Ecology & Environment Earnings 2019-04-27

EEI 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

10-Q 1 form10q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended April 27, 2019

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from __________ to __________

Commission File Number 1-9065

ECOLOGY AND ENVIRONMENT INC.

(Exact name of registrant as specified in its charter)

New York		16-0971022
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

368 Pleasant View Drive
Lancaster, New York		14086
(Address of principal executive offices)		(Zip code)

(716) 684-8060

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to section 12(b) of the Act

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock par value $.01 per share	EEI	Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐ No ☑

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Exchange Act Rule 12b-2). (Check one):

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer (Do not check if a smaller reporting company)	☐	Smaller reporting company	☑
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

At May 31, 2019, 3,114,400 shares of Registrant’s Class A Common Stock (par value $.01) and 1,200,735 shares of Registrant’s Class B Common Stock (par value $.01) were outstanding.

EXPLANATORY NOTE REGARDING RESTATEMENTS

As previously disclosed in the Current Report on Form 8-K filed by Ecology and Environment Inc. (“EEI” or the “Company”) with the Securities and Exchange Commission (the “SEC”) on December 12, 2018, the Audit Committee of the Board of Directors (the “Audit Committee”) concluded that the Company’s consolidated financial statements and related reports filed with the SEC for periods ended prior to July 31, 2018 should no longer be relied upon due to errors related to accounting for EEI’s investment in Gestion Ambiental Consultores S.A. (“GAC”) since 1999. The Company had previously included GAC’s financial statements in consolidated financial statements filed with the SEC prior to July 31, 2018. In December 2018, the Company determined that, although it had a majority ownership interest in GAC, it did not have a controlling interest in GAC’s operations due to lack of continuous control over the activities of GAC’s board of directors and senior management team. As a result, the Company’s net investment in GAC should have been accounted for using the equity method of accounting.

The financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2018, as filed with the Securities and Exchange Commission on May 31, 2019, included a restated consolidated balance sheet at July 31, 2017, and restated consolidated statements of operations, comprehensive income, cash flows and shareholders’ equity for the fiscal years ended July 31, 2017 and 2016. The unaudited condensed consolidated financial statements included in the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 27, 2018 filed on May 31, 2019 included restated unaudited condensed consolidated statements of operations, comprehensive income and cash flows for the three months ended October 28, 2017. The unaudited condensed consolidated financial statements included in the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 26, 2019 filed on May 31, 2019 included restated unaudited condensed consolidated statements of operations and comprehensive income for the three and six months ended January 27, 2018 and a restated unaudited condensed consolidated statement of cash flows for the six months ended January 27, 2018. This Quarterly Report on Form 10-Q includes restated unaudited condensed consolidated statements of operations and comprehensive income for the three and nine months ended April 28, 2018 and a restated unaudited condensed consolidated statement of cash flows for the nine months ended April 28, 2018. Tables related to revenues, operating expenses and income taxes for the three and nine months ended April 28, 2018 included in Item 2 of this Quarterly Report on Form 10-Q have also been restated.

Collectively, the adjustments necessary to deconsolidate GAC’s unaudited financial statements and correctly account for the Company’s investment in GAC under the equity method of accounting are referred to as the “GAC Deconsolidation Adjustments.” In addition to the GAC Deconsolidation Adjustments, previously filed financial statements for the three and nine months ended April 28, 2018 were also adjusted to correct other errors in the financial statements and disclosures that were deemed to be immaterial on an individual basis and in the aggregate for the quarter (the “Out of Period Adjustments”). Specific impacts of the GAC Deconsolidation Adjustments and Out of Period Adjustments on various financial statement line items are summarized in Note 2 of the unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

Internal Controls and Disclosure Controls Considerations

In connection with control deficiencies related to the errors outlined above, and other control deficiencies identified by management, our Acting Principal Executive Officer (the “Acting PEO”) and Acting Chief Financial Officer (the “Acting CFO”) determined that there were deficiencies in our internal control over financial reporting that, in the aggregate, represented material weaknesses at July 31, 2018. Accordingly, our Acting PEO and Acting CFO have concluded that the Company’s disclosure controls and procedures and internal control over financial reporting were not effective at July 31, 2018. Refer to Part I, Item 4 of this Quarterly Report on Form 10-Q for a description of the control deficiencies identified by management and management’s plan to remediate those deficiencies.

Page 2 of 38

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

Ecology and Environment Inc.

Condensed Consolidated Balance Sheets

Unaudited

(amounts in thousands, except share data)

	April 27, 2019			July 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	9,646		$	13,496
Investment securities available for sale		1,545			1,497
Contract receivables, net		24,769			25,615
Income tax receivable		1,560			1,230
Other current assets		1,825			1,752

Total current assets		39,345			43,590

Property, buildings and equipment, net of accumulated depreciation of $16,967 and $16,799, respectively		3,397			3,870
Deferred income taxes		831			789
Equity method investment		2,005			2,058
Other assets		2,491			2,522

Total assets	$	48,069		$	52,829
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	3,929		$	5,635
Lines of credit		620			-
Accrued payroll costs		5,097			6,066
Current portion of long-term debt and capital lease obligations		39			54
Customer deposits		2,818			3,191
Other accrued liabilities		1,561			1,382

Total current liabilities		14,064			16,328

Income taxes payable		-			-
Deferred income taxes		-			-
Long-term debt and capital lease obligations		23			54
Commitments and contingencies (Note 13)		-			-

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 (6,000,000 shares authorized; 3,188,720 and 3,041,911 shares issued, respectively)		32			30
Class B common stock, par value $.01 per share; (10,000,000 shares authorized; 1,205,005 and 1,351,814 shares issued, respectively)		12			14
Capital in excess of par value		17,662			17,558
Retained earnings		18,645			20,973
Accumulated other comprehensive loss		(1,879	)		(1,885	)
Treasury stock, at cost (Class A common: 78,590 shares and 15,789 shares, respectively; Class B common: 0 shares and 64,801 shares, respectively)		(884	)		(907	)

Total Ecology and Environment Inc. shareholders’ equity		33,588			35,783
Noncontrolling interests		394			664

Total shareholders’ equity		33,982			36,447

Total liabilities and shareholders’ equity	$	48,069		$	52,829

The accompanying notes are an integral part of these condensed consolidated financial statements.

Page 3 of 38

Ecology and Environment Inc.

