UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1998 Commission File Number 0-15587
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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, 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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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock
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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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant as of October 30, 1998 was approximately
$5,000,000.
The number of shares outstanding of the Registrant's Common Stock as of October
30, 1998 was 6,386,484.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the 1998 Annual Report to Stockholders are incorporated by
reference in Part II of this Report.
2. Portions of the Proxy Statement for the Annual Meeting of Stockholders
scheduled for January 14, 1999 are incorporated by reference in Part III of
this Report.
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC.
FORM 10-K
TABLE OF CONTENTS
Item Page
PART I
1 Business 1
2 Properties 9
3 Legal Proceedings 9
4 Submission of Matters to a Vote of Security Holders 9
PART II
5 Market for the Registrant's Common Stock and Related
Stockholder Matters 10
6 Selected Financial Data 11
7 Management's Discussion and Analysis of Financial Condition
and Results of Operation 12
7A Quantitative and Qualitative Disclosure About Market Risk 19
8 Financial Statements and Supplementary Data 20
9 Changes in and Disagreement on Accounting and Financial Disclosure 37
PART III
10 Directors and Executive Officers of the Registrant 38
11 Executive Compensation 38
12 Security Ownership of Certain Beneficial Owners and Management 38
13 Certain Relationships and Related Transactions 38
PART IV
14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 39
Signatures 43
Exhibit Index 44
<PAGE>
PART I
ITEM 1. BUSINESS
General
EA Engineering, Science, and Technology, Inc., together with its wholly-owned
subsidiaries ("EA" or the "Company") is an international consulting firm
specializing in the fields of energy, the environment, and health and safety.
Through its network of more than 20 branch and satellite offices and its
analytical and international operations, EA provides scientific, engineering,
economic, analytical, and management solutions to government, industrial and
utility clients. The goal of the Company is to help management in industry and
government improve their performance and achieve their business and
organizational objectives.
EA's organizational structure consists of the parent company, EA Engineering,
Science, and Technology, Inc.; its wholly-owned subsidiaries, EA International,
Inc. and EA Financial, Inc.; and EA Financial's wholly-owned subsidiaries, EA
Global, Inc. and EA de Mexico, S.A. de C.V.
The Company was founded and initially incorporated in Maryland in 1973; after a
name change, the Company was subsequently incorporated in Delaware in 1986. The
Company was initially engaged in environmental assessment and permitting related
to power plant siting and expansion. Since that time, the Company has responded
to market conditions and opportunities by expanding its services and client
base. Today, we provide services in areas ranging from energy conservation and
process safety, to water quality and resources management. EA has organized
itself around two service segments: Management Consulting Services
(approximately 90% of net revenue) provided through a network of offices located
throughout the United States, Mexico and Guam; and Analytical Services, provided
through its 16,500 sq. ft. laboratory division located near Baltimore, Maryland.
Although the Analytical Services segment has been relatively small in terms of
revenue generation, EA has decided to implement the guidance in SFAS 131,
"Disclosure About Segments of an Enterprise and Related Information." As such,
this is the first Form 10-K filing with segmented information.
Historically, the demand for EA's services was driven largely by federal, state
and local environmental enactments and regulations impacting the Company's
clients. A great deal of cleanup activity and progress has been generated as a
result of those laws and regulations; in 1996, the U.S. environmental market
reported revenues of $186 billion. However, as with all regulatory-driven
businesses, the industry and the Company's performance are inextricably linked
to the pace and intensity with which the regulations are written, promulgated,
and enforced. During the past several years the regulatory pace has slowed,
resulting in an increasingly competitive environmental market.
More recently, the demand for the Company's services has been stimulated by new,
more business-oriented factors, including the recognition that it is more
cost-effective to prevent pollution than to remediate it after discharge and the
success of market-based programs such as emissions trading and wetlands banking.
Additionally, many clients now see environmental strategy as a method of
increasing global competitiveness and enhanced profitability. EA believes that
this strategic shift will stimulate opportunity for its business-oriented
consulting services in both the domestic and international markets.
In our role as an advocate and strategic resource to our clients, EA provides
the management perspective and technical skills to anticipate, identify, address
and resolve those energy, environmental, health and safety issues affecting
business performance and profitability.
Management Consulting Services
EA provides management consulting services to clients in the areas of energy,
environment, and health and safety. The Company's primary service areas are
Water Quality and Water Resources Management, Air Quality
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Management and Process Engineering, Ecotoxicology and Bioassessment, Natural
Resource Management, Dredging and Sediment Management, Site Characterization and
Remediation, Solid Waste Management, Health and Safety Reviews, Energy Planning
and Audits, Due Diligence Reviews, Information Management, and Strategic
Planning of Environmental Issues.
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, EA has developed certain remedial and
analytical technologies, planning and management services, and processes for the
mitigation and control of environmental damage and risks. In addition, we assist
clients in responding to issues raised by regulatory agencies and community
groups. All of the service areas are part of the vertically-integrated
capabilities the Company may offer its clients.
The Company's services normally are performed by a team of scientists,
engineers, planners and economists and include a combination of the following:
- - Consultation to determine the nature and scope of potential
environmental, energy, or health and safety problems.
- - Development and implementation of solutions to identified environmental,
energy, or health and safety issues.
- - Economic analyses, database development, strategic and tactical planning
of environmental, energy, and health and safety programs.
- - On-site sampling, monitoring and measurement of discharges and emissions.
- - Evaluation of environmental or human health risks.
- - Preparation of reports for regulatory agencies.
- - Participation and representation of clients in public and regulatory hearings.
- - Engineering certification of design specifications.
- - Implementation of remedial action.
- - Environmental program management and outsourced support.
The Company's contracts are generally undertaken on a time-and-materials,
fixed-price, or cost-plus-fixed-fee basis. Fixed-price contracts and certain
time-and-materials and cost-plus contracts with upset limits require EA 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 consolidated net
revenue derived by contract type in each of the three years in the period ended
August 31, 1998:
<TABLE>
Year Ended August 31,
- ---------------------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Time-and-materials 33% 34% 33%
Fixed-price 48 44 41
Cost-plus-fixed-fee 19 22 26
- ---------------------------------------------------------------------------------------
100% 100% 100%
=======================================================================================
</TABLE>
During fiscal 1998, the majority of the Company's work continued to be from
fixed-price and time-and-materials contracts. The Company considers this to be
an industry trend whereby clients transfer additional risk to the prime
contractor and the Company transfers additional risk to its subcontractors, when
applicable.
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In general, the Company's contracts vary in length from one month to ten years
and require performance of a particular project within the contractually
specified timeframe. Although the Company holds certain federal contracts with
options for longer durations, most of these contracts require annual renewals by
the client. A substantial portion of EA's contracts represent the provision of
separate services required from time to time by ongoing clients.
Analytical Services
EA Laboratories, a division of EA Engineering, Science, and Technology, Inc.
("EA Laboratories"), is located in a 16,500 sq. ft., state-of-the-art facility
in Sparks, Maryland. The division is a multi-disciplinary environmental
laboratory providing a wide variety of chemical, biological, and services to
industrial, utility and government clients. The facility, specifically designed
for laboratory operations, has the capacity to process well over 17,000 analyses
per month. State-of-the-art features include an uninterrupted power supply,
limited-access security, and an air handling system designed to minimize
cross-contamination between work areas. Currently, EA Laboratories maintains
certifications/approval in all 50 states and many of the largest Department of
Defense programs.
The majority of orders processed by EA Laboratories are on a price-per-sample
unit basis. These orders are received from both within the Company and directly
from outside clients. The following table reflects the overall sales generated
by EA Laboratories, as well as the percentage of sales provided to external
clients for the three-year period ended August 31, 1998.
- -----------------------------------------------------------------------------
% of Sales
Year Ended August 31, Total Sales to External Clients
- -----------------------------------------------------------------------------
1998 $6,253,300 56.0%
1997 6,135,700 28.0
1996 8,572,100 35.0
=============================================================================
Clients
EA provides services to industrial, utility, and government clients both
directly and indirectly through work performed for architects/engineers,
engineer/contractors, law firms and financial institutions. The Company's goal
is to assist its clients in achieving their business and growth objectives as
cost-effectively and dependably as possible.
During fiscal 1998, the Company provided services to more than 525 industrial,
utility and government clients through more than 1,600 projects in the private
sector and 500 projects in the federal government sector. Although more
private-sector projects were performed, the portion of net revenue provided by
the federal government was 50%, 46%, and 45% fiscal years 1998, 1997 and 1996,
respectively. The Company believes that a diversified mix of business revenue
derived from each of its client sectors will help ensure its continuing
financial success. To achieve this goal, the Company has established a business
development program focused on specific client sectors. Those sectors are:
federal government, state and local governments, industry (for example, pulp and
paper, oil and gas, chemical), and electric utility. In fiscal year 1998, EA
added more than 150 new clients.
Although a significant portion of net revenue was derived from agencies of the
federal government, the Company's services are performed for many different
department and in many different regions of the country, thereby reducing the
financial risks associated with delays or cancellation of any particular
contract. In management's opinion, the loss of any one of the Company's clients
other than a major government client within its major revenue-generating sectors
would not have a material effect on operations or profitability.
3
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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, 1998:
Year Ended August 31,
- -----------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------
Federal government 50% 46% 45%
Industrial and other private sector 37 42 41
Utilities 6 5 6
State and local government 7 7 8
- -----------------------------------------------------------------------------
100% 100% 100%
=============================================================================
Sales and Marketing
The Company markets its services from its headquarters in Hunt Valley, Maryland
and through its network of branch and satellite offices located in and around
major metropolitan cities across the United States. The Company employs a
variety of business development and marketing techniques, including one-on-one
client meetings and presentations, hosting and participating in industry
seminars, responding to formal requests for proposals, initiating direct-mail
programs, and establishing an ongoing public relations/technical article program
within industry trade journals.
A significant portion of new business arises from prior client engagements.
Clients frequently expand the scope of work to include follow-on complementary
activities and new activities and often refer us to their colleagues at other
locations. Additionally, the Company has an active business development program
to identify new clients that have not yet engaged its services. The Company
often teams with other consulting firms or provides its services as a
subcontractor to larger architect/engineer or engineer/contractor firms. The
Company tracks prospective business through an opportunity pipeline network.
The Company employs a matrix approach involving branch operations, Client Sector
Directors, and National Technical Directors to maximize the effectiveness of its
sales and marketing organization. The Company's market sectors are federal
government, state and local governments, industry, and electric utility. The
Company's product lines are Energy Management and Air Quality, Ecotoxicology and
Bioassessment, Hazardous Waste Management, Information Technology, In-Plant
Services, Management Consulting, Natural Resources Management, Sediment
Management, Solid Waste Management, and Water Quality and Water Resources
Management.
Backlog
At August 31, 1998, the Company's total contract backlog was approximately $43.4
million compared to contract backlog of $48.4 million at August 31, 1997. The
decrease in total contract backlog is largely attributable to the absence of new
construction awards, a business line the Company no longer pursues, which have a
high percentage of subcontracts and other pass-through costs. Because
subcontractor and other direct project costs can change significantly from
project to project, the change in total contract backlog is not necessarily a
true indication of business trends. Accordingly, the Company considers net
backlog (total less estimated subcontractor and other project costs) as its
primary measure of backlog. The Company's net contract backlog was approximately
$22.2 million at the end of fiscal 1998, compared to approximately $22.6 million
at the end of fiscal 1997. The Company expects that approximately 80% of the
contract backlog will be completed in fiscal 1999. The Company's total contract
backlog attributable to federal government contracts as of August 31, 1998 was
$28 million ($13.5 million, net), compared to $34 million ($14 million, net) a
year earlier.
4
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In addition to this contract backlog, at August 31, 1998, the Company held
indefinite delivery/indefinite quantity (ID/IQ) type contracts from various
clients, principally government agencies for up to $217 million compared to $246
million at August 31, 1997. Ending in fiscal 1999 are three ID/IQ contracts
which have a remaining value of $133 million as of August 31, 1998. Over the
past five-year period, these expiring ID/IQ contracts averaged approximately $18
million in new awards annually.
There can be no assurance, however, that work under any of these contracts will
be authorized or that work once authorized will not be canceled. 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.
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.
As the amount of work available from federal agencies declines and becomes more
competitive as indicated by our smaller backlog from previous years, the Company
is shifting its marketing efforts to the industrial, utility, and state and
local levels. Particular attention is being given to expanding the overall
management consulting practice in the energy and environmental areas with
emphasis also on health and safety issues.
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 revenue.
Employees
As of August 31, 1998, the Company had approximately 400 full-time employees, of
which approximately 50 are in the Analytical Services segment, compared to
approximately 560 full-time employees at August 31, 1997. The decrease in
employees was a result of staff reductions in overhead positions and a shift in
technical needs. In an effort to control costs, many full-time positions were
filled with part-time employees. Most of the Company's employees are engaged in
performing scientific, engineering, remediation and consulting services; the
remainder provide executive, administrative and other support services. The
Company also hires part-time or temporary personnel to meet the requirements of
a particular contract. EA's staff includes professional engineers, biologists,
chemists, geologists, industrial hygienists, public health scientists,
regulatory specialists, toxicologists, industrial planners, computer scientists,
and business managers.
The Company has invested in training and mentoring programs to promote a
"continuing learning" process within the firm. In 1998, the Company instituted
several programs including project manager training, sales management seminars
and technical development programs, and has established a professional career
ladder development program. Additionally, the Company offers a tuition
reimbursement program for all employees of the firm.
None of the Company's employees is represented by a union. The Company considers
its relationship with employees to be good.
5
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Competition
Nationwide, the environmental industry employs more than one million people,
working at over 100,000 firms and generating revenues in excess of $186 billion.
The environmental engineering and consulting market is becoming highly
competitive and requires skilled and experienced professional, technical, and
management personnel. Today, the domestic market for environmental services can
be characterized as flat in revenue and income. Over the past several years, in
an effort to reduce costs and increase volume, the environmental industry
experienced an increase in merger and acquisition activity, resulting in several
mega-environmental firms with revenues greater than $500 million. In fact, in
1995 these "large" firms captured 20% of market; in 1997 that market share grew
to 41%.
Typical projects, especially those in excess of $100,000, are bid on by numerous
firms. The principal competitive factors are client relationships, pricing,
reputation, quality of services, expertise, and local presence. Increasingly,
multiple firms are deemed "technically qualified," leaving price and established
relationships to determine the winning bid.
EA 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 market sector, EA competes with engineering and
consulting firms which are both larger and smaller than the Company, although
management believes no one firm currently dominates a significant portion of any
of the service areas.
Licensing and Certification
The Company's laboratory has been approved/validated to perform analyses for the
Naval Facilities Engineering Services Center (NFESC), the Air Force Center for
Environmental Excellence (AFCEE), the U.S. Army Corps of Engineers (Missouri
River Division), and the American Association for Laboratory Accreditation
(A2LA). 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 41 different states including, among others,
Maryland, New Jersey, New York and California, and maintains certain local
permits and licenses. Additionally, the laboratory has been authorized to do
work by the District of Columbia, Puerto Rico, and nine 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 these programs, the laboratory must be periodically audited by
appropriate 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 vary by agency and state. Generally the criteria include:
- Application for certification/permit
- Request and initial review for compliance with comprehensive rules
and regulations
- Periodic verification of compliance through proficiency samples
- Periodic onsite audits
- 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 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 interruption. 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.
6
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Regulatory Matters
Environmental laws and regulations have been enacted by federal, state and local
governments in response to public pressure and scientific evidence identifying
adverse effects of public and business activity on the environment and human
health and safety. Historically, compliance with these laws and regulations was
the primary driver in creating demand for the Company's services and continues
to be a prime source of demand for EA's services. Among the dozens of federal
environmental statutes and regulations under which EA provides services are the
following, broad-based statutes:
The Safe Drinking Water Act (SDWA) of 1974, reauthorized in 1996. In addition to
its primary mission of protecting the nation's drinking water supplies through
the regulation of public water systems, the reauthorized Act expands watershed
protection, emphasizes the control of non-point sources of contamination, and
introduces a revolving funding program of nearly $9.6 billion through the year
2006. The reauthorized SDWA will have a strong impact on the Company's state and
local government clients, who are responsible for ensuring the quality and
quantity of their drinking water supplies.
The Federal Water Pollution Control Act of 1972 (known as the Clean Water Act or
CWA) established a framework for controlling the discharge of pollutants to the
environment from public and private facilities. The Act centers on the National
Permit Discharge Elimination System (NPDES), which establishes controls over
discharges from regulated facilities, and includes provisions to control
stormwater, industrial runoff, and nonpoint sources of pollution. In addition,
the CWA establishes standards to manage ecological habitats, coastal regions,
watersheds and wetlands.
The Resource Conservation and Recovery Act of 1976 (RCRA) establishes
"cradle-to-grave" regulations affecting the generation, management and disposal
of hazardous waste. In addition, the Act regulates non-hazardous solid waste
generated by households, commercial and public facilities, and industrial
sources. Specific RCRA provisions focus on land disposal of hazardous waste,
underground and above-ground storage tanks, site remediation and groundwater
decontamination.
