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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996 Commission File Number: 0-14618
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VECTRA TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Washington 91-1160888
(State of incorporation) (I.R.S. Employer Identification No.)
5000 Executive Parkway, Suite 300
San Ramon, CA 94583
(Address of principal executive offices)
(510) 275-4500
(Registrant's telephone number)
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Indicate by checkmark 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 (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 [ ]
THERE WERE 7,833,527 SHARES OF REGISTRANT'S COMMON STOCK
OUTSTANDING AS OF JULY 15, 1996.
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FINANCIAL STATEMENTS TABLE OF CONTENTS
Page
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Condensed Consolidated Balance Sheets as of June 30, 1996, and
December 31, 1995 3 & 4
Condensed Consolidated Statements of Operations for the Three
Months Ended June 30, 1996, and July 2, 1995 5
Condensed Consolidated Statements of Operations for the Six
Months Ended June 30, 1996, and July 2, 1995 6
Condensed Consolidated Statements of Cash Flow for the Six
Months Ended June 30, 1996, and July 2, 1995 7
Notes to Condensed Consolidated Financial Statements 8
2
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VECTRA TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
June 30,
1996 December 31,
(unaudited) 1995
----------- ------------
ASSETS
Current Assets
Cash and cash equivalents $ 2,575 $ 2,834
Securities available for sale 1,033 1,274
Accounts receivable, net of allowance
($785 in 1996 and 1995) 16,658 21,065
Costs and estimated earnings in excess of
billings on uncompleted contracts 2,366 1,665
Refundable income tax prepayments -- 600
Inventories 1,930 1,176
Prepaid expenses 896 720
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Total Current Assets 25,458 29,334
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Property, Plant and Equipment, at cost
Land 94 94
Buildings 200 359
Machinery and equipment 8,229 8,707
Construction in progress 10,301 9,011
Furniture and fixtures 2,540 2,587
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Total Property, Plant and Equipment 21,364 20,758
Less accumulated depreciation 8,806 8,614
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Net Property, Plant and Equipment 12,558 12,144
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Costs in excess of net assets of acquired
businesses, net of accumulated amortization 14,780 14,780
Licenses, patents and other intangibles, at
cost, net of accumulated amortization 1,942 1,200
Investments and long-term prepaid costs 3,262 3,305
Other assets 80 66
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Total Assets $ 58,080 $ 60,829
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SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
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VECTRA TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(in thousands, except share data)
June 30,
1996 December 31,
(unaudited) 1995
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LIABILITIES
Current Liabilities
Note payable to banks $ 10,820 $ --
Accounts payable 8,027 10,762
Accrued payroll and related expenses 6,455 6,011
Other accrued liabilities 6,885 6,742
Billings in excess of costs and estimated
earnings on uncompleted contracts 2,110 2,288
Long-term debt due within one year 5,827 --
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Total Current Liabilities 40,124 25,803
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Long-term debt -- 17,216
Deferred lease incentive 399 424
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Total Liabilities 40,523 43,443
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SHAREHOLDERS' EQUITY
Class A Preferred Stock, 4,100,000 shares
authorized, none issued and outstanding -- --
Common Stock, $0.01 par value, 30,000,000
shares authorized; 7,833,527 shares
issued and outstanding in 1996 and 1995 44,960 44,960
Accumulated deficit (27,403) (27,574)
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Total Shareholders' Equity 17,557 17,386
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Total Liabilities and Shareholders'
Equity $ 58,080 $ 60,829
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SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
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VECTRA TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
(unaudited)
Three Months Ended
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June 30, July 2,
1996 1995
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Revenues $ 22,909 $ 34,078
Operating costs 15,946 23,572
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Gross profit 6,963 10,506
Research and development expenses 298 26
Selling, general and administrative expenses 5,549 13,268
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Operating income (loss) 1,116 (2,788)
Gain on sale of subsidiary 550 10,752
Interest expense, net 1,474 804
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Income before income taxes 192 7,160
Provision for income taxes 48 1,404
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Net income $ 144 $ 5,756
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Net income per share $ 0.02 $ 0.73
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Number of shares used to calculate net
income per share 8,320,283 7,897,531
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SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
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VECTRA TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
