VIA EDGAR
Mr. Rufus Decker
Accounting Branch Chief
Mail Stop 7010
Securities and Exchange Commission
Division of Corporation Finance
100 F St., N. E.
Washington, DC 20549-7010
December 17, 2007
Re: ENGlobal Corporation, Inc. ("ENGlobal" or "the Company")
2006 Annual Report on Form 10-K/A for the Year Ended December 31, 2006
Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2007
Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2007
File No. 1-14217
Dear Mr. Decker:
With respect to the above-captioned filing, we enclose ENGlobal's responses to
the comments by the Staff of the Securities and Exchange Commission set forth in
your comment letter dated September 24, 2007. As requested, our responses are
keyed numerically to the comments received from the Securities and Exchange
Commission.
FORM 10-K/A FOR THE YEAR ENDED DECEMBER 31, 2006
------------------------------------------------
General
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1. "Where a comment below requests additional disclosures or other
revisions to be made, please show us in your supplemental response
what the revisions will look like. With the exception of the comments
below that specifically request an amendment, all other revisions may
be included in your future filings."
In the responses to subsequent comments, ENGlobal will provide the
proposed revisions to the 2006 Annual Report on Form 10-K/A. ENGlobal
will file amendments to the report. ENGlobal will integrate additional
disclosures or other revisions into future filings with the Securities
and Exchange Commission in accordance with our response.
Management's Discussion and Analysis, page 27
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Results of Operations, page 28
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2. We reissue prior comment 2. Your proposed revisions do not appear to
provide sufficient information about the business reasons for changes
between periods in the sales and operating profit (loss) of each of
your segments as well as in your corporate operating profit (loss).
Please revise as necessary. The following are examples of fluctuations
in which there appears to be an insufficient explanation.
The Company acknowledges the Staff's comments and will
incorporate additional detail about business reasons for changes
in each segment in our filing of the Annual Report on Form 10-K
for the year ended December 31, 2007. As to revising portions of
Item 7 for the 2006 10-K/A, our responses to each of the SEC's
examples are included below.
o You state that the acquisition of WRC in the second quarter of
2006, together with your clients' increased demand for in-plant
and inspection services resources, stimulated growth in your
field services division where revenues increased 90.6%, or $50.9
million. Please disclose how much of the $50.9 million increase
was attributable to the acquisition of WRC separately from the
increase attributable due to new projects;
In 2006, the field services division experienced an increase in
revenue of approximately $50.9 million compared to its 2005
revenue. Of this amount, $14.0 million was contributed by the
acquisition of WRC and $36.9 was attributable to new projects.
o Net sales in your systems segment increased 76.1% to $24.9
million in 2006. It appears that this increase is attributable to
a general turnaround in the oil and gas industry and the
acquisition of ATI in January 2006. Please disclose how much of
the increase is attributable to the acquisition of ATI separately
from the amount associated with the turnaround in the oil and gas
industry;
In 2006, net sales in our Systems segment increased $10.8 million
to $24.9 million compared to net sales in 2005. Overall, net
sales in the analyzer portion of the Systems segment increased
$17.8 million; of which $14.0 million was directly related to new
business generated by the acquisition of assets from ATI; only to
be offset by a decrease of $7 million in net sales related to the
RIE (remote instrument enclosures) portion of the business.
o Operating profit in your engineering segment decreased 48% to
$9,084 in 2006 and $18,911 in 2005. You state that the decrease
in 2006 was primarily related to the two EPC projects which had
losses associated with these contracts of $13.7 million. It
remains unclear what caused the remaining offsetting increase of
$3.8 million;
Operating profit in our Engineering segment decreased 48% to $9.1
million in 2006 from $18.9 million in 2005. The decrease of $9.8
million in operating profit primarily resulted from losses of
($13.7) million on the two EPC projects offset by an increase of
$3.9 million related to new projects and growth in general.
o Your explanation of corporate operating losses implies that the
increase in the loss is solely attributable to an increase in the
number of staff. If so, please clarify your disclosure or state
how much of the increase is associated with or due to the change
in the number of staff. Please provide quantified explanations
for the remaining differences.
This increase is attributable to a variety of factors. We added
15 people to the administrative staff and two people to the sales
and business development departments. The associated increase in
salaries, payroll, and stock compensation-related expenses were
approximately $2.4 million in 2006. An additional $0.4 million of
the increase represented expenses incurred to obtain professional
services for the Company's audit, SOX review and tax consulting.
