Item 1. BUSINESS
General
Ecology and Environment, Inc. ("EEI" or the "Company") is a broad based environmental consulting and testing 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 offers a broad range of environmental consulting services including: environmental audits; environmental impact assessments; terrestrial, aquatic and marine surveys; air quality management and air toxics pollution control; environmental engineering; noise pollution evaluations; wastewater analyses; water pollution control; industrial hygiene and occupational health studies; archaeological and cultural resource studies; environmental infrastructure planning, air, water and groundwater monitoring and analytical laboratory services.
EEI's services related to toxic, hazardous, nuclear and solid waste disposal management include: site investigations and evaluations, hazard and risk assessments, underground storage tank programs, remedial engineering design and project management, oil and chemical spill emergency response and complete regulatory compliance management programs. The Company also provides comprehensive services to manage the removal of asbestos from educational, institutional, governmental and commercial buildings. Virtually all of EEI's services are available to clients, both industrial and governmental, worldwide.								
The Company employs over 75 separate disciplines embracing the physical, biological, social and health sciences. The Company was incorporated in February, 1970. 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 1995, the Environmental Protection Agency ("EPA") awarded the Company five (5) regional Superfund Technical Assessment and Response Teams ("START") superfund contracts to provide technical expertise in support of its hazardous waste spill response, removal and prevention programs in the midwestern and western United States. The Company is required to provide round the clock assistance to the EPA at spill sites within the midwestern and western United States and, in certain instances, may be required to respond to an emergency in other areas of the country.
The START contracts are each level of effort and cost plus contracts. Tow (2) of the five (5) START contracts also contain award fee provisions. The EPA has estimated that a certain number of labor hours are necessary to fulfill the requirements of the contracts, and has agreed to compensate the Company for maintaining an available work force to fulfill those hour requirements. All of the contracts contain a base fee amount. In addition to the base amount, the contracts with award fee provisions pay an award amount.
The base amount is fixed in the contract and the award amount is determined by the EPA based upon its evaluation of the quality of the Company's services.
The total contract value of the five (5) START contracts, if the EPA exercises all options within each of them, is $216 million. The base value of the five (5) START contracts over five years is approximately $93.0 million. The Company, as of July 31, 1996, has realized total net revenues of approximately 9.8 million under these contracts.
The START contracts each have a term of five (5) years. However, they 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.
TAT Contract
In August 1990, the EPA awarded the Company a Technical Assistance Team ("TAT") contract to provide technical assistance teams to assist the EPA in responding to environmental emergencies caused by the release of oil, petroleum or other hazardous substances and in conducting spill prevention compliance inspections, process inspections and contingency planning and training.
In December 1996, the final extension term of the TAT contract expired. The Company continued final administrative work under the contract's "continuity of services" option through July 31, 1996. As of this date, the Company has realized total net revenues of $134.3 million under the TAT contract. The Company will recognize minimal revenues under the contract's "continuity of services" option in fiscal year 1997.
Hazardous Material Services
Introduction. EEI has conducted hazardous waste site evaluations throughout the United States. In conducting these site evaluations, the Company provides site investigation (e.g., geophysical surveys, monitoring well installation, and sample collection and analysis), engineering design, and operation and maintenance for a wide range of industrial and governmental clients. In providing such services, the Company inventories and collects sample materials on site and then evaluates waste management practices, potential off-site impacts and liability concerns. EEI then recommends and designs clean up programs and assists in the implementation and monitoring of those clean up programs.
Field Investigation. The Company's field investigation services primarily involve the development of work plans, health and safety plans and quality assurance and quality control plans to govern field investigations and conduct such field investigations to define the nature and extent of contaminants at a site.
Engineering Services. After field investigation services have been completed and the necessary approvals obtained, the Company's engineering specialists develop plans and specifications for remedial clean up activities. This work includes the development of methods and standard operating
procedures to assess contamination problems, and to identify, develop and design appropriate pollution control schemes. Alternative clean up 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.
Environmental Consulting Services
The Company's staff includes various individuals with advanced degrees representing over 75 scientific and engineering disciplines which relate to the identification, quantification, analysis, and remediation of hazards to the environment. The Company has rendered consulting services to industrial and government clients in the following areas:
Hazard and Risk Analysis. EEI has provided analyses of the hazards and risks of energy transportation to facility designers, contractors, and operators for over fifteen years. The Company has developed a proprietary hazardous material exposure model which determines the impact of potential energy facility accidents on a plant and its employees, as well as on the people and property in the surrounding community. EEI's hazard and risk analyses have considered such factors as the physics of brittle fractures, flammable vapor clouds, cryogenic liquid release and containment, thermal radiation effects, and replacement and rerouting strategies. In addition, the Company provides risk analysis for hazardous and toxic material spills and releases as required under CERCLA and RCRA. These analyses have evaluated human and ecological risks posed by contaminants in rural and urban settings, and coastal, riverain, wetland and upland environments throughout the United States.
Underground Storage Tank Management. The 1984 amendments to RCRA created special provisions for the regulation of underground storage tanks. Extensive federal regulations were promulgated in late 1988 which include notification provisions, strict requirements for tank design and installation, leak detection and monitoring and financial responsibility. The Company's staff includes various individuals experienced in hydrogeology, engineering and the evaluation of tank facilities for existing and potential leakage. EEI's services also include analyzing the corrosive potential of underground tanks, monitoring adjacent ground water, performing soil gas monitoring or other geophysical procedures requiring the use of drilling equipment, and establishing monitoring programs to verify the effectiveness of mitigative programs and the status of properly functioning tanks. EEI also designs tank removal, replacement and monitoring programs.
Environmental Assessments. In response to the requirements of NEPA and other state environmental laws, EEI has provided environmental evaluation services to both the government and the private sector for more than 22 years. As part of the environmental evaluation process, EEI assists clients in evaluating and developing methods to avoid or mitigate the 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.
Archeological Surveys. The National Historic Preservation Act (1966), Executive Order 11593 (1971), and NEPA require that developers of certain projects requiring federal funding, licensing, or approval consider the potential adverse effects of their projects on cultural resources. In accordance with these regulations, EEI's archaeologists conduct documentary background research and field investigations to determine the presence of cultural resources within proposed project areas and design plans to mitigate adverse impacts on the resources prior to project development.
Emergency Spill Response Management. The Company has developed a twenty-four hour emergency spill response subscription program for industrial clients. This program generally consists of the development of a clean up plan and supervision of the clean up and disposal operations. These functions are generally performed by dispatching a response team to the site. The team is supported by personnel from the Company's corporate response center. EEI's emergency preparedness and response programs are enhanced by the use of proprietary hazards exposure models. The Company's analytical laboratory is used to assist in the chemical identification process.
Analytical Laboratory Services
The Company provides analytical testing services to industrial and government customers who require accurate measurements to identify and monitor existing hazardous waste sites. The laboratory analyzes waste, soil, sediment, air tissue and potable and non-potable water using state of the art computer controlled instrumentation. EEI's laboratory is a participant in the EPA sponsored Contract Laboratory Program ("CLP"). CLP establishes methods and procedures under which analytical laboratory services associated with superfund and RCRA activities are to be performed. The Company also is certified to perform environmental testing services for some branches of the U.S. military and a number of state agencies.