(unaudited)
Six Months Ended
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June 30, July 2,
1996 1995
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Revenues $ 47,406 $ 72,729
Operating costs 33,424 51,022
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Gross profit 13,982 21,707
Research and development expenses 315 55
Selling, general and administrative expenses 12,042 23,482
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Operating income (loss) 1,625 (1,830)
Gain on sale of subsidiary 550 10,752
Interest expense, net 1,937 1,559
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Income before income taxes 238 7,363
Provision for income taxes 54 1,444
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Net income $ 184 $ 5,919
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Net income per share $ 0.02 $ 0.75
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Number of shares used to calculate net
income per share 8,314,974 7,898,455
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SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
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VECTRA TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
(unaudited)
Six Months Ended
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June 30, July 2,
1996 1995
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Cash flows from operating activities:
Net income $ 184 $ 5,919
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 770 3,039
Gain on sale of subsidiary (550) (10,752)
Writedown of fixed assets and intangibles -- 2,220
Changes in operating working capital:
Increase (Decrease) in accounts
receivable and billings 2,169 (2,521)
Increase (Decrease) in inventories
and prepaid expenses (1,572) 202
(Increase) Decrease in accounts payable
and accrued expenses (462) 10,804
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Net cash provided by operating activities 539 8,911
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Cash flows from investing activities:
Payments related to Impell acquisition -- 559
Proceeds from sale of subsidiary 1,656 14,173
Purchases of securities available for sale (526) (365)
Sales and maturities of securities
available for sale 754 154
Capital expenditures (1,348) (5,278)
(Increase) Decrease in other assets (765) 50
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Net cash provided by (used in)
investing activities (229) 9,293
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Cash flow from financing activities:
Borrowings under short-term loans 1,111 3,000
Repayments under short-term loans (1,680) (9,811)
Repayment of long-term debt -- (8,786)
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Net cash used in financing activities (569) (15,597)
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Net increase (decrease) in cash
and cash equivalents (259) 2,607
Cash and cash equivalents at
beginning of period 2,834 3,427
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Cash and cash equivalents at end of period $ 2,575 $ 6,034
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Cash paid for interest $ 845 $ 1,216
Cash paid for income taxes $ -- $ --
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7
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VECTRA TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
VECTRA Technologies, Inc. ("VECTRA" or the "Company") have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments, consisting of only normal recurring adjustments, considered
necessary for a fair presentation of financial position and results of
operations, have been included. Operating results for the three and six
month periods ended June 30, 1996, are not necessarily indicative of the
results that may be expected for the full year. The unaudited consolidated
financial statements should be read in conjunction with the consolidated
financial statements and footnotes thereto included in the Company's 1995
Annual Report on Form 10-K.
2. EARNINGS PER SHARE
Net income per share is based upon the weighted average number of common
shares outstanding during each period plus the dilutive effect of stock
options and warrants. Net income per share on a fully diluted basis was
the same as the primary income per share.
3. INDEBTEDNESS TO BANKS
At June 30, 1996, the Company had both a revolving credit facility and
long-term loans with banks. These facilities originally carried an
interest rate equal to the banks' base rate plus 1.0% to 1.5% or the
Eurodollar rate plus 2.0% to 2.5%. The Eurodollar option has been
eliminated for the revolving credit facility effective March 31, 1996.
On April 15, 1996, the Company entered into amendments to its revolving
credit facility and term loan agreements with its banks. Under these
amendments, all outstanding borrowings under the revolving credit
facilities and the term loan agreements will be due on January 2, 1997.
These amendments also establish new financial covenants for 1996. As a
result of these amendments, the Company incurred, and recorded as charges
to operations in the second quarter of 1996, additional bank fees of
approximately $1.1 million which are due January 2, 1997, or upon repayment
of the outstanding borrowings. In the event that the Company does not
repay in full all obligations to the banks before August 31, 1996, the
Company also agreed to issue warrants to the banks to purchase up to 6% of
the Company's outstanding common stock on a fully diluted basis at $0.01
per share, reprice previously earned warrants to purchase 830,060 shares of
common stock from $2.9375 to $0.01 per share and incur fees to the banks,
payment of which would be deferred until January 2, 1997, of up to
$600,000.
