Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended July 31, 2010
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to __________
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Commission File Number 1-9065
ECOLOGY AND ENVIRONMENT, INC.
(Exact name of registrant as specified in its charter)
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New York
(State or other jurisdiction of incorporation or organization)
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16-0971022
(IRS Employer Identification Number)
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368 Pleasant View Drive, Lancaster, NY
(Address of principal executive offices)
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14086
(Zip code)
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716-684-8060
(Registrant's telephone number, including area code)
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Securities Registered Pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Class A Common Stock par value $.01 per share
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NASDAQ Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No þ
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. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined by Rule 12b-2 of the Exchange Act).
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer (Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
Exhibit Index on Page 50
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The aggregate market value of the Class A Common Stock held by non-affiliates as of January 31, 2010 (the last business day of the registrant’s most recently completed second fiscal quarter) was $37,015,476. This amount is based on the closing price of the registrant’s Class A Common Stock on the National Association of Securities Dealers Automated Quotations (NASDAQ) Stock Market for that date. Shares of Class A Common Stock held by the executive officers and directors of the registrant are not included in this computation.
As of September 30, 2010, 2,539,199 shares of the registrant's Class A Common Stock, $.01 par value (the "Class A Common Stock") were outstanding, and 1,643,852 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 ended July 31, 2002, 2003, and 2004 are incorporated by reference in Part IV of this Form 10-K.
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PART I
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Page
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Item 1.
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4
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General
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4
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Environmental Consulting Services
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8
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Regulatory Background
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9
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Potential Liability and Insurance
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10
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Market and Customers
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10
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Backlog
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10
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Competition
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10
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Employees
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10
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Corporate Governance / Stock Exchange Rules
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10
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Item 1A.
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11
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Item 1B.
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13
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Item 2.
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13
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Item 3.
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13
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Item 4.
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14
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PART II
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Item 5.
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15
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Item 6.
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16
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Item 7.
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17
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Item 8.
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22
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Item 9.
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41
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Item 9A.
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41
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Item 9B.
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42
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PART III
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Item 10.
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43
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Item 11.
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45
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Item 12.
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47
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Item 13.
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49
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Item 14.
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49
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PART IV
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Item 15.
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50
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PART 1
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Item 1.
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General
Ecology and Environment, Inc., (“EEI” or “Company”) is a global broad-based environmental consulting 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’s staff is comprised of individuals representing 85 scientific, engineering, health, and social disciplines working together in multidisciplinary teams to provide innovative environmental solutions. The Company has completed more than 50,000 projects for a wide variety of clients in 96 countries, providing environmental solutions in nearly every ecosystem on our planet.
The Company was incorporated in February 1970 and 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 2005, the United States Environmental Protection Agency (EPA) awarded the Company a contract known as START III to provide continuing support to the EPA Region 10. This is a combination time and materials/cost plus contract with a base term of three years plus options for an additional four years. Total maximum value is $49.0 million over the seven years. As of July 31, 2010 the Company has recognized revenue of approximately $22.6 million under this contract.
In May 2008, the EPA awarded the Company a second START contract to provide technical support in Region 9 which covers the four state area of California, Nevada, Arizona, Hawaii, and U.S. territories in the Pacific. The contract has a two year base period and two 18 month option periods. With all option years and access to an increased capacity pool to support EPA in the event of an incident of national significance, the maximum value of the contract is $64.0 million over the five year period. As of July 31, 2010, the Company has recognized revenue of approximately $10.7 million under this contract.
These contracts contain termination provisions under which the EPA may, without penalty, terminate the contract upon written notice to the Company. In the event of termination, the Company would be paid only termination costs in accordance with the contract. The Company has never had a contract terminated by the EPA.
Task Order Contracts
The Company has numerous task order contracts with state and federal governmental agencies which contain indefinite order quantities and/or option periods ranging from two to ten years. The maximum potential revenues included in these contracts is approximately $234.9 million. Work done under task orders run the full range of services provided by EEI.
Environmental Consulting Services
The Company’s staff is comprised of individuals with advanced degrees representing scientific and engineering disciplines working together in multidisciplinary teams to provide innovative solutions. EEI’s staff includes engineers; geologists, hydrologists, and other physical scientists; environmental and urban planners; and specialists in the life, health, and social sciences. The Company has rendered consulting services to commercial and government clients in a variety of service sectors, such as the following:
Energy
New technology and increasing demand and accountability for more sustainable use of resources presents complex challenges to energy developers and providers. To keep pace with escalating energy needs worldwide, EEI supports all phases of energy development by conducting critical feature/fatal flaw analyses, environmental impact assessments, feasibility and siting studies, and permitting. In response to the increasing monetary, environmental, and social costs of energy, the Company promotes the use of clean energy technologies in an age where energy infrastructure development is critical to world economic growth and improving quality of life.
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Electric Transmission
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To keep pace with increased energy needs, as well as support needed backup to the world’s aging critical infrastructure, EEI works with energy industry clients through all aspects of development, generation, and transmission. The Company performs site screening and alternative selection; analyzes environmental impacts; and acquires needed certificates, approvals, and permits for electric transmission facilities worldwide to bring renewable energy from its source to regional population centers.
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Pipelines
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EEI has provided the pipeline industry with environmental support for 35 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 of the Rivers and Harbors Act and Section 404 of the Clean Water Act permits for submission to the United States Army Corps Engineers, and Federal Energy Regulatory Commission (FERC) 7(c) filings; and preparation of environmental monitoring and restoration plans, including development of quality assurance specifications.
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Unconventional Natural Gas Development
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Recent advances in gas drilling techniques have opened huge “shale gas” reserves for development. EEI has positioned itself to respond to industry demands for permitting well development and take away pipelines required to move shale gas to market. The Company is currently working in the Marcellus and Barnett Shale Gas Reserves.
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Offshore Energy
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The need to incorporate environmental and social considerations into the planning, design, construction, and operation of offshore energy infrastructure is essential considering key issues such as the expanding use of marine locations for energy production/transportation and the use conflict and impacts on critical resources such as marine mammals, commercial and recreational fisheries, seafood safety, water quality, and other recreational uses. EEI supports projects involving oil and gas exploration and production; subsea pipelines; deepwater oil ports; liquefied natural gas (LNG) import terminals; and, most recently, projects involving components of offshore wind, wave, current, and tidal power subsea electrical transmission. The Company prepares third-party EISs/EIAs, Deepwater Port applications, and FERC ERs; performs siting/feasibility studies, plankton surveys, marine mammal acoustic impact modeling, dredging impact studies, coastal zone consistency evaluations, risk assessments, and marine vessel traffic studies; and develops and implements comprehensive plans for stakeholder engagement/outreach.
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Wind Energy
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The worldwide desire to develop alternative energy has sparked explosive growth in the wind energy market. Although wind power is widely regarded as a low impact, renewable energy source, public concerns over land use, visual quality, noise, and biological impacts sometimes emerge, and environmental impacts must be addressed to obtain permits. EEI attends to these concerns by providing strategic consulting in all facets of environmental permitting and compliance; environmental evaluation; T/E species, avian, and bat surveys; visual resources, noise aesthetics, archaeological, and land use studies. The Company’s civil engineering support services include design of structure foundations and roadways and coordination for gathering line placement, substation, and transmission line requirements. In addition, the Company recognizes that public outreach efforts are an important component of any wind power project and, therefore, maintains in-house public relations experts and graphic artists, who work as an integrated team to design outreach programs geared toward landowners and officials.
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Solar Energy
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Sustained growth in solar energy development will be increasingly important as we look to supply clean domestic power in the coming years. Developers and providers are facing complex challenges as new technologies emerge and the demand for new renewable energy increases. EEI supports all phases of solar energy development by providing strategic consulting services. We conduct environmental impact assessments, feasibility and siting studies, permitting and due diligence audits; prepare environmental documentation and permit applications; and identify and track state and federal compliance issues affecting facility development and operation.
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Geothermal Energy
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Geothermal energy as a source of base load power is widely recognized as a clean and safe alternative to nonrenewable energy sources. However, construction of a geothermal power plant comes with the potential for adverse effects on land stability within the region surrounding the project, as well as other socioeconomic concerns. EEI offers planning and consulting services to address environmental and socioeconomic impacts associated with geothermal energy development
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Nuclear Energy
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With the focus on reduced carbon emissions, there is a renewed interest in nuclear power worldwide. The U. S. Nuclear Regulatory Commission (NRC) has received over 20 early site permits or combined license applications to build nuclear power plants and over half of the operating plants have applied for license extensions. EEI is helping clients through the environmental hurdles of the licensing process by performing siting studies and environmental investigations and preparing environmental reports.
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Carbon Capture and Sequestration
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The ability to address CO2 impacts is one of the most critical and difficult environmental issues facing our power-generation clients today. EEI assists its clients to navigate the deregulated power industry and expedite the permitting process with a thorough understanding of the environmental and regulatory requirements (federal and state) associated with carbon capture and sequestration (CCS), including geologic investigation, deep well construction, power plant and pipeline sitting and construction and long-term CO2 storage.
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Natural Resource Management/Restoration
EEI’s approach to restoration design focuses on mimicking natural systems in form, function, and process—developing practical strategies for sustainable design and uplift. The Company conceives and designs environmental restoration projects that restore affected habitat through the efficient and innovative integration of biological and engineering solutions. EEI assists its clients in meeting their goals through the application of restoration measures to mine reclamation, contaminated sediment remediation, land development strategies, recreational planning, comprehensive watershed planning, and threatened and endangered species protection.
Green Programs
EEI seeks to take actions against greenhouse gases (GHGs), global warming, and climate change, both within our internal operations and throughout our line of associated services. The Company’s environmental sustainability services and green programs include an array of offerings to increase eco-efficiency and environmental performance while reducing operating costs. EEI offers knowledge-based consulting services to assist its clients establish an environmental focus and incorporate green elements into their organization’s culture. The Company’s approach to addressing these issues applies to a variety of organizations, including corporations, government agencies, colleges and universities, school districts, offices buildings, healthcare facilities, military bases, hotels, high-end homes, retail stores, and the hospitality/tourism industry.
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GreenRide®
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One of the chief sources of GHG emissions is vehicular traffic. EEI’s innovative Web-based rideshare application reduces automobile dependency and promotes use of alternative transportation. The program was designed by EEI to encourage carpooling as a method of improving air quality, reducing traffic congestion, and conserving fuel. GreenRide helps users find carpool partners by searching for other users who live nearby and have similar schedules and commuting needs. To date, there are 55 GreenRide® systems installed in 22 states, making our technology available to over 39 million U.S. residents.
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Green Buildings
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The Company provides consulting services to builders and developers relating to understanding environmental sustainability concepts within the context of an office building, school, hospital, or college university setting. Saving energy and natural resources is a critical issue from an operational-cost standpoint, and is often just as important in terms of maintaining a positive public image. EEI supports the United States Green Building Council’s LEED® programs by offering certification application assistance and green building project planning and consulting. The Company’s energy consultants develop methods for incorporating sustainable practices into daily operations, helping building managers track progress, quantify reduction in energy usage and solid waste, improve indoor air quality and landscape ecology, and develop programs for composting/recycling and transportation. EEI’s Green Building Program typically saves clients between 10 to 30 percent on energy and related costs each year—savings that will more than pay for the cost of the program and the positive environmental impacts that result.
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In 2010, EEI’s global corporate headquarters building, one of the oldest LEED® Platinum buildings in the world, continued to realize reduced energy consumption and substantial cost savings through facility and operational improvements combined with a program for employee awareness and involvement.
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Energy Efficiency and GreenMeter®
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The Company’s Certified Energy Managers and sustainability professionals help our clients achieve significant reductions in energy and other resource consumption both through innovative design and improved operations of buildings and communities.
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GreenMeter, EEI’s new dynamic energy-tracking and management system, is designed for schools, businesses, universities, and commercial buildings and offers a unique, easy-to-use approach to collecting, storing, and displaying near real-time energy consumption. The application is coupled with analysis and solutions, helping to further decrease a building’s costs associated with energy consumption.
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GHG Inventory and Verification
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EEI provides strategic guidance to help guide our clients through the shifting carbon landscape. The Company offers expertise in GHG and climate change technical support, financial analysis, strategy and policy development, health and risk assessment, and legal analysis. EEI is an approved provider of technical assistance and certification services for California Climate Action Registry (CCAR), an approved aggregator of emission offsets for the Chicago Climate Exchange (CCX), and a founding member of The Climate Registry (TCR).
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Climate Action Planning
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Volatile energy markets, limited natural resources and climate change are revolutionizing the way we build and operate the places in which we live and work. There is an urgent need to quantify human impacts so that sustainability planning can control and mitigate the effects of the built environment. EEI addresses this through the identification of major effects of climate change and provision of strategies to mitigate those effects.
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Planning
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Environmental Planning and Assessment
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EEI has provided environmental evaluation services to both the government and private sectors for more than 35 years, helping clients to meet the requirements of the National Environmental Policy Act (NEPA) and other state environmental laws. The Company evaluates and develops methods to avoid or mitigate potential environmental impacts of a proposed project and to help ensure that the project complies with regulatory requirements. EEI’s services include air and water quality analysis, terrestrial and aquatic biological surveys, threatened and endangered species surveys and wetland delineations, social economic studies, transportation analyses and land use planning. In addition, the Company’s stakeholder engagement/public participation capabilities and resources ensure project success through completion.
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Military Master Planning
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In response to the advances seen in military master planning under taken by the Department of Defense (DOD) over the past few years, EEI has developed a team of experienced professionals in the areas of real property master planning, military programming, geospatial data and systems support, database management, and water resources planning. Through the Company’s experience with modern military facility planning, EEI develops technologically advanced military master planning tools by leveraging the latest in GIS and IT technology. The Company assists DOD installations in reducing their environmental footprint while sustaining mission requirements and maintaining positive relationships with the surrounding communities.
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Emergency Planning and Management
Recent events around the world involving terrorism, bioterrorism, and natural disasters have raised the concern for public health and safety as well as environmental protection. EEI provides logistical support, emergency response/management services, and comprehensive planning to support businesses and state, county, and municipal governments in all phases of incident management, including preparedness, mitigation, response, and recovery. In providing these multifaceted services, the Company determines local vulnerabilities/hazards, the in-place resources/assets to address those hazards, and the thoroughness and shortcomings of existing emergency management plans—all in the context of applicable state and federal laws and regulations. EEI draws upon its understanding of and real-life experience using guidelines such as the National Response Plan (NRP), National Incident Management System (NIMS), Homeland Security Exercise and Evaluation Program (HSEEP), and Hospital Emergency Incident Command System (HICS) to support businesses, state government agencies, and communities in their emergency planning/preparedness and response activities.
Hazardous Material Services
EEI has conducted hazardous waste site evaluations throughout the United States, providing site investigation, engineering design, and operation and maintenance for a wide range of industrial and governmental clients. The Company inventories and collects sample materials on site and then evaluates waste management practices, potential off-site impacts, and liability concerns. EEI then designs, implements, and monitors associated cleanup programs. The Company’s field investigation services primarily involve the development of work plans, health and safety plans, and quality assurance/quality control plans to govern and conduct field investigations to define the nature and extent of contaminants at a site. After field investigation services have been completed and the necessary approvals obtained, the Company’s engineering specialists develop plans and specifications for remedial cleanup activities. This work includes development of methods and standard operating procedures to assess contamination problems; and to
identify, develop, and design appropriate pollution-control schemes. Alternative cleanup 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.
International
With over 40 years’ experience providing the above-listed services on a worldwide level, the Company now has partners in over 30 countries and has completed more than 50,000 major environmental assignments in over 96 countries worldwide. With an understanding of cultural, political, economic, operational, and legal factors that influence the solution to a given environmental problem, EEI aids international governments and lending institutions in their efforts to advance institutional systems for environmental management. The Company has completed assignments involving environmental assessment; management and financial planning; institutional strengthening and standards development; water supply and development; wastewater treatment; and solid waste project construction supervision. More recently, issues of public health, sustainability, and social and economic development have been added to that portfolio.
Health Sciences
An outbreak of infectious disease could lead to high levels of illness, death, social disruption, and economic loss. The recent WHO-declared global pandemic of Influenza A (H1N1, swine-originated influenza virus [S-OIV], or swine flu as popularly known in the media) presents a timely example of a public health threat that emerges with little warning, for which immunity and vaccines are not present, and whose impacts on communities and businesses may be severe. Impacts could include closing of public venues, disruption of the supply chain, compromised ability to maintain delivery schedules to customers and, ultimately, disruption of basic social services.
EEI offers services to address issues organizations may have as a result of this global pandemic, including: pandemic influenza response and preparedness plans, media roundtables, comprehensive emergency plans, all-hazards plans, school crisis plans, crisis communications plans, continuity of operations plans, gap/needs assessments, and client-specific exercises and scenarios.
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 multidisciplinary consulting services offered by the Company. The principal federal legislation and corresponding regulatory programs which affect the Company’s business are as follows:
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The National Environmental Policy Act (“NEPA”)
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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.
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The Comprehensive Environmental Response, Compensation, And Liability Act Of 1980, As Amended (“CERCLA,” “Superfund” or the “Superfund Act”)
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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.
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The Resource Conservation And Recovery Act Of 1976 (“RCRA”)
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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.
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Clean Air Act
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In 1990, comprehensive changes were made to the Clean Air Act, which fundamentally redefined the regulation of air pollutants. The Clean Air Act Amendments of 1990 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.
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Safe Drinking Water Act of 1996 (SDWA) And Clean Water Act (CWA)
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The SDWA and regulatory changes under the 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 other's goals. The Company assists public and private clients in developing and establishing pollution prevention programs, assisting clients in monitoring ground, waste and stormwater systems, and helping clients with water permitting and compliance issues.
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Other
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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 services provided by the Company 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 United States and other western countries, the Company’s expanding operations in these markets are primarily influenced by environmental laws focusing on infrastructure, development, and planning related activities.