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 multi-disciplinary consulting services offered by the Company. The principal federal legislation and corresponding regulatory programs which affect the Company's business are as follows:
THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION, AND LIABILITY ACT OF 1980, AS AMENDED ("CERCLA", "Superfund" or the "Superfund Act"). 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.
As of the date of this annual report, CERCLA program funding has been extended through July 31, 1997. Reauthorization of the Superfund law has not occurred, however, because of a lack of consensus within Congress and between Congress and the President on numerous aspects of the legislation, including the extent of CERCLA program budget cuts, changes to the retroactive liability scheme and program funding mechanisms, clean up standards, mechanisms for allocation of potentially-responsible-party responsibility, and state authorization for cleanups.
THE RESOURCE CONSERVATION AND RECOVERY ACT of 1976 ("RCRA"). 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 1984 Hazardous Solid Waste Amendments ("HSWA") to RCRA have strengthened the regulation of treatment, storage, and disposal facilities, and increased the regulatory scope of RCRA to include small quantity waste generators, waste oil handlers, and underground storage tanks. RCRA has increased the demand for the Company's services from companies involved in the generation, transportation, storage and disposal of hazardous wastes. Numerous regulatory changes in the RCRA corrective action program require RCRA regulated facilities to engage in detailed site characterization, corrective measures study and closure activity. RCRA enforcement programs continue to evolve and require a variety of responses including such things as audit compliance, training and site remediation programs.
TOXIC SUBSTANCE CONTROL ACT OF 1976 ("TSCA"). TSCA authorizes the EPA to gather information on the risks posed to public health and the environment by chemicals and to regulate the manufacture, use and disposal of chemical substances. The 1986 amendments to TSCA and its implementing regulations require school systems to inspect their buildings for asbestos, determine where asbestos containing materials pose hazards to humans and abate those hazards. Regarding PCBs specifically, amendments to TSCA regulations dated December 21, 1989 established comprehensive record keeping requirements for persons engaged in PCB transportation, storage and disposal activities. The Company's principal work under TSCA involves field sampling, site reconnaissance, development of remedial programs and supervision of construction activities at sites involving PCB contamination. The Company also conducts asbestos surveys and investigations.
THE NATIONAL ENVIRONMENTAL POLICY ACT ("NEPA"). 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. A number of states have EIS requirements similar to NEPA. The Company frequently engages in NEPA related projects (or state equivalent) for both public and private clients.
CLEAN AIR ACT. In 1990, comprehensive changes were made to the Clean Air Act which has fundamentally redefined the regulation of air pollutants. The Clean Air Act Amendments of 1990 have created a flurry of federal and state regulatory initiatives and industry responses which is requiring the
development of detailed inventories and risk management plans, as well as the acquisition of federally enforceable 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. These regulatory actions are likely to stimulate new demand for the Company's air related services in both the public and private sector.
Other. The Company's operations are also influenced by other federal and state laws protecting the environment: e.g. the Clean Water Act, the Atomic Energy Act, the Oil Pollution Act of 1990, the Safe Drinking Water Act and comparable state statutory and regulatory programs. 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.
Potential Liability and Insurance
The Company's contracts with the EPA require it to maintain certain insurance, including comprehensive general liability insurance for bodily injury, death or loss of or damage to property. In addition, many of the Company's other contracts require the Company to indemnify its clients for claims, damages or losses for personal injury or property damage relating to the Company's negligent 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. Since February 1990, the Company has been able to purchase an errors and omissions insurance policy that covers its asbestos and environmental consulting services, including legal liability for pollution conditions resulting therefrom. The policy is a claims made policy, with limits of $10.0 million for each claim and $10.0 million in the aggregate with a $500,000 deductible for contracts entered into subsequent to November, 1994; for contracts entered into between February, 1990 and November, 1994, the limits are $2.0 million for each claim and $2 million in the aggregate with a $250,000 deductible. The Company's general liability insurance policy provides coverage in the amount of $2.0 million per occurrence and $3.0 million in the aggregate; an excess liability policy of $10.0 million is also maintained with respect to its general liability coverage. In addition, EEI has a special endorsement to its general liability insurance policy up to $1.0 million for damages to third parties for bodily injury or property damage resulting from sudden or accidental releases. 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
A substantial portion of the Company's revenues are currently derived from the federal government under Superfund-related activities, including the EPA, U.S. Department of Defense and U.S. Department of Energy contracts. The balance of the Company's revenues originate from state and local governments, domestic industrial clients, and private and governmental international clients.
Backlog
The Company's firm backlog of uncompleted projects and maximum potential gross revenues from indefinite quantity task order contracts, at July 31, 1996 and 1995 were as follows: 									 (Millions of $) Fiscal Year Fiscal Year 	 	 	 	 Ended 7/31/96 Ended 7/31/95
Total Firm Backlog 111.8 26.6
Anticipated Completion of Firm Backlog in Next Twelve Months 48.0 23.7
Maximum Potential Gross Revenues from Task Order Contracts 	 	 356.0 244.0
The above figures include $120 million of potential revenue backlog attributable to the options under the START 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, 1996, the Company had over 700 employees. 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 is represented by a labor organization and employee relations are good.
Item 2.
Item 2.	 PROPERTIES
The Company's headquarters (60,000 square feet) is located in Lancaster, New York, a suburb of Buffalo. The Company's laboratory and warehouse facility in Lancaster, New York consists of two buildings' totaling approximately 50,000 square feet. The Company also leases office and storage facilities at twenty (20) regional offices, with terms which generally coincide with the duration of the Company's contracts in those areas.
Item 3.
Item 3.	 LEGAL PROCEEDINGS
None.
Item 4.
Item 4.	 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
Item 5.
Item 5.	 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED		 	 STOCKHOLDER MATTERS
(a) Principal Market or Markets. The Company's Class A Common Stock is traded on the American Stock Exchange. 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 for the periods indicated.
Fiscal 1995					 High Low
First Quarter (commencing August 1, 1994 -		 11-1/8	 9-3/4 October 29, 1994)
Second Quarter (commencing October 30, 1994 -		 10-1/4	 8-3/4 January 28, 1995)
Third Quarter (commencing January 29, 1995 -		 9-5/8	 7-3/4 April 29, 1995)
Fourth Quarter (commencing April, 30, 1995		 9-3/8	 7-7/8 July 31, 1995)
Fiscal 1996				 High 	 Low
First Quarter (commencing August 1, 1995 -		 8-13/16	 7-3/8 October 28, 1995)
Second Quarter (commencing October 29, 1995 -		 9-1/8	 7-1/8 January 27, 1996)
Third Quarter (commencing January 28, 1996 -		 8-5/8	 7-1/2 April 27, 1996)
Fourth Quarter (commencing April 28, 1996 -		 8-5/8	 7-5/8 July 31, 1996)
(b) Approximate Number of Holders of Class A Common Stock. As of September 30, 1996, 2,130,872 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 495. 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 1,837,558 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 75.
(c) Dividend. In each of the fiscal years ended July 31, 1995 and 1996, the Company declared cash dividends of $.32 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.
In July 1994, the Company's board of directors declared a 5% stock dividend to both Class A and Class B shareholders of record as of August l, 1994 to be distributed on or before August 30, 1994. All financial data included in this annual report with respect to net income per common share, weighted average common shares outstanding, stock prices and stock options have been restated to reflect the impact of the declaration of the 5% stock dividend.
