<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 31, 1998 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, 1998, 2,155,822 shares of Registrant's Class A Common Stock
(par value $.01) and 1,793,508 shares of Class B Common Stock (par value $.01)
were outstanding.
<PAGE>
<TABLE>
Ecology & Environment, Inc
Consolidated Balance Sheet
<CAPTION>
January 31,
1998 July 31,
(Unaudited) 1997
------------- ------------
<S> <C> <C>
Assets
- ----------
Current assets:
Cash and cash equivalents $ 5,543,759 $ 3,714,898
Investment securities available for sale 7,555,820 7,086,035
Contract receivables, net 21,032,079 25,981,157
Other current assets 3,467,182 3,092,891
------------ ------------
Total current assets 37,598,840 39,874,981
Property, building and equipment, net 12,989,303 12,852,976
Other assets 816,090 796,416
------------ ------------
Total Assets $51,404,233 $53,524,373
============ ============
Liabilities and Shareholders' Equity
- ----------------------------------------
Current liabilities:
Accounts payable $1,383,733 $2,574,354
Accrued payroll costs 3,147,553 3,716,183
Other accrued liabilities 2,400,592 2,258,707
Income taxes payable --- 184,583
------------ ------------
Total current liabilities 6,931,878 8,733,827
Long-term debt 571,875 607,291
Shareholders' equity:
Preferred stock, par value $.01 per share;
authorized - 2,000,000 shares; no shares
issued --- ---
Class A common stock, par value $.01 per
share; authorized - 6,000,000 shares;
issued - 2,350,222 and 2,316,912 shares 23,502 23,169
Class B common stock, par value $.01 per
share; authorized - 10,000,000 shares;
issued - 1,819,767 and 1,853,077 shares 18,197 18,530
Capital in excess of par value 17,591,436 17,591,436
Retained earnings 27,940,285 28,223,060
Treasury stock - Class A common, 194,400
shares; Class B common, 26,259
shares at cost (1,672,940) (1,672,940)
------------ ------------
Total shareholders' equity 43,900,480 44,183,255
------------ ------------
Total liabilities and shareholders' equity $51,404,233 $53,524,373
============ ============
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 31, January 25, January 31, January 25,
1998 1997 1998 1997
-------------------------- ------------------------
<S> <C> <C> <C> <C>
Gross revenues $16,422,674 $16,919,726 $35,796,026 $33,671,863
Less: direct subcontract costs 2,280,591 3,390,925 5,754,881 6,001,642
------------ ------------ ----------- -----------
Net revenues 14,142,083 13,528,996 30,041,145 27 670,221
Operating costs and expenses:
Cost of professional services
and other direct operating
expense 8,363,654 7,744,828 17,845,842 15,801,541
Administrative and indirect
operating expenses 3,690,334 3,458,365 7,513,026 7,105,746
Marketing and related costs 1,886,329 1,980,026 3,783,552 3,803,518
Depreciation 337,778 398,822 692,387 800,061
------------ ------------ ----------- -----------
Total operating costs & expenses 14,278,095 13,582,041 29,834,807 27,510,866
------------ ------------ ----------- -----------
Income (loss) from operations (136,012) (53,045) 206,338 159,355
Interest expense 14,428 15,628 29,326 31,624
Interest income 160,173 182,384 320,669 366,533
Income before income taxes 9,733 113,711 497,681 494,264
Income tax provision (benefit):
Federal 46,117 67,079 150,749 158,998
State 8,316 15,032 53,334 40,421
Deferred 8,331 16,766 (55,519) 52,588
------------ ------------ ----------- -----------
46,102 98,877 148,564 252,007
------------ ------------ ----------- -----------
Net Income $55,835 $14,834 $349,117 $242,257
============ ============ =========== ===========
Net income per common share:
Basic and Diluted $0.02 $0.004 $0.09 $0.06
============ ============ ============ ===========
Weighted average common shares
outstanding: Basic 3,949,330 3,957,853 3,949,330 3,963,295
============ ============ ============ ===========
Diluted 3,964,888 3,963,044 3,961,435 3,967,112
============ ============ ============ ===========
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 31, January 25,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $349,117 $242,257
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 692,387 800,061
Provision (benefit) for contract adjustments 192,000 (18,075)
(Increase) decrease in:
- contracts receivable 4,757,078 2,422,423
- other current assets (374,291) 395,494
Increase (decrease) in:
