Document np4jJgQprQo4V0rLenZK4Bg58

1995 Annual Report it ICF KAISER brldwide Excellence in Meeting Client Needs Letter to shareholders James 0. Edwards Chairman and Chief Executive Officer Last year's Letter to Shareholders stated that by the end of fiscal 1995, "...I expect to talk about the Company's more positive financial performance." Given ICF Kaiser's results for the year. I can certainly do that: year-over-year gross revenue increased by S200 million; even after excluding S8.7 million in unusual charges in fis cal 1994, operating income increased by more than S10 million. Earnings also improved, increasing by more than SI.DO per share, and the price of our Common*Stock has rapidly doubled from last July 1 to early May as I write this letter. This financial performance represents significant progress toward achieving one of our most important goals: returning ICF Kaiser to profitability. Although we are not yet there, the Company has implemented a num ber of actions needed to begin regaining ground lost over the past several years. The improvements you see on indi vidual lines of the income statement represent a series of steps taken at every level of the organization. Where costs were too high, we cut them. Everything from staffing to leasing and travel were ana lyzed with an eye toward reducing or eliminating costs. Excluding ICF Kaiser's operations at the U.S. Department of Energy's (DOE) Hanford site, our direct cost of services and overhead plus our general and administrative expenses decreased by S25 million Where we lacked vital market development skills, we acquired needed talent. Across all operations, senior man 1 agers invested resources to build stronger marketing and sales departments. We realized that, in the short term, these added costs would be a drag on performance.but the investment was critical to future success. Where once business units marketed just their spe cific skills or services, today we sell entire solutions to our clients. Improved communication within and across our consulting, environmental, and engineering and construc tion services has enhanced market development activities. Improving Financial Results Benefitting from steps such as those outlined above. ICF Kaiser's financial results for the year ended February 28,1995, showed areas of significant improvement. Gross revenue was $861.5 million,an increase of 32 percent over the prior year. Service revenue also grew, up 20 percent to $459.8 million. This year's higher revenue primarily reflects expansion of ICF Kaiser's Hanford contract. Improved profitability at Hanford and within the Company's consulting and environmental services, reduced losses in our engineering and construction (E&C) services, and overall lower costs resulted in operating in come for the year of $13.7 million, versus a loss of S5.2 million last year. After paying preferred dividends, the net loss for fiscal 1995 was $3.8 million, or $0.18 per share. Although this was almost a $22 million improvement over last year's net loss (after preferred dividends), the results are obviously unsatisfactory. ICF Kaiser ended the year with a contract backlog in excess of $1.4 billion. Backlog has been relatively steadyeven during a shift in marketing strategy' from bidding a large number of small contracts to focusing on fewer con tracts that carry much higher values. Although larger con tracts often have longer bidding cycles, the Company already is starting to benefit from this new strategy: the award of the Rocky Flats contract discussed below, award ed subsequent to the close of this fiscal year, has a backlog value of more than $3 billion. Analyzing the Revenue Mix Analyzing ICF Kaiser's revenue mix provides an understanding of the dynamics and trends affecting our primary markets: environment, infrastructure, and industry. ICF Kaiser reported strong environmental revenue for the year of S497.8 million. Revenue growth in this market will continue and will accelerate given the Company's recent success in winning public-sector cleanup contracts. Especially noteworthy was DOE's award of the Performance Based Integrating Management contract at the Rocky Flats Environmental Technology Site in Colorado. This five-year contract, which is valued at $3.5 billion to the winning Kaiser-Hill Company, LLC, provides a stable base of business and gives the Company enhanced qualifications for future bids. Kaiser-Hill Company was formed between 1CF Kaiser and Coloradobased CH2M Hill Companies, Ltd., to bid on the Rocky Flats contract. The Rocky Flats award came close on the heels of signing a contract extension for work at Hanford, where the Company has been operating since 1988. This con tract. which now runs through March 1997, has been amended to reflect DOE's new contracting strategies which are more pay-for-performance driven. In che private-sector environmental market, ICF Kaiser was successful in winning work from a growing list of Fortune 500 companies. Although demand continues to be restrained by uncertainty over federal environmen tal regulations, strength in the domestic economy provid ed additional financial resources for companies that are taking a more proactive approach to addressing their envi ronmental needs. For the year, our consulting operations were successful in meeting their financial goals and in implementing strategies to diversify their client base. The group main tained its strong position with the U.S. Environmental Protection Agency, winning major new contracts related to chemical emergency preparedness and global environ mental issues. The group's revenue, which exceeded $70 million, also reflects expanded sales to the U.S. Departments of Energy, Defense, and Transportation, as well as other domestic and international private-sector and government clients. Good opportunities exist for continued growth of our consulting services, and programs have been initiated to expand the group's presence even further in new mar kets throughout the world. Along with higher sales based on traditional expertise, the group is targeting increased sales related to implementing treaty agreements associated with global environmental issues, defense conversion and demilitarization, and public-private partnerships emerging in a post-regulatory world. We are beginning to realize the potential of our consulting operations as a large pro ject generator for our engineering and construction business; I look upon this as one of our significant com petitive advantages. In other markets, sales of ICF Kaiser's E&C services showed improvement over last year, but overall the profit performance was weaker than planned. For the year, industrial revenue was up 10 percent to $56.3 million, but infrastructure sales declined by $10 million to $70.9 mil lion. Management actions taken to better match operat ing costs with market demand improved year-over-vear results; however, the group still experienced an operating loss. With more than 75 years of experience working with companies involved in mining and metals processing, ICF Kaiser maintains a strong competitive position in this part of the industrial market. E&C bookings of industri al work increased 100 percent during fiscal 1995. and we expect demand to strengthen further as economic condi tions result in better pricing for metals such as steel, alu minum, copper, and tin. Demand for these end products, in turn, drives demand for ICF Kaiser's services. Sales were weak in our infrastructure markets as state and local budgets throughout the country took hard hits from governments wrestling with financial issues. We are expecting the infrastructure market to remain mixed throughout fiscal 1996. In response to these conditions, we have reduced our costs in the relevant business units. ICF Kaiser also has intensified its business development efforts in California, where we have a large operation. In addition, we are placing increased emphasis on more promising areas in the East and Southeast where new roads, highways, and mass transit systems, including high speed rail systems, are all on the drawing boards. The Company continued to make investments in its international operations since many of the larger industri al and infrastructure projects in the future will be outside of the United States. ICF Kaiser's international revenue in fiscal 1995 increased almost 50 percent to $54.1 million. One of the most successful regions was Eastern Europe where ICF Kaiser already is working on the initial phase of a contract for construction of a hot strip steel mini-mill in the Czech Republic. In addition to providing prelim- 2 inary design, detailed design, engineer ing. and construction services, ICF. Kaiser is arranging financing for this esti mated S300 million project. In Conclusion Despite fiscal 1995 being a diffi cult year, it is gratifying to see that changes made at key points in the orga nization, which began almost 18 months ago, are turning around the Company. The establishment of clear lines of responsibility and authority, the recruitment of several new senior exec utives, and, above all. an increased investment in marketing and sales all are beginning to bear fruit. In the months ahead, ICF Kaiser will take additional steps to integrate operations further in order to provide even better service to its clients and to enhance the Company's corporate development activities. Today, the buzz words are delayering and re-engineer ing the corporation, but the Company's actions are really nothing more than finding more efficient ways to operate. The work at DOE's Rocky Flats Environmental Technology Site may be considered the single most challenging environmental cleanup job in the coun try, and is certainly one of the largest. All of the employees at ICF Kaiser, along with every member of the win ning Kaiser-Hill team, are honored to be entrusted with this national priority. The employee commitment, extensive skills, and business development efforts needed to win this contract should enable ICF Kaiser to win other largescale projects in the year ahead. Being successful in these efforts will allow next year's letter to focus on the signif icant profits earned for our long-patient shareholders. Sincerely, James O. Edwards Chairman and Chief Executive Officer Federal programs In March 1995. the U.S. Department of Energy (DOE) issued revised estimates on the cost to clean up former nuclear weapons production sites. Total costs now are estimated at S230 billion over the next 75 years. A similar estimate was issued by the U.S. Department of Defense (DOD), which calculated its total environmental expense at better than S40 billion. What makes these pro grams so expensive? Two key factors are the number of bases (hundreds with thousands of contaminated sites) and the extremely hazardous nature of the wastes: radioactive materials, highly volatile chemical compounds, uniden tified mixed wastes, and exploded and unexploded munitions. Solving environmental problems that are this com plex requires integrated consulting, environmental, and large project management skills. Given its broad environ mental and engineering construction capabilities, ICF Kaiser is in an excellent position to support both DOE and DOD in responding to their environmental challenges. Responding to DOE's New Mission The primary mission of DOE has changed from weapons production to include environmental cleanup as its focal point. Meeting the demands of this new chal lenge requires a different set of skills. As a result, DOE has stated that it will rebid S27 billion worth of work when existing site management contracts expire. The decision to compete these contracts openly sends a clear message that it is no longer business as usual at DOE. ICF Kaiser has been moving aggressively to meet the needs and to support one of its most important, long standing customers. The Company's consulting services currently are supporting DOE in a variety of areas, including cleanup