UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
þ
|
Quarterly
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For
the quarterly period ended January 31, 2009
|
|
|
o
|
Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For
the transition period from __________ to
__________
|
Commission
File Number 1-9065
ECOLOGY
AND
ENVIRONMENT, INC.
(Exact
name of registrant as specified in its charter)
New
York
|
|
16-0971022
|
(State
or other jurisdiction of incorporation or organization)
|
|
(IRS
Employer Identification Number)
|
|
|
|
368
Pleasant View Drive
|
|
|
Lancaster,
New York
|
|
14086
|
(Address
of principal executive offices)
|
|
(Zip
code)
|
(716) 684-8060
(Registrant's
telephone number, including area code)
Not
Applicable
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months, (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes þ
No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company (as
defined in Exchange Act Rule 12b-2). (Check one):
Large
accelerated filer
|
o
|
|
Accelerated
filer
|
o
|
Non-accelerated
filer
(Do
not check if a smaller reporting company)
|
o
|
|
Smaller
reporting company
|
þ
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No
þ
At March
1, 2009, 2,438,495 shares of Registrant's Class A Common Stock (par
value $.01) and 1,651,273 shares of Class B Common Stock (par value $.01) were
outstanding.
|
|
Consolidated
Balance Sheet
|
|
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
31,
|
|
|
July
31,
|
|
Assets
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
11,140,368 |
|
|
$ |
14,178,094 |
|
Investment
securities available for sale
|
|
|
1,204,212 |
|
|
|
1,173,195 |
|
Contract
receivables, net
|
|
|
43,460,279 |
|
|
|
41,545,935 |
|
Deferred
income taxes
|
|
|
4,361,522 |
|
|
|
4,450,693 |
|
Income
tax receivable
|
|
|
15,556 |
|
|
|
15,556 |
|
Other
current assets
|
|
|
3,247,340 |
|
|
|
2,357,307 |
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
63,429,277 |
|
|
|
63,720,780 |
|
|
|
|
|
|
|
|
|
|
Property,
building and equipment, net
|
|
|
7,905,289 |
|
|
|
7,873,248 |
|
Deferred
income taxes
|
|
|
2,144,894 |
|
|
|
2,386,424 |
|
Other
assets
|
|
|
1,645,689 |
|
|
|
1,621,144 |
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
75,125,149 |
|
|
$ |
75,601,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholder's Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
9,607,700 |
|
|
$ |
9,509,351 |
|
Accrued
payroll costs
|
|
|
5,609,211 |
|
|
|
5,901,980 |
|
Income
taxes payable
|
|
|
803,359 |
|
|
|
- |
|
Deferred
revenue
|
|
|
191,317 |
|
|
|
91,822 |
|
Current
portion of long-term debt and capital lease obligations
|
|
|
721,798 |
|
|
|
1,377,827 |
|
Other
accrued liabilities
|
|
|
10,261,334 |
|
|
|
9,968,490 |
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
27,194,719 |
|
|
|
26,849,470 |
|
|
|
|
|
|
|
|
|
|
Income
taxes payable
|
|
|
2,547,863 |
|
|
|
2,734,788 |
|
Accrued
interest and penalties
|
|
|
2,107,776 |
|
|
|
2,111,988 |
|
Long-term
debt and capital lease obligations
|
|
|
386,557 |
|
|
|
481,757 |
|
Minority
interest
|
|
|
4,660,012 |
|
|
|
4,169,247 |
|
Commitments
and contingencies (see note #9)
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
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
- 2,677,651 and 2,661,498 shares
|
|
|
26,776 |
|
|
|
26,615 |
|
Class
B common stock, par value $.01 per
|
|
|
|
|
|
|
|
|
share;
authorized - 10,000,000 shares;
|
|
|
|
|
|
|
|
|
issued
- 1,716,074 and 1,732,227 shares
|
|
|
17,162 |
|
|
|
17,323 |
|
Capital
in excess of par value
|
|
|
19,877,712 |
|
|
|
20,014,257 |
|
Retained
earnings
|
|
|
21,327,009 |
|
|
|
19,664,147 |
|
Accumulated
other comprehensive income (loss)
|
|
|
(231,184 |
) |
|
|
834,667 |
|
Treasury
stock - Class A common, 239,156 and 65,340
|
|
|
|
|
|
|
|
|
shares;
Class B common, 64,801 and 64,801 shares, at cost
|
|
|
(2,789,253 |
) |
|
|
(1,302,663 |
) |
|
|
|
|
|
|
|
|
|
Total
shareholders' equity
|
|
|
38,228,222 |
|
|
|
39,254,346 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity
|
|
$ |
75,125,149 |
|
|
$ |
75,601,596 |
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
|
|
|
|
|
|
|
|
Consolidated
Statement of Income
|
|
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
|
January
31,
|
|
|
January
26,
|
|
|
January
31,
|
|
|
January
26,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
34,068,691 |
|
|
$ |
24,077,925 |
|
|
$ |
67,760,400 |
|
|
$ |
49,724,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of professional services and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
direct operating expenses
|
|
|
13,191,705 |
|
|
|
9,281,029 |
|
|
|
27,366,618 |
|
|
|
20,066,750 |
|
Subcontract
costs
|
|
|
7,312,626 |
|
|
|
3,739,337 |
|
|
|
11,965,473 |
|
|
|
6,384,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
13,564,360 |
|
|
|
11,057,559 |
|
|
|
28,428,309 |
|
|
|
23,273,713 |
|
Administrative
and indirect operating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses
|
|
|
8,458,815 |
|
|
|
7,291,221 |
|
|
|
16,514,911 |
|
|
|
14,679,333 |
|
Marketing
and related costs
|
|
|
2,590,256 |
|
|
|
2,742,199 |
|
|
|
5,830,952 |
|
|
|
5,705,412 |
|
Depreciation
|
|
|
390,219 |
|
|
|
370,176 |
|
|
|
763,511 |
|
|
|
722,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
2,125,070 |
|
|
|
653,963 |
|
|
|
5,318,935 |
|
|
|
2,166,689 |
|
Interest
expense
|
|
|
(129,052 |
) |
|
|
(110,120 |
) |
|
|
(245,833 |
) |
|
|
(231,301 |
) |
Interest
income
|
|
|
57,508 |
|
|
|
119,652 |
|
|
|
134,697 |
|
|
|
259,670 |
|
Other
income (expense)
|
|
|
8,129 |
|
|
|
(13,195 |
) |
|
|
(20,723 |
) |
|
|
(33,574 |
) |
Net
foreign currency exchange gain (loss)
|
|
|
(94,006 |
) |
|
|
1,086 |
|
|
|
(94,175 |
) |
|
|
342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
taxes
and minority interest
|
|
|
1,967,649 |
|
|
|
651,386 |
|
|
|
5,092,901 |
|
|
|
2,161,826 |
|
Income
tax provision
|
|
|
801,281 |
|
|
|
175,914 |
|
|
|
1,981,624 |
|
|
|
584,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before
minority interest
|
|
|
1,166,368 |
|
|
|
475,472 |
|
|
|
3,111,277 |
|
|
|
1,577,573 |
|
Minority
interest
|
|
|
(197,319 |
) |
|
|
(345,232 |
) |
|
|
(665,952 |
) |
|
|
(946,419 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income from continuing operations
|
|
|
969,049 |
|
|
|
130,240 |
|
|
|
2,445,325 |
|
|
|
631,154 |
|
Income
(loss) from discontinued operations
|
|
|
(6,150 |
) |
|
|
431 |
|
|
|
(8,400 |
) |
|
|
(34 |
) |
Income
tax benefit (provision) on income (loss) from discontinued
operations
|
|
|
2,414 |
|
|
|
(116 |
) |
|
|
3,263 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
965,313 |
|
|
$ |
130,555 |
|
|
$ |
2,440,188 |
|
|
$ |
631,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share: basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
0.25 |
|
|
$ |
0.03 |
|
|
$ |
0.61 |
|
|
$ |
0.15 |
|
Discontinued
operations
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
income per common share: basic
|
|
$ |
0.25 |
|
|
$ |
0.03 |
|
|
$ |
0.61 |
|
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share: diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
0.24 |
|
|
$ |
0.03 |
|
|
$ |
0.60 |
|
|
$ |
0.15 |
|
Discontinued
operations
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
