<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For Quarter Ended MARCH 31, 2000
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Commission file number 0-7099
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CECO ENVIRONMENTAL CORP.
------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 13-2566064
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
505 UNIVERSITY AVENUE, SUITE 1400, TORONTO, ONTARIO, CANADA M5G 1X3
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(Address of principal executive officers) (Zip Code)
416-593-6543
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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Former name, former address and former fiscal year, if changed
since last report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
X Yes No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the close of the period covered by this report.
Class: COMMON, PAR VALUE $.01 PER SHARE
--------------------------------
OUTSTANDING at March 31, 2000 8,388,816
<PAGE>
CECO ENVIRONMENTAL CORP.
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
MARCH 31, 2000
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INDEX
Part I - Financial Information (unaudited):
Item 1. Condensed consolidated balance sheet as of
March 31, 2000 and December 31, 1999 2
Condensed consolidated statement of operations
for the three-month periods ended
March 31, 2000 and 1999 3
Condensed consolidated statement of cash flows for the
three-month periods ended March 31, 2000 and 1999 4
Notes to condensed consolidated financial statements 6
Report of independent accountants 9
Item 2. Management's discussion and analysis of the
financial condition and results of operations 10
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
- - 1 -
<PAGE>
CECO ENVIRONMENTAL CORP.
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 922,151 $ 1,134,792
Marketable securities - trading 2,428,813 2,690,919
Accounts receivable, net 14,371,751 17,204,539
Costs and estimated earnings in excess of
billings on uncompleted contracts 4,948,169 2,951,773
Inventories 2,334,052 2,173,010
Prepaid expenses and other current assets 496,088 635,423
Deferred income taxes 485,800 485,800
----------- -----------
Total current assets 25,986,824 27,276,256
Property and equipment, net 13,953,103 14,244,457
Goodwill, net 6,489,627 6,545,389
Other intangible assets, net 1,156,484 1,225,070
Deferred charges and other assets 1,405,694 1,473,054
Deferred income taxes 309,200 309,200
----------- -----------
Total assets $49,300,932 $51,073,426
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Debt $ 2,194,967 $ 2,788,054
Accounts payable and accrued expenses 7,778,316 9,569,882
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,235,639 460,092
Other current liabilities 166,053 116,056
----------- -----------
Total current liabilities 11,374,975 12,934,084
Debt, less current portion 27,917,245 28,289,680
Other liabilities 744,839 713,003
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Total liabilities 40,037,059 41,936,767
----------- -----------
Minority interest 92,999 98,541
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Shareholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized and none issued - -
Common stock, $.01 par value; 100,000,000 shares
authorized and 8,388,816 shares issued and outstanding 83,888 83,888
Capital in excess of par value 11,986,013 11,986,013
Accumulated deficit (2,550,358) (2,683,114)
----------- -----------
9,519,543 9,386,787
Less treasury stock, at cost (348,669) (348,669)
----------- -----------
Net shareholders' equity 9,170,874 9,038,118
----------- -----------
Total liabilities and shareholders' equity $49,300,932 $51,073,426
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
CECO ENVIRONMENTAL CORP.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
----------- ----------
<S> <C> <C>
Revenues:
Contract revenues $18,514,330 $2,242,811
Net sales - products 3,704,044 2,529,846
----------- ----------
Total revenues 22,218,374 4,772,657
----------- ----------
Costs and expenses:
Cost of revenues - contracts 15,317,852 1,496,715
Cost of sales - products 2,125,312 1,284,646
Selling and administrative 3,521,661 1,493,780
Depreciation and amortization 427,309 143,024
----------- ----------
21,392,134 4,418,165
---------- ---------
Income from continuing operations before
investment income and interest expense 826,240 354,492
Investment income 294,186 38,179
Interest expense (876,154) (75,498)
----------- -----------
Income from continuing operations before provision
for income taxes and minority interest 244,272 317,173
Provision for income taxes 117,058 143,560
----------- ----------
Income from continuing operations before minority interest 127,214 173,613
Minority interest 5,542 (8,330)
----------- ----------
Income from continuing operations 132,756 165,283
Loss from operations and disposal of discontinued division,
net of income tax benefit and minority interest - (136,927)
----------- ----------
