic:
Earnings from continuing
operations (net of preferred
stock dividends)............. $ 0.47 $ 0.17 $ 0.98 $ (1.49)
Earnings from discontinued
operations.................... - - - (0.34)
Extraordinary item - early
extinguishment of debt........ - - - (0.39)
------- ------- ------- --------
$ 0.47 $ 0.17 $ 0.98 $ (2.22)
======= ======= ======= ========
Net income (loss) per share
diluted......................... $ 0.39 $ 0.16 $ 0.83 $ (2.22)
======= ======= ======= ========
</TABLE>
In June 1998, approximately 12.9 million shares were issued in connection
with the second step of the OHM Merger (see Item 1. Financial Statements -
Notes to Condensed Consolidated Financial Statements, Note 2).
10
<PAGE>
THE IT GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Recent accounting pronouncements:
In June of 1999, the Financial Accounting Standards Board (FASB) issued
Statement No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of Effective Date of FASB Statement No. 133" which
deferred for a one year period the required adoption of FASB Statement No.
133 to fiscal years beginning after June 15, 2000. As a result, the Company
intends to adopt FASB Statement No. 133 in the first fiscal quarter of the
year 2001 although earlier adoption is permitted. The Company is required by
its Credit Facilities to use swap agreements to manage the interest rate
risks associated with the variable nature of a portion of borrowings under
the Company's Credit Facilities. FASB Statement No. 133 requires these swap
agreements to be recorded at fair market value and reflected in earnings. The
Company has evaluated its existing interest rate contracts and management
does not believe that the impact of adopting this new standard will be
material to the Company's financial statements.
5. Discontinued operations:
In December 1987 the Company's Board of Directors adopted a strategic
restructuring program which included a formal plan to divest the
transportation, treatment and disposal operations through the sale of some
facilities and closure of certain other facilities. As of October 1, 1999,
three of the Company's inactive disposal sites have been formally closed and
the fourth is in the process of closure. At October 1, 1999, the Company's
condensed consolidated balance sheet included accrued liabilities of $3.6
million to complete the closure and post-closure of its disposal facilities
and the PRP matters, net of certain trust fund and annuity investments,
restricted by trust agreements with the California EPA Department of Toxic
Substance Control (DTSC) to closure and post-closure use.
In the quarter ended October 1, 1999, the Company renegotiated its financial
assurance requirements on closure and thirty year post-closure obligations
with the DTSC to enable the use of a performance bond to replace restricted
trust fund assets. The renegotiated requirements included purchasing
environmental insurance and a performance bond with an internationally
recognized insurance carrier for the Company's obligations at its disposal
facilities within the transportation, treatment and disposal discontinued
operations. As a result of obtaining the insurance and the performance bond,
subsequent to October 1, 1999, the Company obtained the release of trust fund
assets, and received $14.9 million in cash which had previously provided
financial assurance to the DTSC. Separately, the trustee also transferred to
the insurance company annuities held in the trust funds. Under the
performance bond, the Company is required to continue to perform, at its
cost, closure activities at the remaining disposal site. Under the
environmental insurance policy, the Company will perform post-closure
activities at the four inactive disposal sites, and will be reimbursed by the
insurance company, up to the policy limits, which are in excess of the
Company's estimates for post-closure costs, during the policy's thirty one
year term.
Had the release of trust fund assets and the other changes occurred on
October 1, 1999, the accrued liabilities of the discontinued operations would
have been $18.5 million, including closure costs of $11.3 million which are
expected to be incurred within two years, and $7.2 million of insurance
program premium costs and PRP matters. In anticipation of implementing the
renegotiated financial assurance requirements, during the quarter ended
October 1, 1999, the Company instructed the trustee to convert investments
held in marketable securities into cash, within the trust funds.
11
<PAGE>
THE IT GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The provision for loss on disposition of transportation, treatment and
disposal discontinued operations is based on various assumptions and
estimates. Outcomes significantly different from those used to estimate the
provision for loss could substantially increase the costs to the Company of
completing the disposition.
6. Contingencies:
For information regarding legal proceedings of the Company's continuing
operations, please see the note "Commitments and contingencies" in the Notes
to Consolidated Financial Statements in the Company's Transition Report on
Form 10-K for the fiscal year ended December 25, 1998 (as amended through
Amendment No. 1); current developments regarding continuing operations' legal
proceedings are discussed in Part II of this filing. See Management's
Discussion and Analysis of Results of Operations and Financial Condition -
Financial Condition - Transportation, Treatment and Disposal Discontinued
Operations for information regarding the legal proceedings of the
discontinued operations of the Company.
7. Contract accounting and accounts receivable:
Included in accounts receivable, net at October 1, 1999 are billed
receivables, unbilled receivables and retention in the amounts of $397.1
million, $62.7 million and $14.1 million, respectively. Billed receivables,
unbilled receivables and retention from various agencies of the U.S.
Government as of October 1 were $192.8 million, $47.1 million and $3.0
million, respectively. At December 25, 1998, billed receivables, unbilled
receivables and retention were $269.0 million, $60.6 million and $9.0
million, respectively. Billed receivables, unbilled receivables and
retention from the U.S. Government as of December 25, 1998 were $145.6
million, $37.5 million and $2.2 million, respectively.
Unbilled receivables typically represent amounts earned under the Company's
contracts but not yet billable according to the contract terms, which
usually consider the passage of time, achievement of certain milestones,
negotiation of change orders or completion of the project. Generally,
unbilled receivables are expected to be billed and collected in the
subsequent year. Billings in excess of revenues represent amounts billed in
accordance with contract terms, which are in excess of the amounts
includable in revenue.
Included in accounts receivable at October 1, 1999 is approximately $31.2
million associated with claims and unapproved change orders, which are
believed by management to be probable of realization. Most of these claims
and change orders are being negotiated or are in arbitration and should be
settled within one year. This amount includes contract claims in litigation
(see Item 1. Financial Statements - Notes to Condensed Consolidated
Financial Statements, Note 6). While management believes no material loss
will be incurred related to these claims and change orders, the actual
amounts realized could be materially different than the amount recorded.
8. Special charges:
Special charges totaling $30.7 million were recorded for the three fiscal
quarters ended September 25, 1998, as follows:
A special charge of $5.7 million was recorded in the fiscal quarter ended
March 27, 1998 for integration costs associated with the acquisition of
OHM, including $2.2 million of costs for severance and $3.5 million of
costs other related items for closing and consolidating the Company's
offices with OHM's offices. As part of the plan of integration, the Company
identified slightly more than 100 IT employees in the operating group and
administrative support functions to be laid off. In addition, the Company
approved a plan for restructuring IT offices in which it would close three
leased facilities, reduce the size of three more facilities and sublease a
portion of eight additional facilities. As of October 1, 1999, $0.3 million
of the integration charge remained to be paid. The remaining costs relate
to the facility closures and office consolidations and will be paid over
the remaining terms of the leases. Most of these lease commitments will be
paid within the next three years.
12
<PAGE>
THE IT GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the second quarter ended June 26, 1998, special charges included $10.6
million (net of cash proceeds of $5.8 million) related to the sale of the
Company's investment in Quanterra, Incorporated, and $14.4 million related
to the write down of assets associated with the Company's Hybrid Thermal
Treatment System (HTTS(R)) business to estimated salvage value.
There were no special charges recorded in the third quarter ended September
25, 1998.
9. Income taxes:
The income tax provision for the quarter ended October 1, 1999 was $6.2
million, reflecting an annual tax rate of approximately 40.5% on income of
$18.5 million and a $1.5 million tax benefit from utilization of tax
attributes in the quarter previously reserved.
For the three fiscal quarters ended October 1, 1999, the Company recorded
an income tax provision of $15.9 million, reflecting an income tax rate of
40.5% on income of $42.8 million and a $1.5 million tax benefit from
utilization of tax attributes previously reserved.
For the three fiscal quarters ended September 25, 1998, the Company
recorded an income tax provision of $2.3 million, reflecting an income tax
rate of 40% on income of $15.6 million excluding special charges of $30.7
million. The income tax benefit related to the special charges was offset
by an increase in the deferred tax valuation allowance of $8.3 million.
Based on a net deferred tax asset of $109.1 million (net of a valuation
allowance of $49.8 million) at October 1, 1999 and assuming a net federal
and state effective tax rate of 40%, the level of future earnings necessary
to fully realize the net deferred tax asset would be approximately $273.0
million. The Company evaluates the adequacy of the valuation allowance and
the realizability of the net deferred tax asset on an ongoing basis.
Because of the Company's position in the industry, recent acquisitions,
restructuring and existing backlog, management expects that its future
taxable income will more likely than not allow the Company to fully realize
its net deferred tax asset.
10. Long-term debt:
As amended to date, the Company's credit facilities consist of an eight-
year amortizing term loan (term loans) of $223.5 million and a six-year
revolving credit facility (revolving loans) of $185.0 million that contains
a sublimit of $25.0 million for letter of credit issuance. The term loans
made under the credit facilities bear interest at a rate equal to LIBOR
plus 2.75% as adjusted per annum (or the lender's base rate plus 1.75% per
annum) and amortize on a semi-annual basis in aggregate annual installments
of $4.5 million until June, 2004, with the remainder payable in eight equal
subsequent quarterly installments. The revolving loans made under the
credit facilities bear interest at a rate equal to LIBOR plus 2.25% as
adjusted per annum (or the lender's base rate plus 1.25% per annum). The
interest rate spreads on the term loans and revolving loans are subject to
downward adjustments, if applicable, based upon the ratio of the Company's
consolidated debt to consolidated earnings before interest, taxes,
depreciation and amortization. The credit facilities, as amended, provide
that excess proceeds from the issuance of subordinated notes utilized to
reduce the revolving credit facility portion of the credit facilities would
not affect the future availability to the Company under the revolving
facility. Paydowns of the Company's revolving facility allow for subsequent
re-borrowing under the facility.
On April 9, 1999, the Company issued $225.0 million of senior subordinated
notes (Notes). The Company received $215.8 million in proceeds, net of
expenses of $9.2 million. The Notes have an 11.25% fixed rate of interest
payable every six months in cash commencing in 1999 and will be redeemable
in or after 2004 at a premium. The Notes are general unsecured obligations
of the Company, subordinated to the Company's credit facilities and other
senior indebtedness and pari passu with other existing and future
indebtedness unless the terms of that indebtedness expressly provide
otherwise. The proceeds of the Notes were used to fund the Roche and EFM
acquisitions and to refinance existing indebtedness under the Company's
13
<PAGE>
THE IT GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
revolving credit facility. On October 20, 1999, all issued and outstanding
Notes were exchanged for registered, publicly traded notes in completion of
a transaction under Rule 144A of the Securities Act of 1933.
Letters of credit outstanding at October 1, 1999 were $6.5 million, of which
$2.7 million were issued under the revolving credit facility.
The Company also has various miscellaneous outstanding notes payable and
capital lease obligations totaling $13.1 million. These notes payable
mature at various dates between July 1999 and November 2000, at interest
rates ranging from 7.5% to 8.6%.
11. Operating segments:
Organization
During the third quarter in response to market conditions, the Company
modified its organizational structure, altering its four reportable
segments: Engineering & Construction (E & C), Consulting, Outsourced
Services and International. Prior period segment information has been
presented on the new basis. The E&C segment includes the DOD, Energy and
Nuclear Operations, Commercial Engineering & Construction, and Solid Waste
business lines, which provide comprehensive environmental engineering and
construction services to both government and commercial clients. The
Consulting segment provides a wide range of consulting services including
risk reduction, product registration/recertification, pollution prevention,
information management, environmental health & safety management, science-
based regulatory support, and real estate restoration. The Outsourced
Services segment provides full service capabilities for operations,
maintenance, management and construction at federal, state and local
government facilities and in the private sector. The Company's International
segment provides global services to the Company's U.S. based clients, and
also performs international projects through controlled entities and joint
ventures. The Company's principal international operations are located in
Europe, Australia, Canada, and Taiwan.
Segment Information
<TABLE>
<CAPTION>
Outsourced
E & C Consulting Services International Total
-------- ---------- ---------- ------------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Quarter ended October 1, 1999
Revenues................................ $331,966 $17,642 $26,885 $17,655 $394,148
Segment profit.......................... 43,265 3,457 1,785 1,283 49,790
Quarter ended September 25, 1998
Revenues................................ $224,808 $10,432 $22,588 $ 2,359 $260,187
Segment profit.......................... 23,856 1,008 2,552 186 27,602
Three quarters ended October 1, 1999
Revenues................................ $790,263 $43,418 $78,024 $41,707 $953,412
Segment profit.......................... 101,950 7,560 6,211 2,957 118,678
Three quarters ended September 25, 1998
Revenues................................ $532,894 $34,347 $49,089 $ 5,083 $621,413
Segment profit (loss)................... 58,496 5,869 4,040 (479) 67,926
</TABLE>
14
<PAGE>
THE IT GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Quarter ended Three quarters ended
----------------------------- --------------------------
October 1, September 25, October 1, September 25,
1999 1998 1999 1998
-------------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Profit or Loss
Total profit for reportable segments..................... $ 49,790 $ 27,602 $118,678 $ 67,926
Unallocated amounts:
Corporate selling, general and administrative expense.. (14,235) (10,521) (36,123) (30,868)
Special charges (a).................................... - - - (30,665)
Interest expense, net.................................. (17,048) (7,969) (39,763) (21,454)
-------- -------- -------- --------
Income (loss) before income taxes........................ $ 18,507 $ 9,112 $ 42,792 $(15,061)
======== ======== ======== ========
</TABLE>
(a) Special charges, not included in the measurement of segment profit (loss)
for the three quarters ended September 25, 1998 include amounts relating
to the sale of the Quanterra investment, the write down of the HTTS(R)
assets, and OHM integration costs, primarily severance and office
consolidations.
12. Financial information for subsidiary guarantors
The Company's payment obligations under the Notes are fully and
unconditionally guaranteed on a joint and several basis by substantially all
of the Company's wholly owned domestic subsidiaries. The Notes have not been
guaranteed by the Company's captive insurance subsidiary nor any of the
Company's foreign subsidiaries. The following summarized financial
information presents separately the composition of the Guarantor Subsidiaries
and Non-Guarantor Subsidiaries. The principal elimination entries eliminate
investments in subsidiaries and intercompany balances and transactions.
Summarized Condensed Financial Information
As of and for the Nine Months Ended October 1, 1999
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------- ------------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Current assets.................................... $ - $ 501,998 $38,224 $ (517) $539,705
Non current assets................................ 19,522 1,172,650 37,532 (500,603) 729,101
Current liabilities............................... 1,309 287,538 33,707 (6,582) 315,972
Revenues.......................................... - 913,090 40,513 (191) 953,412
Gross margin...................................... - 129,535 3,640 (191) 132,984
Net income (loss) from continuing operations...... (10,028) 35,509 2,218 (792) 26,907
Net income (loss)................................. (10,028) 35,509 2,218 (792) 26,907
</TABLE>
Summarized Condensed Financial Information
As of and for the Nine Months Ended September 25, 1998
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------- -------------- ------------- -------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Current assets.................................... $ 3 $340,026 $10,081 $ (474) $349,636
Non current assets................................ 12,557 646,441 8,988 (147,417) 520,569
Current liabilities............................... 3,135 221,772 15,606 (7,167) 233,346
Revenues.......................................... - 615,447 6,061 (95) 621,413
Gross margin...................................... - 75,069 (96) (95) 74,878
Net income (loss) from continuing operations...... (2,568) (14,455) 1,304 (1,632) (17,351)
Net income (loss)................................. (2,568) (25,121) 1,304 (1,632) (28,017)
</TABLE>
15
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
THE IT GROUP, INC.
FOR QUARTER ENDED OCTOBER 1, 1999
RESULTS OF OPERATIONS
Overview
We are a leading provider of a broad range of environmental consulting,
engineering and construction, and remediation services, designed to address
clients' environmental needs and to add value by reducing clients' financial
liabilities. In addition, we are leveraging our ability to manage large,
complex environmental projects, one of our core strengths, to offer a variety of
services, such as facilities management and non-environmental civil
construction, to clients who no longer wish to perform these services
themselves. 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 58% of our revenues for the nine months ended
October 1, 1999 from the federal government under more than 100 contracts that
range in length from one to ten years. In addition, we serve 1,600 commercial
clients on projects, which range in length from one month to more than one year.
For the nine months ended October 1, 1999, our revenues were $953.4 million.
