UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended May 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
----------------------
Commission File Number 0-15587
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC.
Incorporated in the State of Delaware
Internal Revenue Service -- Employer Identification No. 52-0991911
11019 McCormick Road, Hunt Valley, Maryland 21031
(410) 584-7000
-----------------------------
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 [_]
The number of shares of the Registrant's Common Stock, $.01 par value,
outstanding on July 8, 1998, was 6,276,399.
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
INDEX
Page
------
PART I FINANCIAL INFORMATION............................................... 3
Item 1 Financial Statements................................................ 3
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
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 13
PART II - OTHER INFORMATION................................................ 17
Item 6 Exhibits and Reports on Form 8-K.................................... 17
(a) Exhibits
11 Schedule of Weighted Shares Outstanding.............. 19
27 Financial Data Schedule.............................. 20
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The consolidated financial statements included herein for EA Engineering,
Science, and Technology, Inc. and its 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) considered necessary for a fair presentation. Certain
information and footnote disclosures, normally included in the consolidated
financial statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to such rules and
regulations. The Company believes, however, that the disclosures are adequate to
understand the information presented. Operating results and cash flows for the
interim period are not necessarily indicative of the results that may be
expected for the full fiscal year. These consolidated financial statements
should be read in conjunction with the Company's August 31, 1997 consolidated
financial statements and notes thereto included in the Company's 1997 Annual
Report on Form 10-K.
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
May 31, August 31,
1998 1997
---------- -----------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents...................... $ 1,774,800 $ 2,333,300
Accounts receivable, net....................... 8,182,100 9,498,800
Costs and estimated earnings in excess of
billings on uncompleted contracts........... 7,151,300 5,653,800
Refundable income taxes........................ 15,600 1,883,900
Prepaid expenses and other..................... 1,966,300 1,865,500
----------- -----------
Total Current Assets..................... 19,090,100 21,235,300
----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Furniture, fixtures and equipment.............. 13,058,900 12,599,200
Leasehold improvements......................... 3,675,900 3,664,800
----------- -----------
16,734,800 16,264,000
Less-accumulated depreciation and amortization.. 14,727,300) (13,867,200)
------------ -----------
Net Property and Equipment................... 2,007,500 2,396,800
OTHER ASSETS....................................... 2,843,000 3,009,800
----------- -----------
Total Assets.................................... $23,940,600 $26,641,900
=========== ===========
The accompanying notes are an integral part of these statements.
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
May 31, August 31,
1998 1997
------------ -----------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable................................ $ 3,764,200 $ 4,306,900
Accrued expenses................................ 740,200 2,694,600
Accrued salaries, wages and benefits............ 2,494,400 2,891,200
Current portion of long-term debt............... 495,700 648,300
Billings in excess of costs and estimated
earnings on uncompleted contracts............ 125,700 512,200
----------- -----------
Total Current Liabilities.................... 7,620,200 11,053,200
LONG-TERM DEBT, net of current portion............. 2,217,100 2,331,700
----------- -----------
Total Liabilities............................ 9,837,300 13,384,900
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 10,000,000 shares
authorized; 6,275,700 and 6,227,300 shares
issued and outstanding....................... 62,800 62,300
Preferred stock, $.01 par value; 8,000,000
shares authorized; none issued............... -- --
Capital in excess of par value.................. 11,030,000 10,902,300
Retained earnings............................... 3,010,500 2,292,400
----------- -----------
Total Stockholders' Equity................... 14,103,300 13,257,000
----------- -----------
Total Liabilities and Stockholders' Equity. $23,940,600 $26,641,900
=========== ===========
The accompanying notes are an integral part of these statements.
