<PAGE>
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
F O R M 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1997
or
[ ] TRANSITION REPORT REQUIRED PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________.
Commission file number 1-9065
Ecology and Environment, Inc.
(Exact name of registrant as specified in its charter)
NEW YORK 16-0971022
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
368 Pleasant View Drive, Lancaster, New York 14086
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (716) 684-8060
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on Which Registered
Class A Common Stock, American Stock Exchange, Inc.
par value $.01 per share
Securities registered pursuant to Section 12(g) of the Act.
None
(Title of Class)
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 ___
Exhibit Index on Page 43
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Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in part III of this Form
10-K or any amendments to this Form 10-K.
X
As of September 30, 1997, 2,126,202 shares of the registrant's
Class A Common Stock, $.01 par value (the "Class A Common Stock") were
outstanding, and the aggregate market value (based on the closing price as
quoted by the American Stock Exchange on September 30, 1997) of the Class A
Common Stock held by nonaffiliates of the registrant was approximately
$19,687,969. As of the same date, 1,823,128 shares of the registrant's
Class B Common Stock, $.01 par value ("Class B Common Stock") were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Registration Statement on Form S-1,
as amended by Amendment Nos. 1 and 2 (Registration No. 33-11543) as well as
portions of the Company's Form 10-K for Fiscal Years ending July 31, 1988,
July 31, 1990 and July 31, 1994 are incorporated by reference in Part IV of
this Form 10-K.
<PAGE>
TABLE OF CONTENTS
INDEX
PART I
Page
Item 1. BUSINESS 5
General 5
START Contracts 5
Task Order Contracts 6
Hazardous Material Services 6
Environmental Consulting Services 6
Analytical Laboratory Services 8
Regulatory Background 8
Potential Liability and Insurance 10
Market and Customers 10
Backlog 11
Competition 11
Employees 11
Item 2. PROPERTIES 11
Item 3. LEGAL PROCEEDINGS 12
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 12
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA 14
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 15
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 18
Item 9. DISAGREEMENTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES 36
<PAGE>
PART III
Page
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 36
Item 11. EXECUTIVE COMPENSATION 37
Item 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS 40
SECURITY OWNERSHIP OF MANAGEMENT 41
Item 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS 44
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS 44
<PAGE>
PART I
Item 1. BUSINESS
General
Ecology and Environment, Inc. ("EEI" or the "Company") is a broad
based environmental consulting and testing firm whose underlying philosophy
is to provide professional services worldwide so that sustainable economic
and human development may proceed with minimum negative impact on the
environment. The Company offers a broad range of environmental consulting
services including: environmental audits; environmental impact
assessments; terrestrial, aquatic and marine surveys; air quality
management and air toxics pollution control; environmental engineering;
noise pollution evaluations; wastewater analyses; water pollution control;
industrial hygiene and occupational health studies; archaeological and
cultural resource studies; environmental infrastructure planning, air,
water and groundwater monitoring and analytical laboratory services.
The Company employs over 75 separate disciplines embracing the
physical, biological, social and health sciences. The Company was
incorporated in February, 1970. Its principal offices are located at 368
Pleasant View Drive, Lancaster, New York and its telephone number is
716-684-8060.
START Contracts
In December 1995, the Environmental Protection Agency ("EPA")
awarded the Company five (5) regional Superfund Technical Assessment and
Response Teams ("START") superfund contracts to provide technical expertise
in support of its hazardous waste spill response, removal and prevention
programs in the midwestern and western United States. The Company is
required to provide round the clock assistance to the EPA at spill sites
within the midwestern and western United States and, in certain instances,
may be required to respond to an emergency in other areas of the country.
The START contracts are each level of effort and cost plus
contracts. Two (2) of the five (5) START contracts also contain award fee
provisions. The EPA has estimated that a certain number of labor hours are
necessary to fulfill the requirements of the contracts, and has agreed to
compensate the Company for maintaining an available work force to fulfill
those hour requirements. All of the contracts contain a base fee amount.
In addition to the base amount, the contracts with award fee provisions pay
an award amount. The base amount is fixed in the contract and the award
amount is determined by the EPA based upon its evaluation of the quality of
the Company's services.
The total contract value of the five (5) START contracts, if the
EPA exercises all options within each of them, is $216 million. The base
value of the five (5) START contracts over five years is approximately
$93.0 million. The Company, as of July 31, 1997, has realized total net
revenues of approximately $34.5 million under these contracts.
<PAGE>
The START contracts each have a term of five (5) years. However,
they contain termination provisions under which the EPA may, without
penalty, terminate the contract upon written notice to the Company. In the
event of termination, the Company would be paid only termination costs in
accordance with the contract.
Task Order Contracts
The Company has numerous task order contracts with state and
federal governmental agencies which contain indefinite order quantities or
option periods ranging from two to ten years. The maximum potential gross
revenues included in these contracts is approximately $351.0 million.
Hazardous Material Services
Introduction. EEI has conducted hazardous waste site evaluations
throughout the United States. In conducting these site evaluations, the
Company provides site investigation (e.g., geophysical surveys, monitoring
well installation, and sample collection and analysis), engineering design,
and operation and maintenance for a wide range of industrial and
governmental clients. In providing such services, the Company inventories
and collects sample materials on site and then evaluates waste management
practices, potential off-site impacts and liability concerns. EEI then
recommends and designs clean up programs and assists in the implementation
and monitoring of those clean up programs.
Field Investigation. The Company's field investigation services
primarily involve the development of work plans, health and safety plans
and quality assurance and quality control plans to govern field
investigations and conduct such field investigations to define the nature
and extent of contaminants at a site.
Engineering Services. After field investigation services have
been completed and the necessary approvals obtained, the Company's
engineering specialists develop plans and specifications for remedial clean
up activities. This work includes the development of methods and standard
operating procedures to assess contamination problems, and to identify,
develop and design appropriate pollution control schemes. Alternative
clean up strategies are evaluated and conceptual engineering approaches are
formulated. The Company also provides supervision of actual cleanup or
remedial construction work performed by other contractors.
Environmental Consulting Services
The Company's staff includes various individuals with advanced
degrees representing over 75 scientific and engineering disciplines which
relate to the identification, quantification, analysis, and remediation of
hazards to the environment. The Company has rendered consulting services
to industrial and government clients in the following areas:
Hazard and Risk Analysis. EEI has provided analyses of the
hazards and risks of energy transportation to facility designers,
contractors, and operators for over fifteen years. The Company has
developed a proprietary hazardous material exposure model which determines
<PAGE>
the impact of potential energy facility accidents on a plant and its
employees, as well as on the people and property in the surrounding
community. EEI's hazard and risk analyses have considered such factors as
the physics of brittle fractures, flammable vapor clouds, cryogenic liquid
release and containment, thermal radiation effects, and replacement and
rerouting strategies. In addition, the Company provides risk analysis for
hazardous and toxic material spills and releases as required under CERCLA
and RCRA. These analyses have evaluated human and ecological risks posed
by contaminants in rural and urban settings, and coastal, riverain, wetland
and upland environments throughout the United States.
Underground Storage Tank Management. The 1984 amendments to RCRA
created special provisions for the regulation of underground storage tanks.
Extensive federal regulations were promulgated in late 1988 which include
notification provisions, strict requirements for tank design and
installation, leak detection and monitoring and financial responsibility.
The Company's staff includes various individuals experienced in
hydrogeology, engineering and the evaluation of tank facilities for
existing and potential leakage. EEI's services also include analyzing the
corrosive potential of underground tanks, monitoring adjacent ground water,
performing soil gas monitoring or other geophysical procedures requiring
the use of drilling equipment, and establishing monitoring programs to
verify the effectiveness of mitigative programs and the status of properly
functioning tanks. EEI also designs tank removal, replacement and
monitoring programs.
Environmental Assessments. In response to the requirements of
NEPA and other state environmental laws, EEI has provided environmental
evaluation services to both the government and the private sector for more
than 27 years. As part of the environmental evaluation process, EEI
assists clients in evaluating and developing methods to avoid or mitigate
the potential environmental impacts of a proposed project and to help
ensure that the project complies with regulatory requirements. EEI's
services include air and water quality analysis, terrestrial and aquatic
biological surveys, threatened and endangered species surveys and wetland
delineations, social economic studies, transportation analyses and land use
planning.
Archeological Surveys. The National Historic Preservation Act
(1966), Executive Order 11593 (1971), and NEPA require that developers of
certain projects requiring federal funding, licensing, or approval consider
the potential adverse effects of their projects on cultural resources. In
accordance with these regulations, EEI's archaeologists conduct documentary
background research and field investigations to determine the presence of
cultural resources within proposed project areas and design plans to
mitigate adverse impacts on the resources prior to project development.
Emergency Spill Response Management. The Company has developed a
twenty-four hour emergency spill response subscription program for
industrial clients. This program generally consists of the development of
a clean up plan and supervision of the clean up and disposal operations.
These functions are generally performed by dispatching a response team to
the site. The team is supported by personnel from the Company's corporate
<PAGE>
response center. EEI's emergency preparedness and response programs are
enhanced by the use of proprietary hazards exposure models. The Company's
analytical laboratory is used to assist in the chemical identification
process.
International Services. The Company has broadened its client base
to include many international clients through the use of joint ventures and
partnerships. The Company believes that its international market offers
unique opportunities not found domestically.
Analytical Laboratory Services
The Company provides analytical testing services to industrial and
government customers who require accurate measurements to identify and
monitor existing hazardous waste sites. The laboratory analyzes waste,
soil, sediment, air tissue and potable and non-potable water using state of
the art computer controlled instrumentation. The Company also is certified
to perform environmental testing services for some branches of the U.S.
military and a number of state agencies.
Regulatory Background
The United States Congress and most State Legislatures have
enacted a series of laws to prevent and correct environmental problems.
