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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, 1999
or
[ ] TRANSITION REPORT REQUIRED PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________.
Commission file number: 1-9065
Ecology and Environment, Inc.
(Exact name of registrant as specified in its charter)
NEW YORK 16-0971022
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
368 Pleasant View Drive, Lancaster, New York 14086
- -------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (716) 684-8060
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on Which Registered
------------------------ ------------------------------------
Class A Common Stock, American Stock Exchange, Inc.
par value $.01 per share
Securities registered pursuant to Section 12(g) of the Act.
None
----------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in part III of this Form
10-K or any amendments to this Form 10-K.
______
Exhibit Index on Page 43
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As of September 30, 1999, 2,197,142 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, 1999) of the Class A Common Stock
held by nonaffiliates of the registrant was approximately $9,633,151. As
of the same date, 1,768,728 shares of the registrant's Class B Common
Stock, $.01 par value ("Class B Common Stock") were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Registration Statement on Form S-1, as
amended by Amendment Nos. 1 and 2 (Registration No. 33-11543) as well as
portions of the Company's Form 10-K for Fiscal Years ending July 31, 1988,
1990, 1994 and 1997 are incorporated by reference in Part IV of this Form
10-K.
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TABLE OF CONTENTS
INDEX
PART I
Page
Item 1. BUSINESS 4
General 4
START Contracts 4
Task Order Contracts 5
Hazardous Material Services 5
Environmental Consulting Services 5
Analytical Laboratory Services 6
Aquaculture 7
Regulatory Background 7
Potential Liability and Insurance 9
Market and Customers 10
Backlog 10
Competition 10
Employees 10
Item 2. PROPERTIES 11
Item 3. LEGAL PROCEEDINGS 11
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 12
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA 13
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 14
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 17
Item 9. DISAGREEMENTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES 37
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT 38
Item 11. EXECUTIVE COMPENSATION 39
Item 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS 42
SECURITY OWNERSHIP OF MANAGEMENT 43
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 46
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS 47
Page 4 of 53
PART I
Item 1. BUSINESS
General
Ecology and Environment, Inc. ("EEI" or the "Company") is a broad
based environmental consulting and testing firm whose underlying philosophy
is to provide professional services worldwide so that sustainable economic
and human development may proceed with minimum negative impact on the
environment. The Company offers a broad range of environmental consulting
services including: environmental audits; environmental impact
assessments; terrestrial, aquatic and marine surveys; air quality
management and air toxics pollution control; environmental engineering;
noise pollution evaluations; wastewater analyses; water pollution control;
industrial hygiene and occupational health studies; archaeological and
cultural resource studies; environmental infrastructure planning, air,
water and groundwater monitoring and analytical laboratory services.
The Company employs over 75 separate disciplines embracing the
physical, biological, social and health sciences. The Company was
incorporated in February, 1970. Its principal offices are located at 368
Pleasant View Drive, Lancaster, New York and its telephone number is
716-684-8060.
START Contracts
In December 1995, the United States 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 level of effort and cost plus fixed fee
contracts. 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
which is fixed in the contract.
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, 1999, has realized total net revenues
of approximately $90.8 million under these contracts. As of July 31, 1999
the EPA had exercised 93 options totaling approximately $22.2 million in
net revenues under the START contracts. There are 463 remaining options
that have not been exercised by the EPA as of July 31, 1999. The agency
could exercise any number of these options before the contracts expire in
December 2000.
The START contracts each have a term of five (5) years. However, they
contain termination provisions under which the EPA may, without penalty,
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terminate the contract upon written notice to the Company. In the event of
termination, the Company would be paid only termination costs in accordance
with the contract. The Company has never had a contract terminated by the
EPA.
Task Order Contracts
The Company has numerous task order contracts with state and federal
governmental agencies which contain indefinite order quantities and/or
option periods ranging from two to ten years. The maximum potential gross
revenues included in these contracts is approximately $335.0 million.
Hazardous Material Services
Introduction. EEI has conducted hazardous waste site evaluations
throughout the United States. In conducting these site evaluations, the
Company provides site investigation (e.g., geophysical surveys, monitoring
well installation, and sample collection and analysis), engineering design,
and operation and maintenance for a wide range of industrial and
governmental clients. In providing such services, the Company inventories
and collects sample materials on site and then evaluates waste management
practices, potential off-site impacts and liability concerns. EEI then
recommends and designs clean up programs and assists in the implementation
and monitoring of those clean up programs.
Field Investigation. The Company's field investigation services
primarily involve the development of work plans, health and safety plans
and quality assurance and quality control plans to govern field
investigations and conduct such field investigations to define the nature
and extent of contaminants at a site.
Engineering Services. After field investigation services have been
completed and the necessary approvals obtained, the Company's engineering
specialists develop plans and specifications for remedial clean up
activities. This work includes the development of methods and standard
operating procedures to assess contamination problems, and to identify,
develop and design appropriate pollution control schemes. Alternative
clean up strategies are evaluated and conceptual engineering approaches are
formulated. The Company also provides supervision of actual cleanup or
remedial construction work performed by other contractors.
Environmental Consulting Services
The Company's staff includes various individuals with advanced degrees
representing over 75 scientific and engineering disciplines which relate to
the identification, quantification, analysis, and remediation of hazards to
the environment. The Company has rendered consulting services to
industrial and government clients in the following areas:
Hazard and Risk Analysis. EEI has provided analyses of the hazards and
risks of energy transportation to facility designers, contractors, and
operators for over fifteen years. The Company has developed a proprietary
hazardous material exposure model which determines the impact of potential
energy facility accidents on a plant and its employees, as well as on the
people and property in the surrounding community. EEI's hazard and risk
analyses have considered such factors as the physics of brittle fractures,
flammable vapor clouds, cryogenic liquid release and containment, thermal
radiation effects, and replacement and rerouting strategies. In addition,
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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 requirements of the National
Environmental Policy Act (NEPA) and other state environmental laws, EEI has
provided environmental evaluation services to both the government and the
private sector for more than 27 years. As part of the environmental
evaluation process, EEI assists clients in evaluating and developing
methods to avoid or mitigate the potential environmental impacts of a
proposed project and to help ensure that the project complies with
regulatory requirements. EEI's services include air and water quality
analysis, terrestrial and aquatic biological surveys, threatened and
endangered species surveys and wetland delineations, social economic
studies, transportation analyses and land use planning.
Archeological Surveys. The National Historic Preservation Act (1966),
Executive Order 11593 (1971), and NEPA require that developers of certain
projects requiring federal funding, licensing, or approval consider the
potential adverse effects of their projects on cultural resources. In
accordance with these regulations, EEI's archaeologists conduct documentary
background research and field investigations to determine the presence of
cultural resources within proposed project areas and design plans to
mitigate adverse impacts on the resources prior to project development.
International Services. The Company has broadened its client base to
include many international clients through the use of joint ventures and
partnerships.
Analytical Laboratory Services
The Company provides analytical testing services to industrial and
government customers who require accurate measurements to identify and
monitor existing hazardous waste sites. The laboratory analyzes waste,
soil, sediment, air tissue and potable and non-potable water using state of
the art computer controlled instrumentation. The Company also is certified
to perform environmental testing services for some branches of the U.S.
military and a number of state agencies.
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Aquaculture
On July 30, 1999, the Company acquired 90% of the assets of an
aquaculture shrimp facility in the province of Puntarenas on the Pacific
coast of Costa Rica. The facility includes 400 hectares of land of which
193 hectares is shrimp aquaculture ponds. The Company plans to leverage
its in-house expertise to take advantage of the demand for cash crops such
as shrimp created as a result of the decline in worldwide fisheries.
Regulatory Background
The United States Congress and most State Legislatures have enacted a
series of laws to prevent and correct environmental problems. These laws
and their implementing regulations help to create the demand for the multi-
disciplinary consulting services offered by the Company. The principal
federal legislation and corresponding regulatory programs which affect the
Company's business are as follows:
THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION, AND LIABILITY
ACT OF 1980, AS AMENDED ("CERCLA", "Superfund" or the "Superfund Act").
CERCLA is a remedial statute which generally authorizes the Federal
government to order responsible parties to study and clean up inactive
hazardous substance disposal sites, or, to itself undertake and fund such
activities. This legislation has four basic provisions: (i) creation of
an information gathering and analysis program; (ii) grant of federal
authority to respond to emergencies associated with contamination by
hazardous substances, and to clean up sites contaminated with hazardous
substances; (iii) imposition of joint, several, and strict liability on
persons connected with the treatment or disposal of hazardous substances
which results in a release or threatened release into the environment; and
(iv) creation of a Federally managed trust fund to pay for the clean up and
restoration of sites contaminated with hazardous substances when voluntary
clean-up by responsible parties cannot be accomplished. The President
recently signed into law legislation transferring funds into the Hazardous
Substances Superfund with disbursements available after September 1, 2000.
This emphasizes the priority that the federal government has placed upon
the future of the clean up of hazardous waste sites throughout the nation.
THE RESOURCE CONSERVATION AND RECOVERY ACT of 1976 ("RCRA"). RCRA
generally provides "cradle to grave" coverage of hazardous wastes. It
seeks to achieve this goal by imposing performance, testing and record
keeping requirements on persons who generate, transport, treat, store, or
dispose of hazardous wastes. The Company assists hazardous waste
generators in the storage, transportation and disposal of wastes; prepares
permit applications and engineering designs for treatment, storage and
disposal facilities; designs and oversees underground storage tank
installations and removals; performs corrective measure studies and
remedial oversight at RCRA regulated facilities; and performs RCRA
compliance audits.
TOXIC SUBSTANCE CONTROL ACT OF 1976 ("TSCA"). TSCA authorizes the EPA
to gather information on the risks posed to public health and the
environment by chemicals and to regulate the 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
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regulations dated December 21, 1989 established comprehensive record
keeping requirements for persons engaged in PCB transportation, storage and
disposal activities. Amendments effective August 28, 1998 add regulatory
provisions authorizing certain uses of PCBs; specifying additional
alternatives for the cleanup and disposal of PCBs; establishing procedures
for determining PCB concentration; establishing standards and procedures
for decontamination; and updating several marking, recordkeeping, and
reporting requirements. The Company's principal work under TSCA involves
field sampling, site reconnaissance, development of remedial programs and
supervision of construction activities at sites involving PCB
contamination. The Company also conducts asbestos surveys and
investigations.