The Clean Air Act (CAA) Amendments of 1990, which was reauthorized in 1990,
established a series of programs to control airborne emissions from mobile and
stationary sources. The Act confirmed the goal of attaining National Ambient Air
Quality Standards (NAAQS) air quality levels throughout the U.S., requiring
"nonattainment" areas to establish compliance programs. The amendments target
nonattainment problems with a broad array on requirements, including additional
controls on industrial facilities, tighter emissions standards from motor
vehicles, and the use of alternative clean fuels.
The CAA Amendments of 1990 also established requirements for the EPA to adopt
Risk Management Program (RMP) requirements, affecting an estimated 64,000
facilities nationwide, handling toxic, flammable, and /or reactive chemicals.
These regulations were adopted in June, 1996 and become effective June, 1999.
The regulations address programs and procedures designed to prevent or minimize
the consequences of accidental releases of hazardous materials that could affect
the public or environment. Affected facilities will be required to develop RMP
programs and to share the results of that RMP, including their worst-case
scenario data, via the Internet.
The Comprehensive Environmental Response, Compensation and Liability Act of 1980
(CERCLA, or Superfund) and its subsequent reauthorizations seeks to address the
current consequences of past hazardous waste management practices. Any
organization that owns or owned a site on which hazardous materials are present,
or that operates or operated a facility generating or containing hazardous
materials, may be liable under CERCLA for cleanup responsibility.
The Brownfields Initiative was introduced by the Clinton Administration to
resolve the cleanup and liability issues associated with contaminated, often
abandoned, industrial and commercial facilities known as "brownfields." The
Initiative sought to encourage economic development and property reuse of
brownfields, which typically are located
7
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in urban areas, by resolving cleanup and liability issues to owners, operators
and prospective developers of such sites. Most states and many local governments
now have voluntary or mandatory brownfields programs in place.
The Intermodal Surface Transportation Efficiency Act (ISTEA) of 1991,
established funding for mass transportation and public transit programs;
introduced the Congestion Mitigation and Air Quality (CMAQ) program to provide
funding for non-attainment areas under the CAA to meet attainment deadlines; and
included funding for alternative-fuel transit buses. In 1998, ISTEA was
reauthorized as the Transportation Equity Act for the 21st Century (TEA-21).
TEA-21 earmarks $218 billion for highway and transit projects over the next six
year period, streamlining the environmental review process, promoting the use of
market-based incentives, and giving states the flexibility to use funds for
transportation projects that include reuse of brownfield sites.
The National Energy Policy Act (EPAct) of 1992 established the use of
energy-efficient technologies as a national priority for improvement of air
quality and set a goal of 30% displacement of petroleum fuels with alternative
fuels in vehicles by the year 2010. To that end, EPAct set a schedule by which
industrial sectors beginning with the federal government would be required to
purchase alternative-fueled vehicles.
In addition to the historic EA markets represented by these federal regulations,
two key factors have emerged to expand the Company's market opportunities. The
first factor centers on international environmental standards and regulations
including the International Standard Organization (ISO) 14000 series of
certifications, which commits participants to an approach of continuous
environmental improvement and exacting environmental performance standards, and
the Kyoto Accord, which the United States signed in December, 1997, thereby
committing to a reduction of greenhouse gas emissions to 1990. The second factor
stems from a strategic shift in approach by US environmental regulators
including the US Environmental Protection Agency. Illustrated by EPA's
"Common-Sense Initiative" and the Vice President's "Reinvention of Government,"
this new approach emphasizes market-based incentives, industry-specific
regulation, pollution prevention and voluntary responses by the regulated
community. The interest of a growing number of companies to move beyond
compliance to a higher, self-imposed standard of "sustainability" or
"environmental stewardship" introduces substantial new markets for EA's
management consulting services.
Insurance
The Company maintains a full range of insurance coverage including professional
liability insurance and pollution liability coverage. 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 their stated amounts.
EA has endeavored to protect itself through contractual indemnification from
clients when possible and by intensifying its existing quality control and
assurance, internal risk management, 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 substance situations. This is
accomplished through a company-wide occupational safety and health monitoring
program managed by corporate health and safety professionals.
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
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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.
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 and Baltimore regional office are located in
approximately 76,100 square feet of leased space, of which approximately 4,200
square feet is being sublet. The Company's central laboratory is located in
approximately 16,500 square feet. Leases for these facilities are with
partnerships whose members include the Chairman of the Board of EA and certain
members of his family.
The Company's primary branch and satellite offices in the United States are
located in:
Baltimore, Maryland Boston, Massachusetts Williamsburg, Virginia
Washington, DC San Francisco, California Dallas, Texas
New Castle, Delaware Sacramento, California Anchorage, Alaska
Newburgh, New York Seattle, Washington Fairbanks, Alaska
Syracuse, New York Chicago, Illinois Honolulu, Hawaii
Berkeley Heights, New Jersey Lincoln, Nebraska Miami, Florida
In addition, the Company has established office locations in Pensacola, Florida;
Mexico City, Mexico; and Yigo, Guam.
The Company leases the office, laboratory, and storage facilities for each
regional office. Presently, the facilities are suitable, adequate, and generally
utilized to capacity.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a party.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of the Company, the disposition of
these matters will not have a material adverse effect on the financial position,
results of operations or liquidity of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter ended August 31, 1998.
9
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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
("NASDAQ"). Such over-the-counter market quotations, however, reflect
inter-dealer prices, without retail markup, markdown or commission and may not
necessarily represent actual transactions.
High Low
Fiscal 1997: First Quarter $2.59 $1.50
Second Quarter 2.75 1.75
Third Quarter 2.25 1.63
Fourth Quarter 2.22 1.75
Fiscal 1998: First Quarter $2.44 $1.88
Second Quarter 2.50 1.75
Third Quarter 4.00 2.25
Fourth Quarter 3.25 1.56
On October 30, 1998, the closing price of the common stock as reported by NASDAQ
was $1.375 per share. On that date, there were approximately 1,001 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.
10
<PAGE>
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 and reflect 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>
Year Ended August 31,
- ----------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
Operations data:
<S> <C> <C> <C> <C> <C>
Total revenue $59,987 $73,891 $88,308 $92,365 $76,873
Net revenue(1) 41,697 41,020 54,064 60,238 52,542
Income (loss) from operations 1,110 (8,022) (444) 4,141 3,305
Net income (loss) 605 (5,408) (580) 2,227 1,823
Basic earnings (loss) per share(2) $0.10 $(0.87) $(0.09) $0.37 $0.32
Diluted earnings (loss) per share(2) $0.10 $(0.87) $(0.09) $0.36 $0.30
Weighted average shares outstanding(2) 6,255 6,206 6,138 5,998 5,727
Diluted weighted average shares outstanding(2) 6,347 6,206 6,138 6,174 6,077
Balance sheet data:
Working capital $ 9,932 $10,182 $15,955 $17,663 $14,317
Total assets 23,475 26,642 33,329 36,368 31,575
Short-term borrowings -- -- -- -- --
Long-term debt, net of current portion 1,280 2,332 2,665 4,033 4,798
Stockholders' equity $14,009 $13,257 $18,558 $18,880 $15,177
</TABLE>
(1) Net revenue represents total revenue less subcontractor and other
non-labor project costs.
(2) Results for the year ended August 31, 1998 have been restated to reflect
the two 3-for-2 stock splits, each effected in the form of a 50% stock
dividend, distributed on February 23, 1994 and July 5, 1994.
11
<PAGE>
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 consolidated statement of operations to net revenue for the years indicated.
For historical comparisons, operating costs in past years have been adjusted to
include sales and marketing related costs in sales, general, and administrative
costs. In previous years, these costs were included in direct salaries and other
operating expenses.
Year Ended August 31,
-----------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Net revenue 100.0% 100.0% 100.0%
- --------------------------------------------------------------------------------
Operating expenses:
Direct salaries and other operating expenses 75.4 91.6 86.1
Sales, general and administrative 22.5 20.7 14.7
Gain on "key employee" life insurance (0.6) -- --
Restructuring charges -- 7.3 --
- --------------------------------------------------------------------------------
Total operating expenses 97.3 119.6 100.8
- --------------------------------------------------------------------------------
Income (loss) from operations 2.7 (19.6) (0.8)
Interest expense, net (0.3) (0.9) (0.7)
- --------------------------------------------------------------------------------
Income (loss) before income taxes 2.4 (20.4) (1.5)
(Benefit from) provision for income taxes 0.9 (7.2) (0.4)
- --------------------------------------------------------------------------------
Net income (loss) 1.5% (13.2)% (1.1)%
================================================================================
Fiscal 1998 Compared to Fiscal 1997
Net revenue during fiscal 1998 increased 1.6% to $41,696,900 from $41,020,200.
This $676,700 increase is due in part to the recognition of contract losses
related to certain landfill contracts in fiscal 1997. The loss provision for
these contracts, a business line the Company no longer pursues, recognized
anticipated future project expenses which lowered fiscal 1997 net revenue by
$1,400,000. Adjusting for this loss recognition, net revenue in fiscal 1998
12
<PAGE>
decreased by 1.71%. The overall decrease in net revenue is due to lower than
anticipated sales in the industrial sector. Although sales and marketing efforts
have targeted this market and won approximately 150 new clients, larger-volume
projects have not been achieved as of the end of the fiscal 1998 period. Lower
industrial sector sales were offset by improved net sales in the federal, state
and local government, and utility sectors.
Direct salaries and other operating costs decreased 16.2% to $31,473,800 in 1998
from $37,560,300 in 1997, or 75.4% and 91.6% of net revenue, respectively. The
decreases were attributable to increased staff utilization and lower overall
non-labor operating costs. The Company maintained a utilization rate (time
charged to clients) of more than 95% for its technical staff and an overall
Company rate of 74%. Significant savings were also achieved by lowering
equipment and property lease costs by $1,900,000 in fiscal 1998 compared to
fiscal 1997. These savings were achieved by subletting unused facilities,
renegotiating existing leases, and changing to a different supplier for
computer-related items.
Sales, general and administrative costs increased 10.5% to $9,374,400 in 1998
from $8,481,900 in 1997, or 22.5% and 20.7% of net revenue, respectively. The
increase in cost was primarily related to additional investment in sales and
marketing expenses in fiscal 1998 compared to the prior year.
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.
In the third quarter of fiscal 1997, the Company implemented 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. This
restructuring included a staff reduction of 125 employees. During fiscal 1998,
the Company incurred $803,500 in operating related costs that were associated
with the FY97 restructuring and charged against the reserve instead of income.
As a result of the above factors, the income from operations in fiscal 1998 was
$1,109,800, compared to a loss from operations of $8,022,100 in the prior year.
Interest expense, net, decreased to $145,800 from the prior year's total of
$354,800. This 58.9% decrease is attributed to lower interest paid in connection
with the Company's line of credit, reduction of certain long-term debt principal
balances, and the absence of an interest payment in connection with a Maryland
tax settlement in fiscal 1997.
The net income for the twelve months ended August 31, 1998, was $604,800, or
1.5% of net revenue, compared to a net loss of $5,407,600, or 13.2% of net
revenue for the prior year.
Fiscal 1997 Compared to Fiscal 1996
Net revenue during fiscal 1997 decreased 24.1% to $41,020,200 from $54,064,500.
The decrease was attributable to lower contract volume associated with the
Department of Defense, industrial, and federal non-DOD agency activities. Also,
realized losses related to certain landfill projects amounting to approximately
$1,400,000 of costs in excess of contract values were recognized in fiscal 1997,
further reducing net revenue. Additionally, price competition remained intense
within the environmental services industry, further suppressing net revenue
levels compared to the prior year.
Due to the aforementioned restructuring, direct salaries and other operating
costs decreased 19.3% to $37,560,300 from $46,535,500. As a percentage of net
revenue, however, direct salaries and other operating costs increased to 91.6%
from 86.1% a year earlier. This increase was primarily attributable to lower
staff utilization, especially in the second quarter, related to a reduction in
available work, which produced an increase in operating costs relative to net
revenue. In March 1997, the Company implemented a major organizational
realignment to reposition itself in the marketplace. In connection with the
restructuring, the Company incurred charges of $3,000,100 during the third
quarter related to severance, planned reduction 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.
13
<PAGE>
Sales, general and administrative costs increased 6.4% to $8,481,900 in 1997
from $7,972,600 in 1996, or 20.7% and 14.7% of net revenue, respectively. The
increase was due primarily to bonus amounts paid to management as a result of
the Company's exceeding its profit targets for the final five months of the
year. No bonuses were paid in fiscal 1996.
As a result of the above factors, the loss from operations in fiscal 1997 was
$8,022,100 compared to a loss from operations of $443,600 in the prior year.
Interest expense, net, decreased slightly to $354,800 from $357,500. A net
decrease in interest expense from lower-than-average borrowings was offset by
higher rates and an interest payment made in connection with a state income tax
settlement.
The benefit from income taxes was $2,969,300 for the year ended August 31, 1997,
compared to a benefit from income taxes of $221,000 for the year ended 1996,
representing effective rates of 35% and 28%, respectively. The difference in
effective tax rates between years is largely attributable to increases in
certain permanent differences between financial and income tax reporting, and to
the non-recognition of the future benefits attributable to a foreign loss for
the fiscal year ended 1996. It is the opinion of management that these recorded
benefits are more likely than not to be realized.
The net loss for the twelve months ended August 31, 1997, was $5,407,600, or
13.2% of net revenue, compared to net loss of $580,100, or 1.1% of net revenue
for the prior year.
Analysis by Segment
The following table provides selected financial information by segment:
<TABLE>
Year Ended August 31,
----------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------
Gross sales
<S> <C> <C> <C>
Management Consulting Services (external) $56,483,800 $72,559,500 $86,390,100
Management Consulting Services (internal) (2,869,900) (4,370,500) (5,456,900)
------------- ------------- -------------
Total Management Consulting Services (gross) 53,613,900 68,189,000 80,933,200
Analytical Services (external) 3,503,400 1,331,400 1,917,700
Analytical Services (internal) 2,869,900 4,370,500 5,456,900
----------- ----------- -----------
Total Analytical Services (gross) 6,373,300 5,701,900 7,374,600
======================================================================================================
Net sales to unaffiliated customers
Management Consulting Services 36,696,400 37,442,900 48,495,100
Analytical Services 5,000,500 3,577,300 5,569,400
======================================================================================================
Income (loss) from operations
Management Consulting Services 1,189,500 (6,862,500) 38,300
Analytical Services (79,700) (1,159,600) (481,900)
======================================================================================================
Identifiable assets (net property and equipment)
Management Consulting Services 1,132,700 1,534,000 1,999,900
Analytical Services 648,400 862,800 1,125,000
======================================================================================================
</TABLE>
Note: Sales are considered external when a segment directly enters into a
contract with a client. Internal sales are generated by the use of the
Company's Analytical Services required by the external clients of
Management Consulting Services. Internal sales are duplicated within
each segment and are eliminated through intercompany adjustments.
14
<PAGE>
1998 Results
Net sales for Management Consulting Services decreased 2% in the fiscal period
ended August 31, 1998 to $36,696,400 from $37,442,900 in fiscal 1997. This
decrease is due to the lower-than-anticipated sales in the industrial sector.
Net sales in Analytical Services increased 39.8% in fiscal 1998 to $5,000,500
from $3,577,300 in fiscal 1997. This increase is mainly attributable to a new
contract with an industrial client.
The Management Consulting Services segment contributed $1,189,500, or 3.2% of
net revenue, to income from operations in fiscal year 1998, compared to a loss
from operations of $6,862,500, or 18.3% of net revenue, in the prior year. This
improvement is due to a 20% year-to-year reduction in segment costs and
operating expenses. Cost and operating cost savings were due to increased staff
utilization, fiscal year 1997 restructuring efforts, and savings in equipment
and property leases.
The Analytical Services segment had a loss from operations of $79,700 or 1.6% of
net revenue for the fiscal period ended August 31, 1998 compared to a loss from
operations of $1,159,600, or 32.4% of net revenue, the prior fiscal year. The
improvement in earnings is mainly attributable to the $1,423,200 increase in net
revenue in fiscal year 1998, offset by a slight increase to the segment's costs
and operating expenses. Because the Analytical Services segment has a high
percentage of overall fixed indirect expenses (approximately 40% of indirect
operating costs), changes in net revenue significantly impact its contribution
to operating income.
1997 Results
Net sales for Management Consulting Services fell to $37,442,900 for the fiscal
period ended August 31, 1997, compared to $48,495,100 for the period ended
August 31, 1996. This decrease was attributable to lower contract volume with
the federal government and realized losses related to certain landfill projects
amounting to approximately $1,400,000 in costs in excess of contract volume.
Additionally, price competition remained intense within this segment, further
suppressing sales. Net sales for Analytical Services also fell to $3,577,300 in
fiscal 1997, compared to $5,569,400 in fiscal 1996. The decrease in sales was
mainly attributable to the $1,086,400 decrease in intercompany sales provided by
the clients of Management Consulting Services.
Management Consulting Services had a loss from operations of $6,862,500, or 19%
of net revenue, in fiscal 1997, compared to a $38,300 income from operations in
fiscal 1996. The decrease in income from operations was due to lower sales in
fiscal 1997 and $3,000,100 in restructuring charges taken in fiscal 1997.