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------- -------------------------
May 31, May 31, May 31, May 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total revenue.............................. $14,308,900 $16,660,600 $44,920,300 $56,376,500
Less - Subcontractor costs................. (2,180,600) (4,176,000) (8,266,500) (17,377,900)
Less - Other direct project costs.......... (1,662,200) (3,531,700) (4,846,500) (8,981,700)
----------- ---------- ----------- -----------
Net revenue............................ 10,466,100 8,952,900 31,807,300 30,016,900
----------- ---------- ----------- -----------
Operating expenses:
Direct salaries and other operating.... 7,736,100 8,809,700 23,636,700 29,423,500
Sales, general and administrative...... 2,439,300 2,147,500 7,115,800 6,204,100
Gain on "key employee" life insurance.. (261,100) -- (261,100) --
Restructuring.......................... -- 3,000,100 -- 3,000,100
----------- ---------- ----------- -----------
Total operating expenses............ 9,914,300 13,957,300 30,491,400 38,627,700
----------- ---------- ----------- -----------
Income (loss) from operations.............. 551,800 (5,004,400) 1,315,900 (8,610,800)
Interest expense, net...................... (26,400) (76,500) (114,500) (297,900)
----------- ---------- ----------- -----------
Income (loss) before income taxes.......... 525,400 (5,080,900) 1,201,400 (8,908,700)
Provision for (benefit from) income taxes.. 212,900 (1,624,200) 483,300 (3,155,400)
----------- ---------- ----------- -----------
Net income (loss).......................... $ 312,500 (3,456,700) $ 718,100 $(5,753,300)
=========== ========== =========== ===========
Basic earnings (loss) per share............ $0.05 $(0.56) $0.12 $(0.93)
Diluted earnings (loss) per share.......... $0.05 $(0.56) $0.11 $(0.93)
===== ====== ===== ======
Weighted avg. shares outstanding........... 6,264,800 6,200,300 6,246,600 6,195,200
Diluted weighted avg. shares outstanding... 6,517,300 6,200,300 6,352,300 6,195,200
========= ========= ========= =========
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
------------------------
May 31, May 31,
1998 1997
----------- -----------
CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES:
Net income (loss)................................. $ 718,100 $(5,753,300)
Noncash expenses included in net income (loss) -
Depreciation and amortization.................. 888,100 1,126,300
Current benefit from income taxes.............. -- (3,155,400)
Changes in operating assets and liabilities -
Decrease in accounts receivable, net........... 1,316,700 3,939,200
(Increase) decrease in costs and estimated
earnings in excess of billings on uncom-
pleted contracts............................ (1,497,500) 6,126,800
Decrease in prepaid expenses and other assets.. 66,000 196,900
Decrease in accounts payable and accrued
expenses.................................... (2,893,900) (876,100)
Refunds of income taxes........................ 1,868,300 338,100
Decrease in billings in excess of costs and
estimated earnings on uncompleted contracts. (386,500) (801,200)
---------- ----------
Net cash flows from (used for) operating
activities.................................. 79,300 1,141,300
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchase of equipment, net........................ (498,800) (395,600)
---------- ----------
Net cash flows used for investing activities... (498,800) (395,600)
---------- ----------
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Net borrowings from revolving line of credit...... 216,400 929,900
Proceeds from issuance of common stock............ 128,200 7,000
Reduction of long-term debt and short-term
borrowings..................................... (483,600) (1,358,700)
---------- ----------
Net cash flows from (used for) financing
activities................................... (139,000) (421,800)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................................... (558,500) 323,900
CASH AND CASH EQUIVALENTS, beginning of period....... 2,333,300 1,308,600
---------- ----------
CASH AND CASH EQUIVALENTS, end of period............. $1,774,800 $1,632,500
========== ==========
The accompanying notes are an integral part of these statements.
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MAY 31, 1998 AND 1997
(Unaudited)
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
subsidiaries, EA International, Inc. and EA Financial, Inc. (EA Financial), and
the wholly-owned subsidiaries of EA Financial, EA Global, Inc. and EA de Mexico,
S.A. de C.V. The entities are collectively referred to herein as the "Company."
All significant intercompany transactions have been eliminated in consolidation.
Revenue Recognition--
The Company is primarily a management consulting firm providing services in
energy, health and safety, and the environment. 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 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.
Major Clients--
Various agencies of the federal government accounted for approximately 52% and
46% of the Company's net revenue for the nine months ended May 31, 1998 and
1997,
<PAGE>
respectively. Additionally, various agencies of the federal government accounted
for approximately 50% of the Company's accounts receivable and costs and
estimated earnings in excess of billings on uncompleted contracts as of May 31,
1998. Approximately 55% of the Company's current net contract backlog is with
the federal government. Net contract backlog amounts as of May 31, 1998 and
August 31, 1997 were $21.8 million and $22.6 million, respectively.
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 largely within one industry segment, providing a wide range
of management consulting services primarily in the areas of energy, health and
safety, and the environment. In addition, the Company provides analytical
services.