THE NATIONAL ENVIRONMENTAL POLICY ACT ("NEPA"). NEPA generally
requires that a detailed environmental impact statement ("EIS") be prepared
for every major federal action significantly affecting the quality of the
human environment. With limited exceptions, all federal agencies are
subject to NEPA. Most states have EIS requirements similar to NEPA. The
Company frequently engages in NEPA related projects (or state equivalent)
for both public and private clients.
CLEAN AIR ACT. In 1990, comprehensive changes were made to the Clean
Air Act which has fundamentally redefined the regulation of air
pollutants. The Clean Air Act Amendments of 1990 have created a flurry of
federal and state regulatory initiatives and industry responses which
require the development of detailed inventories and risk management plans,
as well as the acquisition of facility wide, rather than source specific,
air permits. Complementary changes have also been integrated into the RCRA
Boilers and Industrial Furnace ("BIF") regulatory programs calling for
upgraded air emission controls, more rigorous permit conditions and the
acquisition of permits and/or significant permit modifications. The
Company assists public and private clients in the development of air
permitting strategies and the preparation of permit applications. EEI also
prepares the technical studies and engineering documents (e.g., air
modeling, risk analysis, design drawings) necessary to support permit
applications.
SAFE DRINKING WATER AND CLEAN WATER ACTS. The SDWA of 1996 and recent
regulatory changes under the Clean Water Act (CWA) work together in order
to ensure that the public is provided with safe drinking and recreational
waters by utilizing watershed approaches and applying similar principles
(Total Maximum Daily Load, National Pollution Discharge Elimination System,
Source Water Assessment Program, Storm Water Program). Thus, they
supplement and help one another more effectively reach each others goals.
Ecology and Environment, Inc. assists public and private clients in
developing and establishing pollution prevention programs, assisting
clients in monitoring ground, waste and stormwater systems, and help
clients with water permitting and compliance issues.
FOOD QUALITY PROTECTION ACT OF 1996. The Food Quality Protection Act
of 1996 amended the Federal Insecticide, Fungicide, and Rodenticide Acts,
and established new health based safety standards with respect to pesticide
residues in and on foodstuffs. E & E, Inc. services in this area include
the testing of food products, establishing methodologies for more
effectively detecting residues, verifying legal uses of pesticides through
food, water, or soil samples, and developing and determining the
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feasibility of alternatives to current agricultural practices that limit
the use of pesticides.
Other. The Company's operations are also influenced by other federal,
state, and international laws and regulations protecting the environment.
In the U.S. market, other regulatory rules and provisions that influence
company operations, in addition to those discussed above, are the Atomic
Energy Act (AEA), and the Oil Pollution Control Act (OPA). Examples of E &
E, Inc. services provided as a result of these laws include the development
of spill prevention control and emergency prevention procedures, as well as
countermeasure plans for various facilities potentially affecting human
health and the environment.
Related laws such as the Occupational Safety and Health Act, which
regulates exposures of employees to toxic chemicals and other physical
agents in the workplace, also have a significant impact on EEI operations.
An example is the process safety regulation issued by the occupational
Safety and Health Administration ("OSHA") which requires safety and hazard
analysis and accidental release contingency planning activity to be
performed if certain chemicals are used in the work place.
Internationally, since many overseas markets remain "undeveloped" when
compared with that of the U.S. and other Western countries, the Company's
expanding operations in these markets are primarily influenced by
environmental laws focusing on infrastructure, development, and planning
related activities.
Potential Liability and Insurance
The Company's contracts with the EPA require it to maintain certain
insurance, including comprehensive general liability insurance for bodily
injury, death or loss of or damage to property. In addition, many of the
Company's other contracts require the Company to indemnify its clients for
claims, damages or losses for personal injury or property damage relating
to the Company's performance of its duties unless such injury or damage is
the result of the client's negligence or willful acts. Currently, the
Company is able to provide insurance coverage to meet the requirements of
its contracts, however, certain pollution exclusions apply. Historically,
the Company has been able to purchase an errors and omissions insurance
policy that covers its environmental consulting services, including legal
liability for pollution conditions resulting therefrom. The policy is a
claims made policy, with limits of $10.0 million for each claim and $10.0
million in the aggregate with a $500,000 deductible 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 $3.0 million per occurrence and $3.0 million in the aggregate; an
excess liability policy of $10.0 million is also maintained with respect to
its general liability coverage. In addition, EEI has a special endorsement
to its general liability insurance policy up to $3.0 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.
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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 ("DOD")and U.S. Department of Energy
("DOE") 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 task order contracts, at July 31,
1999 and 1998 were as follows:
(Millions of $)
Fiscal Year Fiscal Year
Ended 7/31/99 Ended 7/31/98
------------- -------------
Total Firm Backlog $79.7 $103.4
Anticipated Completion of Firm
Backlog in Next Twelve Months 50.5 53.8
Maximum Potential Gross Revenues
from Task Order Contracts 335.0 349.0
The above figures include $86 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, 1999, the Company had over 800 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.
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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-three (23) regional offices, with terms
which generally coincide with the duration of the Company's contracts in
those areas.
Item 3. LEGAL PROCEEDINGS
From time to time, the Company is named a defendant in legal actions
arising out of the normal course of business. The Company is not a party
to any pending legal proceeding the resolution of which the management of
the Company believes will have a material adverse effect on the Company's
results of operations or financial condition or to any other pending legal
proceedings other than ordinary, routine litigation incidental to its
business. The Company maintains liability insurance against risks arising
out of the normal course of business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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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 1998 High Low
- ----------- ------ ------
First Quarter
(commencing August 1, 1997 - 11-1/8 8-9/16
November 1, 1997)
Second Quarter
(commencing November 2, 1997 - 12 10-1/2
January 31, 1998)
Third Quarter
(commencing February 1, 1998 - 11-1/2 10-3/16
May 2, 1998)
Fourth Quarter
(commencing May 3, 1998 - 11-1/8 9-7/16
July 31, 1998)
Fiscal 1999 High Low
- ----------- ------ -------
First Quarter
(commencing August 1, 1998 - 9-5/8 9-1/8
October 31, 1998)
Second Quarter
(commencing November 1, 1998 - 9-1/4 8-1/2
January 30, 1999)
Third Quarter
(commencing January 31, 1999 - 8-7/8 6-7/8
May 1, 1999)
Fourth Quarter
(commencing May 2, 1999 - 7 6-5/8
July 31, 1999)
(b) Approximate Number of Holders of Class A Common Stock. As of
September 30, 1999, 2,197,142 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 414. The Company estimates that it has a
significantly greater number of Class A Common Stock shareholders because a
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substantial number of the Company's shares are held in street name. As of
the same date, there were 1,768,728 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 74.
(c) Dividend. In each of the fiscal years ended July 31, 1998 and
1999, the Company declared and paid cash dividends of $.32 per share of
common stock. The amount, if any, of future dividends remains within the
discretion of the Company's Board of Directors and will depend upon the
Company' s future earnings, financial condition and requirements and other
factors as determined by the Board of Directors.
The Company's Certificate of Incorporation provides that any cash or
property dividend paid on Class A Common Stock must be at least equal to
the cash or property dividend paid on Class B Common Stock on a per share
basis.
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
------------------------------------
Year Ended July 31,
1999 1998 1997 1996 1995
---------------------------------------------------
(In thousands, except per share amounts)
Operating data:
Gross revenues $75,411 $75,088 $70,802 $69,823 $91,512
Net revenues $63,349 $61,552 $58,994 $61,569 $77,715
Income(loss) from
operations $ 53 $ 287 $ (142) $ 1,511 $ 2,974
Income before income
taxes $ 483 $ 757 $ 478 $ 2,087 $ 3,552
Net income $ 299 $ 471 $ 113 $ 1,160 $ 2,154
Net income per
common share
Basic and Diluted $ .08 $ .12 $ .03 $ .29 $ .52
Cash dividends declared
per common share $ .32 $ .32 $ .32 $ .32 $ .32
Weighted average common
shares outstanding:
Basic 3,957,825 3,949,359 3,956,236 4,039,369 4,136,929
Diluted 3,957,825 3,952,827 3,958,714 4,041,985 4,136,929
Page 14 of 53
As of July 31,
1999 1998 1997 1996 1995
---------------------------------------------------
(In thousands, except per share amounts)
Balance sheet data:
Working capital $27,503 $30,316 $31,141 $31,993 $32,662
Total assets $52,695 $53,076 $53,524 $55,575 $59,476
Long-term debt $ 516 $ 553 $ 607 $ 695 $ 782
Shareholders' equity $42,542 $43,500 $44,183 $45,468 $46,907
Book value per share:
basic $ 10.75 $ 11.01 $ 11.17 $ 11.26 $ 11.34
diluted $ 10.75 $ 11.00 $ 11.16 $ 11.25 $ 11.34
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition
At July 31, 1999 the Company had a working capital balance of $27.5
million, a $2.5 million decrease from the balance at July 31, 1998. Cash, cash
equivalents and investment securities available for sale decreased $3.7 million
as a result of the investment in the aquaculture facility, purchase of
equipment and the payment of dividends. Contract receivables increased
approximately $1.0 million consistent with the increase in net revenues.
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, 1999 and none were required during fiscal year
1999. The Company has historically financed its activities through cash flows
from operations. Internally generated funds have been adequate to support the
demands for working capital, the purchase of new fixed assets and investment
securities and the payment of dividends. There are no significant working
capital requirements pending at July 31, 1999. The Company's existing cash
along with that generated by future operations and the existing credit line is
expected to be sufficient to meet the Company's needs for the foreseeable
future.
