form10-k.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
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Annual
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For
the fiscal year ended July 31, 2009
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Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For
the transition period from __________ to
__________
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Commission
File Number 1-9065
ECOLOGY
AND ENVIRONMENT, INC.
(Exact
name of registrant as specified in its charter)
New
York
(State
or other jurisdiction of incorporation or organization)
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16-0971022
(IRS
Employer Identification Number)
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368
Pleasant View Drive, Lancaster, NY
(Address
of principal executive offices)
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14086
(Zip
code)
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716/684-8060
(Registrant's
telephone number, including area code)
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Securities
Registered Pursuant to Section 12(b) of the Act:
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Title of each class
Class
A Common Stock par value $.01 per share
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Name of each exchange on which
registered
NASDAQ
Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act:
None
(Title
of class)
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o
No þ
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o
No þ
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months, (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes þ No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company (as
defined by Rule 12b-2 of the Exchange Act).
Large
accelerated filer
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Accelerated
filer
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Non-accelerated
filer
(Do
not check if a smaller reporting company)
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o
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Smaller
reporting company
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No
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Exhibit Index on Page
47
The
aggregate market value of the Class A Common Stock held by non-affiliates as of
January 31, 2009 (the last business day of the registrant’s most recently
completed second fiscal quarter) was $28,578,882. This amount is based on the
closing price of the registrant’s Class A Common Stock on the National
Association of Securities Dealers Automated Quotations (NASDAQ) Stock Market for
that date. Shares of Class A Common Stock held by the executive officers and
directors of the registrant are not included in this computation.
As of
September 30, 2009, 2,435,361 shares of the registrant's Class A Common Stock,
$.01 par value (the "Class A Common Stock") were outstanding, and 1,651,273
shares of the registrant's Class B Common Stock, $.01 par value ("Class B Common
Stock") were outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Registrant's Registration Statement on Form S-1, as amended by Amendment
Nos. 1 and 2 (Registration No. 33-11543) as well as portions of the Company's
Form 10-K for fiscal years ended July 31, 2002, 2003, and 2004 are incorporated
by reference in Part IV of this Form 10-K.
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PART
I
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Page
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Item
1.
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4
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General
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4
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Environmental
Consulting Services
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8
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Regulatory
Background
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9
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Potential
Liability and Insurance
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10
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Market
and Customers
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10
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Backlog
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10
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Competition
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10
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Employees
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10
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Corporate
Governance / Stock Exchange Rules
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10
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Item
1A.
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11
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Item
1B.
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13
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Item
2.
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13
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Item
3.
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13
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Item
4.
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13
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PART
II
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Item
5.
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14
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Item
6.
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15
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Item
7.
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16
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Item
8.
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21
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Item
9.
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40
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Item
9A.
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40
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Item
9B.
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40
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PART
III
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Item
10.
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41
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Item
11.
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43
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Item
12.
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44
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Item
13.
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46
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Item
14.
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46
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PART
IV
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Item
15.
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47
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PART
1
General
Ecology
and Environment, Inc., (“EEI”, the “Company” or the “Parent Company”) is a
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 45,000 projects for a wide variety of clients in
84 countries, providing environmental solutions in nearly every ecosystem on our
planet.
The
Company was incorporated in February 1970 and its principal offices are located
at 368 Pleasant View Drive, Lancaster, New York, and its telephone number is
716-684-8060.
START
Contracts
In
December 2005, the United States Environmental Protection Agency (EPA) awarded
the Company a contract known as START III to provide continuing support to the
EPA Region 10. This is a combination time and materials/cost plus contract with
a base term of three years plus options for an additional four years. Total
maximum value is $49 million over the seven years. As of July 31, 2009 the
Company has recognized revenue of approximately $17.6 million under this
contract.
In May
2008, the EPA awarded the Company a second START contract to provide technical
support in Region 9 which covers the four state area of California, Nevada,
Arizona, Hawaii, and U.S. territories in the Pacific. The contract has a two
year base period and two 18 month option periods. With all option years and
access to an increased capacity pool to support EPA in the event of an incident
of national significance, the maximum value of the contract is $64.0 million
over the five year period. As of July 31, 2009, the Company has recognized
revenue of approximately $5.5 million under this contract.
These
contracts contain termination provisions under which the EPA may, without
penalty, terminate the contract upon written notice to the Company. In the event
of termination, the Company would be paid only termination costs in accordance
with the contract. The Company has never had a contract terminated by the
EPA.
Task Order
Contracts
The
Company has numerous task order contracts with state and federal governmental
agencies which contain indefinite order quantities and/or option periods ranging
from two to ten years. The maximum potential revenues included in these
contracts is approximately $171.3 million. Work done under task orders run the
full range of services provided by EEI.
Environmental Consulting
Services
The
Company’s staff is comprised of individuals with advanced degrees representing
scientific and engineering disciplines working together in multidisciplinary
teams to provide innovative solutions. EEI’s staff includes engineers;
geologists, hydrologists, and other physical scientists; environmental and urban
planners; and specialists in the life, health, and social
sciences. The Company has rendered consulting services to commercial
and government clients in a variety of service sectors, such as the
following:
Energy
New
technology and increasing demand and accountability for more sustainable use of
resources presents complex challenges to energy developers and providers. To
keep pace with escalating energy needs worldwide, EEI supports all phases of
energy development by conducting critical feature/fatal flaw analyses,
environmental impact assessments, feasibility and siting studies, permitting,
and due diligence audits. In response to monetary, environmental, and
social costs of energy on the rise, the Company promotes use of clean energy
technologies in an age where energy infrastructure development is critical to
world economic growth and improving quality of life.
To keep
pace with increased energy needs, as well as support needed backup to the
world’s aging critical infrastructure, EEI works with energy industry clients
through all aspects of development, generation, and transmission. The
Company performs site
screening and alternative selection; analyze environmental impacts; and acquire
needed certificates, approvals, and permits for electric transmission facilities
worldwide.
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EEI
has provided the pipeline industry with environmental support for 35
years. The Company’s extensive experience includes route
selection; field support and survey, such as wetland delineation and
endangered species surveys; regulatory compliance and permit support,
including preparation of erosion control plans for submission to state
agencies, Section 10 of the Rivers and Harbors Act and Section 404 of the
Clean Water Act permits for submission to the United States Army Corps
Engineers, and Federal Energy Regulatory Commission (FERC) 7(c) filings;
and preparation of environmental monitoring and restoration plans,
including development of quality assurance
specifications.
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The
need to incorporate environmental and social considerations into the
planning, design, construction, and operation of offshore energy
infrastructure is essential considering key issues such as expanding use
of marine locations for energy production/transportation and the use
conflict and impacts on critical resources such as marine mammals,
commercial and recreational fisheries, seafood safety, water quality, and
other recreational uses. EEI supports projects involving oil and gas
exploration and production; subsea pipelines; deepwater oil ports;
liquefied natural gas (LNG) import terminals; and, most recently, projects
involving components of offshore wind, wave, current, and tidal power
subsea electrical transmission. The Company prepares
third-party EISs/EIAs, Deepwater Port applications, and FERC ERs; performs
siting/feasibility studies, plankton surveys, marine mammal acoustic
impact modeling, dredging impact studies, coastal zone consistency
evaluations, risk assessments, and marine vessel traffic studies; and
develops and implements comprehensive plans for stakeholder
engagement/outreach.
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The
worldwide desire to develop alternative energy has sparked explosive
growth in the wind energy market. Although wind power is widely regarded
as a low impact, renewable energy source, public concerns over land use,
visual quality, noise, and biological impacts sometimes emerge, and
environmental impacts must be addressed to obtain permits. EEI
attends to these concerns by providing strategic consulting in all facets
of environmental permitting and compliance; environmental evaluation; T/E
species, avian, and bat surveys; visual resources, noise aesthetics,
archaeological, and land use studies. The Company’s civil
engineering support services include design of structure foundations and
roadways and coordination for gathering line placement, substation, and
transmission line requirements. In addition, the Company
recognizes that public outreach efforts are an important component of any
wind power project; therefore, maintains in-house public relations experts
and graphic artists, who work as an integrated team to design outreach
programs geared toward landowners and
officials.
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Sustained
growth in solar energy development will be increasingly important as we
look to supply clean domestic power in the coming
years. Developers and providers are facing complex challenges
as new technologies emerge and the demand for new renewable energy
increases. EEI supports all phases of solar energy development
by providing strategic consulting services. We conduct
environmental impact assessments, feasibility and siting studies,
permitting and due diligence audits; prepare environmental documentation
and permit applications; and identify and track state and federal
compliance issues affecting facility development and
operation.
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Geothermal
energy as a source of base load power is widely recognized as a clean and safe
alternative to nonrenewable energy sources. However, construction of
a geothermal power plant comes with the potential for adverse effects on land
stability within the region surrounding the project, as well as other
socioeconomic concerns. EEI offers planning and consulting services to address
environmental and socioeconomic impacts associated with geothermal energy
development
With the
focus on reduced carbon emissions, there is a renewed interest in nuclear power
worldwide. The U. S. Nuclear Regulatory Commission (NRC) has received over
20 early site permits or combined license applications to build nuclear power
plants and over half of the operating plants have applied for license
extensions. EEI is helping clients through the environmental
hurdles of the licensing process by performing siting studies
and environmental investigations and preparing environmental
reports.
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Carbon
Capture and Sequestration
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The
ability to address CO2 impacts is one of the
most critical and difficult environmental issues facing our
power-generation clients today. EEI assists its clients to navigate the
deregulated power industry and expedite the permitting process with a
thorough understanding of the environmental and regulatory requirements
(federal and state) associated with carbon capture and sequestration
(CCS), including geologic investigation, deep well construction, power
plant and pipeline sitting and construction and long-term CO2
storage.
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Natural Resource
Management/Restoration
EEI’s
approach to restoration design focuses on mimicking natural systems in form,
function, and process—developing practical strategies for sustainable design and
uplift. The Company conceives and designs environmental restoration
projects that restore affected habitat through the efficient and innovative
integration of biological and engineering solutions. EEI assists its clients
meet their goals through the application of restoration measures to mine
reclamation, contaminated sediment remediation, land development strategies,
recreational planning, comprehensive watershed planning, and threatened and
endangered species protection.
Green
Programs
EEI seeks
to take actions against greenhouse gases (GHGs), global warming, and climate
change, both within our internal operations and throughout our line of
associated services. The Company’s environmental sustainability
services and green programs include an array of offerings to increase
eco-efficiency and environmental performance while reducing operating costs. EEI
offers knowledge-based consulting services to assist its clients establish an
environmental focus and incorporate green elements into their organization’s
culture. The Company’s approach to addressing these issues applies to a variety
of organizations, including corporations, government agencies, colleges and
universities, school districts, offices buildings, healthcare facilities,
military bases, hotels, high-end homes, retail stores, and the
hospitality/tourism industry.
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One
of the chief sources of GHG emissions is vehicular traffic. EEI’s
innovative Web-based rideshare application reduces automobile dependency
and promotes use of alternative transportation. The program was designed
by EEI to encourage carpooling as a method of improving air quality,
reducing traffic congestion, and conserving fuel. GreenRide
helps users find carpool partners by searching for other users who live
nearby and have similar schedules and commuting needs. To date, there are
55 GreenRide®
systems installed in 22 states, making our technology available to over 39
million U.S. residents.
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The
Company provides consulting services to builders and developers relating
to understanding environmental sustainability concepts within the context
of an office building, school, hospital, or college university
setting. Saving energy and natural resources is a critical
issue from an operational-cost standpoint, and is often just as important
in terms of maintaining a positive public image. EEI supports the United
States Green Building Council’s LEED® programs by
offering certification application assistance and green building project
planning and consulting. The Company’s energy consultants
develop methods for incorporating sustainable practices into daily
operations, helping building managers track progress, quantify reduction
in energy usage and solid waste, improve indoor air quality and landscape
ecology, and develop programs for composting/recycling and
transportation. EEI’s Green Building Program typically saves
clients between 10 to 30 percent on energy and related costs each
year—savings that will more than pay for the cost of the program and the
positive environmental impacts that
result.
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In
2009, EEI’s global corporate headquarters building, one of the oldest
LEED®
Platinum buildings in the world, continued to realize reduced energy
consumption and substantial cost savings through facility and
operational improvements combined with a program for employee awareness
and involvement.
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Energy
Efficiency and GreenMeter®
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The
Company’s Certified Energy Managers and sustainability professionals help our
clients achieve significant reductions in energy and other resource consumption
both through innovative design and improved operations of buildings and
communities.
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GreenMeter,
EEI’s new dynamic energy-tracking and management system, is designed for
schools, businesses, universities, and commercial buildings and offers a
unique, easy-to-use approach to collecting, storing, and displaying near
real-time energy consumption. The application is coupled with
analysis and solutions, helping to further decrease a building’s costs
associated with energy consumption
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GHG
Inventory and Verification
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EEI
provides strategic guidance to help guide our clients through the shifting
carbon landscape. The Company offers expertise in GHG and climate change
technical support, financial analysis, strategy and policy development,
health and risk assessment, and legal analysis. EEI is an approved
provider of technical assistance and certification services for California
Climate Action Registry (CCAR), an approved aggregator of emission offsets
for the Chicago Climate Exchange (CCX), and a founding member of The
Climate Registry (TCR).
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Climate
Action Planning
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Volatile
energy markets, limited natural resources and climate change are
revolutionizing the way we build and operate the places in which we live
and work. There is an urgent need to quantify human impacts so that
sustainability planning can control and mitigate the effects of the built
environment. EEI addresses this through the identification of major
effects of climate change and provision of strategies to mitigate those
effects.
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Planning
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Environmental
Planning and Assessment
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EEI
has provided environmental evaluation services to both the government and
private sectors for more than 35 years, helping clients to meet the
requirements of the National Environmental Policy Act (NEPA) and other
state environmental laws. The Company evaluates and develops
methods to avoid or mitigate potential environmental impacts of a proposed
project and to help ensure that the project complies with regulatory
requirements. EEI’s services include air and water quality
analysis, terrestrial and aquatic biological surveys, threatened and
endangered species surveys and wetland delineations, social economic
studies, transportation analyses and land use planning. In
addition, the Company’s stakeholder engagement/public participation
capabilities and resources ensure project success through
completion.
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Military
Master Planning
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In
response to the advances seen in military master planning under taken by
the Department of Defense (DOD) over the past few years, EEI has developed
a team of experienced professionals in the areas of real property master
planning, military programming, geospatial data and systems support,
database management, and water resources planning. Through the
Company’s experience with modern military facility planning, EEI develops
technologically advanced military master planning tools by leveraging the
latest in GIS and IT technology. The Company assists DOD
installations reduce their environmental footprint while sustaining
mission requirements and maintaining positives relationships with the
surrounding communities.
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Emergency Planning and
Management
Recent
events around the world involving terrorism, bioterrorism, and natural disasters
have raised the concern for public health and safety as well as environmental
protection. EEI provides logistical support, emergency
response/management services, and comprehensive planning to support businesses
and state, county, and municipal governments in all phases of incident
management, including preparedness, mitigation, response, and
recovery. In providing these multifaceted services, the Company
determines local vulnerabilities/hazards, the in-place resources/assets to
address those hazards, and the thoroughness and shortcomings of existing
emergency management plans—all in the context of applicable state and federal
laws and regulations. EEI draws upon its understanding of and
real-life experience using guidelines such as the National Response Plan (NRP),
National Incident Management System (NIMS), Homeland Security Exercise and
Evaluation Program (HSEEP), and Hospital Emergency Incident Command System
(HICS) to support businesses, state government agencies, and communities in
their emergency planning/preparedness and response activities.
Hazardous Material
Services
EEI has
conducted hazardous waste site evaluations throughout the United States,
providing site investigation, engineering design, and operation and maintenance
for a wide range of industrial and governmental clients. The Company inventories
and collects sample materials on site and then evaluates waste management
practices, potential off-site impacts, and liability concerns. EEI
then designs, implements, and monitors associated cleanup programs. The
Company’s field investigation services primarily involve the development of work
plans, health and safety plans, and quality assurance/quality control plans to
govern and conduct field investigations to define the nature and extent of
contaminants at a site. After field
investigation services have been completed and the necessary approvals obtained,
the Company’s engineering specialists develop plans and specifications for
remedial cleanup activities. This work includes development of
methods and standard operating procedures to assess contamination problems; and
to
identify,
develop, and design appropriate pollution-control
schemes. Alternative cleanup strategies are evaluated and conceptual
engineering approaches are formulated. The Company also provides
supervision of actual cleanup or remedial construction work performed by other
contractors.
International
With over
35 years’ experience providing the above-listed services on a worldwide level,
the Company now has partners in over 30 countries and has completed more than
45,000 major environmental assignments in over 84 countries worldwide. With an
understanding of cultural, political, economic, operational, and legal factors
that influence the solution to a given environmental problem, EEI aids
international governments and lending institutions in their efforts to advance
institutional systems for environmental management. The Company has completed
assignments involving environmental assessment; management and financial
planning; institutional strengthening and standards development; water supply
and development; wastewater treatment; and solid waste project construction
supervision. More recently, issues of public health, sustainability,
and social and economic development have been added to that
portfolio.
