Add
EEI to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| EEI > SEC Filings for EEI > Form 10-K on 28-Oct-2009 | All Recent SEC Filings |
28-Oct-2009
Annual Report
Liquidity and Capital Resources
Operating activities provided $9.7 million of cash during fiscal year 2009. This was mainly attributable to the reported $5.2 million in net income and a $4.4 million increase in accounts payable due to the increased work levels throughout the Company during fiscal year 2009. Offsetting these was an increase in other contracts receivables and accrued interest and penalties. Contracts receivable increased $3.9 million during fiscal year 2009 due to the overall growth in revenue throughout the Company. Accrued interest and penalties decreased $1.2 million during fiscal year 2009 due a favorable tax settlement in Kuwait.
Financing activities consumed $5.4 million of cash during fiscal year 2009. The Company paid dividends in the amount of $1.6 million or $.39 per share and repurchased 207,941 shares of the Class A common stock for $1.8 million. Net cash outflow on long-term debt and capital lease obligations was $1.3 million due mainly to the repayment of a $1.0 million loan by the Parent Company's majority owned subsidiary, E&E do Brasil. Distributions to minority partners during fiscal year 2009 were approximately $.6 million.
The Company maintains an unsecured line of credit available for working capital and letters of credit of $19 million at one-half percent below the prevailing prime rate. Other lines are available solely for letters of credit in the amount of $19.6 million. The Brazilian subsidiary in July 2008 borrowed $1 million under a four month term note at 5.19% annualized interest rate. The Brazilian loan was repaid in full in December 2008. The Company guarantees the line of credit of its majority owned subsidiary, Walsh Environmental (Walsh). The banks have reaffirmed the Company's lines of credit within the past twelve months. At July 31, 2009 and July 31, 2008 the Company had letters of credit outstanding totaling approximately $.6 million. Borrowings by the Brazilian subsidiary for working capital were $0 and $1.0 million at July 31, 2009 and July 31, 2008, respectively. After letters of credit and loans, there was $37.9 million of availability under the lines of credit at July 31, 2009. At July 31, 2009 there were no borrowings for working capital against the lines of credit. The Company believes that cash flows from operations and borrowings against the lines of credit will be sufficient to cover all working capital requirements for at least the next twelve months and the foreseeable future.
Results of Operations
Revenue
Fiscal Year 2009 vs 2008
Revenue for fiscal year 2009 was $146.9 million, an increase of $36.4 million or 33% from the $110.5 million reported in fiscal year 2008. The increase in revenue was due mainly to increases in revenue at the Parent Company and by E&E, Inc.'s majority owned subsidiary Walsh in the energy, environmental restoration, asbestos and federal government sectors. Specifically, revenues from Walsh were $45.6 million for fiscal year 2009, an increase of 69% from the $27.0 million reported in fiscal year 2008. The increase in Walsh revenues was mainly attributable to increased activity in the environmental remediation and asbestos markets. Revenues from the Parent Company's federal government sector were $33.4 million for fiscal year 2009, up $12.0 million from the $21.4 million reported in the prior year. The increase in federal government revenues was mainly attributable to increased activity in contracts with the United States Department of Defense (DOD) and Environmental Protection Agency (EPA). Revenues from commercial clients of the Parent Company were $30.0 million for fiscal year 2009, an increase of 42% from the $21.2 million reported in fiscal year 2008. The increase in revenues from commercial clients was mainly attributable to increased activity in the domestic energy market. Offsetting these were decreases in revenue from the Parent Company's international and state markets. Revenue from state clients of the Parent Company was $24.6 million for fiscal year 2009, a decrease of $2.5 million from the $27.1 million reported in fiscal year 2008. State budgets are under pressure and the Company believes its state markets will continue to be impacted until the domestic economy recovers. Revenue from international clients of the Parent Company decreased $1.5 million during fiscal year 2009.