Results of Operations
Net Revenues
Net revenues for fiscal year 1999 were $63.3 million, up 3% from the
$61.5 million reported in fiscal year 1998. The increase in net revenues was
attributable to increases in revenues from the Company's contracts with the
United States Environmental Protection Agency (EPA) and the Company's
international subsidiaries of 16% and 37%, respectively. The Company
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experienced decreases in net revenues for its Analytical Services Center (ASC)
and other consulting business of 7% and 10%, respectively. The increased net
revenue from the EPA was primarily due to the five regional United States
Superfund Assistance and Response Teams (START) contracts while the increased
net revenue from the Company's international subsidiaries was due to continued
success in marketing the energy industry clients. Net revenues for fiscal year
1999 were favorably impacted by a reversal of an allowance for contract
adjustments related to reserves previously set up for government audit
disallowances covering fiscal years 1990 and 1991. The settlement of the audit
issues in those years resulted in a reduction of reserves in the amount of
$538,000.
Net revenues for fiscal year 1998 were $61.5 million, up 4% from the
$59.0 million reported in fiscal year 1997. The increase was due to revenue
gains from international clients, the START contracts and Department of Defense
(DOD) customers.
Income Before Income Taxes
The Company's income before income taxes (IBT) for fiscal year 1999 was
$482,000, down 36% from the $757,000 reported in fiscal year 1998. IBT was
negatively impacted by the reduction in net revenues experienced in the
Company's ASC and other consulting business as well as an increase in
administrative and indirect operating expenses. The ASC losses increased 7%
over the prior year while IBT for the remainder of the consulting business fell
9.5%.
During fiscal year 1999, the Company completed the installation of a new
laboratory information handling system at the ASC designed to increase
efficiencies in production and has reduced operating costs in the ASC by
approximately $800,000 on an annualized basis. Although some benefit of these
cost reductions impacted the fourth quarter of fiscal year 1999, the full
benefit of these cost reductions will be realized in fiscal year 2000.
The Company's income before income taxes for fiscal year 1998 was
$757,000, an increase of 58% over the $478,000 recorded in the prior year.
This increase was primarily attributable to the increase in net revenues.
These gains were offset by increasing losses in the Company's ASC as those
operating losses amounted to $1.7 million, an increase of $.8 million over
fiscal year 1997.
Income Taxes
The effective income tax rate for fiscal year 1999 was 38% as compared to
37.8 for fiscal year 1998.
Year 2000 Compliance
Many currently installed computer systems are not capable of
distinguishing 21st century dates from 20th century dates. As a result, in less
than one year computer systems and/or software used by many companies in a wide
variety of applications will experience operating difficulties unless they are
Page 16 of 53
modified or upgraded to adequately process information involving, related to or
dependent upon the century change.
The Company has completed its companywide assessment of operating and
information systems which are sensitive to a potential Year 2000 ("Y2K")
problem. Most of the systems currently in use were found to be compliant. The
Company's internal financial systems software and its sample tracking software
utilized at its Analytical Services Center were not Year 2000 compliant and
have been replaced. The financial systems software was upgraded and
implemented effective August 1, 1998 while the new compliant sample tracking
software was upgraded and replaced in July 1999.
The cost of the Company's Year 2000 compliance upgrade was funded from
current operations and did not have a material adverse effect on the Company's
business, financial position or results of operations. The Company estimates
the total cost of the upgrade was approximately $700,000 including $200,000-
$250,000 for internal labor costs.
The fact that the Company offers labor oriented services minimizes its
risk associated with potential Year 2000 problems from its suppliers. The
Company maintains a broad base of vendors and suppliers and believes there is
little risk to its ongoing operations from Year 2000 problems by its outside
vendors.
There can be no guarantee that the Company's customers, particularly the
U.S. Government, will successfully complete a Year 2000 upgrade on a timely
basis. A failure by the U.S. Government to achieve Year 2000 compliance could
have significant adverse effects on the Company's future business, financial
operations and results of operations. The Company has been advised through
contacts at the Agency that its largest customer, the U.S. Environmental
Protection Agency, has achieved Y2K compliance for all of its mission critical
systems. The Company conducts business in many overseas markets, although no
individual market represents a material risk. The Company is unaware of the
state of Y2K readiness in any individual overseas market.
Based on the progress the Company has made to date in addressing its Year
2000 issues, the Company does not foresee significant risks associated with
these efforts at this time. Since the Company adopted a plan to address these
issues in a timely manner, it has not developed a comprehensive contingency
plan.
Portions of the narrative set forth in this Financial Condition and
Results of Operations, which are not historical in nature, are forward looking
statements, based upon current expectations, all of which are subject to risk
and uncertainties, and are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. The Company does not assume
the obligation to update any forward-looking statements, whether as a result of
new information, future events or otherwise.
Page 17 of 53
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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended July 31, 1999, 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
in the United States, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Buffalo, New York
October 8, 1999
Page 18 of 53
Ecology and Environment, Inc.
Consolidated Balance Sheet
July 31,
--------------------------
1999 1998
---- ----
Assets
Current assets:
Cash and cash equivalents $ 5,209,882 $ 6,627,164
Investment securities available for sale 5,468,620 7,773,585
Contract receivables, net 23,529,043 22,583,963
Deferred income taxes 1,565,144 1,976,922
Income taxes receivable 571,094 356,641
Other current assets 585,199 855,109
------------ ------------
Total current assets 36,928,982 40,173,384
Property, building and equipment, net 14,530,109 12,856,938
Deferred income taxes 313,182 268,728
Other assets 922,461 880,464
------------ ------------
Total assets $52,694,735 $54,179,514
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 3,634,114 $ 3,253,204
Accrued payroll costs 2,240,904 3,175,498
Other accrued liabilities 3,550,878 3,697,798
------------ ------------
Total current liabilities 9,425,896 10,126,500
Minority Interest in Aquaculture Facility 211,651 ---
Long-term debt 515,625 553,125
Shareholders' equity:
Preferred stock, par value $.01 per share;
authorized-2,000,000 shares; no shares
issued --- ---
Class A common stock, par value $.01 per
share; authorized-6,000,000 shares;
issued-2,375,302 and 2,364,302 shares 23,752 23,643
Class B common stock, par value $.01 per
share; authorized-10,000,000 shares;
issued-1,794,987 and 1,805,987 shares 17,946 18,056
Capital in excess of par value 17,591,436 17,591,436
Retained earnings 26,412,508 27,424,660
Treasury stock - Class A common, 177,060
and 183,310 shares; Class B common,
26,259 shares, at cost (1,504,079) (1,557,906)
------------ ------------
Total shareholders' equity 42,541,563 43,499,889
------------ ------------
Total liabilities and shareholders' equity $52,694,735 $54,179,514
=========== ============
The accompanying notes are an integral part of these financial statements.
Page 19 of 53
Ecology and Environment, Inc.
Consolidated Statement of Income
Year ended July 31,
-------------------------------------------
1999 1998 1997
---- ---- ----
Gross Revenues $75,411,105 $75,088,864 $70,801,535
Less: direct subcontract costs 12,062,477 13,537,007 11,808,025
------------ ------------ ------------
Net revenues 63,348,628 61,551,857 58,993,510
Operating costs and expenses:
Cost of professional services and
other direct operating expenses 37,047,642 36,223,266 34,798,097
Administrative and indirect operating
expenses 16,720,659 15,695,000 14,644,185
Marketing and related costs 8,132,525 7,880,921 8,107,698
Depreciation 1,394,766 1,465,904 1,585,562
------------ ------------ ------------
Total operating costs & expenses 63,295,592 61,265,091 59,135,542
------------ ------------ -----------
Income (loss) from operations 53,036 286,766 (142,032)
Interest expense (65,722) (113,775) (65,994)
Interest income 663,446 659,550 697,315
Net foreign currency exchange (167,958) (75,668) (11,735)
------------ ------------ ------------
Income before income taxes 482,803 756,873 477,554
Income tax provision (benefit):
Federal (247,011) 311,387 449,690
State 65,000 96,250 192,180
Deferred 365,344 (121,467) (277,387)
------------ ------------ ------------
183,333 286,170 364,483
------------ ------------ ------------
Net income $299,470 $470,703 $113,071
============ ============ ============
Net income per common share: Basic and Diluted $0.08 $0.12 $0.03
============ ============ ============
Weighted average common shares outstanding:
Basic 3,957,825 3,949,359 3,956,236
============ ============ ============
Diluted 3,957,825 3,952,827 3,958,714
============ ============ ============
The accompanying notes are an integral part of these financial statements.
Page 20 of 53
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, 1996 2,304,747 $23,047 1,865,242 $18,652 $17,591,436 $29,332,352 195,259 $ (1,497,940)
Net income --- --- --- --- --- $ 113,071 --- ---
Cash dividends paid ($.32 per share) --- --- --- --- --- $(1,265,174) --- ---
Conversion of Class B common stock
to Class A common stock 12,165 $ 122 (12,165) $ (122) --- --- --- ---
Repurchase of Class A common stock --- --- --- --- --- --- 25,400 $ (175,000)
Unrealized investment gain, net --- --- --- --- --- $ 42,811 --- ---
--------- ------- --------- ------- ----------- ----------- ------- ------------
Balance at July 31, 1997 2,316,912 $23,169 1,853,077 $18,530 $17,591,436 $28,223,060 220,659 $ (1,672,940)
========= ======= ========= ======= =========== =========== ======= =============
Net income --- --- --- --- --- $ 470,703 --- ---
Cash dividends paid ($.32 per share) --- --- --- --- --- $(1,265,480) --- ---
Conversion of Class B common stock
to Class A common stock 47,390 $ 474 (47,090) $ (474) --- --- --- ---
Unrealized investment loss, net --- --- --- --- --- $ (3,623) --- ---
Issuance of stock under stock
award plan --- --- --- --- --- --- (11,090) $ 115,034
--------- ------- --------- ------- ----------- ----------- -------- -------------
Balance at July 31, 1998 2,364,302 $23,643 1,805,987 $18,056 $17,591,436 $27,424,660 209,569 $(1,557,906)
========= ======= ========= ======= =========== =========== ========= =============
Net income --- --- --- --- --- $ 299,470 --- ---
Cash dividends paid ($.32 per share) --- --- --- --- --- $(1,268,598) --- ---
Conversion of Class B common stock
to Class A common stock 11,000 $ 110 (11,000) $ (110) --- --- --- ---
Unrealized investment loss, net --- --- --- --- --- $ (43,024) --- ---
Repurchase of Class A common stock --- --- --- --- --- --- 2,500 $ (13,458)
Issuance of stock under stock
award plan --- --- --- --- --- --- (8,750) $ 67,285
--------- ------- --------- ------- ----------- ------------ -------- ------------
Balance at July 31, 1999 2,375,302 $23,753 1,794,987 $17,946 $17,591,436 $26,412,508 203,319 $(1,504,079)
========= ======= ========= ======= =========== ============ ======== ============
The accompanying notes are an integral part of these financial statements.