Health
Sciences
An
outbreak of infectious disease could lead to high levels of illness, death,
social disruption, and economic loss. The recent WHO-declared global pandemic of
Influenza A (H1N1, swine-originated influenza virus [S-OIV], or swine flu as
popularly known in the media) presents a timely example of a public health
threat that emerges with little warning, for which immunity and vaccines are not
present, and whose impacts on communities and businesses may be severe. Impacts
could include closing of public venues, disruption of the supply chain,
compromised ability to maintain delivery schedules to customers and, ultimately,
disruption of basic social services.
EEI
offers services to address issues organizations may have as a result of this
global pandemic, including: pandemic influenza response and preparedness plans,
media roundtables, comprehensive emergency plans, all-hazards plans, school
crisis plans, crisis communications plans, continuity of operations plans,
gap/needs assessments, and client-specific exercises and scenarios.
Regulatory
Background
The
United States Congress and most state legislatures have enacted a series of laws
to prevent and correct environmental problems. These laws and their implementing
regulations help to create the demand for the multidisciplinary consulting
services offered by the Company. The principal federal legislation and
corresponding regulatory programs which affect the Company’s business are as
follows:
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American Recovery and
Reinvestment Act (“ARRA”)
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The
American Recovery and Reinvestment Act (ARRA) and Federal Acquisition Regulation
(FAR) 52.204-11 mandate new reporting requirements, and all ARRA fund recipients
will need to comply with these requirements and use specific reporting
procedures to assure that the funding was appropriately used. EEI has designed a
system to track federal stimulus dollars, which will protect the Company’s
clients’ long-term investment. EEI is tracking federal guidance and
developing tools to maintain compliance with these new obligations to provide
assurances that all ARRA reporting requirements are met.
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The National
Environmental Policy Act
(“NEPA”)
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NEPA
generally requires that a detailed environmental impact statement (“EIS”)
be prepared for every major federal action significantly affecting the
quality of the human environment. With limited exceptions, all federal
agencies are subject to NEPA. Most states have EIS requirements similar to
NEPA. The Company frequently engages in NEPA related projects (or state
equivalent) for both public and private
clients.
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The Comprehensive
Environmental Response, Compensation, And Liability Act Of 1980, As
Amended (“CERCLA,” “Superfund” or the “Superfund
Act”)
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CERCLA is
a remedial statute which generally authorizes the federal government to order
responsible parties to study and clean up inactive hazardous substance disposal
sites, or, to itself undertake and fund such activities. This legislation has
four basic provisions: (i) creation of an information gathering and analysis
program; (ii) grant of federal authority to respond to emergencies associated
with contamination by hazardous substances, and to clean up sites contaminated
with hazardous substances; (iii) imposition of joint, several, and strict
liability on persons connected with the treatment or disposal of hazardous
substances which results in a release or threatened release into the
environment; and (iv) creation of a federally managed trust fund to pay for the
clean up and restoration of sites contaminated with hazardous substances when
voluntary clean-up by responsible parties cannot be accomplished.
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The Resource
Conservation And Recovery Act Of 1976
(“RCRA”)
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RCRA
generally provides “cradle to grave” coverage of hazardous wastes. It
seeks to achieve this goal by imposing performance, testing and record
keeping requirements on persons who generate, transport, treat, store, or
dispose of hazardous wastes. The Company assists hazardous waste
generators in the storage, transportation and disposal of wastes; prepares
permit applications and engineering designs for treatment, storage and
disposal facilities; designs and oversees underground storage tank
installations and removals; performs corrective measure studies and
remedial oversight at RCRA regulated facilities; and performs RCRA
compliance audits.
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In
1990, comprehensive changes were made to the Clean Air Act, which
fundamentally redefined the regulation of air pollutants. The Clean Air
Act Amendments of 1990 created a flurry of federal and state regulatory
initiatives and industry responses which require the development of
detailed inventories and risk management plans, as well as the acquisition
of facility wide, rather than source specific, air permits. Complementary
changes have also been integrated into the RCRA Boilers and Industrial
Furnace (“BIF”) regulatory programs calling for upgraded air emission
controls, more rigorous permit conditions and the acquisition of permits
and/or significant permit modifications. The Company assists public and
private clients in the development of air permitting strategies and the
preparation of permit applications. EEI also prepares the technical
studies and engineering documents (e.g., air modeling, risk analysis,
design drawings) necessary to support permit
applications.
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Safe Drinking Water
And Clean Water Acts
(“SDWA”)
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The
SDWA of 1996 and regulatory changes under the Clean Water Act (CWA) work
together in order to ensure that the public is provided with safe drinking
and recreational waters by utilizing watershed approaches and applying
similar principles (Total Maximum Daily Load, National Pollution Discharge
Elimination System, Source Water Assessment Program, Storm Water Program).
Thus, they supplement and help one another more effectively reach each
other's goals. The Company assists public and private clients in
developing and establishing pollution prevention programs, assisting
clients in monitoring ground, waste and stormwater systems, and helping
clients with water permitting and compliance
issues.
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The
Company’s operations are also influenced by other federal, state, and
international laws and regulations protecting the environment. In the U.S.
market, other regulatory rules and provisions that influence Company operations,
in addition to those discussed above, are the Atomic Energy Act (AEA), and the
Oil Pollution Control Act (OPA). Examples of services provided by the Company as
a result of these laws include the development of spill prevention control and
emergency prevention procedures, as well as countermeasure plans for various
facilities potentially affecting human health and the environment. Related laws
such as the Occupational Safety and Health Act, which regulates exposures of
employees to toxic chemicals and other physical agents in the workplace, also
have a significant impact on EEI operations. An example is the process safety
regulation issued by the Occupational Safety and Health Administration ("OSHA")
which requires safety and hazard analysis and accidental release contingency
planning activity to be performed if certain chemicals are used in the work
place.
Internationally,
since many overseas markets remain “undeveloped” when compared with that of the
United States and other western countries, the Company’s expanding operations in
these markets are primarily influenced by environmental laws focusing on
infrastructure, development, and planning related activities.
Potential Liability and
Insurance
The
Company’s contracts generally require it to maintain certain insurance coverages
and to indemnify its clients for claims, damages or losses for personal injury
or property damage relating to the Company’s performance of its duties unless
such injury or damage is the result of the client's negligence or willful acts.
Currently, the Company is able to provide insurance coverage to meet the
requirements of its contracts, however, certain pollution exclusions apply.
Historically, the Company has been able to purchase an errors and omissions
insurance policy that covers its environmental consulting services, including
legal liability for pollution conditions resulting therefrom. The policy is a
claims made policy. Where possible, the Company requires that its clients
cross-indemnify it for asserted claims. There can be no assurance, however, that
any such agreement, together with the Company’s general liability insurance and
errors and omissions coverage will be sufficient to protect the Company against
any asserted claim.
Market and
Customers
The
Company’s revenues originate from federal, state and local governments, domestic
private clients, and private and governmental international
clients.
The
Company’s worldwide marketing efforts are conducted by its marketing group
located at its headquarters, its regional offices, and its international
subsidiaries. EEI markets its services to existing and potential governmental,
industrial, and engineering clients. The Company closely monitors
government contract procurements and responds to requests for proposals
requiring services provided by the Company. The marketing group also monitors
government regulation and other events that may generate new business by
requiring governments and industrial firms to respond to new regulatory actions.
The marketing group is supported by EEI’s technical staff which is responsible
for preparing technical proposals that are customarily delivered with the
Company’s bid for a project. The Company participates in industrial trade shows
and professional seminars relating to its business.
Backlog
The
Company's firm backlog of uncompleted projects and maximum potential revenues
from indefinite task order contracts, at July 31, 2009 and 2008 were as
follows:
|
|
(Millions
of $)
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anticipated
completion of firm backlog in next twelve months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
potential gross revenues from task order contracts
|
|
|
|
|
|
|
|
|
This
backlog includes a substantial amount of work to be performed under contracts
which contain termination provisions under which the contract can be terminated
without penalty upon written notice to the Company. The likelihood of obtaining
the full value of the task order contracts cannot be determined at this
time.
Competition
EEI is
subject to competition with respect to each of the services that it provides. No
entity, including the Company, currently dominates the environmental services
industry and the Company does not believe that one organization has the
capability to serve the entire market. Some of its competitors are larger and
have greater financial resources than the Company while others may be more
specialized in certain areas. EEI competes primarily on the basis of its
reputation, quality of service, expertise, and price.
Employees
As of
July 31, 2009, the Company, including subsidiaries, had approximately 1,100
employees. The majority of the employees hold bachelor's degrees and/or advanced
degrees in such areas as chemical, civil, mechanical, sanitary, soil, structural
and transportation engineering, biology, geology, hydrogeology, ecology, urban
and regional planning and oceanography. The Company's ability to remain
competitive will depend largely upon its ability to recruit and retain qualified
personnel. None of the Company's employees are represented by a labor
organization and employee relations are good.
Corporate Governance /
Security Exchange Rules
Prior to
September 8, 2008, the Company’s shares of Class A Common Stock were listed
on the American Stock Exchange (AMEX). AMEX required all of its listing
companies to certify that they comply with the AMEX’s corporate governance rules
(AMEX CG Rules). The Company certified to the AMEX that it was in
compliance with AMEX CG Rules except for those AMEX CG Rules relating to the
composition of and adoption of a nominating committee and the composition of the
compensation committee relating to the Company’s Board of
Directors. For these items, the Company has relied upon the
“controlled company” exception found in the AMEX CG Rules. A “controlled
company” is a listing company where more than 50 percent of the voting power of
the listing company is in the control of a group. The Company believes that a
group, consisting of Messrs. Neumaier, Silvestro, Frank and Strobel and members
of their families, now holds more than 50 percent of the voting power of the
Company and that, therefore, the Company is a “controlled company” for purposes
of the AMEX CG Rules.
Beginning
on September 8, 2008, the Company’s shares of Class A Common Stock were listed
on the National Association of Securities Dealers Automated Quotations (NASDAQ)
Stock Market. NASDAQ requires all of its listing companies be in
compliance with NASDAQ’s standards of corporate governance set forth in the
NASDAQ Marketplace Rules (NASDAQ CG Rules). The Company has certified to the
NASDAQ that it is in compliance with the NASDAQ CG Rules except for those NASDAQ
CG Rules relating to the Director Nominations Process, the Compensation of
Officers and Board Compensation. For these items, the Company
relied upon the “controlled company” exception found in the NASDAQ CG
Rules. The definition of “controlled company” is the same under the
NASDAQ CG Rules as it is under the AMEX CG Rules (see above).
The
Company has adopted a code of ethics that applies to its principal executive
officer, principal financial officer, principal accounting officer and
controller, as well as all other employees and the directors of the Company. The
code of ethics, which the Company calls its Code of Business Conduct and Ethics,
is posted on the Company’s website at www.ene.com, as well as on the Company’s
internal website which is available to all Company employees. The employees are
required to sign off annually that they have reviewed and are aware of the
Company’s code of ethics policy. If the Company makes any substantive
amendments to, or grants a waiver (including an implicit waiver) from, a
provision of its code of ethics that applies to its principal executive officer,
principal financial officer, principal accounting officer or controller, and
that relates to any element of the code of ethics definition enumerated in
Item 406(b) of Regulation S-K, the Company will disclose the nature of such
amendment or waiver in a current report on Form 8-K.
In
addition to other information referenced in this report, the Company is subject
to a number of specific risks outlined below. If any of these events occur, the
Company's business, financial condition, profitability and the market price of
its Class A Common Stock could be materially affected.
Changes in environmental
laws and regulations could reduce demand for the Company’s
services.
Most of
the Company’s business is driven by laws and regulations related to the
protection of the environment. Any relaxation or repeal of these laws, or
changes in governmental policies regarding the funding or enforcement of these
laws, would have an adverse impact on the Company’s revenues. Also, reduced
spending by governments may increase competition within our industry which may
directly affect future revenue and profits.
As a government contractor,
the Company is subject to a number of procurement laws and regulations, as well
as government agency audits. Any violation of these laws could result in
economic harm to the Company’s operations.
The
Company must comply with federal, state, and foreign laws relating to the
procurement and administration of government contracts. Such laws include
the Federal Acquisition Regulation (FAR), the Truth in Negotiations Act (TINA),
the Cost Accounting Standards (CAS), and the Service Contract Act (SCA). These
laws impact how the Company does business with government clients and can
increase the cost of doing business. Government agencies such as EPA and the
Defense Contract Audit Agency (DCAA), as well as numerous state agencies
routinely audit government contractors and their performance under specific
contracts to determine if a contractor’s cost structure is compliant with
applicable laws and regulations. They may question the incurrence of certain
costs based on the FAR and CAS and disallow those costs on their
contracts. These audits may occur several years after payment for services
has been received. Historically, the Company has been able to successfully
defend against the disallowance of any significant costs. However, there is no
assurance that future audits will not result in the material disallowances for
costs incurred in the future. Such material disallowances could negatively
affect revenue, profits and cash flow.
The Company depends on
federal, state and foreign government work for a significant portion of its
revenues. The Company’s inability to win or renew government contracts during
procurement cycles could significantly reduce Company profits.
Revenues
from all government contracts (federal, state and municipal)
represented approximately 48% of total revenues for fiscal years 2007
through 2009. Consequently, an inability to win or renew government contracts
would adversely affect operations and significantly reduce profits. Government
contracts are typically awarded through a highly regulated procurement
process. In addition, some government contracts are awarded to multiple
competitors, causing increased competition and downward pricing pressure. This
may lead to increased pressure to control costs. If the Company cannot reduce or
control costs on these contracts, losses on these contracts may
occur.
Current economic uncertainty
could affect the Company’s public and private sector work.
The
current worldwide credit crisis could impact the availability of financing for
certain private projects and resulting lower tax revenues for federal, state,
and municipal governments could defer or halt work on public environmental
programs. Any impact on specific programs cannot be determined at this
time.
The Company must be able to
accurately estimate and control contract costs to prevent losses on
contracts.
The
Company must control direct contract costs in order to maintain positive profit
margins. There are three basic types of contracts with the Company’s clients:
cost plus, fixed price, and time and materials. Under cost plus contracts, which
may be subject to various types of ceilings, the Company is reimbursed for
allowable costs plus a negotiated profit. If costs exceed ceilings or are
otherwise deemed unallowable under provisions of the contract or regulations,
the Company will not be reimbursed for all of its costs. Under fixed price
contracts, the Company is paid a fixed price regardless of the actual costs
incurred. Consequently, a profit is realized on fixed price contracts only if
the Company is able to control costs and avoid overruns. Under time and material
contracts, the Company is paid for its direct labor hours at fixed rates plus
reimbursement of allocable other direct costs. Profitability on contracts is
dependant on a consistently high utilization of staff and the Company’s ability
to control its overhead costs.
A failure to attract and
retain key employees could impair the Company’s ability to provide quality
service to clients.
The
Company provides professional and technical services and is dependent on its
ability to attract, retain and train its professional employees to conduct its
business and perform its obligations to ensure success. It may be difficult to
attract and retain qualified expertise within timeframes demanded by clients.
Senior managements’ experience is essential to the success of any company and
our ability to retain such talent is crucial to the profitability of the
Company. Further, the loss of key management personnel could adversely affect
the Company's ability to develop and pursue its business
strategies.
Actual results could differ
from the estimates and assumptions used to prepare financial statements, which
may reduce or eliminate profits.
To
prepare financial statements in conformity with accounting principles generally
accepted in the United States of America, management is required to make
estimates and assumptions as of the date of the financial statements, which
affect the reported values of assets and liabilities and revenues and expenses
and disclosures of contingent assets and liabilities. Areas requiring
significant estimates by management include:
|
- the
application of the percentage of completion method of accounting and
revenue recognition on contracts
|
|
- provisions
for uncollectible receivables and contract
reserves
|
|
- provisions
for income taxes and related valuation
reserves
|
|
- accruals
for estimated liabilities, including litigation
reserves
|
|
- accruals
for uncertain tax positions
|
|
- evaluation
of the impairment of goodwill
|
The use of annual percentage
of completion method of accounting could result in a reduction or reversal of
previously recorded revenues and profits.
A portion
of the Company’s revenues and profits are measured and recognized using the
percentage of completion method of accounting which is discussed further in Note
2 of the Consolidated Financial Statements. The use of this method results in
the recognition of revenues and profits ratably over the life of a contract. The
effect of revisions to revenues and estimated costs is recorded when the amounts
are known or can be reasonably estimated. Such revisions could occur in
subsequent periods and their effects could be material. Although the Company has
historically been able to make reasonably accurate estimates of work progress,
the uncertainties inherent in the estimating process make it possible for actual
costs to vary from estimates in a material amount, including reductions or
reversals of previously recorded revenues and profits.
International operations are
subject to a number of risks.
