-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VVzJojA46f1PqwQ0GHy+f1Uq1Qi7mGRpafKBNE6UkyPNfcJdRGSu08JlDNan/sja 89Gy//Z+n+Zzl/yCTL5GRw== 0000928385-98-002312.txt : 19981118 0000928385-98-002312.hdr.sgml : 19981118 ACCESSION NUMBER: 0000928385-98-002312 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ICF KAISER INTERNATIONAL INC CENTRAL INDEX KEY: 0000856200 STANDARD INDUSTRIAL CLASSIFICATION: HAZARDOUS WASTE MANAGEMENT [4955] IRS NUMBER: 541437073 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12248 FILM NUMBER: 98750236 BUSINESS ADDRESS: STREET 1: 9300 LEE HWY CITY: FAIRFAX STATE: VA ZIP: 22031 BUSINESS PHONE: 7039343600 MAIL ADDRESS: STREET 1: 9300 LEE HWY CITY: FAIRFAX STATE: VA ZIP: 22031 FORMER COMPANY: FORMER CONFORMED NAME: ICF INTERNATIONAL INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN CAPITAL & RESEARCH CORP /DE/ DATE OF NAME CHANGE: 19910314 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 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 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No On October 30, 1998, there were 24,307,828 shares of ICF Kaiser International, Inc. Common Stock, par value $0.01 per share, outstanding. ICF KAISER INTERNATIONAL, INC. INDEX TO FORM 10-Q
Page Part I - Financial Information Item 1. Financial Statements: Consolidated Balance Sheets - September 30, 1998 and December 31, 1997..................................................................3 Consolidated Statements of Income and Comprehensive Income - Three and Nine Months Ended September 30, 1998 and 1997...................................................4 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1998 and 1997.............................................................5 Notes to Consolidated Financial Statements.............................................................6-17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................................................18-28 Item 3. Quantitative and Qualitative Disclosures About Market Risk...............................................28 Part II - Other Information Item 1. Legal Proceedings.........................................................................................28 Item 2. Changes in Securities and Use of Proceeds.................................................................28 Item 3. Defaults Upon Senior Securities...........................................................................28 Item 4. Submission of Matters to a Vote of Security Holders.......................................................28 Item 5. Other Information.........................................................................................28 Item 6. Exhibits and Reports on Form 8-K.......................................................................28-29
2 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except shares)
- -------------------------------------------------------------------------------------------------------------- September 30, December 31, 1998 1997 - -------------------------------------------------------------------------------------------------------------- (Unaudited) Assets Current Assets Cash and cash equivalents $ 2,227 $ 19,198 Contract receivables, net 294,378 264,030 Prepaid expenses and other current assets 11,173 14,490 Deferred income taxes 33,038 15,281 --------- --------- Total Current Assets 340,816 312,999 --------- --------- Fixed Assets Furniture, equipment, and leasehold improvements 50,263 51,446 Less depreciation and amortization (39,125) (39,648) --------- --------- 11,138 11,798 --------- --------- Other Assets Goodwill, net 50,095 47,323 Investments in and advances to affiliates 9,483 7,038 Other 13,543 19,308 --------- --------- 73,121 73,669 --------- --------- Total Assets $ 425,075 $ 398,466 ========= ========= Liabilities and Shareholders' Equity Current Liabilities Debt currently payable $ -- $ 15 Accounts payable 176,516 120,368 Accrued salaries and benefits 43,834 37,654 Other accrued expenses 38,985 26,902 Deferred revenue 30,838 36,527 Income taxes payable 1,269 1,012 --------- --------- Total Current Liabilities 291,442 222,478 Long-term Liabilities Long-term debt 157,866 141,004 Other 4,284 4,586 --------- --------- Total Liabilities 453,592 368,068 --------- --------- Commitments and Contingencies Minority Interest 7,877 3,071 Shareholders' Equity (Deficit) Preferred Stock -- -- Common Stock, par value $.01 per share: Authorized-90,000,000 shares Issued and outstanding- 24,282,270 and 22,475,904 shares 244 225 Additional Paid-in Capital 75,390 67,116 Notes Receivable Collateralized by Common Stock (639) (2,422) Accumulated Deficit (107,739) (34,225) Cumulative Translation Adjustment (3,650) (3,367) --------- --------- Total Shareholders' Equity (Deficit) (36,394) 27,327 --------- --------- Total Liabilities and Shareholders' Equity (Deficit) $ 425,075 $ 398,466 ========= ========= - ------------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 3 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES Consolidated Statements of Income and Comprehensive Income (In thousands, except per share amounts)
- ------------------------------------------------------------------------------------------------------------------------------------ Three Months Ended Nine Months Ended September 30, September 30, ------------------------- ------------------------- 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ (unaudited) (unaudited) Gross Revenue $ 292,528 $ 332,173 $ 909,796 $ 839,716 Subcontract and direct material costs (195,474) (216,788) (601,951) (511,606) Provision for contract losses (17,210) -- (57,210) -- Equity in income of joint ventures and affiliated companies 2,632 718 5,066 1,552 --------- --------- --------- --------- Service Revenue 82,476 116,103 255,701 329,662 Operating Expenses Direct labor and fringe benefits 66,435 77,600 206,651 220,200 Group overhead 23,406 22,869 68,009 64,029 Corporate general and administrative 6,238 5,985 16,273 17,055 Depreciation and amortization 2,262 2,455 6,693 7,197 Severance and restructuring charges 7,907 -- 9,407 -- Other unusual charges 7,672 -- 7,672 -- --------- --------- --------- --------- Operating Income (Loss) (31,444) 7,194 (59,004) 21,181 Other Income (Expense) Interest income 338 324 1,239 1,340 Interest expense (5,141) (4,240) (14,901) (13,397) --------- --------- --------- --------- Income (Loss) Before Income Taxes, Minority Interest, and Cumulative Effect of Accounting Change (36,247) 3,278 (72,666) 9,124 Income tax (provision) benefit (718) (508) 11,029 (1,642) --------- --------- --------- --------- Income (Loss) Before Minority Interest, and Cumulative Effect of Accounting Change (36,965) 2,770 (61,637) 7,482 Minority interest in net income of subsidiaries (1,326) (2,650) (5,877) (7,312) --------- --------- --------- --------- Income (Loss) Before Cumulative Effect of (38,291) 120 (67,514) 170 Accounting Change Cumulative effect of accounting change, net of tax -- -- (6,000) -- --------- --------- --------- --------- Net Income (Loss) $ (38,291) $ 120 $ (73,514) $ 170 ========= ========= ========= ========= Other Comprehensive Income (Loss) Foreign currency translation adjustment 604 (777) (283) (1,215) --------- --------- --------- --------- Total Comprehensive Income (Loss) $ (37,687) $ (657) $ (73,797) $ (1,045) ========= ========= ========= ========= Basic and Diluted Earnings (Loss) Per Share Income (loss) before cumulative effect of accounting change $ (1.58) $ 0.01 $ (2.80) $ 0.01 Cumulative effect of accounting change, net of tax -- -- (0.25) -- --------- --------- --------- --------- Net Income (Loss) $ (1.58) $ 0.01 $ (3.05) $ 0.01 ========= ========= ========= ========= Weighted average shares for basic earnings per share 24,206 22,441 24,082 22,370 Effect of dilutive stock options -- 115 -- 98 --------- --------- --------- --------- Weighted average shares for diluted earnings per share 24,206 22,556 24,082 22,468 ========= ========= ========= ========= - ------------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 4 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands)
- --------------------------------------------------------------------------------------------------------------- For The Nine Months Ended September 30, ---------------------------------- 1998 1997 - --------------------------------------------------------------------------------------------------------------- (Unaudited) Operating Activities Net income (loss) $ (73,514) $ 170 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 6,693 7,197 Provision for losses, restructuring and contingencies 58,711 1,345 Provision for deferred income taxes (17,757) (1,952) Cash distributions in excess of earnings from joint ventures and affiliated companies (2,038) (135) Minority interest in net income of subsidiaries 5,877 7,312 Changes in operating assets and liabilities: Contract receivables, net (73,438) (77,418) Prepaid expenses and other current assets 997 2,035 Accounts payable and accrued expenses 55,058 69,306 Deferred revenue (5,689) 7,196 Other liabilities 3,335 2,280 Other operating activities 6,470 (2,848) --------- --------- Net Cash Provided by (Used in) Operating Activities (35,295) 14,488 --------- --------- Investing Activities Cash acquired from (or invested in) subsidiary acquisitions 3,570 (441) Sales of subsidiaries and/or investments 2,400 16,540 Purchases of fixed assets (2,710) (3,118) --------- --------- Net Cash Provided by Investing Activities 3,260 12,981 --------- --------- Financing Activities Borrowings under revolving credit facility 114,000 69,000 Principal payments on revolving credit facility (97,500) (87,500) Distribution of income to minority interest (1,500) (9,950) Proceeds from issuances of common stock 347 165 Repurchases of common stock -- (252) Debt issuance costs -- (549) --------- --------- Net Cash Provided by (Used in) Financing Activities 15,347 (29,086) --------- --------- Effect of Exchange Rate Changes on Cash (283) (1,215) --------- --------- Decrease in Cash and Cash Equivalents (16,971) (2,832) Cash and Cash Equivalents at Beginning of Period 19,198 16,761 --------- --------- Cash and Cash Equivalents at End of Period $ 2,227 $ 13,929 ========= ========= Supplemental cash flow information is as follows: Cash payments for interest $ 9,798 $ 9,791 Cash payments for income taxes 936 445 Non-cash transactions: Issuance of common stock 8,664 287 (Cancellation) reacquisition of common stock (513) 227 - ---------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 5 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation The accompanying consolidated financial statements of ICF Kaiser International, Inc. and subsidiaries (the Company), except for the December 31, 1997 balance sheet, are unaudited and have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. These statements should be read in conjunction with the Company's audited consolidated financial statements and footnotes thereto for the year ended December 31, 1997 and the information included in the Company's Annual Report to the Securities and Exchange Commission (SEC) on Form 10-K for the year ended December 31, 1997. Certain reclassifications have been made to the prior period financial statements to conform to the presentation used in the September 30, 1998 financial statements. 2. Adoption of New Pronouncements In June 1997, the Financial Accounting Standards Board issued FASB Statement No. 130 - Reporting Comprehensive Income. The Statement requires that companies begin reporting comprehensive income during the fiscal year beginning after December 15, 1997. Comprehensive income is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The Company adopted the Statement effective the first quarter of 1998. In April 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position 98-5 - Reporting on the Costs of Start-Up Activities (SOP 98-5). The SOP requires costs of organization and start-up activities to be expensed as incurred. Initial application of the SOP should be reported as the cumulative effect of a change in accounting principle, as described in Accounting Principles Board Opinion No. 20, Accounting Changes. The Company adopted the Statement effective April 1, 1998. 3. Net Income Per Common Share In 1997, the Company adopted the Statement of Financial Accounting Standards No. 128, Earnings per Share (SFAS No. 128). All EPS computation periods presented in these financial statements have been restated to conform to SFAS No. 128. Basic EPS is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. The assumed proceeds from the exercise of dilutive securities are used to repurchase common stock at the average market price during the period. The difference between the number of shares assumed issued and the number of shares assumed purchased is added to the basic EPS denominator in order to derive the diluted EPS denominator. At September 30, 1998, there were 1.6 million antidilutive shares outstanding. 4. Long-term Debt As a result of the significant charges recognized during the second and third quarters, the Company was not in compliance either as of June 30 or September 30, 1998 with certain financial covenants set forth in its revolving credit facility. The Company has requested an amendment to allow the Company to be in compliance with reestablished covenants, and the Banks have continued to permit the Company to borrow and obtain letters of credit pursuant to the revolving credit facility while the Company's amendment request is being considered. At September 30, the Company had $20.5 million in cash borrowings and $25.6 million in stand-by letters of credit outstanding. As of November 13, 1998, the Banks had not declared any Events of Default pursuant to the terms of the facility. Accordingly, the total amount of outstanding cash borrowings from the revolver as of September 30, 1998 was classified as long-term debt 6 on the balance sheet. On November 13, 1998, the outstanding cash balance of $25.0 million equaled the limit of the amount of cash borrowings available. During the third quarter, however, it became clear to management that, given the further slippage on several of the large fixed-price project uncertainties (see Note 6 - Contingencies), necessary charges for a realignment of the Company's Engineers and Constructors Group including severance, office closings, and other discontinued operations matters, the Banks might not be willing to provide the additional working capital projected necessary to effect a turnaround. Accordingly, management considered the need for and the possibility of securing alternate financing. Management has received a commitment for the replacement of its existing senior credit facility with a new facility, similar to the Bank revolving line of credit, that would provide for a credit line, for both cash borrowings and letters of credit, of up to $60 million. The Company expects the new facility to be in place by mid-December, 1998. The replacement facility would increase the percentage of eligible accounts receivable acceptable for collateral purposes and increase the limit on cash borrowings from $25 million to $60 million less any outstanding letters of credit. Upon closing of a new facility, the Company would immediately terminate the former Bank revolving credit facility and repay any outstanding borrowings. 5. Income Taxes The Company did not recognize any tax benefits on the operating losses generated during the three months ended September 30, 1998. During the three months ended June 30, 1998, the Company recognized an additional deferred tax asset of $18.1 million, primarily as a result of the losses recognized for cost overruns to be incurred on certain fixed-price contract overruns. The Company has not recorded any additional valuation allowance against the net deferred tax assets carried on the balance sheet at September 30, 1998 totaling $33.0 million. Management believes that through the combination of expected levels of pretax operating earnings and a tax-planning strategy, that would accelerate taxable amounts, it will be able to utilize the balance of deferred tax assets. As permitted by Statement of Financial Accounting Standard No. 109 - Accounting for Income Taxes, tax-planning strategies are alternatives that can be used to provide evidence of the likelihood of future taxable income for purposes of evaluating the necessity of establishing valuation reserves against balances of deferred tax assets. The Company's tax-planning strategy involves the disposition of the Consulting Group operations for consideration that could result in taxable income sufficient to utilize a significant portion of the deferred tax assets. Additionally, the strategy would provide for the proceeds from the sale of the Group to be used to reduce outstanding debt and thereby lower interest costs. In the event that this tax-planning strategy is abandoned, and in the event the Company is not able to demonstrate a reasonable likelihood of sustaining operating profits in the near term, the Company's ability to fully utilize the deferred tax assets could be reduced significantly and a valuation allowance against the asset would have to be recognized in the financial statements as a charge to income. 6. Contingencies In March 1998, the Company entered into a $187 million maximum price contract for the construction of a ship construction facility. The Company subsequently learned that the costs used by the Company and the customer as the basis for negotiation of the contract were approximately $30 million lower than the revised estimated costs to perform the contract as reflected in proposed actual subcontracts. After learning this, the Company advised the customer that it was not required to perform the contract in accordance with its terms. Negotiations with the customer resulted in an interim agreement under which both parties reserved their rights and, on a day-to-day basis, the Company continued to execute certain transitional on-site activities. The customer terminated the interim agreement with the Company effective August 14, 1998. In October 1998, the customer presented an initial draft of a claim request to the Company requesting payment for its perceived damages and entitlements pursuant to the terminated contract. The Company and the customer are currently discussing the customer's draft claim. Given the negotiation status, no provision for any losses on this contract have been included in the Company's financial results to date as management does not believe that it has sufficient information at this time to reasonably estimate the outcome of the negotiations. As a result of uncertainties surrounding the costs to complete certain large fixed-price contracts, including four nitric acid plants, the Company recorded a $40 million charge during the second quarter and a $17.2 million charge during the third quarter of 1998 to establish reserves intended to cover its estimate of the nitric acid contract cost overruns 7 and charges totaling $10.2 million to reflect the adjustment of the earned progress to date on several other fixed price projects. Although management believes that, based on information currently available, an adequate provision for loss reserves for these fixed-price contracts has been reflected in the financial statements, no assurance can be given that the full amount of any claims will be realized or that the loss provision is entirely adequate. 