Condensed Consolidated Statements of Operations

Unaudited

(amounts in thousands, except share data)

	Three Months Ended						Nine Months Ended
	April 27, 2019			April 28, 2018 (Restated)			April 27, 2019			April 28, 2018 (Restated)

Gross revenue	$	21,775		$	20,677		$	63,780		$	68,071

Cost of professional services and other direct operating expenses		8,810			7,910			24,718			24,494
Subcontract costs		2,992			2,640			11,185			13,418
Selling, general and administrative expenses		10,504			9,949			29,156			29,213
Depreciation and amortization		243			282			784			801

(Loss) income from operations		(774	)		(104	)		(2,063	)		145

Income from equity method investment		64			137			295			376
Net interest income (expense)		32			58			130			56
Net foreign exchange gain (loss)		(7	)		11			2			(10	)
Other income (expense)		(42	)		25			(35	)		37

(Loss) income before income tax provision		(727	)		127			(1,671	)		604
Income tax provision (benefit)		227			(38	)		(292	)		279

Net (loss) income		(954	)		165			(1,379	)		325

Net income attributable to noncontrolling interests		(76	)		(96	)		(80	)		(187	)

Net (loss) income attributable to Ecology and Environment Inc.	$	(1,030	)	$	69		$	(1,459	)	$	138

Net (loss) income per common share: basic and diluted	$	(0.24	)	$	0.02		$	(0.34	)	$	0.03

Weighted average common shares outstanding: basic and diluted		4,315,135			4,301,604			4,314,742			4,301,604

The accompanying notes are an integral part of these condensed consolidated financial statements.

Page 4 of 38

Ecology and Environment Inc.

Condensed Consolidated Statements of Comprehensive Income

Unaudited

(amounts in thousands)

	Three Months Ended						Nine Months Ended
	April 27, 2019			April 28, 2018 (Restated)			April 27, 2019			April 28, 2018 (Restated)

Net (loss) income including noncontrolling interests	$	(954	)	$	165		$	(1,379	)	$	325
Foreign currency translation adjustments		11			(37	)		(69	)		-
Unrealized investment losses, net		-			(10	)		-			(26	)
Comprehensive (loss) income		(943	)		118			(1,448	)		299
Comprehensive (income) loss attributable to noncontrolling interests		(73	)		(62	)		(10	)		(185	)

Comprehensive (loss) income attributable to Ecology and Environment Inc.	$	(1,016	)	$	56		$	(1,458	)	$	114

The accompanying notes are an integral part of these condensed consolidated financial statements.

Page 5 of 38

Ecology and Environment Inc.

Condensed Consolidated Statements of Cash Flows

Unaudited

(amounts in thousands)

	Nine Months Ended
	April 27, 2019			April 28, 2018 (Restated)
Cash flows from operating activities:
Net (loss) income	$	(1,379	)	$	325
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		784			801
Provision for deferred income taxes		(53	)		(61	)
Share based compensation expense		127			94
Gain on sale of assets and investment securities		(40	)		(19	)
Net recoveries of contract adjustments		(2	)		(60	)
Net bad debt recoveries		(96	)		(63	)
Changes in:
- contract receivables		795			7,773
- other current assets		(216	)		72
- income tax receivable		(342	)		266
- equity method investment		53			(376	)
- other non-current assets		3			254
- accounts payable		(809	)		(2,668	)
- accrued payroll costs		(921	)		(1,539	)
- income taxes payable		-			286
- customer deposits		(331	)		636
- other accrued liabilities		210			(295	)
Net cash (used in) provided by operating activities		(2,217	)		5,426

Cash flows from investing activities:
Purchase of property, buildings and equipment		(371	)		(654	)
Proceeds from sale of equipment		69			19
(Purchase) sale of investment securities		(24	)		(23	)
Net cash used in investing activities		(326	)		(658	)

Cash flows from financing activities:
Dividends paid		(1,726	)		(1,721	)
Repayment of debt		(43	)		(373	)
Net borrowings (repayments) under lines of credit		632			(356	)
Distributions to noncontrolling interests		(177	)		(322	)
Net cash used in financing activities		(1,314	)		(2,772	)

Effect of exchange rate changes on cash and cash equivalents		(3	)		(46	)

Net (decrease) increase in cash, cash equivalents and restricted cash		(3,860	)		1,950
Cash, cash equivalents and restricted cash at beginning of period		13,746			13,135

Cash, cash equivalents and restricted cash at end of period	$	9,886		$	15,085

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	21		$	36
Income taxes		331			87
Supplemental disclosure of non-cash items:
Proceeds from capital lease obligations		-			59

The accompanying notes are an integral part of these condensed consolidated financial statements.

Page 6 of 38

Ecology and Environment Inc.

Notes to Condensed Consolidated Financial Statements

Unaudited

1.	Organization and Basis of Presentation

Ecology and Environment Inc., (“EEI”) was incorporated in 1970 as a global broad-based environmental consulting firm whose underlying philosophy is to provide professional services worldwide so that sustainable economic and human development may proceed with acceptable impact on the environment. During the nine months ended April 27, 2019, EEI and its subsidiaries (collectively, the “Company”) included six active wholly-owned and majority-owned operating subsidiaries located in four countries (the United States of America (the “U.S.”), Brazil, Peru, and Ecuador), and one majority-owned equity investment in Chile. During the three months ended April 26, 2019, the Company sold its majority interest in its subsidiary in Ecuador, which is not expected to have a material impact on its consolidated results of operations, financial position or cash flows for future reporting periods. The Company’s staff is comprised of individuals representing numerous scientific, engineering, health, and social disciplines working together in multidisciplinary teams to provide innovative environmental solutions. The majority of employees hold bachelor’s and/or advanced degrees in such areas as chemical, civil, mechanical, sanitary, soil, structural and transportation engineering, biology, geology, hydrogeology, ecology, urban and regional planning and oceanography. The Company’s client list includes governments, industries, multinational corporations, organizations, and private companies.

The Company prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). The financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of such information. All such adjustments are of a normal recurring nature.

Although the Company believes that the disclosures are adequate to make the information presented not misleading, certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), including a description of significant accounting policies, have been condensed or omitted pursuant to SEC rules and regulations. Therefore, these financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2018 filed with the SEC (the “2018 Annual Report”). Other than new or revised accounting policies resulting from the adoption of new accounting pronouncements described in Note 3 of these condensed consolidated financial statements, the accounting policies followed by the Company for preparation of the consolidated financial statements included in the 2018 Annual Report were also followed for this quarterly report. The condensed consolidated results of operations for the three and nine months ended April 27, 2019 are not necessarily indicative of the results for any subsequent period or the entire fiscal year ending July 31, 2019.

2.	Restatement of Unaudited Condensed Consolidated Financial Statements

As previously disclosed in the Current Report on Form 8-K filed by the Company with the SEC on December 12, 2018, the Audit Committee of the Board of Directors (the “Audit Committee”) determined that the Company’s previously issued financial statements for quarterly periods prior to July 31, 2018 can no longer be relied upon due to errors related to accounting for EEI’s investment in Gestion Ambiental Consultores S.A. (“GAC”) since 1999. The financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2018 included a restated consolidated balance sheet at July 31, 2017, and restated consolidated statements of operations, comprehensive income, cash flows and shareholders’ equity for the fiscal years ended July 31, 2017 and 2016 (the “Restated Annual Financial Statements”). The Company’s Quarterly Reports on Forms 10-Q for the periods ended October 27, 2018 and January 26, 2019 included restated unaudited condensed consolidated statements of operations, comprehensive income and cash flows for the three months ended October 28, 2017 and the three and six months ended January 27, 2018 (the “Restated Unaudited Condensed Consolidated Financial Statements”). This Quarterly Report on Form 10-Q includes restated unaudited condensed consolidated statements of operations, comprehensive income and cash flows for the three and nine months ended April 28, 2018. Tables related to revenues, operating expenses and income taxes for the three and nine months ended April 28, 2018 included in Item 2 of this Quarterly Report on Form 10-Q have also been restated.

