<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For Quarter Ended JUNE 30, 2000
--------------------
Commission file number 0-7099
----------
CECO ENVIRONMENTAL CORP.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 13-2566064
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
505 UNIVERSITY AVENUE, SUITE 1400, TORONTO, ONTARIO, CANADA M5G 1X3
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
416-593-6543
------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
--------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
X Yes No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the close of the period covered by this report.
Class: COMMON, PAR VALUE $.01 PER SHARE
--------------------------------
OUTSTANDING at June 30, 2000 8,393,278
<PAGE>
CECO ENVIRONMENTAL CORP.
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
JUNE 30, 2000
--------------------------------------------------------------------------------
INDEX
-----
Part I - Financial Information (unaudited):
Item 1. Condensed consolidated balance sheet as of
June 30, 2000 and December 31, 1999 2
Condensed consolidated statement of operations
for the three-month and six-month periods ended
June 30, 2000 and 1999 3
Condensed consolidated statement of cash flows for the
six-month periods ended June 30, 2000 and 1999 4
Notes to condensed consolidated financial statements 6
Report of independent accountants 9
Item 2. Management's discussion and analysis of the
financial condition and results of operations 10
Signature 15
1
<PAGE>
CECO ENVIRONMENTAL CORP.
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 251,686 $ 1,134,792
Marketable securities - trading 2,937,662 2,690,919
Accounts receivable, net 14,458,673 17,204,539
Costs and estimated earnings in excess of
billings on uncompleted contracts 6,743,161 2,951,773
Inventories 2,405,270 2,173,010
Prepaid expenses and other current assets 829,566 635,423
Deferred income taxes 485,800 485,800
------------- ------------
Total current assets 28,111,818 27,276,256
Property and equipment, net 13,705,574 14,244,457
Goodwill, net 6,179,453 6,545,389
Other intangible assets, net 1,090,545 1,225,070
Deferred charges and other assets 1,337,004 1,473,054
Deferred income taxes 309,200 309,200
------------- ------------
Total assets $50,733,594 $51,073,426
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Debt $ 2,268,845 $ 2,788,054
Accounts payable and accrued expenses 8,832,765 9,569,882
Billings in excess of costs and estimated
earnings on uncompleted contracts 967,683 460,092
Other current liabilities 110,366 116,056
------------- ------------
Total current liabilities 12,179,659 12,934,084
Debt, less current portion 28,644,759 28,289,680
Other liabilities 777,839 713,003
------------- ------------
Total liabilities 41,602,257 41,936,767
------------- ------------
Minority interest 75,808 98,541
------------- ------------
Shareholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized and none issued - -
Common stock, $.01 par value; 100,000,000 shares
authorized, 8,393,278 and 8,388,816 shares
issued and outstanding in 2000 and 1999 83,933 83,888
Capital in excess of par value 11,995,472 11,986,013
Accumulated deficit (2,675,207) (2,683,114)
------------- ------------
9,404,198 9,386,787
Less treasury stock, at cost (348,669) (348,669)
------------- ------------
Net shareholders' equity 9,055,529 9,038,118
------------- ------------
Total liabilities and shareholders' equity $ 50,733,594 $ 51,073,426
============= ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
CECO ENVIRONMENTAL CORP.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Contract revenues $20,033,423 $1,900,468 $38,547,753 $4,143,279
Net sales - products 3,998,682 2,064,389 7,702,726 4,594,235
----------- ----------- ----------- ---------
Total revenues 24,032,105 3,964,857 46,250,479 8,737,514
---------- --------- ---------- ---------
Costs and expenses:
Cost of revenues - contracts 17,145,919 1,038,578 32,463,771 2,535,293
Cost of sales - products 2,303,808 1,065,081 4,429,120 2,349,727
Selling and administrative 3,839,894 1,651,638 7,361,555 3,145,418
Depreciation and amortization 490,144 155,664 917,453 298,688
------------ ---------- ------------ ----------
23,779,765 3,910,961 45,171,899 8,329,126
---------- --------- ------------ ------------
Income from continuing operations
before investment income and
interest expense 252,340 53,896 1,078,580 408,388
Investment income 448,558 120,289 742,744 158,468
Interest expense (970,086) (64,013) (1,846,240) (139,511)
----------- ------------ ------------- -----------
Income (loss) from continuing operations
before provision (credit) for income taxes
and minority interest (269,188) 110,172 (24,916) 427,345
Provision (credit) for income taxes (127,148) 35,840 (10,090) 179,400
------------- ------------ --------------- ------------
Income (loss) from continuing operations
