UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 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
- ---------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (650) 375-1522
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 [ ]
8,572,465 shares of Common Stock Issued and Outstanding as of October 31, 1997.
1
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EMCON
TABLE OF CONTENTS
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
Page
Number
FACING SHEET........................................................ 1
TABLE OF CONTENTS .................................................. 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996.......... 3
Consolidated Statements of Income -
Three months and nine months ended
September 30, 1997 and 1996....................... 4
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1997 and 1996..... 5
Notes to Consolidated Financial Statements........ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.... 9
PART II. OTHER INFORMATION........................................ 12
Signatures.......................................................... 13
Index to Exhibits................................................... 14
2
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<TABLE>
<CAPTION>
EMCON
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------- ------------------ ------------------
September 30, December 31,
1997 1996
(In thousands, except share amounts) (Unaudited) (Audited)
- ------------------------------------------------------------------------------- ------------------ ------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................................... $ 4,062 $ 5,331
Accounts receivable, net of allowance for doubtful accounts of $1,271
and $951 at September 30, 1997 and December 31, 1996, respectively....... 41,550 32,860
Costs and estimated earnings in excess of billings on uncompleted
contracts ............................................................... 2,248 904
Prepaid expenses and other current assets................................... 5,594 4,425
Assets held for sale ....................................................... -- 9,382
--------- ---------
Total Current Assets .................................................... 53,454 52,902
Net property and equipment, at cost ........................................ 15,371 14,722
Other assets .............................................................. 8,135 4,800
Deferred tax assets ........................................................ 4,818 4,818
Goodwill, net of amortization .............................................. 13,786 12,716
Other intangible assets, net of amortization ............................... 845 954
--------- ---------
Total Assets ............................................................ $96,409 $ 90,912
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable .......................................................... $ 9,336 $ 5,483
Accrued payroll and related benefits ....................................... 4,807 6,020
Other accrued liabilities .................................................. 5,775 4,454
Billings in excess of costs and estimated earnings
on uncompleted contracts ................................................ 2,945 94
Long-term obligations due within one year .................................. 1,976 2,250
--------- ---------
Total Current Liabilities ............................................... 24,839 18,301
Long-term debt ............................................................. 11,204 14,667
Other noncurrent obligations ............................................... 2,264 2,132
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; 8,572,465
and 8,512,688 shares issued and outstanding at September 30, 1997 and
December 31, 1996, respectively ......................................... 42,193 42,001
Retained earnings .......................................................... 15,909 13,811
--------- ---------
Total Shareholders' Equity ............................................. 58,102 55,812
--------- ---------
Total Liabilities and Shareholders' Equity .............................. $ 96,409 $ 90,912
========= =========
</TABLE>
See accompanying notes
3
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<TABLE>
<CAPTION>
EMCON
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
- --------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
------------------------------- ------------- ------------
(In thousands, except per share amounts) 1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross revenue ............................ $ 40,764 $ 36,416 $ 105,241 $100,861
Outside services, at cost ................ 10,865 4,856 23,294 14,152
-------- -------- --------- --------
Net revenue ........................... 29,899 31,560 81,947 86,709
Costs and expenses:
Direct expenses ....................... 15,916 14,894 40,728 37,613
Indirect expenses ..................... 12,194 16,084 37,597 47,605
Restructuring ......................... -- -- (75) --
Loss on disposition of laboratory ..... -- -- 333 --
Gain on sale of assets ................ -- -- (826) --
-------- ------- -------- --------
Income from operations ............. 1,789 582 4,190 1,491
Interest income (expense), net ........... (130) (266) (559) (565)
Equity in income (loss) of affiliates .... 63 121 97 201
Minority interest ........................ (271) (38) (454) (115)
-------- ------- -------- --------
Income before provision for income taxes.. 1,451 399 3,274 1,012
Provision for income taxes ............... 508 140 1,146 354
-------- ------- -------- --------
Net income ............................... $ 943 $ 259 $ 2,128 $ 658
======== ======= ======== ========
Net income per share ..................... $ 0.11 $ 0.03 $ 0.25 $ 0.08
======== ======= ======== ========
</TABLE>
See accompanying notes
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<TABLE>
<CAPTION>
EMCON
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
