UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)OF THE SECURITIES
- --- EXCHANGE ACT OF 1934.
For the quarterly period ended: February 28, 1998
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-15587
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EA Engineering, Science, and Technology, Inc.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 52-0991911
- --------------------------------------------------------------------------------
(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
-----------------------------
Indicate by check X 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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of each of the Issuer's classes of common
stock as of the close of business on April 3, 1998:
Class Number of Securities
----- --------------------
Common Stock, par value $.01 6,242,730
Page 1 of 19
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I
Item 1 FINANCIAL INFORMATION
Consolidated Balance Sheets - Assets............................................................... 4
Consolidated Balance Sheets - Liabilities and Stockholders' Equity................................. 5
Consolidated Statements of Income.................................................................. 6
Consolidated Statements of Cash Flows.............................................................. 7
Notes to Consolidated Financial Statements......................................................... 8
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................................................13
PART II - OTHER INFORMATION......................................................................................16
Item 4 Submission of Matters to a Vote of Security Holders................................................16
Item 6
(a) Exhibits
11 Schedule of Weighted Shares Outstanding................................................18
27 Financial Data Schedule................................................................19
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
The consolidated financial statements included herein for EA Engineering,
Science, and Technology, Inc. and Subsidiaries (the "Company") have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. In management's opinion, the interim
financial data presented includes all adjustments (which include only normal
recurring adjustments) necessary for a fair representation. Certain information
and footnote disclosures, normally included in the consolidated financial
statements prepared in accordance with generally accepted accounting principles,
have been condensed or omitted pursuant to such rules and regulations. The
Company believes, however, that the disclosures are adequate to understand the
information presented. These consolidated financial statements should be read in
conjunction with the Company's August 31, 1997 consolidated financial statements
and notes thereto included in the Company's 1997 Annual Report on Form 10-K.
3
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EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
February 28, August 31,
1998 1997
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents...................... $ 1,796,300 $ 2,333,300
Accounts receivable, net....................... 6,442,100 9,498,800
Costs and estimated earnings in excess of
billings on uncompleted contracts............ 6,219,900 5,653,800
Refundable income taxes........................ 40,900 1,883,900
Prepaid expenses and other..................... 2,010,300 1,865,500
----------- ------------
Total Current Assets....................... 16,509,500 21,235,300
----------- ------------
PROPERTY AND EQUIPMENT, at cost:
Furniture, fixtures and equipment.............. 13,008,500 12,599,200
Leasehold improvements......................... 3,684,700 3,664,800
----------- -----------
16,693,200 16,264,000
Less-Accumulated depreciation and amortization. (14,431,200) (13,867,200)
----------- -----------
Net Property and Equipment................... 2,262,000 2,396,800
----------- -----------
OTHER ASSETS..................................... 2,849,100 3,009,800
----------- -----------
Total Assets................................... $21,620,600 $26,641,900
=========== ===========
The accompanying notes are an integral part of these statements.
4
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EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
February 28, August 31,
1998 1997
----------- -----------
CURRENT LIABILITIES:
Accounts payable...............................$ 3,501,400 $ 4,306,900
Accrued expenses............................... 1,141,300 2,694,600
Accrued salaries, wages and benefits........... 2,214,000 2,891,200
Current portion of long-term debt.............. 574,900 648,300
Billings in excess of costs and estimated
earnings on uncompleted contracts............ 74,100 512,200
----------- -----------
Total Current Liabilities.................... 7,505,700 11,053,200
LONG-TERM DEBT, net of current portion........... 417,500 2,331,700
----------- -----------
Total Liabilities............................. 7,923,200 13,384,900
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 10,000,000 shares
authorized; 6,244,000 and 6,227,300 shares
issued and outstanding....................... 62,500 62,300
Preferred stock, $.01 par value; 8,000,000 shares
authorized; none issued...................... -- --
Capital in excess of par value................. 10,936,900 10,902,300
Retained earnings.............................. 2,698,000 2,292,400
----------- -----------
Total Stockholders' Equity................. 13,697,400 13,257,000
----------- -----------
Total Liabilities and Stockholders'
Equity................................. $21,620,600 $26,641,900
=========== ===========
The accompanying notes are an integral part of these statements.