cost accounting, pollution prevention, and information management. At the same time, ICF Kaiser has leveraged skills developed at DOE's Hanford facility to support its current work at 10 of 18 primary weapons sites. Given the risks associated with handling nuclear materials and the resulting impracticably of onthe-job-training, ICF Kaiser's extensive experience puts it in a very strong competitive position to manage such programs. Market position in and of itself does not guarantee success. During the past 12 months, ICF Kaiser continued to convert competitive position into business results. ICF Kaiser signed a three-year contract to provide environ mental services at DOE's Los Alamos National Laboratory. The Company also had its Hanford contract extended for an additional year to March 1997. Finally, in April 1995, Kaiser-Hill Company. LLC. a company formed with Colorado-based CH2M Hill Companies Ltd., was awarded the five-year. S3.5 billion Performance Based Integrating Management contract at the Rocky Flats Environmental Technology Site. KaiserHill will oversee plutonium consolidation, environmental restoration, site safety and security, and construction activ ities of subcontract companies. Kaiser-Hill assembled and will manage a world-class team of contractors including Babcock & Wilcox, BNFL, Morrison Knudsen. and Westinghouse that is committed to realizing DOE's goal of more cost-efficient, results-oriented environmental cleanup. Gaining Position Within the DOD Market Unlike many of the DOE facilities that are located in more remote, isolated areas of the country. DOD mihtarv bases often are situated in or around densely populated areas, such as San Diego, San Francisco, and New York. Proximity to major cities adds new dimensions to envi ronmental restoration because hazardous waste cannot be permitted to migrate off site to pose a threat to the sur rounding population. There are also powerful economic forces driving the DOD cleanup process: once restored, these bases offer the potential of valuable commercial development by the private sector. As federal budget con straints continue to force closure of military bases around the world, effective cleanup and conversion of these sites is critical to ensuring the safety and economic vitality of the surrounding communities. Having previously focused resources on establishing a leadership position with DOE, ICF Kaiser now is apply ing its expertise in the rapidly emerging market for DOD environmental services. The Company, which already was working with the Office of the Secretary of Defense on tasks related to strategy and planning, recently was award ed more than $50 million of new work to provide envi ronmental restoration services to the U.S. Army. ICF Kaiser also has started negotiations with the Savannah Army Corps of Engineers for a contract award worth up 4 Hanford Site Lawrence Livermore National Laboratory ICF Kaiser's DOE Presence Idaho National Engineering Laboratory Rocky Flats Environmental Technology Site Kansas City Plant Argonne National Laboratory East Mound Facility Feed Materials Production Center/ Fernald Sandia National Laboratory Nevada Test Site Sandia National Laboratory Los Alomos Notional Laboratory Pantex Plant ^ ICF Kaiser Provides Support to This Site Btookhaven National Laboratory Pinellas Plant Ook'Ridge/Y-12 to S50 million to provide environmen tal services. The Company is continuing to bid aggressively on some of DOD's larger environmental programs, such as the Army's Total Environmental Restoration Contracts (TERC). With contract values ranging from S100 to S400+ million, TERC awards are expected out of Baltimore, Savannah, and other Army Corps regions. Similar opportunities are being pursued with the other services. There also will be a series of smaller consulting and cleanup programs valued at between S10-S50 million, on which the Company expects to bid. Engineering and Construction The line between environmental and what might be considered more traditional engineering and construction (E&C) skills has become so faint as to be almost mean ingless. Today, what clients want is a contractor that can provide comprehensive solutions and can deliver a broad spectrum of capabilities from consulting to remediation and construction. For a growing list of clients, ICF Kaiser is that company. Meeting the Environmental Needs of Industrial Companies Growth of the private-sector market for environ mental services continues to be hampered by uncertainty over regulations, such as Superfund and the Clean Water Act. Although growth in demand for services has slowed, according to Environmental Business International, the annual market for environmental engineering and con sulting services still exceeds SI4.0 billion. Generating higher sales in this type of market requires successful implementation of some fairly traditional business strategies. First, the Company is increasing sales to existing clients. Where a business 'unit sold only risk assessments, today it teams with other units to sell ICF Kaiser's infor mation management, remediation, and process design skills. Also, since many of the Company's customers have production facilities located in different states or even dif ferent countries, ICF Kaiser is capitalizing on its extensive resources to provide services at client facilities around the world. Implementation of this strategy already is yielding benefits as the Company builds national-account relation ships with a growing number of industrial clients. One of our newest clients, a Fortune 200 chemical manufacturer, has awarded ICF Kaiser two significant contracts for envi ronmental assessment and remediation work at sites locat ed in West Virginia and Massachusetts. The second strategy for increasing sales is to target new markets for ICF Kaiser's full-service capabilities. The Company is selling beyond its traditional heavy industry clients to more refineries, chemical and petrochemical companies, and pharmaceutical manufacturers. Because ICF Kaiser does not have the same extensive client rela tionships with these new industries, the Company has to look for access points. For example, many companies just now are realizing the full impact of the Clean Air Act Amendments of 1990. Utilizing its consulting expertise in air toxics, emission monitoring, and Title III andV oper ating permit preparation, the Company has been success ful in selling work to a variety of new clients in the liquids-processing industries. The final strategy for success is expanding the types of services ICF Kaiser can offer. After years of studying hazardous waste problems, the market is advancing quick ly to actual remediation. There is sufficient capacity in the marketplace that ICF Kaiser can team or subcontract for needed remediation skills. Long term, however, the Company's strategy is to expand its in-house remediation capabilities and to gain greater access to innovative cleanup technologies. Rebuilding ICF Kaiser's Industrial and Infrastructure Business ICF Kaiser's E&C skills include engineering design, detail design, construction, and construction management. In its markets of industry and infrastructure, ICF Kaiser is involved with some of the largest projects in the world: the S3.4 billion Boston Harbor wastewater treatment sys tem, the S8 billion Woodside natural gas project in Australia, and the S18 billion Taipei rapid transit system. Whether a multibillion dollar turnkey project or the upgrade of an existing facility, ICF Kaiser has a reputation for providing superior services. ICF Kaiser's customer base reflects its history in metals and mining. These markets have moved through a demand cycle that bottomed-out about 12 to 18 months ago and is now on the upswing. Improving economic conditions, combined with the Company's investments in marketing and sales, should result in stronger demand for E&C services in the year ahead. Having reduced its costs, ICF Kaiser's industrial operations are working on the other side of the equation, which is to increase backlog and revenue. This past year saw the award of a contract to perform construction man agement services for the development of Magma Nevada Mining Company's copper concentrator plant. In addi tion, ICF Kaiser has expanded its relationship with a num ber of U.S. steel manufacturers to upgrade and improve the efficiency of existing capacity. Internationally, much larger industrial projects are 6 developing. ICF Kaiser will perform engineering services for an ammonia recovery plant at Baoshan Iron and Steel in Shanghai, the People's Republic of China. The Company is also in the design and project financing phase of a $300 million hot strip steel mini-mill for Nova Hut, a.s., in the Czech Republic. When successful in assembling the required funding, ICF Kaiser will provide project manage ment, process design, and construction management services during the next phase of the project. Only a company with the broad capabilities of ICF Kaiser and employees thinking strategi cally to sell all of the Company's ser vices, could perform the variety of tasks needed to make this project come to life. The other major market for the Company's E&C skills is in rebuilding the global infrastructure of roads, high ways, transit systems, harbors, airports, facilities, and buildings. In the United States, budget constraints at all levels of government have hindered market growth. Fiscal year 1995 federal appro priations for highway programs and mass transit, however, still exceeded more than $20 billion dollars. The good news is that, according to Engineering \'ews-Record, ICF Kaiser ranks sixth in transportation design. The better news is that this still leaves tremendous opportunity to increase sales. ICF Kaiser is active in every major metropolitan area of the country, and has an established position in a number of large-scale infrastructure programs. In Chicago, ICF Kaiser is part of a joint-venture team providing design services for a new transit line in the city's downtown area. Having provided these design services, the Company is optimistic about winning follow-on construction work. In Boston, after more than five years of success as the construction manager of the Boston Harbor cleanup, ICF Kaiser is in an excellent position to win the next three-year phase of this internationally recognized construction project. In Florida, ICF Kaiser is a leading contractor for Miami's Intermodal Transit Center. This project, which will tie together air, rail, and highway sys tems, could blossom into a multibillion dollar construction program that would be a model for other cities. This is just one of a number of potential projects in Florida ranging from highways to high speed rail systems. Another area of opportunity developing in the infrastructure market is in facilities engineering, architectural, and construction services. This work includes structures such as retail cen ters, federal courthouses, wastewater treatment plants, and maximum-securi ty prisons. New regulations, changing public sentiment, and increased funding should make these last two markets extremely promising over the next five years. ICF Kaiser's skills, particularly in large-scale construction, are respected throughout the world. In the United Kingdom, ICF Kaiser is a member of a consortium bidding on the Channel Tunnel Rail Link, which will construct a train line from downtown London to the Channel tunnel. Leveraging the skills and reputation developed while building the 150-kilometer Taipei tran sit system, ICF Kaiser is involved with other rail projects in Manila, India, and Portugal. 