- ------------------------------------------------------------------------------------ ------------------------------
Nine months ended
September 30,
--------------- --------------
Increase (decrease) in cash and cash equivalents (in thousands) 1997 1996
- ------------------------------------------------------------------------------------ --------------- --------------
<S> <C> <C>
Cash flow from operating activities:
Net income ............................................................... $ 2,128 $ 658
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization .......................................... 3,253 4,922
Bad debt expense ....................................................... 1,022 204
Loss on sale/disposal of property and equipment ........................ 48 122
Loss on disposition of laboratory ...................................... 333 --
Gain on disposition of assets .......................................... (826) --
Increase in salary continuation plan ................................... 64 97
Changes in operating assets and liabilities:
Accounts receivable .................................................. (8,396) (1,963)
Cost in excess of billings ........................................... (1,344) --
Prepaid expenses and other current assets ............................ (691) (662)
Other assets ........................................................ (494) (2,780)
Accounts payable ..................................................... 3,857 (651)
Accrued payroll and related benefits ................................. (111) 1,401
Billings in excess of cost ........................................... 1,209 --
Other accrued liabilities ............................................ 2,851 (1,766)
- ------------------------------------------------------------------------------------ --------------- --------------
Net cash provided by (used for) operating activities ..................... 2,903 (418)
- ------------------------------------------------------------------------------------ --------------- --------------
Cash flow from investing activities:
Additions to property and equipment ...................................... (3,222) (2,722)
Maturities of available for sale securities .............................. -- 514
Acquisitions, net of cash acquired ...................................... (858) (3,827)
Net cash on disposition of laboratory .................................... 3,794 --
Net cash from disposition of assets ...................................... 840 --
Proceeds from sale of property and equipment ............................. 122 176
- ------------------------------------------------------------------------------------ --------------- --------------
Net cash provided by (used for) investing activities ..................... 676 (5,859)
- ------------------------------------------------------------------------------------ --------------- --------------
Cash flow from financing activities:
Dividend payments ........................................................ (30) --
Proceeds of new debt obligation .......................................... 137 8,348
Payment of current and noncurrent obligations ............................ (5,165) (7,002)
Issuance of common stock for cash ........................................ 210 663
- ------------------------------------------------------------------------------------ --------------- --------------
Net cash provided by (used for) financing activities ..................... (4,848) 2,009
- ------------------------------------------------------------------------------------ --------------- --------------
Decrease in cash and cash equivalents ....................................... (1,269) (4,268)
Cash and cash equivalents, beginning of year ................................ 5,331 9,451
- ------------------------------------------------------------------------------------ --------------- --------------
Cash and cash equivalents, end of period .................................... $ 4,062 $ 5,183
- ------------------------------------------------------------------------------------ --------------- --------------
</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
consolidated 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, 1996.
2. Restructuring Charges
In the fourth quarter of 1996, senior management reviewed the Company's
operational and administrative functions for the purpose of further
improving the Company's competitiveness and overall profitability. Based on
this review, the Company's Board of Directors approved a strategic
restructuring plan to reposition the Company to fully exploit its core
strengths in engineering, design, construction, operations and maintenance.
The plan included closure or downsizing of underperforming offices,
write-offs of employment contracts for former employees no longer
participating in the Company's affairs and employee severance. During the
nine months ended September 30, 1997, $164,000 relating to the
restructuring were incurred and charged against the established reserve. At
September 30, 1997, $874,000 of the accrued restructuring costs, net of a
$75,000 reduction due to earlier than anticipated subleasing of abandoned
office space, remained and were included in other accrued liabilities. To
date, $283,000 of restructuring costs related to these actions have been
incurred. All remaining actions are expected to be substantially completed
by the fourth quarter of 1997.
In December 1994, as a result of changes in senior management, the
Company's Board of Directors approved a corporate restructuring plan that
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 nine months
ended September 30, 1997, $27,000 of cash charges related to the
restructuring were incurred and charged against the established reserve,
bringing the reserve to a zero balance. To date, $1,169,000 of
restructuring costs have been incurred with no additional cost anticipated.
