A N N U A L R E P O R T 2 0 1 1
Global
Environment
al Specialists
E & E played a key role in the development of El Paso Corporation’s 680-mile (1,094-km)
Ruby Natural Gas Pipeline which, through renewable energy credits, GHG allowances,
and carbon offsets, is the nation’s first carbon-neutral pipeline.
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Working Together,
Finding Solutions
Fiscal Year 2011 was a record-breaking one for Ecology and Environment, Inc.
(E & E) with $169.2 million in revenues, an increase of $25.1 million from Fiscal Year
(FY) 2010. Net income increased 63.5% to $1.65 per share, the highest ever. These
increases in revenues and profits – despite the downturn in the economy and growing
political uncertainty – is attributable to the Company’s strategic growth in emerging
global markets, our sound fiscal management, and the hard work of E & E’s worldwide
staff of over 1,000 dedicated environmental professionals. Our Board of Directors was
pleased to reflect this year’s record performance to shareholders by increasing our semi-
annual dividend to $0.24 per share, the 50th consecutive dividend since the Company
became public in 1987 that equaled or exceeded the previous dividend.
E & E iswell positioned to address the growing global demand for environmental services because we
have thought of our mission as a global one ever since we were founded in 1970. Over the last four
decades, we have brought our technical expertise, our collaborative approach, and our comprehensive
understanding of the natural environment to over 50,000 projects in 113 countries, working in nearly
every ecosystem on our planet.
Out of an accelerated pace of global change and a growing sense of economic uncertainty comes a
recognition that the global economy must shift in order to stabilize. As the world seeks solutions that will
sustain global economic growth, there is a burgeoning understanding that true prosperity is inextricably
tied to sustainable practices and resource management that increase not only GDP but also quality of life.
E & E has been working with clients to provide global sustainable development since our founding. As
the demand for leadership in sustainability grows, we look forward to providing long-term solutions to the
planet's most pressing social, economic, and environmental challenges.
Kevin S. Neumaier, P.E.
President and Chief Executive Officer
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2011
Fiscal year ending July 31
2009
2008
2010
2007
Revenue
$169,173
$144,875
$146,887
$110,533
$102,496
Revenue less subcontract costs
$137,846
$113,806
$108,862
$
94,699
$
85,281
Net income attributable to
Ecology and Environment, Inc.
Net income per common share:
basic and diluted
$ 6,960
$ 4,258
$
5,221
$
1,834
$
3,074
$ 1.65
$ 1.02
$ 1.27
$ 0.43
$ 0.72
E & E has printed on 100% recycled paper since 1971. The paper used for this annual report is 100% recycled,
100% post consumer waste, processed chlorine free, manufactured using biogas energy, printed with soy-based
inks, and certified by FSC.
Global Environmental Specialists
1
1
One Company Working
Together, Finding Solutions
41
59
85
Years in Business
Global Offices
Professional Disciplines
RI/FS and Community
Action Planning for
Red Devil Mine Site
United States Department
of the Interior, Bureau of
Land Management (BLM),
Alaska State Office
Red Devil, Alaska
Puget Sound Wave
Energy Project
Columbia Power
Technologies
Offshore Puget Sound,
Washington
Environmental and Social
Impact Assessment for 2-D
Seismic Prospection and
Stratigraphic Well Drilling in
Blocks 128 and 122
Gran Tierra Energy
Loreto, Perú
E & E and Subsidiary Companies Project Experience
2 Ecology and Environment, Inc.
Adirondack Park
Carbon Offset
Program
The Wild Center
(Natural History
Museum of the
Adirondacks)
Adirondack Park,
New York
Environmental and
Planning Services for
AICUZ and RAICUZ
Studies
Naval Facilities Engineering
Command (NAVFAC),
Atlantic Division
Continental United States
and Caribbean
Costanera
Norte Toll
Road
Inter-American
Development
Bank (IDB)
Santiago, Chile
113
1,000+
50,000+
$169.2
Countries (Work Experience)
Dedicated Professionals
Projects
Million in Annual Revenues
North-South Natural
Gas Pipeline
Millennium Challenge
Corporation (MCC)
Republic of Georgia
Endangered Species
Critical Habitat
Assessments
Guinea Alumina
Corporation (GAC)
Guinea, West Africa
Jiangmen Wen Chang
Sha Wastewater
Treatment Plant
Jiangmen Biyuan
Wastewater Treatment Co.
Ltd. (JBTWC), via China
CNTC International
Tendering Co.
Jiangmen, Guangdong
Province, People's Republic
of China
New Doha International
Airport
Qatar Civil Aviation Authority,
via Bechtel
Doha, Qatar
IA
E
for Cabinda
South Onshore Block
Pluspetrol Angola
Corporation (Sucursal
Angola)
Cabinda, Angola
Bangladesh Petroleum
Resource Management
Bangladesh Hydrocarbon Unit
Bangladesh
Global Environmental Specialists
3
E & E President and CEO Kevin Neumaier, P.E.,
with E & E's Valerie Neilson and students from
Liceo Industrial Chileno Aleman de Ñuñoa in
Santiago, Chile. Chilean environmental leaders
have made a commitment to have schools
nation-wide conduct environmental projects
and post them on Project Earth, an interactive online
environmental education platform developed by E & E.
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Leadership
For over 40 years, we have maintained an unwavering
E & E leads by example.
commitment to environmental sustainability, evidenced not only in our client services but
also in our corporate culture. We do the right things for the right reasons – for our
organization, our employees, our clients, our planet, and our shareholders.
In an industry where credibility is built one relationship and one project at a time, our
commitment to technical excellence and open communication has served us well.
Adherence to our core values has established E & E as aglobal leader and guided our
growth through the past four decades. In FY 2011, we continued to lead the way,
marking several “firsts” – projects and initiatives that are exciting, groundbreaking, and
represent significant steps forward in global efforts to foster social, economic, and
environmental sustainability.
For example, as lead consultant for the Ruby Natural Gas Pipeline, E & E played a key role in bringing
the nation’s first carbon neutral pipeline into service.
The 680-mile (1,094-km) pipeline is a
$3 billion investment, transporting natural gas reserves in the Rocky Mountain region to growing
markets in the western United States. It addresses the growing domestic demand for natural gas and
associated transportation infrastructure. To meet California regulators’ concerns about greenhouse
gas (GHG) emissions, project developers –
in an unprecedented effort – are offsetting
the project’s anticipated 576,500 tons
(523,000 metric tons) of carbon dioxide per
year by purchasing renewable energy
credits, GHG allowances, and carbon
offsets, making Ruby the first carbon-neutral
pipeline in the United States. At every project
development stage, E & E met or surpassed
the schedule requirements for the acquisition
and approval of environmental permits.
Our leadership is also exhibited by E & E’s work in bringing tomorrow’s environmental leaders
together through Project Earth, an interactive, online, environmental education platform that fosters
global knowledge transfer by empowering students and teachers around the world to share their
environmental projects with one another. We launched Project Earth in January 2010. To date,
In 2011,
students from over 1,240 schools in nearly 80 countries have posted over 1,040 projects.
environmental
their
environmental projects on Project Earth. With an expanding network of schools and outreach
initiatives in Costa Rica, Russia, Morocco, Kuwait, and several others countries, Project Earth
continues to foster global sustainability by bringing tomorrow’s environmental leaders together today.
leaders in Chile made a commitment
to have every Chilean school post
Global Environmental Specialists
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E & E is managing projects to evaluate and
restore Areas of Concern throughout the Great
Lakes. Under a multitask, multisite program, we
are providing Great Lakes Restoration Initiative
support to the USACE Buffalo District throughout
its 38,000-square-mile (98,420 km ) jurisdiction.
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Innovation
Recognizing the need for a comprehensive,
E & E was built on innovation.
multidisciplinary approach to emerging environmental regulation in 1970, E & E’s
founders assembled smart, dedicated project teams to provide clients with science-
based solutions that promote sustainable economic and human development with
minimal negative environmental impact. Like many of E & E’s early business practices, it
represented a new and different approach that was ahead of its time.
Innovation continues to be a core value at E & E. We hire the best and brightest
innovators in 85 scientific and engineering disciplines and we empower them to
collaborate with one another and with our partners to explore creative, pioneering ways
of meeting client needs, often exceeding client expectations. This approach has led to
some truly groundbreaking work in FY 2011.
For the U.S. Army Corps of Engineers (USACE), we are providing basinwide support for the Great Lakes
Restoration Initiative, the largest investment in the Great Lakes in two decades.
E & E engineers and
scientists are working collaboratively with the USEPA’s Great Lakes National Program Office, as well as
with nonprofit agencies and nonfederal sponsors, to develop innovative remedial designs including
habitat restoration along with long-term planning, to improve overall watershed quality.
Our Brazilian subsidiary, E & E doBrasil, recently launched an innovative, mobile floating laboratory
on the Madeira River, Porto Velho area, in Rondônia. The new laboratory was designed for Santo
Antônio Energias’ Limnological Monitoring Program and is part of the larger environmental plan for
the construction of the Santo Antônio Hydroelectric Power Plant. The laboratory will travel on the
Madeira River in the area of the Santo Antônio Hydro Power Project monitoring physical, chemical,
and biological variables that characterize the quality of the water in the region. Water temperature,
electrical conductivity, dissolved oxygen, hydrogenion potential
(pH), and turbidity will be
permanently monitored and transmitted back to the power plant via cell phone.
Under three separate contracts with the USACE Fort
Worth District, E & E isproviding cost-effective,
responsive, military master planning, sustainability,
and energy conservation services to help Fort Hood
planners and engineers respond to the need for long-
range planning and dynamic facility requirements at
one of the world’s largest U.S. Army installations. We
developed the Comprehensive Army Master
Planning System (CAMPS) based on our close,
collaborative work with Fort Hood’s planning staff.
CAMPS is a custom-tailored, Web-based, decision
support and visualization tool that provides Fort Hood with the ability to model future facility utilization
through the use of smart analytical capabilities and the latest in geographic information system (GIS)
and information technology (IT).
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At E & E, we work
closely with clients and
stakeholders to meet
project objectives.
Excellence
We expect a lot of ourselves at E & E, guided by a set of core values including hard
work, technical expertise, integrity, professionalism, open communication, and a
dedication to science. These fundamentals come together
in an unwavering
commitment to excellence in everything we do and in each project we undertake. Over
the course of 41 years, we have been recognized by our peers, our clients, and our
industry for the groundbreaking work we do. FY 2011 was no exception.
We were recognized by the Federal Planning Division of the American Planning Association with an
Environmental Planning Excellence Award for our groundbreaking work on the Eldorado-Ivanpah
Transmission Project. The project will help California
meet aggressive renewable portfolio standards and
connect the recently approved Ivanpah Solar Electric
Generating System, among other renewable projects, to
California’s energy grid. On a fast-track permitting
schedule, we worked with the California Public Utilities
Commission and the Bureau of Land Management to
develop the Proponent’s Environmental Assessment
Streamlining Approach, a pioneering process that sets
the standard for efficient and thorough environmental
review through teamwork, innovation, and initiative. By
emphasizing advanced coordination, proactive
stakeholder engagement, and agency consultation, the
process allowed for early identification of key issues and
timely resolution, preventing potential
led to their
permitting roadblocks.
Also in FY 2011, together with project partners the New York State Energy Research and Development
Authority (NYSERDA) and Seneca Cayuga Arc, E & E was awarded the “Project of the Year” for Flex-T
by the Intelligent Transportation Society of New York (ITS-NY). As an integrated component of our
®
leading alternative transportation solution, GreenRide , Flex-T enables easy coordination and
consolidation of transportation systems to allow for real-time ride scheduling and sharing. Flex-T
development was co-funded through a competitive award from NYSERDA to design a transportation
solution which reduces energy consumption and promotes job growth in New York State.
®
GreenRide , and Flex-T are registered E & E service marks.
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In a joint effort with E & E do Brasil's Rio de Janeiro office and HSE-AP,
its local partner in Angola, E & E is conducting socioeconomic
field surveys at communities in Cabinda, Angola as part of the
environmental impact assessment (EIA) for Pluspetrol Angola’s
Cabinda South Onshore Block Production Phase Project.
Vision
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The world is becoming increasingly interconnected. At E & E, weinherently
understand the interdependence of the world’s natural environment. That fundamental
understanding is the core of our commitment to social, economic, and environmental
sustainability. We bring that insight to our business decision-making as well. Over the
past four decades, we have established ourselves globally, proudly working on over
50,000 projects in 113 countries.
In doing so, we are well positioned to recognize
global challenges, new opportunities, and emerging markets.
Growing demand for renewable energy resources, for example, has changed the way energy is
generated and created opportunities for energy developers in every corner of the globe. Capturing
these new opportunities requires more than a working knowledge of the energy industry; it involves a
deep understanding of regional environmental concerns and standards, geopolitical and cultural
influences, governmental energy initiatives, local permitting requirements, and other factors that
impact project success. This year, at the request of Chile’s Environmental Ministry, E & E and our
Chilean subsidiary, Gestion Ambiental Consultores (GAC), sponsored a solar development seminar
in Santiago. Chile has a wealth of natural energy resources and is embracing renewable energy
through legislation and other governmental initiatives intended to stimulate new development. The
purpose of the seminar was to help the government start a dialogue with potential solar developers by
presenting information about the solar development process and current initiatives.
E & E is apreferred provider to the telecommunications industry. We are working to address the
global demand for social communication networks by helping Alcatel-Lucent Submarine Networks
bring needed infrastructure to Brazil as preparations ramp up for the 2014 World
Cup and 2016 Olympics. E & E and its Brazilian subsidiary, E & E doBrasil, are
obtaining all of the environmental licenses to install the fiber optic cable system
required for the increased bandwidth for these events — covering Rio de Janeiro,
Salvador, Bahia, and Fortaleza, Brazil.
In addition to Brazil, the system will also
be landing in Colombia, Mexico, Dominican Republic, and Guatemala. The
$340-million Alcatel-Lucent project will complete 9,323 miles (17,000 km) of
connectivity, with a proposed project route anticipated to traverse territorial waters in 11 countries.
E & E isslated to provide all purchaser permitting; environmental assessment/permitting support;
acquisitions support; marine and terrestrial operational permit support; permit feasibility studies; and
oil, gas, mining, and other seabed stakeholder interactions.
for Alcatel-Lucent, we are providing all environmental permitting and marine
Furthermore,
concession acquisition in the Magellan Straights between Chile and Argentina. The site is 5 degrees
from the Antarctic, providing new challenges for us with the frigid environment, whale migration, and
landings occupied by penguins.
Looking forward, our
robust capabilities and bold leadership in providing environmental
sustainability services has led to exciting opportunities to work with government consortia and
large-scale, sustainability planning initiatives,
national companies on truly ground-breaking,
including green cities.
Global Environmental Specialists
11
Our team has collectively
worked on more than 380
wind energy projects in the
U.S. and around the world.