The
Company has operations in more than 30 countries around the world and has
derived approximately 19% of revenue from international operations for the
fiscal years 2007 through 2009. International operations are subject to a number
of risks, including:
|
- greater
risk of uncollectible accounts and longer collection
cycles;
|
|
- logistical
and communication challenges;
|
|
- exposure
to liability under the Foreign Corrupt Practices
Act;
|
|
- lack
of developed legal systems to enforce contractual
rights;
|
|
- general
economic and political conditions in foreign
markets;
|
|
- civil
disturbance, unrest or violence;
|
|
- general
difficulties in staffing international operations with highly professional
personnel.
|
These and
other risks associated with international operations could harm our overall
operations and significantly reduce our future revenues.
Failure to complete a
project timely or failure to meet a required performance standard on a project
could cause the Company to incur a loss which may affect overall
profitability.
Completion
dates and performance standards may be important requirements to a client on a
given project. If the Company is unable to complete a project within specified
deadlines or fails to meet performance criteria set forth by a client,
additional costs may be incurred by the Company or the client may hold the
Company responsible for costs they incur to rectify the problem. The uncertainty
involved in the timing of certain projects could also negatively affect the
Company’s staff utilization, causing a drop in efficiency and reduced
profits.
Subcontractor performance
and pricing could expose us to loss of reputation and additional financial or
performance obligations that could result in reduced profits or
losses.
We often
hire subcontractors for our projects. The success of these projects
depends, in varying degrees, on the satisfactory performance of our
subcontractors and our ability to successfully manage subcontractor costs and
pass them through to our customers. If our subcontractors do not meet
their obligations or we are unable to manage or pass through costs, we may be
unable to profitably perform and deliver our contracted
services. Under these circumstances, we may be required to make
additional investments and expend additional resources to ensure the adequate
performance and delivery of the contracted services. In addition, the
inability of our subcontractors to adequately perform or our inability to manage
subcontractor costs on certain projects could hurt our competitive reputation
and ability to obtain future projects.
The Company's services could
expose it to significant liability not covered by insurance.
The
services provided by the Company expose it to significant risks of professional
and other liabilities. In addition, the Company sometimes assumes liability by
contract under indemnification provisions. We are unable to predict the total
amount of such potential liabilities. The Company has obtained insurance to
cover potential risks and liabilities. However, insurance may be inadequate or
unavailable in the future to protect the Company for such liabilities and
risks.
Management's voting rights
could block or discourage a change in control.
The
current senior officers of the Company along with Gerhard J. Neumaier own in
excess of 70% of the Class B Common Stock which has one vote per share while the
Class A Common Stock has one-tenth of a vote per share. Therefore, current
management could block a change in control. This ability could adversely affect
the value of the Class A Common Stock.
None
to report.
The
Company's headquarters (60,000 square feet) is located in Lancaster, New York, a
suburb of Buffalo. The Company owns additional property in Lancaster, NY
consisting of two buildings including a warehouse and office facility totaling
approximately 35,000
square feet. The Company also leases office and storage facilities at
thirty five (35) regional offices in the United States and six (6) offices in
foreign locations.
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 4.
|
Submission of Matters to a Vote
of Security Holders
|
None.
PART
II
Item
5.
|
Market for the Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities
|
|
(a)
|
Principal
Market or Markets. The Company's Class A Common Stock was previously
traded on the AMEX prior to September 8, 2008. Beginning on
September 8, 2008, the Company’s Class A Common Stock is listed on NASDAQ.
There is no separate market for the Company's Class B Common
Stock.
|
The
following table represents the range of high and low prices of the Company's
Class A Common Stock as reported by the American Stock Exchange, or NASDAQ as
appropriate, for the periods indicated.
FISCAL
2009
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
First
Quarter (commencing August 1, 2008 - November 1,
2008)
|
|
|
|
|
|
|
|
Second
Quarter (commencing November 2, 2008 - January 31,
2009)
|
|
|
|
|
|
|
|
Third
Quarter (commencing February 1, 2009 - May 2, 2009)
|
|
|
|
|
|
|
|
Fourth
Quarter (commencing May 3, 2009 - July 31, 2009)
|
|
|
|
|
|
|
|
FISCAL
2008
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
First
Quarter (commencing August 1, 2007 - October 27,
2007)
|
|
|
|
|
|
|
|
Second
Quarter (commencing October 28, 2007 - January 26,
2008)
|
|
|
|
|
|
|
|
Third
Quarter (commencing January 27, 2008 - April 26,
2008)
|
|
|
|
|
|
|
|
Fourth
Quarter (commencing April 27, 2008 - July 31, 2008)
|
|
|
|
|
|
|
|
Approximate Number of
Holders of Class A Common Stock
As of
September 30, 2009, 2,435,361 shares of the Company's Class A Common Stock were
outstanding and the number of holders of record of the Company's Class A Common
Stock at that date was 371. The Company estimates that it has a significantly
greater number of Class A Common Stock shareholders because a substantial number
of the Company's shares are held in street name. As of the same date, there were
1,651,273 shares of the Company's Class B Common Stock outstanding and the
number of holders of record of the Class B Common Stock at that date was
58.
Dividends
In the
fiscal years ended July 31, 2009 and 2008 the Company declared and paid two cash
dividends totaling $.39 and $.36 per year respectively, per share of common
stock. The amount, if any, of future dividends remains within the discretion of
the Company's Board of Directors and will depend upon the Company's future
earnings, financial condition and requirements and other factors as determined
by the Board of Directors.
The
Company's Certificate of Incorporation provides that any cash or property
dividend paid on Class A Common Stock must be at least equal to the cash or
property dividend paid on Class B Common Stock on a per share
basis.
Equity
Compensation Plan Information as of July 31, 2009:
|
Plan
category
|
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights.
|
|
Weighted
average exercise price of outstanding options, warrants and
rights
|
|
Number
of securities remaining available for
future
issuance
|
|
|
|
|
|
|
|
Equity
compensation plans approved by securities holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by securities
holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refer to
Note 10 to Consolidated Financial Statements set forth in Part IV of this
Annual Report on Form 10-K for more information on the Equity Compensation
Plans.
|
(c)
|
Purchased
Equity Securities. The following table summarizes the Company's purchases
of its common stock during the fiscal year ended July 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 - July 31, 2009
|
|
207,941
|
|
$8.81
|
|
207,941
|
|
163
|
(1) The
Company purchased 207,941 shares of its Class A common stock during the fiscal
year ended July 31, 2009 pursuant the Company’s share repurchase
program. The purchases were made in open-market
transactions. In October of 2008, the Company repurchased 197,594
shares of Class A common stock at $8.75 per share. The Company’s
Board of Directors approved a 200,000 share repurchase program in January 2004
and an additional 200,000 share repurchase program in February
2006.
Item
6. Selected
Consolidated Financial Data
The
financial statements presented below give retroactive effect to the fiscal
year 2007 discontinuance of the Company’s Venezuelan subsidiary. See
Note 18 to Consolidated Financial
Statements for additional information.
|
|
Year
Ended July 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In
thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
146,887 |
|
|
$ |
110,533 |
|
|
$ |
102,496 |
|
|
$ |
97,080 |
|
|
$ |
90,382 |
|
Income
(loss) from operations
|
|
|
9,445 |
|
|
|
5,593 |
|
|
|
5,310 |
|
|
|
5,833 |
|
|
|
(1,839 |
) |
Income
(loss) from continuing operations before income taxes and minority
interest
|
|
|
9,474 |
|
|
|
5,553 |
|
|
|
5,720 |
|
|
|
5,968 |
|
|
|
(2,043 |
) |
Net
income (loss) from continuing operations
|
|
$ |
5,235 |
|
|
$ |
1,833 |
|
|
$ |
2,715 |
|
|
$ |
2,982 |
|
|
$ |
(1,390 |
) |
Net
income (loss) from discontinued operations
|
|
|
(14 |
) |
|
|
1 |
|
|
|
359 |
|
|
|
(399 |
) |
|
|
(197 |
) |
Net
income (loss)
|
|
$ |
5,221 |
|
|
$ |
1,834 |
|
|
$ |
3,074 |
|
|
$ |
2,583 |
|
|
$ |
(1,587 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per common share: basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
1.31 |
|
|
$ |
0.44 |
|
|
$ |
0.65 |
|
|
$ |
0.71 |
|
|
$ |
(0.33 |
) |
Discontinued
operations
|
|
|
--- |
|
|
|
--- |
|
|
|
0.08 |
|
|
|
(0.09 |
) |
|
|
(0.05 |
) |
Net
income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
basic
|
|
$ |
1.31 |
|
|
$ |
0.44 |
|
|
$ |
0.73 |
|
|
$ |
0.62 |
|
|
$ |
(0.38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per common share: diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
1.28 |
|
|
$ |
0.43 |
|
|
$ |
0.64 |
|
|
$ |
0.71 |
|
|
$ |
(0.33 |
) |
Discontinued
operations
|
|
|
--- |
|
|
|
--- |
|
|
|
0.08 |
|
|
|
(0.09 |
) |
|
|
(.05 |
) |
Net
income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
diluted
|
|
$ |
1.28 |
|
|
$ |
0.43 |
|
|
$ |
0.72 |
|
|
$ |
0.62 |
|
|
$ |
(0.38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
$ |
0.39 |
|
|
$ |
0.36 |
|
|
$ |
0.34 |
|
|
$ |
0.33 |
|
|
$ |
0.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,982,884 |
|
|
|
4,164,186 |
|
|
|
4,194,673 |
|
|
|
4,180,287 |
|
|
|
4,160,834 |
|
Diluted
|
|
|
4,084,356 |
|
|
|
4,228,292 |
|
|
|
4,261,623 |
|
|
|
4,188,278 |
|
|
|
4,160,834 |
|
|
|
Year
Ended July 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
capital
|
|
$ |
36,114 |
|
|
$ |
36,871 |
|
|
$ |
34,313 |
|
|
$ |
28,306 |
|
|
$ |
28,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
77,655 |
|
|
|
75,602 |
|
|
|
71,206 |
|
|
|
69,152 |
|
|
|
57,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
404 |
|
|
|
482 |
|
|
|
385 |
|
|
|
342 |
|
|
|
328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
41,051 |
|
|
|
39,254 |
|
|
|
40,913 |
|
|
|
37,627 |
|
|
|
36,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book
value per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
10.31 |
|
|
$ |
9.43 |
|
|
$ |
9.75 |
|
|
$ |
9.00 |
|
|
$ |
8.72 |
|
Diluted
|
|
$ |
10.05 |
|
|
$ |
9.28 |
|
|
$ |
9.60 |
|
|
$ |
8.98 |
|
|
$ |
8.72 |
|
Item
7.
|
Management's Discussion and Analysis of Financial
Condition and Results of Operations
|
Liquidity and Capital
Resources
Operating
activities provided $9.7 million of cash during fiscal year 2009. This was
mainly attributable to the reported $5.2 million in net income and a $4.4
million increase in accounts payable due to the increased work levels throughout
the Company during fiscal year 2009. Offsetting these was an increase
in other contracts receivables and accrued interest and
penalties. Contracts receivable increased $3.9 million during fiscal
year 2009 due to the overall growth in revenue throughout the
Company. Accrued interest and penalties decreased $1.2 million during
fiscal year 2009 due a favorable tax settlement in Kuwait.
Financing
activities consumed $5.4 million of cash during fiscal year 2009. The
Company paid dividends in the amount of $1.6 million or $.39 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 $1.3 million due mainly to the repayment of a $1.0 million
loan by the Parent Company’s majority owned subsidiary, E&E do
Brasil. Distributions to minority partners during fiscal year 2009
were approximately $.6 million.
The
Company maintains an unsecured line of credit available for working capital and
letters of credit of $19 million at one-half percent below the prevailing prime
rate. Other lines are available solely for letters of credit in the
amount of $19.6 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 repaid in full in December
2008. The Company guarantees the line of credit of its majority owned
subsidiary, Walsh Environmental (Walsh). The banks have reaffirmed
the Company’s lines of credit within the past twelve months. At July 31, 2009
and July 31, 2008 the Company had letters of credit outstanding totaling
approximately $.6 million. Borrowings by the Brazilian subsidiary
for working capital were $0 and $1.0 million at July 31, 2009 and July 31, 2008,
respectively. After letters of credit and loans, there was $37.9
million of availability under the lines of credit at July 31,
2009. At July 31, 2009 there were no borrowings for working capital
against the lines of credit. The Company believes that cash flows
from operations and borrowings against the lines of credit will be sufficient to
cover all working capital requirements for at least the next twelve months and
the foreseeable future.
Results
of Operations
Revenue
Fiscal
Year 2009 vs 2008
Revenue
for fiscal year 2009 was $146.9 million, an increase of $36.4 million or 33%
from the $110.5 million reported in fiscal year 2008. The increase in
revenue was due mainly to increases in revenue at the Parent Company and by
E&E, Inc.’s majority owned subsidiary Walsh in the energy, environmental
restoration, asbestos and federal government sectors. Specifically,
revenues from Walsh were $45.6 million for fiscal year 2009, an increase of 69%
from the $27.0 million reported in fiscal year 2008. The increase in
Walsh revenues was mainly attributable to increased activity in the
environmental remediation and asbestos markets. Revenues from the
Parent Company’s federal government sector were $33.4 million for fiscal year
2009, up $12.0 million from the $21.4 million reported in the prior
year. The increase in federal government revenues was mainly
attributable to increased activity in contracts with the United States
Department of Defense (DOD) and Environmental Protection Agency
(EPA). Revenues from commercial clients of the Parent Company were
$30.0 million for fiscal year 2009, an increase of 42% from the $21.2 million
reported in fiscal year 2008. The increase in revenues from
commercial clients was mainly attributable to increased activity in the domestic
energy market. Offsetting these were decreases in revenue from the
Parent Company’s international and state markets. Revenue from state
clients of the Parent Company was $24.6 million for fiscal year 2009, a decrease
of $2.5 million from the $27.1 million reported in fiscal year
2008. State budgets are under pressure and the Company believes its
state markets will continue to be impacted until the domestic economy
recovers. Revenue from international clients of the Parent Company
decreased $1.5 million during fiscal year 2009.
Revenues
for the fourth quarter of fiscal year 2009 were $41.1 million, an increase of
$7.7 million from the $33.4 million reported in the fourth quarter of the
2008. The increase in revenue was attributable to increased work in
the Company’s energy, environmental restoration, asbestos and federal government
sectors. Walsh
reported revenues of $13.2 million for the fourth quarter of fiscal year
2009, an increase of 74% from the $7.6 million reported in the fourth quarter of
fiscal year 2008 due to increased activity in the environmental remediation and
asbestos markets. Revenues of the Parent Company increased $1.7
million during the fourth quarter of fiscal year 2009 mainly attributable to
increased activity in the energy and federal government markets, offset by a
decrease in activity in the state market. Revenues from the Parent
Company’s federal government sector were $8.1 million for the fourth quarter of
fiscal year 2009, an increase of 25% from the $6.5 million reported in the prior
year. The increase in federal government revenues was mainly
attributable to increased activity in contracts with DOD and
EPA. Revenue from commercial clients of the Parent Company was $8.6
million for the fourth quarter of fiscal year 2009, an increase of $.7 million
from the $7.9 million reported in the fourth quarter of fiscal year
2008. Revenue from state clients of the Parent Company was $6.8
million for the fourth quarter of fiscal year 2009, a decrease of $.6 million
from the $7.4 million reported in the fourth quarter of fiscal year
2008.
Fiscal
Year 2008 vs 2007
Revenue
for fiscal year 2008 was $110.5 million, an increase of $8.0 million or 8% from
the $102.5 million reported in fiscal year 2007. The increase in
revenue was due mainly to increases in revenue at the Parent Company and by
E&E, Inc.’s majority owned subsidiaries Walsh and E&E do
Brasil. E&E, Inc.’s revenue increased $2.5 million during fiscal
year 2008 from work on contracts in the Company’s energy and state sectors
offset by decreases in work for the federal government
sectors. Revenues from Walsh were $27.0 million for fiscal year 2008,
an increase of 11% from the $24.4 million reported in fiscal year
2007. The increase in Walsh revenues was mainly attributable to
increased activity in the environmental remediation and asbestos
markets. Revenues from E&E do Brasil were $7.2 million for fiscal
year 2008, an increase of $2.2 million or 44% over the prior year due mainly to
increased work in the public and private power industries. Revenue
from commercial clients of the Parent Company was $21.2 million for fiscal year
2008, an increase of $2.8 million from the $18.4 million reported in the prior
year. The increase in commercial revenue was attributable to an
increase in activity in the domestic energy market. Revenue from
state clients of the Parent Company was $27.1 million for fiscal year 2008, an
increase of $3.1 million from the $24.0 million reported in fiscal year 2007 due
mainly to increases in work in Washington, New York and
Texas. Revenue from federal government clients of the Parent Company
was $21.4 million during fiscal year 2008, a decrease of 13% from the $24.7
million reported in the prior year. The decrease in federal
government revenue was mainly due to decreased activity on DOD
contracts.
