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 the quarterly period ended January 31, 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: 033-17921
AQUA ALLIANCE INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3418759
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
30 HARVARD MILL SQUARE 01880
WAKEFIELD, MASSACHUSETTS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Registrant's Telephone Number, Including Area Code: (781) 246-5200
Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report: No change.
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 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__
The number of shares outstanding of the registrant's Class A Common
Stock, par value $.001 per share, was 185,176,527 as of March 15, 1999.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AQUA ALLIANCE INC.
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 31, 1999 AND OCTOBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 31, CTOBER 31,
1999 1998
---------- ---------
(UNAUDITED)
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents..................................... $ 19,694 $22,197
Accounts receivable, less allowance for doubtful accounts..... 79,775 77,776
Costs and estimated earnings in excess of billings on
uncompleted
contracts............................................... 35,180 33,559
Inventories................................................ 1,452 1,470
Prepaid expenses and other current assets.................. 10,050 8,521
Net current assets of discontinued operations.............. 3,367 1,401
-------- -------
Total current assets.............................. 149,518 144,924
Property, plant and equipment, net............................ 10,092 9,768
Investments in environmental treatment facilities............. 21,313 21,651
Goodwill, net................................................. 157,913 159,198
Other assets.................................................. 20,766 20,572
Net non-current assets of discontinued operations............. 1,014 3,239
-------- -------
Total assets...................................... $360,616 $359,352
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt..................... $ 443 $ 443
Accounts payable........................................... 96,144 87,557
Accrued expenses........................................... 93,393 92,135
Billings in excess of costs and estimated earnings on
uncompleted
contracts............................................... 13,914 13,484
Income taxes payable....................................... 2,292 2,325
Net current liabilities of discontinued operations......... -- 483
-------- -------
Total current liabilities......................... 206,186 196,427
-------- -------
Long-term debt................................................ 119,329 119,405
-------- -------
Commitments and contingencies (Note 6)
Stockholders' equity:
Common stock, par value $.001, authorized 260,000,000 shares;
issued 185,266,429
shares.................................................. 185 185
Additional paid-in capital................................. 629,130 629,130
Accumulated deficit........................................ (593,579) (585,16)
Common stock in treasury, at cost.......................... (108) (108)
Cumulative currency translation adjustment................. (527) (522)
-------- -------
Total stockholders' equity.............................. 35,101 43,520
-------- -------
Total liabilities and stockholders' equity.............. $360,616 $359,352
======== =======
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these financial statements.
AQUA ALLIANCE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JANUARY 31, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
JANUARY 31,
-------------------
1999 1998
--------- ---------
Sales.................................................... $113,158 $110,274
Cost of sales............................................ 101,339 96,773
------- --------
Gross margin.......................................... 11,819 13,501
Selling, general and administrative expenses............. 15,009 14,252
Depreciation and amortization............................ 2,570 3,084
------- --------
Operating loss from continuing operations............. (5,760) (3,835)
Interest expense, net.................................... (2,214) (6,022)
Other expense, net....................................... (214) (659)
------- --------
Loss from continuing operations before income taxes and
cumulative
effect of change in accounting principle........... (8,188) (10,516)
Income tax expense....................................... (226) (245)
------- --------
Loss from continuing operations....................... (8,414) (10,761)
Cumulative effect on prior years (to October 31, 1997)
of change in the
method of accounting for start-up costs............ -- (11,082)
------- --------
Net loss.............................................. $(8,414) $(21,843)
======= ========
Loss per common share:
Continuing operations................................. $ (.05) $ (.32)
Cumulative effect on prior years (to October 31, 1997)
of change in the
method of accounting for start-up costs............ -- (.34)
------- --------
Net loss.............................................. $ (.05) $ (.66)
======= ========
Weighted average number of shares outstanding......... 185,177 33,150
======= ========
The accompanying notes to consolidated financial statements are
an integral part of these financial statements.
AQUA ALLIANCE INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED JANUARY 31, 1999 AND 1998
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS
ENDED
JANUARY 31,
----------------
1999 1998
------- -------
Net loss................................................... $(8,414) $(21,843)
Other comprehensive income:
Foreign currency translation adjustments................ (5) (178)
------- -------
Total comprehensive income (loss).......................... $(8,419) $(22,021)
======= =======
The accompanying notes to the consolidated financial statements
are an integral part of these financial statements.
AQUA ALLIANCE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31, 1999 AND 1998
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS
ENDED
JANUARY 31,
----------------
1999 1998
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................ $(8,414) $(21,843)
Adjustments to reconcile net loss to net cash used
for continuing operations--
Cumulative effect on prior years (to October 31, 1997)
of change in the method of accounting
for start-up costs................................... -- 11,082
Depreciation and amortization......................... 2,570 3,084
Other................................................. 72 187
Changes in assets and liabilities, excluding effects
of divestitures--
(Increase) decrease in assets--
Accounts receivable................................... (1,999) 2,371
Costs and estimated earnings in excess of billings
on uncompleted contracts.................................... (1,621) (5,655)
Inventories........................................... 18 71
Prepaid expenses and other current assets............. (1,529) (1,686)
Other assets.......................................... 80 78
Increase (decrease) in liabilities--
Accounts payable...................................... 8,587 7,399
Accrued expenses...................................... 1,258 (8,468)
Billings in excess of costs and estimated earnings
on uncompleted contracts................................... 430 179
Income taxes.......................................... (33) (79)
------ -------
Net cash used for continuing operations.............. (581) (13,280)
Net cash used for discontinued operations............ (2,106) (189)
------ -------
Net cash used for operating activities............... (2,687) (13,469)
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of businesses........................ 2,000 --
Capital expenditures, net............................... (1,445) (146)
Investment in environmental treatment facilities........ 266 173
Investments in new contracts and other.................. (438) (1,419)
Discontinued operations................................. (118) (192)
------ ------
Net cash provided by (used for) investing activities.. 265 (1,584)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of notes payable and long-term debt............ (76) (73)
Net borrowings under credit facilities.................. -- 11,300
Other................................................... (5) (899)
Discontinued operations................................. -- 609
------ ------
Net cash provided by (used for) financing activities.. (81) 10,937
------ ------
Net decrease in cash and cash equivalents............ (2,503) (4,116)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........... 22,197 12,089
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................. $19,694 $ 7,973
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest................................ $ 4,731 $ 9,381
======= =======
The accompanying notes to consolidated financial statements are
an integral part of these financial statements.