Analytical Services had a loss from operations of $1,159,600, or 32.4% of net
sales, in fiscal 1997, compared to a loss from operations of $481,900, or 8.7%,
in fiscal 1996. The increased loss from operations was due to lower sales.
Inflation
Because of its ability to generally 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 $550,700 in 1998, compared to an
increase of $1,024,700 in 1997 and a decrease of $2,505,300 in 1996. The
decrease in 1998 principally resulted from the payout of cash related to the
fiscal 1997 restructuring expenses and reduced borrowings from the Company's
revolving line of credit, aided by the collection of income tax refunds.
The Company's capital expenditures (consisting primarily of purchases of
equipment and leasehold improvements) of approximately $546,500, $699,000, and
$1,008,500 in 1998, 1997, and 1996, respectively, have been funded primarily
from cash flows.
Near the end of fiscal 1997, the Company entered into a new bank credit
arrangement with a regional bank consisting of: (i) an $8,500,000 revolving line
of credit secured by receivables; (ii) a $500,000 term loan; and (iii) an
equipment
15
<PAGE>
line of credit of $1,500,000. Of the $8,500,000 revolving line of credit,
$2,500,000 is available for acquisitions, joint ventures and licensing
agreements. Borrowings from the revolving line of credit are limited to certain
percentages of accounts receivable and costs and estimated earnings in excess of
billings (up to a maximum of $4,000,000). The interest on all borrowings was
LIBOR +250, through March 1998. However, the interest was reduced to LIBOR +200
in May 1998 due to the Company achieving certain financial ratios, which the
Company expects to be reduced to LIBOR +150 in the first quarter of fiscal 1999.
At August 31, 1998, the Company had outstanding long-term debt, including the
current portion, of $1,718,600, which represented a decrease of $1,261,400 from
the August 31, 1997 balance of $2,980,000. The Company had no short-term
borrowings under its line of credit at August 31, 1998 and 1997.
The Company's existing funds, cash from operations, and the available portion of
its $8,500,000 bank line of credit and $1,500,000 equipment line are expected to
be sufficient to meet the Company's present cash needs. The Company also
currently believes it has the ability to raise capital through placement of debt
and may pursue such options if the need arises to expand facilities, make
acquisitions 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 for current operating
levels, 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.
-------------------------------------------------------
Year 2000 Readiness Disclosures
EA Engineering, Science, and Technology, Inc. ("EA" or the "Company") recognizes
the seriousness of the challenge businesses worldwide face as a result of the
Year 2000 problem. EA formally began to address its own Year 2000 status in
early 1998. The Company believes the measures it has already taken, together
with those planned for 1999, will minimize any impact the Year 2000 problem may
have on EA's ability to deliver services to its clients, financial performance
or results of operations.
Definitions
During fiscal 1998, EA developed a three-phase program for Year 2000 compliance.
Phase I identified those systems, hardware and software that posed a compliance
risk for EA. Phase II assessed the business and financial impact of these
at-risk systems; established priorities to address these risk areas; and
prescribed remediation schedules and details. Phase III is the final testing of
the major systems to ensure compliance.
Assessment
EA's information technology infrastructure can be broadly categorized into the
following major systems: networking and communication systems, desktop
computing, major application systems, EA Laboratory, non-information technology
(non-IT) and other miscellaneous systems.
The Company's Phase I assessment identified several critical elements of EA's
networking and communications infrastructure that are potentially vulnerable to
Year 2000 issues. These elements include various types of computer servers and
network routers. Additionally, various software components require new revision
to ensure compliance. Numerous databases and database access programs are
currently believed to be non-compliant.
EA's desktop computing environment is comprised predominantly of Compaq desktop
computer systems, IBM notebooks, the Microsoft Windows 95 operating system and
numerous versions and variations of commercially available software. The
majority of the desktop computer systems, notebooks and operating system
software with applicable Y2K patches, is currently believed to be Year 2000
compliant. EA leases all of its computer hardware
16
<PAGE>
and consequently replaces all equipment on a three-year schedule. This rotation
minimizes any Year 2000 problems in this area. Desktop application software
varies greatly in its ability to accurately process Year 2000 information.
It is currently believed that the Company's major applications, including its
financial management, human resources, and laboratory (LIMS) systems are not
Year 2000 compliant. However, a full assessment was not completed on these
systems because they are scheduled for replacement in the upcoming fiscal
period. These systems are being replaced to improve their performance and
functionality. Replacement of these systems was not accelerated due to the Year
2000 issue.
EA's laboratory is comprised of many different models of Hewlett-Packard
laboratory equipment. The hardware is currently believed to be compliant. The
system level software used on this equipment is still under review.
The non-IT and miscellaneous category includes items such as phone switches,
voice mail systems, environmental controls systems, and the like. The phone
switches are believed to be Year 2000 compliant. The voice mail system and other
remaining systems are currently under review.
Remediation / Replacement
Networking and Communications Systems - In early calendar 1998, EA restructured
its network topology. The Company currently believes that this redefinition will
significantly upgrade EA's overall communications capabilities, improve
reliability and performance, and believes it will be Year 2000 compliant. This
upgrade will be accomplished through the replacement of all critical system
components that have potential Year 2000 problems. Two of four critical field
systems have already been replaced. The remaining two will be completed by the
spring of 1999. The upgrading of the EA corporate headquarters' systems is
underway and will be completed during the first quarter of calendar 1999. EA
selected MCI Worldcom as its communications services provider. MCI Worldcom has
advised EA that it is fully Year 2000 compliant.
Coincident with the hardware upgrades, EA is upgrading its database capabilities
to be Year 2000 compliant. The database capabilities are presently expected to
be in place during the first quarter of calendar 1999. EA has retained a
consultant to convert all applicable databases to compliant software. These
database conversions will continue through the first three quarters of calendar
1999.
Desktop Computing - To address EA's desktop software computing environment, EA
standardized on the Microsoft Office Suite of application products in the second
quarter of fiscal 1998. The MS Office product is not fully compliant. Any
remaining non-compliant applications are being addressed on a project-by-project
basis. We anticipate this process to be completed in the third quarter of
calendar 1999.
Major Applications - EA plans to replace its financial management, human
resources and laboratory systems in 1998/99. The Company has selected financial
and laboratory packages that are fully Year 2000 compliant. The process to
replace these systems will begin in December of 1998. We anticipate these
systems to be fully operational by the end of the third calendar quarter of
1999. The Company is completing its review of fully compliant human resources
systems. Once selected, the implementation will begin in January 1999 and is
expected to be completed in April 1999.
EA Laboratories - As part of the EA Laboratories' maintenance agreement with
Hewlett-Packard (HP), the manufacturer will be completing an independent review
of the labs' hardware and software systems during November 1998. This review
will be at no cost to EA Laboratories. We have already determined the laboratory
hardware is compliant. HP's review will confirm this assessment and provide
additional insight into the status of the software required to operate this
equipment. Any deficiencies with this software will be addressed early in 1999.
17
<PAGE>
Non-IT and Miscellaneous Systems - Phone switches in the branch offices are
currently under review. The manufacturer of our voice mail systems is currently
providing input regarding the status of the systems. Should Year 2000 upgrades
be required for these systems, they will be performed during the first half of
1999. We will begin a formal review of our environmental control and facility
systems early in 1999. Issues with these systems will be addressed as they are
identified.
Testing
EA has tested and will continue to test, the Year 2000 worthiness of each
upgraded system, as it is installed. In each case, e.g., desktop systems,
networks, major systems, etc., this compliance testing is comprised of three
independent assessments: first, review of the product manufacturer's Year 2000
compliance testing certifications and results--no product is selected unless it
has been identified by the manufacturer to have passed a comprehensive battery
of Year 2000 tests; second, testing of these products prior to installation;
third, outside consultants or subcontractors will conduct independent
assessments of all of these products.
Risks and Contingency Plans
Based on the progress the Company has made toward Year 2000 compliance during
1998, together with its plans for 1999, the Company does not foresee significant
risks associated with these efforts at this time. Since EA has adopted a plan to
address these issues in a timely manner, it has not developed a comprehensive
contingency plan should these issues fail to be completed successfully or in
their entirety. However, as we monitor our progress during 1999, if the Company
identifies significant risks or is unable to meet its anticipated timeline, the
Company will develop contingency plans as deemed necessary at that time.
Third-Party Vendors, Utilities and Customers
The fact that EA provides environmental consulting services, which are primarily
labor-based, substantially minimizes the risks associated with potential Year
2000 problems with its internal systems and suppliers. The Company maintains a
broad base of vendors and suppliers and believes there is little risk to its
ongoing operations from Year 2000 problems encountered by its outside vendors.
EA will be contacting each of its major vendors and utilities early in calendar
1999 to inquire into each system's Year 2000 compliance. The Company cannot
fully assess the degree to which its customers, particularly the U.S.
Government, will successfully complete a Year 2000 upgrade on a timely basis.
Because a significant portion of the Company's business is from contracts with
various federal government agencies, a failure by the U.S. Government to achieve
Year 2000 compliance could have a significant adverse effect on the Company's
future business, financial operations and results of operations.
Reasonably Likely "Worst-Case" Scenarios
EA has gone to significant lengths to provide redundancy in each major system.
For example, four independent communication paths have been defined between EA's
branch offices and its headquarters location. Any of these paths will provide
data access to the systems required to continue normal business operations. A
failure in any single major system will not result in the cessation of normal
work processes. When fully implemented during the final quarter of 1999, the
failure of any single system will pose only a minimal risk.
The greatest "reasonably likely, worst-case scenario" to EA will be from the
outside, primarily customers and subcontractors. If our customers or
subcontractors fail to prepare adequately for Year 2000, there could be numerous
and significant effects on EA. For example, subcontractors may not be able to
obtain or deliver needed data; EA employees might be unable to perform work,
resulting in a loss of revenue; payments may fail to arrive on time. Any or all
of these contingencies could, under certain circumstances, result in a
substantial and material impact on EA's financial performance.
18
<PAGE>
Costs to Address Year 2000 Issues
In summary, the Company does not believe that Y2K costs will have a material
impact to its operating income. Because the Company leases all of its hardware,
remediation of these items will be completed by replacing them, with the
associated lease expense included in the Company's normal operating costs. The
cost of remediation of database software, miscellaneous desktop software
upgrades, and non-IT systems is expected to be less than $30,000. However, it is
possible that non-compliant Hewlett-Packard software in EA Laboratories may have
a material impact, although the exact amount is not known at this time. The
replacement of major applications was previously planned to improve performance
and functionality requirements. These replacements were not accelerated due to
Year 2000 issues; as such the costs of these systems are part of the Company's
capital budget.
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.
-------------------
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
None
19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements and Supplementary Financial Data
Page
Report of Independent Public Accountants 21
Consolidated Financial Statements:
Consolidated Balance Sheets as of August 31, 1998 and 1997 22
Consolidated Statements of Operations for the years ended
August 31, 1998, 1997, and 1996 24
Consolidated Statements of Changes in Stockholders' Equity for
the years ended August 31, 1998, 1997, and 1996 25
Consolidated Statements of Cash Flows for the years ended
August 31, 1998, 1997, and 1996 26
Notes to Consolidated Financial Statements for the years ended
August 31, 1998, 1997, and 1996 27
20
<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, 1998 and 1997, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for each of the three years in
the period ended August 31, 1998. 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, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended August 31, 1998, in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
Baltimore, Maryland
October 30, 1998
21
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
August 31,
---------------------------
1998 1997
- -------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 1,782,600 $ 2,333,300
Accounts receivable, net 8,441,900 9,498,800
Costs and estimated earnings in excess
of billings on uncompleted contracts 6,394,900 5,653,800
Refundable income taxes 407,600 1,883,900
Prepaid expenses and other 1,090,600 1,865,500
- -------------------------------------------------------------------------------
Total Current Assets 18,117,600 21,235,300
- -------------------------------------------------------------------------------
Property and Equipment, at cost:
Furniture, fixtures, and equipment 13,106,900 12,599,200
Leasehold improvements 3,675,600 3,664,800
- -------------------------------------------------------------------------------
Total property and equipment, at cost 16,782,500 16,264,000
Less-Accumulated depreciation and amortization (15,001,400) (13,867,200)
- -------------------------------------------------------------------------------
Net Property and Equipment 1,781,100 2,396,800
- -------------------------------------------------------------------------------
Other Assets 3,576,200 3,009,800
- -------------------------------------------------------------------------------
Total Assets $23,474,900 $26,641,900
===============================================================================
The accompanying notes are an integral part of these balance sheets.
22
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
August 31,
-------------------------------
1998 1997
- -------------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 4,494,300 $ 4,306,900
Accrued expenses 735,100 2,694,600
Accrued salaries, wages and benefits 2,270,800 2,891,200
Current portion of long-term debt 438,800 648,300
Billings in excess of costs and estimated
earnings on uncompleted contracts 246,700 512,200
- -------------------------------------------------------------------------------
Total Current Liabilities 8,185,700 11,053,200
- -------------------------------------------------------------------------------
Long-Term Debt, net of current portion 1,279,800 2,331,700
- -------------------------------------------------------------------------------
Total Liabilities 9,465,500 13,384,900
- -------------------------------------------------------------------------------
Commitments
- -------------------------------------------------------------------------------
Stockholders' Equity:
Common stock, $.01 par value; voting;
10,000,000 shares authorized; 6,285,000
and 6,227,300 shares issued and outstanding 62,900 62,300
Preferred stock, $.01 par value;
8,000,000 shares authorized; none issued -- --
Capital in excess of par value 11,049,300 10,902,300
Retained earnings 2,897,200 2,292,400
- -------------------------------------------------------------------------------
Total Stockholders' Equity 14,009,400 13,257,000
- -------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $23,474,900 $26,641,900
===============================================================================
The accompanying notes are an integral part of these balance sheets.
23
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
Year Ended August 31,
-----------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total revenue $ 59,987,200 $ 73,890,900 $ 88,307,800
Less - Subcontractor costs (11,406,600) (21,435,800) (23,954,100)
Less - Other direct project costs (6,883,700) (11,434,900) (10,289,200)
Net revenue 41,696,900 41,020,200 54,064,500
- ------------------------------------------------------------------------------------------
Operating costs and expenses:
Direct salaries and other operating 31,473,800 37,560,300 46,535,500
Sales, general and administrative 9,374,400 8,481,900 7,972,600
Gain on "key employee" life insurance (261,100) -- --
Restructuring charges -- 3,000,100 --
- ------------------------------------------------------------------------------------------
Total operating expenses 40,587,100 49,042,300 54,508,100
- ------------------------------------------------------------------------------------------
Income (loss) from operations 1,109,800 (8,022,100) (443,600)
- ------------------------------------------------------------------------------------------
Interest expense (244,600) (446,400) (464,900)
Interest income 98,800 91,600 107,400
- ------------------------------------------------------------------------------------------
Income (loss) before income taxes 964,000 (8,376,900) (801,100)
- ------------------------------------------------------------------------------------------
Provision for (benefit from) income taxes 359,200 (2,969,300) (221,000)
- ------------------------------------------------------------------------------------------
Net income (loss) $ 604,800 $(5,407,600) $(580,100)
==========================================================================================
Basic earnings (loss) per share $0.10 $(0.87) $(0.09)
Diluted earnings (loss) per share $0.10 $(0.87) $(0.09)
==========================================================================================
Weighted average shares outstanding 6,255,500 6,205,700 6,138,100
Effect of dilutive stock options 91,100 -- --
Diluted weighted average shares outstanding 6,346,600 6,205,700 6,138,100
==========================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
24
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 1998, 1997, AND 1996
<TABLE>
Capital in
Common Excess of Retained
Stock Par Value Earnings Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 31, 1995 $60,900 $10,538,700 $8,280,100 $18,879,700
Issuance of stock 900 233,000 -- 233,900
Tax benefit from stock options exercised -- 24,600 -- 24,600
Net loss -- -- (580,100) (580,100)
- -----------------------------------------------------------------------------------------------------------------------
Balance, August 31, 1996 61,800 10,796,300 7,700,000 18,558,100
Issuance of stock 500 106,000 -- 106,500
Net loss -- -- (5,407,600) (5,407,600)
- -----------------------------------------------------------------------------------------------------------------------
Balance, August 31, 1997 62,300 10,902,300 2,292,400 13,257,000
Issuance of stock 600 147,000 -- 147,600
Net income -- -- 604,800 604,800
- -----------------------------------------------------------------------------------------------------------------------
Balance, August 31, 1998 $62,900 $11,049,300 $2,897,200 $14,009,400
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
25
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Year Ended August 31,
------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
Cash Flows From (Used For) Operating Activities:
<S> <C> <C> <C>
Net income (loss) $ 604,800 $(5,407,600) $ (580,100)
Noncash expenses included in net income (loss) -
Depreciation and amortization 1,162,200 1,427,100 1,683,900
Current benefit from income taxes -- (2,969,300) (221,000)
Changes in operating assets and liabilities -
Decrease in accounts receivable, net 1,056,900 3,193,900 2,165,400
(Increase) decrease in costs and estimated earnings
in excess of billings on uncompleted contracts (741,100) 6,828,400 (1,747,200)
Increase in prepaid expenses and other assets (183,500) (314,000) (110,800)
Decrease in accounts payable and accrued expenses (2,392,500) (370,900) (1,149,400)
Refunds of income taxes (net of payments) 1,868,300 244,200 (430,800)
Decrease (increase) in billings in excess of costs and
estimated earnings on uncompleted contracts (265,500) (685,500) 148,400
- -------------------------------------------------------------------------------------------------------------------------------
Net cash flows from (used for) operating activities 1,109,600 1,946,300 (241,600)
- -------------------------------------------------------------------------------------------------------------------------------
Cash Flows Used For Investing Activities:
Purchase of equipment, net (546,500) (699,000) (1,008,500)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash flows used for investing activities (546,500) (699,000) (1,008,500)
- -------------------------------------------------------------------------------------------------------------------------------
Cash Flows From (Used For) Financing Activities:
Net borrowings from revolving line of credit (635,400) 481,200 3,000,000
Proceeds from issuance of common stock 147,600 106,500 233,900
Reduction of long-term debt and short-term borrowings (626,000) (810,300) (4,489,100)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash flows from (used for) financing activities (1,113,800) (222,600) (1,255,200)
- -------------------------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (550,700) 1,024,700 (2,505,300)
Cash and cash equivalents, beginning of period 2,333,300 1,308,600 3,813,900
- -------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 1,782,600 $2,333,300 $1,308,600
===============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
26
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 1998, 1997, AND 1996
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); its wholly-owned subsidiaries,
EA International, Inc. and EA Financial, Inc.; and EA Financial, Inc.'s
wholly-owned subsidiaries, 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.
