E C O L O G Y A N D E N V I R O N M E N T ,
I N C .
A N N U A L R E P O R T 2 0 1 5
A N N U A L R E P O R T 2 0 1 5
Earnings Per Share
A Return to Profitability in Fiscal Year 2015
$ 0.80
$ 0.60
$ 0.40
$ 0.20
$ 0.00
$-0.20
$-0.40
$-0.60
2013 2014 2015
Income from Operations
(in millions)
8
7
6
5
4
3
2
1
0
-1
Driven by a 6% increase in revenue from U.S. operations and an 11% reduction in
operating expenses, Ecology and Environment, Inc. (E & E) reported consolidated
net income of $0.79 per share for the fiscal year ended July 31, 2015, an
improvement of $1.11 per share from the net loss of $0.32 per share reported for
the prior fiscal year.
Total revenues decreased slightly overall for fiscal year 2015, as compared with the
prior fiscal year. Higher revenues from U.S. operations, which represent nearly 70%
of consolidated revenues, were offset by a 14% decrease in foreign revenues. In the
U.S., higher Department of Defense and energy sector project activity was partially
offset by lower government and mining sector activity and by a strategic decision
to wind down existing asbestos remediation contracts and forego any new asbestos
business. South American operations were adversely affected by lower mining
sector activity generally and an economic downturn in Brazil. Management is
closely monitoring economic conditions and reducing operating costs in Brazil and
elsewhere in South America in response to lower project activity.
A two-year-long initiative to reduce operating expenses and improve operating
efficiency continued to have a positive impact on the Company’s earnings. Total
operating expenses decreased 11% for fiscal year 2015 compared with the previous
fiscal year.
Our liquidity remained strong during fiscal year 2015, with increasing cash and
continued low debt balances. We continue to be well positioned to support future
growth initiatives without significant increases in operating expenses or detrimental
impact on our liquidity position.
2013 2014 2015
Total Operating Expenses
(in millions)
Revenues, Net
(in millions)
140
120
100
80
60
40
20
0
2013 2014 2015
140
120
100
80
60
40
20
0
Indirect
Operating
Expenses
Cost of Professional
Services and Other
Direct Operating
Expenses
Subcontract
Costs
2013 2014 2015
U.S.
Foreign
In fiscal year 2015, we established goals and we
realized them. We committed to critically reviewing
our operations and implementing a disciplined course
of action to streamline operations and return E & E to
profitability, and we saw results. Improved operational
efficiencies, an 11% reduction in total operating
expenses, a 6% increase in U.S. revenues, and a leaner
management structure have all contributed to our
sound financial performance this year and positioned
us well for growth moving forward.
We placed a greater emphasis on building a more
business development-driven company and it has
paid off. We exceeded our new order goals and
began fiscal year 2016 from a position of strength,
with a larger backlog of work than we had a year ago.
Importantly, our strong results are not a windfall from
one or two major projects but come from a diverse
mix of work across several market sectors, which is a
healthy and encouraging trend.
In order to bring the highest level of client service
to our growing project work, we expanded our
team, hiring 96 full-time and on-call skilled technical
professionals in fiscal year 2015 to build our
capacity and better align our capabilities with the
opportunities before us.
We’re proud of what we’ve accomplished over the
last year. As we move forward, we are building on our
foundational strength and aligning E & E for strategic
growth to continue to help our clients in making
a better and safer world by developing technically
sound, science-based solutions to the leading
environmental challenges of our time.
Gerard A. Gallagher III
President and CEO
1
Chairman’s Observations
Last year as we entered fiscal year 2015, our transition was well under way and
gaining momentum, so I envisioned positive results for the fiscal year and we have,
indeed, achieved those results. After several frustrating, losing years, our bottom line
swung from - $0.32 to + $0.79 per share, a positive turnaround of $1.11 per share.
Full credit and a “well done” are due our new management team, professional staff,
and our retired CEO for their achievement.
During fiscal year 2015, we took a number of actions to improve profitability and
better focus on viable market sectors and the important issues confronting our
clients. We terminated our U.S. asbestos business line. In a separate action, we sold
our majority interest in ECSI, our U.S. mining subsidiary, to the minority shareholder.
We disbanded our Morocco operations and curtailed Ecology and Environment
International Services, Inc. (EEIS), our international services subsidiary for marketing
and logistic support.
Frank B. Silvestro
Chairman of the Board
The Board appointed Gerard A. Gallagher III to the combined office of President and CEO and, pursuant to management
recommendation, approved restructured operations and the designation of five new vice presidents. We believe these steps
will enhance our corporate capability to address client issues in the coming years. The Board also reviewed and consequently
expanded and strengthened our company’s governance policy, including our By-Laws, which will be submitted for shareholder
approval at the annual meeting of shareholders.
This year, the average global temperature reached the highest level in recorded history and reports of weather extremes
filled the airwaves. As the year unfolds, terrorism, world economic malaise, and the upcoming U.S. elections will undoubtedly
dominate public concerns. The economic decline in Brazil will impact the performance of our largest South American subsidiary.
We certainly live in challenging times. But the underlying environmental issues, including the extent to which global warming
and climate change will impact weather extremes and sea level rise and the need to meet energy needs and better manage
water resources, will stimulate client need for balanced, science-based support in planning and decision-making.
It is E & E’s mission to help our clients to make a better and safer world and we continue to shape our company and its
operations to better assist our clients and serve our shareholders. Despite the potential head winds, I believe E & E will again
achieve positive results in fiscal year 2016.
E & E offers a full suite of environmental services to
wind energy clients. We have worked on more than
250 wind projects in 38 states capable of producing
6,340 MW of renewable electricity.
2
Operational Excellence
We successfully implemented several new initiatives at E & E in fiscal year 2015 to improve
reporting, streamline our management structure, increase operational efficiencies, expand our
talent base, and introduce new collaboration tools. Through the dedication and enthusiasm of
our staff and managers, we are seeing the full value of these efforts.
Advances in department and project reporting are providing more timely budgetary information
for our department managers and project teams. Reorganizing to a leaner management
structure has allowed us to identify and balance resource demands more effectively, expand
professional growth opportunities, and reduce overhead expenses. Improved financial reporting
Fred J. McKosky, P.E.
Chief Operating Officer
processes for both domestic and foreign subsidiaries are driving greater efficiencies and lowering administrative costs. And
we aggressively recruited and hired new talent in accordance with our business plan. We successfully launched a new internal
communications and collaboration platform to enhance knowledge sharing, strengthen culture, and streamline the way we
work together. We continue to review and improve our quality program to provide the highest level of performance in the
services we provide to clients.
E & E has a strong commitment to leading through innovation and continually improving our performance, both internally
and with our clients. As we move forward in fiscal year 2016, we will continue to build on our successes to take E & E to the
next level.
Committed to Our Clients
Our clients face increasingly complicated environmental issues. Whether it’s a government agency
that needs to design more resilient infrastructure or a project developer whose success depends
on meeting regulatory requirements and public expectations, our clients count on E & E for
responsive service and strategic advice. At E & E, we work to anticipate the future for our clients.
By developing specialized technologies, we are getting better data to our clients virtually in real
time. We are collaborating to put the best people on the job. We are investing heavily in training,
sharing knowledge, and improving systems. We want to be ready with ideas and strategies to help
our clients meet any challenge they may face. Most of all, we are working to earn our clients’ trust
every day.
Cheryl A. Karpowicz, AICP
Senior Vice President,
Business Development
3
E & E is working collaboratively with clients to address the
leading environmental challenges of our time.
Atlantic Sunrise Project,
Pennsylvania, Maryland,
Virginia, North Carolina,
and South Carolina. E & E is
playing a key role in Williams Gas
Pipelines’ 197-mile, $15 million
pipeline that will help ease
pipeline capacity constraints and
bridge the dramatic natural gas
spikes that occur during times of
heavy demand.
Kern County Oil & Gas
Environmental Impact Report (EIR),
Kern County, California.
For Kern County’s Planning and
Community Development Division,
E & E has led the development of
a landmark EIR cataloging oil and
gas activity across 2.8 million acres,
widely considered Kern County’s most
ambitious environmental review to date.
U.S. Navy Solar Environmental Assessments,
Navy and Marine Corps. installations in the
U.S., Cuba, Italy, and Spain. E & E has been
awarded $6.8 million in contracts with the U.S.
Navy to help plan for and locate solar facilities at
17 Naval installations in the U.S. Work related to
wind energy development is also being planned
to support three Naval stations in Texas under
these contracts. The project kicked off in Mid-
August 2014, and work will continue through
2016. When constructed, these high-profile
projects will produce approximately 500 MWs of
renewable energy.
Hudson River PCB Superfund Site
Cleanup, New York State. E & E plays a
vital role on this nationally recognized,
$1 billion environmental restoration project,
coordinating stakeholder involvement and
developing precedent-setting quality-of-life
performance standards with U.S. Army
Corps of Engineers, Kansas City District for
EPA Region 2.
Colorado Resiliency Framework, State
of Colorado. E & E worked collaboratively
with the Colorado Resiliency and Recovery
Office to prepare the Colorado Resiliency
Framework, the state’s first resiliency plan.
This plan represents Colorado’s long-term
investment and commitment to a more
resilient future following the natural disasters
that have impacted the state.
4
Northern Pass Transmission
Project, Quebec, Canada to
Deerfield, New Hampshire.
For this highly controversial $1.4
billion, 187-mile transmission line
project, E & E is providing biological,
cultural, and other technical analyses,
agency consultation, and field data
collection to Northeast Utilities via
SE Group, for a U.S. Department of
Energy third-party EIS.
AMX1 Submarine Fiber Optic Cable System, Brazil, Colombia, Mexico, Dominican
Republic. For Alcatel Submarine Network’s $340-million submarine fiber-optic cable system,
which will provide more than 10,800 miles of connectivity and be the world’s first system
designed for 100-gigabyte-per-second transmission, E & E provided environmental assessment
and permitting assistance, including project licensing of the marine and terrestrial portions and
permit feasibility studies.
Toledo Harbor Algal Bloom Study,
Toledo, Ohio. For the U.S. Army Corps of
Engineers, Buffalo District, E & E led the team
that evaluated the influence of open-lake
placement of dredged material on harmful
algal blooms in the western Lake Erie basin,
setting the standard for future study and
analysis.
The Nature Conservancy Gulf of
Mexico Program. Under a five-year
contract to provide coastal restoration
planning, design, and monitoring
services for TNC’s Gulf of Mexico Program,
E & E performed a watershed planning
study and streambank stabilization
design in northwest Florida.
Critical Projects in Liquefied Natural
Gas (LNG), Louisiana and Texas. As
the LNG market evolves, E & E is at the
forefront of some of the most critical
projects in the U.S., including the Delfin
LNG Deepwater Port and Magnolia LNG
Export Terminal, both in Louisiana, and
the Next Decade Rio Grande and Annova
LNG projects in Texas.
Itarema Wind Complex, Ceara,
Northeastern Brazil. In additional to
implementing required environmental
programs for the nine-farm Itarema Wind
Complex, Ecology Brazil is working with
indigenous Tremembé Almofala populations
to minimize and offset project impacts.
5
Our company’s markets are evolving. Climate change, a shifting
energy landscape, extreme weather events, and global economics
are all shaping public debate. In fiscal year 2015, E & E continued
to undertake strategic initiatives to align our business with
market trends and stay a step ahead. We saw expansion in several
established market sectors and new growth in key emerging markets.
New work in liquefied natural gas (LNG), for example, outpaced our fiscal
year goal by more than 300%. The LNG industry in the U.S. has seen dramatic
changes, with the rapid development of shale gas resources leading to natural
gas production well in excess of domestic needs. This has transformed the
marketplace from LNG import terminals being permitted and constructed to one
where LNG export terminals are now being built. We have assisted our clients with
environmental permitting, impact assessment, and stakeholder engagement on 40
LNG projects, including some of the most high-profile current LNG projects in the
U.S. and a growing portfolio of work in Latin America, with five facilities in Chile.
The availability of natural gas is also impacting our pipeline sector,
which exceeded expectations in fiscal year 2015 as well. Natural
gas availability driven by increased production in shale
plays is changing the historic flow of gas in
E & E conducts rare and
threatened/endangered
species surveys on Goat
Island, Niagara Falls,
New York.
6
the U.S. as developers race to build new infrastructure, bringing regional pipelines
online and making larger interstate systems bidirectional. The dynamic market is
also driving significant merger and acquisition activity in the pipeline industry.
Among our other established client sectors, our U.S. Navy work saw impressive
growth. We continue to support Navy mission and readiness in traditional
environmental planning and encroachment work. Building on that foundation
this year, the establishment of the Navy’s Renewable Energy Program Office has
brought a new focus to our work. We are helping the Navy realize its goal of
securing 1 gigawatt of renewable energy by the end of 2015 while increasing
energy security, a critical component of strong national security. “Our solid
relationship with the Navy and our extensive experience in renewable energy has
proven to be a great fit this year and has resulted in interesting and important
project work for us,” said E & E Vice President and Navy Practice Leader Mike Kane.
Also in the renewable energy area, the reduction in the federal solar Investment
Tax Credit (ITC) is driving activity in our established and growing solar energy
sector. The ITC will be reduced to 15% at the end of 2016. Developers are
racing to get projects into construction and operating by the deadline. As a
respected nationwide siting and environmental permitting firm, with a strong
construction compliance reputation in California, E & E is well positioned to
help solar clients meet their ITC objectives.
“Our solid relationship
with the Navy and our
extensive experience in
renewable energy has
proven to be a great
fit this year and has
resulted in interesting
and important project
work for us.”
Mike Kane
Vice President and Navy Practice Leader
7
E & E’s work in sustainable communities planning supports and guides
communities in mitigating the impacts from climate change, adapting to
changing conditions, and becoming more resilient to sudden impacts of
environmental and other stressors. Our work in the area expanded this year with
a groundbreaking effort guiding the Colorado Resiliency and Recovery Office
in its development of the Colorado Resiliency Framework. E & E’s sustainable
communities practices area informs and intersects with our work in several key
sectors, providing insight into sustainability and resiliency at both the project and
community level. There is a particularly strong nexus with our emergency planning
and management work.
Water scarcity is a leading driver in the rapidly changing water market. “Water is
one of the defining issues of our generation and of future generations,” said Jason
Moretz, Ph.D., E & E’s water sector leader. “Climate change, aging infrastructure,
and changing regulatory requirements are all influencing a very dynamic water
market.” The traditional water market, dominated by “concrete and pipes” solutions,
is evolving toward more multidisciplinary, watershed-level approaches. Traditional
water planning efforts are changing from top-down decision-making approaches
to a bottom-up stakeholder involvement process that increasingly considers
innovative, non-engineered solutions. These are E & E core strengths and represent
a positive market trend going forward.
