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EEI > SEC Filings for EEI > Form 10-Q on 16-Dec-2013All Recent SEC Filings

Show all filings for ECOLOGY & ENVIRONMENT INC



Quarterly Report

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

References in this Quarterly Report on Form 10-Q (the "Quarterly Report") to "EEI" refer to Ecology and Environment, Inc., a New York corporation. References to "the Company," "we," "us," "our," or similar terms refer to EEI together with its consolidated subsidiaries.

Executive Overview

Our income before income tax provision increased $0.2 million (18%), as compared with the same period in the previous fiscal year, to $1.1 million for the quarter ended October 31, 2013. Revenue less subcontract costs, which is a key performance measurement for our business, decreased $2.5 million (8%) for the first quarter of fiscal year 2014, due mainly to lower project work volumes in energy and mining sectors within our domestic and certain of our foreign markets.

In November 2013, after an extensive assessment process, management decided to abandon its existing operating and financial software system and migrate to new system software. The Company plans to acquire and develop the new software during fiscal year 2014, with a target go-live date of August 1, 2014. The Company will continue to utilize the current software system until the new system go-live date, at which time the current system will be abandoned. Unamortized software development costs for the current system of $2.7 million as of July 31, 2013 will be completely amortized by July 31, 2014. Depreciation and amortization expense increased $0.6 million (81%) during the first quarter of 2014 as a result of accelerated amortization of our existing software system.

Lower revenue less subcontract costs and higher depreciation and amortization expense were more than offset by:

lower professional service costs and other direct project expenses as a result of lower project work volumes and other managed reductions in technical staff levels; and

lower indirect expenses, due primarily to managed reductions of staff levels in various administrative, marketing and other indirect departments.

Liquidity and Capital Resources

Cash generated from operations was $1.5 million, which was more than adequate to fund investing and financing activities required to maintain our operations. Cash and cash equivalents decreased $0.1 million during the first quarter of 2014, primarily due to $1.0 million in dividend payments paid to shareholders during the quarter, which were approved on a discretionary basis in July 2013 by the Board of Directors. The Company reduced its outstanding lines of credit by less than $0.1 million during the current quarter, as compared with $2.2 million of net draws on lines of credit during the same period in the prior year.

We believe that cash flows from U.S. operations, available cash and cash equivalent balances in our domestic subsidiaries and remaining amounts available under lines of credit will be sufficient to cover working capital requirements of our U.S. operations during the next twelve months and the foreseeable future.

Our foreign subsidiaries 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.

We maintain unsecured lines of credit available for working capital and letters of credit. Contractual interest rates ranged from 2.5% to 5% at October 31, 2013 and July 31, 2013. Our lenders have reaffirmed the lines of credit within the past twelve months. Our lines of credit are summarized in the following table.

                                                                           Balance at
                                                               October 31, 2013      July 31, 2013

Outstanding cash draws, recorded as lines of credit on the
accompanying condensed consolidated balance sheets              $       6,500,000      $  6,528,691
Outstanding letters of credit to support operations                     2,872,632         3,080,938
Total amounts used under lines of credit                                9,372,632         9,609,629
Remaining amounts available under lines of credit                      24,996,368        24,759,371
Total approved unsecured lines of credit                        $      34,369,000      $ 34,369,000

Page 16 of 25

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

                                                   Three Months Ended October 31,
                                                      2013                 2012
  Cash provided by (used in):
  Operating activities                           $     1,506,776       $   1,871,287
  Investing activities                                  (938,642 )        (2,789,756 )
  Financing activities                                  (682,203 )           507,957
  Effect of exchange rate changes on cash and
  cash equivalents                                        34,078              64,322
  Net (decrease) increase in cash and cash
  equivalents                                    $       (79,991 )     $    (346,190 )

  Cash and cash equivalents, by location:
  U.S. operations                                $     6,669,621       $   5,790,306
  Foreign operations                                   2,695,048           4,331,274
  Total cash and cash equivalents                $     9,364,669       $  10,121,580

For the quarter ended October 31, 2013, cash provided by operations resulted primarily from the following net activity:
Net income (after adjustment for non-cash items) provided $1.9 million of operating cash;

Lower net contract receivables provided $0.7 million of operating cash; and

Other working capital activity resulted in a net use of $1.1 million of operating cash, due primarily to lower work levels associated with lower revenue and to general reductions of current liabilities as a result of an improved liquidity position at the Parent Company.

Net cash used in investment activities during the quarter ended October 31, 2013 resulted from the following significant activity:
Purchases of property, building and equipment resulted in a use of $0.3 million of cash; and

Acquisitions of noncontrolling interests in Walsh Environmental Scientists & Engineers, LLC ("Walsh") by EEI resulted in a $0.6 million use of cash.

Net cash used in financing activities during the quarter ended October 31, 2013 primarily resulted from the following net activity:
Dividend payments to common shareholders resulted in a $1.0 million use of cash;

Net repayment of borrowings against our lines of credit resulted in a use of cash of less than $0.1 million;

Net proceeds from of debt and capital lease obligations provided $0.5 million of cash;

Distributions to non-controlling interests resulted in a use of cash of $0.1 million.

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