<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
Date of Report: December 7, 1999
CECO ENVIRONMENTAL CORP.
-------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
New York 0-7099 13-2566064
- ----------------------------- ---------- -------------------
(State or other jurisdiction Commission (IRS Employer
of incorporation) File No.) Identification No.)
505 University Avenue, Suite 1400
Toronto, Canada M5G 1X3
- ---------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code: (416) 593-6543
<PAGE>
Item 2. Acquisition or Disposition of Assets
Stock Purchase Agreement
- ------------------------
On December 7, 1999, CECO Environmental Corp. purchased all the issued
stock of The Kirk & Blum Manufacturing Company and kbd/Technic, Inc., two
companies with related ownership located in Cincinnati, Ohio (collectively, the
"Companies"). The stock of the Companies were purchased from the Blum family and
various trusts for their benefit. The Blum family members are the descendents of
one of the founders of The Kirk & Blum Manufacturing Company. No member of the
Blum family was affiliated with CECO Environmental Corp. prior to the
acquisition of the Companies by CECO Environmental Corp.
The consideration for each of the acquisitions was determined through
arms-length negotiations between CECO Environmental Corp. and the former owners
of the Companies. The purchase price was approximately $25 million dollars plus
the assumption of $5 million of existing indebtedness of the Companies.
Employment Agreements, Bonuses and Stock Purchase Warrants
- ----------------------------------------------------------
In connection with such acquisition, CECO Group, Inc. entered into a
five year employment agreement with Richard J. Blum. Lawrence J. Blum and David
D. Blum entered into five year employment agreements with The Kirk and Blum
Manufacturing Company. These employment agreements provide for annual salaries
of $206,000, $100,000 and $154,000, respectively, for the three Blums. These
agreements granted Richard, Lawrence and David Blum warrants to purchase
448,000, 217,000 and 335,000 shares of common stock of CECO Environmental Corp.,
respectively, at $2.9375, the closing price of CECO Environmental Corp.'s common
stock on December 7, 1999. These warrants become exercisable at the rate of 25%
per year over the four years following December 7, 1999.
The warrants have a term of ten years.
In addition, these employment agreements provide that each of the Blums
will be paid a bonus with respect to each of the fiscal years ended as December
31, of 2000, 2001, 2002, 2003 and 2004 equal to, in the aggregate, (i) 25% of
the net income before interest and taxes in excess of $4,000,000 of CECO
Environmental Corp. as reported on its audited financial statements filed with
the Securities and Exchange Commission with respect to such year, less (ii) the
contribution made on behalf of such employees to any profit sharing or 401(k)
plan by CECO Environmental Corp., CECO Group, Inc., The Kirk & Blum
Manufacturing Company or any affiliate (other than contributions made by the
employees) with respect to such fiscal year. Of such aggregate bonus, Richard J.
Blum will receive 44.8%, Lawrence J. Blum will receive 21.7% and David D. Blum
will receive 33.5%.
No such bonus will be paid if CECO Environmental Corp. or CECO Group,
Inc. is in default under any financing agreement with any bank or other
financial institution or any other material agreement to which CECO
2
<PAGE>
Environmental Corp. or CECO Group, Inc. is a party, or the payment of such bonus
would cause CECO Environmental Corp. or CECO Group, Inc. to be in default under
any such agreement. If no bonuses are paid as a result of the operation of the
foregoing sentence, the unpaid bonuses will accrue interest at the rate of 8%
per annum. Any accrued and unpaid bonuses and interest will be paid as soon as
CECO Environmental Corp. or CECO Filters, Inc. ceases to be in default under
such agreements and such payment would not cause a default under any such
agreement. The payment of these bonuses is also subject to a subordination
agreement between the employees and the banks providing financing for the
acquisition of the Companies.
Bank Financing
- --------------
The financing for the transaction was provided by a bank loan facility
in the amount of $25 million in term loans and a $10 million revolving credit
facility. The $14.5 term loan has a maturity of November 30, 2004; the $8.5
million term loan has a maturity of May 31, 2006; and the $2 million term loan
has a maturity of 90 days of December 7, 1999. Interim payments of principal are
required with respect to the $14.5 million and the $8.5 million term loans. CECO
Environmental Corp. intends to borrow against the cash value of life insurance
owned by The Kirk & Blum Manufacturing Company in order to repay the $2 million
term loan due 90 days after December 7, 1999. The bank loan facility was
provided by PNC Bank, National Association, The Fifth Third Bank and Bank One,
N.A.
In addition, as a condition to obtaining the bank financing, CECO
Environmental Corp. placed $5 million of subordinated debt. The proceeds of the
bank loans and the additional $5 million of subordinated debt were used to pay
the purchase prices for the Companies, to pay expenses incurred in connection
with the acquisitions, to refinance existing indebtedness and for working
capital purposes. In connection with these loans, the banks providing the loan
facility received a lien on substantially all the assets of CECO Environmental
Corp. and its subsidiaries.
Subordinated Debt
- -----------------
The subordinated debt was provided to CECO Environmental Corp. in the
amount of $4,000,000 by Green Diamond Oil Corp., $500,000 by ICS Trustee
Services, Inc. and $500,000 by Harvey Sandler. ICS Trustee Services, Inc. and
Harvey Sandler are not affiliated with the Company. Green Diamond Oil Corp. is
owned 50% by Phillip DeZwirek, the Chairman of the Board of Directors, Chief
Executive Officer and Chief Financial Officer of CECO Environmental Corp. and a
major stockholder and 50% by Jason DeZwirek, Phillip DeZwirek's son and a
director and secretary of CECO Environmental Corp. and a major stockholder of
CECO Environmental Corp. The promissory notes which were issued to evidence the
subordinated debt provide that they accrue interest at the rate of 12% per
annum, payable semi-annually subject to the subordination agreement with the
banks providing the financing referred to above.
3
<PAGE>
In consideration for the subordinated lenders making CECO Environmental
Corp. the subordinated loans, CECO Environmental Corp. issued to the
subordinated lenders warrants to purchase up to 1,000,000 shares of CECO
Environmental Corporation common stock for $2.25 per share, the closing price of
CECO Environmental Corp. common stock on the day that the subordinated lenders
entered into an agreement with CECO Environmental Corp. to provide the
subordinated loans. The warrants are exercisable from June 6, 2000 until 5:30
p.m. New York time on December 7, 2009. In connection with such warrants, the
subordinated lenders were granted certain registration rights with respect to
their warrants and shares of common stock of CECO Environmental Corp. into which
the warrants are convertible.
The KBD/Technic, Inc. Voting Trust
- ----------------------------------
One of the Companies being acquired, kbd/Technic, Inc., may engage in
engineering services in the State of Ohio and in other states. In order to be
corporation licensed to perform engineering services in the state of Ohio, Ohio
law requires that a majority of the stock of kbd/Technic, Inc. be owned by a
licensed engineer. CECO Group, Inc. has therefore arranged that the stock of
kbd/Technic, Inc. be owned by a voting trust of which Richard J. Blum, the
president of CECO Group, Inc., is the trustee. CECO Group, Inc. remains the
beneficial owner of 100% of the stock of kbd/Technic, Inc.
The Business of The Kirk & Blum Manufacturing Company and kbd/Technic, Inc.
- ---------------------------------------------------------------------------
The newly acquired Kirk & Blum Manufacturing Company ("K&B"), with
headquarters 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 clean
air systems inside manufacturing plants, as well as systems that purify
emissions from manufacturing facilities. K&B serves its customers from offices
and plants in Cincinnati, OH, Indianapolis, IN, Louisville and Lexington, KY,
Columbia, TN, and Greensboro, NC. In October 1998, Engineering News Record
ranked K&B as the largest specialty sheet metal contractor in the country. With
a diversified base of more than 1,500 active customers, K&B provides services to
a number of industries including aerospace, ceramics, metalworking, printing,
paper, food, foundries, metal plating, woodworking, chemicals, tobacco, glass,
automotive, and pharmaceuticals. No customer accounted for more than 8% of total
1998 revenue, while the top 50 customers accounted for approximately 54% of
K&B's revenues.
K&B has four lines of business, all evolving from the original air
pollution systems business. The largest division, located in six strategic
locations and accounting for 76% of net sales in 1998, is the Air Pollution
Control Systems Division. This division fabricates and installs industrial
ventilation, dust, fume, and mist control systems, as well as automotive spray
booth systems, industrial and process piping, and other industrial sheet metal
work. Well known customers include General Motors, Procter & Gamble, Ingersoll
Milling Machine, Toyota, Saturn, Matsushita, and Alcoa.
4
<PAGE>
The Custom Metal Fabrication Division accounted for 11% of net sales in
1998. This division fabricates parts, subassemblies, and customized products for
air pollution and non-air pollution applications from sheet, plate, and
structurals. The Air Pollution Control Systems Division purchases products and
services from this division and accounted for 12% of its total sales in 1998.
This relationship gives K&B the ability to meet project schedules and cost
targets in air pollution control projects while generating additional
fabrication revenue in support of non-air pollution control industries in the
tri-state region surrounding Cincinnati. External customers include Siemens
Energy & Automation, Duriron and Eastman Chemical. At the end of 1998 in an
effort to reduce overhead, the Custom Metal Fabrication Division was merged into
the Cincinnati Air Pollution Control Systems Division operation.
The Component Parts Division accounted for 11% of net sales in 1998.
This division provides standard and custom components for contractors and
companies that design and/or install their own air systems. Products include
angle rings, elbows, cut-offs, and other components used in ventilation systems.
Major distributors of this division's products include N.B. Handy, Three States
Supply, Albina Pipe Bending, and Indiana Supply.
Kbd/Technic, Inc., a sister company of K&B, 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, electrical), sound
and vibration system engineering, and other special projects. In addition to
generating service revenue, kbd/Technic, Inc. often serves as a referral source
for other K&B divisions. Customers include General Motors, Ford, Baldwin Graphic
Products, Emtec, and Heidelberg & Harris.
K&B has approximately 550 full-time employees, including approximately
425 shop and field personnel represented by unions. The level of field personnel
fluctuates with the level of work. Union contracts with shop and field personnel
expire on various dates at various locations.
Change in Corporate Structure
- -----------------------------
As part of the acquisition of The Kirk & Blum Manufacturing Company,
CECO Environmental Corp. created CECO Group, Inc. as a wholly-owned subsidiary
for the purpose of holding all the stock of its operating companies. Immediately
following the acquisition of The Kirk & Blum Manufacturing Company, CECO Group,
Inc. beneficially owned The Kirk & Blum Manufacturing Company, kbd/Technic, Inc.
(through the voting trust referred to above) and the approximately 94% of CECO
Filters, Inc. formerly held by CECO Environmental Corp. The other operating
companies controlled by CECO Environmental Corp. are wholly-owned subsidiaries
of CECO Filters, Inc.
5
<PAGE>
On December 10, 1999, pursuant to his employment contract with CECO
Group, Inc., Richard J. Blum, the president of The Kirk & Blum Manufacturing
Company, was appointed President and Chief Executive Officer of CECO Group, Inc.
CECO Environmental Corp. has no plans to change the business of these
two companies and will integrate these companies with the existing businesses of
CECO Environmental Corp.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits:
(a) Financial Statements of Business Acquired.
No financial statements are included for kbd/Technic, Inc., the second
company acquired, because kbd/Technic, Inc. constitutes a financially
insignificant portion of the businesses acquired.
The financial statements of The Kirk & Blum Manufacturing Company for
the fiscal years ended December 31, 1996, 1997 and 1998 and the nine-month
period ended September 30, 1999 and other data are presented on the following
pages:
6
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
with
INDEPENDENT AUDITORS' REPORT
<PAGE>
RIPPE & KINGSTON CO PSC
Certified Public Accountants
& Consultants Rookwood Building o 1077 Celestial Street
Cincinnati, Ohio 45202-1696
(513) 241-1375
Fax: (513) 241-7843
The Shareholders
The Kirk & Blum Manufacturing Company
Independent Auditors' Report
----------------------------
We have audited the accompanying balance sheet of The Kirk & Blum
Manufacturing Company as of December 31, 1996, and the related statements of
income, shareholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly,
in all material respects, the financial position of The Kirk & Blum
Manufacturing Company as of December 31, 1996 and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
Rippe & Kingston Co.PSC
April 16, 1997, except for Note 14, as to
Which the date is December 2, 1999.
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
BALANCE SHEET
December 31, 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 441,578
Available-for-sale securities 2,290,448
Current portion of debt securities to be held-to-maturity 56,399
Accounts receivable:
Trade 14,483,774
Employee advances and other 58,770
Related party 103,339
-------------
14,645,883
Less allowance for doubtful accounts ( 87,000)
-------------
14,558,883
Inventories:
Raw materials and supplies 810,657
Work in process and finished products 490,671
-------------
1,301,328
Costs and estimated earnings in excess of billings on
uncompleted contracts 3,131,953
Prepaid expenses and deposits 65,072
-------------
Total current assets 21,845,661
PROPERTY, PLANT AND EQUIPMENT 2,962,390
INVESTMENTS AND OTHER ASSETS:
Capital stock of The Factory Power Company, at cost 24,300
Intangible pension asset 188,333
Debt securities to be held-to-maturity, net of
current portion 696,464
Cash surrender value of life insurance, net of policy
loans of $338,509 at December 31, 1996 2,484,956
------------
Total investments and other assets 3,394,054
------------
$28,202,104
============
The accompanying notes are an integral
part of these financial statements.
