-----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, DddE4FqcoRc8NdhEqyL/ivCU4L8BLNO70iOCdgU9fH2X88rrcn9w6/HkEczELh3K e+usy+znVcgyTT65ECn2ig== 0000809933-99-000001.txt : 19990312 0000809933-99-000001.hdr.sgml : 19990312 ACCESSION NUMBER: 0000809933-99-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990130 FILED AS OF DATE: 19990311 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-Q SEC ACT: SEC FILE NUMBER: 001-09065 FILM NUMBER: 99563229 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-Q 1 FORM 10-Q FOR THE PERIOD ENDING JANUARY 30, 1999 Page 1 of 12 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act in 1934 For Quarter Ended January 30, 1999 Commission File #1-9065 ECOLOGY AND ENVIRONMENT, INC. (Exact name of registrant as specified in its charter) New York 16-0971022 (State or other jurisdiction (I.R.S. Employer Identification No.) organization) 368 Pleasant View Drive Lancaster, New York 14086 (Address of principal executive offices) Registrant's telephone number, including area code: 716-684-8060 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- At March 1, 1999, 2,191,742 shares of Registrant's Class A Common Stock (par value $.01) and 1,768,728 shares of Class B Common Stock (par value $.01 were outstanding. Page 2 of 12 Ecology and Environment, Inc. Consolidated Balance Sheet
January 30, 1999 (Unaudited) July 31, 1998 ---------------- ------------- Assets - ------ Current assets: Cash and cash equivalents $ 4,601,679 $ 6,627,164 Investment securities available for sale 7,890,841 7,773,585 Contract receivables, net 22,481,264 21,480,584 Deferred income taxes 1,958,048 1,976,922 Income taxes receivable 406,230 356,641 Other current assets 498,004 855,109 ------------ ------------ Total current assets 37,836,066 39,070,005 Property, building and equipment, net 12,560,048 12,856,938 Deferred income taxes 268,728 268,728 Other assets 917,448 880,464 ------------ ------------ Total assets $51,582,290 $53,076,135 ============ ============ Liabilities and Shareholders' Equity - ------------------------------------ Current liabilities: Accounts payable $ 1,733,789 $ 3,253,204 Accrued payroll costs 3,191,671 3,175,498 Other accrued liabilities 2,974,231 2,594,419 ------------ ------------ Total current liabilities 7,899,691 9,023,121 Long-term debt 534,346 553,125 Shareholders' equity: Preferred stock, par value $.01 per share authorized - 2,000,000 shares; no shares issued --- --- Class A common stock, par value $.01 per share; authorized - 6,000,000 shares; issued - 2,372,002 and 2,364,302 shares 23,720 23,643 Class B common stock, par value $.01 per share; authorized - 10,000,000 shares issued - 1,798,287 and 1,805,987 shares 17,979 18,056 Capital in excess of par value 17,591,436 17,591,436 Retained earnings 27,073,024 27,424,660 Teasury stock - Class A Common, 183,560 and 194,400 shares; Class B common, 26,259 shares, at cost (1,557,906) (1,557,906) ------------ ------------ Total shareholders' equity 43,148,253 43,499,889 ------------ ------------ Total liabilities and shareholders' equity $51,582,290 $53,076,135 ============ ============ The accompanying notes are an integral part of these financial statements.
