10-K405
1
FORM 10-K FOR THE PERIOD ENDING DECEMBER 31, 1994
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM
_________________TO_________________
COMMISSION FILE NUMBER 0-4643
ROY F. WESTON, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Pennsylvania 23-1501990
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(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1 Weston Way
West Chester, Pennsylvania 19380-1499
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (610) 701-3000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Series A Common Stock (par value $.10 per share)
------------------------------------------------
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
- -
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of Series A Common Stock reported
in the NASDAQ National Market System on February 17, 1995, was approximately
$30,062,786. For the purposes of calculation, all executive officers and
directors of the Company and all beneficial owners of more than 10% of the
Company's stock were considered affiliates. As of February 17, 1995, the
Registrant had outstanding 7,433,774 shares of Series A Common Stock ($.10 par
value) and 2,111,784 shares of Common Stock ($.10 par value).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's 1994 Annual Report to Shareholders are incorporated
by reference into Part II of this report. Portions of the Company's Proxy
Statement to be filed with the Securities and Exchange Commission for the
Annual Meeting of Shareholders to be held on May 8, 1995, are incorporated by
reference into Part III of this report.
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TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS 2
ITEM 2. PROPERTIES 8
ITEM 3. LEGAL PROCEEDINGS 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
EXECUTIVE OFFICERS OF THE REGISTRANT 9
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 10
ITEM 6. SELECTED FINANCIAL DATA 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 11
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS 11
ITEM 11. EXECUTIVE COMPENSATION 11
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 11
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 11
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 12
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PART I
ITEM 1. BUSINESS
GENERAL
Roy F. Weston, Inc. is a professional services organization that
provides a broad range of consulting, engineering, remedial construction, and
project management services to solve environmental and health and safety
problems associated with air, water, and land pollution; hazardous material and
toxic waste treatment and disposal; workplace hazards; product use; and energy
conservation. These services are made available to governmental and industrial
clients through the Company's staff of more than 2,700 professional and support
personnel in 60 offices and laboratories worldwide. The Company assists its
clients from the initial identification and definition of a problem, through
the planning, evaluation, and design stages, to the implementation of
cost-effective, technologically feasible, and politically acceptable solutions.
The Company's services include laboratory analysis and evaluation of samples of
hazardous, toxic, and other environmentally significant materials; development
of cost-effective technologies and solutions to environmental problems;
selection of sites, obtaining of governmental permits and the preparation of
specifications and designs for constructing remedial systems and facilities;
and construction, startup, and operation of facilities. The Company's services
may be used individually or in combination, as required, to meet its clients'
needs.
Since its incorporation in 1957, the Company has been a pioneer in
providing solutions to environmental, health and safety problems. As
environmental concerns have grown in complexity and become the subject of
heightened public awareness and extensive governmental regulation, the
Company's strategy has been to build an organization with a high level of
sophisticated professional skills and a broad range of scientific,
technological, and management resources. The Company provides a total systems
approach that involves studying its clients' needs and designing
cost-effective, customized solutions that address those needs.
SERVICES
The Company provides its services by combining its professional skills
and technological resources in an integrated systems approach, which uses
technical information and program management capabilities as well as cost
control systems. The services performed by the Company for its clients
typically include one or more of the following: consultation with the client to
determine the nature and scope of a project; on-site collection of samples;
on-site monitoring and measurement of industrial discharges and emissions;
analysis of samples in the Company's laboratories or mobile testing units;
identification and evaluation of a problem and its impact; development and
design of a process for solving a problem; preparation of reports for obtaining
regulatory agency permits; design and preparation of drawings and
specifications for constructing a facility to effect a solution; construction
of a facility or implementation of a cleanup; and operation and maintenance of
a facility. These services comprise the following three broad categories,
which may be used individually or in combination with each other: consulting
and engineering; analytical laboratory services; and construction and
remediation.
CONSULTING AND ENGINEERING
The Company's consulting and engineering services involve the
identification and characterization of a client's problems; the evaluation of
alternative solutions; and the selection, design, and development of a
technologically feasible, cost-effective, and politically acceptable solution.
These services use professionals from many different scientific and
technological disciplines to assess the long-term effects and the risks
associated with the ultimate environmental impact of clients' activities and
products. In performing environmental impact and risk assessments, the
Company's professionals examine the relative effectiveness of various
technological approaches for achieving permanent solutions and ensuring that
additional environmental concerns are not created in the course of solving the
primary problem.
The Company applies its skills to all phases of environmental matters
including those relating to hazardous and toxic substances; solid waste
management; management of wastewater, groundwater, and air resources; indoor
air quality; health and safety; energy conservation; life cycle assessment; and
major program management.
HAZARDOUS AND TOXIC SUBSTANCES. Services relating to hazardous and
toxic substances include the assessment of potentially hazardous waste and
toxic materials; the reduction or elimination of sources of hazardous and toxic
materials; the undertaking of remedial investigation and engineering
feasibility studies; the operation of
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hazardous waste treatment systems; and consulting to obtain government
environmental permits. The Company provides engineering for the destruction or
detoxification and stabilization of hazardous waste.
SOLID WASTE MANAGEMENT. Solid waste services include planning, decision
making, and project implementation for recycling, composting, materials
processing, source reduction, waste-to-energy and landfill programs and
facilities. The Company provides total solid waste management services,
including permitting, siting, procurement, design, construction, testing, and
operation of solid waste facilities, as well as expertise in addressing public
awareness and acceptance issues that affect the success of solid waste programs
and facilities.
MANAGEMENT OF WASTEWATER, GROUNDWATER, AND AIR RESOURCES. Wastewater
management services include industrial and municipal feasibility studies,
engineering, economic evaluations, and design and consultation regarding the
operation of wastewater treatment facilities. Wastewater treatment facilities
are required by certain industries for the treatment of polluted water
generated by various manufacturing processes and by municipalities for the
treatment of sewage. The Company provides groundwater and surface water
resource management services, including water quality monitoring and
assessment, studies of the impact of surface and subsurface activities on
aquifer systems, development of water supplies, and development of resource
management programs. Air resources management services include siting and
obtaining permits for air pollution control facilities, sampling and monitoring
emissions, regulatory compliance, and designing and monitoring of facility
construction and other systems for the removal of particulate matter, acid
gases, and other pollutants. Regulatory compliance services include reviews of
clients' facilities to determine current and future degrees of compliance with
pollution standards. Site assessment reviews involve the inspection of a
facility to identify the environmental risks and potential environmental
effects of discharges of toxic emissions.
INDOOR AIR QUALITY. The Company integrates many of its engineering
services to define and solve indoor air quality problems, including asbestos,
radon, toxic air pollutants and "sick-building syndrome." Assessment
techniques are aided by state-of-the-art electron and optical microscopy and
chemical analysis. Industrial hygiene professionals work closely with design
engineers in solving indoor air quality problems.
HEALTH AND SAFETY. Health and safety specialists coordinate industrial
hygiene, safety, training, and medical surveillance programs; conduct
inspections; and prescribe protection and compliance procedures to be used when
working with hazardous materials or in hazardous environments. "Right-to-know"
legislation has increased the demand for services that promote improved
employee safety in the workplace.
ENERGY CONSERVATION. The Company has conducted major energy
conservation engineering and management projects for industry and government,
including energy audits, coal conversion studies, alternative energy studies,
and cogeneration system studies for energy producers.
POLLUTION PREVENTION/LIFE CYCLE ASSESSMENT/DESIGN FOR ENVIRONMENT.
These services help clients assess and reduce the total environmental impact of
their processes, products, and packaging by looking at the full product life
cycle from raw materials acquisition, through design, manufacturing,
distribution, use and reuse/recycling or disposal.
MAJOR PROGRAM MANAGEMENT. Major program management involves all phases
of large-scale environmental and health and safety problems of industry and
government. The Company has the ability to accept overall responsibility for
siting, evaluating, designing, implementing, and managing environmental
programs, and to apply its diversified services, as appropriate, in an
integrated systems approach. The Company provides the management systems and
the direct involvement of its most senior management to deal with the
complexities of the underlying environmental problems, as well as the
commitment of large numbers of personnel at geographically dispersed sites for
extended timeframes. The Company typically bids for contracts as the prime
contractor and forms subcontractor teams in those instances where
subcontractors provide expertise and staffing that will substantially enhance
the Company's ability to obtain and perform contracts. Subcontractors may
include certain competitors of the Company. Although the Company believes that
major program management will be increasingly used by industry as environmental
issues become more challenging, the primary market for major program management
services is the federal government.
ANALYTICAL LABORATORY SERVICES
The Company offers services for the detection and measurement of
hazardous materials, toxic wastes, and other chemicals and substances found in
air, soil, and water, and in industrial wastes and emissions. Services
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provided by the Company include source sampling and characterization of organic
pollutants such as pesticides, herbicides, volatile solvents, dioxins, and
PCBs, and inorganic pollutants such as asbestos, trace metals, and sulfur. The
Company monitors pollutants to assist clients in complying with environmental
regulations and to evaluate the ongoing environmental effects of clients'
activities. The Company uses state-of-the-art computer-assisted equipment,
such as gas chromatograph/mass spectrometers, to measure trace concentrations
of pollutants. A modern microscopy laboratory provides complete optical
scanning microscopic measurements for asbestos analysis. The Company also uses
a sophisticated data management system to track the status and results of
analyses, to perform quality assurance checks, to provide sample management and
to produce data reports.
Analytical services are performed in the Company's three laboratories
located in Lionville, Pennsylvania; Stockton, California; and University Park,
Illinois. The Company is currently certified or approved by 38 states to
provide environmental analyses and is also licensed by the Nuclear Regulatory
Commission (NRC) to handle and analyze "mixed wastes" that contain radioactive
as well as chemical and biological materials. Additionally, the Company has a
laboratory in Auburn, Alabama, certified by the American Industrial Hygiene
Association (AIHA).
CONSTRUCTION AND REMEDIATION
Consistent with the Company's strategy of providing complete solutions
to its clients' problems, the Company provides remediation and construction
services which can implement the solutions designed by its consulting and
engineering group, or designed by others. The Company also provides hazardous
waste cleanup; landfill design and construction; water management systems;
wastewater system construction and operation; decommissioning and demolition of
facilities and process systems; storage tank management; and on-site thermal
treatment systems.
The Company has designed and constructed a patented mobile
low-temperature thermal desorption system (LT3(R)). The LT3(R) is designed for
stripping volatile organic compounds (VOCs) from soil. The contaminated soils
are heated to vaporize moisture and VOCs. The resultant clean soil is then
suitable for use as on-site backfill. The Company also has designed and
constructed two high temperature transportable thermal processing systems, the
"TIS-5" and the "TIS-20." These systems treat contaminated soils by a thermal
process and the clean soil is then suitable for use as on-site backfill. The
TIS-5 is permitted by the Environmental Protection Agency (EPA) under
applicable Toxic Substance Control Act of 1976 (TSCA) regulations to burn
certain hazardous materials and is operated in accordance with those permit
requirements. Additional operating approvals are occasionally required and
obtained from state and local authorities.
Transportable thermal incineration technology has recently come under the
same legislative and regulatory pressures as fixed unit incineration
technology. In May 1994, EPA issued a new policy which required additional
studies to be conducted before thermal incineration technology could be
selected as the remedy at a Superfund site. This policy was applied
retroactively to sites where thermal incineration technologies were already
selected. The impact on the Company's business cannot be determined at this
time. The Company has been exploring alternative uses for its thermal units in
the international markets should regulatory and legislative action prevent
their use at domestic remediation sites. During 1994, the Company was
scheduled to incinerate soils at a remediation site but the contract was
partially terminated and additional studies are ongoing.
CUSTOMERS AND MARKETING
The Company's marketing strategy emphasizes its ability to offer a broad
range of specialized services designed to meet the needs of its clients in a
timely and cost-efficient manner. The Company has the capability to undertake
not only small tasks requiring a few professionals, but also the management,
staffing, design, and implementation of major projects that last for several
years and involve many employees in several geographic locations.
The Company's marketing efforts are directed from regional offices
nationwide to three client sectors: private industry; state and local
governments; and the federal government. Most new contracts are acquired by
senior technical and management professionals. These senior professionals are
responsible for directing contract projects, monitoring quality assurance, and
integrating the delivery of the Company's services. They also develop and
maintain long-term working relationships with clients' management. The Company
participates in industrial trade shows and technical conferences concerning
environmental and health and safety issues, and sponsors related technical
seminars.
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FEDERAL
In the federal sector, the Company performs contracts for the Department
of Energy (DOE), the Environmental Protection Agency (EPA) and the Department
of Defense (DOD), as well as for other federal agencies. The Company develops
comprehensive waste management and remediation programs at many priority sites
throughout the country.