Page 21 of 53
Ecology and Environment, Inc.
Consolidated Statement of Cash Flows
Year ended July 31,
1999 1998 1997
----------- ---------- ----------
Cash flows from operating activities:
Net income $ 287,661 $ 470,703 $ 113,071
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 1,394,766 1,465,904 1,585,562
(Gain) loss on disposition of property and equipment 15,767 --- (1,225)
Minority interest in Aquaculture Facility 211,651 --- ---
Net foreign exchange loss 167,958 75,668 11,735
Provision for contract adjustments 606,875 661,925 112,925
(Increase) decrease in:
- contracts receivable, net (1,712,993) 2,735,269 (2,398,046)
- other current assets 267,059 (364,509) 5,107
- income taxes receivable 181,554 --- ---
- other non-current assets (41,997) (62,411) 47,870
Increase (decrease) in:
- accounts payable 389,818 678,850 (560,508)
- accrued payroll costs (934,594) (540,685) (404,081)
- other accrued liabilities (144,830) 1,439,091 101,151
- income taxes payable --- (184,583) 184,583
----------- ----------- -----------
Net cash provided by (used in) operating activities 688,694 6,375,222 (1,201,856)
----------- ----------- -----------
Cash flows used in investing activities:
Purchase of property, building and equipment, net (3,215,322) (1,543,118) (977,046)
Proceeds from sale of assets 128,359 --- 1,225
Payment for the purchase of bond (693,914) (3,052,854) (1,210,761)
Proceeds from maturity of notes 1,685,000 2,222,293 200,000
Proceeds from sale of investment securities 1,242,172 136,972 498,882
Investment in China Joint Venture --- (21,637) (148,396)
----------- ----------- -----------
Net cash used in investing activities (853,705) (2,182,676) (1,624,361)
----------- ----------- -----------
Cash flows used in financing activities:
Dividends paid (1,268,598) (1,265,480) (1,265,174)
Repayment of long-term debt (37,500) (54,166) (87,500)
Net proceeds from issuance of common stock 67,285 115,034 ---
Purchase of Treasury Stock (13,458) --- (175,000)
----------- ----------- -----------
Net cash used in financing activities (1,252,271) (1,204,612) (1,527,674)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (1,417,282) 3,050,345 (4,401,761)
Cash and cash equivalents at beginning of period 6,627,164 3,714,898 8,080,524
----------- ----------- -----------
Cash and cash equivalents at end of period $5,209,882 $6,765,243 $3,678,763
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
Page 22 of 53
ECOLOGY AND ENVIRONMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
Ecology and Environment, Inc. (the Company) is an environmental
consulting and testing firm whose underlying philosophy is to provide
a broad range of environmental consulting services worldwide so that
sustainable economic and human development may proceed with minimum
negative impact on the environment. These services include
environmental audits and impact assessments, hazardous material site
evaluations and response programs, water and groundwater monitoring,
laboratory analyses, environmental infrastructure planning and many
other projects provided by the Company's multidisciplinary
professional staff. Gross revenues reflected in the Company's
consolidated statement of income represent services rendered for which
the Company maintains a primary contractual relationship with its
customers. Included in gross revenues are certain services outside
the Company's normal operations which the Company has elected to
subcontract to other contractors. The costs relative to such
subcontract services are deducted from gross revenues to derive net
revenues.
During fiscal years ended July 31, 1999, 1998 and 1997, the percentage
of total net revenues derived from contracts exclusively with the
United States Environmental Protection Agency (EPA) were 52%, 48% and
47%, respectively. The Company's Superfund Technical Assessment and
Response Team (START) contracts accounted for the majority of the EPA
net revenue. The percentage of net revenues derived from contracts
with the United States Department of Defense (DOD) were 11%, 18% and
18% for fiscal years ended July 31, 1999, 1998 and 1997, respectively.
2. Summary of Significant Accounting Principles
a. Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. Also reflected in the
financial statements are the Company's 66-2/3% ownership in the
assets of a nonoperating subsidiary, Ecology and Environment of
Saudi Arabia Ltd. (EESAL) and a 50% ownership in two Chinese
operating joint ventures, Beijing Yi Yi Ecology and Engineering
Co. Ltd. and the Tianjin Green Engineering Company. These joint
ventures are accounted for under the equity method. All
significant intercompany transactions and balances have been
eliminated. Certain amounts in the prior years' consolidated
financial statements and notes have been reclassified to conform
with the current year presentation. On July 30, 1999, the Company
acquired 90% of the assets of Langostinos del Pacifica, S.A., an
aquaculture shrimp facility in Costa Rica for the sum of $1.89
million. This investment is consolidated in the Company's balance
sheet at July 31, 1999 with the respective 10% minority interest.
No operating activity occurred during fiscal 1999.
Page 23 of 53
b. Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
c. Revenue recognition
Substantial amounts of the Company's revenues are derived from
cost-plus-fee contracts using the percentage of completion method
based on costs incurred plus the fee earned. The fees under
certain government contracts are determined in accordance with
performance incentive provisions. Such awards are recognized at
the time the amounts can be reasonably determined. Provisions for
estimated contract adjustments relating to cost based contracts
have been deducted from gross revenues in the accompanying
consolidated statement of income. These provisions are estimated
and accrued annually based on government sales volume. Such
adjustments typically arise as a result of interpretations of cost
allowability under cost based contracts.
Revenues related to long-term government contracts are subject to
audit by an agency of the United States government. Government
audits have been completed through fiscal year 1991 and are
currently in process for fiscal years 1992 and 1993. The majority
of the balance in the allowance for contract adjustments accounts
represent a reserve against possible adjustments for fiscal years
1992 through 1999. Reductions in the provision for contract
adjustments in the amount of $538,000 have been included in fiscal
year 1999 sales reflecting settlements of questioned costs in
fiscal years 1990 and 1991.
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
Page 24 of 53
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, 1999 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, 1999
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 1999, 1998 and 1997.
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 $167,958, $75,668 and $11,735 for fiscal
years 1999, 1998 and 1997, respectively.
h. Income taxes
The Company follows the asset and liability approach to account for
income taxes. This approach requires the recognition of deferred
tax liabilities and assets for the expected future tax consequences
of temporary differences between the carrying amounts and the tax
bases of assets and liabilities. Although realization is not
assured, management believes it is more likely than not that the
recorded net deferred tax assets will be realized. Since in some
cases management has utilized estimates, the amount of the net
deferred tax asset considered realizable could be reduced in the
near term. No provision has been made for United States income
taxes applicable to undistributed earnings of foreign subsidiaries
Page 25 of 53
as it is the intention of the Company to indefinitely reinvest
those earnings in the operations of those entities.
i. Pension costs
During 1999, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 132 ("SFAS No. 132"), "Employers'
Disclosure About Pensions and Other Post-Retirement Benefits."
Adoption of SFAS No. 132 did not affect the Company's results of
operations or financial position.
The Company has a non-contributory defined contribution plan
providing deferred benefits for substantially all of the Company's
employees. The Company also has a supplemental defined
contribution plan to provide deferred benefits for senior
executives of the Company. The annual expense of the Company's
supplemental defined contribution plan is based on a percentage of
eligible wages as authorized by the Company's Board of Directors.
Benefits under this plan are funded as accrued.
The Company does not offer any benefits that would result in a
liability under either SFAS No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions" or SFAS No. 112
"Employers' Accounting for Post employment Benefits."
j. Stock based compensation
The Company has elected to continue measuring compensation costs
for employee stock based compensation arrangements using the method
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees" as permitted by SFAS No. 123 "Accounting for Stock Based
Compensation." In accordance with APB Opinion No. 25, compensation
expense is not recognized for stock option awards to employees
under the Company's stock option plan since the exercise price of
options granted is equal to or greater than the market price of the
underlying stock at the date of grant.
k. Earnings per share
In 1998, the Company adopted Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128"), "Earnings per Share," which
modifies the way in which earnings per share ("EPS") is calculated.
Accordingly, all prior period EPS data (1997) presented has been
restated. Basic EPS is computed by dividing income available to
common shareholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential
dilution that would occur if securities or other contracts to issue
common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the
earnings of the Company.
l. Comprehensive Income
In 1999, the Company adopted FASB Statement No. 130 ("SFAS No.
130"), "Reporting Comprehensive Income." Comprehensive income is
defined as "the change in equity of a business enterprise during a
period from transactions and other events and circumstances from
Page 26 of 53
non-owner sources." Under this statement, the term "comprehensive
income" is used to describe the total net earnings plus other
comprehensive income. For the Company, other comprehensive income
includes currency translation adjustments on foreign subsidiaries
and unrealized gains or losses on available-for-sale securities.
The adoption of SFAS No. 130 had no material impact on the
Company's results of operations or its financial position. As part
of the adoption of SFAS No. 130, the financial statements presented
for the periods prior to 1999 were reclassified to reflect
application of the new provisions. The adoption had no material
impact on those years either.
m. Segment reporting
In 1999, the Company adopted FASB Statement No. 131 ("SFAS No.