AQUA ALLIANCE INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION
The interim consolidated financial statements and the following notes
should be read in conjunction with the notes to the Consolidated Financial
Statements of Aqua Alliance Inc., formerly Air & Water Technologies
Corporation ("AAI" or the "Company"), and its consolidated subsidiaries,
which are included in its Annual Report on Form 10-K for the fiscal year
ended October 31, 1998 filed with the Securities and Exchange Commission.
The interim information reflects all adjustments, including normal
recurring accruals, which are, in the opinion of management, necessary for
a fair presentation of the results for the interim period. Results for the
interim period are not necessarily indicative of results to be expected for
the full year.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reclassifications
Certain reclassifications have been made to the 1998 consolidated
financial statements to conform to the 1999 interim presentation.
Recently adopted accounting pronouncements
In June 1997, Statement of Financial Accounting Standard (SFAS) No.
130, "Reporting Comprehensive Income," was issued. As required by the
statement, the Company adopted SFAS No. 130 on November 1, 1998. Under
provisions of this statement, the Company has included a financial
statement presentation of comprehensive income and its components.
Implementation of this standard did not affect the Company's financial
position or results of operations.
(3) CHANGE IN ACCOUNTING
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities" (SOP 98-5). SOP 98-5 provides guidance on the financial
reporting of start-up and organization costs and requires such costs to be
expensed as incurred, with the effect of initial adoption reported as a
cumulative effect of a change in accounting principle. The Company has
early adopted SOP 98-5 effective November 1, 1997, as permitted by the SOP.
The total amount of deferred start-up costs reported as a cumulative
effect of a change in accounting principle is $11,082,000. The impact of
adoption of the SOP on previously reported operating income was to change
the first quarter 1998 results from an operating loss of $11,673,000 to an
operating loss of $10,761,000. The reported loss per share from continuing
operations in the first quarter of 1998 was reduced from $0.35 to $0.32.
(4) REVISED BUSINESS STRATEGY
As part of the final stages of the Research-Cottrell segment
divestiture, on January 19, 1999, the Company sold Regenerative
Environmental Equipment Company, Inc. ("REECO"), the last of the
Research-Cottrell units, for approximately $2.0 million. Although
management believes that current provisions for the liquidation of
Research- Cottrell are adequate, the estimated loss on disposal may change
in the near-term based on the final resolution of the remaining assets and
liabilities of the discontinued segment.
The results of operations and financial condition of
Research-Cottrell are reported as discontinued operations for all periods
presented.
(5) RECENT DEVELOPMENTS
In September 1995, PSG's wholly-owned subsidiary P S Group (PSG) of
Puerto Rico, Inc. ("PSG Puerto Rico") commenced operations under a five
year contract with the Puerto Rico Aqueduct & Sewer Authority ("PRASA"), a
public corporation of the Commonwealth of Puerto Rico, providing for the
operation, management, repair and maintenance of a significant portion of
Puerto Rico's water and sewage treatment system.
On September 15, 1998, the Company and Compagnie Generale des
Eaux-Sahide ("CGE"), a subsidiary of Vivendi, a French corporation and the
Company's largest stockholder ("Vivendi"), collectively as the Operator,
executed the First Amended and Restated Agreement, an amendment to the
original PRASA contract (the "First Amendment"), including the assignment
by PSG Puerto Rico of the contract with PRASA to the Company and CGE. This
amendment, in addition to expanding the scope and increasing the fee base
of the original contract, extended the term of the contract to August 31,
2001. On March 1, 1999,the Second Amended and Restated Agreement, a second
amendment to the original PRASA contract (the "Second Amendment"), was
executed. The Second Amendment further expanded the services performed to
include, among others, management and oversight of PRASA's Engineering
Department, its Environmental Compliance Division, the office of General
Counsel and certain functions of PRASA's Office of the Executive Director.
In conjunction with the execution of the First Amendment and the Second
Amendment, the Company, PRASA and the Puerto Rico Electric Power Authority
("PREPA") executed certain payments among the parties, the result of which
was that amounts due to the Company from PRASA were reduced to $33.0
million and amounts due by the Company to PREPA were reduced to $28.5
million.
The fee structure under the Second Amendment is based on various
components including a management fee, part of which will be deferred and
earned-out as performance incentives, compensation for operating costs and
certain pass through costs. If all incentives are earned, the Second
Amendment is expected to generate approximately $145 million of revenues
per annum. This level of revenues could be increased in the event the
Company either earns additional incentives or effects cost reductions below
certain established benchmark levels in areas such as utilities or chemical
usage. Alternatively, in the event that costs incurred are in excess of the
levels designated in the Second Amendment, the Company would be required to
absorb the overruns. The Company's performance obligations to PRASA are
secured by a performance bond issued by an independent surety company and a
limited guarantee in favor of PRASA provided by Vivendi. Concurrently, the
Government Development Bank for Puerto Rico has guaranteed the payment
obligation of PRASA due to the Company to the extent of $18.9 million for
the period September 1, 1998 through August 31, 1999, and in the amount of
$20.8 million each year through the Second Amendment's current term. While
PRASA has a one-time option to terminate the contract on September 1, 2000
with a ninety-day written notice, management expects that this contract
will not be prematurely cancelled but will remain in effect through its
extended term of August 31, 2001.