Segment Information--
The Company is organized around two operating segments. The primary segment is
Management Consulting Services, provided through a network of offices throughout
the United States, Mexico and Guam; and Analytical Services provided through its
laboratory facility located in Maryland.
Revenue Recognition--
The Company is an international consulting firm specializing in the fields of
energy, the environment, health and safety, and analytical services. These
services are generally performed under time-and-material, fixed-price, and
cost-plus-fixed-fee contracts. Task orders from these contracts vary in length
from one month to two years.
The Company's Management Consulting Services segment 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. The majority of the Analytical Services
segment contracts are on a fixed-unit priced basis. Revenue for fixed-unit
priced contracts is recognized currently as sample units are processed.
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 50%, 46%,
and 45% of the Company's (primarily Management Consulting Services) net revenue
for the years ended August 31, 1998, 1997, and 1996, respectively. Additionally,
various agencies of the federal government accounted for approximately 45% and
40% of
27
<PAGE>
the Company's accounts receivable and costs and estimated earnings in excess of
billings on uncompleted contracts as of August 31, 1998 and 1997, respectively.
One industrial client accounted for approximately 54% of the Analytical Services
segment's gross sales and over 70% of its external client billings. In addition
to this one client, major external clients for Analytical Services in fiscal
1997 and 1996 included the federal government and two other industrial clients.
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
value.
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. Depreciation expense for the fiscal years ended August 31, 1998, 1997 and
1996 was $1,162,200, $1,427,100 and $1,683,900, respectively.
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 costs.
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
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 during the years ended August 31, 1998, 1997, and 1996 for interest,
was $233,700, $467,200, and $474,200, respectively. Retirements of property and
equipment for the same periods were $28,000, $897,200, and $2,602,400,
respectively.
28
<PAGE>
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.
Accounting Pronouncements--
In February 1997, the FASB issued Statement No. 128 (SFAS 128), "Earnings Per
Share," which establishes new standards for computing and presenting earnings
per share. SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. Management has
implemented SFAS 128.
In February 1997, the FASB issued Statement No. 129 (SFAS 129), "Disclosure of
Information about Capital Structure," which eliminates the exemption of
nonpublic entities from certain disclosure requirements of APB Opinion No. 15 as
provided by FASB Statement No. 21. SFAS 129 is effective for periods ending
after December 15, 1997.
Management has implemented SFAS 129.
In June 1997, the FASB issued Statement No. 130 (SFAS 130), "Reporting
Comprehensive Income,"which establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. SFAS 130 is effective for fiscal years beginning after
December 15, 1997. Management is currently evaluating the impact SFAS 130 will
have on the Company's financial reporting for fiscal year ending August 31,
1999.
In July 1997, the FASB issued Statement No. 131 (SFAS 131), "Disclosures About
Segments of an Enterprise and Related Information," which establishes a new
approach for determining segments within a company and reporting information on
those segments. SFAS 131 is effective for fiscal years beginning after December
15, 1997. Management has elected to implement SFAS 131 for the fiscal period
ended August 31, 1998.
In February 1998, the FASB issued Statement No. 132 (SFAS 132), "Employers
Disclosure about Pensions and Other Postretirement Benefits," which standardizes
the disclosure requirements for pensions and other postretirement benefit plans.
SFAS 132 is effective for fiscal years beginning after December 15, 1997.
Management has not yet determined whether the implementation of SFAS 132 will
have an impact on the Company's financial reporting for the fiscal year ending
August 31, 1999.
In June 1998, the FASB issued Statement No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. SFAS 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
The Company does not hold derivatives and, as such, SFAS 133 will not have an
impact.
Note 2. SEGMENT FINANCIAL INFORMATION:
The following table provides selected financial information as reviewed by the
Company's management in making decisions about allocating resources to each
segment and assessing its performance.
29
<PAGE>
<TABLE>
Year ended August 31,
------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
Management Consulting Services Analytical Services
1998 1997 1996 1998 1997 1996
-------------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gross revenue $56,484 $72,559 $86,390 $ 3,503 $ 1,332 $ 1,918
Intercompany sales (2,870) (4,370) (5,457) 2,870 4,370 5,457
------------------------------------------------------------------------------------------
Total gross revenue 53,614 68,189 80,933 6,373 5,702 7,375
Net revenue 36,696 37,443 48,495 5,000 3,577 5,569
------------------------------------------------------------------------------------------
Operating and administrative expenses 35,506 44,305 48,457 5,080 4,737 6,051
------------------------------------------------------------------------------------------
Income (loss) from operations 1,190 (6,862) 38 (80) (1,160) (482)
Net interest (122) (287) (209) (24) (67) (148)
Income taxes (401) 2,534 47 42 435 174
------------------------------------------------------------------------------------------
Net income (loss) $ 667 $(4,615) $ (124) $ (62) $ (792) $ (456)
==========================================================================================
Diluted earnings (loss) per share $ 0.11 $ (0.74) $ (0.02) $(0.01) $(0.13) $(0.07)
Net property/equipment $1,133 $ 1,534 $2,000 $ 648 $ 863 $1,125
</TABLE>
Furthermore, the Company's management team reviews its Management Consulting
Services by each geographical office location. The following represents net
revenue, by office, for the fiscal year ended August 31, 1998.
Management Consulting Services (in 000s)
- --------------------------------------------------
Boston, MA $ 1,195
Newburgh, NY 2,420
Berkeley Heights, NJ 2,220
Baltimore, MD 14,631
Washington, DC 865
Dallas, TX 2,201
Chicago, IL 630
Lincoln, NB 1,700
San Francisco, CA 3,426
Sacramento, CA 1,435
Seattle, WA 2,109
Anchorage, AK 917
Guam 2,030
Mexico 218
Hawaii 175
Others 524
- --------------------------------------------------
Total net revenue $36,696
==================================================
Prior to fiscal 1998, the Company did not keep revenue data by geographical
region. To gather this information would be impractical; therefore, it is not
included. Additionally, in the past the Company has not identified assets by
30
<PAGE>
segments; therefore, any asset information provided by segment has been
estimated.
Note 3. INCOME TAXES:
The provision for (benefit from) income taxes includes current and deferred tax
amounts summarized as follows:
<TABLE>
Year Ended August 31,
- --------------------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------
Current tax expense (benefit):
<S> <C> <C> <C>
Federal $ (43,500) $(1,659,500) $ (18,400)
State -- -- (4,300)
- --------------------------------------------------------------------------------------------
(43,500) (1,659,500) (22,700)
- --------------------------------------------------------------------------------------------
Deferred tax expense (benefit):
Federal 337,400 (1,309,800) (160,600)
State 65,300 -- (37,700)
- --------------------------------------------------------------------------------------------
402,700 (1,309,800) (198,300)
- --------------------------------------------------------------------------------------------
Provision for (benefit from) income taxes $359,200 $(2,969,300) $(221,000)
============================================================================================
</TABLE>
Total deferred tax assets and liabilities as of August 31, 1998 and 1997 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,
- -------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------
Deferred tax assets:
Property and equipment $1,031,300 $ 929,600
Accrued expenses and reserves 493,900 1,878,900
Net operating loss 1,254,900 398,200
- -------------------------------------------------------------------
2,780,100 3,206,700
===================================================================
Deferred tax liabilities:
Prepaid expenses 9,300 99,300
Miscellaneous 269,600 203,500
- -------------------------------------------------------------------
$ 278,900 $ 302,800
===================================================================
The net deferred tax assets of $2,501,200 and $2,903,900 as of August 31, 1998
and 1997 are included to the extent appropriate in Prepaid expenses and other
and Other Assets in the accompanying consolidated balance sheets.
31
<PAGE>
Reconciliation of the statutory federal income tax rate and the effective income
tax rate is summarized as follows:
Year Ended August 31,
- -------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income tax, net of federal income tax effect 5.3 5.3 5.3
Non-recognition of future benefit from foreign loss 1.9 (0.4) (4.8)
Other (3.9) (3.5) (6.9)
- ------------------------------------------------------------------------------
Effective income tax rate 37.3% 35.4% 27.6%
==============================================================================
Note 4. ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
Year Ended August 31,
- ----------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------
Contract accounts receivable $ 7,383,500 $ 8,802,400
Retainage by clients 1,315,600 1,228,400
- ----------------------------------------------------------------------
Total accounts receivable 8,699,100 10,030,800
Less-Allowance for doubtful accounts (257,200) (532,000)
- ----------------------------------------------------------------------
Accounts receivable, net $ 8,441,900 $ 9,498,800
======================================================================
Management anticipates that substantially all retainages will be billed within
one year.
Note 5. CONSTRUCTION LOSS:
In fiscal 1997, the Company recognized estimated losses related to certain
landfill projects. These losses are included in accrued expenses in the
consolidated balance sheets. As of August 31, 1998 and 1997, the related
balances were $90,100 and $1,337,900, respectively. For the period ended August
31, 1998, a total of $829,500 of the previously recognized losses was reversed
into income as change orders and various settlements were realized.
Note 6. BANK FINANCING ARRANGEMENTS:
The Company entered into a new credit arrangement with a regional bank during
fiscal year 1997 consisting of: (i) an $8,500,000 revolving line of credit
secured by receivables; (ii) a $500,000 term loan; and (iii) an equipment line
of credit of $1,500,000. Of the $8,500,000 revolving line of credit, $2,500,000
is available for acquisitions, joint ventures and licensing agreements.
Borrowings under the revolving line of credit are limited to a percentage of
certain accounts receivable and costs and estimated earnings in excess of
billings on uncompleted contracts (up to a
32
<PAGE>
maximum of $4,000,000). The agreement was effective August 22, 1997. During
fiscal years 1998, 1997, and 1996, the Company was either in compliance or had
obtained waivers on all covenants related to these and prior related
arrangements.
Short-term borrowings information resulting from the financing arrangements is
as follows:
<TABLE>
Year Ended August 31,
------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance as of end of period $ -- $ -- $ --
Maximum outstanding month-end balance during
the period -- 3,615,300 5,490,900
Average outstanding month-end balance during
the period -- 564,000 598,800
Weighted average interest rate during the period -- 11.5% 8.4%
Interest rate at the end of period -- 11.5% 8.3%
==========================================================================================
</TABLE>
The weighted average interest rate has been calculated based upon the actual
daily interest expense and the daily average balance outstanding. The Company
had no short-term borrowing during fiscal 1998. For the year ended August 31,
1997, the Company only maintained short-term borrowing balances during the
months of April through August. Prior to April and at the end of August 1997,
all borrowings were considered long term. For the year ended August 31, 1996,
short-term balances were for nine months through May 31, 1996.
Long-term debt consists of the following:
<TABLE>
August 31,
- --------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revolving credit facility payable to commercial bank effective
August 22, 1997, interest charged at LIBOR plus 200;
facility expires September 2000 $1,192,400 $1,827,700
Note payable to a commercial bank payable in equal monthly
installments of $29,600, which includes interest at 9.1%,
through December 1999 secured by certain computer
equipment 418,300 720,500
Note payable to a commercial bank payable in equal monthly
installments of $43,651 through December 1997. There-
after, $21,429, plus interest charged at LIBOR plus 200
through January 1999; secured by leasehold improvements
and certain analytical laboratory equipment 107,900 431,800
- ----------------------------------------------------------------------------------------------
Total long-term debt 1,718,600 2,980,000
Less-current portion (438,800) (648,300)
- ----------------------------------------------------------------------------------------------
Long-term portion $1,279,800 $2,331,700
==============================================================================================
</TABLE>
33
<PAGE>
The debt repayment schedule for the outstanding notes payable is as follows:
Year Ending
August 31,
- ----------------------------------------------------------------
1999............................................ $ 438,800
2000............................................ 87,500
2001 and thereafter............................. 1,192,300
- ----------------------------------------------------------------
Total notes payable............................. $1,718,600
================================================================
The fair value of the Company's outstanding indebtedness approximated its
carrying value at August 31, 1998.
Note 7. 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 2007, and certain leases call for annual
proportionate increases due to property taxes and certain other operating
expenses. Lease expense amounted to $6,061,000, $8,030,200, and $8,912,300, for
the years ended August 31, 1998, 1997, and 1996, respectively. Lease expense
included payments of approximately $1,900,400, $2,016,500, and $2,054,900, for
years ended August 31, 1998, 1997, and 1996, respectively, to partnerships whose
partners include the Chairman of the Board of EA and certain members of his
family for its central office, and Loveton, Maryland, regional office and
laboratory facility. These payments include reimbursements of approximately
$873,000 per year for pass-through taxes and operating expenses incurred by the
lessor which include local property taxes, janitorial and mechanical equipment
maintenance, and utility costs related to the operation of both office and
laboratory leased space. Management of the Company believes the terms and
conditions of the transactions between the Company and entities with which the
Chairman is affiliated, are at least as favorable to the Company as could have
been obtained from third parties and are in the best interest of the Company.
The minimum lease commitments under noncancellable operating leases are as
follows:
Year Ending
August 31,
- ---------------------------------------------
1999....................... $ 3,549,900
2000....................... 2,774,900
2001 ...................... 2,400,000
2002....................... 2,139,800
2003....................... 2,023,800
2004 and thereafter........ 6,470,700
=============================================
Total minimum payments..... $19,359,100
=============================================
34
<PAGE>
Note 8. NET INCOME (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. All
disclosures with regard to the shares of common stock have been adjusted
retroactively to reflect two 3-for-2 stock splits, effected in the form of 50%
stock dividends wherein, on February 23, 1994 and July 5, 1994, one additional
share of stock was issued for each two shares outstanding as of the record dates
of February 8, 1994 and June 28, 1994, respectively.
Note 9. PROFIT SHARING:
EA maintains a defined contribution plan in which all employees who are at least
21 years of age and have completed six months of credited service, as defined by
the plan, are eligible to participate. The plan provides for discretionary
employer contributions for each fiscal year, in amounts determined annually by
the Board of Directors. The plan also includes a 401(k) provision, allowing for
Company matching contributions. For the years ended August 31, 1998, 1997, and
1996, matching contributions to the plan made under the 401(k) provisions of the
plan, were $472,100, $534,900, and $729,200, respectively. Certain officers and
stockholders of the Company serve as trustees to the plan under appointment of
the Board of Directors.
Note 10. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS:
The Company maintains an Amended and Restated 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
799,800 options are issued and outstanding as of August 31, 1998, having an
average exercise price of $2.43. The exercise prices of the outstanding options
ranged between $1.39 and $11.75, which equaled the fair market value at the
dates of grant. 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 dates of grant.
The Company maintains an Employee Stock Purchase Plan (the "Purchase Plan") to
provide eligible employees with the opportunity to purchase shares of the
Company's Common Stock through voluntary payroll deductions. Under the Purchase
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 120,600 shares
remain authorized for distribution under the Purchase Plan as of August 31,
1998.
The Company maintains two Non-Employee Director Stock Option Plans (1993 and
1995) which provide for the granting of nonqualified stock options to its
non-employee directors. The exercise price of the 17,000 options, which were
outstanding as of August 31, 1998, ranged between $2.03 and $6.13, which equaled
the fair market value at the dates of grant. A total of 33,500 options remain
reserved for the Director Stock Option Plans as of August 31, 1998.