The Company had previously included GAC’s financial statements in consolidated financial statements filed with the SEC prior to July 31, 2018. In December 2018, the Company determined that, although it had a majority ownership interest in GAC, it did not have a controlling interest in GAC’s operations due to lack of continuous control over the activities of GAC’s board of directors and senior management team. As a result, the Company’s net investment in GAC should have been accounted for using the equity method of accounting.

Page 7 of 38

Collectively, the adjustments necessary to deconsolidate GAC’s unaudited financial statements and correctly account for the Company’s investment in GAC under the equity method of accounting are referred to as the “GAC Deconsolidation Adjustments.” For the three months ended April 28, 2018, the GAC Deconsolidation Adjustments resulted in decreases of $2.8 million, $0.3 million and less than $0.1 million in consolidated gross revenue, income before income tax provision and net income attributable to EEI, respectively. For the nine months ended April 28, 2018, the GAC Deconsolidation Adjustments resulted in decreases of $8.1 million, $0.7 million and less than $0.1 million in consolidated gross revenue, income before income tax provision and net income attributable to EEI, respectively.

In addition to the GAC Deconsolidation Adjustments, previously filed financial statements for the three and nine months ended April 28, 2018 were also adjusted to correct other errors in the financial statements and disclosures that were deemed to be immaterial on an individual basis and in the aggregate for those reporting periods (the “Out of Period Adjustments”). For the three months ended April 28, 2018, the Out of Period Adjustments resulted in decreases of $0.2 million, less than $0.1 million and $0.1 million of consolidated gross revenue, income before income tax provision and net income attributable to EEI, respectively. For the nine months ended April 28, 2018, the Out of Period Adjustments resulted in increases of $0.3 million, less than $0.1 million and $0.3 million of consolidated gross revenue, income before income tax provision and net income attributable to EEI, respectively.

The “As Previously Reported” amounts in the tables below represent the amounts reported in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended April 28, 2018, filed with the SEC on June 12, 2018.

Page 8 of 38

Ecology and Environment Inc.

Condensed Consolidated Statements of Operations

(amounts in thousands, except share data)

	Three Months Ended April 28, 2018
	As Previously Reported			GAC Deconsolidation Adjustments			Out of Period Adjustments			Restated

Gross revenue	$	23,728		$	(2,828	)	$	(223	)	$	20,677

Direct cost of professional services and other direct operating expenses		8,793			(883	)		-			7,910
Subcontract costs		3,585			(733	)		(212	)		2,640
Selling, general and administrative expenses		10,700			(751	)		-			9,949
Depreciation and amortization		291			(9	)		-			282

Income (loss) from operations		359			(452	)		(11	)		(104	)

Income from equity method investment		-			137			-			137
Net interest income (expense)		52			6			-			58
Net foreign exchange (loss) gain		15			(4	)		-			11
Other income (expense)		24			1			-			25

Income (loss) before income tax provision		450			(312	)		(11	)		127
Income tax provision		43			(121	)		40			(38	)

Net (loss) income		407			(191	)		(51	)		165

(Income) loss attributable to noncontrolling interests		(243	)		147			-			(96	)

Net (loss) income attributable to Ecology and Environment Inc.	$	164		$	(44	)	$	(51	)	$	69

Net (loss) income per common share: basic and diluted	$	0.04								$	0.02

Weighted average common shares outatanding: basic and diluted		4,301,604									4,301,604

Page 9 of 38

	Nine Months Ended April 28, 2018
	As Previously Reported			GAC Deconsolidation Adjustments			Out of Period Adjustments			Restated

Gross revenue	$	75,892		$	(8,093	)	$	272		$	68,071

Direct cost of professional services and other direct operating expenses		27,352			(2,858	)		-			24,494
Subcontract costs		15,082			(1,921	)		257			13,418
Selling, general and administrative expenses		31,438			(2,225	)		-			29,213
Depreciation and amortization		827			(26	)		-			801

Income (loss) from operations		1,193			(1,063	)		15			145

Income from equity method investment		-			376			-			376
Net interest income (expense)		39			17			-			56
Net foreign exchange (loss) gain		(12	)		2			-			(10	)
Other income (expense)		36			1			-			37

Income (loss) before income tax provision		1,256			(667	)		15			604
Income tax provision		797			(280	)		(238	)		279

Net (loss) income		459			(387	)		253			325

(Income) loss attributable to noncontrolling interests		(530	)		342			1			(187	)

Net (loss) income attributable to Ecology and Environment Inc.	$	(71	)	$	(45	)	$	254		$	138

Net (loss) income per common share: basic and diluted	$	(0.02	)							$	0.03

Weighted average common shares outatanding: basic and diluted		4,301,604									4,301,604

Ecology and Environment Inc.

Condensed Consolidated Statements of Comprehensive Income

(amounts in thousands)

	Three Months Ended April 28, 2018
	As Previously Reported			GAC Deconsolidation Adjustments			Out of Period Adjustments			Restated

Net income including noncontrolling interests	$	407		$	(191	)	$	(51	)	$	165
Foreign currency translation adjustments		(1	)		(36	)		-			(37	)
Unrealized investment (losses) gains, net		(10	)		-			-			(10	)

Comprehensive income		396			(227	)		(51	)		118
Comprehensive (income) loss attributable to noncontrolling interests		(209	)		147			-			(62	)

Comprehensive income attributable to EEI	$	187		$	(80	)	$	(51	)	$	56

Page 10 of 38

	Nine Months Ended April 28, 2018
	As Previously Reported			GAC Deconsolidation Adjustments			Out of Period Adjustments		Restated

Net income including noncontrolling interests	$	459		$	(387	)	$	253	$	325
Foreign currency translation adjustments		194			(194	)		-		-
Unrealized investment (losses) gains, net		(26	)		-			-		(26	)

Comprehensive income		627			(581	)		253		299
Comprehensive (income) loss attributable to noncontrolling interests		(603	)		418			-		(185	)

Comprehensive income attributable to EEI	$	24		$	(163	)	$	253	$	114

Page 11 of 38

Ecology and Environment Inc.