131") "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise," replacing the
"industry segment" approach with the "management" approach. The
management approach designates the internal organization that is
used by management for making operating decisions and assessing
performance as the source of the Company's reportable segments.
SFAS No. 131 also requires disclosures about products and services,
geographic areas, and major customers. The adoption of SFAS No.
131 did not affect results of operations or financial position but
did affect the disclosure of segment information.
3. Cash and Cash Equivalents
The Company's policy is to invest cash in excess of operating
requirements in income-producing short-term investments. At July 31,
1999 and 1998, short-term investments consist of commercial paper and
money market funds and are carried at cost. Short-term investments
amounted to approximately $3,479,000 and $5,287,000 at July 31, 1999
and 1998, respectively, and are reflected in cash and cash equivalents
in the accompanying consolidated balance sheet and statement of cash
flows.
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid instruments purchased with a maturity of
three months or less to be cash equivalents. Cash paid for interest
amounted to $65,722, $113,775 and $65,994 in fiscal years 1999, 1998
and 1997, respectively. Cash paid for income taxes amounted to -0-,
$886,820, $95,322 in fiscal years 1999, 1998 and 1997, respectively.
Page 27 of 53
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, 1999
-------------
Investment securities
available for sale:
Mutual funds $3,800,411 $ 5,581 $37,780 $3,768,212
Municipal notes and bonds 1,024,750 --- --- 1,024,750
Corporate note 175,000 --- --- 175,000
Federal agency obligations 500,658 --- --- 500,968
---------- ------- --------- ----------
$5,500,819 $ 5,581 $37,780 $5,468,620
========== ======= ========= ==========
July 31, 1998
-------------
Investment securities
available for sale:
Mutual funds $3,667,930 $30,617 $ 419 $3,698,128
Municipal notes and bonds 2,656,147 11,636 2,326 2,665,457
Corporate note 285,000 --- --- 285,000
Federal agency obligations 1,125,000 --- --- 1,125,000
---------- ------- ------- ----------
$7,734,077 $42,253 $2,745 $7,773,585
========== ======= ======= ==========
The amortized cost and estimated fair value of debt securities available
for sale by contractual maturity as of July 31, 1999 were as follows:
Estimated Amortized
fair value cost
----------- -----------
Due in one year or less $ 500,658 $ 500,658
Due after one year through five years --- ---
Due after five years through ten years 199,750 199,750
Due after ten years 1,000,000 1,000,000
---------- ----------
$1,700,408 $1,700,408
Mutual funds available for sale 3,768,212 3,800,411
---------- ----------
$5,468,620 $5,500,819
========== ==========
Page 28 of 53
Proceeds, gross realized gains and losses from the sale of investment
securities were $1,242,172, $2,300 and $0, respectively, in fiscal
year 1999, $136,972, $0 and $0, respectively, in fiscal year 1998 and
$498,882, $0 and $0, respectively, in fiscal year 1997. The
unrealized investment securities gain and unrealized investment
securities loss, net of applicable income taxes, at July 31, 1999 and
1998 of $(19,318) and $23,706, respectively, are reflected in retained
earnings in the consolidated balance sheet.
5. Contract Receivables, net
July 31,
--------
1999 1998
------------ ------------
United States government -
Billed $ 4,049,963 $ 6,368,873
Unbilled 5,112,599 6,597,802
------------ ------------
9,162,562 12,966,675
------------ ------------
Industrial customers and state
and municipal governments -
Billed 9,348,639 5,490,908
Unbilled 6,110,576 5,063,129
------------ ------------
15,459,215 10,554,037
------------ ------------
Less allowance for contract
adjustments (1,092,734) (936,749)
------------ ------------
$23,529,043 $22,583,963
============ ============
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 $465,000 at July 31,
1999 and $0 at July 31, 1998. Unbilled contracts receivable are
reduced by billings in excess of costs incurred of $1,415,000 at July
31, 1999 and $1,801,249 at July 31, 1998. Management anticipates that
the July 31, 1999 unbilled receivables will be substantially billed
and collected in fiscal 2000. Within the above billed balances are
contractual retainages in the amount of approximately $1,914,000 at
July 31, 1999 and $1,801,249 at July 31, 1998. Management anticipates
that the July 31, 1999 retainage balance will be substantially
collected in fiscal year 2000. Included in other accrued liabilities
is an additional allowance for contract adjustments relating to
potential cost disallowances on amounts billed and collected in
current and prior years' projects of approximately $1,876,000 at
Page 29 of 53
July 31, 1999 and $2,283,000 at July 31, 1998. An allowance for
contract adjustments is recorded for contract disputes and government
audits when the amounts are determinable.
6. Property, Building and Equipment, net
July 31,
--------
1999 1998
------------ ------------
Land $ 1,103,490 $ 528,320
Land improvements 1,159,514 ---
Buildings 13,354,130 13,171,764
Laboratory and other equipment 6,600,017 6,188,113
Data processing equipment 7,093,465 7,588,012
Office furniture and equipment 4,781,779 4,697,079
Leasehold improvements and other 1,423,574 1,413,352
----------- -----------
35,515,969 33,586,640
Less accumulated depreciation
and amortization (20,985,860) (20,729,702)
------------ ------------
$14,530,109 $12,856,938
============ ============
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, 1999 and 1998 and none were required during fiscal years 1998
and 1997. At July 31, 1999 and 1998, the Company had letters of
credit totaling $1,425,610 and $1,471,520, respectively, secured by
this line of credit.
8. Long-term Debt
During fiscal year 1994, the Company obtained industrial revenue bond
capital lease financing in the amount of $750,000 to finance a portion
of the cost of the newly constructed analytical services facility.
The lease is collateralized by a portion of the land and the
analytical services facility building in an amount equal to the bond.
The bond is payable in equal monthly principal installments of $3,125
through 2014 and bears interest at the borrower's base rate which
approximates prime (8.25% at July 31, 1999). 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,
1999, the Company was in compliance with all financial ratio
covenants. The balance outstanding on this bond at July 31, 1999 and
1998 was $553,125 and $590,625, respectively.
Page 30 of 53
9. Income Taxes
Earnings before provision for income taxes consisted of:
1999 1998 1997
-------- -------- ---------
U.S. $307,079 $570,435 $547,358
Foreign 175,724 186,438 (69,804)
-------- --------- ----------
$482,803 $756,873 $477,554
======== ========= ==========
The provision for income taxes differs from the federal statutory rate due
to the following:
Fiscal year
-----------
1999 1998 1997
------ ------ ------
Federal tax 34.0% 34.0% 34.0%
State taxes, net of federal benefit 10.8 6.0 18.0
Permanent differences
Meals & entertainment/other 12.6 10.1 16.5
Tax exempt interest -18.0 -9.7 -12.3
Foreign operations (1997 includes reversal (1.7) (1.3) 20.3
of fed benefit recognized in p/yrs.
for foreign losses)
Other/rounding 0.2 -1.4 -0.3
------ ------ ------
Total Provision 37.9% 37.8% 76.2%
====== ====== ======
Deferred tax assets (liabilities) included in other current assets were
comprised of the following:
July 31,
--------
1999 1998
---------- ----------
Allowance for contract adjustments $1,104,344 $1,384,297
Accrued vacation and compensatory time 513,952 681,868
Property, building and equipment 255,692 251,104
Other 250,107 100,312
----------- -----------
Gross deferred tax assets 2,124,095 2,417,581
State income taxes (164,850) (169,519)
Other (80,919) (2,415)
----------- -----------
Gross deferred tax liabilities (245,769) (171,934)
----------- -----------
Net current deferred tax asset $1,878,326 $2,245,647
=========== ===========
Page 31 of 53
The Company has not recorded income taxes applicable to undistributed
earnings of foreign subsidiaries that are indefinitely reinvested in
foreign operations. At July 31, 1999, these amounts, net of
applicable foreign tax credits, were not material.
10. Shareholders' Equity
a. Class A and Class B common stock
The relative rights, preferences and limitations of the Company's
Class A and Class B common stock can be summarized as follows:
Holders of Class A shares are entitled to elect 25% of the Board of
Directors so long as the number of outstanding Class A shares is at
least 10% of the combined total number of outstanding Class A and
Class B common shares. Holders of Class A common shares have one-
tenth the voting power of Class B common shares with respect to
most other matters.
In addition, Class A shares are eligible to receive dividends in
excess of (and not less than) those paid to holders of Class B
shares. Holders of Class B shares have the option to convert at
any time, each share of Class B common stock into one share of
Class A common stock. Upon sale or transfer, shares of Class B
common stock will automatically convert into an equal number of
shares of Class A common stock, except that sales or transfers of
Class B common stock to an existing holder of Class B common stock
or to an immediate family member will not cause such shares to
automatically convert into Class A common stock.
b. Incentive stock compensation
Under the Company's incentive stock option plan (the "plan"), key
employees, including officers of the Company, may be granted
options to purchase shares of Class A Common stock at an option
price of at least 100% of the shares' fair market value at the date
of grant. Shares become exercisable after a minimum holding period
of five years from the date of grant and expire after a period of
ten years from the date of grant. A total of 209,390 shares were
authorized for granting under the plan. The plan was terminated in
March of 1996.
No options were exercised during fiscal years 1999, 1998 and 1997.
Cancelled options during the three year period ended July 31, 1999
amounted to 5,822, 8,969 and 22,848, respectively, at a weighted
average exercise price of $10.14, $11.77 and $11.71, respectively.
Expired options were 14,588, 21,830 and 0 for fiscal years 1999,
1998 and 1997, respectively, at a weighted average exercise price
of $10.47, $13.09 and $0 per share, respectively.
Options outstanding at the end of the four year period ended July
31, 1999 were 108,756, 129,166 and 159,965, respectively, at a
weighted average exercise price of $11.25, $11.12 and $11.44,
respectively. Of the options outstanding for the three year period
ended July 31, 1999, 66,556, 69,646 and 79,086, respectively, are
currently exercisable at a weighted average exercise price of
$13.48, $13.06 and $13.27, respectively. At July 31, 1999, 42,200
options have an exercise price between $7.25 and $10.48, with a
weighted average exercise price and weighted average contracted
life of $7.74 and 6.86 years, respectively. At July 31, 1999,
Page 32 of 53
66,556 options have an exercise price between $12.38 and $16.08
with a weighted average exercise price and weighted average
contractural life of $13.48 and 2.64 years, respectively. Of those
options, 66,556 are currently exercisable at a weighted average
exercise price of $11.00.
