-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, kekNEHhHq0/De9XSCkoHQ3+Vnwyrstc76vCxFhVfizRwfuS7ImDsVPxmCs06p2Ye jSFM97uhxkFDlyXFnLG2ng== 0000950109-94-000053.txt : 19940118 0000950109-94-000053.hdr.sgml : 19940118 ACCESSION NUMBER: 0000950109-94-000053 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19940114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ICF KAISER INTERNATIONAL INC CENTRAL INDEX KEY: 0000856200 STANDARD INDUSTRIAL CLASSIFICATION: 4955 IRS NUMBER: 541437073 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 424B3 SEC ACT: 33 SEC FILE NUMBER: 033-51677 FILM NUMBER: 94501469 BUSINESS ADDRESS: STREET 1: 9300 LEE HWY CITY: FAIRFAX STATE: VA ZIP: 22031 BUSINESS PHONE: 7039343600 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 424B3 1 PROSPECTUS SUPPLEMENT Rule 424(b)(3) Registration No. 33-51677 600,000 SHARES OF COMMON STOCK ICF KAISER INTERNATIONAL, INC. The 600,000 shares of common stock, par value $0.01 per share (the "Common Stock"), of ICF Kaiser International, Inc. ("ICF Kaiser" or the "Company") being offered hereby (the "Shares") are issuable upon exercise of 600,000 warrants (the "Warrants"), which were sold on January 11, 1994, in connection with the sale of the Company's 12% Senior Subordinated Notes due 2003 (the "12% Notes"). Each Warrant entitles the holder thereof to acquire one share of Common Stock at a price equal to $5.00 per share, subject to adjustment under certain circumstances. The Warrants are exercisable at any time prior to their expiration on December 31, 1998. Upon exercise, the holders of Warrants see be entitled to purchase, in the aggregate, 600,000 shares of Common Stock. On January 13, 1994, the last reported sales price on the New York Stock Exchange Composite Tape for the Common Stock was $4.75. See "Market Prices and Dividend Policy." SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK. ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NORHAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. -----------
PRICE TO PROCEEDS TO PUBLIC COMPANY(1) Per Share (on exercise of Warrants)..................... $5.00 $5.00 Total................................................... $3,000,000 $3,000,000
(1)Before deducting expenses, payable by the Company, estimated at $100,000. ----------- The date of this Prospectus is January 14, 1994. AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-1 (herein, together with all amendments and exhibits, referred to as the "Registration Statement") under the Securities Act of 1933, as amended (the "Act"), with respect to the Common Stock offered hereby. As permitted by the rules and regulations of the Commission, this Prospectus does not contain all the information set forth in the Registration Statement and in the exhibits and schedules thereto. For further information about the Company and the Common Stock, reference is made to the Registration Statement. The Registration Statement may be inspected and copied at the Commission's Public Reference Room, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of the Commission: New York Regional Office, 7 World Trade Center, New York, New York 10048; and Chicago Regional Office, 500 West Madison Street, Chicago, Illinois 60661. The statements contained in this Prospectus about the contents of any contract or other document filed as an exhibit to the Registration Statement are not complete, each such statement being qualified in all respects by such reference. Copies of each such document may be obtained from the Commission at its principal office in Washington, D.C. upon payment of the charges prescribed by the Commission. The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports and other information with the Commission. Reports, proxy and information statements, and other information filed by the Company can be inspected and copied at the Commission's Public Reference Room and Regional Offices set forth above, and copies of such material can be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Company's Common Stock has been traded on the New York Stock Exchange since September 14, 1993, and reports, proxy material, and other information concerning the Company may be inspected at the office of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. Prior to September 14, 1993, the Company's Common Stock was traded on the Nasdaq National Market. ---------------- 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements (including the notes thereto) appearing elsewhere in this Prospectus. On June 26, 1993, ICF Kaiser International, Inc. changed its name from ICF International, Inc. The entire group of ICF Kaiser International, Inc. companies will be referred to in this Prospectus as "ICF Kaiser" or the "Company." THE COMPANY ICF Kaiser International, Inc., through ICF Kaiser Engineers, Inc. and its other operating subsidiaries, is one of the nation's largest engineering, construction and consulting services firms, offering its clients over 20 years of experience in all aspects of environmental regulation and compliance and providing access to leading process technologies. The Company provides fully integrated consulting, engineering and construction services to public and private sector clients in the related markets of environment, infrastructure and industry. The Company estimates that of its $385 million of fiscal year 1993 service revenue, approximately 63% was attributable to environmental services, 17% to infrastructure-related work, 13% to industrial work, and 7% to other consulting services. As of January 1, 1994, the Company employed approximately 5,700 people located in more than 80 offices worldwide. In the environmental market, ICF Kaiser applies its skills and expertise with sophisticated technologies to help its clients solve complex environmental problems. The Company is involved in all phases of environmental analysis, design and construction, and has expertise in hazardous and radioactive waste cleanup, waste minimization and disposal, risk assessment, permitting, environmental compliance, global climate change and clean air, alternative fuels, analysis of ground-water contamination and the clean up of harbors and waterways. The Company believes that this breadth and depth of knowledge contributes to its ability to compete successfully when bidding for major environmental restoration projects. ICF Kaiser also provides management, engineering and construction services in the infrastructure and industrial markets. Projects include rapid transit systems, light and heavy rail systems, bridges, highways, manufacturing facilities, and hydroelectric, fossil fuel, nuclear and renewable energy plants. Increasingly, these projects require a substantial level of environmental problem-solving in both design and construction. The Company believes that its ability to integrate its environmental disciplines with its engineering expertise and large-project management skills is a marketing advantage. The Company is currently working on several large, highly visible projects including: (i) a two-and-one-half year, $800 million contract at the U.S. Department of Energy's Hanford nuclear site in Richland, Washington, the nation's largest waste clean-up site under the "Superfund" program; (ii) a five-year, $140 million contract for the construction management of a new, $5.4 billion wastewater treatment facility project in Boston Harbor, the single largest environmental effort in the United States; and (iii) a two-year extension of a $33 million contract for the planning, design and construction services for an $18 billion, 88-kilometer mass transit system in Taipei, Taiwan, the largest such program underway in the world. THE OFFERING Securities offered hereby......... 600,000 shares of Common Stock issuable upon exercise of the Warrants. Use of Proceeds................... The net proceeds will be used for general corporate purposes. RISK FACTORS Prospective purchasers should consider carefully certain factors relating to an investment in the Common Stock. See "Risk Factors." 3 SUMMARY CONSOLIDATED FINANCIAL DATA The following statement of operations data and balance sheet data, excluding the data for the nine months ended November 30, 1993 and 1992, have been derived from financial statements audited by Coopers & Lybrand, independent accountants. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Prospectus and with the Company's consolidated financial statements and notes thereto.
NINE MONTHS ENDED NOVEMBER 30, YEAR ENDED FEBRUARY 28, ------------------ --------------------------- 1993 1992 1993 1992 1991 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT RATIOS) STATEMENT OF OPERATIONS DATA: Gross revenue(a)................ $454,069 $527,961 $678,882 $710,873 $624,976 Service revenue(a)(b)........... 276,482 293,572 384,985 379,826 363,318 Cost of restructuring and disposal of businesses, net................ -- 1,336 1,336 73,354 -- Operating income (loss)......... 8,220 17,506 22,744 (43,963) 33,287 Income (loss) before income taxes.......................... 4,247 12,278 14,894 (54,310) 24,018 Net income (loss)............... 2,039 7,121 8,639 (40,516) 14,291 Net income (loss) available for common shareholders............ (1,731) 3,351 3,613 (42,719) 13,434 Net income (loss) per common share Primary........................ (0.09) 0.15 0.16 (2.25) 0.71 Fully diluted.................. (0.09) 0.15 0.16 (2.25) 0.68 BALANCE SHEET DATA (END OF PERIOD): Working capital................. $ 92,715 $ 88,971 $ 87,845 $ 66,065 $ 74,754 Total assets.................... 278,457 317,962 295,578 318,947 357,457 Total debt(c)................... 79,324 102,951 74,391 86,332 105,362 Redeemable preferred stock...... 44,445 44,709 44,824 45,161 26,498 Shareholders' equity............ 57,976 57,517 58,521 51,151 88,839
(a) Gross revenue and service revenue for the fiscal years ended February 28, 1993 and February 29, 1992, exclude businesses discontinued by the Company in fiscal year 1992; the financial data for fiscal year 1991 includes results for the entire Company. (b) Service revenue is calculated by deducting the costs of subcontracted services and other direct costs from the gross revenue and adding the Company's share of the income (loss) of joint ventures and affiliated companies. (c) Total debt includes both the current and long-term portions of long-term debt and subordinated debt. 4 THE COMPANY ICF Kaiser International, Inc., through ICF Kaiser Engineers, Inc. and its other operating subsidiaries, is one of the nation's largest engineering, construction and consulting services firms, offering its clients over 20 years of experience in all aspects of environmental regulation and compliance and providing access to leading process technologies. The Company provides fully integrated consulting, engineering and construction services to public and private sector clients in the related markets of environment, infrastructure and industry. The Company estimates that of its $385 million of fiscal year 1993 service revenue, approximately 63% was attributable to environmental services, 17% to infrastructure-related work, 13% to industrial work, and 7% to other consulting services. As of January 1, 1994, the Company employed approximately 5,700 people located in more than 80 offices worldwide. In its most recent fiscal year ended February 28, 1993, ICF Kaiser reported gross and service revenue of $679 million and $385 million, respectively. Service revenue is derived by deducting subcontract and direct material costs from gross revenue and adding the Company's share of income (loss) of joint ventures and affiliated companies. ICF Kaiser believes it is appropriate to analyze its business in relation to service revenue rather than gross revenue because service revenue reflects the work directly performed by the Company. The percentage breakdowns of ICF Kaiser's service revenue (excluding discontinued businesses) by market for the fiscal years shown below were as follows (dollars in millions):
YEAR ENDED FEBRUARY 28, -------------------------------------- 1993 1992 1991 ------------ ------------ ------------ AMOUNT % AMOUNT % AMOUNT % ------ ----- ------ ----- ------ ----- Environment.............................. $240.2 62.4 $230.2 60.6 $160.6 50.7 Infrastructure........................... 66.6 17.3 57.7 15.2 47.5 15.0 Industry................................. 51.2 13.3 63.0 16.6 88.3 27.9 Other consulting......................... 27.0 7.0 28.9 7.6 20.4 6.4 ------ ----- ------ ----- ------ ----- Total.................................. $385.0 100.0 $379.8 100.0 $316.8 100.0 ====== ===== ====== ===== ====== =====
ICF Kaiser's services in the environmental market include consulting, engineering and construction involved with the remediation of hazardous and radioactive waste, waste minimization and disposal, risk assessment, global warming and acid rain, alternative fuels and clean up of harbors and waterways. The Company minimizes its participation in the collection, treatment, storage and disposal of hazardous waste because of the risks and potential liability involved with such activities. Demand for environmental services is driven by a number of factors, including: the need to improve the quality of the environment; federal, state and municipal regulation and enforcement; and increased liability associated with pollution-related injury and damage. The Company's strategic plan is to position itself as a fully integrated environmental services firm that can provide expertise across all phases of an environmental remediation project. By leveraging its technological expertise at the front-end analysis and assessment phases, ICF Kaiser improves its position in participating in the subsequent phases of engineering and construction, which the Company believes will be a major area for market growth. ICF Kaiser also provides consulting, engineering, and construction services to the infrastructure market. This market historically has been driven by the need to maintain and expand roads, highways, mass transit systems, and airports. Increasingly, environmental concerns, such as reducing automotive air pollutant emissions, are a driving force behind new infrastructure and transportation initiatives. The Company has capitalized on its specialized environmental skills to win projects to provide planning, design and construction services. 5 ICF Kaiser assists clients in private industry by providing the engineering and construction skills needed to maintain and retrofit existing plants and replace aging production capacity with newer, more environmentally responsible facilities. Through its acquisition of ICF Kaiser Engineers, Inc. in 1988, the Company acquired the engineering and construction skills, as well as access to process technologies, needed to establish a leadership position in serving the basic metals and mining industries, including aluminum, steel, copper, and coal. All of ICF Kaiser's markets are global in nature. To capitalize on international opportunities while minimizing its business development risks, the Company has established international business relationships through joint ventures, marketing agreements and direct equity investments. The Company has projects underway in over 25 countries, ICF Kaiser International, Inc. was incorporated in Delaware in 1987 as the parent holding company of ICF Incorporated, a nationwide consulting and engineering firm that has provided services since 1969. The Company's headquarters is located at 9300 Lee Highway, Fairfax, Virginia 22031-1207, and its telephone number is (703) 934-3600. 6 RISK FACTORS Prospective purchasers of the Common Stock should carefully consider the following, as well as other information contained in this Prospectus. SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE AND INCUR DEBT; PREFERRED STOCK TERMS On a pro forma basis at November 30, 1993, taking into account the January 11, 1994, sale of the Warrants and 12% Notes, the Company had total indebtedness of $123.2 million, representing 64% of total capitalization. This high degree of leverage may have important consequences to the holders of the Common Stock. In particular, at least in the near term: (i) a substantial portion of the Company's cash flow from operations will be required for the payment of interest expense; (ii) the level of the Company's indebtedness may make it difficult to obtain additional financing in the future for working capital, acquisitions, capital expenditures, repayment of debt, or other purposes; and (iii) the level of the Company's leverage may make it more difficult for the Company's subsidiaries to obtain performance and similar bonds related to certain activities. The Company will be more leveraged after completion of the Unit Offering than many of its competitors, which may leave the Company less able to take advantage of market opportunities or withstand weakness in its markets. The ability of the Company to meet its debt service and other obligations will depend largely on the future performance of the Company, which will be subject in part to prevailing economic and competitive conditions, government spending patterns, and to other factors beyond its control. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company repaid outstanding indebtedness under its current revolving credit facility with a syndicate of banks with the proceeds of the January 11, 1994, sale of the Warrants and 12% Notes. On January 11, 1994, the Company entered into a new bank credit facility (the "New Credit Facility") that requires the Company to comply with certain financial and non-financial covenants. The New Credit Facility is secured by substantially all of the current assets of the Company and most of its subsidiaries. See "Use of Proceeds" and "Description of Credit Facility." The indenture (the "Indenture") for the Company's 12% Notes limits the Company's ability to incur additional indebtedness. See "Description of Credit Facility." The Company anticipates that such limitations will prohibit the Company from incurring a substantial amount of additional indebtedness other than under the New Credit Facility. As a result, new funding, to the extent needed, will have to take the form of raising additional equity capital, refinancing existing debt, or obtaining significant proceeds from the sale of assets. In addition to the restrictive covenants under the Indenture and the New Credit Facility, the agreements governing the Company's Series 2D Senior Preferred Stock ("Series 2D Preferred Stock") provide that certain restrictive covenants become operative while the Company is in arrears with respect to any dividend on such preferred stock for a period in excess of 100 days or has failed to make a mandatory redemption. Such covenants would prohibit the Company from, among other things: disposing of assets for consideration of more than $1 million in a single transaction; entering into mergers; making acquisitions; guaranteeing any obligation in excess of $1 million; or incurring indebtedness other than as permitted pursuant to the terms of the Indenture governing the Notes without the consent of the holder of the Series 2D Preferred Stock. See "Description of Capital Stock--Series 2D Preferred Stock." Because of the restrictions described above, during the next several years it will be necessary for the Company to issue additional equity securities to fund any significant acquisitions and invest in joint ventures beyond the level permitted by the Indenture. DEPENDENCE ON KEY CUSTOMERS AND FEDERAL GOVERNMENT CONTRACTS A substantial portion of ICF Kaiser's revenues are derived from services performed directly or indirectly under contracts with various agencies and departments of the Federal government. During fiscal year 1993, approximately 47% of the Company's consolidated gross revenue was derived from contracts with the U.S. 7 Government. The U.S. Department of Energy ("DOE") accounted for approximately 29% of consolidated gross revenue, and the U.S. Department of Defense ("DOD"), the U.S. Environmental Protection Agency ("EPA") and other Federal agencies collectively accounted for approximately 18% of the Company's consolidated gross revenue, during fiscal year 1993. These agencies and departments accounted for approximately the same percentages of service revenue of the Company during fiscal year 1993. Contracts made with the U.S. Government generally are subject to annual approval of funding. Limitations imposed on spending by Federal government agencies, which might result from efforts to reduce the Federal deficit or for other reasons, may limit the continued funding of the Company's existing contracts with the Federal government and may limit the ability of the Company to obtain additional contracts. These limitations, if significant, could have a material adverse effect on the Company. All contracts made with the U.S. Government may be terminated by the U.S. Government at any time, with or without cause. There can be no assurance that existing or future contracts with the U.S. Government would not be terminated or that the government will continue to use the Company's services at levels comparable to current use. See "Business--Competition and Contract Award Process." REGULATION OF FEDERAL GOVERNMENT CONTRACTING ACTIVITIES The Company is subject to general Federal regulation with respect to its contracting activities with the Federal government. For example, the Company is subject to audit with respect to costs incurred and charged to the Federal government. In one such audit, the government has asserted that certain costs claimed as reimbursable under government contracts were not allocated in accordance with government cost accounting standards. Management believes that the potential effect of disallowed costs, if any, for the periods currently under audit and for periods not yet audited has been adequately provided for and will not have a material adverse effect on the Company's financial condition. Because certain of the Company's subsidiaries provide the Federal government with nuclear energy and defense-related services, these subsidiaries and a substantial number of their employees are required to have and maintain security clearances from the Federal government. There can be no assurance that the required security clearances will be obtained and maintained in the future. Because of its nuclear energy and defense-related services, the Company is subject to foreign ownership, control and influence ("FOCI") regulations imposed by the Federal government and designed to prevent the release of classified information to contractors subject to FOCI. Under these regulations, FOCI concerns may arise as a result of a variety of factors, including foreign ownership of substantial percentages of the Company's equity securities or debt, the percentage of gross revenue the Company receives from foreign sources, and whether any directors or officers are not U.S. citizens. Subsidiaries of the Company with facility security clearances or sensitive DOE contracts file reports with DOD and DOE which disclose each of the above factors as well as disclosing all other events and changes that affect the potential for FOCI. As required by DOD and DOE, the Company has implemented procedures designed to insulate such subsidiaries from impermissible FOCI. There can be no assurance that such measures will prevent FOCI concerns from affecting the ability of the Company's subsidiaries to secure and maintain certain types of DOD and DOE contracts. DEPENDENCE ON ENVIRONMENTAL REGULATION Much of the Company's business is generated either directly or indirectly as a result of federal and state laws, regulations and programs related to environmental issues. Accordingly, a reduction in the number or scope of these laws and regulations, or changes in government policies regarding the funding, implementation or enforcement of such laws, regulations and programs, could have a material adverse effect on the Company's business. See "Business-- Overview of Markets." In July 1993, the Department of Energy commenced an initiative to achieve substantial cost reductions and productivity improvements within the Office of Environmental Restoration and Waste Management 8 ("OERWM"). A study commissioned by OERWM reported on November 30, 1993 that the DOE is paying private contractors more than a third more than the private sector pays for comparable projects and that DOE projects experience cost overruns of approximately 48% (compared to approximately 6% on private sector projects). The study also cited extensive delays on DOE projects. The study concluded that a major reason for the poor performance of the OERWM in managing its projects was its reliance on private contractors. Any significant effort by the DOE to reduce the role of private contractors in environmental projects could have a material adverse effect on the Company. ENVIRONMENTAL CONTRACTOR RISKS Although the Company believes that it generally benefits from increased environmental regulations, and from enforcement of those regulations, increased regulation and enforcement also create significant risks for the Company. The assessment, analysis, remediation, handling and management of hazardous substances necessarily involve significant risks, including the possibility of damages or personal injuries caused by the escape of hazardous materials into the environment, and the possibility of fines, penalties or other regulatory action. These risks include potentially large civil and criminal liabilities for violations of environmental laws and regulations, and liabilities to customers and to third parties for damages arising from performing services for clients. See "Business--Potential Environmental Liability." Potential Liabilities Arising Out of Environmental Laws and Regulations All facets of the Company's business are conducted in the context of a rapidly developing and changing statutory and regulatory framework. The Company's operations and services are affected by and subject to regulation by a number of federal agencies including the EPA and the Occupational Safety and Health Administration ("OSHA"), as well as applicable state and local regulatory agencies. The Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") addresses cleanup of sites at which there has been a release or threatened release of hazardous substances into the environment. Increasingly, there are efforts to expand the reach of CERCLA to make environmental contractors responsible for cleanup costs by claiming that environmental contractors are owners or operators of hazardous waste facilities or that they arranged for treatment, transportation or disposal of hazardous substances. Several recent court decisions have accepted these claims. Should the Company be held responsible under CERCLA for damages caused while performing services or otherwise, it may be forced to bear such liability by itself, notwithstanding the potential availability of contribution or indemnity from other parties. The Resource Conservation and Recovery Act of 1976, as amended in 1984 ("RCRA"), is the principal federal statute governing hazardous waste generation, treatment, transportation, storage and disposal. RCRA, or EPA- approved state programs at least as stringent, govern waste handling activities involving wastes classified as "hazardous." See "Business--Overview of Markets." Substantial fees and penalties may be imposed under RCRA and similar state statutes for any violation of such statutes and the regulations thereunder. Potential Liabilities Involving Clients and Third Parties In performing services for its clients, the Company potentially could be liable for breach of contract, personal injury, property damage, and negligence, including claims for lack of timely performance or for failure to deliver the service promised (including improper or negligent performance or design, failure to meet specifications, and breaches of express or implied warranties). The damages available to a client, should it prevail in its claims, are potentially large and could include consequential damages. Environmental contractors, in connection with work performed for clients, also potentially face liabilities to third parties from various claims including claims for property damage or personal injury stemming from a release of hazardous substances or otherwise. Claims for damage to third parties could arise in a number of 9 ways, including: through a sudden and accidental release or discharge of contaminants or pollutants during the performance of services; through the inability, despite reasonable care, of a remedial plan to contain or correct an ongoing seepage or release of pollutants; through the inadvertent exacerbation of an existing contamination problem; or through reliance on reports prepared by the Company. Personal injury claims could arise contemporaneously with performance of the work or long after completion of the project as a result of alleged exposure to toxic or hazardous substances. In addition, increasing numbers of claimants assert that companies performing environmental remediation should be adjudged strictly liable, i.e. liable for damages even though its services were performed using reasonable care, on the grounds that such services involved "abnormally dangerous activities." Clients frequently attempt to shift various of the liabilities arising out of remediation of their own environmental problems to contractors through contractual indemnities. Such provisions seek to require the Company to assume liabilities for damage or personal injury to third parties and property and for environmental fines and penalties. Moreover, during the past year, the EPA has constricted significantly the circumstances under which it will indemnify its contractors against liabilities incurred in connection with CERCLA projects. There are other proposals both in Congress and at the regulatory agencies to further restrict indemnification of contractors from third party claims. Consistent with industry experience and trends, the Company has found it difficult to obtain pollution insurance coverage, in amounts and on terms which are economically reasonable, against possible liabilities that may be incurred in connection with its conduct of its environmental business. An uninsured claim arising out of the Company's environmental activities, if successful and of sufficient magnitude, could have a material adverse effect on the Company. See "Business--Potential Environmental Liability" and "Business--Insurance." COMPETITION The market for the Company's services is highly competitive. The Company and its subsidiaries compete with many other firms ranging from small firms to large multinational firms having substantially greater financial, management, and marketing resources than the Company. Other competitive factors include quality of services, technical qualifications, reputation, geographic presence, price and the availability of key professional personnel. See "Business-- Competition and Contract Award Process." FEDERAL GOVERNMENT CONFLICT OF INTEREST POLICIES AND POSSIBLE RESTRUCTURING OF CONSULTING SUBSIDIARIES Federal agencies that are the Company's regular customers (including the DOD, DOE, and EPA) have formal policies against awarding contracts that would present actual or potential conflicts of interest with other activities of the contractor. The Company follows practices designed to comply with these policies. However, in light of the broad range of environmental and related services provided by various of the Company's subsidiaries to Federal and state governmental units and private sector customers, the Company is considering restructuring its subsidiaries that are engaged primarily in providing consulting services to governmental units ("Government Consulting Subsidiaries"). The goal of such a restructuring would be to provide further assurance to the Federal agencies for which the Government Consulting Subsidiaries perform services that such subsidiaries are insulated from the interests of the Company's private sector clients. If implemented, the restructuring would likely involve arrangements pursuant to which the Government Consulting Subsidiaries, or a single Government Consulting Subsidiary, would have a Board of Directors independent of the Company. Other steps would also be taken to segregate the management, operations and compensation policies of the Government Consulting Subsidiaries from those of the rest of the Company. Such a restructuring would not affect the flow of earnings from the Government Consulting Subsidiaries to the Company. It would, however, eliminate the Company's ability to exercise control over the Government Consulting Subsidiaries during the term of the arrangements described above. 10 FLUCTUATIONS IN QUARTERLY FINANCIAL RESULTS The Company's quarterly financial results may be affected by, among other factors, the commencement and completion or termination of major projects. Accordingly, results for any one quarter are not necessarily indicative of results for any other quarter or for the year. ATTRACTION AND RETENTION OF PROFESSIONAL PERSONNEL The Company's ability to retain and expand its staff of qualified professionals will be an important factor in determining the Company's future success. The market for these professionals, especially environmental professionals, is competitive. There can be no assurance that the Company will continue to be successful in its efforts to attract and retain such professionals. CHANGE OF CONTROL PROVISIONS In the event of a Change of Control (as defined in the Indenture), the Company would be required, subject to certain conditions, to offer to purchase all outstanding 12% Notes at a price equal to 101% of the principal amount thereof, plus accrued interest thereon. As of November 30, 1993, after giving effect to the sale of the Warrants and the 12% Notes, the Company would not have sufficient funds available to purchase all the 12% Notes were they to be tendered in response to an offer made as a result of such a Change of Control. There can be no assurance that, at the time of a Change of Control, the Company will have sufficient cash to repay all amounts due under the 12% Notes. If a Change of Control should occur, the rights of the holders of the 12% Notes to receive payment for their 12% Notes upon a Change of Control Offer would be subject to the prior payment rights of holders of any Senior Indebtedness (as defined in the Indenture). See "Description of Credit Agreement." The terms of the New Credit Facility prohibit the optional payment or prepayment or any redemption of the 12% Notes. If, following a Change of Control, the Company has insufficient funds to purchase all the 12% Notes tendered pursuant to such an offer, or is prohibited from purchasing the 12% Notes pursuant to the terms of any Senior Indebtedness, an event of default in respect of the 12% Notes would occur. The Change of Control provisions of the Indenture may have the effect of discouraging attempts by a person or group to take control of the Company. The Company's Amended and Restated Certificate of Incorporation, By-laws, Shareholder Rights Plan and certain other agreements contain provisions that could have the effect of delaying or preventing a change of control of the Company or affect the Company's ability to engage in certain extraordinary transactions. See "Description of Capital Stock." ABILITY TO REALIZE VALUE ON WARRANTS There can be no assurance that the Common Stock will trade at a price above the exercise price of the Warrants prior to the expiration of the Warrants. As of January 12, 1993, the Company had 2,956,040 shares of Common Stock that may be issued pursuant to outstanding warrants (other than the Warrants) and, as of November 30, 1993, 2,298,976 shares of Common Stock were issuable pursuant to outstanding stock options. Future sales of such shares and sales of shares purchased by holders of options or warrants could have an adverse effect on the market price of the Common Stock. USE OF PROCEEDS The net proceeds to be received by the Company from the sale of the 600,000 shares of Common Stock offered hereby upon exercise of all of the Warrants will equal $2,900,000. The Company intends to use all of the net proceeds for general corporate purposes. 11 MARKET PRICES AND DIVIDEND POLICY Since September 14, 1993, the Common Stock has been traded on the New York Stock Exchange ("NYSE") under the symbol "ICF." Prior to that date, the Common Stock was traded on the Nasdaq National Market. At December 17, 1993, there were 1,233 shareholders of record; the Company believes that there are approximately 6,150 beneficial owners of Common Stock. On January 13, 1994, the closing price of the Company Stock as reported by the NYSE was $4.75. The following table sets forth, for the periods indicated, the high and low sale prices for the Common Stock as reported on the Nasdaq National Market (through September 13, 1993) and the NYSE (from September 14, 1993, to the latest date indicated):
HIGH LOW ------- ------- Fiscal Year Ended February 29, 1992 First Quarter................................................. $18.50 $14.25 Second Quarter................................................ 16.75 8.00 Third Quarter................................................. 10.00 6.50 Fourth Quarter................................................ 11.00 6.25 Fiscal Year Ended February 28, 1993 First Quarter................................................. $10.875 $ 7.25 Second Quarter................................................ 7.75 5.00 Third Quarter................................................. 7.50 4.00 Fourth Quarter................................................ 8.50 6.00 Fiscal Year Ending February 28, 1994 First Quarter................................................. $ 6.875 $ 4.75 Second Quarter................................................ 5.50 3.75 Third Quarter (September 1--September 13)..................... 4.875 4.375 Third Quarter (September 14--November 30)..................... 5.375 4.00 Fourth Quarter (through January 3, 1994)...................... 4.875 4.00
The Company has never paid cash dividends on its Common Stock. The Board of Directors anticipates that for the foreseeable future no cash dividends will be paid on its Common Stock and that the Company's earnings will be retained for use in the business. The Board of Directors determines the Company's Common Stock dividend policy based on the Company's results of operations, payment of dividends on preferred stock (if any is outstanding), financial condition, capital requirements, and other circumstances. The Company's credit agreements allow dividends to be paid on its capital stock provided that the Company complies with certain limitations imposed by the terms of such agreements. See "Description of Credit Facility." 12 CAPITALIZATION The following table sets forth the capitalization of the Company as of November 30, 1993 and as adjusted as of such date to give effect to the January 11, 1994, sale of the Warrants and the 12% Notes and the application of the proceeds therefrom. This table should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Prospectus.