7 Consulting ICF was founded as a small consulting practice. Today, ICF Kaiser's consulting services are provided by over 500 professionals whose skills In many disciplines are recognized and respected by clients around the world. Through its partner-like approach to consulting, ICF Kaiser helps clients remain competitive in the face of rapidly changing regulations, global markets, and emerg ing technologies. ICF Kaiser offers consulting services across four interrelated lines of business: environmental consulting, in-career education and training, information manage ment, and energy resource management. In these key markets, the Company is working with numerous publicand private-sector clients. Since its inception, ICF Kaiser has built extensive consulting capabilities for the planning, evaluation, and execution of environmental programs. The Company is well-versed with every major federal, state, local, and international environmental law and regulation. ICF Kaiser examines the full spectrum of economic, technical, and legal issues necessary to define strategies that are robust over the' relevant life cycle. With global environmental issues increasingly important to firms and nations alike, ICF Kaiser has devel oped a special expertise' in this important field. The Company has supported every major global environmen tal treaty and international forum, and has participated in efforts to design and implement solutions to critical glob al problems. Working .with public-sector officials and business leaders in over 30 countries, ICF Kaiser has developed the knowledge and skills necessary to con tribute to the resolution of some of the most challenging problems facing the world today. Leveraging its extensive knowledge base, the Company is building a presence in the growing field of in-career education and training. ICF Kaiser offers envi ronmental compliance programs that cover regulations, technologies, information reporting, and emergency response. In addition, the Company provides a mix of educational resources and active, responsive learning expe riences that stimulate staff thinking about contemporary issues. In the era of the Information Super Highway. ICF Kaiser's information management services have become critical to clients looking to develop decision support sys tems that facilitate the collection and use of information to track performance, to identify opportunities, and to improve decision making. The Company offers sophisti cated simulation models and proprietary applications, such as its electric utility Integrated Planning Model*5'. By combining consulting expertise with information tech nology skills, ICF Kaiser helps its customers deal with the unique challenges of their business. Through 20 years of consulting experience, the Company has built strong relationships across the entire energy industry, including electric utilities; oil, gas and coal producers; energy consumers in the public and pri vate sectors; laboratories and other technology providers: and transportation companies. ICF Kaiser helps these organizations identify market opportunities, deal with regulations, succeed in litigation, commercialize new technologies, and develop public policy. The Company's expertise is built upon linking an in-depth understanding of the energy markets with an ongoing involvement with energy technology. ICF Kaiser is working to integrate its consulting services more fully with the Company's federal programs and E&C services to help generate new project opportu nities. By leveraging its available consulting expertise and major client relationships, ICF Kaiser gains access to projects at their outset. Better integration of Company operations already has yielded significant sales of envi ronmental remediation services in the U.S. private sector and the identification of major infrastructure projects inter nationally. 8 ICF KAIbER INTERNATIONAL. l.N(_, AND b L bil DI ARlEb Financial highlights Gross revenue Service revenue1'2' 3 Operating income (loss) Net income (loss) before extraordinary item Net income (loss) Primary net income (loss) per common share: Before extraordinary item and redemption of redeemable preferred stock Extraordinary loss on early extinguishment of debt Redemption of redeemable preferred stock Total Fully diluted net income (loss) per common share: Before extraordinary item and redemption of redeemable preferred stock Extraordinary loss on early extinguishment of debt Redemption of redeemable preferred stock Total Weighted average common and common equivalent shares outstanding, assuming * full dilution Total assets Working capital Long-term liabilities Redeemable preferred stock Shareholders' equity 1995 $861,518 459,786 13,688 (1,661) (1.661) $(0.18) S(0.18) $(0.18) S(0.18) 20,957 $281,422 92,865 133,303 19,617 27,624 1994a) 1993 1992 (lit thousands, except per share amounts) $651,657 382,708 (5,230) $678,882 391,528 22,744 $710,873 385,942 (43,963) (12,528) (18,497) 8,639 8,639 (40,516) (40,516) 1991 $624,976 363,318 33,287 14,291 14,291 $(0.83) (0.29) (0.09) $(1.21) $ 0.16 S 0.16 $(2.25) S 0.71 $(2.25) S 0.71 $(0.83) (0.29) (0.09) $(1.21) $ 0.16 . $ 0.16 $(2.25) _ $(2.25) S 0.68 S 0.68 20,886 $281,198 90,725 130,752 20,212 30,780 21,272 $293,076 87,845 75,602 44.824 58,521 19,085 $318,947 66,065 85,675 45,161 51,151 20,308 $357,457 74,754 109,820 26,498 88,839 (1) Gross revenue and service revenue for the fiscal year ended 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. In fiscal year 1994, the Company adopted Statement of Financial Accounting Standards No. 106, Employers'Accounting for Postrecirement Benefits OtherThan Pensions. In fiscal year 1992, the Company adopted Statement of Financial Accounting Standards No. 109, Accountingfor Income Taxes. (2) Service revenue is derived by deducting the costs of subcontracted services and direct project costs from gross revenue and adding the Company's share of the income ofjoint ventures and affiliated companies. (3) Fiscal year 1992 reflects an after-tax charge of $52.4 million associated with the disposal and restructuring of certain businesses. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview ICF Kaiser is one of the nation's largest engineering, construction, and consulting services companies, provid ing fully integrated services to domestic and foreign clients in the environmental, infrastructure, industrial, and energy markets, in both the private and public sectors. ICF*Kaiser had operating income of S13.7 million and a net loss before extraordinary item of SI.7 million (SO. 18 net loss per share) for the year ended February 28, 1995 (fiscal 1995) compared with an operating loss of $5.2 million and a SI2.5 million net loss before extraordinary item (SO.83 net loss per share) for the year ended February 28, 1994 (fiscal 1994). Operating income in fiscal 1995 was S10.2 million'higher than fiscal 1994. exclusive of the unusual items in fiscal 1994. The operating income increase in fiscal 1995 reflects improvements in each of the Company's businesses over fiscal 1994. including an increase in fees at the Company's operations at the U.S. Department of Energy's Hanford, Washington, site (Hanford). These gains were somewhat offset by a high level of marketing expense associated with proposing and bidding major contracts, including the Company's suc cessful pursuit through Kaiser-Hill Company. LLC (Kaiser-Hill) of the Performance Based Integrating Management contract at the U.S. Department of Energy's Rocky Flats Environmental Technology Site in Colorado (Rocky Flats),more fully described below. Gains in oper ating income growth were offset by substantially higher nonoperating costs, including interest expense, due to the fiscal 1994 refinancing, and income tax expense (see Results of Operations). The Company's engineering and construction ser vices had an operating loss for fiscal 1995 of S6.5 million, which was an improvement over fiscal 1994. The operat ing loss was due primarily to a decline in revenue and to delays in the commencement of previously awarded pro jects. These revenue declines' were not offset fully with cost reductions. Outlook Management believes that it has made significant progress during fiscal 1995 toward positioning the Company for future success by stabilizing operations, enhancing financial controls, lowering corporate overhead costs, and increasing market development activities. Extension of the Hanford contract through March 1997 and the award of the Rocky Flats contract to Kaiser-Hill combine to provide a stable operating income base upon which the Company can build. Management intends to continue its investment in new business development ini tiatives in order to maintain and build its backlog. Among these initiatives are continued pursuit of major federal environmental cleanup contracts, international and pri vate-sector expansion of consulting services, and expan sion of remediation capabilities. Management also will continue its focus on restoring the Company's engineering and construction business to profitability through increased marketing efforts com bined with cost reductions, primarily personnel. In April 1995, Kaiser-Hill, a limited liability com pany owned equally by ICF Kaiser and CH2M Hill Companies Ltd., was awarded the Rocky Flats contract. The five-year contract, valued at S3.5 billion, is expected to generate between SI.5 million and S9.0 million in annual pretax profit to ICF Kaiser. The fee structure for this contract will provide for a mixture of base and incen tive fees earned through the achievement of cost reduc tions, attainment of certain milestones, and accomplish ment of other goals. Backlog The Company's backlog on February 28,1995, was SI .4 billion, down from $1.6 billion reported as of February 28, 1994. The Company estimates that the Kaiser-Hill contract at Rocky Flats represents approxi mately S3.5 billion in backlog beginning July 1,1995. 10 Results of Operations The following table summarizes key elements in the Consolidated Statements of Operations for the years ended February 28,1995,1994, and 1993. 1995_______ 1994 1993 (Dollars in millions) Gross revenue S861.5 S651.7 S678.9 Service revenue S459.8 S382.7 S391.5 Service revenue as a percentage of gross revenue 53.4% 58.7% 57.7% Expenses as a percentage of service revenue: Direct cost of services and overhead Administrative and general 85.5% 84.6% 80.0% 9.5% 12.0% 11.2% Depreciation and amortization 2.0% 2.5% 2.7% -Unusual items.net Cost of disposal ofbusinesses.net - 2.3% - - - 0.3% Operating income (loss) 3.0% (1.4)% 5.8% Gross revenue represents services provided to cus tomers with whom the Company has a primary contrac tual relationship. Included in gross revenue are costs of certain services subcontracted to third parties and other reimbursable direct project costs, such as materials pro cured by the Company on behalf of its customers. Service revenue is derived by deducting the costs of subcontracted services and direct project costs from gross revenue and adding the Company's share of the income of joint ventures and affiliated companies. ICF Kaiser believes that it is appropriate to analyze operating margins and other ratios in relation to service revenue because such revenue and ratios reflect the work performed direct ly by the Company. Operating profits generated by the Hanford and Kaiser-Hill contracts are based on performance and not revenue. Consequently, a change in revenue between periods is likely to be disproportionate to the change in operating income. As such, changes in revenue may have an exaggerated impact on the Company's margins as mea sured on a percentage basis. Fiscal 1995 Compared to Fiscal 1994 Revenue Gross revenue for fiscal 1995 increased 32.2% to S861.5 million, while service revenue increased 20.1% to $459.8 million, versus fiscal 1994. These increases were attributable to the work performed at Hanford (S208.8 million of the gross revenue increase and $97.4 million of the service revenue increase). The Hanford revenue increases were offset partially by a decrease in the Company's engineering and construction revenue (S14.1 million gross revenue and $10.8 million service revenue). Service revenue as a percentage of gross revenue decreased to 53.4% for the year ended February 28, 1995, from 58.7% for