(6) COMMITMENTS AND CONTINGENCIES
DOJ Investigation
In connection with a broad investigation by the U.S. Department of
Justice (the "DOJ") into alleged illegal payments by various persons to
members of the Houston City Council, the Company's subsidiary, PSG,
received a federal grand jury subpoena on May 31, 1996, requesting
documents regarding certain PSG consultants and representatives who had
been retained by PSG to assist it in advising the City of Houston regarding
the benefits that could result from the privatization of Houston's water
and wastewater system (the "DOJ Investigation"). PSG has cooperated and
continues to cooperate with the DOJ which has informed the Company that it
is reviewing transactions among PSG and its consultants. The Company
promptly initiated its own independent investigation into these matters and
placed PSG's then Chief Executive Officer on administrative leave of
absence with pay. The PSG Chief Executive Officer, who has denied any
wrongdoing, resigned from PSG on December 4, 1996. In the course of its
ongoing investigation, the Company became aware of questionable financial
transactions with third parties and payments to certain PSG consultants and
other individuals, the nature of which requires further investigation. The
Company has brought these matters to the attention of the DOJ and continues
to cooperate fully with its investigation. No charges of wrongdoing have
been brought against PSG or any PSG executive or employee by any grand jury
or other government authority. However, since the government's
investigation is still underway and is conducted largely in secret, no
assurance can be given as to whether the government authorities will
ultimately determine to bring charges or assert claims resulting from this
investigation that could implicate or reflect adversely upon or otherwise
have a material adverse effect on the financial position or results of
operations of PSG or the Company taken as a whole.
Bremerton Litigation
The City of Bremerton, Washington brought a contribution and contract
action against Metcalf & Eddy Services, Inc. ("M&E Services"), the operator
of a City-owned wastewater treatment plant from 1987 until late 1995. The
action arises from two prior lawsuits against the City for alleged odor
nuisances brought by two groups of homeowners neighboring the plant. In the
first homeowners' suit, the City paid $4.3 million in cash and
approximately $5 million for odor control technology to settle the case.
M&E Services understands the odor control measures generally have been
successful and the odors have been reduced as a result. M&E Services was
not a party to the first homeowners' suit, which has been dismissed with
prejudice as to all parties. In the settlement of the second homeowners'
case, the City of Bremerton paid the homeowners $2.9 million, and M&E
Services contributed $0.6 million to the settlement without admitting
liability. All claims raised by the homeowners in the second suit have been
resolved. All claims by and between M&E Services and the City in the second
homeowners' suit were expressly reserved.
At trial, which commenced on March 2, 1998, the City sought to
recover the amounts it expended on the two settlements, damages for M&E
Services' alleged substandard operation of the plant, and attorney's fees.
The damages claimed exceeded $14 million. On April 22, 1998, the jury
returned a verdict against M&E Services and in favor of the City in the net
amount of approximately $0.6 million. After considering various motions by
the City challenging the verdict and its amount, on June 26, 1998, the
trial court entered final judgement against M&E Services and in favor of
the City in the net amount of approximately $0.75 million. Both sides have
appealed. The appellate court could increase or decrease the judgement by
$2.0 million or more or remand the case for a new trail. No assurances can
be given that, as a result of further court proceedings, an adverse
judgement would not have a material adverse effect on the financial
position or results of the Company.
Belgium Litigation
On October 14, 1997, Research-Cottrell, Inc. (now known as AWT Air
Company, Inc.) and its subsidiary, Research-Cottrell Belgium, S.A. (now
known as AWT Air Company (Belgium) S.A.) ("AWT Belgium") were named in a
lawsuit by N.V. Seghers Engineering ("Seghers") filed in the Commercial
Court in Mechelen, Belgium. Seghers is AWT Belgium's joint venture partner
on two large pollution control projects. The suit claims damages of
approximately $13 million allegedly resulting from AWT Belgium's breach of
contract and substandard performance. Damages claimed in the lawsuit
consist not only of Seghers' alleged cost to repair the AWT Belgium
equipment, but also lost profits, damages to business reputation, theft of
employees (AWT Belgium hired two former Seghers employees), increased costs
arising out of the failure to gain timely acceptance of the two plants,
excessive payments to AWT Belgium due to alleged unfair pricing practices
by AWT Belgium and other miscellaneous interest charges and costs. Seghers
has also filed a suit in Belgium against AWT Belgium, Hamon
Research-Cottrell (Belgium) S.A., the purchaser of AWT Belgium's assets,
and related entities, claiming that the sale of AWT Belgium would operate
as a fraud and deprive Seghers of its rightful recovery in the litigation.
The cases involve complex technical and legal issues. Nevertheless, the
Company denies liability to Seghers and, based upon the information
currently available, believes Seghers' claimed damages are grossly
inflated. In addition, the Company believes it has counterclaims based upon
Seghers' breaches of contract.
U.S. Attorney's Office Investigation
The United States Attorney's Office (the "U.S. Attorney's Office") in
Boston, Massachusetts is conducting an investigation of certain
entertainment and travel payments allegedly made to Egyptian officials
between 1994 and 1996 by the Company's subsidiary, Metcalf & Eddy
International, Inc. (which was merged into its parent, Metcalf & Eddy,
Inc.), while Metcalf & Eddy International, Inc. was performing services in
Egypt pursuant to contracts with the United Stages Agency for International
Development. M&E has cooperated and continues to cooperate fully with the
U.S. Attorney's Office. No charges of wrongdoing have been brought against
M&E or any M&E executive or employee by any grand jury or other government
authority. To date, the government has advised M&E that it has made no
decision as to how it will proceed.
Other Matters
The Company and its subsidiaries are parties to various other legal
actions and government audits arising in the normal course of their
businesses, some of which involve claims for substantial sums. The Company
believes that the disposition of such actions and audits, individually or
in the aggregate, will not have an adverse effect on the consolidated
financial position or results of operations of the Company taken as a
whole. Moreover, as a general matter, providers of services similar to
those provided by the Company may be subject to lawsuits alleging
negligence or other similar claims and environmental liabilities, which may
involve claims for substantial damages. Damages assessed in connection with
and the costs of defending any such actions could be substantial. The
Company's management believes that the levels of insurance coverage are
adequate to cover currently estimated exposures. Although the Company
believes that it will be able to obtain adequate insurance coverage in the
future at acceptable costs, there can be no assurance that the Company will
be able to obtain such coverage or will be able to do so at an acceptable
cost or that the Company will not incur significant liabilities in excess
of policy limits.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The Company operates principally in two segments: PSG which is
focused on the operation of water and wastewater treatment facilities and
M&E which is focused on engineering consulting in the areas of
water/wastewater and hazardous waste remediation. On December 2, 1997, the
Company announced its decision to divest Research- Cottrell which provided
air pollution control technologies and services. The divestiture of
Research-Cottrell was completed on January 19, 1999. See "--Financial
Condition."