NOVEMBER 30, 1993 -------------------- ACTUAL AS ADJUSTED -------- ----------- (IN THOUSANDS) Debt: Revolving credit facility(a)............................. $ 45,000 $ -- ESOP guaranteed notes(a)................................. 1,667 -- Notes payable............................................ 2,657 2,657 12% Senior Subordinated Notes(b)......................... -- 120,588 13.5% Subordinated debt.................................. 30,000 -- -------- -------- Total debt............................................. 79,324 123,245 Redeemable Preferred Stock of Subsidiary................... 799 799 9.75% Series 2C Senior Preferred Stock..................... 24,284 -- 9.75% Series 2D Senior Preferred Stock..................... 19,362 19,362 9.25% Series 1 Junior Convertible Preferred Stock.......... 6,900 -- Common shareholders' equity(c)(d).......................... 51,076 48,033 -------- -------- Total capitalization................................... $181,745 $191,439 ======== ========
- -------- (a) See "Description of Credit Facility." (b) Excludes $3.5 million original issue discount and $0.9 million assigned to the Warrants. (c) Adjusted to take into account the retirement of the Company's 13.5% Senior Subordinated Notes due 1999 (the "13.5% Notes"), the repurchase of warrants issued in connection with the 13.5% Notes, the repurchase of the Series 1 Junior Convertible Preferred Stock, the repurchase of the Series 2C Senior Preferred Stock together with the Series 2C Warrants, the repayment of senior debt, the repayment of the ESOP loan and other costs related to the foregoing items. (d) Includes $0.9 million assigned to the Warrants. 13 SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data of the Company for each year in the five-year period ending February 28, 1993 have been derived from the Company's consolidated financial statements, which have been audited by Coopers & Lybrand, independent accountants. This information should be read in conjunction with the Consolidated Financial Statements and the related notes thereto appearing elsewhere in this Prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The selected consolidated financial data of the Company as of November 30, 1992 and 1993 and for the nine-month periods then ended have been prepared on the same basis as the Consolidated Financial Statements appearing elsewhere herein and, in the opinion of the Company, include all normal and recurring adjustments (consisting of only normal recurring adjustments) necessary to present fairly the information set forth therein. Operating results for the nine months ended November 30, 1993 are not necessarily indicative of the results that may be expected for the fiscal year ending February 28, 1994.
NINE MONTHS ENDED NOVEMBER 30, YEAR ENDED FEBRUARY 28, ------------------ --------------------------------------------- 1993 1992 1993 1992 1991 1990 1989(B) -------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Gross revenue (a)....... $454,069 $527,961 $678,882 $710,873 $624,976 $503,904 $297,866 Service revenue (a) (c). 276,482 293,572 384,985 379,826 363,318 278,255 174,328 Cost of restructuring and disposal of businesses, net........ -- 1,336 1,336 73,354 -- -- -- Operating income (loss). 8,220 17,506 22,744 (43,963) 33,287 22,563 13,845 Income (loss) before income taxes........... 4,247 12,278 14,894 (54,310) 24,018 14,906 11,584 Net income (loss)....... 2,039 7,121 8,639 (40,516) 14,291 8,794 6,524 Net income (loss) avail- able for common shareholders........... (1,731) 3,351 3,613 (42,719) 13,434 8,794 6,524 Net income (loss) per common share Primary................ (0.09) 0.15 0.16 (2.25) 0.71 0.57 0.46 Fully diluted.......... (0.09) 0.15 0.16 (2.25) 0.68 0.57 0.45 BALANCE SHEET DATA (END OF PERIOD): Total assets............ $278,457 $317,962 $295,578 $318,947 $357,457 $237,057 $140,751 Working capital......... 92,715 88,971 87,845 66,065 74,754 43,430 27,253 Long-term liabilities... 79,999 98,081 75,602 85,675 109,820 53,019 40,440 Total debt(d)........... 79,324 102,951 74,391 86,332 105,362 75,619 32,418 Redeemable preferred stock.................. 44,445 44,709 44,824 45,161 26,498 3,997 3,997 Shareholders' equity.... 57,976 57,517 58,521 51,151 88,839 58,503 19,595
- -------- (a) Gross revenue and service revenue for the fiscal years ended February 28, 1993 and February 29, 1992, exclude businesses discontinued by the Company in fiscal 1992; the financial data for fiscal 1989 through 1991 include results for the entire Company. (b) Includes the effect from June 1988 of the acquisition of ICF Kaiser Engineers, Inc. (c) Service revenue is calculated by deducting the costs of subcontracted services and reimbursable direct costs from the gross revenue and adding the Company's share of the income of joint ventures and affiliated companies. (d) Total debt includes both the current and long-term portions of long-term debt and subordinated debt. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Overview For the nine months ended November 30, 1993, ICF Kaiser's net income was $2,039,000 and net loss available for common shareholders was ($1,731,000), or ($0.09) per share, compared to net income of $7,121,000 and net income available for common shareholders of $3,351,000, or $0.15 per share, for the nine months ended November 30, 1992. The decrease in net income was caused by a decline in volume due to weakened demand in the Company's markets, the completion of several large industrial projects, the sale of two income- producing businesses (Lewin-ICF, Inc. and an equity interest in Acer Group Limited), a decline in the Company's energy engineering business, and the delayed impact of the Company's cost reduction efforts which began in the fourth quarter of the year ended February 28, 1993 (fiscal 1993). For fiscal 1993, ICF Kaiser's net income was $8.6 million, or $0.16 per share, compared to a net loss of $40.5 million, or ($2.25) per share, for the year ended February 29, 1992 (fiscal 1992). Net income in fiscal 1993 was adversely impacted by a net $1.3 million pretax addition to the provision for restructuring and disposal of businesses discussed below, and a $0.9 million pretax loss on the sale of ICF Kaiser's minority interest in Acer Group Limited, offset by a $0.1 million net credit for the unusual items discussed in Note Q to the consolidated financial statements. In fiscal 1993, the Company successfully completed several large industrial projects. In the second half of fiscal 1993 and in fiscal 1994, because of the completion of these projects and the slowdown in government contracting which the Company experienced following the change in Presidential Administrations, recovery of the Company's overhead and administrative costs was lower than anticipated. In the fourth quarter of fiscal 1993, ICF Kaiser reviewed its indirect cost structure and reduced its administrative and overhead employment base by 13%, resulting in a one-time $0.6 million charge for severance in the fourth quarter of fiscal 1993. These cost-cutting efforts have continued through fiscal 1994. Additionally, during fiscal 1993, the Company also incurred a heavy periodic cost for preparing and defending its successful bid for the engineer/constructor contract at the DOE Hanford site, as well as costs associated with completing its restructuring program during fiscal 1993. ICF Kaiser management believes that these overhead cost reductions, as well as further cost cutting actions taken in fiscal 1994, will allow the Company to match more closely its costs to its direct labor base while enabling the Company to respond to further growth. Outlook Effective October 1, 1993, the Company entered into a material amendment to its contract to provide architect-engineering and construction management services to the Department of Energy (DOE) at its Hanford site. The Company estimates that it will realize over $800 million in gross revenue under the two and one-half years of the amended contract and that fees under this contract will increase significantly. In addition, the Company will be eligible to earn additional incentive fees related to contractor efficiency and technology transfer. In connection with the contract amendment and in order to reduce duplication of work and to improve management control and efficiency of operation, the Company and DOE agreed to assign management of substantially all aspects of the amended contract to Westinghouse Hanford Company, the current management and operations contractor at the DOE's Hanford site. Similar to many companies in its industry, during fiscal 1994 ICF Kaiser continued to experience weak demand in its other markets when compared to fiscal 1993. Federal spending under the Company's existing environmental contracts, although increasing throughout the year, was lower than last year. This slowdown over the prior year period was compounded by several factors, including the change in Presidential Administrations, a sluggish market for major industrial and environmental expenditures and the completion of several large industrial projects. These factors resulted in reduced levels of gross and service revenue. ICF 15 Kaiser's management continues to focus on developing marketing opportunities, improving the efficiency of operations, and areas for additional cost-cutting. Bid and proposal activity remained active during fiscal 1994. ICF Kaiser has won a number of new environmental, infrastructure, industrial, and energy contracts. Gross Revenue 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 as well as certain other reimbursable direct project costs, such as materials procured by the Company on behalf of its customers. Comparison of Nine months ended November 30, 1993 to Nine months ended November 30, 1992--Gross revenue for the nine months ended November 30, 1993 was $454.1 million, a decrease of $73.9 million or 14.0% from $528.0 million in the comparable period last year. The decrease is attributable to: the successful completion of two large industrial projects in fiscal 1993 ($73.4 million); the sale of the Company's Lewin-ICF subsidiary at the end of the third quarter of fiscal 1993 ($14.4 million); a decline in the Company's energy engineering business ($9.5 million); the general impact of reduced government spending; the completion of other large projects; and sluggish demand. This decrease was partially offset by a significant increase in ICF Kaiser's engineer/constructor services to the DOE at the Hanford site ($50.6 million). Comparison of Fiscal 1993 to Fiscal 1992--Gross revenue was $678.9 million in fiscal 1993, a $32.0 million or 4.5% reduction from $710.9 million in fiscal 1992. This decrease in the Company's gross revenue is primarily attributable to the Company's Kaiser Engineers Australia Pty Ltd. ("KEA") subsidiary, which was successfully winding down its natural gas liquefaction project in northwest Australia ahead of schedule ($37.5 million); the completion of a large industrial project in the first half of fiscal 1993 ($34.2 million); and the impact of several other projects nearing completion. This decrease was partially offset by an increase in ICF Kaiser's project to manage the construction of a pulverized coal injection facility ($30.0 million) and an increase in ICF Kaiser's engineer/constructor services to the DOE at its Hanford site ($21.6 million). Comparison of Fiscal 1992 to Fiscal 1991--Gross revenue increased to $710.9 million in fiscal 1992 from $625.0 million in fiscal 1991. Excluding the gross revenues from those businesses discontinued in fiscal 1992 under the restructuring plan, fiscal 1991 revenues would have been $541.5 million. The $169.4 million or 31.3% increase in comparable gross revenues is partially attributable ($35 million) to the Company owning 100% of KEA in all of fiscal 1992, whereas the Company did not acquire the remaining 50% interest in KEA it did not already own until the third quarter of fiscal year 1991. Prior to this acquisition, the Company's initial 50% interest in KEA was accounted for under the equity method through the second quarter of fiscal year 1991. Additional growth in gross revenue for this period is attributable to the start-up of several large industrial projects ($116 million) and ICF Kaiser's engineer/constructor services at the DOE's Hanford site ($29 million). Service Revenue Service revenue is derived by deducting the costs of subcontracted services and other direct costs from gross revenue and adding the Company's share of the income (loss) of joint ventures and affiliated companies. ICF Kaiser believes it is appropriate to analyze operating margins and other ratios in relation to service revenue because such revenue and ratios reflect the work directly performed by the Company and because the percentage relationship between gross revenue and operating expenses can vary from period to period. 16 The following table sets forth the gross revenue and service revenue (both excluding discontinued businesses) and the percentage relationship between them for the periods presented (dollars in millions):
NINE MONTHS ENDED YEAR ENDED FEBRUARY NOVEMBER 30, 28, -------------- ---------------------- 1993 1992 1993 1992 1991 ------ ------ ------ ------ ------ Gross revenue........................... $454.1 $528.0 $678.9 $710.9 $541.5 Service revenue......................... $276.5 $293.6 $385.0 $379.8 $316.8 Percentage relationship................. 60.9% 55.6% 56.7% 53.4% 58.5%
Comparison of Nine months ended November 30, 1993 to Nine months ended November 30, 1992--Service revenue for the nine months ended November 30, 1993 was $276.5 million, a decrease of $17.1 million or 5.8% from $293.6 million for the comparable period in fiscal 1993. Service revenue for the quarter ended November 30, 1993 was $102.1 million, a $7.4 million or 7.8% increase from $94.7 million in the comparable period last year. Service revenue was primarily impacted by the same factors affecting gross revenue discussed above, as well as by a decline at the Company's KEA subsidiary due to the successful early completion of a natural gas liquefaction project on Australia's northwest shelf ($3.4 million for the nine months ended November 30, 1993). Service revenue under the DOE contract at Hanford increased $21.0 million for the nine month period ended November 30, 1993, in comparison to the same period in the prior year. Operating income on this contract generally fluctuates based on performance and not with the volume of gross or service revenue. Consequently, fluctuations in revenue on this contract can impact the Company's operating margins expressed as a percentage of service revenue. Equity in income of joint ventures and affiliates decreased $1.1 million for the nine months ended November 30, 1993 over the comparable period last year, primarily as a result of the decrease at KEA and the sale of the Company's equity interest in Acer Group Limited. Service revenue as a percentage of gross revenue was 60.9% for the nine months ended November 30, 1993 compared to 55.6% in the comparable period last year. The increase in this percentage for the comparable nine month period is a result of the changing nature of ICF Kaiser's contract base. As several large industrial projects were completed, a greater portion of the Company's projects during the current year were performed by ICF Kaiser and its personnel as opposed to subcontractors. Comparison of Fiscal Year 1993 to Fiscal Year 1992--Fiscal 1993 service revenue increased to $385.0 million from $379.8 million in fiscal 1992, an increase of 1.4%. Service revenue as a percentage of gross revenue increased to 56.7% in fiscal 1993 from 53.4% in fiscal 1992, indicating that a greater portion ofICF Kaiser's gross revenue was being provided by the Company and its personnel rather than subcontractors. The majority of the projects that were completed or neared completion in fiscal 1992 had a significant percentage of their gross revenues being generated from subcontracted work and material costs. In fiscal 1993, the reduction in service revenue due to the completion of the projects discussed above was partially offset by increased environment and infrastructure-related service revenue of $9.8 million and $8.3 million, respectively. Comparison of Fiscal Year 1992 to Fiscal Year 1991--Fiscal 1992 service revenue increased to$379.8 million from $316.8 million in fiscal 1991, an increase of 19.8%. Services to the DOE at the Hanford nuclear site accounted for $27.3 million of this increase, while the remaining growth is attributable to internal work at other DOE facilities and private sector contracts. In addition, equity in income of joint ventures and affiliated companies, which is a component of service revenue, decreased to $6.0 million in fiscal year 1992 from $8.2 million in fiscal 1991, primarily due to a $3.3 million decrease in income from a joint venture caused by a negotiated increase in the cost of services provided to the joint venture. The decrease in earnings from this joint venture was offset by income earned on services provided to the joint venture by ICF Kaiser. Service 17 revenue as a percentage of gross revenue is lower in fiscal 1992 (53.4%) as compared to fiscal 1991 (58.5%) due to several large construction projects that were ongoing in fiscal 1992 that carried a higher percentage of subcontracted work. Operating Expenses The Company believes that it is appropriate to analyze operating margins and other ratios in relation to service revenue because such revenue reflects the work directly performed by the Company. The following table sets forth the percentage relationship to service revenue of certain income statement items for the periods presented (expenses are expressed as a percentage of service revenue):
NINE MONTHS ENDED NOVEMBER 30, YEAR ENDED FEBRUARY 28, ------------------ ------------------------- 1993 1992 1993 1992 1991 -------- -------- ------- ------- ------- Service revenues (in millions)-- excluding discontinued businesses..................... $276.5 $293.6 $385.0 $ 379.8 $316.8 Direct cost of services and overhead....................... 77.8% 75.6% 75.8% 76.7% 73.4% Administrative and general...... 16.4 14.7 15.1 14.8 12.6 Depreciation and amortization... 2.7 2.8 2.8 2.4 2.2 Costs of restructuring and dis- posal of businesses............ -- 0.5 0.3 19.3 -- Unusual items................... 0.2 0.5 0.0 (1.7) -- Operating income................ 3.0 6.0 5.9 (11.6) 11.8
Direct cost of services and overhead includes the cost to the Company of professional and administrative staff hours, including labor-related overhead costs, that are directly chargeable to client projects. Direct cost of services and overhead for the nine months ended November 30, 1993, were $215.2 million, a $6.8 million or 3.1% decrease from the nine months ended November 30, 1992. This decrease is attributable to the decline in volume as well as the Company's cost-cutting efforts. Direct cost of services and overhead as a percentage of service revenue for the first nine months of fiscal 1994 is relatively consistent with fiscal 1993. Although volume is down and the Company has implemented cost-cutting measures, certain indirect costs, such as a large portion of the Company's rent expense, are relatively more fixed in nature. The percentage in fiscal 1992 was higher than fiscal 1991 as a result of the increase in revenue realized from the recognition of fees and contingency reductions on two large projects in fiscal 1991. Although the Company has acted to reduce administrative and general expenses, these expenses have increased for the nine months ended November 30, 1993 from the prior period last year. The increase is primarily the result of the Company's increased marketing efforts and additional absorption of fixed expenses after the completion of ICF Kaiser's restructuring program in fiscal 1993, partially offset by reductions realized by the Company's cost-cutting program. The percentages in fiscal 1993 and 1992 were higher than in fiscal 1991 as a result of the increased expenses during and after the restructuring program. Additionally, the Company recorded a $0.5 million charge in the nine months ended November 30, 1993 for costs related to the resignation of the Company's President and Chief Operating Officer and severance costs related to actions taken to reduce indirect costs. Depreciation and amortization for the nine months ended November 30, 1993 decreased over the nine months ended November 30, 1992 by $0.9 million or 10.8% to $7.4 million, primarily as the result of the write-off of certain software assets in the third quarter of fiscal 1993 and the sale of ICF Kaiser's interest in Acer Group Limited at the end of fiscal 1993. The $1.6 million increase in depreciation and amortization expense in fiscal 1993 compared to fiscal 1992 was the result of a full year of amortization of certain goodwill and intangible assets acquired in fiscal 1992. At November 30, 1993, the Company had a net balance of $59.0 million of goodwill and intangible assets that are amortized over periods ranging from five to 40 years, down from $61.1 million at the end of fiscal 1993. 18 Interest Expense ICF Kaiser's interest expense for the nine months ended November 30, 1993 decreased 22.3% from the comparable period last year. This was primarily because of reduced average long-term debt outstanding and lower interest rates. Interest expense will increase over future periods as a result of the restructuring of the Company's balance sheet, discussed under "Liquidity and Capital Resources". The increase in interest expense will be partially offset by a reduction in preferred dividends. Net interest expense decreased in fiscal 1993 compared to fiscal 1992 by $3.4 million primarily as the result of lower prevailing interest rates and using proceeds from the sale of Lewin-ICF and other discontinued businesses to pay down the Company's credit facility. The sale of Lewin-ICF occurred on November 30, 1992. The Company also sold its minority investment in Acer Group Limited on February 21, 1993. As a result of the timing of these transactions, the Company expects interest expense in fiscal 1994 to continue to be lower than fiscal 1993 if prevailing interest rates remain stable. Interest expense for core businesses was slightly lower in fiscal 1992 ($10.8 million) as compared to fiscal 1991 ($11.3 million) since the Company had increased borrowings under the credit facility to make several acquisitions in fiscal 1991. Discontinued Businesses At February 28, 1993, the Company had sold or otherwise disposed of all businesses discontinued under its restructuring plan. In fiscal 1992, the Board of Directors approved management's recommendation to discontinue certain non- core businesses, resulting in a $73.4 million provision for restructuring and disposal of businesses to provide for: operating losses of discontinued businesses through disposal; losses on the disposal of those businesses included in the plan at that time; and one-time restructuring charges for closing and consolidating certain operations of core businesses. In fiscal 1993, ICF Kaiser increased the provision for restructuring and disposal of businesses by an additional $1.3 million to provide for the combined impact of the sale of the Company's Lewin-ICF health consulting subsidiary which had been determined to be outside of the Company's core businesses and the revisions to the estimates of remaining liabilities relating to discontinued businesses. Income Tax Expense The Company's effective tax rate is 52% for the nine months ended November 30, 1993, reflecting an increase in ICF Kaiser's effective tax rate from 42% for fiscal 1993. The increase reflects the effect of the Company's lower than anticipated pre-tax income, which increases the impact of the Company's permanent book-tax differences, primarily goodwill, on the effective tax rate. This increase was partially offset by the effect of recent changes in U.S. tax law on ICF Kaiser's deferred tax asset. The $6.3 million tax provision for fiscal 1993 differs from the statutory rate primarily as a result of state income taxes and the amortization of goodwill. In fiscal 1992, ICF Kaiser adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, effective March 1, 1991. The impact of adoption was to increase the deferred tax benefit by $6.5 million. The $13.8 million tax benefit recorded for fiscal 1992 relates to the operating losses of discontinued businesses and the available benefits from the disposition of these businesses, net of $8.6 million of taxes applicable to the core businesses. The overall benefit rate of 25.4% in fiscal 1992 differs from the statutory rate primarily due to differences between the tax and book basis of various assets of discontinued businesses. Impact of New Accounting Standards The Company adopted Statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits ("SFAS No. 106"), effective March 1, 1993. The Company's postemployment obligation extends to only a limited group of retirees (and their spouses) who joined ICF Kaiser through an 19 acquisition; and their benefits are limited to a fixed amount per employee or spouse. SFAS No. 106 requires that companies accrue postemployment benefits over the period benefits are earned. The Company has elected the prospective transition method and is amortizing its $14.2 million transition obligation over 14.5 years, the average remaining life expectancy of the retirees and their spouses. The Company's ongoing expense under SFAS No. 106 includes the interest component and the amortization of the transition obligation. LIQUIDITY AND CAPITAL RESOURCES In the nine months ended November 30, 1993, ICF Kaiser's cash position increased $14.0 million. Working capital increased slightly since February 28, 1993, $4.9 million or a 5.5% increase, to $92.7 million as of November 30, 1993. Operations provided $17.3 million of cash, including the collection of contract receivables partially offset by a decrease in outstanding accounts payable. Cash was also provided from borrowings under the Company's credit facility. ICF Kaiser uses bank financing to supplement its ongoing working capital requirements. The Company's operating activities used $16.6 million in cash in fiscal 1993 and provided $17.7 million of cash in fiscal 1992. The use of cash in fiscal 1993 and the cash provided in 1992 were primarily results of changes in deferred revenue, which were attributable to two major contracts that had significant contract advances in fiscal 1992 and were substantially complete in fiscal 1993. At February 28, 1993, the Company's level of working capital had increased $21.8 million from February 29, 1992. This increase is primarily the result of the sale of businesses, offset by the reduction in the Company's long-term debt, redeemable preferred stock, and payment of preferred stock dividends. During fiscal 1993, ICF Kaiser also completed the sale of all of its remaining discontinued operations and its interest in Acer Group Limited, generating $35.7 million in cash proceeds. These proceeds were used primarily to repay indebtedness and to increase the Company's working capital position. On January 11, 1994, ICF Kaiser issued 125,000 Units, each unit consisting of $1,000 principal amount of the Company's 12% Notes and 4.8 Warrants, each to purchase one share of the Company's Common Stock at $5.00 per share. Of the Units' net issue price of $121,487,500 ($125,000,000 less a $3,512,500 discount), $900,000 was allocated to the value of the 600,000 Warrants and $120,587,500 to the 12% Notes. The net proceeds were used to retire the Company's 13.5% Senior Subordinated Notes ("13.5% Notes") at 114.17% ($34.3 million), to repurchase warrants issued in connection with the 13.5% Notes ($1.6 million), to repurchase its Series 1 Junior Convertible Preferred Stock and pay accrued dividends thereon ($5.1 million), to repurchase its Series 2C Senior Preferred Stock at 106.25% together with the Series 2C Warrants ($26.6 million), to repay the Company's then-existing credit facility ($45.0 million), and to repay, on behalf of the Company's ESOP, the outstanding balance on the ESOP loan ($1.7 million). The balance will be used for general corporate purposes. The early extinguishment of debt will result in an approximately $3.8 million after-tax extraordinary charge in the fourth quarter. Additionally, although not directly reducing net income, the premium related to the Company's exercise of its early repurchase rights on the Series 2C Senior Preferred Stock will reduce net income available for common shareholders by approximately $2.0 million in the fourth quarter. Upon issuance of the 125,000 Units discussed above, the Company's $60 million New Credit Facility became effective; the Company's previous credit facility had been due to expire on September 30, 1994. The New Credit Facility is provided by a lead bank and a consortium of other banks with terms and covenants similar to those under the previous credit facility. The New Credit Facility expires on October 31, 1996 and contains Eurodollar and alternate base rate options with margins dependent upon the Company's financial operating results. ICF Kaiser expects that current projected levels of cash flows and operating revenues and the availability of borrowings under the Company's New Credit Facility will be adequate to fund operations for the next twelve months. 20 Effects of Inflation The majority of the Company's contracts are cost reimbursable and, therefore, the inflation rate in the United States, as well as in other countries in which the Company operates, generally has little impact on operating margins; however, as a professional services firm, the Company is more labor-intensive than an industrial firm. To attract and maintain the high-caliber professional staff it needs, the Company must structure its compensation programs competitively. The wage-demand effects of inflation are felt almost immediately in the Company's costs. 21 BUSINESS ICF Kaiser provides fully integrated consulting, engineering and construction services to public and private sector clients in the related markets of environment, infrastructure and industry. OVERVIEW OF MARKETS Environmental. Demand for ICF Kaiser's environmental consulting and engineering services is driven by a number of factors, including: the need to improve the quality of the environment; environmental regulation and enforcement; and increased liability associated with pollution-related injury and damage. Increasingly strict Federal, state, and local government regulation has forced private industry and government agencies to clean up contaminated sites, to bring production facilities into compliance with current environmental regulations, and to minimize waste generation on an ongoing basis. Significant environmental laws have been enacted in response to public concern over the environment. These laws and the implementing regulations affect nearly every industrial activity. Efforts to comply with the requirements of these laws creates demand for the Company's services, and the Company believes that under the stated policies of the Clinton Administration there will be a trend toward more stringent regulation and government enforcement. The principal Federal legislation that has created a substantial market for the Company, and therefore has the most significant effect on the Company's business, includes the following: The Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") of 1980, as amended by the Superfund Amendments and Reauthorization Act ("SARA") of 1986, established the Superfund program to clean up existing, often abandoned hazardous waste sites and provides for penalties and punitive damages for noncompliance with EPA orders. The Resource Conservation and Recovery Act ("RCRA") of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984 ("HSWA"), provides a comprehensive scheme for the regulation of hazardous waste from the time of generation to its ultimate disposal (and sometimes thereafter), as well as the regulation of persons engaged in the treatment, storage and disposal of hazardous waste. The Clean Air Act of 1970 empowered the EPA to establish and enforce National Ambient Air Quality Standards and limits on the emission of various pollutants. The 1990 amendments to the Clean Air Act substantially increase the number of sources emitting a regulated air pollutant which will be required to obtain an operating permit; the amendments also address the issues of acid rain, ozone protection, and other areas in which the Company can provide expanded services. The Clean Water Act of 1972, originally the Federal Water Pollution Control Act of 1948, established a system of standards, permits and enforcement procedures for the discharge of pollutants to surface water from industrial, municipal, and other wastewater sources. The Toxic Substance Control Act, enacted in 1976, established requirements for identifying and controlling toxic chemical hazards to human health and the environment. Infrastructure. The global infrastructure market has historically been driven by the need to maintain and expand roads, highways, mass transit systems, and airports. In addition, environmental concerns, such as reducing automotive air pollutant emissions, have become increasingly important factors in new infrastructure and transportation initiatives. This market is primarily funded by government dollars, although the private sector is seeking an increased role, particularly in international projects. ICF Kaiser's services in this market include design, engineering and construction. Industrial. ICF Kaiser's industrial work is funded almost exclusively by the private sector and is driven by businesses' need to maintain and retrofit existing plants and replace aging production capacity with newer, more environmentally responsible facilities. Through the acquisition of ICF Kaiser Engineers, Inc. in 1988, the Company acquired the engineering and construction skills, as well as access to process technologies, needed to establish a leadership position in serving the basic metals and mining industries, including aluminum, steel, copper and coal. These industries have in the past several years experienced a decline in the prices for the materials they produce. This decline has resulted in a slower pace at which plants or production 22 capacity are retrofitted or replaced. As a consequence, the Company's revenue from this market has declined over the past several years. The percentage breakdowns of ICF Kaiser's service revenue (excluding discontinued businesses) by market for the fiscal years shown below were as follows (dollars in millions):
