þ
|
Quarterly
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For
the quarterly period ended January 31, 2009
|
o
|
Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For
the transition period from __________ to
__________
|
New
York
|
16-0971022
|
|
(State
or other jurisdiction of incorporation or organization)
|
(IRS
Employer Identification Number)
|
|
368
Pleasant View Drive
|
||
Lancaster,
New York
|
14086
|
|
(Address
of principal executive offices)
|
(Zip
code)
|
Large
accelerated filer
|
o
|
Accelerated
filer
|
o
|
|
Non-accelerated
filer
(Do
not check if a smaller reporting company)
|
o
|
Smaller
reporting company
|
þ
|
Consolidated
Balance Sheet
|
||||||||
Unaudited
|
||||||||
January
31,
|
July
31,
|
|||||||
Assets
|
2009
|
2008
|
||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 11,140,368 | $ | 14,178,094 | ||||
Investment
securities available for sale
|
1,204,212 | 1,173,195 | ||||||
Contract
receivables, net
|
43,460,279 | 41,545,935 | ||||||
Deferred
income taxes
|
4,361,522 | 4,450,693 | ||||||
Income
tax receivable
|
15,556 | 15,556 | ||||||
Other
current assets
|
3,247,340 | 2,357,307 | ||||||
Total
current assets
|
63,429,277 | 63,720,780 | ||||||
Property,
building and equipment, net
|
7,905,289 | 7,873,248 | ||||||
Deferred
income taxes
|
2,144,894 | 2,386,424 | ||||||
Other
assets
|
1,645,689 | 1,621,144 | ||||||
Total
assets
|
$ | 75,125,149 | $ | 75,601,596 | ||||
Liabilities
and Shareholder's Equity
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 9,607,700 | $ | 9,509,351 | ||||
Accrued
payroll costs
|
5,609,211 | 5,901,980 | ||||||
Income
taxes payable
|
803,359 | - | ||||||
Deferred
revenue
|
191,317 | 91,822 | ||||||
Current
portion of long-term debt and capital lease obligations
|
721,798 | 1,377,827 | ||||||
Other
accrued liabilities
|
10,261,334 | 9,968,490 | ||||||
Total
current liabilities
|
27,194,719 | 26,849,470 | ||||||
Income
taxes payable
|
2,547,863 | 2,734,788 | ||||||
Accrued
interest and penalties
|
2,107,776 | 2,111,988 | ||||||
Long-term
debt and capital lease obligations
|
386,557 | 481,757 | ||||||
Minority
interest
|
4,660,012 | 4,169,247 | ||||||
Commitments
and contingencies (see note #9)
|
- | - | ||||||
Shareholders'
equity:
|
||||||||
Preferred
stock, par value $.01 per share;
|
||||||||
authorized
- 2,000,000 shares; no shares
|
||||||||
issued
|
- | - | ||||||
Class
A common stock, par value $.01 per
|
||||||||
share;
authorized - 6,000,000 shares;
|
||||||||
issued
- 2,677,651 and 2,661,498 shares
|
26,776 | 26,615 | ||||||
Class
B common stock, par value $.01 per
|
||||||||
share;
authorized - 10,000,000 shares;
|
||||||||
issued
- 1,716,074 and 1,732,227 shares
|
17,162 | 17,323 | ||||||
Capital
in excess of par value
|
19,877,712 | 20,014,257 | ||||||
Retained
earnings
|
21,327,009 | 19,664,147 | ||||||
Accumulated
other comprehensive income (loss)
|
(231,184 | ) | 834,667 | |||||
Treasury
stock - Class A common, 239,156 and 65,340
|
||||||||
shares;
Class B common, 64,801 and 64,801 shares, at cost
|
(2,789,253 | ) | (1,302,663 | ) | ||||
Total
shareholders' equity
|
38,228,222 | 39,254,346 | ||||||
Total
liabilities and shareholders' equity
|
$ | 75,125,149 | $ | 75,601,596 | ||||
The
accompanying notes are an integral part of these financial
statements.