DEPENDENCE ON KEY PROJECTS AND GOVERNMENT CONTRACTS
In any given period, a substantial percentage of the Company's sales
is dependent upon several large projects. To the extent that these projects
are canceled or substantially delayed and not replaced, it could have a
material adverse impact on the Company's sales and earnings.
Approximately 86% of the Company's fiscal year 1998 gross revenues
were derived from contracts with federal, state, municipal and other
governmental agencies. The termination of any of the Company's significant
contracts with such governmental agencies, or the failure to obtain either
extensions or renewals of certain existing contracts or additional
contracts with such governmental agencies, could have a material adverse
effect on the Company's earnings and business.
In September 1995, PSG's wholly-owned subsidiary P S Group (PSG) of
Puerto Rico, Inc. ("PSG Puerto Rico") commenced operations under a five
year contract with the Puerto Rico Aqueduct & Sewer Authority ("PRASA"), a
public corporation of the Commonwealth of Puerto Rico, providing for the
operation, management, repair and maintenance of a significant portion of
Puerto Rico's water and sewage treatment system. During the three month
period ended January 31, 1999, the Company's contract with PRASA accounted
for approximately 27% of the Company's total sales.
On September 15, 1998, the Company and Compagnie Generale des
Eaux-Sahide ("CGE"), a subsidiary of Vivendi, a French corporation and the
Company's largest stockholder ("Vivendi"), collectively as the Operator,
executed the First Amended and Restated Agreement, an amendment to the
original PRASA contract (the "First Amendment"), including the assignment
by PSG Puerto Rico of the contract with PRASA to the Company and CGE. This
amendment, in addition to expanding the scope and increasing the fee base
of the original contract, extended the term of the contract to August 31,
2001. On March 1, 1999, the Second Amended and Restated Agreement, a second
amendment to the original PRASA contract (the "Second Amendment"), was
executed. The Second Amendment further expanded the services performed to
include, among others, management and oversight of PRASA's Engineering
Department, its Environmental Compliance Division, the office of General
Counsel and certain functions of PRASA's Office of the Executive Director.
In conjunction with the execution of the First Amendment and the Second
Amendment, the Company, PRASA and the Puerto Rico Electric Power Authority
("PREPA") executed certain payments among the parties, the result of which
was that amounts due to the Company from PRASA were reduced to $33.0
million and amounts due by the Company to PREPA were reduced to $28.5
million.
The fee structure under the Second Amendment is based on various
components including a management fee, part of which will be deferred and
earned-out as performance incentives, compensation for operating costs and
certain pass through costs. If all incentives are earned, the Second
Amendment is expected to generate approximately $145 million of revenues
per annum. This level of revenues could be increased in the event the
Company either earns additional incentives or effects cost reductions below
certain established benchmark levels in areas such as utilities or chemical
usage. Alternatively, in the event that costs incurred are in excess of the
levels designated in the Second Amendment, the Company would be required to
absorb the overruns. The Company's performance obligations to PRASA are
secured by a performance bond issued by an independent surety company and a
limited guarantee in favor of PRASA provided by Vivendi. Concurrently, the
Government Development Bank for Puerto Rico has guaranteed the payment
obligation of PRASA due to the Company to the extent of $18.9 million for
the period September 1, 1998 through August 31, 1999, and in the amount of
$20.8 million each year through the Second Amendment's current term. While
PRASA has a one-time option to terminate the contract on September 1, 2000
with a ninety-day written notice, management expects that this contract
will not be prematurely cancelled but will remain in effect through its
extended term of August 31, 2001.
Summarized below is certain financial data including information
relating to the Company's business segments (in thousands).
THREE MONTHS ENDED
----------------------
JANUARY JANUARY
31, 31,
1999 1998
---------- ----------
SALES:
Professional Services Group..................... $ 71,243 $ 65,869
Metcalf & Eddy.................................. 42,448 45,553
Other and eliminations.......................... (533) (1,148)
---------- ----------
113,158 110,274
---------- ----------
COST OF SALES:
Professional Services Group..................... 66,763 61,154
Metcalf & Eddy.................................. 35,109 36,767
Other and eliminations.......................... (533) (1,148)
---------- ----------
101,339 96,773
---------- ----------
GROSS MARGIN:
Professional Services Group..................... 4,480 4,715
Metcalf & Eddy.................................. 7,339 8,786
Other and eliminations.......................... -- --
---------- ----------
11,819 13,501
---------- ----------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Professional Services Group..................... 2,239 3,976
Metcalf & Eddy.................................. 4,901 8,100
Corporate (unallocated)......................... 7,869 2,176
---------- ----------
15,009 14,252
---------- ----------
DEPRECIATION AND AMORTIZATION:
Professional Services Group..................... 926 1,206
Metcalf & Eddy.................................. 1,177 1,751
Corporate (unallocated)......................... 467 127
---------- ----------
2,570 3,084
---------- ----------
OPERATING INCOME (LOSS):
Professional Services Group..................... 1,315 (467)
Metcalf & Eddy.................................. 1,261 (1,065)
Corporate (unallocated)......................... (8,336) (2,303)
---------- ----------
(5,760) (3,835)
---------- ----------
Interest expense, net................................. (2,214) (6,022)
Other expense, net.................................... (214) (659)
Income tax expense.................................... (226) (245)
---------- ----------
Loss from continuing operations....................... (8,414) (10,761)
Cumulative effect on prior years (to October 31,
1997) of change
in the method of accounting for start-up costs.... -- (11,082)
---------- ----------
Net loss.............................................. $ (8,414) $ (21,843)
========== ==========
THREE MONTHS ENDED JANUARY 31, 1999 COMPARED TO THREE MONTHS ENDED
JANUARY 31, 1998
Overview
The loss from continuing operations decreased by $2.3 million from
the comparable prior period to $8.4 million due primarily to lower interest
expense and depreciation and amortization, partially offset by higher
operating costs in PSG and Metcalf &Eddy. Sales for the three month period
ended January 31, 1999 increased by $2.9 million, or 2.6%, from the
comparable prior period, as a result of the expanded scope and revenue from
the First Amendment to the PRASA contract in PSG, partially offset by
reduced revenues in Metcalf & Eddy.