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 continued adequacy of reserves is reviewed periodically as progress on such matters ensues. 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. The Company has provided for its estimate of the potential effect of these investigations, and the continued adequacy of reserves is reviewed periodically as progress on such matters ensues. 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. The adequacy of provisions for reserves is reviewed periodically as progress with the government ensues. Pursuant to the terms of the Company's acquisition of ICF Kaiser Advanced Technology, Inc. on March 17, 1998, the Company issued 1.5 million shares of ICF Kaiser common stock. The agreement guarantees that the fair market value of each share of stock will reach $5.36 by March 1, 2001. In the event the fair market value does not attain the guaranteed level, the Company is obligated to make up the shortfall either through the payment of cash or by issuing additional shares of common stock. Pursuant to the terms of the acquisition agreement, the contingently issuable number of shares, however, cannot exceed 1.5 million. Given the fair market value of the stock at September 30, 1998, the assumed issuance of the additional 1.5 million shares would not completely account for the total amount of the guarantee. As of September 30, 1998, the Company's current debt agreements restrict the amount of cash that could be used to make up any such shortfall. 7. Guarantor Subsidiaries Pursuant to SEC rules regarding publicly held debt, the Company is required to provide financial information for wholly owned subsidiaries of ICF Kaiser International, Inc. (Subsidiary Guarantors) that unconditionally guarantee the payment of the principal, premium, if any, and interest on the Company's Subordinated Notes and its Series B Senior Notes. The Subsidiary Guarantors are Cygna Consulting Engineers and Project Management, Inc; ICF Kaiser Government Programs, Inc; Systems Applications International, Inc; EDA, Incorporated; Global Trade & Investment, Inc; ICF Kaiser Europe, Inc; ICF Kaiser/Georgia Wilson, Inc; ICF Kaiser Overseas Engineering, Inc; ICF Kaiser Engineers Pacific, Inc; ICF Kaiser Remediation Company; and ICF Kaiser Advanced Technology, Inc. Presented below is condensed consolidating financial information for ICF Kaiser International, Inc. (Parent Company), the Subsidiary Guarantors, and the Non-Guarantor Subsidiaries. The information, except for the December 31, 1997 condensed consolidating balance sheet, is unaudited. 8 Investments in subsidiaries have been presented using the equity method of accounting. The Company does not have a formal tax-sharing arrangement with its subsidiaries and has allocated taxes to its subsidiaries based on the Company's overall effective tax rate. In the Company's opinion, presentation of separate financial statements for each individual Subsidiary Guarantor would not provide additional information that is material to investors. Therefore, the Subsidiary Guarantors are combined in the presentation below. 9 ICF Kaiser International, Inc. and Subsidiaries Condensed Consolidating Balance Sheet September 30, 1998 (In thousands) - -------------------------------------------------------------------------------
ICF Kaiser Parent Subsidiary Non-Guarantor International, Inc. Company Guarantors Subsidiaries Eliminations Consolidated ---------- ---------- ------------- ------------ ------------------ (Unaudited) Assets Current Assets Cash and cash equivalents $ (2,652) $ (6,337) $ 11,216 $ -- $ 2,227 Contract receivables, net 1,404 177,759 115,215 -- 294,378 Intercompany receivables, net 107,388 13,701 (121,089) -- -- Prepaid expenses and other current assets 3,483 680 7,010 -- 11,173 Deferred income taxes 25,802 3,245 3,991 -- 33,038 --------- --------- --------- --------- --------- Total Current Assets 135,425 189,048 16,343 -- 340,816 --------- --------- --------- --------- --------- Fixed Assets Furniture, equipment, and leasehold improvements 10,886 3,420 35,957 -- 50,263 Less depreciation and amortization (6,482) (3,105) (29,538) -- (39,125) --------- --------- --------- --------- --------- 4,404 315 6,419 -- 11,138 --------- --------- --------- --------- --------- Other Assets Goodwill, net -- 8,940 41,155 -- 50,095 Other 16,167 790 17,431 (11,362) 23,026 --------- --------- --------- --------- --------- 16,167 9,730 58,586 (11,362) 73,121 --------- --------- --------- --------- --------- Total Assets $ 155,996 $ 199,093 $ 81,348 $ (11,362) $ 425,075 ========= ========= ========= ========= ========= Liabilities and Shareholders' Equity Current Liabilities Current portion of long-term debt $ -- $ -- $ -- $ -- $ -- Accounts payable and other accrued expenses 25,646 139,446 31,283 -- 196,375 Accrued salaries and employee benefits (1,476) 19,782 25,528 -- 43,834 Other 7,171 2,219 41,843 -- 51,233 --------- --------- --------- --------- --------- Total Current Liabilities 31,341 161,447 98,654 -- 291,442 Long-term Liabilities Long-term debt, less current portion 157,866 -- -- -- 157,866 Other 2,319 26 1,939 -- 4,284 --------- --------- --------- --------- --------- Total Liabilities 191,526 161,473 100,593 -- 453,592 --------- --------- --------- --------- --------- Minority Interests in Subsidiaries -- 7,877 -- -- 7,877 Shareholders' Equity Common Stock 231 8,189 131 (8,307) 244 Additional Paid-in Capital 72,775 2,596 60,935 (60,916) 75,390 Accumulated Earnings (Deficit) (107,897) 19,139 (76,842) 57,861 (107,739) Other Equity (639) (181) (3,469) -- (4,289) --------- --------- --------- --------- --------- Total Shareholders' Equity (35,530) 29,743 (19,245) (11,362) (36,394) --------- --------- --------- --------- --------- Total Liabilities and Shareholders' Equity $ 155,996 $ 199,093 $ 81,348 $ (11,362) $ 425,075 ========= ========= ========= ========= =========
- ------------------------------------------------------------------------------- See notes to consolidated financial statements. 10 ICF Kaiser International, Inc. and Subsidiaries Condensed Consolidating Balance Sheet December 31, 1997 (In thousands)
- ------------------------------------------------------------------------------------------------------------------------------------ ICF Kaiser Parent Subsidiary Non-Guarantor International, Inc. Company Guarantors Subsidiaries Eliminations Consolidated ----------- ------------ -------------- ------------- ------------------- (Unaudited) Assets Current Assets Cash and cash equivalents $ (5,665) $ 10,258 $ 14,605 $ -- $ 19,198 Contract receivables, net 3,210 96,921 163,899 -- 264,030 Intercompany receivables, net 136,629 (2,529) (134,100) -- -- Prepaid expenses and other current assets 4,181 475 9,834 -- 14,490 Deferred income taxes 14,749 -- 532 -- 15,281 --------- ----------- ----------- ------------ ------------- Total Current Assets 153,104 105,125 54,770 -- 312,999 --------- ----------- ----------- ------------ ------------- Fixed Assets Furniture, equipment, and leasehold improvements 9,728 2,505 39,213 -- 51,446 Less depreciation and amortization (5,361) (2,275) (32,012) -- (39,648) --------- ----------- ----------- ------------ ------------- 4,367 230 7,201 -- 11,798 --------- ----------- ----------- ------------ ------------- Other Assets Goodwill, net -- 4,793 42,530 -- 47,323 Other 50,528 1,849 17,552 (43,583) 26,346 --------- ----------- ----------- ------------ ------------- 50,528 6,642 60,082 (43,583) 73,669 --------- ----------- ----------- ------------ ------------- Total Assets $ 207,999 $ 111,997 $ 122,053 $ (43,583) $ 398,466 ========= =========== =========== ============ ============= Liabilities and Shareholders' Equity Current Liabilities Current portion of long-term debt $ -- $ -- $ 15 $ -- $ 15 Accounts payable and other accrued expenses 23,186 79,893 35,254 -- 138,333 Accrued salaries and employee benefits 6,938 16,722 13,994 -- 37,654 Other 4,138 848 41,490 -- 46,476 ---------- ----------- ----------- ------------ ------------- Total Current Liabilities 34,262 97,463 90,753 -- 222,478 Long-term Liabilities Long-term debt, less current portion 141,004 -- -- -- 141,004 Other 2,437 26 2,123 -- 4,586 ---------- ----------- ----------- ------------ ------------- Total Liabilities 177,703 97,489 92,876 -- 368,068 ---------- ----------- ----------- ------------ ------------- Minority Interests in Subsidiaries -- 3,071 -- -- 3,071 Shareholders' Equity Common Stock 214 148 129 (266) 225 Additional Paid-in Capital 66,888 2,796 58,548 (61,116) 67,116 Accumulated Earnings (Deficit) (34,384) 8,757 (26,397) 17,799 (34,225) Other Equity (2,422) (264) (3,103) -- (5,789) ---------- ----------- ----------- ------------ -------------- Total Shareholders' Equity 30,296 11,437 29,177 (43,583) 27,327 ---------- ----------- ----------- ------------ -------------- Total Liabilities and Shareholders' Equity $ 207,999 $ 111,997 $ 122,053 $ (43,583) $ 398,466 ========== =========== =========== ============ ============== - ------------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 11 ICF Kaiser International, Inc. and Subsidiaries Condensed Consolidating Statement of Income and Comprehensive Income Nine Months Ended September 30, 1998 (In thousands) - -------------------------------------------------------------------------------
ICF Kaiser Parent Subsidiary Non-Guarantor International, Inc. Company Guarantors Subsidiaries Eliminations Consolidated ---------- ---------- ------------ ------------ ------------------- (Unaudited) Gross Revenue $ 949 $ 568,845 $ 340,002 $ -- $ 909,796 Subcontract and direct material costs (470) (446,240) (155,241) -- (601,951) Privision for contract loss -- -- (57,210) -- (57,210) Equity in income of joint ventures and affiliated companies and subsidiaries (46,905) -- 6,670 45,301 5,066 --------- --------- --------- --------- --------- Service Revenue (46,426) 122,605 134,221 45,301 255,701 Operating Expenses Operating expenses 12,998 108,225 169,710 -- 290,933 Depreciation and amortization 1,962 840 3,891 -- 6,693 Severance and Restructuring Charge 7,907 -- 1,500 -- 9,407 Discontinued Operations 2,882 -- 4,790 -- 7,672 --------- --------- --------- --------- --------- Operating Income (72,175) 13,540 (45,670) 45,301 (59,004) Other Income (Expense) Interest and investment income 226 448 565 -- 1,239 Interest expense (14,719) (144) (38) -- (14,901) --------- --------- --------- --------- --------- Income (Loss) Before Income Taxes, Minority Interests, and Cumulative Effect of Accounting Change (86,668) 13,844 (45,143) 45,301 (72,666) Income tax provision (benefit) (13,154) 2,101 (6,851) 6,875 (11,029) --------- --------- --------- --------- --------- Income Before Minority Interests and Cumulative Effect of Accounting Change (73,514) 11,743 (38,292) 38,426 (61,637) Minority interests in net income of subsidiaries -- 5,877 -- -- 5,877 --------- --------- --------- --------- --------- Income Before Cumulative Effect of Accounting Change (73,514) 5,866 (38,292) 38,426 (67,514) Cumulative effect of accounting change, net of tax -- 754 5,246 -- 6,000 --------- --------- --------- --------- --------- Net Income (Loss) $ (73,514) $ 5,112 $ (43,538) $ 38,426 $ (73,514) ========= ========= ========= ========= ========= Foreign currency translation adjustment (283) -- -- -- (283) --------- --------- --------- --------- --------- Comprehensive Income (Loss) $ (73,797) $ 5,112 $ (43,538) $ 38,426 $ (73,797) ========= ========= ========= ========= =========
- ------------------------------------------------------------------------------- See notes to consolidated financial statements. 12 ICF Kaiser International, Inc. and Subsidiaries Condensed Consolidating Statement of Income and Comprehensive Income Nine Months Ended September 30, 1997 (In thousands) - -------------------------------------------------------------------------------
ICF Kaiser Parent Subsidiary Non-Guarantor International, Inc. Company Guarantors Subsidiaries Eliminations Consolidated --------- ---------- ------------ ------------ ------------------- (Unaudited) Gross Revenue $ 475 $ 467,034 $ 372,207 $ -- $ 839,716 Subcontract and direct material costs (441) (336,125) (175,040) -- (511,606) Equity in income of joint ventures and affiliated companies and subsidiaries 32,196 -- 2,667 (33,311) 1,552 --------- --------- --------- --------- --------- Service Revenue 32,230 130,909 199,834 (33,311) 329,662 Operating Expenses Operating expenses 17,404 114,926 168,954 -- 301,284 Depreciation and amortization 1,738 475 4,984 -- 7,197 --------- --------- --------- --------- --------- Operating Income 13,088 15,508 25,896 (33,311) 21,181 Other Income (Expense) Interest income 459 489 449 (57) 1,340 Interest expense (13,340) (65) (44) 52 (13,397) --------- --------- --------- --------- --------- Income Before Income Taxes and Minority Interests 207 15,932 26,301 (33,316) 9,124 Income tax provision (benefit) 37 2,868 4,734 (5,997) 1,642 --------- --------- --------- --------- --------- Income Before Minority Interests 170 13,064 21,567 (27,319) 7,482 Minority interests in net income of subsidiaries -- 7,312 -- -- 7,312 --------- --------- --------- --------- --------- Net Income $ 170 $ 5,752 $ 21,567 $ (27,319) $ 170 ========= ========= ========= ========= ========= Foreign currency translation adjustment (1,215) -- -- -- (1,215) --------- --------- --------- --------- --------- Comprehensive Income (Loss) $ (1,045) $ 5,752 $ 21,567 $ (27,319) $ (1,045) ========= ========= ========= ========= =========
- ------------------------------------------------------------------------------- See notes to consolidated financial statements. 13 ICF Kaiser International, Inc. and Subsidiaries Condensed Consolidating Statement of Income and Comprehensive Income Three Months Ended September 30, 1998 (In thousands) - --------------------------------------------------------------------------------
ICF Kaiser Parent Subsidiary Non-Guarantor International, Inc. Company Guarantors Subsidiaries Eliminations Consolidated ------------- ------------- ------------- ------------- ------------------- (Unaudited) Gross Revenue $ 341 $ 266,687 $ 25,500 $ - $ 292,528 Subcontract and direct material costs (190) (221,139) 25,855 - (195,474) Privision for contract loss - - (17,210) - (17,210) Equity in income of joint ventures and affiliated companies and subsidiaries (14,794) - 2,697 14,729 2,632 ------------ ------------ ------------ ------------ ---------------- Service Revenue (14,643) 45,548 36,842 14,729 82,476 Operating Expenses Operating expenses 5,011 42,019 49,049 - 96,079 Depreciation and amortization 704 436 1,122 - 2,262 Severance and Restructuring Charge 6,407 - 1,500 - 7,907 Discontinued Operations 2,882 - 4,790 - 7,672 ------------ ------------ ------------ ------------ ---------------- Operating Income (29,647) 3,093 (19,619) 14,729 (31,444) Other Income (Expense) Interest and investment income 45 249 44 - 338 Interest expense (5,073) (48) (20) - (5,141) ------------ ------------ ------------ ------------ ---------------- Income (Loss) Before Income Taxes, Minority Interests, and Cumulative Effect of Accounting Change (34,675) 3,294 (19,595) 14,729 (36,247) Income tax provision (benefit) 3,616 (1,302) 1,390 (2,986) 718 ------------ ------------ ------------ ------------ ---------------- Income Before Minority Interests and Cumulative Effect of Accounting Change (38,291) 4,596 (20,985) 17,715 (36,965) Minority interests in net income of subsidiaries - 1,326 - - 1,326 ------------ ------------ ------------ ------------ ---------------- Income Before Cumulative Effect of Accounting Change (38,291) 3,270 (20,985) 17,715 (38,291) Cumulative effect of accounting change, net of tax - 754 (754) - - ------------ ------------ ------------ ------------ ---------------- Net Income (Loss) $ (38,291) $ 2,516 $ (20,231) $ 17,715 $ (38,291) ============ ============ ============ ============ ================ Foreign currency translation adjustment 604 - - - 604 ------------ ------------ ------------ ------------ ---------------- Comprehensive Income (Loss) $ (37,687) $ 2,516 $ (20,231) $ 17,715 $ (37,687) ============ ============ ============ ============ ================
- ------------------------------------------------------------------------------- See notes to consolidated financial statements. 14 ICF Kaiser International, Inc. and Subsidiaries Condensed Consolidating Statement of Income and Comprehensive Income Three Months Ended September 30, 1997 (In thousands) - -----------------------------------------------------------------------------
ICF Kaiser Parent Subsidiary Non-Guarantor International, Inc. Company Guarantors Subsidiaries Eliminations Consolidated ------- ---------- ------------- ------------ ------------------- (Unaudited) Gross Revenue $ 252 $ 188,523 $ 143,398 $ -- $ 332,173 Subcontract and direct material costs (140) (143,852) (72,796) -- (216,788) Equity in income of joint ventures and affiliated companies and subsidiaries 10,987 -- 1,575 (11,844) 718 --------- --------- --------- --------- --------- Service Revenue 11,099 44,671 72,177 (11,844) 116,103 Operating Expenses Operating expenses 6,222 39,616 60,616 -- 106,454 Depreciation and amortization 595 (108) 1,968 -- 2,455 --------- --------- --------- --------- --------- Operating Income 4,282 5,163 9,593 (11,844) 7,194 Other Income (Expense) Interest income 60 135 140 (11) 324 Interest expense (4,197) (40) (14) 11 (4,240) --------- --------- --------- --------- --------- Income Before Income Taxes and Minority Interests 145 5,258 9,719 (11,844) 3,278 Income tax provision (benefit) 25 797 1,517 (1,831) 508 --------- --------- --------- --------- --------- Income Before Minority Interests 120 4,461 8,202 (10,013) 2,770 Minority interests in net income of subsidiaries -- 2,650 -- -- 2,650 --------- --------- --------- --------- --------- Net Income $ 120 $ 1,811 $ 8,202 $ (10,013) $ 120 ========= ========= ========= ========= ========= Foreign currency translation adjustment (777) -- -- -- (777) --------- --------- --------- --------- --------- Comprehensive Income (Loss) $ (657) $ 1,811 $ 8,202 $ (10,013) $ (657) ========= ========= ========= ========= =========
- ------------------------------------------------------------------------ See notes to consolidated financial statements. 15 ICF Kaiser International, Inc. and Subsidiaries Condensed Consolidating Statement of Cash Flows Nine Months Ended September 30, 1998 (In thousands) - ----------------------------------------------------------------------
