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SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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F O R M 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 2001
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
--- ---
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.
______
Exhibit Index on Page 48
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As of September 28, 2001, 2,366,667 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 28, 2001) of the Class A Common Stock
held by nonaffiliates of the registrant was approximately $14,182,695.
As of the same date, 1,720,171 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,
1990, 1994 and 1997 are incorporated by reference in Part IV of this Form
10-K.
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TABLE OF CONTENTS
-----------------
Page
PART I ----
------
Item 1. BUSINESS 4
General 4
START Contracts 4
Task Order Contracts 4
Environmental Consulting Services 5
Analytical Laboratory Services 7
Aquaculture 7
Segment Information 7
Regulatory Background 7
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
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Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 13
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA 14
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 15
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 17
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 17
Item 9. DISAGREEMENTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES 36
PART III
--------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT 37
Item 11. EXECUTIVE COMPENSATION 39
Item 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS 41
SECURITY OWNERSHIP OF MANAGEMENT 42
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 44
PART IV
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Item 14. EXHIBITS, FINANCIAL STATEMENTS 45
Page 4 of 49
PART I
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Item 1. BUSINESS
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General
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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 2000, the United States Environmental Protection Agency ("EPA")
awarded the Company three (3) 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 eastern and western United States. The
Company is required to provide round the clock assistance to the EPA at
spill sites within the eastern 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 a combination of fixed price and cost plus
fixed fee contracts.
The total contract value of the three (3) START contracts, if the EPA
exercises all options within each of them, is approximately $89 million. The
base value of the three (3) START contracts over five years is approximately
$26.0 million. The EPA can exercise any number of options covering additional
years or increased quantities over each of the contracts' five year terms
expiring in December 2005. The Company, as of July 31, 2001, has realized total
net revenues of approximately $6.8 million under these contracts.
These contracts 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. The Company has never had a contract terminated
by the EPA.
Task Order Contracts
--------------------
The Company has numerous task order contracts with state and federal
governmental agencies which contain indefinite order quantities and/or
option periods ranging from two to ten years. The maximum potential gross
revenues included in these contracts is approximately $175.0 million.
Work done under task orders run the full range of services provided by EEI
from risk management plans; to air quality control; to groundwater monitoring;
to hazardous materials (HAZMAT) response plans, to solid waste management; to
strategic information management and database support.
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Environmental Consulting Services
---------------------------------
The Company's staff includes 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
commercial and government clients in a variety of industrial sectors, such
as the following:
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.
Emergency Response / Homeland Protection:
EEI is one of the foremost environmental consulting groups in the country to
provide science and environmental engineering expertise at some of the more
high-profile disasters that ranged from large oil spills on our water bodies;
to dioxin contamination in the Midwest; to Anthrax threats across the country;
to the Gulf War oil fires in Kuwait; and to the recent terrorist attacks on
the east coast. In addition to emergency response, the Company also provides
critical training to first responders in nuclear, biological, and chemical/
counterterrorism and in HAZMAT identification, response and remediation;
develops standard operating procedures for health and safety at hazardous
sites; assesses sites and potential for danger; and develops prevention/
preparedness/outreach activities.
Pipelines:
EEI has provided the pipeline industry with full-service environmental support
for more than 20 years. The Company's extensive experience includes route
selection; field support and survey, such as wetland delineation and endangered
species surveys; regulatory compliance and permit support, including prepara-
tion of erosion control plans for submission to state agencies, Section 10 and
Section 404 permits for submission to the United States Army Corps Engineers,
and Federal Energy Regulatory Commission 7(c) filings; and preparation of
environmental monitoring and restoration plans, including development of
quality assurance specifications. EEI also has comprehensive experience in
the investigation and remediation of polychlorinated biphenyls (PCBs) from
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natural gas transmission systems. The Company has developed/implemented work
plans for contamination assessment, Phase I and II sampling, and supports
clients for Phase III remediation.
Power:
With the deregulation of certain sectors of the power industry and the
electrical supply shortage of 2001, there is a rapidly increasing demand for
new power plants. Companies that can quickly permit new power generation
capacity are poised to reap the benefits of the power market's remarkable
revitalization, both domestically and abroad. EEI has specialized in providing
comprehensive environmental services for the power industry since the Company's
inception. The Company is familiar with licensing requirements and processes
worldwide and conducts comprehensive site selection programs which include
assessment of engineering constraints such as the location and availability of
fuel and cooling water as well as grid interconnection and transmission issues;
and assessment of environmental issues such as air quality, water quality,
terrestrial and aquatic vegetation and wildlife, and cultural heritage. For
existing energy facilities, EEI has completed over 100 due diligence audits.
The Company also helps power companies to meet the daily regulatory
requirements for power generation and/or transmission.
Telecommunications:
EEI has successfully completed more than 30,000 miles of linear projects on
several continents. Company services for the telecommunications industry are
varied and encompass a complete range of tasks in the preconstruction phase.
EEI's extensive experience includes: environmental planning; environmental
impact reports and assessments, including third-party environmental impact
reports (EIRs)/environmental impact assessments(EIAs), NEPA and state
equivalent environmental assessments (EAs) and environmental impact statements
(EISs), and endangered species consultation; public participation programs;
permits, approvals, and plans, including environmental management and
construction plans, right-of-way grants and leases, U.S. Army Corps of
Engineers (USACE) and state stream and wetland crossing; land air quality
plans; cultural resource studies; sampling, analysis, and remediation; and
environmental compliance monitoring.
Environmental Assessments:
In response to requirements of the National Environmental Policy Act (NEPA)
and other state environmental laws, EEI has provided environmental
evaluation services to both the government and the private sector for more
than 30 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.
Wetlands:
EEI has assisted clients with various projects involving wetland delineations,
environmental impact assessments, impact minimizations, and mitigation during
large construction or habitat restoration projects. The Company's experts
continuously study and apply innovative ecosystem management techniques to
expand their understanding of the complex biochemical, physical, and ecological
interactions that exist in wetlands. EEI has experience in using wetlands to
remediate chlorinated hydrocarbon contamination. In 1998, the Company
constructed a full-scale pilot wetland to assess the feasibility and
effectiveness of treating a major chlorinated plume with a treatment wetland.
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International:
EEI has over 20 years experience in international work. The Company now has
partners in over 30 countries and has completed over 4,000 major environmental
assignments in over 50 countries worldwide. Assignments completed are in
fields such as environmental assessment; management and financial planning;
institutional strengthening and standards development; water supply and
development; wastewater treatment; and solid waste project construction
supervision. The Company also has extensive experience working with
international lending institutions such as the Asian Development Bank and
the World Bank.
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 branches of the U.S. military
and a number of state agencies.
Aquaculture
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The Company owns an aquaculture shrimp facility in the province of Puntarenas
on the Pacific coast of Costa Rica. The facility includes 400 hectares of
land of which 193 hectares is shrimp aquaculture ponds. The Company plans to
leverage its in-house expertise to take advantage of the demand for cash crops
such as shrimp created as a result of the decline in worldwide fisheries.
In July 2001, the Company purchased the assets of a fish farm located
in Jordan. The farm is located on the banks of the Jordan river 120
kilometers north of Amman. The assets were purchased for approximately
$513,000 by a newly formed entity, American Arab Aquaculture Company
(AMAROCO), of which EEI owns 51%. The Company anticipates investing
additional monies to upgrade the farm's infrastructure, production
methods, and species selection.
Segment Reporting
-----------------
The Company has three reportable segments: consulting services, analytical
laboratory services, and aquaculture. Refer to the Company's financial
statements for fiscal year 2001 contained in Item 8 hereof for additional
pertinent information on the Company's segments.
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
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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 President
recently signed into law legislation transferring funds into the Hazardous
Substances Superfund with disbursements available after September 1, 2000.
This emphasizes the priority that the federal government has placed upon
the future of the clean up of hazardous waste sites throughout the nation.
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
manufacturing, 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. Amendments effective
August 28, 1998 add regulatory provisions authorizing certain uses of PCBs;
specifying additional alternatives for the cleanup and disposal of PCBs;
establishing procedures for determining PCB concentration; establishing
standards and procedures for decontamination; and updating several marking,
recordkeeping, and reporting requirements. 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. Most 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
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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.
SAFE DRINKING WATER AND CLEAN WATER ACTS:
The SDWA of 1996 and recent regulatory changes under the Clean Water Act
(CWA) work together in order to ensure that the public is provided with
safe drinking and recreational waters by utilizing watershed approaches
and applying similar principles (Total Maximum Daily Load, National
Pollution Discharge Elimination System, Source Water Assessment Program,
Storm Water Program). Thus, they supplement and help one another more
effectively reach each others goals. Ecology and Environment, Inc.
assists public and private clients in developing and establishing pollution
prevention programs, assisting clients in monitoring ground, waste and
stormwater systems, and help clients with water permitting and compliance
issues.