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.
Item 6.
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
Year Ended July 31, 1996 1995 1994 1993 1992 (In thousands, except per share amounts) Operating data: Gross revenues . . . . $69,823 $91,512	 $99,559 $88,747 $89,958
Net Revenues . . . . .	 $61,569 $77,715	 $86,334 $76,872 $78,402
Income from operations	 $ 1,511 $ 2,974	 $ 7,256 $ 7,263 $ 6,932
Income before income taxes . . . . . . . .	 $ 2,087 $ 3,552	 $ 7,645 $ 7,697 $ 7,464
Net income before cumulative effect of accounting change . . .	 $ 1,160 $ 2,154	 $ 4,670 $ 4,655 $ 4,477
Cumulative effect of accounting change . . .	 $ - $ -	 $ (118) $ - $ -
Net Income . . . . . .	 $ 1,160 $ 2,154	 $ 4,552 $ 4,655 $ 4,477
Net income before cumulative effect of accounting change per common share . . .	 $ .29 $ .52	 $ 1.13 $ 1.13 $ 1.08
Cumulative effect of accounting change per common share . . . . .	 $ - $ -	 $ (.03) $ - $ -
Net income per common share . . . . .	 $ .29 $ .52	 $ 1.10 $ 1.13 $ 1.08
Cash dividends declared per common share . . .	 $ .32 $ .32	 $ .29 $ .25 $ .22
Weighted average common shares outstanding . . 4,039,369 4,136,929 4,138,121 4,135,462 4,132,667
			 	 As of July 31, 1996 1995 1994 1993 1992 			 	 (In thousands) Balance sheet data: Working capital. . .	 $31,993 $32,662	 $32,061 $33,207 $29,364
Total assets . . . .	 $55,575 $59,476	 $62,157 $56,042 $50,815
Long-term debt . . .	 $ 695 $ 782	 $ 1,345 $ 692 $ 742 			 	 Shareholders' equity	 $45,468 $46,907	 $46,158 $42,781 $39,098
Book value per share $ 11.26 $ 11.34 $ 11.15 $ 10.35 $ 9.46
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
As of July 31, 1996, the Company's working capital balance was $32.0 million as compared to $32.7 million at July 31, 1995. Cash and cash equivalents decreased $1.6 million mainly due to financing and investing activities. Net contracts receivable decreased $1.2 million and other accrued liabilities decreased $.7 million primarily attributable to the decrease in the Company's allowance for contract adjustments account as the Company settled its federal government cost disallowance audits for fiscal years 1987 through 1989. Net contracts receivable also decreased due to the decline in revenues. Accounts payable declined $1.4 million principally as a result of a decrease in subcontractor costs. In June 1995 the Board of Directors authorized the Company to repurchase up to 200,000 shares of its Class A common stock on the open market. As of September 30, 1996, 175,300 shares had been repurchased.
The Company maintains an unsecured line of credit of $10.0 million with a bank at the prevailing prime rate. There are no borrowings outstanding under this line of credit at July 31, 1996 and none were required during fiscal year 1996. The Company has financed its activities through cash flows from operations. Internally generated funds have been adequate to support demands for working capital, the purchase of new fixed assets and the payment of dividends. There are no significant working capital requirements pending at July 31, 1996. The Company's existing cash along with that generated by future operations and the existing credit line is expected to be sufficient to meet the Company's needs for the foreseeable future.
Results of Operations
Net Revenues
Net revenues for fiscal year 1996 were $61.6 million, down 21% from the $77.7 million reported in fiscal year 1995. The decrease in net revenues for fiscal year 1996 was due to the federal government budget impasse which began during the second quarter and affected the entire year. In the second quarter of fiscal year 1996, the Company was awarded five (5) regional United States Environmental Protection Agency (EPA) superfund contracts worth up to $216 million if the EPA were to exercise all contract options. However, due to the budget crisis, the EPA had limited funding to exercise options during the 1996 fiscal year. As of July 31, 1996, the EPA had exercised ten (10) contract options and backlog was approximately $200 million. The budget impasse also affected the availability of funding for environmental programs. This resulted in a slowdown in work received by the Company from its sizable backlog of existing task order contracts. In addition, private sector sales continue to be affected by uncertainties created by proposed federal legislation that would ease environmental regulations and enforcement.
In fiscal year 1996 the Company realized increased net revenues from its international clients as compared to the previous year. Fiscal year 1996 net revenues from contracts in Venezuela, Israel, China and other non-domestic sources increased over like net revenues in fiscal year 1995. Although these revenues are currently less than 10% of the net revenues, the Company expects
the contribution from the international sector to continue to increase in the future. Also, during fiscal year 1996, the Company settled its cost disallowance audits with the federal government covering fiscal years 1987-1989. The settlement of these audits resulted in a favorable impact to net revenues of approximately $530,000 ($130,000 in the third quarter and $400,000 in the fourth quarter).
Net revenues for fiscal year 1995 were $77.7 million, down 10% from the $86.3 million recorded in fiscal year 1994. The decrease in net revenues in fiscal year 1995 was due to lower private sector sales, declines in work orders with the U.S. Department of Defense ("DOD") and the U.S. Department of Energy ("DOE") and lower sales derived from contracts with various state agencies.
Income Before Income Taxes
The Company's income before income taxes for fiscal year 1996 was $2.1 million as compared to $3.6 million recorded in the prior year. This decrease was due primarily to the aforementioned decrease in net revenues resulting from the federal government budget impasse. The Company's fourth quarter partial settlement of the termination of its Defined Benefit pension plan also contributed to the decline in earnings. The termination and partial settlement of this plan resulted in the Company recognizing $1.1 million in pension expense in fiscal year 1996, including an $810,000 shortfall in funding during the fourth quarter which was required as a direct result of the termination of the plan. Also, in accordance with Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation" (SFAS) No. 52, the Company recognized a third quarter foreign exchange loss of approximately $123,000 relating to its Venezuelan subsidiary. The Company was required to record this loss under SFAS No. 52 due to the highly inflationary economy in Venezuela.
The Company's continued efforts to streamline the organization resulted in decreased indirect operating costs of approximately $5.0 million in fiscal year 1996 as compared to the previous year. Despite lower revenues and the one-time pension charge, the Company's success in reducing operating costs and the settlement of the cost disallowance audits resulted in increased earnings for the fourth quarter of the 1996 fiscal year as compared to the same period of fiscal year 1995.
Income before income taxes for fiscal year 1995 was $3.6 million, down from the $7.6 million recorded in fiscal year 1994. This decrease was primarily the result of lower net revenues and the Company's increased proposed costs in fiscal year 1995 associated with the various EPA contracts.
Income Taxes
The effective income tax rate for fiscal year 1996 was 44.4% as compared to 39.4% for fiscal year 1995. The increase in the effective rate is primarily due to foreign income taxes and nondeductible expenditures. Differences from the federal statutory rate consist primarily of provisions for state income taxes net of the federal tax benefit.
During the first quarter of fiscal year 1994, the Company adopted SFAS No. 109 which relates to the accounting for income taxes. Consequently, net income was adversely affected by approximately $.03 per share. This was a one-time adjustment for the adoption which has no further impact on the tax provisions for the Company.
