-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Fkxh8gj7evOPOUnJaUNevvaCRx/TzI6HMQ0tcP9MFWOBydX+YnSLjbCgomJWOIrX xyPRWh96X8uOWs0Fc1iOhA== 0000950005-95-000041.txt : 19950417 0000950005-95-000041.hdr.sgml : 19950417 ACCESSION NUMBER: 0000950005-95-000041 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950224 FILED AS OF DATE: 19950410 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EARTH TECHNOLOGY CORP USA CENTRAL INDEX KEY: 0000819541 STANDARD INDUSTRIAL CLASSIFICATION: 8711 IRS NUMBER: 330244112 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16121 FILM NUMBER: 95527855 BUSINESS ADDRESS: STREET 1: 100 W BROADWAY STE 5000 CITY: LONG BEACH STATE: CA ZIP: 90802-5785 BUSINESS PHONE: 3104954449 MAIL ADDRESS: STREET 1: 100 W BROADWAY SUITE 5000 CITY: LONG BEACH STATE: CA ZIP: 90802 10-Q 1 FORM 10-Q =============================================================================== 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 ----------------------------- Commission File Number 33-16098 ---------------- THE EARTH TECHNOLOGY CORPORATION (USA) ----------------------------------------------------- (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. =============================================================================== 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) 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. -1-
THE EARTH TECHNOLOGY CORPORATION (USA) CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited)-(Note 1) (In thousands) February 24, August 26, 1995 1994 ----------- ----------- 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 =========== ===========
See Notes to Consolidated Financial Statements. -2- 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. -3- 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-
THE EARTH TECHNOLOGY CORPORATION (USA) CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED) (in thousands) SIX MONTHS ENDED ----------------------------------- February 24, February 25, 1995 1994 --------- --------- 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
-5- THE EARTH TECHNOLOGY CORPORATION (USA) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In thousands)
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 - - ----------------------------------------------------------------------------------------------------------------------------------- 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
No material adjustments were necessary to eliminate intercompany transactions or conform accounting policies. -6- 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- 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- 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- NOTE 7 - CONTINGENCIES U.S. Government contracts are subject to government audit. Such audits could lead to inquiries from the government regarding the appropriateness of expenses under the U.S. Government regulations. The management of the Company believes that such inquiries, if any, will not result in material changes to revenues recorded.
NOTE 8 - SPECIAL CHARGES Special charges have been included in operating expenses in each of fiscal 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 - - -------------------------------------------------------------------------------------------------------------------------- 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
-10- 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- 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- 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.
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 - - ---------------------------------------------------------------------------------------------------------------------------- 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% - - ----------------------------------------------------------------------------------------------------------------------------
-13-
Percentage of Outstanding Common Votes Shares Approving Matter For Votes Against Abstentions Matter - - ---------------------------------------------------------------------------------------------------------------------------- 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 - - ----------------------------------------------------------------------------------------------------------------------------
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- 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- 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- EX-11.1 2 COMPUTATION OF PER SHARE EARNINGS 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 =========== =========== EX-11.2 3 COMPUTATION OF PER SHARE EARNINGS 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 =========== =========== EX-27 4 FINANCIAL DATA SCHEDULE
5 6-MOS AUG-25-1995 AUG-27-1994 FEB-24-1995 2981 0 49832 0 0 61245 38789 21329 93921 36793 0 870 0 2500 21865 93921 0 96305 34949 34949 61430 0 1370 (1379) 506 (1885) 0 0 0 (1885) (0.23) (0.23)
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