fiscal 1994,primarily because under an October 1993 amendment to the Hanford contract, ICF Kaiser absorbed tasks utilizing a much higher proportion of sub contractors than Company personnel. Operating Expenses The Company's direct cost of services and overhead was relatively flat as a percentage of service revenue in fis cal 1995 versus fiscal 1994. Excluding Hanford, direct cost of services and overhead decreased to 76.2% of ser vice revenue in fiscal 1995 from 79.2% in fiscal 1994. Administrative and general expense decreased $2.1 mil lion. The decrease in these costs is attributable primarily to management cost-cutting initiatives. A restructuring plan initiated in fiscal 1994 to respond to operating losses included downsizing the work 11 force, consolidating office space, renegotiating significant leases, and restructuring certain international operations. Management expects to complete office space consolida tion plans in fiscal 1996. All other actions have been sub stantially completed as of February 28, 1995. Management will continue to focus on cost reduction and containment efforts. Interest Expense ICF Kaisers interest expense net of interest income (net interest) for the year ended February 28, 1995, increased S6.3 million from fiscal 1994 due to a recapital ization that took place in the fourth quarter of fiscal 1994 (also see Liquidity and Capital Resources). The increase in net interest was impacted favorably by $1.3 million in refunds of interest from the Internal Revenue Service (IRS) recorded in the third quarter of fiscal 1995 associat ed with the Company's tax liabilities and those of an acquired company. The increase in net interest was offset partially by a reduction in preferred stock dividends. Income Tax Expense ICF Kaiser's income tax provision for fiscal 1995 was S2.9 million, even though pretax income was $1.2 million. This is due to several-factors including the repatriation of overseas funds to the United States during fiscal 1995 that currently could not be offset by foreign tax credits and permanent differences, such as the nondeductibility of goodwill amortization. Nondeductible permanent differ ences comprise a very high percentage of pretax income. As such, the traditional percentage relationship between income tax expense and pretax income is not meaningful. It is anticipated that the combination of projected pretax income levels and the current level of permanent differ ences will result in the Company's effective tax rate con tinuing to be above traditional levels in the near-term future. Because of the reported fiscal 1994 losses, a $3.3 mil lion valuation allowance was established in fiscal 1994 for deferred tax assets. In fiscal 1995, although pretax income increased $14.1 million to $1.2 million (with a corre sponding increase in taxable income), the Company has maintained the valuation allowance. As of February 28,1995, the Company had deferred tax assets related to net operating loss carryforwards of $2.2 million, of which $0.4 million expire in fiscal 2004 and $1.8 million expire in 2009. Additionally, the Company has $1.1 million of tax credit carryforwards, the majority of which do not expire. Management believes that the Company's expected levels of pretax earni.ngs. when adjusted for nondeductible expenses such as good will amortization, will generate sufficient future taxable income to realize the $13.6 million deferred tax asset within the next five years. Fiscal 1994 Compared to Fiscal 1993 Revenue Gross and service revenue declined 4.0% and 2.2%, respectively, to $651.7 million and S382.7 million in fis cal 1994 primarily due to the successful completion of two large industrial projects during fiscal 1993 (S81.3 million and $9.2 million, respectively); a significant decline in other engineering and construction business ($38.1 million and $21.9 million, respectively); the sale of a subsidiary under a fiscal 1992-1993 restructuring plan during the third quarter of fiscal 1993 ($14.4 mil lion and $10.3 million, respectively); a decline in the Company's energy engineering business (SI 1.8 million and S9.6 million, respectively);and the general impact of reduced government spending, loss of business days due to severe weather in the East and the Los Angeles earth quake, and a sluggish economy. The decrease was offset partially by a significant increase in ICF Kaiser's services provided at Hanford ($120.8 million and $52.4 million, respectively). This increase was due primarily to the amendment of ICF Kaiser's contract with the U.S. Department of Energy, which was effective October 1, 1993. Service revenue as a percentage of gross revenue increased as the Company continued its concerted efforts to shift more non-Hanford work from subcon tractors to Company personnel. Equity in income of joint ventures and affiliated companies, and consequent ly service revenue, declined due to the successful early completion of a natural gas liquefaction project on Australia's Northwest Shelf ($2.8 million) and the sale of the Company's interest in Acer Group Limited (SI.6 mil lion), partially offset by $1.1 million of income from the 12 Company's interest in an entity that owns a coal pulver ization facility. Operating Expenses The Company's direct cost of services and overhead increased to 84.6% of service revenue in fiscal 1994 from 80.0% in fiscal 1993. The relatively fixed nature of certain of the Company's indirect costs (e.g., office rent) and the timing of the implementation of action plans for certain operating units developed in fiscal 1994 delayed the impact of cost reductions in the fourth quarter. ICF Kaiser also increased its commitment to marketing in fis cal 1994, which contributed to the overall increase in administrative and general expense. Depreciation and amortization expense decreased SI.2 million to $9.6 million for the year ended February 28,1994, primarily as the result of the write-off of certain software assets in the third quarter of fiscal 1993. Interest Expense ICF Kaiser's interest expense for the year ended February 28,1994, decreased 4.8% from fiscal 1993. The decrease is attributable to both the reduced average amount of debt outstanding and lower prevailing interest rates. Income Tax Expense ICF Kaiser's effective tax rate decreased to 2.7% in fiscal 1994 from 42% in fiscal 1993 because the book loss included a high level of nondeductible expenses, such as goodwill amortization, differences between the book and tax basis of businesses sold, and losses from controlled for eign corporations. This impact was magnified by the unanticipated decline in operating results in the fourth quarter of fiscal 1994. A S3.3 million valuation allowance was established in fiscal 1994 for deferred tax assets. The valuation allowance was established due to the extraordi nary item and recent operating results. As of February 28, 1994, the Company had deferred tax assets related to net operating loss carryforwards of S4.3 million, of which SO.4 million were scheduled to expire in fiscal 2004 and $3.9 million in 2009. The Company also had recorded $0.9 million of tax credit carryforwards, the majority of which do not expire. Extraordinary Item The Company completed a recapitalization program in the fourth quarter of fiscal 1994 that resulted in a S6:0 million extraordinary charge (net of $0 tax benefit) for the early extinguishment of debt and a $1.9 million charge to net income available for common shareholders to repur chase the Company's Series 2C Senior Preferred Stock. These charges reduced earnings per share by SO.38 for a total loss of $1.21 per share in fiscal 1994 (see Liquidity and Capital Resources). Liquidity and Capital Resources Cash and cash equivalents increased $2.7 million in fiscal 1995 to $28.2 million, and the Company's working capital and current ratio have improved since fiscal 1994. Cash and working capital increased in fiscal 1995 due to an increased focus on cash management. Additional rea sons for the cash and working capital improvements include cash from operating activities, the receipt of pro ceeds from a fiscal 1994 disposition ($2.6 million), refunds from the IRS ($3.5 million),and the use of the Company's Credit Facility ($5.0 million). The improvement was off set partially by cash payments for the settlement of sever al outstanding liabilities related to prior dispositions. In fiscal 1995, the U.S. Environmental Protection Agency approved the Company's revised provisional rates for fiscal years 1991 through 1994, authorizing the Company to invoice on a variety of cost-plus contracts with U.S. government agencies for work performed dur ing the approved years. The Company expects to collect an additional $2 - $4 million in cash in fiscal 1996 from these receivables. The Company has a $60 million revolving credit facility (the Credit Facility) provided by a consortium of banks (the Banks). ICF Kaiser International,Inc.and cer tain of its subsidiaries, which are guarantors of the Credit Facility, granted the Banks a security interest in their 13 accounts receivable and certain other assets. The Credit Facility limits the payment of cash dividends, requires the maintenance of specified financial ratios, and has a S20 million limitation on cash borrowings. ICF Kaiser and the Banks entered into an amendment as of February 28, 1995, that modified financial ratios and other terms of the Credit Facility. As of February 28,1995, there were S5.0 million in borrowings outstanding under the Credit Facility, in addition to S9.6 million in letters of credit, and the Company had S30.3 million of available credit under the Credit Facility. The Credit Facility contains Eurodollar and alternate base interest rate alternatives with margins dependent upon the. Company's financial operating results and expires on October 31,1996. The Company completed a recapitalization program in the fourth quarter of fiscal 1994 by issuing 5125,000,000 of the Company's 12% Senior Subordinated Notes due 2003 and 600,000 warrants, each to purchase one share of the Company's common stock at 55.00 per share. The net proceeds were used, in part, to retire the Company's 13.5% Senior Subordinated Notes due 1999 and associated warrants, to repurchase preferred stock, and to repay the outstanding balance on the Company's thenexisting revolving credit facility. For the past several years, the Company has had ongoing negotiations, filings, and litigation with the IRS related to settlement of its tax liabilities and the liabilities associated with acquired companies. As noted in the Results of Operations, the cash and income impact has been favorable to the Company. Further, the Company's previous tax losses and its resultant net operating loss car ryforward position, will limit federal income tax payments required in the near future. Management believes that current projected levels of cash flows and the availability of financing, including bor rowings under the Company's Credit Facility, will be ade quate to fund operations.throughout the next 12 months. Impact of New Accounting Standard The Company adopted Statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions (SFAS No. 106), effective March 1,1993. The Company's postretirement benefit obligation extends to only a limited group of retirees (and their spouses) who joined ICF Kaiser through an acquisition, and whose benefits are limited to a fixed amount per person. SFAS No. 106 requires that companies accrue postretirement benefits over the period benefits are earned. The Company has elected the prospective transition method and is amortizing its SI4.2 million transition obligation over 14.5 years, the average remaining life expectancy of the retirees and their spous es. The Company's ongoing expense under SFAS No. 106 includes the interest component and the amortization of the transition obligation. 