The Company derived 56%, 54%, and 54% of its consolidated gross
revenues from the federal government for the years ended December 31, 1992,
1993, and 1994, respectively. Gross revenue percentages from the DOD, EPA, and
DOE for each of the fiscal years are as follows:
PERCENTAGES OF CONSOLIDATED GROSS REVENUES
FOR THE YEARS ENDED DECEMBER 31
1992 1993 1994
DOD 20% 19% 19%
EPA 19% 17% 18%
DOE 16% 17% 15%
OTHER 1% 1% 2%
---- ---- ----
56% 54% 54%
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The Company is a major provider of services to the federal government
and thus is subject to audit with respect to costs and fees charged to the
federal government. Revenues associated with federal overhead rates under
government cost reimbursable contracts are adjusted when variances are
determined on at least an annual basis. Provisions for losses on contracts are
recorded when they are identified. As a major government contractor, the
Company is required to comply with numerous, complex laws and regulations; the
failure to comply with which can give rise to sanctions or liabilities. The
Company is involved in U.S. government investigations and audits from time to
time in connection with the services it provides to the federal government and
to ascertain compliance with government contracting requirements.
INDUSTRIAL
The Company provides a full range of services for industrial clients.
In addition to complying with regulatory requirements, companies are
recognizing that the environmental impact must be considered from the inception
of a product, throughout its use and final disposal. Corporate clients, which
range from small business concerns to Fortune 500 companies, are offered a wide
range of consulting and engineering, analytical, and construction and
remediation services. Market segments served include automotive; chemicals;
petroleum; pulp and paper; electronics; and legal and financial.
STATE AND LOCAL GOVERNMENT
The Company renders environmental consulting and infrastructure-related
activities to many state and local governments and agencies. A growing number
of cities, regional authorities, and state governments are instituting
long-range programs to update essential facilities. Because these projects
require comprehensive environmental planning and engineering, they will
continue to be an important business component. Typical projects include the
design of water supply and wastewater systems; solid waste management; asbestos
management; computer-based geographic mapping; and landfill design.
COMPETITION
The environmental and health and safety markets are very competitive and
require highly skilled, experienced technical and management personnel, and
sophisticated technological equipment requiring substantial capital investment.
Competition is based on reputation, quality of service, price, expertise, and
local presence. In each of its specific service areas, the Company competes
with many engineering and consulting firms that are both larger and smaller
than the Company, although no firm currently dominates any significant portion
of those service areas. Some
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of these competitors have greater financial resources than the Company. The
Company believes it is one of only a few companies that offer a full range of
services for solving complex environmental and health and safety concerns.
PATENTS AND TECHNOLOGY
The Company owns six patents on remediation technologies and has filed
additional patent applications. The Company also claims copyright and trade
secret protection on certain of its computer software, publications, and
technologies. The Company does not believe that such patents and copyrights
are a significant factor in its business.
BACKLOG
The Company's net contract backlog (excluding estimated project expenses
that are directly passed through to customers) was approximately $107.5 million
and $112.7 million at December 31, 1993 and 1994, respectively. Additionally,
the Company derives revenues from open order contracts and from activities
related to emergency responses. As work assignments are approved and funded,
the Company includes these amounts in the net contract backlog. As is
customary in the industry, contracts are subject to cancellation by the
customer, changes in scope of work, and delays in project startup. During the
fourth quarter 1994, the Company reduced reported backlog by $3.7 million
resulting from the partial termination of a remediation project. (See Business
- Services - Construction and Remediation.) The Company anticipates that the
majority of its backlog will be realized in the current fiscal year.
POTENTIAL LIABILITY AND INSURANCE
A substantial portion of the Company's gross revenues is derived from
work involving hazardous materials, toxic wastes, and other pollutants. Such
efforts frequently entail significant risks of liability for environmental
damage, personal injury, and fines and costs imposed by regulatory agencies. A
substantial number of the Company's contracts require indemnification of a
client for performance claims, damages or losses unless such injury or damage
is solely the result of the client's negligence or willful acts. The Company
has been able to insure against most liabilities it may incur in this regard.
The Company has obtained coverage with commercial carriers to insure
against pollution liability claims. Although this insurance covers many of the
Company's environmental exposures, there are instances where project-specific
pollution insurance policies are necessary. The Company will continue to
evaluate exposures associated with each project to determine if additional
coverage is necessary. The Company continues to be partially self-insured
through its subsidiary, Cardinal Indemnity Company of North America (Cardinal),
a wholly-owned insurance company. Cardinal provides professional liability and
pollution coverage for deductible amounts of the commercial insurance coverage.
While the insurance carried by the Company may not be sufficient to
cover all claims that may arise, and while insurance carriers may not continue
to make coverage available to the Company, management believes it has provided
an adequate level of insurance.
The Company has also attempted to contractually protect itself through
agreements with its clients to limit its liability and indemnify the Company,
although the Company has not always been successful in obtaining such
agreements. Most of the Company's contracts with EPA involving Superfund
monies, the contract with the DOE's Office of Civilian Radioactive Waste
Management (OCRWM), and some state contracts that employ federal Superfund
dollars contain provisions whereby the respective governmental agency agrees to
indemnify the Company for third-party claims to the extent that such claims are
not covered by insurance and appropriated funds are available, although the
Company does not receive any assurance that any such appropriated funds will be
made available. EPA has issued Final Response Action Contractor
Indemnification Guidance (the Indemnification Guidance) applicable to contracts
signed in or after 1986, the terms of which limit EPA's contractor
indemnification under certain Superfund contracts retroactively to 1986 and
prospectively, under certain circumstances. The Indemnification Guidance
states that future contracts will not provide for contract indemnification,
unless EPA is unable to obtain responsible, competitive proposals without such
an indemnification.
The Company has also developed and implemented a quality assurance
program and a health and safety program. These programs establish certain
minimum requirements for all project work and require the development of
project quality assurance plans and health and safety plans. The objective of
the quality assurance program is to provide additional assurance that project
performance is of appropriate quality to the project requirements. The
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objective of the health and safety program is to protect project personnel from
exposure to hazardous substances and situations. The scope of both programs
includes the establishment of policy and procedures, staff training and
operational review and audit.
The Company and its employees are subject to various state, local, and
federal licenses, laws and regulations, and believes that it is in substantial
compliance with those requirements.
PERSONNEL
As of December 31, 1994, the Company employed approximately 2,700
employees, many of whom had advanced degrees in a variety of technical
disciplines. Of these, 91 employees held doctorates, 537 held master's
degrees, 198 were registered professional engineers, and 32 were diplomates of
the American Academy of Environmental Engineers. The Company's ability to
remain competitive will depend on its ability to attract and retain qualified
personnel.
REGULATION
Demand for the Company's services are principally driven by laws and
regulations, the reauthorization, modification or elimination of which may
significantly affect the Company's business. Several major federal
environmental laws that have a significant impact on the work of the Company
are scheduled for Congressional reauthorization in 1995. These include the
statutes that:
- Protect the chemical, physical and biological integrity of water in
the United States (Clean Water Act of 1977 and associated laws);
- Regulate the handling of hazardous waste and mandate state oversight
of solid waste (Resource Conservation and Recovery Act of 1976);
and,
- Regulate the identification, remediation and accountability for
hazardous waste sites (Superfund Amendments and Reauthorization Act
of 1986).
In addition, administrative regulations mandated by the 1990 amendments
to the Clean Air Act are likely to play a significant role in the Company's
services to its industrial clients in the areas of emission and ambient air
monitoring, air quality modeling and permitting, and assistance in compliance
certification.
The principal federal laws that affect the Company's business are
described below.
COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION, AND LIABILITY ACT OF
1980 (CERCLA OR SUPERFUND) AND SUPERFUND AMENDMENTS AND REAUTHORIZATION ACT
(SARA) OF 1986: CERCLA addresses past waste disposal practices by providing
means for identifying and cleaning up hazardous waste sites. The law
authorizes EPA to compel responsible parties to remediate abandoned sites.
Where initial enforcement actions would result in lengthy delays, or where
responsible parties cannot readily be identified, CERCLA authorizes funds for
cleanups. Congress enacted SARA in 1986 to amend CERCLA and reauthorize
Superfund. SARA strengthens EPA's authority to conduct short- and long-term
enforcement, and expands state involvement in the cleanup process. SARA also
expands EPA's commitment to research and development, training, health
assessments, and public participation.
Sites considered to be most in need of remediation are ranked on EPA's
National Priorities List (NPL). By January 1995, nearly 1,300 federal and
nonfederal sites were listed or proposed for the NPL, and some 13,000 other
hazardous waste sites remained on the CERCLA inventory of potential trouble
spots.
CLEAN WATER ACT (CWA): Amended in February 1987, CWA authorized $18
billion in federal revolving loan funds through 1994 for construction grants
and startup money to build wastewater treatment plants. The Company believes
that CWA is accelerating the market for municipal wastewater treatment plant
design and construction services, which the Company provides. Controls imposed
by CWA on toxic effluents also are stimulating industrial expenditures.
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RESOURCE CONSERVATION AND RECOVERY ACT OF 1976 (RCRA): RCRA controls
the present and future management of newly generated hazardous wastes by
mandating that private industry -- generators, transporters and disposers --
monitor and regulate their disposal of such wastes. As a result of the growing
emphasis on the minimization of industrial process wastes, the increasing
shortage of hazardous waste management facilities, and the considerable costs
associated with disposal, RCRA will continue to be a key regulatory program.
The Company believes that responding to the needs of industry under RCRA will
continue to comprise an increasing part of its business.
THE CLEAN AIR ACT (CAA) AND THE CLEAN AIR ACT AMENDMENTS (CAAA): The
CAAA of 1990 charged EPA with promulgating more than 400 regulations and
developing guidelines and procedures in the ensuing 10 years. The sweeping
provisions of the CAAA are designed to diminish three major threats to the
environment: acid rain, urban air pollution, and air toxic emissions. The
revisions also establish a national permit program and a stronger enforcement
program to make the CAA easier to monitor and ensure compliance. The CAA and
the CAAA should continue to increase the Company's activities in emission and
ambient air monitoring, air quality modeling, and permitting assistance to its
industrial clients. Compliance certification, including the development and
implementation of data management and reporting systems, should expand the
Company's services to industry.
The Company believes that in addition to services required by CERCLA,
RCRA, CWA, and CAA, other current federal laws will affect demand for the
Company's services in the private and public sectors. These laws include the
Safe Drinking Water Act Amendments of 1986, the Toxic Substances Control Act of
1976, the Occupational Safety and Health Act of 1970, the Intermodal Surface
Transportation and Efficiency Act of 1992, the Federal Facilities Compliance
Act of 1992, and the Energy Policy Act of 1992.
ITEM 2. PROPERTIES
The Company's principal offices are located on a 53-acre tract in West
Whiteland Township, Chester County, Pennsylvania, in the suburbs of
Philadelphia, and include five major buildings providing a total of
approximately 150,000 square feet of space.
The Company also leases an aggregate of approximately 700,000 square
feet of office and laboratory space in 55 offices located in 26 states, the
District of Columbia, and Ireland. Aggregate lease payments in 1994 were $9.4
million, of which $2.2 million were subject to direct reimbursement from
projects. These leases for office and laboratory facilities are generally
short- term with durations of 5 years or less.
ITEM 3. LEGAL PROCEEDINGS
- ATLANTIC RICHFIELD CO. (ARCO) VS. TORGER L. OAAS; MONTANA POLE AND
TREATING CO.; BANK OF MONTANA; RIEDEL ENVIRONMENTAL SERVICES, INC.; ROY
F. WESTON, INC.; AND BURLINGTON NORTHERN RAILROAD, U.S. DISTRICT COURT
FOR THE DISTRICT OF MONTANA, C.A. NO. CV-90-75-BU-PGH.
In October 1991, ARCO filed a Complaint in the Montana District Court
against the Company and others alleging that the Company, who worked at the
Montana Pole and Treating site for EPA under the Technical Assistance Team
(TAT) contract in 1985, negligently performed its oversight and other duties
and caused additional environmental damage at the site. ARCO further alleges
that the Company's activities at the site constitute those of an "operator" of
a "facility" under CERCLA and related state statutes and, therefore, the
Company is jointly, severally, and strictly liable for its share of current and
future costs of evaluation and site cleanup.
The Company believes that it executed its responsibilities properly at
this site and that it otherwise has good and meritorious defenses to these
allegations and is vigorously defending the action. EPA has honored its
indemnification obligation under the TAT contract, as to both the Company's
cost to defend and as to any liability. This indemnification obligation is not
adversely affected by the Indemnification Guidance, because it is based upon a
pre-1986 contract. (See Business - Potential Liability and Insurance.)