We have helped our clients
successfully develop wind
projects capable of
producing 3,953 megawatts
of environmentally safe,
renewable electricity.
Some Words from
Our Chairman
As the pace of global change accelerates, the world faces unprecedented economic, social, and
environmental challenges. Emerging from this period of uncertainty is a growing global
understanding that the protection of our environment and the conservation of our natural resources
are inextricably linked to sustainable growth and long-term prosperity.
We have worked in 113 countries and see, in our daily work, the need for a more holistic, sustainable
approach to global economic development. As the demand for comprehensive environmental
services grows, we are well-positioned to offer innovative, forward-thinking solutions – as evidenced
by E & E's record-breaking business performance in FY 2011.
By carefully incorporating ecological, health, social, and economic considerations into our business
planning and decision-making processes, we continually strive to balance the interest of the present
with the interests of future generations.
E & E's long-term commitment to sustainable
environmental management continues to
provide our clients with innovative solutions
and our shareholders with a respectable
return on their investment.
Gerhard J. Neumaier,
Chairman
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Selected Consolidated Financial Data
Operating data:
Revenues
Year ended July 31,
2011
2010
2009
2008
2007
(In thousands, except share and per share amounts)
$
169,173
$
144,098
$
146,081
$ 110,533
$
102,496
Income from operations
12,386
9,893
9,445
5,593
5,310
Income from continuing operations before
income taxes
Net income attributable to Ecology and
Environment, Inc.
12,755
10,459
9,450
5,554
5,720
6,960
4,258
5,221
1,834
3,074
Net income per common share: basic and diluted
$
1.65
$
1.02
$
1.27
$
0.43
$
0.72
Cash dividends declared per common share:
basic and diluted
Weighted average common shares outstanding:
basic and diluted
0.46
0.42
0.39
0.36
0.34
4,222,688
4,160,816
4,115,921
4,259,663
4,281,431
Balance sheet data:
Working capital
Total assets
Year ended July 31,
2011
2010
2009
2008
2007
(In thousands, except per share amounts)
$ 41,979
$ 38,950
$ 36,142
$ 36,871
$ 34,313
94,268
79,959
77,808
75,602
71,206
Long-term debt and capital lease obligations
2,138
1,695
815
1,860
718
Ecology and Environment, Inc. shareholders' equity
50,034
44,864
41,051
39,254
40,913
Book value per share: basic and diluted
$ 11.85
$ 10.78
$
9.97
$
9.22
$
9.56
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
$.1 million due mainly to the payment of $.5 million on a
Operating activities provided $1.0 million of cash during
loan at Ecology and Environment, Inc. (Parent Company).
fiscal year 2011. This was attributable to the reported $8.1
The Company maintains an unsecured line of credit
million in net income, and increases in accounts payable,
available for working capital and letters of credit of $20.5
accrued payroll costs, billings in excess of revenue and
million at interest rates ranging from 3% to 5% at July 31,
other accrued liabilities. Billings in excess of revenue
2011. Other lines are available solely for letters of credit in
increased $3.4 million during fiscal year 2011 mainly
the amount of $13.5 million.
attributable to increased revenue and slow payment on
contracts with organizations in the Middle East and
contracts at the majority owned subsidiary E & E do Brasil.
Accounts payable increased $.8 million during fiscal year
2011 attributable to increased work levels at the
Company’s majority owned subsidiaries Gestion Ambiental
Consultores (GAC) and E & E do Brasil. Accrued payroll
costs increased $1.5 million during fiscal year 2011 mainly
due to increased bonus accrual. Other accrued liabilities
increased $1.1 million during fiscal year 2011. Offsetting
these changes was an increase in contract receivables.
Contract receivables increased $18.3 million during fiscal
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, 2011 and July 31,
2010 the Company had letters of credit outstanding totaling
approximately $4.1 million and $4.9 million, respectively.
After letters of credit and loans, there was $29.9 million of
availability under the lines of credit at July 31, 2011. 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.
year 2011 due to increased receivables from contracts in
Results of Operations
the Middle East and Africa, the formation of Ecology and
Revenue
Environment, Inc.’s ("E & E" or the "Company") majority
owned subsidiary ECSI, LLC during the first quarter of the
current fiscal year, the increased work levels at GAC and
E & E do Brasil.
Investment activities consumed $2.8 million of cash during
fiscal year 2011 mainly attributable to the Company’s
acquisition of $.6 million of noncontrolling interests, the
Company’s $1.1 million ($.8 million net ) purchase of ECSI
and the purchases of property, building and equipment of
$2.5 million during fiscal year 2011. Offsetting these was
an increase in equipment payable of $1.0 million due to
the purchase of a new business software package by the
Company.
Financing activities consumed $4.1 million of cash during
fiscal year 2011. The Company paid dividends in the
amount of $1.8 million of which approximately $.9 million
was accrued as of July 31, 2010. Distributions to
noncontrolling interests during fiscal year 2011 were
approximately $.8 million. Under the Company’s Stock
Repurchase Program, the Company repurchased stock in
the amount $1.3 million during fiscal year 2011. Net cash
outflow on long-term debt and capital lease obligations was
Year to Date and Fourth Quarter 2011 vs 2010
Revenue for fiscal year 2011 was $169.2 million, an increase
of $25.1 million from the $144.1 million reported for fiscal
year 2010 mainly attributable to increases at the Parent
Company, ECSI and GAC. Revenue at the Parent Company
was $99.5 million for fiscal year 2011, an increase of $15.3
million or 18% from the $84.2 million reported in the prior
year. This increase was attributable to work performed on
contracts in the Company’s commercial and international
sectors offset by decreases in work in the federal government
and state sectors. Revenues from the Parent Company’s
commercial sector were $48.5 million for fiscal year 2011,
up $16.5 million from the $32.0 million reported in fiscal
year 2010 attributable to increased activity in the domestic
energy market. Revenues from the Parent Company’s
international sector increased $5.2 million over the prior year
mainly attributable to increased activity in the Middle East
and Africa. Revenues from the Parent Company’s federal
government sector were $26.6 million for fiscal year 2011, a
decrease of $.6 million from the $27.2 million reported in
the prior year mainly attributable to decreased activity in
contracts with the United States Department of Defense
14
Ecology and Environment, Inc.
Global Environmental Specialists
15
Selected Consolidated Financial Data
Year ended July 31,
2011
2010
2009
2008
2007
(In thousands, except share and per share amounts)
Operating data:
Revenues
$
169,173
$
144,098
$
146,081
$ 110,533
$
102,496
Income from operations
12,386
9,893
9,445
5,593
5,310
Income from continuing operations before
income taxes
Net income attributable to Ecology and
Environment, Inc.
12,755
10,459
9,450
5,554
5,720
6,960
4,258
5,221
1,834
3,074
Net income per common share: basic and diluted
$
1.65
$
1.02
$
1.27
$
0.43
$
0.72
Cash dividends declared per common share:
basic and diluted
Weighted average common shares outstanding:
basic and diluted
0.46
0.42
0.39
0.36
0.34
4,222,688
4,160,816
4,115,921
4,259,663
4,281,431
Balance sheet data:
Working capital
Total assets
Year ended July 31,
2011
2010
2009
2008
2007
(In thousands, except per share amounts)
$ 41,979
$ 38,950
$ 36,142
$ 36,871
$ 34,313
94,268
79,959
77,808
75,602
71,206
Long-term debt and capital lease obligations
2,138
1,695
815
1,860
718
Ecology and Environment, Inc. shareholders' equity
50,034
44,864
41,051
39,254
40,913
Book value per share: basic and diluted
$ 11.85
$ 10.78
$
9.97
$
9.22
$
9.56
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
Operating activities provided $1.0 million of cash during
fiscal year 2011. This was attributable to the reported $8.1
million in net income, and increases in accounts payable,
accrued payroll costs, billings in excess of revenue and
other accrued liabilities. Billings in excess of revenue
increased $3.4 million during fiscal year 2011 mainly
attributable to increased revenue and slow payment on
contracts with organizations in the Middle East and
contracts at the majority owned subsidiary E & E do Brasil.
Accounts payable increased $.8 million during fiscal year
2011 attributable to increased work levels at the
Company’s majority owned subsidiaries Gestion Ambiental
Consultores (GAC) and E & E do Brasil. Accrued payroll
costs increased $1.5 million during fiscal year 2011 mainly
due to increased bonus accrual. Other accrued liabilities
increased $1.1 million during fiscal year 2011. Offsetting
these changes was an increase in contract receivables.
Contract receivables increased $18.3 million during fiscal
year 2011 due to increased receivables from contracts in
the Middle East and Africa, the formation of Ecology and
Environment, Inc.’s ("E & E" or the "Company") majority
owned subsidiary ECSI, LLC during the first quarter of the
current fiscal year, the increased work levels at GAC and
E & E do Brasil.
Investment activities consumed $2.8 million of cash during
fiscal year 2011 mainly attributable to the Company’s
acquisition of $.6 million of noncontrolling interests, the
Company’s $1.1 million ($.8 million net ) purchase of ECSI
and the purchases of property, building and equipment of
$2.5 million during fiscal year 2011. Offsetting these was
an increase in equipment payable of $1.0 million due to
the purchase of a new business software package by the
Company.
Financing activities consumed $4.1 million of cash during
fiscal year 2011. The Company paid dividends in the
amount of $1.8 million of which approximately $.9 million
was accrued as of July 31, 2010. Distributions to
noncontrolling interests during fiscal year 2011 were
approximately $.8 million. Under the Company’s Stock
Repurchase Program, the Company repurchased stock in
the amount $1.3 million during fiscal year 2011. Net cash
outflow on long-term debt and capital lease obligations was
$.1 million due mainly to the payment of $.5 million on a
loan at Ecology and Environment, Inc. (Parent Company).
The Company maintains an unsecured line of credit
available for working capital and letters of credit of $20.5
million at interest rates ranging from 3% to 5% at July 31,
2011. 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, 2011 and July 31,
2010 the Company had letters of credit outstanding totaling
approximately $4.1 million and $4.9 million, respectively.
After letters of credit and loans, there was $29.9 million of
availability under the lines of credit at July 31, 2011. 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
Year to Date and Fourth Quarter 2011 vs 2010
Revenue for fiscal year 2011 was $169.2 million, an increase
of $25.1 million from the $144.1 million reported for fiscal
year 2010 mainly attributable to increases at the Parent
Company, ECSI and GAC. Revenue at the Parent Company
was $99.5 million for fiscal year 2011, an increase of $15.3
million or 18% from the $84.2 million reported in the prior
year. This increase was attributable to work performed on
contracts in the Company’s commercial and international
sectors offset by decreases in work in the federal government
and state sectors. Revenues from the Parent Company’s
commercial sector were $48.5 million for fiscal year 2011,
up $16.5 million from the $32.0 million reported in fiscal
year 2010 attributable to increased activity in the domestic
energy market. Revenues from the Parent Company’s
international sector increased $5.2 million over the prior year
mainly attributable to increased activity in the Middle East
and Africa. Revenues from the Parent Company’s federal
government sector were $26.6 million for fiscal year 2011, a
decrease of $.6 million from the $27.2 million reported in
the prior year mainly attributable to decreased activity in
contracts with the United States Department of Defense
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(DoD). Revenues from the Parent Company’s state sector
were $14.7 million for fiscal year 2011, down $5.8 million
from the $20.5 million reported in fiscal year 2010. The
decrease in state revenues was mainly attributable to
decreased activity in Texas, Florida and California due to the
state budgetary constraints. The inclusion of ECSI, formed in
August 2010, contributed revenue of $5.2 million for fiscal
year 2011. GAC, the Company’s Chilean subsidiary,
reported revenue of $8.1 million during fiscal year 2011, an
increase of $4.3 million or 113% from the $3.8 million
reported in fiscal year 2010 due to increased work in mining
and extractive industries. E & E do Brasil reported revenue of
$11.7 million for fiscal year 2011, an increase of $1.2
million or 11% from the $10.5 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. The Company’s majority owned subsidiary Walsh
Environmental reported revenues of $39.2 million for fiscal
year 2011, a decrease of $2.9 million or 7% from the $42.1
million reported in fiscal year 2010 mainly attributable to the
completion of work associated with a redevelopment project
and a decrease in work in the energy market.
E & E reported revenue of $44.2 million for the fourth
quarter, an increase of $3.5 million from the $40.7 million
reported in the fourth quarter of the prior year. Revenue at
the Parent Company was $26.7 million during the fourth
quarter of fiscal year 2011, an increase of $1.4 million
attributable to work performed on contracts in the Company’s
domestic energy market. Revenues from the Parent
Company’s commercial sector were $13.3 million for the
fourth quarter of fiscal year 2011, an increase of $1.4 million
from the $11.9 million reported in the fourth quarter of fiscal
year 2010 attributable to increased activity in the domestic
energy market. The inclusion of ECSI contributed revenue of
$1.2 million for the fourth quarter of fiscal year 2011. GAC
reported revenue of $2.4 million during the fourth quarter of
fiscal year 2011, an increase of $1.3 million or 118% from
the $1.1 million reported in the prior year.
Year to Date and Fourth Quarter 2010 vs 2009
Revenue for fiscal year 2010 was $144.1 million, a decrease
of $2.0 million from the $146.1 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 $40.7 million for the fourth
quarter, comparable to the $40.9 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
of fiscal year 2010. Consolidated indirect costs for the
Parent Company’s state sector were $4.7 million for fourth
fourth quarter of fiscal year 2011 were $14.7 million, an
quarter of fiscal year 2010, down $2.1 million from the
increase of $1.0 million from the $13.7 million reported in
$6.8 million reported in the fourth quarter of fiscal year
the fourth quarter of fiscal year 2010 attributable to the
2009. The decrease in state revenues was mainly
formation of ECSI and excess staffing and other indirect
attributable to decreased activity in Illinois, California and
operating expenses at E & E do Brasil. The Company
New York. Walsh reported revenues of $10.2 million for
recognized a net foreign exchange gain of $.1 million for
the fourth quarter of 2010, a decrease of $3.0 million or
the fourth quarter of fiscal year 2011.
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.
Income Before Income Taxes
Year to Date and Fourth Quarter 2011 vs 2010
The Company’s income before income taxes was $12.8
million for fiscal year 2011, an increase of $2.3 million
from the $10.5 million reported in fiscal year 2010.
Revenue less subcontract costs were $137.8 million, an
increase of $24.0 million or 21% from the $113.8 million
reported in the prior year. Gross profits (revenue less cost
of professional services, other direct operating expenses
and subcontract costs) increased $7.7 million during fiscal
year 2011. The gross margin percentage for fiscal year
2010 due mainly to increased field work on large projects
in the energy markets. Income from operations for fiscal
year 2011 was $12.4 million, up 25% from the $9.9
million reported in fiscal year 2010. These increases were
mainly attributable to the increased energy market work.