ICF Kaiser Parent Subsidiary Non-Guarantor International, Inc. Company Guarantors Subsidiaries Eliminations Consolidated ---------- ---------- ------------ ------------ ------------------- (Unaudited) Net Cash Provided by (Used in) Operating Activities $ (14,993) $ (15,095) $ (5,207) $ -- $ (35,295) --------- --------- --------- --------- --------- Investing Activities Purchases of fixed assets 1,159 -- (3,869) -- (2,710) Cash acquired from (invested in) subsidiary acquisitions -- -- 3,570 -- 3,570 Sale of subsidiaries and/or investments -- -- 2,400 -- 2,400 --------- --------- --------- --------- --------- Net Cash Used in Investing Activities 1,159 -- 2,101 -- 3,260 --------- --------- --------- --------- --------- Financing Activities Borrowings under credit facility 114,000 -- -- -- 114,000 Principal payments on credit facility (97,500) -- -- -- (97,500) Distribution of income to minority interest -- (1,500) -- -- (1,500) Proceeds from issuances of common stock 347 -- -- -- 347 --------- --------- --------- --------- --------- Net Cash Used in Financing Activities 16,847 (1,500) -- -- 15,347 --------- --------- --------- --------- --------- Effect of Exchange Rate Changes on Cash -- -- (283) -- (283) --------- --------- --------- --------- --------- Increase (Decrease) in Cash and Cash Equivalents 3,013 (16,595) (3,389) -- (16,971) Cash and Cash Equivalents at Beginning of Period (5,665) 10,258 14,605 -- 19,198 --------- --------- --------- --------- --------- Cash and Cash Equivalents at End of Period $ (2,652) $ (6,337) $ 11,216 $ -- $ 2,227 ========= ========= ========= ========= =========
- ------------------------------------------------------------------ See notes to consolidated financial statements. 16 ICF Kaiser International, Inc. and Subsidiaries Condensed Consolidating Statement of Cash Flows Nine Months Ended September 30, 1997 (In thousands) - ------------------------------------------------------------------------------
ICF Kaiser Parent Subsidiary Non-Guarantor International, Inc. Company Guarantors Subsidiaries Eliminations Consolidated -------- ---------- ------------ ------------ ------------------ (Unaudited) Net Cash Provided by (Used in) Operating Activities $ 24,545 $ (2,100) $ (8,451) $ 494 $ 14,488 -------- -------- -------- -------- -------- Investing Activities Purchases of fixed assets (1,638) (6) (1,474) -- (3,118) Cash acquired from (invested in) subsidiary acquisitions -- -- (441) -- (441) Sale of subsidiaries and subsidiary assets -- -- 16,540 -- 16,540 -------- -------- -------- -------- -------- Net Cash Used in Investing Activities (1,638) (6) 14,625 -- 12,981 -------- -------- -------- -------- -------- Financing Activities Borrowings under credit facility 69,000 -- -- -- 69,000 Principal payments on credit facility (87,500) -- -- -- (87,500) Distribution of income to minority interest -- (9,950) -- -- (9,950) Proceeds from issuances of common stock 165 -- -- -- 165 Repurchases of common stock (252) -- -- -- (252) Debt issuance costs (549) -- -- -- (549) -------- -------- -------- -------- -------- Net Cash Used in Financing Activities (19,136) (9,950) -- -- (29,086) -------- -------- -------- -------- -------- Effect of Exchange Rate Changes on Cash -- -- (1,215) -- (1,215) -------- -------- -------- -------- -------- Increase (Decrease) in Cash and Cash Equivalents 3,771 (12,056) 4,959 494 (2,832) Cash and Cash Equivalents at Beginning of Period (7,720) 12,210 12,765 (494) 16,761 -------- -------- -------- -------- -------- Cash and Cash Equivalents at End of Period $ (3,949) $ 154 17,724 $ -- $ 13,929 ======== ======== ======== ======== ========
- ------------------------------------------------------------------- See notes to consolidated financial statements. 17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Since the Company's last quarterly filing on Form 10-Q, senior management of the Company has changed significantly; Keith Price is now President and Chief Executive Officer and Richard Leupen is now President of the Engineers & Constructors (E&C) Group. Changes have also been made in other senior management positions within the E&C Group. As referenced in previous filings, the Company has had difficulty performing several fixed-price contracts involving the construction of plants to produce nitric acid (the Nitric Acid Projects). Initially, the Company believed that the cost overruns, and associated management and execution difficulties, would be limited to only one of the four contracts within the Company's Engineers & Constructors Group, and in December 1997 recorded an estimated $2.0 million loss at completion and reversed all profit previously recognized on that specific project. However, during the second quarter of 1998, it became apparent that several of the other contracts faced similar cost overruns. After a review of all of the contracts and the potential liabilities, the Company recorded additional charges of $40 million during the three months ending June 30, 1998. The Company has now recorded an additional charge of $7.0 million during the three months ended September 30, 1998 to increase the second reserve. Since June 30, the Company has been using the internal resources of its new construction subsidiary to manage the completion of the Nitric Acid Projects. These projects have and will continue to receive the attention necessary to reduce additional risks. The Company continues to pursue recovery of portions of the overruns from both the customers and certain subcontractors. To date, no estimates for recoveries have been offset against the charges recognized above. Additionally during the third quarter of this year, the Company performed and was subjected to extensive reviews and analyses aimed at identifying the contributors to the Nitric Acid problems in an effort to mitigate the risk of similar problems occurring in the future. Partly as a result of these reviews, the Company recognized an additional charge totaling $10.2 million to reflect the adjustment of the earned progress to date on several other large fixed-price projects as well as to provide for reasonable estimates of reserves needed for certain risks associated with those projects. The total of the adjustments for these unusual charges during the third quarter of 1998 was $17.2 million. Management does not believe it has the requisite information to form reasonable estimates of other risks; adjustments to these financial statements may have to be, but as of yet, have not been made. Despite these issues, the Company continues to be awarded major contracts demonstrated in the recent award of a five-year, $1.1 billion contract to a new joint venture between Northrop Grumman, Wackenhut Corporation, and the Company to jointly manage base operations for NASA and the U.S. Air Force at Kennedy Space Center, Cape Canaveral Air Station, Patrick Air Force Base, Florida Annexes, and the Trans Oceanic Abort Sites. The Company's total contract backlog approximated $3.5 billion at September 30, 1998 compared to $4.1 billion at December 31, 1997. Excluding the backlog of Kaiser-Hill, backlog increased $0.1 million during this nine month period. Largely as a result of the project losses and adjustments within the E&C Group, the changes in senior management discussed above were made. The new management team members not only bring significant requisite industry knowledge and experience to lead, grow, and improve the operations of the Company and the E&C Group but have also demonstrated the skills necessary to effect positive change when beginning from a troubled position. The new management team has conducted exhaustive reviews of the most significant projects and assessed the risks and opportunities in active business areas. The new team has identified issues and contributors that it believes to have led to the losses to date. Management is committed to implementing proper management controls and the processes necessary to deliver high-quality, profitable projects throughout the Company. Their plan provides for the discontinuance of unprofitable operations, the realignment of staff within the Company to meet current needs, and the improvement of risk assessment within the organization. Specifically, operating management will focus on improving contract operating profit margins and improving risk management. Management believes it can reduce its current annual overhead and general and administrative cost structures by $10 million and has begun execution of its cost-reduction plan. The Company recognized an unusual charge for office realignments and discontinued business areas of $7.7 million and a charge for severance costs and other restructuring costs of $7.9 million during the three months ended September 30, 1998. 18 The Special Committee of the Board of Directors, whose creation was announced in the second quarter Report on Form 10-Q, continues to explore alternatives for realizing the significant value of the Company's Consulting Group, which may not be fully reflected in the Company's total current market valuation. significant shareholder. The Committee will also continue to consider strategic alternatives for the Company as a whole. The sale of one or more of its groups is such a possibility. The Special Committee has retained Raymond James and Associates, Inc. as financial advisors to the Committee. The Company recorded a charge of $1.5 million during the second quarter for financial and advisory costs incurred for the disposition of one of its groups. Anticipating the upcoming strains on the Company's cash flow stemming from the project cost overruns and restructuring charges, management has sought additional sources of financing. As discussed below, the Company has received a commitment for the replacement of its existing senior credit facility with a new facility. The following discussion describes the Company's results of operations for the three and nine months ended September 30, 1998 and 1997. Due to the magnitude of the effect of many of the nonrecurring adjustments described above, many of the analyses that follow have been adjusted to focus on the Company's remaining core operations. Results of Operations Gross Revenue (1) The Company's gross revenue by operating group for the three and nine months ended September 30, 1998 and 1997 is as follows (in millions):
Three Months Ended September 30 Nine Months Ended September 30 -------------------------------------------------------------------------- 1998 1997 Change 1998 1997 Change ----------- ------------- ------------------------- ----------- --------- Environment and Facilities Management (EFM) $ 214.7 $ 216.4 (1%) $ 553.3 $ 529.1 5% Engineering and Construction (E&C) 54.0 92.6 (42%) 282.4 245.0 15% Consulting 27.4 23.9 15% 79.8 69.9 14% Other, net (3.6) (0.7) - (5.7) (4.3) - ----------- ------------- ----------- ----------- Total $ 292.5 $332.2 (12%) $ 909.8 $ 839.7 8% =========== ============= =========== ===========
(1) 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. The reasons for the fluctuations in the Group results during the periods presented are as follows: Environment and Facilities Management Group (EFM) . a decrease of $8.4 million and an increase of $16.3 million in revenue, for the three and nine months respectively, from the Rocky Flats contract performed by Kaiser-Hill (primarily reflecting the timing of major subcontract work performed in 1998 versus the same periods 1997) . an increase of $7.4 million and $8.6 million for the three and nine months, respectively, generated on environmental restoration contracts with the federal government Engineers & Constructors Group (E&C) . a reduction of $35.0 million and $6.1 million for the three and nine months, respectively, in revenue recognized on the Nitric Acid projects (partially reflective of the decreasing volume of activity on the projects as they near completion and partially reflective of the reversal of over-recognized revenue as a result of the additional losses now estimated at completion.) 19 . a reduction of $7.4 million and $2.2 million in revenue, for the three and nine months, respectively, generated by the Company's Australia and Asian activities. The three month decline was largely due to the winding down of certain large projects during the third quarter of 1998. The effects of these decreases on operating income, however, were offset as the region secured a major new joint venture project, the results of which are only reflected in the Company's service revenue. The decrease for the nine months ended September 30, 1998 was largely due to negative impacts of foreign currency translation fluctuations . an increase of $13.4 million and $77.9 million in revenue for the three and nine months, respectively, generated by the Company's new construction subsidiary, ICF Kaiser Advanced Technology, Inc. (formerly ICT Spectrum), acquired effective January 1, 1998 . a decrease of $6.5 million and $14.5 million for the three and nine months, respectively, resulting from completing contracts for a major U.S. industrial client . other net decreases of $7.3 million (or 8% of the comparable 1997 gross revenue base) and $11.6 million (or 5% of the comparable prior-year revenue base) on the timing of other E&C contract activities . an increase of $4.2 million in revenue generated primarily from direct materials procured for the Nova Hut steel mini-mill contract in the Czech Republic during the third quarter of 1998 and a decrease of $6.1 million in revenue for the nine months ended September 30, 1998 primarily due to an adjustment to reduce revenue by $5.7 million to more closely reflect the actual percentage complete with the project as of September 30, 1998. Consulting Group . increases of $3.5 million (or 15%) and $9.9 million (or 14%) in revenue for the three and nine months, respectively, generated by the Company's consulting activities. Growth was experienced in all of the Groups' business lines. . The Group's headcount and labor base have grown by more than 16% during the nine months ended September 30, 1998 in order to respond to growth experienced in contract awards. Service Revenue (1) - --------------- The Company's service revenue by operating group for the three and nine months ended September 30, 1998 and 1997 is as follows (in millions):
Three Months Ended September 30 Nine Months Ended September 30 ------------------------------------------ ------------------------------------------ 1998 (2) 1997 (2) Change 1998 (2) 1997 (2) Change -------- ------- -------- ------- -------- -------- ------- -------- ------- -------- Environment and Facilities Management (EFM) $ 50.1 23% $ 60.2 28% -17% $ 146.8 27% $ 168.5 32% -13% Engineering and Construction (E&C) 11.4 21% 36.9 40% -69% 47.1 17% 105.6 43% -55% Consulting 21.8 80% 18.6 78% 17% 62.6 78% 54.5 78% 15% Equity in income of joint ventures and affiliated companies 2.6 - 0.7 - 271% 5.1 - 1.6 - 219% Other, net (3.4) - (0.3) - - (5.9) - (0.5) - -------- -------- -------- -------- $ 82.5 28% $ 116.1 35% -29% $ 255.7 28% $ 329.7 39% -22% ======== ======== ======== ======== Adjusted for all effects of the Nitric Acid projects $ 88.2 28% $ 115.9 37% -24% $ 296.2 34% $ 324.5 40% -9% ======== ======== ======== ======== Adjusted for the effects of acquisitions and the Nitric Acid projects $ 86.1 29% $ 115.9 37% -26% $ 289.1 36% $ 324.5 40% -11% ======== ======== ======== ========
(1) Service revenue is derived by deducting the costs of subcontracted services and materials from gross revenue and adding the Company's share of the equity in income of unconsolidated joint ventures and affiliated companies. (2) This column reflects each operating group's service revenue as a percentage of its gross revenue. Service revenue decreased by $33.6 million and $74.0 million for the three and nine months ended September 30, 1998, respectively, compared to the same periods in 1997. The majority of the decreases were due to the $17.2 million and $57.2 million loss reserves, respectively, established primarily to cover estimated cost overruns on the Nitric Acid Projects and also for revised profit margin estimates at completion on other large fixed price projects. Although management believes that adequate provision for loss reserves and profit estimates for these fixed-price 20 contracts has been reflected in the financial statements, no assurance can be given that the full amount of the claims will be realized or that the loss provision is entirely adequate. Service revenue from the Rocky Flats contract decreased by $9.4 million and $17.9 million for the three and nine months respectively, as compared to 1997. This decrease is attributable to Kaiser-Hill's continuing strategy to subcontract more of the overall contract tasks and to emphasize its primary role as the overall services integrator on the Rocky Flats contract. Because the contract primarily reimburses Kaiser-Hill for its actual costs incurred plus an incentive fee on performance-based completion milestones, the shift from direct labor to subcontracted costs has no impact to Kaiser-Hill's actual profitability. As with all contracts involving incentive-based fee arrangements, the Company estimates the amount of fee it believes it will earn and recognizes revenue equal to the estimated fee percentage multiplied by the base of costs on which the fee is incurred. During the third quarter of 1998, the Company determined that Kaiser-Hill was not going to earn the same level of fee as in 1997, and accordingly adjusted the fee revenue down to the revised estimate. This resulted in a decrease to Kaiser-Hill's third quarter operating income (before exclusion of the minority interest) by approximately $2.0 million. The service revenue decreases discussed above were somewhat offset by $2.1 million and $7.1 million increases for the three and nine months, respectively, in service revenue generated by the 1998 acquisition of ICF Kaiser Advanced Technology. Increases for both the three- and nine-month periods in service revenue from the Consulting Group paralleled the increases in the related gross revenue. Equity in income from joint ventures and affiliated companies increased by $1.9 million and $3.5 million, for the three and nine months respectively, due primarily to a joint venture contract awarded in late 1997 for an alumina refinery expansion project in Australia. Additional declines in service revenue of $7.3 million and $9.6 million for the three and nine months, respectively are attributable to lower levels being generated by the Nova Hut contract for the comparable 1998 periods as the contract has moved into a phase that is more subcontractor and material intensive. Service revenue as a percentage of gross revenue decreased to 28% for both the three and nine months ended September 30, 1998, respectively, compared to 35% and 39% for the same periods in 1997. The decrease is largely attributable to the results of the Nitric Acid Projects as well as the reserve for related contract overruns. In addition to the $17.2 million and $57.2 million reserve for project overruns, the projects generated gross revenue of $30.9 million during the nine months ended September 30, 1998, without generating any service revenue as a result of the projected losses at completion. Additionally, ICF Kaiser Advanced Technology's 9% service revenue margins are significantly lower than the percentage for the remainder of the Company. The general construction management nature of ICF Kaiser Advanced Technology's business involves the subcontracting of major portions of most prime contracts. As a result, service revenue as a percentage of gross revenue for the Company as a whole will likely decrease in the future to the extent this business grows. In March 1998, the Company entered into a $187 million maximum price contract for the construction of a ship construction facility. The Company subsequently learned that the costs used by the Company and the customer as the basis for negotiation of the contract were approximately $30 million lower than the estimated actual costs to perform the contract as reflected in proposed actual subcontracts. After learning this, the Company advised the customer that it was not required to perform the contract in accordance with its terms. Negotiations with the customer resulted in an interim agreement under which both parties reserved their rights and, on a day-to-day basis, the Company continued to execute certain transitional on-site activities. The customer terminated the interim agreement with the Company effective August 14, 1998. In October 1998, the customer presented an initial draft of a claim request to the Company requesting payment for its perceived damages and entitlements pursuant to the terminated contract. The Company and the customer are currently discussing the customer's draft claim. Given the negotiation status, no provision for any losses on this contract have been included in the Company's financial results to date as management does not believe that it has sufficient information at this time to reasonably estimate the outcome of the negotiations. 21 Operating Expenses - ------------------ To analyze operating expenses as a percentage of service revenue, shown below, service revenue has been adjusted to exclude the effects of the Nitric Acid Projects, as well as the other contract loss provisions, for all periods presented.