Revenues for the fourth quarter of fiscal year 2009 were $41.1 million, an increase of $7.7 million from the $33.4 million reported in the fourth quarter of the 2008. The increase in revenue was attributable to increased work in the Company's energy, environmental restoration, asbestos and federal government sectors. Walsh reported revenues of $13.2 million for the fourth quarter of fiscal year 2009, an increase of 74% from the $7.6 million reported in the fourth quarter of fiscal year 2008 due to increased activity in the environmental remediation and asbestos markets. Revenues of the Parent Company increased $1.7 million during the fourth quarter of fiscal year 2009 mainly attributable to increased activity in the energy and federal government markets, offset by a decrease in activity in the state market. Revenues from the Parent Company's federal government sector were $8.1 million for the fourth quarter of fiscal year 2009, an increase of 25% from the $6.5 million reported in the prior year. The increase in federal government revenues was mainly attributable to increased activity in contracts with DOD and EPA. Revenue from commercial clients of the Parent Company was $8.6 million for the fourth quarter of fiscal year 2009, an increase of $.7 million from the $7.9 million reported in the fourth quarter of fiscal year 2008. Revenue from state clients of the Parent Company was $6.8 million for the fourth quarter of fiscal year 2009, a decrease of $.6 million from the $7.4 million reported in the fourth quarter of fiscal year 2008.
Fiscal Year 2008 vs 2007
Revenue for fiscal year 2008 was $110.5 million, an increase of $8.0 million or 8% from the $102.5 million reported in fiscal year 2007. The increase in revenue was due mainly to increases in revenue at the Parent Company and by E&E, Inc.'s majority owned subsidiaries Walsh and E&E do Brasil. E&E, Inc.'s revenue increased $2.5 million during fiscal year 2008 from work on contracts in the Company's energy and state sectors offset by decreases in work for the federal government sectors. Revenues from Walsh were $27.0 million for fiscal year 2008, an increase of 11% from the $24.4 million reported in fiscal year 2007. The increase in Walsh revenues was mainly attributable to increased activity in the environmental remediation and asbestos markets. Revenues from E&E do Brasil were $7.2 million for fiscal year 2008, an increase of $2.2 million or 44% over the prior year due mainly to increased work in the public and private power industries. Revenue from commercial clients of the Parent Company was $21.2 million for fiscal year 2008, an increase of $2.8 million from the $18.4 million reported in the prior year. The increase in commercial revenue was attributable to an increase in activity in the domestic energy market. Revenue from state clients of the Parent Company was $27.1 million for fiscal year 2008, an increase of $3.1 million from the $24.0 million reported in fiscal year 2007 due mainly to increases in work in Washington, New York and Texas. Revenue from federal government clients of the Parent Company was $21.4 million during fiscal year 2008, a decrease of 13% from the $24.7 million reported in the prior year. The decrease in federal government revenue was mainly due to decreased activity on DOD contracts.
Revenues for the fourth quarter of fiscal year 2008 increased $5.0 million mainly attributable to increases in revenue at the Parent Company, Walsh and E&E do Brasil. Revenues of the Parent Company increased $3.3 million during the fourth quarter of fiscal year 2008 mainly attributable to increased work on contracts in the Company's energy sector. Walsh reported revenues of $7.6 million for the fourth quarter of fiscal year 2008, an increase of 12% from the $6.8 million reported in the fourth quarter of fiscal year 2007. Revenues from E&E do Brasil were $2.2 million for the fourth quarter of fiscal year 2008, an increase of 38% from the $1.7 million reported in the fourth quarter of the prior year. Revenue from commercial clients of the Parent Company was $7.9 million for the fourth quarter of fiscal year 2008, an increase of $3.6 million from the $4.3 million reported in the fourth quarter of fiscal year 2007. The increase in commercial revenue was attributable to an increase in activity in the domestic energy market.