Indirect costs fell as a percent of revenue from 36% in fiscal
year 2010 to 34% in fiscal year 2011. The Company
recorded a sale of land during the first quarter of fiscal year
2010 for a gain of $809,000 ($453,000 after tax) which
positively impacted earnings by $.11 per share compared
to a $290,000 ($94,000 after tax and noncontrolling
interest) gain on the sale of the assets of the Jordanian Fish
Farm (AMARACO) in current fiscal year which impacted
Year to Date and Fourth Quarter 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
attributable to a significant decrease in subcontract costs
throughout the Company. Subcontract costs were $30.3
million for fiscal year 2010, a decrease of 19% from the
$37.2 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
2011 was 42%, down from the 44% reported for fiscal year
2009. The increase in gross margin percentage was
earning by $.02 per share. The Company recognized a net
during fiscal year 2009. The Company settled the Kuwait
foreign exchange gain of $.3 million for fiscal year 2011.
The Company’s income before income taxes was $3.0
million for the fourth quarter of fiscal year 2011, a decrease
of $1.2 million from the $4.2 million reported in the fourth
quarter of fiscal year 2010. Revenue less subcontract costs
for the fourth quarter of fiscal year 2011 was $35.3 million,
an increase of $2.5 million from the $32.8 million reported
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
in the prior year. Gross profits decreased slightly during the
$.10 per share.
fourth quarter of fiscal year 2011. Income from operations
for the fourth quarter of fiscal year 2011 was $3.0 million,
down 29% from the $4.2 million reported in fourth quarter
The Company’s income before income taxes was $4.2
million for the fourth quarter of fiscal year 2010, an increase
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Ecology and Environment, Inc.
Global Environmental Specialists
17
(DoD). Revenues from the Parent Company’s state sector
Revenues from the Parent Company’s federal government
were $14.7 million for fiscal year 2011, down $5.8 million
sector were $27.2 million for fiscal year 2010, a decrease of
from the $20.5 million reported in fiscal year 2010. The
$6.2 million from the $33.4 million reported in the prior year
decrease in state revenues was mainly attributable to
mainly attributable to decreased activity in contracts with the
decreased activity in Texas, Florida and California due to the
United States Department of Defense (DoD). Revenues from
state budgetary constraints. The inclusion of ECSI, formed in
the Parent Company’s state sector were $20.5 million for
August 2010, contributed revenue of $5.2 million for fiscal
fiscal year 2010, down $4.1 million from the $24.6 million
year 2011. GAC, the Company’s Chilean subsidiary,
reported in fiscal year 2009. The decrease in state revenues
reported revenue of $8.1 million during fiscal year 2011, an
was mainly attributable to decreased activity in Washington,
increase of $4.3 million or 113% from the $3.8 million
New York and Florida due to the state budgetary constraints.
reported in fiscal year 2010 due to increased work in mining
Revenues from the Parent Company’s commercial sector
and extractive industries. E & E do Brasil reported revenue of
were $32.0 million for fiscal year 2010, up $2.0 million
$11.7 million for fiscal year 2011, an increase of $1.2
from the $30.0 million reported in fiscal year 2009
million or 11% from the $10.5 million reported in the prior
attributable to increased activity in the domestic energy
year. The increase in revenue at E & E do Brasil was
market. Revenues from the Parent Company’s international
associated with increased work on contracts in the energy
sector increased $4.5 million over the prior year mainly
market. The Company’s majority owned subsidiary Walsh
attributable to increased activity in the Middle East, Africa
Environmental reported revenues of $39.2 million for fiscal
and China. Walsh reported revenues of $42.1 million for
year 2011, a decrease of $2.9 million or 7% from the $42.1
fiscal year 2010, a decrease of $3.5 million or 8% from the
million reported in fiscal year 2010 mainly attributable to the
$45.6 million reported in fiscal year 2009 mainly attributable
completion of work associated with a redevelopment project
to the completion of work associated with a redevelopment
and a decrease in work in the energy market.
project. E & E do Brasil reported revenue of $10.5 million
E & E reported revenue of $44.2 million for the fourth
quarter, an increase of $3.5 million from the $40.7 million
reported in the fourth quarter of the prior year. Revenue at
the Parent Company was $26.7 million during the fourth
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.
quarter of fiscal year 2011, an increase of $1.4 million
E & E reported revenue of $40.7 million for the fourth
attributable to work performed on contracts in the Company’s
quarter, comparable to the $40.9 million reported in the
domestic energy market. Revenues from the Parent
fourth quarter of the prior year. Revenue at the Parent
Company’s commercial sector were $13.3 million for the
Company was $25.3 million during the fourth quarter of
fourth quarter of fiscal year 2011, an increase of $1.4 million
fiscal year 2010, an increase of $1.5 million attributable to
from the $11.9 million reported in the fourth quarter of fiscal
work performed on contracts in the Company’s domestic
year 2010 attributable to increased activity in the domestic
energy market and international sector offset by decreases
energy market. The inclusion of ECSI contributed revenue of
in work in the federal government and state sectors.
$1.2 million for the fourth quarter of fiscal year 2011. GAC
Revenues from the Parent Company’s commercial sector
reported revenue of $2.4 million during the fourth quarter of
were $11.9 million for the fourth quarter of fiscal year
fiscal year 2011, an increase of $1.3 million or 118% from
2010, an increase of $3.3 million from the $8.6 million
the $1.1 million reported in the prior year.
reported in the fourth quarter of fiscal year 2009
Year to Date and Fourth Quarter 2010 vs 2009
Revenue for fiscal year 2010 was $144.1 million, a decrease
of $2.0 million from the $146.1 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.
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.
Income Before Income Taxes
Year to Date and Fourth Quarter 2011 vs 2010
The Company’s income before income taxes was $12.8
million for fiscal year 2011, an increase of $2.3 million
from the $10.5 million reported in fiscal year 2010.
Revenue less subcontract costs were $137.8 million, an
increase of $24.0 million or 21% from the $113.8 million
reported in the prior year. Gross profits (revenue less cost
of professional services, other direct operating expenses
and subcontract costs) increased $7.7 million during fiscal
year 2011. The gross margin percentage for fiscal year
2011 was 42%, down from the 44% reported for fiscal year
2010 due mainly to increased field work on large projects
in the energy markets. Income from operations for fiscal
year 2011 was $12.4 million, up 25% from the $9.9
million reported in fiscal year 2010. These increases were
mainly attributable to the increased energy market work.
Indirect costs fell as a percent of revenue from 36% in fiscal
year 2010 to 34% in fiscal year 2011. The Company
recorded a sale of land during the first quarter of fiscal year
2010 for a gain of $809,000 ($453,000 after tax) which
positively impacted earnings by $.11 per share compared
to a $290,000 ($94,000 after tax and noncontrolling
interest) gain on the sale of the assets of the Jordanian Fish
Farm (AMARACO) in current fiscal year which impacted
earning by $.02 per share. The Company recognized a net
foreign exchange gain of $.3 million for fiscal year 2011.
The Company’s income before income taxes was $3.0
million for the fourth quarter of fiscal year 2011, a decrease
of $1.2 million from the $4.2 million reported in the fourth
quarter of fiscal year 2010. Revenue less subcontract costs
for the fourth quarter of fiscal year 2011 was $35.3 million,
an increase of $2.5 million from the $32.8 million reported
in the prior year. Gross profits decreased slightly during the
fourth quarter of fiscal year 2011. Income from operations
for the fourth quarter of fiscal year 2011 was $3.0 million,
down 29% from the $4.2 million reported in fourth quarter
of fiscal year 2010. Consolidated indirect costs for the
fourth quarter of fiscal year 2011 were $14.7 million, an
increase of $1.0 million from the $13.7 million reported in
the fourth quarter of fiscal year 2010 attributable to the
formation of ECSI and excess staffing and other indirect
operating expenses at E & E do Brasil. The Company
recognized a net foreign exchange gain of $.1 million for
the fourth quarter of fiscal year 2011.
Year to Date and Fourth Quarter 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 $30.3
million for fiscal year 2010, a decrease of 19% from the
$37.2 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
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Ecology and Environment, Inc.
Global Environmental Specialists
17
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 $7.9 million for the fourth quarter of fiscal year 2010, a
decrease of $3.2 million from the $11.1 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.
Income Taxes
The estimated effective tax rate for fiscal year 2011 is
36.3%, as compared to the 37.3% reported for fiscal year
2010. The change in the estimated tax rate is a result of
changes in taxable income levels in the various jurisdictions
in which the Company operates.
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
requirements of the FAR or CAS and recommend that our
to incur until the completion of the project. Revenue is then
U.S. government financial administrative contracting officer
calculated on a cumulative basis (project-to-date) as the
disallow such costs. Historically, we have not experienced
total contract value multiplied by the current percentage-of-
significant disallowed costs as a result of such audits.
completion. The revenue for the current period is calculated
However, we can provide no assurance that such audits will
as cumulative revenues less project revenues already
not result in material disallowances of incurred costs in the
recognized. The recognition of revenues and profit is
future.
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.
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 2002. The
For some contracts, using the cost-to-cost method in
Company has estimated its exposure based on completed
estimating percentage-of-completion may overstate the
audits, historical experience and discussions with the
progress on the project. For projects where the cost-to-cost
government auditors. If these estimates or their related
method does not appropriately reflect the progress on the
assumptions change, the Company may be required to
projects, we use alternative methods such as actual labor
record additional charges for disallowed costs on its
hours, for measuring progress on the project and recognize
government contracts.
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
Contracts typically provide for reimbursement of costs
incurred and payment of fees earned through the date of
such termination.
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
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
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
are subject to termination at the convenience of the client.
income tax assets and liabilities are computed annually for
18
Ecology and Environment, Inc.
Global Environmental Specialists
19
of $1.6 million from the $2.6 million reported in the fourth
Revenue Recognition
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 $7.9 million for the fourth quarter of fiscal year 2010, a
decrease of $3.2 million from the $11.1 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.
Income Taxes
The estimated effective tax rate for fiscal year 2011 is
36.3%, as compared to the 37.3% reported for fiscal year
2010. The change in the estimated tax rate is a result of
changes in taxable income levels in the various jurisdictions
in which the Company operates.
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
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.
preparation of these statements requires management to
The use of the percentage of completion revenue
make estimates and assumptions that affect the reported
recognition method requires the use of estimates and
amounts of assets, liabilities, revenues and expenses, and
judgment regarding the project’s expected revenues, costs
related disclosure of contingent assets and liabilities. On
and the extent of progress towards completion. The
an ongoing basis, management evaluates its estimates and
Company has a history of making reasonably dependable
judgments, including those related to revenue recognition,
estimates of the extent of progress towards completion,
allowance for doubtful accounts, income taxes, impairment
contract revenue and contract completion costs. However,
of long-lived assets and contingencies. Management bases
due to uncertainties inherent in the estimation process, it is
its estimates and judgments on historical experience and on
possible that completion costs may vary from estimates.
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.
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.
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 2002. 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
18
Ecology and Environment, Inc.
Global Environmental Specialists
19
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. The 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 June 6, 2011, the Company purchased an additional
1.1% of Walsh from noncontrolling shareholders for
approximately $219,000. 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 85% of that company.
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.
On March 1, 2010 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 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.
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)
Report of Independent Registered
Public Accounting Firm
To the Board of Directors and Shareholders
provide reasonable assurance regarding prevention or
of Ecology and Environment, Inc.
financial reporting can only provide reasonable assurance of
We conducted our audits in accordance with the
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
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, 2011 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, 2011.
This annual report does not include an attestation report of
the Company’s registered public accounting firm regarding
internal control over financial reporting.
By:
By:
Kevin S. Neumaier
Chief Executive Officer
H. John Mye III
Vice President,
Treasurer and
Chief
Financial and
Accounting Officer
We have audited the accompanying consolidated balance
sheets of Ecology and Environment, Inc. and its subsidiaries
(collectively, the Company) as of July 31, 2011 and 2010,
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, 2011. The Company’s
management is responsible for these financial statements.
Our responsibility is to express an opinion on these
financial statements based on our audits.
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, 2011
and 2010, and the results of its operations and its cash
flows for each of the years in the three-year period ended
July 31, 2011 in conformity with accounting principles
generally accepted in the United States of America.
Schneider Downs & Co., Inc.
Pittsburgh, Pennsylvania
October 28, 2011
20
Ecology and Environment, Inc.
Global Environmental Specialists
21
existence as well as interpretations of existing tax
million for this ownership interest and contributed the assets
regulations and laws applied to the facts and
into a newly formed company. The company was
circumstances, with the help of professional tax advisors.
consolidated into the Company’s financial reporting
Therefore, we estimate and provide for amounts of
beginning in the first quarter of fiscal year 2011.
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
On March 1, 2010 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.
is more likely than not (likelihood of greater than 50%),
On January 28, 2010 the Company purchased an
based on technical merits, that the position will be
additional equity of 18.7% of Walsh from noncontrolling
sustained. Tax positions that meet the more likely than not
shareholders for $3,000,000. One third of the purchase
threshold should be measured using a probability weighted
price was paid in cash, one third was paid with the
approach as the largest amount of tax benefit that is greater
Company's stock, and the remainder was taken as loans
than 50% likely of being realized upon settlement. Whether
carrying an interest rate of 5% to be repaid over a two year
the more-likely-than-not recognition threshold is met for a
period. The purchase price that was paid to the
tax position, is a matter of judgment based on the
noncontrolling shareholders was at a premium over the
individual facts and circumstances of that position
book value of the stock.
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.
Changes in Corporate Entities
On June 6, 2011, the Company purchased an additional
1.1% of Walsh from noncontrolling shareholders for
approximately $219,000. 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 85% of that company.
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.
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
On August 23, 2010 the Company purchased a 60%
that in reasonable detail accurately and fairly reflect the
ownership interest in ECSI, LLC, a Lexington, Kentucky
transactions and dispositions of our assets; (ii) provide
based engineering and environmental consulting company
reasonable assurance that transactions are recorded as
that specializes in mining work. The Company paid $1.0
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, 2011 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, 2011.
This annual report does not include an attestation report of
the Company’s registered public accounting firm regarding
internal control over financial reporting.
By:
By:
Kevin S. Neumaier
Chief Executive Officer
H. John Mye III
Vice President,
Treasurer and
Financial and
Accounting Officer
Chief
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, 2011 and 2010,
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, 2011. The Company’s
management is responsible for these financial statements.
Our responsibility is to express an opinion on these
financial statements 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, 2011
and 2010, and the results of its operations and its cash
flows for each of the years in the three-year period ended
July 31, 2011 in conformity with accounting principles
generally accepted in the United States of America.
Schneider Downs & Co., Inc.
Pittsburgh, Pennsylvania
October 28, 2011
20
Ecology and Environment, Inc.