Net income $ 132,756 $ 28,356
=========== ==========
Net income (loss) per share, basic:
Income from continuing operations $ .02 $ .02
(Loss) from discontinued operations - (.02)
----------- ----------
Net income per share $ .02 $ -
=========== ==========
Net income (loss) per share, diluted:
Income from continuing operations $ .01 $ .02
(Loss) from discontinued operations - (.02)
----------- ----------
Net income per share $ .01 $ -
=========== ==========
Weighted average number of common shares outstanding:
Basic 8,250,896 8,250,896
=========== =========
Diluted 11,093,752 9,039,987
=========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
- - 3 -
<PAGE>
CECO ENVIRONMENTAL CORP.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
----------- ----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net income $ 132,756 $ 28,356
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Loss from discontinued operations -- 136,927
Depreciation and amortization 427,309 143,024
Minority interest (5,542) 8,330
Gain on sales of marketable securities, trading (178,679) (43,868)
Changes in operating assets and liabilities,
net of acquired businesses:
Marketable securities 440,785 (154,343)
Accounts receivable 2,832,788 591,099
Inventories (161,042) (87,499)
Cost and estimated earnings in excess of
billings on uncompleted contracts (1,996,396) (765,681)
Prepaid expenses and other current assets 139,335 (136,230)
Deferred charges and other assets 67,360 (304,790)
Accounts payable and accrued expenses (1,791,566) 133,312
Billings in excess of costs and estimated
earnings on uncompleted contracts 775,547 85,072
Other liabilities 81,833 (236,895)
----------- -----------
Net cash provided by (used in) continuing operations 764,488 (603,186)
Net cash provided by discontinued operations -- 195,774
----------- -----------
Net cash provided by (used in) operating activities 764,488 (407,412)
----------- -----------
Cash flows from investing activities:
Acquisitions of property and equipment (11,607) (45,836)
Acquisition of additional shares of CECO Filters, Inc. -- (42,015)
----------- -----------
Net cash (used in) continuing operations (11,607) (87,851)
Net cash (used in) discontinued operations -- (2,356)
----------- -----------
Net cash (used in) investing activities (11,607) (90,207)
----------- -----------
Cash flows from financing activities:
Net change in short-term debt (593,087) 800,000
Proceeds from issuance of long-term debt -- 1,412,155
Repayments of long-term debt (372,435) (1,717,389)
----------- -----------
Net cash provided by (used in) financing activities (965,522) 494,766
----------- -----------
</TABLE>
CONTINUED ON NEXT PAGE
See accompanying notes to condensed consolidated financial statements.
- - 4 -
<PAGE>
CECO ENVIRONMENTAL CORP.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
---------- ----------
<S> <C> <C>
Net (decrease) in cash ($212,641) ($2,853)
Cash and cash equivalents at beginning of the period 1,134,792 364,648
--------- ----------
Cash and cash equivalents at end of the period $ 922,151 $ 361,795
========== ==========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
Cash paid during the period for:
Interest $ 573,223 $ 75,498
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Income taxes $ 214,579 $ 349,960
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
- - 5 -
<PAGE>
CECO ENVIRONMENTAL CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
- --------------------------------------------------------------------------------
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly the financial position as of March 31, 2000 and the
results of operations and cash flows for the three-month periods ended
March 31, 2000 and 1999. The results of operations for the three-month
period ended March 31, 2000 are not necessarily indicative of the
results to be expected for the full year.
2. Discontinued Operations
On March 31, 1999, the Company's subsidiary, CECO Filters, Inc., sold
the contracts and customer list of U.S. Facilities Management Arizona
division for $250,000. The sales price was paid through a non-interest
bearing promissory note from the purchaser.
The following is a summary of operating activity for this discontinued
division for the three months ended March 31, 1999:
<TABLE>
<S> <C>
Revenues $ 387,656
Cost of revenues (493,439)
Selling and administrative (117,554)
Depreciation and amortization (7,998)
---------
Operating loss (231,335)
Income tax benefit 97,500
Minority interest 9,390
---------
Loss from operations of discontinued division ($124,445)
=========
</TABLE>
The following is a summary of the loss recorded from the disposal of
this division for the three months ended March 31, 1999:
<TABLE>
<S> <C>
Net present value of note receivable from sale $174,493
Impairment of goodwill (166,932)
Disposition costs (20,043)
---------
Loss from disposal of discontinued division ($ 12,482)
=========
</TABLE>
Net liabilities of discontinued operations as of March 31, 2000 and
December 31, 1999 were $306,513.