2
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,563,547
Accrued liabilities:
Salaries and wages 1,790,202
Taxes 195,017
Workers compensation 85,500
Profit sharing contribution 540,906
Other 225,051
------------
2,836,676
Billings in excess of costs and estimated earnings on
uncompleted contracts 933,408
Current portion of long-term debt 10,000
Current portion of capital lease obligations 127,448
Current portion of post retirement health care liability 40,000
Note payable - related party 320,000
------------
Total current liabilities 7,831,079
LONG-TERM DEBT, less current portion 723,670
CAPITAL LEASE OBLIGATIONS, less current portion 389,854
WORKERS COMPENSATION LIABILITY, net of current portion 354,763
POST RETIREMENT HEALTH CARE LIABILITY, net of current portion 646,349
PENSION LIABILITY 91,659
SHAREHOLDERS' EQUITY:
Class A common stock, no par value, authorized 250,000 shares,
Issued 104,420 shares 64,420
Excess of additional pension liability over unrecognized
prior service cost ( 142,533)
Retained earnings 18,242,843
-------------
Total shareholders' equity 18,164,730
-------------
$28,202,104
=============
The accompanying notes are an integral
part of these financial statements.
3
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
STATEMENT OF INCOME
For The Year Ended December 31, 1996
NET SALES $66,575,044
COST OF SALES:
Materials purchased (less discounts and scrap sales) 24,246,975
Direct labor 14,996,013
Direct costs 8,366,860
Manufacturing expenses 5,281,449
Change in ending inventories and percentage of completion costs 631,707
-----------
53,523,004
-----------
Gross profit 13,052,040
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling 3,510,625
General and administrative 4,785,614
-----------
8,296,239
-----------
Income from operations 4,755,801
OTHER INCOME (EXPENSE):
Interest income 146,812
Interest expense ( 112,634)
Rental income 18,000
Pension ( 123,200)
Other 1,600
------------
( 69,422)
------------
Income before taxes 4,686,379
PROVISION FOR INCOME TAXES 101,635
------------
Net income $ 4,584,744
============
The accompanying notes are an integral
part of these financial statements.
4
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
STATEMENT OF SHAREHOLDERS' EQUITY
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Common Stock
Common Stock - Class A (Note 8) Class B (Note 8) Excess of Additional
-------------------------------- ------------------- Pension Liability Over
Held in Out- Out- Unrecognized Prior
Treasury Standing Amount Standing Amount Service Cost
-------- -------- ------ -------- ------ ----------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995, as previously
reported 42,750 64,420 $64,420 $ -
Prior period adjustment - minimum pension
liability adjustment (Note 14) - - - ( 342,359)
Prior period adjustment - retiree health care - - - -
Prior period adjustment - self insured
workers compensation - - - -
------ ------ ------ ---------
BALANCE, December 31, 1995, Restated 42,750 64,420 64,420 ( 342,359)
Retirement of common stock
held in treasury ( 2,750) - - -
Minimum pension liability adjustment - - - 199,826
Net income - - - -
Earnings distributions - - - -
------ ------ ------- ------- -------- ---------
BALANCE, December 31, 1996 40,000 64,420 $64,420 - $ - ($142,533)
====== ====== ======= ====== ======== =========
</TABLE>
<TABLE>
<CAPTION>
Total
Retained Shareholders'
Earnings Equity
---------- ---------------
<S> <C> <C>
BALANCE, December 31, 1995, as previously
reported $16,550,313 $16,614,733
Prior period adjustment - minimum pension
liability adjustment (Note 14) - ( 342,359)
Prior period adjustment - retiree health care ( 667,452) ( 667,452)
Prior period adjustment - self insured
workers compensation ( 337,262) ( 337,262)
------------ ------------
BALANCE, December 31, 1995, Restated 15,545,599 15,267,660
Retirement of common stock
held in treasury - -
Minimum pension liability adjustment - 199,826
Net income 4,584,744 4,584,744
Earnings distributions ( 1,887,500) ( 1,887,500)
------------ ------------
BALANCE, December 31, 1996 $18,242,843 $18,164,730
============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
5
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
STATEMENT OF CASH FLOWS
For The Year Ended December 31, 1996
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $4,584,744
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on sale of equipment 14,471
Depreciation and amortization 786,640
Amortization of bond discount ( 50,056)
Change in assets and liabilities:
Increase in accounts receivable ( 2,930,744)
Decrease in inventories 249,505
Decrease in prepaid expenses and deposits 8,798
Increase in cash surrender value of life insurance ( 148,310)
Increase in accounts payable 340,271
Increase in accrued liabilities 278,117
Net decrease in billings in excess of costs and estimated earnings
and costs and estimated earnings in excess of billings on
uncompleted contracts ( 548,486)
Post retiree health care liability 18,897
-----------
Net cash provided by operating activities 2,603,847
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment 22,876
Capital expenditures ( 703,028)
Collections on note receivable 126,400
Proceeds from maturities of debt securities 55,000
Purchases of available-for-sale securities ( 5,040,448)
Proceeds from sale of available-for-sale securities 2,750,000
-----------
Net cash used in investing activities ( 2,789,200)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable - related party 320,000
Principal payments on long-term debt ( 10,000)
Principal payments on capital lease obligation ( 117,532)
Distributions paid to shareholders ( 2,700,000)
-----------
Net cash used in financing activities ( 2,507,532)
-----------
Net decrease in cash and cash equivalents ( 2,692,885)
CASH AND CASH EQUIVALENTS:
Beginning of year 3,134,463
-----------
End of year $ 441,578
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $111,307
========
Income taxes $ 76,854
========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
For the Year Ended December 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - The Company manufactures and fabricates custom
sheet metal products which include dust and fume control systems, automotive
paint booths, tanks and sheet metal component parts. Sales are made on an
unsecured basis to customers located throughout the United States.
Revenue Recognition - For financial reporting purposes, the Company
records revenue on all significant contracts using the percentage-of-completion
method of accounting. The percentage-of-completion is determined by experienced
company personnel on a contract-by-contract basis based on labor and/or material
costs incurred relative to total estimated contract costs. The specific method
chosen is the most applicable based on the nature of each contract. The contract
price is recognized as revenue based upon the percentage of completion. If the
contract extends beyond one year and revisions are necessary in cost and profit
estimates during the course of the work, they are reflected in the accounting
period in which the facts giving rise to the revision become known. General and
administrative expenses are charged to expense when incurred.
The Company uses the completed-contract method of accounting for all
contracts where nominal costs have been incurred prior to year-end or the total
contract value is relatively insignificant.
Cash and Cash Equivalents - For purposes of the statement of cash
flows, cash and cash equivalents include highly liquid investments with original
maturities of three months or less.
Inventories - The labor content of work-in-process and finished
products and all inventories of steel of the Company are valued at the lower of
cost or market using the last-in, first-out (LIFO) method. All other inventories
of the Company are accounted for at the lower of average cost or market. If the
first-in, first-out (FIFO) method of inventory valuation had been used by the
Company for all classes of inventory, the carrying value of inventories would
have been approximately $1,817,000 higher than that reported at December 31,
1996.
Depreciation - Depreciation and amortization are computed generally on
accelerated methods over the estimated useful lives of the related assets.
Credit Risk - As of December 31, 1996, the Company's cash on deposit
with its bank exceeded the federally insured amount.
Income Taxes - The Company's shareholders have elected to be treated as
an S-Corporation for income tax reporting purposes and, thereby, have the
Company's taxable income pass
7
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
through to its shareholders to be taxed on their individual returns. Certain
state and local taxing authorities do not recognize S-Corporation status as
allowed under the Internal Revenue Code. In these situations, the Company has
provided for income taxes at appropriate rates on applicable taxable income.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
2. COSTS AND ESTIMATED EARNINGS ON CONTRACTS
At year end, the Company has several uncompleted construction projects
at stages of completion ranging from 5% to 99%. Costs and estimated earnings on
these contracts consist of the following at December 31:
Costs incurred on uncompleted contracts $7,079,266
Estimated earnings on uncompleted contracts 1,133,506
----------
8,212,772
Less billings to date ( 6,014,227)
----------
$2,198,545
==========
The above amounts are reflected in the financial statements as follows:
<TABLE>
<CAPTION>
<S> <C>
Costs and estimated earnings in excess of billings on uncompleted
contracts $3,131,953
Billings in excess of costs and estimated earnings on uncompleted
contracts ( 933,408)
----------
$2,198,545
==========
</TABLE>
3. INVESTMENTS
Available-For-Sale Securities - Available-for-sale securities consist
of investments in a mutual fund at December 31, 1996. The carrying value of the
shares approximate the fair market value at December 31, 1996. The mutual fund
paid $38,732 in dividends during 1996.
Debt Securities to be Held-to-Maturity - Debt securities to be
held-to-maturity at December 31 consist of the following:
Zero coupon municipal bonds, carried at amortized cost
maturing through March, 1998. $745,363
Notes receivable 7,500
--------
$752,863
========
8
<PAGE>
The face amount and fair value of the municipal bonds were $800,000 and
$729,487 at December 31, 1996, respectively.
4. REVOLVING LINE OF CREDIT
The Company has available through July 11, 1997, a $6,000,000
line-of-credit which bears interest at the bank's prime rate (8.25% at December
31, 1996). The Company has the option at any time to adjust the interest rate to
the London Inter-Bank offered rate (LIBOR) plus 200 basis points. The
line-of-credit is unsecured and, at December 31, 1996, had no outstanding
borrowings.
5. LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Notes payable to the beneficiaries of an estate of a former shareholder in
annual installments of $10,000 plus interest at 6% with payment of the
remaining principal and interest due in 1998, secured by 40,000 shares of
treasury common stock. $733,670
Less current portion ( 10,000)
--------
$723,670
========
</TABLE>
Future maturities of long-term debt are as follows:
Year Ending
December 31,
1997 $ 10,000
1998 723,670
--------
$733,670
========
6. CAPITAL LEASE OBLIGATIONS
The Company leases equipment under capital lease obligations expiring
through 2001. The assets are being amortized over the related lease terms. The
cost included in machinery and
9
<PAGE>
6. CAPITAL LEASE OBLIGATIONS (Continued)
equipment and accumulated amortization is $890,982 and $585,059 at December 31,
1996, respectively.
Future minimum lease payments under the capital lease agreements as of
December 31, 1996 for each of the next five years and in the aggregate are:
Year Ending
December 31,
1997 $156,552
1998 156,552
1999 156,552
2000 87,845
2001 23,961
--------
581,462
Less amount representing interest ( 64,160)
--------
517,302
Less current portion ( 127,448)
--------
$389,854
========
7. RELATED PARTY TRANSACTIONS
Accounts Receivable - The Company has a non-interest bearing receivable
due from an entity which is related through common ownership. The receivable
results from expenses paid by the Company on behalf of the related entity,
including 401(k) contributions, utility expenses and insurance expenses. The
Company also leases space on a month-to-month basis to the related entity for
$1,500 per month. Rental income for this related entity was $18,000 for the year
ended December 31, 1996.
Note Payable - The Company has an unsecured $320,000 demand note
payable to The Factory Power Company, an entity in which the Company has stock
ownership. Interest is due monthly at the London Inter-Bank offered rate (LIBOR)
(5.5% at December 31, 1996) plus .75%.
8. COMMON STOCK AND SUBSEQUENT EVENT
Under agreements with certain employee/shareholders, the Company is
required to redeem their holdings of common stock in the event of the employee's
death, desire to sell, termination of employment, or retirement. Shares
purchased by the employee/shareholders prior to December 14, 1969 (1,750 shares)
are redeemable at 75% of the book value per share of the Company for the fiscal
year end preceding the date of the transaction.
10
<PAGE>
8. COMMON STOCK AND SUBSEQUENT EVENT (Continued)
Under agreements with certain other shareholders, the Company has the
right of first refusal regarding the sale or other transfer of the Company's
common stock.
On March 19, 1997, the Company amended its Articles of Incorporation
and authorized 300,000 shares of no par value common stock, of which 75,000
shares are Class A voting and 225,000 shares of Class B non-voting common stock.
Each shareholder has the same rights and privileges except that the Class B
non-voting shareholders cannot vote. The Company issued 188,010 shares of Class
B non-voting common stock.
9. LEASE COMMITMENTS
The Company is committed under noncancelable operating lease agreements
to lease certain plant facilities, computer equipment and other equipment
through January, 1998.
Future minimum annual operating lease payments are approximately as
follows:
Year Ending
December 31,
1997 $ 96,000
1998 4,000
--------
$100,000
========
Total rental expense was approximately $1,107,000 for 1996.
10. PENSION AND PROFIT SHARING PLANS
The Company sponsors a noncontributory defined benefit pension plan for
certain union employees. The plan is funded in accordance with the funding
requirements of the Employee Retirement Income Security Act of 1974.
Net periodic pension cost for the fiscal period ended December 31, 1996
is as follows:
Service cost $155,400
Interest cost 183,700
Return on plan assets ( 168,300)
Net amortization and deferral ( 47,600)
--------
Net periodic pension cost $123,200
========
11
<PAGE>
10. PENSION AND PROFIT SHARING PLANS (Continued)
The following reconciles the funded status of the defined benefit plan
with amounts recognized in the accompanying balance sheet at December 31:
Actuarial present value of benefit obligations:
Vested benefits $2,641,360
Nonvested benefits 44,712
----------
Accumulated benefit obligation 2,686,072
Effect of anticipated future events 393,515
----------
Projected benefit obligation 3,079,587
Plan assets at fair value ( 2,594,413)
----------
Unfunded excess of projected benefit
obligation over plan assets $ 485,174
==========
The unfunded excess consists of the following:
Unamortized prior service costs $188,333
Unrecognized net asset at transition ( 158,800)
Unrecognized net loss 694,848
Prepaid pension asset ( 239,207)
--------
$485,174
========
Unamortized prior service cost $188,333
Unrecognized net asset at transition ( 158,800)
Unrecognized net loss 694,848
Prepaid pension asset ( 239,207)
--------
$485,174
========
The Company has recognized the excess of the accumulated benefit
obligation in excess of the plan assets, the minimum liability, of $91,659, in
the balance sheet at December 31, 1996.
The weighted average discount rate used in determining the net periodic
pension income and the projected benefit obligation was 7% for the year ended
December 31, 1996. The expected rate of return on plan assets utilized was 8.5%
for the year ended December 31, 1996. Benefits under the plan are not based on
wages and, therefore, future wage adjustments have no effect on the projected
benefit obligation.
