<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the twelve months ended December 31, 1996 Commission File No. 1-12248
ICF KAISER INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 54-1437073
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9300 Lee Highway, Fairfax, Virginia 22031-1207
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 934-3600
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $0.01 per share
Preferred Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act: None
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 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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of Common Stock held by non-affiliates of
the registrant was $41.9 million based on the New York Stock Exchange Composite
Tape closing price of such stock ($2.25) on March 5, 1997.
On March 5, 1997, there were 22,418,140 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the ICF Kaiser International, Inc. Proxy Statement for the
1997 Annual Meeting of Shareholders are incorporated by reference in Part III
hereof.
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PART I
Item 1. Business
ICF Kaiser International, Inc., through ICF Kaiser Engineers, Inc. and
its other operating subsidiaries, is one of the nation's largest engineering,
construction, program management, and consulting services companies. The
Company's Federal Programs, ICF Kaiser Engineers & Constructors, and Consulting
Groups provide fully integrated services in the public and private sector of the
environment, infrastructure, energy, and basic metals and mining industry
markets. The "Company" or "ICF Kaiser" in this Report refers to ICF Kaiser
International, Inc. and/or any of its consolidated subsidiaries. Effective
December 31, 1995, the Company changed its fiscal year end from February 28 to
December 31.
For the year ended December 31, 1996, ICF Kaiser reported gross and
service revenue of $1,248.4 million and $532.1 million, respectively. Service
revenue is derived by deducting the costs of subcontracted services and direct
project costs from gross revenue and adding the Company's share of the equity in
income of unconsolidated joint ventures and affiliated companies. During the
year ended December 31, 1996, the ten months ended December 31, 1995, and the
year ended February 28, 1995, the Company operated predominantly in one industry
segment, in which it provided engineering, construction, program management,
consulting, and other professional services.
<TABLE>
<CAPTION>
Year Ended Ten Months Ended Year Ended
December 31, 1996 December 31, 1995 February 28, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Gross revenue...... $1,248,443,000 $916,744,000 $861,518,000
Service revenue.... $ 532,116,000 $425,896,000 $459,786,000
Operating income... $ 21,180,000 $ 17,505,000 $ 13,688,000
Assets............. $ 365,973,000 $369,517,000 $281,422,000
</TABLE>
As of December 31, 1996, the Company's contract backlog totaled
approximately $4.7 billion compared to $4.4 billion as of December 31, 1995.
Most of the Company's backlog relates to public-sector environmental projects
that span from one to five years. Approximately 20% of the $4.7 billion backlog
is expected to be worked off during the fiscal year ending December 31, 1997.
See "Backlog."
The Company's headquarters is located at 9300 Lee Highway, Fairfax,
Virginia 22031-1207, and its telephone number is (703) 934-3600. The Company's
five regional headquarters are located at 1800 Harrison St., Oakland, California
94612-3430 Telephone (510) 419-6000; Gateway View Plaza, 1600 West Carson St.,
Pittsburgh, Pennsylvania 15220 Telephone (412) 497-2000; 5718 Westheimer, Suite
1000, Houston, TX 77057 Telephone (713) 735-2900; Q.V. 1 Building, George's
Terrace, Perth, WA 6000, Australia Telephone 61-9-366-5366; and Regal House,
London Road, Twickenham, Middlesex, TW1-3QQ, England Telephone 44-181-892-4433.
Other offices include Livermore, Los Angeles, Rancho Cordova, San Diego, San
Francisco, San Rafael, and Universal City, California; Golden and Lakewood,
Colorado; Washington, DC; Ft. Lauderdale and Miami, Florida; Chicago, Illinois;
Ruston, Louisiana; Abington, Baltimore, Beltsville, Edgewood, and Lexington
Park, Maryland; Boston, Massachusetts; Las Vegas, Nevada; Iselin, New Jersey;
Albuquerque and Los Alamos, New Mexico; New York, New York; Richmond, Virginia;
Richland and Seattle, Washington. The Company's other international offices are
located in Brisbane and Sydney, Australia; Ostrava and Prague, Czech Republic;
Paris, France; Hong Kong; Budapest, Hungary; Mexico City, Mexico; Manila, the
Phillipines; Lisbon, Portugal; Moscow, Russia; and Taipei, Taiwan.
ICF Kaiser International, Inc. is a Delaware corporation incorporated in
1987 under the name American Capital and Research Corporation. It is the
successor to ICF Incorporated, a nationwide consulting firm organized in 1969.
In 1988, the Company acquired the Kaiser Engineers business which dates from
1914. As of February 28, 1997, ICF Kaiser employed 5,047 persons.
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 2
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OVERVIEW OF MARKETS
Environmental. In the environmental market, the Company provides services
in connection with the remediation of hazardous and radioactive waste, waste
minimization and disposal, risk assessment, global warming and acid rain,
alternative fuels and clean up of harbors and waterways. Demand for ICF
Kaiser's environmental consulting and engineering services is driven by a number
of factors, including the need to improve the quality of the environment;
federal, state, and municipal environmental regulation and enforcement; and
increased liability associated with pollution-related injury and damage.
Increasingly strict federal, state, and local government regulation has forced
private industry and government agencies to clean up contaminated sites, to
bring production facilities into compliance with current environmental
regulations, and to minimize waste generation on an ongoing basis. In addition,
there is a growing international market arising from the increased awareness of
the need for additional and/or initial environmental regulations, studies and
remediation.
Significant environmental laws have been enacted in the U.S. in response to
public concern about the environment. These laws and the implementing
regulations affected nearly every industrial activity, and efforts to comply
with the requirements of these laws create demand for the Company's services.
The principal Federal legislation that has created a substantial market for the
Company, and therefore has the most significant effect on the Company's
business, includes the following: The Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") of 1980, as amended by the Superfund
Amendments and Reauthorization Act ("SARA") of 1986, established the Superfund
program to clean up existing, often abandoned hazardous waste sites and provides
for penalties and punitive damages for noncompliance with EPA orders. The
Resource Conservation and Recovery Act ("RCRA") of 1976, as amended by the
Hazardous and Solid Waste Amendments of 1984 ("HSWA"), provides a comprehensive
scheme for the regulation of hazardous waste from the time of generation to its
ultimate disposal (and sometimes thereafter), as well as the regulation of
persons engaged in the treatment, storage and disposal of hazardous waste. The
Clean Air Act as amended in 1970 empowered EPA to establish and enforce National
Ambient Air Quality Standards, National Emission Standards for Hazardous Air
Pollutants and limits on the emission of various pollutants. The 1990
amendments to the Clean Air Act substantially increase the number of sources
emitting a regulated air pollutant which will be required to obtain an operating
permit; the amendments also address the issues of acid rain, ozone protection,
and other areas in which the Company can provide expanded services. The Clean
Water Act of 1972, originally the Federal Water Pollution Control Act of 1948,
established a system of standards, permits and enforcement procedures for the
discharge of pollutants to surface water from industrial, municipal, and other
wastewater sources. The Toxic Substance Control Act, enacted in 1976,
established requirements for identifying and controlling toxic chemical hazards
to human health and the environment.
Infrastructure. The global infrastructure market is driven by the need to
maintain and expand among other things, ports, roads, highways, mass transit
systems, and airports. Increasingly, environmental concerns, such as wastewater
treatment and the reduction of automotive air pollutant emissions, have become a
driving force behind new infrastructure and transportation initiatives. This
market primarily is funded by federal, state, and local government dollars,
although the private sector is seeking an increased role, particularly in
international projects. Internationally, there is a critical need for
infrastructure projects where population growth of major cities has been and
will continue to be extremely high. The Company provides engineering and
construction management services for mass transit and wastewater treatment
facilities in major metropolitan areas worldwide.
Industry. ICF Kaiser assists its basic metals and mining industry clients
by providing the engineering and construction skills needed to maintain and
retrofit existing plants and to replace aging production capacity with newer,
more efficient and more environmentally responsible facilities. ICF Kaiser is
currently expanding its operations internationally, particularly engineering and
construction management services related to alumina production from bauxite,
aluminum smelting, and other basic industry facilities.
BUSINESS GROUPS
The Company is organized into three business groups: the Federal Programs
Group; the ICF Kaiser Engineers & Constructors Group; and the Consulting Group.
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 3
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FEDERAL PROGRAMS GROUP
The Company derives a substantial portion of its revenue from contracts
with various agencies and departments of the federal government. The Federal
Programs Group's major client is the U.S. Department of Energy.
U.S. Department of Energy (DOE). An important DOE mission has changed over
the years--from nuclear weapons production to environmental cleanup of former
nuclear weapons production sites. To help accomplish DOE's cleanup goals
pursuant to this new mission, the Company actively supports DOE at numerous
facilities. The Company provides many services, including (i) conducting
comprehensive assessments related to environment, safety, and health; (ii)
quality assurance; (iii) security and safeguards; (iv) assessing, managing, and
remediating existing hazardous and solid wastes, mixed wastes, radioactive
materials, highly volatile chemical compounds, unidentified mixed wastes, and
exploded/unexploded munitions; and (v) architect, engineer, construction, and
site operations.
In 1995, the Company, through Kaiser-Hill Company, LLC, a limited liability
company owned equally by the Company and CH2M Hill Companies, Ltd. (Kaiser-
Hill), won DOE's Performance Based Integrating Management contract at the DOE's
Rocky Flats Environmental Technology Site near Denver, Colorado. Rocky Flats is
a former DOE nuclear weapons-production facility. Under the five-year contract
which began on July 1, 1995, Kaiser-Hill oversees plutonium stabilization and
storage, environmental restoration, waste management, decontamination and
decommissioning, site safety and security, and construction activities of
subcontractor companies. Under the performance-based contract signed by Kaiser-
Hill, 85% of Kaiser-Hill's fees are based on performance, while 15% are fixed.
Kaiser-Hill's contract commits it to dealing with urgent risks first, and
measurable results in the following "urgent risk" areas will help determine its
incentive fee: stabilize plutonium and plutonium residues for specified time
frames; consolidate plutonium in a single building; and clean up and remove all
high-risk "hot spot" contamination. Finally, Kaiser-Hill is expected to reduce
the number of employees at the site by the end of the contract term.
In August 1996, the Company was informed that the team of which it was a
member was unsuccessful in its bid for DOE's new management and integration
contract at the DOE's Hanford Site in Richland, Washington, where the Company
had worked since 1987. The Company's existing contract at Hanford effectively
was terminated by DOE on October 1, 1996. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Effective October 1, 1996, ICF Kaiser Hanford Company acquired the Hanford
Site General Support Services Contract from the MACTEC Division of Management
Analysis Company of Golden, Colorado. The Company undertook the contract in
order to maintain a presence at Hanford and to further its strategic alliance
with MACTEC. Under the contract, ICF Kaiser provides administrative,
engineering, and technical support services for major DOE projects at the
Hanford Site, including tank waste remediation programs. In addition, the
Company will work closely with DOE to aid its strategic initiatives associated
with site cleanup and facility transition.
U.S. Department of Defense (DOD). DOD estimates that its environmental
expense will be directed primarily to cleaning up hundreds of military bases
with thousands of contaminated sites. There is an urgent need to ensure that
the hazardous wastes present at these sites (often located near population
centers) do not pose a threat to the surrounding population, and, in connection
with the closure of many of the bases, there is an economic incentive to make
sure that the environmental restoration enables the sites of the former bases to
be developed commercially by the private sector.
DOD established the Total Environmental Restoration Contract (TERC) program
to clean up contaminated Army sites in a streamlined and efficient manner by
partnering with private contractors. A TERC contract allows a single contractor
to handle all aspects of remediation, resulting in quicker cleanup, more
effective project management, and better coordination with federal and state
regulators and the public. It also helps to build a culture of cooperation
among the U.S. Army Corps of Engineers (USACE), the contractor, the regulatory
community, and the public.
In September 1996, the Company signed a contract estimated at $260 million
to perform environmental restoration work at federal installations in the South
Pacific Division of the USACE. The TERC contract will be managed by the
Sacramento District, lasts for four years with two, three-year options, and
covers cleanup work at the Oakland (California) Army Base and at other Army
bases and federal installations in California, Arizona, Nevada, and Utah. The
Sacramento TERC was the second TERC awarded to ICF Kaiser. In August 1995, ICF
Kaiser won the
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 4
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largest hazardous, toxic, and radioactive waste contract ever awarded by USACE,
a $330 million TERC to remediate contaminated Army sites in USACE's Baltimore
District. ICF Kaiser's Baltimore TERC covers cleanup work at Picatinny Arsenal
in New Jersey, Aberdeen Proving Ground near Baltimore, and other Army bases and
federal installations in New York, New Jersey, Pennsylvania, Delaware, Maryland,
the District of Columbia, Virginia, and West Virginia. The Baltimore TERC is for
four years with two three-year options. The contract is a cost reimbursement
delivery order contract, and the fee structure includes a combination of cost
plus fixed fee, award fee, and incentive fees.
The Company also provides environmental services to USACE, Savannah
(Georgia) District, under several contracts, including a $50 million contract to
support the Corps' South Atlantic Division, as well as a $2 million contract
under which the company is designing contaminated groundwater treatment systems
at the Milan Army Ammunition Plant in Tennessee.
Other federal government Work. Under a variety of smaller contracts, the
Company provides the federal government with numerous other services. Under a
contract with the U.S. Environmental Protection Agency (EPA) awarded in 1995,
the Company will continue to manage the EPA's quality assurance laboratory in
Las Vegas, Nevada, and provide the laboratory with analytical support. The
Company also supports the EPA's Superfund program under several Alternative
Remedial Contracting Strategy (ARCS) contracts for remedial planning services.
Architectural, engineering, and construction management services for facilities
and infrastructure (such as post offices, court houses, and prisons) are
provided to the U.S. Postal Service, Department of Justice, and General Services
Administration.
ICF KAISER ENGINEERS & CONSTRUCTORS GROUP
ICF Kaiser assists clients in private industry by providing the engineering
and construction skills needed to maintain and retrofit existing plants and
replace aging production capacity with newer, more environmentally responsible
facilities. The Company has the engineering and construction skills, as well as
access to process technologies, needed to establish a leadership position in
serving the basic metals, mining, refining, and petrochemical industries,
including aluminum, steel, cooper, and coal.
All of ICF Kaiser's markets are global in nature. ICF Kaiser provides
engineering, construction management, and consulting services through companies
managed and staffed by local professionals in Australia, Taiwan, the
Philippines, Mexico, Brazil, Portugal, France, England, Russia, and the Czech
Republic, as well as project offices throughout the world. To capitalize on
international opportunities while minimizing its business development risks, the
Company has established international business relationships through joint
ventures, marketing agreements, and direct equity investments. The Company has
projects underway in over 25 countries.
Industry Services. ICF Kaiser's engineering design, project management,
and construction services to the industrial market involve work with the steel,
alumina, aluminum, copper, and other minerals and metals industries as well as
chemicals, petrochemicals, and refineries. In the coke, coal, and coal
chemicals area, ICF Kaiser's services have included inspection of coke plants
for environmental compliance, facility design and construction, and equipment
sales and services. The Company has provided services related to coal cleaning,
handling, and environmental controls.
The Company's largest current international industrial project is a mini-
mill project for Nova Hut, a.s., an integrated steel maker based in the Ostrava
region of the Czech Republic. Under a two-year contract signed in March 1996,
the Company oversees the construction of the continuous slab castor portion of
the mini-mill and future production and environmental upgrades to Nova Hut's
existing integrated steel-making facilities. The Company provides project
management, engineering, procurement, construction management, start-up,
commissioning, and training services. This initial phase of the mini-mill
project, which is scheduled to initiate production in June 1998, is part of a
two-phase endeavor; the Company currently is negotiating a contract with Nova
Hut for the second phase of the mini-mill project. Management expects to
complete negotiations on this contract in the second quarter of 1997, although
there can be no assurance with respect thereto.
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 5
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Infrastructure Services. The Company is helping rebuild the
infrastructure of roads, highways, transit systems, harbors, airports,
facilities, and buildings in domestic and international markets. Budget
constraints at the federal, state, and local government levels have hindered
infrastructure market growth, but the Company remains active in major U.S.
metropolitan areas: Chicago (light rail transit system); Seattle (light rail
project); San Francisco (commuter rail line extension); Atlanta (general
engineering consulting services to the Metropolitan Atlanta Rapid Transit
Authority); Miami (Intermodal Transit Center, a project that will tie together
air, light/heavy rail, buses, highway systems, and parking facilities).
In the international infrastructure market, the Company's large-scale
construction infrastructure skills are at work in Portugal where the Company, as
part of a joint venture, provides project and construction management services
for the modification and reconstruction of the main rail link between the cities
of Lisbon and Oporto. The Company also provides program management services for
the overhaul and upgrade of Portugal's main intercity freight and passenger rail
lines. Those skills also are at work in the Philippines where the Company, as
part of a joint venture, provides front-to-back-end services for a light rail
transit line in Manila. In Brazil, the Company is developing the plan to
remediate and clean up Guanabara Bay. In India, the Company is part of a
consortium conducting feasibility studies for a light rail project.
The major ports of many of the world's cities have serious water pollution
problems, and ICF Kaiser is helping to improve the condition of many harbors and
waterways. In its largest harbor project, the Company continues as the
construction manager of the cleanup of Boston Harbor, one of the largest
environmental projects in the country, under a contract extension that runs
through 1998. Since the inception of the project in 1988, the Company has
served as its construction manager and currently manages construction workers,
engineers, architects, and support personnel working to construct a wastewater
treatment plant on Deer Island in Boston Harbor, Massachusetts.
Environmental Consulting and Engineering Services. Demand for the
Company's non-federal environmental consulting and engineering services is
driven by a number of factors, including the need to improve the quality of the
environment; environmental regulation and enforcement; and increased liability
associated with pollution-related injury and damage. Increasingly strict
Federal, state, and local government regulation has forced private industry and
state and local agencies to clean up contaminated sites, to bring production
facilities into compliance with current environmental regulations, and to
minimize waste generation on an ongoing basis. Although growth in this private-
sector market is being hampered by uncertainty over continuing Federal
regulations, the Company generates new business by increasing the types of
services it sells to existing clients and by targeting new markets for the
Company's full-service capabilities.
The Company's environmental services have progressed beyond study and
analysis to remediation. Following on its established market position in the
consulting and front-end analysis phase of environmental services, the Company
now offers alternative remediation approaches that may involve providing on-site
waste containment, on-site treatment, management of on-site/off-site
remediation, or waste removal. The Company also designs new processes (and
redesigns ongoing production processes) to minimize or eliminate the generation
of hazardous waste. Currently the Company provides site investigations and
feasibility studies, compliance planning and audits, risk assessment,
permitting, community relations services, and construction and construction
management. See "General Information about the Company -- Potential
Environmental Liability."
CONSULTING GROUP
The Consulting Group serves customers in domestic and international
markets, including both public and private-sector organizations. Among its
major customers are U.S. government agencies, especially the EPA; U.S. private-
sector organizations, particularly major energy producers, such as utilities and
oil companies; and governments and businesses around the world, as well as
various multinational banks, development organizations, and treaty
organizations. The Consulting Group draws upon the talents of its
multidisciplinary professional staff to support customers within four primary
lines of business.
Environmental Consulting Services. This line of business assists
customers in developing plans and policies; evaluation options for managing
environmental responsibilities in the most cost-effective manner, and
identifying and employing the best available technologies and practices. The
group has special expertise in such areas as industrial and
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 6
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municipal waste management, air pollution control, chemical accident prevention,
and ground-water and drinking water management. The Consulting Group also
provides technical and regulatory support to EPA's Office of Solid Waste,
focusing on human health and ecological risk assessment and waste
characterization.
Global environmental issues are also a particular area of focus within the
Consulting Group. Working with U.S. and international organizations that fund
global environmental work and within numerous private-sector organizations, the
Consulting Group has conducted projects in over 30 countries and has been
actively involved in supporting international environmental treaties. Working
on global change issues for the EPA for 14 years, the Company supports the EPA's
Global Change Division, providing services related to the reduction of methane
and other greenhouse gases.
In September 1996, the Consulting Group announced that it has signed a
five-year contract, potentially valued at more than $60 million, to provide
technical analysis and implementation support for EPA's Green Lights and ENERGY
STAR programs. The Consulting Group has worked on EPA's voluntary public-
private partnership programs on energy efficiency and methane reduction since
their inception in 1990.
Energy and Natural Resource Management Services. This line of business
supports the development of corporate and technical plans for managing power
resources and energy projects, provides economic assessments of short- and long-
term market conditions for various fuels, and serves as experts in litigation
and regulatory proceedings. The Consulting Group assists its customers in
identifying market opportunities, commercializing new technologies, and
developing public policy; it links energy markets with energy technology.
Housing and Community Development. This practice provides training,
technical assistance, program support, and research services related to
affordable housing and community development. Additionally, the Consulting
Group helps federal agencies, cities, states, and nonprofit organizations to
design and implement programs that provide affordable, cost-effective housing,
to promote business and economic development, and to help revitalize
deteriorated neighborhoods.
Information Management Programs. The Company assists clients in
developing decision support systems that facilitate the collection and use of
information to track performance, identify opportunities and improve decision
making. The group offers a number of simulation models and proprietary
applications. By combining consulting expertise with information technology
skills, the group helps its customers deal with the unique challenges of their
business environment.
GENERAL INFORMATION ABOUT THE COMPANY
COMPETITION AND CONTRACT AWARD PROCESS
The market for the Company's services is highly competitive. The Company
and its subsidiaries compete with many other engineering, construction, program
management, and consulting services firms ranging from small firms to large
multinational firms having substantially greater financial, management, and
marketing resources than the Company. Other competitive factors include quality
of services, technical qualifications, reputation, geographic presence, price,
and the availability of key professional personnel.
Private-sector Work. Competition for private-sector work generally is
based on several factors, including quality of work, reputation, price, and
marketing approach. The Company's objective is to establish and maintain a
strong competitive position in its areas of operations by adhering to its basic
philosophy of delivering high-quality work in a timely fashion within its
clients' budget constraints.
Public-sector Work. Most of the Company's contracts with public-sector
clients are awarded through a competitive bidding process that places no limit
on the number or type of offerors. The process usually begins with a government
Request for Proposal (RFP) that delineates the size and scope of the proposed
contract. Proposals are evaluated by the government on the basis of technical
merit (for example, response to mandatory solicitation provisions, corporate and
personnel qualifications, and experience) and cost. The Company believes that
its experience
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 7
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and ongoing work strengthen its technical qualifications and, thereby, enhance
its ability to compete successfully for future government work.
Teaming Arrangements. In both the private and public sectors, the Company,
acting either as a prime contractor or as a subcontractor, may join with other
firms to form a team that competes for a single contract or submits a single
proposal. Because a team of firms almost always can offer a stronger set of
qualifications than any firm standing alone, these teaming arrangements often
are very important to the success of a particular competition or proposal. The
Company maintains a large network of business relationships with other companies
and has drawn repeatedly upon these relationships to form winning teams.
Contract Structure. The Company's subsidiaries operate under a number of
different types of contract structures with its private- and public-sector
clients, the most common of which are Cost Plus and Fixed Price. Under Cost Plus
contracts, the Company's costs are reimbursed with a fee (either fixed or
percentage of cost) and/or an incentive or award fee offered to provide
inducement for effective project management. A variation of Cost Plus contracts
are time and materials contracts under which the Company is paid at a specified
fixed hourly rate for direct labor hours worked. Under Fixed Price contracts,
the Company is paid a predetermined amount for all services provided as detailed
in the design and performance specifications agreed to at the project's
inception.
CUSTOMERS
The Company's clients include DOE and other federal departments and
agencies; major corporations in the energy, transportation, chemical, steel,
aluminum, mining, and manufacturing industries; utilities; and a variety of
state and local government agencies throughout the United States. DOE accounted
for approximately 70% of the Company's consolidated gross revenue for the year
ended December 31, 1996; other Federal agencies collectively accounted for
another approximately 10%. The federal government accounted for approximately
79% of the Company's consolidated gross revenue for the ten months ended
December 31, 1995, and 73% for the year ended February 28, 1995.
The Company's international clients include both private firms and foreign
government agencies in such countries as Australia, Czech Republic, France,
Portugal, and Taiwan. For the year ended December 31, 1996, foreign operations
accounted for approximately 5.8% of the Company's consolidated gross revenue.
For information concerning gross revenue, operating income, and identifiable
assets of the Company's business by geographic area, see Note 15 to the
consolidated financial statements.