Global Environmental Specialists
21
Consolidated Balance Sheets
Consolidated Statements of Income
Assets
Current assets:
Cash and cash equivalents
Investment securities available for sale
Contract receivables, net
Deferred income taxes
Other current assets
Total current assets
Property, building and equipment, net of accumulated depreciation,
$22,972,422 and $21,040,900
Deferred income taxes
Other assets
Total assets
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable
Accrued payroll costs
Income taxes payable
Current portion of long-term debt and capital lease obligations
Billings in excess of revenue
Other accrued liabilities
July 31, 2011
July 31, 2010
$8,529,842
1,491,459
63,750,870
4,949,368
2,254,415
$14,347,194
1,305,739
47,096,456
3,557,156
2,025,001
80,975,954
68,331,546
9,961,304
1,300,181
2,030,203
8,664,453
1,291,297
1,671,636
$94,267,642
$79,958,932
$13,097,765
9,146,711
1,195,741
1,689,920
7,727,725
6,139,423
$10,863,390
7,451,310
1,083,911
928,027
4,128,118
4,926,798
Total current liabilities
38,997,285
29,381,554
Income taxes payable
Deferred income taxes
Long-term debt and capital lease obligations
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 and 2,685,072 shares
Class B common stock, par value $.01 per share;
Authorized - 10,000,000 shares; issued - 1,708,574 and 1,708,653 shares
Capital in excess of par value
Retained earnings
Accumulated other comprehensive income
Treasury stock - Class A common, 1
Class B common, 64,801 shares, at cost
25,923
and
136,461 shares;
Total Ecology and Environment, Inc., shareholders' equity
Noncontrolling interests
Total shareholders' equity
Total liabilities and shareholders' equity
The accompanying notes are an integral part of these consolidated financial statements.
339,027
525,106
448,391
—
—
286,523
289,531
767,302
—
—
26,851
26,850
Weighted average common shares outstanding: basic and diluted
4,222,688
4,160,816
4,115,921
The accompanying notes are an integral part of these consolidated financial statements.
17,087
17,088
19,983,029
30,797,763
1,527,189
20,059,200
25,800,803
815,906
(2,317,515)
(1,855,466)
50,034,404
3,923,429
44,864,381
4,369,641
53,957,833
49,234,022
$94,267,642
$79,958,932
22
Ecology and Environment, Inc.
Global Environmental Specialists
23
Cost of professional services and other direct operating expenses
65,914,987
49,623,816
50,383,876
Subcontract costs
31,325,937
30,292,117
37,219,954
Administrative and indirect operating expenses
42,534,303
38,166,067
34,309,408
Revenue
Marketing and related costs
Depreciation
Income from operations
Interest expense
Interest income
Other income (expense)
Gain on sale of assets
Income tax provision
Net income
Year ended July 31,
2011
2010
2009
$169,172,860
$144,098,294
$146,081,483
15,251,165
14,438,785
13,101,999
1,760,763
1,684,406
1,620,829
12,385,705
9,893,103
9,445,417
(355,766)
(222,558)
(77,238)
85,771
107,211
202,052
64,524
(68,349)
(41,064)
290,526
809,200
—
4,631,235
3,902,222
2,560,897
$8,123,936
$6,556,667
$6,889,340
Net foreign currency exchange gain (loss)
284,411
(59,718)
(78,930)
Income before income tax provision
12,755,171
10,458,889
9,450,237
Net income attributable to the noncontrolling interest
(1,163,673)
(2,299,060)
(1,668,066)
Net income attributable to Ecology and Environment, Inc.
$6,960,263
$4,257,607
$5,221,274
Net income per common share: basic and diluted
$1.65
$1.02
$1.27
Property, building and equipment, net of accumulated depreciation,
Assets
Current assets:
Cash and cash equivalents
Investment securities available for sale
Contract receivables, net
Deferred income taxes
Other current assets
Total current assets
$22,972,422 and $21,040,900
Deferred income taxes
Other assets
Total assets
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable
Accrued payroll costs
Income taxes payable
Billings in excess of revenue
Other accrued liabilities
Total current liabilities
Income taxes payable
Deferred income taxes
Current portion of long-term debt and capital lease obligations
Long-term debt and capital lease obligations
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;
Class B common stock, par value $.01 per share;
Capital in excess of par value
Retained earnings
Accumulated other comprehensive income
Treasury stock - Class A common, 1
25,923
and
136,461 shares;
Class B common, 64,801 shares, at cost
Total Ecology and Environment, Inc., shareholders' equity
Noncontrolling interests
Total shareholders' equity
Total liabilities and shareholders' equity
The accompanying notes are an integral part of these consolidated financial statements.
July 31, 2011
July 31, 2010
$8,529,842
1,491,459
63,750,870
4,949,368
2,254,415
$14,347,194
1,305,739
47,096,456
3,557,156
2,025,001
80,975,954
68,331,546
9,961,304
1,300,181
2,030,203
8,664,453
1,291,297
1,671,636
$94,267,642
$79,958,932
$13,097,765
$10,863,390
38,997,285
29,381,554
9,146,711
1,195,741
1,689,920
7,727,725
6,139,423
339,027
525,106
448,391
—
—
7,451,310
1,083,911
928,027
4,128,118
4,926,798
286,523
289,531
767,302
—
—
19,983,029
30,797,763
1,527,189
20,059,200
25,800,803
815,906
(2,317,515)
(1,855,466)
50,034,404
3,923,429
44,864,381
4,369,641
53,957,833
49,234,022
$94,267,642
$79,958,932
Consolidated Balance Sheets
Consolidated Statements of Income
Revenue
2011
Year ended July 31,
2010
2009
$169,172,860
$144,098,294
$146,081,483
Cost of professional services and other direct operating expenses
65,914,987
49,623,816
50,383,876
Subcontract costs
31,325,937
30,292,117
37,219,954
Administrative and indirect operating expenses
42,534,303
38,166,067
34,309,408
Marketing and related costs
Depreciation
Income from operations
Interest expense
Interest income
Other income (expense)
Gain on sale of assets
15,251,165
14,438,785
13,101,999
1,760,763
1,684,406
1,620,829
12,385,705
9,893,103
9,445,417
(355,766)
(222,558)
(77,238)
85,771
107,211
202,052
64,524
(68,349)
(41,064)
290,526
809,200
—
Net foreign currency exchange gain (loss)
284,411
(59,718)
(78,930)
Income before income tax provision
12,755,171
10,458,889
9,450,237
Income tax provision
Net income
4,631,235
3,902,222
2,560,897
$8,123,936
$6,556,667
$6,889,340
Net income attributable to the noncontrolling interest
(1,163,673)
(2,299,060)
(1,668,066)
Net income attributable to Ecology and Environment, Inc.
$6,960,263
$4,257,607
$5,221,274
Net income per common share: basic and diluted
$1.65
$1.02
$1.27
Authorized - 6,000,000 shares; issued - 2,685,151 and 2,685,072 shares
26,851
26,850
Weighted average common shares outstanding: basic and diluted
4,222,688
4,160,816
4,115,921
Authorized - 10,000,000 shares; issued - 1,708,574 and 1,708,653 shares
17,087
17,088
The accompanying notes are an integral part of these consolidated financial statements.
22
Ecology and Environment, Inc.
Global Environmental Specialists
23
Consolidated Statements of Cash Flows
Cash flows from operating activities:
Net income
Year ended July 31,
2011
2010
2009
$ 8,123,936
$
6,556,667
$
6,889,340
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Consolidated Statements of Changes in
Shareholders’ Equity and Comprehensive Income
Common Stock
Capital in Excess
Retained
Comprehensive
Treasury Stock
Class
Shares
Amount
of Par Value
Earnings
Income (loss)
Shares
Amount
Balance at July 31, 2008
2,661,498
$26,615
$20,014,257
$19,664,147
$834,667
130,141
$(1,302,663)
1,732,227
$17,323
}
Noncontrolling
Comprehensive
Interest
$4,169,247
Income
$9,333,989
Depreciation expense
Provision (benefit) for deferred income taxes
Share-based compensation expense
Tax impact of share-based compensation
Gain on sale of assets
Provision for contract adjustments
Bad debt expense
(Increase) decrease in:
- contract receivables
- other current assets
- income tax receivable
- other non-current assets
Increase (decrease) in:
- accounts payable
- accrued payroll costs
- income taxes payable
- billings in excess of revenue
- other accrued liabilities
1,760,763
1,684,406
1,620,829
(910,413)
472,455
1,742,493
541,175
—
485,945 446,412
—
102,737
(290,526)
(809,200)
—
2,943,470
637,846 (88,387)
450,000
—
—
(18,286,613)
(114,402)
—
42,082
(5,661,388)
233,414
802,926
(64,430)
(3,874,581)
(201,671)
(787,370)
18,793
822,701
1,545,961
(98,721)
(3,120,409)
149,316
1,066,930
4,382,635
1,363,854
(671,355)
3,396,873
(121,749)
(261,063)
1,084,505
18,273
(897,446)
Net cash provided by operating activities
1,010,791
2,433,739
9,682,483
Cash flows provided by (used in) investing activities:
Acquisition of noncontrolling interest of subsidiaries
(637,745)
(1,000,000)
(27,879)
Purchase of Lowham Engineering LLC
Purchase of Engineering Consulting Services, Inc., net of cash equivalents of $309,487
Purchase of property, building and equipment
Change in accounts payable due to purchase of equipment
Proceeds from sale of property and equipment
Purchase of investment securities, net
—
(790,513)
(2,476,059)
953,749
322,807
(195,163)
(200,000)
—
—
—
(1,992,724)
—
959,200
(55,791)
(1,869,016)
—
—
(39,210)
Net cash used in investing activities
(2,822,924)
(2,289,315)
(1,9
,
36 105
)
Cash flows provided by (used in) financing activities:
Dividends paid
Proceeds from debt
Repayment of debt and capital lease obligations
Distributions to noncontrolling interests
Proceeds from sale of subsidiary shares to noncontrolling interests
Purchase of treasury stock
Net cash used in financing activities
(1,814,839)
(1,684,482)
(1,546,359)
795,795
(945,320)
468,038
(778,035)
632,185
(1,942,882)
(847,749)
90,368
(1,335,960)
(845,106)
(625,677)
227,562
69,108
—
(1,832,123)
(4,057,705)
(2,612,023)
(5,245,748)
Effect of exchange rate changes on cash and cash equivalents
52,486
49,908
(119,538)
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
The accompanying notes are an integral part of these consolidated financial statements.
24
Ecology and Environment, Inc.
(5,817,352)
14,347,194
(2,417,691) 2,381,092
16,764,885 14,383,793
$8,529,842
$14,347,194
$ 16,764,885
(135,285)
36,092
(39,895)
391,850
90,368
667,000
(847,749)
(1,531,623)
—
36,092
—
A
B
2,685,151
1,708,574
$26,851
$17,087
}
$19,983,029
$30,797,763
$1,527,189
190,724
$(2,317,515)
$3,923,429
$8,847,338
The accompanying notes are an integral part of these consolidated financial statements.
Global Environmental Specialists
25
Balance at July 31, 2009
2,677,651
$26,776
$20,093,952
$23,290,768
$441,965
307,091
$(2,819,138)
$5,273,455
$6,517,228
9,459
6,589
(60,528)
A
B
A
B
A
B
A
B
A
B
A
B
Net income
Foreign currency translation adjustment
Cash dividends paid ($.39 per share)
Unrealized investment gain, net
Conversion of common stock - B to A
Repurchase of Class A common stock
Issuance of stock under stock award plan
Share-based compensation expense
Sale of subsidiary shares to noncontrolling interests
Distributions to noncontrolling interests
Purchase of additional noncontrolling interests
Other
Net income
Foreign currency translation adjustment
Cash dividends paid ($.42 per share)
Unrealized investment gain, net
Conversion of common stock - B to A
Issuance of stock under stock award plan
Share-based compensation expense
Tax impact of share based compensation
Sale of subsidiary shares to noncontrolling interests
Distributions to noncontrolling interests
Purchase of additional noncontrolling interests
Other
Net Income
Foreign currency translation adjustment
Cash dividends paid ($.46 per share)
Unrealized investment gain, net
Conversion of common stock - B to A
Repurchase of Class A common stock
Issuance of stock under stock award plan
Share-based compensation expense
Tax impact of share based compensation
Sale of subsidiary shares to noncontrolling interests
Issuance of shares to noncontrolling interests
Distributions to noncontrolling interests
Purchase of additional noncontrolling interests
Stock award plan forfeitures
Balance at July 31, 2011
1,716,074
$17,162
}
7,421
(7,421)
}
(74)
4,257,607
(1,747,572)
423,493
—
—
23,159
—
5,221,274
(1,594,653)
—
(402,403)
—
9,701
16,153
(16,153)
161
(161)
}
(376,176)
446,412
207,941
(1,832,123)
(37,580)
376,176
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
79
(79)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
74
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
396
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,668,066
20,590
—
—
—
—
—
—
69,108
(625,677)
(27,879)
—
2,299,060
(59,236)
227,562
(845,106)
(2,526,094)
—
1,163,673
12,119
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6,889,340
(381,813)
—
9,701
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6,556,667
291,546
—
23,159
—
(72,711)
8,123,936
698,499
(11,189)
(372,172)
485,945
102,737
—
—
(254,181)
2,919
(42,675)
372,172
(72,711)
(66,667)
3,513
616,670
(25,170)
6,960,263
(1,963,303)
686,380
(11,189)
1
(1) }
(482,061)
541,175
84,002
(55,041)
(1,335,960)
482,061
Balance at July 31, 2010
2,685,072
$26,850
$20,059,200
$25,800,803
$815,906
201,262
$(1,855,466)
$4,369,641
$6,798,661
1,708,653
$17,088
}
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in
Shareholders’ Equity and Comprehensive Income
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Cash flows from operating activities:
Net income
Depreciation expense
Provision (benefit) for deferred income taxes
Share-based compensation expense
Tax impact of share-based compensation
Gain on sale of assets
Provision for contract adjustments
Bad debt expense
(Increase) decrease in:
- contract receivables
- other current assets
- income tax receivable
- other non-current assets
Increase (decrease) in:
- accounts payable
- accrued payroll costs
- income taxes payable
- billings in excess of revenue
- other accrued liabilities
Year ended July 31,
2011
2010
2009
$ 8,123,936
$
6,556,667
6,889,340
$
1,760,763
1,684,406
1,620,829
(910,413)
472,455
1,742,493
541,175
485,945 446,412
—
(290,526)
102,737
(809,200)
—
—
2,943,470
637,846 (88,387)
450,000
—
—
(18,286,613)
(5,661,388)
(3,874,581)
(114,402)
233,414
(201,671)
—
802,926
(787,370)
42,082
(64,430)
18,793
822,701
(3,120,409)
4,382,635
1,545,961
149,316
1,363,854
(98,721)
1,066,930
(671,355)
3,396,873
(121,749)
(261,063)
1,084,505
18,273
(897,446)
Net cash provided by operating activities
1,010,791
2,433,739
9,682,483
Cash flows provided by (used in) investing activities:
Acquisition of noncontrolling interest of subsidiaries
(637,745)
(1,000,000)
(27,879)
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
Change in accounts payable due to purchase of equipment
Proceeds from sale of property and equipment
Purchase of investment securities, net
(2,476,059)
(1,992,724)
(1,869,016)
—
—
953,749
322,807
959,200
(195,163)
(55,791)
(39,210)
—
—
Net cash used in investing activities
(2,822,924)
(2,289,315)
(1,9
36 105
,
)
Cash flows provided by (used in) financing activities:
Dividends paid
Proceeds from debt
Repayment of debt and capital lease obligations
Distributions to noncontrolling interests
Proceeds from sale of subsidiary shares to noncontrolling interests
Purchase of treasury stock
Net cash used in financing activities
(1,814,839)
(1,684,482)
(1,546,359)
795,795
468,038
632,185
(945,320)
(778,035)
(1,942,882)
(847,749)
(845,106)
(625,677)
90,368
227,562
69,108
(1,335,960)
—
(1,832,123)
(4,057,705)
(2,612,023)
(5,245,748)
Effect of exchange rate changes on cash and cash equivalents
52,486
49,908
(119,538)
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
The accompanying notes are an integral part of these consolidated financial statements.
