The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements
Unaudited
1.
|
Organization and Basis of Presentation
|
Ecology and Environment Inc., (“EEI”) was incorporated in 1970 as a global broad-based environmental consulting firm whose underlying philosophy is to provide
professional services worldwide so that sustainable economic and human development may proceed with acceptable impact on the environment. During the nine months ended April 27, 2019, EEI and its subsidiaries (collectively, the “Company”) included
six active wholly-owned and majority-owned operating subsidiaries located in four countries (the United States of America (the “U.S.”), Brazil, Peru, and Ecuador), and one majority-owned equity investment in Chile. During the three months ended
April 26, 2019, the Company sold its majority interest in its subsidiary in Ecuador, which is not expected to have a material impact on its consolidated results of operations, financial position or cash flows for future reporting periods. The
Company’s staff is comprised of individuals representing numerous scientific, engineering, health, and social disciplines working together in multidisciplinary teams to provide innovative environmental solutions. The majority of employees hold
bachelor’s and/or advanced degrees in such areas as chemical, civil, mechanical, sanitary, soil, structural and transportation engineering, biology, geology, hydrogeology, ecology, urban and regional planning and oceanography. The Company’s client
list includes governments, industries, multinational corporations, organizations, and private companies.
The Company prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange
Commission (the “SEC”). The financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of such information. All such adjustments are of a normal recurring nature.
Although the Company believes that the disclosures are adequate to make the information presented not misleading, certain information and note disclosures normally
included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), including a description of significant accounting policies, have been condensed or omitted pursuant
to SEC rules and regulations. Therefore, these financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended July
31, 2018 filed with the SEC (the “2018 Annual Report”). Other than new or revised accounting policies resulting from the adoption of new accounting pronouncements described in Note 3 of these condensed consolidated financial statements, the
accounting policies followed by the Company for preparation of the consolidated financial statements included in the 2018 Annual Report were also followed for this quarterly report. The condensed consolidated results of operations for the three
and nine months ended April 27, 2019 are not necessarily indicative of the results for any subsequent period or the entire fiscal year ending July 31, 2019.
2.
|
Restatement of Unaudited Condensed Consolidated Financial Statements
|
As previously disclosed in the Current Report on Form 8-K filed by the Company with the SEC on December 12, 2018, the Audit Committee of the Board of Directors (the “Audit Committee”)
determined that the Company’s previously issued financial statements for quarterly periods prior to July 31, 2018 can no longer be relied upon due to errors related to accounting for EEI’s investment in Gestion Ambiental Consultores S.A. (“GAC”)
since 1999. The financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2018 included a restated consolidated balance sheet at July 31, 2017, and restated consolidated statements of operations,
comprehensive income, cash flows and shareholders’ equity for the fiscal years ended July 31, 2017 and 2016 (the “Restated Annual Financial Statements”). The Company’s Quarterly Reports on Forms 10-Q for the periods ended October 27, 2018 and
January 26, 2019 included restated unaudited condensed consolidated statements of operations, comprehensive income and cash flows for the three months ended October 28, 2017 and the three and six months ended January 27, 2018 (the “Restated
Unaudited Condensed Consolidated Financial Statements”). This Quarterly Report on Form 10-Q includes restated unaudited condensed consolidated statements of operations, comprehensive income and cash flows for the three and nine months ended April
28, 2018. Tables related to revenues, operating expenses and income taxes for the three and nine months ended April 28, 2018 included in Item 2 of this Quarterly Report on Form 10-Q have also been restated.
The Company had previously included GAC’s financial statements in consolidated financial statements filed with the SEC prior to July 31, 2018. In December 2018, the Company determined
that, although it had a majority ownership interest in GAC, it did not have a controlling interest in GAC’s operations due to lack of continuous control over the activities of GAC’s board of directors and senior management team. As a result, the
Company’s net investment in GAC should have been accounted for using the equity method of accounting.
Collectively, the adjustments necessary to deconsolidate GAC’s unaudited financial statements and correctly account for the Company’s investment in GAC under the equity method of
accounting are referred to as the “GAC Deconsolidation Adjustments.” For the three months ended April 28, 2018, the GAC Deconsolidation Adjustments resulted in decreases of $2.8 million, $0.3 million and less than $0.1 million in consolidated
gross revenue, income before income tax provision and net income attributable to EEI, respectively. For the nine months ended April 28, 2018, the GAC Deconsolidation Adjustments resulted in decreases of $8.1 million, $0.7 million and less than
$0.1 million in consolidated gross revenue, income before income tax provision and net income attributable to EEI, respectively.
In addition to the GAC Deconsolidation Adjustments, previously filed financial statements for the three and nine months ended April 28, 2018 were also adjusted to correct other errors in
the financial statements and disclosures that were deemed to be immaterial on an individual basis and in the aggregate for those reporting periods (the “Out of Period Adjustments”). For the three months ended April 28, 2018, the Out of Period
Adjustments resulted in decreases of $0.2 million, less than $0.1 million and $0.1 million of consolidated gross revenue, income before income tax provision and net income attributable to EEI, respectively. For the nine months ended April 28,
2018, the Out of Period Adjustments resulted in increases of $0.3 million, less than $0.1 million and $0.3 million of consolidated gross revenue, income before income tax provision and net income attributable to EEI, respectively.
The “As Previously Reported” amounts in the tables below represent the amounts reported in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended
April 28, 2018, filed with the SEC on June 12, 2018.
Ecology and Environment Inc.
Condensed Consolidated Statements of Operations
(amounts in thousands, except share data)
|
|
Three Months Ended April 28, 2018
|
|
|
|
As
Previously
Reported
|
|
|
GAC
Deconsolidation
Adjustments
|
|
|
Out of Period
Adjustments
|
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenue
|
|
$
|
23,728
|
|
|
$
|
(2,828
|
)
|
|
$
|
(223
|
)
|
|
$
|
20,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct cost of professional services and other direct operating expenses
|
|
|
8,793
|
|
|
|
(883
|
)
|
|
|
-
|
|
|
|
7,910
|
|
Subcontract costs
|
|
|
3,585
|
|
|
|
(733
|
)
|
|
|
(212
|
)
|
|
|
2,640
|
|
Selling, general and administrative expenses
|
|
|
10,700
|
|
|
|
(751
|
)
|
|
|
-
|
|
|
|
9,949
|
|
Depreciation and amortization
|
|
|
291
|
|
|
|
(9
|
)
|
|
|
-
|
|
|
|
282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
359
|
|
|
|
(452
|
)
|
|
|
(11
|
)
|
|
|
(104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from equity method investment
|
|
|
-
|
|
|
|
137
|
|
|
|
-
|
|
|
|
137
|
|
Net interest income (expense)
|
|
|
52
|
|
|
|
6
|
|
|
|
-
|
|
|
|
58
|
|
Net foreign exchange (loss) gain
|
|
|
15
|
|
|
|
(4
|
)
|
|
|
-
|
|
|
|
11
|
|
Other income (expense)
|
|
|
24
|
|
|
|
1
|
|
|
|
-
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax provision
|
|
|
450
|
|
|
|
(312
|
)
|
|
|
(11
|
)
|
|
|
127
|
|
Income tax provision
|
|
|
43
|
|
|
|
(121
|
)
|
|
|
40
|
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
407
|
|
|
|
(191
|
)
|
|
|
(51
|
)
|
|
|
165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Income) loss attributable to noncontrolling interests
|
|
|
(243
|
)
|
|
|
147
|
|
|
|
-
|
|
|
|
(96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Ecology and Environment Inc.
