ECOLOGY & ENVIRONMENT INC - FORM 10-K/A

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - ECOLOGY & ENVIRONMENT INC	Financial_Report.xls
EX-32.1 - ECOLOGY & ENVIRONMENT INC	ex32_1.htm
EX-32.2 - ECOLOGY & ENVIRONMENT INC	ex32_2.htm
EX-31.2 - ECOLOGY & ENVIRONMENT INC	ex31_2.htm
EX-31.1 - ECOLOGY & ENVIRONMENT INC	ex31_1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

þ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended July 31, 2012

o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from __________ to __________

Commission File Number 1-9065

ECOLOGY AND ENVIRONMENT, INC.

(Exact name of registrant as specified in its charter)

New York (State or other jurisdiction of incorporation or organization)						16-0971022 (IRS Employer Identification Number)


368 Pleasant View Drive, Lancaster, NY (Address of principal executive offices)						14086 (Zip code)


716-684-8060 (Registrant's telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act:
Title of each class						Name of each exchange on which registered
Class A Common Stock par value $.01 per share						NASDAQ Stock Exchange

	Securities registered pursuant to section 12(g) of the Act:
		None
		(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  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  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 

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  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. 

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).

Large accelerated filer			Accelerated filer	
Non-accelerated filer (Do not check if a smaller reporting company)			Smaller reporting company	þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No þ

Exhibit Index on Page 52

The aggregate market value of the Class A Common Stock held by non-affiliates as of January 31, 2012 (the last business day of the registrant's most recently completed second fiscal quarter) was $42,638,845. 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, 2012, 2,600,144 shares of the registrant's Class A Common Stock, $.01 par value (the "Class A Common Stock") were outstanding, and 1,643,773 shares of the registrant's Class B Common Stock, $.01 par value (the "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, 2004, 2010 and 2011 are incorporated by reference in Part IV of this Form 10-K.

Explanation of Second Amendment

The Registrant, Ecology and Environment, Inc., (the "Company" or "EEI"), filed a Form 10-K on November 14, 2012, as amended by Form 10-K/A also filed on November 14, 2012 to attach Interactive Data, with the Securities and Exchange Commission (the "SEC"). All items on Form 10-K as previously amended remain unchanged. This Amendment is being filed because of wording inadvertently omitted on Exhibit 31.1 and Exhibit 31.2. Attached hereto are those corrected exhibits together with Item 8 and Item 9A from Form 10-K. Also included here is Item 13 which now lists the independent directors.

Item 8. Financial Statements and Supplementary Data

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, 2012 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, 2012.

This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting.

By:	/s/Kevin S. Neumaier		By:	/s/H. John Mye III
	Kevin S. Neumaier Chief Executive Officer			H. John Mye III Chief Financial and Accounting Officer

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, 2012 and 2011, 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, 2012. 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 audit 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, 2012 and 2011, and the results of its operations and its cash flows for each of the years in the three-year period ended July 31, 2012 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

November 13, 2012

Ecology and Environment, Inc.
Consolidated Balance Sheets


Assets	July 31, 2012			July 31, 2011

Current assets:
Cash and cash equivalents	$	10,467,770		$	8,529,842
Investment securities, available for sale		1,404,582			1,491,459
Contract receivables, net		61,568,443			63,750,870
Deferred income taxes		4,799,724			4,949,368
Income tax receivable		2,502,431			-
Other current assets		1,802,843			2,254,415

Total current assets		82,545,793			80,975,954

Property, building and equipment, net of accumulated depreciation, $22,584,958 and $22,972,422, respectively		12,112,078			9,961,304
Deferred income taxes		860,499			1,300,181
Other assets		1,993,785			2,030,203

Total assets	$	97,512,155		$	94,267,642


Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable	$	11,492,602		$	13,097,765
Line of credit		12,309,335			-
Accrued payroll costs		7,529,728			9,146,711
Income taxes payable		-			1,195,741
Current portion of long-term debt and capital lease obligations		488,460			1,689,920
Billings in excess of revenue		8,281,919			7,727,725
Other accrued liabilities		3,932,588			6,139,423

Total current liabilities		44,034,632			38,997,285

Income taxes payable		194,023			339,027
Deferred income taxes		423,324			525,106
Long-term debt and capital lease obligations		102,635			448,391
Commitments and contingencies (see note #17)		-			-

Shareholders' equity:
Preferred stock, par value $.01 per share; authorized - 2,000,000 shares; no shares issued		-			-
Class A common stock, par value $.01 per share; authorized - 6,000,000 shares; issued - 2,685,151 shares		26,851			26,851
Class B common stock, par value $.01 per share; authorized - 10,000,000 shares; issued - 1,708,574 shares		17,087			17,087
Capital in excess of par value		19,751,992			19,983,029
Retained earnings		29,534,783			30,797,763
Accumulated other comprehensive income		711,842			1,527,189
Treasury stock - Class A common, 84,730 and 125,923 shares; Class B common, 64,801 shares, at cost		(1,897,032	)		(2,317,515	)

Total Ecology and Environment, Inc. shareholders' equity		48,145,523			50,034,404
Noncontrolling interests		4,612,018			3,923,429

Total shareholders' equity		52,757,541			53,957,833

Total liabilities and shareholders' equity	$	97,512,155		$	94,267,642

The accompanying notes are an integral part of these consolidated financial statements.

