<PAGE>
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 October 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, New York 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 December 1, 1995, 2,218,576 shares of Registrant's Class A Common Stock
(par value $.01) and 1,858,316 shares of Class B Common Stock (par value $.01)
were outstanding.
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<TABLE>
ECOLOGY AND ENVIRONMENT, INC.
CONSOLIDATED BALANCE SHEET
<CAPTION>
October 28,
1995 July 31,
(Unaudited) 1995
------------- ------------
<S> <C> <C>
Assets
--------
Current assets:
Cash and cash equivalents $ 9,556,306 $ 9,658,139
Investment securities available for sale 5,820,838 6,271,982
Contract receivables, net 23,749,677 24,855,471
Other current assets 3,337,737 3,663,079
------------ ------------
Total current assets 42,464,558 44,448,671
Property, building and equipment, net 13,947,323 14,314,301
Other assets 700,088 712,560
------------ ------------
Total assets $57,111,969 $59,475,532
============ ============
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $ 2,453,669 $ 4,490,083
Accrued payroll costs 3,683,472 4,428,19
Other accrued liabilities 2,915,773 2,868,431
------------ ------------
Total current liabilities 9,052,914 11,786,713
Long-term debt 760,416 782,291
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;
issued - 2,280,176 shares 22,801 22,801
Class B common stock, par value $.01 per
share; authorized - 10,000,000 shares;
issued - 1,884,575 shares 18,846 18,846
Capital in excess of par value 17,562,587 17,562,587
Retained earnings 30,042,345 29,491,719
Treasury stock - Class A common, 39,600 and
16,300 shares; Class B common, 26,259 shares,
at cost (347,940) (189,425)
------------ ------------
Total shareholders' equity 47,298,639 46,906,528
------------ ------------
Total liabilities and shareholders' equity $57,111,969 $59,475,532
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
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ECOLOGY & ENVIRONMENT, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three months ended
------------------
October 28, October 29,
1995 1994
------------ ------------
Gross revenues $19,758,958 $26,321,969
Less: direct subcontract costs 2,548,938 4,384,618
------------ ------------
Net revenues 17,210,020 21,937,351
------------ ------------
Operating costs and expenses:
Cost of professional services
and other direct operating
expenses 9,609,017 12,035,045
Administrative and indirect
operating expenses 4,177,973 5,287,623
Marketing and related costs 2,184,987 2,326,684
Depreciation 420,504 494,455
------------ ------------
16,392,481 20,143,807
------------ ------------
Income from operations 817,539 1,793,544
Interest expense 18,922 27,331
Interest income 178,245 104,167
------------ ------------
Income before income taxes 976,862 1,870,380
------------ ------------
Income tax provision (benefit):
Federal 292,257 652,285
State 100,357 156,225
Deferred 39,842 (67,384)
------------ ------------
432,456 741,126
------------ ------------
Net income $544,406 $1,129,254
============ ============
Net income per common share $0.13 $0.27
===== =====
Weighted average common shares outstanding 4,116,692 4,138,492
============ ============
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
ECOLOGY AND ENVIRONMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
Three months ended
------------------
October 28, October 29,
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 544,406 $ 1,129,254
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 420,504 494,455
Gain on sale of assets --- (42,435)
Provision for contract adjustments 118,451 82,680
Decrease in:
- contracts receivable 987,343 7,969,681
- other current assets 322,072 217,875
Increase (decrease) in:
- accounts payable (2,036,414) (1,009,430)
- accrued payroll costs (744,727) (375,396)
- other accrued liabilities 47,342 87,845
- income taxes payable --- 398,840
Other, net 12,472 8,451
----------- ------------
Net cash provided by (used in) operating activities (328,551) 8,961,820
----------- ------------
Cash flows provided by (used in) investing activities:
Purchase of property, building and equipment, net (53,526) (756,677)
Proceeds from sale of assets --- 50,000
Purchase of investment securities (39,515) (35,122)
Proceeds from sale of investment securities 500,149 ---
----------- ------------
Net cash provided by (used in) investing activities 407,108 (741,799)
----------- ------------
Cash flows used in financing activities:
Repayment of long-term debt (21,875) (21,875)
Repurchase of common stock (158,515) ---
----------- ------------
Net cash used in financing activities (180,390) (21,875)
----------- ------------
Net increase (decrease) in cash and cash equivalents (101,833) 8,198,146
Cash and cash equivalents at beginning of year 9,658,139 4,390,422
----------- ------------
Cash and cash equivalents at end of period $9,556,306 $12,588,568
=========== ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
ECOLOGY AND ENVIRONMENT, INC.
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
under the equity method. All significant intercompany transactions
and balances have been eliminated. The consolidated balance sheet
at October 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, 1995 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 1992. The majority of the balance in the allowance for
contract adjustments accounts represents a reserve against possible
adjustments for fiscal years 1987 through 1996.
c. Income Taxes
The Company uses the liability method for its accounting for income
taxes. 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
<PAGE>
taxes payable or refundable in future years, based upon tax laws
currently in effect.
d. Net income per common share
The computations of net income per common share are based upon the
weighted average of Class A and B common shares outstanding during
each period.