|
|
$
|
164
|
|
|
$
|
(44
|
)
|
|
$
|
(51
|
)
|
|
$
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share: basic and diluted
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outatanding: basic and diluted
|
|
|
4,301,604
|
|
|
|
|
|
|
|
|
|
|
|
4,301,604
|
|
|
|
Nine Months Ended April 28, 2018
|
|
|
|
As
Previously
Reported
|
|
|
GAC
Deconsolidation
Adjustments
|
|
|
Out of Period
Adjustments
|
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenue
|
|
$
|
75,892
|
|
|
$
|
(8,093
|
)
|
|
$
|
272
|
|
|
$
|
68,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct cost of professional services and other direct operating expenses
|
|
|
27,352
|
|
|
|
(2,858
|
)
|
|
|
-
|
|
|
|
24,494
|
|
Subcontract costs
|
|
|
15,082
|
|
|
|
(1,921
|
)
|
|
|
257
|
|
|
|
13,418
|
|
Selling, general and administrative expenses
|
|
|
31,438
|
|
|
|
(2,225
|
)
|
|
|
-
|
|
|
|
29,213
|
|
Depreciation and amortization
|
|
|
827
|
|
|
|
(26
|
)
|
|
|
-
|
|
|
|
801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
1,193
|
|
|
|
(1,063
|
)
|
|
|
15
|
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from equity method investment
|
|
|
-
|
|
|
|
376
|
|
|
|
-
|
|
|
|
376
|
|
Net interest income (expense)
|
|
|
39
|
|
|
|
17
|
|
|
|
-
|
|
|
|
56
|
|
Net foreign exchange (loss) gain
|
|
|
(12
|
)
|
|
|
2
|
|
|
|
-
|
|
|
|
(10
|
)
|
Other income (expense)
|
|
|
36
|
|
|
|
1
|
|
|
|
-
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax provision
|
|
|
1,256
|
|
|
|
(667
|
)
|
|
|
15
|
|
|
|
604
|
|
Income tax provision
|
|
|
797
|
|
|
|
(280
|
)
|
|
|
(238
|
)
|
|
|
279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
459
|
|
|
|
(387
|
)
|
|
|
253
|
|
|
|
325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Income) loss attributable to noncontrolling interests
|
|
|
(530
|
)
|
|
|
342
|
|
|
|
1
|
|
|
|
(187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Ecology and Environment Inc.
|
|
$
|
(71
|
)
|
|
$
|
(45
|
)
|
|
$
|
254
|
|
|
$
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share: basic and diluted
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outatanding: basic and diluted
|
|
|
4,301,604
|
|
|
|
|
|
|
|
|
|
|
|
4,301,604
|
|
Ecology and Environment Inc.
Condensed Consolidated Statements of Comprehensive Income
(amounts in thousands)
|
|
Three Months Ended April 28, 2018
|
|
|
|
As
Previously
Reported
|
|
|
GAC
Deconsolidation
Adjustments
|
|
|
Out of Period
Adjustments
|
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income including noncontrolling interests
|
|
$
|
407
|
|
|
$
|
(191
|
)
|
|
$
|
(51
|
)
|
|
$
|
165
|
|
Foreign currency translation adjustments
|
|
|
(1
|
)
|
|
|
(36
|
)
|
|
|
-
|
|
|
|
(37
|
)
|
Unrealized investment (losses) gains, net
|
|
|
(10
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
396
|
|
|
|
(227
|
)
|
|
|
(51
|
)
|
|
|
118
|
|
Comprehensive (income) loss attributable to noncontrolling interests
|
|
|
(209
|
)
|
|
|
147
|
|
|
|
-
|
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to EEI
|
|
$
|
187
|
|
|
$
|
(80
|
)
|
|
$
|
(51
|
)
|
|
$
|
56
|
|
|
|
Nine Months Ended April 28, 2018
|
|
|
|
As
Previously
Reported
|
|
|
GAC
Deconsolidation
Adjustments
|
|
|
Out of Period
Adjustments
|
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income including noncontrolling interests
|
|
$
|
459
|
|
|
$
|
(387
|
)
|
|
$
|
253
|
|
|
$
|
325
|
|
Foreign currency translation adjustments
|
|
|
194
|
|
|
|
(194
|
)
|
|
|
-
|
|
|
|
-
|
|
Unrealized investment (losses) gains, net
|
|
|
(26
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
627
|
|
|
|
(581
|
)
|
|
|
253
|
|
|
|
299
|
|
Comprehensive (income) loss attributable to noncontrolling interests
|
|
|
(603
|
)
|
|
|
418
|
|
|
|
-
|
|
|
|
(185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to EEI
|
|
$
|
24
|
|
|
$
|
(163
|
)
|
|
$
|
253
|
|
|
$
|
114
|
|
Ecology and Environment Inc.
Condensed Consolidated Statement of Cash Flows
(amounts in thousands)
|
|
Nine Months Ended April 28, 2018
|
|
|
|
As
Previously
Reported
|
|
|
Impact of
GAC
Deconsolidation
|
|
|
Other
Adjustments
|
|
|
Restated
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
459
|
|
|
$
|
(387
|
)
|
|
$
|
253
|
|
|
$
|
325
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
827
|
|
|
|
(26
|
)
|
|
|
-
|
|
|
|
801
|
|
Provision for deferred income taxes
|
|
|
380
|
|
|
|
(599
|
)
|
|
|
158
|
|
|
|
(61
|
)
|
Share based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
94
|
|
|
|
94
|
|
Gain on sale of assets and investment securities
|
|
|
(19
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(19
|
)
|
Net recoveries of contract adjustments
|
|
|
(60
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(60
|
)
|
Net bad debt recoveries
|
|
|
(96
|
)
|
|
|
33
|
|
|
|
-
|
|
|
|
(63
|
)
|
Changes in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- contract receivables
|
|
|
8,063
|
|
|
|
175
|
|
|
|
(465
|
)
|
|
|
7,773
|
|
- other current assets
|
|
|
(46
|
)
|
|
|
(5
|
)
|
|
|
123
|
|
|
|
72
|
|
- income tax receivable
|
|
|
275
|
|
|
|
387
|
|
|
|
(396
|
)
|
|
|
266
|
|
- equity method investment
|
|
|
-
|
|
|
|
(376
|
)
|
|
|
-
|
|
|
|
(376
|
)
|
- other non-current assets
|
|
|
(54
|
)
|
|
|
296
|
|
|
|
12
|
|
|
|
254
|
|
- accounts payable
|
|
|
(2,784
|
)
|
|
|
(117
|
)
|
|
|
233
|
|
|
|
(2,668
|
)
|
- accrued payroll costs
|
|
|
(1,409
|
)
|
|
|
(130
|
)
|
|
|
-
|
|
|
|
(1,539
|
)
|
- income taxes payable
|
|
|
285
|
|
|
|
1
|
|
|
|
-
|
|
|
|
286
|
|
- customer deposits
|
|
|
505
|
|
|
|
131
|
|
|
|
-
|
|
|
|
636
|
|
- other accrued liabilities
|
|
|
(601
|
)
|
|
|
306
|
|
|
|
-
|
|
|
|
(295
|
)
|
Net cash provided by used in operating activities
|
|
|
5,725
|
|
|
|
(311
|
)
|
|
|
12
|
|
|
|
5,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, building and equipment
|
|
|
(702
|
)
|
|
|
48
|
|
|
|
-
|
|
|
|
(654
|
)
|
Proceeds from sale of building and equipment
|
|
|
19
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19
|
|
Purchase of investment securities
|
|
|
(23
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(23
|
)
|
Net cash used in investing activities
|
|
|
(706
|
)
|
|
|
48
|
|
|
|
-
|
|
|
|
(658
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
(1,721
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,721
|
)
|
Repayment of debt
|
|
|
(373
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(373
|
)
|
Net borrowings (repayment) of lines of credit
|
|
|
(577
|
)
|
|
|
221
|
|
|
|
-
|
|
|
|
(356
|
)
|
Distributions to noncontrolling interests
|
|
|
(322
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(322
|
)
|
Net cash used in financing activities
|
|
|
(2,993
|
)
|
|
|
221
|
|
|
|
-
|
|
|
|
(2,772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
38
|
|
|
|
(71
|
)
|
|
|
(13
|
)
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash, cash equivalents and restricted cash
|
|
|
2,064
|
|
|
|
(113
|
)
|
|
|
(1
|
)
|
|
|
1,950
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
|
|
13,343
|
|
|
|
(208
|
)
|
|
|
-
|
|
|
|
13,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash at end of period
|
|
$
|
15,407
|
|
|
$
|
(321
|
)
|
|
$
|
(1
|
)
|
|
$
|
15,085
|
|
3.
