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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 33-9333
ENVIRITE CORPORATION
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-1895765
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
620 West Germantown Pike,
Plymouth Meeting, Pennsylvania 19462
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 828-8655
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (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 ___
---
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class November 1, 1995
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Common Stock, $1.00 par value 4,119,274
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ENVIRITE CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page No.
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<S> <C>
Item 1. Financial Statements. 3
Consolidated Condensed Balance Sheets, September 30, 1995 and
December 31, 1994 3
Consolidated Condensed Statements of Income for the three
months and nine months ended September 30, 1995 and 5
October 1, 1994
Consolidated Condensed Statements of Cash Flows for the nine
months ended September 30, 1995 and October 1, 1994 6
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ENVIRITE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
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(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,012,000 $ 1,827,000
Accounts receivable, net of allowances for
doubtful accounts of $451,000 and $450,000
in 1995 and 1994, respectively 5,325,000 8,542,000
Prepaid expenses 896,000 851,000
Deferred income tax benefit 448,000 448,000
Other 215,000 261,000
Discontinued operations 14,895,000 4,246,000
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Total current assets 24,791,000 16,175,000
Property, plant, and equipment, at cost:
Land 3,339,000 3,299,000
Buildings 8,137,000 8,135,000
Machinery and equipment 20,534,000 20,046,000
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32,010,000 31,480,000
Less accumulated depreciation (19,964,000) (18,795,000)
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Net property, plant, and equipment 12,046,000 12,685,000
Deferred income tax benefit 492,000 492,000
Other assets 786,000 1,810,000
Discontinued operations -- 24,873,000
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$ 38,115,000 $ 56,035,000
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</TABLE>
See accompanying notes.
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<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
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(unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 354,000 $ 225,000
Current portion of long-term debt 4,020,000 4,486,000
Accounts payable 2,863,000 4,212,000
Income taxes payable 676,000 231,000
Waste fees payable 316,000 691,000
Accrued compensation 1,122,000 1,325,000
Remediation liability 41,000 645,000
Accrued interest 461,000 669,000
Accrued liabilities 2,466,000 2,023,000
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Total current liabilities 12,319,000 14,507,000
Long-term debt 1,162,000 19,530,000
Convertible subordinated debentures 8,000,000 8,000,000
Remediation liability 1,271,000 1,331,000
Deferred income taxes 1,786,000 -
Other liabilities 296,000 296,000
Shareholders' equity
Common stock, $1 par value; 10,000,000 shares
authorized; 4,272,000 shares issued 4,272,000 4,272,000
Additional paid-in capital 9,297,000 9,296,000
Retained earnings 446,000 (463,000)
Less 152,629 shares held in treasury, at cost (734,000) (734,000)
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Total shareholders' equity 13,281,000 12,371,000
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$38,115,000 $56,035,000
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</TABLE>
See accompanying notes.
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ENVIRITE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
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September 30, October 1, September 30, October 1,
1995 1994 1995 1994
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<S> <C> <C> <C> <C>
Sales $ 8,358,000 $ 8,842,000 $ 25,880,000 $ 24,956,000
Operating costs and expenses:
Cost of sales 5,633,000 6,075,000 17,842,000 17,812,000
Selling and administrative 1,932,000 2,082,000 5,838,000 6,445,000
Restructuring charge -- -- 194,000 --
----------- ----------- ------------ ------------
Operating profit 793,000 685,000 2,006,000 699,000
Interest income 53,000 4,000 121,000 20,000
Interest expense (184,000) (187,000) (557,000) (528,000)
----------- ----------- ------------ ------------
Income from continuing operations
before provision for income taxes 662,000 502,000 1,570,000 191,000
Provision for income taxes 278,000 211,000 659,000 81,000
----------- ----------- ------------ ------------
Income from continuing operations 384,000 291,000 911,000 110,000
Loss from discontinued operations, net
of income tax expense of $1,000
for the three months ended October 1,
1994 and income tax benefit of
$107,000 for the nine months ended
October 1, 1994 -- (61,000) -- (330,000)
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Net income (loss) $ 384,000 $ 230,000 $ 911,000 $ (220,000)
=========== =========== ============ ============
Per share data:
Income from continuing operations $ .09 $ .07 $ .22 $ (.03)
Loss from discontinued operations -- (.01) -- (.08)
----------- ----------- ------------ ------------
Net income (loss) $ .09 $ .06 $ .22 $ (.05)
=========== =========== ============ ============
Weighted average number of shares
and common stock equivalents
outstanding 4,119,000 4,120,000 4,119,000 4,120,000
=========== =========== ============ ============
</TABLE>
See accompanying notes.
