Summary of ENGLOBAL CORP - Yahoo! Finance

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)

OVERALL COMPARISONS

Revenue

Overall revenue increased 35.8%, or $130.1 million, from $363.2 million in 2007 to $493.3 million in 2008 and increased 19.8%, or $60.1 million, from $303.1 million in 2006. Only 3% of our growth in 2008 was a result of the incremental revenue contribution from 2008 acquisitions. We had increases in revenue in 2008 of $8.9 million due to additional work created by Hurricane Ike and $42.4 million from a refinery rebuild project. Both of these projects included large amounts of material and subcontractor purchases and are expected to be completed by the first quarter of 2009. Revenue also grew due to an overall higher level of project activity in the markets we serve. In particular we benefited from the increased capital spending in the pipeline area which increased revenue in our construction, engineering and land segments. Approximately 36% of our revenue growth from 2006 to 2007 was external growth as a result of the incremental revenue contribution from 2006 acquisitions. The balance of the revenue growth from 2006 to 2007 occurred as a result of internal measures and a higher level of project activity in the market we serve.

Gross Profit

Gross profit increased $6.2 million, or 10.8%, from $57.6 million in 2007 to $63.8 million in 2008 and increased $31.3 million, or 119.0%, from $26.3 million in 2006. As a percentage of revenue, gross profit decreased by 3.0% from 15.9% in 2007 to 12.9% in 2008 but increased 7.2% in 2007 from 8.7% in 2006. The major factor that contributed to lower gross profit margins in 2008 relative to 2007 was an increase of $24.6 million in revenues related to low-margin pass-through procurement and subcontracted construction revenue. The remaining decline was due to increased work on lower margin services such as pipeline inspection.

Selling, General and Administrative ("SG&A") Expenses

Overall SG&A expenses decreased $2.6 million, or 7.5%, from $34.8 million in 2007 to $32.2 million in 2008. In 2007, overall SG&A expense increased $4.9 million, or 16.4%, from $29.9 million in 2006. As a percentage of revenue, SG&A decreased 3.1% from 9.6% in 2007 to 6.5% in 2008 and decreased 0.3% from 9.9% in 2006. The main savings occurred in bad debt expense and amortization. In 2007, the bad debt expense was elevated due to the creation of the reserve on the notes receivable for the SLE project and amortization was increased by $432,000 due to the goodwill impairment in the Automation segment. Even though we did not have the significant increase in bad debt due to the SLE project in 2008, we did have increased amounts of general bad debt expense due to the economic instability that has caused some customers to file bankruptcy or to otherwise be unable to pay. Details relating to the changes in each segment are discussed further below.

Corporate SG&A expenses increased $0.9 million, or 6.2%, from $14.6 million in 2007 to $15.5 million in 2008. The increase primarily relates to salaries and employee-related expenses, which increased $0.7 million. There was also an increase of $0.2 million in facilities expense, $0.1 million in professional services for items such as Sarbanes-Oxley ("SOX") compliance and professional consulting services and an increase in amortization and depreciation expense of $0.2 million. These increases were offset by a decrease in stock compensation expense of $0.3 million. As a percentage of revenue, corporate SG&A decreased 0.8% from 4.0% in 2007 to 3.2% in 2008.

Corporate SG&A expenses increased $1.9 million, or 15.0%, from $12.7 million in 2006 to $14.6 million in 2007. The increase relates primarily to salaries and employee-related expenses, which increased $1.7 million. Of these expenses, $0.9 million relates to the management incentive plan. Since the Company experienced losses in 2006, we incurred no management incentive plan expense during that year. The remainder is attributable to a general increase in corporate overhead positions to support Company growth. There was also an increase in professional services for items such as Sarbanes-Oxley ("SOX") compliance and audits totaling $0.2 million and an increase of amortization and depreciation expense of $0.2 million. These increases were offset by a decrease in stock compensation expense of $0.5 million. As a percent of revenue, corporate SG&A decreased 0.2% from 4.2% in 2006 to 4.0% in 2007.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)

Operating Profit

Operating profit increased $8.8 million to $31.6 million in 2008 as compared to $22.8 million in 2007, increasing, as a percentage of total revenue, from 6.3% in 2007 to 6.4% in 2008. This increase was primarily the result of higher levels of project activity in the markets we serve, along with savings in the SG&A. Operating profit increased $26.4 million to $22.8 million in 2007 as compared to $(3.6) million in 2006, increasing, as a percentage of total revenue, from
(1.2)% in 2006 to 6.3% in 2007. This increase was primarily the result of the Company's loss in 2006 on two fixed-price contracts that did not recur in 2007. However, operating profit in 2007 was reduced by a $4.0 million charge taken in relation to the SLE project, discussed in further detail in Item 6.

