Back to GetFilings.com
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
F O R M 10-K
-----------------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended July 31, 2002
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 42
1
As of September 30, 2002, 2,384,353 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, 2002) of the Class A Common Stock held by
nonaffiliates of the registrant was approximately $17,040,287. As of the same
date, 1,685,809 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.
2
TABLE OF CONTENTS
PAGE
PART I
Item 1. BUSINESS 4
General 4
START Contracts 4
Saudi Arabia/Kuwait Contracts 4
Task Order Contracts 5
Environmental Consulting Services 5
Analytical Laboratory Services 7
Aquaculture 7
Segment Reporting 7
Regulatory Background 7
Potential Liability and Insurance 10
Market and Customers 10
Backlog 10
Competition 11
Employees 11
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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 16
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 16
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES 34
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 35
Item 11. EXECUTIVE COMPENSATION 36
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS 38
SECURITY OWNERSHIP OF MANAGEMENT 39
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 41
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS 42
3
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 2000, the United States Environmental Protection Agency ("EPA")
awarded the Company three (3) regional Superfund Technical Assessment and
Response Teams ("START") superfund contracts to provide technical expertise in
support of its hazardous waste spill response, removal and prevention programs
in the eastern and western United States. The Company is required to provide
round the clock assistance to the EPA at spill sites within the eastern and
western United States and, in certain instances, may be required to respond to
an emergency in other areas of the country. The START contracts are a
combination of fixed price and cost plus fixed fee contracts.
The total contract value of the three (3) START contracts, if the EPA
exercises all options within each of them, is approximately $89 million. The
base value of the three (3) START contracts over five years is approximately
$26.0 million. The EPA can exercise any number of options covering additional
years or increased quantities over each of the contracts' five year terms
expiring in December 2005. The Company, as of July 31, 2002, has realized total
net revenues of approximately $17.7 million under these contracts.
These contracts contain termination provisions under which the EPA may,
without penalty, terminate the contract upon written notice to the Company. In
the event of termination, the Company would be paid only termination costs in
accordance with the contract. The Company has never had a contract terminated by
the EPA.
SAUDI ARABIA/KUWAIT CONTRACTS
The Company has provided assistance to the Kingdom of Saudi Arabia and the State
of Kuwait since 1995 in support of environmental damage claims filed by these
countries with the United Nations Compensation Commission (UNCC) resulting from
Iraqi aggression during the 1991 Gulf War. During fiscal year 2002, the Company
through its majority-owned Saudi subsidiary secured a significant expansion of
an existing contract with Saudi Arabia and through a majority-owned domestic
subsidiary entered into three new contracts with Kuwait. The contract for work
with Saudi Arabia provides for the oversight and supervision of the
implementation of monitoring and assessment studies to determine the extent of
damage to marine, coastal and terrestrial resources while the contract for work
with Kuwait provides for conducting terrestrial and coastal monitoring and
assessment studies as well as the establishment and operation of an
environmental laboratory in Kuwait. The contract with Saudi Arabia is a time and
materials contract for approximately $22.8 million of net revenue and covers 30
months. The three fixed price contracts with Kuwait are for a period of five
years and
4
total approximately $29 million of expected net revenues. However, the
laboratory fixed price contract in Kuwait contains a time and materials portion
that could yield an additional $10.0 million of net revenue. The Company, as of
July 31, 2002, has recognized net aggregate revenues of approximately $11.5
million under all these contracts. These contracts contain termination
provisions under which the government contracting for the work may, without
penalty, terminate the contract. In the event of termination, the Company's
subsidiary would be paid only termination costs in accordance with each of the
contracts. The Company has never had a contract terminated by Saudi Arabia or
Kuwait.
Deferred revenue balances at July 31, 2002 represent net advances received under
the Saudi and Kuwait contracts. The Company has received approximately $10.0
million of net advances under these contracts. These advances are amortized
against future progress billings over the respective contract periods.
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 $229.0 million. Work done
under task orders run the full range of services provided by EEI from risk
management plans; to air quality control; to groundwater monitoring; to
hazardous materials (HAZMAT) response plans, to solid waste management; to
strategic information management and database support.
ENVIRONMENTAL CONSULTING SERVICES
The Company's staff includes individuals with advanced degrees representing over
75 scientific and engineering disciplines which relate to the identification,
quantification, analysis, and remediation of hazards to the environment. The
Company has rendered consulting services to commercial and government clients in
a variety of industrial sectors, such as the following:
HAZARDOUS MATERIAL SERVICES:
INTRODUCTION. EEI has conducted hazardous waste site evaluations throughout
the United States. In conducting these site evaluations, the Company provides
site investigation (e.g., geophysical surveys, monitoring well installation, and
sample collection and analysis), engineering design, and operation and
maintenance for a wide range of industrial and governmental clients. In
providing such services, the Company inventories and collects sample materials
on site and then evaluates waste management practices, potential off-site
impacts and liability concerns. EEI then recommends and designs clean up
programs and assists in the implementation and monitoring of those clean up
programs.
FIELD INVESTIGATION. The Company's field investigation services primarily
involve the development of work plans, health and safety plans and quality
assurance and quality control plans to govern field investigations and conduct
such field investigations to define the nature and extent of contaminants at a
site.
ENGINEERING SERVICES. After field investigation services have been completed
and the necessary approvals obtained, the Company's engineering specialists
develop plans and specifications for remedial clean up activities. This work
includes the development of methods and standard operating procedures to assess
contamination problems, and to identify, develop and design appropriate
pollution control schemes. Alternative clean up strategies are evaluated and
conceptual engineering approaches are formulated. The Company also provides
supervision of actual cleanup or remedial construction work performed by other
contractors.
EMERGENCY RESPONSE / HOMELAND PROTECTION:
EEI is one of the foremost environmental consulting groups in the country to
provide science and environmental engineering expertise at some of the more
high-profile disasters and incidents that ranged from large oil spills in U.S.
5
water bodies; to dioxin contamination in the Midwest; to Anthrax threats across
the country; to the Gulf War oil fires in Kuwait; and to the recent terrorist
attacks on the east coast. In addition to emergency response, the Company also
provides critical training to first responders in nuclear, biological, and
chemical/counter terrorism and in HAZMAT identification, response and
remediation; develops standard operating procedures for health and safety at
hazardous sites; assesses sites and potential for danger; and develops
prevention/preparedness/outreach activities.
PIPELINES:
EEI has provided the pipeline industry with full-service environmental support
for more than 20 years. The Company's extensive experience includes route
selection; field support and survey, such as wetland delineation and endangered
species surveys; regulatory compliance and permit support, including preparation
of erosion control plans for submission to state agencies, Section 10 and
Section 404 permits for submission to the United States Army Corps Engineers,
and Federal Energy Regulatory Commission 7(c) filings; and preparation of
environmental monitoring and restoration plans, including development of quality
assurance specifications. EEI also has comprehensive experience in the
investigation and also has comprehensive experience in the investigation and the
investigation and remediation of polychlorinated biphenyls (PCBs) from natural
gas transmission systems. The Company has developed/implemented work plans for
contamination assessment, Phase I and II sampling, and supports clients for
Phase III remediation.
POWER:
With the deregulation of certain sectors of the power industry and the
electrical supply shortage of 2001, there is a rapidly increasing demand for new
power plants. Companies that can quickly permit new power generation capacity
are poised to reap the benefits of the power market's remarkable revitalization,
both domestically and abroad. EEI has specialized in providing comprehensive
environmental services for the power industry since the Company's inception. The
Company is familiar with licensing requirements and processes worldwide and
conducts comprehensive site selection programs which include assessment of
engineering constraints such as the location and availability of fuel and
cooling water as well as grid interconnection and transmission issues; and
assessment of environmental issues such as air quality, water quality,
terrestrial and aquatic vegetation and wildlife, and cultural heritage. For
existing energy facilities, EEI has completed over 100 due diligence audits. The
Company also helps power companies to meet the daily regulatory requirements for
power generation and/or transmission.
TELECOMMUNICATIONS:
EEI has assisted in the completion of more than 30,000 miles of linear projects
on several continents. Company services for the telecommunications industry are
varied and encompass a complete range of tasks in the preconstruction phase.
EEI's extensive experience includes: environmental planning; environmental
impact reports and assessments, including third-party environmental impact
reports (EIRs)/environmental impact assessments(EIAs), NEPA and state equivalent
environmental assessments (EAs) and environmental impact statements (EISs), and
endangered species consultation; public participation programs; permits,
approvals, and plans, including environmental management and construction plans,
right-of-way grants and leases, U.S. Army Corps of Engineers (USACE) and state
stream and wetland crossing; land air quality plans; cultural resource studies;
sampling, analysis, and remediation; and environmental compliance monitoring.
ENVIRONMENTAL ASSESSMENTS:
In response to requirements of the National Environmental Policy Act (NEPA) and
other state environmental laws, EEI has provided environmental evaluation
services to both the government and the private sector for more than 30 years.
As part of the environmental evaluation process, EEI assists clients in
evaluating and developing methods to avoid or mitigate the potential
environmental impacts of a proposed project and to help ensure
6
that the project complies with regulatory requirements. EEI's services include
air and water quality analysis, terrestrial and aquatic biological surveys,
threatened and endangered species surveys and wetland delineations, social
economic studies, transportation analyses and land use planning.
WETLANDS:
EEI has assisted clients with various projects involving wetland delineations,
environmental impact assessments, impact minimizations, and mitigation during
large construction or habitat restoration projects. The Company's experts
continuously study and apply innovative ecosystem management techniques to
expand their understanding of the complex biochemical, physical, and ecological
interactions that exist in wetlands. EEI has experience in using wetlands to
remediate chlorinated hydrocarbon contamination. In 1998, the Company
constructed a full-scale pilot wetland to assess the feasibility and
effectiveness of treating a major chlorinated plume with a treatment wetland.
INTERNATIONAL:
EEI has over 20 years experience in international work. The Company now has
partners in over 30 countries and has completed over 15,000 major environmental
assignments in over 67 countries worldwide. Assignments completed are in fields
such as environmental assessment; management and financial planning;
institutional strengthening and standards development; water supply and
development; wastewater treatment; and solid waste project construction
supervision. The Company also has extensive experience working with
international lending institutions such as the Asian Development Bank and the
World Bank.
ANALYTICAL LABORATORY SERVICES
The Company provides analytical testing services to industrial and government
customers who require accurate measurements to identify and monitor existing
hazardous waste sites. The laboratory analyzes waste, soil, sediment, air tissue
and potable and non-potable water using state of the art computer controlled
instrumentation. The Company also is certified to perform environmental testing
services for branches of the U.S. military and a number of state agencies.