Three Months Ended Nine Months Ended September 30, September 30, -------------------- -------------------- 1998 1997 1998 1997 -------- -------- -------- -------- Service Revenue (1) 100% 100% 100% 100% Operating Expenses Direct labor and fringe benefits 67% 67% 67% 68% Group overhead (2) 24% 20% 22% 20% Corporate general and administrative (3) 6% 5% 5% 5% Depreciation and amortization 2% 2% 2% 2% -------- -------- -------- -------- Operating Income (4) 1% 6% 4% 5% ======== ======== ======== ========
(1) Service revenue has been adjusted to exclude the 1998 and 1997 effects of the Nitric Acid Projects. (2) Group overhead represents those general and administrative costs incurred by the Company's operating groups for which an indirect benefit is generally not derived by any other operating group. (3) Corporate general and administrative expenses consists of costs incurred by the Company which provide some indirect benefit to all operating groups. (4) Operating Income as presented here excludes the effects of the severance and restructuring and unusual charges recorded during the third quarter of 1998. The acquisition of ICF Kaiser Advanced Technology added direct labor and fringe benefits expense of $1.5 million and $4.6 million during the three and nine months ended September 30, 1998, respectively. Apart from acquired direct labor growth, other direct labor spending decreased by $12.7 million (or 16%) and $18.1 million (or 8%), respectively, during the three and nine months ended September 30, 1998 compared to 1997 levels. This reduction is due primarily to decreases incurred by Kaiser-Hill of $6.8 million (17% reduction) and $15.1 million (14% reduction), respectively. These reductions reflect Kaiser-Hill's actions in using more subcontractors to execute work on the Rocky Flats contract. These reductions offset the increases in subcontractor costs as evidenced in the direct labor as a percent of service revenue in the 1998 periods remaining consistent with those levels incurred in the 1997 periods. Group overhead increased by $0.5 million, or 2%, and $4.0 million, or 6%, during the three and nine months ended September 30, 1998, respectively, compared to the same periods in 1997. The 1998 group overhead increase reflects the inclusion of $0.5 million and $1.5 million in general and administrative costs incurred by ICF Kaiser Advanced Technology during the three and nine month periods, respectively; a $0.7 million charge in the first quarter of 1998 to establish reserves for contingencies; and lastly, a combination of other increases in marketing and administrative expenses which were not incurred at similar levels during the same three and nine month periods in 1997. Group overhead is likely to continue to increase in the near term as the Company invests in areas designed to improve existing project controls and contracting processes as discussed below. Corporate general and administrative expense increased by $0.3 million, or 5%, and decreased $0.8 million, or 5%, during the three and nine months ended September 30, 1998, respectively compared to the same periods in 1997. These changes resulted in corporate general and administrative expense maintaining an approximate 5% of total service revenue (service revenue as adjusted for the effects of the Nitric Acid Projects and other contract loss provisions) for all financial statement periods presented. This new management team believes it can reduce the Company's current annual overhead and general and administrative cost structures by $10 million and has begun execution of its cost reduction plan. The Company recognized an unusual charge for office realignment and discontinued business areas of $7.7 million and a charge for severance costs and other restructuring of $7.9 million during the three months ended September 30, 1998. 22 Interest Expense - ---------------- Interest expense increased $0.9 million, or 21%, and $1.5 million, or 11%, during the three and nine months ended September 30, 1998 compared to the same periods in 1997. Included in interest expense during the first and third quarters of 1997 were reductions of $0.4 million and $0.6 million, respectively, reflecting recoveries from the favorable resolution of a foreign income tax matter. Apart from this non-recurring interest credit, interest expense has increased due to net increases in outstanding cash borrowings from the Company's revolving credit facility. Average balances outstanding on the revolving credit facility totaled $19.5 million and $7.1 million, respectively during the three months ended September 30, 1998 and 1997. For the nine month periods then ended, the average revolver balances were $12.0 million and $4.5 million, respectively. Income Tax Expense - ------------------ The Company did not recognize any tax benefits on the operating losses generated during the three months ended September 30, 1998. During the three months ended June 30, 1998, the Company recognized an additional deferred tax asset of $18.1 million, primarily as a result of the losses recognized for cost overruns to be incurred on certain fixed-price contract overruns. The Company has not recorded any additional valuation allowance against the net deferred tax assets carried on the balance sheet at September 30, 1998 totaling $33.0 million. Management believes that through the combination of expected levels of pretax operating earnings (brought about, in part, by the restructuring plan described above) and a tax-planning strategy, that would, if necessary, accelerate taxable amounts, it will be able to utilize the balance of deferred tax assets. As permitted by Statement of Financial Accounting Standard No. 109 - Accounting for Income Taxes, tax-planning strategies are alternatives that can be used to provide evidence of the likelihood of future taxable income for purposes of evaluating the necessity of establishing valuation reserves against balances of deferred tax assets. The Company's tax-planning strategy involves the disposition of the Consulting Group operations for consideration that could result in taxable income sufficient enough to utilize a significant portion of the deferred tax assets. Additionally, the strategy would provide for the proceeds from the sale of the Group to be used to reduce outstanding debt and thereby lower interest costs. In the event that this tax-planning strategy is abandoned, and in the event the Company is not able to demonstrate a reasonable likelihood of sustaining operating profits in the near term, the Company's ability to fully utilize the deferred tax assets could be reduced significantly and a valuation allowance against the asset would have to be recognized in the financial statements as a charge to income. Cumulative Effect of Accounting Change - -------------------------------------- In April 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued a Statement of Position 98-5 - Reporting on the Costs of Start-Up Activities (SOP 98-5). The SOP requires costs of organization and start-up activities to be expensed as incurred. Initial application of the SOP should be reported as the cumulative effect of a change in accounting principle, as described in Accounting Principles Board Opinion No. 20, Accounting Changes. The Company adopted the Statement effective April 1, 1998 and recognized a charge of $6 million, net of tax, as the cumulative effect of the adoption. The Company's quarterly amortization expense will likely be reduced by approximately $350,000, not including increases for new fixed asset additions, etc., for each of the next several quarters because the cumulative charge included balances for items that had been amortizing. Operating Outlook - ----------------- Given the significant amount and nature of many of the nonrecurring adjustments included in the year-to-date financial statements, management believes that a more indicative comparison of the nine month 1998 and 1997 results should reflect the "pro forma" adjustments described in the notes below. The following table presents such comparative results for the nine months ended September 30, 1998 and 1997: 23
Nine months ended Nine months ended September 30, 1998 September 30, 1997 ------------------------------------------- ------------------------------------------ Reported Adjustments Pro Forma Reported Adjustments Pro Forma ------------- ----------- ------------ ------------ ----------- ------------ Gross Revenue $ 909,796 $ 3,540 1) $ 913,336 $ 839,716 $ (44,880) 3) $ 794,836 Subcontract and direct material costs (601,951) (601,951) (511,606) 38,631 3) (472,975) Provision for contract losses (57,210) 57,210 2) - - - Equity in income of joint ventures - - and affiliated companies 5,066 5,066 1,552 1,552 ------------- ----------- ------------ ------------ ----------- ------------ Service Revenue 255,701 60,750 316,451 329,662 (6,249) 323,413 Operating Expenses (Loss) Direct labor and fringe benefits 206,651 206,651 220,200 (324) 4) 219,876 Group overhead 68,009 68,009 64,029 (570) 4) 63,459 Corporate general and administrative 16,273 16,273 17,055 17,055 Depreciation and amortization 6,693 6,693 7,197 7,197 Severance and restructuring 9,407 (9,407) 2) - - - Unusual charges 7,672 (7,672) 2) - - - ------------- ----------- ------------ ------------ ----------- ------------ Operating Income (Loss) (59,004) 77,829 18,825 21,181 (5,355) 15,826 ============= =========== ============ ============ =========== ============
Notes to pro forma adjustments: 1) To adjust for effects of revised earnings estimates of Nova Nut steel mini- mill contract. 2) To adjust for the effects of the unusual charges 3) To adjust for the effects of revised earnings estimates of Nova Hut steel mini-mill contract and to exclude the unadjusted amounts recognized from the Nitric Acid contracts. 4) To adjust for the effects of the operations deemed discontinued during 1998. Adjusting the third quarter and nine month financial results to exclude the effects of all of the significant and unusual charges discussed above, and assuming that the Company could recognize future income tax deductions for operating losses it incurs, the net income results for the quarter and the nine months ended September 30, 1998 would have approximated a loss of $0.11 and $0.24 per share, respectively. As a result of the losses generated this year however, the Company does not intend to recognize income tax benefits from its operating losses and also expects its results from recurring operations to not be better than a loss of $0.25 per share for the last quarter of 1998. In addition, significant uncertainties still remain on various project and contract matters. No estimates for resolution of additional contingencies beyond those charges discussed above have been included in this operating outlook. Lastly, the Company also expects to recognize an extraordinary charge of approximately $1.0 million prior to the end of 1998 to expense the unamortized fees incurred in securing its existing revolving line of credit, and all related amendments, that it plans to replace with a new line. Beginning in 1999, management expects the benefits of its restructuring, profit improvement, and cost reduction plans to be realized progressively over several quarters. Liquidity and Capital Resources During the three and nine months ended September 30, 1998, cash and cash equivalents decreased $5.4 million and $16.9 million, respectively to $2.2 million. Operating activities through September 30, 1998 used $35.3 million in cash (including $9.1 million in a semiannual interest payment made on June 30), investing activities provided $3.3 million in cash, and financing activities provided $15.3 million in cash. The effect of foreign currency exchange rate fluctuations also decreased the September 30 cash balance by $0.3 million. Operating Activities - -------------------- The Company's cash flow from operations used $35.3 million during the nine months ended September 30, 1998. A significant portion of the cash went to fund the cost overruns incurred on the Nitric Acid Projects. Additional decreases were due to the use of previously paid milestone-based payment provisions, growth on government contracts that require the Company to pay subcontractors prior to billing the federal government customer, and to unanticipated delays in the timing of significant cash receipts from several large customers. 24 Investing Activities - -------------------- The acquisition of ICF Kaiser Advanced Technology, via an exchange of shares of common stock, brought $3.8 million in cash to the Company during 1998. Additionally, during the period ended June 30, 1998, the Company collected $2.4 million for the 1997 sale of its remaining minority investment in entities that own and operate a pulverized coal injection facility. The Company sold the majority of this investment in 1996 and collected $16.5 million of the sale price in the first quarter of 1997. Other uses of cash for investing purposes continue to consist of outlays for fixed assets, primarily software, computers, and consulting expenditures necessary to complete the Company's implementation of a new financial system by the end of 1999. Financing Activities - -------------------- Net activity in revolving credit facility borrowings added $16.5 million in cash while payments for distributions of income to minority interests made in the nine months ended September 30, 1998 used $1.5 million in cash. As of September 30, 1998, the Company had $20.5 million in cash borrowings, $25.6 million of performance letters of credit outstanding, and $4.5 million of additional credit available under the credit facility based on the amount of eligible receivables. The revolving credit facility contains a $25 million limit on cash borrowings. During the third quarter of 1998, the Company added ICF Kaiser Advanced Technology as a Subsidiary Guarantor on its revolving credit facility. This addition increased the amount of eligible receivables against which the Company may borrow. Lastly, the receivables purchase facility used by Kaiser-Hill, which was scheduled to expire on June 30, 1998, was renewed for another twelve months. Liquidity and Capital Resources Outlook - --------------------------------------- As a result of the significant charges recognized during the second and third quarters, the Company was not in compliance either as of June 30 or September 30, 1998 with certain financial covenants set forth in its revolving credit facility. The Company has requested an amendment to allow the Company to be in compliance with reestablished covenants, and the Banks have continued to permit the Company to borrow and obtain letters of credit pursuant to the revolving credit facility while the Company's amendment request is being considered. At September 30, the Company had $20.5 million in cash borrowings and $25.6 million in stand-by letters of credit outstanding. As of November 13, 1998, the Banks had not declared any Events of Default pursuant to the terms of the facility. Accordingly, the total amount of outstanding cash borrowings from the revolver as of September 30, 1998 was classified as long-term debt on the balance sheet. On November 13, 1998, the outstanding cash balance of $25.0 million equaled the limit of the amount of cash borrowings available. During the third quarter, however, it became clear to management that, given the further slippage on several of the large fixed-price project uncertainties (see Note 6 - Contingencies), necessary charges for a realignment of the Company's E&C Group including severance, office realignment and other discontinued business areas, the Banks might not be willing to provide the additional working capital projected necessary to effect a turnaround. Accordingly, management considered the need for and the possibility of securing alternate financing. Management has received a commitment for the replacement of its existing senior credit facility with a new facility, similar to the Bank revolving line of credit, that would provide for a credit line, for both cash borrowings and letters of credit, of up to $60 million. The Company expects the new facility to be in place by mid-December, 1998. The replacement facility would increase the percentage of eligible accounts receivable acceptable for collateral purposes and increase the limit on cash borrowings from $25 million to $60 million less any outstanding letters of credit. Upon closing of a new facility, the Company would immediately terminate the former Bank revolving credit facility and repay any outstanding borrowings. Management expects that the cost overruns discussed above for the Nitric Acid Projects will require significant cash outlays over the next six to eight months. Assuming that alternate revolving credit becomes available to the Company, management believes that projected levels of cash flows (including the potential for claims recoveries) and the availability of financing, including borrowings under the more flexible 25 revolving credit facility, will be adequate to fund the losses, as well as projected levels of ongoing operations, including interest costs. The