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 April 29, 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 June 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.
<TABLE>
ECOLOGY AND ENVIRONMENT, INC.
ECOLOGY AND ENVIRONMENT, INC.
CONSOLIDATED BALANCE SHEET
CONSOLIDATED BALANCE SHEET
(Unaudited)
(Unaudited)
<CAPTION>
April 29, July 31,
1995 1994
___________
___________
<S> <C> <C>
ASSETS
______
Current assets:
Cash and cash equivalents $11,321,152 $ 4,390,422
Investment securities available for sale 3,163,471 3,124,782<PAGE>
Contract receivables, net 24,143,322 35,541,883
Other current assets 4,015,418 3,658,266
------------ ------------
Total current assets 42,643,363 46,715,353
Property, building and equipment, net 14,737,797 14,795,610
Other assets 689,154 646,070
------------ ------------
Total assets $58,070,314 $62,157,033
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
____________________________________
Current liabilities:
Accounts payable $ 2,823,395 $ 5,405,560
Accrued payroll costs 3,843,836 5,507,237
Other accrued liabilities 3,131,155 3,570,313
Income taxes payable --- 170,776
------------ ------------
Total current liabilities $ 9,798,386 $14,653,886
Long-term debt 804,166 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 29,911,468 28,602,061
Treasury stock - Class B Common, 26,259
shares, at cost (47,940) (47,940)
------------ ------------
Total shareholders' equity 47,467,762 46,158,355
------------ ------------
Total liabilities and shareholders' equity $58,070,314 $62,157,033
============ ============
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
ECOLOGY AND ENVIRONMENT, INC.
ECOLOGY AND ENVIRONMENT, INC.
CONSOLIDATED STATEMENT OF INCOME
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(Unaudited)
<CAPTION>
Three months ended Nine months ended
------------------------- ------------------------
April 29, April 30, April 29, April 30,
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross revenues $20,962,520 $23,944,108 $69,095,201 $73,233,905 <PAGE>
Less: direct subcontract costs 2,493,653 2,154,170 9,915,961 9,671,092
------------ ------------ ------------ ------------
Net revenues 18,468,867 21,789,938 59,179,240 63,562,813
------------ ------------ ------------ ------------
Operating costs and expenses:
Cost of professional services and
other direct operating expenses 10,284,516 11,917,427 32,886,517 34,964,847
Administrative and indirect
operating expenses 4,825,533 5,182,481 14,374,626 14,911,711
Marketing and related costs 2,683,389 2,546,343 7,502,034 6,798,075
Depreciation 500,671 478,084 1,474,048 1,364,613
Interest expense 25,643 11,391 82,767 41,878
------------ ------------ ------------ ------------
18,319,752 20,135,726 56,319,992 58,081,124
------------ ------------ ------------ ------------
Income from operations 149,115 1,654,212 2,859,248 5,481,689
Interest income 180,174 97,156 468,070 342,592
------------ ------------ ------------ ------------
Income before income taxes 329,289 1,751,368 3,327,318 5,824,281
------------ ------------ ------------ ------------
Income tax provision (benefit):
Federal (86,178) 360,015 962,929 1,782,919
State 34,593 129,480 266,886 439,583
Deferred 188,473 185,728 76,788 40,318
------------ ------------ ------------ ------------
136,888 675,223 1,306,603 2,262,820
------------ ------------ ------------ ------------
Net income before cumulative effect of
accounting change 192,401 1,076,145 2,020,715 3,561,461
Cumulative effect of accounting change --- --- --- (117,690)
------------ ------------ ------------ ------------
$ 192,401 $ 1,076,145 $ 2,020,715 $ 3,443,771
============ ============ ============ ============
Net income before cumulative effect of
accounting change per common share $0.05 $0.26 $0.49 $0.86
Cumulative effect of accounting
change per common share --- --- --- (0.03)
------ ------ ------ ------
$0.05 $0.26 $0.49 $0.83
====== ====== ====== ======
Weighted average common shares outstanding 4,138,492 4,138,513 4,138,492 4,138,121
============ ============ ============= ============
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
ECOLOGY AND ENVIRONMENT, INC.