Ecology and Environment, Inc.
Consolidated Statements of Income


	Year ended July 31, 2012			Year ended July 31, 2011			Year ended July 31, 2010

Revenue	$	155,410,099		$	169,172,860		$	144,098,294

Cost of professional services and other direct operating expenses		55,632,281			65,914,987			49,623,816
Subcontract costs		32,315,179			31,325,937			30,292,117
Administrative and indirect operating expenses		44,917,631			42,534,303			38,166,067
Marketing and related costs		15,601,112			15,251,165			14,438,785
Depreciation and amortization		2,160,062			1,760,763			1,684,406

Income from operations		4,783,834			12,385,705			9,893,103
Interest expense		(364,305	)		(355,766	)		(222,558	)
Interest income		174,743			85,771			107,211
Other income (expense)		206,813			64,524			(68,349	)
Gain on sale of assets		-			290,526			809,200
Net foreign currency exchange gain (loss)		(403,419	)		284,411			(59,718	)

Income before income tax provision		4,397,666			12,755,171			10,458,889
Income tax provision		1,357,916			4,631,235			3,902,222

Net income	$	3,039,750		$	8,123,936		$	6,556,667

Net income attributable to the noncontrolling interest		(2,266,171	)		(1,163,673	)		(2,299,060	)

Net income attributable to Ecology and Environment, Inc.	$	773,579		$	6,960,263		$	4,257,607

Net income per common share: basic and diluted	$	0.18		$	1.65		$	1.02

Weighted average common shares outstanding: basic and diluted		4,233,883			4,222,688			4,160,816

The accompanying notes are an integral part of these consolidated financial statements.

Ecology and Environment, Inc
Consolidated Statements of Cash Flows


	Fiscal year ended July 31, 2012			Fiscal year ended July 31, 2011			Fiscal year ended July 31, 2010

Cash flows from operating activities:
Net income	$	3,039,750		$	8,123,936		$	6,556,667
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization expense		2,160,062			1,760,763			1,684,406
Benefit for deferred income taxes		487,544			(910,413	)		472,455
Share based compensation expense		731,583			541,175			485,945
Tax impact of share-based compensation		105,988			-			102,737
Gain on sale of assets		-			(290,526	)		(809,200	)
Provision for contract adjustments		1,810,557			2,943,470			637,846
Bad debt expense		514,411			450,000			-
(Increase) decrease in:
- contract receivables		(2,287,607	)		(18,286,613	)		(5,661,388	)
- other current assets		314,587			(114,402	)		233,414
- income tax receivable		(2,502,431	)		-			802,926
- other non-current assets		31,973			42,082			(64,430	)
Increase (decrease) in:
- accounts payable		(1,859,530	)		822,701			(3,120,409	)
- accrued payroll costs		(1,458,928	)		1,545,961			149,316
- income taxes payable		(1,375,614	)		(98,721	)		1,066,930
- billings in excess of revenue		1,237,329			3,396,873			(121,749	)
- other accrued liabilities		(936,135	)		1,084,505			18,273

Net cash provided by operating activities		13,539			1,010,791			2,433,739

Cash flows provided by (used in) investing activities:
Acquistion of noncontrolling interest of subsidiaries		(908,892	)		(637,745	)		(1,000,000	)
Purchase of Lowham Engineering LLC		-			-			(200,000	)
Purchase of Engineering Consulting Services, Inc., net of cash equivalents of $309,487		-			(790,513	)		-
Purchase of property, building and equipment		(4,443,962	)		(2,476,059	)		(1,992,724	)
Change in accounts payable due to purchase of equipment		(283,071	)		953,749			-
Proceeds from sale of property and equipment		-			322,807			959,200
Sale (purchase) of investment securities, net		102,527			(195,163	)		(55,791	)

Net cash used in investing activities		(5,533,398	)		(2,822,924	)		(2,289,315	)

Cash flows provided by (used in) financing activities:
Dividends paid		(2,046,657	)		(1,814,839	)		(1,684,482	)
Proceeds from debt		145,401			795,795			468,038
Repayment of debt and capital lease obligations		(974,644	)		(945,320	)		(778,035	)
Net proceeds from line of credit		12,309,335			-			-
Distributions to noncontrolling interests		(1,123,896	)		(847,749	)		(845,106	)
Proceeds from sale of subsidiary shares to noncontrolling interests		41,634			90,368			227,562
Purchase of treasury stock		(363,050	)		(1,335,960	)		-

Net cash provided by (used in) financing activities		7,988,123			(4,057,705	)		(2,612,023	)

Effect of exchange rate changes on cash and cash equivalents		(530,336	)		52,486			49,908

Net increase (decrease) in cash and cash equivalents		1,937,928			(5,817,352	)		(2,417,691	)
Cash and cash equivalents at beginning of period		8,529,842			14,347,194			16,764,885

Cash and cash equivalents at end of period	$	10,467,770		$	8,529,842		$	14,347,194

The accompanying notes are an integral part of these consolidated financial statements.

Ecology and Environment, Inc.
Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income



	Class A Common Stock Shares		Class A Common Stock Amount		Class B Common Stock Shares			Class B Common Stock Amount			Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock Shares			Treasury Stock Amount			Noncontrolling Interest			Comprehensive Income

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	)		(72,711	)
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		$	6,798,661

Net income		-		-		-			-			-			6,960,263			-			-			-			1,163,673			8,123,936
Foreign currency translation adjustment		-		-		-			-			-			-			686,380			-			-			12,119			698,499
Cash dividends paid ($.46 per share)		-		-		-			-			-			(1,963,303	)		-			-			-			-			-
Unrealized investment gain, net		-		-		-			-			-			-			(11,189	)		-			-			-			(11,189	)
Conversion of common stock - B to A		79		1		(79	)		(1	)		-			-			-			-			-			-			-
Repurchase of Class A common stock		-		-		-			-			-			-			-			84,002			(1,335,960	)		-			-
Issuance of stock under stock award plan		-		-		-			-			(482,061	)		-			-			(55,041	)		482,061			-			-
Share-based compensation expense		-		-		-			-			541,175			-			-			-			-			-			-
Sale of subsidiary shares to noncontrolling interests		-		-		-			-			-			-			-			-			-			90,368			-
Issuance of shares to noncontrolling interests		-		-		-			-			-			-			-			-			-			667,000			-
Distributions to noncontrolling interests		-		-		-			-			-			-			-			-			-			(847,749	)		-
Purchase of additional noncontrolling interests		-		-		-			-			(135,285	)		-			36,092			(39,895	)		391,850			(1,531,623	)		36,092
Stock award plan forfeitures		-		-		-			-			-			-			-			396			-			-			-

