SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act in 1934
For Quarter Ended October 28, 2000 Commission File #1-9065
ECOLOGY AND ENVIRONMENT, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 16-0971022
---------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
organization)
368 Pleasant View Drive
Lancaster, New York 14086
----------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: 716-684-8060
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
At December 1, 2000, 2,363,488 shares of Registrant's Class A Common
Stock (par value $.01) and 1,743,741 shares of Class B Common Stock (par
value $.01 were outstanding.
<TABLE>
Ecology and Environment, Inc.
Consolidated Balance Sheet
<CAPTION>
October 28, 2000 July 31, 2000
(Unaudited)
---------------- -------------
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents $ 5,943,310 $ 4,997,771
Investment securities available for sale 3,472,949 3,436,207
Contract receivables, net 22,974,932 24,178,191
Deferred income taxes 1,924,939 1,932,774
Income taxes receivable --- 26,081
Other current assets 1,099,743 1,185,086
------------ ------------
Total current assets 35,415,873 35,756,110
Property, building and equipment, net 16,319,091 15,983,806
Deferred income taxes 152,247 152,247
Other assets 1,587,404 1,556,702
------------ ------------
Total assets $53,474,615 $52,448,865
============ ============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 3,146,325 $ 4,374,040
Accrued payroll costs 4,494,806 3,570,026
Other accrued liabilities 2,558,889 3,098,321
------------ ------------
Total current liabilities 10,200,020 11,042,387
Income tax payable 170,669 ---
Long-term debt 45,573 58,217
Minority Interest 84,431 12,666
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 - 2,400,559 and 2,392,709 shares 24,005 23,926
Class B common stock, par value $.01 per
share; authorized - 10,000,000 shares
issued - 1,769,730 and 1,777,580 shares 17,693 17,772
Capital in excess of par value 17,253,828 17,466,436
Retained earnings 26,497,253 25,906,540
Unearned compensation (523,719) ---
Teasury stock - Class A Common, 37,071 and
129,410 shares; Class B common, 26,259
and 26,259 shares, at cost (295,138) (1,079,079)
------------ ------------
Total shareholders' equity 42,973,922 42,335,595
------------ ------------
Total liabilities and shareholders' equity $53,474,615 $53,448,865
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
Ecology and Environment, Inc.
Consolidate Statement of Income
(Unaudited)
<CAPTION>
Three months ended
------------------------------
October 28, October 30,
2000 1999
------------ ------------
<S> <C> <C>
Gross revenues $24,294,076 $20,171,316
Less: direct subcontract costs 4,349,759 3,400,313
------------ ------------
Net revenues 19,944,317 16,771,003
Operating costs and expenses:
Cost of professional services and
other direct operating expenses 11,237,501 9,683,888
Administrative and indirect operating
expenses 5,285,492 4,211,293
Marketing and related costs 2,024,052 2,129,272
Depreciation 364,861 347,243
------------ ------------
Total operating costs & expenses 18,911,906 16,371,696
------------ ------------
Income from operations 1,032,411 399,307
Interest (expense) (21,605) (23,035)
Interest income 122,664 160,012
Net foreign currency exchange gain (loss) (2,930) 1,402
------------ ------------
Income before income taxes and minority interest 1,130,540 537,686
Total income tax provision 468,062 214,600
------------ ------------
Net income before minority interest 662,478 323,086
Minority Interest (71,765) 3,427
============ ===========
Net income $ 590,713 $ 326,513
Net income per common share: Basic and Diluted $0.14 $0.08
============ ============
Weighted average common shares outstanding:
Basic 4,106,959 3,967,347
============ ============
Diluted 4,106,959 3,967,347
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
Ecology and Environment, Inc.