|
Recent Accounting Pronouncements
|
The Financial Accounting Standards Board (“FASB”) establishes changes to U.S. GAAP in the form of accounting standards updates (“ASUs”) to the FASB Accounting
Standards Codification (“ASC”). The Company considers the applicability and impact of all ASUs when they are issued by FASB. ASUs listed below were either adopted by the Company during its current fiscal year, or will be adopted as each ASU
becomes effective during future reporting periods. ASUs not listed below were assessed to be not applicable to the Company’s operations or are expected to have minimal impact on the Company’s consolidated financial position or results of
operations.
Accounting Pronouncements Adopted During the Nine Months Ended April 27, 2019
In May 2014, FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09, as amended by subsequent ASUs that amended
and clarified the guidance in ASU 2014-09, forms the basis for FASB ASC Topic 606 (“ASC Topic 606”), which superseded previous authoritative U.S. GAAP guidance regarding revenue recognition. The Company adopted ASC Topic 606 effective August 1,
2018. Refer to Note 7 of these condensed consolidated financial statements for additional disclosures regarding the Company’s adoption of ASC Topic 606.
In January 2016, FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial
Liabilities (“ASU 2016-01”). The amendments in ASU 2016-01 address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. In February 2018, FASB issued ASU 2018-03, Technical Corrections and
Improvements to Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities, which clarified certain aspects of the guidance issued in ASU 2016-01. Under the new guidance, entities
are no longer able to classify equity investments as either trading or available for sale (“AFS”), and may no longer recognize unrealized holding gains and losses in other comprehensive income on equity securities that were classified as AFS under
previous U.S. GAAP. The Company adopted the applicable provisions of ASU 2016-01 effective August 1, 2018 by recording a cumulative effect adjustment of less than $0.1 million to beginning retained earnings and beginning accumulated other
comprehensive income on the condensed consolidated balance sheets. The cumulative effect adjustment is also separately reported on the condensed consolidated statements of shareholders’ equity.
In August 2016, FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). The
amendments included in this update provide guidance regarding eight specific cash flow classification issues that are not specifically addressed in previous U.S. GAAP, only one of which was deemed applicable to the Company’s cash flow reporting.
Issue 6 of ASU 2016-15 requires that reporting entities elect an accounting policy to classify distributions received from equity method investees using one of two possible approaches:
|
•
|
the “cumulative earnings approach,” under which, subject to certain limitations, distributions received from equity investees are considered returns on investment and
classified as cash inflows from operating activities; or
|
|
•
|
the “nature of the distribution approach,” under which distributions received from equity investees should be classified on the basis of the nature of the activity or
activities of the investee that generated the distribution as either a return on investment (classified as a cash inflow from operating activities) or a return of investment (classified as a cash inflow from investing activities).
|
The Company adopted the provisions of ASU 2016-15 effective August 1, 2018 and elected the “cumulative earnings approach.”
The Company received $0.2 million of dividends from its equity method investee during the nine months ended April 27, 2019 that are included in cash flows from
operating activities.
Accounting Pronouncements Not Yet Adopted as of April 27, 2019
In March 2016, FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). The main difference between previous U.S. GAAP and ASU 2016-02, as amended by
subsequent ASUs that amended and clarified the guidance in ASU 2016-02, is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. ASU 2016-02 provides specific
guidance for determining whether a contractual arrangement contains a lease, lease classification by lessees and lessors, initial and subsequent measurement of leases by lessees and lessors, sale and leaseback transactions, transition, and
financial statement disclosures. ASU 2016-02 requires entities to use a modified retrospective approach to apply its guidance, and includes a number of optional practical expedients that entities may elect to apply. ASU 2016-02 will be effective
for the Company beginning August 1, 2019. Management is currently assessing the provisions of ASU 2016-02. The Company anticipates that adoption of ASU 2016-02 will result in the addition of material right-of-use assets and lease liabilities to
the Company’s consolidated balance sheet in addition to expanding required disclosures. Management has not yet estimated the impact of ASU 2016-02 on the Company’s consolidated statements of operations and cash flows.
In June 2016, FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) (“ASU 2016-13”). The amendments included in this update affect entities
holding financial assets, including trade receivables and investment securities available for sale, that are not accounted for at fair value through net income. ASU 2016-13, as amended by subsequent updates that amended and clarified the guidance
in ASU 2016-13, requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The amendments included in this update also provide guidance for measurement
of expected credit losses and for presentation of increases or decreases of expected credit losses on the statement of operations. ASU No. 2016-13 will be effective for the Company beginning August 1, 2020. Early adoption is permitted for the
Company beginning August 1, 2019. Management is currently assessing the provisions of ASU 2016-13 and has not yet estimated its impact on the Company’s consolidated financial statements.
In January 2017, FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). The
amendments included in this update simplify the subsequent measurement of goodwill by revising the steps required during the registrant’s annual goodwill impairment test. This accounting standard update will be effective for the Company beginning
August 1, 2021. Management is currently assessing the provisions of ASU 2017-04 and has not yet estimated its impact on the Company’s consolidated financial statements.
4.
|
Significant Transactions During the Three Months Ended April 27, 2019
|
Staff Reduction Programs
In December 2018, the Company began to notify employees of a voluntary retirement program. In February 2019, the Company began to notify affected employees of an involuntary separation
program. These programs (collectively, the “Staff Reduction Programs”), which are being implemented in connection with a corporate restructuring plan within the Company’s U.S. operating segment, were substantially completed by April 27, 2019 and
are expected to be completed by July 31, 2019. Company management anticipates that the combined effect of the Staff Reduction Programs and other expense reduction initiatives will result in annual pre-tax cost savings of greater than $6.0 million.
During the three months ended April 27, 2019, the Company recorded and paid approximately $0.8 million of employee severance and termination expenses related to the Staff Reduction Programs, which was reported in selling, general and administrative
expenses on the condensed consolidated statements of operations. The Company expects to record additional severance expense of approximately $0.1 million during the three months ended July 31, 2019 in connection with the Staff Reduction Programs.
Expenses Associated with Restatements of Financial Statements
As described above, the Company restated its audited consolidated financial statements for the fiscal years ended July 31, 2016 and 2017 and unaudited condensed consolidated financial
statements for the quarters ended October 28, 2017, January 27, 2018 and April 28, 2018. Financial data included in tables and various accounting policies and commentaries included in the Company’s Restated 2019 Annual Report and Restated 2019
Quarterly Reports were also restated or otherwise revised. These restatements required extensive internal and external resources to complete, including significant incremental fees paid to the Company’s independent auditors, tax consultants and
external legal counsel. The Company’s U.S. operating segment recorded incremental audit, tax and legal expenses of $0.9 million in selling, general and administrative expenses on the condensed consolidated statements of operations during the nine
months ended April 27, 2019, $0.6 million of which was recorded during the three months ended April 27, 2019.