income per common share: diluted
|
|
$ |
0.24 |
|
|
$ |
0.03 |
|
|
$ |
0.60 |
|
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding: basic
|
|
|
3,951,633 |
|
|
|
4,164,570 |
|
|
|
4,016,614 |
|
|
|
4,164,570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding: diluted
|
|
|
4,023,333 |
|
|
|
4,201,362 |
|
|
|
4,101,786 |
|
|
|
4,221,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statement of Cash Flows
|
|
Unaudited
|
|
|
|
|
|
|
|
|
|
|
Six
months ended
|
|
|
|
January
31,
|
|
|
January
26,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
2,440,188 |
|
|
$ |
631,129 |
|
Net
income (loss) from discontinued operations, net of tax
|
|
|
(5,137 |
) |
|
|
(25 |
) |
Income
from continuing operations
|
|
|
2,445,325 |
|
|
|
631,154 |
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
763,511 |
|
|
|
722,279 |
|
Deferred
income taxes
|
|
|
116,681 |
|
|
|
(241,563 |
) |
Share-based
compensation expense
|
|
|
234,593 |
|
|
|
169,812 |
|
Gain
on disposition of property and equipment
|
|
|
(8,701 |
) |
|
|
(19 |
) |
Minority
interest
|
|
|
665,952 |
|
|
|
946,419 |
|
Provision
for contract adjustments
|
|
|
(87,267 |
) |
|
|
(53,838 |
) |
(Increase)
decrease in:
|
|
|
|
|
|
|
|
|
-
contracts receivable, net
|
|
|
(3,159,793 |
) |
|
|
2,800,409 |
|
-
other current assets
|
|
|
(1,147,407 |
) |
|
|
(400,517 |
) |
-
other non-current assets
|
|
|
(32,167 |
) |
|
|
36,860 |
|
Increase
(decrease) in:
|
|
|
|
|
|
|
|
|
-
accounts payable
|
|
|
586,838 |
|
|
|
(3,746,987 |
) |
-
accrued payroll costs
|
|
|
(185,508 |
) |
|
|
(727,982 |
) |
-
income taxes payable
|
|
|
650,431 |
|
|
|
972,029 |
|
-
deferred revenue
|
|
|
99,495 |
|
|
|
(10,361 |
) |
-
other accrued liabilities
|
|
|
722,310 |
|
|
|
(1,070,640 |
) |
-
accrued interest and penalties
|
|
|
(4,212 |
) |
|
|
253,475 |
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
1,660,081 |
|
|
|
280,530 |
|
|
|
|
|
|
|
|
|
|
Cash
flows used in investing activities:
|
|
|
|
|
|
|
|
|
Purchase
of property, building and equipment
|
|
|
(991,239 |
) |
|
|
(533,122 |
) |
Payment
for the purchase of bond
|
|
|
(18,574 |
) |
|
|
(95,614 |
) |
|
|
|
|
|
|
|
|
|
Cash
used in investing activities
|
|
|
(1,009,813 |
) |
|
|
(628,736 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows provided by (used in) financing activities:
|
|
|
|
|
|
|
|
|
Dividends
paid
|
|
|
(777,326 |
) |
|
|
(769,371 |
) |
Proceeds
from debt
|
|
|
661,501 |
|
|
|
15,502 |
|
Repayment
of debt and capital lease obligations
|
|
|
(1,412,730 |
) |
|
|
(224,991 |
) |
Distributions
to minority partners
|
|
|
(434,803 |
) |
|
|
(570,593 |
) |
Purchase
of treasury stock
|
|
|
(1,832,123 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Net
cash used in financing activities
|
|
|
(3,795,481 |
) |
|
|
(1,549,453 |
) |
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
112,624 |
|
|
|
202,633 |
|
|
|
|
|
|
|
|
|
|
Discontinued
Operations
|
|
|
|
|
|
|
|
|
Net
cash used in discontinued operating activities
|
|
|
(5,137 |
) |
|
|
(16,641 |
) |
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(3,037,726 |
) |
|
|
(1,711,667 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
14,178,094 |
|
|
|
15,554,523 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$ |
11,140,368 |
|
|
$ |
13,842,856 |
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statement of Changes in Shareholders' Equity
|
|
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Capital
in
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
A
|
|
|
Class
B
|
|
|
Excess
of
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
Stock
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Par
Value
|
|
|
earnings
|
|
|
Income
(loss)
|
|
|
Shares
|
|
|
Amount
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at July 31, 2007
|
|
|
2,661,498 |
|
|
$ |
26,615 |
|
|
|
1,732,227 |
|
|
$ |
17,323 |
|
|
$ |
20,051,446 |
|
|
$ |
22,211,098 |
|
|
$ |
299,102 |
|
|
|
168,821 |
|
|
$ |
(1,692,496 |
) |
|
$ |
5,582,403 |
|
Cumulative
effect of adopting FIN 48
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,845,845 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,661,498 |
|
|
$ |
26,615 |
|
|
|
1,732,227 |
|
|
$ |
17,323 |
|
|
$ |
20,051,446 |
|
|
$ |
19,365,253 |
|
|
$ |
299,102 |
|
|
|
168,821 |
|
|
$ |
- 1,692,496 |
|
|
$ |
5,582,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,834,386 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,834,386 |
|
Foreign
currency translation reserve
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
536,446 |
|
|
|
- |
|
|
|
- |
|
|
|
536,446 |
|
Cash
dividends paid ($.36 per share)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,535,492 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Unrealized
investment gain, net
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(881 |
) |
|
|
- |
|
|
|
- |
|
|
|
(881 |
) |
Repurchase
of Class A common stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
536 |
|
|
|
(5,636 |
) |
|
|
- |
|
Issuance
of stock under stock award plan
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(412,173 |
) |
|
|
- |
|
|
|
- |
|
|
|
(41,094 |
) |
|
|
412,173 |
|
|
|
- |
|
Share-based
compensation expense
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
339,625 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Tax
impact of share based compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
33,457 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,902 |
|
|
|
- |
|
|
|
- |
|
|
|
1,878 |
|
|
|
(16,704 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at July 31, 2008
|
|
|
2,661,498 |
|
|
$ |
26,615 |
|
|
|
1,732,227 |
|
|
$ |
17,323 |
|
|
$ |
20,014,257 |
|
|
$ |
19,664,147 |
|
|
$ |
834,667 |
|
|
|
130,141 |
|
|
$ |
(1,302,663 |
) |
|
$ |
2,369,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,440,188 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,440,188 |
|
Foreign
currency translation reserve
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,073,451 |
) |
|
|
- |
|
|
|
- |
|
|
|
(1,073,451 |
) |
Cash
dividends paid ($.19 per share)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(777,326 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Unrealized
investment gain, net
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7,600 |
|
|
|
- |
|
|
|
- |
|
|
|
7,600 |
|
Conversion
of common stock - B to A
|
|
|
16,153 |
|
|
|
161 |
|
|
|
(16,153 |
) |
|
|
(161 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Repurchase
of Class A common stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
207,941 |
|
|
|
(1,832,123 |
) |
|
|
- |
|
Issuance
of stock under stock award plan
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(376,176 |
) |
|
|
- |
|
|
|
- |
|
|
|
(37,580 |
) |
|
|
376,176 |
|
|
|
- |
|
Share-based
compensation expense
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
234,593 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,038 |
|
|
|
- |
|
|
|
- |
|
|
|
3,455 |
|
|
|
(30,643 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 31, 2009
|
|
|
2,677,651 |
|
|
$ |
26,776 |
|
|
|
1,716,074 |
|
|
$ |
17,162 |
|
|
$ |
19,877,712 |
|
|
$ |
21,327,009 |
|
|
$ |
(231,184 |
) |
|
|
303,957 |
|
|
$ |
(2,789,253 |
) |
|
$ |
1,374,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ecology
and Environment, Inc.