Other Income (Expense)

Other income decreased from $379,600 in 2007 to $128,800 in 2008. Other income was $651,500 in 2006. Other income in 2008 was derived mainly from gains on the sale of fixed assets with the majority being from the sale of land in Beaumont which resulted in a gain of $83,900. Other income in 2007 was derived from a gain of $483,500 from the sale of our building in Baton Rouge offset by a loss of $103,900 on the sale of assets from the closing of our Dallas office.

Net Income

Net Income increased $5.8 million to $18.3 million in 2008 as compared to $12.5 million in 2007, increasing, as a percentage of total revenue, from 3.4% in 2007 to 3.7% in 2008. Net Income increased $16.0 million to $12.5 million in 2007 as compared to $(3.5) million in 2006, increasing, as a percentage of total revenue, from (1.2)% in 2006 to 3.4% in 2007.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

2008 Compared to 2007 and 2007 Compared to 2006

Engineering Segment:
Twelve Months Ended December 31,
---------------------------------------------------------------------------
2008 2007 2006
--------------------- ---------------------- ------------------------
(dollars in thousands)
---------------------------------------------------------------------------

Gross revenue $ 252,711 $ 221,802 $ 215,444
Less intercompany revenue (1,009) (15) (138)
------------- ------------- -------------
Total revenue:
Detail-design 168,079 66.8% 132,210 59.6% 111,503 51.8%
Field services 50,647 20.1% 56,379 25.4% 53,921 25.0%
Procurement services 30,038 11.9% 16,011 7.2% 19,271 9.0%
Fixed-price 2,938 1.2% 17,187 7.8% 30,611 14.2%
------------- ------------- -------------
Total revenue: $ 251,702 100.0% $ 221,787 100.0% $ 215,306 100.0%

Gross profit: $ 38,869 15.4% $ 39,966 18.0% $ 15,661 7.3%

Operating SG&A expense: $ 7,083 2.8% $ 11,665 5.3% $ 9,466 4.4%
------------- ------------- -------------

Operating income: $ 31,786 12.6% $ 28,301 12.8% $ 6,195 2.9%

Revenue
-------

Engineering revenue accounted for 51.0% of our total revenue for the year,
increasing $29.9 million from $221.8 million in 2007 to $251.7 million in 2008.
During 2007, revenue increased $6.5 million from $215.3 million in 2006.

The increase in engineering revenue was primarily brought about by increased
midstream and downstream capital spending in the energy industry. Refining
related activity in 2008 was particularly strong, including projects to satisfy
environmental mandates, expand existing facilities and utilize heavier sour
crude. Capital spending in the pipeline area also trended higher, with numerous
projects in North America currently underway to deliver crude oil, natural gas,
petrochemicals and refined products. Renewable energy appears to be an emerging
area of activity and potential growth, with the Company currently performing a
variety of services primarily on biomass related facilities. The Engineering
segment's estimated backlog at December 31, 2008 was $113.5 million.

Our detail design services proved strong with revenues increasing 27.2%, or
$35.9 million, from $132.2 million in 2007 to $168.1 million in 2008. This
increase was mainly due to a refinery rebuild project. In 2007, these services
increased 18.6%, or $20.7 million, from $111.5 million in 2006. As a percent of
total engineering revenue, detail design revenue increased 7.2% to 66.8% in 2008
from 59.6% in 2007 and increased 7.8% in 2007 from 51.8% in 2006.

Our field services revenues decreased 10.3%, or $5.8 million, from $56.4 million
in 2007 to $50.6 million in 2008 due to a general decrease in demand from our
existing customers for in-plant resources. In 2007, field services revenue
increased 4.6%, or $2.5 million, from $53.9 million in 2006. This was due to an
increased demand from our existing customers for in-plant resources. As a
percent of total engineering revenue, field services revenue decreased 5.3% to
20.1% in 2008 from 25.4% in 2007 and increased 0.4% in 2007 from 25.0% in 2006.

Revenue from procurement services increased 87.5%, or $14.0 million, from $16.0
million in 2007 to $30.0 million in 2008. In 2007, these services decreased
17.1%, or $3.3 million, from $19.3 million in 2006. The significant increase

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)

in 2008 is primarily related to a large project to rebuild a client facility
which has been completed. The decrease in 2007 was due to the completion of the
two EPC projects. As a percent of total engineering revenue, procurement
services revenue increased 4.7% to 11.9% in 2008 from 7.2% in 2007 and decreased
1.8% in 2007 from 9.0% in 2006. The level of procurement services varies over
time depending on the volume of procurement activity our customers choose to do
themselves as opposed to using our services.

