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 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 March 1, 1995, 2,177,784 shares of Registrant's Class A Common Stock
(par value $.01) and 1,840,308 shares of Class B Common Stock (par value $.01)
were outstanding.
<PAGE>
<TABLE>
ECOLOGY AND ENVIRONMENT, INC.
CONSOLIDATED BALANCE SHEET
<CAPTION>
January 27,
1996 July 31,
(Unaudited) 1995
------------- -------------
<S> <C> <C>
Assets
--------
Current assets:
Cash and cash equivalents $7,084,632 $9,658,139
Investment securities available for sale 6,868,914 6,271,982
Contract receivables, net 23,140,399 24,855,471
Other current assets 3,145,600 3,663,079
------------- -------------
Total current assets 40,239,545 44,448,671
Property, building and equipment, net 13,845,267 14,314,301
Other assets 738,636 712,560
------------- -------------
Total assets $54,823,448 $59,475,532
============= =============
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $2,113,615 $4,490,083
Accrued payroll costs 2,589,027 4,428,199
Other accrued liabilities 2,879,414 2,868,431
------------- -------------
Total current liabilities 7,582,056 11,786,713
Long-term debt 738,541 782,291
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 - 2,285,759 and 2,280,176 shares 22,857 22,801
Class B common stock, par value $.01 per
share; authorized - 10,000,000 shares;
issued - 1,878,992 and 1,184,575 shares 18,790 18,846
Capital in excess of par value 17,562,587 17,562,587
Retained earnings 29,796,557 29,491,719
Treasury stock - Class A common, 103,000 and
16,300 shares; Class B common, 26,259 shares,
at cost (897,940) (189,425)
------------- -------------
Total shareholders' equity 46,502,851 46,906,528
------------- -------------
Total liabilities and shareholders' equity $54,823,448 $59,475,532
============= =============
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 Six months ended
------------------ ----------------
January 27, January 28, January 27, January 28,
1996 1995 1996 1995
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Gross revenues $16,275,580 $21,810,712 $36,034,538 $48,132,681
Less: direct subcontract costs 1,824,925 3,037,690 4,373,863 7,422,308
------------ ------------ ------------ ------------
Net revenues 14,450,655 18,773,022 31,660,675 40,710,373
------------ ------------ ------------ ------------
Operating costs and expenses:
Cost of professional services
and other direct operating
expenses 7,914,515 10,566,956 17,523,532 22,602,001
Administrative and indirect
operating expenses 3,677,930 4,261,470 7,855,903 9,549,093
Marketing and related costs 1,986,002 2,491,961 4,170,989 4,818,645
Depreciation 401,768 478,922 822,272 973,377
------------ ------------ ------------ ------------
13,980,215 17,799,309 30,372,696 37,943,116
------------ ------------ ------------ ------------
Income from operations 470,440 973,713 1,287,979 2,767,257
Interest expense 18,194 29,793 37,116 57,124
Interest income 219,196 183,729 397,441 287,896
------------ ------------ ------------ ------------
Income before income taxes 671,442 1,127,649 1,648,304 2,998,029
------------ ------------ ------------ ------------
Income tax provision (benefit):
Federal 209,651 396,822 501,908 1,049,107
State 81,354 89,043 181,711 232,293
Deferred (29,100) (57,276) 10,742 (111,685)
------------ ------------ ------------ ------------
261,905 428,589 694,361 1,169,715
------------ ------------ ------------ ------------
Net income $409,537 $699,060 $953,943 $1,828,314
============ ============ ============ ============
Net income per common share $0.10 $0.17 $0.23 $0.44
===== ===== ===== =====
Weighted average common shares outstanding 4,053,892 4,138,492 4,081,869 4,138,492
============ ============ ============ ============
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>
Six months ended
------------------
January 27, January 28,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $953,943 $1,828,314
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 822,272 973,377
Gain on sale of assets --- (42,435)
Provision for contract adjustments 162,301 38,080
Decrease (increase) in:
- contracts receivable 1,552,771 6,000,482
- other current assets 514,171 (235,446)
Increase (decrease) in:
- accounts payable (2,376,468) (2,629,556)
- accrued payroll costs (1,839,172) (1,000,656)
- other accrued liabilities 10,983 184,417
- income taxes payable --- (170,776)
Other, net (26,076) ---
------------ ------------
Net cash provided by (used in) operating activities (225,275) 4,945,801
------------ ------------
Cash flows provided by (used in) investing activities:
Purchase of property, building and equipment, net (353,800) (1,090,688)
Proceeds from sale of assets --- 50,000
Purchase of investment securities (585,943) (76,537)
------------ ------------
Net cash used in investing activities (939,743) (1,117,225)
------------ ------------
Cash flows used in financing activities:
Dividends paid (656,224) (662,158)
Repayment of long-term debt (43,750) (43,750)
Repurchase of common stock (708,515) ---
------------ ------------
Net cash used in financing activities (1,408,489) (705,908)
------------ ------------
Net increase (decrease) in cash and cash equivalents (2,573,507) 3,122,668
Cash and cash equivalents at beginning of year 9,658,139 4,390,422
------------ ------------
Cash and cash equivalents at end of period $7,084,632 $7,513,090
============ ============
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 January 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
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:
January 27, July 31,
1996 1995
------------ ------------
United States government
Billed $ 8,077,800 $ 7,253,451
Unbilled 9,075,047 9,366,677
------------ ------------
17,152,847 16,620,128
------------ ------------
Industrial customers and state
and municipal governments
Billed 4,029,499 3,904,639
Unbilled 2,501,387 4,876,597
------------ ------------
6,530,886 8,781,236
------------ ------------
Less allowance for contract
adjustments (543,334) (545,893)
------------ ------------
$23,140,399 $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
$3,315,000 at January 27, 1996, and $3,076,000 at July 31, 1995.