The remaining increase of $0.4 million was a result of costs
incurred in connection with expanded facilities, office expenses,
travel and other miscellaneous items.
Note 2. Summary of Significant Accounting Policies, page 50
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Change Orders, page 53
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3. We note your response to prior comments 3. Please confirm that
you will disclose the information provided in your response
regarding unapproved change orders/claims.
We confirm that we will disclose the information regarding
unapproved change orders/claims in future filings.
Goodwill, page 54
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4. We note your response to prior comment 4. Please address the
following:
In preparing a complete response to the Staff's comments, we have
re-examined the Company's historical impairment testing
methodology. As a result of this re-examination, we determined
that our previous methodology should be revised and expanded.
Therefore, the Company is revising its impairment analysis in a
manner to further incorporate sound valuation principles and the
dictates of SFAS 142.
A portion of our revised impairment analysis for 2006 is included
as Exhibit D to this response. The analysis provided is
specifically for the Systems reporting unit as the concerns
expressed by the Staff previously focused on possible impairment
of that reporting unit only. This analysis concurs with our
original statement that there was no impairment of goodwill at
December 31, 2006 within any reporting unit.
The Company tests goodwill for impairment annually as of December
31. Our impairment testing in all future periods will incorporate
the revisions we have made. As future changes in the Company's
segments are developed, these changes will be reflected as
appropriate in our goodwill analysis.
Principally, the Company made three changes to the impairment
analysis previously provided to the Staff in Response 2, Exhibit
A:
o First, the $978,000 goodwill amount reported for the Systems
reporting unit in Note 18 on page 54 of the Company's 2006
Form 10-K should be revised to reflect the correct amount of
$432,436. The difference consists of $279,000 which should
be removed from goodwill and classified as an intangible
asset for non-compete agreements. Secondly, consistent with
the reclassification of automation and integrated controls
services, $699,000 should be removed from the Systems
reporting unit and reclassified to the Engineering reporting
unit. The revenues and expenses associated with automation
and integrated controls services were reclassified from the
Systems reporting unit to the Engineering reporting unit
during 2006, however, goodwill associated with these
services should also have been reclassified from Systems to
Engineering. Finally, $432,436 of the goodwill resulting
from the merger of PEI and IDS which created ENGlobal
Corporation, Inc. was not allocated to the Systems reporting
unit from prior reports.
o The Company has examined the amounts of corporate
stewardship fees that are allocable to each reporting unit.
These include expenses necessary for the operation of the
reporting unit as an independent entity. This reflects an
adjustment from our past practice of completely omitting the
stewardship fees as we had previously done in the impairment
analysis or completely allocating them as we do for internal
management reporting. Our rationale in making these
allocations is discussed below.
o We revised the way in which we apply market multiples to our
financial results. We have included consideration of the
future profitability of our reporting units and changed the
way in which we select comparable companies. These changes
are also discussed in detail below.
A detailed response to each of the Staff's comments is included
below. We confirm that we have considered these in our revised
impairment analysis and will continue to do so in the future.
o Please provide us with a detail of the assets and
liabilities amounts included under corporate for purposes of
allocating assets and liabilities to reporting units in
Exhibit A. The detail should state the nature of the item
with the corresponding amount. Please help us understand how
you determined each of these amounts should not be assigned
to reporting units. Refer to paragraph 32 of SFAS 142;
Details of the assets and liabilities amounts included under
"corporate" in Response 2, Exhibit A are included below. Except
for goodwill amounts, each of the other amounts have not been
allocated to the reporting units because they are not assets or
liabilities used in the profitable activities of the Company.
Corporate
Current Assets $ 5,305,186
PPE 894,228
Goodwill* 13,015,338
Deferred Financing 77,221
Net Accounts Receivable Affiliates 38
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Total Assets $19,292,012
Due From Affiliates 37,557,133
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Total Net Assets $56,849,144
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Current Liabilities $ 6,531,731
Long Term Payable 25,462,909
Deferred Income Taxes 1,114,224
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Total Liabilities $33,108,864
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*Goodwill was not allocated properly to each of the reporting units in the
impairment analysis previously provided. Instead, it was erroneously included as
corporate. We have corrected this in our revised analysis. We have allocated
$12.7 million to the Engineering reporting unit and $0.4 million to the Systems
reporting unit. This allocation is consistent with our historical allocations
and is supported by detailed spreadsheets. The failure to allocate the goodwill
amounts in our previous analysis was due to clerical error.
