SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended Commission file number
March 31, 1995 0-16225
EMCON
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
California 94-1738964
- - - - ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 South El Camino Real, Suite 1200
San Mateo, California 94402
- - - - ------------------------------------ ---------------
(Zip Code)
(415) 375-1522
-----------------------------
Registrant's telephone number, including area code
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
--- ---
8,245,126 shares of Common Stock Issued and Outstanding as of May 3, 1995.
1
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EMCON
FORM 10-Q
QUARTERLY REPORT
TABLE OF CONTENTS
Page
FACING SHEET..................................................................1
TABLE OF CONTENTS.............................................................2
PART I Financial Information
ITEM 1 Financial Statements
Consolidated Balance Sheets -
March 31, 1995 and December 31, 1994........................3
Consolidated Statements of Income -
Three months ended March 31, 1995 and 1994..................4
Consolidated Statements of Cash Flows -
Three months ended March 31, 1995 and 1994..................5
Notes to Consolidated Financial Statements..................6
ITEM 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations................8
PART II Other Information............................................9
SIGNATURES ..................................................................10
INDEX TO EXHIBITS............................................................11
2
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EMCON
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- - - - -------------------------------------------------------------------------------
March 31, December 31,
1995 1994
(In thousands, except share amounts) (Unaudited) (Audited)
- - - - --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ......................... $ 2,584 $ 5,152
Marketable securities ............................. 1,975 2,436
Accounts receivable, net of allowance for
doubtful accounts of $1,063 and $975 at
March 31, 1995 and December 31, 1994,
respectively .................................... 37,264 38,323
Prepaid expenses and other current assets ......... 4,281 3,253
-------- --------
Total Current Assets ......................... 46,104 49,164
Net property and equipment, at cost ............... 18,239 18,651
Intangible assets, net of amortization ............ 9,019 9,202
Other assets ...................................... 3,736 3,810
-------- --------
Total Assets ................................. $77,098 $80,827
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable .................................. $ 5,282 $ 8,846
Accrued payroll and related benefits .............. 4,751 5,580
Other accrued liabilities ......................... 2,043 1,908
Non-current obligations due within one year ....... 248 248
-------- --------
Total Current Liabilities .................... 12,324 16,582
Non-current obligations ........................... 1,116 1,186
Commitments and contingencies ..................... -- --
Shareholders' Equity:
Preferred stock, no par value, 5,000,000 shares
authorized; no shares issued or outstanding ..... -- --
Common stock, no par value, 15,000,000
shares authorized; 8,245,126 and 8,186,279 shares
issued and outstanding at March 31, 1995 and
December 31, 1994, respectively ................. 41,147 40,958
Retained earnings ................................. 22,529 22,132
Unrealized gains/(losses) on marketable securities. (18) (31)
-------- --------
Total Shareholders' Equity ...................... 63,658 63,059
-------- --------
Total Liabilities and Shareholders' Equity ...... $77,098 $80,827
======== ========
</TABLE>
See accompanying notes
3
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EMCON
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
- - - - --------------------------------------------------------------------------------
Three months ended
March 31,
------------------
(In thousands, except per share amounts) 1995 1994
- - - - --------------------------------------------------------------------------------
<S> <C> <C>
Gross revenue ........................................ $30,369 $21,712
Outside services, at cost ............................ 4,093 2,970
-------- -------
Net revenue ........................................ 26,276 18,742
Costs and expenses:
Direct expenses .................................... 9,986 7,070
Indirect expenses .................................. 15,762 11,523
-------- -------
Income from operations 528 149
Interest income, net ................................. 59 112
Equity in loss of affiliate .......................... (20) --
-------- -------
Income before provision for income taxes.............. 567 261
Provision for income taxes ........................... 170 73
-------- -------
Net income ........................................... $ 397 $ 188
======== =======
Income per share ..................................... $ 0.05 $ 0.03
======== =======
</TABLE>
See accompanying notes
4
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EMCON
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
- - - - --------------------------------------------------------------------------------