ECOLOGY AND ENVIRONMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Unaudited)
<CAPTION>
Nine months ended
-----------------------------
April 29, April 30,
1995 1994 <PAGE>
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,020,715 $ 3,443,771
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,474,048 1,364,613
Gain on sale of equipment (42,435) ---
Provision for contract adjustments (565,076) (4,442)
(Increase) decrease in:
- contracts receivable 11,963,637 (3,774,301)
- other current assets (357,152) 185,642
Increase (decrease) in:
- accounts payable (2,582,165) (1,637,356)
- accrued payroll costs (1,663,401) (232,439)
- other accrued liabilities (439,158) 245,997
- income taxes payable (170,776) ---
Other, net (43,084) 1,500
-------------- -------------
Net cash provided by (used in) operating activities 9,595,153 (407,015)
-------------- -------------
Cash flows provided by (used in) investing activities:
Purchase of property, building and equipment, net (1,393,297) (5,178,019)
Proceeds from sale of equipment 50,000 ---
Purchase of investment securities (118,342) (105,044)
Investment in China joint venture --- (300,000)
------------- -------------
Net cash used in investing activities (1,461,639) (5,583,063)
------------- -------------
Cash flows provided by (used in) financing activities:
Dividends paid (662,158) (551,762)
Repayment of long-term debt (540,626) (37,500)
Issuance of common stock --- 41,062
Repurchase of common stock --- (19,470)
------------- -------------
Net cash provided by (used in) financing activities (1,202,784) (567,670)
------------- -------------
Net increase (decrease) in cash and cash equivalents 6,930,730 (6,557,748)
Cash and cash equivalents at beginning of year 4,390,422 11,561,811
------------- -------------
Cash and cash equivalents at end of period $11,321,152 $ 5,004,063
============= =============
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
ECOLOGY AND ENVIRONMENT, INC.
ECOLOGY AND ENVIRONMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting principles
____________________________________________
a. Consolidation
_____________
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<PAGE>
under the equity method. All significant intercompany transactions
and balances have been eliminated. The consolidated balance sheet
at April 29, 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 reasonably 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.
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 April 30, 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>
April 29, July 31,
1995 1994
------------ ------------
S> <C> <C
<PAGE>
United States government
Billed $ 6,946,552 $14,075,092
Unbilled 8,893,696 9,308,379
------------ ------------
15,840,248 23,383,471
------------ ------------
Industrial customers and state
and municipal governments
Billed 4,645,448 7,522,308
Unbilled 4,366,835 5,474,046
------------ ------------
9,012,283 12,996,354
------------ ------------
Less allowance for contract
adjustments (709,209) (837,942)
------------ ------------
$24,143,322 $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 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
$1,853,000 at April 29, 1995, and $1,976,000 at July 31, 1994.
Management anticipates that the April 29, 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 $1,254,000 at April 29, 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
$2,763,000 at April 29, 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>
Nine months ended
------------------------------
April 29, April 30,
1995 1994
------------- -------------
<S> <C> <C>
Statutory rate 34.0% 34.0%
State income taxes, less
federal effect 4.9 4.7
Other .3 .2
------------- ------------
39.2% 38.9%
============= ============
</TABLE>
PART I - ITEM 2
PART I - ITEM 2
_______________
_______________<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition
___________________
As of April 29, 1995, the Company's working capital balance increased
$.7 million to $32.8 million as compared to $32.1 million at July 31, 1994.
Net contract receivables decreased $11.4 million while cash and cash
equivalents increased $6.9 million. This was primarily the result of
significant improvement in the Company's collection of its outstanding
receivables. At July 31, 1994 the Company had experienced a delay in
payment of two significant invoices outstanding that were subsequently paid
in September 1994.
The Company's current liabilities decreased $4.9 million with
approximately one-half of the decrease resulting from a decline in
subcontractor and other direct costs. At April 29, 1995 the Company had no
significant working capital requirements other than those needed for normal
operations.
