| MATRIX SERVICE CO Item 1A Risk Factors The nature of our business activities and operations subjects us to a number of risks and uncertainties |
| If any of the events described below were to occur, they could have a material adverse effect on our business, financial condition and operating results |
| An inability to attract and retain qualified personnel, and in particular, project managers and skilled craft workers, could impact our ability to perform on our contracts, which could harm our business and impair our future revenues and profitability |
| Our ability to attract and retain qualified engineers, skilled craftsmen and other experienced professionals in accordance with our needs is an important factor in our ability to maintain and increase profitability |
| The market for these professionals is competitive and the supply extremely limited, and we cannot assure you that we will be successful in our efforts to retain or attract qualified personnel when needed |
| Therefore, when we anticipate or experience growing demand for our services, we may incur the cost of maintaining a professional staff in excess of our current contract needs in an effort to have sufficient qualified personnel available to address this anticipated demand |
| Competent and experienced project managers and craft workers are especially critical to the profitable performance of our contracts, and in particular, on our fixed-price contracts where superior execution of the contract can result in profits greater than originally estimated or where inferior contract execution can reduce or eliminate estimated profits or even produce a loss |
| Our project managers are involved in most aspects of contracting and contract performance including: • supervising the bidding process, including providing estimates of significant cost components such as material and equipment needs and the size and composition of the workforce; • negotiating contracts; • supervising contract performance, including performance by our employees, subcontractors and other third party suppliers and vendors; • estimating costs for completion of contracts that is used by us to estimate amounts that can be reported as revenues and earnings on the contract under the percentage-of-completion method of accounting; • negotiating requests for change orders and the final terms of approved change orders; and • determining and documenting claims by us for increased costs incurred due to the failure of customers, subcontractors and other third-party suppliers of equipment and materials to perform on a timely basis and in accordance with contract terms |
| Unsatisfactory safety performance can affect customer relationships, result in higher operating costs, negatively impact employee morale and result in high employee turnover |
| Our workers are subject to the usual hazards associated with providing services on construction sites and industrial facilities |
| Operating hazards can cause personal injury, loss of life, damage to, or destruction of, property, plant and equipment and environmental damage |
| We are intensely focused on maintaining a strong safety environment and reducing the risk of accidents to the lowest possible level |
| However, workplace accidents cannot be eliminated and high accident rates may limit or eliminate potential revenue streams from many of our largest customers and may materially increase our future insurance and other operating costs |
| -10- ______________________________________________________________________ [37]Table of Contents Work stoppages and other labor problems could adversely affect us |
| A lengthy strike or other work stoppage on any of our projects could have a material adverse effect on our business and results of operations due to an inability to complete contracted projects in a timely manner |
| From time to time, we have also experienced attempts to unionize certain of our merit employees |
| While these efforts have achieved only limited success to date, we cannot provide any assurance that we will not experience additional and more successful union activity in the future |
| Demand for our products and services is cyclical and is vulnerable to downturns in the industries and markets which we serve as well as conditions in the general economy |
| The demand for our products and services depends significantly upon the existence of construction and repair and maintenance projects in the downstream petroleum, power and other industries in the United States and Canada |
| These markets historically have been, and will likely continue to be, cyclical in nature and vulnerable to general downturns in the United States and Canadian economies, which could adversely affect the demand for our products and services |
| Occasionally, the timing of the demand for our products and services in certain of these markets can also be adversely affected during periods of strong economic growth as customers may postpone closing their facilities for maintenance, repair, turnaround or expansion projects while demand for their products remains high |
| As a consequence of these and other factors, our results of operations have varied and are likely to continue to vary significantly depending on the demand for future projects from these industries |
| We face substantial competition in each of our business segments, which may have a material adverse effect on our business by reducing our ability to increase or maintain profitability |
| We face competition in all aspects of our business from numerous regional, national and international competitors, many of which have greater financial and other resources than we do |
| Our competitors include well-established, well-financed concerns, both privately and publicly held, including many major power equipment manufacturers, engineering and construction companies and internal engineering departments at utilities and certain of our customers |
