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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, 1997 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.)
6203 San Ignacio Avenue, Suite 100
San Jose, CA 95119
(Address of principal executive offices)
(408) 629-9800
(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 30, 1997.
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<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FINANCIAL STATEMENTS TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Consolidated Balance Sheets as of June 30, 1997, and
December 31, 1996 3 & 4
Consolidated Statements of Operations for the Three Months
Ended June 30, 1997, and June 30, 1996 5
Consolidated Statements of Operations for the Six Months Ended
June 30, 1997, and June 30, 1996 6
Consolidated Statements of Cash Flow for the Six Months Ended
June 30, 1997, and June 30, 1996 7
Notes to Consolidated Financial Statements 8 & 9
</TABLE>
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VECTRA TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
------------- ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $1,019 $2,741
Securities available for sale 731 1,330
Assets held for disposition -- 3,430
Accounts receivable, net of allowance ($80 in 1997
and $84 in 1996) 2,741 7,082
Costs and estimated earnings in excess of billings
on uncompleted contracts 327 1,153
Inventories 381 251
Prepaid expenses 371 297
------ ------
Total Current Assets 5,570 16,284
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Property, Plant and Equipment, at cost
Machinery and equipment 3,960 4,042
Furniture and fixtures 1,035 895
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Total Property, Plant and Equipment 4,995 4,937
Less accumulated depreciation 2,127 2,093
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Net Property, Plant and Equipment 2,868 2,844
Licenses, patents and other intangibles, at cost,
net of accumulated amortization 4,027 3,600
Long-term prepaid costs 406 404
Other assets -- 31
------ ------
Total Assets $12,871 $23,163
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</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
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VECTRA TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(in thousands, except share data)
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
------------- ------------
<S> <C> <C>
LIABILITIES
Current Liabilities
Notes payable $ -- $ 400
Accounts payable 1,441 5,957
Accrued payroll and related expenses 565 715
Other accrued liabilities 991 1,541
Accrued liabilities related to sale of subsidiaries 832 1,894
Provision for estimated loss on uncompleted contracts 1,893 500
Billings in excess of costs and estimated earnings
on uncompleted contracts 676 400
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Total Current Liabilities 6,398 11,407
Long-term liabilities 1,490 1,382
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Total Liabilities 7,888 12,789
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SHAREHOLDERS' EQUITY
Class A Preferred Stock, 4,100,000 shares authorized,
none issued or outstanding -- --
Common Stock, $0.01 par value, 30,000,000 shares
authorized; 7,833,527 shares issued and outstanding
in 1997 and 1996 44,960 44,960
Accumulated deficit (39,977) (34,586)
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Total Shareholders' Equity 4,983 10,374
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Total Liabilities and Shareholders' Equity $ 12,871 $ 23,163
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</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
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VECTRA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Revenues $ 232 $ 22,909
Estimated loss on long term contracts 1,403 --
Cost of revenues 1,050 15,946
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Gross margin (deficit) (2,221) 6,963
Operating expenses
Research and development expenses 47 298
Selling, general and administrative expenses 2,372 5,549
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Total operating expenses 2,419 5,847
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Operating income (loss) (4,640) 1,116
Other expenses (income)
Gain on sale of subsidiary -- (550)
Gain on sale of fixed assets (86) --
Other expenses, net 123 --
Interest expense (income), net (93) 1,474
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Total other expenses (income) (56) 924
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Income (loss) before income taxes (4,584) 192
Provision for income taxes 6 48
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Net income (loss) $ (4,590) $ 144
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Net income (loss) per share $ (0.59) $ 0.02
------- --------
------- --------
Number of shares used to calculate net income
(loss) per share 7,833,527 8,320,283
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
VECTRA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Revenues $ 1,734 $ 47,406
Estimated loss on long term contracts 1,528 --
Cost of revenues 2,005 33,424
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Gross margin (deficit) (1,799) 13,982
Operating expenses
Research and development expenses 68 315
Selling, general and administrative expenses 3,568 12,042