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ENVIRITE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, October 1,
1995 1994
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 911,000 $ 110,000
Adjustments to reconcile income from
continuing operations to net cash
provided by operating activities:
Depreciation and amortization 1,341,000 1,313,000
Bad debt provision (9,000) 21,000
Loss (gain) on disposal of fixed assets 4,000 (21,000)
Decrease in remediation liability (664,000) (321,000)
Decrease in deferred income taxes -- (26,000)
(Increase) decrease in accounts receivable 345,000 (1,624,000)
Increase in prepaid expenses (45,000) (348,000)
Increase in other assets (54,000) (242,000)
Increase (decrease) in accounts payable (1,350,000) 1,357,000
Increase in income taxes payable 445,000 --
(Increase) decrease in waste fees payable (375,000) 45,000
Increase (decrease) in accrued compensation (203,000) 459,000
Increase (decrease) in accrued interest (208,000) 265,000
Increase in accrued liabilities 441,000 375,000
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Net cash provided by continuing operations 579,000 1,363,000
Net cash provided by discontinued operations 855,000 2,053,000
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Net cash provided by operating activities 1,434,000 3,416,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (586,000) (788,000)
Discontinued operations (2,004,000) (1,537,000)
Proceeds from the sale of discontinued operations 19,781,000 --
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Net cash provided by (used in) investing activities 17,191,000 (2,325,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 636,000 823,000
Payments on notes payable (507,000) (366,000)
Proceeds from long-term debt 723,000 2,679,000
Payments on long-term debt (18,292,000) (4,474,000)
Purchase of treasury stock -- (2,000)
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Net cash used in financing activities (17,440,000) (1,340,000)
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Net increase (decrease) in cash and cash equivalents 1,185,000 (249,000)
Cash and cash equivalents at beginning of period 1,827,000 780,000
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Cash and cash equivalents at end of period $ 3,012,000 $ 531,000
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</TABLE>
See accompanying notes.
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ENVIRITE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(unaudited)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01
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 only of normal recurring adjustments) considered necessary for a
fair presentation have been included.
Quarterly results of operations are not necessarily indicative of results for
the full year. The Consolidated Condensed Financial Statements of Envirite
Corporation (the "Company"), which are unaudited and contain condensed
disclosures, should be read in conjunction with the audited Financial
Statements and related Notes in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994. The consolidated condensed balance
sheet at December 31, 1994 contained in this report is derived from the
audited Financial Statements.
2. Discontinued Operations
In December 1994, the Board of Directors of the Company adopted a formal plan
to dispose of its landfill operations (the "Municipal Services Group", or
"MSG"). The Company plans to sell this business in 1995, except for certain
assets which will be written off.
This segment of the Company's business is being accounted for as discontinued
operations and, accordingly, the consolidated financial statements of the
Company have been restated to report separately the net assets and operating
results of these discontinued operations.
In April 1995, the Company signed an agreement (the "Sale Agreement") to sell
substantially all of the assets of this business. In June 1995, the Company
sold its wholly-owned subsidiary, County Environmental Services, Inc.,
pursuant to the Sale Agreement for net proceeds of $7,406,000. In August
1995, the Company sold certain net assets of the MSG, pursuant to the Sale
Agreement for net proceeds of $12,375,000. The sale of the remaining assets
of this business, which is subject to regulatory approvals, is expected to be
completed by the end of 1995.
3. Long-Term Debt
The Company has a loan and security agreement with three banks providing for
a revolving credit facility for $7,877,000 including cash borrowings at the
prime rate plus 2% and letters of credit (the "Revolving Credit Facility").
