<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------------
FORM 10-Q
(Mark One)
( X ) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1933
For the quarterly period ended May 26, 1995
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1933
For the transition period from
---------------------------------
to
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Commission File
Number 33-16098
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THE EARTH TECHNOLOGY CORPORATION (USA)
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(Exact name of registrant as specified in its charter)
Delaware 33-0244112
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 West Broadway, Suite 5000
Long Beach, California 90802-5785
- -------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
Registrant's tel. number, including area code: (310) 495-4449
------------------
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1933 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
----- -----
Number of shares of common stock, $.10 par value, issued and outstanding as of
July 7, 1995 is 8,697,873.
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<PAGE>
INDEX
PAGE
Part I - Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets -
May 26, 1995 (unaudited), and
August 26, 1994 (unaudited) . . . . . . . . . . . . . . . 1
Consolidated Statements of Operations
Three Months Ended May 26, 1995
(unaudited), and May 27, 1994
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations
Nine Months Ended May 26, 1995
(unaudited) and May 27, 1994
(unaudited . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flow
Nine Months Ended May 26, 1995
(unaudited), and May 27, 1994
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . 12
Part II - Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 15
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . 15
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . 15
Item 4. Submission of Matters to a Vote of . . . . . . . . . . . . . 15
Security Holders
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 15
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Exhibit 11.1 Statement RE: Computation of Per Share
Earnings, Three Months Ended May 26, 1995 (unaudited)
Exhibit 11.2 Statement RE: Computation of Per Share
Earnings Nine Months Ended May 26, 1995 (unaudited)
<PAGE>
THE EARTH TECHNOLOGY CORPORATION (USA)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)-(Note 1)
(In thousands)
<TABLE>
<CAPTION>
CURRENT ASSETS May 26, August 26,
1995 1994
-------------- ------------
<S> <C> <C>
Cash and cash equivalents $ 2,998 $ 2,803
Contract receivables (Note 3),
less allowance for doubtful accounts of
$2,029 at May 26, 1995 and $2,093 at
August 26, 1994 48,118 55,661
Notes and other receivable 537 883
Prepaid expenses 3,298 3,090
Deferred income taxes 3,826 2,300
Other current assets 1,876 1,451
-------------- ------------
TOTAL CURRENT ASSETS 60,653 66,188
PROPERTY AND EQUIPMENT
Land and Buildings 6,691 6,688
Field and laboratory equipment 7,715 8,344
Office furniture and equipment 17,069 14,609
Transportation equipment 3,318 2,989
Equipment under capital leases 3,243 4,323
Leasehold improvements 1,317 1,285
Construction in progress 408 361
-------------- ------------
Total 39,761 38,599
Less accumulated depreciation and
amortization 22,454 20,007
-------------- ------------
Property and equipment, net 17,307 18,592
Goodwill 12,024 12,549
Deferred income taxes 467 587
Other assets 2,418 1,494
-------------- ------------
TOTAL ASSETS $ 92,869 $ 99,410
-------------- ------------
-------------- ------------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
THE EARTH TECHNOLOGY CORPORATION (USA)
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)-(Note 1)
(In thousands)
<TABLE>
<CAPTION>
May 26, August 26,
1995 1994
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 12,649 $ 18,791
Billings in excess of revenues 4,574 3,681
Accrued payroll and related liabilities 5,720 8,513
Other accrued liabilities 7,272 5,115
Current portion of long-term debt 1,370 4,451
------------- -------------
Total Current Liabilities 31,585 40,551
Revolving credit agreement 18,700 12,553
Long-term debt 4,640 5,383
Other long-term liabilities 3,795 3,937
Subordinated debt 10,000 10,000
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Total long-term liabilities 37,135 31,873
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TOTAL LIABILITIES 68,720 72,424
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Redeemable Senior Preferred Stock ----- 2,500