YEAR ENDED FEBRUARY 28, -------------------------------------- 1993 1992 1991 ------------ ------------ ------------ AMOUNT % AMOUNT % AMOUNT % ------ ----- ------ ----- ------ ----- Environment.............................. $240.2 62.4 $230.2 60.6 $160.6 50.7 Infrastructure........................... 66.6 17.3 57.7 15.2 47.5 15.0 Industry................................. 51.2 13.3 63.0 16.6 88.3 27.9 Other consulting......................... 27.0 7.0 28.9 7.6 20.4 6.4 ------ ----- ------ ----- ------ ----- Total.................................. $385.0 100.0 $379.8 100.0 $316.8 100.0 ====== ===== ====== ===== ====== =====
ICF Kaiser's markets are global in nature. To compete successfully and to reduce its risks, the Company enters into marketing and project-specific joint ventures with other companies. The Company has also been able to leverage its existing international projects to gain a competitive advantage when bidding on new work. STRATEGIC CONSIDERATIONS The following points are important to understanding the Company's business and strategy: Full Front-End Capability. Through internal growth and acquisition, the Company's skills have been expanded to include policy analysis and consulting, scientific analysis and health/risk assessments, remedial investigations and feasibility studies and engineering design. By possessing these front-end skills, the Company can become involved at the outset of the problem identification phase which, in turn, puts it in a stronger position to participate in any follow-on engineering and construction work. High Value-Added Services. The Company's marketing strategy is to provide exceptional value to its clients, which often means focusing on the quality of service offered but not necessarily being the lowest cost provider. Within those markets that relate to environmental services, the Company adds high value through specialized environmental knowledge that: (i) helps clients understand environmental threats and opportunities and alternative ways in which each can be managed; (ii) allows creation of customized solutions for the clients' environmental problems; and (iii) combines problem identification, solution, and implementation in a seamless approach. Access to Technology. New technologies play a critical role in both the cleanup of existing waste sites and in the reduction of waste generated by ongoing production processes. The Company has access to key technologies relating to reducing and monitoring stack emissions, bio-remediation, coal scrubbing and industrial process technologies that can help minimize waste, reduce costs and improve the quality of a finished product. To better assist clients and to increase its overall participation in a project, the Company continues to expand its access to leading environmental and process technologies through various methods, including licensing and joint ventures. Strategic Relationships. To extend its presence and reduce business development risks, the Company has established international business relationships through joint ventures, marketing agreements and direct equity investments. These relationships, which continue to be expanded, facilitate management of the Company's existing international operations and help to reduce the cost and risks associated with entering new geographic regions. Avoidance of Environmental Liability. To avoid the risks and potential liability associated with taking possession of hazardous waste, the Company has made the decision to minimize its participation in that part of the business associated with collection, treatment, storage or disposal of waste. When such services are required, the Company will subcontract the work or assist the client in selecting appropriate contractors. 23 SERVICES AND PROJECTS Environmental Market ICF Kaiser's environmental market includes work for clients in all major industries, including many large domestic and multi-national corporations, and public sector work, primarily for the DOE, DOD, and EPA. The Company offers its clients over 20 years experience in all aspects of environmental regulation, compliance and access to leading technologies, as well as skills in the assessment, management and remediation of existing hazardous and solid wastes, and process redesign to minimize future waste. Analysis/Assessment. The Company's analytic and scientific abilities allow it to become involved in environmental issues and problems at their outset. In the initial phase, ICF Kaiser provides a broad outline of the types of environmental problems, health risks, and liabilities associated with the client's business. In subsequent stages, ICF Kaiser conducts field assessments to evaluate a site's waste, ground water, air, sediment, and soil characteristics and to determine the extent of contamination, if any. Remediation. In general, environmental restoration work is progressing beyond study and analysis to remediation. Having already established a market position in the consulting and front-end analysis phase, ICF Kaiser has been able to follow market demand into remediation. After an environmental problem is characterized, the Company offers alternative remediation approaches which may involve providing on-site waste containment or management of on-site/off-site remediation and waste removal. The Company can also redesign the client's ongoing production processes to minimize or eliminate the generation of hazardous waste. The Company then develops engineering plans and technical specifications. To minimize potential liabilities associated with taking title to hazardous waste during the cleanup process, ICF Kaiser will often assist the client in selecting cleanup contractors to handle the actual remediation work. Water Pollution. The major ports of many of the world's cities have serious water pollution problems, and ICF Kaiser is part of several cities' efforts to improve the condition of their harbors and waterways. The Company is the construction manager of the cleanup of Boston Harbor, the largest environmental project in the country. Under this contract, the Company is managing more than 1,800 construction workers, engineers, architects, and support personnel working to construct the largest wastewater treatment plant in the United States on an island in Boston Harbor. Because of the Company's experience with the Boston Harbor project, it was selected to be one of the companies currently working on San Diego, California's clean water program. Industrial Production. Increasingly, it is cost effective for ICF Kaiser clients to modify ongoing production processes to minimize or eliminate waste generation. The Company's integration of engineering and environmental skills, plus its access to innovative technologies, provides a competitive advantage in redesigning production processes. For example, the Company has designed control systems to enable steel producers to reduce harmful emissions and rehabilitate coke ovens while producing a better product. DOE/DOD Facilities Restoration. Government estimates suggest that more than $100 billion could be spent by DOD and DOE over the next 20 years cleaning up closed weapons production facilities and military bases around the world. ICF Kaiser is already working on 11 of 18 major DOE facilities and at DOD bases around the world. At a U.S. Army installation in the eastern United States, the Company is assisting in the clean up of an ordnance disposal site contaminated with chemical warfare agents, unexploded munitions, radiological materials and other hazardous waste. The Company has been the engineer/constructor at the DOE's Hanford site in Richland, Washington, since 1987. In early 1993, the Company won a renewal of its contract, which was subsequently amended in October 1993. The Company estimates that the architect-engineering and construction management services to be provided under the amended contract will be worth more than $800 million in gross revenue over the two-and-one-half year term of the amended contract which began on October 1, 1993. See "Backlog." Assuming the Company's historical performance ratings are maintained over this two-and-one-half year period, the Company estimates that the fees it will be eligible to earn under this contract would be increased 24 significantly. In addition, the amended contract provides the Company with the opportunity to earn incentive fees related to technology transfers and efficiency savings. In connection with the contract amendment and in order to reduce duplication of work and to improve management control and efficiency of operation, the Company and DOE agreed to assign management of substantially all aspects of the amended contract to Westinghouse Hanford Company, the current management and operations contractor at the DOE's Hanford site. Clean Air. ICF Kaiser's clients continue to face complicated and costly regulatory compliance obligations associated with the Clean Air Act Amendments of 1990. The Company has developed comprehensive computer models that simulate changes in air quality, visibility and population exposure which are being used to examine air quality problems. ICF Kaiser assists clients by quantifying plant emissions, developing strategies for complying with permit requirements, evaluating and installing advanced control technologies, and redesigning production processes to reduce pollutant emissions. For clients required to reduce fugitive emissions resulting from equipment leaks, ICF Kaiser has developed FUGEMS (TM), a proprietary emissions monitoring system which identifies and tracks the sources of air pollutant leaks. The Company has been awarded a three-year contract to examine air quality problems that might result from oil and gas exploration in the Gulf of Mexico. In the public sector, the Company has been awarded a number of EPA contracts related to global climate change, indoor air quality, and acid rain in the past 12 months. Energy. ICF Kaiser's energy clients include major U.S. electric utilities; leading oil, natural gas, and coal companies; transportation companies; pipeline entities; firms practicing energy law; environmental groups; and government and regulatory agencies involved in energy and related environmental issues. ICF Kaiser's expertise includes strategic planning and analysis; energy and environmental policy analysis; supply and demand forecasting; and technology assessments. The Company also provides services for the design, construction, modification, operation and maintenance of fossil fuel, nuclear, and renewable energy power plants. ICF Kaiser uses its broad environmental skills, access to leading-edge technology and well-established energy practice in the search for cleaner burning sources of energy and the efforts to minimize waste generation in power production. For example, a flue gas desulfurization process that removes emissions that cause acid rain from power plant smokestacks ("LIFAC") currently is undergoing testing at the LIFAC clean coal demonstration project conducted by ICF Kaiser for DOE in Richmond, Indiana. ICF Kaiser developed the project, arranged for the license of the technology, participated in the project implementation, and is providing engineering design, project management, and construction services for the installation of the technology. ICF Kaiser also markets Microcel (TM), a microbubble column- flotation method for cleaning fine coal, which currently is installed in coal facilities in five states. International. ICF Kaiser serves environmental clients in Taiwan, France, the former Soviet republics, Mexico, the Czech republic and a number of other countries. During the past year, ICF Kaiser has worked on global climate change projects in more than 20 countries for clients such as the World Bank, the United Nations, and foreign government agencies. ICF Kaiser has established an initial international presence in Eastern Europe through analytical consulting projects which may enable the Company to compete for larger environmental and construction projects that may develop as the economies in that region strengthen. Infrastructure Market The Company believes that there is a growing acceptance of the need to restore and upgrade the public infrastructure of mass transit systems, airports, highways, bridges and water resource facilities worldwide. ICF Kaiser also believes that environmental concerns increasingly are a driving force behind new infrastructure and transportation initiatives. The Company currently provides planning, feasibility studies, design, and construction management services to the infrastructure market. At the planning stage, ICF Kaiser incorporates its specialized environmental skills to design environmentally responsible projects. Thereafter, the Company's engineers and construction specialists provide a full range of services such as master planning, alternative analysis, site development studies, conceptual and preliminary engineering, detail design, specifications development, quality assurance and quality control, construction management, construction and inspection. 25 Transportation. ICF Kaiser has over three decades of experience in transportation projects, and its current transportation projects show the breadth of this experience: services related to the conversion the diesel bus system to electric power as part of Los Angeles (California) County's program to lower overall mobile source emissions and improve the area's air quality; engineering services for new rail rapid transit system work in the Los Angeles area; evaluation of bus and light rail transit alternatives in Sacramento, California; construction engineering and inspection services for a "people mover" in Jacksonville, Florida; construction management of several San Francisco, California, Bay Area Rapid Transit projects; and engineering design services for development of and seismic retrofitting of bridges in Seattle, Washington. More than $150 billion has been authorized through 1997 by the Federal government for programs mandated by the Intermodal Surface Transportation Efficiency Act ("ISTEA"), a substantial portion of which will be directed to upgrade the national highway and interstate systems and to enhance state roads and bridge safety. ICF Kaiser has recently been awarded two contracts which are partially funded through ISTEA. The Company will serve as the management consultant for the preliminary engineering phase of a light rail system planned for downtown Chicago, Illinois, and also provide preliminary design services for a Miami, Florida, intermodal center that will offer rapid and convenient transportation alternatives. Other Infrastructure Services. ICF Kaiser offers specialized infrastructure services such as structural and earthquake engineering, seismic evaluation and the rehabilitation of buildings. The Company currently is performing detail design and inspection services for the refurbishing of the hydroelectric power plant at the base of the Pardee Dam in Northern California. International. ICF Kaiser is a member of a joint venture that provides planning, design and construction services for the 88-kilometer Taipei, Taiwan, rapid transit system. The Company also is providing construction engineering and architectural services for a new Toronto, Canada, subway station and system-wide electrical and mechanical design engineering and specification services for a subway line extension in London, England. Industrial Market ICF Kaiser's engineering design, project management and construction services to the industrial market involve work with the steel, aluminum, alumina, copper, tin and other metals industries. In the coke, coal, and coal chemicals area, ICF Kaiser's services include inspection of coke plants for environmental compliance, facility design and construction, and equipment sales and services. The Company also provides services related to coal cleaning, handling and environmental controls. ICF Kaiser provides blast furnace design, repair and construction to the steel industry and is currently assessing and recommending the installation or upgrading of management information systems and process control systems at three steel plants in India. Following on the successful design and construction of a copper concentrator for a Portuguese copper mine, the Company recently was awarded a contract to provide engineering and procurement services for the development of a U.S. copper concentrating plant. Pulverized Coal. Increasingly the Company's industrial clients rely on ICF Kaiser to help them make more efficient use of traditional energy sources, find alternative energy sources, and employ new technologies that offer both environmental compliance and cost competitiveness. At a plant in Gary, Indiana, ICF Kaiser successfully achieved these goals for U.S. Steel with the Company's contract to construct, own, and operate a pulverized coal injection (PCI) facility. Pulverized coal is a cost-effective and environmentally acceptable substitute for a portion of the coke used in blast furnace operations. For the PCI project, ICF Kaiser obtained the license for the critical technology, structured and secured the needed $100 million-plus financing, designed the facility, and managed its construction. Following the successful test period in the spring of 1993, ICF Kaiser now operates the PCI facility, which it owns with other partners. International. ICF Kaiser currently has projects underway in over 25 countries and has business alliances with companies based around the world. To strengthen its position in the industrial market and to 26 gain access to new technologies, ICF Kaiser has a marketing joint venture with Spie Batignolles S.A. (France) and Davy Corporation PLC (United Kingdom) to pursue engineering and construction work for alumina refineries and aluminum smelters. Other Markets ICF Kaiser serves numerous clients who need state-of-the-art technology and consulting services for the management of information and solving information- related problems, including business process redesign, systems automation, modernization and movement of systems from mainframes to client/server platforms. The Company also assists clients in analyzing, designing, and implementing modern financial systems often utilizing ICF Kaiser's GSA-approved financial management system--FEDERAL SUCCESS(TM). The Company's contract dispute management services help contractors, project owners and developers to resolve disputes without resorting to costly and time-consuming litigation. ICF Kaiser's housing and community development specialists provide consulting services to housing professionals in Federal, state and local governments, non- profit organizations, tenant groups, financial services groups, and private development firms. COMPETITION AND CONTRACT AWARD PROCESS The markets in which the Company operates are very competitive. The Company's competitors range from small local firms to large multinational firms. The Company believes that no single firm or small number of firms dominates its markets. Competition for private sector work generally is based on several factors, including quality of work, reputation, price and marketing approach. The Company's objective is to establish and maintain a strong competitive position in its areas of operations by adhering to its basic philosophy of delivering high-quality work in a timely fashion within its clients' budget constraints. Most of the Company's contracts with public sector clients are awarded through a competitive bidding process that places no limit on the number or type of offerors. The process usually begins with a government Request for Proposal ("RFP") that delineates the size and scope of the proposed contract. Proposals submitted by ICF Kaiser and others are evaluated by the government on the basis of technical merit (for example, response to mandatory solicitation provisions, corporate and personnel qualifications and experience) and cost. While each RFP sets out specific criteria for the choice of a successful offeror, RFP selection criteria in the government services market in which ICF Kaiser competes often tend to weigh the technical merit of the proposal more heavily than the proposed cost. The Company believes that its experience and ongoing work strengthen its technical qualifications and thereby enhance its ability to compete successfully for future government work. In both the private and public sectors, the Company, acting either as a prime contractor or as a subcontractor, may join with other firms to form a team that competes for a single contract or submits a single proposal. Because a team of firms almost always can offer a stronger set of qualifications than any firm standing alone, these teaming arrangements often are very important to the success of a particular competition or proposal. The Company maintains a large network of business relationships with other companies and has drawn repeatedly upon these relationships to form winning teams. ICF Kaiser subsidiaries operate under a number of different types of contract structures with its private sector and public clients, the most common of which are Cost Plus and Fixed Price. Under Cost Plus contracts, the Company's costs are reimbursed with an incentive or award fee offered to provide inducement for effective project management. A variation of Cost Plus contracts are time and materials contracts under which the Company is paid at a specified fixed hourly rate for direct labor hours worked. This structure normally is used in situations where it may not be possible to estimate the extent and duration of work to be performed. Cost Plus contracts (including time and materials contracts) accounted for approximately 71.3% 27 of the Company's total gross revenue for fiscal year 1993. Under Fixed Price contracts, which accounted for approximately 19.0% of the Company's total gross revenue for fiscal year 1993, the Company is paid a predetermined amount for all services provided as detailed in the design and performance specifications agreed to at the projects' inception. CUSTOMERS The Company's clients include: DOE, EPA and DOD; major industrial firms in the aerospace, energy, transportation, chemical, steel, aluminum, mining, manufacturing and computer industries; utilities; and a variety of state and local government agencies throughout the United States. A substantial portion of the Company's work is repeat business from existing clients. In many cases, the Company has worked for the same client for many years, providing different services at different times. DOE accounted for approximately 29%, and DOD, EPA, and other Federal agencies collectively accounted for approximately 18%, of the Company's consolidated gross revenue during fiscal year 1993. The Federal government accounted for approximately 47% of the Company's consolidated gross revenue in fiscal year 1993, 42% in fiscal year 1992, and 40% in fiscal year 1991. In fiscal year 1993, revenue from USX Corporation and its affiliates accounted for approximately 13% of the Company's consolidated gross revenue. The Company's international clients include both private firms and foreign government agencies in such countries as Australia, Portugal, and Taiwan. In fiscal year 1993, foreign operations accounted for approximately 8% of the Company's consolidated gross revenue. For information concerning gross revenue, operating income, and identifiable assets of the Company's business by geographic area, see Note P to the Consolidated Financial Statements. BACKLOG Backlog refers to the aggregate amount of gross contract revenues remaining to be earned pursuant to signed contracts extending beyond one year. At November 30, 1993, the Company's contract backlog was approximately $1.8 billion in gross revenue, compared to approximately $1.0 billion in gross revenue at November 30, 1992. The Company expects that approximately 10% of this backlog will be worked off during the last quarter of the current fiscal year, and that approximately 77% will be worked off over the following three complete fiscal years. Because of the nature of its contracts, the Company is unable to calculate the amount or timing of service revenue that might be earned pursuant to these contracts. The Company believes that backlog is not a predictor of future gross or service revenues. Differences in contracting practices between the public and private sectors result in ICF Kaiser's backlog being heavily weighted toward contracts associated with agencies of the Federal government. Although such contracts historically have generated less than 50% of the Company's revenues, they comprised approximately 88.5% of the contract backlog at November 30, 1993. Backlog under contracts with agencies of the Federal government that extend beyond the government's current fiscal year includes the full contract amount, including in many cases amounts anticipated to be earned in option periods and certain performance fees, although generally annual funding of the amounts under such contracts must be appropriated by Congress before the agency may expend funds during any year under such contracts. In addition, the agency must allocate the appropriated funds to these specific contracts and thereafter authorize work or task orders to be performed under these specific contracts. Such authorizations are generally for periods considerably shorter than the duration of the work the Company expects to perform under a particular contract and generally cover only a percentage of the contract revenue. Because of these factors, the amount of Federal government contract backlog for which funds have been appropriated and allocated, and task orders issued, at any given date is a substantially smaller amount than the total Federal government contract backlog as of that date. In the event that option periods under any given contract are not exercised or funds are not appropriated, allocated, or authorized to be spent under any given contract, the amount of backlog attributable to that contract would not result in revenues to the Company. All contracts and subcontracts with agencies of the Federal government are subject to termination, reduction or modification at any time in the discretion of the government agency. 28 POTENTIAL ENVIRONMENTAL LIABILITY The assessment, remediation, analysis, handling and management of hazardous substances necessarily involve significant risks, including the possibility of damages or personal injuries caused by the escape of hazardous materials into the environment, and the possibility of fines, penalties or other regulatory action. These risks include potentially large civil and criminal liabilities for violations of environmental laws and regulations, and liabilities to customers and to third parties for damages arising from performing services for the Company's clients. A general discussion of potential liabilities arising out of environmental laws and regulations is contained in the Risk Factors section of this Prospectus. See "Risk Factors--Environmental Contractor Risks." ICF Kaiser provides consulting services and performs other work involving or related to hazardous substances, toxic wastes and other regulated materials, activities which involve the risks discussed above. The Company has endeavored to protect itself from potential liabilities resulting from pollution or environmental damage by obtaining indemnification from its private-sector clients and intends to continue this practice in the future. Under most of these contracts, the Company has been successful in obtaining such indemnification; however, such indemnification generally is not available if such liabilities arise as a result of breaches by the Company of specified standards of care. For EPA contracts involving field services in connection with Superfund response actions, the Company has obtained indemnification under Section 119 of CERCLA, as amended by SARA, for pollution and environmental damage liability resulting from release or threatened release of hazardous substances. Certain of the Company's clients (including private clients, the DOD and the DOE) are Potentially Responsible Parties ("PRPs") under CERCLA. Under the Company's contracts with these PRPs, the Company has the right to seek contribution from these PRPs for liability imposed on the Company in connection with its work at these clients' CERCLA sites. In addition, in connection with contracts involving field services at 11 of the DOE's weapons facilities, including the DOE's Hanford site, the Company is indemnified under the Price-Anderson Act, as amended, against liability claims arising out of contractual activities involving a nuclear incident. In connection with its services to its environmental, infrastructure, and industrial clients, the Company works closely with Federal and state government environmental compliance agencies, and occasionally contests the conclusions those agencies reach regarding the Company's compliance with permits and related regulations. The Company currently disagrees with a state agency's conclusions concerning air pollution permit compliance at an industrial site. If the state agency prevails, the Company does not believe the fines imposed, if any, will be material. To date, the Company never has paid a fine in a material amount or had liability imposed on it for pollution or environmental damage in connection with its services. However, there can be no assurance that the Company will not have substantial liability imposed on it for any such damage in the future. INSURANCE Consistent with industry experience and trends, the Company has found it difficult to obtain pollution insurance coverage, in amounts and on terms which are economically reasonable, against possible liabilities that may be incurred in connection with its conduct of its environmental business. An uninsured claim arising out of the Company's environmental activities, if successful and of sufficient magnitude, could have a material adverse effect on the Company. The Company has a comprehensive risk management and insurance program that provides a structured approach to protecting the Company. Included in this program are coverages for general, automobile and professional liability; workers' compensation; and for employers and property liability. The Company believes that the insurance it maintains, including self-insurance, is in such amounts and protects against such risks as is customarily maintained by similar businesses operating in comparable markets. At this time, the 29 Company expects to continue to be able to obtain general, automobile, and professional liability, workers' compensation, and employers and property insurance in amounts generally available to firms in its industry. There can be no assurance that this situation will continue, and if insurance of these types is not available, it could have a material adverse effect on the Company. PROPERTIES All of the Company's operations are conducted either in leased facilities or in facilities provided by the Federal government or other clients. As of November 30, 1993, the Company leased an aggregate of approximately one million square feet of space. The terms of these leases range from month-to-month to 15 years, and some may be renewed for additional periods. The Company's headquarters is located in Fairfax, Virginia. Other offices include Livermore, Los Angeles, Oakland, and San Rafael, California; Denver, Colorado; Washington, D.C.; Jacksonville, Florida; Chicago, Illinois; Boston, Massachusetts; Las Vegas, Nevada; Edison, New Jersey; Albuquerque and Los Alamos, New Mexico; Pittsburgh, Pennsylvania; Dallas and Houston, Texas; Richland and Seattle, Washington; Melbourne and Perth, Australia; London, England; Paris, France; Athens, Greece; Lisbon, Portugal; and Taipei, Taiwan. Because the Company's operations generally do not require the maintenance of unique facilities, suitable office space is readily available for lease in most of the areas served. The Company believes that adequate space to conduct its operations will be available for the foreseeable future. In 1987, the Company entered into a 15-year lease agreement for a new headquarters building in Fairfax, Virginia containing approximately 200,000 square feet of office space. In 1988, the Company signed a 15-year lease agreement to occupy approximately 100,000 square feet of office space in a new building adjacent to the headquarters building. In connection with the acquisition of ICF Kaiser Engineers in 1988, ICF Kaiser acquired the lease for ICF Kaiser Engineers' headquarters building in Oakland, California. The lease provides for approximately 142,000 square feet of office space and expires in June 1995. LEGAL AND REGULATORY PROCEEDINGS The Company and its subsidiaries are involved in a number of lawsuits and government regulatory proceedings arising in the ordinary course of its business or arising in connection with the disposition of certain businesses and investments. The Company believes that any ultimate liability resulting therefrom will not have a material adverse effect on its operations and financial condition. The Company from time to time, either individually or in conjunction with other government contractors operating in similar types of businesses, may 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 are presently known to have been filed against the Company by these agencies. The Company is unable to predict the outcome of the investigations in which it is currently involved. Management does not believe there will be any material adverse effect on the Company's financial position as a result of these investigations. In 1989, certain former holders of common stock of Kaiser Engineers Group, Inc. filed an action in Chancery Court of the State of Delaware, County of New Castle, entitled Aiken v. Kaiser Engineers Group, Inc. for appraisal of the shares they held at the time ICF Kaiser International, Inc. acquired their former company. The Company believes that those common shares had no value at the time of the acquisition and that this litigation will not have a material adverse effect on the Company. 30 MANAGEMENT Set forth below is certain information concerning the directors and executive officers of the Company.