Potential Liability and Insurance
The Company’s contracts 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. 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 supported 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 revenues from indefinite task order contracts, at July 31, 2010 and 2009 were as follows:
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(Millions of $)
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2010
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2009
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Total firm backlog
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$
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80.3
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70.6
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Anticipated completion of firm backlog in next twelve months
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$
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69.8
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46.1
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Maximum potential gross revenues from task order contracts
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$
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234.9
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171.3
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This backlog includes a substantial amount of work to be performed under contracts which contain termination provisions under which the contract can be terminated without penalty upon written notice to the Company. The likelihood of obtaining the full value of the task order contracts cannot be determined at this time.
Competition
EEI is subject to competition with respect to each of the services that it provides. No entity, including the Company, currently dominates the environmental services industry and the Company does not believe that one organization has the capability to serve the entire market. Some of its competitors are larger and have greater financial resources than the Company while others may be more specialized in certain areas. EEI competes primarily on the basis of its reputation, quality of service, expertise, and price.
Employees
As of July 31, 2010, the Company, including subsidiaries, had approximately 1,100 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 are represented by a labor organization and employee relations are good.
Corporate Governance / Security Exchange Rules
The Company’s shares of Class A Common Stock are listed on the National Association of Securities Dealers Automated Quotations (NASDAQ) Stock Market. NASDAQ requires all of its listing companies to be in compliance with NASDAQ’s standards of corporate governance set forth in the NASDAQ Marketplace Rules (NASDAQ CG Rules). The Company has certified to the NASDAQ that it is in compliance with the NASDAQ CG Rules except for those NASDAQ CG Rules relating to the Director Nominations Process, the Compensation of Officers and Board Compensation. For these items, the Company relied upon the “controlled company” exception found in the NASDAQ CG Rules. A “controlled company” is a listing company where more than 50 percent of the voting power of the listing company is in the control of a group. The Company believes that a group, consisting of Messrs. Neumaier, Silvestro, Frank and Strobel and members of their families, now holds more than 50 percent of the voting power of the Company and that, therefore, the Company is a “controlled company” for purposes of the NASDAQ CG Rules.
The Board of Directors will consider nominees for Directors recommended by shareholders. Shareholders wishing to recommend a director candidate for consideration by the Board of Directors can do so by writing to the Secretary of Ecology and Environment, Inc., 368 Pleasant View Drive, Lancaster, New York, 14086; giving the candidate’s name, biographical data and qualifications. Any such notice of recommendation should be accompanied by a current resume of the individual and a written statement from the individual of his or her consent to be named as a candidate and, if nominated and elected, to serve as a director. Nominations much be received at least 60 days prior to the annual meeting shareholders.
In evaluating candidates, the Board considers the entirety of each candidate’s credentials to ensure that the Board consists of individuals who collectively provide meaningful counsel to management. The Board does not maintain a specific diversity policy. It believes that diversity is an expansive attribute that includes differing points of view, professional experience and expertise, and education, as well as more traditional diversity concepts. The Board considers the candidates’ character, integrity, experience, understanding of strategy and policy-setting, and reputation for working well with others. If candidates are recommended by E&E’s shareholders, then such candidates will be evaluated using the same criteria. With respect to nomination of continuing directors for re-election, the individual’s past contributions to the Board are also considered.
The Company has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer and controller, as well as all other employees and the directors of the Company. The code of ethics, which the Company calls its Code of Business Conduct and Ethics, is posted on the Company’s website at www.ene.com, as well as on the Company’s internal website which is available to all Company employees. The employees are required to sign off annually that they have reviewed and are aware of the Company’s code of ethics policy. If the Company makes any substantive amendments to, or grants a waiver (including an implicit waiver) from, a provision of its code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, and that relates to any element of the code of ethics definition enumerated in Item 406(b) of Regulation S-K, the Company will disclose the nature of such amendment or waiver in a current report on Form 8-K.
|
Item 1A.
|
In addition to other information referenced in this report, the Company is subject to a number of specific risks outlined below. If any of these events occur, the Company's business, financial condition, profitability and the market price of its Class A Common Stock could be materially affected.
Changes in environmental laws and regulations could reduce demand for the Company’s services.
Most of the Company’s business is driven by laws and regulations related to the protection of the environment. Any relaxation or repeal of these laws, or changes in governmental policies regarding the funding or enforcement of these laws, would have an adverse impact on the Company’s revenues. Also, reduced spending by governments may increase competition within our industry which may directly affect future revenue and profits.
As a government contractor, the Company is subject to a number of procurement laws and regulations, as well as government agency audits. Any violation of these laws could result in economic harm to the Company’s operations.
The Company must comply with federal, state, and foreign laws relating to the procurement and administration of government contracts. Such laws include the Federal Acquisition Regulation (FAR), the Truth in Negotiations Act (TINA), the Cost Accounting Standards (CAS), and the Service Contract Act (SCA). These laws impact how the Company does business with government clients and can increase the cost of doing business. Government agencies such as EPA and the Defense Contract Audit Agency (DCAA), as well as numerous state agencies routinely audit government contractors and their performance under specific contracts to determine if a contractor’s cost structure is compliant with applicable laws and regulations. They may question the incurrence of certain costs based on the FAR and CAS and disallow those costs on their contracts. These audits may occur several years after payment for services has been received. Historically, the Company has been able to successfully defend against the disallowance of any significant costs. However, there is no assurance that future audits will not result in the material disallowances for costs incurred in the future. Such material disallowances could negatively affect revenue, profits and cash flow.
The Company depends on federal, state and foreign government work for a significant portion of its revenues. The Company’s inability to win or renew government contracts during procurement cycles could significantly reduce Company profits.
Revenues from all government contracts (federal, state and municipal) represented approximately 33%, 39% and 46% of total revenues for fiscal years 2010, 2009 and 2008, respectively. Consequently, an inability to win or renew government contracts would adversely affect operations and significantly reduce profits. Government contracts are typically awarded through a highly regulated procurement process. In addition, some government contracts are awarded to multiple competitors, causing increased competition and downward pricing pressure. This may lead to increased pressure to control costs. If the Company cannot reduce or control costs on these contracts, losses on these contracts may occur.
Current economic uncertainty could affect the Company’s public and private sector work.
The current worldwide contraction of credit could impact the availability of financing for certain private projects and resulting lower tax revenues for federal, state, and municipal governments could defer or halt work on public environmental programs. Any impact on specific programs cannot be determined at this time.
The Company must be able to accurately estimate and control contract costs to prevent losses on contracts.
The Company must control direct contract costs in order to maintain positive profit margins. There are three basic types of contracts with the Company’s clients: cost plus, fixed price, and time and materials. Under cost plus contracts, which may be subject to various types of ceilings, the Company is reimbursed for allowable costs plus a negotiated profit. If costs exceed ceilings or are otherwise deemed unallowable under provisions of the contract or regulations, the Company will not be reimbursed for all of its costs. Under fixed price contracts, the Company is paid a fixed price regardless of the actual costs incurred. Consequently, a profit is realized on fixed price contracts only if the Company is able to control costs and avoid overruns. Under time and material contracts, the Company is paid for its direct labor hours at fixed rates plus reimbursement of allocable other direct costs. Profitability on contracts is dependant on a consistently high utilization of staff and the Company’s ability to control its overhead costs.
A failure to attract and retain key employees could impair the Company’s ability to provide quality service to clients.
The Company provides professional and technical services and is dependent on its ability to attract, retain and train its professional employees to conduct its business and perform its obligations to ensure success. It may be difficult to attract and retain qualified expertise within timeframes demanded by clients. Senior managements’ experience is essential to the success of any company and our ability to retain such talent is crucial to the profitability of the Company. Further, the loss of key management personnel could adversely affect the Company's ability to develop and pursue its business strategies.
Actual results could differ from the estimates and assumptions used to prepare financial statements, which may reduce or eliminate profits.
To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions as of the date of the financial statements, which affect the reported values of assets and liabilities and revenues and expenses and disclosures of contingent assets and liabilities. Areas requiring significant estimates by management include:
|
|
- the application of the percentage of completion method of accounting and revenue recognition on contracts
|
|
|
- provisions for uncollectible receivables and contract adjustments
|
|
|
- provisions for income taxes and related valuation reserves
|
|
|
- accruals for estimated liabilities, including litigation reserves
|
|
|
- accruals for uncertain tax positions
|
|
|
- evaluation of the impairment of goodwill
|
The use of annual percentage of completion method of accounting could result in a reduction or reversal of previously recorded revenues and profits.
A portion of the Company’s revenues and profits are measured and recognized using the percentage of completion method of accounting which is discussed further in Note 2 of the Consolidated Financial Statements. The use of this method results in the recognition of revenues and profits ratably over the life of a contract. The effect of revisions to revenues and estimated costs is recorded when the amounts are known or can be reasonably estimated. Such revisions could occur in subsequent periods and their effects could be material. Although the Company has historically been able to make reasonably accurate estimates of work progress, the uncertainties inherent in the estimating process make it possible for actual costs to vary from estimates in a material amount, including reductions or reversals of previously recorded revenues and profits.
International operations are subject to a number of risks.
The Company has operations in more than 30 countries around the world and has derived approximately 30%, 21%, and 19% of revenue from international operations for the fiscal years 2010, 2009, and 2008, respectively. International operations are subject to a number of risks, including:
|
|
- greater risk of uncollectible accounts and longer collection cycles;
|
|
|
- currency fluctuations;
|
|
|
- logistical and communication challenges;
|
|
|
- exposure to liability under the Foreign Corrupt Practices Act;
|
|
|
- lack of developed legal systems to enforce contractual rights;
|
|
|
- general economic and political conditions in foreign markets;
|
|
|
- civil disturbance, unrest or violence;
|
|
|
- general difficulties in staffing international operations with highly professional personnel.
|
These and other risks associated with international operations could harm our overall operations and significantly reduce our future revenues.
Failure to complete a project timely or failure to meet a required performance standard on a project could cause the Company to incur a loss which may affect overall profitability.
Completion dates and performance standards may be important requirements to a client on a given project. If the Company is unable to complete a project within specified deadlines or fails to meet performance criteria set forth by a client, additional costs may be incurred by the Company or the client may hold the Company responsible for costs they incur to rectify the problem. The uncertainty involved in the timing of certain projects could also negatively affect the Company’s staff utilization, causing a drop in efficiency and reduced profits.
Subcontractor performance and pricing could expose us to loss of reputation and additional financial or performance obligations that could result in reduced profits or losses.
We often hire subcontractors for our projects. The success of these projects depends, in varying degrees, on the satisfactory performance of our subcontractors and our ability to successfully manage subcontractor costs and pass them through to our customers. If our subcontractors do not meet their obligations or we are unable to manage or pass through costs, we may be unable to profitably perform and deliver our contracted services. Under these circumstances, we may be required to make additional investments and expend additional resources to ensure the adequate performance and delivery of the contracted services. In addition, the inability of our subcontractors to adequately perform or our inability to manage subcontractor costs on certain projects could hurt our competitive reputation and ability to obtain future projects.
The Company's services could expose it to significant liability not covered by insurance.
The services provided by the Company expose it to significant risks of professional and other liabilities. In addition, the Company sometimes assumes liability by contract under indemnification provisions. We are unable to predict the total amount of such potential liabilities. The Company has obtained insurance to cover potential risks and liabilities. However, insurance may be inadequate or unavailable in the future to protect the Company for such liabilities and risks.
Management's voting rights could block or discourage a change in control.
The current senior officers of the Company along with Gerhard J. Neumaier own in excess of 70% of the Class B Common Stock which has one vote per share while the Class A Common Stock has one-tenth of a vote per share. Therefore, current management could block a change in control. This ability could adversely affect the value of the Class A Common Stock.
|
Item 1B.
|
None to report.
|
Item 2.
|
The Company's headquarters (60,000 square feet) is located in Lancaster, New York, a suburb of Buffalo. The Company owns additional property in Lancaster, NY consisting of two buildings including a warehouse and office facility totaling approximately 35,000 square feet. The Company also leases office and storage facilities at thirty seven (37) regional offices in the United States and six (6) offices in foreign locations.
|
Item 3.
|
From time to time, the Company is named 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, financial condition, cash flows 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.
The Company is involved in other litigation arising in the normal course of business. In the opinion of management, any adverse outcome to other litigation arising in the normal course of business would not have a material impact on the financial results of the Company.
None.
PART II
|
|
(a)
|
Principal Market or Markets. The Company's Class A Common Stock was previously traded on the AMEX prior to September 8, 2008. Beginning on September 8, 2008, the Company’s Class A Common Stock is listed on NASDAQ. 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, or NASDAQ as appropriate, for the periods indicated.
|
FISCAL 2010
|
High
|
Low
|
|||||
|
First Quarter (commencing August 1, 2009 - October 31, 2009)
|
$
|
17.00
|
$
|
14.69
|
||
|
Second Quarter (commencing November 1, 2009 - January 30, 2010)
|
16.23
|
14.07
|
||||
|
Third Quarter (commencing January 31, 2010 - May 1, 2010)
|
15.30
|
13.15
|
||||
|
Fourth Quarter (commencing May 2, 2010 - July 31, 2010)
|
13.61
|
11.91
|
||||
FISCAL 2009
|
High
|
Low
|
|||||
|
First Quarter (commencing August 1, 2008 – November 1, 2008)
|
$
|
11.35
|
$
|
8.10
|
||
|
Second Quarter (commencing November 2, 2008 - January 31, 2009)
|
13.50
|
7.61
|
||||
|
Third Quarter (commencing February 1, 2009 - May 2, 2009)
|
14.65
|
11.30
|
||||
|
Fourth Quarter (commencing May 3, 2009 - July 31, 2009)
|
15.20
|
11.85
|
||||
Approximate Number of Holders of Class A and Class B Common Stock
As of September 30, 2010, 2,539,199 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 388. 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 1,643,852 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 58.
Dividends
In the fiscal years ended July 31, 2010 and 2009 the Company declared and paid two cash dividends totaling $.42 and $.39 per year respectively, per share of common stock. The amount, if any, of future dividends remains within the discretion of the Company's Board of Directors and will depend upon the Company's future earnings, financial condition and requirements and other factors as determined by the Board of Directors.
The Company's Certificate of Incorporation provides that any cash or property dividend paid on Class A Common Stock must be at least equal to the cash or property dividend paid on Class B Common Stock on a per share basis.
|
Equity Compensation Plan Information as of July 31, 2010:
|
||||||
|
Plan category
|
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights.
|
Weighted average
exercise price of
outstanding options,
warrants and rights
|
Number of securities
remaining available for
future issuance
|
|||
|
Equity compensation plans approved by securities holders:
|
||||||
|
- 2003 Stock Award Plan
|
---
|
---
|
---
|
|||
|
- 2007 Stock Award Plan
|
---
|
---
|
157,325
|
|||
|
Equity compensation plans not approved by securities holders:
|
||||||
|
- 1998 Stock Award Plan
|
---
|
---
|
---
|
|||
|
Total
|
---
|
---
|
157,325
|
|||
Refer to Note 10 to Consolidated Financial Statements set forth in Part IV of this Annual Report on Form 10-K for more information on the Equity Compensation Plans.
|
|
(b)
|
Not Applicable
|
|
|
(c)
|
Purchased Equity Securities. The following table summarizes the Company's purchases of its common stock during the fiscal year ended July 31, 2010.
|
|
Period
|
Total Number of
Shares Purchased
|
Average
Price Paid
Per Share
|
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (1)
|
Maximum Number
of Shares that May
Yet Be Purchased
Under the
Plans or Programs
|
||||
|
August 1, 2009 - July 31, 2010
|
---
|
---
|
---
|
163
|
(1) The Company’s Board of Directors approved a 200,000 share repurchase program in January 2004 and an additional 200,000 share repurchase program in February 2006.
See Note 21 to Consolidated Financial Statements for additional information.
|
Year Ended July 31,
|
||||||||||||||||||||
|
2010
|
2009
|
2008
|
2007
|
2006
|
||||||||||||||||
|
(In thousands, except share and per share amounts)
|
||||||||||||||||||||
|
Operating data:
|
||||||||||||||||||||
|
Revenues
|
$
|
144,875
|
$
|
146,887
|
$
|
110,533
|
$
|
102,496
|
$
|
97,080
|
||||||||||
|
Income from operations
|
9,893
|
9,445
|
5,593
|
5,310
|
5,833
|
|||||||||||||||
|
Income from continuing operations before income taxes
|
10,459
|
9,450
|
5,554
|
5,720
|
5,968
|
|||||||||||||||
|
Net income attributable to Ecology and Environment, Inc.
|
$
|
4,258
|
$
|
5,221
|
$
|
1,834
|
$
|
3,074
|
$
|
2,583
|
||||||||||
|
Net income per common share: basic and diluted
|
$
|
1.02
|
$
|
1.27
|
$
|
0.43
|
$
|
0.72
|
$
|
0.61
|
||||||||||
|
Cash dividends declared per common share: basic and diluted
|
$
|
0.42
|
$
|
0.39
|
$
|
0.36
|
$
|
0.34
|
$
|
0.33
|
||||||||||
|
Weighted average common shares outstanding: basic and diluted
|
4,160,816
|
4,115,921
|
4,259,663
|
4,281,431
|
4,264,105
|
|
Year Ended July 31
|
||||||||||||||||||||
|
|
2010
|
2009
|
2008
|
2007
|
2006
|
|||||||||||||||
|
(In thousands, except per share amounts)
|
||||||||||||||||||||
|
Balance sheet data:
|
||||||||||||||||||||
|
Working capital
|
$
|
38,950
|
$
|
36,142
|
$
|
36,871
|
$
|
34,313
|
$
|
28,306
|
||||||||||
|
Total assets
|
79,959
|
77,808
|
75,602
|
71,206
|
69,152
|
|||||||||||||||
|
Long-term debt
|
767
|
404
|
482
|
385
|
342
|
|||||||||||||||
|
Ecology and Environment, Inc. shareholders’ equity
|
44,864
|
41,051
|
39,254
|
40,913
|
37,627
|
|||||||||||||||
|
Book value per share: basic and diluted
|
$
|
10.79
|
$
|
9.97
|
$
|
9.22
|
$
|
9.56
|
$
|
8.82
|
||||||||||
Liquidity and Capital Resources
Operating activities provided $2.4 million of cash during fiscal year 2010. This was mainly attributable to the reported $6.6 million in net income, a $1.1 million increase in income taxes payable, and a $.8 million decrease in income tax receivable. Offsetting these was an increase in contract receivables and a decrease in accounts payables. Contract receivables increased $5.7 million during fiscal year 2010 due to the increased work volume at Ecology and Environment, Inc. (Parent Company) during the fourth quarter with energy and international market customers. The Company believes these will be collected in a timely manner. Accounts payable decreased $3.1 million during fiscal year 2010 primarily due to the decreased subcontracted work in the fourth quarter.