8
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VECTRA TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
3. INDEBTEDNESS TO BANKS (CONTINUED)
The Company may elect to defer a $750,000 principal payment due September
30, 1996, to January 2, 1997, by paying a fee of $150,000, payment of which
would also be deferred. Under the revolving credit facility, the Company
may elect to defer a $625,000 principal payment due on September 15, 1996,
to January 2, 1997, by paying a fee of $100,000 payment of which would be
deferred. The amendments also specify that any proceeds from the sale of
operations be used to concurrently repay indebtedness to the banks.
As of June 30, 1996, the Company has reserved 1,300,977 shares of common
stock for warrants earned by the banks, and in the future, the Company may
be obligated to issue to the banks warrants to purchase up to an additional
8% of the Company's outstanding common stock on a fully diluted basis as a
result of the above described arrangements.
4. CONTINGENCIES
The Company is self-insured for general liability risk for $1 million per
occurrence and $2 million in the aggregate. Coverage above the self
insured limits is provided for under an umbrella policy with a commercial
insurance company. The Company's general liability risk insurance excludes
professional errors and omissions. Such insurance is purchased on a
contract specific basis as required by the customer. As of June 30, 1996,
the Company has accrued approximately $0.6 million for unreported and/or
potential losses. Actual self-insurance losses may differ from such
estimates and such differences could be material to the financial
statements.
The radioactive materials handled by the Company are the legal
responsibility of the Company's utility customers. The Company does not
take title to such materials. In the event of an accident or incident
involving such material, the Company is covered under insurance carried by
and provided to operators of nuclear plants or transporters of nuclear
materials.
5. SALE OF VECTRA TECHNOLOGIES, LTD.
Effective April 26, 1996, the Company sold all of the outstanding capital
stock of its wholly owned subsidiary, VECTRA Technologies Ltd. ("VECTRA
UK"), to Amey, plc. and recorded a gain on the sale of $0.6 million. The
sale price was approximately $1.9 million. The net proceeds were
approximately $1.6 million after expenses associated with the transaction.
The net proceeds were used to reduce the Company's revolving credit
facility by $1.1 million and the balance was added to working capital.
VECTRA UK generated revenues of approximately $1.0 million and $3.5 million
for the three and six months ended June 30, 1996, respectively, and
operating income of approximately $0.1 million and $0.3 million for the
same periods.
9
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VECTRA TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
6. PENDING SALE TO DUKE ENGINEERING AND SERVICES, INC.
On May 23, 1996, the Company signed an Asset Purchase Agreement pursuant to
which, if all conditions to closing are satisfied, Duke Engineering &
Services, Inc. ("DE&S") will acquire VECTRA's Engineering Services. The
proposed sale is contingent on the approval of VECTRA's shareholders and
other conditions. The Company's annual shareholders' meeting will be held
on August 19, 1996, and if this transaction is approved, closing of the
sale is scheduled shortly thereafter. If the sale is consummated under
this Asset Purchase Agreement, the Company expects to receive approximately
$27.5 million in cash subject to adjustment for the actual net book value
of the assets ultimately sold.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
This Management's Discussion and Analysis of Financial Conditions and Results of
Operations contains forward-looking statements that involve risks and
uncertainties. VECTRA Technologies, Inc.'s ("VECTRA" or the "Company") actual
results may differ significantly from the results discussed in the forward
looking statements. Factors that might cause such a difference include, but are
not limited to, those discussed in ITEM 1. BUSINESS in the Company's 1995 Annual
Report on Form 10-K.
DIVESTITURES
On May 23, 1996, the Company signed an Asset Purchase Agreement pursuant to
which, if all conditions to closing are satisfied, Duke Engineering & Services,
Inc. ("DE&S") will acquire VECTRA's Engineering Services. The proposed sale is
contingent on the approval of VECTRA's shareholders and other conditions. The
Company's annual shareholders' meeting will be held on August 19, 1996, and if
this transaction is approved, closing of the sale is scheduled shortly
thereafter. If the sale is consummated under this Asset Purchase Agreement, the
Company expects to receive approximately $27.5 million in cash subject to
adjustment for the actual net book value of the assets ultimately sold.
Effective April 26, 1996, the Company sold all of the outstanding capital stock
of its wholly owned subsidiary, VECTRA Technologies Ltd. ("VECTRA UK"), to Amey,
plc. The sale price was approximately $1.9 million. The net proceeds were
approximately $1.6 million after expenses associated with the transaction. The
net proceeds were used to reduce the Company's revolving credit facility by $1.1
million and the balance was added to working capital. VECTRA UK generated
revenues of approximately $1.0 million and $3.5 million for the three and six
months ended June 30, 1996, respectively, and operating income of approximately
$0.1 million and $0.3 million for the same periods.