Three months ended
March 31,
Increase (decrease) in cash and cash equivalents -------------------
(in thousands) 1995 1994
- - - - --------------------------------------------------------------------------------
<S> <C> <C>
Cash flow from operating activities:
Net income .............................................. $ 397 $ 188
Adjustments to reconcile net income to net cash provided
by (used for) operating activities:
Depreciation and amortization ......................... 1,361 893
Loss on sale/disposal of property and equipment ....... 29 18
Increase in salary continuation plan .................. 21 25
Changes in operating assets and liabilities:
Accounts receivable ................................ 1,059 2,172
Prepaid expenses and other current assets .......... (1,028) (892)
Other assets ....................................... 82 22
Accounts payable ................................... (3,564) (1,320)
Accrued payroll and related benefits ............... (829) (677)
Other accrued liabilities .......................... 135 (186)
- - - - --------------------------------------------------------------------------------
Net cash provided by (used for) operating activities . (2,337) 243
- - - - --------------------------------------------------------------------------------
Cash flow from investing activities:
Additions to property and equipment ..................... (844) (1,654)
Purchases of available for sale securities .............. (25) (1,001)
Maturities of available for sale securities ............. 499 2,000
Proceeds from sale of property and equipment ............ 20 59
- - - - --------------------------------------------------------------------------------
Net cash used for investing activities ................ (350) (596)
- - - - --------------------------------------------------------------------------------
Cash flow from financing activities:
Payment of current and noncurrent obligations ........... (70) 31
Issuance of common stock for cash ....................... 189 314
Repurchase of common stock .............................. -- (356)
- - - - --------------------------------------------------------------------------------
Net cash provided by (used for) financing activities .. 119 (11)
- - - - --------------------------------------------------------------------------------
Decrease in cash and cash equivalents ..................... (2,568) (364)
Cash and cash equivalents, beginning of year .............. 5,152 10,578
- - - - --------------------------------------------------------------------------------
Cash and cash equivalents, end of period .................. $ 2,584 $10,214
- - - - --------------------------------------------------------------------------------
</TABLE>
See accompanying notes
5
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EMCON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries after elimination of all
significant intercompany accounts and transactions.
While the financial information is unaudited, the statements in this report
reflect all adjustments, which are normal and recurring, that are necessary
for a fair presentation of the results of operations for the interim
periods covered and of the financial condition of the Company at the dates
of the balance sheets. The operating results for the interim periods
presented are not necessarily indicative of performance for the entire
year.
These financial statements and notes should be read in conjunction with the
Company's consolidated financial statements for the fiscal year ended
December 31, 1994.
2. Restructuring Charges
In December 1994, as a result of changes in senior management, the
Company's Board of Directors approved a corporate restructuring plan which
included the write off of employment contracts with no current or future
value, termination of personnel, and the elimination or abandonment of
excess and underperforming assets and facilities. During the quarter ended
March 31, 1995, $358,000 of cash charges related to the restructuring were
incurred and charged against the established reserve. At March 31, 1995,
$431,000 of accrued restructuring costs were included in other accrued
liabilities. To-date, $750,000 of restructuring charges have been incurred.
3. Effective April 1, 1994, the Company acquired all of the capital stock of
Wehran Envirotech, Inc. ("Wehran"), an environmental consulting company
headquartered in Middletown, New York.
The following summarizes the unaudited pro forma net revenue, net income,
and income per share for the combined company for the three month period
ended March 31, 1994, had the acquisition occurred at the beginning of the
period presented.
6
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Three months ended March 31, 1994 (Unaudited)
(in thousands)
- - - - --------------------------------------------------------------------------------
Net revenue ................................................... $23,510
Net loss ................................................... (967)
Loss per share ................................................... $ (0.11)
- - - - --------------------------------------------------------------------------------
The above proforma results of operations do not purport to reflect the
actual results of operations had the Company actually acquired Wehran as of
the beginning of the period presented.
