<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 SEPTEMBER 30, 2000
------------------------------
Commission file number 0-7099
----------
CECO ENVIRONMENTAL CORP.
------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 13-2566064
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
505 UNIVERSITY AVENUE, SUITE 1400, TORONTO, ONTARIO, CANADA M5G 1X3
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
416-593-6543
------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
--------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since
last report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
X Yes No
------- -------
State the number of shares outstanding of each of the issuer's classes of common
stock as of latest practicable date.
Class: COMMON, PAR VALUE $.01 PER SHARE
--------------------------------
OUTSTANDING at November 8, 2000 7,885,872
<PAGE>
CECO ENVIRONMENTAL CORP.
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
SEPTEMBER 30, 2000
INDEX
-----
Part I - Financial Information (unaudited):
Item 1. Condensed consolidated balance sheets as of
September 30, 2000 and December 31, 1999 2
Condensed consolidated statements of operations
for the three-month and nine-month periods ended
September 30, 2000 and 1999 3
Condensed consolidated statements of cash flows for the
nine-month periods ended September 30, 2000 and 1999 4
Notes to condensed consolidated financial statements 6
Item 2. Management's discussion and analysis of
financial condition and results of operations 9
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
1
<PAGE>
CECO ENVIRONMENTAL CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,320,558 $ 1,134,792
Marketable securities - trading 1,316,257 2,690,919
Accounts receivable, net 16,319,962 17,204,539
Costs and estimated earnings in excess of
billings on uncompleted contracts 5,705,286 2,951,773
Inventories 2,280,697 2,173,010
Prepaid expenses and other current assets 949,109 635,423
Deferred income taxes 485,800 485,800
------------ ------------
Total current assets 28,377,669 27,276,256
Property and equipment, net 13,763,920 14,244,457
Goodwill, net 6,152,690 6,545,389
Other intangible assets, net 1,230,518 1,225,070
Deferred charges and other assets 1,093,157 1,473,054
Deferred income taxes 309,200 309,200
------------ ------------
Total assets $ 50,927,154 $ 51,073,426
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Debt $ 1,775,662 $ 2,788,054
Accounts payable and accrued expenses 9,167,405 9,569,882
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,765,369 460,092
Other current liabilities 22,762 116,056
------------ ------------
Total current liabilities 12,731,198 12,934,084
Debt, less current portion 29,773,012 28,289,680
Other liabilities 799,841 713,003
------------ ------------
Total liabilities 43,304,051 41,936,767
------------ ------------
Minority interest 51,589 98,541
------------ ------------
Shareholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized and none issued - -
Common stock, $.01 par value; 100,000,000 shares
authorized, 8,627,853 and 8,388,816 shares issued
in 2000 and 1999 86,279 83,888
Capital in excess of par value 11,993,126 11,986,013
Accumulated deficit (2,842,771) (2,683,114)
------------ ------------
9,236,634 9,386,787
Less treasury stock, at cost, 753,920 and 137,920 shares, respectively (1,665,120) (348,669)
------------ ------------
Net shareholders' equity 7,571,514 9,038,118
------------ ------------
Total liabilities and shareholders' equity $ 50,927,154 $ 51,073,426
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
CECO ENVIRONMENTAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE-MONTHS ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
Contract revenues $ 25,191,495 $ 2,125,528 $ 63,739,248 $ 6,268,807
Net sales - products 3,445,304 1,846,168 11,148,030 6,440,403
------------- ------------ ------------- -----------
Total revenues 28,636,799 3,971,696 74,887,278 12,709,210
------------- ------------ ------------- -----------
Costs and expenses:
Cost of contract revenues, exclusive of
depreciation shown separately below 21,516,169 1,481,754 53,979,940 4,017,047
Cost of sales - products, exclusive of
depreciation shown separately below 2,652,672 1,100,469 7,081,792 3,450,196
Selling and administrative 3,472,583 1,374,733 10,834,138 4,520,151
Depreciation and amortization 486,536 155,044 1,403,989 453,732
------------- ------------ ------------- -----------
28,127,960 4,112,000 73,299,859 12,441,126
------------- ------------ ------------- -----------
Income (loss) from continuing operations