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED JUNE 30, 1996, COMPARED TO THE THREE MONTHS ENDED
JULY 2, 1995
REVENUES Total revenues decreased $11.2 million (32.8%) to $22.9 million in the
three month period ended June 30, 1996, from the comparable period in 1995.
Excluding the effect of the sale of the Plant Services operations in June 1995
and the sale of VECTRA UK operations in April 1996, the Company's revenues
decreased $5.8 million (20.9%): This decrease was the result of reduced
activity in the engineering services operations and the timing of the revenue
recognition with respect to various contract milestones in the Fuels and Waste
Services operations.
Revenues may significantly differ from period to period as a result of varying
contractual terms that relate to the timing and amount of progress payments for
some of the Company's multi-year, multi-million dollar contracts. This
variability is expected to continue in future periods and be more pronounced in
the event that the Company consummates the sale of its Engineering Services
operations.
11
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RESULTS OF OPERATIONS (CONTINUED)
THE THREE MONTHS ENDED JUNE 30, 1996, COMPARED TO THE THREE MONTHS ENDED
JULY 2, 1995 (CONTINUED)
GROSS PROFIT Total gross profit as a percent of revenue remained relatively
consistent in the 1996 and 1995 periods, 30.4% and 30.8%, respectively.
Excluding the effect of the Plant Service operations that were sold in June 1995
and the VECTRA UK operations that were sold in April 1996, gross profit
increased to 30.2% in the second quarter of 1996 from 25.0% in the second
quarter of 1995: This increased profitability as a percent of sales resulted in
a 4.2% decrease in gross profit from a corresponding 20.9% decrease in revenues.
The increase in gross profit as a percent of revenue was most pronounced in the
Company's Fuel and Waste Services operations. Each of the Company's contracts
is negotiated independently and varies as to profitability and, due to changes
in the mix of contracts, the Company's gross profit may vary significantly from
quarter to quarter. The timing and actual performance by the Company in
fulfilling its major contracts also affect the Company's gross profit.
EXPENSES The Company's operating expenses decreased $7.4 million (56.0%) to
$5.8 million in the second quarter of 1996 from $13.3 million in the second
quarter of 1995. The primary cause of this reduction in operating expenses was
an approximate $3.5 million decrease in general and administrative expense and
an approximate $2.2 million decrease in corporate costs as a result of lower
staff levels and other cost reduction measures. Operating expenses decreased
approximately $1.1 million as a result of the sale of Plant Services operations
in June 1995 and the sale of VECTRA UK operations in April 1996. Amortization
expense decreased $0.6 million primarily as a result of the Company's write off
of intangible assets in December 1995 based upon negotiations regarding the
potential sale of the Company's Engineering Services operations.
NET INCOME Net income decreased $5.6 million to $144,000 in the second quarter
of 1996 from $5.8 million in the second quarter of 1995. This change was the
result of: i) Net income increasing $3.9 million as a result of operating
income increasing to a $1.1 million profit in the second quarter 1996 from a
$2.8 million loss in the same period of 1995 (see GROSS PROFIT and EXPENSES
discussion, above); ii) Net income decreased $8.8 million as a result,
including associated income taxes, of the $0.5 million gain recorded on the
sale of VECTRA UK operations in the second quarter of 1996 as compared to the
$9.3 million gain recorded on the sale of Plant Service operations in the
second quarter of 1995; and, iii) net income decreasing $0.7 million as a
result of an increase in interest expense, composed of a $0.2 million reduction
in interest on a reduced amount of bank debt outstanding and an increase of $0.9
million in bank fees incurred.
THE SIX MONTHS ENDED JUNE 30, 1996, COMPARED TO THE SIX MONTHS ENDED JULY
2, 1995
REVENUE Total revenues decreased $25.3 million (34.8%) to $47.4 million in the
six month period ended June 30, 1996, from the comparable period in 1995.
Excluding the effect of the sale of the Plant Services operations in June 1995
and the sale of VECTRA UK operations in April 1996, the Company's revenues
decreased $13.8 million (23.9%): This decrease was the result of reduced
activity in the Engineering Services operations and the timing of the revenue
recognition with respect to various contract milestones in the Fuels and Waste
Services operations.