Approximately 86% of our backlog at October 1, 1999 was under federal government
programs, and approximately 83% is expected to be charged to our clients on a
cost-reimbursable basis.
In the course of providing our services, we routinely subcontract services.
These subcontractor costs are passed through to clients and, in accordance with
industry practice, are included in our revenues. Our cost of revenues include
subcontractor costs, salaries, direct and indirect overhead costs such as rents,
utilities and travel directly attributable to projects. Our selling, general and
administrative expenses are comprised primarily of costs related to the
executive offices, corporate accounting, information technology, marketing and
bid and proposal costs. These costs are generally unrelated to specific client
projects. In addition, we include in these expenses amortization of intangible
assets such as goodwill resulting from acquisitions.
Revenues and Gross Margins
Company. Revenues for the three months ended October 1, 1999 increased $134.0
million, or 51.5%, to $394.1 million, and for the nine-month year to date period
increased $332.0 million, or 53.4%, to $953.4 million over the comparable prior
year period. The increases in revenues are primarily attributable to the
acquisitions of OHM Corporation (OHM) in February and June, 1998, Fluor Daniel
GTI, Inc. (GTI) in December 1998, Roche Limited Consulting Group (Roche) in
March 1999, the Environment and Facilities Management Group of ICF Kaiser
International, Inc. (EFM) in April 1999, and EMCON, Inc. (EMCON) in June 1999
(see Item 1 - Notes to Condensed Consolidated Financial Statements, Note 2).
Annual revenues for 1999 are projected to be approximately $1.3 billion.
Our gross margin for the quarter ended October 1, 1999, improved to 14.0% of
revenues, compared to 11.7% of revenues reported in the quarter ended September
25, 1998. Our gross margin for the nine months ended October 1, 1999 increased
to 13.9% of revenues, compared to 12.0% of revenues reported in the nine months
ended September 25, 1998. The increases in gross margins over the prior year
periods were due to a favorable mix of higher margin revenue, contract
performance, and overhead efficiencies. We expect our gross margin percentage
to continue at the current level throughout the balance of the year. Our
ability to maintain or improve our gross margin levels as well as to achieve
target earnings is dependent on various factors in addition to the mix of work,
including utilization of professional staff, successful execution of projects
and bidding of new contracts at adequate margin levels, and continued
realization of overhead savings achieved upon the successful integration of
recent acquisitions.
16
<PAGE>
THE IT GROUP, INC.
RESULTS OF OPERATIONS (CONTINUED)
A significant percentage of our revenues continue to be earned from federal
government contracts with various federal agencies. Revenues from federal
government contracts accounted for 58% of our consolidated revenues in the nine
months ended October 1, 1999 and 64% in the nine months ended September 25,
1998. Although the percentage of revenues from federal government contracts
decreased, the absolute dollars of federal government revenues increased to
$556.4 million in the nine months ended October 1, 1999 compared to $388.7
million in the nine months ended September 25, 1998. This increase is primarily
attributable to the acquisitions of OHM, GTI and EFM. Federal government
revenues are derived principally from work performed for the Department of
Defense (DOD) and, to a lesser extent, the Department of Energy (DOE). We expect
to continue to earn a substantial portion of our Engineering & Construction
segment revenues from DOD indefinite delivery order contracts, which are
primarily related to remedial action work. In addition, we expect to increase
our revenues from the DOE in the future due to an expected transition by the DOE
over the next several years to emphasize remediation, as opposed to studies,
combined with our favorable experience in winning and executing similar work for
the DOD, however, recent bidding results on new DOE contract awards have been
impacted by significant competition, which will affect our DOE revenue growth
from new awards in the near term.
Revenue growth from the commercial sector is expected to be directly related to
the desire on the part of our clients for strategic environmental services that
provide an integrated, proactive approach to environmental issues that are
driven by economic, as opposed to regulatory, concerns. To address this trend in
industry spending, we have undertaken a strategy of expanding through
acquisitions our integrated environmental service capabilities to provide
additional proactive and cost-effective environmental solutions based on
economic rather than regulatory considerations. In addition, we have realigned
our organizational resources to meet market conditions.
Engineering & Construction. Revenues from the Engineering & Construction
segment increased $107.2 million, or 47.7%, to $332.0 million for the three
months ended October 1, 1999. For the nine months ended September 25, 1999,
performed for the DOD, the DOE, other governmental agencies, and commercial
clients Engineering & Construction segment revenues increased $257.4 million,
or 48.3%, to $790.3 million. Our Engineering & Construction segment includes
revenues from our DOD, Energy and Nuclear Operations (ENO), Commercial
Engineering & Construction (CEC), and Solid Waste business lines, which draw
personnel, equipment and other project resource requirements from our national
shared services organization.
For the three months ended October 1, 1999, revenues from DOD increased $24.2
million, or 18.7%, to $153.3 million, ENO revenues, derived principally from the
DOE, increased $11.1 million, or 39.6%, to $39.2 million, and commercial
revenues from the CEC and Solid Waste business lines increased $71.9 million, or
106.3%, to $139.5 million. DOD revenues increased primarily as a result of the
EFM acquisition. ENO revenues increased primarily due to the transition to the
remediation phase of a $122.0 million project to perform the excavation,
pretreatment and drying of an estimated one million tons of materials for the
DOE's Fernald Environmental Management Project (Fernald Project). Commercial
revenues increased primarily as a result of the EFM, GTI and EMCON acquisitions.
For the nine months ended October 1, 1999, revenues from DOD increased $85.2
million, or 28.4%, to $385.5 million, ENO revenues increased $34.0 million, or
55.1%, to $95.6 million, and commercial revenues increased $137.2 million, or
79.7%, to $309.2 million. The increase in DOD revenues was mainly the result of
the OHM and EFM acquisitions. The increase in ENO revenues is mainly due to our
Fernald Project. The increase in commercial revenues is mainly due to the EFM,
GTI and EMCON acquisitions, which was partially offset by second quarter client-
controlled delays in starting fieldwork construction activities.
Our Engineering & Construction segment profit margin was $43.3 million, or 13.0%
of segment revenues, for the three months ended October 1, 1999, compared to
$23.9 million, or 10.6% of segment revenues, for the three months ended
September 25, 1998. Segment profit margin represents revenues, less cost of
revenues and selling general and administrative expenses (excluding goodwill)
directly attributable to operations. DOD margins were 10.5% for the current
year's quarter, compared to 10.9% for the prior year period. ENO margins were
14.6% for the current year's quarter, compared to 13.1% for the prior year
period. Commercial margins were 15.5% for the current year's quarter compared to
9.0% for the prior year period, and increased primarily due to the GTI and EMCON
acquisitions.
For the nine months ended October 1, 1999, our Engineering & Construction
segment profit margin was $102.0 million, or 12.9% of segment revenues, for the
nine months ended October 1, 1999 compared to $58.5 million, or 11.0% of segment
17
<PAGE>
THE IT GROUP, INC.
RESULTS OF OPERATIONS (CONTINUED)
revenues, for the nine months ended September 25, 1998. DOD margins were 11.0%
for the current year-to-date period, compared to 10.6% in the prior year. ENO
margins were 12.5% in the current year-to-date period, compared to 13.9% in the
prior year. Commercial margins were 15.4% for the current year-to-date period,
compared to 10.6% for the prior year and increased primarily due to the GTI and
EMCON acquisitions. The changes in margin percentages for the three months and
nine months ended October 1, 1999 over the prior year periods were also due to
the revenue mix, contract performance, and improved overhead efficiencies.
Consulting. Revenues from our Consulting segment increased $7.2 million, or
69.1%, to $17.6 million for the three months ended October 1, 1999. For the
nine months ended October 1, 1999, Consulting revenues increased $9.1 million,
or 26.4%, to $43.4 million. Most of the revenues in Consulting are derived from
commercial clients, and the increases were primarily due to the GTI, EFM and
EMCON acquisitions.
Our Consulting segment profit margin was $3.5 million, or 19.6% of segment
revenues in the three months ended October 1, 1999, compared to $1.0 million, or
9.7% of segment revenues, for the three months ended September 25, 1998. The
real estate restoration business completed transactions in the quarter ended
October 1, 1999 which had the impact of improving segment profit margins. The
timing of transactions in real estate restoration is dependent on a number of
factors, not all of them within our control, which may cause significant
fluctuations in segment profit margins in the periods in which transactions
close. Our Consulting segment profit margin was $7.6 million, or 17.4% of
segment revenues, for the nine months ended October 1, 1999, compared to $5.9
million, or 17.1% of segment revenues for the nine months ended September 25,
1998.
Outsourced Services. Outsourced Services revenues increased $4.3 million, or
19.0%, to $26.9 million for the three months ended October 1, 1999. For the
nine months ended October 1, 1999, Outsourced Services revenues increased $28.9
million, or 58.9%, to $78.0 million. The revenue increases are attributable to
the OHM acquisition in February 1998 and the inclusion of its outsourcing
operations in our results of operations for the entire nine months ended October
1, 1999, as opposed to seven months of revenues included in comparable prior
year period, and also to the EFM acquisition. Our outsourcing operations
provide a range of project, program and construction management services to the
DOD as well as state and local government agencies.
Our Outsourced Services segment profit margin was $1.8 million, or 6.6% of
revenues for the three months ended October 1, 1999, and $2.6 million, or 11.3%
of revenues for the three months ended September 25, 1998. The decrease in
overall gross margin dollars and in gross margin percentage is the result of an
increase in contract volume for larger, longer term contracts that have lower
overall margins. For the nine months ended October 1, 1999, the Outsourced
Services segment profit margin was $6.2 million, or 8.0% of segment revenues,
compared to $4.2 million, or 8.2% of segment revenues for the nine months ended
September 25, 1998.
International. International revenues were $17.7 million for the three months
ended October 1, 1999 compared to $2.4 million for the three months ended
September 25, 1998. For the nine month periods ended October 1, 1999 and
September 25, 1998, International revenues were $41.7 million and $5.1 million,
respectively. The increase is the result of the acquisitions of GTI in December
1998 and Roche in March 1999.
Our International segment profit margin was $1.3 million, or 6.6% of revenues
for the three months ended October 1, 1999 compared to a profit of $0.2 million
in the three months ended September 25, 1998. International segment profit
margin was $3.0 million, or 6.8% of revenues for the nine months ended October
1, 1999 compared to a loss of $0.5 million in the nine months ended September
25, 1998. This improvement is primarily due to the GTI and Roche acquisitions.
The GTI acquisition increased the size of the International segment with
operations primarily in Australia, the United Kingdom and Italy. The GTI
acquisition included approximately $80.0 million of contract backlog for work to
be performed for the U.S. Air Force Center for Environmental Excellence under a
worldwide five-year indefinite delivery order cost-reimbursable contract.
Roche, based in Canada, had $28.0 million in revenues for 1998.
18
<PAGE>
THE IT GROUP, INC.
RESULTS OF OPERATIONS (CONTINUED)
Backlog. Our total funded and unfunded backlog at October 1, 1999 was $4.0
billion, an increase of $0.5 billion from December 25, 1998, primarily due to
the acquisitions of EFM, Roche and EMCON. We have an additional $0.5 billion of
backlog which is performed through joint venture arrangements and accounted for
under the equity method. New contract awards in the period came from a cross-
section of our markets including federal and state/local government agencies,
utility and other commercial clients and outsourced services. We expect to earn
revenues from our backlog primarily over the next one to five years, with a
substantial portion of the backlog consisting of federal government contracts,
many of which are subject to annual funding and definition of project scope.
The backlog at October 1, 1999 includes $3.0 billion of future work we estimate
we will receive (based on historical experience) under existing indefinite
delivery order programs. In accordance with industry practices, substantially
all of our contracts are subject to cancellation, delay or modification by the
customer.
Our backlog at any given time is subject to changes in scope of services, which
may lead to increases or decreases in backlog amounts. These scope changes have
led to a number of contract claims requiring negotiations with clients in the
ordinary course of business. (See Item 1. Financial Statements - Notes to
Condensed Consolidated Financial Statements - Note 7 - Contract accounting and
accounts receivable.)
Selling, General and Administrative Expenses
Selling, general and administrative expenses (SG&A) were 5.0% of revenues for
the three months ended October 1, 1999 compared to 5.1% of revenues in the three
months ended September 25, 1998. SG&A expenses were 5.3% of revenues for the
nine months ended October 1, 1999 compared to 6.1% of revenues in the nine
months ended September 25, 1998. As a percentage of revenues, SG&A expenses are
generally lowest in the third quarter due to increased revenues from the
seasonal nature of the construction portion of the business. The decreases in
SG&A expenses as a percentage of revenues compared to the prior year periods are
primarily attributable to the elimination of certain duplicative overhead
functions and other cost savings achieved as a result of the OHM, GTI, EFM and
EMCON acquisitions..
SG&A expenses include goodwill amortization expense of $4.3 million for the
three months ended October 1, 1999 and $2.3 million for the three months ended
September 25, 1998. SG&A expenses excluding goodwill were 3.9% of revenues
for the three months ended October 1, 1999 and 4.2% of revenues for the three
months ended September 25, 1998. For the nine months ended October 1, 1999,
SG&A expenses include goodwill amortization expense of $10.0 million compared to
$5.0 million for the nine months ended September 25, 1998. The increases in
goodwill amortization expenses are primarily due to the OHM, GTI, EFM and EMCON
acquisitions. SG&A expenses excluding goodwill were 4.2% of revenues for the
nine months ended October 1, 1999 and 5.3% of revenues for the nine months ended
September 25, 1998. Management expects SG&A expenses excluding goodwill,
compared to prior year-to-year periods, to continue to decrease slightly as a
percentage of revenue because we anticipate additional cost savings to be
achieved from our recent acquisitions.
Special Charges
Special charges of $30.7 million were recorded in the three fiscal quarters
ended September 25, 1998 as outlined below:
<TABLE>
<CAPTION>
Cash/ Special Reserve balance
Noncash Charges Activity at 10/1/99
--------------- ------------------- ---------------- ---------------
(In thousands)
<S> <C> <C> <C> <C>
Sale of the Quanterra Investment Noncash $(10,550) $10,550 $ -
Write-down of assets - Primarily Noncash (14,421) 14,421 -
the Hybrid Thermal Treatment System (HTTS)
Integration costs--OHM acquisition
Severance...................................... Cash (2,197) 2,197 -
Duplicative offices/assets..................... Cash (2,478) 2,160 (318)
Other.......................................... Cash (1,019) 1,019 -
-------- ------- -----
Total.......................................... $(30,665) $30,347 $(318)
======== ======= =====
</TABLE>
19
<PAGE>
THE IT GROUP, INC.
RESULTS OF OPERATIONS (CONTINUED)
A $10.6 million special charge (net of cash proceeds of $5.8 million) related to
the sale of our investment in Quanterra, Incorporated.
A $14.4 million special charge related to the write down of assets associated
with our HTTS(R) business to estimated salvage value.
A $5.7 million special charge for integration costs associated with the
acquisition of OHM included $2.2 million of costs for severance and $3.5 million
of costs and other related items for closing and eliminating duplicative
offices. As part of the plan of integration, we laid-off more than 100 IT
employees, primarily in the operating group and administrative support
functions. In addition, as part of the plan we closed three leased facilities,
reduced the size of three more facilities and subleased a portion of eight
additional facilities. As of October 1, 1999, $0.3 million of the integration
charge remained to be paid. The remaining costs relate to the facility closures
and office consolidations and will be paid over the remaining terms of the
leases. Most of these lease commitments will be paid within the next three
years.
Interest, Net
Net interest expense represented 4.2% of revenues in the three fiscal quarters
ended October 1, 1999 and 3.5% for the three fiscal quarters ended September 25,
1998. In absolute dollars, net interest expense was $39.8 million and $21.5
million for the nine months ended October 1, 1999 and September 25, 1998,
respectively. This increase in net interest expense is due principally to the
April 9, 1999 issuance of $225.0 million, 11.25%, ten year senior subordinated
notes and the increased level of debt required to finance the OHM, GTI, EFM and
EMCON acquisitions.
Income Taxes
For the three fiscal quarters ended October 1, 1999, the income tax provision
was $15.9 million, reflecting an income tax rate of approximately 40.5% on
income of $42.8 million and a $1.5 million benefit from utilization of tax
attributes previously reserved. For the three fiscal quarters ended September
25, 1998, the income tax provision was $2.3 million, reflecting an income tax
rate of 40% on income of $15.6 million excluding special charges of $30.7
million. The income tax benefit related to the special charges was offset by an
increase in the deferred tax valuation allowance of $8.3 million. See Item 1.