before investment income and
interest expense 508,839 ( 140,304) 1,587,419 268,084
Investment income (loss) 178,565 ( 91,815) 921,309 66,653
Interest expense ( 987,921) ( 51,768) ( 2,834,161) ( 191,279)
------------- ------------ ------------- -----------
Income (loss) from continuing operations
before provision (credit) for income taxes
and minority interest ( 300,517) ( 283,887) ( 325,433) 143,458
Provision (credit) for income taxes ( 108,734) ( 133,400) ( 118,824) 46,000
------------- ------------ ------------- -----------
Income (loss) from continuing operations
before minority interest ( 191,783) ( 150,487) ( 206,609) 97,458
Minority interest 24,219 9,907 46,952 4,286
------------- ------------ ------------- -----------
Income (loss) from continuing operations ( 167,564) ( 140,580) ( 159,657) 101,744
------------- ------------ ------------- -----------
Discontinued operations:
Profit (loss) from operations
of discontinued division, net of
income taxes and minority interest - 7,489 - ( 113,756)
Loss from disposal of discontinued
division - - - ( 12,482)
------------- ------------ ------------- -----------
- 7,489 - ( 126,238)
------------- ------------ ------------- -----------
Net loss ($ 167,564) ($ 133,091) ($ 159,657) ($ 24,494)
============= ============ ============= ===========
Net income (loss) per share, basic:
Income (loss) from continuing operations ($ .02) ($ .02) ($ .02) $ .01
(Loss) from discontinued operations - - - ( .01)
------------- ------------ ------------- -----------
Net loss per share ($ .02) ($ .02) ($ .02) ($ .00)
============= ============ ============= ===========
Net income (loss) per share, diluted:
Income (loss) from continuing operations ($ .02) ($ .02) ($ .02) $ .01
(Loss) from discontinued operations - - - ( .01)
------------- ------------ ------------- -----------
Net loss per share ($ .02) ($ .02) ($ .02) ($ .00)
============= ============ ============= ===========
Weighted average number of common shares
outstanding:
Basic 7,930,008 8,485,471 8,298,981 8,485,471
============= ============ ============= ===========
Diluted 7,930,008 8,485,471 8,298,981 8,485,471
============= ============ ============= ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
CECO ENVIRONMENTAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
NINE-MONTHS ENDED
SEPTEMBER 30,
2000 1999
------ ------
<S> <C> <C>
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net loss ($ 159,657) ($ 24,494)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Loss from discontinued operations - 126,238
Depreciation and amortization 1,403,989 453,732
Minority interest ( 46,952) ( 4,286)
Gain on sales of marketable securities, trading ( 789,108) -
Changes in operating assets and liabilities,
net of acquired businesses:
Marketable securities 2,163,770 ( 1,757,449)
Accounts receivable 1,075,377 64,104
Inventories ( 107,687) ( 377,783)
Cost and estimated earnings in excess of
billings on uncompleted contracts ( 2,753,513) ( 35,763)
Prepaid expenses and other current assets ( 313,686) ( 76,399)
Deferred charges and other assets 86,348 ( 348,849)
Accounts payable and accrued expenses ( 352,477) 296,285
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,305,277 ( 320,428)
Other 159,403 ( 266,150)
----------- -----------
Net cash provided by (used in) continuing operations 1,671,084 ( 2,271,242)
Net cash used in discontinued operations - ( 9,289)
----------- -----------
Net cash provided by (used in) operating activities 1,671,084 ( 2,280,531)
----------- -----------
Cash flows from investing activities:
Acquisitions of property and equipment and intangible assets ( 687,006) ( 340,621)
Cash received from purchase price adjustment 253,550 -
Acquisition of additional shares of CECO Filters, Inc. - ( 55,459)
----------- -----------
Net cash used in continuing operations ( 433,456) ( 396,080)
Net cash used in discontinued operations - ( 1,856)
----------- -----------
Net cash used in investing activities ( 433,456) ( 397,936)
----------- -----------
Cash flows from financing activities:
Net change in short-term debt ( 1,012,391) 2,725,000
Proceeds from issuance of stock 9,504 -
Purchases of treasury stock ( 1,316,451) -
Net increase (decrease) in long-term debt 1,267,476 ( 340,504)
----------- -----------
Net cash provided by (used in) financing activities ( 1,051,862) 2,384,496
----------- -----------
</TABLE>
CONTINUED ON NEXT PAGE
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
CECO ENVIRONMENTAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(unaudited)
<TABLE>
<CAPTION>