24
Ecology and Environment, Inc.
(5,817,352)
(2,417,691) 2,381,092
14,347,194
16,764,885 14,383,793
$8,529,842
$14,347,194
$ 16,764,885
Common Stock
Class
Shares
Amount
Capital in Excess
of Par Value
Retained
Earnings
Comprehensive
Income (loss)
Treasury Stock
Shares
Amount
$20,014,257
$19,664,147
$834,667
130,141
$(1,302,663)
Noncontrolling
Interest
$4,169,247
Comprehensive
Income
$9,333,989
Balance at July 31, 2008
Net income
Foreign currency translation adjustment
Cash dividends paid ($.39 per share)
Unrealized investment gain, net
Conversion of common stock - B to A
Repurchase of Class A common stock
Issuance of stock under stock award plan
Share-based compensation expense
Sale of subsidiary shares to noncontrolling interests
Distributions to noncontrolling interests
Purchase of additional noncontrolling interests
Other
Balance at July 31, 2009
Net income
Foreign currency translation adjustment
Cash dividends paid ($.42 per share)
Unrealized investment gain, net
Conversion of common stock - B to A
Issuance of stock under stock award plan
Share-based compensation expense
Tax impact of share based compensation
Sale of subsidiary shares to noncontrolling interests
Distributions to noncontrolling interests
Purchase of additional noncontrolling interests
Other
Balance at July 31, 2010
Net Income
Foreign currency translation adjustment
Cash dividends paid ($.46 per share)
Unrealized investment gain, net
Conversion of common stock - B to A
A
B
A
B
A
B
A
B
A
B
A
B
Repurchase of Class A common stock
Issuance of stock under stock award plan
Share-based compensation expense
Tax impact of share based compensation
Sale of subsidiary shares to noncontrolling interests
Issuance of shares to noncontrolling interests
Distributions to noncontrolling interests
Purchase of additional noncontrolling interests
Stock award plan forfeitures
Balance at July 31, 2011
2,661,498
$26,615
1,732,227
$17,323
}
—
—
—
—
—
—
—
—
16,153
(16,153)
—
}
161
(161)
—
—
—
—
—
—
—
—
—
—
—
—
—
2,677,651
$26,776
1,716,074
$17,162
}
—
—
—
—
7,421
(7,421)
—
—
—
—
—
—
—
}
—
—
—
—
74
(74)
—
—
—
—
—
—
—
2,685,072
$26,850
1,708,653
$17,088
}
—
—
—
—
—
—
(376,176)
446,412
—
—
—
9,459
5,221,274
—
(1,594,653)
—
—
—
—
—
—
—
—
—
—
(402,403)
—
9,701
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
207,941
(1,832,123)
(37,580)
376,176
—
—
—
—
—
—
—
—
6,589
(60,528)
1,668,066
20,590
—
—
—
—
—
—
69,108
(625,677)
(27,879)
—
6,889,340
(381,813)
—
9,701
—
—
—
—
—
—
—
—
$20,093,952
$23,290,768
$441,965
307,091
$(2,819,138)
$5,273,455
$6,517,228
—
—
—
—
—
4,257,607
—
(1,747,572)
—
—
—
423,493
—
23,159
—
—
—
—
—
—
(372,172)
485,945
102,737
—
—
(254,181)
2,919
—
—
—
—
—
—
—
—
—
—
—
—
(42,675)
—
—
—
—
(72,711)
(66,667)
—
3,513
616,670
(25,170)
—
—
—
—
—
372,172
—
—
—
—
2,299,060
(59,236)
—
—
—
—
—
—
227,562
(845,106)
(2,526,094)
—
6,556,667
291,546
—
23,159
—
—
—
—
—
—
(72,711)
—
$20,059,200
$25,800,803
$815,906
201,262
$(1,855,466)
$4,369,641
$6,798,661
—
—
—
—
79
(79)
—
—
—
—
—
—
—
—
—
—
—
—
—
1
(1) }
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(482,061)
541,175
—
—
—
—
(135,285)
—
6,960,263
—
(1,963,303)
—
—
—
—
—
—
—
—
—
—
—
—
686,380
—
(11,189)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
84,002
(55,041)
(1,335,960)
482,061
—
—
—
—
—
—
—
—
—
—
36,092
—
(39,895)
396
391,850
—
1,163,673
12,119
—
—
—
—
—
—
—
90,368
667,000
(847,749)
(1,531,623)
—
8,123,936
698,499
—
(11,189)
—
—
—
—
—
—
—
—
36,092
—
A
B
2,685,151
1,708,574
$26,851
$17,087
}
$19,983,029
$30,797,763
$1,527,189
190,724
$(2,317,515)
$3,923,429
$8,847,338
The accompanying notes are an integral part of these consolidated financial statements.
Global Environmental Specialists
25
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 113 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.
During fiscal years ended July 31, 2011, 2010 and 2009, the
percentages of total revenues derived from contracts exclusively
with the United States Department of Defense (DOD) were 6%,
8% and 14%.
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
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 2011 consolidated financial statement presentation.
d. 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
Consulting
As incurred at contract rates.
Time and
Materials
Fixed Price
Consulting
Cost-Type
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.
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 2002. 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 1996-2011.
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. Contract claims are recorded 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.
e. 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 of
securities sold is based on the specific identification method.
The Company had gross unrealized gains of approximately
$24,000 and $36,000 at July 31, 2011 and July 31, 2010,
respectively.
amortization
f. Property, building and equipment, depreciation and
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.
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
measured on a recurring basis.
Financial assets as of July 31, 2011:
Assets
Level 1
Level 2
Level 3
Total
Investment securities
available for sale
$1,438,286
$53,173
$ —
$1,491,459
Financial assets as of July 31, 2010:
Assets
Level 1
Level 2
Level 3
Total
Investment securities
available for sale
$1,249,832
$54,021
$ —
$1,303,853
Property, building and equipment are stated at the lower of cost
hierarchy at which the Company’s financial assets are
Leasehold improvements are amortized for book purposes over
The carrying amount of cash and cash equivalents, contract
the terms of the leases or the estimated useful lives of the assets,
receivables, notes receivable and accounts payable at July 31,
whichever is shorter. Expenditures for maintenance and repairs
2011 and July 31, 2010 approximate fair value. Long-term debt
are charged to expense as incurred. Expenditures for
consists of bank loans and capitalized equipment leases. Based on
improvements are capitalized. When property or equipment is
the Company's assessment of the current financial market and
retired or sold, any gain or loss on the transaction is reflected in
corresponding risks associated with the debt, management believes
the current year's earnings.
g. 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. The
Company’s investment securities classified as Level 1 are
comprised of mutual funds.
that the carrying amount of long-term debt at July 31, 2011 and
July 31, 2010 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 fiscal year ended July 31,
2011, there were no transfers in or out of levels 1, 2 or 3.
h. 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
26
Ecology and Environment, Inc.
Global Environmental Specialists
27
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 113 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.
During fiscal years ended July 31, 2011, 2010 and 2009, the
percentages of total revenues derived from contracts exclusively
with the United States Department of Defense (DOD) were 6%,
8% and 14%.
a. Consolidation
2. Summary of Significant Accounting Policies
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.
b. Use of estimates
The preparation of financial statements in conformity with
and material contracts. Contracts are required from all
customers. Revenue is recognized as follows:
Contract Type
Work Type Revenue Recognition Policy
Consulting
As incurred at contract rates.
Consulting
Percentage of completion,
Time and
Materials
Fixed Price
Cost-Type
Consulting
Costs as incurred. Fixed fee portion is
approximating the ratio of either total
costs or Level of Effort (LOE) hours
incurred to date to total estimated costs
or LOE hours.
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 2002. 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 1996-2011.
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
accounting principles generally accepted in the United States of
orders and claims are recognized as incurred. Revenues and
America requires management to make estimates and
profit are recognized on change orders when it is probable that
assumptions as of the date of the financial statements, which
the change order will be approved and the amount can be
affect the reported values of assets and liabilities and revenues
reasonably estimated. Contract claims are recorded when
and expenses and disclosures of contingent assets and
liabilities. Actual results may differ from those estimates.
the customer exists.
realization is probable, estimatable and reasonable support from
c. Reclassifications
Certain prior year amounts were reclassified to conform to the
fiscal year 2011 consolidated financial statement presentation.
d. 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
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.
e. 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 of
securities sold is based on the specific identification method.
The Company had gross unrealized gains of approximately
$24,000 and $36,000 at July 31, 2011 and July 31, 2010,
respectively.
f. 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.
g. 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. 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, 2011:
Assets
Level 2
Investment securities
available for sale
$1,438,286
$53,173
Level 1
Level 3
Total
$ —
$1,491,459
Financial assets as of July 31, 2010:
Assets
Investment securities
available for sale
Level 1
Level 2
Level 3
Total
$1,249,832
$54,021
$ —
$1,303,853
The carrying amount of cash and cash equivalents, contract
receivables, notes receivable and accounts payable at July 31,
2011 and July 31, 2010 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, 2011 and
July 31, 2010 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 fiscal year ended July 31,
2011, there were no transfers in or out of levels 1, 2 or 3.
h. 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
26
Ecology and Environment, Inc.
Global Environmental Specialists
27
other than the functional currency are included in the results of
operations as a component of other income (expense) as
incurred. The Company recorded foreign currency transaction
gains/(losses) of approximately $280,000 and ($60,000) for
the years ended July 31, 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
2009-2011.
i. 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 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. 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. The Company
recognizes interest accrued related to unrecognized tax benefits
in interest expense and penalties in administrative and indirect
operating expenses. See Note 8 to Consolidated Financial
Statements for additional information.
j. 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.
k. 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.
l. 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.
m. 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.
n. 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
balance of receivables for industrial customers and state and
fair value. The Company identified no events or changes in
municipal customers are receivables due under the contracts
circumstances that necessitated an evaluation for an
with organizations in Kuwait of $12.4 million and $3.0 million
for an impairment of goodwill. The Company recorded
Land and land improvements
additional goodwill of $.1 million during fiscal year 2011
Buildings and building improvements
related to the acquisition of Engineering Consulting Services
Equipment
impairment of long lived assets.
o. 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 2011. 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
Inc., LLC (ECSI). See Note 19 to Consolidated Financial
Statements for additional information.
3. Cash and Cash Equivalents
The Company's policy is to invest cash in excess of operating
requirements in income-producing short-term investments. At
July 31, 2011 and 2010, short-term investments consist of
money market funds. Short-term investments amounted to
approximately $2.0 million at July 31, 2011 and $4.9 million
at July 31, 2010 and are reflected in cash and cash
equivalents in the accompanying consolidated balance sheets
and statements of cash flows.
4. Contract Receivables, net
United States government -
Commercial customers and state and municipal governments -
July 31,
2011
2010
$2,445,
312
$2,445,658
3,364,476
5,819,788
3,528,728
5,974,386
40,181,320
22,772,335
24,504,849
21,723,408
64,686,169
44,495,743
Billed
Unbilled
Billed
Unbilled
at July 31, 2011 and July 31, 2010, respectively which have
generated the majority of the increase within the billed and
unbilled balances. Of the outstanding balances, approximately
$1.8 million and $.7 million were included in billings in excess
of revenue as of July 31, 2011 and July 31, 2010, respectively.
Management anticipates that the July 31, 2011 unbilled
receivables will be substantially billed and collected within one
year. Within the above billed balances are contractual
retainages in the amount of approximately $222,000 at July
31, 2011 and $546,000 at July 31, 2010. Management
anticipates that the July 31, 2011 retainage balance will be
substantially collected within one year.
5. Property, Building and Equipment, net
Information technology equipment
Office furniture and equipment
Leasehold improvements and other
Accumulated depreciation
and amortization
Construction in progress
July 31,
2011
2010
$ 393,051
$ 393,051
12,149,915
11,927,345
3,786,584
9,576,535
3,835,900
2,237,992
3,198,889
8,660,433
3,501,428
2,024,207
$31,979,977
$29,705,353
(22,972,422)
(21,040,900)
953,749
—
$ 9,961,304
$ 8,664,453
6. Line of Credit
The Company maintains an unsecured line of credit available
for working capital and letters of credit of $20.5 million at
interest rates ranging from 3% to 5% at July 31, 2011. 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, 2011 and July
31, 2010 the Company had letters of credit outstanding
totaling approximately $4.1 million and $4.9 million,
respectively. After letters of credit and loans, there was $29.9
million of availability under the lines of credit at July 31, 2011.
7. Debt and Capital Lease Obligations
Debt inclusive of capital lease obligations consists of the
Allowance for doubtful
accounts and contract adjustments -
(6,755,087)
(3,373,673)
following:
$63,750,870
$47,096,456
Various bank loans and advances at
subsidiaries with interest rates ranging
July 31,
2011
2010
United States government receivables arise from long-term U.S.
from 5% to 14%
$1,
907,369
$1,450,247
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
Capital lease obligations at subsidiaries
with varying interest rates averaging 11%
230,942
245,082
2,138,311
1,695,329
are comprised of incurred costs plus fees not yet processed and
Current portion of debt and capital lease
billed; and differences between year-to-date provisional billings
and year-to-date actual contract costs incurred. Included in the
obligations
(1,689,920)
(928,027)
Long-term debt and capital lease obligations
$448,391
$767,302
28
Ecology and Environment, Inc.