4. Litigation
As a professional services firm engaged in environmental-related matters,
the Company encounters potential liability, including claims for
significant environmental damage in the normal course of business. The
Company is party to lawsuits and is aware of potential exposure related to
certain claims, but in the opinion of management the resolution of these
matters will not have a material adverse effect on the Company's financial
position, results of operations or cash flows.
5. Income Per Share
Income per share is based on the weighted average number of common and
dilutive common - equivalent shares outstanding using the modified treasury
stock method for the three months ended March 31, 1995 and 1994.
6. Other
In 1994, the Company converted to a fifty-two/fifty-three week fiscal year
which will result in a fifty-two week year in 1995. The Company's year end
falls on the Friday closest to the last day of the calendar year. The
Company also follows a five-four-four week quarterly cycle. For
convenience, the accompanying financial statements have been shown as
ending on the last day of the calendar period.
7
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EMCON
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
Of Operations.
RESULTS OF OPERATIONS
Net revenue for the first quarter of 1995 totalled $26,276,000, a 40.2% increase
compared with $18,742,000 for the first quarter of 1994. The increase in net
revenue is primarily due to the acquisition of Wehran in April, 1994 (Wehran
contributed net revenue of $5,471,000 in the quarter ended March 31, 1995) and,
to a lesser extent, the sale of certain proprietary technology and an increase
in revenues of the Company's laboratory division, as a result of its new
facilities in Florida and Southern California.
Direct expenses for the quarter ended March 31, 1995, were $9,986,000, which
includes compensation for billable hours for technical and professional staff
and other project related costs charged to the client, compared with $7,070,000
in the same quarter of 1994. The increase in direct expenses is primarily due to
the acquisition of Wehran in April, 1994 (Wehran incurred direct expenses of
$1,980,000 in the quarter ended March 31, 1995) and to a lesser extent the
growth of its laboratory facilities in Florida and Southern California. Direct
expenses as a percent of net revenue in 1995 remained relatively unchanged from
the same quarter of 1994.
Indirect expenses for the quarter ended March 31, 1995, were $15,762,000,
compared to $11,523,000 in the first quarter of 1994. Indirect expenses include
non-billable hours for professional and technical staff, and general and
administrative expenses such as rent, bonuses, benefits, insurance, legal and
depreciation. Indirect expenses, as a percent of net revenue in the first
quarter of 1995 and 1994, were 60.0% and 61.5%, respectively. The improvement
was principally due to cost containment and restructuring measures put in place
during the fourth quarter of 1994.
Income from operations increased to $528,000 in the quarter ended March 31, 1995
from $149,000 in the same quarter of 1994. Income from operations in the first
quarter of 1995 included approximately $250,000 directly attributable to the
sale of proprietary technology.
Interest income, net of interest expense, was $59,000 for the first quarter in
1995, versus $112,000 in the comparable 1994 quarter due to a decrease in
average invested cash during the period.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1995, the Company financed its operations
principally from cash and marketable securities on hand, cash generated by
operations, and from the return on investment on its cash, cash equivalents and
marketable securities. Net cash used by operations during the first quarter of
1995 was $2,337,000. The Company at March 31, 1995 had cash, cash equivalents,
and marketable securities of $4,559,000.
The Company invested $844,000 for the purchase of property and equipment in the
first quarter of 1995, primarily for computers and communication systems and to
a lesser extent, for laboratory equipment.
The Company believes that cash generated from operations and its available bank
line, together with existing cash and marketable securities, will be sufficient
to meet the Company's capital needs for at least the next twelve months.
8
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EMCON
PART II OTHER INFORMATION
Items 1. - 4. Not applicable.
Item 5. Other Information
In February 1995, Mr. Donald R. Kerstetter was appointed to the
Board of Directors to fill the vacancy created by the expansion
of the variable board to nine directors.
Item 6. Exhibits and Reports
(a) Exhibits - See Index to Exhibits on Page 11.
(b) Reports on Form 8-K - No reports on Form 8-K were filed with the Securities
and Exchange Commission during the quarter ended March 31, 1995.