|
Consolidated
Statement of Income
|
||||||||||||||||
Unaudited
|
||||||||||||||||
Three
months ended
|
Six
months ended
|
|||||||||||||||
January
31,
|
January
26,
|
January
31,
|
January
26,
|
|||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Revenue
|
$ | 34,068,691 | $ | 24,077,925 | $ | 67,760,400 | $ | 49,724,471 | ||||||||
Cost
of professional services and
|
||||||||||||||||
other
direct operating expenses
|
13,191,705 | 9,281,029 | 27,366,618 | 20,066,750 | ||||||||||||
Subcontract
costs
|
7,312,626 | 3,739,337 | 11,965,473 | 6,384,008 | ||||||||||||
Gross
profit
|
13,564,360 | 11,057,559 | 28,428,309 | 23,273,713 | ||||||||||||
Administrative
and indirect operating
|
||||||||||||||||
expenses
|
8,458,815 | 7,291,221 | 16,514,911 | 14,679,333 | ||||||||||||
Marketing
and related costs
|
2,590,256 | 2,742,199 | 5,830,952 | 5,705,412 | ||||||||||||
Depreciation
|
390,219 | 370,176 | 763,511 | 722,279 | ||||||||||||
Income
from operations
|
2,125,070 | 653,963 | 5,318,935 | 2,166,689 | ||||||||||||
Interest
expense
|
(129,052 | ) | (110,120 | ) | (245,833 | ) | (231,301 | ) | ||||||||
Interest
income
|
57,508 | 119,652 | 134,697 | 259,670 | ||||||||||||
Other
income (expense)
|
8,129 | (13,195 | ) | (20,723 | ) | (33,574 | ) | |||||||||
Net
foreign currency exchange gain (loss)
|
(94,006 | ) | 1,086 | (94,175 | ) | 342 | ||||||||||
Income
from continuing operations before income
|
||||||||||||||||
taxes
and minority interest
|
1,967,649 | 651,386 | 5,092,901 | 2,161,826 | ||||||||||||
Income
tax provision
|
801,281 | 175,914 | 1,981,624 | 584,253 | ||||||||||||
Net
income from continuing operations
|
||||||||||||||||
before
minority interest
|
1,166,368 | 475,472 | 3,111,277 | 1,577,573 | ||||||||||||
Minority
interest
|
(197,319 | ) | (345,232 | ) | (665,952 | ) | (946,419 | ) | ||||||||
Net
income from continuing operations
|
969,049 | 130,240 | 2,445,325 | 631,154 | ||||||||||||
Income
(loss) from discontinued operations
|
(6,150 | ) | 431 | (8,400 | ) | (34 | ) | |||||||||
Income
tax benefit (provision) on income (loss) from discontinued
operations
|
2,414 | (116 | ) | 3,263 | 9 | |||||||||||
Net
income
|
$ | 965,313 | $ | 130,555 | $ | 2,440,188 | $ | 631,129 | ||||||||
Net
income per common share: basic
|
||||||||||||||||
Continuing
operations
|
$ | 0.25 | $ | 0.03 | $ | 0.61 | $ | 0.15 | ||||||||
Discontinued
operations
|
- | - | - | - | ||||||||||||
Net
income per common share: basic
|
$ | 0.25 | $ | 0.03 | $ | 0.61 | $ | 0.15 | ||||||||
Net
income per common share: diluted
|
||||||||||||||||
Continuing
operations
|
$ | 0.24 | $ | 0.03 | $ | 0.60 | $ | 0.15 | ||||||||
Discontinued
operations
|
- | - | - | - | ||||||||||||
Net
income per common share: diluted
|
$ | 0.24 | $ | 0.03 | $ | 0.60 | $ | 0.15 | ||||||||
Weighted
average common shares outstanding: basic
|
3,951,633 | 4,164,570 | 4,016,614 | 4,164,570 | ||||||||||||
Weighted
average common shares outstanding: diluted
|
4,023,333 | 4,201,362 | 4,101,786 | 4,221,298 | ||||||||||||
The
accompanying notes are an integral part of these financial
statements.