5.
|
Cash, Cash Equivalents and Restricted Cash
|
Cash, cash equivalents and restricted cash balances are summarized in the following table.
|
|
April 27,
2019
|
|
|
July 31,
2018
|
|
|
|
(in thousands)
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9,646
|
|
|
$
|
13,496
|
|
Restricted cash included in other assets
|
|
|
240
|
|
|
|
250
|
|
Total cash, cash equivalents and restricted cash
|
|
$
|
9,886
|
|
|
$
|
13,746
|
|
The Company considers all liquid instruments purchased with a maturity of three months or less to be cash equivalents. Money market funds of less than $0.1 million
and $0.4 million were included in cash and cash equivalents at April 27, 2019 and July 31, 2018, respectively. Restricted cash included in other assets represents collateral for pending litigation matters in Brazil that are not expected to be
resolved within one year from the balance sheet date.
6.
|
Fair Value of Financial Instruments
|
The Company’s financial assets or liabilities are measured using inputs from the three levels of the fair value hierarchy. The Company classifies assets and
liabilities within the fair value hierarchy based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable
inputs. The Company has not elected a fair value option on any assets or liabilities. The three levels of the hierarchy are as follows:
Level 1 Inputs
– Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Generally, this includes debt and equity securities
and derivative contracts that are traded on an active exchange market (e.g., New York Stock Exchange) as well as certain U.S. Treasury and U.S. Government and agency mortgage-backed securities that are highly liquid and are actively traded in
over-the-counter markets.
Level 2 Inputs
– Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar
assets or liabilities in inactive markets; or valuations based on models where the significant inputs are observable (e.g., interest rates, yield curves, credit risks, etc.) or can be corroborated by observable market data.
Level 3 Inputs
– Valuations based on models where significant inputs are not observable. The unobservable inputs reflect
the Company’s own assumptions about the assumptions that market participants would use.
The Company monitors the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy.
Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the Company reports the transfer as of the beginning of the reporting
period. The Company evaluated the significance of transfers between levels based upon the nature of the financial instrument. There were no transfers in or out of levels 1, 2 or 3, respectively, during the nine months ended April 27, 2019 or the
fiscal year ended July 31, 2018.
The carrying amount of cash, cash equivalents and restricted cash approximated fair value at April 27, 2019 and July 31, 2018. These assets were classified as level
1 instruments at both dates.
Investment securities available for sale of $1.5 million at April 27, 2019 and July 31, 2018 primarily included mutual funds invested in U.S.
municipal bonds, which the Company may immediately redeem without prior notice. These mutual funds are valued at the net asset value (“NAV”) of shares held by the Company at period end as a practical expedient to estimate fair value. These mutual
funds are deemed to be actively traded, are required to publish their daily NAV and are required to transact at that price.
Prior to August 1, 2018, unrealized gains or losses related to investment securities available for sale were recorded in the consolidated balance sheets and
statements of comprehensive income. Subsequent to adoption of ASU 2016-01 effective August 1, 2018 (refer to Note 3 of these condensed consolidated financial statements), unrealized gains or losses related to investment securities available for
sale are recorded in the consolidated statements of operations. The cost basis of securities sold is based on the specific identification method. The Company did not record any sales of investment securities during the nine months ended April 27,
2019 and April 28, 2018.
Long-term debt consists of bank loans and capitalized equipment leases. Lines of credit consist of borrowings for working capital requirements. Based on the
relative immateriality of consolidated debt and line of credit borrowings, management believes that the carrying amount of these liabilities approximated fair value at April 27, 2019 and July 31, 2018. These liabilities were classified as level 2
instruments at both dates.
There were no financial instruments classified as level 3 at April 27, 2019 and July 31, 2018.
7.
|
Revenue and Contract Receivables, net
|
Adoption of ASC Topic 606
The Company adopted ASC Topic 606 effective August 1, 2018.
Gross revenue for reporting periods beginning after July 31, 2018 is recognized under ASC
Topic 606. Gross revenue for previous reporting periods was recognized in accordance with historic accounting under U.S. GAAP, as summarized in revenue recognition policies included in the Company’s 2018 Annual Report.
The Company adopted ASC Topic 606 using the modified retrospective method. As a practical expedient allowed under ASC Topic 606, the Company applied the new guidance only to contracts
that were not completed as of the date of initial application. The Company did not record any cumulative effect adjustment to retained earnings as of August 1, 2018, and
did not record any material adjustment to
gross revenue for the three or nine months ended April 27, 2019 as a result of applying the guidance in ASC Topic 606.
Revenue Recognition under ASC Topic 606
The Company recognizes substantially all of its revenue from the sale of labor hours under environmental consulting contracts. Revenue reflected in the Company’s
consolidated statements of operations represents services rendered for which the Company maintains a primary contractual relationship with its customers. Included in revenue are certain services outside the Company’s normal operations that the
Company has elected to subcontract to other contractors.
In accordance with ASC Topic 606, the Company identifies a contract with a customer, identifies the performance obligations in the contract, determines the
transaction price, allocates the transaction price to each performance obligation in the contract and recognizes revenue when (or as) the Company satisfies a performance obligation. The Company recognizes the vast majority of its contractual
revenue over time, as services are rendered and performance obligations are satisfied, because of the continuous transfer of control to the customer, and because the Company generally maintains the right to remuneration for efforts already expended
under its contracts even if a customer terminates the contract. The Company’s contracts with customers generally include payment terms that range from 30-90 days from the billing date.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account for revenue recognition. The
Company allocates a contract’s transaction price to each distinct performance obligation and recognizes revenue when, or as, the performance obligation is satisfied. Predominantly, the Company’s contracts have a single performance obligation
because the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts.
The Company performs its consulting work under a mix of time and materials, fixed price and cost-plus contracts. The Company accounts for time and material
contracts over the period of performance, predominately based on labor hours incurred. Under these types of contracts, there is no predetermined fee. Instead, the Company negotiates hourly billing rates and charges the clients based upon actual
hours expended on a project. In addition, any direct project expenditures are passed through to the client and are typically reimbursed. Time and materials contracts may contain “not to exceed” provisions that effectively cap the amount of
revenue that the Company can bill to the client. In order to record revenue that exceeds the billing cap, the Company must obtain approval from the client for expanded scope or increased pricing.
The Company recognizes revenue under fixed price contracts using the proportional performance method, under which progress is determined based on the ratio of
efforts expended to date in proportion to total efforts expected to be expended over the life of a contract. The proportional performance method requires the use of estimates and judgment regarding a project’s expected revenue and the extent of
progress towards completion. The Company makes periodic estimates of progress towards project completion by analyzing efforts expended to date, plus an estimate of the amount of efforts to expend that we expect to incur until the completion of the
project. Revenue is then calculated on a cumulative basis (project-to-date) as the proportion of efforts-expended. The revenue for the current period is calculated as cumulative revenue less project revenue already recognized. If an estimate of
efforts expended at completion on any contract indicates that a loss will be incurred, the entire estimated loss is charged to operations in the period the loss becomes evident.
Cost-plus contracts provide for payment of allowable incurred costs, to the extent prescribed in the contract, plus fees that we record as revenue. These contracts
establish an estimate of total cost and an invoicing ceiling that the contractor may not exceed without the approval of the client. Revenue earned from cost-plus contracts is recognized over the period of performance.