STOCKHOLDERS' EQUITY
Preferred stock - $.10 par value;
5,000,000 shares authorized,
none issued
Preferred stock $1 par value; 1,800,000
Series A voting, noncumulative,
convertible issued and outstanding -- $1,800
Common stock - $.10 par value,
20,000,000 shares authorized;
8,776,215 issued and 8,697,226
shares outstanding: (6,733,904
at August 26, 1994) 878 673
Additional paid-in capital 36,539 34,307
Deficit (12,982) (12,008)
Less treasury stock 78,989 shares
at May 26, 1995 (78,989 at August
26, 1994), at cost (286) (286)
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TOTAL STOCKHOLDERS' EQUITY 24,149 24,486
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TOTAL LIABILITIES AND EQUITY $ 92,869 $ 99,410
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------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
THE EARTH TECHNOLOGY CORPORATION (USA)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------
May 26, 1995 May 27, 1994
-------------- -------------
<S> <C> <C>
Gross revenues $ 44,935 $ 43,422
Less direct project costs (14,190) (13,117)
-------------- -------------
Net revenue 30,745 30,305
Other costs and expenses:
Direct labor and related costs 13,939 13,563
Indirect expenses 14,236 15,254
Special charges ----- 6,873
-------------- -------------
Total operating expenses 28,175 35,690
Operating income (loss) 2,570 (5,385)
Interest and other income 54 79
Interest expense (799) (991)
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Income (loss) before income taxes 1,825 (6,297)
Provision (benefit) for income taxes 729 (1,607)
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Net income (loss) 1,096 (4,690)
Dividend requirements on
preferred stock 60 69
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Net income (loss) applicable
to common stock $ 1,036 $ (4,759)
-------------- -------------
-------------- -------------
Net income (loss) per common share $ 0.12 $ (0.89)
-------------- -------------
-------------- -------------
Weighted average common shares
outstanding 8,879 5,336
-------------- -------------
-------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
THE EARTH TECHNOLOGY CORPORATION (USA)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------------
May 26, 1995 May 27, 1994
-------------- -------------
<S> <C> <C>
Gross revenues $ 141,239 $ 137,548
Less direct project costs (49,139) (46,337)
-------------- -------------
Net revenue 92,100 91,211
Other costs and expenses:
Direct labor and related costs 41,445 39,672
Indirect expenses 43,844 45,235
Special charges 4,315 6,873
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Total operating expenses 89,604 91,780
Operating income (loss) 2,496 (569)
Interest and other income 120 170
Interest expense (2,170) (2,832)
-------------- -------------
Income (loss) before income taxes 446 (3,231)
Provision (benefit) for income taxes 1,235 (601)
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Net (loss) (789) (2,630)
Dividend requirements on
preferred stock 186 209
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Net (loss) applicable
to common stock $ (975) $ (2,839)
-------------- -------------
-------------- -------------
Net (loss) per common share $ (0.11) $ (0.54)
-------------- -------------
-------------- -------------
Weighted average common shares
outstanding 8,625 5,227
-------------- -------------
-------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
THE EARTH TECHNOLOGY CORPORATION (USA)
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------
May 26, May 27,
1995 1994
-------- ---------
<S> <C> <C>
Net loss $ (789) $(2,630)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation/amortization 4,026 4,079
Provision for losses on
contract receivables 135 298
Deferred income taxes (1,406) (2,853)
Loss on sale of Subsidiary 237 --
Special charges, net of cash paid 1,080 6,873
Other 45 (139)
Changes in assets and liabilities:
Contract receivables 7,408 4,841
Notes, prepaids and other assets (969) (2,294)
Accounts payable (6,142) 1,310
Other liabilities (504) (4,057)
-------- ---------
Cash Provided by Operating Activities 3,121 5,428
Proceeds from disposals 22 145
Proceeds from sales of investments -- 93
Purchase of business, net of cash acquired -- (324)
Purchase of property and equipment (3,001) (2,367)
-------- ---------
Cash Used in Investing Activities (2,979) (2,453)
Redemption of preferred stock (2,500) --
Principal payments on debt obligations (58,860) (16,717)
Borrowing from debt obligations 61,027 13,500