The Company accounts for these plans under APB Opinion No. 25, under which no
compensation cost has been recognized. Had compensation cost for plans been
determined consistent with FASB Statement No. 123, the Company's net income
(loss) and earnings (loss) per share would have changed the following pro forma
amounts:
35
<PAGE>
1998 1997 1996
- -------------------------------------------------------------------------------
Net income (loss) As Reported $604,800 $(5,407,600) $(580,100)
Pro Forma 513,200 (5,470,200) (580,100)
Earnings (loss) per share As Reported $0.10 $(0.87) $(0.09)
Pro Forma 0.08 (0.88) (0.09)
Diluted earnings (loss) As Reported $0.10 $(0.87) $(0.09)
per share Pro Forma 0.08 (0.88) (0.09)
A summary of the status of activity in fiscal years 1998, 1997 and 1996 under
the Company's Employee Stock Option Plan and Non-Employee Director Stock Option
Plans (1993 and 1995) follows:
<TABLE>
1998 1997 1996
------------------------------------------------------------------------------------------
Shares Wgtd.Avg. Shares Wgtd.Avg. Shares Wgtd.Avg.
(000) Exer.Price (000) Exer.Price (000) Exer.Price
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 616 $2.37 180 $4.13 341 $4.30
Granted 273 2.65 506 2.10 11 4.61
Exercised (27) 2.45 -- -- (28) 1.41
Forfeited (45) 2.72 (70) 4.96 (144) 5.08
Expired -- -- -- -- -- --
------------------------------------------------------------------------------------------
Outstanding at end of year 817 2.44 616 2.37 180 4.13
------------------------------------------------------------------------------------------
Exercisable at year end 269 $2.59 164 $2.99 136 $3.40
Weighted Average Fair Value of
Options Granted $1.35 $0.96 $1.79
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998, 1997 and 1996: Risk-free interest rates
ranging from 5.19% to 6.68%; expected volatility is 63% in 1998 and 62% in 1997
and 1996.
Note 11. COMPANY RESTRUCTURING:
On March 25, 1997 the Company implemented a major organizational realignment to
reposition itself in the marketplace. In connection with the restructuring, the
Company incurred charges of $3,000,100 during the fiscal 1997 third quarter
related to severance, planned reduction in office space, suspended
implementation of a new project/financial system, and other related costs.
This restructuring included a staff reduction of approximately 125 employees.
As of August 31, 1998 and 1997, the Company had accruals of $76,600 and
$880,100, respectively, included as other current liabilities in the
accompanying consolidated balance sheet for costs to be incurred in future
periods in connection with the restructuring.
36
<PAGE>
Note 12. "KEY EMPLOYEE" LIFE INSURANCE
In April 1998, adjustments were made to the actual cash value of two "key
employee" life insurance policies for the 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. As a result, Other Assets was increased by $261,100, and
a one-time gain was recognized during the period.
Note 13. RELATED PARTY TRANSACTIONS
At the request of its former primary lender and in order to maintain its
favorable relationship with that lender, the Company in December 1996 purchased
from this lender the secured loans of three former EA officers. These
interest-free demand loans, in the aggregate amount of $301,000, are secured by
pledges of the Company's common stock. The differential between the current fair
market value of the pledged stock and the amount of the loans is fully reserved
within the Company's balance sheet.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
37
<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 1998 Annual Meeting of Stockholders to be held on January 14,
1999, 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 1998 Annual Meeting of Stockholders to be held on
January 14, 1999, 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 14, 1999,
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 14, 1999, 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 14, 1999, and such information is incorporated herein by reference.
38
<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 21
Consolidated Financial Statements:
Consolidated Balance Sheets as of August 31, 1998 and 1997 22
Consolidated Statements of Operations for the years ended
August 31, 1998, 1997, and 1996 24
Consolidated Statements of Changes in Stockholders' Equity
for the years ended August 31, 1998, 1997, and 1996 25
Consolidated Statements of Cash Flows for the years ended
August 31, 1998, 1997, and 1996 26
Notes to Consolidated Financial Statements for the years ended
August 31, 1998, 1997, and 1996 27
2. The following financial statement schedule for the years ended
August 31, 1998, 1997, and 1996 is submitted herewith:
Report of Independent Public Accountants on Schedule 41
Schedule II - Valuation and Qualifying Accounts and Reserves 42
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 The Company's Employee Stock Purchase Plan.(3)
10.4 1993 Non-Employee Director Stock Option Plan.(4)
10.5 The 1993 Stock Incentive Plan.(4)
39
<PAGE>
10.6 The Amended and Restated Stock Option Plan.(5)
10.7 1995 Non-Employee Director Stock Option Plan.(6)
10.8 Employment Agreement dated March 17, 1997, between the Company and
Donald A. Deieso.(7)
10.9 Lease, dated August 6, 1997, between ARE Sparks Limited
Partnership, as landlord, and the Company as tenant.(8)
10.10 Lease, dated August 6, 1997, between Ecolair Limited
Partnership, as landlord, and the Company, as tenant.(8)
10.11 Lease, dated August 6, 1997, between Merrymack Limited
Partnership, as landlord, and the Company, as tenant.(8)
10.12 Loan Agreement, dated August 22, 1997, between the Company
and First National Bank of Maryland.(8)
13 1998 Annual Report to Stockholders.
21 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 April 15, 1998.
(5) Incorporated by reference to the Company's Registration Statement on
Form S-8, File Number 0-15587 filed on April 15, 1998.
(6) Incorporated by reference to the Company's Registration Statement on
Form S-8, File Number 0-15587 filed on April 15, 1998.
(7) Incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q, File Number 0-15587 filed on April 18, 1997.
(8) Incorporated by reference to the Registrant's Annual Report on Form
10-K, File Number 0-15587 filed on November 17, 1997.
b. Reports on Form 8-K
The Company filed no reports on Form 8-K during the fourth quarter of fiscal
year 1998.
40
<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
October 30, 1998. 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
October 30, 1998
41
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years Ended August 31, 1998, 1997, and 1996
Allowance Balance at
for Doubtful Beginning Charged to Balance at
Accounts of Period Cost and Expense Write-offs End of Period
1998 $ 532,000 $130,500 $ 405,300 $257,200
1997 1,612,200 339,100 1,419,300 532,000
1996 1,385,700 328,000 101,500 1,612,200
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: November 24, 1998 By /s/ Loren D. Jensen
--------------------------------------
Loren D. Jensen
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
Name Title Date
/s/ Loren D. Jensen
<S> <C> <C>
- ------------------------------------- Chairman of the Board November 24, 1998
Loren D. Jensen
/s/ Donald A. Deieso
- ----------------------------------- President and Chief Executive Officer November 24, 1998
Donald A. Deieso (Principal Executive Officer)
/s/ Barbara L. Posner
- ----------------------------------- Senior Vice President, November 24, 1998
Barbara L. Posner Finance and Administration
(Principal Financial Officer)
/s/ Edmund J. Cashman, Jr.
- -------------------------------- Director November 24, 1998
Edmund J. Cashman, Jr.
/s/ Rudolph P. Lamone
- --------------------------------- Director November 24, 1998
Rudolph P. Lamone
/s/ George G. Radcliffe
- ---------------------------------- Director November 24, 1998
George G. Radcliffe
/s/ Cleaveland D. Miller
- ---------------------------------- Director November 24, 1998
Cleaveland D. Miller
</TABLE>
43
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description Page
3.1 Certification of Incorporation of the Company. 39
3.2 By-laws of the Company. 39
4.1 Article SIXTH of the Company's Certificate of Incorporation. 39
10.1 The Company's Profit Sharing Plan. 39
10.2 The Company's Stock Option Plan. 39
10.3 The Company's Employee Stock Purchase Plan. 39
10.4 1993 Non-Employee Director Stock Option Plan 39
10.5 The 1993 Stock Incentive Plan. 39
10.6 The Amended and Restated Stock Option Plan. 40
10.7 1995 Non-Employee Director Stock Option Plan. 40
10.8 Employment Agreement dated March 17, 1997 between the Company and
Donald A. Deieso. 40
10.9 Lease, dated August 6, 1997 between ARE Sparks Limited Partnership,
as Landlord, and the Company as tenant. 40
10.10 Lease, dated August 6, 1997, between Ecolair Limited Partnership,
as landlord, and the Company, as tenant. 40
10.11 Lease, dated August 6, 1997, between Merrymack Limited Partnership,
as landlord, and the Company, as tenant. 40
10.12 Loan Agreement, dated August 22, 1997, between the Company and
First National Bank of Maryland. 40
13 1998 Annual Report to Stockholders. 40
21 Subsidiaries of the Company. 40
27 Financial Data Schedule 40
44
1998 ANNUAL REPORT TO STOCKHOLDERS
FRONT COVER
The cover of EA Engineering, Science, and Technology, Inc.'s 1998 annual report
is headed by a small group of four building blocks--a continuation of the theme
of the 1997 annual report--followed by the firm's name. Below the header and to
the right of the center of the page is a picture which highlights the earth
depicted by a globe in the center of the picture. As a backdrop to the globe,
the picture features a mirage containing the sun, water, forests, industrial
images, and wildlife. To the left of the picture is a sidebar with the words,
"Business solutions for energy, the environment, and health and safety"
(Page)
INSIDE FRONT COVER
(Left column)
ABOUT EA COMPANIES
EA's 25-year history began with an early recognition of the interconnection
among energy, the environment, and health and safety. That original perspective
has evolved into a cohesive array of technical, analytical, scientific, and
management capabilities designed to help clients achieve their business goals.
We assist industrial, municipal and government clients in addressing these
challenges, within the larger framework of strategic business goals, a
competitive global economy, and rapidly changing regulatory demands.
(Right column)
(A smaller version of the front cover tops the right column)
(A line is drawn from the left column to the right column. As the line ends, the
words "and the cover" are centered above the right column.)
The goal of prosperity is inevitably linked to the challenges of energy, the
environment, and health and safety. That connection is illustrated on the cover,
which highlights the interrelationship between human endeavors and environmental
impacts, between economic objectives and emerging technology, and between
business growth and natural resources. EA's mission is to assist clients in
recognizing and leveraging those interrelationships to improve performance,
enhance productivity, and achieve strategic business goals.
<PAGE>
Consolidated Financial Data
- ------------------------------------------------------------------------------
(in thousands, except share data) 1998 1997 1996
- ------------------------------------------------------------------------------
Operating Data:
Total Revenue $49,987 $73,891 $88,308
Net Revenue 41,697 41,020 54,064
Income (Loss) from Operations 1,110 (8,022) (444)
Net Income (Loss) $ 605 $(5,408) $ (580)
- -------------------------------------------------------------------------------
Share Data:
Basic Earnings Per Share $0.10 $(0.87) $(0.09)
Diluted Earnings Per Share $0.10 $(0.87) $(0.09)
Weighted Average Shares Outstanding 6,255,500 6,205,700 6,138,100
Diluted Weighted Average Shares Outstanding 6,346,600 6,205,700 6,138,100
- -------------------------------------------------------------------------------
Balance Sheet Data:
Working Capital $ 9,932 $10,182 $15,955
Total Assets 23,475 26,642 33,329
Short-Term Borrowings -- -- --
Long-Term Borrowings, net of current portion 1,280 2,332 2,665
Stockholders' Equity $14,009 $13,257 $18,558
- ------------------------------------------------------------------------------
<PAGE>
PHOTO
Loren D. Jensen, Chairman of the Board, and Donald A. Deieso, President and
Chief Executive Officer
To Our Shareholders:
Initiated more than a year ago, EA's strategic transformation continued in 1998,
changing the Company from a pure environmental services firm to a management
consulting firm specializing in the issues of energy, environment, and health
and safety. EA's transformation parallels the changing needs of our clients,
positioning us to deliver value-added solutions that enhance our client's
productivity, competitiveness and operating efficiency.
FINANCIAL HIGHLIGHTS
EA achieved a significant milestone, returning to profitability and increasing
earnings to $0.10 per share in fiscal 1998, compared to a loss of $0.87 per
share in fiscal 1997. While EA's gross revenues decreased to almost $60 million
in fiscal 1998 from $73.9 million in the prior year, reflecting our planned
shift away from low-margin services, our net revenues held firm with fiscal 1998
showing $41.7 million compared to fiscal 1997's $41.0 million. Net income showed
substantial improvements in fiscal 1998 with earnings of $604 thousand compared
to a loss of $5.4 million in the previous year. These results were produced
through a comprehensive program focused on cash management, cost control, and
increased manpower utilization. Significantly, EA's financial earnings in 1998
were accomplished while we made considerable investment in our Company
transformation and added new products and services.
OUR CLIENTS' NEEDS ARE CHANGING
The needs and expectations of EA's target client base are evolving. First,
traditional environmental needs are changing. Once centered on regulatory
compliance and pollution cleanup, they are being replaced by business demands to
improve efficiency of energy, environment, and health and safety management.
Second, clients have expanded the range of capabilities and services they expect
from their consultants. It is no longer sufficient to offer single-discipline,
technical services. Third, consultant/client relationships have become
increasingly important. Clients are limiting the number of consultants they use,
employing only those firms in which they have strong trust and confidence.
(Page)
EA has recognized the practical effect of these key changes, setting into motion
a multi-faceted strategy to accommodate the evolving demands of the market. We
have diversified our client base, reducing EA's reliance on any individual
client sector. In fiscal 1998, EA expanded the percentage of new orders from
industrial and utility clients to 42%, representing a 10% increase over the
prior year. We have also expanded service to our clients by developing a range
of business-oriented capabilities including information management, strategic
and tactical planning, wetlands banking and environmental outsourcing. As a
result, we have leveraged the traditional, discipline-specific assignments into
new, broad-based contracts and in doing so, added 150 new clients to our firm.
As an example, EA's original stormwater and ecotoxicological assignments for The
Timken Company led to a management contract to audit process and water
management at five facilities with the objective of improving cost-efficiency.
Similarly, EA's long-time association with the US Navy based on our scientific
and technical services, set the stage for a new assignment to develop a data
management system to improve project performance and reduce regulatory
compliance requirements.
MARKET LEADERSHIP
In addition to expanding and enhancing EA's competitive position on the domestic
front, we recognize the important opportunities presented by the $460 billion
global market. As part of a long-term strategy to improve our competitiveness,
expand our market share, and increase earnings, EA in 1998 entered into seven
new alliances with . . .
(Sidebar)
"Global management consulting revenues are expected to average nearly 16% annual
growth by the year 2000" Kennedy Research Group
EA set into motion a strategy designed to expand our management consulting
practice. To assist clients improve their performance and reduce risk and costs,
EA deepened its capabilities in the areas of information management, strategic
and tactical planning, environmental outsourcing, and public outreach. These
capabilities, combined with EA's historic emphasis on client service and
responsiveness to changing needs, contributed to new management consulting
contracts and nineteen basic ordering agreements.
<PAGE>
(Sidebar)
"Large global increases in population and expanding economies in industrializing
countries will continue to increase global resource and energy consumption,
generate burgeoning wastes, and spawn environmental contamination and
degradation" United Nations Global Environment Outlook
The global marketplace represents profound, continuously changing needs in the
fields of energy, environment, and health and safety. In 1998, we entered into
seven new strategic alliances with international partners and crafted several
"teaming" relationships with global environmental management and infrastructure
development leaders. EA's concerted focus on the global market produced a
significant increase in international orders.
(Continuing with To Our Shareholders:)
. . . international partners and focused considerable efforts on gaining new
international assignments. Those efforts led to a significant increase in new
international orders over fiscal 1997. Substantial contracts were received from
multinational corporations, government agencies, and international funding
agencies. Notable among these awards is one from the US Trade and Development
Agency, in which EA was awarded a five-year program management contract with a
potential value of $5 million. In addition, EA is part of the team that won a
five-year USAID contract with a potential value of $50 million for worldwide
energy and environmental training.
An important element of our market leadership philosophy, is our identity and
reputation as a technical leader. In 1998, this leadership was recognized with
two prestigious awards. The first, "Outstanding Project of the Year," was
awarded by the Engineering Society of Baltimore for our innovative solid waste
management system, operating in Worcester County, Maryland. The second award was
the American Planning Association's top award for environmental excellence,
granted in honor of EA's integrated natural resources management plan for a
group of US Air Force bases in Hawaii.
CREATING A NEW EA
A new generation of energy and environmental issues is emerging. Global issues
of climate change and ozone depletion are pivotal to the rapidly changing
international economy. On a more local level, issues such as watershed planning
and emissions trading have introduced new areas of concern for both municipal
and industrial clients. At the
<PAGE>
same time, our clients are confronted by market pressures to reduce costs,
increase productivity, and improve profitability. Already, leading multinational
companies are tackling these interrelated issues through creative approaches
such as sustainable development, product stewardship, and emissions banking and
trading.
As the challenges confronting our clients continue to change, they are demanding
new skills and approaches from their consultants. Successful organizations will
be those equally conversant in energy and environmental matters, equipped to
communicate and operate in the technology- and information-driven virtual world,
while maintaining the ability to move fluidly in the global marketplace.
We are transforming EA into such a company.
Sincerely,
(Signature of Loren D. Jensen)
Loren D. Jensen
Chairman of the Board
(Signature of Donald A. Deieso)
Donald A. Deieso
President and Chief Executive Officer
(Sidebar)
"Corporations that integrate environmental and business decisions have shown
that environmental protection is not necessarily an expense without positive
return, and competitive advantages can accrue from creative approaches to
environmental management" US Department of Commerce--Office of Technology Policy
EA's emphasis on comprehensive solutions, rather than on single-issue technical
answers, parallels a growing business trend of integrating business objectives
with energy, environmental, and health and safety factors. Our expertise in
applying market-based incentives such as voluntary cleanup and industrial
redevelopment, emissions trading and wetlands banking, enables us to offer
clients value-added service that meets both business and technical needs.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 consolidated statement of operations to net revenue for the years indicated.