|
Consolidated
Statement of Cash Flows
|
||||||||
Unaudited
|
||||||||
Six
months ended
|
||||||||
January
31,
|
January
26,
|
|||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income
|
$ | 2,440,188 | $ | 631,129 | ||||
Net
income (loss) from discontinued operations, net of tax
|
(5,137 | ) | (25 | ) | ||||
Income
from continuing operations
|
2,445,325 | 631,154 | ||||||
Adjustments
to reconcile net income to net cash
|
||||||||
provided
by (used in) operating activities:
|
||||||||
Depreciation
|
763,511 | 722,279 | ||||||
Deferred
income taxes
|
116,681 | (241,563 | ) | |||||
Share-based
compensation expense
|
234,593 | 169,812 | ||||||
Gain
on disposition of property and equipment
|
(8,701 | ) | (19 | ) | ||||
Minority
interest
|
665,952 | 946,419 | ||||||
Provision
for contract adjustments
|
(87,267 | ) | (53,838 | ) | ||||
(Increase)
decrease in:
|
||||||||
-
contracts receivable, net
|
(3,159,793 | ) | 2,800,409 | |||||
-
other current assets
|
(1,147,407 | ) | (400,517 | ) | ||||
-
other non-current assets
|
(32,167 | ) | 36,860 | |||||
Increase
(decrease) in:
|
||||||||
-
accounts payable
|
586,838 | (3,746,987 | ) | |||||
-
accrued payroll costs
|
(185,508 | ) | (727,982 | ) | ||||
-
income taxes payable
|
650,431 | 972,029 | ||||||
-
deferred revenue
|
99,495 | (10,361 | ) | |||||
-
other accrued liabilities
|
722,310 | (1,070,640 | ) | |||||
-
accrued interest and penalties
|
(4,212 | ) | 253,475 | |||||
Net
cash provided by operating activities
|
1,660,081 | 280,530 | ||||||
Cash
flows used in investing activities:
|
||||||||
Purchase
of property, building and equipment
|
(991,239 | ) | (533,122 | ) | ||||
Payment
for the purchase of bond
|
(18,574 | ) | (95,614 | ) | ||||
Cash
used in investing activities
|
(1,009,813 | ) | (628,736 | ) | ||||
Cash
flows provided by (used in) financing activities:
|
||||||||
Dividends
paid
|
(777,326 | ) | (769,371 | ) | ||||
Proceeds
from debt
|
661,501 | 15,502 | ||||||
Repayment
of debt and capital lease obligations
|
(1,412,730 | ) | (224,991 | ) | ||||
Distributions
to minority partners
|
(434,803 | ) | (570,593 | ) | ||||
Purchase
of treasury stock
|
(1,832,123 | ) | - | |||||
Net
cash used in financing activities
|
(3,795,481 | ) | (1,549,453 | ) | ||||
Effect
of exchange rate changes on cash and cash equivalents
|
112,624 | 202,633 | ||||||
Discontinued
Operations
|
||||||||
Net
cash used in discontinued operating activities
|
(5,137 | ) | (16,641 | ) | ||||
Net
decrease in cash and cash equivalents
|
(3,037,726 | ) | (1,711,667 | ) | ||||
Cash
and cash equivalents at beginning of period
|
14,178,094 | 15,554,523 | ||||||
Cash
and cash equivalents at end of period
|
$ | 11,140,368 | $ | 13,842,856 | ||||
The
accompanying notes are an integral part of these financial
statements.