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3. Acquisitions
Effective May 1, 1997, Organic Waste Technology, Inc. ("OWT"), a wholly
owned subsidiary of EMCON, acquired all of the equity interest in National
Earth Products, Inc. ("NEP"), a Lancaster, Pennsylvania-based company with
significant expertise in landfill civil construction and related soils
processing. NEP was acquired for $933,000 in cash and $800,000 in notes
payable. The transaction was accounted for as a purchase. Specifically
identifiable intangible assets and goodwill of approximately $1,456,000
resulting from this acquisition are included in goodwill and are being
amortized over twenty-five years using the straight line method.
Accumulated amortization as of September 30, 1997, was approximately
$24,000. Additional consideration may be paid for the purchase of NEP
subject to the achievement of certain earnout goals over the next three
years. This acquisition would not have had a material effect on net
revenue, net income, or income per share, had it been effective at January
1, 1997.
On February 29, 1996, EMCON acquired all of the outstanding capital stock
of OWT, a Cleveland-based construction, equipment and operations and
maintenance company with significant expertise in solid waste management.
The following summarizes the unaudited pro forma net revenue, net income,
and income per share for the combined company for the nine month periods
ended September 30, 1997 and 1996 had the acquisition of OWT occurred at
the beginning of the periods presented.
(unaudited)
Nine months ended
September 30,
---------------------------------------------
(in thousands) 1997 1996
-------------------------------------------------------------------------
Net revenue $81,947 $89,608
Net income 2,128 342
Income per share $ 0.25 $ 0.05
-------------------------------------------------------------------------
4. Credit Agreement
In conjunction with the acquisition of OWT, the Company entered into a
$20,000,000 secured credit agreement with its existing commercial bank,
replacing its previous $10,000,000 unsecured line of credit. Under the new
agreement, the Company borrowed $10,000,000 on a long term basis with
interest at a variable rate, generally not to exceed the prime rate.
Principal is to be amortized over seven years, but with any unpaid amount
finally due and payable on June 30, 2001. The remaining $10,000,000 under
the credit agreement is available on a line of credit basis for working
capital purposes (with up to $5,000,000 of this amount available for
non-working capital purposes). The line of credit component of the credit
agreement expires on May 31, 1998.
5. 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.
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6. Income Per Share
Income per share for the three months and nine months ended September 30,
1997 is based on the weighted common and dilutive common equivalent shares
outstanding using the treasury stock method. Common equivalent shares
include shares issuable under the Company's stock option plans. Primary and
fully diluted earnings per share are substantially the same.
Income per share for the three months and nine months ended September 30,
1996 is based on the weighted average number of common and dilutive common
equivalent shares outstanding using the modified treasury stock method.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share," which is required to be adopted on December
31, 1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact is
expected to result in no change to the primary earnings per share for the
three months and nine months ended September 30, 1997 and September 30,
1996. The impact of Statement 128 on the calculation of the fully diluted
earnings per share for these periods is not expected to be material.
7. 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 1997. 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.
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EMCON
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
Current Year-to-Date versus Prior Year-to-Date.
Net Revenue: Net revenue for the first nine months of 1997 totaled $81,947,000 a
5.5% decrease from $86,709,000 for the first nine months of 1996. The decrease
was due in part to the divestiture of the Company's laboratory subsidiary,
Columbia Analytical Services, Inc. ("CAS"), at the end of the first quarter of
1997 (CAS contributed net revenue of $4,904,000 in the first nine months of 1997
and $14,917,000 in the first nine months of 1996), as well as lower demand for
the Company's professional consulting services in the Northwest, South and
Southwest areas of the Company's Professional Services Division ("PSD"). The
decrease in net revenue was offset in part by the growth of the Company's
Operations and Construction ("EOC") Division from net revenue of $15,501,000 for
the first nine months of 1996 (following the acquisition of OWT on February 29,
1996) to $28,302,000 for the first nine months of 1997.
Direct Expenses: Direct expenses include all project related expenses, including
compensation for billable hours for technical and professional staff. Direct
expenses for the first nine months of 1997 totaled $40,728,000, an 8.3% increase
compared to direct expenses of $37,613,000 for the first nine months of 1996.
Direct expenses as a percent of net revenue increased to 49.7% in the first nine
months of 1997 from 43.4% for the comparable period in 1996. The increase was
due in large part to the shift in business mix resulting from the divestiture of
CAS and the continued expansion of the EOC Division combined with higher
utilization of professional staff within the Professional Services Division.
