Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Fiscal Year Ended August 31, 1995 Commission File Number 0-15587
EA Engineering, Science, and Technology, Inc.
(Exact Name of registrant as specified in its charter)
Delaware 52-0991911
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11019 McCormick Road, Hunt Valley, MD 21031
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (410) 584-7000
---------------
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01 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. [ ]
As of November 1, 1995, the aggregate market value of the outstanding shares
of the Registrant's Common Stock, par value $.01 per share, held by
non-affiliates was approximately $11,800,000 based on the closing price of the
Common Stock as provided by the National Association of Securities Dealers
through NASDAQ on November 1, 1995.
Indicate the number of shares outstanding of each of the Registrant's classes
of Common Stock as of the latest practicable date.
Class Outstanding at November 1, 1995
-------------------------------- ---------------------------------------
Common Stock, par value $.01 6,097,000 shares
DOCUMENTS INCORPORATED BY REFERENCE
1. Annual Report to Stockholders for the year ended August 31, 1995, portions
of which are incorporated by reference in Part II of this Report.
2. Proxy Statement for the Annual Meeting of Stockholders scheduled for
January 10, 1996, portions of which are incorporated by reference in Part
III of this Report.
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EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC.
FORM 10-K
TABLE OF CONTENTS
Item Page
PART I
1 Business 1
2 Properties 8
3 Legal Proceedings 8
4 Submission of Matters to a Vote of Shareholders 8
PART II
5 Market for the Registrant's Common Stock and Related
Shareholder Matters 9
6 Selected Financial Data 10
7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
8 Financial Statements and Supplementary Data 15
9 Disagreements on Accounting and Financial
Disclosure 28
PART III
10 Directors and Executive Officers of the Registrant 29
11 Executive Compensation 29
12 Security Ownership of Certain Beneficial Owners
and Management 29
13 Certain Relationships and Related Transactions 29
PART IV
14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 30
Signatures 34
Exhibit Index 35
<PAGE>
PART I
ITEM 1. BUSINESS
General
EA Engineering, Science, and Technology, Inc. is a multidisciplinary
environmental services organization. Through its nationally oriented business
service areas, the Company offers a wide range of consulting, engineering,
analytical, and remediation capabilities to characterize and resolve existing
and potential threats to the environment and to human health and safety. The
Company provides its services to private sector and government clients from 23
offices located across the nation.
As of August 31, 1995, the Company's organizational structure consisted
of the parent company, EA Engineering, Science, and Technology, Inc.
("EA") and its wholly-owned subsidiary, EA Financial, Inc., and its
wholly-owned subsidiaries, EA Global, Inc. and EA Engineering, Science, and
Technology de Mexico, S.A. de C.V. The entities are collectively referred to
herein as the "Company." EA Remediation Technologies, Inc., formerly a
wholly-owned subsidiary, was merged into EA during fiscal 1995.
The Company was founded in 1973 and initially was engaged in environmental
assessment and permitting related to power plant siting and expansion. During
the past decade, the Company has expanded its primary service areas to include
Risk Assessment and Management, Resource Management, Air and Water Quality
Management, Strategic Environmental Management, Analytical Services, Site
Investigations, Engineering Design, and Remediation Services.
To address the multifaceted nature of most environmental problems, the Company's
services normally are performed by a team of engineers and scientists and
include onsite collection of water, soil and air samples, onsite monitoring and
measurement of discharges and emissions, analysis of samples in the Company's
laboratories or in its mobile testing units, evaluation of environmental or
human health risks, development and engineering design of a system or facility
for monitoring, controlling, or eliminating environmental problems,
implementation of remedial actions, and preparation of reports for client and
regulatory agencies.
As a result of its growth strategy, the Company now offers clients a single
source for identifying and solving environmental problems, from assessment and
analysis, through engineering and design of solutions, to remediation
management.
During fiscal 1995, the Company's percentage of net revenue, net backlog, and
proposal opportunities from the federal government continued to be a significant
portion of the Company's work. The high level of federal government work was the
result of the Company's previous performance, pricing, and marketing and sales
efforts over the past several years directed at federal government environmental
opportunities, primarily within the agencies of the Department of Defense (DOD).
Under the terms of these agreements, the Company contracts to perform various
services that are funded by the client throughout the term of the contract. The
timing and amount of the funding are authorized by the client on a task order
basis depending on the needs of the client. Some of these awards included a
higher level of teaming as both the prime or a subcontractor with companies who
were competitors and/or provided complementary strengths (location, staff,
specialized skills or experience) to the proposal team. The Company expects its
portion of federal government work to increase again in the next fiscal year and
its private sector work to increase modestly as general economic conditions
improve.
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The Company's proposal strategy has consistently utilized a teaming approach,
where necessary, to provide the appropriate levels of professional skills and
capabilities (location, staff, and specializedskills or experience). The Company
acts as the prime contractor or a subcontractor depending on the specific
requirements of the proposal and the availability of teaming companies. As a
result of the increasing opportunities with larger and longer term contracts,
particularly within the federal government area, certain contract awards and
current proposals include a higher level of teaming with companies who are
competitors and/or who provide complementary strengths. Prior to fiscal 1995,
subcontractor levels have approximated 15 to 18% of total revenue. Fiscal 1995
subcontractors represented almost 22% of net revenue, reflecting increased use
of teaming partners. Current backlog includes subcontractor amounts that, if
fully authorized, could include subcontractor levels on specific contracts of
approximately 35% to 50%. In cases where the Company acts as the prime
contractor, it generally is able to add its administrative costs and fee to the
subcontracted costs. Management believes that the increasing levels of teaming
for certain larger contracts provide additional opportunities for future growth.
However, the increased level of subcontracting may increase the potential risk
for timely and quality performance by team members.
During fiscal 1995, EA incorporated EA Engineering, Science and Technology, de
Mexico, S.A. de C.V. (EA de Mexico) in order for the company to submit proposals
and operate its environmental business in Mexico. To date, neither EA nor EA de
Mexico has received any contracts in Mexico. EA de Mexico is a wholly owned
subsidiary of EA Financial, Inc.
Additionally, EA incorporated EA Global, Inc., a Delaware corporation in order
for the Company to submit proposals and operate its environmental business in
countries other than the United States and Mexico. To date, EA Global has
received only nominal contracts. EA Global is a wholly-owned subsidiary of EA
Financial, Inc.
SERVICES
The Company's primary service areas are Risk Assessment and Management, Resource
Management, Air and Water Quality Management, Strategic Environmental
Management, Analytical Services, Site Investigations, Engineering Design, and
Remediation Services. The multi-faceted nature of most environmental problems,
however, requires a cross-section of professionals to provide an integrated
solution, and strict classification by service area is not practical for most of
the Company's projects. In providing its services, the Company has developed
certain remedial and analytical technologies and processes for the mitigation
and control of environmental damage and risks. In addition, the Company assists
clients in responding to issues raised by regulatory agencies and community
groups. All of the service areas are part of the vertically integrated
capabilities that the Company may offer its clients.
The Company's services normally are performed by a team of scientists and
engineers and include a combination of the following:
(bullet) Consultation to determine the nature and scope of a potential
environmental problem.
(bullet) On-site collection of samples.
(bullet) On-site monitoring and measurement of discharges and emissions.
(bullet) Analysis of samples in the Company's laboratories or in its mobile
testing units.
(bullet) Evaluation of environmental or human health risks.
(bullet) Development and engineering design of a system or facility for
monitoring, controlling, or eliminating the problem.
(bullet) Preparation of reports for regulatory agencies.
(bullet) Participation in public and regulatory hearings.
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(bullet) Engineering certification of design specifications.
(bullet) Implementation of remedial action.
The Company's contracts are generally undertaken on a time and material, fixed
price, or cost plus fixed fee basis. Fixed price contracts and certain time and
material and cost plus contracts with upset limits require the Company to bear
the risk of cost overruns. Most of the Company's contracts provide that the
client may at any time cancel any portion of the work not yet performed.
The following table reflects the approximate percentage of net revenue derived
by contract type in each of the three years in the period ended August 31, 1995:
Year Ended August 31,
1995 1994 1993
Time and materials 47% 46% 46%
Fixed price 26 32 35
Cost plus fixed fee 27 22 19
100% 100% 100%
During fiscal 1995, the volume of the Company's work from federal government
agencies increased slightly. Much of this increase in governmental work was in
cost plus fixed fee type contracts.
In general, the Company's contracts vary in length from one month to five years
and require performance of a particular project within the contractually
specified time frame. Although the Company holds certain federal contracts with
options for longer durations, most of these contracts require exercise of annual
renewals by the client. A substantial portion of the Company's contracts
represent the provision of separate services required from time to time by
ongoing clients.
CLIENTS
During fiscal 1995, the Company provided services to more than 460 industrial,
utility, and government clients involving more than 1,600 projects in the
private sector and 470 projects in the federal government sector. Although more
private sector projects were performed, the portion of net revenue provided by
the federal government was 64%, 61%, and 45% for the fiscal year 1995, 1994, and
1993, respectively. This is primarily due to EA's success in acquiring more and
larger federal government sector contracts. Although a significant portion of
net revenue was derived from agencies of the federal government, the Company's
services are performed for many regions, departments, or agencies that are
organized and operated in a decentralized fashion, thereby reducing the
probability of a loss of a particular federal client's projects in their
entirety. Therefore, in management's opinion, the loss of any one of the
Company's clients within its major revenue generating sector would not have a
material effect on operations or profitability.
The following table reflects the approximate percentage of net revenue derived
from the Company's major client sectors for each of the three years in the
period ended August 31, 1995:
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Year Ended August 31,
1995 1994 1993
Federal government 64% 61% 45%
Industrial and other private sector 23 20 32
Utilities 7 10 13
State and local government 6 9 10
100% 100% 100%
SALES AND MARKETING
During fiscal 1995, the Company maintained its centrally coordinated business
development efforts to provide greater synergy among the business units, as well
as to position the Company for earlier opportunity identification and proactive
response. The focus within business development was to maximize positive, direct
interaction with clients and to facilitate successful assessment of and response
to real-time marketplace requirements. Business development efforts continue at
a high level with the Department of Defense, with significant resources directed
at diversifying the Company's public sector client base by securing additional
work with non-DOD government agencies. Efforts in the private sector have also
continued, with significant attention directed at establishing long-term
relationships and obtaining basic ordering agreements with Fortune 500 clients.
These efforts to diversify EA's client base are directed to provide the platform
for greater stability and continued growth, even in difficult economic times and
through periods of changing government administration and policy.
At the end of fiscal 1995, the Company redirected its private sector business
development to align it more closely with the primary service areas. As in
previous years, marketing efforts continue to be performed by senior
professional personnel at the Company's headquarters and in each of its regional
offices. The Company also conducts seminars and workshops on specific
environmental problems for government, industry, and community groups.
Historically, existing clients have been a significant source of referrals. The
Company believes that participation by professional staff members as expert
witnesses in environmental hearings and litigation results in additional
referrals. Government business development will continue to be performed as a
centrally-managed national function.
BACKLOG
At August 31, 1995, the Company's total contract backlog was approximately $67
million which is approximately 18% higher than contract backlog of $57 million
at August 31, 1994. The Company's net contract backlog (total less estimated
subcontractor costs) was approximately $53 million at the end of fiscal 1995
compared to approximately $46 million at the end of fiscal 1994. The Company
expects that approximately 70% of this backlog will be completed in fiscal 1996.
Included in the Company's total contract backlog attributable to federal
government contracts as of August 31, 1995 was $44 million ($32 million, net)
compared to $37 million ($28 million, net) a year earlier.
In addition to this contract backlog, at August 31, 1995, the Company held
indefinite delivery/indefinite quantity type contracts from various clients,
principally governmental agencies for up to $394 million
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($228 million, net) compared to $448 million ($258 million, net) in 1994. The
Company includes only work authorized under these contracts in its contract
backlog.
There can be no assurance, however, that work under any of these contracts
will be authorized or that work once authorized will not be cancelled.
Generally, these contracts provide for a fixed percentage of profit based on
estimated costs. In the event of cancellation, the Company is entitled to
recover its incurred costs and associated profit. Terminations and cancellations
of government contracts have not been material in the past. The level of backlog
may fluctuate during each year, and accordingly, the backlog at any point in
time does not necessarily reflect near-term anticipated operating results.
The Company also provides services on major long-term private sector contracts
under continuing service agreements that provide for work on a task basis. Upon
receipt of related authorizations the work is included in contract backlog.
Because such specific authorizations are generally for periods considerably
shorter than the duration of the period the Company expects to perform services
for a particular client, management believes that its backlog figures are not
necessarily indicative of its future revenues.
EMPLOYEES
At August 31, 1995, the Company had approximately 840 full time employees
compared to approximately 680 full time employees at August 31, 1994. The
increase in staff results from hirings necessary to meet the demands of clients,
particularly those in the federal sector. Approximately 72% of these employees
are engaged primarily in performing scientific, engineering, and remediation
services. The remainder of the employees are engaged primarily in executive,
administrative, and other support activities. The Company also hires part-time
or temporary personnel to meet seasonal needs or the requirements of a
particular contract. The Company's professional staff includes professional
engineers, biologists, chemists, geologists, hydrologists, industrial
hygienists, public health scientists, and computer scientists.
None of the Company's employees are represented by a union. The Company
considers its relations with employees to be good.
COMPETITION
The environmental engineering and consulting market is becoming more highly
competitive and requires skilled and experienced professional, technical, and
management personnel, as well as sophisticated equipment representing a
substantial capital investment. The principal competitive factors are pricing,
reputation, quality of service, expertise, and local presence. The Company
believes that its favorable competitive factors are its multidisciplinary
capabilities, its reputation for quality of services, its certifications to
provide analytical and consulting services to a broad constituency, and its
geographical dispersion. In each national business, the Company competes with
engineering and consulting firms which are both larger and smaller than the
Company, although the Company believes that no one firm currently dominates a
significant portion of any of the service areas.
It has become commonplace within the industry that in certain circumstances,
primarily large DOD opportunities, EA joins a team of competitors to submit
proposals (either as the prime contractor or a subcontractor) as noted in the
"General" section of this item.