| The markets that we serve require substantial resources and particularly highly skilled and experienced technical personnel |
| We believe we compete primarily on the basis of price, customer satisfaction, our safety record and programs, the quality of our products and services, and our ability to timely comply with project schedules |
| We may encounter increased competition from existing competitors or new market entrants in the future, which could have a material adverse effect on our business, financial condition or results of operations |
| Our results of operations depend upon the award of new contracts and the timing of those awards |
| Our revenues are derived primarily from contracts awarded us on a project-by-project basis |
| Generally, it is very difficult to predict whether and when we will be awarded a new contract since many potential contracts involve a lengthy and complex bidding and selection process that may be affected by a number of factors, including changes in existing or assumed market conditions, financing arrangements, governmental approvals and environmental matters |
| Because our revenues are derived primarily from these contracts, our results of operations and cash flows can fluctuate materially from period to period depending on the timing of contract awards |
| The uncertainty associated with the timing of contract awards may increase our cost of doing business over a short period or a comparatively longer term |
| For example, we may decide to maintain and bear the cost of a workforce in excess of our current contract needs in anticipation of future contract awards |
| If an expected contract award is delayed or not received, we could incur costs in maintaining an idle workforce that may have a material adverse effect on our results of operations |
| Or, we may decide that our long term interests are best served by reducing our workforce and incurring increased costs associated with severance and termination benefits which also could have a material adverse effect on our results of operations for the period when incurred |
| Reducing our workforce could also impact our results of operations if we are unable to adequately staff projects that are awarded subsequent to a workforce reduction |
| -11- ______________________________________________________________________ [38]Table of Contents The loss of one or more of our significant customers could adversely affect us |
| From time to time due to the size of one or more of our contracts, one or more customers have in the past and may in the future contribute a material portion of our consolidated revenues in any one year |
| Because these significant customers generally contract with us for specific projects, we may lose these customers from year to year as their projects with us are completed |
| If we do not replace them with other customers or other projects, our financial condition and results of operations could be materially adversely affected |
| Additionally, we have long-standing relationships with many significant customers |
| However, our contracts with these customers are on a project-by-project basis, and these customers may unilaterally reduce or discontinue their use of our services at any time |
| The loss of business from any one of these customers could have a material adverse effect on our business or results of operations |
| The terms of our contracts could expose us to absorbing unforeseen costs and costs not within our control, which may not be recoverable and could adversely affect our results of operations and financial condition |
| Under fixed-price contracts, we agree to perform the contract for a fixed-price and, as a result, can realize our expected profit or improve our expected profit by superior contract performance, productivity, worker safety and other factors resulting in cost savings |
| However, we could incur cost overruns above the approved contract price, which may not be recoverable |
| Under certain incentive fixed-price contracts, we may agree to share with a customer a portion of any savings we are able to generate while the customer agrees to bear a portion of any increased costs we may incur up to a negotiated ceiling |
| To the extent costs exceed the negotiated ceiling price, we may be required to absorb some or all of the cost overruns |
| Fixed-price contract prices are established based largely upon estimates and assumptions relating to project scope and specifications and personnel and material needs |
| These estimates and assumptions may prove inaccurate or conditions may change, sometimes due to factors not within our control, resulting in cost overruns we are required to absorb that could have a material adverse effect on our business, financial condition and results of our operations |
| In addition, our profits from these contracts could decrease and we could experience losses if we incur difficulties in performing the contracts or are unable to secure fixed-pricing commitments from our manufacturers, suppliers and subcontractors at the time we enter into fixed-price contracts with our customers |
| Under cost-plus contracts, we perform our services in return for payment of our agreed upon reimbursable costs plus a profit |
| The profit component is typically expressed in the contract either as a percentage of the reimbursable costs we actually incur or is factored into the rates we charge for labor or for the cost of equipment and materials, if any, we are required to provide |
| Some cost-plus contracts provide for the customer’s review of the accounting and cost control systems used by us to calculate these labor rates and to verify the accuracy of the reimbursable costs invoiced |
