<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 26, 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 December 1, 1996, 2,129,972 shares of Registrant's Class A Common Stock
(par value $.01) and 1,833,758 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 26,
1996 July 31,
(Unaudited) 1996
------------- -------------
<S> <C> <C>
Assets
--------
Current assets:
Cash and cash equivalents $6,125,188 $8,080,524
Investment securities available for sale 6,943,293 6,502,804
Contract receivables, net 24,143,117 23,696,036
Other current assets 2,881,805 3,126,539
------------- -------------
Total current assets 40,093,403 41,405,903
Property, building and equipment, net 13,299,183 13,473,227
Other assets 698,642 695,890
------------- -------------
Total assets $54,091,228 $55,575,020
============= =============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $2,396,102 $3,134,862
Accrued payroll costs 3,091,879 4,120,264
Other accrued liabilities 2,285,361 2,157,556
------------- -------------
Total current liabilities 7,773,342 9,412,682
Long-term debt 672,916 694,791
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 - 2,306,172 and 2,304,747 shares 23,061 23,047
Class B common stock, par value $.01 per
share; authorized - 10,000,000 shares;
issued - 1,863,817 and 1,865,242 shares 18,638 18,652
Capital in excess of par value 17,591,436 17,591,436
Retained earnings 29,559,775 29,332,352
Treasury stock - Class A common, 174,500 and
169,000 shares; Class B common, 26,259
shares in 1997 and 1996, at cost (1,547,940) (1,497,940)
------------- -------------
Total shareholders' equity 45,644,970 45,467,547
------------- -------------
Total liabilities and shareholders' equity $54,091,228 $55,575,020
============= =============
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
------------------
October 26, October 28,
1996 1995
------------ ------------
<S> <C> <C>
Gross revenues $16,752,137 $19,758,958
Less: direct subcontract costs 2,610,912 2,548,938
------------ ------------
Net revenues 14,141,225 17,210,020
------------ ------------
Operating costs and expenses:
Cost of professional services
and other direct operating
expenses 8,056,713 9,609,017
Administrative and indirect
operating expenses 3,647,381 4,177,973
Marketing and related costs 1,823,492 2,184,987
Depreciation 401,239 420,504
------------ ------------
13,928,825 16,392,481
------------ ------------
Income from operations 212,400 817,539
Interest expense 15,996 18,922
Interest income 184,149 178,245
------------ ------------
Income before income taxes 380,553 976,862
------------ ------------
Income tax provision (benefit):
Federal 91,919 292,257
State 25,389 100,357
Deferred 35,822 39,842
------------ ------------
153,130 432,456
------------ ------------
Net income $227,423 $544,406
============ ============
Net income per common share $0.06 $0.13
===== =====
Weighted average common shares outstanding 3,968,738 4,116,692
============ ============
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>
Three months ended
------------------
October 26, October 28,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $227,423 $544,406
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 401,239 420,504
(Benefit) Provision for contract adjustments (33,675) 118,451
(Increase) decrease in:
- contracts receivable (413,406) 987,343
- other current assets 244,734 322,072
Increase (decrease) in:
- accounts payable (738,760) (2,036,414)
- accrued payroll costs (1,028,385) (744,727)
- other accrued liabilities 127,805 47,342
Other, net (2,752) 12,472
------------- -------------
Net cash used in operating activities (1,215,777) (328,551)
------------- -------------
Cash flows provided by (used in) investing activities:
Purchase of property, building and equipment, net (227,195) (53,526)
Purchase of investment securities (440,489) (39,515)
Proceeds from sale of investment securities --- 500,149
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Net cash provided by (used in) investing activities (667,684) 407,108
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Cash flows used in financing activities:
Repayment of long-term debt (21,875) (21,875)
Repurchase of common stock (50,000) (158,515)
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Net cash used in financing activities (71,875) (180,390)
------------- -------------
Net decrease in cash and cash equivalents (1,955,336) (101,833)
Cash and cash equivalents at beginning of year 8,080,524 9,658,139
------------- -------------
Cash and cash equivalents at end of year $6,125,188 $9,556,306
============= =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
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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 26, 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, 1996 audited financial
statements.
b. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
c. 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 1989 and are currently in process for fiscal years 1990
through 1992. The majority of the balance in the allowance for
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contract adjustments accounts represents a reserve against possible
adjustments for fiscal years 1990 through 1997.
d. 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
taxes payable or refundable in future years, based upon tax laws
currently in effect.
e. 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 26, July 31,
1996 1996
------------ ------------
United States government
Billed $ 7,273,146 $ 7,720,240
Unbilled 6,807,984 6,956,133
------------ ------------
14,081,130 14,676,373
------------ ------------
Industrial customers and state
and municipal governments
Billed 6,685,028 6,174,195
Unbilled 4,151,143 3,837,327
------------ ------------
10,836,171 10,011,522
------------ ------------
Less allowance for contract
adjustments (774,184) (991,859)
------------ ------------
$24,143,117 $23,696,036
============ ============
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 contract costs incurred and fees earned of
approximately $2,556,000 at October 26, 1996, and $2,907,000 at
<PAGE>
July 31, 1996. Management anticipates that the October 26, 1996
unbilled receivables will be substantially billed and collected in
fiscal year 1997. Within the above billed balances are contractual
retainages in the amount of approximately $1,531,727 at October 26,
1996 and $1,457,000 at July 31, 1996. Included in other accrued
liabilities is an additional allowance for contract adjustments
relating to potential cost disallowances on amounts billed and
collected of approximately $2,032,000 at October 26, 1996 and
$1,848,000 at July 31, 1996.