The Company is subject to certain claims and lawsuits in connection with
work performed in the ordinary course of its business. In the opinion of
management, all claims currently pending are either adequately covered by
insurance or will not result in a material adverse effect on the financial
position of the Company.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
Company's executive officers:
NAME AGE POSITION WITH THE COMPANY
A. Frederick Thompson 53 Chairman of the Board
William J. Marrazzo 45 President and Chief Executive Officer, and Director
Peter J. Marks 53 Executive Vice President and Chief Operating Officer, and Director
M. Christine Murphy 46 Executive Vice President and Chief Financial Officer, and Director
Steven C. Vorndran 47 Executive Vice President of Corporate Development, and Director
M. Salah Abdelhamid 50 Vice President and Federal Programs Division Manager, and Director
William G. Mecaughey 39 Vice President and Corporate Controller
John W. Thorsen 45 Vice President and Design and Applied Technology Division Manager, and Director
Vishwa K. Varma 46 Vice President and Southeastern Region Manager, and Director
Officers are elected annually and hold office until their successors
are elected and qualified.
A. FREDERICK THOMPSON, PH.D., P.E., 53, CHAIRMAN OF THE BOARD. Dr.
Thompson has been the Chairman of the Board since October 1991, having
previously served as Vice Chairman from 1989 to 1991, and as Executive Vice
President from 1987 to 1990, Vice President, Quality Assurance and Finance from
1980 to 1987, and Assistant Secretary from 1980 to 1990. He also served as
President of Cardinal Indemnity Company of North America, a wholly-owned
subsidiary of the Company, from 1988 to 1991 and is a director of Weston
International, a wholly-owned subsidiary of the Company. Dr. Thompson is a
son-in-law of Mr. Roy F. Weston, Chairman Emeritus, and a brother-in-law of Mrs.
Katherine Swoyer Fittipaldi, Director. Dr. Thompson has been a Director of the
Company since 1975.
WILLIAM J. MARRAZZO, 45, PRESIDENT AND CHIEF EXECUTIVE OFFICER. Mr.
Marrazzo has been the President of the Company since September 1990 and the
Chief Executive Officer since October 1991. Mr. Marrazzo is also Chairman of
the Board of Weston International. He served as Chief Operating Officer from
1989 to 1991 and as Executive Vice President from 1989 to 1990. Mr. Marrazzo
joined the Company in 1988 as a Vice President and a Division Manager. He
served as Chairman and President of Weston Services, Inc. from 1990 to 1991.
Weston Services, Inc. was a wholly-owned subsidiary until December 31, 1991,
when it merged into the Company. From 1980 to 1988, he was the Commissioner of
the Water Department for the City of Philadelphia, with an accountability for
its complete management. Financially independent from the City of
Philadelphia, the Water Department is one of the nation's largest water and
wastewater utilities. Mr. Marrazzo has been a Director of the Company since
1988.
PETER J. MARKS, 53, EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING
OFFICER. Mr. Marks has been in his current position since November 1994,
having served previously as Manager of the Environmental and Health Sciences
Division since 1989 and has been a Vice President since 1979. Mr. Marks is
also a director of Weston International, a wholly-owned subsidiary of the
Company.
M. CHRISTINE MURPHY, CPA, 46, EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER. Ms. Murphy joined the Company in September 1990. She has
been the Executive Vice President, Quality Assurance and Finance since 1990
and Chief Financial Officer since November 1991. She is also Chairman and
President of Cardinal Indemnity Company of North America; and Chairman and
President of Roy F. Weston (Delaware), Inc. and Roy F.
9
11
Weston (IPR), Inc., wholly-owned subsidiaries of the Company; and a director of
Weston International, a wholly-owned subsidiary of the Company. From 1985 to
1989, Ms. Murphy served as the Revenue Commissioner for the City and School
District of Philadelphia. Prior to that time, she was a partner with Arthur
Young & Co., a predecessor of Ernst & Young. Ms. Murphy was with Arthur Young
& Co. from 1971 to 1985. Ms. Murphy has been a Director of the Company since
1990. Ms. Murphy is a director of CoreStates Bank, N.A., a wholly-owned
subsidiary of CoreStates Financial Corp.
STEVEN C. VORNDRAN, 47, EXECUTIVE VICE PRESIDENT OF CORPORATE
DEVELOPMENT. Mr. Vorndran has been in his current position since November 1994,
having previously served as Executive Vice President and Chief Operating Officer
since October 1991, as Vice President from 1989 to 1990, when he joined the
Company, and as Manager of the Federal Programs Division of the Company from
1990 to 1991. Mr. Vorndran is also President and a director of Weston
International, a wholly-owned subsidiary of the Company. From 1982 to 1989, Mr.
Vorndran was with Westinghouse Electric Corporation, where he served as a
manager responsible for the development of thermal technologies, related
engineering, and technical functions. Mr. Vorndran has been a Director of the
Company since 1991.
M. SALAH ABDELHAMID, PH.D., P.E., 50, VICE PRESIDENT, FEDERAL PROGRAMS
DIVISION MANAGER. Dr. Abdelhamid joined the Company in 1986. He has served as
a Vice President of the Company since 1987 and served as the Manager of the
Design and Applied Technology Division from November 1989 to December 1994.
Dr. Abdelhamid has served as the Manager of the Federal Programs Division since
January 1995. Dr. Abdelhamid also served as President of Weston Services, Inc.
from August 1991 until this wholly-owned subsidiary merged into the Company,
effective December 31, 1991. Prior to joining the Company, Dr. Abdelhamid
served as Director of Environmental Projects with Ebasco Services Incorporated
from 1983 to 1986.
WILLIAM G. MECAUGHEY, CPA, 39, VICE PRESIDENT AND CORPORATE CONTROLLER.
Mr. Mecaughey joined the Company in October 1991 as Vice President and
Corporate Controller. From 1977 to 1991, Mr. Mecaughey was employed by Ernst &
Young, most recently as senior manager.
JOHN W. THORSEN, P.E., 45, VICE PRESIDENT, DESIGN AND APPLIED
TECHNOLOGY DIVISION MANAGER. Mr. Thorsen joined the Company as a Project
Manager in 1981. He served as Manager of the Chicago office from 1985 to 1989.
He served as Manager of the Midwestern Region from 1987 to December 1994 and
as Vice President since 1985. Mr. Thorsen has served as the Manager of the
Design and Applied Technologies Division since January 1995. Prior to joining
the Company, Mr. Thorsen managed the State of Wisconsin Hazardous Waste
Management and Hazardous Material Spill Programs from 1978 to 1981.
VISHWA K. VARMA, 46, VICE PRESIDENT, SOUTHEASTERN REGION MANAGER. Mr.
Varma joined the Company in 1988 as a Vice President. He has also served as
the Manager of the Southeastern Region since 1990. Mr. Varma served as
President of ATC, Inc., an environmental engineering and consulting company,
from 1983 to 1988, when it was acquired by the Company.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information with respect to this item is incorporated by reference
herein from the information in the Company's 1994 Annual Report to Shareholders
in Notes 5 and 14 to the Consolidated Financial Statements on pages 30 and 37,
respectively.
ITEM 6. SELECTED FINANCIAL DATA
Information with respect to this item is incorporated by reference
herein from the information in the Company's 1994 Annual Report to Shareholders
on page 20.
10
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information with respect to this item is incorporated by reference
herein from the information in the Company's 1994 Annual Report to Shareholders
on pages 17 to 20.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) Information with respect to this item is incorporated by reference
herein from the information in the Company's 1994 Annual Report to Shareholders
on pages 21 to 37.
(b) Selected Quarterly Financial Data (Unaudited) are set forth in Note
14 to the Consolidated Financial Statements contained in the Company's 1994
Annual Report to Shareholders on page 37 and are incorporated by reference
herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information with respect to this item is set forth in the Company's
definitive Proxy Statement (the "Proxy Statement") to be filed with the
Securities and Exchange Commission for the Annual Meeting of Shareholders to be
held on May 8, 1995, under the headings "Nominees for Election as Directors"
and "Compliance with Section 16(a) of the Exchange Act" and is incorporated
herein by reference. Information regarding the Company's executive officers is
included in Part I on pages 9 and 10 herein.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this item is set forth in the Proxy
Statement under the heading "Executive Management Compensation" and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to the ownership of securities of the Company
by certain persons is set forth in the Proxy Statement under the heading
"Principal Shareholders" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to transactions with management and others is
set forth in the Proxy Statement under the headings "Compensation Committee
Interlocks and Insider Participation," "Insurance and Supplemental Retirement
Benefits," and "Other Matters" and is incorporated herein by reference.
11
13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. Consolidated Financial Statements:
The information appearing in the Company's 1994 Annual Report to
Shareholders as described in Item 8 is incorporated herein by reference.
2. Financial Statement Schedule:
- Report of Independent Accountants
- Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
With the exception of the consolidated financial statements and the
independent accountants' report thereon listed in the above index, the
information referred to in Items 5, 6, and 7, and the supplementary
quarterly financial information referred to in Item 8, all of which are
included in the 1994 Annual Report to Shareholders of Roy F. Weston,
Inc. and incorporated by reference into this Annual Report on Form 10-K,
the 1994 Annual Report to Shareholders is not to be deemed "filed" as
part of this report.
3. Exhibits:
The following exhibits are filed herewith unless otherwise indicated:
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 Amended and Restated Articles of Incorporation of the Company. Incorporated by reference to Exhibit 3(a) to the
Company's Registration Statement on Form S-1 (Registration No. 33-20834) ("No. 33-20834").
3.2 By-Laws of the Company. Incorporated by reference to Exhibit 3(b) of the Company's Annual Report on Form 10-K for
the year ended December 31, 1989.
4.1 Indenture between the Company and Mellon Bank, N.A. relating to the 7% Convertible Subordinated Debentures due
April 15, 2002. Incorporated by reference to Exhibit 4 to the Company's Registration Statement on Form S-1
(Registration No. 33-13020) ("No. 33-13020").
4.2 Agreement of Resignation/Appointment and Acceptance between Mellon Bank, N.A., Security Pacific National Trust
Company, and the Company relating to the 7% Convertible Subordinated Debentures due April 15, 2002. Incorporated by
reference to Exhibit 4.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991.
9.1 Voting Trust Agreement among certain shareholders of the Company. Incorporated by reference to Exhibit 9(a) to the
Company's Registration Statement on Form S-1 (Registration No. 33-5914) ("No. 33-5914").
9.2 Form of Restrictive Stock Transfer Agreement among certain shareholders of the Company. Incorporated by reference
to Exhibit 9(b) to No. 33-5914.
10.1 Form of the Company's Retirement Supplement to Split Dollar Life Insurance Agreement. Incorporated by reference to
Exhibit 10(c) to No. 33-5914.
12
14
EXHIBIT NO. DESCRIPTION
----------- -----------
10.2 Form of the Company's Executive Supplemental Benefit Plan - Supplemental Retirement Agreement. Incorporated by
reference to Exhibit 10(d) to No. 33-5914.
10.3 Employment Agreement dated November 12, 1973, between Roy F. Weston and the Company, as amended. Incorporated by
reference to Exhibit 10(e) to No. 33-5914.
10.4 Amendment #2 to the Employment Agreement dated November 12, 1973, between Roy F. Weston and the Company, as
amended. Incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1991.
10.5 Technical Assistance Team (TAT) Agreement dated August 28, 1990, between the Environmental Protection Agency and
the Company. Incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1990.
10.6 The Company's Stock-Based Incentive Compensation Plan. Incorporated by reference to Appendix A to the Company's
Proxy Statement dated April 9, 1991. Incorporated by reference to Exhibit 10.6 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992.
10.7 Restricted Stock Agreement dated April 10, 1992, between the Company and William J. Marrazzo, President and Chief
Executive Officer. Incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992.
10.8 Credit Agreement dated March 18, 1994 among Roy F. Weston, Inc. and its subsidiaries, CoreStates Bank, N.A., First
Fidelity Bank, N.A., Mellon Bank, N.A., and PNC Bank, National Association. Incorporated by reference to Exhibit
10.8 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993.
10.9 First Amendment to Credit Agreement dated November 10, 1994.
11 Computation of Net Income per Share.
13 The Company's 1994 Annual Report to Shareholders.
21 Subsidiaries of the Company.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
quarter ended December 31, 1994.
Note: Any of the exhibits listed in the foregoing index not included with this
Annual Report on Form 10-K may be obtained without charge by writing to Mr.
Steven V. Abramson, Corporate Secretary, Roy F. Weston, Inc., 1 Weston Way,
West Chester, Pennsylvania 19380-1499.
13
15
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Roy F. Weston, Inc.