These laws and their implementing regulations help to create the demand for
the multi-disciplinary consulting services offered by the Company. The
principal federal legislation and corresponding regulatory programs which
affect the Company's business are as follows:
THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION, AND
LIABILITY ACT OF 1980, AS AMENDED ("CERCLA", "Superfund" or the "Superfund
Act"). CERCLA is a remedial statute which generally authorizes the Federal
government to order responsible parties to study and clean up inactive
hazardous substance disposal sites, or, to itself undertake and fund such
activities. This legislation has four basic provisions: (i) creation of
an information gathering and analysis program; (ii) grant of federal
authority to respond to emergencies associated with contamination by
hazardous substances, and to clean up sites contaminated with hazardous
substances; (iii) imposition of joint, several, and strict liability on
persons connected with the treatment or disposal of hazardous substances
which results in a release or threatened release into the environment; and
(iv) creation of a Federally managed trust fund to pay for the clean up and
restoration of sites contaminated with hazardous substances when voluntary
clean-up by responsible parties cannot be accomplished.
THE RESOURCE CONSERVATION AND RECOVERY ACT of 1976 ("RCRA"). RCRA
generally provides "cradle to grave" coverage of hazardous wastes. It
seeks to achieve this goal by imposing performance, testing and record
keeping requirements on persons who generate, transport, treat, store, or
dispose of hazardous wastes. The Company assists hazardous waste
generators in the storage, transportation and disposal of wastes; prepares
<PAGE>
permit applications and engineering designs for treatment, storage and
disposal facilities; designs and oversees underground storage tank
installations and removals; performs corrective measure studies and
remedial oversight at RCRA regulated facilities; and performs RCRA
compliance audits.
TOXIC SUBSTANCE CONTROL ACT OF 1976 ("TSCA"). TSCA authorizes the
EPA to gather information on the risks posed to public health and the
environment by chemicals and to regulate the manufacture, use and disposal
of chemical substances. The 1986 amendments to TSCA and its implementing
regulations require school systems to inspect their buildings for asbestos,
determine where asbestos containing materials pose hazards to humans and
abate those hazards. Regarding PCBs specifically, amendments to TSCA
regulations dated December 21, 1989 established comprehensive record
keeping requirements for persons engaged in PCB transportation, storage and
disposal activities. The Company's principal work under TSCA involves
field sampling, site reconnaissance, development of remedial programs and
supervision of construction activities at sites involving PCB
contamination. The Company also conducts asbestos surveys and
investigations.
THE NATIONAL ENVIRONMENTAL POLICY ACT ("NEPA"). NEPA generally
requires that a detailed environmental impact statement ("EIS") be prepared
for every major federal action significantly affecting the quality of the
human environment. With limited exceptions, all federal agencies are
subject to NEPA. A number of states have EIS requirements similar to NEPA.
The Company frequently engages in NEPA related projects (or state
equivalent) for both public and private clients.
CLEAN AIR ACT. In 1990, comprehensive changes were made to the
Clean Air Act which has fundamentally redefined the regulation of air
pollutants. The Clean Air Act Amendments of 1990 have created a flurry of
federal and state regulatory initiatives and industry responses which
require the development of detailed inventories and risk management plans,
as well as the acquisition of facility wide, rather than source specific,
air permits. Complementary changes have also been integrated into the RCRA
Boilers and Industrial Furnace (BIF) regulatory programs calling for
upgraded air emission controls, more rigorous permit conditions and the
acquisition of permits and/or significant permit modifications. The
Company assists public and private clients in the development of air
permitting strategies and the preparation of permit applications. EEI also
prepares the technical studies and engineering documents (e.g., air
modeling, risk analysis, design drawings) necessary to support permit
applications.
Other. The Company's operations are also influenced by other
federal and state laws protecting the environment: e.g. the Clean Water
Act (CWA), the Atomic Energy Act (AEO), the Oil Pollution Act of 1990
(OPA), the Safe Drinking Water Act and comparable state statutory and
regulatory programs. Examples of services provided as a result of these
laws include waste water and storm water discharge permitting pursuant to
<PAGE>
the CWA, and the development of spill prevention control and countermeasure
plans for major oil storage facilities pursuant to OPA.
Related laws such as the Occupational Safety and Health Act, which
regulates exposures of employees to toxic chemicals and other physical
agents in the workplace, also have a significant impact on EEI operations.
An example is the process safety regulation issued by the Occupational
Safety and Health Administration (OSHA) which requires safety and hazard
analysis and accidental release contingency planning activity to be
performed if certain chemicals are used in the work place.
Potential Liability and Insurance
The Company's contracts with the EPA require it to maintain
certain insurance, including comprehensive general liability insurance for
bodily injury, death or loss of or damage to property. In addition, many
of the Company's other contracts require the Company to indemnify its
clients for claims, damages or losses for personal injury or property
damage relating to the Company's negligent performance of its duties unless
such injury or damage is the result of the client's negligence or willful
acts. Currently, the Company is able to provide insurance coverage to meet
the requirements of its contracts, however, certain pollution exclusions
apply. Since February 1990, the Company has been able to purchase an
errors and omissions insurance policy that covers its asbestos and
environmental consulting services, including legal liability for pollution
conditions resulting therefrom. The policy is a claims made policy, with
limits of $10.0 million for each claim and $10.0 million in the aggregate
with a $500,000 deductible for contracts entered into subsequent to
November, 1994; for contracts entered into between February, 1990 and
November, 1994, the limits are $2.0 million for each claim and $2 million
in the aggregate with a $250,000 deductible. The Company's general
liability insurance policy provides coverage in the amount of $2.0 million
per occurrence and $3.0 million in the aggregate; an excess liability
policy of $10.0 million is also maintained with respect to its general
liability coverage. In addition, EEI has a special endorsement to its
general liability insurance policy up to $1.0 million for damages to third
parties for bodily injury or property damage resulting from sudden or
accidental releases. Where possible, the Company requires that its clients
cross-indemnify it for asserted claims. There can be no assurance,
however, that any such agreement, together with the Company's general
liability insurance and errors and omissions coverage will be sufficient to
protect the Company against any asserted claim.
Market and Customers
A substantial portion of the Company's revenues are currently
derived from the federal government under Superfund-related activities,
including the EPA, U.S. Department of Defense and U.S. Department of Energy
contracts. The balance of the Company's revenues originate from state and
local governments, domestic industrial clients, and private and
governmental international clients.
<PAGE>
Backlog
The Company's firm backlog of uncompleted projects and maximum
potential gross revenues from indefinite quantity task order contracts, at
July 31, 1997 and 1996 were as follows:
(Millions of $)
Fiscal Year Fiscal Year
Ended 7/31/97 Ended 7/31/96
Total Firm Backlog 159.1 111.8
Anticipated Completion of Firm
Backlog in Next Twelve Months 52.2 48.0
Maximum Potential Gross Revenues
from Task Order Contracts 351.0 356.0
The above figures include $120 million of potential revenue
backlog attributable to the options under the START contracts. This
backlog includes a substantial amount of work to be performed under
contracts which contain termination provisions under which the contract can
be terminated without penalty upon written notice to the Company. The
likelihood of obtaining the full value of the task order contracts cannot
be determined at this time.
Competition
EEI is subject to competition with respect to each of the services
that it provides. No entity, including the Company, currently dominates
the environmental services industry and the Company does not believe that
one organization has the capability to serve the entire market. Some of
its competitors are larger and have greater financial resources than the
Company while others may be more specialized in certain areas. EEI
competes primarily on the basis of its reputation, quality of service,
expertise, and price.
Employees
As of July 31, 1997, the Company had over 700 employees. The
Company's ability to remain competitive will depend largely upon its
ability to recruit and retain qualified personnel. None of the Company's
employees is represented by a labor organization and employee relations are
good.
Item 2. PROPERTIES
The Company's headquarters (60,000 square feet) is located in
Lancaster, New York, a suburb of Buffalo. The Company's laboratory and
warehouse facility in Lancaster, New York consists of two buildings'
totaling approximately 50,000 square feet. The Company also leases office
and storage facilities at twenty (20) regional offices, with terms which
generally coincide with the duration of the Company's contracts in those
areas.
<PAGE>
Item 3. LEGAL PROCEEDINGS
From time to time, the Company is named a defendant in legal
actions arising out of the normal course of business. The Company is not a
party to any pending legal proceeding the resolution of which the
management of the Company believes will have a material adverse effect on
the Company's results of operations or financial condition or to any other
pending legal proceedings other than ordinary, routine litigation
incidental to its business. The Company maintains liability insurance
against risks arising out of the normal course of business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) Principal Market or Markets. The Company's Class A Common
Stock is traded on the American Stock Exchange. There is no separate
market for the Company's Class B Common Stock.
The following table represents the range of high and low
prices of the Company's Class A Common Stock as reported by the American
Stock Exchange for the periods indicated.
Fiscal 1996 High Low
First Quarter
(commencing August 1, 1995 - 8-13/16 7-3/8
October 28, 1995)
Second Quarter
(commencing October 29, 1995 - 9-1/8 7-1/8
January 27, 1996)
Third Quarter
(commencing January 28, 1996 - 8-5/8 7-1/2
April 27, 1996)
Fourth Quarter
(commencing April 28, 1996 - 8-5/8 7-5/8
July 31, 1996)
<PAGE>
Fiscal 1997 High Low
First Quarter
(commencing August 1, 1996 - 8-7/8 7
October 26, 1996)
Second Quarter
(commencing October 27, 1996 - 9-5/8 7-1/2
January 26, 1997)
Third Quarter
(commencing January 26, 1997 - 9-5/8 7-7/16
April 26, 1997)
Fourth Quarter
(commencing April, 27, 1997 - 8-3/4 7-1/2
July 31, 1997)
(b) Approximate Number of Holders of Class A Common Stock. As
of September 30, 1997, 2,126,202 shares of the Company's Class A Common
Stock were outstanding and the number of holders of record of the Company's
Class A Common Stock at that date was 455. The Company estimates that it
has a significantly greater number of Class A Common Stock shareholders
because a substantial number of the Company's shares are held in street
name. As of the same date, there were 1,823,128 shares of the Company's
Class B Common Stock outstanding and the number of holders of record of the
Class B Common Stock at that date was 73.
(c) Dividend. In each of the fiscal years ended July 31, 1996
and 1997, the Company declared cash dividends of $.32 per share of common
stock. The amount, if any, of future dividends remains within the
discretion of the Company's Board of Directors and will depend upon the
Company' s future earnings, financial condition and requirements and other
factors as determined by the Board of Directors.