NAME AGE POSITION(S) WITH COMPANY ---- --- ------------------------ James O. Edwards............... 50 Chairman of the Board and Chief Executive Officer Stephen W. Kahane.............. 42 President, Environment and Energy Group Raymond E. List................ 49 Chairman, Engineering and Construction Group Douglas W. McMinn.............. 46 President, International Operations Group Norman A. Perry................ 53 Senior Vice President and Corporate Controller Alvin S. Rapp.................. 53 President, Engineering and Construction Group Marcy A. Romm.................. 35 Senior Vice President, Human Resources Michael J. Rowny............... 43 Director, Executive Vice President and Chief Financial Officer Kenneth A. Schweers............ 47 Chairman, Consulting Group Ronald R. Spoehel.............. 36 Senior Vice President and Treasurer Marc Tipermas.................. 45 Director, Executive Vice President and Director of Corporate Development Paul Weeks, II................. 50 Senior Vice President, General Counsel and Secretary Gian Andrea Botta.............. 40 Director Tom Bradley.................... 75 Director Tony Coelho.................... 51 Director Frederic V. Malek.............. 57 Director Rebecca P. Mark................ 39 Director Robert W. Page, Sr............. 66 Director
OUTSIDE DIRECTORS Gian Andrea Botta is President of IFINT-USA Inc., a subsidiary of IFINT S.A. He had been Vice President of Acquisitions of IFINT-USA, Inc. from 1987 to 1993. IFINT S.A. is the international investment holding unit of the IFI/Agnelli Group, a diversified holding company. Mr. Botta has been a director of ICF Kaiser International, Inc. since March 1993. Mr. Botta also is a director of Kendall International, Chartwell Re Corporation and Lear Seating Corporation. Mr. Botta received a degree in economics and business administration in 1975 from the University of Torino, Italy. Tom Bradley is a senior counselor at Brobeck, Phleger & Harrison, a law firm in Los Angeles, California, advising companies on resolving major public and private sector issues. Previously he had been Mayor of the City of Los Angeles for five terms, from 1973 to 1993. Mr. Bradley has been a director of ICF Kaiser International, Inc. since September 1993. Mr. Bradley graduated from Southwestern University (J.D.). Tony Coelho has been a Managing Director of Wertheim Schroder & Co. Incorporated, a New York-based international investment banking and securities firm, since 1989. He also serves on the firm's Executive Committee, and serves as President and C.E.O. of Wertheim Schroder Investment Services, Inc. From 1979 to 1989 Mr. Coelho was a member of the U.S. House of Representatives from California, and from 1986 to 1989 he served as House Majority Whip. Mr. Coelho has been a director of ICF Kaiser International, Inc. since 1990. He also is a director of Circus Circus Enterprises, Inc.; Specialty Retail Group, Inc.; Service Corporation International; Tanknology Environmental, Inc.; and serves on Fleishman-Hillard's International Advisory Board. He is also a director of Condyne Technology Inc. and International Planning and Analysis Center and serves as Chairman of the board of National Ventures, Inc. Frederic V. Malek is Chairman, Thayer Capital Partners, a merchant bank. In 1992, he was Campaign Manager, Bush-Quayle '92; he also has been Co-Chairman of the Board of Directors of CB Commercial Group (formerly Coldwell Banker Commercial Group) since 1989. He was Vice Chairman of Northwest Airlines from July 1990 to December 1991. He was President of Northwest Airlines from October 1989 to 31 July 1990. From August 1978 to December 1988, Mr. Malek served as Executive Vice President of Marriott Corporation and from January 1981 to May 1988 as President of Marriott's Hotels and Resorts Division. Mr. Malek has been a director of ICF Kaiser International, Inc. since September 1989. He also serves as a director of American Management Systems, Inc., Automatic Data Processing, Inc., Avis, Inc., CB Commercial Group, FPL Group, Inc., Manor Care, Inc., National Education Corp., Northwest Airlines, and PaineWebber Mutual Funds. Mr. Malek graduated from the United States Military Academy (B.S.) and Harvard University (M.B.A.). Rebecca P. Mark is Chairman, President and Chief Executive Officer of Enron Development Corp. She is responsible for Enron's project development activities worldwide (excluding the U.S.) in power generation, pipelines, LNG and liquid fuels. Ms. Mark joined Enron Corp. in 1982 and joined Enron Power Corp.'s executive management team when the company was established in 1986. Before joining Enron, Ms. Mark held executive positions with Continental Resources Company and First City National Bank of Houston. Ms. Mark has been a director of ICF Kaiser International, Inc. since September 1993. She also serves as director of the Institute of the Americas. Ms. Mark graduated from Baylor University (B.S. and M.I.M.) and Harvard University (M.B.A.). Robert W. Page, Sr. retired as an Executive Vice President at McDermott International, Inc., a leading energy service company, in 1993. Prior to joining McDermott in 1990, Mr. Page served as Assistant Secretary of the Army for Civil Works. He also served as Chairman of the Panama Canal Commission. From 1981 to 1987, Mr. Page worked for Kellogg Rust, Inc., of Houston, Texas, where he held the positions of Chairman and Chief Executive Officer. From 1976 to 1981, Mr. Page was President and Chief Executive of Rust Engineering. Mr. Page has been a director of ICF Kaiser International, Inc. since January 1993. He holds a B.S. in architectural engineering from Texas A & M University. EXECUTIVE OFFICERS James O. Edwards has been Chairman of the Board and Chief Executive Officer of ICF Kaiser International, Inc. since its establishment in 1987. He also was President of ICF Kaiser International from 1987 to 1990. In 1974, he joined ICF Incorporated, the predecessor of ICF Kaiser International, and was its Chairman and Chief Executive Officer from 1986 until the 1987 establishment of ICF Kaiser. Mr. Edwards graduated from Northwestern University (B.S.I.E.) and Harvard University (M.B.A., High Distinction, George F. Baker Scholar). Stephen W. Kahane is President of the Company's Environment and Energy Group. He has held senior management positions in several of the Company's operating subsidiaries since 1985. From 1981 to 1985, Dr. Kahane headed the Environmental and Hazardous Waste Programs at Jacobs Engineering Group, Inc.; he was a Vice President when he left that firm. Dr. Kahane graduated from the University of California (B.A., M.S.P.H., D. Env.). Raymond E. List is Chairman of the Company's Engineering and Construction Group. He has held senior management positions in several of the Company's operating subsidiaries since 1986. From 1983 to 1986, Mr. List was President of List and Associates, an international engineering and technology consulting firm. From 1980 to 1983, Mr. List was Vice President and General Manager at Planning Research Corporation; previously, he was a Vice President of Arthur D. Little. Mr. List is a Professional Engineer. He graduated from Union College (B.C.E.); Manhattan College (M.E.) and Harvard University (M.B.A.). Douglas W. McMinn is the President of the Company's International Operations Group. He has held senior management positions with the Company since 1987. From 1985 to 1987 he was Assistant Secretary for Economic and Business Affairs, U.S. Department of State. Prior to that time he was Director, International Economic Affairs, National Security Counsel (1982-1985) and Deputy Chief of Mission, Office of the United States Trade Representative, Geneva, Switzerland (1979-1981). Mr. McMinn graduated from Gustavus Adolphus College (B.A.), Johns Hopkins University (M.L.A.), and Johns Hopkins University School of Advanced International Studies (M.A.). 32 Norman A. Perry has been Senior Vice President and Corporate Controller of the Company since November 1992. He was a manager for Rust International Corp. from 1978 to 1992 and an administrative manager for Comstock International, Inc. from 1972 to 1978. He holds a National Certificate in Business Studies from Worthing and Brighton Colleges of Further Education (U.K.). Alvin S. Rapp has been President and Chief Executive Officer of the Company's Engineering and Construction Group since November 1993. Prior to joining the Company, he was a regional group vice president of Jacobs Engineers Group, Inc., having joined Jacobs in 1981 as manager of engineering in that company's Baton Rouge, Louisiana, office. Prior to joining Jacobs, Mr. Rapp held a variety of management positions with Ciba-Geigy Corporation, U.S.S. Agri- Chemicals, and E.I. du Pont de Nemours & Company, Inc. Mr. Rapp graduated from Christian Brothers College (B.S.E.E.), Memphis, Tennessee. Marcy A. Romm has been Senior Vice President, Human Resources of the Company since June 1993. She has held Human Resources positions at ICF Kaiser since 1984. Ms. Romm graduated from George Washington University (B.A., M.B.A.). Michael J. Rowny has been Executive Vice President and Chief Financial Officer of ICF Kaiser International, Inc. since April 1992. He was Chairman and Chief Executive Officer of Ransohoff Company, a manufacturer of environmental and industrial equipment, from 1989 to 1992. From 1986 to 1989 he was Chairman and Chief Executive Officer of Hermitage Holding Company, Inc., a manufacturer of industrial textiles and disposable medical supplies. From 1983 to 1986, Mr. Rowny was with MCI Communications Corporation, Inc. as Senior Vice President, Finance and as Treasurer. From 1981 to 1983 he was Vice President, Strategic Planning of the Bendix Corporation. Mr. Rowny was Deputy Staff Director of the White House from 1979 to 1981. Mr. Rowny has been a director of ICF Kaiser International, Inc. since June 1992. Mr. Rowny graduated from the Massachusetts Institute of Technology (S.B.) and Georgetown University (J.D.). Kenneth A. Schweers is Chairman of the Company's Consulting Group. He has held senior management positions in several of ICF Kaiser's operating subsidiaries since 1976. Mr. Schweers graduated from Stanford University (B.S., M.B.A.). Ronald R. Spoehel has been Senior Vice President of ICF Kaiser International, Inc. since 1990 and was elected Treasurer in 1992. He was a Vice President of Shearson Lehman Hutton Inc. from 1985 to 1990 and a Vice President of Bank of America NT&SA from 1980 to 1985. Mr. Spoehel graduated magna cum laude from The Wharton School (B.S.E.), The Moore School of Electrical Engineering (M.S.E.), and The Wharton School (M.B.A.), all at the University of Pennsylvania. Marc Tipermas has been Executive Vice President and Director, Corporate Development for ICF Kaiser International, Inc. since May 1993. He also holds senior management positions in several of ICF Kaiser's operating subsidiaries, including Chairman of the Environment and Energy Group of ICF Kaiser Engineers, Inc. Dr. Tipermas joined the Company in 1981. From 1977 to 1981 he was employed by the U.S. Environmental Protection Agency where he was the Director of the Superfund Policy and Program Management Office from 1980 to 1981. Prior to joining EPA, he was Assistant Professor of Political Science at the State University of New York at Buffalo from 1975 to 1977. Dr. Tipermas has been a director of ICF Kaiser International, Inc. since October 1993. Dr. Tipermas graduated from the Massachusetts Institute of Technology (S.B.) and Harvard University (A.M., Ph.D.). Paul Weeks, II has been Senior Vice President, General Counsel, and Secretary of ICF Kaiser International, Inc. since 1990. He joined ICF Incorporated in May 1987 as its Vice President, General Counsel, and Secretary. From 1973 to 1987 he was employed by Communications Satellite Corporation, where from 1983 to 1987 he was Assistant General Counsel for Corporate Matters. Mr. Weeks graduated from Princeton University (B.S.E.E.) and The National Law Center of George Washington University (J.D.). 33 COMPENSATION OF OUTSIDE DIRECTORS Directors of the Company who also are employees of the Company are not compensated separately for their service as directors. Directors who are not employees of the Company are paid $1,000 for attendance at each meeting of the Board of Directors and $750 for attendance at each meeting of a committee of the Board of Directors of which the director is a member. In addition, each non-employee director receives an annual retainer of $20,000, payable in quarterly installments. Under the ICF Kaiser International, Inc. Non-employee Directors Stock Option Plan, each director of the Company who is not an employee of the Company ("Non- employee Director") receives a five-year option to purchase 3,000 shares of Common Stock on the day he or she commences his or her initial term of service as a director. In addition, each Non-employee Director elected at or continuing in office following the Company's annual meeting of shareholders receives an option to purchase 3,000 shares of Common Stock on the date of the annual meeting in each calendar year after the year in which the Non-employee Director received his or her initial option grant. The purchase price of each share of Common Stock subject to an option granted under the plan is the fair market value of the Common Stock on the date the option is granted. Each option becomes fully exercisable at the close of business on the next business day following the date on which the option was granted. Options are not assignable or transferable other than by will or by the laws of descent and distribution. Options are exercisable during an optionee's lifetime only by the optionee or his or her guardian. CERTAIN TRANSACTIONS WITH CERTAIN DIRECTORS In December 1990, the Company sold 250 shares of Series 2A Senior Preferred Stock to IFINT-USA Inc. and Series 2A Warrants to purchase 2,173,913 shares of Common Stock at $12 per share to an affiliate of IFINT-USA Inc. for an aggregate purchase price of $24,650,000. As part of the transaction, IFINT-USA Inc. was given the right to designate one nominee for election to the Board of Directors of the Company. In January 1992, the Company exchanged all of the outstanding shares of Series 2A Senior Preferred Stock and the Series 2A Warrants for an equal number of shares of Series 2C Preferred Stock and Series 2C Warrants to purchase 2,976,190 shares of Common Stock at $8.40 per share. At the same time, the Company sold 200 shares of Series 2D Preferred Stock to IFINT-USA Inc., and Series 2D Warrants to purchase 2,680,952 shares of Common Stock at $8.40 per share to an affiliate of IFINT-USA Inc., for an aggregate purchase price of $19,900,000. A portion of the proceeds from the sale of the Warrants and 12% Notes was used to repurchase the Series 2C Preferred Stock and Series 2C Warrants. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." At the time of such repurchase, the exercise price for the Series 2D Warrants was reduced to $6.90 per share and certain other modifications were made to the Series 2D Warrants. See "Description of Capital Stock--Series 2D Warrants." IFINT-USA's right to designate a nominee for election to the Board of Directors was retained following the repurchase of the Series 2C Preferred Stock and the Series 2C Warrants in this transaction. From 1991 to March 1, 1993, Mr. Mario Garraffo was IFINT-USA's nominee to the Board. Mr. Botta currently is that nominee. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The independent directors of the Company who were voting members of the Compensation Committee of the Board of Directors during fiscal year 1993 were Frederic V. Malek (Chairman), Tony Coelho, and Mario Garraffo. Mr. Garraffo resigned as a member of the Board of Directors effective March 1, 1993. Mr. Garraffo was associated with IFINT-USA Inc., the owner of the Company's Series 2D Senior Preferred Stock. This preferred stock ownership is described in the above section entitled "Certain Transactions with Certain Directors." The full Board of Directors has designated an inside director of the Company, Mr. James O. Edwards (the CEO of the Company), as a non-voting member of the Committee with the right to attend Committee meetings. The Company's outstanding loans to Mr. Edwards are described in the section of this Prospectus entitled "Agreements and Transactions with Certain Executive Officers;" the executive and compensation agreements the Company signed with Mr. Edwards are described in the same section of this Prospectus. Executive compensation paid to Mr. Edwards during fiscal years 1991, 1992, and 1993 is described in the immediately following section of this Prospectus. 34 EXECUTIVE COMPENSATION The following table sets forth a summary of annual and long-term compensation received by the Chief Executive Officer and the other four most highly compensated executive officers of the Company (the "Named Executive Officers") for the three fiscal years ended February 28, 1993. The table shows the amounts received by each Named Executive Officer for all three fiscal years or for the entire period the Named Executive Officer was an executive officer of the Company.
LONG TERM COMPENSATION ANNUAL COMPENSATION AWARDS --------------------------- -------------------------- (A) (B) (C) (D) (E) (G) (I) OTHER ANNUAL NAME AND SALARY BONUS COMPENSATION OPTION/SAR ALL OTHER PRINCIPAL POSITION YEAR ($) ($) ($)(1) GRANTS (SHARES) COMPENSATION(2) ------------------ ---- -------- ----- ------------ --------------- --------------- James O. Edwards........ 1993 $275,000 -- -- 0 $109,154(2)(3) Chairman and Chief 1992 207,884 -- (1) 22,000 shares (2) Executive Officer(3) 1991 254,808 -- (1) 75,000 shares (2) Michael K. Goldman...... 1993 $210,000 -- -- 16,000 repriced options $ 59,154(2)(4) Executive Vice 1992 179,653 -- (1) -- (2) President(4) 1991 152,885 -- (1) 40,000 options (2) Michael J. Rowny........ 1993 $180,769 -- -- 100,000 options $ 7,231(2) Executive Vice President and Chief Financial Officer(5) Ronald R. Spoehel....... 1993 $175,000 -- $7,239(6) 2,000 options and $ 27,000(2)(6) Senior Vice President 1992 162,115 -- (1) 10,000 repriced options(6) (2) and Treasurer(6) 1991 25,962 -- (1) 5,000 options (2) William C. Stitt........ 1993 $250,000 -- -- 0 $109,154(2)(7) President and Chief 1992 188,942 -- (1) 22,000 options (2) Operating Officer(7) 1991 254,839 -- (1) 72,000 options (2)
- -------- (1) Any amounts shown in the "Other Annual Compensation" column for fiscal 1993 do not include any perquisites and other personal benefits because the aggregate amount of such compensation for each of the Named Executive Officers did not exceed the lesser of (i) $50,000 or (ii) 10% of the combined fiscal 1993 salary and bonus for the Named Executive Officer. There are no disclosures of "Other Annual Compensation" for fiscal 1991 and 1992 because such amounts are not required to be disclosed under the SEC's transition rules on executive compensation disclosure. (2) Allocation of the Company's fiscal 1993 contribution to the individual Named Executive Officers pursuant to the Company's Retirement Plan had not been made as of January 13, 1994. There are no disclosures of "All Other Compensation" for fiscal 1991 and 1992 because such amounts are not required to be disclosed under the SEC's transition rules on executive compensation disclosure. (3) The amount shown in column (i) of the table for Mr. Edwards is comprised of a $100,000 special cash payment provided for under Mr. Edwards' compensation agreement signed in December 1990 in connection with his services as Chief Executive Officer ("CEO") of the Company and a $9,154 fiscal year 1993 ESOP contribution. (4) The amount shown in column (i) of the table for Mr. Goldman is comprised of a $50,000 special cash payment provided for under Mr. Goldman's compensation agreement signed in December 1990 in connection with his services as Executive Vice President of the Company and a $9,154 fiscal year 1993 ESOP contribution. Mr. Goldman was granted 16,000 options in May 1991 for his fiscal 1991 services; in May 1992, these 16,000 options were repriced from $16.23 to $8.25 in recognition of his fiscal 1992 services. The May 6, 1996, expiration date for the 16,000 options did not change. Mr. Goldman is not currently an executive officer of the Company. (5) Mr. Rowny became an employee of the Company on April 6, 1992. The fiscal year 1993 information shown on the above table for Mr. Rowny is for the April 6, 1992, to February 28, 1993, time period only. The amount shown in column (i) is a fiscal year 1993 ESOP contribution. The employment arrangement with Mr. Rowny under which he became Executive Vice President and Chief Financial Officer ("CFO") of the Company is described in the section of this Prospectus entitled "Agreements and Transactions with Certain Executive Officers." 35 (6) Mr. Spoehel became an employee of the Company on December 31, 1990. The fiscal year 1991 information shown on the above table for Mr. Spoehel is for the December 31, 1990, to February 28, 1991, period only. The employment arrangement with Mr. Spoehel under which he became a Senior Vice President of the Company and his outstanding loan with the Company are described in the section of this Prospectus entitled "Agreements and Transactions with Certain Executive Officers." The amount shown in column (i) is comprised of a $20,000 bonus paid pursuant to his employment arrangement and a $7,000 fiscal year 1993 ESOP contribution. Mr. Spoehel was granted 10,000 options in May 1991 for his fiscal 1991 services; in May 1992, these options were repriced from $16.23 to $8.25 in recognition of his fiscal 1992 services. The August 6, 1994, expiration date for the 10,000 options did not change. Mr. Spoehel also was awarded 2,000 options in May 1992 in recognition of his fiscal 1992 services. (7) Mr. Stitt resigned as President, Chief Operating Officer ("COO"), and a director of the Company, effective April 26, 1993. The amount shown in column (i) of the table for Mr. Stitt is comprised of a $100,000 special cash payment provided for under Mr. Stitt's compensation agreement signed in December 1990 in connection with his services as President and COO of the Company and a $9,154 fiscal year 1993 ESOP contribution. The salary amount shown for fiscal 1991 includes $25,000 paid in fiscal 1991 for services rendered in fiscal 1990. OPTION/SAR GRANTS IN LAST FISCAL YEAR The Company's Stock Incentive Plan provides for the grant to key employees of the Company and its subsidiaries of non-qualified stock options, stock appreciation rights, incentive stock options that are designed to qualify as "incentive stock options" under Section 422 of the Internal Revenue Code of 1986, as amended, restricted shares and restricted stock units. The following table provides certain information with respect to options granted to the Named Executive Officers in fiscal 1993.
GRANT DATE INDIVIDUAL GRANTS VALUE ------------------------------------------------------------ ---------------- (A) (B) (C) (D) (E) (F) % OF TOTAL OPTIONS GRANTED EXERCISE OR OPTIONS TO EMPLOYEES IN BASE PRICE GRANT DATE NAME GRANTED(1) FISCAL YEAR(1) ($ PER SHARE)(2) EXPIRATION DATE PRESENT VALUE(3) ---- ---------- --------------- ---------------- ---------------- ---------------- James O. Edwards........ 0 0 -- -- -- Michael K. Goldman(4)... 16,000 1.5% $8.25 5/6/96 $ 29,028 Michael J. Rowny(5)..... 100,000 9.2% $9.59 7/6/97 $224,592 Ronald R. Spoehel(6).... 12,000 1.1% $8.25 10,000 on 8/6/94 $ 13,257 2,000 on 5/8/97 William C. Stitt........ 0 0 -- -- --
- -------- (1) The total number of options granted to employees in fiscal 1993 was 1,084,000. Included in this total are 570,000 options at $8.25 which repriced 570,000 options at $14.32 to $16.23 granted in fiscal 1991 and 1992. The expiration dates for these repriced $8.25 options remained the same as the original expiration dates established for those options. (2) The exercise price equals the fair market value of the underlying stock on the date of grant for all options disclosed on this table. (3) In accordance with SEC rules, the Company used the Black-Scholes option pricing model to determine grant date present values. The Company's use of this model is not an endorsement of its accuracy in valuing options, and the values determined under this model do not necessarily reflect the value of any given option. The actual value of an option realized will be measured by the difference between the stock price and the exercise price on the date the option is exercised. (4) 16,000 repriced vested options were granted to Mr. Goldman in May 1992 in exchange for 16,000 vested options at $16.23 previously granted to Mr. Goldman. The expiration date for these repriced $8.25 options (May 6, 1996) remained the same as the original expiration date established for the $16.23 options. (5) 100,000 options were granted to Mr. Rowny on April 6, 1992, and vest, subject to change of control acceleration events specified in the option grant agreement, as follows: 25,000 on April 6, 1994; 25,000 on April 6, 1995; 25,000 on April 6, 1996; and 25,000 on April 6, 1997. 36 (6) 10,000 repriced options were granted to Mr. Spoehel in May 1992 in exchange for 10,000 options at $16.23 previously granted to Mr. Spoehel. The expiration date for these repriced $8.25 options (August 6, 1994) remained the same as the original expiration date established for the $16.23 options. These 10,000 options vest as follows: 3,334 on May 8, 1992; 3,333 on May 8, 1993; and 3,333 on May 8, 1994. A total of 2,000 new options were granted to Mr. Spoehel on May 8, 1992, and vest as follows: 667 on May 8, 1993; 666 on May 8, 1994; and 666 on May 8, 1995. The following table provides certain information with respect to aggregated option and SAR exercises in fiscal 1993 and options/SAR values at February 28, 1993 for the Named Executive Officers.