o Please provide us with the amounts of corporate stewardship
fees excluded from your determination of EBITDA before
corporate stewardship fees for each reporting unit for each
period. Please also tell us what the 3 year average EBITDA
would be after considering these fees; and
The amount of corporate stewardship fees excluded in the impairment analysis
previously filed with Response 2 follows:
Included in Excluded from Excluded from
Corporate Engineering Systems
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2004 (6,173,196) 5,357,172 816,024
2005 (8,996,550) 8,122,285 874,265
2006 (12,174,108) 10,928,371 1,245,737
For management reporting purposes, we allocated all costs incurred at the
corporate level to individual reporting units through the use of corporate
stewardship fees. These fees are a charge from the corporate unit to the
reporting unit for normal corporate activities.
In preparing our revised impairment analysis, we conducted a review of expenses
at the corporate level and our corporate stewardship fee policies. We have
revised the impairment analysis to include allocation to each reporting unit of
corporate expenses necessary for the operation of that unit as an independent
entity. In the revised analysis, charges of $100,000 in 2004, $100,000 in 2005
and $271,000 in 2006 should be allocated to the Systems reporting unit. The
charges for 2004 and 2005 only include accounting services as all other services
were charged directly to the Systems reporting unit. In addition to the
accounting services, charges for 2006 included approximately half of the
business development charges as these functions were moved to Corporate in
mid-2006.
Based on these adjustments, the Systems reporting unit EBITDA would be as
follows:
With Revised Stewardship Per Exhibit A
2004 $593,426 $693,426
2005 318,645 418,645
2006 115,216 386,216
3 year average $342,429 $499,429
Our revised impairment analysis applies an appropriate market multiple to our
expected future earnings potential for a reporting unit. The expected future
earnings potential is derived from operating budgets and forecasts with
consideration given to historical earnings, primarily prior years' EBITDA and
the average of the prior three year's EBITDA. Specifically, the acquisition of
ATI in January 2006 improved the Systems reporting unit's earnings from an
operating loss in 2005 to nearly break-even level in 2006. Management's budget
for EBITDA for 2007 was prepared in late-2006 near the time of our impairment
analysis. This budget showed EBITDA for the Systems reporting unit (when
measured with all costs necessary to operate as an independent entity) would
continue its upward trend, and would exceed $2 million. The substantial progress
made toward profitability during 2006 with the acquisition of ATI created this
expectation.
o Please provide us with a description of the factor you
obtained from Houlihan Lokey Publications, including how you
determined that this factor relates to comparable entities.
Refer to paragraph 25 of SFAS 142. Please also help us
understand how you determined you should apply this factor
to Adjusted EBITDA instead of EBITDA.
Houlihan Lokey issues a publication, ENC Reporter. This publication is specific
to publicly traded companies in the engineering and construction industry. Among
those companies in the peer group which included ENGlobal were: Jacobs
Engineering Group, Inc. (JEC); Michael Baker Corporation (BKR); and URS Corp.
(URS). We believe this peer group is appropriate for use in our impairment
analysis for our Engineering reporting unit.
After examining the valuation process, we now believe that the Systems reporting
unit should have a peer group different than our Engineering reporting unit. In
defining our peer group, we looked at our primary competitors for the Systems
reporting unit and considered other companies operating in similar lines of
business. This process led us to conclude that the most relevant peer group for
the Systems reporting unit would include Honeywell, Inc. (HON), Powell
Industries, (POWL) and The ABB Group (ABB). These companies were used in the
revised impairment analysis provided as Exhibit D to this letter.
In selecting valuation multiples for our revised analysis, we used multiples
based on both profitability (price/earnings and invested capital/EBITDA) and
revenue (revenue/EBITDA). We estimated value for the Systems reporting unit
using each of these multiples when applied to both 2006 historical results and
expected 2007 results. When using our 2007 results, we reduced the multiple to
account for the expected growth in earnings, revenue and EBITDA at the
comparable companies. All multiples used were at or below average and median
figures for the peer group.
As noted above, the adjustment to EBITDA is an attempt to measure the earning
capacity of the reporting unit as an independent entity. Originally stated
EBITDA includes deductions for an allocation of all corporate costs. The
adjustment is simply an effort to capture the expenses (and only the expenses)
necessary for independent operation. Application of market multiples to stated
EBITDA would make the value conclusions fail to reflect the value of the unit.