In July 1994, the Company's board of directors declared a 5% stock
dividend to both Class A and Class B shareholders of record as of August l,
1994 to be distributed on or before August 30, 1994. All financial data
included in this annual report with respect to net income per common share,
weighted average common shares outstanding, stock prices and stock options
have been restated to reflect the impact of the declaration of the 5% stock
dividend.
The Company's Certificate of Incorporation provides that any cash
or property dividend paid on Class A Common Stock must be at least equal to
the cash or property dividend paid on Class B Common Stock on a per share
basis.
<PAGE>
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended July 31,
1997 1996 1995 1994 1993
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating data:
Gross revenues $70,790 $69,823 $91,512 $99,559 $88,747
Net Revenues $58,982 $61,569 $77,715 $86,334 $76,872
Income (loss) from operations $ ( 154) $ 1,511 $ 2,974 $ 7,256 $ 7,263
Income before income taxes $ 478 $ 2,087 $ 3,552 $ 7,645 $ 7,697
Net income before
cumulative effect of
accounting change $ 113 $ 1,160 $ 2,154 $ 4,670 $ 4,655
Cumulative effect of
accounting change $ - $ - $ - $ (118) $ -
Net Income $ 113 $ 1,160 $ 2,154 $ 4,552 $ 4,655
Net income before
cumulative effect of
accounting change
per common share $ .03 $ .29 $ .52 $ 1.13 $ 1.13
Cumulative effect of
accounting change per
common share $ - $ - $ - $ (.03) $ -
Net income per
common share $ .03 $ .29 $ .52 $ 1.10 $ 1.13
Cash dividends declared
per common share $ .32 $ .32 $ .32 $ .29 $ .25
Weighted average common
shares outstanding 3,956,313 4,039,369 4,136,929 4,138,121 4,135,462
<CAPTION>
As of July 31,
1997 1996 1995 1994 1993
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Balance sheet data:
Working capital $31,141 $31,993 $32,662 $32,061 $33,207
Total assets $53,524 $55,575 $59,476 $62,157 $56,042
Long-term debt $ 607 $ 695 $ 782 $ 1,345 $ 692
Shareholders' equity $44,183 $45,468 $46,907 $46,158 $42,781
Book value per share $ 11.17 $ 11.26 $ 11.34 $ 11.15 $ 10.35
</TABLE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition
As of July 31, 1997, the Company's working capital balance was
decreased $.9 million to $31.1 million as compared to $32.0 million at
July 31, 1996. Cash and cash equivalents decreased $4.4 million principally
due to the increase in contracts receivable, the payment of liabilities and
dividends and the purchase of equipment and investment securities. Net
contracts receivable increased $2.3 million primarily due to an increase in
federal government receivables as the Company's fourth quarter of fiscal year
1997 net revenues from federal government agencies were significantly higher
than like revenues realized in the fourth quarter last year. Accounts
payable, accrued payroll, other accrued liabilities and income taxes payable
decreased $.7 million due primarily to the timing of payments and the final
payment of benefits under the defined benefit pension plan which was
terminated in fiscal year 1996. 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 September 30, 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 July 31, 1997 and none were required during
fiscal year 1997. The Company has historically financed its activities
through cash flows from operations. During the year, the Company used
internally generated funds and existing cash balances to support demands for
working capital, the purchase of new property and equipment and the payment of
dividends. There are no significant working capital requirements pending at
July 31, 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
Net revenues for fiscal year 1997 were $59.0 million, down 4% from
the $61.6 million reported in fiscal year 1996. The decrease in net revenues
for fiscal year 1997 was primarily the result of a decline in sales with the
United States Environmental Protection Agency (EPA) and the United States
Department of Defense (DOD). This was due in large measure to a lack in
funding provided to these agencies early in fiscal year 1997 in the aftermath
of last year's federal government budget problems.
On a positive note, net revenues from federal government agencies
were higher in the fourth quarter of fiscal year 1997 than in any previous
quarter since the first quarter of fiscal year 1996. In June 1997, the
Company was awarded a $4.5 million contract with the United States Navy
Southern Division to provide a variety of environmental services.
During fiscal year 1997, the Company continued to expand into the
international market as net revenues realized from foreign business
<PAGE>
as a percentage of total Company net revenues increased from fiscal year 1996.
In August, 1997, the Company was awarded an $800,000 contract with the Asian
Development Bank to provide environmental and infrastructure services in
China.
Net revenues for fiscal year 1996 were $61.6 million, down 21% from
the $77.7 million recorded in fiscal year 1995. The decrease in revenues in
fiscal year 1996 was due to the federal government budget impasse which began
during the second quarter of fiscal year 1996 and adversely affected the
Company's federal government sales throughout the entire year.
Income Before Income Taxes
The Company's income before income taxes for fiscal year 1997 was
$478,000 as compared to $2.1 million recorded in the previous year. This
decrease was primarily attributable to lower operating margins recognized from
the Company's five regional START contracts with the EPA versus the margins
realized from these contracts and their predecessor Technical Assistance Teams
(TAT) contract during fiscal year 1996. Fiscal year 1997 START operating
margins were negatively impacted by the overall decline in Company net sales.
Lower net revenues resulted in the Company being unable to recover a
significant amount of indirect costs.
Operating margins relating to the Company's Analytical Services
Center (ASC) were also lower in fiscal year 1997 compared to 1996 as
continuing pricing pressures contributed to an increased operating loss in
1997.
The Company was able to partially offset the impact of the lower
START & ASC operating margins on earnings by continuing to be successful in
reducing indirect operating costs as these costs declined by approximately
$1.7 million in fiscal year 1997 versus fiscal year 1996. Also, the fourth
quarter of fiscal year 1997 marked the eleventh consecutive quarter that
indirect operating costs decreased as compared to the same quarter of the
previous year.
Income before income taxes for fiscal year 1996 was $2.1 million,
down from the $3.6 million recorded in fiscal year 1995. This decrease was
mainly the result of decline in net revenues in fiscal year 1996 attributable
to the federal government budget problems.
Income Taxes
The effective income tax rate for fiscal year 1997 was 76.3% as
compared to 44.4% for fiscal year 1996. The increase in the effective rate is
primarily due to an adjustment to reduce tax refunds receivable associated
with foreign operations and an increase in state taxes and nondeductible
expenses as a percentage of income. This was partially offset by an increase
in tax exempt interest as a percentage of income.
Year 2000 Compliance
The Company believes that updating its computer system to accommodate
issues that will arise as a result of reaching year 2000 will not have a
<PAGE>
significant impact on any future results of the Company. The Company has
committed to purchase year 2000 compliant computer systems which will be
fully implemented before that date. The Company believes the cost of this
upgrade will be immaterial to the future operating results while providing
greater flexibility and functionality to many of the Company's operating
systems.
Recently Issued Accounting Standards Not Yet Adopted
In the second quarter of fiscal year 1998, Statement of Financial
Accounting Standards (SFAS) No. 128 "Earnings per Share", will become
effective for the Company. SFAS No. 128 simplifies the standards for
computing earnings per share (EPS) previously found in Accounting Principles
Board (APB) Opinion No. 15 "Earnings per Share", and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with
a presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity.
Diluted EPS is computed similarly to fully diluted EPS pursuant to Opinion 15.
This statement requires restatement of all prior-periods EPS data presented.
The Company estimates that SFAS No. 128 will not have a material effect on
reported earnings per share.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Accountants
To the Board of Directors
and Shareholders of
Ecology and Environment, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under item 14(a)1. and 2. on this Form 10-K present fairly, in all
material respects, the financial position of Ecology and Environment, Inc. and
its subsidiaries at July 31, 1997 and 1996 and the results of their operations
and their cash flows for each of the three years in the period ended July 31,
1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Buffalo, New York
October 2, 1997
<PAGE>
<TABLE>
Ecology and Environment, Inc
Consolidated Balance Sheet
<CAPTION>
July 31,
1997 1996
------------ ------------
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents $ 3,714,898 $ 8,080,524
Investment securities available for sale 7,086,035 6,502,804
Contract receivables, net 25,981,157 23,696,036
Other current assets 3,092,891 3,126,539
------------ ------------
Total current assets 39,874,981 41,405,903
Property, building and equipment, net 12,852,976 13,473,227
Other assets 796,416 695,890
------------ ------------
Total assets $ 53,524,373 $ 55,575,020
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 2,574,354 $ 3,134,862
Accrued payroll costs 3,716,183 4,120,264
Other accrued liabilities 2,258,707 2,157,556
Income taxes payable 184,583 0
------------ ------------
Total current liabilities 8,733,827 9,412,682
Long-term debt 607,291 694,791
Shareholders' equity:
Preferred stock, par value $.01 per share;
authorized - 2,000,000 shares; no shares
issued 0 0
Class A common stock, par value $.01 per
share; authorized - 6,000,000 shares;
issued - 2,316,912 and 2,304,747 shares 23,169 23,047
Class B common stock, par value $.01 per
share; authorized - 10,000,000 shares;
issued - 1,853,077 and 1,865,242 shares 18,530 18,652
Capital in excess of par value 17,591,436 17,591,436
Retained earnings 28,223,060 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 44,183,255 45,467,547
------------- -------------
Total liabilities and shareholders' equity $ 53,524,373 $ 55,575,020
============= =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
Ecology and Environment, Inc
Consolidated Statement of Income
<CAPTION>
Year ended July 31,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Gross revenues $ 70,789,800 $ 69,822,996 $ 91,512,204
Less: direct subcontract costs 11,808,025 8,254,471 13,796,706
Net revenues 58,981,775 61,568,525 77,715,498
------------- ------------- -------------
Operating costs and expenses:
Cost of professional services and
other direct operating expenses 34,798,097 33,846,706 43,326,432
Administrative and indirect operating
expenses 14,644,185 15,751,749 19,034,727
Marketing and related costs 8,107,698 8,724,445 10,399,590
Depreciation 1,585,562 1,734,442 1,980,697
------------- ------------- -------------
Total operating costs & expenses 59,135,542 60,057,342 74,741,446
------------- ------------- -------------
Income / (loss) from operations (153,767) 1,511,183 2,974,052
Interest expense 65,994 70,445 104,421
Interest income 697,315 769,617 682,175
Net foreign exchange loss --- 123,506 ---
------------- ------------- -------------
Income before income taxes 477,554 2,086,849 3,551,806
Income tax provision (benefit):
Federal 449,690 624,766 807,958
State 192,180 128,806 217,588
Deferred (277,387) 173,070 372,416
------------- ------------- -------------
364,483 926,642 1,397,962
------------- ------------- -------------
Net income $ 113,071 $ 1,160,207 $ 2,153,844
============= ============= =============
Net income per common share $ 0.03 $ 0.29 $ 0.52
============= ============= =============
Weighted average common shares outstanding 3,956,313 4,039,369 4,136,929
============= ============= =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
Ecology and Environment, Inc.