Global Environmental Specialists
29
other than the functional currency are included in the results of
settlement. Whether the more-likely-than-not recognition
operations as a component of other income (expense) as
threshold is met for a tax position, is a matter of judgment based
incurred. The Company recorded foreign currency transaction
on the individual facts and circumstances of that position
gains/(losses) of approximately $280,000 and ($60,000) for
evaluated in light of all available evidence. The Company
the years ended July 31, 2011 and 2010, respectively.
recognizes interest accrued related to unrecognized tax benefits
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
2009-2011.
i. 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.
in interest expense and penalties in administrative and indirect
operating expenses. See Note 8 to Consolidated Financial
Statements for additional information.
j. 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.
k. 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.
l. 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
The Company has significant deferred tax assets, resulting
allocates undistributed earnings between the classes on a one-
principally from contract reserves, accrued compensation and
to-one basis when computing earnings per share. As a result,
fixed assets. The Company periodically evaluates the likelihood
basic and fully diluted earnings per Class A and Class B shares
of realization of deferred tax assets, and has determined that no
are equal amounts. See Note 15 to Consolidated Financial
valuation allowance is necessary. Additionally, the Financial
Statements for additional information.
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. 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.
m. 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.
Tax positions shall be recognized only when it is more likely than
n. Impairment of Long-Lived Assets
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
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.
o. 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 2011. 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. The Company recorded
additional goodwill of $.1 million during fiscal year 2011
related to the acquisition of Engineering Consulting Services
Inc., LLC (ECSI). See Note 19 to Consolidated Financial
Statements for additional information.
3. Cash and Cash Equivalents
The Company's policy is to invest cash in excess of operating
requirements in income-producing short-term investments. At
July 31, 2011 and 2010, short-term investments consist of
money market funds. Short-term investments amounted to
approximately $2.0 million at July 31, 2011 and $4.9 million
at July 31, 2010 and are reflected in cash and cash
equivalents in the accompanying consolidated balance sheets
and statements of cash flows.
4. Contract Receivables, net
United States government -
Billed
Unbilled
July 31,
2011
2010
$2,445,
312
3,364,476
5,819,788
$2,445,658
3,528,728
5,974,386
Commercial customers and state and municipal governments -
Billed
Unbilled
Allowance for doubtful
accounts and contract adjustments -
40,181,320
24,504,849
64,686,169
22,772,335
21,723,408
44,495,743
(6,755,087)
(3,373,673)
$63,750,870
$47,096,456
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. Included in the
balance of receivables for industrial customers and state and
municipal customers are receivables due under the contracts
with organizations in Kuwait of $12.4 million and $3.0 million
at July 31, 2011 and July 31, 2010, respectively which have
generated the majority of the increase within the billed and
unbilled balances. Of the outstanding balances, approximately
$1.8 million and $.7 million were included in billings in excess
of revenue as of July 31, 2011 and July 31, 2010, respectively.
Management anticipates that the July 31, 2011 unbilled
receivables will be substantially billed and collected within one
year. Within the above billed balances are contractual
retainages in the amount of approximately $222,000 at July
31, 2011 and $546,000 at July 31, 2010. Management
anticipates that the July 31, 2011 retainage balance will be
substantially collected within one year.
5. Property, Building and Equipment, net
Land and land improvements
Buildings and building improvements
Equipment
Information technology equipment
Office furniture and equipment
Leasehold improvements and other
Accumulated depreciation
and amortization
Construction in progress
2011
July 31,
2010
$ 393,051
12,149,915
3,786,584
9,576,535
3,835,900
2,237,992
$31,979,977
$ 393,051
11,927,345
3,198,889
8,660,433
3,501,428
2,024,207
$29,705,353
(22,972,422)
(21,040,900)
953,749
$ 9,961,304
—
$ 8,664,453
6. Line of Credit
The Company maintains an unsecured line of credit available
for working capital and letters of credit of $20.5 million at
interest rates ranging from 3% to 5% at July 31, 2011. 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, 2011 and July
31, 2010 the Company had letters of credit outstanding
totaling approximately $4.1 million and $4.9 million,
respectively. After letters of credit and loans, there was $29.9
million of availability under the lines of credit at July 31, 2011.
7. Debt and Capital Lease Obligations
Debt inclusive of capital lease obligations consists of the
following:
Various bank loans and advances at
subsidiaries with interest rates ranging
from 5% to 14%
Capital lease obligations at subsidiaries
with varying interest rates averaging 11%
July 31,
2011
2010
$1,
907,369
$1,450,247
230,942
2,138,311
245,082
1,695,329
Current portion of debt and capital lease
obligations
Long-term debt and capital lease obligations
(1,689,920)
$448,391
(928,027)
$767,302
28
Ecology and Environment, Inc.
Global Environmental Specialists
29
The aggregate maturities of long-term debt and capital lease
obligations at July 31, 2011 are as follows:
The significant components of deferred tax assets (liabilities) as
of July 31 are as follows:
Company was notified by New York State of a pending income
Included in other accrued liabilities are general cost
tax audit for fiscal years 2008 through 2010. The Company’s
disallowances relating to potential cost disallowances on
Fiscal Year
2012
2013
2014
2015
2016
Thereafter
Amount
$1,689,920
369,273
65,994
13,124
—
—
$2,138,311
8. Income Taxes
Income (loss) from continuing operations before provision
(benefit) for income taxes, noncontrolling interest and
discontinued operations was as follows:
Domestic
Foreign
2011
2010
2009
$
7,212,154
5,543,017
$12,755,171
$
3,216,835
7,242,054
$10,458,889
$
9,119,751
330,486
$ 9,450,237
The provision (benefit) for income taxes for the years ended July
31 was as follows:
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
2011
2010
2009
$
3,014,130
786,651
1,740,868
$ 5,541,649
$ 1,381,857
411,636
1,636,274
$ 3,429,767
$ (864,823)
393,385
1,289,842
$ 818,404
$ (409,268)
(91,656)
(409,489)
$ (910,413)
$ 4,631,236
$ 262,326
77,151
132,978
$ 472,455
$ 3,902,222
$ 2,072,947
33,019
(363,473)
$ 1,742,493
$ 2,560,897
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:
2011
2010
2009
U.S. federal statutory income tax rate
Re-evaluation of tax contingencies
Income from “pass-through” entities
taxable to noncontrolling partners
International rate differences
Foreign dividend income
Domestic manufacturing deduction
State taxes, net of federal benefit
Other
34.0%
—
34.0%
—
(2.3%)
(2.5%)
3.8%
(1.9%)
3.8%
1.4%
(1.3%)
(0.9%)
1.9%
(0.4%)
3.1%
0.9%
34.0%
(9.1%)
(2.8%)
(0.1%)
0.6%
(0.1%)
2.7%
1.6%
Total
36.3%
37.3%
27.0%
2011
Current Noncurrent
2010
Current Noncurrent
$3,561,551
$ —
$2,946,530
$ —
—
159,452
—
527,294
1,537,003
381,767
561,213
400,350
—
—
282,885
117,122
—
—
234,693
80,666
(188,199)
—
(33,383)
(346,469)
(156,705)
—
(51,663)
—
(267,371)
306,384
(79,098)
124,967
—
—
206,118
99,957
$4,949,368
$1,300,181
$3,557,156
$1,291,297
Contract and
other reserves
Fixed assets and
intangibles
Accrued
compensation
and expenses
Net operating
loss
carryforwards
Foreign and state
income taxes
Federal benefit
on state deferred
taxes
Foreign tax credit
Valuation
Allowance
Other
Net deferred tax
assets
Other
Net deferred tax
liabilities
$
$
—
—
$
(525,106)
$
—
$
(289,531)
$
(525,106)
$
—
$
(289,531)
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 2010 and 2011, there was no one item that
significantly impacted the change in the deferred tax assets and
liabilities. A valuation allowance of approximately $346,000 has
been established 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, 2011,
these amounts totaling approximately $5.8 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
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. The Company’s
tax matters for the fiscal years 2010 and 2011 remain subject
to examination by the IRS. On September 9, 2011, the
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, 2011, 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.
For fiscal year ended July 31, 2011, E&E recognized interest
and penalties expense of approximately $44,000. For the
twelve months ended July 31, 2009, E&E recognized a foreign
exchange gain of $275,000 related to the settlement of an
unrecognized tax benefit UTPs) for Kuwait.
It is reasonably possible that the liability associated with our
unrecognized tax benefits 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, 2011 and July 31, 2010, the Company had
approximately $531,000 and $241,000, 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
an estimate of the range of the reasonably possible outcomes
cannot be made. At July 31, 2011 and 2010, the liability for
UTPs and associated interest and penalties are classified as
noncurrent liabilities, except for $237,000 in fiscal year 2011,
which relates to income taxes for calendar year 2010 in Kuwait
and is expected to be settled within the next twelve months.
amounts billed and collected in current and prior years' projects
of approximately $3.9 million and $3.5 million at July 31,
2011 and July 31, 2010, respectively. The allowance for
contract adjustments is recorded for contract disputes and
government audits when the amounts are estimatible.
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
The Company awarded 55,041 shares valued at approximately
$.7 million in October 2010 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 at July 31, 2011 and July 31, 2010.
Total gross compensation expense is recognized over the
increase or decrease within the next twelve months. At this time,
and under what circumstances awards can be forfeited.
A reconciliation of the beginning and ending amount of UTPs as of
vesting period.
July 31 is as follows:
Beginning balance
$240,900
$290,495
million and $.6 million at July 31, 2011 and July 31, 2010,
2011
2010
Unrecognized compensation expense was approximately $.7
Additions for tax positions during
the current year
Additions for tax positions of prior
years
years for:
Reductions for tax positions of prior
- Changes in judgment
- Settlements during the period
(31,400)
- Changes in non-controlling
interests
- Lapses of the applicable
statute of limitations
280,700
40,300
—
—
—
—
—
(4,627)
—
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
19,530
shares is at least 10% of the combined total number of outstanding
Class A and Class B common shares. Holders of Class A common
(64,498)
shares have one-tenth the voting power of Class B common shares
Ending balance
$530,500
$240,900
with respect to most other matters.
9. Other Accrued Liabilities
General cost disallowances
$
3,882,810
$
3,483,876
Other
July 31,
2011
2010
2,256,613
1,442,922
$6,139,423
$4,926,798
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
30
Ecology and Environment, Inc.
Global Environmental Specialists
31
The aggregate maturities of long-term debt and capital lease
The significant components of deferred tax assets (liabilities) as
obligations at July 31, 2011 are as follows:
of July 31 are as follows:
2011
2010
2009
Foreign tax credit
—
(346,469)
(188,199)
(33,383)
(156,705)
(51,663)
The provision (benefit) for income taxes for the years ended July
$
(525,106)
$
—
$
(289,531)
Net deferred tax
liabilities
$
$
—
—
$
(525,106)
$
—
$
(289,531)
31 was as follows:
2011
2010
2009
$
3,014,130
$ 1,381,857
$ (864,823)
The FASB ASC Topic Income Taxes clarifies the accounting for
Fiscal Year
2012
2013
2014
2015
2016
Thereafter
Amount
$1,689,920
369,273
65,994
13,124
—
—
$2,138,311
8. Income Taxes
Income (loss) from continuing operations before provision
(benefit) for income taxes, noncontrolling interest and
discontinued operations was as follows:
Domestic
Foreign
$
7,212,154
$
3,216,835
$
9,119,751
5,543,017
7,242,054
330,486
$12,755,171
$10,458,889
$ 9,450,237
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
786,651
411,636
1,740,868
1,636,274
$ 5,541,649
$ 3,429,767
393,385
1,289,842
$ 818,404
$ (409,268)
$ 262,326
$ 2,072,947
(91,656)
(409,489)
77,151
132,978
33,019
(363,473)
$ (910,413)
$ 472,455
$ 1,742,493
$ 4,631,236
$ 3,902,222
$ 2,560,897
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:
2011
2010
2009
U.S. federal statutory income tax rate
34.0%
34.0%
Re-evaluation of tax contingencies
—
—
Income from “pass-through” entities
taxable to noncontrolling partners
International rate differences
Foreign dividend income
Domestic manufacturing deduction
State taxes, net of federal benefit
Other
Total
(2.3%)
(1.3%)
(2.5%)
(0.9%)
3.8%
(1.9%)
3.8%
1.4%
1.9%
(0.4%)
3.1%
0.9%
34.0%
(9.1%)
(2.8%)
(0.1%)
0.6%
(0.1%)
2.7%
1.6%
2011
2010
Current Noncurrent
Current Noncurrent
$3,561,551
$ —
$2,946,530
$ —
—
159,452
—
527,294
1,537,003
381,767
561,213
400,350
—
—
282,885
117,122
—
—
—
—
234,693
80,666
—
—
(267,371)
306,384
(79,098)
124,967
206,118
99,957
$4,949,368
$1,300,181
$3,557,156
$1,291,297
Contract and
other reserves
Fixed assets and
intangibles
Accrued
compensation
and expenses
Net operating
loss
carryforwards
Foreign and state
income taxes
Federal benefit
on state deferred
taxes
Valuation
Allowance
Other
assets
Other
Net deferred tax
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 2010 and 2011, there was no one item that
significantly impacted the change in the deferred tax assets and
liabilities. A valuation allowance of approximately $346,000 has
been established 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, 2011,
these amounts totaling approximately $5.8 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
changes. In fiscal year 2011, the IRS completed the audit for
fiscal year 2009 with no proposed changes. The Company’s
tax matters for the fiscal years 2010 and 2011 remain subject
to examination by the IRS. On September 9, 2011, the
36.3%
37.3%
27.0%
IRS completed the audit for fiscal year 2008 with no proposed
Company was notified by New York State of a pending income
tax audit for fiscal years 2008 through 2010. 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, 2011, 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.
For fiscal year ended July 31, 2011, E&E recognized interest
and penalties expense of approximately $44,000. For the
twelve months ended July 31, 2009, E&E recognized a foreign
exchange gain of $275,000 related to the settlement of an
unrecognized tax benefit UTPs) for Kuwait.
It is reasonably possible that the liability associated with our
unrecognized tax benefits 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, 2011 and July 31, 2010, the Company had
approximately $531,000 and $241,000, 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, 2011 and 2010, the liability for
UTPs and associated interest and penalties are classified as
noncurrent liabilities, except for $237,000 in fiscal year 2011,
which relates to income taxes for calendar year 2010 in Kuwait
and is expected to be settled within the next twelve months.
A reconciliation of the beginning and ending amount of UTPs as of
July 31 is as follows:
2011
2010
Beginning balance
Additions for tax positions during
the current year
Additions for tax positions of prior
years
Reductions for tax positions of prior
years for:
- Changes in judgment
- Settlements during the period
- Changes in non-controlling
interests
- Lapses of the applicable
statute of limitations
$240,900
$290,495
280,700
40,300
—
(31,400)
—
—
—
—
(4,627)
—
19,530
(64,498)
Ending balance
$530,500
$240,900
9. Other Accrued Liabilities
July 31,
General cost disallowances
Other
2011
2010
$
3,882,810
$
3,483,876
2,256,613
1,442,922
$6,139,423
$4,926,798
Included in other accrued liabilities are general cost
disallowances relating to potential cost disallowances on
amounts billed and collected in current and prior years' projects
of approximately $3.9 million and $3.5 million at July 31,
2011 and July 31, 2010, respectively. The allowance for
contract adjustments is recorded for contract disputes and
government audits when the amounts are estimatible.