Indirect Expenses: Indirect expenses include compensation for nonbillable hours
of professional, technical and administrative staff and general administrative
expenses such as rent, bonuses, benefits, insurance, legal, depreciation and
amortization. Indirect expenses for the first nine months of 1997 totaled
$37,597,000, a 21.0% decrease compared to indirect expenses of $47,605,000 for
the first nine months of 1996. Indirect expenses as a percent of net revenue
decreased to 45.9% in the first nine months of 1997 from 54.9% for the
comparable period in 1996. The decrease was due in part to the above-noted shift
in business mix following the divestiture of CAS, the expansion of the EOC
Division and the planned contraction of the Professional Services Division,
combined with the positive impact of cost containment and restructuring measures
put in place at the end of 1996.
Adjustment of Restructuring Accrual: During the first quarter of 1997, the
Company reversed an accrual of $75,000 made as part of the restructuring actions
taken in the fourth quarter of 1996. The year end accrual was revised to reflect
lower than anticipated costs associated with the abandonment and subsequent
sublease of certain office space.
9
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Loss on Disposition of Laboratory: During the first quarter of 1997, the Company
completed the sale of CAS to the employees of CAS for $4,000,000 in cash, CAS'
promissory notes for $3,219,000 and a continuing preferred stock interest in CAS
valued at $500,000. The Company paid $206,000 in cash to CAS for retired
employee contracts and for accelerated vesting of stock options and other non
vested stock rights. In anticipation of completing the sale, the Company
recognized impairment in the value of its investment in CAS of $3,327,000 at the
end of 1996. As a result of several pre closing adjustments, the Company
recognized an additional loss on disposition of CAS in the first quarter of 1997
of $333,000.
Gain on Sale of Assets: During the first quarter of 1997, the Company completed
the sale of one of its landfill gas-to-energy projects, including the related
leasehold production rights and associated machinery and equipment. The Company
recognized a gain on disposition of the project of $826,000.
Income from Operations: Income from operations for the first nine months of 1997
totaled $4,190,000, a 181.0% increase compared to $1,491,000 for the comparable
period in 1996. Income from operations, as a percent of net revenue increased to
5.1% for the first nine months of 1997 from 1.7% in the comparable period in
1996.
Interest Income (Expense) Net: The Company recorded interest expense, net of
interest income of $559,000 and $565,000 for the first nine months of 1997 and
1996, respectively.
Quarters Ended September 30, 1997 and 1996.
Net Revenue: For the quarter ended September 30, 1997, net revenue totaled
$29,899,000, a 5.3% decrease from net revenue of $31,560,000 in the third
quarter of 1996. The decrease in net revenue was attributable to the divestiture
of CAS at the end of the first quarter of 1997 (CAS contributed net revenue of
$5,938,000 in the third quarter of 1996), as well as lower demand for the
Company's professional services in the Southwest and Northwest areas of the
Professional Services Division. Excluding the impact of CAS, net revenue for the
third quarter of 1997 actually increased by 16.7% over the comparable period in
1996, largely due to the continued growth of the EOC Division combined with an
increase in demand for professional services in the North and South areas of the
Professional Services Division.
Direct Expenses: Direct expenses for the quarter ended September 30, 1997
totaled $15,916,000, a 6.9% increase from direct expenses of $14,894,000 in the
comparable period in 1996. Direct expenses as a percent of net revenue increased
to 53.2% in the third quarter of 1997 from 47.2% in the comparable period in
1996. The increase was due to the shift in business mix resulting from the
divestiture of CAS and the expansion of the EOC Division combined with higher
utilization of professional staff within the Professional Services Division.
Indirect Expenses: Indirect expenses for the quarter ended September 30, 1997
totaled $12,194,000, a 24.2% decrease from indirect expenses of $16,084,000 in
the comparable period in 1996. Indirect expenses as a percent of net revenue
decreased to 40.8% in the third quarter of 1997 from 51.0% in the comparable
period in 1996. The decrease was largely due to the above noted change in
business mix following the divestiture of CAS, the expansion of the EOC Division
and the planned contraction of the Professional Services Division, combined with
the positive impact of cost containment and restructuring measures put in place
at the end of 1996.