| These reviews could result in reductions in amounts previously billed to the customer and in an adjustment to amounts previously reported by us as our profit on the contract |
| Many of our fixed-price or cost-plus contracts require us to satisfy specified progress milestones or performance standards in order to receive a payment |
| Under these types of arrangements, we may incur significant costs for labor, equipment and supplies prior to receipt of payment |
| If the customer fails or refuses to pay us for any reason, there is no assurance we will be able to collect amounts due to us for costs previously incurred |
| In some cases, we may find it necessary to terminate subcontracts with suppliers engaged by us to assist in performing a contract and we may incur costs or penalties for canceling our commitments to them |
| If we are unable to collect amounts owed to us under our contracts, we may be required to record a charge against previously recognized earnings related to the project, and our liquidity, financial condition and results of operations could be adversely affected |
| -12- ______________________________________________________________________ [39]Table of Contents We may encounter difficulties during the course of performing our contracts that may result in additional costs to us and in a reduction in our revenues and earnings that could have an adverse effect upon our financial condition and results of operations |
| Many of our construction and repair and maintenance projects are performed over extended periods of time and involve complex design and engineering specifications |
| In these cases, it is common for us to perform work from time-to-time over the life of the project that is outside the scope of the original contract with the expectation of receiving a signed change order from the customer |
| Our contracts for these projects also often require us to provide extensive project management and to obtain machinery, equipment, materials and services from third parties or the customer |
| We may encounter difficulties in obtaining these products and services on a timely basis |
| In some cases, these third-party provided products may not perform as expected or the services delivered may not meet contract specifications |
| These performance failures and other factors, some of which are beyond our control, may result in delays and additional costs to us including, in some cases, the cost of procuring alternate product or service providers, which may adversely impact our ability to complete a project on budget and in accordance with the original delivery schedule |
| To the extent these and the other matters referred to in the next paragraph occur, we may seek to recover any increased costs incurred by us from the responsible party; however, we cannot assure you that we will be successful in recovering all or a part of these costs in any or all circumstances |
| In certain circumstances, we guarantee project completion or the achievement of certain acceptance and performance testing levels by a scheduled date |
| Failure to meet schedule or performance requirements could result in additional costs to us, including the payment of contractually agreed liquidated damages |
| The amount of such additional costs could exceed our profit margins on the project |
| While we may seek to recover these amounts as claims from the supplier, vendor, subcontractor or other third party responsible for the delay or for providing non-conforming products or services, we cannot assure you that we will recover all or any part of these costs in all circumstances |
| Performance problems for existing and future projects could cause our actual results of operations to differ materially from those anticipated by us and could damage our reputation within our industry and our customer base |
| Our use of percentage-of-completion accounting for fixed-price contracts and our reporting of profits for cost-plus contracts prior to contract completion could result in a reduction or elimination of previously reported profits |
| A material portion of our revenues are recognized using the percentage-of-completion method of accounting |
| The percentage-of-completion accounting practices that we use result in our recognizing fixed-price contract revenues and earnings ratably over the contract term in the proportion that our actual costs bear to our estimated contract costs |
| The earnings or losses recognized on individual fixed-price contracts are based on estimates of contract revenues, costs and profitability |
| We review our estimates of contract revenues, costs and profitability on an ongoing basis |
| Prior to contract completion, we may adjust our estimates on one or more occasions as a result of changes in cost estimates, change orders to the original contract, collection disputes with the customer on amounts invoiced or claims against the customer for increased costs incurred by us due to customer-induced delays and other factors |
| Contract losses are recognized in the fiscal period when the loss is determined |
| Contract profit estimates are also adjusted in the fiscal period in which it is determined that an adjustment is required |
| No restatements are made to prior periods |
| Further, a number of our contracts contain various cost and performance incentives and penalties that impact the earnings we realized from our contracts, and adjustments related to these incentives and penalties are recorded in the period when estimable |
| As a result of the requirements of the percentage-of-completion method of accounting, the possibility exists, for example, that we could have estimated and reported a profit on a contract over several prior periods and later determine, usually near contract completion, that all or a portion of such previously estimated and reported profits were overstated |