This year E & E advanced its ecological restoration work along the Gulf coast,
building on our work restoring habitats and ecosystems in the Great Lakes, Florida
Everglades, the mountain streams of Colorado, and the coastal watersheds of
New York following damage from Hurricane Sandy. Key funding programs made
available through settlement awards as a result of the Deepwater Horizon 2010
oil spill are driving the market on the Gulf coast. The final $18.7 billion global
settlement will result in funding significant projects to restore Gulf coastal
resources over the next couple of decades. “Based on the anticipated growth of
ecosystem restoration opportunities from the Deepwater settlement, E & E hired
coastal restoration specialists and created new partnerships needed to grow our
portfolio of restoration projects along the Gulf coast,” said Doug Heatwole, E & E
“Water is one of the
defining issues of our
generation and of
future generations.
Climate change, aging
infrastructure, and
changing regulatory
requirements are all
influencing the very
dynamic water market.”
Jason Moretz, Ph.D.
Water Sector Leader
We save clients time and money
by expediting field efforts and
improving the quality of data
by using mobile technologies to
deploy easy-to-use applications
from centralized servers to
improve work flows, increase
productivity, streamline QA/
QC efforts, and enhance
operational coordination.
Photo Credit: To Come
Caption: To Come
8
“Now, with the sustained
funding guaranteed
by the BP settlement,
we are well positioned
to play a role in
the planning and
implementation of these
important projects.”
Doug Heatwole
Vice President and Restoration Sector Leader
Vice President and restoration sector leader. “Now, with the sustained funding
guaranteed by the BP settlement, we are well positioned to play a role in the
planning and implementation of these important projects.”
With the U.S. Army Corps of Engineers (USACE) Buffalo, E & E is leading the
way in ecological restoration and invasive species management in the Great
Lakes region. We are involved in several stream, nearshore, upland, and stream
bank restoration projects throughout the Great Lakes and are at the forefront of
the USACE Invasive Species Program working in Tonawanda Creek to prevent
introducing the invasive aquatic plant, Hydrilla into the Great Lakes.
Our South American companies continue to focus on providing environmental
and social impact assessment for key energy infrastructure projects. E & E is also
a preferred provider to the telecommunications industry, supporting more than
50,000 miles of fiber optic cables to provide worldwide connectivity.
In fiscal year 2015, E & E was awarded several large, multi-year contracts
including a $15 million Navy contract for encroachment work, a $21.4 million
contract extension with the USACE Kansas City District, and a $7.8 million contract
with the Illinois Department of Transportation, in addition to ongoing contracts
with, among others, the U.S. Environmental Protection Agency, the Bureau of Land
Management, and the Florida Department of Environmental Protection.
Key to the execution of work on these contracts, and in all of our client work,
is our focus on operational excellence. We commit to understanding both the
technical requirements of a project and the larger context in which the project
is undertaken. In fiscal year 2015, our work in these key areas allowed us to work
closely with clients to solve problems and overcome challenges as if they were our
own. As industries and markets evolve in 2016, we are well positioned
to continue to work with our clients in addressing the
leading environmental challenges of our time.
9
E & E’s subsidiary in Brazil, ecology and
environment do brasil, monitored water
quality for the Itarema Wind Complex in
Ceara, northeastern Brazil.
10
Fiscal Year 2015 Operations Overview
Consolidated net income attributable to Ecology and Environment,
Inc. increased to $3.4 million for the fiscal year ended July 31, 2015
from a loss of $1.4 million for the prior fiscal year. Slightly lower net
revenues for the current year were more than offset by significantly
lower operating costs.
Net revenue from U.S. operations increased $4.6 million (6%)
in fiscal year 2015, as compared with the prior year. Higher
Department of Defense and energy sector project activity were
partially offset by lower government and mining sector activity, and
by a strategic decision to wind down existing asbestos remediation
contracts and forego any new asbestos business. Net revenue from
foreign operations decreased $6.2 million (14%) during the current
year, as higher energy sector project activity in Peru was more than
offset by lower energy and mining sector activity elsewhere in
South America.
Total operating expenses (excluding subcontract costs) decreased
$12.3 million (11%) during fiscal year 2015, as compared with
the prior year. As a result of ongoing initiatives to review the
Company’s organizational and cost infrastructure which began
in fiscal year 2013, management has successfully improved the
Company’s operating and cost efficiency and effectiveness. In
addition, the Company reported significantly lower depreciation
and amortization expense during fiscal year 2015 as a result of
a successful conversion to its new accounting system effective
August 1, 2014.
Operating Expense Management
Total indirect operating expenses decreased 17% during fiscal
year 2015, compared with the previous year, due to managed cost
reductions in our U.S. operations and in various foreign subsidiaries.
During fiscal years 2015, 2014 and 2013, we critically reviewed
technical and indirect staffing levels, other expenses necessary
to support current project work levels and key administrative
processes, particularly in our domestic subsidiaries and operations.
As a result of this review, the number of full time employees in
various technical and indirect departments of EEI* and its U.S.
subsidiaries decreased by a combined 6% and 16% during fiscal
years 2015 and 2014, respectively, while the number of full time
employees in foreign operations declined 13% and 8% during fiscal
years 2015 and 2014, respectively. Utilization of contracted services
was also reviewed and reduced at EEI. Management continues to
critically evaluate its organizational and cost structure to identify
ways to operate more efficiently and cost effectively.
Conversion of Operating Software
In November 2013, management decided to abandon the
Company’s previous operating and financial software system
and migrate to new system software. The Company acquired
and developed new software during fiscal year 2014, and began
utilizing the new software effective August 1, 2014 for its U.S.
operations. The Company continued to utilize the previous
software system through July 31, 2014, at which time the previous
system was abandoned and completely amortized. Total software
amortization expense decreased to $0.1 million during fiscal year
2015 from $2.6 million for the prior year.
Brazilian Operations
In recent months, our Brazilian operations have been adversely
affected by an economic downturn and weakening of the Brazilian
Real in relation to the U.S. dollar. Fiscal year 2015 net revenues from
our Brazilian operations declined $4.8 million (40%) from the prior
year. Reductions in direct and indirect operating expenses partially
offset the reduction in revenues.
The total scope and duration of the downturn and the ultimate
impact that it will have on our Brazilian operations is uncertain. EEI
management is monitoring economic conditions and the business
climate in Brazil, and is working closely with management in Brazil
to develop a sound strategy to minimize adverse impacts on
operations, including plans to further reduce operating costs while
achieving improved operating efficiencies.
Sale of Subsidiary
In August 2010, EEI acquired a 60% ownership interest in a newly
formed entity, ECSI, LLC (“ECSI”), a Lexington, Kentucky based
engineering and environmental consulting services company. EEI
paid $1.0 million for its ownership interest, and the noncontrolling
interests contributed cash, other assets and liabilities for their 40%
ownership interest. ECSI recorded $0.1 million of goodwill on the
transaction date. ECSI’s total assets were $1.1 million and $1.6
million at July 31, 2015 and 2014, respectively.
In October 2015, EEI sold its 60% interest in ECSI to ECSI’s
minority shareholders for $0.3 million. EEI recognized a loss on its
investment in ECSI of approximately $0.4 million in administrative
and indirect operating expenses during the fourth quarter of fiscal
year 2015. The sale of ECSI is not expected to have a material
impact on the Company’s financial condition, results of operations
or cash flows during reporting periods subsequent to July 31, 2015.
Liquidity and Capital Resources
Cash and cash equivalents increased $1.8 million during fiscal year
2015. Excluding the payment of $2.1 million of cash dividends,
which were approved on a discretionary basis by the Company’s
Board of Directors, cash generated from operations exceeded cash
required to fund investing and financing activities by $4.2 million
during the year. Fiscal year 2015 expenditures for property, building
and equipment and for net repayments of lines of credit declined
$1.2 million and $4.1million from the prior year, respectively.
Unsecured lines of credit of $32.8 million and $34.4 million were
available for working capital and letters of credit at July 31, 2015
and 2014, respectively. Total amounts used under lines of credit
were $1.8 million and $3.5 million at July 31, 2015 and 2014,
respectively. Contractual interest rates ranged from 2.50% to
15.60% at July 31, 2015. Our lenders have reaffirmed the lines of
credit within the past twelve months.
During fiscal year 2014, the Company generated a net operating
loss carryforward of $1.7 million for income tax purposes, which
was fully utilized through reductions in federal income tax
payments during fiscal year 2015.
We believe that cash flows from U.S. operations, available cash
balances in our domestic subsidiaries and our available lines of
credit will be sufficient to cover working capital requirements of our
U.S. operations during the next twelve months and the foreseeable
future.
Our foreign subsidiaries typically generate adequate cash flow to
fund their operations. We intend to reinvest net cash generated
from undistributed foreign earnings into operations and business
expansion opportunities outside the U.S. Excess cash accumulated
by any foreign subsidiary, beyond that necessary to fund operations
*References to “EEI” refer to Ecology and Environment, Inc. a New York Corporation. References to
“the Company,” “we,” “us,” “our,” or similar terms, refer to EEI together with it’s consolidated subsidiaries.
11
or business expansion, may be repatriated to the U.S. at the
discretion of the Board of Directors of the respective entities.
We would be required to accrue and pay taxes on any amounts
repatriated to the U.S. from foreign subsidiaries.
In recent months, our Brazilian subsidiary has been adversely
affected by an economic downturn and weakening of the Brazilian
Real in relation to the U.S. dollar. The total scope and duration
of the downturn and the ultimate impact that it will have on our
Brazilian operations are uncertain. In the event that our Brazilian
subsidiary is unable to generate adequate cash flow to fund its
operations, additional funding from EEI, other subsidiaries or
lending institutions will be considered.
In December 2014, a South American subsidiary of Walsh
Environmental Scientists & Engineers, LLC (“Walsh”) declared total
dividends to its shareholders of $2.0 million, of which $1.5 million
was payable to Walsh. After local taxes, approximately $1.4 million
of cash was repatriated to the U.S. and made available for the
Company’s U.S. operations during fiscal year 2015 as a result of this
dividend.
Contract Receivables Concentration Risk
Significant concentrations of contract receivables and the
allowance for doubtful accounts and contract adjustments are
summarized in the following table.
Balance at July 31, 2015
Region
United States, Canada and
South America
Allowance
for Doubtful
Accounts
and Contract
Adjustments
Contract
Receivables
$43,212,684
$ 626,210
Middle East and Africa
5,066,789
4,894,453
Asia
Totals
124,584
17,238
$48,404,057
$5,537,901
Company expending resources that it may not recover for several
months, or at all. During fiscal years 2014 and 2015, the Company
significantly curtailed its operations and projects in these regions
in order to focus on more profitable operations in the United States
and South America.
During fiscal year 2015, we continued to experience difficulties with
settlement and close-out of a specific project in the Middle East. As
a result, management decided to increase the related allowance
for contract adjustments by $1.2 million during fiscal year 2015,
to $4.9 million as of July 31, 2015. The related receivable balance
is 100% reserved as of July 31, 2015, and no additional reserves
are expected to be recorded during future periods. We continue
to maintain open dialogue with this client, and to seek assistance
through all possible official channels, in order to ensure a favorable
settlement of this contract receivable balance.
Results of Operations
Revenue, net
Revenue, net and revenue, net less subcontract costs, by business
entity, are summarized in the following table.
Fiscal Year Ended July 31,
2015
2014
2013
Revenue by entity:
EEI and its wholly
owned subsidiaries
(excluding Walsh)
$79,171,962 $ 69,446,427 $ 82,419,263
Walsh and EEI’s majority-owned subsidiaries:
Walsh and its majority-
owned subsidiaries
Ecology &
Environment do
Brasil, Ltda
(“E & E Brasil”)
Gestion Ambiental
Consultores S.A.
(“GAC”)
31,490,613
33,168,180
28,263,579
7,814,499
13,811,391
15,125,046
6,544,846
8,808,052
10,640,382
Balance at July 31, 2014
ECSI, LLC (“ECSI”)
2,512,814
3,366,793
4,869,394
Region
United States, Canada and
South America
Allowance
for Doubtful
Accounts
and Contract
Adjustments
Contract
Receivables
$43,394,442
$1,611,068
Middle East and Africa
7,010,225
4,386,240
Asia
Totals
153,492
129,546
$50,558,159
$6,126,854
Combined contract receivables related to projects in the Middle
East, Africa and Asia represented 11% and 14% of total contract
receivables at July 31, 2015 and 2014, respectively, while the
combined allowance for doubtful accounts and contract
adjustments related to these projects represented 89% and 74%,
respectively, of the total allowance for doubtful accounts and
contract adjustments at those same period end dates. These
allowance percentages highlight the Company’s experience of
heightened operating risks (i.e., political, regulatory and cultural
risks) within these foreign regions in comparison with similar risks
in the United States, Canada and South America. These heightened
operating risks have resulted in increased collection risks and the
12
Total gross revenue
127,534,734 128,600,843 141,317,664
Net contract
adjustments recorded
as a reduction from
revenue
Revenue, net per
consolidated
statements of
operations
(795,013)
(173,967)
(6,380,773)
$126,739,721 $128,426,876 $134,936,891
Gross revenue less subcontract costs, by entity:
EEI and its wholly
owned subsidiaries
(excluding Walsh)
$ 64,915,257 $ 59,627,259 $ 69,752,784
Walsh and EEI’s majority-owned subsidiaries:
Walsh and its majority-
owned subsidiaries
23,828,369
25,900,485
22,117,316
E & E Brasil
7,157,284
12,014,002
12,527,325
GAC
ECSI
Total
5,849,187
6,958,103
7,327,335
2,457,955
3,272,119
4,621,818
$104,208,052 $107,771,968 $116,346,578
The overall decrease in consolidated revenue less subcontract costs
for the fiscal year ended July 31, 2015, as compared with the prior
fiscal year, resulted from the net impact of the following entity
activity:
• Higher Parent Company and wholly-owned subsidiary
revenue (excluding Walsh) resulted from higher Department
of Defense and energy sector revenues in the U.S., which was
partially offset by lower government and commercial sales
volumes in the U.S.
• Lower Walsh revenue primarily resulted from a strategic
decision to wind down existing asbestos remediation
contracts and forego any new asbestos business, and from
lower sales activity in energy and mining sectors in the U.S.,
which were partially offset by higher energy sector sales
volume from operations in Peru.
• Lower E&E Brasil revenue was primarily due to lower sales
volume in the energy transmission sector, as transmission
projects completed during fiscal years 2015 and 2014 were
not renewed or replaced. A weaker Brazilian economy and a
weaker Real in relation to the U.S. dollar also contributed to the
overall decrease in revenues.
• Lower GAC revenue was primarily due to lower mining sector
revenues, as mining projects completed during fiscal years
2015 and 2014 were not renewed or replaced.
• Lower ECSI revenue primarily resulted from lower sales volume
in the mining sector, as mining projects completed during the
prior fiscal year were not renewed or replaced.
Contract Adjustments
Net contract adjustments recorded as a reduction of revenue
include adjustments to revenues that are deemed to be
unrealizable or that may become unrealizable in the future, as well
as adjustments to estimated liabilities for project disallowances
that are recorded in other accrued liabilities. Contract adjustments
related to projects in the United States, Canada and South America
typically result from cost overruns from current or recently
completed projects, or from recoveries of cost overruns recorded
as contract adjustments in prior reporting periods. Contract
adjustments related to projects in the Middle East, Africa and Asia
typically result from difficulties encountered while attempting to
settle claims and issues that may be several years old.