Substantially all of the Company’s cost-plus contracts are with federal governmental agencies and, as such, are subject to audits after contract completion.
Government audits have been completed and final rates have been negotiated through fiscal year 2014. The Company recorded an allowance for potential disallowances resulting from government audits of $0.7 million in other accrued liabilities at
April 27, 2019 and July 31, 2018. Adjustments to allowances for project disallowances are recorded as adjustments to revenue when the amounts are estimable. Resolution of these amounts is dependent upon the results of government audits and other
formal contract closeout procedures.
Contract modifications are common in the performance the Company’s contracts, and typically result from changes in scope, specifications, design, performance, sites,
or period of completion. In most cases, contract modifications are for services that are not distinct, and, therefore, are accounted for as part of the existing contract. Revenue is recognized on contract modifications when it is probable that
the modification will be approved and the amount can be reasonably estimated.
Cost of professional services and other direct operating expenses, which includes employee labor and fringe expenses and out of pocket expenses such as
travel, meals and field supplies, represent
costs incurred in connection with revenue recognized under client contracts.
Sales and cost of sales recognized by the Company’s South American operations
exclude value added tax (VAT) assessments by governmental authorities, which the Company collects from its customers and remits to governmental authorities.
The Company expenses all bid and proposal and other pre-contract costs as incurred.
Contract Receivables, net and Contract Assets
Contract receivables, net are summarized in the following table.
|
|
April 27,
2019
|
|
|
July 31,
2018
|
|
|
|
(in thousands)
|
|
Contract Receivables:
|
|
|
|
|
|
|
Billed
|
|
$
|
12,616
|
|
|
$
|
12,905
|
|
Unbilled
|
|
|
13,324
|
|
|
|
13,994
|
|
Total contract receivables
|
|
|
25,940
|
|
|
|
26,899
|
|
Allowance for doubtful accounts
|
|
|
(1,171
|
)
|
|
|
(1,284
|
)
|
Contract receivables, net
|
|
$
|
24,769
|
|
|
$
|
25,615
|
|
Billed contract receivables represent amounts billed to clients in accordance with contracted terms but not collected as of the end of the reporting
period. Billed contract receivables may include: (i) amounts billed for revenue from efforts expended and fees earned in accordance with contractual terms; and (ii) progress billings in accordance with contractual terms that include revenue not
yet earned as of the end of the reporting period.
The Company anticipates that substantially all billed contract receivables will be collected over the next twelve months.
Billed contract receivables
included contractual retainage balances of $0.8 million and $1.4 million at April 27, 2019 and July 31, 2018, respectively.
Unbilled contract receivables,
which represent an unconditional right to payment subject only to the passage of time,
represent amounts billable to clients in accordance with contracted terms that have not been billed as of the end of the reporting period. Unbilled contract receivables that are not expected to be billed and collected within one
year from the balance sheet date are reported in other assets on the condensed consolidated balance sheets.
The Company reduces contract receivables by recording an
allowance for doubtful accounts to account for the estimated impact of collection
issues resulting from a client’s inability or unwillingness to pay valid obligations to the Company. The resulting provision for doubtful accounts is recorded within selling, general and administrative expenses on the condensed consolidated
statements of operations.
The Company may record contract assets for the right to receive consideration from customers when that right is conditional based on future performance under a contract. Contract assets
are transferred to billed contract receivables when the right to consideration becomes unconditional. The Company did not record any contract assets at April 27, 2019 or July 31, 2018.
At April 27, 2019 and July 31, 2018, management identified $0.3 million and $0.5 million, respectively, of contract receivables, net of related allowance for
doubtful accounts, which are not expected to be collected within one year. These receivable balances are included in other assets on the accompanying condensed consolidated balance sheets.
Allowance for Doubtful Accounts
Activity within the allowance for doubtful accounts is summarized in the following table.
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
April 27,
2019
|
|
|
April 28,
2018
(Restated)
|
|
|
April 27,
2019
|
|
|
April 28,
2018
(Restated)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
1,234
|
|
|
|
1,902
|
|
|
$
|
1,284
|
|
|
$
|
2,044
|
|
Provision for doubtful accounts during the period
|
|
|
89
|
|
|
|
154
|
|
|
|
159
|
|
|
|
246
|
|
Write-offs and recoveries of allowance recorded in prior periods
|
|
|
(152
|
)
|
|
|
|
|
|
|
(272
|
)
|
|
|
(678
|
)
|
Balance at end of period
|
|
$
|
1,171
|
|
|
|
1,612
|
|
|
$
|
1,171
|
|
|
$
|
1,612
|
|
Contract Receivable Concentrations
Contract receivables and the allowance for doubtful accounts are summarized in the following table.
|
|
April 27, 2019
|
|
|
July 31, 2018
Restated
|
|
|
|
Total Billed
and Unbilled
Contract
Receivables
|
|
|
Allowance
for Doubtful
Accounts
|
|
|
Total Billed
and Unbilled
Contract
Receivables
|
|
|
Allowance
for Doubtful
Accounts
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. operations
|
|
$
|
20,340
|
|
|
$
|
505
|
|
|
$
|
21,580
|
|
|
$
|
569
|
|
South American operations
|
|
|
5,600
|
|
|
|
666
|
|
|
|
5,319
|
|
|
|
715
|
|
Totals
|
|
$
|
25,940
|
|
|
$
|
1,171
|
|
|
$
|
26,899
|
|
|
$
|
1,284
|
|
The allowance for doubtful accounts for the Company’s South American operations represented 12% of related contract receivables at April 27, 2019 compared to 2% for
the Company’s U.S. operations. Unstable local economies that adversely impacted certain of our South American clients in recent years demonstrated signs of stabilizing during fiscal year 2018. Management continues to monitor trends and events
that may adversely impact the realizability of recorded receivables from our South American clients.
Disaggregation of Revenues
The following table provides a summary of the Company’s gross revenue, disaggregated by operating segment and contract type.
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
April 27,
2019
|
|
|
April 28,
2018
(Restated)
|
|
|
April 27,
2019
|
|
|
April 28,
2018
(Restated)
|
|
Gross revenue from time and materials contracts:
|
|
|
|
|
|
|
|
|
|
|
U.S. operations
|
|
$
|
10,699
|
|
|
$
|
10,038
|
|
|
$
|
29,689
|
|
|
$
|
28,826
|
|
South American operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total gross revenue from time and materials contracts
|
|
$
|
10,699
|
|
|
$
|
10,038
|
|
|
$
|
29,689
|
|
|
$
|
28,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenue from fixed price contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. operations
|
|
$
|
2,888
|
|
|
$
|
3,248
|
|
|
$
|
9,445
|
|
|
$
|
10,336
|
|
South American operations
|
|
|
4,840
|
|
|
|
4,112
|
|
|
|
12,530
|
|
|
|
14,287
|
|
Total gross revenue from fixed price contracts
|
|
$
|
7,728
|
|
|
$
|
7,360
|
|
|
$
|
21,975
|
|
|
$
|
24,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenue from cost-plus contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. operations
|
|
$
|
3,348
|
|
|
$
|
3,279
|
|
|
$
|
12,116
|
|
|
$
|
14,622
|
|
South American operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total gross revenue from cost-plus contracts
|
|
$
|
3,348
|
|
|
$
|
3,279
|
|
|
$
|
12,116
|
|
|
$
|
14,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenue from all contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. operations
|
|
$
|
16,935
|
|
|
$
|
16,565
|
|
|
$
|
51,250
|
|
|
$
|
53,784
|
|
South American operations
|
|
|
4,840
|
|
|
|
4,112
|
|
|
|
12,530
|
|
|
|
14,287
|
|
Consolidated gross revenue
|
|
$
|
21,775
|
|
|
$
|
20,677
|
|
|
$
|
63,780
|
|
|
$
|
68,071
|
|
Customer Deposits
Customer deposits of $2.8 million and $3.2 million at April 27, 2019 and July 31, 2018, respectively, represent cash advances received from customers for future services.
