UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the fiscal year ended August 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _______________ to _______________
Commission File Number 0-15587
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC.
---------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 52-0991911
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
11019 McCormick Road, Hunt Valley, Maryland 21031
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number Including Area Code: (410) 584-7000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock
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. [ ]
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant as of November 13, 2000 was approximately
$3,670,000.
The number of shares outstanding of the Registrant's Common Stock as of November
13, 2000 was 5,990,148.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the 2000 Annual Report to Stockholders are incorporated by
reference in Part II 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 8
3 Legal Proceedings 8
4 Submission of Matters to a Vote of Security Holders 8
PART II
5 Market for the Registrant's Common Stock and Related Shareholder
Matters 9
6 Selected Financial Data 10
7 Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
8 Financial Statements and Supplementary Data 15
9 Disagreements on Accounting and Financial Disclosure 30
PART III
10 Directors and Executive Officers of the Registrant 31
11 Executive Compensation 32
12 Security Ownership of Certain Beneficial Owners and Management 36
13 Certain Relationships and Related Transactions 37
PART IV
14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 38
Signatures 42
Exhibit Index 43
<PAGE>
PART I
ITEM 1. BUSINESS
General
EA Engineering, Science, and Technology, Inc., together with its wholly owned
subsidiaries ("EA" or the "Company") is a global consulting firm that provides
integrated solutions to environmental, safety, and health issues. Through its
network of more than 20 regional and satellite offices, EA provides scientific,
engineering, technology, and management solutions to federal, state, and local
government, industrial and other private sector 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 technical expertise,
service groups and client base. EA provides its services through a network of
offices located throughout the United States, Mexico and Guam.
Historically, the demand for EA's services was driven largely by federal, state
and local environmental laws 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 recent years, as the regulatory environment and economic conditions have
changed, 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.
Further, market-based incentive programs have spawned a new approach to business
operations. Within these incentive systems are a series of programs, such as
emissions trading, Brownfields redevelopment, and wetlands banking, that provide
a benefit to clients and contribute to the overall enhancement of environmental
quality. Additionally, many clients are implementing environmental strategy as a
method of increasing global competitiveness and enhancing 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 environmental, safety and health issues affecting business
performance and profitability.
Accounting Irregularities
On February 4, 2000, the Company announced that during its normal review of aged
unbilled revenue, it had discovered accounting irregularities. As a result, the
Audit Committee of the Board of Directors (the "Audit Committee") authorized its
Associate General Counsel to perform an independent investigation (the "Company
Investigation") into these accounting irregularities. The Company's counsel
immediately engaged a forensic audit team from PricewaterhouseCoopers LLP, the
Company's current auditors, to assist in the Company Investigation into these
accounting irregularities.
On April 10, 2000, the Company announced that the Company Investigation was
complete; the results of which isolated the restatements to fiscal years 1999
and 1998 and the quarterly periods in fiscal year 1998 through February 2000.
The cumulative effect of the restatements reduced earnings on a pre-tax basis by
$1.4 million. In the same announcement, the Company advised that Arthur Andersen
LLP, who had served as the Company's auditors through August 31, 1999, had
notified the Company by letter that its previously filed reports on the
financial statements of the Company for the years ended August 31, 1999 and 1998
should no longer be relied upon. The Company then retained
PricewaterhouseCoopers LLP to conduct the financial audit and to assist in the
restatement of earnings for the affected accounting periods. The Company made
adjustments to correct the misapplication of generally accepted accounting
principles resulting in improper revenue recognition. This error involved
recording fictitious revenue resulting from the actions of individual(s) who are
no longer employed by or associated with the Company. The Company has restated
its previously reported financial results for fiscal years ended August 31, 1999
and 1998 and the quarterly financial results for 1998, 1999 and the first two
quarters of Fiscal 2000.
The restated net loss for fiscal year 1999 totaled $1,530,400 or $0.24 per
diluted share. Additionally, the restated net loss for fiscal year 1998 totaled
$240,100 or $0.04 per diluted share. The Company had originally reported a net
loss of $1,473,600 or $0.23 per diluted share and net income of $604,800 or
$0.10 per diluted share in fiscal years 1999 and 1998, respectively. The
cumulative after tax effect of the restatement for the two affected years is a
total reduction in earnings of $901,700.
Services
EA integrates science, engineering, and technology to provide solutions to it
clients' complex environmental and health and safety issues affecting business
performance and profitability. EA's primary areas of service include Water
Quality and Water Resources Management, Natural Resources and Risk Management,
Site Characterization and Remediation, In-Plant and Industrial Hygiene Services,
Solid Waste Management, Information Technology and Data Management, Air Quality
and Energy Management, and Strategic Planning of Environmental Issues.
The multi-faceted nature of environmental problems requires an interdisciplinary
team of professionals to provide integrated solutions. As such, strict
classification by service type 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, community groups,
and "interested" organizations. All of its service areas are part of vertically
integrated capabilities that the Company may offer its clients.
The Company's services normally are performed by a team of scientists,
engineers, and planners, and include a combination of the following:
o Consultation to determine the nature and scope of potential environmental,
energy, or health and safety problems.
o Development and implementation of solutions to identified issues.
o Economic analyses, database development, strategic and tactical planning
of environmental and/or and health and safety programs.
o On-site sampling, monitoring, and measurement of discharges and emissions.
o Evaluation of environmental or human health risks. o Preparation of
reports for regulatory agencies.
o Participation and representation of clients in public and regulatory
hearings.
o Engineering certification of design specifications.
o Design and implementation of remedial action. o 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.
<PAGE>
The following table reflects the approximate percentage of consolidated net
revenue derived by contract type in each of the last three years ended August
31, 2000:
<TABLE>
<CAPTION>
Year Ended August 31,
------------------------ ---------------------------------------------------
2000 1999 1998
------------------------ ------------------ ---------------- ---------------
<S> <C> <C> <C>
Time-and-materials 37% 37% 33%
Fixed-price 47 41 48
Cost-plus-fixed-fee 16 22 19
------------------------ ------------------ ---------------- ---------------
100% 100% 100%
======================== ================== ================ ===============
</TABLE>
During fiscal 2000, the majority of the Company's work continued to be from
fixed-price and time-and-materials contracts. The Company believes that the
increasing number of such contracts are in line with an industry trend in which
clients transfer cost overrun risk to the prime contractor who in turn transfers
the risk to its subcontractors, where applicable.
In general, the Company's contracts vary in length from one month to ten years
and require performance 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.
Clients
EA provides services directly to government, industrial, and utility clients and
indirectly through work performed for architect/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 2000, the Company provided services to more than 475 industrial,
utility and government clients through more than 1,500 projects in the private
sector and 400 projects in the federal, state, and local government sectors.
Although more private sector projects were performed, the portion of net revenue
provided by the federal government was 52%, 54%, and 50% in fiscal years 2000,
1999, and 1998, respectively. The Company believes that the diversified mix of
business revenue derived from each of its client sectors (federal government,
state and local governments, industry and utilities) will help ensure its
continuing financial success.
Although a significant portion of net revenue was derived from agencies of the
federal government, the Company's services are performed for many different
departments 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.
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, 2000:
<TABLE>
<CAPTION>
Year Ended August 31,
------------------------------------- ----------------------------------------------------
2000 1999 1998
------------------------------------- ----------------- ----------------- ----------------
<S> <C> <C> <C>
Federal government 52% 54% 50%
Industrial and other private sector 33 36 37
Utilities 5 2 6
State and local government 10 8 7
------------------------------------- ----------------- ----------------- ----------------
100% 100% 100%
===================================== ================= ================= ================
</TABLE>
<PAGE>
Sales and Marketing
The Company utilizes both a centralized corporate marketing department and local
marketing groups within each of our regional operations whose offices are
located in and around major metropolitan cities across the United States. As
EA's mix of business varies by geographic location, the Company implemented a
regional organization structure in fiscal 1999 to support the decentralization
of its marketing and business development program. A regional structure places
business development and marketing resources directly within proximity to
regional clients where they are needed and further increases concentration on
operations. Under the regional structure, EA's operations include the Northeast,
Mid-Atlantic, Southeast, North Central, South Central and West. The Company's
corporate marketing staff are involved with the tracking and development of
large Federal opportunities and support the regional operations, as necessary,
with the pursuits of local contract opportunities. 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
and new activities and often refer EA to their colleagues at other locations. It
is estimated that 82% of new awards in fiscal 2000 were due to expanding the
scope of work at existing client locations. Additionally, the Company has an
active business development program focused on identifying new clients. In
fiscal 2000, the Company was awarded approximately $10.5 million, or 18%, of new
awards from new clients. The Company often teams with other consulting firms or
provides its services as a subcontractor to larger architect/engineer or
engineer/contractor firms.
Backlog
At August 31, 2000, the Company's total contract backlog was approximately $32.4
million compared to contract backlog of $35.9 million at August 31, 1999. The
decrease in total contract backlog was largely attributable to the unusually
high gross revenue in the fiscal year, which was greater than new contracts
awarded. 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 backlog less estimated subcontractor and other
project costs) as its primary measure of backlog. The Company's net contract
backlog was approximately $22.7 million at the end of fiscal 2000, relatively
flat in comparison to approximately $24.0 million at the end of fiscal 1999. The
Company expects that approximately 80% of the contract "fiscal" backlog will be
completed during the fiscal year. The Company's total contract backlog
attributable to federal government contracts as of August 31, 2000 was $16.0
million ($11.2 million, net), compared to $21.8 million ($14.2 million, net) the
prior year.
