SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended
September 30, 1996
Commission File Number 1-10955
ENVIRONMENTAL ELEMENTS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 52-1303748
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3700 Koppers St., Baltimore, Maryland 21227
(Address of Principal Executive Offices) (Zip Code)
(410) 368-7000
Registrant's telephone number, including area code
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 issuer's classes of
common stock, as of the latest practicable date:
6,913,267 shares of common stock, $.01 par value per share, as of October 31,
1996.
<PAGE>
ENVIRONMENTAL ELEMENTS CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1996
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1996 and March 31, 1996 .................... 3
Consolidated Statements of Operations for
the Periods Ended September 30, 1996 and 1995 ............ 4
Consolidated Statements of Cash Flows for
the Six Months Ended September 30, 1996 and 1995 ......... 5
Notes to Consolidated Financial Statements .................. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 8
PART II: OTHER INFORMATION
Item 4. .......................................................... 10
Item 6. ............................................................. 10
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
Environmental Elements Corporation and Subsidiaries
Consolidated Balance Sheets
As of September 30, 1996 and March 31, 1996
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
- -----------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................................ $ 662,000 $ 2,124,000
Accounts and retainages receivable, net of allowance for doubtful
accounts of $322,000 and $296,000, respectively................................. 9,468,000 10,027,000
Unbilled contract costs and fees.................................................. 5,209,000 4,825,000
Inventories....................................................................... 1,348,000 2,032,000
Prepaid expenses and other current assets......................................... 1,871,000 2,011,000
Net current assets of discontinued operations..................................... - 64,000
---------- ----------
Total Current Assets.......................................................... 18,558,000 21,083,000
---------- ----------
Property and equipment:
Capital lease, building and improvements.......................................... 8,314,000 8,269,000
Machinery, equipment, furniture and fixtures...................................... 6,559,000 6,527,000
---------- ----------
14,873,000 14,796,000
Less - Accumulated depreciation and amortization.................................. 6,517,000 6,092,000
---------- ----------
Property and Equipment, Net................................................... 8,356,000 8,704,000
Other assets.......................................................................... 387,000 392,000
---------- ----------
Total Assets.................................................................. $ 27,301,000 $ 30,179,000
========== ==========
LIABILITIES AND SHAREHOLDERS INVESTMENT
Current liabilities:
Accounts payable.................................................................. $ 10,151,000 $ 12,186,000
Billings in excess of contract costs and fees..................................... 2,015,000 2,391,000
Accrued payroll and related expenses ............................................. 476,000 675,000
Accrued and other current liabilities............................................. 2,181,000 1,883,000
Deferred taxes.................................................................... 128,000 100,000
Net current liabilities of discontinued operations................................ 90,000 -
---------- ----------
Total Current Liabilities..................................................... 15,041,000 17,235,000
Long-term capital lease obligation.................................................... 2,558,000 2,662,000
Deferred taxes........................................................................ 100,000 100,000
Other non-current liabilities......................................................... 179,000 176,000
Net long-term liabilities of discontinued operations.................................. 153,000 155,000
Commitments and contingencies.........................................................
