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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 1934
For the quarterly period ended February 24, 1995
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from
-----------------------------
to
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Commission File
Number 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
- - ---------------------------------------- ------------------
(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 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
--- ---
Number of shares of common stock, $.10 par value, issued and outstanding as of
April 7, 1995 is 8,692,128.
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<PAGE>
Index
Page
Part I - Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets -
February 24, 1995 (unaudited), and
August 26, 1994 (unaudited)..................................1
Consolidated Statements of Operations
Three Months Ended February 24, 1995
(unaudited), and February 25, 1994
(unaudited)..................................................3
Consolidated Statements of Operations
Six Months Ended February 24, 1995
(unaudited) and February 25, 1994
(unaudited...................................................4
Consolidated Statements of Cash Flow
Six Months Ended February 24, 1995
(unaudited), and February 25, 1994
(unaudited)..................................................5
Notes to Consolidated Financial Statements
(unaudited)..................................................6
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations.......................................11
Part II - Other Information
Item 1. Legal Proceedings...........................................13
Item 2. Changes in Securities.......................................13
Item 3. Defaults Upon Senior Securities.............................13
Item 4. Submission of Matters to a Vote of
Security Holders...................................13
Item 5. Other Information...........................................14
Item 6. Exhibits and Reports on Form 8-K............................14
Signatures...........................................................15
Exhibit 11.1 Statement RE: Computation of Per Share
Earnings, Three Months Ended February 24, 1995 (unaudited)
Exhibit 11.2 Statement RE: Computation of Per Share
Earnings Six Months Ended February 24, 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)
CURRENT ASSETS February 24, August 26,
1995 1994
------- -------
Cash and cash equivalents ........................ $ 2,981 $ 2,803
Contract receivables (Note 3),
less allowance for doubtful accounts
of $2,003 at February 24, 1995
and $2,093 at August 26, 1994................... 49,832 55,661
Notes and other receivable ....................... 789 883
Prepaid expenses ................................. 1,834 3,090
Deferred income taxes ............................ 4,082 2,300
Other current assets ............................. 1,727 1,451
------- -------
Total current assets ............................. 61,245 66,188
PROPERTY AND EQUIPMENT
Land and Buildings ............................... 6,688 6,688
Field and laboratory equipment ................... 7,481 8,344
Office furniture and equipment ................... 15,956 14,609
Transportation equipment ......................... 3,270 2,989
Equipment under capital leases ................... 3,895 4,323
Leasehold improvements ........................... 1,315 1,285
Construction in progress ......................... 184 361
------- -------
Total .......................................... 38,789 38,599
Less accumulated depreciation and
amortization.................................... 21,329 20,007
------- -------
Property and equipment, net ...................... 17,460 18,592
Goodwill ......................................... 12,114 12,549
Deferred income taxes ............................ 587 587
Other assets ..................................... 2,515 1,494
------- -------
Total assets ..................................... $93,921 $99,410
======= =======
See Notes to Consolidated Financial Statements.
