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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, 1996
or
[ ] TRANSITION REPORT REQUIRED PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________.
Commission file number 1-9065
Ecology and Environment, Inc.
(Exact name of registrant as specified in its charter)
NEW YORK 16-0971022
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
368 Pleasant View Drive, Lancaster, New York 14086
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (716) 684-8060
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on Which Registered
Class A Common Stock, American Stock Exchange, Inc.
par value $.01 per share
Securities registered pursuant to Section 12(g) of the Act.
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes _X_ No ___
Exhibit Index on Page 43
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in part III of this Form 10-K
or any amendments to this Form 10-K.
X
As of September 30, 1996, 2,130,872 shares of the registrant's Class
A Common Stock, $.01 par value (the "Class A Common Stock") were outstanding,
and the aggregate market value (based on the closing price as quoted by the
American Stock Exchange on September 30, 1996) of the Class A Common Stock
held by nonaffiliates of the registrant was approximately $17,108,975. As of
the same date, 1,837,558 shares of the registrant's Class B Common Stock, $.01
par value ("Class B Common Stock") were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Registration Statement on Form S-1, as
amended by Amendment Nos. 1 and 2 (Registration No. 33-11543) as well as
portions of the Company's Form 10-K for Fiscal Years ending July 31, 1988,
July 31, 1990 and July 31, 1994 are incorporated by reference in Part IV of
this Form 10-K.
TABLE OF CONTENTS
INDEX
PART I
Page
Item 1. BUSINESS 5
General 5
START Contracts 5
TAT Contract 6
Hazardous Material Services 6
Environmental Consulting Services 7
Analytical Laboratory Services 8
Regulatory Background 8
Potential Liability and Insurance 10
Market and Customers 11
Backlog 11
Competition 11
Employees 11
Item 2. PROPERTIES 12
Item 3. LEGAL PROCEEDINGS 12
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 12
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA 14
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 15
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 17
Item 9. DISAGREEMENTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES 35
PART III
Page
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 35
Item 11. EXECUTIVE COMPENSATION 37
Item 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS 39
SECURITY OWNERSHIP OF MANAGEMENT 40
Item 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS 43
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS 43
PART I
Item 1. BUSINESS
General
Ecology and Environment, Inc. ("EEI" or the "Company") is a broad based
environmental consulting and testing firm whose underlying philosophy is to
provide professional services worldwide so that sustainable economic and human
development may proceed with minimum negative impact on the environment. The
Company offers a broad range of environmental consulting services including:
environmental audits; environmental impact assessments; terrestrial, aquatic
and marine surveys; air quality management and air toxics pollution control;
environmental engineering; noise pollution evaluations; wastewater analyses;
water pollution control; industrial hygiene and occupational health studies;
archaeological and cultural resource studies; environmental infrastructure
planning, air, water and groundwater monitoring and analytical laboratory
services.
EEI's services related to toxic, hazardous, nuclear and solid waste
disposal management include: site investigations and evaluations, hazard and
risk assessments, underground storage tank programs, remedial engineering
design and project management, oil and chemical spill emergency response and
complete regulatory compliance management programs. The Company also provides
comprehensive services to manage the removal of asbestos from educational,
institutional, governmental and commercial buildings. Virtually all of EEI's
services are available to clients, both industrial and governmental,
worldwide.
The Company employs over 75 separate disciplines embracing the physical,
biological, social and health sciences. The Company was incorporated in
February, 1970. Its principal offices are located at 368 Pleasant View Drive,
Lancaster, New York and its telephone number is 716-684-8060.
START Contracts
In December 1995, the Environmental Protection Agency ("EPA") awarded the
Company five (5) regional Superfund Technical Assessment and Response Teams
("START") superfund contracts to provide technical expertise in support of its
hazardous waste spill response, removal and prevention programs in the
midwestern and western United States. The Company is required to provide
round the clock assistance to the EPA at spill sites within the midwestern and
western United States and, in certain instances, may be required to respond to
an emergency in other areas of the country.
The START contracts are each level of effort and cost plus contracts.
Tow (2) of the five (5) START contracts also contain award fee provisions.
The EPA has estimated that a certain number of labor hours are necessary to
fulfill the requirements of the contracts, and has agreed to compensate the
Company for maintaining an available work force to fulfill those hour
requirements. All of the contracts contain a base fee amount. In addition to
the base amount, the contracts with award fee provisions pay an award amount.
The base amount is fixed in the contract and the award amount is determined by
the EPA based upon its evaluation of the quality of the Company's services.
The total contract value of the five (5) START contracts, if the EPA
exercises all options within each of them, is $216 million. The base value of
the five (5) START contracts over five years is approximately $93.0 million.
The Company, as of July 31, 1996, has realized total net revenues of
approximately 9.8 million under these contracts.
The START contracts each have a term of five (5) years. However, they
contain termination provisions under which the EPA may, without penalty,
terminate the contract upon written notice to the Company. In the event of
termination, the Company would be paid only termination costs in accordance
with the contract.
TAT Contract
In August 1990, the EPA awarded the Company a Technical Assistance Team
("TAT") contract to provide technical assistance teams to assist the EPA in
responding to environmental emergencies caused by the release of oil,
petroleum or other hazardous substances and in conducting spill prevention
compliance inspections, process inspections and contingency planning and
training.
In December 1996, the final extension term of the TAT contract expired.
The Company continued final administrative work under the contract's
"continuity of services" option through July 31, 1996. As of this date, the
Company has realized total net revenues of $134.3 million under the TAT
contract. The Company will recognize minimal revenues under the contract's
"continuity of services" option in fiscal year 1997.
Hazardous Material Services
Introduction. EEI has conducted hazardous waste site evaluations
throughout the United States. In conducting these site evaluations, the
Company provides site investigation (e.g., geophysical surveys, monitoring
well installation, and sample collection and analysis), engineering design,
and operation and maintenance for a wide range of industrial and governmental
clients. In providing such services, the Company inventories and collects
sample materials on site and then evaluates waste management practices,
potential off-site impacts and liability concerns. EEI then recommends and
designs clean up programs and assists in the implementation and monitoring of
those clean up programs.
Field Investigation. The Company's field investigation services
primarily involve the development of work plans, health and safety plans and
quality assurance and quality control plans to govern field investigations and
conduct such field investigations to define the nature and extent of
contaminants at a site.
Engineering Services. After field investigation services have been
completed and the necessary approvals obtained, the Company's engineering
specialists develop plans and specifications for remedial clean up activities.
This work includes the development of methods and standard operating
procedures to assess contamination problems, and to identify, develop and
design appropriate pollution control schemes. Alternative clean up strategies
are evaluated and conceptual engineering approaches are formulated. The
Company also provides supervision of actual cleanup or remedial construction
work performed by other contractors.
Environmental Consulting Services
The Company's staff includes various individuals with advanced degrees
representing over 75 scientific and engineering disciplines which relate to
the identification, quantification, analysis, and remediation of hazards to
the environment. The Company has rendered consulting services to industrial
and government clients in the following areas:
Hazard and Risk Analysis. EEI has provided analyses of the hazards and
risks of energy transportation to facility designers, contractors, and
operators for over fifteen years. The Company has developed a proprietary
hazardous material exposure model which determines the impact of potential
energy facility accidents on a plant and its employees, as well as on the
people and property in the surrounding community. EEI's hazard and risk
analyses have considered such factors as the physics of brittle fractures,
flammable vapor clouds, cryogenic liquid release and containment, thermal
radiation effects, and replacement and rerouting strategies. In addition, the
Company provides risk analysis for hazardous and toxic material spills and
releases as required under CERCLA and RCRA. These analyses have evaluated
human and ecological risks posed by contaminants in rural and urban settings,
and coastal, riverain, wetland and upland environments throughout the United
States.
Underground Storage Tank Management. The 1984 amendments to RCRA created
special provisions for the regulation of underground storage tanks. Extensive
federal regulations were promulgated in late 1988 which include notification
provisions, strict requirements for tank design and installation, leak
detection and monitoring and financial responsibility. The Company's staff
includes various individuals experienced in hydrogeology, engineering and the
evaluation of tank facilities for existing and potential leakage. EEI's
services also include analyzing the corrosive potential of underground tanks,
monitoring adjacent ground water, performing soil gas monitoring or other
geophysical procedures requiring the use of drilling equipment, and
establishing monitoring programs to verify the effectiveness of mitigative
programs and the status of properly functioning tanks. EEI also designs tank
removal, replacement and monitoring programs.
Environmental Assessments. In response to the requirements of NEPA and
other state environmental laws, EEI has provided environmental evaluation
services to both the government and the private sector for more than 22 years.
As part of the environmental evaluation process, EEI assists clients in
evaluating and developing methods to avoid or mitigate the potential
environmental impacts of a proposed project and to help ensure that the
project complies with regulatory requirements. EEI's services include air and
water quality analysis, terrestrial and aquatic biological surveys, threatened
and endangered species surveys and wetland delineations, social economic
studies, transportation analyses and land use planning.
Archeological Surveys. The National Historic Preservation Act (1966),
Executive Order 11593 (1971), and NEPA require that developers of certain
projects requiring federal funding, licensing, or approval consider the
potential adverse effects of their projects on cultural resources. In
accordance with these regulations, EEI's archaeologists conduct documentary
background research and field investigations to determine the presence of
cultural resources within proposed project areas and design plans to mitigate
adverse impacts on the resources prior to project development.
Emergency Spill Response Management. The Company has developed a
twenty-four hour emergency spill response subscription program for industrial
clients. This program generally consists of the development of a clean up
plan and supervision of the clean up and disposal operations. These functions
are generally performed by dispatching a response team to the site. The team
is supported by personnel from the Company's corporate response center. EEI's
emergency preparedness and response programs are enhanced by the use of
proprietary hazards exposure models. The Company's analytical laboratory is
used to assist in the chemical identification process.
