SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended April 29, 2000 Commission File #1-9065
ECOLOGY AND ENVIRONMENT, INC.
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(Exact name of registrant as specified in its charter)
New York 16-0971022
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(State or other jurisdiction (I.R.S. Employer Identification No.)
organization)
368 Pleasant View Drive
Lancaster, New York 14086
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(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 shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
At June 6, 2000, 2,207,063 shares of Registrant's Class A Common Stock (par
value $.01) and 1,758,307 shares of Class B Common Stock (par value $.01)
were outstanding.
<TABLE>
Ecology and Environment, Inc.
Consolidated Balance Sheet
<CAPTION>
April 29, 2000
(Unaudited) July 31, 1999
---------------- -------------
<S> <C> <C>
Assets
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Current assets:
Cash and cash equivalents $ 6,856,583 $ 5,209,882
Investment securities available for sale 3,413,417 5,468,620
Contract receivables, net 20,192,580 23,529,043
Deferred income taxes 1,639,355 1,565,144
Income taxes receivable 387,490 571,094
Other current assets 1,453,755 585,199
------------ ------------
Total current assets 33,943,180 36,928,982
Property, building and equipment, net 15,501,484 14,530,109
Deferred income taxes 341,328 313,182
Other assets 1,150,627 922,461
------------ ------------
Total assets $50,936,619 $52,694,735
============ ============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 2,530,896 $ 3,634,114
Accrued payroll costs 3,720,004 2,240,904
Other accrued liabilities 2,183,044 3,550,878
------------ ------------
Total current liabilities 8,433,944 9,425,896
Minority interest 19,947 211,651
Long-term debt --- 515,625
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 - 2,375,302 and 2,375,302 shares 23,752 23,752
Class B common stock, par value $.01 per
share; authorized - 10,000,000 shares
issued - 1,794,987 and 1,794,987 shares 17,946 17,946
Capital in excess of par value 17,591,436 17,591,436
Retained earnings 26,353,673 26,412,508
Teasury stock - Class A Common, 177,060 and
177,060 shares; Class B common, 26,259
shares, at cost (1,504,079) (1,504,079)
------------ ------------
Total shareholders' equity 42,482,728 42,541,563
------------ ------------
Total liabilities and shareholders' equity $50,936,619 $52,694,735
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
Ecology and Environment, Inc.
Consolidated Statement of Income
(Unaudited)
<CAPTION>
Nine months ended
------------------------------
April 29, May 1,
2000 1999
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<S> <C> <C>
Gross revenues $61,763,014 $55,722,099
Less: direct subcontract costs 11,166,433 8,593,113
------------ ------------
Net revenues 50,596,581 47,128,986
Operating costs and expenses:
Cost of professional services and
other direct operating expenses 29,773,208 27,627,185
Administrative and indirect operating
expenses 12,839,457 12,511,212
Marketing and related costs 6,175,820 5,891,329
Depreciation 994,141 1,030,642
------------ ------------
Total operating costs & expenses 49,782,626 47,060,368
------------ ------------
Income from operations 813,955 68,618
Interest expense (51,227) (54,722)
Interest income 344,186 501,339
Minority interest (19,947) ---
Net foreign currency exchange loss (15,423) (157,541)
------------ ------------
Income before income taxes 1,071,544 357,694
Income tax provision (benefit):
Federal 409,549 34,933
State 188,647 16,016
Deferred (102,357) 22,882
------------ ------------
Total income tax provision (benefit) 495,839 73,831
------------ ------------
Net income $575,705 $283,863
============ ============
Net income per common share: Basic and Diluted $0.15 $0.07
============ ============
Weighted average common shares outstanding:
Basic 3,966,282 3,960,720
============ ============
Weighted average common shares outstanding:
Diluted 3,966,282 3,969,510
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
Ecology and Environment, Inc.