Net contract adjustments recorded as additions to (reductions
from) revenue are summarized by region in the following table.
Fiscal Year Ended July 31,
Region
2015
2014
2013
United States, Canada
and South America
$ 235,908 $ 309,651 $ (134,657)
Middle East and Africa
(1,013,683)
(483,618)
72,024
East. As a result, management decided to increase the related
allowance $1.2 million during fiscal year 2015, to $4.9 million
or 100% of the related contract receivable balance as of July
31, 2015. Management continues to maintain open dialogue
with this client, and to seek assistance through all possible
official channels, in order to ensure a favorable settlement of
this contract receivable balance.
• The Company also has experienced difficulties with settlement
and close-out of various projects completed for a specific
client in Africa. At July 31, 2014, the Company recorded total
allowance for contract adjustments of $0.8 million, or 49% of
total related contract receivables at that date. During fiscal
year 2015, the Company received settlement for $0.3 million
of contract receivables that were previously 100% reserved.
In addition, during the fourth quarter of fiscal year 2015,
the Company decided to write-off $0.5 million of contract
receivables that were previously 100% reserved.
Fiscal Year 2014 Activity
Net contract adjustments recorded for projects in the U.S., Canada
and South America includes net adjustments resulting from
revenues that are deemed to be unrealizable or that may become
unrealizable in the future, as well as adjustments to estimated
liabilities for project disallowances that are recorded in other
accrued liabilities. During fiscal year 2014, as a result of a revised
estimate of a settlement liability recorded in a prior fiscal year,
we recorded a $0.3 million reduction on our reserves for project
disallowances recorded in other accrued liabilities.
Net contract adjustments recorded for projects in the Middle East
and Africa mainly resulted from a $1.5 million increase in the reserve
for contract adjustments associated with a specific project in the
Middle East, which was partially offset by $1.0 million of reserve
reversals resulting from cash receipts or approvals of task orders
related to receivables that had been previously reserved.
Direct Operating Expenses
The cost of professional services and other direct operating
expenses on the consolidated statements of operations represents
labor and other direct costs of providing services to our clients
under our project agreements. We refer to these expenses as “direct
operating expenses.” These costs, and fluctuations in these costs,
generally correlate directly with related project revenues. The cost
of professional services and other direct operating expenses, by
business entity, are summarized in the following table.
Fiscal Year Ended July 31,
2015
2014
2013
$28,231,361 $26,407,023 $29,408,179
EEI and its wholly owned
subsidiaries
(excluding Walsh)
Walsh and EEI’s majority-owned subsidiaries:
Asia
Totals
(17,238)
— (6,318,140)
$ (795,013) $ (173,967) $(6,380,773)
Walsh and its majority-
owned subsidiaries
10,263,323
10,222,527
7,356,082
Fiscal Year 2015 Activity
Net contract adjustments recorded for projects in the Middle East
and Africa resulted from the following net activity:
GAC
ECSI
3,819,930
5,133,125
5,258,000
1,148,999
1,183,785
1,529,296
• The Company has experienced ongoing difficulties with
settlement and close-out of a specific project in the Middle
Total cost of professional
services and other direct
operating expenses
$47,500,171 $49,449,221 $49,824,962
E & E Brasil
4,036,558
6,502,761
6,273,405
13
Direct operating expenses decreased $1.9 million (4%) during
fiscal year 2015, as compared with the prior year. Lower project-
related sales volumes and related costs in EEI’s Brazilian and Chilean
operations were partially offset by higher project service levels
and costs in EEI’s domestic operations and in Walsh’s Peruvian
operations.
Indirect Operating Expenses
Administrative and indirect operating expenses and marketing
and related costs on the consolidated statements of operations
represent administrative and other operating costs not directly
associated with the generation of revenue. We refer to these costs
as “indirect operating expenses.” Indirect operating expenses by
business entity are summarized in the following table.
of the Company’s principal operating software. The Company
acquired and developed new operating system software during
fiscal year 2014, and began utilizing the new software effective
August 1, 2014 for its U.S. operations. The Company continued to
utilize the previous software system through July 31, 2014, at which
time the previous system was abandoned. As a result, amortization
of software development costs capitalized for the previous system
was accelerated so that the system was completely amortized by
July 31, 2014. Total software amortization expense was $0.1 million
and $2.6 million for fiscal years 2015 and 2014, respectively.
Income Taxes
The income tax provision (benefit) resulting from domestic and
foreign operations is summarized in the following table.
Fiscal Year Ended July 31,
2015
2014
2013
EEI and its wholly
owned subsidiaries
(excluding Walsh)
$30,505,779 $32,907,360 $36,239,243
Walsh and EEI’s majority-owned subsidiaries:
Walsh and its majority-
owned subsidiaries
9,596,864
12,690,944 12,707,123
E & E Brasil
3,645,257
4,946,171
5,480,397
GAC
ECSI
1,294,151
1,376,842
1,161,575
1,799,545
2,559,021
3,021,712
Total administrative and
indirect operating
expenses and marketing
and related costs
$46,841,596 $54,480,338 $58,610,050
EEI and its direct and indirect subsidiaries may, at the discretion of
their respective Board of Directors, award incentive compensation
to Directors, senior management and other employees in the
form of cash bonuses. Cash bonus expense may vary significantly
from year to year depending on company financial performance.
The Company recorded $2.8 million and $1.2 million of incentive
compensation expense in indirect operating expenses during fiscal
years 2015 and 2014, respectively, as a result of cash bonus awards.
In October 2015, EEI sold its 60% interest in ECSI to ECSI’s
minority shareholders for $0.3 million. EEI recognized a loss on its
investment in ECSI of approximately $0.4 million in administrative
and indirect operating expenses during the fourth quarter of fiscal
year 2015. Also during fiscal year 2015, management completed
an assessment of goodwill recorded on the acquisition date, and
recorded $0.1 million of goodwill impairment loss in administrative
and indirect operating expenses.
Excluding higher expenses associated with cash bonuses and the
sale of ECSI noted above, indirect operating expenses decreased
$9.7 million (18%) during fiscal year 2015. During fiscal year 2015,
management continued its critical review of direct and indirect
staffing levels and key administrative processes at EEI and all
of its significant domestic and foreign subsidiaries, resulting in
improved operating efficiency and cost reductions. The Company
also realized a full year benefit of efficiencies and cost reductions
initiated in prior fiscal years.
Depreciation and Amortization
Depreciation and amortization expense decreased $2.7 million
(65%) during fiscal year 2015, primarily due to lower amortization
14
Fiscal Year Ended July 31,
2015
2014
2013
Income tax provision (benefit) from:
Domestic operations
$ 2,118,074 $ (802,558) $ (782,672)
Foreign operations
1,650,347
1,145,621
1,036,906
Income tax provision, as
reported on the
consolidated statements
of operations
$ 3,768,421 $ 343,063
$ 254,234
Higher taxable income from U.S. operations, which increased to
income of $3.5 million for fiscal year 2015 from a loss of $4.3 million
for the prior year, was the primary driver of the increase in the
income tax provision for the current year. Higher foreign sourced
taxable income and higher book to tax differences from U.S. and
foreign sources also contributed to the overall increase in tax
provision for fiscal year 2015.
Recent Accounting Pronouncements
Accounting Pronouncements Adopted During
the Fiscal Year Ended July 31, 2015
In July 2013, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) No. 2013-11 Income
Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit
When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax
Credit Carryforward Exists (“ASU 2013-11”). ASU 2013-11 requires
that an unrecognized tax benefit, or a portion of an unrecognized
tax benefit, should be presented in the financial statements
as a reduction to a deferred tax asset for a net operating loss
carryforward, a similar tax loss, or a tax credit carryforward, except
as follows. To the extent a net operating loss carryforward, a similar
tax loss, or a tax credit carryforward is not available at the reporting
date under the tax law of the applicable jurisdiction to settle any
additional income taxes that would result from the disallowance
of a tax position or the tax law of the applicable jurisdiction does
not require the entity to use, and the entity does not intend to
use, the deferred tax asset for such purpose, the unrecognized
tax benefit should be presented in the financial statements as a
liability and should not be combined with deferred tax assets. The
Company adopted the provisions of ASU 2013-11 effective August
1, 2014 and applied its provisions retrospectively. The adoption
of this standard did not have a material impact on the Company’s
consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
as of July 31, 2015
In May 2014, FASB issued ASU No. 2014-09, Revenue from Contracts
with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 is the
result of a joint project of FASB and the International Accounting
Standards Board to clarify the principles for recognizing revenue
and to develop a common revenue standard for use in the U.S and
internationally. ASU 2014-09 supersedes the revenue recognition
requirements in Topic 605 of FASB’s Accounting Standards
Codification (the “Codification”) and most industry-specific
guidance throughout the Industry Topics of the Codification. ASU
2014-09 enhances comparability of revenue recognition practices
across entities, industries, jurisdictions and capital markets,
reduces the number of requirements an entity must consider for
recognizing revenue, and requires improved disclosures to help
users of financial statements better understand the nature, amount,
timing, and uncertainty of revenue that is recognized.
ASU 2014-09 was to be effective for annual reporting periods
beginning after December 15, 2016, including interim periods
within the annual reporting period. In August 2015, FASB issued
ASU No. 2015-14, Revenue from Contracts with Customers
(Topic 606), Deferral of the Effective Date (“ASU 2015-14”). The
amendments in ASU 2015-14 defer the effective date of ASU 2014-
09 for all entities by one year. The Company intends to adopt the
provisions of ASU 2014-09 effective August 1, 2018.
ASU 2014-09 requires retrospective application by either restating
each prior period presented in the financial statements, or by
recording the cumulative effect on prior reporting periods to
beginning retained earnings in the year that the standard becomes
effective. Management is currently assessing the provisions of
ASU 2014-09 and has not yet estimated its impact or selected a
transition method.
In August 2014, FASB issued ASU No. 2014-15, Presentation of
Financial Statements – Going Concern (Subtopic 205-40) (“ASU
2014-15”). ASU 2014-15 requires an entity’s management to
evaluate whether there are conditions or events, considered in the
aggregate, that raise substantial doubt about the entity’s ability to
continue as a going concern within one year after the date that
the financial statements are issued (or within one year after the
date that the financial statements are available to be issued when
applicable). ASU 2014-15 provides guidance for management’s
evaluation, including guidance regarding when substantial doubt
about an entity’s ability to continue as a going concern exists, and
when such doubt may be alleviated by management’s plans that
are intended to mitigate those relevant conditions or events. ASU
2014-15 also provides guidance regarding appropriate financial
statement disclosures regarding conditions or events that raised
substantial doubt about the entity’s ability to continue as a going
concern, management’s evaluation of the significance of those
conditions or events in relation to the entity’s ability to meet its
obligations, and management’s plans that are intended to mitigate
those conditions or events. The provisions of ASU 2014-15 are
effective for the annual period ending after December 15, 2016, and
for annual periods and interim periods thereafter. Early application
is permitted. The Company intends to adopt ASU 2014-15 effective
August 1, 2016. The adoption of this standard is not expected to
have a material impact on the Company’s consolidated financial
statements.
In January 2015, FASB issued ASU No. 2015-01 Income Statement
– Extraordinary and Unusual Items (Subtopic 225-20) (“ASU
2015-01”). ASU 2015-01 eliminates the concept of extraordinary
items from U.S. generally accepted accounting principles. While
reporting entities will no longer be required to assess whether
an underlying event or transaction is extraordinary, presentation
and disclosure guidance for items that are unusual in nature or
occur infrequently are retained, and are expanded to include items
that are both unusual in nature and infrequently occurring. ASU
2015-01 is effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2015. Early adoption
is permitted provided that the guidance is applied from the
beginning of the fiscal year of adoption. The Company adopted the
provisions of ASU 2015-01 effective August 1, 2015. The adoption
of this standard is not expected to have a material impact on the
Company’s consolidated financial statements.
Critical Accounting Policies
The preceding discussion and analysis of our financial condition
and results of operations are based on our consolidated financial
statements, which have been prepared in conformity with
accounting principles generally accepted in the United States.
The significant accounting policies used in the preparation of our
consolidated financial statements are more fully described in the
consolidated financial statements beginning on page 19 of this
Annual Report.
Many of our significant accounting policies require complex
judgments to estimate values of assets and liabilities. In making
these judgments, management must make certain estimates and
assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. Because changes in such estimates
and assumptions could significantly affect our reported financial
position and results of operations, detailed policies and control
procedures have been established to ensure that valuation
methods, including judgments made as part of such methods,
are well controlled, independently reviewed, and are applied
consistently from period to period.
On an on-going basis, we evaluate our estimates to ensure that
they are based on assumptions that we believe to be reasonable
under current circumstances. Our actual results may differ from
these estimates and assumptions.
Of the significant policies used to prepare our consolidated
financial statements, the items discussed below require critical
accounting estimates involving a high degree of judgment and
complexity. For all of these critical policies, we caution that future
events rarely develop exactly as forecasted, and the best estimates
routinely require adjustment. This information should be read in
conjunction with our consolidated financial statements included
herein.
Revenue Recognition
Substantially all of the Company’s revenue is derived from
environmental consulting work, which is principally derived from
the sale of labor hours. Revenues reflected in the Company’s
consolidated statements of operations represent services
rendered for which the Company maintains a primary contractual
relationship with its customers. Included in revenues are certain
services outside the Company’s normal operations which the
Company has elected to subcontract to other contractors. Sales
and cost of sales at our South American subsidiaries exclude tax
assessments by governmental authorities, which are collected from
clients and then remitted to governmental authorities.
15
The consulting work is performed under a mix of fixed price, cost-
type, and time and material contracts. Contracts are required from
all customers. Revenue is recognized as follows:
Contract Type
Work Type
Revenue Recognition Policy
Time and
Materials
Consulting
As incurred at contract rates.
Fixed Price
Consulting
Cost-plus
Consulting
Percentage of completion,
approximating the ratio of either
total costs or Level of Effort (LOE)
hours incurred to date to total
estimated costs or LOE hours.
Costs as incurred plus fees.
Fees are recognized as revenue
using percentage of completion
determined by the percentage of
LOE hours incurred to total LOE
hours in the respective contracts.
Revenues associated with these contract types are summarized in
the following table.
Twelve Months Ended July 31,
2015
2014
2013
Time and materials $ 61,444,412 $ 69,136,988 $ 64,522,639
Fixed price
Cost-plus
54,912,492
50,077,507
58,244,072
10,382,817
9,212,381
12,170,180
Total revenue
$126,739,721 $128,426,876 $134,936,891
Time and material contracts are accounted for over the period
of performance, in proportion to the costs of performance,
predominately based on labor hours incurred. Time and materials
contracts generally represent the time spent by our professional
staff at stated or negotiated billing rates, plus materials used during
project work. Many time and materials contracts contain “not to
exceed” provisions that effectively cap the amount of revenue that
we can bill to the client. In order to record revenue that exceeds
the billing cap, we must obtain written approval from the client for
expanded scope or increased pricing.