FOOD QUALITY PROTECTION ACT OF 1996:
The Food Quality Protection Act of 1996 amended the Federal Insecticide,
Fungicide, and Rodenticide Acts, and established new health based safety
standards with respect to pesticide residues in and on foodstuffs. E & E,
Inc. services in this area include the testing of food products, establishing
methodologies for more effectively detecting residues, verifying legal uses
of pesticides through food, water, or soil samples, and developing and
determining the feasibility of alternatives to current agricultural
practices that limit the use of pesticides.
Other:
The Company's operations are also influenced by other federal, state,
and international laws and regulations protecting the environment.
In the U.S. market, other regulatory rules and provisions that influence
company operations, in addition to those discussed above, are the Atomic
Energy Act (AEA), and the Oil Pollution Control Act (OPA). Examples of
E & E, Inc. services provided as a result of these laws include the
development of spill prevention control and emergency prevention procedures,
as well as countermeasure plans for various facilities potentially affecting
human health and the environment. 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.
Internationally, since many overseas markets remain "undeveloped" when
compared with that of the U.S. and other Western countries, the Company's
expanding operations in these markets are primarily influenced by
environmental laws focusing on infrastructure, development, and planning
related activities.
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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 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. Historically,
the Company has been able to purchase an errors and omissions insurance
policy that covers its 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. The Company's general
liability insurance policy provides coverage in the amount of $3.0 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 majority of the Company's revenues are currently derived from the federal
government under Superfund-related activities, including the EPA and U.S.
Department of Defense ("DOD"). The balance of the Company's revenues
originate from state and local governments, domestic private clients, and
private and governmental international clients.
The Company's worldwide marketing efforts are conducted by its marketing
group located at its headquarters, its regional offices, and its international
subsidiaries. EEI markets its services to existing and potential governmental,
industrial and engineering clients. The Company closely monitors government
contract procurements and responds to requests for proposals requiring services
provided by the Company. The marketing group also monitors government
regulation and other events that may generate new business by requiring
governments and industrial firms to respond to new regulatory actions. The
marketing group is support by EEI's technical staff which is responsible for
preparing technical proposals that are customarily delivered with the Company's
bid for a project. The Company participates in industrial trade shows and
professional seminars relating to its business.
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Backlog
-------
The Company's firm backlog of uncompleted projects and maximum potential
gross revenues from indefinite task order contracts, at July 31, 2001 and
2000 were as follows:
(Millions of $)
Fiscal Year Fiscal Year
Ended 7/31/01 Ended 7/31/00
------------- -------------
Total Firm Backlog $42.2 $48.6
Anticipated Completion of Firm
Backlog in Next Twelve Months 37.4 34.7
Maximum Potential Gross Revenues
from Task Order Contracts 231.0 175.0
The above maximum figures include $81 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, 2001, the Company had approximately 750 employees. The
majority of the employees hold bachelor's degrees and/or advanced degrees in
such areas as chemical, civil, mechanical, sanitary, soil, structural and
transportation engineering, biology, geology, hydrogeology, ecology, urban
and regional planning and oceanography. 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 35,000 square feet. The Company also leases office
and storage facilities at twenty-five (25) regional offices, with terms
which generally coincide with the duration of the Company's contracts in
those areas.
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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.
Page 13 of 49
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 2001 High Low
----------- ------ ------
First Quarter
(commencing August 1, 2000 - $7.375 $6.00
October 28, 2000)
Second Quarter
(commencing October 29, 2000)- 6.625 5.75
January 27, 2001)
Third Quarter
(commencing January 28, 2001 - 8.00 6.20
April 28, 2001
Fourth Quarter
(commencing April 29, 2001 - 9.30 7.70
July 31, 2001)
Fiscal 2000 High Low
----------- ------ -------
First Quarter
(commencing August 1, 1999 - $6.95 $5.50
October 30, 1999)
Second Quarter
(commencing October 31, 1999 - 6.375 5.25
January 29, 2000)
Third Quarter
(commencing January 30, 2000 - 6.375 5.75
April 29, 2000)
Fourth Quarter
(commencing April 30, 2000 - 6.50 5.375
July 31, 2000)
(b) Approximate Number of Holders of Class A Common Stock. As of
September 28, 2001, 2,366,667 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 457. 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 1,720,171 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 69.
(c) Dividend. In each of the fiscal years ended July 31, 2000 and
2001 the Company declared and paid 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
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Company's future earnings, financial condition and requirements and other
factors as determined by the Board of Directors.
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,
2001 2000 1999 1998 1997
---------------------------------------------------
(In thousands, except per share amounts)
Operating data:
Gross revenues $88,197 $85,862 $75,411 $75,088 $70,802
Net revenues $73,423 $69,890 63,349 $61,552 $58,994
Income(loss) from
operations $ 3,395 $ 1,166 53 $ 287 $ (142)
Income before income
taxes $ 3,435 $ 1,571 483 $ 757 $ 478
Net income $ 1,895 $ 779 299 $ 471 $ 113
Net income per
common share
Basic and Diluted $ .46 $ .20 .08 $ .12 $ .03
Cash dividends declared
per common share $ .32 $ .32 $ .32 $ .32 $ .32
Weighted average common
shares outstanding:
Basic 4,103,740 3,968,500 3,957,825 3,949,359 3,956,236
Diluted 4,103,740 3,968,500 3,957,825 3,952,827 3,958,714
As of July 31,
2001 2000 1999 1998 1997
---------------------------------------------------
(In thousands, except per share amounts)
Balance sheet data:
Working capital $24,252 $24,714 27,503 $30,316 $31,141
Total assets $57,705 $53,449 52,695 $53,076 $53,524
Long-term debt $ 40 $ 58 516 $ 553 $ 607
Shareholders' equity $43,050 $42,336 42,542 $43,500 $44,183
Book value per share:
basic $ 10.58 $ 10.67 10.75 $ 11.01 $ 11.17
diluted $ 10.58 $ 10.67 10.75 $ 11.00 $ 11.16
Page 15 of 49
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Liquidity and Capital Resources
-------------------------------
At July 31, 2001 the Company had a working capital balance of $24.2 million.
This balance is substantially unchanged from the prior year. Cash and cash
equivalents increased $2.8 million primarilly as a result of a $1.4 million
decrease in contracts receivable. The decrease in contracts receivables was
a direct result of the Company's loss of U.S. Environmental Protection Agency
(USEPA) work, due to the completion of five START contracts with the USEPA.
Current liabilities increased by $2.7 million as a result of a $0.6 million
increase in accounts payable along with a $0.8 million increase in income taxes
payable.
The Company maintains an unsecured line of credit of $10.0 million with a
bank at 1/2% below the prevailing prime rate. There are no borrowings out-
standing under this line of credit at July 31, 2001 and none were required
during fiscal year 2001. The Company has historically financed its activities
through cash flows from operations. Internally generated funds have been
adequate to support the demands for working capital, the purchase of new
fixed assets and investment securities and the payment of dividends. There
are no significant working capital requirements pending at July 31, 2001. The
Company's existing cash along with that generated by future operations and
the existing credit line is expected to be sufficient to meet the Company's
needs for the foreseeable future.
Results of Operations
---------------------
Net Revenue
-----------
Net revenues for fiscal year 2001 were $73.4 million, up 5% from the
$69.9 million reported in fiscal year 2000. The increase in net revenues
was attributable to increased revenues from commercial customers in the
telecommunications-energy sector, international clients, state government
clients and the U.S. Department of Defense (DOD). In particular, the
Company experienced a 23% increase in net revenues from commercial customers,
a 40% increase from various international clients, a 14% increase from state
government clients and a 30% increase from the DOD. The Company continues to
aggressively market new work under DOD task order contracts.
The overall 5% growth in net revenues was achieved despite the completion of
5 major contracts with the U.S. Environmental Protection Agency (USEPA).
These contracts were substantially complete by December 2000 with some phase
down revenues extending into April 2001. As a result, net revenues from these
five contracts decreased approximately $16.0 million as compared to fiscal year
2000. In December 2000, the Company was successful in re-acquiring 2 out of
the 5 contracts it had previously held, while adding one additional new
contract. These new regional Superfund Technical Assistance and Response Team
(START) contracts contributed $6.8 million in net revenues in fiscal 2001.
Walsh Environmental and E & E do Brasil, two of the Company's subsidiaries,
also had a positive effect on net revenue. Acquired late in fiscal year 2000,
Walsh Environmental added $6.2 million in net revenue during fiscal year 2001,
while E & E do Brasil, established in the second quarter of fiscal year 2000,
contributed $790,000 in net revenue to the Company during fiscal year 2001.
Net revenues for fiscal year 2000 were $69.9 million, up $6.6 million or 10%
from the $63.3 million reported for fiscal year 1999. The increase in net
revenues was attributable to increases in revenues from the Company's
Page 16 of 49
contracts with the United States Department of Defense (DOD), the START
contracts with the U.S. Environmental Protection Agency (EPA), and private
commercial clients in the telecommunications and energy sector.
