EEI 2017 Form 10-K

Table of Contents Fiscal year 2017 revenues from our Brazilian operations increased 55% from the prior year, mainly due to increased project activity in the energy transmission sector. An economic downturn that adversely affected our Brazilian operations during recent fiscal years appears to have stabilized, resulting in additional business development opportunities for E&E Brasil. Fiscal year 2017 revenues from our Peruvian operations decreased 35% from the prior year, due to lower project activity within the energy sector. Global economic trends in oil, gas and commodity prices continued to have a severe negative impact on revenues from energy and mining sectors in Peru. EEI management continues to work closely with management in Brazil and Peru to implement business development strategies that are responsive to current economic conditions while also reducing operating costs and improving operating efficiency. Fiscal year 2017 revenues from our Chilean operations decreased 5% from the prior year, due to reduced levels of work on power generation and transmission projects. Government and private investments in mining projects in Chile have steadily decreased since 2013, which has had a stifling effect on business development opportunities in the mining sector. Fiscal Year 2016 Versus 2015 Fiscal year 2016 revenues from EEI and its U.S. subsidiaries decreased 5% from the prior year. As described earlier in this Annual Report, EEI sold its investment in a majority owned Kentucky-based subsidiary in October 2015, which led to a $1.8 million reduction in revenue during fiscal year 2016. A lower selling rate per hour of service provided to our clients also contributed to lower revenue during fiscal year 2016, as EEI experienced a distinct shift of direct labor hours from commercial projects for which selling rates are openly negotiated from project to project, to government projects for which selling rates tend to be lower than commercial rates. In addition, competitive pricing pressure continues to have a negative impact on revenues for many of EEI’s market sectors. Global economic factors, such a depressed oil and commodities prices, had a negative impact on our Peruvian operations during fiscal year 2016. Fiscal year 2016 revenues from our Peruvian operations decreased 59% due mainly to significantly reduced energy sector sales volume, as mining projects completed during fiscal year 2015 and early in fiscal year 2016 were not renewed or replaced. Peruvian results were also negatively impacted by a 10% decline in the average exchange rate for the Peruvian Sol in relation to the U.S. dollar. Fiscal year 2016 revenues from our Chilean operations increased 7% from the prior year, as higher transmission and renewable energy sector revenues were partially offset by a 12% decline in the average exchange rate for the Chilean Peso in relation to the U.S. dollar. A broad economic downturn in Brazil had a negative impact on our Brazilian operations and earnings in fiscal year 2016. Fiscal year 2016 revenues from our Brazilian operations decreased 42% from the prior year, mainly due to generally lower energy transmission sector revenues and a 31% decline in the average exchange rate for the Brazilian Real in relation to the U.S. dollar. Direct Operating Expenses The cost of professional services and other direct operating expenses represents labor and other direct costs of providing services to our clients under our project agreements. We refer to these expenses as “direct operating expenses.” These costs, and fluctuations in these costs, generally correlate directly with related project work volumes and revenues. Direct operating expenses, by business entity, are summarized in the following table. Fiscal Year Ended July 31, 2017 2016 2015 (in thousands) EEI and its subsidiaries located in the U.S. $ 29,579 $ 30,363 $ 32,278 Subsidiaries located in South America: Walsh Peru 1,405 2,829 6,921 GAC 2,837 2,739 3,820 E&E Brasil 4,361 2,772 4,037 Other 152 209 436 8,755 8,549 15,214 Other foreign subsidiaries --- --- 8 Total direct operating expenses $ 38,334 $ 38,912 $ 47,500 22