Fixed price contracts are accounted for using the percentage-of-
completion method, wherein revenue is recognized as project
progress occurs. Fixed-price contracts generally present the
highest level of financial and performance risk, but often also
provide the highest potential financial returns.
Cost-plus contracts 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. Cost-plus contracts present a
lower risk, but generally provide lower returns and often include
more onerous terms and conditions.
Our project management teams continuously monitor the budgets,
costs to date and estimated costs to complete project work. If the
estimated cost at completion for any contract indicates that a loss
will be incurred, the entire estimated loss is charged to operations
as a reduction of revenue in the period the loss becomes evident.
The percentage of completion revenue recognition method
requires the use of estimates and judgment regarding a project’s
expected revenues, costs and the extent of progress towards
completion. We have a history of making reasonably dependable
16
estimates of the extent of progress towards completion, contract
revenue and contract completion costs. However, due to
uncertainties inherent in the estimation process, actual completion
costs may vary significantly from estimates.
Most of our percentage-of-completion projects follow a method
which approximates the “cost-to-cost” method of determining
the percentage of completion. Under the cost-to-cost method,
we make periodic estimates of our progress towards project
completion by analyzing costs incurred to date, plus an estimate of
the amount of costs that we expect to incur until the completion
of the project. Revenue is then calculated on a cumulative basis
(project-to-date) as the total contract value multiplied by the
current percentage-of-completion. The revenue for the current
period is calculated as cumulative revenues less project revenues
already recognized. The recognition of revenues and profit is
dependent upon a variety of estimates which can be difficult to
accurately determine until a project is significantly underway.
For projects where the cost-to-cost method does not appropriately
reflect the progress on the projects, we use alternative methods
such as actual labor hours, for measuring progress on the project
and recognize revenue accordingly. For instance, in a project where
a large amount of equipment is purchased or an extensive amount
of mobilization is involved, including these costs in calculating the
percentage-of-completion may overstate the actual progress on
the project. For these types of projects, actual labor hours spent on
the project may be a more appropriate measure of the progress on
the project.
Our contracts with the U.S. government contain provisions
requiring compliance with the Federal Acquisition Regulation
(“FAR”), and the Cost Accounting Standards (“CAS”). These
regulations are generally applicable to all of our federal government
contracts and are partially or fully incorporated in many local and
state agency contracts. They limit the recovery of certain specified
indirect costs on contracts subject to the FAR. Cost-plus contracts
covered by the FAR provide for upward or downward adjustments
if actual recoverable costs differ from the estimate billed. Most
of our federal government contracts are subject to termination
at the convenience of the client. Contracts typically provide for
reimbursement of costs incurred and payment of fees earned
through the date of such termination.
Federal government contracts are subject to the FAR and some
state and local governmental agencies require audits, which are
performed for the most part by the Defense Contract Audit Agency
(“DCAA”). The DCAA audits overhead rates, cost proposals, incurred
government contract costs, and internal control systems. During
the course of its audits, the DCAA may question incurred costs if it
believes we have accounted for such costs in a manner inconsistent
with the requirements of the FAR or CAS and recommend that
our U.S. government financial administrative contracting officer
disallow such costs. Historically, we have not experienced
significant disallowed costs as a result of such audits. However, we
can provide no assurance that such audits will not result in material
disallowances of incurred costs in the future.
We maintain an allowance for project disallowances in other
accrued liabilities for potential cost disallowances resulting from
government audits and project close-outs. Government audits
have been completed and final rates have been negotiated
for fiscal years through 2009. We have estimated our exposure
based on completed audits, historical experience and discussions
with the government auditors. If these estimates or their related
assumptions change, we may be required to adjust our recorded
allowance for project disallowances.
Allowance for Doubtful Accounts and
Contract Adjustments
We reduce our contract receivables by recording an allowance
for doubtful accounts for estimated credit losses resulting from a
client’s inability or unwillingness to pay valid obligations to us. The
resulting provision for bad debts is recorded within administrative
and indirect operating expenses on the consolidated statements
of operations. The likelihood that the client will pay is based on
the judgment of those closest to the related project and the client.
At a minimum, management considers the following factors to
determine the collectability of contract receivables for any specific
project:
• client acknowledgment of amount owed to us;
• client liquidity/ability to pay;
• historical experience with collections from the client;
• amount of time elapsed since last payment; and
• economic, geopolitical and cultural considerations for the
home country of the client.
We recognize that there is a high degree of subjectivity and
imprecision inherent in the process of estimating future credit
losses that are based on historical trends and client data. As a
result, actual credit losses can differ from these estimates.
We also reduce contract receivables by establishing an allowance
for contract adjustments related to revenues that are deemed to
be unrealizable, or that may become unrealizable in the future.
Management reviews contract receivables and determines
allowances amounts based on:
• our operating performance related to the adequacy of the
services performed under the contract;
• the status of change orders and claims;
• our historical experience with the client for settling change
orders and claims; and
• economic, geopolitical and cultural considerations for the
home country of the client.
Because of the high degree of subjectivity and imprecision inherent
in the process of estimating allowances that are based on historical
trends and client data, actual contract losses can differ from these
estimates.
Income Taxes
We operate within multiple tax jurisdictions in the United States
and in foreign countries. The calculations of income tax expense or
benefit and related balance sheet amounts involve a high degree
of management judgment regarding estimates of the timing
and probability of recognition of revenue and deductions. The
interpretation of tax laws involves uncertainty, since tax authorities
may interpret laws differently than we do. We are subject to audit
in all of our tax jurisdictions, which may involve complex issues
and may require an extended period of time to resolve. Ultimate
resolution of tax matters may result in favorable or unfavorable
impacts to our net income and/or cash flows. In management’s
opinion, adequate reserves have been recorded for any future taxes
that may be owed as a result of examination by any taxing authority.
A tax position is a position in a previously filed tax return or a
position expected to be taken in a future tax filing that is reflected
in measuring current or deferred income tax assets and liabilities.
Tax positions shall be recognized only when it is more likely than
not (likelihood of greater than 50%), based on technical merits, that
the position will be sustained. Tax positions that meet the more
likely than not threshold should be measured using a probability
weighted approach as the largest amount of tax benefit that is
greater than 50% likely of being realized upon settlement. We
recognize interest accrued related to unrecognized tax benefits
in interest expense and penalties in administrative and indirect
operating expenses. Whether the more-likely-than-not recognition
threshold is met for a tax position, is a matter of judgment based on
the individual facts and circumstances of that position evaluated
in light of all available evidence. Based on available evidence,
management has estimated that uncertain tax positions were less
than $0.1 million at July 31, 2015 and 2014.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes using enacted tax rates expected to be in effect
for the year in which the temporary differences are expected to
reverse. Our policy is to establish a valuation allowance if it is
“more likely than not” that the related tax benefits will not be
realized. At July 31, 2015 and 2014, we determined based on
available evidence, including historical financial results for the last
three years and forecasts of future results, that it is “more likely than
not” that a portion of these items may not be recoverable in the
future. Accordingly, we recorded total valuation allowances of $0.6
million and $0.4 million at July 31, 2015 and 2014, respectively, as a
reduction of deferred tax assets.
The valuation allowance related to deferred tax assets is considered
to be a critical estimate because, in assessing the likelihood of
realization of deferred tax assets, management considers taxable
income trends and forecasts. Actual income taxes expensed and/
or paid could vary from estimated amounts due to the impacts of
various factors, including:
• changes to tax laws enacted by taxing authorities;
• final review of filed tax returns by taxing authorities; and
• actual financial condition and results of operations for future
periods that could differ from forecasted amounts.
Inflation
During the fiscal years ended July 31, 2015, 2014 and 2013,
inflation did not have a material impact on our business because a
significant amount of our contracts are either cost based or contain
commercial rates for services that are adjusted annually.
Off-Balance Sheet Arrangements
We had outstanding letters of credit to support operations of $1.1
million and $1.9 million drawn under our lines of credit at July 31,
2015 and 2014, respectively. Other than these letters of credit, we
did not have any off-balance sheet arrangements as of July 31, 2015
or 2014.
17
Principal Market for the Company’s Common Equity and Related Stockholder Matters
The Company’s Class A Common Stock is listed on NASDAQ. There is no separate market for the Company’s Class B Common Stock.
Quarterly high and low prices for the Company’s Class A Common Stock, as reported by NASDAQ, are summarized in the following table.
Fiscal Year Ended July 31, 2015
First Quarter (commencing August 1, 2014 - October 31, 2014)
Second Quarter (commencing November 1, 2014 - January 31, 2015)
Third Quarter (commencing February 1, 2015 - April 30, 2015)
Fourth Quarter (commencing May 1, 2015 - July 31, 2015)
Fiscal Year Ended July 31, 2014
First Quarter (commencing August 1, 2013 - October 31, 2013)
Second Quarter (commencing November 1, 2013 - January 31, 2014)
Third Quarter (commencing February 1, 2014 - April 30, 2014)
Fourth Quarter (commencing May 1, 2014 - July 31, 2014)
High
$10.72
11.34
10.79
11.40
High
$ 12.25
11.88
12.78
11.25
Low
$9.42
8.35
8.28
8.66
Low
$ 10.52
10.41
9.02
9.49
As of September 30, 2015, 2,981,768 shares of the Company’s Class A Common Stock were outstanding and there were 309 holders of record
of the Company’s Class A Common Stock. We estimate that the Company 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 September 30, 2015, 1,304,911 shares of the Company’s Class B Common Stock were outstanding and there were 56 holders of record
of the Class B Common Stock.
Including the fiscal year ended July 31, 2015, the Company has declared semi-annual dividends for 29 consecutive years. The Company
declared dividends totaling $0.48 per common share during the fiscal years ended July 31, 2015, 2014 and 2013.
18
Photo by: Linda Schmidt, Bids and Proposals Data Manager, Buffalo, 17 Years with E & E
Annual Report on Form 10-K
The information included within this Annual Report, including the audited financial
statements that follow, is for the general information of the Company’s shareholders. It is
not intended to be used in connection with any sale or purchase of securities. Additional
information regarding the Company’s financial position and results of operations may be
obtained from the Company’s Annual Report on Form 10-K, filed with the Securities and
Exchange Commission on October 29, 2015.
The Company’s Securities and Exchange Commission filings may be obtained without
charge by accessing the Investor Relations section of the Company’s website at http://ene.
com/investor-relations, at http://www.sec.gov or by sending a written request to:
Mr. H. John Mye, Chief Financial Officer
Ecology and Environment, Inc.
368 Pleasant View Drive
Lancaster, NY 14086-1397
Audited Financial Statements
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Ecology and Environment, Inc.
We have audited the accompanying consolidated balance sheets of Ecology and
Environment, Inc. and its subsidiaries (collectively, the Company) as of July 31, 2015 and
2014, and the related consolidated statements of operations, comprehensive income
(loss), changes in shareholders’ equity, and cash flows for each of the years in the three-year
period ended July 31, 2015. The Company’s management is responsible for these financial
statements. Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. Our
audit included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of July 31, 2015 and 2014, and
the results of its operations and its cash flows for each of the years in the three-year period
ended July 31, 2015 in conformity with accounting principles generally accepted in the
United States of America.
Pittsburgh, Pennsylvania
October 29, 2015
19
Consolidated Balance Sheets
Assets
Current assets:
Cash and cash equivalents
Investment securities available for sale
Contract receivables, net of allowance for doubtful accounts and
contract adjustments of $5,537,901 and $6,126,854, respectively
Deferred income taxes
Income tax receivable
Other current assets
Total current assets
Property, buildings and equipment, net of accumulated depreciation of
$23,438,269 and $28,615,915, respectively
Deferred income taxes
Other assets
Total assets
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable
Line of credit
Accrued payroll costs
Current portion of long-term debt and capital lease obligations
Billings in excess of revenue
Other accrued liabilities
Total current liabilities
Income taxes payable
Deferred income taxes
Long-term debt and capital lease obligations
Commitments and contingencies (Note 19)
Shareholders’ equity:
Preferred stock, par value $.01 per share
(2,000,000 shares authorized; no shares issued)
Class A common stock, par value $.01 per share
Balance at July 31,
2015
2014
$ 8,703,347
$ 6,889,243
1,433,732
1,407,277
42,866,156
44,431,305
3,878,401
297,246
1,330,996
58,509,878
7,113,694
933,890
1,931,875
4,534,437
1,107,983
1,422,561
59,792,806
7,941,455
1,865,798
2,108,263
$ 68,489,337
$ 71,708,322
$ 10,409,656
$ 9,874,649
672,272
8,687,643
551,148
2,618,453
3,931,284
1,572,466
7,650,077
420,737
5,003,413
4,235,262
26,870,456
28,756,604
107,035
631,889
395,098
—
—
107,035
631,083
421,769
—
—
(6,000,000 shares authorized; 3,023,206 and 2,685,151 shares issued)
30,232
26,851
Class B common stock, par value $.01 per share;
(10,000,000 shares authorized; 1,370,519 and 1,708,574 shares issued)
Capital in excess of par value
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost (Class A common: 42,245 and 40,553 shares;
Class B common: 64,801 shares)
Total Ecology and Environment, Inc., shareholders’ equity
Noncontrolling interests
Total shareholders’ equity
Total liabilities and shareholders’ equity
13,706
16,575,286
23,246,483
17,087
17,124,339
21,916,575
(1,726,339)
(182,735)
(1,223,899)
(1,223,899)
36,915,469
37,678,218
3,569,390
40,484,859
4,113,613
41,791,831
$ 68,489,337
$ 71,708,322
The accompanying notes are an integral part of these consolidated financial statements
20
Consolidated Statements of Operations
Fiscal Year Ended July 31,
2014
2015
2013
Revenue, net
$126,739,721
$128,426,876
$134,936,891
Cost of professional services and other direct operating expenses
47,500,171
49,449,221
49,824,962
Subcontract costs
23,326,682
20,828,875
24,971,086
Administrative and indirect operating expenses
35,408,924
41,464,204
44,563,873
Marketing and related costs
Depreciation and amortization
Income (loss) from operations
Interest income
Interest expense
11,432,672
13,016,134
14,046,177
1,467,270
4,175,801
2,428,844
7,604,002
(507,359)
(898,051)
84,970
154,441
244,191
(115,885)
(150,315)
(303,403)
Other income (expense)
75,626
67,587
(40,127)
Gain on sale of assets and investment securities
186,089
13,045
80,415
Net foreign exchange gain (loss)
133,703
(24,789)
(50,839)
Income (loss) before income tax provision
7,968,505
(447,390)
(967,814)
Income tax provision
Net income (loss)
3,768,421
343,063
254,234
$ 4,200,084
$ (790,453)
$ (1,222,048)
Net income attributable to the noncontrolling interest
(804,441)
(592,203)
(908,386)
Net income (loss) attributable to Ecology and Environment, Inc.