12
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RESULTS OF OPERATIONS (CONTINUED)
THE SIX MONTHS ENDED JUNE 30, 1996, COMPARED TO THE SIX MONTHS ENDED JULY
2, 1995 (CONTINUED)
REVENUE (CONTINUED) Revenues may significantly differ from period to period as
a result of varying contractual terms that relate to the timing and amount of
progress payments for some of the Company's multi-year, multi-million dollar
contracts. This variability is expected to continue in future periods and be
more pronounced in the event that the Company consummates the sale of its
engineering services operations.
GROSS PROFIT Total gross profit as a percent of revenue remained relatively
consistent in the 1996 and 1995 periods, 29.5% and 29.9%, respectively.
Excluding the effect of the Plant Services operations that were sold in June
1995 and the VECTRA UK operations that were sold in April 1996, gross profit
increased to 29.2% in the first six months of 1996 from 24.8% in the same period
of 1995.
Gross profit as a percent of revenue increased in all areas, but the increase
was strongest in the Company's Waste Services and Fuels Services operations.
Each of the Company's contracts is negotiated independently and varies as to
profitability and, due to changes in the mix of contracts, the Company's gross
profit may vary significantly from quarter to quarter. The timing and actual
performance by the Company in fulfilling its major contracts also affect the
Company's gross profit.
EXPENSES The Company's operating expenses decreased $11.2 million (47.5%) to
$12.4 million in the first six months of 1996 from $23.5 million in the first
six months of 1995. The primary cause of this reduction in operating expenses
was an approximate $4.2 million decrease in general and administrative expense
and an approximate $3.5 million decrease in corporate costs as a result of lower
staff levels and other cost reduction measures. Operating expenses decreased
approximately $1.9 million as a result of the sale of Plant Services operations
in June 1995 and the sale of VECTRA UK operations in April 1996. Amortization
expense decreased $1.1 million primarily as a result of the Company's write off
of intangible assets in December 1995 based upon negotiations regarding the
potential sale of the Company's Engineering Services operations.
NET INCOME Net income decreased $5.7 million to $184,000 in the first six
months of 1996 from $5.9 million in the first six months of 1995. This
change was the result of: i) Net income increasing $3.5 million as a result
of operating income increasing to a $1.6 million profit in the first six months
1996 from a $1.8 million loss in the same period of 1995 (see GROSS PROFIT and
EXPENSES discussion, above); ii) Net income decreased $8.8 million as a result,
including associated income taxes, of the $0.5 million gain recorded on the
sale of VECTRA UK operations in the second quarter of 1996 as compared to the
$9.3 million gain recorded on the sale of Plant Service operations in the
second quarter of 1995; and, iii) net income decreasing $0.4 million as a
result of an increase in interest expense, composed of a $0.4 million reduction
in interest on a reduced amount of bank debt outstanding and an increase of $0.8
million in bank fees incurred.
13
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LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities decreased to $0.5 million in the six
months ended June 30, 1996, from $8.9 million in the six months ended July 2,
1995. Net income, adjusted for non-cash items, provided approximately $0.4
million in each period. Operating working capital items provided approximately
$8.4 million less in the first six months of 1996, compared to the same period
in 1995, as a result of non-reoccurring trade, tax and accrued liabilities
associated with the sale of Plant Services and major project deliveries. During
the first six months of 1996, cash generated from accounts receivable reductions
essentially offset amounts spent for increases in work-in-process inventory for
Waste Services contract start-ups and reductions in trade accounts payable.
Accounts receivable and billings balances differ from period to period as a
result of varying contractual terms that relate to the timing and amount of
progress payments for some of the Company's multi-year, multi-million dollar
contracts. This variability is expected to continue in future periods.
Proceeds from disposition/acquisition activities in the first six months of 1996
were approximately $1.6 million from the sale of VECTRA UK, as opposed to $14.7
million in the same period of 1995 from the sale of Plant Services and the
liquidation of retention accounts related to the 1994 Impell acquisition.
Capital expenditures in the first six months of 1996 of approximately $1.3
million related to the Company's building of reverse osmoses units for a major
project start-up. Capital expenditures in 1995 of approximately $5.3 million
related to the Company's building of its transportable vitrification unit. The
$0.8 million other asset acquired in 1996 relates to the cost of licensing of
the Company's NUHOMS-Registered Trademark- storage and transportation cask for
spent nuclear fuel.