For historical comparisons, operating costs in past years have been adjusted to
include sales and marketing related costs in sales, general, and administrative
costs. In previous years, these costs were included in direct salaries and other
operating expenses.
Year Ended August 31,
------------------------------------------------------------------------------
1998 1997 1996
------------------------------------------------------------------------------
Net revenue 100.0% 100.0% 100.0%
------------------------------------------------------------------------------
Operating expenses:
Direct salaries and other operating expenses 75.4 91.6 86.1
Sales, general and administrative 22.5 20.7 14.7
Gain on "key employee" life insurance (0.6) -- --
Restructuring charges -- 7.3 --
------------------------------------------------------------------------------
Total operating expenses 97.3 119.6 100.8
------------------------------------------------------------------------------
Income (loss) from operations 2.7 (19.6) (0.8)
Interest expense, net (0.3) (0.9) (0.7)
------------------------------------------------------------------------------
Income(loss) before income taxes 2.4 (20.4) (1.5)
(Benefit from) provision for income taxes 0.9 (7.2) (0.4)
------------------------------------------------------------------------------
Net income (loss) 1.5% (13.2)% (1.1)%
------------------------------------------------------------------------------
Fiscal 1998 Compared to Fiscal 1997
Net revenue during fiscal 1998 increased 1.6% to $41,696,900 from $41,020,200.
This $676,700 increase is due in part to the recognition of contract losses
related to certain landfill contracts in fiscal 1997. The loss provision for
these contracts, a business line the Company no longer pursues, recognized
anticipated future project expenses which lowered fiscal 1997 net revenue by
$1,400,000. Adjusting for this loss recognition, net revenue in fiscal 1998
decreased by 1.71%. The overall decrease in net revenue is due to lower than
anticipated sales in the industrial sector. Although sales and marketing efforts
<PAGE>
have targeted this market and won approximately 150 new clients, larger-volume
projects have not been achieved as of the end of the fiscal 1998 period. Lower
industrial sector sales were offset by improved net sales in the federal, state
and local government, and utility sectors.
Direct salaries and other operating costs decreased 16.2% to $31,473,800 in 1998
from $37,560,300 in 1997, or 75.4% and 91.6% of net revenue, respectively. The
decreases were attributable to increased staff utilization and lower overall
non-labor operating costs. The Company maintained a utilization rate (time
charged to clients) of more than 95% for its technical staff and an overall
Company rate of 74%. Significant savings were also achieved by lowering
equipment and property lease costs by $1,900,000 in fiscal 1998 compared to
fiscal 1997. These savings were achieved by subletting unused facilities,
renegotiating existing leases, and changing to a different supplier for
computer-related items.
Sales, general and administrative costs increased 10.5% to $9,374,400 in 1998
from $8,481,900 in 1997, or 22.5% and 20.7% of net revenue, respectively. The
increase in cost was primarily related to additional investment in sales and
marketing expenses in fiscal 1998 compared to the prior year.
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.
In the third quarter of fiscal 1997, the Company implemented 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. This
restructuring included a staff reduction of 125 employees. During fiscal 1998,
the Company incurred $803,500 in operating related costs that were associated
with the FY97 restructuring and charged against the reserve instead of income.
As a result of the above factors, the income from operations in fiscal 1998 was
$1,109,800, compared to a loss from operations of $8,022,100 in the prior year.
Interest expense, net, decreased to $145,800 from the prior year's total of
$354,800. This 58.9% decrease is attributed to lower interest paid in connection
with the Company's line of credit, reduction of certain long-term debt principal
balances, and the absence of an interest payment in connection with a Maryland
tax settlement in fiscal 1997.
The net income for the twelve months ended August 31, 1998, was $604,800, or
1.5% of net revenue, compared to a net loss of $5,407,600, or 13.2% of net
revenue for the prior year.
Fiscal 1997 Compared to Fiscal 1996
Net revenue during fiscal 1997 decreased 24.1% to $41,020,200 from $54,064,500.
The decrease was attributable to lower contract volume associated with the
Department of Defense, industrial, and federal non-DOD agency activities. Also,
realized losses related to certain landfill projects amounting to approximately
$1,400,000 of costs in excess of contract values were recognized in fiscal 1997,
further reducing net revenue. Additionally, price competition remained intense
within the environmental services industry, further suppressing net revenue
levels compared to the prior year.
Due to the aforementioned restructuring, direct salaries and other operating
costs decreased 19.3% to $37,560,300 from $46,535,500. As a percentage of net
revenue, however, direct salaries and other operating costs increased to 91.6%
from 86.1% a year earlier. This increase was primarily attributable to lower
staff utilization, especially in the second quarter, related to a reduction in
available work, which produced an increase in operating costs relative to net
revenue. In March 1997, the Company implemented a major organizational
realignment to reposition itself in the marketplace. In connection with the
<PAGE>
restructuring, the Company incurred charges of $3,000,100 during the third
quarter related to severance, planned reduction 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.
Sales, general and administrative costs increased 6.4% to $8,481,900 in 1997
from $7,972,600 in 1996, or 20.7% and 14.7% of net revenue, respectively. The
increase was due primarily to bonus amounts paid to management as a result of
the Company's exceeding its profit targets for the final five months of the
year. No bonuses were paid in fiscal 1996.
As a result of the above factors, the loss from operations in fiscal 1997 was
$8,022,100 compared to a loss from operations of $443,600 in the prior year.
Interest expense, net, decreased slightly to $354,800 from $357,500. A net
decrease in interest expense from lower-than-average borrowings was offset by
higher rates and an interest payment made in connection with a state income tax
settlement.
The benefit from income taxes was $2,969,300 for the year ended August 31, 1997,
compared to a benefit from income taxes of $221,000 for the year ended 1996,
representing effective rates of 35% and 28%, respectively. The difference in
effective tax rates between years is largely attributable to increases in
certain permanent differences between financial and income tax reporting, and to
the non-recognition of the future benefits attributable to a foreign loss for
the fiscal year ended 1996. It is the opinion of management that these recorded
benefits are more likely than not to be realized.
The net loss for the twelve months ended August 31, 1997, was $5,407,600, or
13.2% of net revenue, compared to net loss of $580,100, or 1.1% of net revenue
for the prior year.
Analysis by Segment
The following table provides selected financial information by segment:
<TABLE>
Year Ended August 31,
-------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------
Gross sales
<S> <C> <C> <C>
Management Consulting Services (external) $56,483,800 $72,559,500 $86,390,100
Management Consulting Services (internal) (2,869,900) (4,370,500) (5,456,900)
----------- ----------- -----------
Total Management Consulting Services (gross) 53,613,900 68,189,000 80,933,200
Analytical Services (external) 3,503,400 1,331,400 1,917,700
Analytical Services (internal) 2,869,900 4,370,500 5,456,900
----------- ----------- -----------
Total Analytical Services (gross) 6,373,300 5,701,900 7,374,600
===============================================================================================
Net sales to unaffiliated customer
Management Consulting Services 36,696,400 37,442,900 48,495,100
Analytical Services 5,000,500 3,577,300 5,569,400
===============================================================================================
Income (loss) from operations
Management Consulting Services 1,189,500 (6,862,500) 38,300
Analytical Services (79,700) (1,159,600) (481,900)
===============================================================================================
Identifiable assets (net property and equipment)
Management Consulting Services 1,132,700 1,534,000 1,999,900
Analytical Services 648,400 862,800 1,125,000
================================================================================================
</TABLE>
Note: Sales are considered external when a segment directly enters into a
contract with a client. Internal sales are generated by the use of the Company's
Analytical Services required by the external clients of Management Consulting
Services. Internal sales are duplicated within each segment and are eliminated
through intercompany adjustments.
<PAGE>
1998 Results
Net sales for Management Consulting Services decreased 2% in the fiscal period
ended August 31, 1998 to $36,696,400 from $37,442,900 in fiscal 1997. This
decrease is due to the lower-than-anticipated sales in the industrial sector.
Net sales in Analytical Services increased 39.8% in fiscal 1998 to $5,000,500
from $3,577,300 in fiscal 1997. This increase is mainly attributable to a new
contract with an industrial client.
The Management Consulting Services segment contributed $1,189,500, or 3.2% of
net revenue, to income from operations in fiscal year 1998, compared to a loss
from operations of $6,862,500, or 18.3% of net revenue, in the prior year. This
improvement is due to a 20% year-to-year reduction in segment costs and
operating expenses. Cost and operating cost savings were due to increased staff
utilization, fiscal year 1997 restructuring efforts, and savings in equipment
and property leases.
The Analytical Services segment had a loss from operations of $79,700 or 1.6% of
net revenue for the fiscal period ended August 31, 1998 compared to a loss from
operations of $1,159,600, or 32.4% of net revenue, the prior fiscal year. The
improvement in earnings is mainly attributable to the $1,423,200 increase in net
revenue in fiscal year 1998, offset by a slight increase to the segment's costs
and operating expenses. Because the Analytical Services segment has a high
percentage of overall fixed indirect expenses (approximately 40% of indirect
operating costs), changes in net revenue significantly impact its contribution
to operating income.
1997 Results
Net sales for Management Consulting Services fell to $37,442,900 for the fiscal
period ended August 31, 1997, compared to $48,495,100 for the period ended
August 31, 1996. This decrease was attributable to lower contract volume with
the federal government and realized losses related to certain landfill projects
amounting to approximately $1,400,000 in costs in excess of contract volume.
Additionally, price competition remained intense within this segment, further
suppressing sales. Net sales for Analytical Services also fell to $3,577,300 in
fiscal 1997, compared to $5,569,400 in fiscal 1996. The decrease in sales was
mainly attributable to the $1,086,400 decrease in intercompany sales provided by
the clients of Management Consulting Services.
Management Consulting Services had a loss from operations of $6,862,500, or 19%
of net revenue, in fiscal 1997, compared to a $38,300 income from operations in
fiscal 1996. The decrease in income from operations was due to lower sales in
fiscal 1997 and $3,000,100 in restructuring charges taken in fiscal 1997.
Analytical Services had a loss from operations of $1,159,600, or 32.4% of net
sales, in fiscal 1997, compared to a loss from operations of $481,900, or 8.7%,
in fiscal 1996. The increased loss from operations was due to lower sales.
Inflation
Because of its ability to generally 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 $550,700 in 1998, compared to an
increase of $1,024,700 in 1997 and a decrease of $2,505,300 in 1996. The
decrease in 1998 principally resulted from the payout of cash related to the
fiscal 1997 restructuring expenses and reduced borrowings from the Company's
revolving line of credit, aided by the collection of income tax refunds.
<PAGE>
The Company's capital expenditures (consisting primarily of purchases of
equipment and leasehold improvements) of approximately $546,500, $699,000, and
$1,008,500 in 1998, 1997, and 1996, respectively, have been funded primarily
from cash flows.
Near the end of fiscal 1997, the Company entered into a new bank credit
arrangement with a regional bank consisting of: (I) an $8,500,000 revolving line
of credit secured by receivables; (ii) a $500,000 term loan; and (iii) an
equipment line of credit of $1,500,000. Of the $8,500,000 revolving line of
credit, $2,500,000 is available for acquisitions, joint ventures and licensing
agreements. Borrowings from the revolving line of credit are limited to certain
percentages of accounts receivable and costs and estimated earnings in excess of
billings (up to a maximum of $4,000,000). The interest on all borrowings was
LIBOR +250, through March 1998. However, the interest was reduced to LIBOR +200
in May 1998 due to the Company achieving certain financial ratios, which the
Company expects to be reduced to LIBOR +150 in the first quarter of fiscal 1999.
At August 31, 1998, the Company had outstanding long-term debt, including the
current portion, of $1,718,600, which represented a decrease of $1,261,400 from
the August 31, 1997 balance of $2,980,000. The Company had no short-term
borrowings under its line of credit at August 31, 1998 and 1997.
The Company's existing funds, cash from operations, and the available portion of
its $8,500,000 bank line of credit and $1,500,000 equipment line are expected to
be sufficient to meet the Company's present cash needs. The Company also
currently believes it has the ability to raise capital through placement of debt
and may pursue such options if the need arises to expand facilities, make
acquisitions 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 for current operating
levels, 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.
Year 2000 Readiness Disclosures
EA Engineering, Science, and Technology, Inc. ("EA" or the "Company") recognizes
the seriousness of the challenge businesses worldwide face as a result of the
Year 2000 problem. EA formally began to address its own Year 2000 status in
early 1998. The Company believes the measures it has already taken, together
with those planned for 1999, will minimize any impact the Year 2000 problem may
have on EA's ability to deliver services to its clients, financial performance
or results of operations.
Definitions
During fiscal 1998, EA developed a three-phase program for Year 2000 compliance.
Phase I identified those systems, hardware and software that posed a compliance
risk for EA. Phase II assessed the business and financial impact of these
at-risk systems; established priorities to address these risk areas; and
prescribed remediation schedules and details. Phase III is the final testing of
the major systems to ensure compliance.
Assessment
EA's information technology infrastructure can be broadly categorized into the
following major systems: networking and communication systems, desktop
computing, major application systems, EA Laboratory, non-information technology
(non-IT) and other miscellaneous systems.
<PAGE>
The Company's Phase I assessment identified several critical elements of EA's
networking and communications infrastructure that are potentially vulnerable to
Year 2000 issues. These elements include various types of computer servers and
network routers. Additionally, various software components require new revision
to ensure compliance. Numerous databases and database access programs are
currently believed to be non-compliant.
EA's desktop computing environment is comprised predominantly of Compaq desktop
computer systems, IBM notebooks, the Microsoft Windows 95 operating system and
numerous versions and variations of commercially available software. The
majority of the desktop computer systems, notebooks and operating system
software with applicable Y2K patches, is currently believed to be Year 2000
compliant. EA leases all of its computer hardware and consequently replaces all
equipment on a three-year schedule. This rotation minimizes any Year 2000
problems in this area. Desktop application software varies greatly in its
ability to accurately process Year 2000 information.
It is currently believed that the Company's major applications, including its
financial management, human resources, and laboratory (LIMS) systems are not
Year 2000 compliant. However, a full assessment was not completed on these
systems because they are scheduled for replacement in the upcoming fiscal
period. These systems are being replaced to improve their performance and
functionality. Replacement of these systems was not accelerated due to the Year
2000 issue.
EA's laboratory is comprised of many different models of Hewlett-Packard
laboratory equipment. The hardware is currently believed to be compliant. The
system level software used on this equipment is still under review.
The non-IT and miscellaneous category includes items such as phone switches,
voice mail systems, environmental controls systems, and the like. The phone
switches are believed to be Year 2000 compliant. The voice mail system and other
remaining systems are currently under review.
Remediation / Replacement
Networking and Communications Systems - In early calendar 1998, EA restructured
its network topology. The Company currently believes that this redefinition will
significantly upgrade EA's overall communications capabilities, improve
reliability and performance, and believes it will be Year 2000 compliant. This
upgrade will be accomplished through the replacement of all critical system
components that have potential Year 2000 problems. Two of four critical field
systems have already been replaced. The remaining two will be completed by the
spring of 1999. The upgrading of the EA corporate headquarters' systems is
underway and will be completed during the first quarter of calendar 1999. EA
selected MCI Worldcom as its communications services provider. MCI Worldcom has
advised EA that it is fully Year 2000 compliant.
Coincident with the hardware upgrades, EA is upgrading its database capabilities
to be Year 2000 compliant. The database capabilities are presently expected to
be in place during the first quarter of calendar 1999. EA has retained a
consultant to convert all applicable databases to compliant software. These
database conversions will continue through the first three quarters of calendar
1999.
Desktop Computing - To address EA's desktop software computing environment, EA
standardized on the Microsoft Office Suite of application products in the second
quarter of fiscal 1998. The MS Office product is not fully compliant. Any
remaining non-compliant applications are being addressed on a project-by-project
basis. We anticipate this process to be completed in the third quarter of
calendar 1999.
Major Applications - EA plans to replace its financial management, human
resources and laboratory systems in 1998/99. The Company has selected financial
and laboratory packages that are fully Year 2000 compliant. The process to
replace these systems will begin in December of 1998. We anticipate these
systems to be fully operational by the end of the third calendar
<PAGE>
quarter of 1999. The Company is completing its review of fully compliant human
resources systems. Once selected, the implementation will begin in January 1999
and is expected to be completed in April 1999.
EA Laboratories - As part of the EA Laboratories' maintenance agreement with
Hewlett-Packard (HP), the manufacturer will be completing an independent review
of the labs' hardware and software systems during November 1998. This review
will be at no cost to EA Laboratories. We have already determined the laboratory
hardware is compliant. HP's review will confirm this assessment and provide
additional insight into the status of the software required to operate this
equipment. Any deficiencies with this software will be addressed early in 1999.
Non-IT and Miscellaneous Systems - Phone switches in the branch offices are
currently under review. The manufacturer of our voice mail systems is currently
providing input regarding the status of the systems. Should Year 2000 upgrades
be required for these systems, they will be performed during the first half of
1999. We will begin a formal review of our environmental control and facility
systems early in 1999. Issues with these systems will be addressed as they are
identified.