5
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 28, February 28, February 28, February 28,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S><C>
Total revenue............................ $14,418,100 $17,537,400 $30,611,400 $39,715,900
Less - Subcontractor costs............... (2,597,300) (6,005,500) (6,085,900) (13,201,900)
Less - Other direct project costs........ (1,200,900) (2,967,300) (3,184,300) (5,450,000)
----------- ----------- ----------- -----------
Net revenue........................... 10,619,900 8,564,600 21,341,200 21,064,000
----------- ----------- ----------- -----------
Operating expenses:
Direct salaries and other operating... 7,952,900 10,406,500 15,900,600 20,613,800
Sales, general and administrative..... 2,375,300 2,129,700 4,676,500 4,056,600
----------- ----------- ----------- -----------
Total operating expenses........... 10,328,200 12,536,200 20,577,100 24,670,400
----------- ----------- ----------- -----------
Income (loss) from operations........... 291,700 (3,971,600) 764,100 (3,606,400)
Interest expense, net................... (38,200) (167,300) (88,100) (221,400)
----------- ----------- ----------- -----------
Income (loss) before income taxes....... 253,500 (4,138,900) 676,000 (3,827,800)
Provision for income taxes.............. 132,200 (1,655,600) 270,400 (1,531,200)
----------- ----------- ----------- -----------
Net income (loss)....................... $ 121,300 $(2,483,300) $405,600 $(2,296,600)
=========== =========== ========== ===========
Basic earnings (loss) per share......... $0.02 $(0.40) $0.07 $(0.37)
Diluted earnings (loss) per share....... $0.02 $(0.40) $0.06 $(0.37)
====== ====== ===== ======
Weighted avg. shares outstanding........ 6,241,400 6,200,200 6,237,400 6,192,600
Diluted weighted avg. shares outstanding 6,300,200 6,200,200 6,257,400 6,192,600
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
6
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EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
-------------------------
February 28, February 28,
1998 1997
----------- -----------
<S><C>
CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES:
Net income (loss)................................. $ 405,600 $(2,296,600)
Noncash expenses included in net income (loss) -
Depreciation and amortization................... 592,000 802,400
Current Benefit from income taxes............... -- (1,531,100)
Changes in operating assets and liabilities -
Decrease (increase) in accounts receivable, net 3,056,700 (1,510,100)
(Increase) decrease in costs and estimated earn-
ings in excess of billings on uncompleted
contracts..................................... (566,100) 6,950,600
Decrease (increase) in prepaid expenses and
other assets.................................. 15,900 (749,200)
Decrease in accounts payable and accrued expenses (3,036,000) (2,696,400)
Refunds of income taxes....................... 1,843,000 337,500
Decrease in billings in excess of costs and
estimated earnings on uncompleted contracts... (438,100) (76,800)
----------- -----------
Net cash flows from (used for) operating activities... 1,873,000 (769,700)
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchase of equipment, net........................ (457,200) (313,400)
----------- -----------
Net cash flows used for investing activities.... (457,200) (313,400)
----------- -----------
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Net repayments (borrowings) from revolving
line of credit ................................. (1,644,700) 1,794,200
Proceeds from issuance of common stock............ 34,800 64,800
Reduction of long-term debt and short-term borrowings.. (342,900) (450,800)
----------- -----------
Net cash flows from (used for) financing
activities.................................. (1,952,800) 1,408,200
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (537,000) 325,100
----------- -----------
CASH AND CASH EQUIVALENTS, beginning of period...... 2,333,300 1,308,600
----------- -----------
CASH AND CASH EQUIVALENTS, end of period............ $ 1,796,300 $ 1,633,700
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
7
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EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1998 AND 1997
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation--
The accompanying consolidated financial statements present the accounts of
EA Engineering, Science, and Technology, Inc. (EA) and its wholly-owned
subsidiaries, EA International, Inc. and EA Financial, Inc., and its
wholly-owned subsidiaries, EA Global, Inc. and EA Engineering, Science, and
Technology de Mexico, S.A. de C.V. (EA de Mexico). The entities are
collectively referred to herein as the "Company." All significant intercompany
transactions have been eliminated in consolidation.