BACKLOG
Backlog refers to the aggregate amount of gross contract revenue remaining
to be earned pursuant to signed contracts extending beyond one year. At December
31, 1996, the Company's contract backlog was approximately $4.7 billion in gross
revenue, up from approximately $4.4 billion in gross revenue at December 31,
1995. The Kaiser-Hill Performance Based Integrating Management contract at
Rocky Flats near Denver, Colorado, represents approximately 63% of the Company's
total backlog at December 31, 1996. The Company expects that approximately 20%
of the backlog at December 31, 1996, will be worked off during 1997. Because of
the nature of its contracts, the Company is unable to calculate the amount or
timing of service revenue that might be earned pursuant to these contracts. The
Company believes that backlog is not a predictor of future gross or service
revenue.
Differences in contracting practices between the public and private sectors
result in the Company's backlog being weighted heavily toward contracts
associated with departments agencies of the federal government. Backlog under
contracts with the federal government that extend beyond the government's
current fiscal year includes the full contract amount, including in many cases
amounts anticipated to be earned in option periods and certain performance fees,
even though annual funding of the amounts under such contracts generally must be
appropriated by Congress before funds can be expended during any year under such
contracts. In addition, departments and/or agencies must allocate the
appropriated funds to these specific contracts and thereafter authorize work or
task orders to be performed under these specific contracts. Such authorizations
are generally for periods considerably shorter than the duration of the work the
Company expects to perform under a particular contract and generally cover only
a percentage of the contract revenue. Because of these factors, the amount of
federal government contract backlog for which funds have been appropriated and
allocated, and task orders issued, at any given date is a substantially smaller
amount than the
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 8
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total federal government contract backlog as of that date. In the event that
option periods under any given contract are not exercised or funds are not
appropriated, allocated, or authorized to be spent under any given contract, the
amount of backlog attributable to that contract would not result in revenue to
the Company. All contracts and subcontracts with departments and/or agencies of
the federal government are subject to termination, reduction, or modification at
any time at the discretion of the government.
POTENTIAL ENVIRONMENTAL LIABILITY
The assessment, analysis, remediation, handling, management, and disposal
of hazardous substances necessarily involve significant risks, including the
possibility of damages or personal injuries caused by the escape of hazardous
materials into the environment, and the possibility of fines, penalties, or
other regulatory action. These risks include potentially large civil and
criminal liabilities for violations of environmental laws and regulations, and
liabilities to customers and to third parties for damages arising from
performing services for clients.
Potential Liabilities Arising Out of Environmental Laws and Regulations
All facets of the Company's business are conducted in the context of a
rapidly developing and changing statutory and regulatory framework. The
Company's operations and services are affected by and subject to regulation by a
number of federal agencies, including EPA and the Occupational Safety and Health
Administration, as well as applicable state and local regulatory agencies.
CERCLA addresses cleanup of sites at which there has been a release or
threatened release of hazardous substances into the environment. Increasingly,
there are efforts to expand the reach of CERCLA to make environmental
contractors responsible for cleanup costs by claiming that environmental
contractors are owners or operators of hazardous waste facilities or that they
arranged for treatment, transportation, or disposal of hazardous substances.
Several recent court decisions have accepted these claims. Should the Company be
held responsible under CERCLA for damages caused while performing services or
otherwise, it may be forced to bear such liability by itself, notwithstanding
the potential availability of contribution or indemnity from other parties.
RCRA governs hazardous waste generation, treatment, transportation,
storage, and disposal. RCRA, or EPA-approved state programs at least as
stringent, govern waste handling activities involving wastes classified as
"hazardous." Substantial fees and penalties may be imposed under RCRA and
similar state statutes for any violation of such statutes and the regulations
thereunder.
Potential Liabilities Involving Clients and Third Parties
In performing services for its clients, the Company could potentially be
liable for breach of contract, personal injury, property damage, and negligence
(including improper or negligent performance or design, failure to meet
specifications, and breaches of express or implied warranties). The damages
available to a client, should it prevail in its claims, are potentially large
and could include consequential damages.
Environmental contractors, in connection with work performed for clients,
potentially face liabilities to third parties from various claims, including
claims for property damage or personal injury stemming from a release of
hazardous substances or otherwise. Claims for damage to third parties could
arise in a number of ways, including through a sudden and accidental release or
discharge of contaminants or pollutants during the performance of services;
through the inability, despite reasonable care, of a remedial plan to contain or
correct an ongoing seepage or release of pollutants; through the inadvertent
exacerbation of an existing contamination problem; or through reliance on
reports or recommendations prepared by the Company. Personal injury claims could
arise contemporaneously with performance of the work or long after completion of
the project as a result of alleged exposure to toxic or hazardous substances. In
addition, increasing numbers of claimants assert that companies performing
environmental remediation should be adjudged strictly liable, i.e., liable for
damages even though its services were performed using reasonable care, on the
grounds that such services involved "abnormally dangerous activities."
Clients frequently attempt to shift various liabilities arising out of
remediation of their own environmental problems to contractors through
contractual indemnities. Such provisions seek to require the Company to assume
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 9
<PAGE>
liabilities for damage or personal injury to third parties and property and for
environmental fines and penalties. The Company has endeavored to protect itself
from potential liabilities resulting from pollution or environmental damage by
obtaining indemnification from its private-sector clients and intends to
continue this practice in the future. Under most of these contracts, the Company
has been successful in obtaining such indemnification; however, such
indemnification generally is not available if such liabilities arise as a result
of breaches by the Company of specified standards of care or if the indemnifying
party has insufficient assets to cover the liability. The Company's subsidiary,
ICF Kaiser Remediation Company, is the entity through which the Company intends
to increase its remediation activities performed for public- and private-sector
clients. The Company will continue its efforts to minimize the risks and
potential liability associated with its remediation activities by performing all
remediation contracts in a professional manner and by carefully reviewing any
and all remediation contracts it signs in an effort to ensure that its
environmental clients accept responsibility for their own environmental
problems.
For EPA contracts involving field services in connection with Superfund
response actions, the Company is eligible for indemnification under Section 119
of CERCLA for pollution and environmental damage liability resulting from
release or threatened release of hazardous substances. Some of the Company's
clients (including private clients, DOE, and DOD) are Potentially Responsible
Parties (PRPs) under CERCLA. Under the Company's contracts with these PRPs, the
Company has the right to seek contribution from these PRPs for liability imposed
on the Company in connection with its work at these clients' CERCLA sites and
generally qualifies for the limitations on liabilities under CERCLA Section
119(a). In addition, in connection with contracts involving field services at
10 of DOE's weapons facilities, including the DOE's Hanford site, the Company is
indemnified under the Price-Anderson Act, as amended, against liability claims
arising out of contractual activities involving a nuclear incident. Recently,
EPA has constricted significantly the circumstances under which it will
indemnify its contractors against liabilities incurred in connection with CERCLA
projects. There are other proposals both in Congress and at the regulatory
agencies to further restrict indemnification of contractors from third-party
claims.
Under Kaiser-Hill's contract with the DOE, Kaiser-Hill is not responsible
for, and DOE pays all costs associated with, any liability (including without
limitation, a claim involving strict or absolute liability and any civil fine or
penalty, expense, or remediation cost, but limited to those of a civil nature),
which may be incurred by, imposed on, or asserted against Kaiser-Hill arising
out of any act or failure to act, condition, or exposure which occurred before
Kaiser-Hill assumed responsibility on July 1, 1995 ("pre-existing conditions").
To the extent the acts or omissions of Kaiser-Hill constitute willful
misconduct, lack of good faith, or failure to exercise prudent business judgment
on the part of Kaiser-Hill's managerial personnel and cause or add to any
liability, expense, or remediation cost resulting from pre-existing conditions,
Kaiser-Hill is responsible, but only for the incremental liability, expense, or
remediation caused by Kaiser-Hill.
The Kaiser-Hill contract further provides that Kaiser-Hill shall be
reimbursed for the reasonable cost of bonds and insurance allocable to the Rocky
Flats contract and for liabilities (and expenses incidental to such liabilities,
including litigation costs) to third parties not compensated by insurance or
otherwise. The exception to this reimbursement provision applies to liabilities
caused by the willful misconduct or lack of good faith of Kaiser-Hill's
managerial personnel or the failure to exercise prudent business judgment by
Kaiser-Hill's managerial personnel.
In connection with its services to its environmental, infrastructure, and
industrial clients, the Company works closely with federal and state government
environmental compliance agencies, and occasionally contests the conclusions
those agencies reach regarding the Company's compliance with permits and related
regulations. To date, the Company never has paid a fine in a material amount or
had liability imposed on it for pollution or environmental damage in connection
with its services; however, there can be no assurance that the Company will not
have substantial liability imposed on it for any such damage in the future.
INSURANCE
The Company has a comprehensive risk management and insurance program that
provides a structured approach to protecting the Company. Included in this
program are coverages for general, automobile, pollution impairment, and
professional liability; for workers' compensation; and for employers and
property liability. The Company believes that the insurance it maintains,
including self-insurance, is in such amounts and protects against such risks as
is customarily maintained by similar businesses operating in comparable markets.
At this time, the Company
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 10
<PAGE>
expects to continue to be able to obtain general, automobile, and professional
liability; workers' compensation; and employers and property insurance in
amounts generally available to firms in its industry. There can be no assurance
that this situation will continue, and if insurance of these types is not
available, it could have a material adverse effect on the Company.
The Company has pollution insurance coverage on a claims-made basis, in
amounts and on terms that are economically reasonable, against possible
liabilities that may be incurred in connection with its conduct of its
environmental business. An uninsured claim arising out of the Company's
environmental activities, however, if successful and of sufficient magnitude,
could have a material adverse effect on the Company.
GOVERNMENT REGULATION
The Company has a substantial number of cost-reimbursement contracts with
the U.S. government, the costs of which are subject to audit by the U.S.
government. As a result of pending audits related to fiscal years 1986 forward,
the government has asserted, among other things, that certain costs claimed as
reimbursable under government contracts either were not allowable or not
allocated in accordance with federal procurement regulations. The Company is
actively working with the government to resolve these issues. The Company has
provided for its estimate of the potential effect of issues that have been
quantified, including its estimate of disallowed costs for the periods currently
under audit and for periods not yet audited. Many of the issues, however, have
not been quantified by the government or the Company, and others are qualitative
in nature, and their potential financial impact, if any, is not quantifiable by
the government or the Company at this time. This provision will be reviewed
periodically as discussions with the government progress.
The Company may from time to time, either individually or in conjunction
with other government contractors operating in similar types of businesses, be
involved in U.S. government investigations for alleged violations of procurement
or other federal laws and regulations. The Company currently is the subject of
a number of U.S. government investigations and is cooperating with the
responsible government agencies involved. No charges presently are known to
have been filed against the Company by these agencies. Management does not
believe that there will be any material adverse effect on the Company's
financial position, results of operations, or cash flows as a result of these
investigations.
Federal agencies that are the Company's regular customers (including DOE,
EPA, and DOD) have formal policies against awarding contracts that would present
actual or potential conflicts of interest with other activities of the
contractor. Because the Company provides a broad range of services in
environmental and related fields for the federal government, state governments,
and private customers, there can be no assurance that government conflict-of-
interest policies will not restrict the Company's ability to pursue business in
the future.
Because some of the Company's subsidiaries provide the federal government
with nuclear energy and defense-related services, these subsidiaries and a
substantial number of their employees are required to have and maintain security
clearances from the federal government. These subsidiaries and their employees
have been able to obtain these security clearances in the past, and the Company
has no reason to believe that there would be any problems in this area in the
future; however, there can be no assurance that the required security clearances
will be obtained and maintained in the future. Because of its nuclear energy and
defense-related services, the Company is subject to foreign ownership, control,
and influence (FOCI) regulations imposed by the federal government and designed
to prevent the release of classified information to contractors who are under
foreign control or influence. The Company has implemented procedures designed
to insulate such subsidiaries from any FOCI that might affect the Company.
There can be no assurance that such measures will prevent FOCI policies from
affecting the ability of the Company's subsidiaries to secure and maintain
certain types of federal government contracts.
EMPLOYEES
As of March 1, 1997, ICF Kaiser employed 5,047 persons, and the Company
believes that its relations with its employees are good. Of the total
employees, 1,886 persons are employed at Kaiser-Hill's Rocky Flats site in
Colorado. A total of 1,355 of the Rocky Flats personnel are represented by the
United Steelworkers of America, Local 8031. The Company believes that its
relations with the union are good.
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 11
<PAGE>
Item 2. Properties
All of the Company's operations are conducted either in leased facilities
or in facilities provided by the federal government or other clients. As of
December 31, 1996, the Company leased an aggregate of approximately one million
square feet of space. The terms of these leases range from month-to-month to 15
years, and some may be renewed for additional periods. Some of the space leased
by the Company has been subleased to other entities under subleases expiring
from 1997 to 2000.
The Company's headquarters is located at 9300 Lee Highway, Fairfax,
Virginia 22031-1207, and its telephone number is (703) 934-3600. The Company's
regional headquarters and other offices are listed on page 2 of this Report.
Because the Company's operations generally do not require the maintenance of
unique facilities, suitable office space is readily available for lease in most
of the areas served. The Company believes that adequate space to conduct its
operations will be available for the foreseeable future. In 1987, the Company
entered into a 15-year lease agreement for its headquarters building in Fairfax,
Virginia, containing approximately 200,000 square feet of office space. In 1988,
the Company signed a 15-year lease agreement to occupy approximately 100,000
square feet of office space in a new building adjacent to the Virginia
headquarters building. In connection with the acquisition of ICF Kaiser
Engineers in 1988, ICF Kaiser acquired the lease for ICF Kaiser Engineers'
offices in Oakland, California. The lease provides for approximately 142,000
square feet of office space and expires in June 2000. In 1996, the Company
relocated its regional headquarters in Pittsburgh to a new address in Pittsburgh
under a lease for 75,000 square feet of office space.
Item 3. Legal Proceedings
In the course of the Company's normal business activities, various claims or
charges have been asserted and litigation commenced against the Company arising
from or related to properties, injuries to persons, and breaches of contract, as
well as claims related to acquisitions and dispositions. Claimed amounts may
not bear any reasonable relationship to the merits of the claim or to a final
court award. In the opinion of management, an adequate reserve has been
provided for final judgments, if any, in excess of insurance coverage, that
might be rendered against the Company in such litigation. See "General
Information about the Company -- Potential Environmental Liability" and "--
Government Regulation."
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 10. Executive Officers of the Registrant
The names of the Company's executive officers and their ages (as of March
5, 1997), principal corporate positions, and business experience are set forth
below.
James O. Edwards, 53, has been Chairman of the Board and Chief Executive
Officer of ICF Kaiser International, Inc. since 1987. He also was President of
ICF Kaiser International, Inc. from 1987 to 1990. In 1974, he joined ICF
Incorporated, the predecessor of ICF Kaiser International, Inc. and was its
Chairman and Chief Executive Officer from 1986 until the 1987 establishment of
ICF Kaiser International, Inc. Mr. Edwards graduated from Northwestern
University (B.S.I.E.) and Harvard University (M.B.A., High Distinction, George
F. Baker Scholar).
Michael K. Goldman, 45, has been an Executive Vice President since 1990 and
the Chief Administrative Officer of the Company since 1995. He has held senior
management positions in several of the Company's operating
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 12
<PAGE>
subsidiaries since 1980. Prior to joining the Company, Mr. Goldman was in the
private practice of law. Mr. Goldman graduated from Harvard University (B.A.,
M.B.A. High Distinction, George F. Baker Scholar) and the University of
California at Berkeley (J.D.).
Sudhakar Kesavan, 42, has been an Executive Vice President of the Company
and President of the Company's Consulting Group since December 1996. He has
held senior management positions in the Company's Consulting Group since 1983.
Prior to joining the Company, Mr. Kesavan worked for the Indian subsidiary of
the Royal Dutch/Shell company. Mr. Kesavan graduated from the Indian Institute
of Technology (B. Tech), Indian Institute of Management (P.G.D.M.) and the
Massachusetts Institute of Technology. (S.M.).
Edward V. Lower, 51, has been an Executive Vice President of the Company
since December 1995. In 1991, Dr. Lower joined EA Engineering, Science and
Technology, Inc. as President and Chief Operating Officer; he became a member of
that company's Board of Directors in 1994. Prior to joining EA Engineering, Dr.
Lower worked for Union Carbide in a variety of positions, most notably vice
president/general manager. Dr. Lower graduated from the University of Delaware
(B.S.), LaSalle University (LL.B.), West Virginia University (M.B.A.), and New
York University (M.A.; Ph.D.).
Richard K. Nason, 54, has been an Executive Vice President and the Chief
Financial Officer of the Company since December 1994; he had been a Senior Vice
President and the Treasurer of the Company from April to December 1994. He
joined the Company as Senior Vice President - Internal Audit in June 1993. From
1991 to 1993, Mr. Nason was Executive Vice President and Chief Financial Officer
for The Artery Organization, Inc., a private real estate development and
management company in Bethesda, Maryland. From 1988 to 1991, Mr. Nason was
Senior Vice President for Finance and Planning for Griffin Homes, a real estate
development and home building company in California. Mr. Nason was Senior Vice
President of Marriott Corporation and its subsidiary Host International, Inc.
from 1977 to 1988. Mr. Nason has been a director of ICF Kaiser International,
Inc. since June 1995. Mr. Nason graduated cum laude from Washington and
Jefferson College (B.A.) and the Wharton Graduate School of Finance and
Commerce, University of Pennsylvania (M.B.A.). He also attended the Executive
Program at The Darden School, University of Virginia.
Timothy P. O'Connor, 32, has been Vice President and Treasurer of ICF
Kaiser International, Inc. since January 1997. He had been an Assistant
Treasurer of the Company since May 1995. From 1990 until 1995, Mr. O'Connor was
employed by Lockheed Martin Corporation of Bethesda, Maryland, where he held a
number of financial positions, including assistant cash manager, project
manager, and senior financial analyst. Prior to that, Mr. O'Connor worked for
Lazard Freres and Co. of New York, New York, as an accountant and institutional
representative. Mr. O'Connor, who is a Certified Cash Manager, graduated from
the University of Delaware (B.S.).
Marcy A. Romm, 38, has been Senior Vice President and Director of Human
Resources of the Company since 1993. She has held Human Resources positions at
ICF Kaiser since 1984. Ms. Romm graduated from George Washington University
(B.A., M.B.A.).
Marc Tipermas, 49, has been Executive Vice President and Director of
Corporate Development for ICF Kaiser International, Inc. since 1993. He has
held senior management positions in several of ICF Kaiser's operating
subsidiaries since joining the Company in 1981. From 1977 to 1981, Dr. Tipermas
was employed by the U.S. Environmental Protection Agency where he was the
Director of the Superfund Policy and Program Management Office from 1980 to
1981. Prior to joining EPA, he was Assistant Professor of Political Science at
the State University of New York at Buffalo from 1975 to 1977. Dr. Tipermas has
been a director of ICF Kaiser International, Inc. since 1993. Dr. Tipermas
graduated from the Massachusetts Institute of Technology (S.B.) and Harvard
University (A.M., Ph.D.).
David Watson, 53, has been an Executive Vice President and President of the
Company's International Operations Group since December 1995. From 1989 to
November 1995, he was with Day & Zimmerman International, Inc., an engineering
and construction firm. From 1989 to 1993 he was President of that firm's
Advanced Dzign Systems; in 1993 he led that firm's venture into the
international marketplace by taking the position of President of D&Z
International, an off-shore international unit, where he established a strategy
to pursue engineering and construction work in China and Russia. Prior to
joining Day & Zimmerman, Mr. Watson was with Stearns Catalytic,
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 13
<PAGE>
Inc. and Burmah Oil Company. Mr. Watson graduated from Loughborough University
of Technology, Loughborough, Leicestershire, England (B. Tech).
Paul Weeks, II, 53, has been Senior Vice President, General Counsel, and
Secretary of ICF Kaiser International, Inc. since 1990. He joined ICF
Incorporated in May 1987 as its Vice President, General Counsel, and Secretary.
From 1973 to 1987 he was employed by Communications Satellite Corporation, where
from 1983 to 1987 he was Assistant General Counsel for Corporate Matters. Mr.
Weeks graduated from Princeton University (B.S.E.E.) and The National Law Center
of George Washington University (J.D.).
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Since September 14, 1993, the Common Stock has been traded on the New York
Stock Exchange (NYSE) under the symbol "ICF". At March 5, 1997, the Company's
record date for its 1997 Annual Meeting of Shareholders, there were 1,399
shareholders of record; the Company believes that there are approximately 4,850
beneficial owners of Common Stock.
On March 5, 1997, the closing price of the Common Stock as reported by the
NYSE was $2.25. The following table sets forth, for the periods indicated, the
high and low sales prices on the NYSE for the Common Stock:
<TABLE>
<CAPTION>
Common Stock Price
High Low
<S> <C> <C>
Ten Months Ended December 31, 1995
First Quarter............. $5.000 $3.750
Second Quarter............ 4.625 3.750
Third Quarter............. 4.750 3.250
December.................. 4.250 3.125
Year Ended December 31, 1996
First Quarter............. $4.375 $2.625
Second Quarter............ 3.375 2.375
Third Quarter............. 3.250 2.000
Fourth Quarter............ 2.375 1.750
</TABLE>
The Company's Transfer Agent and Registrar is First Chicago Trust Company
of New York, Mail Suite 4692, P.O. Box 2534, Jersey City, NJ 07303-2534. The
Shareholder Relations telephone number is (201) 324-0498.
The Company has never paid cash dividends on its Common Stock. The Board of
Directors anticipates that no cash dividends will be paid on its Common Stock
for the foreseeable future and that the Company's earnings will be retained for
use in the business.
The Board of Directors determines the Company's Common Stock dividend
policy based on the Company's results of operations, payment of dividends on
preferred stock, financial condition, capital requirements, and other
circumstances. The Company's debt agreements allow dividends to be paid on its
capital stock provided that the Company complies with certain limitations
imposed by the terms of such agreements. See Notes 6 and 9 to the consolidated
financial statements.
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 14
<PAGE>
Item 6. Selected Financial Data
The selected consolidated financial data of the Company for the year ended
December 31, 1996, the ten months ended December 31, 1995, and each year in the
three-year period ended February 28, 1995, have been derived from the Company's
audited consolidated financial statements. This information should be read in
conjunction with the consolidated financial statements and the related notes
thereto appearing elsewhere in this Report and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Certain
reclassifications have been made to the prior period financial statements to
conform to the presentation used in the December 31, 1996, financial statements.
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
Ten Months
Year Ended Ended
December 31, December 31, Year Ended February 28,
--------------------------------------------
1996 1995 1995 1994(1) 1993
---- ---- ---- ------ ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATONS DATA:
Gross revenue.................................. $ 1,248,443 $ 916,744 $ 861,518 $ 651,657 $ 678,882
Service revenue (2)............................ 532,116 425,896 459,786 382,708 391,528
Operating income (loss)........................ 21,180 17,505 13,688 (5,230) 22,744
Income (loss) before income taxes, minority
interests, and extraordinary item............. 14,484 6,303 1,239 (12,877) 14,894
Income (loss) before minority interests and
extraordinary item............................ 11,877 4,212 (1,661) (12,528) 8,639
Net income (loss) before extraordinary item.... 5,834 2,252 (1,661) (12,528) 8,639
Net income (loss).............................. 5,834 2,252 (1,661) (18,497) 8,639
Net income (loss) available for common
shareholders.................................. 3,656 449 (3,815) (25,322) 3,346
PRIMARY AND FULLY DILUTED NET INCOME (LOSS)
PER COMMON SHARE:
Before extraordinary item..................... $ 0.17 $ 0.02 $ (0.18) $ (0.92) $ 0.16
Extraordinary loss on early extinguishment
of debt...................................... - - - (0.29) -
----------- ---------- ---------- ---------- ----------
Total....................................... $ 0.17 $ 0.02 $ (0.18) $ (1.21) $ 0.16
=========== ========== ========== ========== ==========
Weighted average common and common equivalent
shares outstanding, assuming full dilution.... 22,062 21,517 20,957 20,886 21,272
BALANCE SHEET DATA (END OF PERIOD):
Total assets................................... $ 365,973 $ 369,517 $ 281,422 $ 281,198 $ 293,076
Working capital................................ 113,898 84,589 91,640 87,648 85,861
Long-term liabilities.......................... 161,951 125,818 133,130 130,752 75,602
Redeemable preferred stock..................... - 19,787 19,617 20,212 44,824
Shareholders' equity........................... 34,892 28,427 27,624 30,780 58,521
</TABLE>
- ---------------------
(1) In fiscal year 1994, the Company adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other
than Pensions."
