Income Taxes

12 Months Ended

Jul. 31, 2012

Income Taxes [Abstract]

Income Taxes

Income (loss) from continuing operations before provision (benefit) for income taxes and noncontrolling interest was as follows:

	2012			2011		2010
Domestic	$	(993,959	)	$	7,212,154	$	3,216,835
Foreign		5,391,625			5,543,017		7,242,054
		4,397,666			12,755,171		10,458,889

The provision (benefit) for income taxes for the years ended July 31 was as follows:

	2012			2011			2010
Current:
Federal	$	(175,203	)	$	3,014,130		$	1,381,857
State		(232,800	)		786,651			411,636
Foreign		1,652,202			1,740868			1,636,274
		1,244,199			5,541,649			3,429,767
Deferred:
Federal		509,161			(409,268	)		262,326
State		(35,273	)		(91,656	)		77,151
Foreign		(360,171	)		(409,489	)		132,978
		113,717			(910,413	)		472,455
	$	1,357,916		$	4,631,236		$	3,902,222

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A reconciliation of income tax expense (benefit) using the statutory U.S. income tax rate compared with actual income tax expense (benefit) for the years ended July 31 was as follows:

	2012	2011	2010
U.S. federal statutory income tax rate	34.0%	34.0%	34.0%
Income from "pass-through" entities taxable to noncontrolling partners	(5.8%)	(2.3%)	(1.3%)
International rate differences	(7.5%)	(2.1%)	(2.4%)
Other foreign taxes, net of federal benefit	4.8%	0.9%	1.7%
Foreign dividend income	7.5%	3.3%	1.9%
Domestic manufacturing deduction	---	(1.8%)	(0.3%)
State taxes, net of federal benefit	0.3%	3.4%	3.5%
Re-evaluation and settlements of tax contingencies	(4.1%)	---	(0.9%)
Other permanent differences	1.7%	0.9%	1.1%
Total	30.9%	36.3%	37.3%

The significant components of deferred tax assets (liabilities) as of July 31 are as follows:

	2012						2011
	Current			Noncurrent			Current			Noncurrent
Contract and other reserves	$	4,004,631		$	---		$	3,561,551		$	---
Fixed assets and intangibles		---			(579,932	)		---			159,452
Accrued compensation and expenses		1,267,004			531,386			1,537,003			381,767
Net operating loss carryforwards		---			555,437			---			282,885
Foreign and state income taxes		---			65,274			---			117,122
Federal benefit on state deferred taxes		(192,927	)		(41,259	)		(188,199	)		(33,383	)
Foreign tax credit		---			295,674			---			346,469
Valuation Allowance		(258,831	)		(61,406	)		(267,371	)		(79,098	)
Other		(20,153	)		95,325			306,384			124,967
Net deferred tax assets	$	4,799,724		$	860,499		$	4,949,368		$	1,300,181
Other	$	---		$	(423,324	)	$	---		$	(525,106	)
Net deferred tax liabilities	$	---		$	(423,324	)	$	---		$	(525,106	)

The FASB ASC Topic Income Taxes 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 taken in a tax return by defining a “more-likely-than-not” threshold regarding the sustainability of the position. The first step involves assessing whether the tax position is more likely than not to be sustained upon examination based on the technical merits. The second step involves measurement of the amount to recognize. Tax positions that meet the more likely then not threshold are measured at the largest amount of tax benefit greater than 50% likely of being realized upon ultimate finalization with tax authorities.  

For fiscal years 2012 and 2011, there was no one item that significantly impacted the change in the deferred tax assets and liabilities. A valuation allowance of approximately $320,000 has been established primarily on excess foreign tax credit carryforwards, the utilization of which is dependent on future foreign source income.

The Company has not recorded income taxes applicable to undistributed earnings of all foreign subsidiaries that are indefinitely reinvested in those operations. At July 31, 2012, these amounts totaling approximately $6.6 million related primarily to operations in Saudi Arabia, Chile, Peru and Ecuador. 

The Company files numerous consolidated and separate income tax returns in the U.S. federal jurisdiction and in many state and foreign jurisdictions. In fiscal year 2010, the Internal Revenue Service (IRS) completed the audit for fiscal year 2008 with no proposed changes. In fiscal year 2011, the IRS completed the audit for fiscal year 2009 with no proposed changes. In

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October 2012, the IRS completed an examination of the fiscal year 2010 income tax return, which was settled without material adjustment.  The Company’s tax matters for the fiscal years 2011 and 2012 remain subject to examination by the IRS. In fiscal year 2012, the Company was audited by New York State for fiscal years 2008 through 2010 and this examination has been completed with no changes.  The Company’s tax matters in other material jurisdictions remain subject to examination by the respective state, local, and foreign tax jurisdiction authorities. No waivers have been executed that would extend the period subject to examination beyond the period prescribed by statute.

For the year ended July 31, 2012, the Company has generated approximately $0.2 million of net operating losses in the U.S.  These net operating losses will be carried back to an earlier year and be fully utilized.  Net operating losses still exist pertaining to operations in Brazil, Canada and China.

At July 31, 2012 and 2011, the Company had approximately $131,000 and $531,000, respectively, of gross unrecognized tax benefits (UTPs) that if realized, would favorably affect the effective income tax rate in future periods. It is reasonably possible that the liability associated with UTPs will increase or decrease within the next twelve months. At this time, an estimate of the range of the reasonably possible outcomes cannot be made. At July 31, 2012 and 2011, the liability for UTPs and associated interest and penalties are all classified as noncurrent liabilities.  For fiscal year ended July 31, 2012 and 2011, E & E recognized interest and penalties expense of approximately $68,000 and $44,000, respectively.  At July 31, 2012, the Company has accrued $86,000 for interest and penalties on remaining uncertain tax positions.

A reconciliation of the beginning and ending amount of UTPs as of July 31 is as follows:

	2012			2011
Beginning balance	$	530,500		$	240,900
Additions for tax positions during the current year		---			280,700
Additions for tax positions of prior years		23,100			40,300
Reductions for tax positions of prior years for:
- Changes in judgment		---			---
- Settlements during the period		(422,300	)		(31,400	)
- Changes in non-controlling interests		---			---
- Lapses of the applicable statute of limitations		---			---
Ending balance	$	131,300		$	530,500