---------- ----------
Total Liabilities............................................................. 18,031,000 20,328,000
---------- ----------
Shareholders investment:
Common stock...................................................................... 69,000 69,000
Paid-in capital................................................................... 27,763,000 27,763,000
Cumulative translation adjustment................................................. (143,000) (136,000)
Retained deficit.................................................................. (18,369,000) (17,738,000)
Treasury stock, at cost........................................................... (50,000) (107,000)
----------- -----------
Total Shareholders Investment................................................. 9,270,000 9,851,000
----------- -----------
Total Liabilities and Shareholders Investment................................. $ 27,301,000 $ 30,179,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements
-3-
<PAGE>
Environmental Elements Corporation and Subsidiaries
Consolidated Statements of Operations
For the Periods Ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
- -----------------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Sales.......................................... $ 11,784,000 $ 16,085,000 $ 25,757,000 $ 34,780,000
Cost of sales.................................. 10,344,000 14,680,000 22,079,000 31,581,000
--------------- -------------- -------------- --------------
Gross Profit........................... 1,440,000 1,405,000 3,678,000 3,199,000
Selling, general and administrative expenses... 1,943,000 2,674,000 3,983,000 5,322,000
Restructuring charge........................... - 950,000 - 950,000
--------------- -------------- -------------- --------------
1,943,000 3,624,000 3,983,000 6,272,000
--------------- -------------- -------------- --------------
Operating Loss......................... (503,000) (2,219,000) (305,000) (3,073,000)
Interest and other expense, net of income...... (139,000) (34,000) (292,000) (139,000)
--------------- -------------- -------------- --------------
Loss from Continuing Operations
before Income Taxes................. (642,000) (2,253,000) (597,000) (3,212,000)
Provision for income taxes..................... 0 0 0 0
--------------- -------------- -------------- --------------
Loss from Continuing Operations........ (642,000) (2,253,000) (597,000) (3,212,000)
Gain on disposal of discontinued
operations, net.............................. - 1,000 - 351,000
--------------- -------------- -------------- --------------
Net Loss...............................$ (642,000) $ (2,252,000) $ (597,000) $ (2,861,000)
=============== ============== ============== ==============
Per share of common stock and
common stock equivalents:
Loss from continuing operations............$ (0.09) $ (0.33) $ (0.09) $ (0.47)
Income from discontinued operations........ 0.00 0.00 0.00 0.05
--------------- -------------- -------------- --------------
Net Loss...............................$ (0.09) $ (0.33) $ (0.09) $ (0.42)
--------------- -------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements
-4-
<PAGE>
Environmental Elements Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Months Ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Cash flows from operating activities:
Net loss..................................................................... $ (597,000) $ (2,861,000)
Non-cash items:
Depreciation and amortization............................................ 425,000 639,000
Gain on disposal of discontinued operations, net......................... - (351,000)
Stock contribution to savings plan....................................... 23,000 43,000
Decrease in accounts and retainages receivable, net.......................... 559,000 6,043,000
(Increase) decrease in unbilled contract costs and fees...................... (384,000) 3,113,000
Decrease in inventories...................................................... 684,000 140,000
(Increase) decrease in prepaid expenses and other current assets............. 140,000 (711,000)
Decrease in accounts payable................................................. (2,035,000) (6,353,000)
Increase (decrease) in billings in excess of contract costs and fees......... (376,000) 391,000
Increase in deferred taxes.................................................. 28,000 -
Decrease in accrued payroll and related expenses............................. (199,000) (518,000)
Increase (decrease) in accrued and other current liabilities................. 298,000 (1,015,000)
(Increase) decrease in net assets of discontinued operations................. 152,000 (25,000)
Increase (decrease) in other non-current liabilities......................... 3,000 (9,000)
----------- -------------
Net Cash Flows Used in Operating Activities (1,279,000) (1,474,000)
Cash flows from investing activities:
Decrease in short-term investments........................................... - 56,000
Purchases of property and equipment.......................................... (77,000) (615,000)
(Increase) decrease in other assets.......................................... 5,000 (15,000)
Proceeds from disposal of discontinued operations............................ - 351,000
----------- -------------
Net Cash Flows Used in Investing Activities (72,000) (223,000)
----------- -------------
Cash flows from financing activities:
Increase in borrowings under line of credit.................................. - 680,000
Change in cumulative translation adjustment.................................. (7,000) (56,000)
Payments under capital lease obligation...................................... (104,000) (96,000)
----------- -------------
Net Cash Flows Provided by (Used in) Financing Activities (111,000) 528,000
----------- -------------
Net Decrease in Cash and Cash Equivalents (1,462,000) (1,169,000)
Cash and cash equivalents, beginning of period................................... 2,124,000 3,748,000
----------- -------------
Cash and cash equivalents, end of period......................................... $ 662,000 $ 2,579,000
=========== =============
</TABLE>
The accompanying notes are an integral part of these statements
-5-
<PAGE>
ENVIRONMENTAL ELEMENTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FINANCIAL INFORMATION:
The interim consolidated financial statements included herein for
Environmental Elements Corporation and Subsidiaries (the Company) have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. In management's
opinion, the interim financial data presented herein include all adjustments
(which include only normal recurring adjustments) necessary for a fair
presentation. Certain information and footnote disclosures normally included
in the consolidated financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. Results for interim periods are not
necessarily indicative of results to be expected for the full year.