Revenues
for the fourth quarter of fiscal year 2008 increased $5.0 million mainly
attributable to increases in revenue at the Parent Company, Walsh and E&E do
Brasil. Revenues of the Parent Company increased $3.3 million during
the fourth quarter of fiscal year 2008 mainly attributable to increased work on
contracts in the Company’s energy sector. Walsh reported revenues of
$7.6 million for the fourth quarter of fiscal year 2008, an increase of 12% from
the $6.8 million reported in the fourth quarter of fiscal year
2007. Revenues from E&E do Brasil were $2.2 million for the
fourth quarter of fiscal year 2008, an increase of 38% from the $1.7 million
reported in the fourth quarter of the prior year. Revenue from
commercial clients of the Parent Company was $7.9 million for the fourth quarter
of fiscal year 2008, an increase of $3.6 million from the $4.3 million reported
in the fourth quarter of fiscal year 2007. The increase in commercial
revenue was attributable to an increase in activity in the domestic energy
market.
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 $9.5 million for fiscal year 2009, an increase of $3.9 million from
the $5.6 million reported in fiscal year 2008. Gross profits
increased $8.5 million during fiscal year 2009 as a result of the increased
revenue reported at the Parent Company and Walsh offset by an increase in
corporate wide subcontract costs. The gross margin percentage for
fiscal year 2009 was 39.8%, down from the 45.3% reported for fiscal year
2008. The decrease in gross margin percentage was attributable to a
significant increase in subcontract costs throughout the
Company. Subcontract costs were $38.0 million for fiscal year 2009,
an increase of 141% from the $15.8 million reported in the prior
year. Gross margin as a percentage of revenue less subcontractor
revenue and costs increased slightly during fiscal year 2009. The
increased gross profits were offset by higher indirect costs in fiscal year
2009. Offsetting the increased revenue was an increase in indirect
operating expenses throughout the company due to increased staffing and work
levels. Consolidated indirect costs for fiscal year 2009 were $47.4
million, an increase of $4.4 million from the $43.0 million reported in fiscal
year 2008. Staffing levels throughout the company increased 16%
during fiscal year 2009 as a result of increased manpower needs necessary to
accommodate the increase in revenue. The Company reached settlements
with Kuwait and the federal government during fiscal year
2009. E&E Inc. settled the Kuwait tax dispute and the related
accrual for uncertain tax position charges and reserved the $925,000 balance of
receivables on the Middle East contracts which resulted in a net gain of
approximately $.25 per share. Additionally, the Company maintains
reserves for annual indirect rate adjustments due to FAR and CAS compliance
reviews by the federal government which covered fiscal years 1996 through
2004. During the fourth quarter of fiscal year 2009, the Company
derecognized reserves of $562,000 ($410,000 after tax) as a result of a
settlement with the federal government. The federal government
settlement positively impacted the Company’s earnings during the fourth quarter
of fiscal year 2009 by $.10 per share.
The
Company’s income from continuing operations before income taxes and minority
interest was $2.6 million for the fourth quarter of fiscal year 2009, slightly
down from the $2.8 million reported in the fourth quarter of fiscal year
2008. The fourth quarter of 2008 was impacted by a gain on foreign
exchange transactions of $360,000. Gross profit increased during the
fourth quarter of fiscal year 2009 as a result of increased
revenues. The gross margin percentage for the fourth quarter of
fiscal year 2009 was 39.7%, down from the 43.8% reported for the fourth quarter
of fiscal year 2008. The decrease in gross margin percentage was
attributable to a significant increase in subcontract costs throughout the
company. Subcontract costs were $11.3 million for fiscal year 2009,
up $5.7 million from the $5.6 million reported in the fourth quarter of fiscal
year 2008. Gross margin as a percentage of revenue less subcontractor
revenue and costs increased slightly during the fourth quarter of fiscal year
2009. Offsetting the increased revenue was an increase in indirect
operating expenses throughout the company due to the increased staff and work
levels. Consolidated indirect costs for the fourth quarter of fiscal
year 2009 were $13.3 million, up 14% from the $11.7 million reported in the
fourth quarter of fiscal year 2008. During the fourth quarter of
fiscal year 2009, the Company derecognized reserves of $562,000 ($410,000 after
tax) as a result of a settlement with the federal government. The
federal government settlement positively impacted the Company’s earnings during
the fourth quarter of fiscal year 2009 by $.10 per share.
Fiscal
Year 2008 vs 2007
The
Company’s income from continuing operations before income taxes and minority
interest was $5.6 million for fiscal year 2008, slightly less than the $5.7
million reported in fiscal year 2007. Gross profits
increased $4.6 million during fiscal year 2008 as a result of the increased
revenue reported at the Parent Company, Walsh and E&E do Brasil in addition
to a decrease in corporate wide subcontract costs. The gross margin
percentage for fiscal year 2008 was 45.3%, up slightly from the 44.3% reported
for fiscal year 2007. The increased gross profits were offset by
higher indirect costs in fiscal year 2008. Due to increased staffing
levels and business development and proposal costs worldwide, consolidated
indirect costs increased $4.2 million in fiscal year 2008. The
increase in business development and proposal costs was due to the Company’s
commitment to invest in significant future opportunities in the alternative and
clean technology energy sectors. The Company continues to increase
business development costs worldwide to capitalize on the global demands for
energy and environmental infrastructure improvements in concert with heightened
concerns over global warming. Staffing levels throughout the
company increased 12% during fiscal year 2008 as a result of increased manpower
needs necessary to accommodate the increase in corporate
revenue. During fiscal year 2008, E&E recorded an accrual related
to uncertain tax positions taken by the Company of approximately
$740,000 or $.15 per share after tax. This accrual included additional
interest and penalties of approximately $590,000 ($.12 per share after tax) as
well as a foreign exchange loss of $144,000 ($.02 per share after tax) to adjust
the tax reserve to current exchange rates. This expense is related to
the contested Kuwait taxes.
The
Company’s income from continuing operations before income taxes and minority
interest was $2.8 million for the fourth quarter of fiscal year 2008, up $1.9
million from the $.9 million reported in the fourth quarter of fiscal year
2007. The gross margin percentage for the fourth quarter of fiscal
year 2008 was 43.8%, up from the 41.6% reported for the fourth quarter of fiscal
year 2007. The increased gross profits were offset by higher indirect
costs in the fourth quarter. Consolidated indirect costs increased
$1.0 million mainly attributable to the increased revenue at E&E, Inc. and
E&E do Brasil as well as increased staffing levels and operational expenses
related to the overall business growth throughout the Company. The
increase of income from continuing
operations
before income taxes and minority interest in the fourth quarter of fiscal year
2008 was mainly due to increased revenues at the Parent Company and E&E do
Brasil. Gross profits increased $2.8 million during the fourth quarter of fiscal
year 2008 as a result of the increase in revenue.
Discontinued
Operations
During
the fourth quarter of 2007, due to a continuing deterioration in business
and political conditions in Venezuela and the likelihood that E&E's
Venezuelan subsidiary would no longer be able to compete for contracts within
the country, the Company evaluated its investment in its Venezuelan
subsidiary and recognized a write-off of $1.1 million ($146,000 after tax
or $.03 per share) to reflect the estimated reduction in the value of the net
assets of the Company's Venezuela subsidiary. During the first quarter of
2008, the Company decided to close its subsidiary in Venezuela effective as
soon as possible and, accordingly, has reclassified its operations as
discontinued. The cessation of business in Venezuela has resulted in
termination benefits for employees according to in-country regulations and
other charges which have not been significant.
On
January 9, 2007 the Company sold its interest in the shrimp farm in Costa Rica
to the Roozen Group for $2,500,000 in cash. When the farm was closed in
fiscal year 2003, the Company recorded an impairment charge. The previously
unrecognized foreign translation loss in the amount of approximately $1.5
million has been accounted for in the computation of the gain on the sale. There
was a pretax gain on the sale of the farm of approximately $960,000 after
deducting costs of the sale. This gain was included in the accompanying
financial statements under discontinued operations.
Income
Taxes
In March
of 2009, the Company received a tax assessment from the Kuwait Ministry of
Finance in the amount of approximately $2.6 million related to the contested
taxes resulting from the work performed for the Public Authority for Assessment
of Compensation for Damages Resulting from Iraqi Aggression (PAAC). A
liability had been previously accrued for this tax including interest and
penalties of approximately $4.3 million. The Company reached a
favorable settlement with the Ministry of Finance in April
2009. Accordingly, the Company derecognized the remaining accrual of
approximately $1.4 million (net of deferred tax) by reducing the income tax
provision by $870,000 and reducing interest expense and general and
administrative costs each by $275,000.
The
estimated effective tax rate for fiscal year 2009 is 27.0%, down from the 38.0%
reported for fiscal year 2008. Excluding the favorable settlement in
Kuwait, the estimated effective tax rate for fiscal year 2009 is
36.1%.
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.
The
Company employs three major types of contracts: “cost-plus contracts,”
“fixed-price contracts” and “time-and-materials contracts.” Within each of the
major contract types are variations on the basic contract mechanism. Fixed-price
contracts generally present the highest level of financial and performance risk,
but often also provide the highest potential financial returns. Cost-plus
contracts present a lower risk, but generally provide lower returns and often
include more onerous terms and conditions. Time-and-materials contracts
generally represent the time spent by our professional staff at stated or
negotiated billing rates.
Fixed
price contracts are accounted for on the “percentage-of-completion” method,
wherein revenue is recognized as project progress occurs. Time and material
contracts are accounted for over the period of performance, in proportion to the
costs of performance, predominately
based on labor hours incurred. If an estimate of costs at completion
on any contract indicates that a loss will be incurred, the entire estimated
loss is charged to operations in the period the loss becomes
evident.
The use
of the percentage of completion revenue recognition method requires the use of
estimates and judgment regarding the project’s expected revenues, costs and the
extent of progress towards completion. The Company has a history of making
reasonably dependable estimates of the extent of progress towards
completion, contract revenue and contract completion costs. However, due to
uncertainties inherent in the estimation process, it is possible that completion
costs may vary from estimates.
Most of
our percentage-of-completion projects follow a method which approximates the
“cost-to-cost” method of determining the percentage of completion. Under the
cost-to-cost method, we make periodic estimates of our progress towards project
completion by analyzing costs incurred to date, plus an estimate of the amount
of costs that we expect to incur until the completion of the project. Revenue is
then calculated on a cumulative basis (project-to-date) as the total contract
value multiplied by the current percentage-of-completion. The revenue for the
current period is calculated as cumulative revenues less project revenues
already recognized. The recognition of revenues and profit is dependent upon the
accuracy of a variety of estimates. Such estimates are based on
various judgments we make with respect to those factors and are difficult to
accurately determine until the project is significantly underway.
For some
contracts, using the cost-to-cost method in estimating percentage-of-completion
may overstate the progress on the project. For projects where the cost-to-cost
method does not appropriately reflect the progress on the projects, we use
alternative methods such as actual labor hours, for measuring progress on the
project and recognize revenue accordingly. For instance, in a project where a
large amount of equipment is purchased or an extensive amount of mobilization is
involved, including these costs in calculating the percentage-of-completion may
overstate the actual progress on the project. For these types of projects,
actual labor hours spent on the project may be a more appropriate measure of the
progress on the project.
The
Company’s contracts with the U.S. government contain provisions requiring
compliance with the Federal Acquisition Regulation (FAR), and the Cost
Accounting Standards (CAS). These regulations are generally applicable to all of
the Company’s federal government contracts and are partially or fully
incorporated in many local and state agency contracts. They limit the recovery
of certain specified indirect costs on contracts subject to the FAR. Cost-plus
contracts covered by the FAR provide for upward or downward adjustments if
actual recoverable costs differ from the estimate billed. Most of our federal
government contracts are subject to termination at the convenience of the
client. Contracts typically provide for reimbursement of costs incurred and
payment of fees earned through the date of such termination.
The
Company maintains reserves for annual indirect rate submittal adjustments due to
FAR and CAS compliance reviews by the federal government which covered fiscal
years 1996 through 2004. The reserve decreased $562,000 ($410,000
after tax) during the fourth quarter of fiscal year 2009 as a result of a
settlement with the federal government. The federal government
settlement positively impacted the Company’s earnings during the fourth quarter
of fiscal year 2009 by $.10 per share.
Federal
government contracts are subject to the FAR and some state and local
governmental agencies require audits, which are performed for the most part by
the Defense Contract Audit Agency (DCAA). The DCAA audits overhead rates, cost
proposals, incurred government contract costs, and internal control systems.
During the course of its audits, the DCAA may question incurred costs if it
believes we have accounted for such costs in a manner inconsistent with the
requirements of the FAR or CAS and recommend that our U.S. government financial
administrative contracting officer disallow such costs. Historically, we have
not experienced significant disallowed costs as a result of such audits.
However, we can provide no assurance that such audits will not result
in material disallowances of incurred costs in the future.
The
Company maintains reserves for cost disallowances on its cost based contracts as
a result of government audits. Government audits have been completed and
final rates have been negotiated through fiscal year 2001. The Company has
estimated its exposure based on completed audits, historical experience and
discussions with the government auditors. If these estimates or their
related assumptions change, the Company may be required to record additional
charges for disallowed costs on its government contracts.
Allowance for Doubtful
Accounts and Contract Adjustments
We reduce
our accounts receivable and costs and 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.
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.
In July
of 2006, FASB issued Interpretation No. 48 (FIN 48), an interpretation of SFAS
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. See Note 8 to Consolidated Financial
Statements for additional information.
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.
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Board
of Directors and Stockholders of
Ecology
and Environment, Inc.
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rules 13a-15(f) under the Securities Exchange
Act of 1934). Our internal control over financial reporting is
designed to provide reasonable assurance to management and board of directors
regarding the preparation and fair presentation of published financial
statements. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect
misstatements. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to financial
statement preparation and presentation.
Under the
supervision and with the participation of our management, including our chief
executive officer and chief financial officer, we conducted an evaluation to
assess the effectiveness of our internal control over financial reporting as of
July 31, 2009. In making this evaluation, management used the
criteria set forth by the Committee of Sponsoring Organization of the Treadway
Commission (COSO) in Internal Control – Integrated
Framework.
Based on
our assessment, we concluded that, as of July 31, 2009, our internal control
over financial reporting is effective based on those
criteria.
Management’s
report was not subject to attestation by the Company’s registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit the Company to provide only management’s report in this
annual report.
By:
|
/s/
Kevin S. Neumaier
|
|
By:
|
/s/
H. John Mye
|
|
Chief
Executive Officer
|
|
|
Chief
Financial Officer
|
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders
of
Ecology and Environment, Inc.
We have
audited the accompanying consolidated balance sheets of Ecology and Environment,
Inc. and its subsidiaries (Company) as of July 31, 2009 and 2008, and the
related consolidated statements of income, changes in shareholders’ equity, and
cash flows for each of the years in the three-year period ended July 31,
2009. In addition, our audits included the financial statement
schedule listed in the index at Item 15(a)(2). These consolidated
financial statements and the financial statement schedule are the responsibility
of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements and the financial statement
schedule based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Ecology and Environment,
Inc. and its subsidiaries as of July 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the years in the three-year period
ended July 31, 2009 in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/
Schneider Downs & Co., Inc.