- - 6 -
<PAGE>
CECO ENVIRONMENTAL CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
- --------------------------------------------------------------------------------
3. Inventories consisted of the following:
MARCH 31, DECEMBER 31,
2000 1999
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Raw materials $1,371,428 $1,328,175
Work in progress 22,106 -
Finished goods 753,037 626,033
Parts for resale 187,481 218,802
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$2,334,052 $2,173,010
========= =========
4. Acquisition of Business
On December 7, 1999, the Company purchased all of the issued stock of
The Kirk & Blum Manufacturing Company ("K & B") and kbd/Technic, Inc.,
two companies with related ownership. The purchase price was
approximately $25 million plus the assumption of $5 million of existing
indebtedness of the companies, in addition to acquisition costs the
Company incurred. The transaction was accounted for as a purchase. K & B,
headquartered in Cincinnati, Ohio, is a leading provider of turnkey
engineering, design, manufacturing and installation services in the air
pollution control industry. K & B's business is focused on designing,
building and installing systems which remove airborne contaminants from
industrial facilities, as well as equipment that control emissions from
such facilities. K & B serves its customers from offices and plants in
Cincinnati, Ohio; Indianapolis, Indiana; Louisville and Lexington,
Kentucky; Columbia, Tennessee; and Greensboro, North Carolina.
kbd/Technic, Inc. is a specialty engineering firm concentrating in
industrial ventilation. Services offered include air system testing and
balancing, source emission testing, industrial ventilation,
engineering, turnkey project engineering (civil, structural and
electrical), sound and vibration system engineering and other special
projects. The excess of the aggregate purchase price over the fair
value of the net assets acquired was $1,653,613, based upon preliminary
estimates of fair value. On a pro forma basis, unaudited results of
operations for the three months ended March 31, 1999 would have been as
follows, if the acquisition had been made as of January 1, 1999:
Total revenues $25,957,800
Net income 700,669
Net income per share:
Basic $ .09
Diluted $ .08
- - 7 -
<PAGE>
CECO ENVIRONMENTAL CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
- --------------------------------------------------------------------------------
5. Debt
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
Bank credit facilities $ 26,235,885 $ 26,673,384
Pennsylvania Industrial Development Authority,
interest at 3%, due May, 2007, collateralized by
mortgage on land and building 212,638 219,263
Subordinated debt, actual interest at 12% (effective
interest at 17.75% with detachable warrants) 3,244,384 3,172,695
Loan payable to Green Diamond Oil Corp.,
interest at 10% 215,000 800,000
Other 204,305 212,392
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30,112,212 31,077,734
Less current portion (2,194,967) (2,788,054)
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$ 27,917,245 $ 28,289,680
============ ============
</TABLE>
6. Segment and Related Information
The Company has two reportable segments: Systems and Media. The Systems
segment assembles and manufactures ventilation, environmental and
process-related products. The Company provides standard and engineered
systems and filter media for air quality improvement through its Media
segment.
<TABLE>
<CAPTION>
ELIMINATION
OF INTER-
SEGMENT
SYSTEMS MEDIA OTHER ACTIVITY CONSOLIDATED
----------- ----------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Three months ended March 31, 2000:
Revenues $21,059,066 $ 1,231,750 $ -- ($ 72,442) $22,218,374
Operating income (loss) 1,218,910 (100,624) (292,046) 826,240
Three months ended March 31, 1999:
Revenues $ 2,781,413 $ 2,179,720 $ 13,570 ($202,046) $ 4,772,657
Operating income 145,323 182,850 26,319 -- 354,492
</TABLE>
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<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
CECO Environmental Corp. and Subsidiaries
Toronto, Ontario Canada
We have reviewed the accompanying condensed consolidated balance sheet of CECO
Environmental Corp. and Subsidiaries as of March 31, 2000 and the related
condensed consolidated statements of operations and cash flows for the
three-month periods ended March 31, 2000 and 1999. These financial statements
are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1999 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the year then ended (not presented herein); and in our report dated
February 24, 2000, we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1999 is fairly stated,
in all material respects, in relation to the balance sheet from which it has
been derived.
/s/ Margolis & Company P.C.
