7.	Variable Interest Entities and Equity Method Investment

Variable Interest Entities (“VIE”)

The Company’s majority owned subsidiaries are deemed to be VIEs when, on a stand-alone basis, they lack sufficient capital to finance the activities of the VIE. The Company consolidates investments in VIEs if the Company is the primary beneficiary of the VIE. The Company uses a qualitative approach to determine if the Company is the primary beneficiary of the VIE, which considers factors that indicate the Company has significant influence and control over the activities that most significantly impact the VIE’s economic performance. These factors include representation on the investee’s board of directors, management representation, authority to make decisions, substantive participating rights of the minority shareholders and ownership interest.

As of October 27, 2018 and July 31, 2018, the Company consolidated one majority owned subsidiary that was deemed to be a VIE. The financial position of this VIE as of October 27, 2018 and July 31, 2018 is summarized in the following table.

	October 27, 2018			July 31, 2018
	(in thousands)

Current assets	$	2,580		$	2,359
Noncurrent assets		682			878
Total assets	$	3,262		$	3,237

Current liabilities	$	5,279		$	5,408
Noncurrent liabilities		27			32
Total liabilities		5,306			5,440
Total Ecology and Environment Inc. shareholder’s equity		(937	)		(1,051	)
Noncontrolling interests shareholders’ equity		(1,107	)		(1,152	)
Total shareholders’ equity		(2,044	)		(2,203	)
Total liabilities and shareholders’ equity	$	3,262		$	3,237

Total gross revenue of the consolidated VIE was $2.4 million for the three months ended October 27, 2018 and October 28, 2017. With the exception of restricted cash of $0.2 million and $0.3 million included in noncurrent assets at October 27, 2018 and July 31, 2018, respectively (refer to Note 4), all assets of the VIE were available for the general operations of the VIE.

Equity Method Investment

VIEs for which the Company is not the primary beneficiary, and other investee companies over which the Company does not influence or control the activities that most significantly impact the investee company’s economic performance, are not consolidated and are accounted for under the equity method of accounting. Under the equity method of accounting, an investee company's accounts are not reflected within the Company's consolidated balance sheets and statements of operations. The Company's share of the earnings of the investee company is reported as earnings from equity method investment in the Company's consolidated statements of operations. The Company's carrying value in an equity method investee is reported as equity method investment on the Company's consolidated balance sheets. The Company's carrying value in an equity method investee is reduced by the Company’s share of dividends declared by an investee company.

If the Company's carrying value in an equity method investee company is reduced to zero, no further losses are recorded in the Company's consolidated financial statements unless the Company guaranteed obligations of the investee company or has committed additional funding. When the investee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized.

The Company’s equity method investment in GAC had a carrying value of $2.1 million at October 27, 2018 and July 31, 2018. The Company’s ownership percentage was 55.1% at both dates. The equity method investment in GAC is included within the Company’s South American operating segment. Activity recorded for the Company’s equity method investment during the three months ended October 27, 2018 and October 28, 2017 is summarized in the following table.

	Three Months Ended
	October 27, 2018			October 28, 2017 (Restated)
	(in thousands)
Equity investment carrying value at beginning of period		$	2,058	$	1,464
GAC net income attributable to EEI			60		18
Equity investment carrying value at end of period		$	2,118	$	1,482

GAC’s financial position as of October 27, 2018 and July 31, 2018 is summarized in the following table.

	October 27, 2018		July 31, 2018
	(in thousands)

Current assets	$	5,469	$	5,713
Noncurrent assets		348		501
Total assets	$	5,817	$	6,214

Current liabilities	$	2,113	$	2,620
Noncurrent liabilities		928		593
Total liabilities		3,041		3,213
Total Ecology and Environment Inc. shareholder’s equity		1,658		1,678
Noncontrolling interests shareholders’ equity		1,118		1,323
Total shareholders’ equity		2,776		3,001
Total liabilities and shareholders’ equity	$	5,817	$	6,214

The results of GAC’s operations for the three months ended October 27, 2018 and October 28, 2017 are summarized in the following table.

	Three Months Ended
	October 27, 2018		October 28, 2017
	(in thousands)

Gross revenue	$	2,852	$	2,113
Direct cost of services and subcontract costs		1,974		1,321
Income from operations		157		54
Net income		109		33
Net income attributable to EEI		60		18