Reclassifications--
For historical comparisons, net revenue in past periods has been adjusted to
include other direct project costs in addition to subcontract costs. In previous
years, only subcontract costs were deducted from total revenue to arrive at net
revenue. Additionally, operating costs in past years have been adjusted to
include sales and marketing costs in the category of sales, general and
administrative costs. In previous periods, these costs were included in direct
salaries and other operating expenses.
Risks and Uncertainties--
Reliance on major government contracts subjects the Company to risks associated
with public budgetary restrictions and uncertainties, discrepancies between
awarded contract amounts and actual revenues, and cancellation at the option of
the government. The Company attempts to mitigate these risks by staffing only to
meet reasonably anticipated average workloads, by using subcontractors to handle
peak workloads, and by obtaining termination benefit contract provisions.
Cancellation of any of the Company's major government contracts, however, could
have a material adverse effect on the Company.
Use of Estimates--
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets, liabilities, revenues and expenses in the
<PAGE>
financial statements and in the disclosures of contingent assets and
liabilities. While actual results could differ from these estimates, management
believes that actual results will not be materially different from amounts
provided in the accompanying consolidated financial statements.
Supplemental Disclosures of Cash Flow Information--
Cash paid for interest during the nine months ended May 31, 1998 and 1997 was
$171,000 and $281,800, respectively. Retirements of property and equipment for
the same periods were $28,000 and $895,000, respectively.
Accounting for Income Taxes--
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. BANK FINANCING ARRANGEMENTS:
The Company maintains an $8.5 million revolving line of credit and a $1.5
million equipment line of credit arrangement with a commercial bank. Borrowings
under the revolving line of credit facility are secured by receivables and are
limited to a percentage of certain accounts receivable and costs and estimated
earnings in excess of billings on uncompleted contracts (up to a minimum of
$4,000,000). The agreement became effective August 22, 1997. The Company is in
compliance with all covenants related to financing agreements. Prior to the
current fiscal year, the Company had either been in compliance or had obtained
waivers on all covenants related to financing arrangements.
For the nine months ended May 31, 1998, the Company had no short-term borrowings
from the August 22, 1997 financing agreement. Effective April 18, 1997, the
Company entered into a revised line of credit arrangement with Signet Bank under
which the debt was re-classified as short term. For the nine months ended May
31, 1997, the Company had short-term borrowings of $1,569,400. The maximum
short-term borrowings during this period in fiscal 1997 were $1,721,800 and the
average outstanding month-end balance was $263,200. The weighted average
interest rates during the three- and nine-month periods ended May 31, 1997 were
11.2% and 8.5%, respectively. The weighted average interest rate has been
calculated based on the actual daily interest expense and the daily balance
outstanding.
<PAGE>
<TABLE>
<CAPTION>
May 31,
-----------------
1998 1997
---- ----
<S> <C> <C>
Revolving credit facility payable to a commercial bank effective August 22,
1997, interest charged at LIBOR plus 250; facility expires September 1999....... $2,044,100 $ --
Notes payable to a commercial bank payable in equal monthly installments of
$43,650 through December 1997; thereafter, $21,400, plus interest charged at
LIBOR plus 250, secured by leasehold improvements and certain of EA's
analytical laboratory equipment................................................. 172,200 519,000
Note payable to a commercial bank payable in equal monthly installments of
$29,600, plus interest at 9.1% through December 1999, secured by certain
computer equipment................................................................ 496,500 791,900
---------- ----------
Total long-term debt.............................................................. 2,712,800 1,310,900
Less-current portion.............................................................. (495,700) (857,400)
---------- ----------
Long-term portion................................................................. $2,217,100 $ 453,500
========== ==========
</TABLE>
Note 3. EARNINGS (LOSS) PER SHARE:
In accordance with Statement of Financial Accounting Standards (SFAS) No. 128
"Earnings per Share," basic earnings (loss) per share is based on the weighted
average number of shares of common stock outstanding during the period. Diluted
earnings (loss) per share is based on the weighted average number of shares of
common stock and common stock equivalents outstanding during the period. Common
stock equivalents are calculated using the treasury stock method.
Note 4. PROFIT SHARING:
EA maintains a defined contribution retirement plan covering all employees who
are at least 21 years of age and have completed six months 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. The plan includes a 401(k) provision, allowing for Company
matching contributions.
Note 5. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS:
The Company maintains an Amended and Restated Stock Option Plan, which provides
for the grant of nonqualified stock options and incentive stock options to
<PAGE>
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 797,300
options were issued and outstanding as of May 31, 1998 having an average
exercise price of $2.41. There were 122,900 options available for issuance as of
May 31, 1998. Of the outstanding options, 400,000 are held by the President and
CEO. The exercise price of the 400,000 shares ranges between $2.25 and $3.67,
which was equal to the market value on the grant date.