Fixed-price revenues decreased 83.1%, or $14.3 million, from $17.2 million in
2007 to $2.9 million in 2008. There was a decrease in 2007 of 43.8%, or $13.4
million, from $30.6 million in 2006. As a percent of total engineering revenue,
fixed-price revenue decreased 6.6% to 1.2% in 2008 from 7.8% in 2007, and in
2007 it decreased 6.4% from 14.2% in 2006. This decrease was the result of the
Company's decision to be very selective in the fixed-price contracts it
undertakes due to the risk of loss if the contract costs are not estimated
accurately.

Gross Profit
------------

Our Engineering segment's total gross profit decreased $1.1 million, or 2.8%,
from $40.0 million in 2007 to $38.9 million in 2008. As a percentage of total
gross profit, the Engineering segment's gross profit decreased from 18.0% to
15.4% during the same period. The decrease in total gross profit percentages was
due to the increase in low margin procurement services revenue from $16.0
million to $30.0 million. Total gross profit in 2007 increased $24.3 million, or
155.2%, from $15.7 million in 2006 due to the completion of the two EPC loss
projects.

In 2006, the Company shifted a portion of its services to developer-type work
for customers that are typically smaller than its historical customer base,
including SLE. The viability of these projects and the creditworthiness of these
types of customers must be carefully analyzed to assure profitable results. In
the future, the Company intends to analyze these projects on a more
comprehensive basis before accepting them. However, the Company believes that
some of its customers may begin to require contracts on a fixed-price basis.

The Company has also engaged in a number of entrepreneurial ventures over the
past several years, not all of which have been profitable. In the future, the
Company intends to scrutinize these projects much more carefully before engaging
in them and exit them more quickly if they are not successful. During 2007, one
of those ventures was discontinued in March with the closing of our Dallas
office as the location did not provide the intended benefits.

We earn a lower margin on procurement services than we earn on our core
engineering services. For example, procurement services for 2008 produced a 7.6%
gross profit margin, whereas core engineering services produced a gross profit
margin of 16.7%. If the Company's business shifts away from predominantly
engineering projects to EPC projects which include material procurement and
construction responsibility, engineering gross profit as a percentage of revenue
will be negatively impacted. This shift would precipitate lower gross profit
because higher cost-plus margins on engineering labor, recognized during the
period in which it was earned, would be combined with the lower margins on
procurement services and construction subcontractor charges and recorded
throughout the duration of the projects. In addition, if our business shifts
more to fixed price work, our risk assessment and project management tools will
be critical to our continued successful operations.

Operating Selling, General and Administrative ("SG&A") Expenses
---------------------------------------------------------------

Our Engineering segment's SG&A expenses decreased $4.6 million, or 39.3%, from
$11.7 million in 2007 to $7.1 million in 2008. In 2007, the Engineering
segment's SG&A expenses increased $2.2 million, or 23.2%, from $9.5 million in
2006. As a percent of revenue, SG&A decreased 2.5% from 5.3% in 2007 to 2.8% in
2008, and it increased 0.9% in 2007 from 4.4% in 2006.

The Engineering segment's SG&A expenses decreased $3.1 million in 2008 from 2007
as a result of decreases for bad debt expense almost entirely related to the
creation of the reserve against the SLE notes receivable in 2007. Also,
amortization and depreciation decreased $0.3 million, while salaries and related
employee expenses decreased $1.2 million.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)

The Engineering segment's SG&A expenses increased $4.7 million in 2007 over 2006
as a result of increases for bad debt expense. Of this increase, $4.0 million
was related to creation of the reserve against the SLE notes receivable, while
the remainder comprised general increases to the allowance for doubtful
accounts. To offset these increases, facilities and office expenses decreased by
$1.2 million due to the closing of the Dallas office in March 2007. Also,
salaries and employee expenses decreased by $0.9 million as a result of the
reclassification of some employees from overhead to direct expense positions.
Additional savings were recognized as a result of the reduction in stock
compensation expense and professional services.