Consolidated Statement of Cash Flows
(Unaudited)
<CAPTION>
Nine months ended
------------------------------
April 29, May 1,
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 575,705 $ 283,863
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 994,141 1,030,642
Gain on disposition of property and equipment 12,702 ---
Minority interest (191,704) ---
Provision for contract adjustments 529,657 9,200
(Increase) decrease in:
- contracts receivable, net 2,806,807 (3,581,489)
- other current assets (868,556) 262,105
- income taxes receivable 81,247 (172,300)
- other non-current assets (228,166) (34,938)
Increase (decrease) in:
- accounts payable (1,103,219) (786,379)
- accrued payroll costs 1,479,100 943,745
- other accrued liabilities (1,367,834) 740,396
----------- -----------
Net cash used in operating activities (2,719,880) (1,305,155)
----------- -----------
Cash flows provided by (used in) investing activities:
Purchase of property, building and equipment, net (1,479,909) (617,765)
Proceeds from sale of assets (498,309) ---
Payment for the purchase of bond (120,455) (670,310)
Proceeds from maturity of notes 500,658 562,689
Proceeds from sale of investment securities 1,675,000 ---
----------- -----------
Net cash provided by (used in)investing activities 76,985 (725,386)
----------- -----------
Cash flows used in financing activities:
Dividends paid (634,539) (633,675)
Repayment of long-term debt (515,625) (28,125)
Purchase of Treasury Stock --- (5,250)
----------- -----------
Net cash used in financing activities (1,150,164) (667,050)
----------- -----------
Net decrease in cash and cash equivalents (1,646,701) (2,697,591)
Cash and cash equivalents at beginning of period 5,209,882 6,627,164
----------- -----------
Cash and cash equivalents at end of period $6,856,583 $3,929,573
=========== ===========
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 Ecology and
Environment, Inc. (the Company) and its subsidiaries. Also reflected in
the financial statements is the Company's 66 2/3% ownership in the assets
of a nonoperating Company's subsidiary, Ecology and Environment of Saudi
Arabia Ltd. (EESAL), and a 50% ownership in two Chinese operating joint
ventures, Beijing Yi Yi Ecology and Engineering Co. Ltd. and The Tianjin
Green Engineering Company. These joint ventures are accounted for under
the equity method. All significant intercompany transactions and balances
have been eliminated. The consolidated balance sheet at April 29, 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, 1999 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. 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 1991
and are currently in process for fiscal years 1992 through 1994. The
majority of the balance in the allowance for contract adjustments accounts
represents a reserve against possible adjustments for fiscal years 1992
through 1999.
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 futures 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
-------------------------
Contract receivables are comprised of:
April 29, July 31,
2000 1999
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United States Government
Billed $3,845,055 $4,049,963
Unbilled 3,956,163 5,112,599
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7,801,218 9,162,562
Industrial customers and
state and municipal
governments
Billed 9,721,664 9,348,639
Unbilled 4,287,641 6,110,576
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14,009,305 15,459,215
Less allowance for contract
adjustments (1,617,943) (1,092,734)
------------ ------------
$20,192,580 $23,529,043
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
($448,277) at April 29, 2000 and $465,000 at July 31, 1999. Management
anticipates that the April 29, 2000 unbilled receivables will be
substantially billed and collected in fiscal year 2000. Within the above
billed balances are contractual retainages in the amount of approximately
$1,280,024 and $1,914,000 at July 31, 1999. 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 $1,876,000 at April 29, 2000 and
July 31, 1999.
3. Earnings Per Share
------------------
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 128 ("SFAS No. 128"), "Earnings Per Share," which modifies the way in
which earnings per share ("EPS") is calculated. 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. Acquisition
-----------
In September 1999 the Company, through it's Chilean subsidiary, acquired a
50.1% stake in Gestion Ambiental Consultores, (GAC), a Chilean environmental
consulting firm for a cash payment of $400,000. GAC has expertise in
mining, steel manufacturing and energy resources. The following information
presents the pro forma consolidated results of operations as if the
acquisition had occurred on August 1, 1998. The pro forma amounts may not
be indicative of the results that actually would have been achieved had the
acquisition occurred as of August 1, 1998 and are not necessarily indicative
of future results.
Nine Months Ended
May 1, 1999
(000's of $)
(Unaudited)
------------------------
Net sales $47,704
Income before taxes 366
Net income 282
Net income per share $.07
During the quarter, the Company purchased the remaining 10% interest in the
shrimp aquaculture facility for a purchase price of $263,000.