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Income from Operations: Income from operations for the quarter ended September
30, 1997 totaled $1,789,000, a 207.4% increase compared to income from
operations of $582,000 in the comparable period in 1996. Income from operations
as a percent of net revenue increased to 6.0% in the third quarter of 1997 from
1.8% in the comparable period in 1996.
Interest Income (Expense) Net: The Company recorded interest expense net of
interest income of $130,000 and $266,000 for the quarters ended September 30,
1997 and 1996, respectively. Reduction in interest income/(expense) was
primarily due to interest earned on the CAS note receivable and the $3,000,000
prepayment on the secured term loan.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 1997, the Company's uses of cash for non
operating activities primarily consisted of repayment of debt in the amount of
$5,165,000 and additions to property and equipment in the amount of $3,222,000;
mainly computers, field equipment and the expansion of its equipment fabrication
facilities. This was partially offset by net cash provided by operating
activities during the first nine months of 1997 of $2,903,000 and from net cash
due to the disposition of CAS of $3,794,000.
In conjunction with the acquisition of OWT, the Company entered into a
$20,000,000 secured credit agreement with its existing commercial bank,
replacing its previous $10,000,000 unsecured line of credit. Under the new
agreement, the Company borrowed $10,000,000 on a term loan basis with interest
at a variable rate, generally not to exceed the prime rate. Principal is to be
amortized over seven years, but with any unpaid amount finally due and payable
on June 30, 2001. The remaining $10,000,000 under the credit agreement is
available on a line of credit basis for working capital purposes (with up to
$5,000,000 of this amount also being available for non-working capital
purposes). The line of credit component of the credit agreement expires on May
31, 1998. The credit agreement contains provisions with respect to the payment
of dividends and the level of capital expenditures and requires the maintenance
of specific levels of working capital, tangible net worth and continued
quarterly profitability. In April 1997, following the infusion of cash upon the
sale of CAS, the Company prepaid, on an accelerated basis, $3,000,000 of the
then outstanding principal balance of the secured term loan.
The Company believes that its cash on hand and cash generated from operations,
together with its available bank financing will be sufficient to meet the
Company's capital needs for at least the next twelve months.
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EMCON
PART II OTHER INFORMATION
Items 1. - 5. Not applicable.
Item 6. Exhibits and Reports
(a) Exhibits - See Index to Exhibits on Page 14
(b) Reports on Form 8-K - Not Applicable
12
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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: November 12, 1997 EMCON
\s\R. Michael Momboisse
-------------------------------------
R. MICHAEL MOMBOISSE
Chief Financial Officer,
Vice President - Legal, and Secretary
(Duly authorized and principal
financial and accounting officer)
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EMCON
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Page
- -------------- ------------------
2.1 Stock Purchase Agreement dated January 30, 1996, *
among Organic Waste Technologies, Inc.("OWT"),
Registrant and the selling shareholders and option
holders of OWT, incorporated by reference from
Exhibit 2.1 of the Current Report on Form 8-K
dated March 14, 1996, (the "March 1996 8-K").
2.2 Asset Purchase Agreement between Yolo Energy *
Partners, Inc., Yolo Landfill Gas Corporation,
EMCON, Yolo Neo LLC, and Minnesota Methane LLC
dated December 31, 1996, incorporated by reference
from Exhibit 10.20 of the Annual Report on
Form 10-K for the fiscal year ended December 31,
1996 (the "1996 10-K").
2.3 Acquisition Agreement between EMCON and its wholly *
owned subsidiary, Monterey Landfill Gas Corporation,
and Biomass Energy Partners V, L.P., dated March 6,
1997, incorporated by reference from Exhibit 10.22
of the 1996 10-K.
2.4 Stock Purchase Agreement dated April 4, 1997 among *
Registrant, Columbia Analytical Services, Inc.("CAS"),
Northwest Trust as trustee of the CAS Employee Stock
Ownership Trust and certain senior management employees
of CAS, incorporated by reference from Exhibit 2.4 of
the Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1997 (the "March 1997
10-Q").