| If this occurs, the full aggregate amount of the overstatement will be reported for the period in which such determination is made, thereby eliminating all or a portion of any profits from other contracts what would have otherwise been reported in such period or even resulting in a loss being reported for such period |
| -13- ______________________________________________________________________ [40]Table of Contents Our financial loss exposure on cost-plus contracts is generally limited to a portion of our profit on the contract |
| However, it is possible that the customer could successfully dispute the costs we believe we incurred on the contract or assert that our costs were excessive for reasons such as poor project management or labor productivity |
| In addition, some cost-plus contracts contain penalty provisions for failure to achieve certain milestones or performance standards |
| To the extent we are not able to recover the full amount of our costs under a cost-plus contract, including adjustments under contract penalty provisions, there would be a reduction, or possibly an elimination, of previously recognized and reported earnings |
| In certain circumstances it is possible that such adjustments could be material to our operating results |
| We may incur significant costs in providing services in excess of original project scope without having an approved change order |
| After commencement of a contract, we may perform, without the benefit of an approved change order from the customer, additional services requested by the customer that were not contemplated in our contract price due to customer changes or to incomplete or inaccurate engineering, project specifications and other similar information provided to us by the customer |
| Our construction contracts generally require the customer to compensate us for additional work or expenses incurred under these circumstances |
| A failure to obtain adequate compensation for these matters could require us to record in the current period an adjustment to revenue and profit recognized in prior periods under the percentage-of-completion accounting method |
| Any such adjustments, if substantial, could have a material adverse effect on our results of operations and financial condition, particularly for the period in which such adjustments are made |
| We cannot assure you that we will be successful in obtaining, through negotiation, arbitration, litigation or otherwise, approved change orders from customers to pay us amounts adequate to compensate us for our additional work or expenses |
| We are involved and are likely to continue to be involved in legal proceedings, which will increase our costs and, if adversely determined, could have a material effect on our financial condition and results of operations |
| We are and will likely continue to be named as a defendant in legal proceedings claiming damages from us in connection with the operation of our business |
| Most of the actions against us arise out of the normal course of performing services on project sites, and include claims for workers’ compensation, personal injury and property damage |
| From time to time, we are also named as a defendant in contract disputes with customers relating to the timeliness and quality of the performance of our services and equipment, materials, design or other services provided by our subcontractors and third-party suppliers |
| We also are and are likely to continue to be a plaintiff in legal proceedings against customers seeking to recover payment of contractual amounts due to us as well as claims for increased costs incurred by us resulting from, among other things, services performed by us at the request of a customer that are in excess of original project scope that are later disputed by the customer and customer-caused delays in our contract performance |
| We maintain insurance against operating hazards in amounts that we believe are customary in our industry |
| However, our insurance has deductibles and exclusions of coverage so we cannot provide assurance that we are adequately insured against all the types of risks that are associated with the conduct of our business |
| A successful claim brought against us in excess of, or outside of, our insurance coverage could have a material adverse effect on our financial condition and results of operations |
| Litigation, regardless of its outcome, is expensive, typically diverts the efforts of our management away from operations for varying periods of time, and can disrupt or otherwise adversely impact our relationships with current or potential customers and suppliers |
| Payment and claim disputes with customers also cause us to incur increased interest costs resulting from drawing higher levels of debt under our revolving line of credit or receive less interest income resulting from less funds invested due to the failure to receive payment for disputed claims and accounts |
| -14- ______________________________________________________________________ [41]Table of Contents Actual results could differ from the estimates and assumptions that we use to prepare our financial statements |
| To prepare financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions, as of the date of the financial statements, which affect the reported values of assets, liabilities, revenues and expenses and disclosures of contingent assets and liabilities |
