<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 26, 1997 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, 1997, 2,117,523 shares of Registrant's Class A Common Stock
(par value $.01) and 1,832,307 shares of Class B Common Stock (par value
$.01) were outstanding.
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<TABLE>
Ecology & Environment, Inc
Consolidated Balance Sheet
<CAPTION>
April 26, 1997
(Unaudited) July 31, 1996
-------------- -------------
<S> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $ 5,591,808 $ 8,080,524
Investment securities available for sale 6,976,763 6,502,804
Contract receivables, net 22,856,581 23,696,036
Other current assets 2,536,649 3,126,539
------------ ------------
Total current assets 37,961,801 41,405,903
Property, building and equipment, net 13,003,919 13,473,227
Other assets 888,620 695,890
------------ ------------
Total assets $51,854,340 $55,575,020
============ ============
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $ 1,079,277 $ 3,134,862
Accrued payroll costs 3,117,494 4,120,264
Other accrued liabilities 2,334,423 2,157,556
------------ ------------
Total current liabilities 6,531,194 9,412,682
Long-term debt 629,166 694,791
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 - 2,308,547 and 2,304,747 shares 23,085 23,047
Class B common stock, par value $.01 per
share; authorized - 10,000,000 shares;
issued - 1,861,442 and 1,865,242 shares 18,614 18,652
Capital in excess of par value 17,591,436 17,591,436
Retained earnings 28,733,785 29,332,352
Treasury stock - Class A common, 194,400 and
169,000 shares; Class B common, 26,259
shares in 1997 and 1996, at cost (1,672,940) (1,497,940)
------------ ------------
Total shareholders' equity 44,693,980 45,467,547
------------ ------------
Total liabilities and shareholders' equity $51,854,340 $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 Nine months ended
------------------------- --------------------------
April 26, April 27, April 26, April 27,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross revenues $17,601,155 $15,797,271 $51,273,018 $51,831,809
Less: direct subcontract costs 2,501,745 1,257,456 8,503,387 5,631,319
------------ ------------ ------------ ------------
Net revenues 15,099,410 14,539,815 42,769,631 46,200,490
------------ ------------ ------------ ------------
Operating costs and expenses:
Cost of professional services and
other direct operating expenses 9,047,654 7,545,913 24,849,195 25,069,445
Administrative and indirect operating
expenses 4,021,054 4,311,874 11,126,800 12,167,777
Marketing and related costs 2,074,013 2,101,718 5,877,531 6,272,707
Depreciation 374,110 429,248 1,174,171 1,251,520
------------ ------------ ------------ ------------
Total operating costs & expenses 15,516,831 14,388,753 43,027,697 44,761,449
------------ ------------ ------------ ------------
Income / (loss) from operations (417,421) 151,062 (258,066) 1,439,041
Interest expense 19,290 16,888 50,914 54,004
Interest income 182,151 190,717 548,684 588,158
Net foreign exchange loss --- 122,666 --- 122,666
------------ ------------ ------------ ------------
Income / (loss) before income taxes (254,560) 202,225 239,704 1,850,529
------------ ------------ ------------ ------------
Income tax provision (benefit):
Federal (45,505) 121,432 113,493 623,340
State (13,501) 59,610 26,920 241,321
Deferred 12,369 (39,056) 64,957 (28,314)
------------ ------------ ------------ ------------
(46,637) 141,986 205,370 836,347
------------ ------------ ------------ ------------
Net income / (loss) $(207,923) $60,239 $34,334 $1,014,182
============ ============ ============ ============
Net income / (loss) per common share $(0.05) $0.02 $0.01 $0.25
======= ====== ===== =====
Weighted average common shares outstanding 3,949,330 4,010,063 3,958,640 4,057,934
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
Ecology & Environment, Inc
Consolidated Statement of Cash Flows
(Unaudited)
<CAPTION>
Nine months ended
-------------------------
April 26, April 27,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 34,334 $1,014,182
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 1,174,171 1,251,520
Provision for contract adjustments 19,475 92,956
Decrease in:
- contracts receivable 819,980 3,250,715
- other current assets 589,890 534,840
Increase (decrease) in:
- accounts payable (2,055,585) (3,152,155)
- accrued payroll costs (1,002,770) (1,824,006)
- other accrued liabilities 176,867 (84,594)
Other, net (44,334) 51,215
------------ ------------
Net cash provided by (used in) operating activities (287,972) 1,134,673
------------ ------------
Cash flows used in investing activities:
Purchase of property, building and equipment, net (704,863) (611,762)
Purchase of investment securities (473,959) (243,661)
Investment in China joint venture (148,396) ---
------------ ------------
Net cash used in investing activities (1,327,218) (855,423)
------------ ------------
Cash flows used in financing activities:
Dividends Paid (632,901) (656,224)
Repayment of long-term debt (65,625) (65,625)
Repurchase of common stock (175,000) (1,008,515)
------------ ------------
Net cash used in financing activities (873,526) (1,730,364)
------------ ------------
Net decrease in cash and cash equivalents (2,488,716) (1,451,114)
Cash and cash equivalents at beginning of period 8,080,524 9,658,139
------------ ------------
Cash and cash equivalents at end of period $5,591,808 $8,207,025
============ ============
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 two Chinese operating joint ventures,
Beijing Yi Yi Ecology and Engineering Co. Ltd. and The Tianjin
Green Engineering Company. These joint ventures are accounted for
under the equity method. All significant intercompany transactions
and balances have been eliminated. The consolidated balance sheet
at April 26, 1997 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. In fiscal year 1997 the effective tax rate
was adversely affected by non-tax deductible losses from the
Company's international subsidiaries.