In addition to this contract backlog, at August 31, 2000, the Company held
indefinite delivery/indefinite quantity (ID/IQ) type contracts from various
clients, principally government agencies for up to $80.3 million compared to
$79.0 million at August 31, 1999. To achieve growth into fiscal 2001 and beyond,
the Company has made several investments in domestic markets opening offices in
Miami and New York City.
There can be no assurance, however, that work under any of these ID/IQ contracts
will be authorized or that work once authorized will not be cancelled.
Generally, these contracts provide for a fixed percentage of profit based on
estimated costs. In the event of cancellation, the Company is entitled to
recover its incurred costs and associated profit. Terminations and cancellations
of government contracts have not been material in the past. The level of backlog
may fluctuate during each year, and accordingly, the backlog at any point in
time does not necessarily reflect near-term anticipated operating results.
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.*
The Company also provides services on major long-term private sector contracts
under basic ordering agreements that provide for work on a task basis during any
particular year. For example, the Company was awarded a $3 million basic
ordering agreement with Exxon for sites near Houston, Texas, and was awarded an
open-ended national basic ordering agreement with Hertz. 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.
<PAGE>
Employees
As of August 31, 2000, the Company had approximately 363 regular full-time
employees compared to 369 regular full-time employees at August 31, 1999. 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 continued
learning within the Company. The Company has instituted several programs
including project manager training, sales management seminars and technical
development programs, and has an established professional career path
development program. Additionally, EA offers a tuition reimbursement program for
all employees.
None of the Company's employees is represented by a union. The Company considers
its relationship with employees to be good.
Competition
The environmental engineering and consulting market continues to be highly
competitive and requires skilled and experienced professional, technical, and
management personnel. 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.
Typical projects, especially those in excess of $100,000, are bid by numerous
firms. The number of competitors for any one procurement varies and is dependent
upon the value of the projects, restrictions, and financial and risk factors.
The principal competitive factors are client relationships, pricing, reputation,
and 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, and its geographical
dispersion. In each market sector, EA competes with engineering, consulting, and
program management firms ranging from small firms offering niche services to
large multinational firms having substantially greater marketing, management and
financial resources than the Company. Management believes no one firm currently
dominates a significant portion of any of the service areas either regionally or
nationally.
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 were 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) throughout the U.S., requiring "nonattainment" areas
to establish compliance programs. 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 which were adopted in June 1996 and
became effective June 1999, address programs and procedures designed to prevent
or minimize the consequences of accidental releases of hazardous materials that
could affect the public or environment.
The Comprehensive Environmental Response, Compensation and Liability Act of 1980
(CERCLA, or Superfund) and its subsequent reauthorizations seek 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 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.
The Fish and Wildlife Coordination Act (initially enacted 10 March 1934) relates
specifically to the requirement for coordination with resource agencies for all
federally funded projects. Consultation has become increasingly important over
recent years for numerous projects.
The Endangered Species Act (Public Law 93-205 and amendments) enacted in
December 1973, specifies the requirements for the protection of species
determined to be endangered by the U.S. Fish and Wildlife Service. Under the
requirements of the Act, any Federal actions or actions by entities receiving
Federal funds, must not jeopardize the continuing existence of endangered or
threatened plants or wildlife, nor result in the destruction or adverse
modification of critical habitat.
The National Historic Preservation Act (NHPA) has established sets of Federal
policy and implementing regulations for the protection of America's cultural
environment that can come into conflict with the needs of a specific project.
Section 106 of the NHPA requires Federal agencies to consider the effects of
their actions on historic properties and seek comments from the Advisory Council
on Historic Preservation.
The Wild and Scenic Rivers Act of 1968 designated certain rivers to be of
national significance because they possess outstanding and remarkable scenic,
recreational, geologic, fish and wildlife, historic, cultural, and other similar
values. These rivers, according to the law, should be preserved in their
free-flowing conditions for the benefit and enjoyment of present and future
generations.
In addition to federal environmental regulations, many state and local
authorities have passed legislation and other regulations and policies similar
to the federal laws described above, to provide additional protection and cover
more detailed aspects of environmental and safety and health management.
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 arising out of its general business
operations or from the professional services it renders to its clients 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 substances. 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 computer, monitoring, testing and
other equipment required to render its various consulting and testing services.
Additionally, the Company leases certain computer, office furniture, and other
equipment. Equipment and various other items 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.
<PAGE>
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 are being sublet. The Company's leases for these facilities are with
partnerships whose members include the Chairman of the Board of Directors of EA
and certain members of his family.
The Company's primary regional and satellite offices in the United States are
located in:
Baltimore, Maryland San Francisco, California Pittsburgh, Pennsylvania
New Castle, Delaware Sacramento, California Lincoln, Nebraska
New York, New York Concord, California Dallas, Texas
Newburgh, New York Portland, Oregon Houston, Texas
Syracuse, New York Seattle, Washington Fairbanks, Alaska
Iselin, New Jersey Chicago, Illinois Honolulu, Hawaii
Boston, Massachusetts Oak Brook, Illinois Miami, Florida
In addition, the Company has established office locations in Mexico City, Mexico
and Yigo, Guam.
The Company leases office 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 from 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, 2000.
<PAGE>
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 sales price reported on the Nasdaq National Market Small Cap
Systems. As of October 13, 1999, the Company's common stock began trading on the
Nasdaq Small Cap 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 1999: First Quarter $2.00 $1.00
Second Quarter 1.50 1.00
Third Quarter 1.56 0.94
Fourth Quarter 1.38 1.00
Fiscal 2000: First Quarter $1.13 $0.50
Second Quarter 3.88 0.50
Third Quarter 2.06 0.53
Fourth Quarter 1.09 0.69
On November 13, 2000, the closing price of the common stock as reported by
NASDAQ was $1.00 per share. On that date, there were approximately 853 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.
<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. In the quarter ended
May 31, 1999, the Company divested its Analytical Services segment. The selected
financial data for all these years have been adjusted to show only continuing
operations and does not reflect the Analytical Services segment. These data
should be read in conjunction with the consolidated financial statements and
notes thereto included in Item 8.
<TABLE>
<CAPTION>
-----------------------------------------------------------------
2000 1999 1998 1997 1996
(In thousands, except for share amounts)
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations data:
Total revenue $60,868 $ 48,727 $ 52,237 $ 68,189 $ 80,933
Net revenue 35,196 34,146 35,320 37,443 48,495
Income (loss) from continuing operations 635 (2,228) (187) (6,863) 38
Net income (loss) from continuing
operations 227 (1,447) (178) (4,615) (124)
Basic (loss) earnings per share from
continuing operations $ 0.04 $ (0.23) $ (0.03) $ (0.74) $ (0.02)
Diluted (loss) earnings per share from
continuing operations $ 0.04 $ (0.23) $ (0.03) $ (0.74) $ (0.02)
Weighted average shares outstanding
6,168 6,312 6,255 6,206 6,138
Diluted weighted average shares
outstanding 6,170 6,312 6,255 6,206 6,138
Balance sheet data:
Working capital $ 8,839 $ 9,331 $ 8,807 $ 10,323 $ 15,955
Total assets 25,516 22,664 22,140 26,341 33,329
Long-term borrowings, net of
current portion 3,673 3,326 1,349 2,332 2,665
Stockholders' equity 11,471 11,616 13,046 13,097 18,558
</TABLE>
<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
being engaged in the preparation of 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, laboratory analyses, and other specialized services.
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 and other direct project costs, as its primary measure of revenue.
On February 4, 2000, as a result of the discovery of accounting irregularities
related to unbilled revenue, the Audit Committee of the Company's Board of
Directors ("Audit Committee") initiated the Company Investigation into such
matters which has been completed. In June 2000, the Company restated its
financial results for fiscal years 1999 and 1998 and the quarterly periods in
fiscal year 1998 through February 2000. The financial information presented here
has been restated to incorporate all relevant information obtained from the
aforementioned investigation.
The Company made adjustments to correct the misapplication of generally accepted
accounting principles resulting in improper revenue recognition. This error
involved recording fictitious revenue resulting from the actions of
individual(s) who are no longer employed by or associated with the company. In
the opinion of the Company's management, all adjustments considered necessary
for a fair presentation of the financial statements have been included.
The restated net loss for fiscal year 1999 totaled $1,530,400 or $0.24 per
diluted share. The Company originally reported a net loss of $1,473,600 or $0.23
per diluted share for fiscal year 1999.
Additionally, the restated net loss for fiscal year 1998 totaled $240,100 or
$0.04 per diluted share. The Company originally reported net income of $604,800
or $0.10 per diluted share in fiscal year 1998.
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.
The table has been adjusted to show the relationship of continuing operations
for each year and does not include results of the discontinued Analytical
Services segment.