----------------------------
Certified Public Accountants
Bala Cynwyd, Pennsylvania
May 2, 2000
- - 9 -
<PAGE>
CECO ENVIRONMENTAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(unaudited)
- --------------------------------------------------------------------------------
Overview
The principal operating units of CECO Environmental Corp. (the "Company") are
comprised of The Kirk & Blum Manufacturing Company, kbd/Technic, Inc., CECO
Filters, Inc., Air Purator Corporation and New Busch Co., Inc. which provide
innovative solutions to industrial ventilation and air quality problems through
dust, mist, and fume control systems, and particle and chemical control
technologies.
The Company's Systems segment consists of Kirk & Blum Manufacturing Company,
kbd/Technic, Inc. and New Busch Co., Inc. Kirk & Blum is a leading provider of
turnkey engineering, design, manufacturing and installation services in the air
pollution control industry. Kirk & Blum's business is focused on designing,
building and installing systems which remove airborne contaminants from
industrial facilities as well as equipment that control emissions from such
facilities. Busch is engaged in providing system-based solutions for industrial
ventilation and air pollution control problems through its design, fabrication,
supplying and installation of equipment used to control the environment in and
around industrial plants with a variety of standard, proprietary and patented
technologies including its JET*STAR(TM) cooling system. kbd/Technic, Inc. is a
specialty-engineering firm concentrating in industrial ventilation. kbd/Technic
provides air systems testing and balancing, source emissions testing, industrial
ventilation engineering, turnkey project engineering (civil, structural and
electrical), and sound and vibration systems engineering. These companies have
extensive knowledge and experience in providing complete turnkey systems in new
installations and renovating existing systems.
The Company's Media segment consists of CECO Filters, Inc. ("Filters") and Air
Purator Corporation. Filters manufactures and markets filters known as fiber bed
mist eliminators, designed to trap, collect and remove solid soluble and liquid
particulate matter suspended in an air or other gas stream whether generated
from a point source emission or otherwise. Filters offers innovative patented
technologies, Catenary Grid(R) and Narrow Gap Venturi Scrubbers, designed for
use with heat and mass transfer operations and particulate control. Air Purator
Corporation designs and manufactures high performance filter media and bags for
use in high temperature pulse jet baghouses, a highly effective type of baghouse
for capturing submicron particulate from gas streams.
Results of Operations
The Company's consolidated statement of operations for the three-month periods
ended March 31, 2000 and 1999 reflects the operations of the Company
consolidated with the operations of its subsidiaries. At March 31, 2000, the
Company owned approximately 94% of CECO Filters, Inc. Minority interest in the
consolidated statement of operations has been separately presented in the
statement of operations.
- - 10 -
<PAGE>
CECO ENVIRONMENTAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
(unaudited)
- --------------------------------------------------------------------------------
Revenues
Consolidated total revenues for the three months ended March 31, 2000, increased
$17,446,000 (365%) to $22,218,000 versus comparable 1999 total revenues of
$4,773,000. This increase was primarily the combination of increased revenues
from the Systems segment of $18,278,000 (principally due to the positive impact
from the acquisition of Kirk & Blum and kbd/Technic) offset by decreases in the
Media segment of $948,000.
Systems segment revenues reflect lower revenues from Busch in the first quarter
of 2000 compared to 1999 as the result of a general decline in the metals
industry. Demand at rolling mills for fume exhaust systems and Busch's
proprietary JET*STAR(TM) cooling technology continued to decline in 2000.
Media segment sales reflect a decline of $948,000 which was the result of
decreased sales from the Company's high performance filter media unit, Air
Purator Corporation, and a decline in sales from CECO Filters, Inc. Market
conditions tightened for environmental service companies like the Company's
during the first quarter of 2000, as sales declined to technology-based
industries such as semi-conductor and printed circuit board companies.
Gross Profit
Gross profit increased $2,784,000 to $4,775,000 for the first quarter in 2000.
Gross profit as a percentage of revenues was 21.5% in the first quarter of 2000
compared with 41.7% in the prior year. The decline is attributable to increased
sales by lower margin Systems segment sales and decreased sales by the higher
margin Media segment. Overall, margins as a percentage of sales will be impacted
by the addition of Kirk & Blum to the Systems segment as this operating unit
will continue to represent a larger factor in the Company's total revenues
during calendar year 2000.