Collateral includes a first priority security interest in the Company's cash,
accounts receivable, certain real property and a second priority interest in
certain other real property. In March 1995, the Company agreed to reduce the
aggregate amount of the Revolving Credit Facility by the amount of any long-
term financing raised in 1995 in excess of $1,000,000 and any letters of
credit returned for cancellation. The maturity date of the Revolving Credit
Facility is the earlier of 45 days after the sale of the landfill assets or
January 1996.
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At September 30, 1995, the Company had no cash borrowings and $4,656,000 of
irrevocable letters of credit outstanding under the Revolving Credit
Facility.
4. 8% Convertible Subordinated Debentures
The Company has outstanding $8,000,000 of 8% convertible subordinated
debentures due 2006. The debentures were issued at face amount and are
convertible into the common stock of the Company at $6.25 per share. The
debentures may be redeemed by the Company in whole or in part at any time on
or after April 1, 1995. Mandatory annual sinking fund payments of 20% of the
principal amount commence April 1, 2002.
5. Remediation Charge for Thomaston Facility
In March 1990, the U.S. Environmental Protection Agency ("EPA") issued an
administrative order to the Company pursuant to the Resource Conservation and
Recovery Act of 1976 ("RCRA"), which requires the Company to take corrective
action at its Thomaston, Connecticut facility. The order requires the
Company to conduct an extensive investigation of areas where hazardous
substances are believed to be present at the facility and, if necessary, to
develop and implement a plan to clean up the site. The full scope, nature,
and extent of the activities required of the Company pursuant to the order
are being negotiated with the EPA. At present, the Company estimates that it
will incur $3,100,000 of costs through the end of 1999 for the investigation
and remediation of the Thomaston site, and during the first quarter of 1990,
the Company established a reserve in that amount. There can be no assurance,
however, that no additional costs will be incurred for this matter.
6. Restructuring Charge
The Company incurred a restructuring charge of $194,000 in the first quarter
of 1995. This charge is composed of severance charges for staff reductions
instituted in the first quarter of 1995 as a result of a restructuring of the
Company's waste treatment business.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATION
Sales for the nine months ended September 30, 1995 were $25,880,000 as compared
with $24,956,000 for the first nine months of 1994, an increase of $924,000 or
3.7%. This increase in sales resulted primarily from a 12% increase in solids
processing volumes, a 15% increase in transportation revenues, and a 3% increase
in liquids pricing, offset partially by an 8% decrease in solids pricing. Sales
for the third quarter of 1995 were $8,358,000 as compared with $8,842,000 for
the third quarter of 1994, a decrease of $484,000 or 5.5%. This quarter-to-
quarter decrease in sales resulted primarily from a 3.7% decrease in solids
processing volumes, a 5.0% decrease in solids pricing, and an 8.5% decrease in
liquids pricing, offset partially by a 9.2% increase in liquid processing
volumes and an 11.0% increase in transportation revenues.
Gross margin increased to 31.1% of sales for the first nine months of 1995 as
compared with 28.7% of sales for the first nine months of 1994 primarily as a
result of increased profit margins on transportation and lab activities as well
as reduced fixed costs associated with processing activities. These factors
also contributed to the increase in gross margin to 32.6% of sales in the third
quarter of 1995 from 31.3% of sales in the third quarter of 1994.
Administrative and sales expenses were 22.6% of sales in the first nine months
of 1995 as compared with 25.8% of sales in the first nine months of 1994. This
declining percentage reflects the benefit of higher levels of sales resulting
from an expansion of the sales forces in 1994 while reducing administrative
staffing levels and expenses. Administrative and sales expenses were 23.1% of
sales for the third quarter of 1995 as compared with 23.6% of sales for the
third quarter of 1994. Despite a decrease in the administrative and sales
expenses from the third quarter of 1994 to the third quarter of 1995, this
percentage increased slightly due to higher sales revenues in the third quarter
of 1994 as compared to revenues in the third quarter of 1995.