Pittsburgh,
Pennsylvania
October
28, 2009
|
|
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
31,
|
|
|
July
31,
|
|
Assets
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
16,571,186 |
|
|
$ |
14,178,094 |
|
Investment
securities available for sale
|
|
|
1,212,405 |
|
|
|
1,173,195 |
|
Contract
receivables, net
|
|
|
41,693,034 |
|
|
|
41,545,935 |
|
Deferred
income taxes
|
|
|
4,137,516 |
|
|
|
4,450,693 |
|
Income
tax receivable
|
|
|
650,090 |
|
|
|
15,556 |
|
Other
current assets
|
|
|
2,372,919 |
|
|
|
2,357,307 |
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
66,637,150 |
|
|
|
63,720,780 |
|
|
|
|
|
|
|
|
|
|
Property,
building and equipment, net
|
|
|
8,258,441 |
|
|
|
7,873,248 |
|
Deferred
income taxes
|
|
|
1,160,444 |
|
|
|
2,386,424 |
|
Other
assets
|
|
|
1,599,204 |
|
|
|
1,621,144 |
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
77,655,239 |
|
|
$ |
75,601,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
13,866,425 |
|
|
$ |
9,756,189 |
|
Accrued
payroll costs
|
|
|
7,216,316 |
|
|
|
5,901,980 |
|
Deferred
revenue
|
|
|
103,509 |
|
|
|
91,822 |
|
Current
portion of long-term debt and capital lease obligations
|
|
|
411,331 |
|
|
|
1,377,827 |
|
Other
accrued liabilities
|
|
|
8,925,858 |
|
|
|
9,721,652 |
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
30,523,439 |
|
|
|
26,849,470 |
|
|
|
|
|
|
|
|
|
|
Income
taxes payable
|
|
|
278,782 |
|
|
|
2,734,788 |
|
Accrued
interest and penalties
|
|
|
124,137 |
|
|
|
2,111,988 |
|
Long-term
debt and capital lease obligations
|
|
|
403,941 |
|
|
|
481,757 |
|
Minority
interest
|
|
|
5,273,455 |
|
|
|
4,169,247 |
|
Commitments
and contingencies (see note #15)
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
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
|
|
|
20,093,952 |
|
|
|
20,014,257 |
|
Retained
earnings
|
|
|
23,290,768 |
|
|
|
19,664,147 |
|
Accumulated
other comprehensive income
|
|
|
441,965 |
|
|
|
834,667 |
|
Treasury
stock - Class A common, 242,290 and 65,340
|
|
|
|
|
|
|
|
|
shares;
Class B common, 64,801 shares, at cost
|
|
|
(2,819,138 |
) |
|
|
(1,302,663 |
) |
|
|
|
|
|
|
|
|
|
Total
shareholders' equity
|
|
|
41,051,485 |
|
|
|
39,254,346 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity
|
|
$ |
77,655,239 |
|
|
$ |
75,601,596 |
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|
|
|
|
|
|
|
Consolidated
Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended July 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
146,886,938 |
|
|
$ |
110,532,816 |
|
|
$ |
102,496,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of professional services and
|
|
|
|
|
|
|
|
|
|
|
|
|
other
direct operating expenses
|
|
|
50,383,876 |
|
|
|
44,658,180 |
|
|
|
39,889,286 |
|
Subcontract
costs
|
|
|
38,025,409 |
|
|
|
15,833,829 |
|
|
|
17,215,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
58,477,653 |
|
|
|
50,040,807 |
|
|
|
45,391,387 |
|
Administrative
and indirect operating
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses
|
|
|
34,309,408 |
|
|
|
31,013,505 |
|
|
|
28,044,431 |
|
Marketing
and related costs
|
|
|
13,101,999 |
|
|
|
11,950,306 |
|
|
|
10,689,698 |
|
Depreciation
|
|
|
1,620,829 |
|
|
|
1,483,931 |
|
|
|
1,347,723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
9,445,417 |
|
|
|
5,593,065 |
|
|
|
5,309,535 |
|
Interest
expense
|
|
|
(77,238 |
) |
|
|
(431,287 |
) |
|
|
(162,442 |
) |
Interest
income
|
|
|
202,052 |
|
|
|
441,190 |
|
|
|
539,668 |
|
Other
income (expense)
|
|
|
(17,514 |
) |
|
|
(184,354 |
) |
|
|
9,752 |
|
Net
foreign currency exchange gain (loss)
|
|
|
(78,930 |
) |
|
|
134,009 |
|
|
|
23,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
and
minority interest
|
|
|
9,473,787 |
|
|
|
5,552,623 |
|
|
|
5,719,895 |
|
Income
tax provision
|
|
|
2,570,082 |
|
|
|
2,112,675 |
|
|
|
1,039,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income from continuing operations before
|
|
|
|
|
|
|
|
|
|
|
|
|
minority
interest
|
|
|
6,903,705 |
|
|
|
3,439,948 |
|
|
|
4,680,520 |
|
Minority
interest
|
|
|
(1,668,066 |
) |
|
|
(1,606,338 |
) |
|
|
(1,965,099 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income from continuing operations
|
|
|
5,235,639 |
|
|
|
1,833,610 |
|
|
|
2,715,421 |
|
Income
(loss) from discontinued operations
|
|
|
(23,550 |
) |
|
|
1,108 |
|
|
|
(156,280 |
) |
Income
tax benefit (provision) on income (loss) from discontinued
operations
|
|
|
9,185 |
|
|
|
(332 |
) |
|
|
515,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
5,221,274 |
|
|
$ |
1,834,386 |
|
|
$ |
3,074,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share: basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
1.31 |
|
|
$ |
0.44 |
|
|
$ |
0.65 |
|
Discontinued
operations
|
|
|
- |
|
|
|
- |
|
|
|
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share: basic
|
|
$ |
1.31 |
|
|
$ |
0.44 |
|
|
$ |
0.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share: diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
1.28 |
|
|
$ |
0.43 |
|
|
$ |
0.64 |
|
Discontinued
operations
|
|
|
- |
|
|
|
- |
|
|
|
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share: diluted
|
|
$ |
1.28 |
|
|
$ |
0.43 |
|
|
$ |
0.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding: basic
|
|
|
3,982,884 |
|
|
|
4,164,186 |
|
|
|
4,194,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding: diluted
|
|
|
4,084,356 |
|
|
|
4,228,292 |
|
|
|
4,261,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended July 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
5,221,274 |
|
|
$ |
1,834,386 |
|
|
$ |
3,074,471 |
|
Net
income (loss) from discontinued operations, net of tax
|
|
|
(14,365 |
) |
|
|
776 |
|
|
|
359,050 |
|
Income
from continuing operations
|
|
|
5,235,639 |
|
|
|
1,833,610 |
|
|
|
2,715,421 |
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1,620,829 |
|
|
|
1,483,931 |
|
|
|
1,347,723 |
|
Provision
(benefit) for deferred income taxes
|
|
|
1,589,657 |
|
|
|
888,140 |
|
|
|
(298,887 |
) |
Share-based
compensation expense
|
|
|
446,412 |
|
|
|
339,625 |
|
|
|
121,396 |
|
Tax
impact of share based compensation
|
|
|
- |
|
|
|
33,457 |
|
|
|
- |
|
Minority
interest
|
|
|
1,668,066 |
|
|
|
1,606,338 |
|
|
|
1,965,099 |
|
Provision
for contract adjustments
|
|
|
(88,387 |
) |
|
|
360,505 |
|
|
|
1,054,204 |
|
(Increase)
decrease in:
|
|
|
|
|
|
|
|
|
|
|
|
|
-
contracts receivable
|
|
|
(3,860,598 |
) |
|
|
(4,637,974 |
) |
|
|
(563,660 |
) |
-
other current assets
|
|
|
(161,236 |
) |
|
|
(552,458 |
) |
|
|
(423,536 |
) |
-
income tax receivable
|
|
|
(634,534 |
) |
|
|
1,341,657 |
|
|
|
(1,357,213 |
) |
-
other non-current assets
|
|
|
18,730 |
|
|
|
108,169 |
|
|
|
2,049,412 |
|
Increase
(decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
-
accounts payable
|
|
|
4,359,443 |
|
|
|
(915,543 |
) |
|
|
765,423 |
|
-
accrued payroll costs
|
|
|
1,357,386 |
|
|
|
(317,895 |
) |
|
|
(204,307 |
) |
-
income taxes payable
|
|
|
(682,004 |
) |
|
|
(445,507 |
) |
|
|
(573,244 |
) |
-
deferred revenue
|
|
|
11,687 |
|
|
|
1,031 |
|
|
|
(70,434 |
) |
-
other accrued liabilities
|
|
|
52,521 |
|
|
|
897,648 |
|
|
|
(1,709,296 |
) |
-
accrued interest and penalties
|
|
|
(1,185,704 |
) |
|
|
664,033 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
9,747,907 |
|
|
|
2,688,767 |
|
|
|
4,818,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows used in investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquistion
of minority interest of subsidiary
|
|
|
- |
|
|
|
(116,677 |
) |
|
|
(166,000 |
) |
Purchase
of property, building and equipment
|
|
|
(1,845,509 |
) |
|
|
(1,503,109 |
) |
|
|
(1,128,719 |
) |
Purchase
of bonds
|
|
|
(39,210 |
) |
|
|
(1,072,186 |
) |
|
|
(3,408 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
used in investing activities
|
|
|
(1,884,719 |
) |
|
|
(2,691,972 |
) |
|
|
(1,298,127 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows provided by (used in) financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
paid
|
|
|
(1,594,653 |
) |
|
|
(1,535,492 |
) |
|
|
(1,464,921 |
) |
Proceeds
from debt
|
|
|
625,746 |
|
|
|
1,040,028 |
|
|
|
168,792 |
|
Repayment
of debt and capital lease obligations
|
|
|
(1,942,882 |
) |
|
|
(369,760 |
) |
|
|
(490,866 |
) |
Distributions
to minority partners
|
|
|
(625,677 |
) |
|
|
(752,882 |
) |
|
|
(768,596 |
) |
Purchase
of treasury stock
|
|
|
(1,832,123 |
) |
|
|
(5,636 |
) |
|
|
(1,085,901 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in financing activities
|
|
|
(5,369,589 |
) |
|
|
(1,623,742 |
) |
|
|
(3,641,492 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(86,142 |
) |
|
|
249,742 |
|
|
|
(381,055 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) discontinued operating
activities
|
|
|
(14,365 |
) |
|
|
776 |
|
|
|
462,597 |
|
Net
cash provided by discontinued investing activities - sale of
assets
|
|
|
- |
|
|
|
- |
|
|
|
2,500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) discontinued operations
|
|
|
(14,365 |
) |
|
|
776 |
|
|
|
2,962,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
2,393,092 |
|
|
|
(1,376,429 |
) |
|
|
2,460,024 |
|
Cash
and cash equivalents at beginning of period
|
|
|
14,178,094 |
|
|
|
15,554,523 |
|
|
|
13,094,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$ |
16,571,186 |
|
|
$ |
14,178,094 |
|
|
$ |
15,554,523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Changes in Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2006
|
|
|
2,534,566 |
|
|
$ |
25,346 |
|
|
|
1,650,173 |
|
|
$ |
16,502 |
|
|
$ |
17,684,373 |
|
|
$ |
23,163,716 |
|
|
$ |
(2,208,830 |
) |
|
|
128,463 |
|
|
$ |
(1,053,648 |
) |
|
$ |
2,609,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,074,471 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,074,471 |
|
Reclassification
adjustment for realized foreign
currency
translation loss in net income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,110,431 |
|
|
|
- |
|
|
|
- |
|
|
|
2,110,431 |
|
Foreign
currency translation adjustment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
397,476 |
|
|
|
- |
|
|
|
- |
|
|
|
397,476 |
|
Cash
dividends paid ($.34 per share)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,464,921 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
5%
Stock Dividend
|
|
|
126,522 |
|
|
|
1,265 |
|
|
|
82,464 |
|
|
|
825 |
|
|
|
2,560,078 |
|
|
|
(2,562,168 |
) |
|
|
- |
|
|
|
8,040 |
|
|
|
- |
|
|
|
- |
|
Unrealized
investment gain, net
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
25 |
|
|
|
- |
|
|
|
- |
|
|
|
25 |
|
Conversion
of common stock - B to A
|
|
|
410 |
|
|
|
4 |
|
|
|
(410 |
) |
|
|
(4 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Repurchase
of Class A common stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
86,806 |
|
|
|
(1,085,901 |
) |
|
|
- |
|
Issuance
of stock under stock award plan
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(325,985 |
) |
|
|
- |
|
|
|
- |
|
|
|
(57,620 |
) |
|
|
472,484 |
|
|
|
- |
|
Share-based
compensation expense
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
121,396 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Tax
impact of share based compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,860 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,724 |
|
|
|
- |
|
|
|
- |
|
|
|
3,132 |
|
|
|
(25,431 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 adjustment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
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
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,221,274 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,221,274 |
|
Foreign
currency translation adjustment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(402,403 |
) |
|
|
- |
|
|
|
- |
|
|
|
(402,403 |
) |
Cash
dividends paid ($.39 per share)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,594,653 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Unrealized
investment gain, net
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
9,701 |
|
|
|
- |
|
|
|
- |
|
|
|
9,701 |
|
Conversion
of common stock - B to A
|
|
|
16,153 |
|
|
|
161 |
|
|
|
(16,153 |
) |
|
|
(161 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Repurchase
of Class A common stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
207,941 |
|
|
|
(1,832,123 |
) |
|
|
- |
|
Issuance
of stock under stock award plan
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(376,176 |
) |
|
|
- |
|
|
|
- |
|
|
|
(37,580 |
) |
|
|
376,176 |
|
|
|
- |
|
Share-based
compensation expense
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
446,412 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
9,459 |
|
|
|
- |
|
|
|
- |
|
|
|
6,589 |
|
|
|
(60,528 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at July 31, 2009
|
|
|
2,677,651 |
|
|
$ |
26,776 |
|
|
|
1,716,074 |
|
|
$ |
17,162 |
|
|
$ |
20,093,952 |
|
|
$ |
23,290,768 |
|
|
$ |
441,965 |
|
|
|
307,091 |
|
|
$ |
(2,819,138 |
) |
|
$ |
4,828,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ecology
and Environment, Inc.
Notes
to Consolidated Financial Statements
1.
|
Summary of Operations
and Basis of Presentation
|
Ecology
and Environment, Inc., (“EEI”, the “Company” or the “Parent Company”) is a
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 45,000 projects for a wide variety of clients in
84 countries, providing environmental solutions in nearly every ecosystem on our
planet. Revenues reflected in the Company's consolidated statement of
income represent services rendered for which the Company maintains a primary
contractual relationship with its customers. Included in 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, 2009, 2008 and 2007, the percentages of total
revenues derived from contracts exclusively with the United States Department of
Defense (DOD) were 14%, 11% and 9%.
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 significant intercompany transactions and
balances have been eliminated.
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.
Certain
prior year amounts were reclassified to conform to the 2009 financial statement
presentation.
Substantially
all of the Company's revenue is derived from environmental consulting work. The
consulting revenue is principally derived from the sale of labor hours. The
consulting work is performed under a mix of fixed price, cost-type, and time and
material contracts. Contracts are required from all customers. Revenue is
recognized as follows:
Contract
Type
|
|
Work
Type
|
|
Revenue
Recognition Policy
|
|
|
|
|
|
Time
and Materials
|
|
Consulting
|
|
As
incurred at contract rates.
|
|
|
|
|
|
Fixed
Price
|
|
Consulting
|
|
Percentage
of completion, approximating the ratio of either total costs or
LOE
hours
incurred to date to total estimated costs or LOE hours.
|
|
|
|
|
|
Cost-Type
|
|
Consulting
|
|
Costs
as incurred. Fixed fee portion is recognized using percentage
of completion determined by the percentage of level of effort (LOE) hours
incurred to total LOE hours in the respective
contracts.
|
Substantially
all of the Company's cost-type work is with federal governmental agencies and,
as such, is subject to audits after contract completion. Under these cost-type
contracts, provisions for adjustments to accrued revenue are recognized
on
an annual
basis and based on past audit settlement history. Government audits have been
completed and final rates have been
negotiated through fiscal year 2001. The balance in the allowance for contract
adjustments accounts principally represents a reserve for contract adjustments
for the fiscal years 1996-2009.
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.
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. The Company had gross unrealized
gains of approximately $13,000 and $5,000 in fiscal year 2009 and 2008
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
|
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 and Level 2 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 the previously deferred
provisions of SFAS No. 157 will have on its operating results and financial
condition.
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 (i.e. New York Stock Exchange) as well as
certain U.S. Treasury and U.S. Government and agency mortgage-backed
securities that are highly liquid and are actively traded in
over-the-counter markets.
|
|
Level 2 Inputs – Quoted
prices for similar assets or liabilities in active markets; quoted prices
for identical or similar assets or liabilities in inactive markets; or
valuations based on models where the significant inputs are observable
(e.g., interest rates, yield curves, credit risks, etc.) or can be
corroborated by observable market
data.
|
|
Level 3 Inputs –
Valuations based on models where significant inputs are not
observable. The unobservable inputs reflect the Company’s own
assumptions about the assumptions that market participants would
use.
|
The
following table presents the level within the fair value hierarchy at which the
Company’s financial assets and liabilities are measured on a recurring basis as
of July 31, 2009.
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market mutual funds
|
|
$ |
6,279,470 |
|
|
$ |
--- |
|
|
$ |
--- |
|
|
$ |
6,279,470 |
|
Investment
securities available for sale
|
|
|
50,895 |
|
|
|
1,161,510 |
|
|
|
--- |
|
|
|
1,212,405 |
|
Total
|
|
$ |
6,330,365 |
|
|
$ |
1,161,510 |
|
|
$ |
--- |
|
|
$ |
7,491,875 |
|
The
carrying amount of cash and cash equivalents, contracts receivable, notes
receivable and accounts payable at July 31, 2009 and 2008 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, 2009 and July 31, 2008
approximates fair value.
|
h.
|
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 2007-2009.
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.
The
Company has significant deferred tax assets, resulting principally from contract
reserves and fixed assets. 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, FASB issued Interpretation No. 48 (FIN 48), an interpretation of SFAS
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. See Note 8 to Consolidated Financial
Statements for additional information.
The
Company has a non-contributory defined contribution plan providing deferred
benefits for substantially all of the Company's employees. The Company also had
a supplemental defined contribution plan (SERP) to provide deferred benefits for
senior executives of the Company. The annual expense of the Company's
supplemental defined contribution
plan is
based on a percentage of eligible wages as authorized by the Company's Board of
Directors. Benefits under this plan are funded as accrued.
|
k.
|
Stock based
compensation
|
The
Company adopted SFAS 123(R), “Share-Based Payment” (SBP), effective August 1,
2005. The Statement requires companies to expense the value of employee stock
options and similar awards. Under SFAS 123(R), SBP 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 EPS
is computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that would occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earnings of the Company.