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The Company believes that it is one of a limited number of companies that offer
a wide range of integrated services for solving complex environmental and health
risk problems. Some of these companies are larger and have greater financial
resources than the Company.
LICENSING AND CERTIFICATION
The Company's analytical laboratory provides Special Analytical Services for the
U.S. Environmental Protection Agency ("EPA") under the Contract Laboratory
Program, which requires performance of these chemistry services according to the
EPA methods and standards. The laboratory has also been validated to perform
analyses for the U.S. Navy, the U.S. Air Force, U.S. Army Corps of Engineers
(Missouri River Division), and U.S. Army Corps of Engineers (U.S. Army
Environmental Agency). Regulatory authorities frequently will not accept
analytical evidence of compliance unless the analysis has been performed by a
laboratory with relevant certifications such as those described above.
The laboratory is also certified by 38 different states including Maryland, New
Jersey, New York, and California, and maintains certain local permits and
licenses. Applications for certification are pending approval in 2 other states.
Additionally, the laboratory has been authorized to do work by the District of
Columbia and 10 states that do not have formal certification programs. The
laboratory has certifications and permits to operate in states and jurisdictions
where the Company performs its services. To support all of these programs, the
laboratory must be periodically audited by these regulatory agencies and is
required to participate in a variety of performance evaluations such as those
conducted by the EPA and U.S. Army Corps of Engineers.
The criteria necessary for obtaining and maintaining laboratory certifications
and permits varies significantly by agency and by state.
Generally the criteria include:
(bullet) Application for certification/permit
(bullet) Request and initial review for compliance with comprehensive rules
and regulations
(bullet) Periodic verification of compliance through proficiency samples
(bullet) Periodic onsite audits
(bullet) Payment of annual fees
Historically, the laboratory has experienced no significant audit problems.
While audits may result in certain "findings," these are usually procedural in
nature and prompt changes or other adjustments are made to bring the Company
into compliance with the auditor's request. The Company has been able to obtain
and maintain its certifications and permits without break. However, if the
Company is unable to obtain and maintain such participation and certifications,
the operation of the laboratory and the Company's financial condition may be
adversely affected. Management believes that the Company currently possesses the
licenses or permits necessary to perform its engineering and consulting
services.
REGULATORY MATTERS
Many environmental laws and regulations have been enacted by federal, state, and
local governments in response to growing public concern over activities and
substances deemed to have adverse effects on the environment and on human health
and safety. As advances in analytical instrumentation have made detection of
increasingly minute amounts of a substance possible, and as understanding of the
often complex effects of substances on health and the environment has grown,
such laws and regulations have become increasingly
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detailed and demanding. Compliance with these environmental laws and regulations
by both private and public sector clients has been and will remain the primary
force in creating demand for the Company's environmental, engineering, and
analytical services.
The principal federal legislation affecting the Company's business in the toxic
and hazardous materials management service area is the Resource Conservation and
Recovery Act of 1976 ("RCRA"). RCRA regulates the management of existing and
newly generated hazardous waste by imposing substantial obligations on
generators to reduce, monitor and control such wastes from the time of
generation through final disposal. The intent of RCRA is to regulate the
management, treatment, and disposal of hazardous wastes by industrial and other
waste generators. Amendments to RCRA have increased significantly the number of
waste generators subject to its terms and have also regulated the identification
and remediation of leaking underground storage tanks. The Company believes that
responding to the needs of industry and other waste generators under RCRA will
account for an increasing part of its business. Additional federal legislation
affecting the Company's business in the toxic and hazardous materials management
service area is the Comprehensive Environmental Response Compensation and
Liability Act of 1980 (CERCLA). This Act, often termed Superfund, along with its
amendments and reauthorizations, addresses the uncontrolled releases from
inactive or abandoned hazardous waste sites. Public sector, private sector, and
DOD clients are all subject to the requirements of CERCLA for geologic,
hydrologic, engineering, risk, and environmental evaluations. Response to CERCLA
requirements has generated substantial investigative and engineering work for
the Company. The Company expects an increased level of business in both the
investigative and engineering aspects of CERCLA work and an increase in
remediation activity as well.
Other federal legislation, such as the National Environmental Policy Act, the
Clean Water Act, the Safe Drinking Water Act, the Toxic Substances Control Act,
and the Clean Air Act Amendments, also strongly influence the Company's
business. These legislative acts and the numerous amendments to them focus on
the detection and monitoring of substances in the environment, the study and
assessment of the effects of those substances and other activities on human
health and the environment, and the development of effective regulatory
compliance programs by industries, municipalities, and regulatory agencies.
INSURANCE
The Company maintains a full range of insurance coverage with professional
errors and omissions liability insurance in the amount of $2 million, including
pollution liability coverage in the same amount. There can be no assurance that
the Company will not incur liability with respect to the professional services
it renders or that such liability, if incurred, will not have a material adverse
effect upon the Company. However, these insurance policies will provide limited
protection and defense up to the stated amounts.
EA has endeavored to protect itself through contractual indemnification from
clients when possible and by intensifying its existing quality control and
assurance, and health and safety programs. Generally, indemnification is not
available under the Company's government contracts. The Company's quality
control and assurance program includes a control function to establish
standards and procedures for performance and documentation of performance of
project tasks, and an assurance function to audit the control function and to
monitor compliance with procedures and quality standards. An additional
objective of this program has been to establish practices and procedures
to protect EA personnel from hazardous substances and situations through a
company-wide occupational safety and health monitoring program.
EQUIPMENT
The Company owns substantially all of the analytical, computer, monitoring,
testing and other equipment required to render its various consulting and
testing services. Additionally, the Company leases certain computer, office
furniture, and other equipment. Equipment and various other items which the
Company purchases on behalf of clients are available from several suppliers and
the Company is not dependent on any one supplier.
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ENVIRONMENTAL AND OTHER CONSIDERATIONS
The Company does not believe that its compliance with federal, state and local
laws and regulations relating to the protection of the environment will have any
material effect on its capital expenditures, earnings, or competitive position.
ITEM 2. PROPERTIES
The Company's headquarters, Mid-Atlantic regional offices and central
laboratories are located in suburban Baltimore, in approximately 91,000 ft(2) of
leased space. Leases for these facilities are with partnerships, whose partners
include the Chairman of EA and certain members of his family.
The Company's regional United States offices are located in:
Baltimore, Maryland Atlanta, Georgia Corpus Christi, Texas
Silver Spring, Maryland Pensacola, Florida Dallas, Texas
New Castle, Delaware San Francisco, California Houston, Texas
Newburgh, New York Sacramento, California San Antonio, Texas
Syracuse, New York San Diego, California Anchorage, Alaska
Newark, New Jersey Seattle, Washington Fairbanks, Alaska
Boston, Massachusetts Chicago, Illinois Honolulu, Hawaii
Charlotte, North Carolina Lincoln, Nebraska
The Company leases the office, laboratory, and storage facilities for each
regional office. Presently, the facilities are suitable, adequate, and are
generally utilized to capacity.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
On October 31, 1986, EA common stock began public trading in the
over-the-counter market under the symbol "EACO." The following table shows the
high and low closing sales price reported on the NASDAQ National Market System
adjusted to reflect EA's two 3-for-2 splits, each effected in the form of a 50%
stock dividend issued on Febuary 23, 1994 and July 5, 1994. Such
over-the-counter market quotations, however, reflect interdealer prices, without
retail markup, markdown, or commission and may not necessarily represent actual
transactions.
High Low
Fiscal 1994: First Quarter 5.89 3.78
Second Quarter 9.26 5.22
Third Quarter 12.33 6.33
Fourth Quarter 12.50 8.75
Fiscal 1995: First Quarter 10.25 6.75
Second Quarter 8.75 5.50
Third Quarter 7.25 5.25
Fourth Quarter 6.00 4.00
On November 1, 1995, the closing price of the common stock as reported by NASDAQ
was $4.13 per share. On that date, there were 1,157 holders of record.
To date the Company has not paid any cash dividends on its common stock and does
not anticipate paying such dividends in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the periods indicated have been derived from the
audited consolidated financial statements of the Company after effecting for the
stock splits described in note (2). This data should be read in conjunction with
the consolidated financial statements and notes thereto included in Item 8.
<TABLE>
<CAPTION>
Year Ended August 31,
1995 1994 1993 1992 1991
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operations data:
Total revenue $92,365 $76,873 $61,126 $52,915 $53,888
Net revenue (1) 72,471 63,748 52,941 45,411 45,817
Income (loss) from operations 4,141 3,305 2,111 (2,058) 196
Net income (loss) 2,227 1,823 1,004 (1,876) (300)
Net income (loss) per share (2) $0.36 $0.30 $0.17 $(0.34) $(0.05)
Weighted average number of shares
outstanding (2) 6,171 6,089 5,888 5,542 5,528
Balance sheet data:
Working capital $17,663 $14,317 $12,146 $ 8,041 $ 9,020
Total assets 36,368 31,575 28,471 28,990 33,241
Short-term borrowings -- -- -- 6,393 8,346
Long-term debt 4,033 4,798 5,034 2,483 2,866
Stockholders' equity $18,880 $15,177 $12,721 $11,542 $13,288
</TABLE>
(1) Net revenue represents total revenue less subcontractor costs.
(2) Results have been restated to reflect the two 3 for 2 stock splits, each
effected in the form of a 50% stock dividend issued on Febuary 23, 1994
and July 5, 1994.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company's results of operations are significantly affected by the timing of
the award of contracts, the timing of performance on contracts, and the extent
to which the Company's employees are performing billable tasks as opposed to
engaging in preparing contract proposals, bids, and other required non-billable
activities. Results of operations may also be affected to the extent that the
Company chooses not to reduce its professional staff during a period of reduced
demand for its services. Due to these factors, quarterly results of operations
are not necessarily indicative of the results of operations for longer periods.
The Company, in the course of providing its services, routinely subcontracts
such services as drilling, certain laboratory analyses, and other specialized
services. In addition, as described in the "General" section of Item 1, the use
of teaming partners for the performance of services similar to those of the
Company, is included in subcontracts. In accordance with industry practice and
contract terms that generally provide for the recovery of overhead costs, these
costs are passed directly through to clients and are included in total revenue.
Because subcontractor costs and direct charges can change significantly from
project to project, the change in total revenue is not necessarily a true
indication of business trends. Accordingly, the Company considers net revenue,
which is total revenue less subcontractor costs, as its primary measure of
revenue.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationships of selected items in
the statements of operations to net revenue for the years indicated.
Year Ended August 31,
1995 1994 1993
Net revenue 100.0% 100.0% 100.0%
Operating expenses:
Direct salaries and other operating 81.4 81.2 81.5
Selling, general and administrative 12.9 13.7 14.5
Total operating expenses 94.3 94.8 96.0
Income from operations 5.7 5.2 4.0
Interest expense, net (0.6) (0.4) (0.8)
Income before income taxes 5.1 4.8 3.2
Provision for income taxes 2.0 1.9 1.3
Net income 3.1% 2.9% 1.9%
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FISCAL 1995 COMPARED TO FISCAL 1994
Net revenue during fiscal 1995 increased 13.7% to $72,471,400 from $63,748,100.
The increase reflects increased contract volume associated with federal agencies
with which EA holds indefinite delivery-indefinite quantity type contracts.
Additionally, increased use of team partners and subcontractors provided
increased recovery of overhead costs and fees which are reflected in the net
revenue increase.
Direct salaries and other operating expenses increased 14.0% to $58,977,000 from
$51,736,100, and increased as a percentage of net revenue to 81.4% from 81.1%.
The increase as a percent of net revenue primarily resulted from increases in
employee health benefit cost and computer and computer communication charges.
These were partly offset by decreases in incentive compensation. Selling,
general, and administrative costs increased 7.4% to $9,353,700 from $8,706,800,
but decreased as a percent of net revenue to 12.9% from 13.7%. Management
expects the percentage of selling, general, and administrative expenses to net
revenue to further decrease reflecting a decrease in staff at the end of the
fourth quarter.
Interest expense, net, increased 60.2% to $428,200 from $267,300, largely as a
result of increased interest rates and higher average monthly borrowings under
the Company's credit facility.
The provision for income taxes in fiscal 1995 was $1,485,100 compared to
$1,215,300 in fiscal 1994. The effective tax rate for both years was 40%.
For fiscal 1995, net income was $2,227,400, or 3.1% of net revenue, compared to
net income of $1,822,600 or 2.9% of net income for fiscal 1994.
FISCAL 1994 COMPARED TO FISCAL 1993
Net revenue during fiscal 1994 increased 20.4% to $63,748,100 from $52,941,300.
The increase reflects increased contract volume primarily associated with
federal agencies. The Company continues to experience growth in both Department
of Defense and Department of Energy contracts. These increases were somewhat
offset by decreases in net revenue from its industrial and private sector
clients. The Company continues to believe that private sector conditions will
improve as the economy strengthens and has positioned its sales and marketing
efforts to capitalize on new opportunities.
Direct salaries and other operating expenses increased 19.9% to $51,736,100 from
$43,143,100, but decreased as a percentage of net revenue to 81.1% from 81.5%.
The decrease as a percentage of net revenue primarily resulted from decreases in
the incentive compensation plan and bad debt expense, offset by increases in
expanded office quarters and computer networks. Selling, general and
administrative costs increased 13.3% to $8,706,800 from $7,687,600, but
decreased as a percentage of net revenue from 14.5% to 13.7%.
Interest expense, net, decreased 39% to $267,300 from $437,900, largely as a
result of reduced borrowings under the Company's credit facility.
The provision for income taxes in fiscal 1994 was $1,215,300 compared to
$668,500 in fiscal 1993. The effective tax rate for both years was 40%.
For fiscal 1994, net income was $1,822,600, or 2.9% of net revenue, compared to
net income of $1,004,200 or 1.9% of net income for fiscal 1993.
12
<PAGE>
FISCAL 1993 COMPARED TO FISCAL 1992
Net revenue during fiscal 1993 increased 16.6% to $52,941,300 from
$45,410,500. The increase reflects increased contract volume associated with
several of the Company's environmental service areas, most notably increases in
hazardous waste management and related analytical laboratory sample
analyses performed for various federal agencies. This increase was the result
of the Company's previous investments in marketing and business development
for government clients, primarily the Department of Defense and
Department of Energy which have increased their environmentally related
activities.