The Company estimates that if they elected to measure compensation
cost for employee stock based compensation arrangements under SFAS
No. 123, it would not have caused net income and earnings per share
for fiscal years 1999 and 1997 to be materially different from
their reported amounts.
c. Stock Award Plan
Effective March 16, 1998, the Company adopted the Ecology and
Environment, Inc. 1998 Stock Award Plan (the "Award Plan") under
which key employees (including officers) of the Company or any of
its present or future subsidiaries may be designated to receive
awards of Class A common stock of the Company as a bonus for
services rendered to the Company or its subsidiaries, without
payment therefore, based upon the fair market value of the common
stock at the time of the award.
The Company originally reserved for issuance as awards under the
Award Plan an aggregate of 12,000 shares of Class A Common stock of
the Company, which shall be solely treasury shares. In March 1999
the number of shares reserved was increased to 22,000. In Fiscal
Year 1999, 8,750 shares were issued at a weighted average fair
value of $7.69 per share. In Fiscal Year 1998, awards for 11,090
shares of Class A common stock had been granted at a weighted
average fair value of $9.81 per share.
The Company estimates that if they elected to measure compensation
cost for employee stock based compensation arrangements under SFAS
No. 123 it would not have caused net income and earnings per share
for fiscal years 1999 and 1998 to be materially different from
their reported amounts.
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, 1999, future minimum rental commitments, net of estimated
amounts allocable to government contracts with rental cost
reimbursement clauses, were as follows:
Page 33 of 53
Fiscal year Gross Reimbursable Net
----------- ---------- ------------ -------
2000 2,037,142 1,054,642 982,500
2001 1,183,094 483,001 700,093
2002 330,553 1,239 329,314
2003 215,743 --- 215,743
2004 188,334 --- 188,334
Gross rental expense under the above lease commitments for 1999, 1998,
and 1997 was $2,259,390, $2,050,157, and $2,098,520, respectively.
12. Defined Contribution Plans
Contributions to the supplemental defined contribution plans are
discretionary and determined annually by the Board of Directors. The
total expense under the supplemental plan for fiscal years 1999, 1998,
and 1997 was $1,472,426, $1,339,468 and $1,209,412, respectively.
13. Earnings Per Share
All earnings per share amounts reflect the implementation of SFAS No.
128, Earnings Per Share. SFAS No. 128 established new standards for
computing EPS and requires that all prior period earnings per share
data be restated to conform with the provisions of the statement.
SFAS No. 128 also requires dual presentation of basic and diluted EPS
on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation.
The computation of basic earnings per share reconciled to diluted
earnings per share follows:
Fiscal Year
-----------
1999 1998 1997
--------- --------- ----------
Income available
to common stockholders $ 299,470 $ 470,703 $ 113,071
Weighted-average common
shares outstanding (basic) 3,957,825 3,949,359 3,956,236
Basic earnings
per share $0.08 $0.12 $0.03
Incremental shares from
assumed conversions of
stock options --- 3,469 2,478
Adjusted weighted-average
common shares outstanding 3,957,825 3,952,827 3,958,714
Diluted earnings
per share $0.08 $0.12 $0.03
Page 34 of 53
At July 31, 1999, there were 108,756 stock options outstanding with an
exercise price ranging from $7.25 to $16.08 which were not included in the
above calculations due to their antidilutive nature. At July 31, 1998,
there were 69,646 stock options outstanding with an exercise price ranging
from $12.38 - $16.08 which were not included. At July 31, 1997 there were
126,165 stock options outstanding with an exercise price ranging from $9.00
- $16.08 which were not included.
14. Contingencies
Certain contracts with the EPA contain termination provisions under which
the EPA may, without penalty, terminate the contracts upon written notice
to the Company. In the event of termination, the Company would be paid
only termination costs in accordance with the particular contract.
The Company is involved in litigation arising in the normal course of
business. In the opinion of management, any adverse outcome to this
litigation would not have a material impact on the financial results of the
Company.
15. Segment Reporting
Ecology and Environment, Inc. has three reportable segments: consulting
services, analytical laboratory services, and aquaculture. The consulting
services segment provides broad based environmental services encompassing
audits and impact assessments, surveys, air and water quality management,
environmental engineering, environmental infrastructure planning, and
industrial hygiene and occupational health studies to a world wide base of
customers. The analytical laboratory provides analytical testing services
to industrial and governmental clients for the analysis of waste, soil and
sediment samples. The shrimp aquaculture facility, located in Costa Rica,
was purchased on July 30, 1999. Consequently, there was virtually no
reportable segment activity for fiscal year 1999. This facility will
produce shrimp grown in a controlled environment for markets worldwide.
The Company evaluates segment performance and allocates resources based on
operating profit before interest income/expense and income taxes. The
accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies. Intercompany
sales from the analytical services segment to the consulting segment are
recorded at market selling price, intercompany profits are eliminated.
The Company's reportable segments are separate and distinct business units
that offer different products. Consulting services are sold on the basis of
time charges while analytical services and aquaculture products are sold on
the basis of product unit prices.
Page 35 of 53
Reportable segment data for the fiscal year ended July 31, 1999 is as
follows:
Consulting Analytical Aquaculture Total
----------- ----------- ----------- -----------
Net revenues from external customers $59,167,613 $2,040,934 --- $61,208,547
Intersegment revenues --- 2,140,081 --- 2,140,081
----------- ---------- ----------- -----------
Total consolidated net revenues $59,167,613 $4,181,015 --- $63,348,628
=========== =========== =========== ===========
Depreciation expense 1,015,166 379,600 --- 1,394,766
Segment profit (loss) 1,963,956 (1,910,920) --- 53,036
Segment Assets 43,539,235 7,039,000 2,116,500 52,694,735
Expenditures for long-lived assets 886,370 212,452 2,116,500 3,215,322
Geographic Information:
Net Long-lived
Revenues (1) Assets
------------ ------------
United States $57,340,628 $33,282,307
Foreign countries $6,008,000 $117,162
(1) Net revenues are attributed to countries based on the location of the
customers.
Reportable segments for the fiscal year ended July 31, 1998 are as follows:
Consulting Analytical Total
----------- ----------- -----------
Net revenues from external customers $57,052,529 $ 1,367,744 $58,420,273
Intersegment net revenues --- 3,131,584 3,131,584
----------- ----------- -----------
Total consolidated net revenues $57,052,529 $4,499,328 $61,551,857
=========== ========== ===========
Depreciation expense 984,251 481,653 1,465,904
Segment profit (loss) 2,061,550 (1,774,784) 286,766
Segment Assets 46,768,514 7,411,000 54,179,514
Expenditures for long-lived assets 1,326,110 141,340 1,467,450
Geographic Information:
Net Long-lived
Revenues (1) Assets
------------- ------------
United States $56,050,857 $33,449,866
Foreign countries 5,501,000 136,774
(1) Net revenues are attributed to countries based on the location of the
customers.
Page 36 of 53
Fiscal year ended July 31, 1997:
Consulting Analytical Total
---------- ---------- -----------
Net revenues from external customers $54,140,825 $2,365,314 $56,506,139
Intersegment net revenues --- 2,487,371 2,487,371
----------- ---------- -----------
$54,140,825 $4,852,685 $58,993,510
=========== ========== ===========
Depreciation expense 1,133,469 452,093 1,585,562
Segment profit (loss) 741,634 (883,666) (142,032)
Segment Assets 46,244,373 7,280,000 53,524,373
Expenditures for long-lived assets 852,209 113,102 965,311
Geographic Information:
Net Long-lived
Revenues (1) Assets
------------- -----------
United States $53,818,510 $32,005,018
Foreign countries 5,175,000 106,651
(1) Net revenues are attributed to countries based on the location of the
customers.
The disclosure of significant customers is included in note number one to
the consolidated financial statements.
Page 37 of 53
ECOLOGY AND ENVIRONMENT, INC.
SCHEDULE VIII
Allowance for Doubtful Accounts
Years Ended July 31, 1999, 1998, and 1997
Balance at Charged to Balance
Beginning Cost and at End
Year Ended of Period Expense Deduction of Year
------------- ---------- ----------- --------- ----------
July 31, 1999 $3,219,565 $ 606,875 $ 858,200 $2,968,240
July 31, l998 $2,931,940 $ 661,925 $ 374,300 $3,219,565
July 31, 1997 $2,839,675 $ 112,925 $ 20,660 $2,931,940
Selected quarterly financial data (Unaudited)
- ---------------------------------------------
(In thousands, except per share information)
1999 First Second Third Fourth
- -----------------------------------------------------------------------------
Gross revenues $16,927 $17,992 $20,802 $19,690
Net revenues 15,237 15,103 16,789 16,220
Income (loss) from operations 219 12 (162) (16)
Income before income taxes 370 35 (47) 125
Net income (loss) 203 68 13 15
Net income per common share:
basic and diluted $ 0.05 $ .02 $ .003 $ .004
Cash dividends declared per common
share: basic and diluted $ --- $ 0.16 $ --- $ 0.16
1998 First Second Third Fourth
- -----------------------------------------------------------------------------
Gross revenues $19,373 $16,423 $20,359 $18,858
Net revenues 15,899 14,142 15,656 15,779
Income (loss) from operations 342 (136) 25 (20)
Income before income taxes 488 10 165 94
Net income (loss) 293 56 128 (6)
Net income per common share:
basic and diluted $ 0.07 $ 0.02 $ 0.03 $ ---
Cash dividends declared per common
share: basic and diluted $ --- $ 0.16 $ --- $ 0.16
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
Page 37 of 53
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 62 President and Director
Frank B. Silvestro 62 Executive Vice President and Director
Gerald A. Strobel 59 Executive Vice President of Technical
Services and Director
Ronald L. Frank 61 Executive Vice President of Finance,
Secretary, Treasurer and Director
Gerard A. Gallagher, Jr. 68 Senior Vice President of Special Projects
and Director
Roger J. Gray 58 Senior Vice President
Laurence M. Brickman 55 Senior Vice President
Harvey J. Gross 71 Director
Ralph Bookbinder 68 Director
Ross M. Cellino 67 Director
Brent D. Baird 60 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.