Notes
to Consolidated Financial Statements
Summary
of Operations and Basis of Presentation
The
consolidated financial statements included herein have been prepared by Ecology
and Environment, Inc., ("E&E" or the "Company"), without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. The
financial statements reflect all adjustments that are, in the opinion of
management, necessary for a fair statement of such information. All such
adjustments are of a normal recurring nature. Although E&E believes that the
disclosures are adequate to make the information presented not misleading,
certain information and footnote disclosures, including a description of
significant accounting policies normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America, have been condensed or omitted pursuant to such rules
and regulations. Therefore, these financial statements should be read in
conjunction with the financial statements and the notes thereto included in E
& E's 2008 Annual Report on Form 10-K filed with the Securities and Exchange
Commission. The results of operations for the six months ended January 31, 2009
are not necessarily indicative of the results for any subsequent period or the
entire fiscal year ending July 31, 2009.
1.
|
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
financial statements is the 50% ownership in the Chinese operating joint
venture, The Tianjin Green Engineering Company. This joint venture is
accounted for under the equity method. All significant intercompany
transactions and balances have been
eliminated.
|
|
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results may differ from those
estimates.
|
Certain
prior year amounts were reclassified to conform to the 2009 financial statement
presentation.
|
The
majority of the Company's revenue is derived from environmental consulting
work, with the balance derived from aquaculture. 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
|
|
|
|
|
|
Percentage
of completion, approximating the ratio of total costs incurred to date to
total estimated costs.
|
|
|
|
|
|
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.
|
|
|
|
|
|
As
incurred at contract
rates.
|
Substantially
all of the Company's cost-type work is with federal governmental agencies and,
as such, is subject to audits after contract completion. Under these cost-type
contracts, provisions for adjustments to accrued revenue are recognized on an
annual basis and based on past audit settlement history. Government audits have
been completed and final rates have been negotiated through fiscal year 2001.
The balance in the allowance for contract adjustments accounts principally
represents a reserve for contract adjustments for the fiscal years
1996-2009.
We reduce
our accounts receivable and costs and accrued earnings in excess of billings on
contracts in process by establishing an allowance for amounts that, in the
future, may become uncollectible or unrealizable, respectively. We determine our
estimated allowance for uncollectible amounts based on management’s judgments
regarding our operating performance related to the adequacy of the services
performed, the status of change orders and claims, our experience settling
change orders and claims and the financial condition of our clients, which may
be dependent on the type of client and current economic conditions that the
client may be subject to.
Change
orders can occur when changes in scope are made after project work has begun,
and can be initiated by either the Company or its clients. Claims are amounts in
excess of the agreed contract price which the Company seeks to recover from a
client for customer delays and / or errors or unapproved change orders that are
in dispute. Costs related to change orders and claims are recognized as
incurred. Revenues are recognized on change orders (including profit) when it is
probable that the change order will be approved and the amount can be reasonably
estimated. Revenue on claims is not recognized until the claim is approved by
the customer.
All bid
and proposal and other pre-contract costs are expensed as incurred. Out of
pocket expenses such as travel, meals, field supplies, and other costs billed
direct to contracts are included in both revenues and cost of professional
services.
Investment
securities have been classified as available for sale and are stated at
estimated fair value. Unrealized gains or losses related to investment
securities available for sale are reflected in accumulated other comprehensive
income, net of applicable income taxes in the consolidated balance sheet and
statement of changes in shareholders' equity. The cost of securities sold is
based on the specific identification method. Effective August 1,
2008, the Company has adopted the current portion of the Financial Accounting
Standards Board (FASB) Statement No. 157, “Fair Value Measurement” (SFAS
157). The methodologies used to calculate the fair value of
the investments held within the Company’s portfolio qualify under the Level
1 measurement requirements of SFAS 157. In February 2008, the
FASB agreed to a one-year deferral for the implementation of SFAS No. 157
for non-financial assets and liabilities to fiscal years beginning after
November 15, 2008. The Company is currently evaluating the impact, if any,
that the adoption of SFAS No. 157 will have on its operating results and
financial condition.
|
f.
|
Translation of Foreign
Currencies
|
The
financial statements of foreign subsidiaries where the local currency is the
functional currency are translated into U.S. dollars using exchange rates in
effect at period end for assets and liabilities and average exchange rates
during each reporting period for results of operations. Translation adjustments
are deferred in accumulated other comprehensive income.
The
financial statements of foreign subsidiaries located in highly inflationary
economies are remeasured as if the functional currency were the U.S. dollar. The
remeasurement of local currencies into U.S. dollars creates transaction
adjustments which are included in net income. There were no highly inflationary
economy translation adjustments for fiscal years 2008-2009.
The
Company follows the asset and liability approach to account for income
taxes. This approach requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of assets and
liabilities. Although realization is not assured, management believes
it is more likely than not that the recorded net deferred tax assets will be
realized. Since in some cases management has utilized estimates, the
amount of the net deferred tax asset considered realizable could be reduced in
the near term. No provision has been made for United States income
taxes applicable to undistributed earnings of foreign subsidiaries as it is the
intention of the Company to indefinitely reinvest those earnings in the
operations of those entities.