Investment activities consumed $2.3 million of cash during fiscal year 2010 mainly attributable to the purchase of additional noncontrolling interest in Walsh Environmental (Walsh) by the Parent Company and the purchases of property, building and equipment of $2.0 million during fiscal year 2010. During the second quarter of fiscal year 2010, the Company purchased an additional noncontrolling interest in Walsh for $3,000,000 to increase its ownership to 76%. One third of the purchase price was paid in cash, one third was paid with E&E stock, and the remainder was issued as loans to be repaid over a two-year period. Offsetting this was the sale of 16.5 acres of land by the Company at its Walden Avenue facility in Lancaster, New York for the sum of approximately $959,000.
Financing activities consumed $2.6 million of cash during fiscal year 2010. The Company paid dividends in the amount of $1.7 million or $.41 per share. Net cash outflow on long-term debt and capital lease obligations was $.3 million due mainly to the repayment of loans and capital leases at two of the Parent Company’s majority owned subsidiaries, E&E do Brasil and Walsh. Distributions to noncontrolling interests during fiscal year 2010 were approximately $.8 million.
The Company maintains an unsecured line of credit available for working capital and letters of credit of $20.2 million at interest rates ranging from 3% to 5% at July, 31, 2010. Other credit lines are available solely for letters of credit in the amount of $13.5 million. The Company guarantees the line of credit of Walsh. Its lenders have reaffirmed the Company’s lines of credit within the past twelve months. At July 31, 2010 and July 31, 2009 the Company had letters of credit outstanding totaling approximately $4.9 million and $.6 million, respectively. After letters of credit and loans, there was $28.9 million of availability under the lines of credit at July 31, 2010. The Company believes that cash flows from operations and borrowings against the lines of credit will be sufficient to cover all working capital requirements for at least the next twelve months and the foreseeable future.
Results of Operations
Revenue
Fiscal Year 2010 vs 2009
Revenue for fiscal year 2010 was $144.9 million, a decrease of $2.0 million from the $146.9 million reported for fiscal year 2009 mainly attributable to decreases at the Parent Company and Walsh. Revenue at the Parent Company was $84.2 million for fiscal year 2010, a decrease of $3.8 million or 4% from the $88.0 million reported in the prior year. This decrease was attributable to work performed on contracts in the Company’s federal government and state sectors offset by increases in work in the energy and international sectors. Revenues from the Parent Company’s federal government sector were $27.2 million for fiscal year 2010, a decrease of $6.2 million from the $33.4 million reported in the prior year mainly attributable to decreased activity in contracts with the United States Department of Defense (DOD). Revenues from the Parent Company’s state sector were $20.5 million for fiscal year 2010, down $4.1 million from the $24.6 million reported in fiscal year 2009. The decrease in state revenues was mainly attributable to decreased activity in Washington, New York and Florida due to the state budgetary constraints. Revenues from the Parent Company’s commercial sector were $32.0 million for fiscal year 2010, up $2.0 million from the $30.0 million reported in fiscal year 2009 attributable to increased activity in the domestic energy market. Revenues from the Parent Company’s international sector increased $4.5 million over the prior year mainly attributable to increased activity in the Middle East, Africa and China. Walsh reported revenues of $42.1 million for fiscal year 2010, a decrease of $3.5 million or 8% from the $45.6 million reported in fiscal year 2009 mainly attributable to the completion of work associated with a redevelopment project. E&E do Brasil reported revenue of $10.5 million for fiscal year 2010, an increase of $2.8 million or 36% from the $7.7 million reported in the prior year. The increase in revenue at E&E do Brasil was associated with increased work on contracts in the energy market.
E&E reported revenue of $41.0 million for the fourth quarter, comparable to the $41.1 million reported in the fourth quarter of the prior year. Revenue at the Parent Company was $25.3 million during the fourth quarter of fiscal year 2010, an increase of $1.5 million attributable to work performed on contracts in the Company’s domestic energy market and international sector offset by decreases in work in the federal government and state sectors. Revenues from the Parent Company’s commercial sector were $11.9 million for the fourth quarter of fiscal year 2010, an increase of $3.3 million from the $8.6 million reported in the fourth quarter of fiscal year 2009 attributable to increased activity in the domestic energy market. Revenues from the Parent Company’s international sector were $1.8 million for the fourth quarter of fiscal year 2010, an increase of $1.5 million over the fourth quarter of the prior year. The increase in international revenues was mainly attributable to increased activity in the Middle East and Africa. Revenues from the Parent Company’s federal government sector were $6.8 million for the fourth quarter of fiscal year 2010, a decrease of $1.3 million from the $8.1 million reported in the prior year mainly attributable to decreased activity with DOD contracts. Revenues from the Parent Company’s state sector were $4.7 million for fourth quarter of fiscal year 2010, down $2.1 million from the $6.8 million reported in the fourth quarter of fiscal year 2009. The decrease in state revenues was mainly attributable to decreased activity in Illinois, California and New York. Walsh reported revenues of $10.2 million for the fourth quarter of 2010, a decrease of $3.0 million or 23% from the $13.2 million reported in the fourth quarter of fiscal year 2009 mainly attributable to the completion of work associated with a redevelopment project.
Fiscal Year 2009 vs 2008
Revenue for fiscal year 2009 was $146.9 million, an increase of $36.4 million or 33% from the $110.5 million reported in fiscal year 2008. The increase in revenue was due mainly to increases in revenue at the Parent Company and by Walsh in the energy, environmental restoration, asbestos and federal government sectors. Specifically, revenues from Walsh were $45.6 million for fiscal year 2009, an increase of 69% from the $27.0 million reported in fiscal year 2008. The increase in Walsh revenues was mainly attributable to increased activity in the environmental remediation and asbestos markets. Revenues from the Parent Company’s federal government sector were $33.4 million for fiscal year 2009, up $12.0 million from the $21.4 million reported in the prior year. The increase in federal government revenues was mainly attributable to increased activity in contracts with the DOD and Environmental Protection Agency (EPA). Revenues from commercial clients of the Parent Company were $30.0 million for fiscal year 2009, an increase of 42% from the $21.2 million reported in fiscal year 2008. The increase in revenues from commercial clients was mainly attributable to increased activity in the domestic energy market. Offsetting these were decreases in revenue from the Parent Company’s international and state markets. Revenue from state clients of the Parent Company was $24.6 million for fiscal year 2009, a decrease of $2.5 million from the $27.1 million reported in fiscal year 2008. State budgets are under pressure and the Company believes its state markets will continue to be impacted until the domestic economy recovers. Revenue from international clients of the Parent Company decreased $1.5 million during fiscal year 2009.
Revenues for the fourth quarter of fiscal year 2009 were $41.1 million, an increase of $7.7 million from the $33.4 million reported in the fourth quarter of the 2008. The increase in revenue was attributable to increased work in the Company’s energy, environmental restoration, asbestos and federal government sectors. Walsh reported revenues of $13.2 million for the fourth quarter of fiscal year 2009, an increase of 74% from the $7.6 million reported in the fourth quarter of fiscal year 2008 due to increased activity in the
environmental remediation and asbestos markets. Revenues of the Parent Company increased $1.7 million during the fourth quarter of fiscal year 2009 mainly attributable to increased activity in the energy and federal government markets, offset by a decrease in activity in the state market. Revenues from the Parent Company’s federal government sector were $8.1 million for the fourth quarter of fiscal year 2009, an increase of 25% from the $6.5 million reported in the prior year. The increase in federal government revenues was mainly attributable to increased activity in contracts with DOD and EPA. Revenue from commercial clients of the Parent Company was $8.6 million for the fourth quarter of fiscal year 2009, an increase of $.7 million from the $7.9 million reported in the fourth quarter of fiscal year 2008. Revenue from state clients of the Parent Company was $6.8 million for the fourth quarter of fiscal year 2009, a decrease of $.6 million from the $7.4 million reported in the fourth quarter of fiscal year 2008.
Income Before Income Taxes
Fiscal Year 2010 vs 2009
The Company’s income before income taxes was $10.5 million for fiscal year 2010, an increase of $1.0 million from the $9.5 million reported in fiscal year 2009. The majority of the increase is attributed to a gain on the sale of land. During the first quarter of fiscal year 2010, the Company recorded a sale of 16.5 acres of land at its Walden Avenue facility in Lancaster, New York for the sum of approximately $959,000 plus closing costs. This sale resulted in a gain of approximately $809,000 ($453,000 after tax) which positively impacted earnings by $.11 per share. Gross profits increased $5.7 million during fiscal year 2010. The gross margin percentage for fiscal year 2010 was 44%, up from the 40% reported for fiscal year 2009. The increase in gross margin percentage was attributable to a significant decrease in subcontract costs throughout the Company. Subcontract costs were $31.1 million for fiscal year 2010, a decrease of 18% from the $38.0 million reported in the prior year. Gross margin as a percentage of revenue less subcontract costs was 56% for fiscal year 2010, a slight increase from the 54% reported in fiscal year 2009. The increased gross profits were offset by higher indirect costs in fiscal year 2010. Indirect costs were $52.6 million for fiscal year 2010, an increase of $5.2 million from the $47.4 million reported in the fiscal year 2009 attributable to increased staffing levels and business development and proposal costs worldwide. The Company reached settlements with Kuwait and the federal government during fiscal year 2009. The Company settled the Kuwait tax dispute and the related accrual for uncertain tax position charges and reserved the $925,000 balance of receivables on the Middle East contracts which resulted in a net gain of approximately $.24 per share. Additionally, the Company derecognized reserves related to federal government contracts of $562,000 ($410,000 after tax) that positively impacted the Company’s earnings by $.10 per share.
The Company’s income before income taxes was $4.2 million for the fourth quarter of fiscal year 2010, an increase of $1.6 million from the $2.6 million reported in the fourth quarter of fiscal year 2009. Gross profits increased $2.0 million during the fourth quarter of fiscal year 2010. The gross margin percentage for the fourth quarter of fiscal year 2010 was 45%, up from the 40% reported for the fourth quarter of fiscal year 2009. The increase in gross margin percentage was attributable to a significant decrease in subcontract costs throughout the company. Subcontract costs were $8.2 million for the fourth quarter of fiscal year 2010, a decrease of $3.1 million from the $11.3 million reported in the fourth quarter of fiscal year 2009. Revenue less subcontract costs increased $3.0 million or 10% over the prior year while consolidated indirect costs for the fourth quarter of fiscal year 2010 were $13.7 million, up only slightly from the $13.3 million reported in the fourth quarter of fiscal year 2009. During the fourth quarter of fiscal year 2009, the Company derecognized reserves of $562,000 ($410,000 after tax) that positively impacted the Company’s earnings by $.10 per share.
Fiscal Year 2009 vs 2008
The Company’s income before income taxes was $9.5 million for fiscal year 2009, an increase of $3.9 million from the $5.6 million reported in fiscal year 2008. Gross profits increased $8.5 million during fiscal year 2009 as a result of the increased revenue reported at the Parent Company and Walsh offset by an increase in corporate wide subcontract costs. The gross margin percentage for fiscal year 2009 was 39.8%, down from the 45.3% reported for fiscal year 2008. The decrease in gross margin percentage was attributable to a significant increase in subcontract costs throughout the Company. Subcontract costs were $38.0 million for fiscal year 2009, an increase of 141% from the $15.8 million reported in the prior year. Gross margin as a percentage of revenue less subcontractor revenue and costs increased slightly during fiscal year 2009. The increased gross profits were offset by higher indirect costs in fiscal year 2009. Offsetting the increased revenue was an increase in indirect operating expenses throughout the company due to increased staffing and work levels. Consolidated indirect costs for fiscal year 2009 were $47.4 million, an increase of $4.4 million from the $43.0 million reported in fiscal year 2008. Staffing levels throughout the company increased 16% during fiscal year 2009 as a result of increased manpower needs necessary to accommodate the increase in revenue. The Company reached settlements with Kuwait and the federal government during fiscal year 2009. E&E, Inc. settled the Kuwait tax dispute and the related accrual for uncertain tax position charges and reserved the $925,000 balance of receivables on the Middle East contracts which resulted in a net gain of approximately $.24 per share. Additionally, the Company maintains reserves for annual indirect rate adjustments due to FAR and CAS compliance reviews by the federal government which covered fiscal years 1996 through 2004. During the fourth quarter of fiscal year 2009, the Company derecognized reserves related to federal government contracts of $562,000 ($410,000 after tax) as a result of a settlement with the federal government. The federal government settlement positively impacted the Company’s earnings during the fourth quarter of fiscal year 2009 by $.10 per share.
The Company’s income before income taxes was $2.6 million for the fourth quarter of fiscal year 2009, slightly down from the $2.8 million reported in the fourth quarter of fiscal year 2008. The fourth quarter of 2008 was impacted by a gain on foreign exchange transactions of $360,000. Gross profit increased during the fourth quarter of fiscal year 2009 as a result of increased revenues. The gross margin percentage for the fourth quarter of fiscal year 2009 was 39.7%, down from the 43.8% reported for the fourth quarter of fiscal year 2008. The decrease in gross margin percentage was attributable to a significant increase in subcontract costs throughout the company. Subcontract costs were $11.3 million for fiscal year 2009, up $5.7 million from the $5.6 million reported in the fourth quarter of fiscal year 2008. Gross margin as a percentage of revenue less subcontractor revenue and costs increased slightly during the fourth quarter of fiscal year 2009. Offsetting the increased revenue was an increase in indirect operating expenses throughout the company due to the increased staff and work levels. Consolidated indirect costs for the fourth quarter of fiscal year 2009 were $13.3 million, up 14% from the $11.7 million reported in the fourth quarter of fiscal year 2008. During the fourth quarter of fiscal year 2009, the Company derecognized reserves of $562,000 ($410,000 after tax) as a result of a settlement with the federal
government. The federal government settlement positively impacted the Company’s earnings during the fourth quarter of fiscal year 2009 by $.10 per share.
Income Taxes
The estimated effective tax rate for fiscal year 2010 is 37.3%, as compared to the 27.0% reported for fiscal year 2009. Excluding the favorable tax settlement in Kuwait, the estimated effective tax rate for fiscal year 2009 was 36.1%. The effective income tax rate had a nominal increase from fiscal year 2009 to fiscal year 2010 due to a decrease in partnership income. The noncontrolling interest on the partnership income is removed from the effective income tax rate and as the partnership income decreased, the reduction to the overall effective tax rate went from a negative 2.8 percent in fiscal year 2009 to a negative 1.3 percent in fiscal year 2010.
In March of 2009, the Company received a tax assessment from the Kuwait Ministry of Finance in the amount of approximately $2.6 million related to the contested taxes resulting from the work performed for the Public Authority for Assessment of Compensation for Damages Resulting from Iraqi Aggression (PAAC). A liability had been previously accrued for this tax including interest and penalties of approximately $4.3 million. The Company reached a favorable settlement with the Ministry of Finance in April 2009. Accordingly, the Company derecognized the remaining accrual of approximately $1.4 million (net of deferred tax) by reducing the income tax provision by $870,000 and reducing interest expense and general and administrative costs each by $275,000.
Critical Accounting Policies and Use of Estimates
Management's discussion and analysis of financial condition and results of operations discuss the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition, allowance for doubtful accounts, income taxes, impairment of long-lived assets and contingencies. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Revenue Recognition
The Company’s revenues are derived primarily from the professional and technical services performed by its employees or, in certain cases, by subcontractors engaged to perform on under contracts entered into with our clients. The revenues recognized, therefore, are derived from our ability to charge clients for those services under the contracts. Sales and cost of sales at the Company’s South American subsidiaries exclude tax assessments by governmental authorities, which are collected by the Company from its customers and then remitted to governmental authorities.
The Company employs three major types of contracts: “cost-plus contracts,” “fixed-price contracts” and “time-and-materials contracts.” Within each of the major contract types are variations on the basic contract mechanism. Fixed-price contracts generally present the highest level of financial and performance risk, but often also provide the highest potential financial returns. Cost-plus contracts present a lower risk, but generally provide lower returns and often include more onerous terms and conditions. Time-and-materials contracts generally represent the time spent by our professional staff at stated or negotiated billing rates.
Fixed price contracts are accounted for on the “percentage-of-completion” method, wherein revenue is recognized as project progress occurs. Time and material contracts are accounted for over the period of performance, in proportion to the costs of performance, predominately based on labor hours incurred. If an estimate of costs at completion on any contract indicates that a loss will be incurred, the entire estimated loss is charged to operations in the period the loss becomes evident.
The use of the percentage of completion revenue recognition method requires the use of estimates and judgment regarding the project’s expected revenues, costs and the extent of progress towards completion. The Company has a history of making reasonably dependable estimates of the extent of progress towards completion, contract revenue and contract completion costs. However, due to uncertainties inherent in the estimation process, it is possible that completion costs may vary from estimates.
Most of our percentage-of-completion projects follow a method which approximates the “cost-to-cost” method of determining the percentage of completion. Under the cost-to-cost method, we make periodic estimates of our progress towards project completion by analyzing costs incurred to date, plus an estimate of the amount of costs that we expect to incur until the completion of the project. Revenue is then calculated on a cumulative basis (project-to-date) as the total contract value multiplied by the current percentage-of-completion. The revenue for the current period is calculated as cumulative revenues less project revenues already recognized. The recognition of revenues and profit is dependent upon the accuracy of a variety of estimates. Such estimates are based on various judgments we make with respect to those factors and are difficult to accurately determine until the project is significantly underway.