Revenue Recognition--
The Company is primarily a management consulting firm providing services in
energy, health and safety, and the environment. These services are generally
performed under time and material, fixed price, and cost plus fixed fee
contracts which vary in length from one month to ten years.
The Company accounts for contract revenues and costs under fixed price
contracts using the percentage-of-completion method. The percentage-of-
completion is determined using the "cost-to-cost" method for each contract
cost component. Under this method, direct labor and other contract costs
incurred to date are compared to periodically revised estimates of the total
of each contract cost component at contract completion to determine the
percentage of revenues to be recognized. Revenues from time and material and
cost plus fixed fee contracts are recognized currently as the work is
performed. Provision for estimated losses on uncompleted contracts, to the
full extent of the loss, is made during the period in which the Company first
becomes aware that a loss on a contract is probable.
Contract costs and estimated earnings recognized in excess of amounts billed
are classified as current assets under "costs and estimated earnings in excess
of billings on uncompleted contracts." Billings in excess of contract costs
and estimated earnings are classified as current liabilities under "billings
in excess of costs and estimated earnings on uncompleted contracts."
Generally, contracts provide for the billing of costs incurred and estimated
fees on a monthly basis. Amounts included in "costs and estimated earnings in
excess of billings on uncompleted contracts" in the accompanying financial
statements will be billed within twelve months of the balance sheet date.
Major Clients--
Various agencies of the federal government accounted for approximately 52%
and 45% of the Company's net revenue for the six months ended February 28,
1998 and 1997, respectively. Additionally, various agencies of the federal
government accounted for approximately 46% of the Company's accounts
receivable and costs and estimated earnings in excess of billings on
uncompleted contracts as of February 28, 1998. Approximately 56% of the
Company's current net contract
8
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backlog is with the federal government. Net contract backlog grew $1.7 million
in the second quarter ended February 28, 1998, compared with fiscal 1998 first
quarter. This quarterly increase in net backlog included $1.2 million growth
in the Company's industrial sector and $780,000 increase in the Company's
state and local government sector. Net contract backlog amounts as of February
28, 1998 and August 31, 1997 were $23.4 million and $22.6 million,
respectively.
Cash and Cash Equivalents--
Cash equivalents consist of money market instruments with a purchased
original maturity of three months or less, stated at cost, which approximates
the market.
Property and Equipment--
Property and equipment are depreciated using the straight-line method over
their estimated useful lives ranging from 3 to 10 years. Leasehold
improvements are amortized over the shorter of the estimated useful life or
the term of the lease.
Segment Information--
The Company operates largely within one industry segment, providing a wide
range of management consulting services primarily in the areas of energy,
health and safety, and the environment. In addition, the Company provides
analytical services.
Reclassifications-
For historical comparisons, net revenue in past periods has been adjusted to
include other direct project costs in addition to subcontract costs. In
previous years, only subcontract costs were deducted from total revenue to
arrive at net revenue. Additionally, operating costs in past years have been
adjusted to include sales and marketing costs in the category of sales,
general and administrative costs. In previous periods, these costs were
included in direct salaries and other operating expenses.