Our report on the consolidated financial statements of Roy F. Weston,
Inc. and Subsidiaries has been incorporated by reference in this Form 10-K from
page 21 of the 1994 Annual Report to Shareholders of Roy F. Weston, Inc. and
Subsidiaries. In connection with our audits of such financial statements, we
have also audited the related financial statement schedule listed in the index
on page 12 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 8, 1995
14
16
ROY F. WESTON, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(THOUSANDS OF DOLLARS)
AMOUNTS DEDUCTIONS -
BALANCE AT CHARGED TO CHARGED TO WRITE-OFF OF BALANCE
BEGINNING COSTS AND OTHER UNCOLLECTIBLE AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS ACCOUNTS PERIOD
YEAR ENDED
DECEMBER 31, 1994:
Allowance for
Doubtful Accounts $1,630 $570 $ -- $ 501 $1,699
YEAR ENDED
DECEMBER 31, 1993:
Allowance for
Doubtful Accounts $1,913 $960 $ -- $1,243 $1,630
YEAR ENDED
DECEMBER 31, 1992:
Allowance for
Doubtful Accounts $1,389 $960 $ -- $ 436 $1,913
15
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, ROY F. WESTON, INC. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized:
ROY F. WESTON, INC.
By: A. FREDERICK THOMPSON
---------------------
A. Frederick Thompson
Chairman of the Board
Date: March 28, 1995
-------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the dates indicated.
NAME TITLE DATE
A. FREDERICK THOMPSON Chairman of the Board March 28, 1995
------------------------------------
A. Frederick Thompson
WILLIAM J. MARRAZZO President and Chief Executive Officer, March 28, 1995
------------------------------------ and Director
William J. Marrazzo (Principal Executive Officer)
PETER J. MARKS Executive Vice President March 28, 1995
------------------------------------ and Chief Operating Officer, and Director
Peter J. Marks (Principal Operating Officer)
M. CHRISTINE MURPHY Executive Vice President and March 28, 1995
------------------------------------ Chief Financial Officer, and Director
M. Christine Murphy (Principal Financial Officer)
WILLIAM G. MECAUGHEY Vice President and March 28, 1995
------------------------------------ Corporate Controller
William G. Mecaughey (Principal Accounting Officer)
ROY F. WESTON Director and Chairman Emeritus March 28, 1995
------------------------------------
Roy F. Weston
M. SALAH ABDELHAMID Director March 28, 1995
------------------------------------
M. Salah Abdelhamid
JOHN W. THORSEN Director March 28, 1995
------------------------------------
John W. Thorsen
VISHWA K. VARMA Director March 28, 1995
------------------------------------
Vishwa K. Varma
16
18
STEVEN C. VORNDRAN Director March 28, 1995
------------------------------------
Steven C. Vorndran
JOSEPH BORDOGNA Director March 28, 1995
------------------------------------
Joseph Bordogna
HENRY L. DIAMOND Director March 28, 1995
------------------------------------
Henry L. Diamond
KATHERINE SWOYER FITTIPALDI Director March 28, 1995
------------------------------------
Katherine Swoyer Fittipaldi
BERNARD D. GOLDSTEIN Director March 28, 1995
------------------------------------
Bernard D. Goldstein
ROBERT G. JAHN Director March 28, 1995
------------------------------------
Robert G. Jahn
MARVIN O. SCHLANGER Director March 28, 1995
------------------------------------
Marvin O. Schlanger
17
19
[RECYCLED LOGO] PRINTED ON RECYCLED PAPER
EX-10.9
2
FIRST AMENDMENT TO CREDIT AGREEMENT
1
FIRST AMENDMENT TO CREDIT AGREEMENT
This First Amendment to Credit Agreement ("Amendment") is dated this
10th day of November, 1994 among ROY F. WESTON, INC. ("Weston"); the
Subsidiaries of Weston listed on the signature pages hereto (Weston and such
Subsidiaries are each sometimes referred to individually as a "Borrower" and
collectively as the "Borrowers"), CORESTATES BANK, N.A. ("PNB"), FIRST
FIDELITY BANK, N.A. ("First Fidelity"), MELLON BANK, N.A. ("Mellon") and PNC
BANK, NATIONAL ASSOCIATION ("PNC"), (PNB, First Fidelity, Mellon and PNC are
each sometimes referred to individually as a "Bank" and collectively as the
"Banks"); and CoreStates Bank, N.A., as agent for the Banks hereunder (the
"Agent").
BACKGROUND
A. Borrowers, Banks and Agents are parties to a certain Credit
Agreement dated March 17, 1994 ("Credit Agreement") pursuant to which Banks
established certain credit facilities for the benefit of Borrowers.
B. Borrowers have requested that Banks amend the Credit Agreement
as more fully set forth herein and Banks have agreed to make such amendment
subject to the terms and conditions hereof.
C. All capitalized terms used herein without further definition
shall have the respective meaning ascribed thereto in the Credit Agreement.
NOW, THEREFORE, intending to be legally bound, the parties promise and
agree as follows:
2
IN WITNESS WHEREOF, the parties hereto intending to be legally bound, have
caused this Amendment to be executed by the respective officers thereunto duly
authorized, as of the date first above written.
ROY F. WESTON, INC. ROY F. WESTON OF NEW YORK, INC.
BY: /s/ STEVEN V. ABRAMSON, VP BY: /s/ STEVEN V. ABRAMSON, VP
-------------------------- ----------------------------
ATTEST: /s/ BRUCE FLAMM ATTEST: /s/ BRUCE FLAMM
---------------------- ------------------------
ASSISTANT TREASURER ASSISTANT TREASURER
ROY F. WESTON (DELAWARE), INC. ROY F. WESTON (IPR), INC.
BY: /s/ STEVEN V. ABRAMSON, VP BY: /s/ STEVEN V. ABRAMSON, VP
-------------------------- ----------------------------
ATTEST: /s/ BRUCE FLAMM ATTEST: /s/ BRUCE FLAMM
---------------------- ------------------------
ASSISTANT TREASURER ASSISTANT TREASURER
TRANS-THERMAL SYSTEMS, INC. ROY E. WESTON OF IDAHO, INC.
BY: /s/ STEVEN V. ABRAMSON, VP BY: /s/ STEVEN V. ABRAMSON, VP
-------------------------- ----------------------------
ATTEST: /s/ BRUCE FLAMM ATTEST: /s/ BRUCE FLAMM
---------------------- ------------------------
ASSISTANT TREASURER ASSISTANT TREASURER
WESTON (A BUSINESS TRUST) WESTON GULF COAST, INC.
BY: /s/ STEVEN V. ABRAMSON, VP BY: /s/ STEVEN V. ABRAMSON, VP
-------------------------- ----------------------------
ATTEST: /s/ BRUCE FLAMM ATTEST: /s/ BRUCE FLAMM
---------------------- ------------------------
ASSISTANT TREASURER ASSISTANT TREASURER
WESTON INTERNATIONAL HOLDINGS, WESTON SERIVCES HOLDINGS, INC.
INC.
BY: /s/ STEVEN V. ABRAMSON, VP BY: /s/ STEVEN V. ABRAMSON, VP
-------------------------- ----------------------------
ATTEST: /s/ BRUCE FLAMM ATTEST: /s/ BRUCE FLAMM
---------------------- ------------------------
ASSISTANT TREASURER ASSISTANT TREASURER
-4-
3
WESTON SERVICES, INC. (a WESTON INTERNAMTIONAL, INC.
Delaware Corporation)
By: /s/ STEVEN V. ABRAMSON, VP By: /s/ STEVEN V. ABRAMSON, VP
--------------------------------- -----------------------------
Attest: /s/ BRUCE FLAMM Attest: /s/ BRUCE FLAMM
----------------------------- -------------------------
ASSISTANT TREASURER ASSISTANT TREASURER
PNC BANK, NATIONAL ASSOCIATION FIRST FIDELITY, BANK, N.A.
By: /s/ KEVIN WHEATLEY By: /s/ THOMAS C. WOODWARD, VP
--------------------------------- -----------------------------
ASSISTANT VICE PRESIDENT
MELLON BANK, N.A. CORESTATES BANK, N.A.,
(Individually and as Agent)
By: /s/ CHRISTINE G. SEYBOLD By: /s/ EDMUND GREEN, CO
--------------------------------- -----------------------------
Assistant Vice President
- 5 -
4
SECTION 1 - AMENDMENT
1.1 Section 5.20 of the Credit Agreement is hereby amended and
restated in its entirety and shall read as follows:
Section 5.20 - Interest Coverage Ratio.
Weston will not permit the Interest Coverage
Ratio to be less than 0.25 to 1.0 as of
September 30, 1994, December 31, 1994 and
March 31, 1995, 0.50 to 1.0 as of June 30,
1995, 0.75 to 1.0 as of September 30, 1995,
1.25 to 1.0 as of December 31, 1995, 1.50 to
1.0 as of March 31, 1996, 1.75 to 1.0 as of
June 30, 1996 and 2.0 to 1.0 as of and after
September 30, 1996, such ratio being
calculated at the end of each fiscal quarter
on a rolling four quarters basis and excluding
a $2,000,000 charge made in the fourth quarter of
1993 in connection with the NUS litigation.
SECTION 2 - AMENDMENT FEE
2.1 In consideration of the amendment set forth herein, Borrowers
shall pay to Agent, for the ratable benefit of each Bank according to each
Bank's respective Commitment Percentage, a non-refundable covenant amendment
fee of $45,000, contemporaneously with the execution hereof.
SECTION 3 - REPRESENTATIONS AND WARRANTIES
3.1 Authorization. Each Borrower hereby represents and warrants to
Banks that the execution and delivery by each Borrower of this Amendment and
the performance of the transactions contemplated herein have been duly
authorized by all necessary corporate or other appropriate action, and do not
and will not violate any current provision of any governmental regulation or
statute, or of the charter, by-laws or other organizational or governing
documents of such Borrower or result in a breach of or
- 2 -
5
constitute a default under any indenture, instrument or other material
agreement to which such Borrower or Weston is a party or by which it or its
properties is bound or affected.
SECTION 4 - RATIFICATION OF CREDIT AGREEMENT
4.1 Except as expressly set forth herein, all of the terms,
conditions and provisions of the Credit Agreement continue unchanged and in
full force and effect. The parties acknowledge and agree that this Amendment is
incorporated into and made a part of the Credit Agreement and any future
reference to the Credit Agreement shall mean the Credit Agreement, as amended
hereby.
SECTION 5 - MISCELLANEOUS
5.1 Section Headings. Section headings used in this Amendment
are for convenience only and shall not affect the construction of this
Amendment.
5.2 Governing Law. This Amendment shall be governed in all
respects by the laws of the Commonwealth of Pennsylvania and for all purposes
shall be construed in accordance with the laws of the Commonwealth of
Pennsylvania.
5.3 Counterparts. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Amendment by signing
any such counterpart.
5.4 WAIVER OF JURY TRIAL. BANKS AND BORROWERS EACH HEREBY WAIVE
ALL RIGHT TO A TRIAL BY JURY IN ANY LITIGATION RELATING TO THIS AMENDMENT OR
ANY LOAN AGREEMENT.
- 3 -
6
IN WITNESS WHEREOF, the parties hereto intending to be legally bound, have
caused this Amendment to be executed by the respective officers thereunto duly
authorized, as of the date first above written.
ROY F. WESTON, INC. ROY F. WESTON OF NEW YORK, INC.
BY: /s/ STEVEN V. ABRAMSON, VP BY: /s/ STEVEN V. ABRAMSON, VP
-------------------------- ----------------------------
ATTEST: /s/ BRUCE FLAMM ATTEST: /s/ BRUCE FLAMM
---------------------- ------------------------
ASSISTANT TREASURER ASSISTANT TREASURER
ROY F. WESTON (DELAWARE), INC. ROY F. WESTON (IPR), INC.
BY: /s/ STEVEN V. ABRAMSON, VP BY: /s/ STEVEN V. ABRAMSON, VP
-------------------------- ----------------------------
ATTEST: /s/ BRUCE FLAMM ATTEST: /s/ BRUCE FLAMM
---------------------- ------------------------
ASSISTANT TREASURER ASSISTANT TREASURER
TRANS-THERMAL SYSTEMS, INC. ROY E. WESTON OF IDAHO, INC.
BY: /s/ STEVEN V. ABRAMSON, VP BY: /s/ STEVEN V. ABRAMSON, VP
-------------------------- ----------------------------
ATTEST: /s/ BRUCE FLAMM ATTEST: /s/ BRUCE FLAMM
---------------------- ------------------------
ASSISTANT TREASURER ASSISTANT TREASURER
WESTON (A BUSINESS TRUST) WESTON GULF COAST, INC.