$ 3,395,643
$ (1,382,656)
$ (2,130,434)
Net income (loss) per common share: basic and diluted
$0.79
$ (0.32)
$ (0.50)
Weighted average common shares outstanding: diluted
$ 4,287,775
$ 4,283,984
$ 4,261,623
The accompanying notes are an integral part of these consolidated financial statements
Photo by: Doug Heatwole, Vice President, Pensacola Office, 31 Years with E & E
21
Consolidated Statements of Comprehensive Income (Loss)
Net income (loss) including noncontrolling interests
Foreign currency translation adjustments
Unrealized investment (losses) gains, net
Comprehensive income (loss)
Fiscal Year Ended July 31,
2015
2014
2013
$ 4,200,084
$ (790,453)
$ (1,222,048)
(2,151,970)
(298,200)
(883,865)
(4,036)
1,412
(28,675)
2,044,078
(1,087,241)
(2,134,588)
Comprehensive income (loss) attributable to noncontrolling interests
(192,039)
(457,916)
(792,215)
Comprehensive income (loss) attributable to Ecology and Environment, Inc.
$ 1,852,039
$ (1,545,157)
$ (2,926,803)
The accompanying notes are an integral part of these consolidated financial statements
22
Photo by: Gina Edwards, Technical Editor,
Tallahassee Office, 31 Years with E & E
Consolidated Statements of Cash Flows
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Impairment of long-lived assets
Impairment of goodwill
Impairment of investment in ECSI
Depreciation and amortization
Deferred income tax provision (benefit)
Share based compensation expense
Tax impact of share-based compensation
Gain on sale of assets and investment securities
Net provision for (recovery of) contract adjustments and doubtful accounts
Net bad debt (recovery) expense
Decrease (increase) in:
- contract receivables
- other current assets
- income tax receivable
- other non-current assets
(Decrease) increase in:
- accounts payable
- accrued payroll costs
- income taxes payable
- billings in excess of revenue
- other accrued liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Acquisition of noncontrolling interest of subsidiaries
Purchase of property, building, and equipment
Proceeds from sale of property, building, and equipment
Proceeds from sale of investments
(Purchase) sale of investment securities
Net cash used in investing activities
Cash flows from financing activities:
Dividends paid
Proceeds from debt and capital lease obligations
Repayment of debt and capital lease obligations
Net repayments under of lines of credit
Distributions to noncontrolling interests
Purchase of treasury stock
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
- Interest
- Income Taxes
Supplemental disclosure of non-cash items:
Dividends declared and not paid
Acquistion of noncontrolling interest of subsidiaries (loans and stock)
Change in accounts payable due to equipment purchases
Proceeds from capital lease obligations
Fiscal Year Ended July 31,
2015
2014
2013
$ 4,200,084
$ (790,453)
$ (1,222,048)
—
103,547
355,000
—
—
—
846,000
—
—
1,467,270
4,175,801
2,428,844
1,154,118
59,189
(91,849)
(186,089)
(413,071)
(326,420)
(934,618)
(439,775)
270,360
47,725
1,052,195
1,805,254
132,236
(817,896)
353,295
(31,695)
(13,045)
173,967
90,087
203,165
507,796
(74,429)
(80,415)
6,319,650
(287,426)
1,855,027
7,228,782
192,013
(97,563)
3,247,277
(1,832,096)
29,656
6,951
23,739
630,156
(41,155)
(628,189)
(172,087)
(69,230)
(1,908,679)
(1,419,481)
(1,430,143)
201,838
6,548,315
445,505
295,562
8,102,798
11,943,124
(50,000)
(689,361)
(595,556)
(734,710)
(1,964,663)
(1,845,241)
254,785
—
—
—
—
1,554,425
(33,181)
52,675
(1,671,284)
(563,106)
(2,601,349)
(2,557,656)
(2,066,142)
(2,053,506)
(2,037,323)
384,397
(753,525)
(869,655)
(536,731)
—
544,027
(710,009)
255,487
(853,127)
(4,956,225)
(5,782,992)
(664,703)
(173,278)
(1,532,912)
—
(3,841,656)
(8,013,694)
(9,950,867)
(329,449)
1,814,104
6,889,243
(43,172)
(457,711)
(2,555,417)
(1,023,110)
9,444,660
10,467,770
$ 8,703,347
$ 6,889,243
$ 9,444,660
$ 109,587
$ 145,880
$ 301,154
1,541,755
(2,303,231)
1,596,760
1,032,665
233,220
—
322,231
1,033,071
1,072,944
—
42,707
1,018,783
212,401
670,678
256,288
The accompanying notes are an integral part of these consolidated financial statements
23
Consolidated Statements of Changes in Shareholders’ Equity
Common Stock
Class
Class Shares Amount
Capital in
Excess of
Par Value
Retained
Earnings
Accumulated Other
Comprehensive
Income (loss)
Treasury Stock
Shares Amount
Noncontrolling
Interests
Balance at July 31, 2012
A
B
2,685,151
1,708,574
$26,851
$19,751,992 $29,534,783
}
$17,087
$ 711,842
149,531 $(1,897,032)
$4,612,018
— (2,130,434)
—
—
—
(790,464)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— (2,038,496)
—
507,796
(74,429)
—
(168,486)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
908,386
(116,171)
—
—
—
—
— (1,532,912)
—
(28,675)
—
—
—
22,770
(7,804)
98,799
(775,935)
—
2,184
—
—
$ (84,527)
143,911 $(1,798,233)
$3,095,386
A
B
2,685,151
1,708,574
$20,016,873 $25,365,853
$26,851
}
$17,087
— (1,382,656)
—
—
—
(163,913)
— (2,066,622)
—
1,412
—
—
—
—
—
—
—
—
592,203
(134,287)
—
—
—
—
—
—
(664,703)
2,381,666
—
16,091
(173,278)
— (16,387)
194,454
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(194,454)
353,295
(31,695)
—
— (2,414,027)
—
—
(605,653)
—
—
—
—
—
—
—
—
—
—
A
B
2,685,151
1,708,574
$26,851
}
$17,087
$17,124,339 $21,916,575
$ (182,735)
105,354 $(1,223,899)
$4,113,613
64,293
(44,260)
553,158
(1,156,652)
—
5,999
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— 3,395,643
—
—
—
(1,539,568)
— (2,065,735)
—
59,189
(91,849)
(428,299)
—
(88,094)
—
—
—
—
—
—
—
—
—
(4,036)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,692
—
—
—
—
—
—
—
—
—
—
—
804,441
(612,402)
—
—
—
—
—
—
(536,731)
(199,531)
—
A
B
3,023,206
1,370,519
$30,232
}
$13,706
$16,575,286 $23,246,483
$(1,726,339)
107,046 $(1,223,899)
$3,569,390
The accompanying notes are an integral part of these consolidated financial statements
Net (loss) income
Foreign currency translation adjustment
Cash dividends declared ($0.48 per share)
Unrealized investment loss, net
Share-based compensation expense
Tax impact of share based compensation
Distributions to noncontrolling interests
Purchase of additional noncontrolling interests
Stock award plan forfeitures
Balance at July 31, 2013
Net (loss) Income
Foreign currency translation adjustment
Cash dividends declared ($0.48 per share)
Unrealized investment gain, net
Repurchase of Class A common stock
Issuance of stock under stock award plan
Share-based compensation expense
Tax impact of share based compensation
Distributions to noncontrolling interests
Reclassification adjustment for prior period
acquisitions of noncontrolling interests
Purchase of additional noncontrolling interests
Stock award plan forfeitures
Balance at July 31, 2014
Net Income
Foreign currency translation adjustment
Cash dividends declared ($0.48 per share)
Unrealized investment loss, net
Share-based compensation expense
Tax impact of share based compensation
Tax impact of noncontrolling interests
Distributions to noncontrolling interests
Purchase of additional noncontrolling
interests
Stock award plan forfeitures
Balance at July 31, 2015
24
Conversion of Class B to Class A
common stock
A
B
338,055
(338,055)
3,381
}
(3,381)
Notes to Consolidated Financial Statements
1. Organization and Basis of Presentation
Ecology and Environment, Inc., (“EEI” or the “Parent Company”)
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. Together with its subsidiaries (collectively,
the “Company”), EEI has direct or indirect ownership in 18 wholly
owned and majority owned operating subsidiaries in 11 countries.
The Company’s staff is comprised of individuals representing
more than 80 scientific, engineering, health, and social disciplines
working together in multidisciplinary teams to provide innovative
environmental solutions. The Company has completed thousands
of projects for a wide variety of clients in more than 120 countries,
providing environmental solutions in nearly every ecosystem on
the planet.
The consolidated financial statements included herein have been
prepared by the Company pursuant to the rules and regulations
of the Securities and Exchange Commission and in accordance
with accounting principles generally accepted in the United
States of America (“U.S. GAAP”). 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.
2. Recent Accounting Pronouncements
Accounting Pronouncements Adopted During the
Fiscal Year Ended July 31, 2015
In July 2013, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) No. 2013-11 Income
Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit
When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax
Credit Carryforward Exists (“ASU 2013-11”). ASU 2013-11 requires
that an unrecognized tax benefit, or a portion of an unrecognized
tax benefit, should be presented in the financial statements
as a reduction to a deferred tax asset for a net operating loss
carryforward, a similar tax loss, or a tax credit carryforward, except
as follows: To the extent a net operating loss carryforward, a similar
tax loss, or a tax credit carryforward is not available at the reporting
date under the tax law of the applicable jurisdiction to settle any
additional income taxes that would result from the disallowance
of a tax position or the tax law of the applicable jurisdiction does
not require the entity to use, and the entity does not intend to
use, the deferred tax asset for such purpose, the unrecognized
tax benefit should be presented in the financial statements as a
liability and should not be combined with deferred tax assets. The
Company adopted the provisions of ASU 2013-11 effective August
1, 2014 and applied its provisions retrospectively. The adoption
of this standard did not have a material impact on the Company’s
consolidated financial statements.
Accounting Pronouncements Not Yet Adopted as of
July 31, 2015
In May 2014, FASB issued ASU No. 2014-09, Revenue from Contracts
with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 is the
result of a joint project of FASB and the International Accounting
Standards Board to clarify the principles for recognizing revenue
and to develop a common revenue standard for use in the U.S and
internationally. ASU 2014-09 supersedes the revenue recognition
requirements in Topic 605 of FASB’s Accounting Standards
Codification (the “Codification”) and most industry-specific
guidance throughout the Industry Topics of the Codification. ASU
2014-09 enhances comparability of revenue recognition practices
across entities, industries, jurisdictions and capital markets,
reduces the number of requirements an entity must consider for
recognizing revenue, and requires improved disclosures to help
users of financial statements better understand the nature, amount,
timing, and uncertainty of revenue that is recognized.
ASU 2014-09 was to be effective for annual reporting periods
beginning after December 15, 2016, including interim periods
within the annual reporting period. In August 2015, FASB issued
ASU No. 2015-14, Revenue from Contracts with Customers
(Topic 606), Deferral of the Effective Date (“ASU 2015-14”). The
amendments in ASU 2015-14 defer the effective date of ASU 2014-
09 for all entities by one year. The Company intends to adopt the
provisions of ASU 2014-09 effective August 1, 2018.
ASU 2014-09 requires retrospective application by either restating
each prior period presented in the financial statements or by
recording the cumulative effect on prior reporting periods to
beginning retained earnings in the year that the standard becomes
effective. Management is currently assessing the provisions of
ASU 2014-09 and has not yet estimated its impact or selected a
transition method.
In August 2014, FASB issued ASU No. 2014-15, Presentation of
Financial Statements – Going Concern (Subtopic 205-40) (“ASU
2014-15”). ASU 2014-15 requires an entity’s management to
evaluate whether there are conditions or events, considered in the
aggregate, that raise substantial doubt about the entity’s ability to
continue as a going concern within one year after the date that
the financial statements are issued (or within one year after the
date that the financial statements are available to be issued, when
applicable). ASU 2014-15 provides guidance for management’s
evaluation, including guidance regarding when substantial doubt
about an entity’s ability to continue as a going concern exists and
when such doubt may be alleviated by management’s plans that
are intended to mitigate those relevant conditions or events. ASU
2014-15 also provides guidance regarding appropriate financial
statement disclosures regarding conditions or events that raised
substantial doubt about the entity’s ability to continue as a going
concern, management’s evaluation of the significance of those
conditions or events in relation to the entity’s ability to meet its
obligations, and management’s plans that are intended to mitigate
those conditions or events. The provisions of ASU 2014-15 are
effective for the annual period ending after December 15, 2016 and
for annual periods and interim periods thereafter. Early application
is permitted. The Company intends to adopt ASU 2014-15 effective
August 1, 2016. The adoption of this standard is not expected to
have a material impact on the Company’s consolidated financial
statements.
In January 2015, FASB issued ASU No. 2015-01 Income Statement
– Extraordinary and Unusual Items (Subtopic 225-20) (“ASU
2015-01”). ASU 2015-01 eliminates the concept of extraordinary
items from U.S. generally accepted accounting principles. While
reporting entities will no longer be required to assess whether
25
an underlying event or transaction is extraordinary, presentation
and disclosure guidance for items that are unusual in nature or
occur infrequently are retained and are expanded to include items
that are both unusual in nature and infrequently occurring. ASU
2015-01 is effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2015. Early adoption
is permitted provided that the guidance is applied from the
beginning of the fiscal year of adoption. The Company adopted the
provisions of ASU 2015-01 effective August 1, 2015. The adoption
of this standard is not expected to have a material impact on the
Company’s consolidated financial statements.
3. Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of
the EEI and its wholly owned and majority owned subsidiaries. All
intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions
as of the date of the financial statements, which affect the reported
values of assets and liabilities and revenues and expenses and
disclosures of contingent assets and liabilities. Actual results may
differ from those estimates.
Revenue Recognition and Contract Receivables, Net
Substantially all of the Company’s revenue is derived from
environmental consulting work, which is principally derived from
the sale of labor hours. The consulting work is performed under
a mix of fixed price, cost-type, and time and material contracts.
Contracts are required from all customers. Revenue is recognized
as follows:
Contract Type
Work Type
Revenue Recognition Policy
Time and
Materials
Consulting
As incurred at contract rates.
Fixed Price
Consulting
Cost-plus
Consulting
Percentage of completion,
approximating the ratio of either
total costs or Level of Effort (LOE)
hours incurred to date to total
estimated costs or LOE hours.
Costs as incurred plus fees.
Fees are recognized as revenue
using percentage of completion
determined by the percentage of
LOE hours incurred to total LOE
hours in the respective contracts.
Revenues reflected in the Company’s consolidated statements of
operations represent services rendered for which the Company
maintains a primary contractual relationship with its customers.
Included in revenues are certain services outside the Company’s
normal operations which the Company has elected to subcontract
to other contractors.
Time and material contracts are accounted for over the period
of performance, in proportion to the costs of performance,
predominant based on labor hours incurred. Revenue earned
from fixed price and cost-plus contracts is recognized using
the “percentage-of-completion” method, wherein revenue is
recognized as project progress occurs. If an estimate of costs at
26
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.
Substantially all of the Company’s cost-type work is with federal
governmental agencies and, as such, is subject to audits after
contract completion. Under these cost-type contracts, provisions
for adjustments to accrued revenue are recognized on a quarterly
basis and based on past audit settlement history. Government
audits have been completed and final rates have been negotiated
through fiscal year 2009. The Company records an allowance
for project disallowances in other accrued liabilities for potential
disallowances resulting from government audits (refer to Note 12
of these consolidated financial statements). Allowances for project
disallowances are recorded when the amounts are estimable.