additional borrowings and uses of cash from previously unutilized sources, including foreign sources, will increase the Company's cost of capital. In addition to the cash requirements of the Company's daily operations, a semiannual interest payment of $9.1 million is due on December 31, 1998 for the Series B Senior Notes and Senior Subordinated Notes. Assuming that more flexible revolving credit becomes available to the Company, the Company presently intends to be able to meet the interest obligation with either operating cash flows or borrowings under a new revolving credit facility. The expectation to meet the interest payment is contingent upon, among other things, the Company's ability to close on the alternative revolving credit facility and the Company's ability to contain the cash flows of the project losses. If and when circumstances permit, the Company would consider redeeming the Series B Senior Notes and the Senior Subordinated Notes, both due in 2003, which, at the earliest, can be called on December 31, 1998. Impact of Year 2000 Similar to many organizations that use computer programs in their operations, the Company is addressing the impact of the Year 2000 issue on its business. The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the year. Any of the Company's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, generate financial information, or engage in similar normal business activities. The Company has a formal plan to address the Year 2000 issue. The plan has defined roles and responsibilities, target dates, and a detailed budget. The plan also incorporates the use of outside consultants. The series of detailed steps in the plan are similar to those developed by most companies to assess and mitigate the problem. Each series of detailed steps will be performed on each of four major risk areas the Company has identified to be areas of concern. Those areas are 1) date-sensitive software applications used to run the core business; 2) the hardware (and software utilized in therein) used internally to run the core business - such as desk-top applications, communications networks, and physical plant issues; 3) software that the Company has either developed and sold to customers or software or embedded technology that the Company has procured from a third party and resold to a customer; and lastly 4) software used by the Company's significant vendors or subcontractors that could disrupt the flow of the Company's activities in the event that this software malfunctions. In part because of the Year 2000 issue and the inability for the Company's mainframe computer based software applications to operate properly with a four-digit date field, and in part because of the Company's needs for effective, economic and efficient project management information and financial accounting tools, the Company is replacing its main project and financial accounting software application. The costs of the new software, external consultants, and the internal cost of implementation labor will be capitalized and amortized over a period of ten years. The total cost of this specific aspect of the Year 2000 project is estimated to be less than $2.0 million. Other nonrecurring costs associated with the historical archival, as well as the need to replace embedded technology in items such as telephone switches and certain desk-top software, as well as the costs to execute all other aspects of the Company's Year 2000 plan, are estimated not to exceed $1.0 million. The Company will expense the majority of such costs. Although a true risk assessment process will need to be continually updated and actual results will not be known until after the beginning of the year 2000, the Company's plan provides for all major risk-mitigation activities to be completed at various times during the second half of 1999. At this time, the Company has not developed a "worst case" scenario or an overall year 2000 contingency plan but will do so when management believes such plans are warranted. Management believes that the majority of the risks to its mission-critical business operations are within the Company's control and ability to address. Since sufficient time and resources remain to address the issues that are most critical to the Company's regular operations, management believes that it will not need to devise contingency plans for items 1), 2) and 3) above (see "Forward-Looking Information" below). However, as it relates to item 4), our major suppliers, the Company will continue to assess the vendors' commitment to readiness and will devise contingency plans in the event significant risk to a disruption of service to the Company is not being adequately mitigated. In addition, the Company will work closely with its major customers to determine their state of readiness in order to devise proper contingency plans to provide for the payment of Company invoices in the event the customers' systems do not initially function properly. 26 Impact of New Accounting Standards In June 1997, the Financial Accounting Standards Board issued FASB Statement No. 131 - Disclosures about Segments of an Enterprise and Related Information. The Statement establishes standards for the way that public business enterprises report information about operating segments and requires that public enterprises report selected information about operating segments in interim financial reports. The Statement is effective for fiscal years beginning after December 15, 1997 and does not require application in interim financial statements in the initial year of adoption. Accordingly, the Company will adopt the Statement as part of its financial statements for the year ended December 31, 1998 and will not include segment disclosures in its 1998 interim financial statements. In February 1998, the Financial Accounting Standards Board issued FASB Statement No. 132 - Employers' Disclosures about Pensions and Other Post-retirement Benefits. The Statement revised employers' disclosures about pension and other post-retirement benefit plans. It does not change the measurement or recognition of those plans. The Statement is effective for fiscal years beginning after December 15, 1997. The Company will adopt the disclosure requirements in its financial statements for the year ended December 31, 1998. The Company's adoption of Statement of Position 98-5 effective April 1, 1998 is discussed in detail on page 23. In October 1998, the Financial Accounting Standards Board issued FASB Statement No. 133 - accounting for Derivative Instruments and Hedging Activities. The Statement, applicable for fiscal quarters beginning after June 15, 1999, establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivative instruments at fair value then account for changes in the fair value. The Company does not currently enter into derivative instruments or hedge activity at the current time and accordingly will continue to evaluate whether this Statement will need to be adopted at some time in the future. Forward-looking Statements and Certain Factors Affecting ICF Kaiser and its Businesses From time to time, certain disclosures in reports and statements released by the Company, or statements made by its officers or directors, will be forward- looking in nature. These forward-looking statements may contain information related to the Company's intent, belief, or expectation with respect to contract awards and performance, potential acquisitions and joint ventures, cost cutting measures and Year 2000 readiness. In addition, these forward-looking statements contain a number of factual assumptions made by the Company regarding, among other things, future economic, competitive, and market conditions. Because the accurate prediction of any future facts or conditions may be difficult and involve the assessment of events beyond the Company's control, actual results may differ materially from those expressed or implied in such forward-looking statements. The Company is availing itself of the safe harbor provisions provided in the Private Securities Litigation Reform Act of 1995 by cautioning readers that the forward-looking statements which use words such as the Company "anticipates," "expects," "estimates," and "believes" are subject to certain risks and uncertainties which could cause actual results of operations to differ materially from expectations. These forward-looking statements may be contained in the Company's federal securities laws filings or in written or oral statements made by the Company's officers and directors to press, potential investors, securities analysts, and others. Any such written or oral forward- looking statements should be considered in context with the risk factors discussed below: -- the Company may not be able to maintain existing contracts at their current levels and may not be able to realize the increased contract performance levels that it is assuming it will achieve under certain of these existing contracts. The Company is involved in a number of fixed price contracts under which the Company may benefit from cost savings, but if certain pricing and performance assumptions prove inaccurate, unrecoverable cost overruns can occur in addition to those already provided for. -- the Company may not be awarded new contracts for which it is competing in its established markets or these awards may be delayed; in addition, the Company may not be able to win contracts in the new markets it is targeting. General economic conditions in the international arena, especially Asia, could negatively impact the Company's current international business and its ability to expand into new international markets. 27 -- the Company is very dependent on federal government contracts which are subject to annual funding approvals, which may be subject to cost audits, and which may be terminated at any time, with or without cause; a large number of federal government contracts are included in the Company's backlog number which means that the backlog number is not necessarily indicative of the future revenue of the Company; -- a large portion of the Company's business has been and is generated either directly or indirectly as a result of federal and state environmental laws, regulations, and programs; a reduction in the number or scope of these laws, regulations, or programs could materially affect the Company's business. In addition, environmental work poses risks of large civil and criminal liabilities for violations of environmental laws and regulations, and liabilities to customers and to third parties for damages arising from the Company's performing environmental services to its clients. A large fine or penalty imposed on the Company could negatively impact contract performance fees under certain existing contracts or otherwise negatively affect the Company's financial results. -- the Company may not be able to recognize the level of savings expected from its cost-cutting measures and cost control improvements. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Applicable to the Company's filings of financial statements for fiscal years ending after June 15, 1998. Part II - Other Information Item 1. Legal Proceedings As previously reported in the Annual Report on Form 10-K for the year ended December 31, 1997. Item 2. Changes in Securities (a) None (b) None (c) None (d) Not applicable Item 3. Defaults Upon Senior Securities (a) See Management's Discussion and Analysis of Financial Condition and Results of Operations. (b) None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) The exhibits filed as part of this report are listed below: No. 3(aa) Amended Articles of Incorporation of ICF Kaiser Advanced Technology, Inc. No. 3(bb) Amended Bylaws of ICF Kaiser Advanced Technology, Inc. (as amended through August 8, 1998) No. 4(a)(7) Seventh Supplemental Indenture dated as of August 13, 1998 No. 4(g)(2) Second Supplemental Indenture dated as of August 13, 1998 No. 10(oo) Employment Agreement dated as of August 27, 1998, with Keith M. Price, the Registrant's President and Chief Operating Officer No. 27 Financial Data Schedule (b) Reports on Form 8-K None Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized. ICF KAISER INTERNATIONAL, INC. (Registrant) Date: November 16, 1998 /s/ Timothy P. O'Connor ----------------------- Timothy P. O'Connor Senior Vice President and Acting Chief Financial Officer (Duly authorized officer and principal financial officer) 28 EX-3.AA 2 AMENDED ARTICLES OF INCORP. Exhibit No.3(aa) AMENDED ARTICLES OF INCORPORATION OF ICF KAISER ADVANCED TECHNOLOGY, INC. (formerly named Micron Construction, Inc.) THE UNDERSIGNED, a natural person of lawful age, does hereby adopt the following Articles of Incorporation for the purpose of forming a corporation pursuant to the Idaho Business Corporation Act. ARTICLE I The name of the corporation is: ICF KAISER ADVANCED TECHNOOGY, INC. ARTICLE II The duration of the corporation shall be perpetual. ARTICLE III The purpose for which the corporation is organized is the management of construction projects and the transaction of any or all lawful business for which corporation may be incorporated under the Idaho Business Act. ARTICLE IV The aggregate number of shares which the corporation shall have authority to issue shall consist of 100,000 shares of common stock without par value. ARTICLE V Shareholders shall have no preemptive rights to obtain or acquire any additional shares of the corporation. ARTICLE VI Each outstanding share of the stock of the corporation shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders. Cumulative voting shall not be allowed for any purpose, including the election of directors. ARTICLE VII The address of the initial registered office of the corporation is: 2805 East Columbia Road, Boise, Idaho 83706. The name of the initial registered agent of the corporation at such address is: David P. McAnaney. ARTICLE VIII The number of directors of the corporation shall be as fixed from time to time by the Bylaws of the corporation. The initial board of directors shall be five in number. The name and addresses of the persons who are to serve as directors until the first annual meeting of shareholders or until their successors be elected and qualify are: Josheph L. Parkinson Brian Mattson 2805 East Columbia Road 2805 East Columbia Road Boise, Idaho 83706 Boise, Idaho 83706 Randal W. Chance Richard Heyer 2805 East Columbia Road 2805 East Columbia Road Boise, Idaho 83706 Boise, Idaho 83706 Chester Edwards 2805 East Columbia Road Boise, Idaho 83706 ARTICLE IX The name and address of the incorporator is: David P. McAnaney 2805 East Columbia Road Boise, Idaho 83706 Dated: October 25, 1990 Incorporator: /s/ David P. McAnaney ------------------------- David P. McAnaney EX-3.BB 3 AMENDED BYLAWS EXHIBIT NO.3(BB) AMENDED BYLAWS OF ICF KAISER ADVANCED TECHNOLOGY, INC. an Idaho Corporation (as amended through August 8, 1998) ARTICLE I. OFFICES Section 1. Principal Office. The principal office of the Corporation in the State of Idaho, shall be located in the County of Ada, Idaho. Section 2. Other Offices. The Corporation may have such other offices, either within or without the State of Idaho, as the board of directors may designate or as the business of the Corporation may require from time to time. Section 3. Registered Office. The registered office of the Corporation required by the Idaho Business Corporation Act to be maintained in the State of Idaho may be, but need not be, identical with the principal office in the State of Idaho, and the address of the registered office may be changed from time to time by the board of directors. ARTICLE II. SHAREHOLDERS MEETINGS Section 1. Annual Meetings. The annual meeting of the shareholders shall be held the first day of the month of February in each year, beginning with the year 1991, at the hour of 10:00 A.M., or at such other time on such other day within such month as shall be fixed by the board of directors, for the purpose of electing directors and for the transaction of such other proper business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday in the State of Idaho, such meeting shall be held on the next succeeding business day. If the election of directors is not held on the day designated herein for the annual meeting of the shareholders, the board of directors shall call a special meeting of the shareholders, as soon thereafter as is convenient, for the election of the directors. Section 2. Special Meetings. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the president or by the board of directors, and shall be called by the president at the request of the holders of not less than one-fifth of all outstanding shares of the corporation entitled to vote at the meeting. A request by shareholders for a special meeting shall be in writing, specifying the time of the meeting and the general nature of business proposed to be transacted. The request shall be delivered personally or sent by registered mail to the President, whom shall promptly cause notice to be given in accordance with these Bylaws. Section 3. Place of Meetings. Meetings of shareholders shall be held at any place, either within or without the State of Idaho, designated by the Board. A waiver of notice signed by all shareholders entitled to vote at a meeting may designate any place, either within or without the State of Idaho, as the place for the holding of such meeting. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the Principal Office. Section 4. Notice of Meeting. Written notice specifying the place, day and time of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall, unless otherwise prescribed by statute, be delivered not less than ten (10) nor more than fifty (50) days before the date of the meeting, either personally or by first class mail, by or at the direction of the president, or the secretary, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at this address as it appears on the stock transfer books of the Corporation, or at such other last known address of which the Corporation may have notice, with postage thereon prepaid. Section 5. Closing of Transfer Books or Fixing of Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of the shareholders or any adjournment thereof, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the board of directors of the corporation may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, fifty (50) days prior to the meeting or determination. If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least ten (10) days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the board of directors declaring such dividend is adopted as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof. Section 6. Quorum. A majority of the outstanding shares of the Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If a quorum is present at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Section 7. Proxies. At all meetings of shareholders, a shareholder may vote in person or by proxy executed in writing by the shareholder or by his duly authorized attorney in fact. Such proxy shall be filed with the secretary of the Corporation before or at the time of the meeting. A valid proxy which does not state it is irrevocable shall continue in full force and effect unless (i) revoked by the person executing it before the vote pursuant to the proxy, by a writing delivered to the Corporation, or by a subsequent proxy, or (ii) written notice of the death or incapacity of the maker of the proxy received by the Corporation before the vote; provided, however, no proxy shall be valid after the expiration of eleven (11) months from the date of its execution, unless otherwise provided in the proxy. Section 8. Voting of Shares. Each outstanding share entitled to vote shall be entitled to one vote upon each matter submitted to a vote at a meeting of shareholders. Section 9. Voting of Shares by Certain Holders. Shares standing in the name of another Corporation may be voted by such officer, agent or proxy as the Bylaws of such Corporation may prescribe, or, in the absence of such provision, as the board of directors of such other Corporation may determine. Shares held by an administrator, executor, guardian, or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority to do so be contained in an appropriate order of the court by which such receiver was appointed. Page 2 A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Neither treasury shares of its own stock held by the Corporation nor shares held by another corporation if a majority of the shares entitled to vote for the election of directors of such other corporation are held by the Corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time for purposes of any meeting. Section 10. Informal Action by Shareholders. Any action required or permitted to be taken at a meeting of the shareholders may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by the shareholders having not less than the minimum number of votes which would be necessary to authorize or take the action at a meeting at which all shares entitled to vote were present and voted. Section 11. Cumulative Voting. Cumulative voting shall not be allowed. ARTICLE III. BOARD OF DIRECTORS Section 1. General Powers. The business and affairs of the Corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. Section 2. Number and Qualifications. The number of directors of the Corporation shall not be less than one (1) nor more than five (5). The number of directors may be changed by amendment to these Bylaws approved by the shareholders by vote at a meeting or by written consent or by the directors by vote at a meeting or by written consent. Directors need not be residents of the State of Idaho or shareholders of the Corporation. Section 3. Election and Term. Directors shall be elected at each annual meeting of the shareholders and shall hold office until the next annual meeting of shareholders or until his successor shall have been elected and qualified. Section 4. Regular Meetings. A regular meeting of the board of directors shall be held without other notice than this Bylaw immediately after, and at the same place as, the annual meeting of shareholders. The board of directors may provide, by resolution, the time and place, either within or without the State of Idaho, for the holding of additional regular meetings without notice than such resolution. In the absence of designation, regular meetings shall be held at the Principal Office. Section 5. Special Meetings. Special meetings of the board of directors may be called by or at the request of the president or any director. The person or persons authorized to call special meetings of the board of directors may fix any place, either within or without the State of Idaho, as the place for holding any special meeting of the board of directors called by them. Section 6. Notice. Notice of any special meeting shall be given at least three (3) days previously thereto by written notice delivered personally or mailed to each director at his or her business address, or by telegram. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, so addressed, with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. Any director may waive notice of any meeting. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice or waiver of notice of such meeting. Page 3 Section 7. Quorum. A majority of the number of directors fixed by section 2 of this Article III shall constitute a quorum for the transaction of business at any meeting of the board of directors, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. Section 8. Manner of Acting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors. Section 9. Action Without a Meeting. Any action required or permitted to be taken by the board of directors at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken shall be signed by all of the directors. Section 10. Vacancies. Any vacancy occurring in the board of directors may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the board of directors. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. Any directorship to be filled by reason of an increase in the number of directors may be filled by election by the board of directors for a term of office continuing only until the next election of directors by the shareholders. Section 11. Compensation. By resolution of the board of directors, each director may be paid his expenses, if any, of attendance at each meeting of the board of directors, and may be paid, as director, a stated salary of a fixed sum for attendance at each meeting of the board of directors, or both. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Section 12. Presumption of Assent. A director of the Corporation who is present at a meeting of the board of directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. ARTICLE IV. OFFICERS Section 1. Number. The officers of the Corporation shall be president, one or more vice presidents (the number thereof to be determined by the board of directors), a secretary, and a treasurer, each of whom shall be elected by the board of directors. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the board of directors. Any two or more offices may be held by the same person, except the offices of president and secretary. Section 2. Election and Term of office. The officers of the Corporation to be elected by the board of directors shall be elected annually by the board of directors at the first meeting of the board of directors held after each annual meeting of the shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as is convenient. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. Section 3. Removal. Any officer or agent may be removed by the board of directors whenever in its judgement, the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. Page 4 Section 4. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the board of directors for the unexpired portion of the term. Section 5. The President. The president shall be the principal executive officer of the Corporation and, subject to the control of the board of directors, shall in general, supervise and control all of the business and affairs of the Corporation. He shall, when present, preside at all meetings of the shareholders and of the board of directors. He may sign, with the secretary or any other proper officer of the Corporation thereunto authorized by the board of directors, certificates for shares of the Corporation any deeds, mortgages, bonds, contracts, or other instruments which the board of directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the board of directors or by these Bylaws to some other officer or agent of the Corporation, or shall be required by law to be otherwise signed or executed, and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the board of directors from time to time. Section 6. The Vice Presidents. In the absence of the president or in the event of his death, inability or refusal to act, the vice president (or in the event there be more than one vice president, the vice presidents in the order designated at the time of their election, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. Any vice president may sign, with the secretary or an assistant secretary, certificates for shares of the Corporation; and shall perform such other duties as from time to time may be assigned to him by the president or by the board of directors. Section 7. The Secretary. The secretary shall: (a) keep the minutes of the proceedings of the shareholders and the board of directors in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the corporate records and of the seal of the Corporation and see that the seal of the Corporation is affixed to all documents, the execution of which on behalf of the Corporation under its seal, is duly authorized; (d) keep a register of the post office address of each shareholder which shall be furnished to the secretary by such shareholders; (e) sign with the president, or a vice president, certificates for shares of the Corporation, the issuance of which shall have been authorized by resolution of the board of directors; (f) have general charge of the stock transfer books of the Corporation; and (g) in general perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him by the president or by the board of directors. Section 8. The Treasurer. The treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the Corporation; (b) receive and give receipts for monies due and payable to the Corporation from, any source whatsoever, and deposit all such monies in the name of the Corporation in such banks, trust companies or other depositories as shall be selected in accordance with the provisions of Article V of these Bylaws; and (c) in general perform all of the duties incident to the office of treasurer and such other duties as from time to time may be assigned to him by the president or by the board of directors. If required by the board of directors, the treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the board of directors shall determine. Section 9. Assistant Secretaries and Assistant Treasurers. The assistant secretaries, when authorized by the board of directors, may sign with the president or a vice president certificates for shares of the Corporation the issuance of which shall have been authorized by a resolution of the board of directors. The assistant treasurers shall respectively, if required by the board of directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the board of directors shall determine. The assistant secretaries and assistant treasurers, in general, shall perform such duties as shall be assigned to them by the secretary or the treasurer, respectively, or by the president or the board of directors. Page 5 Section 10. Salaries. The salaries of the officers shall be fixed from time to time by the board of directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the Corporation. ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS Section 1. Contract. The board of directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances. Section 2. Loans. No loans shall be contracted on behalf of the Corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the board of directors. Such authority may be general or confined to specific instances. Section 3. Checks, Drafts. Etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the board of directors. Section 4. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the board of directors may select. ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER Section 1. Certificates for Shares. Certificates representing shares of the Corporation shall be in such form as shall be determined by the board of directors. Such certificates shall be signed by the president or a vice president and by the secretary or an assistant secretary and sealed with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent or a registrar, other than the Corporation itself or one of its employees. Each certificate for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the Corporation. All certificates surrendered to the Corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in case of a lost, destroyed or mutilated certificate, a new one may be issued therefor upon such terms and indemnity to the Corporation as the board of directors may prescribe. Section 2. Transfer of Shares. Transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of records thereof or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his attorney thereunto authorized by power of attorney duly executed and filed with the secretary of the Corporation, and on surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the books of the Corporation shall be deemed by the Corporation to be the owner thereof for all purposes. ARTICLE VII. FISCAL YEAR The fiscal year of the Corporation shall be as established by the board of directors. Page 6 ARTICLE VIII. DIVIDENDS The board of directors may, from time to time, declare and the Corporation may pay dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and its Articles of Incorporation. ARTICLE IX. CORPORATE SEAL The board of directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the Corporation and the state of incorporation and the words, "Corporate Seal." ARTICLE X. WAIVER OF NOTICE Whenever any notice is required to be given to any shareholder or director of the corporation under the provisions of these Bylaws or under the provisions of the Articles of Incorporation or under the provisions of the Idaho Business Corporation Act, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE XI. INDEMNIFICATION The Corporation shall, to the maximum extent permitted by the Code, have the power to indemnify each of its agents against expenses, judgements, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding arising by reason of the fact that any such person is or was an agent of the Corporation. For the purposes of this Section, an "agent" of the Corporation includes any person who is or was a director, officer, employee or other agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or was a director, officer, employee or agent of a corporation which was a predecessor corporation of the Corporation or of another enterprise at the request of such predecessor corporation. ARTICLE XII. AMENDMENTS These Bylaws may be altered, amended or repealed and new Bylaws may be adopted by the board of directors or by the shareholders at any regular or special meeting. ARTICLE XIII. EXECUTIVE COMMITTEE Section 1. Appointment. The board of directors by resolution adopted by a majority of the full board, may designate two or more of its members to constitute an executive committee. The designation of such committee and the delegation thereto of authority shall not operate to relieve the board of directors, or any member thereof, of any responsibility imposed by law. Section 2. Authority. The executive committee, when the board of directors is not in session, shall have and may exercise all of the authority of the board of directors except to the extent, if any, that such authority shall be limited by the resolution appointing the executive committee and except also that the executive committee shall not have the authority of the board of directors in reference to amending the Articles of Incorporation, adopting a plan of merger or consolidation, recommending to the shareholders the sale, lease or other disposition of all or substantially all of the property and assets of the Corporation otherwise than in the usual and regular course of its business, recommending to the shareholders a voluntary dissolution of the Corporation or a revocation thereof, or amending the Bylaws of the Corporation. Page 7 Section 3. Tenure and Qualifications. Each member of the executive committee shall hold office until the next regular annual meeting of the board of directors following his resignation and until his successor is designated as a member of the executive committee and is elected and qualified. Section 4. Meetings. Regular meetings of the executive committee may be held without notice to such times and places as the executive committee may fix from time to time by resolution. Special meetings of the executive committee may be called by any member thereof upon not less than one day's notice stating the place, date and hour of the meeting, which notice may be written or oral, and if mailed, shall be deemed to be delivered when deposited in the United States mail addressed to the member of the executive committee at his business address. Any member of the executive committee may waive notice of any meeting and no notice of any meeting need be given to any member thereof who attends in person. The notice of a meeting of the executive committee need not state the business proposed to be transacted at the meeting. Section 5. Quorum. A majority of the members of the executive committee shall constitute a quorum for the transaction of business at any meeting thereof and action of the executive committee must be authorized by the affirmative vote of a majority of the members present at a meeting at which a quorum is present. Section 6. Action Without a Meeting. Any action required or permitted to be taken by the executive committee at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the members of the executive committee. Section 7. Vacancies. Any vacancy in the executive committee may be filled by a resolution adopted by a majority of the full board of directors. Section 8. Resignations and Removal. Any member of the executive committee may be removed at any time with or without cause by resolution adopted by a majority of the full board of directors. Any member of the executive committee may resign from the executive committee at any time by giving written notice to the president or secretary of the Corporation, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 9. Procedure. The executive committee shall elect a presiding officer from its members and may fix its own rules of procedure which shall not be inconsistent with these Bylaws. It shall keep regular minutes of its proceedings. Page 8 EX-4.A.7 4 SUPPLEMENTAL INDENTURE Exhibit No. 4(a)(7) THIS SEVENTH SUPPLEMENTAL INDENTURE, dated as of August 13, 1998, is entered into by and among ICF KAISER INTERNATIONAL, INC., a Delaware corporation (the "Company"), THE BANK OF NEW YORK, a New York banking corporation (the "Trustee"), the following existing GUARANTORS: Cygna Consulting Engineers and Project Management, Inc., a Delaware corporation ("Cygna"); ICF Kaiser Government Programs, Inc., a Delaware corporation ("ICFK-GP"); Systems Applications International, Inc., a Delaware corporation "(SAI") EDA, Incorporated, a Maryland corporation ("EDA"); Global Trade & Investment, Inc., a Delaware corporation ("Global"); ICF Kaiser Europe, Inc., a Delaware corporation ("ICFK Europe"); ICF Kaiser / Georgia Wilson, Inc., a Delaware corporation ("ICFK/GW"); ICF Kaiser Overseas Engineering, Inc., a Delaware corporation ("ICFK Overseas"); ICF Kaiser Engineers Pacific, Inc., a Delaware corporation ("ICFK Pacific"); and ICF Kaiser Remediation Company, a Delaware corporation ("Remcon") and the following new GUARANTOR: ICF Kaiser Advanced Technology, Inc., an Idaho Corporation ("Advanced