BY: /s/ STEVEN V. ABRAMSON, VP BY: /s/ STEVEN V. ABRAMSON, VP
-------------------------- ----------------------------
ATTEST: /s/ BRUCE FLAMM ATTEST: /s/ BRUCE FLAMM
---------------------- ------------------------
ASSISTANT TREASURER ASSISTANT TREASURER
WESTON INTERNATIONAL HOLDINGS, WESTON SERIVCES HOLDINGS, INC.
INC.
BY: /s/ STEVEN V. ABRAMSON, VP BY: /s/ STEVEN V. ABRAMSON, VP
-------------------------- ----------------------------
ATTEST: /s/ BRUCE FLAMM ATTEST: /s/ BRUCE FLAMM
---------------------- ------------------------
ASSISTANT TREASURER ASSISTANT TREASURER
-4-
7
WESTON SERVICES, INC. (a WESTON INTERNAMTIONAL, INC.
Delaware Corporation)
By: /s/ STEVEN V. ABRAMSON, VP By: /s/ STEVEN V. ABRAMSON, VP
--------------------------------- -----------------------------
Attest: /s/ BRUCE FLAMM Attest: /s/ BRUCE FLAMM
----------------------------- -------------------------
ASSISTANT TREASURER ASSISTANT TREASURER
PNC BANK, NATIONAL ASSOCIATION FIRST FIDELITY, BANK, N.A.
By: /s/ KEVIN WHEATLEY By: /s/ THOMAS C. WOODWARD, VP
--------------------------------- -----------------------------
ASSISTANT VICE PRESIDENT
MELLON BANK, N.A. CORESTATES BANK, N.A.,
(Individually and as Agent)
By: /s/ CHRISTINE G. SEYBOLD By: /s/ EDMUND GREEN, CO
--------------------------------- -----------------------------
Assistant Vice President
- 5 -
EX-11
3
SCHEDULE OF COMPUTATION OF NET INCOME (LOSS)
1
Exhibit 11
ROY F. WESTON, INC. AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF NET INCOME (LOSS) PER SHARE
Years Ended December 31
====================================================
1994 1993 1992
----------------------------------------------------
(Thousands of Dollars,
Except Share and Per Share Amounts)
Primary
-------
Net income (loss) $ (1,103) $ 2,603 $ 7,162
=========== =========== ===========
Weighted average shares 9,494,196 9,393,350 9,096,712
=========== =========== ===========
Net income (loss) per common share $ (.12) $ .28 $ .79
=========== =========== ===========
Fully Diluted
-------------
Net income (loss) $ (1,103) $ 2,603 $ 7,162
Add:
Interest on convertible debentures, net of
applicable income taxes $ 1,079 $ 1,317 $ 1,341
----------- ----------- -----------
Net income (loss) for fully diluted net income
per share $ (24) $ 3,920 $ 8,503
=========== =========== ===========
Weighted average shares used in calculating
primary net income (loss) per share 9,494,196 9,393,350 9,096,712
Add:
Shares issuable upon conversion of
convertible debentures 1,182,238 1,254,286 1,486,039
Stock options -- -- 42,814
----------- ----------- -----------
Weighted average shares used in calculating
fully diluted net income (loss) per common share 10,676,434 10,647,636 10,625,565
=========== =========== ===========
Fully diluted net income (loss) per common share $ -- $ .37 $ .80
=========== =========== ===========
18
EX-13
4
THE COMPANY'S 1994 ANNUAL REPORT TO SHAREHOLDERS
1
ROY F. WESTON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth for the years indicated the percentage of net
revenues represented by certain elements of the Company's consolidated
statements of operations. The table and subsequent discussion should be read in
conjunction with the Consolidated Financial Statements and Notes thereto.
For the years ended December 31
-----------------------------------
1994 1993 1992
-----------------------------------
Net revenues 100.0 % 100.0 % 100.0 %
-----------------------------------------------------------------------------------
Expenses
Direct salaries and other operating costs 86.2 % 84.1 % 81.0 %
General and administrative expenses 14.2 % 13.0 % 12.6 %
-----------------------------------------------------------------------------------
Income (loss) from operations (0.4) % 2.9 % 6.4 %
Other income (expense) (0.5) % (1.0)% (1.1)%
-----------------------------------------------------------------------------------
Income (loss) before income taxes (0.9) % 1.9 % 5.3 %
Income taxes (0.3) % 0.7 % 2.1 %
------------------------------------------------------------------------------------
Net income (loss) (0.6) % 1.2 % 3.2 %
====================================
The Company incurs a substantial amount of direct project costs, which are
passed directly through to the Company's clients, resulting principally from the
use of subcontractors on projects. Consequently, the Company measures its
operating performance on the basis of net revenues, which are determined by
deducting such direct project costs from gross revenues. Direct project costs
were 31%, 32% and 33% of gross revenues in 1994, 1993 and 1992, respectively.
17
2
ROY F. WESTON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1994 COMPARED TO 1993
Net revenues declined 7% to $200,304,000 from $214,869,000 in 1993. The
Company's consulting services produced 8% lower net revenues in 1994 primarily
as a result of decreased direct labor utilization. Net revenues in 1994 from
federal program management services, which are large government projects with
dedicated work forces, declined 5% due to a decrease in direct labor. The
Company received extensions on certain of its federal program management
contracts during 1994, and rebids on two of the Company's contracts, which
provided approximately 8% of the Company's 1994 net revenues, are expected to
be concluded in 1995. Analytical services net revenues were 7% lower than
those in 1993, primarily due to continuing downward pricing pressures. Net
revenues from remediation projects were similar to those in 1993.
The Company experienced a $730,000 loss from operations in 1994, compared to
operating income of $6,248,000 in 1993. Operating income in 1993 was reduced
by a $2,000,000 charge related to an adverse court decision. The decline in
operating results was primarily due to decreased net revenues. Direct salaries
and other operating costs declined 4%, primarily due to selective operating
work force reductions. General and administrative expenses increased less than
2% in 1994. Margins for consulting work were generally lower, except in the
Midwestern United States. Contribution from remediation projects was improved
from 1993, which included a sizable loss on one project.
In early 1995, the Company further reduced its staffing levels by about 3% and
has begun an internal review of business processes, which it believes will
produce additional cost efficiency later in 1995. The Company is continuing to
allocate significant resources to new business development activities.
One of the Company's two transportable thermal treatment systems completed a
project in mid-1994 and is presently idle. The system had been committed to a
contract that was cancelled by the customer in late 1994. The Company recorded
net revenues of approximately $1,520,000 in 1994 as the estimated settlement of
the termination claim. The Company is actively seeking additional projects
that will utilize this equipment in 1995.
Other expenses decreased 52% to $1,056,000 in 1994 from $2,179,000 in 1993.
Other expenses were reduced by gains of $51,000 and $94,000 realized on
redemption of the Company's 7% Convertible Subordinated Debentures in 1994 and
1993, respectively. Investment income increased $707,000 in 1994 due to higher
average amounts invested and higher interest rates. Interest expense decreased
$546,000 from 1993 due primarily to the repurchase of 7% Convertible
Subordinated Debentures and scheduled repayments of a five-year term loan.
1993 COMPARED TO 1992
Net revenues declined 3% to $214,869,000 from $222,050,000 in 1992. Decreases
in net revenues from consulting and analytical services were partially offset
by increased federal program management net revenues.
18
3
ROY F. WESTON, INC. AND SUBSIDIARIES
The analytical laboratory business remained in an industry overcapacity
situation during 1993, resulting in a 14% net revenue decline. Consulting net
revenues declined 4%, primarily due to a substantial decrease in the Western
United States and a moderate decrease in the Northeast as a result of localized
economic factors and regulatory uncertainty. Partially offsetting these
declines were net revenue increases in the Midwest and in the Company's Eastern
United States air practice. The Company saw a 7% increase in net revenues from
federal program management services.
Income from operations declined 56% to $6,248,000 from $14,275,000 in 1992,
principally due to the lower net revenues. Included in income from operations
in 1993 was a charge of $2,000,000 for an unfavorable court decision recorded
in the fourth quarter. Excluding the above charge, expenses decreased
$1,154,000 in 1993 as the Company continued to closely manage its resources
during the year. Margins in 1993 for analytical services work and the
consulting business generally, particularly in the Western United States, were
lower. Operating results of remediation projects were significantly lower,
principally due to losses incurred on one project.
Other expenses decreased 14% to $2,179,000 in 1993 from $2,535,000 in 1992. In
1993 other expenses were reduced by $94,000 of gains realized on redemption of
the Company's 7% Convertible Subordinated Debentures. The effective tax rate
declined to 36.0% in 1993 from 39.0% in 1992 due to lower state income taxes,
principally derived from a substantial refund claim.
OTHER
As discussed in Note 8 to the Consolidated Financial Statements, the Company
increased the discount rate used for its defined benefit pension plans to 8.50%
at December 31, 1994 from 7.25% at December 31, 1993. This discount rate change
is expected to decrease the net periodic pension cost charged to income in 1995
by approximately $700,000 as compared to the 1994 expense of $3,271,000.
Management believes that inflationary increases in its operating costs and
expenses can generally be absorbed by increased rates the Company can bill for
its services. To date, inflationary effects have had little impact on the
Company.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $8,696,000 in 1994 to $5,745,000 from
$14,441,000 at December 31, 1993. Marketable securities increased $1,942,000 in
1994 to $12,992,000 from $11,050,000 at December 31, 1993.
Operating activities provided cash of $1,171,000 in 1994 and $34,257,000 in
1993. The 1993 amount was principally due to decreases in accounts receivable
and unbilled costs on contracts during 1993 as the Company's invoice processing
activities were restored to normal levels after a system conversion in late
1992. The Company used a portion of its cash flow from operations to liquidate
$3,648,000 and $13,229,000 of short-term and long-term debt in 1994 and 1993,
respectively.
19
4
ROY F. WESTON, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Net cash investments in property and equipment and other assets were $4,858,000
in 1994 and $5,348,000 in 1993. Investments in 1994 consisted principally of
computers and other equipment. Investments in 1993 consisted principally of
building improvements and furniture and equipment. The Company plans to invest
$8,000,000 to $13,000,000 of capital in 1995. These expenditures are expected
to be financed primarily through operating cash flow.
The Company has a five-year term loan at a 5.85% interest rate which is
repayable in quarterly installments of $500,000 plus interest through January
1, 1998. The Company is required to make annual redemptions of 10% of its 7%
Convertible Subordinated Debentures in the principal amount of $3,140,000. The
1995 requirement has been satisfied through repurchases of the Debentures
during 1993 and 1994.
The Company received $1,623,000 in 1994 and $1,576,000 in 1993 from shares of
Series A common stock issued through its Employee Stock Purchase Plan. The
Company received $303,000 in 1993 from the exercise of stock options for shares
of Series A common stock under its Stock-Based Incentive Compensation Plan.
During 1994, the Company repurchased 215,000 shares of Series A common stock at
an aggregate cost of $1,297,000. There are no current plans to issue
additional stock other than through the Employee Stock Purchase Plan and the
Stock-Based Incentive Compensation Plan.
SELECTED FINANCIAL DATA
For the years ended December 31
--------------------------------------------------------------------------------
(Thousands of dollars, except per
share amounts) 1994 1993 1992 1991 1990
---------------------------------------------------------------------------------------------------------------------
Gross revenues $ 290,081 $ 314,443 $ 330,157 $ 314,992 $ 268,518
Net revenues $ 200,304 $ 214,869 $ 222,050 $ 211,279 $ 178,953
Income (loss) from operations $ (730) $ 6,248 $ 14,275 $ 11,117 $ 5,416
Net Income (loss) $ (1,103) $ 2,603 $ 7,162 $ 5,122 $ 2,283
Net income (loss) per
common share $ (.12) $ .28 $ .79 $ .58 $ .27
AT DECEMBER 31
Working capital $ 74,352 $ 73,289 $ 72,659 $ 58,893 $ 59,411
Total assets $ 156,730 $ 165,699 $ 178,956 $ 150,500 $ 139,136
Short-term debt $ 2,431 $ 2,635 $ 6,555 $ 2,743 $ 3,511
Long-term debt (less current
portion) $ 29,843 $ 33,054 $ 42,083 $ 35,471 $ 35,496
Stockholders' equity $ 80,892 $ 81,719 $ 76,785 $ 67,286 $ 60,957
---------------------------------------------------------------------------------------------------------------------
20
5
ROY F. WESTON, INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Roy F. Weston, Inc.