Testing
EA has tested and will continue to test, the Year 2000 worthiness of each
upgraded system, as it is installed. In each case, e.g., desktop systems,
networks, major systems, etc., this compliance testing is comprised of three
independent assessments: first, review of the product manufacturer's Year 2000
compliance testing certifications and results--no product is selected unless it
has been identified by the manufacturer to have passed a comprehensive battery
of Year 2000 tests; second, testing of these products prior to installation;
third, outside consultants or subcontractors will conduct independent
assessments of all of these products.
Risks and Contingency Plans
Based on the progress the Company has made toward Year 2000 compliance during
1998, together with its plans for 1999, the Company does not foresee significant
risks associated with these efforts at this time. Since EA has adopted a plan to
address these issues in a timely manner, it has not developed a comprehensive
contingency plan should these issues fail to be completed successfully or in
their entirety. However, as we monitor our progress during 1999, if the Company
identifies significant risks or is unable to meet its anticipated timeline, the
Company will develop contingency plans as deemed necessary at that time.
Third-Party Vendors, Utilities and Customers
The fact that EA provides environmental consulting services, which are primarily
labor-based, substantially minimizes the risks associated with potential Year
2000 problems with its internal systems and suppliers. The Company maintains a
broad base of vendors and suppliers and believes there is little risk to its
ongoing operations from Year 2000 problems encountered by its outside vendors.
EA will be contacting each of its major vendors and utilities early in calendar
1999 to inquire into each system's Year 2000 compliance. The Company cannot
fully assess the degree to which its customers, particularly the U.S.
Government, will successfully complete a Year 2000 upgrade on a timely basis.
Because a significant portion of the Company's business is from contracts with
various federal government agencies, a failure by the U.S. Government to achieve
Year 2000 compliance could have a significant adverse effect on the Company's
future business, financial operations and results of operations.
<PAGE>
Reasonably Likely "Worst-Case" Scenarios
EA has gone to significant lengths to provide redundancy in each major system.
For example, four independent communication paths have been defined between EA's
branch offices and its headquarters location. Any of these paths will provide
data access to the systems required to continue normal business operations. A
failure in any single major system will not result in the cessation of normal
work processes. When fully implemented during the final quarter of 1999, the
failure of any single system will pose only a minimal risk.
The greatest "reasonably likely, worst-case scenario" to EA will be from the
outside, primarily customers and subcontractors. If our customers or
subcontractors fail to prepare adequately for Year 2000, there could be numerous
and significant effects on EA. For example, subcontractors may not be able to
obtain or deliver needed data; EA employees might be unable to perform work,
resulting in a loss of revenue; payments may fail to arrive on time. Any or all
of these contingencies could, under certain circumstances, result in a
substantial and material impact on EA's financial performance.
Costs to Address Year 2000 Issues
In summary, the Company does not believe that Y2K costs will have a material
impact to its operating income. Because the Company leases all of its hardware,
remediation of these items will be completed by replacing them, with the
associated lease expense included in the Company's normal operating costs. The
cost of remediation of database software, miscellaneous desktop software
upgrades, and non-IT systems is expected to be less than $30,000. However, it is
possible that non-compliant Hewlett-Packard software in EA Laboratories may have
a material impact, although the exact amount is not known at this time. The
replacement of major applications was previously planned to improve performance
and functionality requirements. These replacements were not accelerated due to
Year 2000 issues; as such the costs of these systems are part of the Company's
capital budget.
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>
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------
August 31, 1998 1997
- -----------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . . . . $ 1,782,600 $ 2,333,300
Accounts receivable, net. . . . . . . . . . . . 8,441,900 9,498,800
Costs and estimated earnings in excess of
billings on uncompleted contracts. . . . . . 6,394,900 5,653,800
Refundable income taxes . . . . . . . . . . . . 407,600 1,883,900
Prepaid expenses and other. . . . . . . . . . . 1,090,600 1,865,500
- ------------------------------------------------------------------------------
Total Current Assets. . . . . . . . . . . 18,117,600 21,235,300
- ------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, at cost:
Furniture, fixtures and equipment . . . . . . . 13,106,900 12,599,200
Leasehold improvements . . . . . . . . . . . . 3,675,600 3,664,800
- ------------------------------------------------------------------------------
Total property and equipment, at cost . . . . . 16,782,500 16,264,000
Less-accumulated depreciation and amortization (15,001,400) (13,867,200)
- ------------------------------------------------------------------------------
Net Property and Equipment . . . . . . . . . 1,781,100 2,396,800
- ------------------------------------------------------------------------------
OTHER ASSETS . . . . . . . . . . . . . . . . . . . 3,576,200 3,009,800
- ------------------------------------------------------------------------------
Total Assets. . . . . . . . . . . . . . . . . . $23,474,900 $26,641,900
- ------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . $ 4,494,300 $ 4,306,900
Accrued expenses . . . . . . . . . . . . . . . . 735,100 2,694,600
Accrued salaries, wages and benefits . . . . . . 2,270,800 2,891,200
Current portion of long-term debt. . . . . . . . 438,800 648,300
Billings in excess of costs and estimated
earnings on uncompleted contracts . . . . . . 246,700 512,200
- ------------------------------------------------------------------------------
Total Current Liabilities . . . . . . . . . . 8,185,700 11,053,200
- ------------------------------------------------------------------------------
LONG-TERM DEBT, net of current portion . . . . . . 1,279,800 2,331,700
- ------------------------------------------------------------------------------
Total Liabilities . . . . . . . . . . . . . . 9,465,500 13,384,900
- ------------------------------------------------------------------------------
COMMITMENTS
- ------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; voting 10,000,000
shares authorized; 6,285,500 and 6,227,300
shares issued and outstanding . . . . . . . . 62,900 62,300
Preferred stock, $.01 par value; 8,000,000
shares authorized; none issued. . . . . . . . -- --
Capital in excess of par value . . . . . . . . . 11,049,300 10,902,300
Retained earnings . . . . . . . . . . . . . . . 2,897,200 2,292,400
- ------------------------------------------------------------------------------
Total Stockholders' Equity. . . . . . . . . . 14,009,400 13,257,000
- ------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $23,474,900 $26,641,900
- ----------------------------------------------------------------- ------------
The accompanying notes are an integral part of these balance sheets.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------------------
Year Ended August 31, 1998 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total revenue . . . . . . . . . . . . . . . . $ 59,987,200 $ 73,890,900 $ 88,307,800
Less - Subcontractor costs. . . . . . . . . . (11,406,600) (21,435,800) (23,954,100)
Less - Other direct project costs . . . . . . (6,883,700) (11,434,900) (10,289,200)
Net revenue . . . . . . . . . . . . . . . . 41,696,900 41,020,200 54,064,500
- --------------------------------------------------------------------------------------------
Operating costs and expenses:
Direct salaries and other operating . . . . 31,473,800 37,560,300 46,535,500
Sales, general and administrative . . . . . 9,374,400 8,481,900 7,972,600
Gain on "key employee" life insurance . . . (261,100) -- --
Restructuring charges . . . . . . . . . . . -- 3,000,100 --
- --------------------------------------------------------------------------------------------
Total operating expenses . . . . . . . . 40,587,100 49,042,300 54,508,100
- --------------------------------------------------------------------------------------------
Income (loss) from operations . . . . . . . . 1,109,800 (8,022,100) (443,600)
- --------------------------------------------------------------------------------------------
Interest expense. . . . . . . . . . . . . . . (244,600) (446,400) (464,900)
Interest income . . . . . . . . . . . . . . . 98,800 91,600 107,400
- --------------------------------------------------------------------------------------------
Income (loss) before income taxes . . . . . . 964,000 (8,376,900) (801,100)
- --------------------------------------------------------------------------------------------
(Benefit from) provision for income taxes . . 359,200 (2,969,300) (221,000)
- --------------------------------------------------------------------------------------------
Net income (loss) . . . . . . . . . . . . . . $ 604,800 $ (5,407,600) $ (580,100)
- --------------------------------------------------------------------------------------------
Basic earnings (loss) per share . . . . . . . $0.10 $(0.87) $(0.09)
Diluted earnings (loss) per share . . . . . . $0.10 $(0.87) $(0.09)
- --------------------------------------------------------------------------------------------
Weighted average shares outstanding . . . . . 6,255,500 6,205,700 6,138,100
Effect of dilutive stock options. . . . . . . 91,100 -- --
Diluted weighted average shares outstanding . 6,346,600 6,205,700 6,138,100
- --------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
For the Years Ended August 31, 1998, 1997, and 1996
Capital in
Common Excess of Retained
Stock Par Value Earnings Total
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 31, 1995 . . . . . . . . . . $60,900 $10,538,700 $8,280,100 $18,879,700
Issuance of stock. . . . . . . . . . . . . . 900 233,000 -- 233,900
Tax benefit from stock options exercised . . -- 24,600 -- 24,600
Net Loss . . . . . . . . . . . . . . . . . . -- -- (580,100) (580,100)
- ----------------------------------------------------------------------------------------------------
Balance, August 31, 1996 . . . . . . . . . . 61,800 10,796,300 7,700,000 18,558,100
Issuance of stock. . . . . . . . . . . . . . 500 106,000 -- 106,500
Net Loss . . . . . . . . . . . . . . . . . . -- -- (5,407,600) (5,407,600)
- ----------------------------------------------------------------------------------------------------
Balance, August 31, 1997 . . . . . . . . . . 62,300 10,902,300 2,292,400 13,257,000
Issuance of stock. . . . . . . . . . . . . . 600 147,000 -- 147,600
Net Income . . . . . . . . . . . . . . . . . -- -- 604,800 604,800
- ----------------------------------------------------------------------------------------------------
Balance, August 31, 1998 . . . . . . . . . . $62,900 $11,049,300 $2,897,200 $14,009,400
- ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------
Year Ended August 31, 1998 1997 1996
- --------------------------------------------------------------------------------------------------
CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) . . . . . . . . . . . . . . . . . . $ 604,800 $(5,407,600) $ (580,100)
Noncash expenses included in net income (loss) -
Depreciation and amortization. . . . . . . . . . . 1,162,200 1,427,100 1,683,900
Current benefit from income taxes. . . . . . . . . -- (2,969,300) (221,000)
Changes in operating assets and liabilities -
Decrease in accounts receivable, net . . . . . . . 1,056,900 3,193,900 2,165,400
(Increase) decrease in costs and estimated earnings
in excess of billings on uncompleted contracts . (741,100) 6,828,400 (1,747,200)
Increase in prepaid expenses and other assets . . . (183,500) (314,000) (110,800)
Decrease in accounts payable and accrued expenses . (2,392,500) (370,900) (1,149,400)
Refunds of income taxes (net of payments) . . . . . 1,868,300 244,200 (430,800)
Decrease (increase) in billings in excess of costs
and estimated earnings on uncompleted contracts (265,500) (685,500) 148,400
- --------------------------------------------------------------------------------------------------
Net cash flows from (used for) operating activities 1,109,600 1,946,300 (241,600)
- --------------------------------------------------------------------------------------------------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchase of equipment, net . . . . . . . . . . . . . . (546,500) (699,000) (1,008,500)
- --------------------------------------------------------------------------------------------------
Net cash flows used for investing activities. . . . (546,500) (699,000) (1,008,500)
- --------------------------------------------------------------------------------------------------
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Net borrowings from revolving line of credit. . . . . (635,400) 481,200 3,000,000
Proceeds from issuance of common stock. . . . . . . . 147,600 106,500 233,900
Reduction of long-term debt and short-term borrowings (626,000) (810,300) (4,489,100)
- --------------------------------------------------------------------------------------------------
Net cash flows from (used for) financing activities (1,113,800) (222,600) (1,255,200)
- --------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . (550,700) 1,024,700 (2,505,300)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . . . . 2,333,300 1,308,600 3,813,900
- --------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . $ 1,782,600 $ 2,333,300 $ 1,308,600
- --------------------------------------------------------------------------------------------------
</TABLE>
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 YEARS ENDED AUGUST 31, 1998, 1997, AND 1996
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); its wholly-owned subsidiaries,
EA International, Inc. and EA Financial, Inc.; and EA Financial, Inc.'s
wholly-owned subsidiaries, 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.
Segment Information--
The Company is organized around two operating segments. The primary segment is
Management Consulting Services, provided through a network of offices throughout
the United States, Mexico and Guam; and Analytical Services provided through its
laboratory facility located in Maryland.
Revenue Recognition--
The Company is an international consulting firm specializing in the fields of
energy, the environment, health and safety, and analytical services. These
services are generally performed under time-and-material, fixed-price, and
cost-plus-fixed-fee contracts. Task orders from these contracts vary in length
from one month to two years.
The Company's Management Consulting Services segment 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. The majority of the Analytical Services
segment contracts are on a fixed-unit priced basis. Revenue for fixed-unit
priced contracts is recognized currently as sample units are processed.
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 50%, 46%,
and 45% of the Company's (primarily Management Consulting Services) net revenue
for the years ended August 31, 1998, 1997, and 1996, respectively. Additionally,
various agencies of the federal government accounted for approximately 45% and
40% of the Company's accounts receivable and costs and estimated earnings in
excess of billings on uncompleted contracts as of August 31, 1998 and 1997,
respectively. One industrial client accounted for approximately 54% of the
Analytical Services segment's gross sales and over 70% of its external client
billings. In addition to this one client, major external clients for Analytical
Services in fiscal 1997 and 1996 included the federal government and two other
industrial clients.
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
value.
<PAGE>
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. Depreciation expense for the fiscal years ended August 31, 1998, 1997 and
1996 was $1,162,200, $1,427,100 and $1,683,900, respectively.
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 costs.
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
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 during the years ended August 31, 1998, 1997, and 1996 for interest,
was $233,700, $467,200, and $474,200, respectively. Retirements of property and
equipment for the same periods were $28,000, $897,200, and $2,602,400,
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.
Accounting Pronouncements--
In February 1997, the FASB issued Statement No. 128 (SFAS 128), "Earnings Per
Share," which establishes new standards for computing and presenting earnings
per share. SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. Management has
implemented SFAS 128.
In February 1997, the FASB issued Statement No. 129 (SFAS 129), "Disclosure of
Information about Capital Structure," which eliminates the exemption of
nonpublic entities from certain disclosure requirements of APB Opinion No. 15 as
provided by FASB Statement No. 21. SFAS 129 is effective for periods ending
after December 15, 1997. Management has implemented SFAS 129.
In June 1997, the FASB issued Statement No. 130 (SFAS 130), "Reporting
Comprehensive Income,"which establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. SFAS 130 is effective for fiscal years beginning after
December 15, 1997. Management is currently evaluating the impact SFAS 130 will
have on the Company's financial reporting for fiscal year ending August 31,
1999.
<PAGE>
In July 1997, the FASB issued Statement No. 131 (SFAS 131), "Disclosures About
Segments of an Enterprise and Related Information," which establishes a new
approach for determining segments within a company and reporting information on
those segments. SFAS 131 is effective for fiscal years beginning after December
15, 1997. Management has elected to implement SFAS 131 for the fiscal period
ended August 31, 1998.
In February 1998, the FASB issued Statement No. 132 (SFAS 132), "Employers
Disclosure about Pensions and Other Postretirement Benefits," which standardizes
the disclosure requirements for pensions and other postretirement benefit plans.
SFAS 132 is effective for fiscal years beginning after December 15, 1997.
Management has not yet determined whether the implementation of SFAS 132 will
have an impact on the Company's financial reporting for the fiscal year ending
August 31, 1999.
In June 1998, the FASB issued Statement No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. SFAS 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
The Company does not hold derivatives and, as such, SFAS 133 will not have an
impact.
Note 2. SEGMENT FINANCIAL INFORMATION:
The following table provides selected financial information as reviewed by the
Company's management in making decisions about allocating resources to each
segment and assessing its performance.
<TABLE>
Management Consulting Svcs. Analytical Services
- -------------------------------------------------------------------------------------------------------
Year Ended August 31, 1998 1997 1996 1998 1997 1996
- -------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Gross revenue $56,484 $72,559 $86,390 $3,503 $1,332 $1,918
Intercompany sales (2,870) (4,370) (5,457) 2,870 4,370 5,457
- -------------------------------------------------------------------------------------------------------
Total gross revenue 53,614 68,189 80,933 6,373 5,702 7,375
Net revenue 36,696 37,443 48,495 5,000 3,577 5,569
- -------------------------------------------------------------------------------------------------------
Operating and administrative expenses 35,506 44,305 48,457 5,080 4,737 6,051
- -------------------------------------------------------------------------------------------------------
Income (loss) from operations 1,190 (6,862) 38 (80) (1,160) (482)
Net interest (122) (287) (209) (24) (67) (148)
Income taxes (401) 2,534 47 42 435 174
- -------------------------------------------------------------------------------------------------------
Net income (loss). $ 667 $(4,615) $ (124) $ (62) $ (792) $ (456)
- -------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share $0.11 $(0.74) $(0.02) $(0.01) $(0.13) $(0.07)
Net property/equipment $ 1,133 $ 1,534 $2,000 $ 648 $ 863 $1,125
</TABLE>
<PAGE>
Furthermore, the Company's management team reviews its Management Consulting
Services by each geographical office location. The following represents net
revenue, by office, for the fiscal year ended August 31, 1998.