|
Consolidated
Statement of Changes in Shareholders' Equity
|
||||||||||||||||||||||||||||||||||||||||
Unaudited
|
||||||||||||||||||||||||||||||||||||||||
Accumulated
|
||||||||||||||||||||||||||||||||||||||||
Common
Stock
|
Capital
in
|
Other
|
||||||||||||||||||||||||||||||||||||||
Class
A
|
Class
B
|
Excess
of
|
Retained
|
Comprehensive
|
Treasury
Stock
|
Comprehensive
|
||||||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Par
Value
|
earnings
|
Income
(loss)
|
Shares
|
Amount
|
Income
|
|||||||||||||||||||||||||||||||
Balance
at July 31, 2007
|
2,661,498 | $ | 26,615 | 1,732,227 | $ | 17,323 | $ | 20,051,446 | $ | 22,211,098 | $ | 299,102 | 168,821 | $ | (1,692,496 | ) | $ | 5,582,403 | ||||||||||||||||||||||
Cumulative
effect of adopting FIN 48
|
- | - | - | - | - | (2,845,845 | ) | - | - | - | - | |||||||||||||||||||||||||||||
2,661,498 | $ | 26,615 | 1,732,227 | $ | 17,323 | $ | 20,051,446 | $ | 19,365,253 | $ | 299,102 | 168,821 | $ | - 1,692,496 | $ | 5,582,403 | ||||||||||||||||||||||||
Net
income
|
- | - | - | - | - | 1,834,386 | - | - | - | 1,834,386 | ||||||||||||||||||||||||||||||
Foreign
currency translation reserve
|
- | - | - | - | - | - | 536,446 | - | - | 536,446 | ||||||||||||||||||||||||||||||
Cash
dividends paid ($.36 per share)
|
- | - | - | - | - | (1,535,492 | ) | - | - | - | - | |||||||||||||||||||||||||||||
Unrealized
investment gain, net
|
- | - | - | - | - | - | (881 | ) | - | - | (881 | ) | ||||||||||||||||||||||||||||
Repurchase
of Class A common stock
|
- | - | - | - | - | - | - | 536 | (5,636 | ) | - | |||||||||||||||||||||||||||||
Issuance
of stock under stock award plan
|
- | - | - | - | (412,173 | ) | - | - | (41,094 | ) | 412,173 | - | ||||||||||||||||||||||||||||
Share-based
compensation expense
|
- | - | - | - | 339,625 | - | - | - | - | - | ||||||||||||||||||||||||||||||
Tax
impact of share based compensation
|
- | - | - | - | 33,457 | - | - | - | - | - | ||||||||||||||||||||||||||||||
Other
|
- | - | - | - | 1,902 | - | - | 1,878 | (16,704 | ) | - | |||||||||||||||||||||||||||||
Balance
at July 31, 2008
|
2,661,498 | $ | 26,615 | 1,732,227 | $ | 17,323 | $ | 20,014,257 | $ | 19,664,147 | $ | 834,667 | 130,141 | $ | (1,302,663 | ) | $ | 2,369,951 | ||||||||||||||||||||||
Net
income
|
- | - | - | - | - | 2,440,188 | - | - | - | 2,440,188 | ||||||||||||||||||||||||||||||
Foreign
currency translation reserve
|
- | - | - | - | - | - | (1,073,451 | ) | - | - | (1,073,451 | ) | ||||||||||||||||||||||||||||
Cash
dividends paid ($.19 per share)
|
- | - | - | - | - | (777,326 | ) | - | - | - | - | |||||||||||||||||||||||||||||
Unrealized
investment gain, net
|
- | - | - | - | - | - | 7,600 | - | - | 7,600 | ||||||||||||||||||||||||||||||
Conversion
of common stock - B to A
|
16,153 | 161 | (16,153 | ) | (161 | ) | - | - | - | - | - | - | ||||||||||||||||||||||||||||
Repurchase
of Class A common stock
|
- | - | - | - | - | - | - | 207,941 | (1,832,123 | ) | - | |||||||||||||||||||||||||||||
Issuance
of stock under stock award plan
|
- | - | - | - | (376,176 | ) | - | - | (37,580 | ) | 376,176 | - | ||||||||||||||||||||||||||||
Share-based
compensation expense
|
- | - | - | - | 234,593 | - | - | - | - | - | ||||||||||||||||||||||||||||||
Other
|
- | - | - | - | 5,038 | - | - | 3,455 | (30,643 | ) | - | |||||||||||||||||||||||||||||
Balance
at January 31, 2009
|
2,677,651 | $ | 26,776 | 1,716,074 | $ | 17,162 | $ | 19,877,712 | $ | 21,327,009 | $ | (231,184 | ) | 303,957 | $ | (2,789,253 | ) | $ | 1,374,337 | |||||||||||||||||||||
The
accompanying notes are an integral part of these financial
statements.