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 129,800 shares remained authorized for
distribution under the Plan as of May 31, 1998.
The Company maintains two Non-Employee Director Stock Option Plans (1993 and
1995) which provide for the grant of nonqualified stock options to its four
non-employee directors. The exercise price of the 17,000 options which were
outstanding as of May 31, 1998 ranged between $2.03 and $6.13, which equaled the
fair market value of the underlying common stock at the dates of grant. A total
of 33,500 shares of common stock options remained available for the grant of
options under the Director Stock Option Plans as of May 31, 1998.
Note 6. Restructuring:
On March 25, 1997, the Company announced a major organizational realignment to
reposition itself in the marketplace. In connection with the restructuring, the
Company incurred charges of $3,000,100 during its fiscal 1997 third quarter
related to severance, planned reductions in office space, the suspension of the
implementation of a new project/financial system, and other related costs.
This restructuring included a staff reduction of approximately 125 employees.
As of May 31, 1998 and August 31, 1997, the Company had accrued expenses of
$168,100 and $880,100, respectively, in the accompanying consolidated balance
sheets for costs to be incurred in future periods related to this restructuring.
Note 7. "Key Employee" Life Insurance:
In April 1998, adjustments were made to the actual cash value of two "key
employee" life insurance policies for Loren D. Jensen, Chairman of the Board, of
which the Company is the named beneficiary. Prior to April 1998, the policies
had a cash surrender value of $515,500, which was included in Other Assets on
the Company's balance sheet. In fiscal 1994, the asset value of the policies was
originally adjusted downward due to bankruptcy proceedings involving the
original insurance company. In April 1998, Phoenix Home Life Mutual Insurance
Co., the successor underwriter of the policies, confirmed that the cash
surrender value of the policies was $776,600. Therefore, Other Assets was
increased by $261,100, and a one-time gain was recognized during the period.
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
Item 2. 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. The Company's results of operations are also affected by significant
competition in the industry, including a very competitive requirement for
successful bidding and solicitation of contracts.
For historical comparisons, net revenue in past periods has been adjusted to
include other direct project costs in addition to subcontract costs. In previous
years, only subcontract costs were deducted from total revenue to arrive at net
revenue. Additionally, operating costs in past years have been adjusted to
include sales and marketing costs in the category of sales, general and
administrative costs. In previous periods, these costs were included in direct
salaries and other operating expenses.
Three Months Ended May 31, 1998
Net revenue for the three months ended May 31, 1998 was $10,466,100, an increase
of 16.9% from $8,952,900 for the same period in fiscal 1997. The increase in net
revenue is due to the recognition of contract losses made in the fiscal 1997
third quarter lowering net revenue by $1,400,000. Without the effect of the
contract losses, net revenue growth was essentially flat across all client
sectors for the three months ended May 31, 1998 compared to the same period in
fiscal 1997. The flat growth is principally attributable to an implemented
management policy requiring greater selectivity in the pursuit of opportunities,
as well as lower than anticipated sales in the industrial client sector.
However, the Company continues to market its services strongly.
Direct salaries and other operating costs decreased to $7,736,100 from
$8,809,700, representing 73.9% and 98.4% of net revenue for the three months
ended May 31, 1998 and 1997, respectively. The decreases were attributable to
increased staff utilization and lower overall operating costs from quarter to
quarter, as well as reduction in staff numbers as a result of the March 1997
restructuring.
Sales, general and administrative costs increased slightly to $2,439,300 from
$2,147,500, representing 23.3% and 24.0% of net revenue for the third quarter
period 1998 and 1997, respectively. The increase in costs were primarily related
to additional investment in sales and marketing capabilities.
<PAGE>
In the third quarter of fiscal 1997, the Company announced a major
organizational realignment to reposition itself in the marketplace. In
connection with the restructuring, the Company incurred charges of $3,000,100
related to severance, planned reduction in office space, the suspension of the
implementation of a new project/financial system, and other related costs.
In the third quarter of fiscal 1998, the Company recorded a gain of $261,100,
reducing its operating expenses. The gain was related to the increase in the
cash surrender value of "key employee" life insurance policies included on the
Company's balance sheet.