Financial Statements - Notes to Condensed Consolidated Financial Statements,
Note 9.
Extraordinary Item
For the nine months ended September 25, 1998, we recorded a $5.7 million charge,
net of income tax benefit of $3.5 million, for the early extinguishment of $65.0
million of senior debt which was refinanced in connection with the acquisition
of OHM. We incurred a $5.6 million payment for the make whole interest provision
as a result of retiring our $65.0 million senior debt early in accordance with
the loan agreement. In addition, we also expensed approximately $3.6 million
related to the unamortized loan origination expenses associated with issuing the
$65.0 million senior debt.
Dividends
Our reported dividends for the three quarters ended October 1, 1999 were $4.8
million and for the three quarters ended September 25, 1998 were $4.7 million.
Our reported dividends for three quarters ended September 25, 1998 include
imputed dividends of $1.1 million, which were paid in stock.
20
<PAGE>
THE IT GROUP, INC.
RESULTS OF OPERATIONS (CONTINUED)
Our dividends are summarized below:
<TABLE>
<CAPTION>
Fiscal quarters ended Three fiscal quarters ended
--------------------------- ---------------------------
September 25, October 1, September 25, October 1,
Dividend Summary on Preferred Stock 1999 1998 1999 1998
- ----------------------------------------- -------------- ----------- ------------- ----------
<S> <C> <C> <C> <C>
7% Cumulative convertible exchangeable
Cash dividend.......................... $ 898,000 $ 899,000 $2,694,000 $2,697,000
6% Cumulative convertible participating
Cash dividend.......................... 692,000 - 2,076,000 -
Imputed non-cash dividend.............. - 330,000 - 1,137,000
In kind 3% stock dividend.............. - 340,000 - 862,000
---------- ---------- ---------- ----------
Total............................... $1,590,000 $1,569,000 $4,770,000 $4,696,000
========== ========== ========== ==========
</TABLE>
Discontinued Operations
In the nine months ended September 25, 1998, we increased our provision for loss
on disposition of our discontinued transportation, treatment and disposal
business by $5.0 million net of income tax benefit of $3.0 million. This
increased provision primarily related to an additional accrual for closure costs
related to the former Panoche disposal site. In March 1998, we obtained approval
by the California Department of Toxic Substances Control (DTSC) of the final
closure and post closure plan for the last of our four inactive treatment,
storage and disposal facilities. The approved plans allow us to proceed with the
completion of final closure construction and provides for future submittal of
technical studies that will be utilized to determine final aspects and costs of
closure construction and monitoring programs for the former Panoche disposal
site.
For further information regarding our discontinued operations, see Item 1. Notes
to Condensed Consolidated Financial Statements - Note 5 - Discontinued
Operations, and Management's Discussion and Analysis of Results of Operations
and Financial Condition - Financial Condition Transportation, Treatment and
Disposal Discontinued Operations.
21
<PAGE>
THE IT GROUP, INC.
LIQUIDITY AND CAPITAL RESOURCES
THE IT GROUP, INC.
FINANCIAL CONDITION
Working capital at October 1, 1999 was $223.7 million, which is an increase of
$103.4 million, or 86%, from the December 25, 1998 working capital of $120.3
million. The current ratio at October 1, 1999 was 1.71:1, which compares to
1.44:1 at December 25, 1998.
Cash used by operating activities, which includes cash outflows related to
discontinued operations, for the nine months ended October 1, 1999 totaled $19.5
million compared to $21.4 million used by operating activities in the
corresponding period of last year, a reduction in the use of cash by operating
activities of $1.9 million. The usage of cash by operations as measured by the
changes in operating assets and liabilities increased $44.9 million over the
prior year due to increased volume, which offset a $54.9 million year-to-year
improvement in net income. Our seasonal working capital requirements generally
result in additional uses of cash by operating activities during the third
quarter.
Cash used by investing activities was $213.9 million for the nine months ended
October 1, 1999 compared to $216.4 million for the nine months ended September
25, 1998. The uses of cash in both periods were primarily related to the
acquisition of businesses, net of cash acquired. For the nine months ended
October 1, 1999, we used $195.7 million for acquisitions, including $74.0
million for EFM, $10.2 million for Roche, $61.9 million for EMCON, and the
balance for acquisition related liabilities including employee severance,
relocation and facility closure costs, and consideration paid relating to these
companies and other previously acquired entities. For the nine months ended
September 25, 1998, we used $215.5 million for acquisitions, including $199.6
for OHM, and $15.9 million related to other acquisitions and related
liabilities. Capital expenditures of $14.5 million for the nine months ended
October 1, 1999 were $8.8 million greater than the prior fiscal year principally
due to the system enhancements to accommodate acquisitions and the related
increases in revenues.
Long-term debt of $664.1 million at October 1, 1999 increased from $405.1
million at December 25, 1998 primarily due to the issuance of $225.0 million in
10 year senior subordinated notes (Notes), which were used for the acquisitions
of EFM and Roche, and to refinance our existing indebtedness, and also increased
due to borrowings under the revolving credit facility to finance the EMCON
acquisition, and due to seasonal working capital requirements. The ratio of
total debt, including current portion, to equity was 2.62:1 at October 1, 1999
and was 1.77:1 at December 25, 1998. The Notes have a 11.25% fixed rate of
interest payable semiannually in cash commencing October 1999 and will be
redeemable on or after 2004 at a premium with a stated maturity of April 2009.
The Notes are general unsecured obligations of the Company, subordinated to the
Company's credit facilities (see Item 1. Financial Statements - Notes to
Condensed Consolidated Financial Statements, Note 10 - Long-term debt) and other
senior indebtedness and pari passu with other existing and future indebtedness
unless the terms of that indebtedness expressly provide otherwise.
As a result of the utilization of funds for acquisition purposes, seasonal
working capital requirements, and interest payments, we have utilized a larger
portion of our existing revolving credit capacity than was planned. For the
quarter, our average liquidity was approximately $23.0 million. We expect the
liquidity position to improve throughout the fourth quarter, and to be
sufficient to meet our operational needs over the next year. Additionally,
subsequent to October 1, 1999, we obtained the release of $14.9 million
previously held in restricted trust funds associated with our discontinued
operations (see Item 1. Financial Statements--Notes to Condensed Financial
Statements, Note 5--Discontinued Operations). The Company continues to have
substantial cash requirements, including interest, operating lease payments,
obligations related to acquisitions, and capital expenditures. We are continuing
with our ongoing efforts to identify acquisition candidates and simultaneously
capital resources which will be required to complete any significant acquisition
transaction.
22
<PAGE>
THE IT GROUP, INC.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Transportation, Treatment and Disposal Discontinued Operation
As a part of the Company's discontinued transportation, treatment, and disposal
operations, the Company operated a series of treatment, storage and disposal
facilities in California, including four major disposal facilities. Closure
plans for all four of these facilities have now been approved by all applicable
regulatory agencies. As of October 1, 1999, three of the Company's inactive
disposal sites have been formally closed and the fourth is in the process of
closure, which is scheduled to be substantially completed by the fall of 2000.
On March 18, 1998, the DTSC certified the Environmental Impact Report and
approved the Closure Plan for the Panoche facility. The approved plans provide
for submittal of technical studies that will be utilized to determine final
aspects, details and costs of closure construction and monitoring programs.
While we believe that the approved closure plans substantially reduce future
cost uncertainties to complete the closure of the Panoche facility, the ultimate
costs will depend upon the results of the technical studies called for in the
approved plans.
Closure and post-closure costs are incurred over a significant number of years
(including post-closure monitoring and maintenance of its disposal facilities
for at least thirty years) and are subject to a number of variables including,
among others, negotiations with and oversight by regulatory agencies regarding
the details of site closure and post-closure. We have estimated the impact of
closure and post-closure costs in the provision for loss on disposition of
transportation, treatment and disposal discontinued operations; however, closure
and post-closure costs could be higher than estimated if regulatory agencies
were to require closure and/or post-closure procedures significantly different
than those in the approved plans, or if we are required to perform unexpected
remediation work at the facilities in the future or to pay penalties for alleged
noncompliance with regulations or permit conditions. We believe this insurance
coverage substantially reduces our potential post-closure cost growth risk. We
will have future cash requirements for closure costs over the next two years,
and premium payments on the environmental insurance coverage over the next three
years. (see Item 1 Financial Statements - Notes to Condensed Consolidated
Financial Statements, Note 5 - Discontinued operations).
With regard to the carrying value of residual land at the inactive disposal
facilities, a substantial component of which is adjacent to those facilities and
was never used for waste disposal, in June 1999, a local community's review of
its growth strategy resulted in limitations, in line with our expectations, on
our ability to develop a portion of our residual land. If the assumptions used
to determine the carrying value are not realized, the value of the land could be
materially different from the current carrying value.
With respect to the Operating Industries, Inc. Superfund site in Monterey Park,
California, for which USEPA notified a number of entities, including the
Company, that they were PRPs, there were no significant developments during the
quarter, but in September 1999 mediation commenced in our litigation (Members of
the GBF/Pittsburg Landfill(s) Respondents Group, etc. et al, v. Contra Costa
Waste Service, etc., et al. U.S.D.C., N.D. CA, Case No. C96-03147SI) against the
owner/operators of the site and other non-cooperating PRP's to cause them to
bear their proportionate share of site remedial costs. Negotiations continue
with the owner/operators, and the PRP group continues to explore methods to
resolve the matter satisfactorily. Discovery in the case has been suspended for
90 days. During the quarter, we finalized our arrangements with other members of
the PRP group to share approximately 50% of site costs, which was consistent
with our previous interim agreement. Failure of the PRP group to effect a
satisfactory resolution with respect to the choice of appropriate remedial
alternatives or to obtain an appropriate contribution towards site remedial
costs from the current owner/operators of the site and other non-cooperating
PRPs, could substantially increase the cost to the Company of remediating the
site. The outcome of the litigation cannot be determined at this time.
23
<PAGE>
THE IT GROUP, INC.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Year 2000 Compliance
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of our computer
programs or hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculation causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
State of Readiness. We are engaged in a company-wide effort (Project) to
address the issues that are likely to arise if computer programs and embedded
computer chips are unable to properly recognize dates in and after the year
2000. The Project is focused on three main areas:
. the information technology systems in our computers and computer software,
including those that are linked to the systems of third parties;
. the non-information technology systems embedded in equipment that controls or
monitors our operating assets; and
. our business relationships with third parties.
The thrust of the Project is to address those information technology systems,
non-information technology systems and relationships with external agents which
we judge to be materially important to our operating results or financial
condition, including those relating to significant entities (OHM, GTI, EFM,
Roche and EMCON) which we have recently acquired.
Work dealing with both information technology and non-information technology
systems has the following three phases:
. Inventory and Assessment - inventorying all of our systems (including those
that are linked to third parties), identifying our systems that are not year
2000 compliant, and making judgments as to which of our systems (both
compliant and non-compliant) would likely be materially important;
. Strategy and Planning - developing strategies and plans for:
. remediating, upgrading or replacing all non-compliant systems (except
those whose failure would, in our judgment, have an insignificant impact
on our operations), and
. testing all systems judged to be materially important, and estimating the
costs of implementing these strategies and executing these plans; and
. Execution - implementing the strategies and executing the plans.
Work dealing with relationships with external agents has the following three
phases:
. Inventory and Assessment - inventory of our relationships with external
agents and making judgments as to which of these relationships would likely
be materially important;
. Communication and Evaluation - delivery of letters and questionnaires to
materially important external agents to obtain information about their plans
and actions to achieve timely year 2000 readiness, and evaluating their
responses; and
. Follow up - contacting these external agents to obtain further assurance that
they will achieve timely year 2000 readiness.
24
<PAGE>
THE IT GROUP, INC.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Additional Project work, discussed below, involves identifying scenarios
involving failures for year 2000 reasons of materially important systems or
materially important relationships with external agents and developing
contingency plans for mitigating the impact of such failures.
For information technology systems, including those of our recently acquired
entities, the materially important systems are the core financial and
administrative software system, network operating systems, desktop and laptop
computers, and telecommunications equipment. The inventory and assessment and
the strategy and planning phases of the work dealing with all materially
important information technology systems are complete. The execution phase of
this work involves both application and infrastructure repair and systems
upgrades and replacements.
Our core financial and administrative software systems are certified as Year
2000 compliant by the vendor. During the year ended March 27, 1998, we
established an integration test plan to test this software and verify Year 2000
compliance. In February 1998, these integration tests were successfully
completed. Our core hardware was also tested and found to be fully compliant
with the Year 2000 requirements, and includes the integration of the acquired
operations of OHM, GTI, EFM, and EMCON. The financial and accounting systems of
Roche have been upgraded for Year 2000 compliance, and our other significant
international operations have been integrated into our core system. All
upgrades for network operating systems, desktop and laptop computers were
competed in October 1999. Our remaining telecommunications equipment upgrades,
representing less than 10% of the PBX phone systems, will be completed by the
end of November 1999.
Materially important non-information technology systems involved in operations
include products purchased from third parties, primarily design and engineering
support software, proprietary software sold by us used in ongoing environmental
remediation and compliance activities, and field monitoring equipment. All
phases of Year 2000 compliance for design and engineering support software and
field monitoring equipment were completed by October 1999. For proprietary
environmental software, all remediation of non-Year 2000 software was completed
by July 1999.
The inventory and assessment phase of the work dealing with relationships with
external agents is complete. Our Year 2000 Program Director has coordinated
communications with clients, suppliers, financial institutions and others with
which we do business to obtain information about the state of these parties'
Year 2000 readiness. The follow-up phase of this work will be undertaken on a
continuous, ongoing basis through the end of 1999. Our communications have
included over 3,000 vendors, with over 55% of our vendors, including 90% of our
50 largest dollar volume vendors, having positively responded as being Year 2000
compliant. Our 50 largest dollar volume commercial clients all report to be Year
2000 compliant and in final contingency planning stages. Our communications
have included various entities of the U.S. federal government, which comprised
approximately 58% of our revenues for the nine months ended October 1, 1999.
The principal U.S. federal government payment systems with which we process cash
receipts have all reported to be Year 2000 compliant. At this time, we cannot
predict the impact on our consolidated financial condition, liquidity and
results of operations of the U.S. federal government's Year 2000 readiness. The
failure of the U.S. federal government to pay its bills on a timely basis could
have a material adverse effect on our consolidated financial condition,
liquidity and results of operations.
Costs. Management has prepared a detailed conversion plan and has estimated
the total cost of Year 2000 compliance to be approximately $6.2 million,
including costs related to the recent acquisitions described above. As of
October 1, 1999, we had incurred costs of approximately $5.0 million to address
Year 2000 issues, with the remaining costs to be incurred mainly in 1999. All of
the costs have been or will be charged to operating expense and funded through
operating cash flows. Approximately 90% of both planned and incurred costs
relate to hardware and software expenditures, and approximately 10% relate to
outside consultants. Internal costs of the Project are not separately tracked.
Additional costs could be incurred if significant remediation activities are
required with third parties.
Risks and Contingencies. We continue to develop contingency plans to address
how we will handle the most reasonably likely worst case scenarios including
situations where our clients, suppliers, financial institutions and others are
not Year 2000 compliant on January 1, 2000. We do not have control over these
third parties and, as a result, cannot currently estimate to what extent future
operating results may be adversely affected by the failure of these third
parties to successfully address their Year 2000 issues. However, our contingency
plans will include actions designed to identify and minimize any third party
exposures and management believes that, based on third party exposures
identified to date, these issues should be resolved by the year 2000.
25
<PAGE>
THE IT GROUP, INC.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Forward Looking Statements Relating to the Year 2000. The foregoing discussion
about the year 2000 issue includes a number of forward-looking statements, which
are based on our best assumptions and estimates. These include statements
concerning our estimated timetables for completing the uncompleted phases of the
Project work, our estimates of the percentages of the work that remains to be
performed to complete these phases, our estimated timetable for identifying
scenarios involving possible failures for year 2000 issues in materially
important systems and relationships with external agents and the development and
implementation of contingency plans for mitigating the impacts of these
scenarios, and our estimates of the costs of each phase of our year 2000 work.