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. EEI's laboratory is a participant in the
EPA sponsored Contract Laboratory Program ("CLP"). CLP establishes methods
and procedures under which analytical laboratory services associated with
superfund and RCRA activities are to be performed. The Company also is
certified to perform environmental testing services for some branches of the
U.S. military and a number of state agencies.
Regulatory Background
The United States Congress and most State Legislatures have enacted a
series of laws to prevent and correct environmental problems. These laws and
their implementing regulations help to create the demand for the
multi-disciplinary consulting services offered by the Company. The principal
federal legislation and corresponding regulatory programs which affect the
Company's business are as follows:
THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION, AND LIABILITY ACT
OF 1980, AS AMENDED ("CERCLA", "Superfund" or the "Superfund Act"). CERCLA is
a remedial statute which generally authorizes the Federal government to order
responsible parties to study and clean up inactive hazardous substance
disposal sites, or, to itself undertake and fund such activities. This
legislation has four basic provisions: (i) creation of an information
gathering and analysis program; (ii) grant of federal authority to respond to
emergencies associated with contamination by hazardous substances, and to
clean up sites contaminated with hazardous substances; (iii) imposition of
joint, several, and strict liability on persons connected with the treatment
or disposal of hazardous substances which results in a release or threatened
release into the environment; and (iv) creation of a Federally managed trust
fund to pay for the clean up and restoration of sites contaminated with
hazardous substances when voluntary clean-up by responsible parties cannot be
accomplished.
As of the date of this annual report, CERCLA program funding has been
extended through July 31, 1997. Reauthorization of the Superfund law has not
occurred, however, because of a lack of consensus within Congress and between
Congress and the President on numerous aspects of the legislation, including
the extent of CERCLA program budget cuts, changes to the retroactive liability
scheme and program funding mechanisms, clean up standards, mechanisms for
allocation of potentially-responsible-party responsibility, and state
authorization for cleanups.
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 1984 Hazardous Solid Waste Amendments ("HSWA") to RCRA
have strengthened the regulation of treatment, storage, and disposal
facilities, and increased the regulatory scope of RCRA to include small
quantity waste generators, waste oil handlers, and underground storage tanks.
RCRA has increased the demand for the Company's services from companies
involved in the generation, transportation, storage and disposal of hazardous
wastes. Numerous regulatory changes in the RCRA corrective action program
require RCRA regulated facilities to engage in detailed site characterization,
corrective measures study and closure activity. RCRA enforcement programs
continue to evolve and require a variety of responses including such things as
audit compliance, training and site remediation programs.
TOXIC SUBSTANCE CONTROL ACT OF 1976 ("TSCA"). TSCA authorizes the EPA to
gather information on the risks posed to public health and the environment by
chemicals and to regulate the manufacture, use and disposal of chemical
substances. The 1986 amendments to TSCA and its implementing regulations
require school systems to inspect their buildings for asbestos, determine
where asbestos containing materials pose hazards to humans and abate those
hazards. Regarding PCBs specifically, amendments to TSCA regulations dated
December 21, 1989 established comprehensive record keeping requirements for
persons engaged in PCB transportation, storage and disposal activities. The
Company's principal work under TSCA involves field sampling, site
reconnaissance, development of remedial programs and supervision of
construction activities at sites involving PCB contamination. The Company
also conducts asbestos surveys and investigations.
THE NATIONAL ENVIRONMENTAL POLICY ACT ("NEPA"). NEPA generally requires
that a detailed environmental impact statement ("EIS") be prepared for every
major federal action significantly affecting the quality of the human
environment. With limited exceptions, all federal agencies are subject to
NEPA. A number of states have EIS requirements similar to NEPA. The Company
frequently engages in NEPA related projects (or state equivalent) for both
public and private clients.
CLEAN AIR ACT. In 1990, comprehensive changes were made to the Clean Air
Act which has fundamentally redefined the regulation of air pollutants. The
Clean Air Act Amendments of 1990 have created a flurry of federal and state
regulatory initiatives and industry responses which is requiring the
development of detailed inventories and risk management plans, as well as the
acquisition of federally enforceable 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. These regulatory actions are likely to stimulate new demand
for the Company's air related services in both the public and private sector.
Other. The Company's operations are also influenced by other federal and
state laws protecting the environment: e.g. the Clean Water Act, the Atomic
Energy Act, the Oil Pollution Act of 1990, the Safe Drinking Water Act and
comparable state statutory and regulatory programs. Related laws such as the
Occupational Safety and Health Act, which regulates exposures of employees to
toxic chemicals and other physical agents in the workplace, also have a
significant impact on EEI operations. An example is the process safety
regulation issued by the Occupational Safety and Health Administration (OSHA)
which requires safety and hazard analysis and accidental release contingency
planning activity to be performed if certain chemicals are used in the work
place.
Potential Liability and Insurance
The Company's contracts with the EPA require it to maintain certain
insurance, including comprehensive general liability insurance for bodily
injury, death or loss of or damage to property. In addition, many of the
Company's other contracts require the Company to indemnify its clients for
claims, damages or losses for personal injury or property damage relating to
the Company's negligent performance of its duties unless such injury or damage
is the result of the client's negligence or willful acts. Currently, the
Company is able to provide insurance coverage to meet the requirements of its
contracts, however, certain pollution exclusions apply. Since February 1990,
the Company has been able to purchase an errors and omissions insurance policy
that covers its asbestos and environmental consulting services, including
legal liability for pollution conditions resulting therefrom. The policy is a
claims made policy, with limits of $10.0 million for each claim and $10.0
million in the aggregate with a $500,000 deductible for contracts entered into
subsequent to November, 1994; for contracts entered into between February,
1990 and November, 1994, the limits are $2.0 million for each claim and $2
million in the aggregate with a $250,000 deductible. The Company's general
liability insurance policy provides coverage in the amount of $2.0 million per
occurrence and $3.0 million in the aggregate; an excess liability policy of
$10.0 million is also maintained with respect to its general liability
coverage. In addition, EEI has a special endorsement to its general liability
insurance policy up to $1.0 million for damages to third parties for bodily
injury or property damage resulting from sudden or accidental releases. Where
possible, the Company requires that its clients cross-indemnify it for
asserted claims. There can be no assurance, however, that any such agreement,
together with the Company's general liability insurance and errors and
omissions coverage will be sufficient to protect the Company against any
asserted claim.
Market and Customers
A substantial portion of the Company's revenues are currently derived
from the federal government under Superfund-related activities, including the
EPA, U.S. Department of Defense and U.S. Department of Energy contracts. The
balance of the Company's revenues originate from state and local governments,
domestic industrial clients, and private and governmental international
clients.
Backlog
The Company's firm backlog of uncompleted projects and maximum potential
gross revenues from indefinite quantity task order contracts, at July 31, 1996
and 1995 were as follows:
(Millions of $)
Fiscal Year Fiscal Year
Ended 7/31/96 Ended 7/31/95
Total Firm Backlog 111.8 26.6
Anticipated Completion of Firm
Backlog in Next Twelve Months 48.0 23.7
Maximum Potential Gross Revenues
from Task Order Contracts 356.0 244.0
The above figures include $120 million of potential revenue backlog
attributable to the options under the START contracts. This backlog includes
a substantial amount of work to be performed under contracts which contain
termination provisions under which the contract can be terminated without
penalty upon written notice to the Company. The likelihood of obtaining the
full value of the task order contracts cannot be determined at this time.
Competition
EEI is subject to competition with respect to each of the services that
it provides. No entity, including the Company, currently dominates the
environmental services industry and the Company does not believe that one
organization has the capability to serve the entire market. Some of its
competitors are larger and have greater financial resources than the Company
while others may be more specialized in certain areas. EEI competes primarily
on the basis of its reputation, quality of service, expertise, and price.
Employees
As of July 31, 1996, the Company had over 700 employees. The Company's
ability to remain competitive will depend largely upon its ability to recruit
and retain qualified personnel. None of the Company's employees is
represented by a labor organization and employee relations are good.
Item 2. PROPERTIES
The Company's headquarters (60,000 square feet) is located in Lancaster,
New York, a suburb of Buffalo. The Company's laboratory and warehouse
facility in Lancaster, New York consists of two buildings' totaling
approximately 50,000 square feet. The Company also leases office and storage
facilities at twenty (20) regional offices, with terms which generally
coincide with the duration of the Company's contracts in those areas.
Item 3. LEGAL PROCEEDINGS
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) Principal Market or Markets. The Company's Class A Common Stock is
traded on the American Stock Exchange. There is no separate market for the
Company's Class B Common Stock.
The following table represents the range of high and low prices of
the Company's Class A Common Stock as reported by the American Stock Exchange
for the periods indicated.
Fiscal 1995 High Low
First Quarter
(commencing August 1, 1994 - 11-1/8 9-3/4
October 29, 1994)
Second Quarter
(commencing October 30, 1994 - 10-1/4 8-3/4
January 28, 1995)
Third Quarter
(commencing January 29, 1995 - 9-5/8 7-3/4
April 29, 1995)
Fourth Quarter
(commencing April, 30, 1995 9-3/8 7-7/8
July 31, 1995)
Fiscal 1996 High Low
First Quarter
(commencing August 1, 1995 - 8-13/16 7-3/8
October 28, 1995)
Second Quarter
(commencing October 29, 1995 - 9-1/8 7-1/8
January 27, 1996)
Third Quarter
(commencing January 28, 1996 - 8-5/8 7-1/2
April 27, 1996)
Fourth Quarter
(commencing April 28, 1996 - 8-5/8 7-5/8
July 31, 1996)
(b) Approximate Number of Holders of Class A Common Stock. As of
September 30, 1996, 2,130,872 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 495. 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 1,837,558 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 75.