However, this increase was somewhat offset by a decrease in the net revenue from
its industrial and other private sector clients due to the continuing
recessionary pressures. In response to these conditions, the Company has
expanded its private sector sales and marketing in an effort to increase its net
revenue in this sector and to position itself for new opportunities as general
economic conditions improve.
Direct salaries and other operating expenses decreased as a percentage of net
revenue to 81.5% in 1993 from 89.2% in 1992. These costs increased 6.5% to
$43,143,100 in 1993 from $40,508,300 in 1992. The overall increase in costs was
attributable to the cost of employee benefit programs, including an incentive
compensa-tion plan, the expansion in the number of locations, and associated
expense increases necessary to meet the growth in contract volumes. Other
expenses were contained through cost control measures instituted in fiscal 1992.
The additional contract volume resulted in improved staff utilization rates and
produced an increase in the volume of samples in the analytical laboratory.
Selling, general, and administrative costs increased 21.2% to $7,687,600 in 1993
from $6,341,600, and increased as a percentage of net revenue to 14.5% from
14.0%. The increase in expenses was associated with additional costs associated
with expanded national sales, marketing, and proposal activities, staff
recruiting, and information systems enhancements.
As a result of the above factors, including the restructuring expense recorded
in fiscal 1992, income from operations was $2,110,600 compared to a loss of
$2,058,400 one year ago. Interest expense, net, decreased 41.4% to $437,900 from
$747,700. The net decrease was primarily related to decreased borrowings and
related lower interest expense associated with EA's line of credit arrangement.
The provision for income taxes in fiscal 1993 was $668,500 compared to a benefit
of $930,200 in 1992. The effective tax rates were 40% and 33%, respectively.
For fiscal 1993, net income was $1,004,200, or 1.9% of net revenue,
compared to a net loss of $1,875,900 or 4.1% of net revenue in 1992.
INFLATION
Because of its ability to pass through increased costs to its clients, as well
as the generally low levels of inflation, the Company believes that inflation
has not had a material impact on its operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents (cash) decreased by $174,600 in 1995 compared to a
decrease of $61,100 in 1994, and an increase of $1,560,900 in 1993. The decrease
in 1995 principally resulted from cash used in investing in the purchase of
equipment, reduction of long-term debt, payments of income taxes, and increases
13
<PAGE>
in accounts receivable and costs and estimated earnings in excess of billings on
uncompleted contracts. These uses were partially offset by increases in accounts
payable and accrued expenses, net income, noncash expenses included in net
income, and proceeds from the issuance of common stock.
The Company's capital expenditures (consisting primarily of purchases of
equipment and leasehold improve-ments) of approximately $1,067,200, $1,579,700,
and $1,123,000 in 1995, 1994, and 1993, respectively, have been funded primarily
from cash flows and various long-term and short-term borrowing arrangements.
The Company has maintained its bank credit arrangement with a regional bank. The
arrangement provides for maximum borrowings of $12,500,000 consisting of a
$9,500,000 revolving line of credit and a $3,000,000 term note with interest
payable quarterly and the principal due in January 1997. The interest on these
borrowings varies at or below prime rate. Borrowings are unsecured.
At August 31, 1995, the Company had outstanding long-term debt, including
current portion, of $4,798,200, which represented a decrease of $839,900 from
the August 31, 1994 balance of $5,638,100. The Company had no short-term
borrowings under its line of credit at August 31, 1995.
The Company's existing funds, cash from operations, and the available portion of
its $12,500,000 bank line of credit are expected to be sufficient to meet the
Company's present cash needs. Also, as part of its banking arrangements, the
Company has a $2,000,000 available line of credit for equipment financing. The
Company also has access to certain capital equipment financing arrangements
through various equipment suppliers. The Company also believes it has the
ability to raise capital through public or private placement of debt and will
pursue such options as the need arises to expand facilities or acquire equipment
in conjunction with a review of the most cost effective means for the Company
and its stockholders.
While the Company believes that there is sufficient demand to absorb the
additional contracting capacity resulting from expansion and from additions to
its professional staff, there can be no assurance that this demand will exist or
continue. Although the Company has the ability to reduce its professional staff
in periods of reduced demand, it may choose not to make full reductions in such
periods, with resulting adverse effects on operations.
14
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Public Accountants 16
Consolidated Financial Statements:
Consolidated Balance Sheets as of August 31, 1995 and 1994 17-18
Consolidated Statements of Income for the years ended
August 31, 1995, 1994, and 1993 19
Consolidated Statements of Changes in Stockholders' Equity for
the years ended August 31, 1995, 1994, and 1993 20
Consolidated Statements of Cash Flows for the years ended
August 31, 1995, 1994, and 1993 21
Notes to Consolidated Financial Statements for the years ended
August 31, 1995, 1994, and 1993 22-28
</TABLE>
15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
EA Engineering, Science, and Technology, Inc.:
We have audited the accompanying consolidated balance sheets of EA Engineering,
Science, and Technology, Inc. (a Delaware corporation) and subsidiaries as of
August 31, 1995 and 1994, and the related consolidated statements of income,
changes in stockholders' equity, and cash flows for each of the three years in
the period ended August 31, 1995. 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 financial position of EA Engineering, Science, and
Technology, Inc. and subsidiaries as of August 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended August 31, 1995, in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
Baltimore, Maryland
September 20, 1995
16
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
August 31,
1995 1994
<S> <C> <C>
Current Assets:
Cash and cash equivalents (Note 1) $ 3,813,900 $ 3,988,500
Accounts receivable, net (Note 3) 14,858,100 12,143,800
Costs and estimated earnings in excess
of billings on uncompleted contracts 10,735,000 7,987,400
Prepaid expenses and other 1,711,300 1,797,400
Total Current Assets 31,118,300 25,917,100
Property and Equipment, at cost (Notes 1 and 6):
Furniture, fixtures, and equipment 14,403,800 13,494,200
Leasehold improvements 3,652,400 3,541,100
18,056,200 17,035,300
Less-Accumulated depreciation and amortization (14,255,900) (12,669,100)
Net Property and Equipment 3,800,300 4,366,200
Other Assets 1,449,200 1,291,600
Total Assets $ 36,367,800 $ 31,574,900
</TABLE>
The accompanying notes are an integral part of these balance sheets.
17
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
August 31,
1995 1994
<S> <C> <C>
Current Liabilities:
Accounts payable $ 5,960,800 $ 4,047,800
Accrued expenses 856,500 944,400
Accrued salaries, wages and benefits 4,595,700 4,718,100
Income taxes payable (Note 2) 227,600 47,800
Current portion of long-term debt (Note 6) 765,500 839,900
Billings in excess of costs and estimated earnings
on uncompleted contracts 1,049,300 1,002,200
Total Current Liabilities 13,455,400 11,600,200
Long-Term Debt, net of current portion (Notes 4 and 6) 4,032,700 4,798,200
Total Liabilities 17,488,100 16,398,400
Commitments (Note 5)
Stockholders' Equity (Note 9):
Common stock, $.01 par value; voting;
10,000,000 shares authorized; 6,091,900 60,900 57,700
and 5,772,000 shares issued and outstanding
Preferred stock, $.01 par value;
8,000,000 shares authorized; none issued -- --
Capital in excess of par value 10,538,700 9,066,100
Retained earnings 8,280,100 6,052,700
Total Stockholders' Equity 18,879,700 15,176,500
Total Liabilities and Stockholders' Equity $36,367,800 $31,574,900
</TABLE>
The accompanying notes are an integral part of these balance sheets.
18
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended August 31,
1995 1994 1993
<S> <C> <C> <C>
Total revenue (Note 1) $92,364,900 $76,872,800 $61,126,300
Less - Subcontractor costs (19,893,500) (13,124,700) (8,185,000)
Net revenue 72,471,400 63,748,100 52,941,300
Operating expenses:
Direct salaries and other operating 58,977,000 51,736,100 43,143,100
Selling, general, and administrative 9,353,700 8,706,800 7,687,600
Total operating expenses 68,330,700 60,442,900 50,830,700
Income from operations 4,140,700 3,305,200 2,110,600
Interest expense (522,800) (403,900) (511,400)
Interest income 94,600 136,600 73,500
Income before income taxes 3,712,500 3,037,900 1,672,700
Provision for income taxes (Note 2) 1,485,100 1,215,300 668,500
Net income $2,227,400 $1,822,600 $1,004,200
Net income per share (Note 7) $0.36 $0.30 $0.17
Weighted average shares outstanding (Note 7) 6,170,700 6,088,700 5,887,800
</TABLE>
The accompanying notes are an integral part of these statements.
19
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
Capital in
Common Excess of Retained
Stock Par Value Earnings Total
<S> <C> <C> <C> <C>
Balance, August 31, 1992 $55,800 $ 8,260,500 $3,225,900 $11,542,200
Issuance of Stock (Note 9) 700 173,600 -- 174,300
Net Income -- -- 1,004,200 1,004,200
Balance, August 31, 1993 $56,500 $ 8,434,100 $4,230,100 $12,720,700
Issuance of Stock (Note 9) 1,200 464,700 -- 465,900
Tax Benefit from Stock Options
Exercised (Note 2) -- 167,300 -- 167,300
Net Income -- -- 1,822,600 1,822,600
Balance, August 31, 1994 $57,700 $ 9,066,100 $6,052,700 $15,176,500
Issuance of Stock (Note 9) 3,200 821,700 -- 824,900
Tax Benefit from Stock Options
Exercised (Note 2) -- 650,900 -- 650,900
Net Income -- -- 2,227,400 2,227,400
Balance, August 31, 1995 $60,900 $10,538,700 $8,280,100 $18,879,700
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended August 31,
1995 1994 1993
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $2,227,400 $1,822,600 $1,004,200
Noncash expenses included in net income-
Depreciation and amortization 1,633,100 1,453,400 1,403,400
Deferred (benefit from) provision for income taxes (418,200) 170,200 (556,700)
Current provision for income taxes 1,903,300 1,045,100 1,225,200
Net (increase) decrease in noncash assets -
Accounts receivable, net (2,714,300) (2,433,200) 2,184,700
Costs and estimated earnings in excess of billings
on uncompleted contracts (2,747,600) (65,600) (1,577,700)
Prepaid expenses and other assets 179,400 (702,800) 991,900
Net increase (decrease) in nondebt liabilities -
Accounts payable and accrued expenses 1,702,700 435,400 2,207,200
Refunds of income taxes 50,200 11,000 877,600
Payments of income taxes (955,500) (1,202,500) (991,000)
Billings in excess of costs and estimated earnings
on uncompleted contracts 47,100 520,000 (466,800)
Net cash flows from operating activities 907,600 1,053,600 6,302,000
Cash Flows From (Used For) Financing Activities:
Proceeds from issuance of common stock 824,900 465,900 174,300
Reduction of long-term debt (839,900) (725,900) (561,800)
Proceeds from issuance of long-term debt -- 725,000 3,162,400
Short-term borrowings, net of repayments -- -- (6,393,000)
Net cash flows from (used for) financing (15,000) 465,000 (3,618,100)
activities
Cash Flows Used For Investing Activities:
Purchase of property and equipment, net (1,067,200) (1,579,700) (1,123,000)
Net cash flows used for investing activities (1,067,200) (1,579,700) (1,123,000)
Net (Decrease) Increase in Cash and Cash Equivalents (174,600) (61,100) 1,560,900
Cash and Cash Equivalents, beginning of year 3,988,500 4,049,600 2,488,700
Cash and Cash Equivalents, end of year $3,813,900 $3,988,500 $4,049,600
</TABLE>
The accompanying notes are an integral part of these statements.
21
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 1995, 1994, AND 1993
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying consolidated financial statements present the accounts of EA
Engineering, Science, and Technology, Inc. (EA) and its wholly-owned subsidiary,
EA Financial, Inc., and its wholly-owned subsidiaries, EA Global, Inc. and EA
Engineering, Science, and Technology de Mexico, S.A. de C.V. During fiscal 1995,
EA Remediation Technologies, Inc., formerly a wholly-owned subsidiary, was
merged into EA. The entities are collectively referred to herein as the
"Company." All significant intercompany transactions have been eliminated in
consolidation.
Revenue Recognition
The Company is a multidisciplinary environmental services organization providing
a wide range of consulting, engineering, remediation, and analytical services.
These services are generally performed under time and material, fixed price, and
cost plus fixed fee contracts which vary in length from one month to five years.
The Company accounts for contract revenues and costs under fixed price contracts
using the percentage-of-completion method. The percentage-of- completion is
determined using the "cost-to-cost" method for each contract cost component.
Under this method, direct labor and other contract costs incurred to date are
compared to periodically revised estimates of the total of each contract cost
component at contract completion to determine the percentage of revenues to be
recognized. Revenues from time and material and cost plus fixed fee contracts
are recognized currently as the work is performed. Provision for estimated
losses on uncompleted contracts, to the full extent of the loss, is made during
the period in which the Company first becomes aware that a loss on a contract is
probable.
Contract costs and estimated profits recognized in excess of amounts billed are
classified as current assets under "costs and estimated earnings in excess of
billings on uncompleted contracts." Billings in excess of contract costs and
estimated profits are classified as current liabilities under "billings in
excess of costs and estimated earnings on uncompleted contracts."
Generally, contracts provide for the billing of costs incurred and estimated
fees on a monthly basis. Amounts included in "costs and estimated earnings in
excess of billings on uncompleted contracts" in the accompanying financial
statements will be billed within twelve months of the balance sheet date.
Major Clients
Various agencies of the federal government accounted for approximately 64%, 61%,
and 45% of the company's net revenue for the years ended August 31, 1995, 1994,
and 1993, respectively.
22
<PAGE>
Additionally, various agencies of the federal government accounted for
approximately 65%, 54%, and 42% of the Company's accounts receivable and costs
and estimated earnings in excess of billings on uncompleted contracts for the
same time periods.
Cash and Cash Equivalents
Cash equivalents consist of money market instruments with a purchased original
maturity of three months or less, stated at cost, which approximates market.