NINE-MONTHS ENDED
SEPTEMBER 30,
2000 1999
------------ ----------
<S> <C> <C>
Net increase (decrease) in cash 185,766 ( 293,971)
Cash and cash equivalents at beginning of the period 1,134,792 364,648
------------ ------------
Cash and cash equivalents at end of the period $ 1,320,558 $ 70,677
============ ============
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
Cash paid during the period for:
Interest $ 2,413,680 $ 191,279
------------ ------------
Income taxes $ 285,600 $ 527,758
------------ ------------
</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 of CECO Environmental Corp. contain
all adjustments necessary to present fairly the financial position as
of September 30, 2000 and the results of operations for the three-month
and nine-month periods ended September 30, 2000 and 1999 and cash flows
for the nine-month periods ended September 30, 2000 and 1999. The
results of operations for the three-month and nine-month periods ended
September 30, 2000 are not necessarily indicative of the results to be
expected for the full year.
2. Discontinued Operations
On March 31, 1999, the Company's subsidiary, CECO Filters, Inc., sold
the contracts and customer list of U.S. Facilities Management Arizona
division for $250,000. The sales price was paid through a non-interest
bearing promissory note from the purchaser.
The following is a summary of operating activity for this discontinued
division for the nine-months ended September 30, 1999:
<TABLE>
<CAPTION>
<S> <C>
Revenues $387,656
Cost of revenues, exclusive of depreciation shown separately below ( 493,439)
Selling and administrative ( 114,224)
Depreciation and amortization ( 7,998)
---------
Operating loss ( 228,005)
Income tax benefit 105,800
Minority interest 8,449
---------
Loss from operations of discontinued division ($113,756)
=========
</TABLE>
The following is a summary of the loss recorded from the disposal of
this division for the nine-months ended September 30, 1999:
<TABLE>
<CAPTION>
<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>
6
<PAGE>
CECO ENVIRONMENTAL CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
3. Inventories consisted of the following:
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
Raw materials $1,398,598 $1,328,175
Finished goods 729,795 626,033
Parts for resale 152,304 218,802
---------- ----------
$2,280,697 $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 $1,427,884, based upon estimates of fair value.
During the second quarter of 2000, the Company received $253,550
as a post-closing price adjustment related to this acquisition.
On a pro forma basis, unaudited results of operations for the
three-month and nine-month periods ended September 30, 1999
would have been as follows, if the acquisition had been made as
of January 1, 1999:
<TABLE>
<CAPTION>
THREE-MONTHS ENDED NINE-MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
Total revenues $16,399,279 $ 62,811,083
Net income 537,831 178,467
Net income per share:
Basic $ .06 $ .02
Diluted $ .06 $ .02
</TABLE>
7
<PAGE>
CECO ENVIRONMENTAL CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
5. Segments and Related Information
The Company has two reportable segments: Systems and Media. The Systems
segment assembles and manufactures ventilation, environmental and
process-related products. The Company provides standard and engineered
systems and filter media for air quality improvement through its Media
segment.
<TABLE>
<CAPTION>
ELIMINATION
OF INTER-
SEGMENT
SYSTEMS MEDIA OTHER ACTIVITY CONSOLIDATED
------- ------------ ------- -------- ------------
<S> <C> <C> <C> <C> <C>
Three-months ended
September 30, 2000:
Revenues $27,324,977 $1,506,081 $ - ($ 194,259) $28,636,799
Operating income (loss) 1,277,226 ( 446,286) ( 322,101) - 508,839
Three-months ended
September 30, 1999:
Revenues $ 2,503,109 $1,577,359 $ 12,513 ($ 121,285) $ 3,971,696
Operating income (loss) ( 111,525) ( 110,342) 81,563 - ( 140,304)
Nine-months ended
September 30, 2000:
Revenues $71,193,259 $4,346,132 $ - ($ 652,113) $74,887,278
Operating income (loss) 3,588,200 ( 916,460) (1,084,321) - 1,587,419
Nine-months ended
September 30, 1999:
Revenues $ 7,629,298 $5,393,953 $ 36,050 ($ 350,091) $12,709,210
Operating income (loss) 172,663 ( 40,510) 135,931 - 268,084
</TABLE>
6. Related Parties
Debt includes loans from related parties to the Company in the amounts
of $3,066,000 and $3,607,000 at September 30, 2000 and December 31,
1999, respectively. The change in debt from December 31, 1999 to
September 30, 2000 includes $800,000 that was repaid to a related
party.