(A) (B) (C) (D) (E) VALUE OF UNEXERCISED SHARES NUMBER OF UNEXERCISED IN-THE- MONEY UNDERLYING VALUE OPTIONS/SARS OPTIONS/SARS OPTIONS REALIZED AT 2/28/93 (#) AT 2/28/93 ($) NAME EXERCISED (#) ($) (2) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE ---- ------------- -------- ------------------------- ------------------------- James O. Edwards........ 0 0 73,000/24,000 (3) Michael K. Goldman (4).. 30,000 $5,820 44,000/12,000 (3) Michael J. Rowny........ 0 0 0/100,000 (3) Ronald R. Spoehel....... 0 0 6,668/10,332 (3) William C. Stitt........ 0 0 70,000/24,000 (3)
- -------- (1) All options were granted at 100% of fair market value. The optionees may satisfy the exercise price (and taxes, if any) by submitting currently owned shares and/or cash. The Company's Stock Incentive Plan permits the granting/awarding of SARs, but none have been granted/awarded to date. (2) Fair market value of the shares underlying the options on the exercise date minus the exercise price. (3) Options held by the Named Executive Officers range in price from $8.25 to $16.23. None of these options is in-the-money, which means that the option exercise prices for all of the options held by the Named Executive Officers exceed the current price for the Company's Common Stock on the New York Stock Exchange. (4) Mr. Goldman exercised 30,000 options at $8.25 in May 1992. He paid the exercise price and the associated tax obligation by delivering shares he previously owned valued at $8.44 per share (the average Nasdaq National Market trading price for the 20 days preceding the exercise date). AGREEMENTS AND TRANSACTIONS WITH CERTAIN EXECUTIVE OFFICERS Mr. Edwards. In December 1990, the Company signed an executive agreement and a compensation agreement with Mr. Edwards. These agreements were modified in January 1992. The five-year executive agreement with Mr. Edwards prohibits him from competing with the Company during that period unless, (i) the Company files a petition for bankruptcy or reorganization (or a petition is filed against the Company), (ii) the Company makes a general assignment for the benefit of creditors, (iii) a trustee or receiver is appointed to take possession of substantially all of the Company's assets, (iv) the Company's assets are seized, (v) the Company defaults in the payment of compensation, (vi) a Change in Control Event (as described in the agreement) occurs, (vii) Mr. Edwards terminates his employment for good reason, (viii) Mr. Edwards dies or becomes permanently disabled, (ix) the Company terminates his employment without cause, or (x) certain investors' voting or investment position in the Company is substantially reduced. In addition, the executive agreement prohibits Mr. Edwards from selling, assigning, or disposing of more than a specified number of shares of Common Stock without the written consent of the Company. Under the compensation agreement described below, however, Mr. Edwards may borrow from the Company up to 25% of the "market value" (as defined in the agreement) of the Common Stock he owned on December 20, 1990. The executive agreement also prevents him from selling, disposing, or assigning more than a specified number of shares of Common Stock that he may acquire upon exercise of options he held on that date without the written consent of the Company. In order to generate proceeds to reduce indebtedness secured by shares of Common Stock, Mr. Edwards is allowed to receive cash in lieu of exercising options. 37 In conjunction with the executive agreement, the Company entered into a five- year compensation agreement with Mr. Edwards that provides for (i) annual minimum compensation starting at $250,000 and increasing $25,000 each year, plus annual $100,000 special cash payments, (ii) immediate vesting of then- existing options, and (iii) the grant of new options to purchase 40,000 shares of Common Stock. In addition, Mr. Edwards was granted the right to borrow from the Company money equal to 25% of the "market value" (as defined in the agreements) of the shares of Common Stock held by Mr. Edwards on December 20, 1990, to be secured by shares of Common Stock. The compensation agreement may be terminated for "good reason" (as defined in the agreements), for cause by the Company, or upon Mr. Edwards' death or permanent disability. In the event that the Company terminates Mr. Edwards' compensation agreement without cause, or Mr. Edwards terminates his agreement for "good reason", Mr. Edwards is entitled to a severance payment equal to 75% of his annual minimum compensation. Following the execution of the executive and compensation agreements, similar provisions contained in an existing agreement between the Company and Mr. Edwards, described below, were modified or suspended. In November 1989, the Company signed an agreement with Mr. Edwards which obligated him to provide the Company up to 180 days notice prior to his voluntarily ceasing full-time employment with the Company, and restricted his right to transfer more than a certain amount of his Common Stock. In return, Mr. Edwards was provided severance benefits, and under certain circumstances, the right to borrow from the Company. This agreement, as modified to account for the 1990/1992 executive and compensation agreements, suspends the restrictions on stock sales and the right to borrow money, and modifies the severance provisions, but only for so long as the 1990/1992 executive and compensation agreements remain in effect. In February 1991, the Company loaned Mr. Edwards $622,740, and in August 1991, the Company loaned Mr. Edwards an additional $50,000. These loans bear interest at 9.0% per annum, and the interest is payable in annual installments on May 15, 1993, 1994, 1995, and 1996. The entire principal amount is due on May 15, 1996. In January 1992, the Company loaned Mr. Edwards an additional $150,000. This loan bears interest at 8.0% per annum, and the interest is payable in annual installments on May 15, 1993, 1994, 1995, and 1996. The entire principal amount is due on May 15, 1996. All of these loans were provided to Mr. Edwards as permitted by his compensation agreement described above and are non-recourse to Mr. Edwards. The loans are secured by a pledge of 130,665 shares of ICF Kaiser Common Stock. Accrued interest in the amount of $72,547 on these loans was not paid on May 15, 1993, and, under the terms of the promissory notes Mr. Edwards executed in 1991 and 1992, the full principal amount of the loans became due and payable on June 15, 1993. The entire principal amount of the loans referred to above, together with accrued and unpaid interest in the aggregate amount of $72,547 at May 15, 1993, plus accrued interest through the date hereof, was outstanding as of the date hereof. In November 1993, the Compensation Committee of the Board of Directors of the Company agreed (a) to extend the May 15, 1993 due date to May 15, 1994 and (b) not to enforce the acceleration provisions with respect to Mr. Edwards' failure to make the interest payment by June 15, 1993. Mr. List. In May 1993, the Company entered into a one-year employment agreement with Mr. List for his services as Chairman of the Company's Engineering and Construction Group. The agreement delineates Mr. List's areas of responsibility and reporting line. The agreement provides for base compensation at the rate of $250,000 a year, plus benefits as are awarded or accorded to the most senior executives of the Company. The agreement can be terminated by either Mr. List or the Company upon 30 days written notice. If the agreement is not terminated prior to March 31, 1994, the Company must notify Mr. List whether it intends to extend the agreement beyond May 31, 1994. The Company has no obligation to extend the agreement. Mr. List has held senior executive positions with the Company or its subsidiaries since 1986. In September 1989, the Company loaned Mr. List $122,500 which he used to exercise options to acquire 140,000 shares of Common Stock, 20,000 of which are pledged to secure repayment of the loan. The loan bears interest at prime plus 1/2% per annum and was due on June 30, 1993. The unpaid principal balance of $30,625, together with accrued, but unpaid interest, was outstanding as of the date hereof. 38 Douglas W. McMinn. In November 1993, the Company and Mr. McMinn signed an employment agreement under which Mr. McMinn will provide his services as the President of the Company's International Operations Group for a two-year period ending October 15, 1995. The agreement provides for: an initial annual salary of $220,000; a guaranteed minimum cash bonus of $30,000; eligibility under the Company's employee benefit plans; additional bonuses based upon a percentage of the earnings before interest and taxes of the Company's wholly owned subsidiary, Global Trade and Investment, Inc., of which Mr. McMinn is President; and options under the Company's Stock Incentive Plan to purchase 75,000 shares of the Company's Common Stock at $4.76 per share (with a vesting schedule of 25,000 on October 15, 1994; 25,000 on October 15, 1995; 12,500 on October 15, 1996; and 12,500 on October 15, 1997). All of the options will expire no later than October 15, 1998. If both Mr. McMinn and the Company agree, Mr. McMinn's employment will be extended for one year on terms comparable to those set forth in the agreement. In lieu of such an extension, the agreement provides for a one-year consulting arrangement between Mr. McMinn and the Company beginning at the termination of Mr. McMinn's employment. Mr. Rapp. In November 1993, the Company entered into an employment agreement with Mr. Rapp for his services as President and Chief Executive Officer of the Company's Engineering and Construction Group. The agreement delineates Mr. Rapp's areas of responsibility and reporting line. The agreement provides for fiscal 1994 base salary of $250,000; a hiring bonus; bonus compensation for fiscal 1994; eligibility under the Company's employee benefit plans; the grant of 100,000 five-year options (vesting over five years) at fair market value on the date of grant; the issuance of 88,105 Restricted Shares under the Company's Stock Incentive Plan; and interest-free loans to facilitate the sale of Mr. Rapp's current residence and the purchase of a new residence. Mr. Rowny. In April 1992, the Company entered into an employment arrangement with Mr. Rowny for his services as Chief Financial Officer of the Company. In addition, Mr. Rowny was offered a position as a member of the Company's Board of Directors. The letter arrangement delineates Mr. Rowny's areas of responsibility and reporting line. The arrangement provides for a fiscal year 1993 salary of $200,000; eligibility for a bonus range of $0-$100,000 (the amount to be set by the Company's Compensation Committee against a list of objectives); eligibility under the Company's employee benefit plans; and the grant of 100,000 five-year options at fair market value on the date of grant (first day of employment). The options vest at 25,000 increments on April 6, 1994, 1995, 1996, and 1997; they expire on July 6, 1997. Vesting accelerates in the event of the occurrence of certain change of control events specified in the option agreement. Mr. Schweers. In December 1990, the Company signed an executive agreement and a compensation agreement with Mr. Schweers. These agreements were modified in January 1992. The five-year executive agreement with Mr. Schweers prohibits him from competing with the Company during that period unless, (i) the Company files a petition for bankruptcy or reorganization (or a petition is filed against the Company), (ii) the Company makes a general assignment for the benefit of creditors, (iii) a trustee or receiver is appointed to take possession of substantially all of the Company's assets, (iv) the Company's assets are seized, (v) the Company defaults in the payment of compensation, (vi) a Change in Control Event (as described in the agreement) occurs, (vii) Mr. Schweers terminates his employment for good reason, (viii) Mr. Schweers dies or becomes permanently disabled, (ix) the Company terminates his employment without cause, or (x) certain investors' voting or investment position in the Company is substantially reduced. In addition, the executive agreement prohibits Mr. Schweers from selling, assigning, or disposing of more than a specified number of shares of Common Stock without the written consent of the Company. Under the compensation agreement described below, however, Mr. Schweers may borrow from the Company up to 20% of the "market value" (as defined in the agreement) of the Common Stock he owned on December 20, 1990. The executive agreement also prevents him from selling, disposing, or assigning more than a specified number of shares of Common Stock that he may acquire upon exercise of options he held on that date without the written consent of the Company. In order to generate proceeds to reduce indebtedness secured by shares of Common Stock, Mr. Schweers is allowed to receive cash in lieu of exercising options. 39 In conjunction with the executive agreement, the Company entered into a five- year compensation agreement with Mr. Schweers that provides for (i) annual minimum compensation starting at $175,000 and increasing $25,000 each year, plus annual $50,000 special cash payments, (ii) immediate vesting of then- existing options, and (iii) the grant of new options to purchase 20,000 shares of Common Stock. In addition, Mr. Schweers was granted the right to borrow from the Company money equal to 20% of the "market value" (as defined in the agreements) of the shares of Common Stock held by Mr. Schweers on December 20, 1990, to be secured by shares of Common Stock. The compensation agreement may be terminated for "good reason" (as defined in the agreements), for cause by the Company, or upon Mr. Schweers' death or permanent disability. In the event that the Company terminates Mr. Schweers' compensation agreement without cause, or Mr. Schweers terminates his agreement for "good reason," Mr. Schweers is entitled to a severance payment equal to 75% of his annual minimum compensation. In October 1991, in lieu of his exercising his contractual right to borrow cash from the Company pursuant to his compensation agreement described above, the Company loaned Mr. Schweers $1,031,806 which Mr. Schweers used to purchase shares of Common Stock. The outstanding balance as of November 30, 1993 is $686,806. The loan bears interest at 9.5% per annum, and the interest is payable in annual installments on May 15, 1994, 1995, and 1996. The entire principal is due on May 15, 1996. Mr. Spoehel. In December 1990, the Company entered into a letter agreement with Mr. Spoehel for his services as a Senior Vice President of the Company. The agreement provides for a starting salary of $150,000 per year (performance to be reviewed annually on March 1), eligibility for an annual bonus ranging from $0-$100,000; eligibility under the Company's employee benefit plans; and the grant of at least 5,000 incentive stock options in May of 1991. In September 1990, the Company loaned Mr. Spoehel $100,000 for use primarily in the purchase of Common Stock. The outstanding balance as of November 30, 1993, was $40,000. The loan currently bears interest at 5.3% per annum and is adjusted annually on June 1 to the "Applicable Federal Rate" as defined by the Internal Revenue Service. Accrued interest is payable on May 31, 1996. Under the promissory note between Mr. Spoehel and the Company, $20,000 annual principal payments on this loan are forgiven each year; the accrued interest will be forgiven on May 31, 1996. Mr. Stitt. Effective April 26, 1993, Mr. Stitt resigned as President, Chief Operating Officer, and a director of the Company under the terms of an agreement which provided for (a) the termination of Mr. Stitt's December 1990 executive and compensation agreements with the Company, (b) a severance payment of $325,000, (c) continuing compensation at $300,000 for one year, (d) the immediate vesting of 24,000 previously awarded options to purchase the Company's stock at $11.12 per share, (e) the termination of an outstanding loan in return for the conveyance to the Company of 132,900 shares of the Company's stock purchased with the loan proceeds, and (f) the repurchase by the Company at $5.9875 per share of 477,568 shares of Company stock owned by Mr. Stitt. 40 SECURITY OWNERSHIP
AGGREGATE NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF VOTING 5% SHAREHOLDERS, DIRECTORS AND OFFICERS BENEFICIAL OWNERSHIP(A) CLASS OF STOCK POWER - --------------------------------------- ----------------------- -------------- --------- DIRECTORS Gian Andrea Botta............. 3,000 shares (b) * * Tom Bradley................... 3,000 shares (c) * * Tony Coelho................... 10,000 shares (d) * * James O. Edwards.............. 416,799 shares (e) 2.0% of 1.8% Common Stock Frederic V. Malek............. 27,000 shares (f) * * Rebecca P. Mark............... 3,000 shares (g) * * Robert W. Page, Sr............ 3,000 shares (h) * * Michael J. Rowny.............. 22,323 shares (i) * * Marc Tipermas................. 275,745 shares (j) 1.3% of * Common Stock EXECUTIVE OFFICERS NAMED IN THE SUMMARY COMPENSATION TABLE James O. Edwards.............. 416,799 shares (e) 2.0% of 1.8% Chairman and Chief Executive Common Stock Officer Michael K. Goldman............ 136,178 shares (k) * * Executive Vice President Michael J. Rowny.............. 22,323 shares * * Executive Vice President and Chief Financial Officer Ronald R. Spoehel............. 26,303 shares (l) * * Senior Vice President and Treasurer William C. Stitt.............. 20,000 shares * * President and Chief Operating Officer through April 26, 1993 All Directors and Executive Officers as a Group (18 persons)........ 2,163,899 shares (m) 10.2% of 9.1% Common Stock 5% COMMON SHAREHOLDERS ICF Kaiser International, Inc. 11.4% of Employee Stock Ownership Common Stock Trust........................ 2,377,301 shares (n) 10.2% ICF Kaiser International, Inc. 6.0% of Retirement Plan.............. 1,257,306 shares (o) Common Stock 5.4% FIMA Finance Management Inc... 2,680,952 shares (p) 11.4% of Common Stock 11.4% Mathers & Company, Inc. 10.2% of and Mathers Fund, Inc........ 2,125,600 shares (q) Common Stock 9.1% State of Wisconsin Investment 1,550,200 shares (r) 7.4% of Board........................ Common Stock 6.7% SERIES 2D SENIOR PREFERRED STOCK IFINT-USA Inc................. 200 shares (p) 100% of 10.2% Series 2D
- -------- * = ownership of less than 1% 41 FOOTNOTES TO SECURITY OWNERSHIP TABLE (a) Except as noted below, all information in the above table is as of January 12, 1994. A person is deemed to be a beneficial owner of the Company's stock if that person has voting or investment power (or voting and investment powers) over any shares of capital stock or has the right to acquire such shares within 60 days from January 12, 1994. With respect to ownership of shares which are held by the ESOP but allocated to individuals' accounts, the information is current as of February 28, 1993, and includes shares to be allocated to participants' accounts as a result of the Company's fiscal year 1993 contribution to the ESOP. For shares shown in the following footnotes as being held in directed investment accounts in the ICF Kaiser International, Inc. Retirement Plan, the beneficial owner shown below has investment but not voting power over those shares and the information is current as of September 30, 1993. (b) Mr. Botta's share ownership includes 3,000 shares that may be acquired within 60 days of January 12, 1994, upon the exercise of stock options. (c) Mr. Bradley's share ownership includes 3,000 shares that may be acquired within 60 days of January 12, 1994, upon the exercise of stock options. (d) Mr. Coelho's share ownership includes 9,000 shares that may be acquired within 60 days of January 12, 1994, upon the exercise of stock options. (e) Mr. Edwards' share ownership includes 2,575 shares allocated to his ESOP account, 60,091 shares in his directed investment account under the ICF Kaiser International, Inc. Retirement Plan (the "Retirement Plan") and 81,000 shares that may be acquired within 60 days of January 12, 1994, upon the exercise of stock options. See footnotes n and o below. (f) Mr. Malek's share ownership includes 12,000 shares that may be acquired within 60 days of January 12, 1994, upon the exercise of stock options. (g) Ms. Mark's share ownership includes 3,000 shares that may be acquired within 60 days of January 12, 1994, upon the exercise of stock options. (h) Mr. Page's share ownership includes 3,000 shares that may be acquired within 60 days of January 12, 1994, upon the exercise of stock options. (i) Mr. Rowny's share ownership includes 856 shares allocated to his ESOP account and 5,000 shares that may be acquired within 60 days of January 12, 1994. Mr. Rowny is a Trustee of the ESOP and a member of the Retirement Plan Committee of the Retirement Plan. See footnotes n and o below. (j) Dr. Tipermas's share ownership includes 7,698 shares allocated to his ESOP account, 7,525 shares in his directed investment account under the Retirement Plan and 60,000 shares that may be acquired within 60 days of January 12, 1994. (k) Mr. Goldman's share ownership includes 7,364 shares allocated to his ESOP account and 53,000 shares that may be acquired within 60 days of January 12, 1994, upon the exercise of stock options. (l) Mr. Spoehel's share ownership includes 1,469 shares allocated to his ESOP account and 9,834 shares that may be acquired within 60 days of January 12, 1994, upon the exercise of stock options. (m) This total includes 42,504 shares allocated to ESOP accounts, 91,390 shares in directed investment accounts under the ICF Kaiser International, Inc. Retirement Plan, and 391,419 shares that may be acquired within 60 days of January 12, 1994, upon the exercise of stock options. (n) ICF Kaiser International, Inc. Employee Stock Ownership Trust, 9300 Lee Highway, Fairfax, VA 22031. The ESOP Trustees are James O. Edwards, Michael J. Rowny and Marcy A. Romm. Of the 2,377,301 shares of Common Stock held by the ESOP, a total of 1,799,997 shares are allocated to individual ESOP participants' accounts and are voted by those participants. The ESOP Trustees vote the remaining 577,304 shares of Common Stock held by the ESOP. The ESOP Trustees have investment power over all of the 2,377,301 shares of Common Stock held by the ESOP. Each ESOP Trustee disclaims beneficial ownership of the shares of Common Stock held by the ESOP. The individual shareholdings of Mr. Edwards and Mr. Rowny are shown on the Security Ownership table in this Prospectus. Ms. Romm beneficially owns 10,215 shares of Common Stock, 250 of which are shares that may be acquired within 60 days of January 12, 1994 upon the exercise of stock options. Ms. Romm's address is 9300 Lee Highway, Fairfax, VA 22031. 42 (o) ICF Kaiser International, Inc. Retirement Plan, c/oU.S. Trust Company of California, N.A. (Trustee), 555 South Flower St., Suite 2700, Los Angeles, CA 90071. The members of the Retirement Plan Committee are James O. Edwards, Michael J. Rowny and Marcy A. Romm. Of the 1,257,306 shares of Common Stock held by the Retirement Plan, a total of 353,239 shares are held in directed investment accounts in which the participants have investment power over their allocated shares. The Retirement Plan Committee members and the Trustee have investment power over 904,067 shares held by the Retirement Plan but not held in directed investment accounts. The Retirement Plan Committee members direct the Trustee as to how to vote the 1,257,306 shares of Common Stock held by the Retirement Plan. Each Retirement Plan Committee member disclaims beneficial ownership of the shares of Common Stock held by the Retirement Plan. (p) FIMA Finance Management, Inc. Citco Building, Wickhams Cay, P.O. Box 662, Road Town, Tortola, British Virgin Islands. FIMA Finance Management Inc. ("FIMA") owns Series 2D Warrants for the purchase of 2,680,952 shares of Common Stock. IFINT-USA Inc. ("IFINT-USA"), 375 Park Avenue, New York, New York 10182, owns 200 shares of Series 2D Preferred Stock. The terms of the Series 2D Preferred Stock limit the total vote of the series to 2,380,952. IFINT-USA and FIMA are wholly owned subsidiaries of IFINT S.A., 2 Blvd Royal, Luxembourg. Gian Andrea Botta, a director of the Company, is the President of IFINT-USA. Mr. Botta disclaims beneficial ownership of the shares of Series 2D Preferred Stock and the Series 2D Warrants. (q) The information with respect to the shares of Common Stock beneficially owned by Mathers and Company, Inc. and Mathers Fund, Inc., 100 Corporate North, Suite 201, Bannockburn, IL 60015 (which firms are controlled by common officers) is based on a Report on Schedule 13G, Amendment No. 1, which was filed with the SEC on June 7, 1993, covering the period ended May 31, 1993. (r) The information with respect to the shares of Common Stock beneficially owned by the State of Wisconsin Investment Board, P.O. Box 7842, Madison, WI 53707, is based on a Report on Schedule 13D dated December 2, 1992 and filed with the SEC. 43 DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of 90,000,000 shares of Common Stock and 2,000,000 shares of preferred stock, par value $0.01 per share. As of January 12, 1994, the outstanding capital stock of the Company consisted of 20,890,399 shares of Common Stock and 200 shares of Series 2D Preferred Stock. COMMON STOCK The following is a summary of the terms of the Company's Common Stock: Voting. Each share of Common Stock has one vote per share on all matters submitted to a vote of shareholders. The Company's Amended and Restated Certificate of Incorporation provides that no action may be taken by the holders of shares of Common Stock by written consent in lieu of holding a meeting of shareholders. Dividends. The Company has never paid cash dividends on its Common Stock. The Board of Directors anticipates that for the foreseeable future no cash dividends will be paid on its Common Stock and that the Company's earnings will be retained for use in the business. The Board of Directors determines the Company's Common Stock dividend policy based on the Company's results of operations, payment of dividends on preferred stock (if any is outstanding), financial condition, capital requirements, and other circumstances. The Company's credit agreements allow dividends to be paid on its capital stock provided that the Company complies with certain limitations imposed by the terms of such agreements. See "Description of Credit Facility." Other Terms. Holders of Common Stock have no preemptive or other rights to subscribe for additional shares of Company stock. Upon liquidation, dissolution, or winding up of the Company, each share of Common Stock will share equally in assets legally available for distribution to stockholders. Transfer Agent. The transfer agent and registrar for the Common Stock is First Chicago Trust Company of New York, 14 Wall Street, Mail Suite 4680, New York, New York 10005. Public Market. Since September 14, 1993, the Common Stock has been traded on the New York Stock Exchange under the symbol "ICF." Prior to that date, the Common Stock was traded on the Nasdaq National Market. PREFERRED STOCK The preferred stock is available for issuance from time to time at the discretion of the Board of Directors of the Company, without shareholder approval. The Board of Directors has authority to prescribe for each series of preferred stock it establishes the number of shares in that series, the dividend rate, and the voting rights, conversion privileges, redemption, sinking fund provisions and liquidation rights, if any, and any other rights, preferences and limitations of the particular series. The issuance of preferred stock could decrease the amount of earnings and assets available for distribution to the holders of Common Stock or adversely affect the rights and powers, including voting rights, of the holders of Common Stock. Additionally, the issuance of preferred stock could have the effect of delaying, deferring or preventing a change in control of the Company without further action by the shareholders. SERIES 2D PREFERRED STOCK The Company has issued 200 shares of Series 2D Preferred Stock, all of which are currently outstanding. In connection with the issuance of the Series 2D Preferred Stock, the Company issued the Series 2D Warrants for the purchase of 2,680,952 shares of Common Stock to the purchaser of the Series 2D Preferred Stock (see "Series 2D Warrants"). The following is a summary of the terms of the Series 2D Preferred Stock, which 44 ranks prior to the Company's Common Stock and Series 4 Junior Preferred Stock (if any is issued) with respect to dividend rights and rights on liquidation, winding up and dissolution. Dividends. The Series 2D Preferred Stock pays cumulative dividends of $9,750 per $100,000 of liquidation preference per year, payable quarterly. Liquidation Preference. Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of Series 2D Preferred Stock are entitled to receive a liquidation preference equal to $100,000 plus accrued but unpaid dividends per share of Series 2D Preferred Stock before any distribution is made to the holders of any capital stock of the Company ranking junior to the Series 2D Preferred Stock. Redemption. The Company is obligated to redeem all shares of Series 2D Preferred Stock outstanding on January 13, 1997, for the full liquidation preference amount, plus accrued and unpaid dividends thereon to the redemption date. In addition, upon a proposal for or the occurrence of a Change in Control Event, as defined in the Certificate of Designations creating the Series 2D Preferred Stock ("Series 2D Certificate of Designations"), the original purchaser (and current holder) of the shares of Series 2D Preferred Stock (the "Initial Holder") has the option to require the Company to redeem all or part of such Initial Holder's shares at a redemption price of $100,000 per share, together with accrued and unpaid dividends. This Certificate of Designations is now included in the Company's Amended and Restated Certificate of Incorporation. The Company at any time and at its option may redeem all, but not less than all, of the shares of Series 2D Preferred Stock at a redemption price of $106,250 per share, plus accrued and unpaid dividends thereon to the redemption date. If, as of the date the Company elects to redeem the shares of Series 2D Preferred Stock, an Initial Holder owns any Series 2D Warrants, then the holder of such shares may elect to receive, in lieu of the applicable redemption price described above, consideration per share equal to (i) cash in the amount of $106,249.99, and (ii) one share of a new series of preferred stock, par value $0.01 per share (the "Series XD Preferred Stock"), of the Company to be created pursuant to a Certificate of Designations in the form attached as an exhibit to the Series 2D Certificate of Designations (the "Series XD Certificate of Designations"). No dividends will be payable with respect to shares of Series XD Preferred Stock. The liquidation preference for such shares will be $0.01 per share. Holders of shares of Series XD Preferred Stock will be entitled to vote together with holders of the Company's Common Stock on all matters to be voted on by the Company's shareholders. The number of votes entitled to be cast by holders of such shares of Series XD Preferred Stock is determined separately with respect to each holder in accordance with formulae set forth in the Series XD Certificate of Designations. No holder of shares of Series XD Preferred Stock may transfer any such shares unless such shares are transferred to a Purchaser Affiliate, as defined in the Securities Purchase Agreement between the Company and the Initial Holder (the "Securities Purchase Agreement"). The Company must redeem all outstanding shares of Series XD Preferred Stock at a redemption price per share equal to the aggregate liquidation preference of such shares on the first to occur of (i) January 13, 1997 or (ii) the date upon which an Initial Holder does not hold any Series 2D Warrants. The Company also has a one-time right to redeem all outstanding shares of Series 2D Preferred Stock, each share in exchange for (i) a subordinated debt security (the "Exchange Note") with an aggregate principal amount of $99,999.99 and a minimum interest rate of 9.75%, in the form attached as an exhibit to the Series 2D Certificate of Designations, bearing interest at a rate that would preserve the after-federal income tax return on dividends on the Series 2D Preferred Stock, (ii) cash in an amount equal to all accrued and unpaid dividends on the Series 2D Preferred Stock, and (iii) one share of a new series of preferred stock, par value $0.01 per share (the "Series YD Preferred Stock"), of the Company to be created pursuant to a Certificate of Designations in the form attached as an exhibit to the Series 2D Certificate of Designations (the "Series YD Certificate of Designations"). No dividends will be payable with respect to shares of Series YD Preferred Stock. The liquidation preference for such shares will be $0.01 per share. The Company may at any time and at its option redeem all, but not less than all, the shares of Series YD Preferred Stock at a redemption price 45 of $0.01 per share. The Company has mandatory redemption obligations to: (i) redeem all shares of Series YD Preferred Stock outstanding on January 13, 1997 for the full liquidation preference amount, (ii) redeem all or part of the Initial Holder's Series YD Preferred Stock for the liquidation preference amount if the Initial Holder exercises its redemption opinion upon the proposal or occurrence of a Change in Control Event, (iii) concurrently redeem all outstanding Exchange Notes when Series YD Preferred Stock is redeemed, and (iv) redeem and purchase outstanding shares of Series YD Preferred Stock pursuant to the Securities Purchase Agreement. If the holder of such redeemed Series YD Preferred Stock is an Initial Holder and also holds any outstanding Series 2D Warrants, then such holder shall receive, for each share of Series YD Preferred Stock redeemed, a share of Series XD Preferred Stock. Shares of Series XD Preferred Stock may not be transferred