Resolution of these amounts is dependent upon the results of
government audits and other formal contract close-out procedures.
Change orders can occur when changes in scope are made
after project work has begun and can be initiated by either the
Company or its clients. Claims are amounts in excess of the agreed
contract price which the Company seeks to recover from a client
for customer delays and /or errors or unapproved change orders
that are in dispute. Costs related to change orders and claims are
recognized as incurred. Revenues and profit are recognized on
change orders when it is probable that the change order will be
approved and the amount can be reasonably estimated. Revenues
are recognized only up to the amount of costs incurred on contract
claims when realization is probable, estimable and reasonable
support from the customer exists.
All bid and proposal and other pre-contract costs are expensed
as incurred. Out-of-pocket expenses such as travel, meals, field
supplies, and other costs billed direct to contracts are included
in both revenues and cost of professional services. Sales and
cost of sales at the Company’s South American subsidiaries
exclude tax assessments by governmental authorities, which are
collected by the Company from its customers and then remitted to
governmental authorities.
Billed contract receivables represent amounts billed to clients in
accordance with contracted terms, which have not been collected
from clients as of the end of the reporting period. Billed contract
receivables may include: (1) amounts billed for revenues from
incurred costs and fees that have been earned in accordance with
contractual terms; and (2) progress billings in accordance with
contractual terms that include revenue not yet earned as of the end
of the reporting period.
Unbilled contract receivables result from: (i) revenues from incurred
costs and fees which have been earned, but are not billed as of
period-end; and (ii) differences between year-to-date provisional
billings and year-to-date actual contract costs incurred.
The Company reduces contract receivables by establishing an
allowance for contract adjustments related to revenues that are
deemed to be unrealizable or that may become unrealizable
in the future. Management reviews contract receivables and
determines allowance amounts based on the adequacy of the
Company’s performance under the contract, the status of change
orders and claims, historical experience with the client for settling
change orders and claims, and economic, geopolitical, and cultural
considerations for the home country of the client. Such contract
adjustments are recorded as direct adjustments to revenue in the
consolidated statements of operations.
The Company also 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
bad debts is recorded within administrative and indirect operating
expenses on the consolidated statements of operations.
Refer to Note 6 of these consolidated financial statements
for additional disclosures regarding the Company’s contract
receivables, net.
Investment Securities Available for Sale
Investment securities classified as available for sale are stated at
fair value. The cost basis of securities sold is based on the specific
identification method.
Unrealized gains or losses related to investment securities available
for sale are recorded in accumulated other comprehensive
loss, net of applicable income taxes, in the accompanying
consolidated balance sheets and consolidated statements of
changes in shareholders’ equity. Reclassification adjustments out
of accumulated other comprehensive loss resulting from realized
gains or losses from the sale of investment securities available for
sale are included in gain on sale of assets and investment securities
on the accompanying consolidated statements of operations.
Investment securities available for sale includes mutual funds
valued at the net asset value of shares (“NAV”) held by the Company
at period end. Mutual funds held by the Company are open-end
mutual funds that are registered with the Securities and Exchange
Commission. These funds are required to publish their daily NAV
and to transact at that price and are deemed to be actively traded.
Refer to Note 5 of these consolidated financial statements for
additional disclosures regarding the Company’s investment
securities available for sale.
Property, Buildings and Equipment, Depreciation,
and Amortization
Property, buildings, and equipment are stated at the lower
of depreciated or amortized cost or fair value. Land and land
improvements are not depreciated or amortized. Methods of
depreciation or amortization and useful lives for all other long-lived
assets are summarized in the following table.
Depreciation/Amortization Method Useful Lives
Buildings
Building
Improvements
Straight-line
Straight-line
32-40 Years
7-15 Years
Field Equipment
Straight-line
3-7 Years
Computer equipment
Straight-line and Accelerated
3-7 Years
Computer software
Office furniture and
equipment
Vehicles
Leasehold
improvements
Straight-line
Straight-line
Straight-line
Straight-line
10 Years
3-7 Years
3-5 Years
(1)
(1) Leasehold improvements are amortized for book purposes over
the terms of the leases or the estimated useful lives of the assets,
whichever is shorter.
Expenditures for maintenance and repairs are charged to expense
as incurred. Expenditures for improvements are capitalized when
either the value or useful life of the related asset has increased.
When property or equipment is retired or sold, any gain or loss on
the transaction is reflected in the current year’s earnings.
The Company capitalizes costs of software acquisition and
development projects, including costs related to software design,
configuration, coding, installation, testing, and parallel processing.
Capitalized software costs are recorded in fixed assets, net of
accumulated amortization, on the consolidated balance sheets.
Capitalized software development costs generally include:
• external direct costs of materials and services consumed to
obtain or develop software for internal use;
• payroll and payroll-related costs for employees who are
directly associated with and who devote time to the project,
to the extent of time spent directly on the project;
• costs to obtain or develop software that allows for access or
conversion of old data by new systems;
• costs of upgrades and/or enhancements that result in
additional functionality for existing software; and
• interest costs incurred while developing internal-use software
that could have been avoided if the expenditures had not
been made.
The costs of computer software obtained or developed for internal
use is amortized on a straight-line basis over the estimated useful
life of the software. Amortization begins when the software and
all related software modules on which it is functionally dependent
are ready for their intended use. Amortization expense is recorded
in depreciation and amortization in the consolidated statements
of operations.
The following software-related costs are expensed as incurred
and recorded in general and administrative expenses on the
consolidated statements of operations:
• research costs, such as costs related to the determination
of needed technology and the formulation, evaluation and
selection of alternatives;
• costs to determine system performance requirements for a
proposed software project;
• costs of selecting a vendor for acquired software;
• costs of selecting a consultant to assist in the development or
installation of new software;
• internal or external training costs related to software;
• internal or external maintenance costs related to software;
• costs associated with the process of converting data from old
to new systems, including purging or cleansing existing data,
reconciling or balancing of data in the old and new systems
and creation of new data;
• updates and minor modifications; and
• fees paid for general systems consulting and overall control
reviews that are not directly associated with the development
of software.
Capitalized software costs are evaluated for recoverability/
impairment whenever events or changes in circumstances indicate
that its carrying amount may not be recoverable, including when:
• existing software is not expected to provide future service
potential;
27
• it is no longer probable that software under development
will be completed and placed in service; and
• costs of developing or modifying internal-use software
significantly exceed expected development costs or costs of
comparable third-party software.
Refer to Note 7 of these consolidated financial statements for
additional disclosures regarding the Company’s property, buildings,
and equipment.
Goodwill
Goodwill is included in other assets on the accompanying
consolidated balance sheets. Goodwill is subject to an annual
assessment for impairment by comparing the estimated fair
values of reporting units to which Goodwill has been assigned
to the recorded book value of the respective reporting units.
The estimated fair value of reporting units is calculated using
a discounted cash flow method. Goodwill is also assessed for
impairment between annual assessments whenever events or
circumstances make it more likely than not that an impairment may
have occurred.
Refer to Note 8 of these consolidated financial statements for
additional disclosures regarding the Company’s recorded goodwill.
Impairment of Long-Lived Assets
The Company assesses recoverability of the carrying value of long-
lived assets by estimating the future net cash flows (undiscounted)
expected to result from the asset, including eventual disposition.
If the future net cash flows are less than the carrying value of
the asset, an impairment loss is recorded equal to the difference
between the asset’s carrying value and fair value.
Income Taxes
The Company follows the asset and liability approach to account for
income taxes. This approach requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences
of temporary differences between the carrying amounts and the
tax basis of assets and liabilities. Although realization is not assured,
management believes it is more likely than not that the recorded
net deferred tax assets will be realized. Since in some cases
management has utilized estimates, the amount of the net deferred
tax asset considered realizable could be reduced in the near term.
As of July 31, 2015, no provision has been recorded for United
States income taxes applicable to undistributed earnings of foreign
subsidiaries as it is the intention of the Company to indefinitely
reinvest those earnings in the operations of those entities. Excess
cash accumulated by any foreign subsidiary, beyond that necessary
to fund operations or business expansion, may be repatriated to
the U.S. at the discretion of the Board of Directors of the respective
entities. The Company would be required to accrue and pay taxes
on any amounts repatriated to the U.S. from foreign subsidiaries.
Income tax expense includes U.S. and international income taxes,
determined using the applicable statutory rates. A deferred tax
asset is recognized for all deductible temporary differences and
net operating loss carryforwards, and a deferred tax liability is
recognized for all taxable temporary differences.
The Company has significant deferred tax assets, resulting principally
from contract reserves and accrued expenses. The Company
periodically evaluates the likelihood of realization of deferred tax
assets and provides for a valuation allowance when necessary.
28
Additionally, U.S. GAAP prescribes a recognition threshold and
measurement principles for financial statement disclosure of tax
positions taken or expected to be taken on a tax return. A tax
position is a position in a previously filed tax return or a position
expected to be taken in a future tax filing that is reflected in
measuring current or deferred income tax assets and liabilities. Tax
positions shall be recognized only when it is more likely than not
(likelihood of greater than 50%), based on technical merits, that
the position will be sustained. Tax positions that meet the more
likely than not threshold should be measured using a probability
weighted approach as the largest amount of tax benefit that is
greater than 50% likely of being realized upon settlement. Whether
the more-likely-than-not recognition threshold is met for a tax
position is a matter of judgment based on the individual facts and
circumstances of that position evaluated in light of all available
evidence. The Company recognizes interest accrued related to
unrecognized tax benefits in interest expense and penalties in
administrative and indirect operating expenses.
Refer to Note 11 of these consolidated financial statements for
additional disclosures regarding income taxes.
Defined Contribution Plans
EEI has a non-contributory defined contribution plan providing
deferred benefits for substantially all of its employees (the “EEI
Defined Contribution Plan”). The annual expense of the EEI Defined
Contribution Plan is based on a percentage of eligible wages as
authorized by EEI’s Board of Directors.
EEI also has a supplemental retirement plan that provides post-
retirement health care coverage for EEI’s four founders and their
spouses (the “EEI Supplemental Retirement Plan”). The annual
expense of the plan is determined based on discounted annual
cost estimates over the estimated life expectancy of the founders
and their spouses.
Walsh Environmental Scientists & Engineers, LLC (“Walsh”), a wholly-
owned subsidiary of EEI, has a defined contribution plan providing
deferred benefits for substantially all of its employees and the
employees of two of its majority-owned subsidiaries (the “Walsh
Defined Contribution Plan”). The respective entities contribute a
percentage of eligible wages up to a maximum of 4%.
Refer to Note 16 of these consolidated financial statements
for additional disclosures regarding the Company’s defined
contribution plans.
Stock-Based Compensation
The Company expenses the value of stock awards over the vesting
period of the respective award. Share-based awards are measured
at fair value on the respective grant date, based on the estimated
number of awards that are expected to vest. Compensation cost
for awards that vest is not reversed if the awards expire without
being exercised.
Refer to Note 13 of these consolidated financial statements for
additional disclosures regarding the Company’s stock award plan.
Earnings per Share
Basic and diluted earnings per share (“EPS”) is computed by dividing
the net income (loss) attributable to Ecology and Environment,
Inc. 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
(refer to Note 14 of these consolidated financial statements), in
particular the right of the holders of the Class B common stock to
elect no less than 75% of the Board of Directors, making it highly
unlikely that the Company will pay a dividend on Class A common
stock in excess of Class B common stock, the Company allocates
undistributed earnings between the classes on a one-to-one basis
when computing earnings per share. As a result, basic and fully
diluted earnings per Class A and Class B share are equal amounts.
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 are included in the computation of
earnings per share pursuant to the two-class method. As a result,
unvested restricted shares are included in the weighted average
shares outstanding calculation.
Refer to Note 17 of these consolidated financial statements for
additional disclosures regarding the Company’s earnings per share.
Comprehensive Income (Loss)
Comprehensive income or loss represents the change in
shareholders’ equity during a period, excluding changes arising
from transactions with shareholders. Comprehensive income or
loss includes net income (loss) from the consolidated statements of
operations, plus (less) other comprehensive income (loss) during a
reporting period.
Other comprehensive income (loss) represents the net effect
of accounting transactions that are recognized directly in
shareholders’ equity, such as the net impact of currency translation
adjustments from foreign operations and unrealized gains (losses)
on available-for-sale securities.
Foreign Currencies
The financial statements of foreign subsidiaries where the local
currency is the functional currency are translated into U.S. dollars
using exchange rates in effect at period end for assets and liabilities
and average exchange rates during each reporting period for
results of operations. Translation adjustments are deferred in
accumulated other comprehensive income. Transaction gains and
losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency are
included in the results of operations as incurred. The Company
recorded foreign currency transaction gains (losses) of $0.1 million,
less than $(0.1) million, and $(0.1) million for the fiscal years ended
July 31, 2015, 2014, and 2013, respectively.
The financial statements of foreign subsidiaries located in highly
inflationary economies are remeasured as if the functional currency
were the U.S. dollar. The remeasurement of local currencies into
U.S. dollars creates transaction adjustments which are included in
net income. The Company did not record any highly inflationary
economy translation adjustments for the fiscal years ended July 31,
2015, 2014, or 2013.
4. Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased
with a maturity of three months or less to be cash equivalents.
The Company invests cash in excess of operating requirements in
income-producing short-term investments. Money market funds
of less than $0.1 million and $0.3 million were included in cash and
cash equivalents in the accompanying consolidated balance sheets
and consolidated statements of cash flows at July 31, 2015 and
2014, respectively.
5. 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 asset’s
or liability’s classification within the fair value hierarchy is 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 availability of observable market data is monitored 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 transfer is reported at the beginning of the reporting period.
There were no transfers in or out of levels 1, 2, or 3 during fiscal
years 2015, 2014 or 2013.
The fair value of the Company’s assets and liabilities that are
measured at fair value on a recurring basis is summarized by level
within the fair value hierarchy in the following table.
Assets
Level 1
Level 2
Level 3
Total
Balance at July 31, 2015:
Investment
securities available
for sale
$1,433,732
$ —
$ — $1,433,732
Balance at July 31, 2014:
Investment
securities available
for sale
$1,407,277
$ —
$ — $1,407,277
The Company recorded gross unrealized gains of less than $0.1
million related to these funds in accumulated other comprehensive
income (loss) at July 31, 2015 and 2014 and 2013.
The carrying amount of cash and cash equivalents approximated
fair value at July 31, 2015 and 2014. These assets were classified as
level 1 instruments at both dates.
Long-term debt consists of bank loans and capitalized equipment
leases. Lines of credit consist of borrowings for working capital
requirements. Based on the Company’s assessment of the current
financial market and corresponding risks associated with the
29
debt and line of credit borrowings, management believes that
the carrying amount of these liabilities approximated fair value at
July 31, 2015 and 2014. These liabilities were classified as level 2
instruments at both dates.
6. Contract Receivables, net
Contract receivables, net are summarized in the following table.