Recently Issued Accounting Standards Not Yet Adopted
In the first quarter of fiscal year 1997, SFAS No. 123, "Accounting for Stock-Based Compensation", will become effective for the company. SFAS No. 123 establishes a fair value based method of accounting for stock based compensation plans and encourages, but does not require, entities to adopt that method of accounting for all arrangements under which employees receive shares of stock or other equity instruments of the employer or the employer incurs liabilities to employees in amounts based on the price of the stock. However, SFAS No. 123 allows entities to continue to measure compensation cost for employee stock options or similar equity instruments using the method prescribed by Accounting Principles Board Opinion (APBO) No. 25, "Accounting for Stock Issued to Employees." The Company has elected to continue measuring compensation cost for employee stock compensation arrangements in accordance with the provisions of APBO No. 25. Accordingly, SFAS No. 123 will have no impact on the Company's results of operations in fiscal year 1997.
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Accountants
To the Board of Directors and Shareholders of Ecology and Environment, Inc.
In our opinion, the consolidated financial statements listed in the index appearing under item 14(a)1. and 2. on this Form 10-K present fairly, in all material respects, the financial position of Ecology and Environment, Inc. and its subsidiaries at July 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for income taxes as of August 1, 1993.
PRICE WATERHOUSE LLP Buffalo, New York October 2, 1996
ECOLOGY AND ENVIRONMENT, INC. CONSOLIDATED BALANCE SHEET
ECOLOGY & ENVIRONMENT, INC. CONSOLIDATED STATEMENT OF INCOME
ECOLOGY AND ENVIRONMENT, INC. CONSOLIDATED STATEMENT OF CASH FLOWS
ECOLOGY AND ENVIRONMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of business
Ecology and Environment, Inc. (the Company) is an environmental consulting and testing firm whose underlying philosophy is to provide a broad range of environmental consulting services worldwide so that sustainable economic and human development may proceed with minimum negative impact on the environment. These services include environmental audits and impact assessments, hazardous material site evaluations and response programs water and groundwater monitoring, laboratory analyses, environmental infrastruction planning and many other projects provided by the Company's multidisciplinary professional staff. Gross 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 gross revenues are certain services outside the Company's normal operations which the Company has elected to subcontract to other contractors. The costs relative to such subcontract services are deducted from gross revenues to derive net revenues.
During fiscal years ended July 31, 1996, 1995 and 1994, the percentage of total net revenues derived from contracts exclusively with the United States Environmental Protection Agency (EPA) were 48%, 47% and 40%, respectively. The Company's Technical Assistance Teams (TAT) and Superfund Technical Assessment and Response Team (START) contracts accounted for the majority of the EPA net revenue. The percentage of net revenues derived from contracts with the United States Department of Defense (DOD) were 20%, 17% and 18% for fiscal years ended July 31, 1996, 1995 and 1994, respectively.
2. Summary of significant accounting principles
a. Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Also reflected in the financial statements are the Company's 66-2/3% ownership in the assets of a nonoperating subsidiary, Ecology and Environment of Saudi Arabia Ltd. (EESAL) and a 50% ownership in the operating joint venture, Beijing Yi Yi Ecology and Engineering Co. Ltd. which are being accounted for under the equity method. All significant intercompany transactions and balances have been eliminated. Certain amounts in the prior years' consolidated financial statements and notes have been reclassified to conform with the current year presentation.
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 reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of
	revenues and expenses during the reporting period. Actual results could differ from those estimates.
c. Revenue recognition
Substantial amounts of the Company's revenues are derived from cost-plus-fee contracts and are recognized on the basis of costs incurred during the period, plus the fee earned. The fees under certain government contracts are determined in accordance with performance incentive provisions. Such awards are recognized at the time the amounts can be reasonably determined. Provisions for estimated contract adjustments relating to cost based contracts have been deducted from gross revenues in the accompanying consolidated statement of income. Such adjustments typically arise as a result of interpretations of cost allowability under cost based contracts.
Revenues related to long-term government contracts are subject to audit by an agency of the United States government. Government audits have been completed through fiscal year 1989 and are currently in process for fiscal years 1990 through 1992. The majority of the balance in the allowance for contract adjustments accounts represent a reserve against possible adjustments for fiscal years 1990 through 1996.
d. Investment securities
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 retained earnings, net of applicable income taxes in the consolidated balance sheet and statement of changes in shareholders' equity. Realized gains and losses on the sale of investment securities are determined using the specific identification method.
e. Property, building and equipment, depreciation and amortization
Property, building and equipment are stated at cost. 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 analytical services center 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, and over approximately 30 years for tax purposes. 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.
f.	Fair value of financial instruments
	The carrying amount of cash and cash equivalents, contracts receivable and accounts payable at July 31, 1996 approximates fair value because of the short maturity of those instruments. The amortized cost and estimated fair value of investment securities available for sale are fully described in Note 4. Long-term debt consists of third party borrowings by the Company. 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, 1996 approximates fair value.
g.	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. Adjustments resulting from translation of financial statements did not materially impact the financial statements for fiscal years 1996, 1995 and 1994.
	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 translation adjustments which are included in net income and amounted to $123,506 in fiscal year 1996 and $0 for fiscal years 1995 and 1994.
h. Income taxes
In the first quarter of fiscal year 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", which changed its method of accounting for income taxes from the deferred method to the liability method. The cumulative effect of the implementation of SFAS No. 109 resulted in a $117,690 decrease in the Company's net deferred tax assets in fiscal year 1994. Under the liability method, a deferred tax liability or asset is recognized for the tax consequences of all events that have been recognized in the financial statements. The deferred tax consequences of such events are equal to the expected amount of taxes payable or refundable in future years, based upon tax laws currently in effect. Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets will be realized. Since in some cases management has utilized estimates, the amount of the deferred tax assets considered realizable could be reduced in the near term.
i. Pension costs
The Company has a non-contributory defined contribution plan providing deferred benefits for substantially all of the Company's employees. Additionally, in fiscal year 1995, the Company implemented a supplemental defined benefit and contribution plan to provide deferred benefits for senior executives of the Company. Benefits under the defined benefit plan are based on years of service and average compensation. The annual expense of the Company's defined contribution plan is based on a percentage of eligible wages as authorized by the Company's Board of Directors. Accrued benefits under the defined benefit plan are funded in accordance with the minimum funding requirements of the Employee Retirement Income Security Act. Benefits under the defined contribution plan are funded as accrued.
	In September 1995, the Company made the decision to terminate the defined benefit plan. This plan was primarily settled in July 1996. In July 1996, the Company made the decision to terminate the supplemental defined benefit plan for senior executives. This event did not materially impact the financial results for fiscal year 1996.
	The Company does not offer any benefits that would result in a liability under either SFAS No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions" or SFAS No. 112 "Employers' Accounting for Postemployment Benefits".
j. Net income per common share
The computations of net income per common share are based upon the weighted average of Class A and B common shares outstanding during each period restated in fiscal years prior to 1995 for the 5% stock dividend distributed on August 30, 1994.
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, 1996 short-term investments consist of commercial paper and money market funds. At July 31, 1995 short term investments consist of commercial paper. These investments are carried at cost. Short-term investments amounted to approximately $6,557,000 and $7,100,000 at July 31, 1996 and 1995, respectively, and are reflected in cash and cash equivalents in the accompanying consolidated balance sheet and statement of cash flows.