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Total operating expenses 3,636 12,357
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Operating income (loss) (5,435) 1,625
Other expenses (income)
Gain on sale of subsidiary -- (550)
Gain on sale of fixed assets (86) --
Other expenses, net 102 --
Interest expense (income), net (136) 1,937
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Total other expenses (income) (120) 1,387
---------- ----------
Income (loss) before income taxes (5,315) 238
Provision for income taxes 12 54
---------- ----------
Net income (loss) $ (5,327) $ 184
---------- ----------
---------- ----------
Net income (loss) per share $ (0.68) $ 0.02
---------- ----------
---------- ----------
Number of shares used to calculate net income
(loss) per share 7,833,527 8,314,974
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
VECTRA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(5,327) $ 184
Adjustments to reconcile net income (loss) to
net cash provided (used) by
operating activities:
Depreciation and amortization 163 770
Gain on sale of fixed assets (86) --
Gain on sale of subsidiary -- (550)
Changes in operating assets and liabilities:
Decrease in accounts receivable and costs and
estimated earnings in excess of billings
on uncompleted contracts 5,166 2,169
Increase in inventories and prepaid expenses (204) (1,572)
Decrease in accounts payable and accrued
expenses (4,970) (462)
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Net cash provided/(used) by operating activities (5,258) 539
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Cash flows from investing activities:
Proceeds from sale of fixed assets 127 --
Proceeds from sale of subsidiaries 3,900 1,656
Purchases of securities available for sale (323) (526)
Sales and maturities of securities available
for sale 858 754
Capital expenditures (137) (1,348)
Increase in patent and license costs (520) --
(Increase) decrease in other assets 31 (765)
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Net cash provided/(used) by investing activities 3,936 (229)
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Cash flows from financing activities:
Borrowings under short-term loans -- 1,111
Repayments under short-term loans (400) (1,680)
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Net cash used by financing activities (400) (569)
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Net decrease in cash and cash equivalents (1,722) (259)
------- -------
------- -------
Cash and cash equivalents at beginning of period 2,741 2,834
------- -------
------- -------
Cash and cash equivalents at end of period $ 1,019 $ 2,575
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------- -------
Cash paid for interest $ -- $ 845
Cash paid for income taxes $ 30 $ --
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
<PAGE>
VECTRA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited 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 consolidated financial position and
results of operations, have been included. Operating results for the three
and six month periods ended June 30, 1997, 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 1996 Annual Report on Form 10-K.
2. EARNINGS PER SHARE
Net loss per share for the three and six months ended June 30, 1997, is
based upon the weighted average number of common shares outstanding during
the period. Net income per share for the three and six months ended June
30, 1996, is based upon the weighted average number of common shares
outstanding during the period plus the dilutive effect of stock options and
warrants. In 1996, net income per share on a fully diluted basis was the
same as the primary income per share.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE,
which is intended to simplify the calculation of earnings per share.
Statement 128 is effective for both interim and annual financial statements
for the periods ending after December 15, 1997 and may not be applied
earlier.
3. INDEBTEDNESS TO BANKS
As of June 30, 1997, the Company has reserved 1,300,977 shares of common
stock for warrants previously earned by banks.
4. SALE OF WASTE BUSINESS TO MMT OF TENNESSEE INC.
On January 29, 1997, the Company sold its low level radioactive waste
processing and transportation services operations (the "Waste Business") to
MMT of Tennessee Inc. ("MMT"). MMT purchased substantially all of the
assets of the Waste Business except for: cash, accounts receivable,
deferred contract start-up costs, accounts payable and provisions for
contract loss and decommissioning. The form of the transaction was a sale
of assets pursuant to an Asset Purchase Agreement dated January 29, 1997.
The total purchase price of $3.9 million was added to working capital in
1997 and no gain or loss was recorded on the sale in the first quarter of
1997.
8
<PAGE>
VECTRA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
5. CONTINGENCIES
The Company is self-insured for general liability risk for $1.0 million per
occurrence and $2.0 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, 1997, the Company has accrued approximately $0.7 million for
unreported and/or potential losses. Actual self-insurance losses may
differ from such estimates and such differences could be material to the
consolidated 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.