2.5 Stock Purchase Agreement dated April 30, 1997 among *
Registrant, OWT, National Earth Products, Inc. ("NEP")
and the selling stockholders of NEP, incorporated by
reference from Exhibit 2.5 of the March 1997 10-Q.
3.1 Articles of Incorporation, as amended, incorporated *
by reference from Exhibit 3.1 of the Registrant's
Registration Statement on Form S-1 (File No. 33-16337)
effective September 16, 1987 (the "Form S-1 Registration
Statement").
3.2 Certificate of Amendment of Restated Articles of *
Incorporation as filed on May 24, 1988, incorporated
by reference from Exhibit 3.2 of the Annual Report on
Form 10-K for the fiscal year ended December 31, 1988
(the "1988 10-K").
3.3 Certificate of Amendment of Restated Articles of *
Incorporation as filed on June 4, 1991, incorporated
by reference from Exhibit 4.1 of the Quarterly Report
on Form 10-Q for the fiscal quarter ended June 30,
1991 (the "June 1991 10-Q").
3.4 Bylaws, as amended, incorporated by reference from *
Exhibit 4.2 of the June 1991 * 10-Q.
14
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Sequentially
Exhibit Numbered
Number INDEX TO EXHIBITS (Continued) Page
- -------------- ------------------
10.1 EMCON 1986 Incentive Stock Option Plan and *(1)
Amendment, incorporated by reference
from Exhibit 10.15 of the Form S-1 Registration
Statement.
10.2 Form of Agreement pursuant to Salary Continuation *(1)
Plan, incorporated by reference from Exhibit 10.17
of the Form S-1 Registration Statement.
10.3 Schedule identifying Agreements pursuant to Salary *(1)
Continuation Plan between Registrant and certain
employees, incorporated by reference from Exhibit
10.3 of the March 1997 10-Q.
10.4 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").
10.5 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").
10.6 EMCON Employee Stock Purchase Plan incorporated by *(1)
reference from Exhibit 10.10 of the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1995.
10.7 EMCON Restricted Stock Plan incorporated by reference *(1)
from Exhibit 10.15 of the Annual Report on Form 10-K
for the fiscal year ended December 31, 1990.
10.8 EMCON Deferred Compensation Plan effective January 1, *(1)
1994, incorporated by reference from Exhibit 10.12
of the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993 (the "1993
10-K").
10.9 Trust Agreement for the EMCON Deferred Compensation *(1)
Plan and Salary Continuation Plan Trust dated
February 19, 1994, between Registrant and Wells
Fargo Bank, N.A. incorporated by reference from
Exhibit 10.13 of the 1993 10-K.
10.10 Agreement between Eugene M. Herson and Registrant *(1)
dated November 30, 1995, incorporated by reference
from Exhibit 10.21 of Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995
(the "1995 10-K").
15
<PAGE>
Sequentially
Exhibit Numbered
Number INDEX TO EXHIBITS (Continued) Page
- -------------- --------------
10.12 Credit Agreement between The Bank of California, *
N.A. and Registrant dated February 29, 1996,
incorporated by reference from Exhibit 10.2 of
the March 1996 8-K.
10.13 Security Agreement between The Bank of California, *
N.A. and Registrant dated February 29, 1996,
incorporated by reference from Exhibit 10.3 of the
March 1996 8-K.
10.14 Pledge Agreement between The Bank of California, *
N.A. and Registrant dated February 29, 1996,
incorporated by reference from Exhibit 10.4
of the March 1996 8-K.
10.15 Eurodollar Rate Option Agreement between The Bank *
of California, N.A. and Registrant dated February 29,
1996, incorporated by reference from Exhibit 10.5
of the March 1996 8-K.
10.16 Fixed Rate Amortization Option Agreement between *
The Bank of California, N.A. and Registrant dated
February 29, 1996, incorporated by reference from
Exhibit 10.6 of the March 1996 8-K.
10.17 Note Agreement among the Registrant, OWT, and *
certain employees of OWT, incorporated by reference
from Exhibit 10.1 of the March 1996 8-K.
10.18 Rescission and Reformation Agreement dated effective *
November 1, 1996 among EMCON, OWT, and certain
employees of OWT, incorporated by reference from
Exhibit 10.18 of the 1996 10-K.