before minority interest (142,040) 74,332 (14,826) 247,945
Minority interest 17,191 2,709 22,733 (5,621)
------------ ------------- -------------- -------------
Income (loss) from continuing operations (124,849) 77,041 7,907 242,324
Discontinued operations:
Profit (loss) from operations
of discontinued division, net of
income tax benefit and minority interest - 3,200 - (121,245)
Loss from disposal of discontinued division - - - (12,482)
------------ ------------- -------------- -------------
- 3,200 - (133,727)
------------ ------------- -------------- -------------
Net income (loss) ($ 124,849) $ 80,241 $ 7,907 $ 108,597
============ ============= ============== =============
Net income (loss) per share, basic:
Income from continuing operations ($ .02) $ .01 $ .00 $ .03
(Loss) from discontinued operations - - - ( .02)
------------ ------------- -------------- -------------
Net income (loss) per share ($ .02) $ .01 $ .00 $ .01
Net income (loss) per share, diluted:
Income (loss) from continuing operations ($ .01) $ .01 $ .00 $ .02
(Loss) from discontinued operations - - - ( .01)
------------ ------------- -------------- -------------
Net income (loss) per share ($ .01) $ .01 $ .00 $ .01
============ ============ ============== ==========
Weighted average number of common shares
outstanding:
Basic 8,250,945 8,250,896 8,250,921 8,250,896
============ ============ =========== ==========
Diluted 8,867,278 9,414,640 9,003,631 9,445,495
============ ============ =========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
CECO ENVIRONMENTAL CORP.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
2000 1999
--------- --------
<S> <C> <C>
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net income $ 7,907 $ 108,597
Adjustments to reconcile net income to net cash
(used in) operating activities:
Loss from discontinued operations - 133,727
Depreciation and amortization 917,453 298,688
Minority interest ( 22,733) 5,621
Gain on sales of marketable securities, trading ( 622,199) -
Changes in operating assets and liabilities,
net of acquired businesses:
Marketable securities 375,456 ( 366,170)
Accounts receivable 2,745,866 575,058
Inventories ( 232,260) ( 297,671)
Cost and estimated earnings in excess of
billings on uncompleted contracts (3,791,388) ( 144,471)
Prepaid expenses and other current assets ( 194,143) ( 151,049)
Deferred charges and other assets 86,348 ( 235,378)
Accounts payable and accrued expenses ( 687,117) ( 143,708)
Billings in excess of costs and estimated
earnings on uncompleted contracts 507,591 ( 301,052)
Other 152,524 ( 8,700)
--------- --------
Net cash (used in) continuing operations ( 756,695) ( 526,508)
Net cash provided by discontinued operations - 35,896
--------- --------
Net cash (used in) operating activities ( 756,695) ( 490,612)
--------- --------
Cash flows from investing activities:
Acquisitions of property and equipment ( 81,957) ( 113,071)
Purchase price adjustment -
The Kirk & Blum Manufacturing Company and
kbd/Technic, Inc. 253,550 -
Acquisition of additional shares of CECO Filters, Inc. - ( 55,459)
--------- --------
Net cash provided by (used in) continuing operations 171,593 ( 168,530)
Net cash (used in) discontinued operations - ( 1,856)
--------- --------
Net cash provided by (used in) investing activities 171,593 ( 170,386)
--------- --------
Cash flows from financing activities:
Net change in short-term debt ( 519,208) 900,000
Proceeds from issuance of stock 9,504 -
Net increase (decrease) in long-term debt 211,700 ( 400,068)
--------- --------
Net cash provided by (used in) financing activities ( 298,004) 499,932
--------- --------
</TABLE>
CONTINUED ON NEXT PAGE
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
CECO ENVIRONMENTAL CORP.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
(unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
2000 1999
------------ ----------
<S> <C> <C>
Net (decrease) in cash ($ 883,106) ($ 161,066)
Cash and cash equivalents at beginning of the period 1,134,792 364,648
----------- -----------
Cash and cash equivalents at end of the period $ 251,686 $ 203,582
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 1,564,446 $ 139,511
------------ ------------
Income taxes $ 261,100 $ 485,960
------------ ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
CECO ENVIRONMENTAL CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
--------------------------------------------------------------------------------
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly the financial position as of June 30, 2000 and the
results of operations for the three-month and six-month periods ended
June 30, 2000 and 1999 and cash flows for the six-month periods ended
June 30, 2000 and 1999. The results of operations for the six-month
period ended June 30, 2000 are not necessarily indicative of the
results to be expected for the full year.