The Company's selling, general and administrative expenses ("SG&A")
increased by $0.8 million, primarily due to costs associated with the
implementation of its revised business strategy. In connection with the
revised business strategy and as previously announced, the Company has
moved its headquarters to Wakefield, Massachusetts, is being organized into
four operating regions, and is consolidating corporate functions. The
Company anticipates a reduction in SG&A in the future, net of one time
reorganization charges, as a result of the implementation of the revised
business strategy. The reorganization resulted in changes in the
composition of the reportable segments' SG&A and depreciation and
amortization expense due to the reduction and centralization of certain
SG&A functions and costs into corporate headquarters. As a result, SG&A
expense at the segment level, on a year over year basis, is not comparable.
On January 19, 1999, with the sale of Regenerative Environmental
Equipment Company, Inc. ("REECO"), the Company completed the divestiture of
its Research-Cottrell business segment, which provided air pollution
control technologies and services.
Professional Services Group
The operating income of $1.3 million during the three month period
ended January 31, 1999 was $1.8 million higher than the comparable prior
period, primarily due to reduced SG&A costs resulting from the
reorganization described above. The results reflect a gross margin of $4.5
million, $0.2 million lower than the comparable prior period, primarily due
to short-term higher operating costs associated with several projects and
the loss of certain contracts, partially offset by the increased revenue
and margin resulting from the expanded scope under the First Amendment to
the PRASA contract and, to a lesser extent, improved operating margins on
some domestic contracts. The net impact was a decrease in the gross margin
rate from 7.2% to 6.3%. As noted above, the variation in SG&A and
depreciation and amortization expense are not comparable at the segment
level.
Metcalf & Eddy
The $1.3 million operating income for the three month period ended
January 31, 1999 was $2.3 million higher than the comparable prior period.
The improvement is significantly impacted by the reduced SG&A and
depreciation and amortization, resulting from the reorganization described
above. Sales for the three month period ended January 31, 1999 reflects a
decrease of $3.1 million from the comparable prior period. The lower sales
volume reflects continued delays in obtaining task order releases primarily
within the hazardous waste remediation service lines, contracts awarded to
competitors, and delayed procurement in the international markets. Gross
margin rates declined from 19.3% to 17.3% due to pricing pressures, volume
shortfalls, higher subcontracted work which has a lower margin and higher
than expected costs on certain projects. As noted above, SG&A and
depreciation and amortization expense are not comparable at the segment
level.
Corporate and Other
The unallocated corporate costs for the three month period ended
January 31, 1999 were not comparable to the prior period due to the
reorganization and centralization of certain SG&A functions and costs at
corporate headquarters. Non-operating expenses decreased by $0.5 million
from the comparable prior period, primarily due to a more favorable foreign
currency transaction position experienced in the current period as compared
to the losses sustained by a Metcalf & Eddy project in Thailand in the
prior period. The $3.8 million reduction in interest expense is primarily
attributable to the repayment of approximately $185 million of debt in
connection with the recapitalization completed in 1998. Also reflected in
the comparable prior period was the cumulative effect on prior years (to
October 31, 1997) of a change in the method of accounting for start-up
costs of $11.1 million.
FINANCIAL CONDITION
During the three month period ended January 31, 1999, cash used by
operating activities was $2.7 million after interest payments of $4.7
million. The $2.0 million increase in accounts receivable and $8.6 million
increase in payables were primarily related to the contract with PRASA
under which certain receivables including unreimbursed costs paid on behalf
of PRASA have not been collected ($49.3 million at January 31, 1999), and
the payment of certain power costs to PREPA ($43.6 million at January 31,
1999) has been delayed. Management believes that such receivables will be
fully collected in fiscal 1999 and will be used to pay the power costs due
to PREPA. The cash requirements of the discontinued operations of
Research-Cottrell were related to the liquidation of certain liabilities.
The Company typically has receivables in which the ultimate realizability
is dependent upon the successful negotiation or resolution of contractual
issues or disputes as well as the client's ability to fund and pay the
amounts due. Historically, significant charges have been reflected as
provisions for receivable reserves and write-offs. Management believes that
adequate provisions have been made to the receivable balances reflected in
the January 31, 1999 financial statements; however, additional provisions
may be required in the future based on new developments which may arise in
the near term related to the factors discussed above.
Investment activities provided $0.3 million of cash during the three
month period ended January 31, 1999 including $2.0 million in proceeds from
the sale of REECO. Capital expenditures of $1.4 million were made in the
PSG and Metcalf & Eddy segments primarily for computer, field equipment and
software.
The Company maintains a $50 million secured bank credit facility,
dated as of March 10, 1995 (the "Bank Credit Facility"), with Societe
Generale, New York Branch ("Societe Generale"). As of January 31, 1999, as
well as March 15, 1999, the Company had no borrowings under the Bank Credit
Facility and outstanding letters of credit under the Bank Credit Facility
totaled $18.7 million (unused capacity of $31.3 million). The Bank Credit
Facility is scheduled to expire on December 11, 1999. The Company intends
to enter into discussions regarding the establishment of a new credit
facility prior to the maturity of the Bank Credit Facility. Vivendi also
has reaffirmed to Societe Generale the terms of Vivendi's existing credit
support of the Company, including a commitment by Vivendi to maintain a
minimum 48% voting equity ownership interest and to check to ensure that
the Company will have sufficient financial resources to meet its
obligations under the Bank Credit Facility.