As a result of the above factors, income from operations for the three months
ended May 31, 1998 was $551,800, or 5.3% of net revenue compared to the previous
year's loss from operations of $5,004,400, or 55.9% of net revenue for the three
months ended May 31, 1997. Interest expense, net, decreased $50,100 for the
three months ended May 31, 1998, compared to the prior year. This decrease is
primarily attributable to lower interest payments made in connection with the
Company's line of credit as a result of improved cash management, additionally
aided by the reduction of certain long-term debt principal balances.
The provision for income taxes was $212,900 for the three-month period ended May
31, 1998 compared to a benefit from income taxes of $1,624,200 for the
three-month period ended May 31, 1997, representing effective tax rates of 40%
and 32%, respectively.
Net income for the three months ended May 31, 1998 was $312,500, or 3.0% of net
revenue, compared to a net loss of $3,456,700, or 38.6% of net revenue, for the
three months ended May 31, 1997.
Nine Months Ended May 31, 1998
Net revenue for the nine months ended May 31, 1998 was $31,807,300, an increase
of 6.0% from $30,016,900 for the same period in 1997. This increase is due in
part to the provision for estimated losses on certain uncompleted landfill
closure projects made in the prior fiscal period ended May 31, 1997. The loss
provision for these contracts recognized anticipated future project expenses
which lowered fiscal 1997 second quarter net revenue by $1,997,000. Removing the
effects of the fiscal 1997 contract loss, the Company had no significant change
in overall contract volume in the current nine-month period, which had lower net
revenue of approximately $206,600, or a decrease of 0.1%. This slight decrease
is mainly attributable to an implemented management policy requiring greater
selectivity in the pursuit of opportunities, as well as lower than anticipated
sales in the industrial client sector. Additionally, price competition remains
intense within the energy and environmental services industry, further impacting
net revenue levels compared to the prior year's third quarter.
Direct salaries and other operating costs decreased to $23,636,700 from
$29,423,500, representing 74.3% and 98.0% of net revenue for the nine months
ended May 31, 1998 and 1997, respectively. The 19.7% decrease in operating costs
is due to increased staff utilization and lower overall operating costs, as well
as staff reductions in connection with the March 1997 restructuring.
<PAGE>
Sales, general and administrative costs increased to $7,115,800 or 22.4% of net
revenue for the nine-month period ended May 31, 1998 compared to $6,204,100 or
20.7% of net revenue for the same period in 1997. This increase is primarily due
to additional investment in sales and marketing efforts.
In the third quarter of fiscal 1997, the Company announced a major
organizational realignment to reposition itself in the marketplace. In
connection with the restructuring, the Company incurred charges of $3,000,100
related to severance, planned reduction in office space, the suspension of the
implementation of a new project/financial system, and other related costs.
In the third quarter of fiscal 1998, the Company recorded a gain of $261,100,
reducing its operating expenses. The gain was related to the increase in the
cash surrender value of "key employee" life insurance policies on the Company's
balance sheet.
As a result of the above factors, income from operations for the nine months
ended May 31, 1998 was $1,315,900, or 4.1% of net revenue, compared to the
previous year's loss from operations of $8,610,800, or 28.7% of net revenue for
the nine months ended May 31, 1997. Interest expense, net, decreased $183,400
for the nine months ended May 31, 1997, compared to the previous year. This
decrease is primarily attributable to an interest payment in connection with a
Maryland tax settlement in the prior year, aided by lower interest on its line
of credit and the reduction of certain long-term debt principal balances.
The provision for income taxes was $483,300 for the nine months ended May 31,
1998, compared to a benefit from income taxes of $3,155,400 for the same period
in 1997, representing effective tax rates of 40% and 35%, respectively. Net
income for the nine months ended May 31, 1998 was $718,100, or 2.3% of net
revenue, compared to a net loss of $5,753,300, or 19.2% of net revenue, for the
nine months ended May 31, 1997.
Liquidity and Capital Resources
Cash and cash equivalents decreased by $558,500 for the nine months ended May
31, 1998. The decrease principally resulted from the payout of cash related to
the fiscal 1997 restructuring expenses, and payments made to reduce long-term
debt offset partially by collected income tax refunds.
The Company's capital expenditures, consisting primarily of purchases of
equipment and leasehold improvements, were approximately $498,800 and $395,600
for the nine months ended May 31, 1998 and 1997, respectively.