The Company's loan covenants with Banque Paribas and Banque Nationale de Paris
(the "Banks") restrict capital expenditures to a maximum amount of $3.3 million
during 1996. The majority of the Company's capital expenditures in 1996 are
expected to be incurred for equipment used for processing radioactive waste
volume reduction and dewatering systems in its Waste Services operations.
Additionally, the Company's Fuel Services operations have capital requirements
primarily for licenses and high-level waste transportation equipment, and the
Company's Engineering Services operations have modest capital requirements
for computer equipment. The Company anticipates that it will need to devote
significant capital resources to technology development in the future in order
to remain competitive and make significant investments in capital equipment to
increase its revenue. The Company anticipates that much of its 1996 capital
equipment acquisitions will be financed through cash flows from then new,
concurrent customer contracts. The Company had contractual capital acquisition
commitments of approximately $50,000 as of June 30, 1996, and expects to fund
these commitments from cash generated through operations.
In the first six months of 1996, the Company reduced its revolving credit
agreement net amount outstanding by approximately $1.6 million. This reduction
was composed of a payment of $1.1 million from the proceeds of the sale of
VECTRA UK, a $0.6 million scheduled reduction of that facility and the borrowing
of an additional $0.1 million. Additionally, the Company borrowed $1.0 million
under Tranche C of its term loan agreements. As detailed below, the Company has
negotiated with its Banks to defer other principal payments in the first and
second quarter of 1996 under its term loan agreement.
14
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LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
TERM LOAN
The Company borrowed $15.0 million from the Banks on January 6, 1994, maturing
on December 31, 1998 (the "Term Loan"). In connection with this loan, the
Company paid the Banks a $375,000 closing fee and issued warrants to the Banks
to purchase 830,060 shares of the Company's common stock at $8.17 per share,
exercisable through January 7, 1999 (the "Original Warrants"). The agreement
with the Banks specifies certain negative, affirmative and financial covenants
including, without limitation, covenants with respect to debt/capital ratio,
interest coverage, fixed charge coverage and minimum net worth, and restrictions
on dividends and activities of the Company. Scheduled payments and application
of a portion of the proceeds from the sale of Plant Services prior to 1996
reduced the balance of the original term loan to approximately $2.9 million,
which amount was still outstanding at June 30, 1996.
In September 1995, the Company failed to meet certain measures of financial
performance as required by covenants contained in the Term Loan agreement and
received a waiver of the Term Loan's financial covenants and a waiver of the
scheduled September 30 and December 31, 1995, principal payments. Additionally,
the Banks acquired the rights to reprice the Original Warrants to $0.01 per
share if, among other things, all obligations to the Banks were not repaid in
full by March 31, 1996. Also at this time, the Banks made available to the
Company an additional $3.0 million facility associated with the Term Loan for
capital expenditures ("Tranche B"). Tranche B was initially scheduled to mature
on March 31, 1996, and provided for warrants expiring September 20, 2000, equal
to a maximum (based on the Company's usage and repayment of this facility) of 6%
of the Company's outstanding common stock at $0.01 per share. By the end of the
fourth quarter of 1995, the Company had fully used this facility by borrowing
$3.0 million and then repaying $1.1 million obtained from the final escrow
payment from the Plant Services sale, resulting in a balance outstanding under
Tranche B of $1.9 million, which was still outstanding at June 30, 1996. Based
on this usage, the Banks acquired the rights to warrants to purchase 392,431
shares of the Company's common stock at $0.01 per share.
In December 1995, the Banks made available to the Company an additional $1.0
million working capital facility associated with the Term Loan which was
scheduled to mature on March 31, 1996 ("Tranche C"). Tranche C had an
associated fee of $125,000, payment of which is deferred, and provided for
warrants expiring December 26, 2000, equal to a maximum (based on the Company's
usage and repayment of this facility) of 2% of the Company's outstanding common
stock at $0.01 per share. The Company drew down the full amount of this
facility in the second quarter of 1996 and had a balance owing of $1.0 million
at June 30, 1996. At December 31, 1995, the Banks had acquired the rights to
purchase 78,335 shares of the Company's common stock at $0.01 per share, and
such warrants were valued at $107,000. Another 78,335 shares of common stock at
$0.01 are due to the bank if the loan is used and not repaid by a specific date.