| Areas requiring significant estimation by our management include: • contract expenses and profits and application of percentage-of-completion accounting; • costs and estimated earnings in excess of billings on uncompleted contracts; • provisions for uncollectible receivables and other collection disputes with customers for invoiced amounts; • the amount and collectibility of claims against customers, third-party suppliers, subcontractors and others for increased costs incurred by us that were caused by the actions or inactions of these parties, such as increased costs due to delays in their performance or to the failure of machinery, equipment and supplies provided by them to perform to agreed specifications; • provisions for income taxes and related valuation allowances; • recoverability of goodwill; • valuation of assets acquired and liabilities assumed in connection with business combinations; and • accruals for estimated liabilities, including litigation and insurance reserves |
| Our actual results could differ from these estimates |
| We are susceptible to adverse weather conditions in our regions of operation, which may harm our business and financial results |
| Our business may be adversely affected by severe weather in areas where we have significant operations |
| Repercussions of severe weather conditions may include: • curtailment of services; • suspension of operations; • weather related damage to our facilities; • inability to receive machinery, equipment and materials at jobsites; • inability to meet performance schedules in accordance with contracts; and • loss of productivity |
| -15- ______________________________________________________________________ [42]Table of Contents Our projects expose us to potential professional liability, product liability, warranty and other claims, which could be expensive, damage our reputation and harm our business |
| We may not be able to obtain or maintain adequate insurance to cover these claims |
| We construct, perform services at and, to a lesser extent, engineer large industrial facilities in which accidents or system failures can be disastrous |
| Any catastrophic occurrence in excess of our insurance limits at locations engineered or constructed by us or where our products are installed or services performed could result in significant professional liability, product liability, warranty and other claims against us by our customers, including claims for cost overruns and the failure of the project to meet contractually specified milestones or performance standards |
| Further, the rendering of our services on these projects could expose us to risks to, and claims by, third parties and governmental agencies for personal injuries, property damage and environmental matters, among others |
| Any claim, regardless of its merit or eventual outcome, could result in substantial costs to us, a substantial diversion of management’s attention and adverse publicity, particularly for claims relating to environmental matters where the amount of the claim could be extremely large |
| Insurance coverage is increasingly expensive and we may not be able to or may choose not to obtain or maintain adequate protection against the types of claims described above |
| If we are unable to obtain insurance at an acceptable cost or otherwise protect against the claims described above, we will be exposed to significant liabilities, which may materially and adversely affect our financial condition and results of operations |
| There are integration and consolidation risks associated with our growth strategy |
| Future acquisitions may also result in significant transaction expenses, unexpected liabilities and risks associated with entering new markets, and we may be unable to profitably operate our business |
| An aspect of our business strategy is to make strategic acquisitions in markets where we currently operate as well as in markets in which we have not previously operated |
| We may have difficulties identifying attractive acquisition candidates or we may be unable to acquire desired businesses on economically acceptable terms |
| Additionally, existing or future competitors may desire to compete with us for acquisition candidates that may have the effect of increasing acquisition costs or reducing the number of suitable acquisition candidates |
| We may not have the financial resources necessary to consummate any acquisitions or the ability to obtain the necessary funds on satisfactory terms |
| We may not have sufficient management, financial and other resources to integrate future acquisitions |
| Any future acquisitions may result in significant transaction expenses, unexpected liabilities and risks associated with entering new markets in addition to the integration and consolidation risks |
| In the event we are unable to complete future strategic acquisitions, we may not grow in accordance with our expectations |
| If we make any future acquisitions, we likely will have exposure to third parties for liabilities of the acquired business that may or may not be adequately covered by insurance or by indemnification, if any, from the former owners of the acquired business |
| Any of these unexpected liabilities could have a material adverse effect on us |
| Earnings for the future periods may be affected by impairment charges |
| Because we have grown in part through acquisitions, goodwill and other acquired intangible assets represent a substantial portion of our assets |
| We perform an annual goodwill impairment review in the fourth quarter of every fiscal year |
| In addition, we perform a goodwill impairment review whenever events or changes in circumstances indicate the carrying value may not be recoverable |
| At some future date, we may determine that an additional significant impairment has occurred in the value of our unamortized intangible assets, goodwill or fixed assets, which could require us to write off an additional portion of our assets and could adversely affect our financial condition or results of operations |
| Debt agreements impose restrictions that may limit business alternatives |