The Bank Credit Facility is primarily designed to finance working
capital requirements, subject to certain limitations, and provide for the
issuance of letters of credit, and is secured by a first security interest
in substantially all of the assets of the Company. Of the total commitment,
borrowings are limited to the lesser of $50.0 million or the sum of a
percentage of certain eligible receivables, inventories, net property,
plant and equipment and costs and estimated earnings in excess of billings,
and bear interest at LIBOR plus 1.25% (6.2% at January 31, 1999), or at a
defined bank rate approximating prime (7.75% at January 31, 1999). The Bank
Credit Facility also allows for certain additional borrowings, including,
among other things, project financing and foreign borrowing facilities,
subject to limitations, and contains certain financial and other
restrictive covenants, including, among other things, the maintenance of
certain financial ratios, and restrictions on the incurrence of additional
indebtedness, acquisitions, the sale of assets, the payment of dividends
and the repurchase of subordinated debt. In addition, the related agreement
requires Vivendi to maintain its support of the Company, including a
minimum 48% voting equity ownership interest in the Company and its right
to designate at least 48% of the Company's Board of Directors as well as to
appoint the Chief Executive Officer and the Chief Financial Officer of the
Company. The Company compensates Vivendi for its support in an amount equal
to 0.95% per annum of the outstanding commitment of its credit facilities.
In addition to its $13.4 million of short-term investments and the
$31.3 million of unused capacity under its Bank Credit Facility at March
11, 1999, the Company believes it can finance its ongoing operations for
the foreseeable future (including additional working capital requirements
if a growth in sales occurs, but excluding the significant investments
discussed below) through improved working capital management by enhanced
focus on past due receivables, reduction of financing costs as a result
of the recapitalization and the anticipated cash proceeds from the sale of
the Branchburg facility.
YEAR 2000 ISSUE
The Company is actively addressing the Year 2000 ("Y2K") issue and
the potential exposures related to the processing of date information for
both business and financial systems. The scope of this undertaking includes
both internal and external systems and covers both information technology
("IT") and non-IT computer processes. Through its subsidiaries M&E and PSG,
the Company has developed a comprehensive plan for Y2K compliance. The
Company has a Y2K management team, which meets regularly to monitor the
execution of the plan, includes executive management participation and
provides status updates to the Board of Directors. The plan consists of
three basic phases: inventory, risk assessment, and remediation and
testing. For any given system, the phases occur in sequence.
Inventory Phase
Most of the Company's internal computer systems have been identified
and assessed for Y2K compliance based on surveys which began last year.
These internal computer systems included financial systems, Computer Aided
Designs (CAD) applications, and desktop and network systems. A final survey
of all PC users is in process to identify any other systems that may be
date sensitive and will be completed in the second quarter of 1999.
With respect to external systems, advisory letters were sent to
current clients, business partners and vendors advising them of the Y2K
issue. Vendors continue to be surveyed to assess their level of Y2K
compliance and their responses are being compiled. Systems interfaces to
external systems were also identified. Furthermore, the Company has revised
its standard technical specifications, subcontracts for services, and
purchase orders for equipment that the Company uses to require Y2K
warranties from contractors and suppliers. Moreover, the Company
incorporates Y2K warranty or certification requirements into solicitation
packages that it prepares on behalf of its clients to procure services or
goods from other contractors. Finally, the Company has begun to consider
issues related to non-IT systems, specifically those associated with
embedded systems, under both M&E and PSG contracts. The contract review
process and the inventory of embedded systems for PSG projects has been
completed.
Risk Assessment Phase
Following the identification of date sensitive systems, an assessment
of Y2K compliance was made. The Company has completed the assessment of the
Company's critical internal systems, most notably the financial systems.
The financial systems of M&E and PSG are being replaced and upgraded,
respectively. The Company has contracted with vendors for required
consulting services, hardware and software to replace the financial system
that serves both the Company and M&E. PSG's financial systems is under a
maintenance agreement and is being upgraded.
Assessment of the remaining internal systems, and any interfaces to
external systems, is ongoing. The scheduled completion date for this effort
is the Spring of 1999. The level of assessment of embedded systems will be
determined based on contract requirements. These assessments are scheduled
for completion by the Fall of 1999.
Remediation and Testing Phase
M&E is in the process of migrating to a new financial and payroll
system with a "go live" anticipated by the Fall of 1999. PSG's financial
software has been upgraded by the developer. The testing of PSG's Payroll
and Human Resources components is currently underway. Testing of the
remaining modules is scheduled for completion by the Spring of 1999. The
desktop and network computing environment is being upgraded to satisfy a
migration to common standards, current technology (some of which is client
driven) and Y2K compliance. The Company expects to complete all remediation
and testing of internal systems, and their external interfaces, by the Fall
of 1999. The level of remediation or replacement of non-Y2K compliant
embedded systems will be determined based on contract requirements.
Cost Estimates and Risks
The Company's operating costs to date with respect to Y2K compliance
have not been material. Based on current estimates, the Company expects to
incur approximately $2.0 million during 1999 to evaluate and modify, as
required, both internal and external systems. This estimate could change in
the near-term based on the outcome of the inventory phase scheduled for
completion in the Spring of 1999. The Company continues to evaluate
appropriate courses of corrective action, including replacement of certain
systems whose associated costs would be recorded as assets and amortized.
Management expects that the costs to convert the Company's information
systems to Y2K compliance will not have a material impact on the Company's
consolidated financial statements.
It is possible that M&E and PSG may be presented with claims related
to embedded systems contained in components the Company has designed,
installed and/or maintained on client projects. The Company is taking steps
to mitigate its exposure to such claims and to evaluate and formulate
appropriate legal defenses. In addition, PSG is developing contingency
plans for the plants it maintains and operates in an attempt to mitigate
the effects of potential Y2K problems in the event its clients have failed
to bring them into Y2K compliance.
The Company has not developed likely worst case scenarios nor
contingency plans with respect thereto.