In March 1996, the Banks extended the due date of the borrowings under Tranche B
and Tranche C through April 15, 1996.
In April 1996, the Banks extended the due date of the borrowings under Tranche B
and Tranche C through January 2, 1997; waived the scheduled March 31 and June
30, 1996 Term Loan principal payments; reset the financial covenants for the
quarters ending December 31, 1995, through the terms of the loans; and restored
the Original Warrants to an exercise price of $2.94 per share. For these
actions, the Banks required a fee of $950,000, payment of which
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
TERM LOAN (CONTINUED)
is deferred until January 2, 1997. If, among other things, the Company's total
obligation to the Banks is not repaid in full before August 31, 1996, this
agreement contains maximum penalties of $600,000 payment of which will also be
deferred to January 2, 1997. Non repayment of this debt by August 31, 1996,
will also trigger the repricing of the Original Warrants to $0.01 per share and
issuing the Banks rights to purchase approximately 550,000 shares of the
Company's common stock at $0.01 per share. The Company may also elect to defer
the $750,000 principal payment due September 30, 1996, to January 2, 1997, by
incurring a fee of $150,000, payment of which is deferred. The Company
anticipates that, upon approval by its shareholders, the proceeds from the
consummation of the Asset Purchase Agreement with DE&S will repay the Company's
total obligation to the Banks. However, there can be no assurance that this
sale will be approved by the Company's shareholders and subsequently
consummated. If the Company's shareholders do not approve the sale to DE&S, or
if the sale otherwise fails to close, the Company can give no assurances,
expressed or implied, that by entering into a joint venture or strategic
partnership, or other sale of assets it will be able to raise sufficient funds
to avoid these penalties.
REVOLVING CREDIT AGREEMENT
The Company entered into a $25.0 million revolving credit agreement (the "Credit
Agreement") with the Banks on January 6, 1994, which originally matured on
December 31, 1995. Borrowings under the Credit Agreement are limited by the
lesser of a percentage of eligible trade accounts receivable (the "Borrowing
Base") or the maximum amount of the facility. The amount of funds available is
subject to fluctuation of accounts receivable. In October 1994, the maximum
amount of the facility was reduced to $22.5 million.
In June 1995, utilizing a portion of the proceeds from the sale of the Plant
Services operations, the Company repaid $6.6 million of the amount then
outstanding under the Credit Agreement. The maximum amount of the Credit
Agreement was reduced to $12.5 million and the Banks were paid a fee of
$100,000.
In December 1995, the Credit Agreement's maturity was extended to March 31,
1996, in consideration for an amendment fee of $125,000, of which the payment of
$100,000 was deferred.
In March 1996, the Credit Agreement's maturity was extended to April 15, 1996.
In April 1996, the Credit Agreement's maturity was extended to January 2, 1997,
and its applicable interest rate was increased by approximately three percentage
points to the Banks prime rate plus 1.5% and the Eurodollar rate option was
eliminated. If the Company does not reduce the outstanding balance of the
Credit Agreement and its maximum amount by a minimum of $1.0 million from the
sale of assets by May 31, 1996, this agreement contains a penalty of $200,000,
payment of which is also deferred: The Company complied with this requirement
by remitting $1.1 million of the sale proceeds of VECTRA UK on April 30, 1996.
Additionally, the Company reduced the amount outstanding and maximum amount of
the Credit Agreement by the scheduled amount of $600,000 on June 30, 1996. The
Company may elect to defer a $625,000 principal payment due on September 15,
1996, to January 2, 1997, by incurring a fee of $100,000, payment of which is
deferred. For these actions, the Company incurred a fee of $125,000, payment of
which is deferred until January 2, 1997.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
REVOLVING CREDIT AGREEMENT (CONTINUED)
The Company had a balance due to the Banks of approximately $10.8 million under
the Credit Agreement at June 30, 1996.