The Company also sponsors a post retirement health care plan for office
employees. Effective January 1, 1990, the plan was amended and retirees after
that date are not eligible to receive benefits under the plan. The plan allows
retirees who have attained the age of 65 to elect the type of coverage desired.
The following amounts relate to the Company's defined benefit post retirement
health care plan at December 31, 1996.
12
<PAGE>
10. PENSION AND PROFIT SHARING PLANS (Continued)
Benefit obligation $686,349
Fair value of plan assets -
--------
Funded status ($686,349)
========
Accrued benefit cost recognized in the statement of
financial position $686,349
Weighted average assumption - discount rate 7%
Benefits under the plan are not based on wages and, therefore, future
wage adjustments have no effect on the projected benefit obligation. For
measurement purposes, a 7% annual rate of increase in the cost of health care
benefits was assumed for 1996. The rate was assumed to increase through 2004 at
4% to 6%.
Benefit cost $113,150
Company distributions 121,225
Benefits paid 121,225
In addition to the above, the Company contributes to several
multi-employer defined benefit plans. These plans cover substantially all of its
contracted union employees not covered in the aforementioned plan. If the
Company were to withdraw from its participation in these multi-employer plans at
that time, the Company will be required to contribute its share of the Plan's
unfunded benefit obligation. Management has no intention of withdrawing from any
plan and, therefore, no liability has been provided for in the accompanying
financial statements.
The Company also sponsors a profit sharing and 401(k) savings
retirement plan for non-union employees. The plan covers substantially all
employees who have completed one year of service, completed 1,000 hours of
service and who have attained 21 years of age. The plan allows the Company to
make discretionary contributions and provides for employee salary reductions of
up to 15%. The Company provides matching contributions of 25% of the first 5% of
employee contributions. Matching contributions during 1996 were $57,185.
Discretionary contributions for the year ended December 31, 1996 were $542,815.
Amounts charged to pension expense under the above plans totaled
approximately $1,224,000 for the year ended December 31, 1996.
11. SELF-INSURANCE COVERAGES
The Company is self-insured for workers compensation coverage in the
state of Ohio, in accordance with the requirements of the state. In Ohio, the
Company will pay all eligible workers
13
<PAGE>
11. SELF-INSURANCE COVERAGES (Continued)
compensation claims up to $350,000 per individual and the statutory limit in the
aggregate for the state. All eligible claims in excess of these amounts are
covered under a policy with an insurance company. The balance sheet includes a
liability of $440,263 at December 31, 1996 for claims incurred.
12. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1996 consist of the
following:
Land $ 247,773
Buildings and improvements 4,749,771
Machinery and equipment 8,204,993
Automotive 733,332
Office furniture and fixtures 1,223,776
-----------
15,159,645
Less accumulated depreciation and amortization ( 12,197,255)
-----------
Net property, plant and equipment $ 2,962,390
===========
13. ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1996 includes unbilled amounts of
$2,477,066. Unbilled amounts at year end represent work performed during the
year which are not billed until January of the following year.
14. PRIOR PERIOD ADJUSTMENT
Shareholders' equity at December 31, 1995 has been adjusted to correct
an error for not previously recording a minimum pension liability relating to a
defined benefit plan for union employees. The accumulated benefit obligation
exceeded the plan assets at December 31, 1995. The error had no effect on net
income for 1996.
The accompanying 1996 financial statements have been restated to
correct for errors associated with the underrecording of liabilities related to
self insured workers compensation for the State of Ohio and benefits due under a
retiree health care plan. The net effect was to decrease net income for 1996 by
$121,898. Retained earnings at the beginning of 1996 has been decreased by
$1,004,714 for the effects of not recording the liabilities at December 31,
1995.
14
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
with
INDEPENDENT AUDITORS' REPORT
<PAGE>
RIPPE & KINGSTON CO PSC
Certified Public Accountants
& Consultants Rookwood Building o 1077 Celestial Street
Cincinnati, Ohio 45202-1696
(513) 241-1375
Fax: (513) 241-7843
The Shareholders
The Kirk & Blum Manufacturing Company
Independent Auditors' Report
We have audited the accompanying balance sheet of The Kirk & Blum
Manufacturing Company as of December 31, 1998 and 1997, and the related
statements of income, shareholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly,
in all material respects, the financial position of The Kirk & Blum
Manufacturing Company as of December 31, 1998 and 1997 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Rippe & Kingston Co.PSC
March 11, 1999
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
BALANCE SHEET
December 31, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
- ------ ---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,359,776 $ 1,129,544
Available-for-sale securities - 1,025,808
Securities to be held-to-maturity - 745,740
Accounts receivable:
Trade 14,681,985 14,328,645
Employee advances and other 46,880 83,453
Related party 44,118 44,232
------------ ------------
14,772,983 14,456,330
Less allowance for doubtful accounts (125,000) (87,000)
------------ ------------
14,647,983 14,369,330
Inventories:
Raw materials and supplies 626,920 752,693
Work in process and finished products 460,505 399,781
------------ ------------
1,087,425 1,152,474
Costs and estimated earnings in excess of billings on
uncompleted contracts 2,029,373 2,207,121
Prepaid expenses and deposits 211,305 191,303
------------ ------------
Total current assets 19,335,862 20,821,320
PROPERTY, PLANT AND EQUIPMENT 2,762,749 2,782,558
INVESTMENTS AND OTHER ASSETS:
Capital stock of The Factory Power Company, at cost 24,300 24,300
Intangible pension asset 186,467 173,934
Cash surrender value of life insurance, net of policy loans
of $117,731 at December 31, 1998 and 1997 2,741,442 2,578,544
------------ ------------
Total investments and other assets 2,952,209 2,776,778
------------ ------------
$25,050,820 $26,380,656
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,817,657 $ 2,218,846
Accrued liabilities:
Salaries and wages 1,842,472 1,652,361
Taxes 165,857 164,026
Workers compensation 98,000 109,000
Profit sharing contribution 432,557 390,538
Other 784,463 402,718
------------ ------------
3,323,349 2,718,643
Billings in excess of costs and estimated earnings on
uncompleted contracts 364,446 1,536,410
Current portion of long-term debt - 723,670
Current portion of capital lease obligations 144,470 135,691
Current portion of post retirement healthcare liability 40,000 40,000
------------ ------------
Total current liabilities 6,689,922 7,373,260
LINE OF CREDIT 4,000,000 -
CAPITAL LEASE OBLIGATIONS, less current portion 107,521 254,164
WORKERS COMPENSATION LIABILITY less current portion 147,529 245,708
POST RETIREMENT HEALTHCARE LIABILITY, less current portion 627,699 656,244
PENSION LIABILITY - 161,710
SHAREHOLDERS' EQUITY:
Class A common stock, no par value, 105,000 shares,
authorized, 102,670 issued 62,670 62,670
Class B nonvoting common stock, no par value, 225,000
shares authorized, 188,010 shares issued and outstanding 188,010 188,010
Accumulated other comprehensive income - (214,226)
Retained earnings 13,227,469 17,653,116
------------ ------------
Total shareholders' equity 13,478,149 17,689,570
------------ ------------
$25,050,820 $26,380,656
============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
2
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
STATEMENT OF INCOME
For The Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
NET SALES $69,443,929 $63,420,741
COST OF SALES:
Materials purchased (less discounts and scrap sales) 23,474,968 23,236,675
Direct labor 18,261,258 15,222,995
Direct costs 9,647,061 8,149,281
Manufacturing expenses 5,143,569 5,025,975
Change in ending inventories and percentage of
completion costs 265,462 316,941
----------- -----------
56,792,318 51,951,867
----------- -----------
Gross profit 12,651,611 11,468,874
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling 3,719,505 3,410,621
General and administrative 5,134,988 4,953,749
----------- -----------
8,854,493 8,364,370
----------- -----------
Income from operations 3,797,118 3,104,504
OTHER INCOME (EXPENSE):
Interest income 90,096 193,414
Interest expense (263,584) (90,345)
Rental income 21,600 21,700
Other 26,694 185,808
----------- -----------
(125,194) 310,577
----------- -----------
Income before taxes 3,671,924 3,415,081
PROVISION FOR INCOME TAXES 62,571 60,110
----------- -----------
Net income $ 3,609,353 $ 3,354,971
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
3
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
STATEMENT OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock Accumulated Other
Common Stock - Class A Class B Comprehensive
------------------------------- ------------------- Income - Minimum
Held in Out- Out- Pension Liability
Treasury Standing Amount Standing Amount Adjustment
--------- --------- -------- --------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996, as
previously reported 40,000 64,420 $64,420 ($142,533)
Prior period adjustment - retiree health care - - - -
Prior period adjustment - self insured
workers compensation - - - -
------ ------ ------ --------
BALANCE, December 31, 1996, as restated 40,000 64,420 64,420 (142,533)
Comprehensive income:
Net income (Note 14) - - - -
Other comprehensive income:
Minimum pension liability adjustment - - - (71,693)
Comprehensive income
Purchase and retirement of common stock - (1,750) (1,750) -
Issuance of common stock - - - 188,010 $188,010 -
Distributions - - - - - -
------ ------ ------ ------- -------- ---------
BALANCE, December 31, 1997 40,000 62,670 62,670 188,010 188,010 (214,226)
Comprehensive income:
Net income - - - - - -
Other comprehensive income:
Minimum pension liability adjustment - - - - - 214,226
Comprehensive income
Distributions - - - - - -
------ ------ ------ ------- -------- ---------
BALANCE, December 31, 1998 40,000 62,670 $62,670 188,010 $188,010 $ -
====== ====== ======= ======= ======== =========
</TABLE>
<PAGE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Total
Retained Shareholders'
Earnings Equity
----------- -------------
<S> <C> <C>
BALANCE, December 31, 1996, as
previously reported $19,369,455 $19,291,342
Prior period adjustment - retiree health care (686,349) (686,349)
Prior period adjustment - self insured
workers compensation (440,263) (440,263)
----------- -----------
BALANCE, December 31, 1996, as restated 18,242,843 18,164,730
Comprehensive income:
Net income (Note 14) 3,354,971 3,354,971
Other comprehensive income:
Minimum pension liability adjustment - (71,693)
----------
Comprehensive income 3,283,278
Purchase and retirement of common stock (116,360) (118,110)
Issuance of common stock (188,010) -
Distributions (3,640,328) (3,640,328)
---------- ----------
BALANCE, December 31, 1997 17,653,116 17,689,570
Comprehensive income:
Net income 3,609,353 3,609,353
Other comprehensive income:
Minimum pension liability adjustment - 214,226
------------
Comprehensive income 3,823,579
Distributions (8,035,000) (8,035,000)
----------- -----------
BALANCE, December 31, 1998 $13,227,469 $13,478,149
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
4
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
STATEMENT OF CASH FLOWS
For The Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,609,353 $3,354,971
Adjustments to reconcile net income to net cash provided by
operating activities:
Gain (loss) on sale of equipment (17,763) (4,004)
Depreciation and amortization 740,303 751,574
Allowance for doubtful accounts 38,000 -
Amortization of bond discount (4,260) (50,377)
Changes in assets - (increase) decrease:
Accounts receivable (316,653) 195,153
Inventories 65,049 148,854
Prepaid expenses and deposits 19,981 (113,474)
Cash surrender value of life insurance (162,898) (93,588)
Changes in liabilities - increase (decrease):
Accounts payable 598,811 (1,344,701)
Accrued liabilities 506,527 (227,088)
Billings in excess of costs and estimated earnings and
costs and estimated earnings in excess of billings (994,216) 1,527,834
Post retirement healthcare liability (28,545) 9,895
---------- ----------
Net cash provided by operating activities 4,053,689 4,155,049
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment 17,763 13,165
Capital expenditures (720,494) (580,903)
Collections on note receivable - 1,900
Proceeds from redemption of securities held to maturity 750,000 50,000
Purchases of available-for-sale securities - (1,335,360)
Proceeds from sale of available-for-sale securities 1,025,808 2,600,000
---------- ----------
Net cash provided by investing activities 1,073,077 748,802
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit 4,000,000 -
Principal payments on long-term debt (723,670) (330,000)
Principal payments on capital lease obligation (137,864) (127,447)
Distributions paid to shareholders (8,035,000) (3,640,328)
Payments to purchase common stock - (118,110)
---------- ----------
Net cash used in financing activities (4,896,534) (4,215,885)
---------- ----------
Net increase in cash and cash equivalents 230,232 687,966
</TABLE>
The accompanying notes are an integral
part of these financial statements.
5
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
STATEMENT OF CASH FLOWS (CONTINUED)
For The Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH AND CASH EQUIVALENTS:
Beginning of year 1,129,544 441,578
----------- -----------
End of year $1,359,776 $1,129,544
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 91,795 $ 99,600
=========== ===========
Income taxes $ 56,573 $ 109,564
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
6
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1998 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - The Company manufactures and fabricates custom sheet
metal products which include dust and fume control systems, automotive paint
booths, tanks and sheet metal component parts. Sales are made on an unsecured
basis to customers located throughout the United States.
Revenue Recognition - For financial reporting purposes, the Company records
revenue on all significant contracts using the percentage-of-completion method
of accounting. The percentage-of-completion is determined by experienced
company personnel on a contract-by-contract basis based in part on costs
incurred, efforts expended and results achieved. The specific method chosen is
the most applicable based on the nature of each contract. Because of inherent
uncertainties in estimating, it is at least reasonably possible that the
estimates used will change within the near term. The contract price is
recognized as revenue based upon the percentage of completion. Changes in job
performance, job conditions, and estimated profitability may result in
revisions to costs and income, which are recognized in the period in which the
revisions are determined. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined. General
and administrative expenses are charged to expense when incurred.
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The liability, "Billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in excess of revenues recognized.