Expenses
Selling and administrative expenses increased from the first quarter of 1999 by
$2,028,000 to $3,522,000 during the first quarter of 2000 due to the acquisition
of Kirk & Blum and kbd/Technic. Selling and administrative expenses as a
percentage of revenues for 2000 and 1999 were 15.9% and 31.3%, respectively. A
substantial portion of these expenses, which are considered fixed, are under
review by the Company for cost savings opportunities resulting from
administrative efficiencies that may be realized from consolidating the
Company's operating headquarters in Cincinnati, Ohio. Additionally, variable
selling expenses are being reviewed to better align sales compensation with
results. Savings that may be realized from this realignment and cost reduction
efforts should favorably impact results in the third and fourth quarters of
2000.
Depreciation and amortization increased $284,000 to $427,000 in the first
quarter of 2000 primarily due to additional costs associated with the
acquisition of Kirk & Blum and kbd/Technic.
- - 11 -
<PAGE>
CECO ENVIRONMENTAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
(unaudited)
- --------------------------------------------------------------------------------
Investment Income
Investment income increased $256,000 to $294,000 during the first quarter of
2000. The increase in investment income resulted from interest income, dividend
income, and realized and unrealized net gains in investments. At March 31, 2000,
the Company's most significant investment is 142,100 shares of Peerless
Manufacturing Company common stock which is listed on the Nasdaq Stock Market(R)
traded under the symbol PMFG. At March 31, 2000, the fair market value of the
Company's Peerless common stock was $14 per share.
Interest Expense
Interest expense increased $801,000 to $876,000 during the first quarter of 2000
compared with $75,000 in the same period of 1999, principally due to higher
borrowing levels and increased rates under the newly established bank credit
facilities, and subordinated and related party debt.
Income Taxes
The provision for federal and state income taxes was $117,000 in the first
quarter of 2000 compared with $144,000 in the first quarter of 1999. The
effective income tax rate of 47.9% in the first quarter of 2000 was higher
compared with the effective income tax rate of 45.3% in 1999 due primarily to
non-deductible goodwill amortization relating to the Company's investments in
CECO Filters, Inc., Kirk & Blum and kbd/Technic.
Discontinued Operations
Discontinued operations reflect the closure of the Company's operations in
Arizona during the first quarter of 1999. Operating losses, net of income tax
benefit and minority interest from this discontinued division, amounted to
$124,000 in the first three months of 1999. The loss on the disposal of the
discontinued division amounted to $13,000 in the first quarter of 1999.
Net Income
Net income for the three months ended March 31, 2000 was $132,756 compared with
net income of $28,356 in the same period in 1999.
- - 12 -
<PAGE>
CECO ENVIRONMENTAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
(unaudited)
- --------------------------------------------------------------------------------
Backlog
The Company's backlog consists of purchase orders it has received from products
it expects to ship within the next 12 months. The Company's backlog, as of March
31, 2000, was approximately $21,400,000, an increase of $5,800,000 over December
31, 1999. There can be no assurance that order backlog will be replicated or
increased or translated into higher revenues in the future. The success of the
Company's business depends on a multitude of factors that are out of the
Company's control. The Company's operating results can be significantly impacted
by the introduction of new products, new manufacturing technologies, rapid
changes in the demand for its products, decrease in the average selling price
over the life of the product as competition increases, and the Company's
dependence on efforts of intermediaries to sell a significant portion of its
product.
Financial Condition, Liquidity and Capital Resources
At March 31, 2000, the Company had total cash and cash equivalents and
marketable securities of $3,351,000 compared to $3,826,000 at December 31, 1999.
Cash provided by operating activities for the three months ended March 31, 2000
was $764,000 compared with cash used of $407,000 for the comparable period in
1999. In December 1999, the Company consummated new credit facilities totaling
$38 million under a senior secured syndicated banking facility of $33 million
expiring in 2004 - 2006, and $5 million of subordinated debt expiring in 2006.
The Company's investment in marketable securities, which generated investment
income of $294,000 in the three months ended March 31, 2000, consisted
principally of its investment in Peerless Manufacturing Company and other
investments with a fair market value of $2,429,000 on March 31, 2000.
Total bank and related debt as of March 31, 2000 was $30,112,000 a decrease of
$966,000, due to principal payments for its bank credit facilities and Green
Diamond Oil Corp. The unused credit availability at March 31, 2000 was
$4,327,000 under its bank line of credit.