<TABLE>
<CAPTION>
Year Ended August 31,
------- ------- ------
2000 1999 1998
--------------------------------------------------- ------- ------- ------
<S> <C> <C> <C>
Net revenue 100.0% 100.0% 100.0%
--------------------------------------------------- ----- ----- -----
Operating expenses:
Direct salaries and other operating expenses 78.4 76.7 76.2
Sales, general and administrative 19.8 23.6 25.0
Gain on "key employee" life insurance -- -- (0.7)
Restructuring charges -- 6.2 --
--------------------------------------------------- ----- ----- -----
Total operating expenses 98.2 106.5 100.5
--------------------------------------------------- ----- ----- -----
Income (loss) from operations 1.8 (6.5) (0.5)
Interest expense, net (0.7) (0.5) (0.4)
--------------------------------------------------- ----- ----- -----
Income (loss) before income taxes 1.1 (7.0) (0.9)
Provision (benefit) for income taxes 0.4 (2.8) (0.4)
--------------------------------------------------- ----- ----- -----
Net income (loss) from operations 0.7% (4.2)% (0.5)%
=================================================== ===== ===== =====
</TABLE>
Fiscal 2000 Compared to Fiscal 1999
Net revenue from continuing operations in fiscal 2000 increased 3.1% to
$35,195,600 from $34,146,900. This increase in net revenue is due to increased
total revenue in fiscal year 2000 primarily related to large new contracts.
Direct salaries and other operating costs of $27,595,800 increased for the
twelve months ended August 31, 2000 compared to $26,199,400 for the prior fiscal
period. As a result of increased technical headcount, direct salaries and other
operating costs as a percentage of net revenue increased to 78.4% in fiscal 2000
compared to 76.7% in fiscal 1999.
Sales, general and administrative costs decreased 13.4% to $6,964,400, or 19.8%
of net revenue in fiscal 2000 from $8,042,500, or 23.6% of net revenue, for the
twelve months ended August 31, 1999. The decrease is primarily due to lower
general and administrative related costs. Sales costs decreased by $431,400 and
general and administrative costs decreased by $646,700. The decrease also
included a non-recurring forfeiture associated with the Company's 401K plan of
approximately $240,000. Additionally, the Company had one-time out of pocket
costs relating to accounting irregularities of approximately $300,000.
In February 1999, to address the Company's high overhead in relation to net
revenue, the Company implemented several cost-cutting measures to effect its
long-term profitability objectives and align expenses more directly with
revenues. In connection with the restructuring, the Company incurred a one-time
charge of $2,132,600 related primarily to severance agreements of 30 staff
members including several senior sales and executive staff.
Additionally, in April 1999, the Company completed the sale of the EA
Laboratories division to Severn Trent Laboratories, Inc. The assets of the
analytical chemistry services segment that were sold consisted primarily of an
inventory of supplies, the balance of costs and estimated earnings in excess of
billings on uncompleted contracts as of the transaction date and property,
plant, and equipment. The cash transaction resulted in a pretax gain of $58,800.
Since the analytical services segment was discontinued on April 1999, there are
no comparative results to discuss.
As a result of the above factors, income from operations for the twelve months
ended August 31, 2000 was $635,400, or 1.8% of net revenue, compared to a loss
from operations in the prior fiscal period of $2,227,600, or 6.5% of net
revenue. Interest expense, net, increased $77,300 in fiscal 2000, compared to
fiscal 1999, due to a higher line of credit balance used to fund operating
activity.
For the twelve months ended August 31, 2000, the Company had a provision for
income taxes of $150,400 compared to a benefit from income taxes of $961,400 in
the prior fiscal year. This represents an effective rate of 40% in both fiscal
years.
Net income from operations for the fiscal year ended August 31, 2000 was
$227,200, or 0.7% of net revenue, compared to a loss from operations of
$1,446,700, or 4.2% in the prior fiscal period.
For the twelve months ended August 31, 1999, the Company had a loss from its
discontinued Analytical Services segment of $83,700. Included in this loss was a
gain of $35,300, net of income taxes, on the sale of the segment.
As a result of the above, the Company had net income of $227,200, or 0.7% of net
revenue for the twelve months ended August 31, 2000, compared to a net loss of
$1,530,400, or 4.5%, in the prior fiscal period.
Fiscal 1999 Compared to Fiscal 1998
Net revenue from operations in fiscal 1999 decreased 3.3% to $34,146,900 from
$35,319,900. This decrease in net revenue is primarily due to lower contract
volume with the federal government as a result of the completion of certain
indefinite delivery/indefinite quantity contracts. In addition to lower contract
volume, $500,000 of certain noncollectible prior period revenue was written off
in the second quarter of fiscal 1999. Additionally impacting the decrease, in
fiscal 1998 the Company realized approximately $676,700 in additional contract
net revenue on certain landfill projects which had loss provisions in fiscal
1997.
Direct salaries and other operating costs of $26,199,400 slightly decreased for
the twelve months ended August 31, 1999 compared to $26,935,300 in the prior
fiscal period. However, as a result of lower net revenue, direct salaries and
other operating costs as a percentage of net revenue increased to 76.7% in
fiscal 1999 compared to 76.2% in fiscal 1998.
Sales, general and administrative costs decreased 8.9% to $8,042,500, or 23.6%
of net revenue, in fiscal 1999 from $8,832,700, or 25.0% of net revenue, for the
twelve months ended August 31, 1998. The decrease is due to lower sales and
marketing related costs incurred as a result of strategic initiatives made in
fiscal 1999. These initiatives included a restructuring in the second quarter
reducing personnel and implementing a regional sales organization to support the
decentralization of its marketing and business development program.
In the prior period ended August 31, 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
in the Company's balance sheet.
To address the Company's high overhead in relation to net revenue, in February
1999, the Company implemented several cost-cutting measures to effect its
long-term profitability objectives by aligning expenses more directly with
revenues. In connection with the restructuring, the Company incurred a one-time
charge of $2,132,600 related primarily to severance agreements of 30 staff
members including several senior sales and executive staff.
As a result of the above factors, the loss from operations for the twelve months
ended August 31, 1999 was $2,227,600, or 6.5% of net revenue, compared to loss
from operations in the prior fiscal period of $187,000, or 0.5% of net revenue.
Interest expense, net, increased $58,800 in fiscal 1999 compared to fiscal 1998
due to a higher line of credit balance used to fund operating activity.
For the twelve months ended August 31, 1999, the Company had a benefit from
income taxes of $961,400 compared to a benefit from income taxes of $130,900 in
the prior fiscal year. This represents an effective rate of 40% in fiscal year
1999 and 42.4% in fiscal 1998.
The loss from operations for the fiscal year ended August 31, 1999 was
$1,446,700, or 4.2% of net revenue, compared to a net loss from continuing
operations of $177,800, or 0.5% in the prior fiscal period.
For the twelve months ended August 31, 1999, the Company had a loss from its
discontinued Analytical Services segment of $83,700. Included in this loss was a
gain of $35,300, net of income taxes, on the sale of the segment. The
discontinued segment in the prior fiscal period had a loss of $62,300.
As a result of the above, the Company had an net loss of $1,530,400 or 4.5% of
net revenue for the twelve months ended August 31, 1999, compared to a net loss
of $240,100, or 0.7%, in the prior fiscal period.
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 $299,300 in 2000, compared to an
increase of $112,800 in 1999 and a decrease of $481,600 in 1998. During fiscal
year 2000, the Company generated $733,000 of cash from operating activities,
principally as a result of the 2000 net income as well as significant increases
in billings in excess of cost and estimated earnings on uncompleted contracts.
In addtion, the Company increased the line of credit balance by $159,900 from
$3,326,200 in fiscal year 1999 to $3,486,100 in fiscal year 2000. At August 31,
2000, the availability under the revolving line of credit was $4,370,500 up from
$2,733,800 at August 31, 1999. The Company anticipates a further reduction in
its line of credit balance during the next several quarters, as revenues exceed
operating expenses.*
The Company's capital expenditures (consisting primarily of purchases of
equipment and leasehold improvements) of $738,400, $487,300, and $546,500 in
2000, 1999, and 1998, respectively, have been funded primarily from operating
cash flows.
The Company maintains a bank credit arrangement with a regional bank consisting
of: (i) a $7,000,000 Working Capital Revolving Line of Credit; (ii) a $1,500,000
Fixed Asset/Lease/Acquisition Revolving Line of Credit. Borrowings from the
revolving line of credit are limited to certain percentages of accounts
receivables and estimated earnings in excess of billings. The interest on all
borrowings is LIBOR + 300.
At August 31, 2000, the Company had outstanding long-term debt of $3,486,100,
which represented an increase of $72,400 from the August 31, 1999 balance of
$3,413,700. The Company had no short-term borrowings under its line of credit at
August 31, 2000 and 1999.
The Company's existing funds, cash from operations, and the available portion of
its $7,000,000 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.
--------------------------
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.