We have audited the accompanying consolidated balance sheets of Roy F. Weston,
Inc. and Subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Roy F. Weston,
Inc. and Subsidiaries as of December 31, 1994 and 1993, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994 in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 8, 1995
21
6
ROY F. WESTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31
---------------------------
(Thousands of dollars) 1994 1993
ASSETS
----------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 5,745 $ 14,441
Marketable securities 12,992 11,050
Accounts receivable, trade, net of allowance for doubtful accounts 68,947 67,435
Unbilled costs and estimated earnings on contracts in process 20,586 20,101
Prepaid and refundable income taxes 1,581 767
Deferred income taxes 1,395 3,411
Other 3,626 3,466
----------------------------------------------------------------------------------------------------------------
Total current assets 114,872 120,671
----------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Land 215 215
Buildings and improvements 10,832 10,730
Furniture and equipment 54,617 52,938
Leasehold improvements 7,579 7,304
Construction in progress 253 37
----------------------------------------------------------------------------------------------------------------
Total property and equipment 73,496 71,224
Less accumulated depreciation and amortization 52,494 46,517
----------------------------------------------------------------------------------------------------------------
Property and equipment, net 21,002 24,707
----------------------------------------------------------------------------------------------------------------
OTHER ASSETS
Goodwill, net of accumulated amortization of $1,055 in 1994 and $906 in 1993 4,899 5,048
Deferred income taxes 1,827 20
Other 14,130 15,253
----------------------------------------------------------------------------------------------------------------
Total other assets 20,856 20,321
----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 156,730 $ 165,699
========================
See notes to consolidated financial statements.
22
7
ROY F. WESTON, INC. AND SUBSIDIARIES
December 31
----------------------------
(Thousands of dollars) 1994 1993
LIABILITIES AND STOCKHOLDERS' EQUITY
----------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Current maturities of long-term debt $ 2,431 $ 2,635
Accounts payable and accrued expenses 11,502 12,381
Billings on contracts in process in excess of costs and estimated earnings 8,960 12,347
Employee compensation, benefits and payroll taxes 9,841 10,885
Income taxes payable 120 53
Other 7,666 9,081
----------------------------------------------------------------------------------------------------------------
Total current liabilities 40,520 47,382
----------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 29,843 33,054
----------------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES -- 6
----------------------------------------------------------------------------------------------------------------
OTHER LIABILITIES 5,475 3,538
----------------------------------------------------------------------------------------------------------------
CONTINGENCIES
----------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, 10,500,000 shares authorized; 3,211,213 shares
issued in 1994; 3,213,163 shares issued in 1993 321 321
Series A common stock, $.10 par value, 20,500,000 shares authorized; 7,668,325
shares issued in 1994; 7,336,875 shares issued in 1993 767 734
Additional paid-in capital 52,684 51,144
Retained earnings 29,415 30,518
----------------------------------------------------------------------------------------------------------------
83,187 82,717
Less treasury stock at cost, 1,081,275 common shares in
1994 and 1993; 214,705 Series A common shares in 1994 2,295 998
----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 80,892 81,719
----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 156,730 $ 165,699
==========================
23
8
ROY F. WESTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF OPERATIONS
For the years ended December 31
----------------------------------------------
(Thousands of dollars, except per share amounts) 1994 1993 1992
-------------------------------------------------------------------------------------------------------------------
Gross revenues $ 290,081 $ 314,443 $ 330,157
Direct project costs 89,777 99,574 108,107
-------------------------------------------------------------------------------------------------------------------
Net revenues 200,304 214,869 222,050
-------------------------------------------------------------------------------------------------------------------
Expenses
Direct salaries and other operating costs 172,587 180,600 179,895
General and administrative expenses 28,447 28,021 27,880
-------------------------------------------------------------------------------------------------------------------
201,034 208,621 207,775
-------------------------------------------------------------------------------------------------------------------
Income (loss) from operations (730) 6,248 14,275
-------------------------------------------------------------------------------------------------------------------
Other income (expense)
Investment income 1,420 713 699
Interest expense (2,541) (3,087) (3,048)
Other 65 195 (186)
-------------------------------------------------------------------------------------------------------------------
(1,056) (2,179) (2,535)
-------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (1,786) 4,069 11,740
Provision (benefit) for income taxes (683) 1,466 4,578
-------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (1,103) $ 2,603 $ 7,162
=============================================
Net income (loss) per share $ (.12) $ .28 $ .79
=============================================
Weighted average shares outstanding 9,494,196 9,393,350 9,096,712
=============================================
See notes to consolidated financial statements.
24
9
ROY F. WESTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF CASH FLOWS
For the years ended December 31
------------------------------------
(Thousands of dollars) 1994 1993 1992
-----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (1,103) $ 2,603 $ 7,162
Adjustments to reconcile net income (loss)
to net cash provided by (used for) operating activities:
Depreciation and amortization 10,055 11,258 10,553
Provision for losses on accounts receivable 570 960 960
Other 1,314 2,167 1,782
Change in assets and liabilities:
Accounts receivable, trade (2,082) 15,754 (18,007)
Unbilled costs and estimated earnings on contracts in process (485) 11,255 (9,907)
Other current assets (160) (622) 1,246
Accounts payable and accrued expenses (879) (2,900) 2,863
Billings on contracts in process in excess of costs and estimated earnings (3,387) (1,445) 4,819
Employee compensation, benefits and payroll taxes (944) (932) (2,424)
Income taxes (747) (1,784) 1,085
Deferred income taxes 203 (460) (1,416)
Other current liabilities (2,829) (1,452) (186)
Other assets and liabilities 1,645 (145) (21)
-----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities 1,171 34,257 (1,491)
-----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of investments 33,344 12,160 10,888
Payments for purchase of investments (34,981) (16,615) (13,442)
Purchase of property and equipment (4,432) (4,769) (8,681)
Investments in other assets (426) (579) (3,431)
-----------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (6,495) (9,803) (14,666)
-----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) under line-of-credit -- (3,000) 3,000
Principal payments under long-term debt (3,648) (10,229) (2,768)
Proceeds from issuance of long-term debt -- -- 10,000
Proceeds from issuance of Series A common stock 1,623 2,352 2,337
Purchase of Series A common treasury stock (1,297) -- --
Other (50) (21) --
-----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (3,372) (10,898) 12,569
-----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (8,696) 13,556 (3,588)
-----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
Beginning of year 14,441 885 4,473
-----------------------------------------------------------------------------------------------------------------------
End of year $ 5,745 $ 14,441 $ 885
==================================
See notes to consolidated financial statements.
25
10
ROY F. WESTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
Series A
Common Stock Common Stock
--------------------------- ---------------------------
(Thousands of dollars and shares) Shares Amount Shares Amount
-----------------------------------------------------------------------------------------------------------------------
At January 1, 1992 3,232 $ 323 6,746 $ 675
Shares issued under employee
stock purchase plan -- -- 179 18
Exercise of stock options -- -- 46 5
Other (17) (1) 76 7
Net income -- -- -- --
-----------------------------------------------------------------------------------------------------------------------
At December 31, 1992 3,215 322 7,047 705
Shares issued under employee
stock purchase plan -- -- 226 23
Exercise of stock options -- -- 40 4
Other (2) (1) 24 2
Net income -- -- -- --
-----------------------------------------------------------------------------------------------------------------------
At December 31, 1993 3,213 321 7,337 734
Shares issued under employee
stock purchase plan -- -- 329 33
Purchase of treasury stock -- -- -- --
Other (2) -- 2 --
Net loss -- -- -- --
-----------------------------------------------------------------------------------------------------------------------
At December 31, 1994 3,211 $ 321 7,668 $ 767
======================================================================
See notes to consolidated financial statements.
26
11
ROY F. WESTON, INC. AND SUBSIDIARIES
Treasury Stock
Additional --------------------------------------------------
Paid-in Retained Common Series A
Capital Earnings Shares Common Shares Amount Total
----------------------------------------------------------------------------------------------------------------------
$ 46,512 $ 20,753 (1,079) -- $ (977) $ 67,286
1,352 -- -- -- -- 1,370
351 -- -- -- -- 356
605 -- -- -- -- 611
-- 7,162 -- -- -- 7,162
-----------------------------------------------------------------------------------------------------------------------
48,820 27,915 (1,079) -- (977) 76,785
1,553 -- -- -- -- 1,576
299 -- -- -- -- 303
472 -- (2) -- (21) 452
-- 2,603 -- -- -- 2,603
-----------------------------------------------------------------------------------------------------------------------
51,144 30,518 (1,081) -- (998) 81,719
1,590 -- -- -- -- 1,623
-- -- -- (215) (1,297) (1,297)
(50) -- -- -- -- (50)
-- (1,103) -- -- -- (1,103)
-----------------------------------------------------------------------------------------------------------------------
$ 52,684 $ 29,415 (1,081) (215) $ (2,295) $ 80,892
======================================================================================================================
27
12
ROY F. WESTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All material intercompany accounts and transactions have
been eliminated in consolidation.
Cash Equivalents and Investments
The Company considers all highly liquid investments with a remaining maturity
of three months or less at the time of purchase to be cash equivalents. Cash
and cash equivalents consist of cash on hand, demand deposit accounts, and
investments in corporate commercial paper and U.S. Government securities.
Marketable securities are stated at fair value. Realized gains and losses are
computed based on average cost.
Marketable equity and debt securities available for current operations include
investments in corporate commercial paper and U.S. Government debt securities
and are classified as current assets in the accompanying consolidated balance
sheets. Investments held by the Company's wholly-owned captive insurance
subsidiary include equity and bond mutual funds and are classified as
noncurrent assets in the accompanying consolidated balance sheets.
Property and Equipment
Property and equipment are carried at cost. Depreciation is provided primarily
on the straight-line method over the assets' estimated useful lives. Leasehold
improvements are amortized over the shorter of the lease period or estimated
useful life on the straight-line method. Property and equipment leased under
capital leases are recorded at the lower of fair market value or the present
value of future lease payments. Property and equipment under these leases are
amortized on a straight-line basis, generally over the assets' estimated useful
lives. When property or equipment is sold or retired, the cost of the asset
and related accumulated depreciation are removed from the balance sheet and any
gain or loss is included in results of operations.
Goodwill
Goodwill arising from the excess of purchase price over the underlying fair
value of net assets of acquired subsidiaries is amortized on the straight-line
method over a 40-year period.
Income Taxes
The Company provides deferred income taxes on all temporary differences between
the tax and financial reporting bases of its assets and liabilities.
Contract Revenue Recognition
The Company's principal business is providing professional engineering and
consulting services under cost-plus-fee, time and materials and fixed-price
contracts. Revenues from contracts are recorded on the
percentage-of-completion method of accounting, determined by relating contract
costs incurred to date to total estimated contract costs at completion.
Estimated award fees on certain long-term federal contacts are included in
revenues at the time the amounts can be reasonably determined. Revenues
associated with U.S. Government indirect rates are adjusted when variances are
determined on at least an annual basis. Provisions for estimated contract
losses are recorded when identified.
Net Income (Loss) per Share
Net income (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares and Series A common shares outstanding
during the period, including applicable common stock equivalents. The
conversion of subordinated debentures has not been assumed because the result
is anti-dilutive.
28
13
ROY F. WESTON, INC. AND SUBSIDIARIES
NOTE 2 - INVESTMENTS
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Under this statement, the Company's investments are
classified as available-for-sale securities and recorded at current market
value with an offsetting adjustment included in stockholders' equity. The
adoption of Statement No. 115 was not material to the Company's consolidated
financial position and, accordingly, the consolidated balance sheet at December
31, 1993 was not restated.
At December 31, 1994, investments in debt and equity securities are stated at
their fair value of $17,053,000. Gross unrealized holding gains and losses at
December 31, 1994 were $78,000 and $214,000, respectively. The cost basis of
investments aggregated $17,189,000.
Proceeds from the sale of investments in debt and equity securities during
1994 aggregated $33,344,000. Gross realized gains in 1994 were $166,000. No
losses were realized during 1994. The change in the unrealized holding loss
during the year, net of deferred income taxes of $46,000, was an increase of
$90,000.
NOTE 3 - ACCOUNTS RECEIVABLE AND UNBILLED COSTS AND ESTIMATED EARNINGS
Trade accounts receivable consisted of the following:
At December 31
-------------------
(Thousands of dollars) 1994 1993
-------------------------------------------------------------
Industrial clients $ 22,717 $ 24,430
State and municipal governments 11,866 10,797
U.S. Government agencies 34,374 32,549
Retentions 1,689 1,289
-------------------------------------------------------------
70,646 69,065
Less allowance for
doubtful accounts 1,699 1,630
-------------------------------------------------------------
$ 68,947 $ 67,435
==================
Unbilled costs and estimated earnings
consisted of the following:
-------------------------------------------------------------
Industrial clients $ 2,197 $ 7,815
State and municipal governments 2,446 3,563
U.S. Government agencies 13,621 5,649
Retentions 2,322 3,074
-------------------------------------------------------------
$ 20,586 $ 20,101
==================
Unbilled costs and estimated earnings can be invoiced upon attaining certain
milestones under fixed-price contracts; completion of federal government
indirect rate audits; final approval of design plans for engineering services;
and completion of construction on certain projects. Billed and unbilled
retentions of $4,011,000 at December 31, 1994 include $1,665,000, which is
expected to be collected during 1996 and thereafter.