Management Consulting Services (in 000s)
----------------------------------------------------------
Boston, MA $ 1,195
Newburgh, NY 2,420
Berkeley Heights, NJ 2,220
Baltimore, MD 14,631
Washington, DC 865
Dallas, TX 2,201
Chicago, IL 630
Lincoln, NB 1,700
San Francisco, CA 3,426
Sacramento, CA 1,435
Seattle, WA 2,109
Anchorage, AK 917
Guam 2,030
Mexico 218
Hawaii 175
Others 524
----------------------------------------------------------
Total net revenue $36,696
==========================================================
Prior to fiscal 1998, the Company did not keep revenue data by geographical
region. To gather this information would be impractical; therefore, it is not
included. Additionally, in the past the Company has not identified assets by
segments; therefore, any asset information provided by segment has been
estimated.
Note 3. INCOME TAXES:
The provision for (benefit from) income taxes includes current and deferred tax
amounts summarized as follows:
Year Ended August 31,
- -------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------
Current tax expense (benefit):
Federal $(43,500) $(1,659,500) $(18,400)
State -- -- (4,300)
- -------------------------------------------------------------------------------
(43,500) (1,659,500) (22,700)
- -------------------------------------------------------------------------------
Deferred tax expense (benefit):
Federal 337,400 (1,309,800) (160,600)
State 65,300 -- (37,700)
- -------------------------------------------------------------------------------
402,700 (1,309,800) (198,300)
- -------------------------------------------------------------------------------
Provision for (benefit from) income taxes $359,200 $(2,969,300) $(221,000)
===============================================================================
<PAGE>
Total deferred tax assets and liabilities as of August 31, 1998 and 1997 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,
------------------------------------------------------------------
1998 1997
------------------------------------------------------------------
Deferred tax assets:
Property and equipment $1,031,300 $ 929,600
Accrued expenses and reserves 493,900 1,878,900
Net operating loss 1,254,900 398,200
------------------------------------------------------------------
2,780,100 3,206,700
==================================================================
Deferred tax liabilities:
Prepaid expenses 9,300 99,300
Miscellaneous 269,600 203,500
------------------------------------------------------------------
$ 278,900 $ 302,800
==================================================================
The net deferred tax assets of $2,501,200 and $2,903,900 as of August 31, 1998
and 1997 are included to the extent appropriate in Prepaid expenses and other
and Other Assets in the accompanying consolidated balance sheets.
Reconciliation of the statutory federal income tax rate and the effective income
tax rate is summarized as follows:
<TABLE>
Year Ended August 31,
-----------------------------------------------------------------------------------
1998 1997 1996
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income tax, net of federal income tax effect 5.3 5.3 5.3
Non-recognition of future benefit from foreign loss 1.9 (0.4) (4.8)
Other (3.9) (3.5) (6.9)
----------------------------------------------------------------------------------
Effective income tax rate 37.3% 35.4% 27.6%
==================================================================================
</TABLE>
Note 4. ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
Year Ended August 31,
-----------------------------------------------------------------------
1998 1997
-----------------------------------------------------------------------
Contract accounts receivable $7,383,500 $ 8,802,400
Retainage by clients 1,315,600 1,228,400
-----------------------------------------------------------------------
Total accounts receivable 8,699,100 10,030,800
Less-Allowance for doubtful accounts (257,200) (532,000)
-----------------------------------------------------------------------
Accounts receivable, net $8,441,900 $ 9,498,800
=======================================================================
Management anticipates that substantially all retainages will be billed within
one year.
<PAGE>
Note 5. CONSTRUCTION LOSS:
In fiscal 1997, the Company recognized estimated losses related to certain
landfill projects. These losses are included in accrued expenses in the
consolidated balance sheets. As of August 31, 1998 and 1997, the related
balances were $90,100 and $1,337,900, respectively. For the period ended August
31, 1998, a total of $829,500 of the previously recognized losses was reversed
into income as change orders and various settlements were realized.
Note 6. BANK FINANCING ARRANGEMENTS:
The Company entered into a new credit arrangement with a regional bank during
fiscal year 1997 consisting of: (i) an $8,500,000 revolving line of credit
secured by receivables; (ii) a $500,000 term loan; and (iii) an equipment line
of credit of $1,500,000. Of the $8,500,000 revolving line of credit, $2,500,000
is available for acquisitions, joint ventures and licensing agreements.
Borrowings under the revolving line of credit are limited to a percentage of
certain accounts receivable and costs and estimated earnings in excess of
billings on uncompleted contracts (up to a maximum of $4,000,000). The agreement
was effective August 22, 1997. During fiscal years 1998, 1997, and 1996, the
Company was either in compliance or had obtained waivers on all covenants
related to these and prior related arrangements.
Short-term borrowings information resulting from the financing arrangements is
as follows:
Year Ended August 31,
------------------------------
1998 1997 1996
--------------------------------------------------------------------------
Balance as of end of period $ -- $ -- $ --
Maximum outstanding month-end
balance during the period -- 3,615,300 5,490,900
Average outstanding month-end
balance during the period -- 564,000 598,800
Weighted average interest rate
during the period -- 11.5% 8.4%
Interest rate at the end of period -- 11.5% 8.3%
==========================================================================
The weighted average interest rate has been calculated based upon the actual
daily interest expense and the daily average balance outstanding. The Company
had no short-term borrowing during fiscal 1998. For the year ended August 31,
1997, the Company only maintained short-term borrowing balances during the
months of April through August. Prior to April and at the end of August 1997,
all borrowings were considered long term. For the year ended August 31, 1996,
short-term balances were for nine months through May 31, 1996.
<PAGE>
Long-term debt consists of the following:
<TABLE>
August 31, 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revolving credit facility payable to commercial bank effective
August 22, 1997, interest charged at LIBOR plus 200; facility
expires September 2000 $1,192,400 $1,827,700
Note payable to a commercial bank payable in equal monthly
installments of $29,600, which includes interest at 9.1%,
through December 1999 secured by certain computer equipment 418,300 720,500
Note payable to a commercial bank payable in equal installments
of $43,651 through December 1997. Thereafter, $21,429, plus
interest charged at LIBOR plus 200 through January 1999; secured by
leasehold improvements and certain analytical laboratory equipment 107,900 431,800
- ------------------------------------------------------------------------------------------------
Total long-term debt 1,718,600 2,980,000
Less-current portion (438,800) (648,300)
- ------------------------------------------------------------------------------------------------
Long-term portion $1,279,800 $2,331,700
================================================================================================
</TABLE>
The debt repayment schedule for the outstanding notes payable is as follows:
Year Ending August 31,
-------------------------------------------------------
1999 $ 438,800
2000 87,500
2001 and thereafter 1,192,300
-------------------------------------------------------
Total notes payable $1,718,600
=======================================================
The fair value of the Company's outstanding indebtedness approximated its
carrying value at August 31, 1998.
Note 7. 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 2007, and certain leases call for annual
proportionate increases due to property taxes and certain other operating
expenses. Lease expense amounted to $6,061,000, $8,030,200, and $8,912,300, for
the years ended August 31, 1998, 1997, and 1996, respectively. Lease expense
included payments of approximately $1,900,400, $2,016,500, and $2,054,900, for
years ended August 31, 1998, 1997, and 1996, respectively, to partnerships whose
partners include the Chairman of the Board of EA and certain members of his
family for its central office, and Loveton, Maryland, regional office and
laboratory facility. These payments include reimbursements of approximately
$873,000 per year for pass-through taxes and operating expenses incurred by the
lessor which include local property taxes, janitorial and mechanical equipment
maintenance, and utility costs related to the operation of both office and
laboratory leased space. Management of the Company believes the terms and
conditions of the transactions between the Company and entities with which the
Chairman is affiliated, are at least as favorable to the Company as could have
been obtained from third parties and are in the best interest of the Company.
<PAGE>
The minimum lease commitments under noncancellable operating leases are as
follows:
Year Ending August 31,
-------------------------------------------------------
1999 $ 3,549,900
2000 2,774,900
2001 2,400,000
2002 2,139,800
2003 2,023,800
2004 and thereafter 6,470,700
=======================================================
Total minimum payments $19,359,100
=======================================================
Note 8. NET INCOME (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. All
disclosures with regard to the shares of common stock have been adjusted
retroactively to reflect two 3-for-2 stock splits, effected in the form of 50%
stock dividends wherein, on February 23, 1994 and July 5, 1994, one additional
share of stock was issued for each two shares outstanding as of the record dates
of February 8, 1994 and June 28, 1994, respectively.
Note 9. PROFIT SHARING:
EA maintains a defined contribution plan in which all employees who are at least
21 years of age and have completed six months of credited service, as defined by
the plan, are eligible to participate. The plan provides for discretionary
employer contributions for each fiscal year, in amounts determined annually by
the Board of Directors. The plan also includes a 401(k) provision, allowing for
Company matching contributions. For the years ended August 31, 1998, 1997, and
1996, matching contributions to the plan made under the 401(k) provisions of the
plan, were $472,100, $534,900, and $729,200, respectively. Certain officers and
stockholders of the Company serve as trustees to the plan under appointment of
the Board of Directors.
Note 10. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS:
The Company maintains an Amended and Restated 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
799,800 options are issued and outstanding as of August 31, 1998, having an
average exercise price of $2.43. The exercise prices of the outstanding options
ranged between $1.39 and $11.75, which equaled the fair market value at the
dates of grant. 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 dates of grant.
<PAGE>
The Company maintains an Employee Stock Purchase Plan (the "Purchase Plan") to
provide eligible employees with the opportunity to purchase shares of the
Company's Common Stock through voluntary payroll deductions. Under the Purchase
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 120,600 shares
remain authorized for distribution under the Purchase Plan as of August 31,
1998.
The Company maintains two Non-Employee Director Stock Option Plans (1993 and
1995) which provide for the granting of nonqualified stock options to its
non-employee directors. The exercise price of the 17,000 options, which were
outstanding as of August 31, 1998, ranged between $2.03 and $6.13, which equaled
the fair market value at the dates of grant. A total of 33,500 options remain
reserved for the Director Stock Option Plans as of August 31, 1998.
The Company accounts for these plans under APB Opinion No. 25, under which no
compensation cost has been recognized. Had compensation cost for plans been
determined consistent with FASB Statement No. 123, the Company's net income
(loss) and earnings (loss) per share would have changed the following pro forma
amounts:
Year Ended August 31, 1998 1997 1996
- -----------------------------------------------------------------------------
Net income (loss) As Reported $604,800 $(5,407,600) $(580,100)
Pro Forma 513,200 (5,470,200) (580,100)
Earnings (loss) per share As Reported $0.10 $(0.87) $(0.09)
Pro Forma 0.08 (0.88) (0.09)
Diluted earnings (loss) As Reported $0.10 $(0.87) $(0.09)
per share Pro Forma 0.08 (0.88) (0.09)
A summary of the status of activity in fiscal years 1998, 1997 and 1996 under
the Company's Employee Stock Option Plan and Non-Employee Director Stock Option
Plans (1993 and 1995) follows:
<TABLE>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
Shares Wgtd.Avg. Shares Wgtd.Avg. Shares Wgtd.Avg.
(000) Exer.Price (000) Exer.Price (000) Exer.Price
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 616 $2.37 180 $4.13 341 $4.30
Granted 273 2.65 506 2.10 11 4.61
Exercised (27) 2.45 -- -- (28) 1.41
Forfeited (45) 2.72 (70) 4.96 (144) 5.08
Expired -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------
Outstanding at end of year 817 2.44 616 2.37 180 4.13
Exercisable at year end 269 $2.59 164 $2.99 136 $3.40
- ---------------------------------------------------------------------------------------------------------
Weighted Average Fair Value of
Options Granted $1.35 $0.96 $1.79
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998, 1997 and 1996: Risk-free interest rates
ranging from 5.19% to 6.68%; expected volatility is 63% in 1998 and 62% in 1997
and 1996.
<PAGE>
Note 11. COMPANY RESTRUCTURING:
On March 25, 1997 the Company implemented a major organizational realignment to
reposition itself in the marketplace. In connection with the restructuring, the
Company incurred charges of $3,000,100 during the fiscal 1997 third quarter
related to severance, planned reduction in office space, suspended
implementation of a new project/financial system, and other related costs.
This restructuring included a staff reduction of approximately 125 employees.
As of August 31, 1998 and 1997, the Company had accruals of $76,600 and
$880,100, respectively, included as other current liabilities in the
accompanying consolidated balance sheet for costs to be incurred in future
periods in connection with the restructuring.
Note 12. "KEY EMPLOYEE" LIFE INSURANCE
In April 1998, adjustments were made to the actual cash value of two "key
employee" life insurance policies for the 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. As a result, Other Assets was increased by $261,100, and
a one-time gain was recognized during the period.
Note 13. RELATED PARTY TRANSACTIONS
At the request of its former primary lender and in order to maintain its
favorable relationship with that lender, the Company in December 1996 purchased
from this lender the secured loans of three former EA officers. These
interest-free demand loans, in the aggregate amount of $301,000, are secured by
pledges of the Company's common stock. The differential between the current fair
market value of the pledged stock and the amount of the loans is fully reserved
within the Company's balance sheet.
<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, 1998 and 1997, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for each of the three years in
the period ended August 31, 1998. 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, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended August 31, 1998, in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
Baltimore, Maryland
October 30, 1998
<PAGE>
INSIDE BACK COVER
DIRECTORS & OFFICERS AND CORPORATE INFORMATION
Directors
Edmund J. Cashman, Jr.*
Senior Executive Vice President of Legg
Mason, Inc. and Legg Mason Wood Walker,
Inc.; Director/Trustee, Various Legg Mason
Registered Investment Companies
Donald A. Deieso, Ph.D.
President and Chief Executive Officer of the Company
Loren D. Jensen, Ph.D.
Chairman of the Board of the Company
Rudolph P. Lamone, Ph.D.*
Chairman of the Board, Michael D. Dingman
Center for Entrepreneurship, Robert H. Smith
School of Business, University of Maryland
College of Business and Management
Cleaveland D. Miller, Esq.*
Managing Partner of Semmes, Bowen &
Semmes, a Professional Corporation
George G. Radcliffe*
Chairman of the Board, Emeritus, The
Baltimore Life Insurance Company; Trustee
Emeritus of The Johns Hopkins University
*Audit, Ethics and Compensation Committee Member
Subsidiaries
EA Financial, Inc.
900 Market Street, Suite 200
Wilmington, Delaware 19801
EA de Mexico, S.A. de C.V.
Newton 53, Suite 11
Colonia Polanco-Chapultepec
Mexico, D.F. 11560
EA International, Inc.
11019 McCormick Road
Hunt Valley, Maryland 21031
OFFICERS
Loren D. Jensen, Ph.D., Chairman of the Board
Donald A. Deieso, Ph.D., President and Chief Executive Officer
Bijan S. Saless, Executive Vice President, Sales and Marketing
Jack P. Adler, Esq., Senior Vice President, Secretary and General Counsel
Barbara L. Posner, Senior Vice President, Finance and Administration
Edward M. Greco, President, EA International, Inc.
Reza Karimi, Ph.D., President, EA Laboratories
STOCKHOLDER INFORMATION
Independent Public Accountants
Arthur Andersen LLP
Baltimore, Maryland
Legal Counsel
Semmes, Bowen & Semmes
Baltimore, Maryland
Registrar and Transfer Agent
ChaseMellon Shareholder Services
Pittsburgh, Pennsylvania
Common Stock Listing
NASDAQ Symbol: EACO
Annual Meeting
The Annual Meeting of the Stockholders will
be held on January 14, 1999 at 9:00 a.m. (EST)
at Marriott's Hunt Valley Inn in Hunt Valley,
Maryland.
SEC Form 10-K
The Company's Form 10-K Annual Report
for the year ended August 31, 1998 has
been filed with the Securities and Exchange
Commission. A copy of this Report is
available upon request.
Corporate Headquarters
EA Engineering, Science, and Technology, Inc.
11019 McCormick Road
Hunt Valley, Maryland 21031
www.eaest.com
BACK COVER
Corporate Headquarters
EA Engineering, Science, and Technology, Inc.
11019 McCormick Road
Hunt Valley, MD 21031
Phone: (410)584-7000
Fax: (410) 771-1625
Anchorage, AK - Fairbanks, AK - Sacramento, CA - San Francisco, CA - New Castle,
DE - Washington, DC - Miami, FL - Yigo, GU - Honolulu, HI - Chicago, IL -
Baltimore, MD - Boston, MA - Mexico City, MX - Lincoln, NE - Berkeley Heights,
NJ - Newburgh, NY - Syracuse, NY - Dallas, TX - Williamsburg, VA - Seattle, WA
State or Country
Name of Incorporation
---- ----------------
EA Financial, Inc. Delaware
900 Market Street, Suite 200
Wilmington, Delaware 19801
EA de Mexico, S.A. de C.V. Mexico
Newton 53, Suite 11
Colonia Polanco-Chapultepec
Mexico, D.F. 11560
EA International, Inc. Maryland
11019 McCormick Road
Hunt Valley, Maryland 21031
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