Income
tax expense includes U.S. and international income taxes, determined using 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, fixed assets and domestic net operating loss carryforwards
(“NOLs”). As required by FAS 109, “Accounting for Income Taxes” the
Company periodically evaluates the likelihood of realization of deferred tax
assets, and has determined that no valuation allowance is presently
necessary.
In July
of 2006, the Financial Accounting Standards Board (FASB) issued Interpretation
No. 48 (FIN 48), an interpretation of FAS 109. FIN 48 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 Company adopted FIN 48 beginning August 1,
2007.
The
estimated effective tax rate for fiscal year 2009 is 38.9%, up from the 38.0%
reported for fiscal year 2008.
|
h.
|
Earnings Per Share
(EPS)
|
Basic EPS
is computed by dividing continuing and discontinued operating income available
to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
would occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company. See Footnote No.
8.
|
i.
|
Impairment of
Long-Lived Assets
|
The
Company accounts for impairment of long-lived assets in accordance with
Statement of Financial Accounting Standards (SFAS) No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 requires that
long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the book value of the asset may not be recoverable.
The Company assesses recoverability of the carrying value of the asset 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.
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j.
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Cash and Cash
Equivalents
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For
purposes of the consolidated statement of cash flows, the Company considers all
highly liquid instruments purchased with a maturity of three months or less to
be cash equivalents. Cash paid for interest was approximately $70,000 and
$85,000 for the first six months of fiscal year 2009 and 2008, respectively.
Cash paid for income taxes was approximately $995,000 and $924,000 for
the first six months of fiscal year 2009 and 2008, respectively.
Additionally in the first quarter of fiscal year 2008, Gustavson Associates LLC
purchased from minority unit holder, Prospect Resources, their remaining 50
ownership units. Prospect was paid $466,708 for its units with 25% of
the amount paid in cash, and the assumption of a $350,000 three year
note with a six percent annualized interest rate.
During
the first quarter of fiscal year 2008, additional goodwill of $256,000 was
recorded as a result of the purchase of additional shares of Gustavson
Associates LLC. The total goodwill of approximately $1.1 million
is subject to an annual assessment for impairment.
2.
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Contract Receivables,
net
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January 31,
2009
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July
31,
2008
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United
States government -
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Industrial
customers and state and municipal governments -
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Less
allowance for doubtful accounts and contract
adjustments
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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. Within the above billed balances are
contractual retainages in the amount of approximately $308,000 at January 31,
2009 and $290,000 at July 31, 2008. Management anticipates that the January 31,
2009 retainage balance will be substantially collected within one
year. Included in the balance of receivables for industrial customers and
state and municipal customers are receivables, net of subcontract costs, due
under the contracts in Saudi Arabia and Kuwait of $3.5 million at January 31,
2009 and $3.5 million at July 31, 2008.
Included
in other accrued liabilities is an additional allowance for contract adjustments
relating to potential cost disallowances on amounts billed and collected in
current and prior years' projects of approximately $4.0 million at January 31,
2009 and July 31, 2008. Also included in other accrued liabilities is a
reclassification of billings in excess of recognized revenues of approximately
$4.6 million at January 31, 2009 and $4.6 million at July 31,
2008. The allowance for contract adjustments is recorded for contract
disputes and government audits when the amounts are estimatable.
The
Company maintains unsecured lines of credit available for working capital and
letters of credit of $19 million with various banks at one-half percent below
the prevailing prime rate. Other lines are available solely for
letters of credit in the amount of $18.5 million. The Brazilian
subsidiary in July 2008 borrowed $1 million under a four month term note at
5.19% annualized interest rate. The Brazilian loan was paid off in
December 2008. The Company guarantees the Walsh Environmental line of
credit. The banks have reaffirmed the Company’s lines of credit
within the past twelve months. At January 31, 2009 and July 31, 2008 the company
had letters of credit outstanding totaling approximately $1.2
million. Borrowings by the Brazilian subsidiary for working capital
were $0 and $1.0 million at January 31, 2009 and July 31, 2008,
respectively. After letters of credit and loans, there was $36.6
million of line still available at January 31, 2009.
4.
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Long-Term Debt and
Capital Lease Obligations
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Debt
inclusive of capital lease obligations at January 31, 2009 and July 31, 2008
consists of the following:
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January
31, 2009
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July
31,
2008
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Various
bank loans and advances at interest rates ranging from 5% to
14%
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Capital
lease obligations at varying interest rates averaging
11%
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Less: current
portion of debt and capital lease obligations
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Long-term
debt and capital lease obligations
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The
aggregate maturities of long-term debt and capital lease obligations at January
31, 2009 are as follows:
The 2003
Stock Award Plan (the "2003 Plan") was approved by the shareholders at the
annual meeting held in January 2004 (the 1998 Plan and the 2003 Plan
collectively referred to as the "Award Plan"). The 2003 Plan was approved
retroactive to October 16, 2003 and terminated on October 15, 2008. 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 37,580 shares valued at $414,507 in October 2008 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 at January 31, 2009 and July 31, 2008 was
$122,000. Total gross compensation expense is recognized over the
vesting period. Unrecognized compensation expense was approximately
$664,000 and $496,000 at January 31, 2009 and July 31,
2008, respectively.
Class
A and Class B common stock
The
relative rights, preferences and limitations of the Company's Class A and Class
B common stock can be summarized as follows: Holders of Class A shares are
entitled to elect 25% of the Board of Directors so long as the number of
outstanding Class A shares is at least 10% of the combined total number of
outstanding Class A and Class B common shares. Holders of Class A common shares
have one-tenth the voting power of Class B common shares with respect to most
other matters.
In
addition, Class A shares are eligible to receive dividends in excess of (and not
less than) those paid to holders of Class B shares. Holders of Class B shares
have the option to convert at any time, each share of Class B common stock into
one share of Class A common stock. Upon sale or transfer, shares of Class B
common stock will automatically convert into an equal number of shares of Class
A common stock, except that sales or transfers of Class B common stock to an
existing holder of Class B common stock or to an immediate family member
will not cause such shares to automatically convert into Class A common
stock.
7.
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Shareholders' Equity -
Restrictive Agreement
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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 all or any part of their shares, each
party must first allow the other members to the agreement the opportunity to
acquire on a pro rata basis, with right of over-allotment, all of such shares
covered by the offer on the same terms and conditions proposed by the
offer.
The
computation of basic earnings per share reconciled to diluted earnings per share
follows:
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Six
Months Ended
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January
31,
2009
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January
26,
2008
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Income
from continuing operations available to
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Loss
from discontinued operations available
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Total
income available to common stockholders
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Weighted-average
common shares outstanding (basic)
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Basic
earnings per share:
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Total
basic earnings per share
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Incremental
shares from assumed conversions of
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Adjusted
weighted-average common shares outstanding
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Diluted
earnings per share:
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Total
diluted earnings per share
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After
consideration of all the rights and privileges of the Class A and Class B
stockholders discussed in Note 9, 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.
9.