Condensed Consolidated Statement of Cash Flows

(amounts in thousands)

	Nine Months Ended April 28, 2018
	As Previously Reported			Impact of GAC Deconsolidation			Other Adjustments			Restated
Cash flows from operating activities:
Net income	$	459		$	(387	)	$	253		$	325
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		827			(26	)		-			801
Provision for deferred income taxes		380			(599	)		158			(61	)
Share based compensation expense		-			-			94			94
Gain on sale of assets and investment securities		(19	)		-			-			(19	)
Net recoveries of contract adjustments		(60	)		-			-			(60	)
Net bad debt recoveries		(96	)		33			-			(63	)
Changes in:
- contract receivables		8,063			175			(465	)		7,773
- other current assets		(46	)		(5	)		123			72
- income tax receivable		275			387			(396	)		266
- equity method investment		-			(376	)		-			(376	)
- other non-current assets		(54	)		296			12			254
- accounts payable		(2,784	)		(117	)		233			(2,668	)
- accrued payroll costs		(1,409	)		(130	)		-			(1,539	)
- income taxes payable		285			1			-			286
- customer deposits		505			131			-			636
- other accrued liabilities		(601	)		306			-			(295	)
Net cash provided by used in operating activities		5,725			(311	)		12			5,426

Cash flows from investing activities:
Purchase of property, building and equipment		(702	)		48			-			(654	)
Proceeds from sale of building and equipment		19			-			-			19
Purchase of investment securities		(23	)		-			-			(23	)
Net cash used in investing activities		(706	)		48			-			(658	)

Cash flows from financing activities:
Dividends paid		(1,721	)		-			-			(1,721	)
Repayment of debt		(373	)		-			-			(373	)
Net borrowings (repayment) of lines of credit		(577	)		221			-			(356	)
Distributions to noncontrolling interests		(322	)		-			-			(322	)
Net cash used in financing activities		(2,993	)		221			-			(2,772	)

Effect of exchange rate changes on cash and cash equivalents		38			(71	)		(13	)		(46	)

Net increase in cash, cash equivalents and restricted cash		2,064			(113	)		(1	)		1,950
Cash, cash equivalents and restricted cash at beginning of period		13,343			(208	)		-			13,135

Cash, cash equivalents and restricted cash at end of period	$	15,407		$	(321	)	$	(1	)	$	15,085

3.	Recent Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) establishes changes to U.S. GAAP in the form of accounting standards updates (“ASUs”) to the FASB Accounting Standards Codification (“ASC”). The Company considers the applicability and impact of all ASUs when they are issued by FASB. ASUs listed below were either adopted by the Company during its current fiscal year, or will be adopted as each ASU becomes effective during future reporting periods. ASUs not listed below were assessed to be not applicable to the Company’s operations or are expected to have minimal impact on the Company’s consolidated financial position or results of operations.

Page 12 of 38

Accounting Pronouncements Adopted During the Nine Months Ended April 27, 2019

In May 2014, FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09, as amended by subsequent ASUs that amended and clarified the guidance in ASU 2014-09, forms the basis for FASB ASC Topic 606 (“ASC Topic 606”), which superseded previous authoritative U.S. GAAP guidance regarding revenue recognition. The Company adopted ASC Topic 606 effective August 1, 2018. Refer to Note 7 of these condensed consolidated financial statements for additional disclosures regarding the Company’s adoption of ASC Topic 606.

In January 2016, FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). The amendments in ASU 2016-01 address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. In February 2018, FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities, which clarified certain aspects of the guidance issued in ASU 2016-01. Under the new guidance, entities are no longer able to classify equity investments as either trading or available for sale (“AFS”), and may no longer recognize unrealized holding gains and losses in other comprehensive income on equity securities that were classified as AFS under previous U.S. GAAP. The Company adopted the applicable provisions of ASU 2016-01 effective August 1, 2018 by recording a cumulative effect adjustment of less than $0.1 million to beginning retained earnings and beginning accumulated other comprehensive income on the condensed consolidated balance sheets. The cumulative effect adjustment is also separately reported on the condensed consolidated statements of shareholders’ equity.

In August 2016, FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). The amendments included in this update provide guidance regarding eight specific cash flow classification issues that are not specifically addressed in previous U.S. GAAP, only one of which was deemed applicable to the Company’s cash flow reporting. Issue 6 of ASU 2016-15 requires that reporting entities elect an accounting policy to classify distributions received from equity method investees using one of two possible approaches:

•

the “cumulative earnings approach,” under which, subject to certain limitations, distributions received from equity investees are considered returns on investment and classified as cash inflows from operating activities; or

•

the “nature of the distribution approach,” under which distributions received from equity investees should be classified on the basis of the nature of the activity or activities of the investee that generated the distribution as either a return on investment (classified as a cash inflow from operating activities) or a return of investment (classified as a cash inflow from investing activities).

The Company adopted the provisions of ASU 2016-15 effective August 1, 2018 and elected the “cumulative earnings approach.”

The Company received $0.2 million of dividends from its equity method investee during the nine months ended April 27, 2019 that are included in cash flows from operating activities.

Accounting Pronouncements Not Yet Adopted as of April 27, 2019

In March 2016, FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). The main difference between previous U.S. GAAP and ASU 2016-02, as amended by subsequent ASUs that amended and clarified the guidance in ASU 2016-02, is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. ASU 2016-02 provides specific guidance for determining whether a contractual arrangement contains a lease, lease classification by lessees and lessors, initial and subsequent measurement of leases by lessees and lessors, sale and leaseback transactions, transition, and financial statement disclosures. ASU 2016-02 requires entities to use a modified retrospective approach to apply its guidance, and includes a number of optional practical expedients that entities may elect to apply. ASU 2016-02 will be effective for the Company beginning August 1, 2019. Management is currently assessing the provisions of ASU 2016-02. The Company anticipates that adoption of ASU 2016-02 will result in the addition of material right-of-use assets and lease liabilities to the Company’s consolidated balance sheet in addition to expanding required disclosures. Management has not yet estimated the impact of ASU 2016-02 on the Company’s consolidated statements of operations and cash flows.

In June 2016, FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) (“ASU 2016-13”). The amendments included in this update affect entities holding financial assets, including trade receivables and investment securities available for sale, that are not accounted for at fair value through net income. ASU 2016-13, as amended by subsequent updates that amended and clarified the guidance in ASU 2016-13, requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The amendments included in this update also provide guidance for measurement of expected credit losses and for presentation of increases or decreases of expected credit losses on the statement of operations. ASU No. 2016-13 will be effective for the Company beginning August 1, 2020. Early adoption is permitted for the Company beginning August 1, 2019. Management is currently assessing the provisions of ASU 2016-13 and has not yet estimated its impact on the Company’s consolidated financial statements.

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In January 2017, FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). The amendments included in this update simplify the subsequent measurement of goodwill by revising the steps required during the registrant’s annual goodwill impairment test. This accounting standard update will be effective for the Company beginning August 1, 2021. Management is currently assessing the provisions of ASU 2017-04 and has not yet estimated its impact on the Company’s consolidated financial statements.

