-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SygDB9uMy+P8s00IlLwpl1/oePhECS0ChowHwQSFqGnNqXMcBYHjaQRFNzV5zjJt 0CcCcML9Wkh7a5ZnPQ7atA== 0000809933-97-000009.txt : 19971030 0000809933-97-000009.hdr.sgml : 19971030 ACCESSION NUMBER: 0000809933-97-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970731 FILED AS OF DATE: 19971029 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: ECOLOGY & ENVIRONMENT INC CENTRAL INDEX KEY: 0000809933 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING SERVICES [8711] IRS NUMBER: 160971022 STATE OF INCORPORATION: NY FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09065 FILM NUMBER: 97702780 BUSINESS ADDRESS: STREET 1: 368 PLEASANTVIEW DR CITY: LANCASTER STATE: NY ZIP: 14086 BUSINESS PHONE: 7166848060 MAIL ADDRESS: STREET 1: 368 PLEASANTVIEW DRIVE CITY: LANCASTER STATE: NY ZIP: 14086 10-K 1 FORM 10-K FOR THE PERIOD ENDING JULY 31, 1997 SECURITIES & EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------- F O R M 10-K ----------------------- [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 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. 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 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 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. 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 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 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 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 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. 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. 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) 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. Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
Year Ended July 31, 1997 1996 1995 1994 1993 (In thousands, except per share amounts) 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 As of July 31, 1997 1996 1995 1994 1993 (In thousands, except per share amounts) 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
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 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 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. 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 Ecology and Environment, Inc Consolidated Balance Sheet
July 31, 1997 1996 ------------ ------------ 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.
Ecology and Environment, Inc Consolidated Statement of Income
Year ended July 31, 1997 1996 1995 ------------- ------------- ------------- 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.
Ecology and Environment, Inc. Consolidated Statement of Changes in Shareholders' Equity
Class A Class B Capital in Common Stock Common Stock excess of Retained Treasury stock Shares Amount Shares Amount par value earnings Shares Amount ------------------ ------------------ ----------- ------------ ---------------------- 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.
Ecology & Environment, Inc Consolidated Statement of Cash Flows
Year ended July 31, 1997 1996 1995 ------------ ------------ ------------ 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.
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. 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. 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 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. 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 ========== ========== 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. 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. 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 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, $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. 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. 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 Selected quarterly financial data (Unaudited) (In thousands, except per share information)
Quarter 1997 First Second Third Fourth ----------------------------------------- --------- --------- --------- --------- 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 1996 First Second Third Fourth ----------------------------------------- --------- --------- --------- --------- 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
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. 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". SUMMARY COMPENSATION TABLE
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) 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.
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. 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. (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) * 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. (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 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) 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. 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 Exhibit Index Exhibit 21.5 Schedule of Subsidiaries as of July 31, 1997 Exhibit 23 Consent of Independent Accountants 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% 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 EX-27 2 ART. 5 FDS FOR FISCAL YEAR 1997 10K WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 12-MOS JUL-31-1997 AUG-01-1996 JUL-31-1997 $3,714,898 $7,086,035 $25,981,157 000 000 $39,874,981 $12,852,976 000 $53,524,373 $8,733,827 $607,291 $15,960,195 000 000 $28,223,060 $53,524,373 $58,981,775 $70,789,800 000 $59,135,542 000 000 $65,994 $477,554 $364,483 000 000 000 000 $113,071 $0.03 000
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