The Company uses the completed-contract method of accounting for all
contracts where nominal costs have been incurred prior to year-end or the total
contract value is relatively insignificant.
Cash and Cash Equivalents - For purposes of the statement of cash flows,
cash and cash equivalents include highly liquid investments with original
maturities of three months or less.
Inventories - The labor content of work-in-process and finished products
and all inventories of steel of the Company are valued at the lower of cost or
market using the last-in, first-out (LIFO) method. All other inventories of the
Company are accounted for at the lower of average cost or market. If the
first-in, first-out (FIFO) method of inventory valuation had been used by the
Company for all classes of inventory, the carrying value of inventories would
have been
7
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
approximately $2,026,000 and $1,978,000 higher than that reported at December
31, 1998 and 1997, respectively.
Depreciation - Depreciation and amortization are computed generally on
accelerated methods over the estimated useful lives of the related assets.
Credit Risk - As of December 31, 1998 and 1997, the Company's cash on
deposit with its bank exceeded the federally insured amount.
Income Taxes - The Company's shareholders have elected to be treated as an
S-Corporation for income tax reporting purposes and, thereby, have the
Company's taxable income pass through to its shareholders to be taxed on their
individual returns. Certain state and local taxing authorities do not recognize
S-Corporation status as allowed under the Internal Revenue Code. In these
situations, the Company has provided for income taxes at appropriate rates on
applicable taxable income.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Advertising - The Company expenses all advertising costs as incurred.
Advertising expense was approximately $150,000 and $100,000 for 1998 and 1997,
respectively.
2. COSTS AND ESTIMATED EARNINGS ON CONTRACTS
At year end, the Company has several uncompleted construction projects at
stages of completion ranging from 5% to 99%. Costs and estimated earnings on
these contracts consist of the following at December 31:
1998 1997
---------- ----------
Costs incurred on uncompleted contracts $6,645,680 $6,492,702
Estimated earnings on uncompleted contracts 1,214,520 871,535
---------- ----------
7,860,200 7,364,237
Less billings to date (6,195,273) (6,693,526)
---------- ----------
$1,664,927 $ 670,711
========== ==========
2. COSTS AND ESTIMATED EARNINGS ON CONTRACTS (Continued)
The above amounts are reflected in the financial statements as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Costs and estimated earnings in excess of billings
on uncompleted contracts $2,029,373 $2,207,121
Billings in excess of costs and estimated earnings
on uncompleted contracts (364,446) (1,536,410)
---------- ----------
$1,664,927 $ 670,711
========== ==========
</TABLE>
<PAGE>
3. INVESTMENTS
Available-For-Sale Securities - Available-for-sale securities consist of
investments in a mutual fund at December 31, 1997. The carrying value of the
shares approximate the fair market value at December 31, 1997. The account was
closed during 1998. The mutual fund paid $18,847 and $85,360 in dividends during
1998 and 1997, respectively.
Debt Securities to be Held-to-Maturity - Debt securities to be
held-to-maturity at December 31 consist of the following:
1998 1997
Zero coupon municipal bonds, carried at
amortized cost maturing through March, 1998. $ - $745,740
The face amount and fair value of the municipal bonds were $750,000 and
$745,193 at December 31, 1997.
4. REVOLVING LINE OF CREDIT
The Company has available through April 30, 2001, a $12,000,000
line-of-credit ($6,000,000 at December 31, 1997) which bears interest at either
the bank's prime rate minus 125 basis points or the London Inter-Bank offered
rate (LIBOR) plus 100 basis points. The Company may elect the LIBOR rate on all
or any portion of the outstanding line of credit balance, in minimum amounts of
$250,000. If elected, the Company must select a LIBOR interest period between 30
and 360 days. Interest is due at the end of the selected period at the
applicable LIBOR rate. The Company has elected the LIBOR rate and a 30 day
interest period at December 31, 1998. The 30 day LIBOR rate at December 31, 1998
was 5.06%. The line-of-credit is unsecured. The Company is required to meet
certain financial covenants regarding minimum net worth and debt to equity under
this agreement.
8
<PAGE>
5. LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Notes payable to the beneficiaries of an estate of a former
shareholder in annual installments of $10,000 plus interest at 6%
with payment of the remaining principal and interest due in 1998,
secured by 40,000 shares of treasury common stock. $ - $723,670
Less current portion - (723,670)
------- --------
$ - $ -
======= ========
</TABLE>
6. CAPITAL LEASE OBLIGATIONS
The Company leases equipment under capital lease obligations expiring
through 2001. The assets are being amortized over the related lease terms. The
cost included in machinery and equipment and accumulated amortization is
$890,982 and $751,962 at December 31, 1998, respectively and $890,982 and
$672,464 at December 31, 1997, respectively.
Future minimum lease payments under the capital lease agreements as of
December 31, 1998 for each of the next five years and in the aggregate are:
Year Ending
December 31,
------------
1999 $156,552
2000 87,845
2001 21,788
---------
266,185
Less amount representing interest (14,194)
---------
251,991
Less current portion (144,470)
---------
$107,521
=========
7. RELATED PARTY TRANSACTIONS
Accounts Receivable - The Company has a non-interest bearing receivable due
from an entity which is related through common ownership. The receivable results
from expenses paid by the Company on behalf of the related entity, including
401(k) contributions, utility expenses and insurance expenses. The Company also
leases space on a month-to-month basis to the related entity for approximately
$1,800 per month. Rental income from this related entity was $21,600 and $21,700
for the years ended December 31, 1998 and 1997, respectively.
9
<PAGE>
8. COMMON STOCK
Under agreements with certain employee/shareholders, the Company is
required to redeem their holdings of common stock in the event of the employee's
death, desire to sell, termination of employment, or retirement. Shares
purchased by the employee/shareholders prior to December 14, 1969 (1,750
shares) are redeemable at 75% of the book value per share of the Company for
the fiscal year end preceding the date of the transaction.
Under agreements with certain other shareholders, the Company has the right
of first refusal regarding the sale or other transfer of the Company's common
stock.
On March 19, 1997, the Company amended its Articles of Incorporation and
authorized 300,000 shares of no par value common stock, of which 75,000 shares
are Class A voting and 225,000 shares of Class B non-voting common stock. Each
shareholder has the same rights and privileges except that the Class B
non-voting shareholders cannot vote. The Company issued 188,010 shares of Class
B non-voting common stock.
On March, 16, 1998, the Company amended the Articles of Incorporation and
increased the number of authorized Class A voting common stock to 105,000
shares.
9. LEASE COMMITMENTS
The Company is committed under noncancelable operating lease agreements to
lease certain plant facilities and office equipment through June, 2001.
Future minimum annual operating lease payments are approximately as
follows:
Year Ending
December 31,
------------
1999 $142,000
2000 96,000
2001 10,000
--------
$248,000
========
Total rental expense was approximately $1,238,000 and $1,144,000 for 1998
and 1997, respectively.
10. PENSION AND PROFIT SHARING PLANS
The Company sponsors a noncontributory defined benefit pension plan for
certain union employees. The plan is funded in accordance with the funding
requirements of the Employee
10
<PAGE>
10. PENSION AND PROFIT SHARING PLANS (Continued)
Retirement Income Security Act of 1974.
The Company also sponsors a postretirement health care plan for office
employees. Effective January 1, 1990, the Plan was amended and retirees after
that date are not eligible to receive benefits under the plan. The Plan allows
retirees who have attained the age of 65 to elect the type of coverage desired.
The following amounts relate to the Company's defined benefit pension and
postretirement health care plans:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
----------------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Benefit obligation at December 31 $3,255,529 $3,297,069 $667,699 $696,244
Fair value of plan assets at
December 31 2,959,800 2,756,614 - -
----------- ----------- ---------- ---------
Funded status ($ 295,729) ($ 540,455) ($667,699) ($696,244)
=========== =========== ========= =========
Unamortized prior service costs $ 186,467 $ 173,934
Unrecognized net asset at transition (78,200) (118,500)
Unrecognized net loss 423,252 711,471
Prepaid pension asset (235,790) (226,450)
----------- -----------
($ 295,729) ($ 540,455)
=========== ===========
</TABLE>
The Company has recognized the excess of the accumulated benefit obligation
in excess of the plan assets, the minimum liability, of $161,710 in the balance
sheet at December 31, 1997.
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
-------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Accrued benefit cost recognized
in the statement of financial
position $667,699 $696,244
Weighted average assumptions
as of December 31:
Discount rate 7% 7% 7% 7%
Expected return on plan assets 8.5% 8.5% - -
Rate of compensation increase - - - -
</TABLE>
Benefits under the plans are not based on wages and, therefore, future wage
adjustments have no effect on the projected benefit obligations. For measurement
purposes, a 7% annual
11
<PAGE>
10. PENSION AND PROFIT SHARING PLANS (Continued)
rate of increase in the cost of health care benefits was assumed for 1999. The
rate was assumed to increase through 2004 at 4% to 6%.
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
-------------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Benefit cost $ 91,300 $105,800 $118,602 $117,498
Company contributions 100,000 93,966 99,996 88,723
Benefits paid 163,494 143,721 99,996 88,723
</TABLE>
In connection with collective bargaining agreements, the Company
participates with other companies in defined benefit pension plans. These plans
cover substantially all of its contracted union employees not covered in the
aforementioned plan. If the Company were to withdraw from its participation in
these multi-employer plans at that time, the Company will be required to
contribute its share of the Plan's unfunded benefit obligation. Management has
no intention of withdrawing from any Plan and, therefore, no liability has been
provided for in the accompany-ing financial statements.
The Company also sponsors a profit sharing and 401(k) savings retirement
plan for non-union employees. The plan covers substantially all employees who
have completed one year of service, completed 1,000 hours of service and who
have attained 21 years of age. The plan allows the Company to make discretionary
contributions and provides for employee salary reductions of up to 15%. The
Company provides matching contributions of 25% of the first 5% of employee
contributions. Matching contributions during 1998 and 1997 were $56,178 and
$59,462, respectively. Discretionary contributions for the years ended December
31, 1998 and 1997 were $434,806 and $390,538, respectively.
Amounts charged to pension expense under the above plans totaled
approximately $2,038,177 and $1,495,700 for the years ended December 31, 1998
and 1997, respectively.
11. SELF-INSURANCE COVERAGES
The Company is self-insured for workers compensation coverage in the state
of Ohio, in accordance with the requirements of the state. In Ohio, the Company
will pay all eligible workers compensation claims up to $225,000 per individual
and the statutory limit in the aggregate for the state. All eligible claims in
excess of these amounts are covered under a policy with an insurance company.
The balance sheet includes a liability of $245,529 and $354,708 at December 31,
1998 and 1997, respectively, for claims incurred.
12
<PAGE>
12. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Land $ 247,772 $ 247,773
Buildings and improvements 4,841,033 4,841,033
Machinery and equipment 8,850,776 8,449,371
Automotive 918,377 786,345
Office furniture and fixtures 1,216,227 1,249,832
------------ ------------
16,074,185 15,574,354
Less accumulated depreciation and amortization (13,311,436) (12,791,796)
------------ ------------
Net property, plant and equipment $ 2,762,749 $ 2,782,558
============ ============
</TABLE>
13. ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1998 and 1997 includes unbilled amounts
of $1,785,411 and $2,314,550, respectively. Unbilled amounts at year end
represent work performed during the year which are not billed until January of
the following year.
14. PRIOR PERIOD ADJUSTMENT
The accompanying financial statements for 1997 have been restated to
correct for errors associated with the underrecording of liabilities related to
self insured workers compensation for the State of Ohio, additional insurance
premiums and benefits due under a retiree health care plan. The net effect of
the restatements was to decrease net income for 1997 by $72,709. Retained
earnings at the beginning of 1997 has been decreased by $1,126,612 for the
effects not recording the liabilities at December 31, 1996.