4.	Significant Transactions During the Three Months Ended April 27, 2019

Staff Reduction Programs

In December 2018, the Company began to notify employees of a voluntary retirement program. In February 2019, the Company began to notify affected employees of an involuntary separation program. These programs (collectively, the “Staff Reduction Programs”), which are being implemented in connection with a corporate restructuring plan within the Company’s U.S. operating segment, were substantially completed by April 27, 2019 and are expected to be completed by July 31, 2019. Company management anticipates that the combined effect of the Staff Reduction Programs and other expense reduction initiatives will result in annual pre-tax cost savings of greater than $6.0 million. During the three months ended April 27, 2019, the Company recorded and paid approximately $0.8 million of employee severance and termination expenses related to the Staff Reduction Programs, which was reported in selling, general and administrative expenses on the condensed consolidated statements of operations. The Company expects to record additional severance expense of approximately $0.1 million during the three months ended July 31, 2019 in connection with the Staff Reduction Programs.

Expenses Associated with Restatements of Financial Statements

As described above, the Company restated its audited consolidated financial statements for the fiscal years ended July 31, 2016 and 2017 and unaudited condensed consolidated financial statements for the quarters ended October 28, 2017, January 27, 2018 and April 28, 2018. Financial data included in tables and various accounting policies and commentaries included in the Company’s Restated 2019 Annual Report and Restated 2019 Quarterly Reports were also restated or otherwise revised. These restatements required extensive internal and external resources to complete, including significant incremental fees paid to the Company’s independent auditors, tax consultants and external legal counsel. The Company’s U.S. operating segment recorded incremental audit, tax and legal expenses of $0.9 million in selling, general and administrative expenses on the condensed consolidated statements of operations during the nine months ended April 27, 2019, $0.6 million of which was recorded during the three months ended April 27, 2019.

5.	Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash balances are summarized in the following table.

	April 27, 2019		July 31, 2018
	(in thousands)

Cash and cash equivalents	$	9,646	$	13,496
Restricted cash included in other assets		240		250
Total cash, cash equivalents and restricted cash	$	9,886	$	13,746

The Company considers all liquid instruments purchased with a maturity of three months or less to be cash equivalents. Money market funds of less than $0.1 million and $0.4 million were included in cash and cash equivalents at April 27, 2019 and July 31, 2018, respectively. Restricted cash included in other assets represents collateral for pending litigation matters in Brazil that are not expected to be resolved within one year from the balance sheet date.

6.	Fair Value of Financial Instruments

The Company’s financial assets or liabilities are measured using inputs from the three levels of the fair value hierarchy. The Company classifies assets and liabilities within the fair value hierarchy based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The Company has not elected a fair value option on any assets or liabilities. The three levels of the hierarchy are as follows:

Level 1 Inputs – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Generally, this includes debt and equity securities and derivative contracts that are traded on an active exchange market (e.g., New York Stock Exchange) as well as certain U.S. Treasury and U.S. Government and agency mortgage-backed securities that are highly liquid and are actively traded in over-the-counter markets.

Page 14 of 38

Level 2 Inputs – Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; or valuations based on models where the significant inputs are observable (e.g., interest rates, yield curves, credit risks, etc.) or can be corroborated by observable market data.

Level 3 Inputs – Valuations based on models where significant inputs are not observable. The unobservable inputs reflect the Company’s own assumptions about the assumptions that market participants would use.

The Company monitors the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the Company reports the transfer as of the beginning of the reporting period. The Company evaluated the significance of transfers between levels based upon the nature of the financial instrument. There were no transfers in or out of levels 1, 2 or 3, respectively, during the nine months ended April 27, 2019 or the fiscal year ended July 31, 2018.

The carrying amount of cash, cash equivalents and restricted cash approximated fair value at April 27, 2019 and July 31, 2018. These assets were classified as level 1 instruments at both dates.

Investment securities available for sale of $1.5 million at April 27, 2019 and July 31, 2018 primarily included mutual funds invested in U.S. municipal bonds, which the Company may immediately redeem without prior notice. These mutual funds are valued at the net asset value (“NAV”) of shares held by the Company at period end as a practical expedient to estimate fair value. These mutual funds are deemed to be actively traded, are required to publish their daily NAV and are required to transact at that price.

Prior to August 1, 2018, unrealized gains or losses related to investment securities available for sale were recorded in the consolidated balance sheets and statements of comprehensive income. Subsequent to adoption of ASU 2016-01 effective August 1, 2018 (refer to Note 3 of these condensed consolidated financial statements), unrealized gains or losses related to investment securities available for sale are recorded in the consolidated statements of operations. The cost basis of securities sold is based on the specific identification method. The Company did not record any sales of investment securities during the nine months ended April 27, 2019 and April 28, 2018.

Long-term debt consists of bank loans and capitalized equipment leases. Lines of credit consist of borrowings for working capital requirements. Based on the relative immateriality of consolidated debt and line of credit borrowings, management believes that the carrying amount of these liabilities approximated fair value at April 27, 2019 and July 31, 2018. These liabilities were classified as level 2 instruments at both dates.

There were no financial instruments classified as level 3 at April 27, 2019 and July 31, 2018.

7.	Revenue and Contract Receivables, net

Adoption of ASC Topic 606

The Company adopted ASC Topic 606 effective August 1, 2018. Gross revenue for reporting periods beginning after July 31, 2018 is recognized under ASC Topic 606. Gross revenue for previous reporting periods was recognized in accordance with historic accounting under U.S. GAAP, as summarized in revenue recognition policies included in the Company’s 2018 Annual Report.

The Company adopted ASC Topic 606 using the modified retrospective method. As a practical expedient allowed under ASC Topic 606, the Company applied the new guidance only to contracts that were not completed as of the date of initial application. The Company did not record any cumulative effect adjustment to retained earnings as of August 1, 2018, and did not record any material adjustment to gross revenue for the three or nine months ended April 27, 2019 as a result of applying the guidance in ASC Topic 606.

Revenue Recognition under ASC Topic 606

The Company recognizes substantially all of its revenue from the sale of labor hours under environmental consulting contracts. Revenue reflected in the Company’s consolidated statements of operations represents services rendered for which the Company maintains a primary contractual relationship with its customers. Included in revenue are certain services outside the Company’s normal operations that the Company has elected to subcontract to other contractors.

Page 15 of 38

In accordance with ASC Topic 606, the Company identifies a contract with a customer, identifies the performance obligations in the contract, determines the transaction price, allocates the transaction price to each performance obligation in the contract and recognizes revenue when (or as) the Company satisfies a performance obligation. The Company recognizes the vast majority of its contractual revenue over time, as services are rendered and performance obligations are satisfied, because of the continuous transfer of control to the customer, and because the Company generally maintains the right to remuneration for efforts already expended under its contracts even if a customer terminates the contract. The Company’s contracts with customers generally include payment terms that range from 30-90 days from the billing date.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account for revenue recognition. The Company allocates a contract’s transaction price to each distinct performance obligation and recognizes revenue when, or as, the performance obligation is satisfied. Predominantly, the Company’s contracts have a single performance obligation because the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts.