Consolidated Statement of Changes in Shareholders' Equity
<CAPTION>
Class A Class B Capital in
Common Stock Common Stock excess of Retained Treasury stock
Shares Amount Shares Amount par value earnings Shares Amount
------------------ ------------------ ----------- ------------ ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1994 2,265,590 $22,655 1,899,161 $18,992 $17,562,587 $28,602,061 26,259 ($47,940)
Net income --- --- --- --- --- $2,153,844 --- ---
Cash dividends paid ($.32 per share) --- --- --- --- --- ($1,324,317)
Conversion of Class B common stock
to Class A common stock 14,586 $146 (14,586) ($146) --- --- --- ---
Repurchase of Class A common stock --- --- --- --- --- --- 16,300 ($141,485)
Unrealized investment gain, net --- --- --- --- --- $60,131 --- ---
--------- ------- ---------- -------- ------------ ------------ ------ ----------
Balance at July 31, 1995 2,280,176 $22,801 1,884,575 $18,846 $17,562,587 $29,491,719 42,559 ($189,425)
========= ======= ========== ======== ============ ============ ====== ==========
Net income --- --- --- --- --- $1,160,207 --- ---
Cash dividends paid ($.32 per share) --- --- --- --- --- ($1,296,926) --- ---
Conversion of Class B common stock
to Class A common stock 19,333 $194 (19,333) ($194) --- --- --- ---
Repurchase of Class A common stock --- --- --- --- --- --- 152,700 ($1,308,515)
Issuance of stock under incentive
stock option plan 5,238 $52 --- --- $28,849 --- --- ---
Unrealized investment loss, net --- --- --- --- --- ($22,648) --- ---
---------- ------- ---------- -------- ------------ ------------ ------- ------------
Balance at July 31, 1996 2,304,747 $23,047 1,865,242 $18,652 $17,591,436 $29,332,352 195,259 ($1,497,940)
========= ======= ========== ======== =========== ============ ======= ============
Net income --- --- --- --- --- $113,071 --- ---
Cash dividends paid ($.32 per share) --- --- --- --- --- ($1,265,174) --- ---
Conversion of Class B common stock
to Class A common stock 12,165 $122 ($12,165) ($122) --- --- --- ---
Repurchase of Class A common stock --- --- --- --- --- --- 25,400 ($175,000)
Unrealized investment gain, net --- --- --- --- --- $42,811 --- ---
--------- ------- --------- ------- ----------- ------------ ------- ------------
Balance at July 31, 1997 2,316,912 $23,169 1,853,077 $18,530 $17,591,436 $28,223,060 220,659 ($1,672,940)
========= ======= ========= ======= =========== ============ ======= ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
Ecology & Environment, Inc
Consolidated Statement of Cash Flows
<CAPTION>
Year ended July 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 113,071 $ 1,160,207 $ 2,153,844
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 1,585,562 1,734,442 1,980,697
(Gain) loss on disposition of property and equipment (1,225) 5,739 (56,525)
(Gain) on sale of investment securities --- (1,534) (13,145)
Net foreign exchange loss --- 123,506 ---
Provision (Benefit) for contract adjustments 112,925 (137,589) (32,511)
(Increase) decrease in:
- contracts receivable, net (2,398,046) 1,165,608 10,718,923
- other current assets 5,107 545,643 (85,615)
Increase (decrease) in:
- accounts payable (560,508) (1,355,221) (915,477)
- accrued payroll costs (404,081) (307,935) (1,079,038)
- other accrued liabilities 101,151 (685,856) (701,882)
- income taxes payable 184,583 --- (170,776)
Other, net 47,870 9,991 (46,722)
------------ ------------ ------------
Net cash provided by (used in) operating activities (1,213,591) 2,257,001 11,751,773
Cash flows used in investing activities:
Purchase of property, building and equipment, net (965,311) (915,270) (1,643,279)
Proceeds from sale of assets 1,225 12,597 218,222
Purchase of investment securities (1,210,761) (2,438,326) (4,334,164)
Proceeds from maturity of investment securities 200,000 1,600,000 ---
Proceeds from sale of investment securities 498,882 570,423 1,303,468
Investment in China joint venture (148,396) --- ---
------------ ------------ ------------
Net cash used in investing activities (1,624,361) (1,170,576) (4,455,753)
------------ ------------ ------------
Cash flows provided by used in financing activities:
Dividends Paid (1,265,174) (1,296,926) (1,324,317)
Repayment of long-term debt (87,500) (87,500) (562,501)
Issuance of common stock --- 28,901 ---
Repurchase of common stock (175,000) (1,308,515) (141,485)
------------ ------------ ------------
Net cash used in financing activities (1,527,674) (2,664,040) (2,028,303)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (4,365,626) (1,577,615) 5,267,717
Cash and cash equivalents at beginning of period 8,080,524 9,658,139 4,390,422
------------ ------------ ------------
Cash and cash equivalents at end of period $ 3,714,898 $ 8,080,524 $ 9,658,139
============ ============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE
<PAGE>
ECOLOGY AND ENVIRONMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of business
Ecology and Environment, Inc. (the Company) is an environmental consulting
and testing firm whose underlying philosophy is to provide a broad range
of environmental consulting services worldwide so that sustainable
economic and human development may proceed with minimum negative impact on
the environment. These services include environmental audits and impact
assessments, hazardous material site evaluations and response programs,
water and groundwater monitoring, laboratory analyses, environmental
infrastruction planning and many other projects provided by the Company's
multidisciplinary professional staff. Gross revenues reflected in the
Company's consolidated statement of income represent services rendered for
which the Company maintains a primary contractual relationship with its
customers. Included in gross revenues are certain services outside the
Company's normal operations which the Company has elected to subcontract
to other contractors. The costs relative to such subcontract services are
deducted from gross revenues to derive net revenues.
During fiscal years ended July 31, 1997, 1996 and 1995, the percentage of
total net revenues derived from contracts exclusively with the United
States Environmental Protection Agency (EPA) were 47%, 48% and 47%,
respectively. The Company's Superfund Technical Assessment and Response
Team (START) contracts accounted for the majority of the EPA net revenue
in fiscal year 1997. The percentage of net revenues derived from
contracts with the United States Department of Defense (DOD) were 18%, 20%
and 17% for fiscal years ended July 31, 1997, 1996 and 1995, respectively.
2. Summary of significant accounting principles
a. Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. Also reflected in the
financial statements are 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. Certain amounts in
the prior years' consolidated financial statements and notes have been
reclassified to conform with the current year presentation.
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 reporting period. Actual results
could differ from those estimates.
<PAGE>
c. Revenue recognition
Substantial amounts of the Company's revenues are derived from
cost-plus-fee contracts using the percentage of completion method
based on costs incurred 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 contract adjustments accounts represent a
reserve against possible adjustments for fiscal years 1990 through
1997.
d. Investment securities
Investment securities have been classified as available for sale and
are stated at estimated fair value. Unrealized gains or losses related
to investment securities available for sale are reflected in retained
earnings, net of applicable income taxes in the consolidated balance
sheet and statement of changes in shareholders' equity. Realized
gains and losses on the sale of investment securities are determined
using the specific identification method.
e. Property, building and equipment, depreciation and amortization
Property, building and equipment are stated at cost. Office furniture
and all equipment are depreciated on the straight-line method for book
purposes, excluding computer equipment which is depreciated on the
accelerated method for book purposes, and on accelerated methods for
tax purposes over the estimated useful lives of the assets (three to
seven years). The headquarters building is depreciated on the
straight line method for both book and tax purposes over an estimated
useful life of 32 years. Its components are depreciated over their
estimated useful lives ranging from 7 to 15 years. The analytical
services center building and warehouse is depreciated on the straight
line method over an estimated useful life of 40 years for both book
and tax purposes. Leasehold improvements are amortized for book
purposes over the terms of the leases or the estimated useful lives of
the assets, whichever is shorter, and over approximately 30 years for
tax purposes. Expenditures for maintenance and repairs are charged to
expense as incurred. Expenditures for improvements are capitalized.
When property or
equipment is retired or sold, any gain or loss on the transaction is
reflected in the current year's earnings.
<PAGE>
f. Fair value of financial instruments
The carrying amount of cash and cash equivalents contracts receivable
and accounts payable at July 31, 1997 approximates fair value because
of the short maturity of those instruments. The amortized cost and
estimated fair value of investment securities available for sale are
fully described in Note 4. Long-term debt consists of third party
borrowings by the Company. Based on the Company's assessment of the
current financial market and corresponding risks associated with the
debt, management believes that the carrying amount of long-term debt
at July 31, 1997 approximates fair value.
g. Translation of foreign currencies
The financial statements of foreign subsidiaries where the local
currency is the functional currency are translated into U.S. dollars
using exchange rates in effect at period end for assets and
liabilities and average exchange rates during each reporting period
for results of operations. Adjustments resulting from translation of
financial statements did not materially impact the financial
statements for fiscal years 1997, 1996 and 1995.
The financial statements of foreign subsidiaries located in highly
inflationary economies are remeasured as if the functional currency
were the U.S. dollar. The remeasurement of local currencies into U.S.
dollars creates translation adjustments which are included in net
income and amounted to $0, $123,506 and $0 for fiscal years 1997, 1996
and 1995, respectively.
h. Income taxes
The Company follows the asset and liability approach to account for
income taxes. This approach requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases
of assets and liabilities. Although realization is not assured,
management believes it is more likely than not that the recorded net
deferred tax assets will be realized. Since in some cases management
has utilized estimates, the amount of the net deferred tax asset
considered realizable could be reduced in the near term.
i. Pension costs
The Company has a non-contributory defined contribution plan providing
deferred benefits for substantially all of the Company's employees.