Sale/repurchase of common stock, net 571 204
Dividends on preferred stock (185) (214)
-------- ---------
Net Cash Provided by (Used in)
Financing Activities 53 (3,227)
-------- ---------
Net Increase (Decrease) in Cash and
Cash Equivalents 195 (252)
Cash and cash equivalents at
beginning of period 2,803 3,925
-------- ---------
Cash and cash equivalents at end of period $ 2,998 $ 3,673
-------- ---------
-------- ---------
Interest paid during period $2,008 $ 3,227
Income taxes paid during period 3,836 3,062
Capital lease obligations from
purchase of equipment 207 340
</TABLE>
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<PAGE>
THE EARTH TECHNOLOGY CORPORATION (USA)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share data)
NOTE 1 - MERGER
In February, 1995, HazWaste Industries Incorporated ("HWI") was merged with and
into The Earth Technology Corporation (USA) ("Earth Tech") (combined, the
"Company"). Earth Tech issued 2,639,620 shares of common stock for all of the
common shares (including preferred shares, see Note 4) and unvested stock
options of HWI. The merger was accounted for as a pooling of interests, and
accordingly, the Company's consolidated financial statements have been restated
for all periods prior to the merger to include the accounts and operations of
HWI. Net sales and net earnings for the individual entities for the periods
before the merger was consummated were as follows:
<TABLE>
<CAPTION>
Earth Tech HWI Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Three months ended
February 24, 1995
Revenues $ 35,314 $ 10,104 $ 45,418
Net loss (1,564) (1,592) (3,156)
Dividend requirement on
preferred stock 63 --- 63
Six months ended
February 24, 1995
Revenues $ 73,816 $ 22,489 $ 96,305
Net Loss (652) (1,233) (1,885)
Dividend requirement on
Preferred stock 125 --- 125
Year ended August 26, 1994
Revenue $ 145,848 $ 43,057 $ 188,905
Net (loss) income (2,224) 1,412 (812)
Dividend requirement on
preferred stock 273 --- 273
Year ended August 26, 1993
Revenue $ 145,244 $ 55,979 $ 201,223
Net (loss) income (10,735) 1,756 (8,979)
Dividend requirement on
preferred stock 1,100 --- 1,100
</TABLE>
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<PAGE>
No material adjustments were necessary to eliminate intercompany transactions or
conform accounting policies.
Prior to the merger, HWI used a fiscal year ending on the last Friday of
December. HWI has restated their financial statements for all periods to
conform to the fiscal year end of Earth Tech.
In connection with the merger, approximately $4,315 of merger costs and expenses
($0.41 per share, net of taxes) classified as special charges in the Statements
of Operations were incurred and have been charged to expense in the second
quarter of fiscal 1995. The non-recurring costs and expenses include the
following: (a) $2,510 in merger-related costs; (b) $555 to provide for the
consolidation of facilities; $580 in severance payments to former HWI employees;
and (d) $670 for the conversion and integration of various programs. All costs
were committed and all appropriate personnel were notified by the end of the
second quarter. Accrued costs remaining at May 26, 1995 were $1,080. It is
anticipated that essentially all costs will be paid by the end of the fiscal
year.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulations S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month and nine-month periods
ended May 26, 1995 are not necessarily indicative of the results that may be
expected for the year ended August 25, 1995. For further information, refer to
the consolidated financial statements and footnotes thereto incorporated by
reference in The Earth Technology Corporation (USA) annual report on Form 10-K/A
No. 1 for the fiscal year ended August 26, 1994 and to The Earth Technology
Corporation (USA) prospectus and proxy dated January 19, 1995.
Earnings per share are computed by dividing net income by the weighted average
number of shares of common stock outstanding.
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." This Statement prescribes the accounting for the
impairment of long lived assets that are to be held and used in the business and
for similar assets that are to be disposed of. The Statement is effective for
fiscal years beginning after December 15, 1995. As of this date, the Company
has not adopted this Statement. Management believes that adoption of this
Statement will not have a material impact on the results of operations and
financial condition of the Company.