separately from their corresponding Exchange Notes. The Initial Holder of the Series 2D Preferred Stock has the right, subject to a 180-day cure period, to require the Company to redeem all shares of Series 2D Preferred Stock (or shares of Series YD Preferred Stock and associated Exchange Notes, as the case may be) held by it under certain circumstances. This right is exercisable in the event the Company notifies such affiliates that the DOD, the DOE or the President of the United States has made a final determination on the grounds of national security that the Company, by reason of the ownership of such Company securities by the Initial Holder, should forfeit a security clearance on a material facility or a material government contract, and, in the reasonable judgment of the Company's Board of Directors, such forfeiture will have a material adverse effect on the Company. This right is not exercisable, however, if the parent organization of the Initial Holder acquires more than 20% of the voting power of the Company. Voting. The number of votes entitled to be cast by any holder of Series 2D Preferred Stock is equal to the total number of shares of Series 2D Preferred Stock owned by such holder divided by the total number of outstanding shares of Series 2D Preferred Stock times the total number of shares of Common Stock (not to exceed 2,380,952, subject to certain adjustments) for which Series 2D Warrants are outstanding and unexercised. After such time as there are outstanding Series 2D Warrants exercisable for 2,380,952 or fewer shares of Common Stock, the voting power of the Series 2D Preferred Stock is reduced as Series 2D Warrants are exercised. Thus, the Series 2D Preferred Stock has voting power similar to that of the Common Stock. In general, holders of shares of Series 2D Preferred Stock vote together with the holders of Common Stock and are not entitled to vote as a separate class. However, the affirmative vote of the holders of a majority of the shares of Series 2D Preferred Stock, voting as a class with the holders of other series of preferred stock or as a separate class, in accordance with Delaware law, would be required for the approval of any proposed amendment of the Amended and Restated Certificate of Incorporation that would change the par value of the Series 2D Preferred Stock or alter or change the powers, preferences, or special rights of the Series 2D Preferred Stock so as to affect such holders adversely. Such a class vote is also required with respect to any proposed merger or similar transaction involving an amendment of the Company's Amended and Restated Certificate of Incorporation if the amendment would materially and adversely affect the powers, preferences or special rights of the Series 2D Preferred Stock. Moreover, without the affirmative vote of at least 66 2/3% of the aggregate voting power of shares of Series 2D Preferred Stock outstanding, the Company may not (i) authorize or issue preferred stock senior to the Series 2D Preferred Stock, or (ii) authorize or issue equity securities with a mandatory redemption date earlier than January 13, 1997. As discussed below (see "Provisions Affecting Changes of Control and Extraordinary Transactions"), until January 13, 1997 (when the Series 2D Preferred Stock is required to be redeemed, see "Redemption" above), the Initial Holder has the right to designate one nominee for election as a director of the Company. Rights Upon Dividend Default. In the event the Company is in arrears with respect to any dividend payable on the Series 2D Preferred Stock for a period in excess of 100 days or fails to make a mandatory redemption, the holders of Series 2D Preferred Stock will have the exclusive right to elect two additional directors. In addition, until such an arrearage or failure to make a mandatory redemption is cured, if 33% or more of the then outstanding Series 2D Preferred Stock (or securities issued in exchange therefor) is held by 46 an Initial Holder, the Company becomes subject to certain restrictive covenants. Such covenants would prohibit the Company from, among other things: disposing of assets for consideration of more than $1 million in a single transaction; entering into mergers; making acquisitions; guaranteeing any obligation in excess of $1 million; or incurring indebtedness other than as permitted pursuant to the Indenture governing the Notes without the consent of such Initial Holder. Further, under such circumstances, the Initial Holder is relieved from the limitations described below on its right to acquire additional voting securities of the Company, to subject Series 2D Preferred Stock to a voting trust, or to solicit proxies in opposition to the Company's Board of Directors (see "Provisions Affecting Changes of Control and Extraordinary Transactions"). Transferability. The Series 2D Preferred Stock and Series 2D Warrants were sold in a private placement exempt from registration under the Securities Act. Thus, there is no public market for the Series 2D Preferred Stock (or the Series XD Preferred Stock, Series YD Preferred Stock or Exchange Notes, if any of such securities are issued) or the Series 2D Warrants. Transfers of any such securities are further restricted by the Securities Purchase Agreement, which grants the Company a right of first offer to purchase any such securities prior to any transfers to any person other than another Initial Holder. A registration rights agreement provides the holders of Series 2D Warrants and the holders of any shares of Common Stock issued upon exercise of Series 2D Warrants with certain rights to register for resale shares of Common Stock issued upon exercise of the Series 2D Warrants. These registration rights include customary demand and incidental registration rights. Other Terms. Except as set forth above, holders of the Series 2D Preferred Stock have no preemptive or other rights to subscribe for additional shares of Company stock. SERIES 2D WARRANTS In January 1992, the Company sold to an affiliate of IFINT-USA Series 2D Warrants to purchase 2,680,952 shares of Common Stock (subject to adjustment) at an exercise price of $8.40 per share. The Series 2D Warrants expire in May 1997. On January 11, 1994, the Company repurchased its Series 2C Senior Preferred Stock and Series 2C Warrants with a portion of the proceeds from the sale of the 12% Notes and the Warrants and issued new Series 2D Warrants to the affiliate of IFINT-USA. The new Series 2D Warrants are exercisable at $6.90 per share (subject to adjustment). The holder of the Series 2D Warrants is able, in lieu of exercising such warrants, to require the Company to issue to such holder Common Stock with an aggregate market value equal to the difference between the then current market price for the Common Stock and 90% of the exercise price of the Series 2D Warrants then in effect, multiplied by the number of Series 2D Warrants for which the holder is requiring such issuance. In addition, on the expiration date of the Series 2D Warrants, the holder of such warrants will be able, in lieu of exercising the warrants or having Common Stock issued as described in the preceding sentence, to require the Company to pay it cash in the amount of the difference between the then current market price for the Common Stock and the exercise price of the Series 2D Warrants then in effect, multiplied by the number of Series 2D Warrants for which the holder is requiring such payment. In the event that the Company cannot make such cash payment without violating a covenant or covenants contained in the Indenture, the New Credit Agreement or any similar agreement relating to indebtedness for borrowed money of the Company, the Company shall make such payment in Common Stock as described above. SHAREHOLDER RIGHTS PLAN On January 13, 1992, the Board of Directors of the Company declared a dividend distribution to shareholders of record at the close of business on January 31, 1992 (the "Record Date") of one Right for each outstanding share of Common Stock. Each Right entitles the registered holder to purchase from the Company a unit consisting of one one-hundredth of a share (a "Preferred Stock Unit") of Series 4 Junior Preferred Stock ("Series 4 Preferred 47 Stock"), at a purchase price of $50.00 per Preferred Stock Unit ("Purchase Price"), subject to adjustment. The Rights also are subject to certain antidilution adjustments. The description of the Rights is set forth in a Rights Agreement (the "Rights Agreement") between the Company and the Rights Agent. A Distribution Date (the "Distribution Date") for the Rights will occur upon the earlier of (i) 10 business days following a "Stock Acquisition Date," which is the public announcement that a person or group of affiliated or associated persons has acquired, or obtained the right to acquire, beneficial ownership of 20% or more of the outstanding shares of Common Stock (such person or group referred to herein as an "Acquiring Person") or (ii) 10 business days following the commencement of a tender offer or exchange offer that would if consummated result in a person or group becoming an Acquiring Person. The Rights are not exercisable until the Distribution Date and will expire at the close of business on January 13, 2002, unless earlier redeemed by the Company as described below. The Rights Agreement provides, among other things, that the Initial Holder on the date of the Rights Agreement of the Series 2D Preferred Stock cannot be deemed an Acquiring Person. Until the Distribution Date (i) the Rights will be evidenced by the Common Stock certificates and will be transferred with and only with such certificates and (ii) the surrender for transfer of any certificates for Common Stock outstanding will also constitute the transfer of the Rights associated with the Common Stock represented by such certificate. In the event that, at any time following the Distribution Date, a person becomes an Acquiring Person, then each holder of a Right (other than the Acquiring Person) will thereafter have the right to receive, (x) upon exercise and payment of the Purchase Price, Common Stock (or, in certain circumstances, cash, property or other securities of the Company) having a value equal to two times the Purchase Price of the Right or (y) at the discretion of the Board of Directors, upon exercise and without payment of the Purchase Price, Common Stock (or, in certain circumstances, cash, property or other securities of the Company) having a value equal to the Purchase Price of the Right. For example, at a Purchase Price of $50.00 per Right, each Right not owned by an Acquiring Person (or by certain related parties) following the event set forth above would entitle its holder to purchase $100 worth of Common Stock (or other consideration, as noted above) for $50.00. Assuming that the Common Stock has a per share value of $10.00 at such time, the holder of each Right would be entitled to purchase 10 shares of Common Stock for a total aggregate purchase price of $50.00. However, Rights are not exercisable following the occurrence of the event set forth above until such time as the Rights are no longer redeemable by the Company as set forth below. In the event that, at any time following the Stock Acquisition Date, (i) the Company is acquired in a merger or other business combination transaction in which the Company is not the surviving corporation, (ii) the Company is the surviving corporation in a merger with any Person (as defined in the Rights Agreement) and its Common Stock is changed into or exchanged for stock or other securities of any other Person or cash or any other property, or (iii) 50% or more of the Company's assets or earning power is sold or transferred, each holder of a Right (except Rights held by an Acquiring Person or which previously have been exercised as set forth above) shall thereafter have the right to receive, upon exercise, common stock of the acquiring company having a value equal to two times the Purchase Price of the Right. The events set forth in this paragraph and in the immediately preceding paragraph are referred to as the "Triggering Events." As noted above, following the occurrence of any of the events described above, all Rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by any Acquiring Person will be null and void. The Purchase Price payable, and the number of Preferred Stock Units or other securities or property issuable upon exercise of the Rights, are subject to amendment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Series 4 Preferred 48 Stock, (ii) if holders of the Series 4 Preferred Stock are granted certain rights or warrants to subscribe for Series 4 Preferred Stock or convertible securities at less than the current market price of the Series 4 Preferred Stock, or (iii) upon the distribution to holders of the Series 4 Preferred Stock of evidences of indebtedness or assets (excluding regular quarterly cash dividends) or of subscription rights or warrants (other than those referred to above). With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments amount to at least one percent of the Purchase Price. In addition, to the extent that the Company does not have sufficient shares of Common Stock issuable upon exercise of the Rights following the occurrence of a Triggering Event, the Company may, under certain circumstances, reduce the Purchase Price. No fractional Preferred Stock Units will be issued and, in lieu thereof, an adjustment in cash will be made. In general, the Company may redeem the Rights in whole, but not in part, at a price of $0.01 per Right (payable in cash, Common Stock or other consideration deemed appropriate by the Board of Directors), at any time until 10 business days following the Stock Acquisition Date. After the redemption period has expired, the Company's right of redemption may be reinstated if an Acquiring Person reduces its beneficial ownership to less than 10% of the outstanding shares of Common Stock in a transaction or series of transactions not involving the Company and there are no other Acquiring Persons. Immediately upon the action of the Board of Directors ordering redemption of the Rights, and without any notice to the holder of such Rights prior to such redemption, the Rights will terminate and the only right of the holders of Rights will be to receive the $0.01 redemption price. Until a Right is exercised, the holder thereof, as such, will have no rights as a shareholder of the Company, including, without limitation, the right to vote or to receive dividends. Other than those provisions relating to the principal economic terms of the Rights (except with respect to increasing the Purchase Price under certain circumstances described in the Rights Agreement), any of the provisions of the Rights Agreement may be amended by the Board of Directors of the Company prior to the Distribution Date. After the Distribution Date, the provisions of the Rights Agreement may be amended by the Board in order to cure any ambiguity, to make changes which do not adversely affect the interests of holders of Rights (excluding the interests of any Acquiring Person) or to shorten or lengthen any time period under the Rights Agreement. However, no amendment to adjust the time period governing redemption shall be made when the Rights are not redeemable. One Right will be distributed to shareholders of the Company for each share of Common Stock owned of record by them at the close of business on the Record Date. Until the Distribution Date, the Company will issue a Right with each share of Common Stock so that all shares of Common Stock will have attached Rights. The Rights may be deemed to have certain anti-takeover effects. The Rights generally may cause substantial dilution to a person or group that attempts to acquire the Company under circumstances not approved by the Board of Directors of the Company. The Rights should not interfere with any merger or other business combination approved by the Board of Directors of the Company since the Board of Directors may, at its option, at any time prior to the close of business on the earlier of (i) the tenth business day following the Stock Acquisition Date or (ii) January 13, 2002, redeem all but not less than all of the then- outstanding Rights at $0.01 per Right. PROVISIONS AFFECTING CHANGES OF CONTROL AND EXTRAORDINARY TRANSACTIONS In addition to the Shareholder Rights Plan, certain provisions of the Company's Amended and Restated Certificate of Incorporation and By-laws and other agreements could have the effect of delaying, deferring, or preventing a change in control of the Company or other extraordinary corporate transaction. 49 The Company's Amended and Restated Certificate of Incorporation and By-laws provide for classification of the Board of Directors into three classes, as nearly equal in number as possible, with one class of directors being elected each year for three-year terms. Under Delaware law, members of a classified board may be removed only for cause. Thus, at least two years would be required to effect a change of control in the Board of Directors, unless a shareholder had sufficient voting power to amend or repeal the Amended and Restated Certificate of Incorporation and By-law provisions relating to classification of the Board of Directors. In addition, the Amended and Restated Certificate of Incorporation imposes supermajority voting requirements for certain corporate transactions that apply if a majority of the Board of Directors has not served in such positions for at least 12 months. Under those circumstances, the approval of two-thirds of the voting power of the Company's capital stock would be required in order for the Company to (i) merge with or consolidate into any other entity, other than a subsidiary of the Company, (ii) sell, lease or assign all or substantially all of the assets or properties of the Company, or (iii) amend the voting provisions of the Amended and Restated Certificate of Incorporation. Other Amended and Restated Certificate of Incorporation provisions of the type referred to above include (i) the denial of the right of holders of Common Stock to take action by written consent in lieu of at a shareholders' meeting and (ii) the ability of the Board of Directors to determine the rights and preferences (including voting rights) of the Company's authorized but unissued preferred stock, and then to issue such stock. Such By-law provisions include those that (i) require advance nomination of directors, (ii) require advance notice of business to be conducted at shareholders' meetings, and (iii) provide that shareholders owning at least 50% of the voting power of the capital stock are required to call a special meeting of shareholders. With the exception of the provision that authorizes the Board of Directors to fix the terms of and issue authorized but unissued shares of preferred stock, the approval of the holders of at least two-thirds of the voting power of the Company's capital stock is required to amend, alter, or repeal, or to adopt provisions inconsistent with, the Amended and Restated Certificate of Incorporation and By-law provisions described above, regardless of whether a majority of the members of the Board of Directors has served in such positions for more than 12 months at the time of such action. The voting and certain other rights of the holders of the Company's Series 2D Preferred Stock may also have the effect of delaying, deferring or preventing a change of control of the Company. As described in the preceding sections, the terms of the Series 2D Preferred Stock permit the holders of such stock to require redemption of the stock upon a "Change of Control Event" as defined therein (in general, (x) the acquisition of 40% or more of the voting power of the Company by an unrelated third party, (y) a change in the composition of a majority of the Company's directors over a two-year period or (z) shareholder approval of (A) a transaction or series of transactions consummated within nine months which results in the shareholders of the Company prior to such transaction(s) owning less than 55% of the voting power of the Company, (B) liquidation of the Company, or (C) sale or disposition of all or substantially all of the Company's assets). See "Series 2D Preferred Stock". The agreements relating to the Series 2D Preferred Stock provide that, until December 20, 1995, the Initial Holder will not, without the consent of a majority of the Company's directors not designated by the purchaser, (i) acquire any voting securities of the Company if, after such acquisition, it would directly or indirectly own or control more than 40% of the voting power of the Company, (ii) subject the Series 2D Preferred Stock to a voting trust, or (iii) solicit proxies in opposition to any recommendation of the Company's Board of Directors. Until January 13, 1997, subject to adjustment, so long as the purchaser of the Series 2D Preferred Stock (and its affiliates) owns 80% of such stock (including securities issuable in exchange for such stock) or 80% of the Series 2D Warrants or the Common Stock issued upon exercise of the Series 2D Warrants, such purchaser (and its affiliates) shall be entitled to designate a nominee for director to serve on the Company's Board of Directors. 50 In addition, the warrants to purchase 275,088 shares, subject to antidilution adjustment, of Common Stock (the "Subordinated Debt Warrants") and the Series 2D Warrants (which are exercisable for 2,680,952 shares, subject to antidilution adjustment, of Common Stock) provide that, if the Company is a party to a merger or other extraordinary corporate transaction in which the Company's outstanding Common Stock is exchanged for securities or other consideration (including cash), the holders thereof shall have the right to elect, within 60 days after notice, to receive, at the holder's election, (i) the consideration which the warrantholder would have received had the warrants been exercised immediately prior to the transaction or (ii) the number of shares of the acquiring party's voting stock (with the highest voting power per share in the case of the Series 2D Warrants) determined by reference to a formula that gives effect to the fair market value of the consideration paid for the Company's Common Stock in the transaction. If such a transaction constitutes a Change of Control Event (as described above), each of the holders of the Subordinated Debt Warrants and Series 2D Warrants also have the right to exercise the warrants they hold within the 60-day notice period referred to above and receive cash in an amount equal to the fair market value of the highest per share consideration paid in connection with the transaction, computed as if the warrants had been exercised immediately prior to consummation of the transaction. The Company has entered into agreements with certain key employees, including Messrs. Edwards and Schweers, that contain non-compete provisions and provisions that require such key employees to obtain the written consent of the Company prior to transferring a specified amount of the Company's Common Stock. In addition, Mr. Edwards is required to give the Company notice of his intention to leave the Company. Finally, in the event of a takeover of the Company, the agreement with Mr. Edwards provides for automatic vesting of the options and deferred compensation held by him. DELAWARE TAKEOVER STATUTE Section 203 of the Delaware General Corporation Law (the "Delaware Takeover Statute") applies to Delaware corporations with a class of voting stock listed on a national securities exchange, authorized for quotation on an inter-dealer quotation system, or held of record by 2,000 or more persons, and restricts transactions which may be entered into by such a corporation and certain of its stockholders. The Delaware Takeover Statute provides, in essence, that a stockholder acquiring more than 15% of the outstanding voting shares of a corporation subject to the statute (an "Interested Stockholder"), but less than 85% of such shares, may not engage in certain "Business Combinations" with the corporation for a period of three years subsequent to the date on which the stockholder became an Interested Stockholder, unless (i) prior to such date the corporation's board of directors approved either the Business Combination or the transaction in which the stockholder became an Interested Stockholder or (ii) the Business Combination is approved by the corporation's board of directors and authorized by a vote of at least 66 2/3% of the outstanding voting stock of the corporation not owned by the Interested Stockholder. The Delaware Takeover Statute defines the term "Business Combination" to encompass a wide variety of transactions with or caused by an Interested Stockholder in which the Interested Stockholder receives or could receive a benefit on other than a pro rata basis with other stockholders, including mergers, certain asset sales, certain issuances of additional shares to the Interested Stockholder, transactions with the corporation which increase the proportionate interest of the Interested Stockholder, or transactions in which the Interested Stockholder receives certain other benefits. DESCRIPTION OF CREDIT FACILITY Effective on January 11, 1994, the Company entered into a new $60 million revolving credit and letter of credit facility (the "New Credit Agreement"), with a syndicate of banks (the "Banks"). The agent for the Banks (the "Agent") is Chemical Bank. Capitalized terms used in this description of the New Credit Agreement and not defined herein have the meanings assigned to them in the New Credit Agreement. The terms of the New Credit Agreement are summarized below: 51 Borrowing Availability and Termination Date. Under the New Credit Agreement, loans may be made to the Company and letters of credit may be issued at the request of the Company for an aggregate amount of the lesser of (i) $60 million, or (ii) the Borrowing Base (the sum of 85% of Eligible Billed Accounts Receivable plus 30% of Unbilled Accounts Receivable) as reduced by outstanding additional permitted indebtedness. If the Company sells assets other than in the ordinary course of business while the New Credit Agreement is in effect, the borrowing availability will be reduced by one-half of the net proceeds from each sale; provided, however, that there will be no reduction for the first $10 million in aggregate net proceeds. The New Credit Agreement terminates on October 31, 1996. Interest. The New Credit Agreement contains Eurodollar and Alternate Base Rate ("ABR") options, with applicable margins depending on the Company's ratio of (i) Consolidated Net Income plus Consolidated Interest Expense and income taxes to (ii) Consolidated Interest Expense. Fees. The Company pays certain fees and commissions to the Banks, including a commitment fee of 1/2% per annum on the unused portion of the facility. Outstanding letters of credit bear a fee equal to the Eurodollar applicable margin in effect over the payment period. Collateral. Advances under the New Credit Agreement are secured on a first priority basis by a pledge of all of the billed and unbilled accounts of the Company and certain of its subsidiaries, as well as certain other tangible and intangible assets of the Company and certain of its subsidiaries. Subsidiary Guarantees. Certain subsidiaries of the Company (the "Subsidiary Guarantors") entered into a joint and several guarantee of the Company's payment obligations under the New Credit Agreement. Each of the Subsidiary Guarantors also agreed to a number of covenants in favor of the Agent, including covenants (each with specified exceptions) (i) not to create, incur or permit to exist any lien on its collateral, (ii) not to sell, transfer, lease or otherwise dispose of any of its collateral, (iii) not to amend, modify, terminate or waive any provision of any agreement giving rise to an Account (as defined in the New Credit Agreement) in a manner that could have a materially adverse effect upon the value of the Account as collateral, and (iv) not to grant discounts, compromises or extensions of Accounts except in the ordinary course of business. Financial Covenants. The New Credit Agreement contains financial covenants that require the Company to maintain certain financial ratios above or below specified limits, including, but not limited, to those described below. The Company covenants that it will not allow the ratios of (i) Adjusted Consolidated Net Income to Consolidated Fixed Charges (the "Fixed Charge Coverage Ratio") and (ii) (x) Consolidated Net Income plus Consolidated Interest Expense and income taxes to (y) Consolidated Interest Expense (the "Interest Coverage Ratio"), computed on a consolidated, rolling four quarters basis to be less than those set forth below:
FIXED CHARGE COVERAGE TIME PERIOD RATIO ----------- ------------ 1/11/94 - 8/31/94 1.00:1.00 9/1/94 - 8/31/95 1.05:1.00 Thereafter 1.10:1.00
INTEREST COVERAGE TIME PERIOD RATIO ----------- --------- 1/11/94 - 2/28/94 1.05:1.00 3/1/94 - 8/31/94 1.10:1.00 9/1/94 - 8/31/95 1.20:1.00 Thereafter 1.30:1.00
52 The Company also covenants that it will not allow the ratio of Consolidated Funded Indebtedness to Consolidated Capital Funds Ratio, on a consolidated, quarterly basis to exceed those set forth below:
CONSOLIDATED FUNDED INDEBTEDNESS TO CONSOLIDATED TIME PERIOD CAPITAL FUNDS RATIO ----------- ------------------- 1/11/94 - 5/31/94 0.76:1.00 6/1/94 - 11/30/94 0.75:1.00 12/1/94 - 8/31/95 0.74:1.00 9/1/95 - 2/28/96 0.73:1.00 Thereafter 0.72:1.00
Under the New Credit Agreement, the Company and its subsidiaries agree not to assume, incur or create any debt except for (i) debt incurred in conjunction with the issuance of the Notes, (ii) debt under the New Credit Agreement, (iii) up to $10 million in additional debt (to the extent the Company has unused Borrowing Base), and (iv) certain other debt specified in the New Credit Agreement. Restrictive Covenants. The New Credit Agreement contains certain negative covenants and restrictions customary for such a facility, including, without limitation, restrictions on (i) the creation of liens, (ii) mergers and other extraordinary transactions, (iii) transactions with affiliates and (iv) sale of assets. Investments in project-related joint ventures will be limited to $500,000 in any 12-month period, and investments in project-finance ventures will be limited to an aggregate of $12.5 million. In addition, the New Credit Facility limits other acquisitions and investments to an aggregate of $5 million (plus the net cash proceeds from dispositions of acquisitions and investments made after Januay 11, 1994), with any individual acquisition or investment not to exceed $2 million. In addition, with certain exceptions, the Company is not permitted to declare or pay any dividend on its capital stock (other than dividends payable solely in common stock or rights or other equity securities (not including preferred stock) of the Company), or pay for the purchase, redemption, retirement or other acquisition of any shares of any class of the Company's stock, or make any distribution in respect thereof (such declaration, payments and other above-referenced transactions hereinafter referred to as "Restricted Payments"). Permitted Restricted Payments include (i) dividends on capital stock in amounts which, together with certain permitted redemptions of common stock, do not exceed the sum of the aggregate amount received by the Company from the issuance of capital stock after January 11, 1994 and 20% of Consolidated Net Income for the period commencing September 1, 1993 and (ii) certain preferred stock dividends, provided that, after giving effect to such Restricted Payments, no Default or Event of Default will be in existence. The Company's Subsidiaries may make Restricted Payments to the Company at any time. Events of Default. The New Credit Agreement will provide for various events of default customary for such a facility, including, among others: (i) the failure to make any payment of principal of, interest on, or any other amount owing in respect of any obligation under the New Credit Agreement when due and payable; (ii) the breach of certain of the covenants and restrictive covenants contained in the New Credit Agreement; (iii) the failure by the Company or any of its subsidiaries to make a required payment of principal of, interest on, or under a guarantee obligation with respect to, any indebtedness in excess of $1 million (other than indebtedness incurred pursuant to the New Credit Agreement); (iv) the failure of the Company to observe or perform any other condition or agreement relating to indebtedness or guarantee obligation in excess of $1 million, where such failure gives the holders the right to accelerate payment thereof; (v) the occurrence of certain events of insolvency or bankruptcy (voluntary or involuntary); (vi) the entering of one or more judgments or decrees against the Company or any of its subsidiaries involving an aggregate liability in excess of $1 million that is not or are not fully paid, covered by insurance, vacated, discharged or stayed pending appeal within 60 days of entry; and (vii) the suspension of the Company or any of its subsidiaries by an agency or branch of the government, but only if aggregate gross revenues no longer accruing to the Company or a subsidiary as a result of the suspended contract shall be at least $10 million. In addition, a Change of Control 53 (as such term is defined in the Indenture governing the Notes) will be an event of default (i) one day before the Indenture requires the Company to purchase the Notes following a Change of Control, or (ii) 89 days after the Change of Control occurs, whichever occurs first. Other Provisions. Affirmative covenants of the Company and its subsidiaries include the obligations to pay all their material obligations at or before maturity. The Company is also required to continue, and to cause its subsidiaries to continue, to engage in businesses of the same general type as now conducted. PLAN OF DISTRIBUTION The Company is offering the Common Stock covered by this Prospectus for sale upon the exercise of the Warrants. The Company does not anticipate engaging the services of any underwriters, brokers or dealers in connection with the distribution of the Common Stock offered hereby. LEGAL MATTERS The legality of the securities offered hereby will be passed upon for the Company by Paul Weeks, II, Esq., Senior Vice President, General Counsel, and Secretary of ICF Kaiser International, Inc. As of January 12, 1994, Mr. Weeks was the beneficial owner of 54,293 shares of the Common Stock (including 19,667 shares that may be acquired upon the exercise of stock options). EXPERTS The Consolidated Financial Statements of ICF Kaiser International, Inc. and subsidiaries as listed herein on page F-1, except for the interim financial statements, have been included herein in reliance on the reports of Coopers & Lybrand, independent accountants, given upon their authority as experts in auditing and accounting. 54 ICF KAISER INTERNATIONAL, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Consolidated Financial Statements: Report of Independent Accountants....................................... F-2 Consolidated Balance Sheets--February 28, 1993, February 29, 1992 and November 30, 1993 (unaudited).......................................... F-3 Consolidated Statements of Operations--For the Years Ended February 28, 1993, February 29, 1992, and February 28, 1991 and the Nine Months ended November 30, 1993 and 1992 (unaudited)........................... F-4 Consolidated Statements of Shareholders' Equity--For the Years Ended February 28, 1993, February 29, 1992, and February 28, 1991 and the Nine Months ended November 30, 1993 and 1992 (unaudited)............... F-5 Consolidated Statements of Cash Flows--For the Years Ended February 28, 1993, February 29, 1992, and February 28, 1991 and the Nine Months ended November 30, 1993 and 1992 (unaudited)........................... F-6 Notes to Consolidated Financial Statements.............................. F-7
