<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 April 27, 1996 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 June 1, 1996, 2,160,750 shares of Registrant's Class A Common Stock
(par value $.01) and 1,839,108 shares of Class B Common Stock (par value $.01)
were outstanding.
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<TABLE>
ECOLOGY AND ENVIRONMENT, INC.
CONSOLIDATED BALANCE SHEET
<CAPTION>
April 27,
1996 July 31,
(Unaudited) 1995
------------- -------------
<S> <C> <C>
Assets
--------
Current assets:
Cash and cash equivalents $8,207,025 $9,658,139
Investment securities available for sale 6,526,632 6,271,982
Contract receivables, net 21,511,800 24,855,471
Other current assets 3,128,239 3,663,079
------------- -------------
Total current assets 39,373,696 44,448,671
Property, building and equipment, net 13,673,076 14,314,301
Other assets 661,345 712,560
------------- -------------
Total assets $53,708,117 $59,475,532
============= =============
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $1,337,928 $4,490,083
Accrued payroll costs 2,604,193 4,428,199
Other accrued liabilities 2,783,837 2,868,431
------------- -------------
Total current liabilities 6,725,958 11,786,713
Long-term debt 716,666 782,291
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 - 2,298,609 and 2,280,176 shares 22,986 22,801
Class B common stock, par value $.01 per
share; authorized - 10,000,000 shares;
issued - 1,866,567 and 1,884,575 shares 18,666 18,846
Capital in excess of par value 17,564,985 17,562,587
Retained earnings 29,856,796 29,491,719
Treasury stock - Class A common, 136,900 and
16,300 shares; Class B common, 26,259 shares,
at cost (1,197,940) (189,425)
------------- -------------
Total shareholders' equity 46,265,493 46,906,528
------------- -------------
Total liabilities and shareholders' equity $53,708,117 $59,475,532
============= =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
ECOLOGY AND ENVIRONMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine months ended
------------------
April 27, April 29,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $1,014,182 $2,020,715
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,251,520 1,474,048
Gain on sale of assets --- (42,435)
Provision for contract adjustments 92,956 (565,076)
Decrease (increase) in:
- contracts receivable 3,250,715 11,963,637
- other current assets 534,840 (357,152)
Increase (decrease) in:
- accounts payable (3,152,155) (2,582,165)
- accrued payroll costs (1,824,006) (1,663,401)
- other accrued liabilities (84,594) (439,158)
- income taxes payable --- (170,776)
Other, net 51,215 (43,084)
------------- -------------
Net cash provided by operating activities 1,134,673 9,595,153
------------- -------------
Cash flows provided by (used in) investing activities:
Purchase of property, building and equipment, net (611,762) (1,393,297)
Proceeds from sale of assets --- 50,000
Purchase of investment securities (243,661) (118,342)
------------- -------------
Net cash used in investing activities (855,423) (1,461,639)
------------- -------------
Cash flows used in financing activities:
Dividends paid (656,224) (662,158)
Repayment of long-term debt (65,625) (540,626)
Repurchase of common stock (1,008,515) ---
------------- -------------
Net cash used in financing activities (1,730,364) (1,202,784)
------------- -------------
Net increase (decrease) in cash and cash equivalents (1,451,114) 6,930,730
Cash and cash equivalents at beginning of year 9,658,139 4,390,422
------------- -------------
Cash and cash equivalents at end of period $8,207,025 $11,321,152
============= =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
ECOLOGY & ENVIRONMENT, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<CAPTION>
Three months ended Nine months ended
------------------ -----------------
April 27, April 29, April 27, April 29,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross revenues $15,797,271 $20,962,520 $51,831,809 $69,095,201
Less: direct subcontract costs 1,257,456 2,493,653 5,631,319 9,915,961
------------ ------------ ------------ ------------
Net revenues 14,539,815 18,468,867 46,200,490 59,179,240
------------ ------------ ------------ ------------
Operating costs and expenses:
Cost of professional services
and other direct operating
expenses 7,545,913 10,284,516 25,069,445 32,886,517
Administrative and indirect
operating expenses 4,311,874 4,825,533 12,167,777 14,374,626
Marketing and related costs 2,101,718 2,683,389 6,272,707 7,502,034
Depreciation 429,248 500,671 1,251,520 1,474,048
------------ ------------ ------------ ------------
14,388,753 18,294,109 44,761,449 56,237,225
------------ ------------ ------------ ------------
Income from operations 151,062 174,758 1,439,041 2,942,015
Interest expense 16,888 25,643 54,004 82,767
Interest income 190,717 180,174 588,158 468,070
Net foreign exchange loss 122,666 --- 122,666 ---
------------ ------------ ------------ ------------
Income before income taxes 202,225 329,289 1,850,529 3,327,318
------------ ------------ ------------ ------------
Income tax provision (benefit):
Federal 121,432 (86,178) 623,340 962,929
State 59,610 34,593 241,321 266,886
Deferred (39,056) 188,473 (28,314) 76,788
------------ ------------ ------------ ------------
141,986 136,888 836,347 1,306,603
------------ ------------ ------------ ------------
Net income $60,239 $192,401 $1,014,182 $2,020,715
============ ============ ============ ============
Net income per common share $0.02 $0.05 $0.25 $0.49
===== ===== ===== =====
Weighted average common shares outstanding 4,010,063 4,138,492 4,057,934 4,138,492
============ ============ ============ ============
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 April 27, 1996 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
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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 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:
April 27, July 31,
1996 1995
------------ ------------
United States government
Billed $ 8,909,055 $ 7,253,451
Unbilled 6,324,813 9,366,677
------------ ------------
15,233,868 16,620,128
------------ ------------
Industrial customers and state
and municipal governments
Billed 4,100,612 3,904,639
Unbilled 2,740,204 4,876,597
------------ ------------
6,840,816 8,781,236
------------ ------------
Less allowance for contract
adjustments (562,884) (545,893)
------------ ------------
$21,511,800 $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
$2,142,000 at April 27, 1996, and $3,076,000 at July 31, 1995.