For some contracts, using the cost-to-cost method in estimating percentage-of-completion may overstate the progress on the project. For projects where the cost-to-cost method does not appropriately reflect the progress on the projects, we use alternative methods such as actual labor hours, for measuring progress on the project and recognize revenue accordingly. For instance, in a project where a large amount of equipment is purchased or an extensive amount of mobilization is involved, including these costs in calculating the percentage-of-completion may overstate the actual progress on the project. For these types of projects, actual labor hours spent on the project may be a more appropriate measure of the progress on the project.
The Company’s contracts with the U.S. government contain provisions requiring compliance with the Federal Acquisition Regulation (FAR), and the Cost Accounting Standards (CAS). These regulations are generally applicable to all of the Company’s federal government contracts and are partially or fully incorporated in many local and state agency contracts. They limit the recovery of certain specified indirect costs on contracts subject to the FAR. Cost-plus contracts covered by the FAR provide for upward or downward adjustments if actual recoverable costs differ from the estimate billed. Most of our federal government contracts are subject to termination at the convenience of the client. Contracts typically provide for reimbursement of costs incurred and payment of fees earned through the date of such termination.
The Company maintains reserves for annual indirect rate submittal adjustments due to FAR and CAS compliance reviews by the federal government which covered fiscal years 1996 through 2004. The reserve decreased $562,000 ($410,000 after tax) during the fourth quarter of fiscal year 2009 as a result of a settlement with the federal government. The federal government settlement positively impacted the Company’s earnings during the fourth quarter of fiscal year 2009 by $.10 per share.
Federal government contracts are subject to the FAR and some state and local governmental agencies require audits, which are performed for the most part by the Defense Contract Audit Agency (DCAA). The DCAA audits overhead rates, cost proposals, incurred government contract costs, and internal control systems. During the course of its audits, the DCAA may question incurred costs if it believes we have accounted for such costs in a manner inconsistent with the requirements of the FAR or CAS and recommend that our U.S. government financial administrative contracting officer disallow such costs. Historically, we have not experienced significant disallowed costs as a result of such audits. However, we can provide no assurance that such audits will not result in material disallowances of incurred costs in the future.
The Company maintains reserves for cost disallowances on its cost based contracts as a result of government audits. Government audits have been completed and final rates have been negotiated through fiscal year 2001. The Company has estimated its exposure based on completed audits, historical experience and discussions with the government auditors. If these estimates or their related assumptions change, the Company may be required to record additional charges for disallowed costs on its government contracts.
Allowance for Doubtful Accounts and Contract Adjustments
We reduce our accounts receivable and costs and estimated earnings in excess of billings on contracts in process by establishing an allowance for amounts that, in the future, may become uncollectible or unrealizable, respectively. We determine our estimated allowance for uncollectible amounts and allowance for contract adjustments based on management’s judgments regarding our operating performance related to the adequacy of the services performed, the status of change orders and claims, our experience settling change orders and claims and the financial condition of our clients, which may be dependent on the type of client and current economic conditions.
Deferred Income Taxes
We use the asset and liability approach for financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances based on our judgments and estimates are established when necessary to
reduce deferred tax assets to the amount expected to be realized in future operating results. Management believes that realization of deferred tax assets in excess of the valuation allowance is more likely than not. Our estimates are based on facts and circumstances in existence as well as interpretations of existing tax regulations and laws applied to the facts and circumstances, with the help of professional tax advisors. Therefore, we estimate and provide for amounts of additional income taxes that may be assessed by the various taxing authorities.
Uncertain Tax Positions
A tax position is a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current or deferred income tax assets and liabilities. Tax positions shall be recognized only when it is more likely than not (likelihood of greater than 50%), based on technical merits, that the position will be sustained. Tax positions that meet the more likely than not threshold should be measured using a probability weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement. Whether the more-likely-than-not recognition threshold is met for a tax position, is a matter of judgment based on the individual facts and circumstances of that position evaluated in light of all available evidence. Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in administrative and indirect operating expenses.
Changes in Corporate Entities
On January 28, 2010 the Company purchased an additional equity of 18.7% of Walsh from noncontrolling shareholders for $3,000,000. One third of the purchase price was paid in cash, one third was paid with the Company's stock, and the remainder was taken as loans carrying an interest rate of 5% to be repaid over a two year period. The purchase price that was paid to the noncontrolling shareholders was at a premium over the book value of the stock.
On March 1st, Walsh purchased an 80% ownership interest in Lowham - Walsh Environmental Services LLC. This transaction was an asset purchase of the former Lowham Engineering LLC in Wyoming. Walsh contributed cash and assets into the newly formed entity and issued a five year promissory note bearing a six percent annualized interest rate for the assets of the former company.
On August 23, 2010 the Company purchased a 60% ownership interest in ECSI, LLC. This is a Lexington, Kentucky based engineering and environmental consulting company that specializes in mining work. The Company paid $1.0 million for this ownership interest. The newly formed company will be consolidated into the Company’s financial reporting for the first quarter of fiscal year 2011.
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.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Board of Directors and Stockholders of
Ecology and Environment, Inc.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial officer and effected by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. GAAP. Internal controls include those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even effective internal control over financial reporting can only provide reasonable assurance of achieving their control objectives.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we assessed the effectiveness of our internal control over financial reporting as of July 31, 2010 based on the criteria in Internal Control—Integrated Framework issued by the COSO. Based upon this assessment, management has concluded that our internal control over financial reporting was effective as of July 31, 2010.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.
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By:
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/s/ Kevin S. Neumaier
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By:
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/s/ H. John Mye
|
|
|
Chief Executive Officer
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Chief Financial and Accounting Officer
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
of Ecology and Environment, Inc.
We have audited the accompanying consolidated balance sheets of Ecology and Environment, Inc. and its subsidiaries (Collectively, the Company) as of July 31, 2010 and 2009, and the related consolidated statements of income, changes in shareholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended July 31, 2010. In addition, our audits included the financial statement schedule listed in the index at Item 15 (a)(2). The Company’s management is responsible for these financial statements and the financial statement schedule. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of July 31, 2010 and 2009, and the results of its operations and its cash flows for each of the years in the three-year period ended July 31, 2010 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ Schneider Downs & Co., Inc.
Pittsburgh, Pennsylvania
October 28, 2010
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Consolidated Balance Sheets
|
||||||||
|
July 31,
|
July 31,
|
|||||||
|
Assets
|
2010
|
2009
|
||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 14,229,894 | $ | 16,571,186 | ||||
|
Investment securities, available for sale
|
1,305,739 | 1,212,405 | ||||||
|
Contract receivables, net
|
47,096,456 | 41,693,034 | ||||||
|
Deferred income taxes
|
3,557,156 | 4,137,516 | ||||||
|
Income tax receivable
|
- | 802,926 | ||||||
|
Other current assets
|
2,142,301 | 2,372,919 | ||||||
|
Total current assets
|
68,331,546 | 66,789,986 | ||||||
|
Property, building and equipment, net of accumulated
|
||||||||
|
depreciation, $21,040,900 and $19,302,306
|
8,664,453 | 8,258,441 | ||||||
|
Deferred income taxes
|
1,291,297 | 1,160,444 | ||||||
|
Other assets
|
1,671,636 | 1,599,204 | ||||||
|
Total assets
|
$ | 79,958,932 | $ | 77,808,075 | ||||
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Liabilities and Shareholders' Equity
|
||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable
|
$ | 10,863,390 | $ | 13,866,425 | ||||
|
Accrued payroll costs
|
7,451,310 | 7,216,316 | ||||||
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Income taxes payable
|
1,083,911 | - | ||||||
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Deferred revenue
|
236,737 | 103,509 | ||||||
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Current portion of long-term debt and capital lease obligations
|
928,027 | 411,331 | ||||||
|
Other accrued liabilities
|
8,818,179 | 9,049,995 | ||||||
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Total current liabilities
|
29,381,554 | 30,647,576 | ||||||
|
Income taxes payable
|
286,523 | 278,782 | ||||||
|
Deferred income taxes
|
289,531 | 152,836 | ||||||
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Long-term debt and capital lease obligations
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767,302 | 403,941 | ||||||
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Commitments and contingencies (see note #17)
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- | - | ||||||
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Shareholders' equity:
|
||||||||
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Preferred stock, par value $.01 per share;
|
||||||||
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authorized - 2,000,000 shares; no shares
|
||||||||
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issued
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- | - | ||||||
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Class A common stock, par value $.01 per
|
||||||||
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share; authorized - 6,000,000 shares;
|
||||||||
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issued - 2,685,072 and 2,677,651 shares
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26,850 | 26,776 | ||||||
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Class B common stock, par value $.01 per
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||||||||
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share; authorized - 10,000,000 shares;
|
||||||||
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issued - 1,708,653 and 1,716,074 shares
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17,088 | 17,162 | ||||||
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Capital in excess of par value
|
20,059,200 | 20,093,952 | ||||||
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Retained earnings
|
25,800,803 | 23,290,768 | ||||||
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Accumulated other comprehensive income
|
815,906 | 441,965 | ||||||
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Treasury stock - Class A common, 136,461 and 242,290
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||||||||
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shares; Class B common, 64,801 shares, at cost
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(1,855,466 | ) | (2,819,138 | ) | ||||
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Total Ecology and Environment, Inc. shareholders' equity
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44,864,381 | 41,051,485 | ||||||
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Noncontrolling interests
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4,369,641 | 5,273,455 | ||||||
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Total shareholders' equity
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49,234,022 | 46,324,940 | ||||||
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Total liabilities and shareholders' equity
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$ | 79,958,932 | $ | 77,808,075 | ||||
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The accompanying notes are an integral part of these consolidated financial statements.
|
||||||||
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Consolidated Statements of Income
|
||||||||||||
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Fiscal year ended
|
||||||||||||
|
July 31,
|
July 31,
|
July 31,
|
||||||||||
|
2010
|
2009
|
2008
|
||||||||||
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Revenue
|
$ | 144,874,534 | $ | 146,886,938 | $ | 110,532,816 | ||||||
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Cost of professional services and other direct operating expenses
|
49,623,816 | 50,383,876 | 44,658,180 | |||||||||
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Subcontract costs
|
31,068,357 | 38,025,409 | 15,833,829 | |||||||||
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Administrative and indirect operating expenses
|
38,166,067 | 34,309,408 | 31,013,505 | |||||||||
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Marketing and related costs
|
14,438,785 | 13,101,999 | 11,950,306 | |||||||||
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Depreciation
|
1,684,406 | 1,620,829 | 1,483,931 | |||||||||
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Income from operations
|
9,893,103 | 9,445,417 | 5,593,065 | |||||||||
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Interest expense
|
(222,558 | ) | (77,238 | ) | (431,287 | ) | ||||||
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Interest income
|
107,211 | 202,052 | 441,190 | |||||||||
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Other expense
|
(68,349 | ) | (41,064 | ) | (183,246 | ) | ||||||
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Gain on sale of property and equipment
|
809,200 | - | - | |||||||||
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Net foreign currency exchange gain (loss)
|
(59,718 | ) | (78,930 | ) | 134,009 | |||||||
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Income before income tax provision
|
10,458,889 | 9,450,237 | 5,553,731 | |||||||||
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Income tax provision
|
3,902,222 | 2,560,897 | 2,113,007 | |||||||||
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Net income
|
$ | 6,556,667 | $ | 6,889,340 | $ | 3,440,724 | ||||||
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Net income attributable to the noncontrolling interest
|
(2,299,060 | ) | (1,668,066 | ) | (1,606,338 | ) | ||||||
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Net income attributable to Ecology and Environment, Inc.
|
$ | 4,257,607 | $ | 5,221,274 | $ | 1,834,386 | ||||||
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Net income per common share: basic and diluted
|
$ | 1.02 | $ | 1.27 | $ | 0.43 | ||||||
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Weighted average common shares outstanding: basic and diluted
|
4,160,816 | 4,115,921 | 4,259,663 | |||||||||
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The accompanying notes are an integral part of these consolidated financial statements.
|
||||||||||||
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Consolidated Statements of Cash Flows
|
||||||||||||
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Fiscal year ended
|
||||||||||||
|
July 31,
|
July 31,
|
July 31,
|
||||||||||
|
2010
|
2009
|
2008
|
||||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Net income
|
$ | 6,556,667 | $ | 6,889,340 | $ | 3,440,724 | ||||||
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Adjustments to reconcile net income to net cash
|
||||||||||||
|
provided by (used in) operating activities:
|
||||||||||||
|
Depreciation
|
1,684,406 | 1,620,829 | 1,483,931 | |||||||||
|
Provision for deferred income taxes
|
472,455 | 1,742,493 | 888,140 | |||||||||
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Share-based compensation expense
|
485,945 | 446,412 | 339,625 | |||||||||
|
Tax impact of share-based compensation
|
102,737 | - | 33,457 | |||||||||
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Gain on sale of property and equipment
|
(809,200 | ) | - | - | ||||||||
|
Provision for contract adjustments
|
637,846 | (88,387 | ) | 360,505 | ||||||||
|
(Increase) decrease in:
|
||||||||||||
|
- contract receivables
|
(5,661,388 | ) | (3,874,581 | ) | (4,412,095 | ) | ||||||
|
- other current assets
|
233,414 | (201,671 | ) | (485,707 | ) | |||||||
|
- income tax receivable
|
802,926 | (787,370 | ) | 1,341,657 | ||||||||
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- other non-current assets
|
(64,430 | ) | 18,793 | 109,571 | ||||||||
|
Increase (decrease) in:
|
||||||||||||
|
- accounts payable
|
(3,120,409 | ) | 4,382,635 | (969,721 | ) | |||||||
|
- accrued payroll costs
|
149,316 | 1,363,854 | (349,043 | ) | ||||||||
|
- income taxes payable
|
1,066,930 | (671,355 | ) | (470,187 | ) | |||||||
|
- deferred revenue
|
133,228 | 11,687 | 1,031 | |||||||||
|
- other accrued liabilities
|
(236,704 | ) | (1,170,196 | ) | 1,495,992 | |||||||
|
Net cash provided by operating activities
|
2,433,739 | 9,682,483 | 2,807,880 | |||||||||
|
Cash flows provided by (used in) investing activities:
|
||||||||||||
|
Acquistion of noncontrolling interest of subsidiary
|
(1,000,000 | ) | (27,879 | ) | (116,677 | ) | ||||||
|
Purchase of Lowham Engineering LLC
|
(200,000 | ) | - | - | ||||||||
|
Purchase of property, building and equipment
|
(1,992,724 | ) | (1,869,016 | ) | (1,447,573 | ) | ||||||
|
Proceeds from sale of property and equipment
|
959,200 | - | - | |||||||||
|
Purchase of investment securities
|
(55,791 | ) | (39,210 | ) | (1,072,186 | ) | ||||||
|
Cash used in investing activities
|
(2,289,315 | ) | (1,936,105 | ) | (2,636,436 | ) | ||||||
|
Cash flows provided by (used in) financing activities:
|
||||||||||||
|
Dividends paid
|
(1,684,482 | ) | (1,546,359 | ) | (1,492,207 | ) | ||||||
|
Proceeds from debt
|
468,038 | 632,185 | 1,014,100 | |||||||||
|
Repayment of debt and capital lease obligations
|
(778,035 | ) | (1,942,882 | ) | (369,760 | ) | ||||||
|
Distributions to noncontrolling interests
|
(845,106 | ) | (625,677 | ) | (752,882 | ) | ||||||
|
Proceeds from sale of subsidiary shares to noncontrolling interests
|
227,562 | 69,108 | - | |||||||||
|
Purchase of treasury stock
|
- | (1,832,123 | ) | (5,636 | ) | |||||||
|
Net cash used in financing activities
|
(2,612,023 | ) | (5,245,748 | ) | (1,606,385 | ) | ||||||
|
Effect of exchange rate changes on cash and cash equivalents
|
126,307 | (107,538 | ) | 58,512 | ||||||||
|
Net increase (decrease) in cash and cash equivalents
|
(2,341,292 | ) | 2,393,092 | (1,376,429 | ) | |||||||
|
Cash and cash equivalents at beginning of period
|
16,571,186 | 14,178,094 | 15,554,523 | |||||||||
|
Cash and cash equivalents at end of period
|
$ | 14,229,894 | $ | 16,571,186 | $ | 14,178,094 | ||||||
|
The accompanying notes are an integral part of these consolidated financial statements.