For purposes of the statement of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. Cash paid for interest amounted to $70,445, $104,421, and $66,181 in fiscal years 1996, 1995 and 1994, respectively. Cash paid for income taxes amounted to $442,000, $1,969,248 and $2,868,633 in fiscal years 1996, 1995 and 1994, respectively.
4. Investment securities
The amortized cost and estimated fair values of investment securities were as follows: Gross Gross Estimated Amortized unrealized unrealized fair cost gains losses value
July 31, 1996
Investment securities available for sale:	 Mutual funds 		 $2,452,993 $ 3,203	 $36,005 $2,420,191 Municipal notes and bonds	 1,581,321 2,424	 4,472 1,579,273 U.S. Treasury Interest- Only Strips		 1,497,105 -	 492 1,496,613 Federal agency obligations	 997,189 9,538	 - 1,006,727 				 ---------- --------	 -------- ---------- 				 $6,528,608 $15,165	 $40,969 $6,502,804 				 ========== ========	 ======== ==========
July 31, 1995
Investment securities available for sale: Mutual funds $2,492,564 $ - $ 21,691 $2,470,873 Municipal notes and bonds 2,301,011 3,208 2,557 2,301,662 U.S. Treasury notes and bills 1,465,587 33,860 - 1,499,447 ---------- --------- ---------- ---------- $6,259,162 $ 37,068 $ 24,248 $6,271,982 ========== ========= ========== ==========
The amortized cost and estimated fair value of debt securities available for sale by contractual maturity as of July 31, 1996 were as follows:
Amortized Estimated cost fair value
Due in one year or less			 $ 202,613 $ 201,550 Due after one year through five years 3,247,255 3,255,664 Due after five years through ten years 		 125,747	125,399 Due after ten years					 500,000	500,000 						 ---------- ---------- 							4,075,615 4,082,613 Mutual Funds Available for Sale			2,452,993 2,420,191 						 ---------- ---------- 						 $6,528,608 $6,502,804 						 ========== ==========
Proceeds, gross realized gains and losses from the sale of investment securities were $570,423, $1,567 and $33, respectively, in fiscal year 1996, $1,303,468, $15,237 and $2,092, respectively, in fiscal year 1995 and $49,442, $0 and $182, respectively, in fiscal year 1994.
The unrealized investment securities loss and unrealized investment securities gain, net of applicable income taxes, at July 31, 1996 and 1995 of $15,482 and $7,166, respectively, are reflected in retained earnings in the consolidated balance sheet.
5. Contract receivables, net July 31,
1996 1995
United States government - Billed $ 7,720,240 $ 7,253,451
Unbilled 6,956,133 9,366,677 ------------ ------------ 14,676,373 16,620,128 ------------ ------------ Industrial customers and state and municipal governments - Billed 6,174,195 3,904,639
Unbilled 3,837,327 4,876,597 ------------ ------------ 10,011,522 8,781,236 ------------ ------------ Less allowance for contract adjustments (991,859) (545,893) ------------ ------------
$23,696,036 $24,855,471 ============ ============
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 and fees earned of approximately $2,907,000 at July 31, 1996 and $3,076,000 at July 31, 1995. Unbilled contracts receivable are reduced by billings in excess of costs incurred of $2,573,000 at July 31, 1996 and $910,000 at July 31, 1995. Management anticipates that the July 31, 1996 unbilled receivables will be substantially billed and collected in fiscal 1997. Within the above billed balances are contractual retainages in the amount of approximately $1,457,000 at July 31, 1996 and $1,308,000 at July 31, 1995. Included in other accrued liabilities is an additional allowance for contract adjustments relating to potential cost disallowances on amounts billed and collected of approximately $1,848,000 at July 31, 1996 and $2,578,000 at July 31, 1995.
6. Property, building and equipment, net
July 31,
1996 1995
Land $ 528,320 $ 528,320 Buildings 12,786,490 12,680,520 Laboratory and other equipment 5,817,301 5,643,381 Data processing equipment		 6,440,922 	 6,094,694 Office furniture and equipment	 4,234,369	 4,114,857 Leasehold improvements and other	 1,339,865 	 1,314,684 					 ------------	 ------------ 					 31,147,267	 30,376,456 Less accumulated depreciation and amortization			 (17,674,040)	 (16,062,155) 					 ------------	 ------------
					 $13,473,227	 $14,314,301 					 ============	 ============
7. Line of credit
The Company has an unsecured $10,000,000 line of credit available which is subject to annual renewal and which bears interest at the prime rate. No borrowings on the line of credit were outstanding at July 31, 1996 and July 31, 1995 and none were required during fiscal years 1996 and 1995.
8. Long-term debt
During fiscal year 1994, the Company obtained industrial revenue bond capital lease financing in the amount of $750,000 to finance a portion of the cost of the newly constructed analytical services facility. The lease is collateralized by a portion of the land and the analytical services facility building in an amount equal to the bond. The bond is payable in equal monthly principal installments of $3,125 through 2014 and bears interest at the borrower's base rate which approximates prime (8.25% at July 31, 1996). In addition, the Company must meet certain financial ratio covenants relating to current assets to current liabilities and debt to tangible net worth. At July 31, 1996 the Company was in compliance with all financial ratio covenants. The balance outstanding on this bond at July 31, 1996 and 1995 was $665,625 and $703,125, respectively.
During fiscal year 1988, the Company obtained industrial revenue bond capital lease financing in the amount of $1,000,000 to finance a portion of the cost of the newly constructed corporate headquarters. The lease is collateralized by a portion of the land and the corporate headquarters building in an amount equal to the bond. The bond is payable in equal monthly principal installments of $4,167 through 2008 and bears interest at the borrower's base rate which approximates prime (8.25% at July 31, 1996). In February 1995, the Company made a $475,000 lump-sum payment on this bond. The balance outstanding on this bond at July 31, 1996 and 1995 was $116,666 and $166,666, respectively.
The current portion of long-term debt at July 31, 1996 in the amount of $87,500 is included in other accrued liabilities in the accompanying consolidated balance sheet.
9. Income taxes
The provision for income taxes differs from the federal statutory rate due to the following: Fiscal year
1996 1995 1994
Statutory rate 34.0% 34.0% 34.0% State income taxes, less federal effect 5.3% 5.4 4.7 Other				 5.1%	 - .2 ----- ----- -----
Effective tax rate 44.4% 39.4% 38.9% ===== ===== =====
Deferred tax assets (liabilities) included in other current assets were comprised of the following:
July 31,
1996 1995
Allowance for contract adjustments $1,178,465 	 $1,276,453 Vacation and compensatory time 598,085	 720,495 Excess depreciation 216,969	 217,373 Other 78,463	 37,574 -----------	 ----------- Gross deferred tax assets 2,071,982 2,251,895
State income taxes (119,233) (134,035) Other (53,193) (87,844) -----------	 ----------- Gross deferred tax liabilities (172,426) (221,879) -----------	 ----------- Net deferred current asset $1,899,556	 $2,030,016 						 ===========	 ===========
10. Shareholders' equity
a. Stock dividend
On July 1, 1994, the Board of Directors declared a 5% stock dividend on the Company's Class A and Class B common stock distributed on August 30, 1994 to shareholders of record on August 1, 1994. As of July 31, 1994, 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, stock prices and stock options has been retroactively adjusted to reflect the stock dividend.
b. 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.
c. Incentive stock option plan
Under the Company's incentive stock option plan (the "plan"), key employees, including officers of the Company, may be granted options to purchase shares of Class A common stock at an option price of at least 100% of the shares' fair market value at the date of grant. Shares become exercisable after a minimum holding period of five years. The plan's data has been retroactively adjusted to reflect the stock dividend declared in fiscal year 1994.