AQUACULTURE
The Company owns an aquaculture shrimp facility in the province of Puntarenas on
the Pacific coast of Costa Rica. The facility includes 400 hectares of land of
which 193 hectares is shrimp aquaculture ponds. The Company plans to leverage
its in-house expertise to take advantage of the demand for cash crops such as
shrimp created as a result of the decline in worldwide fisheries.
In July 2001, the Company purchased the assets of a fish farm located in Jordan.
The farm is located on the banks of the Jordan river 120 kilometers north of
Amman. The assets were purchased for approximately $513,000 by a newly formed
entity, American Arab Aquaculture Company (AMAROCO), of which EEI owns 51%. The
Company anticipates investing additional monies to upgrade the farm's
infrastructure, production methods, and species selection.
SEGMENT REPORTING
The Company has three reportable segments: consulting services, analytical
laboratory services, and aquaculture. Refer to the Company's financial
statements for fiscal year 2002 contained in Item 8 hereof for additional
pertinent information on the Company's segments.
REGULATORY BACKGROUND
The United States Congress and most State Legislatures have enacted a series of
laws to prevent and correct environmental problems. These laws and their
implementing regulations help to create the demand for the multi-
7
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 manufacturing, use
and disposal of chemical substances. The 1986 amendments to TSCA and its
implementing regulations require school systems to inspect their buildings for
asbestos, determine where asbestos containing materials pose hazards to humans
and abate those hazards. Regarding PCBs specifically, amendments to TSCA
regulations dated December 21, 1989 established comprehensive record keeping
requirements for persons engaged in PCB transportation, storage and disposal
activities. Amendments effective August 28, 1998 add regulatory provisions
authorizing certain uses of PCBs; specifying additional alternatives for the
cleanup and disposal of PCBs; establishing procedures for determining PCB
concentration; establishing standards and procedures for decontamination; and
updating several marking, recordkeeping, and reporting requirements. The
Company's principal work under TSCA involves field sampling, site
reconnaissance, development of remedial programs and supervision of construction
activities at sites involving PCB contamination. The Company also conducts
asbestos surveys and investigations.
THE NATIONAL ENVIRONMENTAL POLICY ACT ("NEPA"):
NEPA generally requires that a detailed environmental impact statement ("EIS")
be prepared for every major federal action significantly affecting the quality
of the human environment. With limited exceptions, all federal agencies are
subject to NEPA. Most states have EIS requirements similar to NEPA. The Company
frequently engages in NEPA related projects (or state equivalent) for both
public and private clients.
8
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 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.
9
POTENTIAL LIABILITY AND INSURANCE
The Company's contracts generally require it to maintain certain insurance
coverages and to indemnify its clients for claims, damages or losses for
personal injury or property damage relating to the Company's performance of its
duties unless such injury or damage is the result of the client's negligence or
willful acts. Currently, the Company is able to provide insurance coverage to
meet the requirements of its contracts, however, certain pollution exclusions
apply. Historically, the Company has been able to purchase an errors and
omissions insurance policy that covers its environmental consulting services,
including legal liability for pollution conditions resulting therefrom. The
policy is a claims made policy, with limits of $10.0 million for each claim and
$10.0 million in the aggregate with a $500,000 deductible. The Company's general
liability insurance policy provides coverage in the amount of $3.0 million per
occurrence and $3.0 million in the aggregate; an excess liability policy of
$10.0 million is also maintained with respect to its general liability coverage.
In addition, EEI has a special endorsement to its general liability insurance
policy up to $1.0 million for damages to third parties for bodily injury or
property damage resulting from sudden or accidental releases. Where possible,
the Company requires that its clients cross-indemnify it for asserted claims.
There can be no assurance, however, that any such agreement, together with the
Company's general liability insurance and errors and omissions coverage will be
sufficient to protect the Company against any asserted claim.
MARKET AND CUSTOMERS
The Company's revenues originate from federal, state and local governments,
domestic private clients, and private and governmental international clients.
The Company's worldwide marketing efforts are conducted by its marketing group
located at its headquarters, its regional offices, and its international
subsidiaries. EEI markets its services to existing and potential governmental,
industrial and engineering clients. The Company closely monitors government
contract procurements and responds to requests for proposals requiring services
provided by the Company. The marketing group also monitors government regulation
and other events that may generate new business by requiring governments and
industrial firms to respond to new regulatory actions. The marketing group is
support by EEI's technical staff which is responsible for preparing technical
proposals that are customarily delivered with the Company's bid for a project.
The Company participates in industrial trade shows and professional seminars
relating to its business.
BACKLOG
The Company's firm backlog of uncompleted projects and maximum potential gross
revenues from indefinite task order contracts, at July 31, 2002 and 2001 were as
follows:
(Millions of $)
Fiscal Year Fiscal Year
Ended 7/31/02 Ended 7/31/01
------------- -------------
Total firm backlog $67.1 $42.2
Anticipated completion of firm
backlog in next twelve months 40.6 37.4
Maximum potential gross revenues
from task order contracts 229.0 175.0
The above maximum figures include $64 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
10
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, 2002, the Company, including subsidiaries, had approximately 770
employees. The majority of the employees hold bachelor's degrees and/or advanced
degrees in such areas as chemical, civil, mechanical, sanitary, soil, structural
and transportation engineering, biology, geology, hydrogeology, ecology, urban
and regional planning and oceanography. The Company's ability to remain
competitive will depend largely upon its ability to recruit and retain qualified
personnel. None of the Company's employees is represented by a labor
organization and employee relations are good.
ITEM 2. PROPERTIES
The Company's headquarters (60,000 square feet) is located in Lancaster, New
York, a suburb of Buffalo. The Company's laboratory and warehouse facility in
Lancaster, New York consists of two buildings totaling approximately 35,000
square feet. The Company also leases office and
storage facilities at nineteen (19) regional offices in the United States, 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.
11
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 2002 High Low
- -----------
------- ------
First Quarter
(commencing August 1, 2001 - $11.75 $ 7.50
October 27, 2001)
Second Quarter
(commencing October 28, 2001 - 11.86 8.10
January 26, 2002)
Third Quarter
(commencing January 27, 2002 - 10.95 9.90
April 27, 2002
Fourth Quarter
(commencing April 28, 2002 - 11.80 10.20
July 31, 2002)
FISCAL 2001 High Low
- ----------- ------- ------
First Quarter
(commencing August 1, 2000 - $ 7.375 $ 6.00
October 28, 2000)
Second Quarter
(commencing October 29, 2000 - 6.625 5.75
January 27, 2001)
Third Quarter
(commencing January 28, 2001 - 8.00 6.20
April 28, 2001)
Fourth Quarter
(commencing April 29, 2001 - 9.30 7.70
July 31, 2001)
(b) Approximate Number of Holders of Class A Common Stock. As of September
30, 2002, 2,384,353 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 439. The Company estimates that it has a significantly
greater number of Class A Common Stock shareholders because a substantial number
of the Company's shares are held in street name. As of the same date, there were
1,685,809 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 64.
(c) Dividend. In each of the fiscal years ended July 31, 2001 and 2002 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.
12
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.
Equity Compensation Plan Information as of July 31, 2002:
Number of securities Weighted average Number of
to be issued upon exercise price securities
exercise of of outstanding remaining
outstanding options, options, warrants available for
Plan category warrants and rights and rights future issuance
- --------------------- -------------------- ----------------- ---------------
Equity compensation
plans approved by
security holders:
1986 Incentive
Stock Option Plan 47,414 $10.11 ----
Equity compensation
plans not approved by
security holders:
1998 Stock Award
Plan ---- ---- 22,614
-------------------- ----------------- ---------------
Total 47,414 22,614
Refer to Note 9 to Consolidated Financial Statements set forth in Part IV of
this Annual Report on Form 10-k for more information on the Equity Compensation
Plan not approved by stockholders 1998 Stock Award Plan.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Year ended July 31,
2002 2001 2000 1999 1998
--------- --------- --------- --------- ---------
(In thousands, except per share amounts)
Operating data:
Gross revenues $89,730 $88,197 $85,862 $75,411 $75,088
Net revenues 74,302 73,423 69,890 63,349 61,552
Income from operations 2,369 3,446 1,172 53 287
Income before income
taxes 2,186 3,435 1,571 483 757
Net income 1,409 1,895 779 299 471
Net income per
common share
Basic and Diluted $ .35 $ .46 $ .20 $ .08 $ .12
Cash dividends declared
per common share $ .32 $ .32 $ .32 $ .32 $ .32
Weighted average common
shares outstanding:
Basic 4,069,848 4,103,740 3,968,500 3,957,825 3,949,359
Diluted 4,072,694 4,103,740 3,968,500 3,957,825 3,952,827
13
As of July 31,
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
(In thousands, except per share amounts)
Balance sheet data:
Working capital $30,268 $24,019 $24,714 $27,503 $30,316
Total assets 71,020 57,686 53,449 52,695 53,076
Long-term debt --- 40 58 516 553
Shareholders' equity 41,294 42,338 42,336 42,542 43,500
Book value per share:
basic $ 10.15 $ 10.31 $ 10.67 $ 10.75 $ 11.01
diluted $ 10.14 $ 10.31 $ 10.67 $ 10.75 $ 11.00
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 2002 the Company had a working capital current assets - current
liabilities balance of $30.3 million, a $6.2 million increase from the balance
at July 31, 2001. The increase was a result of a $6.6 million increase in
contracts receivable, which was mainly attributable to the Saudi/Kuwait
contracts entered into by the Company's subsidiaries during fiscal year 2002.
Offsetting the increase in contracts receivable, deferred revenue increased due
to the cash advances received on these new contracts.
The Company maintains an unsecured line of credit of $20.0 million with a bank
at 1/2% below the prevailing prime rate. A second line of credit has been
established at another bank for up to $12.0 million, exclusively for the
issuance of letters of credit. There are no borrowings outstanding under these
lines of credit at July 31, 2002 and none were required during fiscal year 2002.
Also, the Company has outstanding letters of credit (LOC's) at July 31, 2002 in
the amount of $13.8 million. These LOC's were obtained to secure bid bonds,
advance payments, and performance guarantees for the Saudi/Kuwait contracts. 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, 2002.
RESULTS OF OPERATIONS
NET REVENUE
Net revenues for fiscal year 2002 were $74.3 million, up from the $73.4 million
reported in fiscal year 2001. Net revenues for the fourth quarter of fiscal year
2002 were $21.2 million, up 18% from the $18.0 million reported in fiscal year
2001. The increase in net revenues was attributable to the new Saudi/Kuwait
contracts, which were signed during the first and second quarters of fiscal year
2002, respectively. These new contracts reported net revenues for fiscal year
2002 of $11.3 million, of which net revenues of $4.5 million were attributable
to the fourth quarter of fiscal year 2002.