2. Discontinued Operations
-----------------------
On March 31, 1999 the Company's subsidiary, CECO Filters, Inc., sold
the contracts and customer list of U.S. Facilities Management Arizona
division for $250,000. The sales price was paid through a non-interest
bearing promissory note from the purchaser.
The following is a summary of operating activity for this discontinued
division for the six months ended June 30, 1999:
<TABLE>
<CAPTION>
<S> <C>
Revenues $ 387,656
Cost of revenues ( 493,439)
Selling and administrative ( 128,651)
Depreciation and amortization ( 7,998)
---------
Operating loss ( 242,432)
Income tax benefit 112,200
Minority interest 8,987
---------
Loss from operations of discontinued division ($121,245)
========
The following is a summary of the loss recorded from the disposal of
this division for the six months ended June 30, 1999:
Net present value of note receivable from sale $ 174,493
Impairment of goodwill ( 166,932)
Disposition costs ( 20,043)
--------
Loss from disposal of discontinued division ($ 12,482)
========
</TABLE>
Net liabilities of discontinued operations as of June 30, 2000 and
December 31, 1999 were $306,513.
6
<PAGE>
CECO ENVIRONMENTAL CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
--------------------------------------------------------------------------------
3. Inventories consisted of the following:
JUNE 30, DECEMBER 31,
2000 1999
---------- ----------
Raw materials $1,319,939 $1,328,175
Finished goods 905,450 626,033
Parts for resale 179,881 218,802
---------- ----------
$2,405,270 $2,173,010
=========== ==========
4. Acquisition of Business
-----------------------
On December 7, 1999, the Company purchased all of the issued stock of
The Kirk & Blum Manufacturing Company ("K & B") and kbd/Technic, Inc.,
two companies with related ownership. The purchase price was
approximately $25 million plus the assumption of $5 million of existing
indebtedness of the companies, in addition to acquisition costs the
Company incurred. The transaction was accounted for as a purchase. K &
B, headquartered in Cincinnati, Ohio, is a leading provider of turnkey
engineering, design, manufacturing and installation services in the air
pollution control industry. K & B's business is focused on designing,
building and installing systems which remove airborne contaminants from
industrial facilities, as well as equipment that control emissions from
such facilities. K & B serves its customers from offices and plants in
Cincinnati, Ohio; Indianapolis, Indiana; Louisville and Lexington,
Kentucky; Columbia, Tennessee; and Greensboro, North Carolina.
kbd/Technic, Inc. is a specialty engineering firm concentrating in
industrial ventilation. Services offered include air system testing and
balancing, source emission testing, industrial ventilation,
engineering, turnkey project engineering (civil, structural and
electrical), sound and vibration system engineering and other special
projects. The excess of the aggregate purchase price over the fair
value of the net assets acquired was $1,400,063, based upon preliminary
estimates of fair value. On a pro forma basis, unaudited results of
operations for the six-month period ended June 30, 1999 would have been
as follows, if the acquisition had been made as of January 1, 1999:
SIX MONTHS ENDED
JUNE 30, 1999
----------------
Total revenues $ 46,411,804
Net income (loss) ( 359,364)
Net income (loss) per share:
Basic ($ .04)
Diluted ($ .04)
7
<PAGE>
CECO ENVIRONMENTAL CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
--------------------------------------------------------------------------------
5. Segments and Related Information
--------------------------------
The Company has two reportable segments: Systems and Media. The Systems
segment assembles and manufactures ventilation, environmental and
process-related products. The Company provides standard and engineered
systems and filter media for air quality improvement through its Media
segment.
<TABLE>
<CAPTION>
ELIMINATION
OF INTER-
SEGMENT
SYSTEMS MEDIA OTHER ACTIVITY CONSOLIDATED
------- ------------ ------- -------- ------------
<S> <C> <C> <C> <C> <C>
Six months ended
June 30, 2000:
----------------
Revenues $43,868,282 $2,840,051 $ - ($457,854) $46,250,479
Operating income (loss) 2,310,974 ( 470,174) ( 762,220) - 1,078,580
Six months ended
June 30, 1999:
----------------
Revenues $ 5,126,189 $3,816,594 $ 23,537 ($228,806) $8,737,514
Operating income 284,188 69,832 54,368 - 408,388
</TABLE>
6. Subsequent Event
----------------
During July 2000, the Company repurchased 566,000 shares of common
stock at a total cost of $1,203,000 from the former president of CECO
Filters, Inc. and his family in connection with his resignation that
was effective June 30, 2000. The Company funded this purchase with the
proceeds from the sale of marketable securities. The Company will hold
shares acquired as treasury shares.