29
14
ROY F. WESTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 4 - LINE-OF-CREDIT AGREEMENT
The Company has a $45,000,000 unsecured credit facility with a group of banks
to provide cash borrowings and letters of credit that expires in 1997. Under
the terms of the agreement, cash borrowings, which may not exceed $25,000,000,
bear interest at the prime rate, or, at the Company's option, at other variable
rates. The Company is subject to a 1/4% annual charge on the unused portion of
the facility. The agreement requires the Company to maintain covenants
including liquidity, debt to equity, interest coverage, minimum net worth and
fixed charge coverage. At December 31, 1994, the unused portion of the
unsecured credit facility was $34,806,000.
NOTE 5 - LONG-TERM DEBT
Long-term debt at December 31 consisted of the following:
----------------------
(Thousands of dollars) 1994 1993
----------------------------------------------------------
7% Convertible Subordinated
Debentures due
April 15, 2002 $ 24,830 $ 25,830
Bank term loan, payable in
quarterly installments of $500,000
plus interest at 5.85% through
January 1, 1998 6,500 8,500
Capitalized lease obligations 834 1,218
Other 110 141
----------------------------------------------------------
Total debt 32,274 35,689
Less current maturities 2,431 2,635
----------------------------------------------------------
$ 29,843 $ 33,054
==================
The 7% Convertible Subordinated Debentures (the Debentures) were issued in
1987. The Debentures are due April 15, 2002, and are convertible into the
Company's Series A common stock at a conversion price of $21.13 per share. The
Company has the option of redeeming the Debentures at a redemption price of
100%.
The Company is required to annually redeem 10% of the principal amount of the
Debentures, so as to retire 80% of the Debentures prior to maturity. During
1994 and 1993, the Company repurchased $1,000,000 and $5,570,000 of Debentures,
respectively, thus satisfying the 1994 and 1995 redemption requirements. The
gains on redemption of $51,000 and $94,000 in 1994 and 1993, respectively, have
been included in other income in the consolidated statements of operations.
The Debentures are unsecured and subordinated to all senior indebtedness. The
costs of issuing the Debentures have been deferred and are being amortized over
the life of the debt.
The Debenture Indenture limits the amount of dividends the Company may declare
and limits the funds the Company and its subsidiaries may use to purchase,
redeem or retire the Company's capital stock. The Indenture also provides that
the Company must maintain a minimum tangible net worth or offer to purchase 10%
of the principal amount of the Debentures issued at their principal amount plus
accrued interest.
The bank term loan requires the Company to maintain covenants including
liquidity, debt to equity, interest coverage and minimum net worth.
Maturities of long-term debt are as follows:
Years ending December 31 (Thousands of dollars)
------------------------------------------------------
1995 $ 2,431
1996 5,122
1997 5,291
1998 3,702
1999 3,168
Thereafter 12,560
------------------------------------------------------
$ 32,274
===============
30
15
ROY F. WESTON, INC. AND SUBSIDIARIES
NOTE 6 - LEASES
Capital Leases
The Company leases furniture, data processing software and office equipment
under capital leases expiring in various years through 1999. The following is
a schedule of future annual minimum lease payments under capital leases:
Years ending December 31 (Thousands of dollars)
------------------------------------------------------
1995 $ 388
1996 304
1997 164
1998 67
1999 29
------------------------------------------------------
Total minimum lease payments 952
Less amount representing interest 118
------------------------------------------------------
Present value of net minimum
lease payments $ 834
===============
The net book value of assets leased under capital leases aggregated $1,246,000
and $1,616,000 at December 31, 1994 and 1993, respectively.
Operating Leases
The Company leases certain office facilities and equipment under operating
leases. These leases generally provide for renewal options and the office
leases include escalation clauses based on increases in real estate taxes and
operating expenses. For certain office facilities, the Company obtains
reimbursements for rental expense under long-term U.S. Government projects.
Minimum annual lease commitments under non-cancelable leases principally for
office facilities are as follows:
Years ending December 31 (Thousands of dollars)
------------------------------------------------------
1995 $ 8,296
1996 5,902
1997 4,357
1998 3,083
1999 2,526
Thereafter 20,211
------------------------------------------------------
$ 44,375
========
The following is a summary of rental expense for the years ended December 31:
--------------------------------
(Thousands of dollars) 1994 1993 1992
-------------------------------------------------------
Gross rental expense $ 17,588 $ 16,610 $ 16,205
Reimbursed as direct
project expenses (6,987) (5,981) (5,083)
-------------------------------------------------------
Net rental expense $ 10,601 $ 10,629 $ 11,122
===============================
NOTE 7 - COMMON STOCK
The Company's common stock and Series A common stock are equivalent except that
each share of common stock has one vote per share and each share of Series A
common stock has one-tenth of one vote per share. Subject to certain
restrictions, shares of common stock are convertible on a one-for-one basis
into Series A common stock.
The Company has a Stock-Based Incentive Compensation Plan (Option Plan) that
provides for the grant to employees of nonqualified stock options and options
designed to qualify as "incentive stock options" under the Internal Revenue
Code. An option gives the participant the right to purchase from the Company a
specified number of shares of Series A common stock for a specified price
during a specified period not
31
16
ROY F. WESTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
exceeding 10 years. A total of 1,075,000 shares of Series A common stock have
been reserved for issuance under the Option Plan pursuant to the exercise of
options. All options must have an exercise price of not less than fair market
value of the underlying shares on the date of grant. Payment by option holders
upon exercise of an option may be made in cash, or by delivering previously
owned shares of common stock, Series A common stock or any combination thereof.
Option activity under the Option Plan is summarized as follows:
--------------------------
Number Option Price
of Shares per Share
---------------------------------------------------------
Outstanding at January 1,1992 393,100 $ 7.75
Granted 111,100 $10.50
Exercised (45,900) $ 7.75
Cancelled (53,880) $7.75 - $10.50
---------------------------------------------------------
Outstanding at December 31,1992 404,420 $7.75 - $10.50
Granted 190,000 $14.50
Exercised (39,100) $ 7.75
Cancelled (15,400) $7.75 - $14.50
---------------------------------------------------------
Outstanding at December 31,1993 539,920 $7.75 - $14.50
Granted 147,400 $ 6.63
Exercised -- --
Cancelled (79,300) $6.63 - $14.50
---------------------------------------------------------
Outstanding at December 31,1994 608,020 $6.63 - $14.50
========================
Exercisable at December 31,1994 241,360 $7.75 - $14.50
---------------------------------------------------------
In addition, a restricted stock award of 20,000 shares was made to an officer
during 1992. At December 31, 1994, there were 352,680 shares available for
further grants under the Option Plan.
The Company also has an Employee Stock Purchase Plan (Purchase Plan), which
provides for the purchase of Series A common stock by eligible employees.
The Purchase Plan is designed to qualify as a non-compensatory employee stock
purchase plan as defined in Section 423 of the Internal Revenue Code. A total
of 1,575,000 shares of Series A common stock have been reserved for issuance
under the Purchase Plan. The price per share of Series A common stock is equal
to 85% of the lower of the closing market price of Series A common stock on the
first trading day of each semi-annual purchase period, or the last trading day
of such purchase period. During the years ended December 31, 1994, 1993, and
1992, respectively, 329,500, 226,017 and 179,101 shares were issued under the
Purchase Plan at prices ranging from $4.68 per share to $8.93 per share.
NOTE 8 - EMPLOYEE BENEFIT PLANS
The Company has a defined benefit pension plan (Retirement Plan) covering
substantially all of its employees. The benefits are based on a career average
formula, which provides credit for each year based on that year's compensation
and hours of service. The Company's funding policy is to contribute annually
not less than the minimum required by applicable law and regulation nor more
than the maximum amount that can be deducted for federal income tax purposes.
Retirement Plan assets consist of investments in both fixed income and equity
instruments.
The following table sets forth the Retirement Plan's funded status and amounts
recognized in the Company's financial statements at December 31:
-------------------------
(Thousands of dollars) 1994 1993
--------------------------------------------------------------
Actuarial present value of
accumulated plan benefits:
Accumulated benefit obligation,
including vested benefits of $15,285
in 1994 and $15,543 in 1993 $ (17,246) $ (18,534)
--------------------------------------------------------------
Projected benefit obligation (20,664) (22,348)
Plan assets at fair value 16,076 14,697
--------------------------------------------------------------
Projected benefit obligation in
excess of plan assets (4,588) (7,651)
Unrecognized net obligation at
transition being recognized
over 21 years 422 454
Unrecognized net loss
from past experience
different from that assumed 63 3,541
Unrecognized prior service cost (122) 125
Additional liability -- (306)
--------------------------------------------------------------
Accrued pension cost $ (4,225) $ (3,837)
=======================
32
17
ROY F. WESTON, INC. AND SUBSIDIARIES
Net pension cost for the years ended December 31 includes the following
components:
-------------------------------
(Thousands of dollars) 1994 1993 1992
--------------------------------------------------------------
Service cost $ 2,405 $ 2,173 $ 1,833
Interest cost on projected
obligation 1,633 1,305 988
Actual return on plan assets 559 (1,535) (846)
Net amortization and deferral (1,676) 519 84
--------------------------------------------------------------
Net pension cost $ 2,921 $ 2,462 $ 2,059
===============================
The projected benefit obligation was determined using an assumed rate of
compensation increase of 5% at December 31, 1994 and December 31, 1993, and
weighted average discount rates of 8.5% at December 31, 1994 and 7.25% at
December 31, 1993. The change in the weighted average discount rate had the
effect of decreasing the projected benefit obligation by $5,825,000 at December
31, 1994. The expected long-term rate of return on assets was 9.25% at
December 31, 1994 and December 31, 1993.
The Company has an Employees' Savings Plan which provides that the Company will
supplement an employee's contribution (which may not exceed 12% of
compensation). The Company has agreed to contribute to the Plan an amount
equal to 50% of the first 6% of an employee's contributions. Company
contributions resulted in charges to earnings of $2,581,000, $2,527,000 and
$2,180,000 for 1994, 1993 and 1992, respectively.
The Company also has an Employee Stock Ownership Plan (ESOP) for the benefit of
substantially all employees. Contributions to the ESOP are discretionary and
may be in cash or in Series A common stock. Company contributions not in the
form of Company stock and earnings of the Trust may be used to purchase
additional shares of Company stock from stockholders or the Company at a price
not in excess of the fair market value of such stock. No ESOP contributions
were made for 1994 and 1993. A contribution of $302,000 was made for 1992.
The Company has two nonqualified supplementary retirement plans. The Company's
Executive Supplemental Benefit Plan provides certain executive officers
supplemental retirement benefits upon their retirement from the Company or
preretirement death benefits. The amount of these benefits is based on years
of participation in the plan multiplied by an annual retirement benefit amount,
which is determined by the Company. The Company's Supplemental Split Dollar
Life Insurance Plan provides certain other officers and key employees with a
lump sum retirement benefit, upon retirement from the Company, of $5,000 plus
an additional $5,000 for each year of participation in excess of 10 years, or a
preretirement death benefit of $200,000. The Company has purchased life
insurance contracts on the lives of the participants. The Company owns the
contracts and is the beneficiary of contracts on the lives of the Executive
Supplemental Benefit Plan participants. The amount of coverage is designed to
provide sufficient proceeds to recover the costs of the plan. The cash value
of the life insurance contracts, included in other assets in the accompanying
consolidated balance sheets, was $3,589,000 and $2,820,000 at December 31, 1994
and 1993, respectively. Premiums for the years ended December 31, 1994, 1993
and 1992 for these plans were $674,000, $684,000 and $644,000, respectively.
33
18
ROY F. WESTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
The following table sets forth the supplemental plans' funded status and
amounts recognized in the Company's financial statements at December 31:
-----------------------
(Thousands of dollars) 1994 1993
----------------------------------------------------------
Actuarial present value of
accumulated plan benefits:
Accumulated benefit obligation,
including vested benefits of
$1,084 in 1994 and $1,192 in 1993 $(2,183) $(2,065)
-----------------------------------------------------------
Projected benefit obligation (2,183) (2,065)
Plan assets at fair value -- --
Projected benefit obligation in
excess of plan assets (2,183) (2,065)
Unrecognized net obligation at
transition being recognized
over 15 years 127 145
Unrecognized net loss from past
experience different
from that assumed 960 1,059
Additional liability (1,087) (1,204)
-----------------------------------------------------------
Accrued supplemental
pension liability $(2,183) $(2,065)
===================
Net supplemental pension cost for the years ended December 31 includes the
following components:
(Thousands of dollars) 1994 1993 1992
----------------------------------------------------------
Service cost $ 85 $ 105 $ 115
Interest cost on projected
obligation 163 140 107
Return on plan assets -- -- --
Amortization 102 85 63
----------------------------------------------------------
Net supplemental
pension cost $ 350 $ 330 $ 285
===========================
The projected benefit obligation was determined using weighted average discount
rates of 8.5% at December 31, 1994 and 7.25% at December 31, 1993. The change
in the weighted average discount rate had the effect of decreasing the
projected benefit obligation by $259,000 at December 31, 1994.