(2) Service revenue is derived by deducting the costs of subcontracted services
and direct project costs from gross revenue and adding the Company's share
of the equity in income of unconsolidated joint ventures and affiliated
companies.
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 15
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
ICF Kaiser International, Inc. and Subsidiaries (the Company) is one of the
nation's largest engineering, construction, program management, and consulting
services companies, providing fully integrated capabilities to clients in four
related market areas: environment, infrastructure, industry, and energy. The
Company provides services to domestic and foreign clients in both the private
and public sectors.
CHANGE IN FISCAL YEAR
The Company changed from a fiscal year ending February 28 to a fiscal year
ending December 31, effective December 31, 1995. As a result, the accompanying
consolidated financial statements include operations for the year ended December
31, 1996, the ten months ended December 31, 1995, and the year ended February
28, 1995. The difference in the length of the periods included in the
accompanying statements of operations (Time Period Difference) is an important
factor in analyzing the Company's financial results.
FINANCIAL REVIEW
The Company's operating income of $21.2 million for the year ended December
31, 1996 (1996), was a $3.7 million increase from the $17.5 million of operating
income recorded for the ten months ended December 31, 1995 (1995).
The increase was due, in part, to a $5.0 million increase in operating income
(before minority interests) from the Performance Based Integrating Management
Contract at the U.S. Department of Energy's (DOE) Rocky Flats Environmental
Technology Site in Colorado (Rocky Flats). The Rocky Flats contract was awarded
in April 1995 to Kaiser-Hill Company, LLC (Kaiser-Hill), a limited liability
company owned equally by the Company and CH2M Hill Companies, Ltd. (CH2M Hill).
Work under the Rocky Flats contract began on July 1, 1995.
Operating income for the Company's consulting group increased $2.4 million
from 1995 to 1996, primarily due to the recognition of revenue resulting from
the acceleration in the cost approval process (see Note 2 to the consolidated
financial statements). Prior to the third quarter of 1996, the Company had
estimated and recorded revenue based on provisional rates. In 1996, the Company
accelerated the procedures for obtaining approval from the U.S. government for
the Company's actual costs incurred in current periods. As a result, in 1996,
the Company's consulting group was able to accelerate its process of billing on
certain cost-reimbursement contracts.
The Company's operations at DOE's Hanford, Washington, Site (Hanford)
produced a $0.9 million increase in operating income in 1996 versus 1995,
resulting from higher award fees earned at Hanford in 1996 and activities
associated with the final phase of the Company's work at Hanford. The Company's
contract was effectively terminated by DOE on October 1, 1996 (see "Business
Outlook").
The Company's operating income also increased for the year ended December 31,
1996, versus the ten months ended December 31, 1995, due to a $2.6 million
increase in operating income from international operations, primarily due to the
Time Period Difference and improved operating results from the Company's
Australian operations. An additional increase of $1.3 million resulted from
income from the Company's increased economic interest in an entity that owns a
coal pulverization facility and the Time Period Difference. The Company sold a
majority portion of its equity interest in entities that own and operate the
pulverized coal injection facility in December 1996, resulting in a $9.4
million pretax gain (see Note 3 to the consolidated financial
statements). In prior periods, the earnings from this investment have been
significant to the Company.
Partially offsetting the operating income increases discussed above were
decreases of $5.2 million in operating income from other federal programs and
$4.3 million in operating income from engineering and
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 16
<PAGE>
construction operations. There was a $2.4 million decrease in operating income
from two relatively large contracts in the federal programs group because they
were not renewed in 1996. The federal programs group also had significant
increases in its costs associated with marketing activities in pursuit of large-
scale projects, including approximately $2.5 million of costs in 1996 associated
with the Company's unsuccessful recompete bid on the Hanford contract (see
"Business Outlook") and significant costs associated with other DOE proposals.
The engineering and construction group also experienced higher costs in 1996
associated with marketing activities and continued to face significant pressures
to maintain existing profit margins on projects. In addition, engineering and
construction operations for the ten months ended December 31, 1995, included
operating income from a major transit project in the Philippines.
Operating income for the ten months ended December 31, 1995, also included a
$1.9 million operating loss from an unprofitable business that was closed in
early 1996 and $0.5 million of additional income (net) from unusual items (see
"Unusual Items").
BUSINESS OUTLOOK
The Company's contract backlog was $4.7 billion at December 31, 1996,
compared to $4.4 billion at December 31, 1995. The Rocky Flats contract
represented $2.9 billion of the contract backlog at December 31, 1996. Several
notable additions to contract backlog are described below.
In September 1996, the Company signed a contract estimated at $260 million
to perform environmental restoration work at federal installations in the South
Pacific Division of the U.S. Army Corps of Engineers, Sacramento District. The
contract is for four years, with two, three-year options and is a cost-
reimbursement, delivery-order contract. The fee structure includes a combination
of cost-plus-fixed-fee, award fee, and incentive fees. In March 1996, the
Company signed a two-year, $102 million contract to provide engineering and
construction services for the initial phase of a mini-mill project for Nova Hut,
a.s., an integrated steel maker based in the Ostrava region of the Czech
Republic. The Company currently is negotiating a contract with Nova Hut for the
next phase of the mini-mill project. Earnings associated with this contract for
the next phase of work are expected to be material to the Company's operating
results. The Company expects to complete negotiations on this contract early in
1997.
In August 1996, the Company, through its subsidiary, ICF Kaiser Hanford
Company, was informed that the team of which it was a member was unsuccessful
in its bid for DOE's new management and integration contract at Hanford. The
Company's existing contract to perform services at Hanford was scheduled to
expire in March 1997, but was effectively terminated by DOE on October 1, 1996.
In response to the reduction and eventual termination of the Hanford contract,
in August 1996 the Company initiated a significant operational-efficiency and
cost-savings program, together with management changes, with the objective of
minimizing the long-term impact associated with the termination of the Hanford
contract.
There was a significant decrease in the Company's fourth-quarter operating
income in 1996 as compared to previous quarters in 1996 and 1995. The impact on
cash flows, gross and service revenue, and earnings due to the closeout of the
Hanford contract was material in the fourth quarter of 1996. The Company also
believes the impact on cash flows, gross and service revenue, and earnings from
the loss of the Hanford contract will be material in 1997 if replacement
contracts (including the next phase of the Nova Hut contract) are not won or if
the cost-savings program is not successful. There can be no assurance, however,
that the Company will be able to enter into new contracts or to achieve cost
savings that will, in the aggregate, offset the effect of the loss of the
Hanford contract.
The Company's consulting group showed improvement in operating results
between the year ended December 31, 1996, and the ten months ended December 31,
1995, aided by the recognition of revenue resulting from the accelerated cost
approval process (see "Financial Review"). The U.S. Environmental Protection
Agency (EPA) historically has been the consulting group's principal customer;
for several years, the consulting group has been diversifying its client base to
international, private-sector, and non-EPA federal government entities. EPA now
accounts for only approximately 55% of the consulting group's service revenue.
In 1996, the consulting group
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 17
<PAGE>
increased its business development efforts to diversify its client base and
expects to make further progress in diversification in 1997.
As discussed in "Financial Review", the Company's domestic engineering and
construction business has not performed as well in 1996 as compared to the prior
year. As a result, the Company is continuing its efforts to enhance
profitability of these operations. These efforts include management changes,
the combining of the international and domestic engineering and construction
business, cost-reduction efforts, and increases in marketing efforts
concentrated on large-scale international projects. In conjunction with the
cost-reduction efforts, the Company, in 1996, completed a realignment of several
of its offices, including the termination of certain underutilized employees
(see Note 16 to the consolidated financial statements). The Company will
continue to seek other opportunities to save costs, and future actions may
include additional office space consolidations and terminations. The ability of
the Company's engineering and construction business to increase its operating
margins is directly dependent upon the success of the Company's marketing
strategies on large-scale projects, including those in the international arena,
and the success of its cost-reduction efforts.
RESULTS OF OPERATIONS
The following table summarizes key elements in the Consolidated Statements
of Operations for the year ended December 31, 1996, and the ten months ended
December 31, 1995 and 1994 (dollars in millions).
- ------------------------------------------------------------------------------
Year ended
December 31, Ten Months Ended December 31,
-----------------------------
1996 1995 1994
---------- ------------ ---------------
(Unaudited)
Gross revenue $ 1,248.4 $ 916.7 $ 732.4
Service revenue $ 532.1 $ 425.9 $ 392.0
Service revenue as a percentage
of gross revenue 42.6% 46.5% 53.5%
Operating expenses as a
percentage of service revenue:
Direct cost of services and
overhead 82.2% 83.0% 86.0%
Administrative and general 11.8% 11.0% 8.7%
Depreciation and amortization 1.9% 2.0% 2.0%
Unusual items, net - (0.1)% -
Operating income as a percentage
of service revenue 4.0% 4.1% 3.3%
- ------------------------------------------------------------------------------
Gross revenue represents services provided to customers with whom the
Company has a primary contractual relationship. Included in gross revenue are
costs of certain services subcontracted to third parties, and other reimbursable
direct project costs, such as materials procured by the Company on behalf of its
customers.
Service revenue is derived by deducting the costs of subcontracted services
and direct project costs from gross revenue and adding the Company's share of
the equity in income of unconsolidated joint ventures and affiliated companies.
The Company believes that it is appropriate to analyze operating margins and
other ratios in relation to service revenue because such revenue and ratios
reflect the work performed directly by the Company.
Operating profits (fees) generated by the Hanford and Rocky Flats contracts
are based on performance and not revenue. A change in revenue between periods
is not necessarily proportionate to the change in the fees earned. Consequently,
changes in revenue may have an exaggerated impact on the Company's margins as
measured on a percentage basis. In addition, because Kaiser-Hill is a
consolidated subsidiary of the Company effective July 1, 1995, operating income
includes the portion of income generated under the Rocky Flats contract
attributable to CH2M Hill. CH2M Hill's interest in Kaiser-Hill is reflected as
a minority interest in subsidiaries in the Company's
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 18
<PAGE>
consolidated financial statements (see Note 2 to the consolidated financial
statements). As a result, the increase in minority interests in net income of
subsidiaries for the year ended December 31, 1996, versus the ten months ended
December 31, 1995, is due to the increase in income from the Rocky Flats
contract.
YEAR ENDED DECEMBER 31, 1996, VERSUS TEN MONTHS ENDED DECEMBER 31, 1995
Revenue
Gross revenue for the year ended December 31, 1996, increased $331.7
million, or 36.2%, to $1,248.4 million. The increase in gross revenue was
attributable primarily to the Time Period Difference and commencement of work
under the Rocky Flats contract which generated a $266.2 million increase in
gross revenue for the year ended December 31, 1996, versus the ten months ended
December 31, 1995.
Service revenue increased by $106.2 million for the year ended December 31,
1996, as compared to the ten months ended December 31, 1995. The increase was
due primarily to the Time Period Difference and an increase in service revenue
generated under the Rocky Flats contract ($76.7 million). Service revenue as a
percentage of gross revenue decreased to 42.6% for the year ended December 31,
1996, from 46.5% for the ten months ended December 31, 1995. The decrease in
service revenue as a percentage of gross revenue is a result of the nature of
the Rocky Flats contract. A significant portion of the gross revenue derived
from the Rocky Flats contract includes the costs of services subcontracted to
third parties.
Operating Expenses
Direct cost of services and overhead increased $84.2 million between the
year ended December 31, 1996, and the ten months ended December 31, 1995. A
$69.6 million increase in costs on the Rocky Flats contract was offset partially
by a $17.2 million reduction in Hanford costs attributable to federal budget
reductions at the Hanford Site and the effective termination of the contract on
October 1, 1996. The remaining increase is due primarily to the Time Period
Difference. The Company's direct cost of services and overhead as a percentage
of service revenue for the year ended December 31, 1996, was comparable to the
ten months ended December 31, 1995.
Administrative and general expense increased $15.9 million, or 33.8%,
between the year ended December 31, 1996, and the ten months ended December 31,
1995. The increase in these costs is due primarily to the Time Period
Difference and the Company's increased commitment to marketing activities in
1996, including costs associated with new marketing positions within the Company
and increased proposal and bidding activities on large-scale domestic and
foreign contracts. The increase in administrative and general expenses as a
percentage of service revenue resulting from increased marketing efforts was
offset partially as a result of the increase in service revenue in 1996 from the
Rocky Flats contract, which does not have a proportionate increase in
administrative and general expenses.
Interest Expense
Interest expense increased $4.1 million primarily due to the Time Period
Difference. Interest expense also increased due to a 1% increase, effective
March 1, 1996, in the interest rate on the Company's 12% Senior Subordinated
Notes due 2003 (Subordinated Notes). The Company's principal debt outstanding
consists of 12% Senior Subordinated Notes due 2003 and newly issued 12% Senior
Notes due 2003, Series A (see "Liquidity and Capital Resources").
Income Tax Expense
The Company's effective income tax rate decreased to 18.0% for the year
ended December 31, 1996, compared with 33.2% for the ten months ended December
31, 1995 (see Note 8 to the consolidated financial statements). The Company's
gain on the sale of an investment (see "Financial Review") in 1996 will generate
substantial taxable income. As a result, the Company has partially reversed the
valuation allowance on deferred tax assets. The partial reversal reduced tax
expense by $2.1 million for the year ended December 31, 1996. The
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 19
<PAGE>
remaining valuation allowance as of December 31, 1996, is for foreign tax
benefits not currently assured of realization.
At December 31, 1996, the Company had deferred tax assets of $1.1 million
related to net operating loss carryforwards, of which $0.7 million expire within
the next five years and $0.4 million expire in 2008 and 2009. Additionally, the
Company had deferred tax assets of $2.5 million related to tax credit
carryforwards, of which $0.8 million has an indefinite life, and $1.7 million
expires between 1998 and 2009. The Company believes that expected levels of
pretax earnings, when adjusted for nondeductible expenses, such as goodwill
amortization, will generate sufficient future taxable income to realize the $9.7
million deferred tax asset (net) within the next five years.
The income tax provision for the year ended December 31, 1996, was computed
by excluding the minority interest in Kaiser-Hill's income because Kaiser-Hill
is a flow-through entity for tax purposes and is owned partially by an outside
party. This and the partial reversal of the valuation allowance had the effect
of reducing the Company's effective tax rate. Since Kaiser-Hill commenced
operations on July 1, 1995, its effect on the effective tax rate was relatively
larger in the year ended December 31, 1996, than in the ten months ended
December 31, 1995.
TEN MONTHS ENDED DECEMBER 31, 1995, VERSUS TEN MONTHS ENDED DECEMBER 31, 1994
Revenue
Gross revenue for the ten months ended December 31, 1995, increased $184.3
million, or 25.2%, to $916.7 million. The increase in gross revenue was
attributable to the commencement of work under the Kaiser-Hill contract which
generated $277.7 million in gross revenue during the ten-month period. The
increase was offset partially by a $98.6 million reduction in gross revenue
under the Hanford contract due to federal budget reductions at the Hanford Site.
Service revenue increased by $33.9 million for the ten-month period ended
December 31, 1995, as compared to the ten months ended December 31, 1994. The
increase was due primarily to $91.2 million of service revenue generated under
the Rocky Flats contract, offset by a $57.8 million decrease in service revenue
under the Hanford contract. Service revenue as a percentage of gross revenue
decreased to 46.5% for the ten months ended December 31, 1995, from 53.5% for
the ten months ended December 31, 1994, as a result of the nature of the Rocky
Flats contract. A significant portion of the gross revenue derived from the
Rocky Flats contract includes the costs of services subcontracted to third
parties.
Operating Expenses
Direct cost of services and overhead increased $16.4 million between the
ten-month periods ended December 31, 1995 and 1994. Costs on the new Rocky
Flats contract ($85.3 million) were offset by a $60.9 million reduction in the
Hanford contract costs (attributable to the federal budget reductions discussed
above).
Administrative and general expenses increased $12.8 million, or 37.2%,
between the ten-month periods ended December 31, 1995 and 1994, and increased
from 8.7% to 11.0% as a percentage of service revenue. The increase in these
costs was attributable primarily to the Company's increased marketing
activities, including filling several key marketing positions and incurring
relatively high levels of marketing expenses associated with proposing and
bidding large-scale U.S. Department of Defense and DOE contracts.
Interest Expense
The Company's average debt outstanding and average effective interest rate
for the ten months ended December 31, 1995 and 1994, were as follows.
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 20
<PAGE>
Ten Months Ended
--------------------------------
December 31, December 31,
1995 1994
------------ ------------
Average debt outstanding $123,701,000 $122,674,000
Average effective interest rate 12.9% 12.8%
The average effective interest rate was comparable between the ten-month
periods ended December 31, 1995 and 1994, due to consistent interest rates and
indebtedness outstanding between the ten-month periods. The Company's principal
debt outstanding consisted of the Subordinated Notes (see "Liquidity and Capital
Resources").
Income Tax Expense
The Company's income tax provision was $2.1 million and $3.0 million for
the ten months ended December 31, 1995 and 1994, respectively. Although pretax
income for the ten months ended December 31, 1995, was $3.5 million greater than
pretax income for the comparable period ended December 31, 1994, the Company's
effective tax rate decreased due to a reduction in permanent differences (such
as the nondeductibility of goodwill) as a percentage of pretax income, increased
foreign tax benefits, and minority interest earnings of a consolidated
subsidiary (see Note 8 to the consolidated financial statements). The ten
months ended December 31, 1994, also included a repatriation of overseas funds
to the United States which could not, at that time, be offset by foreign tax
credits, resulting in additional income taxes for that period.
Because of the reported losses for the year ended February 28, 1994, a $3.3
million valuation allowance was established in that year for deferred tax
assets. Although the level of pretax income has increased substantially since
that period (with a corresponding increase in taxable income), the Company
maintained the valuation allowance as of December 31, 1995.
Unusual Items
During the ten months ended December 31, 1995, the Company recorded $0.5
million in additional income (net), consisting of the following unusual items:
income in settlement of litigation against the Internal Revenue Service (IRS),
associated with an affiliate of an acquired company, net of an accrual for
related expenses ($6.8 million) (see "Liquidity and Capital Resources"); a
charge to accrue the net settlement cost and legal expenses of other litigation
($4.6 million); a charge to accrue for severance for the termination of 110
employees in the engineering and international groups ($1.0 million); and a
charge to accrue for consolidation of office space ($0.7 million). All actions
associated with the termination of employees and consolidation of office space
have been completed, and there is no further liability outstanding as of
December 31, 1996, associated with this plan (see Note 16 to the consolidated
financial statements).
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 1996, cash and cash equivalents
increased $0.4 million to $16.8 million. Operating activities generated $1.2
million in cash, including operations at Kaiser-Hill (owned equally by the
Company and CH2M Hill) which generated $15.5 million from operating activities.
An additional significant operating source of cash was $7.0 million received
from the IRS in settlement of litigation (see "Unusual Items"). Significant
operating uses of cash included $23.5 million in interest payments, consisting
of three semiannual payments, on the Company's Subordinated Notes and a $3.7
million retirement plan payment.
WORKING CAPITAL
The increase in prepaid expenses and other current assets and the decrease
in investment in and advances to affiliates between December 31, 1996, and
December 31, 1995, was due to the sale of an investment in entities that own and
operate a pulverized coal injection facility in December 1996, the cash proceeds
($16.5 million) for which
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 21
<PAGE>
were not received until January 1997 (see below). The increase in prepaid
expenses and other current assets in 1996 was offset partially by a decrease
attributable to the collection in 1996 of $7.0 million from the IRS, which was
recorded in other current assets at December 31, 1995. The cash received from
the IRS settlement is included in unusual items on the Statement of Cash Flows.
The decrease in accrued interest was due to the timing of interest payments on
the Subordinated Notes. The decrease in accounts payable and subcontractors
payable was due primarily to the effective termination of the Hanford contract
in 1996. The increase in deferred revenue was due primarily to advance billings
and collections on a transit project in the Philippines.
In July 1996, EPA approved the Company's provisional billing rates for the
year ended February 28, 1995, for the rate variances on cost-plus contracts with
U.S. government agencies for costs incurred during that year. The Company has
received $2.2 million on these billings as of December 31, 1996, and expects to
collect approximately $0.9 million in future periods. In October 1996, the
Company also obtained approval for provisional billing rates for the ten months
ended December 31, 1995. The Company has received $0.7 million on these
billings as of December 31, 1996, and expects to collect approximately $2.0
million in future periods. In January 1997, the Company received approval for
provisional billing rates for the year ended December 31, 1996, and expects to
collect approximately $3.3 million in future periods.
CREDIT FACILITIES
The Company's $40 million revolving credit facility became effective May 7,
1996, and expires June 30, 1998 (see Note 6 to the consolidated financial
statements). The credit facility is provided by a group of three banks (the
Banks) and is guaranteed by certain subsidiaries (Guarantors). ICF Kaiser
International, Inc. and the Guarantors have granted the Banks a security
interest in substantially all accounts receivable and certain other assets and
have pledged the stock of certain subsidiaries. The credit facility limits the
payments of cash dividends on common stock, prohibits the issuance of certain
types of indebtedness, limits certain investments and acquisitions, and requires
the maintenance of specified financial ratios. Total available credit is
determined from a borrowing base calculation based on eligible accounts
receivable (billed and unbilled). In connection with the Company's repurchase
of preferred stock in December 1996 (see below), total available credit under
the credit facility was increased temporarily by $5.0 million. This provision
for additional capacity was terminated subsequently in January 1997.
Due to the timing of additional borrowings made under the credit facility
in connection with the repurchase of the preferred stock, the Company was not in
compliance with one of the financial ratios at December 31, 1996. The Banks,
however, granted a waiver of the requirement in January 1997 for December 31,
1996. The additional borrowings used to repurchase the preferred stock were
repaid in January 1997.
The credit facility contains Eurodollar and alternate base interest rate
alternatives with margins dependent upon the Company's financial operating
results. As of December 31, 1996, the Company had $20.5 million in cash
borrowings and $21.1 million of performance letters of credit outstanding. As
of December 31, 1996, the Company had $3.4 million of additional credit
available under the credit facility. As of February 25, 1996, the Company had
$4.0 million of cash borrowings outstanding, $19.7 million of letters of credit
outstanding, and the additional credit available under the credit facility was
$16.3 million.
Kaiser-Hill has a $50 million receivables purchase facility to support its
working capital requirements under the Rocky Flats contract. The receivables
purchase facility contains certain program fees, requires Kaiser-Hill to
maintain a specified tangible net worth, and contains certain letter of credit
and default provisions for delinquent receivables. The receivables purchase
facility expires on June 30, 1998, and is non-recourse to Kaiser-Hill's owners,
ICF Kaiser International, Inc. and CH2M Hill.
SENIOR AND SUBORDINATED NOTES
On December 23, 1996, the Company issued (through a private placement)
15,000 Units, each Unit consisting of $1,000 principal amount of the Company's
12% Senior Notes due 2003, Series A (Series A Senior Notes), and 7 warrants,
each to purchase one share of the Company's common stock at an exercise price of
$2.30
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 22
<PAGE>
per share. Of the net issue price of $14.7 million ($15.0 million less a
$0.3 million discount), $0.1 million was allocated to the 105,000 warrants and
$14.6 million to the Series A Senior Notes. Interest on the Series A Senior
Notes will be at a rate of 13% until the Company achieves and maintains a
specified level of earnings, and is paid semiannually. In March 1997, the
Company expects to exchange the Series A Senior Notes for Series B Senior Notes
registered with the U.S. Securities and Exchange Commission in January 1997.
The terms of the Series B Senior Notes substantially are identical to the terms
of the Series A Senior Notes.
The net proceeds from the issuance of the Series A Senior Notes and
borrowings under the credit facility were used to repurchase the Company's
Series 2D Senior Preferred Stock and Series 2D Warrants in December 1996 for $20
million (see Note 9 to the consolidated financial statements). Additional net
borrowings under the credit facility in 1996 also were used to fund operations.
Because of technical limitations on the payment of dividends contained in
the Indenture governing the Company's Subordinated Notes, the Company did not
pay the November 30, 1995, and February 29, 1996, accrued dividends on the
Company's Series 2D Senior Preferred Stock when due. These accrued dividends in
the aggregate amount of $975,000 were paid in March 1996, following the signing
of an amendment to the Indenture governing the Subordinated Notes which
permitted the payment of all accrued and future dividends. As consideration for
this amendment, the interest rate on the Subordinated Notes was increased from
12% to 13% until the Company achieves and maintains a specified level of
earnings.