FORWARD LOOKING STATEMENTS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in the statements. Included herein
are certain forward-looking statements concerning the Company's operations,
economic performance and financial condition, including, in particular,
forward-looking statements regarding the Company's expectation of future
performance following implementation of its revised business strategy. Such
statements are subject to various risks and uncertainties. Accordingly, the
Company hereby identifies the following important factors that could cause
the Company's actual financial results to differ materially from those
projected, forecasted, estimated or budgeted by the Company in such
forward-looking statements:
o The Company's highly competitive marketplace.
o Changes in, as well as enforcement levels of, federal, state
and local environmental legislation and regulations that change
demand for a significant portion of the Company's services.
o Adverse developments in the DOJ Investigation.
o Dependency on key projects, customers and contracts.
o The ability to obtain new contracts (some of which are
significant) from existing and new clients.
o The ability of the Company to continue to obtain new bid
and performance bonds.
o The execution of expected new projects and those projects in
backlog within the most recent cost estimates.
o Changes in interest rates causing an increase in the Company's
effective borrowing rate.
o Adverse resolution of litigation matters and existing claims
arising in the ordinary course of business.
o The ability of the Company to access capital (through an
investment fund, off-balance sheet vehicle or otherwise) and to
effect and finance future investments.
o The ability of the Company to successfully implement its
revised business strategy.
o The ability of the Company to obtain any necessary waivers,
extensions or renewals of the Bank Credit Facility.
o The acceptance by the Company's current and prospective
customers of the Company's financial position.
o The effectiveness of the business planning committee of the
Board of Directors, established in connection with the
Recapitalization, in identifying strategies aimed at increasing
stockholder value.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
DOJ Investigation
In connection with a broad investigation by the U.S. Department of
Justice (the "DOJ") into alleged illegal payments by various persons to
members of the Houston City Council, the Company's subsidiary, PSG,
received a federal grand jury subpoena on May 31, 1996, requesting
documents regarding certain PSG consultants and representatives who had
been retained by PSG to assist it in advising the City of Houston regarding
the benefits that could result from the privatization of Houston's water
and wastewater system (the "DOJ Investigation"). PSG has cooperated and
continues to cooperate with the DOJ which has informed the Company that it
is reviewing transactions among PSG and its consultants. The Company
promptly initiated its own independent investigation into these matters and
placed PSG's then Chief Executive Officer on administrative leave of
absence with pay. The PSG Chief Executive Officer, who has denied any
wrongdoing, resigned from PSG on December 4, 1996. In the course of its
ongoing investigation, the Company became aware of questionable financial
transactions with third parties and payments to certain PSG consultants and
other individuals, the nature of which requires further investigation. The
Company has brought these matters to the attention of the DOJ and continues
to cooperate fully with its investigation. No charges of wrongdoing have
been brought against PSG or any PSG executive or employee by any grand jury
or other government authority. However, since the government's
investigation is still underway and is conducted largely in secret, no
assurance can be given as to whether the government authorities will
ultimately determine to bring charges or assert claims resulting from this
investigation that could implicate or reflect adversely upon or otherwise
have a material adverse effect on the financial position or results of
operations of PSG or the Company taken as a whole.
Bremerton Litigation
The City of Bremerton, Washington brought a contribution and contract
action against Metcalf & Eddy Services, Inc. ("M&E Services"), the operator
of a City-owned wastewater treatment plant from 1987 until late 1995. The
action arises from two prior lawsuits against the City for alleged odor
nuisances brought by two groups of homeowners neighboring the plant. In the
first homeowners' suit, the City paid $4.3 million in cash and
approximately $5 million for odor control technology to settle the case.
M&E Services understands the odor control measures generally have been
successful and the odors have been reduced as a result. M&E Services was
not a party to the first homeowners' suit, which has been dismissed with
prejudice as to all parties. In the settlement of the second homeowners'
case, the City of Bremerton paid the homeowners $2.9 million, and M&E
Services contributed $0.6 million to the settlement without admitting
liability. All claims raised by the homeowners in the second suit have been
resolved. All claims by and between M&E Services and the City in the second
homeowners' suit were expressly reserved.
At trial, which commenced on March 2, 1998, the City sought to
recover the amounts it expended on the two settlements, damages for M&E
Services' alleged substandard operation of the plant, and attorney's fees.
The damages claimed exceeded $14 million. On April 22, 1998, the jury
returned a verdict against M&E Services and in favor of the City in the net
amount of approximately $0.6 million. After considering various motions by
the City challenging the verdict and its amount, on June 26, 1998, the
trial court entered final judgement against M&E Services and in favor of
the City in the net amount of approximately $0.75 million. Both sides have
appealed. The appellate court could increase or decrease the judgement by
$2.0 million or more or remand the case for a new trail. No assurances can
be given that, as a result of further court proceedings, an adverse
judgement would not have a material adverse effect on the financial
position or results of the Company.
Belgium Litigation
On October 14, 1997, Research-Cottrell, Inc. (now known as AWT Air
Company, Inc.) and its subsidiary, Research-Cottrell Belgium, S.A. (now
known as AWT Air Company (Belgium) S.A.) ("AWT Belgium") were named in a
lawsuit by N.V. Seghers Engineering ("Seghers") filed in the Commercial
Court in Mechelen, Belgium. Seghers is AWT Belgium's joint venture partner
on two large pollution control projects. The suit claims damages of
approximately $13 million allegedly resulting from AWT Belgium's breach of
contract and substandard performance. Damages claimed in the lawsuit
consist not only of Seghers' alleged cost to repair the AWT Belgium
equipment, but also lost profits, damages to business reputation, theft of
employees (AWT Belgium hired two former Seghers employees), increased costs
arising out of the failure to gain timely acceptance of the two plants,
excessive payments to AWT Belgium due to alleged unfair pricing practices
by AWT Belgium and other miscellaneous interest charges and costs. Seghers
has also filed a suit in Belgium against AWT Belgium, Hamon
Research-Cottrell (Belgium) S.A., the purchaser of AWT Belgium's assets,
and related entities, claiming that the sale of AWT Belgium would operate
as a fraud and deprive Seghers of its rightful recovery in the litigation.