Actual results could differ materially from the estimates expressed in these
forward-looking statements, due to a number of factors. These factors, which are
not necessarily all the key factors that could cause such differences, include
the following:
. our failure to judge accurately which of our systems and relationships with
external agents are materially important;
. our inability to obtain and retain the staff and third-party assistance
necessary to complete the uncompleted phases of the Project in accordance
with our estimated timetables;
. the inability of such staff and third parties (1) to locate and correct all
non-year 2000 compliant computer code in materially important systems and
test such corrected code and (2) to install and test upgrades or new systems
containing year 2000-compliant computer code, all in accordance with our
estimated timetables;
. unforeseen costs of completing our year 2000 work;
. our inability or failure to identify significant year 2000 issues not now
contemplated; and
. the failure of external agents to achieve timely year 2000 readiness.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements of our intentions, beliefs, expectations or predictions for the
future, denoted by the words "anticipate," "believe," "estimate," "expect,"
"project," "imply," "intend," "foresee" and similar expressions are forward-
looking statements that reflect our current views about future events and are
subject to risks, uncertainties and assumptions. These risks, uncertainties and
assumptions include the following:
. changes in laws or regulations affecting our operations, as well as
competitive factors and pricing pressures,
. bidding opportunities and successes,
. project results, including success in pursuing claims and change orders,
. management of our cash resources, particularly in light of our substantial
leverage,
. funding of our backlog,
. matters affecting contracting and engineering businesses generally, such as
the seasonality of work, the impact of weather and clients' timing of
projects,
. our ability to generate a sufficient level of future earnings to utilize our
deferred tax assets,
26
<PAGE>
THE IT GROUP, INC.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
. the ultimate closure costs and post-closure costs of our discontinued
operations,
. the success of our acquisition strategy, including the effects of the
integration of our recent acquisitions and any future acquisitions, and
achievement of expected cost savings and other synergies from these
acquisitions,
. adequacy of Year 2000 compliance, or assessments regarding compliance, by
ourselves or third parties, including our customers, and the costs or
completeness of remediation or the adequacy of contingency plans, and
. industry-wide market factors and other general economic and business
conditions.
Our actual results could differ materially from those projected in these
forward-looking statements as a result of these factors, many of which are
beyond our control.
27
<PAGE>
THE IT GROUP, INC.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
On April 9, 1999, the Company issued $225.0 million of senior subordinated notes
which have a fixed interest rate of 11.25%. Since these instruments have a fixed
rate of interest, we are not exposed to the risk of earnings loss due to changes
in market interest rates. The fair value of these instruments at October 1,
1999 was $216.0 million. On October 20, 1999, these notes were exchanged for
registered, publicly traded notes.
There were no other material changes in the Company's exposure to market risk
from December 25, 1998.
28
<PAGE>
PART II
THE IT GROUP, INC.
Item 1. Legal Proceedings.
The continuing operations litigation to which the Company is a party is more
fully discussed in the note "Commitments and Contingencies" in the Notes to
Consolidated Financial Statements in the Company's Annual Report on Form 10-K,
as amended, for the nine months ended December 25, 1998. See also Management's
Discussion and Analysis of Results of Operations and Financial Condition -
Transportation, Treatment and Disposal Discontinued Operations for information
regarding litigation related to the discontinued operations of the Company.
Except as noted, there have been no material changes in any of the Company's
legal proceedings since the date of the Company's Annual Report on Form 10-K.
Coakley Landfil Action
Trial in this case have been set for September 2000.
29
<PAGE>
THE IT GROUP, INC.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. These exhibits are numbered in accordance with the Exhibit
Table of Item 601 of Regulation S-K.
Exhibit No. Description
----------- ---------------------------------------------------------
10(ii) 34. Commercial Premium Finance Agreement, dated September 15,
1999, by and between the Registrant and AFCO Credit
Corporation.
35. General Indemnity Agreement, dated September 13, 1999,
by and between the Registrant, IT Corporation, and the
American International Group of Companies.
36. Forms of Hazardous Waste -- Post-Closure Policies, dated
September 1999, (including forms of Notional Commutation
Account Endorsements), issued by American International
Specialty Lines Insurance Company on behalf of the
Registrant and IT Corporation and the Named Insureds
thereunder.
10(iii) 44. The IT Group, Inc. 1999 Management Incentive Plan*
_____________________________________
* Filed as a management compensation plan or arrangement per Item
14(a)(3) of Securities Exchange Act.
(b) Reports on Form 8-K
1. Current Report on Form 8-K, filed August 6, 1999, reporting under
Item 5 the reorganization of the Company's principal business
units and related senior management changes.
30
<PAGE>
THE IT GROUP, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE IT GROUP, INC.
(Registrant)
ANTHONY J. DELUCA November 15, 1999
- ------------------------------------ --------------------------
Anthony J. DeLuca
President and Chief Executive Officer
and Duly Authorized Officer
HARRY J. SOOSE, JR. November 15, 1999
- ------------------------------------ --------------------------
Harry J. Soose, Jr.
Senior Vice President, Chief Financial Officer
and Principal Financial Officer
JAMES J. PIERSON November 15, 1999
- ------------------------------------ --------------------------
James J. Pierson
Vice President, Finance and
Principal Accounting Officer
31
<PAGE>
Exhibit 10(ii) (34)
AFCO Commercial Premium Finance Agreement
401 Washington Avenue, P.O. Box 27413, Baltimore, MD 21285
Tel. Nos. (410) 2296-5000 (800) 288-4217
Page 1 of 2
Agent Insured
(Name and Address) 70-37-11798-1 (Name and Address as shown on the policy)
MARSH USA INC The IT Group
Attn: Paul Hoyt 2790 Mosside Blvd.
Six PPG Place, Ste 300 Monroeville, PA 15146
Pittsburgh, PA 15222
(412) 552-5000
<TABLE>
<S> <C> <C> <C> <C>
A) Total Premiums B) Down Payment C) Amount Financed D) Finance Charge E) Total Payments
8,200,000.00 749,180.64 7,450,819.36 790,167.68 8,240,987.04
F) Annual Percentage Rate No. of Payments Amount of Payments First Installment Due Installment Due Dates
6.870% 11 (Quarterly) 749,180.64 12/1/99 1st
SCHEDULE OF POLICIES
Policy Prefix and Name of Insurance Company
Numbers and Name and Address
of General or Policy
Effective Date of Issuing Agent or Type of Months Premiums $
Policy/Inst. Intermediary Coverage Covered
06/01/1999 AMERICAN INTL SPEC LINES NS POLL 360 8.200.000.00
</TABLE>
7075728-1
(1) DEFINITIONS: The above named Insured ("the insured") is debtor, AFCO Credit
Corporation ("AFCO") is the lender to whom the debt is owed, "insurance
company" or "company ", "insurance policy" or "policy" and "premium " refer to
those items listed under the "Schedule of Policies". Singular words mean plural
and vice-versa as may be required in order to give the agreement meaning. For
New York insureds, services for which any charge pursuant to Insurance Law,
Section 2119, is imposed, are in connection with obtaining and servicing the
policies listed herein.
NOTICE: 1. Do not sign this agreement before you read it or if it contains any
blank space. 2. You are entitled to a completely filled in copy of this
agreement. 3. Under the law, you have the right to pay off in advance the full
amount due and under certain conditions to obtain a partial refund of the
service charge.
INSURED AGREES TO THE TERMS SET FORTH ABOVE AND ON THE LAST PAGE OF THIS
AGREEMENT
<TABLE>
<S> <C> <C> <C>
The IT Group, Inc. X /s/ James J. Pierson V.P., Finance September 15, 1999
- ------------------------ -------------------------------------- ----------------------------------- ---------------------
INSUREDS NAME SIGNATURE OF INSURED OR TITLE DATE
AUTHORIZED REPRESENTATIVE
</TABLE>
09101999Pafxiadaiiixiaxaiii
AGENT OR BROKER REPRESENTATIONS
The undersigned warrants and agrees: 1. The policies are in full force and
effect and the information in the Schedule of Policies and the premiums are
correct. 2. The insured has authorized this transaction and recognizes the
security interest assigned herein and has received a copy of this agreement. 3.
To hold in trust for AFCO any payments made or credited to the insured through
or to the undersigned, directly or indirectly, actually or constructively by the
insurance companies or AFCO and to pay the monies as well as any unearned
commissions to AFCO upon demand to satisfy the outstanding indebtedness of the
insured. Any lien the undersigned has or may acquire in the return premiums
arising out of the listed insurance policies is subordinated to AFCO's lien or
security interest therein. 4. The policies comply with AFCO's eligibility
requirements. 5. No audit or reporting form policies, pollicies subject to
retrospective rating or minimum earned premium are included. The deposit or
provisional premiums are not less than anticipated premiums to be earned for the
full term of the policies. 6. The policies can be cancelled by the insured and
the unearned premiums will be computed on the standard short-
<PAGE>
rate or pro-rata table. 7. The undersigned represents that a proceeding in
bankruptcy, receivership, or insolvency has not been instituted by or against
the named insured.
IF THERE ARE ANY EXCEPTIONS TO THE ABOVE STATEMENTS PLEASE LIST BELOW:
THE UNDERSIGNED FURTHER WARRANTS THAT IT HAS RECEIVED THE DOWN PAYMENT AND ANY
OTHER SUMS DUE AS REQUIRED BY THE AGREEMENT AND IS HOLDING SAME OR THEY ARE
ATTACHED TO THIS AGREEMENT
<TABLE>
<S> <C> <C> <C>
______________________ _______________________________ __________________ ______________________
AGENT OR BROKER SIGNATURE OF AGENT OR BROKER TITLE DATE
</TABLE>
2. LIMITED POWER OF ATTORNEY: The insured irrevocable appoints AFCO as its
attorney in fact with full authority to cancel the insurance policies for the
reasons stated in paragraph (14), and to receive all sums assigned to AFCO or in
which it has granted AFCO a security interest. AFCO a security interest. AFCO
may execute and deliver on the insured's behalf all documents, instruments of
payment, forms, and notices of any kind relating to the insurance policies in
furtherance of this agreement.
3. PROMISE OF PAYMENT: The insured requests that AFCO pay the premiums in the
Schedule of Policies. The insured promises to pay to AFCO the amount in Block E
above according to the payment schedule, subject to the remaining terms of this
agreement.
4. SECURITY INTEREST: The insured assigns to AFCO as security for the total
amount payable in this agreement any and all unearned premiums and dividends
which may become payable under the insurance policies for whatever reason and
loss payments which reduce the unearned premiums subject to any mortgages or
loss payee interests. The insured gives to AFCO a security interest in all
items mentioned in this paragraph. The insured further grants to AFCO its
interest which may arise under any state insurance guarantee fund relating to
any policy shown in the Schedule of Policies.
5. WARRANTY OF ACCURACY: The insured warrants to AFCO that the insurance
policies listed in the Schedule have been issued to the insured and are in full
force and effect and that the insured has not assigned any interest in the
policies except for the interest of mortgages and loss payees. The insured
authorizes AFCO to insert or correct on this agreement, if omitted or incorrect,
the insurer's name, the policy numbers, and the due date of the first
installment. AFCO is permitted to correct any obvious errors. In the event of
any change or insertion, AFCO will give the insured written notice of those
changes or corrections made in accordance with this provision.
6. REPRESENTATION OF SOLVENCY: The insured represents that the insured is not
insolvent or presently the subject of any insolvency proceeding.
7. ADDITIONAL PREMIUMS: The money paid by AFCO is only for the premium as
determined at the time the insurance policy is issued. The insured agrees to pay
the company any additional premiums which become due for any reason. AFCO may
assign the company any rights it has against the insured for premiums due the
company in excess of the premiums returned to AFCO.
8. SPECIAL INSURANCE POLICIES: If the insurance policy issued to the insured is
auditable or is a reporting form policy or is subject to retrospective rating,
then the insured promises to pay to the insurance company the earned premium
computed in accordance with the policy provisions which is in excess of the
amount of premium advanced by AFCO which the insurance company retains.
9. NAMED INSURED: If the insurance policy provides that the first named insured
in the policy shall be responsible for payment of premiums and shall act on
behalf of all other insureds with respect to any actions relating to the policy,
then the same shall apply to this agreement. If such is not the case, then all
insureds' names must be shown on this agreement unless a separate agreement
specifies one insured to act I all matters for the others.
10. FINANCE CHARGE: The finance charge shown in Block D begins to accrue as of
the earliest policy effective date unless otherwise indicated in the Schedule of
Policies. Interest earns as of 9/1/99.
11.AGREEMENT BECOMES A CONTRACT: This agreement becomes a binding contract when
AFCO mails a written acceptance to the Insured.
12. DEFAULT CHARGES: If the insured is late in making an Installment payment to
AFCO by more than the number of days specified by law the insured will pay to
AFCO a delinquency charge not to exceed the maximum charge permitted by law.
13. DISHONORED CHECK: If an insureds' check is dishonored for any reason and if
permitted by law, the insured will pay to AFCO a fee for expenses in processing
that check not to exceed the amount permitted by law.
14. CANCELLATION: AFCO may cancel the insurance policies after giving any
required statutory notice and the unpaid balance due to AFCO shall be
immediately payable by the insured if the insured does not pay any installment
according to the terms of this agreement. AFCO at its option may enforce payment
of this debt without recourse to the security given to
<PAGE>
AFCO. If cancellation occurs, the borrower agrees to pay a finance charge on the
balance due at the contract rate of interest until that balance is paid in full
or until such other date as required by law.
15.CANCELLATION CHARGES: If AFCO cancels any insurance policy in accordance
with the terms of this agreement, then the insured will pay AFCO a cancellation
charge, if permitted, up to the limit specified by law.
16.MONEY RECEIVED AFTER NOTICE OF CANCELLATION: Any payments made to AFCO after
AFCO's notice of cancellation of the insurance policy has been mailed may be
credited to the insured's account without affecting the acceleration of this
agreement and without any liability or obligation on AFCO's part to request
reinstatement of a cancelled insurance policy. Any money AFCO receives from an
insurance company shall be credited to the amount due AFCO with any surplus
being paid over to whomever is entitled to the money. No refund of less than
$1.00 shall be made. In the event that AFCO does request, on the insured's
behalf, a reinstatement of the policy, such request does not guarantee that
coverage under the policy will be reinstated or continued.
17. ATTORNEY FEES - COLLECTION EXPENSE: If, for collection , this agreement is
placed in the hands of an attorney who is not a salaried employee of AFCO, then
the insured agrees to pay reasonable attorney fees and costs including those in
the course of appeal as well as other expenses, as permitted by law or granted
by the court.
18. REFUND CREDITS: The insured will receive a refund credit of the finance
charge if the account if the account is voluntarily prepaid in full prior to the
last installment due date as required or permitted by law. Any minimum or fully
earned fees will be deducted as permitted by law.
19. INSURANCE AGENT OR BROKER: The insurance agent or broker named in this
agreement is the insured's agent, not AFCO's and AFCO is not legally bound by
anything the agent or broker represents to the insured orally or in writing.
20. NOT A CONDITION OF OBTAINING INSURANCE: This agreement is not required as a
condition of the insurance obtaining insurance coverage.
21. SUCCESSORS AND ASSIGNS: All legal rights given to AFCO shall benefit AFCO's
successors and assigns. The insured will not assign the policies without AFCO's
written consent except for the interest of mortgagees and loss payees.
22. LIMITATION OF LIABILITY: The insured agrees that AFCO's liability for breach
of any of the terms of this agreement or the wrongful exercise of any of its
powers shall be limited to the amount of the principal balance outstanding
except in the event of gross negligence or willful misconduct.
23. ENTIRE DOCUMENT - GOVERNING LAW: This document is the entire agreement
between AFCO and the insured and can only be changed in writing and signed by
both parties except as stated in paragraph (5). The laws of the state indicated
in the insured's address as set forth in the Schedule will govern this agreement
unless stated in that Schedule.
ADDENDUM A
BY AND BETWEEN AFCO CREDIT CORPORATION AND THE IT GROUP
It is agreed that any failure to made any payment when due pursuant to this
premium finance agreement shall also be deemed an event of default with respect
to a premium finance agreement bearing account no. 70-75728-1. Such default will
result in cancellation of all insurance coverage financed pursuant to both such
premium finance agreements. Furthermore, any failure to make any payment when
due pursuant to a premium finance agreement bearing account no 70-75728-1 shall
be deemed an event of default with respect to this premium finance agreement. It
is further agreed that the collateral that secures each premium finance
agreement shall secure both premium finance agreements.