Risks and Uncertainties--
Reliance on major government contracts subjects the Company to risks
associated with public budgetary restrictions and uncertainties, discrepancies
between awarded contract amounts and actual revenues, and cancellation at the
option of the government. The Company attempts to mitigate these risks by
staffing only to meet reasonably anticipated average workloads, by using
subcontractors to handle peak workloads, and by obtaining termination benefit
contract provisions. Cancellation of any of the Company's major government
contracts, however, could have a material adverse effect on the Company.
Use of Estimates--
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets, liabilities, revenues
and expenses
9
<PAGE>
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 for interest during the six months ended February 28, 1998 and
1997 was $122,700 and $263,600, respectively. Retirements of property and
equipment for the same periods were $28,000 and $895,000, respectively.
Accounting for Income Taxes--
Deferred income taxes are recorded to reflect the tax consequences on future
years for differences between the tax basis of assets and liabilities and
their financial reporting amounts.
Note 2. BANK FINANCING ARRANGEMENTS:
The Company maintains an $8.5 million revolving line of credit and a $1.5
million equipment line of credit arrangement with a commercial bank.
Borrowings under the revolving line of credit facility are secured by
receivables and are limited to a percentage of certain accounts receivables
and costs and estimated earnings in excess of billings on uncompleted
contracts (up to a minimum of $4,000,000). The agreement became effective
August 22, 1997. During fiscal year 1998 to date, the Company has been in
compliance with all covenants related to financing agreements. Prior to the
current fiscal year, the Company had either been in compliance or had obtained
waivers on all covenants related to financing arrangements.
For the six months ended February 28, 1998, the Company had no short-term
borrowings from the financing agreement. The maximum short-term borrowings
outstanding during the same period in fiscal 1997 were $5,490,900, and the
average outstanding month-end balance was $1,065,900. The weighted average
interest rate during the period and at February 28, 1997 was 8.6% and 8.3%,
respectively. The weighted average interest rate has been calculated based
upon the actual daily interest expense and the daily average balance
outstanding.
10
<PAGE>
Long-term debt consists of the following:
<TABLE>
<CAPTION>
February 28,
--------------------------
1998 1997
---- ----
<S><C>
Revolving credit facility payable to a commercial bank effective August 22,
1997, interest charged
at LIBOR plus 250; facility expires September 1999. $183,000 $2,129,300
Notes payable to a commercial bank payable in equal
monthly installments of $43,650 through December
1997; thereafter, $21,400, plus interest charged at LIBOR plus 250,
secured by leasehold improvements and certain of EA's analytical
laboratory equipment............................ 236,500 300,800
Note payable to a commercial bank payable in equal monthly installments of
$29,600, plus interest at 9.1% through December 1999, secured by certain
computer equipment................................ 572,900 647,500
--------- ----------
Total long-term debt................................ 992,400 3,077,600
Less-current portion................................ (574,900) (639,200)
--------- ----------
Long-term portion................................... $ 417,500 $2,438,400
========= ==========
</TABLE>
Note 3. EARNINGS (LOSS) PER SHARE:
In accordance with Statement of Financial Accounting Standards (SFAS) No.
128 "Earnings per Share," basic earnings (loss) per share is based on the
weighted average number of shares of common stock outstanding during the
period. Diluted earnings (loss) per share is based on the weighted average
number of shares of common stock and common stock equivalents outstanding
during the period. Common stock equivalents are calculated using the treasury
stock method.
Note 4. PROFIT SHARING:
EA maintains a defined contribution retirement plan covering all employees
who are at least 21 years of age and have completed six months of credited
service, as defined by the plan. The plan provides for discretionary employer
contributions for each fiscal year, in amounts determined annually by the
Board of Directors. The plan also includes a 401(k) provision, allowing for
Company matching contributions.
Note 5. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS:
The Company maintains an Amended and Restated Stock Option Plan, which
provides for the grant of nonqualified stock options and incentive stock
options to 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
11
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605,700 options were issued and outstanding as of February 28, 1998 having an
average exercise price of $2.28. Of the outstanding options, 200,000 are held
by the President and CEO. The exercise price of the 200,000 shares is $2.25,
which was equal to the market price on the grant date. There were 314,500
options available for issuance as of February 28, 1998.