Operating Profit
----------------

Operating profit increased $3.5 million to $31.8 million in 2008 as compared to
$28.3 million in 2007, which increased $22.1 million from $6.2 million in 2006.
As a percentage of total revenue, operating profit remained relatively stable at
12.6% in 2008 compared to 12.8% in 2007, but increased significantly from 2.9%
in 2006.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Construction Segment:
Twelve Months Ended December 31,
--------------------------------------------------------------------
2008 2007 2006
---------------------- -------------------- -------------------
(dollars in thousands)
--------------------------------------------------------------------

Gross revenue $ 147,714 $ 86,811 $ 37,083
Less intercompany revenue (8,354) (13,601) (955)
------------- ----------- -----------
Total revenue:
Pipeline 125,731 90.2% 60,430 82.5% 28,987 80.2%
Non-pipeline 13,629 9.8% 12,780 17.5% 7,141 19.8%
------------- ----------- -----------
Total revenue: $ 139,360 100.0% $ 73,210 100.0% $ 36,128 100.0%

Gross profit: $ 10,452 7.5% $ 9,724 13.3% $ 3,725 10.3%

Operating SG&A expense: $ 2,993 2.1% $ 2,591 3.5% $ 2,146 5.9%
------------- ----------- -----------

Operating income: $ 7,459 5.4% $ 7,133 9.7% $ 1,579 4.4%

Revenue
-------

The Construction segment contributed 28.3% of our total revenue for 2008, as its
revenue increased $66.2 million, or 90.4%, from $73.2 million in 2007 to $139.4
million in 2008. The revenue in 2007 for this segment increased 102.8%, or $37.1
million, from $36.1 million in 2006. The Construction segment's estimated
backlog at December 31, 2008 was $128.9 million but the backlog and previously
anticipated growth expected for pipeline and OSHA plant inspections, as well as
plant turnaround and construction management support projects and high-tech
maintenance services, may be negatively impacted by current economic conditions.

Non-pipeline revenue, as a percent of the segment's total revenue, continued to
decline from 19.8% in 2006, to 17.5% in 2007 and 9.8% during 2008. Our
non-pipeline revenue growth increased 6.6% year-over-year from $12.8 million in
2007 to $13.6 million in 2008. Increased capital spending in the pipeline area
in 2008, particularly in inspection services, contributed 90.2% of the segment's
total revenue in 2008 as pipeline revenue has grown 108% year-over-year from
2006 to 2007 and again from 2007 to 2008.

The revenue from this segment comes entirely from field services that are not
typically limited to one project. The Company's past experience with this
activity is that the term of these assignments on average spans multiple
projects and multiple years.

Gross Profit
------------

The Construction segment's gross profit increased $0.8 million, or 8.3%, from
$9.7 million in 2007 to $10.5 million in 2008. In 2007, this segment's gross
profit increased $6.0 million, or 162.7%, from $3.7 million in 2006. As a
percent of revenue, gross profit decreased by 5.8%, from 13.3% in 2007 to 7.5%
in 2008, but it increased 3.0% in 2007 from 10.3% in 2006.

The percentage of gross profit has decreased while revenue has been increasing
significantly due to the changing mix of work being performed in this segment.
The main increase in work has been in pipeline related revenues which typically
carry lower margins than our non-pipeline related revenues.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)

Operating Selling, General and Administrative ("SG&A") Expenses
---------------------------------------------------------------

The Construction segment's SG&A expenses increased $0.4 million, or 15.4%, from
$2.6 million in 2007 to $3.0 million in 2008. In 2007, SG&A expenses increased
$0.4 million, or 19.1%, from $2.1 million in 2006. As a percent of revenue, SG&A
decreased 1.4% from 3.5% in 2007 to 2.1% in 2008, and decreased 2.4% in 2007
from 5.9% in 2006.

The Construction segment's SG&A expenses increased $0.4 million in 2008 over
2007 mainly due to increases in salaries and related employee expenses of
$239,000, amortization and depreciation expense of $128,000 and allowances for
bad debt of $174,000. These increases were offset by savings of $120,000 in
professional services and $24,000 in facilities expense.

The Construction segment's SG&A expenses increased $0.4 million in 2007 over
2006 mainly due to increases in salaries and related employee expenses of
$362,000. Overhead positions were added to accommodate the internal and
acquisition-related growth of this segment. Additionally, facilities expense
increased $75,000 as a result of additional office space leased to house
acquired operations.