We believe the internal expense allocation policies of a corporate parent do not
change the economic value of an operating entity. While we choose to be
aggressive in our allocations from a management reporting standpoint, we do not
believe those decisions impact the value of our operations. The use of adjusted
EBITDA is a means to put our valuation analysis in line with the commonly
accepted definition of fair value: the price at which an asset would be bought
or sold between a willing buyer and a willing seller with neither under a
compulsion to act.
5. Please provide us with reconciliation between the total of your
reporting units' fair value to your market capitalization as of
December 31, 2006. The reconciliation should show the factors that
result in differences between the two amounts as well as the
corresponding estimated amount that is attributable to each factor.
The reconciliation between ENGlobal's market capitalization and our conclusions
as to the value of each reporting unit at December 31, 2006, is as follows:
Shares of Common Stock outstanding
at December 31, 2006 $ 26,807,460
Closing Market Price $ 6.43
at December 31, 2006
Total Market Capitalization $172,371,968
at December 31, 2006
The value of ENGlobal's common equity as measured by our market capitalization
was $172 million on December 31, 2006. Our total invested capital based on this
figure was $198 million as of the same date.
The estimated value of our systems unit based on our revised valuation analysis
as of December 31, 2006 was $20 million and the estimated fair value of our
engineering unit was $185 million on the same date for a total of $205 million.
As noted above, a portion of our revised analysis for the systems unit is
attached as Exhibit D.
We believe the difference between the $198 million as measured by our stock
price and the $205 million as estimated in our valuation process is due to a
small discount in our stock price resulting from a less active market for our
shares. We also note that if the difference of $8 million were applied to our
valuation conclusions for our impairment test, the reporting unit would still
not have any impairment.
6. Please help us understand why you are removing the value of your
non-compete agreements for purposes of arriving at the carrying value
of each reporting unit.
We now recognize, that for the purposes of testing for goodwill impairment,
that the book value of non-compete agreements should not be excluded. We
have incorporated this change into our revised impairment analysis. As
noted above, our revised analysis indicates goodwill impairment does not
exist.
Note 18 - Segment Information, page 71
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7. We note you response to prior comment 6. You currently have seven
legal entities, which represent your operating segments. These seven
operating segments are reported in one engineering segment. You
determined that it was appropriate to aggregate all of these entities
into one reportable segment based on the guidance of paragraph 17 of
SFAS 131.
The Company reported two business segments in its 2006 Form 10-K. During
2006 we determined our reportable segments considering paragraphs 10-15 of
SFAS 131. The Company's chief operating decision maker (CODM) is its Chief
Executive Officer.
Although the Company maintains accounting books and records for several
corporate legal entities within its consolidated group, financial
information on a legal entity basis was not regularly reviewed by our CODM
for managerial purposes outlined in paragraph 10 of SFAS 131. The Company
has chosen to maintain separate legal entities within its consolidated
group for reasons that include:
o Tax structuring;
o Obligations arising in connection with acquisition transactions;
o Product and professional insurance liability;
o Start-up entities in new jurisdictions, and
o Marketing, sales activities.
Because financial information on strictly a legal entity basis was not used
for managerial purposes, or to assess performance; the Company concluded
that individually, the legal entities did not represent separate operating
segments at December 31, 2006. They have similar economic characteristics
in that they were performing the same type work across the entities and
were managed together. Therefore, we believe that for the reporting period
ended December 31, 2006, we have reported our segments consistent with the
way management reviewed the operations at that time.
In response to organizational changes currently being made as the Company
responds to its growth of the last few years, completes the integration of
the WRC acquisition from 2006 and finalizes the organizational structure of
its 2008 budget and realigns our processes, we have determined to change
our reportable segments and will make such changes in these new reportable
segments in our Annual Report on Form 10-K for the year ending December 31,
2007. This will include appropriate restatement of the previous years'
comparative disclosures. As we complete the year 2007, we will be making
organizational and internal managerial reporting changes consistent with
the new reportable segments. As of the fourth quarter of 2007, our CODM
will begin utilizing financial information for each of these reportable
segments for managerial purposes and to assess performance and to prepare
our 2008 budgets.
The Company's new reportable segments will consist of the following:
o Engineering segment,
o Automation segment,
o Construction segment, and
o Land segment.