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Commitments and
Contingencies
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The
Company received a tax assessment from the Kuwait Ministry of Finance dated
March 15, 2009 in the amount of approximately $2.65 million compared to a
liability accrued for this tax, including interest and penalties, of $4.3
million. The company has 30 days to evaluate this assessment and
either file an objection or pay the tax. Due to the complexities of the
contractual considerations related to the assessment of this tax, the Company
will use this 30 day period to evaluate its options.
From time
to time, the Company is named defendant in legal actions arising out of the
normal course of business. The Company is not a party to any pending legal
proceeding the resolution of which the management of the Company believes will
have a material adverse effect on the Company’s results of operations, financial
condition, cash flows, or to any other pending legal proceedings other than
ordinary, routine litigation incidental to its business. The Company maintains
liability insurance against risks arising out of the normal course of
business.
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.
10.
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Recent Accounting
Pronouncements
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In
September 2006, the FASB issued SFAS 157, which established a framework for
measuring fair value under generally accepted accounting principles and expands
disclosure about fair value measurements. In
February 2008, the FASB agreed to a one-year deferral for the
implementation of SFAS No. 157 for non-financial assets and liabilities to
fiscal years beginning after November 15, 2008. The current
portion of SFAS 157 has been adopted for the Company’s 2009 fiscal
year without significant impact. The Company is currently evaluating
the impact, if any, that the adoption of the deferred portion of SFAS
No. 157 will have on its operating results and financial
condition.
In
February 2007, the FASB issued Statement No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (SFAS 159). The fair value option
established by SFAS 159 permits entities to choose to measure eligible items at
fair value at specified election dates. Unrealized gains and losses on items for
which the fair value option has been elected are reported in earnings at each
subsequent reporting date. SFAS 159 has been adopted for the Company’s 2009
fiscal year.
In
December 2007, the FASB issued SFAS No. 160, "Non-controlling Interests
in Consolidated Financial Statements - An amendment of ARB No. 51."
This statement amends ARB 51 to establish accounting and reporting
standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a non-controlling interest in
a subsidiary, which is sometimes referred to as minority interest, is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. Among other requirements, this
statement requires consolidated net income to be reported at amounts that
include the amounts attributable to both the parent and the non-controlling
interest. It also requires disclosure, on the face of the consolidated income
statement, of the amounts of consolidated net income attributable to the parent
and to the non-controlling interest. This Statement is effective for
fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008 (that is, for the fiscal year ending July 31, 2010
for the Company). Earlier adoption is prohibited. The Company is currently
assessing the effect SFAS 160 will have on its financial
statements.
In
December 2007, the FASB issued SFAS No. 141 R (revised 2007), “Business
Combinations “ (SFAS 141R). SFAS 141R establishes principles
and requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
non-controlling interest in the acquiree and the goodwill acquired. SFAS 141R
also establishes disclosure requirements to enable the evaluation of the nature
and financial effects of the business combination. This statement is effective
for the Company beginning August 1, 2009 and will change the accounting for
business combinations on a prospective basis. The Company is
assessing the impact that the adoption of SFAS 141R may have on its financial
statements.
In June
2008, the FASB issued FASB Staff Position (FSP) EITF 03-6-1, “Determining
Whether Instruments Granted in Share-Based Payment Transactions are
Participating Securities”. This FSP provides that unvested share-based payment
awards that contain nonforfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall be included in
the computation of earnings per share pursuant to the two-class method. This FSP
is effective for the Company beginning August 1, 2009. The Company is
assessing the impact that the adoption of EITF 03-6-1 may have on its financial
statements.
11.
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Other Accrued
Liabilities
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January
31,
2009
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July
31,
2008
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Allowance
for contract adjustments
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Billings
in excess of revenue
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Item
2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations
Liquidity
and Capital Resources
Operating
activities provided $1.7 million of cash during the first six months of fiscal
year 2009. This increase was mainly attributable to the reported $2.4 million in
net income and a $.7 million increase in income taxes payable due to the
increased profitability during the first six months of fiscal year
2009. Other accrued liabilities increased $.7 million during the first six
months of fiscal year 2009. Accounts payable increased $.6 million
during the first six months of fiscal year 2009 attributable to the increased
work levels throughout the Company. Offsetting these were increases
in accounts receivable and other current assets. Accounts receivable
increased $3.2 million during the first six months of fiscal year 2009 due to
increased revenues. Other current assets increased $1.1 million due
to an increase in prepaid insurance and prepaid project costs.
Financing
activities consumed $3.8 million of cash during the first six months of fiscal
year 2009. The Company paid dividends in the amount of $777,000 or
$.19 per share and repurchased 207,941 shares of the Class A common stock for
$1.8 million. Net cash outflow on long-term debt and capital
lease obligations was $751,000 due mainly to the repayment of a $1.0
million loan by E&E do Brasil. Distributions to
minority partners during the first six months of fiscal year 2009 were
approximately $435,000.
The
Company maintains unsecured lines of credit available for working capital and
letters of credit of $19 million with various banks at one-half percent below
the prevailing prime rate. Other lines are available solely for
letters of credit in the amount of $18.5 million. The Brazilian
subsidiary in July 2008 borrowed $1 million under a four month term note at
5.19% annualized interest rate. The Brazilian loan was paid off in
December 2008. The Company guarantees the Walsh Environmental line of
credit. The banks have reaffirmed the Company’s lines of credit
within the past twelve months. At January 31, 2009 and July 31, 2008 the Company
had letters of credit outstanding totaling approximately $1.2
million. Borrowings by the Brazilian subsidiary for working capital
were $0 and $1.0 million at January 31, 2009 and July 31, 2008,
respectively. After letters of credit and loans, there was $36.6
million of line still available at January 31, 2009. The Company
believes that cash flows from operations and borrowings against the line of
credit will be sufficient to cover all working capital requirements for at least
the next twelve months and the foreseeable future.
Results
of Operations
Revenue
Fiscal
Year 2009 vs 2008
Revenues
for the second quarter of fiscal year 2009 were $34.1 million, an increase of
$10.0 million from the $24.1 million reported for the second quarter of fiscal
year 2008. Revenues from the Company’s majority owned subsidiary
Walsh Environmental were $9.6 million for the second quarter of fiscal year
2009, an increase of $3.1 million from the $6.5 million reported in the second
quarter of fiscal year 2008. The increase in Walsh Environmental
revenues was mainly attributable to increased activity in the environmental
remediation and energy markets. Revenues of the parent company
E&E, Inc increased $6.4 million during the second quarter of fiscal year
2009. The increase in revenue was attributable to increased work on
contracts in the Company’s commercial and federal government
sectors. Revenues from commercial clients of E&E were $6.8
million for the second quarter of fiscal year 2009, an increase of $3.2 million
from the $3.6 million reported during the second quarter of the prior
year. The increase in commercial revenue was mainly attributable to
an increase in work levels on contracts in the energy sector. Revenue
from federal government clients of E&E were $8.7 million during the second
quarter of fiscal year 2009, an increase of $3.8 million from the $4.9 million
reported in the second quarter of fiscal year 2008. The increase in
federal government revenue was mainly attributable to an increase in work levels
on various contracts with the United States Department of Defense (DOD) and
United States Environmental Protection Agency (EPA). Offsetting these
increases was a decrease in work at the parent company in the state
sector. Revenue from state clients of the parent company was $5.6
million during the second quarter of fiscal year 2009, a decrease of $.6 million
from the $6.2 million reported in the prior
year.