Additionally, in fiscal year 1995, the Company implemented a
supplemental defined benefit and contribution plan to provide deferred
benefits for senior executives of the Company. Benefits under the
defined benefit plan are based on years of service and average
compensation. The annual expense of the Company's defined
contribution plan is based on a percentage of eligible wages as
authorized by the Company's Board of Directors. Accrued benefits
under the defined benefit plan are funded in accordance with the
<PAGE>
minimum funding requirements of the Employee Retirement Income
Security Act. Benefits under the defined contribution plan are funded
as accrued.
In September 1995, the Company made the decision to terminate the
defined benefit plan. This plan was fully settled by December 1996.
In July 1996, the Company made the decision to terminate the
supplemental defined benefit plan for senior executives. This plan
was fully settled in December 1996. These events did not materially
impact the financial results for fiscal year 1997.
The Company does not offer any benefits that would result in a
liability under either SFAS No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions" or SFAS No. 112
"Employers' Accounting for Postemployment Benefits."
j. Stock based compensation
The Company has elected to continue measuring compensation costs for
employee stock based compensation arrangements using the method
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees" as permitted by SFAS No. 123 "Accounting for Stock Based
Compensation." In accordance with APB Opinion No. 25, compensation
expense is not recognized for stock option awards to employees under
the Company's stock option plan since the exercise price of options
granted is equal to or greater than the market price of the underlying
stock at the date of grant.
k. 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 restated in fiscal years prior to 1995 for the 5% stock
dividend distributed on August 30, 1994.
3. Cash and cash equivalents
The Company's policy is to invest cash in excess of operating requirements
in income-producing short-term investments. At July 31, 1997 and July 31,
1996 short-term investments consist of commercial paper and money market
funds. These investments are carried at cost. Short-term investments
amounted to approximately $3,081,000 and $6,557,000 at July 31, 1997 and
1996, respectively, and are reflected in cash and cash equivalents in the
accompanying consolidated balance sheet and statement of cash flows.
For purposes of the statement of cash flows, the Company considers all
highly liquid instruments purchased with a maturity of three months or
less to be cash equivalents. Cash paid for interest amounted to $65,994,
$70,445, and $104,421 in fiscal years 1997, 1996 and 1995, respectively.
Cash paid for income taxes amounted to $95,322, $442,000 and $1,969,248 in
fiscal years 1997, 1996 and 1995, respectively.
<PAGE>
4. Investment securities
The amortized cost and estimated fair values of investment securities were
as follows:
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
July 31, 1997
Investment securities
available for sale:
Mutual funds $2,565,155 $29,759 $ 330 $2,594,584
Municipal notes and bonds 2,079,920 13,527 1,694 2,091,753
Corporate note 400,000 - - 400,000
U.S. treasury interest-
only strips 998,224 2,860 - 1,001,084
Federal agency obligations 997,189 1,425 - 998,614
---------- --------- ---------- ----------
$7,040,488 $ 47,571 $ 2,024 $7,086,035
========== ========= ========== ==========
July 31, 1996
Investment securities
available for sale:
Mutual funds $2,452,993 $ 3,203 $36,005 $2,420,191
Municipal notes and bonds 1,581,321 2,424 4,472 1,579,273
U.S. treasury interest-
only strips 1,497,105 - 492 1,496,613
Federal agency obligations 997,189 9,538 - 1,006,727
---------- -------- -------- ----------
$6,528,608 $15,165 $40,969 $6,502,804
========== ======== ======== ==========
The amortized cost and estimated fair value of debt securities available
for sale by contractual maturity as of July 31, 1997 were as follows:
Amortized Estimated
cost fair value
Due in one year or less $2,222,293 $2,226,138
Due after one year through five years 903,040 915,313
Due after five years through ten years 400,000 400,000
Due after ten years 950,000 950,000
---------- ----------
4,475,333 4,491,451
Mutual Funds Available for Sale 2,565,155 2,594,584
---------- ----------
$7,040,488 $7,086,035
========== ==========
<PAGE>
Proceeds, gross realized gains and losses from the sale of investment
securities were $498,882, $0 and $0, respectively, in fiscal year 1997,
$570,423, $1,567 and $33, respectively, in fiscal year 1996 and
$1,303,468, $15,237 and $2,092, respectively, in fiscal year 1995.
The unrealized investment securities gain and unrealized investment
securities loss, net of applicable income taxes, at July 31, 1997 and 1996
of $27,329 and $15,482, respectively, are reflected in retained earnings
in the consolidated balance sheet.
5. Contract receivables, net
July 31,
1997 1996
United States government -
Billed $ 7,959,278 $ 7,720,240
Unbilled 8,214,653 6,956,133
------------ ------------
16,173,931 14,676,373
------------ ------------
Industrial customers and state
and municipal governments -
Billed 6,608,240 6,174,195
Unbilled 4,103,110 3,837,327
------------ ------------
10,711,350 10,011,522
------------ ------------
Less allowance for contract
adjustments (904,124) (991,859)
------------ ------------
$25,981,157 $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 $3,026,000 at July 31, 1997 and $2,907,000 at July 31,
1996. Unbilled contracts receivable are reduced by billings in excess of
costs incurred of $1,282,000 at July 31, 1997 and $2,573,000 at July 31,
1996. Management anticipates that the July 31, 1997 unbilled receivables
will be substantially billed and collected in fiscal 1998. Within the
above billed balances are contractual retainages in the amount of
approximately $1,423,000 at July 31, 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 July 31, 1997 and
$1,848,000 at July 31, 1996.
<PAGE>
6. Property, building and equipment, net
July 31,
1997 1996
Land $ 528,320 $ 528,320
Buildings 12,951,063 12,786,490
Laboratory and other equipment 5,971,802 5,817,301
Data processing equipment 6,958,399 6,440,922
Office furniture and equipment 4,295,285 4,234,369
Leasehold improvements and other 1,406,800 1,339,865
------------ ------------
32,111,669 31,147,267
Less accumulated depreciation
and amortization (19,258,693) (17,674,040)
------------ ------------
$12,852,976 $13,473,227
============ ============
7. Line of credit
The Company has an unsecured $10,000,000 line of credit available which is
subject to annual renewal and which bears interest at the prime rate. No
borrowings on the line of credit were outstanding at July 31, 1997 and
July 31, 1996 and none were required during fiscal years 1997 and 1996.
At July 31, 1997 the Company had letters of credit totaling $1,146,000
secured by this line of credit.
8. Long-term debt
During fiscal year 1994, the Company obtained industrial revenue bond
capital lease financing in the amount of $750,000 to finance a portion of
the cost of the newly constructed analytical services facility. The lease
is collateralized by a portion of the land and the analytical services
facility building in an amount equal to the bond. The bond is payable in
equal monthly principal installments of $3,125 through 2014 and bears
interest at the borrower's base rate which approximates prime (8.50% at
July 31, 1997). In addition, the Company must meet certain financial
ratio
covenants relating to current assets to current liabilities and debt to
tangible net worth. At July 31, 1997 the Company was in compliance with
all financial ratio covenants. The balance outstanding on this bond at
July 31, 1997 and 1996 was $628,125 and $665,625, respectively.
During fiscal year 1988, the Company obtained industrial revenue bond
capital lease financing in the amount of $1,000,000 to finance a portion
of the cost of the newly constructed corporate headquarters. The lease is
collateralized by a portion of the land and the corporate headquarters
building in an amount equal to the bond. The bond is payable in equal
monthly principal installments of $4,167 through 2008 and bears interest
at the borrower's base rate which approximates prime (8.50% at July 31,
1997). The balance outstanding on this bond at July 31, 1997 and 1996 was
$66,666 and $116,666, respectively.
<PAGE>
The current portion of long-term debt at July 31, 1997 in the amount of
$87,500 is included in other accrued liabilities in the accompanying
consolidated balance sheet.
9. Income taxes
The provision for income taxes differs from the federal statutory rate due
to the following:
Fiscal year
1997 1996 1995
Statutory rate 34.0% 34.0% 34.0%
State income taxes, net of federal benefit 18.0 5.3 5.4
Foreign operations 20.3 2.7 (0.7)
Other 3.9 2.4 .7
----- ----- -----
76.2% 44.4% 39.4%
===== ===== =====
Deferred tax assets (liabilities) included in other current assets were
comprised of the following:
July 31,
1997 1996
Allowance for contract adjustments $1,260,735 $1,178,465
Accrued vacation and compensatory time 817,138 598,085
Property, building and equipment 245,400 216,969
Other 64,819 78,463
----------- -----------
Gross deferred tax assets 2,388,092 2,071,982
State income taxes (169,144) (119,233)
Other (97,184) (53,193)
----------- -----------
Gross deferred tax liabilities (266,328) ($172,426)
----------- -----------
Net current deferred tax asset $2,121,764 $1,899,556
=========== ===========
10. Shareholders' equity
a. Stock dividend
On July 1, 1994, the Board of Directors declared a 5% stock dividend
on the Company's Class A and Class B common stock distributed on
August 30, 1994 to shareholders of record on August 1, 1994. As of
July 31, 1994, an amount equal to the fair value of the common stock
distributed was transferred from retained earnings to the common stock
<PAGE>
and capital in excess of par value accounts. All data with respect to
net income per common share, weighted average common shares
outstanding, stock prices and stock options has been retroactively
adjusted to reflect the stock dividend.
b. Class A and Class B common stock
The relative rights, preferences and limitations of the Company's
Class A and Class B common stock can be summarized as follows:
Holders of Class A shares are entitled to elect 25% of the Board of
Directors so long as the number of outstanding Class A shares is at
least 10% of the combined total number of outstanding Class A and
Class B common shares. Holders of Class A common shares have
one-tenth the voting power of Class B common shares with respect to
most other matters.
In addition, Class A shares are eligible to receive dividends in
excess of (and not less than) those paid to holders of Class B shares.
Holders of Class B shares have the option to convert at any time, each
share of Class B common stock into one share of Class A common stock.