<PAGE>
Exhibit 10 (ii) (35)
American International Companies
AIG Insurance Company
American Fidelity Company
American Home Assurance Company Principal Bond Office
Granite State Insurance Company 70 Pine Street
Illinois National Insurance Company New York, NY 10270
The Insurance Company of the State of Pennsylvania
National Union Fire Insurance Company of Pittsburgh, PA
New Hampshire Insurance Company
Commerce and Industry Insurance Company of Canada
GENERAL INDEMNITY AGREEMENT
---------------------------
THIS AGREEMENT of indemnity, made and entered into this
13/th/ day of September, 1999, by The IT Group, Inc.: IT Corproration (herein
-----------------------------------
after called the Contractor) and The IT Group, Inc.; IT Corporation (hereinafter
----------------------------------
called the Indemnitors, if any) and the member companies of the AMERICAN
INTERNATIONAL GROUP OF COMPANIES (AIG Insurance Company, American Fidelity
Company, American Home Assurance Company, Granite State Insurance Company,
Illinois National Insurance Company, The Insurance Company of the State of
Pennsylvania, National Union Fire Insurance Company of Pittsburgh, Pa., New
Hampshire Insurance Company, Commerce and Industry Insurance Company of Canada),
hereinafter individually and collectively referred to as "SURETY".
WITNESSETH:
-----------
WHEREAS, IT Corporation ("IT") is the owner of four (4) sites formerly
used for the disposal of hazardous waste in Northern California, three (3) of
which have been closed, and the fourth site(the Panoche site) is presently in
the process of closure construction. IT is required by regulations of the
California Environmental Protection Agency, Department of Toxic Substances
Control ("DTSC") to maintain certain trust funds to assure completion of such
closure and post closure care of the sites; and
WHEREAS, the DTSC is prepared to release the trust funds in consideration
of the issuance of a bond issued by the Surety on behalf of the
Contractor/Indemnitor.
WHEREAS, the Contractor, in the performance of contracts and the
fulfillment of obligations generally, whether in its own name solely, or any
one, combination of, or all of the indemnitors, or any present or future
subsidiary, or a subsidiary of a subsidiary of the Contractor, whether alone or
in joint venture with others not named herein and any corporation, partnership
or person who may desire, or be required to give or procure certain surety
bonds, undertakings or instruments of guarantee, and to renew, or continue or
substitute the same from time to time; or new bonds, undertakings or instruments
of guarantee with the same or different penalties, and/or conditions, may be
desired or required, in renewal, continuation, extension or substitutions
thereof; any one or more of which are hereinafter called Bonds; or the
Contractor or Indemnitors may request the Surety to refrain from canceling said
Bonds; and
WHEREAS, at the request of the Contractor and the Indemnitors and upon the
express understanding that this Agreement of Indemnity should be given, the
Surety has executed or procured to be executed, and may from time to time
hereafter execute or procure to be executed, said Bonds on behalf of the
Contractor; and
WHEREAS, the Indemnitors have a substantial, material and beneficial
interest in the obtaining of the Bonds or in the Surety's refraining from
canceling said Bonds.
NOW, THEREFORE, in consideration of the premises the Contractor and
Indemnitors for themselves, their heirs, executors, administrators, successors
and assigns, jointly and severally, hereby covenant and agree with the Surety,
its successors and assigns, as follows:
PREMIUMS
--------
FIRST: The Contractor and Indemnitors will pay to the Surety in such
manner as may be agreed upon all premiums and charges of the Surety for Bonds in
accordance with its rate filings, its manual of rates, or as otherwise agreed
upon, until the Contractor or Indemnitors shall serve evidence satisfactory to
the Surety of its discharge or release from the Bonds and all liability by
reason thereof.
1
<PAGE>
INDEMNITY
---------
SECOND: The Contractor and Indemnitors shall exonerate, indemnify, and keep
indemnified the Surety from and against any and all liability for losses and/or
expense of whatsoever kind or nature (including, but not limited to, interest,
court costs and reasonable counsel fees) and from and against any and all such
losses and/or expenses which the Surety may sustain and incur: (1) By reason of
having executed or procured the execution of the Bonds, (2) By reason of the
failure of the Contractor or Indemnitors to perform or comply with the covenants
and conditions of this Agreement or (3) in enforcing any of the covenants and
conditions of this Agreement; provided, however, and notwithstanding anything in
this Agreement to the contrary, neither Contractor nor any of the Indemnitors
shall be liable for any amount or in any other manner by reason of any
negligence, willful misconduct or violation of law of Surety or any substitute
contractor that Surety may hire to complete the work at any of the sites.
Payment by reason of the aforesaid causes shall be made to the Surety by the
Contractor and Indemnitors as soon as liability exists or is asserted against
the Surety, whether or not the Surety shall have made any payment therefor. Such
payment shall be equal to the amount of the reserve set by the Surety. In the
event of any payment by the Surety the Contractor and Indemnitors further agree
that in any accounting between the Surety and the Contractor, or between the
Surety and the Indemnitors, or either or both of them, the Surety shall be
entitled to charge for any and all disbursements made by it in good faith in and
about the matters herein contemplated by this Agreement under the belief that it
is or was liable for the sums and amounts so disbursed, or that it was necessary
or expedient to make such disbursements, whether or not such liability,
necessity or expediency existed; and that the vouchers or other evidence of any
such payments made by the Surety shall be prima facie evidence of the fact and
amount of the liability to the Surety.
ASSIGNMENT
----------
THIRD: The Contractor, the Indemnitors hereby consenting, will assign,
transfer and set over, and does hereby assign, transfer and set over to the
Surety, as collateral, to secure the obligations in any and all of the
paragraphs of this Agreement and any other indebtedness and liabilities of the
Contractor to the Surety, whether heretofore or hereafter incurred, the
assignment in the case of each contract to become effective as of the date of
the bond covering such contract, but only in the event of (1) any abandonment,
forfeiture or breach of any contracts referred to in the Bonds or of any breach
of any said Bonds; or (2) of any breach of the provisions of any of the
paragraphs of this Agreement; or (3) of a default in discharging such other
indebtedness or liabilities when due; or (4) of any assignment by the Contractor
for the benefit of creditors, or of the appointment, or of any application for
the appointment, of a receiver or trustee for the Contractor whether insolvent
or not; or (5) of any proceeding which deprives the Contractor of the use of any
of the machinery, equipment, plant, tools, or material referred to in section
(b) of this paragraph; or (6) of the Contractor's, absconding, disappearing,
lack of legal capacity, being convicted of a felony solely applicable to the
site in question: (a) All the rights of the Contractor in, and growing in any
manner out of, all contracts referred to in the Bonds, or in, or growing in any
manner out of the Bonds; (b) All the rights, title and interest of the
Contractor in and to all machinery, equipment, plant, tools and materials which
are now, or may hereafter be, about or upon the site or sites of any and all of
the contractual work referred to in the Bonds or elsewhere, including materials
purchased for or chargeable to any and all contracts referred to in the bonds,
materials which may be in process of construction, in storage elsewhere, or in
transportation to any and all of said sites; (c) All the rights, title and
interest of the Contractor in and to all subcontracts let or to be let in
connection with any and all contracts referred to in the Bonds, and in and to
all surety bonds supporting such subcontracts; (d) All actions, causes of
actions, claims and demands whatsoever which the Contractor may have or acquire
against any subcontractor, laborer or materialman, or any person furnishing or
agreeing to furnish or supply labor, material, supplies, machinery, tools or
other equipment in connection with or on account of any and all contracts
referred to in the Bonds; and against any surety or sureties of any
subcontractor, laborer, or materialman; (e) Any and all percentages retained and
any and all sums that may be due or hereafter become due on account of any and
all contracts referred to in the Bonds and all other contracts whether bonded or
not in which the Contractor has an interest, in all cases subject to any prior
encumbrances thereon.
TRUST FUND
----------
FOURTH: If any of the Bonds are executed in connection with a contract
which by its terms or by law prohibits the assignment of the contract monies, or
any part thereof, the Contractor and Indemnitors covenant and agree that all
payments received for or on account of said contract shall be held as a trust
fund in which the Surety has an interest, for the payment of obligations
incurred in the performance of the contract and for labor, materials, and
services furnished in the prosecution of the work provided in said contract or
any authorized extension or modification thereof; and, further, it is expressly
understood and declared that all monies due and to become due under any contract
or contracts covered by the Bonds are trust funds, whether in the possession of
the Contractor or
2
<PAGE>
Indemnitors or otherwise, for the benefit of and for payment of all such
obligations in connection with any such contract or contracts for which the
Surety would be liable under any of said Bonds, which said trust also inures to
the benefit of the Surety for any liability or loss it may have or sustain under
any said Bonds, and this Agreement and declaration shall also constitute notice
of such trust.
UNIFORM COMMERCIAL CODE
-----------------------
FIFTH: That this Agreement shall constitute a Security Agreement to the
Surety and also a Financing Statement, both in accordance with the provisions of
the Uniform Commercial Code of every jurisdiction wherein such Code is in effect
and may be so used by the Surety without in any way abrogating, restricting or
limiting the rights of the Surety under this Agreement or under law, or in
equity.
TAKEOVER
--------
SIXTH: In the event of any breach, delay or default asserted by the
obligee in any said Bonds, or the Contractor has suspended or ceased work on any
contract or contracts covered by any said Bonds, or failed to pay obligations
incurred in connection therewith, Contractor's conviction of a felony solely
applicable to the site in question, imprisonment, incompetencylack of legal
capacity, insolvency, or bankruptcy of the Contractor, or the appointment of a
receiver or trustee for the Contractor solely applicable to the site in
question, or the property of the Contractor, or in the event of a assignment for
the benefit of creditors of the Contractor, or if any action is taken by or
against the Contractor under or by virtue of the National Bankruptcy Code, or
should reorganization or arrangement proceedings be filed by or against the
Contractor under said Act, or if any action is taken by or against the
Contractor under the insolvency laws of any state, possession, or territory of
the United States the Surety shall have the right, at its option and in its sole
discretion and is hereby authorized, subject to consultation with principal as
described in clause Thirteen of this document, with or without exercising any
other right or option conferred upon it by law or in the terms of this
Agreement, to take possession of any part or all of the work under any contract
or contracts covered by any said Bonds, and at the expense of the Contractor and
Indemnitors to complete or arrange for the completion of the same, and the
Contractor and Indemnitors shall promptly upon demand pay to the Surety all
reasonable losses, and expenses so incurred.
CHANGES
-------
SEVENTH: The Surety is authorized and empowered, upon the sending of
notice, via certified mail, return receipt requested, to the Indemnitors to
assent to any change whatsoever in the Bonds, and/or any contracts referred to
in the Bonds, and/or in the general conditions, plans and/or specifications
accompanying said contracts, including, but not limited to, any change in the
time for the completion of said contracts and to payments or advances thereunder
before the same may be due, and to assent to or take any assignment or
assignments, to execute or consent to the execution of any continuations,
extensions or renewals of the Bonds and to execute any substitute or substitutes
therefore, with the same or different conditions, provisions and obligees and
with the same or larger or smaller penalties, it being expressly understood and
agreed that the Indemnitors shall remain bound under the terms of this Agreement
even though any such assent by the Surety does or might substantially increase
the liability of said Indemnitors; provided however, and notwithstanding
anything in this Agreement to the contrary, Surety shall make no changes without
Contractor's and Indemnitors' written consent in any contract, plan or
specification, which would, or is reasonably likely to lead to either, 1)a
change in any closure or post closure plan approved for a site, or 2) an
increase in the closure or post closure costs with respect to a site.
ADVANCES
--------
EIGHTH: The Surety is authorized and empowered to guarantee loans, to
advance or lend to the Contractor any money, which the Surety may see fit, for
the purpose of any contracts referred to in, or guaranteed by the Bonds; and all
money expended in the completion of any such contracts by the Surety, or lent or
advanced from time to time to the Contractor, or guaranteed by the Surety for
the purposes of any such contracts, and all costs, and expenses incurred by the
Surety in relation thereto, unless repaid with legal interest by the Contractor
to the Surety when due, shall be presumed to be a loss by the Surety for which
the Contractor and the Indemnitors shall be responsible, notwithstanding that
said money or any part thereof should not be so used by the Contractor.
BOOKS AND RECORDS
-----------------
NINTH: At any time, and until such time as the liability of the Surety
under any and all said Bonds is terminated, the Surety shall have the right to
reasonable access to the books, records, and accounts of the Contractor and
Indemnitors; and any bank depository, materialman, supply house, or other
person, firm, or corporation when
3
<PAGE>
requested by the Surety is hereby authorized to furnish the Surety any
information requested including, but not limited to, the status of the work
under contracts being performed by the Contractor, the condition of the
performance of such contracts and payments of accounts.
DECLINE EXECUTION
-----------------
TENTH: Unless otherwise specifically agreed in writing, the Surety may
decline to execute any Bond and the Contractor and Indemnitors agree to make no
claim to the contrary in consideration of the Surety's receiving this Agreement;
and if the Surety shall execute a Bid or Proposal Bond, it shall have the right
to decline to execute any and all of the bonds that may be required in
connection with any award that may be made under the proposal for which the Bid
or Proposal Bond is given and such declination shall not diminish or alter the
liability that may arise by reason of having executed the Bid or Proposal Bond.
NOTICE OF EXECUTION
-------------------
ELEVENTH: The Indemnitors hereby waive notice of the execution of said
Bonds and of the acceptance of this Agreement, and the Contractor and the
Indemnitors hereby waive all notice of any default, or any other act or acts
giving rise to any claim under said Bonds, as well as notice of any and all
liability of the Surety under said Bonds, and any and all liability on their
part hereunder, to the end and effect that, the Contractor and the Indemnitors
shall be and continue liable hereunder, notwithstanding any notice of any kind
to which they might have been or be entitled, and notwithstanding any defenses
they might have been entitled to make.
[Reserved.]
HOMESTEAD
---------
TWELFTH: The Contractor and the Indemnitors hereby waive, so far as their
respective obligations under this Agreement are concerned, all rights to claim
any of their property, including their respective homesteads, as exempt from
levy, execution, sale or other legal process under the laws of any State,
Territory, or Possession.
SETTLEMENTS
-----------
THIRTEENTH: The Surety shall have the right to adjust, settle or
compromise any claim, demand, suit or judgment upon the Bonds, unless the
Contractor and the Indemnitors shall request the Surety to litigate such claim
or demand, or to defend such suit, or to appeal from such judgment, and shall
deposit with the Surety, at the time of such request, cash or collateral
satisfactory to the Surety in kind and amount, to be used in paying any judgment
or judgments rendered or that may be rendered, with interest, costs, expenses
and attorney's fees, including those of the Surety. However, Surety agrees that
it will first review Contractor's and Indemnitors' financial condition and in
its' reasonable discretion, decide whether it will require cash or other
collateral.
SURETIES
--------
FOURTEENTH: In the event the Surety procures the execution of the Bonds by
other sureties, or executes the Bonds with co-sureties, or reinsures any portion
of said Bonds with reinsuring sureties, then all the terms and conditions of
this Agreement shall inure to the benefit of such other sureties, co-sureties
and reinsuring sureties, as their interest may appear.
SUITS
-----
FIFTEENTH: Separate suits may be brought hereunder as causes of action
accrue, and the bringing of suit or the recovery of judgment upon any cause of
action shall not prejudice or bar the bringing of other suits upon other causes
of action, whether theretofore or thereafter arising.
OTHER INDEMNITY
---------------
SIXTEENTH: That the Contractor and the Indemnitors shall continue to
remain bound under the terms of this Agreement even though the Surety may have
from time to time heretofore or hereafter, upon notice to the Contractor and the
Indemnitors, accepted or released other agreements of indemnity or collateral in
connection with the execution or procurement of the aforementioned Bonds, from
the Contractor or Indemnitors or others, it being expressly understood and
agreed by the Contractor and the Indemnitors that any and all other rights which
the Surety may have or acquire against the Contractor and the Indemnitors and/or
others under any such other or additional agreements of indemnity or collateral
shall be in addition to, and not in lieu of, the rights afforded the Surety
under this Agreement.
INVALIDITY
----------
SEVENTEENTH: In case any of the parties mentioned in this Agreement fail
to execute the same, or in case the execution hereof by any of the parties be
defective or invalid for any reason, such failure, defect or
4
<PAGE>
invalidity shall not in any manner affect the validity of this Agreement or the
liability hereunder of any of the parties executing the same, but each and every
party so executing shall be and remain fully bound and liable hereunder to the
same extent as if such failure, defect or invalidity had not existed. It is
understood and agreed by the Contractor and Indemnitors that the rights, powers,
and remedies given the Surety under this Agreement shall be and are in addition
to, and not in lieu of, any and all other rights, powers, and remedies which the
Surety may have or acquire against the Contractor and Indemnitors or others
whether by the terms of any other agreement or by operation of law or otherwise.