The cases involve complex technical and legal issues. Nevertheless, the
Company denies liability to Seghers and, based upon the information
currently available, believes Seghers' claimed damages are grossly
inflated. In addition, the Company believes it has counterclaims based upon
Seghers' breaches of contract.
U.S. Attorney's Office Investigation
The United States Attorney's Office (the "U.S. Attorney's Office") in
Boston, Massachusetts is conducting an investigation of certain
entertainment and travel payments allegedly made to Egyptian officials
between 1994 and 1996 by the Company's subsidiary, Metcalf & Eddy
International, Inc. (which was merged into its parent, Metcalf & Eddy,
Inc.), while Metcalf & Eddy International, Inc. was performing services in
Egypt pursuant to contracts with the United Stages Agency for International
Development. M&E has cooperated and continues to cooperate fully with the
U.S. Attorney's Office. No charges of wrongdoing have been brought against
M&E or any M&E executive or employee by any grand jury or other government
authority. To date, the government has advised M&E that it has made no
decision as to how it will proceed.
Other Matters
The Company and its subsidiaries are parties to various other legal
actions and government audits arising in the normal course of their
businesses, some of which involve claims for substantial sums. The Company
believes that the disposition of such actions and audits, individually or
in the aggregate, will not have an adverse effect on the consolidated
financial position or results of operations of the Company taken as a
whole. Moreover, as a general matter, providers of services similar to
those provided by the Company may be subject to lawsuits alleging
negligence or other similar claims and environmental liabilities, which may
involve claims for substantial damages. Damages assessed in connection with
and the costs of defending any such actions could be substantial. The
Company's management believes that the levels of insurance coverage are
adequate to cover currently estimated exposures. Although the Company
believes that it will be able to obtain adequate insurance coverage in the
future at acceptable costs, there can be no assurance that the Company will
be able to obtain such coverage or will be able to do so at an acceptable
cost or that the Company will not incur significant liabilities in excess
of policy limits.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT LOCATION
------- ----------------------- --------
11 Statement re: computation of per share earnings *
27 Financial Data Schedule *
- -------------------
(*) Filed herewith.
(b) Reports on Form 8-K
During the quarter ended January 31, 1999, the Company filed no
reports on Form 8-K.
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.
AQUA ALLIANCE INC.
Date: March 16, 1999 By: /s/ ALAIN BRUNAIS
----------------------------
Alain Brunais
Senior Vice President,
Chief Financial Officer
and Director
(Principal Financial Officer)
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT LOCATION
------- ----------------------- --------
11 Statement re: computation of per share earnings *
27 Financial Data Schedule *
- ------------------
(*) Filed herewith.
EXHIBIT 11
AQUA ALLIANCE INC.
COMPUTATION OF PER SHARE EARNINGS
FOR THE QUARTERS ENDED JANUARY 31, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
JANUARY 31
----------------------
1999 1998
---------- ----------
BASIC EARNINGS (LOSS) PER SHARE:
1. Loss from continuing operations................. $ (8,414) $ (10,761)
2. Cumulative effect on prior years (to October
31, 1997) of change
in the method of accounting for start-up costs.. -- (11,082)
--------- ---------
3. Net loss applicable to common stockholders...... $ (8,414) $ (21,843)
========= =========
4. Weighted average shares outstanding............. 185,177 33,150
========= =========
5. Loss per share from continuing operations (0.05 (0.32
(1 / 4)......................................... $ ) $ )
6. Loss per share from cumulative effect on prior
years (to October
31, 1997) of change in the method of accounting
for start-up costs
(2 / 4)......................................... -- (0.34)
--------- ---------
7. Net (loss) per share (3 / 4).................... $ (0.05) $ (0.66)
========= =========
DILUTED EARNINGS (LOSS) PER SHARE (1):
8. Line 1 above.................................... $ (8,414) $ (10,761)
9. Add back interest, on assumed conversion of the
Company's 8%
Convertible Debentures.......................... 2,300 2,300
--------- ---------
10. Loss from continuing operations................. (6,114) (8,461)
11. Cumulative effect on prior years (to October
31, 1997) of change
in the method of accounting for start-up costs.. -- (11,082)
--------- ---------
12. Net income (loss)............................... $ (6,114) $ (19,543)
========= =========
13. Weighted average shares outstanding (Line 4).... 185,177 33,150
14. Add additional shares issuable upon assumed
conversion of the
Company's 8% Convertible Debentures............. 3,833 3,833
--------- ---------
15. Adjusted weighted average shares outstanding.... 189,010 36,983
========= =========
16. Loss per share from continuing operations (0.03 (0.23
(10 / 15)....................................... $ ) $ )
17. Loss per share from cumulative effect on prior
years (to October
31, 1997) of change in the method of accounting
for start-up costs
(11 / 15)....................................... -- (0.30)
--------- ---------
18. Net (loss) per share (12 / 15).................. $ (0.03) $ (0.53)
========= =========
- --------------
(1) Diluted earnings (loss) per share are not presented as the Company's
common stock equivalents and the assumed conversion of the Company's
8% Convertible Debentures are anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of operations and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> JAN-31-1999
<CASH> 19,694
<SECURITIES> 0
<RECEIVABLES> 84,811
<ALLOWANCES> 5,036
<INVENTORY> 1,452
<CURRENT-ASSETS> 149,518
<PP&E> 33,242
<DEPRECIATION> 23,150
<TOTAL-ASSETS> 360,616
<CURRENT-LIABILITIES> 206,186
<BONDS> 119,329
0
0
<COMMON> 185
<OTHER-SE> 34,916
<TOTAL-LIABILITY-AND-EQUITY> 360,616
<SALES> 113,158
<TOTAL-REVENUES> 113,158
<CGS> 101,339
<TOTAL-COSTS> 118,918
<OTHER-EXPENSES> 214
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,214
<INCOME-PRETAX> (8,188)
<INCOME-TAX> 226
<INCOME-CONTINUING> (8,414)
<DISCONTINUED> 0
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<NET-INCOME> (8,414)
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<EPS-DILUTED> (.03)
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