The Company performs its consulting work under a mix of time and materials, fixed price and cost-plus contracts. The Company accounts for time and material contracts over the period of performance, predominately based on labor hours incurred. Under these types of contracts, there is no predetermined fee. Instead, the Company negotiates hourly billing rates and charges the clients based upon actual hours expended on a project. In addition, any direct project expenditures are passed through to the client and are typically reimbursed. Time and materials contracts may contain “not to exceed” provisions that effectively cap the amount of revenue that the Company can bill to the client. In order to record revenue that exceeds the billing cap, the Company must obtain approval from the client for expanded scope or increased pricing.

The Company recognizes revenue under fixed price contracts using the proportional performance method, under which progress is determined based on the ratio of efforts expended to date in proportion to total efforts expected to be expended over the life of a contract. The proportional performance method requires the use of estimates and judgment regarding a project’s expected revenue and the extent of progress towards completion. The Company makes periodic estimates of progress towards project completion by analyzing efforts expended to date, plus an estimate of the amount of efforts to expend that we expect to incur until the completion of the project. Revenue is then calculated on a cumulative basis (project-to-date) as the proportion of efforts-expended. The revenue for the current period is calculated as cumulative revenue less project revenue already recognized. If an estimate of efforts expended at completion on any contract indicates that a loss will be incurred, the entire estimated loss is charged to operations in the period the loss becomes evident.

Cost-plus contracts provide for payment of allowable incurred costs, to the extent prescribed in the contract, plus fees that we record as revenue. These contracts establish an estimate of total cost and an invoicing ceiling that the contractor may not exceed without the approval of the client. Revenue earned from cost-plus contracts is recognized over the period of performance.

Substantially all of the Company’s cost-plus contracts are with federal governmental agencies and, as such, are subject to audits after contract completion. Government audits have been completed and final rates have been negotiated through fiscal year 2014. The Company recorded an allowance for potential disallowances resulting from government audits of $0.7 million in other accrued liabilities at April 27, 2019 and July 31, 2018. Adjustments to allowances for project disallowances are recorded as adjustments to revenue when the amounts are estimable. Resolution of these amounts is dependent upon the results of government audits and other formal contract closeout procedures.

Contract modifications are common in the performance the Company’s contracts, and typically result from changes in scope, specifications, design, performance, sites, or period of completion. In most cases, contract modifications are for services that are not distinct, and, therefore, are accounted for as part of the existing contract. Revenue is recognized on contract modifications when it is probable that the modification will be approved and the amount can be reasonably estimated.

Cost of professional services and other direct operating expenses, which includes employee labor and fringe expenses and out of pocket expenses such as travel, meals and field supplies, represent costs incurred in connection with revenue recognized under client contracts. Sales and cost of sales recognized by the Company’s South American operations exclude value added tax (VAT) assessments by governmental authorities, which the Company collects from its customers and remits to governmental authorities.

The Company expenses all bid and proposal and other pre-contract costs as incurred.

Page 16 of 38

Contract Receivables, net and Contract Assets

Contract receivables, net are summarized in the following table.

	April 27, 2019			July 31, 2018
	(in thousands)
Contract Receivables:
Billed	$	12,616		$	12,905
Unbilled		13,324			13,994
Total contract receivables		25,940			26,899
Allowance for doubtful accounts		(1,171	)		(1,284	)
Contract receivables, net	$	24,769		$	25,615

Billed contract receivables represent amounts billed to clients in accordance with contracted terms but not collected as of the end of the reporting period. Billed contract receivables may include: (i) amounts billed for revenue from efforts expended and fees earned in accordance with contractual terms; and (ii) progress billings in accordance with contractual terms that include revenue not yet earned as of the end of the reporting period. The Company anticipates that substantially all billed contract receivables will be collected over the next twelve months. Billed contract receivables included contractual retainage balances of $0.8 million and $1.4 million at April 27, 2019 and July 31, 2018, respectively.

Unbilled contract receivables, which represent an unconditional right to payment subject only to the passage of time, represent amounts billable to clients in accordance with contracted terms that have not been billed as of the end of the reporting period. Unbilled contract receivables that are not expected to be billed and collected within one year from the balance sheet date are reported in other assets on the condensed consolidated balance sheets.

The Company reduces contract receivables by recording an allowance for doubtful accounts to account for the estimated impact of collection issues resulting from a client’s inability or unwillingness to pay valid obligations to the Company. The resulting provision for doubtful accounts is recorded within selling, general and administrative expenses on the condensed consolidated statements of operations.

The Company may record contract assets for the right to receive consideration from customers when that right is conditional based on future performance under a contract. Contract assets are transferred to billed contract receivables when the right to consideration becomes unconditional. The Company did not record any contract assets at April 27, 2019 or July 31, 2018.

At April 27, 2019 and July 31, 2018, management identified $0.3 million and $0.5 million, respectively, of contract receivables, net of related allowance for doubtful accounts, which are not expected to be collected within one year. These receivable balances are included in other assets on the accompanying condensed consolidated balance sheets.

Allowance for Doubtful Accounts

Activity within the allowance for doubtful accounts is summarized in the following table.

	Three Months Ended						Nine Months Ended
	April 27, 2019			April 28, 2018 (Restated)				April 27, 2019			April 28, 2018 (Restated)
	(in thousands)

Balance at beginning of period	$	1,234		$	1,902			$	1,284		$	2,044
Provision for doubtful accounts during the period		89			154				159			246
Write-offs and recoveries of allowance recorded in prior periods		(152	)		(444	)			(272	)		(678	)
Balance at end of period	$	1,171		$	1,612			$	1,171		$	1,612

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Contract Receivable Concentrations

Contract receivables and the allowance for doubtful accounts are summarized in the following table.

	April 27, 2019				July 31, 2018 Restated
	Total Billed and Unbilled Contract Receivables		Allowance for Doubtful Accounts		Total Billed and Unbilled Contract Receivables		Allowance for Doubtful Accounts
	(in thousands)

U.S. operations	$	20,340	$	505	$	21,580	$	569
South American operations		5,600		666		5,319		715
Totals	$	25,940	$	1,171	$	26,899	$	1,284

The allowance for doubtful accounts for the Company’s South American operations represented 12% of related contract receivables at April 27, 2019 compared to 2% for the Company’s U.S. operations. Unstable local economies that adversely impacted certain of our South American clients in recent years demonstrated signs of stabilizing during fiscal year 2018. Management continues to monitor trends and events that may adversely impact the realizability of recorded receivables from our South American clients.

Disaggregation of Revenues

The following table provides a summary of the Company’s gross revenue, disaggregated by operating segment and contract type.