ATTORNEY IN FACT
----------------
EIGHTEENTH: The Contractor and Indemnitors hereby irrevocably nominate,
constitute, appoint and designate the Surety as their attorney-in-fact with the
right, but not the obligation, to exercise all of the rights of the Contractor
and Indemnitors assigned, transferred and set over to the Surety in this
Agreement, including, but not limited to, the power to endorse in the name of
the Contractor and Indemnitors and thereby to collect any check, draft, warrant
or other instrument made or issued in payment of any moneys due on this
agreement in which the Contractor has an interest and to disburse the proceeds
thereof, and in the name of the Contractor and Indemnitors to make, execute, and
deliver any and all additional or other assignments, documents or papers deemed
necessary and proper by the Surety in order to give full effect not only to the
intent and meaning of the within assignments but also to the full protection
intended to be herein given to the Surety under all other provisions of the
Agreement. The Contractor and Indemnitors hereby ratify and confirm all acts and
actions taken and done by the Surety as such attorney-in-fact.
TERMINATION
-----------
NINETEENTH: This Agreement may be terminated by the Contractor or
Indemnitors upon twenty day's written notice sent by registered mail to the
Surety at its home office at 70 Pine Street, New York, New York, 10270, but any
such notice of termination shall not operate to modify, bar, or discharge the
Contractor or the Indemnitors as to the Bonds that may have been theretofore
executed.
TWENTIETH: This Agreement may not be changed or modified orally. No
change or modification shall be effective unless made by written endorsement
executed to form a part hereof.
IN WITNESS WHEREOF, we have hereunto set our hands and seals the day and
year first above written.
THE IT GROUP, INC.
Attest: James M. Redwine By: /s/ Richard R. Conte
- --------------------------------- ----------------------------------------------
(Corporate Seal)
Richard R. Conte, Vice President
IT CORPORATION
Attest: James M. Redwine By: /s/ Richard R. Conte
- --------------------------------- ----------------------------------------------
(Corporate Seal)
Richard R. Conte, Vice President
5
<PAGE>
PARTNERSHIP ACKNOWLEDGMENT
--------------------------
STATE OF
- -------------------------------------------------------
COUNTY OF
- -------------------------------------------------------
On this ___ day of ___________199__, before me personally appeared
__________________________________, to me known and known to me to be a member
of the firm of
described in and who executed the foregoing instrument, and he thereupon
acknowledged to me that he executed the same as and for the act and deed of the
said firm.
________________________________________________________________________________
Notary Public
Commission Expires ____________________
STATE OF
- -------------------------------------------------------
COUNTY OF
- -------------------------------------------------------
On this ___ day of ________199__, before me personally appeared
__________________________________, to me known and known to me to be a member
of the firm of
described in and who executed the foregoing instrument, and he thereupon
acknowledged to me that he executed the same as and for the act and deed of the
said firm.
________________________________________________________________________________
Notary Public
Commission Expires ____________________
CORPORATE ACKNOWLEDGMENT
------------------------
STATE OF PENNSYLVANIA
- -------------------------------------------------------
COUNTY OF ALLEGHENY
- -------------------------------------------------------
On this 13/th/ day of September 1999, before me personally appeared Richard R.
Conte, to me known to be the Vice President of The IT Group, Inc., the
corporation executing the above instrument, and acknowledged said instruments to
be the free and voluntary act and deed of said corporation, for the uses and
purposes therein mentioned and on oath stated that the seal affixed is the seal
of said corporation and that said instrument was executed by order of the Board
of Directors of said corporation.
/s/
________________________________________________________________________________
Notary Public
Commission Expires July 5, 2001
----------------
STATE OF PENNSYLVANIA
- -------------------------------------------------------
COUNTY OF ALLEGHENY
- -------------------------------------------------------
On this 13/th/ day of September 1999, before me personally appeared Richard R.
Conte, to me known to be the Vice President of IT Corporation, the corporation
executing the above instrument, and acknowledged said instruments to be the free
and voluntary act and deed of said corporation, for the uses and purposes
therein mentioned and on oath stated that the seal affixed is the seal of said
corporation and that said instrument was executed by order of the Board of
Directors of said corporation.
/s/
________________________________________________________________________________
Notary Public
Commission Expires July 5, 2001
----------------
6
<PAGE>
EXHIBIT 10(ii)36
AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY
(A Capital Stock Company, herein called the Company)
c/o American International Surplus Lines Agency, Inc.
Harborside Financial Center
401 Plaza 3
Jersey City, NJ 07311
INTERNATIONAL TECHNOLOGIES HAZARDOUS WASTE - POST-CLOSURE POLICY
THIS IS A CLAIMS MADE AND REPORTED POLICY. THIS POLICY HAS CERTAIN PROVISIONS
AND REQUIREMENTS UNIQUE TO IT AND MAY BE DIFFERENT FROM OTHER POLICIES THE
INSURED MAY HAVE PURCHASED. DEFINED TERMS APPEAR IN BOLD FACE TYPE.
In consideration of the payment of the premium, in reliance upon the statements
in the Declarations and Application made a part hereof and subject to all the
terms of this Policy, the Company agrees with the Named Insured as follows:
SECTION I. COVERAGES
POST-CLOSURE INSURANCE
1. Insuring Agreement.
Part A (Post-Closure). The Company agrees to indemnify the Insured, or the
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Regulatory Body, subject to the limits of liability of this Policy, for such
Post-Closure Costs that the Regulatory Body instructs the Company to indemnify
in writing. The Insured must be legally obligated to pay such Post-Closure
Costs by reason of the Partial Closure or Final Closure of a Hazardous Waste
Facility designated in Item 4 of the Declarations. Claims by the Insured, or
the Regulatory Body, for such Post-Closure Costs must be first reported in
writing to the Company during the Policy Period. This coverage applies only to
Post-Closure Costs from the Partial Closure or Final Closure of a Hazardous
Waste Facility and which arise on or after the Retroactive Date shown in Item 6
of the Declarations Page.
2. Exclusions.
This insurance does not apply to expenses, losses, liabilities of, or damages of
any kind incurred by, accruing to, or alleged to be liabilities of the Insured,
by reason of:
A. Any criminal or civil penalties imposed by reason of the violation of any
law or regulation.
B. Any third-party claims for Bodily Injury or Property Damage or claims
for damages of any nature.
C. Any expenses, charges or costs resulting from the defense and/or
investigation of any liability or obligation for Post-Closure Costs
hereunder. However, this exclusion shall not apply to any investigations
required for compliance with the Post Closure Plan, including but not
limited to investigation of ground water quality, hydrogeology, or chemical
fate and transport.
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SECTION II. CLAIMS PROVISIONS
It is a condition precedent to coverage that:
A. The Insured shall cooperate with the Company and, upon the Company's
request, assist in obtaining information relative to any Claim made. The
Insured shall not, except at his own cost, voluntarily make or approve any
payments, assume any obligations or incur any expense relating to Post-
Closure Costs which are not in accordance with the Post-Closure Plan
without the Company's or the Regulatory Body's written permission.
B. Any notices required by these conditions shall be sent to:
Steven Lessick
Attorney at Law
P.O. Box 295
Jersey City, NJ 07303
or other address(es) as substituted by the Company in writing.
C. The Company, upon receipt of a Claim, shall review and issue payment within
thirty-five (35) calendar days for any uncontested portion of a Claim. If
a portion of the Claim is contested by the Company, the Company shall issue
a Claim payment to the Named Insured for the uncontested portion of the
Claim within thirty-five (35) days. The Insured agrees to work with the
Company to resolve any discrepancy on a timely basis. In no event shall
the Company take longer than thirty-five (35) days to issue a Claim payment
to the Named Insured for Claims that have not been contested. If a Claim
payment is made to the Named Insured, and all or part of the Claim is still
in dispute, the Insured agrees to continue to provide information to the
Company to resolve the discrepancy. Any necessary monetary adjustment
shall be reconciled with adjustments to future Claim payments. If any
Claim payments remain in dispute at the end of six months after submission
of a Claim, the Named Insured and the Company agree to settle the
outstanding Claim through arbitration in accordance with the rules and
regulations outlined in the American Arbitration Association guidelines.
SECTION III. DEFINITIONS
A. Bodily Injury means: bodily injury, sickness, disease, fear of sickness or
disease, mental anguish and mental injury, emotional distress, psychic
injury, or disability including care, loss of services or death resulting
from any of the foregoing.
B. Claim means: A request by the Insured or the Regulatory Body for payment
of a statement or bill of expenditures made for Post-Closure Costs by
reason of a Partial Closure or Final Closure of a Hazardous Waste Facility
in accordance with its Post-Closure Plan, provided that such request:
(a) is first submitted in writing to the Regulatory Body for approval
during the Policy Period; and
(b) is first reported in writing to the Company during the Policy Period.
C. Closure Plan means the written closure plan attached to the Policy as
Appendix A and made a part hereof, prepared in order to comply with federal
regulations promulgated under the Resource Conservation and Recovery Act
(contained at 40 C.F.R. Part, 260 et seq.), or other applicable federal,
state or local regulations regarding closure or corrective action at
hazardous
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waste facilities and provided that such Plan shall first have been
approved by the Regulatory Body.
D. Final Closure means the closure of all Hazardous Waste Management Units at
a Hazardous Waste Facility pursuant to the Closure Plan.
E. Hazardous Waste Facility (or Facility) means the entire facility designated
by legal description in Item 4 of the Declarations which has received
authorization from the Regulatory Body to engage in the treatment, storage
or disposal of hazardous waste and which includes one or more Hazardous
Waste Management Unit(s) on, within or under such facility.
F. Hazardous Waste Management Unit means a surface impoundment, waste pile,
land treatment area, landfill cell, incinerator, tank and its associated
piping and underlying containment system, and container storage area, or
other contiguous area of land on or in which hazardous waste is placed, or
the largest area in which there is significant likelihood of mixing
hazardous waste constituents in the same area. Such unit must be located
on, within or under a Hazardous Waste Facility. A container alone does
not constitute a unit; the unit includes containers and the land or pad
upon which they are placed.
G. Insured means the Named Insured, and any director, officer, partner or
employee thereof while acting within the scope of his/her duties as such,
and any person or entity designated as an additional insured by an
endorsement issued to form a part of this Policy.
H. Most Recent Published Investment Rate means the last published investment
rate prior and closest in time to the date upon which the Company becomes
obligated to make payment for Post-Closure Costs.
I. Named Insured means the person or entity designated as such in Item 1 of
the Declarations.
J. Partial Closure means the closure pursuant to the Closure Plan of one or
more Hazardous Waste Management Units at a Hazardous Waste Facility which
contains other Hazardous Waste Management Units which remain active.
K. Policy Period means the period set forth in Item 2 of the Declarations, or
any shorter period arising as a result of cancellation of this Policy.
L. Post-Closure Costs means all expenses specifically identified in or
necessary to comply with the Post-Closure Plan approved by the Regulatory
Body, including but not limited to labor, fringe, overhead, contractor or
subcontractor costs associated with Facility maintenance, operation and
maintenance of ground water remediation and water management systems; repair
and monitoring, regulatory oversight fees; utilities, and final closure of
post closure units such as evaporation basins and solar evaporators.
M. Post-Closure Plan means the written post-closure plan attached to this
Policy as Appendix B and made a part hereof, and prepared in order to comply
with federal regulations promulgated under the Resource Conservation and
Recovery Act (contained at 40 C.F.R. Part 260 et seq.), or other applicable
federal, state or local regulations regarding post-closure or corrective
action at hazardous waste facilities, including all revisions, amendments,
modifications or directives required in writing by the Regulatory Body, and
provided that such plan shall first have been approved by the Regulatory
Body.
N. Property Damage means: (a) Physical injury to, or destruction of
tangible property, including loss of use, profits or investments or
diminution in value of; (b) the loss of use of tangible property or rights
of any nature, whether related to tangible property or not.
O. Regulatory Body means the Regional Administrator of the United States
Environmental Protection Agency for the EPA region in which the Hazardous
Waste Facility named in Item 4
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of the Declarations is located, or any person or State Agency designated by
the Regional Administrator, or any agency which is now or becomes
responsible for the supervision of the Final Closure, Partial Closure or
Post Closure of the Hazardous Waste Facility or any aspect thereof
necessary to comply with the Post Closure Plan, including but not limited
to the Department of Toxic Substances Control and Regional Water Quality
Control Board.
SECTION IV. LIMIT OF LIABILITY AND DEDUCTIBLE
A. With respect to all Hazardous Waste Facility(ies) shown in the
Declarations, the Company's total liability for all Post Closure Costs
under Section I Coverage Post-Closure Insurance, Part A (Post-Closure) of
the Insuring Agreement from all Claims shall not exceed the limit of
liability shown in Item 3 of the Declarations.
B. The sublimits of liability shown in the Declarations for Part A (Post-
Closure) of Section I Coverages Post-Closure Insurance with respect to each
Hazardous Waste Facility are separate limits of liability which are in
addition to each other.
C. Provided that the premium as determined by the Company has been paid in
full within thirty (30) calendar days of when due, the limit of liability
for each Hazardous Waste Facility, with respect to Section I Coverage Post-
Closure Insurance, Part A (Post-Closure) under the Insuring Agreement,
shall increase annually, as follows: Beginning from the date the Company
becomes obligated under this Policy to indemnify Post-Closure Costs, the
increase in the Part A (Post-Closure) limit of liability for such Hazardous
Waste Facility shall be equivalent to the existing limit of liability, less
any payments made under this Part A limit, multiplied by an amount
equivalent to 85 percent (85%) of the Most Recent Published Investment Rate
for newly issued 26-week Treasury securities.
SECTION V. TERRITORY
This Policy only applies to a Claim arising from Post-Closure Costs incurred at
Hazardous Waste Facilities located in the United States, its territories or
possessions, or Canada, and only if such Claim are made or brought in the United
States, its territories or possessions, or Canada.
SECTION VI. CONDITIONS
A. Inspection and Audit - The Company shall be permitted but not obligated to
inspect, sample and monitor on a continuing basis the Insured's property or
operations, at any time. Neither the Company's right to make inspections,
sample and monitor, nor the actual undertaking thereof nor any report
thereon, shall constitute an undertaking, on behalf of the Insured or
others, to determine or warrant that property or operations are safe,
healthful or conform to acceptable engineering practice or are in
compliance with any law, rule or regulation. The Company or its designee
may examine and audit the Insured's books and records at any time during
the Policy Period and extensions thereof, as far as they relate to the
subject matter of this insurance, and within any periods of Final Closure,
Partial Closure or post-closure for which coverage is provided whether
Insurance of this Policy has expired.
B. Cancellation - The Company shall not cancel, terminate or fail to renew the
coverages provided herein except for failure to pay the full premium in
accordance with the schedule shown in Item 5 in the Declarations. The
Company shall notify the Insured and the Regulatory Body of its intent to
cancel, terminate or not to renew by sending, by certified mail, to the
Insured at the address shown in this policy and to the Regulatory Body,
written notice stating the date not less than 120 days thereafter allowing
time for receipt of notice on which such cancellation, termination or
failure to renew shall be effective. Cancellation, termination, or failure
to renew will not occur and the policy will remain in full force and effect
in the event that on or before the date of expiration:
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1. The DTSC deems the facility/TTU abandoned; or
2. The permit is terminated or revoked or a new permit is denied by the
DTSC; or
3. Closure is ordered by the DTSC; or any other State or Federal agency, or
a court of competent jurisdiction; or
4. The owner or operator is named as a debtor in a voluntary or involuntary
proceeding under Title 11 (Bankruptcy) U.S. Code; or
5. The premium due is paid.
This policy may be cancelled by the Named Insured pursuant to applicable
statute and written approval by DTSC by surrender thereof to the Company or
any of its authorized agents or by mailing to the Company written notice
stating the date thereafter the cancellation shall be effective. The
mailing of notice as aforesaid shall be sufficient proof of notice. The
time of surrender or the effective date and hour of cancellation stated in
the notice shall become the end of the Policy Period.
In the event of (i) cancellation or nonrenewal by the Insured or (ii)
cancellation by the Company for nonpayment of premium, the full Insurance
Premium shown in Item 5 of the Declarations shall be deemed earned and the
unpaid portion thereof shall be immediately due and payable. Upon the
effective date of cancellation by the Insured, all indemnity obligations on
the part of the Company hereunder shall automatically cease and the Insured
shall have no further recourse against the Company with respect to unpaid
losses.