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 relatively little impact on operating margins; however, as a professional services company, 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, which have been minimal in the past several years, would be felt almost immediately in the Company's costs. REPORT OF INDEPENDENT ACCOUNTANTS Id tin.- Board of Directors and Shareholders |C I Kaiser International. Inc. We have audited the accompanying consolidated ha lance sheets of ICF Kaiser International, Inc. and sub-.iJuries as of February 28,1995 and 1994, and the relat ed consolidated statements of operations, shareholders' equity. and cash flows for each of the three years in the period ended February 28, 1995. These financial state ment are the responsibility of the Company's manage ment. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with gener ally 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 disclo sures 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 consoli dated financial position of ICF Kaiser International, Inc. and subsidiaries as of February 28,1995 and 1994. and the consolidated results of their operations and their cash flows for each of the three years in the period ended February 28,1995, in conformity with generally accepted accounting principles. Washington, DC April 28,1995 15 ICF KAISER. INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS Current Assets Cash and cash equivalents Contract receivables, net Prepaid expenses and other current assets Deferred income taxes Total Current Assets Fixed Assets Furniture, equipment, and leasehold improvements Less depreciation and amortization Other Assets Goodwill, net Investments in and advances to affiliates Due from officers and employees Other LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable and accrued expenses Accrued salaries and employee benefits Accrued interest Current portion of long-term debt Income taxes payable Deferred revenue Ty Other Total Current Liabilities Long-term Liabilities Long-term debt, less current portion Other Commitments and Contingencies ^j^Redeemable Preferred Stock ^^BCommon Stock, par value S.01 per share: Authorized-90,000,000 shares Issued and outstanding-21,011,369 and 20,924,588 shares Additional Paid-in Capital Notes Receivable Related to Common Stock Retained Earnings (Deficit) Cumulative Translation Adjustment ee notes to consolidated financial statements. February 28, Februarv 28, 1995 1994 (In thousands) S 28,233 139,860 12,097 13,553 193,743 S 25,509 128.166 20.451 16,053 190,179 42,557 (29,648) 12,909 40.630 (24.955) 15.675 47,945 6,797 1,826 18,202 74,770 $ 281,422 49,916 5.600 1.830 17,998 75,344 S 281.198 S 46,811 30,549 2,528 578 2,034 11,013 7,365 100,878 126,733 6,570 133,303 19,617 210 63,786 (1,732) (33,343) (1,297) S 281,422 S 52.073 23,439 2.108 1,088 1,511 8.462 10.773 99,454 121.954 8,798 130,752 20,212 209 63,572 (1,732) (29,528) (1,741) $281,198 16 ICF KAISER INTERNATIONAL. INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended February 28, February 28, February 28. 1995 1994 1993 - (In thousands, except per share amounts) Gross Revenue Subcontract and direct material costs Equity in income ofjoint ventures and affiliated companies Service Revenue Operating Expenses Direct cost of services and overhead Administrative and general Depreciation and amortization Unusual items.net Cost of disposal ofbusinesses.net Operating Income (Loss) Other Income (Expense) Gain floss) on sale of investment Interest income Interest expense' Income (Loss) Before Income Taxes Income tax provision (benefit) Net Income (Loss) Before Extraordinary Item Extraordinary loss on early extinguishment of debt Net Income (Loss) Preferred stock dividends and accretion Redemption of redeemable preferred stock Net Income (Loss) Available for Common Shareholders Primary and Fully Diluted Net Income (Loss) Per Common Share: Before extraordinary item and redemption of redeemable preferred stock Extraordinary loss on early extinguishment of debt Redemption of redeemable preferred stock Total Primary and Fully Diluted Weighted Average Common and Common Equivalent Shares Outstanding S 861,518 (405,819) 4,087 459,786 393,096 43,770 9,232 - 13,688 551 1,799 (14,799) 1,239 2,900 (1,661) (1,661) 2,154 $ (3,815) S (0.18) - S (0.18) 20,957 S 651,657 (272,169) 3,220 382,708 323,828 45,842 9,559 8,709 - . (5,230) (925) 1.490 (8,212) (12.877) (349) (12,528) (5.969) (18,497) 4.896 1,929 S (25,322) S (0.83) (0.29) (0.09) S (1.21) 20,886 S 678.882 (293.063) 5.709 391.528 313.030 43.702 10.766 (50) 1.336 22.744 (929) 1.708 (8.629) 14.894 6.255 8,639 8.639 5.293 S 3.346 S 0.16 - S 0.16 21.272 See notes to consolidated financial statements. 17 ICF KAISER INTERNATIONAL. INC.AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Series 1 Junior Convertible Preferred Stock Shares ParValue Common Stock Shares ParValue Additional Paid-in Capital Notes Receivable Related to Common Stock Retained Cumulative ESOP Earnings Translation Guaranteed (Deficit) Adjustment Bank Loan (In thousands, except shares) Balance, March 1,1992 Net income Preferred stock dividends Preferred stock accretion Issuance of common stock Repurchase of common stock Conversion of Series 3 Preferred Stock into common stock Payments received on notes receivable Decrease in loan balance Foreign currency translation adjustment Tax effect from the exercise of noil-qualified stock options Other Balance, February 28,1993 Net loss Preferred stock dividends Preferred stock accretion Redemption of redeemable preferred stock Repurchase of preferred stock Issuance of common stock Repurchase of common stock Issuance of warrants Repurchase of warrants Payments received on notes receivable Decrease in loan balance Foreign currency translation adjustment Other Balance, February 28,1994 Net loss Preferred stock dividends Preferred stock accretion Issuance of common stock Repurchase of common stock Foreign currency translation adjustment Balance, February 28, 1995 69 69 (69) S 6,900 18,270.652 $182 105,740 (44,434) 1 0 $64,382 619 (354) $(3,387) $(7,552) 8,639 (5.026) (267) $(1,041) S (8.333) 2,971,849 30 (29) 662 3.333 (6601 6.900 21.303.807 213 559 (137) 65,040 (2,725) (4.206) (18,497) (4.670) (226) (1.701) (5,tii mi (6.900) 231,249 (610.468) 2.050 2 1.056 (6) (3,716) 900 (1.909) (1.929) 993 5.000 20,924,588 209 161,781 (75,000) 2 (1) 151 63,572 393 (179) (1,732) (29,528) (1,661) (1,950) (204) (40) (1.741) 21,011.369 $210 $63,786 444 $(1,732) $(33,343) $(1,297) S See notes to consolidated financial statements. 18 ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Operating Activities Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Extraordinary loss on early extinguishment of debt Depreciation and amortization Provision for losses on accounts receivable Provision for deferred income taxes Earnings (in excess of) less than cash distributions from joint ventures and affiliated companies (Gain) loss on sale of investment Unusual items.net of cash Decrease in reserve for restructuring and disposal ofbusinesses.net of cash Changes in operating assets and liabilities related to operating activities.net of dispositions: Contract receivables.net Prepaid expenses and other current assets Other assets Accounts payable and accrued expenses Income taxes payable Deferred revenue Other liabilities Net Cash Provided by (Used in) Operating Activities Investing Activities Investments in subsidiaries and affiliates Purchases of fixed assets, net Sales of subsidiaries and subsidiary assets Other investing activities . Net Cash Provided by (Used in) Investing Activities Financing Activities Proceeds from issuance of senior subordinated notes and related warrants Principal payments on credit facility Proceeds from borrowings from credit facility Principal payments on other borrowings Proceeds from other borrowings Reacquisition of senior subordinated notes and related warrants Repurchase of redeemable preferred stock and related warrants Repurchase of preferred stock Proceeds from (uses in) common stock transactions Preferred stock dividends Debt issuance costs Net Cash Provided by (Used in) Financing Activities Effect of Exchange Rate Changes on Cash Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents at Beginning of Period Cash and Cash Equivalents at End of Period Supplemental Information: Cash payments for interest Cash payments (refunds) for income taxes Non-cash Transactions: Decrease of ESOP guaranteed bank loan Sale of investment See notes to consolidated financial statements. 19 February 28, 1995 S (1,661) - 9,232 1,320 2,500 972 (551) - _ (13,014) 4.471 (1.649) 2,218 523 2,551 (5,329) 1.583 (622) (2.426) 2,600 - (448) - 5,000 (1,172) - (799) - 215 (1,950) (149) 1.145 444 2.724 25,509 S 28.233 S 14.961 (1,026) _ 735 Year Ended February 28, 1994 (In thousands) S (18,497) 5.969 9.559 2,241 (714) (1.708) 925 7,786 _ 26.292 4,614 (745) (10.233) (2,478) (2,412) (2,660) 17.939 (2.755) (1,388) - (4,143) 121.488 (45,000) 10,000 (2,010) - (35,809) (27,363) (4,850) (1.520) (5.321) (6,307) 3,308 (40) 17.064 8,445 S 25,509 S 10,565 (106) (5.000) 2,600 -- February 28. 1993 S 8.639 - 10,766 2.202 4.311 (3.690) 92y (50) (6.426) (12.761) 3.750 (257) (8.622) (930) (11.753) (2.505) (16.397) (1.146) (4.638) 35,695 387 30.298 - (38.099) 30.9011 (4.866) 4.357 - (799) - 130 (3,876) (159) (13.312) (66M) (71) 8,516 S 8,445 S 9,447 (416) (3.333) - Notes to consolidated Financial Statements NOTE A--ORGANIZATION ICF Kaiser International, Inc. (ICF Kaiser or the Company) was formed on October 19,1987,as a holding company for the ICF Kaiser family of companies devel oped since inception (1969). These companies provide engineering, construction, and consulting services primar ily 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 finan cial statements include all majority-controlled subsidiaries of ICF Kaiser. Investments in joint ventures and affiliated companies are accounted for using the equity method. The difference between the carrying value of investments accounted for under the equity method and the Company's underlying equity is amortized on a straightline basis over the lives of the underlying assets. All sig nificant intercompany accounts and transactions have been eliminated. Revenue Recognition: Revenue is recorded on costtype contracts as costs are incurred. Revenue on timeand-materials contracts is recognized to the extent of bil lable rates times hours delivered plus materials expense incurred. Revenue on long-term, fixed-price contracts is recognized generally using the percentage-of-completion method and, therefore, includes a proportion of expected earnings based on costs incurred to total estimated costs. 