Balance at July 31, 2011		2,685,151	$	26,851		1,708,574		$	17,087		$	19,983,029		$	30,797,763		$	1,527,189			190,724		$	(2,317,515	)	$	3,923,429		$	8,847,338

Net income		-		-		-			-			-			773,579			-			-			-			2,266,171			3,039,750
Foreign currency translation adjustment		-		-		-			-			-			-			(871,476	)		-			-			124,455			(747,021	)
Cash dividends paid ($.48 per share)		-		-		-			-			-			(2,036,559	)		-			-			-			-			-
Unrealized investment gain, net		-		-		-			-			-			-			17,597			-			-			-			17,597
Repurchase of Class A common stock		-		-		-			-			-			-			-			22,825			(363,050	)		-			-
Issuance of stock under stock award plan		-		-		-			-			(716,662	)		-			-			(62,099	)		716,662			-			-
Share-based compensation expense		-		-		-			-			731,583			-			-			-			-			-			-
Tax impact of share based compensation		-		-		-			-			105,988			-			-			-			-			-			-
Sale of subsidiary shares to noncontrolling interests		-		-		-			-			-			-			-			-			-			41,634			-
Distributions to noncontrolling interests		-		-		-			-			-			-			-			-			-			(1,123,896	)		-
Purchase of additional noncontrolling interests		-		-		-			-			(351,946	)		-			38,532			(5,208	)		66,871			(619,775	)		38,532
Stock award plan forfeitures		-		-		-			-			-			-			-			3,289			-			-			-

Balance at July 31, 2012		2,685,151	$	26,851		1,708,574		$	17,087		$	19,751,992		$	29,534,783		$	711,842			149,531		$	(1,897,032	)	$	4,612,018		$	2,348,858

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., ("E & E" 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 122 countries, providing environmental solutions in nearly every ecosystem on the 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.

2.	Summary of Significant Accounting Policies

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 intercompany transactions and balances have been eliminated.

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.

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 a quarterly basis and based on past audit settlement history. Government audits have been completed and final rates have been negotiated through fiscal year 2005. The Company records an allowance for contract adjustments which is recorded in other accrued liabilities principally represents a reserve for contract adjustments for the fiscal years 1996-2012.

We reduce our contract receivables 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 that the client may be subject to.

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 and profit are recognized on change orders when it is probable that the change order will be approved and the amount can be reasonably estimated. Revenues are recognized only up to the amount of costs incurred on contract claims when realization is probable, estimatable and reasonable support from the customer exists.

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.

Investment securities

Investment securities have been classified as available for sale and are stated at 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. The cost basis of securities sold is based on the specific identification method. The Company had gross unrealized gains of approximately $42,000 and $24,000 at July 31, 2012 and 2011, respectively.

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.

Fair value of financial instruments

The Company's financial assets or liabilities are measured using inputs from the three levels of the fair value hierarchy. The asset's or liability's classification 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. The Company's investment securities classified as Level 1 are comprised of mutual funds.

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. The Company's investment securities classified as Level 2 are comprised of corporate and municipal bonds.

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, 2012:
	Level 1		Level 2		Level 3		Total
Assets
Investment securities available for sale	$	1,353,365	$	51,217	$	---	$	1,404,582

Financial assets as of July 31, 2011:
	Level 1		Level 2		Level 3		Total
Assets
Investment securities available for sale	$	1,438,286	$	53,173	$	---	$	1,491,459

The carrying amount of cash and cash equivalents at July 31, 2012 and 2011 were classified as level 1 and approximate fair value. Long-term debt consists of bank loans and capitalized equipment leases. The demand loan payable consists of borrowings against the Company's line of credit for working capital requirements. Based on the Company's assessment of the current financial market and corresponding risks associated with the debt and line of credit borrowings, management believes that the carrying amount of the liabilities at July 31, 2012 and 2011 were classified as level 2 and approximates fair value. There were no financial instruments classified as level 3.

The availability of observable market data is monitored to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period. The Company evaluated the significance of transfers between levels based upon the nature of the financial instrument. For the fiscal years ended July 31, 2012 and 2011, there were no transfers in or out of levels 1, 2 or 3, respectively.

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. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. The Company recorded foreign currency transaction gains/(losses) of approximately $(403,000), $284,000 and $(60,000) for the fiscal years ended July 31, 2012, 2011 and 2010, respectively.

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 2010- 2012.

Income taxes

The Company follows the asset and liability approach to account for income taxes. This approach requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Although realization is not assured, management believes it is more likely than not that the recorded net deferred tax assets will be realized. Since in some cases management has utilized estimates, the amount of the net deferred tax asset considered realizable could be

reduced in the near term. No provision has been made for United States income taxes applicable to undistributed earnings of foreign subsidiaries as it is the intention of the Company to indefinitely reinvest those earnings in the operations of those entities.

Income tax expense includes U.S. and international income taxes, determined using the applicable statutory rates. 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 and accrued expenses. The Company periodically evaluates the likelihood of realization of deferred tax assets, and provides for a valuation allowance when necessary.

Additionally, the Financial Accounting Standards Board ("FASB") Accounting Standard Codification ("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. 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. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in administrative and indirect operating expenses.