The Company also reported a continuing increase in net revenues from various
state government clients. These state government clients reported net revenues
for the fourth quarter of fiscal year 2002 of $3.9 million, up from the $3.0
million reported in the fourth quarter of the prior year. For fiscal year 2002,
these state government clients reported an increase in net revenues of $4.6
million over the prior year. The fiscal year increases in net revenues were
offset by a decrease of $11.4 million from the U.S. Environmental Protection
14
Agency (USEPA). This decrease is attributable to the completion of five major
contracts with the USEPA during the second quarter of fiscal year 2001.
The Shrimp Farm operation, based in Costa Rica, reported net revenues of
$893,000 for fiscal year 2002, up from the $274,000 reported in the prior year.
Limited harvests were successful during the first three-quarters of fiscal year
2002. The Company's Analytical Services Center (ASC) reported net revenues of
$4.2 million, up slightly from the $4.0 million reported in the prior year.
Net revenues for fiscal year 2001 were $73.4 million, up 5% from the $69.9
million reported in fiscal year 2000. The increase in net revenues was
attributable to increased revenues from commercial customers in the
telecommunications and energy sectors, international clients, state government
clients and the U.S. Department of Defense (DOD). The overall 5% growth in net
revenues was achieved despite the completion of 5 major contracts with the U.S.
Environmental Protection Agency (USEPA), which resulted in an approximate
decrease in net revenues of $16.0 million compared to fiscal year 2000. The
Company was successful in re-acquiring 2 out of the 5 new regional Superfund
Technical Assistance Response Team (START) contracts it had previously held,
while adding one additional new contract. These new regional START contracts
contributed $6.8 million in net revenues in fiscal 2001. Walsh Environmental,
one of the Company's subsidiaries, also had a positive effect on net revenue.
Walsh Environmental added $6.2 million in net revenue during fiscal year 2001.
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST
The Company's income before income taxes and minority interest for fiscal year
2002 was $2.5 million, down 34% from the $3.8 million reported in fiscal year
2001. For the fourth quarter of fiscal year 2002, income before income taxes and
minority interest was $512,000, down 50% from the $1,031,000 reported in the
prior year. The decrease in income before income taxes and minority interest was
mainly attributable to the Company's shrimp farm operation, based in Costa Rica,
and the Company's Analytical Services Center. The shrimp farm operation reported
a loss before taxes of $2.6 million for fiscal year 2002, an increased loss of
$1.6 million from the prior fiscal year. For the fourth quarter of fiscal year
2002, the farm reported a loss before taxes of $1.1 million, an increased loss
of $893,000 from the fourth quarter of fiscal year 2001. The farm was nearing
full production when it was once again infested with the white spot syndrome
virus during the fourth quarter of fiscal year 2002. The farm was forced to
write off over $800,000 in inventory that was infected with the virus.
Management has researched the problem and is formulating a plan to rectify the
situation, including reducing production in order to minimize any further
losses. The Company, excluding the shrimp farm operations, reported income
before minority interest and taxes for the fourth quarter of fiscal year 2002 of
$1.6 million and for fiscal year 2002 of $5.1 million.
The Analytical Services Center continued to incur losses despite a 5% increase
in net revenue. The ASC reported an operating loss of $962,000 for fiscal year
2002, an increased loss of 32% from the $728,000 reported in the prior fiscal
year. Additional costs were incurred as a result of increased capital
expenditures and cost increases for material.
The Company's income before income taxes and minority interest for fiscal year
2001 was $3.8 million, up 142% from the $1.6 million reported for fiscal year
2000. Income before income taxes and minority interest was positively impacted
by the company-wide cost reduction measures which increased both margins and
efficiencies, an increased staff utilization throughout the entire company and
an increase in higher margin work from both the Commercial and International
markets. The completion of the START contracts resulted in a $7.9 million
decrease in the related cost of professional services and other direct operating
expenses during the fiscal year. Administrative and indirect operating expenses
increased due to the transition of the staff retained and transferred onto other
corporate projects and the subsequent closing or downsizing of several project
offices. The Company's Analytical Services Center (ASC) experienced an
15
operating loss of $728,000, mainly attributable to a 10% decrease in fiscal year
2001 net revenues. Walsh Environmental also had a positive impact on net income.
For fiscal year 2001, their income before income taxes and minority interest was
$780,000 compared to $67,000 for fiscal year 2000. The Company continued to
achieve significantly improved results for fiscal year 2001 despite an operating
loss of approximately $1.0 million from its Costa Rica based shrimp farm
operation.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
141, "Business Combinations" ("SFAS 141") and Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141
requires all business combinations to be accounted for using the purchase method
of accounting and is effective for all business combinations initiated after
June 30, 2001. SFAS 142 requires goodwill to be tested for impairment under
certain circumstances, and written off when impaired, rather than being
amortized as previous standards required. SFAS 142 is effective for fiscal years
beginning after December 15, 2001. Early application is permitted for entities
with fiscal years beginning after March 15, 2001 provided that the first interim
period financial statements have not been previously issued. The adoption of
SFAS 141 and SFAS 142 did not have a material effect on our operating results or
financial condition.
INCOME TAXES
The effective income tax rate for fiscal year 2002 was 36% compared to 45% for
fiscal year 2001. The decrease in the effective rate was primarily attributable
to state taxes, nondeductible expenses and tax-exempt income as a percentage of
income.
INFLATION
Inflation has not had a material impact on the Company's business because a
significant amount of the Company's contracts are either cost based or contain
commercial rates for services that are adjusted annually.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company may have exposure to market risk for change in interest rates,
primarily related to its investments. The Company does not have any derivative
financial instruments included in its investments. The Company invests only in
instruments that meet high credit quality standards. The Company is averse to
principal loss and ensures the safety and preservation of its invested funds by
limiting default risk, market risk and reinvestment risk. As of July 31, 2002,
the Company's investments consisted of short-term commercial paper and mutual
funds. The Company does not expect any material loss with respect to its
investments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
Ecology and Environment, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under item 14(a)1 on page 42 present fairly, in all material respects,
the financial position of Ecology and Environment, Inc. and its subsidiaries at
July 31, 2002 and 2001, and the results of their operations and cash flows for
each of the three years in the period ended July 31, 2002 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the index
appearing under 14(a)2 on page 42 presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These
16
financial statements and financial statement schedule are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States of America, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
PricewaterhouseCoopers LLP
Buffalo, New York
October 4, 2002
17
Ecology and Environment, Inc
Consolidated Balance Sheet
Assets July 31, 2002 July 31, 2001
------------- -------------
Current assets:
Cash and cash equivalents $ 8,229,034 $ 7,831,972
Investment securities available for sale 3,904,799 3,705,115
Contract receivables, net 29,268,949 22,686,467
Deferred income taxes 2,325,370 2,178,782
Income taxes receivable 312,977 540,952
Other current assets 5,144,428 1,514,960
------------ ------------
Total current assets 49,185,557 38,458,248
Property, building and equipment, net 16,961,544 17,011,479
Deferred income taxes 237,495 515,815
Other assets 4,635,298 1,700,475
------------ ------------
Total assets $ 71,019,894 $ 57,686,017
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 5,923,996 $ 5,035,475
Accrued payroll costs 4,359,302 4,040,299
Income taxes payable 266,411 1,187,309
Deferred revenue 3,822,069 --
Other accrued liabilities 4,545,708 4,175,529
------------ ------------
Total current liabilities 18,917,486 14,438,612
Deferred revenue 9,088,740 --
Long-term debt -- 39,516
Minority interest 1,719,428 869,499
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 - 2,468,571 and 2,414,009 shares 24,686 24,140
Class B common stock, par value $.01 per
share; authorized - 10,000,000 shares;
issued - 1,712,068 and 1,756,280 shares 17,121 17,563
Capital in excess of par value 17,372,444 17,274,654
Retained earnings 26,570,576 26,477,138
Accumulated other comprehensive income (1,661,265) (647,719)
Unearned compensation, net of tax (222,921) (181,963)
Treasury stock - Class A common, 82,717
and 75,444 shares; Class B common,
26,259 and 26,259 shares, at cost (806,401) (625,423)
------------ ------------
Total shareholders' equity 41,294,240 42,338,390
------------ ------------
Total liabilities and shareholders' equity $ 71,019,894 $ 57,686,017
============ ============
The accompanying notes are an integral part of these financial statements.
18
Ecology and Environment, Inc.
Consolidated Statement of Income
Year ended July 31,
--------------------------------------------------
2002 2001 2000
------------ ------------ ------------
Gross revenues $ 89,730,399 $ 88,197,264 $ 85,861,656
Less: direct subcontract costs 15,428,749 14,774,722 15,971,774
------------ ------------ ------------
Net revenues 74,301,650 73,422,542 69,889,882
Operating costs and expenses:
Cost of professional services and
other direct operating expenses 40,503,747 38,521,559 41,419,636
Administrative and indirect
operating expenses 21,720,495 22,611,753 17,605,421
Marketing and related costs 8,285,480 7,585,931 8,306,848
Depreciation 1,422,982 1,257,008 1,386,418
------------ ------------ ------------
Total operating costs & expenses 71,932,704 69,976,251 68,718,323
------------ ------------ ------------
Income from operations 2,368,946 3,446,291 1,171,559
Interest expense (24,706) (40,004) (69,610)
Interest income 309,009 528,566 490,472
Other expense (148,697) (103,317) (8,873)
------------ ------------ ------------
Income before income taxes and
minority interest 2,504,552 3,831,536 1,583,548
Total income tax provision 776,710 1,539,871 791,866
------------ ------------ ------------
Net income before minority interest 1,727,842 2,291,665 791,682
Minority interest (318,989) (396,374) (12,666)
------------ ------------ ------------
Net income $ 1,408,853 $ 1,895,291 $ 779,016
============ ============ ============
Net income per common share:
Basic and diluted $ 0.35 $ 0.46 $ 0.20
============ ============ ============
Weighted average common shares
outstanding: Basic 4,069,848 4,103,740 3,968,500
============ ============ ============
Weighted average common shares
outstanding: Diluted 4,072,694 4,103,740 3,968,500
============ ============ ============
The accompanying notes are an integral part of these financial statements.