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<PAGE>
<TABLE>
<CAPTION>
THE EARTH TECHNOLOGY CORPORATION (USA)
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(unaudited)-(Note 1)
(In thousands)
February 24, August 26,
1995 1994
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable ................................................................. $ 19,307 $ 18,791
Billings in excess of revenues ................................................... 4,418 3,681
Accrued payroll and related liabilities .......................................... 7,201 8,513
Other accrued liabilities ........................................................ 3,864 4,516
Current portion of long-term debt ................................................ 2,003 5,050
----------- -----------
Total current liabilities ...................................................... 36,793 40,551
Revolving Credit Agreement ......................................................... 13,349 12,553
Long-term debt ..................................................................... 4,487 5,383
Other long-term liabilities ........................................................ 4,057 3,937
Subordinated debt .................................................................. 10,000 10,000
----------- -----------
Total long-term liabilities ........................................................ 31,893 31,873
----------- -----------
TOTAL LIABILITIES .................................................................. 68,686 72,424
----------- -----------
Redeemable Senior Preferred Stock .................................................. 2,500 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,
8,697,419 issued and 8,618,430
shares outstanding: (6,733,904
at August 26, 1994)
20,000,000 shares authorized; .................................................. 870 678
Additional paid-in capital ....................................................... 36,169 34,302
Deficit .......................................................................... (14,018) (12,008)
Less treasury stock 78,989 shares
November 25, 1994 (78,989 at August
26, 1994), at cost ............................................................. (286) (286)
----------- -----------
Total stockholders' equity ..................................................... 22,735 24,486
----------- -----------
Total liabilities and equity ................................................... $ 93,921 $ 99,410
=========== ===========
</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)
THREE MONTHS ENDED
-------------------------
February 24, February 25,
1995 1994
--------- --------
Gross revenues ................................. $ 45,418 $ 43,701
Less direct project costs .................... (15,982) (14,363)
--------- --------
Net revenue .................................... 29,436 29,338
Other costs and expenses:
Direct labor and related costs ............... 13,372 12,746
Indirect expenses ............................ 14,625 14,547
Special charges .............................. 4,315 --
--------- --------
Total operating expenses ................... 32,312 27,293
Operating (loss) income ........................ (2,876) 2,045
Interest and other income ...................... 28 75
Interest expense ............................... (650) (917)
--------- --------
(Loss) income before income taxes .............. (3,498) 1,203
(Benefit) provision for income taxes ........... (342) 369
Net (loss) income .............................. (3,156) 834
Dividend requirements on
preferred stock ............................. (63) (69)
--------- --------
Net (loss) income applicable
to common stock ............................. $ (3,219) $ 765
========= ========
Net (loss) income per common share ............. $ (0.37) $ 0.10
========= ========
Weighted average common shares
outstanding .................................. 8,612 7,355
========= ========
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)
SIX MONTHS ENDED
---------------------------
February 24, February 25,
1995 1994
-------- --------
Gross revenues ................................. $ 96,305 $ 94,126
Less direct project costs .................... (34,949) (33,220)
-------- --------
Net revenue .................................... 61,356 60,906
Other costs and expenses:
Direct labor and related costs ............... 27,760 26,117
Indirect expenses ............................ 29,355 29,973
Special charges .............................. 4,315 --
-------- --------
Total operating expenses ................... 61,430 56,090
Operating (loss) income ........................ (74) 4,816
Interest and other income ...................... 65 125
Interest expense ............................... (1,370) (1,875)
-------- --------
(Loss) income before income taxes .............. (1,379) 3,066
Provision for income taxes ..................... 506 1,006
-------- --------
Net (loss) income .............................. (1,885) 2,060
Dividend requirements on
preferred stock .............................. 125 140
-------- --------
Net (loss) income applicable
to common stock .............................. $ (2,010) $ 1,920
======== ========
Net (loss) income per common share ............. $ (0.23) $ 0.26
======== ========
Weighted average common shares
outstanding .................................. 8,601 7,310
======== ========
See Notes to Consolidated Financial Statements.
-4-
<PAGE>
<TABLE>
<CAPTION>
THE EARTH TECHNOLOGY CORPORATION (USA)
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
(in thousands)
SIX MONTHS ENDED
-----------------------------------
February 24, February 25,
1995 1994
--------- ---------
<S> <C> <C>
Net (loss) income ................................................................ $ (1,885) $ 2,060
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Depreciation/amortization .................................................. 2,676 2,675
Provision for losses on
contract receivables ..................................................... (30) 150
Deferred income taxes ...................................................... (1,782) (318)
Sale of Subsidiary ......................................................... 237 --
Special charges, net of cash paid .......................................... 2,177
Other ...................................................................... 37 (407)
Changes in assets and liabilities:
Contract receivables .................................................. 5,860 3,597
Notes, prepaids and other assets ...................................... 294 (920)
Accounts payable ...................................................... 516 (6,038)
Other liabilities ..................................................... (3,395) 1,293
--------- ---------
Cash provided by operating activities ...................................... 4,705 2,092
Proceeds from disposals .......................................................... 12 55
Proceeds from sales of investments ............................................... 93
Purchase of property and equipment ............................................... (1,930) (1,961)
--------- ---------
Cash used in investing activities .......................................... (1,918) (1,813)
Principal payments on debt obligations ........................................... (34,999) (2,399)
Borrowing from debt obligations .................................................. 32,296 1,733
Sale/repurchase of common stock, net ............................................. 219 199
Dividends on preferred stock ..................................................... (125) (140)
--------- ---------
Net cash provided by (used in)
financing activities .......................................................... (2,609) (607)
--------- ---------
Net increase (decrease) in cash and
cash equivalents .............................................................. 178 (328)
Cash and cash equivalents at
beginning of period ........................................................... 2,803 3,925
--------- ---------
Cash and cash equivalents at end of period ....................................... $ 2,981 $ 3,597
========= =========
Interest paid during period ...................................................... $ 620 $ 1,857
Income taxes paid during period .................................................. 974 2,324
Capital lease obligations from
purchase of equipment ........................................................... 52 280
</TABLE>
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<PAGE>
THE EARTH TECHNOLOGY CORPORATION (USA)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
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:
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>
No material adjustments were necessary to eliminate intercompany transactions or
conform accounting policies.