The Company maintains an Employee Stock Purchase Plan to provide eligible
employees with the opportunity to purchase shares of the Company's Common
Stock through voluntary payroll deductions. Under the Plan, eligible employees
may purchase shares through monthly payroll deductions at 95% of current
market value at the time of purchase. The Company pays all administrative
expenses related to employee purchases. A total of 134,600 shares remained
authorized for distribution under the Plan as of February 28, 1998.
The Company maintains two Non-Employee Director Stock Option Plans (1993 and
1995) which provide for the grant of nonqualified stock options to its four
non-employee directors. The exercise price of the 44,000 options which were
outstanding as of February 28, 1998 ranged between $2.03 and $6.13, which
equaled the fair market value of the underlying Common Stock at the dates of
grant. A total of 33,500 shares of Common Stock options remained available for
the grant of options under the Director Stock Option Plans as of February 28,
1998.
Note 6. Restructuring:
On March 25, 1997, the Company announced a major organizational realignment
to reposition itself in the marketplace. In connection with the restructuring,
the Company incurred charges of $3,000,100 during its fiscal 1997 third
quarter related to severance, planned reductions in office space, the
suspension of the implementation of a new project/financial system, and other
related costs.
This restructuring included a staff reduction of approximately 125
employees.
As of February 28, 1998 and August 31, 1997, the Company had accrued
expenses of $392,200 and $880,100, respectively, in the accompanying
consolidated balance sheets for costs to be incurred in future periods related
to this restructuring.
12
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company's results of operations are significantly affected by the timing
of the award of contracts, the timing of performance on contracts, and the
extent to which the Company's employees are performing billable tasks as
opposed to engaging in preparing bid proposals and other required non-billable
activities. Due to these factors, the results of operations for interim
periods are not necessarily indicative of the results of operations for longer
periods and interim period comparisons may not be as meaningful as comparisons
over longer periods.
For historical comparisons, net revenue in past periods has been adjusted to
include other direct project costs in addition to subcontract costs. In
previous years, only subcontract costs were deducted from total revenue to
arrive at net revenue. Additionally, operating costs in past years have been
adjusted to include sales and marketing costs in the category of sales,
general and administrative costs. In previous periods, these costs were
included in direct salaries and other operating expenses.
Three Months Ended February 28, 1998
Net revenue for the three months ended February 28, 1998 was $10,619,900, an
increase of 24% from $8,564,600 for the same period in fiscal 1997. The
increase in net revenue is due in part to realized gains on certain fixed-
priced contracts. Also, due to a planned shift to higher-margin consulting
work, a greater percentage of net revenue was contributed by the Company's
professional staff and a lesser percentage by subcontractor services, which
has led to sustained increases in manpower utilization. EA professional staff
labor was approximately 23.5% of total revenue compared to 21.6% of total
revenue in the three months ended February 28, 1997. Additionally, the
recognition of contract losses made in the fiscal 1997 second quarter lowered
net revenue by $597,000.
Direct salaries and other operating costs decreased to $7,952,900 from
$10,406,500, representing 74.9% and 121.5% of net revenue for the three months
ended February 28, 1998 and 1997, respectively. The decreases were
attributable to increased staff utilization and lower overall operating costs
from quarter to quarter, as well as reduction in staff numbers as a result of
the March 1997 restructuring.
Sales, general and administrative costs increased to $2,375,300 from
$2,127,700, representing 22.4% and 24.9% of net revenue for the second quarter
period 1998 and 1997, respectively. The increase in costs were primarily
related to additional investment in sales and marketing expenses.