8.
|
Variable Interest Entities and Equity Method Investment
|
Variable Interest Entities (“VIE”)
The Company’s majority owned subsidiaries are deemed to be VIEs when, on a stand-alone basis, they lack sufficient capital to finance the activities of the VIE. The Company consolidates
investments in VIEs if the Company is the primary beneficiary of the VIE. The Company uses a qualitative approach to determine if the Company is the primary beneficiary of the VIE, which considers factors that indicate the Company has significant
influence and control over the activities that most significantly impact the VIE’s economic performance. These factors include representation on the investee’s board of directors, management representation, authority to make decisions, substantive
participating rights of the minority shareholders and ownership interest.
As of April 27, 2019 and July 31, 2018, the Company consolidated one majority owned subsidiary that was deemed to be VIE. The financial position of this VIE as of April 27, 2019 and
July 31, 2018 is summarized in the following table.
|
|
April 27,
2019
|
|
|
July 31,
2018
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Ecology and Environment Inc. shareholder’s equity
|
|
|
|
|
|
|
|
|
Noncontrolling interests shareholders’ equity
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
|
|
|
|
|
|
|
Total gross revenue of the consolidated VIE was $9.5 million and $8.1 million for the nine months ended April 27, 2019 and April 28, 2018, respectively. With the
exception of restricted cash of $0.2 million and $0.3 million included in noncurrent assets at April 27, 2019 and July 31, 2018, respectively (refer to Note 5), all assets of the VIE were available for the general operations of the VIE.
Equity Method Investment
VIEs for which the Company is not the primary beneficiary, and other investee companies over which the Company does not influence or control the activities that most significantly impact
the investee company’s economic performance, are not consolidated and are accounted for under the equity method of accounting. Under the equity method of accounting, an investee company’s accounts are not reflected within the Company’s
consolidated balance sheets and statements of operations. The Company’s share of the earnings of the investee company is reported as earnings from equity method investment in the Company’s consolidated statements of operations. The Company’s
carrying value in an equity method investee is reported as equity method investment on the Company’s consolidated balance sheets. The Company’s carrying value in an equity method investee is reduced by the Company’s share of dividends declared by
an investee company.
If the Company’s carrying value in an equity method investee company is reduced to zero, no further losses are recorded in the Company’s consolidated financial statements unless the
Company guaranteed obligations of the investee company or has committed additional funding. When the investee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of
losses not previously recognized.
The Company’s equity method investment in GAC had a carrying value of $2.0 million and $2.1 million at April 27, 2019 and July 31, 2018, respectively. In April
2019, GAC issued additional shares to two of its senior employees, which effectively reduced the Company’s ownership percentage to 52.48% as of April 27, 2019 from 55.10% at July 31, 2018.
The equity method investment in GAC is included within the Company’s South American operating segment. Activity recorded for the Company’s equity method investment
during the nine months ended April 27, 2019 and April 28, 2018 is summarized in the following table.
|
|
Nine Months Ended
|
|
|
|
April 27,
2019
|
|
|
April 28,
2018
(Restated)
|
|
|
|
(in thousands)
|
|
|
|
|
|
Equity investment carrying value at beginning of period
|
|
$
|
2,058
|
|
|
$
|
1,464
|
|
GAC net income attributable to EEI
|
|
|
295
|
|
|
|
376
|
|
Dividends declared and paid during the period
|
|
|
(348
|
)
|
|
|
---
|
|
Equity investment carrying value at end of period
|
|
$
|
2,005
|
|
|
$
|
1,840
|
|
GAC’s financial position as of April 27, 2019 and July 31, 2018 is summarized in the following table.
|
|
April 27,
2019
|
|
|
July 31,
2018
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Ecology and Environment Inc. shareholder’s equity
|
|
|
|
|
|
|
|
|
Minority interests shareholders’ equity
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
|
|
|
|
|
|
|
The results of GAC’s operations for the nine months ended April 27, 2019 and April 28, 2018 are summarized in the following table.
|
|
Nine Months Ended
|
|
|
|
April 27,
2019
|
|
|
April 28,
2018
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct cost of services and subcontract costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to EEI
|
|
|
|
|
|
|
|
|
Unsecured lines of credit are summarized in the following table.
|
|
April 27,
2019
|
|
|
July 31,
2018
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Outstanding cash advances
|
|
$
|
620
|
|
|
$
|
---
|
|
Outstanding letters of credit
|
|
|
1,570
|
|
|
|
1,668
|
|
Total amounts used under lines of credit
|
|
|
2,190
|
|
|
|
1,668
|
|
Remaining amounts available under lines of credit
|
|
|
33,668
|
|
|
|
36,832
|
|
Total approved unsecured lines of credit
|
|
$
|
35,858
|
|
|
$
|
38,500
|
|
The Company’s U.S. operations are supported by two line of credit arrangements:
|
•
|
$19.0 million available line of credit at April 27, 2019; no outstanding cash advances as of April 27, 2019 or July 31, 2018; letters of credit of less than $0.1 million
were outstanding at April 27, 2019 and July 31, 2018; interest rate on cash advances is based on LIBOR plus 275 basis points; and
|
|
•
|
$13.5 million available line of credit at April 27, 2019; no outstanding cash advances as of April 27, 2019 or July 31, 2018; letters of credit of less than $0.1 million
were outstanding at April 27, 2019 and July 31, 2018, respectively; interest rate on cash advances is based on LIBOR plus 200 basis points.
|
The Company’s South American operations are supported by two line of credit arrangements:
|
•
|
$2.0 million available line of credit to support operations in Peru; no outstanding cash advances as of April 27, 2019 or July 31, 2018; letters of credit of $1.0 million
were outstanding at April 27, 2019 and July 31, 2018, respectively; interest rate on cash advances is affirmed or negotiated annually; and
|
|
•
|
$1.4 million available line of credit to support operations in Brazil; $0.6 million of cash advances were outstanding as of April 27, 2019; $0.6 million of letters of
credit were outstanding at April 27, 2019 and July 31, 2018; interest rate on cash advances is based on a Brazilian government economic index.
|
During interim reporting periods, the effective tax rate may be impacted by changes in the mix of forecasted pre-tax income or losses from the U.S. and foreign jurisdictions where the
Company operates, by changes in tax rates within those jurisdictions, or by significant unusual or infrequent items that could change assumptions used in the calculation of the income tax provision.