Page 3 of 12 Ecology and Environment, Inc. Consolidate Statement of Income (Unaudited)
Three months ended Six months ended --------------------------- --------------------------- January 30, January 31, January 30, January 31, 1999 1998 1999 1998 ------------ ------------ ------------ ------------ Gross revenues $17,992,287 $16,422,674 $34,919,617 $35,796,026 Less: direct subcontract costs 2,889,184 2,280,591 4,579,856 5,754,881 ------------ ------------ ------------ ------------ Net revenues 15,103,103 14,142,083 30,339,761 30,041,145 Operating costs and expenses: Cost of professional services and other direct operating expenses 8,949,988 8,363,654 17,818,021 17,845,842 Administrative and indirect operating expenses 4,008,992 3,690,334 7,944,120 7,513,026 Marketing and related costs 1,821,634 1,886,329 3,697,311 3,783,552 Depreciation 310,799 337,778 649,537 692,387 ------------ ------------ ------------ ------------ Total operating costs & expenses 15,091,413 14,278,095 30,108,989 29,834,807 ------------ ------------ ------------ ------------ Income (loss) from operations 11,690 (136,012) 230,772 206,338 Interest (expense) (13,378) (14,428) (31,765) (29,326) Interest income 182,631 160,173 351,452 320,669 Net foreign currency exchange gain (loss) (145,461) --- (145,461) --- ------------ ------------ ------------ ------------ Income before income taxes 35,482 9,733 404,998 497,681 Income tax provision (benefit): Federal (58,954) (46,117) 50,531 150,749 State 39,841 (8,316) 60,810 53,334 Deferred (13,142) 8,331 22,624 (55,519) ------------ ------------ ------------ ------------ (32,255) (46,102) 133,965 148,564 ------------ ------------ ------------ ------------ Net income $67,737 $55,835 $271,033 $349,117 ============ ============ ============ ============ Net income per common share: Basic and Diluted $0.02 $0.02 $0.07 $0.09 ============ ============ ============ ============ Weighted average common shares outstanding: Basic 3,960,720 3,949,330 3,960,720 3,949,330 ============ ============ ============ ============ Diluted 3,969,151 3,964,888 3,969,510 3,961,435 ============ ============ ============ ============ The accompanying notes are an integral part of these financial statements.
Page 4 of 12 Ecology and Environment, Inc. Consolidated Statement of Cash Flows (Unaudited)
Six months ended ------------------------------ January 30, January 31, 1999 1998 ------------ ------------ Cash flows from operating activities: Net income $ 271,033 $ 349,117 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 649,537 692,387 Provision for contract adjustments 21,250 192,000 (Increase) decrease in: - contracts receivable, net (1,021,930) 4,757,078 - other current assets 326,390 (374,291) Increase (decrease ) in: - accounts payable (1,519,415) (1,190,621) - accrued payroll costs 16,173 (568,630) - other accrued liabilities 379,812 141,885 - income taxes payable --- (184,583) Other, net (23,697) (19,674) ----------- ----------- Net cash provided by (used in) operating activities (900,847) 3,794,668 ----------- ----------- Cash flows used in investing activities: Purchase of property, building and equipment, net (341,641) (828,714) Purchase of investment securities (117,256) (469,785) Investment in subsidiaries 7,314 --- Investment in China joint ventures (20,601) --- ----------- ----------- Net cash used in investing activities (472,184) (1,298,499) ----------- ----------- Cash flows used in financing activities: Dividends Paid (633,675) (631,892) Repayment of long-term debt (18,779) (35,416) ----------- ----------- Net cash used in financing activities (652,454) (667,308) ----------- ----------- Net increase (decrease) in cash and cash equivalents (2,025,485) 1,828,861 Cash and cash equivalents at beginning of period 6,627,164 3,714,898 ----------- ----------- Cash and cash equivalents at end of period $4,601,679 $5,543,759 =========== =========== The accompanying notes are an integral part of these financial statements.