OTHER INVESTING AND FINANCING ACTIVITIES
In December 1996, the Company sold the majority portion of its equity
interest in entities that own and operate a pulverized coal injection facility,
and certain related contractual rights, for $16.6 million. The buyer also has
an option to purchase the remaining equity investment for $2.4 million in
January 1998. The sales price is included in other current assets in the
accompanying balance sheet as of December 31, 1996. The proceeds from the sale,
net of $0.1 million held in escrow, were received in January 1997 and were
reinvested in the Company's business. These entities' earnings and cash flows
were material to the Company in 1996, and the absence of these entities'
earnings and cash flows may have a material impact on the Company's future
earnings and cash flows after 1996 if the Company's cost-savings and marketing
programs are not successful.
Other significant uses of cash in investing and financing activities
included purchases of fixed assets ($4.9 million), payment of preferred stock
dividends ($2.6 million), distribution of income to a minority interest ($2.4
million), payment of debt issuance costs ($1.4 million), and investments in
joint ventures and affiliates ($1.3 million).
LIQUIDITY AND CAPITAL RESOURCES OUTLOOK
The Company believes that current projected levels of cash flows and the
availability of financing, including borrowings under the Company's credit
facility, will be adequate to fund its current level of operations, including
interest obligations, throughout the next 12 months. The Company currently is
exploring options that would provide additional capital for longer-term
objectives including replacing the Company's long-term debt with equity.
The credit facility limits the Company's ability to make acquisitions and
other investments, and the Indentures governing the Company's Senior and
Subordinated Notes limit the Company's ability to make restricted payments,
including certain payments in connection with investments and acquisitions.
These credit facility and Indenture limitations mean that during the next
several years it likely will be necessary for the Company to issue additional
equity securities to fund any significant acquisitions and to invest significant
amounts in joint ventures. These limitations may make it more difficult for the
Company to compete effectively in its markets.
In addition to the cash requirements of the Company's daily operations, the
Company has semiannual interest payments of $9.1 million due in June and
December for the Series A and B Senior Notes and Subordinated Notes. After the
Company achieves and maintains a specified level of earnings, the semiannual
interest requirement
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 23
<PAGE>
will be reduced to $8.4 million. The Company expects to meet this interest
obligation with either operating cash flows or borrowings under its credit
facility.
Item 8. Financial Statements and Supplementary Data
The Financial Statements and Supplementary Data appear on pages F-1
through F-33 and S-1 hereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding the directors of the Registrant is included
under the caption "Election of Directors" in the Company's Proxy Statement for
the 1997 Annual Meeting of Shareholders (the "Proxy Statement") and is
incorporated herein by reference. Information regarding executive officers of
the Registrant is included under a separate caption in Part I hereof.
Information regarding compliance with Section 16(a) of the Exchange Act is
included under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's Proxy Statement and is incorporated herein by
reference.
Item 11. Executive Compensation
Information regarding this item is included under the caption
"Executive Compensation" in the Company's Proxy Statement and is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding this item is included under the caption "Voting
Securities of the Company and Certain Shareholdings" in the Company's Proxy
Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information regarding this item is included under the captions
"Compensation Committee Interlocks and Insider Participation," "Certain
Transactions with Certain Directors," "Agreements and Transactions with
Executive Officers Named in the Summary Compensation Table," and "Agreements and
Transactions with Other Executive Officers" in the Company's Proxy Statement and
is incorporated herein by reference.
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 24
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as part of this Report Page
<TABLE>
<CAPTION>
<S> <C> <C>
1. Consolidated Financial Statements of ICF Kaiser International, Inc. and Subsidiaries
a. Report of Independent Accountants................................................................. F-1
b. Consolidated Balance Sheets as of December 31, 1996, and December 31, 1995........................ F-2
c. Consolidated Statements of Operations for the year ended December 31, 1996, the ten months
ended December 31, 1995, and the year ended February 28, 1995..................................... F-3
d. Consolidated Statements of Shareholders' Equity for the year ended December 31, 1996, the
ten months ended December 31, 1995, and the year ended February 28, 1995.......................... F-4
e. Consolidated Statements of Cash Flows for the year ended December 31, 1996, the ten
months ended December 31, 1995, and the year ended February 28, 1995.............................. F-5
f. Notes to Consolidated Financial Statements........................................................ F-6
2. Supplemental Schedule Relating to the Consolidated Financial Statements of
ICF Kaiser International, Inc. and Subsidiaries for the year ended
December 31, 1996, the ten months ended December 31, 1995, and the year ended
February 28, 1995.
a. Schedule II: Valuation and Qualifying Accounts.................................................... S-1
</TABLE>
All Schedules except the one listed above have been omitted because they
are not applicable or not required or because the required information is
included elsewhere in the financial statements in this filing.
3. Exhibits (listed according to the number assigned in the table in Item 601
of Regulation S-K).
(b) Exhibits
Exhibit No. 3 -- Articles of Incorporation and By-laws
3(a) Restated Certificate of Incorporation of ICF Kaiser International,
Inc. (restated through June 26, 1993) (Incorporated by reference to
Exhibit No. 3(a) to Quarterly Report on Form 10-Q (Registrant No. 1-
12248) for the second quarter of fiscal 1994 filed with the Commission on
October 15, 1993)
3(b) Amended and Restated By-laws of ICF Kaiser International, Inc. (as
amended through June 23, 1995) (Incorporated by reference to Exhibit No.
3(b) to Quarterly Report on Form 10-Q Registrant No. 1-12248 for the
second quarter of fiscal 1995 filed with the Commission on October 13,
1995)
3(c) Articles of Incorporation of Cygna Consulting Engineers and Project
Management, Inc. (Incorporated by reference to Exhibit No. 3(c) to
Registration Statement on Form S-1 Registration No. 333-19519 filed with
the Commission on January 10, 1997)
3(d) By-laws of Cygna Consulting Engineers and Project Management, Inc.
(Incorporated by reference to Exhibit No. 3(d) to Registration Statement
on Form S-1 Registration No. 333-19519 filed with the Commission on
January 10, 1997)
3(e) Certificate of Incorporation of ICF Kaiser Government Programs, Inc.
(Incorporated by reference to Exhibit No. 3(e) to Registration Statement
on Form S-1 Registration No. 333-19519 filed with the Commission on
January 10, 1997)
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 25
<PAGE>
3(f) By-laws of ICF Kaiser Government Programs, Inc. (Incorporated by
reference to Exhibit No. 3(f) to Registration Statement on Form S-1
Registration No. 333-19519 filed with the Commission on January 10, 1997)
3(g) Certificate of Incorporation of PCI Operating Company, Inc. (Incorporated
by reference to Exhibit No. 3(g) to Registration Statement on Form S-1
Registration No. 333-19519 filed with the Commission on January 10, 1997)
3(h) By-laws of PCI Operating Company, Inc. (Incorporated by reference to
Exhibit No. 3(h) to Registration Statement on Form S-1 Registration No.
333-19519 filed with the Commission on January 10, 1997)
3(i) Certificate of Incorporation of Systems Applications International, Inc.
(Incorporated by reference to Exhibit No. 3(i) to Registration Statement
on Form S-1 Registration No. 333-19519 filed with the Commission on
January 10, 1997)
3(j) By-laws of Systems Applications International, Inc. (Incorporated by
reference to Exhibit No. 3(j) to Registration Statement on Form S-1
Registration No. 333-19519 filed with the Commission on January 10, 1997)
Exhibit No. 4 -- Instruments Defining the Rights of Security Holders, including
Indentures
4(a) Indenture dated as of January 11, 1994, between ICF Kaiser International,
Inc. and The Bank of New York, as Trustee (Incorporated by reference to
Exhibit No. 4(a) to Quarterly Report on Form 10-Q Registrant No. 1-12248
for the third quarter of fiscal 1994 filed with the Commission on January
14, 1994)
1. First Supplemental Indenture dated as of February 17, 1995.
(Incorporated by reference to Exhibit No. 4(a)(1) to Annual Report on
Form 10-K Registrant No. 1-12248 for fiscal year 1995 filed with the
Commission on May 23, 1995)
2. Second Supplemental Indenture dated September 1, 1995 (Incorporated by
reference to Exhibit No. 4(a) (2) to Registration Statement on Form S-1
Registration No. 33-64655 filed with the Commission on November 30, 1995)
3. Third Supplemental Indenture dated October 20, 1995 (Incorporated by
reference to Exhibit No. 4(a)(3) to Registration Statement on Form S-1
Registration No. 33-64655 filed with the Commission on November 30, 1995)
4. Fourth Supplemental Indenture dated as of March 8, 1996 (Incorporated by
reference to Exhibit No. 4 (a)(4) to Transition Report on Form 10-K
Registration No. 1-12248 for the transition period from March 1, 1995 to
December 31, 1995 filed with the Commission on March 29, 1996)
5. Fifth Supplemental Indenture dated as of June 24, 1996 (Incorporated by
reference to Exhibit No. 4 (a)(5) to Registration Statement on Form S-1
Registration No. 333-16937 filed with the Commission on November 27,
1996)
4(b) Form of 12% Senior Subordinated Note due 2003 (Incorporated by reference
to Exhibit No. 4(b) to Quarterly Report on Form 10-Q Registrant No. 1-
12248 for the third quarter of fiscal 1994 filed with the Commission on
January 14, 1994)
4(c) Form of Common Stock Purchase Warrant expiring May 15, 1999 (as amended
and restated through January 11, 1994) (Incorporated by reference to
Exhibit No. 4(e) to Quarterly Report on Form 10-Q Registrant No. 1-12248
for the third quarter of fiscal 1994 filed with the Commission on January
14, 1994)
4(d) Rights Agreement, dated as of January 13, 1992, between ICF Kaiser
International, Inc. and Office of the Secretary, ICF Kaiser
International, Inc. as Rights Agent, including
1. Form of Certificate of Designations of Series 4 Junior Preferred
Stock
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 26
<PAGE>
2. Form of Rights Certificate
3. Summary of Rights to Purchase Preferred Stock (Incorporated by
reference to Exhibit No. 4(h) to Quarterly Report on Form 10-Q
Registrant No. 0-18025 for the third quarter of fiscal 1992 filed
with the Commission on January 14, 1992)
4(e) Warrant Agreement dated as of January 11, 1994, between the Registrant
and The Bank of New York, as Warrant Agent (Incorporated by reference to
Exhibit No. 4(c) to Quarterly Report on Form 10-Q Registrant No. 1-12248
for the third quarter of fiscal 1994 filed with the Commission on January
14, 1994)
4(f) Form of Warrant expiring December 31, 1998 (Incorporated by reference
to Exhibit No. 4(d) to Quarterly Report on Form 10-Q Registrant No. 1-
12248 for the third quarter of fiscal 1994 filed with the Commission on
January 14, 1994)
4(g) Indenture dated as of December 23, 1996, between ICF Kaiser
International, Inc. and the Bank of New York, as Trustee, including
Guarantees, dated December 23, 1996, by each of the Subsidiary Guarantors
(Incorporated by reference to Exhibit No. 4(g) to Registration Statement
on Form S-1 Registration No. 333-19519 filed with the Commission on
January 10, 1997)
4(h) Form of 12% Senior Note due 2003, Series A (Incorporated by reference to
Exhibit No. 4(h) to Registration Statement on Form S-1 Registration No.
333-19519 filed with the Commission on January 10, 1997)
4(i) Form of 12% Senior Note due 2003, Series B (Incorporated by reference to
Exhibit No. 4(i) to Registration Statement on Form S-1 Registration No.
333-19519 filed with the Commission on January 10, 1997)
4(j) Warrant Agreement dated as of December 23, 1996, between ICF Kaiser
International, Inc. and The Bank of New York, as Warrant Agent
(Incorporated by reference to Exhibit No. 4(j) to Registration Statement
on Form S-1 Registration No. 333-19519 filed with the Commission on
January 10, 1997)
4(k) Form of Warrant expiring December 31, 1999 issued under Warrant Agreement
dated as of December 23, 1996 (Incorporated by reference to Exhibit No.
4(k) to Registration Statement on Form S-1 Registration No. 333-19519
filed with the Commission on January 10, 1997)
4(l) Registration Rights Agreement dated as of December 23, 1996 between ICF
Kaiser International, Inc. and BT Securities Corporation, as Initial
Purchaser (Incorporated by reference to Exhibit No. 4(l) to Registration
Statement on Form S-1 Registration No. 333-19519 filed with the
Commission on January 10, 1997)
Exhibit No. 10 -- Material Contracts
10(a) Credit Agreement dated as of May 6, 1996, with CoreStates N.A., as agent
(Incorporated by reference to Exhibit No. 10(r) to Quarterly Report on
Form 10-Q Registrant No. 1-12248 for the second quarter of fiscal 1996
filed with the Commission on August 14, 1996)
1. Amendment No. 1 to Credit Agreement dated as of December 17, 1996
(Incorporated by reference to Exhibit No. 10(a)(1) to Registration
Statement on Form S-1 Registration No. 333-19519 filed with the
Commission on January 10, 1997)
10(b) ICF Kaiser International, Inc. Employee Stock Ownership Plan (as
amended and restated as of March 1, 1993) (and further amended with
respect to name change only as of June 26, 1993) (Incorporated by
reference to Exhibit No. 10(c) to Quarterly Report on Form 10-Q
Registrant No. 1-12248 for the second quarter of fiscal 1994 filed with
the Commission on October 15, 1993)
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 27
<PAGE>
1. Amendment No. 1 dated April 24, 1995 (Incorporated by reference to
Exhibit No. 10(l)(1) to Annual Report on Form 10-K Registrant No. 1-
12248 for fiscal 1995 filed with the Commission on May 23, 1995)
2. Amendment No. 2 dated December 15, 1995 (Incorporated by reference to
Exhibit No. 10(b)(2) to Transition Report on Form 10-K Registrant No. 1-
12248 for the transition period from March 1, 1995 to December 31, 1995
filed with the Commission on March 29, 1996)
3. Amendment No. 3 dated December 13, 1996 (Incorporated by reference to
Exhibit No. 10(b)(3) to Registration Statement on Form S-1 Registration
No. 333-19519 filed with the Commission on January 10, 1997)
10(c) Trust Agreement with Vanguard Fiduciary Trust Company dated as of
August 31, 1995, for ICF Kaiser International Employee Stock Ownership
Plan (Incorporated by reference to Exhibit No. 10(c) to Registration
Statement on Form S-1 Registrant No. 33-64655 filed with the Commission
on November 30, 1995)
10(d) ICF Kaiser International, Inc. Retirement Plan (as amended and restated
as of March 1, 1993) (and further amended with respect to name change
only as of June 26, 1993) (Incorporated by reference to Exhibit No. 10(d)
to Quarterly Report on Form 10-Q Registrant No. 1-12248 for the second
quarter of fiscal 1994 filed with the Commission on October 15, 1993)
1. Amendment No. 1 dated April 24, 1995 (Incorporated by reference to
Exhibit No. 10(d)(1) to Annual Report on Form 10-K Registrant No. 1-12248
filed with the Commission on May 23, 1995.)
2. Amendment No. 2 dated December 15, 1995 (Incorporated by reference to
Exhibit No. 10(d)(2) to Transition Report on Form 10-K Registrant No. 1-
12248 for the transition period from March 1, 1995 to December 31, 1995
filed with the Commission on March 29, 1996)
3. Amendment No. 3 dated December 13, 1996 (Incorporated by reference to
Exhibit No. 10(d)(3) to Registration Statement on Form S-1 Registration
No. 333-19519 filed with the Commission on January 10, 1997)
10(e) Trust Agreement with Vanguard Fiduciary Trust Company dated as of
August 31, 1995, for ICF Kaiser International, Inc. Retirement Plan
(Incorporated by reference to Exhibit No. 10(e) to Registration Statement
on Form S-1 (Registrant No. 33-64655) filed with the Commission on
November 30, 1995)
10(f) Lease Agreement between HMCE Associates (as Landlord) and ICF Kaiser
Incorporated (as Tenant), dated January 30, 1987, for the lease of the
Registrant's headquarters in Fairfax, Virginia (Incorporated by reference
to Exhibit No. 10(a) to Registration Statement on Form S-1 (No. 33-31473)
filed with the Commission on October 6, 1989)
1. First Amendment entered into August 31, 1987 (Incorporated by reference
to Exhibit No. 10(a) to Registration Statement on Form S-1 (No. 33-31473)
filed with the Commission on October 6, 1989)
2. Second Amendment entered into September 23, 1987 (Incorporated by
reference to Exhibit No. 10(a) to Registration Statement on Form S-1 (No.
33-31473) filed with the Commission on October 6, 1989)
3. Third Amendment entered into as of February 12, 1990 (Incorporated by
reference to Exhibit No. 10(a) to Annual Report on Form 10-K filed with
the Commission on April 25, 1990)
10(g) Lease Agreement between HMCE Associates Limited Partnership (as
Landlord) and American Capital and Research Corporation (as Tenant),
dated April 27, 1988, for the lease of space in the building adjacent to
the Registrant's headquarters in Fairfax, Virginia (Incorporated by
reference to Exhibit No. 10(b) to Registration Statement on Form S-1 (No.
33-31473) filed with the Commission on October 6, 1989)
1. First Amendment entered into July 29, 1988. (Incorporated by reference
to Exhibit No. 10(b) to Annual Report on Form 10-K filed with the
Commission on April 25, 1990)
2. Second Amendment entered into as of February 12, 1990 (Incorporated by
reference to Exhibit No. 10(b) to Annual Report on Form 10-K filed with
the Commission on April 25, 1990)
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 28
<PAGE>
3. Third Amendment entered into as of December 22, 1992 (Incorporated by
reference to Exhibit No. 10(h)(3) to Annual Report on Form 10-K
(Registrant No. 1-12248) for the fiscal year ended February 28, 1993
filed with the Commission on May 21, 1993)
10(h) Amended and Restated Lease Agreement by and between Kaiser Engineers,
Inc. and 1800 Harrison Limited Partnership, dated as of June 1, 1988, for
the lease of the Registrant's offices in Oakland, California
(Incorporated by reference to Exhibit No. 10(c) to Registration Statement
on Form S-1 (No. 33-31576) filed with the Commission on October 13, 1989)
1. First Amendment made as of March 27, 1991 (Incorporated by reference to
Exhibit No. 10(a)(1) to Quarterly Report on Form 10-Q (Registrant
No. 0-18025) for the first quarter of fiscal 1993 filed with the
Commission on July 10, 1992)
2. Second Amendment made as of June 1992 (Incorporated by reference to
Exhibit No. 10(a)(2) to Quarterly Report on Form 10-Q (Registrant No.
0-18025) for the first quarter of fiscal 1993 filed with the Commission
on July 10, 1992)
3. Third Amendment made as of April 27, 1993 (Incorporated by reference to
Exhibit No. 10(i)(3) to Annual Report on Form 10-K (Registrant No. 1-
12248) for the fiscal year ended February 28, 1993 filed with the
Commission on May 21, 1993)
10(i) Guaranty provided by American Capital and Research Corporation to 1800
Harrison Limited Partnership, dated as of March 27, 1991, and First
Amendment thereto dated as of June 1992, guaranteeing the performance of
Kaiser Engineers, Inc. under an Amended and Restated Lease Agreement by
and between Kaiser Engineers, Inc. and the California Public Employee's
Retirement System, dated as of July 1, 1988, for the lease of the
Registrant's offices in Oakland, California (Incorporated by reference to
Exhibit No. 10(b) to Quarterly Report on Form 10-Q Registrant No. 0-18025
for the first quarter of fiscal 1993 filed with the Commission on July
10, 1992)
10(j) ICF Kaiser International, Inc. Stock Incentive Plan (as amended and
restated through March 1, 1996) (Incorporated by reference to Exhibit No.
10(j) to Registration Statement on Form S-1 Registrant No. 333-16937
filed with the Commission on November 27, 1996)
10(l) Purchase Order dated March 8, 1995 (WHC-380393, Mod. 1) issued by
Westinghouse Hanford Company to ICF Kaiser Hanford Company (DOE Reference
No. DE-AC06-87RL1930) (Incorporated by reference to Exhibit No. 10(m) to
Annual Report on Form 10-K Registrant No. 1-12248 for fiscal year 1995
filed with the Commission on May 23, 1995)
10(m) Assignment Agreement between the U.S. Department of Energy, Kaiser
Engineers Hanford Company, and Westinghouse Hanford Company, with an
effective date of October 1, 1993 (Contract No. DE-A06-93RL12359)
(Incorporated by reference to Exhibit No. 10(a) to Quarterly Report on
Form 10-Q Registrant No. 1-12248 for the second quarter of fiscal 1994
filed with the Commission on October 15, 1993)
1. Modification No. 1 dated October 25, 1993 (Incorporated by reference to
Exhibit No. 10(n)(1) to Annual Report on Form 10-K Registrant No. 1-12248
filed with the Commission on May 25, 1994.)
10(n) Hanford Termination Notice effective October 1, 1996, from the U.S.
Department of Energy (Incorporated by reference to Exhibit No. 10(n) to
Registration Statement on Form S-1 Registration No. 333-19519 filed with
the Commission on January 10, 1997)
10(o) Massachusetts Water Resources Authority Agreement with ICF Kaiser
Engineers, Inc. through its wholly owned subsidiary of ICF Kaiser
Engineers of Massachusetts, Inc. for construction management services for
Boston Harbor Project--Deer Island Related Facilities, Contract No. 5622
(June 1990) (Incorporated by reference to Exhibit No. 10(h) to Quarterly
Report on Form 10-Q Registrant No. 0-18025 for the second quarter of
fiscal 1991 filed with the Commission on October 12, 1990) (Amendment
Nos. 1-3 incorporated by reference to Exhibit No. 10(n)(1-3) to Annual
Report on Form 10-K Registrant No. 0-18025 for the fiscal year ended
February 28, 1993 filed with the Commission on May 21, 1993)
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 29
<PAGE>
1. Amendment No. 4 and Amendment No. 4A each dated December 2, 1993 [IN
ACCORDANCE WITH RULE 202 OF REGULATION S-T, THIS EXHIBIT NO. 10(n)(1) to
Annual Report on Form 10-K Registrant No. 1-12248 for fiscal 1994 FILED
IN PAPER ON MAY 20, 1994, ON FORM SE PURSUANT TO A CONTINUING HARDSHIP
EXEMPTION is incorporated herein by reference thereto]
2. Amendment No. 5 dated December 6, 1994 [IN ACCORDANCE WITH RULE 202 OF
REGULATION S-T, THIS EXHIBIT NO. 10(n)(2) to Annual Report on Form 10-K
Registrant No. 1-12248 for fiscal 1995 FILED IN PAPER ON MAY 23, 1995, ON
FORM SE PURSUANT TO A CONTINUING HARDSHIP EXEMPTION is incorporated
herein by reference thereto]
3. Amendment No. 6 to the Agreement with the Massachusetts Water Resources
Authority for Construction Management Services (January 1996) (Amendment
No. 6 incorporated by reference to Exhibit No. 10(n)(3) to Quarterly
Report on Form 10-Q Registrant No. 1-12248 for the fiscal quarter ended
March 31, 1996 filed with the Commission on May 15, 1996).
10(p) Contract (#DE-AC3495RF00825) between Kaiser-Hill Company, LLC, a
subsidiary of the Corporation, and the U.S. Department of Energy dated as
of April 4, 1995. [IN ACCORDANCE WITH RULE 202 OF REGULATION S-T, THIS
EXHIBIT NO. 10(o) WAS FILED IN PAPER ON MAY 23, 1995, ON FORM SE PURSUANT
TO A CONTINUING HARDSHIP EXEMPTION is incorporated herein by reference
thereto]
1. Modifications 1 to 40 to Contract #DE-AC3495RF00825. (Incorporated by
reference to Exhibit No. 10(p)(l) to Registration Statement on Form S-1
Registration No. 333-16937 filed with the Commission on November 27,
1996)
2. Modifications 42 to 46 to Contract #DE-AC3495RF00825 (Modification 41
not received).
