SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: November 30, 1995 Commission File No. 0-15587
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EA Engineering, Science, and Technology, Inc.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 52-0991911
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(State or other jurisdiction of(IRS Employer
incorporation or organization) identification No.)
11019 McCormick Road, Hunt Valley, Maryland 21031
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code (410) 584-7000
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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
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NUMBER OF SHARES OF REGISTRANT'S COMMON STOCK
OUTSTANDING AT JANUARY 4, 1996 6,107,250
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Page 1 of 16
1
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
INDEX
Page
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PART I - FINANCIAL INFORMATION
Consolidated Balance Sheets - Assets................................. 4
Consolidated Balance Sheets - Liabilities and Stockholders' Equity... 5
Consolidated Statements of Income.................................... 6
Consolidated Statements of Cash Flows................................ 7
Notes to Consolidated Financial Statements........................... 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................11
PART II - OTHER INFORMATION..............................................14
EXHIBIT 1
Schedule of Weighted Average Shares Outstanding. . . . . . . . . . 15
EXHIBIT 27
Financial Data Schedule............................................16
2
<PAGE>
PART I - FINANCIAL INFORMATION
The consolidated financial statements included herein for EA Engineering,
Science, and Technology, Inc. & Subsidiaries (the "Company") have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. In management's opinion, the interim
financial data presented includes all adjustments (which include only normal
recurring adjustments) necessary for a fair presentation. Certain information
and footnote disclosures normally included in the consolidated financial state-
ments prepared in accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations. However, the
Company believes that the disclosures are adequate to understand the information
presented. It is suggested that these consolidated financial statements be read
in conjunction with the Company's August 31, 1995 consolidated financial state-
ments and notes thereto included in the Company's annual report on Form 10-K
dated November 22, 1995.
3
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
November 30, August 31,
1995 1995
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................ $ 792,800 $ 3,813,900
Accounts receivable, net......................... 12,444,400 14,858,100
Costs and estimated earnings in excess of
billings on uncompleted contracts.............. 14,219,900 10,735,000
Prepaid expenses and other....................... 1,755,100 1,711,300
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Total Current Assets........................... 29,212,200 31,118,300
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PROPERTY AND EQUIPMENT, at cost:
Furniture, fixtures and equipment................ 14,641,300 14,403,800
Leasehold improvements........................... 3,668,300 3,652,400
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18,309,600 18,056,200
Less-Accumulated depreciation and amortization... (14,650,200) (14,255,900)
----------- -----------
Net Property and Equipment..................... 3,659,400 3,800,300
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OTHER ASSETS....................................... 1,539,100 1,449,200
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Total Assets..................................... $34,410,700 $36,367,800
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
November 30, August 31,
1995 1995
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable................................. $ 4,380,800 $ 5,960,800
Accrued expenses................................. 631,200 856,500
Accrued salaries, wages and benefits............. 3,661,700 4,595,700
Income taxes payable............................. 657,000 227,600
Current portion of long-term debt................ 765,500 765,500
Billings in excess of costs and estimated
earnings on uncompleted contracts.............. 993,900 1,049,300
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Total Current Liabilities...................... 11,090,100 13,455,400
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LONG-TERM DEBT, net of current portion............. 3,841,400 4,032,700
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Total Liabilities 14,931,500 17,488,100
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STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 10,000,000 shares
authorized; 6,103,100 and 6,091,900 shares
issued and outstanding......................... 61,000 60,900
Preferred stock, $.01 par value; 8,000,000 shares
authorized; none issued........................ -- --
Capital in excess of par value................... 10,602,300 10,538,700
Retained earnings................................ 8,815,900 8,280,100
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Total Stockholders' Equity..................... 19,479,200 18,879,700
----------- -----------
Total Liabilities and Stockholders' Equity... $34,410,700 $36,367,800
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
November 30,
----------------------
1995 1994
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<S> <C> <C>
Total revenue...................................... $22,940,100 $22,421,200
Less - Subcontractor costs......................... (5,527,100) (4,462,700)
----------- -----------
Net revenue...................................... 17,413,000 17,958,500
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Operating expenses:
Direct salaries and other operating.............. 15,622,200 15,521,000
General and administrative....................... 796,600 1,129,800
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Total operating expenses......................... 16,418,800 16,650,800
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Income from operations............................. 994,200 1,307,700
Interest expense................................... (125,700) (136,500)
Interest income.................................... 24,500 29,200
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Income before income taxes......................... 893,000 1,200,400
Provision for income taxes......................... 357,200 480,200
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Net income......................................... $ 535,800 $ 720,200