Important assumptions and other important factors that could cause actual
results to differ materially from those in the forward-looking statements
include, but are not limited to the accounting irregularities discussed in Item
1 and their further impact, if any, on the Company's operations and/or the
Company's future profitability. 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
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements and Supplementary Financial Data
Page
----
Report of Independent Public Accountants 16
Consolidated Financial Statements:
Consolidated Balance Sheets as of August 31, 2000 and 1999 17
Consolidated Statements of Operations for the years ended
August 31, 2000, 1999, and 1998 19
Consolidated Statements of Changes in Stockholders' Equity
for the years ended August 31, 2000, 1999, and 1998 20
Consolidated Statements of Cash Flows for the years ended
August 31, 2000, 1999, and 1998 21
Notes to Consolidated Financial Statements for the years
ended August 31, 2000, 1999, and 1998 22
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
EA Engineering, Science, and Technology, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows present fairly, in all material respects, the financial position of EA
Engineering, Science, and Technology, Inc. and its subsidiaries as of August 31,
2000 and 1999, and the results of their operations and their cash flows for each
of the three years in the period ended August 31, 2000, in conformity with
accounting principles generally accepted in the United States of America. 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 of these statements in accordance with
auditing standards generally accepted in the United States of America, which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
November 1, 2000
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
August 31, August 31,
2000 1999
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,663,700 $ 1,963,000
Accounts receivable, net 10,829,200 8,679,600
Costs and estimated earnings in excess of
billings on uncompleted contracts 6,027,700 5,176,000
Prepaid expenses and other 377,200 636,700
Deferred income taxes 311,900 597,800
------------ ------------
Total Current Assets 19,209,700 17,053,100
------------ ------------
PROPERTY AND EQUIPMENT, at cost:
Furniture, fixtures and equipment 9,816,500 8,920,600
Leasehold improvements 1,039,100 1,031,700
------------ ------------
Total property and equipment 10,855,600 9,952,300
Accumulated depreciation and amortization (9,344,000) (9,102,900)
------------ ------------
Net Property and Equipment 1,511,600 849,400
------------ ------------
OTHER ASSETS:
Deferred income taxes 3,586,500 3,451,000
Other assets 1,207,900 1,310,500
------------ ------------
Total Other Assets: 4,794,400 4,761,500
------------ ------------
Total Assets $ 25,515,700 $ 22,664,000
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
August 31, August 31,
2000 1999
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 5,673,200 $ 3,555,300
Accrued expenses 459,800 1,443,200
Accrued salaries, wages and benefits 2,320,800 2,228,400
Current portion of long-term debt -- 87,500
Current portion of capital lease obligation 44,700 --
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,872,500 407,800
------------ ------------
Total Current Liabilities 10,371,000 7,722,200
------------ ------------
LONG-TERM DEBT
Capital lease obligation 187,300 --
Long-term debt, net of current portion 3,486,100 3,326,200
------------ ------------
Total Long-Term Debt 3,673,400 3,326,200
------------ ------------
Total Liabilities 14,044,400 11,048,400
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS EQUITY:
Common stock, $.01 par value; voting;
10,000,000 shares authorized; 6,378,800
and 6,335,000 shares issued and outstanding 63,800 63,400
Preferred stock, $.01 par value; 8,000,000
shares authorized; none issued -- --
Capital in excess of par value 11,149,700 11,108,300
Notes receivable from stockholders -- (78,000)
Retained earnings 749,100 521,900
Treasury stock, 463,600 shares, at cost (491,300) --
------------ ------------
Total Stockholders Equity 11,471,300 11,615,600
------------ ------------
Total Liabilities and Stockholders Equity $ 25,515,700 $ 22,664,000
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended August 31,
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Total revenue $ 60,867,600 $ 48,727,600 $ 52,237,400
Less - Subcontractor costs (19,399,000) (8,904,300) (11,003,000)
Less - Other direct project costs (6,273,000) (5,676,400) (5,914,500)
------------ ------------ ------------
Net revenue 35,195,600 34,146,900 35,319,900
------------ ------------ ------------
Operating costs and expenses:
Direct salaries and other operating 27,595,800 26,199,400 26,935,300
Sales, general and administrative 6,964,400 8,042,500 8,832,700
Gain on "key employee" life insurance -- -- (261,100)
Restructuring charges -- 2,132,600 --
------------ ------------ ------------
Total operating expenses 34,560,200 36,374,500 35,506,900
------------ ------------ ------------
Income (loss) from continuing operations 635,400 (2,227,600) (187,000)
------------ ------------ ------------
Interest expense (355,500) (268,600) (220,500)
Interest income 97,700 88,100 98,800
------------ ------------ ------------
Income (loss) from continuing operations
before income taxes 377,600 (2,408,100) (308,700)
Provision (benefit) from income taxes 150,400 (961,400) (130,900)
------------ ------------ ------------
Income (loss) from continuing operations 227,200 (1,446,700) (177,800)
------------ ------------ ------------
Discontinued operations
Loss from operations of discontinued
segment (net of tax) -- (119,000) (62,300)
Gain on disposal of discontinued segment,
including operating losses during phase-out
period (net of tax) -- 35,300 --
------------ ------------ ------------
Loss from discontinued operations -- (83,700) (62,300)
------------ ------------ ------------
Net income (loss) $ 227,200 $ (1,530,400) $ (240,100)
============ ============ ============
Income (loss) per share - basic
Continuing operations $ 0.04 $ (0.23) $ (0.03)
Discontinued operations -- (0.01) (0.01)
------------ ------------ ------------
Net income (loss) $ 0.04 $ (0.24) $ (0.04)
============ ============ ============
Income (loss) per share - diluted
Continuing operations $ 0.04 $ (0.23) $ (0.03)
Discontinued operations -- (0.01) (0.01)
------------ ------------ ------------
Net income (loss) $ 0.04 $ (0.24) $ (0.04)
============ ============ ============
Weighted average shares outstanding 6,168,400 6,312,300 6,255,500
Effect of dilutive stock options 1,300 -- --
------------ ------------ ------------
Diluted weighted average shares outstanding 6,169,700 6,312,300 6,255,500
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 2000, 1999, and 1998
<TABLE>
<CAPTION>
Capital in Notes
Common Common Excess of Receivable from Treasury Retained
Stock Shares Stock of Par Value Stockholders Stock Earnings Total
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, August 31, 1997 6,227,300 $ 62,300 $ 10,902,300 $ (160,000) $ - $ 2,292,400 $ 13,097,000
Issuance of stock 57,700 600 147,000 - - - 147,600
Writedown of notes receivable
from stockholders - - - 41,000 - - 41,000
Net loss - - - - - (240,100) (240,100)
-----------------------------------------------------------------------------------------------------------------------------------
Balance, August 31, 1998 6,285,000 62,900 11,049,300 (119,000) - 2,052,300 13,045,500
Issuance of stock 50,000 500 59,000 - - - 59,500
Writedown of notes receivable
from stockholders - - - 41,000 - - 41,000
Net loss - - - - - (1,530,400) (1,530,400)
-----------------------------------------------------------------------------------------------------------------------------------
Balance, August 31, 1999 6,335,000 63,400 11,108,300 (78,000) - 521,900 11,615,600
Issuance of stock 44,200 400 41,400 - - - 41,800
Writedown of notes receivable
from stockholders - - - 16,000 - - 16,000
Treasury Stock Transactions (463,600) - - 62,000 (491,300) - (429,300)
Net loss - - - - - 227,200 227,200
----------------------------------------------------------------------------------------------------
Balance, August 31, 2000 5,915,600 $ 63,800 $ 11,149,700 $ - $ (491,300) $ 749,100 $ 11,471,300
===================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended August 31,
---------------------------------------------
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES:
Net Income (loss) $ 227,200 $(1,530,400) $ (240,100)
Noncash expenses included in net income (loss)-
Depreciation and amortization 324,400 418,800 1,162,200
Loss from operations of discontinued segment -- 119,000 --
Writedown of notes receivable from stockholders 16,400 41,000 41,000
Provision for losses on accounts receivable
and unbilled receivable 344,300 243,500 130,500
Gain (loss) on disposal of fixed assets (37,800) 48,000 (56,500)
Gain on disposal of discontinued segment -- (35,300) --
Provision for restructuring -- 2,132,600 --
Deferred income taxes 150,400 (960,200) (128,900)
Changes in operating assets and liabilities -
(Increase) decrease in accounts receivable (2,493,900) (1,444,000) 924,900
Decrease (increase) in costs and estimated
earnings in excess of billings on uncompleted contracts (851,700) (896,900) 635,400
(Increase) decrease in prepaid expenses and other assets 362,100 (105,100) (194,200)
Increase (decrease) in accounts payable and accrued expenses 1,226,900 (2,073,900) (2,433,500)
Refundable income taxes -- 407,600 1,476,300
Increase (decrease) in billings in excess of
of costs and estimated earnings on
uncompleted contracts 1,464,700 161,100 (265,500)
----------- ----------- -----------
Net cash flows (used for) from operating
activities 733,000 (3,474,200) 1,051,600
----------- ----------- -----------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchase of equipment (738,400) (487,300) (546,500)
Proceeds from sales of discontinued operations -- 1,908,500 --
Proceeds from sale of fixed assets 46,600 -- 58,000
----------- ----------- -----------
Net cash flows used for investing activities (691,800) 1,421,200 (488,500)
----------- ----------- -----------
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Net borrowings from revolving line of credit 159,900 2,064,800 (566,300)
Proceeds from issuance of common stock 41,800 59,500 147,600
Reduction of long-term debt (87,500) (330,900) (626,000)
Purchase of treasury stock (429,700) -- --
Repayment of capital lease obligations (25,000) -- --
----------- ----------- -----------
Net cash flows from (used for) financing
activities (340,500) 1,793,400 (1,044,700)
----------- ----------- -----------
CASH PROVIDED BY DISCONTINUED OPERATIONS: -- 372,400 --
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (299,300) 112,800 (481,600)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,963,000 1,850,200 2,331,800
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,663,700 $ 1,963,000 $ 1,850,200
=========== =========== ===========
</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, 2000 , 1999, AND 1998
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.
On February 4, 2000, as a result of the discovery of accounting irregularities,
the Audit Committee of the Company's Board of Directors initiated the Company
Investigation into such matters which recently has been completed. In June 2000,
the Company restated its previously reported financial results for fiscal years
1999 and 1998 and the quarterly periods in fiscal year 1998 through February,
2000. The accompanying consolidated financial statements and notes thereto
incorporate all relevant information obtained from the investigation.