Income Before Income Taxes and Minority Interest
------------------------------------------------
The Company's income before income taxes and minority interest for fiscal
year 2001 was $3.8 million, up 142% from the $1.6 million reported for fiscal
year 2000. Income before income taxes and minority interest was positively
impacted by the company-wide cost reduction measures which increased both
margins and efficiencies, an increased staff utilization throughout the
entire company and an increase in higher margin work from both the commercial
and international markets. The completion of the START contracts resulted in
a $7.9 million decrease in the related cost of professional services and
other direct operating expenses during the fiscal year. Administrative and
indirect operating expenses increased due to the transition of the staff
retained and transferred onto other corporate projects as a result of the
completion of the START contracts and the subsequent closing or downsizing
of several project offices. The Company's Analytical Services Center (ASC)
experienced an operating loss of $728,000, mainly attributable to a 10%
decrease in fiscal year 2001 net revenues. Despite the decrease in net
revenue, the ASC's operating loss has remained steady due to its continued
efforts to control costs and gain efficiencies throughout its operation.
Walsh Environmental and E&E do Brasil had a positive impact on net income.
For fiscal year 2001, their income before taxes and minority interest was
$780,000 and $529,000, respectively, compared to $67,000 and $216,000 for
fiscal year 2000. The Company continued to achieve significantly improved
results for fiscal year 2001 despite an operating loss of approximately $1.0
million from its Costa Rica based shrimp farm operation. As of July 31, 2001,
the Shrimp Farm operation remained in limited production as additional steps
were needed to complete the clean up of the viral disease that had hit the
farm in the fourth quarter of last fiscal year. Controlled tests are
continuing to examine the success of this process. A limited harvest
occurred during the fourth quarter, with an additional harvest to follow in
the first quarter of fiscal year 2002.
The Company's income before income taxes and minority interest for fiscal
year 2000 was $1.6 million, up 231% from the $483,000 reported for fiscal
year 1999. Income before income taxes and minority interest was positively
impacted by the company-wide cost reduction measures which increased both
margins and efficiencies and an increase in commercial and DOD sector work.
The increase was also attributable to improved operating margins and reduced
costs in the Company's ASC operation. Due to these changes, the ASC's
operating losses decreased $1.1 million from the prior year. The Company
experienced a $300,000 operating loss in the fourth quarter of fiscal
year 2001 from its Costa Rica based shrimp farm operation due to a
countrywide viral disease which has temporarily halted all operations
while the farm is cleansed of the disease.
Recent Accounting Pronouncements
--------------------------------
In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, "Business Combinations" ("SFAS 141") and Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS 142"). SFAS 141 requires all business combinations to be accounted
for using the purchase method of accounting and is effective for all business
combinations initiated after June 30, 2001. SFAS 142 requires goodwill to be
tested for impairment under certain circumstances, and written off when
impaired, rather than being amortized as previous standards required. SFAS
142 is effective for fiscal years beginning after December 15, 2001. Early
application is permitted for entities with fiscal years beginning after
Page 17 of 49
March 15, 2001 provided that the first interim period financial statements
have not been previously issued. The adoption of SFAS 141 did not have a
material effect on our operating results or financial condition. The Company
is currently assessing the impact of SFAS 142 on our operating results and
financial condition.
Income Taxes
------------
The effective income tax rate for fiscal year 2001 was 45% compared to 51%
for fiscal year 2000. The decrease in the effective rate was primarily
attributable to state and foreign taxes and nondeductible expenses as a
percentage of income, offset by an adjustment to prior year taxes.
Inflation
---------
Inflation has not had a material impact on the Company's business because
a significant amount of the Company's contracts are either cost based or
contain commercial rates for services that are adjusted annually.
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The Company may have exposure to market risk for change in interest rates,
primarily related to its investsments. The Company does not have any
derivative financial instruments included in its investments. The Company
invests only in instruments that meet high credit quality standards. The
Company is averse to principal loss and ensures the safety and preservation
of its invested funds by limiting default risk, market risk and reinvestment
risk. As of July 31, 2001, the Company's investments consisted of short-term
commercial paper and mutual funds. The Company does not expect any material
loss with respect to its investments.
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 on page 45 present fairly, in all material
respects, the financial position of Ecology and Environment, Inc. and its
subsidiaries at July 31, 2001 and 2000, and the results of their
operations and cash flows for each of the three years in the period ended
July 31, 2001 in conformity with accounting principles generally accepted
in the United States of America. In addition, in our opinion, the
financial statement schedule listed in the index appearing under 14(a)2
on page 45 presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits
of these statements in accordance with generally accepted auditing
standards generally accepted in the United States of America, 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.
PricewaterhouseCoopers LLP
Buffalo, New York
October 4, 2001
Page 18 of 49
Ecology and Environment, Inc.
Consolidated Balance Sheet
July 31,
--------------------------
2001 2000
---- ----
Assets
------
Current assets:
Cash and cash equivalents $ 7,831,972 $ 4,997,771
Investment securities available for sale 3,705,115 3,436,207
Contract receivables, net 22,686,467 24,178,191
Deferred income taxes 2,178,782 1,932,774
Income taxes receivable 540,952 26,081
Other current assets 1,514,960 1,185,086
------------ ------------
Total current assets 38,458,248 35,756,110
Property, building and equipment, net 17,490,485 15,983,806
Deferred income taxes 515,815 152,247
Other assets 1,240,016 1,556,702
------------ ------------
Total assets $57,704,564 $53,448,865
============ ============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 5,035,475 $ 4,374,040
Accrued payroll costs 4,040,299 3,570,026
Income taxes payable 1,187,309 ---
Other accrued liabilities 3,943,063 3,098,321
------------ ------------
Total current liabilities 14,206,146 11,042,387
Long-term debt 39,516 58,217
Minority interest 409,040 12,666
Shareholders' equity:
Preferred stock, par value $.01 per share;
authorized-2,000,000 shares; no shares
issued --- ---
Class A common stock, par value $.01 per
share; authorized-6,000,000 shares;
issued-2,414,009 and 2,375,302 shares 24,140 23,926
Class B common stock, par value $.01 per
share; authorized-10,000,000 shares;
issued-1,756,280 and 1,794,987 shares 17,563 17,772
Capital in excess of par value 17,436,204 17,466,436
Retained earnings 26,540,891 25,906,540
Unearned compensation (343,513) ---
Treasury stock - Class A common, 75,444
and 177,060 shares; Class B common,
26,259 and 26,259 shares, at cost (625,423) (1,079,079)
------------ ------------
Total shareholders' equity 43,049,862 42,335,595
------------ ------------
Total liabilities and shareholders' equity $57,704,564 $53,448,865
============ ============
The accompanying notes are an integral part of these financial statements.
Page 19 of 49
Ecology and Environment, Inc.
Consolidated Statement of Income
Year ended July 31,
-------------------------------------------
2001 2000 1999
---- ---- ----
Gross Revenues $88,197,264 $85,861,656 $75,411,105
Less: direct subcontract costs 14,774,722 15,971,774 12,062,477
------------ ------------ ------------
Net revenues 73,422,542 69,889,882 63,348,628
Operating costs and expenses:
Cost of professional services and
other direct operating expenses 38,521,559 41,419,636 37,047,642
Administrative and indirect operating
expenses 22,662,850 17,610,996 16,720,658
Marketing and related costs 7,585,931 8,306,848 8,132,525
Depreciation 1,257,008 1,386,418 1,394,766
------------ ------------ ------------
Total operating costs & expenses 70,027,348 68,723,898 63,295,591
------------ ------------ ------------
Income from operations 3,395,194 1,165,984 53,037
Interest expense (92,224) (69,610) (65,722)
Interest income 528,566 492,702 663,446
Net foreign currency exchange --- (5,528) (167,958)
------------ ------------ ------------
Income before income taxes and minority
interest 3,831,536 1,583,548 482,803
Income taxes 1,539,871 791,866 183,333
------------ ------------ ------------
Net income before minority interest $ 2,291,665 $ 791,682 $ 299,470
Minority interest (396,374) (12,666) ---
============ ============ ============
Net income $ 1,895,291 $ 799,016 $ 299,470
============ ============ ============
Net income per common share:
Basic and Diluted $0.46 $0.20 $0.08
============ ============ ============
Weighted average common shares outstanding:
Basic 4,103,740 3,968,500 3,957,825
============ ============ ============
Diluted 4,103,740 3,968,500 3,957,825
============ ============ ============
The accompanying notes are an integral part of these financial statements.
Page 20 of 49
Ecology and Environment, Inc.