Page 5 of 12 ECOLOGY AND ENVIRONMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of significant accounting principles a. Consolidation ------------- The consolidated financial statements include the accounts of Ecology and Environment, Inc. (the Company) and its wholly-owned subsidiaries. Also reflected in the financial statements is the Company's 66-2/3% ownership in the assets of a nonoperating subsidiary, Ecology and Environment of Saudi Arabia Ltd. (EESAL), and a 50% ownership in two Chinese operating joint ventures, Beijing Yi Yi Ecology and Engineering Co. Ltd. and The Tianjin Green Engineering Company. These joint ventures are accounted for under the equity method. All significant intercompany transactions and balances have been eliminated. The consolidated balance sheet at January 30, 1999 and the accompanying consolidated statements of income and of cash flows are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted only of normal recurring items. The accompanying financial statements should be reviewed in conjunction with the Company's fiscal year ended July 31, 1998 audited financial statements. b. Use of Estimates ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. c. Revenue Recognition ------------------- Substantial amounts of the Company's revenues are derived from cost-plus-fee contracts using the percentage of completion method based on costs incurred plus the fee earned. The fees under certain government contracts are determined in accordance with performance incentive provisions. Such awards are recognized at the time the amounts can be reasonably determined. Provisions for estimated contract adjustments relating to cost based contracts have been deducted from gross revenues in the accompanying consolidated statement of income. Such adjustments typically arise as a result of interpretations of cost allowability under cost based contracts. Revenues related to long-term government contracts are subject to audit by an agency of the United States government. Government audits have been completed through fiscal year 1989 and are currently in process for fiscal years 1990 through 1992. The majority of the balance in the allowance for contract adjustments accounts represents a reserve against possible adjustments for fiscal years 1990 through 1999. Page 6 of 12 d. Income Taxes ------------ The Company follows the asset and liability approach to account for income taxes. This approach requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Although realization is not assured, management believes it is more likely than not that the recorded net deferred tax assets will be realized. Since in some cases management has utilized estimates, the amount of the net deferred tax asset considered realizable could be reduced in the near term. No provision has been made for United States income taxes applicable to undistributed earnings of foreign subsidiaries as it is the intention of the Company to indefinitely reinvest those earnings in the operations of those entities. 2. Contract Receivables, Net ------------------------- Contract receivables are comprised of: January 30, July 31, 1999 1998 ------------ ------------ United States government Billed $ 4,590,839 $ 6,368,873 Unbilled 4,809,782 6,597,802 ------------ ------------ 9,400,621 12,966,675 ------------ ------------ Industrial customers and state and municipal governments Billed 6,992,184 5,490,908 Unbilled 6,800,708 3,959,750 ------------ ------------ 13,792,892 9,450,658 ------------ ------------ Less allowance for contract adjustments (712,249) (936,749) ------------ ------------ $22,481,264 $21,480,584 ============ ============ 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 $704,000 at January 30, 1999, and $0 at July 31, 1998. Management anticipates that the January 30, 1999 unbilled receivables will be substantially billed and collected in fiscal year 1999. Within the above billed balances are contractual retainages in the amount of approximately $2,020,017 at January 30, 1999 and $1,801,249 at July 31, 1998. Included in other accrued liabilities is an additional allowance for contract adjustments relating to potential Page 7 of 12 cost disallowances on amounts billed and collected of approximately $2,529,000 at January 30, 1999 and $2,283,000 at July 31, 1998. 3. Earnings Per Share ------------------- All earnings per share amounts reflect the implementation of Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. SFAS No. 128 establishes new standards for computing and presenting earnings per share ("EPS") and requires that all prior period earnings per share data be restated to conform with the provisions of the statement. SFAS No. 128 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. The computation of basic and diluted earnings per share follow: Three months ended Six months ended -------------------- ------------------ Jan. 30, Jan. 31, Jan. 30, Jan. 31, 1999 1998 1999 1998 --------- --------- --------- --------- Income available to Common stockholders $67,737 $55,835 $271,033 $349,117 Weighted-average Shares outstanding 3,960,720 3,949,330 3,960,720 3,949,330 Basic earnings per share $0.02 $0.02 $0.07 $0.09 Incremental shares from assumed conversions of stock options 8,431 15,558 8,790 12,105 