Accordingly, the restated consolidated financial statements presented herein are
the Company's primary historical financial statements for the periods presented.
Segment Information--
Historically, the Company was organized around two operating segments. However,
in the quarter ended May 31, 1999, the Company divested its Analytical Services
segment. The remaining segment is Management Consulting Services, provided
through a network of offices throughout the United States, Mexico and Guam.
Revenue Recognition--
EA Engineering, Science, and Technology, Inc., together with its wholly owned
subsidiaries ("EA" or the "Company") is a global consulting firm that provides
integrated solutions to environmental, safety, and health issues. The Company's
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 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 contracts are recognized currently
as the work is performed. Revenues on cost-plus-fixed fee contracts are
recognized to the extent of costs incurred plus a proportionate amount of the
contracted fee. Certain cost-plus-fixed fee contracts also include provisions
for earning performance based incentive fees. 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%, 54%,
and 50% of the Company's net revenue for the years ended August 31, 2000, 1999,
and 1998, respectively. Additionally, various agencies of the federal government
accounted for approximately 46% and 40% of the Company's accounts receivable and
costs and estimated earnings in excess of billings on uncompleted contracts as
of August 31, 2000 and 1999, 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 fair value.
Property and Equipment--
Property and equipment, stated at acquired cost, 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, 2000, 1999, and 1998 was $324,400, $418,800, and $1,162,200,
respectively. The Company is the lessee of telephone equipment under capital
leases expiring in 2005. The assets, subject to capital leases, are amortized
over the lower of their related lease terms or their estimated productive lives.
The depreciation of assets under capital leases is included in depreciation
expense for fiscal year 2000. The cost and accumulated depreciation for property
and equipment sold, returned, or otherwise disposed of are removed from the
Company's books, and the net gain or loss is included in the determination of
net income.
Fair Value Information--
The carrying amounts of financial instruments, principally cash and cash
equivalents, accounts receivable and accounts payable, reported in the balance
sheets approximate their fair value, due to the relatively short maturity of
these instruments. The carrying amount of variable-rate long-term debt
approximates fair value.
Reclassifications--
Certain prior year balances, primarily related to discontinued operations, have
been reclassified to conform to current year presentation.
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. See also Note 3 regarding net
operating loss carryforwards.
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 and Other Cash Flow Information--
Cash paid during the years ended August 31, 2000, 1999, and 1998 for interest,
was $355,500, $268,600, and $220,500, respectively. During fiscal year 2000, the
Company purchased $257,000 of equipment under capital leases.
Accounting for Income Taxes--
The Company uses the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred income taxes are recognized for
the tax consequences of differences between the financial statement carrying
amounts and the tax bases of existing assets and liabilities by applying
currently enacted statutory rates applicable to future years. Valuation
allowances are established when deferred tax assets are not currently assured of
realization.
Accounting Pronouncements--
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, 2000.
The Company does not hold derivatives and, as such, SFAS 133 will not have an
impact.
Note 2. DISPOSAL OF ANALYTICAL SERVICES SEGMENT
On April 30, 1999, the Company completed the cash sale of the EA Laboratories
division to Severn Trent Laboratories, Inc. The assets of the analytical
sampling segment sold consisted primarily of an inventory of supplies, the
balance of costs and estimated earnings in excess of billings on uncompleted
contracts as of the transaction date, and property and equipment. The cash
transaction resulted in a net pretax gain of $58,800.
The income statements for the fiscal years 1999 and 1998 have been reclassified
to present the operating results of the discontinued segment separately.
Gross revenue of the Analytical Services segment for the twelve months ended
August 31, 1999 and 1998 were $4,298,900 and $6,373,300, respectively. These
amounts are not included in the total revenue from continuing operations in the
accompanying income statement, but are reflected within discontinued operations.
Note 3. INCOME TAXES:
The benefit for income taxes includes current and deferred tax amounts
summarized as follows:
<TABLE>
<CAPTION>
Year Ended August 31,
--------------------------------------- -------------------------------------------
2000 1999 1998
--------------------------------------- -------------------------------------------
<S> <C> <C> <C>
Current tax expense (benefit):
Federal $ -- $ (1,200) $ (43,500)
State -- -- --
--------------------------------------- ----------- ----------- ---------
-- (1,200) (43,500)
--------------------------------------- ----------- ----------- ---------
Deferred tax expense (benefit):
Federal 124,900 (863,600) (109,500)
State 25,500 (152,400) (19,400)
--------------------------------------- ----------- ----------- ---------
150,400 (1,016,000) (128,900)
--------------------------------------- ----------- ----------- ---------
Provision (benefit) for income taxes $ 150,400 $(1,017,200) $(172,400)
======================================= =========== =========== =========
</TABLE>
<PAGE>
Total deferred tax assets and liabilities as of August 31, 2000 and 1999 and the
sources of the differences between the tax and financial reporting bases of the
Company's assets and liabilities which give rise to the deferred tax assets and
liabilities are as follows:
<PAGE>
<TABLE>
<CAPTION>
Year Ended August 31,
---------------------------------------------- ------------------------
2000 1999
------------------------
<S> <C> <C>
Deferred tax assets:
Property and equipment $ 280,000 $ 354,000
Accrued expenses and reserves 606,500 764,900
Net operating loss and other carryforwards 3,288,200 3,299,800
----------------------------------------------- ---------- ----------
4,174,700 4,418,700
----------------------------------------------- ---------- ----------
Deferred tax liabilities:
Prepaid expenses 45,000 34,600
Miscellaneous 231,300 335,300
----------------------------------------------- ---------- ----------
276,300 369,900
----------------------------------------------- ---------- ----------
Net deferred tax assets $3,898,400 $4,048,800
=============================================== ========== ==========
</TABLE>
The Company has net operating loss carryforwards at August 31, 2000 in the
amount of approximately $8,400,000 for federal purposes which expire beginning
2017 and has recognized a related deferred tax asset of approximately $3.3
million. The ability of the Company to benefit from these carryforwards in the
future is dependent on the Company's ability to generate sufficient taxable
income prior to their expiration dates. Although realization of the net deferred
tax assets is not assured, management believes that it is more likely than not
that all of the net deferred tax assets will be realized. The amount of net
deferred tax assets considered realizable, however could be reduced in the near
term based on changing conditions. Should the Company undergo an ownership
change as defined in Section 382 of the Internal Revenue Code, the Company's net
tax operating loss carryforwards generated prior to the ownership change will be
subject to annual limitation which could substantially reduce or defer the
utilization of theses losses.
Reconciliation of the statutory federal income tax rate and the effective income
tax rate is summarized as follows:
<TABLE>
<CAPTION>
Year Ended August 31,
---------------------------------------------------- -------------------------
2000 1999 1998
---------------------------------------------------- ----------------- -------
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% (34.0)% (34.0)%
State income tax, net of federal income tax effect 4.5 (5.3) (5.3)
Other 1.3 (0.6) (3.1)
---------------------------------------------------- ---- ---- ----
Effective income tax rate 39.8% (39.9)% (42.4)%
==================================================== ==== ==== ====
</TABLE>
Note 4. ACCOUNTS RECEIVABLE:
Accounts receivable, excluding receivables from the disposed Analytical Segment,
consist of the following:
<TABLE>
<CAPTION>
Year Ended August 31,
------------------------------------------ ------------- -------------
2000 1999
------------------------------------------ ------------- -------------
<S> <C> <C>
Contract accounts receivable $ 10,154,000 $ 7,632,100
Retainage by clients 1,040,300 1,082,400
----------------------------------------- ------------ -----------
Total accounts receivable 11,194,300 8,714,500
Less-Allowance for doubtful accounts (365,100) (34,900)
----------------------------------------- ------------ -----------
Accounts receivable, net $ 10,829,200 $ 8,679,600
========================================= ============ ===========
</TABLE>
Retention balances are billable at contract completion or upon attainment of
other specified milestones. Consistent with industry practice, these receivables
are classified as current assets. Management anticipates that substantially all
retainages will be billed within one year.
Note 5. BANK FINANCING ARRANGEMENTS:
The Company maintains a credit arrangement with a regional bank consisting of:
(i) an $7,000,000 revolving line of credit and (ii) a $1,500,000 revolving line
of credit for fixed assets, leases, or acquisitions. Borrowings under the
revolving line of credit are limited to 80% of certain accounts receivable; and
costs and estimated earnings in excess of billings on uncompleted contracts up
to a maximum of $4,000,000. As of August 31, 2000, $4,370,500 was available
under the revolving line of credit. The line of credit is collateralized by
substantially all the assets of the Company. Under the revolving line of credit,
the Company is required to comply with covenants which require certain minimum
ratios including debt service coverage, tangible net worth, and liabilities to
tangible net worth, and restrict the amount of annual capital expenditures.