=========== ===========
Net income per share............................... $.09 $0.12
==== =====
Weighted average shares outstanding................ 6,182,400 6,137,900
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
November 30,
-------------------------
1995 1994
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<S> <C> <C>
CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES:
Net income....................................... $ 535,800 $ 720,200
Noncash expenses included in net income -
Depreciation and amortization................. 394,300 415,800
Deferred (benefit from) income taxes.......... (100,000) (135,200)
Current provision for income taxes............ 457,200 615,400
Net (increase) decrease in noncash assets -
Accounts receivable, net...................... 2,413,700 779,300
Costs and estimated earnings in excess of
billings on uncompleted contracts........... (3,484,900) (4,848,100)
Prepaid expenses and other assets............. (33,700) 295,200
Net increase (decrease) in nondebt liabilities -
Accounts payable and accrued expenses......... (2,739,300) (291,200)
Payments of income taxes...................... (27,800) (7,300)
Billings in excess of costs and estimated
earnings on uncompleted contracts........... (55,400) (113,200)
----------- -----------
Net cash flows used for operating activities.. (2,640,100) (2,569,100)
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Proceeds from issuance of common stock........... 63,700 171,500
Reduction of long-term debt...................... (191,300) (211,700)
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Net cash flows used for financing activities.. (127,600) (40,200)
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CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchase of equipment, net....................... (253,400) (327,100)
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Net cash flows used for investing activities... (253,400) (327,100)
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NET DECREASE IN CASH AND CASH EQUIVALENTS........... (3,021,100) (2,936,400)
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CASH AND CASH EQUIVALENTS, beginning of period...... 3,813,900 3,988,500
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CASH AND CASH EQUIVALENTS, end of period............ $ 792,800 $ 1,052,100
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED NOVEMBER 30, 1995 AND 1994
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. (EA de
Mexico). 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 and consulting
engineering 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 ten years.
The Company accounts for contract revenues and costs under fixed price con-
tracts 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 earnings 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 earnings 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.
Cash and Cash Equivalents--
Cash equivalents consist of obligations and 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.
8
<PAGE>
Major Clients--
For the three months ended November 30, 1995 and 1994, various agencies of
the federal government provided 51% and 81% of net revenue, and as of November
30, 1995 accounted for approximately 52% of the Company's accounts receivable
and costs and estimated earnings in excess of billings on uncompleted contracts.
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 three months ended November 30, 1995 and 1994 for
interest was $117,400 and $130,900, respectively. Retirements of property and
equipment for the same periods were $0 and $34,800, respectively.
Short-term borrowings information for the three months ended November 30,
1995 and 1994 is as follows:
<TABLE>
<CAPTION>
Three Months Ended
November 30,
--------------------
1995 1994
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<S> <C> <C>
Balance as of end of period....................... $ -- $ --
Maximum amount outstanding during the period...... 5,490,900 1,559,600
Average outstanding month-end balance during
the period..................................... 492,400 --
Weighted average interest rate during the period.. 8.8% 7.9%
Interest rate at the end of period................ 8.8% 8.5%
Interest expense.................................. $16,900 $2,200
</TABLE>
The Company's debt agreements require that the Company maintain certain
financial ratios.
Note 2. 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.
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.
Note 3. NET INCOME PER SHARE:
Net income per share amounts are based on the weighted average number of
shares of common stock and common stock equivalents outstanding during the
period.
9
<PAGE>
Note 4. PROFIT SHARING AND EMPLOYEE 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.
The Company also maintains an Incentive Compensation Plan which provides for
both quarterly incentive payouts to all employees and annual incentive payouts
to certain management personnel if pre-determined goals, approved by the Board
of Directors, are exceeded. For the three months ended November 30, 1994, the
total amount expensed under the incentive plan was $550,000. There was no
expense incurred under the incentive plan for the three months ended November
30, 1995.
Note 5. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS:
The Company maintains a Stock Option Plan which provides for the grant of
incentive and nonqualified 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 209,900 options are issued and outstanding as
of November 30, 1995 having an average exercise price of $4.16. There were
389,100 shares available for issuance as of November 30, 1995.
The Company maintains an Employee Stock Purchase Plan to provide eligible
employees the opportunity to purchase shares of the Company's Common Stock
through voluntary payroll deductions. Under the Plan, eligible employees may
purchase shares monthly through 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 244,971 shares remain authorized for
distribution under the Plan as of November 30, 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 three
non-employee directors. The exercise price of the 30,000 options, which were
outstanding as of November 30, 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 November 30, 1995.
10
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
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 bid proposals and other required non-billable
activities. Due to these factors, the results of operations for interim periods
are not necessarily indicative of the results of operations for longer periods
and interim period comparisons may not be as meaningful as comparisons over
longer periods.