Adjusted weighted-average Shares outstanding 3,969,151 3,964,888 3,969,510 3,961,435 Diluted earnings per share $0.02 $0.02 $0.07 $0.09 At January 30, 1999 there were 82,246 stock options outstanding with an exercise price ranging from $12.38 - $16.08 which were not included in the above calculation because to do so would have been antidilutive to the calculation. At January 31, 1998 there were 90,853 stock options outstanding with an exercise price ranging from $12.38 - $16.08 which were not included. Page 8 of 12 PART I - ITEM 2 --------------- Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition ------------------- As of January 30, 1999, the Company's working capital balance of $29.9 million was unchanged since the reporting period ending July 31, 1998. Cash and cash equivalents decreased $2.0 million due to a $1.5 million decrease in accounts payable, a $1.0 million increase in net contract receivables and cash expenditures for investing and financing activities. These cash outlays were partially offset by cash generated from operations. The aforementioned decrease in accounts payable was primarily due to the timing of payments and the payment of a few significant subcontractor invoices subsequent to July 31, 1998. The Company maintains an unsecured line of credit of $10.0 million with a bank at the prevailing prime rate. There are no borrowings outstanding under this line of credit at January 30, 1999 and none were required during the first half of fiscal year 1999. The Company has historically financed its activities through cash flows from operations. Internally generated funds have been adequate to support the demands for working capital, the purchase of new fixed assets and investment securities and the payment of dividends. There are no significant working capital requirements pending at January 30, 1999. The Company's existing cash along with that generated by future operations and the existing credit line is expected to be sufficient to meet the Company's needs for the foreseeable future. Results of Operations --------------------- Net revenues for the second quarter of fiscal year 1999 were $15.1 million, up approximately 7% from the $14.1 million reported in the second quarter of the prior year. The increase in net revenues was due primarily to an increase in sales recognized from the Company's five regional United States Superfund Technical Assistance and Response Teams (START) contracts with the United States Environmental Protection Agency (EPA). Revenues generated from the remainder of the Company's consulting business were steady. Net income for the second quarter of fiscal year 1999 was $68,000, or $.02 per share, up slightly from the $56,000, or $.02 per share, recorded in the same period of the prior year. The slight increase in earnings was due primarily to the increase in the Company's START contracts net revenues. However, much of this positive effect on net income was offset by continuing operating losses suffered by the Company's Analytical Services Center (ASC). The Company has instituted corrective measures, including a new laboratory information system, designed to improve efficiencies in the ASC. The improvements will be in place by June 1999. Also, relating to its consulting business, during the second quarter of fiscal year 1999 the Company incurred $145,000 of foreign currency exchange losses due to foreign currency devaluations in several overseas markets where E & E has consulting contracts. Overall net revenues for the six month's ending January 30, 1999 were $30.3 million, up slightly from the $30.0 million recorded in the first half of fiscal year 1998. Net income for the current six month period was Page 9 of 12 $271,000, or $.07 per share, down from the $349,000, or $.09 per share, recognized in the fist six months of the previous year. Net income for the first half of fiscal year 1999 was adversely affected by the aforementioned foreign currency exchange losses and increased operating losses in the ASC. Year 2000 Compliance -------------------- Many currently installed computer systems are not capable of distinguishing 21st century dates from 20th century dates. As a result, in less than one year, computer systems and/or software used by many companies in a wide variety of applications will experience operating difficulties unless they are modified or upgraded to adequately process information involving, related to or dependent upon the century change. The Company has completed its companywide assessment of operating and information systems which are sensitive to a potential Year 2000 problem. Most of the systems currently in use were found to be compliant. The Company's internal financial systems software and its sample tracking software utilized at its Analytical Services Center are not Year 2000 compliant and are currently being replaced. The financial systems software has been upgraded and implemented effective August 1, 1998 while the alternative packages of the new compliant sample tracking software are currently being evaluated and scheduled to be upgraded and replaced by June 1999. The cost of the Company's Year 2000 compliance upgrade is being funded from current operations and is not expected to have a materially adverse effect on the