8
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
CECO Environmental Corp. and Subsidiaries
Toronto, Ontario Canada
We have reviewed the accompanying condensed consolidated balance sheet of CECO
Environmental Corp. and Subsidiaries as of June 30, 2000 and the related
condensed consolidated statements of operations for the three-month and
six-month periods ended June 30, 2000 and 1999 and cash flows for the six-month
periods ended June 30, 2000 and 1999. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1999 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the year then ended (not presented herein); and in our report dated
February 24, 2000, we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1999 is fairly stated,
in all material respects, in relation to the balance sheet from which it has
been derived.
/s/ Margolis & Company P.C.
Certified Public Accountants
Bala Cynwyd, Pennsylvania
July 27, 2000
9
<PAGE>
CECO ENVIRONMENTAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(unaudited)
--------------------------------------------------------------------------------
Overview
--------
The principal operating units of CECO Environmental Corp. (The "Company") are
The Kirk & Blum Manufacturing Company, kbd/Technic, Inc., CECO Filters, Inc.,
Air Purator Corporation and New Busch Co., Inc. which provide innovative
solutions to industrial ventilation and air quality problems through dust, mist,
and fume control systems, and particle and chemical control technologies.
The Company's Systems segment consists of The Kirk & Blum Manufacturing Company,
kbd/Technic, Inc. and New Busch Co., Inc. Kirk & Blum is a leading provider of
turnkey engineering, design, manufacturing and installation services in the air
pollution control industry. Kirk & Blum's business is focused on designing,
building and installing systems, which remove airborne contaminants from
industrial facilities as well as equipment that control emissions from such
facilities. Busch is engaged in providing system-based solutions for industrial
ventilation and air pollution control problems through its design, fabrication,
supplying and installation of equipment used to control the environment in and
around industrial plants with a variety of standard, proprietary and patented
technologies including its JET*STAR(TM) cooling system. kbd/Technic, Inc. is a
specialty-engineering firm concentrating in industrial ventilation. kbd/Technic
provides air systems testing and balancing, source emissions testing, industrial
ventilation engineering, turnkey project engineering (civil, structural and
electrical), and sound and vibration systems engineering. These companies have
extensive knowledge and experience in providing complete turnkey systems in new
installations and renovating existing systems.
The Company's Media segment consists of CECO Filters, Inc. ("Filters") and Air
Purator Corporation. Filters manufactures and markets filters known as fiber bed
mist eliminators, designed to trap, collect and remove solid soluble and liquid
particulate matter suspended in an air or other gas stream whether generated
from a point source emission or otherwise. Filters offers innovative patented
technologies, Catenary Grid(R) and Narrow Gap Venturi Scrubbers, designed for
use with heat and mass transfer operations and particulate control. Air Purator
Corporation designs and manufactures high performance filter media for use in
high temperature pulse jet baghouses, a highly effective type of baghouse for
capturing submicron particulate from gas streams.
Results of Operations
---------------------
The Company's consolidated statement of operations for the three-month and six
month periods ended June 30, 2000 and 1999 reflects the operations of the
Company consolidated with the operations of its subsidiaries. At June 30, 2000,
the Company owned approximately 94% of CECO Filters, Inc. Minority interest in
the consolidated statement of operations has been separately presented in the
statement of operations.
10
<PAGE>
CECO ENVIRONMENTAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
(unaudited)
--------------------------------------------------------------------------------
Revenues
--------
Consolidated net revenues increased 506% for the second quarter of 2000 to $24.0
million, up $20.1 million over the second quarter of 1999. For the first six
months, consolidated net revenues of $46.3 million were $37.5 million or 429%
higher than the same period in 1999. The increases in both the second quarter
and first half of 2000 were due to the combination of increased revenues from
the Systems segment (principally due to the positive impact from the acquisition
of Kirk & Blum and kbd/Technic in December 1999) offset by decreases in the
Media segment.
Systems segment revenues increased by $20.5 million and $38.7 million in the
second quarter and first half of 2000 compared to the same periods in 1999. The
primary factors contributing to this increase was the inclusion of Kirk & Blum
and kbd/Technic offset by lower revenue generated from Busch. The Company's
newly acquired Kirk & Blum operating unit is generating increased revenues over
1999 levels. Demand at rolling mills for fume exhaust systems and demand for
Busch's proprietary JET*STAR(TM) cooling technology continued to decline into
the second quarter of 2000.