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 55,041 shares valued at approximately
$.7 million in October 2010 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 at July 31, 2011 and July 31, 2010.
Total gross compensation expense is recognized over the
vesting period.
Unrecognized compensation expense was approximately $.7
million and $.6 million at July 31, 2011 and July 31, 2010,
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
30
Ecology and Environment, Inc.
Global Environmental Specialists
31
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 2011 and 2010, the Company declared cash
dividends of approximately $2.0 million and $1.7 million,
respectively. Within accounts payable, the Company recorded
outstanding dividend payables at July 31, 2011 and 2010 of
approximately $1.0 million and $0.9 million, respectively.
c. Stock Repurchase
The Company’s Board of Directors approved a 200,000 share
repurchase program in August 2010 in which 115,998 shares
remain available for repurchase.
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. The Company’s
noncontrolling interest is now 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 June 6, 2011, the Company purchased an additional 1.1% of
Walsh from noncontrolling shareholders for approximately
$219,000. Two thirds of the purchase price was paid in cash
while the remaining one third was paid for with E & E stock. On
March 18, 2011 the Company purchased an additional equity of
5.5% of its majority owned subsidiary, Walsh Environmental
Scientists & Engineers, LLC (Walsh), from noncontrolling
shareholders for approximately $1,156,000. The terms of the sale
are the same as the purchase in fiscal year 2010, where 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.
On March 1, 2010, 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 January 28, 2010 the Company purchased an
additional equity interest 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.
All other transactions with noncontrolling shareholders for fiscal
years ended July 31, 2011, 2010, and 2009 were made at book
value, which management believes approximates book value.
Effects of changes in E&E’s ownership interest in its subsidiaries
on E&E’s equity:
Fiscal Year
2010
2009
Transfers to
noncontrolling interest:
Sale of 310 Walsh
common shares
Sale of 20 Walsh
common shares
Sale of 160 Walsh
common shares
Sale of 196 Walsh
common shares
Sale of 200 Lowham –
Walsh common shares
Sale of 15,000 Walsh Peru
common shares
Sale of 900 Gustavson
common shares
Issuance of 667 ECSI
common shares
Sale of 75 Lowham –
Walsh common shares
Total transfers to
noncontrolling interest
Transfers from
noncontrolling interest:
Purchase of 112 Walsh
common shares
Purchase of 2 Walsh Peru
common shares
Purchase of 182 Walsh
common shares
Purchase of 7,343 Walsh
common shares
Purchase of 11,000 Walsh
Peru common shares
Purchase of 50 Gestion
Ambiental Consultores
common shares
Purchase of 20 Walsh
common shares
Purchase of 496 Walsh
common shares
Purchase of 2,205 Walsh
common shares
Purchase of 243 Walsh
common shares
Purchase of 426 Walsh
common shares
Purchase of 100 Walsh
common shares
Total transfers from
noncontrolling interset
Transfers to (from)
noncontrolling interest
2011
—
—
—
—
—
—
62,451
667,000
27,917
—
—
$ 64,920
4,188
40,850
50,040
52,222
84,450
—
—
—
—
—
—
—
—
—
—
757,368
227,562
69,108
—
—
—
—
—
—
(7,776)
(208,156)
(974,750)
(101,905)
(197,945)
(41,091)
—
—
(27,332)
(547)
(59,486)
(2,289,778)
(126,830)
(50,000)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,531,623)
(2,526,094)
(27,879)
(774,255)
(2,298,532)
41,229
$ 3,070,440
unlikely that the Company will pay a dividend on Class A
The Company rents certain office facilities and equipment
1.19
.60
.88
under non-cancelable operating leases. The Company also
Total earnings per share
$ 1.65
$ 1.02
$ 1.27
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
rents certain facilities for servicing project sites over the term of
the related long-term government contracts.
At July 31, 2011, future minimum rental commitments are as
follows:
Fiscal Year
Amount
2012
2013
2014
2015
2016
Thereafter
2,554,872
1,904,588
1,139,169
632,339
806,017
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 2011,
2010, and 2009 was approximately $3.6 million, $3.2 million and
$3.0 million, respectively.
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 2011, 2010, and 2009 was
approximately $2.2 million, $2.0 million, and $1.8 million,
respectively.
15. Earnings Per Share
The computation of basic earnings per share reconciled to
diluted earnings per share follows:
Fiscal Year
2011
2010
2009
Total income available to
common stockholders
$ 6,960,263
$ 4,257,607
$ 5,221,274
Dividend paid
1,963,303
1,747,572
1,594,653
Undistributed earnings
$ 4,996,960
$ 2,510,035
$ 3,626,621
Weighted-average
common shares
outstanding: basic and
diluted
share
Distributed earnings per
Undistributed earnings
per share
4,222,688
4,160,816
4,115,921
$ .46
$ .42
$ .39
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
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
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
follows:
Geographic information:
United States
Foreign countries
Revenue
Gross
Long-Lived
Assets
$115,041,000
$27,871,726
54,132,000
5,062,000
Revenue is attributed to countries based on the location of the
customers. Revenues in the most significant foreign countries
include $9.1 million in Kuwait, $15.9 million in Peru, $11.8
million in Brazil, $8.3 million in Chile and $4.4 million in
Morocco.
14. Defined Contribution Plans
Segment information for fiscal year ended July 31, 2011 are as
32
Ecology and Environment, Inc.
Global Environmental Specialists
33
Class B common stock to an existing holder of Class B common
Walsh from noncontrolling shareholders for $3,000,000. One third
stock or to an immediate family member will not cause such shares
of the purchase price was paid in cash, one third was paid with the
to automatically convert into Class A common stock.
b. Cash Dividend
For fiscal year 2011 and 2010, the Company declared cash
dividends of approximately $2.0 million and $1.7 million,
respectively. Within accounts payable, the Company recorded
outstanding dividend payables at July 31, 2011 and 2010 of
approximately $1.0 million and $0.9 million, respectively.
c. Stock Repurchase
The Company’s Board of Directors approved a 200,000 share
repurchase program in August 2010 in which 115,998 shares
remain available for repurchase.
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. The Company’s
noncontrolling interest is now 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 June 6, 2011, the Company purchased an additional 1.1% of
Walsh from noncontrolling shareholders for approximately
$219,000. Two thirds of the purchase price was paid in cash
while the remaining one third was paid for with E & E stock. On
March 18, 2011 the Company purchased an additional equity of
5.5% of its majority owned subsidiary, Walsh Environmental
Scientists & Engineers, LLC (Walsh), from noncontrolling
shareholders for approximately $1,156,000. The terms of the sale
are the same as the purchase in fiscal year 2010, where 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.
On March 1, 2010, 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 January 28, 2010 the Company purchased an
additional equity interest of 18.7% or approximately $2,360,000 of
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.
All other transactions with noncontrolling shareholders for fiscal
years ended July 31, 2011, 2010, and 2009 were made at book
value, which management believes approximates book value.
Effects of changes in E&E’s ownership interest in its subsidiaries
2011
Fiscal Year
2010
2009
on E&E’s equity:
Transfers to
noncontrolling interest:
Sale of 310 Walsh
common shares
Sale of 20 Walsh
common shares
Sale of 160 Walsh
common shares
Sale of 196 Walsh
common shares
Sale of 200 Lowham –
Walsh common shares
Sale of 15,000 Walsh Peru
common shares
Sale of 900 Gustavson
common shares
Issuance of 667 ECSI
common shares
Sale of 75 Lowham –
Walsh common shares
Total transfers to
noncontrolling interest
Transfers from
noncontrolling interest:
Purchase of 112 Walsh
common shares
Purchase of 2 Walsh Peru
common shares
Purchase of 182 Walsh
common shares
Purchase of 7,343 Walsh
common shares
Purchase of 11,000 Walsh
Peru common shares
Purchase of 50 Gestion
Ambiental Consultores
common shares
Purchase of 20 Walsh
common shares
Purchase of 496 Walsh
common shares
Purchase of 2,205 Walsh
common shares
Purchase of 243 Walsh
common shares
Purchase of 426 Walsh
common shares
Purchase of 100 Walsh
common shares
Total transfers from
noncontrolling interset
Transfers to (from)
noncontrolling interest
62,451
667,000
27,917
—
—
—
—
—
—
—
—
—
—
—
—
(7,776)
(208,156)
(974,750)
(101,905)
(197,945)
(41,091)
—
—
$ 64,920
4,188
40,850
50,040
52,222
84,450
757,368
227,562
69,108
(27,332)
(547)
(59,486)
(2,289,778)
(126,830)
(50,000)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,531,623)
(2,526,094)
(27,879)
(774,255)
(2,298,532)
41,229
—
—
—
—
—
—
—
—
—
—
—
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, 2011, future minimum rental commitments are as
follows:
Fiscal Year
Amount
2012
2013
2014
2015
2016
Thereafter
$ 3,070,440
2,554,872
1,904,588
1,139,169
632,339
806,017
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 2011,
2010, and 2009 was approximately $3.6 million, $3.2 million and
$3.0 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 2011, 2010, and 2009 was
approximately $2.2 million, $2.0 million, and $1.8 million,
respectively.
15. Earnings Per Share
The computation of basic earnings per share reconciled to
diluted earnings per share follows:
Total income available to
common stockholders
Dividend paid
Undistributed earnings
Weighted-average
common shares
outstanding: basic and
diluted
Distributed earnings per
share
Undistributed earnings
per share
Total earnings per share
Fiscal Year
2011
2010
2009
$ 6,960,263
1,963,303
$ 4,996,960
$ 4,257,607
1,747,572
$ 2,510,035
$ 5,221,274
1,594,653
$ 3,626,621
4,222,688
4,160,816
4,115,921
$ .46
$ .42
$ .39
1.19
.60
.88
$ 1.65
$ 1.02
$ 1.27
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.
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
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, 2011 are as
follows:
Geographic information:
United States
Foreign countries
Revenue
Gross
Long-Lived
Assets
$115,041,000
$27,871,726
54,132,000
5,062,000
Revenue is attributed to countries based on the location of the
customers. Revenues in the most significant foreign countries
include $9.1 million in Kuwait, $15.9 million in Peru, $11.8
million in Brazil, $8.3 million in Chile and $4.4 million in
Morocco.
32
Ecology and Environment, Inc.
Global Environmental Specialists
33
Segment information for fiscal year ended July 31, 2010 are as
follows:
Geographic information:
United States
Foreign countries
Revenue
Gross
Long-Lived
Assets
$101,105,000
$25,991,353
42,993,000
3,714,000
Revenue is attributed to countries based on the location of the
customers. Revenues in the most significant foreign countries
include $5.4 million in Kuwait, $19.2 million in Peru, $10.4
million in Brazil and $3.8 million in Chile.
Segment information for fiscal year ended July 31, 2009 are
as follows:
Geographic information:
United States
Foreign countries
Revenue
Gross
Long-Lived
Assets
$115,818,000
$24,830,747
30,263,000
2,730,000
Revenue is attributed to countries based on the location of
the customers. Revenues in the most significant foreign
countries include $16.4 million in Peru, $7.6 million in Brazil
and $3.3 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 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 51 percent 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 Reals, which has a value of
approximately $300,000 USD. 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 not received a reply from the Institute to its administrative
responses. 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 $343,000,
$224,000 and $181,000 for the fiscal years ended July 31,
2011, 2010 and 2009, respectively. Cash paid for income
taxes amounted to approximately $5.6 million, $1.5 million
and $2.2 million for the fiscal years ended July 31, 2011,
2010 and 2009, respectively. Of the $1.8 million in dividends
paid by the Company in the fiscal year ended July 31, 2011,
approximately $.9 million was accrued in accounts payable as
of July 31, 2010. Of the $1.7 million in dividends paid by the
Company in the fiscal year ended July 31, 2010, approximately
$.8 million was included in accounts payable as of July 31,
2009. In July 2011, the Company declared a dividend of $1.0
million which was accrued in accounts payable.
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 August 23, 2010, the Company purchased a 60% ownership
interest in a newly formed entity ECSI, LLC, a Lexington, Kentucky
based engineering and environmental consulting services company
that specializes in mining work. The Company paid $1.0 million in
cash for its 60% ownership interest, and the noncontrolling
partnership group, ECSI, Inc., contributed cash, other assets, and
liabilities for its 40% ownership share. The operating agreement
contains a priority profit allocation between the Company and
ESCI, Inc. for the first five years of operation. Additionally, in
connection with the agreement, the Company has restricted for
issuance $.1 million of shares to be awarded to a key employee
comprehensive income to net income in the financial statement
over a 5 year period, of which the first 20% vested on August 13,
where the components of net income and the components of
2010 and the second 20% on August 13, 2011.
A noncontrolling interest of $667,000 representing the 40%
noncontrolling share was recorded at the acquisition date. This
new entity is included in the consolidated financial results of the
Company from the date of acquisition. The Company acquired
other comprehensive income are presented. This updated
guidance is effective on a retrospective basis for fiscal years
beginning after December 15, 2011. The Company is
evaluating the impact of this guidance on its consolidated
financial statements.
assets of property, plant, and equipment, accounts receivable, and
In January 2010, the Financial Accounting Standards Board
other assets including trade names and customer relationships and
updated the authoritative guidance for fair value measurements
goodwill and assumed liabilities of accounts payable and accrued
with new disclosure requirements. These requirements include
payroll.
On January 27, 2011 the company entered into an agreement
with the Economic & Social Association of Retired Servicemen
and Veterans to sell all of the assets of the Jordanian Fish Farm
(AMARACO). The sale price for the farm was 230,000
Jordanian Dinars (~$322,000 USD) in cash, which was
received in the third quarter. The company has realized a gain
of approximately $290,000 on the sale of the fish farm.
In addition to other immaterial transactions during the year, on
March 18, 2011 the Company acquired another 5.5% of its
majority owned subsidiary Walsh Environmental Scientists &
Engineers, LLC. The terms of the sale are the same as the
purchase in fiscal year 2010, where the Company paid one
third in cash, one third in a two year note, and issue E & E
stock for the remaining one third of the sale price. With this
purchase, E&E’s ownership share in Walsh was increased to
approximately 84% of that company. The total purchase price
was approximately $1,156,000.
20. Recent Accounting Pronouncements
In June 2011, the FASB issued guidance regarding the
presentation of comprehensive income. The new standard
requires the presentation of comprehensive income, the
components of net income and the components of other
comprehensive income either in a single continuous statement of
comprehensive income, or in two separate but consecutive
statements. The new standard also requires presentation of
adjustments for items that are reclassified from other
disclosures on the 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, 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.