|
||||||||||||
|
Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income
|
||||||||||||||||||||||||||||||||||||||||||||
|
Accumulated
|
||||||||||||||||||||||||||||||||||||||||||||
|
Common Stock
|
Capital in
|
Other
|
||||||||||||||||||||||||||||||||||||||||||
|
Class A
|
Class B
|
Excess of
|
Retained
|
Comprehensive
|
Treasury Stock
|
Noncontolling
|
Comprehensive
|
|||||||||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Par Value
|
earnings
|
Income (loss)
|
Shares
|
Amount
|
Interest
|
Income
|
||||||||||||||||||||||||||||||||||
|
Balance at July 31, 2007
|
2,661,498 | $ | 26,615 | 1,732,227 | $ | 17,323 | $ | 20,051,446 | $ | 19,365,253 | $ | 299,102 | 168,821 | $ | (1,692,496 | ) | $ | 3,582,968 | $ | 5,582,403 | ||||||||||||||||||||||||
|
Net income
|
- | - | - | - | - | 1,834,386 | - | - | - | 1,606,338 | 3,440,724 | |||||||||||||||||||||||||||||||||
|
Foreign currency translation adjustment
|
- | - | - | - | - | - | 536,446 | - | - | (224,703 | ) | 311,743 | ||||||||||||||||||||||||||||||||
|
Cash dividends paid ($.36 per share)
|
- | - | - | - | - | (1,535,492 | ) | - | - | - | - | - | ||||||||||||||||||||||||||||||||
|
Unrealized investment gain, net
|
- | - | - | - | - | - | (881 | ) | - | - | - | (881 | ) | |||||||||||||||||||||||||||||||
|
Repurchase of Class A common stock
|
- | - | - | - | - | - | - | 536 | (5,636 | ) | - | - | ||||||||||||||||||||||||||||||||
|
Issuance of stock under stock award plan
|
- | - | - | - | (412,173 | ) | - | - | (41,094 | ) | 412,173 | - | - | |||||||||||||||||||||||||||||||
|
Share-based compensation expense
|
- | - | - | - | 339,625 | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
|
Tax impact of share based compensation
|
- | - | - | - | 33,457 | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
|
FIN 48 Adjustment
|
- | - | - | - | - | - | - | - | - | (58,543 | ) | - | ||||||||||||||||||||||||||||||||
|
Elimination of noncontrolling paid in capital
|
- | - | - | - | - | - | - | - | - | 16,069 | - | |||||||||||||||||||||||||||||||||
|
Distributions to noncontrolling interests
|
- | - | - | - | - | - | - | - | - | (752,882 | ) | - | ||||||||||||||||||||||||||||||||
|
Other
|
- | - | - | - | 1,902 | - | - | 1,878 | (16,704 | ) | - | - | ||||||||||||||||||||||||||||||||
|
Balance at July 31, 2008
|
2,661,498 | $ | 26,615 | 1,732,227 | $ | 17,323 | $ | 20,014,257 | $ | 19,664,147 | $ | 834,667 | 130,141 | $ | (1,302,663 | ) | $ | 4,169,247 | $ | 9,333,989 | ||||||||||||||||||||||||
|
Net income
|
- | - | - | - | - | 5,221,274 | - | - | - | 1,668,066 | 6,889,340 | |||||||||||||||||||||||||||||||||
|
Foreign currency translation adjustment
|
- | - | - | - | - | - | (402,403 | ) | - | - | 20,590 | (381,813 | ) | |||||||||||||||||||||||||||||||
|
Cash dividends paid ($.39 per share)
|
- | - | - | - | - | (1,594,653 | ) | - | - | - | - | - | ||||||||||||||||||||||||||||||||
|
Unrealized investment
gain, net |
- | - | - | - | - | - | 9,701 | - | - | - | 9,701 | |||||||||||||||||||||||||||||||||
|
Conversion of common stock - B to A
|
16,153 | 161 | (16,153 | ) | (161 | ) | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||
|
Repurchase of Class A common stock
|
- | - | - | - | - | - | - | 207,941 | (1,832,123 | ) | - | - | ||||||||||||||||||||||||||||||||
|
Issuance of stock under stock award plan
|
- | - | - | - | (376,176 | ) | - | - | (37,580 | ) | 376,176 | - | - | |||||||||||||||||||||||||||||||
|
Share-based compensation expense
|
- | - | - | - | 446,412 | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
|
Sale of subsidiary shares to noncontrolling interests
|
- | - | - | - | - | - | - | - | - | 41,229 | - | |||||||||||||||||||||||||||||||||
|
Distributions to
noncontrolling interests
|
- | - | - | - | - | - | - | - | - | (625,677 | ) | - | ||||||||||||||||||||||||||||||||
|
Other
|
- | - | - | - | 9,459 | - | - | 6,589 | (60,528 | ) | - | - | ||||||||||||||||||||||||||||||||
|
Balance at July 31, 2009
|
2,677,651 | $ | 26,776 | 1,716,074 | $ | 17,162 | $ | 20,093,952 | $ | 23,290,768 | $ | 441,965 | 307,091 | $ | (2,819,138 | ) | $ | 5,273,455 | $ | 6,517,228 | ||||||||||||||||||||||||
|
Net income
|
- | - | - | - | - | 4,257,607 | - | - | - | 2,299,060 | 6,556,667 | |||||||||||||||||||||||||||||||||
|
Foreign currency translation adjustment
|
- | - | - | - | - | - | 423,493 | - | - | (59,236 | ) | 291,546 | ||||||||||||||||||||||||||||||||
|
Cash dividends paid ($.42 per share)
|
- | - | - | - | - | (1,747,572 | ) | - | - | - | - | - | ||||||||||||||||||||||||||||||||
|
Unrealized investment gain, net
|
- | - | - | - | - | - | 23,159 | - | - | - | 23,159 | |||||||||||||||||||||||||||||||||
|
Conversion of common stock - B to A
|
7,421 | 74 | (7,421 | ) | (74 | ) | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||
|
Issuance of stock under stock award plan
|
- | - | - | - | (372,172 | ) | - | - | (42,675 | ) | 372,172 | - | - | |||||||||||||||||||||||||||||||
|
Share-based compensation expense
|
- | - | - | - | 485,945 | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
|
Tax impact of share based compensation
|
- | - | - | - | 102,737 | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
|
Sale of subsidiary shares to noncontrolling interests
|
- | - | - | - | - | - | - | - | - | 227,562 | - | |||||||||||||||||||||||||||||||||
|
Distributions to noncontrolling interests
|
- | - | - | - | - | - | - | - | - | (845,106 | ) | - | ||||||||||||||||||||||||||||||||
|
Purchase of additional noncontrolling interests
|
- | - | - | - | (254,181 | ) | - | (72,711 | ) | (66,667 | ) | 616,670 | (2,526,094 | ) | - | |||||||||||||||||||||||||||||
|
Other
|
- | - | - | - | 2,919 | - | - | 3,513 | (25,170 | ) | - | - | ||||||||||||||||||||||||||||||||
|
Balance at July 31, 2010
|
2,685,072 | $ | 26,850 | 1,708,653 | $ | 17,088 | $ | 20,059,200 | $ | 25,800,803 | $ | 815,906 | 201,262 | $ | (1,855,466 | ) | $ | 4,369,641 | $ | 6,871,372 | ||||||||||||||||||||||||
|
The accompanying notes are an integral part of these consolidated financial statements.
|
||||||||||||||||||||||||||||||||||||||||||||
Ecology and Environment, Inc.
Notes to Consolidated Financial Statements
|
1.
|
Summary of Operations and Basis of Presentation
|
Ecology and Environment, Inc., (“EEI” or “Company”) is a global broad-based environmental consulting 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’s staff is comprised of individuals representing 85 scientific, engineering, health, and social disciplines working together in multidisciplinary teams to provide innovative environmental solutions. The Company has completed more than 50,000 projects for a wide variety of clients in 96 countries, providing environmental solutions in nearly every ecosystem on our planet. Revenues reflected in the Company's consolidated statements of income represent services rendered for which the Company maintains a primary contractual relationship with its customers. Included in revenues are certain services outside the Company's normal operations which the Company has elected to subcontract to other contractors.
During fiscal years ended July 31, 2010, 2009 and 2008, the percentages of total revenues derived from contracts exclusively with the United States Department of Defense (DOD) were 8%, 14% and 11%.
|
2.
|
Summary of Significant Accounting Policies
|
|
|
a.
|
Consolidation
|
The consolidated financial statements include the accounts of the Company and its wholly owned and majority owned subsidiaries. Also reflected in the consolidated financial statements is the 50% ownership in the Chinese operating joint venture, The Tianjin Green Engineering Company. This joint venture is accounted for under the equity method. All significant intercompany transactions and balances have been eliminated.
|
|
b.
|
Use of estimates
|
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions as of the date of the financial statements, which affect the reported values of assets and liabilities and revenues and expenses and disclosures of contingent assets and liabilities. Actual results may differ from those estimates.
|
|
c.
|
Reclassifications
|
Certain prior year amounts were reclassified to conform to the fiscal year 2010 consolidated financial statement presentation.
d. Codification
In June 2009, the Financial Accounting Standards Board (FASB) voted to approve the FASB Accounting Standards Codification (Codification) as the single source of authoritative nongovernmental U.S. generally accepted accounting principles. The Company adopted the Codification requirements beginning with its October 31, 2009 financial statements. The FASB Codification does not change U.S. generally accepted accounting principles, but combines all authoritative standards such as those issued by the FASB, the American Institute of Certified Public Accountants and the Emerging Issues Task Force into a comprehensive, topically organized online database.
|
|
e.
|
Revenue recognition
|
Substantially all of the Company's revenue is derived from environmental consulting work. The consulting revenue is principally derived from the sale of labor hours. The consulting work is performed under a mix of fixed price, cost-type, and time and material contracts. Contracts are required from all customers. Revenue is recognized as follows:
|
Contract Type
|
Work Type
|
Revenue Recognition Policy
|
||
|
Time and Materials
|
Consulting
|
As incurred at contract rates.
|
||
|
Fixed Price
|
Consulting
|
Percentage of completion, approximating the ratio of either total costs or Level of Effort (LOE) hours incurred to date to total estimated costs or LOE hours.
|
||
|
Cost-Type
|
Consulting
|
Costs as incurred. Fixed fee portion is recognized using percentage of completion determined by the percentage of level of effort (LOE) hours incurred to total LOE hours in the respective contracts.
|
Substantially all of the Company's cost-type work is with federal governmental agencies and, as such, is subject to audits after contract completion. Under these cost-type contracts, provisions for adjustments to accrued revenue are recognized on
an annual basis and based on past audit settlement history. Government audits have been completed and final rates have been negotiated through fiscal year 2001. The balance in the allowance for contract adjustments accounts principally represents a reserve for contract adjustments for the fiscal years 1996-2010.
We reduce our accounts receivable and costs and estimated earnings in excess of billings on contracts in process by establishing an allowance for amounts that, in the future, may become uncollectible or unrealizable, respectively. We determine our estimated allowance for uncollectible amounts based on management’s judgments regarding our operating performance related to the adequacy of the services performed, the status of change orders and claims, our experience settling change orders and claims and the financial condition of our clients, which may be dependent on the type of client and current economic conditions.
Change orders can occur when changes in scope are made after project work has begun, and can be initiated by either the Company or its clients. Claims are amounts in excess of the agreed contract price which the Company seeks to recover from a client for customer delays and / or errors or unapproved change orders that are in dispute. Costs related to change orders and claims are recognized as incurred. Revenues are recognized on change orders (including profit) when it is probable that the change order will be approved and the amount can be reasonably estimated. Revenue on claims is not recognized until the claim is approved by the customer.
All bid and proposal and other pre-contract costs are expensed as incurred. Out of pocket expenses such as travel, meals, field supplies, and other costs billed direct to contracts are included in both revenues and cost of professional services. Sales and cost of sales at the Company’s South American subsidiaries exclude tax assessments by governmental authorities, which are collected by the Company from its customers and then remitted to governmental authorities.
|
|
f.
|
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 sheets and statements of changes in shareholders' equity and comprehensive income. The cost of securities sold is based on the specific identification method. The Company had cumulative unrealized gains of approximately $36,000 and $13,000 in fiscal years 2010 and 2009, respectively.
|
|
g.
|
Property, building and equipment, depreciation and amortization
|
Property, building and equipment are stated at the lower of cost or fair market value. 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 additional 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. 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.
|
|
h.
|
Fair value of financial instruments
|
The Company records and discloses certain financial assets and liabilities at their fair value. The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The Company has not elected a fair value option on any assets or liabilities.
The three levels of the hierarchy are as follows:
Level 1 Inputs – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Generally this includes debt and equity securities and derivative contracts that are traded on an active exchange market (e.g., New York Stock Exchange) as well as certain U.S. Treasury and U.S. Government and agency mortgage-backed securities that are highly liquid and are actively traded in over-the-counter markets.
Level 2 Inputs – Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; or valuations based on models where the significant inputs are observable (e.g., interest rates, yield curves, credit risks, etc.) or can be corroborated by observable market data.
Level 3 Inputs – Valuations based on models where significant inputs are not observable. The unobservable inputs reflect the Company’s own assumptions about the assumptions that market participants would use.
The following table presents the level within the fair value hierarchy at which the Company’s financial assets are measured on a recurring basis.
Financial assets as of July 31, 2010:
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
|
Assets
|
||||||||||||||||
|
Money market mutual funds
|
$
|
4,852,348
|
$
|
---
|
$
|
---
|
$
|
4,852,348
|
||||||||
|
Investment securities available for sale
|
50,895
|
1,254,844
|
---
|
1,305,739
|
||||||||||||
|
Total
|
$
|
4,903,243
|
$
|
1,254,844
|
$
|
---
|
$
|
6,158,087
|
||||||||
Financial assets as of July 31, 2009:
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
|
Assets
|
||||||||||||||||
|
Money market mutual funds
|
$
|
6,279,470
|
$
|
---
|
$
|
---
|
$
|
6,279,470
|
||||||||
|
Investment securities available for sale
|
50,895
|
1,161,510
|
---
|
1,212,405
|
||||||||||||
|
Total
|
$
|
6,330,365
|
$
|
1,161,510
|
$
|
---
|
$
|
7,491,875
|
||||||||
The carrying amount of cash and cash equivalents, contract receivables, notes receivable and accounts payable at July 31, 2010 and July 31, 2009 approximate fair value. Long-term debt consists of bank loans and capitalized equipment leases. Based on the Company's assessment of the current financial market and corresponding risks associated with the debt, management believes that the carrying amount of long-term debt at July 31, 2010 and July 31, 2009 approximates fair value. There were no financial instruments classified as level 3.
|
|
i.
|
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 transaction adjustments which are included in net income. There were no highly inflationary economy translation adjustments for fiscal years 2008-2010.
|
|
j.
|
Income taxes
|
The Company follows the asset and liabilities approach to account for income taxes. This approach requires the recognition of deferred tax assets and liabilities 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 change 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.
Income tax expense includes U.S. and international income taxes, determined using an estimate of the Company’s annual effective tax rate. A deferred tax liability is recognized for all taxable temporary differences, and a deferred tax asset is recognized for all deductible temporary differences and net operating loss carryforwards.
The Company has significant deferred tax assets, resulting principally from contract reserves, accrued compensation and fixed assets. The Company periodically evaluates the likelihood of realization of deferred tax assets, and has determined that no valuation allowance is necessary.
Additionally, the FASB ASC Topic Income Taxes, prescribes a recognition threshold and measurement principles for financial statement disclosure of tax positions taken or expected to be taken on a tax return. This topic also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.
A tax position is a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current or deferred income tax assets and liabilities. Tax positions shall be recognized only when it is more likely than not (likelihood of greater than 50%), based on technical merits, that the position will be sustained. Tax positions that meet the more likely than not threshold should be measured using a probability weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement. Whether the more-likely-than-not recognition threshold is met for a tax position, is a matter of judgment based on the individual facts and circumstances of that position evaluated in light of all available evidence. Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in administrative and indirect operating expenses.
|
|
k.
|
Pension costs
|
Ecology and Environment Inc. (Parent Company) has a non-contributory defined contribution plan providing deferred benefits for substantially all of the Parent Company's employees. The annual expense of the Parent Company's supplemental defined contribution plan is based on a percentage of eligible wages as authorized by the Parent Company's Board of Directors. Benefits under this plan are funded as accrued. Walsh Environmental (Walsh) has a defined contribution plan providing deferred benefits for substantially all of their employees. Walsh contributes a percentage of eligible wages up to a maximum of 4%. Expenses are recorded as they are accrued.
|
|
l.
|
Stock based compensation
|
The FASB ASC Topic Compensation requires companies to expense the value of employee stock options and similar awards. Share-based payment awards result in a cost that will be measured at fair value on the awards' grant date, based on the estimated number of awards that are expected to vest. Compensation cost for awards that vest would not be reversed if the awards expire without being exercised.
|
|
m.
|
Earnings per share (EPS)
|
Basic and diluted EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. The Company allocates undistributed earnings between the classes on a one-to-one basis when computing earnings per share. As a result, basic and fully diluted earnings per Class A and Class B shares are equal amounts. See Note 15 to Consolidated Financial Statements for additional information.
|
|
n.
|
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." 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.
|
|
|
o.
|
Impairment of Long-Lived Assets
|
The Company assesses recoverability of the carrying value of long-lived assets by estimating the future net cash flows (undiscounted) 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. The Company identified no events or changes in circumstances that necessitated an evaluation for an impairment of long lived assets.
|
|
p.
|
Goodwill
|
The total goodwill of approximately $1.1 million is subject to an annual assessment for impairment. The Company’s most recent annual impairment assessment for goodwill was completed during the fourth quarter of fiscal year 2010. The results of this assessment showed that the fair values of the reporting units, using a discounted cash flow method, to which goodwill is assigned was in excess of the book values of the respective reporting units, resulting in no goodwill impairment. Goodwill is also assessed for impairment between annual assessments whenever events or circumstances make it more likely than not that an impairment may have occurred. The Company identified no events or changes in circumstances that necessitated an evaluation for an impairment of goodwill.
|
|
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, 2010 and 2009, short-term investments consist of money market funds. Short-term investments amounted to approximately $4.9 million at July 31, 2010 and $6.3 million at July 31, 2009 and are reflected in cash and cash equivalents in the accompanying consolidated balance sheets and statements of cash flows.