Balance at July 31,
Contract Receivables:
Billed
Unbilled
2015
2014
$22,915,726
$26,863,708
25,488,331
23,694,451
48,404,057
50,558,159
Allowance for doubtful accounts and
contract adjustments
(5,537,901)
(6,126,854)
Contract receivables, net
$42,866,156
$44,431,305
Billed contract receivables included contractual retainage
balances of $0.5 million and $0.3 million at July 31, 2015 and 2014,
respectively. Management anticipates that unbilled contract
receivables at July 31, 2015 will be substantially billed and collected
within one year.
Contract Receivable Concentrations
Significant concentrations of contract receivables and the
allowance for doubtful accounts and contract adjustments are
summarized in the following table.
Balance at July 31, 2015
contract adjustments at those same period end dates. These
allowance percentages highlight the Company’s heightened
operating risks (i.e., political, regulatory and cultural risks) within
these foreign regions in comparison with similar risks in the United
States, Canada, and South America. These heightened operating
risks have resulted in increased collection risks and the Company
expending resources that it may not recover for several months, or
at all.
Contract adjustments related to projects in the United States,
Canada, and South America typically result from cost overruns
related to current or recently completed projects or from recoveries
of cost overruns recorded as contract adjustments in prior reporting
periods. Contract adjustments related to projects in the Middle
East, Africa, and Asia typically result from difficulties encountered
while attempting to settle and closeout claims that may be several
years old.
Allowance for Doubtful Accounts and Contract
Adjustments
Activity within the allowance for doubtful accounts and contract
adjustments is summarized in the following table.
Fiscal Year Ended July 31,
2015
2014
2013
$6,126,854 $5,592,800 $10,238,391
Balance at beginning of
period
Net increase (decrease)
due to adjustments in the
allowance for:
Contract adjustments (1)
(262,533)
473,967
6,319,650
Doubtful accounts (2)
(326,420)
90,087
(287,426)
Region
United States, Canada, and
South America
Allowance
for Doubtful
Accounts
and Contract
Adjustments
Contract
Receivables
$43,212,684
$ 626,210
Transfer of reserves (to)
from allowance for
project disallowances (3)
Specific write-off of
contract receivables and
reserves during the
period (4)
—
—
(30,000)
61,123
— (10,738,938)
Middle East and Africa
5,066,789
4,894,453
Balance at end of period
$5,537,901 $6,126,854 $ 5,592,800
Asia
Totals
124,584
17,238
$48,404,057
$5,537,901
Balance at July 31, 2014
Region
United States, Canada, and
South America
Allowance
for Doubtful
Accounts
and Contract
Adjustments
Contract
Receivables
$43,394,442
$1,611,068
Middle East and Africa
7,010,225
4,386,240
Asia
Totals
153,492
129,546
$50,558,159
$6,126,854
Combined contract receivables related to projects in the Middle
East, Africa, and Asia represented 11% and 14% of total contract
receivables at July 31, 2015 and 2014, respectively, while the
combined allowance for doubtful accounts and contract
adjustments related to these projects represented 89% and 74%,
respectively, of the total allowance for doubtful accounts and
30
(1) Increases (decreases) to the allowance for contract adjustments on the
consolidated balance sheets are recorded as (decreases) increases to
revenue on the consolidated statements of operations.
(2) Increases (decreases) to the allowance for doubtful accounts on the
consolidated balance sheets are recorded as increases (decreases)
to administrative and other indirect operating expenses on the
consolidated statements of operations.
(3) The allowance for project disallowances is included in other accrued
liabilities on the consolidated balance sheets. Refer to Note 12 of these
consolidated financial statements.
(4) Approximately $7.3 million of contract receivables related to projects in
China and $3.4 million of contract receivables from projects in the Middle
East and Africa were fully reserved and written off during fiscal year 2013,
resulting in corresponding decreases in contract receivables and the
allowance for contract adjustments during fiscal year 2013.
7. Property, Buildings, and Equipment, net
Property, buildings, and equipment are summarized in the
following table.
Balance at July 31,
Land and land improvements
$ 393,051 $ 393,051
Buildings and building improvements
10,368,394
12,231,788
2015
2014
Field equipment
Computer equipment
Computer software
2,785,749
3,273,725
4,685,106
9,128,027
6,112,262
5,030,472
Office furniture and equipment
4,076,347
4,095,659
Vehicles
Other
Accumulated depreciation and
amortization.
Property, building, and equipment,
net
1,438,755
1,658,273
692,299
746,375
30,551,963
36,557,370
(23,438,269)
(28,615,915)
$ 7,113,694 $ 7,941,455
In November 2013, management decided to abandon the
Company’s existing operating and financial software system and
migrate to new system software. The Company acquired and
developed new software during fiscal year 2014 and began utilizing
the new software effective August 1, 2014 for its U.S. operations.
Although the core software modules were operating effectively as
of August 1, 2014, certain operational and reporting capabilities
of the new system continued to be developed during fiscal
year 2015. The process to develop new operating and financial
software systems for the Company’s significant foreign subsidiaries
was completed during the third quarter of fiscal year 2015. The
Company recorded software development costs of $0.2 million and
$1.5 million in property, plant, and equipment during fiscal years
2015 and 2014, respectively.
The Company continued to utilize the previous software system
through July 31, 2014, at which time the previous system was
abandoned. As a result, amortization of software development
costs capitalized for the previous system was accelerated so that
the system was completely amortized by July 31, 2014. Total
software amortization expense was $0.1 million, $2.6 million, and
$0.4 million for fiscal years 2015, 2014 and 2013, respectively.
8. Goodwill
Goodwill of $1.1 and $1.2 million is included in other assets on the
accompanying consolidated balance sheets at July 31, 2015 and
2014, respectively. The Company’s most recent annual impairment
assessment for goodwill was completed during the fourth quarter
of fiscal year 2015. The results of this assessment showed that the
fair values of the reporting units to which goodwill is assigned
were in excess of the book values of the respective reporting
units at year-end, resulting in the identification of no additional
goodwill impairment.
However, during the fiscal year ended July 31, 2015, the Company
recorded a $0.1 million impairment loss in administrative and
indirect operating expenses related to a reporting unit that
experienced recurring operating losses over the course of several
recent reporting quarters and for which projections completed by
management indicated that operating losses were expected to
continue into the foreseeable future.
9. Lines of Credit
Unsecured lines of credit are summarized in the following table.
Balance at July 31,
2015
2014
Outstanding cash draws, recorded as
lines of credit on the accompanying
consolidated balance sheets
Outstanding letters of credit to support
operations
$ 672,272
$ 1,572,466
1,144,031
1,944,994
Total amounts used under lines of credit
1,816,303
3,517,460
Remaining amounts available under
lines of credit
30,992,697
30,851,540
Total approved unsecured lines of credit $32,809,000 $34,369,000
Contractual interest rates ranged from 2.50% to 15.60% at July 31,
2015. The Company’s lenders have reaffirmed the lines of credit
within the past twelve months.
10. Debt and Capital Lease Obligations
Debt and capital lease obligations are summarized in the following
table.
Balance at July 31,
Various loans and advances (interest rates
ranging from 3.25% to 12%)
$ 635,598
$ 676,874
2015
2014
Capital lease obligations (interest rates
ranging from 7.36% to 14%)
Current portion of long-term debt and
capital lease obligations
Long-term debt and capital lease
obligations
310,648
165,632
946,246
842,506
(551,148)
(420,737)
$ 395,098
$ 421,769
The aggregate maturities of long-term debt and capital lease
obligations as of July 31, 2015 are summarized in the following
table.
August 2015 – July 2016
$551,148
August 2016 – July 2017
215,519
August 2017 – July 2018
148,166
August 2018 – July 2019
Thereafter
12,161
19,252
Total
$946,246
11. Income Taxes
Income (loss) before income tax provision is summarized in the
following table.
Domestic
Foreign
Fiscal Year Ended July 31,
2015
2014
2013
$3,499,841
$(4,305,768)
$(3,055,338)
4,468,664
3,858,378
2,087,524
$7,968,505
$ (447,390)
$ (967,814)
31
The income tax provision is summarized in the following table.
The significant components of deferred tax assets and liabilities are
summarized in the following table.
Fiscal Year Ended July 31,
2015
2014
2013
Balance at July 31, 2015
Current
Noncurrent
Current:
Deferred tax assets:
Federal
$ 486,669
$ 86,062
$(985,865)
State
80,594
62,761
Foreign
2,047,040
1,012,136
181,434
855,500
Total current
2,614,303
1,160,959
51,069
Deferred:
Federal
State
Foreign
1,378,509
(975,519)
200,197
172,302
24,138
(178,438)
(396,693)
133,485
181,406
Contract and other reserves
$ 3,257,103
$ —
Fixed assets and intangibles
—
—
Valuation allowance
(371,270)
(189,053)
Accrued compensation and
expenses
Net operating loss
carryforwards
Foreign and state income
taxes
776,337
59,955
—
—
—
737,146
56,581
296,326
—
Total deferred
1,154,118
(817,896)
203,165
Foreign tax credit
Total income
tax provsion
$ 3,768,421
$ 343,063
$ 254,234
Federal benefit from foreign
tax audits
212,407
A reconciliation of the income tax provision using the statutory
U.S. income tax rate compared with the actual income tax
provision reported on the consolidated statements of operations is
summarized in the following table.
Other
192,960
$ 260,586
Net deferred tax assets
$ 4,067,537
$1,221,541
Deferred tax liabilities:
Federal expense on state
deferred taxes
$ (189,136)
$ (36,055)
Income tax (benefit) provision
at the U.S. federal statutory
income tax rate
Income from “pass-through”
entities taxable to
noncontrolling partners
Fiscal Year Ended July 31,
Fixed assets and intangibles
—
(341,065)
2015
2014
2013
$ 2,709,334 $(152,113) $ (329,057)
Federal expense from foreign
accounting differences
—
(542,420)
Net deferred tax liabilities
$ (189,136)
$ (919,540)
30,604
35,309
(102,933)
Balance at July 31, 2014
Current
Noncurrent
International rate differences
(338,221)
(143,493)
(197,217)
Deferred tax assets:
Other foreign taxes, net of
federal benefit
160,963
(34,419)
94,528
Contract and other reserves
$ 3,409,209
Fixed assets and intangibles
—
$ —
58,934
Foreign dividend income
508,572
596,631
481,287
Valuation allowance
(192,213)
(206,070)
State taxes, net of federal
benefit
Re-evaluation and settlements
of tax contingencies
Peru non-deductible
expenses
166,168
27,739
3,871
—
(19,533)
(58,105)
166,769
44,077
173,707
Canada valuation allowance
156,492
(83,257)
130,950
Other permanent differences
207,740
72,122
57,203
Income tax provision, as
reported on the consolidated
statements of operations
$ 3,768,421 $ 343,063 $ 254,234
Accrued compensation and
expenses
Net operating loss
carryforwards
Foreign and state income
taxes
Foreign tax credit
Federal benefit from foreign
tax audits
1,250,286
378,657
—
—
—
—
1,213,010
54,398
296,326
—
Other
251,678
74,370
Net deferred tax assets
$ 4,718,960
$ 1,869,625
Deferred tax liabilities:
Federal expense on state
deferred taxes
$ (184,523)
$ (103,098)
Fixed assets and intangibles
—
—
Federal expense from foreign
accounting differences
—
(531,812)
Net deferred tax liabilities
$ (184,523)
$ (634,910)
32
During the fiscal year ended July 31, 2014, the Company
generated a net operating loss in the U.S. of $1.7 million, which
was carried forward and fully utilized in fiscal year 2015. As of July
31, 2015, net operating losses attributable to operations in Brazil,
Canada, and China and net operating losses for state income tax
purposes still existed.
The Company recorded a valuation allowance of $0.6 million and
$0.4 million at July 31, 2015 and 2014, respectively, which was
primarily related to excess foreign tax credit carryforwards, the
utilization of which is dependent on future foreign source income,
and to operating losses in Asia and Canada.
The Company has not recorded income taxes applicable
to undistributed earnings of all foreign subsidiaries that are
indefinitely reinvested in those operations. At July 31, 2015,
the Company’s operations in Chile, Peru, and Ecuador had $6.2
million of combined undistributed earnings that were indefinitely
reinvested in those operations.
The Company files numerous consolidated and separate income
tax returns in the U.S. federal jurisdiction and in many state and
foreign jurisdictions. During fiscal year 2013, the IRS completed
the examination of fiscal year 2010 and 2011 income tax returns,
which were settled without material adjustment. The Company’s
tax matters for the fiscal years 2012 through 2015 remain subject
to examination by the IRS. The Company’s tax matters in other
material jurisdictions remain subject to examination by the
respective state, local, and foreign tax jurisdiction authorities. No
waivers have been executed that would extend the period subject
to examination beyond the period prescribed by statute.
At July 31, 2015, 2014, and 2013, the Company had $0.1 million of
uncertain tax positions (“UTPs”) resulting from gross unrecognized
tax benefits that, if realized, would favorably affect the effective
income tax rate in future periods. It is reasonably possible that
the liability associated with UTPs will increase or decrease within
the next twelve months. At this time, an estimate of the range
of the reasonably possible outcomes cannot be made. The net
liability for UTPs and associated interest and penalties are included
in noncurrent income taxes payable on the accompanying
consolidated balance sheets. The Company recognized interest
and penalties expense of approximately $0.1 million related to
liabilities for UTPs during fiscal years 2015, 2014, and 2013. The
Company had approximately $0.1 million of accrued interest and
penalties at July 31, 2015 and 2014.
12. Other Accrued Liabilities
Other accrued liabilities are summarized in the following table.
Balance at July 31,
2015
2014
Allowance for project disallowances
$ 2,242,813
$ 2,393,351
Other
1,688,471
1,841,911
Total other accrued liabilities
$ 3,931,284
$ 4,235,262
Activity within the allowance for project disallowances is
summarized in the following table.
Fiscal Year Ended July 31,
2015
2014
2013
$ 2,393,351 $ 2,663,351 $ 2,724,474
(150,538)
(300,000)
—
—
30,000
(61,123)
$ 2,242,813 $ 2,393,351 $ 2,663,351
Balance at beginning of
period
Reduction of reserves
recorded in prior fiscal
years
Net change due to
government audits
during the period,
recorded as a transfer of
reserves (to) from
allowance for doubtful
accounts and contract
adjustments
Balance at end of
period
The reduction in the allowance for project disallowances during
fiscal years 2015 and 2014 resulted from settlement of an allowance
recorded in prior fiscal years. This settlement resulted in payment
of less than $0.1 million during fiscal year 2015 and adjustments
of $0.1 million and $0.3 million recorded during fiscal years
2015 and 2014, respectively, as additions to revenue, net in the
accompanying consolidated statements of operations.
13. Incentive Compensation
EEI and its direct and indirect subsidiaries may, at the discretion of
their respective Board of Directors, award incentive compensation
to Directors, senior management, and other employees based
on the respective company’s financial performance and the
individual’s job performance. Incentive compensation may be
awarded as cash bonuses, Class A Common Stock issued under EEI’s
Stock Award Plan (defined below), or a combination of both cash
and stock. The Company recorded $3.0 million, $1.4 million, and
$1.4 million of incentive compensation expense during the fiscal
years ended July 31, 2015, 2014 and 2013, respectively, as a result of
cash bonus awards.