It is unclear how you determined that your operating segments related to
your engineering operations have similar economic characteristics, which is
required to aggregate operating segments in accordance with paragraph 17 of
SFAS 131. The supplemental information provided indicates that gross profit
(loss) is one of the primary key metrics you use to evaluate the
performance of your segments. The analysis you provided for the change in
gross profit (loss) and gross profit (loss) as a percentage of revenue year
to year appears to indicate that the financial trends of your operating
segments are sufficiently varied to preclude you from determining that they
are all similar. This is also indicated by the range of gross profit
percentages in 2006 from -.43% to 22.71% as well as in other years. Please
further advise how your key metrics led you to determine that your
operating segments have similar economic characteristics. Please include
detailed explanations for any apparent differences in economic
characteristics and trends for a given operating segment when compared to
another operating segment for a given period or over several periods. Your
explanations should refer to the specific operating segments being
compared. Explain why each of these differences would not be considered an
indication of differences in economic characteristics between each
operating segment and your basis for concluding that each difference was
only temporary.
Despite these similar economic characteristics, the operating results of
any one operating entity in any year may be greatly skewed by a number of
factors.
a) Internal entity expansion and growth can affect gross margins. If an
entity is trying to expand to a new geographical area or entice a new
customer, it may be willing to accept lower margins on new work with
the expectation that future projects would offer more normal gross
margins. This type of growth is why the operating entity ENGlobal
Canada has historically performed at a lower comparative margin as we
continue to expand in the Canadian market. It is expected to improve
over time.
b) Customer needs also affect gross margins. Customers that have urgent,
short term project needs are more willing to pay higher margins to
complete the work in a timely manner.
c) Geographical location of the work being performed and the economic
circumstances of the geographic region also play a role in gross
margins. In addition, margins for a single operating entity are
impacted by the particular mix of work that the entity performs in the
various regions in which it is operating.
d) ENGlobal procures materials for its clients at margins that are lower
than the margins it receives on its engineering services.
Additionally, our margins will be impacted by the mix of procurement
activity and engineering services.
e) The ability to manage particular projects can greatly affect margins.
For example, the two loss projects that have been mentioned throughout
the report greatly affected the margins for this year.
Any temporary difference can affect any of the entities and can cause
their gross margins to vary between years even though they may be
performing the same type of work function consistently throughout the
years.
Based on these considerations, we believe that our current reporting
methodology is appropriate as originally reported for the period
ending December 31, 2006, and the results were presented in clear and
complete disclosure to the public in the manner in which we evaluated
our reporting units at that time.
8. Your response states that the only apparent difference in your
analysis relates to in-office versus in-plant (or field services).
This can cause the margin to be slightly lower for in-plant work than
in-office since the client is providing the work space and equipment.
You state that this gross margin difference is less than 5%. Please
help us understand which legal entities you are referring to in this
analysis and for which periods. This explanation does not appear to
adequately address the differences in the gross profit percentages
given the range of percentages, which are noted above.
The terms, in-office (or detail design) and in-plant (or field
services), are terms primarily used within ENGlobal Engineering, Inc.,
but these descriptions can apply to the other legal entities as well.
Simply put, if an ENGlobal employee performs work on a project "at a
local ENGlobal office" (referred to as "in-office"), the mark-up over
labor costs would have to be higher to cover non-labor costs such as
rent, utilities, computer equipment, copiers, property insurance,
professional insurance, etc., than the mark-up to cover non-labor
costs of an ENGlobal employee performing work "at a clients' office or
facilities" (referred to as "in-plant") where these other non-labor
costs as paid directly by the client. Again, our legal entities have
the ability to perform both types of projects although some may have
more of one type than the other.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2007
---------------------------------------------
General
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9. Please address the above comments in your interim filings as well.
We are making every effort to include our responses to the SEC's
comments into our current filings.
Financial Statements
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Notes to the Financial Statements
- ---------------------------------
Note 6. Goodwill, page 10
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10. You state that you consulted with the third party valuation provider
and revised the allocation to tangible assets resulting in $669,000
being re-allocated back to goodwill. Please identify the third party
valuation provider, or revise your disclosure to eliminate the
reference to the provider.
ENGlobal will remove the reference to the third party valuation
provider.
Management's Discussion and Analysis
- ------------------------------------
Overview of Systems Segment, page 27
- ------------------------------------
11. You state that salaries and related expenses decreased by $535,000 for
various reasons. The expenses of four sales persons were moved to
corporate SG&A from operations; some salaries were moved to direct
costs variable; and the systems segment personnel decreased. Please
quantify each of these factors listed and further explain why these
salaries were moved out of the systems segment into direct costs
variable and corporate SG&A.