| Our debt agreements contain covenants that restrict or limit our ability to incur additional debt, create liens, acquire or dispose of assets, repurchase equity, or make distributions |
| In addition, our debt agreements require that we comply with a number of financial covenants |
| These covenants and restrictions may impact our ability to effectively execute operating and strategic plans |
| Our ability to comply with these covenants may be affected by factors or events beyond our control, therefore our future operating performance may not be sufficient to comply with the required covenants |
| -16- ______________________________________________________________________ [43]Table of Contents Our failure to comply with the one or more of the covenants in our debt agreements could result in an event of default |
| We can provide no assurance that a default could be remedied, or that our creditors would grant a waiver or amend the terms of the credit agreements |
| If an event of default occurs, our lenders could elect to declare all amounts outstanding under a particular facility to be immediately due and payable, terminate all commitments, or refuse extend further credit |
| An event of default or acceleration under one debt agreement could cause a cross-default or cross-acceleration of another debt agreement |
| If an event of default occurs, or if other debt agreements cross-default, and the lenders under the affected debt agreements accelerate the maturity of any loans or other debt outstanding, we may not have sufficient liquidity to repay amounts outstanding under existing debt agreements |
| Future events could negatively affect our liquidity position |
| Our liquidity consists primarily of cash from operations and advances under our revolving credit facility |
| The credit facility consists of a dlra40dtta0 million revolver with availability limited to the lesser of dlra40dtta0 million or 80prca of eligible accounts receivable |
| As of May 31, 2006, eligible accounts receivable were sufficient to support the full borrowing capacity |
| At that date, dlra9dtta0 million was outstanding on the revolver, all of which was utilized for letters of credit with the remaining dlra31dtta0 million available for additional letters of credit or advances for working capital, capital expenditures or other corporate purposes |
| We cannot assure that we will have sufficient cash from operations or the credit capacity to meet all of our future cash needs should we encounter significant working capital requirements, including costs associated accounts receivable, contract dispute receivables, or costs in excess of contract billings |
| Insufficient cash from operations and significant working capital requirements have in the past and could in the future reduce availability under our credit facility and impact our ability to comply with the terms of our credit agreements |
| If we fail to comply with our obligations under two registration rights agreements among us and the holders of our convertible notes and the purchasers of common stock in our equity private placement, we may be required to pay damages to the security holders |
| Our failure to comply with our obligations under the registration rights agreement for the convertible notes may also constitute an event of default under the convertible notes |
| In connection with the private placement of our convertible notes and common stock in 2005, we must comply with registration rights agreements with the investors in those securities |
| The registration rights agreements require us to use our best efforts to keep our registration statements continuously effective until the date on which all of our common stock covered by such registration statements have been sold or may be sold without volume restrictions pursuant to Rule 144(k) under the Securities Act of 1933, as amended, or “Securities Act,” or, in the case of the stock underlying the convertible notes, the earlier of such date or April 22, 2010 |
| If we fail to satisfy our obligations under the registration rights agreements, we will owe the holders of those securities as partial liquidated damages an amount in cash equal to 1prca of the aggregate amount paid for the securities for each such event, and thereafter on each monthly anniversary of each such event (if the applicable failure shall not have been cured by such date) until the applicable failure is cured, we will owe the note holders an amount in cash equal to an additional 1prca of the aggregate amount paid for the securities |
| Moreover, the convertible notes provide that an event of default will occur if the registration statement does not remain available for use by the holders of convertible notes for in excess of an aggregate of 20 “trading days” (which need not be consecutive) in any 18-month period during the “effectiveness period |
| ” The occurrence of an event of default would entitle the holders of the convertible notes to require us to redeem the convertible notes for an amount which may exceed the outstanding principal amount plus all accrued and unpaid interest thereon and would also constitute an event of default under the cross default provisions of our credit agreement |
| -17- ______________________________________________________________________ [44]Table of Contents Our common stock, which is listed on the NASDAQ Global Market, has from time-to-time experienced significant price and volume fluctuations |
| These fluctuations are likely to continue in the future, and our stockholders may not be able to resell their shares of common stock or other securities whose price is related to that of our common stock at or above the purchase price paid |