Defined contribution plans

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. 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%.

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.

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 11 and 15 to Consolidated Financial Statements for additional information.

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. Other comprehensive income includes currency translation adjustments on foreign subsidiaries and unrealized gains or losses on available-for-sale securities.

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.

Goodwill

The total goodwill of approximately $1.2 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 2012. 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 the identification of 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 during the year 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, 2012 and 2011, short-term investments consist of money market funds. Short-term investments amounted to approximately $2.2 million and $2.0 million at July 31, 2012 and 2011, respectively 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,
	2012			2011

Billed	$	42,977,016		$	42,636,632
Unbilled		28,829,818			27,869,325
		71,806,834			70,505,957

Allowance for doubtful accounts and contract adjustments		(10,238,391	)		(6,755,087	)

	$	61,568,443		$	63,750,870

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, 2012 unbilled receivables will be substantially billed and collected within one year. Within the above billed balances are contractual retainages in the amount of approximately $248,000 and $222,000 at July 31, 2012 and 2011. Management anticipates that the July 31, 2012 retainage balance will be substantially collected within one year. Included in the balance of receivables are receivables due under the contracts with organizations in Kuwait of $14.5 million and $12.4 million at July 31, 2012 and 2011, respectively. Of the outstanding balances due from Kuwait, approximately $1.9 million and $1.8 million were included in billings in excess of revenue as of July 31, 2012 and 2011, respectively. Additionally, approximately $3.8 million and $3.5 million of allowance for doubtful accounts has been recognized at July 31, 2012 and 2011, respectively.

5.	Property, Building and Equipment, net

	July 31,
	2012			2011

Land and land improvements	$	393,051		$	393,051
Buildings and building improvements		12,231,788			12,149,915
Equipment		3,214,319			3,786,584
Information technology equipment		12,591,421			9,576,535
Office furniture and equipment		3,898,444			3,835,900
Leasehold improvements and other		2,363,250			2,237,992

	$	34,692,273		$	31,979,977

Accumulated depreciation and amortization		(22,584,958	)		(22,972,422	)

		12,107,315			9,007,555

Construction in progress		4,763			953,749

	$	12,112,078		$	9,961,304

6. Line of Credit

The Company maintains an unsecured line of credit available for working capital and letters of credit of $34 million at interest rates ranging from 2.5% to 5% at July 31, 2012. The Company guarantees the line of credit of Walsh Environmental Scientists and Engineers, LLC (Walsh). Its lenders have reaffirmed the Company's lines of credit within the past twelve months. At July 31, 2012 and 2011, the Company had letters of credit and loans outstanding totaling approximately $14.9 million and $4.1 million, respectively. After letters of credit and loans, there was $19.1 million of availability under the lines of credit at July 31, 2012.

7.	Debt and Capital Lease Obligations

Debt, inclusive of capital lease obligations, consists of the following:

	July 31, 2012			July 31, 2011

Various bank loans and advances at subsidiaries with interest rates ranging from 5% to 14%	$	372,744		$	1,907,369
Capital lease obligations at subsidiaries with varying interest rates averaging 11%		218,351			230,942
		591,095			2,138,311

Current portion of debt and capital lease obligations		(488,460	)		(1,689,920	)

Long-term debt and capital lease obligations	$	102,635		$	448,391

The aggregate maturities of long-term debt and capital lease obligations at July 31, 2012 are as follows:

	Amount

Fiscal Year 2013	$	488,460
Fiscal Year 2014		87,693
Fiscal Year 2015		14,942
Fiscal Year 2016		---
Fiscal Year 2017		---
Thereafter		---

	$	591,095

8.	Income Taxes

Income (loss) from continuing operations before provision (benefit) for income taxes and noncontrolling interest was as follows:

	2012			2011		2010

Domestic	$	(993,959	)	$	7,212,154	$	3,216,835
Foreign		5,391,625			5,543,017		7,242,054
		4,397,666			12,755,171		10,458,889

The provision (benefit) for income taxes for the years ended July 31 was as follows:

	2012			2011			2010
Current:
Federal	$	(175,203	)	$	3,014,130		$	1,381,857
State		(232,800	)		786,651			411,636
Foreign		1,652,202			1,740868			1,636,274

		1,244,199			5,541,649			3,429,767

Deferred:
Federal		509,161			(409,268	)		262,326
State		(35,273	)		(91,656	)		77,151
Foreign		(360,171	)		(409,489	)		132,978
		113,717			(910,413	)		472,455

	$	1,357,916		$	4,631,236		$	3,902,222

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:

	2012	2011	2010

U.S. federal statutory income tax rate	34.0%	34.0%	34.0%
Income from "pass-through" entities taxable to noncontrolling partners	(5.8%)	(2.3%)	(1.3%)
International rate differences	(7.5%)	(2.1%)	(2.4%)
Other foreign taxes, net of federal benefit	4.8%	0.9%	1.7%
Foreign dividend income	7.5%	3.3%	1.9%
Domestic manufacturing deduction	---	(1.8%)	(0.3%)
State taxes, net of federal benefit	0.3%	3.4%	3.5%
Re-evaluation and settlements of tax contingencies	(4.1%)	---	(0.9%)
Other permanent differences	1.7%	0.9%	1.1%

Total	30.9%	36.3%	37.3%

The significant components of deferred tax assets (liabilities) as of July 31 are as follows:

	2012						2011
	Current			Noncurrent			Current			Noncurrent

Contract and other reserves	$	4,004,631		$	---		$	3,561,551		$	---
Fixed assets and intangibles		---			(579,932	)		---			159,452
Accrued compensation and expenses		1,267,004			531,386			1,537,003			381,767
Net operating loss carryforwards		---			555,437			---			282,885
Foreign and state income taxes		---			65,274			---			117,122
Federal benefit on state deferred taxes		(192,927	)		(41,259	)		(188,199	)		(33,383	)
Foreign tax credit		---			295,674			---			346,469
Valuation Allowance		(258,831	)		(61,406	)		(267,371	)		(79,098	)
Other		(20,153	)		95,325			306,384			124,967
Net deferred tax assets	$	4,799,724		$	860,499		$	4,949,368		$	1,300,181

Other	$	---		$	(423,324	)	$	---		$	(525,106	)
Net deferred tax liabilities	$	---		$	(423,324	)	$	---		$	(525,106	)

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.

