<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act in 1934
For Quarter Ended January 25, 1997 Commission File #1-9065
ECOLOGY AND ENVIRONMENT, INC.
(Exact name of registrant as specified in its charter)
New York 16-0971022
(State or other jurisdiction (I.R.S. Employer Identification No.)
organization)
368 Pleasant View Drive
Lancaster, New York 14086
(Address of principal executive offices)
Registrant's telephone number, including area code: 716-684-8060
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes ____X_____ No __________
At March 1, 1997, 2,120,147 shares of Registrant's Class A Common Stock
(par value $.01) and 1,835,183 shares of Class B Common Stock (par value $.01)
were outstanding.
<PAGE>
<TABLE>
Ecology & Environment, Inc
Consolidated Balance Sheet
<CAPTION>
January 25,
1997 July 31,
(Unaudited) 1996
------------- ------------
<S> <C> <C>
Assets
- ----------
Current assets:
Cash and cash equivalents $ 7,365,462 $ 8,080,524
Investment securities available for sale 6,933,780 6,502,804
Contract receivables, net 21,291,688 23,696,036
Other current assets 2,731,045 3,126,539
------------ ------------
Total current assets 38,321,975 41,405,903
Property, building and equipment, net 13,198,860 13,473,227
Other assets 811,486 695,890
------------ ------------
Total Assets $52,332,321 $55,575,020
============ ============
Liabilities and Shareholders' Equity
- ----------------------------------------
Current liabilities:
Accounts payable $1,601,941 $3,134,862
Accrued payroll costs 2,776,117 4,120,264
Other accrued liabilities 2,401,319 2,157,556
------------ ------------
Total current liabilities 6,779,377 9,412,682
Long-term debt 651,041 694,791
Shareholders' equity:
Preferred stock, par value $.01 per share;
authorized - 2,000,000 shares; no shares
issued --- ---
Class A common stock, par value $.01 per
share; authorized - 6,000,000 shares;
issued - 2,308,547 and 2,304,747 shares 23,085 23,047
Class B common stock, par value $.01 per
share; authorized - 10,000,000 shares;
issued - 1,861,442 and 1,865,242 shares 18,614 18,652
Capital in excess of par value 17,591,436 17,591,436
Retained earnings 28,941,708 29,332,352
Treasury stock - Class A common, 188,400 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 44,901,903 45,467,547
------------ ------------
Total liabilities and shareholders' equity $52,332,321 $55,575,020
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
Ecology & Environment, Inc.
Consolidated Statement of Income
(Unaudited)
<CAPTION>
Three months ended Six months ended
January 25, January 27, January 25, January 27,
1997 1996 1997 1996
-------------------------- ------------------------
<S> <C> <C> <C> <C>
Gross revenues $16,919,726 $16,275,580 $33,671,863 $36,034,538
Less: direct subcontract costs 3,390,730 1,824,925 6,001,642 4,373,863
------------ ------------ ----------- -----------
Net revenues 13,528,996 14,450,655 27,670,221 31,660,675
Operating costs and expenses:
Cost of professional services
and other direct operating
expense 7,744,828 7,914,515 15,801,541 17,523,532
Administrative and indirect
operating expenses 3,458,365 3,677,930 7,105,746 7,855,903
Marketing and related costs 1,980,026 1,986,002 3,803,518 4,170,989
Depreciation 398,822 401,768 800,061 822,272
------------ ------------ ----------- -----------
Total operating costs & expenses 13,582,041 13,980,215 27,510,866 30,372,696
------------ ------------ ----------- -----------
Income / (loss) from operations (53,045) 470,440 159,355 1,287,979
Interest expense 15,628 18,194 31,624 37,116
Interest income 182,384 219,196 366,533 397,441
Income before income taxes 113,711 671,442 494,264 1,648,304
Income tax provision (benefit):
Federal 67,079 209,651 158,998 501,908
State 15,032 81,354 40,421 181,711
Deferred 16,766 (29,100) 52,588 10,742
------------ ------------ ----------- -----------
98,877 261,905 252,007 694,361
------------ ------------ ----------- -----------
Net Income $14,834 $409,537 $242,257 $953,943
============ ============ =========== ===========
Net income per common share $0.004 $0.10 $0.06 $0.23
============ ============ =========== ===========
Weighted average common shares
outstanding 3,957,853 4,053,892 3,963,295 4,081,869
============ ============ =========== ===========
The accompanying notes are an integral part of these financial statement.