Consolidated Statement of Changes in Shareholders' Equity
Common Stock
---------------------------------------
Class A Class B Capital in Treasury stock
------------------ ------------------- Excess of Retained Unearned ---------------------
Shares Amount Shares Amount Par Value Earnings Compensation Shares Amount
------------------ ------------------- ------------ ------------ ------------ --------- ------------
Balance at July 31, 1998 2,364,302 $23,643 1,805,987 $18,056 $17,591,436 $27,424,660 $ --- 209,569 $(1,557,906)
Net income --- $ --- --- $ --- --- $ 299,470 --- --- $ ---
Cash dividends paid
($.32 per share) --- --- --- --- --- (1,268,598) --- --- ---
Conversion of Class B
common stock to Class A
to Class A common stock 11,000 110 (11,000) (110) --- --- --- --- ---
Unrealized investment
loss, net --- --- --- --- --- (43,024) --- --- ---
Repurchase of Class A
common stock --- --- --- --- --- --- --- 2,500 (13,458)
Issuance of stock under
stock award plan --- --- --- --- --- --- --- (8,750) 67,285
--------- ------- ---------- -------- ------------ ------------ ------------ -------- ------------
Balance at July 31, 1999 2,375,302 $23,753 1,794,987 $17,946 $17,591,436 $26,412,508 $ --- 203,319 $(1,504,079)
Net income --- $ --- --- $ --- $ --- $ 779,016 --- --- $ ---
Cash dividends paid
($.32 per share) --- --- --- --- --- (1,276,958) --- --- ---
Conversion of Class B
common stock to Class A
common stock 17,407 174 (17,407) (174) --- --- --- --- ---
Unrealized investment
loss, net --- --- --- --- --- (8,026) --- --- ---
Repurchase of Class A
common stock --- --- --- --- --- --- --- 2,350 ---
Purchase of Walsh
Environmental --- --- --- --- (125,000) --- --- (50,000) 425,000
--------- ------- ---------- -------- ------------ ------------ ------------ --------- ------------
Balance at July 31, 2000 2,392,709 $23,927 1,777,580 $17,772 $17,466,436 $25,906,540 --- $155,669 $(1,079,079)
========= ======= ========== ======== ============ ============ ============ ========= ============
Net income --- $ --- --- $ --- $ --- $ 1,895,291 --- $ --- $ ---
Cash dividends paid
($.32 per share) --- --- --- --- --- (1,312,759) --- --- ---
Unrealized investment
loss, net --- --- --- --- --- 71,779 --- --- ---
GAC Dividends --- --- --- --- --- (19,960) --- --- ---
Conversion of Class B
common stock to Class A
common stock 21,300 213 (21,300) (209) --- --- --- --- ---
Repurchase of Class A
common stock --- --- --- --- --- --- --- 28,366 (216,391)
Issuance of stock under
stock award plan --- --- --- --- (51,063) --- (570,333) (82,332) 746,941
Amortization --- --- --- --- --- --- 190,000 --- ---
Forfeitures --- --- --- --- 20,831 --- 36,820 --- (76,894)
--------- ------- ---------- -------- ------------ ------------ ------------ --------- ------------
Balance at July 31, 2001 2,414,009 $24,140 1,756,280 $17,563 $17,436,204 $26,540,891 $ (343,513) 101,703 $ (625,423)
========= ======= ========== ======== ============ ============ ============ ========= ============
The accompanying notes are an integral part of these financial statements.
Page 21 of 49
Ecology and Environment, Inc.
Consolidated Statement of Cash Flows
Year ended July 31,
----------------------------------------
2001 2000 1999
------------ ------------ ------------
Cash flows from operating activities:
Net income $ 1,895,291 $ 779,016 $ 299,470
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 1,257,008 1,386,418 1,394,766
Amortization 246,507 --- ---
Gain on disposition of property and equipment 22,039 17,702 15,767
Minority interest 396,374 (198,985) 211,651
Net foreign exchange loss --- 5,528 167,958
Provision for contract adjustments 1,407,202 986,863 606,875
(Increase) decrease in:
- contracts receivable, net 84,522 (1,636,011) (1,712,993)
- other current assets (329,874) (599,887) 267,059
- income taxes receivable (1,172,300) 343,668 181,554
- other non-current assets 562,611 1,547,471 1,862,851
Increase (decrease) in:
- accounts payable 661,435 739,926 389,818
- accrued payroll costs 470,273 1,329,122 (934,594)
- income taxes payable 1,187,309 --- ---
- other accrued liabilities 844,742 (452,557) (144,830)
------------ ------------ ------------
Net cash provided by operating activities 7,533,139 4,248,274 2,605,352
------------ ------------ ------------
Cash flows used in investing activities:
Acquisitions (245,925) (1,387,240) (1,916,658)
Purchase of property, building and equipment, net (2,973,887) (2,864,865) (3,215,322)
Proceeds from sale of assets 96,450 7,048 128,359
Payment for the purchase of bond (149,276) (156,620) (693,914)
Proceeds from maturity of notes --- 500,658 1,685,000
Proceeds from sale of investment securities --- 1,675,000 1,242,172
----------- ------------ ------------
Net cash used in investing activities (3,272,638) (2,226,019) (2,770,363)
----------- ------------ ------------
Cash flows used in financing activities:
Dividends paid (1,352,758) (1,276,958) (1,268,598)
Repayment of long-term debt (18,701) (457,408) (37,500)
Net proceeds from issuance of common stock 161,550 --- 67,285
Purchase of treasury stock (216,391) --- (13,458)
Capital contribution --- (500,000) ---
----------- ------------ ------------
Net cash used in financing activities (1,426,300) (2,234,366) (1,252,271)
----------- ------------ ------------
Net increase (decrease) in cash and cash equivalents 2,834,201 (212,111) (1,417,282)
Cash and cash equivalents at beginning of period 4,997,771 5,209,882 6,627,164
----------- ------------ ------------
Cash and cash equivalents at end of period $7,831,972 $ 4,997,771 $ 5,209,882
============ ============ ============
The accompanying notes are an integral part of these financial statements.
Page 22 of 49
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 infrastructure 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, 2001, 2000 and 1999, the percentage
of total net revenues derived from contracts exclusively with the
United States Environmental Protection Agency (EPA) were 32%, 50% and
52% and respectively. The Company's Superfund Technical Assessment and
Response Team (START) contracts accounted for the majority of the EPA
net revenue. The percentage of net revenues derived from contracts
with the United States Department of Defense (DOD) were 18%, 15%, and
11% for fiscal years ended July 31, 2001, 2000 and 1999, respectively.
2. Summary of Significant Accounting Principles
--------------------------------------------
a. Consolidation
-------------
The consolidated financial statements include the accounts of the
Company and its wholly-owned and majority owned subsidiaries. Also
reflected in the financial statements are the Company's 66-2/3%
ownership in the assets of a nonoperating subsidiary, Ecology and
Environment of Saudi Arabia Ltd. (EESAL) and a 50% ownership in two
Chinese operating joint ventures, Beijing Yi Yi Ecology and
Engineering Co. Ltd. and the Tianjin Green Engineering Company. These
joint ventures are accounted for under the equity method. All
significant intercompany transactions and balances have been
eliminated. Certain amounts in the prior years' consolidated
financial statements and notes have been reclassified to conform
with the current year presentation.
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
Page 23 of 49
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. These provisions are estimated
and accrued annually based on government sales volume. Such
adjustments typically arise as a result of interpretations of cost
allowability under cost based contracts.
Revenues related to long-term government contracts are subject to
audit by an agency of the United States government. Government
audits have been completed through fiscal year 1994 and are
currently in process for fiscal years 1995 through 1998. The
majority of the balance in the allowance for contract adjustments
accounts represent a reserve against possible adjustments for fiscal
years 1992 through 2001.
The Company adopted Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB101") in the fourth quarter
of fiscal year 2001. The adoption of SAB101 did not have a material
impact on the Company's operating results or financial position.
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, 2001 approximate 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
Page 24 of 49
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, 2001
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 2001, 2000 and 1999.
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, $5,528, and $167,958 for fiscal
years 2001, 2000 and 1999, 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. 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.
i. Pension costs
-------------
The Company has a non-contributory defined contribution plan
providing deferred benefits for substantially all of the Company's
employees. The Company also has a supplemental defined
contribution plan to provide deferred benefits for senior
executives of the Company. The annual expense of the Company's
supplemental defined contribution plan is based on a percentage of
eligible wages as authorized by the Company's Board of Directors.
Benefits under this plan are funded as accrued.
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 Post Employment 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.
Page 25 of 49
k. Earnings per share
------------------
Basic EPS is computed by dividing income available to common
shareholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential
dilution that would occur if securities or other contracts to issue
common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the
earnings of the Company.
l. Comprehensive Income
--------------------
In 1999, the Company adopted FASB Statement No. 130 ("SFAS No.
130"), "Reporting Comprehensive Income." Comprehensive income is
defined as "the change in equity of a business enterprise during a
period from transactions and other events and circumstances from
non-owner sources." Under this statement, the term "comprehensive
income" is used to describe the total net earnings plus other
comprehensive income. For the Company, other comprehensive income
includes currency translation adjustments on foreign subsidiaries
and unrealized gains or losses on available-for-sale securities.