6. NEW PRONOUNCEMENTS
In February 1997, the FASB issued two new statements: Statement of
Financial Accounting Standards No. 128, EARNINGS PER SHARE (see 2. Earnings
Per Share, above), and Statement of Financial Accounting Standards No. 129,
DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE. Both Statements are
effective for periods ending after December 15, 1997. Public companies
have always been required to make the disclosures now required by Statement
129 and the Company will not have to make any additional disclosures.
7. SUBSEQUENT EVENTS
The Company has received written notification from several of its
customers that they consider VECTRA in default of their contracts because
performance on the contracts has been delayed as a result of VECTRA's
hold on fabrication. The Company also received notice from one of its
primary suppliers requesting reimbursement of costs related to VECTRA's
hold on fabrication. VECTRA believes that its delay in performance does
not constitute a contract default or breach under the "force majeure"
conditions of the contracts. The Company disputes that any amounts are
due. The Company is in continuing discussion with the customers and the
supplier and is attempting to resolve the issues.
On August 6, 1997, the Company publicly announced that its Board of
Directors has invited offers for the purchase of the Company.
9
<PAGE>
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 1996 Annual Report on Form 10-K and in this item under "Fabrication
Activities Hold" and "Liquidity and Capital Resources" discussed below.
DIVESTITURES
On January 29, 1997, the Company sold its low level radioactive waste
processing and transportation services operations (the "Waste Business") to
MMT of Tennessee Inc. ("MMT"). MMT purchased substantially all of the assets
of the Waste Business except for: cash, accounts receivable, deferred
contract start-up costs, accounts payable, and provisions for contract loss
and decommissioning. The form of the transaction was a sale of assets
pursuant to an Asset Purchase Agreement dated January 29, 1997. The total
purchase price of $3.9 million was added to working capital in 1997 and no
gain or loss was recorded on the sale in the first quarter of 1997.
FABRICATION ACTIVITIES HOLD
In January 1997, the Company received a Demand for Information letter ("DFI")
from the U. S Nuclear Regulatory Commission (the "NRC") requesting that
VECTRA respond as to why: (1) the NRC should not require VECTRA to perform a
comprehensive review of its design control to verify that its specifications
have been accurately translated to the fabricators; (2) the NRC should not
require VECTRA to perform a comprehensive review of all design changes and
nonconformances since 1995 to determine if any generic implications exist;
and (3) the NRC should not issue an order to suspend fabrication activities.
As a result of the DFI, in January 1997 the Company voluntarily placed a hold
on fabrication activities associated with its NUHOMS-Registered Trademark-
and UX-30 products to allow the Company and its consultants to conduct a
complete assessment of its processes from engineering through fabrication in
order to address the root causes of deficiencies in its Quality Control
operations. The assessment by the Company and its consultants determined
that the composition of VECTRA's Quality Assurance Program is adequate and
does not require major restructuring; however, there have been deficiencies
in the implementation of the program and the Company must implement
corrective actions and other recommended changes to restore confidence with
clients and the NRC. The Company has developed a detailed plan to assess its
design control, quality control and specification development activities for
all of its products. This plan has been developed and is being implemented
with the assistance of Performance Improvement International, a leading root
cause assessment company in the nuclear industry. This plan formed the basis
of the Company's response to the DFI which was filed on April 11, 1997. The
Company's response addressed the corrective action program to be implemented
to correct any nonconformances. On May 9, 1997, the Company met with the NRC
in public session to review its response. The NRC indicated that the steps
taken to date seemed responsive to their stated concerns and requested
additional clarifying information which was submitted as a supplemental
response on June 5, 1997. The NRC also informed the Company that it would
inspect VECTRA's DFI related corrective action program implementation prior
to VECTRA's resumption of fabrication activities. On July 2, 1997, the NRC
notified the Company that it had adequately addressed the staff's questions
concerning the fundamental approach used by VECTRA to identify root causes
and implement corrective actions to resolve the concerns described in the
DFI; and that the NRC's review of the response would be complete upon their
inspection of the Company's implementation of the corrective actions. This
inspection is currently scheduled to begin late in the third quarter of 1997.
