<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act in 1934
For Quarter Ended January 28, 1995 Commission File #1-9065
ECOLOGY AND ENVIRONMENT, INC.
(Exact name of registrant as specified in its charter)
New York 16-0971022
(State or other jurisdiction (I.R.S. Employer Identification No.)
organization)
368 Pleasant View Drive
Lancaster, NY 14086
(Address of principal executive offices)
Registrant's telephone number, including area code 716-684-8060
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
---------- ----------
At March 1, 1995, 2,276,176 shares of Registrant's Class A Common Stock (par
value $.01) and 1,862,316 shares of Class B Common Stock (par value $.01) were
outstanding.
<PAGE> 2
<TABLE>
ECOLOGY AND ENVIRONMENT, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<CAPTION>
JANUARY 28, JULY 31,
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 7,513,090 $ 4,390,422
Investment securities available for sale 3,121,666 3,124,782
Contract receivables, net 29,503,321 35,541,883
Other current assets 3,893,712 3,658,266
----------- -----------
Total current assets 44,031,789 46,715,353
Property, building and equipment, net 14,935,859 14,795,610
Other assets 646,070 646,070
----------- -----------
Total assets $59,613,718 $62,157,033
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 2,776,004 $ 5,405,560
Accrued payroll costs 4,506,581 5,507,237
Other accrued liabilities 3,754,730 3,570,313
Income taxes payable --- 170,776
----------- -----------
Total current liabilities 11,037,315 14,653,886
Long-term debt 1,301,042 1,344,792
Shareholders' equity:
Preferred stock, par value $.01 per share; --- ---
authorized - 2,000,000 shares; no shares issued
Class A common stock, par value $.01 per share;
authorized - 6,000,000 shares; 2,276,176 and
2,265,590 shares issued and outstanding 22,762 22,657
Class B common stock, par value $.01 per share;
authorized - 10,000,000 shares; issued -
1,888,575 and 1,899,314 shares 18,885 18,990
Capital in excess of par value 17,562,587 17,562,587
Retained earnings 29,719,067 28,602,061
Treasury stock - Class B common, 26,259 shares,
at cost (47,940) (47,940)
----------- -----------
Total shareholders' equity 47,275,361 46,158,355
----------- -----------
Total liabilities and shareholders'
equity $59,613,718 $62,157,033
=========== ===========
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 3
<TABLE>
ECOLOGY AND ENVIRONMENT, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------------- ----------------------------------
JANUARY 28, JANUARY 29, JANUARY 28, JANUARY 29,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Gross revenues $21,810,712 $22,829,111 $48,132,681 $49,289,797
Less: direct subcontract costs 3,037,690 3,172,935 7,422,308 7,516,922
------------- ------------- ------------- --------------
Net revenues 18,773,022 19,656,176 40,710,373 41,772,875
------------- ------------- ------------- --------------
Operating costs and expenses:
Cost of professional services and
other direct operating expenses 10,566,956 10,776,365 22,602,001 23,047,420
Administrative and indirect operating
expenses 4,261,470 4,598,620 9,549,093 9,729,230
Marketing and related costs 2,491,961 2,189,399 4,818,645 4,251,732
Depreciation 478,922 452,626 973,377 886,529
Interest expense 29,793 18,296 57,124 30,487
------------- ------------- ------------- --------------
17,829,102 18,035,306 38,000,240 37,945,398
------------- ------------- ------------- --------------
Income from operations 943,920 1,620,870 2,710,133 3,827,477
Interest income 183,729 121,366 287,896 245,436
------------- ------------- ------------- --------------
Income before income taxes 1,127,649 1,742,236 2,998,029 4,072,913
------------- ------------- ------------- --------------
Income tax provision (benefit):
Federal 396,822 553,173 1,049,107 1,422,904
State 89,043 132,666 232,293 310,103
Deferred (57,276) (6,724) (111,685) (145,410)
------------- ------------- ------------- --------------
428,589 679,115 1,169,715 1,587,597
------------- ------------- ------------- --------------
Net income before cumulative effect of
accounting change 699,060 1,063,121 1,828,314 2,485,316
Cumulative effect of accounting change ---- ---- ---- (117,690)
------------- ------------- ------------- --------------
Net income $699,060 $ 1,063,121 $ 1,828,314 $ 2,367,626
============= ============= ============= ==============
Net income before cumulative effect of
accounting change per common share $0.17 $0.26 $0.44 $0.60