For fiscal years 2012 and 2011, there was no one item that significantly impacted the change in the deferred tax assets and liabilities. A valuation allowance of approximately $320,000 has been established primarily on excess foreign tax credit carryforwards, the utilization of which is dependent on future foreign source income.

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, 2012, these amounts totaling approximately $6.6 million related primarily to operations in Saudi Arabia, Chile, Peru and Ecuador.

The Company files numerous consolidated and separate income tax returns in the U.S. federal jurisdiction and in many state and foreign jurisdictions. In fiscal year 2010, the Internal Revenue Service (IRS) completed the audit for fiscal year 2008 with no proposed changes. In fiscal year 2011, the IRS completed the audit for fiscal year 2009 with no proposed changes. In October 2012, the IRS completed an examination of the fiscal year 2010 income tax return, which was settled

without material adjustment. The Company's tax matters for the fiscal years 2011 and 2012 remain subject to examination by the IRS. In fiscal year 2012, the Company was audited by New York State for fiscal years 2008 through 2010 and this examination has been completed with no changes. 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.

For the year ended July 31, 2012, the Company has generated approximately $0.2 million of net operating losses in the U.S. These net operating losses will be carried back to an earlier year and be fully utilized. Net operating losses still exist pertaining to operations in Brazil, Canada and China.

At July 31, 2012 and 2011, the Company had approximately $131,000 and $531,000, respectively, of gross unrecognized tax benefits (UTPs) that if realized, would favorably affect the effective income tax rate in future periods. It is reasonably possible that the liability associated with 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, 2012 and 2011, the liability for UTPs and associated interest and penalties are all classified as noncurrent liabilities. For fiscal year ended July 31, 2012 and 2011, E & E recognized interest and penalties expense of approximately $68,000 and $44,000, respectively. At July 31, 2012, the Company has accrued $86,000 for interest and penalties on remaining uncertain tax positions.

A reconciliation of the beginning and ending amount of UTPs as of July 31 is as follows:

	2012			2011

Beginning balance	$	530,500		$	240,900
Additions for tax positions during the current year		---			280,700
Additions for tax positions of prior years		23,100			40,300
Reductions for tax positions of prior years for:
- Changes in judgment		---			---
- Settlements during the period		(422,300	)		(31,400	)
- Changes in non-controlling interests		---			---
- Lapses of the applicable statute of limitations		---			---

Ending balance	$	131,300		$	530,500

9. Other Accrued Liabilities

	July 31,
	2012			2011

General cost disallowances		$	2,724,474		$	3,882,810
Other			1,208,114			2,256,613

		$	3,932,588		$	6,139,423

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. 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 terminated on October 17, 2012.

The Company awarded 62,099 shares valued at approximately $.9 million in October 2011 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 $330,000 and $225,000 at July 31, 2012 and 2011, respectively. Total gross compensation expense is recognized over the vesting period. Unrecognized compensation expense was approximately $.8 million and $.7 million at July 31, 2012 and 2011, respectively.

11. Shareholders' Equity

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.

Cash Dividend

The Company declared cash dividends of approximately $2.0 million in fiscal years 2012 and 2011. Within accounts payable, the Company recorded outstanding dividend payables at July 31, 2012 and 2011 of approximately $1.0 million, respectively.

Stock Repurchase

The Company's Board of Directors approved a 200,000 share repurchase program in August 2010 in which 93,173 shares remain available for repurchase.

Noncontrolling Interest

The Company's noncontrolling interest is disclosed as a separate component of the Company's consolidated equity on the balance sheets. Earnings and other comprehensive income are separately attributed to both the controlling and noncontrolling interests. Earnings per share is calculated based on net income attributable to the Company's controlling interest.

On January 4, 2012, the Company purchased an additional 1.3% of Walsh from noncontrolling shareholders for approximately $254,000. Two thirds of the purchase price was paid in cash while the remaining one third was paid for with E&E stock. On December 14, 2011, the Company purchased an additional 4.0% of E&E do Brasil from noncontrolling shareholders for approximately $180,000. The entire purchase price was paid in cash. On November 18, 2011, the Company purchased an additional 3.9% of Walsh Peru from noncontrolling shareholders for approximately $432,000. The entire purchase price was paid in cash. There were three additional purchases of noncontrolling interest in fiscal year 2012 for which the Company paid cash of approximately $128,000.

On June 6, 2011, the Company purchased an additional 1.1% of Walsh from noncontrolling shareholders for approximately $219,000. The Company paid one third in cash, one third in a two-year note, and issued E&E stock for the remaining one third of the sale price. On March 18, 2011 the Company purchased an additional equity of 5.5% of Walsh, from noncontrolling shareholders for approximately $1,156,000. The Company paid one third in cash, one third in a two-year note, and issued E&E stock for the remaining one third of the sale price. On December 27, 2010, the Company purchased an additional 1.2% of Walsh from noncontrolling shareholders for approximately $257,000. Two thirds of the purchase price was paid in cash while the remaining one third was paid for with E&E stock. On August 23, 2010, for approximately $1.1 million, the Company purchased assets and assumed liabilities from Engineering Consulting Services, Inc. and contributed them in exchange for a 60% ownership interest in the newly formed entity Engineering Consulting Services, Inc., LLC (ECSI). As part of this transaction, the noncontrolling interest contributed the remaining 40% of the net assets which resulted in a $667,000 noncontrolling interest in ECSI.