13
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1999
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
BALANCE SHEET
September 30, 1999
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 668,980
Accounts receivable:
Trade 9,786,839
Employee advances and other 20,814
Related party 43,468
------------
9,851,121
Less allowance for doubtful accounts ( 125,000)
------------
9,726,121
Inventories:
Raw materials and supplies 902,067
Work in process and finished products 490,448
------------
1,392,515
Costs and estimated earnings in excess of billings on
uncompleted contracts 5,950,927
Prepaid expenses and deposits 129,562
------------
Total current assets 17,868,105
PROPERTY, PLANT AND EQUIPMENT 2,594,941
INVESTMENTS AND OTHER ASSETS:
Capital stock of The Factory Power Company, at cost 24,300
Intangible pension asset 270,488
Cash surrender value of life insurance, net of policy loans of $117,306 2,812,926
------------
Total investments and other assets 3,107,714
------------
$23,570,760
===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Line of credit $ 5,000,000
Accounts payable 1,796,358
Accrued liabilities:
Salaries and wages 1,320,135
Taxes 174,999
Workers compensation 98,000
Profit sharing contribution 282,000
Other 543,205
------------
2,418,339
Billings in excess of costs and estimated earnings on uncompleted contracts 164,815
Current portion of capital lease obligations 66,431
Current portion of post retirement healthcare liability 40,000
------------
Total current liabilities 9,485,943
CAPITAL LEASE OBLIGATIONS, less current portion 32,625
WORKERS COMPENSATION LIABILITY less current portion 75,316
POST RETIREMENT HEALTHCARE LIABILITY, less current portion 674,085
PENSION LIABILITY 100,685
SHAREHOLDERS' EQUITY:
Class A common stock, no par value, 105,000 shares, authorized,
102,670 issued and outstanding 62,670
Class B nonvoting common stock, no par value, 225,000 shares
authorized, 188,010 shares issued and outstanding 188,010
Accumulated other comprehensive loss ( 57,297)
Retained earnings 13,008,723
------------
Total shareholders' equity 13,202,106
------------
$23,570,760
============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
3
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
STATEMENT OF INCOME
For The Nine Months Ended September 30, 1999
<TABLE>
<CAPTION>
<S> <C>
NET SALES $48,867,865
COST OF SALES:
Materials purchased (less discounts and scrap sales) 16,907,069
Direct labor 13,700,833
Direct costs 7,928,316
Manufacturing expenses 4,019,964
Change in ending inventories and percentage of completion costs ( 2,891,735)
------------
39,664,447
------------
Gross profit 9,203,418
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling 2,670,739
General and administrative 3,471,525
------------
6,142,264
------------
Income from operations 3,061,154
OTHER INCOME (EXPENSE):
Interest income 31,494
Interest expense ( 198,142)
Rental income 16,200
Other income 72,345
------------
( 78,103)
------------
Income before taxes 2,983,051
PROVISION FOR INCOME TAXES 86,797
------------
Net income $ 2,896,254
============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
4
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
STATEMENT OF SHAREHOLDERS' EQUITY
For the Nine Months Ended September 30, 1999
<TABLE>
<CAPTION>
Common Stock Accumulated Other
Common Stock - Class A Class B Comprehensive
----------------------------- ----------------- Income - Minimum Total
Held in Out- Out- Pension Liability Retained Shareholders'
Treasury Standing Amount Standing Amount Adjustment Earnings Equity
--------- -------- ------- -------- ------ ----------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1998 40,000 62,670 $62,670 188,010 $188,010 $ - $13,227,469 $13,478,149
Comprehensive income:
Net income - - - - - - 2,896,254 2,896,254
Other comprehensive income:
Minimum pension liability
adjustment - - - - - ( 57,297) - ( 57,297)
-----------
Comprehensive income 2,838,957
Distributions - - - - - - (3,115,000) (3,115,000)
------ ------ ------- ------- -------- ------- ----------- -----------
BALANCE, September 30, 1999 40,000 62,670 $62,670 188,010 $188,010 ($57,297) $13,008,723 $13,202,106
====== ====== ======= ======= ======== ======= =========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
5
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
STATEMENT OF CASH FLOWS
For The Nine Months Ended September 30, 1999
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,896,254
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale of equipment ( 70,942)
Depreciation and amortization 590,250
Changes in assets - (increase) decrease:
Accounts receivable 4,921,862
Inventories ( 305,090)
Prepaid expenses and deposits 41,110
Cash surrender value of life insurance ( 71,484)
Changes in liabilities - increase (decrease):
Accounts payable ( 1,021,299)
Accrued liabilities ( 977,223)
Billings in excess of costs and estimated earnings and costs and
estimated earnings in excess of billings ( 4,121,185)
Post retirement healthcare liability 46,386
-----------
Net cash provided by operating activities 1,928,639
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment 143,150
Capital expenditures ( 494,650)
-----------
Net cash used in investing activities ( 351,500)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit 1,000,000
Principal payments on capital lease obligation ( 152,935)
Distributions paid to shareholders ( 3,115,000)
-----------
Net cash used in financing activities ( 2,267,935)
-----------
Net decrease in cash and cash equivalents ( 690,796)
CASH AND CASH EQUIVALENTS:
Beginning of period 1,359,776
-----------
End of period $ 668,980
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 389,193
===========
Income taxes $ 68,684
===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
6
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - The Company manufactures and fabricates custom
sheet metal products which include dust and fume control systems,
automotive paint booths, tanks and sheet metal component parts. Sales are
made on an unsecured basis to customers located throughout the United
States.
Revenue Recognition - For financial reporting purposes, the Company
records revenue on all significant contracts using the
percentage-of-completion method of accounting. The percentage-of-completion
is determined by experienced company personnel on a contract-by-contract
basis based in part on costs incurred, efforts expended and results
achieved. The specific method chosen is the most applicable based on the
nature of each contract. Because of inherent uncertainties in estimating,
it is at least reasonably possible that the estimates used will change
within the near term. The contract price is recognized as revenue based
upon the percentage of completion. Changes in job performance, job
conditions, and estimated profitability may result in revisions to costs
and income, which are recognized in the period in which the revisions are
determined. Provisions for estimated losses on uncompleted contracts are
made in the period in which such losses are determined. General and
administrative expenses are charged to expense when incurred.
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The liability, "Billings in excess of costs and estimated earnings
on uncompleted contracts," represents billings in excess of revenues
recognized.
The Company uses the completed-contract method of accounting for all
contracts where nominal costs have been incurred prior to the end of the
nine months or the total contract value is relatively insignificant.
Cash and Cash Equivalents - For purposes of the statement of cash
flows, cash and cash equivalents include highly liquid investments with
original maturities of three months or less.
Inventories - The labor content of work-in-process and finished
products and all inventories of steel of the Company are valued at the
lower of cost or market using the last-in, first-out (LIFO) method. All
other inventories of the Company are accounted for at the lower of average
cost or market. If the first-in, first-out (FIFO) method of inventory
valuation had been used by the Company for all classes of inventory, the
carrying value of inventories would have been
7
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
approximately $2,212,000 higher than that reported at September 30, 1999.
Depreciation - Depreciation and amortization are computed generally on
accelerated methods over the estimated useful lives of the related assets.
Credit Risk - As of September 30, 1999, the Company's cash on deposit
with its bank exceeded the federally insured amount.
Income Taxes - The Company's shareholders have elected to be treated as
an S-Corporation for income tax reporting purposes and, thereby, have the
Company's taxable income pass through to its shareholders to be taxed on
their individual returns. Certain state and local taxing authorities do not
recognize S-Corporation status as allowed under the Internal Revenue Code.
In these situations, the Company has provided for income taxes at
appropriate rates on applicable taxable income.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Advertising - The Company expenses all advertising costs as incurred.
Advertising expense was approximately $52,000 for the nine months ended
September 30, 1999.
2. COSTS AND ESTIMATED EARNINGS ON CONTRACTS
At September 30, 1999, the Company had several uncompleted construction
projects at stages of completion ranging from 5% to 99%. Costs and
estimated earnings on these contracts consisted of the following at
September 30:
Costs incurred on uncompleted contracts $16,866,671
Estimated earnings on uncompleted contracts 1,284,540
-----------
18,151,211
Less billings to date (12,365,099)
-----------
$ 5,786,112
===========
The above amounts are reflected in the financial statements as follows:
<TABLE>
<CAPTION>
<S> <C>
Costs and estimated earnings in excess of billings on uncompleted contracts $5,950,927
Billings in excess of costs and estimated earnings on uncompleted contracts ( 164,815)
----------
$5,786,112
==========
</TABLE>
8
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 1999
3. REVOLVING LINE OF CREDIT
The Company has available through April 30, 2001, a $12,000,000
line-of-credit which bears interest at either the bank's prime rate minus
125 basis points or the London Inter-Bank offered rate (LIBOR) plus 100
basis points. The Company may elect the LIBOR rate on all or any portion of
the outstanding line of credit balance, in minimum amounts of $250,000. If
elected, the Company must select a LIBOR interest period between 30 and 360
days. Interest is due at the end of the selected period at the applicable
LIBOR rate. The Company has elected the LIBOR rate and a 30 day interest
period at September 30, 1999. The 30 day LIBOR rate at September 30, 1999
was 5.38%. The line-of-credit is unsecured. The Company is required to meet
certain financial covenants regarding minimum net worth and debt to equity
under this agreement. As part of the acquisition discussed Note 11, the
revolving line of credit was refinanced in full by CECO Environmental Corp.
4. CAPITAL LEASE OBLIGATIONS
The Company leases equipment under capital lease obligations expiring
through April, 2001. The assets are being amortized over the related lease
terms. The cost included in machinery and equipment and accumulated
amortization is $890,982 and $811,636, respectively, at September 30, 1999.
Future minimum lease payments under the capital lease agreements as of
September 30, 1999 are as follows:
Twelve
Months Ending
September 30,
-------------
2000 $ 70,817
2001 33,654
---------
104,471
Less amount representing interest ( 5,415)
---------
99,056
Less current portion ( 66,431)
---------
$ 32,625
=========
5. RELATED PARTY TRANSACTIONS
Accounts Receivable - The Company has a non-interest bearing receivable
due from an entity which is related through common ownership. The
receivable results from expenses paid
9
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 1999
5. RELATED PARTY TRANSACTIONS (Continued)
by the Company on behalf of the related entity, including 401(k)
contributions, utility expenses and insurance expenses. The Company also
leases space on a month-to-month basis to the related entity for
approximately $1,800 per month. Rental income from this related entity was
$16,200 for the nine months ended September 30, 1999.
6. COMMON STOCK
Under agreements with certain employee/shareholders, the Company is
required to redeem their holdings of common stock in the event of the
employee's death, desire to sell, termination of employment, or retirement.
Shares purchased by the employee/shareholders prior to December 14, 1969
(1,750 shares) are redeemable at 75% of the book value per share of the
Company for the fiscal year end preceding the date of the transaction.
Under agreements with certain other shareholders, the Company has the
right of first refusal regarding the sale or other transfer of the
Company's common stock.
On March 19, 1997, the Company amended its Articles of Incorporation
and authorized 300,000 shares of no par value common stock, of which 75,000
shares are Class A voting and 225,000 shares of Class B non-voting common
stock. Each shareholder has the same rights and privileges except that the
Class B non-voting shareholders cannot vote. The Company issued 188,010
shares of Class B non-voting common stock.
On March, 16, 1998, the Company amended the Articles of Incorporation
and increased the number of authorized Class A voting common stock to
105,000 shares.
7. LEASE COMMITMENTS
The Company is committed under noncancelable operating lease agreements
to lease certain plant facilities and office equipment through September,
2002.
Future minimum annual operating lease payments are approximately as
follows:
Twelve
Months Ending
September 30,
-------------
2000 $151,000
2001 59,000
2002 11,000
--------
$221,000
========
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 1999
7. LEASE COMMITMENTS (Continued)
Total rental expense was approximately $1,243,000 for the nine months
ended September 30, 1999.
8. BENEFIT PLANS
The Company sponsors a noncontributory defined benefit pension plan for
certain union employees. The plan is funded in accordance with the funding
requirements of the Employee Retirement Income Security Act of 1974.
The Company also sponsors a postretirement health care plan for office
employees. Effective January 1, 1990, the plan was amended and retirees
after that date are not eligible to receive benefits under the plan. The
plan allows retirees who have attained the age of 65 to elect the type of
coverage desired.
The following amounts relate to the Company's defined benefit pension
and postretirement health care plans:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
---------------- -----------------------
<S> <C> <C>
Estimated Benefit obligation at September 30 $3,661,113 $714,085
Fair value of plan assets at
September 30 3,062,855 -
---------- --------
Funded status ($ 598,258) ($714,085)
========== ========
Unamortized prior service costs $270,886
Unrecognized net asset at transition ( 37,900)
Unrecognized net loss 606,014
Prepaid pension asset ( 240,742)
---------
($598,258)
=========
</TABLE>
The Company has recognized the excess of the accumulated benefit
obligation in excess of the plan assets, the minimum liability, of $100,685
in the balance sheet at September 30, 1999.
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
---------------- ------------------------
<S> <C> <C>
Accrued benefit cost recognized
in the statement of financial
position $ - $714,085
</TABLE>
11
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 1999
8. BENEFIT PLANS (Continued)
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
---------------- -----------------------
<S> <C> <C>
Weighted average assumptions as of December 31:
Discount rate 7% 7%
Expected return on plan assets 8.5% -
Rate of compensation increase - -
</TABLE>
Benefits under the plans are not based on wages and, therefore,
future wage adjustments have no effect on the projected benefit
obligations. For measurement purposes, no annual increase in the cost of
health care benefits is assumed for 1999, and future years as the Company
elected to pass along any future increases to the retirees.
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
---------------- -----------------------
<S> <C> <C>
Benefit cost $61,210 $100,687
Company contributions - 78,867
Benefits paid 99,502 78,867
</TABLE>
In connection with collective bargaining agreements, the Company
participates with other companies in defined benefit pension plans. These
plans cover substantially all of its contracted union employees not covered
in the aforementioned plan. If the Company were to withdraw from its
participation in these multi-employer plans at that time, the Company will
be required to contribute its share of the plans' unfunded benefit
obligation. Management has no intention of withdrawing from any plan and,
therefore, no liability has been provided for in the accompanying financial
statements.
The Company also sponsors a profit sharing and 401(k) savings
retirement plan for non-union employees. The plan covers substantially all
employees who have completed one year of service, completed 1,000 hours of
service and who have attained 21 years of age. The plan allows the Company
to make discretionary contributions and provides for employee salary
reductions of up to 15%. The Company provides matching contributions of 25%
of the first 5% of employee contributions. Matching contributions for the
nine months ended September 30, 1999 were $39,581. Discretionary
contributions for the nine months ended September 30, 1999 were $282,000.
Amounts charged to pension expense under the above plans totaled
approximately $1,881,534 for the nine months ended September 30, 1999.
12
<PAGE>
THE KIRK & BLUM MANUFACTURING COMPANY
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 1999
9. SELF-INSURANCE COVERAGES
The Company is self-insured for workers compensation coverage in the
state of Ohio, in accordance with the requirements of the state. In Ohio,
the Company will pay all eligible workers compensation claims up to
$225,000 per individual and the statutory limit in the aggregate for the
state. All eligible claims in excess of these amounts are covered under a
policy with an insurance company. The balance sheet includes a liability of
$173,316 at September 30, 1999 for claims incurred.
10. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at September
30, 1999:
Land $ 247,772
Buildings and improvements 4,841,033
Machinery and equipment 8,883,440
Automotive 911,840
Office furniture and fixtures 1,237,549
------------
16,121,634
Less accumulated depreciation and amortization ( 13,526,693)
------------
Net property, plant and equipment $ 2,594,941
============
11. SUBSEQUENT EVENT
On December 7, 1999, the shareholders of the Company sold all of the
outstanding stock in the Company to CECO Environmental Corp. The purchase
price was approximately $25 million plus the assumption of $5 million of
existing indebtedness.