10
<PAGE>
FABRICATION ACTIVITIES HOLD (CONTINUED)
In July 1997 the Company's NUHOMS-Registered Trademark- customers performed
their audits of VECTRA's DFI related corrective action implementation and the
responses to these audits must be completed prior to resumption of
fabrication activities for their projects. The Company anticipates continued
suspension of fabrication activities subject to completion of the customer
audit responses and the NRC inspection and cannot predict at this time when
it will restart fabrication activities. The Company expects that the
deferral in revenues resulting from the suspension of fabrication activities
together with the costs of the DFI related corrective action program
implementation and the subsequent customer and NRC inspections will, at a
minimum, result in further net losses in the third quarter of 1997 and the
utilization of a substantial portion of its available working capital. There
can be no assurances that the NRC ultimately will find the Company's
corrective action implementation program acceptable or that the NRC will not
issue an order to suspend fabrication in the event the Company lifts the
Company's unilateral suspension and resumes fabrication. Prior to the
suspension, fabrication activities constituted most of the Company's
revenues. Continued suspension of fabrication will have a material adverse
impact on the Company's operations, financial performance and working
capital. The longer the delay, the more significant will be the adverse
impact. As a result of these events, on August 6, 1997, the Company publicly
announced that its Board of Directors has invited offers for the purchase of
the Company.
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED JUNE 30, 1997, COMPARED TO THE THREE MONTHS ENDED JUNE
30, 1996
REVENUES Total revenues decreased $22.7 million (99.0%) to $0.2 million in
the three month period ended June 30, 1997, from the comparable period in
1996. Excluding the revenues of VECTRA Technologies Ltd. ("VECTRA UK") which
was sold in April 1996, the Company's nuclear engineering services business,
power services business, and government services business, (collectively, the
"Engineering Businesses") which were sold in August 1996 and the Waste
Business, the Company's revenues decreased $3.3 million (93.5%), to $0.2
million from $3.5 million. In the second quarter of 1997, the Company
recorded a revenue reduction of $0.9 million associated with an adjustment to
revenue recognition on the percentage of completion method on long term
contracts as a reflection of future anticipated increased expenses primarily
associated with increased engineering and quality assurance/control
activities resulting from the corrective action program implemented in
response to the DFI. Additionally, revenue decreased as a direct result of
the Company, in January 1997, voluntarily placing a hold on the fabrication
activities associated with its NUHOMS-Registered Trademark- and UX-30
products in response to the NRC's Demand for Information letter.
Substantially all of the Company's revenues are derived from fabrication
activities associated with its NUHOMS-Registered Trademark- and UX-30
products. The Company anticipates further delays related to the DFI related
corrective action program implementation and the subsequent customer and NRC
inspections and cannot predict at this time when it will restart fabrication
activities.
GROSS MARGIN Total gross margin decreased $9.2 million in the second quarter
of 1997 from the second quarter of 1996. Excluding the gross margin of
VECTRA UK, the Engineering Businesses and the Waste Business, gross margin
decreased to a $2.2 million loss in the second quarter of 1997 from a $1.5
million profit in the same period of 1996. In the second quarter of 1997 the
Company recorded a provision for estimated loss on long term contracts of
$1.4 million as a reflection of future anticipated gross margin losses
primarily associated with increased engineering and quality assurance/control
activities resulting from the corrective action program implemented in
response to the DFI.
11
<PAGE>
THE THREE MONTHS ENDED JUNE 30, 1997, COMPARED TO THE THREE MONTHS ENDED JUNE
30, 1996 (CONTINUED)
GROSS MARGIN (CONTINUED) Each of the Company's contracts is negotiated
independently and varies with respect to gross margin and, due to changes in
the mix of contracts and the deliverables under those contracts, the
Company's gross margin may vary significantly from quarter to quarter.