Most transactions with noncontrolling shareholders for the fiscal year ended July 31, 2012 and 2011 were made at book value, which management believes approximates fair value. The purchase of the Walsh Peru and E&E do Brasil shares, were at a calculated value in excess of book value which management believes approximated the fair value.

Effects of changes in E & E's ownership interest in its subsidiaries on E&E's equity:

	Fiscal year ended July 31, 2012			Fiscal year ended July 31, 2011			Fiscal year ended July 31, 2010
Transfers to noncontrolling interest:
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
Sale of 900 Gustavson common shares		---			62,451			---
Issuance of 667 ECSI common shares		---			667,000			---
Sale of 75 Lowham – Walsh common shares		---			27,917			---
Sale of 600 Gustavson common shares		41,634			---			---
Total transfers to noncontrolling interest		41,634			757,368			227,562

Transfers from noncontrolling interest:
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	)
Purchase of 20 Walsh common shares		---			(7,776	)		---
Purchase of 496 Walsh common shares		---			(208,156	)		---
Purchase of 2,205 Walsh common shares		---			(974,750	)		---
Purchase of 243 Walsh common shares		---			(101,905	)		---
Purchase of 426 Walsh common shares		---			(197,945	)		---
Purchase of 100 Walsh common shares		---			(41,091	)		---
Purchase of 152 Walsh common shares		(73,748	)		---			---
Purchase of 496 Walsh common shares		(269,064	)		---			---
Purchase of 5,389 Brazil common shares		77,539			---			---
Purchase of 26,482 Walsh Peru common shares		(213,917	)		---			---
Purchase of 166 Walsh common shares		(94,601	)		---			---
Purchase of 25 Gestion Ambiental Consultores common shares		(7,452	)		---			---
Total transfers from noncontrolling interest		(581,243	)		(1,531,623	)		(2,526,094	)

Transfers to (from) noncontrolling interest	$	(539,609	)	$	(774,255	)	$	(2,298,532	)

12.	Shareholders' Equity - Restrictive Agreement

Messrs. Gerhard J. Neumaier, Silvestro, Frank, and Strobel entered into a Stockholders' Agreement dated May 12, 1970, as amended January 24, 2011, which governs the sale of certain shares of common stock owned by them 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.

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, 2012, future minimum rental commitments are as follows:

Fiscal Year	Amount

2013	$	3,114,799
2014		2,325,349
2015		1,460,362
2016		1,027,248
2017		854,542
Thereafter		1,066,545

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 2012, 2011, and 2010 was approximately $4.2 million, $3.6 million and $3.2 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 2012, 2011, and 2010 was approximately $1.8 million, $2.2 million, and $2.0 million, respectively.

15.	Earnings Per Share

The computation of basic earnings per share reconciled to diluted earnings per share follows:

	Fiscal Year
	2012			2011		2010

Total income available to common stockholders	$	773,579		$	6,960,263	$	4,257,607
Dividend paid		2,036,559			1,963,303		1,747,572
Undistributed earnings		(1,262,980	)		4,996,960		2,510,035

Weighted-average common shares outstanding: basic and diluted		4,233,883			4,222,688		4,160,816

Distributed earnings per share	$	.48		$	.46	$	.42
Undistributed earnings per share		(.30	)		1.19		.60
Total earnings per share	$	.18		$	1.65	$	1.02

After consideration of all the rights and privileges of the Class A and Class B stockholders discussed in Note 8, 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.

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 pursuant to the two-class method. The resulting impact was to include unvested restricted shares in the basic weighted average shares outstanding calculation.

16. Segment Reporting

Segment information for fiscal year ended July 31, 2012 are as follows:

Geographic information:

	Revenue (1)			Gross Long- Lived Assets

United States		$	98,558,000		$	29,506,000
Foreign countries			56,852,000			5,191,000

(1) Revenue is attributed to countries based on the location of the customers. Revenues in the most significant foreign countries for fiscal year ended July 31, 2012 includes $17.2 million in Peru, $15.7 million in Brazil and $11.3 million in Chile.

Segment information for fiscal year ended July 31, 2011 are as follows:

Geographic information:

	Revenue			Gross Long- Lived Assets

United States		$	115,041,000		$	27,872,000
Foreign countries			54,132,000			5,062,000

(1) Revenue is attributed to countries based on the location of the customers. Revenues in the most significant foreign countries for fiscal year ended July 31, 2011 includes $15.9 million in Peru, $11.8 million in Brazil, $9.1 million in Kuwait, $8.3 million in Chile and $4.4 million in Morocco.

Segment information for fiscal year ended July 31, 2010 are as follows:

Geographic information:

	Revenue			Gross Long- Lived Assets

United States		$	101,105,000		$	25,991,000
Foreign countries			42,993,000			3,714,000

(1) Revenue is attributed to countries based on the location of the customers. Revenues in the most significant foreign countries for fiscal year ended July 31, 2010 includes $19.2 million in Peru, $10.5 million in Brazil, $5.4 million in Kuwait, and $3.8 million in Chile.

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.