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:
April 26, July 31,
1997 1996
------------ ------------
United States government
Billed $ 5,651,846 $ 7,720,240
Unbilled 8,197,696 6,956,133
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13,849,542 14,676,373
------------ ------------
Industrial customers and state
and municipal governments
Billed 5,381,073 6,174,195
Unbilled 4,446,640 3,837,327
------------ ------------
9,827,713 10,011,522
------------ ------------
Less allowance for contract
adjustments (820,674) (991,859)
------------ ------------
$22,856,581 $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
<PAGE>
year-to-date actual contract costs incurred and fees earned of
approximately $2,307,000 at April 26, 1997, and $2,907,000 at
July 31, 1996. Management anticipates that the April 26, 1997
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 $1,478,000 at April 26,
1997 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 $2,028,000 at April 26, 1997 and
$1,848,000 at July 31, 1996.
3. Earnings Per Share
In February 1997, Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings Per Share" was issued. SFAS No. 128 alters the
computation and presentation of reported earnings per share. The
statement is required to be adopted for the interim reporting period
ending in January 1998. Earlier application is not permitted. The
Company estimates that SFAS No. 128 will not to have a material effect
on reported earnings per share.
<PAGE>
PART I - ITEM 2
_______________
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition
___________________
As of April 26, 1997, the Company's working capital balance decreased
$.6 million to $31.4 million as compared to $32.0 million at
July 31, 1996. Net contracts receivable decreased $.8 million primarily
because the Company awaited fee payments from its Technical Assistance
Teams (TAT) contract with the United States Environmental Protection Agency
(EPA) at July 31, 1996 which were received during the first quarter of
fiscal year 1997. Cash and cash equivalents decreased $2.5 million
principally due to the payment of liabilities, the purchase of equipment
and the payment of dividends. Accounts payable decreased $2.1 million due
primarily to the timing of payments. Accrued payroll costs decreased $1.0
million mainly due to the final payment of benefits under the defined
benefit pension plan which was terminated in fiscal year 1996 and payments.
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
April 26, 1997, 194,400 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 April 26, 1997 and none were
required during 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
capital requirements pending at April 26, 1997. 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 1997 were $15.1
million, up from the $14.5 million recorded for the third quarter of fiscal
year 1997. The increase in net revenues was due to a $1.9 million increase
in net sales recognized from the Company's United States Environmental
Protection Agency (EPA) superfund contracts. During the third quarter of
fiscal year 1997, net revenues derived from the Company's five regional
Superfund Technical Assistance and Response Teams (START) contracts were
greater than sales realized from its START contracts, their predecessor
Technical Assistance Teams (TAT) contract and the Alternative Remedial
Contract Strategy (ARCS) contracts.
<PAGE>
The Company's net revenues from international projects was up
substantially in fiscal year 1997 versus 1996. Although those revenues
still account for slightly less than 10% of total Company net revenues,
they remain the fastest growing segment of the Company's business. During
the third quarter of fiscal year 1997, the Company was awarded a $4.9
million World Bank contract to provide environmental and infrastructure
services to China's Yunnan Province, a $15 million contract with the New
York State Department of Environmental Conservation (DEC) to support the
State's program for remediation of abandoned hazardous waste sites and the
first contract under the 1996 New York State Clean Water/Clean Air Bond Act
to design a plan for the repair and maintenance of the Rush landfill near
Rochester, NY.
The Company reported a net loss of $208,000, or a loss of $.05 per
share, in the third quarter of fiscal year 1997, down from net income of
$60,000, or $.02 per share, recorded in the same period last year. The
decrease in net income can be attributed to the decline in operating
margins earned from the START contracts this quarter versus the margins
recognized from these contracts and their predecessor Technical Assistance
Teams (TAT) contract last year. Third quarter of fiscal year 1997 START
operating margins were negatively impacted by certain contractual discount
provisions offered by the Company due to the competitive environment in the
industry. Also, START contract award fees earned by the Company were lower
than anticipated as the EPA has instituted certain unilateral guidelines
for determining the amount of award fee dollars that contractors can earn
for specific periods of performance.
The Company continued to reduce its indirect operating costs during
the quarter. The third quarter of fiscal year 1997 marked the tenth
consecutive quarter that indirect operating costs decreased as compared to
the same quarter of the previous year. Reductions amounting to
approximately $1.0 million per year were made in the third quarter of 1997.
Overall net revenues for the nine months ending April 26, 1997 were
$42.8 million, down from the $46.2 million recorded in the same period of
fiscal year 1996. Net income for the current nine month period was $34,000,
or $.01 per share, as compared to $1.0 million, or $.25 per share, for the
same nine month 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: June 10, 1997 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-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> APR-26-1997
<CASH> $5,591,808
<SECURITIES> $6,976,763
<RECEIVABLES> $22,856,581
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> $37,961,801
<PP&E> $13,003,919
<DEPRECIATION> 000
<TOTAL-ASSETS> $51,854,340
<CURRENT-LIABILITIES> $6,531,194
<BONDS> $629,166
<COMMON> $15,960,195
000
000
<OTHER-SE> $28,733,785
<TOTAL-LIABILITY-AND-EQUITY> $51,854,340
<SALES> $42,769,631
<TOTAL-REVENUES> $51,273,018
<CGS> 000
<TOTAL-COSTS> $43,027,697
<OTHER-EXPENSES> 000
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> $50,914
<INCOME-PRETAX> $239,704
<INCOME-TAX> $205,370
<INCOME-CONTINUING> 000
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> $34,334
<EPS-PRIMARY> $0.01
<EPS-DILUTED> 000
</TABLE>