8
<PAGE>
CECO ENVIRONMENTAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(unaudited)
Overview
The principal operating units of CECO Environmental Corp. (the
"Company") are The Kirk & Blum Manufacturing Company ("Kirk & Blum"),
kbd Technic, Inc. ("kbd Technic"), CECO Filters, Inc. ("Filters"), Air
Purator Corporation and New Busch Co., Inc. ("Busch") 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, kbd Technic, and
Busch. 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 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 Filters and Air Purator
Corporation. Filters manufactures and markets filters known as fiber
bed mist eliminators, designed to trap, collect and remove solid
soluble and liquid particulate matter suspended in an air or other gas
stream whether generated from a point source emission or otherwise.
Filters offers innovative patented technologies, Catenary Grid(R) and
Narrow Gap Venturi Scrubbers, designed for use with heat and mass
transfer operations and particulate control. Air Purator Corporation
designs and manufactures high performance filter media for use in high
temperature pulse jet baghouses, a highly effective type of baghouse
for capturing submicron particulate from gas streams.
The results of operations reflect the Company's acquisition of all the
issued stock of Kirk & Blum and kbd Technic as of December 7, 1999.
Results of Operations
The Company's consolidated statements of operations for the three-month
and nine-month periods ended September 30, 2000 and 1999 reflect the
operations of the Company consolidated with the operations of its
subsidiaries. At September 30, 2000, the Company owned approximately
94% of Filters. Minority interest has been separately presented in the
statements of operations.
9
<PAGE>
CECO ENVIRONMENTAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
(unaudited)
Revenues
Consolidated net revenues increased 621% for the third quarter of 2000 to $28.6
million, up $24.7 million over the third quarter of 1999. For the first nine
months, consolidated net revenues of $74.9 million were $62.2 million or 489%
higher than the same period in 1999. The increases in both the third quarter and
first nine months of 2000 were due to the combination of increased revenues from
the Systems segment (principally due to the positive impact from the acquisition
of Kirk & Blum and kbd Technic in December 1999) offset by decreases in the
Media segment.
Systems segment revenues increased by $24.8 million and $63.6 million in the
third quarter and first nine months of 2000 compared to the same periods in
1999. The primary factors contributing to this increase were the inclusion of
Kirk & Blum and kbd Technic offset by lower revenue generated from Busch. The
Company's newly acquired Kirk & Blum operating unit is generating increased
revenues over its 1999 levels. The Busch unit has booked an increased level of
orders over the second quarter of 2000 for fume exhaust systems at aluminum
rolling mills. Revenue from these orders is expected to be recognized within the
next twelve months. Demand at steel rolling mills for fume exhaust systems and
demand for Busch's proprietary JET*STAR(TM) cooling technology continued to be
soft into the third quarter of 2000.
Media segment sales reflect declines of $0.1 million and $1.0 million in the
third quarter and first nine months of 2000 compared with the same periods in
1999. Decreased sales from the Company's high performance filter media unit, Air
Purator Corporation, and a decline in sales from Filters were the principal
reasons for these decreased media segment sales.
Gross Profit
Gross profit increased by $3.1 million and $8.6 million to $4.5 million and
$13.8 million for the third quarter and first nine months of 2000, respectively,
compared with the same periods in 1999. Gross profit as a percentage of revenues
was 15.6% and 18.5% in the third quarter and first nine months of 2000 compared
with 35.0% and 41.2% in the same periods for the prior year. The declines are
attributable to increased sales by the lower margin Systems segment and
decreased sales by the higher margin Media segment. Overall, margins as a
percentage of revenues will be impacted by the addition of Kirk & Blum to the
Systems segment as this operating unit will continue to represent a larger
factor in the Company's total revenues during calendar year 2000.