Consolidated Statement of Cash Flows
(Unaudited)
<CAPTION>
Three months ended
------------------------------
October 28, October 30,
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 590,713 $ 326,513
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 364,861 347,243
Amortization 47,614 ---
Gain on disposition of property and equipment --- 31,030
Minority interest 71,765 (3,427)
Provision for contract adjustments 194,000 103,000
(Increase) decrease in:
- contracts receivable, net 1,009,259 (1,359,208)
- other current assets 85,343 (433,560)
- income taxes receivable 33,916 220,684
- other non-current assets (30,702) (433,375)
Increase (decrease) in:
- accounts payable (1,227,715) (258,044)
- accrued payroll costs 924,780 1,567,953
- other accrued liabilities (539,432) (1,464,610)
- income taxes payable 170,669 ---
----------- -----------
Net cash provided by (used in) operating activities 1,695,071 (1,355,801)
----------- -----------
Cash flows used in investing activities:
Purchase of property, building and equipment, net 238,375 (118,531)
Proceeds from sale of assets (938,521) (46,425)
Payment for the purchase of bond (36,742) (39,207)
Proceeds from sale of investment securities --- 1,000,000
----------- -----------
Net cash provided by (used in)investing activities (736,888) 795,837
----------- -----------
Cash flows used in financing activities:
Repayment of long-term debt (12,644) (13,061)
----------- -----------
Net cash used in financing activities (12,644) (13,061)
----------- -----------
Net increase (decrease) in cash and cash equivalents 945,539 (573,025)
Cash and cash equivalents at beginning of period 4,997,771 5,209,882
----------- -----------
Cash and cash equivalents at end of period $5,943,310 $4,636,857
=========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
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 the
Company and its wholly-owned and majority 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. The consolidated balance sheet at
October 28, 2000 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,
2000 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-fixed 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. 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. These provisions are estimated and accrued annually based
on goverment sales volume. 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 1993 and are
currently in process for fiscal years 1994 through 1995. The
majority of the balance in the allowance for contract adjustments
accounts represents a reserve against possible adjustments for
fiscal years 1992 through 2000.
d. 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. No provision has been made for United States income
taxes applicable to undistributed earnings of foreign subsidiaries
as it is the intention of the Company to indefinitely reinvest
those earnings in the operations of those entities.
2. Contract Receivables, Net
-------------------------
<TABLE>
<CAPTION>
Contract receivables are comprised of:
October 28, July 31,
2000 2000
------------ ------------
<S> <C> <C>
United States government
Billed $ 5,226,402 $ 6,404,394
Unbilled 4,020,512 4,086,931
------------ ------------
9,246,915 10,491,326
------------ ------------
Industrial customers and state
and municipal governments
Billed 12,357,084 11,179,091
Unbilled 4,232,789 4,166,371
------------ ------------
16,589,873 15,345,462
------------ ------------
Less allowance for contract
adjustments (1,812,598) (1,658,597)
------------ ------------
$24,024,190 $24,178,191
============ ============
</TABLE>
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 $108,231 at October 28, 2000 and ($403,000) at July 31,
2000. Unbilled contracts receivable are reduced by billings in
excess of costs incurred of $210,000 at October 28, 2000 and
$920,000 at July 31, 2000. Within the above billed balances are
contractual retainages in the amount of approximately $1,081,000
at October 28, 2000 and $1,148,000 at July 31, 2000. Included in
other accrued liabilities is an additional allowance for contract
adjustments relating to potential cost disallowances on amounts
billed and collected in current and prior years' projects of
approximately $2,031,000 at October 28, 2000 and $2,031,000 at
July 31, 2000. An allowance for contract adjustments is recorded
for contract disputes and government audits when the amounts are
determinable.
3. Earnings Per Share
-------------------
Basic EPS is computed by dividing income available to common
shareholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential
dilution that would 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 Company.
4. Segment Reporting
-----------------
Ecology and Environment, Inc. has three reportable segments: consulting
services, analytical laboratory services, and aquaculture. The
consulting services segment provides broad based environmental services
encompassing audits and impact assessments, surveys, air and water
quality management, environmental engineering, environmental infrastruc-
ture planning, and industrial hygiene and occupational health studies to
a worldwide base of customers. The analytical laboratory provides
analytical testing services to industrial and governmental clients for
the analysis of waste, soil and sediment samples. The shrimp aquaculture
facility, located in Costa Rica, was purchased on July 30, 1999. This
facility produces shrimp grown in a controlled environment for markets
worldwide.
The Company evaluates segment performance and allocates resources based on
operating profit before interest income/expense and income taxes. The
accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies. Intercompany
sales from the analytical services segment to the consulting segment are
recorded at market selling price, intercompany profits are eliminated.
The Company's reportable segments are separate and distinct business units
that offer different products. Consulting services are sold on the basis
of time charges while analytical services and aquaculture products are
sold on the basis of product unit prices.