9
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EMCON
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.
Date: May 9, 1995 EMCON
R. Michael Momboisse
--------------------------------
R. MICHAEL MOMBOISSE
Chief Financial Officer and
Vice President - Legal
(Duly authorized and principal
financial and accounting officer)
10
<PAGE>
EMCON
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Page
- - - - ------ ------------
2.1 Agreement and Plan of Reorganization dated effective April *
1, 1994, among Wehran Envirotech, Inc., Registrant and
certain other related parties, incorporated by reference
from Exhibit 2.1 of the Current Report on Form 8-K dated
May 26, 1994.
2.2 Certificate of Ownership reflecting the merger of *
Registrant's wholly-owned subsidiary, Wehran/Emcon
Northeast, Inc. into Registrant effective December 20,
1994, incorporated by reference from Exhibit 2.2 of the
1994 10-K.
2.3 Certificate of Ownership reflecting the merger of *
Registrant's wholly-owned subsidiary, Wehran Engineering
Corporation, into Registrant effective December 23, 1994,
incorporated by reference from Exhibit 2.3 of the 1994
10-K.
2.4 Certificate of Ownership reflecting the merger of *
Registrant's wholly-owned subsidiary, EA Associates, into
Registrant effective December 31, 1994, incorporated by
reference from Exhibit 2.4 of the 1994 10-K.
2.5 Certificate of Ownership reflecting the merger of *
Registrant's wholly-owned subsidiaries, EMCON Northwest,
Inc., EMCON Southeast, Inc., EMCON Baker-Shiflett, Inc.,
and Eldredge Engineering Associates, Inc., into Registrant
effective December 31, 1994, incorporated by reference
from Exhibit 2.5 of the 1994 10-K.
10.1 Standard Commercial Lease dated August 1, 1985, between *
Archer Business Complex and Registrant (the "ABC Lease"),
incorporated by reference from Exhibit 10.5 of the
Registrant's Registration Statement on Form S-1 (File No.
33-16337) effective September 16, 1987 (the "Form S-1
Registration Statement").
10.2 Amendment to the ABC Lease between Archer Business Complex *
and Registrant dated September 30, 1992, incorporated by
reference from Exhibit 10.10 of the Annual Report on Form
10-K for the fiscal year ended December 31, 1992 (the
"1992 10-K").
11
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EMCON
(Index to Exhibit Continued)
Sequentially
Exhibit Numbered
Number Page
- - - - ------ ------------
10.3 Second and Third Amendments to the ABC Lease between *
Archer Business Complex and Registrant dated October 4,
1993 and January 1, 1994, respectively, incorporated by
reference from Exhibit 10.2 of the Annual Report on Form
10-K for the fiscal year ended December 31, 1993 (the
"1993 10-K").
10.4 Standard Commercial Lease dated August 1, 1986, between *
the Royal Partnership and Sweet-Edwards & Associates, Inc.
(since merged into the Registrant) incorporated by
reference from Exhibit 10.9 of the Form S-1 Registration
Statement.
10.5 EMCON 1986 Incentive Stock Option Plan and Amendment, *(1)
incorporated by reference from Exhibit 10.15 of the Form
S-1 Registration Statement.
10.6 Form of Agreement pursuant to Salary Continuation Plan, *(1)
incorporated by reference from Exhibit 10.17 of the Form
S-1 Registration Statement.
10.7 Schedule identifying Agreements pursuant to Salary *(1)
Continuation Plan between Registrant and certain employees
incorporated by reference from Exhibit 10.7 of the 1994
10-K.
10.8 Form of Indemnity Agreement between the Registrant and *
each of the Registrant's officers and directors,
incorporated by reference from Exhibit 10.20 of the
Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1988 (the "1988 10-K").
10.9 EMCON 1988 Stock Option Plan, amended by shareholder *(1)
approval on May 25, 1994, including form of Nonqualified
Stock Option Agreement (Outside Directors), incorporated
by reference from Exhibit 10.9 of Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30,
1994 (the "June 30, 1994 10-Q").