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<PAGE>
NOTE 3 - CONTRACT RECEIVABLES
Contract receivables consist of the following (in thousands):
<TABLE>
<CAPTION>
May 26, August 26,
1995 1994
--------- ---------
<S> <C> <C>
U.S. Government:
Amounts billed $ 7,160 $ 12,711
Unbilled contract costs and fees 10,851 11,867
Retentions, due upon completion
of contracts 1,616 1,253
--------- ---------
Total U.S. Government 19,627 25,831
Commercial:
Amounts billed 25,104 26,874
Unbilled contract costs and fees 4,820 4,346
Retentions, due upon completion
of contracts 596 703
--------- ---------
30,520 31,923
Less allowance for doubtful accounts 2,029 2,093
--------- ---------
Net Commercial 28,491 29,830
--------- ---------
Total contract receivables $ 48,118 $ 55,661
--------- ---------
--------- ---------
</TABLE>
Amounts not billable at May 26, 1995, under specific conditions of the
applicable contracts, are expected to be billed within one year.
Amounts not paid by customers pursuant to retention provisions in contracts will
be due upon completion of the contracts and acceptance by the customer.
NOTE 4 - CREDIT AGREEMENT
In May 1994, the Company entered into a revolving credit agreement with a bank,
secured by substantially all of its assets, which provided for borrowing to a
maximum of $20 million, subject to a formula based on eligible accounts
receivable. This agreement replaced a prior revolving credit agreement. The
agreement was amended in February, 1995 to provide a maximum borrowing of $25
million. On June 26, 1995, the agreement was further amended to provide a
temporary increase until November 30, 1995, in the advance rate from 75% to 85%
of eligible accounts receivable. The revolving line of credit expires May 24,
1997.
The agreement allows for borrowing at a floating interest rate based on the
bank's reference rate, or on Eurodollar rates for specified periods of time. A
premium of 0% to .5% may apply to the bank s reference rate and a premium of
2.0% to 2.5% may apply to Eurodollar rates depending on certain cash flow ratios
measured at each fiscal quarter end. The Company is currently paying a .25%
premium over the bank's reference rate and a 2.25% premium over Eurodollar
rates. At May 26, 1995 the company's actual rates are 8.25% to 9.25%.
The credit agreement places various restrictions on the Company, including
certain prohibitions on the payment of dividends and additional borrowing, and
provides that specific financial ratios be maintained. The Company was in
compliance with all covenants at May 26, 1995.
-8-
<PAGE>
NOTE 5 - SHAREHOLDERS' EQUITY
In February, 1995, as part of the merger with HWI (See Note 1), 1,800,000 HWI
Series A preferred shares were converted into 1,809,712 Earth Tech common
shares. Also, as part of the merger, 86,066 stock options to purchase HWI
common shares, at option prices ranging from $1.00 to $5.00 per share, were
converted into 86,530 stock options to purchase Earth Tech common shares, at
option prices ranging from $.99 to $4.97 a share.
NOTE 6 - LITIGATION
As a professional services firm engaged in engineering, environmental safety
matters, the Company encounters potential claims, including claims for
environmental damage, in the normal course of business. The Company practices a
vigorous response to such claims including a legal defense when necessary.
To minimize its risk against these claims, the Company promotes risk management
techniques when providing professional services. The Company also maintains an
insurance program which includes coverage for environmental and asbestos claims
related to its business.
Certain pending legal actions, which are described below, make claims for
substantial damages which, if awarded, would have a material adverse effect on
the Company's financial position and the results of its operations.
(1) One of the Company's subsidiaries, Alternative Ways, Inc. (AWI) has been
named a co-defendant in certain action filed on October 9, 1990 in the Supreme
Court for the State of New York, County of New York. Other defendants in the
lawsuit include Madison Square Garden Corporation, Paramount Communications,
Inc. and Herbert Construction Company/HRH Construction Corporation.
Plaintiff, an asbestos abatement contractor, seeks $20 million in compensatory
damages and up to $100 million in punitive damages. While this dispute
involved asbestos removal, Plaintiff makes no environmental claim related to
asbestos. Plaintiff rather alleges that defendants misrepresented the job and
underpaid for the work. AWI vigorously denies these assertions and had no
contractual relationship with the Plaintiff.
(2) A California, nonprofit homeowners association, Canyon Estates Community
Association, commenced on November 25, 1992 a civil action for negligence in
Superior Court for the County of Orange California against the company and
twenty-two other defendants including certain soils engineering firms, certain
land developers and certain home builders. As to the Company, the suit
challenges certain preliminary soils engineering work completed in the
mid-1980s. In December, 1994, Plaintiff presented the Defendants with an
expert witness report which asserts corrective remedies will cost more than
$140 million. The Company vigorously disputes this opinion and any claim of
liability against it.