2. Contract Receivables
Contract receivables are comprised of:
October 28, July 31,
1995 1995
------------ ------------
United States government
Billed $ 8,128,898 $ 7,253,451
Unbilled 8,890,673 9,366,677
------------ ------------
17,019,571 16,620,128
------------ ------------
Industrial customers and state
and municipal governments
Billed 3,909,143 3,904,639
Unbilled 3,327,082 4,876,597
------------ ------------
7,236,225 8,781,236
------------ ------------
Less allowance for contract
adjustments (506,119) (545,893)
------------ ------------
$23,749,677 $24,855,471
============ ============
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
$2,769,000 at October 28, 1995, and $3,076,000 at July 31, 1995.
Management anticipates that the October 28, 1995 unbilled
receivables will be substantially billed and collected in fiscal
year 1996. Within the above billed balances are contractual
retainages in the amount of approximately $1,324,000 at October 28,
1995 and $1,308,000 at July 31, 1995. Included in other accrued
liabilities is an additional allowance for contract adjustments
relating to potential cost disallowances on amounts billed and
collected of approximately $2,618,000 at October 28, 1995 and
$2,578,000 at July 31, 1995.
<PAGE>
3. Income Taxes
The provision for income taxes differs from the federal statutory
rate due to the following:
Three months ended
------------------------------
October 28, October 29,
1995 1994
------------- -------------
Statutory rate 34.0% 34.0%
State income taxes, less
federal effect 4.2 4.8
Other 6.1 .8
------------- ------------
44.3% 39.6%
============= ============
<PAGE>
PART I - ITEM 2
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition
As of October 28, 1995, the Company's working capital balance
increased $.7 million to $33.4 million as compared to $32.7 million at
July 31, 1995. Accounts payable decreased $2.0 million with a majority of
the decrease resulting from a decline in subcontractor costs. Net contract
receivables decreased $1.1 million as the Company continued to improve its
collection of outstanding receivables. The Company's investment securities
available for sale decreased $.5 million while other current assets
decreased $.3 million. Accrued payroll costs declined by $.7 million.
The Company maintains an unsecured line of credit of $10.0 million
with a bank at the prevailing prime rate. There are no borrowings
outstanding under this line of credit at October 28, 1995 and none were
required during the first quarter of fiscal year 1996. The Company has
financed its activities through cash flows from operations. Internally
generated funds have been adequate to support demands for working capital,
the purchase of new fixed assets and the payment of dividends. There are
no significant working capital requirements pending at October 28, 1995.
The Company's existing cash along with that generated by future operations
and the existing credit line is expected to be sufficient to meet the
Company's needs for the foreseeable future.
In June 1995 the Company's Board of Directors approved the repurchase
of up to 200,000 shares of Class A common stock on the open market. As of
October 28, 1995 the Company had purchased 39,600 shares of common stock.
Results of Operations
Net revenues for the first quarter of fiscal year 1996 were $17.2
million, down from the $21.9 million recorded for the first quarter of
fiscal year 1995. The decrease in net revenues was due to lower private
sector sales and declines in work orders with the United States Department
of Defense (DOD), Department of Energy (DOE) and various state agencies.
Net revenues from the DOD and other federal governmental agencies have been
negatively affected by the ongoing budget negotiations and the uncertainty
caused by these delays. Also, private sector sales were adversely impacted
by the current political climate as potential commercial clients waited to
see if Congress would ease existing environmental regulations.
During the first quarter of fiscal year 1996, the Company continued
its focus on expanding its business in the international markets. In
October 1995 the Company was awarded a $6.2 million contract to provide
engineering design and construction management services relating to
wastewater treatment programs to Hubei Province in the People's Republic of
China. There is a lack of basic wastewater treatment infrastructure on the
Asian continent and management has targeted this enormous environmental
problem as a burgeoning market for future business opportunities.
<PAGE>
Net income for the quarter was $544,000, or $.13 per share, down from
the $1.1 million, or $.27 per share, recorded for the same period of the
prior year. The decrease in earnings can be attributed primarily to the
lower net revenues. However, a positive factor in the earnings picture
stems from the streamlining measures that the Company initiated in fiscal
year 1995 and the first quarter of fiscal year 1996 to reduce overhead
costs. As a result of these measures, indirect operating costs in the
first quarter of this fiscal year were down $1.25 million as compared to
the same period of the previous year. The full benefit of these cost
reduction measures will be recognized in subsequent periods.
In the first quarter of fiscal year 1996, the Company's cost reduction
efforts were partially offset by increased proposal costs associated with
the Company's efforts to obtain various U.S. Environmental Protection
Agency (EPA) contracts. As stated in previous quarters, the Company
continues to await decisions by the EPA on the award of these multi-year
contracts. The contracts, worth in excess of one hundred million dollars,
are expected to be awarded in the near future.
<PAGE>
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: December 11, 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> 3-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> OCT-28-1995
<CASH> $9,556,306
<SECURITIES> $5,820,838
<RECEIVABLES> $23,749,677
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT ASSETS> $42,464,558
<PP&E> $13,947,323
<DEPRECIATION> 0
<TOTAL ASSETS> $57,111,969
<CURRENT-LIABILITIES> $9,052,914
<BONDS> $760,416
<COMMON> $17,256,294
0
0
<OTHER-SE> $30,042,345
<TOTAL-LIABILITY-AND-EQUITY> $57,111,969
<SALES> $17,210,020
<TOTAL-REVENUES> $19,758,958
<CGS> 0
<TOTAL-COSTS> $16,392,481
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> $18,922
<INCOME-PRETAX> $976,862
<INCOME-TAX> $432,456
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $544,406
<EPS-PRIMARY> $0.13
<EPS-DILUTED> 0
</TABLE>