Revenues
for the first six months of fiscal year 2009 were $67.8 million, an increase of
$18.1 million from the $49.7 million reported for the prior
year. Revenues from the Company’s majority owned subsidiary Walsh
Environmental were $17.6 million for the first six months of fiscal year 2009,
an increase of $4.5 million from the $13.1 million reported in the prior
year. The increase in Walsh Environmental revenues was mainly
attributable to increased activity in the environmental remediation,
asbestos and energy markets. Revenues of the parent company E&E,
Inc were $43.7 million, an increased of $13.0 million from the $30.7 million
reported for the first six months of fiscal year 2008. The increase
in revenue was attributable to increased work on contracts in the Company’s
commercial and federal government sectors. Revenues from commercial
clients of E&E were $14.6 million for the first six months of fiscal year
2009, an increase of $6.8 million from the $7.8 million reported during the
prior year. The increase in commercial revenue was mainly
attributable to an increase in work levels on contracts in the energy
sector. Revenue from federal government clients of E&E were $16.1
million during the first six months of fiscal year 2009, an increase of $6.1
million from the $10.0 million reported in the prior year. The
increase in federal government revenue was mainly attributable to an increase in
work levels on various contracts with DOD and
EPA.
Fiscal
Year 2008 vs 2007
Revenues
for the second quarter of fiscal year 2008 were consistent with the revenues
reported for the prior year. Revenues from the Company’s majority
owned subsidiary Walsh Environmental were $6.5 million for the second quarter of
fiscal year 2008, an increase of $1.0 million from the $5.5 million reported in
the second quarter of fiscal year 2007. The increase in Walsh
Environmental revenues was mainly attributable to increased activity in the
environmental remediation and asbestos markets. Revenues from state
clients of the parent company were $6.2 million, up $800,000 from the $5.4
million reported in the prior year. The increase in state revenue was
mainly attributable to an increase in work levels on contracts in Florida and
Washington. Offsetting these increases were decreases in work at the
parent company in the commercial and federal government
sectors. Revenue from commercial clients of the parent company was
$3.6 million during the second quarter of fiscal year 2008, a decrease $1.0
million from the $4.6 million reported in the prior year. Revenue
from federal government clients was $3.9 million during the second quarter of
fiscal year 2008, a decrease $700,000 from the $4.6 million reported in the
prior year. The decrease in federal government revenue was mainly due
to decreased activity on United States Department of Defense
contracts.
Revenue
for the six months of fiscal year 2008 was $49.8 million, an increase of $1.5
million from the $48.3 million reported in the first six months of the prior
year. The increase was mainly attributable to increases in work
performed by state clients at the parent company and by EEI’s majority owned
subsidiaries Walsh Environmental and E&E do Brasil. Revenues from
state clients of the parent company were $12.7 million, up $2.1 million from the
$10.6 million reported in the prior year. The increase in state
revenue was mainly attributable to an increase in work levels on contracts in
New York and Washington. Revenues from Walsh Environmental were $13.2
million for the first six months of fiscal year 2008, an increase of 19% from
the $11.1 million reported in the first six months of fiscal year
2007. The increase in Walsh Environmental revenues was mainly
attributable to increased activity in the environmental remediation and asbestos
markets. Revenues from E&E do Brasil were $3.2 million for the
first six months of fiscal year 2008, an increase of $1.1 million or 52% over
the prior year due mainly to increased work in the public and private power
industries. Offsetting these increases for the first six months of
fiscal year 2008 were reduced revenues in the parent company from work performed
on contracts with various commercial and federal government
clients. Revenue from commercial clients of the parent company were
$7.8 million during the first six months of fiscal year 2008, a decrease $2.2
million from the $10.0 million reported in the prior year. Revenue
from federal government clients of the parent company were $7.5 million during
the first six months of fiscal year 2008, a decrease $1.1 million from the $8.6
million reported in the first six month of fiscal year 2007.
Income From Continuing
Operations Before Income Taxes and Minority Interest
Fiscal
Year 2009 vs 2008
The
Company’s income from continuing operations before income taxes and minority
interest was $2.0 million for the second quarter of fiscal year 2009, an
increase of $1.3 million or 186% from the $.7 million reported in the second
quarter of fiscal year 2008. Gross profits increased $2.5 million
during the second quarter of fiscal year 2009 as a result of the increased
revenue reported at the parent company E&E, Inc. and Walsh Environmental,
offset by an increase in corporate wide subcontractor costs. The
increased gross profits were offset by higher indirect costs at the parent
company E&E, Inc. and the Company’s subsidiary E&E do Brasil. The increase in indirect
costs was mainly attributable to an increase in staffing levels due to their
overall business growth. For the three months ended January 31, 2009,
E&E accrued additional expenses of approximately $75,000 ($.01 per share)
related to the FASB Interpretation No. 48 “Uncertainty in Income Taxes” (“FIN
48”) tax accrual. The majority of this expense is interest related to
Kuwait taxes. E&E recorded a foreign exchange gain of $256,000
($.04 per share after tax) to adjust the FIN 48 Kuwait tax reserve recorded by
the parent company to current exchange rates. E&E do Brasil
recorded an exchange loss of $385,000 ($0.05 per share after tax during the
second quarter of fiscal year 2009 due to the repayment of a $1.0 million
loan.
The
Company’s income from continuing operations before income taxes and minority
interest was $5.1 million for the first six months of fiscal year 2009, an
increase of $2.9 million or 132% from the $2.2 million reported in the first six
months of fiscal year 2008. Gross profits increased 22% as a result
of the increased revenues reported at E&E and Walsh Environmental, offset by
an increase in corporate wide subcontractor costs. The increased
gross profits were offset by higher indirect costs attributable to increased
staffing levels and increased business development costs
worldwide. E&E has experienced significant increases in labor
utilization during the first six months of fiscal year 2009 due to the increased
work volume. For the first six months of fiscal year 2009, E&E
accrued additional expenses of approximately $156,000 ($.02 per share after tax)
related to the FIN 48 tax accrual.
Fiscal
Year 2008 vs 2007
The
Company’s income from continuing operations before income taxes and minority
interest was $651,000 for the second quarter of fiscal year 2008, down 57% from
the $1.5 million reported in the second quarter of fiscal year
2007. Gross profits increased slightly during the second quarter of
fiscal year 2008 as a result of the increased revenue reported at Walsh
Environmental and a decrease in corporate wide subcontractor
costs. The increased gross profits were offset by higher indirect
costs at the Company’s subsidiaries Walsh Environmental and E&E do Brasil as
well as increased staffing levels and business development and proposal costs
worldwide within the parent company. Contract bookings for the first
six months of fiscal year 2008 increased 14% over the prior
year. Staff levels companywide increased as a result of anticipated
manpower needs for the remainder of the fiscal year. The volume of
proposals increased 51% while the value of the proposals submitted increased 83%
to $172 million compared to $94 million in the prior year. Walsh
Environmental reported indirect costs of $2.6 million for the second quarter of
fiscal year 2008, an increase of $800,000 from the $1.8 million reported in the
prior year. The increase in indirect costs was attributable to
increased staffing levels and increased operational expenses related to their
overall business growth. For the three months ended January 26, 2008,
E&E accrued additional interest and penalties of approximately
$146,000 ($.03 per share) related to the FIN 48 tax accrual. The
majority of this expense is related to the Kuwait taxes. In the
second quarter of fiscal year 2007, the Company sold its interest in the shrimp
farm located in Costa Rica. After deducting costs of the sale, there
was an after tax gain recorded on the sale of the farm of approximately $553,000
or $.13 per share and was included in discontinued
operations.