10(q) ICF Kaiser International, Inc. Section 401(k) Plan (as amended and
restated as of March 1, 1993) (and further amended with respect to name
change only as of June 26, 1993) (Incorporated by reference to Exhibit
No. 10(f) to Quarterly Report on Form 10-Q Registrant No. 1-12248
(Registrant No. 1-12248) for the second quarter of fiscal 1994 filed with
the Commission on October 15, 1993)
1. Amendment No. 1 dated April 24, 1995 (Incorporated by reference to
Exhibit No. 10(p)(1) to Annual Report on Form 10-K Registrant No. 1-12248
for fiscal 1995 filed with the Commission on May 23, 1995)
2. Amendment No. 2 dated December 15, 1995 (Incorporated by reference to
Exhibit No. 10(p)(2) to Transition Report on Form 10-K Registrant No. 1-
12248 for the transition period from March 1, 1995 to December 31, 1995
filed with the Commission on March 29, 1996)
3. Amendment No. 3 dated December 13, 1996 (Incorporated by reference to
Exhibit No. 10(q)(3) to Registration Statement on Form S-1 Registration
No. 333-19519 filed with the Commission on January 10, 1997)
10(r) Trust Agreement with Vanguard Fiduciary Trust Company dated as of March
1, 1989, for the ICF Kaiser International, Inc. Section 401(k) Plan
(Incorporated by reference to Exhibit No. 28(b) to Registration Statement
on Form S-8 (Registration No. 33-51460) filed with the Commission on
August 31, 1992)
Exhibit No. 10 -- Material Contracts (management contracts, compensatory plans,
or arrangements.)
10(aa) Employment Agreement with James O. Edwards dated as of December 31,
1994 (Incorporated by reference to Exhibit No. 10 (bb) to Annual Report
on Form 10-K for fiscal 1995 Registrant No. 1-12248 filed with the
Commission on May 23, 1995)
10(bb) ICF Kaiser International, Inc. Corporate Incentive Compensation Plan:
Annual Incentive Plan (dated as of September 29, 1993) (Incorporated by
reference to Exhibit No. 10(aa) to Quarterly Report on Form 10-Q
Registrant No. 1-12248 for the second quarter of fiscal 1994 filed with
the Commission on October 15, 1993)
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 30
<PAGE>
10(cc) ICF Kaiser International, Inc. Non-employee Director Stock Option Plan
(as amended and restated as of June 26, 1993) (Incorporated by reference
to Exhibit No. 10(bb) to Quarterly Report on Form 10-Q (Registrant No. 1-
12248) for the second quarter of fiscal 1994 filed with the Commission on
October 15, 1993)
10(dd) Agreement with Alvin S. Rapp, Executive Vice President of the
Registrant, dated November 1, 1993 (Incorporated by reference to Exhibit
No. 10(ll) to Amendment No. 1 to Registration Statement on Form S-1 (No.
33-70986) filed with the Commission on November 22, 1993)
10(ee) Employment Agreement with Marc Tipermas, Executive Vice President of
the Registrant, effective as of March 1, 1994 (Incorporated by reference
to Exhibit No. 10(ll) to Annual Report on Form 10-K (Registrant No. 1-
12248) filed with the Commission on May 25, 1994).
10(ff) Employment Agreement with Stephen W. Kahane, Executive Vice President
of the Registrant, effective as of March 1, 1994 (Incorporated by
reference to Exhibit No. 10(mm) to Annual Report on Form 10-K (Registrant
No. 1-12248) filed with the Commission on May 25, 1994).
10(gg) ICF Kaiser International, Inc. Senior Executive Officers Severance
Plan as approved by the Compensation Committee of the Board of Directors
on April 4, 1994, and adopted by the Board of Directors on May 5, 1994
(Incorporated by reference to Exhibit No. 10(nn) to Annual Report on Form
10-K (Registrant No. 1-12248) filed with the Commission on May 25, 1994).
10(hh) Employment Agreement with Michael K. Goldman, Executive Vice President
of the Registrant, effective as of February 28, 1994. (Incorporated by
reference to Exhibit No. 10(jj) to Annual Report on Form 10-K Registrant
No. 1-12248 for fiscal 1995 filed with the Commission on May 23, 1995).
10(ii) Employment Arrangement dated December 6, 1996, with Richard K. Nason,
Executive Vice President and Chief Financial Officer of the Registrant
10(jj) ICF Kaiser International, Inc. Stock Incentive Plan (as amended and
restated through March 1, 1996) (Incorporated by reference to Exhibit No.
10 (j) to Registration Statement on Form S-1 Registration No. 333-16937
filed with the Commission on November 27, 1996)
10(kk) Amended Employment Agreement dated as of December 1, 1996, with David
Watson, Executive Vice President and President, ICF Kaiser Engineers and
Constructors Group of the Registrant
Exhibit No. 11 -- Computation of Primary and Fully Diluted Earnings Per Share
Exhibit No. 21 -- Consolidated Subsidiaries of the Registrant as of December 31,
1996 (Incorporated by reference to Exhibit No. 21 to
Registration Statement on Form S-1 Registration No. 333-19519
filed with the Commission on January 10, 1997)
Exhibit No. 23 -- Consent of Coopers & Lybrand L.L.P.
Exhibit No. 27 -- Financial Data Schedule
(c) Reports on Form 8-K
None
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ICF Kaiser International, Inc.
(Registrant)
Date: March 25, 1997 By /s/ James O. Edwards
-------------------------
James O. Edwards,
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
(1) Principal executive officer
Date: March 25, 1997 By /s/ James O. Edwards
------------------------
James O. Edwards,
Chairman and Chief Executive Officer
(2) Principal financial and accounting officer
Date: March 25, 1997 By /s/ Richard K. Nason
------------------------
Richard K. Nason,
Executive Vice President and
Chief Financial Officer
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 32
<PAGE>
(3) Board of Directors
Date: March 25, 1997 By /s/ Tony Coelho
------------------------------
Tony Coelho,
Director
Date: March 25, 1997 By /s/ James O. Edwards
------------------------------
James O. Edwards,
Director
Date: March 25, 1997 By /s/ Maynard H. Jackson
------------------------------
Maynard H. Jackson,
Director
Date: March 25, 1997 By /s/ Thomas C. Jorling
------------------------------
Thomas C. Jorling,
Director
Date: March 25, 1997 By /s/ Hazel R. O'Leary
------------------------------
Hazel R. O'Leary,
Director
Date: March 25, 1997 By /s/ Richard K. Nason
------------------------------
Richard K. Nason,
Director
Date: March 25, 1997 By /s/ Marc Tipermas
------------------------------
Marc Tipermas,
Director
ICF Kaiser International, Inc. Report on Form 10-K
for the year ended December 31, 1996 Page 33
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders
ICF Kaiser International, Inc.
We have audited the consolidated financial statements and financial
statement schedule of ICF Kaiser International, Inc. and Subsidiaries listed in
Item 14(a) of this Form 10-K. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of ICF Kaiser
International, Inc. and Subsidiaries as of December 31, 1996 and December 31,
1995, and the consolidated results of their operations and their cash flows for
the year ended December 31, 1996, the ten months ended December 31, 1995, and
the year ended February 28, 1995, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
Washington, DC
February 28, 1997
- --------------------------------------------------------------------------------
F-1
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
=============================================================================================
December 31,
-------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------
(In thousands, except shares)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 16,761 $ 16,357
Contract receivables, net 223,278 228,239
Prepaid expenses and other current assets 27,096 20,911
Deferred income taxes 9,739 11,934
-------- --------
Total Current Assets 276,874 277,441
-------- --------
Fixed Assets
Furniture, equipment, and leasehold improvements 48,410 42,909
Less depreciation and amortization (37,208) (33,369)
-------- --------
11,202 9,540
-------- --------
Other Assets
Goodwill, net 49,699 49,259
Investments in and advances to affiliates 6,443 10,213
Due from officers and employees 716 1,053
Other 21,039 22,011
-------- --------
77,897 82,536
-------- --------
$365,973 $369,517
======== ========
Liabilities and Shareholders' Equity
Current Liabilities
Current portion of long-term debt $ 43 $ 5,041
Accounts payable and subcontractors payable 67,679 86,429
Accrued salaries and employee benefits 45,779 53,060
Accrued interest 47 7,414
Other accrued expenses 21,479 18,594
Income taxes payable 852 801
Deferred revenue 21,829 14,327
Other 5,268 7,186
-------- --------
Total Current Liabilities 162,976 192,852
-------- --------
Long-term Liabilities
Long-term debt, less current portion 156,519 120,112
Other 5,432 5,706
-------- --------
161,951 125,818
-------- --------
Commitments and Contingencies
Minority Interests in Subsidiaries 6,154 2,633
Redeemable Preferred Stock,
liquidation value $20,000 - 19,787
Common Stock, par value $.01 per share:
Authorized-90,000,000 shares
Issued and outstanding- 22,311,842 and 21,263,828 shares 223 213
Additional Paid-in Capital 66,983 64,654
Notes Receivable Related to Common Stock (1,732) (1,732)
Retained Earnings (Deficit) (29,238) (32,894)
Cumulative Translation Adjustment (1,344) (1,814)
-------- --------
$365,973 $369,517
======== ========
=============================================================================================
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
=======================================================================================================================
Year Ten Months Year
Ended Ended Ended
December 31, December 31, February 28,
1996 1995 1995
- -----------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Gross Revenue $ 1,248,443 $ 916,744 $ 861,518
Subcontract and direct material costs (720,342) (493,971) (405,819)
Equity in income of joint ventures
and affiliated companies 4,015 3,123 4,087
----------- ---------- ----------
Service Revenue 532,116 425,896 459,786
Operating Expenses
Direct cost of services and overhead 437,635 353,477 393,096
Administrative and general 62,953 47,057 43,770
Depreciation and amortization 10,348 8,357 9,232
Unusual items, net - (500) -
----------- ---------- ----------
Operating Income 21,180 17,505 13,688
Other Income (Expense)
Gain on sale of investment 9,384 - 551
Interest income 1,254 2,053 1,799
Interest expense (17,334) (13,255) (14,799)
----------- ---------- ----------
Income Before Income Taxes and Minority Interests 14,484 6,303 1,239
Income tax provision 2,607 2,091 2,900
----------- ---------- ----------
Income (Loss) Before Minority Interests 11,877 4,212 (1,661)
Minority interests in net income of subsidiaries 6,043 1,960 -
----------- ---------- ----------
Net Income (Loss) 5,834 2,252 (1,661)
Preferred stock dividends and accretion 2,178 1,803 2,154
----------- ---------- ----------
Net Income (Loss) Available for Common Shareholders $ 3,656 $ 449 $ (3,815)
=========== ========== ==========
Primary and Fully Diluted
Net Income (Loss) Per Common Share $ 0.17 $ 0.02 $ (0.18)
=========== ========== ==========
Primary and Fully Diluted Weighted Average
Common and Common Equivalent
Shares Outstanding 22,062 21,517 20,957
=========== ========== ==========
=======================================================================================================================
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
============================================================================================================================
Notes
Receivable
Common Stock Additional Related to Retained Cumulative
-------------------- Paid-in Common Earnings Translation
Shares Par Value Capital Stock (Deficit) Adjustment
- ----------------------------------------------------------------------------------------------------------------------------
(In thousands, except shares)
<S> <C> <C> <C> <C> <C> <C>
Balance, March 1, 1994 20,924,588 $ 209 $ 63,572 $ (1,732) $ (29,528) $ (1,741)
Net loss - - - - (1,661) -
Preferred stock dividends - - - - (1,950) -
Preferred stock accretion - - - - (204) -
Issuances of common stock 161,781 2 393 - - -
Reacquisition of
common stock (75,000) (1) (179) - - -
Foreign currency translation
adjustment - - - - - 444
---------- --------- ---------- ---------- ---------- ----------
Balance, February 28, 1995 21,011,369 210 63,786 (1,732) (33,343) (1,297)
Net income - - - - 2,252 -
Preferred stock dividends - - - - (1,633) -
Preferred stock accretion - - - - (170) -
Issuances of common stock 314,422 4 1,167 - - -
Reacquisition of
common stock (61,963) (1) (256) - - -
Foreign currency translation
adjustment - - - - - (517)
Other - - (43) - - -
---------- --------- ---------- ---------- ---------- ----------
Balance, December 31, 1995 21,263,828 213 64,654 (1,732) (32,894) (1,814)
Net income - - - - 5,834 -
Preferred stock dividends - - - - (1,965) -
Preferred stock accretion - - - - (213) -
Issuances of common stock 1,153,014 11 2,650 - - -
Reacquisition of
common stock (105,000) (1) (426) - - -
Foreign currency translation
adjustment - - - - - 470
Other - - 105 - - -
---------- --------- ---------- ---------- ---------- ----------
Balance, December 31, 1996 22,311,842 $ 223 $ 66,983 $ (1,732) $ (29,238) $ (1,344)
========== ========= ========== ========== ========== ==========
===========================================================================================================================
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
=================================================================================================================================
Year Ten Months Year
Ended Ended Ended
December 31, December 31, February 28,
1996 1995 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands)
Operating Activities
Net income (loss) $ 5,834 $ 2,252 $ (1,661)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 10,348 8,357 9,232
Provision for losses on contract receivables 1,881 601 1,320
Provision for deferred income taxes 2,127 1,253 2,500
Earnings less than (in excess of) cash distributions from
joint ventures and affiliated companies (374) (1,105) 972
Minority interests in net income of subsidiaries 6,043 1,960 -
Gain on sale of investment (9,384) - (551)
Unusual items, net 500 (500) -
Changes in operating assets and liabilities,
net of acquisitions and dispositions:
Contract receivables, net 2,638 (88,743) (13,014)
Prepaid expenses and other current assets 1,843 (3,826) 4,471
Other assets (833) (4,953) (1,268)
Accounts payable and accrued expenses (24,781) 78,801 2,218
Income taxes payable (315) 157 297
Deferred revenue 7,727 3,314 2,551
Other liabilities (2,202) (3,625) (5,103)
Other operating activities 156 - 219
---------- ----------- ------------
Net Cash Provided by (Used in) Operating Activities 1,208 (6,057) 2,183
---------- ----------- ------------
Investing Activities
Investments in subsidiaries and affiliates, net of cash acquired (1,317) (2,010) (622)
Sales of subsidiaries and subsidiary assets - 735 2,600
Purchases of fixed assets (4,932) (1,759) (2,426)
Sales of fixed assets 22 1,035 -
Other investing activities - - (600)
---------- ----------- ------------
Net Cash Used in Investing Activities (6,227) (1,999) (1,048)
---------- ----------- ------------
Financing Activities
Borrowings under credit facility 114,000 16,000 5,000
Principal payments on credit facility and other borrowings (98,500) (17,173) (1,172)
Proceeds from issuance of senior notes and related warrants 14,700 - -
Repurchase of preferred stock (20,000) - -
Repurchases of redeemable preferred stock of subsidiary - - (799)
Distribution of income to minority interest (2,428) - -
Subsidiary capital contribution from minority interest - 500 -
Proceeds from issuances of common stock 383 406 395
Repurchases of common stock - (257) (180)
Preferred stock dividends (2,615) (1,471) (1,950)
Debt issuance costs (1,427) - (149)
Other financing activities 924 (1,308) -
---------- ----------- ------------
Net Cash Provided by (Used in) Financing Activities 5,037 (3,303) 1,145
---------- ----------- ------------
Effect of Exchange Rate Changes on Cash 386 (517) 444
---------- ----------- ------------
Increase (Decrease) in Cash and Cash Equivalents 404 (11,876) 2,724
Cash and Cash Equivalents at Beginning of Period 16,357 28,233 25,509
---------- ----------- ------------
Cash and Cash Equivalents at End of Period $ 16,761 $ 16,357 $ 28,233
========== =========== ============
=================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Nature of Operations
- ------------------------
ICF Kaiser International, Inc. and subsidiaries (the Company) provides
engineering, construction, program management, and consulting services primarily
to the public and private environmental, infrastructure, industry, and energy
markets domestically and internationally.
2. Significant Accounting Policies
- -----------------------------------
Principles of Consolidation: The consolidated financial statements include all
subsidiaries (including Kaiser-Hill Company, LLC, effective July 1, 1995) that
are controlled by ICF Kaiser International, Inc. Certain of the Company's
consolidated subsidiaries are owned partially by outside parties. For financial
reporting purposes, the assets, liabilities, results of operations, and cash
flows of these subsidiaries are included in the Company's consolidated financial
statements and the outside parties' interests are reflected as minority
interests. Investments in unconsolidated joint ventures and affiliated companies
are accounted for using the equity method. The difference between the carrying
value of investments accounted for under the equity method and the Company's
underlying equity is amortized on a straight-line basis over the lives of the
underlying assets. All significant intercompany balances and transactions have
been eliminated.
Significant Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities (see Note 7) at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
In 1996, the Company accelerated the procedures for obtaining approval from the
U.S. government for the Company's actual costs incurred in current periods. As a
result, in 1996, the Company's consulting group was able to accelerate its
process of billing on certain cost-reimbursement contracts. The net effect of
this accelerated process is the recognition of an additional $3.3 million of
operating income in 1996.
Change in Fiscal Year: The Company changed from a fiscal year ending February 28
to a fiscal year ending December 31, effective December 31, 1995. As a result,
the accompanying consolidated financial statements include operations for the
year ended December 31, 1996, the ten months ended December 31, 1995, and the
year ended February 28, 1995.
Revenue Recognition: Revenue is recorded on cost-type contracts as costs are
incurred. Revenue on time-and-materials contracts is recognized to the extent of
billable rates times hours delivered plus materials expense incurred. Revenue on
long-term, fixed-priced contracts is recognized generally using the
percentage-of-completion method and, therefore, includes a proportion of
expected earnings based on costs incurred to total estimated costs.
On certain contracts, revenue includes a proportion of the expected base fee and
performance-based incentive fees by contract year. Performance-based incentive
fees are based on actual performance compared to established targets and are
recorded when the amounts can be reasonably determined or are awarded.
Established incentive fees are reviewed as the work progresses and the effect of
any change on estimated fees recorded is recognized in the period in which the
change is determined.
F-6
<PAGE>
Foreign Currency Translation: Results of operations for foreign entities are
translated using the average exchange rates during the period. Assets and
liabilities are translated to U.S. dollars using the exchange rate in effect at
the balance sheet date. Resulting translation adjustments are reflected in
shareholders' equity as cumulative translation adjustment.
Cash Equivalents and Restricted Cash: The Company considers all highly liquid
financial instruments purchased with original maturities of three months or less
to be cash equivalents. Other assets as of December 31, 1996 and 1995, included
$600,000 of restricted cash in a short-term investment, which supported a letter
of credit for one of the Company's subsidiaries.
Fixed Assets: Furniture and equipment are carried at cost, or fair value at
acquisition if acquired through a purchase of a business, and are depreciated
using the straight-line method over their estimated useful lives ranging from
three to ten years. Leasehold improvements are carried at cost and are amortized
using the straight-line method over the remaining lease terms.
Goodwill: Goodwill represents the excess of cost over the fair value of the net
assets of acquired businesses and is amortized using the straight-line method
over periods ranging from five to 40 years. The Company evaluates the
recoverability of goodwill on an annual basis by comparison to estimated future
undiscounted cash flows from operations. Accumulated amortization was
$15,079,000 and $12,785,000 at December 31, 1996 and 1995, respectively.
Income Taxes: The Company provides for deferred income taxes using the liability
method on temporary differences between financial reporting and income tax
reporting, which primarily relate to reserves for adjustments and allowances.
The Company records a valuation allowance for deferred tax assets that are not
currently assured of realization. The most significant permanent differences
between book and taxable income are nondeductible goodwill amortization,
minority interest earnings of a consolidated subsidiary, foreign taxes, and
nondeductible business meals and entertainment expenses.
Income taxes have not been provided for the undistributed earnings of the
Company's foreign subsidiaries because the Company intends to continue the
operations and reinvest the undistributed earnings indefinitely. Undistributed
earnings of foreign subsidiaries for which income taxes have not been provided
amounted to approximately $6.8 million at December 31, 1996.
Net Income (Loss) Per Common Share: Net income per common share for the year
ended December 31, 1996, was computed under the treasury stock method using net
income available for common shareholders and the weighted average number of
common stock and common stock equivalents outstanding during the year. Net
income (loss) per common share for the ten months ended December 31, 1995, and
the year ended February 28, 1995, was computed using net income (loss) available
for common shareholders, as adjusted under the modified treasury stock method,
and the weighted average number of common stock and common stock equivalents
outstanding during the periods presented. Common stock equivalents include stock
options and warrants and additional shares which will be or may be issued in
connection with acquisitions. The adjustments required by the modified treasury
stock method and for acquisition-related contingencies under both methods were
anti-dilutive for the loss period presented and immaterial to the income periods
presented. Therefore, the adjustments were excluded from earnings per share
computations for all periods presented.
F-7
<PAGE>
Concentrations of Credit Risk: The Company maintains cash balances primarily in
overnight Eurodollar deposits, investment-grade commercial paper, bank
certificates of deposit, and U.S. government securities. The Company grants
uncollateralized credit to its customers. Approximately 61% of the Company's
contract receivables at December 31, 1996, are from the U.S. government (see
Note 4). When practical and in order to mitigate its credit risk to commercial
customers, the Company obtains advance funding of costs for industrial
construction work.
Long-Lived Assets: The Financial Accounting Standards Board (FASB) recently
issued Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of long-lived Assets and for long-lived Assets to Be Disposed Of"
(SFAS No. 121), effective for financial statements for fiscal years beginning
after December 15, 1995. Prior to the formal adoption of SFAS No. 121, it was
the Company's policy to evaluate all long-lived assets on a periodic basis for
asset impairment. Therefore, the adoption of this statement had no material
adverse effect on the Company's financial position or operations.
Stock-based Compensation: The FASB also recently issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-based Compensation" (SFAS
No. 123), which encourages companies to adopt a fair value method of accounting
for employee stock options and similar equity instruments. The fair value method
requires compensation cost to be measured at the grant date based on the value
of the award and recognized over the service period. Alternatively, SFAS No. 123
requires pro forma disclosures of net income and earnings per share as if the
fair value method had been adopted. The Company has elected to provide pro forma
disclosures for stock-based compensation (see Note 12). Therefore, the adoption
of SFAS No. 123 did not have any effect on the Company's financial position or
results of operations.
Reclassifications: Certain reclassifications have been made to the prior period
financial statements to conform to the presentation used in the December 31,
1996, financial statements.
3. Divestitures
- ----------------
In December 1996, the Company sold the majority of its investment in Gary PCI
Ltd. L.P. and a related entity, and certain related contractual rights, for
$16.6 million resulting in a $9.4 million pretax gain. These entities owned and
operated a pulverized coal injection facility. The buyer has an option to
purchase the remaining equity investment for $2.4 million in January 1998. The
sales price is included in other current assets in the accompanying balance
sheet as of December 31, 1996; the sales proceeds were received on January 2,
1997, and were reinvested in the Company's business.
The Company sold a 20% interest in a subsidiary during the year ended
February 28, 1995, resulting in a $551,000 pretax gain.
F-8
<PAGE>
4. Contract Receivables
- ------------------------
Contract receivables consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------
1996 1995
----------- ----------
<S> <C> <C>
U.S. government agencies:
Currently due $ 30,322 $ 23,980
Retention 4,041 1,870
Unbilled 107,051 126,072
----------- ----------
141,414 151,922
=========== ==========
Commercial clients and state and municipal governments:
Currently due 61,255 54,500
Retention 4,855 5,361
Unbilled 25,204 25,891
----------- ----------
91,314 85,752
----------- ----------
232,728 237,674
Less allowances for uncollectible receivables 9,450 9,435
----------- ----------
$ 223,278 $ 228,239
=========== ==========
</TABLE>
U.S. government receivables arise from U.S. government prime contracts and
subcontracts. Unbilled receivables result from revenue that has been earned but
had not been billed as of the end of the period. The unbilled receivables can be
invoiced at contractually defined intervals and milestones, as well as upon
completion of the contract or the U.S. government cost audit. Generally,
retention is not expected to be realized within one year; consistent with
industry practice, these receivables are classified as current. Unbilled
receivables include $2.0 million in fees awarded to the Company, and then
subsequently withheld by the U.S. government. The Company believes it has valid
claims for the $2.0 million in fees that remain unpaid, although recovery of
such amounts may take more than one year. The Company anticipates that the
remaining unbilled receivables will be substantially billed and collected within
one year.
5. Joint Ventures and Affiliated Companies
- -------------------------------------------
The Company has ownership interests in certain unconsolidated corporate joint
ventures and affiliated companies. The Company's net investments in and advances
to these corporate joint ventures and affiliated companies are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
Ownership
Interest at December 31,
December 31, ------------------------------------
1996 1996 1995
----------------- ------------------ ----------------
<S> <C> <C> <C>
Gary PCI Ltd. L.P. 1% $ 1,382 $ 5,257
French Environmental Holdings L.L.C 49% 1,147 -
Other 20% to 50% 3,914 4,956
------------ ------------
$ 6,443 $ 10,213
============ ============
</TABLE>
F-9
<PAGE>
The Company had a 50% ownership interest in Gary PCI Ltd. L.P. at December 31,
1995. Upon the sale of the majority of the Company's investment in December
1996, the ownership interest was reduced to 1% (see Note 3).