</TABLE>
<PAGE>
<TABLE>
Ecology & Environment, Inc.
Consolidated Statement of Cash Flows
(Unaudited)
<CAPTION>
Six months ended
-------------------------
January 25, January 27,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $242,257 $953,943
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 800,061 822,272
(Benefit) Provision for contract adjustments (18,075) 162,301
Decrease in:
- contracts receivable 2,422,423 1,552,771
- other current assets 395,494 514,171
Increase (decrease) in:
- accounts payable (1,532,921) (2,376,468)
- accrued payroll costs (1,344,147) (1,839,172)
- other accrued liabilities 243,763 10,983
Other, net 10,096 (26,076)
----------- -----------
Net cash provided by (used in) operating activities 1,218,951 (225,275)
----------- -----------
Cash flows used in investing activities:
Purchase of property, building and equipment, net (524,804) (353,800)
Purchase of investment securities (430,976) (585,943)
Investment in China joint venture (126,582) ---
----------- -----------
Net cash used in investing activities (1,082,362) (939,743)
----------- -----------
Cash flows used in financing activities:
Dividends Paid (632,901) (656,224)
Repayment of long-term debt (43,750) (43,750)
Repurchase of common stock (175,000) (708,515)
----------- -----------
Net cash used in financing activities (851,651) (1,408,489)
----------- -----------
Net decrease in cash and cash equivalents (715,062) (2,573,507)
Cash and cash equivalents at beginning of year 8,080,524 9,658,139
----------- -----------
Cash and cash equivalents at end of year $7,365,462 $7,084,632
=========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
ECOLOGY AND ENVIRONMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting principles
a. Consolidation
The consolidated financial statements include the accounts of
Ecology and Environment, Inc. (the Company) and its wholly-owned
subsidiaries. Also reflected in the financial statements is the
Company's 66-2/3% ownership in the assets of a nonoperating
subsidiary, Ecology and Environment of Saudi Arabia Ltd. (EESAL),
and a 50% ownership in two Chinese operating joint ventures,
Beijing Yi Yi Ecology and Engineering Co. Ltd. and The Tianjin
Green Engineering Company. These joint ventures are accounted for
under the equity method. All significant intercompany transactions
and balances have been eliminated. The consolidated balance sheet
at January 25, 1997 and the accompanying consolidated statements of
income and of cash flows are unaudited. In the opinion of
management, all adjustments necessary for a fair presentation of
such financial statements have been included. Such adjustments
consisted only of normal recurring items. The accompanying
financial statements should be reviewed in conjunction with the
Company's fiscal year ended July 31, 1996 audited financial
statements.
b. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
c. Revenue Recognition
Substantial amounts of the Company's revenues are derived from
cost-plus-fee contracts and are recognized on the basis of costs
incurred during the period, plus the fee earned. The fees under
certain government contracts are determined in accordance with
performance incentive provisions. Such awards are recognized at
the time the amounts can be reasonably determined. Provisions for
estimated contract adjustments relating to cost based contracts
have been deducted from gross revenues in the accompanying
consolidated statement of income. Such adjustments typically arise
as a result of interpretations of cost allowability under cost
based contracts. Revenues related to long-term government
contracts are subject to audit by an agency of the United States
government. Government audits have been completed through fiscal
year 1989 and are currently in process for fiscal years 1990
through 1992. The majority of the balance in the allowance for
<PAGE>
contract adjustments accounts represents a reserve against possible
adjustments for fiscal years 1990 through 1997.
d. Income Taxes
The Company uses the liability method for its accounting for income
taxes. Under the liability method, a deferred tax liability or
asset is recognized for the tax consequences of all events that
have been recognized in the financial statements. The deferred tax
consequences of such events are equal to the expected amount of
taxes payable or refundable in future years, based upon tax laws
currently in effect.
e. Net income per common share
The computations of net income per common share are based upon the
weighted average of Class A and B common shares outstanding during
each period.