The
Company’s income from continuing operations before income taxes and minority
interest was $2.2 million for the first six months of fiscal year 2008, down 33%
from the $3.3 million reported in the first six months of fiscal year
2007. Gross profits increased as a result of the increased revenues
reported at Walsh Environmental and E & E do Brasil and a decrease
in corporate wide subcontractor costs. The increased gross profits
were offset by higher indirect costs during the first six months of fiscal year
2008. Consolidated indirect costs increased $2.6 million during the
first six months of fiscal year 2008 as a result of increased marketing and bid
and proposal costs and costs associated with increased staffing levels at Walsh
Environmental and E&E do Brasil. Marketing and bid and
proposal costs were $5.7 million for the first six months of fiscal year 2008,
an increase of $801,000 from the $4.9 million reported in the prior
year. For the six months ended January 26, 2008, E&E accrued
additional interest and penalties of approximately $253,000 ($.04 per share)
related to the FIN 48 tax accrual. The majority of this FIN 48
obligation is related to the Kuwait taxes.
Income
Taxes
The
estimated effective tax rate for fiscal year 2009 is 38.9%, up from the 38.0%
reported for fiscal year 2008.
Recent Accounting
Pronouncements
In
September 2006, the FASB issued SFAS 157, which established a framework for
measuring fair value under generally accepted accounting principles and expands
disclosure about fair value measurements. In
February 2008, the FASB agreed to a one-year deferral for the
implementation of SFAS No. 157 for non-financial assets and liabilities to
fiscal years beginning after November 15, 2008. The current
portion of SFAS 157 has been adopted for the Company’s 2009 fiscal
year without significant impact. The Company is currently evaluating
the impact, if any, that the adoption of the deferred portion of SFAS
No. 157 will have on its operating results and financial
condition.
In
February 2007, the FASB issued Statement No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (SFAS 159). The fair value option
established by SFAS 159 permits entities to choose to measure eligible items at
fair value at specified election dates. Unrealized gains and losses on items for
which the fair value option has been elected are reported in earnings at each
subsequent reporting date. SFAS 159 has been adopted for the Company’s 2009
fiscal year.
In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests
in Consolidated Financial Statements - An amendment of ARB No. 51."
This statement amends ARB 51 to establish accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in
a subsidiary, which is sometimes referred to as minority interest, is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. Among other requirements, this
statement requires consolidated net income to be reported at amounts that
include the amounts attributable to both the parent and the noncontrolling
interest. It also requires disclosure, on the face of the consolidated income
statement, of the amounts of consolidated net income attributable to the parent
and to the noncontrolling interest. This Statement is effective for fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008 (that is, for the fiscal year ending July 31, 2010 for
the Company). Earlier adoption is prohibited. The Company is currently assessing
the effect SFAS 160 will have on its financial statements.
In
December 2007, the FASB issued SFAS No. 141 R (revised 2007), “Business
Combinations “ (SFAS 141R). SFAS 141R establishes principles
and requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
non-controlling interest in the acquiree and the goodwill acquired. SFAS 141R
also establishes disclosure requirements to enable the evaluation of the nature
and financial effects of the business combination. This statement is effective
for the Company beginning August 1, 2009 and will change the accounting for
business combinations on a prospective basis. The Company is
assessing the impact that the adoption of SFAS 141R may have on its financial
statements.
In June
2008, the FASB issued FASB Staff Position (FSP) EITF 03-6-1, “Determining
Whether Instruments Granted in Share-Based Payment Transactions are
Participating Securities”. This FSP provides that unvested share-based payment
awards that contain nonforfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall be included in
the computation of earnings per share pursuant to the two-class method. This FSP
is effective for the Company beginning August 1, 2009. The Company is
assessing the impact that the adoption of EITF 03-6-1 may have on its financial
statements.
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 we enter into with our clients. The
revenues recognized, therefore, are derived from our ability to charge clients
for those services under the contracts.
The
Company employs three major types of contracts: “cost-plus contracts,”
“fixed-price contracts” and “time-and-materials contracts.” Within each of the
major contract types are variations on the basic contract mechanism. Fixed-price
contracts generally present the highest level of financial and performance risk,
but often also provide the highest potential financial returns. Cost-plus
contracts present a lower risk, but generally provide lower returns and often
include more onerous terms and conditions. Time-and-materials contracts
generally represent the time spent by our professional staff at stated or
negotiated billing rates.
Fixed
price contracts are accounted for on the “percentage-of-completion” method,
wherein revenue is recognized as project progress occurs. Time and material
contracts are accounted for over the period of performance, in proportion to the
costs of performance, predominately based on labor hours incurred. If
an estimate of costs at completion on any contract indicates that a loss will be
incurred, the entire estimated loss is charged to operations in the period the
loss becomes evident.
The use
of the percentage of completion revenue recognition method requires the use of
estimates and judgment regarding the project’s expected revenues, costs and the
extent of progress towards completion. The Company has a history of making
reasonably dependable estimates of the extent of progress towards
completion, contract revenue and contract completion costs. However, due to
uncertainties inherent in the estimation process, it is possible that completion
costs may vary from estimates.
Most of
our percentage-of-completion projects follow a method which approximates the
“cost-to-cost” method of determining the percentage of completion. Under the
cost-to-cost method, we make periodic estimates of our progress towards project
completion by analyzing costs incurred to date, plus an estimate of the amount
of costs that we expect to incur until the completion of the project. Revenue is
then calculated on a cumulative basis (project-to-date) as the total contract
value multiplied by the current percentage-of-completion. The revenue for the
current period is calculated as cumulative revenues less project revenues
already recognized. The recognition of revenues and profit is dependent upon the
accuracy of a variety of estimates. Such estimates are based on
various judgments we make with respect to those factors and are difficult to
accurately determine until the project is significantly underway.
For some
contracts, using the cost-to-cost method in estimating percentage-of-completion
may overstate the progress on the project. For projects where the cost-to-cost
method does not appropriately reflect the progress on the projects, we use
alternative methods such as actual labor hours, for measuring progress on the
project and recognize revenue accordingly. For instance, in a project where a
large amount of equipment is purchased or an extensive amount of mobilization is
involved, including these costs in calculating the percentage-of-completion may
overstate the actual progress on the project. For these types of projects,
actual labor hours spent on the project may be a more appropriate measure of the
progress on the project.