During fiscal years 2000, 1999, and 1998, the Company was either in compliance
or had obtained waivers on all covenants related to these arrangements. <TABLE>
<CAPTION>
Year Ended August 31,
2000 1999
------------------------------------------------------------ ---------- -----------
<S> <C> <C>
Long-term debt consists of the following:
Revolving credit facility payable to commercial bank, interest charged at
LIBOR plus 300 basis points at August 31, 2000 and plus 250 at August
31,1999, (9.12% and 7.66% at August 31, 2000 and 1999)
facility expires September 2002 $3,486,100 $ 3,326,200
---------- -----------
Note payable to a commercial bank in equal monthly installments of
$29,600,which includes interest at 9.1%, through December 1999
collaterialized by
certain computer equipment -- 87,500
------------------------------------------------------------ ---------- -----------
Total long-term debt 3,486,100 3,413,700
-----------
Less-current portion -- (87,500)
------------------------------------------------------------ ---------- -----------
Long-term portion $3,486,100 $ 3,326,200
------------------------------------------------------------ ========== ===========
</TABLE>
Note 6. LEASE COMMITMENTS:
The Company's central office, 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 $4,078,200, $5,732,900, and $6,061,000, for the years ended August
31, 2000, 1999, and 1998, respectively. Lease expense included payments of
approximately $1,495,700, $1,775,000, and 1,900,400 for the years ended August
31, 2000, 1999, and 1998, 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 the laboratory
facility. As part of the Analytical Services divestiture in April 1999, the
Company ended the lease of the laboratory facility resulting in reduced lease
expenses. These lease payments include pass-through reimbursements for taxes and
operating expenses incurred by the lessor which include local property taxes,
janitorial services, 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 Company is the lessee of telephone equipment under capital leases expiring
in 2005. The present value of the future minimum lease payments, at the
inception of the lease, is recorded as a capital lease asset and related capital
lease obligation. Assets under these capital leases are included in the
consolidated balance sheet at $257,000 less accumulated depreciation of $15,300
as of August 31, 2000.
<PAGE>
The minimum lease commitments under capital leases and noncancellable operating
leases are as follows:
<TABLE>
<CAPTION>
Year Ending Capital Operating
August 31,
-------------------------------------- ------------- ----------------
<S> <C> <C>
2001 $ 63,000 $ 2,991,100
2002 63,000 2,516,200
2003 63,000 2,092,200
2004 63,000 1,924,600
2005 28,400 1,752,700
2006 and thereafter - 2,222,400
-------------------------------------- ------------- ----------------
Total minimum payments 280,400 $13,499,200
Less - amount representing interest 48,400
------
Net minimum lease payments 232,000
Less - current portion of obligations 44,700
------
Long-term portion of obligations $187,300
========
======================================================================
</TABLE>
Note 7. 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. The diluted
share base for the years ending August 31, 1999, and 1998 excludes incremental
shares of 600, and 91,000, respectively, due to their antidilutive effect as a
result of the Company's loss from continuing operations in each of the years.
Note 8. PROFIT SHARING:
EA maintains a defined contribution plan which allows employees over 21 years of
age to be eligible to participate in the plan on the first day of the month
following their date of hire. 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, 2000, 1999, and 1998,
matching contributions to the plan made under the 401(k) provisions of the plan,
were $467,100, $451,200, and $472,100, respectively.
Note 9. 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. Under this
Plan, options generally vest over 3 years and have a maximum term of 10 years. A
total of 669,000 options are issued and outstanding of the 1,448,147 reserved as
of August 31, 2000, having an average exercise price of $2.44. Of the
outstanding options, 400,000 are held by the former 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 90% of current market value at the time of purchase. The Company pays all
administrative expenses related to employee purchases. A total of 70,500 shares
remain authorized for distribution under the Purchase Plan as of August 31,
2000.
The Company maintains two Non-Employee Director Stock Option Plans ("1993 and
1995 Plans") which provide for the granting of nonqualified stock options to its
non-employee directors. Under the 1993 and 1995 plan, options vest immediately
and have a maximum term of 5 years. A total of 39,500 options were outstanding
as of August 31, 2000. A total of 60,500 options remain reserved for as of
August 31, 2000.
A summary of the status of activity in fiscal years 2000, 1999, and 1998 under
the Company's Employee Stock Option Plan and Non-Employee Director Stock Option
Plans (1993 and 1995) follows:
<TABLE>
<CAPTION>
2000 1999 1998
---------------------- ------------------------ ----------------------
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 766 $ 2.45 817 $ 2.44 616 $ 2.37
Granted 71 1.11 135 1.17 273 2.65
Exercised -- -- -- -- (27) 2.45
Forfeited (126) 1.98 (186) 2.23 (45) 2.72
Expired (3) 6.12 -- -- -- --
---- ----- ----- ----- ----- -----
Outstanding at end of year 708 2.20 766 2.27 817 2.44
---- ----- ----- ----- ----- -----
Exercisable at year end 591 $ 2.38 383 $ 2.45 269 $ 2.59
Weighted Average Fair Value of Options
Granted $ 0.88 $ 0.52 $ 1.35
</TABLE>
The following table summarizes information about stock options outstanding and
exercisable at August 31, 2000 (shares in thousands).
<TABLE>
<CAPTION>
Weighted
Average
Remaining
Contractual Weighted
Range of exercise Average Life Average
prices Outstanding Exercise Price (in years) Exercisable Exercise Price
--------------------- -------------- --------------- ------------- ----------- -------------------
<S> <C> <C> <C> <C> <C>
$1.031 - $1.94 245 $ 1.34 7.0 139 $ 1.49
$1.95 - $3.90 446 $ 2.47 6.8 436 $ 2.47
$3.95 - $11.75 17 $ 7.44 4.0 17 $ 7.44
--- ----- ---- --- -----
Total: 708 $ 2.20 591 $ 2.38
==================== === ===== ==== === =====
</TABLE>
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 income (loss) per share would have changed to the following pro forma
amounts:
<TABLE>
<CAPTION>
2000 1999 1998
------------------------- ------------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Net loss As Reported $ 227,200 $(1,530,400) $(240,100)
Pro Forma 127,100 (1,655,600) (331,700)
Basic loss per share As Reported $ 0.04 $ (0.24) $ (0.04)
Pro Forma 0.02 (0.26) (0.05)
Diluted loss per share As Reported $ 0.04 $ (0.24) $ (0.04)
Pro Forma 0.02 (0.26) (0.05)
</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 2000, 1999 and 1998: Risk-free interest rates
ranging from 5.14% to 6.68%; expected volatility is 65% in 2000, and 63% in 1999
and 62% in 1998; dividend yield of 0% in 2000, 1999, and 1998; expected life of
10 years.
<PAGE>
Note 10. STOCK REPURCHASE
On November 2, 1999, the Company announced that its Board of Directors
authorized management to purchase up to 500,000 shares of its common stock.
During the twelve months ended August 31, 2000, the Company purchased 393,200
shares of common stock under this plan. The Company suspended the repurchase
program on February 4, 2000, when it was reported that management had discovered
accounting irregularities. The Company purchased these shares, at cost, which
are presented as Treasury Stock in the consolidated balance sheet. On July 24,
2000, the company announced the reinstitution of the Company's stock repurchase
program. Between November 5, 1999 and February 4, 2000, the Company repurchased
a total of 267,600 shares of its outstanding common stock at an average price of
$1.12 per share. The Company repurchased a total of 125,600 shares of its
outstanding common stock at an average price of $1.04 from July 24, 2000 through
August 31, 2000.
Note 11. COMPANY RESTRUCTURINGS:
In February 1999, the Company implemented several cost cutting measures to
affect its long-term profitability objectives by aligning expenses more directly
with revenues. In connection with the restructuring, the Company incurred
charges of $2,132,600 during the fiscal 1999 second quarter primarily related to
severance agreements of several senior sales and executive staff. This
restructuring included a staff reduction of approximately 30 employees including
several officers.
As of August 31, 2000, the Company had an accrual of $130,800 included in
current liabilities in the accompanying consolidated balance sheet.
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 third quarter of fiscal 1998. As of
August 31, 2000, the policies had a cash surrender value of $848,600.
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 Company had maintained a reserve for
the difference between the fair market value of the pledged stock and the amount
of the loans. While the loans have not been forgiven, during fiscal year 2000
the Company increased the reserve and reclassified the note receivable.
Note 14. COMMITMENTS AND CONTINGENCIES
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.
Note 15. SUBSEQUENT EVENTS
On September 18, 2000, the Company announced that its Board of Directors has
hired investment bankers Legg Mason Wood Walker, Incorporated and TechKNOWLEDGEy
Strategic Group to explore strategic alternatives that may be available to the
Company to maximize shareholder value, including, but not limited to, the sale
of the Company or business combination with another company. EA stated that the
Board's decision to explore strategic alternatives is driven by its belief that
EA's stock price is undervalued in the public market.
<PAGE>
Note 16. QUARTERLY INFORMATION (Unaudited)
<TABLE>
<CAPTION>
FY 2000 Quarter Ended FY 1999 Quarter Ended
Nov 30 Feb 29 May 31 Aug 31 Nov 30 Feb 28 May 31 Aug 31
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Revenue $14,808 $13,830 $14,350 $ 17,879 $ 11,684 $ 10,940 $12,307 $13,796
Net Sales 8,702 8,779 9,039 8,676 8,034 7,662 9,145 9,306
Gross Profit 427 149 130 (71) (13) (3,180) 457 508
Income (loss) from Continuing Operations 228 57 38 (97) (29) (1,925) 228 278
Income (loss) from Discontinued Operations -- -- -- -- 29 (147) 35 --
Net income (loss) 228 57 38 (97) -- (2,072) 263 278
Net income (loss) per Common Share
Basic $ 0.04 $ 0.01 $ 0.01 $ (0.02) $ -- $ (0.33) $ 0.04 $ 0.04
Diluted $ 0.04 $ 0.01 $ 0.01 $ (0.02) $ -- $ (0.33) $ 0.04 $ 0.04
Weighted Average Shares Outstanding
Basic 6,332 6,135 6,093 6,080 6,292 6,306 6,319 6,319
Diluted 6,332 6,146 6,094 6,080 6,292 6,306 6,320 6,320
</TABLE>
-------------------------------
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS OF THE COMPANY
The Company's Board of Directors consists of four members, each serves a
one-year term and until his successor is duly elected and qualified.