|
1.
|
Summary of Significant
Accounting Policies
|
|
a.
|
Consolidation
|
|
The
consolidated financial statements include the accounts of the Company and
its wholly owned and majority owned subsidiaries. Also reflected in the
financial statements is the 50% ownership in the Chinese operating joint
venture, The Tianjin Green Engineering Company. This joint venture is
accounted for under the equity method. All significant intercompany
transactions and balances have been
eliminated.
|
|
b.
|
Use of
Estimates
|
|
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results may differ from those
estimates.
|
|
c.
|
Reclassifications
|
|
d.
|
Revenue
Recognition
|
|
The
majority of the Company's revenue is derived from environmental consulting
work, with the balance derived from aquaculture. The consulting revenue is
principally derived from the sale of labor hours. The consulting work is
performed under a mix of fixed price, cost-type, and time and material
contracts. Contracts are required from all customers. Revenue is
recognized as follows:
|
Contract
Type
|
Work
Type
|
Revenue
Recognition Policy
|
Fixed
Price
|
Consulting
|
Percentage
of completion, approximating the ratio of total costs incurred to date to
total estimated costs.
|
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.
|
Time
and Materials
|
Consulting
|
As
incurred at contract
rates.
|
|
e.
|
Investment
securities
|
|
f.
|
Translation of Foreign
Currencies
|
|
g.
|
Income
Taxes
|
|
h.
|
Earnings Per Share
(EPS)
|
|
i.
|
Impairment of
Long-Lived Assets
|
|
j.
|
Cash and Cash
Equivalents
|
|
k.
|
Goodwill
|
2.
|
Contract Receivables,
net
|
January 31,
2009
|
July
31,
2008
|
|||||||
United
States government -
|
||||||||
Billed
|
$
|
2,538,418
|
$
|
3,431,437
|
||||
Unbilled
|
4,922,138
|
2,669,211
|
||||||
7,460,556
|
6,100,648
|
|||||||
Industrial
customers and state and municipal governments -
|
||||||||
Billed
|
22,748,873
|
20,811,500
|
||||||
Unbilled
|
15,185,012
|
16,690,360
|
||||||
37,933,885
|
37,501,860
|
|||||||
Less
allowance for doubtful accounts and contract
adjustments
|
(1,934,161
|
)
|
(2,056,573
|
)
|
||||
$
|
43,460,280
|
$
|
41,545,935
|
3.
|
Line of
Credit
|
4.
|
Long-Term Debt and
Capital Lease Obligations
|
January
31, 2009
|
July
31,
2008
|
|||||||
Various
bank loans and advances at interest rates ranging from 5% to
14%
|
$
|
871,934
|
$
|
1,702,392
|
||||
Capital
lease obligations at varying interest rates averaging
11%
|
236,421
|
157,192
|
||||||
1,108,355
|
1,859,584
|
|||||||
Less: current
portion of debt and capital lease obligations
|
(721,799
|
)
|
(1,377,827
|
)
|
||||
Long-term
debt and capital lease obligations
|
$
|
386,556
|
$
|
481,757
|
Amount
|
||||
Feb
2009 – Jan 2010
|
$
|
721,799
|
||
Feb
2010 – Jan 2011
|
235,031
|
|||
Feb
2011 – Jan 2012
|
74,486
|
|||
Feb
2012 – Jan 2013
|
31,704
|
|||
Feb
2013 – Jan 2014
|
33,660
|
|||
Thereafter
|
11,675
|
|||
$
|
1,108,355
|
5.