As a result of the above factors, income from operations for the three months
ended February 28, 1998 was $291,700 or 2.7% of net revenue compared to the
previous year's loss from operations of $3,971,600 or 46.4% of net revenue for
the three months ended February 28, 1997. Interest expense, net, decreased
$129,100 for the three months ended February 28, 1998, compared to
13
<PAGE>
the prior year. This decrease is primarily attributable to an interest payment
made in the prior fiscal year in connection with a Maryland tax settlement,
aided by the reduction of certain long-term debt principal balances.
The provision for income taxes was $132,200 for the three-month period ended
February 28, 1998 compared to a benefit from income taxes of $1,655,600 for
the three-month period ended February 28, 1997, representing effective tax
rates of 52% and 40%, respectively.
Net income for the three months ended February 28, 1998 was $121,300, or 1.1%
of net revenue, compared to a net loss of $2,483,300, or 29% of net revenue,
for the three months ended February 28, 1997.
Six Months Ended February 28, 1998
Net revenue for the six months ended February 28, 1998 was $21,341,200, an
increase of 1.3% from $21,064,000 for the same period in 1997. This increase
is attributable to the significant improvement of net revenue in the current
second quarter as discussed in "Three Months Ended February 28, 1998."
However, the 1.3% increase is also aided by the provision for estimated losses
on certain uncompleted landfill closure projects made in the prior fiscal
period ended February 28, 1997. The loss provision for these contracts, a
business line the Company no longer pursues, recognized anticipated future
project expenses which lowered fiscal 1997 second quarter net revenue by
$597,000. Removing the effects of the contract loss, the Company had a lower
overall contract volume in the current six-month period, across all client
sectors of approximately $323,000 in net revenue, or a decrease of 1.5%. This
decrease is attributable to an implemented management policy requiring greater
selectivity in the pursuit of opportunities.
Direct salaries and other operating costs decreased to $15,900,600 from
$20,613,800, representing 74.5% and 97.9% of net revenue for the six months
ended February 28, 1998 and 1997, respectively. The 22.9% decrease in
operating costs is due to increased staff utilization and lower overall
operating costs, as well as staff reductions in connection with the March 1997
restructuring.
Sales, general and administrative costs increased to $4,676,500 or 21.9% of
net revenue for the six-month period ended February 28, 1998 compared to
$4,056,600 or 19.3% of net revenue for the same period in 1997. This increase
is primarily due to additional investment in sales and marketing efforts.
As a result of the above factors, income from operations for the six months
ended February 28, 1998 was $764,100, or 3.6% of net revenue, compared to the
previous year's loss from operations of $3,606,400, or 17.1% of net revenue
for the six months ended February 28, 1997. Interest expense, net, decreased
$133,300 for the six months ended February 28, 1997, compared to the previous
year. This decrease is primarily attributable to an interest payment in
connection with a Maryland tax settlement in the prior year, aided by the
reduction of certain long-term debt principal balances.
The provision for income taxes was $270,400 for the six months ended February
28, 1998, compared to a benefit from income taxes of $1,531,200 for the same
period in 1987, representing effective tax rates of 40% for both years.
14
<PAGE>
Net income for the six months ended February 28, 1998 was $405,600, or 1.9% of
net revenue, compared to a net loss of $2,296,600, or 10.9% of net revenue,
for the six months ended February 28, 1997.
Liquidity and Capital Resources
Cash and cash equivalents (cash) decreased by $537,000 for the six months
ended February 28, 1998. The decrease principally resulted from the payout of
cash related to the fiscal 1997 restructuring expenses, and payments made to
reduce long-term debt offset partially by collected income tax refunds.
The Company's capital expenditures, consisting primarily of purchases of
equipment and leasehold improvements, were approximately $457,200 and $313,400
for the six months ended February 28, 1998 and 1997, respectively.
At February 28, 1998, the Company had outstanding long-term debt, including
the current portion of $992,400. This represents a net decrease of $1,987,600
from the $2,980,000 balance at August 31, 1997. The decrease is the result of
a $1,644,700 decrease in its revolving line of credit balance, and net
repayments of $195,300 for equipment loans and $147,600 for computer
equipment.