13
<PAGE>
(b) Pro Forma Financial Information
The following unaudited pro forma consolidated financial information presents
the pro forma consolidated balance sheet at December 31, 1998 and September 30,
1999, giving effect to the acquisition of 100% of the common stock of The Kirk &
Blum Manufacturing Company and kbd/Technic, Inc. (collectively referred to as "K
& B") as if it had been consummated on those dates. Also presented are the pro
forma consolidated statements of operations for the year ended December 31, 1998
and the nine months ended September 30, 1999, giving effect as if the
acquisition had been consummated as of the beginning of the respective periods
presented.
The pro forma data is based on the historical combined statements of CECO
Environmental Corp., The Kirk & Blum Manufacturing Company, and kbd/Technic,
Inc. giving effect to the purchase method of accounting and to the assumptions
and adjustments (which the Company believes to be reasonable) described in the
accompanying notes to the unaudited pro forma consolidated condensed financial
information.
Under the purchase method of accounting, assets acquired and liabilities assumed
will be recorded at their estimated fair value at the date of the acquisition.
The pro forma adjustments set forth in the following unaudited pro forma
consolidated condensed information are estimated and may differ from the actual
adjustments when they become known. However, no material differences are
anticipated by the Company.
The following unaudited pro forma consolidated condensed financial information
does not reflect certain cost savings that the Company believes will be realized
following the K & B acquisition. Such cost savings are expected to be realized
primarily by significantly eliminating the use of subcontractors by the
Company's subsidiary, New Busch Co., Inc., which it relies upon heavily in the
fabrication of products for its customers. In addition, the Company believes
that a significant amount of overhead expenses will be eliminated as the result
of efficiencies to be achieved from the combination of the Company with K & B.
The pro forma data is provided for comparative purposes only. It does not
purport to be indicative of the results that actually would have occurred if
such acquisition had been consummated on the dates indicated or that may be
obtained in the future. The unaudited pro forma combined financial information
should be read in conjunction with the notes thereto, the audited financial
statements of The Kirk & Blum Manufacturing Company for the year ended December
31, 1998 and its unaudited financial statements for the nine months ended
September 30, 1999, and the Company's consolidated financial statements,
incorporated herein by reference.
<PAGE>
CECO ENVIRONMENTAL CORP.
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
DECEMBER 31, 1998
(NOTE 1)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------ ----------
CECO KIRK & BLUM
ENVIRONMENTAL MANUFACTURING kbd/TECHNIC,
CORP. COMPANY INC. TOTAL
--------------- ------------- ------------ ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $364,648 $1,359,776 $55,989 $1,780,413
Marketable securities 695,944 695,944
Accounts receivable 4,068,640 14,556,985 481,638 19,107,263
Inventories 541,315 1,087,425 1,492 1,630,232
Costs and estimated earnings in excess
of billings on uncompleted contracts 226,504 2,029,373 2,255,877
Due from former owners of Busch Co. 147,939 147,939
Investment in sales-type lease 95,400 95,400
Prepaid expenses and other current assets 344,961 302,303 647,264
Deferred income taxes 84,500 84,500
----------- ----------- -------- -----------
Total current assets 6,569,851 19,335,862 539,119 26,444,832
Property and equipment, net 2,062,452 2,762,749 64,991 4,890,192
Cash surrender value of life insurance,
net of policy loans 2,741,442 2,741,442
Goodwill, net 5,169,353 5,169,353
Other intangible assets, at cost, net 1,270,780 186,467 1,457,247
Investment in sales-type lease 333,900 333,900
Deferred income taxes 68,500 68,500
Investment 24,300 24,300
----------- ----------- -------- -----------
$15,474,836 $25,050,820 $604,110 $41,129,766
=========== =========== ======== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term obligations $1,200,000 $100,000 $1,300,000
Current portion of long-term debt 388,372 388,372
Current portion of capital lease obligations $144,470 144,470
Accounts payable and accrued expenses 3,104,004 6,181,006 111,473 9,396,483
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,174,427 364,446 1,538,873
Unearned income 78,000 78,000
Income taxes payable 253,100 253,100
----------- ----------- -------- -----------
Total current liabilities 6,197,903 6,689,922 211,473 13,099,298
----------- ----------- -------- -----------
Long-term debt, less current portion 1,569,713 4,000,000 5,569,713
Capital lease obligations 107,521 107,521
Workers compensation liability 147,529 147,529
Post retirement healthcare liability 627,699 627,699
----------- ----------- -----------
1,569,713 4,882,749 6,452,462
----------- ----------- -----------
Minority interest 149,941 149,941
----------- -----------
Shareholders' equity:
Common stock, CECO Environmental Corp. 83,888 83,888
Common stock, Kirk & Blum/kbd 250,680 930 251,610
Capital in excess of par value 10,139,013 10,139,013
Retained earnings (accumulated deficit) (2,316,953) 13,227,469 391,707 11,302,223
Less treasury stock, at cost (348,669) (348,669)
----------- ----------- -------- -----------
Net shareholders' equity 7,557,279 13,478,149 392,637 21,428,065
----------- ----------- -------- -----------
$15,474,836 $25,050,820 $604,110 $41,129,766
=========== =========== ======== ===========
</TABLE>
<PAGE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
PRO FORMA
-------------------------------------
ADJUSTMENTS CONSOLIDATED
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $1,780,413
Marketable securities 695,944
Accounts receivable 19,107,263
Inventories $2,026,000 B 3,656,232
Costs and estimated earnings in excess
of billings on uncompleted contracts 2,255,877
Due from former owners of Busch Co. 147,939
Investment in sales-type lease 95,400
Prepaid expenses and other current assets 647,264
Deferred income taxes 84,500
----------- -----------
Total current assets 2,026,000 28,470,832
Property and equipment, net 8,614,476 B 13,504,668
Cash surrender value of life insurance,
net of policy loans 2,741,442
Goodwill, net 1,638,738 C 6,808,091
Other intangible assets, at cost, net 1,457,247
Investment in sales-type lease 333,900
Deferred income taxes 68,500
Investment 24,300
----------- -----------
$12,279,214 $53,408,980
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term obligations $2,197,085 A $3,497,085
Current portion of long-term debt 3,396,628 A 3,785,000
Current portion of capital lease obligations 144,470
Accounts payable and accrued expenses 9,396,483
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,538,873
Unearned income 78,000
Income taxes payable 253,100
----------- -----------
Total current liabilities 5,593,713 18,693,011
----------- -----------
Long-term debt, less current portion 20,556,287 A 26,126,000
Capital lease obligations 107,521
Workers compensation liability 147,529
Post retirement healthcare liability 627,699
----------- -----------
20,556,287 27,008,749
----------- -----------
Minority interest 149,941
-----------
Shareholders' equity:
Common stock, CECO Environmental Corp. 83,888
Common stock, Kirk & Blum/kbd (251,610) C
Capital in excess of par value 10,139,013
Retained earnings (accumulated deficit) (13,619,176) C (2,316,953)
Less treasury stock, at cost (348,669)
----------- -----------
Net shareholders' equity (13,870,786) 7,557,279
----------- -----------
$12,279,214 $53,408,980
=========== ===========
</TABLE>
See accompanying notes to pro forma consolidated condensed financial
information.
<PAGE>
CECO ENVIRONMENTAL CORP.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(NOTE 2)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------------------
CECO KIRK & BLUM
ENVIRONMENTAL MANUFACTURING kbd/TECHNIC,
CORP. COMPANY INC. TOTAL
------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues $26,381,622 $69,443,929 $1,744,313 $97,569,864
Cost of revenues 17,952,112 56,792,318 887,683 75,632,113
------------- ------------- ----------- -----------
Gross profit 8,429,510 12,651,611 856,630 21,937,751
Selling and administrative expenses 6,674,739 8,114,190 755,926 15,544,855
------------- ------------- ----------- -----------
Income from operations before depreciation
and amortization, interest expense, and
other credits 1,754,771 4,537,421 100,704 6,392,896
Depreciation and amortization 617,964 740,303 32,634 1,390,901
Interest expense, net 192,752 173,488 366,240
Other credits 48,294 48,294
------------- ------------- ----------- -----------
Income before income taxes and minority
interest 944,055 3,671,924 68,070 4,684,049
Income taxes 373,322 62,571 435,893
------------- ------------- ----------- -----------
Income before minority interest 570,733 3,609,353 68,070 4,248,156
Minority interest in net income of
CECO Filters, Inc. (37,807) (37,807)
------------- ------------- ----------- -----------
Net income $532,926 $3,609,353 $68,070 $4,210,349
============= ============= =========== ===========
Earnings per share:
Basic $0.06
Diluted $0.06
Outstanding shares:
Basic 8,250,896
Diluted 8,845,626
</TABLE>
<PAGE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
PRO FORMA
------------------------------------
ADJUSTMENTS CONSOLIDATED
<S> --------------- ------------
Revenues <C> <C>
$97,569,864
Cost of revenues 75,632,113
-----------
Gross profit 21,937,751
Selling and administrative expenses 15,544,855
-----------
Income from operations before depreciation
and amortization, interest expense, and
other credits 6,392,896
Depreciation and amortization $602,000 D 1,992,901
Interest expense, net 2,401,000 E 2,767,240
Other credits 162,000 F 210,294
----------- -----------
Income before income taxes and minority
interest (2,841,000) 1,843,049
Income taxes 449,497 G 885,390
----------- -----------
Income before minority interest (3,290,497) 957,659
Minority interest in net income of
CECO Filters, Inc. (37,807)
----------- -----------
Net income ($3,290,497) $919,852
=========== ===========
Earnings per share:
Basic $0.11
Diluted $0.10
Outstanding shares:
Basic 8,250,896
Diluted 8,845,626
</TABLE>
See accompanying notes to pro forma consolidated condensed financial
information.
<PAGE>
CECO ENVIRONMENTAL CORP.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1999
(NOTE 1)
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------------------------------
CECO KIRK & BLUM
ENVIRONMENTAL MANUFACTURING kbd/TECHNIC,
CORP. COMPANY INC. TOTAL
------------ ------------- ------------ ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $70,677 $668,980 $151,779 $891,436
Marketable securities 2,453,393 2,453,393
Accounts receivable 3,192,966 9,726,121 426,636 13,345,723
Inventories 919,098 1,392,515 13,638 2,325,251
Costs and estimated earnings in excess of
billings on uncompleted contracts 228,879 5,950,927 6,179,806
Due from former owners of Busch Co. 243,212 243,212
Investment in sales-type lease 103,350 103,350
Prepaid expenses and other current assets 315,260 129,562 444,822
Deferred income taxes 84,500 84,500
----------- ----------- -------- -----------
Total current assets 7,611,335 17,868,105 592,053 26,071,493
Property and equipment, net 2,028,099 2,594,941 41,312 4,664,352
Cash surrender value of life insurance,
net of policy loans 2,812,926 2,812,926
Goodwill, net 4,929,612 4,929,612
Other intangible assets, at cost, net 1,290,003 270,488 1,560,491
Investment in sales-type lease 262,350 262,350
Deferred income taxes 296,900 296,900
Investment and other assets 356,567 24,300 380,867
----------- ----------- -------- -----------
$16,774,866 $23,570,760 $633,365 $40,978,991
=========== =========== ======== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term obligations $2,800,000 $5,000,000 $7,800,000
Current portion of long-term debt 494,628 494,628
Current portion of capital lease obligations 66,431 66,431
Accounts payable and accrued expenses 2,813,551 4,254,697 $60,697 7,128,945
Billings in excess of costs and estimated
earnings on uncompleted contracts 708,636 164,815 873,451
Unearned income 64,950 64,950
----------- ----------- -------- -----------
Total current liabilities 6,881,765 9,485,943 60,697 16,428,405
----------- ----------- -------- -----------
Long-term debt, less current portion 1,119,730 150,000 1,269,730
Due to officer 1,125,000 1,125,000
Capital lease obligations 32,625 32,625
Post retirement healthcare, pension and
workers compensation liability 850,086 850,086
----------- ----------- -------- -----------
Total liabilities 2,244,730 882,711 150,000 3,277,441
----------- ----------- -------- -----------
Minority interest 115,586 115,586
----------- -----------
Shareholders' equity:
Common stock, CECO Environmental Corp. 83,888 83,888
Common stock, Kirk & Blum/kbd 250,680 930 251,610
Capital in excess of par value 10,139,013 10,139,013
Accumulated other comprehensive loss (57,297) (57,297)
Retained earnings (accumulated deficit) (2,341,447) 13,008,723 421,738 11,089,014
Less treasury stock, at cost (348,669) (348,669)
----------- ----------- -------- -----------
Net shareholders' equity 7,532,785 13,202,106 422,668 21,157,559
----------- ----------- -------- -----------
$16,774,866 $23,570,760 $633,365 $40,978,991
=========== =========== ======== ===========
</TABLE>
<PAGE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
PRO FORMA
-----------------------------------
ADJUSTMENTS CONSOLIDATED
<S> ----------- ------------
ASSETS <C> <C>
Current assets:
Cash and cash equivalents $891,436
Marketable securities 2,453,393
Accounts receivable 13,345,723
Inventories $2,212,000 B 4,537,251
Costs and estimated earnings in excess of
billings on uncompleted contracts 6,179,806
Due from former owners of Busch Co. 243,212
Investment in sales-type lease 103,350
Prepaid expenses and other current assets 444,822
Deferred income taxes 84,500
---------- -----------
Total current assets 2,212,000 28,283,493
Property and equipment, net 8,782,284 B 13,446,636
Cash surrender value of life insurance,
net of policy loans 2,812,926
Goodwill, net 1,530,942 C 6,460,554
Other intangible assets, at cost, net 1,560,491
Investment in sales-type lease 262,350
Deferred income taxes 296,900
Investment and other assets 380,867
-----------
LIABILITIES AND SHAREHOLDERS' EQUITY $12,525,226 $53,504,217
=========== ===========
Current liabilities:
Short-term obligations ($2,031,642)A $5,768,358
Current portion of long-term debt 3,290,372 A 3,785,000
Current portion of capital lease obligations 66,431
Accounts payable and accrued expenses 7,128,945
Billings in excess of costs and estimated
earnings on uncompleted contracts 873,451
Unearned income 64,950
---------- -----------
Total current liabilities 1,258,730 17,687,135
---------- -----------
Long-term debt, less current portion 24,891,270 A 26,161,000
Due to officer 1,125,000
Capital lease obligations 32,625
Post retirement healthcare, pension and
workers compensation liability 850,086
---------- -----------
Total liabilities 24,891,270 28,168,711
---------- -----------
Minority interest 115,586
-----------
Shareholders' equity:
Common stock, CECO Environmental Corp. 83,888
Common stock, Kirk & Blum/kbd (251,610)C
Capital in excess of par value 10,139,013
Accumulated other comprehensive loss 57,297
Retained earnings (accumulated deficit) (13,430,461)C (2,341,447)
Less treasury stock, at cost (348,669)
---------- -----------
Net shareholders' equity (13,624,774) 7,532,785
---------- -----------
$12,525,226 $53,504,217
=========== ===========
</TABLE>
See accompanying notes to pro forma consolidated condensed financial
information.