Tech"). WITNESSETH: WHEREAS, the new Guarantor is an indirect Wholly Owned Restricted Subsidiary of the Company; WHEREAS, on December 3, 1997, the Company entered into an Amended and Restated Credit Agreement with First Union Capital Markets, a division of Wheat First Securities, Inc. ("First Union"), as Agent, the banking institutions named therein (the "Banks"), and certain subsidiaries of the Company named therein (the "Subsidiary Guarantors"), as a successor Bank Credit Agreement; WHEREAS, as a condition to the Company's being permitted to include the Accounts Receivable of the new Guarantor in the Borrowing Base as defined in and provided for under the Bank Credit Agreement, the new Guarantor must become a Subsidiary Guarantor under the Bank Credit Agreement; WHEREAS, Advance Tech has determined that it is desirable to become Subsidiary Guarantor under the Bank Credit Agreement; WHEREAS, the Company and the Trustee have heretofore executed and delivered an Indenture dated as of January 11, 1994 (the "Indenture"), for the purpose of issuing $125,000,000 of 12% Senior Subordinated Notes due 2003, (the "Notes"), and Section 10.01 of the Indenture provides that the Company (when authorized by a Board Resolution) and the Trustee for the Notes, at any time and from time to time, may enter into one or more indentures supplemental thereto, in form satisfactory to such Trustee, for any of the purposes set forth in said Section 10.01 (each a "Supplemental Indenture"); WHEREAS, Section 5.11 of the Indenture requires that, prior to or concurrently with the new Guarantor becoming a Subsidiary Guarantor under the Bank Credit Agreement, the Company must cause the new Guarantor to execute and deliver to the Trustee a Supplemental Indenture and a Indenture Guarantee (substantially in the form attached as Exhibit G to the Indenture) pursuant to which the new Guarantor will unconditionally guarantee the payment of principal of, premium, if any, and interest on the Notes; WHEREAS, ICFK-GP, Cygna, and SAI became Subsidiary Guarantors under the Bank Credit Agreement in 1996; WHEREAS, EDA, Global, ICFK Europe, ICFK/GW, ICFK Overseas, ICFK Pacific, and Remcon, became Subsidiary Guarantors under the Bank Credit Agreement in 1997; WHEREAS, Advanced Tech will become a Subsidiary Guarantor under the Bank Credit Agreement on August 13, 1998, and has determined that it is desirable simultaneously or concurrently to become a new Guarantor under the Indenture; WHEREAS, the execution and delivery of this Seventh Supplemental Indenture has been duly authorized by the Finance Committee of the Board of Directors of the Company on August 13, 1998; WHEREAS, the execution and delivery of this Seventh Supplemental Indenture and the Indenture Guarantee has been duly authorized by the Board of Directors of the new Guarantor as of August 12, 1998; WHEREAS, the Company and the Guarantors have determined that it is desirable to enter into this Seventh Supplemental Indenture and have requested the Trustee to join with them in the execution of this Seventh Supplemental Indenture; and WHEREAS, the Trustee has accepted the trusts created by this Seventh Supplemental Indenture and in evidence thereof has joined in the execution hereof; NOW, THEREFORE, THIS SEVENTH SUPPLEMENTAL INDENTURE WITNESSETH, that, in consideration of the premises and of acceptance by the Trustee of the trusts created hereby and by the Indenture, and also for and in consideration of the sum of One Dollar to the Company duly paid by the Trustee at or before the execution and delivery of this Supplemental Indenture, the receipt of which is hereby acknowledged, IT IS HEREBY COVENANTED AND AGREED, by and among the Company, the existing and new Guarantors, and the Trustee, as follows: 1. Terms defined in the Indenture are used herein as therein defined. 2. Advanced Tech hereby acknowledges its execution and delivery of an Indenture Guarantee dated as of August 13, 1998, in the form authorized by and attached as Exhibit G to the Indenture. 3. The following sundry provisions shall be a part of this Seventh Supplemental Indenture: Section 4.01. Effect of Supplemental Indenture. Upon the execution and delivery of this Seventh Supplemental Indenture by the Company and the Trustee, the Indenture shall be supplemented in accordance herewith, and this Seventh Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder of Notes heretofore or hereafter authenticated and delivered under the Indenture shall be bound thereby. Section 4.02. Indenture Remains in Full Force and Effect. Except as supplemented hereby and by the First Supplemental Indenture, all provisions in the Indenture shall remain in full force and effect. Section 4.03. Indenture and Supplemental Indentures Construed Together. This Seventh Supplemental Indenture is an Indenture supplemental to and in implementation of the Indenture, and the Indenture and all Supplemental Indentures shall henceforth be read and construed together. Page 2 Section 4.04. Confirmation and Preservation of Indenture. The Indenture as supplemented by the First through Sixth Supplemental Indentures is in all respects confirmed and preserved. Section 4.05 Conflict with Trust Indenture Act. If any provision of this Seventh Supplemental Indenture limits, qualifies, or conflicts with any provision of the Trust Indenture Act that is required under such Act to be part of and govern any provision of this Seventh Supplemental Indenture, the provision of such Act shall control. If any provision of this Seventh Supplemental Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the provision of such Act shall be deemed to apply to the Indenture as so modified or to be excluded by this Seventh Supplemental Indenture, as the case may be. Section 4.06 Separability Clause. In case any provision in this Seventh Supplemental Indenture shall be invalid, illegal, or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 4.07 Terms Defined in the Indenture. All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Indenture. Section 4.08 Effect of Headings. The Article and Section headings herein are for convenience only and shall not affect the construction hereof. Section 4.09 Benefits of Seventh Supplemental Indenture, etc. Nothing in this Seventh Supplemental Indenture, the Indenture, or the Notes, express or implied, shall give to any Person, other than the parties hereto and thereto and their successors hereunder and thereunder and the Holders of the Notes, any benefit of any legal or equitable right, remedy, or claim under the Indenture, the First through Seventh Supplemental Indentures, or the Notes. Section 4.10 Successors and Assigns. All covenants and agreements in this Seventh Supplemental Indenture by the Company and the Guarantors shall bind their successors and assigns, whether so expressed or not. Section 4.11 Trustee Not Responsible for Recitals. The recitals contained herein shall be taken as the statements of the Company and the Guarantors, and the Trustee assumes no responsibility for their correctness. Section 4.12 Certain Duties and Responsibilities of the Trustee. In entering into this Seventh Supplemental Indenture, the Trustee shall be entitled to the benefit of every provision of the Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee, whether or not elsewhere herein so provided. Section 4.13 Governing Law. This Seventh Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflicts of law principles thereof. Section 4.14 Counterparts. This Seventh Supplemental Indenture may be executed in counterparts, each of which, when so executed, shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Seventh Supplemental Indenture to be duly executed, and the Company, the existing and new Guarantors, and the Trustee have caused their respective corporate seals to be hereunto affixed and attested, all as of August 13, 1998. Page 3 EX-4.G.2 5 SUPPLEMENTAL INDENTURE Exhibit No. 4(g)(2) THIS SECOND SUPPLEMENTAL INDENTURE, dated as of August 13, 1998, is entered into by and among ICF KAISER INTERNATIONAL, INC., a Delaware corporation (the "Company"), THE BANK OF NEW YORK, a New York banking corporation (the "Trustee"), the following existing GUARANTORS: Cygna Consulting Engineers and Project Management, Inc., a Delaware corporation ("Cygna"); ICF Kaiser Government Programs, Inc., a Delaware corporation ("ICFK-GP"); Systems Applications International, Inc., a Delaware corporation "(SAI") EDA, Incorporated, a Maryland corporation ("EDA"); Global Trade & Investment, Inc., a Delaware corporation ("Global"); ICF Kaiser Europe, Inc., a Delaware corporation ("ICFK Europe"); ICF Kaiser / Georgia Wilson, Inc., a Delaware corporation ("ICFK/GW"); ICF Kaiser Overseas Engineering, Inc., a Delaware corporation ("ICFK Overseas"); ICF Kaiser Engineers Pacific, Inc., a Delaware corporation ("ICFK Pacific"); and ICF Kaiser Remediation Company, a Delaware corporation ("Remcon") and the following new GUARANTOR: ICF Kaiser Advanced Technology, Inc., an Idaho Corporation ("Advanced Tech"). WITNESSETH: WHEREAS, the new Guarantor is an indirect Wholly Owned Restricted Subsidiary of the Company; WHEREAS, on December 3, 1997, the Company entered into an Amended and Restated Credit Agreement with First Union Capital Markets, a division of Wheat First Securities, Inc. ("First Union"), as Agent, the banking institutions named therein (the "Banks"), and certain subsidiaries of the Company named therein (the "Subsidiary Guarantors"), as a successor Bank Credit Agreement; WHEREAS, as a condition to the Company's being permitted to include the Accounts Receivable of the new Guarantor in the Borrowing Base as defined in and provided for under the Bank Credit Agreement, the new Guarantor must become a Subsidiary Guarantor under the Bank Credit Agreement; WHEREAS, Advance Tech has determined that it is desirable to become Subsidiary Guarantor under the Bank Credit Agreement; WHEREAS, the Company and the Trustee have heretofore executed and delivered an Indenture dated as of December 23, 1996 (the "Indenture"), for the purpose of issuing $15,000,000 of 12% Senior Notes due 2003, Series B (the "Notes"), and Section 10.01 of the Indenture provides that the Company (when authorized by a Board Resolution) and the Trustee for the Notes, at any time and from time to time, may enter into one or more indentures supplemental thereto, in form satisfactory to such Trustee, for any of the purposes set forth in said Section 10.01 (each a "Supplemental Indenture"); WHEREAS, Section 5.11 of the Indenture requires that, prior to or concurrently with the new Guarantor becoming a Subsidiary Guarantor under the Bank Credit Agreement, the Company must cause the new Guarantor to execute and deliver to the Trustee a Supplemental Indenture and a Indenture Guarantee (substantially in the form attached as Exhibit G to the Indenture) pursuant to which the new Guarantor will unconditionally guarantee the payment of principal of, premium, if any, and interest on the Notes; WHEREAS, ICFK-GP became a Subsidiary Guarantor of the Bank Credit Agreement on May 6, 1996, and was a Guarantor of the Indenture at the time the Notes were issued; WHEREAS, Cygna and SAI became Subsidiary Guarantors under the Bank Credit Agreement on June 24, 1996, and were Guarantors of the Indenture at the time the Notes were issued; WHEREAS, EDA, Global, ICFK Europe, ICFK/GW, ICFK Overseas, ICFK Pacific, and Remcon, became Subsidiary Guarantors under the Bank Credit Agreement on December 3, 1997; WHEREAS, Advanced Tech will become a Subsidiary Guarantor under the Bank Credit Agreement on August 13, 1998, and has determined that it is desirable simultaneously or concurrently to become a new Guarantor under the Indenture; WHEREAS, the execution and delivery of this Second Supplemental Indenture has been duly authorized by the Finance Committee of the Board of Directors of the Company on August 13, 1998; WHEREAS, the execution and delivery of this Second Supplemental Indenture and the Indenture Guarantee has been duly authorized by the Board of Directors of the new Guarantor as of August 12, 1998; WHEREAS, the Company and the Guarantors have determined that it is desirable to enter into this Second Supplemental Indenture and have requested the Trustee to join with them in the execution of this Second Supplemental Indenture; and WHEREAS, the Trustee has accepted the trusts created by this Second Supplemental Indenture and in evidence thereof has joined in the execution hereof; NOW, THEREFORE, THIS SECOND SUPPLEMENTAL INDENTURE WITNESSETH, that, in consideration of the premises and of acceptance by the Trustee of the trusts created hereby and by the Indenture, and also for and in consideration of the sum of One Dollar to the Company duly paid by the Trustee at or before the execution and delivery of this Second Supplemental Indenture, the receipt of which is hereby acknowledged, IT IS HEREBY COVENANTED AND AGREED, by and among the Company, the existing and new Guarantors, and the Trustee, as follows: 1. Terms defined in the Indenture are used herein as therein defined. 2. Advanced Tech hereby acknowledges its execution and delivery of an Indenture Guarantee dated as of August 13, 1998, in the form authorized by and attached as Exhibit G to the Indenture. 3. The following sundry provisions shall be a part of this Second Supplemental Indenture: Section 4.01. Effect of Supplemental Indenture. Upon the execution and delivery of this Second Supplemental Indenture by the Company and the Trustee, the Indenture shall be supplemented in accordance herewith, and this Second Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder of Notes heretofore or hereafter authenticated and delivered under the Indenture shall be bound thereby. Section 4.02. Indenture Remains in Full Force and Effect. Except as supplemented hereby and by the First Supplemental Indenture, all provisions in the Indenture shall remain in full force and effect. Section 4.03. Indenture and Supplemental Indentures Construed Together. This Second Supplemental Indenture is an Indenture supplemental to and in implementation of the Indenture, and the Indenture and all Supplemental Indentures shall henceforth be read and construed together. Page 2 Section 4.04. Confirmation and Preservation of Indenture. The Indenture as supplemented by the First and Second Supplemental Indentures is in all respects confirmed and preserved. Section 4.05 Conflict with Trust Indenture Act. If any provision of this Second Supplemental Indenture limits, qualifies, or conflicts with any provision of the Trust Indenture Act that is required under such Act to be part of and govern any provision of this Second Supplemental Indenture, the provision of such Act shall control. If any provision of this Second Supplemental Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the provision of such Act shall be deemed to apply to the Indenture as so modified or to be excluded by this Second Supplemental Indenture, as the case may be. Section 4.06 Separability Clause. In case any provision in this Second Supplemental Indenture shall be invalid, illegal, or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 4.07 Terms Defined in the Indenture. All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Indenture. Section 4.08 Effect of Headings. The Article and Section headings herein are for convenience only and shall not affect the construction hereof. Section 4.09 Benefits of Second Supplemental Indenture, etc. Nothing in this Second Supplemental Indenture, the Indenture, or the Notes, express or implied, shall give to any Person, other than the parties hereto and thereto and their successors hereunder and thereunder and the Holders of the Notes, any benefit of any legal or equitable right, remedy, or claim under the Indenture, the First and Second Supplemental Indentures, or the Notes. Section 4.10 Successors and Assigns. All covenants and agreements in this Second Supplemental Indenture by the Company and the Guarantors shall bind their successors and assigns, whether so expressed or not. Section 4.11 Trustee Not Responsible for Recitals. The recitals contained herein shall be taken as the statements of the Company and the Guarantors, and the Trustee assumes no responsibility for their correctness. Section 4.12 Certain Duties and Responsibilities of the Trustee. In entering into this Second Supplemental Indenture, the Trustee shall be entitled to the benefit of every provision of the Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee, whether or not elsewhere herein so provided. Section 4.13 Governing Law. This Second Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflicts of law principles thereof. Section 4.14 Counterparts. This Second Supplemental Indenture may be executed in counterparts, each of which, when so executed, shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be duly executed, and the Company, the existing and new Guarantors, and the Trustee have caused their respective corporate seals to be hereunto affixed and attested, all as of August 13, 1998. Page 3 EX-10.00 6 EMPLOYMENT AGREEMENT EXHIBIT No. 10(00) Employment Agreement THIS AGREEMENT is made as of the 27th day of August, 1998, by and between ICF Kaiser International, Inc., a Delaware corporation (the "Corporation"), and Keith M. Price, presently a resident of Boise, Idaho (the "Executive"). WHEREAS, the Corporation desires to employ the Executive, and the Executive desires to become an employee of the Corporation, on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual agreements made herein, and intending to be legally bound hereby, the Corporation and the Executive agree as follows: 1. Employment Duties. (a) Employment and Employment Period. The Corporation shall employ the Executive to serve as President and Chief Operating Officer of ICF Kaiser International, Inc., as set forth below for a continuous period of one (1) year commencing August 5, 1998 (the "Employment Period"). The Employment Period may be extended by mutual agreement of the parties. (b) Offices, Duties and Responsibilities. As soon as the Executive commences employment with the Corporation, he shall be elected President and Chief Operating Officer of ICF Kaiser International, Inc. The Executive shall report to the Chairman and Chief Executive Officer of the Corporation and shall be a member of all senior management groups of the Corporation. The Executive will have full authority over all line operations including business development, marketing, sales organizational structure and strategy. The Executive's offices shall be located at the Corporation's headquarters building in Fairfax, Virginia. (c) Devotion to Interests of the Corporation. Except as expressly authorized by the Corporation's Board of Directors, until the effective date of notice of termination of this Agreement by either the Executive or the Corporation, with or without cause, the Executive shall render his business services solely in the performance of his duties hereunder. The Executive shall use his best efforts to promote the interests and welfare of the Corporation. (d) Service as a Director of the Corporation. Executive is currently serving as a director of the Corporation with a term ending at the Annual Meeting of Shareholders in the year 2001 and until his successor is duly elected. As soon as Executive commences employment with the Corporation, he shall no longer be compensated as a non-employee director for his continuing service as a director of the Corporation. 