<TABLE>
<CAPTION>
Name of Director, Age and Background Director Since
------------------------------------ --------------
<S> <C>
Edmund J. Cashman, Jr., age 64, Senior Executive Vice President of Legg Mason Inc. 1986
and Legg Mason Wood Walker, Inc.; Director/Trustee, Various Legg Mason Registered
Investment Companies
Loren D. Jensen, Ph.D., age 63, President, Chief Executive Officer and Chairman of 1973
the Board of Directors of the Company
Rudolph P. Lamone, Ph.D., age 68, Chairman of the Board, Michael D. Dingman Center 1986
for Entrepreneurship, Robert H. Smith School of Business, University of Maryland
Cleaveland D. Miller, Esq., age 62, Managing Partner, Semmes, Bowen & Semmes, a 1997
Professional Corporation
</TABLE>
EXECUTIVE OFFICERS OF THE COMPANY
Executive Officers of the Company are elected annually and serve at the
discretion of the Board of Directors. As of November 15, 2000, the Executive
Officers of the Company are Loren D. Jensen, Ph.D., as to whom information is
provided above under Directors of the Company and Barbara L. Posner for whom
related information is as follows:
Barbara L. Posner, 41, Executive Vice President, Chief Financial Officer, Chief
Operating Officer. Ms. Posner joined the Company in March 1997 and was the
Senior Vice President of Finance and Administration until February 1999 when she
was appointed Chief Financial Officer and Chief Operating Officer. With more
than 20 years experience, Ms. Posner began her career in public accounting and
later moved into operations. Prior to joining EA, she served as Vice President
and Controller at Metcalf & Eddy, Inc., a water, wastewater, and remediation
technologies company.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning executive
compensation for services during each of the Company's last three fiscal years
to (i) those persons serving as chief executive officer of the Company during
the fiscal year ended August 31, 2000; and (ii) those persons who were among the
four most highly compensated executive officers during the fiscal year ended
August 31, 2000.
<TABLE>
<CAPTION>
Annual Compensation Long-Term
Compensation Awards
------------------------------------------------------------------------------------------------------------------
Restricted All Other
Other Annual Stock Option Compensation(1)
Name and Principal Year Salary Bonus Compensation Awards Shares ($)
Position in 2000 ($) ($) ($) (#) (#)
------------------------------ ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Loren D. Jensen, Ph.D 2000 240,384 -- -- -- -- 4,986
Chairman of the Board, 1999 233,600 -- -- -- -- 9,264
President and Chief 1998 282,000 -- -- -- -- 4,750
Executive Officer
------------------------------ ------- ------- ------ --------------- ----------- ------ -------
Barbara L. Posner 2000 191,154 40,000 -- -- -- 5,031
Senior Vice President, Chief 1999 171,154 -- -- -- 65,000 4,858
Financial Officer and Chief 1998 145,000 -- -- -- 25,000 3,052
Operating Officer
------------------------------ ------- ------- ------ --------------- ----------- ------ -------
Edward M. Greco, P.E.(2) 2000 43,750 -- -- -- -- 144,224
Former Senior Vice President 1999 175,000 -- -- -- -- 267,300(3)
and President of EA 1998 60,577 20,000 -- -- 70,000 2,000
International, Inc.
------------------------------ ------- ------- ------ --------------- ----------- ------ -------
</TABLE>
(1) Includes the Company's matching contributions under its 401(k) Employees
Savings Plan. Includes severance and vacation accrual payout for Mr. Greco
made in the fiscal year ended August 31, 2000.
(2) Edward M. Greco separated from the Company effective November 12, 1999.
(3) Includes a change in control payout made to Mr. Greco in the fiscal year
ended August 31, 1999.
<PAGE>
STOCK-BASED INCENTIVE COMPENSATION PLAN
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The Company did not make any Options/Stock Appreciation Rights ("SAR") grants to
any of its named executive officers in the fiscal year ended August 31, 2000.
The following table sets forth certain information regarding option exercises
during the fiscal year ended August 31, 2000, as well as the number and value,
as of August 31, 2000, of unexercised options held by the named executive
officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money
Options/SARs at Options/SARs at
Fiscal Year-End Fiscal Year-End(1)
(#) ($)
---------------------- --------------- -------------- --------------------------------- --------------------------------
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---------------------- --------------- -------------- -------------- ------------------ -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Loren D. Jensen -- -- -- -- -- --
--------------------- --------------- -------------- -------------- ------------------ -------------- -----------------
Barbara L. Posner -- -- 51,667 48,333 -- --
---------------------- --------------- -------------- -------------- ------------------ -------------- -----------------
Edward M. Greco -- -- -- -- -- --
--------------------- --------------- -------------- -------------- ------------------ -------------- -----------------
</TABLE>
(1) Based on a closing NASDAQ price of $0.875 per share of Common Stock on
August 31, 2000. Values are calculated by subtracting the exercise price
from the fair market value of the stock as of the fiscal year end.
<PAGE>
Employment Agreements and Change-in-Control Arrangements
In March, 1999, the Company entered into a Change of Control1 Agreement with
Barbara L. Posner. The Agreement provides that if, within thirty (30) days after
a Change of Control, Ms. Posner terminates her employment she is entitled to
receive a lump sum payment equal to two times her annual salary (presently
$195,000 per year) plus company provided benefits for 24 months from the date of
termination. She will also receive ownership of the vehicle, computer and fax
machine currently provided to her by the Company.
The Agreement also provides that if Ms. Posner's employment is terminated by the
Company without cause, Ms. Posner will continue to receive her salary plus
benefits for a period of 18 months from the date of termination of employment.
On March 4, 1999, the Company entered into an Employment Agreement with Edward
M. Greco1 under which Mr. Greco was to serve as President of EA International,
Inc. and Senior Vice President of EA Engineering, Science, and Technology, Inc.
The Agreement was to expire upon the earlier of one year or a Change of Control1
of the Company. The Agreement provided that in the event of a Change of Control
or Mr. Greco's involuntary termination, Mr. Greco will receive severance
benefits equal to nine (9) months salary (based on a rate of $175,000 annually)
plus benefits and the ownership of the vehicle currently provided to him by the
Company. On November 12, 1999, Mr. Greco's employment with the Company
terminated. All payments have been made to him in accordance with the Agreement.
--------
1 Under the terms of the Company's respective Agreements with Ms. Posner and Mr.
Greco discussed herein, "Change of Control" is defined as the occurrence of an
event with respect to the Company that is a change of a nature that would be
required to be reported, by persons or entities subject to the reporting
requirements of Section 13(d) of the Securities and Exchange Act of 1934 (the
"Exchange Act"), in Schedule 13D of Regulation 13D-G, or any successor
provisions thereto, promulgated under the Exchange Act; provided that a Change
of Control shall be deemed to have occurred only if any "person" (as that term
is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 issued under the Exchange Act),
directly or indirectly, of securities of the Company representing forty-five
percent (45%) or more of the combined voting power of the Company's then
outstanding securities.
<PAGE>
Director Compensation
Effective March 31, 1998, each non-employee Director of the Company received a
fee of $1,500 for each meeting of the Board of Directors which he attended. In
addition, each non-employee director received $1,500 for attendance at each
meeting of any committee of the Board not held on the day of a Board meeting.
In addition to such fees, under the Company's 1993 Non-Employee Director Stock
Option Plan, each director who is newly elected to the Board and who, at that
time, is not an employee of the Company is granted an option to purchase 4,000
shares of Common Stock when he or she becomes a director. Also, under the
Company's 1995 Non-Employee Director Stock Option Plan, per approval at the
January 14, 1999 meeting of Company stockholders, each non-employee director is
granted an option to purchase 4,750 shares of Common Stock as of the date of
each annual meeting of stockholders at which such director is reelected. Prior
to this approval, 1,000 shares of Common Stock were awarded to each non-employee
director as of the date of each annual meeting of stockholders at which such
director is reelected. All such options have an exercise price equal to the
market price of the Common Stock on the date of grant and vest immediately upon
grant.
For the fiscal year ended August 31, 2000, the compensation for each
non-employee Director was as follows:
Director Amount
-------------------------- -------
Edmund J. Cashman, Jr. $12,000
Rudolph P. Lamone, Ph.D. $12,000
Cleaveland D. Miller, Esq. $15,000
Compensation Committee Interlocks and Insider Participation
All non-employee members of the Board of Directors serve on the Compensation
Committee of the Board of Directors and except as otherwise described in Item 13
of this Report 10-K, Certain Relationships and Related Transactions, set out
below, there are no affiliations between the Company and the members of the
Compensation Committee.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table shows, as of August 31, 2000 the total number of shares of
Common Stock beneficially owned by each person who was known by the Board of
Directors to own more than 5% of the Company's Common Stock. On that date there
were 6,378,800 shares of Common Stock outstanding.