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders ICF Kaiser International, Inc. We have audited the accompanying consolidated balance sheets of ICF Kaiser International, Inc. and Subsidiaries, formerly ICF International, Inc., as of February 28, 1993 and February 29, 1992, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended February 28, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of ICF Kaiser International, Inc. and Subsidiaries as of February 28, 1993 and February 29, 1992 and the consolidated results of their operations and their cash flows for each of the three years in the period ended February 28, 1993 in conformity with generally accepted accounting principles. As discussed in Note J to the consolidated financial statements, the Company changed its method of accounting for income taxes for the year ended February 29, 1992. Coopers & Lybrand Washington, D.C. April 30, 1993 F-2 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
NOVEMBER 30, FEBRUARY 28, FEBRUARY 29, 1993 1993 1992 ------------ ------------ ------------ (UNAUDITED) ASSETS Current Assets Cash and cash equivalents............. $ 22,416 $ 8,445 $ 8,516 Contract receivables, net............. 133,983 160,681 152,416 Prepaid expenses and other current assets............................... 19,418 21,503 21,095 Refundable income taxes............... 1,090 1,294 2,230 Deferred income taxes................. 12,045 12,553 14,542 Net current assets of business held for disposition...................... -- -- 4,226 -------- -------- -------- Total Current Assets................ 188,952 204,476 203,025 -------- -------- -------- Fixed Assets Furniture, equipment and leasehold improvements......................... 40,923 40,120 41,381 Less allowances for depreciation and amortization......................... 24,335 20,440 17,730 -------- -------- -------- 16,588 19,680 23,651 -------- -------- -------- Other Assets Goodwill, net......................... 52,379 53,896 55,791 Investments in and advances to affiliates........................... 5,233 2,207 19,488 Due from officers and employees....... 1,301 1,361 1,108 Other................................. 14,004 13,958 15,884 -------- -------- -------- 72,917 71,422 92,271 -------- -------- -------- $278,457 $295,578 $318,947 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable and accrued expenses. $ 47,287 $ 60,192 $ 66,051 Accrued salaries and employee benefits............................. 23,465 25,804 24,501 Current portion of long-term liabilities.......................... 2,850 5,276 7,187 Income taxes payable.................. 735 1,448 2,361 Deferred revenue...................... 12,774 13,804 23,388 Other................................. 9,126 10,107 13,472 -------- -------- -------- Total Current Liabilities........... 96,237 116,631 136,960 -------- -------- -------- Long-term Liabilities, less current por- tion Long-term debt........................ 46,474 39,115 49,145 Subordinated debt..................... 30,000 30,000 30,000 Other................................. 3,325 6,487 6,530 -------- -------- -------- 79,799 75,602 85,675 -------- -------- -------- Commitments and Contingencies Redeemable Preferred Stock.............. 44,445 44,824 45,161 Preferred Stock......................... 6,900 6,900 6,900 Common Stock, par value $.01 per share: Authorized--90,000,000 shares Issued and outstanding--20,891,052, 21,303,807 and 18,270,652 shares..... 209 213 182 Additional Paid-in Capital.............. 62,351 65,040 64,382 Notes Receivable Related to Common Stock.................................. (1,732) (2,725) (3,387) Retained Earnings (Deficit)............. (6,152) (4,206) (7,552) Cumulative Translation Adjustment....... (1,933) (1,701) (1,041) ESOP Guaranteed Bank Loan............... (1,667) (5,000) (8,333) -------- -------- -------- $278,457 $295,578 $318,947 ======== ======== ========
See notes to consolidated financial statements. F-3 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED NOVEMBER 30, YEAR ENDED FEBRUARY 28, -------------------- ------------------------------- 1993 1992 1993 1992 1991 --------- --------- --------- --------- --------- (UNAUDITED) REVENUE Gross revenue.......... $ 454,069 $ 527,961 $ 678,882 $ 710,873 $ 624,976 Subcontract and direct material costs........ (180,942) (238,836) (299,606) (337,056) (269,846) Equity in income of joint ventures and affiliated companies.. 3,355 4,447 5,709 6,009 8,188 --------- --------- --------- --------- --------- Service revenue....... 276,482 293,572 384,985 379,826 363,318 OPERATING EXPENSES Direct cost of services and overhead.......... 215,187 222,000 292,005 291,237 269,020 Administrative and general expense....... 45,223 43,036 58,184 56,339 49,573 Depreciation and amortization.......... 7,352 8,294 10,766 9,159 11,438 Costs of restructuring and disposal of businesses, net....... -- 1,336 1,336 73,354 -- Unusual item, net...... 500 1,400 (50) (6,300) -- --------- --------- --------- --------- --------- Operating income (loss)............... 8,220 17,506 22,744 (43,963) 33,287 OTHER INCOME (EXPENSE) Loss on sale of investment............ -- -- (929) -- -- Interest income........ 1,116 1,322 1,708 1,931 1,995 Interest expense--core businesses............ (5,089) (6,550) (8,629) (10,778) (11,264) Interest expense-- discontinued businesses............ -- -- -- (1,500) -- --------- --------- --------- --------- --------- Income (loss) before income tax........... 4,247 12,278 14,894 (54,310) 24,018 Income tax provision (benefit)............. 2,208 5,157 6,255 (13,794) 9,727 --------- --------- --------- --------- --------- Net income (loss)..... 2,039 7,121 8,639 (40,516) 14,291 Preferred stock dividends............. 3,770 3,770 5,026 2,203 857 --------- --------- --------- --------- --------- Net income (loss) available for common shareholders......... $ (1,731) $ 3,351 $ 3,613 $ (42,719) $ 13,434 ========= ========= ========= ========= ========= Net income (loss) per common share Primary................ $ (0.09) $ 0.15 $ 0.16 $ (2.25) $ 0.71 Fully diluted.......... $ (0.09) $ 0.15 $ 0.16 $ (2.25) $ 0.68
See notes to consolidated financial statements. F-4 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
NINE MONTHS ENDED YEAR ENDED FEBRUARY 28, NOVEMBER 30 ------------------------- 1993 1993 1992 1991 ----------------- ------- ------- ------- (UNAUDITED) SERIES 1 JUNIOR CONVERTIBLE PRE- FERRED STOCK Balance at beginning of year.... $ 6,900 $ 6,900 $ 6,900 $ -- Issuance of 69 shares........... -- -- -- 6,900 ------- ------- ------- ------- Balance at end of year.......... $ 6,900 $ 6,900 $ 6,900 $ 6,900 ======= ======= ======= ======= COMMON STOCK Balance at beginning of year.... $ 213 $ 182 $ 185 $ 174 Issuance of shares (105,740 in 1993, 1,131,620 in 1992 and 281,852 in 1991)............... -- 1 11 3 Issuance of 197,713 shares...... 2 -- -- -- Repurchase of shares (44,434 in 1993, 954,961 in 1992 and 1,342,788 in 1991)............. -- 0 (9) (13) Repurchase of 610,468 shares.... (6) -- -- -- Issuance of shares to benefit plans (1,344,123 in 1992 and 666,666 in 1991)............... -- -- 13 6 Issuance of shares in connection with acquisitions (1,222,826 in 1992 and 1,494,980 in 1991).... -- -- 12 15 Exchange of 2,975,542 shares of Class A Common Stock for Series 3 Preferred Stock....... -- -- (30) -- Conversion of Series 3 Preferred Stock into 2,971,849 shares.... -- 30 -- -- ------- ------- ------- ------- Balance at end of year.......... $ 209 $ 213 $ 182 $ 185 ======= ======= ======= ======= ADDITIONAL PAID-IN CAPITAL Balance at beginning of year.... $65,040 $64,382 $55,358 $40,780 Increase in connection with issuances...................... 913 619 5,541 2,771 Decrease in connection with re- purchases...................... (3,716) (354) (15,169) (14,950) Increase in connection with ac- quisitions..................... -- -- 6,789 20,337 Increase in connection with is- suance to benefit plans........ -- -- 10,376 6,251 Tax effect from the excercise of non-qualified stock options.... -- 559 983 -- Other........................... 114 (166) 504 169 ------- ------- ------- ------- Balance at end of year.......... $62,351 $65,040 $64,382 $55,358 ======= ======= ======= ======= NOTES RECEIVABLE RELATED TO COM- MON STOCK Balance at beginning of year.... $(2,725) $(3,387) $ (911) $ (544) Common stock issued in exchange for notes receivable........... -- -- (2,476) (367) Payments received on notes re- ceivable....................... 993 662 -- -- ------- ------- ------- ------- Balance at end of year.......... $(1,732) $(2,725) $(3,387) $ (911) ======= ======= ======= ======= RETAINED EARNINGS (DEFICIT) Balance at beginning of year.... (4,206) $(7,552) $35,380 $21,978 Net income (loss)............... 2,039 8,639 (40,516) 14,291 Preferred stock dividends....... (3,770) (5,026) (2,203) (857) Preferred stock accretion....... (202) (267) (213) -- Other........................... (13) -- -- (32) ------- ------- ------- ------- Balance at end of year.......... $(6,152) $(4,206) $(7,552) $35,380 ======= ======= ======= ======= CUMULATIVE TRANSLATION ADJUSTMENT Balance at beginning of year.... (1,701) $(1,041) $ (260) $ -- Current year adjustment......... (232) (660) (781) (260) ------- ------- ------- ------- Balance at end of year.......... $(1,933) $(1,701) $(1,041) $ (260) ======= ======= ======= ======= ESOP GUARANTEED BANK LOAN Balance at beginning of year.... (5,000) $(8,333) $(7,813) $(4,429) (Increase) decrease in loan bal- ance........................... 3,333 3,333 (520) (3,384) ------- ------- ------- ------- Balance at end of year.......... $(1,667) $(5,000) $(8,333) $(7,813) ======= ======= ======= =======
See notes to consolidated financial statements F-5 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
NINE MONTHS ENDED NOVEMBER 30, YEAR ENDED FEBRUARY 28, ------------------ ---------------------------- 1993 1992 1993 1992 1991 -------- -------- -------- -------- -------- (UNAUDITED) OPERATING ACTIVITIES Net income (loss).......... $ 2,039 $ 7,121 $ 8,639 $(40,516) $ 14,291 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.............. 7,352 8,294 10,766 9,159 11,438 Provision for losses on accounts receivable....... 1,677 1,244 2,202 4,359 1,667 Provision for deferred income taxes.............. 508 5,157 4,311 (13,925) (4,219) Earnings less than (in excess of) cash distributions from joint ventures and affiliated companies................. (1,943) (4,029) (3,690) (1,539) 876 Loss on sale of investment. -- -- 929 -- -- Increase (decrease) in provision for restructuring and disposal of businesses, net of cash...................... -- (6,551) (6,426) 52,289 -- Unusual items.............. -- 1,400 (50) (6,300) -- Changes in operating assets and liabilities related to operating activities, net of dispositions: Contract receivables...... 25,021 (8,773) (15,263) (23,017) (24,091) Prepaid expenses and other current assets........... 2,432 51 2,655 (1,558) (4,936) Other assets.............. (902) 54 (257) 1,532 (16,452) Accounts payable and accrued expenses......... (16,501) (17,858) (8,622) 31,222 3,496 Income taxes payable...... (290) 271 6 (3,522) 4,400 Deferred revenue.......... (1,030) 2,339 (9,251) 13,898 2,623 Other liabilities......... (4,042) (9,024) (2,505) (4,409) (4,835) -------- -------- -------- -------- -------- Net Cash Provided by (Used in) Operating Activities.. 14,321 (20,304) (16,556) 17,673 (15,742) -------- -------- -------- -------- -------- INVESTING ACTIVITIES Sales of subsidiaries and affiliates................ -- 5,894 35,695 3,965 -- Investments in subsidiaries and affiliates, net of cash...................... (2,381) (1,146) (1,146) (2,515) (21,365) Purchases of fixed assets, net....................... (876) (3,563) (4,638) (3,644) (5,629) Other investing activities. -- 439 387 258 (502) -------- -------- -------- -------- -------- Net Cash Provided by (Used in) Investing Activities.. (3,257) 1,624 30,298 (1,936) (27,496) -------- -------- -------- -------- -------- FINANCING ACTIVITIES Proceeds from borrowings... 10,000 34,748 34,357 35,108 78,137 Principal payments......... (1,734) (14,590) (42,965) (58,925) (57,384) Proceeds from (used in) common stock transactions. (1,814) 132 130 (7,425) (5,410) Proceeds from sales of redeemable preferred stocks.................... (800) (800) -- 19,500 23,470 Proceeds from sales of Series 1 Junior Convertible Preferred..... -- -- -- -- 6,900 Redemption of redeemable Preferred Stock........... -- -- (799) (800) (799) Preferred stock dividends.. (2,513) (2,623) (3,876) (3,283) (804) -------- -------- -------- -------- -------- Net Cash Provided by (Used in) Financing Activities.. 3,139 16,867 (13,153) (15,825) 44,110 -------- -------- -------- -------- -------- Effect of Exchange Rate Changes on Cash........... (232) (275) (660) (781) (260) -------- -------- -------- -------- -------- Increase (Decrease) in Cash and Cash Equivalents...... 13,971 (2,088) (71) (869) 612 Cash and Cash Equivalents at Beginning of Period.... 8,445 8,516 8,516 9,385 8,773 -------- -------- -------- -------- -------- Cash and Cash Equivalents at End of Period.......... $ 22,416 $ 6,428 $ 8,445 $ 8,516 $ 9,385 ======== ======== ======== ======== ======== SUPPLEMENTAL INFORMATION: Cash payments for interest. $ 9,242 $ 7,456 $ 9,447 $ 12,313 $ 10,805 Cash payments (refunds) for income taxes.............. 14 (176) (416) 7,219 7,120 Increase (decrease) of ESOP guaranteed bank loan...... (3,333) (3,333) (3,333) 520 3,384 Common stock issued to retirement plan........... -- -- -- 5,287 --
See notes to consolidated financial statements. F-6 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION RELATING TO THE NINE MONTHS ENDED NOVEMBER 30, 1993 AND 1992 IS UNAUDITED) NOTE A--ORGANIZATION ICF Kaiser International, Inc., formerly known as ICF International, Inc. ("ICF Kaiser" or the "Company"), was formed on October 19, 1987, as the holding company for ICF Incorporated and the family of companies developed around ICF Incorporated since its inception (1969). These companies provide consulting, engineering, and program and construction management services primarily to the environmental, infrastructure, industrial, and energy markets both in the United States and abroad. NOTE B--SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include all majority-owned subsidiaries of ICF Kaiser. Investments in joint ventures and affiliated companies are accounted for using the equity method. All significant intercompany accounts and transactions have been eliminated. As discussed in Note C, the consolidated financial statements reflect a provision related to the restructuring and disposal of certain businesses. The disposal of businesses under the restructuring program was completed in fiscal 1993. At February 29, 1992, the net current assets of the businesses discontinued under the restructuring plan are separately reflected as a component of current assets and the estimated net realizable value of the non-current assets of these businesses, net of a provision for future operating losses and other restructuring provisions, is reflected as a component of other long-term assets. The costs of restructuring and disposal of businesses include the net of revenue and operating expenses of the discontinued businesses and estimated future losses of such businesses. Interim Financial Information: The financial information presented as of November 30, 1993 and for the nine-month periods ended November 30, 1993 and 1992 is unaudited but has been prepared in accordance with generally accepted accounting principles for interim financial information. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Shareholders' Equity: On June 27, 1992, the shareholders adopted amendments to ICF Kaiser's Certificate of Incorporation which reclassified all of the Class B Common Stock authorized, issued, and outstanding at that time into shares of Class A Common Stock, thereby placing all of ICF Kaiser's common stock into a single class, which was renamed "Common Stock". The accompanying financial statements reflect the combination of the 7,670,529 shares of Class B Common Stock issued and outstanding on June 27, 1992 into Class A Common Stock as if the reclassification and renaming had occurred at the beginning of the periods presented. There were 9,925,811 shares of Class A and 8,344,841 shares of Class B issued and outstanding at February 29, 1992. Following implementation of these amendments, the then-outstanding shares of Series 3 Junior Convertible Preferred Stock automatically converted into 2,799,523 shares of ICF Kaiser Common Stock. Revenue Recognition: Revenue is recorded on cost-type contracts as costs are incurred. Revenue on time-and-materials contracts is recognized to the extent of billable rates times hours delivered plus materials expense incurred. Long- term fixed-price contracts generally are accounted for under percentage-of- completion methods, and revenue includes a proportion of the earnings expected to be realized in the ratio that costs incurred bear to estimated total costs. Foreign Currency Translation: Results of operations for foreign entities are translated using the average exchange rates during the period. Assets and liabilities are translated to U. S. dollars using the exchange rate in effect at the balance sheet date. Resulting translation adjustments are reflected in shareholders' equity as cumulative translation adjustment. F-7 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION RELATING TO THE NINE MONTHS ENDED NOVEMBER 30, 1993 AND 1992 IS UNAUDITED) Cash and Cash Equivalents: ICF Kaiser considers all highly liquid financial instruments purchased with maturities of three months or less to be cash equivalents. At November 30, 1993 and February 28, 1993, other current assets include $1,833,000 and $4,606,000, respectively of restricted cash and short- term investments which primarily supports a letter of credit for one of ICF Kaiser's subsidiaries. Statement of Cash Flows: The consolidated statements of cash flows are prepared on a basis which separately reflects transactions related to the discontinued businesses. Included in adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities are non-cash expenses of the continuing businesses and the non-cash activity related to the provision for restructuring and disposal of businesses. Fixed Assets: Furniture and equipment are carried at cost, or assigned value if acquired through a purchase of a business, and are depreciated using the straight-line method over their estimated useful lives ranging from three to ten years. Leasehold improvements are carried at cost and are amortized using the straight-line method over the remaining lease term. Goodwill: Goodwill represents the excess of cost over the fair value of the net assets of acquired businesses and is amortized using the straight-line method over periods ranging from five to forty years. Accumulated amortization was $8,664,000, $7,147,000 and $5,584,000 at November 30, 1993, February 28, 1993 and February 29, 1992, respectively. Income Taxes: ICF Kaiser uses the accrual method for income tax reporting purposes. Deferred income taxes are provided using the liability method on temporary differences between financial reporting and income tax reporting, which primarily relate to reserves for adjustments and allowances. If necessary, management records a valuation allowance for deferred tax assets that may not be realizable. ICF Kaiser adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, ("SFAS No. 109"), at the beginning of fiscal 1992 (see Note J). Post-Employment Benefits: Effective March 1, 1993, ICF Kaiser adopted Statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions ("SFAS No. 106"). Prior to the adoption of SFAS No. 106, ICF Kaiser had been recognizing the cost of postretirement benefits when paid. ICF Kaiser provides certain benefits, primarily health insurance, to a limited group of retirees (and their spouses) who joined ICF Kaiser through an acquisition. The cost of the postretirement benefits is funded when paid and limited to a fixed amount per retiree or spouse per month. All service cost related to these benefits has been included in the Company's transition obligation. The Company has elected the prospective transition method of recognizing these postretirement benefit expenses. Under this method, the Company's $14.2 million accumulated postretirement benefit obligation at March 1, 1993 is being amortized over 14.5 years, the average remaining life expectancy of the retirees and their spouses. A discount rate of 7% was used to determine the accumulated postretirement benefit obligation. The Company's ongoing expense under SFAS No. 106 includes the interest component and the amortization of the transition obligation, which was approximately $1,425,000 for the nine months ended November 30, 1993. Under the previous method of accounting for postretirement benefits, $1,695,000, $1,418,000 and $1,618,000 were included in expense in fiscal years 1993, 1992 and 1991, respectively. Approximately $1,174,000 was included in expense for the nine months ended November 30, 1992. Net Income (Loss) Per Common Share: Net income (loss) per common share is computed using net income available to common shareholders, as adjusted under the modified treasury stock method, and the weighted average number of common stock and common stock equivalents outstanding during the periods presented. Common stock equivalents include stock options and warrants and the potential conversion of convertible preferred stock. For the nine months ended November 30, 1993, and fiscal 1993 and 1992, the F-8 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION RELATING TO THE NINE MONTHS ENDED NOVEMBER 30, 1993 AND 1992 IS UNAUDITED) adjustments that would be required by the modified treasury stock method to net income (loss) available for common shareholders and to weighted average number of shares were anti-dilutive and therefore excluded from earnings per share computations. In computing earnings per share, net income (loss) available to common shareholders was adjusted for the amortization of discounts on senior preferred stock. Primary earnings per share was based on 21,272,000, 19,085,000, and 19,289,000 shares in fiscal years 1993, 1992, and 1991, respectively, and fully diluted earnings per share was based on 21,272,000, 19,085,000, and 20,308,000 shares in fiscal years 1993, 1992, and 1991, respectively. Primary and fully diluted earnings per share were based on 20,881,000 and 21,259,000 shares for the nine months ended November 30, 1993 and 1992, respectively. Concentrations of Credit Risk: The Company maintains cash balances primarily in overnight Eurodollar deposits and bank certificates of deposit. Short-term investments are U.S. Government securities having maturities of less than one year. ICF Kaiser grants uncollateralized credit to its customers. A large portion of ICF Kaiser's receivables are from the U.S. government (See Note E). In order to mitigate its credit risk to commercial customers, when practical, ICF Kaiser obtains advance funding of costs for industrial construction work. Reclassification: Certain reclassifications have been made to the fiscal 1993 financial statements to conform to the presentation used in fiscal 1994 financial statements, and to fiscal 1992 and 1991 financial statements to conform to the presentation used in fiscal 1993. NOTE C--RESTRUCTURING AND DISPOSAL OF BUSINESSES In fiscal 1993, ICF Kaiser completed its disposal of non-core businesses under a restructuring plan which began in the first quarter of fiscal 1992. The plan provided for the sale, liquidation, or other disposition of certain businesses outside of the Company's core businesses, and the consolidation of certain operations within the core businesses. The core businesses primarily provide a broad range of consulting, engineering, and program and construction management services in the environmental, infrastructure, industrial, and energy markets. The Company's non-core businesses disposed of under the plan included ICF Kaiser subsidiaries providing pharmaceutical industry research, health communications and consulting services, geophysical/seismic data processing services, and systems integration services. The original plan was modified in fiscal 1993 to provide for the sale of a health consulting business determined to be outside the Company's core businesses and to revise estimates of potential liabilities related to disposed businesses. The modification to the restructuring plan resulted in a net $1,336,000 charge in fiscal 1993 since the gain on the sale of the health consulting business was offset by revisions to the estimates of remaining potential liabilities relating to discontinued businesses. The charge for the cost of restructuring and disposal of businesses recorded in fiscal 1992 was $73.4 million ($52.4 million after tax), which provided for operating losses of discontinued businesses and losses on the disposal of those businesses included in the plan at that time, severance and other restructuring costs. In fiscal 1992, the Company allocated interest expense related to discontinued businesses on the accompanying statement of operations based on the imputed reduction in interest cost from the assumed sale of the discontinued businesses. NOTE D--ACQUISITIONS All of the businesses acquired by the Company during the three year period ended February 28, 1993 were treated as purchases for financial reporting purposes. Accordingly, the consolidated statements of F-9 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION RELATING TO THE NINE MONTHS ENDED NOVEMBER 30, 1993 AND 1992 IS UNAUDITED) operations include the operations of the acquired companies from the date of acquisition. The excess of the purchase price over the fair value of the assets and liabilities for these transactions is reflected as goodwill in the accompanying balance sheet. In July 1990, ICF Kaiser acquired all of the outstanding stock of Kaiser Engineers Australia Pty. Ltd. ("KEA") that it did not already own for $10.5 million paid in the form of 617,500 shares of ICF Kaiser Common Stock. Prior to this purchase, the Company had a 50 percent interest in KEA. In June 1991, in accordance with the provisions of the agreement, ICF Kaiser repurchased these shares for $10.5 million. The Company's proportionate share of the fair value of the assets acquired and liabilities assumed was $12,372,000 and $7,833,000, respectively. NOTE E--CONTRACT RECEIVABLES
NINE MONTHS ENDED YEAR ENDED FEBRUARY 28, NOVEMBER 30, ----------------------- 1993 1993 1992 ----------------- ----------- ----------- (UNAUDITED) (IN THOUSANDS) U.S. government agencies: Currently due................... $ 25,340 $ 28,563 $ 30,374 Retention....................... 2,302 2,182 2,383 Unbilled........................ 33,172 28,285 26,864 -------- ----------- ----------- 60,814 59,030 59,621 -------- ----------- ----------- Commercial clients and state and municipal governments: Currently due................... 59,474 73,539 78,802 Retention....................... 6,122 9,590 6,834 Unbilled........................ 17,389 27,499 16,520 -------- ----------- ----------- 82,985 110,628 102,156 -------- ----------- ----------- 143,799 169,658 161,777 Less allowances for uncollectible receivables and other adjust- ments............................ 9,816 8,977 9,361 -------- ----------- ----------- $133,983 $ 160,681 $ 152,416 ======== =========== ===========
U.S. government receivables arise from U.S. government prime contracts and subcontracts. Unbilled receivables result from revenues which have been earned but were not billed as of the end of the year. The unbilled receivables can be invoiced at contractually defined intervals upon completion of cost-type contracts for government agencies, completion of federal government overhead audits, upon attaining certain milestones under fixed-price contracts, or upon completion of construction on certain projects. Generally, retention is not expected to be realized within one year; consistent with industry practice, these receivables are classified as current. Management anticipates that the remaining unbilled receivables will be substantially billed and collected in one year. F-10 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION RELATING TO THE NINE MONTHS ENDED NOVEMBER 30, 1993 AND 1992 IS UNAUDITED) NOTE F--JOINT VENTURES AND AFFILIATED COMPANIES ICF Kaiser has ownership interests ranging from 20% to 50% in certain joint ventures and affiliated companies that are engaged in the same general business as the Company. ICF Kaiser's investments in and advances to these joint ventures and affiliated companies is summarized as follows (in thousands):
OWNERSHIP INTEREST AT NOVEMBER 30, NOVEMBER 30, FEBRUARY 28, FEBRUARY 29, 1993 1993 1993 1992 ------------ ------------ ------------ ------------ (UNAUDITED) Gary PCI Ltd., LP.......... 50% $ 3,025 $ -- $ -- LIFAC North America........ 50% 1,914 1,914 1,212 KJK Joint Venture.......... 33% 3,414 1,735 (744) American Transit Consul- tants, Inc................ 33% (944) (883) (291) Acer Group Limited......... -- -- -- 17,846 Other...................... 20% to 50% 1,062 1,425 1,907 ------- ------ ------- 8,471 4,191 19,930 Less amounts classified within current assets..... 3,238 1,984 442 ------- ------ ------- $ 5,233 $2,207 $19,488 ======= ====== =======
In February 1993, ICF Kaiser sold its investment in Acer Group Limited for $17,250,000 resulting in a $929,000 pretax loss. Combined summarized unaudited financial information of all of ICF Kaiser's joint ventures and affiliated companies is as follows (in thousands):
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, 1993 1992 1991 ------------ ------------ ------------ Current assets........................... $ 22,466 $128,011 $126,335 Non-current assets....................... 20,761 32,788 45,245 Current liabilities...................... 20,630 105,271 101,415 Non-current liabilities.................. -- 28,323 28,287 Gross revenue............................ 226,944 442,142 336,228 Net income............................... 17,471 16,940 25,183
F-11 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION RELATING TO THE NINE MONTHS ENDED NOVEMBER 30, 1993 AND 1992 IS UNAUDITED) NOTE G--INDEBTEDNESS ICF Kaiser's indebtedness is as follows (in thousands):
NOVEMBER 30, FEBRUARY 28, FEBRUARY 29, 1993 1993 1992 ------------ ------------ ------------ (UNAUDITED) Revolving credit facility, average interest rate of 6.2% for the nine months ended November 30, 1993, 6.8% in fiscal 1993 and 8.7% in fiscal 1992.... $45,000 $35,000 $43,099 ESOP guaranteed notes, average interest rate of 6.9% for the nine months ended November 30, 1993, 7.2% in fiscal 1993 and 8.8% in fiscal 1992................ 1,667 5,000 8,333 Notes payable to current and former shareholders, principal and interest at varying rates and installments through February 1996.......................... 440 748 1,958 Other notes, principal and interest at varying rates and installments through February 2010.......................... 2,217 3,643 2,942 ------- ------- ------- Total................................. 49,324 44,391 56,332 Less current maturities................. 2,850 5,276 7,187 ------- ------- ------- Long-term debt........................ $46,474 $39,115 $49,145 ======= ======= =======