4. Contract Receivables, net
|
July 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
United States government -
|
||||||||
|
Billed
|
$
|
2,445,658
|
$
|
2,546,741
|
||||
|
Unbilled
|
3,528,728
|
3,784,894
|
||||||
|
5,974,386
|
6,331,635
|
|||||||
|
Commercial customers and state and municipal governments -
|
||||||||
|
Billed
|
22,772,335
|
21,051,958
|
||||||
|
Unbilled
|
21,723,408
|
16,829,779
|
||||||
|
44,495,743
|
37,881,737
|
|||||||
|
Allowance for doubtful accounts and contract adjustments
|
(3,373,673
|
)
|
(2,520,338
|
)
|
||||
|
$
|
47,096,456
|
$
|
41,693,034
|
|||||
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. Management anticipates that the July 31, 2010 unbilled receivables will be substantially billed and collected within one year. Within the above billed balances are contractual retainages in the amount of approximately $546,000 at July 31, 2010 and $217,000 at July 31, 2009. Management anticipates that the July 31, 2010 retainage balance will be substantially collected within one year.
|
5.
|
Property, Building and Equipment, net
|
|
July 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Land and land improvements
|
$
|
393,051
|
$
|
673,970
|
||||
|
Buildings and building improvements
|
11,927,345
|
11,440,973
|
||||||
|
Equipment
|
3,198,889
|
2,614,176
|
||||||
|
Information technology equipment
|
8,660,433
|
7,871,267
|
||||||
|
Office furniture and equipment
|
3,501,428
|
3,182,009
|
||||||
|
Leasehold improvements and other
|
2,024,207
|
1,778,352
|
||||||
|
$
|
29,705,353
|
$
|
27,560,747
|
|||||
|
Accumulated depreciation and amortization
|
(21,040,900
|
)
|
(19,302,306
|
)
|
||||
|
$
|
8,664,453
|
$
|
8,258,441
|
|
6.
|
Line of Credit
|
The Company maintains an unsecured line of credit available for working capital and letters of credit of $20.2 million at interest rates ranging from 3% to 5% at July 31, 2010. Other lines are available solely for letters of credit in the amount of $13.5 million. The Company guarantees the line of credit of Walsh. Its lenders have reaffirmed the Company’s lines of credit within the past twelve months. At July 31, 2010 and July 31, 2009 the Company had letters of credit outstanding totaling approximately $4.9 million and $.6 million, respectively. After letters of credit and loans, there was $28.9 million of availability under the lines of credit at July 31, 2010.
|
7.
|
Debt and Capital Lease Obligations
|
Debt inclusive of capital lease obligations consists of the following:
|
July 31, 2010
|
July 31, 2009
|
|||||||
|
Various bank loans and advances at subsidiaries with interest rates ranging from 5% to 14%
|
$
|
1,450,247
|
$
|
531,031
|
||||
|
Capital lease obligations at subsidiaries with varying interest rates averaging 11%
|
245,082
|
284,241
|
||||||
|
1,695,329
|
815,272
|
|||||||
|
Current portion of debt and capital lease obligations
|
(928,027
|
)
|
(411,331
|
)
|
||||
|
Long-term debt and capital lease obligations
|
$
|
767,302
|
$
|
403,941
|
||||
The aggregate maturities of long-term debt and capital lease obligations at July 31, 2010 are as follows:
|
Amount
|
||||
|
Fiscal Year 2011
|
$
|
928,027
|
||
|
Fiscal Year 2012
|
610,184
|
|||
|
Fiscal Year 2013
|
92,549
|
|||
|
Fiscal Year 2014
|
52,440
|
|||
|
Fiscal Year 2015
|
12,129
|
|||
|
Thereafter
|
---
|
|||
|
$
|
1,695,329
|
|||
|
8.
|
Income Taxes
|
The provision (benefit) for income taxes for the years ended July 31 was as follows:
|
2010
|
2009
|
2008
|
||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$
|
1,381,857
|
$
|
(864,823
|
)
|
$
|
72,694
|
|||||
|
State
|
411,636
|
393,385
|
172,021
|
|||||||||
|
Foreign
|
1,636,274
|
1,289,842
|
980,152
|
|||||||||
|
3,429,767
|
818,404
|
1,224,867
|
||||||||||
|
Deferred:
|
||||||||||||
|
Federal
|
|
262,326
|
2,072,947
|
1,117,191
|
||||||||
|
State
|
77,151
|
33,019
|
84,164
|
|||||||||
|
Foreign
|
132,978
|
(363,473
|
)
|
(313,215
|
)
|
|||||||
|
472,455
|
1,742,493
|
888,140
|
||||||||||
|
$
|
3,902,222
|
$
|
2,560,897
|
$
|
2,113,007
|
A reconciliation of income tax expense (benefit) using the statutory U.S. income tax rate compared with actual income tax expense (benefit) for the years ended July 31 was as follows:
|
2010
|
2009
|
2008
|
|||
|
U.S. federal statutory income tax rate
|
34.0%
|
34.0%
|
34.0%
|
||
|
Re-evaluation of tax contingencies
|
---
|
(9.1%)
|
---
|
||
|
Income from "pass-through" entities taxable to noncontrolling partners
|
(1.3%)
|
(2.8%)
|
(5.8%)
|
||
|
International rate differences
|
(0.9%)
|
(0.1%)
|
(0.1%)
|
||
|
Foreign dividend income
|
1.9%
|
0.6%
|
0.7%
|
||
|
State taxes, net of federal benefit
|
3.1%
|
2.7%
|
4.1%
|
||
|
Other
|
0.5%
|
1.5%
|
5.1%
|
||
|
Total
|
37.3%
|
27.0%
|
38.0%
|
The significant components of deferred tax assets (liabilities) as of July 31 are as follows:
|
2010
|
2009
|
||||||||||||||
|
Current
|
Noncurrent
|
Current
|
Noncurrent
|
||||||||||||
|
Contract and other reserves
|
$
|
2,946,530
|
$
|
---
|
$
|
3,137,879
|
$
|
---
|
|||||||
|
Fixed assets and intangibles
|
---
|
527,294
|
---
|
574,558
|
|||||||||||
|
Accrued compensation and expenses
|
561,213
|
400,350
|
705,454
|
413,399
|
|||||||||||
|
Net operating loss carryforwards
|
---
|
234,693
|
---
|
81,481
|
|||||||||||
|
Foreign and state income taxes
|
---
|
80,666
|
73,420
|
---
|
|||||||||||
|
Accrued interest
|
---
|
---
|
19,259
|
---
|
|||||||||||
|
Federal benefit on state deferred taxes
|
(156,705
|
)
|
(51,663
|
)
|
(205,169
|
)
|
(52,162
|
)
|
|||||||
|
Other
|
206,119
|
99,957
|
406,673
|
143,169
|
|||||||||||
|
Net deferred tax assets
|
$
|
3,557,157
|
$
|
1,291,297
|
$
|
4,137,516
|
$
|
1,160,445
|
|||||||
|
Other
|
$
|
---
|
$
|
(289,531
|
)
|
$
|
---
|
$
|
(152,836
|
)
|
|||||
|
Net deferred tax liabilities
|
$
|
---
|
$
|
(289,531
|
)
|
$
|
---
|
$
|
(152,836
|
)
|
|||||
The FASB ASC Topic Income Taxes clarifies the accounting for uncertainty in income taxes and reduces the diversity in current practice associated with the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return by defining a “more-likely-than-not” threshold regarding the sustainability of the position. The first step involves assessing whether the tax position is more likely than not to be sustained upon examination based on the technical merits. The second step involves measurement of the amount to recognize. Tax positions that meet the more likely then not threshold are measured at the largest amount of tax benefit greater than 50% likely of being realized upon ultimate finalization with tax authorities. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in administrative and indirect operating expenses.
For fiscal year 2010, there was no one item that significantly impacted the change in the deferred tax assets and liabilities.
For fiscal year 2009, the net change in the deferred tax assets and liabilities was due mainly to a decrease in a deferred tax asset related to the settlement of a liability for uncertain tax positions. In March of 2009, the Company received a tax assessment from the Kuwait Ministry of Finance in the amount of approximately $2.6 million related to the contested taxes resulting from the work performed for the Public Authority for Assessment of Compensation for Damages Resulting from Iraqi Aggression
(PAAC). A liability had been previously accrued for this tax including interest and penalties of approximately $4.3 million. The Company reached a favorable settlement with the Ministry of Finance in April 2009. Accordingly, the Company has derecognized the remaining accrual of approximately $1.4 million (net of deferred tax) by reducing the income tax provision by $870,000 and reducing interest expense and general and administrative costs each by $275,000. For the fiscal year ended July 31, 2009, the Company incurred a foreign exchange gain of $275,000 to adjust both the accrual for uncertain tax positions related to the Kuwait tax reserve and the related federal tax benefit to current exchange rates.
The Company has not recorded income taxes applicable to undistributed earnings of all foreign subsidiaries that are indefinitely reinvested in those operations. At July 31, 2010, these amounts of undistributed earnings related primarily to operations in Saudi Arabia, Chile, Peru and Ecuador of approximately $5,693,000.
The Company files numerous consolidated and separate income tax returns in the U.S. federal jurisdiction and in many state and foreign jurisdictions. In September of 2007, the Internal Revenue Service (IRS) concluded the audits of fiscal 2004 through 2006. In fiscal year 2010, the IRS completed the audit for fiscal year 2008 with no proposed changes. In September 2010, the IRS completed the audit for fiscal year 2009 with no proposed changes. The Company’s tax matters for the fiscal year 2007 remains subject to examination by the IRS. The Company’s New York State tax matters have been concluded for years through fiscal 2005 and the statute of limitations has expired for fiscal 2006. The Company’s tax matters in other material jurisdictions remain subject to examination by the respective state, local, and foreign tax jurisdiction authorities. No waivers have been executed that would extend the period subject to examination beyond the period prescribed by statute.
As of July 31, 2010, for federal income tax return purposes, the Company has used all of their U.S. net operating loss carryforwards. The remaining net operating losses pertain to losses in Brazil.
At July 31, 2010 and July 31, 2009, the Company had approximately $241,000 and $290,000, respectively, of gross unrecognized tax benefits (UTPs) that if recognized, would favorably affect the effective income tax rate in future periods. It is reasonably possible that the liability associated with our UTPs will increase or decrease within the next twelve months. At this time, an estimate of the range of the reasonably possible outcomes cannot be made. At July 31, 2010 and 2009, the liability for UTPs and associated interest and penalties are classified as noncurrent liabilities.
A reconciliation of the beginning and ending amount of UTPs as of July 31 is as follows:
|
2010
|
2009
|
|||||||
|
Beginning balance
|
$
|
290,495
|
$
|
2,746,504
|
||||
|
Adjustment for foreign currency affect on items already recorded
|
---
|
(206,542
|
)
|
|||||
|
Reductions for tax positions of prior years for:
|
||||||||
|
- Changes in judgment
|
(4,627
|
)
|
---
|
|||||
|
- Settlements during the period
|
---
|
(2,249,467
|
)
|
|||||
|
- Changes in non-controlling interests
|
19,530
|
---
|
||||||
|
- Lapses of the applicable statute of limitations
|
(64,498
|
)
|
---
|
|||||
|
Ending balance
|
$
|
240,900
|
$
|
290,495
|
||||
9. Other Accrued Liabilities
|
July 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Allowance for contract adjustments
|
$ | 3,483,876 | $ | 3,417,828 | ||||
|
Billings in excess of revenue
|
3,891,381 | 4,101,761 | ||||||
|
Other
|
1,442,922 | 1,530,406 | ||||||
| $ | 8,818,179 | $ | 9,049,995 | |||||
Included in other accrued liabilities is an allowance for contract adjustments relating to potential cost disallowances on amounts billed and collected in current and prior years' projects of approximately $3.5 million at July 31, 2010 and July 31, 2009. The allowance for contract adjustments is recorded for contract disputes and government audits when the amounts are estimatable.
|
10.
|
Stock Award Plan
|
Ecology and Environment, Inc. has adopted a 1998 Stock Award Plan effective March 16, 1998 (1998 Plan). To supplement the 1998 Plan, a 2003 Stock Award Plan (2003 Plan) was approved by the shareholders at the Annual Meeting held in January 2004 and a 2007 Stock Award Plan (2007 Plan) was approved by the shareholders at the Annual Meeting held in January of 2008 (the 1998 Plan, 2003 Plan and the 2007 Plan collectively referred to as the Award Plan). The 2003 Plan was approved retroactive to October 16, 2003 and terminated on October 15, 2008 and the 2007 Plan was approved retroactive to October 18, 2007 and will terminate October 17, 2012. Under the Award Plan key employees (including officers) of the Company or any of its present or future subsidiaries may be designated to received 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 Company stock at the time of the award. The Award Plan authorizes the Company's board of directors to determine for what period of time and under what circumstances awards can be forfeited.
The Company awarded 42,675 shares valued at approximately $707,000 in October 2009 pursuant to the Award Plan. These awards issued have a three year vesting period. The "pool" of excess tax benefits accumulated in Capital in Excess of Par Value was $225,000 and $122,000 at July 31, 2010 and July 31, 2009, respectively. Total gross compensation expense is recognized over the vesting period. Unrecognized compensation expense was approximately $551,000 and $370,000 at July 31, 2010 and July 31, 2009, respectively.
11. 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.
|
Cash Dividend
|
For fiscal year 2010 and 2009, the Company declared cash dividends of approximately $1.7 million and $1.6 million, respectively. Within accounts payable, the Company recorded outstanding dividend payables at July 31, 2010 and 2009 of approximately $880,000 and $817,000.
|
|
c.
|
Stock Repurchase
|
|
|
The Company purchased 207,941 shares of its Class A common stock during the fiscal year ended July 31, 2009 pursuant the Company’s share repurchase program. In October of 2008, the Company repurchased 197,594 shares of Class A common stock at $8.75 per share in a single transaction. The Company’s Board of Directors approved a 200,000 share repurchase program in January 2004 and an additional 200,000 share repurchase program in February 2006.
|
d. Noncontrolling Interest
On August 1, 2009, the Company adopted authoritative accounting guidance that requires the ownership interests in subsidiaries held by parties other than the parent, and income attributable to those parties, be clearly identified and distinguished in the parent’s consolidated financial statements. Consequently, the Company’s noncontrolling interest is now disclosed as a separate component of the Company’s consolidated equity on the balance sheets, rather than a “mezzanine” item between liabilities and equity. Further, earnings and other comprehensive income are now separately attributed to both the controlling and noncontrolling interests. Earnings per share continues to be calculated based on net income attributable to the Company’s controlling interest. The impact on the Company’s financial position and results of operations from the adoption of this authoritative accounting guidance is presented in the tables below:
|
Fiscal year ended
July 31, 2009
Consolidated Statements
of Operations
|
Fiscal year ended
July 31, 2008
Consolidated Statements
of Operations
|
|||||||||||||||
|
As Reported
|
As Adjusted
|
As Reported
|
As Adjusted
|
|||||||||||||
|
Minority interest
|
$ | (1,668,066 | ) | $ | --- | $ | (1,606,338 | ) | $ | --- | ||||||
|
Net income
|
5,221,274 | 6,889,340 | 1,834,386 | 3,440,724 | ||||||||||||
|
Net income attributable to noncontrolling interests
|
--- | 1,668,066 | --- | 1,606,338 | ||||||||||||
|
Net income attributable to Ecology and Environment, Inc.
|
--- | 5,221,274 | --- | 1,834,386 | ||||||||||||
On January 28, 2010 the Company purchased an additional equity of 18.7% or approximately $2,360,000 of Walsh from noncontrolling shareholders for $3,000,000. One third of the purchase price was paid in cash, one third was paid with the Company's stock, and the remainder was taken as loans carrying an interest rate of 5% to be repaid over a two year period. The purchase price that was paid to the noncontrolling shareholders was at a premium over the book value of the stock. This has created an entry to reduce the additional paid in capital account of approximately $638,000. On March 1st, Walsh purchased an 80% ownership interest in Lowham - Walsh Environmental Services LLC. This transaction was an asset purchase of the former Lowham Engineering LLC in Wyoming. Walsh contributed cash and assets into the newly formed entity and issued a five year promissory note bearing a six percent annualized interest rate for the assets of the former company. All other transactions with noncontrolling shareholders for fiscal year ended July 31, 2010 were made at a value approximating book value.
Effects of changes in the Company’s ownership interest in its subsidiaries on the Company’s equity:
|
Fiscal year
ended
July 31,
2010
|
Fiscal year
ended
July 31,
2009
|
|||||||
|
Transfers to noncontrolling interest:
|
||||||||
|
Sale of 310 Walsh common shares
|
$
|
---
|
$
|
64,920
|
||||
|
Sale of 20 Walsh common shares
|
---
|
4,188
|
||||||
|
Sale of 160 Walsh common shares
|
40,850
|
---
|
||||||
|
Sale of 196 Walsh common shares
|
50,040
|
---
|
||||||
|
Sale of 200 Lowham – Walsh common shares
|
52,222
|
---
|
||||||
|
Sale of 15,000 Walsh Peru common shares
|
84,450
|
---
|
||||||
|
Total transfers to noncontrolling interest
|
227,562
|
69,108
|
||||||
|
Transfers from noncontrolling interest:
|
||||||||
|
Purchase of 112 Walsh common shares
|
---
|
(27,332
|
)
|
|||||
|
Purchase of 2 Walsh Peru common shares
|
---
|
(547
|
)
|
|||||
|
Purchase of 182 Walsh common shares
|
(59,486
|
)
|
---
|
|||||
|
Purchase of 7,343 Walsh common shares
|
(2,289,778
|
)
|
---
|
|||||
|
Purchase of 11,000 Walsh Peru common shares
|
(126,830
|
)
|
---
|
|||||
|
Purchase of 50 Gestion Ambiental Consultores common shares
|
(50,000
|
)
|
---
|
|||||
|
Total transfers from noncontrolling interest
|
(2,526,094
|
)
|
(27,879
|
)
|
||||
|
Transfers to (from) noncontrolling interest
|
$
|
(2,298,532
|
)
|
$
|
41,229
|
|||
There were no transfers to (from) noncontrolling interest in fiscal year 2008.
|
12.
|
Shareholders' Equity - Restrictive Agreement
|
Messrs. Gerhard J. Neumaier, Frank B. Silvestro, Ronald L. Frank and Gerald A. Strobel entered into a Stockholders' Agreement in 1970 which governs the sale of certain shares of common stock owned by them, the former spouse of one of the
individuals and some of their children. The agreement provides that prior to accepting a bona fide offer to purchase the certain covered 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.
|
13.
|
Lease Commitments
|
The Company rents certain office facilities and equipment under non-cancelable operating leases. The Company also rents certain facilities for servicing project sites over the term of the related long-term government contracts.