At May 31, 1998, the Company had outstanding long-term debt, including the
current portion, of $2,712,800. This represents a net decrease of $267,200 from
the $2,980,000 balance at August 31, 1997. The decrease is the result of a
$216,400 increase in its revolving line of credit balance, offset by net
repayments of $259,600 for equipment loans and $224,000 for computer equipment.
The Company's existing funds, cash from operations, and the available portion of
its $8,500,000 revolving line and $1,500,000 equipment line of credit
arrangements are expected to be sufficient to meet the Company's present and
<PAGE>
immediately foreseeable cash needs.* The Company also has access to certain
capital equipment financing arrangements through various equipment suppliers.
While the Company believes that there is sufficient market demand to absorb the
additional contracting capacity resulting from its expansion, there can be no
assurance that this demand will, in fact, materialize.* 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.
Year 2000 Issue
The Company has initiated a review of its current computer systems to ensure the
software will function properly in the year 2000. The Company's primary computer
system, BST, its project accounting and financial management system, is year
2000 compliant. The Company does not currently anticipate incurring any material
expenditures in order to make its own systems year 2000 compatible. However, no
assurance can be given that the Company's customers or vendors will be year 2000
compatible, and any failure of such customer or vendor to be year 2000
compatible could potentially have a material adverse effect on the Company.
Forward-Looking Statements
The foregoing contains "forward-looking information" within the meaning of The
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements may be identified by an asterisk ("*") or by such forward-looking
terminology as "may," "will," "believe," "anticipate," "expect," or similar
words or variations thereof. Such forward-looking statements involve significant
risks and uncertainties, including, among other things, risks associated with
(1) substantial reliance on government contracts, public budgetary restrictions
and uncertainties, discrepancies between awarded contract amounts and actual
revenues, and cancellation of contracts at the option of the government, (2)
timing and award of contracts, (3) timing and performance of contracts, and (4)
successful bidding of government and non-government contracts in a very
competitive environment. IN EACH CASE, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
SUCH FORWARD-LOOKING STATEMENTS. Other important factors that the Company
believes may cause actual results to differ materially from such forward-looking
statements are discussed throughout this Report and in the Company's other
filings with the Securities and Exchange Commission. The Company does not
undertake to publicly update or revise its forward-looking statements even if
experience or future changes indicate that any such results or events (expressed
or implied) will not be realized.
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11. Schedule of Weighted Average Shares Outstanding
27. Financial Data Schedule
(b) Reports on Form 8-K
None
<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)
July 10, 1998 By: /s/ Donald A. Deieso
- ----------------- -----------------------------------
(Signature)
Donald A. Deieso
-----------------------------------
President and Chief Executive Officer
-----------------------------------
(Title)
July 10, 1998 By: /s/ Barbara L. Posner
- ----------------- -----------------------------------
(Signature)
Barbara L. Posner
-----------------------------------
Senior Vice President,
Finance and Administration
(Principal Financial Officer)
-----------------------------------
(Title)
EXHIBIT 11
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC.
SCHEDULE OF WEIGHTED AVERAGE SHARES OUTSTANDING
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31, May 31, May 31,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted average shares of common stock... 6,264,900 6,200,300 6,246,600 6,195,200
Impact of dilutive stock options as of
May 31, 1998 and May 31, 1997, respec-
tively (1)............................. 252,400 -- 105,700 --
--------- --------- --------- ---------
Diluted weighted average shares of
common stock........................... 6,517,300 6,200,300 6,352,300 6,195,200
========= ========= ========= =========
(1) Dilutive stock options, which, if added, would have an antidilutive
effect on losses per share were 12,300 for the three months ended May 31,
1997 and 15,900 for the nine months ended May 31, 1997.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> MAY-31-1998
<CASH> 1,774,800
<SECURITIES> 0
<RECEIVABLES> 8,182,100
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,090,100
<PP&E> 16,734,800
<DEPRECIATION> 14,727,300
<TOTAL-ASSETS> 23,940,600
<CURRENT-LIABILITIES> 7,620,200
<BONDS> 0
<COMMON> 62,800
0
0
<OTHER-SE> 14,040,500
<TOTAL-LIABILITY-AND-EQUITY> 23,940,600
<SALES> 31,807,300
<TOTAL-REVENUES> 44,920,300
<CGS> 30,491,400
<TOTAL-COSTS> 13,113,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114,500
<INCOME-PRETAX> 1,201,400
<INCOME-TAX> 483,300
<INCOME-CONTINUING> 718,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 718,100
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.11
</TABLE>