The adoption of SFAS No. 130 had no material impact on the
Company's results of operations or its financial position.
m. Segment reporting
-----------------
In 1999, the Company adopted FASB Statement No. 131 ("SFAS No.
131") "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise," replacing the
"industry segment" approach with the "management" approach. The
management approach designates the internal organization that is
used by management for making operating decisions and assessing
performance as the source of the Company's reportable segments.
SFAS No. 131 also requires disclosures about products and services,
geographic areas, and major customers. The adoption of SFAS No.
131 did not affect results of operations or financial position but
did affect the disclosure of segment information.
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,
2001 and 2000, short-term investments consist of commercial paper and
money market funds and are carried at cost. Short-term investments
amounted to approximately $5,645,000 and $3,098,000 at July 31, 2001
and 2000, respectively, and are reflected in cash and cash equivalents
in the accompanying consolidated balance sheet and statement of cash
flows.
For purposes of the consolidated 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 $12,623, $28,220 and $65,722 in fiscal years 2001, 2000
and 1999, respectively. Cash paid for income taxes amounted to
$894,791, $615,819 and $0 in fiscal years 2001, 2000 and 1999,
respectively.
Page 26 of 49
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, 2001
-------------
Investment securities
available for sale:
Mutual funds $3,606,307 $74,058 $ --- $3,680,365
Municipal notes and bonds 24,750 --- --- 24,750
---------- ------- --------- ----------
$3,631,057 $74,058 $ --- $3,705,115
========== ======= ========= ==========
July 31, 2000
-------------
Investment securities
available for sale:
Mutual funds $3,457,031 $ --- $45,574 $3,411,457
Municipal notes and bonds 24,750 --- --- 24,750
---------- ------- ------- ----------
$3,481,781 $ --- $45,574 $3,436,207
========== ======= ======= ==========
The amortized cost and estimated fair value of debt securities available
for sale by contractual maturity as of July 31, 2001 were as follows:
Estimated Amortized
fair value cost
----------- -----------
Due in one year or less $ --- $ ---
Due after one year through five years 24,750 24,750
Due after five years through ten years --- ---
Due after ten years --- ---
---------- ----------
$ 24,750 $ 24,750
Mutual funds available for sale 3,680,365 3,606,307
---------- ----------
$3,705,115 $3,631,057
========== ==========
Proceeds, gross realized gains and losses from the sale of investment
securities were $0, $0 and $0, respectively, in fiscal year 2001,
$1,675,000, $0 and $0, respectively, in fiscal year 2000 and $1,242,172
$2,300 and $0, respectively, in fiscal year 1999. The unrealized
investment securities gain and unrealized investment securities loss,
net of applicable income taxes, at July 31, 2001 and 2000 of $44,436
and ($27,343), respectively, are reflected in retained earnings in the
consolidated balance sheet.
Page 27 of 49
5. Contract Receivables, net
------------------------- July 31,
--------
2001 2000
------------ ------------
United States government -
Billed $ 5,011,673 $ 6,404,394
Unbilled 1,187,218 4,086,931
------------ ------------
6,198,891 10,491,326
------------ ------------
Industrial customers and state
and municipal governments -
Billed 13,991,415 11,179,092
Unbilled 4,732,568 4,166,371
------------ ------------
18,723,983 15,345,462
------------ ------------
Less allowance for contract
adjustments (2,236,407) (1,658,597)
------------ ------------
$22,686,467 $24,178,191
============ ============
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 $325,000 at July 31,
2001 and ($403,000) at July 31, 2000. Unbilled contracts receivable are
reduced by billings in excess of costs incurred of $2,548,000 at July
31, 2001 and $920,000 at July 31, 2000. Management anticipates that
the July 31, 2001 unbilled receivables will be substantially billed
and collected in fiscal 2002. Within the above billed balances are
contractual retainages in the amount of approximately $773,000 at
July 31, 2001 and $1,148,000 at July 31, 2000. Management anticipates
that the July 31, 2000 retainage balance will be substantially
collected in fiscal year 2002. Included in other accrued liabilities
is an additional allowance for contract adjustments relating to
potential cost disallowances on amounts billed and collected in
current and prior years' projects of approximately $2,254,000 at
July 31, 2001 and $2,031,000 at July 31, 2000. An allowance for
contract adjustments is recorded for contract disputes and government
audits when the amounts are determinable.
Page 28 of 49
6. Property, Building and Equipment, net
-------------------------------------
July 31,
--------
2001 2000
------------ ------------
Land $ 1,081,143 $ 1,110,750
Land improvements 4,088,505 2,735,397
Buildings 13,642,389 13,565,045
Laboratory and other equipment 3,539,603 7,451,450
Data processing equipment 3,584,747 7,585,658
Office furniture and equipment 1,955,711 5,171,936
Leasehold improvements and other 813,988 1,662,154
----------- -----------
$28,706,086 $39,282,390
Less accumulated depreciation
and amortization (11,215,601) (23,298,584)
------------ ------------
$17,490,485 $15,983,806
============ ============
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 rate
of 1/2% below prime. No borrowings on the line of credit were
outstanding at July 31, 2001 and 2000 and none were required during
fiscal years 2001 and 2000. At July 31, 2001 and 2000, the Company had
letters of credit totaling $91,000 and $327,321, respectively,
secured by this line of credit.
8. Income Taxes
------------
Earnings before provision for income taxes consisted of:
2001 2000 1999
----------- ---------- ---------
U.S. $2,969,915 $1,624,120 $307,079
Foreign 465,247 (53,238) 175,724
----------- ----------- ----------
$3,435,162 $1,570,882 $482,803
=========== =========== ==========
The income tax provision (benefit) consists of the following:
Fiscal Year
-----------
2001 2000 1999
----------- --------- ---------
Current
Federal $1,530,005 $596,173 $(298,653)
State 250,000 338,491 65,000
Foreign 194,072 58,547 51,642
----------- ---------- ----------
$1,974,077 $993,211 $(182,011)
----------- ---------- ----------
Deferred
Federal ($439,651) $(138,558) 351,344
State 5,445 (62,787) 14,000
----------- ---------- ----------
($434,206) $(201,345) $ 365,344
----------- ---------- ----------
Total $1,539,871 $ 791,866 $ 183,333
=========== ========== ==========
Page 29 of 49
The provision for income taxes differs from the federal statutory rate due
to the following:
Fiscal year
-----------
2001 2000 1999
------ ------ ------
Federal tax 34.0% 34.0% 34.0%
State taxes, net of federal benefit 4.9 11.6 10.8
Nondeductible expenses 0.8 4.0 12.6
Tax exempt interest (1.5) (4.0) (18.0)
Foreign operations 1.0 4.9 (1.7)
Adjustment to prior year taxes 5.2 --- ---
Other 0.4 --- 0.2
------ ------ ------
Total Provision 44.8% 50.5% 37.9%
====== ====== ======
Deferred tax assets (liabilities) were comprised of the following:
July 31,
--------
2001 2000
---------- -----------
Allowance for contract adjustments $1,818,767 $1,494,087
Accrued vacation and compensatory time 435,155 404,654
Property, building and equipment 127,726 157,839
Unearned stock compensation 299,302 ---
Other 185,022 251,799
----------- -----------
Gross deferred tax assets $2,865,972 $2,308,379
State income taxes (149,403) (142,439)
Other (21,970) (80,919)
----------- -----------
Gross deferred tax liabilities (171,373) (223,358)
----------- -----------
Net deferred tax asset $2,694,599 $2,085,021
=========== ===========
The Company has not recorded income taxes applicable to undistributed
earnings of foreign subsidiaries that are indefinitely reinvested in
foreign operations. At July 31, 2001, these amounts, net of applicable
foreign tax credits, were not material.
10. Shareholders' Equity
--------------------
a. 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
Page 30 of 49
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.
b. Incentive stock compensation
----------------------------
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 exercised during fiscal years 2001, 2000 and 1999.
Cancelled options during the three year period ended July 31, 2001
amounted to 3,645, 11,407 and 5,822, respectively, at a weighted
average exercise price of $11.00, $11.58 and $10.14, respectively.
Expired options were 16,112, 15,638 and 14,588 for fiscal years 2001,
2000 and 1999, respectively, at a weighted average exercise price
of $16.08, $12.73 and $10.47 per share, respectively.
Options outstanding at the end of the three year period ended July
31, 2001 were 61,954, 80,276 and 108,756, respectively, at a
weighted average exercise price of $9.63, $10.92 and $11.25,
respectively. Of the options outstanding for the three year period
ended July 31, 2001, 61,954, 53,911 and 66,566, respectively, are
currently exercisable at a weighted average exercise price of $9.63,
$12.82 and $13.48, respectively. At July 31, 2001, 36,650 options
have an exercise price between $7.25 and $10.48, with a weighted
average exercise price and weighted average contracted life of $7.73
and 4.15 years, respectively. At July 31, 2001, 25,304 options have
an exercise price of $12.38 a contractual life of 1.98 years,
respectively.