Expenses
Selling and administrative expenses increased from the third quarter and first
nine months of 1999 by $2.1 million and $6.3 million to $3.5 million and $10.8
million during the third quarter and first nine months of 2000 primarily due to
the acquisition of Kirk & Blum and kbd Technic. Selling and administrative
expenses as a percentage of revenues for the third quarter and first nine months
of 2000 were 12.1% and 14.5%, respectively. A significant portion of these
expenses, which are considered fixed, have been under review by the Company for
cost savings opportunities resulting from administrative efficiencies that could
be realized from consolidating the Company's operating headquarters in
Cincinnati, Ohio. Additionally, selling expenses have been under review to
better align performance with compensation. Management has identified in the
first nine months of 2000 overhead reductions at an annualized rate of
approximately $1 million. Savings that should be realized from this realignment
and cost reduction efforts have favorably impacted results in the third quarter
by approximately $0.1 million and should, management believes, result in an
additional $0.3 million in savings in the fourth quarter of 2000 and the balance
of overhead reductions in 2001.
10
<PAGE>
CECO ENVIRONMENTAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
(unaudited)
Depreciation and amortization increased by $0.3 million and $1.0 million to $0.5
million and $1.4 million in the third quarter and first nine months of 2000
primarily due to the larger base of depreciable assets and the goodwill
resulting from the acquisition of Kirk & Blum and kbd Technic.
Investment Income
Investment income increased by $0.3 million and $0.9 million to $0.2 million and
$0.9 million during the third quarter and first nine months of 2000. The
increase in investment income resulted from interest income, dividend income,
realized gains and unrealized appreciation in investments. At September 30,
2000, the Company's most significant investment is 59,000 shares of Peerless
Manufacturing Company common stock which is listed on the Nasdaq Stock Market(R)
traded under the symbol PMFG. At September 30, 2000, the fair market value of
the Company's Peerless common stock was $18.56 per share.
Interest Expense
Interest expense increased by $0.9 million and $2.6 million to $1.0 million and
$2.8 million during the third quarter and first nine months of 2000 compared
with the same periods in 1999, principally due to higher borrowing levels and
increased rates under the newly established bank credit facilities, and
subordinated and related party debt. The bulk of such debt was incurred in
connection with the acquisition of Kirk & Blum and kbd Technic.
Income Taxes
Federal and state income tax benefits were $108,734 and $118,824 in the third
quarter and first nine months of 2000. The effective income tax rates were 36.2%
and 36.5% during the third quarter and first nine months of 2000. The Company's
effective tax rate during 2000 has been impacted by increased amounts of
non-deductible goodwill amortization relating to investments in Filters, Kirk &
Blum and kbd Technic.
Discontinued Operations
Discontinued operations reflect the closure of the Company's operations in
Arizona during the first quarter of 1999. Operating losses and disposal costs,
net of income tax benefit and minority interest from this discontinued division,
amounted to $7,489 (income) and $126,238 (loss) in the third quarter and first
nine months of 1999.
Net Loss
Net loss for the three and nine months ended September 30, 2000 was $167,564 and
$159,657 compared with net loss of $133,091 and $24,494 in the same periods in
1999.
11
<PAGE>
CECO ENVIRONMENTAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
(unaudited)
Backlog
The Company's backlog consists of purchase orders it has received for products
and services it expects to deliver within the next 12 months. The Company's
backlog, as of September 30, 2000, was approximately $23.4 million, an increase
of $7.8 million over December 31, 1999. The Systems segment generated
approximately 90% of the backlog. There can be no assurance that backlog will be
replicated, increased or translated into higher revenues in the future. The
success of the Company's business depends on a multitude of factors that are out
of the Company's control.
Financial Condition, Liquidity and Capital Resources
At September 30, 2000, the Company had total cash and cash equivalents and
marketable securities of $2.6 million compared to $3.8 million at December 31,
1999. Cash provided by operating activities for the nine months ended September
30, 2000 was $1.7 million compared with cash used of $2.3 million for the same
period in 1999. In December 1999, the Company consummated new credit facilities
totaling $38.0 million under a senior secured syndicated banking facility of
$33.0 million maturing in 2004 - 2006, and $5.0 million of subordinated debt
maturing in 2006.