10.19 New Note Agreement dated effective November 1, 1996 *
among EMCON, OWT and certain employees of OWT,
incorporated by reference from Exhibit 10.19 of
the 1996 10-K.
10.20 Second Amendment to Credit Agreement dated effective *
January 27, 1997 among EMCON and Union Bank of
California, N.A. (formerly known as The Bank of
California, N.A.), incorporated by reference from
Exhibit 10.21 of the 1996 10-K.
10.21 Third Amendment to Credit Agreement dated effective *
March 27, 1997 among EMCON and Union Bank of
California, N.A. (formerly known as The Bank
of California, N.A.), incorporated by reference
from Exhibit 10.23 of the 1996 10-K.
10.22 Convertible Notes dated April 30, 1997 issued by *
EMCON to Dennis Grimm and Charles Gearhart in the
principal amounts of $400,798.40 and $399,201.60,
respectively, incorporated by reference from
Exhibit 10.22 of the March 1997 10-Q.
16
<PAGE>
Sequentially
Exhibit Numbered
Number INDEX TO EXHIBITS (Continued) Page
- -------------- ------------------
10.23 Lease Agreement dated April 4, 1997, between *
EMCON and Columbia Analytical Services, Inc.,
incorporated by reference from Exhibit 10.23
of the March 1997 10-Q.
10.24 Amendment 1997-I to EMCON Deferred Compensation *(1)
Plan dated effective February 22, 1997,
incorporated by reference from Exhibit 10.24 of
the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 1997 (the
"June 30, 1997 10-Q").
10.25 Fourth Amendment to Credit Agreement dated *
effective June 24, 1997 among EMCON and Union
Bank of California, N.A., incorporated by reference
from Exhibit 10.25 of the June 30, 1997 10-Q.
11.1 Computation of Income (Loss) Per Share. 18
27 Financial Data Schedule, included herein. 19
* 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.
17
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11.1
EMCON
COMPUTATION OF INCOME PER SHARE
(In thousands except per share data)
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net income ............................................ $ 943 $ 259 $2,128 $ 658
Proforma interest income related to modified
treasury stock method .............................. NA 58 NA 74
------ ------ ------ ------
Adjusted net income ................................... $ 943 $ 317 $2,128 $ 732
====== ====== ====== ======
Weighted average number of common shares
outstanding during the period ...................... 8,557 8,512 8,541 8,483
Common and common equivalent shares
outstanding for the purpose of calculating
primary net income per share ....................... 8,700 NA 8,558 NA
Common equivalent shares` from outstanding
stock options using the modified treasury
stock method ....................................... NA 691 NA 744
Incremental shares to reflect full dilution (1) ....... 141 0 72 0
------ ------- ------ ------
Total shares for purposes of calculating diluted
income per share (1)................................ 8,841 9,203 8,630 9,227
====== ======= ====== ======
Primary income per share .............................. $ 0.11 $ 0.03 $ 0.25 $ 0.08
====== ======= ====== ======
Fully diluted income per share ........................ $ 0.11 $ 0.03 $ 0.25 $ 0.08
====== ======= ====== ======
- -----------------------
</TABLE>
(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%.
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets, consolidated statements of income and consolidated
statements of cash flows included in the Company's Form 10-Q for the nine month
period ended September 30, 1997, and is qualified in its entirety by reference
to such financial statements and the notes thereto.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 4,062,000
<SECURITIES> 0
<RECEIVABLES> 42,821,000
<ALLOWANCES> 1,271,000
<INVENTORY> 0
<CURRENT-ASSETS> 53,454,000
<PP&E> 33,207,000
<DEPRECIATION> 17,836,000
<TOTAL-ASSETS> 96,409,000
<CURRENT-LIABILITIES> 24,839,000
<BONDS> 0
<COMMON> 42,193,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 96,409,000
<SALES> 81,947,000
<TOTAL-REVENUES> 81,947,000
<CGS> 40,728,000
<TOTAL-COSTS> 40,728,000
<OTHER-EXPENSES> 36,000,000
<LOSS-PROVISION> 1,022,000
<INTEREST-EXPENSE> 923,000
<INCOME-PRETAX> 3,274,000
<INCOME-TAX> 1,146,000
<INCOME-CONTINUING> 2,128,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,128,000
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
</TABLE>