Cumulative effect of accounting change
per common share --- --- --- (0.03)
------------- ------------- ------------- --------------
Net income per common share $0.17 $0.26 $0.44 $0.57
============= ============= ============= ==============
Weighted average common shares
outstanding 4,138,492 4,138,175 4,138,492 4,137,926
============= ============= ============= ==============
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 4
<TABLE>
ECOLOGY AND ENVIRONMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<CAPTION>
SIX MONTHS ENDED
-------------------------------
JANUARY 28, JANUARY 29,
1995 1994
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $1,828,314 $ 2,367,626
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 973,377 886,529
Gain on sale of equipment (42,435) ---
Provision for contract adjustments 38,080 164,184
(Increase) decrease in:
- contracts receivable 6,000,482 (616,511)
- other current assets (235,446) (56,751)
Increase (decrease) in:
- accounts payable (2,629,556) (513,736)
- accrued payroll costs (1,000,656) (436,443)
- other accrued liabilities 184,417 143,946
- income taxes payable (170,776) (179,033)
Other, net --- (4,045)
---------- -----------
Net cash provided by operating activities 4,945,801 1,755,766
---------- -----------
Cash flows provided by (used in) investing activities:
Purchase of property, building and equipment, net (1,090,688) (3,442,790)
Proceeds from sale of equipment 50,000 ---
Purchase of investment securities (76,537) (148,030)
---------- -----------
Net cash used in investing activities (1,117,225) (3,590,820)
---------- -----------
Cash flows provided by (used in) financing activities:
Dividends paid (662,158) (551,762)
Repayment of long-term debt (43,750) (25,001)
Issuance of common stock --- 38,661
Repurchase of common stock --- (19,470)
---------- -----------
Net cash used in financing activities (705,908) (557,572)
---------- -----------
Net increase (decrease) in cash and cash equivalents 3,122,668 (2,392,626)
Cash and cash equivalents at beginning of year 4,390,422 11,561,811
---------- -----------
Cash and cash equivalents at end of period $7,513,090 $ 9,169,185
========== ===========
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 5
ECOLOGY AND ENVIRONMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting principles
--------------------------------------------
a. Consolation
-----------
The consolidated financial statements include the accounts of Ecology and
Environment, Inc. (the Company) and its wholly-owned subsidiaries. Also
reflected in the financial statements is the Company's 66-2/3% ownership in
the assets of a nonoperating subsidiary, Ecology and Environment of Saudi
Arabia Ltd. (EESAL), and a 50% ownership in the operating joint venture,
Beijing Yi Yi Ecology and Engineering Co. Ltd. which are being accounted
for under the equity method. All significant intercompany transactions and
balances have been eliminated. The consolidated balance sheet at January
28, 1995 and the accompanying consolidated statements of income and of cash
flows are unaudited. In the opinion of management, all adjustments
necessary for a fair presentation of such financial statements have been
included. Such adjustments consisted only of normal recurring items. The
accompanying financial statements should be reviewed in conjunction with the
Company's fiscal year ended July 31, 1994 audited financial statements.
b. Revenue Recognition
--------------------
Substantial amounts of the Company's revenues are derived from cost-plus-fee
contracts and are recognized on the basis of costs incurred during the
period, plus the fee earned. The fees under certain government contracts
are determined in accordance with performance incentive provisions. Such
awards are recognized at the time the amounts can be reasonable determined.
Provisions for estimated contract adjustments relating to cost based
contracts have been deducted from gross revenues in the accompanying
consolidated statement of income. Such adjustments typically arise as a
result of interpretations of cost allowability under cost based contracts.
Revenues related to long-term government contracts are subject to audit by
an agency of the United States government. Government audits have been
completed through fiscal year 1986 and are currently in process for fiscal
years 1987 through 1991. The majority of the balance in the allowance for
contract adjustments represents a reserve against possible adjustments for
fiscal years 1987 through 1995.