	Three Months Ended				Nine Months Ended
	April 27, 2019		April 28, 2018 (Restated)		April 27, 2019		April 28, 2018 (Restated)
Gross revenue from time and materials contracts:
U.S. operations	$	10,699	$	10,038	$	29,689	$	28,826
South American operations		-		-		-		-
Total gross revenue from time and materials contracts	$	10,699	$	10,038	$	29,689	$	28,826

Gross revenue from fixed price contracts:
U.S. operations	$	2,888	$	3,248	$	9,445	$	10,336
South American operations		4,840		4,112		12,530		14,287
Total gross revenue from fixed price contracts	$	7,728	$	7,360	$	21,975	$	24,623

Gross revenue from cost-plus contracts:
U.S. operations	$	3,348	$	3,279	$	12,116	$	14,622
South American operations		-		-		-		-
Total gross revenue from cost-plus contracts	$	3,348	$	3,279	$	12,116	$	14,622

Gross revenue from all contracts:
U.S. operations	$	16,935	$	16,565	$	51,250	$	53,784
South American operations		4,840		4,112		12,530		14,287
Consolidated gross revenue	$	21,775	$	20,677	$	63,780	$	68,071

Customer Deposits

Customer deposits of $2.8 million and $3.2 million at April 27, 2019 and July 31, 2018, respectively, represent cash advances received from customers for future services.

8.	Variable Interest Entities and Equity Method Investment

Variable Interest Entities (“VIE”)

The Company’s majority owned subsidiaries are deemed to be VIEs when, on a stand-alone basis, they lack sufficient capital to finance the activities of the VIE. The Company consolidates investments in VIEs if the Company is the primary beneficiary of the VIE. The Company uses a qualitative approach to determine if the Company is the primary beneficiary of the VIE, which considers factors that indicate the Company has significant influence and control over the activities that most significantly impact the VIE’s economic performance. These factors include representation on the investee’s board of directors, management representation, authority to make decisions, substantive participating rights of the minority shareholders and ownership interest.

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As of April 27, 2019 and July 31, 2018, the Company consolidated one majority owned subsidiary that was deemed to be VIE. The financial position of this VIE as of April 27, 2019 and July 31, 2018 is summarized in the following table.

	April 27, 2019			July 31, 2018
	(in thousands)

Current assets	$	3,269		$	2,359
Noncurrent assets		766			878
Total assets	$	4,035		$	3,237

Current liabilities	$	5,753		$	5,408
Noncurrent liabilities		16			32
Total liabilities		5,769			5,440
Total Ecology and Environment Inc. shareholder’s equity		(688	)		(1,051	)
Noncontrolling interests shareholders’ equity		(1,046	)		(1,152	)
Total shareholders’ equity		(1,734	)		(2,203	)
Total liabilities and shareholders’ equity	$	4,035		$	3,237

Total gross revenue of the consolidated VIE was $9.5 million and $8.1 million for the nine months ended April 27, 2019 and April 28, 2018, respectively. With the exception of restricted cash of $0.2 million and $0.3 million included in noncurrent assets at April 27, 2019 and July 31, 2018, respectively (refer to Note 5), all assets of the VIE were available for the general operations of the VIE.

Equity Method Investment

VIEs for which the Company is not the primary beneficiary, and other investee companies over which the Company does not influence or control the activities that most significantly impact the investee company’s economic performance, are not consolidated and are accounted for under the equity method of accounting. Under the equity method of accounting, an investee company’s accounts are not reflected within the Company’s consolidated balance sheets and statements of operations. The Company’s share of the earnings of the investee company is reported as earnings from equity method investment in the Company’s consolidated statements of operations. The Company’s carrying value in an equity method investee is reported as equity method investment on the Company’s consolidated balance sheets. The Company’s carrying value in an equity method investee is reduced by the Company’s share of dividends declared by an investee company.

If the Company’s carrying value in an equity method investee company is reduced to zero, no further losses are recorded in the Company’s consolidated financial statements unless the Company guaranteed obligations of the investee company or has committed additional funding. When the investee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized.

The Company’s equity method investment in GAC had a carrying value of $2.0 million and $2.1 million at April 27, 2019 and July 31, 2018, respectively. In April 2019, GAC issued additional shares to two of its senior employees, which effectively reduced the Company’s ownership percentage to 52.48% as of April 27, 2019 from 55.10% at July 31, 2018.

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The equity method investment in GAC is included within the Company’s South American operating segment. Activity recorded for the Company’s equity method investment during the nine months ended April 27, 2019 and April 28, 2018 is summarized in the following table.

	Nine Months Ended
	April 27, 2019			April 28, 2018 (Restated)
	(in thousands)

Equity investment carrying value at beginning of period	$	2,058		$	1,464
GAC net income attributable to EEI		295			376
Dividends declared and paid during the period		(348	)		---
Equity investment carrying value at end of period	$	2,005		$	1,840

GAC’s financial position as of April 27, 2019 and July 31, 2018 is summarized in the following table.

	April 27, 2019		July 31, 2018
	(in thousands)

Current assets	$	5,495	$	5,713
Noncurrent assets		1,032		501
Total assets	$	6,527	$	6,214

Current liabilities	$	2,832	$	2,620
Noncurrent liabilities		900		593
Total liabilities		3,732		3,213
Total Ecology and Environment Inc. shareholder’s equity		1,487		1,678
Minority interests shareholders’ equity		1,308		1,323
Total shareholders’ equity		2,795		3,001
Total liabilities and shareholders’ equity	$	6,527	$	6,214

The results of GAC’s operations for the nine months ended April 27, 2019 and April 28, 2018 are summarized in the following table.

	Nine Months Ended
	April 27, 2019		April 28, 2018
	(in thousands)

Gross revenue	$	9,456	$	8,095
Direct cost of services and subcontract costs		6,053		4,781
Income from operations		775		951
Net income		538		681
Net income attributable to EEI		295		376

9.	Lines of Credit

Unsecured lines of credit are summarized in the following table.

	April 27, 2019		July 31, 2018
	(in thousands)

Outstanding cash advances	$	620	$	---
Outstanding letters of credit		1,570		1,668
Total amounts used under lines of credit		2,190		1,668
Remaining amounts available under lines of credit		33,668		36,832
Total approved unsecured lines of credit	$	35,858	$	38,500

The Company’s U.S. operations are supported by two line of credit arrangements:

•

$19.0 million available line of credit at April 27, 2019; no outstanding cash advances as of April 27, 2019 or July 31, 2018; letters of credit of less than $0.1 million were outstanding at April 27, 2019 and July 31, 2018; interest rate on cash advances is based on LIBOR plus 275 basis points; and

Page 20 of 38

•

$13.5 million available line of credit at April 27, 2019; no outstanding cash advances as of April 27, 2019 or July 31, 2018; letters of credit of less than $0.1 million were outstanding at April 27, 2019 and July 31, 2018, respectively; interest rate on cash advances is based on LIBOR plus 200 basis points.