Management anticipates that the April 27, 1996 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 $1,326,000 at April 27, 1996 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
$2,504,000 at April 27, 1996 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:
Nine months ended
------------------------------
April 27, April 29,
1996 1995
------------- -------------
Statutory rate 34.0% 34.0%
State income taxes, less
federal effect 5.2 4.9
Net foreign exchange loss 2.8 ---
Other 3.2 .3
------------- ------------
45.2% 39.2%
============= ============
<PAGE>
PART I - ITEM 2
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition
As of April 27, 1996, the Company's working capital balance was
$32.6 million as compared to $32.7 million at July 31, 1995. Cash and
cash equivalents decreased $1.5 million mainly due to financing
activities. Net contracts receivable decreased $3.3 million due to the
decline in revenues. Accrued payroll costs decreased $1.8 million as
compared to the end of fiscal year 1995 due to reductions in staffing.
The Company repurchased 120,600 shares of its Class A Common Stock at a
cost of $1.0 million in the first three quarters of fiscal year 1996.
This increased the total number of Class A shares repurchased by the
Company since June 1995 to 136,900.
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 April 27, 1996 and none were
required during 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 April 27, 1996. 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.
Results of Operations
Net revenues for the third quarter of fiscal year 1996 were $14.5
million, down from the $18.5 million reported in the same period of the
previous year. During the quarter, net revenues continued to be
adversely affected by the federal government budget impasse which was
finally resolved on April 26, 1996. In the second quarter of fiscal
<PAGE>
year 1996, the Company was awarded five regional United States
Protection Agency (EPA) superfund contracts worth up to $216 million
provided the EPA were to exercise all contract options. However, the
continuation of the government budget problems throughout the entire
reporting period restricted the availability of funding to the EPA and,
consequently, limited the number of options that the agency could
exercise under the above contracts. The Company also experienced
declines in net revenues from other federal and state government
agencies as these agencies slowed their procurement plans. On a
positive note, the new federal budget that was recently passed provides
for funding of approximately $ 1.3 billion to EPA superfund projects.
This amount is approximately $200 million greater than the interim
budget that the agency had been working under and provides funding
through September 1996.
Net income for the third quarter was $60,000, or $.02 per share,
down from the $192,000, or $.05 per share, recorded in the third quarter
of the prior year. The third quarter of fiscal year 1996 earnings were
negatively affected primarily by the decrease in net revenues. Also, in
accordance with Statement of Financial Accounting Standards No. 52
"Foreign Currency Translation" (SFAS No. 52), the Company recognized a
foreign exchange loss of approximately $123,000, or $.03 per share,
relating to its Venezuelan subsidiary. The Company was required to
record this loss under SFAS No. 52 due to the highly inflationary
economy in that country. Part of that loss was offset by favorable
negotiation of final indirect rates applicable to federal government
contracts covering fiscal year 1987 which increased reported earnings
per share for the quarter by $.02. Also, the Company's continued
efforts to reduce its indirect operating costs are reflected by the $1.1
million decrease in these expenses during the third quarter of fiscal
year 1996 as compared to the same quarter last year.
Overall net revenues for the nine months ending April 27, 1996 were
$46.2 million, down from the $59.2 million recorded in the same period
of the prior year. Net income for the current nine month period was
$1.0 million, or $.25 per share, as compared to $2.0 million, or $.49
per share for the previous year.
<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: June 11, 1996 By:
Ronald L. Frank
Executive Vice President
Chief Financial Officer
(Principal Financial
Accounting Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> APR-27-1996
<CASH> $8,207,025
<SECURITIES> $6,526,632
<RECEIVABLES> $21,511,800
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> $39,373,696
<PP&E> $13,673,076
<DEPRECIATION> 0
<TOTAL-ASSETS> $53,708,117
<CURRENT-LIABILITIES> $6,725,958
<BONDS> $716,666
<COMMON> $16,408,700
0
0
<OTHER-SE> $29,856,796
<TOTAL-LIABILITY-AND-EQUITY> $53,708,117
<SALES> $46,200,490
<TOTAL-REVENUES> $51,831,809
<CGS> 0
<TOTAL-COSTS> $44,761,449
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> $54,004
<INCOME-PRETAX> $1,850,529
<INCOME-TAX> $836,347
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $1,014,182
<EPS-PRIMARY> $0.25
<EPS-DILUTED> 0
</TABLE>