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 2001, 2000 and 1999 to be materially different from
their reported amounts.
c. Stock Award Plan
----------------
Effective March 16, 1998, the Company adopted the Ecology and
Environment, Inc. 1998 Stock Award Plan (the "Award Plan") under
which key employees (including officers) of the Company or any of
its present or future subsidiaries may be designated to receive
awards of Class A common stock of the Company as a bonus for
services rendered to the Company or its subsidiaries, without
payment therefore, based upon the fair market value of the common
stock at the time of the award. The 1998 plan agreement provides that
the stock cannot be sold, assigned, or transferred before a three year
vesting period is completed and that the shares are forfeited if an
individual's employment is terminated before the vesting period is
completed. Accordingly, the Company is amortizing the expense
Page 31 of 49
associated with issuance of the shares ratably over three years. The
Company originally reserved for issuance as awards under the Award Plan
aggregate of 12,000 shares of Class A Common stock of the Company, which
shall be solely treasury shares. Since then, the Company has increased
the number of reserved shares to 112,000.
In the first quarter of fiscal year 2001, the Company issued 92,339
shares at an average fair value of $6.19 per share. In Fiscal Year
2000 no shares were issued. In Fiscal Year 1999, 8,750 shares were
issued at a weighted average fair value of $7.69 per share. In
Fiscal Year 1998, awards for 11,090 shares of Class A common stock
had been granted at a weighted average fair value of $9.81 per share.
Unearned compensation is recorded at the time of issuance and is
being amoritzed over the vesting period.
11. Lease Commitments
-----------------
The Company rents certain office facilities and equipment under
noncancelable 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, 2001, 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
----------- ---------- ------------ -------
2002 2,076,371 594,150 1,482,221
2003 1,866,799 575,005 1,291,794
2004 1,801,876 564,566 1,237,310
2005 1,642,170 559,596 1,082,574
2006 1,217,523 413,325 804,198
Gross rental expense under the above lease commitments for 2001, 2000,
and 1999 was $2,959,728, 2,330,734, and $2,259,390, respectively.
12. Defined Contribution Plans
--------------------------
Contributions to the supplemental defined contribution plans are
discretionary and determined annually by the Board of Directors. The
total expense under the supplemental plan for fiscal years 2001, 2000,
and 1999 was $1,214,636, $1,486,568 and $1,472,426, respectively.
Page 32 of 49
13. Earnings Per Share
------------------
The computation of basic earnings per share reconciled to diluted
earnings per share follows:
Fiscal Year
-----------
2001 2000 1999
--------- --------- ----------
Income available
to common stockholders $1,895,291 $ 779,016 $ 299,470
Weighted-average common
shares outstanding (basic) 4,103,740 3,968,500 3,957,825
Basic earnings
per share $.46 $0.20 $0.08
Incremental shares from
assumed conversions of
stock options --- --- ---
Adjusted weighted-average
common shares outstanding 4,103,740 3,968,500 3,957,825
Diluted earnings
per share $.46 $0.20 $0.08
At July 31, 2001 and July 31, 2000, there were 61,954 stock options
outstanding with an exercise price ranging from $7.25 to $16.08 which
were not included in the above calculations due to their antidilutive
nature.
14. 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.
15. Acquisitions
------------
In September 1999 the Company, through its Chilean subsidiary,
acquired a 50.1% stake in Gestion Ambiental Consultores, (GAC), a
Chilean environmental consulting firm for a cash payment of $400,000.
GAC has expertise in mining, steel manufacturing and energy resources.
In February 2000, the Company purchased the remaining 10% interest in
its shrimp aquaculture facility for a purchase price of $263,000.
In June 2000, the Company purchased a 60% share of the assets of Walsh
Environmental Scientists and Engineers LLC, Walsh of Boulder,
Colorado for a purchase price of $700,000 cash and $300,000 in Class A
common stock. An additional $500,000 in cash was contributed by the
Company for working capital. The working capital contribution was
used to pay down short and long term debt and will provide capital for
Page 33 of 49
future growth. Walsh of Boulder provides environmental services to
clients in the Rocky Mountain region as well as Peru, through its
Peruvian subsidiary.
On July 26, 2001, the Company purchased an interest in a fish farm
located in Jordan. The farm currently maintains five different species
as brood stock, including tilapia and carp. The assets were purchased
for approximately $513,000 by a newly formed entity, AMARACO, of which
EEI owns 51%. The farm is located on the banks of the Jordan river, 120
kilometers north of Amman. The farm was not operating at the time of the
asset purchase. The Company anticipates additional investments will be
required to upgrade the farm's infrastructure, production methods, and
species selection.
These acquisitions have been accounted for under the purchase method
with the results of their operations consolidated with the Company's
results of operations from the respective acquisition dates. The
aggregate excess of the purchase prices of these acquisitions over the
fair market values of the net assets of the acquired companies is being
amortized over a range of 15-20 years from the acquisition dates using
the straight-line method.
The following information presents the pro forma consolidated results
of operations as if the acquisitions had occurred on August 1, 1998.
The proforma amounts may not be indicative of the results that
actually would have been achieved had the acquisitions occurred as of
August 1, 1998 and are not necessarily indicative of future results.
The Jordon fish farm was not included in the proforma calculations
since it was a non-operating entity.
Fiscal Year 2000 Fiscal Year 1999
(000's of $) (000's of $)
(Unaudited) (Unaudited)
---------------- ----------------
Net sales $74,599 $68,496
Income before taxes 1,780 714
Net income 910 446
Net income per share $.23 $.11
16. Segment Reporting
-----------------
Ecology and Environment, Inc. has three reportable segments: consulting
services, analytical laboratory services, and aquaculture. The consulting
services segment provides broad based environmental services encompassing
audits and impact assessments, surveys, air and water quality management,
environmental engineering, environmental infrastructure planning, and
industrial hygiene and occupational health studies to a world wide base of
customers. The analytical laboratory provides analytical testing services
to industrial and governmental clients for the analysis of waste, soil and
sediment samples. The shrimp aquaculture facility, located in Costa Rica,
was purchased on July 30, 1999. Consequently, there was virtually no
reportable segment activity for fiscal year 1999. This facility produces
shrimp grown in a controlled environment for markets worldwide.
The Company evaluates segment performance and allocates resources based on
operating profit before interest income/expense and income taxes. The
accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies. Intercompany
sales from the analytical services segment to the consulting segment are
recorded at market selling price, intercompany profits are eliminated.
The Company's reportable segments are separate and distinct business units
that offer different products. Consulting services are sold on the basis of
time charges while analytical services and aquaculture products are sold on
the basis of product unit prices.
Page 34 of 49
Reportable segment data for the fiscal year ended July 31, 2001 is as follows:
Consulting Analytical Aquaculture Elimination Total
----------- ----------- ------------ ------------ -----------
Net revenues from external customers $69,146,912 $4,001,481 $ 274,149 $ --- $73,422,542
Intersegment net revenues 2,172,292 --- --- (2,172,292) ---
----------- ---------- ------------ ----------- -----------
Total consolidated net revenues $71,319,204 $4,001,481 $ 274,149 $(2,172,292) $73,422,542
=========== =========== ============ ============ ===========
Depreciation expense $ 822,475 $ 372,541 $ 61,992 $ --- $ 1,257,008
Segment profit (loss) 5,578,815 (728,444) (1,018,835) --- 3,831,536
Segment assets 44,080,564 6,756,000 6,868,000 --- 57,704,564
Expenditures for long-lived assets 1,135,522 285,508 1,461,146 --- 2,882,176
Geographic Information:
Net Long-lived
Revenues (1) Assets
------------ ------------
United States $65,418,542 $22,468,086
Foreign countries $8,004,000 $6,238,000
(1) Net revenues are attributed to countries based on the location of the
customers.
Reportable segment data for the fiscal year ended July 31, 2000 is as follows:
Consulting Analytical Aquaculture Elimination Total
----------- ----------- ----------- ----------- -----------
Net revenues from external customers $64,707,751 $4,447,523 $ 734,608 $ --- $69,889,882
Intersegment net revenues 1,538,308 --- --- (1,538,308) ---
----------- ---------- ----------- ------------ -----------
Total consolidated net revenues $66,246,059 $4,447,523 $ 734,608 $(1,538,308) $69,889,882
=========== =========== =========== ============ ===========
Depreciation expense $ 942,118 $ 362,316 $ 81,984 $ --- $ 1,386,418
Segment profit (loss) 2,500,622 (763,893) (570,745) --- 1,165,984
Segment assets 41,346,809 7,490,000 4,612,056 --- 53,448,865
Expenditures for long-lived assets 704,967 183,000 1,976,898 --- 2,864,865
Geographic Information:
Net Long-lived
Revenues (1) Assets
------------ ------------
United States $63,450,327 $35,026,498
Foreign countries $6,439,555 $4,255,892
(1) Net revenues are attributed to countries based on the location of the
customers.