19
Ecology and Environment, Inc
Consolidated Statement of Changes in Shareholders' Equity
----------------------------------------------------------------------------
COMMON STOCK
-------------------------------------------------------
CLASS A CLASS B CAPITAL IN
--------------------------- ---------------------------- EXCESS OF
SHARES AMOUNT SHARES AMOUNT PAR VALUE
------------ ------------ ------------ ------------ ------------
Balance at July 31, 1999 2,375,302 $ 23,753 1,794,987 $ 17,946 $ 17,591,436
Net income -- $ -- -- $ -- $ 779,016
Foreign currency translation reserve -- -- -- -- --
Cash dividends paid ($.32 per share) -- -- -- -- --
Unrealized investment loss, net -- -- -- -- --
Conversion of common stock - B to A 17,407 174 (17,407) (174) --
Repurchase of Class A common stock -- -- -- -- --
Purchase of Walsh Environmental -- -- -- -- (125,000)
------------ ------------ ------------ ------------ ------------
Balance at July 31, 2000 2,392,709 $ 23,927 1,777,580 $ 17,772 $ 17,466,436
============ ============ ============ ============ ============
Net income -- $ -- -- $ -- $ --
Foreign currency translation reserve -- -- -- -- --
Cash dividends paid ($.32 per share) -- -- -- -- --
Unrealized investment gain, net -- -- -- -- --
GAC Dividends -- -- -- -- --
Conversion of common stock - B to A 21,300 213 (21,300) (209) --
Repurchase of Class A common stock -- -- -- -- --
Issuance of stock under stock award plan, net -- -- -- -- (212,613)
Amortization -- -- -- -- --
Forfeitures -- -- -- -- 20,831
------------ ------------ ------------ ------------ ------------
Balance at July 31, 2001 2,414,009 $ 24,140 1,756,280 $ 17,563 $ 17,274,654
============ ============ ============ ============ ============
Net income -- $ -- -- $ -- $ --
Foreign currency translation reserve -- -- -- -- --
Cash dividends paid ($.32 per share) -- -- -- -- --
Unrealized investment gain, net -- -- -- -- --
Conversion of common stock - B to A 44,212 442 (44,212) (442) --
Repurchase of Class A common stock -- -- -- -- --
Stock options 10,350 104 -- -- 75,634
Issuance of stock under stock award plan, net -- -- -- -- --
Amortization -- -- -- -- --
Forfeitures -- -- -- -- 22,156
------------ ------------ ------------ ------------ ------------
Balance at July 31, 2002 2,468,571 $ 24,686 1,712,068 $ 17,121 $ 17,372,444
============ ============ ============ ============ ============
----------------------------------------------------------------------------
ACCUMULATED OTHER TREASURY STOCK
RETAINED COMPREHENSIVE UNEARNED -------------------------------
EARNINGS INCOME COMPENSATION SHARES AMOUNT
----------- ------------ ------------ ------------ ------------
Balance at July 31, 1999 $ 26,412,508 $ -- $ -- 203,319 $ (1,504,079)
Net income $ 779,016 $ -- -- $ --
Foreign currency translation reserve -- (151,666) -- -- --
Cash dividends paid ($.32 per share) (1,276,958) -- -- -- --
Unrealized investment loss, net -- (8,026) -- -- --
Conversion of common stock - B to A -- -- -- -- --
Repurchase of Class A common stock -- -- -- 2,350 --
Purchase of Walsh Environmental -- -- -- (50,000) $ 425,000
------------ ------------ ------------ ------------ ------------
Balance at July 31, 2000 $ 25,914,566 $ (159,692) $ -- 155,669 $ (1,079,079)
============ ============ ============ ============ ============
Net income $ 1,895,291 $ -- $ -- -- $ --
Foreign currency translation reserve -- (559,806) -- -- --
Cash dividends paid ($.32 per share) (1,312,759) -- -- -- --
Unrealized investment gain, net -- 71,779 -- -- --
GAC Dividends (19,960) -- -- -- --
Conversion of common stock - B to A -- -- -- -- --
Repurchase of Class A common stock -- -- -- 28,366 (216,391)
Issuance of stock under stock award plan, net -- -- (408,783) (82,332) 746,941
Amortization -- -- 190,000 -- --
Forfeitures -- -- 36,820 -- (76,894)
------------ ------------ ------------ ------------ ------------
Balance at July 31, 2001 $ 26,477,138 $ (647,719) $ (181,963) 101,703 $ (625,423)
============ ============ ============ ============ ============
Net income $ 1,408,853 $ -- $ -- -- $ --
Foreign currency translation reserve -- (1,043,365) -- -- --
Cash dividends paid ($.32 per share) (1,315,415) -- -- -- --
Unrealized investment gain, net -- 29,819 -- -- --
Conversion of common stock - B to A -- -- -- -- --
Repurchase of Class A common stock -- -- -- 57,515 (425,739)
Stock options -- -- -- -- --
Issuance of stock under stock award plan, net -- -- (324,456) (50,242) 308,988
Amortization -- -- 261,468 -- --
Forfeitures -- -- 22,030 -- (64,227)
------------ ------------ ------------ ------------ ------------
Balance at July 31, 2002 $ 26,570,576 $ (1,661,265) $ (222,921) 108,976 $ (806,401)
============ ============ ============ ============ ============
20
Ecology and Environment, Inc
Consolidated Statement of Cash Flows
Year Ended July 31,
--------------------------------------------------
2002 2001 2000
------------ ------------ ------------
Cash flows from operating activities:
Net income $ 1,408,853 $ 1,895,291 $ 779,016
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 1,422,982 1,257,008 1,386,418
Amortization 233,075 246,507 --
Gain on disposition of property and equipment 1,250 22,039 17,702
Minority interest 849,929 396,374 (198,985)
Net foreign exchange loss -- -- 5,528
Provision for contract adjustments 1,169,005 1,407,202 986,863
(Increase) decrease in:
- contracts receivable, net (7,751,487) 84,522 (1,636,011)
- other current assets (3,629,468) (329,874) (599,887)
- income taxes receivable 227,975 (514,871) 545,013
- deferred income taxes 111,853 (657,429) (201,345)
- other non-current assets (2,712,282) 562,611 1,547,471
Increase (decrease) in:
- accounts payable 888,521 661,435 739,926
- accrued payroll costs 319,003 470,273 1,329,122
- income taxes payable (920,898) 1,187,309 --
- deferred revenue 12,910,809 -- --
- other accrued liabilities 370,179 844,742 (452,557)
------------ ------------ ------------
Net cash provided by operating activities 4,899,299 7,533,139 4,248,274
------------ ------------ ------------
Cash flows used in investing activities:
Acquisitions (222,541) (245,925) (1,387,240)
Purchase of property, building and equip, net (1,167,609) (2,414,081) (2,713,199)
Proceeds from sale of assets (213,700) 96,450 7,048
Payment for the purchase of bond (149,987) (149,276) (156,620)
Proceeds from maturity of notes -- -- 500,658
Proceeds from sale of investment securities -- -- 1,675,000
------------ ------------ ------------
Net cash used in investing activities (1,753,837) (2,712,832) (2,074,353)
------------ ------------ ------------
Cash flows used in financing activities:
Dividends paid (1,315,415) (1,352,758) (1,276,958)
Repayment of long-term debt (39,516) (18,701) (457,408)
Net proceeds from issuance of common stock 75,634 161,550 --
Purchase of Treasury Stock (425,739) (216,391) --
Foreign currency translation reserve (1,043,364) (559,806) (151,666)
Capital Contribution -- -- (500,000)
------------ ------------ ------------
Net cash used in financing activities (2,748,400) (1,986,106) (2,386,032)
------------ ------------ ------------
Net increase in cash and cash equivalents 397,062 2,834,201 (212,111)
Cash and cash equivalents at beginning of period 7,831,972 4,997,771 5,209,882
------------ ------------ ------------
Cash and cash equivalents at end of period $ 8,229,034 $ 7,831,972 $ 4,997,771
============ ============ ============
The accompanying notes are an integral part of these financial statements.
21
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, 2002, 2001 and 2000, the percentage of
total net revenues derived from contracts exclusively with the United States
Environmental Protection Agency (EPA) were 16%, 32% and 50%, 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 17%, 18%, and 15% for fiscal years ended July 31, 2002,
2001 and 2000, respectively. The contract in Saudi Arabia provided 11% of
net revenues for the Company in fiscal year 2002.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
a. CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned and majority owned subsidiaries. Also reflected in the
financial statements are the 50% ownership in two Chinese operating joint
ventures, Beijing Yi Yi Ecology and Engineering Co. Ltd. and the Tianjin
Green Engineering Company. These joint ventures are accounted for under the
equity method. All significant intercompany transactions and balances have
been eliminated. Certain amounts in the prior years' consolidated financial
statements and notes have been reclassified to conform with the current year
presentation.
b. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
c. REVENUE RECOGNITION
Substantial amounts of the Company's revenues are derived from cost-plus-fee
contracts using the percentage of completion method based on costs incurred
plus the fee earned. The fees under certain government contracts are
determined in accordance with performance incentive provisions. Such awards
are recognized at the time the amounts can be reasonably determined.
Provisions for estimated contract adjustments relating to cost based
contracts
22
have been deducted from gross revenues in the accompanying consolidated
statement of income. These provisions are estimated and accrued
annually based on government sales volume. Such adjustments typically
arise as a result of interpretations of cost allowability under cost
based contracts.
Revenues related to long-term government contracts are subject to audit by
an agency of the United States government. Government audits have been
completed through fiscal year 1994 and are currently in process for fiscal
years 1995 through 2000. However, final rates have not been negotiated under
these audits since 1989. The majority of the balance in the allowance for
contract adjustments accounts represent a reserve against possible
adjustments for fiscal years 1990 through 2002.
Deferred revenue balances at July 31, 2002 represent net advances received
under the Saudi and Kuwait contracts. The Company has received approximately
$10.0 million of net advances under these contracts. Those advances are
amortized against future progress billings over the respective contract
periods.