See Note 14 to Consolidated Financial Statements for additional
information.
|
Comprehensive
income is defined as "the change in equity of a business enterprise during
a period from transactions and other events and circumstances from
non-owner sources." The term "comprehensive income" is used to describe
the total net earnings plus other comprehensive income. For the Company,
other comprehensive income includes currency translation adjustments on
foreign subsidiaries and unrealized gains or losses on available-for-sale
securities.
|
|
n.
|
Impairment of
Long-Lived Assets
|
The
Company accounts for impairment of long-lived assets in accordance with
FASB No. 144 "Accounting for the Impairment or Disposal of Long-Lived
Assets"( SFAS 144). SFAS 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.
|
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. In accordance with SFAS 142, the total goodwill
of approximately $1.1 million is not amortized and is subject to an annual
assessment for impairment.
|
The
Company accounts for subsequent events in accordance with FASB Statement No. 165
“Subsequent Events” (SFAS 165). SFAS 165 sets forth the period following the
balance sheet date during which management should evaluate subsequent events for
disclosure, the circumstances under which events should be evaluated for
disclosure, and the disclosure that should be made. SFAS 165 also introduces the
concept of a date following the balance sheet date when statements are available
to be issued. 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, 2009 and 2008, short-term
investments consist of commercial paper and money market funds. Short-term
investments amounted to approximately $6.3 million at July 31, 2009 and $4.5
million at July 31, 2008 and are reflected in cash and cash equivalents in the
accompanying consolidated balance sheets and statements of cash
flows.
4.
|
Contract Receivables,
net
|
|
|
July
31,
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
United
States government -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
customers and state and municipal governments -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts and contract adjustments -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States government receivables arise from long-term U.S. government prime
contracts and subcontracts. Unbilled receivables result from revenues which have
been earned, but are not billed as of period-end. The above unbilled balances
are comprised of incurred costs plus fees not yet processed and billed; and
differences between year-to-date provisional billings and year-to-date actual
contract costs incurred. Management anticipates that the July 31,
2009 unbilled receivables will be substantially billed and collected within one
year. Within the above billed balances are contractual retainages in
the amount of approximately $217,000 at July 31, 2009 and $290,000 at July 31,
2008. Management anticipates that the July 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 July 31, 2008. The Company
recorded a charge to the fiscal year’s revenue of approximately $925,000 to
fully reserve the balance of receivables due from the work performed in both
Saudi Arabia and Kuwait under the contracts funded by the United Nations
Compensation Commission to assess damages resulting from Iraqi
aggression. Although the Company is aggressively pursuing the payment
of these receivables, it has been unable to secure assurances or evidence that
adequate funding remains in these contracts to cover the payments.
5.
|
Property, Building and
Equipment, net
|
|
|
July
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Land
and land improvements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information
technology equipment
|
|
|
|
|
|
|
|
|
Office
furniture and equipment
|
|
|
|
|
|
|
|
|
Leasehold
improvements and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company maintains an unsecured line of credit available for working capital and
letters of credit of $19 million at one-half percent below the prevailing prime
rate. Other lines are available solely for letters of credit in the
amount of $19.6 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 repaid in full in December
2008. The Company guarantees the line of credit of its majority owned
subsidiary,
Walsh Environmental (Walsh). The banks have reaffirmed the Company’s
lines of credit within the past twelve months. At July 31, 2009 and July 31,
2008 the Company had letters of credit outstanding totaling approximately $.6
million. Borrowings by the Brazilian subsidiary for working capital
were $0 and $1.0 million at July 31, 2009 and July 31, 2008,
respectively. After letters of credit and loans, there was $37.9
million of availability under the lines of credit at July 31, 2009.
7.
|
Debt and Capital Lease
Obligations
|
Debt
inclusive of capital lease obligations consists of the following:
|
|
July
31, 2009
|
|
|
July
31, 2008
|
|
|
|
|
|
|
|
|
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%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
current portion of debt and capital lease
obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt and capital lease obligations
|
|
|
|
|
|
|
|
|
The
aggregate maturities of long-term debt and capital lease obligations at July 31,
2009 are as follows:
The
provision (benefit) for income taxes was as follows:
|
|
Fiscal
Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
reconciliation of income tax expense (benefit) using the statutory U.S. income
tax rate compared with actual income tax expense (benefit) was as
follows:
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
U.S.
federal statutory income tax rate
|
|
|
|
|
|
Re-evaluation
of tax contingencies
|
|
|
|
|
|
Income
from "pass-through" entities taxable to minority
partners
|
|
|
|
|
|
International
rate differences
|
|
|
|
|
|
Extraterritorial
income tax exclusion
|
|
|
|
|
|
State
taxes, net of federal benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
significant components of deferred tax assets (liabilities) are as
follows:
|
Fiscal
Year
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
Contract
and other reserves
|
|
|
|
|
|
|
|
Fixed
assets and intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
|
|
|
|
|
|
Foreign
and state income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 first step involves assessing whether the tax position
is more likely than not to be sustained upon examination based on the technical
merits. The second step involves measurement of the amount to
recognize. Tax positions that meet the more likely then not threshold
are measured at the largest amount of tax benefit greater than 50% likely of
being realized upon ultimate finalization with tax authorities. The
Company adopted FIN 48 beginning August 1, 2007.
The net
change in the deferred tax assets and liabilities was due mainly to a decrease
in a deferred tax asset related to the settlement of a liability for uncertain
tax positions. In March of 2009, the Company received a tax
assessment from the Kuwait Ministry of Finance in the amount of approximately
$2.6 million related to the contested taxes resulting from the work performed
for the Public Authority for Assessment of Compensation for Damages Resulting
from Iraqi Aggression (PAAC). A liability had been previously accrued
for this tax including interest and penalties of approximately $4.3
million. The Company reached a
favorable settlement with the Ministry of Finance in April
2009. Accordingly, the Company has derecognized the remaining accrual
of approximately $1.4 million (net of deferred tax) by reducing the income tax
provision by $870,000 and reducing interest expense and general and
administrative costs each by $275,000.
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, 2009, these amounts related primarily to
operations in Saudi Arabia and Chile of approximately $1,980,000.
The
Company’s tax benefit related to continuing operations for fiscal year ended
July 31, 2009 reflects the favorable settlement an accrual for uncertain tax
positions. The Company's tax benefit related to continuing operations
for fiscal year ended July 31, 2007 reflects an additional benefit of $510,000
as a result of a change in its estimated contingent tax liabilities for income
tax
audits. These
contingent liabilities were re-evaluated and a downward adjustment was made as a
result of an appeals settlement that occurred in July of 2007 relating to
positions taken on the company's fiscal 2004 and fiscal 2005 tax
returns.
The
Company files numerous consolidated and separate income tax returns in the U.S.
federal jurisdiction and in many state and foreign jurisdictions. In
September of 2007, the Internal Revenue Service (IRS) concluded the audits of
fiscal 2004 through 2006. E&E, Inc. is currently under audit for
fiscal year 2008 by the IRS with no proposed changes. This audit is
awaiting final Area Director approval. The Company’s tax matters for
the fiscal years 2007 and 2009 remain subject to examination by the IRS.
The Company’s New York State tax matters have been concluded for years through
fiscal 2005. 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, 2009, 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 state losses.
The
Company recognizes interest accrued related to unrecognized tax benefits in
interest expense and penalties in administrative and indirect operating
expenses. For the three and twelve months ended July 31, 2009,
E&E, Inc. recognized interest and penalties expense (benefit) of
approximately $10,000 and ($380,000), respectively. For the twelve
months ended July 31, 2009, E&E, Inc. incurred a foreign exchange gain of
$275,000 to adjust both the accrual for uncertain tax positions related to the
Kuwait tax reserve and the related federal tax benefit to current exchange
rates.
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, 2009 and July 31, 2008, E&E, Inc. had approximately $290,000 and
$2,747,000, respectively, of gross unrecognized tax benefits that if recognized,
would favorably affect the effective income tax rate in future
periods. At July 31, 2009, the liability for uncertain tax positions
and associated interest and penalties are classified as noncurrent
liabilities.
A
reconciliation of the beginning and ending amount of unrecognized tax benefits
is as follows:
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
$ |
2,746,504 |
|
|
$ |
2,523,443 |
|
Additions
for tax positions during the current year
|
|
|
--- |
|
|
|
48,344 |
|
Adjustment
for foreign currency affect on items already
recorded
|
|
|
(206,542 |
) |
|
|
126,952 |
|
Adjustments
to tax positions of prior years
|
|
|
--- |
|
|
|
47,765 |
|
Reductions
for tax positions of prior years for:
|
|
|
|
|
|
|
|
|
|
|
|
--- |
|
|
|
--- |
|
-
Settlements during the period
|
|
|
(2,249,467 |
) |
|
|
--- |
|
-
Lapses of the applicable statute of limitations
|
|
|
--- |
|
|
|
--- |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
290,495 |
|
|
$ |
2,746,504 |
|
9. Other Accrued
Liabilities
|
July
31,
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
Allowance
for contract adjustments
|
|
|
|
|
|
|
Billings
in excess of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included
in other accrued liabilities is an allowance for contract adjustments relating
to potential cost disallowances on amounts billed and collected in current and
prior years' projects of approximately $3.4 million and $4.0 million at July, 31
2009 and 2008, respectively. The allowance for contract adjustments
is recorded for contract disputes and government audits when the amounts are
estimatable. Also included in other accrued liabilities is a
reclassification of billings in excess of recognized revenues of approximately
$4.1 million at July 31, 2009 and $4.6 million at July 31, 2008.
|
a.
|
Class A and Class B
common stock
|
The
relative rights, preferences and limitations of the Company's Class A and Class
B common stock can be summarized as follows: Holders of Class A shares are
entitled to elect 25% of the Board of Directors so long as the number of
outstanding Class A shares is at least 10% of the combined total number of
outstanding Class A and Class B common shares. Holders of Class A common shares
have one-tenth the voting power of Class B common shares with respect to most
other matters.
In
addition, Class A shares are eligible to receive dividends in excess of (and not
less than) those paid to holders of Class B shares. Holders of Class B shares
have the option to convert at any time, each share of Class B common stock into
one share of Class A common stock. Upon sale or transfer, shares of Class B
common stock will automatically convert into an equal number of shares of Class
A common stock, except that sales or transfers of Class B common stock to an
existing holder of Class B common stock or to an immediate family member
will not cause such shares to automatically convert into Class A common
stock.
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 37,580 shares valued at $337,844 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 July 31, 2009 and July 31, 2008 was $122,000.
Total gross compensation expense is recognized over the vesting period.
Unrecognized compensation expense was approximately $370,000 and $496,000
at July 31, 2009 and July 31, 2008, respectively.
On July
19, 2007, the Board of Directors declared a 5% stock dividend on the Company’s
Class A and Class B common stock distributed on August 31, 2007 to shareholders
of record on August 1, 2007. As of July 31, 2007, an amount equal to the fair
value of the common stock distributed was transferred from retained earnings to
the common stock and capital in excess of par value accounts. All data with
respect to net income per common share, weighted average common shares
outstanding, and dividends paid have been retroactively adjusted to reflect the
stock dividend.
For
fiscal year 2009 and 2008, the Company declared cash dividends of approximately
$1.6 million and $1.5 million, respectively. Within accounts payable,
the Company recorded outstanding dividend payables at July 31, 2009 and 2008 of
approximately $817,000 and $769,000.
|
The
Company purchased 207,941 shares of its Class A common stock during the
fiscal year ended July 31, 2009 pursuant the Company’s share repurchase
program. In October of 2008, the Company repurchased 197,594
shares of Class A common stock at $8.75 per share. The
Company’s Board of Directors approved a 200,000 share repurchase program
in January 2004 and an additional 200,000 share repurchase program in
February 2006.
|
11.
|
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.
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. These
contracts provide for reimbursement of any remaining rental commitments under
such lease agreements in the event that the government terminates the
contract.
At July
31, 2009, future minimum rental commitments are as follows:
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 2009, 2008, and 2007 was approximately
$3.0 million, $2.6 million and $2.5 million, respectively.
13.
|
Defined Contribution
Plans
|
Contributions
to the defined contribution plan and supplemental retirement plan are
discretionary and determined annually by the Board of Directors. The total
expense under the plans for fiscal years 2009, 2008, and 2007 was approximately
$1.6 million, $1.5 million and $1.5 million, respectively.
The
computation of basic earnings per share reconciled to diluted earnings per share
follows:
|
|
Fiscal
Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Net
income from continuing operations available to common
stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) from discontinued operations available to common
stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income available to common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
common shares outstanding (basic)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental
shares from assumed conversions of restricted stock
awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
weighted-average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
After
consideration of all the rights and privileges of the Class A and Class B
stockholders discussed in Note 10, 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.
15.
|
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.
16.
|
Recent
Accounting Pronouncements
|
In May
2009, the FASB issued Statement No. 165 "Subsequent Events” (SFAS 165). This
statement sets forth the period following the balance sheet date during which
management should evaluate subsequent events for disclosure, the circumstances
under which events should be evaluated for disclosure. SFAS 165 introduces the
concept of a date following the balance sheet date when statements are available
to be issued. SFAS 165 is effective for all interim or annual
financial statements for periods ending on or after June 15, 2009. The Company
adopted the requirements of SFAS 165 beginning with its July 31, 2009 financial
statements.
In
September 2006, the FASB issued Statement No. 157, “Fair Value Measurements”
(FAS 157), which is intended to increase consistency and comparability in fair
value measurements by defining fair value, establishing a framework for
measuring fair value, and expanding disclosures about fair value
measurements. This statement applies to other accounting
pronouncements that require or permit fair value measurements and is effective
for financial statements issued for fiscal years beginning after November 15,
2007. On August 1, 2008, the Company adopted, without material impact
on the financial statements, the provisions of FAS 157 related to financial
assets and liabilities. See Footnote No. 2.
In
February 2008, the FASB issued Staff Position No. 157-2, “Effective Date of FASB
Statement No. 157” (FSP FAS 157-2), which delays the effective date of FAS
157 by one year (to January 1, 2009) for nonfinancial assets and liabilities,
except those that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). The Company is
assessing the impact that FSP FAS 157-2 will have on its consolidated
financial statements.
Effective
for the year ended July 31, 2009, the Company implemented FASB Statement No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities” (FAS
159), which allows companies the option to report selected financial assets and
financial liabilities at fair value. The adoption of FAS 159 had no
impact on the financial statements as the Company did not elect the fair value
option for any assets or liabilities not required to be reported at fair
value.
In June
2009, the FASB issued Statement No. 167 "Amendments to FASB Interpretation No.
46(R)” (SFAS 167). SFAS 167 amends FASB Interpretation (“FIN”) No.
46(R), “Consolidation of Variable Interest Entities an Interpretation of ARB No.
51,” to require revised evaluations of whether entities represent variable
interest entities, ongoing assessments of control over such entities, and
additional disclosures for variable interests. SFAS 167 is effective
for fiscal years beginning after November 15, 2009, which will require the
Company to adopt these provisions on August 1, 2010. The Company is
currently evaluating the effect that the adoption will have on its consolidated
financial statements.
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.
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
does not believe that the adoption of EITF 03-6-1 will have a material affect on
its financial statements.
In June
2009, the FASB voted to approve the FASB Accounting Standards Codification
(Codification) as the single source of authoritative nongovernmental U.S.
generally accepted accounting principles. The Codification will be effective for
the Company commencing with the Company’s fiscal quarter beginning August 1,
2009. The FASB Codification does not change U.S. generally accepted accounting
principles, but combines all authoritative standards such as those issued by the
FASB, the American Institute of Certified Public Accountants and the Emerging
Issues Task Force into a comprehensive, topically organized online
database.
17. Transfer of
Ownership/Dispositions
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.
18.
|
Venezuela –
Discontinued Operations
|
During
the fourth quarter of 2007, due to a continuing deterioration in business
and political conditions in Venezuela and the likelihood that E&E's
Venezuelan subsidiary would no longer be able to compete for contracts within
the country, the Company evaluated its investment in its Venezuelan
subsidiary and recognized a write-off of $1.1 million ($146,000 after tax
or $.03 per share) to
reflect the estimated reduction in the value of the net assets of the Company's
Venezuela subsidiary. During the first quarter of 2008 the
Company decided to close its subsidiary in Venezuela effective as soon as
possible and, accordingly, has reclassified its operations as
discontinued. The cessation of business in Venezuela has resulted in
termination benefits for employees according to in-country regulations and
other charges which have not been significant.
19. Subsequent
Events
On July
23, 2009 the Company signed an agreement to sell 16.5 acres of land at its
Walden Ave. facility in Lancaster, NY for the sum of $940,000 plus closing
costs. This sale closed on September 16, 2009 and will result in a gain of
approximately $800,000, pre-tax. The Company has evaluated subsequent
events from the balance sheet date through October 28, 2009 and determined that
there are no other items that require disclosure.