<PAGE> 6
c. Income Taxes
------------
In the first quarter of fiscal year 1994, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
No. 109), which changed its method of accounting for income taxes from the
deferred method to the liability method. The cumulative effect of the
implementation of SFAS No. 109 resulted in a $117,690 decrease in the
Company's net deferred tax assets. Under the liability method, a deferred
tax liability or asset is recognized for the tax consequences of all events
that have been recognized in the financial statements. The deferred tax
consequences of such events are equal to the expected amount of taxes
payable or refundable in future years, based upon tax laws currently in
effect.
d. Net income per common share
---------------------------
The computation of net income per common share at January 29, 1994 is based
upon the weighted average of Class A and B common shares outstanding
restated for the 5% stock dividend distributed on August 30, 1994.
2. Contract Receivables
--------------------
<TABLE>
Contract receivables are comprised of:
<CAPTION>
January 28, July 31,
1995 1994
----------- -----------
<S> <C> <C>
United States government
Billed $11,656,165 $14,075,092
Unbilled 7,555,915 9,308,379
----------- -----------
19,212,080 23,383,471
----------- -----------
Industrial customers and state
and municipal governments
Billed 7,229,320 7,522,308
Unbilled 3,707,443 5,474,046
----------- -----------
10,936,763 12,996,354
----------- -----------
Less allowance for contract
adjustments (645,522) (837,942)
----------- -----------
$29,503,321 $35,541,883
=========== ===========
</TABLE>
United States government receivables arise from long-term U.S. government prime
contracts and subcontracts. Unbilled receivables result from revenues which
have been earned, but are
<PAGE> 7
not billed as of period-end. The above unbilled balances are comprised of
incurred costs plus fees not yet processed and billed; and differences between
year-to-date provisional billings and year-to-date actual costs and fees
incurred of approximately $1,150,000 at January 28, 1995, and $1,976,000 at
July 31, 1994. Management anticipates that the January 28, 1995 unbilled
receivables will be substantially billed and collected in fiscal year 1995.
Within the above billed balances are contractual retainages in the amount of
approximately $1,180,000 at January 28, 1995 and $1,139,000 at July 31, 1994.
Included in other accrued liabilities is an additional allowance for contract
adjustments relating to potential cost disallowances on amounts billed and
collected of approximately $3,446,000 at January 28, 1995 and $3,232,000 at
July 31, 1994.
3. Income Taxes
------------
<TABLE>
The provision for income taxes differs from the federal statutory rate due to
the following:
<CAPTION>
Six months ended
----------------------------
January 28, January 29,
1995 1994
-------- --------
<S> <C> <C>
Statutory rate 34.0% 34.0%
State income taxes, less 4.8 4.8
federal effect
Other .2 .2
-------- --------
Effective tax rate 39.0% 39.0%
======== ========
</TABLE>
<PAGE> 8
PART I - ITEM 2
- ---------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Financial Condition
- -------------------
As of January 28, 1995, the Company's working capital balance increased $.9
million to $33.0 million as compared to $32.1 million at July 31, 1994. Net
contract receivables decreased $6.0 million while cash and cash equivalents
increased $3.1 million. This was the result of improvement in the Company's
days sales in accounts receivable outstanding due primarily to the delay in
payment of two significant invoices outstanding at July 31, 1994 that were
subsequently paid in September 1994.
The Company's current liabilities decreased $3.6 million with approximately
one-half of the decrease resulting from a decline in subcontractor and other
direct costs. At January 28, 1995 the Company had no significant working
capital requirements other than those needed for normal operations.
Results of Operations
- ---------------------
Net revenues for the second quarter of fiscal year 1995 were $18.8 million,
down from the $19.7 million reported in the same period of the previous year.
This decrease was primarily due to a decline in revenues from the Company's
energy industry clients. Net revenues derived from the public sector remained
steady. The Company continued to expand its business internationally as second
quarter of fiscal year 1995 net revenues included those from projects in
Kuwait, China, Indonesia and Venezuela.
Net income for the quarter was $.7 million, or $.17 per share, down from
$1.06 million, or $.26 per share, recorded for the same quarter of the previous
year. Second quarter of fiscal year 1995 net income was adversely affected by
greater expenses associated with the Company's increased marketing and proposal
efforts. Proposal costs increased over the same period of fiscal year 1994
primarily due to the Company's efforts to obtain various United States
Environmental Protection Agency (EPA) contracts worth several hundred million
dollars. The Company anticipates successful proposals will be announced in the
summer of 1995. The firm also continued to aggressively market its services
overseas as the
<PAGE> 9
foreign service markets are the fastest growing segment of its business. The
Company's gross sales backlog from international work increased by $6.0 million
since August 1st, including a December 1994 award of a $1.3 million dollar
contract for a petrochemical project in Venezuela.