The estimated effective tax rate decreased to 17.5% for the nine months ended April 27, 2019 from 46.2% for the nine months ended April 28, 2018. Unfavorable permanent adjustments
related to forecasted losses in the U.S. resulted in an effective tax rate that was lower than the statutory rate for the nine months ended April 27, 2019. The decrease in the estimated effective tax rate for the nine months ended April 27, 2019
resulted mainly from changes in the pre-tax earnings of the Company’s U.S. operations in the current fiscal year and from the impact of changes in U.S. corporate income tax regulations included in the Tax Cuts and Jobs Act enacted in December 2017,
which included:
|
•
|
A reduction in the U.S. statutory corporate income tax rate to 21% for the nine months ended April 27, 2019, compared with a blended rate of 26% for the nine months ended April 28, 2018.
|
|
•
|
Certain one-time tax items, including revaluation of deferred tax assets and liabilities and the effect of a new territorial tax system, that increased the Company’s federal income tax expense
by a combined $0.4 million for the nine-months ended April 28, 2018. The Company did not record any similar or other unusual adjustments to federal income tax expense during the nine months ended April 27, 2019.
|
The following tables provide reconciliations of changes in consolidated shareholders’ equity for the three months ended April 27, 2019 and April 28, 2018. Amounts
for the three months ended April 28, 2018 have been restated for the GAC Deconsolidation Adjustments and Out of Period Adjustments described in Note 2.
|
|
Three Months Ended April 27, 2019
|
|
|
|
Class A
Common
Stock
|
|
|
Class B
Common
Stock
|
|
|
Capital in
Excess of
Par Value
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Accumulated
Income (Loss)
|
|
|
Treasury
Stock
|
|
|
Noncontrolling
Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 26, 2019
|
|
$
|
31
|
|
|
$
|
13
|
|
|
$
|
17,629
|
|
|
$
|
20,539
|
|
|
$
|
(1,893
|
)
|
|
$
|
(884
|
)
|
|
$
|
484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,030
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
76
|
|
Cash dividends declared ($0.20 per share)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(864
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Conversion of Class B common stock to Class A common stock
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14
|
|
|
|
-
|
|
|
|
(3
|
)
|
Share-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
33
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Distributions to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(61
|
)
|
Purchase of additional noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 27, 2019
|
|
$
|
32
|
|
|
$
|
12
|
|
|
$
|
17,662
|
|
|
$
|
18,645
|
|
|
$
|
(1,879
|
)
|
|
$
|
(884
|
)
|
|
$
|
394
|
|
|
|
Three Months Ended April 28, 2018
|
|
|
|
Class A
Common
Stock
|
|
|
Class B
Common
Stock
|
|
|
Capital in
Excess of
Par Value
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Accumulated
Income (Loss)
|
|
|
Treasury
Stock
|
|
|
Noncontrolling
Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 27, 2018
|
|
$
|
30
|
|
|
$
|
14
|
|
|
$
|
17,641
|
|
|
$
|
23,074
|
|
|
$
|
(1,806
|
)
|
|
$
|
(1,037
|
)
|
|
$
|
878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
69
|
|
|
|
-
|
|
|
|
-
|
|
|
|
96
|
|
Cash dividends declared ($0.20 per share)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(860
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
-
|
|
|
|
(34
|
)
|
Conversion of Class B common stock to Class A common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Unrealized investment losses, net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10
|
)
|
|
|
-
|
|
|
|
-
|
|
Share-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
24
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Distributions to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(129
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 28, 2018 (Restated)
|
|
$
|
30
|
|
|
$
|
14
|
|
|
$
|
17,665
|
|
|
$
|
22,283
|
|
|
$
|
(1,819
|
)
|
|
$
|
(1,037
|
)
|
|
$
|
811
|
|
The following tables provide reconciliations of changes in consolidated shareholders’ equity for the nine months ended April 27, 2019 and April 28, 2018. Amounts for
the nine months ended April 28, 2018 have been restated for the GAC Deconsolidation Adjustments and Out of Period Adjustments described in Note 2.
|
|
Nine Months Ended April 27, 2019
|
|
|
|
Class A
Common
Stock
|
|
|
Class B
Common
Stock
|
|
|
Capital in
Excess of
Par Value
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Accumulated
Income (Loss)
|
|
|
Treasury
Stock
|
|
|
Noncontrolling
Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2018
|
|
$
|
30
|
|
|
$
|
14
|
|
|
$
|
17,558
|
|
|
$
|
20,973
|
|
|
$
|
(1,885
|
)
|
|
$
|
(907
|
)
|
|
$
|
664
|
|
Cumulative effect of adoption of ASU 2016-01
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5
|
)
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
Balance at July 31, 2018 (Adjusted)
|
|
|
30
|
|
|
|
14
|
|
|
|
17,558
|
|
|
|
20,968
|
|
|
|
(1,880
|
)
|
|
|
(907
|
)
|
|
|
664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,459
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
80
|
|
Cash dividends declared ($0.20 per share)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(864
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
(70
|
)
|
Conversion of Class B common stock to Class A common stock
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Issuance of stock under stock award plan
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23
|
|
|
|
-
|
|
Share-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
100
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Distributions to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(177
|
)
|
Purchase of additional noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 27, 2019
|
|
$
|
32
|
|
|
$
|
12
|
|
|
$
|
17,662
|
|
|
$
|
18,645
|
|
|
$
|
(1,879
|
)
|
|
$
|
(884
|
)
|
|
$
|
394
|
|
|
|
Nine Months Ended April 28, 2018
|
|
|
|
Class A
Common
Stock
|
|
|
Class B
Common
Stock
|
|
|
Capital in
Excess of
Par Value
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Accumulated
Income (Loss)
|
|
|
Treasury
Stock
|
|
|
Noncontrolling
Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2017
|
|
$
|
30
|
|
|
$
|
14
|
|
|
$
|
17,570
|
|
|
$
|
23,005
|
|
|
$
|
(1,795
|
)
|
|
$
|
(1,037
|
)
|
|
$
|
947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
138
|
|
|
|
-
|
|
|
|
-
|
|
|
|
187
|
|
Cash dividends declared ($0.20 per share)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(860
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
(2
|
)
|
Conversion of Class B common stock to Class A common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Unrealized investment losses, net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(26
|
)
|
|
|
-
|
|
|
|
-
|
|
Share-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
95
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Distributions to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(321
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 28, 2018 (Restated)
|
|
$
|
30
|
|
|
$
|
14
|
|
|
$
|
17,665
|
|
|
$
|
22,283
|
|
|
$
|
(1,819
|
)
|
|
$
|
(1,037
|
)
|
|
$
|
811
|
|
Class A and Class B Common Stock
The relative rights, preferences and limitations of the Company’s Class A and Class B Common Stock are 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.
During the nine months ended April 27, 2019, holders of 82,008 shares of Class B common stock converted their shares to Class A common stock and the Company
converted 64,801 shares of Class B common stock held in treasury to Class A common stock.
Restrictive Shareholder Agreement
Messrs. Gerhard J. Neumaier (deceased), Frank B. Silvestro, Ronald L. Frank, and Gerald A. Strobel entered into a Stockholders’ Agreement dated May 12,
1970, as amended January 24, 2011, which governs the sale of certain shares of EEI’s common stock (now classified as Class B Common Stock) owned by them, certain children of those individuals and any such shares subsequently transferred to their
spouses and/or children outright or in trust for their benefit upon the demise of a signatory to the Agreement (“Permitted Transferees”). The Agreement provides that prior to accepting a bona fide offer to purchase some or all of their shares of
Class B Common Stock governed by the Agreement, that the selling party must first allow the other signatories to the Agreement (not including any Permitted Transferee) 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.
Cash Dividends
The Company paid $1.7 million of cash dividends during the nine months ended April 27, 2019 and April 28, 2018, approximately half of which were declared and accrued in prior periods.
Stock Repurchase Plan
In August 2010, the Company’s Board of Directors approved a program for repurchase of 200,000 shares of Class A common stock (the “Stock Repurchase
Program”). As of
April 28
, 2018, the Company repurchased 122,918 shares of Class A stock, and 77,082 shares had yet to be repurchased under the Stock Repurchase Program. The Company did not acquire any
Class A shares under the Stock Repurchase Program during the three or nine months ended
April 27, 2019 or the three or nine months ended April 28, 2018
.