20.
|
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 $181,000,
$125,000, and $162,000 in fiscal years 2009, 2008 and 2007, respectively. Cash
paid for income taxes amounted to approximately $1.5 million, $1.1 million, and
$2.2 million in fiscal years 2009, 2008 and 2007, respectively. 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 fiscal year 2009, 2008 and
2007, respectively, Walsh Peru financed vehicles and computer equipment through
capital leases of approximately $273,000, $43,000 and $129,000. In
lieu of paying down receivables, the Public Authority for Assessment of
Compensation for Damages Resulting from Iraqi Aggression (PAAC) transferred $2.6
million to the Kuwait Ministry of Finance in settlement of an asserted tax
obligation. See Footnote No. 8.
21.
|
Selected Quarterly
Financial Data (unaudited)
|
|
(In
thousands, except per share
information)
|
2009
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before income taxes and minority
interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share: basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share: basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share: diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share: diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before income taxes and
minority
interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share: basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share: basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share: diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share: diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ECOLOGY
AND ENVIRONMENT, INC.
SCHEDULE
II
Valuation
and Qualifying Accounts
Years
Ended July 31, 2009, 2008, and 2007
|
|
Balance
at
beginning
of
period
|
|
|
Increase
|
|
|
Decrease
|
|
|
Balance
at
end
of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts and contract adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
cost disallowances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts and contract adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
cost disallowances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts and contract adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
cost disallowances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item
9.
|
Changes In and Disagreements With Accountants on
Accounting and Financial
Disclosures
|
None to
report.
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.
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as defined in Exchange Act Rule
13a-15(f). Ecology and Environment, Inc. management, including Kevin
S. Neumaier, President and Chief Executive Officer and H. John Mye III, its
Chief Financial Officer, evaluated the effectiveness of Ecology and Environment,
Inc’s internal control over financial reporting using the framework in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on this evaluation, management
concluded that Ecology and Environment, Inc’s internal control over financial
reporting was effective as of July 31, 2009. This annual report does
not include an attestation report of the Company’s registered public accounting
firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.
Item
9B. Other Information
None to
report.
PART
III
Item
10.
|
Directors and Executive Officers of the
Registrant
|
The
following table sets forth the names, ages and positions of the Directors and
executive officers of the Company.
Name
|
Age
|
Position
|
|
|
|
Kevin
S. Neumaier
|
45
|
President
and Chief Executive Officer
|
|
|
|
Gerhard
J. Neumaier
|
72
|
Chairman
of the Board and Director
|
|
|
|
Frank
B. Silvestro
|
72
|
Executive
Vice President and Director
|
|
|
|
Gerald
A. Strobel
|
69
|
Executive
Vice President of Technical Services and Director
|
|
|
|
Ronald
L. Frank
|
71
|
Executive
Vice President, Secretary, and Director
|
|
|
|
H.
John Mye III
|
57
|
Vice
President, Chief Financial Officer and Treasurer
|
|
|
|
Gerard
A. Gallagher, Jr.
|
78
|
Director
|
|
|
|
Laurence
M. Brickman
|
65
|
Senior
Vice President
|
|
|
|
Harvey
J. Gross
|
81
|
Director
|
|
|
|
Ross
M. Cellino
|
77
|
Director
|
|
|
|
Timothy
Butler
|
68
|
Director
|
Each
Director is elected to hold office until the next annual meeting of shareholders
and until his successor is elected and qualified. Executive officers
are elected annually and serve at the discretion of the Board of
Directors.
Mr. Kevin
S. Neumaier serves as the President and Chief Executive Officer of the
Company. Mr. Kevin S. Neumaier has previously worked as the Company’s
Senior Vice President of Environmental Sustainability and Chief Information
Officer. Mr. Kevin S. Neumaier has a B.S. in Civil/Environmental Engineering, a
M.S. in Natural Science specializing in global ecology, and is a registered
Professional Engineer.
Mr.
Gerhard J. Neumaier is a founder of the Company and served as the President and
a Director since its inception in 1970. On August 1, 2008, Mr. Kevin
S. Neumaier became President. Mr. Gerhard J. Neumaier remains as
Chairman of the Board of Directors. Mr. Gerhard J. Neumaier has a
B.M.E. in engineering and a M.A. in physics.
Mr.
Silvestro is a founder of the Company and has served as a Vice President and a
Director since its inception in 1970. In August 1986, he became
Executive Vice President. Mr. Silvestro has a B.A. in physics and an
M.A. in biophysics.
Mr.
Strobel is a founder of the Company and has served as a Vice President and a
Director since its inception in 1970. In August 1986, he became
Executive Vice President of Technical Services. Mr. Strobel is a
registered Professional Engineer with a B.S. in civil engineering and a M.S. in
sanitary engineering.
Mr. Frank
is a founder of the Company and served as Secretary, Treasurer, Vice President
of Finance and a Director since its inception in 1970. In August
1986, he became Executive Vice President of Finance. On January 18,
2008, Mr. Frank resigned his position as Chief Financial Officer and Treasurer
of the Company. Mr. Frank continues in his positions as Executive
Vice President, Secretary and Director of the Company. Mr. Frank has
a B.S. in engineering and a M.S. in biophysics.
Mr. Mye
was appointed Chief Financial Officer, a Vice President and Treasurer of the
Company on January 18, 2008. Mr. Mye has an MBA and is a registered
professional engineer in New York.
Mr.
Gallagher joined the Company in 1972 and retired from the Company in February
2001 as a Senior Vice President. Mr. Gallagher has a B.S. in
physics.
Mr.
Brickman joined the Company in 1971. He became Vice President in
April 1988 and became a Senior Vice President in August, 1994. Mr.
Brickman has a B.S., M.S. and Ph.D. in biology.
Mr. Gross
has been a Director of the Company since its inception in 1970. Mr.
Gross is an independent insurance broker and a capital financing
consultant.
Mr.
Cellino has been a Director of the Company since its inception in
1970. Mr. Cellino is an attorney and counselor-at-law retired from
private practice.
Mr.
Butler was appointed as a Director representing Class A shareholders by the
remaining members of the Board of Directors of the Company on September 5, 2003
to fill a vacancy until the next annual meeting of shareholders. Mr.
Butler is a retired bank executive with 38 years of experience as a senior bank
officer concentrating in business lending and finance.
The Board
of Directors has designated that Mr. Butler is the audit committee financial
expert serving on its audit committee. Mr. Butler is independent, as
that term is used in Item 7(d)(3)(iv) of Schedule 14A of the Securities Exchange
Act Regulations.
The
Company has a separately-designated standing audit committee established in
accordance with section 3 (a) 58 (A) of the Securities Exchange Act of 1934 and
the requirements of the American Stock Exchange and NASDAQ. The
members of the audit committee are Timothy Butler, Ross M. Cellino, and Harvey
J. Gross.
The
Company has adopted a code of ethics that applies to its principal executive
officer, principal financial officer, principal accounting officer and
controller, as well as all other employees and the directors of the
Company. The code of ethics, which the Company calls its Code of
Business Conduct and Ethics, was filed as an exhibit to the Company’s annual
report on Form 10-K for the fiscal year ended July 31, 2004 and is posted on the
Company's website at www.ene.com. If
the Company makes any substantive amendments to, or grants a waiver (including
an implicit waiver) from, a provision of its code of ethics that applies to its
principal executive officer, principal financial officer, principal accounting
officer or controller, and that relates to any element of the code of ethics
definition enumerated in Item 406(b) of Regulation S-K, the Company will
disclose the nature of such amendment or waiver in a current report on Form
8-K.
Section 16(a) Beneficial
Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934 requires the Company’s Executive
Officers and Directors, and persons who beneficially own more than ten percent
(10%) of the Company’s stock, to file initial reports of ownership and reports
of changes in ownership with the Securities and Exchange
Commission. Executive Officers, Directors and greater than ten
percent (10%) beneficial owners are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file.
Based
solely on a review of the copies of such forms furnished to the Company and
written representations from the Company’s Executive Officers and Directors, the
Company believes that during the fiscal year ending July 31, 2009 all Section
16(a) filing requirements applicable to its Executive Officers, Directors and
greater than ten percent (10%) beneficial owners were complied with by such
persons, except for the following: (1) the filing of a Form 4 statement by Kevin
S. Neumaier for the acquisition of 1 Class A share of Common Stock by a
Partnership in which Mr. Kevin S. Neumaier is a general partner that occurred on
September 29, 2008 but which statement was not filed until October 2, 2008 since
Mr. Kevin S. Neumaier was out of town; (2) the filing of a Form 4 statement by
Laurence M. Brickman for an award of 1,088 Class A shares of Common Stock
pursuant to the 2003 Stock Award Plan that occurred on October 14, 2008 but
which statement was not filed until October 17, 2008 since Mr. Brickman was out
of town; (3) the filing of an Amended Form 4 by Kevin S. Neumaier for an award
of 1,088 Class A shares of Common Stock pursuant to the 2003 Stock Award Plan
that occurred on October 14, 2008 but which amended statement was not filed
until October 17, 2008 since Mr. Kevin S. Neumaier was out of town; (4) the
filing of a Form 4 statement by Roger J. Gray for an award of 181 Class A shares
of Common Stock pursuant to the 2003 Stock Award Plan that occurred on October
14, 2008 but which statement was not filed until October 21, 2008 since Mr. Gray
was out of town; and (5)the filing of a Form 4 statement by Kevin S. Neumaier
for the acquisition of 1,000 Class A shares of Common Stock by a Partnership in
which Mr. Kevin S. Neumaier is a general partner that occurred on November 17,
2008 but which statement was not filed until November 20, 2008 since Mr. Kevin
S. Neumaier was out of town.
The
Company's Board of Directors, acting as a Compensation Committee of the whole
(see item 1 Business - Corporate Governance/American Stock Exchange Rules), is
responsible for overseeing all of the executive compensation and equity plans
and programs to ensure that its officers and senior staff are compensated in a
manner that is consistent with its competitively based annual and long term
performance goals.
There is
shown below information concerning the annual and long-term compensation for
services in all capacities to the Company for the fiscal years ended July 31,
2009, 2008 and 2007 of those persons who were at July 31, 2009 (i) the chief
executive officer and chief executive officer elect, and (ii) the two other most
highly compensated executive officers with annual salary and bonus for the
fiscal year ended July 31, 2009 in excess of $100,000. In this report, the four
persons named in the table below are referred to as the "Named
Executives."
SUMMARY
COMPENSATON TABLE
|
|
|
|
|
Annual
Compensation
|
|
Long-Term
Compensation
|
|
|
Name
and
Principal
Position
|
|
Fiscal
Year
|
|
Salary
|
Bonus
(1)
|
Other
|
|
Stock
Incentive Options (Shares)
|
Restricted
Stock Awards (3)
|
Long-Term
Compensation Payouts
|
All
Other
(2)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin
S. Neumaier
|
|
2009
|
|
$171,647
|
$55,000
|
-0-
|
|
-0-
|
$12,598
|
-0-
|
$11,683
|
|
$250,928
|
President
and CEO
|
|
2008
|
|
$136,590
|
$18,000
|
-0-
|
|
-0-
|
-0-
|
-0-
|
$8,024
|
|
$162,614
|
|
|
2007
|
|
$124,397
|
$19,200
|
-0-
|
|
-0-
|
$6,000
|
-0-
|
$7,357
|
|
$156,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gerhard
J. Neumaier
|
|
2009
|
|
$349,078
|
$60,000
|
-0-
|
|
-0-
|
-0-
|
-0-
|
$12,012
|
|
$421,090
|
Chairman
of the Board
|
|
2008
|
|
$312,992
|
$36,000
|
-0-
|
|
-0-
|
-0-
|
-0-
|
$11,790
|
|
$360,782
|
|
|
2007
|
|
$301,163
|
$35,000
|
-0-
|
|
-0-
|
-0-
|
-0-
|
$11,540
|
|
$347,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank
B. Silvestro
|
|
2009
|
|
$320,280
|
$60,000
|
-0-
|
|
-0-
|
-0-
|
-0-
|
$11,602
|
|
$391,882
|
Executive
Vice President and
|
|
2008
|
|
$285,264
|
$36,000
|
-0-
|
|
-0-
|
-0-
|
-0-
|
$11,358
|
|
$332,622
|
Director
|
|
2007
|
|
$277,531
|
$35,000
|
-0-
|
|
-0-
|
-0-
|
-0-
|
$11,108
|
|
$323,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gerald
A. Strobel
|
|
2009
|
|
$320,280
|
$60,000
|
-0-
|
|
-0-
|
-0-
|
-0-
|
$12,012
|
|
$392,292
|
Executive
Vice President of
|
|
2008
|
|
$285,264
|
$36,000
|
-0-
|
|
-0-
|
-0-
|
-0-
|
$11,790
|
|
$333,054
|
Technical
Services and Director
|
|
2007
|
|
$274,484
|
$35,000
|
-0-
|
|
-0-
|
-0-
|
-0-
|
$11,540
|
|
$321,024
|
|
(1)
|
Amounts
earned for bonus compensation determined by the Board of
Directors.
|
|
(2)
|
Represents
group term life insurance premiums, contributions made by the Company to
its Defined Contribution Plan accruals on behalf of each of the Named
Executives.
|
|
(3)
|
As
of July 31, 2009, there were 2,150 shares of the Company's Class A Common
Stock which was restricted stock issued pursuant to the Company's Stock
Award Plan issued to Kevin S. Neumaier having a value of
$32,637.
|
Outstanding Equity Awards
at August 1, 2009
The
following table sets forth the information concerning the unvested restricted
stock grants awarded to the CEO and each of the Named Executive Officers as of
the end of August 1, 2009:
|
|
Stock
Awards
|
Name
|
|
Number
of Shares that
have
not Vested (1)
|
Market
Value of Shares
that
have not Vested (2)
|
|
|
|
|
Kevin
S. Neumaier
|
|
2,150
|
$32,637
|
(1)
|
The
stock shares awarded have a three year vesting
period.
|
(2) Market
Value is calculated based on the fair market value of the Company’s stock at
August 1, 2009 ($15.18).
Stock Vested as of August 1,
2009
The
following table sets forth the information concerning the amount of stock grants
awarded to the CEO and each of the Named Executive Officers that had vested as
of the end of August 1, 2009:
|
|
Stock
Awards
|
Name
|
|
Number
of Shares
Acquired
on Vesting (1)
|
Value
Realized on
Vesting
(1)
|
|
|
|
|
Kevin
S. Neumaier
|
|
1,251
|
$18,990
|
(1)
|
Value
realized reflects the market value of the stock at August 1, 2009
($15.18).
|
The
following table shows the cash amounts earned by each non-employee director for
his services in fiscal year 2009.
Name
|
|
Board
Member Fees
|
Board
Meeting Fees
|
Other
(1)
|
Total
Amount Paid
|
|
|
|
|
|
|
Harvey
J. Gross
|
|
$32,591
|
$-0-
|
$-0-
|
$32,591
|
Gerard
A. Gallagher, Jr.
|
|
$32,591
|
$-0-
|
$34,755
|
$67,346
|
Ross
M. Cellino
|
|
$32,591
|
$-0-
|
$-0-
|
$32,591
|
Timothy
Butler
|
|
$32,591
|
$-0-
|
$-0-
|
$32,591
|
(1)
|
Other
is the value paid under a consulting fee
arrangement.
|
During
fiscal year 2009, each non-employee director was compensated with a director fee
in an annual rate of $32,591. The Directors fees were paid
quarterly. Other than the directors fee the directors received no
other compensation from the Company as director or as serving as members or the
chairman of any committee of the Board of Directors.