Page 35 of 49
Reportable segment data for the fiscal year ended July 31, 1999 is as follows:
Consulting Analytical Aquaculture Elimination Total
----------- ----------- ----------- ------------ -----------
Net revenues from external customers $59,167,613 $4,181,015 $ --- $ --- $63,348,628
Intersegment net revenues 2,140,081 --- --- (2,140,081)
----------- ---------- ------------ ------------ -----------
Total consolidated net revenues $61,307,694 $4,181,015 $ --- $(2,140,081) $63,348,628
=========== =========== ============ ============ ===========
Depreciation expense $ 1,015,166 $ 379,600 $ --- $ --- $ 1,394,766
Segment profit (loss) 1,963,956 (1,910,920) --- --- 53,036
Segment assets 43,539,235 7,039,000 2,116,500 --- 52,964,735
Expenditures for long-lived assets 886,370 212,452 2,116,500 --- 3,215,322
Geographic Information:
Net Long-lived
Revenues (1) Assets
------------ ------------
United States $57,340,628 $33,282,307
Foreign countries $6,008,000 $117,162
(1) Net revenues are attributed to countries based on the location of the
customers.
The disclosure of significant customers is included in note number one to
the consolidated financial statements.
Page 36 of 49
ECOLOGY AND ENVIRONMENT, INC.
SCHEDULE VIII
Allowance for Doubtful Accounts
Years Ended July 31, 2001, 2000, and 1999
Balance at Charged to Balance
Beginning Cost and at End
Year Ended of Period Expense Deduction of Year
------------- ---------- ----------- --------- ----------
July 31, 2001 $3,689,103 $1,407,202 $ 605,524 $4,490,781
July 31, 2000 $2,968,240 $ 986,863 $ 266,000 $3,689,103
July 31, 1999 $3,219,565 $ 606,875 $ 858,200 $2,968,240
Selected quarterly financial data (Unaudited)
---------------------------------------------
(In thousands, except per share information)
2001 First Second Third Fourth
-----------------------------------------------------------------------------
Gross revenues $24,294 $21,915 $19,884 $22,104
Net revenues 19,944 18,426 17,008 18,044
Income (loss) from operations 1,032 843 654 866
Income before income taxes 1,131 948 722 1,031
Net income (loss) 591 456 245 604
Net income per common share:
basic and diluted $ 0.14 $ .11 $ 0.06 $ 0.15
Cash dividends declared per common
share: basic and diluted $ --- $ 0.16 $ --- $ 0.16
2000 First Second Third Fourth
-----------------------------------------------------------------------------
Gross revenues $20,171 $20,525 $21,066 $24,099
Net revenues 16,771 16,490 17,336 19,293
Income (loss) from operations 399 172 243 352
Income before income taxes 541 223 308 499
Net income (loss) 327 70 179 203
Net income per common share:
basic and diluted $ 0.08 $ 0.02 $ 0.05 $ 0.05
Cash dividends declared per common
share: basic and diluted $ --- $ 0.16 $ --- $ 0.16
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
-----------------------------------------------------
None.
Page 37 of 49
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 64 President and Director
Frank B. Silvestro 65 Executive Vice President and Director
Gerald A. Strobel 61 Executive Vice President of Technical
Services and Director
Ronald L. Frank 63 Executive Vice President of Finance,
Secretary, Treasurer and Director
Gerard A. Gallagher, Jr. 70 Director
Roger J. Gray 60 Senior Vice President
Laurence M. Brickman 57 Senior Vice President
Harvey J. Gross 73 Director
Ross M. Cellino 69 Director
Brent D. Baird 62 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.
Page 38 of 49
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. Gallagher
retired as an officer of the Company in February 2001.
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. Cellino has been a Director of the Company since its inception in
1970. Mr. Cellino is an attorney and counselor-at-law retired from private
practice.
Mr. Baird was elected as a Director in January 1999. From 1970
through January 1984, Mr. Baird was a partner and from February 1984 until
January 1, 1992, was a limited partner of Trubee, Collins & Co., Buffalo,
New York, a member firm of the New York Stock Exchange, Inc. Mr. Baird is
currently a private investor. He is also a director of Todd Shipyards
Corporation, Merchants Group, Inc., First Carolina Investors, Inc., M & T
Bank Corporation, and Allied Healthcare Products, Inc.
Page 39 of 49
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, 1999, 2000 and 2001 of those persons who were at July
31, 2001 (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, 2001 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 RESTRICTED LONG-TERM ALL
NAME AND FISCAL OPTIONS STOCK COMPENSATION OTHER
PRINCIPAL POSITION YEAR SALARY BONUS (1) OTHER (SHARES) AWARDS (3) PAYOUTS (2)
------------------------ ------ -------- -------- ----- ---------- ---------- ------------ ------
Gerhard J. Neumaier 2001 $247,051 $25,000 -0- -0- -0- -0- $14,049
President and Director 2000 $233,680 -0- -0- -0- -0- -0- $13,182
1999 $228,750 -0- -0- -0- -0- -0- $13,731
Frank B. Silvestro 2001 $224,934 $25,000 -0- -0- -0- -0- $12,901
Executive Vice President 2000 $212,447 -0- -0- -0- -0- -0- $11,976
and Director 1999 $207,844 -0- -0- -0- -0- -0- $12,535
Ronald L. Frank 2001 $224,934 $25,000 -0- -0- -0- -0- $12,901
Executive Vice President 2000 $212,447 -0- -0- -0- -0- -0- $11,976
of Finance, Secretary, 1999 $207,964 -0- -0- -0- -0- -0- $12,542
Treasurer and Director
Gerald A. Strobel 2001 $224,934 $25,000 -0- -0- -0- -0- $12,901
Executive Vice President 2000 $212,447 -0- -0- -0- -0- -0- $11,976
of Technical Services 1999 $207,964 -0- -0- -0- -0- -0- $12,542
and Director
Roger J. Gray 2001 $180,650 $ 6,000 -0- -0- $ 4,000 -0- $ 9,671
Senior Vice President 2000 $180,650 $ 6,000 -0- -0- $14,000 -0- $10,603
1999 $176,966 -0- -0- -0- $ 3,843 -0- $10,152
(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.
(3) As of July 31, 2001, there were 3,263 shares of the Company's Class A
Common Stock which was restricted stock issued pursuant to the Company's
Stock Award Plan issued to Roger Gray having a value of $26,104 as of
July 31, 2001.
None of the Company's executive officers have employment agreements.
Directors who are not employees of the Company are paid an annual fee of
$25,460 payable quarterly.
Compensation Pursuant to Plans
------------------------------
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
Page 40 of 49
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.
Stock Award Plan
----------------
Effective March 16, 1998, the Company adopted the Ecology and
Environment, Inc. 1998 Stock Award Plan (the "Award Plan") under which key
employees (including officers) of the Company or any or all of its present
or future subsidiaries may be designated to receive awards of Class A
common stock of the Company as a bonus for services rendered to the Company
or its subsidiaries, without payment therefore, based upon the fair market
value of the common stock at the time of the award. The Company originally
reserved for issuance as awards under the Award Plan an aggregate of 12,000
shares of Class A common stock of the Company, which shall be solely
treasury shares. Since then, the Company has increased the number of reserved
shares to 112,000.
The Board of Directors of the Company administers the plan and
has authority to determine the employees to whom awards are to be granted,
the number shares covered by each award, whether or not the awards are subject
to forfeiture or restriction on sale, resale or other disposition of the
shares acquired under the award and any other understandings or conditions
as to the award recipient's continued employment.
The Award Plan is not a qualified plan under Section 401(a) of the
Internal Revenue Code. The plan permits grants of the award for a period
of five (5) years from the date of adoption. As of July 31, 2001, awards
for 100,422 shares of Class A common stock have been granted. The named
Executive Officers found in the Summary Compensation Table have not been
granted any awards pursuant to the Award Plan.
Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------
During the fiscal year ended July 31, 2001, Gerard A. Gallagher, Jr.
failed to file on a timely basis one report showing one transaction.
Page 41 of 49
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
-----------------------------------------------
The following table sets forth, as of September 28, 2001, 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* 355,777 13.1% 345,894 20.1%
Frank B. Silvestro* 288,937 10.9% 288,937 16.8%
Ronald L. Frank* 216,359 8.4% 212,844 12.4%
Gerald A. Strobel* 222,741 8.6% 222,741 12.9%
Franklin Resources,
Inc. 305,000 12.8% 0 0
First Carolina
Investors, Inc. 425,000 18.0% 0 0
The Cameron Baird
Foundation 250,000 10.5% 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 c/o Kavinoky & Cook, 120 Delaware Avenue,
Buffalo, New York 14202. The address for First Carolina Investors, Inc. is
1130 East Third Street, Suite 400, Charlotte, North Carolina 28204.
(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 2,366,667 shares of Class A Common Stock issued and
outstanding and 1,720,171 shares of Class B Common Stock issued and
outstanding as of September 28, 2001. 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.