(c) Dividend. In each of the fiscal years ended July 31, 1995 and 1996,
the Company declared cash dividends of $.32 per share of common stock. The
amount, if any, of future dividends remains within the discretion of the
Company's Board of Directors and will depend upon the Company' s future
earnings, financial condition and requirements and other factors as determined
by the Board of Directors.
In July 1994, the Company's board of directors declared a 5% stock
dividend to both Class A and Class B shareholders of record as of August l,
1994 to be distributed on or before August 30, 1994. All financial data
included in this annual report with respect to net income per common share,
weighted average common shares outstanding, stock prices and stock options
have been restated to reflect the impact of the declaration of the 5% stock
dividend.
The Company's Certificate of Incorporation provides that any cash or
property dividend paid on Class A Common Stock must be at least equal to the
cash or property dividend paid on Class B Common Stock on a per share basis.
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
Year Ended July 31,
1996 1995 1994 1993 1992
(In thousands, except per share amounts)
Operating data:
Gross revenues . . . . $69,823 $91,512 $99,559 $88,747 $89,958
Net Revenues . . . . . $61,569 $77,715 $86,334 $76,872 $78,402
Income from operations $ 1,511 $ 2,974 $ 7,256 $ 7,263 $ 6,932
Income before income
taxes . . . . . . . . $ 2,087 $ 3,552 $ 7,645 $ 7,697 $ 7,464
Net income before
cumulative effect of
accounting change . . . $ 1,160 $ 2,154 $ 4,670 $ 4,655 $ 4,477
Cumulative effect of
accounting change . . . $ - $ - $ (118) $ - $ -
Net Income . . . . . . $ 1,160 $ 2,154 $ 4,552 $ 4,655 $ 4,477
Net income before
cumulative effect of
accounting change
per common share . . . $ .29 $ .52 $ 1.13 $ 1.13 $ 1.08
Cumulative effect of
accounting change per
common share . . . . . $ - $ - $ (.03) $ - $ -
Net income per
common share . . . . . $ .29 $ .52 $ 1.10 $ 1.13 $ 1.08
Cash dividends declared
per common share . . . $ .32 $ .32 $ .29 $ .25 $ .22
Weighted average common
shares outstanding . . 4,039,369 4,136,929 4,138,121 4,135,462 4,132,667
As of July 31,
1996 1995 1994 1993 1992
(In thousands)
Balance sheet data:
Working capital. . . $31,993 $32,662 $32,061 $33,207 $29,364
Total assets . . . . $55,575 $59,476 $62,157 $56,042 $50,815
Long-term debt . . . $ 695 $ 782 $ 1,345 $ 692 $ 742
Shareholders' equity $45,468 $46,907 $46,158 $42,781 $39,098
Book value per share $ 11.26 $ 11.34 $ 11.15 $ 10.35 $ 9.46
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition
As of July 31, 1996, the Company's working capital balance was $32.0
million as compared to $32.7 million at July 31, 1995. Cash and cash
equivalents decreased $1.6 million mainly due to financing and investing
activities. Net contracts receivable decreased $1.2 million and other accrued
liabilities decreased $.7 million primarily attributable to the decrease in
the Company's allowance for contract adjustments account as the Company
settled its federal government cost disallowance audits for fiscal years 1987
through 1989. Net contracts receivable also decreased due to the decline in
revenues. Accounts payable declined $1.4 million principally as a result of a
decrease in subcontractor costs. In June 1995 the Board of Directors
authorized the Company to repurchase up to 200,000 shares of its Class A
common stock on the open market. As of September 30, 1996, 175,300 shares had
been repurchased.
The Company maintains an unsecured line of credit of $10.0 million with a
bank at the prevailing prime rate. There are no borrowings outstanding under
this line of credit at July 31, 1996 and none were required during fiscal year
1996. The Company has financed its activities through cash flows from
operations. Internally generated funds have been adequate to support demands
for working capital, the purchase of new fixed assets and the payment of
dividends. There are no significant working capital requirements pending at
July 31, 1996. The Company's existing cash along with that generated by
future operations and the existing credit line is expected to be sufficient to
meet the Company's needs for the foreseeable future.
Results of Operations
Net Revenues
Net revenues for fiscal year 1996 were $61.6 million, down 21% from the
$77.7 million reported in fiscal year 1995. The decrease in net revenues for
fiscal year 1996 was due to the federal government budget impasse which began
during the second quarter and affected the entire year. In the second quarter
of fiscal year 1996, the Company was awarded five (5) regional United States
Environmental Protection Agency (EPA) superfund contracts worth up to $216
million if the EPA were to exercise all contract options. However, due to the
budget crisis, the EPA had limited funding to exercise options during the 1996
fiscal year. As of July 31, 1996, the EPA had exercised ten (10) contract
options and backlog was approximately $200 million. The budget impasse also
affected the availability of funding for environmental programs. This
resulted in a slowdown in work received by the Company from its sizable
backlog of existing task order contracts. In addition, private sector sales
continue to be affected by uncertainties created by proposed federal
legislation that would ease environmental regulations and enforcement.
In fiscal year 1996 the Company realized increased net revenues from its
international clients as compared to the previous year. Fiscal year 1996 net
revenues from contracts in Venezuela, Israel, China and other non-domestic
sources increased over like net revenues in fiscal year 1995. Although these
revenues are currently less than 10% of the net revenues, the Company expects
the contribution from the international sector to continue to increase in the
future. Also, during fiscal year 1996, the Company settled its cost
disallowance audits with the federal government covering fiscal years
1987-1989. The settlement of these audits resulted in a favorable impact to
net revenues of approximately $530,000 ($130,000 in the third quarter and
$400,000 in the fourth quarter).
Net revenues for fiscal year 1995 were $77.7 million, down 10% from the
$86.3 million recorded in fiscal year 1994. The decrease in net revenues in
fiscal year 1995 was due to lower private sector sales, declines in work
orders with the U.S. Department of Defense ("DOD") and the U.S. Department of
Energy ("DOE") and lower sales derived from contracts with various state
agencies.
Income Before Income Taxes
The Company's income before income taxes for fiscal year 1996 was $2.1
million as compared to $3.6 million recorded in the prior year. This decrease
was due primarily to the aforementioned decrease in net revenues resulting
from the federal government budget impasse. The Company's fourth quarter
partial settlement of the termination of its Defined Benefit pension plan also
contributed to the decline in earnings. The termination and partial
settlement of this plan resulted in the Company recognizing $1.1 million in
pension expense in fiscal year 1996, including an $810,000 shortfall in
funding during the fourth quarter which was required as a direct result of the
termination of the plan. Also, in accordance with Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation" (SFAS) No. 52, the
Company recognized a third quarter foreign exchange loss of approximately
$123,000 relating to its Venezuelan subsidiary. The Company was required to
record this loss under SFAS No. 52 due to the highly inflationary economy in
Venezuela.
The Company's continued efforts to streamline the organization resulted
in decreased indirect operating costs of approximately $5.0 million in fiscal
year 1996 as compared to the previous year. Despite lower revenues and the
one-time pension charge, the Company's success in reducing operating costs and
the settlement of the cost disallowance audits resulted in increased earnings
for the fourth quarter of the 1996 fiscal year as compared to the same period
of fiscal year 1995.
Income before income taxes for fiscal year 1995 was $3.6 million, down
from the $7.6 million recorded in fiscal year 1994. This decrease was
primarily the result of lower net revenues and the Company's increased
proposed costs in fiscal year 1995 associated with the various EPA contracts.
Income Taxes
The effective income tax rate for fiscal year 1996 was 44.4% as compared
to 39.4% for fiscal year 1995. The increase in the effective rate is
primarily due to foreign income taxes and nondeductible expenditures.
Differences from the federal statutory rate consist primarily of provisions
for state income taxes net of the federal tax benefit.
During the first quarter of fiscal year 1994, the Company adopted SFAS
No. 109 which relates to the accounting for income taxes. Consequently, net
income was adversely affected by approximately $.03 per share. This was a
one-time adjustment for the adoption which has no further impact on the tax
provisions for the Company.
Recently Issued Accounting Standards Not Yet Adopted
In the first quarter of fiscal year 1997, SFAS No. 123, "Accounting for
Stock-Based Compensation", will become effective for the company. SFAS No.
123 establishes a fair value based method of accounting for stock based
compensation plans and encourages, but does not require, entities to adopt
that method of accounting for all arrangements under which employees receive
shares of stock or other equity instruments of the employer or the employer
incurs liabilities to employees in amounts based on the price of the stock.
However, SFAS No. 123 allows entities to continue to measure compensation cost
for employee stock options or similar equity instruments using the method
prescribed by Accounting Principles Board Opinion (APBO) No. 25, "Accounting
for Stock Issued to Employees." The Company has elected to continue measuring
compensation cost for employee stock compensation arrangements in accordance
with the provisions of APBO No. 25. Accordingly, SFAS No. 123 will have no
impact on the Company's results of operations in fiscal year 1997.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Accountants
To the Board of Directors
and Shareholders of
Ecology and Environment, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under item 14(a)1. and 2. on this Form 10-K present fairly, in all
material respects, the financial position of Ecology and Environment, Inc. and
its subsidiaries at July 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended July 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for income taxes as of August 1, 1993.
PRICE WATERHOUSE LLP
Buffalo, New York
October 2, 1996
ECOLOGY AND ENVIRONMENT, INC.
