SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Commission File Number 0-5633
ENVIRONMENT ONE CORPORATION
---------------------------
(Name of small business issuer in its charter)
New York 14-1505298
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation of organization) Identification No.)
2773 Balltown Road, Niskayuna, NY 12309-1090
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (518) 346-6161
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of Common Stock, par value $.10 as of March 31, 1998:
4,295,827.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
<PAGE>
Environment One Corporation
FORM 10-QSB
INDEX
Part I. Financial Information-
Item 1. Financial Statements
Consolidated Balance Sheets March 31, 1998 and December 31, 1997
Consolidated Statements of Income for the Three Months Ended March 31,
1998 and 1997
Consolidated Statements of Cash Flows for the Three Months Ended March
31, 1998 and 1997
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. Other Information
Signatures
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
<TABLE>
<CAPTION>
Environment One Corporation
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997
Assets 3/31/98 12/31/97
------------ ------------
<S> <C> <C>
Current Assets
Cash and Cash Equivalents $ 3,911,828 1,976,368
Accounts Receivable, Net 3,349,153 5,226,859
Inventories
Raw Materials 1,435,246 1,399,533
Work in Process 327,853 385,013
Finished Goods 549,969 483,906
------------ ------------
2,313,068 2,268,452
Other Current Assets 355,503 401,837
------------ ------------
Total Current Assets 9,929,552 9,873,516
------------ ------------
Property, Plant and Equipment
Land 334,491 334,491
Buildings 2,337,099 2,324,333
Machinery and Equipment 5,501,228 5,371,630
Construction in Progress 19,762 95,393
Less: Accumulated Depreciation (5,003,005) (4,868,005)
------------ ------------
Net Property, Plant and Equipment 3,189,575 3,257,842
Other Assets 424,481 429,382
------------ ------------
Total Assets 13,543,608 13,560,740
============ ============
Liabilities and Shareholders' Equity
Current Liabilities
Current Installments - Long Term Debt 338,100 338,100
Accounts Payable 1,699,130 1,812,407
Accrued Expenses 1,180,169 1,366,913
------------ ------------
Total Current Liabilities 3,217,399 3,517,420
Deferred Compensation 953,429 953,429
Minority Interest 63,787 68,760
Long Term Debt 1,077,869 1,162,394
------------ ------------
Total Liabilities 5,312,484 5,702,003
------------ ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Environment One Corporation
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997
3/31/98 12/31/97
------------ ------------
<S> <C> <C>
Shareholders' Equity
Common Stock at Par Value 431,621 425,772
Additional Paid in Capital 8,577,493 7,969,197
Retained Earnings / (Accumulated Deficit) 256,268 (116,119)
------------ ------------
9,265,382 8,278,850
Less: Treasury Stock at Cost (1,034,258) (420,113)
------------ ------------
Total Shareholders' Equity 8,231,124 7,858,737
------------ ------------
Total Liabilities and Shareholders' Equity $ 13,543,608 13,560,740
============ ============
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
<PAGE>
<TABLE>
<CAPTION>
Environment One Corporation
Consolidated Statements of Income
For the Three Months Ended March 31, 1998 and 1997
Three Months Ended March 31,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenue $ 5,431,521 4,547,725
----------- -----------
Costs and Expenses
Cost of Sales 3,134,768 2,934,433
Selling and Marketing 779,627 601,876
General and Administrative 916,443 738,377
Interest Expense, Net 3,605 41,984
Other Income, Net (3,209) (2,489)
----------- -----------
Total Expenses, Net 4,831,234 4,314,181
----------- -----------
Net Income Before Taxes 600,287 233,544
Income Tax Expense 227,900 88,600
----------- -----------
Net Income $ 372,387 144,944
=========== ===========
Per Share Amounts:
Basic Earnings per Common Share $ 0.09 0.03
Diluted Earnings per Common Share 0.08 0.03
=========== ===========
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
<PAGE>
<TABLE>
<CAPTION>
Environment One Corporation
Consolidated Statements of Cash Flows
For the Three Months Ended March 31,1998 and 1997
Three Months Ended March 31,
------------------------------
1998 1997
<S> <C> <C>
Cash Flows-Operating Activities:
Net Income $ 372,387 144,944
Adjustments to Reconcile Net Earnings
to Net Cash Provided (Used) by Operating Activities:
Depreciation and Amortization 139,901 144,117
Decrease (Increase) - Accounts Receivable, Net 1,877,706 425,143
Decrease (Increase) - Inventories (44,616) (199,549)
Decrease (Increase) - Prepaid Expenses 46,334 (119,026)
Decrease (Increase) - Other L/T Assets 0 6,044
Increase (Decrease) - Accounts Payable (113,277) (438,660)
Increase (Decrease) - Accrued Expenses and Other Liabilities (186,744) (234,068)
Increase (Decrease) - Minority Interest (4,973) 11,803
----------- -----------
Net Cash Provided (Used) by Operating Activities 2,086,718 (259,252)
----------- -----------
Cash Flows Used in Investing Activities:
Capital Expenditures (66,733) (122,899)
----------- -----------
Cash Flows From Financing Activities:
Increase (Decrease) - Book Overdraft 0 87,904
Increase (Decrease) - Note Payable to Bank 0 379,000
Increase (Decrease) - Long Term Debt (84,525) (84,524)
Issuance of Common Stock 0 7,101
----------- -----------
Net Cash Provided (Used) by Financing Activities (84,525) 389,481
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents 1,935,460 7,330