Movement of sales personnel salaries to Corporate SG&A - $229,000
Sales personnel and their costs, including salaries, were
re-assigned to our Corporate SG&A. The Company felt that this
re-organization would allow these individuals to focus their
efforts on the entire Company rather than solely on the
Systems segment. This also provided organizational consistency
between the Engineering and Systems segments as all other
sales personnel were already accounted for in this manner.
Movement of SG&A salaries to direct costs - $133,000
Salaries previously reported in the Systems segment SG&A were
re-classified to direct costs because such costs were
identified to be directly related to a particular project or
associated with a project support function which may vary
based on project workload. The Company is attempting to more
closely track costs associated with projects and not simply
include them as an overhead or SG& cost.
Reduction in Systems Segment Personnel - $173,000
The Systems segment was able to reduce personnel as a result
of reducing the number of specialty components being
manufactured and also taking advantage of synergies following
the ATI acquisition.
Please respond to these comments within 10 business days, or tell
us when you will provide us with a response. Please provide us
with a supplemental response letter that keys your responses to
our comments and provides any requested supplements information.
Detailed letters greatly facilitate our review. Please file your
supplemental response on EDGAR as a correspondence file. Please
understand that we may have additional comments after reviewing
your responses to our comments.
In responding to the comments received from the Securities and
Exchange Commission, ENGlobal acknowledges that:
ENGlobal is responsible for the adequacy and accuracy of the
disclosure in its filings;
Staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with respect to the filing;
ENGlobal may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
The Division of Enforcement has access to all information
provided to the staff of the Division of Corporation Finance.
If you have any questions regarding these comments, please direct
them to Annette Hall Wade, CPA, Accounting Manager, at (409)
840-2591 or, in her absence, to the undersigned at (409)
840-2578.
ENGlobal Corporation, Inc.
/s/ Robert W. Raiford
Robert W. Raiford
Chief Financial Officer
Cc: Ms. Nudrat Salik, Staff Accountant
Division of Corporation Finance
Mr. William Coskey, Chairman
and Chief Executive Officer, ENGlobal
Mr. Randy Hale, Audit Committee Chairman
ENGlobal Board of Directors
ENGlobal Corporation Exhibit D, Page 1 of 2
Valuation of the Systems Reporting Unit
As of December 31, 2006
For Goodwill Impairment Testing
Price/Earnings Invested Cap/EBITDA Invested Cap/Revenue
-------------- ------------------- --------------------
Comparable Company Results
High 37.6 17.8 1.7
Low 17.4 10.4 0.9
Average 27.8 14.5 1.4
Median 28.3 15.2 1.6
Selected Multiple Based on Actual Results 27.00 14.00 1.00
Selected Multiple Based on Forecast Results 25.00 11.00 1.00
Value - Actual '06 Results (9,693) 4,620 26,032
Value - Budgeted '07 Results 10,760 15,773 23,949
Average Actual 2006 and Budget 2007 534 10,197 24,991
Book Value of Equity (including intercompany) 9,942 9,942 9,942
Book Value of Invested Capital 10,730 10,730 10,730
Calculated Value in Excess of Book Value on '06 (19,635) (6,110) 15,302
Calculated Value in Excess of Book Value on '07 818 5,043 13,219
Calculated Value in Excess of Book Value on Average (9,408) 255 15,049
ENGlobal Corporation Exhibit D, Page 2 of 2
Comparables to the Systems Reporting Unit
As of December 31, 2006
For Goodwill Impairment Testing
All Data in (000's)
Comparable Companies HON ABB POWL (1)
-------------------- --- --- --------
Year-end Price 45.24 17.98 31.57
Shares Outstanding 800,591 2,187,756 10,924
Market Capitalization 36,218,737 39,335,853 344,871
Preferred Stock - -
Debt 5,063,000 3,282,000 42,396
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Total Invested Capital 41,281,737 42,617,853 387,267
=======================================================================
Total Revenue 25,165,000 24,412,000 408,597
Net Income 2,083,000 1,390,000 9,173
Depreciation/Amortization 794,000 570,000 6,738
Interest 374,000 153,000 761
Taxes 720,000 697,000 5,028
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EBITDA 3,971,000 2,810,000 21,700
=======================================================================
Price/Earnings 17.4 28.3 37.6
Invested Capital/EBITDA 10.4 15.2 17.8
Invested Capital/Revenue 1.64 1.75 0.95
(1) For fiscal year 2006, Powell Industries had an 11 month period. All income and expense figures have been adjusted.