Combined summarized financial information of all of the Company's unconsolidated
corporate joint ventures and affiliated companies is as follows (in thousands):
<TABLE>
<CAPTION>
December 31, December 31, February 28,
1996 1995 1995
------------ ----------- -----------
<S> <C> <C> <C>
Current assets $ 26,623 $ 19,082 $ 15,103
Non-current assets 34,430 42,400 12,723
Current liabilities 27,613 31,703 15,875
Non-current liabilities 53 446 55
Gross revenue 28,742 41,262 52,616
Net income 11,930 6,606 8,430
</TABLE>
6. Long-term Debt
- ------------------
The Company's long-term debt is as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
12% Senior Subordinated Notes due 2003 $ 124,500 $ 123,550
12% Senior Notes due 2003, Series A 15,000 -
Revolving credit facility (interest at 8.6%
at December 31, 1996) 20,500 5,000
Other notes, with interest at varying rates,
payable in installments through 1997 43 92
----------- -----------
160,043 128,642
Less unamortized discount 3,481 3,489
----------- -----------
156,562 125,153
Less current maturities 43 5,041
----------- -----------
$ 156,519 $ 120,112
=========== ===========
</TABLE>
Scheduled maturities of long-term debt outstanding at December 31, 1996, are as
follows: $43,000 in 1997, $20,500,000 in 1998 (under the revolving credit
facility), and $139,500,000 in 2003.
On December 23, 1996, the Company issued (through a private placement) 15,000
Units, each Unit consisting of $1,000 principal amount of the Company's 12%
Senior Notes due 2003, Series A (Series A Senior Notes), and 7 warrants, each to
purchase one share of the Company's common stock at an exercise price of $2.30
per share. The warrants expire on December 31, 1999, and additional warrants may
be issued under certain anti-dilution provisions. Payment of the principal,
premium, if any, and interest on the Series A Senior Notes are unconditionally
guaranteed by four wholly owned subsidiaries of ICF Kaiser International, Inc.
Of the net issue price of $14.7 million ($15.0 million less a $0.3 million
discount), $0.1 million was allocated to the 105,000 warrants and $14.6 million
to the Series A Senior Notes. The interest rate on the Series A Senior Notes
will be 13% until the Company achieves and maintains a specified level of
earnings (see Note 9).
F-10
<PAGE>
In January 1997, the Company registered $15.0 million of 12% Senior Notes due
2003, Series B (Series B Senior Notes) with the U.S. Securities and Exchange
Commission (SEC). In February 1997, the Company initiated an exchange offer to
all existing holders of Series A Senior Notes to exchange the Series A Senior
Notes for Series B Senior Notes. The Company expects the exchange to be
completed in March 1997. The terms of the Series B Senior Notes are
substantially identical (including principal amount, interest rate, and
maturity) to the terms of the Series A Senior Notes.
On January 11, 1994, the Company issued 125,000 Units, each Unit consisting of
$1,000 principal amount of the Company's 12% Senior Subordinated Notes due 2003
(Subordinated Notes) and 4.8 warrants, each to purchase one share of the
Company's common stock at an exercise price of $5.00 per share. The warrants
expire on December 31, 1998, and additional warrants may be issued under certain
anti-dilution provisions. Of the net issue price of $121.5 million ($125.0
million less a $3.5 million discount), $0.9 million was allocated to the 600,000
warrants and $120.6 million to the 12% Notes. The Company's insurance subsidiary
purchased 1,450 of the Units for $1.4 million in November 1995 and 50 of the
Units for $46,000 in January 1996. In October 1996, this insurance subsidiary
sold 1,000 of the Units for $1.0 million. In March 1996, the interest rate on
the Subordinated Notes was increased by 1% until the Company achieves and
maintains a specified level of earnings (see Note 9). The Company's obligations
under the Subordinated Notes are subordinate to its obligations under the
Company's revolving credit facility and the Series A and B Senior Notes.
Interest payments are due semiannually on the Series A Senior Notes and the
Subordinated Notes (collectively, the Notes). The Notes may not be prepaid at
the Company's option prior to December 31, 1998. Subsequent to that date, the
Company may prepay the Notes at a premium. The Indentures governing the Notes
contain business and financial covenants, including restrictions on additional
indebtedness, dividends, acquisitions and certain types of investments, and
asset sales. At December 31, 1996, the fair value of the Series A Senior Notes
and Subordinated Notes was approximately $14.7 million and $118.9 million,
respectively. The fair value was computed using an average of recently quoted
market prices obtained from financial institutions. Net debt issuance costs of
$4.6 million and $3.8 million associated with the Notes are classified as other
assets at December 31, 1996 and 1995, respectively, in the accompanying
consolidated balance sheets. These costs and the discounts on the Notes are
being amortized over the term of the Notes.
The Company's $40 million revolving credit facility became effective May 7,
1996, replacing the then-existing credit facility which was due to expire on
October 31, 1996. The credit facility is provided by CoreStates Bank, N.A., as
agent bank, and two other banks (collectively, the Banks) with terms and
covenants similar to those under the former credit facility. ICF Kaiser
International, Inc. and certain of its subsidiaries, which are guarantors of the
credit facility (Guarantors), have granted the Banks a security interest in
their accounts receivable and certain other assets. The credit facility limits
the payments of cash dividends on common stock, prohibits the issuance of
certain types of additional indebtedness, limits certain investments and
acquisitions, and requires the maintenance of specified financial ratios. Total
available credit is determined from a borrowing base calculation based on
eligible accounts receivable (billed and unbilled). The Company and the Banks
entered into an amendment in December 1996 that permitted the issuance of the
Series A Senior Notes and provided for a $5.0 million temporary overadvance of
additional borrowings that could be used for the redemption or repurchase of the
Company's Series 2D Senior Preferred Stock (see Note 9). The amendment also
modified certain financial covenants and obligated the Company and the
Guarantors to pledge the stock of certain domestic and foreign subsidiaries to
the Banks.
F-11
<PAGE>
Due to the timing of additional borrowings made under the credit facility in
connection with the repurchase of the preferred stock, the Company was not in
compliance with one of the financial ratios at December 31, 1996. The Banks,
however, granted a waiver of the requirement in January 1997 for December 31,
1996. The additional borrowings used to repurchase the preferred stock were
repaid and the provision for additional capacity was terminated in January 1997.
The credit facility contains Eurodollar and other base interest rate
alternatives with margins dependent upon the Company's financial operating
results, and expires on June 30, 1998. As of December 31, 1996, the Company had
$20.5 million in cash borrowings and $21.1 million of letters of credit
outstanding under the credit facility. The letters of credit outstanding under
the credit facility generally are required to support performance guarantees,
primarily on international projects. As of December 31, 1996, the Company had
$3.4 million of additional credit available under the credit facility.
One of the Company's subsidiaries has a $50 million receivables purchase
facility to support its working capital requirements under a U.S. Department of
Energy contract. The receivables purchase facility contains certain program
fees, requires the subsidiary to maintain a specified tangible net worth, and
contains certain letter of credit and default provisions for delinquent
receivables. The receivables purchase facility expires on June 30, 1998, and is
non-recourse to ICF Kaiser International, Inc. and its other consolidated
subsidiaries.
There are 275,088 common stock warrants outstanding in connection with a debt
issuance that was repurchased in January 1994. The warrants expire on May 15,
1999, and are exercisable at any time for shares of the Company's common stock
at $6.87 per share. Additional warrants may be required to be issued and the
warrant price adjusted under certain anti-dilution provisions.
7. Contingencies
- -----------------
In the course of the Company's normal business activities, various claims or
charges have been asserted and litigation commenced against the Company arising
from or related to properties, injuries to persons, and breaches of contract, as
well as claims related to acquisitions and dispositions. Claimed amounts may not
bear any reasonable relationship to the merits of the claim or to a final court
award. In the opinion of management, an adequate reserve has been provided for
final judgments, if any, in excess of insurance coverage, that might be rendered
against the Company in such litigation.
The Company may from time to time, either individually or in conjunction with
other government contractors operating in similar types of businesses, be
involved in U.S. government investigations for alleged violations of procurement
or other federal laws and regulations. The Company currently is the subject of a
number of U.S. government investigations and is cooperating with the responsible
government agencies involved. No charges presently are known to have been filed
against the Company by these agencies. Management does not believe that there
will be any material adverse effect on the Company's financial position, results
of operations, or cash flows as a result of these investigations.
F-12
<PAGE>
The Company has a substantial number of cost-reimbursement contracts with the
U.S. government, the costs of which are subject to audit by the U.S. government.
As a result of pending audits related to fiscal years 1986 forward, the
government has asserted, among other things, that certain costs claimed as
reimbursable under government contracts either were not allowable or not
allocated in accordance with federal procurement regulations. The Company is
actively working with the government to resolve these issues. The Company has
provided for its estimate of the potential effect of issues that have been
quantified, including its estimate of disallowed costs for the periods currently
under audit and for periods not yet audited. Many of the issues, however, have
not been quantified by the government or the Company, and others are qualitative
in nature, and their potential financial impact, if any, is not quantifiable by
the government or the Company at this time. This provision will be reviewed
periodically as discussions with the government progress.
8. Income Taxes
- ----------------
The components of income (loss) before income taxes and minority interests and
the related provision (benefit) for income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ten Months Year
Ended Ended Ended
December 31, December 31, February 28,
1996 1995 1995
----------- ----------- -----------
<S> <C> <C> <C>
Income (loss) before income taxes
and minority interests:
Domestic $ 13,900 $ 7,419 $ 1,217
Foreign 584 (1,116) 22
--------- ---------- ---------
$ 14,484 $ 6,303 $ 1,239
========= ========== =========
Provision (benefit) for income taxes:
Federal:
Current $ - $ 171 $ 120
Deferred 1,660 2,020 2,328
--------- ---------- ---------
1,660 2,191 2,448
--------- ---------- ---------
State:
Current 55 258 100
Deferred 864 293 172
--------- ---------- ---------
919 551 272
--------- ---------- ---------
Foreign:
Current 425 409 180
Deferred (397) (1,060) -
--------- ---------- ---------
28 (651) 180
--------- ---------- ---------
$ 2,607 $ 2,091 $ 2,900
========= ========== =========
</TABLE>
F-13
<PAGE>
The tax effects of the principal temporary differences and carryforwards that
give rise to the Company's deferred tax asset (net) are as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1995
------------- --------------
<S> <C> <C>
Reserves for adjustments and allowances $ 8,043 $ 8,984
Gain on sale of investment (5,011) -
Vacation and incentive compensation accruals 4,514 6,655
Tax credit carryforwards 2,522 2,077
Net operating loss carryforwards 1,111 711
Unbilled revenue (1,082) -
Joint ventures (572) (1,969)
Litigation settlement - (2,676)
Other 1,444 1,482
----------- ------------
10,969 15,264
Valuation allowance (1,230) (3,330)
----------- ------------
$ 9,739 $ 11,934
=========== ============
</TABLE>
Because of reported losses for the year ended February 28, 1994, the Company
established a $3.3 million valuation allowance. The Company's gain on the sale
of an investment (see Note 3) in 1996 will generate substantial taxable income.
As a result, the Company has partially reversed the valuation allowance on
deferred tax assets. The partial reversal reduced tax expense by $2.1 million
for the year ended December 31, 1996. The remaining valuation allowance as of
December 31, 1996, is for foreign tax benefits not currently assured of
realization.
At December 31, 1996, the Company had deferred tax assets of $1.1 million
related to net operating loss carryforwards, of which $0.7 million expire within
the next five years and $0.4 million expire in 2008 and 2009. Additionally, the
Company had deferred tax assets of $2.5 million related to tax credit
carryforwards, of which $0.8 million has an indefinite life, and $1.7 million
expires between 1998 and 2009. The Company believes that expected levels of
pretax earnings, when adjusted for nondeductible expenses such as goodwill
amortization, will generate sufficient future taxable income to realize the $9.7
million deferred tax asset (net) within the next five years.
F-14
<PAGE>
The effective income tax rate varied from the federal statutory income tax rate
because of the following differences:
<TABLE>
<CAPTION>
Year Ten Months Year
Ended Ended Ended
December 31, December 31, February 28,
1996 1995 1995
----------- ----------- -----------
<S> <C> <C> <C>
Statutory tax rate 35.0 % 34.0 % 34.0 %
----------- ----------- -----------
Change in tax rate from:
Goodwill amortization 6.9 11.7 69.9
Minority interest earnings of
a consolidated subsidiary (14.6) (11.0) -
Differences between book and
tax basis of businesses sold - - 7.4
State income taxes 4.1 5.8 14.5
Foreign taxes (2.9) (9.2) 67.8
Valuation allowance (14.5) - -
Business meals, entertainment, and dues 3.1 5.1 30.9
R&D credits - (5.5) -
Subsidiary preferred dividends - - 1.9
Adjustment of prior years' accruals - 2.1 3.8
Other 0.9 0.2 3.8
----------- ----------- -----------
(17.0) (0.8) 200.0
----------- ----------- -----------
18.0 % 33.2 % 234.0 %
=========== =========== ===========
</TABLE>
One of the Company's consolidated subsidiaries, Kaiser-Hill Company, LLC
(Kaiser-Hill), is a flow-through entity for tax purposes and is owned partially
by an outside party. Accordingly, the provision for income taxes in the
accompanying financial statements was computed based on the Company's taxable
share of Kaiser-Hill's income. The tax rate effect of the outside party's share
of income is reflected above as minority interest earnings of a consolidated
subsidiary. Kaiser-Hill began operations during the ten months ended December
31, 1995.
The tax provision for the year ended February 28, 1995, reflects the deemed
dividend from the repatriation of overseas funds to the United States that, at
that time, could not then be offset by foreign tax credits. For the past several
years, the Company has had ongoing negotiations, filings, and litigation with
the Internal Revenue Service (IRS) related to settlement of its tax liabilities
and the liabilities associated with affiliates of acquired companies. During the
year ended February 28, 1995, the Company's 1989 through 1992 tax returns were
accepted as filed, resulting in the receipt of refunds from the IRS with
interest. An agreement also was reached with the IRS as to the amount of
interest owed in connection with previously settled years (1977-1986). The
overall impact on pretax earnings for the year ended February 28, 1995, was a
reduction of net interest expense of $1.3 million related to interest refunds.
F-15
<PAGE>
9. Preferred Stock
- -------------------
Preferred Stock of the Company is as follows (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------
1996 1995
------------ -----------
<S> <C> <C>
Series 2D Senior Preferred Stock, par value
$0.01 per share; liquidation value $20,000;
200 shares designated, issued, and outstanding $ - $ 20,000
Less unamortized discount, warrant value, and issue costs - (213)
----------- -----------
$ - $ 19,787
=========== ===========
</TABLE>
Series 2D Senior Preferred Stock: The Series 2D Senior Preferred Stock (Series
2D Preferred Stock) together with five-year detachable warrants (Series 2D
Warrants) were issued in January 1992 for a price of $20,000,000 (less a
discount of $100,000). The warrants were exercisable for 2,680,952 shares of
common stock. Of the net price of $19,900,000, $400,000 was allocated to the
value of the warrants and $19,500,000 was allocated to the value of the stock.
The value of the Series 2D Preferred Stock was reduced further by issue costs.
The Series 2D Preferred Stock was subject to mandatory redemption at liquidation
value on January 13, 1997. The Series 2D Preferred Stock and Series 2D Warrants
were repurchased in December 1996 for $20 million.
Dividends on the Series 2D Preferred Stock were $9,750 per share per annum,
cumulative. Because of technical limitations on the payment of dividends
contained in the Indenture governing the Company's Subordinated Notes (see Note
6), the Company did not pay the November 30, 1995, and February 29, 1996,
accrued dividends in the aggregate amount of $975,000. Dividends in arrears at
December 31, 1995, were $487,500. In March 1996, the Company and the holders of
the Subordinated Notes amended the Indenture governing the Subordinated Notes to
permit payment of all accrued but unpaid dividends (which then were paid) and
all future dividends. As consideration for this amendment, the interest rate on
the Subordinated Notes was increased by 1% from March 1996 until the Company
achieves and maintains a specified level of earnings.
Junior Preferred Stock: The Company has authorized 200 shares of Series 1 Junior
Convertible Preferred Stock, par value $0.01 per share, with a liquidation value
of $20,000,000 and 500,000 shares of Series 4 Junior Preferred Stock, par value
$0.01 per share, with a liquidation value of $500,000. There were no shares
issued or outstanding on either series as of December 31, 1996 and 1995.
10. Common Stock
- -----------------
Notes Receivable Related to Common Stock: Notes receivable related to the
Company's common stock are promissory notes from certain current and former
members of senior management in accordance with their employment arrangements
with the Company. These notes are collateralized by shares of the Company's
common stock.
F-16
<PAGE>
Shareholder Rights Plan: The Shareholder Rights Plan (Rights Plan) is designed
to provide the Board of Directors (the Board) with the ability to negotiate with
a person or group that might, in the future, make an unsolicited attempt to
acquire control of the Company, whether through the accumulation of shares in
the open market or through a tender offer that does not offer an adequate price.
The Rights Plan provides for one Right (Right) for each outstanding share of the
Company's common stock. Each right entitles the holder to purchase 1/100 of a
share of Series 4 Junior Preferred Stock at a purchase price of $50. The Rights
generally may cause substantial dilution to a person or group that attempts to
acquire the Company on terms not approved by the Board. The Rights should not
interfere with any merger or other business combination approved by the Board
because the Board may, at its option, following the acquisition by any person or
group of 20% of the outstanding shares of the Company's common stock, redeem the
Rights upon payment of the redemption price of $0.01 per Right. Unless redeemed
earlier by the Board, unexercised Rights expire on January 13, 2002.
Other: At December 31, 1995, the Company was obligated to issue 396,167 shares
of the Company's common stock pursuant to an agreement with a former employee.
Accordingly, this liability has been recognized in the accompanying financial
statements. The shares were issued in March 1996. Of these shares, a total of
220,000 are being held by the Company pursuant to a pledge agreement as security
for an amount receivable from the former employee.
11. Leases
- -----------
Future minimum payments on noncancelable operating leases for office space and
on other noncancelable operating leases with initial or remaining terms in
excess of one year are as follows on December 31, 1996 (in thousands):
<TABLE>
<S> <C>
1997 $ 25,336
1998 22,320
1999 19,130
2000 14,664
2001 10,232
Thereafter 11,951
---------
$ 103,633
=========
</TABLE>
The total rental expense for all operating leases was $31,686,000, $24,950,000,
and $31,176,000 for the year ended December 31, 1996, the ten months ended
December 31, 1995, and the year ended February 28, 1995, respectively. Sublease
rental income was $3,887,000, $3,189,000, and $3,944,000 for the year ended
December 31, 1996, the ten months ended December 31, 1995, and the year ended
February 28, 1995, respectively. Minimum future sublease rentals to be received
under noncancelable subleases during 1997, 1998, 1999, and 2000 are
approximately $2,860,000, $2,574,000, $2,511,000, and $1,137,000, respectively.
F-17
<PAGE>
12. Stock-based Compensation
- -----------------------------
As of December 31, 1996, the Company has three fixed stock option plans and an
employee stock purchase plan (together, the Stock Plans).
Fixed Stock Option Plans: The ICF Kaiser International, Inc. Stock Incentive
Plan (Incentive Plan) provides for the issuance of options, stock appreciation
rights, restricted shares, and restricted stock units of up to an aggregate of
6,000,000 shares of the Company's common stock. Awards are made to employees of
the Company at the discretion of the Compensation Committee of the Board
(Committee). The vesting period for each grant is determined by the Committee;
however, grants generally vest in equal installments over four years. At
December 31, 1996, 2,191,000 shares were available for the granting of options
under this plan.
The ICF Kaiser International, Inc. Non-Employee Directors Stock Option Plan
(Non-Employee Plan) provides that each director of the Company who is not an
employee of the Company or a subsidiary of the Company receive an option to
purchase 3,000 shares of the Company's common stock for each year of service.
Options granted under this plan become fully exercisable at the close of
business following the date of grant. The Non-Employee Plan does not specify a
maximum number of shares for which options may be granted. As of December 31,
1996, there are 135,000 shares of common stock reserved for issuance upon the
exercise of options granted under this plan, of which 87,000 are outstanding at
December 31, 1996.
The ICF Kaiser Consultants, Agents, and Part-time Employees Stock Option Plan
(Consultants Plan) provides for the issuance of options or restricted shares of
up to 1,000,000 shares of the Company's common stock to consultants, agents, and
part-time employees at the discretion of the Company's Chief Executive Officer.
The vesting period is one year. At December 31, 1996, 972,000 shares were
available for the granting of options under this plan.
All three option plans provide that the option price is not to be less than the
fair market value on the date of grant. Under the Incentive and Non-Employee
Plans, an option's maximum term is 10 years. As of December 31, 1996, there have
been no options granted under these plans with terms greater than five years. An
option's maximum term under the Consultants Plan is five years.
F-18
<PAGE>
Stock option activity under the option plans granted for the periods indicated
is as follows:
<TABLE>
<CAPTION>
Weighted-average
Shares Option Price Exercise Price
---------- --------------- --------------------
<S> <C> <C> <C>
Balance, March 1, 1994 2,296,000 $4.17 to $17.00
Granted 824,000 $2.34 to $ 4.41
Canceled (453,000) $2.64 to $16.23
Expired (250,000) $4.41 to $16.23
----------
Balance, February 28, 1995 2,417,000 $2.34 to $17.00 $6.54
Granted 678,000 $3.50 to $ 4.42 $4.04
Canceled (257,000) $8.25 $8.25
Expired (382,000) $2.64 to $16.23 $9.82
Exercised (4,000) $2.64 to $ 2.68 $2.68
----------
Balance, December 31, 1995 2,452,000 $2.34 to $17.00 $5.16
Granted 187,000 $1.90 to $ 3.77 $3.30
Expired (452,000) $2.50 to $17.00 $8.69
Exercised (4,000) $3.00 to $ 3.50 $2.68
----------
Balance, December 31, 1996 2,183,000 $1.90 to $ 9.59 $4.29
==========
</TABLE>
Options exercisable at December 31, 1996, and December 31, 1995, were 1,170,000
and 1,090,000, respectively. The weighted-average remaining contractual life at
December 31, 1996, was 2.4 years. There were no exercisable options outstanding
at an option price below the fair market value of the Company's common stock at
December 31, 1996. In March 1995, the Company canceled 257,000 options granted
to employees at an exercise price of $8.25 and granted 86,000 options to them at
an exercise price of $4.09.
The following is a summary of fixed stock options outstanding at December 31,
1996.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------ ---------------------------------------
Number Weighted-average Number
Range of Outstanding at Remaining Weighted-average Exercisable at Weighted-average
Exercise Prices December 31, 1996 Contractual Life Exercise Price December 31, 1996 Exercise Price
--------------- ----------------- ---------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
$1.90 to $2.50 69,000 2.6 years $2.38 29,000 $2.33
$2.51 to $3.50 602,000 2.6 years $2.98 304,000 $2.92
$3.51 to $5.00 1,140,000 2.9 years $4.15 465,000 $4.31
$5.01 to $6.50 112,000 1.4 years $5.14 112,000 $5.14
$6.51 to $8.00 41,000 0.5 years $6.70 41,000 $6.70
$8.01 to $9.59 219,000 0.4 years $8.40 219,000 $8.40
</TABLE>
F-19
<PAGE>
Employee Stock Purchase Plan: The ICF Kaiser Employee Stock Purchase Plan
provides for the issuance of up to 2,000,000 shares of the Company's common
stock to all eligible employees. Employees may elect to withhold up to 10% of
annual base earnings for the purchase of the Company's common stock. Options to
purchase shares of common stock are offered quarterly with a purchase price
equal to 90% of the lower of the market price on the first trading day of the
month preceding the quarter or the last trading day of the quarter. During the
year ended December 31, 1996, and the ten months ended December 31, 1995,
140,411 and 120,241 shares were issued under the plan.
