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EEI > SEC Filings for EEI > Form 10-Q on 21-Jun-2013All Recent SEC Filings

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Form 10-Q for ECOLOGY & ENVIRONMENT INC


21-Jun-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview

Our loss before income tax provision was less than $0.1 million for the three months ended April 30, 2013, which represented a 100% decrease from our income before income taxes of $0.5 million for the same period in the prior fiscal year. A $3.8 million (11%) decrease in contract revenues was offset by a $3.2 million (9%) decrease in operating expenses during the current quarter.

For the nine months ended April 30, 2013, our income before income tax provision of $4.1 million decreased 3% from income before income taxes of $4.3 million for the same period in the prior fiscal year. A $13.3 million (11%) decrease in contract revenues was offset by a $13.1 million (13%) decrease in operating expenses during the current period.

After considering the age of contract receivables related to certain projects in Asia, non-payment of advanced payments owed to us related to those projects and the lack of any other cash collections to date from the client in Asia, we recorded $0.4 million and $1.5 million of additional allowance for doubtful accounts and contract adjustments during the three months and nine months ended April 30, 2013, respectively.

During January 2013, we received $7.1 million of cash from clients in the Middle East relating to billed receivables from reporting periods prior to fiscal year 2013, resulting in reductions in contract receivables, the allowance for doubtful accounts and contract adjustments and billings in excess of revenue, with corresponding additions to recorded revenue of $2.9 million for the three months ended January 31, 2013 and the nine months ended April 30, 2013. This resulted in a significant positive impact on our liquidity position and on revenues reported during the second quarter and first nine months of 2013.

Liquidity and Capital Resources

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

                                                                 Nine Months Ended April 30,
                                                                    2013               2012
Cash provided by (used in):
Operating activities                                           $    13,236,147     $    307,802
Investing activities                                                (2,223,243 )     (3,947,503 )
Financing activities                                                (9,649,315 )      6,939,246
Effect of exchange rate changes on cash and cash equivalents           127,405         (324,278 )

Net increase in cash and cash equivalents                      $     1,490,994     $  2,975,267

Cash and cash equivalents, by location:
U.S. operations                                                $     6,377,304     $  3,800,520
Foreign operations                                                   5,581,460        7,704,589

Total cash and cash equivalents                                $    11,958,764     $ 11,505,109

For the nine months ended April 30, 2013, cash provided by operations resulted primarily from the following net activity:
Net income (after adjustment for non-cash items) provided $4.6 million of operating cash;

Lower net contract receivables provided $11.0 million of operating cash, which resulted primarily from cash received on outstanding receivables, including $7.1 million of cash received on outstanding receivables in the Middle East; and

Other working capital activity resulted in a net use of $2.4 million of operating cash, due primarily to lower work levels associated with lower revenue and payment of subcontractor invoices as a result of an improved liquidity position at the Parent Company.

Net cash used in investment activities during the nine months ended April 30, 2013 primarily resulted from the following activity:
Purchases of property, building and equipment resulted in a use of $1.6 million of cash; and

Acquisitions of noncontrolling interests in two majority-owned subsidiaries, Walsh Environmental Scientists & Engineers, LLC ("Walsh") and Gustavson Associates, LLC ("Gustavson") resulted in a use of $0.6 million of cash.

Net cash used in financing activities during the nine months ended April 30, 2013 primarily resulted from the following activity:
Net repayment of borrowings against our lines of credit of $5.5 million, which was made possible by the receipt of cash on outstanding receivables in the Middle East;

Repayments of debt and capital lease obligations of $0.7 million,

Dividend payments to common shareholders of $2.0 million; and

Distributions to non-controlling interests of $1.3 million.

Page 16 of 26

We have sufficient funds available from cash and available lines of credit in the domestic companies to fund our U. S. operations. Our foreign subsidiaries generate adequate cash flow to fund their operations. We intend to reinvest foreign cash balances, net of any dividends paid from our foreign subsidiaries from time to time, into opportunities outside the U.S. If the foreign cash and cash equivalents were needed to fund domestic operations, we would be required to accrue and pay taxes on any amounts repatriated.

The Company maintains unsecured lines of credit available for working capital and letters of credit. Contractual interest rates ranged from 2.5% to 4.25% at April 30, 2013 and 2.5% to 5% at July 31, 2012. The Company's lenders have reaffirmed the lines of credit within the past twelve months. Our lines of credit are summarized in the following table.

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