Page 42 of 49
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 28, 2001, 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) (14) 355,777 13.1% 345,894 20.1%
Frank B. Silvestro (14) 288,937 10.9% 288,937 16.8%
Ronald L. Frank (6) (14) 216,359 8.4% 212,844 12.4%
Gerald A. Strobel (7) (14) 222,741 8.6% 222,741 12.9%
Harvey J. Gross (8) 80,047 3.3% 80,047 4.7%
Gerard A. Gallagher, Jr. 65,641 2.7% 65,300 3.8%
Ross M. Cellino (9) 16,611 * 1,050 *
Roger Gray (10) 15,135 * 7,927 *
Brent D. Baird (11) 435,000 18.4% -0- -0-
Directors and officers
Group (12)(13) 1,706,043 47.4% 1,230,402 71.5%
(10 individuals)
* Less than 0.1%
-------------------------------------------------------------------------------------
1. The address of each of the above shareholders, other than Brent D.
Baird, is c/o Ecology and Environment, Inc., 368 Pleasant View Drive,
Lancaster, New York 14086. The address for Brent D. Baird is 1350
One M & T Plaza, Buffalo, New York 14203.
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 4,417 shares
of Class A Common Stock of the total 60,729 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.
Page 43 of 49
4. There are 2,366,667 shares of Class A Common Stock issued and
outstanding and 1,720,171 shares of Class B Common Stock issued and
outstanding as of September 23, 2001. 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 5,525
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.
Includes 3,833 shares of Class A Common Stock owned by a Partnership
in which Mr. Neumaier is a general partner.
6. Does not include any shares of Class A Common Stock or Class B Common
Stock held by Mr. Frank's adult children. Includes 18,625 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 2,515 shares of Class A Common Stock owned by Mr. Frank's
individual retirement account.
7. Includes 15,171 shares of Class B Common Stock held in equal amounts
by Mr. Strobel as custodian for his three 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 10,396 shares of Class A Common Stock owned by Mr. Cellino's
spouse, as to which shares he disclaims beneficial ownership; also
includes 4,555 shares of Class A Common Stock owned by Mr. Cellino's
Individual Retirement Account. Includes 5 shares of Class A Common
Stock owned by a limited partnership in which Mr. Cellino is a general
partner.
10. Includes 1,200 shares of Class A Common Stock which may be issued
upon exercise of a stock option granted on December 12, 1995
pursuant to the Company's Incentive Stock Option Plan.
11. Includes 425,000 shares of Class A Common Stock owned by First
Carolina Investors, Inc. of which Mr. Baird is a shareholder,
director and Chief Executive Officer. It does not include 250,000
shares owned by the Cameron Baird Foundation.
12. Does not include 68,107 shares (32,650 shares of Class A Common Stock
and 35,457 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.
13. Includes 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; includes 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; includes 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. Includes 1,200 shares of Class A Common Stock which may
be issued upon the exercise of stock options granted to one officer on
December 12, 1995 pursuant to the Company's Incentive Stock Option Plan.
Page 44 of 49
14. 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 1,232,418 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.
Page 45 of 49
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENTS
------------------------------
(a) 1. Financial Statements Page
-------------------- ----
Report of Independent Accountants 17
Consolidated Balance Sheet -
July 31, 2001 and 2000 18
Consolidated Statement of Income
for the fiscal years ended
July 31, 2001, 2000 and 1999 19
Consolidated Statement of Changes in
Shareholders' Equity for the fiscal years
ended July 31, 2001, 2000 and 1999 20
Consolidated Statement of Cash Flows for
the fiscal years ended July 31, 2001,
2000 and 1999 21
Notes to Consolidated Financial Statements 22
2. Financial Statement Schedule
----------------------------
Schedule VIII - Allowance for
Doubtful Accounts 37
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)
Page 46 of 49
Exhibit No. Description
----------- -----------
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)
10.5 Summary of Ecology and Environment Discretionary
Performance Plan (3)
21.5 Schedule of Subsidiaries as of July 31, 2001 (3)
23.0 Consent of Independent Accountants (3)
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 herewith.
(a) Reports on Form 8-K
Registrant has not filed any reports on Form 8-K during the fourth
quarter ended July 31, 2001.
Page 47 of 49
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
hereunto duly authorized:
Dated: October 29, 2001 ECOLOGY AND ENVIRONMENT, INC.
By: 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
--------- ----- ----
GERHARD J. NEUMAIER PRESIDENT October 29, 2001
--------------------------- (CHIEF EXECUTIVE
GERHARD J. NEUMAIER OFFICER)
FRANK B. SILVESTRO EXECUTIVE October 29, 2001
--------------------------- VICE-PRESIDENT
FRANK B. SILVESTRO
GERALD A. STROBEL EXECUTIVE October 29, 2001
--------------------------- VICE-PRESIDENT
GERALD A. STROBEL
RONALD L. FRANK SECRETARY, TREASURER, October 29, 2001
--------------------------- EXECUTIVE VICE-PRESIDENT
RONALD L. FRANK OF FINANCE
(PRINCIPAL FINANCIAL
AND ACCOUNTING OFFICER)
GERARD A. GALLAGHER, JR. SENIOR VICE-PRESIDENT October 29, 2001
--------------------------- OF SPECIAL PROJECTS
GERARD A. GALLAGHER, JR. AND DIRECTOR
HARVEY J. GROSS DIRECTOR October 29, 2001
---------------------------
HARVEY J. GROSS
ROSS M. CELLINO DIRECTOR October 29, 2001
---------------------------
ROSS M. CELLINO
BRENT D. BAIRD DIRECTOR October 29, 2001
---------------------------
BRENT D. BAIRD
Page 48 of 49
Exhibit Index
-------------
Exhibit 10.5 Summary of Ecology and Environment, Discretionary
Performance Plan
Exhibit 21.5 List of Subsidiaries
Exhibit 23 Consent of Independent Accountants
Exhibit 10.5 SUMMARY OF ECOLOGY AND ENVIRONMENT, DISCRETIONARY
------------ PERFORMANCE PLAN
The Company's Discretionary Performance Plan ("DPP") was established to
provide a direct connection between pay and performance, thereby supporting
increased overall Company performance through increased individual
performance. The Directors select DPP participants, and in its discretion,
established the year-end bonus pool based upon profitability of the Company.
Bonuses are awarded to the Company's management personnel, including
Executive Officers, based on their individual performance, industry
practices and the performance of the Company as a whole. At the discretion
of the Directors, the bonuses can be paid in cash or stock awards under the
Ecology and Environment, Inc. 1998 Stock Award Plan. Amounts paid to
employees constitute part of the employee's annual cash compensation.
Exhibit 21.5
------------
SCHEDULE OF SUBSIDIARIES
------------------------
AS OF JULY 31, 2001
------------------------
Subsidiaries of Ecology and Environment, Inc. (the "Company")
as of July 31, 2001.
Percentage of
Capital Stock
of Subsidiary
Owned by the
Company
-------------
1. Ecology and Environment Engineering, Inc. 100%
(a Colorado corporation)
2. E & E Drilling and Testing Co., Inc. 100%
(a New York corporation)
3. Ecology and Environment, Limited 100%
(a limited company formed under the
laws of the Republic of Ireland)
4. E & E Umwelt - Beratung GmbH, Leipzig 100%
(a corporation formed under the laws
of Germany)
5. Ecology and Environment de Mexico S.A.de C.V. 100%
(a corporation formed under the laws of Mexico)
6. Ecology and Environment, S.A. 55%
(a corporation formed under the laws
of Venezuela)
Page 49 of 49
7. Ecology and Environment Eurasia 100%
(a corporation formed under the laws of
the Russian Republic)
8. ecology and environment do brasil ltda. 100%
(a corporation formed under the laws of
Brazil)
9. Ecology and Environment of Saudi Arabia 66 2/3%
Company, Ltd.
(a limited liability company formed
under the laws of the Saudi Arabia)
10. Ecology & Environment South America, Inc. 100%
(a corporation formed under the laws
of the Cayman Islands)
11. Ecology & Environment International 100%
Services, Inc.
(a Delaware Corporation)
12. Frutas Marinas Del Mar S.A. 100%
(a corporation formed under the laws of
Costa Rica)
13. Ecology & Environment de Chile, S.A. 100%
(a corporation formed under the
laws of Chile)
14. Gestion Ambiental Consultores S.A. 50.1%
(a corporation formed under the laws of
Chile)
15. Walsh Environmental Scientists and Engineers, LLC 60%
16. Ecology and Environment, Kazakhstan 100%
(a corporation formed under the laws of
Kazakhstan)
17. Consortium of International Consultants LLC 99%
(a Delaware limited liability company)
18. American Arab Aquaculture Company (AMARACO) 51%
(a Jordanian limited liability company)
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 4, 2001 relating to the
financial statements and financial statement schedule which appear in this
Form 10-K.
PricewaterhouseCoopers LLP
Buffalo, New York
October 29, 2001