The Company maintains medical and dental plans for its eligible employees on a
primarily self-funded basis. Claims in excess of specified individual and
aggregate amounts are covered by insurance. Costs and premiums in the
financial statements for the years ended December 31, 1994, 1993 and 1992 for
these plans were $3,998,000, $4,579,000 and $3,984,000, respectively.
The Company provides health care benefits to retirees based on the cost of such
benefits in the year of retirement. The benefits are funded on a cash basis.
Effective January 1, 1993, the Company implemented Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions" to account for these medical benefits.
The net periodic cost for postretirement health care benefits for the years
ended December 31 includes the following components:
----------------------------
(Thousands of dollars) 1994 1993
-------------------------------------------------------------------
Service cost $ 152 $ 139
Interest cost 122 116
Amortization of transition obligation 74 74
-------------------------------------------------------------------
$ 348 $ 329
========================
The amounts recognized in the Company's balance sheet at December 31 were as
follows:
---------------------------
(Thousands of dollars) 1994 1993
-------------------------------------------------------------------
Accumulated postretirement
benefit obligation:
Retirees $ (893) $(1,010)
Fully eligible active plan participants (5) (12)
Other active plan participants (784) (687)
-------------------------------------------------------------------
(1,682) (1,709)
Unrecognized net loss (gain) (211) 5
Unrecognized net obligation 1,332 1,406
-------------------------------------------------------------------
Accrued postretirement benefit liability $ (561) $ (298)
=========================
34
19
ROY F. WESTON, INC. AND SUBSIDIARIES
The accumulated postretirement benefit obligation was determined using weighted
average discount rates of 8.5% at December 31, 1994 and 7.25% at December 31,
1993. A cost increase of 12% for covered health care benefits was assumed for
1995. The rate was assumed to decrease by approximately 1% per year to 5.5%
after 7 years and remain at that level thereafter. The effect of a one
percentage point increase in the assumed health care cost trend rate for each
future year would increase the aggregate of service cost and interest cost by
approximately 7% and the accumulated postretirement benefit obligation by
approximately 8%.
NOTE 9 - CONTINGENCIES
As collateral for performance on contracts, the Company is contingently liable
at December 31, 1994 in the amount of $10,194,000, under standby letters of
credit.
A substantial portion of the Company's gross revenues is derived from work
involving hazardous materials, toxic wastes and other pollutants. Such efforts
frequently entail significant risks of liability for environmental damage,
personal injury, and fines and costs imposed by regulatory agencies. A
substantial number of the Company's contracts require indemnification of a
client for performance claims, damages or losses unless such injury or damage
is solely the result of the client's negligence or willful acts. The Company
has been able to insure against most liabilities it may incur in this regard.
The Company has obtained coverage with commercial carriers to insure against
pollution liability claims. Although this insurance covers many of the
Company's environmental exposures, there are instances where project-specific
pollution insurance policies are necessary. The Company will continue to
evaluate exposures associated with each project to determine if additional
coverage is necessary. The Company continues to be partially self-insured
through its subsidiary, Cardinal Indemnity Company of North America, a captive
insurance company. Cardinal provides professional liability and pollution
coverage for deductible amounts of the commercial insurance coverage.
While the insurance carried by the Company may not be sufficient to cover all
claims that may arise, and while insurance carriers may not continue to make
coverage available to the Company, management believes it has provided an
adequate level of insurance coverage.
During 1993, a trial court issued summary judgment against the Company and
awarded damages of $3,200,000 in connection with litigation of a contract
dispute. In response to this adverse decision, the Company recorded a charge of
$2,000,000 in 1993 to increase its provision for the ultimate outcome, pending
resolution of its appeal. In 1994 the Appeals Court denied the Company's appeal
of the trial court decision. Subsequent payment of the damage award had no
impact on the Company's 1994 results of operations.
Performance of a 1993 remediation contract was subject to several delays and in
1994 was partially terminated for convenience by the customer. The Company has
submitted a claim for its costs incurred as a result of the delays and
termination. The Company recorded net revenues aggregating approximately
$1,520,000 in 1994 as the estimated amount to be received in settlement of its
claim. The claim is subject to further negotiation and review which could
impact the amount ultimately received.
The Company is subject to certain claims and lawsuits in connection with work
performed in the ordinary course of its business. In the opinion of
management, such claims and lawsuits will not have a material adverse effect on
the financial position or results of operations of the Company.
NOTE 10 - INCOME TAXES
The components of the provision (benefit) for income taxes for the years ended
December 31 are as follows:
------------------------------
(Thousands of dollars) 1994 1993 1992
------------------------------------------------------
Current
Federal $ (799) $ 1,965 $ 4,891
State (133) (41) 1,103
------------------------------------------------------
(932) 1,924 5,994
------------------------------------------------------
Deferred
Federal 27 (356) (1,013)
State 222 (102) (403)
------------------------------------------------------
249 (458) (1,416)
------------------------------------------------------
$ (683) $ 1,466 $ 4,578
=============================
35
20
ROY F. WESTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Temporary differences that give rise to deferred tax assets and liabilities at
December 31 are as follows:
-----------------------
(Thousands of dollars) 1994 1993
-----------------------------------------------------
Deferred tax assets:
Uncollectible accounts $ 673 $ 788
Other accruals 152 1,989
Pensions 2,386 1,340
Self insurance 1,114 794
Depreciation 668 --
State tax loss carryforwards 471 --
Other 1,056 823
-----------------------------------------------------
6,520 5,734
-----------------------------------------------------
Deferred tax liabilities:
Amortization (861) (1,185)
Retainage (1,018) (489)
Award fees (711) (488)
Other (237) (147)
-----------------------------------------------------
(2,827) (2,309)
Valuation allowance (471) --
-----------------------------------------------------
Net deferred income taxes $ 3,222 $ 3,425
=====================
A valuation allowance was established in 1994 for state tax loss carryforwards
since it is more likely than not that these assets will not be realized.
The reconciliations of the effective tax rate to that based on the federal
statutory rate for the years ended December 31 are as follows:
--------------------------
1994 1993 1992
-------------------------------------------------------
Statutory rate 34.0% 34.0% 34.0%
State income taxes,
net of federal taxes (3.3) (2.3) 3.9
Amortization of goodwill 2.8 1.3 0.5
Travel-related meals 5.9 1.0 0.4
Tax exempt interest (5.8) (3.2) (0.7)
Other, net 4.7 5.2 0.9
-------------------------------------------------------
Effective tax rate 38.3% 36.0% 39.0%
========================
NOTE 11 - MAJOR CUSTOMER INFORMATION
Gross revenues from contracts with the U.S. Government and its agencies
amounted to $157,529,000, $170,324,000 and $183,713,000 for the years ended
December 31, 1994, 1993 and 1992, respectively. Included in these totals are
revenues of $53,062,000, $54,207,000, and $62,662,000 from contracts with the
U. S. Environmental Protection Agency; $44,436,000, $52,272,000 and $51,443,000
from contracts with the U.S. Department of Energy; and $55,967,000, $60,585,000
and $67,280,000 from contracts with the U. S. Department of Defense.
NOTE 12 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for income taxes were $91,000, $3,710,000 and $4,909,000 in 1994,
1993 and 1992, respectively. The Company received refunds of previously paid
income taxes aggregating $276,000 in 1994.
Cash payments for interest, net of $220,000 capitalized in 1992, were
$2,500,000, $2,996,000 and $2,597,000 in 1994, 1993 and 1992, respectively.
Capital lease obligations of $233,000, $280,000 and $192,000 were incurred
during 1994, 1993 and 1992, respectively, when the Company entered into leases
for property and equipment and other assets.
36
21
ROY F. WESTON, INC. AND SUBSIDIARIES
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance sheet
approximates its fair value.
Investment securities: The fair values are based on quoted market prices.
Long-term debt: The fair value of the Company's 7% Convertible Subordinated
Debentures is based on the quoted market price. The fair value of other
long-term debt is based on rates currently available with similar terms and
maturities.
The carrying amounts and fair values of the Company's financial instruments at
December 31 are as follows:
-----------------------------------------------
1994 1993
-----------------------------------------------
Carrying Fair Carrying Fair
(Thousands of dollars) Amount Value Amount Value
----------------------------------------------------------------------
Cash and
cash equivalents $ 5,745 $ 5,745 $ 14,441 $ 14,441
Investment securities:
Current $ 12,992 $ 12,992 $ 11,050 $ 11,050
Noncurrent $ 4,062 $ 4,062 $ 4,309 $ 4,686
Long-term debt:
7% Convertible
Subordinated
Debentures $ 24,830 $ 17,878 $ 25,830 $ 22,537
Other $ 6,610 $ 5,873 $ 8,641 $ 8,641
----------------------------------------------------------------------
NOTE 14 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial information for 1994 and 1993 is presented in the following
tables:
(Thousands of dollars, First Second Third Fourth
except per share data) Quarter Quarter Quarter Quarter
----------------------------------------------------------------------------------
1994
Gross revenues $ 72,191 $ 69,860 $ 75,531 $ 72,499
Net revenues $ 50,028 $ 50,057 $ 51,086 $ 49,133*
Income (loss) from
operations $ 598 $ (650) $ 232 $ (910)
Net income (loss) $ 103 $ (546) $ 9 $ (669)
Net income (loss)
per share $ .01 $ (.06) $ -- $ (.07)
Series A common
stock market price:
High $ 10.25 $ 8.50 $ 6.50 $ 7.38
Low $ 6.50 $ 5.88 $ 5.13 $ 5.38
==================================================================================
1993
Gross revenues $ 82,733 $ 83,171 $ 77,376 $ 71,163
Net revenues $ 55,348 $ 56,139 $ 54,002 $ 49,380
Income (loss) from
operations $ 3,451 $ 3,499 $ 2,024 $ (2,726)**
Net income (loss) $ 1,669 $ 1,882 $ 909 $ (1,857)
Net income (loss)
per share $ .18 $ .20 $ .10 $ ( .20)
Series A common
stock market price:
High $ 15.25 $ 14.25 $ 11.50 $ 9.75
Low $ 12.13 $ 10.50 $ 9.00 $ 6.50
==================================================================================
* Includes approximately $1,650 representing refined estimates of contract
realization on two remediation projects.
**Includes a charge of $2,000 for an adverse court decision.
The Company's Series A common stock is traded in the NASDAQ National Market
System under the symbol "WSTNA." There is no established public trading market
for the Company's common stock. At December 31, 1994, there were 3,261 holders
of record of Series A common stock and 24 holders of common stock.
The Company has not paid any cash dividends since 1978. The Board of Directors
intends to retain earnings for the foreseeable future for the expansion of the
Company's business.
37
EX-21
5
LIST OF SUBSIDIARY COMPANIES
1
Exhibit 21
LIST OF SUBSIDIARY COMPANIES
State of Incorporation
----------------------
Cardinal Indemnity Company of North America Vermont
Roy F. Weston (Delaware), Inc. Delaware
Weston International Holdings, Inc. (d/b/a Weston International) Delaware
Roy F. Weston of New York, Inc. New York
Roy F. Weston (IPR), Inc. Delaware
19
EX-23
6
CONSENT OF INDEPENDENT ACCOUNTANTS
1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of Roy F. Weston, Inc. and Subsidiaries on Forms S-8 (File Nos.
33-56757 and 33-56755) of our reports dated February 8, 1995 on our audits of
the consolidated financial statements and financial statement schedule of Roy
F. Weston, Inc. and Subsidiaries as of December 31, 1994 and 1993 and for the
years ended December 31, 1994, 1993, and 1992 which reports are either included
in or incorporated by reference into this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 27, 1995
20
EX-27
7
FINANCIAL DATA SCHEDULE
5
1,000
12-MOS
DEC-31-1994
JAN-01-1994
DEC-31-1994
5,745
12,992
89,533
1,699
0
114,872
73,496
52,494
156,730
40,520
29,843
1,088
0
0
79,804
156,730
0
290,081
0
262,364
0
570
2,541
(1,786)
(683)
(1,103)
0
0
0
(1,103)
(.12)
0
Includes $20,586 of unbilled costs and estimated earnings thereon.