Media segment sales reflect declines of $29,000 and $977,000 in the second
quarter and first half of 2000 compared with the same periods in 1999. Decreased
sales from the Company's high performance filter media unit, Air Purator
Corporation, and a decline in sales from Filters were the principal reasons.
Market conditions tightened for environmental service companies like the
Company's during the first half of 2000, as sales declined to technology-based
industries such as semi-conductor and printed circuit board companies.
Gross Profit
------------
Gross profit increased by $2,721,000 and $5,505,000 to $4,582,000 and $9,358,000
for the second quarter and first half of 2000, respectively, compared with the
same periods in 1999. Gross profit as a percentage of revenues was 19.1% and
20.2% in the second quarter and first half of 2000 compared with 46.9% and 44.1%
in same periods for the prior year. The declines are attributable to increased
sales by the lower margin Systems segment sales and decreased sales by the
higher margin Media segment. Overall, margins as a percentage of revenues will
be impacted by the addition of Kirk & Blum to the Systems segment as this
operating unit will continue to represent a larger factor in the Company's total
revenues during calendar year 2000.
Expenses
--------
Selling and administrative expenses increased from the second quarter and first
half of 1999 by $2,188,000 and $4,216,000 to $3,840,000 and $7,362,000 during
the second quarter and first half of 2000 primarily due to the acquisition of
Kirk & Blum and kbd/Technic. Selling and administrative expenses as a percentage
of revenues for the second quarter and first half of 2000 were 16.0% and 15.9%,
respectively. A substantial portion of these expenses, which are considered
fixed, have been under review by the Company for cost savings opportunities
resulting from administrative efficiencies that may be realized from
consolidating the Company's operating headquarters in Cincinnati, Ohio.
Additionally, selling expenses are continuing to be reviewed to better align
performance with compensation. Savings that may be realized from this
realignment and cost reduction efforts should favorably impact results in the
third and fourth quarters of 2000.
11
<PAGE>
CECO ENVIRONMENTAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
(unaudited)
--------------------------------------------------------------------------------
Depreciation and amortization increased $334,000 and $619,000 to $490,000 and
$917,000 in the second quarter and first half of 2000 primarily due to
additional costs associated with the acquisition of Kirk & Blum and kbd/Technic.
Investment Income
-----------------
Investment income increased by $328,000 and $584,000 to $449,000 and $743,000
during the second quarter and first half of 2000. The increase in investment
income resulted from interest income, dividend income, and realized gains and
unrealized appreciation in investments. At June 30, 2000, the Company's most
significant investment is 103,500 shares of Peerless Manufacturing Company
common stock which is listed on the Nasdaq Stock Market(R) traded under the
symbol PMFG. At June 30, 2000, the fair market value of the Company's Peerless
common stock was $16.875 per share.
Interest Expense
----------------
Interest expense increased by $906,000 and $1,707,000 to $970,000 and $1,846,000
during the second quarter and first half of 2000 compared with the same periods
in 1999, principally due to higher borrowing levels and increased rates under
the newly established bank credit facilities, and subordinated and related party
debt.
Income Taxes
------------
Federal and state income tax credits were $127,000 and $10,000 in the second
quarter and first half of 2000. The effective income tax rates were 47.2% and
40.5% during the second quarter and first half of 2000. The Company' effective
tax rate during 2000 will be impacted by increased amounts of non-deductible
goodwill amortization relating to investments in CECO Filters, Inc., Kirk & Blum
and kbd/Technic.
Discontinued Operations
-----------------------
Discontinued operations reflect the closure of the Company's operations in
Arizona during the first quarter of 1999. Operating losses and disposal costs,
net of income tax benefit and minority interest from this discontinued division,
amounted to $3,200 (income) and $134,000 (loss) in the second quarter and first
half of 1999.
Net Income
-----------
Net income (loss) for the three and six months ended June 30, 2000 was
($124,849) and $7,907 compared with net income of $80,241 and $108,597 in the
same periods in 1999.
12
<PAGE>
CECO ENVIRONMENTAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
(unaudited)
--------------------------------------------------------------------------------
Backlog
-------
The Company's backlog consists of purchase orders it has received for products
and services it expects to deliver within the next 12 months. The Company's
backlog, as of June 30, 2000, was approximately $22.7 million, an increase of
$7.1 million over December 31, 1999. The Systems segment generated approximately
90% of the backlog. There can be no assurance that backlog will be replicated or
increased or translated into higher revenues in the future. The success of the
Company's business depends on a multitude of factors that are out of the
Company's control.