At July 31, 2010, future minimum rental commitments are as follows:
|
Fiscal Year
|
Amount
|
|||
|
2011
|
$
|
2,892,723
|
||
|
2012
|
2,315,135
|
|||
|
2013
|
2,056,010
|
|||
|
2014
|
1,521,590
|
|||
|
2015
|
831,612
|
|||
|
Thereafter
|
1,135,407
|
|||
Lease agreements may contain step rent provisions and/or free rent concessions. Lease payments based on a price index have rent expense recognized on a straight line or substantially equivalent basis, and they are included in the calculation of minimum lease payments. Gross rental expense under the above lease commitments for 2010, 2009, and 2008 was approximately $3.2 million, $3.0 million and $2.6 million, respectively.
|
14.
|
Defined Contribution Plans
|
Contributions to the Parent Company’s defined contribution plan and supplemental retirement plan are discretionary and determined annually by the Board of Directors. Walsh’s defined contribution plan provides for mandatory employer contributions to match 100% of employee contributions up to 4% of each participant’s compensation. The total expense under the plans for fiscal years 2010, 2009, and 2008 was approximately $2.0 million, $1.8 million, and $1.6 million, respectively.
|
15.
|
Earnings Per Share
|
The computation of basic earnings per share reconciled to diluted earnings per share follows:
|
|
Fiscal Year
|
|||||||||||
|
2010
|
2009
|
2008
|
||||||||||
|
Total income available to common stockholders
|
$
|
4,257,607
|
$
|
5,221,274
|
$
|
1,834,386
|
||||||
|
Dividend paid
|
1,747,572
|
1,594,653
|
1,535,492
|
|||||||||
|
Undistributed earnings
|
2,510,035
|
3,626,621
|
298,894
|
|||||||||
|
Weighted-average common shares outstanding: basic and diluted
|
4,160,816
|
4,115,921
|
4,259,663
|
|||||||||
|
Distributed earnings per share
|
$
|
.42
|
$
|
.39
|
$
|
.36
|
||||||
|
Undistributed earnings per share
|
.60
|
.88
|
.07
|
|||||||||
|
Total earnings per share
|
1.02
|
1.27
|
.43
|
|||||||||
After consideration of all the rights and privileges of the Class A and Class B stockholders discussed in Note 11, in particular the right of the holders of the Class B common stock to elect no less than 75% of the Board of Directors making it highly unlikely that the Company will pay a dividend on Class A common stock in excess of Class B common stock, the Company allocates undistributed earnings between the classes on a one-to-one basis when computing earnings per share. As a result, basic and fully diluted earnings per Class A and Class B share are equal amounts.
Effective August 1, 2009, the Company has determined that its unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities. These securities shall be included in the computation of earnings per share (EPS) pursuant to the two-class method. The resulting impact was to include unvested restricted shares in the basic weighted average shares outstanding calculation. The impact for fiscal years 2010, 2009, and 2008 was approximately 109,000, 133,000, and 95,000 shares, respectively.
|
16.
|
Segment Reporting
|
Segment information for fiscal year ended July 31, 2010 are as follows:
Geographic information:
|
Revenue
|
Long-Lived
Assets
|
|||||||
|
United States
|
$ | 101,840,534 | $ | 25,991,353 | ||||
|
Foreign countries
|
43,034,000 | 3,714,000 | ||||||
Segment information for fiscal year ended July 31, 2009 are as follows:
Geographic information:
|
Revenue
|
Long-Lived
Assets
|
|||||||
|
United States
|
$ | 116,571,938 | $ | 24,830,747 | ||||
|
Foreign countries
|
30,315,000 | 2,730,000 | ||||||
Segment information for fiscal year ended July 31, 2008 are as follows:
Geographic information:
|
Revenue
|
Long-Lived
Assets
|
|||||||
|
United States
|
$ | 88,931,816 | $ | 23,929,584 | ||||
|
Foreign countries
|
21,601,000 | 2,724,000 | ||||||
|
17.
|
Commitments and Contingencies
|
From time to time, the Company is a named 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, financial condition, cash flows, 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.
Certain contracts contain termination provisions under which the customer 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. Generally, termination costs include unpaid costs incurred to date, earned fees and any additional costs directly allocable to the termination.
|
18.
|
Recent Accounting Pronouncements
|
In June 2009, the FASB issued guidance on the consolidation of variable interest entities, which required revised evaluations of whether entities represent variable interest entities, ongoing assessments of control over such entities, and additional disclosures for variable interests. The Company is required to adopt these provisions on August 1, 2010. The Company does not believe the adoption will have a material impact on the Company's consolidated financial position, results of operations or cash flows.
In January 2010, the Financial Accounting Standards Board updated the authoritative guidance for fair value measurements with new disclosure requirements. These requirements include disclosures on the transfers of assets and liabilities between Level 1 (measurements based on quoted prices in active markets for identical assets or liabilities) and Level 2 (measurements based on significant other observable inputs) of the fair value measurement hierarchy, and a roll-forward of activities on purchases, sales, issuance, and settlements of Level 3 (measurements based on significant unobservable inputs) assets and liabilities. The new disclosures are effective for annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll-forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010. The Company does not believe the adoption of this guidance will have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
|
19.
|
Supplemental Cash Flow Information Disclosure
|
For purposes of the consolidated statements 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 approximately $224,000, $181,000, and $125,000 for fiscal years 2010, 2009, and 2008, respectively. Cash paid for income taxes amounted to approximately $1.5 million, $2.2 million, and $1.2 million for fiscal years 2010, 2009, and 2008, respectively. On March 1st, 2010, as part of the formation of Lowham - Walsh Environmental Services LLC., the entity issued a five year promissory note for approximately $80,000 bearing a six percent annualized interest rate. During the second quarter of fiscal year 2010, the Company purchased an additional 18.7% of Walsh from its noncontrolling shareholders for $3.0 million. One third of the purchase price was paid in cash, one third was paid with the Company’s stock, and the remainder was taken as loans to be repaid over a two year period. During fiscal year 2010, 2009 and 2008, Walsh Peru financed vehicles and computer equipment through capital leases of approximately $95,000, $273,000 and $43,000, respectively.
|
20.
|
Subsequent Event
|
On August 23, 2010 the Company purchased a 60% ownership interest in ECSI, LLC. This is a Lexington, Kentucky based engineering and environmental consulting company that specializes in mining work. The Company paid $1.0 million for this ownership interest. The newly formed company will be consolidated into the Company’s financial reporting for the first quarter of fiscal year 2011.
|
21.
|
Selected Quarterly Financial Data (unaudited)
|
|
|
(In thousands, except per share information)
|
|
2010
|
First
|
Second
|
Third
|
Fourth
|
||||||||||||
|
Revenues
|
$
|
39,475
|
$
|
31,062
|
$
|
33,350
|
$
|
40,988
|
||||||||
|
Income from operations
|
2,375
|
1,519
|
1,847
|
4,152
|
||||||||||||
|
Income from continuing operations before income taxes
|
3,176
|
1,349
|
1,781
|
4,153
|
||||||||||||
|
Net income
|
$
|
1,400
|
$
|
235
|
$
|
747
|
$
|
1,876
|
||||||||
|
Net income per common share: basic and diluted
|
$
|
.34
|
$
|
.06
|
$
|
.18
|
$
|
.44
|
||||||||
|
2009
|
First
|
Second
|
Third
|
Fourth
|
||||||||||||
|
Revenues
|
$
|
33,692
|
$
|
34,069
|
$
|
38,016
|
$
|
41,110
|
||||||||
|
Income from operations
|
3,194
|
2,125
|
1,583
|
2,543
|
||||||||||||
|
Income from continuing operations before income taxes
|
3,123
|
1,964
|
1,784
|
2,579
|
||||||||||||
|
Net income
|
$
|
1,475
|
$
|
965
|
$
|
1,722
|
$
|
1,059
|
||||||||
|
Net income per common share: basic and diluted
|
$
|
.35
|
$
|
.24
|
$
|
.42
|
$
|
.26
|
||||||||
ECOLOGY AND ENVIRONMENT, INC.
SCHEDULE II
Valuation and Qualifying Accounts
Years Ended July 31, 2010, 2009, and 2008
|
Balance at
beginning
of period
|
Increase
|
Decrease
|
Balance at
end of year
|
|||||||||||||
|
July 31, 2010
|
||||||||||||||||
|
Allowance for doubtful accounts and contract adjustments
|
$
|
2,520,338
|
$
|
1,463,072
|
$
|
609,737
|
$
|
3,373,673
|
||||||||
|
General cost disallowances
|
3,417,828
|
66,048
|
---
|
3,483,876
|
||||||||||||
|
Total
|
$
|
5,938,166
|
$
|
1,529,120
|
$
|
609,737
|
$
|
6,857,549
|
||||||||
|
July 31, 2009
|
||||||||||||||||
|
Allowance for doubtful accounts and contract adjustments
|
$
|
2,056,573
|
$
|
1,596,018
|
$
|
1,132,253
|
$
|
2,520,338
|
||||||||
|
General cost disallowances
|
3,969,980
|
9,848
|
562,000
|
3,417,828
|
||||||||||||
|
Total
|
$
|
6,026,553
|
$
|
1,605,866
|
$
|
1,694,253
|
$
|
5,938,166
|
||||||||
|
July 31, 2008
|
||||||||||||||||
|
Allowance for doubtful accounts and contract adjustments
|
$
|
1,740,523
|
$
|
968,399
|
$
|
652,349
|
$
|
2,056,573
|
||||||||
|
General cost disallowances
|
3,925,525
|
44,455
|
---
|
3,969,980
|
||||||||||||
|
Total
|
$
|
5,666,048
|
$
|
1,012,854
|
$
|
652,349
|
$
|
6,026,553
|
||||||||
None to report.
Item 9A. Controls and Procedures
Evaluation of disclosure controls and procedures and changes in internal control over financial reporting
As of July 31, 2010, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based on our management's evaluation (with the participation of our principal executive officer and principal financial officer), our principal executive officer and principal financial officer have concluded that, as of the end of the period covered by this Report, our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), were effective.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial officer and effected by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. GAAP. Internal controls include those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even effective internal control over financial reporting can only provide reasonable assurance of achieving their control objectives.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we assessed the effectiveness of our internal control over financial reporting as of July 31, 2010 based on the criteria in Internal Control—Integrated Framework issued by the COSO. Based upon this assessment, management has concluded that our internal control over financial reporting was effective as of July 31, 2010.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There were no changes in our system of internal control over financial reporting during the fiscal year ended July 31, 2010 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None to report.
PART III
The following table sets forth the names, ages and positions of the Directors and executive officers of the Company.
|
Name
|
Age
|
Position
|
|
Kevin S. Neumaier
|
46
|
President and Chief Executive Officer
|
|
Gerhard J. Neumaier
|
73
|
Chairman of the Board and Director
|
|
Frank B. Silvestro
|
73
|
Executive Vice President and Director
|
|
Gerald A. Strobel
|
70
|
Executive Vice President of Technical Services and Director
|
|
Ronald L. Frank
|
72
|
Executive Vice President, Secretary, and Director
|
|
H. John Mye III
|
58
|
Vice President, Chief Financial and Accounting Officer, and Treasurer
|
|
Gerard A. Gallagher, Jr.
|
79
|
Director
|
|
Laurence M. Brickman
|
66
|
Senior Vice President
|
|
Michael C. Gross
|
50
|
Director
|
|
Ross M. Cellino
|
78
|
Director
|
|
Timothy Butler
|
69
|
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. Below is information about each of the Directors that briefly discusses the specific experience, qualifications, attributes or skills that led the Board of Directors to conclude that each Director should serve on the Board of Directors.
Mr. Kevin S. Neumaier serves as the President and Chief Executive Officer of the Company. Mr. Kevin S. Neumaier has previously worked as the Company’s Senior Vice President of Environmental Sustainability and Chief Information Officer. Mr. Kevin S. Neumaier has a B.S. in Civil/Environmental Engineering, a M.S. in Natural Science specializing in global ecology, and is a registered Professional Engineer.
Mr. Gerhard J. Neumaier is a founder of the Company and served as the President and a Director since its inception in 1970. On August 1, 2008, Mr. Kevin S. Neumaier became President. Mr. Gerhard J. Neumaier remains as Chairman of the Board of Directors. Mr. Gerhard J. 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 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. On January 18, 2008, Mr. Frank resigned his position as Chief Financial Officer and Treasurer of the Company. Mr. Frank continues in his positions as Executive Vice President, Secretary and Director of the Company. Mr. Frank has a B.S. in engineering and a M.S. in biophysics.
Messrs. Gerhard J. Neumaier, Silvestro, Strobel and Frank each have over forty years of work experience in managing the Company and knowing its customers, that make them uniquely qualified to serve as Directors.
Mr. Mye was appointed Chief Financial and Accounting Officer, a Vice President and Treasurer of the Company on January 18, 2008. Mr. Mye has an MBA and is a registered professional engineer in New York.
Mr. Gallagher joined the Company in 1972, has served as a Director since 1986, and retired from the Company in February 2001 as a Senior Vice President. Mr. Gallagher has a B.S. in physics. Mr. Gallagher’s tenure of over 37 years with the Company, principally in government contracting, provides an important understanding of the Company’s markets that makes him a valuable member of the Board.
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 January 21, 2010. Mr. Gross is employed by the State of New York, has a B.S. in accounting and is a licensed property and casualty insurance broker. Mr. Gross’ accounting and insurance experience provide important skills to the Board’s strategic decision-making process.
Mr. Cellino has been a Director of the Company since its inception in 1970. Mr. Cellino has an undergraduate major in economics and is an attorney and counselor-at-law retired from private practice. Mr. Cellino’s experience as the founder and managing partner of a Buffalo, NY law firm and over 40 year association with the Company provides the Board valuable managerial perspective and insight.
Mr. Butler has been a Director since 2003. Mr. Butler is a retired bank executive with 38 years of experience as a senior bank officer concentrating in business lending and finance. Mr. Butler has high-level financial, executive and management skills. His prior positions provided him with extensive experience in financial and budgeting matters, and he provides this experience to the Board.
The Company has a separately-designated standing Audit Committee established in accordance with section 3 (a) 58 (A) of the Securities Exchange Act of 1934 and the requirements of the American Stock Exchange and NASDAQ. The members of the Audit Committee are Timothy Butler, Ross M. Cellino, and Michael C. Gross.
The Board of Directors has designated that Mr. Butler is the Audit Committee financial expert serving on its audit committee. Mr. Butler is independent, as that term is used in Item 7(d)(3)(iv) of Schedule 14A of the Securities Exchange Act Regulations.
The Company has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer and controller, as well as all other employees and the directors of the Company. The code of ethics, which the Company calls its Code of Business Conduct and Ethics, was filed as an exhibit to the Company’s annual report on Form 10-K for the fiscal year ended July 31, 2004 and is posted on the Company's website at www.ene.com. If the Company makes any substantive amendments to, or grants a waiver (including an implicit waiver) from, a provision of its code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, and that relates to any element of the code of ethics definition enumerated in Item 406(b) of Regulation S-K, the Company will disclose the nature of such amendment or waiver in a current report on Form 8-K.
The Board Leadership Structure and Risk Oversight
The Board operates under the leadership of the Chairman. There is no prohibition in the Company’s bylaws that precludes the Chairman from also assuming the role of Chief Executive Officer. Since August 1, 2008, it has been the Company’s practice to have a different individual fill the role of Chairman and Chief Executive Officer, except for during times of transition when the same person may fill both roles in an interim capacity while an appropriate candidate is found to assume the vacant position. E&E believes the current leadership structure provides the appropriate balance of oversight, independence, administration and hands-on involvement in Board activities that are required for the efficient conduct of corporate governance activities.
The Board of Directors is responsible for overseeing the Company’s risk profile and management’s processes for managing risk. This oversight is conducted primarily through the Board’s Audit Committee. The Audit Committee focuses on financial risks, including those that could arise from accounting and financial reporting processes, as well as review of overall risk function and senior management’s establishment of appropriate systems and processes for managing areas of material risk to the Company, including, but not limited to, operational, financial, legal, regulatory and strategic risks.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s Executive Officers and Directors, and persons who beneficially own more than ten percent (10%) of the Company’s stock, to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission. Executive Officers, Directors and greater than ten percent (10%) beneficial owners are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the Company and written representations from the Company’s Executive Officers and Directors, the Company believes that during the fiscal year ending July 31, 2010 all Section 16(a) filing requirements applicable to its Executive Officers, Directors and greater than ten percent (10%) beneficial owners were complied with by such persons, except for the filing of a Form 4 statement by H. John Mye, III for an award of 1,054 Class A shares of Common Stock pursuant to the 2007 Stock Award Plan that occurred on October 14, 2009 but which statement was not filed until October 26, 2009 since Mr. Mye was out of town.
Item 11. Executive Compensation
The Company's Board of Directors, acting as a Compensation Committee of the whole (see item 1 Business - Corporate Governance/American Stock Exchange Rules), is responsible for overseeing all of the executive compensation and equity plans and programs to ensure that its officers and senior staff are compensated in a manner that is consistent with its competitively based annual and long term performance goals.