3. Income Taxes
The provision for income taxes differs from the federal statutory
rate due to the following:
Three months ended
------------------------------
October 26, October 28,
1996 1995
------------- -------------
Statutory rate 34.0% 34.0%
State income taxes, less
federal effect 5.5 4.2
Other .7 6.1
------------- ------------
40.2% 44.3%
============= ============
<PAGE>
PART I - ITEM 2
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition
As of October 26, 1996, the Company's working capital balance
increased $.3 million to $32.3 million as compared to $32.0 million at
July 31, 1996. Cash and cash equivalents decreased $2.0 million primarily
as a result of the payment of accrued payroll costs and accounts payable
and the Company's investment and financing activities. The Company's
investment securities available for sale and net contracts receivable both
increased $.4 million while other current assets decreased $.2 million.
Accounts payable decreased $.7 million while other accrued liabilities
increased $.1 million. Accrued payroll costs decreased $1.0 million mainly
due to the timing of the above reporting periods versus actual payment of
the Company payroll. In June 1995, the Board of Directors authorized the
Company to repurchase up to 200,000 shares of its Class A common stock on
the open market. As of October 26, 1996, 174,500 shares had been
repurchased.
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 26, 1996 and none were required during
the first quarter of fiscal year 1997. The Company has financed its
activities through cash flows from operations. Internally generated funds
have been adequate to support the demands for working capital, the purchase
of new fixed assets and the payment of dividends. There are no significant
working requirements pending at October 26, 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 first quarter of fiscal year 1997 were $14.1
million, down from the $17.2 million recorded for the first quarter of
fiscal year 1996. The decrease in net revenues was due to a decrease in
sales from the Company's United States Environmental Protection
Agency (EPA) superfund contracts. During the second quarter of fiscal year
1996, the EPA awarded the Company five regional Superfund Technical
Assistance and Response Teams (START) contracts which replaced its
Technical Assistance Teams (TAT) contract that expired in December 1996.
The current superfund contracts, which include START and the Alternative
Remedial Contract Strategy (ARCS) contracts, generated approximately $3.7
million less in net revenues in the first quarter of fiscal year 1997 than
was realized from the START, TAT and ARCS superfund contracts in the first
quarter of last year. This was primarily due to the fact that the staffing
under the new START contracts was constrained early on due to the federal
government budget problems. The Company anticipates that the sales volume
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from these contracts will grow as funds become available. The EPA also
adopted stricter guidelines for determining the amount of award fee dollars
that its contractors can earn for specific periods of performance.
Consequently, these new guidelines negatively impacted the Company's first
quarter net income derived from two of the five START contracts that
contain award fee provisions.
The Company's first quarter net revenues from its international
business increased significantly versus the same period of the prior year.
The organization continued its successful expansion of business ventures in
various foreign countries such as Germany, Venezuela, Kuwait, China and
Israel. However, the growth in business from the international markets was
not sufficient to offset the decline in EPA superfund sales.
Net income for the quarter was $227,000, or $.06 per share, down from
the $544,000, or $.13 per share, recorded in the first quarter of fiscal
year 1996. The decrease in earnings can be attributed to the aforementioned
decline in net revenues from EPA superfund contracts. However, a positive
aspect of the earnings picture involves the Company's continued success to
streamline the organization and reduce costs. Indirect operating costs were
down approximately $900,000 as compared to the same period of 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: December 9, 1996 By: /s/ Ronald L. Frank
Ronald L. Frank
Executive Vice President
Chief Financial Officer
(Principal Financial
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1996
<PERIOD-END> OCT-26-1996
<CASH> $6,125,188
<SECURITIES> $6,943,293
<RECEIVABLES> $24,143,117
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> $40,093,403
<PP&E> $13,299,183
<DEPRECIATION> 000
<TOTAL-ASSETS> $54,091,228
<CURRENT-LIABILITIES> $7,773,342
<BONDS> $672,916
<COMMON> $16,085,195
000
000
<OTHER-SE> $29,559,775
<TOTAL-LIABILITY-AND-EQUITY> $54,091,228
<SALES> $14,141,225
<TOTAL-REVENUES> $16,752,137
<CGS> 000
<TOTAL-COSTS> $13,928,825
<OTHER-EXPENSES> 000
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> $15,996
<INCOME-PRETAX> $380,553
<INCOME-TAX> $153,130
<INCOME-CONTINUING> 000
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> $227,423
<EPS-PRIMARY> $0.06
<EPS-DILUTED> 000
</TABLE>