Investing activities consumed cash of $12,000 during the first quarter of 2000
compared with $90,000 used during the same period in 1999. Capital expenditures
were $12,000 and $46,000 for the three months ended March 31, 2000 and 1999,
respectively. Capital expenditures are expected to continue to increase and are
anticipated to be in the range of $500,000 to $900,000 for fiscal year 2000.
Financing activities used $966,000 during the first quarter of 2000 compared
with cash provided of $495,000 during the same period of 1999. The 2000
financing activities were principal payments from borrowings under senior credit
facilities and Green Diamond Oil Corp.
The Company believes that its cash, cash equivalents and marketable securities,
cash flows from operating activities, and existing credit facilities are
adequate to meet the Company's cash requirements over the next twelve months.
- - 13 -
<PAGE>
CECO ENVIRONMENTAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
(unaudited)
- --------------------------------------------------------------------------------
Forward-Looking Statements
The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 and is making this cautionary
statement in connection with such safe harbor legislation. This Form 10-QSB, the
Annual Report to Shareholders, Form 10-KSB or Form 8-K of the Company or any
other written or oral statements made by or on behalf of the Company may include
forward-looking statements which reflect the Company's current views with
respect to future events and financial performance. The words "believe,"
"expect," "anticipate," "intends," "estimate," "forecast," "project," "should"
and similar expressions are intended to identify "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. All
forecasts and projections in this Form 10-QSB are "forward-looking statements,"
and are based on management's current expectations of the Company's near-term
results, based on current information available pertaining to the Company,
including the risk factors noted below.
The Company wishes to caution investors that any forward-looking statements made
by or on behalf of the Company are subject to uncertainties and other factors
that could cause actual results to differ materially from such statements. These
uncertainties and other risk factors include, but are not limited to: changing
economic and political conditions in the United States and in other countries,
changes in governmental spending and budgetary policies, governmental laws and
regulations surrounding various matters such as environmental remediation,
contract pricing, and international trading restrictions, customer product
acceptance, and continued access to capital markets, and foreign currency risks.
The Company wishes to caution investors that other factors may, in the future,
prove to be important in affecting the Company's results of operations. New
factors emerge from time to time and it is not possible for management to
predict all such factors, nor can it assess the impact of each such factor on
the business or the extent to which any factor, or a combination of factors, may
cause actual results to differ materially from those contained in any
forward-looking statements.
Investors are further cautioned not to place undue reliance on such
forward-looking statements as they speak only to the Company's views as of the
date the statement is made. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
- - 14 -
<PAGE>
CECO ENVIRONMENTAL CORP.
OTHER INFORMATION
(unaudited)
- --------------------------------------------------------------------------------
Part II
Item 6(b)
EXHIBITS AND REPORTS ON FORM 8-K
The Company filed on February 17, 2000 an amendment on Form 8-K to the Form 8-K
filed on December 22, 1999. The original Form 8-K related to an acquisition by
the Company that occurred on December 7, 1999. This amendment to Form 8-K
contained financial statements and pro forma financial statements with respect
to the acquisition.
- - 15 -
<PAGE>
CECO ENVIRONMENTAL CORP.
SIGNATURE
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CECO ENVIRONMENTAL CORP.
/s/ M. J. Morris
-------------------------------
M. J. Morris
V.P., Finance and Administration
Chief Financial Officer
Date: May 8, 2000
- - 16 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CECO ENVIRONMENTAL CORP. AND SUBSIDIARIES AS OF AND FOR
THE THREE MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 922,151
<SECURITIES> 2,428,813
<RECEIVABLES> 14,371,751
<ALLOWANCES> 0
<INVENTORY> 2,334,052
<CURRENT-ASSETS> 25,986,824
<PP&E> 16,554,498
<DEPRECIATION> 2,601,395
<TOTAL-ASSETS> 49,300,932
<CURRENT-LIABILITIES> 11,374,975
<BONDS> 30,112,212
0
0
<COMMON> 83,888
<OTHER-SE> 9,086,986
<TOTAL-LIABILITY-AND-EQUITY> 49,300,932
<SALES> 3,704,044
<TOTAL-REVENUES> 22,218,374
<CGS> 2,125,312
<TOTAL-COSTS> 21,392,134
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 876,154
<INCOME-PRETAX> 244,272
<INCOME-TAX> 117,058
<INCOME-CONTINUING> 132,756
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 132,756
<EPS-BASIC> .02
<EPS-DILUTED> .01
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