Scheduled maturities of long-term debt outstanding at February 28, 1993, are as follows: $5,276,000 in fiscal 1994, $37,821,000 in fiscal 1995, $663,000 in fiscal 1996, $40,000 in fiscal 1997, $32,000 in fiscal 1998 and $559,000 thereafter. At November 30, 1993, ICF Kaiser's principal working capital financing was a $107 million total revolving credit line provided by a consortium of banks. The same group of banks also provide ICF Kaiser with an Employee Stock Ownership Plan ("ESOP") credit facility (together, the "Credit Facility") of which $1.7 million is outstanding at November 30, 1993 and $5 million is outstanding at February 28, 1993. The margin on the interest payable under the Credit Facility decreases in future periods upon the achievement of certain levels of tangible net worth. The Company and certain of its subsidiaries, which are guarantors of the Credit Facility, granted the consortium of banks a security interest in accounts receivable and certain other general intangibles and pledged the capital stock of certain subsidiaries. The Credit Facility restricts the payment of cash dividends and requires the maintenance of specified financial ratios, levels of working capital, and levels of tangible net worth. At November 30, 1993 and February 28, 1993, ICF Kaiser had $27 million and $23 million, respectively of available credit under the Credit Facility. The Company repaid the Credit Facility with a portion of the proceeds from the issuance of the Units described below. On January 11, 1994, ICF Kaiser issued 125,000 Units, each unit consisting of $1,000 principal amount of the Company's newly issued 12% Senior Subordinated Notes due 2003 ("12% Notes") and 4.8 warrants, each to purchase one share of the Company's Common Stock at $5.00 per share. The warrants expire on December 31, 1998. Of the Units' net issue price of $121,487,500 ($125,000,000 less a $3,512,500 discount), $900,000 was allocated to the value of the 600,000 warrants and $120,587,500 to the 12% Notes. The net proceeds were used to retire the Company's 13.5% Senior Subordinated Notes ("13.5% Notes") at 114.17% ($34.3 million), to repurchase warrants issued in connection with the 13.5% Notes ($1.6 million), to repurchase its Series 1 Junior Convertible Preferred Stock and pay accrued dividends thereon ($5.1 million), to repurchase its Series 2C Senior Preferred Stock at 106.25% together with the Series 2C Warrants ($26.6 million), to repay the Company's current revolving credit facility ($45.0 million), and to repay, on behalf of F-12 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION RELATING TO THE NINE MONTHS ENDED NOVEMBER 30, 1993 AND 1992 IS UNAUDITED) the Company's ESOP, the outstanding balance on the ESOP loan ($1.7 million). The balance will be used for general corporate purposes. Since the revolving credit facility and 13.5% Notes were repaid with the proceeds from the Units, they are classified as long-term liabilities as of November 30, 1993 on the accompanying balance sheet. The early extinguishment of debt will result in an approximately $3.8 million after-tax extraordinary charge in the fourth quarter. Additionally, although not directly reducing net income, the premium related to the Company's exercise of its early repurchase rights on the Series 2C Senior Preferred Stock will reduce net income available for common shareholders by approximately $2.0 million in the fourth quarter. Upon issuance of the 125,000 Units discussed above, an amended $60 million revolving credit facility became effective (the "New Credit Facility"), amending the Company's previous credit facility, which was due to expire on September 30, 1994. The New Credit Facility is provided by a lead bank and a consortium of other banks with terms and covenants similar to those under the existing credit facility. The New Credit Facility expires on October 31, 1996 and contains Eurodollar and alternate base rate options with margins dependent upon the Company's financial operating results. At February 28, 1993, the Company's ESOP owned 2,656,084 shares of ICF Kaiser Common Stock, a percentage of which secure the ESOP portion of the Credit Facility. These shares were purchased from the proceeds of Company contributions and the ESOP portion of the Credit Facility. ICF Kaiser has guaranteed the ESOP portion of the Credit Facility and is obligated to contribute sufficient cash to the ESOP trust to repay this loan. As such, the ESOP loan is reflected in the Company's long-term debt with a corresponding reduction in equity. NOTE H--SUBORDINATED DEBT ICF Kaiser has outstanding $30,000,000 of 13.5% senior subordinated notes ("Subordinated Notes") and detachable common stock purchase warrants expiring May 15, 1999 for the purchase of 1,801,681 shares of ICF Kaiser Common Stock. The Subordinated Notes require interest payments semi-annually at 13.5% of the outstanding balance and five annual principal payments of $4.5 million beginning May 15, 1994, with the remaining $7.5 million principal due May 15, 1999. The obligations of ICF Kaiser are guaranteed by certain subsidiaries of ICF Kaiser ("Guarantors"). These obligations of the Company and the Guarantors are subordinate to their obligations under the Credit Facility. The warrants sold in connection with the Subordinated Notes are exercisable at any time for shares of ICF Kaiser Common Stock at $6.91 per share. Additional warrants may be issued under certain anti-dilution provisions. In connection with the issuance of the 13.5% Notes, ICF Kaiser and the Guarantors agreed to certain business and financial covenants including: restrictions on indebtedness, leases, dividends, and certain types of investments and asset sales; and the maintenance of certain financial ratios, including adjusted net worth at increasing levels over time. The 13.5% Notes may not be prepaid at the Company's option prior to May 15, 1996. Subsequent to that date, the Company may prepay the 13.5% Notes at a premium. Under certain circumstances, which include certain members of senior management decreasing their ownership of the Company's common stock or becoming less active in managing the Company, the 13.5% Notes are required to be prepaid with a substantial premium. ICF Kaiser's President and Chief Operating Officer resigned on April 26, 1993, which potentially creates such a circumstance. The holders of the 13.5% Notes have temporarily waived the consideration of a prepayment event. Such waiver expires on January 14, 1994. The Company retired the 13.5% Notes using the proceeds from the issuance of the Units discussed in Note G above. F-13 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION RELATING TO THE NINE MONTHS ENDED NOVEMBER 30, 1993 AND 1992 IS UNAUDITED) NOTE I--CONTINGENCIES Normally in the Company's business, various claims or charges are 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, which might be rendered against the Company in such litigation. The Company may from time to time be, either individually or in conjunction with other government contractors operating in similar types of businesses, 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 are presently known to have been filed against the Company by these agencies. The Company is unable to predict the outcome of the investigations in which it is currently involved. Management does not believe that there will be any material adverse effect on the Company's financial position as a result of these investigations. The Company has a substantial number of U.S. government contracts, the costs of which are subject to audit by the U.S. government. In one such audit, the government has asserted that certain costs claimed as reimbursable under government contracts were not allocated in accordance with government cost accounting standards. Management believes that the potential effect of disallowed costs, if any, for the periods currently under audit and for periods not yet audited has been adequately provided for and will not have a material adverse effect on the Company's financial position. ICF Kaiser had outstanding letters of credit in the amount of $11.2 million and $32.6 million at November 30, 1993, and February 28, 1993, respectively, principally in support of performance guarantees under certain contracts. ICF Kaiser is also the guarantor of several leasing arrangements involving U.S. government agencies and a former ICF Kaiser subsidiary. As of November 30, 1993, these leases totaled $6.1 million with expiration dates running through April 1997. F-14 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION RELATING TO THE NINE MONTHS ENDED NOVEMBER 30, 1993 AND 1992 IS UNAUDITED) NOTE J--INCOME TAXES The components of earnings (loss) before income taxes and the related provision (benefit) for income taxes is as follows (in thousands):
NINE MONTHS ENDED YEAR ENDED FEBRUARY 28, NOVEMBER 30, ------------------------- 1993 1993 1992 1991 ----------------- ------- -------- ------- (UNAUDITED) Earnings (loss) before income taxes: Domestic........................ $3,511 $13,362 $(60,058) $15,799 Foreign......................... 736 1,532 5,748 8,219 ------ ------- -------- ------- $4,247 $14,894 $(54,310) $24,018 ====== ======= ======== ======= Provision (benefit) for income taxes: Federal: Current........................ $1,122 $ 1,074 $ (2,041) $ 7,952 Deferred....................... 417 3,517 (11,261) (3,307) ------ ------- -------- ------- 1,539 4,591 (13,302) 4,645 ------ ------- -------- ------- State: Current........................ 234 420 (189) 1,921 Deferred....................... 91 794 (2,664) (912) ------ ------- -------- ------- 325 1,214 (2,853) 1,009 ------ ------- -------- ------- Foreign: Current........................ 344 450 2,361 4,073 ------ ------- -------- ------- $2,208 $ 6,255 $(13,794) $ 9,727 ====== ======= ======== =======
The tax effect of the principal significant temporary differences and carryforwards that give rise to the Company's deferred tax asset is as follows (in thousands):
NOVEMBER 30, FEBRUARY 28, FEBRUARY 29, 1993 1993 1992 ------------ ------------ ------------ (UNAUDITED) Bad debt reserve...................... $ 3,541 $ 4,141 $ 3,149 Vacation accrual...................... 2,022 2,991 2,995 Contract loss reserve................. 622 863 1,536 Insurance reserves.................... 1,898 1,368 988 Incentive compensation accrual........ 1,348 1,047 821 Tax operating loss carryforwards...... -- -- 3,185 Tax credit carryforwards.............. 1,247 1,247 1,400 Other................................. 1,367 896 468 ------- ------- ------- Total deferred tax benefit............ $12,045 $12,553 $14,542 ======= ======= =======
F-15 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION RELATING TO THE NINE MONTHS ENDED NOVEMBER 30, 1993 AND 1992 IS UNAUDITED) The effective income tax (benefit) rate varied from the federal statutory income tax rate over the last three years because of the following differences:
YEAR ENDED NINE MONTHS ENDED FEBRUARY 28, NOVEMBER 30, ------------------ 1993 1993 1992 1991 ----------------- ---- ----- ---- (UNAUDITED) Statutory tax rate (benefit)............. 34.0% 34.0% (34.0%) 34.0% ---- ---- ----- ---- Changes in tax rate (benefit) from: Differences between book and tax basis of businesses sold.................... -- (3.4) 8.6 -- State income taxes..................... 5.5 5.4 (1.6) 2.8 Goodwill amortization.................. 13.2 5.3 2.6 5.0 Foreign taxes.......................... (1.2) (1.4) 0.3 (1.5) Other.................................. 0.5 2.1 (1.3) 0.2 ---- ---- ----- ---- 18.0 8.0 8.6 6.5 ---- ---- ----- ---- 52.0% 42.0% (25.4%) 40.5% ==== ==== ===== ====
In fiscal 1993, ICF Kaiser reached a favorable settlement with the Internal Revenue Service ("IRS") on the examination of ICF Kaiser Engineers Group, Inc's. ("KEGI") income tax returns for 1977-1986. The IRS had previously completed its review of KEGI's 1987 and 1988 income tax returns without adjustment. As such, all years through 1988 are closed. In fiscal 1992, a foreign tax audit of a KEGI-controlled foreign corporation was resolved favorably for KEGI. These resolutions allowed the Company to adjust a portion of the amounts previously provided for in connection with the acquisition of KEGI and its subsidiaries. The resolution of these pre-acquisition contingencies has been reflected in unusual items in the accompanying statements of operations for fiscal 1993 and 1992 (see Note Q). Also, in fiscal 1993 ICF Kaiser reached an agreement with a former subsidiary to retain their net operating losses, which favorably reduced the effect of differences between the book and tax basis of the Company. Carryforwards of net operating losses, business credits, capital losses and foreign tax credits of acquired companies related to periods prior to their acquisition are greatly limited under Section 382 of the Internal Revenue Code. These carryforwards, to the extent utilized in the future, if any, will be treated as a reduction of goodwill. As discussed in Note B, ICF Kaiser adopted SFAS No. 109 effective March 1, 1991. The impact to ICF Kaiser of adopting SFAS No. 109 in fiscal 1992 was to increase the deferred tax benefit by $6.5 million. There was no cumulative impact resulting from the adoption of SFAS No. 109 as of the beginning of fiscal 1992, since all of the items giving rise to the additional benefit occurred in fiscal 1992, namely the costs associated with the restructuring. F-16 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION RELATING TO THE NINE MONTHS ENDED NOVEMBER 30, 1993 AND 1992 IS UNAUDITED) NOTE K--LEASES Future minimum payments on noncancelable operating leases for office space, and on other noncancelable operating leases with initial or remaining terms in excess of one year, were as follows on February 28, 1993 (in thousands):
YEAR ENDED OPERATING FEBRUARY 28 LEASES ----------- --------- 1994............................................................ $ 27,535 1995............................................................ 24,146 1996............................................................ 18,738 1997............................................................ 15,816 1998............................................................ 12,674 Thereafter...................................................... 48,285 -------- $147,194 ========
The total rental expense for all operating leases was $31,567,000, $32,582,000 and $28,213,000 in fiscal years 1993, 1992 and 1991, respectively, and $20,841,000, and $21,360,000 for the nine months ended November 30, 1993 and 1992, respectively. Sublease rental income was $1,435,000, $1,079,000 and $1,243,000 in fiscal years 1993, 1992 and 1991, respectively, and $1,600,000 and $626,000 for the nine months ended November 30, 1993 and 1992, respectively. Minimum future sublease rentals to be received under noncancelable subleases during fiscal 1994 are approximately $2,276,000. F-17 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION RELATING TO THE NINE MONTHS ENDED NOVEMBER 30, 1993 AND 1992 IS UNAUDITED) NOTE L--PREFERRED STOCK Preferred Stock of the Company is as follows (in thousands):
NOVEMBER 30, FEBRUARY 28, FEBRUARY 29, 1993 1993 1992 ------------ ------------ ------------ (UNAUDITED) Redeemable Preferred Stock (of Subsidiary) par value $0.01 per share; liquidation value $21,280,000; authorized 3,500,000 shares; issued and outstanding-- 700,000, 1,400,000 and 2,100,000 shares............................. $ 799 $ 1,599 $ 2,398 ------- ------- ------- Series 2C Senior Preferred Stock, par value $0.01 per share; liquidation value $25,000,000; 250 shares designated, issued and outstanding........................ 25,000 25,000 25,000 Less unamortized discount, warrant value, and issue costs........................ (716) (984) (1,342) ------- ------- ------- 24,284 24,016 23,658 ------- ------- ------- Series 2D Senior Preferred Stock, par value $0.01 per share; liquidation value $20,000,000; 200 shares designated, issued and outstanding........................ 20,000 20,000 20,000 Less unamortized discount, warrant value, and issue costs........................ (638) (791) (895) ------- ------- ------- 19,362 19,209 19,105 ------- ------- ------- Redeemable Preferred Stock.......... $44,445 $44,824 $45,161 ======= ======= ======= Series 1 Junior Convertible Preferred Stock, par value $0.01 per share; liquidation value $20,000,000; designated 200 shares; issued and outstanding--69 shares.. $ 6,900 $ 6,900 $ 6,900 Series 4 Junior Preferred Stock, par value $0.01 per share; liquidation value $500,000; designated 500,000; no shares outstanding (see Note M). -- -- -- ------- ------- ------- Preferred Stock..................... $ 6,900 $ 6,900 $ 6,900 ======= ======= =======
Redeemable Preferred Stock (of Subsidiary): In connection with the acquisition of KEGI, 3,500,000 shares of KEGI Series 1 Redeemable Preferred Stock were issued to the KEGI Employee Stock Plan Trust in partial consideration for ICF Kaiser's purchase of all of the outstanding shares of Series A and Series P Preferred Stock of KEGI. Dividends on these shares are $0.0685 per share per annum noncumulative, payable annually. 700,000 shares were redeemed during each of the fiscal years 1994, 1993, 1992 and 1991. One additional redemption is scheduled for September 30, 1994. These shares are callable by ICF Kaiser at any time through September 1994, at a price of $1.0817 per share as of February 28, 1993, and thereafter at a price adjusted to maintain a specified net present value. Senior Preferred Stock: In fiscal 1992, ICF Kaiser issued 250 shares of Series 2C Senior Preferred Stock (the "Series 2C Preferred Stock") with five- year detachable warrants expiring in December 1995 (the "Series 2C Warrants") in exchange for 250 shares of Series 2A Senior Preferred Stock with five-year detachable warrants. The Series 2C Warrants may be exercised for 2,976,190 shares of ICF Kaiser Common Stock at an exercise price of $8.40 per share. F-18 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION RELATING TO THE NINE MONTHS ENDED NOVEMBER 30, 1993 AND 1992 IS UNAUDITED) In conjunction with the issuance of the Series 2C Preferred Stock and Series 2C Warrants, ICF Kaiser also issued 200 shares of Series 2D Senior Preferred Stock (the "Series 2D Preferred Stock") together with five-year detachable warrants expiring in January 1997 (the "Series 2D Warrants") for a price of $20,000,000 (less a discount of $100,000). The Series 2D Warrants may be exercised for 2,680,952 shares of ICF Kaiser Common Stock at an exercise price of $8.40 per share. Of the net price of $19,900,000, $400,000 was allocated to the value of the warrants and $19,500,000 was allocated to the stock. Dividends on both the Series 2C Preferred Stock and the Series 2D Preferred Stock are $9,750 per share per annum, cumulative. Each of the shares has a liquidation preference of $100,000 ($45 million in aggregate). The issues carry voting rights equal to 2,173,913 and 2,380,952 shares of ICF Kaiser Common Stock, respectively. The Series 2C Preferred Stock and the Series 2D Preferred Stock may be redeemed at ICF Kaiser's option at 106.25% of the original price and are subject to mandatory redemption at liquidation value on December 20, 1995, and January 13, 1997, respectively. Additional warrants may be issued under certain anti-dilution provisions contained in the related agreements. The Company repurchased the Series 2C Preferred Stock and the Series 2C Warrants using a portion of the proceeds from the issuance of the Units described in Note G above. Series 1 Junior Convertible Preferred Stock: In July 1990, the Board designated 200 shares of preferred stock as Series 1 Junior Convertible Preferred Stock. Dividends on these shares are $9,250 per share per annum, cumulative, payable quarterly. Each of the shares has a liquidation preference of $100,000 ($20,000,000 in the aggregate, assuming all of the shares are issued); is convertible into 6,667 shares of ICF Kaiser Common Stock; and is entitled to one vote per share of ICF Kaiser Common Stock into which it is convertible. In addition, upon their issuance these shares were callable by the Company at a price of $109,250 per share; thereafter, these shares are callable at a price declining 1 percent per year to $100,000 per share on and after August 31, 2001. It is the Company's intention, and the holder has agreed, to repurchase the Series 1 Junior Convertible Preferred Stock using a portion of the proceeds from the issuance of the Notes described in Note G above. NOTE M--COMMON STOCK Notes Receivable Related to Common Stock: Notes receivable related to ICF Kaiser Common Stock pertain to the issuance of ICF Kaiser Common Stock in exchange for promissory notes from certain members of senior management in accordance with their compensation agreements. The notes are secured by shares of ICF Kaiser Common Stock. Shareholder Rights Plan: In fiscal 1992, the Board created a Shareholder Rights Plan ("Rights Plan"), which is designed to provide the Board with the ability to negotiate with a person or group that might, in the future, make an unsolicited attempt to acquire control of ICF Kaiser, whether through the accumulation of shares in the open market or through a tender offer which does not offer an adequate price. The Rights Plan provides for one Right ("Right") for each outstanding share of ICF Kaiser Common Stock and each share of ICF Kaiser Common Stock into which the Series 1 Preferred Stock is convertible. Each Right entitles the holder to purchase 1/100 of a share of Series 4 Junior Preferred Stock at a purchase price of $50. The Rights generally may cause substantial dilution to a person or group that attempts to acquire the Company on terms not approved by the Board. The Rights should not interfere with any merger or other business combination approved by the Board because the Board may, at its option, at any time prior to the tenth business day following the acquisition by any person or group of 20% of the shares of ICF Kaiser Common Stock, redeem the Rights upon payment of the redemption price of $0.01 per Right. The Rights are not triggered by the F-19 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION RELATING TO THE NINE MONTHS ENDED NOVEMBER 30, 1993 AND 1992 IS UNAUDITED) acquisition of beneficial ownership of more than 20% of ICF Kaiser Common Stock by the initial holder of the Series 2C and 2D Preferred Stock. Unless redeemed earlier by the Board, unexercised Rights expire on January 13, 2002. Common Stock Issued in Connection with Acquisitions: In fiscal 1992, ICF Kaiser issued an additional 500,000 shares of ICF Kaiser Common Stock to the seller of Primark Capital Group Inc., (renamed Health and Sciences Network, Inc.) to settle ICF Kaiser's obligation to repurchase ICF Kaiser Common Stock originally issued in the acquisition. ICF Kaiser also issued 123,022 shares and 202,042 options to purchase shares to the former shareholders of Cygna Group, Inc. in satisfaction of a provision in the agreement under which ICF Kaiser acquired this company. These transactions were charged to goodwill. NOTE N--STOCK OPTIONS The ICF Kaiser Stock Incentive Plan provides for the issuance of options, stock appreciation rights, restricted shares, and restricted stock units of up to an aggregate of 6,000,000 shares of ICF Kaiser Common Stock. Awards are made to employees of ICF Kaiser at the discretion of the Compensation Committee of the Board. The Plan provides that the option price is not to be less than the fair market value on the date of grant. In May 1992, the Company cancelled 570,000 options granted to employees at exercise prices of $14.32-$16.23 and granted an equal number of options to them at an exercise price of $8.25. Stock option activity under this Plan and other options granted for the last three years is as follows:
SHARES OPTION PRICE --------- --------------- Balance, March 1, 1990.............................. 1,296,000 $3.46 to $10.00 Granted............................................. 722,000 $9.29 to $14.46 Cancelled........................................... (20,000) $9.10 Expired............................................. (87,000) $6.07 to $12.83 Exercised........................................... (155,000) $3.46 to $ 9.51 --------- Balance, February 28, 1991.......................... 1,756,000 $3.46 to $14.46 Granted............................................. 950,000 $6.07 to $17.00 Cancelled........................................... (134,000) $6.07 to $16.23 Expired............................................. (95,000) $6.07 to $ 9.51 Exercised........................................... (605,000) $4.00 to $ 8.46 --------- Balance, February 29, 1992.......................... 1,872,000 $3.46 to $17.00 Granted............................................. 1,096,000 $5.99 to $ 9.59 Cancelled........................................... (653,000) $3.46 to $16.23 Expired............................................. (339,000) $6.07 to $16.23 Exercised........................................... (30,000) $8.25 --------- Balance, February 28, 1993.......................... 1,946,000 $5.99 to $17.00 Granted............................................. 382,000 $4.76 to $14.70 Cancelled........................................... (3,000) $8.25 Expired............................................. (26,000) $6.07 to $12.83 Exercised........................................... -- --------- Balance, November 30, 1993.......................... 2,299,000 $4.76 to $17.00 ========= Exercisable at November 30, 1993.................... 1,627,000 $5.04 to $17.00 =========
F-20 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION RELATING TO THE NINE MONTHS ENDED NOVEMBER 30, 1993 AND 1992 IS UNAUDITED) NOTE O--EMPLOYEE BENEFIT PLANS ICF Kaiser and certain of its subsidiaries sponsor several benefit plans covering substantially all employees who meet minimum length of service requirements. These plans include: the ICF Kaiser International, Inc. Retirement Plan ("Retirement Plan"), a defined contribution profit-sharing plan that provides for contributions by the Company based on a percentage of covered compensation; the ICF Kaiser International, Inc. Employee Stock Ownership Plan under which the Company made contributions in the form of cash; and a cash or deferred compensation arrangement 401(k) plan (the "401(k) Plan") which allowed employees to defer portions of their salary, subject to certain limitations, with no additional or matching contribution by the Company. The Company has contributed 4% of covered compensation to the ESOP. Effective March 1, 1993, the Company's contribution to the ESOP was changed to 2% of covered compensation and the Company will begin to match a percentage of eligible employee contributions to the 401(k) Plan for eligible employees. Total contributions to the Retirement Plan and the ESOP totaled $10,220,000, $10,440,000 and $10,973,000 for fiscal 1993, 1992 and 1991, respectively, and $6,349,000 and $7,346,000 for the nine months ended November 30, 1993 and 1992, respectively. NOTE P--BUSINESS SEGMENT, MAJOR CUSTOMERS AND FOREIGN OPERATIONS Business Segment: ICF Kaiser operates predominantly in one industry segment, in which it provides consulting, environmental, engineering, and other professional services. Major Customers: Gross revenue from major customers was as follows (in thousands):
NINE MONTHS ENDED NOVEMBER 30, YEAR ENDED FEBRUARY 28, ----------------------- -------------------------- 1993 1992 1993 1992 1991 ----------- ----------- -------- -------- -------- (UNAUDITED) (UNAUDITED) U.S. Department of Energy... $195,309 $153,404 $201,149 $188,196 $120,972 U.S. Environmental Protec- tion Agency................ 47,643 53,303 72,382 70,686 61,492 Other U.S. Government agen- cies....................... 37,713 35,239 47,896 39,792 68,557 -------- -------- -------- -------- -------- Total U.S. Government..... 280,665 241,946 321,427 298,674 251,021 USX Corporation and affili- ates....................... 1,508 75,650 90,185 97,767 26,004 -------- -------- -------- -------- -------- $282,173 $317,596 $411,612 $396,441 $277,025 ======== ======== ======== ======== ========
F-21 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION RELATING TO THE NINE MONTHS ENDED NOVEMBER 30, 1993 AND 1992 IS UNAUDITED) Foreign Operations: Gross revenue and operating income from foreign sales (including sales originating in the United States) and foreign assets of all consolidated subsidiaries and branches were as follows (in thousands):
YEAR ENDED FEBRUARY 28, ------------------------ 1993 1992 1991 ------- -------- ------- Foreign gross revenue Europe............................................... $16,698 $ 35,475 $29,139 Pacific.............................................. 33,709 67,904 55,082 Other................................................ 2,940 2,646 7,012 ------- -------- ------- $53,347 $106,025 $91,233 ======= ======== ======= Foreign operating income Europe............................................... $ 682 $ 689 $ 1,085 Pacific.............................................. 2,010 5,224 5,820 Other................................................ 158 160 1,314 ------- -------- ------- $ 2,850 $ 6,073 $ 8,219 ======= ======== ======= Foreign assets Europe............................................... $ 4,565 $ 6,505 $ 6,650 Pacific.............................................. 13,880 36,130 44,817 Other................................................ 29 65 95 ------- -------- ------- $18,474 $ 42,700 $51,562 ======= ======== =======
NOTE Q--UNUSUAL ITEMS During the year ended February 28, 1993, the Company recognized the impact of several unusual items: a $5,000,000 adjustment to pre-acquisition contingencies (see Note J), offset by a charge to accrue the net settlement cost and legal expenses related to a shareholder lawsuit ($1,400,000), the write down to net realizable value of certain software-related assets ($3,000,000), and a charge for severance and related costs accrued as part of a cost reduction plan ($550,000). In fiscal 1992, due to the favorable resolution of a foreign tax audit and management's evaluation of the status of an IRS appeal, the Company adjusted a portion of the amounts previously provided for in connection with the acquisition of the related companies. F-22 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION RELATING TO THE NINE MONTHS ENDED NOVEMBER 30, 1993 AND 1992 IS UNAUDITED) NOTE R--SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Quarterly financial information for fiscal years 1993 and 1992 and the first six months of fiscal 1994 is presented in the following tables (in thousands, except per share amounts):
4TH QTR 3RD QTR 2ND QTR 1ST QTR -------- -------- -------- -------- 1994 Gross................................... $179,227 $146,830 $128,012 Service revenue......................... 102,054 87,439 86,989 Net income (loss)....................... 1,349 1,347 (657) Net income per common share: Primary................................ $ 0.00 $ (0.00) $ (0.09) Fully diluted.......................... $ 0.00 $ (0.00) $ (0.09) Market price per share: High................................... $ 5.38 $ 5.50 $ 6.88 Low.................................... $ 4.00 $ 3.75 $ 4.75 1993 Gross revenue........................... $150,921 $158,086 $172,551 $197,324 Service revenue......................... 91,413 94,687 94,890 103,995 Net income.............................. 1,518 2,206 1,897 3,018 Net income per common share: Primary................................ $ 0.01 $ 0.04 $ 0.03 $ 0.08 Fully diluted.......................... $ 0.01 $ 0.04 $ 0.03 $ 0.08 Market price per share: High................................... $ 8.50 $ 7.50 $ 7.75 $ 10.88 Low.................................... $ 5.88 $ 4.00 $ 5.00 $ 7.25 1992 Gross revenue........................... $194,712 $190,124 $172,800 $153,237 Service revenue......................... 86,371 102,199 95,538 95,718 Net income (loss)....................... 1,934 (15,841) 2,500 (29,109) Net income (loss) per common share: Primary................................ $ 0.06 $ (0.87) $ 0.10 $ (1.60) Fully diluted.......................... $ 0.06 $ (0.87) $ 0.10 $ (1.60) Market price per share: High................................... $ 11.00 $ 10.00 $ 16.75 $ 18.50 Low.................................... $ 6.25 $ 6.50 $ 8.00 $ 14.25
F-23 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION RELATING TO THE NINE MONTHS ENDED NOVEMBER 30, 1993 AND 1992 IS UNAUDITED) As described in Note C, in fiscal 1992 ICF Kaiser recorded a $73.4 million pretax charge for the restructuring and disposal of certain businesses. These costs and the elimination of the revenues and earnings of these businesses make direct comparisons to the results for fiscal years 1993 and 1991 less meaningful. The sum of net income (loss) per common share for the four quarters of fiscal 1992 does not equal the loss per common share for the year due to changes in the number of shares of common stock and common stock equivalents outstanding during the year. ICF Kaiser adopted SFAS No. 109 in the fourth quarter of fiscal 1992, requiring retroactive application to March 1, 1991, and a restatement of the third quarter, resulting in a decrease to third quarter net loss available to common shareholders of $ 1.8 million, or $0.10 per common share. The remainder of the impact was attributable to the fourth quarter of fiscal 1992. At April 13, 1993, there were 21,336,585 shares of common stock outstanding held by 1,221 holders of record. At November 30, 1993, there were 20,891,052 shares of common stock outstanding held by 1,251 holders of record. F-24 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESMAN, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA- TION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OF- FERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE OTHER INFORMATION CONTAINED HEREIN IS CORRECT AT ANY TIME SUBSEQUENT TO THE DATE HEREOF. ---------------- TABLE OF CONTENTS
PAGE ---- Available Information..................................................... 2 Prospectus Summary........................................................ 3 The Company............................................................... 5 Risk Factors.............................................................. 7 Use of Proceeds........................................................... 11 Market Prices and Dividend Policy......................................... 12 Capitalization............................................................ 13 Selected Consolidated Financial Data...................................... 14 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 15 Business.................................................................. 22 Management................................................................ 31 Executive Compensation.................................................... 35 Security Ownership........................................................ 41 Description of Capital Stock.............................................. 44 Description of Credit Facility............................................ 51 Plan of Distribution...................................................... 54 Legal Matters............................................................. 54 Experts................................................................... 54 Consolidated Financial Information........................................ F-1
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