The Company’s South American operations are supported by two line of credit arrangements:

•

$2.0 million available line of credit to support operations in Peru; no outstanding cash advances as of April 27, 2019 or July 31, 2018; letters of credit of $1.0 million were outstanding at April 27, 2019 and July 31, 2018, respectively; interest rate on cash advances is affirmed or negotiated annually; and

•

$1.4 million available line of credit to support operations in Brazil; $0.6 million of cash advances were outstanding as of April 27, 2019; $0.6 million of letters of credit were outstanding at April 27, 2019 and July 31, 2018; interest rate on cash advances is based on a Brazilian government economic index.

10.	Income Taxes

During interim reporting periods, the effective tax rate may be impacted by changes in the mix of forecasted pre-tax income or losses from the U.S. and foreign jurisdictions where the Company operates, by changes in tax rates within those jurisdictions, or by significant unusual or infrequent items that could change assumptions used in the calculation of the income tax provision.

The estimated effective tax rate decreased to 17.5% for the nine months ended April 27, 2019 from 46.2% for the nine months ended April 28, 2018. Unfavorable permanent adjustments related to forecasted losses in the U.S. resulted in an effective tax rate that was lower than the statutory rate for the nine months ended April 27, 2019. The decrease in the estimated effective tax rate for the nine months ended April 27, 2019 resulted mainly from changes in the pre-tax earnings of the Company’s U.S. operations in the current fiscal year and from the impact of changes in U.S. corporate income tax regulations included in the Tax Cuts and Jobs Act enacted in December 2017, which included:

•

A reduction in the U.S. statutory corporate income tax rate to 21% for the nine months ended April 27, 2019, compared with a blended rate of 26% for the nine months ended April 28, 2018.

•

Certain one-time tax items, including revaluation of deferred tax assets and liabilities and the effect of a new territorial tax system, that increased the Company’s federal income tax expense by a combined $0.4 million for the nine-months ended April 28, 2018. The Company did not record any similar or other unusual adjustments to federal income tax expense during the nine months ended April 27, 2019.

11.	Shareholders’ Equity

The following tables provide reconciliations of changes in consolidated shareholders’ equity for the three months ended April 27, 2019 and April 28, 2018. Amounts for the three months ended April 28, 2018 have been restated for the GAC Deconsolidation Adjustments and Out of Period Adjustments described in Note 2.

	Three Months Ended April 27, 2019
	Class A Common Stock		Class B Common Stock			Capital in Excess of Par Value		Retained Earnings			Accumulated Other Accumulated Income (Loss)			Treasury Stock			Noncontrolling Interests

Balance at January 26, 2019	$	31	$	13		$	17,629	$	20,539		$	(1,893	)	$	(884	)	$	484

Net (loss) income		-		-			-		(1,030	)		-			-			76
Cash dividends declared ($0.20 per share)		-		-			-		(864	)		-			-			-
Conversion of Class B common stock to Class A common stock		1		(1	)		-		-			-			-			-
Foreign currency translation adjustment		-		-			-		-			14			-			(3	)
Share-based compensation expense		-		-			33		-			-			-			-
Distributions to noncontrolling interests		-		-			-		-			-			-			(61	)
Purchase of additional noncontrolling interests		-		-			-		-			-			-			(102	)

Balance at April 27, 2019	$	32	$	12		$	17,662	$	18,645		$	(1,879	)	$	(884	)	$	394

Page 21 of 38

	Three Months Ended April 28, 2018
	Class A Common Stock		Class B Common Stock		Capital in Excess of Par Value		Retained Earnings			Accumulated Other Accumulated Income (Loss)			Treasury Stock			Noncontrolling Interests

Balance at January 27, 2018	$	30	$	14	$	17,641	$	23,074		$	(1,806	)	$	(1,037	)	$	878

Net income		-		-		-		69			-			-			96
Cash dividends declared ($0.20 per share)		-		-		-		(860	)		-			-			-
Foreign currency translation adjustment		-		-		-		-			(3	)		-			(34	)
Conversion of Class B common stock to Class A common stock		-		-		-		-			-			-			-
Unrealized investment losses, net		-		-		-		-			(10	)		-			-
Share-based compensation expense		-		-		24		-			-			-			-
Distributions to noncontrolling interests		-		-		-		-			-			-			(129	)

Balance at April 28, 2018 (Restated)	$	30	$	14	$	17,665	$	22,283		$	(1,819	)	$	(1,037	)

10-Q	2019-04-27	Quarter: 2019-04-27
10-Q	2019-01-26	Quarter: 2019-01-26
10-Q	2018-10-27	Quarter: 2018-10-27
10-K	2018-07-31	Annual: 2018-07-31
10-Q	2018-04-28	Quarter: 2018-04-28
10-Q	2018-01-27	Quarter: 2018-01-27
10-Q	2017-10-28	Quarter: 2017-10-28
10-K	2017-07-31	Annual: 2017-07-31
10-Q	2017-04-29	Quarter: 2017-04-29
10-Q	2017-01-28	Quarter: 2017-01-28
10-Q	2016-10-29	Quarter: 2016-10-29
10-K	2016-07-31	Annual: 2016-07-31
10-Q	2016-04-30	Quarter: 2016-04-30
10-Q	2016-01-30	Quarter: 2016-01-30
10-Q	2015-10-31	Quarter: 2015-10-31
10-K	2015-07-31	Annual: 2015-07-31
10-Q	2015-05-02	Quarter: 2015-05-02
10-Q	2015-01-31	Quarter: 2015-01-31
10-Q	2014-11-01	Quarter: 2014-11-01
10-K	2014-07-31	Annual: 2014-07-31
10-Q	2014-04-30	Quarter: 2014-04-30
10-Q	2014-01-31	Quarter: 2014-01-31

8-K	2019-08-28	Enter Agreement, Officers, Other Events, Exhibits
8-K	2019-07-31	Officers, Exhibits
8-K	2019-07-24	Shareholder Vote
8-K	2019-05-28	Amend Bylaw, Other Events, Exhibits
8-K	2019-05-20	Other Events
8-K	2019-05-13	Officers
8-K	2019-05-13	Exhibits
8-K	2019-04-11	Officers
8-K	2019-04-01	Other Events
8-K	2019-03-25	Exhibits
8-K	2019-02-07	Other Events
8-K	2019-01-14	Other Events
8-K	2018-12-17	Officers
8-K	2018-12-13
8-K	2018-12-12	Exit Costs, Amendment
8-K	2018-11-14
8-K	2018-10-11	Officers
8-K	2018-09-19	Officers
8-K	2018-04-23	Shareholder Vote
8-K	2018-04-13	Officers

JEC	Jacobs Engineering Group	11,993
SPR	Spirit Aerosystems Holdings	8,198
TTEK	Tetra Tech	4,411
KBR	KBR	3,569
GRAM	Grana & Montero	1,816
ROAD	Construction Partners	772
MG	Mistras Group	430
WLDN	Willdan Group	407
STRL	Sterling Construction	285
HIL	Hill International	165

EX-31.1	ex31_1.htm
EX-31.2	ex31_2.htm
EX-32.1	ex32_1.htm
EX-32.2	ex32_2.htm