2. Compensation and Fringe Benefits. (a) Base Compensation. The Corporation shall pay the Executive a base salary at the rate of $375,000 per year through August 4, 1999, in installments in accordance with the Corporation's regular practice for compensating executive personnel. The amount of the Executive's base compensation on and after August 4, 1999 shall be subject to adjustment as recommended by the Compensation Committee of the Corporation's Board of Directors ("Compensation Committee"), but any adjustment shall not be less than the rate of $375,000 per year. (b) Bonus Compensation. The Executive shall be paid a signing bonus of $100,000, which shall be deemed earned and vested, $50,000 of which will be paid upon commencement of employment (payable with Executive's first paycheck) for calendar year 1998 and the other $50,000 of which will be paid on January 1, 1999. In addition, Executive shall be provided a bonus opportunity of not less than fifty percent (50%) of the Executive's base salary based on the performance of the Corporation for the period of August 5, 1998 to August 4, 1999. The terms of such bonus opportunity shall be set by the Compensation Committee within sixty (60) days after the Executive commences employment with the Corporation. (c) Fringe Benefits. The Executive shall be entitled to such fringe benefits during the term of his employment as are generally made available by the Corporation to executive personnel. Such benefits shall include participation in the Corporation's defined contribution retirement plan, 401 (k) Plan, and health, term life and disability insurance programs. The Executive shall also be reimbursed for reasonable expenses incurred in connection with travel and entertainment related to the Corporation's business and affairs and will be paid by the Corporation in a manner consistent with past practice and as amended by any subsequent changes of Corporate Policy. 3. Stock Options. Within thirty (30) days after the Executive commences employment with the Corporation, the Corporation shall grant to the Executive incentive stock options and non-qualified options under the Company's Stock Incentive Plan to purchase an aggregate of 150,000 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 twenty (20) days ending the day immediately preceding the date of such grant. Such options shall consist of non-qualified options only to the extent required under the Corporation's Stock Incentive Plan, or as required by law. In addition to the customary terms, such Options will be subject to the following provisions: (a) Option Term. The options expire three (3) years from the date of grant. (b) Vesting. Fifty percent (50%) of the options shall vest on February 5, 1999, and fifty percent (50%) shall vest on August 4, 1999. (c) Exercise. Subject to applicable securities laws and regulations, all vested options are exercisable at any time prior to expiration of their exercise period. 4. Payment of Certain Expenses. (a) Payment of Temporary Living Expenses. In connection with the Executive's temporary stay in the Washington, DC area for a period of up to one (1) year and pending the relocation of his household from the Boise, Idaho area to the Washington, DC area, he will be reimbursed for the following costs and expenses, provided, in each case, that such costs are reasonable and documentation is provided: (i) The cost of travel (up to two [2] round trips per month) between Boise, Idaho and the Washington, DC area incurred by the Executive or Georganne Price; and (ii) Furnished, short-term housing expenses for the Executive in the Washington, DC area; and (iii) All cost of moving the Executive's family and household goods from the Boise, Idaho area to the Washington, DC area; and (iv) The costs or otherwise make arrangements for an appropriate standard rental car provided in Fairfax, Virginia. (b) Payment of Other Expenses. (i) The Corporation shall pay Executive the costs of legal expenses related to the negotiation and execution of this Agreement; and Page 2 (c) Gross-up of Expenses. The Temporary Living Expenses reimbursements set forth in subsection (a) above shall, to the extent appropriate, be "grossed up." For this purpose, "grossed-up" means in case of a reimbursed expense that is taxable to the Executive and is not deductible for Federal income tax purposes, that the Executive will be paid an amount which, after Federal income taxes on such amount, will equal the amount of the non-deductible reimbursable expense. 5. Trade Secrets. The Executive shall not use or disclose any of the Corporation's trade secrets or other confidential information. The term "trade secrets or other confidential information" includes, by way of example, matters of a technical nature, such as scientific, trade and engineering secrets, "know- how", formulae, secret processes or machines, inventions, computer programs (including documentation of such programs) and research projects, and matters of a business nature, such as proprietary information about costs, profits, markets, sales, lists of customers, and other information of a similar nature to the extent not available to the public, and plans for future development. After termination of this Agreement, the Executive shall not use or disclose trade secrets or other confidential information unless such information becomes a part of the public domain other than through a breach of this Agreement or is disclosed to the Executive by a third party who is entitled to receive and disclose such information. 6. Return of Documents and Property. Upon the effective date of notice of the Executive's or the Corporation's election to terminate this Agreement, or at any time upon the request of the Corporation, the Executive (or his heirs or personal representatives) shall deliver to the Corporation (a) all documents and materials containing trade secrets or other confidential information relating to the Corporation's business and affairs, and (b) all documents, materials and other property belonging to the Corporation, which in either case are in the possession or under the control of the Executive (or his heirs or personal representatives). 7. Discoveries and Works. All discoveries and works made or conceived by the Executive during his employment by the Corporation, jointly or with others, that relate to the Corporation's activities shall be owned by the Corporation. The term "discoveries and works" includes, by way of example, inventions, computer programs (including documentation of such programs), technical improvements, processes, drawings and works of authorship. The Executive shall (a) promptly notify, make full disclosure to, and execute and deliver any documents requested by, the Corporation to evidence or better assure title to such discoveries and works in the Corporation, (b) assist the Corporation in obtaining or maintaining for itself at its own expense United States and foreign patents, copyrights, trade secret protection or other protection of any and all such discoveries and works, and (c) promptly execute, whether during Executive's employment by the Corporation or thereafter, all applications or other endorsements necessary or appropriate to maintain patents and other rights for the Corporation and to protect its title thereto. Any discoveries and works which, within six months after the termination of the Executive's employment by the Corporation, are made, disclosed, reduced to a tangible or written form or description, or are reduced to practice by the Executive and which pertain to the business carried on or products or services being sold or developed by the Corporation at the time of such termination shall, as between the Executive and the Corporation, be presumed to have been made during the Executive's employment by the Corporation. Set forth on Schedule 7 attached hereto is a list of inventions, patented or unpatented, including a brief description thereof, which are owned by the Executive, which the Executive conceived or made prior to Executive's employment by the Corporation and which are excluded from this Agreement. 8. Termination. (a) Either the Corporation or the Executive can terminate this Agreement, with or without "cause," upon thirty (30) days' prior written notice. (b) In the event the Corporation elects to terminate this Agreement without "cause", or the Executive elects to terminate this Agreement for "good reason", subject to the provisions of Section 9, the Page 3 Corporation shall pay to the Executive, in addition to any amounts paid or payable under other provisions of this Agreement or any other agreements between the Corporation and the Executive, a severance payment equal to the balance of the base compensation for the Employment Period. Such severance will be paid in cash (with deduction of such amount as may be required to be withheld under applicable law and regulations) within ten (10) working days of termination. In such event, all unvested options will vest in full on the effective date of termination and all options may be exercised any time within the term set forth in Section3(a). All other compensation and benefits provided for in this Agreement shall cease upon such termination to the extent allowable by law. (c) For purposes of this Agreement, the Executive shall be considered to have "good reason" to terminate this Agreement if (i) without his express written consent, the liabilities of the Executive are substantially reduced (except in connection with the termination of his employment voluntarily by the Executive, by the Company for "cause", or under the circumstances described in Section 9 hereof), or (ii) a majority of the Board of Directors of the Company is not comprised of "Continuing Directors," where a "Continuing Director" of the Company as of any date means a member of the Board of Directors of the Company who (x) was a member of the Board of Directors of the Company on the effective date of this Agreement or (y) was nominated for election or elected to the Board of Directors of the Company with the a vote of at least a majority of the directors who were Continuing Directors at the time of such nomination or election. (d) In the event the Corporation terminates this Agreement for "cause" or the Executive terminates this Agreement without "good reason", the Executive's rights hereunder shall cease as of the effective date of such termination, except as otherwise provided herein. In such event, all unvested options shall be terminated and all vested options may be exercised anytime within the term set forth in Section 3(a). For purposes of this Agreement, the Corporation shall have "cause" to terminate the Executive's employment hereunder upon (i) the continued, wilful and deliberate failure of the Executive to perform his duties, in a manner substantially consistent with the manner prescribed by the Board of Directors or the Chief Executive Officer of the Corporation (other than any such failure resulting from his incapacity due to physical or mental illness), (ii) the engaging by the Executive in misconduct materially and demonstrably injurious to the Corporation, (iii) the conviction of the Executive of commission of a felony, whether or not such felony was committed in connection with the Corporation's business, or (iv) the circumstances described in Section 9 hereof, in which case the provisions of Section 9 shall govern the rights and obligations of the parties. 9. Disability; Death. (a) If, prior to the expiration or termination of the Employment Period, the Executive shall be unable to perform his duties by reason of disability or impairment of health for at least six consecutive calendar months, the Corporation shall have the right to terminate this Agreement by giving written notice to the Executive to that effect, but only if at the time such notice is given such disability or impairment is still continuing. After giving such notice, the Employment Period shall terminate with the payment of the Executive's base compensation for the month in which notice is given. All other compensation and benefits provided for in this Agreement shall cease upon such termination to the extent allowable by law. (b) In the event of a dispute as to whether the Executive is disabled within the meaning of this Section 9, either party may from time to time request a medical examination of the Executive by a doctor appointed by the Chief of Staff of a hospital selected by mutual agreement of the parties, or as the parties may otherwise agree, and the written medical opinion of such doctor shall be conclusive and binding upon the parties as to whether the Executive has become disabled and the date when such disability arose. The cost of any such medical examinations shall be borne by the Corporation. (c) If, prior to the expiration or termination of the Employment Period, the Executive shall die, the Corporation shall pay to the Executive's estate his base compensation through the end of the month in Page 4 which the Executive's death occurred, at which time the Employment Period shall terminate without further notice and the Corporation shall have no further obligations hereunder. (d) Nothing contained in this Section 9 shall impair or otherwise affect any rights and interests of the Executive under any compensation plan or arrangement of the Corporation which may be adopted by the Board of Directors of the Corporation. 10. 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 Corporation and running through the earlier of (i) the end of the Employment Period if the Executive remains employed by the Corporation for the entire Employment Period or (ii) one year following termination of the Executive's employment by the Corporation for any reason, whether by action of the Executive or the Corporation (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 conduct of, planning for, or management of, or own any stock or any other equity investment in or debt of, any business which is directly in competition with any business conducted by the Corporation. For the purpose of this Agreement, a business shall be considered to be directly in competition with the business of the Corporation only if such business is engaged in providing services (i) similar to (x) any service currently provided by the Corporation or provided by the Corporation during the Employment Period; (y) any service in the ordinary course during the Non- Competition Period which evolves from or results from enhancements to the services provided by the Corporation as of the Effective Date hereof or during the Non-Competition period; or (z) any future service of the Corporation 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 Corporation during the Non-Competition Period. (b) Non-Solicitation of Employees. During the Non-Competition Period, the Executive will not (for Executive's own benefit or for the benefit of any person or entity other than the Corporation) solicit, or assist any person or entity other than the Corporation to solicit, any officer, director, executive or employee of the Corporation or its affiliates to leave his or her employment. (c) Reasonableness. Executive acknowledges that (i) the markets served by the Corporation 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 related to the length of the Employment Period and the Corporation's agreement to provide severance benefits as set forth in Section 8(b); 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 Corporation. (d) Investments. Nothing in this Agreement shall be deemed to prohibit Executive from owning equity or debt investments in any corporation, partnership or other entity which is competitive with the Corporation, 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 of other public market, or (ii) are approved by the Corporation. 11. Enforcement. The Executive agrees that the Corporation's remedies at law for any breach or threat of breach by him of the provisions of Sections 5, 6, 7, and 10 hereof will be inadequate, and that the Corporation shall be entitled to an injunction or injunctions to prevent breaches of the provisions of Sections 5, 6, Page 5 7, and 10 hereof and to enforce specifically the terms and provisions thereof, in addition to any other remedy to which the Corporation may be entitled at law or equity. 12. Severability. Should any provision of this Agreement be determined to be unenforceable or prohibited by any applicable law, such provision shall be ineffective to the extent, and only to the extent, of such unenforceability or prohibition without invalidating the balance of such provision or any other provision of this Agreement, and any such unenforceability or prohibition in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 13. Assignment. The Executive's rights and obligations under this Agreement shall not be assignable by the Executive. The Corporation's rights and obligations under this Agreement shall not be assignable by the Corporation except as incident to the transfer, by merger or otherwise, of all or substantially all of the business of the Corporation. In the event of any such assignment by the Corporation, all rights of the Corporation hereunder shall inure to the benefit of the assignee. 14. Notices. Any notice required or permitted under this 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 if addressed to: Keith M. Price Keith Price 4750 River Vista Place c/o ICF Kaiser International, Inc, Boise, Idaho 83703 9300 Lee Highway Fairfax, VA 22031-1207 and properly addressed to the Corporation if addressed to: ICF Kaiser International, Inc. 9300 Lee Highway Fairfax, Virginia 22031-1207 Attn: General Counsel 15. Miscellaneous. This Agreement constitutes the entire agreement, and supersedes 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 Agreement shall be governed by the laws of the Commonwealth of Virginia. The headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the day and year first above written. /s/ ICF KAISER INTERNATIONAL KEITH M. PRICE, Executive By _________/s/_____________ James O. Edwards Chairman and Chief Executive Officer Page 6 EX-27 7 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 2,227,000 0 312,517,000 18,139,000 0 340,816,000 50,263,000 39,125,000 425,075,000 291,442,000 157,866,000 0 0 244,000 (36,638,000) 425,075,000 0 909,796,000 0 865,812,000 0 58,711,000 14,901,000 (72,666,000) (11,029,000) (61,637,000) 0 0 6,000,000 (73,514,000) (3.05) (3.05) Excludes current portion of bonds, mortgages, and similar debt. Represents gross revenue which includes costs of certain services subcontracted to third parties and other reinbursable direct project costs, such as materials procured by the Company on behalf of its customers.
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