On September 21, 2012 the Colorado Department of Public Health and Environment (the "Department") issued a proposed Compliance Order on Consent (the "Consent Order") to the City and County of Denver ("Denver") and to Walsh Environmental Scientists & Engineers LLC ("Walsh Environmental"). Walsh Environmental is a majority-owned subsidiary of Ecology and Environment, Inc. The proposed Consent Order concerns construction improvement activities of certain property owned by Denver which was the subject of asbestos remediation. Denver had entered into a contract with Walsh Environmental for Walsh Environmental to provide certain environmental consulting services (asbestos monitoring services) in connection with the asbestos containment and/or removal performed by other contractors at Denver's real property. The Consent Order, among other provisions, proposes a violation penalty of $216,000, jointly and severally to be paid by Denver and Walsh Environmental. Under Walsh's Environmental consulting contract with Denver, Walsh Environmental has agreed to indemnify Denver for certain liabilities which would include the imposition of this proposed penalty. Walsh Environmental has put its professional liability carrier on notice of this claimed penalty. At this time, neither Walsh nor Denver have filed a response to the September 21, 2012 draft Consent Order. It is the position of Walsh Environmental that it has fully complied with all applicable Colorado laws, regulations and statutes in connection with its role as an environmental consultant to Denver and the claimed violations are not applicable to the activities of Walsh in connection with its environmental consulting contract with Denver. The Company believes that this administrative proceeding involving Walsh Environmental will not have an adverse material effect upon the operations of the Company.

On February 4, 2011 the Chico Mendes Institute of Biodiversity Conservation of Brazil (the "Institute") issued a Notice of Infraction to Ecology and Environment do Brasil LTDA ("E & E Brasil"). E & E Brasil is a majority-owned subsidiary of Ecology and Environment, Inc. The Notice of Infraction concerns the taking and collecting species of wild animal specimens without authorization by the competent authority and imposes a fine of 520,000 Reais, which has a value of approximately $255,000 at July 31, 2012. No claim has been made against Ecology and Environment, Inc. The Institute has also filed Notices of Infraction against four employees of E & E Brasil alleging the same claims and has imposed fines against those individuals that, in the aggregate, are equal to the fine imposed against E & E Brasil. E & E Brasil has filed administrative responses with the Institute for itself and its employees that: (a) denies the jurisdiction of the Institute, (b) states that the Notice of Infraction is constitutionally vague and (c) affirmatively stated that E & E Brasil had obtained the necessary permits for the surveys and collections of specimens under applicable Brazilian regulations and that the protected conservation area is not clearly marked to show its boundaries. At this time, E & E Brasil has attended one meeting where depositions were taken. The Company believes that these administrative proceedings in Brazil will not have an adverse material effect upon the operations of the Company.

18.	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 $395,000, $343,000 and $224,000 for the fiscal years ended July 31, 2012, 2011 and 2010, respectively. Cash paid for income taxes amounted to approximately $6.5 million, $5.6 million and $1.5 million for the fiscal years ended July 31, 2012, 2011 and 2010, respectively. Of the $2.0 million in dividends paid by the Company in the fiscal year ended July 31, 2012, approximately $1.0 million was accrued in accounts payable as of July 31, 2011. Of the $1.8 million in dividends paid by the Company in the fiscal year ended July 31, 2011, approximately $.9 million was included in accounts payable as of July 31, 2010. In July 2012, the Company declared a dividend of $1.0 million which was accrued in accounts payable. On December 14, 2011, the Company increased its capital investment in its Brazilian subsidiary (Ecology and Environment do Brasil, LTDA.) by $1.5 million, which increased the Company's ownership in the entity to 68%. The Company also purchased an additional 4% of the entity from its president for approximately $180,000, which increased the Company's ownership in the entity to 72%. The Brazilian company has experienced increased revenue growth and the additional investment of $1.5 million will be used for working capital needs in the country.

On March 18, 2011 the Company purchased an additional equity of 5.5% of its majority owned subsidiary Walsh from noncontrolling shareholders for approximately $1,156,000. The Company paid one third in cash, one third in a two-year note, and issued E & E stock for the remaining one third of the sale price. On December 27, 2010, the Company purchased an additional 1.2% of its majority owned subsidiary Walsh for approximately $257,000. Two thirds of this purchase price was paid in cash while the remaining one third was paid for with E&E stock. On August 23, 2010, the Company purchased a 60% ownership in the assets held by ECSI. The Company paid $1.0 million in cash for this ownership interest, and the noncontrolling partnership group ECSI, Inc. contributed cash, other assets, and liabilities for its 40% ($667,000) noncontrolling share of the new entity.

19.	Transactions

On January 4, 2012, the Company purchased an additional 1.3% of Walsh from noncontrolling shareholders for approximately $254,000. Two thirds of the purchase price was paid in cash while the remaining one third was paid for with E&E stock. With this purchase E&E's ownership share in Walsh increased to approximately 86% of that company.

On December 14, 2011, the Company increased its capital investment in its Brazilian subsidiary (Ecology and Environment do Brasil, LTDA.) by $1.5 million USD, which increased the Company's ownership in the entity to 68%. The Company also purchased an additional 4% of the entity from its president for approximately $180,000 USD, which increased the Company's ownership in the entity to 72%. The Brazilian company has experienced increased revenue growth and the $1.5 million investment will be used for working capital needs in the country.

On November 18, 2011, the Company purchased an additional 3.9% of Walsh Peru from noncontrolling shareholders for approximately $432,000. The entire purchase price was paid in cash.

On March 18, 2011 the Company purchased 5.5% of Walsh from noncontrolling shareholders for approximately $1,156,000. The Company paid one third in cash, one third in a two-year note, and issued E&E stock for the remaining one third of the sale price.

On December 27, 2010, the Company purchased an additional 1.2% of Walsh from noncontrolling shareholders for approximately $257,000. Two thirds of the purchase price was paid in cash while the remaining one third was paid for with E&E stock.

On August 23, 2010 the Company purchased a 60% ownership interest in ECSI, LLC, a Lexington, Kentucky based engineering and environmental consulting company that specializes in mining work. The Company paid $1.0 million for this ownership interest and contributed the assets into a newly formed company. The company was consolidated into the Company's financial reporting beginning in the first quarter of fiscal year 2011.