| The market price of our common stock may change significantly in response to various factors and events beyond our control, including the following: • the risk factors described in this Item 1A; • the significant concentration of ownership of our common stock in the hands of a small number of institutional investors; • a shortfall in operating revenue or net income from that expected by securities analysts and investors; • changes in securities analysts’ estimates of our financial performance or the financial performance of our competitors or companies in our industry generally; • general conditions in our customers’ industries; and • general conditions in the security markets |
| Some companies that have volatile market prices for their securities have been subject to security class action suits filed against them |
| If a suit were to be filed against us, regardless of the outcome, it could result in substantial costs and a diversion of our management’s attention and resources |
| This could have a material adverse effect on our business, results of operations and financial condition |
| Future sales of our common stock may depress our stock price |
| Sales of a substantial number of shares of our common stock in the public market or otherwise, either by us, a member of management or a major stockholder, including the holders of our convertible notes, or the perception that these sales could occur, could depress the market price of our common stock and impair our ability to raise capital through the sale of additional equity securities |
| We may issue additional equity securities, which would lead to dilution of our issued and outstanding stock |
| The issuance of additional common stock or securities convertible into our common stock would result in dilution of the ownership interest in us held by existing stockholders |
| We are authorized to issue, without stockholder approval, 4cmam800cmam000 shares of preferred stock, no par value, in one or more series, which may give other stockholders dividend conversion, voting, and liquidation rights, among other rights, which may be superior to the rights of holders of our common stock |
| Our Board of Directors has no present intention of issuing any such preferred stock series but reserves the right to do so in the future |
| In addition, we are authorized to issue, without stockholder approval, a significant number of additional shares of our common stock and securities convertible into either common stock or preferred stock |
| Environmental factors and changes in laws and regulations could increase our costs and liabilities |
| Our operations are subject to environmental laws and regulations, including those concerning: • emissions into the air; • discharges into waterways; • generation, storage, handling, treatment and disposal of hazardous material and wastes; and • health and safety |
| -18- ______________________________________________________________________ [45]Table of Contents Our projects often involve highly regulated materials, including hazardous wastes |
| Environmental laws and regulations generally impose limitations and standards for regulated materials and require us to obtain permits and comply with various other requirements |
| The improper characterization, handling, or disposal of regulated materials or any other failure by us to comply with federal, state and local environmental laws and regulations or associated environmental permits could subject us to the assessment of administrative, civil and criminal penalties, the imposition of investigatory or remedial obligations, or the issuance of injunctions that could restrict or prevent our ability to operate our business and complete contracted projects |
| In addition, under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), and comparable state laws, we may be required to investigate and remediate regulated materials |
| CERCLA and the comparable state laws typically impose liability without regard to whether a company knew of or caused the release, and liability for the entire cost of clean-up can be imposed upon any responsible party |
| The environmental, workplace, employment and health and safety laws and regulations, among others, to which we are subject are complex, change frequently and could become more stringent in the future |
| It is impossible to predict the effect of any future changes to these laws and regulations on us |
| We cannot assure you that our operations will continue to comply with future laws and regulations or that these laws and regulations and/or a failure to comply with these laws will not significantly adversely affect our business, financial condition and results of operations |
| Changes in environmental laws and regulations or a reduced level of enforcement of existing laws and regulations could adversely affect the demand for our services and our results of operations |
| Changes in environmental laws and regulations that reduce existing standards and a reduced level of enforcement of these laws and regulations could adversely affect the demand by our customers for many of our services |
| Proposed changes in regulations and the perception that enforcement of current environmental laws has been less strict has decreased the demand for some of our services, as customers have anticipated and adjusted to the potential changes |
| Future changes could result in a decreased demand for some of our services |
| The ultimate impact of any such future changes will depend upon a number of factors, including the overall strength of the economy and customer’s views on whether new or more restrictive regulations will be adopted or whether there will be a relaxing of the requirements and levels of enforcement of existing regulations and the cost-effectiveness of remedies available under changed regulations |
| If proposed or enacted changes materially reduce demand for our environmental services, our results of operations could be adversely affected |