Upon sale or transfer, shares of Class B common stock will
automatically convert into an equal number of shares of Class A common
stock, except that sales or transfers of Class B common stock to an
existing holder of Class B common stock or to an immediate family
member will not cause such shares to automatically convert into Class
A common stock.
c. Incentive stock option plan
Under the Company's incentive stock option plan (the "plan"), key
employees, including officers of the Company, may be granted options
to purchase shares of Class A Common stock at an option price of at
least 100% of the shares' fair market value at the date of grant.
Shares become exercisable after a minimum holding period of five years
from the date of grant and expire after a period of ten years from the
date of grant. A total of 209,390 shares were authorized for granting
under the plan. The plan was terminated in March of 1996.
No options were granted during fiscal year 1997. During fiscal years
1996 and 1995, 37,250 and 19,500 options were granted, respectively,
at prices of $7.25 and $9.00, respectively. No options were exercised
during fiscal years 1997 and 1995. Exercised options during fiscal
year 1996 amounted to 5,238 at an exercise price of $5.65 per share.
Canceled options during the three year period ended July 31, 1997
amounted to 22,848, 23,955 and 13,525, respectively, at a weighted
average exercise price of $11.71, $12.41 and $12.63, respectively. No
options expired during fiscal years 1997 and 1995. Expired options
during fiscal year 1996 amounted to 425 at an exercise price of $5.65
per share.
Options outstanding at the end of the four year period ended July 31,
1997 were 159,965, 182,813, 175,181 and 169,206, respectively, at a
weighted average exercise price of $11.44, $11.48, $12.31 and $12.72,
respectively. Of the options outstanding for the three year period
ended July 31, 1997, 79,086, 90,710 and 85,763, respectively, are
currently exercisable at a weighted average exercise price of $13.27,
<PAGE>
$13.22 and $11.79, respectively. At July 31, 1997, 63,705 options
have an exercise price between $7.25 and $10.48, with a weighted
average exercise price and weighted average contractual life of $8.44
and 6.59 years, respectively. Of those options, 16,005 are currently
exercisable at an exercise price of $10.48. Additionally, at July 31,
1997, 96,260 options have an exercise price between $12.38 and $16.08
with a weighted average exercise price and weighted average
contractual life of $13.43 and 3.77 years, respectively. Of those
options, 63,081 are currently exercisable at a weighted average
exercise price of $13.98.
The Company estimates that if they elected to measure compensation
cost for employee stock based compensation arrangements under SFAS No.
123 it would not have caused net income and earnings per share for
fiscal years 1997 and 1996 to be materially different from their
reported amounts.
11. Lease commitments
The Company rents certain office facilities and equipment under noncancel-
able operating leases. The Company also rents certain facilities for
servicing project sites over the term of the related long-term government
contracts. These contracts provide for reimbursement of any remaining
rental commitments under such lease agreements in the event that the
government terminates the contract.
At July 31, 1997, future minimum rental commitments, net of estimated
amounts allocable to government contracts with rental cost reimbursement
clauses, were as follows:
Fiscal year Gross Reimbursable Net
1998 $1,964,455 $949,845 $1,014,610
1999 1,781,330 949,845 831,485
2000 1,574,020 936,981 637,039
2001 1,024,531 606,362 418,169
2002 354,431 217,025 137,406
Gross rental expense under the above lease commitments for 1997, 1996, and
1995 was $2,098,520, $1,951,645, and $2,637,185, respectively.
12. Pension plans
a. Defined benefit plan
The Company's pension expense associated with this plan for fiscal
years ended July 31, 1997, 1996, and 1995 was $0, $1,110,500, and
$470,996, respectively. The increase in fiscal year 1996 expenses is
attributable to the curtailment and partial settlement of this plan
in accordance with SFAS No. 88 "Employers Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and Termination
Benefits." There was no pension expense for fiscal year 1997 and no
accrued pension liabililty (asset) at July 31, 1997 as the plan was
fully settled by December 1996.
<PAGE>
Pension cost of this plan includes the following cost components:
1996 1995
Service cost -
benefits earned during the period $ 65,100 $408,900
Interest costs on projected benefit
obligation 258,200 342,100
Actual return on plan assets (201,900) (351,212)
Net amortization and deferral (160,500) 71,208
Curtailment and Settlement Cost 1,149,600 ---
----------- ---------
Net periodic pension cost $1,110,500 $470,996
=========== =========
Data relating to the funding position of this plan were as follows:
July 31,
1996
Actuarial present value of:
Vested benefit obligation $942,186
Nonvested benefit obligation ---
--------
Projected benefit obligation 942,186
Plan assets at fair value 131,725
--------
Net accrued pension (asset) liability $810,461
========
The discount rate used in determining the actuarial present value of
the above benefit obligations was 6.72% for fiscal year 1996.
b. Defined contribution plan
Contributions to the defined contribution plan are discretionary and
determined annually by the Board of Directors. The total expense under
the plan for fiscal years 1997, 1996, and 1995 was $1,209,412, $985,198
and $1,786,857, respectively.
13. Contingencies
Certain contracts with the EPA contain termination provisions under which
the EPA may, without penalty, terminate the contracts upon written notice
to the Company. In the event of termination, the Company would be paid
only termination costs in accordance with the particular contract.
The Company is involved in litigation arising in the normal course of
business. In the opinion of management, any adverse outcome to this
litigation would not have a material impact on the financial results of
the Company.
<PAGE>
ECOLOGY AND ENVIRONMENT, INC.
SCHEDULE VIII
Allowance for Doubtful Accounts
Years Ended July 31, 1997, 1996, and 1995
Balance at Charged to Balance
Beginning Cost and at End
Year Ended of Period Expense Deduction of Year
July 31, 1997 $2,839,675 $ 112,925 $ 20,660 $2,931,940
July 31, 1996 $3,123,709 $ (137,589) $ 146,445 $2,839,675
July 31, l995 $4,070,326 $ (32,511) $ 914,106 $3,123,709
<PAGE>
</TABLE>
<TABLE>
Selected quarterly financial data (Unaudited)
(In thousands, except per share information)
<CAPTION>
Quarter
1997 First Second Third Fourth
----------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Gross revenues $ 16,752 $ 16,920 $ 17,601 $ 19,517
Net revenues 14,141 13,530 15,099 16,212
Income (loss) from operations 212 (53) (417) 104
Income (loss) before income taxes 381 114 (255) 238
Net income (loss) 227 15 (208) 79
Net income (loss) per common share $ 0.06 $ 0.00 $ (0.05) $ 0.02
Cash dividends declared per common share $ 0.00 $ 0.16 $ 0.00 $ 0.16
<CAPTION>
1996 First Second Third Fourth
----------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C>
Gross revenues $ 19,759 $ 16,276 $ 15,797 $ 17,991
Net revenues 17,210 14,451 14,540 15,368
Income from operations 817 470 151 73
Income before income taxes 977 671 202 237
Net income 544 410 60 146
Net income per common share $ 0.13 $ 0.10 $ 0.02 $ 0.04
Cash dividends declared per common share $ 0.00 $ 0.16 $ --- $ 0.16
</TABLE>
<PAGE>
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages and positions of the
Directors and executive officers of the Company.
Name Age Position
Gerhard J. Neumaier 60 President and Director
Frank B. Silvestro 60 Executive Vice President and Director
Gerald A. Strobel 57 Executive Vice President of Technical
Services and Director
Ronald L. Frank 59 Executive Vice President of Finance,
Secretary, Treasurer and Director
Gerard A. Gallagher, Jr. 66 Senior Vice President of Special Projects and
Director
Roger J. Gray 56 Senior Vice President
Laurence M. Brickman 53 Senior Vice President
Harvey J. Gross 69 Director
Ralph Bookbinder 67 Director
Ross M. Cellino 65 Director
Each Director is elected to hold office until the next annual meeting
of shareholders and until his successor is elected and qualified. Executive
officers are elected annually and serve at the discretion of the Board of
Directors.
Mr. Neumaier is a founder of the Company and has served as the
President and a Director since its inception in 1970. Mr. Neumaier has a
B.M.E. in engineering and a M.A. in physics.
Mr. Silvestro is a founder of the Company and has served as a Vice
President and a Director since its inception in 1970. In August 1986, he
became Executive Vice President. Mr. Silvestro has a B.A. in physics and an
M.A. in biophysics.
<PAGE>
Mr. Strobel is a founder of the Company and has served as a Vice
President and a Director since its inception in 1970. In August 1986, he
became Executive Vice President of Technical Services. Mr. Strobel is a
registered Professional Engineer with a B.S. in civil engineering and a M.S.
in sanitary engineering.
Mr. Frank is a founder of the Company and has served as Secretary,
Treasurer, Vice President of Finance and a Director since its inception in
1970. In August 1986, he became Executive Vice President of Finance. Mr.
Frank has a B.S. in engineering and a M.S. in biophysics.
Mr. Gallagher joined the Company in 1972. In March 1979, he became a
Vice President of Special Projects and in February, 1986 he became a Director.
Mr. Gallagher is in charge of quality assurance for hazardous substance
projects. In August 1986, he became a Senior Vice President of Special
Projects. Mr. Gallagher has a B.S. in physics.
Mr. Gray joined the Company in 1970 as an engineer. In 1980, he
became Vice President and in August 1986 he became a Senior Vice President.
Mr. Gray holds a B.S. in engineering.
Mr. Brickman joined the Company in 1971. He became Vice President in
April 1988 and became a Senior Vice President in August, 1994. Mr. Brickman
has a B.S., M.S. and Ph.D. in biology.
Mr. Gross has been a Director of the Company since its inception in
1970. Mr. Gross is an independent insurance broker and a capital financing
consultant.
Mr. Bookbinder has been a Director of the Company since its inception
in 1970. Mr. Bookbinder is an independent travel consultant.
Mr. Cellino has been a Director of the Company since its inception in
1970. Since 1956, Mr. Cellino is an attorney and counselor-at-law retired
from private practice.