20.	Recent Accounting Pronouncements

The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have issued common disclosure requirements related to offsetting arrangements. Specifically, the FASB issued Accounting Standards Update (ASU) No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. The amendments in this ASU require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The Company has not yet assessed the impact that these provisions will have on its consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05 Comprehensive Income (Topic 220): Presentation of Comprehensive Income ("ASU 2011-05"). ASU 2011-05 increases the prominence of other comprehensive income in financial statements. Under ASU 2011-05, companies will have the option to present the components of net income and comprehensive income in either one or two consecutive financial statements. ASU 2011-05 eliminates the option to present other comprehensive income in the statement of changes in equity and is applied retrospectively. ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company does not expect the adoption of ASU 2011-05 to have a significant impact on its consolidated financial statements.

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU provides a consistent definition of fair value to ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and IFRS. This standard changes certain fair value measurement principles and enhances the disclosure requirements. ASU No. 2011-04 is effective for interim and annual periods beginning after December 15, 2011 and should be applied prospectively. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

21.	Selected Quarterly Financial Data (unaudited)

(In thousands, except per share information)

2012	First		Second		Third		Fourth

Revenues	$	42,312	$	40,173	$	36,011	$	36,914
Income from operations		2,040		1,867		574		303
Income from continuing operations before income taxes		2,084		1,685		503		126

Net income	$	1,160	$	503	$	56	$	(945	)

Net income per common share: basic and diluted	$	.28	$	.12	$	.01	$	(.23	)

2011	First		Second		Third		Fourth

Revenues	$	42,026	$	41,866	$	41,120	$	44,161
Income from operations		4,008		3,204		2,199		2,975
Income from continuing operations before income taxes		3,941		3,238		2,587		2,989

Net income	$	1,859	$	1,758	$	1,429	$	1,914

Net income per common share: basic and diluted	$	.44	$	.42	$	.34	$	.45

ECOLOGY AND ENVIRONMENT, INC.

SCHEDULE II

Valuation and Qualifying Accounts

Years Ended July 31, 2012, 2011, and 2010

	Balance at beginning of period		Increase		Decrease		Balance at end of year

July 31, 2012
Allowance for doubtful accounts and contract adjustments	$	6,755,087	$	5,080,894	$	1,597,590	$	10,238,391
General cost disallowances		3,882,810		---		1,158,336		2,724,474
Total	$	10,637,897	$	5,080,894	$	2,755,926	$	12,962,865

July 31, 2011
Allowance for doubtful accounts and contract adjustments	$	3,373,673	$	6,042,070	$	2,660,656	$	6,755,087
General cost disallowances		3,483,876		899,875		500,941		3,882,810
Total	$	6,857,549	$	6,941,945	$	3,161,597	$	10,637,897

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

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosures

None to report.

Item 9A.

Controls and Procedures

Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, our management, with the participation of our chief executive officer and chief financial officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 promulgated under the Exchange Act. Based upon this evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures were (1) designed to ensure that material information relating to our Company is accumulated and made known to our management, including our chief executive officer and chief financial officer, in a timely manner, particularly during the period in which this report was being prepared, and (2) effective, in that they provide

reasonable assurance that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.

Management believes, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a Company have been detected.

Internal Controls

During the fiscal year, we implemented an Enterprise Resource Planning (ERP) system that resulted in a material change in internal controls over financial reporting. This new system, went online January 1, 2012, and will support our global accounting operations consisting of planning, accounting and management reporting modules. We believe the implementation was necessary to support increased volumes and transaction complexities related to the growth of our business, particularly with our domestic and international subsidiaries, as well as to reduce the number of manual processes. The new system, which required minimal customizations by the Company, was purchased from a leading internationally respected software provider of enterprise software solutions. The Company engaged a leading business and technology consulting firm to implement the new system. The implementation of the system included a three phased approach where business process walk-throughs were performed in order to test processes and transactions and to train users. Post-implementation reviews were conducted by management to ensure that internal controls surrounding the system implementation process, the applications, and the closing process were properly designed to prevent material financial statement errors. In addition to our recurring account reconciliations and reviews as part of our normal close process, we also performed incremental substantive procedures during the year, including analytical assessments to validate the accuracy of key financial balances and amounts and review of key reports used in the financial reporting close process.

Other than the changes related to this new system, no other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management's Report on Internal Control over Financial Reporting

This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting.

Item 13. Certain Relationships and Related Transactions and Director Independence

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 $175,179 for his services during fiscal year 2012. The Company believes that compensation for him is commensurate with his peers and his relationships during 2012 were reasonable and in the best interest of the Company. The Company's Board of Directors has reviewed the independence of its members under the NASDAQ listing standards and has determined that Messrs. Cellino, Butler and Gross are independent.

Signature

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: March 12, 2013	/s/ Kevin S. Neumaier
	Kevin S. Neumaier President and Chief Executive Officer

EXHIBIT INDEX

Exhibit No.		Description
EX-31.1		Certification of Principal Executive Officer
EX-31.2		Certification of Principal Financial Officer
EX-32.1		Certification of Principal Executive Officer
EX-32.2		Certification of Principal Financial Officer
EX-101.INS		XBRL Instance Document
EX-101.SCH		XBRL Taxanomy Extension Schema
EX-101.CAL		XBRL Taxonomy Extension Calculation Linkbase
EX-101.DEF		XBRL Taxonomy Extension Definition Linkbase
EX-101.LAB		XBRL Taxonomy Extension Label Linkbase
EX-101.PRE		XBRL Taxonomy Extention Presentation Linkbase

Attached files

ECOLOGY & ENVIRONMENT INC Reports

Also read