C. Representations - By acceptance of this Policy, the Insured agrees that the
statements in the Declarations and Application(s) are their agreements and
representations, that this Policy is issued in reliance upon the truth of
such representations and that this Policy embodies all agreements existing
between the Insured and the Company or any of its agents relating to this
insurance.
D. Action Against Company - No third-party action shall lie against the
Company, unless as a condition precedent thereto, there shall have been
full compliance with all of the terms of this Policy, nor until the amount
of the Insured's obligation to pay shall have been finally determined
either by judgment against the Insured after actual trial or by written
agreement of the Insured, the claimant or regulatory body and the Company.
Any person or organization or the legal representative thereof who has
secured such judgment or written agreement shall thereafter be entitled to
recover under this Policy to the extent of the insurance afforded by this
Policy. No person or organization shall have any right under this Policy
to join the Company as a party to any action against the Insured to
determine the Insured's liability, nor shall the Company be impleaded by
the Insured or his legal representative. Bankruptcy or insolvency of the
Insured or of the Insured's estate shall not relieve the Company of any of
its obligations hereunder.
E. Assignment - This Policy may be assigned to a successor owner or operator
of a Hazardous Waste Facility designated in Item 4 of the Declarations,
provided that the Company consents to the assignment, which consent shall
not be unreasonably withheld.
F. Subrogation: In the event of any payment of this Policy, the Company shall
be subrogated to all the Insured's rights of recovery therefor against any
person or organization and the Insured shall execute and deliver
instruments and papers and do whatever else is necessary to secure such
rights. The Insured shall do nothing after a Claim to prejudice such
rights.
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The Company agrees to the following exceptions to the above and waives
subrogation:
1. as to any and all rights of recovery which the Insured may have against
former clients and generators of waste at the Hazardous Waste
Facility(ies), unless the Insured having such right of recovery shall
give its written consent to the Company to be subrogated thereto and
the Insured shall have the sole right to determine whether such consent
is given; and
2. as to any rights of recovery which the Insured may have against any
predecessor or affiliate of the Insured, including any insurer thereof,
unless the Insured having such right of recovery shall give its written
consent to the Company to be subrogated thereto and the Insured shall
have the sole right to determine whether such consent is given.
G. Changes - Notice to any agent or knowledge possessed by any agent or by any
other person shall not effect a waiver or a change in any part of this
Policy or stop the Company from asserting any right under the terms of this
Policy; nor shall the terms of this Policy be waived or changed, except by
endorsement issued to form a part of this Policy.
H. Sole Agent - The Named Insured first listed in Item 1 of the Declarations
shall act on behalf of all other Insureds, if any, for the payment or
return of premium, receipt and acceptance of any endorsement issued to form
a part of this Policy, giving and receiving notice of cancellation or
nonrenewal.
I. Other Insurance - This insurance is primary, and the Company's obligations
as a primary insurer are not affected by any other insurance that may be
primary.
J. Premium - The full policy premium for coverage hereunder shall be payable in
accordance with the schedule set forth in Item 5 of the Declarations. It
is an absolute condition that the full amount of each premium installment
be actually received by the Company in accordance with said schedule to be
or continue to be effective
K. Renewal of Coverage - Coverage may be renewed with a subsequent policy which
provides limits of liability no less than those contained in this Policy,
and which is issued by the Company at the expiration of the Policy Period
stated in the Declarations of this Policy, subject to the cancellation
provisions set forth in this Section.
SECTION VII. SERVICE OF SUIT
L. Service of Suit - It is agreed that in the event of failure of the Company
to pay any amount claimed to be due hereunder, the Company, at the request
of the Insured, will submit to the jurisdiction of a court of competent
jurisdiction within the United States. Nothing in this condition constitutes
or should be understood to constitute a waiver of the Company's rights to
commence an action in any court of competent jurisdiction in the United
States, to remove an action to a United States District Court, or to seek a
transfer of a case to another court as permitted by the laws of the United
States or of any state in the United States. It is further agreed that
service of process in such suit may be made upon Counsel, Legal Department,
American International Specialty Lines Insurance Company, c/o American
International Surplus Lines Agency, Inc., Harborside Financial Center, 401
Plaza 3, Jersey City, NJ 07311, or his or her representative, and that in
any suit instituted against the Company upon this contract, the Company will
abide by the final decision of such court or of any appellate court in the
event of any appeal.
Further, pursuant to any statute of any state, territory, or district of the
United States which makes provision therefor, the Company hereby designates
the Superintendent, Commissioner, or Director of Insurance, other officer
specified for that purpose in the statute, or his or her successor or
successors in office as its true and lawful attorney upon whom may be served
any lawful process in
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any action, suit or proceeding instituted by or on behalf of the Insured or
any beneficiary hereunder arising out of this contract of insurance, and
hereby designates the above named counsel as the person to whom the said
officer is authorized to mail such process or a true copy thereof.
IN WITNESS WHEREOF, the Company has caused this Policy to be signed by its
president and secretary and signed on the Declarations page by a duly authorized
representative or countersigned in states where applicable.
___________________ _____________________
Secretary President
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ENDORSEMENT NO.
This endorsement, effective 12:01 AM,
Forms a part of Policy No:
Issued to:
By:
NOTIONAL COMMUTATION ACCOUNT ENDORSEMENT
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THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY
The Insurer will maintain a notional commutation account balance calculated as
follows:
1. 80.30% of the Deposit Premium paid; plus
2. Interest credited as per below; less
100% of losses paid by the Company.
The notional commutation account, if positive, will earn interest at a rate
equal to the one year United States Treasury Bill rate prevailing on the first
day of each anniversary year. The interest shall be applied to the average
daily balance of the notional commutation account and the interest will be
compounded quarterly. The interest credit shall be calculated at each annual
anniversary.
Subject to the approval of the California DTSC and the conditions contained
within this policy, and in particlular the condition that cancellation can only
occur in accordance with applicable local, state and fedederal stautes. On the
fifth and subsequent anniversaries of contract inception, the Insured may elect
to commute this contract. If the Insured so elects, the Insurer will pay the
Insured an amount equal to 100% of the commutation account balance in return for
a complete release of liability for all claims whether known or unknown. It will
be the Insured's responsibility to obtain alternate financial assurance if this
policy is commuted by the Insured.
Upon commutation of this contract, the Insurer will also reassign all of the
remaining annuity payments from the annuities accepted as premium payment and
referenced on Item 5 on the declarations page.
If, at the expiration of this Policy, there is a positive balance in the
Commutation Account, the Named Insured may elect to use such funds as premium
towards the renewal of this Policy. Such renewal Policy's terms and conditions
will be negotiated at the time of binding.
All other terms, conditions and exclusions shall remain the same.
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AUTHORIZED REPRESENTATIVE
or countersignature (in states where applicable)
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AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY
(A Capital Stock Company, herein called the Company)
c/o American International Surplus Lines Agency, Inc.
Harborside Financial Center
401 Plaza 3
Jersey City, NJ 07311
INTERNATIONAL TECHNOLOGIES HAZARDOUS WASTE - Post-CLOSURE POLICY
THIS IS A CLAIMS MADE AND REPORTED POLICY. THIS POLICY HAS CERTAIN PROVISIONS
AND REQUIREMENTS UNIQUE TO IT AND MAY BE DIFFERENT FROM OTHER POLICIES THE
INSURED MAY HAVE PURCHASED. DEFINED TERMS APPEAR IN BOLD FACE TYPE.
In consideration of the payment of the premium, in reliance upon the statements
in the Declarations and Application made a part hereof and subject to all the
terms of this Policy, the Company agrees with the Named Insured as follows:
SECTION I. COVERAGES
Post-CLOSURE INSURANCE
1. Insuring Agreement.
Part A (Post-Closure). The Company agrees to indemnify the Insured, or the
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Regulatory Body, subject to the limits of liability of this Policy, for such
Post-Closure Costs. The Insured must be legally obligated to pay such Post-
Closure Costs by reason of the Partial Closure or Final Closure of a Hazardous
Waste Facility designated in Item 4 of the Declarations. Claims by the Insured,
or the Regulatory Body, for such Post-Closure Costs must be first reported in
writing to the Company during the Policy Period. This coverage applies only to
Post-Closure Costs from the Partial Closure or Final Closure of a Hazardous
Waste Facility and which arise on or after the Retroactive Date shown in Item 6
of the Declarations Page.
2. Exclusions.
This insurance does not apply to expenses, losses, liabilities of, or damages of
any kind incurred by, accruing to, or alleged to be liabilities of the Insured,
by reason of:
A. Any criminal or civil penalties imposed by reason of the violation of any
law or regulation.
B. Any third-party claims for Bodily Injury or Property Damage or claims
for damages of any nature.
C. Any expenses, charges or costs resulting from the defense and/or
investigation of any liability or obligation for Post-Closure Costs
hereunder. However, this exclusion shall not apply to any investigations
required for compliance with the Post Closure Plan, including but not
limited to investigation: of ground water quality, hydrogeology, chemical
fate and transport.
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SECTION II. CLAIMS PROVISIONS
It is a condition precedent to coverage that:
A. The Insured shall cooperate with the Company and, upon the Company's
request, assist in obtaining information relative to any Claim made. The
Insured shall not, except at his own cost, voluntarily make or approve any
payments, assume any obligations or incur any expense relating to Post-
Closure Costs which are not in accordance with the Post-Closure Plan
without the Company's or the Regulatory Body's written permission.
B. Any notices required by these conditions shall be sent to:
Steven Lessick
Attorney at Law
P.O. Box 295
Jersey City, NJ 07303
or other address(es) as substituted by the Company in writing.
C. The Company, upon receipt of a Claim, shall review and issue payment within
thirty-five (35) calendar days for any uncontested portion of a Claim. If
a portion of the Claim is contested by the Company, the Company shall issue
a Claim payment to the Named Insured for the uncontested portion of the
Claim within thirty (30) business days. The Insured agrees to work with
the Company to resolve any discrepancy on a timely basis. In no event
shall the Company take longer than thirty (30) business days to issue a
Claim payment to the Named Insured for Claims that have not been contested.
If a Claim payment is made to the Named Insured, and all or part of the
Claim is still in dispute, the Insured agrees to continue to provide
information to the Company to resolve the discrepancy. Any necessary
monetary adjustment shall be reconciled with adjustments to future Claim
payments. If any Claim payments remain in dispute at the end of six months
after submission of a Claim, the Named Insured and the Company agree to
settle the outstanding Claim through arbitration in accordance with the
rules and regulations outlined in the American Arbitration Association
guidelines.
SECTION III. DEFINITIONS
A. Bodily Injury means: bodily injury, sickness, disease, fear of sickness or
disease, mental anguish and mental injury, emotional distress, psychic
injury, or disability including care, loss of services or death resulting
from any of the foregoing.
B. Claim means: A request by the Insured or the Regulatory Body for payment
of a statement or bill of expenditures made for Post-Closure Costs by
reason of a Partial Closure or Final Closure of a Hazardous Waste Facility
in accordance with its Post-Closure Plan, provided that such request:
(a) is first submitted in writing to the Regulatory Body for approval
during the Policy Period; and
(b) is first reported in writing to the Company during the Policy Period.
C. Closure Plan means the written closure plan attached to the Policy as
Appendix A and made a part hereof, prepared in order to comply with federal
regulations promulgated under the Resource Conservation and Recovery Act
(contained at 40 C.F.R. Part, 260 et seq., or other applicable federal,
state or local regulations regarding closure, post-closure care or
corrective
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action at hazardous waste facilities and provided that such Plan
shall first have been approved by the Regulatory Body.
D. Final Closure means the closure of all Hazardous Waste Management Units at
a Hazardous Waste Facility pursuant to the Closure Plan.
E. Hazardous Waste Facility (or Facility) means the entire facility designated
by legal description in Item 4 of the Declarations which has received
authorization from the Regulatory Body to engage in the treatment, storage
or disposal of hazardous waste and which includes one or more Hazardous
Waste Management Unit(s) on, within or under such facility.
F. Hazardous Waste Management Unit means a surface impoundment, waste pile,
land treatment area, landfill cell, incinerator, tank and its associated
piping and underlying containment system, and container storage area, or
other contiguous area of land on or in which hazardous waste is placed, or
the largest area in which there is significant likelihood of mixing
hazardous waste constituents in the same area. Such unit must be located
on, within or under a Hazardous Waste Facility. A container alone does
not constitute a unit; the unit includes containers and the land or pad
upon which they are placed.
G. Insured means the Named Insured, and any director, officer, partner or
employee thereof while acting within the scope of his/her duties as such,
and any person or entity designated as an additional insured by an
endorsement issued to form a part of this Policy.
H. Most Recent Published Investment Rate means the last published investment
rate prior and closest in time to the date upon which the Company becomes
obligated to make payment for Post-Closure Costs.
I. Named Insured means the person or entity designated as such in Item 1 of the
Declarations.
J. Partial Closure means the closure pursuant to the Closure Plan of one or
more Hazardous Waste Management Units at a Hazardous Waste Facility which
contains other Hazardous Waste Management Units which remain active.
K. Policy Period means the period set forth in Item 2 of the Declarations, or
any shorter period arising as a result of cancellation of this Policy.
L. Post-Closure Costs means all expenses specifically identified in or
necessary to comply with the Post-Closure Plan approved by the Regulatory
Body, including but not limited to labor, fringe, overhead, contractor or
subcontractor costs associated with Facility maintenance, operation and
maintenance of ground water remediation and water management systems;
repair and monitoring, regulatory oversight fees; utilities, and final
closure of post closure units such as evaporation basins and solar
evaporators.
M. Post-Closure Plan means the written post-closure plan attached to this
Policy as Appendix B and made a part hereof, and prepared in order to
comply with federal regulations promulgated under the Resource Conservation
and Recovery Act (contained at 40 C.F.R. Part 260 et seq., or other
applicable federal, state or local regulations regarding post-closure care
or corrective action at hazardous waste facilities, including all
revisions, amendments, modifications or directives required in writing by
the Regulatory Body, and provided that such plan shall first have been
approved by the Regulatory Body.
N. Property Damage means: (a) Physical injury to, or destruction of
tangible property, including loss of use, profits or investments or
diminution in value of; (b) the loss of use of tangible property or rights
of any nature, whether related to tangible property or not.
O. Regulatory Body means the Regional Administrator of the United States
Environmental Protection Agency for the EPA region in which the Hazardous
Waste Facility named in Item 4
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of the Declarations is located, or any person or State Agency designated by
the Regional Administrator, or any person or State Agency designated by the
Regional Administrator, or any agency which is now or becomes responsible
for the supervision of the Final Closure, Partial Closure or Post Closure of
the Hazardous Waste Facility or any aspect thereof necessary to comply with
the Post Closure Plan, including but not limited to the Department of Toxic
Substances Control and Regional Water Quality Control Board.
SECTION IV. LIMIT OF LIABILITY AND DEDUCTIBLE
A. With respect to all Hazardous Waste Facilities shown in the Declarations,
the Company's total liability for all Post Closure Costs under Section I
Coverage Post-Closure Insurance, Part A (Post-Closure) of the Insuring
Agreement from all Claims shall not exceed the limit of liability shown in
Item 3 of the Declarations.
B. The sublimits of liability shown in the Declarations for Part A (Post-
Closure) of Section I Coverages Post-Closure Insurance with respect to each
Hazardous Waste Facility are separate limits of liability which are in
addition to each other. The Umbrella Aggregate Limit shown in the
Declarations, $5,460,175., is a separate limit from the facility sublimits
and it may be applied to any or all facilities.
C. Provided that the premium as determined by the Company has been paid in
full within thirty (30) calendar days of when due, the limit of liability
for each Hazardous Waste Facility, with respect to Section I Coverage Post-
Closure Insurance, Part A (Post-Closure) under the Insuring Agreement,
shall increase annually, as follows: Beginning from the date the Company
becomes obligated under this Policy to indemnify Post-Closure Costs, the
increase in the Part A (Post-Closure) limit of liability for such Hazardous
Waste Facility shall be equivalent to the existing limit of liability, less
any payments made under this Part A limit, multiplied by an amount
equivalent to 85 percent (85%) of the Most Recent Published Investment Rate
for newly issued 26-week Treasury securities.
SECTION V. TERRITORY
This Policy only applies to a Claim arising from Post-Closure Costs incurred at
Hazardous Waste Facilities located in the United States, its territories or
possessions, or Canada, and only if such Claim are made or brought in the United
States, its territories or possessions, or Canada.