The Company adopted Staff Accounting Bulletin No. 101, "Revenue Recognition
in Financial Statements" ("SAB101") in the fourth quarter of fiscal year
2001. The adoption of SAB101 did not have a material impact on the Company's
operating results or financial position.
d. INVESTMENT SECURITIES
Investment securities have been classified as available for sale and are
stated at estimated fair value. Unrealized gains or losses related to
investment securities available for sale are reflected in accumulated other
comprehensive income, net of applicable income taxes in the consolidated
balance sheet and statement of changes in shareholders' equity. Realized
gains and losses on the sale of investment securities are determined using
the specific identification method.
e. PROPERTY, BUILDING AND EQUIPMENT, DEPRECIATION AND AMORTIZATION
Property, building and equipment are stated at cost. Office furniture and
all equipment are depreciated on the straight-line method for book purposes,
excluding computer equipment which is depreciated on the accelerated method
for book purposes, and on accelerated methods for tax purposes over the
estimated useful lives of the assets (three to seven years). The
headquarters building is depreciated on the straight line method for both
book and tax purposes over an estimated useful life of 32 years. Its
components are depreciated over their estimated useful lives ranging from 7
to 15 years. The analytical services center building and warehouse is
depreciated on the straight line method over an estimated useful life of 40
years for both book and tax purposes. Leasehold improvements are amortized
for book purposes over the terms of the leases or the estimated useful lives
of the assets, whichever is shorter, and over approximately 30 years for tax
purposes. Expenditures for maintenance and repairs are charged to expense as
incurred. Expenditures for improvements are capitalized. When property or
equipment is retired or sold, any gain or loss on the transaction is
reflected in the current year's earnings.
f. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, contracts receivable and
accounts payable at July 31, 2002 approximate fair value because of the
short maturity of those instruments. The amortized cost and estimated fair
value of investment securities available for sale are fully described in
Note 4. Long-term debt consists of third party borrowings by the Company.
Based on the
23
Company's assessment of the current financial market and corresponding
risks associated with the debt, management believes that the carrying
amount of long-term debt at July 31, 2001 approximates fair value.
g. TRANSLATION OF FOREIGN CURRENCIES
The financial statements of foreign subsidiaries where the local currency is
the functional currency are translated into U.S. dollars using exchange
rates in effect at period end for assets and liabilities and average
exchange rates during each reporting period for results of operations.
Translation adjustments are deferred in accumulated other comprehensive
income.
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. There were no
highly inflationary economy translation adjustments for fiscal years 2002
and 2001. The translation adjustment for fiscal year 2000 was $5,528 and is
included in other expense.
h. INCOME TAXES
The Company follows the asset and liability approach to account for income
taxes. This approach requires the recognition of deferred tax liabilities
and assets for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets and liabilities.
Although realization is not assured, management believes it is more likely
than not that the recorded net deferred tax assets will be realized. Since
in some cases management has utilized estimates, the amount of the net
deferred tax asset considered realizable could be reduced in the near term.
No provision has been made for United States income taxes applicable to
undistributed earnings of foreign subsidiaries as it is the intention of the
Company to indefinitely reinvest those earnings in the operations of those
entities.
i. PENSION COSTS
The Company has a non-contributory defined contribution plan providing
deferred benefits for substantially all of the Company's employees. The
Company also has a supplemental defined contribution plan to provide
deferred benefits for senior executives of the Company. The annual expense
of the Company's supplemental defined contribution plan is based on a
percentage of eligible wages as authorized by the Company's Board of
Directors. Benefits under this plan are funded as accrued.
The Company does not offer any benefits that would result in a
liability under either SFAS No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions" or SFAS No. 112
"Employers' Accounting for Post Employment Benefits."
j. STOCK BASED COMPENSATION
The Company has elected to continue measuring compensation costs for
employee stock based compensation arrangements using the method prescribed
by APB Opinion No. 25, "Accounting for Stock Issued to Employees" as
permitted by SFAS No. 123 "Accounting for Stock Based Compensation." In
accordance with APB Opinion No. 25, compensation expense is not recognized
for stock option awards to employees under the Company's stock option plan
since the exercise price of options granted is equal to or greater than the
market price of the underlying stock at the date of grant.
24
k. EARNINGS PER SHARE
Basic EPS is computed by dividing income available to common shareholders by
the weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that would occur if securities
or other contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then shared in
the earnings of the Company.
l. COMPREHENSIVE INCOME
In 1999, the Company adopted FASB Statement No. 130 ("SFAS No. 130"),
"Reporting Comprehensive Income." Comprehensive income is defined as "the
change in equity of a business enterprise during a period from transactions
and other events and circumstances from non-owner sources." Under this
statement, the term "comprehensive income" is used to describe the total net
earnings plus other comprehensive income. For the Company, other
comprehensive income includes currency translation adjustments on foreign
subsidiaries and unrealized gains or losses on available-for-sale
securities.
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.
n. IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews the carrying value of its long-lived assets, whenever
events or changes in circumstances indicate that the historical carrying
value of an asset may no longer be appropriate. The Company assesses
recoverability of the carrying value of the asset by estimating the future
net cash flows expected to result from the asset, including eventual
disposition. If the future net cash flows are less than the carrying value
of the asset, an impairment loss is recorded equal to the difference between
the asset's carrying value and fair value. There were no impairment charges
recognized in 2002, 2001 or 2000.
o. INVENTORIES
Inventories consist of shrimp, feed, and chemicals and are stated at the
lower of cost or market and are included in other current assets in the
amount of $1,098,967 at July 31, 2002. Of this amount $145,023, $498,313 and
$455,631 is classified as raw materials, WIP, and finished goods,
respectively.
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, 2002 and 2001,
short-term investments consist of commercial paper and money market funds
and are carried at cost. Short-term investments amounted to approximately
$4,187,000 and $5,645,000 at July 31, 2002 and 2001, respectively, and are
reflected in cash and cash equivalents in the accompanying consolidated
balance sheet and statement of cash flows.
25
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
$19,655, $12,623 and $28,220 in fiscal years 2002, 2001 and 2000,
respectively. Cash paid for income taxes amounted to $1,593,592, $894,791
and $615,819 in fiscal years 2002, 2001 and 2000, respectively.
4. INVESTMENT SECURITIES
The amortized cost and estimated fair values of investment securities were
as follows:
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
---------- ---------- ---------- ----------
July 31, 2002
-------------
Investment securities
available for sale:
Mutual funds $3,756,248 $ 123,755 $ --- $3,880,003
Municipal notes and bonds 24,796 --- --- 24,796
---------- ---------- ---------- ----------
$3,781,044 $ 123,755 $ --- $3,904,799
========== ========== ========== ==========
July 31, 2001
-------------
Investment securities
available for sale:
Mutual funds $3,606,307 $ 74,058 $ --- $3,680,365
Municipal notes and bonds 24,750 --- --- 24,750
---------- ---------- ---------- ----------
$3,631,057 $ 74,058 $ --- $3,705,115
========== ========== ========== ==========
The amortized cost and estimated fair value of debt securities available for
sale by contractual maturity as of July 31, 2002 were as follows:
Estimated Amortized
fair value cost
---------- ----------
Due in one year or less $ --- $ ---
Due after one year through five years 24,796 24,796
Due after five years through ten years --- ---
Due after ten years --- ---
---------- ----------
$ 24,796 $ 24,796
Mutual funds available for sale 3,880,003 3,756,248
---------- ----------
$3,904,799 $3,781,044
========== ==========
There were no sales of investment securities recorded in fiscal years 2002 and
2001. In fiscal year 2000, proceeds from sales of investment securities amounted
to $1,675,000. The unrealized investment securities gain and unrealized
investment securities loss, net of applicable income taxes, at July 31, 2002 and
2001 of $74,254 and $44,436, respectively, are reflected in accumulated other
comprehensive income in the consolidated balance sheet.
26
5. CONTRACT RECEIVABLES, NET
July 31,
--------
2002 2001
------------ ------------
United States government -
Billed $ 4,271,382 $ 5,011,673
Unbilled 1,119,391 1,187,218
------------ ------------
5,390,773 6,198,891
------------ ------------
Industrial customers and state
and municipal governments -
Billed 19,748,261 13,991,415
Unbilled 6,635,038 4,732,568
------------ ------------
26,383,299 18,723,983
------------ ------------
Less allowance for contract
adjustments (2,505,123) (2,236,407)
------------ ------------
$29,268,949 $22,686,467
============ ============
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 $36,000 at July 31, 2002 and $325,000 at July 31, 2001.
Management anticipates that the July 31, 2002 unbilled receivables will be
substantially billed and collected in fiscal year 2003. Within the above
billed balances are contractual retainages in the amount of approximately
$684,213 at July 31, 2002 and $773,000 at July 31, 2001. Management
anticipates that the July 31, 2002 retainage balance will be substantially
collected in fiscal year 2003. Included in other accrued liabilities is an
additional allowance for contract adjustments relating to potential cost
disallowances on amounts billed and collected in current and prior years'
projects of approximately $2,332,356 at July 31, 2002 and $2,254,000 at July
31, 2001. 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,
--------
2002 2001
------------ ------------
Land $ 1,005,202 $ 1,036,642
Land improvements 2,888,938 3,759,391
Buildings 14,033,769 13,613,056
Laboratory and other equipment 4,976,323 3,583,633
Data processing equipment 3,788,022 3,582,707
Office furniture and equipment 2,067,363 1,950,134
Leasehold improvements and other 897,067 806,586
------------ ------------
$29,656,684 $28,332,149
Less accumulated depreciation
and amortization (12,695,140) (11,320,670)
------------ ------------
$16,961,544 $17,011,479
============ ============
27
7. LINE OF CREDIT
The Company maintains an unsecured line of credit available for working
capital and letters of credit of $20 million with a bank at 1/2% below the
prevailing prime rate. A second line of credit has been established at
another bank for up to $12 million exclusively for letters of credit. At
July 31, 2002 and 2001 respectively, the Company had letters of credit
outstanding totaling $13,823,000 and $91,000, respectively.
8. INCOME TAXES
Earnings, net of minority interests, before provision for income taxes
consisted of:
2002 2001 2000
---------- ---------- -----------
U.S. $2,156,028 $2,969,915 $1,626,350
Foreign 29,535 465,247 (53,238)
---------- ---------- -----------
$2,185,563 $3,435,162 $1,573,112
========== ========== ===========
The income tax provision (benefit) consists of the following:
Fiscal Year
-----------
2002 2001 2000
---------- ----------- -----------
Current
Federal $ 601,154 $1,530,005 $ 596,173
State 105,129 250,000 338,491
Foreign 76,411 194,072 58,547
---------- ----------- -----------
$ 782,694 $1,974,077 $ 993,211
---------- ----------- -----------
Deferred
Federal $ (12,926) $ (439,651) $ (138,558)
State 6,942 5,445 (62,787)
---------- ----------- -----------
$ (5,984) $ (434,206) $ (201,345)
---------- ----------- -----------
Total $ 776,710 $1,539,871 $ 791,866
========== =========== ===========
The provision for income taxes differs from the federal statutory rate due
to the following:
Fiscal year
-----------
2002 2001 2000
------ ------ ------
Federal tax 34.0% 34.0% 34.0%
State taxes, net of federal benefit 3.0 4.9 11.6
Nondeductible expenses (0.8) 0.8 4.0
Tax exempt interest (2.3) (1.5) (4.0)
Foreign operations 3.0 1.0 4.9
Adjustment to prior year taxes --- 5.2 ---
Other (1.4) 0.4 ---
------ ------ ------
Total provision 35.5% 44.8% 50.5%
====== ====== ======
28
Deferred tax assets (liabilities) were comprised of the following:
July 31,
--------
2002 2001
----------- -----------
Allowance for contract adjustments $1,959,330 $1,818,767
Accrued vacation and compensatory time 393,458 435,155
Property, building and equipment --- 127,726
Unearned stock compensation 395,003 299,302
Other 219,202 185,022
----------- -----------
Gross deferred tax assets $2,966,993 $2,865,972
State income taxes (148,109) (149,403)
Other (256,019) (21,972)
----------- -----------
Gross deferred tax liabilities (404,128) (171,375)
----------- -----------
Net deferred tax asset $2,562,865 $2,694,597
=========== ===========
The Company has not recorded income taxes applicable to undistributed
earnings of foreign subsidiaries that are indefinitely reinvested in foreign
operations. At July 31, 2002, these amounts, net of applicable foreign tax
credits, were not material.