In December 2010, the FASB updated the authoritative
guidance for intangibles, including goodwill and other
intangibles. The amendments modify Step 1 of the goodwill
impairment test for reporting units with zero or negative
carrying amounts. For those reporting units, an entity is
required to perform Step 2 of the goodwill impairment test if it
is more likely than not that a goodwill impairment exists. In
determining whether it is more likely than not that a goodwill
impairment exists, an entity should consider whether there are
any adverse qualitative factors indicating that an impairment
may exist. The qualitative factors are consistent with the existing
guidance and examples, which require that goodwill of a
reporting unit be tested for impairment between annual tests if
an event occurs or circumstances change that would more
likely than not reduce the fair value of a reporting unit below
its carrying amount. The amendments are effective for fiscal
years, and interim periods within those 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.
21. Selected Quarterly Financial Data (unaudited) (In thousands, except per share information)
2011
Revenues
Net income
2010
Revenues
Net income
Income from operations
Income from continuing operations before income taxes
Net income per common share: basic and diluted
Income from operations
Income from continuing operations before income taxes
Net income per common share: basic and diluted
First
Second
Third
Fourth
$ 42,026
$ 41,866
$ 41,120
$ 44,161
First
Second
Third
Fourth
$ 39,447
$ 30,786
$ 33,168
$ 40,697
3,204
3,238
1,758
.42
1,519
1,349
235
.06
$
$
$
$
2,199
2,587
1,429
.34
1,847
1,781
747
.18
$
$
$
$
2,974
2,989
1,906
.45
4,152
4,153
1,876
.44
$
$
$
$
4,008
3,941
1,859
.44
2,375
3,176
1,400
.34
$
$
$
$
34
Ecology and Environment, Inc.
Global Environmental Specialists
35
$101,105,000
$25,991,353
regulations and that the protected conservation area is not
Segment information for fiscal year ended July 31, 2010 are as
follows:
Geographic information:
United States
Foreign countries
Revenue
Gross
Long-Lived
Assets
42,993,000
3,714,000
Revenue is attributed to countries based on the location of the
customers. Revenues in the most significant foreign countries
include $5.4 million in Kuwait, $19.2 million in Peru, $10.4
million in Brazil and $3.8 million in Chile.
Segment information for fiscal year ended July 31, 2009 are
as follows:
Geographic information:
United States
Foreign countries
Revenue
Gross
Long-Lived
Assets
$115,818,000
$24,830,747
30,263,000
2,730,000
Revenue is attributed to countries based on the location of
the customers. Revenues in the most significant foreign
countries include $16.4 million in Peru, $7.6 million in Brazil
and $3.3 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
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
clearly marked to show its boundaries. At this time, E & E Brasil
has not received a reply from the Institute to its administrative
responses. 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 $343,000,
$224,000 and $181,000 for the fiscal years ended July 31,
2011, 2010 and 2009, respectively. Cash paid for income
taxes amounted to approximately $5.6 million, $1.5 million
and $2.2 million for the fiscal years ended July 31, 2011,
2010 and 2009, respectively. Of the $1.8 million in dividends
paid by the Company in the fiscal year ended July 31, 2011,
approximately $.9 million was accrued in accounts payable as
of July 31, 2010. Of the $1.7 million in dividends paid by the
Company in the fiscal year ended July 31, 2010, approximately
$.8 million was included in accounts payable as of July 31,
2009. In July 2011, the Company declared a dividend of $1.0
million which was accrued in accounts payable.
adverse effect on the Company’s results of operations, financial
On March 18, 2011 the Company purchased an additional
condition, cash flows, or to any other pending legal proceedings other
equity of 5.5% of its majority owned subsidiary Walsh from
than ordinary, routine litigation incidental to its business. The
noncontrolling shareholders for approximately $1,156,000.
Company maintains liability insurance against risks arising out of the
The Company paid one third in cash, one third in a two-year
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 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 51 percent 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 Reals, which has a value of
approximately $300,000 USD. 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
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 August 23, 2010, the Company purchased a 60% ownership
interest in a newly formed entity ECSI, LLC, a Lexington, Kentucky
based engineering and environmental consulting services company
that specializes in mining work. The Company paid $1.0 million in
cash for its 60% ownership interest, and the noncontrolling
partnership group, ECSI, Inc., contributed cash, other assets, and
liabilities for its 40% ownership share. The operating agreement
contains a priority profit allocation between the Company and
ESCI, Inc. for the first five years of operation. Additionally, in
connection with the agreement, the Company has restricted for
issuance $.1 million of shares to be awarded to a key employee
over a 5 year period, of which the first 20% vested on August 13,
2010 and the second 20% on August 13, 2011.
A noncontrolling interest of $667,000 representing the 40%
noncontrolling share was recorded at the acquisition date. This
new entity is included in the consolidated financial results of the
Company from the date of acquisition. The Company acquired
assets of property, plant, and equipment, accounts receivable, and
other assets including trade names and customer relationships and
goodwill and assumed liabilities of accounts payable and accrued
payroll.
On January 27, 2011 the company entered into an agreement
with the Economic & Social Association of Retired Servicemen
and Veterans to sell all of the assets of the Jordanian Fish Farm
(AMARACO). The sale price for the farm was 230,000
Jordanian Dinars (~$322,000 USD) in cash, which was
received in the third quarter. The company has realized a gain
of approximately $290,000 on the sale of the fish farm.
In addition to other immaterial transactions during the year, on
March 18, 2011 the Company acquired another 5.5% of its
majority owned subsidiary Walsh Environmental Scientists &
Engineers, LLC. The terms of the sale are the same as the
purchase in fiscal year 2010, where the Company paid one
third in cash, one third in a two year note, and issue E & E
stock for the remaining one third of the sale price. With this
purchase, E&E’s ownership share in Walsh was increased to
approximately 84% of that company. The total purchase price
was approximately $1,156,000.
20. Recent Accounting Pronouncements
In June 2011, the FASB issued guidance regarding the
presentation of comprehensive income. The new standard
requires the presentation of comprehensive income, the
components of net income and the components of other
comprehensive income either in a single continuous statement of
comprehensive income, or in two separate but consecutive
statements. The new standard also requires presentation of
adjustments for items that are reclassified from other
comprehensive income to net income in the financial statement
where the components of net income and the components of
other comprehensive income are presented. This updated
guidance is effective on a retrospective basis for fiscal years
beginning after December 15, 2011. The Company is
evaluating the impact of this guidance on its consolidated
financial statements.
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 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, 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.
In December 2010, the FASB updated the authoritative
guidance for intangibles, including goodwill and other
intangibles. The amendments modify Step 1 of the goodwill
impairment test for reporting units with zero or negative
carrying amounts. For those reporting units, an entity is
required to perform Step 2 of the goodwill impairment test if it
is more likely than not that a goodwill impairment exists. In
determining whether it is more likely than not that a goodwill
impairment exists, an entity should consider whether there are
any adverse qualitative factors indicating that an impairment
may exist. The qualitative factors are consistent with the existing
guidance and examples, which require that goodwill of a
reporting unit be tested for impairment between annual tests if
an event occurs or circumstances change that would more
likely than not reduce the fair value of a reporting unit below
its carrying amount. The amendments are effective for fiscal
years, and interim periods within those 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.
21. Selected Quarterly Financial Data (unaudited) (In thousands, except per share information)
2011
Revenues
Income from operations
Income from continuing operations before income taxes
Net income
Net income per common share: basic and diluted
First
Second
Third
Fourth
$ 42,026
4,008
3,941
$
$
1,859
.44
$ 41,866
3,204
3,238
$
$
1,758
.42
$ 41,120
2,199
2,587
$
$
1,429
.34
$ 44,161
2,974
2,989
$
$
1,906
.45
2010
Revenues
Income from operations
Income from continuing operations before income taxes
Net income
Net income per common share: basic and diluted
First
Second
Third
Fourth
$ 39,447
2,375
3,176
$
$
1,400
.34
$ 30,786
1,519
1,349
235
$
$
.06
$ 33,168
1,847
1,781
747
$
$
.18
$ 40,697
4,152
4,153
$
$
1,876
.44
34
Ecology and Environment, Inc.
Global Environmental Specialists
35
Market for E & E’s Common Equity and
Related Stockholder Matters
The Company’s Class A Common Stock was traded on the AMEX prior to September 8, 2008. Beginning on September 8,
2008, the Company’s Class A Common Stock has been 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 NASDAQ for the periods indicated.
FISCAL 2011
First Quarter (commencing August 1, 20
10
10
- October 3 , 20 )
0
Second Quarter (commencing October 31, 2010 - January 29, 2011)
Third Quarter (commencing January 3 , 201 - April 30, 2011)
0
1
Fourth Quarter (commencing May 1, 2011 - July 31, 2011)
FISCAL 2010
High
$ 1
3.50
15.33
20.69
22.76
High
Low
$ 1
1.40
12.44
14.70
16.42
Low
First Quarter (commencing August 1, 2009 - October 31, 2009)
$ 17.00
$ 14.69
Second Quarter (commencing November 1, 2009 - January 30, 2010)
Third Quarter (commencing January 31, 2010 - May 1, 2010)
Fourth Quarter (commencing May 2, 2010 - July 31, 2010)
16.23
15.30
13.61
14.07
13.15
11.91
As of September 30, 2011, the number of holders of record of the Company’s Common Stock was 434. 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.
BOARD OF DIRECTORS
Gerhard J. Neumaier
Chairman and Director
Frank B. Silvestro
Executive Vice President and Director
Gerald A. Strobel, P.E.
Executive Vice President of Technical
Services and Director
Ronald L. Frank
Executive Vice President, Secretary,
and Director
Gerard A. Gallagher, Jr., Retired
Company Officer and Director
Michael C. Gross, Insurance Broker
and Director
Ross M. Cellino, Attorney and
Director
Timothy Butler, Retired Bank Executive
and Director
CORPORATE OFFICERS
Gerhard J. Neumaier
Chairman
Kevin S. Neumaier, P.E.
President and Chief Executive Officer
Frank B. Silvestro
Executive Vice President
Gerald A. Strobel, P.E.
Executive Vice President of Technical
Services
Ronald L. Frank
Executive Vice President,
Secretary
Laurence M. Brickman, Ph.D.
Senior Vice President
Kevin Donovan
Senior Vice President
Gerard A. Gallagher, III
Senior Vice President of
Environmental Sustainability
Roger J. Gray
Senior Vice President
Fred J. McKosky, P.E.
Senior Vice President
Ronald J. Skare
Senior Vice President
Cheryl A. Karpowicz, AICP
Senior Vice President
Nancy Aungst
Vice President
James B. Collins
Vice President
Timothy J. Grady, P.E.
Vice President
Robert J. King
Vice President
Craig Hathaway, C.P.A.
Vice President of Finance
H. John Mye, P.E.
Vice President, Treasurer
and Chief Financial Officer
Christopher L. Quina, P.G.
Vice President
Richard Rudy, P.G., C.P.G.
Vice President
George A. Rusk, J.D.
Vice President
Carmine A. Tronolone
Vice President
George W. Welsh
Vice President
Colleen C. Mullaney-Westfall, J.D.
Assistant Secretary
CORPORATE HEADQUARTERS
Buffalo Corporate Center
368 Pleasant View Drive
Lancaster, NY 14086-1397
TEL: 1 (716) 684-8060
FAX: 1 (716) 684-0844
E-MAIL: jmye@ene.com
WEB: www.ene.com
STOCK TRANSFER AGENT
American Stock Transfer & Trust Co.
40 Wall Street
New York, NY 10005
TEL: 1 (212) 936-5100
EXCHANGE LISTING
NASDAQ Global Market
Ticker Symbol: EEI
®
INDEPENDENT AUDITOR
Schneider Downs & Co., Inc.
1133 Penn Avenue
Pittsburgh, PA 15222
LEGAL COUNSEL
Gross, Shuman, Brizdle & Gilfillan, P.C.
465 Main Street, Suite 600
Buffalo, New York 14203
FORM 10-K
E & E’s Annual Report including financial statements is for
the general information of the Company’s shareholders. It is
not intended to be used in connection with any sale or
purchase of securities. Shareholders may obtain from the
Company without charge a copy of its Annual Report on
Form 10-K as filed with the Securities and Exchange
Commission, including financial schedules, by sending a
written request to:
Mr. H. John Mye, Chief Financial Officer
Ecology and Environment, Inc.
368 Pleasant View Drive
Lancaster, NY 14086-1397
SUBSIDIARIES
Consortium of International Consultants, LLC
E & E Environmental Services, LLC (Russia)
E & E International, LLC (Russia)
E & E Umwelt-Beratung, GmbH (Germany)
E & E Consulting Inc. (Vancouver)
Ecology & Environment Engineering, Inc.
Ecology and Environment, Inc. Sucursal Colombia
(Hidromecanicas, Ltda)
Ecology and Environment, Inc. c/o M. Shalit (Israel)
Ecology and Environment, Inc. (Libya)
Ecology and Environment of Saudi Arabia Co., Ltd.
(Saudi Arabia)
Ecology and Environment Mexico S.A. de C.V. (Mexico)
Ecology and Environment do Brasil, Ltda. (Brazil)
Ecology and Environment International Services, Inc.
Ecology and Environment South America, Inc.
(Grand Cayman)
ECSI, LLC
Gestion Ambiental Consultores (Chile)
Gustavson Associates, LLC
Lowham Walsh Engineering and Environment Services, LLC
Servicios Ambientales Walsh S.A. (Ecuador)
Tianjin Green Engineering Company (China) (joint venture)
Walsh Environmental Scientists & Engineers, LLC
Walsh Peru, S.A. (Peru)
YiYi Ecology and Environment Consulting (Wuxi) Co., Ltd.
Overstreet Orlando Mitigation Team, LLC
Albany, NY
Anchorage, AK
Austin, TX
Baton Rouge, LA
Beijing, China*
Berlin, Germany
Blacksburg, VA
Bogotá, Colombia
Boulder, CO*
Buenos Aires, Argentina
Buffalo, NY
Cairo, Egypt
Casablanca, Morocco
Chicago, IL
Colorado Springs, CO
Corbin, KY
Dallas, TX
Denver, CO
Fort Collins, CO
Gillette, WY
OFFICES
Grand Junction, CO
Greenville, SC
Houston, TX
Jeddah, Saudi Arabia
Kansas City, KS
Kuwait City, Kuwait
Lakewood, CO*
Lander, WY
Lexington, KY
Lima, Peru
Long Beach, CA
Miami, FL
New York, NY
Oakland, CA
Orlando, FL
Owensboro, KY
Pensacola, FL
Pikeville, KY
Pittsburgh, PA
Portland, OR
Quito, Ecuador
Rio de Janeiro, Brazil
Salt Lake City, UT
San Diego, CA
San Francisco, CA
Santiago, Chile
Seattle, WA
Tallahassee, FL
Tripoli, Libya
Tucson, AZ
Vancouver, Canada
Virginia Beach, VA
Washington, DC
West Palm Beach, FL
Williamson, WV
Wuxi, China
*Multiple Offices
Global
Environment
al Specialists
WWW.ENE.COM