CONSOLIDATED BALANCE SHEET
July 31,
--------
1996 1995
------------- -------------
Assets
- -------
Current assets:
Cash and cash equivalents $8,080,524 $9,658,139
Investment securities available for sale 6,502,804 6,271,982
Contract receivables, net 23,696,036 24,855,471
Other current assets 3,126,539 3,663,079
------------- -------------
Total current assets 41,405,903 44,448,671
Property, building and equipment, net 13,473,227 14,314,301
Other assets 695,890 712,560
------------- -------------
Total assets $55,575,020 $59,475,532
============= =============
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $3,134,862 $4,490,083
Accrued payroll costs 4,120,264 4,428,199
Other accrued liabilities 2,157,556 2,868,431
------------- -------------
Total current liabilities 9,412,682 11,786,713
Long-term debt 694,791 782,291
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 - 2,304,747 and 2,280,176 shares 23,047 22,801
Class B common stock, par value $.01 per
share; authorized - 10,000,000 shares;
issued - 1,865,242 and 1,884,575 shares 18,652 18,846
Capital in excess of par value 17,591,436 17,562,587
Retained earnings 29,332,352 29,491,719
Treasury stock - Class A common, 169,000 and
16,300 shares; Class B common, 26,259
shares in 1996 and 1995, at cost (1,497,940) (189,425)
------------- -------------
Total shareholders' equity 45,467,547 46,906,528
------------- -------------
Total liabilities and shareholders' equity $55,575,020 $59,475,532
============= =============
The accompanying notes are an integral part of these financial statements.
ECOLOGY & ENVIRONMENT, INC.
CONSOLIDATED STATEMENT OF INCOME
Year ended July 31,
-------------------
1996 1995 1994
------------ ------------ ------------
Gross revenues $69,822,996 $91,512,204 $99,559,024
Less: direct subcontract costs 8,254,471 13,796,706 13,225,382
------------ ------------ ------------
Net revenues 61,568,525 77,715,498 86,333,642
------------ ------------ ------------
Operating costs and expenses:
Cost of professional services
and other direct operating
expenses 33,846,706 43,326,432 47,650,102
Administrative and indirect
operating expenses 15,751,749 19,034,727 20,067,218
Marketing and related costs 8,724,445 10,399,590 9,443,214
Depreciation 1,734,442 1,980,697 1,916,617
------------ ------------ ------------
60,057,342 74,741,446 79,077,151
------------ ------------ ------------
Income from operations 1,511,183 2,974,052 7,256,491
Interest expense 70,445 104,421 71,465
Interest income 769,617 682,175 459,552
Net foreign exchange loss 123,506 --- ---
------------ ------------ ------------
Income before income taxes 2,086,849 3,551,806 7,644,578
------------ ------------ ------------
Income tax provision (benefit):
Federal 624,766 807,958 2,469,367
State 128,806 217,588 593,320
Deferred 173,070 372,416 (87,447)
------------ ------------ ------------
926,642 1,397,962 2,975,240
------------ ------------ ------------
Net income before cumulative effect of
accounting change 1,160,207 2,153,844 4,669,338
Cumulative effect of accounting change --- --- (117,690)
------------ ------------ ------------
Net income $1,160,207 $2,153,844 $4,551,648
============ ============ ============
Net income before cumulative effect of
accounting change per common share $0.29 $0.52 $1.13
Cumulative effect of accounting
change per common share --- --- (0.03)
----- ----- -----
Net income per common share $0.29 $0.52 $1.10
===== ===== =====
Weighted average common shares outstanding 4,039,369 4,136,929 4,138,121
============ ============ ============
The accompanying notes are an integral part of these financial statements.
ECOLOGY AND ENVIRONMENT, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
Class A Class B Capital in
------- ------- ----------
Common stock Common stock excess of Retained Treasury stock
------------ ------------ --------- -------- --------------
Shares Amount Shares Amount par value earnings Shares Amount
------ ------ ------ ------ --------- -------- ------ ---------
Balance at July 31, 1993 2,133,785 $21,338 1,828,995 $18,289 $15,318,697 $27,451,224 23,829 ($28,470)
Net income - 1994 --- --- --- --- --- $4,551,648 --- ---
Cash dividends paid ($.29 per
share) --- --- --- --- --- (1,141,447) --- ---
Conversion of Class B common
stock to Class A common stock 20,125 $201 (20,125) ($201) --- --- --- ---
Repurchase of Class B common stock --- --- --- --- --- --- 1,180 ($19,470)
Issuance of stock under
incentive stock option plan 3,795 38 --- --- $39,474 --- --- ---
5% stock dividend distributed
on August 30, 1994 107,885 1,078 90,291 904 2,204,416 (2,206,399) 1,250 ---
Unrealized investment loss, net --- --- --- --- --- (52,965) --- ---
---------- -------- ---------- -------- ------------ ------------ ------- ---------
Balance at July 31, 1994 2,265,590 $22,655 1,899,161 $18,992 $17,562,587 $28,602,061 26,259 ($47,940)
========== ======== ========== ======== ============ ============ ======= =========
Net income - 1995 --- --- --- --- --- $2,153,844 --- ---
Cash dividends paid ($.32 per
share) --- --- --- --- --- (1,324,317) --- ---
Conversion of Class B common
stock to Class A common stock 14,586 $146 (14,586) ($146) --- --- --- ---
Repurchase of Class A common stock --- --- --- --- --- --- 16,300 ($141,485)
Unrealized investment gain, net --- --- --- --- --- 60,131 --- ---
---------- -------- ---------- -------- ------------ ------------ ------- ---------
Balance at July 31, 1995 2,280,176 $22,801 1,884,575 $18,846 $17,562,587 $29,491,719 42,559 ($189,425)
========== ======== ========== ======== ============ ============ ======= =========
Net income - 1996 --- --- --- --- --- $1,160,207 --- ---
Cash dividends paid ($.32 per
share) --- --- --- --- --- (1,296,926) --- ---
Conversion of Class B common
stock to Class A common stock 19,333 $194 (19,333) ($194) --- --- --- ---
Repurchase of Class A common stock --- --- --- --- --- --- 152,700 ($1,308,515)
Issuance of stock under
incentive stock option plan 5,238 52 --- --- $28,849 --- --- ---
Unrealized investment loss, net --- --- --- --- --- (22,648) --- ---
---------- -------- ---------- -------- ------------ ------------ ------- ----------
Balance at July 31, 1996 2,304,747 $23,047 1,865,242 $18,652 $17,591,436 $29,332,352 195,259 ($1,497,940)
========== ======== ========== ======== ============ ============ ======= ===========
The accompanying notes are an integral part of these financial statements.
ECOLOGY AND ENVIRONMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended July 31,
-------------------
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net income $1,160,207 $2,153,844 $4,551,648
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,734,442 1,980,697 1,916,617
(Gain) loss on sale of assets 5,739 (56,525) ---
(Gain) loss on sale of investment securities (1,534) (13,145) 182
Net foreign exchange loss 123,506 --- ---
(Benefit) Provision for contract adjustments (137,589) (32,511) 804,908
(Increase) decrease in:
- contracts receivable 1,165,608 10,718,923 (8,803,549)
- other current assets 545,643 (85,615) (18,427)
Increase (decrease) in:
- accounts payable (1,355,221) (915,477) 963,767
- accrued payroll costs (307,935) (1,079,038) 773,210
- other accrued liabilities (685,856) (701,882) 139,843
- income taxes payable --- (170,776) 170,776
Other, net 9,991 (46,722) 67,350
------------- ------------- -------------
Net cash provided by operating activities 2,257,001 11,751,773 566,325
------------- ------------- -------------
Cash flows provided by (used in) investing activities:
Purchase of property, building and equipment, net (915,270) (1,643,279) (6,860,128)
Proceeds from sale of assets 12,597 218,222 ---
Purchase of investment securities (2,438,326) (4,334,164) (196,248)
Proceeds from maturity of investment securities 1,600,000 --- ---
Proceeds from sale of investment securities 570,423 1,303,468 49,442
Investment in China joint venture --- --- (300,000)
------------- ------------- -------------
Net cash used in investing activities (1,170,576) (4,455,753) (7,306,934)
------------- ------------- -------------
Cash flows provided by (used in) financing activities:
Dividends paid (1,296,926) (1,324,317) (1,141,447)
Proceeds from issuance of long-term debt --- --- 750,000
Repayment of long-term debt (87,500) (562,501) (59,375)
Issuance of common stock 28,901 --- 39,512
Repurchase of common stock (1,308,515) (141,485) (19,470)
------------- ------------- -------------
Net cash used in financing activities (2,664,040) (2,028,303) (430,780)
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents (1,577,615) 5,267,717 (7,171,389)
Cash and cash equivalents at beginning of year 9,658,139 4,390,422 11,561,811
------------- ------------- -------------
Cash and cash equivalents at end of year $8,080,524 $9,658,139 $4,390,422
============= ============= =============
The accompanying notes are an integral part of these financial statements.
ECOLOGY AND ENVIRONMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of business
Ecology and Environment, Inc. (the Company) is an environmental consulting
and testing firm whose underlying philosophy is to provide a broad range
of environmental consulting services worldwide so that sustainable
economic and human development may proceed with minimum negative impact on
the environment. These services include environmental audits and impact
assessments, hazardous material site evaluations and response programs
water and groundwater monitoring, laboratory analyses, environmental
infrastruction planning and many other projects provided by the Company's
multidisciplinary professional staff. Gross revenues reflected in the
Company's consolidated statement of income represent services rendered for
which the Company maintains a primary contractual relationship with its
customers. Included in gross revenues are certain services outside the
Company's normal operations which the Company has elected to subcontract
to other contractors. The costs relative to such subcontract services are
deducted from gross revenues to derive net revenues.