Reportable segments for the three months ended October 28, 2000 are as
follows:
<TABLE>
<CAPTION>
Consulting Analytical Aquaculture Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues from external customers $18,757,149 $ 613,713 $ 9,000 $19,379,862
Intersegment net revenues --- 564,455 --- 564,455
----------- ----------- ----------- -----------
Total consolidated net revenues $18,757,149 $1,178,168 $ 9,000 $19,944,317
=========== ========== =========== ===========
Depreciation expense 209,409 88,452 67,000 364,861
Segment profit (loss) 1,371,326 (20,442) (300,973) 1,049,911
Segment assets 41,379,012 7,348,000 4,747,603 53,474,615
Expenditures for long-lived assets 136,258 62,000 486,522 684,780
</TABLE>
Geographic Information:
<TABLE>
<CAPTION>
Net Long-lived
Revenues (1) Assets
------------- ------------
<S> <C> <C>
United States $13,929,658 $35,226,170
Foreign countries 1,307,000 4,741,000
<FN>
<F1>
(1) Net revenues are attributed to countries based on the location of the
customers.
</FN>
</TABLE>
Reportable segment data for the three months ended October 30, 1999 is as
follows:
<TABLE>
<CAPTION>
Consulting Analytical Aquaculture Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues from external customers $15,653,485 $ 685,166 --- $16,338,651
Intersegment revenues --- 432,352 --- 432,352
----------- ---------- ----------- -----------
Total consolidated net revenues $15,653,485 $1,117,518 --- $16,771,003
=========== =========== =========== ===========
Depreciation expense 230,347 94,792 22,104 347,243
Segment profit (loss) 608,471 (174,894) (34,270) 399,307
Segment Assets 43,234,614 7,176,000 2,439,445 52,850,059
Expenditures for long-lived assets 68,950 3,677 36,132 108,759
</TABLE>
Geographic Information:
<TABLE>
<CAPTION>
Net Long-lived
Revenues (1) Assets
------------ ------------
<S> <C> <C>
United States $15,507,003 $33,400,535
Foreign countries $1,264,000 $2,264,002
<FN>
<F1>
(1) Net revenues are attributed to countries based on the location of the
customers.
</FN>
</TABLE>
5. Acquisitions
------------
In September 1999 the Company, through it's Chilean subsidiary, acquired
a 50.1% stake in Gestion Ambiental Consultores, (GAC), a Chilean environ-
mental consulting firm for a cash payment of $400,000. GAC has expertise
in mining, steel manufacturing and energy resources. In February 2000,
the Company purchased the remaining 10% interest in its shrimp aquaculture
facility for a purchase price of $263,000.
In June 2000, the Company purchased a 60% share of the assets of Walsh
Environmental Scientists and Engineers LLC, Walsh of Boulder, Colorado
for a purchase price of $700,000 cash and $300,000 in Class A common
stock. An additional $500,000 in cash was contributed by the Company
for working capital. The working capital contribution was used to pay
down short and long term debt and will provide capital for future growth.
Walsh of Boulder provides environmental services to clients in the Rocky
Mountain region as well as Peru, through its Peruvian subsidiary. These
acquisitions have been accounted for under the purchase method with the
results of operations from the respective acquisition dates. The
aggregate excess of the purchase prices of these acquisitions over the
fair market values of the net assets of the acquired companies is being
amortized over a range of 15-20 years from the acquisition dates using
the straight-line method.
The following information presents the pro forma consolidated results
of operations as if the acquisitions had occurred on August 1, 1999.
The pro forma amounts may not be indicative of the results that actually
would have been achieved had the acquisitions occurred as of August 1,
1999 and are not necessarily indicative of future results.
<TABLE>
<CAPTION>
Three months ended
October 28, 2000
(000's of $)
(Unaudited)
-------------------
<S> <C>
Net sales $17,946
Income before taxes 525
Net income 330
Net income per share $.08
</TABLE>
6. Stock Award Plan
----------------
Effective March 16, 1998, the Company adopted the Ecology and
Environment, Inc. 1998 Stock Award Plan (the "Award Plan") under
which key employees (including officers) of the Company or any of
its present or future subsidiaries may be designated to receive
awards of Class A common stock of the Company as a bonus for
services rendered to the Company or its subsidiaries, without
payment therefore, based upon the fair market value of the common
stock at the time of the award. The Company originally reserved for
issuance as awards under the Award Plan an aggregate of 12,000 shares
of Class A common stock of the Company, which shall be solely
treasury shares. Since then the Company has increased the number of
reserved shares to 112,000.