The Company's decision to reduce its workforce by approximately 3% at the
end of the first quarter of this fiscal year resulted in a decrease in
administrative and indirect costs in the second quarter. These administrative
and indirect cost reductions have helped offset the increased marketing and
proposal costs.
Overall net revenues for the six months ending January 28, 1995 were $40.7
million, down from the $41.8 million recorded in the first half of fiscal year
1994. Net income for the current six month period was $1.8 million or $.44 per
share as compared to $2.4 million or $.57 per share for the previous year. Net
income was adversely affected by increased marketing and proposal efforts as
well as increased costs related to the move of its Analytical Services Center
to a new location. The Company's six month fiscal year 1994 net income
includes the effect of the adoption of Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" (SFAS No. 109). The
implementation of SFAS No. 109 negatively impacted earnings by approximately
$118,000 or $.03 per share in the first quarter of the prior year.
<PAGE> 10
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings.
- --------------------------
The Registrant has previously reported information for Item 1 that is
required to be presented in item 3 of its Annual Report on Form 10-K for its
fiscal year ended July 31, 1994 which is incorporated herein by reference.
Item 2. Changes in Securities.
- ------------------------------
(a) Not Applicable.
(b) Not Applicable.
Item 3. Defaults Upon Senior Securities.
- ----------------------------------------
The Registrant has no information for Item 3 that is required to be
presented.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------------------------------------------------------------
(a) The Annual Meeting of Shareholders of the Registrant was held on
January 19, 1995.
(b) At such meeting, the following persons were elected as directors by the
holders of Class A Common Stock: Ralph Bookbinder and Ross M. Cellino; and
the following directors by the holders of Class B Common Stock: Gerhard J.
Neumaier, Ronald L. Frank, Frank B. Silvestro, Gerald A. Strobel, Gerard A.
Gallagher, Jr. and Harvey J. Gross.
(c) A proposal appointing the accounting firm of Price Waterhouse LLP as the
Registrant's independent public accountant for its fiscal year ending July 31,
1995 was approved by the Registrant's shareholders in the following manner:
(i) the holders of Class A Common Stock voted as follows: 189,215 votes were
cast in favor, 1,432 votes were cast against this proposal and 766 votes
abstained (representing 1,892,154 shares, 14,329 shares and 7,664 shares voted
respectively, each share of Class A Common Stock being entitled to 1/10 of 1
vote per share for this proposal); and (ii) the holders of Class B Common Stock
voted as follows: 1,730,603 votes were cast in favor, 727 votes cast against
this proposal and no votes abstained (each share of Class B Common Stock being
entitled to one vote per share for this proposal).
(d) Not Applicable.
Item 5. Other Information.
- ---------------------------
The Registrant has no information for Item 5 required to be presented.
<PAGE> 11
PART II - OTHER INFORMATION (CONTINUED)
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibit 27 Financial Data Schedule
(b) Not Applicable.
SIGNATURE
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.
ECOLOGY AND ENVIRONMENT, INC.
Date: March 9, 1995 By: /s/ Ronald L. Frank
------------------------------
Ronald L. Frank Executive
Vice President -
Chief Financial Officer
(Principal Financial
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000809933
<NAME> ECOLOGY AND ENVIRONMENT, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JAN-28-1995
<CASH> $7,513,090
<SECURITIES> $3,121,666
<RECEIVABLES> $29,503,321
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> $44,031,789
<PP&E> $14,935,859
<DEPRECIATION> 0
<TOTAL-ASSETS> $59,613,718
<CURRENT-LIABILITIES> $11,037,315
<BONDS> $1,301,042
<COMMON> $17,556,294
0
0
<OTHER-SE> $29,719,067
<TOTAL-LIABILITY-AND-EQUITY> $59,613,718
<SALES> $40,710,373
<TOTAL-REVENUES> $48,132,681
<CGS> 0
<TOTAL-COSTS> $38,000,240
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> $2,998,029
<INCOME-TAX> $1,169,715
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $1,828,314
<EPS-PRIMARY> $0.44
<EPS-DILUTED> 0
</TABLE>
