Green Tech Must First Make Economic Sense

Ecology and Environment
thrives by going green

By Roy Orrico
Water Investment Newsletter

If water is the gold of the 21st century then it will have a green tinge to it. Ecology and Environment, Inc (Nasdaq: EEI), for instance, is a broadly based environmental consulting firm that offers an array of services for wind, solar, geothermal, pipeline, electric transmissions, power generation, gasification, offshore energy, environmental restoration and water resources planning.

        Because of challenges with water supply, water quality, and watershed management as related to communities, many cities must meet these water related challenges to solve future needs. EEI's project teams design groundbreaking, sustainable solutions for these community problems.
        Ecology and Environment, Inc. was established in 1970 by Ronald. L. Frank, Gerhard J. Neumaier, Frank B. Silvestro, and Gerald A. Strobel. The company gained recognition mostly for its ecological restoration projects. "Our company was one of the first in the world to provide green jobs starting back in 1970," said Kevin Neumaier, president and CEO in a company release. He added, "We are providing a variety of solutions to climate change and other environmental issues. We feel we are well positioned to address the environmental priorities of the new Obama administration and the world."
       Going into the calendar year Ecology and Environment seemed well poised financially as well. Revenues for the first quarter of fiscal year 2009, reported in December, were up $8.1 million to $33.7 million, up 32 percent from the $25.6 million reported for the same quarter in the preceding year as demand its environmental services increased. With the revenue growth, profitability improved substantially. Net income for the 1Q2009 increased $1.0 million compared with 1Q2008 to $1.5 million or $.36 per share, compared to net income of $.5 million or $.12 per share in 1Q2008, an increase of 300 percent.
       "We are seeing competing forces at play in our markets," remarked Neumaier. "While the financial crisis has some negative impact on us, energy independence and the green movement are having an overwhelmingly positive impact."
       EEI believes its conservative capital structure with low debt financing "continues to be prudent during these times of economic crisis." The company lists book value of $39.3 million ($9.30 per share), cash and equivalents of $14.2 million, low debt of $1.9 million, and a line of credit of $38 million.
       EEI announced in October 2008 increased revenues of 17 percent and higher 4Q2008 earnings of $.26 per share compared to $.18 per share cumulative for the first three quarters of fiscal year 2008. The improvement in 4Q operations brought annual earnings to $.44 per share on revenues of $110 million compared to earnings of $.73 per share on revenues of $102 million for the previous year. The majority of the decrease in annual earnings is attributable to a Financial Accounting Standards Board Interpretation No. 48 (FIN 48) expense of $.15 per share in fiscal year 2008, and the recording of gains from the sale of the company's shrimp farm operation and the positive resolution of tax audits in fiscal year 2007 totaling $.26 per share. Excluding these items, earnings for all of fiscal year 2008 increased 25 percent to $.59 per share from $.47 per share in fiscal year 2007. The company reported an increase of $8.0 million in revenue during fiscal year 2008.
       Previously, EEI announced it had increased its dividend to $.19 for the 13th time since going public in 1987. "For E&E, operating as a sustainable business means that we look to the long term. We do this in how we pursue environmental solutions around the world, and in everything we do. We believe that strong financials are an important part of our strategy," explained Neumaier.
       The company also repurchased 207,941 of its Class A common stock shares, the majority of which were purchased from Tontine Associates during the first quarter of fiscal year 2009, which is accretive to earnings per share.
       E&E projects comprise pollution prevention, brownfield and alternative energy development, wetlands protection and land banking, environmental forensics, aquaculture development, litigation support, and antiterrorist environmental program support. Its services related to toxic, hazardous, nuclear and solid waste disposal management include: underground storage tank (UST) programs; remedial engineering design and project management; oil and chemical spill prevention and emergency response. E&E also provides government and corporate client professional support related to homeland protection. These include chemical, biological, and nuclear threat evaluation and countermeasure preparedness planning; counterterrorist training; emergency response; and event recovery support.
       Aging infrastructure threatens the dependability of water supply, flood protection, and stormwater management in many communities across the United States. EEI designs solutions to meet the unique, site-specific needs of each client such as a power-generating facility water-availability analysis in Colorado where the company analyzed different water cooling methods to develop several approaches for using less water at coal-burning power plants; and a flood event hydrologic/hydraulic analysis in New Mexico using software to simulate a specific flood event. EEI also coordinated and developed a flood-control structure design in Florida, in which the company provided engineering services in the areas of water supply conservation/development, water quality protection/improvement, mitigation of flood and drought impacts, and natural resource preservation/restoration throughout Florida's 16 counties from Orlando through the Florida Keys.
       The company views drinking water, wastewater, flood control, and watershed protection not as disconnected parts but as a solitary system. For example, EEI projects include:

Port investment and planning study for New York and New Jersey, where the company evaluated all identified development alternatives with regard to biological and wetland issues.
National water quality plan in Morocco involving comprehensive watershed planning services to develop technical and institutional controls.
Nationwide green marina program. Here in the U.S., that provides guidance to the owners/operators of shore- and water-based recreational facilities to comply with existing federal and local requirements.
A water conservation/reuse study in Florida that integrates water conservation and reuse strategies to reduce the future peak demand for new water supply sources.
E&E also conceives and designs environmental restoration projects that return the functions of the affected development.
Projects in this field include:
A creek stream restoration program in western New York, which includes enhancement of 2,000 feet and reconstruction of approximately 1,100 feet of degraded stream resulting from highway construction.
A landfill redevelopment that transformed a contaminated Brownfield site in River Point Colorado, into a thriving, 130-acre retail and entertainment district.
A stream restoration in West Virginia that involves permits for up to 30 mine sites.
Hurricane-related wildlife refuge cleanups in Louisiana involving planning for treatment of refuges where Hurricanes Katrina and Rita caused extensive damage.
A stream bank and habitat restoration in New York where EEI designed and implemented an innovative solution for water supply, flood control, and habitat preservation in the Great Lakes watershed.
In May 2008, the EPA awarded the company a second START contract to provide technical support in a region covering the four-state area of California, Nevada, Arizona, Hawaii, and U.S. territories in the Pacific. The contract has a two-year base period and two 18-month option periods. With all option years and access to an increased capacity pool to support the Agency in the event of an incident of national significance, the maximum value of the contract is $64 million over the five-year period. As of July 31, 2008, the company has recognized revenue of approximately $358,000 under this contract.

       In addition, EEI has provided the pipeline industry with environmental support for almost 35 years. The company's experience includes route selection; field support and survey, such as wetland delineation and endangered species surveys; regulatory compliance and permit support, including preparation of erosion control plans for submission to state agencies. Some of E&E's traditional environmental services include environmental audits; environmental impact assessments; geographic information systems (GIS) and data management; infrastructure planning; and terrestrial, aquatic and marine surveys. In addition, the company provides expertise in air quality management and pollution control; water supply and pollution control; public and occupational health; industrial hygiene; archaeology and cultural resources; and noise reduction. E&E analytical services include air, water and groundwater monitoring; chemical testing; and bioassays.
       The need to integrate environmental and social considerations into the planning, design, construction, and operation of offshore energy infrastructure is vital, the company says, bearing in mind the expanding use of marine locations for energy production/transportation, and the impacts on critical resources such as marine mammals, commercial and recreational fisheries, seafood safety, water quality, and other recreational uses. EEI supports projects involving oil and gas exploration and production; subsea pipelines; deepwater oil ports; liquefied natural gas (LNG) import terminals; and, most recently, projects involving components of offshore wind, wave, current, and tidal power subsea electrical transmission.
       The company offers a broad range of environmental consulting services: planning, management, and regulatory compliance support; environmental and pollution control engineering; homeland protection; and analytical laboratory services, hydrologists, and other physical scientists; environmental and urban planners.
       EEI employs specialists in more than 85 disciplines in the physical, biological, social and health sciences and engineering fields. They have completed more than 35,000 environment projects in 83 countries.
       Editor's Note: Roy Urrico is a contributing editor to the Water Investment Newsletter, 230 Main St., Halstead, KS 67056, 1 year, 12 issues, by E-mail, $247. WIN is a newsletter on water stocks and investments. For more information or to sign up for the FREE weekly newsletter go to www.uswaternews.com.