Item 11. EXECUTIVE COMPENSATION
There is shown below information concerning the annual and long-term
compensation for services in all capacities to the Company for the fiscal
years ended July 31, 1995, 1996 and 1997 of those persons who were at July 31,
1997 (i) the chief executive officer and (ii) the four other most highly
compensated executive officers with annual salary and bonus for the fiscal
year ended July 31, 1997 in excess of $100,000. In this report, the five
persons named in the table below are referred to as the "Named Executives".
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
STOCK INCENTIVE LONG-TERM ALL
NAME AND FISCAL OPTIONS COMPENSATION OTHER
PRINCIPAL POSITION YEAR SALARY BONUS (1) OTHER (SHARES) PAYOUTS (2)
<S> <C> <C> <C> <C> <C> <C> <C>
Gerhard J. Neumaier 1997 $219,952 -0- -0- -0- -0- 12,000
President and Director 1996 $216,632 -0- -0- -0- -0- 7,611
1995 $220,118 $28,200 -0- -0- -0- 12,213
Frank B. Silvestro 1997 $199,967 -0- -0- -0- -0- 10,925
Executive VP and Director 1996 $196,949 -0- -0- -0- -0- 6,841
1995 $200,118 $28,200 -0- -0- -0- 11,149
Ronald L. Frank 1997 $199,967 -0- -0- -0- -0- 10,925
Executive Vice President 1996 $196,949 -0- -0- -0- -0- 6,841
of Finance, Secretary 1995 $200,118 $28,200 -0- -0- -0- 11,149
Treasurer and Director
Gerald A. Strobel 1997 $199,967 -0- -0- -0- -0- 10,925
Executive Vice President 1996 $196,949 -0- -0- -0- -0- 6,841
of Technical Services 1995 $200,118 $28,100 -0- -0- -0- 11,156
and Director
Gerard A. Gallagher, Jr. 1997 $177,134 -0- -0- -0- -0- 9,695
Senior Vice President 1996 $174,226 -0- -0- -0- -0- 5,938
of Special Projects and 1995 $177,268 $20,000 -0- -0- -0- 9,843
Director
(1) Amounts earned for bonus compensation determined by the Board of Directors.
(2) Represents group term life insurance premiums, contributions made by the Company to its Defined
Contribution Plan and Defined Contribution Plan SERP accruals on behalf of each of the Named
Executives.
</TABLE>
<PAGE>
None of the Company's executive officers have employment agreements.
Directors who are not employees of the Company are paid an annual fee of
$20,826 payable quarterly.
Compensation Pursuant to Plans
Pension Plan. In September 1995, the Company decided to terminate
its Defined Benefit Pension Plan (the "Pension Plan"). The termination of the
Pension Plan was settled by December 1996.
Defined Contribution Plan. The Company maintains a Defined
Contribution Plan ("the DC Plan") which is qualified under the Internal
Revenue Code of 1986, as amended (the "Internal Revenue Code") pursuant to
which the Company contributes an amount not in excess of 15% of the aggregate
compensation of all employees who participate in the DC Plan. All employees,
including the executive officers identified under "Executive Compensation",
are eligible to participate in the plan, provided that they have attained age
21 and completed one year of employment with at least 1,000 hours of service.
The amounts contributed to the plan by the Company are allocated to
participants based on a ratio of each participant's points to total points of
all participants determined as follows: one point per $1,000 of compensation
plus two points per year of service completed prior to August 1, 1979, and
one point for each year of service completed after August 1, 1979.
Supplemental Retirement Plan. In April 1994, the Board of Directors
of the Company, in response to changes in the tax code, voted to establish a
Supplemental Executive Retirement Plan ("SERP") for purposes of providing
retirement benefits to employees including officers of the Company whose
retirement benefits under the DC Plan are reduced as a result of the $150,000
compensation limitation imposed by the tax code change. This plan is a
non-qualified plan which provides benefits that would have been lost from the
DC Plan due to the imposition of the compensation restriction.
Incentive Stock Option Plan
In February 1986, the Company adopted an Incentive Stock Option Plan
(the "Option Plan") under which key employees, including officers, of the
Company may be granted options to purchase up to an aggregate of 100,000
shares of Class A Common Stock. During the fiscal year ending July 31, 1990,
the shareholders of the Company authorized an additional 100,000 shares,
bringing the aggregate to 200,000 shares of Class A Common Stock currently
authorized to be issued under the Plan. The anti-dilution provisions of the
plan resulted in an increase of 9,390 shares upon distribution of the stock
dividend distributed by the company on August 30, 1994 to shareholders of
record on August 1, 1994. See Note 10 of "Notes to Consolidated Financial
Statements". The plan terminated in March 1996 and no options can be granted
after that date. The Board of Directors administers the Option Plan and has
authority to determine the persons to whom options are to be granted, the
number of shares to be covered by each option, the time at which each option
shall be granted, the exercise price and the time during which options may be
exercised. The Option Plan was designed to qualify as an "incentive stock
option plan" under Section 422A of the Internal Revenue Code.
<PAGE>
The option exercise price must be at least 100% of the fair market
value per share of the Company's Class A Common Stock, as determined by the
Board of Directors on the date of grant. The exercise price may be paid in
cash or with previously owned shares of Class A Common Stock or both. The
options are exercisable commencing after a minimum holding period of not more
than five years after the date of grant and expire after ten years from the
date of grant as determined by the Board of Directors. The exercise price of
options granted to employees possessing more than 10% of the combined voting
power of all classes of capital stock on the effective date of the grant must
be not less than 110% of fair market value on the date of grant, and the
options may not be exercised more than five years after the date of grant.
The Named Executive officers found in the Summary Compensation Table have not
been granted any options pursuant to the Option Plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of September 30, 1997, the number
of outstanding shares of Class A Common Stock and Class B Common Stock of the
Company beneficially owned by each person known by the Company to be the
beneficial owner of more than 5 percent of the then outstanding shares of
Common Stock:
Class A Common Stock Class B Common Stock
Nature and Percent Nature and
Amount of of Amount of
Beneficial Class As Beneficial Percent
Ownership Adjusted Ownership Of
Name and Address(1) (2)(3) (4) (2)(3) Class
Gerhard J. Neumaier* 346,944 14.0% 345,894 19.0%
Frank B. Silvestro* 288,937 12.0% 288,937 15.8%
Ronald L. Frank* 267,976 11.2% 259,394 14.2%
Gerald A. Strobel* 270,796 11.3% 270,796 14.8%
Franklin Resources,
Inc. 370,000 17.4% 0 0
The Cameron Baird
Foundation (4) 231,200 10.9% 0 0
* See Footnotes in next table
(1) The address for Gerhard J. Neumaier, Frank B. Silvestro, Ronald L.
Frank and Gerald A. Strobel is c/o Ecology and Environment, Inc., 368
Pleasant View Drive, Lancaster, New York 14086, unless otherwise indicated.
The address for Franklin Resources, Inc. is 777 Mariners Island Blvd., P. O.
Box 7777, San Mateo, California 94403-7777. The address for The Cameron
Baird Foundation is Box 564, Hamburg, NY 14075.
<PAGE>
(2) Each named individual or corporation are deemed to be the beneficial
owners of securities that may be acquired within 60 days through the
exercise of exchange or conversion rights. The shares of Class A Common
Stock issuable upon conversion by any such shareholder are not included in
calculating the number of shares or percentage of Class A Common Stock
beneficially owned by any other shareholder.
(3) There are 2,126,202 shares of Class A Common Stock issued and
outstanding and 1,823,128 shares of Class B Common Stock issued and
outstanding as of September 30, 1997. The figures in the "as adjusted"
columns are based upon these totals and except as set forth in the preceding
sentence, upon the assumptions described in footnote 2 above.
(4) Includes 10,000 shares owned by Brent D. Baird.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Class A Common Stock and Class B
Common Stock as of September 30, 1997, by (i) each Director of the Company
and (ii) all Directors and officers of the Company as a group.
Class A Common Stock Class B Common Stock
Nature and Percent Nature and
Amount of of Amount of
Beneficial Class As Beneficial Percent
Ownership Adjusted Ownership of
Name(1) (2)(3) (4) (2)(3) Class
Gerhard J. Neumaier
(5)(13) 346,944 14.0% 345,894 19.0%
Frank B. Silvestro 288,937 12.0% 288,937 15.8%
(13)
Ronald L. Frank 267,976 11.2% 259,394 14.2%
(6)(13)
Gerald A. Strobel 270,796 11.3% 270,796 14.8%
(7)(13)
Harvey J. Gross (8) 91,047 4.1% 91,047 5.0%
Gerard A. Gallagher, Jr. 76,987 3.5% 76,646 4.2%
Ralph Bookbinder (9) 18,200 * 17,850 1.0%
Ross M. Cellino (10) 13,206 * 1,050 *
Directors and officers
as a Group (11)(12) 1,391,355 39.9% 1,365,203 74.9%
(10 individuals)
<PAGE>
* Less than 0.1%
__________
(1) The address of each of the above shareholders is c/o Ecology and
Environment, Inc., 368 Pleasantview Drive, Lancaster, New York 14086.
(2) Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, beneficial ownership of a security consists of sole or shared
voting power (including the power to vote or direct the vote) or sole
or shared investment power (including the power to dispose or direct
the disposition) with respect to a security whether through any
contract, arrangement, understanding, relationship or otherwise.
Unless otherwise indicated, the shareholders identified in this table
have sole voting and investment power of the shares beneficially owned
by them.
(3) Each named person and all Directors and officers as a group are deemed
to be the beneficial owners of securities that may be acquired within
60 days through the exercise of exchange or conversion rights. The
shares of Class A Common Stock issuable upon conversion by any such
shareholder are not included in calculating the number of shares or
percentage of Class A Common Stock beneficially owned by any other
shareholder. Moreover, the table gives effect to only 2,965 shares of
Class A Common Stock of the total 90,710 shares of Class A Common Stock
that may be issued pursuant to the Company's Incentive Stock Option
Plan, which may be purchased within the next 60 days pursuant to vested
options granted to one officer.
(4) There are 2,126,202 shares of Class A Common Stock issued and
outstanding and 1,823,128 shares of Class B Common Stock issued and
outstanding as of September 30, 1997. The figure in the "as adjusted"
columns are based upon these totals and except as set forth in the
preceding sentence, upon the assumptions described in footnotes 2 and 3
above.