During fiscal years ended July 31, 1996, 1995 and 1994, the percentage of
total net revenues derived from contracts exclusively with the United
States Environmental Protection Agency (EPA) were 48%, 47% and 40%,
respectively. The Company's Technical Assistance Teams (TAT) and
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 20%, 17% and 18% for fiscal years ended July 31, 1996,
1995 and 1994, respectively.
2. Summary of significant accounting principles
a. Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. Also reflected in the
financial statements are the Company's 66-2/3% ownership in the assets
of a nonoperating subsidiary, Ecology and Environment of Saudi Arabia
Ltd. (EESAL) and a 50% ownership in the operating joint venture,
Beijing Yi Yi Ecology and Engineering Co. Ltd. which are being
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 and are recognized on the basis of costs
incurred during the period, plus the fee earned. The fees under
certain government contracts are determined in accordance with
performance incentive provisions. Such awards are recognized at the
time the amounts can be reasonably determined. Provisions for
estimated contract adjustments relating to cost based contracts have
been deducted from gross revenues in the accompanying consolidated
statement of income. Such adjustments typically arise as a result of
interpretations of cost allowability under cost based contracts.
Revenues related to long-term government contracts are subject to
audit by an agency of the United States government. Government audits
have been completed through fiscal year 1989 and are currently in
process for fiscal years 1990 through 1992. The majority of the
balance in the allowance for contract adjustments accounts represent a
reserve against possible adjustments for fiscal years 1990 through
1996.
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, 1996 approximates fair value because
of the short maturity of those instruments. The amortized cost and
estimated fair value of investment securities available for sale are
fully described in Note 4. Long-term debt consists of third party
borrowings by the Company. Based on the Company's assessment of the
current financial market and corresponding risks associated with the
debt, management believes that the carrying amount of long-term debt
at July 31, 1996 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 1996, 1995 and 1994.
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 $123,506 in fiscal year 1996 and $0 for fiscal
years 1995 and 1994.
h. Income taxes
In the first quarter of fiscal year 1994, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes", which changed its method of accounting
for income taxes from the deferred method to the liability method.
The cumulative effect of the implementation of SFAS No. 109 resulted
in a $117,690 decrease in the Company's net deferred tax assets in
fiscal year 1994. Under the liability method, a deferred tax
liability or asset is recognized for the tax consequences of all
events that have been recognized in the financial statements. The
deferred tax consequences of such events are equal to the expected
amount of taxes payable or refundable in future years, based upon tax
laws currently in effect. Although realization is not assured,
management believes it is more likely than not that all of the
deferred tax assets will be realized. Since in some cases management
has utilized estimates, the amount of the deferred tax assets
considered realizable could be reduced in the near term.
i. Pension costs
The Company has a non-contributory defined contribution plan providing
deferred benefits for substantially all of the Company's employees.
Additionally, in fiscal year 1995, the Company implemented a
supplemental defined benefit and contribution plan to provide deferred
benefits for senior executives of the Company. Benefits under the
defined benefit plan are based on years of service and average
compensation. The annual expense of the Company's defined
contribution plan is based on a percentage of eligible wages as
authorized by the Company's Board of Directors. Accrued benefits
under the defined benefit plan are funded in accordance with the
minimum funding requirements of the Employee Retirement Income
Security Act. Benefits under the defined contribution plan are funded
as accrued.
In September 1995, the Company made the decision to terminate the
defined benefit plan. This plan was primarily settled in July 1996.
In July 1996, the Company made the decision to terminate the
supplemental defined benefit plan for senior executives. This event
did not materially impact the financial results for fiscal year 1996.
The Company does not offer any benefits that would result in a
liability under either SFAS No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions" or SFAS No. 112
"Employers' Accounting for Postemployment Benefits".
j. Net income per common share
The computations of net income per common share are based upon the
weighted average of Class A and B common shares outstanding during
each period restated in fiscal years prior to 1995 for the 5% stock
dividend distributed on August 30, 1994.
3. Cash and cash equivalents
The Company's policy is to invest cash in excess of operating requirements
in income-producing short-term investments. At July 31, 1996 short-term
investments consist of commercial paper and money market funds. At
July 31, 1995 short term investments consist of commercial paper. These
investments are carried at cost. Short-term investments amounted to
approximately $6,557,000 and $7,100,000 at July 31, 1996 and 1995,
respectively, and are reflected in cash and cash equivalents in the
accompanying consolidated balance sheet and statement of cash flows.
For purposes of the statement of cash flows, the Company considers all
highly liquid instruments purchased with a maturity of three months or
less to be cash equivalents. Cash paid for interest amounted to $70,445,
$104,421, and $66,181 in fiscal years 1996, 1995 and 1994, respectively.
Cash paid for income taxes amounted to $442,000, $1,969,248 and $2,868,633
in fiscal years 1996, 1995 and 1994, respectively.
4. Investment securities
The amortized cost and estimated fair values of investment securities were
as follows:
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
July 31, 1996
Investment securities
available for sale:
Mutual funds $2,452,993 $ 3,203 $36,005 $2,420,191
Municipal notes and bonds 1,581,321 2,424 4,472 1,579,273
U.S. Treasury Interest-
Only Strips 1,497,105 - 492 1,496,613
Federal agency obligations 997,189 9,538 - 1,006,727
---------- -------- -------- ----------
$6,528,608 $15,165 $40,969 $6,502,804
========== ======== ======== ==========
July 31, 1995
Investment securities
available for sale:
Mutual funds $2,492,564 $ - $ 21,691 $2,470,873
Municipal notes and bonds 2,301,011 3,208 2,557 2,301,662
U.S. Treasury notes and
bills 1,465,587 33,860 - 1,499,447
---------- --------- ---------- ----------
$6,259,162 $ 37,068 $ 24,248 $6,271,982
========== ========= ========== ==========
The amortized cost and estimated fair value of debt securities available
for sale by contractual maturity as of July 31, 1996 were as follows:
Amortized Estimated
cost fair value
Due in one year or less $ 202,613 $ 201,550
Due after one year through five years 3,247,255 3,255,664
Due after five years through ten years 125,747 125,399
Due after ten years 500,000 500,000
---------- ----------
4,075,615 4,082,613
Mutual Funds Available for Sale 2,452,993 2,420,191
---------- ----------
$6,528,608 $6,502,804
========== ==========
Proceeds, gross realized gains and losses from the sale of investment
securities were $570,423, $1,567 and $33, respectively, in fiscal year
1996, $1,303,468, $15,237 and $2,092, respectively, in fiscal year 1995
and $49,442, $0 and $182, respectively, in fiscal year 1994.
The unrealized investment securities loss and unrealized investment
securities gain, net of applicable income taxes, at July 31, 1996 and 1995
of $15,482 and $7,166, respectively, are reflected in retained earnings in
the consolidated balance sheet.
5. Contract receivables, net
July 31,
1996 1995
United States government -
Billed $ 7,720,240 $ 7,253,451
Unbilled 6,956,133 9,366,677
------------ ------------
14,676,373 16,620,128
------------ ------------
Industrial customers and state
and municipal governments -
Billed 6,174,195 3,904,639
Unbilled 3,837,327 4,876,597
------------ ------------
10,011,522 8,781,236
------------ ------------
Less allowance for contract
adjustments (991,859) (545,893)
------------ ------------
$23,696,036 $24,855,471
============ ============
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 $2,907,000 at July 31, 1996 and $3,076,000 at July 31,
1995. Unbilled contracts receivable are reduced by billings in excess of
costs incurred of $2,573,000 at July 31, 1996 and $910,000 at July 31,
1995. Management anticipates that the July 31, 1996 unbilled receivables
will be substantially billed and collected in fiscal 1997. Within the
above billed balances are contractual retainages in the amount of
approximately $1,457,000 at July 31, 1996 and $1,308,000 at July 31, 1995.
Included in other accrued liabilities is an additional allowance for
contract adjustments relating to potential cost disallowances on amounts
billed and collected of approximately $1,848,000 at July 31, 1996 and
$2,578,000 at July 31, 1995.
6. Property, building and equipment, net
July 31,
1996 1995
Land $ 528,320 $ 528,320
Buildings 12,786,490 12,680,520
Laboratory and other equipment 5,817,301 5,643,381
Data processing equipment 6,440,922 6,094,694
Office furniture and equipment 4,234,369 4,114,857
Leasehold improvements and other 1,339,865 1,314,684
------------ ------------
31,147,267 30,376,456
Less accumulated depreciation
and amortization (17,674,040) (16,062,155)
------------ ------------
$13,473,227 $14,314,301
============ ============
7. Line of credit
The Company has an unsecured $10,000,000 line of credit available which is
subject to annual renewal and which bears interest at the prime rate. No
borrowings on the line of credit were outstanding at July 31, 1996 and
July 31, 1995 and none were required during fiscal years 1996 and 1995.
8. Long-term debt
During fiscal year 1994, the Company obtained industrial revenue bond
capital lease financing in the amount of $750,000 to finance a portion of
the cost of the newly constructed analytical services facility. The lease
is collateralized by a portion of the land and the analytical services
facility building in an amount equal to the bond. The bond is payable in
equal monthly principal installments of $3,125 through 2014 and bears
interest at the borrower's base rate which approximates prime (8.25% at
July 31, 1996). In addition, the Company must meet certain financial
ratio covenants relating to current assets to current liabilities and debt
to tangible net worth. At July 31, 1996 the Company was in compliance
with all financial ratio covenants. The balance outstanding on this bond
at July 31, 1996 and 1995 was $665,625 and $703,125, respectively.
During fiscal year 1988, the Company obtained industrial revenue bond
capital lease financing in the amount of $1,000,000 to finance a portion
of the cost of the newly constructed corporate headquarters. The lease is
collateralized by a portion of the land and the corporate headquarters
building in an amount equal to the bond. The bond is payable in equal
monthly principal installments of $4,167 through 2008 and bears interest
at the borrower's base rate which approximates prime (8.25% at July 31,
1996). In February 1995, the Company made a $475,000 lump-sum payment on
this bond. The balance outstanding on this bond at July 31, 1996 and 1995
was $116,666 and $166,666, respectively.