Income From Continuing Operations Before Income Taxes and Minority Interest
Fiscal Year 2009 vs 2008
The Company's income from continuing operations before income taxes and minority interest was $9.5 million for fiscal year 2009, an increase of $3.9 million from the $5.6 million reported in fiscal year 2008. Gross profits increased $8.5 million during fiscal year 2009 as a result of the increased revenue reported at the Parent Company and Walsh offset by an increase in corporate wide subcontract costs. The gross margin percentage for fiscal year 2009 was 39.8%, down from the 45.3% reported for fiscal year 2008. The decrease in gross margin percentage was attributable to a significant increase in subcontract costs throughout the Company. Subcontract costs were $38.0 million for fiscal year 2009, an increase of 141% from the $15.8 million reported in the prior year. Gross margin as a percentage of revenue less subcontractor revenue and costs increased slightly during fiscal year 2009. The increased gross profits were offset by higher indirect costs in fiscal year 2009. Offsetting the increased revenue was an increase in indirect operating expenses throughout the company due to increased staffing and work levels. Consolidated indirect costs for fiscal year 2009 were $47.4 million, an increase of $4.4 million from the $43.0 million reported in fiscal year 2008. Staffing levels throughout the company increased 16% during fiscal year 2009 as a result of increased manpower needs necessary to accommodate the increase in revenue. The Company reached settlements with Kuwait and the federal government during fiscal year 2009. E&E Inc. settled the Kuwait tax dispute and the related accrual for uncertain tax position charges and reserved the $925,000 balance of receivables on the Middle East contracts which resulted in a net gain of approximately $.25 per share. Additionally, the Company maintains reserves for annual indirect rate adjustments due to FAR and CAS compliance reviews by the federal government which covered fiscal years 1996 through 2004. During the fourth quarter of fiscal year 2009, the Company derecognized reserves of $562,000 ($410,000 after tax) as a result of a settlement with the federal government. The federal government settlement positively impacted the Company's earnings during the fourth quarter of fiscal year 2009 by $.10 per share.
The Company's income from continuing operations before income taxes and minority interest was $2.6 million for the fourth quarter of fiscal year 2009, slightly down from the $2.8 million reported in the fourth quarter of fiscal year 2008. The fourth quarter of 2008 was impacted by a gain on foreign exchange transactions of $360,000. Gross profit increased during the fourth quarter of fiscal year 2009 as a result of increased revenues. The gross margin percentage for the fourth quarter of fiscal year 2009 was 39.7%, down from the 43.8% reported for the fourth quarter of fiscal year 2008. The decrease in gross margin percentage was attributable to a significant increase in subcontract costs throughout the company. Subcontract costs were $11.3 million for fiscal year 2009, up $5.7 million from the $5.6 million reported in the fourth quarter of fiscal year 2008. Gross margin as a percentage of revenue less subcontractor revenue and costs increased slightly during the fourth quarter of fiscal year 2009. Offsetting the increased revenue was an increase in indirect operating expenses throughout the company due to the increased staff and work levels. Consolidated indirect costs for the fourth quarter of fiscal year 2009 were $13.3 million, up 14% from the $11.7 million reported in the fourth quarter of fiscal year 2008. During the fourth quarter of fiscal year 2009, the Company derecognized reserves of $562,000 ($410,000 after tax) as a result of a settlement with the federal government. The federal government settlement positively impacted the Company's earnings during the fourth quarter of fiscal year 2009 by $.10 per share.
Fiscal Year 2008 vs 2007
The Company's income from continuing operations before income taxes and minority interest was $5.6 million for fiscal year 2008, slightly less than the $5.7 million reported in fiscal year 2007. Gross profits increased $4.6 million during fiscal year 2008 as a result of the increased revenue reported at the Parent Company, Walsh and E&E do Brasil in addition to a decrease in corporate wide subcontract costs. The gross margin percentage for fiscal year 2008 was 45.3%, up slightly from the 44.3% reported for fiscal year 2007. The increased gross profits were offset by higher indirect costs in fiscal year 2008. Due to increased staffing levels and business development and proposal costs worldwide, consolidated indirect costs increased $4.2 million in fiscal year 2008. The increase in business development and proposal costs was due to the Company's commitment to invest in significant future opportunities in the alternative and clean technology energy sectors. The Company continues to increase business development costs worldwide to capitalize on the global demands for energy and environmental infrastructure improvements in concert with heightened concerns over global warming. Staffing levels throughout the company increased 12% during fiscal year 2008 as a result of increased manpower needs necessary to accommodate the increase in corporate revenue. During fiscal year 2008, E&E recorded an accrual related to uncertain tax positions taken by the Company of approximately $740,000 or $.15 per share after tax. This accrual included additional interest and penalties of approximately $590,000 ($.12 per share after tax) as well as a foreign exchange loss of $144,000 ($.02 per share after tax) to adjust the tax reserve to current exchange rates. This expense is related to the contested Kuwait taxes.