(5) Includes 525 shares of Class A Common Stock owned by Mr. Neumaier's
spouse, as to which he disclaims beneficial ownership. Includes 525
shares of Class A Common Stock owned by Mr. Neumaier's Individual
Retirement Account. Does not include any shares of Class A Common
Stock or Class B Common Stock held by Mr. Neumaier's adult children.
(6) Includes 7,850 shares of Class B Common Stock owned by one of Mr.
Frank's children and 5,067 shares of Class A Common Stock owned by one
of Mr. Frank's children as to which he disclaims beneficial ownership.
Does not include any shares of Class A Common Stock or Class B Common
Stock held by Mr. Frank's other adult children. Includes 39,625 shares
of Class B Common Stock owned by Mr. Frank's former spouse as to which
he disclaims beneficial ownership except for the right to vote the
shares which he retains pursuant to an agreement with his former
spouse. Includes 515 shares of Class A Common Stock owned by Mr.
Frank's individual retirement account.
<PAGE>
(7) Includes 51,726 shares of Class B Common Stock owned in equal amounts
by Mr. Strobel's three children (Mr. Strobel holds 21,171 shares as
custodian for these children), as to which he disclaims beneficial
ownership.
(8) Includes an aggregate of 21,047 shares of Class B Common Stock owned by
two trusts created by Mr. Gross of which he and his spouse are the sole
beneficiaries during their lifetimes.
(9) Includes 1,050 shares of Class B Common Stock and 150 shares of Class A
Common Stock owned by Mr. Bookbinder's spouse as to which he disclaims
beneficial ownership.
(10) Includes 10,396 shares of Class A Common Stock owned by Mr. Cellino's
spouse, as to which shares he disclaims beneficial ownership; also
includes 1,655 shares of Class A Common Stock owned by Mr. Cellino's
Individual Retirement Account.
(11) Does not include 49,932 shares (19,475 shares of Class A Common Stock
and 30,457 shares of Class B Common Stock) owned by the Company's
Defined Contribution Plan of which Messrs. Gerhard J. Neumaier, Frank,
Silvestro and Strobel constitute four of the five trustees of each
Plan.
(12) Includes 1,181 shares of Class A Common Stock which may be issued upon
exercise of a stock option granted to one officer in July 1988,
pursuant to the Company's Incentive Stock Option Plan; includes 892
shares of Class A Common Stock which may be issued upon exercise of a
stock option granted to one officer in July 1990, pursuant to the
Company's Incentive Stock Option Plan; includes 892 shares of Class A
Common Stock which may be issued upon exercise of a stock option
granted to one officer on September 2, 1991 pursuant to the Company's
Incentive Stock Option Plan; does not include 787 shares of Class A
Common Stock which may be issued upon the exercise of a stock option
granted to one officer on November 2, 1992 pursuant to the Company's
Incentive Stock Option Plan; does not include 630 shares of Class A
Common Stock which may be issued upon the exercise of a stock option
granted to one officer on April 2, 1994 pursuant to the Company's
Incentive Stock Option Plan; does not include 600 shares of Class A
Common Stock which may be issued upon the exercise of a stock option
granted to one officer on December 2, 1994 pursuant to the Company's
Incentive Stock Option Plan; does not include 2,400 shares of Class A
Common Stock which may be issued upon the exercise of stock options
granted to two (2) officers on December 12, 1995 pursuant to the
Company's Incentive Stock Option Plan.
(13) Subject to the terms of the Restrictive Agreement. See "Security
Ownership of Certain Beneficial Owners-Restrictive Agreement".
Restrictive Agreement
Messrs. Gerhard J. Neumaier, Silvestro, Frank, and Strobel entered
into a Stockholders' Agreement in 1970 which governs the sale of an
<PAGE>
aggregate of 1,272,018 shares Class B Common Stock owned by them, the former
spouse of one of the individuals and the children of the individuals. The
agreement provides that prior to accepting a bona fide offer to purchase all
or any part of their shares, each party must first allow the other members
to the agreement the opportunity to acquire on a pro rata basis, with right
of over-allotment, all of such shares covered by the offer on the same terms
and conditions proposed by the offer.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS
(a) 1. Financial Statements Page
Report of Independent Accountants 18
Consolidated Balance Sheet -
July 31, 1997 and 1996 19
Consolidated Statement of Income
for the fiscal years ended
July 31, 1997, 1996 and 1995 20
Consolidated Statement of Changes in
Shareholders' Equity for the fiscal years
ended July 31, 1997, 1996 and 1995 21
Consolidated Statement of Cash Flows for
the fiscal years ended July 31, 1997,
1996 and 1995 22
Notes to Consolidated Financial Statements 23
2. Financial Statement Schedule
Schedule VIII - Allowance for
Doubtful Accounts 34
All other schedules are omitted because they are not applicable, or
the required information is shown in the consolidated financial statements
or notes thereto.
3. Exhibits
Exhibit No. Description
3.1 Certificate of Incorporation (1)
3.2 Certificate of Amendment of Certificate of Incorporation filed on
March 23, 1970 (1)
<PAGE>
3.3 Certificate of Amendment of Certificate of Incorporation filed on
January 19, 1982 (1)
3.4 Certificate of Amendment of Certificate of Incorporation filed on
January 29, 1987 (1)
3.5 Certificate of Amendment of Certificate of Incorporation filed on
February 10, 1987 (1)
3.6 Restated By-Laws adopted on July 30, 1986 by Board of Directors (1)
3.7 Certificate of Change Under Section 805-A of the Business Corporation
Law filed August 18, 1988 (2)
3.8 Certificate of Amendment of Certificate of Incorporation filed
January 15, 1988 (2)
4.1 Specimen Class A Common Stock Certificate (1)
4.2 Specimen Class B Common Stock Certificate (1)
10.1 Stockholders' Agreement among Gerhard J. Neumaier, Ronald L. Frank,
Frank B. Silvestro and Gerald A. Strobel dated May 12, 1970 (1)
10.4 Ecology and Environment, Inc. Defined Contribution Plan Agreement
dated July 25, 1980 as amended on April 28, 1981 and July 21, 1983 and
restated effective August 1, 1984 (1)
21.5 Schedule of Subsidiaries as of July 31, 1997 (5)
23.0 Consent of Independent Accountants (5)
FOOTNOTES
(1) Filed as exhibits to the Company's Registration Statement on Form
S-1, as amended by Amendment Nos. 1 and 2, (Registration No.
33-11543), and incorporated herein by reference.
(2) Filed as exhibits to the Company's Form 10-K for Fiscal Year
Ending July 31, 1988, and incorporated herein by reference.
(3) Filed as exhibit to the Company's Form 10-K for Fiscal Year
ending July 31, 1990, and incorporated herein by reference.
(4) Filed as an exhibit to the Company's Form 10-K for Fiscal Year
ending July 31, 1994, and incorporated herein by reference.
(5) Filed as an exhibit to the Company's Form 10-K for Fiscal Year
ending July 31, 1995, and incorporated herein by reference.
(b) Reports on Form 8-K
Registrant has not filed any reports on Form 8-K during the fourth
quarter ended July 31, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, ECOLOGY AND ENVIRONMENT, INC. has duly
caused this Annual Report to be signed on its behalf by the undersigned
thereunto duly authorized:
Dated: October 27, 1997 ECOLOGY AND ENVIRONMENT, INC.
By: /s/ Gerhard J. Neumaier
Gerhard J. Neumaier, President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the Registrant in the capacities and on the dates indicated:
Signature Title Date
/s/ Gerhard J. Neumaier President October 27, 1997
Gerhard J. Neumaier (Chief Executive
Officer)
/s/ Frank B. Silvestro Executive October 27, 1997
Frank B. Silvestro Vice-President
/s/ Gerald A. Strobel Executive October 27, 1997
Gerald A. Strobel Vice-President
/s/ Ronald L. Frank Secretary, October 27, 1997
Ronald L. Frank Treasurer, Executive
Vice-President of
Finance
(Principal Financial
and Accounting Officer)
/s/ Gerard A. Gallagher, Jr. Senior Vice October 27, 1997
Gerard A. Gallagher, Jr. President of
Special Projects
and Director
/s/ Ralph Bookbinder Director October 27, 1997
Ralph Bookbinder
/s/ Harvey J. Gross Director October 27, 1997
Harvey J. Gross
/s/ Ross M. Cellino Director October 27, 1997
Ross M. Cellino
<PAGE>
Exhibit Index
Exhibit 21.5 Schedule of Subsidiaries as of July 31, 1997
Exhibit 23 Consent of Independent Accountants
<PAGE>
EXHIBIT 21.5
SCHEDULE OF SUBSIDIARIES
AS OF JULY 31, 1997
Subsidiaries of Ecology and Environment, Inc. (the "Company") as of July 31,
1997.
Percentage of Capital Stock
of Subsidiary owned by the
Name Company
1. Ecology and Environment Engineering, Inc.
(a Colorado corporation) 100%
2. Ecology and Environment, Limited
(a limited company formed under the
laws of the Republic of Ireland) 66 2/3%
3. E & E Kornyezetvedlmi Kft. (a corporation
formed under the laws of Hungary) 100%
4. E & E Umwelt - Beratung GmbH, Leipzig
(a corporation formed under the laws
of Germany) 100%
5. Ecology and Environment de Mexico
S.A.de C.V. (a corporation formed
under the laws of Mexico) 99.9%
6. Ecology and Environment, S.A.
(a corporation formed under the laws
of Venezuela) 55%
7. Ecology and Environment Eurasia (a)
corporation formed under the laws of
the Russian Republic) 100%
8. ecology and environment do brasil LTDA
(a corporation formed under the laws of
Brazil) 99%
9. Ecology and Environment of Saudi Arabia
Company, Ltd. (a limited liability
company formed under the laws of Saudi
Arabia) 66 2/3%
<PAGE>
EXHIBIT 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-41998 and 333-30085) of Ecology and
Environment, Inc. of our report dated October 2, 1997, appearing on page 18 of
this Form 10-K. We also consent to the reference to us under the heading
"Experts" in such Registration Statement (33-41998).
PRICE WATERHOUSE LLP
Buffalo, New York
October 27, 1997
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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