Because the two cases are at an early stage in the legal process, the ultimate
outcome or the range of costs, if any, cannot be determined at this time.
There are other claims and suits pending against the Company for alleged damages
to persons and property and for alleged liabilities arising out of matters
occurring during the normal operation of the Company's business. In the opinion
of management, the uninsured liability, if any, of these other
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<PAGE>
claims and suits would not materially affect the financial position or results
of operations of the company.
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<PAGE>
NOTE 7 - CONTINGENCIES
U.S. Government contracts are subject to government audit. Such audits could
lead to inquiries from the government regarding the appropriateness of expenses
under the U.S. Government regulations. The management of the Company believes
that such inquiries, if any, will not result in material changes to revenues
recorded.
NOTE 8 - SPECIAL CHARGES
Special charges have been included in operating expenses in each of fiscal years
1993, 1994, and 1995. A summary of the charges, remaining reserves at May 26,
1995, and the expected period of utilization of the remaining reserves is as
follows:
<TABLE>
<CAPTION>
Expected
Remaining Period of
Charges Amount Reserves Utilization
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1995 - HWI merger costs (Note 1) $ 4,315 $ 1,080 Fiscal 1995
1994 - Summit merger costs 4,993 185 Fiscal 1995
Minneapolis office
closure 1,880 0
1993 - Writedown of goodwill 11,259 -- --
Administrative consolidation Remaining
and writedown of unfavorable five years of
lease 3,741 1,832 lease
</TABLE>
NOTE 9 - REDEEMABLE PREFERRED STOCK
In May, 1995 the Company redeemed for cash all redeemable preferred stock
outstanding.
-11-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash balances of $2,998,000 at May 26, 1995 compared to
$2,803,000 at August 26, 1994. Cash flow from operations totaled $3,121,000 for
the first nine months of fiscal 1995. Capital expenditures for the first nine
months of fiscal 1995 totaled $3,001,000 and are expected to total approximately
$4,000,000 for the fiscal year, principally for office and field equipment and
computers.
Historically, the primary sources of working capital have been
internally-generated funds from operations and bank revolving credit agreements.
Acquisitions were financed through the issuance of various subordinated debt
instruments, preferred stocks and common stock. The merger with Summit
Environmental Group, Inc. in May, 1994 included a conversion to common stock (at
a ratio based on the exchange ratio used in the Summit merger) of several of the
instruments which had been issued by Summit in financing its growth, including
$4,556,000 in 14.5% subordinated notes, $620,000 in 5% Senior Preferred Stock,
$7,505,000 in Series B Preferred Stock, $3,537,000 in preferred dividend
arrearages, and $600,000 in Series A Preferred Stock. These conversions along
with the refinancing of $4.2 million in mortgage debt and the establishment of a
new revolving credit agreement, significantly enhanced the Company's liquidity
and capital resources.
On May 24, 1995 the Company utilized its Revolving Credit Agreement to redeem,
at the option of the shareholders, its $2,500,000 10% Senior Preferred Stock.
This will reduce the Company s cost of funds from an effective 16.7% rate to
approximately 8.75%.
The Revolving Credit Agreement borrowings are based on eligible accounts
receivable to a maximum of $25,000,000. On June 26, The Revolving Credit
Agreement was amended to provide for a temporary increase, through November
1995, in the advance rate from 75% to 85% of eligible accounts receivable.
Under the revised formula the maximum borrowings allowed at May 26, 1995 would
have been $19,162,000. The agreement signed in May, 1994, amended in February,
1995 and expiring in May, 1997 requires the Company to maintain certain
covenants measured on a quarterly basis. The Company was in compliance with all
covenants at May 26, 1995. The Company had an outstanding balance at May 26,
1995 of $18,700,000 and at August 26, 1994 of $12,553,000.
Management believes the amounts available under the Company's Revolving Credit
Agreement together with the funds generated by operations will be sufficient to
meet the Company's anticipated working capital requirements.