SECTION VI. CONDITIONS
A. Inspection and Audit - The Company shall be permitted but not obligated to
inspect, sample and monitor on a continuing basis the Insured's property or
operations, at any time. Neither the Company's right to make inspections,
sample and monitor, nor the actual undertaking thereof nor any report
thereon, shall constitute an undertaking, on behalf of the Insured or
others, to determine or warrant that property or operations are safe,
healthful or conform to acceptable engineering practice or are in
compliance with any law, rule or regulation. The Company or its designee
may examine and audit the Insured's books and records at any time during
the Policy Period and extensions thereof, as far as they relate to the
subject matter of this insurance, and within any periods of Final Closure,
Partial Closure or post-closure for which coverage is provided whether
Insurance of this Policy has expired.
B. Cancellation - The Company shall not cancel, terminate or fail to renew the
coverages provided herein except for failure to pay the full premium in
accordance with the schedule shown in Item 5 in the Declarations. The Company
shall notify the Insured of its intent to cancel, terminate or not
Copyright, American International Group, Inc., 1999
4
<PAGE>
to renew by sending, by certified mail, to the Insured at the address shown
in this policy, written notice stating the date not less than 120 days
thereafter allowing time for receipt of notice on which such cancellation,
termination or failure to renew shall be effective.
This policy may be cancelled by the Named Insured pursuant to applicable
statute by surrender thereof to the Company or any of its authorized agents
or by mailing to the Company written notice stating the date thereafter the
cancellation shall be effective. The mailing of notice as aforesaid shall be
sufficient proof of notice. The time of surrender or the effective date and
hour of cancellation stated in the notice shall become the end of the Policy
Period.
In the event of (i) cancellation or nonrenewal by the Insured or (ii)
cancellation by the Company for nonpayment of premium, the full Insurance
Premium shown in Item 5 of the Declarations shall be deemed earned and the
unpaid portion thereof shall be immediately due and payable. Upon the
effective date of cancellation by the Insured, all indemnity obligations on
the part of the Company hereunder shall automatically cease and the Insured
shall have no further recourse against the Company with respect to unpaid
losses.
C. Representations - By acceptance of this Policy, the Insured agrees that the
statements in the Declarations and Application(s) are their agreements and
representations, that this Policy is issued in reliance upon the truth of
such representations and that this Policy embodies all agreements existing
between the Insured and the Company or any of its agents relating to this
insurance.
D. Action Against Company - No third-party action shall lie against the
Company, unless as a condition precedent thereto, there shall have been full
compliance with all of the terms of this Policy, nor until the amount of the
Insured's obligation to pay shall have been finally determined either by
judgment against the Insured after actual trial or by written agreement of
the Insured, the claimant or regulatory body and the Company.
Any person or organization or the legal representative thereof who has
secured such judgment or written agreement shall thereafter be entitled to
recover under this Policy to the extent of the insurance afforded by this
Policy. No person or organization shall have any right under this Policy to
join the Company as a party to any action against the Insured to determine
the Insured's liability, nor shall the Company be impleaded by the Insured or
his legal representative. Bankruptcy or insolvency of the Insured or of the
Insured's estate shall not relieve the Company of any of its obligations
hereunder.
E. Assignment - This Policy may be assigned to a successor owner or operator
of a Hazardous Waste Facility designated in Item 4 of the Declarations,
provided that the Company consents to the assignment, which consent shall
not be unreasonably withheld.
F. Subrogation - In the event of any payment of this Policy, the Company shall
be subrogated to all the Insured's rights of recovery therefor against any
person or organization and the Insured shall execute and deliver instruments
and papers and do whatever else is necessary to secure such rights. The
Insured shall do nothing after a Claim to prejudice such rights.
The Company agrees to the following exceptions to the above and waives
subrogation:
1. as to any and all rights of recovery which the Insured may have against
former clients and generators of waste at the Hazardous Waste
Facility(ies), unless the Insured having such right of recovery shall give
its written consent to the Company to be subrogated thereto and the
Insured shall have the sole right to determine whether such consent is
given; and
2. as to any rights of recovery which the Insured may have against any
predecessor or affiliate of the Insured, including any insurer thereof,
unless the Insured having such
Copyright, American International Group, Inc., 1999
5
<PAGE>
right of recovery shall give its written consent to the Company to be
subrogated thereto and the Insured shall have the sole right to determine
whether such consent is given.
G. Changes - Notice to any agent or knowledge possessed by any agent or by
any other person shall not effect a waiver or a change in any part of this
Policy or estop the Company from asserting any right under the terms of
this Policy; nor shall the terms of this Policy be waived or changed,
except by endorsement issued to form a part of this Policy.
H. Sole Agent - The Named Insured first listed in Item 1 of the Declarations
shall act on behalf of all other Insureds, if any, for the payment or
return of premium, receipt and acceptance of any endorsement issued to
form a part of this Policy, giving and receiving notice of cancellation or
nonrenewal.
I. Other Insurance - Where other insurance is available to the Named Insured
for Post-Closure Costs covered under the terms and conditions of the
Policy, the Company's obligation to the Insured shall be as follows:
(1) This insurance is primary with respect to other valid and collectible
insurance available to any Named Insured. The Company's obligations
are not affected unless any of the other insurance is also primary and
recovery under such insurance results from a Post-Closure Cost arising
after the inception date of this Policy. In that case, the Company
will share with all such other insurance by the method described in
paragraph (2) below.
(2) Where this insurance is excess insurance, the Company will pay only
its share of the amount of Post-Closure Costs, if any, that exceeds
the total amount of all such valid insurance.
The Insured shall promptly upon request of the Company provide the Company
with copies of all policies potentially applicable against the liability
covered by this Policy.
J. Premium - The full policy premium for coverage hereunder shall be payable
in accordance with the schedule set forth in Item 5 of the Declarations. It
is an absolute condition that the full amount of each premium installment
be actually received by the Company in accordance with said schedule to be
or continue to be effective
K. Renewal of Coverage - Coverage may be renewed with a subsequent policy
which provides limits of liability no less than those contained in this
Policy, and which is issued by the Company at the expiration of the Policy
Period stated in the Declarations of this Policy, subject to the
cancellation provisions set forth in this Section.
SECTION VII. SERVICE OF SUIT
L. Service of Suit - It is agreed that in the event of failure of the Company
to pay any amount claimed to be due hereunder, the Company, at the request
of the Insured, will submit to the jurisdiction of a court of competent
jurisdiction within the United States. Nothing in this condition constitutes
or should be understood to constitute a waiver of the Company's rights to
commence an action in any court of competent jurisdiction in the United
States, to remove an action to a United States District Court, or to seek a
transfer of a case to another court as permitted by the laws of the United
States or of any state in the United States. It is further agreed that
service of process in such suit may be made upon Counsel, Legal Department,
American International Specialty Lines Insurance Company, c/o American
International Surplus Lines Agency, Inc., Harborside Financial Center, 401
Plaza 3, Jersey City, NJ 07311, or his or her representative, and that in
any suit instituted against the Company upon this contract, the Company will
abide by the final decision of such court or of any appellate court in the
event of any appeal.
Copyright, American International Group, Inc., 1999
6
<PAGE>
Further, pursuant to any statute of any state, territory, or district of the
United States which makes provision therefor, the Company hereby designates
the Superintendent, Commissioner, or Director of Insurance, other officer
specified for that purpose in the statute, or his or her successor or
successors in office as its true and lawful attorney upon whom may be served
any lawful process in any action, suit or proceeding instituted by or on
behalf of the Insured or any beneficiary hereunder arising out of this
contract of insurance, and hereby designates the above named counsel as the
person to whom the said officer is authorized to mail such process or a true
copy thereof.
IN WITNESS WHEREOF, the Company has caused this Policy to be signed by its
president and secretary and signed on the Declarations page by a duly authorized
representative or countersigned in states where applicable.
________________________ __________________________
Secretary President
Copyright, American International Group, Inc., 1999
7
<PAGE>
ENDORSEMENT NO.
This endorsement, effective 12:01 AM,
Forms a part of Policy No:
Issued to:
By:
NOTIONAL COMMUTATION ACCOUNT ENDORSEMENT
----------------------------------------
THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY
The Insurer will maintain a notional commutation account balance calculated as
follows:
1. 80.30% of the Deposit Premium paid; plus
2. 90% of the Annuity Payments; less
100% of losses paid by the Company.
The notional commutation account, if positive, will earn interest at a rate
equal to the one year United States Treasury Bill rate prevailing on the first
day of each anniversary year. The interest shall be applied to the average
daily balance of the notional commutation account and the interest will be
compounded quarterly. The interest credit shall be calculated at each annual
anniversary.
On the fifth and subsequent anniversaries of contract inception, the insured may
elect to commute this contract. If the Insured so elects, the Insurer will pay
the Insured an amount equal to 100% of the commutation account balance in return
for a complete release of liability for all claims whether known or unknown. It
will be the insured's responsibility to obtain alternate financial assurance if
this policy is commuted by the Insured.
Upon commutation of this contract, the Insurer will also reassign all of the
remaining annuity payments from the annuities accepted as premium payment and
referenced on Item 5 on the declarations page.
If, at the expiration of this Policy, there is a positive balance in the
Commutation Account, the Named Insured may elect to use such funds as premium
towards the renewal of this Policy. Such renewal Policy's terms and conditions
will be negotiated at the time of binding.
All other terms, conditions and exclusions shall remain the same.
-------------------------
AUTHORIZED REPRESENTATIVE
or countersignature (in states where applicable)
<PAGE>
Exhibit 10(iii)44
[LOGO OF THE IT GROUP]
THE IT GROUP, INC.
1999 MANAGEMENT INCENTIVE PLAN
<PAGE>
Table of Contents_________________________________________________________
1.0 Purpose.......................................................... 1
2.0 Eligibility...................................................... 1
3.0 Plan Year........................................................ 1
4.0 Performance Criteria............................................. 2
5.0 Individual Performance........................................... 2
6.0 Individual Award Targets......................................... 2
7.0 Incentive Pool Funding........................................... 2
8.0 Determination of Incentive Award Payments........................ 3
9.0 Adjustments and Form of Payment.................................. 3
10.0 Administration................................................... 3
11.0 Changes in Capital Structure and Other Events.................... 4
12.0 Amendment and Termination of the Plan............................ 4
13.0 General Provisions............................................... 4
<PAGE>
1.0 Purpose___________________________________________________________________
To recognize and reward key management, technical, and professional employees
for their ability to assist the Company to achieve, or exceed identified Company
goals, as well as personally achieve or exceed established pre-agreed individual
performance goals.
To offer a comprehensive compensation program that will enable the Company to:
. Cost effectively attract and retain key management and professional
personnel to enhance the Company's leadership position, and
. Motivate responsible management to achieve Company goals and foster
teamwork within the Company by relating the incentive portion of total
compensation directly to measurable performance criteria linked to the
creation of enhanced shareholder value.
2.0 Eligibility_______________________________________________________________
Regular full-time active employees nominated by senior management and approved
by the Chief Executive Officer and President.
Employees must be approved for incentive plan eligibility each year.
Eligibility in any given year does not assure eligibility in subsequent years.
Incentive awards will only accrue to participants who are on regular full-time
employee status at the time the award is paid.
Incentive awards will be calculated on the participants' annual base salary in
effect at the beginning of the Plan year or at the time a participant first
becomes eligible to participate in the Plan.
3.0 Plan Year_________________________________________________________________
The Plan Year will run from December 26, 1998 to December 31, 1999. All
Performance Criteria will be measured over the Plan Year.
1
<PAGE>
4.0 Performance Criteria______________________________________________________
The Compensation Committee (the "Committee") of the Board of Directors shall
establish one or more elements of performance criteria for the Company and/or
its major Groups for the Plan Year.
5.0 Individual Performance____________________________________________________
Individual awards are subject to an increase or decrease adjustment of up to 25%
of the total award based on individual performance as determined by senior
management subject to further increase or decrease by the CEO.
Factors to be considered when evaluating individual performance, to determine
incentive awards, may include, but not be limited to, some or all of the
following:
. Business unit performance
. New business development
. Accounts receivable improvement
. Intracompany cooperation
. Achievement of a personal performance plan as approved by appropriate
management
. Furtherance of the Company's mission with respect to client
relationships, people development, quality and safety.
6.0 Individual Award Targets___________________________________________________
Each participant will be assigned a target incentive award specified as a
percentage of salary. Incentive awards will be prorated as necessary so that the
sum of the individual awards does not exceed the authorized Incentive Pool
Funding.
7.0 Incentive Pool Funding_____________________________________________________
The Committee shall determine the total amount of funds authorized for payment
of incentive awards and specify the relationship between the attainment of
specified performance criteria and the payment of incentive awards.
2
<PAGE>
8.0 Determination of Incentive Award Payments__________________________________
The Committee shall determine any formulas necessary to determine the
appropriate performance criteria and the weighting of such criteria in
determining incentive award payments for specific subgroups of participants in
the Plan.
9.0 Adjustments and Form of Payment____________________________________________
The Committee reserves the right to make good faith adjustments to any of the
Performance Criteria and/or the amount of incentive awards due to a material
change in the Company's structure due to, but not limited to; acquisitions,
divestitures or mergers. Further, although it is contemplated that incentive
awards will be paid in cash, the Committee may at its discretion determine that
incentive awards be made in the form of cash, stock, stock options, or in any
other form or combination of forms as the Committee should determine.
10.0 Administration___________________________________________________________
The Plan shall be administered by the Committee.
The authority of the Committee includes, but is not limited to the following:
. Determining eligibility for participation in the Plan
. Determining:
- Incentive award opportunities and earned awards
- Performance criteria and performance goals
. Authorizing payments and determining the form of incentive awards
(cash, stock) or other forms of award.)
. Interpreting the Plan and exercising its power to prescribe, amend, or
rescind rules and regulations relating to the Plan
. Adjusting the Company's performance goals and/or funded incentive pool
due to a material change in the organizational structure of the Company
and/or occurrence of extraordinary events.
3
<PAGE>
11.0 Changes in Capital Structure and Other Events_____________________________
Upon dissolution or liquidation of the Corporation or upon reorganization,
merger, or consolidation of the Corporation with one or more corporations as a
result of which the Corporation is not the surviving corporation, or upon sale
of all or substantially all of the assets of the Corporation, or change in
control, the Committee may in its sole discretion:
. Accelerate the payment of earned awards under the Plan.
. Make any other adjustments or amendments to the Plan and outstanding
incentive awards as it may deem equitable.
12.0 Amendment and Termination of the Plan_____________________________________
The Board may at any time and from time to time may suspend, terminate, modify,
or amend the Plan.
13.0 General Provisions________________________________________________________
. The Company may reduce incentive awards by the gross amount of any
overtime paid to the participant as well the gross amount of any other
incentive compensation awards paid including Spot Incentive awards.
Special recognition awards (such as for years of service or for
technical or professional accomplishments, etc.) will not be deducted.
. The Company may deduct federal, state, and any other local taxes of any
kind required by law to be withheld upon payment of any incentive award
under this Plan.
. The Company may deduct from or reduce the amount of an award on account
of amounts due the Company by the participant.
. Nothing in this Plan or in any award granted pursuant hereto shall
confer on an individual any right to continue in the employ of the
Company or any of its subsidiaries or deter in any way the right of the
Company or any subsidiary to terminate any employment.
. The Plan shall take effect upon its adoption by the Compensation
Committee of the Board of Directors.
. Awards granted under the Plan shall not be transferrable
otherwise than by will or by laws of descent and distribution, and
awards may be realized during the employment of the participant or by
his/her guardian or legal representative.
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEET AS OF OCTOBER 1, 1999 AND
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE FISCAL QUARTERS
ENDED OCTOBER 1, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> DEC-26-1998
<PERIOD-END> OCT-01-1999
<CASH> 21,509
<SECURITIES> 0
<RECEIVABLES> 494,931
<ALLOWANCES> 21,020
<INVENTORY> 0
<CURRENT-ASSETS> 539,705
<PP&E> 119,266
<DEPRECIATION> 57,533
<TOTAL-ASSETS> 1,268,806
<CURRENT-LIABILITIES> 315,972
<BONDS> 664,054
0
6,665
<COMMON> 229
<OTHER-SE> 253,683
<TOTAL-LIABILITY-AND-EQUITY> 1,268,806
<SALES> 0
<TOTAL-REVENUES> 953,412
<CGS> 0
<TOTAL-COSTS> 870,857
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,763
<INCOME-PRETAX> 42,792
<INCOME-TAX> 15,885
<INCOME-CONTINUING> 26,907
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,907
<EPS-BASIC> 0.98
<EPS-DILUTED> 0.83
</TABLE>