Noncontrolling Interests
The Company discloses noncontrolling interests as a separate component of consolidated shareholders’ equity on the accompanying condensed consolidated balance
sheets. Earnings and other comprehensive income (loss) are separately attributed to both the controlling and noncontrolling interests. The Company calculates earnings per share based on net income (loss) attributable to the Company’s controlling
interests.
The Company considers acquiring additional interests in majority owned subsidiaries when noncontrolling shareholders express their intent to sell their interests.
The Company settles and records acquisitions of noncontrolling interests at amounts that approximate fair value. Purchases of noncontrolling interests are recorded as reductions of shareholders’ equity on the condensed consolidated statements of
shareholders’ equity.
As of July 31, 2018, the Company held an 87.88% ownership interest in Lowham-Walsh Engineering & Environmental Services, LLC (“Lowham”). In November 2018, the
Company purchased all remaining noncontrolling interest in Lowham for less than $0.1 million, thereby increasing its ownership interest in Lowham to 100%.
Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss are summarized in the following table.
|
|
April 27,
2019
|
|
|
July 31,
2018
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Unrealized net foreign currency translation losses
|
|
|
|
|
|
|
|
|
Unrealized net investment (losses) gains on available for sale investments
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive loss
|
|
|
|
|
|
|
|
|
The Company calculates basic and diluted earnings per share by dividing the net income attributable to EEI’s common shareholders by the weighted average number of
common shares outstanding for the period. After consideration of all the rights and privileges of the Class A and Class B stockholders summarized in Note 11, in particular the right of the holders of the Class B common stock to elect no less than
75% of the Board of Directors making it highly unlikely that the Company will pay a dividend on Class A common stock in excess of Class B common stock, the Company allocates undistributed earnings between the two classes of stock on a one-to-one
basis when computing earnings per share. As a result, basic and fully diluted earnings per Class A and Class B share are equal amounts.
The Company has determined that its unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities. These securities shall be included in the computation of earnings per share pursuant to the two-class method. The resulting impact was to include unvested restricted shares in the weighted average shares
outstanding calculation.
The computation of earnings per share is included in the following table.
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
April 27,
2019
|
|
|
April 28,
2018
(Restated)
|
|
|
April 27,
2019
|
|
|
April 28,
2018
(Restated)
|
|
|
|
(in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Ecology and Environment Inc.
|
|
$
|
(1,030
|
)
|
|
$
|
69
|
|
|
$
|
(1,459
|
)
|
|
$
|
138
|
|
|
|
|
(864
|
)
|
|
|
(860
|
)
|
|
|
(864
|
)
|
|
|
(860
|
)
|
Distributions in excess of earnings
|
|
$
|
(1,894
|
)
|
|
$
|
(791
|
)
|
|
$
|
(2,323
|
)
|
|
$
|
(722
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding - basic and diluted
|
|
|
4,315,135
|
|
|
|
4,301,604
|
|
|
|
4,314,742
|
|
|
|
4,301,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributed earnings per share - basic and diluted
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
Distributions in excess of earnings per share - basic and diluted
|
|
|
(0.44
|
)
|
|
|
(0.18
|
)
|
|
|
(0.54
|
)
|
|
|
(0.17
|
)
|
Net (loss) income per common share - basic and diluted
|
|
$
|
(0.24
|
)
|
|
$
|
0.02
|
|
|
$
|
(0.34
|
)
|
|
$
|
0.03
|
|
Management generally assesses operating performance and makes strategic decisions based on the geographic regions in which the Company does business. The Company
reports separate operating segment information for its U.S. and South American operations. Gross revenue, net income (loss) attributable to EEI and total assets by operating segment are summarized in the following tables.
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
April 27,
2019
|
|
|
April 28,
2018
(Restated)
|
|
|
April 27,
2019
|
|
|
April 28,
2018
(Restated)
|
|
|
|
(in thousands)
|
|
Gross revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. operations
|
|
$
|
16,934
|
|
|
$
|
16,566
|
|
|
$
|
51,250
|
|
|
$
|
53,784
|
|
South American operations
|
|
|
4,841
|
|
|
|
4,111
|
|
|
|
12,530
|
|
|
|
14,287
|
|
Total
|
|
$
|
21,775
|
|
|
$
|
20,677
|
|
|
$
|
63,780
|
|
|
$
|
68,071
|
|
Gross revenue from U.S. federal government contracts was $3.2 million and $3.9 million for the three months ended April 27, 2019 and April 28, 2018, respectively,
and $9.2 million and $11.9 million for the nine months ended April 27, 2019 and April 28, 2018, respectively.
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
April 27,
2019
|
|
|
April 28,
2018
(Restated)
|
|
|
April 27,
2019
|
|
|
April 28,
2018
(Restated)
|
|
|
|
(in thousands)
|
|
Net income (loss) attributable to EEI:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. operations
(a)
|
|
$
|
(1,136
|
)
|
|
$
|
(186
|
)
|
|
$
|
(1,538
|
)
|
|
$
|
(362
|
)
|
South American operations
(b)
|
|
|
106
|
|
|
|
255
|
|
|
|
79
|
|
|
|
500
|
|
Total
|
|
$
|
(1,030
|
)
|
|
$
|
69
|
|
|
$
|
(1,459
|
)
|
|
$
|
138
|
|
|
(a)
|
Includes depreciation and amortization expense of $0.2 million for the three months ended April 27, 2019 and April 28, 2018, and $0.5 million for the nine months ended
April 27, 2019 and April 28, 2018.
|
|
(b)
|
Includes depreciation and amortization expense of $0.1 million three months ended April 27, 2019 and April 28, 2018, and $0.3 million and $0.2 million for the nine months
ended April 27, 2019 and April 28, 2018, respectively.
|
|
|
April 27,
2019
|
|
|
July 31,
2018
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South American operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.
|
Commitments and Contingencies
|
Legal Proceedings
From time to time, the Company is a named defendant in legal actions arising out of the normal course of business. The Company is not a party to any pending legal
proceeding, the resolution of which the management believes will have a material adverse effect on the Company’s results of operations, financial condition or cash flows, or to any other pending legal proceedings other than ordinary, routine
litigation incidental to its business. The Company maintains liability insurance against risks arising out of the normal course of business.
On February 4, 2011, the Chico Mendes Institute of Biodiversity Conservation of Brazil (the “Institute”) issued a Notice of Infraction to ecology and environment do
brasil Ltda. (“E&E Brazil”), a majority-owned consolidated subsidiary of EEI. The Notice of Infraction concerned the taking and collecting of wild animal specimens without authorization by the competent authority and imposed a fine of
approximately 0.5 million Reais against E&E Brazil. The Institute also filed Notices of Infraction against four employees of E&E Brazil alleging the same claims and imposed fines against those individuals that, in the aggregate, were
equal to the fine imposed against E&E Brazil. No claim has been made against EEI.
E&E Brazil has filed court claims appealing the administrative decisions of the Institute for E&E Brazil’s employees that: (a) deny the jurisdiction of the
Institute; (b) state that the Notice of Infraction is constitutionally vague; and (c) affirmatively state that E&E Brazil had obtained the necessary permits for the surveys and collections of specimens under applicable Brazilian regulations and
that the protected conservation area is not clearly marked to show its boundaries. The claim of violations against one of the four employees was dismissed. The remaining three employees have fines assessed against them that are being appealed
through the federal courts. Violations against E&E Brazil are pending agency determination. At April 27, 2019, the Company recorded a reserve of approximately $0.4 million in other accrued liabilities related to these claims.