|
Stock Award
Plan
|
6.
|
Shareholders'
Equity
|
7.
|
Shareholders' Equity -
Restrictive Agreement
|
8.
|
Earnings Per
Share
|
Six
Months Ended
|
||||||||
January
31,
2009
|
January
26,
2008
|
|||||||
Income
from continuing operations available to
common
stockholders
|
$
|
2,445,325
|
$
|
631,154
|
||||
Loss
from discontinued operations available
to
common stockholders
|
(5,137
|
)
|
(25
|
)
|
||||
Total
income available to common stockholders
|
2,440,188
|
631,129
|
||||||
Weighted-average
common shares outstanding (basic)
|
4,016,614
|
4,164,570
|
||||||
Basic
earnings per share:
|
||||||||
Continuing
operations
|
$
|
.61
|
$
|
.15
|
||||
Discontinued
operations
|
---
|
---
|
||||||
Total
basic earnings per share
|
$
|
.61
|
$
|
.15
|
||||
Incremental
shares from assumed conversions of
restricted
stock awards
|
85,172
|
56,728
|
||||||
Adjusted
weighted-average common shares outstanding
|
4,101,786
|
4,221,298
|
||||||
Diluted
earnings per share:
|
||||||||
Continuing
operations
|
$
|
.60
|
$
|
.15
|
||||
Discontinued
operations
|
---
|
---
|
||||||
Total
diluted earnings per share
|
$
|
.60
|
$
|
.15
|
9.
|
Commitments and
Contingencies
|
10.
|
Recent Accounting
Pronouncements
|
11.
|
Other Accrued
Liabilities
|
January
31,
2009
|
July
31,
2008
|
|||||||
Allowance
for contract adjustments
|
$
|
4,005,125
|
$
|
3,969,980
|
||||
Billings
in excess of revenue
|
4,608,636
|
4,642,578
|
||||||
Other
|
1,647,573
|
1,355,932
|
||||||
$
|
10,261,334
|
$
|
9,968,490
|
Item
1.
|
Legal
Proceedings
|
Item
2.
|
Changes
in Securities and Use of Proceeds
|
|
(e)
|
Purchased
Equity Securities. The following table
summarizes the Company’s purchases of its common stock during the period
ended January 31, 2009:
|
Period
|
Total
Number of Shares Purchased
|
Average
Price Paid Per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or Programs
(1)
|
Maximum
Number
of
Shares That May
Yet
Be Purchased Under
the
Plans or Programs
|
||||
August
1, 2008 – January
31, 2009
|
207,941
|
$8.81
|
207,941
|
163
|
|
(1)
|
The
Company purchased 207,941 shares of its Class A common stock during the
first six months of its fiscal year ended July 31, 2009, pursuant to a
200,000 share repurchase program approved at the Board of Directors
meeting held in January 2004. In February 2006, the Board of
Directors authorized the repurchase of an additional 200,000
shares.
|
Item
3.
|
Defaults
Upon Senior Securities
|
|
The
Registrant has no information for Item 3 that is required to be
presented.
|
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
|
The
Registrant has no information for Item 4 that is required to be
presented.
|
Item
5.
|
Other
Information
|
|
The
Registrant has no information for Item 5 that is required to be
presented.
|
Item
6.
|
Exhibits
and Reports on Form 8-K
|
|
(a)
|
-
31.1 Certification of Principal Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
|
|
-
31.2 Certification of Principal Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
|
|
-
32.1 Certification of Principal Executive Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
|
|
-
32.2 Certification of Principal Financial Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
|
(b)
|
Registrant
filed a Form 8-K report on August 26, 2008 to announce the Company’s move
from the American Stock Exchange (AMEX) to the National Association
of Securities Dealers Automated Quotations (NASDAQ).
|
Ecology
and Environment, Inc.
|
|||
Date: March
17, 2009
|
By:
|
/s/
H. John Mye, III
|
|
H.
John Mye, III
|
|||
Vice
President, Treasurer and Chief Financial Officer –
Principal
Financial Officer
|