<PAGE>
CECO ENVIRONMENTAL CORP.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(NOTE 2)
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------------------------------
CECO KIRK & BLUM
ENVIRONMENTAL MANUFACTURING kbd/TECHNIC,
CORP. COMPANY INC. TOTAL
------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues $12,709,210 $48,867,865 $1,234,008 $62,811,083
Cost of revenues 7,467,243 39,664,447 602,772 47,734,462
------------ ----------- ---------- -----------
Gross profit 5,241,967 9,203,418 631,236 15,076,621
Selling and administrative expenses 4,520,151 5,552,014 566,602 10,638,767
------------ ----------- ---------- -----------
Income from continuing operations before
depreciation and amortization, interest
expense, and other income (expense) 721,816 3,651,404 64,634 4,437,854
Depreciation and amortization 453,732 590,250 29,250 1,073,232
Interest expense, net 124,626 198,142 5,353 328,121
Other income (expense) 120,039 120,039
------------ ----------- ---------- -----------
Income from continuing operations before
income taxes and minority interest 143,458 2,983,051 30,031 3,156,540
Income taxes 46,000 86,797 132,797
------------ ----------- ---------- -----------
Income from continuing operations before
minority interest 97,458 2,896,254 30,031 3,023,743
Minority interest in net loss of
CECO Filters, Inc. 4,286 4,286
------------ ----------- ---------- -----------
Income from continuing operations $101,744 $2,896,254 $30,031 $3,028,029
============ =========== ========== ===========
Earnings per share:
Basic $0.01
Diluted $0.01
Outstanding shares
Basic 8,250,896
Diluted 9,321,113
</TABLE>
<PAGE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
PRO FORMA
------------------------------------
ADJUSTMENTS CONSOLIDATED
----------- ------------
<S> <C> <C>
Revenues $62,811,083
Cost of revenues 47,734,462
----------- -----------
Gross profit 15,076,621
Selling and administrative expenses 10,638,767
----------- -----------
Income from continuing operations before
depreciation and amortization, interest
expense, and other income (expense) 4,437,854
Depreciation and amortization $447,000 D 1,520,232
Interest expense, net 1,359,000 E 1,687,121
Other income (expense) (9,000)F 111,039
----------- -----------
Income from continuing operations before
income taxes and minority interest (1,815,000) 1,341,540
Income taxes 599,041 G 731,838
----------- -----------
Income from continuing operations before
minority interest (2,414,041) 609,702
Minority interest in net loss of
CECO Filters, Inc. 4,286
----------- -----------
Income from continuing operations ($2,414,041) $613,988
=========== ===========
Earnings per share:
Basic $0.07
Diluted $0.07
Outstanding shares
Basic 8,250,896
Diluted 9,321,113
</TABLE>
See accompanying notes to pro forma consolidated condensed financial
information.
<PAGE>
CECO ENVIRONMENTAL CORP.
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
DECEMBER 31, 1998
(NOTE 1)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------------------
CECO KIRK & BLUM
ENVIRONMENTAL MANUFACTURING kbd/TECHNIC,
CORP. COMPANY INC. TOTAL
------------- ------------- ------------ ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 364,648 $ 1,359,776 $ 55,989 $ 1,780,413
Marketable securities 695,944 695,944
Accounts receivable 4,068,640 14,556,985 481,638 19,107,263
Inventories 541,315 1,087,425 1,492 1,630,232
Costs and estimated earnings in excess of
billings on uncompleted contracts 226,504 2,029,373 2,255,877
Due from former owners of Busch Co. 147,939 147,939
Investment in sales-type lease 95,400 95,400
Prepaid expenses and other current assets 344,961 302,303 647,264
Deferred income taxes 84,500 84,500
----------- ----------- -------- -----------
Total current assets 6,569,851 19,335,862 539,119 26,444,832
Property and equipment, net 2,062,452 2,762,749 64,991 4,890,192
Cash surrender value of life insurance, net of
policy loans 2,741,442 2,741,442
Goodwill, net 5,169,353 5,169,353
Other intangible assets, at cost, net 1,270,780 186,467 1,457,247
Investment in sales-type lease 333,900 333,900
Deferred income taxes 68,500 68,500
Investment 24,300 24,300
----------- ----------- -------- -----------
$15,474,836 $25,050,820 $604,110 $41,129,766
=========== =========== ======== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term obligations $ 1,200,000 $100,000 $ 1,300,000
Current portion of long-term debt 388,372 388,372
Current portion of capital lease obligations $ 144,470 144,470
Accounts payable and accrued expenses 3,104,004 6,181,006 111,473 9,396,483
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,174,427 364,446 1,538,873
Unearned income 78,000 78,000
Income taxes payable 253,100 253,100
----------- ----------- -------- -----------
Total current liabilities 6,197,903 6,689,922 211,473 13,099,298
----------- ----------- -------- -----------
Long-term debt, less current portion 1,569,713 4,000,000 5,569,713
Capital lease obligations 107,521 107,521
Workers compensation liability 147,529 147,529
Post retirement healthcare liability 627,699 627,699
----------- ----------- -----------
1,569,713 4,882,749 6,452,462
----------- ----------- -----------
Minority interest 149,941 149,941
----------- -----------
Shareholders' equity:
Common stock, CECO Environmental Corp. 83,888 83,888
Common stock, Kirk & Blum/kbd 250,680 930 251,610
Capital in excess of par value 10,139,013 10,139,013
Retained earnings (accumulated deficit) (2,316,953) 13,227,469 391,707 11,302,223
Less treasury stock, at cost (348,669) (348,669)
----------- ----------- -------- -----------
Net shareholders' equity 7,557,279 13,478,149 392,637 21,428,065
----------- ----------- -------- -----------
$15,474,836 $25,050,820 $604,110 $41,129,766
=========== =========== ======== ===========
</TABLE>
<PAGE>
[RESTUB]
<TABLE>
<CAPTION>
PRO FORMA
----------------------------------
ADJUSTMENTS CONSOLIDATED
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,780,413
Marketable securities 695,944
Accounts receivable 19,107,263
Inventories $ 2,026,000 B 3,656,232
Costs and estimated earnings in excess of
billings on uncompleted contracts 2,255,877
Due from former owners of Busch Co. 147,939
Investment in sales-type lease 95,400
Prepaid expenses and other current assets 647,264
Deferred income taxes 84,500
----------- -----------
Total current assets 2,026,000 28,470,832
Property and equipment, net 8,614,476 B 13,504,668
Cash surrender value of life insurance, net of
policy loans 2,741,442
Goodwill, net 1,638,738 C 6,808,091
Other intangible assets, at cost, net 1,457,247
Investment in sales-type lease 333,900
Deferred income taxes 68,500
Investment 24,300
----------- -----------
$12,279,214 $53,408,980
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term obligations $ 2,197,085 A $ 3,497,085
Current portion of long-term debt 3,396,628 A 3,785,000
Current portion of capital lease obligations 144,470
Accounts payable and accrued expenses 9,396,483
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,538,873
Unearned income 78,000
Income taxes payable 253,100
----------- -----------
Total current liabilities 5,593,713 18,693,011
----------- -----------
Long-term debt, less current portion 20,556,287 A 26,126,000
Capital lease obligations 107,521
Workers compensation liability 147,529
Post retirement healthcare liability 627,699
----------- -----------
20,556,287 27,008,749
----------- -----------
Minority interest 149,941
-----------
Shareholders' equity:
Common stock, CECO Environmental Corp. 83,888
Common stock, Kirk & Blum/kbd (251,610)C
Capital in excess of par value 10,139,013
Retained earnings (accumulated deficit) (13,619,176)C (2,316,953)
Less treasury stock, at cost (348,669)
----------- -----------
Net shareholders' equity (13,870,786) 7,557,279
----------- -----------
$12,279,214 $53,408,980
=========== ===========
</TABLE>
See accompanying notes to pro forma consolidated condensed financial
information.
<PAGE>
CECO ENVIRONMENTAL CORP.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(NOTE 2)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------------------------------------------------- ----------------------------
CECO KIRK & BLUM
ENVIRONMENTAL MANUFACTURING kbd/TECHNIC,
CORP. COMPANY INC. TOTAL ADJUSTMENTS CONSOLIDATED
------------- ------------- ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $26,381,622 $69,443,929 $1,744,313 $97,569,864 $97,569,864
Cost of revenues 17,952,112 56,792,318 887,683 75,632,113 75,632,113
----------- ----------- ---------- ----------- -----------
Gross profit 8,429,510 12,651,611 856,630 21,937,751 21,937,751
Selling and administrative expenses 6,674,739 8,114,190 755,926 15,544,855 15,544,855
----------- ----------- ---------- ----------- -----------
Income from operations before
depreciation and amortization,
interest expense, and other credits 1,754,771 4,537,421 100,704 6,392,896 6,392,896
Depreciation and amortization 617,964 740,303 32,634 1,390,901 $ 602,000 D 1,992,901
Interest expense, net 192,752 173,488 366,240 2,401,000 E 2,767,240
Other credits 48,294 48,294 162,000 F 210,294
----------- ----------- ---------- ----------- ----------- -----------
Income before income taxes and
minority interest 944,055 3,671,924 68,070 4,684,049 (2,841,000) 1,843,049
Income taxes 373,322 62,571 435,893 449,497 G 885,390
----------- ----------- ---------- ----------- ----------- -----------
Income before minority interest 570,733 3,609,353 68,070 4,248,156 (3,290,497) 957,659
Minority interest in net income
of CECO Filters, Inc. (37,807) (37,807) (37,807)
----------- ----------- ---------- ----------- ----------- -----------
Net income $ 532,926 $ 3,609,353 $ 68,070 $ 4,210,349 ($3,290,497) $ 919,852
=========== =========== ========== =========== =========== ===========
Earnings per share:
Basic $ 0.06 $ 0.11
Diluted $ 0.06 $ 0.10
Outstanding shares:
Basic 8,250,896 8,250,896
Diluted 8,845,626 8,845,626
</TABLE>
See accompanying notes to pro forma consolidated condensed financial
information.
<PAGE>
CECO ENVIRONMENTAL CORP.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1998
NOTE 1: The unaudited pro forma consolidated condensed balance sheet
is based on the individual balance sheets of CECO
Environmental Corp. and its consolidated subsidiaries (CECO
Filters, Inc., Air Purator Corporation, New Busch Co., Inc.
and U.S. Facilities Management Company) (collectively referred
to as "CEC") and The Kirk & Blum Manufacturing Company, and
its sister company, kbd/Technic, Inc. (collectively referred
to as "K & B") as of December 31, 1998 to reflect the
acquisition of 100% of the common stock of K & B by CEC, which
occurred on December 7, 1999, as if it occurred on December
31, 1998 after giving effect to pro forma adjustments to
reflect the following:
CEC paid approximately $25,000,000 for the common stock of K &
B, in the form of cash.
Total cash required at settlement amounted to approximately
$26,150,000, which included approximately $1,150,000 of costs
incurred in connection with the acquisition. Financing for the
transaction was provided by a bank loan facility in the amount
of $25,000,000 in term loans and a $10,000,000 revolving
credit facility. The term loans require that $2,000,000
matures on March 6, 2000. Additional principal payments
required on the term loans during the year ending December 31,
2000 are $437,500 each on February 28, May 31, August 31, and
November 30. As a condition to obtaining the bank financing,
CEC placed $5,000,000 of subordinated debt (of which
$4,700,000 was borrowed at the time of the acquisition). The
proceeds of the bank loans and the subordinated debt were used
to pay the purchase price for K & B, to pay expenses incurred
in connection with the acquisition, to refinance existing
indebtedness and for working capital purposes.
(A) The amounts reflected in the pro forma adjustments column
for short-term obligations; current portion of long term-debt;
and long-term debt, less current obligations represent the net
adjustments to reflect the transactions described in the
previous paragraph.
K & B's inventories and property and equipment were written up
by $2,026,000 and $8,614,476, respectively, to reflect
estimated fair value (B).
As a result of this acquisition, CEC has increased the amount
of goodwill by $1,638,738 (C), including the related closing
costs, based upon K & B's book basis of net assets as of
December 31, 1998.
<PAGE>
CECO ENVIRONMENTAL CORP.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION - (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
NOTE 2: The unaudited pro forma consolidated condensed statement of
operations is based on the individual statement of operations
of CEC and K & B for the year ended December 31, 1998, after
giving effect to the pro forma adjustments necessary to
reflect the acquisition described in Note 1, as if it had
taken place on January 1, 1998.
The pro forma adjustments are as follows:
(D) Amortization of goodwill over 20 years ($82,000) and
additional depreciation resulting from write-up of
property and equipment to estimated fair value
($520,000).