Results of Operations
_____________________
Net revenues for the third quarter of fiscal year 1995 were $18.5
million, down from the $21.8 million reported in the same period of the
previous year. This decrease was primarily due to the cancellation of an
energy development project by a major commercial client as well as a
decline in work orders on contracts with the United States Department's of
Defense and Energy. The decline in work orders are under multi-million
dollar contracts under which the government can order work with available
funds. These available funds have recently been diverted to cover costs of
military activities such as those in Haiti, Kuwait and Somalia. The
reductions also affect the Company's laboratory since most work orders also
contain laboratory requirements. The Company's international business,
however, continued to grow as third quarter of fiscal year 1995 net
revenues from contracts in Kuwait, Indonesia, China, and Venezuela
increased over the same period of last year.
Net income for the quarter was $.2 million, or $.05 per share, down
from the $1.1 million, or $.26 per share, recorded for the same quarter of
the prior year. Third quarter of fiscal year 1995 net income was adversely
affected by the decline in net revenues, higher costs associated with
international business, and increased marketing costs. The increased
marketing costs resulted primarily from the Company's continued focus on
the burgeoning international markets.
In April 1995 the Company initiated cutbacks in overhead expenses by
reducing staff positions and consolidating some domestic facilities. As a
result of similar streamlining initiatives undertaken in the first quarter
of this year, the Company's third quarter administrative and indirect costs
decreased versus the same period last year.
As a result of the recent changes in congressional leadership, there
is likely to be a continuing uncertainty towards funding of federal
environmental efforts and/or allocations to the states. At this time the
impact on our Company is unknown until policy becomes clearer. It is
doubtful that a grand scale-back of environmental regulations will occur
since 70 percent of the population believes strongly that environmental
standards should be maintained. Such uncertainty is likely to have some
impact on the commercial sector by delaying clean up work until policy is
clear. This change and its implication for the domestic markets, at least
in the short term, underscores the Company's commitment to building a
strong international capability where new opportunities are emerging.<PAGE>
Overall net revenues for the nine months ending April 29, 1995 were
$59.2 million, down from the $63.6 million recorded for the same period in
fiscal year 1994. Net income for the current nine month period was $2.0
million or $.49 per share as compared to $3.4 million or $.83 per share for
the previous year. Fiscal year 1995 year-to-date net income was adversely
affected by higher costs resulting from increased marketing and proposal
efforts, increased costs related to the move of the Company's Analytical
Services Center to a new location and a decrease in net revenues derived
from the Analytical Services Center. Nine month proposal costs increased
over the same period last year primarily due to the Company's efforts to
obtain various United States Environmental Protection Agency contracts
worth several hundred million dollars. The Company anticipates successful
proposals will be announced in the summer of 1995. The nine month fiscal
year 1994 net income includes 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.
PART II - OTHER INFORMATION
PART II - OTHER INFORMATION
___________________________
___________________________
SIGNATURE
_________
Pursuant to the requirements of the Securities Exchange Act of
l934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
ECOLOGY AND ENVIRONMENT, INC.
Date: June 8, 1995 By: /S/ Ronald L. Frank
_________________________
Ronald L. Frank
Executive Vice President
Chief Financial Officer
(Principal Financial
Accounting Officer)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> APR-29-1995
<CASH> $11,321,152
<SECURITIES> $3,163,471
<RECEIVABLES> $24,143,322
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT ASSETS> $42,643,363
<PP&E> $14,737,797
<DEPRECIATION> 0
<TOTAL ASSETS> $58,070,314
<CURRENT-LIABILITIES> $9,798,386
<BONDS> $804,166
<COMMON> $17,556,294
0
0
<OTHER-SE> $29,911,468
<TOTAL-LIABILITY-AND-EQUITY> $58,070,314
<SALES> $59,179,240
<TOTAL-REVENUES> $69,095,201
<CGS> 0
<TOTAL-COSTS> $56,319,992
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> $3,327,318
<INCOME-TAX> $1,306,603
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $2,020,715
<EPS-PRIMARY> $0.49
<EPS-DILUTED> 0
</TABLE>