5. 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
infrastructure planning, and industrial hygiene and occupational health
studies to a world wide 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. Consequently, there was virtually no reportable segment
activity for fiscal year 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 service and aquaculture
products are sold on the basis of product unit prices.
Reportable segment data for the nine months ended April 29, 2000 are as
follows:
<TABLE>
<S> <C> <C> <C> <C>
Consulting Analytical Aquaculture Total
----------- ----------- ----------- -----------
Net revenues from external customers $46,936,782 $2,072,620 $391,962 $49,401,364
Intersegment revenues --- 1,195,217 --- 1,195,217
----------- ---------- ----------- -----------
Total consolidated net revenues $46,936,782 $3,267,837 $391,962 $50,596,581
Depreciation expense 671,078 267,196 55,867 994,141
Segment profit (loss) 1,491,303 (563,947) (113,401) 813,955
Segment assets 40,003,155 6,745,000 4,188,464 50,936,619
Expenditures for long-lived assets 419,815 174,714 1,438,469 2,032,998
</TABLE>
Geographic Information:
Net Long-lived
Revenues (1) Assets
------------ ------------
United States $46,555,581 $33,840,216
Foreign countries $4,041,000 $3,708,751
(1) Net revenues are attributed to countries based on the location of the
customers.
Reportable segment data for the nine months ended May 1, 1999 are as
follows:
Consulting Analytical Total
----------- ----------- -----------
Net revenues from external customers $43,648,462 $2,004,132 $45,652,594
Intersegment net revenues --- 1,476,392 1,476,392
----------- ----------- -----------
Total consolidated net revenues $43,648,462 $3,480,524 $47,128,986
Depreciation expense 753,564 277,078 1,030,642
Segment profit (loss) 1,805,756 (1,737,138) 68,618
Segment assets 45,149,000 7,275,000 52,424,000
Expenditures for long-lived assets 483,657 134,108 617,765
Geographic Information:
Net Long-lived
Revenues (1) Assets
------------- ------------
United States $41,150,986 $32,976,035
Foreign countries $5,978,000 $111,580
(1) Net revenues are attributed to countries based on the location of the
customers.
PART 1 - ITEM 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Financial Condition
-------------------
As of April 29, 2000, the Company's working capital balance of $26.4
million was substantially unchanged since July 31, 1999. Cash and cash
equivalents increased $3.0 million due to a $5.0 million decrease in
accounts receivable, and $3.4 million received from the sale of investment
securities. These sources were offset by a drop in liabilities of
approximately $2.0 million. 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 April 29,
2000 and none were required during the fiscal quarter. 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, investment securities and
the payment of dividends. There are no significant working capital
requirements pending at April 29, 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 revenues for the third quarter of fiscal year 2000 were $17.3
million, up $.5 million or 3% from the $16.8 million reported in the
third quarter of the prior year. The increase in net revenues was due
primarily to increased sales from private commercial customers in the
telecommunications and energy sector and from contracts with the United
States Department of Defense.
Net income for the third quarter of fiscal year 2000 was $179,000 or
$.05 per share, compared to the $13,000 or $.003 per share reported in
the third quarter of fiscal year 1999.
The increase in net income for the quarter is attributed primarily to
significantly reduced operating costs in the Company's Analytical Services
Center (ASC). The Company has been achieving efficiency as it goes
through a re-engineering of operating processes in all sectors of its
business. Operating income from the consulting business was mixed with
gains in the commercial sector and a decrease in margins in the work with
the U.S. Environmental Protection Agency. The Company experienced a loss
in Venezuela operations compared to a profit last year.
Net revenues for the nine months ending April 29, 2000 were $61.7
million, an increase of 11% from the $55.7 million reported in the
first nine months of fiscal year 1999. Net income for the current
nine months was $576,000 or $.15 per share, an increase of 102% from
the prior year. The increased net revenues are primarily due to
increased work with the United States Department of Defense and
private commercial clients. The increased net income is mainly
attributable to the aforementioned efficiency improvements and
reduced operating costs in the ASC as well as improved margins
in the Company's consulting business due to the increased revenues.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
ECOLOGY AND ENVIRONMENT, INC.
Date: June 13, 2000 By: /n/ Ronald L. Frank
-------------------------
Executive Vice President
Chief Financial Officer
(Principal Financial
Accounting Officer)