(E) Interest expense increase of $2,401,000 as a result
of acquisition financing.
(F) Annual bonuses for Blum brothers will be replaced by
new bonus arrangement (25% of consolidated EBIT in
excess of $4,000,000).
(G) Tax effect of above adjustments and to provide for
taxes on K & B's 1998 historical income using an
assumed effective income tax rate of 50%.
<PAGE>
CECO ENVIRONMENTAL CORP.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1999
(NOTE 1)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------------------
CECO KIRK & BLUM
ENVIRONMENTAL MANUFACTURING kbd/TECHNIC,
CORP. COMPANY INC. TOTAL
------------- ------------- ------------ ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 70,677 $ 668,980 $151,779 $ 891,436
Marketable securities 2,453,393 2,453,393
Accounts receivable 3,192,966 9,726,121 426,636 13,345,723
Inventories 919,098 1,392,515 13,638 2,325,251
Costs and estimated earnings in excess of
billings on uncompleted contracts 228,879 5,950,927 6,179,806
Due from former owners of Busch Co. 243,212 243,212
Investment in sales-type lease 103,350 103,350
Prepaid expenses and other current assets 315,260 129,562 444,822
Deferred income taxes 84,500 84,500
----------- ----------- -------- -----------
Total current assets 7,611,335 17,868,105 592,053 26,071,493
Property and equipment, net 2,028,099 2,594,941 41,312 4,664,352
Cash surrender value of life insurance, net of
policy loans 2,812,926 2,812,926
Goodwill, net 4,929,612 4,929,612
Other intangible assets, at cost, net 1,290,003 270,488 1,560,491
Investment in sales-type lease 262,350 262,350
Deferred income taxes 296,900 296,900
Investment and other assets 356,567 24,300 380,867
----------- ----------- -------- -----------
$16,774,866 $23,570,760 $633,365 $40,978,991
=========== =========== ======== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term obligations $ 2,800,000 $ 5,000,000 $ 7,800,000
Current portion of long-term debt 494,628 494,628
Current portion of capital lease obligations 66,431 66,431
Accounts payable and accrued expenses 2,813,551 4,254,697 $ 60,697 7,128,945
Billings in excess of costs and estimated
earnings on uncompleted contracts 708,636 164,815 873,451
Unearned income 64,950 64,950
----------- ----------- -------- -----------
Total current liabilities 6,881,765 9,485,943 60,697 16,428,405
----------- ----------- -------- -----------
Long-term debt, less current portion 1,119,730 150,000 1,269,730
Due to officer 1,125,000 1,125,000
Capital lease obligations 32,625 32,625
Post retirement healthcare, pension and
workers compensation liability 850,086 850,086
----------- ----------- -------- -----------
Total liabilities 2,244,730 882,711 150,000 3,277,441
----------- ----------- -------- -----------
Minority interest 115,586 115,586
----------- -----------
Shareholders' equity:
Common stock, CECO Environmental Corp. 83,888 83,888
Common stock, Kirk & Blum/kbd 250,680 930 251,610
Capital in excess of par value 10,139,013 10,139,013
Accumulated other comprehensive loss (57,297) (57,297)
Retained earnings (accumulated deficit) (2,341,447) 13,008,723 421,738 11,089,014
Less treasury stock, at cost (348,669) (348,669)
----------- ----------- -------- -----------
Net shareholders' equity 7,532,785 13,202,106 422,668 21,157,559
----------- ----------- -------- -----------
$16,774,866 $23,570,760 $633,365 $40,978,991
=========== =========== ======== ===========
</TABLE>
<PAGE>
[RESTUB]
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------------
ADJUSTMENTS CONSOLIDATED
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 891,436
Marketable securities 2,453,393
Accounts receivable 13,345,723
Inventories $ 2,212,000 B 4,537,251
Costs and estimated earnings in excess of
billings on uncompleted contracts 6,179,806
Due from former owners of Busch Co. 243,212
Investment in sales-type lease 103,350
Prepaid expenses and other current assets 444,822
Deferred income taxes 84,500
----------- -----------
Total current assets 2,212,000 28,283,493
Property and equipment, net 8,782,284 B 13,446,636
Cash surrender value of life insurance, net of
policy loans 2,812,926
Goodwill, net 1,530,942 C 6,460,554
Other intangible assets, at cost, net 1,560,491
Investment in sales-type lease 262,350
Deferred income taxes 296,900
Investment and other assets 380,867
----------- -----------
$12,525,226 $53,504,217
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term obligations ($2,031,642)A $ 5,768,358
Current portion of long-term debt 3,290,372 A 3,785,000
Current portion of capital lease obligations 66,431
Accounts payable and accrued expenses 7,128,945
Billings in excess of costs and estimated
earnings on uncompleted contracts 873,451
Unearned income 64,950
----------- -----------
Total current liabilities 1,258,730 17,687,135
----------- -----------
Long-term debt, less current portion 24,891,270 A 26,161,000
Due to officer 1,125,000
Capital lease obligations 32,625
Post retirement healthcare, pension and
workers compensation liability 850,086
----------- -----------
Total liabilities 24,891,270 28,168,711
----------- -----------
Minority interest 115,586
-----------
Shareholders' equity:
Common stock, CECO Environmental Corp. 83,888
Common stock, Kirk & Blum/kbd (251,610)C
Capital in excess of par value 10,139,013
Accumulated other comprehensive loss 57,297
Retained earnings (accumulated deficit) (13,430,461)C (2,341,447)
Less treasury stock, at cost (348,669)
----------- -----------
Net shareholders' equity (13,624,774) 7,532,785
----------- -----------
$12,525,226 $53,504,217
=========== ===========
</TABLE>
See accompanying notes to pro forma consolidated condensed financial
information.
<PAGE>
CECO ENVIRONMENTAL CORP.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(NOTE 2)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------------------------------------- -----------------------------
CECO KIRK & BLUM
ENVIRONMENTAL MANUFACTURING kbd/TECHNIC,
CORP. COMPANY INC. TOTAL ADJUSTMENTS CONSOLIDATED
------------- ------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $12,709,210 $48,867,865 $1,234,008 $62,811,083 $62,811,083
Cost of revenues 7,467,243 39,664,447 602,772 47,734,462 47,734,462
----------- ----------- ---------- ----------- ---------- -----------
Gross profit 5,241,967 9,203,418 631,236 15,076,621 15,076,621
Selling and administrative expenses 4,520,151 5,552,014 566,602 10,638,767 10,638,767
----------- ----------- ---------- ----------- ---------- -----------
Income from continuing operations
before depreciation and amortization,
interest expense, and other (expense) 721,816 3,651,404 64,634 4,437,854 4,437,854
Depreciation and amortization 453,732 590,250 29,250 1,073,232 $ 447,000 D 1,520,232
Interest expense, net 124,626 198,142 5,353 328,121 1,359,000 E 1,687,121
Other income (expense) 120,039 120,039 (9,000)F 111,039
----------- ----------- ---------- ----------- ---------- -----------
Income from continuing operations
before income taxes and minority
interest 143,458 2,983,051 30,031 3,156,540 (1,815,000) 1,341,540
Income taxes 46,000 86,797 132,797 599,041 G 731,838
----------- ----------- ---------- ----------- ---------- -----------
Income from continuing operations before
minority interest 97,458 2,896,254 30,031 3,023,743 (2,414,041) 609,702
Minority interest in net loss of
CECO Filters, Inc. 4,286 4,286 4,286
----------- ----------- ---------- ----------- ---------- -----------
Income from continuing operations $ 101,744 $ 2,896,254 $ 30,031 $ 3,028,029 ($2,414,041) $ 613,988
=========== =========== ========== =========== ========== ===========
Earnings per share:
Basic $ 0.01 $ 0.07
Diluted $ 0.01 $ 0.07
Outstanding shares
Basic 8,250,896 8,250,896
Diluted 9,321,113 9,321,113
</TABLE>
See accompanying notes to pro forma consolidated condensed financial
information.
<PAGE>
CECO ENVIRONMENTAL CORP.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
NOTE 1: The unaudited pro forma consolidated condensed balance sheet
is based on the individual balance sheets of CECO
Environmental Corp. and its consolidated subsidiaries (CECO
Filters, Inc., Air Purator Corporation, New Busch Co., Inc.
and U.S. Facilities Management Company) (collectively referred
to as "CEC") and The Kirk & Blum Manufacturing Company, and
its sister company, kbd/Technic, Inc. (collectively referred
to as "K & B") as of September 30, 1999 to reflect the
acquisition of 100% of the common stock of K & B by CEC, which
occurred on December 7, 1999, as if it occurred on September
30, 1999 after giving effect to pro forma adjustments to
reflect the following:
CEC paid approximately $25,000,000 for the common stock of K &
B, in the form of cash.
Total cash required at settlement amounted to approximately
$26,150,000, which included approximately $1,150,000 of costs
incurred in connection with the acquisition. Financing for the
transaction was provided by a bank loan facility in the amount
of $25,000,000 in term loans and a $10,000,000 revolving
credit facility. The term loans require that $2,000,000
matures on March 6, 2000. Additional principal payments
required on the term loans during the year ending December 31,
2000 are $437,500 on February 28, May 31, August 31, and
November 30. As a condition to obtaining the bank financing,
CEC placed $5,000,000 of subordinated debt (of which
$4,700,000 was borrowed at the time of the acquisition). The
proceeds of the bank loans and the subordinated debt were used
to pay the purchase price for K & B, to pay expenses incurred
in connection with the acquisition, to refinance existing
indebtedness and for working capital purposes.
(A) The amounts reflected in the pro forma adjustments column
for short-term obligations; current portion of long term-debt;
and long-term debt, less current obligations represent the net
adjustments to reflect the transactions described in the
previous paragraph.
K & B's inventories and property and equipment were written up
by $2,212,000 and $8,782,284, respectively, to reflect
estimated fair value (B).
As a result of this acquisition, CEC has increased the amount
of goodwill by $1,530,942 (C), including the related closing
costs, based upon K & B's book basis of net assets as of
September 30, 1999.
<PAGE>
CECO ENVIRONMENTAL CORP.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION - (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
NOTE 2: The unaudited pro forma consolidated condensed statement of
operations is based on the individual statement of operations
of CEC and K & B for the nine months ended September 30, 1999,
after giving effect to the pro forma adjustments necessary to
reflect the acquisition described in Note 1, as if it had
taken place on January 1, 1999.
The pro forma adjustments are as follows:
(D) Amortization of goodwill over 20 years ($57,000) and
additional depreciation resulting from write-up of
property and equipment to estimated fair value
($390,000).
(E) Interest expense increase of $1,359,000 as a result
of acquisition financing.
(F) Bonus arrangement for Blum brothers (25% of annual
consolidated EBIT in excess of $4,000,000). (Note
that the historical statement of operations of K & B
for the nine months ended September 30, 1999 does not
include a provision for bonuses for the Blum
brothers.)
(G) Tax effect of above adjustments and to provide for
taxes on K & B's 1999 historical income using an
assumed effective income tax rate of 50%.
<PAGE>
(c) Exhibits.
The following Exhibits were filed with the Form 8-K filed December 22, 1999 and
numbered as set forth below.
10.1 Stock Purchase Agreement, dated as of December 7, 1999, among CECO
Environmental Corp., CECO Filters, Inc and the Stockholders of The Kirk &
Blum Manufacturing Company and kbd/Technic, Inc. and Richard J. Blum,
Lawrence J. Blum and David D. Blum.
10.2 Employment Agreement, dated as of December 7, 1999, between Richard J.
Blum and CECO Group, Inc.
10.3 Stock Purchase Warrant, dated as of December 7, 1999, granted by CECO
Environmental Corp. to Richard J. Blum
10.4 Employment Agreement, dated as of December 7, 1999, between Lawrence J.
Blum and The Kirk & Blum Manufacturing Company.
10.5 Stock Purchase Warrant, dated as of December 7, 1999, granted by CECO
Environmental Corp. to Lawrence J. Blum
10.6 Employment Agreement, dated as of December 7, 1999, between David D. Blum
and The Kirk & Blum Manufacturing Company.
10.7 Stock Purchase Warrant, dated as of December 7, 1999, granted by CECO
Environmental Corp. to David D. Blum
10.8 Credit Agreement, dated as of December 7, 1999, among PNC Bank, National
Association, The Fifth Third Bank, and Bank One, N.A. and PNC Bank,
National Association as agent, and CECO Group, Inc., CECO Filters, Inc.,
Air Purator Corporation, New Busch Co., Inc., The Kirk & Blum
Manufacturing Company and kbd\Technic, Inc.
10.9 Promissory Note in the amount of $4,000,000, dated as of December 7, 1999,
made by CECO Environmental Corp. and payable to Green Diamond Oil Corp.
10.10 Promissory Note in the amount of $500,000, dated as of December 7, 1999,
made by CECO Environmental Corp. and payable to Harvey Sandler
10.11 Promissory Note in the amount of $500,000, dated as of December 7, 1999,
made by CECO Environmental Corp. and payable to ICS Trustee Services, Ltd.
10.12 Warrant Agreement, dated as of December 7, 1999, among CECO Environmental
Corp. and Green Diamond Oil Corp., Harvey Sandler and ICS Trustee
Services, Ltd.
10.13 KDB\Technic, Inc. Voting Trust Agreement, dated as of December 7, 1999,
Richard J. Blum, trustee
10.14 Consulting Agreement, dated as of June 1, 1999, between CECO Environmental
Corp. and CECO Filters, Inc.
23.1 Consent of Independent Public Accountants, dated as of December 14, 1999
<PAGE>
SIGNATURES
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 hereunto duly authorized.
CECO Environmental Corp.
CECO ENVIRONMENTAL CORP.
Dated: February 16, 2000 /s/ Marshall J. Morris
----------------------------------
Marshall J. Morris
Chief Financial Officer