OPERATING EXPENSES The Company's operating expenses decreased $3.4 million
(58.6%) to $2.4 million in the second quarter of 1997 from $5.8 million in
the second quarter of 1996. Excluding the operating expenses of VECTRA UK,
the Engineering Businesses and the Waste Business, operating expenses
increased to $2.4 million in the second quarter of 1997, from $1.8 million
the second quarter of 1996. This increase was primarily the result of a $0.3
million write-off of receivables associated with former operations and the
recording of $0.3 million contract termination expenses related to the former
President and CEO. Until the Company resumes fabrication activities,
operating expenses are expected to increase as a result of labor costs,
formerly associated with costs of revenues, now being focused upon DFI
related corrective action program implementation and the subsequent customer
and NRC inspections.
NET INCOME (LOSS) Operating income decreased $5.7 million to a $4.6 million
loss in the second quarter of 1997 from a profit of $1.1 million in the same
period of 1996 (See GROSS MARGIN and EXPENSES discussion, above). In
addition, interest expense decreased by $1.6 million in the same time period
because of the elimination of all bank debt in the third quarter 1996. As a
result of the foregoing, net loss increased $4.7 million to a $4.6 million
loss in the second quarter of 1997 from a $0.1 million profit in the second
quarter of 1996. The Company expects that the lack of revenues and gross
margin resulting from the suspension of fabrication activities together with
the increased operating expenses of the DFI related corrective action program
implementation and the subsequent customer and NRC inspections will, at a
minimum, result in further net losses in the third quarter of 1997.
THE SIX MONTHS ENDED JUNE 30, 1997, COMPARED TO THE SIX MONTHS ENDED JUNE 30,
1996
REVENUES Total revenues decreased $45.7 million (96.3%) to $1.7 million in
the six month period ended June 30, 1997, from the comparable period in 1996.
Excluding the revenues of VECTRA UK, the Engineering Businesses and the Waste
Business, revenues decreased $4.9 million (73.7%) to $1.7 million from $6.6
million for the six months ended June 30, 1997. This decrease is the direct
result of the revenue reduction in the second quarter of 1997, and the revenue
decrease as a direct result of the Company, in January 1997, voluntarily
placing a hold on the fabrication activities associated with its
NUHOMS-Registered Trademark- and UX-30 products in response to the NRC's
Demand for Information letter. Substantially all of the Company's revenues
are derived from fabrication activities associated with its NUHOMS-Registered
Trademark- and UX-30 products. The Company anticipates further delays
related to the DFI related corrective action program implementation and the
subsequent customer and NRC inspections and cannot predict at this time when
it will restart fabrication activities.
GROSS MARGIN Total gross margin decreased $15.8 million in the six month
period ended June 30, 1997 from the six month period ended June 30, 1996.
Excluding the gross margin of VECTRA UK, the Engineering Businesses and the
Waste Business, gross margin decreased to a $1.8 million loss for the first
six months of 1997 from a profit of $2.3 million in the same period of 1996.
This is a result of the second quarter of 1997 provision for estimated loss
on long term contracts and the reduction in revenues noted above. Each of the
Company's contracts is negotiated independently and varies with respect to
gross margin and, due to changes in the mix of contracts and the deliverables
under those contracts, the Company's gross margin may vary significantly from
quarter to quarter.
12
<PAGE>
THE SIX MONTHS ENDED JUNE 30, 1997, COMPARED TO THE SIX MONTHS ENDED JUNE 30,
1996 (CONTINUED)
OPERATING EXPENSES The Company's operating expenses decreased $8.7 million
(70.6%) to $3.6 million in 1997 from $12.3 million in 1996. Excluding the
operating expenses of VECTRA UK, the Engineering Businesses and the Waste
Business, operating expenses were $3.6 million in the first six months of
1997 compared to $3.8 million in the same period of 1996. This is a result of
the increased second quarter costs noted above offset by efficiencies
reflected in the first quarter results.
NET INCOME (LOSS) Operating income decreased $7.1 million to a $5.4 million
loss in 1997 from a $1.7 million profit in the same period of 1996 (See GROSS
MARGIN and EXPENSES discussion, above). In addition, interest expense
decreased by $2.1 million in the same time period because of the elimination
of all bank debt in the third quarter 1996. Excluding the operating income
of VECTRA UK, the Engineering Businesses and the Waste Business, operating
income decreased $4.0 million to a $5.4 million loss in 1997 from a $1.4
million loss in the same period of 1996.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided/used by operating activities is comprised of two
components, net income (loss) adjusted for non-cash items and changes in
operating assets and liabilities.