Item
12. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholders Matters
The
following table sets forth, as of September 30, 2009, the number of outstanding
shares of Class A Common Stock and Class B Common Stock of the Company
beneficially owned by each person known by the Company to be the beneficial
owner of more than 5 percent of the then outstanding shares of Common
Stock:
|
|
Class
A Common Stock
|
|
Class
B Common Stock
|
Name
and Address (1)
|
|
Nature
and Amount
of
Beneficial
Ownership
(2) (3)
|
|
Percent
of
Class
as
Adjusted
(3)
|
|
Nature
and Amount
of
Beneficial
Ownership
(2) (3)
|
|
Percent
Of
Class
|
|
|
|
|
|
|
|
|
|
Gerhard
J. Neumaier*
|
|
411,732
|
|
14.7%
|
|
|
373,933
|
|
22.6%
|
|
Frank
B. Silvestro*
|
|
290,783
|
|
10.7%
|
|
|
290,783
|
|
17.6%
|
|
Ronald
L. Frank*
|
|
206,230
|
|
7.9%
|
|
|
191,040
|
|
11.6%
|
|
Gerald
A. Strobel*
|
|
218,652
|
|
8.2%
|
|
|
218,652
|
|
13.2%
|
|
Kevin
S. Neumaier*
|
|
120,824
|
|
4.7%
|
|
|
114,878
|
|
7.0%
|
|
Kirsten
Shelly
|
|
115,558
|
|
4.5%
|
|
|
115,558
|
|
7.0%
|
|
Wedbush,
Inc. (4)
|
|
254,312
|
|
9.5%
|
|
|
---
|
|
|
|
Dimensional
Fund Advisors LP (5)
|
|
151,405
|
|
5.9%
|
|
|
---
|
|
|
|
Franklin
Resources, Inc. (6)
|
|
212,100
|
|
8.0%
|
|
|
---
|
|
|
|
*See
Footnotes in next table.
|
(1)
|
The
address for Gerhard J. Neumaier, Frank B. Silvestro, Ronald L. Frank,
Gerald A. Strobel, Kevin S. Neumaier and Kirsten Shelly is c/o Ecology and
Environment, Inc., 368 Pleasant View Drive, Lancaster, New York 14086,
unless otherwise indicated. The address for Wedbush, Inc. is
1000 Wiltshire Blvd., Los Angeles, CA 90017-2459 and the address for
Edward W. Wedbush and Wedbush Morgan Securities is P.O. Box 30014, Los
Angeles, CA 90030-0014. The address for Dimensional Fund
Advisors LP is 1299 Ocean Avenue, 11th
Floor, Santa Monica, CA 90401. The address for Franklin
Resources, Inc. is One Franklin Parkway, San Mateo, CA
94403-1906.
|
|
(2)
|
Each
named individual or corporation is deemed to be the beneficial owners of
securities that may be acquired within 60 days through the exercise of
exchange or conversion rights. The shares of Class A Common
Stock issuable upon conversion by any such shareholder are not included in
calculating the number of shares or percentage of Class A Common Stock
beneficially owned by any other
shareholder.
|
|
(3)
|
There
are 2,435,361 shares of Class A Common Stock issued and outstanding and
1,651,273 shares of Class B Common Stock issued and outstanding as of
September 30, 2009. The figures in the "as adjusted" columns
are based upon these totals and except as set forth in the preceding
sentence, upon the assumptions described in footnote 2
above.
|
|
(4)
|
Includes
shares owned by subsidiaries and affiliates of Wedbush, Inc. based upon a
Schedule 13-G filed on February 18,
2009.
|
(5) Includes
shares owned by subsidiaries and affiliates of Dimensional Fund Advisors LP
based upon a Schedule 13-G filed on
February
9, 2009.
|
(6)
|
Includes
shares owned by subsidiaries and affiliates of Franklin Resources, Inc.
based upon a Schedule 13-G filed on February 6,
2008.
|
Security Ownership of
Management
The
following table sets forth certain information regarding the beneficial
ownership of the Company's Class A Common Stock and Class B Common Stock as of
September 30, 2009, by (i) each Director of the Company and (ii) all Directors
and officers of the Company as a group.
|
|
Class
A Common Stock
|
|
Class
B Common Stock
|
Name
(1)
|
|
Nature
and Amount
of
Beneficial
Ownership
(2) (3)
|
|
Percent
of
Class
as
Adjusted
(4)
|
|
Nature
and Amount
of
Beneficial
Ownership
(2) (3)
|
|
Percent
of
Class
|
|
|
|
|
|
|
|
|
|
Gerhard
J. Neumaier (5) (10)
|
|
411,732
|
|
|
14.7%
|
|
|
373,933
|
|
|
22.6%
|
|
Frank
B. Silvestro (10)
|
|
290,783
|
|
|
10.7%
|
|
|
290,783
|
|
|
17.6%
|
|
Ronald
L. Frank (6) (10)
|
|
206,230
|
|
|
7.9%
|
|
|
191,040
|
|
|
11.6%
|
|
Gerald
A. Strobel (7) (10)
|
|
218,652
|
|
|
8.2%
|
|
|
218,652
|
|
|
13.2%
|
|
Harvey
J. Gross (8)
|
|
84,048
|
|
|
3.3%
|
|
|
74,598
|
|
|
4.5%
|
|
Gerard
A. Gallagher, Jr.
|
|
62,606
|
|
|
2.5%
|
|
|
62,265
|
|
|
3.8%
|
|
Ross
M. Cellino (9)
|
|
17,392
|
|
|
*
|
|
|
1,102
|
|
|
*
|
|
Timothy
Butler
|
|
1,680
|
|
|
*
|
|
|
---
|
|
|
---
|
|
Directors
and Officers Group
(12
individuals)
|
|
1,439,322
|
|
|
38.2%
|
|
|
1,335,574
|
|
|
80.9%
|
|
* Less
than 0.1%
1.
|
The
address of each of the above shareholders is c/o Ecology and Environment,
Inc., 368 Pleasant View Drive, Lancaster, New York
14086.
|
2.
|
Pursuant
to Rule 13d-3 under the Securities Exchange Act of 1934, as amended,
beneficial ownership of a security consists of sole or shared voting power
(including the power to vote or direct the vote) or sole or shared
investment power (including the power to dispose or direct the
disposition) with respect to a security whether through any contract,
arrangement, understanding, relationship or otherwise. Unless
otherwise indicated, the shareholders identified in this table have sole
voting and investment power of the shares beneficially owned by
them.
|
3.
|
Each
named person and all Directors and officers as a group are deemed to be
the beneficial owners of securities that may be acquired within 60 days
through the exercise of exchange or conversion rights. The
shares of Class A Common Stock issuable upon conversion by any such
shareholder are not included in calculating the number of shares or
percentage of Class A Common Stock beneficially owned by any other
shareholder.
|
4.
|
There
are 2,435,361 shares of Class A Common Stock issued and outstanding and
1,651,273 shares of Class B Common Stock issued and outstanding as of
September 30, 2009. The figure in the "as adjusted" columns are
based upon these totals and except as set forth in the preceding sentence,
upon the assumptions described in footnotes 2 and 3
above.
|
5.
|
Includes
551 shares of Class A Common Stock owned by Mr. Gerhard J. Neumaier's
spouse, as to which he disclaims beneficial
ownership. Includes 20,361 shares of Class A Common
Stock owned by Mr. Gerhard J. Neumaier's Individual Retirement
Account. Does not include any shares of Class A Common Stock or
Class B Common Stock held by Mr. Gerhard J. Neumaier's adult
children. Includes 2 shares of Class A Common Stock owned by a
Partnership in which Mr. Gerhard J. Neumaier is a general
partner.
|
6.
|
Includes
3,806 Shares of Class B Common Stock owned by Mr. Frank's former spouse as
to which he disclaims beneficial ownership except for the right to vote
the shares which he retains pursuant to an agreement with his former
spouse. Includes 2,640 shares of Class A Common Stock owned by
Mr. Frank's individual retirement account and 8,770 shares of Class A
Common Stock owned by Mr. Frank’s 401(k) plan
account.
|
7.
|
Includes
704 shares of Class B Common Stock held in equal amounts by Mr. Strobel as
custodian for two of his children, as to which he disclaims beneficial
ownership. Does not include any shares of Class B Common Stock held by a
trust which one of his children created for which Mr. Strobel serves as
Trustee.
|
8.
|
Includes
an aggregate of 22,098 shares of Class B Common Stock owned by two trusts
created by Mr. Gross of which he and his spouse are the sole beneficiaries
during their lifetimes.
|
9.
|
Includes
10,915 shares of Class A Common Stock owned by Mr. Cellino's spouse, as to
which shares he disclaims beneficial ownership; also includes 5,260 shares
of Class A Common Stock owned by Mr. Cellino's Individual Retirement
Account. Includes 5 shares of Class A Common Stock owned by a
limited partnership in which Mr. Cellino is a general
partner.
|
10.
|
Subject
to the terms of the Restrictive Agreement. See "Security
Ownership of Certain Beneficial Owners-Restrictive
Agreement."
|
Restrictive
Agreement
Messrs.
Gerhard J. Neumaier, Silvestro, Frank, and Strobel entered into a Stockholders'
Agreement in 1970 which governs the sale of certain shares of common stock owned
by them, the former spouse of one of the individuals and the children of those
individuals. The Agreement provides that prior to accepting a bona
fide offer to purchase the certain covered part of their shares, each party must
first allow the other members to the Agreement the opportunity to acquire on a
pro rata basis, with right of over-allotment, all of such shares covered by the
offer on the same terms and conditions proposed by the offer.
Item
13.
|
Certain Relationships and Related
Transactions
|
Director
Gerard A. Gallagher, Jr.'s son Gerard A. Gallagher, III, serves as a Senior Vice
President with the company and received aggregate compensation of $162,774 for
his services during fiscal year 2009. The company believes that
compensation for him is commensurate with his peers and his relationships during
2009 were reasonable and in the best interest of the Company.
During
the fiscal years ended July 31, 2009 and 2008, Schneider Downs & Co., Inc.
(SD) provided audit and audit related services to the Company.
The Audit Committee meets with the Company’s independent registered accounting
firm to approve the annual scope of accounting services to be performed,
including all audit, audit-related, and non-audit services, and the related fee
estimates. The Audit Committee also meets with our independent registered
accounting firm, on a quarterly basis, following completion of their quarterly
reviews and annual audit before our earnings announcements, to review the
results of their work. As appropriate, management and our independent registered
accounting firm update the Audit Committee with material changes to any service
engagement and related fee estimates as compared to amounts previously approved.
Under its charter, the Audit Committee has the
authority
and responsibility to review and approve, in advance, any audit and proposed
permissible non-audit services to be provided to the Company by its independent
registered public accounting firm. Set forth below are the aggregate fees billed
for these services for the last two fiscal years.
Audit Fees: The
aggregate fees accrued for professional services rendered for the audit of the
Company's financial statements for the fiscal years ended July 31, 2009 and 2008
and for the reviews of the financial statements included in the Company's
quarterly reports on Form 10-Q for the fiscal years ended July 31, 2009 and 2008
were $263,114 and $251,400, respectively. Also included in this
number are expenses incurred related to accounting consultation services and S8
filings.
Audit Related Fees:
The aggregate fees billed by SD for services rendered to the Company for 401(k),
pension plan audits and indirect rate audits during the years ended July
31, 2009 and 2008 were $41,144 and $51,700, respectively.
PART
IV
Item
15.
|
Exhibits, Financial Statements,
Schedules
|
|
|
|
Page
|
(a)
|
1.
|
Financial
Statements
|
|
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
23
|
|
|
|
|
|
|
Consolidated
Balance Sheets - July 31, 2009 and 2008
|
25
|
|
|
|
|
|
|
Consolidated
Statements of Income for the fiscal years ended July 31, 2009, 2008 and
2007
|
26
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the Fiscal years ended July 31, 2009, 2008
and 2007
|
27
|
|
|
|
|
|
|
Consolidated
Statements of Changes in Shareholders Equity for the fiscal years ended
July 31, 2009, 2008 and 2007
|
28
|
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
29
|
|
|
|
|
|
2.
|
Financial
Statement Schedule
|
|
|
|
|
|
|
|
Schedule
II - Allowance for Doubtful Accounts and Other Reserves
|
42
|
|
|
|
|
|
|
All
other schedules are omitted because they are not applicable, or the
required information is shown in the consolidated financial statements or
notes thereto.
|
|
|
3.
|
Exhibits
|
|
|
|
|
|
|
|
|
|
Exhibit
No.
|
|
Description
|
|
|
|
|
|
|
|
3.1
|
|
Certificate
of Incorporation (1)
|
|
|
|
|
|
|
|
3.2
|
|
Certificate
of Amendment of Certificate of Incorporation filed on March 23, 1970
(1)
|
|
|
|
|
|
|
|
3.3
|
|
Certificate
of Amendment of Certificate of Incorporation filed on January 19, 1982
(1)
|
|
|
|
|
|
|
|
3.4
|
|
Certificate
of Amendment of Certificate of Incorporation filed on January 29, 1987
(1)
|
|
|
|
|
|
|
|
3.5
|
|
Certificate
of Amendment of Certificate of Incorporation filed on February 10, 1987
(1)
|
|
|
|
|
|
|
|
3.6
|
|
Restated
By-Laws adopted on July 30, 1986 by Board of Directors
(1)
|
|
|
|
|
|
|
|
3.7
|
|
Certificate
of Change under Section 805-A of the Business Corporation Law filed August
18, 1988 (2)
|
|
|
|
|
|
|
|
4.1
|
|
Specimen
Class A Common Stock Certificate (1)
|
|
|
|
|
|
|
|
4.2
|
|
Specimen
Class B Common Stock Certificates (1)
|
|
|
|
|
|
|
|
10.1
|
|
Stockholders'
Agreement among Gerhard J. Neumaier, Ronald L. Frank, Frank B. Silvestro
and Gerald A. Strobel dated May 12, 1970 (1)
|
|
|
|
|
|
|
|
10.4
|
|
Ecology
and Environment, Inc. Defined Contribution Plan Agreement dated July 25,
1980 as amended on
April
28, 1981 and July 21, 1983 and restated effective August 1, 1984
(1)
|
|
|
|
|
|
|
|
10.5
|
|
Summary
of Ecology and Environment Discretionary Performance Plan
(3)
|
|
|
|
|
|
|
|
10.6
|
|
1998
Ecology and Environment, Inc. Stock Award Plan and Amendments
(3)
|
|
|
|
|
|
|
|
10.7
|
|
2003
Ecology and Environment, Inc. Stock Award Plan (4)
|
|
|
|
|
|
|
|
14.1
|
|
Code
of Ethics (4)
|
|
|
|
|
|
|
|
21.5
|
|
Schedule
of Subsidiaries as of July 31, 2009 (5)
|
|
|
|
|
|
|
|
23.1
|
|
Consent
of Independent Registered Public Accounting Firm - Schneider Downs &
Co., Inc. (5)
|
|
|
|
|
|
|
|
31.1
|
|
Certification
of Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (5)
|
|
|
|
|
|
|
|
31.2
|
|
Certification
of Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (5)
|
|
|
|
|
|
|
|
32.1
|
|
Certification
of Principal Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (5)
|
|
|
|
|
|
|
|
32.2
|
|
Certification
of Principal Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (5)
|
|
Footnotes
|
|
|
|
(1)
|
Filed
as exhibits to the Company's Registration Statement on Form S-1, as
amended by Amendment Nos. 1 and 2, (Registration No. 33-11543), and
incorporated herein by reference.
|
|
|
|
|
(2)
|
Filed
as exhibits to the Company's Form 10-K for Fiscal Year Ending July 31,
2002, and incorporated herein by reference.
|
|
|
|
|
(3)
|
Filed
as exhibits to the Company's 10-K for the Fiscal Year Ended July 31, 2003,
and incorporated herein by reference.
|
|
|
|
|
(4)
|
Filed
as exhibits to the Company's 10-K for the Fiscal Year Ending July 31,
2004, and incorporated herein by reference.
|
|
|
|
|
(5)
|
Filed
herewith.
|
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
ECOLOGY
AND ENVIRONMENT, INC.
|
|
|
|
|
Dated: October
28, 2009
|
/s/
Kevin S. Neumaier
|
|
Kevin
S. Neumaier, President and Chief Executive
Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant in the
capacities and on the dates indicated:
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
/s/
Kevin S. Neumaier
|
|
|
|
|
Kevin
S. Neumaier
|
|
President
and Chief Executive Officer
|
|
October
28, 2009
|
|
|
|
|
|
/s/
Gerhard J. Neumaier
|
|
|
|
|
Gerhard
J. Neumaier
|
|
Chairman
of the Board and Director
|
|
October
28, 2009
|
|
|
|
|
|
/s/
Frank B. Silvestro
|
|
|
|
|
Frank
B. Silvestro
|
|
Executive
Vice President and Director
|
|
October
28, 2009
|
|
|
|
|
|
/s/
Gerald A. Strobel
|
|
|
|
|
Gerald
A. Strobel
|
|
Executive
Vice President of Technical Services and Director
|
|
October
28, 2009
|
|
|
|
|
|
/s/
Ronald L. Frank
|
|
|
|
|
Ronald
L. Frank
|
|
Executive
Vice President, Secretary, and Director
|
|
October
28, 2009
|
|
|
|
|
|
/s/
H. John Mye, III
|
|
|
|
|
H.
John Mye, III
|
|
Vice
President, Chief Financial Officer and Treasurer
|
|
October
28, 2009
|
|
|
|
|
|
/s/
Gerard A. Gallagher, Jr.
|
|
|
|
|
Gerard
A. Gallagher, Jr.
|
|
Director
|
|
October
28, 2009
|
|
|
|
|
|
/s/
Harvey J. Gross
|
|
|
|
|
Harvey
J. Gross
|
|
Director
|
|
October
28, 2009
|
|
|
|
|
|
/s/
Ross M. Cellino
|
|
|
|
|
Ross
M. Cellino
|
|
Director
|
|
October
28, 2009
|
|
|
|
|
|
/s/
Timothy Butler
|
|
|
|
|
Timothy
Butler
|
|
Director
|
|
October
28, 2009
|
Ecology
and Environment, Inc. 10-K
Fiscal Year Ending July 31, 2009