Compensation expense for the Stock Plans is recorded in accordance with APB
Opinion 25, "Accounting for Stock Issued to Employees", and related
Interpretations. As a result, no compensation cost has been recognized for the
Stock Plans in the periods presented. Had compensation cost for awards granted
under the Company's Stock Plans during the year ended December 31, 1996, and the
ten months ended December 31, 1995, been recorded consistent with the provisions
of SFAS No. 123, the Company's net income would have been reduced to $5.2
million ($0.14 per share) and $1.9 million ($0.01 per share) for the year ended
December 31, 1996, and the ten months ended December 31, 1995, respectively.
The fair value of each option grant under the fixed price option plans and the
fair value of the employees' purchase rights under the employee stock purchase
plan are estimated on the date of grant for pro forma disclosures using the
Black-Scholes option-pricing model. The dividend yield was assumed to be zero
for both periods below. The weighted-average of all other significant
assumptions for and the weighted-average fair value of grants made during the
year ended December 31, 1996, and the ten months ended December 31, 1995, are as
follows:
<TABLE>
<CAPTION>
Year Ended Ten Months Ended
December 31, 1996 December 31, 1995
--------------------------------------------------------------------------------------------
Fixed Stock Employee Stock Fixed Stock Employee Stock
Option Plans Purchase Plan Option Plans Purchase Plan
-------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Volatility 63.4% 63.4% 58.9% 58.9%
Risk-free interest rate 5.8% 5.0% 6.5% 5.5%
Expected lives 5.0 years 0.3 years 4.6 years 0.3 years
Fair value of grants $1.92 $0.95 $2.30 $0.66
</TABLE>
13. Employee Benefit Plans
- ---------------------------
ICF Kaiser International, Inc. and certain of its subsidiaries sponsor a number
of benefit plans covering substantially all employees who meet minimum length of
service requirements. These plans include the ICF Kaiser International, Inc.
Retirement Plan (Retirement Plan), a defined-contribution, profit-sharing plan
that provides for contributions by the Company based on a percentage of covered
compensation; the ICF Kaiser International, Inc. Section 401(k) Plan (401(k)
Plan), a cash or deferred-compensation arrangement that allows employees to
defer portions of their salary, subject to certain limitations; and the ICF
Kaiser International, Inc. Employee Stock Ownership Plan (ESOP) under which the
Company made contributions based on a percentage of covered compensation.
Effective March 1, 1994, the Company discontinued contributions to the ESOP.
Total expense for these plans for the year ended December 31, 1996, the ten
months ended December 31, 1995, and the year ended February 28, 1995, was
$7,427,000, $5,711,000, and $6,466,000, respectively. As of December 31, 1996,
the Retirement Plan, 401(k) Plan, and ESOP owned 942,426, 363,401, and 1,828,171
shares, respectively, of the Company's common stock.
F-20
<PAGE>
Certain of the Company's employees are covered by union-sponsored, collectively
bargained, multi-employer benefit plans. Contributions and costs are determined
in accordance with the provisions of negotiated labor contracts or terms of the
plans. Pension expense for these plans was $9,097,000, $6,384,000, and
$2,525,000 for the year ended December 31, 1996, the ten months ended December
31, 1995, and the year ended February 28, 1995, respectively.
14. Other Postretirement Benefits
- ---------------------------------
The Company provides certain postretirement benefits to a limited group of
retirees. The cost of these benefits is funded when paid and limited to a fixed
amount per participant. The Company adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions", as of March 1, 1993, and recorded the transition obligation on the
delayed recognition basis.
The funded status of the plan is as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1996 1995
------------------- ----------------
<S> <C> <C>
Accumulated postretirement benefit
obligation (APBO) $ 6,161 $ 7,843
Unamortized transition obligation (10,447) (11,427)
Unrecognized net gain 6,617 5,554
--------------- ---------------
Accrued postretirement benefit cost $ 2,331 $ 1,970
=============== ===============
</TABLE>
The net periodic postretirement benefit cost consists of the following (in
thousands):
<TABLE>
<CAPTION>
Year Ten Months Year
Ended Ended Ended
December 31, December 31, February 28,
1996 1995 1995
------------ ------------ ------------
<S> <C> <C> <C>
Interest cost $ 525 $ 541 $ 920
Amortization of transition obligation 980 830 980
Amortization of unrecognized net gain (409) (214) -
------------ ------------ ------------
Net periodic postretirement benefit cost $ 1,096 $ 1,157 $ 1,900
============ ============= ============
</TABLE>
All service cost related to the participants' benefits was included in the
transition obligation.
The discount rate at both December 31, 1996 and 1995, was 7%. The 1996 health
care cost trend rate is 5%, effective until 2013 when the cost will be in excess
of the Company's maximum obligation. If the trend rate was increased by 1% for
each year, the APBO as of December 31, 1996, would increase by approximately 3%.
Due to changes in assumptions made, including reductions in premiums paid by the
Company, the APBO was reduced by approximately $1.5 million during the year
ended December 31, 1996. These reductions in the APBO will be amortized over the
average remaining life expectancy of the plan's participants.
F-21
<PAGE>
15. Business Segment, Major Customers, and Foreign Operations
- --------------------------------------------------------------
Business Segment: The Company operates predominantly in one industry segment in
which it provides engineering, construction, program management, and consulting
services.
Major Customers: Gross revenue from the U.S. Department of Energy was
$866,361,000, $623,149,000, and $517,478,000 for the year ended December 31,
1996, the ten months ended December 31, 1995, and the year ended February 28,
1995, respectively.
Foreign Operations: Gross revenue and operating income from foreign operations
and foreign assets of all consolidated subsidiaries and branches were as follows
(in thousands):
<TABLE>
<CAPTION>
Year Ten Months Year
Ended Ended Ended
December 31, December 31, February 28,
1996 1995 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Foreign gross revenue:
Europe $ 37,105 $ 14,237 $ 16,758
Pacific 31,327 28,002 35,189
Other 3,676 1,189 2,122
-------------- -------------- --------------
72,108 43,428 54,069
Domestic gross revenue 1,176,335 873,316 807,449
-------------- -------------- --------------
Total gross revenue $ 1,248,443 $ 916,744 $ 861,518
============== ============== ==============
Foreign operating income (loss):
Europe $ 1,346 $ 1,426 $ 2,600
Pacific 1,002 2,511 (350)
Other (422) 20 (44)
-------------- -------------- --------------
1,926 3,957 2,206
Domestic operating income 19,254 13,548 11,482
-------------- -------------- --------------
Total operating income $ 21,180 $ 17,505 $ 13,688
============== ============== ==============
Foreign assets:
Europe $ 17,666 $ 12,905 $ 9,950
Pacific 13,562 11,024 14,813
Other 24 137 182
-------------- -------------- --------------
31,252 24,066 24,945
Domestic assets 334,721 345,451 256,477
-------------- -------------- --------------
Total assets $ 365,973 $ 369,517 $ 281,422
============== ============== ==============
</TABLE>
F-22
<PAGE>
16. Unusual Items
- ------------------
During the ten months ended December 31, 1995, the Company recorded $0.5 million
in additional income (net), consisting of the following unusual items: income in
settlement of litigation against the IRS, associated with an affiliate of an
acquired company, net of an accrual for related expenses ($6.8 million); a
charge to accrue the net settlement cost and legal expenses of other litigation
($4.6 million); a charge to accrue for severance for the termination of 110
employees in the engineering and international groups ($1.0 million); and a
charge to accrue for consolidation of office space ($0.7 million). During the
year ended December 31, 1996, the net litigation income was received and the net
settlement costs and legal expenses were paid. All actions associated with the
termination of employees and consolidation of office space have been completed,
and there is no further liability outstanding as of December 31, 1996,
associated with this plan.
17. Supplemental Cash Flow Information
- ---------------------------------------
Supplemental cash flow information is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ten Months Year
Ended Ended Ended
December 31, December 31, February 28,
1996 1995 1995
-------------- --------------- --------------
<S> <C> <C> <C>
Cash payments for interest $ 24,701 $ 7,898 $ 14,961
Cash payments (refunds) for income taxes 765 1,306 (1,026)
Non-cash transactions:
Sale of investment 16,640 - 735
Issuance of common stock in connection
with acquisitions 1,675 765 -
Issuance of common stock pursuant to an
agreement with a former employee 500 - -
Reacquisition of common stock (427) - -
</TABLE>
F-23
<PAGE>
18. Selected Quarterly Financial Information (Unaudited)
- ---------------------------------------------------------
Quarterly financial information for full fiscal quarters for the year ended
December 31, 1996, and the ten months ended December 31, 1995, is presented in
the following tables (in thousands, except per share amounts):
Year Ended December 31, 1996:
<TABLE>
<CAPTION>
Fourth Third Second First
Quarter Quarter Quarter Quarter
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Gross revenue $ 225,033 $ 379,971 $ 332,320 $ 311,119
Service revenue $ 98,469 $ 138,780 $ 150,342 $ 144,525
Operating income $ 10 $ 5,087 $ 8,615 $ 7,468
Net income $ 2,114 $ 763 $ 1,633 $ 1,324
Primary and fully diluted net income
per common share $ 0.07 $ 0.01 $ 0.05 $ 0.04
Market price per share:
High $ 2.38 $ 3.25 $ 3.38 $ 4.38
Low $ 1.75 $ 2.00 $ 2.38 $ 2.63
</TABLE>
Ten Months Ended December 31, 1995:
<TABLE>
<CAPTION>
Third Second First
Quarter Quarter Quarter
-----------------------------------------------------
<S> <C> <C> <C>
Gross revenue $ 319,870 $ 268,274 $ 192,983
Service revenue $ 147,391 $ 117,645 $ 105,498
Operating income $ 5,815 $ 5,497 $ 3,762
Net income $ 896 $ 575 $ 163
Primary and fully diluted net income
(loss) per common share $ 0.02 $ 0.00 $ (0.02)
Market price per share:
High $ 4.75 $ 4.63 $ 5.00
Low $ 3.25 $ 3.75 $ 3.75
</TABLE>
At February 21, 1997, there were 22,248,745 shares of common stock outstanding
held by 1,387 holders of record.
F-24
<PAGE>
19. Guarantor Subsidiaries
- ---------------------------
As a result of registering the Series B Senior Notes with the SEC in January
1997, the Company is now required to provide financial information for four
wholly owned subsidiaries of ICF Kaiser International, Inc. (Subsidiary
Guarantors) which unconditionally guarantee the payment of the principal,
premium, if any, and interest on the Company's Subordinated Notes, Series A
Senior Notes, and the Series B Senior Notes (see Note 6). The Subsidiary
Guarantors are Cygna Consulting Engineers and Project Management, Inc., ICF
Kaiser Government Programs, Inc., PCI Operating Company, Inc., and Systems
Applications International, Inc.
Presented below is condensed consolidating financial information for ICF Kaiser
International, Inc. (Parent Company), the Subsidiary Guarantors, and the
Non-Guarantor Subsidiaries as of and for the year ended December 31, 1996, the
ten months ended December 31, 1995, and the year ended February 28, 1995.
Investments in subsidiaries have been presented using the equity method of
accounting. In the Company's opinion, separate financial statements for
Subsidiary Guarantors would not provide additional information that is material
to investors. Therefore, the Subsidiary Guarantors are combined in the
presentation below.
F-25
<PAGE>
ICF Kaiser International, Inc. and Subsidiaries
Condensed Consolidating Balance Sheet
December 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ICF Kaiser
Parent Subsidiary Non-Guarantor International, Inc.
Company Guarantors Subsidiaries Eliminations Consolidated
-----------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ (7,720) $ 11,974 $ 13,001 $ (494) $ 16,761
Contract receivables, net 183 78,585 144,510 - 223,278
Intercompany receivables, net 155,653 (2,543) (153,110) - -
Prepaid expenses and other current assets 4,509 187 22,731 (331) 27,096
Deferred income taxes 12,504 - (2,765) - 9,739
----------- ------------ ------------- ---------- ------------
Total Current Assets 165,129 88,203 24,367 (825) 276,874
----------- ------------ ------------- ---------- ------------
Fixed Assets
Furniture, equipment, and leasehold improvements 7,243 2,198 38,969 - 48,410
Less depreciation and amortization (3,430) (2,079) (31,699) - (37,208)
------------ ------------ ------------- ---------- ------------
3,813 119 7,270 - 11,202
------------ ------------ ------------- ---------- ------------
Other Assets
Goodwill, net - - 49,699 - 49,699
Other 58,494 2,602 21,774 (54,672) 28,198
------------ ------------ ------------- ---------- ------------
58,494 2,602 71,473 (54,672) 77,897
$ 227,436 $ 90,924 $ 103,110 $ (55,497) $ 365,973
============ ============ ============== ========== ============
Liabilities and Stockholders' Equity
Current Liabilities
Current portion of long-term debt $ - $ - $ 43 $ - $ 43
Accounts payable and other accrued expenses 16,467 53,612 19,079 - 89,158
Accrued salaries and employee benefits 10,242 22,498 13,039 - 45,779
Other 4,454 447 23,126 (31) 27,996
------------ ----------- -------------- ----------- ------------
Total Current Liabilities 31,163 76,557 55,287 (31) 162,976
------------ ----------- -------------- ----------- ------------
Long-term Liabilities
Long-term debt, less current portion 157,306 - - (787) 156,519
Other 2,731 - 2,701 - 5,432
------------ ----------- -------------- ---------- ------------
160,037 - 2,701 (787) 161,951
------------ ----------- -------------- ---------- ------------
Minority Interests in Subsidiaries - 6,154 - - 6,154
Redeemable Preferred Stock - - - - -
Common Stock 223 108 167 (275) 223
Additional Paid-in Capital 66,983 224 44,619 (44,843) 66,983
Retained Earnings (Deficit) (29,238) 7,881 1,680 (9,561) (29,238)
Other Equity (1,732) - (1,344) - (3,076)
------------ ----------- -------------- ---------- ------------
$ 227,436 $ 90,924 $ 103,110 $ (55,497) $ 365,973
============ =========== ============== ========== ============
</TABLE>
F-26
<PAGE>
ICF Kaiser International, Inc. and Subsidiaries
Condensed Consolidating Statement of Operations
Year Ended December 31, 1996
================================================================================
<TABLE>
<CAPTION>
ICF Kaiser
Parent Subsidiary Non-Guarantor International, Inc.
Company Guarantors Subsidiaries Eliminations Consolidated
--------- ---------- ------------ ------------ -------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Gross Revenue $ 2,024 $ 556,641 $ 689,778 $ - $ 1,248,443
Subcontract and direct material costs (777) (378,539) (341,026) - (720,342)
Equity in income of joint ventures and
affiliated companies and subsidiaries 5,081 - 6,043 (7,109) 4,015
--------- ---------- ------------ ------------ -------------------
Service Revenue 6,328 178,102 354,795 (7,109) 532,116
Operating Expenses
Operating expenses (1,835) 164,661 337,765 (3) 500,588
Depreciation and amortization 2,065 1,308 6,975 - 10,348
Unusual items, net - - - - -
--------- ---------- ------------ ------------ -------------------
Operating Income 6,098 12,133 10,055 (7,106) 21,180
Other Income (Expense)
Gain on sale of investment - 1,649 7,735 - 9,384
Interest income 284 381 858 (269) 1,254
Interest expense (284) (761) (16,497) 208 (17,334)
--------- ---------- ------------ ------------ -------------------
Income Before Income Taxes and
Minority Interests 6,098 13,402 2,151 (7,167) 14,484
Income tax provision 264 1,475 868 - 2,607
--------- ---------- ------------ ------------ -------------------
Income Before Minority Interests 5,834 11,927 1,283 (7,167) 11,877
Minority interests in net income of subsidiaries - 6,043 - - 6,043
--------- ---------- ------------ ------------ -------------------
Net Income 5,834 5,884 1,283 (7,167) 5,834
Preferred stock dividends and accretion 2,178 - - - 2,178
--------- ---------- ------------ ------------ -------------------
Net Income Available for
Common Shareholders $ 3,656 $ 5,884 $ 1,283 $ (7,167) $ 3,656
========= ========== ============ ============ ===================
</TABLE>
F-27
<PAGE>
<TABLE>
<CAPTION>
ICF Kaiser International, Inc. and Subsidiaries
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
ICF Kaiser
Parent Subsidiary Non-Guarantor International, Inc.
Company Guarantors Subsidiaries Eliminations Consolidated
---------- ---------- ------------- ------------ -------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net Cash Provided by (Used in) Operating Activities $ (16,387) $ 13,527 $ 3,198 $ 870 $ 1,208
----------- ---------- ------------- --------- -------------
Investing Activities
Investments in subsidiaries and affiliates,
net of cash acquired - - (1,317) - (1,317)
Purchases of fixed assets (2,002) (140) (2,790) - (4,932)
Sales of fixed assets - - 22 - 22
----------- ---------- ------------- --------- -------------
Net Cash Used in Investing Activities (2,002) (140) (4,085) - (6,227)
----------- ---------- ------------- --------- -------------
Financing Activities
Borrowings under credit facility 114,000 - - - 114,000
Principal payments on credit facility (98,500) - - - (98,500)
Proceeds from issuance senior notes
and related warrants 14,700 - - - 14,700
Repurchase of preferred stock (20,000) - - - (20,000)
Distribution of income to minority interest - (2,428) - - (2,428)
Proceeds from issuances of common stock 383 - - - 383
Preferred stock dividends (2,615) - - - (2,615)
Debt issuance costs (1,427) - - - (1,427)
Other financing activities - - 924 - 924
----------- ---------- ------------ --------- -------------
Net Cash Provided by (Used in) Financing Activities 6,541 (2,428) 924 - 5,037
----------- ---------- ------------ --------- -------------
Effect of Exchange Rate Changes on Cash - - 386 - 386
----------- ---------- ------------ --------- -------------
Increase (Decrease) in Cash and Cash Equivalents (11,848) 10,959 423 870 404
Cash and Cash Equivalents at Beginning of Period 4,128 1,015 12,578 (1,364) 16,357
----------- ---------- ------------- --------- -------------
Cash and Cash Equivalents at End of Period $ (7,720) $ 11,974 $ 13,001 $ (494) $ 16,761
=========== ========== ============= ========= =============
</TABLE>
F-28
<PAGE>
ICF Kaiser International, Inc. and Subsidiaries
Condensed Consolidating Balance Sheet
December 31, 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ICF Kaiser
Parent Subsidiary Non-Guarantor International, Inc.
Company Guarantors Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- -----------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 4,128 $ 1,015 $ 12,578 $ (1,364) $ 16,357
Contract receivables, net (2,970) 75,407 155,802 - 228,239
Intercompany receivables, net 145,228 (8,516) (136,712) - -
Prepaid expenses and other current assets 5,093 4,092 12,942 (1,216) 20,911
Deferred income taxes 12,169 - (235) - 11,934
------------- ------------- ------------- ------------- -----------------
Total Current Assets 163,648 71,998 44,375 (2,580) 277,441
------------- ------------- ------------- ------------- -----------------
Fixed Assets
Furniture, equipment, and leasehold improvements 2,957 1,507 38,445 - 42,909
Less depreciation and amortization (2,555) (788) (30,026) - (33,369)
------------- ------------- ------------- ------------- -----------------
402 719 8,419 - 9,540
------------- ------------- ------------- ------------- -----------------
Other Assets
Goodwill, net - - 49,259 - 49,259
Other 51,406 3,813 24,220 (46,162) 33,277
------------- ------------- ------------- ------------- -----------------
51,406 3,813 73,479 (46,162) 82,536
------------- ------------- ------------- ------------- -----------------
$ 215,456 $ 76,530 $ 126,273 $ (48,742) $ 369,517
============= ============= ============= ============= =================
Liabilities and Stockholders' Equity
Current Liabilities
Current portion of long-term debt $ 5,000 $ 4 $ 37 $ - $ 5,041
Accounts payable and other accrued expenses 16,250 47,127 42,776 (1,130) 105,023
Accrued salaries and employee benefits 10,053 24,505 18,502 - 53,060
Other 9,565 250 19,999 (86) 29,728
------------- ------------- ------------- ------------- -----------------
Total Current Liabilities 40,868 71,886 81,314 (1,216) 192,852
------------- ------------- ------------- ------------- -----------------
Long-term Liabilities
Long-term debt, less current portion 121,470 - 51 (1,409) 120,112
Other 3,090 - 2,616 - 5,706
------------- ------------- ------------- ------------- -----------------
124,560 - 2,667 (1,409) 125,818
------------- ------------- ------------- ------------- -----------------
Minority Interests in Subsidiaries - 2,539 94 - 2,633
Redeemable Preferred Stock 19,787 - - - 19,787
Common Stock 213 108 165 (273) 213
Additional Paid-in Capital 64,654 - 43,225 (43,225) 64,654
Retained Earnings (Deficit) (32,894) 1,997 622 (2,619) (32,894)
Other Equity (1,732) - (1,814) - (3,546)
------------- ------------- ------------- ------------- -----------------
$ 215,456 $ 76,530 $ 126,273 $ (48,742) $ 369,517
============= ============= ============= ============= =================
</TABLE>
F-29
<PAGE>
ICF Kaiser International, Inc. and Subsidiaries
Condensed Consolidating Statement of Operations
Ten Months Ended December 31, 1995
<TABLE>
<CAPTION>
====================================================================================================================================
ICF Kaiser
Parent Subsidiary Non-Guarantor International, Inc.
Company Guarantors Subsidiaries Eliminations Consolidated
--------- ------------ -------------- ------------ ------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Gross Revenue $ 1,539 $ 285,037 $ 630,168 $ - $ 916,744
Subcontract and direct material costs (1,037) (189,607) (303,327) - (493,971)
Equity in income of joint ventures and
affiliated companies and subsidiaries 754 - 3,358 (989) 3,123
--------- ------------ -------------- --------- ------------------
Service Revenue 1,256 95,430 330,199 (989) 425,896
Operating Expenses
Operating expenses (2,502) 90,502 312,589 (55) 400,534
Depreciation and amortization 1,349 850 6,158 - 8,357
Unusual items, net 1,700 - (2,200) - (500)
--------- ------------ -------------- --------- ------------------
Operating Income 709 4,078 13,652 (934) 17,505
Other Income (Expense)
Interest income 488 269 1,319 (23) 2,053
Interest expense 1,147 (475) (13,950) 23 (13,255)
--------- ------------ -------------- --------- ------------------
Income Before Income Taxes and
Minority Interests 2,344 3,872 1,021 (934) 6,303
Income tax provision 92 556 1,443 - 2,091
--------- ------------ -------------- --------- ------------------
Income (Loss) Before Minority Interests 2,252 3,316 (422) (934) 4,212
Minority interests in net income of subsidiaries - 2,039 (79) - 1,960
--------- ------------ -------------- --------- ------------------
Net Income (Loss) 2,252 1,277 (343) (934) 2,252
Preferred stock dividends and accretion 1,803 - - - 1,803
--------- ------------ -------------- --------- ------------------
Net Income (Loss) Available for
Common Shareholders $ 449 $ 1,277 $ (343) $ (934) $ 449
========= ============ ============== ========= ==================
</TABLE>
F-30
<PAGE>
ICF Kaiser International, Inc. and Subsidiaries
Condensed Consolidating Statement of Cash Flows
Ten Months Ended December 31, 1995
<TABLE>
<CAPTION>
====================================================================================================================================
ICF Kaiser
Parent Subsidiary Non-Guarantor International, Inc.
Company Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ -------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net Cash Provided by (Used in) Operating Activities $(6,297) $ 655 $ 949 $ (1,364) $ (6,057)
------- -------- -------- --------- ---------
Investing Activities
Investments in subsidiaries and affiliates,
net of cash acquired (1,000) - (1,010) - (2,010)
Sale of subsidiaries and subsidiary assets - - 735 - 735
Purchases of fixed assets (92) (148) (1,519) - (1,759)
Sales of fixed assets - - 1,035 - 1,035
------- -------- -------- --------- ---------
Net Cash Used in Investing Activities (1,092) (148) (759) - (1,999)
------- -------- -------- --------- ---------
Financing Activities
Borrowings under credit facility 16,000 - - - 16,000
Principal payments on credit facility and other borrowings (16,000) - (1,173) - (17,173)
Subsidiary capital contribution from minority interest - 500 - - 500
Proceeds from issuances of common stock 406 - - - 406
Repurchases of common stock (257) - - - (257)
Preferred stock dividends (1,471) - - - (1,471)
Other financing activities - - (1,308) - (1,308)
------- -------- -------- --------- ---------
Net Cash Provided by (Used in) Financing Activities (1,322) 500 (2,481) - (3,303)
------- -------- -------- --------- ---------
Effect of Exchange Rate Changes on Cash - - (517) - (517)
------- -------- -------- --------- ---------
Increase (Decrease) in Cash and Cash Equivalents (8,711) 1,007 (2,808) (1,364) (11,876)
Cash and Cash Equivalents at Beginning of Period 12,839 8 15,386 - 28,233
------- -------- -------- --------- ---------
Cash and Cash Equivalents at End of Period $ 4,128 $ 1,015 $ 12,578 $ (1,364) $ 16,357
======= ======== ======== ========= =========
</TABLE>
F-31
<PAGE>
ICF Kaiser International, Inc. and Subsidiaries
Condensed Consolidating Statement of Operations
Year Ended February 28, 1995
================================================================================
<TABLE>
<CAPTION>
ICF Kaiser
Parent Subsidiary Non-Guarantor International, Inc.