Net loss adjusted for non-cash items used approximately $5.3 million in the
first six months of 1997 and provided $0.4 million in the same period of
1996. This reflects the decreased operating profitability of the Company, as
detailed in the RESULTS OF OPERATIONS for the six months ended June 30, 1997,
above.
In the first six months of 1997, the Company's $5.0 million use of cash to
reduce accounts payable and accrued expenses, was offset by a decrease in
accounts receivable which provided $5.2 million. However, as a result of the
Company, in January 1997, voluntarily placing a hold on the fabrication
activities, the Company is currently not generating trade accounts receivable
or trade accounts payable from fabrication activities. The Company will not
continue to have significant amounts of cash provided by the collection of
accounts receivable until new accounts receivable are generated from the
resumption of fabrication activities and the resultant contract fulfillment.
As a result of the foregoing, operating activities used $5.3 million in the
first six months of 1997, an approximate $5.8 million greater usage than cash
expended in the same period of 1996.
Capital expenditures, including expenditures for licenses and patents, for
the first six months of 1997 decreased $0.7 million from the same period of
1996, when expenditures were made primarily for equipment required by the
Waste Business.
During 1997, the Company used $0.5 million for the continuing licensing
activity for the Company's Fuel Services operations' NUHOMS-Registered
Trademark- storage and transportation cask for spent nuclear fuel. The
Company's capital expenditures for the balance of 1997 are expected to be for
the continuing licensing activity for these casks. The Company anticipates
that it will need to devote significant capital resources to technology
development and licensing activities in the future in order to remain
competitive. The Company had contractual capital acquisition commitments of
approximately $0.4 million as of June 30, 1997.
13
<PAGE>
As a result of the suspension of fabrication activities together with the
increased operating expenses of the DFI related corrective action program
implementation and the subsequent customer and NRC inspections, the Company's
liquidity has been significantly reduced since December 31, 1996, and will
continue to decline until the Company is able to restart fabrication
activities, generate significant revenues and collect the resulting accounts
receivable. As an interim source of liquidity, the Company is currently
implementing or exploring: Increasing current revenues from non-fabrication
related sources; the reduction of current expenses; obtaining advance
payments for post-restart fabrication activities; the sale of assets, both
actively and infrequently employed; obtaining loans; and the licensing or
sale of its technologies.
The Company has received written notification from several of its customers
that they consider VECTRA in default of their contracts because performance
on the contracts has been delayed as a result of VECTRA's hold on
fabrication. The Company also received notice from one of its primary
suppliers requesting reimbursement of costs related to VECTRA's hold on
fabrication. VECTRA believes that its delay in performance does not
constitute a contract default or breach under the "force majeure" conditions
of the contracts. The Company disputes that any amounts are due. The Company
is in continuing discussion with the customers and the supplier and is
attempting to resolve the issues.
The Company is currently having discussions with its NUHOMS-Registered
Trademark- customers to renegotiate those contracts having anticipated future
gross margin losses. The Company can give no assurances that it has the
liquidity to continue operations without successful renegotiation of these
contracts even if it does restart fabrication activities.
Although the Company has interim plans and fully intends to restart
fabrication activities, because of: 1) the above noted significant adverse
impact regarding suspension of fabrication activities and the inability to
accurately predict the restart date given the third party and NRC
inspections; 2) the default notifications on the customer contracts and
supplier's request for reimbursement of costs; and 3) the unknown outcome of
the discussions with the Company's customers to renegotiate the contracts
having anticipated future gross margin losses, the Company can give no
assurances that cash and cash equivalents at June 30, 1997, together with the
cash generated from interim activities prior to the restart of fabrication
activities will be adequate to meet its cash needs through December 31, 1997.