The current portion of long-term debt at July 31, 1996 in the amount of
$87,500 is included in other accrued liabilities in the accompanying
consolidated balance sheet.
9. Income taxes
The provision for income taxes differs from the federal statutory rate due
to the following:
Fiscal year
1996 1995 1994
Statutory rate 34.0% 34.0% 34.0%
State income taxes, less federal
effect 5.3% 5.4 4.7
Other 5.1% - .2
----- ----- -----
Effective tax rate 44.4% 39.4% 38.9%
===== ===== =====
Deferred tax assets (liabilities) included in other current assets were
comprised of the following:
July 31,
1996 1995
Allowance for contract adjustments $1,178,465 $1,276,453
Vacation and compensatory time 598,085 720,495
Excess depreciation 216,969 217,373
Other 78,463 37,574
----------- -----------
Gross deferred tax assets 2,071,982 2,251,895
State income taxes (119,233) (134,035)
Other (53,193) (87,844)
----------- -----------
Gross deferred tax liabilities (172,426) (221,879)
----------- -----------
Net deferred current asset $1,899,556 $2,030,016
=========== ===========
10. Shareholders' equity
a. Stock dividend
On July 1, 1994, the Board of Directors declared a 5% stock dividend
on the Company's Class A and Class B common stock distributed on
August 30, 1994 to shareholders of record on August 1, 1994. As of
July 31, 1994, an amount equal to the fair value of the common stock
distributed was transferred from retained earnings to the common stock
and capital in excess of par value accounts. All data with respect to
net income per common share, weighted average common shares
outstanding, stock prices and stock options has been retroactively
adjusted to reflect the stock dividend.
b. Class A and Class B common stock
The relative rights, preferences and limitations of the Company's
Class A and Class B common stock can be summarized as follows:
Holders of Class A shares are entitled to elect 25% of the Board of
Directors so long as the number of outstanding Class A shares is at
least 10% of the combined total number of outstanding Class A and
Class B common shares. Holders of Class A common shares have
one-tenth the voting power of Class B common shares with respect to
most other matters.
In addition, Class A shares are eligible to receive dividends in
excess of (and not less than) those paid to holders of Class B shares.
Holders of Class B shares have the option to convert at any time, each
share of Class B common stock into one share of Class A common stock.
Upon sale or transfer, shares of Class B common stock will
automatically convert into an equal number of shares of Class A common
stock, except that sales or transfers of Class B common stock to an
existing holder of Class B common stock or to an immediate family
member will not cause such shares to automatically convert into Class
A common stock.
c. Incentive stock option plan
Under the Company's incentive stock option plan (the "plan"), key
employees, including officers of the Company, may be granted options
to purchase shares of Class A common stock at an option price of at
least 100% of the shares' fair market value at the date of grant.
Shares become exercisable after a minimum holding period of five
years. The plan's data has been retroactively adjusted to reflect the
stock dividend declared in fiscal year 1994.
During the three year period ended July 31, 1996, 37,250, 19,500 and
21,315 options were granted at prices of $7.25, $9.00 and $12.38,
respectively. Exercised options during the same period amounted to
5,238, 0 and 3,985, respectively, in the price range between $5.65 and
$13.10. Canceled and expired options during the same period amounted
to 24,380, 13,525 and 1,942, respectively, in the price range between
$5.65 and $16.08. Options outstanding at the end of the same period
were 182,813, 175,181 and 169,206, respectively, in the price range
between $5.65 and $16.08.
Of the options outstanding at July 31, 1996, 90,710 are currently
exercisable at prices ranging between $10.48 and $16.08. Shares
available for future grants under this plan amounted to 22,014 at July
31, 1995. A total of 209,390 shares were authorized for granting
under the plan. The plan terminated in March 1996 and no options can
be granted after that date.
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, 1996, 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
1997 $1,824,254 $830,123 $994,131
1998 1,424,189 725,201 698,988
1999 1,350,599 712,932 637,667
2000 1,134,409 704,168 430,241
2001 526,840 342,242 184,598
Gross rental expense under the above lease commitments for 1996, 1995, and
1994 was $1,951,645, $2,637,185, and $2,882,597, respectively.
12. Pension plans
a. Defined benefit plan
The Company's pension expense associated with this plan for fiscal
years ended July 31, 1996, 1995, and 1994 was $1,110,500, $470,996,
and $521,597, respectively. The increase in fiscal year 1996
expenses is attributable to the curtailment and partial settlement of
this plan in accordance with SFAS No. 88 "Employers Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and
Termination Benefits."
Pension cost of this plan includes the following cost components:
1996 1995 1994
Service cost -
benefits earned during the period $ 65,100 $408,900 $385,000
Interest costs on projected benefit
obligation 258,200 342,100 325,300
Actual return on plan assets (201,900) (351,212) 22,113
Net amortization and deferral (160,500) 71,208 (210,816)
Curtailment and Settlement Cost 1,149,600 --- ---
----------- --------- ---------
Net periodic pension cost $1,110,500 $470,996 $521,597
=========== ========= =========
Data relating to the funding position of this plan were as follows:
July 31,
1996 1995
Actuarial present value of:
Vested benefit obligations $942,186 $2,680,500
Nonvested benefit obligations --- 337,400
----------- -----------
Accumulated benefit obligations 942,186 3,017,900
Benefits attributable to future
salaries --- 1,453,600
----------- -----------
Projected benefit obligations 942,186 4,471,500
Plan assets at fair value 131,725 4,026,596
----------- -----------
Excess of projected benefit
obligations over plan assets 810,461 444,904
----------- -----------
Remaining unrecognized net asset
at transition --- 11,431
Unrecognized experience loss --- (923,861)
Unrecognized prior service costs --- 224,903
----------- -----------
Net accrued pension (asset) liability $810,461 $ (242,623)
=========== ===========
The discount rate used in determining the actuarial present value of
the above benefit obligations were 6.72% and 7.5%, respectively, for
fiscal years 1996 and 1995. The rate of increase of future
compensation levels and the expected long-term rate of return on plan
assets was 5% and 9%, respectively, for fiscal year 1995.
b. Defined contribution plan
Contributions to the defined contribution plan are discretionary and
determined annually by the Board of Directors. The total expense
under the plan for fiscal years 1996, 1995, and 1994 was $985,198,
$1,786,857, and $1,722,959, respectively.
13. Contingencies
Certain contracts with the EPA contain termination provisions under which
the EPA may, without penalty, terminate the contracts upon written notice
to the Company. In the event of termination, the Company would be paid
only termination costs in accordance with the particular contract.
The Company is involved in litigation arising in the normal course of
business. In the opinion of management, any adverse outcome to this
litigation would not have a material impact on the financial results of
the Company.
ECOLOGY AND ENVIRONMENT, INC.
SCHEDULE VIII
Allowance for Doubtful Accounts
Years Ended July 31, 1996, 1995, and 1994
Balance at Charged to Balance
Beginning Cost and at End
Year Ended of Period Expense Deduction of Year
July 31, 1996 $3,123,709 $ (137,589) $ 146,445 $2,839,675
July 31, l995 $4,070,326 $ (32,511) $ 914,106 $3,123,709
July 31, 1994 $4,318,418 $ 804,908 $1,053,000 $4,070,326
Selected quarterly financial data (Unaudited)
- ---------------------------------------------
Quarter
--------------------------------------------------
First Second Third Fourth
----- ------ ----- ------
(In thousands, except per share information)
1996
----
Gross revenues $19,759 $16,276 $15,797 $17,991
Net revenues 17,210 14,451 14,540 15,368
Income from operations 817 470 151 73
Income before income taxes 977 671 202 237
Net income 544 410 60 146
Net income per common share $0.13 $0.10 $0.02 $0.04
Cash dividends declared per
common share $ -- $0.16 $ -- $0.16
1995
----
Gross revenues $26,322 $21,811 $20,962 $22,417
Net revenues 21,937 18,773 18,469 18,536
Income from operations 1,793 974 175 32
Income before income taxes 1,870 1,128 329 225
Net income 1,130 699 192 133
Net income per common share $0.27 $0.17 $0.05 $0.03
Cash dividends declared per
common share $ -- $0.16 $ -- $0.16
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages and positions of the Directors
and executive officers of the Company.
Name Age Position
Gerhard J. Neumaier 59 President and Director
Frank B. Silvestro 59 Executive Vice President and
Director
Gerald A. Strobel 56 Executive Vice President of
Technical Services and Director
Ronald L. Frank 58 Executive Vice President of
Finance, Secretary, Treasurer
and Director
Gerard A. Gallagher, Jr. 65 Senior Vice President of
Special Projects and Director
Roger J. Gray 55 Senior Vice President
Laurence M. Brickman 52 Senior Vice President
Harvey J. Gross 68 Director
Ralph Bookbinder 66 Director
Ross M. Cellino 64 Director
Each Director is elected to hold office until the next annual meeting
of shareholders and until his successor is elected and qualified. Executive
officers are elected annually and serve at the discretion of the Board of
Directors.
Mr. Neumaier is a founder of the Company and has served as the
President and a Director since its inception in 1970. Mr. Neumaier has a
B.M.E. in engineering and a M.A. in physics.
Mr. Silvestro is a founder of the Company and has served as a Vice
President and a Director since its inception in 1970. In August 1986, he
became Executive Vice President. Mr. Silvestro has a B.A. in physics and an
M.A. in biophysics.