-6-
<PAGE>
Prior to the merger, HWI used a fiscal year end 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 $4,315 of merger costs and expenses
($.42 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; (c) $580 in severance payments to former HWI
employees; and (d) $670 for the conversion and integration of various programs.
All costs have been committed to and all appropriate personnel have been
notified by the end of the second quarter. 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 six month periods ended
February 24, 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.
Earnings per share are computed by dividing net income by the weighted average
number of shares of common stock outstanding.
-7-
<PAGE>
NOTE 3 - CONTRACT RECEIVABLES
Contract receivables consist of the following (in thousands):
February 24, August 26,
1995 1994
------- -------
U.S. Government:
Amounts billed ................................ $10,507 $12,711
Unbilled contract costs and fees .............. 9,114 11,867
Retentions, due upon completion
of contracts ............................... 1,457 1,253
------- -------
Total U.S. Government ...................... 21,078 25,831
Commercial:
Amounts billed ................................ 25,882 26,874
Unbilled contract costs and fees .............. 4,214 4,346
Retentions, due upon completion
of contracts ............................... 661 703
------- -------
30,757 31,923
Less allowance for doubtful accounts ............. 2,003 2,093
------- -------
Net Commercial ............................. 28,754 29,830
------- -------
Total contract receivables ................. $49,832 $55,661
======= =======
Amounts not billable at February 24, 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 provides for borrowing to a
maximum of $20 million, subject to a formula based on eligible accounts
receivable. The agreement was amended in February, 1995 to provide a maximum
borrowing of $25 million. This agreement replaced a prior revolving credit
agreement. 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 at Eurodollar rates, plus 2%, for specified periods of
time. At February 24, 1995 the company's actual rates are 8.375% to 9.0%.
The credit agreement places various restrictions on the Company, including
prohibitions on the payment of dividends and additional borrowing, and provides
that specific financial rations be maintained. The Company was in compliance
with all covenants at February 24, 1995.
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 have been 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, have been
converted into 86,530 stock options to purchase Earth Tech common shares, at
option prices ranging from $.99 to $4.97 a share.
-8-
<PAGE>
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 including a legal defense when necessary to such claims.
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 claims and suits
would not materially affect the financial position or results of operations of
the company.
-9-
<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.
<TABLE>
<CAPTION>
NOTE 8 - SPECIAL CHARGES
Special charges have been included in operating expenses in each of fiscal 1993,
1994, and 1995. A summary of the charges, remaining reserves at February 24,
1995, and the expected period of utilization of the remaining reserves is as
follows:
Remaining Expected Period
Charges Amount Reserves of Utilization
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1995 - HWI merger costs (Note 1) $ 4,315 $ 2,177 Fiscal 1995
1994 - Summit merger costs 4,993 252 Fiscal 1995
Minneapolis office
closure 1,880 106 --
1993 - Writedown of goodwill 11,259 -- --
Administrative consolidation Remaining
and writedown of unfavorable five years
lease 3,741 1,957 of lease
</TABLE>
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<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 $2,981,000 at February 24, 1995 compared to
$2,803,000 at August 26, 1994. Cash flow from operations totalled $4,705,000 for
the first six months of fiscal 1995. Capital expenditures for the first six
months of fiscal 1995 totalled $1,930,000 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.