As noted above, the Company publicly announced that its Board of Directors
has invited offers for the purchase of the Company. If a sale does not occur
on a timely basis, or if the Company cannot identify additional sources of
liquidity, the Company will be forced to cease operations and/or file a
petition in bankruptcy.
14
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Mr. Hollenbeck, an ironworker, brought an action, HOLLENBECK v. VECTRA
TECHNOLOGIES et al, Illinois Circuit Court (12th Judicial Circuit, Will
County) Case No. 95 L 1247, in which as amended he alleges that VECTRA
(through its employee, Terry Vesely) was in charge of construction
activities at Commonwealth Edison Company's LaSalle Station in Seneca,
Illinois, on or before January 27, 1994: that it caused to be erected there
a temporary wall section measuring some 14 by 16 feet; and that it was
negligent and violated the Illinois Structural Work Act by its actions when
Mr. Hollenbeck, seeking to assist in the moving of this wall, was struck by
the wall and severely injured. Although his amended complaint is silent as
to the amount of alleged damages, discovery responses indicate that he is
seeking substantially more than $1,000,000. Defendants include, in
addition to VECTRA, Commonwealth Edison Company and Townsend & Bottums,
Inc. VECTRA has brought a third-party action against Raytheon
Constructors, Inc., f/k/a UE&C Catalytic, Inc., Mr. Hollenbeck's employer
at the time of the accident. Trial is set for October 1997.
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
An annual meeting of the shareholders of VECTRA Technologies, Inc. was
held on Friday, July 25, 1997. The following matters were voted upon at
the meeting, with the results as indicated:
A. Approval of a proposal to amend the Company's articles of
incorporation to decrease the size of the Board of Directors and
eliminate classification of the Board
Number of votes:
For: 5,735,473
Against: 3,225
Abstain: 3,120
Broker Nonvotes 682,712
B. The following individuals were elected directors:
<TABLE>
<CAPTION>
Number of votes
---------------------------------------------------------
Broker
Name of Director For Against Abstain Nonvotes
---------------------- ----------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
J.E.(Ted) Ardell III 6,396,621 -- 18,127 --
Ray A. Fortney 6,373,889 -- 37,193 --
Vincent Franceschi 6,402,945 -- 15,265 --
Fruzsina M. Harsanyi 6,415,985 -- 8,445 --
Edward J. Keith 6,415,589 -- 8,643 --
Roy Kirkorian 6,415,293 -- 8,791 --
</TABLE>
C. Ratification of Ernst & Young LLP as independent public accountants:
Number of votes:
For: 6,415,384
Against: 4,775
Abstain: 4,371
Broker Nonvotes: --
ITEM 5. OTHER INFORMATION
On April 22, 1997, the Company announced the appointment of Mr. Vincent
Franceschi to President and Chief Operating Officer. Mr. Ray Fortney
continued as Chief Executive Officer until June 17, 1997, and thereafter
remains as a Director of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: none
(b) Reports on Form 8-K: none
15
<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 14, 1997 By /s/ Vincent Franceschi
----------------------------------------
Vincent Franceschi
President and Chief Operating Officer
August 14, 1997 By /s/ Thomas B. Pfeil
----------------------------------------
Thomas B. Pfeil
Chief Financial Officer and Secretary
16
<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-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,019
<SECURITIES> 731
<RECEIVABLES> 2,741
<ALLOWANCES> 80
<INVENTORY> 381
<CURRENT-ASSETS> 5,570
<PP&E> 4,995
<DEPRECIATION> 2,127
<TOTAL-ASSETS> 12,871
<CURRENT-LIABILITIES> 6,398
<BONDS> 0
0
0
<COMMON> 44,960
<OTHER-SE> (39,977)
<TOTAL-LIABILITY-AND-EQUITY> 12,871
<SALES> 232
<TOTAL-REVENUES> 232
<CGS> 2,453
<TOTAL-COSTS> 2,453
<OTHER-EXPENSES> 2,419
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 93
<INCOME-PRETAX> (4,584)
<INCOME-TAX> 6
<INCOME-CONTINUING> (4,590)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,590)
<EPS-PRIMARY> (0.59)
<EPS-DILUTED> (0.59)
</TABLE>