The Company's existing funds, cash from operations, and the available portion
of its $8,500,000 revolving line and $1,500,000 equipment line of credit
arrangements are expected to be sufficient to meet the Company's present and
immediately foreseeable cash needs. The Company also has access to certain
capital equipment financing arrangements through various equipment suppliers.
While the Company believes that there is sufficient market demand to absorb
the additional contracting capacity resulting from its continued expansion,
there can be no assurance that this demand will exist or continue. Although
the Company has the ability to reduce its professional staff in periods of
reduced demand, it may choose not to make full reductions in such periods,
with resulting adverse effects on operations.
---------------------------
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.
15
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders held on January 14, 1998, the following
proposals were adopted as indicated:
1. To elect six directors to serve until the next annual meeting and
until their successors are elected and qualified.
Director For Withheld
-------- --- --------
E. Cashman 5,694,541 50,125
D. Deieso 5,675,302 69,367
L. Jensen 5,464,632 280,034
R. Lamone 5,689,961 54,705
C. Miller 5,694,409 50,257
G. Radcliffe 5,690,486 54,180
2. To approve an increase in the number of shares of Common Stock
reserved for issuance under the Company's Amended and Restated Stock
Option Plan.
For 3,922,649
Against 369,980
Abstain 109,782
Broker Non-Votes 1,342,255
3. To ratify the appointment of Arthur Andersen LLP as independent public
accountants for the Company for the fiscal year ending August 31,
1998.
For 5,703,835
Against 31,118
Abstain 9,712
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11. Schedule of Weighted Average Shares Outstanding
27. Financial Data Schedule
(b) Reports on Form 8-K
None
16
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EA Engineering, Science, and
Technology, Inc. & Subsidiaries
_____________________________________
(Registrant)
April 7, 1998 By: /s/ Donald A. Deieso
___________________ _____________________________________
(Signature)
Donald A. Deieso
_____________________________________
President and Chief Executive Officer
_____________________________________
(Title)
April 7, 1998 By: /s/ Barbara L. Posner
___________________ ____________________________________
(Signature)
Barbara L. Posner
____________________________________
Senior Vice President,
Finance and Administration
(Principal Financial Officer)
____________________________________
(Title)
17
EXHIBIT 11
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC.
SCHEDULE OF WEIGHTED AVERAGE SHARES OUTSTANDING
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 28, February 28, February 28, February 28,
1998 1997 1998 1997
--------- --------- --------- ---------
<S><C>
Weighted average shares of common stock 6,241,400 6,200,200 6,237,400 6,192,600
Impact of dilutive stock options as of
February 28, 1998 and February 28, 1997,
respectively(1) 58,800 -- 20,000 --
--------- --------- --------- ---------
Diluted weighted average shares of
common stock 6,300,200 6,200,200 6,257,400 6,192,600
========= ========= ========= =========
</TABLE>
(1) Dilutive stock options, which, if added, would have an antidilutive
effect on losses per share were 22,187 for the three months ended
February 28, 1997 and 17,736 for the six months ended February 28, 1997.
18
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 1,796,300
<SECURITIES> 0
<RECEIVABLES> 6,442,100
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,509,500
<PP&E> 16,693,200
<DEPRECIATION> 14,431,200
<TOTAL-ASSETS> 21,620,600
<CURRENT-LIABILITIES> 7,505,700
<BONDS> 0
<COMMON> 62,500
0
0
<OTHER-SE> 13,634,900
<TOTAL-LIABILITY-AND-EQUITY> 21,620,600
<SALES> 21,341,200
<TOTAL-REVENUES> 30,611,400
<CGS> 20,577,100
<TOTAL-COSTS> 9,270,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 88,100
<INCOME-PRETAX> 676,000
<INCOME-TAX> 270,400
<INCOME-CONTINUING> 405,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 405,600
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.06
</TABLE>