2. Contract Receivables
Contract receivables are comprised of:
January 25, July 31,
1997 1996
------------ ------------
United States government
Billed $ 4,850,721 $ 7,720,240
Unbilled 6,264,374 6,956,133
------------ ------------
11,115,095 14,676,373
------------ ------------
Industrial customers and state
and municipal governments
Billed 5,477,981 6,174,195
Unbilled 5,460,396 3,837,327
------------ ------------
10,938,377 10,011,522
------------ ------------
Less allowance for contract
adjustments (761,784) (991,859)
------------ ------------
$21,291,688 $23,696,036
============ ============
United States government receivables arise from long-term U.S.
government prime contracts and subcontracts. Unbilled receivables
result from revenues which have been earned, but are not billed as
of period-end. The above unbilled balances are comprised of
incurred costs plus fees not yet processed and billed; and
differences between year-to-date provisional billings and
year-to-date actual contract costs incurred and fees earned of
approximately $2,679,000 at January 25, 1997, and $2,907,000 at
<PAGE>
July 31, 1996. Management anticipates that the January 25, 1997
unbilled receivables will be substantially billed and collected in
fiscal year 1997. Within the above billed balances are contractual
retainages in the amount of approximately $1,493,000 at January 25,
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 $2,060,000 at January 25, 1997 and
$1,848,000 at July 31, 1996.
3. Income Taxes
The provision for income taxes differs from the federal statutory
rate due to the following:
Six months ended
------------------------------
January 25, January 27,
1997 1996
------------- -------------
Statutory rate 34.0% 34.0%
State income taxes, less
federal effect 5.7 5.2
Losses on foreign subsidiaries 7.7 2.9
Other 3.6 -
------------- ------------
51.0% 42.1%
============= ============
<PAGE>
PART I - ITEM 2
_______________
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition
___________________
As of January 25, 1997, the Company's working capital balance
decreased $.5 million to $31.5 million as compared to $32.0 million at
July 31, 1996. Net contracts receivable decreased $2.4 million primarily
because the Company awaited $1.7 million in fee payments from its Technical
Assistance Teams (TAT) contract with the United States Environmental
Protection Agency (EPA) at July 31, 1996 which were received during the
first quarter of fiscal year 1997.Cash and cash equivalents decreased $.7
million as the amount of cash used by the Company in investing and
financing activities was greater than cash generated by operating
activities. Accounts payable decreased $1.5 million due primarily to the
timing of payments. Accrued payroll costs decreased $1.3 million mainly due
to 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 January 25, 1997, 188,400
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 January 25, 1997 and none were required during
the first half of fiscal year 1997. The Company has financed its activities
through cash flows from operations. Internally generated funds have been
adequate to support the demands for working capital, the purchase of new
fixed assets and the payment of dividends. There are no significant working
capital requirements pending at January 25, 1997. The Company's existing
cash along with that generated by future operations and the existing credit
line is expected to be sufficient to meet the Company's needs for the
foreseeable future.
Results of Operations
_____________________
Net revenues for the second quarter of fiscal year 1997 were $13.5
million, down from the $14.5 million recorded for the second quarter of
fiscal year 1996. The decrease in net revenues was due to a decrease in
sales recognized from the Company's United States Environmental Protection
Agency (EPA) superfund contracts. During the second quarter of fiscal year
1996, the EPA awarded the Company five regional Superfund Technical
Assistance and Response Teams (START) contracts which replaced its
Technical Assistance Teams (TAT) contract that expired in December 1996.
The superfund contracts, which include START, TAT and Alternative Remedial
Contract Strategy (ARCS) contracts, generated approximately $1.2 million
less in net revenues in the second quarter of fiscal year 1997 than was
<PAGE>
realized from the superfund contracts in the second quarter of last year.
This was primarily due to the fact that the federal government has been
slow to spend funds and exercise contract options. The Company's work under
the START program has recently showed indications of expansion as the
government requested a significant increase in the Company's level of
effort late in the second quarter.
The Company's second quarter of fiscal year 1997 net revenues derived
from its international clients and domestic state agencies increased as
compared to the same period of the prior year while domestic private sector
sales remained steady. During the just completed quarter, the Company
announced the formation of its second Chinese joint venture with the City
of Tianjin and the award of a contract with the State of Georgia Department
of Natural Resources worth up to $5.0 million. However, the growth in
business from the international markets and state agencies was not
sufficient to offset the decline in EPA superfund sales.