Property and Equipment
Property and equipment are depreciated using the straight-line method over their
estimated useful lives ranging from 3 to 10 years. Leasehold improvements are
amortized over the shorter of the estimated useful life or the term of the
lease.
Segment Information
The Company operates within one industry segment, providing a wide range of
consulting, engineering, remediation, and analytical services.
Reclassifications
Certain prior year balances have been reclassified to conform with current year
presentation.
Supplemental Disclosures of Cash Flow Information
Cash paid during the years ended August 31, 1995, 1994, and 1993 for interest,
was $521,700, $400,600, and $522,200, respectively. Retirements of property and
equipment for the same periods were $46,300, $148,600, and $405,100,
respectively. The noncash tax benefit attributable to the exercise of
non-qualified stock options was $650,900 and $167,300 for the years ended August
31, 1995 and 1994.
Accounting for Income Taxes
The Company implemented the provisions of Statement of Financial Accounting
Standards No. 109 - Accounting for Income Taxes as of September 1, 1993. The
effect of the provisions have been implemented prospectively and were not
material to the financial statements as of September 1, 1993 or to the operating
results for the year ended August 31, 1994. As a result of the implementation,
certain prior year balances have been reclassified to conform with current year
presentation.
Deferred income taxes are recorded to reflect the tax consequences on future
years for differences between the tax basis of assets and liabilities and their
financial reporting amounts.
Note 2. INCOME TAXES:
The provision for income taxes includes current and deferred tax amounts
summarized as follows:
23
<PAGE>
Year Ended August 31,
1995 1994 1993
Current tax expense:
Federal $ 1,602,400 $ 879,900 $ 975,700
State 300,900 165,200 249,500
1,903,300 1,045,100 1,225,200
Deferred tax expense (benefit):
Federal (352,100) 92,300 (445,400)
State (66,100) 77,900 (111,300)
(418,200) 170,200 (556,700)
Provision for income taxes $ 1,485,100 $ 1,215,300 $ 668,500
Total deferred tax assets and liabilities as of August 31, 1995 and 1994 and the
sources of the differences between the tax and financial reporting basis of the
Company's assets and liabilities which give rise to the deferred tax assets and
liabilities are as follows:
Year Ended August 31,
1995 1994
Deferred tax assets:
Property and equipment $ 492,700 $ 266,200
Accrued expenses and reserves 1,028,800 924,500
Stock options exercised -- 167,300
Miscellaneous -- 13,700
$1,521,500 $1,371,700
Deferred tax liabilities:
Prepaid expenses $ 90,800 $ 192,600
Miscellaneous 35,000 34,300
$ 125,800 $ 226,900
The net deferred tax assets of $1,395,700 and $1,144,800 as of August 31, 1995
and 1994 are included to the extent appropriate in Prepaid expenses and other
and Other assets in the accompanying Consolidated Balance Sheets.
24
<PAGE>
Reconciliation of the statutory federal income tax rate and the effective income
tax rate is summarized as follows:
Year Ended August 31,
1995 1994 1993
Statutory federal income tax 34.0% 34.0% 34.0%
(benefit) rate
State income tax, net of federal
income tax effect 5.3 5.3 5.3
Other 0.7 0.7 0.7
Effective income tax rate 40.0% 40.0% 40.0%
Note 3. ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
Year Ended August 31,
1995 1994
Contract accounts receivable $14,881,600 $12,180,500
Retainage by clients 1,362,200 1,358,200
Total accounts receivable 16,243,800 13,538,700
Less-Allowance for doubtful accounts (1,385,700) (1,394,900)
Accounts receivable, net $14,858,100 $12,143,800
Management anticipates that substantially all retainages will be billed within
one year.
Note 4. BANK FINANCING ARRANGEMENTS:
The Company maintains a revolving line of credit arrangement with a commercial
bank. The borrowing facility consists of a revolving line of credit for up to
$9,500,000 and a $3,000,000 long-term note payable with interest only payments
due quarterly and principal due on expiration of the agreement (see Note 6).
Borrowings under the arrangement are unsecured. Interest is charged at either
the bank's prime rate or LIBOR plus 150 basis points, at the Company's election
on a quarterly basis. The interest rate is subject to quarterly modifications
based on certain financial ratios, with a maximum rate of 25 basis points above
the bank's prime or LIBOR plus 240 basis points. This arrangement expires on
January 31, 1997. However, the Company's short-term borrowings are due on the
earlier of the bank's demand or expiration of the agreement. If the Company's
total borrowings fall below $3,000,000 at any time, the bank invests the excess
in interest bearing overnight funds.
25
<PAGE>
Short-term borrowings information is as follows:
<TABLE>
<CAPTION>
Year Ended August 31,
1995 1994 1993
<S> <C> <C> <C>
Balance as of end of period $ -- $ -- $ --
Maximum amount outstanding during the period 3,711,300 3,889,000 7,320,100
Average outstanding month-end balance during
the period 293,600 273,200 3,955,700
Weighted average interest rate during the period 8.57% 6.40% 7.3%
Interest rate at the end of the period 8.75% 7.25% 6.0%
</TABLE>
The Company's debt agreements require that the Company maintain certain
financial ratios. The weighted average interest rate has been calculated based
upon the actual daily interest expense and the daily average balance
outstanding.
Note 5. LEASE COMMITMENTS:
The Company's central office, laboratory facilities, regional offices, and
certain furniture and equipment are held under operating leases. These leases
expire at various dates through fiscal 2004, and certain leases call for annual
proportionate increases due to property taxes and certain other operating
expenses. Rent expense amounted to $8,469,300, $6,817,400, and $5,423,500, for
the years ended August 31, 1995, 1994, and 1993, respectively. Rent expense
included payments of approximately $1,985,300, $1,886,100, and $1,720,800 for
fiscal years 1995, 1994, and 1993, respectively, to partnerships consisting of
the Chairman of EA and certain members of his family for its central office and
certain regional offices and laboratory facilities. These payments include
reimbursement for operating expenses incurred by the lessor such as property
taxes, maintenance, and utility costs related to the operation of the
facilities.
The minimum lease commitments under noncancellable operating leases are as
follows:
Year Ending
August 31,
1996 . . . . . . . . . . . . . $ 6,201,000
1997 . . . . . . . . . . . . . 4,815,400
1998 . . . . . . . . . . . . . 3,754,300
1999 . . . . . . . . . . . . . 2,837,800
2000 . . . . . . . . . . . . . 2,118,400
2001 and thereafter. . . . . . 6,661,700
Total minimum payments $26,388,600
26
<PAGE>
Note 6. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
August 31,
1995 1994
<S> <C> <C>
Note payable to a commercial bank payable in monthly
installments of interest only; interest at prime or
LIBOR plus 150 basis points through January 1997 $3,000,000 $3,000,000
Notes payable to a commercial bank payable in equal monthly installments of
$43,650, plus interest at 1% above the bank's prime through November 1998,
and $21,400 plus interest at 1% above the bank's prime thereafter until
November 1999, secured by leasehold improvements and certain of EA's
analytical laboratory equipment 1,435,700 1,959,500
Other 362,500 678,600
Total long-term debt 4,798,200 5,638,100
Less-current portion (765,500) (839,900)
Long-term portion $4,032,700 $4,798,200
</TABLE>
The Company's debt agreements require that the Company maintain certain
financial ratios.
Note 7. NET INCOME PER SHARE:
Net income per share is based on the weighted average number of shares of common
stock and common stock equivalents outstanding during the period, and have been
adjusted retroactively to reflect two 3 for 2 stock splits, effected in the form
of 50% stock dividends, wherein 1 additional share of stock was issued on
February 23, 1994 and July 5, 1994, for each 2 shares outstanding as of the
record dates of February 8, 1994 and June 28, 1994, respectively. All
disclosures with regard to the shares of common stock have been adjusted to
reflect these stock splits.
Note 8. PROFIT SHARING AND INCENTIVE PLANS:
EA maintains a defined contribution plan covering all employees who are at least
21 years of age and have completed one year of credited service, as defined by
the plan. The plan provides for discretionary employer contributions for each
fiscal year, in amounts determined annually by the Board of Directors, and for
voluntary employee contributions. The plan also includes a 401(k) provision,
allowing for Company matching contributions. For the years ended August 31,
1995, 1994, and 1993, contributions to the plan, including matching
contributions made under the 401(k) provisions of the plan, were $710,400,
27
<PAGE>
$519,300, and $372,900, respectively. Certain officers and stockholders of
the Company serve as trustees to the plan, as appointed by the Board of
Directors.
The Company also maintains an Incentive Compensation Plan which provides for
both quarterly incentive payments to all employees and annual incentive payments
to certain management personnel if pre-determined goals, approved by the Board
of Directors, are exceeded. For the years ended August 31, 1995, 1994, and 1993
total amounts expensed were $420,000, $1,135,000, and $1,415,000.
Note 9. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS:
The Company maintains a Stock Option Plan (the Plan), which provides for the
grant of nonqualified stock options and incentive stock options to certain key
employees and officers of the Company. The exercise price of an option granted
under the Plan may not be less than the fair market value of the underlying
shares of Common Stock on the date of the grant. A total of 311,835 options are
issued and outstanding as of August 31, 1995 having an average exercise price of
$4.44. There are 288,277 options available for issuance as of August 31, 1995.
The Company maintains an Employee Stock Purchase Plan to provide eligible
employees with the opportunity to purchase shares of the Company's Common
Stock through voluntary payroll deductions. Under the Plan, eligibleemployees
may purchase shares through monthly payroll deductions at 95% of current market
value at the time of purchase. The Company pays all administrative expenses
related to employee purchases. A total of 259,197 shares remain authorized for
distribution under the Plan as of August 31, 1995.
The Company maintains two Non-Employee Director Stock Option Plans (1995 and
1993) which provide for the granting of nonqualified stock options to its four
non-employee directors. The exercise price of the 30,000 options, which were
outstanding as of August 31, 1995 ranged between $2.445 and $6.125, which
equaled the fair market value at the date of grant. A total of 38,500 options
remain reserved for the Director Stock Option Plans as of August 31, 1995.
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
28
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors of the Registrant
Information on the Company's Directors is contained in the Company's Proxy
Statement for its 1995 Annual Meeting of Stockholders to be held on January 10,
1996, and such information is incorporated herein by reference.
(b) Executive Officers of the Registrant
Information on the Company's Executive Officers is contained in the Company's
Proxy Statement for its 1995 Annual Meeting of Stockholders to be held on
January 10, 1996, and such information is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information on "Executive Compensation" is contained in the Company's Proxy
Statement for its Annual Meeting of Stockholders to be held on January 10, 1996,
and such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information on "Security Ownership of Certain Beneficial Owners and Management"
is contained in the Company's Proxy Statement for its Annual Meeting of
Stockholders to be held on January 10, 1996, and such information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information on "Certain Relationships and Related Transactions" is contained in
the Company's Proxy Statement for its Annual Meeting of Stockholders to be held
January 10, 1996, and such information is incorporated herein by reference.
29
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
A. Financial Statements and Schedule II Page
1. The following financial statements are included in Item 8 of Part II
of this report:
Report of Independent Public Accountants 16
Consolidated Financial Statements:
Consolidated Balance Sheets as of August 31, 1995 and 1994 17
Consolidated Statements of Income for the years ended
August 31, 1995, 1994, and 1993 19
Consolidated Statements of Changes in Stockholders' Equity for
the years ended August 31, 1995, 1994, and 1993 20
Consolidated Statements of Cash Flows for the years ended
August 31, 1995, 1994, and 1993 21
Notes to Consolidated Financial Statements for the years ended
August 31, 1995, 1994, and 1993 22
2. The following financial statement schedule for the years ended
August 31, 1995, 1994, and 1993 is submitted herewith:
Report of Independent Public Accountants on Schedule 32
Schedule II - Valuation and Qualifying Accounts and
Reserves 33
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
3. Exhibits
The following exhibits are filed herewith unless otherwise indicated:
Exhibit
No. Description
3.1 Certificate of Incorporation of the Company.(1)
3.2 By-laws of the Company.(1)
4.1 Article SIXTH of the Company's Certificate of Incorporation.(1)
10.1 The Company's Profit Sharing Plan.(1)
10.2 The Company's Stock Option Plan.(2)
10.3 Lease: dated March 1, 1990 between ARE Sparks Limited Partnership,
as Landlord, and the Company as tenant.(3)
30
<PAGE>
10.4 The Company's Employee Stock Purchase Plan.(4)
10.5 Lease, dated December 1, 1991, between Ecolair Limited Partnership,
as landlord, and the Company, as tenant.(4)
10.6 Lease, dated January 1, 1992, between Merrymack Limited Partnership,
as Landlord, and the Company, as Tenant.(5)
10.7 Loan and Security Agreement, dated November 12, 1992, between the
Company and Signet Bank/Maryland.(5)
10.8 Security Agreement, dated November 12, 1992, between EA RTI and
Signet Bank/ Maryland.(5)
10.9 Amended and Restated Loan Agreement, dated August 17, 1993, between
the Company and Signet Bank/Maryland.(6)
10.10 1993 Non-Employee Director Stock Option Plan.(6)
10.11 The 1993 Stock Incentive Plan.(6)
10.12 The Amended and Restated Stock Option Plan.(7)
10.13 1995 Non-Employee Director Stock Option Plan.(7)
13 1995 Annual Report to Stockholders.
22 Subsidiaries of the Company.
27 Financial Data Schedule.
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-1, No. 33-8958, which was declared effective by the Commission on
October 31, 1986.
(2) Incorporated by reference to the Company's Registration Statement on
Form S-8, File Number 0-15587 filed on October 15, 1990.
(3) Incorporated by reference to the Registrant's Annual Report on Form
10-K, File Number 0-15587 filed on November 28, 1990.
(4) Incorporated by reference to the Company's Registration Statement on
Form S-8, File Number 0-15587 filed on December 3, 1991.
(5) Incorporated by reference to the Registrant's Annual Report on Form
10-K, File Number 0-15587 filed on November 24, 1992.
(6) Incorporated by reference to the Registrant's Annual Report on Form
10-K, File Number 0-15587 filed on November 23, 1993.