Page 39 of 53
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 was a Director of the Company from its inception in
1970. His term ended on January 14, 1999. Mr. Bookbinder is a retired
stockbroker.
Mr. Cellino has been a Director of the Company since its inception in
1970. Mr. Cellino is an attorney and counselor-at-law retired from private
practice.
Mr. Baird was elected as a Director in January 1999. From 1970
through January 1984, Mr. Baird was a partner and from February 1984 until
January 1, 1992, was a limited partner of Truber, Collins & Co., Buffalo,
New York, a member firm of the New York Stock Exchange, Inc. Mr. Baird is
currently a private investor. He is also a director of Oglabay Norton
Company, Todd Shipyards Corporation, Exolon-ESK Company, Merchants Group,
Inc., Barrister Information Systems Corporation and First Carolina
Investors, Inc.
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, 1997, 1998 and 1999 of those persons who were at July
31, 1999 (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, 1999 in excess of $100,000. In this report, the
five persons named in the table below are referred to as the "Named
Executives."
Page 40 of 53
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 1999 $228,750 -0- -0- -0- -0- 13,731
President and Director 1998 $219,952 -0- -0- -0- -0- 14,127
1997 $219,952 -0- -0- -0- -0- 12,000
Frank B. Silvestro 1999 $207,844 -0- -0- -0- -0- 12,535
Executive VP and Director 1998 $199,967 -0- -0- -0- -0- 12,965
1997 $199,967 -0- -0- -0- -0- 10,925
Ronald L. Frank 1999 $207,964 -0- -0- -0- -0- 12,542
Executive Vice President 1998 $199,967 -0- -0- -0- -0- 12,965
of Finance, Secretary 1997 $199,967 -0- -0- -0- -0- 10,925
Treasurer and Director
Gerald A. Strobel 1999 $207,964 -0- -0- -0- -0- 12,542
Executive Vice President 1998 $199,967 -0- -0- -0- -0- 12,965
of Technical Services 1997 $199,967 -0- -0- -0- -0- 10,925
and Director
Gerard A. Gallagher, Jr. 1999 $180,048 -0- -0- -0- -0- 10,855
Senior Vice President 1998 $172,060 -0- -0- -0- -0- 11,323
of Special Projects and 1997 $177,134 -0- -0- -0- -0- 9,695
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.
Page 41 of 53
None of the Company's executive officers have employment agreements.
Directors who are not employees of the Company are paid an annual fee of
$21,660 payable quarterly.
Compensation Pursuant to Plans
Pension Plan. In September 1995, the Company decided to terminate
its Defined Benefit Pension Plan (the "Pension Plan"). The termination of
the Pension Plan was settled by December 1996.
Defined Contribution Plan. The Company maintains a Defined
Contribution Plan ("the DC Plan") which is qualified under the Internal
Revenue Code of 1986, as amended (the "Internal Revenue Code") pursuant to
which the Company contributes an amount not in excess of 15% of the
aggregate compensation of all employees who participate in the DC Plan.
All employees, including the executive officers identified under "Executive
Compensation", are eligible to participate in the plan, provided that they
have attained age 21 and completed one year of employment with at least
1,000 hours of service. The amounts contributed to the plan by the Company
are allocated to participants based on a ratio of each participant's points
to total points of all participants determined as follows: one point per
$1,000 of compensation plus two points per year of service completed prior
to August 1, 1979, and one point for each year of service completed after
August 1, 1979.
Supplemental Retirement Plan. In April 1994, the Board of Directors
of the Company, in response to changes in the tax code, voted to establish
a Supplemental Executive Retirement Plan ("SERP") for purposes of providing
retirement benefits to employees including officers of the Company whose
retirement benefits under the DC Plan are reduced as a result of the
$150,000 compensation limitation imposed by the tax code change. This plan
is a non-qualified plan which provides benefits that would have been lost
from the DC Plan due to the imposition of the compensation restriction.
Stock Award Plan
Effective March 16, 1998, the Company adopted the Ecology and
Environment, Inc. 1998 Stock Award Plan (the "Award Plan") under which key
employees (including officers) of the Company or any or all of its present
or future subsidiaries may be designated to receive awards of Class A
common stock of the Company as a bonus for services rendered to the Company
or its subsidiaries, without payment therefor, based upon the fair market
value of the common stock at the time of the award.
The Company originally reserved for issuance as awards under the
Award Plan an aggregate of 100,000 shares of Class A common stock of the
Company, which shall be solely treasury shares. In March 1999 the number
of shares reserved was increased to 22,000. The Board of Directors of the
Company administers the plan and has authority to determine the employees
to whom awards are to be granted, the number shares covered by each award,
whether or not the awards are subject to forfeiture or restriction on sale,
resale or other disposition of the shares acquired under the award and any
other understandings or conditions as to the award recipient's continued
employment.
The Award Plan is not a qualified plan under Section 401(a) of the
Internal Revenue Code. The plan permits grants of the award for a period
Page 42 of 53
of five (5) years from the date of adoption. As of July 31, 1999, awards
for 19,340 shares of Class A common stock have been granted. The named
Executive Officers found in the Summary Compensation Table have not been
granted any awards pursuant to the Award Plan.
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 209,390
shares of Class A Common Stock at an option price of at least 100% of the
fair market value of the shares on the date the options were granted. The
Option Plan was terminated in March 1996, and no further options may be
granted under the Option Plan. As of July 31, 1999, there were options
outstanding for the purchase of 108,756 shares of Class A Common Stock,
66,556 of which were vested.
The named Executive Officers found in the Summary Compensation Table
have not been granted any options pursuant to the Option Plan.
Section 16(a) Beneficial Ownership Reporting Compliance
During the fiscal year ended July 31, 1999, Gerhard J. Neumaier failed
to file on a timely basis one report, showing one transaction.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of September 30, 1999, the number
of outstanding shares of Class A Common Stock and Class B Common Stock of
the Company beneficially owned by each person known by the Company to be
the beneficial owner of more than 5 percent of the then outstanding shares
of Common Stock:
Class A Common Stock Class B Common Stock
---------------------- --------------------
Nature and Percent Nature and
Amount of of Amount of
Beneficial Class As Beneficial Percent
Ownership Adjusted Ownership of
Name and Address(1) (2)(3) (4) (2)(3) Class
- ----------------------- ---------- -------- ---------- -------
Gerhard J. Neumaier* 347,707 13.7% 345,894 19.6%
Frank B. Silvestro* 288,937 11.6% 288,937 16.3%
Ronald L. Frank* 255,776 10.5% 252,394 14.9%
Gerald A. Strobel* 262,296 10.7% 262,296 14.8%
Franklin Resources,
Inc. 370,000 16.89% 0 0
First Carolina
Investors, Inc. 425,000 19.3% 0 0
The Cameron Baird
Foundation 250,000 11.4% 0 0
* See Footnotes in next table
Page 43 of 53
1) The address for Gerhard J. Neumaier, Frank B. Silvestro, Ronald L.
Frank and Gerald A. Strobel is c/o Ecology and Environment, Inc., 368
Pleasant View Drive, Lancaster, New York 14086, unless otherwise indicated.
The address for Franklin Resources, Inc. is 777 Mariners Island Blvd.,
P. O. Box 7777, San Mateo, California 94403-7777. The address for The
Cameron Baird Foundation is c/o Kavinoky & Cook, 120 Delaware Avenue,
Buffalo, New York 14202. The address for First Carolina Investors, Inc. is
1130 East Third Street, Suite 400, Charlotte, North Carolina 28204.
(2) Each named individual or corporation are deemed to be the beneficial
owners of securities that may be acquired within 60 days through the
exercise of exchange or conversion rights. The shares of Class A Common
Stock issuable upon conversion by any such shareholder are not included in
calculating the number of shares or percentage of Class A Common Stock
beneficially owned by any other shareholder.
(3) There are 2,197,142 shares of Class A Common Stock issued and
outstanding and 1,768,728 shares of Class B Common Stock issued and
outstanding as of September 30, 1999. 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, 1999, by (i) each Director of the Company
and (ii) all Directors and officers of the Company as a group.
Class A Common Stock Class B Common Stock
----------------------- ---------------------
Nature and Percent Nature and
Amount of of Amount of
Beneficial Class As Beneficial Percent
Ownership Adjusted Ownership of
Name(1) (2)(3) (4) (2)(3) Class
- ----------------------------- ---------- -------- ---------- --------
Gerhard J. Neumaier (5) (14) 347,707 13.7% 345,894 19.6%
Frank B. Silvestro (14) 288,937 11.6% 288,937 16.3%
Ronald L. Frank (6) (14) 255,776 10.5% 247,094 17.0%
Gerald A. Strobel (7) (14) 262,296 10.7% 262,296 14.8%
Harvey J. Gross (8) 80,047 3.5% 80,047 4.5%
Gerard A. Gallagher, Jr. 71,641 3.2% 71,300 4.2%
Ross M. Cellino (9) 14,006 * 1,050 *
Brent D. Baird (11) 435,000 19.8% -0- -0-
Directors and officers
Group (11)(12) 1,774,998 50.6% 1,310,107 74.1%
(10 individuals)
* Less than 0.1%
- --------------------------------------------------------------------------------------
Page 44 of 53
1. The address of each of the above shareholders, other than Brent D.
Baird, is c/o Ecology and Environment, Inc., 368 Pleasant View Drive,
Lancaster, New York 14086. The address for Brent D. Baird is 1350
One M & T Plaza, Buffalo, New York 14203.
2. Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, beneficial ownership of a security consists of sole or
shared voting power (including the power to vote or direct the vote)
or sole or shared investment power (including the power to dispose or
direct the disposition) with respect to a security whether through
any contract, arrangement, understanding, relationship or otherwise.
Unless otherwise indicated, the shareholders identified in this table
have sole voting and investment power of the shares beneficially
owned by them.
3. Each named person and all Directors and officers as a group are
deemed to be the beneficial owners of securities that may be acquired
within 60 days through the exercise of exchange or conversion rights.
The shares of Class A Common Stock issuable upon conversion by any
such shareholder are not included in calculating the number of shares
or percentage of Class A Common Stock beneficially owned by any other
shareholder. Moreover, the table gives effect to only 3,201 shares
of Class A Common Stock of the total 66,556 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 2,197,142 shares of Class A Common Stock issued and
outstanding and 1,768,728 shares of Class B Common Stock issued and
outstanding as of September 30, 1999. 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.
Includes 1,288 shares of Class A Common Stock owned by a Partnership
in which Mr. Neumaier is a general partner.
6. Includes 8,850 shares of Class B Common Stock owned by one of Mr.
Frank's children and 6,167 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 36,625 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 45,726 shares of Class B Common Stock owned in equal amounts
by Mr. Strobel's three children (Mr. Strobel holds 15,171 shares as
custodian for these children), as to which he disclaims beneficial
ownership.
Page 45 of 53
8. Includes an aggregate of 21,047 shares of Class B Common Stock owned
by two trusts created by Mr. Gross of which he and his spouse are the
sole beneficiaries during their lifetimes.
9. Includes 1,050 shares of Class B Common Stock and 150 shares of Class
A Common Stock owned by Mr. Bookbinder's spouse as to which he
disclaims beneficial ownership.
10. Includes 10,396 shares of Class A Common Stock owned by Mr. Cellino's
spouse, as to which shares he disclaims beneficial ownership; also
includes 2,455 shares of Class A Common Stock owned by Mr. Cellino's
Individual Retirement Account.
11. Includes 425,000 shares of Class A Common Stock owned by First
Carolina Investors, Inc. of which Mr. Baird is a shareholder,
director and Chief Executive Officer. It does not include 250,000
shares owned by the Cameron Baird Foundation.
12. Does not include 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.
13. Includes 892 shares of Class A Common Stock which may be issued upon
exercise of a stock option granted to one officer in July 1990,
pursuant to the Company's Incentive Stock Option Plan; includes 892
shares of Class A Common Stock which may be issued upon exercise of a
stock option granted to one officer on September 2, 1991 pursuant to
the Company's Incentive Stock Option Plan; includes 787 shares of
Class A Common Stock which may be issued upon the exercise of a stock
option granted to one officer on November 2, 1992 pursuant to the
Company's Incentive Stock Option Plan; includes 630 shares of Class A
Common Stock which may be issued upon the exercise of a stock option
granted to one officer on April 2, 1994 pursuant to the Company's
Incentive Stock Option Plan; does not include 600 shares of Class A
Common Stock which may be issued upon the exercise of a stock option
granted to one officer on December 2, 1994 pursuant to the Company's
Incentive Stock Option Plan; does not include 2,400 shares of Class A
Common Stock which may be issued upon the exercise of stock options
granted to two (2) officers on December 12, 1995 pursuant to the
Company's Incentive Stock Option Plan.
14. Subject to the terms of the Restrictive Agreement. See "Security
Ownership of Certain Beneficial Owners-Restrictive Agreement".
Restrictive Agreement
Messrs. Gerhard J. Neumaier, Silvestro, Frank, and Strobel entered
into a Stockholders' Agreement in 1970 which governs the sale of an
aggregate of 1,251,818 shares Class B Common Stock owned by them, the
former spouse of one of the individuals and the children of the
individuals. The 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.
Page 46 of 53
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
Page 47 of 53
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS
(a) 1. Financial Statements Page
-------------------- ----
Report of Independent Accountants 17
Consolidated Balance Sheet -
July 31, 1999 and 1998 18
Consolidated Statement of Income
for the fiscal years ended
July 31, 1999, 1998 and 1997 19
Consolidated Statement of Changes in
Shareholders' Equity for the fiscal years
ended July 31, 1999, 1998 and 1997 20
Consolidated Statement of Cash Flows for
the fiscal years ended July 31, 1999,
1998 and 1997 21
Notes to Consolidated Financial Statements 22
2. Financial Statement Schedule
Schedule VIII - Allowance for
Doubtful Accounts 37
All other schedules are omitted because they are not applicable, or
the required information is shown in the consolidated financial
statements or notes thereto.
3. Exhibits
Exhibit No. Description
----------- -----------
3.1 Certificate of Incorporation (1)
3.2 Certificate of Amendment of Certificate of
Incorporation filed on March 23, 1970 (1)
3.3 Certificate of Amendment of Certificate of
Incorporation filed on January 19, 1982 (1)
3.4 Certificate of Amendment of Certificate of
Incorporation filed on January 29, 1987 (1)
3.5 Certificate of Amendment of Certificate of
Incorporation filed on February 10, 1987 (1)
3.6 Restated By-Laws adopted on July 30, 1986 by
Board of Directors (1)
Page 48 of 53
3.7 Certificate of Change Under Section 805-A of
the Business Corporation Law filed August 18,
1988 (2)
3.8 Certificate of Amendment of Certificate of
Incorporation filed January 15, 1988 (2)
4.1 Specimen Class A Common Stock Certificate (1)
4.2 Specimen Class B Common Stock Certificate (1)
10.1 Stockholders' Agreement among Gerhard J.
Neumaier, Ronald L. Frank, Frank B. Silvestro
and Gerald A. Strobel dated May 12, 1970 (1)
10.4 Ecology and Environment, Inc. Defined
Contribution Plan Agreement dated July 25, 1980
as amended on April 28, 1981 and July 21, 1983
and restated effective August 1, 1984 (1)
21.5 Schedule of Subsidiaries as of July 31, 1999
(3)
23.0 Consent of Independent Accountants (3)
FOOTNOTES
(1) Filed as exhibits to the Company's
Registration Statement on Form S-1, as
amended by Amendment Nos. 1 and 2,
(Registration No. 33-11543), and
incorporated herein by reference.
(2) Filed as exhibits to the Company's Form
10-K for Fiscal Year Ending July 31, 1988,
and incorporated herein by reference.
(3) Filed herewith.
(a) Reports on Form 8-K
Registrant has not filed any reports on Form 8-K during the fourth
quarter ended July 31, 1999.
Page 49 of 53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, ECOLOGY AND ENVIRONMENT, INC. has duly
caused this Annual Report to be signed on its behalf by the undersigned
hereunto duly authorized:
Dated: October 29, 1999 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 29, 1999
Gerhard J. Neumaier (Chief Executive
Officer)
/s/ Frank B. Silvestro Executive October 29, 1999
Frank B. Silvestro Vice-President
/s/ Gerald A. Strobel Executive October 29, 1999
Gerald A. Strobel Vice-President
/s/ Ronald L. Frank Secretary, October 29, 1999
Ronald L. Frank Treasurer, Executive
Vice-President of
Finance
(Principal Financial
and Accounting Officer)
/s/ Gerard A. Gallagher, Jr. Senior Vice October 29, 1999
Gerard A. Gallagher, Jr. President of
Special Projects
and Director
/s/ Harvey J. Gross Director October 29, 1999
Harvey J. Gross
/s/ Ross M. Cellino Director October 29, 1999
Ross M. Cellino
/s/ Brent D. Baird Director October 29, 1999
Brent D. Baird
Page 50 of 53
Exhibit Index
- -------------
Exhibit 21.5 List of Subsidiaries
Exhibit 23 Consent of Independent Accountants
Page 51 of 53
Exhibit 21.5
SCHEDULE OF SUBSIDIARIES
AS OF JULY 31, 1999
Subsidiaries of Ecology and Environment, Inc. (the "Company")
as of July 31, 1999.
Percentage of
Capital Stock
of Subsidiary
Owned by the
Company
-------------
1. Ecology and Environment Engineering, Inc. 100%
(a Colorado corporation)
2. E & E Drilling and Testing Co., Inc. 100%
(a New York corporation)
3. Ecology and Environment, Limited 100%
(a limited company formed under the
laws of the Republic of Ireland)
4. E & E Budapest Kft. 100%
(a corporation formed under the
laws of Hungary)
5. E & E Umwelt - Beratung GmbH, Leipzig 100%
(a corporation formed under the laws
of Germany)
6. Ecology and Environment de Mexico S.A.de C.V. 100%
(a corporation formed under the laws of Mexico)
7. Ecology and Environment, S.A. 55%
(a corporation formed under the laws
of Venezuela)
8. Ecology and Environment Eurasia 100%
(a corporation formed under the laws of
the Russian Republic)
9. ecology and environment do brasil ltda. 100%
(a corporation formed under the laws of
Brazil)
10. Ecology and Environment of Saudi Arabia 66 2/3%
Company, Ltd.
(a limited liability company formed
under the laws of the Saudi Arabia)
11. Ecology & Environment South America, Inc. 100%
(a corporation formed under the laws
of the Cayman Islands)
Page 52 of 53
12. Ecology & Environment International 100%
Services, Inc.
(a Delaware Corporation)
13. Fruitas Marinas Del Mar S.A. 90%
(a corporation formed under the laws of
Costa Rica)
14. Ecology & Environment de Chile, S.A. 100%
(a corporation formed under the
laws of Chile)
15. Gestion Ambiental Consultores S.A. 50.1%
(a corporation formed under the laws of
Chile)
Page 53 of 53
EXHIBIT 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-41998 and 333-30085) of Ecology and
Environment, Inc. of our report dated October 8, 1999, appearing on page
17 of this Form 10-K. We also consent to the reference to us under the
heading "Experts" in such Registration Statement (33-41998).
PricewaterhouseCoopers LLP
Buffalo, New York
October 27, 1999