9. 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, were 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.
There were 10,350 options exercised in fiscal year 2002. No options were
exercised in fiscal years 2001 and 2000. Cancelled options during the three
year period ended July 31, 2002 amounted to 6,140, 3,645, and 11,407,
respectively, at a weighted average exercise price of $10.05,
29
$11.00, and $11.58, respectively. No options expired during fiscal year
2002. Expired options for fiscal years 2001 and 2000 were 16,112 and
15,638, respectively, at a weighted average exercise price of $16.08,
and $12.73 per share, respectively.
Options outstanding at the end of the three year period ended July 31, 2002
were 47,414, 61,954, and 80,276, respectively, at a weighted average
exercise price of $10.11, $9.63, and $10.92, respectively. Of the options
outstanding for the three year period ended July 31, 2002, 47,414, 61,954,
and 53,911, respectively, are currently exercisable at a weighted average
exercise price of $10.11, $9.63, and $12.82, respectively. At July 31, 2002,
24,000 options have an exercise price between $7.25 and $10.48, with a
weighted average exercise price and weighted average contracted life of
$7.90 and 3.05 years, respectively. At July 31, 2002, 23,414 options have an
exercise price of $12.38 a contractual life of .98 years, respectively.
The Company estimates that if it 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 2002,
2001 and 2000 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 plan requires a three year
vesting period. The 1998 plan agreement provides that the stock cannot be
sold, assigned, or transferred before a three year vesting period is
completed and that the shares are forfeited if an individual's employment is
terminated before the vesting period is completed. Accordingly, the Company
is amortizing the expense associated with the issuance of the shares ratably
over three years.
The Company issued 50,242 shares at an average fair value of $6.15 per share
during the second quarter of fiscal year 2002. In the first quarter of
fiscal year 2001, the Company issued 92,339 shares at an average fair value
of $6.19 per share. In fiscal year 2000 no shares were issued. Unearned
compensation is recorded at the time of issuance and is being amortized over
the vesting period.
10. 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, 2002, future minimum rental commitments, net of estimated
amounts allocable to government contracts with rental cost reimbursement
clauses, were as follows:
Fiscal year Gross Reimbursable Net
----------- --------- ------------ ---------
2003 1,865,690 532,683 1,333,007
2004 1,736,969 525,083 1,211,886
2005 1,551,734 524,171 1,027,563
2006 1,165,956 391,692 774,264
2007 106,621 --- 106,621
30
Gross rental expense under the above lease commitments for 2002, 2001, and
2000 was $2,459,049, $2,959,728, and 2,330,734, respectively.
11. 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 2002, 2001, and 2000
was $1,310,417, $1,214,636, and $1,486,568, respectively.
12. EARNINGS PER SHARE
The computation of basic earnings per share reconciled to diluted earnings
per share follows:
Fiscal year
-----------
2002 2001 2000
---------- ---------- ----------
Income available
to common stockholders $1,408,853 $1,895,291 $ 779,016
Weighted-average common
shares outstanding (basic) 4,069,848 4,103,740 3,968,500
Basic earnings
per share $.35 $.46 $.20
Incremental shares from
assumed conversions of
stock options 2,846 --- ---
Adjusted weighted-average
common shares outstanding 4,072,694 4,103,740 3,968,500
Diluted earnings
per share $.35 $.46 $.20
At July 31, 2002 and July 31, 2001, there were 47,414 stock options
outstanding with an exercise price ranging from $7.25 to $12.38 which were
not included in the above calculations due to their antidilutive nature.
13. CONTINGENCIES
Certain contracts with the EPA contain termination provisions under which
the EPA may, without penalty, terminate the contracts upon written notice to
the Company. In the event of termination, the Company would be paid only
termination costs in accordance with the particular contract.
The Company is involved in litigation arising in the normal course of
business. In the opinion of management, any adverse outcome to this
litigation would not have a material impact on the financial results of the
Company.
14. ACQUISITIONS
In September 1999 the Company, through its Chilean subsidiary, acquired a
50.1% stake in Gestion Ambiental Consultores, (GAC), a Chilean environmental
consulting firm for a cash payment of $400,000. GAC has expertise in mining,
steel manufacturing and energy resources. In February 2000, the Company
purchased the remaining 10% interest in its shrimp aquaculture facility for
a purchase price of $263,000.
In June 2000, the Company purchased a 60% share of the assets of Walsh
Environmental Scientists and Engineers LLC, Walsh of Boulder, Colorado for a
purchase price of $700,000 cash and $300,000 in Class A common stock. An
additional $500,000 in cash was contributed by the
31
Company for working capital. The working capital contribution was used to
pay down short and long term debt and will provide capital for future
growth. Walsh of Boulder provides environmental services to clients in the
Rocky Mountain region as well as Ecuador and Peru, through its subsidiaries
in those countries.
On July 26, 2001, the Company purchased an interest in a fish farm located
in Jordan. The assets were purchased for approximately $513,000 by a newly
formed entity, AMARACO, of which EEI owns 51%. The farm is located on the
banks of the Jordan river, 120 kilometers north of Amman. The farm was not
operating at the time of the asset purchase. The Company anticipates
additional investments will be required to upgrade the farm's
infrastructure, production methods, and species selection.
These acquisitions have been accounted for under the purchase method with
the results of their operations consolidated with the Company's results of
operations from the respective acquisition dates.
For the year ended July 31,
--------------------------------------
2002 2001 2000
------------ ------------ ------------
Reported net income $ 1,408,853 $ 1,895,291 $ 779,016
Add back: goodwill amortization -- 43,080 3,056
------------ ------------ ---------
Adjusted net income $ 1,408,853 $ 1,938,371 $ 782,072
Basic and diluted earnings
per share $ .35 $ .46 $ .197
Goodwill amortization -- .01 .001
------------ ------------ ---------
Adjusted earnings per share $ .35 $ .47 $ .198
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,
and the fish farm located in Jordan, produce shrimp and tilapia
respectively. Both products are 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.
32
Ecology & Environment, Inc
Segment Reporting for the 10K
REPORTABLE SEGMENTS FOR THE FISCAL YEAR ENDED JULY 31, 2002 ARE AS FOLLOWS:
-------------------------------------------------------------------------------------
CONSULTING ANALYTICAL AQUACULTURE ELIMINATION TOTAL
-------------------------------------------------------------------------------------
Net revenues from external customers $ 69,169,489 $ 4,238,980 $ 893,181 $ - $ 74,301,650
Intersegment net revenues 2,497,687 - - (2,497,687) -
-------------------------------------------------------------------------------------
Total consolidated net revenues $ 71,667,176 $ 4,238,980 $ 893,181 $ (2,497,687) $ 74,301,650
=====================================================================================
Depreciation expense $ 796,527 $ 405,963 $ 220,492 $ - $ 1,422,982
Segment profit (loss) before income
taxes and minority interest 6,108,083 (961,849) (2,641,682) - 2,504,552
Segment assets 56,454,894 6,867,000 7,698,000 - 71,019,894
Expenditures for long-lived assets 362,518 585,626 376,391 - 1,324,535
Geographic Information:
----------------------------------
NET LONG-LIVED
REVENUES (1) ASSETS
----------------------------------
United States $ 51,452,650 $ 23,551,684
Foreign countries 22,849,000 6,105,000
(1) Net revenues are attributed to countries based on the location of the
customers.
REPORTABLE SEGMENTS FOR THE FISCAL YEAR ENDED JULY 31, 2001 ARE AS FOLLOWS:
-------------------------------------------------------------------------------------
CONSULTING ANALYTICAL AQUACULTURE ELIMINATION TOTAL
-------------------------------------------------------------------------------------
Net revenues from external customers $ 69,146,912 $ 4,001,481 $ 274,149 $ - $ 73,422,542
Intersegment net revenues 2,172,292 - - (2,172,292) -
-------------------------------------------------------------------------------------
Total consolidated net revenues $ 71,319,204 $ 4,001,481 $ 274,149 $(2,172,292) $ 73,422,542
=====================================================================================
Depreciation expense $ 822,475 $ 372,541 $ 61,992 $ - $ 1,257,008
Segment profit (loss) before income 5,578,815 (728,444) (1,018,835) - 3,831,536
taxes and minority interest
Segment assets 44,062,017 6,756,000 6,868,000 - 57,686,017
Expenditures for long-lived assets 1,135,522 285,508 1,461,146 - 2,882,176
Geographic Information:
----------------------------------
NET LONG-LIVED
REVENUES (1) ASSETS
----------------------------------
United States $ 65,418,542 $ 22,468,086
Foreign countries 8,004,000 6,238,000
(1) Net revenues are attributed to countries based on the location of the
customers.
33
ECOLOGY AND ENVIRONMENT, INC.