The Company's income from continuing operations before income taxes and minority interest was $2.8 million for the fourth quarter of fiscal year 2008, up $1.9 million from the $.9 million reported in the fourth quarter of fiscal year 2007. The gross margin percentage for the fourth quarter of fiscal year 2008 was 43.8%, up from the 41.6% reported for the fourth quarter of fiscal year 2007. The increased gross profits were offset by higher indirect costs in the fourth quarter. Consolidated indirect costs increased $1.0 million mainly attributable to the increased revenue at E&E, Inc. and E&E do Brasil as well as increased staffing levels and operational expenses related to the overall business growth throughout the Company. The increase of income from continuing
operations before income taxes and minority interest in the fourth quarter of fiscal year 2008 was mainly due to increased revenues at the Parent Company and E&E do Brasil. Gross profits increased $2.8 million during the fourth quarter of fiscal year 2008 as a result of the increase in revenue.
Discontinued Operations
During the fourth quarter of 2007, due to a continuing deterioration in business and political conditions in Venezuela and the likelihood that E&E's Venezuelan subsidiary would no longer be able to compete for contracts within the country, the Company evaluated its investment in its Venezuelan subsidiary and recognized a write-off of $1.1 million ($146,000 after tax or $.03 per share) to reflect the estimated reduction in the value of the net assets of the Company's Venezuela subsidiary. During the first quarter of 2008, the Company decided to close its subsidiary in Venezuela effective as soon as possible and, accordingly, has reclassified its operations as discontinued. The cessation of business in Venezuela has resulted in termination benefits for employees according to in-country regulations and other charges which have not been significant.
On January 9, 2007 the Company sold its interest in the shrimp farm in Costa Rica to the Roozen Group for $2,500,000 in cash. When the farm was closed in fiscal year 2003, the Company recorded an impairment charge. The previously unrecognized foreign translation loss in the amount of approximately $1.5 million has been accounted for in the computation of the gain on the sale. There was a pretax gain on the sale of the farm of approximately $960,000 after deducting costs of the sale. This gain was included in the accompanying financial statements under discontinued operations.
Income Taxes
In March of 2009, the Company received a tax assessment from the Kuwait Ministry of Finance in the amount of approximately $2.6 million related to the contested taxes resulting from the work performed for the Public Authority for Assessment of Compensation for Damages Resulting from Iraqi Aggression (PAAC). A liability had been previously accrued for this tax including interest and penalties of approximately $4.3 million. The Company reached a favorable settlement with the Ministry of Finance in April 2009. Accordingly, the Company derecognized the remaining accrual of approximately $1.4 million (net of deferred tax) by reducing the income tax provision by $870,000 and reducing interest expense and general and administrative costs each by $275,000.
The estimated effective tax rate for fiscal year 2009 is 27.0%, down from the 38.0% reported for fiscal year 2008. Excluding the favorable settlement in Kuwait, the estimated effective tax rate for fiscal year 2009 is 36.1%.
Critical Accounting Policies and Use of Estimates
Management's discussion and analysis of financial condition and results of operations discuss the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition, allowance for doubtful accounts, income taxes, impairment of long-lived assets and contingencies. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Revenue Recognition
The Company's revenues are derived primarily from the professional and technical services performed by its employees or, in certain cases, by subcontractors engaged to perform on under contracts entered into with our clients. The revenues recognized, therefore, are derived from our ability to charge clients for those services under the contracts.
The Company employs three major types of contracts: "cost-plus contracts," "fixed-price contracts" and "time-and-materials contracts." Within each of the major contract types are variations on the basic contract mechanism. Fixed-price contracts generally present the highest level of financial and performance risk, but often also provide the highest potential financial returns. Cost-plus contracts present a lower risk, but generally provide lower returns and often include more onerous terms and conditions. Time-and-materials contracts generally represent the time spent by our professional staff at stated or negotiated billing rates.
Fixed price contracts are accounted for on the "percentage-of-completion" method, wherein revenue is recognized as project progress occurs. Time and material contracts are accounted for over the period of performance, in proportion to the costs of performance, predominately based on labor hours incurred. If an estimate of costs 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.
The use of the percentage of completion revenue recognition method requires the use of estimates and judgment regarding the project's expected revenues, costs and the extent of progress towards completion. The Company has a history of making reasonably dependable estimates of the extent of progress towards completion, contract revenue and contract completion costs. However, due to uncertainties inherent in the estimation process, it is possible that completion costs may vary from estimates.