Operating Profit
----------------

This segment's operating profit increased $0.4 million to $7.5 million in 2008
from $7.1 million in 2007, and it increased $5.5 million in 2007 from $1.6
million in 2006. As a percentage of total revenue, operating profit decreased to
5.4% in 2008 from 9.7% in 2007, but it increased in 2007 from 4.4% in 2006.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Automation Segment:
Twelve Months Ended December 31,
------------------------------------------------------------------
2008 2007 2006
-------------------- --------------------- --------------------
(dollars in thousands)
------------------------------------------------------------------

Gross revenue $ 60,372 $ 39,115 $ 37,206
Less intercompany revenue (642) (1,349) (2,318)
----------- ----------- -----------
Total revenue:
Fabrication 28,266 47.3% 22,814 60.4% 26,032 74.6%
Non-fabrication 31,464 52.7% 14,952 39.6% 8,856 25.4%
----------- ----------- -----------
Total revenue: $ 59,730 100.0% $ 37,766 100.0% $ 34,888 100.0%

Gross profit: $ 7,485 12.6% $ 3,384 9.0% $ 4,488 12.9%

Operating SG&A expense: $ 3,741 6.3% $ 3,442 9.1% $ 3,909 11.2%
----------- ----------- -----------

Operating income (loss): $ 3,744 6.3% $ (58) (0.2%) $ 579 1.7%

Revenue
-------

The Automation segment contributed 12.1% of our total revenue for the year, as
its revenue increased $21.9 million, or 57.9%, from $37.8 million in 2007 to
$59.7 million in 2008. This segment's revenue also increased 8.3% in 2007, or
$2.9 million, from $34.9 million in 2006. The 2008 revenue increased $8.9
million as a result of the Hurricane Ike rebuilding project. This project is
expected to end during the first quarter of 2009.

The Company began to focus more on automation services beginning in 2005 and
began marketing them more aggressively at that time. Refining-related activity
has been particularly strong, including projects to satisfy environmental
mandates. This, together with the acquisition of Analyzer Technology
International, Inc. ("ATI") in January 2006, has increased the client demand for
turn-key, analytical solutions. Another factor positively affecting the
automation business is that the computer-based distributed control systems
equipment used for facility plant automation becomes technologically obsolete
over time, supporting ongoing replacement. In 2008, this segment expanded its
customer base and geographic reach to include specialty chemicals and pulp and
paper markets with the acquisition of Advanced Control Engineering, LLC in
September. The Automation segment's estimated backlog at December 31, 2008 was
$43.2 million, but the backlog could be negatively impacted by the current and
possible future economic downturn.

Gross Profit
------------

The Automation segment's gross profit increased $4.1 million, or 120.6%, from
$3.4 million in 2007 to $7.5 million in 2008. In 2007, it decreased $1.1
million, or 24.5%, from $4.5 million in 2006. Also, as a percent of revenue,
gross profit increased by 3.6% from 9.0% in 2007 to 12.6% in 2008, but it
decreased 3.9% in 2007 from 12.9% in 2006.

During 2007, the Automation segment expanded into several new regions, resulting
in higher increased costs in relation to revenues. Also during 2007, an
unanticipated shortage of available experienced labor caused an increase in
labor hourly rates of approximately 25%. During that same period, most material
costs unexpectedly increased by approximately 8% to 10%, and the price of copper
wire increased 300%. These increases in labor and material costs adversely
affected project margins on fixed-price projects in 2007.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)

Selling, General and Administrative ("SG&A") Expenses
-----------------------------------------------------

The Automation segment's SG&A expenses increased $0.3 million, or 8.8%, from
$3.4 million in 2007 to $3.7 million in 2008. In 2007, SG&A expenses decreased
$0.5 million, or 12.8%, from $3.9 million in 2006. As a percent of revenue, SG&A
decreased 2.8% from 9.1% in 2007 to 6.3% in 2008, and it decreased 2.1% in 2007
from 11.2% in 2006.

The automation segment's SG&A expenses increased $300,000 in 2008 over 2007,
mainly due to increases in allowances for bad debt of $452,000, facilities
expense of $138,000 and stock compensation expense of $129,000. These increases
were offset by savings in amortization and depreciation expense of $365,000 due
to the goodwill impairment of $432,000 that was taken in 2007. In 2008, $100,000
of amortization was recorded in connection with the intangible assets created
from the acquisition of Advance Control Engineering, LLC. Additional savings of
$61,000 was recognized in professional services.

This segment's SG&A expenses decreased $467,000 in 2007 over 2006, mainly due to
decreases in salaries and related employee expenses of $896,000. Salaries and
expenses for business development personnel were moved to corporate overhead in
July 2006 to be consistent with the reporting of these costs throughout the
Company. The reduction of overhead personnel and the transfer of Automation
segment overhead personnel expense to direct expense also contributed to this
decrease. We also recognized professional services savings of $152,000 and
$85,000 less in bad debt expense in 2007 compared to 2006. Offsetting these
savings, amortization costs increased by $674,000. Of these additional costs,
$432,000 was goodwill impairment.

Operating Profit
----------------

This segment's operating profit increased $3,802,000 to a profit of $3,744,000
. . .