SCHEDULE VIII
Allowance for Doubtful Accounts
Years Ended July 31, 2002, 2001, and 2000
Balance at Charged to Balance
beginning cost and at end
Year ended of period expense Deduction of year
------------- ---------- ---------- --------- ----------
July 31, 2002 $4,490,781 $1,169,005 $ 821,934 $4,837,852
July 31, 2001 $3,689,103 $1,407,202 $ 605,524 $4,490,781
July 31, 2000 $2,968,240 $ 986,863 $ 266,000 $3,689,103
Selected quarterly financial data (unaudited)
- ---------------------------------------------
(In thousands, except per share information)
2002 First Second Third Fourth
- ------------------------------------ ------- ------- ------- -------
Gross revenues $19,996 $22,143 $21,852 $25,740
Net revenues 16,568 18,210 18,295 21,229
Income from operations 881 311 739 438
Income before income taxes and 832 379 781 512
minority interest
Net income 392 161 400 455
Net income per common share:
basic and diluted $ .10 $ .04 $ .10 $ .11
Cash dividends declared per common
share: basic and diluted $ --- $ .16 $ --- $ .16
2001 First Second Third Fourth
- ------------------------------------ ------- ------- ------- -------
Gross revenues $24,294 $21,915 $19,884 $22,104
Net revenues 19,944 18,426 17,008 18,044
Income from operations 1,032 843 654 917
Income before income taxes and 1,131 948 722 1,031
minority interest
Net income 591 456 245 604
Net income per common share:
basic and diluted $ .14 $ .11 $ .06 $ .15
Cash dividends declared per common
share: basic and diluted $ --- $ .16 $ --- $ .16
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
34
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages and positions of the
Directors and executive officers of the Company.
Name Age Position
- ------------------------ --- -----------------------------------------
Gerhard J. Neumaier 64 President and Director
Frank B. Silvestro 65 Executive Vice President and Director
Gerald A. Strobel 61 Executive Vice President of Technical
Services and Director
Ronald L. Frank 63 Executive Vice President of Finance,
Secretary, Treasurer and Director
Gerard A. Gallagher, Jr. 70 Director
Roger J. Gray 60 Senior Vice President
Laurence M. Brickman 57 Senior Vice President
Harvey J. Gross 73 Director
Ross M. Cellino 69 Director
Brent D. Baird 62 Director
Each Director is elected to hold office until the next annual meeting of
shareholders and until his successor is elected and qualified. Executive
officers are elected annually and serve at the discretion of the Board of
Directors.
Mr. Neumaier is a founder of the Company and has served as the
President and a Director since its inception in 1970. Mr. Neumaier has a
B.M.E. in engineering and a M.A. in physics.
Mr. Silvestro is a founder of the Company and has served as a Vice
President and a Director since its inception in 1970. In August 1986, he
became Executive Vice President. Mr. Silvestro has a B.A. in physics and
an M.A. in biophysics.
Mr. Strobel is a founder of the Company and has served as a Vice
President and a Director since its inception in 1970. In August 1986, he
became Executive Vice President of Technical Services. Mr. Strobel is a
registered Professional Engineer with a B.S. in civil engineering and a
M.S. in sanitary engineering.
Mr. Frank is a founder of the Company and has served as Secretary,
Treasurer, Vice President of Finance and a Director since its inception in
1970. In August 1986, he became Executive Vice President of Finance. Mr.
Frank has a B.S. in engineering and a M.S. in biophysics.
Mr. Gallagher joined the Company in 1972. In March 1979, he became a
Vice President of Special Projects and in February, 1986 he became a
Director. Mr. Gallagher is in charge of quality assurance for hazardous
substance projects. In August 1986, he became a Senior Vice President of
Special Projects. Mr. Gallagher has a B.S. in physics. Mr. Gallagher
retired as an officer of the Company in February 2001.
35
Mr. Gray joined the Company in 1970 as an engineer. In 1980, he
became Vice President and in August 1986 he became a Senior Vice President.
Mr. Gray holds a B.S. in engineering.
Mr. Brickman joined the Company in 1971. He became Vice President in
April 1988 and became a Senior Vice President in August, 1994. Mr.
Brickman has a B.S., M.S. and Ph.D. in biology.
Mr. Gross has been a Director of the Company since its inception in
1970. Mr. Gross is an independent insurance broker and a capital financing
consultant.
Mr. Cellino has been a Director of the Company since its inception in
1970. Mr. Cellino is an attorney and counselor-at-law retired from private
practice.
Mr. Baird was elected as a Director in January 1999. From 1970
through January 1984, Mr. Baird was a partner and from February 1984 until
January 1, 1992, was a limited partner of Trubee, Collins & Co., Buffalo,
New York, a member firm of the New York Stock Exchange, Inc. Mr. Baird is
currently a private investor. He is also a director of Todd Shipyards
Corporation, Merchants Group, Inc., First Carolina Investors, Inc., M & T
Bank Corporation, and Allied Healthcare Products, Inc.
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, 2000 2001 and 2002 of those persons who were at July 31, 2002 (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, 2002 in excess of $100,000. In this report, the five persons named in the
table below are referred to as the "Named Executives."
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------- -----------------------------------------------
STOCK
INCENTIVE RESTRICTED LONG-TERM ALL
NAME AND FISCAL OPTIONS STOCK COMPENSATION OTHER
PRINCIPAL POSITION YEAR SALARY BONUS (1) OTHER (SHARES) AWARDS (3) PAYOUTS (2)
- ------------------------- ----- ------ ---------- ----- ------ ---------- --------- ------
Gerhard J. Neumaier 2002 $250,271 $25,000 -0- -0- -0- -0- $14,881
President and Director 2001 $247,051 $25,000 -0- -0- -0- -0- $14,049
2000 $233,680 -0- -0- -0- -0- -0- $13,182
Frank B. Silvestro 2002 $227,530 $25,000 -0- -0- -0- -0- $13,608
Executive Vice President 2001 $224,934 $25,000 -0- -0- -0- -0- $12,901
and Director 2000 $212,447 -0- -0- -0- -0- -0- $11,976
Ronald L. Frank 2002 $227,530 $25,000 -0- -0- -0- -0- $13,570
Executive Vice President 2001 $224,934 $25,000 -0- -0- -0- -0- $12,901
of Finance, Secretary, 2000 $212,447 -0- -0- -0- -0- -0- $11,976
Treasurer and Director
Gerald A. Strobel 2002 $227,530 $25,000 -0- -0- -0- -0- $13,570
Executive Vice President 2001 $224,934 $25,000 -0- -0- -0- -0- $12,901
of Technical Services 2000 $212,447 -0- -0- -0- -0- -0- $11,976
and Director
Roger J. Gray * 2002 $200,974 -0- -0- -0- $10,571 -0- $10,696
Senior Vice President 2001 $180,650 $ 6,000 -0- -0- $ 4,000 -0- $ 9,671
2000 $180,650 $ 6,000 -0- -0- $14,000 -0- $10,603
(1) Amounts earned for bonus compensation determined by the Board of
Directors.
36
(2) Represents group term life insurance premiums, contributions made by the
Company to its Defined Contribution Plan and Defined Contribution Plan SERP
accruals on behalf of each of the Named Executives.
(3) As of July 31, 2002, there were 2,763 shares of the Company's Class A Common
Stock which was restricted stock issued pursuant to the Company's Stock
Award Plan issued to Roger Gray having a value of $28,735 as of July 31,
2002.
* Beginning November 2001, Mr. Gray has been on a 30 month assignment in Saudi
Arabia as Project Manager of the Company's work there. The Board of
Directors have approved a special cost of living adjustment and completion
bonus for Mr. Gray amounting to approximately 40% of base salary earned
annually.
None of the Company's executive officers have employment agreements.
Directors who are not employees of the Company are paid an annual fee of $26,478
payable quarterly.
COMPENSATION PURSUANT TO PLANS
DEFINED CONTRIBUTION PLAN. The Company maintains a Defined Contribution Plan
("the DC Plan") which is qualified under the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code") pursuant to which
the Company contributes an amount not in excess of 15% of the aggregate
compensation of all employees who participate in the DC Plan. All employees,
including the executive officers identified under "Executive Compensation", are
eligible to participate in the plan, provided that they have attained age 21 and
completed one year of employment with at least 1,000 hours of service. The
amounts contributed to the plan by the Company are allocated to participants
based on a ratio of each participant's points 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
compensation limitation imposed by the tax code change. This plan is a
non-qualified plan which provides benefits that would have been lost from the DC
Plan due to the imposition of the compensation restriction.
STOCK AWARD PLAN
Effective March 16, 1998, the Company adopted the Ecology and Environment,
Inc. 1998 Stock Award Plan (the "Award Plan") under which key employees
(including officers) of the Company or any or all of its present or future
subsidiaries may be designated to receive awards of Class A common stock of the
Company as a bonus for services rendered to the Company or its subsidiaries,
without payment therefore, based upon the fair market value of the common stock
at the time of the award.
The Board of Directors of the Company administers the plan and has
authority to determine the employees to whom awards are to be granted, the
number shares covered by each award, whether or not the awards are subject to
forfeiture or restriction on sale, resale or other disposition of the shares
acquired under the award and any other understandings or conditions as to the
award recipient's continued employment.
The Award Plan is not a qualified plan under Section 401(a) of the Internal
Revenue Code. The plan permits grants of the award for a period of five (5)
years from the date of adoption. As of July 31, 2002, awards for 123,064 shares
of Class A common stock have been granted.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
37
During the fiscal year ended July 31, 2002, Roger Gray 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, 2002, the number of
outstanding shares of Class A Common Stock and Class B Common Stock of the
Company beneficially owned by each person known by the Company to be the
beneficial owner of more than 5 percent of the then outstanding shares of Common
Stock:
Class A Common Stock Class B Common Stock
---------------------- --------------------
Nature and Percent Nature and
Amount of of Amount of
Beneficial Class As Beneficial Percent
Ownership Adjusted Ownership of
Name and Address(1) (2)(3) (4) (2)(3) Class
- ----------------------- ---------- --------- ---------- --------
Gerhard J. Neumaier* 355,777 13.0% 345,894 20.5%
Frank B. Silvestro* 288,937 10.8% 288,937 17.1%
Ronald L. Frank* 213,059 8.2% 209,544 12.4%
Gerald A. Strobel* 222,741 8.5% 222,741 13.2%
Franklin Resources,
Inc. 290,000 12.2% --- ---
First Carolina
Investors, Inc. 425,000 17.8% --- ---
The Cameron Baird
Foundation 250,000 10.5% --- ---
* See Footnotes in next table
(1) The address for Gerhard J. Neumaier, Frank B. Silvestro, Ronald L.
Frank and Gerald A. Strobel is c/o Ecology and Environment, Inc., 368
Pleasant View Drive, Lancaster, New York 14086, unless otherwise indicated.
The address for Franklin Resources, Inc. is 901 Mariners Island Blvd.,
6th Floor, San Mateo, California 94404. 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 2,384,353 shares of Class A Common Stock issued and outstanding
and 1,685,809 shares of Class B Common Stock issued and outstanding as of
September 30, 2002. 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.
38
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, 2002, by (i) each Director of the Company and (ii) all Directors
and officers of the Company as a group.