Financial Condition, Liquidity and Capital Resources
----------------------------------------------------
At June 30, 2000, the Company had total cash and cash equivalents and marketable
securities of $3,189,000 compared to $3,826,000 at December 31, 1999. Cash used
by operating activities for the six months ended June 30, 2000 was $757,000
compared with cash used of $491,000 for the comparable period in 1999. In
December 1999, the Company consummated new credit facilities totaling $38
million under a senior secured syndicated banking facility of $33 million
expiring in 2004 - 2006, and $5 million of subordinated debt expiring in 2006.
The Company's investment in marketable securities, which generated investment
income of $743,000 in the six months ended June 30, 2000, consisted principally
of its investment in Peerless Manufacturing Company and other investments with a
fair market value of $2,938,000 on June 30, 2000.
Total bank and related debt as of June 30, 2000 was $30,914,000, a decrease of
$308,000, due to principal payments against bank credit facilities and Green
Diamond Oil Corp. The unused credit availability at June 30, 2000 was $6,100,000
under the Company's bank line of credit.
Investing activities provided cash of $172,000 during the first half of 2000
compared with cash used of $170,000 used during the same period in 1999. During
the second quarter of 2000, the Company received $254,000 as a post-closing
price adjustment related to its acquisition of Kirk & Blum and kbd/Technic in
December 1999. Capital expenditures were $82,000 and $113,000 for the six months
ended June 30, 2000 and 1999, respectively. Capital expenditures are expected to
increase and are anticipated to be in the range of $500,000 to $900,000 for
fiscal year 2000.
Financing activities used $298,000 during the first half of 2000 compared with
cash provided of $500,000 during the same period of 1999. Current year financing
activities were principal payments from borrowings under senior credit
facilities and Green Diamond Oil Corp offset by short-term borrowings and common
stock issued under the Company's Employee Stock Purchase Plan.
During July 2000, the Company repurchased 566,000 shares of common stock at a
total cost of $1,203,000 from the former president of CECO Filters, Inc. and his
family in connection with his resignation that was effective June 30, 2000. The
Company funded this purchase with the proceeds from the sale of marketable
securities. The Company will hold shares acquired as treasury shares.
13
<PAGE>
CECO ENVIRONMENTAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
(unaudited)
--------------------------------------------------------------------------------
The Company believes that its cash, cash equivalents and marketable securities,
cash flows from operating activities, and existing credit facilities are
adequate to meet the Company's cash requirements over the next twelve months.
Forward-Looking Statements
--------------------------
The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 and is making this cautionary
statement in connection with such safe harbor legislation. This Form 10-QSB, the
Annual Report to Shareholders, Form 10-KSB or Form 8-K of the Company or any
other written or oral statements made by or on behalf of the Company may include
forward-looking statements which reflect the Company's current views with
respect to future events and financial performance. The words "believe,"
"expect," "anticipate," "intends," "estimate," "forecast," "project," "should"
and similar expressions are intended to identify "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. All
forecasts and projections in this Form 10-QSB are "forward-looking statements,"
and are based on management's current expectations of the Company's near-term
results, based on current information available pertaining to the Company,
including the risk factors noted below.
The Company wishes to caution investors that any forward-looking statements made
by or on behalf of the Company are subject to uncertainties and other factors
that could cause actual results to differ materially from such statements. These
uncertainties and other risk factors include, but are not limited to: changing
economic and political conditions in the United States and in other countries,
changes in governmental spending and budgetary policies, governmental laws and
regulations surrounding various matters such as environmental remediation,
contract pricing, and international trading restrictions, customer product
acceptance, and continued access to capital markets, and foreign currency risks.
The Company wishes to caution investors that other factors may, in the future,
prove to be important in affecting the Company's results of operations. New
factors emerge from time to time and it is not possible for management to
predict all such factors, nor can it assess the impact of each such factor on
the business or the extent to which any factor, or a combination of factors, may
cause actual results to differ materially from those contained in any
forward-looking statements.
Investors are further cautioned not to place undue reliance on such
forward-looking statements as they speak only to the Company's views as of the
date the statement is made. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
14
<PAGE>
CECO ENVIRONMENTAL CORP.
SIGNATURE
--------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CECO ENVIRONMENTAL CORP.
/s/ M. J. Morris
--------------------------------
M. J. Morris
V.P., Finance and Administration
Chief Financial Officer
Date: August 11, 2000
15