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, 2010, 2009 and 2008 of those persons who were at July 31, 2010 (i) the chief executive officer and chief executive officer elect, and (ii) the two other most highly compensated executive officers with annual salary and bonus for the fiscal year ended July 31, 2010 in excess of $100,000. In this report, the four persons named in the table below are referred to as the "Named Executives."
|
SUMMARY COMPENSATON TABLE
|
|||||||||||||
|
Annual Compensation
|
Long-Term Compensation
|
||||||||||||
|
Name and
Principal Position
|
Fiscal Year
|
Salary
|
Bonus (1)
|
Other
|
Stock Incentive Options (Shares)
|
Restricted Stock Awards (3)
|
Long-Term Compensation Payouts
|
All Other
(2)
|
Total
|
||||
|
Kevin S. Neumaier
|
2010
|
$200,000
|
$55,000
|
-0-
|
-0-
|
$12,648
|
-0-
|
$12,628
|
$280,276
|
||||
|
President and CEO
|
2009
|
$171,647
|
$55,000
|
-0-
|
-0-
|
$18,990
|
-0-
|
$11,683
|
$257,320
|
||||
|
2008
|
$136,590
|
$18,000
|
-0-
|
-0-
|
-0-
|
-0-
|
$8,024
|
$162,614
|
|||||
|
Gerhard J. Neumaier
|
2010
|
$357,315
|
$60,000
|
-0-
|
-0-
|
-0-
|
-0-
|
$12,919
|
$430,234
|
||||
|
Chairman of the Board
|
2009
|
$349,078
|
$60,000
|
-0-
|
-0-
|
-0-
|
-0-
|
$12,012
|
$421,090
|
||||
|
2008
|
$312,992
|
$36,000
|
-0-
|
-0-
|
-0-
|
-0-
|
$11,790
|
$360,782
|
|||||
|
Frank B. Silvestro
|
2010
|
$327,787
|
$60,000
|
-0-
|
-0-
|
-0-
|
-0-
|
$12,601
|
$400,388
|
||||
|
Executive Vice President and
|
2009
|
$320,280
|
$60,000
|
-0-
|
-0-
|
-0-
|
-0-
|
$11,602
|
$391,882
|
||||
|
Director
|
2008
|
$285,264
|
$36,000
|
-0-
|
-0-
|
-0-
|
-0-
|
$11,358
|
$332,622
|
||||
|
Gerald A. Strobel
|
2010
|
$327,787
|
$60,000
|
-0-
|
-0-
|
-0-
|
-0-
|
$12,919
|
$400,706
|
||||
|
Executive Vice President of
|
2009
|
$320,280
|
$60,000
|
-0-
|
-0-
|
-0-
|
-0-
|
$12,012
|
$392,292
|
||||
|
Technical Services and Director
|
2008
|
$285,264
|
$36,000
|
-0-
|
-0-
|
-0-
|
-0-
|
$11,790
|
$333,054
|
||||
|
|
(1)
|
Amounts earned for bonus compensation determined by the Board of Directors.
|
|
|
(2)
|
Represents group term life insurance premiums, contributions made by the Company to its Defined Contribution Plan accruals on behalf of each of the Named Executives.
|
|
|
(3)
|
As of July 31, 2010, there were 1,088 shares of the Company's Class A Common Stock which was restricted stock issued pursuant to the Company's Stock Award Plan issued to Kevin S. Neumaier having a value of $12,958.
|
Outstanding Equity Awards at July 31, 2010
The following table sets forth the information concerning the unvested restricted stock grants awarded to the CEO and each of the Named Executive Officers as of the end of fiscal year 2010:
|
Stock Awards
|
|||
|
Name
|
Number of Shares that
have not Vested (1)
|
Market Value of Shares
that have not Vested (2)
|
|
|
Kevin S. Neumaier
|
1,088
|
$12,958
|
|
|
(1)
|
The stock shares awarded have a three year vesting period.
|
|
(2)
|
Market Value is calculated based on the fair market value of the Company’s stock at July 31, 2010 ($11.91).
|
Stock Vested as of July 31, 2010
The following table sets forth the information concerning the amount of stock grants awarded to the CEO and each of the Named Executive Officers that had vested as of the end of fiscal year 2010:
|
Stock Awards
|
|||
|
Name
|
Number of Shares
Acquired on Vesting
|
Value Realized on
Vesting (1)
|
|
|
Kevin S. Neumaier
|
1,062
|
$12,648
|
|
|
(1)
|
Value realized reflects the market value of the stock at July 31, 2010 ($11.91).
|
Director Compensation
The following table shows the cash amounts earned by each non-employee director for his services in fiscal year 2010.
|
Name
|
Board Member Fees
|
Board Meeting Fees
|
Other (1)
|
Total Amount Paid
|
|
|
Harvey J. Gross
|
$16,720
|
$-0-
|
$-0-
|
$16,720
|
|
|
Michael C. Gross
|
$16,720
|
$-0-
|
$-0-
|
$16,720
|
|
|
Gerard A. Gallagher, Jr.
|
$33,440
|
$-0-
|
$34,755
|
$68,194
|
|
|
Ross M. Cellino
|
$33,440
|
$-0-
|
$-0-
|
$33,440
|
|
|
Timothy Butler
|
$33,440
|
$-0-
|
$-0-
|
$33,440
|
|
(1)
|
Other is the value paid under a consulting fee arrangement.
|
During fiscal year 2010, each non-employee director was compensated with a director fee in an annual rate of $33,440. The Directors fees were paid quarterly. Other than the directors fee the directors received no other compensation from the Company as director or as serving as members or the chairman of any committee of the Board of Directors. On October 27, 2009 Harvey J. Gross stated that he would not stand for re-election, but would finish his term. At the following Shareholders meeting Michael C. Gross was elected as a director.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters
The following table sets forth, as of September 30, 2010, 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
|
|||||||||
|
Name and Address (1)
|
Nature and Amount
of Beneficial
Ownership (2) (3)
|
Percent of
Class as
Adjusted (3)
|
Nature and Amount
of Beneficial
Ownership (2) (3)
|
Percent
Of Class
|
||||||
|
Gerhard J. Neumaier*
|
411,732
|
14.1%
|
373,933
|
22.7%
|
||||||
|
Frank B. Silvestro*
|
290,783
|
10.3%
|
290,783
|
17.7%
|
||||||
|
Ronald L. Frank*
|
206,230
|
7.8%
|
191,040
|
11.6%
|
||||||
|
Gerald A. Strobel*
|
218,652
|
7.9%
|
218,652
|
13.3%
|
||||||
|
Kevin S. Neumaier*
|
121,140
|
4.6%
|
114,878
|
7.0%
|
||||||
|
Kirsten Shelly
|
115,558
|
4.4%
|
115,558
|
7.0%
|
||||||
|
Wedbush, Inc. (4)
|
230,232
|
9.1%
|
---
|
|||||||
|
Franklin Resources, Inc. (5)
|
199,891
|
7.9%
|
---
|
|||||||
|
Dimensional Fund Advisors LP (6)
|
132,800
|
5.2%
|
---
|
|||||||
*See Footnotes in next table.
(1) The address for Gerhard J. Neumaier, Frank B. Silvestro, Ronald L. Frank, Gerald A. Strobel, Kevin S. Neumaier and Kirsten Shelly is c/o Ecology and Environment, Inc., 368 Pleasant View Drive, Lancaster, New York 14086, unless otherwise indicated. The address for Wedbush, Inc. is 1000 Wiltshire Blvd., Los Angeles, CA 90017-2459 and the address for Edward W. Wedbush and Wedbush Morgan Securities is P.O. Box 30014, Los Angeles, CA 90030-0014. The address for Franklin Resources, Inc. is One Franklin Parkway, San Mateo, CA 94403-1906. The address for Dimensional Fund Advisors LP is Palisades West, Building One, 6300 Bee Cave Road, Austin, TX 78746.
(2) Each named individual or corporation is 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 2,539,199 shares of Class A Common Stock issued and outstanding and 1,643,852 shares of Class B Common Stock issued and outstanding as of September 30, 2010. 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.
(4) Includes shares owned by subsidiaries and affiliates of Wedbush, Inc. based upon a Schedule 13-G filed on February 17, 2010.
(5) Includes shares owned by subsidiaries and affiliates of Franklin Resources, Inc. based upon a Schedule 13-G filed on February 9, 2010.
(6) Includes shares owned by subsidiaries and affiliates of Dimensional Fund Advisors LP based upon a Schedule 13-G filed on February 8, 2010.
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, 2010, 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
|
|||||||||||
|
Name (1)
|
Nature and Amount
of Beneficial
Ownership (2) (3)
|
Percent of
Class as
Adjusted (4)
|
Nature and Amount
of Beneficial
Ownership (2) (3)
|
Percent
of Class
|
||||||||
|
Gerhard J. Neumaier (5) (10)
|
411,732
|
14.1%
|
373,933
|
22.7%
|
||||||||
|
Frank B. Silvestro (10)
|
290,783
|
10.3%
|
290,783
|
17.7%
|
||||||||
|
Ronald L. Frank (6) (10)
|
206,230
|
7.8%
|
191,040
|
11.6%
|
||||||||
|
Gerald A. Strobel (7) (10)
|
218,652
|
7.9%
|
218,652
|
13.3%
|
||||||||
|
Gerard A. Gallagher, Jr.
|
62,606
|
2.4%
|
62,265
|
3.8%
|
||||||||
|
Ross M. Cellino (8)
|
17,392
|
*
|
1,102
|
*
|
||||||||
|
Michael C. Gross
|
6,149
|
*
|
5,949
|
(9)
|
*
|
|||||||
|
Timothy Butler
|
1,680
|
*
|
---
|
---
|
||||||||
|
Directors and Officers Group
(11 individuals)
|
1,364,198
|
35.8%
|
1,266,925
|
77.1%
|
* Less than 0.1%
(1) The address of each of the above shareholders is c/o Ecology and Environment, Inc., 368 Pleasant View Drive, Lancaster, New York 14086.
(2) Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended, beneficial ownership of a security consists of sole or shared voting power (including the power to vote or direct the vote) or sole or shared investment power (including the power to dispose or direct the disposition) with respect to a security whether through any contract, arrangement, understanding, relationship or otherwise. Unless otherwise indicated, the shareholders identified in this table have sole voting and investment power of the shares beneficially owned by them.
(3) Each named person and all Directors and officers as a group are deemed to be the beneficial owners of securities that may be acquired within 60 days through the exercise of exchange or conversion rights. The shares of Class A Common Stock issuable upon conversion by any such shareholder are not included in calculating the number of shares or percentage of Class A Common Stock beneficially owned by any other shareholder.
(4) There are 2,539,199 shares of Class A Common Stock issued and outstanding and 1,643,852 shares of Class B Common Stock issued and outstanding as of September 30, 2010. 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 551 shares of Class A Common Stock owned by Mr. Gerhard J. Neumaier's spouse, as to which he disclaims beneficial ownership. Includes 20,361 shares of Class A Common Stock owned by Mr. Gerhard J. Neumaier's Individual Retirement Account. Does not include any shares of Class A Common Stock or Class B Common Stock held by Mr. Gerhard J. Neumaier's adult children. Includes 2 shares of Class A Common Stock owned by a Partnership in which Mr. Gerhard J. Neumaier is a general partner.
(6) Includes 3,806 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 2,640 shares of Class A Common Stock owned by Mr. Frank's individual retirement account and 10,765 shares of Class A Common Stock owned by Mr. Frank’s 401(k) plan account.
(7) Includes 704 shares of Class B Common Stock held in equal amounts by Mr. Strobel as custodian for two of his children, as to which he disclaims beneficial ownership. Does not include any shares of Class B Common Stock held by a trust which one of his children created for which Mr. Strobel serves as Trustee.
(8) Includes 10,915 shares of Class A Common Stock owned by Mr. Cellino's spouse, as to which shares he disclaims beneficial ownership; also includes 5,260 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.
(9) Mr. Gross is one of three co-trustees of an inter vivos trust established by his parents for their benefit that owns these shares of Class B Common Stock and is a one-third contingent remainder beneficiary of the trust’s assets which include a total of 17,848 of such shares of which he disclaims beneficial interest in 11,899 of those shares.
(10) 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 certain shares of common stock owned by them, the former spouse of one of the individuals and the children of those individuals. The Agreement provides that prior to accepting a bona fide offer to purchase the certain covered 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.
Director Gerard A. Gallagher, Jr.'s son Gerard A. Gallagher, III, serves as a Senior Vice President with the company and received aggregate compensation of $225,645 for his services during fiscal year 2010, this included a onetime housing relocation reimbursement of $17,651. The company believes that compensation for him is commensurate with his peers and his relationships during 2010 were reasonable and in the best interest of the Company.
During the fiscal years ended July 31, 2010 and 2009, Schneider Downs & Co., Inc. (SD) provided audit and audit related services to the Company. The Audit Committee meets with the Company’s independent registered accounting firm to approve the annual scope of accounting services to be performed, including all audit, audit-related, and non-audit services, and the related fee estimates. The Audit Committee also meets with our independent registered accounting firm, on a quarterly basis, following completion of their quarterly reviews and annual audit before our earnings announcements, to review the results of their work. As appropriate, management and our independent registered accounting firm update the Audit Committee with material changes to any service engagement and related fee estimates as compared to amounts previously approved. Under its charter, the Audit Committee has the
authority and responsibility to review and approve, in advance, any audit and proposed permissible non-audit services to be provided to the Company by its independent registered public accounting firm. Set forth below are the aggregate fees billed for these services for the last two fiscal years.
|
FY 2010
|
FY 2009
|
|||||||
|
Audit Fees
|
$
|
261,717
|
$
|
263,114
|
||||
|
Audit Related Services
|
150,381
|
41,144
|
||||||
|
Grand Total
|
$
|
412,098
|
$
|
304,258
|
||||
Audit Fees: The aggregate fees accrued for professional services rendered for the audit of the Company's financial statements for the fiscal years ended July 31, 2010 and 2009 and for the reviews of the financial statements included in the Company's quarterly reports on Form 10-Q for the fiscal years ended July 31, 2010 and 2009 were $261,717 and $263,114, respectively. Also included in this number are expenses incurred related to accounting consultation services.
Audit Related Fees: The aggregate fees for the fiscal years ended July 31, 2010 and 2009 billed by SD relate to services rendered to the Company for 401(k), pension plan audits, and indirect rate audits. For the fiscal year ended July 31, 2010, approximately $100,000 was billed to the Company related to the Company's compliance with Sarbanes Oxley Section 404 prior to the change in legislation, which provided permanent deferral of Sarbanes Oxley Section 404(b).
PART IV
|
Page
|
|||
|
(a)
|
1.
|
Financial Statements
|
|
|
Report of Independent Registered Public Accounting Firm
|
23
|
||
|
Consolidated Balance Sheets - July 31, 2010 and 2009
|
24
|
||
|
Consolidated Statements of Income for the fiscal years ended July 31, 2010, 2009 and 2008
|
25
|
||
|
Consolidated Statements of Cash Flows for the Fiscal years ended July 31, 2010, 2009 and 2008
|
26
|
||
|
Consolidated Statements of Changes in Shareholders Equity for the fiscal years ended July 31, 2010, 2009 and 2008
|
27
|
||
|
Notes to Consolidated Financial Statements
|
28
|
||
|
2.
|
Financial Statement Schedule
|
||
|
Schedule II - Valuation and Qualifying Accounts
|
41
|
||
|
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)
|
|||
|
4.1
|
Specimen Class A Common Stock Certificate (1)
|
|||
|
4.2
|
Specimen Class B Common Stock Certificates (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 and Environment, Inc. Stock Award Plan and Amendments (3)
|
|||
|
10.7
|
2003 Ecology and Environment, Inc. Stock Award Plan (4)
|
|||
| 10.8 | 2007 Ecology and Environment, Inc. Stock Award Plan (5) | |||
|
14.1
|
Code of Ethics (4)
|
|||
|
21.5
|
Schedule of Subsidiaries as of July 31, 2009 (5)
|
|||
|
23.1
|
Consent of Independent Registered Public Accounting Firm - Schneider Downs & Co., Inc. (5)
|
|||
|
31.1
|
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (5)
|
|||
|
31.2
|
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (5)
|
|||
|
32.1
|
Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (5)
|
|||
|
32.2
|
Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (5
|
|
|
Footnotes
|
|
|
(1)
|
Filed as exhibits to the Company's Registration Statement on Form S-1, as amended by Amendment Nos. 1 and 2, (Registration No. 33-11543), and incorporated herein by reference.
|
|
|
(2)
|
Filed as exhibits to the Company's Form 10-K for Fiscal Year Ending July 31, 2002, and incorporated herein by reference.
|
|
|
(3)
|
Filed as exhibits to the Company's 10-K for the Fiscal Year Ended July 31, 2003, and incorporated herein by reference.
|
|
|
(4)
|
Filed as exhibits to the Company's 10-K for the Fiscal Year Ending July 31, 2004, and incorporated herein by reference.
|
|
|
(5)
|
Filed herewith.
|
|
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
ECOLOGY AND ENVIRONMENT, INC.
|
|
|
Dated: October 29, 2010
|
/s/ Kevin S. Neumaier
|
|
Kevin S. Neumaier, President and Chief Executive Officer
|
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/ Kevin S. Neumaier
|
||||
|
Kevin S. Neumaier
|
President and Chief Executive Officer
|
October 29, 2010
|
||
|
/s/ Gerhard J. Neumaier
|
||||
|
Gerhard J. Neumaier
|
Chairman of the Board and Director
|
October 29, 2010
|
||
|
/s/ Frank B. Silvestro
|
||||
|
Frank B. Silvestro
|
Executive Vice President and Director
|
October 29, 2010
|
||
|
/s/ Gerald A. Strobel
|
||||
|
Gerald A. Strobel
|
Executive Vice President of Technical Services and Director
|
October 29, 2010
|
||
|
/s/ Ronald L. Frank
|
||||
|
Ronald L. Frank
|
Executive Vice President, Secretary, and Director
|
October 29, 2010
|
||
|
/s/ H. John Mye III
|
||||
|
H. John Mye III
|
Vice President, Treasurer and Chief Financial and Accounting Officer
|
October 29, 2010
|
||
|
/s/ Gerard A. Gallagher, Jr.
|
||||
|
Gerard A. Gallagher, Jr.
|
Director
|
October 29, 2010
|
||
|
/s/ Ross M. Cellino
|
||||
|
Ross M. Cellino
|
Director
|
October 29, 2010
|
||
|
/s/ Timothy Butler
|
||||
|
Timothy Butler
|
Director
|
October 29, 2010
|
||
| /s/ Michael C. Gross | ||||
| Michael C. Gross | Director | October 29, 2010 |
Ecology and Environment, Inc. 10-K
Fiscal Year Ending July 31, 2010
- 52 -