The Revolving Credit Agreement borrowings are based on eligible accounts
receivable to a maximum of $25,000,000. The agreement signed in May, 1994,
amended in February, 1995 and expiring on May, 1997 requires the Company to
maintain certaincovenants measured on a quarterly basis. The Company was in
compliance with all covenants at February 24, 1995. The Company had an
outstanding balance at February 24, 1995 of $13,349,000 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
SECOND QUARTER COMPARISON FOR THE FISCAL YEARS 1995 AND 1994
Gross revenues for the second quarter were up 3.9% to $45,418,000 in fiscal
year 1995 versus $43,701,000 in 1994. Net revenue increased 0.3% for the same
period to $29,436,000 in fiscal 1995 from $29,338,000 in fiscal 1994. Demand for
environmental services remain sluggish as a result of some uncertainty in the
regulatory 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 quarter. These
delays have been resolved as of the end of the quarter.
Direct labor and related costs increased 4.9% from the prior year with 1995
increasing to 45.4% of net revenues versus 43.4% of net revenue in 1994. The
increase in this percentage was primarily due to the contract mix in remediation
services and the effect of a softness in pricing laboratory services.
-11-
<PAGE>
Indirect expenses, increased 0.5% compared to the year earlier quarter,
primarily as a result of a slight decrease in the government division
utilization, increased indirect costs supporting the growth in operations
services and midwest and east coast commercial consulting services.
Special charges of $4,315,000 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 February 24, 1995 a
liability of $2,177,000 had been accrued 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
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, net of $3,647,000 in net merger charges, 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.
SIX MONTHS COMPARISON FOR THE FISCAL YEARS 1995 AND 1994
Gross revenues for the six months were up 2.3% to $96,305,000 in fiscal year
1995 versus $94,126,000 in 1994. Net revenue increased 0.7% for the same period
from $60,906,000 in fiscal 1994 to $61,355,000 in fiscal 1995. Demand for
environmental services remain sluggish as a result of some uncertainty in the
regulatory 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 quarter. These
delays have been resolved as of the end of the quarter.
Direct labor and related costs rose to 45.2% of net revenue in 1995 versus
42.9% in 1994. The increase in this percentage was primarily due to the contract
mix in remediation services and the effect of a softness in pricing laboratory
services.
Indirect expenses, decreased 2.1% from the prior year, primarily as a result
of increased indirect costs supporting the growth in commercial consulting
activity and remediation services, offset by reduced corporate expenses of
approximately $669,000 due to the closure of Summit's Canton, Ohio office.
Indirect expenses include the loss of $250,000 on the sale of its Bionomics
Laboratory.
Special charges of $4,315,000 were recorded in the second quarter of fiscal
1995 and have been discussed in the three month comparison.
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.
-12-
<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 in Part
I, Item 1.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
<TABLE>
<CAPTION>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 23, 1995, the Annual Meeting of Shareholders of Earth
Technology was held. The ratification of the appointment of Ernst &
Young as independent auditors was approved by 80% of the holders of
common stock represented and entitled to vote at this meeting. The
holders of Earth Technology's common shares, approved by written consent
the following matters submitted for approval:
Percentage of
Outstanding Common
Votes Shares Approving
Matter For Votes Against Abstentions Matter
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Approval of the transactions
contemplated by the Agreement and Plan
of Merger, dated 10/24/94 as amended
12/23/94, effectuating the merger with
HazWaste Industries, Inc. 3,979,398 362,355 45,141 66%
Approval and adoption of an amendment
authorizing an increase of 450,000
shares in the number of shares of Earth
Technology common stock available for
issuance under the Earth Technology
1987 Stock Option Plan 3,841,234 445,934 100,830 64%
- - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Outstanding Common
Votes Shares Approving
Matter For Votes Against Abstentions Matter
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Approval and adoption of an amendment
authorizing an increase of 100,000
shares in the number of shares of Earth
Technology common stock available for
issuance under the Earth Technology
Director Option Plan 4,081,967 197,954 108,181 68%
The election of three (3) directors,
each to hold office until the 1998
Annual Meeting of the Stockholders of
Earth Technology:
1) James E. Clark 4,416,794 462,992
2) Richard R. Pannel 4,401,351 478,435
3) Martha L. Robinson 4,400,871 478,915
- - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Proxies for the meeting were solicited pursuant to Regulation 14A under the
Securities Act of 1933; there was no solicitation in opposition to the
management's nominees as listed in the proxy statement, and all such nominees
were elected.