Company Guarantors Subsidiaries Eliminations Consolidated
--------- ---------- ------------ ------------ -------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Gross Revenue $ 1,293 $ 10,220 $ 851,586 $ (1,581) $ 861,518
Subcontract and direct material costs (711) (4,463) (400,645) - (405,819)
Equity in income of joint ventures and
affiliated companies and subsidiaries (3,168) - 4,753 2,502 4,087
--------- ---------- ------------ ------------ -------------------
Service Revenue (2,586) 5,757 455,694 921 459,786
Operating Expenses
Operating expenses (18,357) 4,381 452,423 (1,581) 436,866
Depreciation and amortization 1,616 324 7,292 - 9,232
--------- ---------- ------------ ------------ -------------------
Operating Income (Loss) 14,155 1,052 (4,021) 2,502 13,688
Other Income (Expense)
Gain on sale of investment - - 551 - 551
Interest income 954 11 971 (137) 1,799
Interest expense (14,683) - (253) 137 (14,799)
--------- ---------- ------------ ------------ -------------------
Income (Loss) Before Income Taxes 426 1,063 (2,752) 2,502 1,239
Income tax provision 2,087 397 416 - 2,900
--------- ---------- ------------ ------------ -------------------
Net Income (Loss) (1,661) 666 (3,168) 2,502 (1,661)
Preferred stock dividends and accretion 2,154 - - - 2,154
--------- ---------- ------------ ------------ -------------------
Net Income (Loss) Available for
Common Shareholders $ (3,815) $ 666 $ (3,168) $ 2,502 $ (3,815)
========= ========== ============ ============ ===================
</TABLE>
F-32
<PAGE>
ICF Kaiser International, Inc. and Subsidiaries
Condensed Consolidating Statement of Cash Flows
Year Ended February 28, 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ICF Kaiser
Parent Subsidiary Non-Guarantor International, Inc.
Company Guarantors Subsidiaries Consolidated
---------- ---------- ------------- -------------------
(In thousands)
<S> <C> <C> <C> <C>
Net Cash Provided by (Used in) Operating Activities $ (3,942) $ 990 $ 5,135 $ 2,183
---------- --------- ------------ -----------
Investing Activities
Investments in subsidiaries and affiliates,
net of cash acquired - - (622) (622)
Sale of subsidiaries and subsidiary assets - - 2,600 2,600
Purchases of fixed assets (13) (992) (1,421) (2,426)
Other investing activities (600) - - (600)
---------- --------- ------------ -----------
Net Cash Provided by (Used in) Investing Activities (613) (992) 557 (1,048)
---------- --------- ------------ -----------
Financing Activities
Borrowings under credit facility 5,000 - - 5,000
Principal payments on other borrowings - - (1,172) (1,172)
Repurchases of redeemable preferred stock of subsidiary - - (799) (799)
Proceeds from issuances of common stock 395 - - 395
Repurchases of common stock (180) - - (180)
Preferred stock dividends (1,950) - - (1,950)
Debt issuance costs (149) - - (149)
---------- --------- ------------ -----------
Net Cash Provided by (Used in) Financing Activities 3,116 - (1,971) 1,145
---------- --------- ------------ -----------
Effect of Exchange Rate Changes on Cash - - 444 444
---------- --------- ------------ -----------
Increase (Decrease) in Cash and Cash Equivalents (1,439) (2) 4,165 2,724
Cash and Cash Equivalents at Beginning of Period 14,278 10 11,221 25,509
---------- --------- ------------ -----------
Cash and Cash Equivalents at End of Period $ 12,839 $ 8 $ 15,386 $ 28,233
========== ========= ============ ===========
</TABLE>
F-33
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ICF KAISER INTERNATIONAL, INC AND SUBSIDIARIES
(in thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- -------------------------------------------------------------------------------------------------------------------------------
Additions
--------------------------------
Balance at beginning Charged to costs Balance at end
of Period and expenses Other Deductions of period
Description
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996
Deducted from asset account:
Allowance for doubtful accounts $ 9,435 $ 1,881 $ 175 (3) $ 3,490 (1) $ 9,450
1,449 (5)
Deducted from asset account and
included in other liabilities:
Provision for future losses on contracts 2,274 300 491 (4) 1,548 (2) 1,517
-----------------------------------------------------------------------------------
$ 11,709 $ 2,181 $ 2,115 $ 5,038 $ 10,967
===================================================================================
Ten Months Ended December 31, 1995
Deducted from asset account:
Allowance for doubtful accounts $ 9,864 $ 601 $ 62 (3) $ 1,092 (1) $ 9,435
Deducted from asset account and
included in other liabilities:
Provision for future losses on contracts 843 1,119 545 (4) 233 (2) 2,274
-----------------------------------------------------------------------------------
$ 10,707 $ 1,720 $ 607 $ 1,325 $ 11,709
===================================================================================
Year Ended February 28, 1995
Deducted from asset account:
Allowance for doubtful accounts $ 10,197 $ 1,406 $ - $ 1,739 (1) $ 9,864
Included in other liabilities:
Provision for future losses on contracts 179 664 - - 843
-----------------------------------------------------------------------------------
$ 10,376 $ 2,070 $ - $ 1,739 $ 10,707
===================================================================================
</TABLE>
(1) Reflects amounts written off against the allowance and related accounts
receivable accounts and settlement of doubtful accounts.
(2) Reflects losses charged against the provision for contract losses.
(3) Reflects net allowance for doubtful accounts from the purchase of a
subsidiary.
(4) Reflects provision for future contract losses provided for in connection
with the purchase of a subsidiary.
(5) Reflects other additions to reserves.
<PAGE>
Exhibit 10(ii)
ICF KAISER INTERNATIONAL, INC.
MEMORANDUM
----------
TO: Dick Nason
FROM: Jim Edwards
DATE: December 6, 1996
SUBJECT: Employment Terms - Revision of December 2 Note
================================================================================
This note replaces the offer I made in my December 2 note, based upon our
discussion.
1. You would remain as CFO for the indefinite future. Our current plan is
for this to extend at least through the 1996 audit.
2. If we decide to change CFOs, we will offer you a challenging position at
a salary of $200,000 per year or more. In return, you will agree to resign
from the Board of Directors.
3. You will be entitled to $200,000 in severance in either of the
following cases:
. We change CFOs and you do not take our job offer, but instead, leave the
company.
. ICF Kaiser has a change-of-control, in which case you would have a 30-
day window to exercise the right.
In either case, if you choose to continue with ICF Kaiser, the $200,000
severance offer expires and changes to the normal SEOSP treatment.
4. In either of the two cases above, we will also vest your remaining
unvested options.
5. We pay you a $25,000 1996 bonus now. You agree to buy 5,000 ICF Kaiser
shares on the open market. If there is an additional 1996 bonus, it will
be paid at the normal time (March 1 or so).
6. You have seen an early draft of the proposed 1997 bonus plan. If you
are with ICF Kaiser but not the CFO, we will propose an alternative bonus
plan.
7. I agree that we should have a weekly meeting to go over the Finance
agenda; let's say at 11:30 a.m. on Monday (starting the 16th).
<PAGE>
Exhibit 10 (kk)
AMENDED EMPLOYMENT AGREEMENT
----------------------------
THIS AMENDED AGREEMENT is made as of the 1st day of December, 1996 by and
between ICF Kaiser International, Inc., a Delaware corporation (the "Company"),
on the one hand, and David Watson, a resident of Pennsylvania (the "Executive"),
on the other hand.
WHEREAS, ICF Kaiser desires to employ Executive in a new position, and
Executive desires to assume such new position, on the terms and conditions set
forth herein;
WHEREAS, ICF Kaiser and Executive desire to amend the employment contract
dated November 13, 1995 (a copy of which is annexed hereto as Attachment A) and
for events occurring after December 1, 1996, to replace them with this amended
employment contract between the Company and Executive ("Amended Agreement");
WHEREAS, ICF Kaiser has granted Executive certain options to purchase
shares of common stock of the Company as set forth below, and such options
grants shall remain outstanding subject to the terms of this Amended Agreement;
WHEREAS, ICF Kaiser has agreed to reimburse Executive for Relocation
Expenses and such agreed to reimburse Executive for Relocation Expenses shall
remain outstanding subject to the terms of this Amended Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
made herein, and intending to be legally bound hereby, the Company, on the one
hand, and Executive, on the other hand, agree as follows:
1. Employment Period: Duties.
--------------------------
(a) Employment and Employment Period. The Company shall employ the
---------------------------------
Executive to serve as an Executive Vice President, and President of the
Engineering & Constructors Group ("E & C Group") for a period of three years
commencing December 1, 1996 (the "Employment Period").
(b) Duties and Responsibilities. The Executive shall have corporate-
----------------------------
wide responsibility for the E & C Group of the Company. The Executive will have
line authority over the Company's domestic and international E & C Group
offices, will have a major role for all international project development, and
will be a member of all senior management groups.
2. Compensation and Fringe Benefits.
---------------------------------
(a) Base Compensation. For the period December 1, 1996 to December
------------------
31, 1997, the Company shall pay Executive a base salary at the rate of $275,000
per year in accordance with the Company's regular practice for compensating
senior management personnel.
(b) Bonus Compensation. The Executive will be entitled to receive a
-------------------
bonus in the range of $25,000 to $100,000 for calendar year 1996 (payable
approximately 3/15/97). Any bonus above the minimum is dependent upon the
Company's achievement of its profit target and the Executive's personal
achievement of performance criteria associated with his position. For future
years (calendar year 1997 and beyond) any bonus will be determined by the
Compensation Committee of the Board of Directors in accordance with the senior
officers' bonus plan. Bonus awards may be comprised of cash, stock options
and/or restricted stock. By corporate policy, bonuses are payable only to
eligible staff employed by the Company on the date of distribution which under
current policy will be on or about March 15 of the following calendar year. For
calendar year 1997, the Executive will participate in the Annual Incentive
Compensation Plan for Senior Executives as described in Attachment B.
<PAGE>
(c) Fringe Benefits. The Executive shall be entitled to such fringe
----------------
benefits as are generally made available by the Company to senior management
personnel. Such benefits shall include participation in the Company's defined
contribution retirement plan, Section 401(k) Plan, and health, term life and
disability insurance programs. The Executive also will be reimbursed for
reasonable expenses incurred in connection with travel and entertainment related
to the Company's business and affairs which will be paid by the Company in a
manner, consistent with past practice and as amended by any subsequent changes
of Company Policy.
3. Stock Options.
--------------
(a) Effective December 15, 1995, the Company granted to the Executive
non-qualified stock options under the Company's Stock Incentive Plan to purchase
25,000 shares of the Company's common stock, par value $0.01 per share ("Common
Stock"), at a purchase price equal to the average of the closing prices of the
Common Stock on the New York Stock Exchange on each of the 20 days ending on
December 14, 1995 the day immediately preceding the grant date ($3.63). Such
options are represented by a Stock Option Agreement (Option Agreement).
(b) Effective January 24, 1997, the Company granted to the Executive
non-qualified stock options under the Company's Stock Incentive Plan to purchase
75,000 shares of the Company's common stock, par value $0.01 per share ("Common
Stock"), at a purchase price equal to the average of the closing prices of the
Common Stock on the New York Stock Exchange on each of the 20 days ending on
January 23, 1997 the day immediately preceding the grant date ($2.23). Such
options will be represented by a Stock Option Agreement in the form customarily
used by the Company for such agreements, containing the following provisions:
(i) Option Term. The options expire on January 24, 2002. All
------------
unexercised vested options shall expire 90 days after the Executive ceases being
employed by the Company for any reason. All unvested options shall expire on
the date Executive's employment ends.
(ii) Vesting. Twenty-five percent (25%) of the options vest on each
--------
of the first four anniversaries of the grant date as follows:
<TABLE>
<CAPTION>
# of Options Expiration
Grant Date Vesting Date Vested Date
- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
01/24/97 01/24/98 18,750 01/24/02
01/24/97 01/24/99 addt'l 18,750 01/24/02
01/24/97 01/24/00 addt'l 18,750 01/24/02
01/24/97 01/24/01 addt'l 18,750 01/24/02
</TABLE>
(iii) Exercise. Subject to applicable securities laws and
--------
regulations, all vested options are exercisable at any time prior to expiration
of their exercise period.
4. Relocation Expenses
-------------------
(a) The Company will reimburse Executive's reasonable expenses
actually incurred in relocation which are allowable under the Relocation
Agreement, attached as Attachment D, subject to a maximum limitation of $50,000
and to the conditions set forth therein by which the agreement to reimburse
expenses may be abrogated including the liability of Executive to repay those
expenses already reimbursed. In addition because parts or all of the relocation
reimbursement may be taxable income subject to state, Federal, and local
withholding, the Company will pay the Executive the appropriate amount to ensure
that he does not suffer any adverse tax liability as a result of such
reimbursement.
(b) In addition to the above-stated relocation expenses, the Company
will reimburse reasonable temporary living expenses which the Executive incurs
in the Fairfax, Virginia area through December
<PAGE>
31, 1996, in accordance with the terms of the Relocation Agreement, attached as
Attachment D. The Executive will suffer the full tax consequence of
reimbursement of such temporary living expenses.
5. Non-Competition
---------------
(a) Except as provided in paragraph (d) below, the Executive agrees
that for a period commencing as of the date of employment of the Executive by
the Company and running through the earlier of (i) the end of the Employment
Period if the Executive remains employed by the Company for the entire
Employment Period of (ii) one year following termination of the Executive's
employment by the Company for any reason, whether by action of the Executive or
the Company (the "Non-Competition Period"), the Executive will not, except as
otherwise provided herein, engage or participate, directly or indirectly, as
principal, agent, employee, employer, consultant, stockholder, partner or in any
other individual capacity whatsoever, in the planning, conduct, or management
of, or own any stock or any other equity investment in or debt of, any business
which is competitive with any business conducted by the Company.
For the purpose of this Agreement, a business shall be considered to
be competitive with the business of the Company only if such business in engaged
in providing services (i) similar to (x) any service currently provided by the
Engineers and Constructors Group of the Company or provided by the Engineers and
Constructors Group of the Company during the Employment Period; (y) any service
which evolves from or results from enhancements in the ordinary course during
the Non-Competition Period to the services provided by the Engineers and
Constructors Group of the Company as of the date hereof or during the Employment
Period; or (z) any future service of the Engineers and Constructors Group of the
Company as to which the Executive materially and substantially participated in
the design or enhancement, and (ii) to customers and clients of the type served
by the Engineers and Constructors Group of the Company during the Non-
Competition Period.
(b) Non-Solicitation of Employees. During the Non-Competition Period,
-----------------------------
the Executive will not (for his own benefit or for the benefit of any person or
entity other than the Company) solicit, or assist any person or entity other
than the Company to solicit, any officer, director, executive or employee of the
Company to leave his or her employment.
(c) Reasonableness. The Executive acknowledges that (i) the markets
--------------
served by the Engineers and Constructors Group of the Company are national and
international and are not dependent on the geographic location of executive
personnel or the businesses by which they are employed, (ii) the length of the
Non-Competition Period is linked to the term of the Employment Period and the
severance benefit provided for in Section 6; and (iii) the above covenants are
manifestly reasonable on their face, and the parties expressly agree that such
restrictions have been designed to be reasonable and no greater than is required
for the protection of the Company.
(d) Investments. Nothing in this Agreement shall be deemed to
-----------
prohibit the Executive from owning equity or debt investments in any
corporation, partnership or other entity which is competitive with the Company,
provided that such investments (i) are passive investments and constitute five
- --------
percent (5%) or less of the outstanding equity securities of such an entity the
equity securities of which are traded on a national securities exchange or other
public market, or (ii) are approved by the Company.
6. Termination
-----------
In the event the Company elects to terminate this Agreement without
"cause" or the Executive elects to terminate this Agreement for "good reason",
the Company shall pay to the Executive in addition to any amounts paid or
payable under other provisions of this agreement a severance payment equal to
the base salary paid to the Executive for the 12 month period immediately
preceding the termination. For purposes of this provision, "cause" and "good
reason" are defined as stipulated in the Senior Executive Officer Severance
Plan, attached as Attachment E.
<PAGE>
7. Enforcement
-----------
Executive agrees that the Company's remedies at law for any breach or
threat of breach by either of them of the provisions of Sections 2, 3 or 4 of
Attachment C and Section 4 hereof will be inadequate, and that the Company shall
be entitled to an injunction or injunctions to prevent breaches of the
provisions of Sections 2, 3 or 4 of Attachment C and Section 4 hereof and to
enforce specifically the terms and provisions thereof, in addition to any other
remedy to which the Company may be entitled at law or equity.
8. Notices
-------
Any notice required or permitted under this Amended Agreement shall be
deemed to have been effectively made or given if in writing and personally
delivered or mailed properly addressed in a sealed envelope, postage prepaid by
certified or registered mail. Unless otherwise changed by notice, notice shall
be properly addressed to Executive:
David Watson
10128 Turnberry Place
Oakton, VA 22124
and properly addressed to the Company is addressed to:
ICF Kaiser International, Inc.
9300 Lee Highway
Fairfax, Virginia 22031-1207
Attn: James O. Edwards
with a copy to:
Paul Weeks II
Senior Vice President, Secretary
and General Counsel
ICF Kaiser International, Inc.
9300 Lee Highway
Fairfax, Virginia 22031-1207
9. Award to Prevailing Party in Dispute
------------------------------------
In the event either of the parties to this Amended Agreement commences
any action or proceeding arising out of, or relating in any way to, this Amended
Agreement, the prevailing party shall be entitled to recover, in addition to any
other relief awarded to such party, his or its costs, expenses and reasonable
attorney's fees.
10. Miscellaneous
-------------
ICF Kaiser, on the one hand, and Executive, on the other hand, desire
to amend the employment contract dated November 13, 1995, and for events
occurring after December 1, 1996, to replace them with this Amended Agreement.
For events occurring on or after December 1, 1996, this Amended Agreement, its
Attachments, and the Option Agreement constitute the entire agreement, and
supersede all prior agreements, of the parties hereto relating to the subject
matter hereof, and there are no written or oral terms or representations made by
either party other than those contained herein. The validity, interpretation,
performance and enforcement of this
<PAGE>
Amended Agreement shall be governed by the laws of the State of Virginia. The
headings contained herein are for reference purposes only and shall not in any
way affect the meaning or interpretation of this Amended Agreement.
11. Attachments Incorporated by Reference
-------------------------------------
(a) Attachment A - The Employment Agreement dated November 13, 1995
between ICF Kaiser International, Inc. and David Watson.
(b) Attachment B - Annual Incentive Compensation for Senior
Executives.
(c) Attachment C - The Company's Standard Terms and Conditions of
Employment for Executive Personnel.
(d) Attachment D - The Company's Relocation Agreement including the
Relocation Summary.
(e) Attachment E - The Company's Senior Executive Officers Severance
Plan (SEOSP).
IN WITNESS WHEREOF, the parties hereto have executed this Amended Agreement
effective as of the day and year first written.
Executive ICF Kaiser International, Inc.
/s/ David Watson /s/ James O. Edwards
- -------------------------- ------------------------------
David Watson James O. Edwards
Chairman and Chief
Executive Officer
<PAGE>
EXHIBIT 10(P)2
MODIFICATIONS TO CONTRACT DE-AC34-95RF00825
<TABLE>
<CAPTION>
DATE MOD CHANGES
---- --- -------
<S> <C> <C> <C>
MOD 41 HAS NOT BEEN RECEIVED
11/25/96 AO42 1. Article B.3, Obligation of Funds as Follows:
Funds Obligated to date $ 872,986,557.80
Funds Obligated by Mod AO42 $ 144,251,561.12
Funds Obligated since inception of contract $1,017,238,118.12
12/23/96 AO43 1. Article B.3, Obligation of Funds as Follows:
Funds Obligated to date $1,017,238,118.12
Funds Obligated by Mod AO43 $ -133,878.21
Funds Obligated since inception of contract $1,017,104,240.71
01/27/97 AO44 1. Article B.3, Obligation of Funds as Follows:
Funds Obligated to date $1,017,104,240.71
Funds Obligated by Mod AO44 $ 30,784,500.00
Funds Obligated since inception of contract $1,047,888,740.71
02/11/97 AO45 1. Article B.3, Obligation of Funds as Follows:
Funds Obligated to date $1,047,888,740.71
Funds Obligated by Mod AO45 $ (47,000.00)
Funds Obligated since inception of contract $1,047,841,740.71
02/28/97 AO46 1. Article B.3, Obligation of Funds as Follows:
Funds Obligated to date $1,047,841,740.71
Funds Obligated by Mod AO46 $ 170,829,500.38
Funds Obligated since inception of contract $1,218,671,241.09
</TABLE>
END OF MODS RECEIVED TO DATE
<PAGE>
EXHIBIT 11
ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ten Months Year
Ended Ended Ended
December 31, December 31, February 28,
1996 1995 1995
------------- ------------- --------------
<S> <C> <C> <C>
Net income (loss) available for
common shareholders $ 3,656,000 $ 449,000 $ (3,815,000)
============= ============= ==============
Weighted average of common shares
outstanding not included in
amounts below 22,041,312 21,131,763 20,957,443
Weighted average of common shares
issuable on exercise of outstanding
stock options 20,369 - -
Weighted average of common shares
issuable pursuant to an agreement
with a former employee - 385,152 -
------------- ------------- --------------
Weighted average of common and
common equivalent shares
outstanding, as adjusted 22,061,681 21,516,915 20,957,443
or or or
22,062,000 21,517,000 20,957,000
============= ============= ==============
Net income (loss) per common share $ 0.17 $ 0.02 $ (0.18)
============= ============= ==============
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of ICF Kaiser International, Inc. (the Company) on Form S-8
[Registration Nos.-33-42677 (Non-employee Directors Stock Option Plan), 33-42678
(Stock Incentive Plan), 33-51460 (Section 401(k) Plan), 33-60663 (Retirement
Plan), 33-60661 and 33-65351 (Employee Stock Ownership Plan), 33-60665
(Consultants, Agents, and Part Time Employees Stock Plan) and 33-51812 (Employee
Stock Purchase Plan)] and on Form S-3 [Registraton No. 33-51677 (600,000
Warrants)] of our report dated February 28, 1997, on our audits of the
consolidated financial statements and financial statement schedule of ICF Kaiser
International, Inc. and Subsidiaries as of December 31, 1996 and December 31,
1995, and for the year ended December 31, 1996, the ten months ended December
31, 1995 and the year ended February 28, 1995, which report is included in the
Company's Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Washington, D.C.
March 25, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 16,761,000
<SECURITIES> 0
<RECEIVABLES> 232,728,000
<ALLOWANCES> 9,450,000
<INVENTORY> 0
<CURRENT-ASSETS> 276,874,000
<PP&E> 48,410,000
<DEPRECIATION> 37,208,000
<TOTAL-ASSETS> 365,973,000
<CURRENT-LIABILITIES> 162,976,000
<BONDS> 156,519,000<F1>
0
0
<COMMON> 223,000
<OTHER-SE> 34,669,000
<TOTAL-LIABILITY-AND-EQUITY> 365,973,000
<SALES> 0
<TOTAL-REVENUES> 1,248,443,000<F2>
<CGS> 0
<TOTAL-COSTS> 437,635,000<F3>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,881,000
<INTEREST-EXPENSE> 17,334,000
<INCOME-PRETAX> 14,484,000
<INCOME-TAX> 2,607,000
<INCOME-CONTINUING> 5,834,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,834,000
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
<FN>
<F1>Excludes current portion of bonds, mortgages, and similar debt.
<F2>Represents gross revenue which includes costs of certain services subcontracted
to third parties and other reimbursable direct project costs, such as materials
procured by the Company on behalf of its customers.
<F3>Excludes subcontract and direct material costs of $720,342,000.
</FN>
</TABLE>