In the first quarter of year 2001, the Company issued 92,339 shares
at an average fair value of $6.19 per share. In fiscal year 2000 no
shares were issued. In fiscal year 1999, 8,750 shares were
issued at a weighted average fair value of $7.69 per share. In
fiscal year 1998, awards for 11,090 shares of Class A common stock
had been granted at a weighted average fair value of $9.81 per
share.
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 the first quarters of fiscal years 2001 and 2000 to be materially
different from their reported amounts.
PART 1 - ITEM 2
----------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Financial Condition
-------------------
At October 28, 2000 the Company had a working capital balance of
$25.2 million, a $.5 million increase from the balance at July 31,
2000. Cash, cash equivalents and investment securities available
for sale increased $1 million as a result of a $1 million decrease
in contracts receivable. The decrease in contracts receivables was
a result of increased efforts to speed collections of outstanding
invoices.
The Company maintains an unsecured line of credit of $10.0 million
with a bank at 1/2% below the prevailing prime rate. There are no
borrowings outstanding under this line of credit at October 28, 2000
and none were required during the first quarter of fiscal year 2001.
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 investment securities and the payment of dividends. There
are no significant working capital requirements pending at October 28,
2000. 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 Revenue
-----------
Net revenues for the first quarter of fiscal year 2001 were $19.9
million, up 18% from the $16.8 million reported in fiscal year 2000.
The increase in net revenues was attributable to increased revenues
from commercial customers primarily in the telecommunications-energy
sector, the United States Department of Defense (DOD) and the Company's
international clients. In particular, the Company experienced a 57%
increase in net revenues from various international clients and a 46%
increase in commercial net revenues. The increased net revenue from
the DOD was due to our continued aggressive marketing of new work under
DOD task order contracts.
Net revenues for the first quarter of fiscal year 2000 were $16.8 million,
up 10% from the $15.2 million reported for the first quarter of fiscal
year 1999. The increase in net revenues was attributable to increases in
revenues from the Company's contracts with the United States Environmental
Protection Agency (EPA) as well as increased net revenues from the DOD.
Income Before Income Taxes and Minority Interest
------------------------------------------------
The Company's income before income taxes and minority interest for fiscal
year 2001 was $1,131,000, up 110% from the $538,000 reported in fiscal
year 2000. Income before income taxes and minority interest was
positively impacted by the company-wide cost reduction measures which
increased both margins and efficiencies and an increase in both commercial
and international sector high margin work. This increase in work lead to
an increase in staff utilization and a decrease in the Company's indirect
expenses. The ASC's losses decreased from $175,000 in fiscal year 2000
to a loss of $20,000 in fiscal year 2001. Although ASC revenues were
flat, this improvement was possible due to continued efforts to reduce
costs and improve efficiencies in the ASC's sample tracking and reporting
systems. The Company experienced a loss of $200,000 in the first quarter
from its Costa Rica based shrimp farm subsidiary. As of October 28, 2000
the Shrimp Farm operation remained inactive as the final stages of the
clean up of the viral disease that hit the farm in the fourth quarter of
last year was completed. Controlled tests are currently underway to examine
the success of this cleanup process. The farm commenced startup operations
in November and should be in full production by late spring.
The Company's income before income taxes and minority interest for the
first quarter of fiscal year 2000 was $538,000, up 12% from the $482,000
reported in the first quarter of fiscal year 1999. The increase was
primarily due to significant improvements in the Company's ASC operation.
The ASC operating losses were reduced by 45% from the first quarter of the
prior year as a result of efficiency gains realized from the Company's new
laboratory information handling system installed in fiscal year 1999 as
well as reduced operating costs in the ASC. In addition, increased net
revenues from the START contracts and DOD clients resulted in increased
staff utilization and improved margins in the Company's consulting
business.
PART II - OTHER INFORMATION
---------------------------
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of l934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
ECOLOGY AND ENVIRONMENT, INC.
Date: December 12, 2000 By: RONALD L. FRANK
----------------------------
RONALD L. FRANK
EXECUTIVE VICE PRESIDENT
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL
ACCOUNTING OFFICER