Three Months Ended November 30, 1995
Net revenue for the three months ended November 30, 1995 was $17,413,000, a
decrease of 3.0% from $17,958,500 for the same period in 1995. The decrease was
attributable to lower contract volume associated with the Department of Defense
activities, partially offset by increases in Industrial, State, and Local
Government, Federal Non-DOD agency activities, and increased recovery of General
and Administrative expenses and fees on subcontracted work.
Direct salaries and other operating costs increased to $15,622,200 from
$15,521,000, representing 89.7% and 86.4% of net revenue for the three months
ended November 30, 1995 and 1994, respectively. As a percentage of net revenue,
the increase was attributable to decreased staff utilization, increased informa-
tion systems, including contracts and procurement, increased international
marketing, and proposal costs, offset by decreases in incentive compensation
expense.
General, and administrative costs decreased to $796,600 from $1,129,800,
and decreased to 4.6% and 6.3% of net revenue, respectively. The decrease in
costs was related to decreases in incentive compensation and the reduction of
administrative staff in the fourth quarter of fiscal 1995.
As a result of the above factors, income from operations for the three
months ended November 30, 1995 and 1994 decreased 24.0% to $994,200 from
$1,307,700 representing 5.7% and 7.3% of net revenue. Interest expense, net,
decreased $6,100 for the three months ended November 30, 1995, compared to the
prior year. The net decrease in interest expense is primarily the result of
decreasing long- term debt principal balances, partially offset by increased
short-term borrowings to fund federal subcontracting payment requirements on
certain contracts.
The provision for income taxes was $357,200 and $480,200 for the three
months ended November 30, 1995 and 1994, respectively, representing effective
rates of 40% for both years.
Net income was $535,800 for the three months ended November 30, 1995,
compared to $720,200 for the three months ended November 30, 1994.
Liquidity and Capital Resources
Cash and cash equivalents (cash) decreased by $3,021,100 for the three
months ended November 30, 1995. The decrease principally resulted from increases
in costs and estimated earnings in excess of billings on uncompleted contracts,
and the decrease in accounts payable and accrued expenses. This decrease was
partially offset by net income, decrease in accounts receivable, and
depreciation and amortization.
11
<PAGE>
The Company's capital expenditures, consisting primarily of purchases of
equipment and leasehold improvements, were approximately $253,400 and $327,100
for the three months ended November 30, 1995 and 1994, respectively.
At November 30, 1995, the Company had outstanding long-term debt, including
current portion, of $4,606,900 decreased by repayments of $191,300 from the
August 31, 1995 balance of $4,798,200. The Company had no borrowings under its
revolving line of credit at November 30, 1995, consistent with August 31, 1995.
The Company's existing funds, cash from operations, and the available
portion of its $12,500,000 credit arrangement 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 business
services, 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 market demand to absorb
the additional contracting capacity resulting from its continued expansion,
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.
12
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6
(a)
Exhibits
None
(b)
Reports on Form 8-K
None
13
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EA Engineering, Science, and
Technology, Inc. & Subsidiaries
-------------------------------
(Registrant)
January 8, 1996 By: /s/ Loren D. Jensen
- ----------------- -----------------------------------
(Signature)
Loren D. Jensen
-----------------------------------
Chairman, President, and
Chief Executive Officer
-----------------------------------
(Title)
January 8, 1996 By: /s/ Joseph A. Spadaro
- ----------------- -----------------------------------
(Signature)
Joseph A. Spadaro
-----------------------------------
Executive Vice President,
Chief Financial Officer
-----------------------------------
(Title)
14
EXHIBIT 1
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC.
SCHEDULE OF WEIGHTED AVERAGE SHARES OUTSTANDING
<TABLE>
<CAPTION>
Three Months Ended
November 30,
----------------------
1995 1994
----------- -----------
<S> <C> <C>
Weighted average shares of common stock............ 6,103,100 5,784,200
Impact of dilutive stock options
as of November 30, 1995 and 1994,
respectively........................... 79,300 353,600
--------- ---------
Weighted average shares of common stock............ 6,182,400 6,137,800
========= =========
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> NOV-30-1995
<CASH> 792,800
<SECURITIES> 0
<RECEIVABLES> 26,664,300
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 29,212,200
<PP&E> 18,309,600
<DEPRECIATION> 14,650,200
<TOTAL-ASSETS> 34,410,700
<CURRENT-LIABILITIES> 10,990,100
<BONDS> 0
<COMMON> 61,000
0
0
<OTHER-SE> 19,418,200
<TOTAL-LIABILITY-AND-EQUITY> 34,410,700
<SALES> 17,413,000
<TOTAL-REVENUES> 22,940,100
<CGS> 16,418,800
<TOTAL-COSTS> 21,945,900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101,200
<INCOME-PRETAX> 893,000
<INCOME-TAX> 357,200
<INCOME-CONTINUING> 535,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 535,800
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