The Company incurred a restructuring charge of $194,000 in the first quarter of
1995. This charge is composed of severance costs for staff reductions
instituted in the first quarter of 1995 as a result of a restructuring of the
Company's waste treatment business.
As a result of the foregoing, operating income was $2,006,000 for the first nine
months of 1995, as compared with operating income of $699,000 for the first nine
months of 1994. For the third quarter of 1995, operating income increased to
$793,000 as compared with $685,000 for the third quarter of 1994.
Net interest expense for the first nine months of 1995 was $436,000, as compared
with $508,000 for the first nine months of 1994, and $131,000 for the third
quarter of 1995 as compared with $183,000 for the third quarter of 1994. These
changes resulted from increased interest income due to higher cash levels in
1995.
The provision for income taxes was $659,000 or 42% of income from continuing
operations before taxes for the first nine months of 1995, as compared with
$81,000 for the first nine months of 1994 due to the increase in operating
income in the 1995 period. For the third quarter of 1995, the provision for
income taxes was $278,000 as compared with a provision of $211,000 for the third
quarter of 1994.
The Company's landfill operations are being accounted for as discontinued
operations as a result of the adoption by the Company in December 1994 of a plan
to dispose of this business. Accordingly, from the date of the adoption of the
plan until the discontinued operations are sold or otherwise disposed of, no
income or loss from discontinued operations will be recognized. Prior to the
date of adoption of the
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plan, the Company's landfill business had a net loss of $330,000 for the first
nine months of 1994 and a net loss of $61,000 for the third quarter of 1994.
As a result of the foregoing factors, the Company had net income of $911,000 for
the first nine months of 1995 as compared with a net loss of $220,000 for the
first nine months of 1994, and net income of $384,000 for the third quarter of
1995 as compared with net income of $230,000 for the third quarter of 1994.
LIQUIDITY AND CAPITAL RESOURCES
Working capital of the Company increased by $10,804,000 to $12,472,000 at
September 30, 1995 as compared with $1,668,000 at December 31, 1994. Of this
increase, $10,650,000 is the net result of reclassifying the net assets of the
discontinued operations as current assets.
The Company has a loan and security agreement with three banks providing for a
revolving credit facility for $7,877,000 including cash borrowings at the prime
rate plus 2% and letters of credit (the "Revolving Credit Facility").
Collateral includes a first priority security interest in the Company's cash,
accounts receivable, certain real property and a second priority interest in
certain other real property. In March 1995, the Company agreed to reduce the
aggregate amount of the Revolving Credit Facility by the amount of any long-term
financing raised in 1995 in excess of $1,000,000 and any letters of credit
returned for cancellation. The maturity date of the Revolving Credit Facility
is the earlier of 45 days after the sale of the landfill assets or January 1996.
At September 30, 1995, the Company had no cash borrowings outstanding and
$4,656,000 of irrevocable letters of credit outstanding under the Revolving
Credit Facility.
The former owners of the Leeper, Pennsylvania landfill claim that they are owed
approximately $3,400,000 pursuant to the agreement under which the Company
acquired the landfill as a result of the final dismissal of the appeals taken
from the issuance of the landfill permits by the Pennsylvania Department of
Environmental Resources. Despite the final dismissal of the appeal, the Company
disputes the amount owed under the agreement and payment is not being made
pending the resolution of various contractual disputes.
The Company believes that funds from operations together with the proceeds from
the sale of its landfill operations and financing under the Revolving Credit
Facility will be sufficient to meet its capital expenditure and other financial
needs in the near future.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See Annual Report on Form 10-K for the fiscal year ended December 31,
1994 for a description of Ronald A. Nielson, et al. v. Envirite Corporation and
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County Environmental Services, Inc.
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ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
None.
(b) Reports on Form 8-K
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SIGNATURES
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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 on the 13th day of November, 1995.
ENVIRITE CORPORATION
By: /s/ Geoffrey Stengel, Jr.
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Geoffrey Stengel, Jr.
President and Principal Executive
Officer
By: /s/ Ronald R. Pirollo
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Ronald R. Pirollo, Treasurer and
Principal Financial Officer
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