	During the three year period ended July 31, 1996, 37,250, 19,500 and 21,315 options were granted at prices of $7.25, $9.00 and $12.38, respectively. Exercised options during the same period amounted to 5,238, 0 and 3,985, respectively, in the price range between $5.65 and $13.10. Canceled and expired options during the same period amounted to 24,380, 13,525 and 1,942, respectively, in the price range between $5.65 and $16.08. Options outstanding at the end of the same period were 182,813, 175,181 and 169,206, respectively, in the price range between $5.65 and $16.08.
	Of the options outstanding at July 31, 1996, 90,710 are currently exercisable at prices ranging between $10.48 and $16.08. Shares available for future grants under this plan amounted to 22,014 at July 31, 1995. A total of 209,390 shares were authorized for granting under the plan. The plan terminated in March 1996 and no options can be granted after that date.
11. Lease commitments
The Company rents certain office facilities and equipment under noncancelable 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, 1996, future minimum rental commitments, net of estimated amounts allocable to government contracts with rental cost reimbursement clauses, were as follows:
Fiscal year Gross Reimbursable Net
1997 $1,824,254 $830,123 $994,131 1998 1,424,189 725,201 698,988 1999 1,350,599 712,932 637,667 2000 1,134,409 704,168 430,241 2001 526,840 342,242 184,598
Gross rental expense under the above lease commitments for 1996, 1995, and 1994 was $1,951,645, $2,637,185, and $2,882,597, respectively.
12. Pension plans
a. Defined benefit plan
The Company's pension expense associated with this plan for fiscal years ended July 31, 1996, 1995, and 1994 was $1,110,500, $470,996, and $521,597, respectively. The increase in fiscal year 1996 expenses is attributable to the curtailment and partial settlement of this plan in accordance with SFAS No. 88 "Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and Termination Benefits."
Pension cost of this plan includes the following cost components:
1996 1995 1994
Service cost - 	 benefits earned during the period $ 65,100 $408,900 $385,000 Interest costs on projected benefit obligation				258,200 342,100 325,300 Actual return on plan assets	 (201,900) (351,212) 22,113 Net amortization and deferral	 (160,500) 71,208 (210,816) Curtailment and Settlement Cost 1,149,600 --- --- 	 ----------- --------- ---------
Net periodic pension cost	 $1,110,500 $470,996 $521,597 	 				 =========== ========= =========
	 Data relating to the funding position of this plan were as follows:
	 July 31,
1996 1995
Actuarial present value of: Vested benefit obligations $942,186 $2,680,500 	 Nonvested benefit obligations --- 337,400 	 					 ----------- ----------- Accumulated benefit obligations 942,186 3,017,900 	 Benefits attributable to future salaries --- 1,453,600 	 					 -----------	 -----------
Projected benefit obligations 942,186 4,471,500 Plan assets at fair value 131,725 4,026,596 	 					 -----------	 ----------- Excess of projected benefit obligations over plan assets 810,461 444,904 	 					 -----------	 ----------- Remaining unrecognized net asset at transition --- 11,431 Unrecognized experience loss --- (923,861) Unrecognized prior service costs --- 224,903 					 -----------	 ----------- Net accrued pension (asset) liability $810,461 $ (242,623) 	 					 ===========	 ===========
	 The discount rate used in determining the actuarial present value of the above benefit obligations were 6.72% and 7.5%, respectively, for fiscal years 1996 and 1995. The rate of increase of future compensation levels and the expected long-term rate of return on plan assets was 5% and 9%, respectively, for fiscal year 1995.
b. Defined contribution plan
Contributions to the defined contribution plan are discretionary and determined annually by the Board of Directors. The total expense under the plan for fiscal years 1996, 1995, and 1994 was $985,198, 	 $1,786,857, and $1,722,959, respectively.
13. Contingencies
Certain contracts with the EPA contain termination provisions under which the EPA 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.
The Company is involved in litigation arising in the normal course of business. In the opinion of management, any adverse outcome to this litigation would not have a material impact on the financial results of the Company.
ECOLOGY AND ENVIRONMENT, INC.
SCHEDULE VIII Allowance for Doubtful Accounts Years Ended July 31, 1996, 1995, and 1994
Balance at Charged to Balance Beginning Cost and at End Year Ended of Period Expense Deduction of Year
July 31, 1996 $3,123,709 $ (137,589) $ 146,445 $2,839,675
July 31, l995 $4,070,326 $ (32,511) $ 914,106 $3,123,709
July 31, 1994 $4,318,418 $ 804,908 $1,053,000 $4,070,326
Selected quarterly financial data (Unaudited) - --------------------------------------------- Quarter --------------------------------------------------
First Second Third Fourth ----- ------ ----- ------ (In thousands, except per share information)
----
Gross revenues $19,759 $16,276 $15,797 $17,991 Net revenues 17,210 14,451 14,540 15,368 Income from operations 817 470 151 73 Income before income taxes 977 671 202 237 Net income 544 410 60 146 Net income per common share $0.13 $0.10 $0.02 $0.04 Cash dividends declared per common share $ -- $0.16 $ -- $0.16
----
Gross revenues $26,322 $21,811 $20,962 $22,417 Net revenues 21,937 18,773 18,469 18,536 Income from operations 1,793 974 175 32 Income before income taxes 1,870 1,128 329 225 Net income 1,130 699 192 133 Net income per common share $0.27 $0.17 $0.05 $0.03 Cash dividends declared per common share $ -- $0.16 $ -- $0.16
Item 9.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
				None.
PART III
Item 10.
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
Gerhard J. Neumaier 	 59	 President and Director
Frank B. Silvestro 	 59	 Executive Vice President and Director
Gerald A. Strobel 	 56	 Executive Vice President of Technical Services and Director
Ronald L. Frank 	 58	 Executive Vice President of Finance, Secretary, Treasurer and Director
Gerard A. Gallagher, Jr. 65	 Senior Vice President of Special Projects and Director
Roger J. Gray	 	 55	 Senior Vice President
Laurence M. Brickman	 52	 Senior Vice President
Harvey J. Gross 	 68	 Director
Ralph Bookbinder 	 66	 Director
Ross M. Cellino 	 64	 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. Neumaier is a founder of the Company and has served as the President and a Director since its inception in 1970. Mr. 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 has 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. Mr. Frank has a B.S. in engineering and a M.S. in biophysics.
Mr. Gallagher joined the Company in 1972. In March 1979, he became a Vice President of Special Projects and in February, 1986 he became a Director. Mr. Gallagher is in charge of quality assurance for hazardous substance projects. In August 1986, he became a Senior Vice President of Special Projects. Mr. Gallagher has a B.S. in physics.
Mr. Gray joined the Company in 1970 as an engineer. In 1980, he became Vice President and in August 1986 he became a Senior Vice President. Mr. Gray holds a B.S. in engineering.