Net income for the quarter was $15,000, or $.004 per share, down from
the $410,000, or $.10 per share, recorded in the second quarter of fiscal
year 1996. The decrease in earnings can be attributed to the
afforementioned decline in net revenues from EPA superfund contracts as
well as a decline in operating margins from these contracts. However, the
recent work expansion under the START contract should result in increased
profits derived from this program.
The Company continued to reduce its indirect operating costs as the
second quarter of fiscal year 1997 marked the ninth consecutive quarter in
which these costs declined as compared to the same quarter of the previous
year. Additional reductions amounting to $1.0 million per year have been
made subsequent to the close of the second quarter. The Company will
continue to review its operating costs compared to its forecasted revenues
in order to restore its operations to historical margins.
Overall net revenues for the six months ending January 25, 1997 were
$27.7 million, down from the $31.7 million recorded in the first half of
fiscal year 1996. Net income for the current six month period was $242,000,
or $.06 per share, as compared to $954,000, or $.23 per share, for the
previous year.
<PAGE>
PART II - OTHER INFORMATION
Item 1, Legal Proceedings.
The Registrant has previously reported information for Item 1 that
is required to be presented in item 3 of its Annual Report on Form 10K
for its fiscal year ended July 31, 1996 which is incorporated herein by
reference.
Item 2, Changes in Securities.
(a) Not Applicable.
(b) Not Applicable.
Item 3, Defaults Upon Senior Securities.
The Registrant has no information for Item 3 that is required to be
presented.
Item 4, Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Shareholders of the Registrant was held
on January 16, 1997.
(b) At such meeting, the following persons were elected as
directors by the holders of Class A Common Stock: Ralph Bookbinder and
Ross M. Cellino; and the following directors by the holders of Class B
Common Stock: Gerhard J. Neumaier, Ronald L. Frank, Frank B. Silvestro,
Gerald A. Strobel, Gerard A. Gallagher, Jr. and Harvey J. Gross.
(c) A proposal appointing the accounting firm of Price Waterhouse
LLP as the Registrant's independent public accountant for its fiscal
year ending July 31, 1997 was approved by the Registrant's shareholders
in the following manner: (i) the holders of Class A Common Stock voted
as follows: 171,614.7 votes were cast in favor, 872 votes were cast
against this proposal and 514.5 votes abstained (representing 1,716,147
shares, 8,720 shares and 5,145 shares voted respectively, each share of
Class A Common Stock being entitled to 1/10 of 1 vote per share for this
proposal); and (ii) the holders of Class B Common Stock voted as
follows: 1,490,316 votes were cast in favor, no votes cast against this
proposal and no votes abstained (each share of Class B Common Stock
being entitled to one vote per share for this proposal).
(d) Not Applicable.
Item 5, Other Information.
The Registrant has no information for Item 5 required to be
presented.
<PAGE>
PART II - OTHER INFORMATION (CONTINUED)
Item 6, Exhibits and Reports on Form 8-K.
(a) Not Applicable.
(b) Not Applicable.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
l934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
ECOLOGY AND ENVIRONMENT, INC.
Date: March 11, 1997 By: /s/ Ronald L. Frank
Ronald L. Frank
Executive Vice President
Chief Financial Officer
(Principal Financial
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JAN-25-1997
<CASH> $7,365,462
<SECURITIES> $6,933,780
<RECEIVABLES> $21,291,688
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> $38,321,975
<PP&E> $13,198,860
<DEPRECIATION> 000
<TOTAL-ASSETS> $52,332,321
<CURRENT-LIABILITIES> $6,779,377
<BONDS> $651,041
<COMMON> $15,960,195
000
000
<OTHER-SE> $28,941,708
<TOTAL-LIABILITY-AND-EQUITY> $52,332,321
<SALES> $27,700,951
<TOTAL-REVENUES> $33,702,593
<CGS> 000
<TOTAL-COSTS> $27,510,866
<OTHER-EXPENSES> 000
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> $31,624
<INCOME-PRETAX> $494,264
<INCOME-TAX> $252,007
<INCOME-CONTINUING> 000
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> $242,257
<EPS-PRIMARY> $0.06
<EPS-DILUTED> 000
</TABLE>