Most of our percentage-of-completion projects follow a method which approximates the "cost-to-cost" method of determining the percentage of completion. Under the cost-to-cost method, we make periodic estimates of our progress towards project completion by analyzing costs incurred to date, plus an estimate of the amount of costs that we expect to incur until the completion of the project. Revenue is then calculated on a cumulative basis (project-to-date) as the total contract value multiplied by the current percentage-of-completion. The revenue for the current period is calculated as cumulative revenues less project revenues already recognized. The recognition of revenues and profit is dependent upon the accuracy of a variety of estimates. Such estimates are based on various judgments we make with respect to those factors and are difficult to accurately determine until the project is significantly underway.
For some contracts, using the cost-to-cost method in estimating percentage-of-completion may overstate the progress on the project. For projects where the cost-to-cost method does not appropriately reflect the progress on the projects, we use alternative methods such as actual labor hours, for measuring progress on the project and recognize revenue accordingly. For instance, in a project where a large amount of equipment is purchased or an extensive amount of mobilization is involved, including these costs in calculating the percentage-of-completion may overstate the actual progress on the project. For these types of projects, actual labor hours spent on the project may be a more appropriate measure of the progress on the project.
The Company's contracts with the U.S. government contain provisions requiring compliance with the Federal Acquisition Regulation (FAR), and the Cost Accounting Standards (CAS). These regulations are generally applicable to all of the Company's federal government contracts and are partially or fully incorporated in many local and state agency contracts. They limit the recovery of certain specified indirect costs on contracts subject to the FAR. Cost-plus contracts covered by the FAR provide for upward or downward adjustments if actual recoverable costs differ from the estimate billed. Most of our federal government contracts are subject to termination at the convenience of the client. Contracts typically provide for reimbursement of costs incurred and payment of fees earned through the date of such termination.
The Company maintains reserves for annual indirect rate submittal adjustments due to FAR and CAS compliance reviews by the federal government which covered fiscal years 1996 through 2004. The reserve decreased $562,000 ($410,000 after tax) during the fourth quarter of fiscal year 2009 as a result of a settlement with the federal government. The federal government settlement positively impacted the Company's earnings during the fourth quarter of fiscal year 2009 by $.10 per share.
Federal government contracts are subject to the FAR and some state and local governmental agencies require audits, which are performed for the most part by the Defense Contract Audit Agency (DCAA). The DCAA audits overhead rates, cost proposals, incurred government contract costs, and internal control systems. During the course of its audits, the DCAA may question incurred costs if it believes we have accounted for such costs in a manner inconsistent with the requirements of the FAR or CAS and recommend that our U.S. government financial administrative contracting officer disallow such costs. Historically, we have not experienced significant disallowed costs as a result of such audits. However, we can provide no assurance that such audits will not result in material disallowances of incurred costs in the future.
The Company maintains reserves for cost disallowances on its cost based contracts as a result of government audits. Government audits have been completed and final rates have been negotiated through fiscal year 2001. The Company has estimated its exposure based on completed audits, historical experience and discussions with the government auditors. If these estimates or their related assumptions change, the Company may be required to record additional charges for disallowed costs on its government contracts.
Allowance for Doubtful Accounts and Contract Adjustments
We reduce our accounts receivable and costs and accrued earnings in excess of billings on contracts in process by establishing an allowance for amounts that, in the future, may become uncollectible or unrealizable, respectively. We determine our estimated allowance for uncollectible amounts based on management's judgments regarding our operating performance related to the adequacy of the services performed, the status of change orders and claims, our experience settling change orders and claims and the financial condition of our clients, which may be dependent on the type of client and current economic conditions.
Income Taxes
We use the asset and liability approach for financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances based on our judgments and estimates are established when necessary to reduce deferred tax assets to the amount expected to be realized in future operating results. Management believes that realization of deferred tax assets in excess of the valuation allowance is more likely than not. Our estimates are based on facts and circumstances in
existence as well as interpretations of existing tax regulations and laws applied to the facts and circumstances, with the help of professional tax advisors. Therefore, we estimate and provide for amounts of additional income taxes that may be assessed by the various taxing authorities.
In July of 2006, FASB issued Interpretation No. 48 (FIN 48), an interpretation of SFAS 109. FIN 48 clarifies the accounting for uncertainty in income taxes and reduces the diversity in current practice associated with the financial statement recognition and measurement of a tax position taken or expected to be . . .
|
|