Cash and Cash Equivalents at Beginning of Period 1,976,368 62,637
----------- -----------
Cash and Cash Equivalents at End of Period $ 3,911,828 69,967
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Environment One Corporation
Consolidated Statements of Cash Flows
For the Three Months Ended March 31,1998 and 1997
Three Months Ended March 31,
------------------------------
1998 1997
<S> <C> <C>
Supplemental disclosure of non-cash financing activity:
Issuance of 58,489 in 1998 and 65,681 in 1997
shares of common stock held in trust,
recorded as treasury stock as part of the Company's
deferred compensation plan for certain executive officers $ 614,135 369,461
=========== ===========
Cash paid during the year for:
Interest $ 33,332 46,406
=========== ===========
Income Taxes $ 252,874 274,811
=========== ===========
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
<PAGE>
Environment One Corporation
Notes to Consolidated Financial Statements
For the Three Months Ended March 31, 1998 and 1997
(Unaudited)
1. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments, which are only of a
normal recurring nature, necessary to fairly present Environment One
Corporation's financial position as of March 31, 1998 and December 31, 1997 as
well as the results of operations and cash flows for the three months ended
March 31, 1998 and 1997. Operating results for any quarter are not necessarily
indicative of results for any future periods.
2. Net earnings per share computations are based on basic and diluted
number of shares of Common Stock outstanding for the periods ending March 31,
1998 and 1997. The basic and diluted number of shares of Common Stock
outstanding for the periods ending March 31, 1998 and 1997 are 4,294,527 and
4,495,400 for 1998 and 4,218,121 and 4,388,470 for 1997.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The following information should be read in conjunction with the consolidated
financial statements and notes thereto included in Item 1 of this Quarterly
Report, and the consolidated financial statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1997.
Revenue for the period increased $884,000, or 19.4% over the same period last
year. Increases from the quarter ended March 31, 1997 were recorded in both
Sewer Systems and Detection Systems businesses.
Revenue from the Company's Sewer Systems business continues to show improvement
over prior periods. Management is of the opinion that the addition of a more
powerful distribution network, increases in the number and size of municipal
projects, continued growth in the overall market and realignment of its sales
territories accounts for this growth and bodes well for future growth.
As part of the Detection Systems business revenue increase, sales of the
Company's Generator Condition Monitor showed significant improvement as the
Company was able to complete shipment on two large international projects during
the period. Sales of the Company's Hydrogen Control Cabinet also improved over
the prior period due to continued market acceptance and completion of delivery
on a large international project.
<PAGE>
Cost of Sales increased $200,000 when compared to the same period last year.
Expressed in percent of sales, cost of sales decreased from 64.5% in the first
three months of 1997 to 57.7% in the three months ended March 31, 1998. The
improvement in gross margin is mainly attributable to product sales mix
resulting from strong sales of the Company's Detection Systems business
products. Increased expenses in indirect non-labor categories of scrap,
maintenance, professional services and miscellaneous manufacturing costs were
recognized during the period ending March 31, 1998.
Selling and Marketing costs increased $178,000 compared to the first quarter of
1997. The majority of this increase resulted from increased expenditures in
travel and living, advertising, promotion, trade shows and miscellaneous
marketing costs as the Company continues its effort to support the Sewer Systems
business distribution network.
General and Administrative costs, including research and development, increased
$178,000 over the same period last year. Research and development costs
increased $36,000 while other general and administrative costs increased
$142,000.
Increased expenditures in other general and administrative costs are
attributable to increases in legal, consultant and directors fees along with
miscellaneous expenses. Partially offsetting these increases was a reduction in
the accrual for growth performance sharing expense. In the first quarter of
1996, the Company implemented a new growth performance sharing plan to take the
place of its profit sharing plan. Targets for growth in sales and operational
earnings along with return on assets were established and are reviewed on an
annual basis. Quarterly expense accruals are made based on the performance of
the Company.
Interest expense decreased $38,000 over the first three months of 1997. During
the period in 1998, the Company had no borrowing against its line of credit and
only incurred interest expense on long term debt.
Financial Position and Liquidity
(all figures rounded to the nearest 000's)
Cash needs for the first three months of 1998 were met primarily by cash
provided by operations. Highlighting the operating cash category was a reduction
of $1,900,000 in accounts receivable. Capital expenditures declined to $67,000
from $123,000 during the same period last year. Short term borrowing remained at
$0 while during the same period last year the Company increased its borrowing by
$379,000.