10.10 EMCON Employee Stock Purchase Plan incorporated by *(1)
reference from Exhibit 10.25 of the 1989 10-K.
12
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EMCON
(Index to Exhibit Continued)
Sequentially
Exhibit Numbered
Number Page
- - - - ------ ------------
10.11 EMCON Restricted Stock Plan incorporated by reference from *(1)
Exhibit 10.15 of the Annual Report on Form 10-K for the
fiscal year ended December 31, 1990.
10.12 EMCON Deferred Compensation Plan effective January 1, 1994 *(1)
incorporated by reference from Exhibit 10.12 of the 1993
10-K.
10.13 Trust Agreement for the EMCON Deferred Compensation Plan *(1)
and Salary Continuation Plan Trust dated February 29, 1994
between Registrant and Wells Fargo Bank, N.A. incorporated
by reference from Exhibit 10.13 of the 1993 10-K.
10.14 Credit Agreement between The Bank of California, N.A. and *
Registrant dated September 20, 1991 with Amendment dated
May 31, 1992 incorporated by reference from Exhibits 10.11
and 10.12 of the 1992 10-K.
10.15 Second Amendment to Credit Agreement between The Bank of *
California, N.A. and Registrant dated effective May 31,
1992 incorporated by reference from Exhibit 10.13 of
Registrants Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993.
10.16 Third Amendment to Credit Agreement between The Bank of *
California, N.A. and Registrant dated effective June 2,
1994, incorporated by reference from Exhibit 10.16 of the
June 30, 1994 10-Q.
10.17 Letter Agreement between Thorley D. Briggs and Registrant *(1)
dated September 15, 1993 incorporated by reference from
Exhibit 10.18 of Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1993 (the
"September 30, 1993 10-Q").
10.18 Letter of Agreement between H. Lee Fortier and Registrant *(1)
dated March 14, 1994 incorporated by reference from
Exhibit 10.21 of the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1994.
10.19 Letter of Agreement between James M. Felker and Registrant *(1)
dated December 7, 1992, incorporated by reference from
Exhibit 10.16 of the 1992 10-K.
13
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EMCON
(Index to Exhibit Continued)
Sequentially
Exhibit Numbered
Number Page
- - - - ------ ------------
10.20 Letter Agreement between Thorley D. Briggs and Registrant *(1)
dated July 19, 1994, incorporated by reference from
Exhibit 10.20 of the 1994 10-K.
10.21 Letter Agreement between James M. Felker and Registrant *(1)
dated October 31, 1994, incorporated by reference from
Exhibit 10.21 of the 1994 10-K.
11.1 Computation of Income Per Share. Incorporated as part of 15
this submission as document type Ex-11.1.
- - - - ------------
* Incorporated by reference
(1) Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this form pursuant to Item 14(c) of the
instructions to Form 10-K.
14
EXHIBIT 11.1
EMCON
COMPUTATION OF INCOME PER SHARE
(In thousands except per share data)
Three months
ended
March 31,
1995 1994
----------------
Net income ................................................ $ 397 $ 188
Proforma interest income related to modified
treasury stock method ................................... 63 21
------ -----
Adjusted net income ....................................... $ 460 $ 209
====== ======
Weighted average number of common shares
outstanding during the period ............................. 8,225 7,302
Common equivalent shares from outstanding
stock options using the modified treasury stock
method .................................................. 672 509
Incremental shares to reflect full dilution (1) ......... 0 0
------ ------
Total shares for purposes of calculating diluted
income per share (1) ...................................... 8,897 7,811
====== ======
Primary income per share .................................. $ 0.05 $ 0.03
====== ======
Fully diluted income per share ............................ $ 0.05 $ 0.03
====== ======
- - - - -----------------------
(1) This calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although not required by footnote 2 to paragraph 14 to APB
opinion No. 15, because it results in dilution of less than 3%.
15