RESULTS OF OPERATIONS
THIRD QUARTER COMPARISON FOR THE FISCAL YEARS 1995 AND 1994
Gross revenues for the third quarter were up 3.5% to $44,935,000 in fiscal
year 1995 versus $43,422,000 in 1994. Net revenue increased 1.5% for the same
period to $30,745,000 in fiscal 1995 from $30,305,000 in fiscal 1994. Demand
for environmental services remains sluggish as a result of some uncertainty in
the federal regulatory and budgetary environment and a resulting slackening of
enforcement activity. Offsetting this was a 37% increase in revenues for
contract operations of water and waste water
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<PAGE>
facilities, and significant increases in engineering services for industrial
facilities and municipal infrastructure projects.
Direct labor and related costs increased 2.8% over 1994 to 45.3% of net
revenues. The increase was primarily due to the contract mix in remediation
services and the effect of declines in pricing laboratory services.
Indirect expenses decreased 6.7% compared to the year earlier quarter,
primarily due to savings of approximately $208,000 resulting from the closure of
Summit s Canton, Ohio office, overall increased chargeability, and cost
reductions implemented in 1995.
Special charges of $6,873,000 ($5,231,000, net of tax) were recorded in the
third quarter 1994, including $4,993,000 in costs relating to the Summit merger
and a $1,880,000 charge recorded by Summit Environmental Group, Inc. in
connection with the closure of its Minneapolis office prior to the merger with
the Company in May, 1994. The charges included $650,000 for additional reserves
for bad debts, $430,000 for the termination of the office and other leases,
$300,000 in severance payments and $500,000 in other costs to complete projects
in process.
Interest expenses have been reduced as a result of reduced debt levels due to
conversion of debt to common stock in the May 1994 merger with Summit and by the
Company's cash flow from operations. The interest savings on the debt
conversions from the recapitalization of Summit from the year earlier quarter
was approximately $165,000.
Income tax expense of $729,000 for the quarter reflects a tax rate of 40%. In
1994 the tax rate was 31% due primarily to reductions in the valuation allowance
for the Company's net deferred tax assets. The tax rate in 1994 would have been
approximately 43% without the valuation allowance adjustments.
NINE MONTHS COMPARISON FOR THE FISCAL YEARS 1995 AND 1994
Gross revenues for the nine months were up 2.7% to $141,239,000 in fiscal year
1995 versus $137,548,000 in 1994. Net revenue increased 1.0% for the same
period from $91,211,000 in fiscal 1994 to $92,100,000 in fiscal 1995. Demand
for environmental services remains sluggish as a result of some uncertainty in
the regulatory federal and budgetary environment and a resulting slackening of
enforcement activity. In fiscal 1995, excessive rain in California and some
funding delays in certain U.S. government programs adversely affected revenues
in the second quarter. These delays have now been resolved. Offsetting this
was a 17% increase in revenues for contract operations of water and waste water
facilities and significant increases in engineering services for industrial
facilities and municipal infrastructure projects.
Direct labor and related costs rose to 45.0% of net revenue in 1995 versus
43.5% in 1994. The increase in this percentage was primarily due to the
contract mix in remediation services and the effect of declines in pricing
laboratory services.
Indirect expenses decreased 3.1% from the prior year, primarily due to the
$877,000 savings resulting from the closure of Summit's Canton, Ohio office and
overall increased chargeability, offset by the loss of $237,000 on the sale of
its Bionomics Laboratory.
-13-
<PAGE>
Special charges of $4,315,000 ($3,440,000, net of tax) were recorded in the
second quarter of fiscal 1995. These charges result from the completion of the
pooling of interests with HazWaste Industries completed on February 23, 1995.
The charges include $2,510,000 in merger related expenses; $580,000 in severance
costs; $555,000 for the consolidation of facilities and $670,000 for the
conversion and integration of fringe benefit, insurance and other programs. As
of May 26, 1995 a liability of $1,080,000 remained and is expected to be paid by
the end of the fiscal year.
Interest expenses have been reduced as a result of reduced debt levels due to
the conversion of debt to common stock in the May, 1994 merger with Summit and
by the Company s cash flow from operations. The interest savings on the debt
conversions from the recapitalization of Summit from the prior year was
approximately $660,000.