- accounts payable (1,190,621) (1,532,921)
- accrued payroll costs (568,630) (1,344,147)
- other accrued liabilities 141,885 243,763
- income taxes payable (184,583) ---
Other, net (19,674) 10,096
----------- -----------
Net cash provided by operating activities 3,794,668 1,218,951
----------- -----------
Cash flows used in investing activities:
Purchase of property, building and equipment, net (828,714) (524,804)
Purchase of investment securities (469,785) (430,976)
Investment in China joint venture --- (126,582)
----------- -----------
Net cash used in investing activities 1,298,499 (1,082,362)
----------- -----------
Cash flows used in financing activities:
Dividends Paid (631,892) (632,901)
Repayment of long-term debt (35,416) (43,750)
Repurchase of common stock --- (175,000)
----------- -----------
Net cash used in financing activities (667,308) (851,651)
----------- -----------
Net decrease in cash and cash equivalents 1,828,861 (715,062)
Cash and cash equivalents at beginning of year 3,714,898 8,080,524
----------- -----------
Cash and cash equivalents at end of year 5,543,759 $7,365,462
=========== ===========
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 31, 1998 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, 1997 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 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
<PAGE>
contract adjustments accounts represents a reserve against possible
adjustments for fiscal years 1990 through 1998.
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.
2. Contract Receivables
Contract receivables are comprised of:
January 31, July 31,
1998 1997
------------ ------------
United States government
Billed $ 7,871,794 $ 7,959,278
Unbilled 5,705,155 8,214,653
------------ ------------
13,576,949 16,173,931
------------ ------------
Industrial customers and state
and municipal governments
Billed 5,513,671 6,608,240
Unbilled 2,967,583 4,103,110
------------ ------------
8,481,254 10,711,350
------------ ------------
Less allowance for contract
adjustments (1,026,124) (904,124)
------------ ------------
$21,032,079 $25,981,157
============ ============
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 $136,000 at January 31, 1998, and $3,026,000 at
July 31, 1997. Management anticipates that the January 31, 1998
unbilled receivables will be substantially billed and collected in
fiscal year 1998. Within the above billed balances are contractual
retainages in the amount of approximately $1,575,000 at January 31,
1998 and $1,423,000 at July 31, 1997. Included in other accrued
liabilities is an additional allowance for contract adjustments
<PAGE>
relating to potential cost disallowances on amounts billed and
collected of approximately $2,158,000 at January 31, 1998 and
$2,028,000 at July 31, 1997.
3. Earnings Per Share
All earnings per share amounts reflect the implementation of
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share." SFAS No. 128 establishes new standards for
computing and presenting earnings per share and is effective for
financial statements for both interim and annual periods ending
after December 15, 1997. SFAS No. 128 requires that all prior
period earnings per share data be restated to conform with the
provisions of the statement. SFAS No. 128 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.
<TABLE>
The computations of basic and diluted earnings per share follow:
<CAPTION>
Three months ended Six months ended
January 31, January 25, January 31, January 25,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Income available to
common stockholders $55,835 $14,834 $349,117 $242,257
Weighted-average
shares outstanding 3,949,330 3,957,853 3,949,330 3,963,295
Basic earnings per share $0.02 $0.004 $0.09 $0.06
Incremental shares from
assumed conversions of
stock options 15,558 5,191 12,105 3,817
Adjusted weighted-average
shares outstanding 3,964,888 3,963,044 3,961,435 3,967,112
Diluted earnings per share $0.02 $0.004 $0.09 $0.06
At January 31, 1998 there were 90,853 stock options outstanding with an
exercise price ranging from $12.38 - $16.08 which were not included in
the above calculation because to do so would have been antidilutive to
the calculation. At January 25, 1997 there were 138,476 stock options
outstanding with an exercise price ranging from $9.00 - $16.08 which
were not included.