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 February 24, 1995 (unaudited)
Exhibit 11.2 Statement RE: Computation of Per Share Earnings, Six Months
Ended February 24, 1995 (unaudited)
(b) Reports on Form 8-K
The registrant filed a Form 8-K dated February 23, 1995, regarding the
completion of a definitive Merger Agreement with HazWaste Industries
Incorporated (HWI) of Richmond, Virginia.
-14-
<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: April 7, 1995 By:
------------------------------------
Charles S. Alpert
Corporate Secretary
Date: April 7, 1995 By:
------------------------------------
Creighton K. Early
Chief Financial Officer
(Principal Financial
and Accounting Officer)
-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: April 7, 1995 By: /s/ CHARLES S. ALPERT
------------------------------------
Charles S. Alpert
Corporate Secretary
Date: April 7, 1995 By: /s/ CREIGHTON K. EARLY
------------------------------------
Creighton K. Early
Chief Financial Officer
(Principal Financial
and Accounting Officer)
-16-
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
Three Months Ending
February 24, February 25,
1995 1994
----------- -----------
PRIMARY
Average Shares Outstanding .................... 8,612,157 7,002,349
Net Effect of dilutive stock options and
convertible issues based on the treasury
stock method using average market price ....... -- 353,089
----------- -----------
Total ......................................... 8,612,157 7,355,438
=========== ===========
Net Income/(Loss) ............................. $(3,219,000) $ 765,000
=========== ===========
Per Share Amount .............................. $ (.37) $ .10
=========== ===========
FULLY DILUTED
Average Shares Outstanding .................... 8,612,157 7,002,349
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 .................................. -- 353,089
----------- -----------
Total ......................................... 8,612,157 7,355,438
=========== ===========
Net (Loss)/Income ............................. $(3,219,000) $ 765,000
=========== ===========
Per Share Amount .............................. $ (0.37) $ .10
=========== ===========
EXHIBIT 11.2
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
Six Months Ending
February 24, February 25,
1995 1994
------------ ------------
PRIMARY
Average Shares Outstanding ................ 8,601,267 6,982,785
Net Effect of dilutive stock
options and convertible issues
based on the treasury stock
method using average
market price .............................. -- 327,092
----------- -----------
Total ..................................... 8,601,267 7,309,877
=========== ===========
Net Income/(Loss) ......................... $(2,010,000) $ 1,920,00
=========== ===========
Per Share Amount .......................... $ (.23) $ .26
=========== ===========
FULLY DILUTED
Average Shares Outstanding ................ 8,601,267 6,982,785
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 ................ -- 327,092
----------- -----------
Total ..................................... 8,601,267 7,309,877
=========== ===========
Net Loss .................................. $(2,010,000) $ 1,920,000
=========== ===========
Per Share Amount .......................... $ (.23) $ .26
=========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-25-1995
<PERIOD-START> AUG-27-1994
<PERIOD-END> FEB-24-1995
<CASH> 2981
<SECURITIES> 0
<RECEIVABLES> 49832
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 61245
<PP&E> 38789
<DEPRECIATION> 21329
<TOTAL-ASSETS> 93921
<CURRENT-LIABILITIES> 36793
<BONDS> 0
<COMMON> 870
0
2500
<OTHER-SE> 21865
<TOTAL-LIABILITY-AND-EQUITY> 93921
<SALES> 0
<TOTAL-REVENUES> 96305
<CGS> 34949
<TOTAL-COSTS> 34949
<OTHER-EXPENSES> 61430
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1370
<INCOME-PRETAX> (1379)
<INCOME-TAX> 506
<INCOME-CONTINUING> (1885)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1885)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