In October 2013, EEI awarded Class A Common Stock to employees
under the Stock Award Plan, which was valued at $0.2 million. EEI
did not award any Class A Common Stock to employees under its
incentive compensation program during the fiscal years ended July
31, 2015 or 2013.
Stock Award Plan
EEI adopted the 1998 Stock Award Plan effective March 16, 1998
(the “1998 Award Plan”). The following supplemental plans were
adopted subsequent to adoption of the 1998 Award Plan:
• The 2003 Stock Award Plan (the “2003 Award Plan”), which was
adopted by the Board of Directors in October 2004, approved
by shareholders in January 2004, and terminated in October
2008;
• The 2007 Stock Award Plan (the “2007 Award Plan”), which was
adopted by the Board of Directors in October 2007, approved
by shareholders in January 2008, and terminated in October
2012; and
33
• The 2011 Stock Award Plan (the “2011 Award Plan”), which was
adopted by the Board of Directors in October 2011, approved
by shareholders in January 2012, and will terminate in October
2016.
The 1998 Award Plan and all supplemental plans are collectively
referred to as the “Stock Award Plan”. The Stock Award Plan permits
grants of the award for a period of five (5) years from the date of
adoption by the Board of Directors. The Stock Award Plan is not a
qualified plan Section 401(a) of the Internal Revenue Code. Total
gross compensation expense related to stock awards is recognized
over the vesting period of awards granted.
The Company awarded 62,099 Class A shares valued at $0.9 million
in October 2011, which had a three-year vesting period and were
fully vested in August 2014. The Company awarded 16,387 Class A
shares valued at $0.2 million in October 2013, which have a three-
year vesting period and will be fully vested in August 2016. The
Company recorded non-cash compensation expense of less than
$0.1 million, $0.4 million, and $0.5 million during the fiscal years
ended July 31, 2015, 2014 and 2013, respectively, in connection
with all outstanding stock compensation awards. Total unearned
compensation costs related to outstanding stock awards were
$0.1 million at July 31, 2015. The “pool” of excess tax benefits
accumulated in Capital in Excess of Par Value was $0.1 million at July
31, 2015 and 2014.
In September 2015, the Company issued 4,533 Class A shares
valued at less than $0.1 million to three directors as additional
compensation for their roles as Chairman and members of
the Company’s Audit Committee. These stock awards vested
immediately upon issuance, subject to certain restrictions regarding
transfer of the shares that will expire no later than August 1, 2016.
14. Shareholders’ Equity
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.
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 Ecology and Environment, Inc.
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, 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 declared and paid cash dividends of $2.1 million
during the fiscal years ended July 31, 2015, 2014 and 2013. The
Company paid dividends of $1.0 million in August 2015 and 2014
that were declared and accrued in prior periods.
Stock Repurchase Program
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 July 31, 2015, 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 fiscal year 2015. The Company
acquired 16,091 shares of Class A stock under the Stock Repurchase
Program during fiscal year 2014 for a total acquisition cost of
approximately $0.2 million.
34
Photo by: Brian Stoos, Environmental Specialist, Buffalo Office, 11 Years with E & E
Noncontrolling Interests
Noncontrolling interests are disclosed as a separate component
of consolidated shareholders’ equity on the accompanying
consolidated balance sheets. Earnings and other comprehensive
income (loss) are separately attributed to both the controlling and
noncontrolling interests. EPS is calculated based on net income
(loss) attributable to the Company’s controlling interests.
Transactions with noncontrolling shareholders for the fiscal years
ended July 31, 2015, 2014 and 2013, which were recorded at
amounts that approximated fair value, are summarized in the
following table.
Fiscal Year ended July 31,
2015
2014
2013
15. Operating Lease Commitments
The Company rents certain office facilities and equipment under
non-cancelable operating leases and certain other facilities for
servicing project sites over the term of the related long-term
government contracts. Lease agreements may contain step rent
provisions and/or free rent concessions. Lease payments based
on a price index have rent expense recognized on a straight line or
substantially equivalent basis and are included in the calculation of
minimum lease payments. Gross rental expense associated with
lease commitments was $3.5 million, $3.9 million, and $4.2 million
for fiscal years 2015, 2014 and 2013, respectively.
Future minimum rental commitments under these leases as of July
31, 2015 are summarized in the following table.
Purchases of noncontrolling interests:
Purchase of 2,800 Gustavson
common shares (1)
$ 199,531 $ — $ —
Purchase of 344 Walsh
common shares (2)
Purchase of 3,705 Walsh
common shares (3)
Purchase of 100 Walsh
common shares (4)
Purchase of 50 Walsh
common shares
Purchase of 25 Lowman
common shares
Purchase of 495 Walsh
common shares
Purchase of 2,800 Gustavson
common shares
Purchase of 370 Walsh
common shares
Purchase of 75 Lowham
common shares
Total purchases of
noncontrolling interests (5)
—
5,653
— 1,120,749
30,250
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
18,316
8,737
243,653
293,102
182,125
—
30,002
$ 199,531 $1,156,652 $ 775,935
(1) In January 2015, Gustavson Associates, LLC (“Gustavson”), a majority
owned indirect subsidiary of EEI, purchased an additional 7.2% of its
outstanding common shares from noncontrolling shareholders for $0.3
million. The purchase price was paid as follows: (i) approximately $0.1
million of cash paid on the transaction date; and (ii) approximately $0.2
million payable in three annual installments plus interest accrued at 6%
per annum. EEI’s indirect ownership of Gustavson increased to 83.6% as a
result of this transaction.
(2) In January 2014, EEI purchased an additional 0.9% of Walsh from
noncontrolling shareholders for $0.1 million in cash. Walsh became a
wholly-owned subsidiary of EEI as a result of these transactions.
(3) In October 2013, EEI purchased an additional 9.4% of Walsh for $1.6
million. The purchase price was paid as follows: (i) one-third in cash
payable on the transaction consummation date; (ii) one-third payable
with EEI Common Stock on the transaction consummation date; and (iii)
one-third payable in two annual installments plus interest accrued at
3.25% per annum.
(4) In October 2013, EEI purchased an additional 0.2% of Walsh for less than
$0.1 million in cash.
(5) Purchases of noncontrolling interests are recorded as reductions of
shareholders’ equity on the consolidated statements of shareholders’
equity.
Fiscal Year Ended July 31,
2016
2017
2018
2019
2020
Thereafter
Amount
$2,670,005
2,156,948
2,125,154
1,725,524
1,170,331
1,848,566
16. Defined Contribution Plans
Contributions to the EEI Defined Contribution Plan and EEI
Supplemental Retirement Plan are discretionary and determined
annually by its Board of Directors. The Walsh Defined Contribution
Plan provides for mandatory employer contributions to match
100% of employee contributions up to 4% of each participant’s
compensation. The total expense under the plans was $1.2 million,
$1.7 million, and $2.2 million for fiscal years 2015, 2014 and 2013,
respectively.
17. Earnings Per Share
The computation of basic and diluted EPS is included in the
following table.
Fiscal Year Ended July 31,
2015
2014
2013
Net (loss) income
attributable to Ecology
and Environment, Inc.
$ 3,395,643 $(1,382,656)
$(2,130,434)
Dividend declared
2,065,735
2,066,622
2,038,496
Undistributed earnings
$ 1,329,908 $(3,449,278)
$(4,168,930)
Weighted-average
common shares
outstanding (basic
and diluted)
Distributed earnings
per share
Undistributed earnings
per share
Total earnings per
share
4,287,775
4,283,984
4,247,821
$ 0.48 $ 0.48
$ 0.48
0.31
(0.80)
(0.98)
$ 0.79 $ (0.32)
$ (0.50)
35
18. Segment Reporting
The Company reports segment information based on the
geographic location of its customers (for revenues) and the location
of its offices (for long-lived assets). Revenue and long-lived assets by
business segment are summarized in the following tables.
the remaining one employee and E & E Brasil are awaiting agency
determinations. If fines are assessed against the remaining one
employee and/or E & E Brasil, appeals will be filed. Management
believes that these administrative proceedings will not have a
material adverse impact on the operations of the Company.
Contract Termination Provisions
Certain contracts contain termination provisions under which the
customer may, without penalty, terminate the contracts upon
written notice to the Company. In the event of termination, the
Company would be paid only termination costs in accordance with
the particular contract. Generally, termination costs include unpaid
costs incurred to date, earned fees, and any additional costs directly
allocable to the termination. The Company did not experience
early termination of any material contracts during fiscal years 2015
or 2014.
20. Sale of Subsidiary
In August 2010, EEI acquired a 60% ownership interest in a newly
formed entity, ECSI, LLC (“ECSI”), a Lexington, Kentucky-based
engineering and environmental consulting services company. EEI
paid $1.0 million for its ownership interest, and the noncontrolling
interests contributed cash, other assets and liabilities for their 40%
ownership interest. ECSI recorded $0.1 million of goodwill on the
transaction date. ECSI’s total assets were $1.1 million and $1.6
million at July 31, 2015 and 2014, respectively.
EEI’s share of net (loss) income reported by ECSI was $(0.3) million,
$(0.3) million and less than $0.1 million for the fiscal years ended
July 31, 2015, 2014, and 2013, respectively. Projections completed
by management during the second quarter of fiscal year 2015
indicated that operating losses were expected to continue into the
foreseeable future. As a result of management’s assessment, EEI
determined that $0.1 million of goodwill recorded as a result of the
acquisition was impaired. During fiscal year 2015, the Company
recorded a $0.1 million impairment loss in administrative and
indirect operating expenses on the accompanying consolidated
statements of operations.
In October 2015, EEI sold its 60% interest in ECSI to ECSI’s
minority shareholders for $0.3 million. EEI recognized a loss
on valuation of its investment in ECSI of approximately $0.4
million in administrative and indirect operating expenses on the
accompanying consolidated statements of operations during the
fourth quarter of fiscal year 2015. The offsetting allowance for loss
on valuation of investment in ECSI was recorded in other assets on
the accompanying consolidated balance sheets at July 31, 2015.
Fiscal Years Ended July 31,
2015
2014
2013
Revenue by geographic location:
United States
$86,923,379 $82,370,480
$91,451,247
Foreign countries (1)
39,816,342
46,056,396
43,485,644
(1) Significant foreign revenues included revenues in Peru ($22.8 million,
$19.5 million, and $11.5 million for fiscal years 2015, 2014, and 2013,
respectively), Brazil ($7.8 million, $13.8 million, and $15.1 million for
fiscal years 2015, 2014, and 2013, respectively) and Chile ($6.5 million,
$8.8 million, and $10.6 million for fiscal years 2015, 2014, and 2013,
respectively).
Balance at July 31,
2015
2014
2013
Long-Lived assets by geographic location:
United States
$25,294,053 $31,170,634
$29,508,055
Foreign countries
5,257,910
5,386,736
5,183,885
19. 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
maintains liability insurance against risks arising out of the normal
course of business. The Company is not a party to any pending
legal proceeding, the resolution of which would have a material
adverse effect on the Company’s results of operations, financial
condition, or cash flows. The Company is not a party to any
pending legal proceedings other than those 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 Brasil”), a majority-
owned subsidiary of EEI. The Notice of Infraction concerns the
taking and collecting species of wild animal specimens without
authorization by the competent authority and imposes a fine of
520,000 Reais, which had a value of approximately $0.2 million at
July 31, 2015 and 2014. No claim has been made against EEI. The
Institute has also filed Notices of Infraction against four employees
of E & E Brasil alleging the same claims and has imposed fines
against those individuals that, in the aggregate, are equal to the
fine imposed against E & E Brasil. E & E Brasil has filed administrative
responses with the Institute for itself and its 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 Brasil 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. To date, E & E Brasil has attended one meeting
where depositions were taken; the claim of violations against one
of the four employees was dismissed; two of the four employees
have fines assessed against them, which are being appealed; and
36
BOARD OF DIRECTORS
as of October 31, 2015
Frank B. Silvestro
Founder, Chairman of the Board
Gerald A. Strobel, P.E.
Founder
Ronald L. Frank
Founder
Gerard A. Gallagher, Jr.
Retired Company Officer
Michael C. Gross
Insurance Broker and
NYS Tax Auditor
Michael R. Cellino, MD
Partner, Buffalo Medical Group
Michael S. Betrus, CPA
Retired CFO, Senior Vice President of
Power Drives, Inc.
Gerard A. Gallagher III
Kevin Donovan
President and Chief Executive Officer
Senior Vice President
CORPORATE OFFICERS
Fred J. McKosky, P.E.
Chief Operating Officer,
Senior Vice President
Frank B. Silvestro
Executive Vice President
Ronald L. Frank
Executive Vice President, Secretary
H. John Mye, P.E.
Vice President, Treasurer
and Chief Financial Officer
Laurence M. Brickman, Ph.D.
Senior Vice President
CORPORATE HEADQUARTERS
Buffalo Corporate Center
368 Pleasant View Drive
Lancaster, NY 14086-1397
TEL: 1 (716) 684-8060
FAX: 1 (716) 684-0844
E-MAIL: jmye@ene.com
WEB: www.ene.com
Cheryl A. Karpowicz, AICP
Senior Vice President
Nancy Aungst
Vice President
Timothy J. Grady, P.E.
Vice President
George A. Rusk, Esq.
Vice President
Carmine A. Tronolone
Vice President
STOCK TRANSFER AGENT
American Stock Transfer & Trust Co.
40 Wall Street
New York, NY 10005
TEL: 1 (212) 936-5100
EXCHANGE LISTING
NASDAQ® Global Market
Ticker Symbol: EEI
ACTIVE SUBSIDIARIES
Daniel R. Castle, AICP
Vice President
Michael L. Donnelly
Vice President
Douglas W. Heatwole
Vice President
Michael F. Kane
Vice President
Daniel I. Sewall
Vice President
Colleen C. Mullaney-Westfall, Esq.
Assistant Secretary
INDEPENDENT REGISTERED
ACCOUNTING FIRM
Schneider Downs & Co., Inc.
One PPG Place
Suite 1700
Pittsburgh, PA 15222
LEGAL COUNSEL
Gross, Shuman, Brizdle & Gilfillan, P.C.
465 Main Street, Suite 600
Buffalo, NY 14203
Ecology & Environment Engineering, Inc.
Lowham-Walsh Engineering & Environment Services, LLC
ecology and environment do brasil Ltda. (Brazil)
Servicios Ambientales Walsh, S.A. (Ecuador)
Ecology and Environment International Services, Inc. (EEIS)
Walsh Environmental Scientist & Engineers, LLC
Gestión Ambiental Consultores S.A. (Chile)
Walsh Peru, S.A. (Peru)
Gustavson Associates, LLC
ecology and
environment, inc.
Global Environmental Specialists
www.ene.com
E & E has printed on recycled paper since 1971. This annual report is printed with soy-based inks, and certified by SFI, PEFC, and FSC.
Photo by: Mike Morgante, P.E., Civil Engineer, Buffalo Office, 21 years with E & E
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