Shares Beneficially
Name and Address of Owned Directly or Percent of
Beneficial Owner Indirectly Common Stock
----------------------------------------------------------------------
Loren D. Jensen 1,552,978 24.3%
12 Burnbrae Road
Towson, Maryland 21204
Cleaveland D. Miller, Trustee 717,625(1) 11.3%
250 W. Pratt Street
Baltimore, Maryland 21201
----------
(1) Cleaveland D. Miller holds 702,000 of these shares as the trustee of
irrevocable trusts for the benefit of each of Loren D. Jensen's three
children.
SECURITIES HELD BY DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Shares Beneficially Owned(1)(2)
Director/Executive Officer Amount Percent
-------------------------- --------- -------
<S> <C> <C>
Edmund J. Cashman, Jr., Director 58,375 *
Loren D. Jensen, Ph.D., President, Chief Executive 1,552,978 24.3%
Officer and Chairman of the Board of Directors of the
Company
Rudolph P. Lamone, Ph.D., Director 15,298 *
Cleaveland D. Miller, Esq., Director 717,625(3) 11.3%
Barbara L. Posner, Senior Vice President, Chief 65,299 1.0%
Financial Officer, Chief Operating Officer
All executive officers and directors of the Company as 2,409,505 37.8%
a group (5 individuals)
</TABLE>
--------------
* Less than 1%
(1) Based upon information supplied by each director and executive officer as
of October 29, 2000. Unless otherwise noted, all shares indicated are held
with sole voting and sole investment power.
(2) Includes 2,409,505 shares for which directors and executive officers have
sole voting and dispositive powers and presently exercisable option shares
of 48,333 for Ms. Posner and 13,500, 13,500, and 14,500 for Messrs.
Cashman, Lamone and Miller, respectively.
(3) Cleaveland D. Miller holds 702,000 of these shares as the trustee of
irrevocable trusts for the benefit of each of Loren D. Jensen's three
children.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions With Management and Others
The Company leases approximately 43,700 square feet of office space, which
serves as its corporate head-quarters, in Hunt Valley, Maryland from Merrymack
Limited Partnership, a Maryland limited partnership of which Loren D. Jensen is
the limited partner and Ecolair Limited Partnership, a Maryland limited
partnership of which Loren D. Jensen is the general partner ("Ecolair"), is the
general partner. Of the 43,700 square feet, the Company sublets 4,200 square
feet to other tenants. The prime lease expires December 31, 2006. For the year
ended August 31, 2000, total payments under the lease (including pass-through
taxes and operating expenses) were $883,900.
The Company also leases approximately 32,400 square feet of office space in
Sparks, Maryland from Ecolair. The lease expires November 30, 2007. For the year
ended August 31, 2000 total payments under the lease (including pass-through
taxes and operating expenses) were $611,800.
Certain Business Relationships
Legg Mason Wood Walker, Inc., with which Edmund J. Cashman is affiliated,
provides investment advisory services to the Company.
Semmes, Bowen & Semmes ("Semmes"), of which Cleaveland D. Miller is managing
partner, provided legal services to the Company during fiscal 2000. The firm's
billings to the Company in fiscal 2000 were less than $60,000, however, the
Director's fees paid to Mr. Miller, plus fees paid to Semmes, totaled $73,300 in
the fiscal year ended August 31, 2000.
Management of the Company believes that the terms and conditions of the
transactions between the Company and entities with which certain of its
directors are affiliated were on terms and conditions at least as favorable to
the Company as could have been obtained from third parties and were in the best
interests of the Company.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
A. Financial Statements and Schedule II Page
------------------------------------------------- ----
<S> <C> <C>
1. The following financial statements are included in Item 8 of
Part II of this report:
Report of Independent Public Accountants 16
Consolidated Financial Statements:
Consolidated Balance Sheets as of August 31, 2000 and 1999 17
Consolidated Statements of Operations for the years ended
August 31, 2000, 1999, and 1998 19
Consolidated Statements of Changes in Stockholders' Equity
for the years ended August 31, 2000, 1999, and 1998 20
Consolidated Statements of Cash Flows for the years ended
August 31, 2000, 1999, and 1998 21
Notes to Consolidated Financial Statements for the years
ended August 31, 2000, 1999, and 1998 22
2. The following financial statement schedule for the years ended August 31,
2000, 1999, and 1998 is submitted herewith:
Report of Independent Public Accountants on Schedule 40
Schedule II - Valuation and Qualifying Accounts and Reserves 41
</TABLE>
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 The 1993 Stock Incentive Plan.(4)
10.5 1993 Non-Employee Director Stock Option Plan.(5)
10.6 The Amended and Restated Stock Option Plan(5)
10.7 1995 Non-Employee Director Stock Option Plan(5)
10.8 Employment Agreement dated March 17, 1997, between the
Company and Donald A. Deieso.(6)
<PAGE>
10.9 Lease, dated August 6, 1997, between ARE Sparks Limited
Partnership, as landlord, and the Company as tenant.(7)
10.10 Lease, dated August 6, 1997, between Ecolair Limited
Partnership, as landlord, and the Company, as tenant.(7)
10.11 Lease, dated August 6, 1997, between Merrymack Limited
Partnership, as landlord, and the Company, as tenant.(7)
10.12 Loan Agreement, dated August 22, 1997, between the Company
and First National Bank of Maryland.(7)
10.13 Amended and Restated Revolving Loan Promissory Note and
Sixth Amended Modification Agreement dated November 1, 2000
between the Company and AllFirst Bank
13 2000 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 March 3, 1994.
(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 Registrant's Quarterly Report on Form
10-Q, File Number 0-15587 filed on April 18, 1997.
(7) Incorporated by reference to the Company's Annual Report on Form 10-K,
File Number 0-15587 filed on November 17, 1997.
b. Reports on Form 8-K
- On September 19, 2000, the Company filed a Form 8-K relative to a
press release of September 18, 2000 announcing that the Board of
Directors hired investment bankers Legg Mason Wood Walker,
Incorporated and TechKNOWLEDGEy Strategic Group to explore strategic
alternatives that may be available to the Company to maximize
shareholder value, including, but not limited to, the sale of the
Company or business combination with another company.
- On October 16, 2000, the Company filed a Form 8-K relative to a press
release of October 5, 2000 reporting that effective Friday, October
6, 2000, the Company's trading symbol would be changed from EACOC to
EACO.
<PAGE>
Report of Independent Accountants on Financial Statement Schedule
To the Board of Directors and Stockholders of
EA Engineering, Science, and Technology, Inc.:
Our audit of the consolidated financial statements as of August 31, 2000 and
1999, and for each of the three years in the period ended August 31, 2000,
referred to in our report dated November 1, 2000, included in this Annual Report
on Form 10-K, also included an audit of the financial statement schedule listed
in Item 14(a)(2) of this Form 10-K. In our opinion, the financial statement
schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
November 1, 2000
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years Ended August 31, 2000, 1999, and 1998
<TABLE>
<CAPTION>
Allowance Balance at
for Doubtful Beginning Charged to Balance at
Accounts of Period Cost and Expense Write-offs End of Period
-------------------- --------------- --------------------- -------------- -----------------
<S> <C> <C> <C> <C>
2000 $260,300 $344,300 $239,500 $365,100
1999 257,200 243,500 240,400 260,300
1998 532,000 130,500 405,300 257,200
</TABLE>
<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 15, 2000 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.
Name Title Date
---- ----- ----
Chairman of the Board, President, November 15, 2000
/s/ Loren D. Jensen and Chief Executive Officer
--------------------------
Loren D. Jensen
Chief Financial Officer November 15, 2000
/s/ Barbara L. Posner and Chief Operating Officer
--------------------------
Barbara L. Posner
/s/ Edmund J. Cashman, Jr. Director November 15, 2000
--------------------------
Edmund J. Cashman, Jr.
/s/ Rudolph P. Lamone Director November 15, 2000
--------------------------
Rudolph P. Lamone
/s/ Cleaveland D. Miller Director November 15, 2000
--------------------------
Cleaveland D. Miller
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description Page
--- ----------------------------------------- ----
3.1 Certificate of Incorporation of the Company. 38
3.2 By-laws of the Company. 38
4.1 Article SIXTH of the Company's Certificate of Incorporation. 38
10.1 The Company's Profit Sharing Plan. 38
10.2 The Company's Stock Option Plan. 38
10.3 The Company's Employee Stock Purchase Plan. 38
10.4 The 1993 Stock Incentive Plan. 38
10.5 1993 Non-Employee Director Stock Option Plan. 38
10.6 The Amended and Restated Stock Option Plan. 38
10.7 1995 Non-Employee Director Stock Option Plan. 38
10.8 Employment Agreement dated March 17, 1997, between the
Company and Donald A. Deieso. 38
10.9 Lease, dated August 6, 1997, between ARE Sparks Limited
Partnership, as landlord, and the Company as tenant. 39
10.10 Lease, dated August 6, 1997, between Ecolair Limited
Partnership, as landlord, and the Company, as tenant. 39
10.11 Lease, dated August 6, 1997, between Merrymack Limited
Partnership, as landlord, and the Company, as tenant. 39
10.12 Loan Agreement, dated August 22, 1997, between the Company
and First National Bank of Maryland. 39
10.13 Amended and Restated Revolving Loan Promissory Note and
Sixth Amended Modification Agreement dated November 1, 2000
between the Company and AllFirst Bank 39
13 2000 Annual Report to Stockholders. 39
21 Subsidiaries of the Company. 39
27 Financial Data Schedule. 39
<PAGE>