SUMMARY OF INTEREST, FEES (PAID & PAYABLE) AND WARRANTS ISSUED TO THE BANKS
NUMBER OF AMOUNT
ITEM NOTE SHARES ($000)
- ------------------------------ ---------- --------------- --------
Interest Paid, Inception to
June 30, 1996 na $ 4,468
Fees Billed, Inception to
June 30, 1996 1 na 1,865
Fees, Payment of Which is Deferred,
Inception to June 30, 1996 2 na 1,450
Warrants exercisable at $2.9375 3 830,060 822
Warrants exercisable at $0.01 3 470,917 1,232
---------- --------
Total 1,300,977 $ 9,837
---------- --------
---------- --------
Notes:
1 Includes fees paid to the Banks and the Banks' attorneys and
accountants.
2 Fees deferred until the earlier of the liquidation of all
obligations to the Banks or January 2, 1997.
3 Warrants valued by management using Black Scholes valuation model
with April 9, 1996, market data.
On January 2, 1997, the indebtedness to the Banks under the Term Loan and
revolving Credit Agreement which could amount to as much as $16.6 million plus
deferred fees of up to $2.3 million will become due. All proceeds from the sale
of assets covered under the DE&S Asset Purchase Agreement described above are to
be applied against the outstanding bank borrowings. However, there can be no
assurance that this sale will be approved by the Company's shareholders and
subsequently consummated.
The Company believes that cash and cash equivalents at June 30, 1996, together
with cash generated from operations and the ability to defer the remaining
payments due to the Banks in 1996 will be adequate to meet its cash needs
through December 31, 1996. Management is committed to decreasing costs in order
to maintain and increase the profitability of the Company's operations and will
continue to make substantial expense reductions in 1996.
As a result of the most recent extensions and modifications in April 1996, all
bank debt and deferred bank fees are due on January 2, 1997. The Banks have
indicated to the Company that they will not grant any further extensions. If
the Company's shareholders do not approve the sale to DE&S, or if the sale
otherwise fails to close, and the Company is subsequently unable to enter into a
joint venture or strategic partnership, sell assets or obtain other financing to
pay the bank debt, bank fees and additional fees payable to the lenders by
January 2, 1997, the Company may have to seek protection under the
reorganization provisions of the federal bankruptcy laws.
17
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULT UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
In April 1996, the Company was notified by the NASDAQ Stock Market, Inc. that
the Company no longer met the minimum net tangible worth requirements for
continued inclusion in the NASDAQ Stock Market. The Company anticipates that
the consummation of the DE&S transaction will resolve this requirement for
continued listing. At that time the Company requested and received a temporary
waiver to allow continued inclusion until July 15, 1996. Subsequently, the
Company requested a hearing to remain listed on the NASDAQ Stock Market until it
has had an opportunity to hold its annual shareholders meeting, and, if
receiving a favorable vote, complete the DE&S transaction and in doing so, meet
the minimum net tangible worth requirements for continued inclusion in the
NASDAQ Stock Market. The Company can give no assurances, expressed or implied,
there will be a favorable outcome of that hearing or that the Company will
continue to be listed in the NASDAQ Stock Market. The Company anticipates that
the consummation of the DE&S transaction will resolve its requirements for
continued listing, however, if the DE&S transaction is not approved by the
Company's shareholders or is not consummated, the Company expects to be delisted
from the NASDAQ Stock Market.
ITEM 6. EXHIBITS
Not Applicable
18
<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 thereunto duly authorized.
VECTRA TECHNOLOGIES, INC.
August 9, 1996 By /s/ Ray A. Fortney
--------------------------
Ray A. Fortney
President, Chief Executive
Officer
August 9, 1996 By /s/ Thomas B. Pfeil
--------------------------
Thomas B. Pfeil
Chief Financial Officer
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q WHICH PRECEDES THIS EXHIBIT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,575
<SECURITIES> 1,033
<RECEIVABLES> 16,658
<ALLOWANCES> 785
<INVENTORY> 1,930
<CURRENT-ASSETS> 25,458
<PP&E> 21,364
<DEPRECIATION> 8,806
<TOTAL-ASSETS> 58,080
<CURRENT-LIABILITIES> 40,124
<BONDS> 0
0
0
<COMMON> 44,960
<OTHER-SE> (27,403)
<TOTAL-LIABILITY-AND-EQUITY> 58,080
<SALES> 22,909
<TOTAL-REVENUES> 22,909
<CGS> 0
<TOTAL-COSTS> 15,946
<OTHER-EXPENSES> 5,847
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,474
<INCOME-PRETAX> 192
<INCOME-TAX> 48
<INCOME-CONTINUING> 144
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 144
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