Mr. Strobel is a founder of the Company and has served as a Vice
President and a Director since its inception in 1970. In August 1986, he
became Executive Vice President of Technical Services. Mr. Strobel is a
registered Professional Engineer with a B.S. in civil engineering and a M.S.
in sanitary engineering.
Mr. Frank is a founder of the Company and has served as Secretary,
Treasurer, Vice President of Finance and a Director since its inception in
1970. In August 1986, he became Executive Vice President of Finance. Mr.
Frank has a B.S. in engineering and a M.S. in biophysics.
Mr. Gallagher joined the Company in 1972. In March 1979, he became a
Vice President of Special Projects and in February, 1986 he became a
Director. Mr. Gallagher is in charge of quality assurance for hazardous
substance projects. In August 1986, he became a Senior Vice President of
Special Projects. Mr. Gallagher has a B.S. in physics.
Mr. Gray joined the Company in 1970 as an engineer. In 1980, he became
Vice President and in August 1986 he became a Senior Vice President. Mr.
Gray holds a B.S. in engineering.
Mr. Brickman joined the Company in 1971. He became Vice President in
April 1988 and became a Senior Vice President in August, 1994. Mr. Brickman
has a B.S., M.S. and Ph.D. in biology.
Mr. Gross has been a Director of the Company since its inception in
1970. Mr. Gross is an independent insurance broker and a capital financing
consultant.
Mr. Bookbinder has been a Director of the Company since its inception
in 1970. Mr. Bookbinder is an independent travel consultant.
Mr. Cellino has been a Director of the Company since its inception in
1970. Since 1956, Mr. Cellino is an attorney and counselor-at-law retired
from private practice.
Item 11. EXECUTIVE COMPENSATION
There is shown below information concerning the annual and long-term
compensation for services in all capacities to the Company for the fiscal
years ended July 31, 1994, 1995 and 1996 of those persons who were at July
31, 1996 (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, 1996 in excess of $100,000. In this report, the five
persons named in the table below are referred to as the "Named Executives".
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
STOCK INCENTIVE LONG-TERM ALL
NAME AND FISCAL OPTIONS COMPENSATION OTHER
PRINCIPAL POSITION YEAR SALARY BONUS (1) OTHER (SHARES) PAYOUTS (2)
Gerhard J. Neumaier 1996 $216,632 -0- -0- -0- -0- 7,611
President and Director 1995 $220,118 $28,200 -0- -0- -0- 12,213
1994 $213,687 $62,000 -0- -0- -0- 12,435
Frank B. Silvestro 1996 $196,949 -0- -0- -0- -0- 6,841
Executive VP and Director 1995 $200,118 $28,200 -0- -0- -0- 11,149
1994 $194,270 $62,000 -0- -0- -0- 12,375
Ronald L. Frank 1996 $196,949 -0- -0- -0- -0- 6,841
Executive Vice President 1995 $200,118 $28,200 -0- -0- -0- 11,149
of Finance, Secretary 1994 $194,270 $62,000 -0- -0- -0- 12,375
Treasurer and Director
Gerald A. Strobel 1996 $196,949 -0- -0- -0- -0- 6,841
Executive Vice President 1995 $200,118 $28,200 -0- -0- -0- 11,156
of Technical Services 1994 $194,270 $62,000 -0- -0- -0- 12,375
and Director
Gerard A. Gallagher, Jr. 1996 $174,226 -0- -0- -0- -0- 5,938
Senior Vice President 1995 $177,268 $20,000 -0- -0- -0- 9,843
of Special Projects and 1994 $172,088 $43,900 -0- -0- -0- 11,339
Director
(1) Amounts earned for bonus compensation determined by the Board of Directors.
(2) Represents group term life insurance premiums, contributions made by the Company to its Defined
Contribution Plan and Defined Contribution Plan SERP accruals on behalf of each of the Named
Executives.
None of the Company's executive officers have employment agreements. Directors
who are not employees of the Company are paid an annual fee of $20,826 payable
quarterly.
Compensation Pursuant to Plans
Pension Plan. In September 1995, the Company decided to terminate its
Defined Benefit Pension Plan (the "Pension Plan"). The termination of the
Pension Plan was primarily settled by July 1996.
Defined Contribution Plan. The Company maintains a Defined Contribution
Plan ("the DC Plan") which is qualified under the Internal Revenue Code of
1986, as amended (the "Internal Revenue Code") pursuant to which the Company
contributes an amount not in excess of 15% of the aggregate compensation of
all employees who participate in the DC Plan. All employees, including the
executive officers identified under "Executive Compensation", are eligible to
participate in the plan, provided that they have attained age 21 and completed
one year of employment with at least 1,000 hours of service. The amounts
contributed to the plan by the Company are allocated to participants based on
a ratio of each participant's points to total points of all participants
determined as follows: one point per $1,000 of compensation plus two points
per year of service completed prior to August 1, 1979, and one point for each
year of service completed after August 1, 1979.
Supplemental Retirement Plan. In April 1994, the Board of Directors of
the Company, in response to changes in the tax code, voted to establish a
Supplemental Executive Retirement Plan ("SERP") for purposes of providing
retirement benefits to employees including officers of the Company whose
retirement benefits under the DC Plan are reduced as a result of the $150,000
compensation limitation imposed by the tax code change. This plan is a
non-qualified plan which provides benefits that would have been lost from the
DC Plan due to the imposition of the compensation restriction.
Incentive Stock Option Plan
In February 1986, the Company adopted an Incentive Stock Option Plan (the
"Option Plan") under which key employees, including officers, of the Company
may be granted options to purchase up to an aggregate of 100,000 shares of
Class A Common Stock. During the fiscal year ending July 31, 1990, the
shareholders of the Company authorized an additional 100,000 shares, bringing
the aggregate to 200,000 shares of Class A Common Stock currently authorized
to be issued under the Plan. The anti-dilution provisions of the plan resulted
in an increase of 9,390 shares upon distribution of the stock dividend
distributed by the company on August 30, 1994 to shareholders of record on
August 1, 1994. See Note 10 of "Notes to Consolidated Financial Statements".
The plan terminated in March 1996 and no options can be granted after that
date. The Board of Directors administers the Option Plan and has authority to
determine the persons to whom options are to be granted, the number of shares
to be covered by each option, the time at which each option shall be granted,
the exercise price and the time during which options may be exercised. The
Option Plan is designed to qualify as an "incentive stock option plan" under
Section 422A of the Internal Revenue Code.
The option exercise price must be at least 100% of the fair market value
per share of the Company's Class A Common Stock, as determined by the Board of
Directors on the date of grant. The exercise price may be paid in cash or
with previously owned shares of Class A Common Stock or both. The options are
exercisable commencing after a minimum holding period of not more than five
years after the date of grant and expire after ten years from the date of
grant as determined by the Board of Directors. The exercise price of options
granted to employees possessing more than 10% of the combined voting power of
all classes of capital stock on the effective date of the grant must be not
less than 110% of fair market value on the date of grant, and the options may
not be exercised more than five years after the date of grant. The Named
Executive officers found in the Summary Compensation Table have not been
granted any options pursuant to the Option Plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of September 30, 1996, 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) (2) Class
Gerhard J. Neumaier* 346,944 14.0% 345,894 18.8%
Frank B. Silvestro* 288,937 11.9% 288,937 15.7%
Ronald L. Frank* 269,976 11.3% 262,394 14.3%
Gerald A. Strobel* 270,796 11.3% 270,796 14.7%
Franklin Resources, Inc. 330,000 15.48% 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.
(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 2,130,872 shares of Class A Common Stock outstanding and
1,837,558 shares of Class B Common Stock issued and outstanding as of
September 30, 1996. 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.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Class A Common Stock and Class B
Common Stock as of September 30, 1996, by (i) each Director of the Company
and (ii) all Directors and officers of the Company as a group.
Class A Common Stock Class B Common Stock
Nature and Percent Nature and
Amount of of Amount of
Beneficial Class As Beneficial Percent
Ownership Adjusted Ownership of
Name(1) (2)(3) (4) (2)(3) Class
Gerhard J. Neumaier
(5)(13) 346,944 14.0% 345,894 18.8%
Frank B. Silvestro 288,937 11.9% 288,937 15.7%
(13)
Ronald L. Frank 269,976 11.3% 262,394 14.3%
(6)(13)
Gerald A. Strobel 270,796 11.3% 270,796 14.7%
(7)(13)
Harvey J. Gross (8) 94,887 4.3% 94,887 5.2%
Gerard A. Gallagher, Jr. 76,987 3.5% 76,646 4.2%
Ralph Bookbinder (9) 18,200 * 17,850 1.0%
Ross M. Cellino (10) 13,206 * 1,050 *
Directors and officers
as a Group (11)(12) 1,397,195 39.9% 1,372,043 74.7%
(10 individuals)
* Less than 0.1%
__________
(1) The address of each of the above shareholders is c/o Ecology and
Environment, Inc., 368 Pleasantview Drive, Lancaster, New York 14086.
(2) Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, beneficial ownership of a security consists of sole or shared
voting power (including the power to vote or direct the vote) or sole
or shared investment power (including the power to dispose or direct
the disposition) with respect to a security whether through any
contract, arrangement, understanding, relationship or otherwise.
Unless otherwise indicated, the shareholders identified in this table
have sole voting and investment power of the shares beneficially owned
by them.
(3) Each named person and all Directors and officers as a group are deemed
to be the beneficial owners of securities that may be acquired within
60 days through the exercise of exchange or conversion rights. The
shares of Class A Common Stock issuable upon conversion by any such
shareholder are not included in calculating the number of shares or
percentage of Class A Common Stock beneficially owned by any other
shareholder. Moreover, the table gives effect to only 2,965 shares of
Class A Common Stock of the total 90,710 shares of Class A Common Stock
that may be issued pursuant to the Company's Incentive Stock Option
Plan, which may be purchased within the next 60 days pursuant to vested
options granted to one officer.