The Company's investment in marketable securities, consisted principally of its
investment in Peerless Manufacturing Company and other investments with a fair
market value of $1.3 million on September 30, 2000.
Total bank and related debt as of September 30, 2000 was $31.5 million an
increase of $0.5 million, primarily due to net borrowings under bank credit
facilities and offset by payments made with respect to other notes payable. The
senior secured credit facility was amended by reducing minimum coverage under
two financial covenants as of September 30, 2000. Unused credit availability at
September 30, 2000, was $3.7 million under the Company's bank line of credit.
Investing activities used cash of $0.4 million during both the first nine months
of 2000 and the same period in 1999. During the second quarter of 2000, the
Company received $0.3 million as a post-closing price adjustment related to its
December 1999 acquisition of Kirk & Blum and kbd Technic. Capital expenditures
for property and equipment and intangibles were $0.7 million and $0.3 million
for the nine months ended September 30, 2000 and 1999, respectively. Capital
expenditures for property and equipment are anticipated to be in the range of
$0.7 million to $0.9 million for fiscal year 2000.
Financing activities used $1.1 million during the first nine months of 2000
compared with cash provided of $2.4 million during the same period of 1999. In
the third quarter of 2000, the Company purchased 566,000 shares of common stock
as treasury shares at a total cost of $1.2 million from the former president of
CECO Filters, Inc. and his family in connection with his resignation that was
effective June 30, 2000. Additionally, current year financing activities
included net borrowings under senior credit facilities and payments to Green
Diamond Oil Corp. offset by proceeds from common stock issued under the
Company's Employee Stock Purchase Plan.
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CECO ENVIRONMENTAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
(unaudited)
The Company believes that its cash and cash equivalents and marketable
securities, its cash flows from operating activities, and its existing credit
facilities are adequate to meet the Company's cash requirements over the next
twelve months.
Forward-Looking Statements
The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 and is making this cautionary
statement in connection with such safe harbor legislation. This Form 10-QSB, the
Annual Report to Shareholders, Form 10-KSB or Form 8-K of the Company or any
other written or oral statements made by or on behalf of the Company may include
forward-looking statements which reflect the Company's current views with
respect to future events and financial performance. The words "believe,"
"expect," "anticipate," "intends," "estimate," "forecast," "project," "should"
and similar expressions are intended to identify "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. All
forecasts and projections in this Form 10-QSB are "forward-looking statements,"
and are based on management's current expectations of the Company's near-term
results, based on current information available pertaining to the Company,
including the risk factors noted below.
The Company wishes to caution investors that any forward-looking statements made
by or on behalf of the Company are subject to uncertainties and other factors
that could cause actual results to differ materially from such statements. These
uncertainties and other risk factors include, but are not limited to: changing
economic and political conditions in the United States and in other countries,
changes in governmental spending and budgetary policies, governmental laws and
regulations surrounding various matters such as environmental remediation,
contract pricing, and international trading restrictions, customer product
acceptance, and continued access to capital markets, and foreign currency risks.
The Company wishes to caution investors that other factors may, in the future,
prove to be important in affecting the Company's results of operations. New
factors emerge from time to time and it is not possible for management to
predict all such factors, nor can it assess the impact of each such factor on
the business or the extent to which any factor, or a combination of factors, may
cause actual results to differ materially from those contained in any
forward-looking statements.
Investors are further cautioned not to place undue reliance on such
forward-looking statements as they speak only to the Company's views as of the
date the statement is made. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
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CECO ENVIRONMENTAL CORP.
OTHER INFORMATION
Part II
Item 6(b)
EXHIBITS AND REPORTS ON FORM 8-K
A report on Form 8-K, dated September 29, 2000, was filed under Item 4, changes
in Registrant's Certifying Accountant, in connection with the dismissal of
Margolis & Company P.C. and the appointment of Deloitte & Touche LLP as the
Company's independent accountants.
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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: November 14, 2000
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