Class A Common Stock Class B Common Stock
----------------------- ---------------------
Nature and Percent Nature and
amount of of amount of
beneficial class as beneficial Percent
ownership adjusted ownership of
Name(1) (2)(3) (4) (2)(3) class
- ----------------------------- ---------- -------- ---------- --------
Gerhard J. Neumaier (5) (14) 355,777 13.0% 345,894 20.5%
Frank B. Silvestro (14) 288,937 10.8% 288,937 17.1%
Ronald L. Frank (6) (14) 213,059 8.2% 209,544 12.4%
Gerald A. Strobel (7) (14) 222,741 8.5% 222,741 13.2%
Harvey J. Gross (8) 80,047 3.2% 80,047 4.7%
Gerard A. Gallagher, Jr. 61,641 2.5% 61,300 3.6%
Ross M. Cellino (9) 17,111 * 1,050 *
Roger Gray (10) 10,795 * 5,662 *
Brent D. Baird (11) 435,000 18.2% --- ---
Directors and officers
Group (12)(13) 1,692,816 46.9% 1,223,102 72.6%
(10 individuals)
* Less than 0.1%
- ---------------------------------------------------------------------------
1. The address of each of the above shareholders, other than Brent D.
Baird, is c/o Ecology and Environment, Inc., 368 Pleasant View Drive,
Lancaster, New York 14086. The address for Brent D. Baird is 1350
One M & T Plaza, Buffalo, New York 14203.
2. Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, beneficial ownership of a security consists of sole or shared
voting power (including the power to vote or direct the vote) or sole or
shared investment power (including the power to dispose or direct the
disposition) with respect to a security whether through any contract,
arrangement, understanding, relationship or otherwise. Unless otherwise
indicated, the shareholders identified in this table have sole voting and
investment power of the shares beneficially owned by them.
3. Each named person and all Directors and officers as a group are deemed to be
the beneficial owners of securities that may be acquired within 60 days
through the exercise of exchange or conversion rights. The shares of Class A
Common Stock issuable upon conversion by any such shareholder are not
included in calculating the number of shares or percentage of Class A Common
Stock beneficially owned by any other shareholder. Moreover, the table gives
effect to only 4,417 shares of Class A Common Stock of the total 47,414
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.
39
4. There are 2,366,667 shares of Class A Common Stock issued and outstanding
and 1,720,171 shares of Class B Common Stock issued and outstanding as of
September 23, 2001. The figure in the "as adjusted" columns are based upon
these totals and except as set forth in the preceding sentence, upon the
assumptions described in footnotes 2 and 3 above.
5. Includes 525 shares of Class A Common Stock owned by Mr. Neumaier's spouse,
as to which he disclaims beneficial ownership. Includes 5,525 shares of
Class A Common Stock owned by Mr. Neumaier's Individual Retirement Account.
Does not include any shares of Class A Common Stock or Class B Common Stock
held by Mr. Neumaier's adult children. Includes 3,833 shares of Class A
Common Stock owned by a Partnership in which Mr. Neumaier is a general
partner.
6. Includes 18,625 Shares of Class B Common Stock owned by Mr. Frank's former
spouse as to which he disclaims beneficial ownership except for the right to
vote the shares which he retains pursuant to an agreement with his former
spouse. Includes 2,515 shares of Class A Common Stock owned by Mr. Frank's
individual retirement account.
7. Includes 15,171 shares of Class B Common Stock held in equal amounts by Mr.
Strobel as custodian for his three children, as to which he disclaims
beneficial ownership.
8. Includes an aggregate of 21,047 shares of Class B Common Stock owned by two
trusts created by Mr. Gross of which he and his spouse are the sole
beneficiaries during their lifetimes.
9. Includes 10,396 shares of Class A Common Stock owned by Mr. Cellino's
spouse, as to which shares he disclaims beneficial ownership; also includes
4,555 shares of Class A Common Stock owned by Mr. Cellino's Individual
Retirement Account. Includes 5 shares of Class A Common Stock owned by a
limited partnership in which Mr. Cellino is a general partner.
10. Includes 1,200 shares of Class A Common Stock which may be issued upon
exercise of a stock option granted on December 12, 1995 pursuant to the
Company's Incentive Stock Option Plan.
11. Includes 425,000 shares of Class A Common Stock owned by First
Carolina Investors, Inc. of which Mr. Baird is a shareholder,
director and Chief Executive Officer. Does not include 250,000
shares owned by the Cameron Baird Foundation.
12. Does not include 68,107 shares (32,650 shares of Class A Common Stock and
35,457 shares of Class B Common Stock) owned by the Company's Defined
Contribution Plan of which Messrs. Gerhard J. Neumaier, Frank, Silvestro and
Strobel constitute four of the five trustees of each Plan.
13. Includes 787 shares of Class A Common Stock which may be issued upon the
exercise of a stock option granted to one officer on November 2, 1992
pursuant to the Company's Incentive Stock Option Plan; includes 630 shares
of Class A Common Stock which may be issued upon the exercise of a stock
option granted to one officer on April 2, 1994 pursuant to the Company's
Incentive Stock Option Plan; includes 600 shares of Class A Common Stock
which may be issued upon the exercise of a stock option granted to one
officer on December 2, 1994 pursuant to the Company's Incentive Stock Option
Plan. Includes 1,200 shares of Class A Common Stock which may be issued upon
the exercise of stock options granted to one officer on December 12, 1995
pursuant to the Company's Incentive Stock Option Plan.
40
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
1,229,118 shares Class B Common Stock owned by them, the former spouse of one of
the individuals and the children of the individuals. The agreement provides that
prior to accepting a bona fide offer to purchase all or any part of their
shares, each party must first allow the other members to the agreement the
opportunity to acquire on a pro rata basis, with right of over-allotment, all of
such shares covered by the offer on the same terms and conditions proposed by
the offer.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
41
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS
(a) 1. FINANCIAL STATEMENTS PAGE
-------------------- ----
Report of Independent Accountants 16
Consolidated Balance Sheet -
July 31, 2002 and 2001 18
Consolidated Statement of Income
for the fiscal years ended
July 31, 2002, 2001 and 2000 19
Consolidated Statement of Changes in
Shareholders' Equity for the fiscal years
ended July 31, 2002, 2001 and 2000 20
Consolidated Statement of Cash Flows for
the fiscal years ended July 31, 2002,
2001 and 2000 21
Notes to Consolidated Financial Statements 22
2. FINANCIAL STATEMENT SCHEDULE
Schedule VIII - Allowance for
Doubtful Accounts 34
All other schedules are omitted because they are not applicable, or the
required information is shown in the consolidated financial statements or
notes thereto.
3. EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 Certificate of Incorporation (1)
3.2 Certificate of Amendment of Certificate of
Incorporation filed on March 23, 1970 (1)
3.3 Certificate of Amendment of Certificate of
Incorporation filed on January 19, 1982 (1)
3.4 Certificate of Amendment of Certificate of
Incorporation filed on January 29, 1987 (1)
3.5 Certificate of Amendment of Certificate of
Incorporation filed on February 10, 1987 (1)
3.6 Restated By-Laws adopted on July 30, 1986 by
Board of Directors (1)
3.7 Certificate of Change Under Section 805-A of
the Business Corporation Law filed August 18,
1988 (2)
3.8 Certificate of Amendment of Certificate of
Incorporation filed January 15, 1988 (2)
42
EXHIBIT NO. DESCRIPTION
4.1 Specimen Class A Common Stock Certificate (1)
4.2 Specimen Class B Common Stock Certificate (1)
10.1 Stockholders' Agreement among Gerhard J.
Neumaier, Ronald L. Frank, Frank B. Silvestro
and Gerald A. Strobel dated May 12, 1970 (1)
10.4 Ecology and Environment, Inc. Defined
Contribution Plan Agreement dated July 25, 1980
as amended on April 28, 1981 and July 21, 1983
and restated effective August 1, 1984 (1)
10.5 Summary of Ecology and Environment Discretionary
Performance Plan (3)
10.6 1998 Ecology & Environment, Inc. Stock Award Plan
and Amendments (3)
21.5 Schedule of Subsidiaries as of July 31, 2002 (2)
23.0 Consent of Independent Accountants (3)
99.1 Sarbanes - Oxley Act of 2002 Certification of
Principal Executive Officer (3)
99.2 Sarbanes - Oxley Act of 2002 Certification of
Principal Financial Officer (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, 2001, 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, 2002.
43
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, 2002 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, 2002
- --------------------------- (Chief Executive
Gerhard J. Neumaier Officer)
/s/ Frank B. Silvestro Executive October 29, 2002
- --------------------------- Vice-President
Frank B. Silvestro
/s/ Gerald A. Strobel Executive October 29, 2002
- --------------------------- Vice-President
Gerald A. Strobel
/s/ Ronald L. Frank Secretary, Treasurer, October 29, 2002
- --------------------------- Executive Vice-President
Ronald L. Frank of Finance
(Principal Financial
and Accounting Officer)
/s/ Gerard A. Gallagher, Jr. Director October 29, 2002
- ---------------------------
Gerard A. Gallagher, Jr.
/s/ Harvey J. Gross Director October 29, 2002
- ---------------------------
Harvey J. Gross
/s/ Ross M. Cellino Director October 29, 2002
- ---------------------------
Ross M. Cellino
/s/ Brent D. Baird Director October 29, 2002
- ---------------------------
Brent D. Baird
44
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, GERHARD J. NEUMAIER, CERTIFY THAT:
1. I have reviewed this Annual Report on Form 10-K of Ecology and
Environment, Inc.;
2. Based on my knowledge, this Annual Report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this Annual
Report.
3. Based on my knowledge, the financial statements, and other
financial information included in this Annual Report, fairly
present in all material respects the financial condition, result
of operation and cash flows of the Registrant as of, and for, the
periods presented in this Annual Report.
Dated: October 29, 2002 /s/ Gerhard J. Neumaier
---------------------------------------
GERHARD J. NEUMAIER
President - Principal Executive Officer
45
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, RONALD L. FRANK, CERTIFY THAT:
1. I have reviewed this Annual Report on Form 10-K of Ecology and
Environment, Inc.;
2. Based on my knowledge, this Annual Report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this Annual
Report.
3. Based on my knowledge, the financial statements, and other
financial information included in this Annual Report, fairly
present in all material respects the financial condition, result
of operation and cash flows of the Registrant as of, and for, the
periods presented in this Annual Report.
Dated: October 29, 2002 /s/ Ronald L. Frank
---------------------------------
RONALD L. FRANK
Executive Vice President,
Secretary, Treasurer and
Chief Financial Officer-Principal
Financial Officer
46