Management anticipates that the January 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 $1,356,000 at January 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 $2,618,000 at January 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:
Six months ended
------------------------------
January 27, January 28,
1996 1995
------------- -------------
Statutory rate 34.0% 34.0%
State income taxes, less
federal effect 5.2 4.8
Other 2.9 .2
------------- ------------
42.1% 39.0%
============= ============
<PAGE>
PART I - ITEM 2
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition
As of January 27, 1996, the Company's working capital balance was
$32.7 million, the same amount recorded at July 31, 1995. Cash and cash
equivalents decreased $2.6 million mainly due to investing and financing
activities. Net contracts receivable decreased $1.7 million due to the
decline in revenues although the Company awaited $1.7 million in payments
from the United States Environmental Protection Agency (EPA) pertaining to
fees earned on its Technical Assistance Teams (TAT) Contract. Accounts
payable decreased $2.4 million with most of the decrease resulting from a
decline in subcontractor costs. Accrued payroll costs decreased $1.8
million as compared to the end of fiscal year 1995 due to reductions in
staffing. Also, the Company repurchased 86,700 shares of its Class A
Common Stock at a cost of $.7 million in the first half of fiscal year
1996. This increased the total number of Class A shares repurchased by the
Company since June 1995 to 103,000.
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 January 27, 1996 and none were
required during the first half 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 January 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 second quarter of fiscal year 1996 were $14.5
million, down from the $18.8 million reported in the same period of the
previous year. During the quarter the Company was awarded five regional
EPA superfund contracts worth up to $216 million including all options.
Work on these Superfund Technical Assessment and Response Teams (START)
contracts was delayed three weeks due to the federal government budget
crisis. During this crisis the federal government furloughed many of its
employees and the Company was required to do the same due to the issuance
of stop work orders received under all of its contracts with the EPA
including the newly awarded ones. The Company also experienced declines in
sales with other government agencies such as the Department of Defense
(DOD) and Department of Energy (DOE) and, to a lesser extent, private
industry. The reduction in net revenues from the above mentioned federal
agencies was also due to delays in the appropriation of funding as these
agencies reacted to the budget crisis by freezing funds available for
contractors due to the uncertainty of funding availability.
<PAGE>
Net income for the quarter was $.4 million, or $.10 per share, down
from $.7 million, or $.17 per share, recorded in the second quarter of the
prior year. The second quarter of fiscal year 1996 earnings were adversely
affected by the decrease in net revenues and the disruption of ongoing
contracts due to government shutdowns. On a positive note, the Company was
able to continue to reduce its indirect operating costs compared to the
same quarter last year and the first quarter of the current year.
Overall net revenues for the six months ending January 27, 1996 were
$31.7 million, down from the $40.7 million recorded in the first half of
fiscal year 1995. Net income for the current six month period was $1.0
million, or $.23 per share, as compared to $1.8 million, or $.44 per share
for the previous year.
<PAGE>
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 10K
for its fiscal year ended July 31, 1995 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 18, 1996.
(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, 1996 was approved by the Registrant's shareholders
in the following manner: (i) the holders of Class A Common Stock voted
as follows: 211,276.5 votes were cast in favor, 840.7 votes were cast
against this proposal and 580.2 votes abstained (representing 2,112,765
shares, 8,407 shares and 5,802 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: 1,571,053 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.
<PAGE>
PART II - OTHER INFORMATION (CONTINUED)
Item 5, Other Information.
The Registrant has no information for Item 5 required to be
presented.
Item 6, Exhibits and Reports on Form 8-K.
(a) Not Applicable.
(b) Not Applicable.
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: March 8, 1996 By: S/ Ronald L. Frank
Ronald L. Frank
Executive Vice President
Chief Financial Officer
(Principal Financial
Accounting Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> JAN-27-1996
<CASH> $7,084,632
<SECURITIES> $6,868,914
<RECEIVABLES> $23,140,399
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> $40,239,545
<PP&E> $13,845,267
<DEPRECIATION> 0
<TOTAL-ASSETS> $54,823,448
<CURRENT-LIABILITIES> $7,582,056
<BONDS> $738,541
<COMMON> $16,706,294
0
0
<OTHER-SE> $29,796,557
<TOTAL-LIABILITY-AND-EQUITY> $54,823,448
<SALES> $31,660,675
<TOTAL-REVENUES> $36,034,538
<CGS> 0
<TOTAL-COSTS> $30,372,696
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> $37,116
<INCOME-PRETAX> $1,648,304
<INCOME-TAX> $694,361
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $953,943
<EPS-PRIMARY> $0.23
<EPS-DILUTED> 0
</TABLE>