(7) Incorporated by reference to the Registrant's Annual Report on Form
10-K, File Number 0-15587 filed on November 21, 1994.
b. Reports on Form 8-K
The Company filed no reports on Form 8-K during the fourth quarter of fiscal
year 1995.
31
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To the Board of Directors and Stockholders of
EA Engineering, Science, and Technology, Inc.:
We have audited in accordance with generally accepted auditing
standards, the financial statements of EA Engineering, Science, and Technology,
Inc. and subsidiaries included in this Form 10-K and have issued our report
thereon dated September 20, 1995. Our audit was made for the purpose of forming
an opinion on the basic financial statements taken as a whole. The schedule
listed in the foregoing index is the responsibility of the Company's management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Baltimore, Maryland
September 20, 1995
32
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years Ended August 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
Allowance Balance at
for Doubtful Beginning Charged to Balance at
Accounts of Period Cost and Expense Write-offs End of Period
<S> <C> <C> <C> <C>
1995 $1,394,900 $272,600 $281,800 $1,385,700
1994 1,508,000 108,000 221,100 1,394,900
1993 853,500 1,328,000 673,500 1,508,000
</TABLE>
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
EA ENGINEERING, SCIENCE, AND
TECHNOLOGY, INC.
Date: November 22, 1995 By /s/ Loren D. Jensen
Loren D. Jensen, Chairman,
President, and Chief Executive Officer
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 Company and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
/s/ Loren D. Jensen Chairman, President, and November 22, 1995
Loren D. Jensen Chief Executive Officer
(Principal Executive Officer)
/s/ Joseph A. Spadaro Executive Vice President and November 22, 1995
Joseph A. Spadaro Treasurer (Principal Financial
and Accounting Officer)
/s/ Edmund J. Cashman, Jr. Director November 22, 1995
Edmund J. Cashman, Jr.
/s/ Rudolph P. Lamone Director November 22, 1995
Rudolph P. Lamone
/s/ George G. Radcliffe Director November 22, 1995
George G. Radcliffe
</TABLE>
34
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Page
<S> <C> <C>
3.1 Certification of Incorporation of the Company. 30
3.2 By-laws of the Company. 30
4.1 Article SIXTH of the Company's Certificate of Incorporation. 30
10.1 The Company's Profit Sharing Plan. 30
10.2 The Company's Stock Option Plan. 30
10.3 Lease: dated March 1, 1990 between ARE Sparks Limited Partnership, as 30
Landlord, and the Company as tenant.
10.4 The Company's Employee Stock Purchase Plan. 31
10.5 Lease, dated December 1, 1991, between Ecolair Limited Partnership, as 31
landlord, and the Company, as tenant.
10.6 Lease, dated January 1, 1992, between Merrymack Limited Partnership, as 31
landlord, and the Company, as tenant.
10.7 Loan and Security Agreement, dated November 12, 1992, between the Company and 31
Signet Bank/Maryland.
10.8 Security Agreement, dated November 12, 1992, between EA RTI and Signet
Bank/Maryland. 31
10.9 Amended and Restated Loan Agreement, dated August 17, 1993, between the
Company and Signet Bank/Maryland. 31
10.10 1993 Non-Employee Director Stock Option Plan. 31
10.11 The 1993 Stock Incentive Plan. 31
10.12 The Amended and Restated Stock Option Plan. 31
10.13 1995 Non-Employee Director Stock Option Plan. 31
13 1995 Annual Report to Stockholders. 31
22 Subsidiaries of the Company. 31
27 Financial Data Schedule 31
</TABLE>
35
COST EFFECTIVE ENVIRONMENTAL PROBLEM SOLVING
(MAP OF GIS STREAM CLASSIFICATION)
This figure depicts a Geographic Information System (GIS) stream classification
data layer for one of the more than 70 watersheds, or drainage basins, EA is
analyzing for the Louisiana-Pacific Corporation's (L-P) Sustainable Yield Plan.
EA is integrating information on aquatic and terrestrial resources, landslide
susceptibility, and fluvial geomorphology into a series of resource protection
measures covering 500,000 acres of L-P timberland in Northern California spread
throughout the 70 watersheds. These protection measures are designed to preserve
and enhance water quality, fish habitat, and biodiversity. They serve as input
to a GIS-based linear program model, developed by another contractor, that
optimizes timber harvest over a 100-year planning horizon, based on forest
growth-and-yield submodels. The model thus ensures the achievement of two
important goals: economically viable sustained timber harvest and environmental
protection. One of the hallmarks of this work is the development of several
cutting-edge technologies. Examples include use of NASA satellite imagery to
define timber inventory, development of a digital terrain model to predict
landslide susceptibility, written by EA's subcontractor, the University of
California, and linking the linear program model to GIS, a first-of-its-kind
application. Environmental input data are based on extensive field studies for
initial calibration. Model formulation will be continuously refined using
monitoring data as the various timber harvest prescriptions assigned by the
model are implemented. With appropriate calibration to differing regional
conditions, the model can be adapted to large-scale applications throughout the
world.
EA Engineering, Science, and Technology, Inc., traded on the NASDAQ National
Market (Symbol: EACO) is an international firm with capabilities to address all
facets of environmental issues from biological, ecological and natural resource
studies, through permitting, site investigation, risk assessment, remedial
design, remedial construction, and site restoration. In addition, EA has
in-house analytical, toxicological and biological laboratories as well as
expertise in alternative fuels and energy issues.
The Company comprises more than 800 engineers, scientists, construction and
support personnel, distributed in a network of over 25 offices in North America.
Since its founding 22 years ago, EA has earned a reputation as an organization
providing high quality, program management and services for a wide range of
multidisciplinary environmental and energy projects.
The cover illustrates several of the overlapping themes which are reiterated
throughout this year's annual report:
(bullet) EA's origins as a natural resource analysis and management
company and our integration of increasingly sophisticated technologies
in this business sector (represented by the Landsat satellite);
(bullet) the green and brown color theme representing the company's
involvement in both the green (natural resource assessment, planning,
management, and restoration) and brown (waste minimization, management, and
remediation) sectors of the environmental marketplace;
(bullet) and the circle, representing both the feedback loop which underlies
EA's sustainable development planning and management process as well as the
increasing integration of our green and brown disciplines for the
solution of increasingly complex environmental management problems
nationally and internationally.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Ended August 31, 1995 1994 1993 1992 1991
in thousands, except per share amounts
Operations data:
<S> <C> <C> <C> <C> <C>
Total revenue $92,365 $76,873 $61,126 $52,915 $53,888
Net revenue(1) 72,471 63,748 52,941 45,411 45,817
Income (loss) from operations 4,141 3,305 2,111 (2,058) 196
Net income (loss) 2,227 1,823 1,004 (1,876) (300)
Net income (loss) per share(2) $ 0.36 $ 0.30 $ 0.17 $(0.34) $(0.05)
Weighted average number
of shares outstanding(2) 6,171 6,089 5,888 5,542 5,528
Balance sheet data:
Working capital $17,663 $14,317 $12,146 $ 8,041 $ 9,020
Total assets 36,368 31,575 28,471 28,990 33,241
Short-term borrowings -- -- -- 6,393 8,346
Long-term debt 4,033 4,798 5,034 2,483 2,866
Stockholders' equity $18,880 $15,177 $12,721 $11,542 $13,288
</TABLE>
(1) Net revenue represents total revenue less subcontractor costs
(2) Results have been restated to reflect the two 3 for 2 stock splits, each
effected in the form of a 50% stock dividend issued on February 23, 1994 and
July 5, 1994.
(Bar graph showing)
Net Revenue
in millions
1993 1994 1995
52.9 63.7 72.5
(Bar graph showing)
Net Income
in millions
1993 1994 1995
1.0 1.8 2.2
(Bar graph showing)
Working Capital
in millions
1993 1994 1995
12.1 14.3 17.7
(Bar graph showing)
Stockholders' Equity
in millions
1993 1994 1995
12.7 15.2 18.9
LEADERSHIP
(PHOTO)
LOREN D. JENSEN, PH.D.
CHAIRMAN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
FELLOW SHAREHOLDERS
Fiscal 1995 was the third year in a row in which revenue, net income, awards,
and contracted total backlog reached new highs. Profit margins for the year
reached the highest level since fiscal 1989, and return on shareholders'
equity reached an all-time high. And, once again, we ended the recent twelve
months in solid financial condition.
In reviewing our financials over the past three years, you will note that net
income has grown faster than net revenue. We at EA are doing everything
possible to assure that margin improvement continues in the future. A full
discussion of last year's financial performance is covered in the financial
section of this report.
Last year's accomplishments were made in the face of continuing challenges
in our industry, including the debate in Washington, D.C. relative to
reauthorization of long-standing federal environmental regulations for clean
water, clean air, and control of toxic and hazardous waste. The slowdown of
these reauthorizations has, in some cases, delayed the environmental actions
of some private sector clients who need to be assured that their
compliance activities achieve acceptance by regulatory authorities.
Legislative inaction, continuing debate, and uncertainties relative to
regulatory standards do not help our industry, and in this climate, our
industry has definitely experienced delays in work authorizations. EA has
responded to this situation by encouraging our clients, both government and
private, to seek regulatory closure of specific facility issues by
implementing remedial design and site clean-up activities as soon as possible.
I would also like to comment on some interesting trends I see at EA. The nature
of our work assignments, our competitive strength, and the evolution of the
environmental industry should lead to an expanding market share for EA in the
years ahead. In recent years, we have been teaming with others in the
solicitation and expansion of new business opportunities. Our total revenue has
grown faster than our net revenue, as subcontracting work expands as a portion
of total revenue. Subcontracting work at EA is profitable since we, as managers
of a project, receive overhead recovery and a fee for our efforts. We have also
participated as subcontractors to other, typically larger, environmental
companies.
Our federal business continues to be solid. While funding for jobs is sometimes
difficult to obtain these days, the primary area in which we have been
associated--cleaning up military bases--receives preferential funding from the
various agencies of the Defense Department (DOD). The required environmental
clean-up of bases is extremely important to a military constrained by budgetary
pressures; base shutdowns will save the DOD billions of dollars which can be
applied to other needs.
Our private sector business is growing, albeit slowly. We are pleased that at
least it's off the ground floor where it has been for the past several years.
Because our government business increased so rapidly over the past two
years, it will be a while before we can achieve our goal of repositioning
our commercial activities to represent a larger portion of EA's net revenue.
It is encouraging, however, to find that our larger, national clients
prefer to deal with one firm with many offices throughout the country, rather
than with several different regional consultants. Increasingly, too, our
multinational clients are seeking environmental companies who can provide
services around the globe.
During the past few years, the areas of fastest growth within our company
have been associated with engineering design and remedial clean-up of toxic
and hazardous wastes. Risk assessment and management have also been expanding
along with Title V air quality compliance services. Waste minimization and
pollution prevention continue to dominate the proactive environmental services
sector, especially among our DOD and manufacturing client base. Increasingly,
client organizations are also focusing their efforts toward developing and
implementing an integrated plan for achieving environmental management of
natural resources that are utilized and/or developed by their businesses.
Avoidance of environmental damage is the most cost-effective means of managing
environmental affairs. As clients gain and maintain regulatory compliance,
they are turning increasingly to proactive management of environmental
affairs. Just as environmental restoration and clean-up has dominated our
industry's focus over the past 25 years, proactive environmental management of
natural resources will undoubtedly dominate our industry's focus into the new
century -- as industry follows the government's decision to clean up
contaminated facilities and return them to new economically viable uses.
As an example of our Company's involvement in an exciting approach to management
of natural resources, we are describing in this annual report a project for
the Louisiana-Pacific Corporation. This client, who owns and manages over
500,000 acres of timberland in Northern California, has developed a proprietary
program, Terra Vision(C) that utilizes NASA's satellite imaging to monitor
timber reserve areas. This prescriptive management program is based upon
interactive modeling of alternative harvest scenarios to predict the ecological
consequences to fish and wildlife within affected areas. As we move to the end
of this century, such far-sighted environmental management by
pathfinder companies like Louisiana-Pacific will, I believe, become
common within our nation. For these and other reasons, I am optimistic about
the long-range future of both EA and our industry because large, responsible
industrial clients are proactive in reducing adverse environmental
consequences and finding new ways to operate their businesses in an
environmentally sensitive manner.
I am convinced that our Company can continue to improve both its market
penetration and leadership within our industry, an optimism based on the
Company's many competitive strengths and built upon our diversified
capabilities. First and foremost among these is EA's excellent reputation for
quality service, a reputation we have honed and nurtured since our founding
in 1973. We offer clients a full range of environmental services from the
identification of a problem, investigation, design, and then, remediation and
restoration. We can provide solutions for most of the environmental problems our
clients face. The combined services offered by EA are as varied as exist in any
one company in our industry.
We have a large and diversified client base. Our existence does not depend on
only a handful of clients. Within the federal sector, we work for 15 agencies
of the DOD and 13 non-DOD goverment agencies. In 1995, we provided services to
over 460 clients, large and small and in various industries such as petroleum,
pulp and paper, chemical, and utilities. For the same period, our first two
client organizations from our founding in 1973 continued to use EA
personnel for substantial environmental projects.
We have excellent technical capabilities. As a multidisciplinary
organization, we have specialists in the areas of physical, chemical, and
mathematical sciences; chemical, civil, environmental, and mechanical
engineering; biological, social, and health sciences; and construction
and remediation capabilities.
We are fortunate in having many exceptional technical managers who continue
to commit themselves to the daily challenges that confront our Company and
industry. This is a rich legacy of which I am personally very proud. Unlike
others in our field who are regionally organized, we are structured along
service lines with regional offices able to serve every area in the country.
This structure allows us to provide seamless nationwide service to our
clients with staff assignments made on the basis of needed skills,
experience, and cost effectiveness. In the past year, we have consolidated
our market service areas from seven into three businesses which provide the
necessary business and technical leadership, administrative skills and
business development functions.
The consolidation into the three larger areas has given us the opportunity to
substantially reduce staff needs within corporate administration. In August
1995, over twenty positions were eliminated, and a number of corporate staff
functions were transferred into the new business units with substantial net
overhead cost reductions on a consolidated basis. Moreover, within the
business units, technical staff reductions were also achieved due to
redundancies in positions caused by the consolidation process.