Income tax expense, net of the effect of $3,647,000 in net special charges,
for fiscal 1995 reflect a tax rate of approximately 40%. The income tax expense
for 1994 was approximately 33% due primarily to the realization of net operating
loss carryforwards.
-14-
<PAGE>
Part II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No changes have occurred in pending material litigation. For further
discussion, see Note 6 to the Consolidated Financial Statements.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11.1 Statement RE: Computation of Per Share Earnings, Three
Months Ended May 26, 1995 (unaudited)
Exhibit 11.2 Statement RE: Computation of Per Share Earnings, Nine
Months Ended May 26, 1995 (unaudited)
(b) Reports on Form 8-K
Not applicable.
-15-
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Earth Technology Corporation (USA)
(Registrant)
Date: July 10, 1995 By: CHARLES S. ALPERT
----------------------------
Charles S. Alpert
Corporate Secretary
Date: July 10, 1995 By: CREIGHTON K. EARLY
-----------------------------
Creighton K. Early
Chief Financial Officer
(Principal Financial
and Accounting Officer)
-16-
<PAGE>
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
------------------------------------
------------------------------------
Three Months Ending
May 26, 1995 May 27, 1994
------------- --------------
<S> <C> <C>
PRIMARY
Average Shares Outstanding 8,673,126 5,335,938
Net Effect of dilutive stock options
and convertible issues based on the
treasury stock method using average
market price 206,045 --
------------- --------------
Total 8,879,171 5,335,938
------------- --------------
------------- --------------
Net Income (Loss) $ 1,036,000 $ (4,759,000)
------------- --------------
------------- --------------
Per Share Amount $ .12 $ (0.89)
------------- --------------
------------- --------------
FULLY DILUTED
Average Shares Outstanding 8,673,126 5,335,938
Net effect of dilutive stock options
and convertible issues based on the
treasury stock method using the period
ending market price, if higher than
average market price 206,045 --
------------- --------------
Total 8,879,171 5,335,938
------------- --------------
------------- --------------
Net Income (Loss) $ 1,036,000 $ (4,759,000)
------------- --------------
------------- --------------
Per Share Amount $ .12 $ (0.89)
------------- --------------
------------- --------------
</TABLE>
<PAGE>
EXHIBIT 11.2
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
------------------------------------
------------------------------------
Nine Months Ending
May 26, 1995 May 27, 1994
------------- --------------
<S> <C> <C>
PRIMARY
Average Shares Outstanding 8,625,220 5,227,007
Net Effect of dilutive stock options
and convertible issues based on the
treasury stock method using average
market price -- --
------------- --------------
Total 8,625,220 5,227,007
------------- --------------
------------- --------------
Net (Loss) $ (975,000) $ (2,839,000)
------------- --------------
------------- --------------
Per Share Amount $ (.11) $ (0.54)
------------- --------------
------------- --------------
FULLY DILUTED
Average Shares Outstanding 8,625,220 5,227,007
Net effect of dilutive stock options
and convertible issues based on the
treasury stock method using the period
ending market price, if higher than
average market price -- --
------------- --------------
Total 8,625,220 5,227,007
------------- --------------
------------- --------------
Net (Loss) $ (975,000) $ (2,839,000)
------------- --------------
------------- --------------
Per Share Amount $ (.11) $ (0.54)
------------- --------------
------------- --------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-25-1995
<PERIOD-END> MAY-26-1995
<CASH> 2,998
<SECURITIES> 0
<RECEIVABLES> 48,118
<ALLOWANCES> 2,029
<INVENTORY> 0
<CURRENT-ASSETS> 60,653
<PP&E> 39,761
<DEPRECIATION> 22,454
<TOTAL-ASSETS> 92,869
<CURRENT-LIABILITIES> 31,585
<BONDS> 0
<COMMON> 878
0
0
<OTHER-SE> 23,271
<TOTAL-LIABILITY-AND-EQUITY> 92,869
<SALES> 141
<TOTAL-REVENUES> 141,239
<CGS> 49,139
<TOTAL-COSTS> 49,139
<OTHER-EXPENSES> 89,604
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,170
<INCOME-PRETAX> 446
<INCOME-TAX> 1,235
<INCOME-CONTINUING> (789)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (789)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