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. Bookbinder has been a Director of the Company since its inception in 1970. Mr. Bookbinder is an independent travel consultant.
Mr. Cellino has been a Director of the Company since its inception in 1970. Since 1956, Mr. Cellino is an attorney and counselor-at-law retired from private practice.
Item 11.
Item 11. EXECUTIVE COMPENSATION
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, 1994, 1995 and 1996 of those persons who were at July 31, 1996 (i) the chief executive officer and (ii) the four other most highly compensated executive officers with annual salary and bonus for the fiscal year ended July 31, 1996 in excess of $100,000. In this report, the five persons named in the table below are referred to as the "Named Executives".
	 SUMMARY COMPENSATION TABLE
None of the Company's executive officers have employment agreements. Directors who are not employees of the Company are paid an annual fee of $20,826 payable quarterly.
Compensation Pursuant to Plans
Pension Plan. In September 1995, the Company decided to terminate its Defined Benefit Pension Plan (the "Pension Plan"). The termination of the Pension Plan was primarily settled by July 1996.
Defined Contribution Plan. The Company maintains a Defined Contribution Plan ("the DC Plan") which is qualified under the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code") pursuant to which the Company contributes an amount not in excess of 15% of the aggregate compensation of all employees who participate in the DC Plan. All employees, including the executive officers identified under "Executive Compensation", are eligible to participate in the plan, provided that they have attained age 21 and completed one year of employment with at least 1,000 hours of service. The amounts contributed to the plan by the Company are allocated to participants based on a ratio of each participant's points to total points of all participants determined as follows: one point per $1,000 of compensation plus two points per year of service completed prior to August 1, 1979, and one point for each year of service completed after August 1, 1979.
Supplemental Retirement Plan. In April 1994, the Board of Directors of the Company, in response to changes in the tax code, voted to establish a Supplemental Executive Retirement Plan ("SERP") for purposes of providing retirement benefits to employees including officers of the Company whose retirement benefits under the DC Plan are reduced as a result of the $150,000 compensation limitation imposed by the tax code change. This plan is a non-qualified plan which provides benefits that would have been lost from the DC Plan due to the imposition of the compensation restriction.
Incentive Stock Option Plan
In February 1986, the Company adopted an Incentive Stock Option Plan (the "Option Plan") under which key employees, including officers, of the Company may be granted options to purchase up to an aggregate of 100,000 shares of Class A Common Stock. During the fiscal year ending July 31, 1990, the shareholders of the Company authorized an additional 100,000 shares, bringing the aggregate to 200,000 shares of Class A Common Stock currently authorized to be issued under the Plan. The anti-dilution provisions of the plan resulted in an increase of 9,390 shares upon distribution of the stock dividend distributed by the company on August 30, 1994 to shareholders of record on August 1, 1994. See Note 10 of "Notes to Consolidated Financial Statements". The plan terminated in March 1996 and no options can be granted after that date. The Board of Directors administers the Option Plan and has authority to determine the persons to whom options are to be granted, the number of shares to be covered by each option, the time at which each option shall be granted, the exercise price and the time during which options may be exercised. The Option Plan is designed to qualify as an "incentive stock option plan" under Section 422A of the Internal Revenue Code.
The option exercise price must be at least 100% of the fair market value per share of the Company's Class A Common Stock, as determined by the Board of Directors on the date of grant. The exercise price may be paid in cash or with previously owned shares of Class A Common Stock or both. The options are exercisable commencing after a minimum holding period of not more than five years after the date of grant and expire after ten years from the date of grant as determined by the Board of Directors. The exercise price of options granted to employees possessing more than 10% of the combined voting power of all classes of capital stock on the effective date of the grant must be not less than 110% of fair market value on the date of grant, and the options may not be exercised more than five years after the date of grant. The Named Executive officers found in the Summary Compensation Table have not been granted any options pursuant to the Option Plan.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of September 30, 1996, 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
	 	 	 Nature and Percent Nature and 	 	 	 Amount of of Amount of 	 	 	 Beneficial Class As Beneficial	 Percent 	 	 	 Ownership Adjusted Ownership of Name and Address(1) 	 (2) (3) (2) 	 Class
Gerhard J. Neumaier* 	 346,944 14.0%	 345,894	 18.8%
Frank B. Silvestro* 	 288,937 11.9%	 288,937	 15.7%
Ronald L. Frank* 	 269,976 11.3%	 262,394	 14.3%
Gerald A. Strobel* 	 270,796 11.3%	 270,796	 14.7%
Franklin Resources, Inc. 330,000 15.48% 0 	 0
* See Footnotes in next table
(1) The address for Gerhard J. Neumaier, Frank B. Silvestro, Ronald L. Frank and Gerald A. Strobel is c/o Ecology and Environment, Inc., 368 Pleasant View Drive, Lancaster, New York 14086, unless otherwise indicated. The address for Franklin Resources, Inc. is 777 Mariners Island Blvd., P. O. Box 7777, San Mateo, California 94403-7777.
(2) Each named individual or corporation 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.
(3) There are 2,130,872 shares of Class A Common Stock outstanding and 1,837,558 shares of Class B Common Stock issued and outstanding as of September 30, 1996. 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.
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, 1996, 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
Nature and Percent Nature and Amount of of Amount of Beneficial Class As Beneficial	 Percent Ownership Adjusted Ownership	 of Name(1) (2)(3) (4) (2)(3) 	 Class
Gerhard J. Neumaier (5)(13)			 346,944 	14.0%	 345,894	 18.8%
Frank B. Silvestro	 288,937	11.9%	 288,937	 15.7% (13)
Ronald L. Frank		 269,976	11.3%	 262,394	 14.3% (6)(13)
Gerald A. Strobel	 270,796	11.3%	 270,796	 14.7% (7)(13)
Harvey J. Gross (8)	 94,887	 4.3% 	 94,887	 5.2%
Gerard A. Gallagher, Jr. 76,987	 3.5%	 76,646 4.2%
Ralph Bookbinder (9)	 18,200 *	 17,850	 1.0%
Ross M. Cellino (10)	 13,206 	 *	 1,050 	 *
Directors and officers as a Group (11)(12) 1,397,195	39.9% 1,372,043	 74.7% (10 individuals)
* Less than 0.1% __________
(1) The address of each of the above shareholders is c/o Ecology and Environment, Inc., 368 Pleasantview 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. Moreover, the table gives effect to only 2,965 shares of Class A Common Stock of the total 90,710 shares of Class A Common Stock that may be issued pursuant to the Company's Incentive Stock Option Plan, which may be purchased within the next 60 days pursuant to vested options granted to one officer.
(4) There are 2,130,872 shares of Class A Common Stock outstanding and 1,837,558 shares of Class B Common Stock outstanding as of September 30, 1996. 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 525 shares of Class A Common Stock owned by Mr. Neumaier's spouse, as to which he disclaims beneficial ownership. Includes 525 shares of Class A Common Stock owned by Mr. Neumaier's Individual Retirement Account. Does not include any shares of Class A Common Stock or Class B Common Stock held by Mr. Neumaier's adult children.