We look forward to seeing our shareholders at our annual meeting on January 10,
1996 when we will discuss the events of last year and our plans for the future.
Sincerely,
(SIGNATURE OF LOREN D. JENSEN, PH.D.)
Loren D. Jensen, Ph.D.
Chairman, President,
and Chief Executive Officer
November 1995
STRUCTURE
MANAGING GROWTH FOR SUCCESS
In response to changing client needs, the delivery of our services
through efficient, integrated, seamless service units enhances the
long-term interests of our clients, employees and shareholders.
Our Company is presently structured to manage the operations of three major
client service areas, each requiring staff, facilities, systems, and equipment.
This organizational structure has allowed us to reduce some of the overhead
costs associated with the management of the seven business units that previously
existed. We believe that this continuing organizational development process is
essential to our achievement of both tactical and strategic objectives of EA.
And, in response to changing client needs, the delivery of our services through
efficient, integrated, seamless service units enhances the long-term interests
of our clients, employees, and shareholders. Consistent with this management
philosophy, our business operations are structured as follows:
Science and Technology Services
This business area consolidates EA's core skills in the environmental
sciences, while enabling the Company to expand its focus on technology
applications as needed for improved, cost-effective environmental management.
We expect our expanded focus to reacquaint existing clients and attract new
ones with our Company's unique combination of scientific talent and years of
applications experience in making science understandable and useful for the
management of environmental problems. We also plan to aggressively pursue new
technologies for assessing environmental quality. Primary services include
risk assessment management, resource management, air and water quality
management, and strategic environmental management. James J. Gift, Ph.D., Senior
Vice President, a veteran scientist with over 25 years of experience (20 with
EA) is leading this unit of approximately 275 employees.
Engineering and Remediation Services
This business area provides site investigations and engineering design
and construction of remediation systems as needed for restoration and
cleanup of environmental contamination. Our industry continues to move
rapidly toward aggressive programs to remediate environmental
contamination and "close" regulatory cases. Such efforts require integration of
multiple processes, information/data gathering, site assessment, and
conceptual/final design followed by installation of effective air, soil, water
treatment, and cleanup systems; and where appropriate, application of innovative
treatment technologies for environmental remediation and restoration. The best
of engineering solutions must also effectively integrate constructability into
the design process.
EA's combined engineering skills and remediation experience are now completely
integrated under management structured to solve complex environmental
remediation and restoration assignments. As remedial designs move into active
construction sites in the field, construction supervision and oversight
are needed for cost management, schedule adherence, and overall response
to the challenges associated with field conditions encountered at
construction sites. This new unit, under the leadership of Jim Zarzycki, P.E.,
Senior Vice President, who has been with EA for over seven years and over 22
years in the environmental industry, has approximately 400 employees.
Laboratory Services
EA Laboratories combine for the first time EA's analytical chemistry,
toxicological, and biology laboratory skills into one integrated unit. With the
combined capabilities and experience of our chemists and scientists, we provide
the chemical/analytical and aquatic toxicology skills needed for environmental
waste detection, treatment, and disposal. Our state-of-the-art laboratory is
fully certified, including virtually every federal laboratory certification
needed to serve our clients. This laboratory capability enables us to control
product quality and timeliness of delivery. Our toxicology laboratory
capabilities are unique in our industry in detecting low-level toxicity and
determining long-term impacts on aquatic organisms from exposure to both treated
and untreated aquatic wastes.
In combination with our analytical chemistry capabilities, we intend to bring
our integrated laboratory skills onto job sites to directly measure and test
actual discharges and surface water conditions. We believe that placing
instrumentation at large remediation sites is both necessary and cost
effective. EA's chemistry and toxicology lab technicians scientists,
engineers, and remediation staff can quickly focus upon effective and
practical treatment solutions under operating conditions. This newly
integrated unit of over 100 employees is led by Reza Karimi, Ph.D., Vice
President, a chemist and engineer with more than 15 years of excellent
broad-based experience and understanding of both laboratory and field needs for
such data collection systems.
EA Global/International Business Development Activities
Within the last year, EA has actively marketed in foreign countries,
particularly Mexico and China. EA has worked in over 20 countries since 1982,
but international work has to date counted for only a small percentage of our
revenue. Given the growth of environmental opportunities in developing and
redeveloping countries, and the increasingly global needs of our multinational
clients, EA has made a strategic decision to operate internationally.
Accordingly, EA Global, Inc., a wholly owned subsidiary, will pursue and conduct
work in the international marketplace. Another subsidiary, EA Engineering,
Science, and Technology de Mexico, S.A. de C.V., has also been established to
conduct business specifically in Mexico. Stephen J. Hammalian, Ph.D., President
of EA Global and EA de Mexico, has been with EA for 20 years in a number of
capacities. EA has been successful in recent months in obtaining international
contracts funded through the World Bank and the Asian Development Bank. All
international work will be channeled through EA Global or EA de Mexico, and it
is expected that EA Global will collaborate closely with our other EA units as
our global opportunities continue to expand.
PERFORMANCE
(Photo)
VALUE
PROVIDING DIVERSE
ENVIRONMENTAL SOLUTIONS
We feel that the world is rapidly becoming aware of the limitations of the
global environment and that there is growing recognition that our species must
integrate the protection and maintenance of natural resources and the global
environment with economic development through careful planning and management.
We define sustainable development planning and management as a long-range,
dynamic process linking cutting edge science, engineering, and technologies to
resource management decision making. Ideally the process incorporates periodic
refinement based on monitoring data; as new data is collected the plan is
recalibrated and optimized. EA's core philosophy of integrated,
multidisciplinary environmental sciences and engineering with knowledge of
ecosystem functions and landscape processes are the foundations of sustainable
development planning and management as well as the restoration of degraded
lands.
(SUSTAINABLE DEVELOPMENT PLANNING AND MANAGEMENT GRAPHIC)
Joseph A. Spadaro, CPA
Executive Vice President, Chief Financial
Officer, Treasurer, and Assistant Secretary
EA has again repeated its record setting trend. Our overall financial condition
remains solid as we continued to turn total backlog into revenue and
profitability. We have reached record levels for net revenue and net income, as
well as contracted backlog for a year-end.
For fiscal 1994 we were able to report an extraordinary increase in EA's
share price. The situation at the end of fiscal 1995 has reversed. This
change is rampant throughout most of the environmental services industry and
is partly the result of legislative inaction and funding delays which have
created inconsistent fiscal performance for many environmental companies.
While we're dismayed by this trend, we are nevertheless pleased to report that
our return was a record-setting 14.7% on Stockholders' Equity.
Generally, we are pleased with fiscal year 1995's results; we believe the
overall improvement for the year represents continued strong performance in the
face of a difficult and highly competitive market in both the private and
government sectors.
Results of Operations
Net income for fiscal 1995 increased 22% to approximately $2.2 million, or
$0.36 per share compared to net income of $1.8 million, or $0.30 per share a
year earlier. Net revenue rose nearly 14% to $72.5 million from last year's
record $63.7 million. This marked the Company's third consecutive year of
improved earnings performance.
EA has reported a profit for each of the last 13 quarters. Moreover, every
quarter in 1995 except for the last had better earnings performance than the
corresponding quarter of 1994. Net income for fiscal 1995 has increased to 3.1%
of net revenue from 2.9% in 1994.
Net income for the fiscal 1995 fourth quarter was $350,400, or $0.06 per
share, a 43% decrease over fiscal 1994 record net income of $615,900, or
$0.10 per share. Net revenue for the quarter increased more than 11% to a record
$19.3 million from $17.3 million in fiscal 1994.
Net income per share for the fiscal 1994 periods has been adjusted to reflect
EA's two 3 for 2 stock splits, each effected in the form of a 50% stock
dividend on January 25 and June 14, 1994.
During fiscal 1995, we encountered several difficulties, particularly in the
fourth quarter, resulting in lower earnings. In the year's final months: we
lost a major contract renewal due to competitive pricing pressures driven in
part by industry overcapacity; our laboratories experienced a less than expected
level of samples for analysis; we were engaged in a contract claim with a major
client which tempered project revenue and increased expenses; and we incurred
higher borrowings resulting in increased interest expense. As some of these
events came so late in our fiscal year, we were unable to cut costs commensurate
with the decrease in revenue growth.
We aggressively addressed these challenges through reductions in personnel and
intensified cost control measures which should lower annual operating
expenses by close to $2 million. To enhance revenue growth, we have
escalated our marketing efforts and realigned our private sector business
development within our operating service areas.
Furthermore, as described in the Chairman's letter, we have grouped the Company
into three businesses to increase efficiencies and reduce costs. Within these
three businesses, we provide various staff functions, previously handled by each
of our seven business units. These include accounting, contracts, human
resources, and other administrative activities.
Financial Condition
The continued strength of our balance sheet is evident from several
perspectives. Working capital at fiscal 1995 year-end was $17.7 million,
compared to $14.3 million last year. A portion of the increase is attributable
to funds received from the exercise of stock options and related tax
benefits.
(PIE CHARTS) (PIE CHART)
Net Revenue by Client Sector Net Revenue by Client Sector
1995 Total Amount $72 Million 1994 Total Amount $64 Million
23% Industrial & Other Private Sector 20% Industrial & Other Private Sector
7% Utilities 10% Utilities
6% State & Local Governments 9% State & Local Governments
64% Federal Government 61% Federal Government
However, we experienced an increase in our billing and collection cycle to 96
days in fiscal 1995, up from 89 days a year ago. The increase in fiscal 1995
was due to our inability to submit certain client billings while awaiting
authorizations for contract claims.
Our net cash flow decreased $174,600 in fiscal 1995 compared to a decrease of
$61,100 in fiscal year 1994. The decrease in fiscal 1995 resulted primarily
from increases in receivables, payments of income taxes, long-term debt
repayments, and purchases of equipment. This decrease was partially offset by
cash provided from the issuance of common stock, increases in accounts
payable and accrued expenses, and noncash expenses included in net income.
Stockholders' Equity increased 24% to $18.9 million, or $3.10 per share, from
$15.2 million, or $2.63 per share a year ago. The increase came from net income,
employee participation in the Employee Stock Purchase Plan, and stock options
exercised.
(BAR CHART DEPICTING BACKLOG APPEARS HERE)
The following table summarizes the Company's backlog as of August 31, 1995
and 1994:
Backlog ($ million)
Net Total
August 31, 1995 1994 1995 1994
Contracted backlog $ 53 $ 46 $ 67 $ 57
ID/IQ 228 258 394 448
Total backlog $281 $304 $461 $505
Awards and Backlog
As of August 31, 1995, our contracted backlog, both total and net, was at
record year-end levels. During fiscal 1995, EA received about $96 million
in total contract awards, representing $65 million in net backlog (defined as
total backlog less estimated subcontractor costs). As of August 31, 1995, EA's
net contracted backlog totaled approximately $53 million compared to $46
million a year earlier. EA also holds indefinite delivery/indefinite
quantity (ID/IQ) type contracts with a net value of up to $228 million
compared to $258 million a year ago. If the ID/IQ contracts were fully
authorized, the Company's net backlog would be approximately $281 million or 8%
lower than the net backlog of about $304 million reported at the end of
fiscal 1994. About 88% of the 1995 net contracted backlog is from the federal
government compared to about 64% at the prior year-end. We expect that
approximately 70% of the fiscal 1995 year-end net backlog will be completed in
fiscal 1996.
While the total backlog is slightly lower, it is attributable to several
factors: fiscal 1994 was our most productive year ever with over $325 million
in awards; fiscal 1995 was less successful from an awards perspective, and
there were fewer large government opportunities and greater competition.
However, we were successful in maximizing opportunities with existing ID/IQs as
evidenced by our higher contracted backlog and use of existing backlog to
provide record net revenue.
Stock Performance
As noted above, EA's stock performance for fiscal 1995 was below
expectations. However, as illustrated in the accompanying chart, EA's
five-year stock performance has exceeded that of our peer group of companies.
Over the course of the five-year period, EA stock has increased in price by
88%, which is a compound annual rate of 13.5%. Our peer group has experienced
an average decrease of 14% over the same period.
None of us know the near-term impact of continued delays in regulatory
actions and reauthorizations at both the federal and state levels, but we
believe that EA is well positioned for continued growth and positive financial
performance.
(FIVE-YEAR STOCK PERFORMANCE CHART APPEARS HERE)
The following table summarizes the five-year stock performance:
Cumulative Total Return (Percentages)
August 1995 1994 1993 1992 1991
EA Engineering, Science,
and Technology 188 375 142 48 92
Peer Group 86 78 78 87 114
NASDAQ
Stock Market-U.S. 284 211 203 154 142
<PAGE>
CONSOLIDATED BALANCE SHEETS
EA Engineering, Science, and Technology, Inc. and Subsidiaries
<TABLE>
<CAPTION>
August 31, 1995 1994
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents (Note 1) $ 3,813,900 $ 3,988,500
Accounts receivable, net (Note 3) 14,858,100 12,143,800
Costs and estimated earnings in excess
of billings on uncompleted contracts 10,735,000 7,987,400
Prepaid expenses and other 1,711,300 1,797,400
Total Current Assets 31,118,300 25,917,100
Property and Equipment, at cost (Notes 1 and 6):
Furniture, fixtures, and equipment 14,403,800 13,494,200
Leasehold improvements 3,652,400 3,541,100
18,056,200 17,035,300
Less--Accumulated depreciation and amortization (14,255,900) (12,669,100)
Net Property and Equipment 3,800,300 4,366,200
Other Assets 1,449,200 1,291,600
Total Assets $ 36,367,800 $ 31,574,900
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 5,960,800 $ 4,047,800
Accrued expenses 856,500 944,400
Accrued salaries, wages and benefits 4,595,700 4,718,100
Income taxes payable (Note 2) 227,600 47,800
Current portion of long-term debt (Note 6) 765,500 839,900
Billings in excess of costs and estimated earnings
on uncompleted contracts 1,049,300 1,002,200
Total Current Liabilities 13,455,400 11,600,200
Long-Term Debt, net of current portion
(Notes 4 and 6) 4,032,700 4,798,200
Total Liabilities 17,488,100 16,398,400
Commitments (Note 5)
Stockholders' Equity (Note 9):
Common stock, $.01 par value; voting;
10,000,000 shares authorized; 6,091,900 and
5,772,000 shares issued and outstanding 60,900 57,700
Preferred stock, $.01 par value; 8,000,000 shares
authorized; none issued -- --
Capital in excess of par value 10,538,700 9,066,100
Retained earnings 8,280,100 6,052,700
Total Stockholders' Equity 18,879,700 15,176,500
Total Liabilities and Stockholders' Equity $36,367,800 $31,574,900
</TABLE>
The accompanying notes are an integral part of these balance sheets.