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 adjust ments are reflected in shareholders' equity as cumulative translation adjustment. Statement of Cash Flows: ICF Kaiser considers all highly liquid financial instruments purchased with origi nal maturities of three months or less to be cash equiva lents. Other assets included $600,000 of restricted cash and short-term investments as of February 28, 1995, which supports a letter of credit for one of ICF Kaiser's subsidiaries. Fixed Assets: Furniture and equipment are carried at cost, or fair value at acquisition if acquired through a pur chase of a business, and are depreciated using the straightline method over their estimated useful lives ranging from three to 10 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 40 years. The Company evaluates the recoverability of goodwill on an annual basis by examin ing the recoverability of goodwill through undiscounted operating income. Accumulated amortization was $11,148,000 and $9,178,000 at February 28, 1995 and 1994, respectively. Income Taxes: The Company provides for deferred income taxes using the liability method on temporary dif ferences between financial reporting and income tax reporting, which primarily relate to reserves for adjust ments and allowances. If necessary, management records a valuation allowance for deferred tax assets. The most sig nificant permanent differences between book and taxable income are goodwill amortization, which generally is not deductible, the repatriation of overseas funds to. the United States, and differences between the book and tax basis of businesses sold. Postretirement Benefits: Effective March 1,1993, ICF Kaiser adopted Statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretiremen1 Benefits Other Than Pensions (SFAS No. 106). Prior to the adoption of SFAS No. 106, ICF Kaiser had been recog nizing the cost of postretirement benefits when paid. The Company elected the prospective transition method of recognizing the transition obligation (see Note N). Net Income (Loss) Per Common Share: Net income (loss) per common share is computed using net income (loss) available for common shareholders, as adjusted 20 under the modified treasury stock method, and the weighted average number of common-stock and common stock equivalents outstanding during the year. Common stock equivalents include stock options and warrants and the potential conversion of convertible preferred stock. The adjustments required by the modified treasury stock method to net income (loss) available for common share holders and the impact of common stock equivalents on the weighted average number of shares are anti-dilutive tor all periods presented and, therefore, are excluded from earnings per share computations. Concentrations of Credit Risk: The Company main tains cash balances primarily in overnight Eurodollar deposits, investment-grade commercial paper,bank certifi cates of deposit, and U.S. government securities. ICF Kaiser grants uncollateralized credit to its customers. Approximately one-half of ICF Kaiser's contract receiv ables are from the U.S. government (see Note D). When practical and in order to mitigate its credit risk to com mercial customers, ICF Kaiser obtains advance funding of costs for industrial construction work. Reclassification: Certain items in the fiscal 1994 and 1993 financial statements have been reclassified to con form to the fiscal 1995 presentation. NOTE C--DIVESTITURES The Company sold a 20% interest in a French sub sidiary resulting in a $551,000 pretax gain in fiscal 1995. In fiscal 1994, ICF Kaiser sold a portion of its energy engineering business resulting in a $925,000 pretax loss. In fiscal 1993, the Company sold its investment in Acer Group Limited resulting in a $929,000 pretax loss. NOTE D--CONTRACT RECEIVABLES February 28, February 28. 1995_______________ 1994 (In thousands! U.S. government agencies: Currently due Retention Unbilled $ 36,752 2,026 34,273 73,051 S 31.911 2.370 29,131 63.412 Commercial clients and state and municipal governments: Currently due Retention Unbilled 69,317 4,522 2,834 76,673 149,724 56,430 5,926 12,595 74,951 138,363 Less allowances for uncollectible receivables and other adjustments 9,864 S139.860 10,197 S128.166 U.S. government receivables arise from U.S. govern ment prime contracts and subcontracts. Unbilled receiv ables result from revenue that has been earned but was not billed as of the end of the year. The unbilled receivables can be invoiced at contractually defined intervals and milestones, as well as upon completion of the contract or the federal government cost audit. 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 col lected in one year. 21 9 NOTE E--JOINT VENTURES AND AFFILIATED COMPANIES ICF Kaiser has ownership interests in certain corpo rate joint ventures and affiliated companies that are engaged in the same general business as the Company. rate joint ventures and affiliated companies are summarized as follows (in thousands): Ownership Interest at February 28, 1995 February 28. February 28, 1995 1994 Gary PCI Ltd. L.P. LIFAC North America KJK Joint Venture Other 50% 50% 33% 20% to 50% $4,315 1,914 - 1.793 8,022 $3,325 1,914 2,769 669 8,677 Less amounts classified within ocher current assets 1,225 $6,797 3.077 S5.600 Combined summarized unaudited financial informa tion of all of ICF Kaiser's corporate joint ventures and affiliated companies is as follows (in thousands): February 28, February 28, February 28, 1995 1994 1993 Current assets $ 15,103 Non-current assets 12,723 Current liabilities 15,875 Non-current liabilities 55 Gross revenue 52,616 Net income 8,430 S 27,041 6,608 19,034 455 51,282 8,908 $ 22,466 20,761 20,630 - 226,944 17,471 NOTE F--LONG-TERM DEBT ICF Kaiser's long-term debt is as follows (in thousands): February 28, 1995 February 28, 1994 12% senior subordinated notes due 2003 Revolving credit facility (average interest rate of 8.7% for fiscal 1995) Other notes, principal, and interest at varying rates and installments through February 2010 Total Less unamortized discount on 12% senior subordinated notes Less current maturities Long-term debt $125,000 5,000 1,209 131.209 3,898 127,311 578 $126,733 SI 25.000 0 2.381 127.381 4.339 123,042 1,088 $121,954 Scheduled maturities of long-term debt outstanding at February 28, 1995, are as follows: $578,000 in fiscal 1996, S5.040.000 in fiscal 1997, 832,000 in fiscal 1998, $25,000 in fiscal 1999, S27.000 in fiscal 2000, and 5125.507.000 thereafter. On January 11, 1994, ICF Kaiser issued 125,000 Units, each Unit consisting of 51,000 principal amount of the Company's 12% Senior Subordinated Notes due 2003 (12% Notes) and 4.8 warrants, each to purchase one share of the Company's common stock at an exercise price of $5.00 per share. The warrants expire on December 31, 1998, and additional warrants may be issued under certain anti-dilution provisions. Of the net issue price of 5121,487,500 ($125,000,000 less a 53,512,500 discount), 5900.000 was allocated to the value of the 600,000 war rants and 5120,587,500 to the 12% Notes. The net pro ceeds were used, in part, to retire the Company's 13.5% Senior Subordinated Notes due 1999 (13.5% Notes), to repurchase preferred stock, to repay the outstanding bal ance on the Company's then-existing revolving credit facility, and to repurchase warrants associated with the 13.5% Notes and preferred stock. The recapitalization resulted in a 56.0 million extraordinary charge (net of SO 22 tax benefit due to the unanticipated decline in fiscal 1994s fourth-quarter results) for the early extinguishment of debt and a SI.9 million charge to retained earnings to repurchase the Series 2C Senior Preferred Stock, The Company's payment obligations under the 12% Notes are subordinate to its obligations under the Company's revolving credit facility. Interest payments are due semiannually. The 12% Notes may not be prepaid at the Company's option prior to December 31, 1998. Subsequent to that date, the Company may prepay the 12% Notes at a premium. In addition, the Company agreed to certain business and financial covenants, includ ing restrictions on indebtedness, dividends, acquisitions, and certain types of investments and asset sales. At February 28, 1995, the fair value of the 12% Notes was approximately SI 10.6 million. The fair value was com puted using an average of recently quoted market prices obtained from financial institutions. Debt issuance costs of S4.2 million and S4.6 million associated with the 12% Notes are classified as other assets at February 28, 1995 and 1994, respectively, in the accompanying balance sheets.'These costs and the discount on the 12% Notes are being amortized over the life of the notes. The Company has- a S60 million revolving credit facility (the Credit Facility) provided by a consortium of banks (the Banks). ICF Kaiser International, Inc.and cer tain of its subsidiaries, which are guarantors of the Credit Facility, granted the Banks a security interest in their accounts receivable and certain other assets. The Credit Facility limits the payment of cash dividends, requires the maintenance of specified financial ratios, and has a S20 million limitation on cash borrowings. ICF Kaiser and the Banks entered into an amendment as of February 28, 1995, that modified financial ratios and other terms of the Credit Facility. As of February 28,1995, there were S5.0 million in borrowings outstanding under the Credit Facility, in addition to letters of credit, and the Company had S30.3 million of available credit under the Credit Facility. The Credit Facility contains Eurodollar and alter nate base interest rate alternatives with margins dependent upon the Company's financial operating results and expires on October 31,1996. ICF Kaiser had outstanding letters of credit in the amount of $9.6 million at February 28,1995, principally in support of performance guarantees under certain contracts. There are 275,088 common stock warrants that were issued with the 13.5% Notes that remain outstanding fol lowing the repurchase of the other warrants in January 1994. The warrants expire on May 15,1999,and are exer cisable at any time for shares of ICF Kaiser Common Stock at $6.87 per share. Additional warrants may be issued under certain anti-dilution provisions. NOTE G--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 opin ion of management, an adequate reserve has been provid ed for final judgments, if any, in excess of insurance cov erage, that might be rendered against the Company in such litigation. The Company may from time to time, either indi vidually or in conjunction with other government con tractors operating in similar types of businesses, be involved in U.S. government investigations for alleged violations of procurement or other federal laws and regu lations. The Company currently is the subject of a num ber of U.S. government investigations and is cooperating with the responsible government agencies involved. No charges presently are known to have been filed against the Company by these agencies. Management does not believe that there will be any material adverse effect on the Company's financial position, operations, or cash flows as a result of these investigations. The Company has a substantial number of costreimbursement contracts with the U.S. government, the costs of which are subject to audit by the U.S. govern ment. As a result of such audits, the government asserts, from time to time, that certain costs claimed as reim bursable under government contracts either were not allowable or not allocated in accordance with federal pro curement regulations. 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 provided for adequately and will not have a material 23 adverse effect on the Company's financial position, oper ations, or cash flows. NOTE H--INCOME TAXES The components of income (loss) before income taxes and the related provision (benefit) for income taxes are as follows (in thousands): 1995 Fiscal Year 1994 1993 Income (loss) before income taxes: Domestic Foreign Provision (benefit) for income taxes: Federal: Current Deferred State: Current Deferred Poreign: Current S 1.217 22 S 1.239 S (11,894) (983) S (12.877) S 13.362 1.532 S 14.894 s 120 2.328 2,448 S (652) (652) s 1,074 3.517 4.591 10(1 - 420 172 (62) 794 272 (62) 1,214 180 s,. 2,900 365 S (349) 450 s 6.255 The tax effect of the principal temporary differences and carryforwards that give rise to the Company's deferred tax asset is as follows (in thousands): February 28, 1995 February 28, 1994 Reserves for adjustments and allowances Vacation and incentive compensation accruals Net operating loss carryforwards Tax credit carryforwards Other Deferred income tax asset Valuation allowance Deferred income tax asset.net S 8,507 5,443 2,247 1,063 (377) 16,883 (3,330) 513,553 S 10,068 3.053 4,321 940 1,001 19,383 (3.330) 516.053 Because of the reported fiscal 1994 losses, a S3.3 mil lion valuation allowance was established in fiscal 1994 for deferred tax assets. In fiscal 1995, although pretax income increased SI4.1 million to SI.2 million, the Company has maintained the valuation allowance. The Company has deferred tax assets related to net operating loss carryfor wards of S2.2 million, of which SO.4 million expire in fis cal 2004 and SI.8 million expire in 2009. Additionally, the Company has Sl.l million of tax credit carryforwards, the majority of which do not expire. The actual income tax provision (benefit) varied from the income tax provision (benefit) at the federal statutory rate over the last three years because of the fol lowing differences (in thousands): February 28, February 28. February 28. 