(4) There are 2,130,872 shares of Class A Common Stock outstanding and
1,837,558 shares of Class B Common Stock outstanding as of September
30, 1996. The figure in the "as adjusted" columns are based upon these
totals and except as set forth in the preceding sentence, upon the
assumptions described in footnotes 2 and 3 above.
(5) Includes 525 shares of Class A Common Stock owned by Mr. Neumaier's
spouse, as to which he disclaims beneficial ownership. Includes 525
shares of Class A Common Stock owned by Mr. Neumaier's Individual
Retirement Account. Does not include any shares of Class A Common
Stock or Class B Common Stock held by Mr. Neumaier's adult children.
(6) Includes 7,850 shares of Class B Common Stock owned by one of Mr.
Frank's children and 5,067 shares of Class A Common Stock owned by one
of Mr. Frank's children as to which he disclaims beneficial ownership.
Does not include any shares of Class A Common Stock or Class B Common
Stock held by Mr. Frank's other adult children. Includes 41,625 shares
of Class B Common Stock owned by Mr. Frank's former spouse as to which
he disclaims beneficial ownership except for the right to vote the
shares which he retains pursuant to an agreement with his former
spouse. Includes 515 shares of Class A Common Stock owned by Mr.
Frank's individual retirement account.
(7) Includes 44,226 shares of Class B Common Stock owned in equal amounts
by Mr. Strobel's three children (Mr. Strobel holds 21,171 shares as
custodian for these children), as to which he disclaims beneficial
ownership.
(8) Includes an aggregate of 21,047 shares of Class B Common Stock owned by
two trusts created by Mr. Gross of which he and his spouse are the sole
beneficiaries during their lifetimes.
(9) Includes 1,050 shares of Class B Common Stock owned by Mr. Bookbinder's
spouse as to which he disclaims beneficial ownership.
(10) Includes 10,396 shares of Class A Common Stock owned by Mr. Cellino's
spouse, as to which shares he disclaims beneficial ownership; also
includes 1,655 shares of Class A Common Stock owned by Mr. Cellino's
Individual Retirement Account.
(11) Does not include 49,932 shares (19,475 shares of Class A Common Stock
and 30,457 shares of Class B Common Stock) owned by the Company's
Defined Contribution Plan of which Messrs. Gerhard J. Neumaier, Frank,
Silvestro and Strobel constitute four of the five trustees of each
Plan.
(12) Includes 1,181 shares of Class A Common Stock which may be issued upon
exercise of a stock option granted to one officer in July 1988,
pursuant to the Company's Incentive Stock Option Plan; includes 892
shares of Class A Common Stock which may be issued upon exercise of a
stock option granted to one officer in July 1990, pursuant to the
Company's Incentive Stock Option Plan; includes 892 shares of Class A
Common Stock which may be issued upon exercise of a stock option
granted to one officer in September 2, 1991 pursuant to the Company's
Incentive Stock Option Plan; does not include 787 shares of Class A
Common Stock which may be issued upon the exercise of a stock option
granted to one officer in November 2, 1992 pursuant to the Company's
Incentive Stock Option Plan; does not include 630 shares of Class A
Common Stock which may be issued upon the exercise of a stock option
granted to one officer in April 2, 1994 pursuant to the Company's
Incentive Stock Option Plan; does not include 600 shares of Class A
Common Stock which may be issued upon the exercise of a stock option
granted to one officer in December 2, 1994 pursuant to the Company's
Incentive Stock Option Plan; does not include 2,400 shares of Class A
Common Stock which may be issued upon the exercise of stock options
granted to two (2) officers in December 1995 pursuant to the Company's
Incentive Stock Option Plan.
(13) Subject to the terms of the Restrictive Agreement. See "Security
Ownership of Certain Beneficial Owners-Restrictive Agreement".
Restrictive Agreement
Messrs. Gerhard J. Neumaier, Silvestro, Frank, and Strobel entered
into a Stockholders' Agreement in 1970 which governs the sale of an aggregate
of 1,277,018 shares Class B Common Stock owned by them, the former spouse of
one of the individuals and the children of the individuals. The agreement
provides that prior to accepting a bona fide offer to purchase all or any part
of their shares, each party must first allow the other members to the
agreement the opportunity to acquire on a pro rata basis, with right of
over-allotment, all of such shares covered by the offer on the same terms and
conditions proposed by the offer.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS
(a) 1. Financial Statements Page
Report of Independent Accountants 17
Consolidated Balance Sheet -
July 31, 1996 and 1995 18
Consolidated Statement of Income
for the fiscal years ended July 31, 1996,
1995 and 1994 19
Consolidated Statement of Changes in
Shareholders' Equity for the fiscal years
ended July 31, 1996, 1995 and 1994 20
Consolidated Statement of Cash Flows for
the fiscal years ended July 31, 1996,
1995 and 1994 21
Notes to Consolidated Financial Statements 22
2. Financial Statement Schedule
Schedule VIII - Allowance for
Doubtful Accounts 33
(b) Selected Quarterly Financial Data (Unaudited) 34
All other schedules are omitted because they are not applicable, or not
required, or because the required information in included in the consolidated
financial statements or notes thereto.
3. Exhibits
Exhibit No. Description
3.1 Certificate of Incorporation (1)
3.2 Certificate of Amendment of Certificate of Incorporation
filed on March 23, 1970 (1)
3.3 Certificate of Amendment of Certificate of Incorporation
filed on January 19, 1982 (1)
3.4 Certificate of Amendment of Certificate of Incorporation
filed on January 29, 1987 (1)
3.5 Certificate of Amendment of Certificate of Incorporation
filed on February 10, 1987 (1)
3.6 Restated By-Laws adopted on July 30, 1986 by Board of
Directors (1)
3.7 Certificate of Change Under Section 805-A of the Business
Corporation Law filed August 18, 1988 (2)
3.8 Certificate of Amendment of Certificate of Incorporation
filed January 15, 1988 (2)
4.1 Specimen Class A Common Stock Certificate (1)
4.2 Specimen Class B Common Stock Certificate (1)
10.1 Stockholders' Agreement among Gerhard J. Neumaier, Ronald L.
Frank, Frank B. Silvestro and Gerald A. Strobel dated May 12,
1970 (1)
10.3 Ecology and Environment, Inc. Defined Benefit Pension Plan
Agreement dated July 25, 1980, as amended on April 28, 1981
and restated effective August 1, 1984 (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 Ecology and Environment, Inc. 1986 Incentive Stock Option
Plan approved by Shareholders February 13, 1983 and amended
and restated by Board of Directors December 29, 1986 (1)
10.6 Form of Ecology and Environments, Inc. Incentive Stock Option
Plan option agreement (1)
10.6.1 Amendment No. 2 to Ecology and Environment, Inc. 1986
Incentive Stock Option Plan (3)
10.9 Contract No. 68-WO-0037 issued by the Environmental
Protection Agency to Ecology and Environment, Inc. to
Assistance Teams for Emergency, Response, Removal and
Protection (Zone II), effective October 1, 1990 (3). (Note:
Confidential treatment was requested pursuant to separate
application to the SEC)
21.5 Schedule of Subsidiaries as of July 31, 1994 (4)
23.0 Consent of Independent Accountants (5)
FOOTNOTES
(1) Filed as exhibits to the Company's Registration Statement on Form S-1,
as amended by Amendment Nos. 1 and 2, (Registration No. 33-11543), and
incorporated herein by reference.
(2) Filed as exhibits to the Company's Form 10-K for Fiscal Year Ending July
31, 1988, and incorporated herein by reference.
(3) Filed as exhibit to the Company's Form 10-K for Fiscal Year ending July
31, 1990, and incorporated herein by reference.
(4) Filed as an exhibit to the Company's Form 10-K for Fiscal Year ending
July 31, 1994, and incorporated herein by reference.
(5) Filed herewith.
(b) Reports on Form 8-K
Registrant has not filed any reports on Form 8-K during the fourth
quarter ended July 31, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, ECOLOGY AND ENVIRONMENT, INC. has duly caused this
Annual Report to be signed on its behalf by the undersigned thereunto duly
authorized:
Dated: October 28, 1996 ECOLOGY AND ENVIRONMENT, INC.
By: /S/ Gerhard J. Neumaier
Gerhard J. Neumaier, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated:
Signature Title Date
/S/ Gerhard J. Neumaier President October 28, 1996
Gerhard J. Neumaier (Chief Executive
Officer)
/S/ Frank B. Silvestro Executive October 28, 1996
Frank B. Silvestro Vice-President
/S/ Gerald A. Strobel Executive October 28, 1996
Gerald A. Strobel Vice-President
/S/ Ronald L. Frank Secretary, October 28, 1996
Ronald L. Frank Treasurer, Executive
Vice-President of
Finance
(Principal Financial
and Accounting Officer)
/S/ Gerard A. Gallagher, Jr. Senior Vice October 28, 1996
Gerard A. Gallagher, Jr. President of
Special Projects
and Director
/S/ Ralph Bookbinder Director October 28, 1996
Ralph Bookbinder
/S/ Harvey J. Gross Director October 28, 1996
Harvey J. Gross
/S/ Ross M. Cellino Director October 28, 1996
Ross M. Cellino
Exhibit Index
Exhibit 23 Consent of Independent Accountants
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-41998) of Ecology and Environment, Inc. of our
report dated October 2, 1996 appearing under Item 14 (a) 1. of this Form 10-K.
We also consent to the reference to us under the heading "Experts" in such
Registration Statement.
PRICE WATERHOUSE LLP
Buffalo, New York
October 25, 1996