The
Company’s contracts with the U.S. government contain provisions requiring
compliance with the Federal Acquisition Regulation (FAR), and the Cost
Accounting Standards (CAS). These regulations are generally applicable to all of
the Company’s federal government contracts and are partially or fully
incorporated in many local and state agency contracts. They limit the recovery
of certain specified indirect costs on contracts subject to the FAR. Cost-plus
contracts covered by the FAR provide for upward or downward adjustments if
actual recoverable costs differ from the estimate billed. Most of our federal
government contracts are subject to termination at the convenience of the
client. Contracts typically provide for reimbursement of costs incurred and
payment of fees earned through the date of such termination.
Federal
government contracts are subject to the FAR and some state and local
governmental agencies require audits, which are performed for the most part by
the Defense Contract Audit Agency (DCAA). The DCAA audits overhead rates, cost
proposals, incurred government contract costs, and internal control systems.
During the course of its audits, the DCAA may question incurred costs if it
believes we have accounted for such costs in a manner inconsistent with the
requirements of the FAR or CAS and recommend that our U.S. government financial
administrative contracting officer disallow such costs. Historically, we have
not experienced significant disallowed costs as a result of such audits.
However, we can provide no assurance that such audits will not result
in material disallowances of incurred costs in the future.
The
Company maintains reserves for cost disallowances on its cost based contracts as
a result of government audits. Government audits have been completed and
final rates have been negotiated through fiscal year 2001. The Company has
estimated its exposure based on completed audits, historical experience and
discussions with the government auditors. If these estimates or their
related assumptions change, the Company may be required to record additional
charges for disallowed costs on its government contracts.
Allowance for Doubtful
Accounts and Contract Adjustments
We reduce
our accounts receivable and costs and accrued earnings in excess of billings on
contracts in process by establishing an allowance for amounts that, in the
future, may become uncollectible or unrealizable, respectively. We determine our
estimated allowance for uncollectible amounts based on management’s judgments
regarding our operating performance related to the adequacy of the services
performed, the status of change orders and claims, our experience settling
change orders and claims and the financial condition of our clients, which may
be dependent on the type of client and current economic conditions that the
client may be subject to.
Deferred Income
Taxes
We use
the asset and liability approach for financial accounting and reporting for
income taxes. Deferred income tax assets and liabilities are computed annually
for differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances based on
our judgments and estimates are established when necessary to reduce deferred
tax assets to the amount expected to be realized in future operating results.
Management believes that realization of deferred tax assets in excess of the
valuation allowance is more likely than not. Our estimates are based on facts
and circumstances in existence as well as interpretations of existing tax
regulations and laws applied to the facts and circumstances, with the help of
professional tax advisors. Therefore, we estimate and provide for amounts of
additional income taxes that may be assessed by the various taxing
authorities.
Changes in Corporate
Entities
On
September 1, 2007 Gustavson Associates LLC purchased from minority unit holder,
Prospect Resources, their remaining 50 ownership units. Prospect was paid
$466,708 for its units with 25% of the amount paid in cash, and
the assumption of a three year note with a six percent annualized interest
rate. The purchase price that was paid was at a premium over the capital
value of the units. This excess created additional goodwill of $255,578
which was recorded in the first quarter of fiscal year 2008.
Inflation
Inflation
has not had a material impact on the Company’s business because a significant
amount of the Company’s contracts are either cost based or contain commercial
rates for services that are adjusted annually.
Item
4. Controls
and Procedures
Company
management, with the participation of the chief executive officer and chief
financial officer, evaluated the effectiveness of its disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act)
as of the end of the period covered by this report. In designing and evaluating
the Company's disclosure controls and procedures, management recognized that any
controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving their objectives. Based on this
evaluation, the Company's chief executive officer and chief financial officer
concluded that, as of the end of the period covered by this report, the
Company's disclosure controls and procedures were (1) designed to ensure that
material information relating to the Company, including its consolidated
subsidiaries, is made known to its chief executive officer and chief financial
officer by others within those entities, particularly during the period in which
this report was being prepared and (2) effective, to ensure that information
required to be disclosed by the Company in the reports that the Company files or
submits under the Exchange Act is accumulated and communicated to Company’s
management, including its principal executive and principal financial officers,
or persons providing similar functions, as appropriate to allow timely decisions
regarding required disclosure. There have been no significant changes in
internal controls over financial reporting that have materially affected, or are
reasonably likely to materially affect the Company’s internal controls over
financial reporting during the period covered by this report.
PART
II
OTHER
INFORMATION
Item
1.
|
Legal
Proceedings
|
From time
to time, the Company is named defendant in legal actions arising out of the
normal course of business. The Company is not a party to any pending legal
proceeding the resolution of which the management of the Company believes will
have a material adverse effect on the Company’s results of
operations, financial condition, cash flows or to any other pending
legal proceedings other than ordinary, routine litigation incidental to its
business. The Company maintains liability insurance against risks arising out of
the normal course of business.
The
Company is involved in other litigation arising in the normal course of
business. In the opinion of management, any adverse outcome to other litigation
arising in the normal course of business would not have a material impact on the
financial results of the Company.
Item
2.
|
Changes
in Securities and Use of Proceeds
|
|
(e)
|
Purchased
Equity Securities. The following table
summarizes the Company’s purchases of its common stock during the period
ended January 31, 2009:
|
Period
|
|
Total
Number of Shares Purchased
|
|
Average
Price Paid Per Share
|
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or Programs
(1)
|
|
Maximum
Number
of
Shares That May
Yet
Be Purchased Under
the
Plans or Programs
|
August
1, 2008 – January
31, 2009
|
|
207,941
|
|
$8.81
|
|
207,941
|
|
163
|
|
(1)
|
The
Company purchased 207,941 shares of its Class A common stock during the
first six months of its fiscal year ended July 31, 2009, pursuant to a
200,000 share repurchase program approved at the Board of Directors
meeting held in January 2004. In February 2006, the Board of
Directors authorized the repurchase of an additional 200,000
shares.
|
Item
3.
|
Defaults
Upon Senior Securities
|
|
The
Registrant has no information for Item 3 that is required to be
presented.
|
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
|
The
Registrant has no information for Item 4 that is required to be
presented.
|
Item
5.
|
Other
Information
|
|
The
Registrant has no information for Item 5 that is required to be
presented.
|
Item
6.
|
Exhibits
and Reports on Form 8-K
|
|
(a)
|
-
31.1 Certification of Principal Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
|
|
-
31.2 Certification of Principal Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
|
|
-
32.1 Certification of Principal Executive Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
|
|
-
32.2 Certification of Principal Financial Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
|
(b)
|
Registrant
filed a Form 8-K report on August 26, 2008 to announce the Company’s move
from the American Stock Exchange (AMEX) to the National Association
of Securities Dealers Automated Quotations (NASDAQ).
|
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
Ecology
and Environment, Inc.
|
|
|
|
|
|
Date: March
17, 2009
|
By:
|
/s/
H. John Mye, III
|
|
|
|
H.
John Mye, III
|
|
|
|
Vice
President, Treasurer and Chief Financial Officer –
Principal
Financial Officer
|
|