CONSOLIDATED STATEMENTS OF INCOME
EA Engineering, Science, and Technology, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Year Ended August 31, 1995 1994 1993
<S> <C> <C> <C>
Total revenue (Note 1) $ 92,364,900 $76,872,800 $61,126,300
Less Subcontractor costs (19,893,500) (13,124,700) (8,185,000)
Net revenue 72,471,400 63,748,100 52,941,300
Operating expenses:
Direct salaries and other operating 58,977,000 51,736,100 43,143,100
Selling, general, and administrative 9,353,700 8,706,800 7,687,600
Total operating expenses 68,330,700 60,442,900 50,830,700
Income from operations 4,140,700 3,305,200 2,110,600
Interest expense (522,800) (403,900) (511,400)
Interest income 94,600 136,600 73,500
Income before income taxes 3,712,500 3,037,900 1,672,700
Provision for income taxes (Note 2) 1,485,100 1,215,300 668,500
Net income $ 2,227,400 $ 1,822,600 $ 1,004,200
Net income per share (Note 7) $ 0.36 $ 0.30 $ 0.17
Weighted average shares outstanding (Note 7) 6,170,700 6,088,700 5,887,800
</TABLE>
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
Capital in
Common Excess of Retained
Stock Par Value Earnings Total
<S> <C> <C> <C> <C>
Balance, August 31, 1992 $55,800 $ 8,260,500 $3,225,900 $11,542,200
Issuance of Stock (Note 9) 700 173,600 -- 174,300
Net Income -- -- 1,004,200 1,004,200
Balance, August 31, 1993 $56,500 $ 8,434,100 $4,230,100 $12,720,700
Issuance of Stock (Note 9) 1,200 464,700 -- 465,900
Tax Benefit from Stock Options
Exercised (Note 2) -- 167,300 -- 167,300
Net Income -- -- 1,822,600 1,822,600
Balance, August 31, 1994 $57,700 $ 9,066,100 $6,052,700 $15,176,500
Issuance of Stock (Note 9) 3,200 821,700 -- 824,900
Tax Benefit from Stock
Options Exercised (Note 2) -- 650,900 -- 650,900
Net Income -- -- 2,227,400 2,227,400
Balance, August 31, 1995 $60,900 $10,538,700 $8,280,100 $18,879,700
</TABLE>
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
EA Engineering, Science, and Technology, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Year Ended August 31, 1995 1994 1993
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 2,227,400 $ 1,822,600 $ 1,004,200
Noncash expenses included in net income--
Depreciation and amortization 1,633,100 1,453,400 1,403,400
Deferred (benefit from) provision for income taxes (418,200) 170,200 (556,700)
Current provision for income taxes 1,903,300 1,045,100 1,225,200
Net (increase) decrease in noncash assets--
Accounts receivable, net (2,714,300) (2,433,200) 2,184,700
Costs and estimated earnings in excess of
billings on uncompleted contracts (2,747,600) (65,600) (1,577,700)
Prepaid expenses and other assets 179,400 (702,800) 991,900
Net increase (decrease) in nondebt liabilities--
Accounts payable and accrued expenses 1,702,700 435,400 2,207,200
Refunds of income taxes 50,200 11,000 877,600
Payments of income taxes (955,500) (1,202,500) (991,000)
Billings in excess of costs and estimated
earnings on uncompleted contracts 47,100 520,000 (466,800)
Net cash flows from operating activities 907,600 1,053,600 6,302,000
Cash Flows From (Used For) Financing Activities:
Proceeds from issuance of common stock 824,900 465,900 174,300
Reduction of long-term debt (839,900) (725,900) (561,800)
Proceeds from issuance of long-term debt -- 725,000 3,162,400
Short-term borrowings, net of repayments -- -- (6,393,000)
Net cash flows from (used for)
financing activities (15,000) 465,000 (3,618,100)
Cash Flows Used For Investing Activities:
Purchase of property and equipment, net (1,067,200) (1,579,700) (1,123,000)
Net cash flows used for investing activities (1,067,200) (1,579,700) (1,123,000)
Net (Decrease) Increase in Cash and Cash Equivalents (174,600) (61,100) 1,560,900
Cash and Cash Equivalents, beginning of year 3,988,500 4,049,600 2,488,700
Cash and Cash Equivalents, end of year $ 3,813,900 $ 3,988,500 $ 4,049,600
</TABLE>
The accompanying notes are an integral part of these statements.
EA Engineering, Science, and Technology, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Summary of Significant Accounting Policies:
Basis of Presentation
The accompanying consolidated financial statements present the accounts of EA
Engineering, Science, and Technology, Inc. (EA) and its wholly-owned subsidiary,
EA Financial, Inc., and its wholly-owned subsidiaries EA Global, Inc. and EA
Engineering, Science, and Technology de Mexico, S.A. de C.V. During fiscal 1995,
EA Remediation Technologies, Inc., formerly a wholly-owned subsidiary, was
merged into EA. The entities are collectively referred to herein as the
"Company." All significant intercompany transactions have been eliminated in
consolidation.
Revenue Recognition
The Company is a multidisciplinary environmental services organization providing
a wide range of consulting, engineering, remediation, and analytical services.
These services are generally performed under time and material, fixed price, and
cost plus fixed fee contracts which vary in length from one month to five years.
The Company accounts for contract revenues and costs under fixed price contracts
using the percentage-of-completion method. The percentage-of-completion is
determined using the "cost-to-cost" method for each contract cost component.
Under this method, direct labor and other contract costs incurred to date are
compared to periodically revised estimates of the total of each contract cost
component at contract completion to determine the percentage of revenues to be
recognized. Revenues from time and material and cost plus fixed fee contracts
are recognized currently as the work is performed. Provision for estimated
losses on uncompleted contracts, to the full extent of the loss, is made during
the period in which the Company first becomes aware that a loss on a contract is
probable.
Contract costs and estimated profits recognized in excess of amounts billed are
classified as current assets under "costs and estimated earnings in excess of
billings on uncompleted contracts." Billings in excess of contract costs and
estimated profits are classified as current liabilities under "billings in
excess of costs and estimated earnings on uncompleted contracts."
Generally, contracts provide for the billing of costs incurred and estimated
fees on a monthly basis. Amounts included in "costs and estimated earnings in
excess of billings on uncompleted contracts" in the accompanying financial
statements will be billed within twelve months of the balance sheet date.
Major Clients
Various agencies of the federal government accounted for approximately 64%, 61%,
and 45% of the Company's net revenue for the years ended August 31, 1995, 1994,
and 1993, respectively.
Additionally, various agencies of the federal government accounted for
approximately 65%, 54%, and 42% of the Company's accounts receivable and costs
and estimated earnings in excess of billings on uncompleted contracts for the
same time periods.
Cash and Cash Equivalents
Cash equivalents consist of money market instruments with a purchased original
maturity of three months or less, stated at cost, which approximates market.
Property and Equipment
Property and equipment are depreciated using the straight-line method over their
estimated useful lives ranging from 3 to 10 years. Leasehold improvements are
amortized over the shorter of the estimated useful life or the term of the
lease.
Segment Information
The Company operates within one industry segment, providing a wide range of
consulting, engineering, remediation, and analytical services.
Reclassifications
Certain prior year balances have been reclassified to conform with current year
presentation.
Supplemental Disclosures of Cash Flow Information
Cash paid during the years ended August 31, 1995, 1994, and 1993, for interest,
was $521,700, $400,600, and $522,200, respectively. Retirements of property and
equipment for the same periods were $46,300, $148,600, and $405,100,
respectively. The noncash tax benefit attributable to the exercise of
non-qualified stock options was $650,900 and $167,300 for the years ended August
31, 1995 and 1994.
Accounting for Income Taxes
The Company implemented the provisions of Statement of Financial Accounting
Standards No. 109--Accounting for Income Taxes as of September 1, 1993. The
effect of the provisions have been implemented prospectively and were not
material to the financial statements as of September 1, 1993, or to the
operating results for the year ended August 31, 1994. As a result of the
implementation, certain prior year balances have been reclassified to conform
with current year presentation.
Deferred income taxes are recorded to reflect the tax consequences on future
years for differences between the tax basis of assets and liabilities and their
financial reporting amounts.
NOTE 2. Income Taxes:
The provision for income taxes includes current and deferred tax amounts
summarized as follows:
Year Ended August 31, 1995 1994 1993
Current tax expense:
Federal $1,602,400 $ 879,900 $ 975,700
State 300,900 165,200 249,500
1,903,300 1,045,100 1,225,200
Deferred tax
expense (benefit):
Federal (352,100) 92,300 (445,400)
State (66,100) 77,900 (111,300)
(418,200) 170,200 (556,700)
Provision for
income taxes $1,485,100 $1,215,300 $ 668,500
Total deferred tax assets and liabilities as of August 31, 1995 and
1994, and the sources of the differences between the tax and financial
reporting basis of the Company's assets and liabilities which give rise to
the deferred tax assets and liabilities are as follows:
Year Ended August 31, 1995 1994
Deferred tax assets:
Property and equipment $ 492,700 $ 266,200
Accrued expenses and reserves 1,028,800 924,500
Stock options exercised -- 167,300
Miscellaneous -- 13,700
$1,521,500 $1,371,700
Deferred tax liabilities:
Prepaid expenses $ 90,800 $ 192,600
Miscellaneous 35,000 34,300
$ 125,800 $ 226,900
The net deferred tax assets of $1,395,700 and $1,144,800 as of August
31, 1995 and 1994, are included to the extent appropriate in Prepaid expenses
and other, and Other assets in the Consolidated Balance Sheets.
Reconciliation of the statutory federal income tax rate and the
effective income tax rate is summarized as follows:
Year Ended August 31, 1995 1994 1993
Statutory federal income
tax (benefit) rate 34.0% 34.0% 34.0%
State income tax, net of
federal income tax effect 5.3 5.3 5.3
Other 0.7 0.7 0.7
Effective income tax rate 40.0% 40.0% 40.0%
NOTE 3. Accounts Receivable:
Accounts receivable consist of the following:
Year Ended August 31, 1995 1994
Contract accounts receivable
Retainage by clients $14,881,600 $12,180,500
1,362,200 1,358,200
Total accounts receivable 16,243,800 13,538,700
Less--Allowance for
doubtful accounts (1,385,700) (1,394,900)
Accounts receivable, net $14,858,100 $12,143,800
Management anticipates that substantially all retainages will be billed
within one year.
NOTE 4. Bank Financing Arrangements:
The Company maintains a revolving line of credit arrangement with a commercial
bank. The borrowing facility consists of a revolving line of credit for up to
$9,500,000 and a 3,000,000 long-term note payable with interest only payments
due quarterly and principal due on expiration of the agreement (see Note 6).
Borrowings under the arrangement are unsecured.
Interest is charged at either the bank's prime rate or LIBOR plus 150 basis
points, at the Company's election on a quarterly basis. The interest rate is
subject to quarterly modifications based on certain financial ratios, with a
maximum rate of 25 basis points above the bank's prime or LIBOR plus 240 basis
points. This arrangement expires on January 31, 1997. However, the Company's
short-term borrowings are due on the earlier of the bank's demand or expiration
of the agreement. If the Company's total borrowings fall below $3,000,000 at any
time, the bank invests the excess in interest bearing overnight funds.
Short-term borrowings information is as follows:
Year Ended August 31, 1995 1994 1993
Balance as of end
of period $ -- $ -- $ --
Maximum amount
outstanding during
the period 3,711,300 3,889,000 7,320,100
Average outstanding
month-end balance
during the period 293,600 273,200 3,955,700
Weighted average
interest rate during
the period 8.57% 6.40% 7.3%
Interest rate at the
end of the period 8.75% 7.25% 6.0%
The Company's debt agreements require that the Company maintain certain
financial ratios. The weighted average interest rate has been calculated based
upon the actual daily interest expense and the daily average balance
outstanding.
NOTE 5. Lease Commitments:
The Company's central office, laboratory facilities, regional offices, and
certain furniture and equipment are held under operating leases. These leases
expire at various dates through fiscal 2004, and certain leases call for annual
proportionate increases due to property taxes and certain other operating
expenses. Rent expense amounted to $8,469,300, $6,817,400, and $5,423,500, for
the years ended August 31, 1995, 1994, and 1993, respectively. Rent expense
included payments of approximately $1,985,300, $1,886,100, and $1,720,800 for
fiscal years 1995, 1994, and 1993, respectively, to partnerships consisting of
the Chairman of EA and certain members of his family for its central office and
certain regional offices and laboratory facilities. These payments include
reimbursement for operating expenses incurred by the lessor such as property
taxes, maintenance, and utility costs related to the operation of the
facilities.
The minimum lease commitments under noncancellable operating leases are
as follows:
Year Ending
August 31,
1996 $ 6,201,000
1997 4,815,400
1998 3,754,300
1999 2,837,800
2000 2,118,400
2001 and thereafter 6,661,700
Total minimum payments $26,388,600
NOTE 6. Long-Term Debt:
Long-term debt consists of the following:
August 31, 1995 1994
Note payable to a commercial
bank payable in monthly
installments of interest
only; interest at prime or
LIBOR plus 150 basis
points through January 1997 $3,000,000 $3,000,000
Notes payable to a commercial
bank payable in equal monthly
installments of $43,650, plus
interest at 1% above the bank's
prime through November 1998,
and $21,400 plus interest at
1% above the bank's prime
thereafter until November 1999,
secured by leasehold
improvements and certain of
EA's analytical laboratory
equipment 1,435,700 1,959,500
Other 362,500 678,600
Total long-term debt 4,798,200 5,638,100
Less-current portion (765,500) (839,900)
Long-term portion $4,032,700 $4,798,200
The Company's debt agreements require that the Company maintain certain
financial ratios.