(6) Includes 7,850 shares of Class B Common Stock owned by one of Mr. Frank's children and 5,067 shares of Class A Common Stock owned by one of Mr. Frank's children as to which he disclaims beneficial ownership. Does not include any shares of Class A Common Stock or Class B Common Stock held by Mr. Frank's other adult children. Includes 41,625 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 515 shares of Class A Common Stock owned by Mr. Frank's individual retirement account.
(7) Includes 44,226 shares of Class B Common Stock owned in equal amounts by Mr. Strobel's three children (Mr. Strobel holds 21,171 shares as custodian for these children), as to which he disclaims beneficial ownership.
(8) Includes an aggregate of 21,047 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 1,050 shares of Class B Common Stock owned by Mr. Bookbinder's spouse as to which he disclaims beneficial ownership.
(10) Includes 10,396 shares of Class A Common Stock owned by Mr. Cellino's spouse, as to which shares he disclaims beneficial ownership; also includes 1,655 shares of Class A Common Stock owned by Mr. Cellino's Individual Retirement Account.
(11) Does not include 49,932 shares (19,475 shares of Class A Common Stock and 30,457 shares of Class B Common Stock) owned by the Company's Defined Contribution Plan of which Messrs. Gerhard J. Neumaier, Frank, Silvestro and Strobel constitute four of the five trustees of each Plan.
(12) Includes 1,181 shares of Class A Common Stock which may be issued upon exercise of a stock option granted to one officer in July 1988, pursuant to the Company's Incentive Stock Option Plan; includes 892 shares of Class A Common Stock which may be issued upon exercise of a stock option granted to one officer in July 1990, pursuant to the Company's Incentive Stock Option Plan; includes 892 shares of Class A Common Stock which may be issued upon exercise of a stock option granted to one officer in September 2, 1991 pursuant to the Company's Incentive Stock Option Plan; does not include 787 shares of Class A Common Stock which may be issued upon the exercise of a stock option granted to one officer in November 2, 1992 pursuant to the Company's Incentive Stock Option Plan; does not include 630 shares of Class A Common Stock which may be issued upon the exercise of a stock option granted to one officer in April 2, 1994 pursuant to the Company's Incentive Stock Option Plan; does not include 600 shares of Class A Common Stock which may be issued upon the exercise of a stock option granted to one officer in December 2, 1994 pursuant to the Company's Incentive Stock Option Plan; does not include 2,400 shares of Class A Common Stock which may be issued upon the exercise of stock options granted to two (2) officers in December 1995 pursuant to the Company's Incentive Stock Option Plan.
(13) 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 an aggregate of 1,277,018 shares Class B Common Stock owned by them, the former spouse of one of the individuals and the children of the individuals. The agreement provides that prior to accepting a bona fide offer to purchase all or any part of their shares, each party must first allow the other members to the agreement the opportunity to acquire on a pro rata basis, with right of over-allotment, all of such shares covered by the offer on the same terms and conditions proposed by the offer.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
Item 14.
Item 14. EXHIBITS, FINANCIAL STATEMENTS
(a) 1. Financial Statements 	 Page
	 Report of Independent Accountants		 17	 	
	 Consolidated Balance Sheet -			 	 July 31, 1996 and 1995	 			 18 	 	 	 Consolidated Statement of Income 	 for the fiscal years ended July 31, 1996, 	 1995 and 1994	 	 			 19 	 	 	 	 Consolidated Statement of Changes in 	 Shareholders' Equity for the fiscal years 	 ended July 31, 1996, 1995 and 1994		 20
	 Consolidated Statement of Cash Flows for 	 the fiscal years ended July 31, 1996, 	 1995 and 1994	 	 			 21 	 	 	 	 Notes to Consolidated Financial Statements	 22 	 2. Financial Statement Schedule
	 Schedule VIII - Allowance for 	 Doubtful Accounts 	 			 33 	 	 (b) Selected Quarterly Financial Data (Unaudited)	 34
All other schedules are omitted because they are not applicable, or not required, or because the required information in included 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)
3.8	 Certificate of Amendment of Certificate of Incorporation filed January 15, 1988 (2)
4.1 Specimen Class A Common Stock Certificate (1)
4.2 Specimen Class B Common Stock Certificate (1)
10.1 Stockholders' Agreement among Gerhard J. Neumaier, Ronald L. Frank, Frank B. Silvestro and Gerald A. Strobel dated May 12, 1970 (1)
10.3 Ecology and Environment, Inc. Defined Benefit Pension Plan Agreement dated July 25, 1980, as amended on April 28, 1981 and restated effective August 1, 1984 (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	 Ecology and Environment, Inc. 1986 Incentive Stock Option Plan approved by Shareholders February 13, 1983 and amended and restated by Board of Directors December 29, 1986 (1)
10.6	 Form of Ecology and Environments, Inc. Incentive Stock Option Plan option agreement (1)
10.6.1 Amendment No. 2 to Ecology and Environment, Inc. 1986 Incentive Stock Option Plan (3)
10.9	 Contract No. 68-WO-0037 issued by the Environmental Protection Agency to Ecology and Environment, Inc. to Assistance Teams for Emergency, Response, Removal and Protection (Zone II), effective October 1, 1990 (3). (Note: Confidential treatment was requested pursuant to separate application to the SEC)
21.5	 Schedule of Subsidiaries as of July 31, 1994 (4)
23.0	 Consent of Independent Accountants (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, 1988, and incorporated herein by reference.
(3) Filed as exhibit to the Company's Form 10-K for Fiscal Year ending July 31, 1990, and incorporated herein by reference.
(4) Filed as an exhibit to the Company's Form 10-K for Fiscal Year ending July 31, 1994, and incorporated herein by reference.
(5) Filed herewith.
(b) Reports on Form 8-K
Registrant has not filed any reports on Form 8-K during the fourth quarter ended July 31, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ECOLOGY AND ENVIRONMENT, INC. has duly caused this Annual Report to be signed on its behalf by the undersigned thereunto duly authorized:
Dated: October 28, 1996 ECOLOGY AND ENVIRONMENT, INC.
	 	 By: /S/ Gerhard J. Neumaier 	 	 Gerhard J. Neumaier, President
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/ Gerhard J. Neumaier President October 28, 1996 Gerhard J. Neumaier (Chief Executive Officer)
/S/ Frank B. Silvestro Executive October 28, 1996 Frank B. Silvestro Vice-President
/S/ Gerald A. Strobel Executive October 28, 1996 Gerald A. Strobel Vice-President
/S/ Ronald L. Frank Secretary, October 28, 1996 Ronald L. Frank Treasurer, Executive Vice-President of Finance (Principal Financial and Accounting Officer)
/S/ Gerard A. Gallagher, Jr. Senior Vice October 28, 1996 Gerard A. Gallagher, Jr. President of Special Projects and Director
/S/ Ralph Bookbinder Director October 28, 1996 Ralph Bookbinder
/S/ Harvey J. Gross Director October 28, 1996 Harvey J. Gross
/S/ Ross M. Cellino Director October 28, 1996 Ross M. Cellino
Exhibit Index
Exhibit 23 		 Consent of Independent Accountants
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 33-41998) of Ecology and Environment, Inc. of our report dated October 2, 1996 appearing under Item 14 (a) 1. of this Form 10-K. We also consent to the reference to us under the heading "Experts" in such Registration Statement.
PRICE WATERHOUSE LLP
Buffalo, New York October 25, 1996