1995 1994 1993 Income tax (benefit) computed at federal statutorv tax rate S 421 Changes in tax rate (benefit) from: Goodwill amortization 867 Differences between book and tax basis of businesses sold 92 State income taxes 180 Foreign taxes 840 Valuation allowance - Meals and entertainment 358 Other 142 2,479 S 2.900 S(4,378) S 5.064 1,274 793 947 (41) 615 1.180 185 (131) 4,029 S (349) (508) 801 (215) - 59 261 1.191 S 6.255 The fiscal 1995 tax provision reflects the repatriation of overseas funds to the United States during fiscal 1995, that currently could not be offset by foreign tax credits. During fiscal 1995, ICF Kaiser's 1989-1992 tax returns were accepted as filed, resulting in the receipt of refunds from the Internal Revenue Service (IRS) with interest. An agreement also was reached with the IRS as to the amount of interest owed in connection with previously settled years (1977-1986). The overall impact on pretax earnings was a reduction of net interest expense ot SI.3 million related to interest refunds. 24 In fiscal 1993, ICF Kaiser reached a favorable settle Redeemable Preferred Stock (of Subsidiary): In ment with the IRS on the examination of ICF Kaiser connection with the acquisition of KEGI, 3,500,000 Engineers Group, Inc.'s (KEGI) income tax returns for shares of KEGI Series 1 Redeemable Preferred Stock were 1977-1986. This resolution allowed the Company to issued to the KEGI Employee Stock Plan Trust in partial adjust a portion of the amounts previously provided for in consideration for ICF Kaiser's purchase of all of the out connection with the 1988 acquisition of KEGI and its standing shares of Series A and Series P Preferred Stock of subsidiaries. The resolution of this pre-acquisition con KEGI. Dividends on these shares were S0.0685 per share tingency has been reflected in unusual items in the per annum noncumulative, payable annually. A total of accompanying statement of operations for fiscal 1993 (see 700,000 shares were redeemed during each of the fiscal Note P). The IRS previously had completed its review of years 1995, 1994, and 1993. The final redemption was KEGI's 1987 and 1988 income tax returns without adjust made on September 30,1994. ment. As such, all years through 1988 are closed. In fiscal 1993, ICF Kaiser also reached an agreement with a former Senior Preferred Stock: The Series 2D Senior subsidiary to retain its net operating losses, which favor Preferred Stock (Series 2D Preferred Stock) together with ably reduced the effect of differences between the book five-year detachable warrants (Series 2D Warrants) were and tax basis of the Company. issued in fiscal 1992 for a price of S20,000,000 (less a dis count of $100,000). Of the net price of $19,900,000, NOTE I--PREFERRED STOCK $400,000 was allocated to the value of the warrants and $19,500,000 was allocated to the value of the stock. The Preferred Stock of the Company is as follows: value of the Series 2D Preferred Stock was reduced fur ther by issue costs. ' 1995 February 28, February 28. , Dividends on the Series 2D Preferred Stock are ___________________________________________$__9_,1795904__p_e_r share per annum, cumulative. Each of the I111 thousands) shares has a liquidation preference of $100,000 (S20 mil Redeemable Preferred Stock (of Subsidiary),par value SO.01 per share; liquidation lion in the aggregate). The issue carries voting rights equal to 2,380,952 shares of ICF Kaiser Common Stock. The Series 2D Preferred Stock may be redeemed at ICF value S21.280.000; authorized 3,500,000 shares; issued and outstanding 700,000 shares at February 28.1994 S S 799 Kaiser's option at 106.25% of the original price and is subject to mandatory redemption at liquidation value on January 13,1997. The Series 2D Warrants expire in May 1997 and may be exercised for 2,680,952 shares of ICF Kaiser Common Series 2D Senior Preferred Stock, Stock at an exercise price of $6.90 per share. In lieu of par value S0.01 per share; liquidation value S20,000,000; 200 shares designated, issued, and outstanding Less unamortized discount, warrant value, and issue costs 20,000 (383) 19,617 20,000 (587) 19,413 exercising the warrants, the holder may, at the holder's option, require the Company to pay it cash or issue shares of ICF Kaiser's Common Stock equal to the difference between the current market price of the Company's com mon stock and 90% of the warrants' current exercise price. Additional warrants may be issued under certain Redeemable Preferred Stock S19.617 S 20.212 anti-dilution provisions. 25 Junior Preferred Stock: The Company has designated 200 shares of Series 1 Junior Convertible Preferred Stock, par value SO.01 per share, with a liquidation value of 520,000,000 and 500,000 shares of Series 4 Junior Preferred Stock, par value SO.01 per share, with a liquida tion value of 5500,000. There were no shares issued or outstanding on either series as of February 28,1995 and 1994. NOTE J--COMMON STOCK Notes Receivable Related to Common Stock: Notes receivable related to ICF Kaiser Common Stock pertain to the issuance of promissory notes to certain members of senior management in accordance with their compensa tion agreements collateralized by shares of ICF Kaiser Common Stock. Shareholder Rights Plan: The Shareholder Rights Plan (Rights Plan) is designed to provide the Board of Directors (the Board) with the ability to negotiate with a person or group that might, in the future, make an unso licited attempt to acquire control of ICF Kaiser, whether through the accumulation of shares in the open market or through a tender offer that does not offer an adequate price. The Rights Plan provides for one Right (Right) for each outstanding share of ICF Kaiser Common Stock. Each Right entitles the holder to purchase 1/100 of a share of Series 4 Junior Preferred Stock at a purchase price of S50. The Rights generally may cause substantial dilu tion to a person or group that attempts to acquire the Company on terms not approved by the Board. The Rights should not interfere with any merger or other business combination approved by the Board because the Board may, at its option, following the acquisition by any person or group of 20% of the outstanding shares of ICF Kaiser Common Stock, redeem the Rights upon payment of the redemption price of SO.01 per Right. The Rights are not triggered by the acquisition of beneficial owner ship of more than 20% of ICF Kaiser Common Stock by the initial holder of the Series 2D Preferred Stock. Unless redeemed earlier by the Board, unexercised Rights expire on January 13,2002. NOTE K--LEASES Future minimum payments on noncancelable oper ating 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, 1995 (in thousands): Year Ended February 28, 1996 1997 1998 1999 2000 Thereafter Operating Leases S 25,070 19,940 14.861 13.500 13.367 27.193 S 113,931 The total rental expense for all operating leases was 531,176,000,530,833,000, and S31.567,00Q in fiscal years 1995.1994, and 1993,respectively. Sublease rental income was S3,944,000,52,225,000,and $l,435,000,in fiscal years 1995.1994, and 1993, respectively. Minimum future sub lease rentals to be received under noncancelable subleases during fiscal 1996 are approximately 52,916,000. note l--stock options The ICF Kaiser Stock Incentive Plan provides for the issuance of options, stock appreciation rights, restrict ed 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 dis cretion 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. Stock option activity under this plan and other options granted for the last three years is as follows: Balance. March 1,1992 Granted Cancelled Expired Exercised Balance, February 28.1993 Granted Cancelled Expired Balance. February 28.1994 Granted Cancelled Expired Balance, February 28,1995 Exercisable at February 28,1995 Shares Option Price 1.872.000 S3.46 to S17.00 1,096,000 (653,000) (339,000) (30,000) 1.946,000 S5.99 to S 9.59 S3.46 to S16.23 S6.07 to S16.23 S8.25 S5.99 to S17.00 390.000 (10,000) (30,000) 2.296,000 S4.17 to S 6.79 S8.25 to S12.83 S5.04 to S12.83 S4.17 to S17.00 824,000 (453,000) (250,000) 2.417,000 S2.34 to S 4.41 S2.64 to S16.23 S4.41 to S16.23 S2.34 to S17.00 1.237.000 S2.34 to S17.00 The number of shares available for the granting of options was 1,969,000, 2,087,000, and 2,525,000 at February 28, 1995, 1994, and 1993, respectively. At February 28,1995, there were 50,000 exercisable options outstanding at an option price below the February 28, 1995, fair market value of ICF Kaiser Common Stock. In May 1992, the Company cancelled 570,000 options grant ed to employees at exercise prices of S14.32 to S16.23 and granted an equal number of options to them at an exer cise price of S8.25. NOTE M--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 compen sation; the ICF Kaiser International, Inc. Section 401 (k) Plan (401(k) Plan), a cash or deferred-compensation arrangement that allows employees to defer portions of their salary, subject to certain limitations: and the ICF Kaiser International, Inc. Employee Stock Ownership Plan (ESOP) under which the Company made contributions based on a percentage of covered compensation. Effective March 1,1993, the Company began matching a percent age of eligible employee contributions to the 401 (k) Plan. In fiscal" 1994, the Company made contributions equal to 20% of the first 4% of employee contributions to the 401 (k) Plan and 2% of covered compensation to the ESOP. Effective March 1,1994, the Company increased its matching contribution to the 401 (k) Plan to 50% of the first 4% of employee contributions and discontinued con tributions to the ESOP. Total contributions to these plans for fiscal years 1995, 1994, and 1993 were $6,466,000. $8,041,000, and $ 10,220,000, respectively. NOTE N--POSTRETIREMENT BENEFITS 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. Effective March 1, 1993, ICF Kaiser adopted SFAS No. 106. The Company elected the prospective transition method of recognizing the postretirement benefit expenses. Under this method, the Company's $14.2 million accu mulated postretirement benefit obligation (APBO) 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 APBO. 27 Effective January 1995, the Company reduced its APBO through a reduction in health care costs for certain participants by offering alternative health care options that reduced the premiums paid by both the Company and the retiree. The health care costs for those participants is less than the Company's maximum per person obligation. A 5% health care cost trend rate was assumed to value the APBO at February 28. 1995, for all future years until the year 2005 when the cost will be in excess of the Company's maximum obligation. A one-percentage-point increase in the health care cost trend rate would increase the APBO at February 28, 1995. by approximately 2%. Due to changes in assumptions made during fiscal 1995, including the change in health care options, the APBO was reduced by approximately S4 million, which will be amortized over the average remaining life expectancy of the retirees and their, spouses. The funded status of the plan is as follows (in thousands): February 28. 1995 February 28. 