NOTE 7. Net Income Per Share:
Net income per share is based on the weighted average number of shares of common
stock and common stock equivalents outstanding during the period, and have been
adjusted retroactively to reflect two 3 for 2 stock splits, effected in the form
of 50% stock dividends, wherein 1 additional share of stock was issued on
February 23, 1994 and July 5, 1994, for each 2 shares outstanding as of the
record dates of February 8, 1994 and June 28, 1994, respectively. All
disclosures with regard to the shares of common stock have been adjusted to
reflect these stock splits.
NOTE 8. Profit Sharing and Incentive Plans:
EA maintains a defined contribution plan covering all employees who are at least
21 years of age and have completed one year of credited service, as defined by
the plan. The plan provides for discretionary employer contributions for each
fiscal year, in amounts determined annually by the Board of Directors, and for
voluntary employee contributions. The plan also includes a 401(k) provision,
allowing for Company matching contributions. For the years ended August 31,
1995, 1994, and 1993, contributions to the plan, including matching
contributions made under the 401(k) provisions of the plan, were $710,400,
$519,300, and $372,900, respectively. Certain officers and stockholders of the
Company serve as trustees to the plan, as appointed by the Board of Directors.
The Company also maintains an Incentive Compensation Plan which provides
for both quarterly incentive payments to all employees and annual incentive
payments to certain management personnel if pre-determined goals, approved by
the Board of Directors, are exceeded. For the years ended August 31, 1995, 1994,
and 1993, total amounts expensed were $420,000, $1,135,000, and $1,415,000.
NOTE 9. Stock Option and Employee Stock Purchase Plans:
The Company maintains a Stock Option Plan (the Plan), which provides for the
grant of nonqualified stock options and incentive stock options to certain key
employees and officers of the Company. The exercise price of an option granted
under the Plan may not be less than the fair market value of the underlying
shares of Common Stock on the date of the grant. A total of 311,835 options are
issued and outstanding as of August 31, 1995, having an average exercise price
of $4.44. There are 288,277 options available for issuance as of August 31,
1995.
The Company maintains an Employee Stock Purchase Plan to provide
eligible employees with the opportunity to purchase shares of the Company's
Common Stock through voluntary payroll deductions. Under the Plan, eligible
employees may purchase shares through monthly payroll deductions at 95% of
current market value at the time of purchase. The Company pays all
administrative expenses related to employee purchases. A total of 259,197 shares
remain authorized for distribution under the Plan as of August 31, 1995.
The Company maintains two Non-Employee Director Stock Option Plans (1995
and 1993) which provide for the granting of nonqualified stock options to its
four non-employee directors. The exercise price of the 30,000 options, which
were outstanding as of August 31, 1995, ranged between $2.445 and $6.125, which
equaled the fair market value at the date of grant. A total of 38,500 options
remain reserved for the Director Stock Option Plans as of August 31, 1995.
Report of Independent Public Accountants
EA Engineering, Science, and Technology, Inc. and Subsidiaries
To the Board of Directors and Stockholders of
EA Engineering, Science, and Technology, Inc.:
We have audited the accompanying consolidated balance sheets of EA Engineering,
Science, and Technology, Inc. (a Delaware corporation) and subsidiaries as of
August 31, 1995 and 1994, and the related consolidated statements of income,
changes in stockholders' equity, and cash flows for each of the three years in
the period ended August 31, 1995. 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 financial position of EA Engineering,
Science, and Technology, Inc. and subsidiaries as of August 31, 1995 and 1994,
and the results of their operations and their cash flows for each of the three
years in the period ended August 31, 1995, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Baltimore, Maryland
September 20, 1995
DIRECTORS AND OFFICERS
CORPORATE INFORMATION
Directors
Edmund J. Cashman, Jr.*
Senior Executive Vice President and Director Legg Mason, Inc.; Senior
Executive Vice President of Legg Mason Wood Walker, Incorporated; Director
of Worldwide Value Fund, Inc.
Loren D. Jensen, Ph.D.
Chairman, President, and Chief Executive Officer
of the Company
Rudolph P. Lamone, Ph.D.*
Chairman of the Board, Michael D. Dingman Center for Entrepreneurship,
University of Maryland College of Business and Management
George G. Radcliffe*
Retired Chairman of the Board, The Baltimore Life Insurance Company;
Trustee Emeritus of The Johns Hopkins University; Director of The
Baltimore Life Insurance Company, Life of Maryland, Inc., NationsBank
Trust Company, N.A.
*Audit and Compensation
Committee Member
Officers
Loren D. Jensen, Ph.D.
Chairman, President, and
Chief Executive Officer
Joseph A. Spadaro, CPA
Executive Vice President, Treasurer, Assistant Secretary, and Chief
Financial Officer
Stephen J. Hammalian, Ph.D.
Executive Vice President
and Secretary
James J. Gift, Ph.D.
Senior Vice President
Gerald J. Lauer, Ph.D.
Senior Vice President
J. Emil Morhardt, Ph.D.
Senior Vice President
David S. Santoro, P.E., L.S.
Senior Vice President
Thomas J. Timbario, P.E.
Senior Vice President
J. H. Zarzycki, P.E.
Senior Vice President
H. Lee Becker, P.E.
Vice President
Charles R. Flynn, Ph.D., P.H.
Vice President
Charles W. Houlik, Ph.D., CPG
Vice President
Steven M. Jinks, Ph.D.
Vice President
Reza A. Karimi, Ph.D.
Vice President
Gloria D. McCleary, P.E.
Vice President
Sylvia S. Morhardt, Ph.D.
Vice President
James F. Morrow, P.E.
Vice President
Robert P. Newman, P.E., DEE
Vice President
Robert M. Owens, P.E.
Vice President
Robert G. Tardiff, Ph.D., ATS
Vice President
Stockholder Information
Independent Public Accountants
Arthur Andersen LLP
Baltimore, Maryland
Legal Counsel
Semmes, Bowen & Semmes
Baltimore, Maryland
Registrar and Transfer Agent
Chemical Mellon Shareholder Services
Pittsburgh, Pennsylvania
Investor Relations
The Foristall Company
New York, New York
Common Stock Listing
NASDAQ Symbol: EACO
Annual Meeting
The Annual Meeting of the Stockholders will be held on January 10, 1996, at
9:00 a.m. (EST) at the Company's General Offices in Hunt Valley, Maryland.
SEC Form 10-K
A copy of the Company's annual report filed with the Securities and Exchange
Commission Form 10-K for the year ended August 31, 1995, is available. Please
direct your request to the Chief Financial Officer, Joseph A. Spadaro.
General Offices
EA Engineering, Science, and
Technology, Inc.
11019 McCormick Road
Hunt Valley, Maryland 21031
(410) 584-7000
Subsidiaries
EA Engineering, Science, and
Technology de Mexico, S.A. de C.V.
Londres #190, Suite 308
Col. Juarez
Mexico, D.F. 06600
EA Financial, Inc.
900 Market Street, Suite 200
Wilmington, Delaware 19801
EA Global, Inc.
11019 McCormick Road
Hunt Valley, Maryland 21031
Marketing for the Registrant's Common Equity and Related Stockholder Matters
On October 31, 1986, EA common stock began public trading in the
over-the-counter market under the symbol "EACO." The following table shows the
high and low closing sales price reported on the NASDAQ National Market System.
Such over-the-counter market quotations, however, reflect interdealer prices,
without retail markup, markdown, or commission and may not necessarily represent
actual transactions. These prices are adjusted to reflect EA's two 3 for 2
splits, each effected in the form of a 50% stock divi dend on January 25, 1994
and June 14, 1994.
High Low
Fiscal 1993:
First Quarter 2.00 1.28
Second Quarter 2.76 1.78
Third Quarter 3.33 2.44
Fourth Quarter 4.28 3.00
Fiscal 1994:
First Quarter 5.89 3.78
Second Quarter 9.26 5.22
Third Quarter 12.33 6.33
Fourth Quarter 12.50 8.75
Fiscal 1995:
First Quarter 10.25 6.75
Second Quarter 8.75 5.50
Third Quarter 7.25 5.25
Fourth Quarter 6.00 4.00
Design by: Financial Communications, Inc., Bethesda, Maryland
West
Seattle
155 108th Ave., N.E., Suite 400
Bellevue, WA 98004
Telephone (206) 451-7400
Fax: (206) 451-7800
Contact: Thomas R. Grindeland, P.E.
Sacramento
3841 N. Freeway Blvd., Suite 145
Sacramento, CA 95834
Telephone: (916) 924-7450
Fax: (916) 924-7480
Contact: Michael P. Stuhr, P.E.
San Diego
521 Pepperwood Court
Bonita, CA 91902
Telephone: (619) 482-8930
Fax: (619) 482-1620
Contact: Wayne K. Goodermote
San Francisco
3468 Mt. Diablo Blvd., Suite B-100
Lafayette, CA 94549
Telephone: (510) 283-7077
Fax: (510) 283-3894
Contact: J. Emil Morhardt, Ph.D.
Anchorage
4401 Business Park Blvd., Suite 26
Anchorage, AK 99503
Telephone: (907) 561-3730
Fax: (907) 561-3731
Contact: William W. Kakel, P.E.
Fairbanks
3532 International Street
Fairbanks, AK 99701
Telephone: (907) 456-4751
Fax: (907) 456-1740
Contact: David E. Beistel
Honolulu
Hawaii Kai Corporate Plaza
6600 Kalanianaole Hwy., Suite 200
Honolulu, HI 96825
Telephone: (808) 396-1066
Fax: (808) 396-1039
Contact: Joel J. Lazzeri
MARYLAND
Corporate Headquarters
11019 McCormick Road
Hunt Valley, MD 21031
Telephone: (410) 584-7000
Fax: (410) 771-1625
Contact: Stephen E. Storms, Ph.D.
Baltimore
15 Loveton Circle
Sparks, MD 21152
Telephone: (410) 771-4950
Fax: (410) 771-4204
Contact: Christopher J. Riley, P.E.
EA Laboratories
19 Loveton Circle
Sparks, MD 21152
Telephone: (410) 771-4920
Fax: (410) 771-4407
Contact: Reza A. Karimi, Ph.D.
EA Global, Inc.
11019 McCormick Road
Hunt Valley, MD 21031
Contact: Stephen J. Hammalian, Ph.D.
Central
Chicago
444 Lake Cook Road, Suite 18
Deerfield, IL 60015
Telephone: (708) 945-8010
Fax: (708) 945-0296
Contact: Gregory L. Seegert
Lincoln
121 South 13th Street, Suite 701
Lincoln, NE 68508
Telephone: (402) 476-3766
Fax: (402) 476-7825
Contact: Daryoush Razavian, P.E.
Corpus Christi
702 Burkshire Drive
Corpus Christi, TX 78412
Telephone: (512) 992-5868
Fax: (512) 992-6075
Contact: Karen D. Somers
Dallas
1420 Valwood Parkway, Suite 170
Carrollton, TX 75006
Telephone: (214) 484-1420
Fax: (214) 247-7220
Contact: Charles J. Place, P.G.
Houston
Gateway II, Suite 160
15333 JFK Boulevard
Houston, TX 77032
Telephone: (713) 987-0491
Fax: (713) 987-0493
Contact: Lawrence P. Raymond, Ph.D.
San Antonio
7330 San Pedro, Suite 536
San Antonio, TX 78216
Telephone: (210) 344-3067
Fax: (210) 344-2962
Contact: Brian R. Mosley
Mexico
EA Engineering, Science, and Technology
de Mexico, S.A. de C.V.
Londres #190, Suite 308
Col. Juarez, Mexico, D.F. 06600
Telephone: 011-525-525-5036
Fax: 011-525-525-5036
Contact: Stephen J. Hammalian, Ph.D.
EAST
Boston
Sharon Commerce Center
2 Commercial Street, Suite 106
Sharon, MA 02067
Telephone: (617) 784-1767
Fax: (617) 784-4539
Contact: Nicholas A. Lanney, P.E.
New York
3 Washington Center
Newburgh, NY 12550
Telephone: (914) 565-8100
Fax: (914) 565-8203
Contact: Kenneth C. Wiswell, P.E.
Syracuse
115 Twin Oaks Drive
Syracuse, NY 13206
Telephone: (315) 431-4610
Fax: (315) 431-4280
Contact: Thomas W. Porter
Berkeley Heights,
Two Oak Way
Berkeley Heights, NJ 07922
Telephone: (908) 665-2460
Fax: (908) 665-2464
Contact: Thomas R. Hundt, Ph.D.
Delaware
New Castle Corporate Commons
92 Reads Way, Suite 109
New Castle, DE 19720
Telephone: (302) 325-3560
Fax: (302) 325-3648
Contact: Scott H. Simon
Washington, D.C.
8401 Colesville Road
Suite 500, Box 21
Silver Spring, MD 20910
Telephone: (301) 565-4216
Fax: (301) 587-4752
Contact: Robert G. Tardiff, Ph.D.
Charlotte
810 Tyvola Road, Suite 100
Charlotte, NC 28217
Telephone: (704) 521-8713
Fax: (704) 523-2529
Contact: Brian J. Thomas
Atlanta
1870 The Exchange, Suite 100
Atlanta, GA 30339
Telephone: (770) 951-7075
Fax: (770) 951-7031
Contact: Joan G. Hutton, P.G.
Pensacola
8800 University Pky., Suite C-1
Pensacola, FL 32514
Telephone: (904) 479-7905
Fax: (904) 479-7851
Contact: Melvin R. Joplin
SUBSIDIARIES
EA Engineering, Science, and
Technology de Mexico, S.A. de C.V.
Londres #190, Suite 308
Col. Juarez
Mexico, D.F. 06600
EA Financial, Inc.
900 Market Street, Suite 200
Wilmington, Delaware 19801
EA Global, Inc.
11019 McCormick Road
Hunt Valley, Maryland 21031
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