Continued control over inventory, operating expenses and capital expenditures
along with forecasted cash receipts will enable the Company to meet its
day-to-day working capital requirements in the near term.
<PAGE>
Cautionary Statement for the Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for forward-looking statements to encourage companies to provide
prospective information about themselves while limiting unwarranted litigation,
provided that the statements are identified as forward-looking and are
accompanied by meaningful cautionary statements regarding important factors that
could cause actual results to differ materially from those projected in the
statement. The Company desires to take advantage of the "safe harbor" provisions
of the Act, and is including the information set forth below in the Form 10-QSB
to point out the inherent difficulties in predicting the impact of certain
factors.
While the Company believes that its assumptions underlying any forward-looking
statements are reasonable, the following information includes important factors
which could cause the Company's actual results to differ materially from any
result which might be projected, forecasted, estimated, or budgeted by the
Company in its forward-looking statements, whether contained in this Form 10-QSB
or otherwise.
1. Heightened competition, including the intensification of price competition,
the entry of new competitors, and the introduction of new products by new
and existing competitors.
2. Failure to obtain new customers or retain existing customers.
3. Adverse publicity and news coverage impacting the Company's reputation and
sales potential.
4. Inability to carry out marketing and sales plans due to unforeseen factors.
5. Significant economic downturns in the geographic market areas serviced by
the Company.
6. Higher service, administrative, or general expenses occasioned by the need
for additional advertising, marketing, administrative, or management
information systems expenditures.
7. A lack of availability of raw materials, necessary manufacturing equipment,
or contract manufacturers to meet the Company's needs.
8. Underutilization of the Company's manufacturing resources, resulting in
production inefficiencies and higher costs.
9. Start-up expenses, inefficiencies, delays, and increased depreciation costs
in connection with the start of production in new facilities and expansions
of existing facilities.
10. The acquisition of fixed and other assets, including inventory and
receivables, and the making or incurring of any expenditures and expenses,
including but not limited to depreciation and research and development
expenses.
11. Any revaluation of assets or related expenses and the amount of, and any
changes to, tax rates.
12. Loss or retirement of key executives.
13. Any activities of parties with which the Company has agreements or
understandings, including matters affecting any investment or joint venture
in which the Company has an investment.
<PAGE>
14. The amount, type, and cost of the financing available to the Company, and
any changes to that financing.
15. Adverse results in significant litigation or regulatory proceedings.
16. Adverse changes in laws, regulations, interpretations, and enforcement
policies affecting the company and its business operations.
17. Natural disasters, work stoppages, and other events beyond the control of
the Company.
The foregoing list of factors should not be construed as exhaustive, or as any
admission regarding the adequacy of disclosures made by the Company prior to the
filing of this Form 10-QSB.
<PAGE>
Environment One Corporation
FORM 10-QSB
Part II - Other Information
Change in Control
On February 24, 1998 the Company entered into an Agreement and Plan of Merger
among the Company, Precision Castparts Corp. (PCC), an Oregon Corporation, and a
wholly owned subsidiary of PCC, EOC Acquisition Corp. (Purchaser) for the
Purchaser to acquire all shares (fully diluted) of common stock of the company
for $15.25 per share. This agreement is explained in the Company's Solicitation
/ Recommendation Statement on Form 14D-9 filed with the Commission on March 3,
1998. At the close of the tender offer on March 30, 1998, approximately 86% of
the shares had been tendered. On April 2, 1998, PCC accepted the tendered shares
for payment. PCC is currently in the process of calling a special meeting of
shareholders to be held sometime in June, 1998. At that meeting, PCC intends to
complete the merger of the Purchaser into the Company.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ENVIRONMENT ONE CORPORATION
Date: May 13, 1998 By:/s/Stephen V. Ardia
-------------------
Stephen V. Ardia
Chairman, President and CEO
Date: May 13, 1998 By:/s/Philip W. Welsh
------------------
Philip W. Welsh
Chief Financial Officer
Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,911,828
<SECURITIES> 0
<RECEIVABLES> 3,490,801
<ALLOWANCES> 141,648
<INVENTORY> 2,313,068
<CURRENT-ASSETS> 9,929,552
<PP&E> 8,192,580
<DEPRECIATION> 5,003,005
<TOTAL-ASSETS> 13,543,608
<CURRENT-LIABILITIES> 3,217,399
<BONDS> 1,077,869
0
0
<COMMON> 431,621
<OTHER-SE> 7,799,503
<TOTAL-LIABILITY-AND-EQUITY> 13,543,608
<SALES> 5,431,521
<TOTAL-REVENUES> 5,431,521
<CGS> 3,134,768
<TOTAL-COSTS> 3,134,768
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,605
<INCOME-PRETAX> 600,287
<INCOME-TAX> 227,900
<INCOME-CONTINUING> 372,387
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 372,387
<EPS-PRIMARY> .09
<EPS-DILUTED> .08
</TABLE>