1994 Accumulated postretirement benefit obligation Unamortized transition obligation Unrecognized net gain (loss) Accrued postretirement benefit cost S 9.537 (12,257) 4,121 S 1.401 S 14.772 (13,236) (1.271) S 265 The net periodic postretirement benefit cost consisted of the following components (in thousands): Fiscal Year 1995 1994 Interest cost Amortization of transition obligation Net periodic postretirement benefit cost S 920 980 S 1.900 S 938 981 S 1.919 All service cost related to the retirees' benefits was included in the Company's transition obligation due to the nature of the plans which prevent additional employ ees from participating in them. Prior to the adoption of SFAS No. 106,postretirement costs were recognized when paid. Postretirement costs included in expenses in fiscal year 1993 were $1,695,000. NOTE O--BUSINESS SEGMENT, MAJOR CUSTOMERS, AND FOREIGN OPERATIONS Business Segment: ICF Kaiser operates predominantly in one industry segment in which it provides engineering, construction, and consulting services. Major Customers: Gross revenue from major customers was as follows (in thousands): U.S. Department of Energy U.S. Environmental Protection Agency Other U.S. government agencies Total U.S. government 1995 $517,478 62,783 44,969 625.230 Fiscal Year 1994 S 312.889 63,109 49.105 425.103 1993 S201.149 72.382 47.896 321.427 USX Corporation and affiliates 5.408 S 630.638 6.880 S 431.983 91.032 S 412.459 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): Foreign gross revenue Europe Pacific Other 1995 S 16,758 35,189 2,122 $ 54,069 Fiscal Year 1994 1993 S 11,600 21,997 2,793 $ 36.390 S 16.698 33.709 2.44M S 53.347 Foreign operating income (loss) Europe s 2,600 s 1,742 S 682 Pacific (350) (1.899) 2.010 Other (44) (255) 158 $ 2.206 $ (412) s 2.850 Foreign assets Europe Pacific Other s 9,950 14,813 182 s 24,945 $ 6,410 14,626 14 s 21.050 s 4.565 13.880 29 s 18.474 NOTE P--UNUSUAL ITEMS In fiscal 1994, the Company, completed a corporate reorganization, performed a comprehensive review of its key business lines and its cost structure, and designed and implemented action plans intended to return the Company to long-term profitability. As a result, the Company recorded an S8.7 million pretax charge to cover the cost of downsizing the work force, consolidating office space, renegotiating significant leases, and restructuring certain international operations. Management expects to complete office space consolidation plans in fiscal 1996. All other actions have been substantially completed as of February 28,1995. During the year ended February 28, 1993, the Company recognized the impact of several unusual items: a S5.000.000 reduction of pre-acquisition contingencies (see Note H), offset by a charge to accrue the net settle ment cost and legal expenses related to a shareholder law suit (SI,400.000): the write-down to net realizable value of certain software-related assets (53,000,000); and a charge for severance and related costs accrued as part of a cost-reduction plan (S550.000). 29 NOTE Q--SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Quarterly financial information for fiscal years 1995 and 1994 is presented in the following tables (in thou sands, except per share amounts): 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr 1995 Gross revenue S 206,154 $235,912 S 208.961 S 210.491 Service revenue Operating income Net income (loss) S 111.372 $ 125,345 S 109.919 SI 13.15U S 3,234 S 2.962 S 3.273 s 4.219 s (943) s (323) s (613) s 218 Primary and folly diluted net loss per common share s (0.07) s (0.04) s (0.05) S (11.02] Market price per share: High $ Low s 4.38 s 2.63 s 4.13 s 2.38 s 2.63 s 2.00 s 3.88 2.25 1994 Gross revenue S 197,588 S 179.227 S 146.830 S 128.012 Service revenue $100,919 $ 103.910 S 89.215 S 88.664 Operating income (loss) S (13.450) S 4,147 s 4.006 S 6" Net income (loss) before extraordinary item Net income (loss) S (14,567) s 1,349 s 1.347 S S (20,536) s 1,349 s 1.347 s (657 (657; Primary and fully diluted net income (loss) per common share: Before extraordinary item and redemption of redeemable preferred stock S (0.74) S 0.00 S 0.00 S (0.00) Extraordinary loss on early extinguishment of debt (0.29) - -- Redemption of redeemable preferred stock (0.09) Total S (1.12) S 0.00 S ___ - 0.00 s (O.l i9j Market price per share: High $ Low s 5.00 s 3.63 s 5.38 s 4.00 s 5.50 S 3.75 s 6.88 4.75 At April 18, 1995, there were 20,980.960 shares of common stock outstanding held by 1,301 holders of record. ICF KAISER INTERNATIONAL, INC. AND SUBSIDIARIES CORPORATE INFORMATION Executive Officers Office of the Chairman James O. Edwards Chairman and Chief Executive Officer Marc Tipermas Executive Vice President and Director of Corporate Development Richard K. Nason Executive Vice President and Chief Financial Officer George F. Brown, Jr. Executive Vice President and Group President of the ICF Kaiser Consulting Group Kenneth L. Campbell Senior Vice President and Treasurer Michael K. Goldman Executive Vice President and Chief Administrative Officer Stephen W. Kahane Executive Vice President and Group President of the Federal Programs Group Douglas W. McMinn Executive Vice President and Group President of the International Operations Group Alvin S. Rapp Executive Vice President and Group President of the ICF Kaiser Engineers Group Marcy A. Romm Senior Vice President and Director of Human Resources Paul Weeks, II Senior Vice President, General Counsel, and Secretary Other Corporate Officers Jacqueline Chaverini Allen Vice President for Marketing Services Frank M. Alston Senior Vice President for Contracts Tony Bansal Senior Vice President and Chief Information Officer Sara B. Brenner Vice President for Corporate Communications H. Hollister Cantus Senior Vice President for Government Relations S. Robert Cochran Senior Vice President for Corporate Development Jerry Daniels Senior Vice President for Marketing Michael F. Gaffney Senior Vice President for Business Development. Private Sector Cynthia L. Hathaway Vice President, Assistant General Counsel, and Assistant Secretary Martin A. Levine Vice President and Director of Taxes Charles B. Mudd Senior Vice President for Business Development, Infrastructure Howard K. Prol Vice President for Risk Management Donn S. Smith Senior Vice President for Project Finance 30 ICF KAISER INTERNATIONAL. INC. AND SUBSIDIARIES CORPORATE INFORMATION Operating Groups The Federal Programs Group Stephen W. Kahane Group President Charles A. Debelius Group Executive Vice President Stephen W. Bailey Group Senior Vice President Robert G. Hamilton Group Senior Vice President David C. Zimomra Group Vice President Kaiser-Hill Company, LLC George D. O'Brien President and Chief Executive .Officer Robert G. Card Executive Vice President Stanley J. Bensussen Vice President and Secretary Anthony R. Buhl Vice President John A. Hill Vice President Vik Mani Vice President Leonard A. Martinez Vice President, Chief Financial Officer, and Treasurer Robert N. Ogg Vice President Nancy R.Tuor Vice President Gary M.Voorheis Vice President Calvin A.H.Waller Vice President ICF FCaiser Hanford Company ~ Robert E. Tiller President & General Manager Robert L. Benedetti Executive Vice President and Deputy General Manager Keith J. Dempsey Senior Vice President Gerald A. Harvey Senior Vice President Kevin Adamson Vice President and Controller The ICF Kaiser Engineers Group Alvin S, Rapp Group President Peter J. OfFringa Group Executive Vice President John H. Bergerson Group Senior Vice President Bruce H. Laswell Group Senior Vice President Thomas R. McKinney Group Senior Vice President Paul J. DeCoursey Group Vice President Casey E. McGeever Group Vice President James C. Reagan Group Vice President David B. Thomas Group Vice President Willard W.Varnado, II Group Vice President 31 ICF KAISER INTERNATIONAL. INC. AND SUBSIDIARIES CORPORATE INFORMATION The International Operations Group Douglas W. McMinn Group President Nicholas Burakow Group Executive Vice President Edwin Berk Group Senior Vice President James W. Conrow Group Senior Vice President The ICF Kaiser Consulting Group George F. Brown, Jr. Group President Fred T. Arnold Group Executive Vice President Michael C. Barth Group Executive Vice President David G. Hartman Group Executive Vice President Sudhakar Kesavan Group Executive Vice President Kenneth B. Kolsky Group Executive Vice President Michael J. McKelvey Group Executive Vice President Gary W.Vicinus Group Executive Vice President Jeffrey M. Goldfarb Group Vice President and Controller Board of Directors James O. Edwards Chairman and Chief Executive Officer ICF Kaiser International, Inc. Gian Andrea Botta President EXOR America, Inc. Tom Bradley Senior Counselor Brobeck, Phleger & Harrison Tony Coelho Managing Director Wertheim Schroder & Co. Incorporated Frederic V. Malek Chairman Thayer Capital Partners Rebecca R Mark Chairman, President, and Chief Executive Officer Enron Development Corp. Robert W. Page, Sr. Executive Vice President (retired) McDermott International, Inc. Marc Tipermas Executive Vice President and Director of Corporate Development ICF Kaiser International, Inc. 32 Annual Shareholders'Meeting The Company's annual meeting of shareholders is scheduled to be held on Friday, June ,23,1995, at 9:00 a.m.at 1CF Kaiser's headquarters in Fairfax,Virginia. Stock Listing Since September 14,1993,1CF Kaiser's Common Stock has traded on the NewYork Stock Exchange (NYSE) under the symbol "ICF." Prior to that date,the Common Stock traded on the NASDAQ National Market System. The closing price of the Company's Common Stock on April 18,1995,as reported by the NYSE,was $4,125 per share, at which time there were 20,980,960 shares of Common Stock held by 1,301 holders of record. The Company believes that there are approximately 7,800 beneficial holders of Common Stock. The table below sets forth, by quarter, the high and low sales prices for the Company's Common Stock as reported by the NASDAQ National Market System (through September 13,1993) and the NYSE. Fiscal Year Ended First Quarter Second Quarter Third Quarter (September 1 - September 13) Third Quarter (September 14 - November 30) Fourth Quarter February 28,1994 High $6,875 5.50 Law $4.75 3.75 4.875 4.375 5.375 5.00 4.00 3.625 Fiscal Year Ended First Quarter Second Quarter Third Quarter Fourth Quarter February 28,1995 High $3,875 2.625 4.125 4.375 Low $2.25 2.00 2.375 2.625 10-K Report - ICF Kaiser files an annual report on Form 10-K with the Securities and Exchange Commission. A copy of the report may be obtained without charge by calling 703/934-3204 or by writing to: James P. Zeumer Director, Investor Relations ICF Kaiser International, Inc. 9300 Lee Highway Fairfax,VA 22031-1207 Transfer Agent First Chicago Trust Company of New York Mail Suite 4692 P.O.Box 2534 Jersey City, NJ 07303-2534 Shareholder Relations 201/324-0498 Common Stock CUSIP No. 449 244 10 2 Auditors Coopers & Lybrand, L.L.P. 1800 M Street, N.W. Washington, DC 20036 202/822-4000 For More Information Financial analysts,stockbrokers,and interested investors should contact: James P. Zeumer Director, Investor Relations ICF Kaiser International, Inc. 9300 Lee Highway Fairfax,VA 22031-1207 703/934-3208 Other individuals should contact: Sara Brenner Vice President for Corporate Communications ICF Kaiser International, Inc. 9300 Lee Highway Fairfax,VA 22031-1207 703/934-3004 Worldwide Headquarters ICF Kaiser International, Inc 9300 Lee Highway Fairfax, Virginia 22031-1207 USA 703/934-3600 Regional Headquarters 1800 Harrison Street Oakland, CA 94612-3430 510/419-6000 Four Gateway Center Pittsburgh, PA 15222-1207 412/497-2000 Other Major U.S. Offices Tempe, AZ Livermore, CA Los Angeles, CA Rancho Cordova, CA San Diego, CA San Francisco, CA San Rafael, CA Universal City, CA Colorado Springs, CO Denver, CO Lakewood, CO Cheshire, CT Washington, DC Homestead, FL Jacksonville, FL Miami, FL Tampa, FL Atlanta, GA Chicago, IL Gary, IN Ruston, LA Boston, MA Abingdon, MD Baltimore, MD Raleigh, NC Woodbridge, NJ Albuquerque, NM Los Alamos, NM 5/95 Ely, NV Los Vegas, NV New York, NY Cincinnati, OH Dallas, IX Houston,TX Port Orchard, WA Richland, WA Seattle, WA Pacific Rim Perth Taipei Europe Lisbon London Moscow Paris Americas Mexico City ^7 HjJL IVrVloijIV Worldwide Excellence in Meeting Client Needs ICF Kaiser Common Stock is listed on the New York Stock Exchange under the symbol ICF. 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