</TABLE>
<PAGE>
PART I - ITEM 2
_______________
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition
___________________
As of January 31, 1998, the Company's working capital balance
decreased $.4 million to $30.7 million as compared to $31.1 million at
July 31, 1997. Net contracts receivable decreased $4.9 million due
principally to the payment of a few significant receivables with the United
States federal government and an overall improvement in the invoicing and
collection of outstanding receivables. Cash and cash equivalents increased
$1.8 million mainly as a result of the aforementioned decline in
receivables, offset in large measure by cash expenditures for investing and
financing activities and payments of accounts payable and accrued payroll
costs. The Company's accounts payable and accrued payroll costs decreased
$1.2 million and $.6 million, respectively, due primarily to the timing of
payments.
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 31, 1998 and none were
required during the second quarter of fiscal year 1998. The Company has
historically 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 31, 1998. 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 1998 were $14.1
million, up 5% from the $13.5 million reported in the second quarter of
fiscal year 1997. The increase in net revenues was due primarily to an
increase in sales recognized from the Company's federal government agency
clients as well as increased sales realized through its subsidiary in
Venezuela. In particular, the Company realized greater net revenues
generated from its regional Superfund Technical Assistance and Response
Teams (START) contracts with the United States Environmental Protection
Agency (EPA) and various United States Department of Defense (DOD) clients.
The increase in sales generated from the Company's Venezuelan subsidiary is
the result of the Company's successful efforts to capitalize on emerging
business opportunities with the oil industry in South America.
Net income for the second quarter of fiscal year 1998 was $56,000, or
$.02 per share, up from the $15,000, or $.004 per share, reported in
the second quarter of fiscal year 1997. The increase in earnings was a
<PAGE>
result of the aforementioned increase in net revenues and the Company's
continued success in lowering indirect operating costs. The percentage of
the Company's indirect operating costs to net sales was lower in the second
quarter of fiscal year 1998 as compared to the same period last year. Also,
during the second quarter of fiscal year 1998, the organization recorded a
tax benefit from operations involving Ecology and Environment, Inc. (the
parent company) while not recording a tax provision on income from its
Venezuelan subsidiary due to prior years' loss carryforwards. Operating
margins realized from the Company's Analytical Services Center in the
period continued to be adversely affected by pricing pressures.
Overall net revenues for the six months ending January 31, 1998 were
$30.0 million, up 9% from the $27.7 million recorded in the first half of
fiscal year 1997. Net income for the current six month period was $349,000,
or $.09 per share, up from the $242,000, or $.06 per share, recognized in
the first six months of the previous year.
All of the Company's earnings per share amounts reflect the
implementation of Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share". SFAS No. 128 requires the Company to report both
"basic" and "diluted" earnings per share for both interim and annual
periods ending after December 15, 1997. SFAS No. 128 also mandates that all
prior period earnings per share data be restated to conform with the
provisions of the statement. The Company must report "diluted" earnings per
share due to the existence of outstanding stock options held by employees
that were granted under the Company's Incentive Stock Option Plan, which
has since expired in April 1996.
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
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.
<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, 1997 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 15, 1998.
(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, 1998 was approved by the Registrant's shareholders
in the following manner: (i) the holders of Class A Common Stock voted
as follows: 195,817 votes were cast in favor, 208 votes were cast
against this proposal and 441 votes abstained (representing 1,958,170
shares, 4,410 shares and 2,000 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: 1,286,884 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 17, 1998 By:
Ronald L. Frank
Executive Vice President
Chief Financial Officer
(Principal Financial
Accounting Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JAN-31-1998
<CASH> $5,543,759
<SECURITIES> $7,555,820
<RECEIVABLES> $21,032,079
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> $37,598,840
<PP&E> $12,989,303
<DEPRECIATION> 000
<TOTAL-ASSETS> $51,404,233
<CURRENT-LIABILITIES> $6,931,878
<BONDS> $571,875
<COMMON> $15,960,195
000
000
<OTHER-SE> $27,940,285
<TOTAL-LIABILITY-AND-EQUITY> $51,404,233
<SALES> $30,041,145
<TOTAL-REVENUES> $35,796,026
<CGS> 000
<TOTAL-COSTS> $29,834,807
<OTHER-EXPENSES> 000
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> $29,326
<INCOME-PRETAX> $497,681
<INCOME-TAX> $148,564
<INCOME-CONTINUING> 000
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> $349,117
<EPS-PRIMARY> $0.09
<EPS-DILUTED> 000
</TABLE>