Company's business, financial position or results of operations. The Company estimates the total cost of the upgrade to be between $500,000 - $700,000. Although the Company does not account for internal costs for Year 2000 compliance, the estimate includes $150,000 - $200,000 as an estimate of internal labor costs in the information systems group. Total estimated expenditures to date are approximately $400,000. The fact that the Company offers labor oriented services minimizes its risk associated with potential Year 2000 problems from its suppliers. The Company maintains a broad base of vendors and suppliers and believes there is little risk to its ongoing operations from Year 2000 problems by its outside vendors. There can be no guarantee that the Company's customers, particularly the U.S. Government, will successfully complete a Year 2000 upgrade on a timely basis. Because a majority of the Company's business is contracted with various federal government agencies, a failure by the U.S. Government to achieve Year 2000 compliance could have significant adverse effects on the Company's future business, financial operations and results of operations. Based on the progress the Company has made to date in addressing its Year 2000 issues and the Company's timeline for completing its compliance program, the Company does not foresee significant risks associated with these efforts at this time. Since the Company has adopted a plan to address these issues in a timely manner, it has not developed a comprehensive contingency plan should these issues fail to be completed successfully or in their entirety. However, if the Company identifies Page 10 of 12 significant risks or is unable to meet its anticipated timeline, the Company will develop contingency plans as deemed necessary at that time. Portions of the narrative set forth in this Financial Condition and Results of Operations, which are not historical in nature, are forward looking statements, based upon current expectations, all of which are subject to risk and uncertainties, and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company does not assume the obligation to update any forward looking statements, whether as a result of new information, future events or otherwise. Page 11 of 12 PART II - OTHER INFORMATION --------------------------- Item 1, Legal Proceedings. -------------------------- The Registrant has previously reported information for Item 1 that is required to be presented in Item 3 of its Annual Report on Form 10-K for its fiscal year ended July 31, 1998 which is incorporated herein by reference. Item 2, Changes in Securities. ------------------------------ (a) Not Applicable. (b) Not Applicable. Item 2, Defaults Upon Senior Securities. ---------------------------------------- The Registrant has no information for Item 3 that is required to be presented. Item 4, Submission of Matters to a Vote of Security Holders. ------------------------------------------------------------ (a) The Annual Meeting of Shareholders of the Registrant was held on January 14, 1999. (b) At such meeting, the following persons were elected as directors by the holders of Class A Common Stock: Brent D. Baird and Ross M. Celino; and the following directors by the holders of Class B Common Stock: Gerhard J. Neumaier, Ronald L. Frank, Frank B. Silvestro, Gerald A. Strobel, Gerard A. Gallagher, Jr. and Harvey J. Gross. (c) A proposal appointing the accounting firm of PricewaterhouseCoopers LLP as the Registrant's independent public accountant for its fiscal year ending July 31, 1999 was approved by the Registrant's shareholders in the following manner: (i) the holders of Class A common Stock voted as follows: 201,868.9 votes were cast in favor, 169.6 votes were cast against this proposal and 295.1 votes abstained (representing 2,018,689 shares, and 1,696 shares and 2,951 shares voted respectively, each share of Class A Common Stock being entitled to 1/10 of 1 vote per share for this proposal); and (ii) the holders of Class B Common Stock voted as follows: 1,442,642 votes were cast in favor, 118,000 votes cast against this proposal and 727 votes abstained (each share of Class B Common Stock being entitled to one vote per share for this proposal). (d) Not Applicable. Item 5, Other Information ------------------------- The Registrant has no information for Item 5 required to be presented. Page 12 of 12 Item 6, Exhibits and Reports on Form 8-K ------------------------------------------- (a) Not Applicable (b) Not Applicable SIGNATURE Pursuant to the requirements of the Securities Exchange Act of l934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ECOLOGY AND ENVIRONMENT, INC. Date: March 11, 1999 By: /s/ Ronald L. Frank ------------------------------ Ronald L. Frank Executive Vice President Chief Financial Officer (Principal Financial Accounting Officer) EX-27 2 ARTICAL 5 FDS FOR SECOND QUARTER FISCAL YEAR 1999 10Q
5 3-MOS JUL-31-1999 AUG-01-1998 JAN-30-1999 $4,601,679 $7,890,841 $22,481,264 000 000 $37,836,066 $12,560,048 000 $51,582,290 $7,899,691 $534,346 $16,075,229 000 000 $27,073,024 $51,582,290 $30,339,761 $34,919,617 000 $30,108,989 000 000 $31,765 $404,998 $133,965 000 000 000 000 $271,033 $0.07 $0.07
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