2. PER SHARE DATA:
Per share data has been presented on a fully diluted basis and is based upon
the combined weighted average number of shares of common stock outstanding
during each quarter. The weighted average number of shares used in the
computations of per share data for the quarters ended September 30, 1996 and
1995 totaled 6,917,000 and 6,874,000, respectively. The weighted average
number of shares used in the computations of per share data for the six
months ended September 30, 1996 and 1995 totaled 6,912,000 and 6,870,000,
respectively.
3. INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventories consist principally of purchased parts held for use in contracts
and as spare parts.
4. SUPPLEMENTAL CASH FLOW INFORMATION:
In non-cash financing transactions during the six months ended September 30,
1996 and 1995, the Company issued 10,945 and 15,337 treasury shares,
respectively, of its common stock as matching contributions under its 401k
savings plan. As a result of this issuance, retained earnings decreased
$34,000 and $35,000 during the six months ended September 30, 1996 and 1995,
respectively. The Company's shares in treasury are intended to be used for
matching shares in the Company's 401k savings plan and for employee stock
options.
Amounts paid in cash for interest during the six months ended September 30,
1996 and 1995 were $211,000 and $212,000, respectively. Amounts paid for
income taxes in the six months ended September 30, 1996 and 1995 were
$12,000 and $138,000 respectively.
6
<PAGE>
5. RECLASSIFICATIONS:
Certain reclassifications have been made to the prior year consolidated
financial statements to conform to the current year presentation.
7
<PAGE>
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
The following information should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto included in
this Quarterly Report and the audited Financial Statements and Management's
Discussion and Analysis contained in the Company's Form 10-K for the fiscal
year ended March 31, 1996.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationships to sales of
selected items in the Company's consolidated statements of operations
(unaudited) for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
<S> <C>
1996 1995 1996 1995
---- ---- ---- ----
Sales............................................ 100.0% 100.0% 100.0% 100.0%
Cost of Sales.................................... 87.8 91.3 85.7 90.8
---- ---- ---- ----
Gross Profit.............................. 12.2 8.7 14.3 9.2
Selling, general and administrative expenses..... 16.5 16.6 15.5 15.3
Restructuring charge............................. - 5.9 - 2.7
---- ---- ---- ----
Operating Loss............................ (4.3%) (13.8%) (1.2%) (8.8%)
---- ----- ---- ----
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 1995
Sales decreased 27% or $4,301,000 to $11,784,000 from $16,085,000. This
decrease in sales reflects contract booking activity, mix, job progress and
inclusion, in 1995, sales of direct hire construction activities, a business
segment the Company substantially exited in late fiscal 1996.
Cost of sales decreased 30% or $4,336,000 to $10,344,000 from $14,680,000.
The decrease in cost of sales as a percentage of sales resulted primarily
from elimination of low margin direct hire construction activities and to
improved execution margins.
Selling, general and administrative expenses decreased 27% or $731,000 to
$1,943,000 from $2,674,000 primarily as a result of the Company's
restructuring in the third quarter of fiscal 1996 and the resultant
reductions in business costs. Selling, general and administrative expenses
as a percentage of sales remained essentially constant due to the decrease
in expenses and sales.
8
<PAGE>
During the quarter ended September 30, 1995, the Company took a series of
actions which included the relocation of its aftermarket operations from
Jeffersonville, Indiana to its office in Baltimore, the de-emphasis of
direct hire fabrication and construction activities and a corresponding
emphasis on its aftermarket parts, services and materials businesses, and
the closing of its office in the United Kingdom. The Company recorded a
charge of $950,000 in the quarter ended September 30, 1995 representing the
cost of these actions.
Interest and other expense, net of income, increased $105,000. The net
increase is primarily a result of an increase in interest expense and a
decrease in interest income as a result of a decrease in cash available for
investment.
There was no provision for income taxes in either quarter reported.
SIX MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO
SIX MONTHS ENDED SEPTEMBER 30, 1995
Sales decreased 26% or $9,023,000 to $25,757,000 from $34,780,000 due
primarily to booking activity, job progress and inclusion, in 1995, sales of
direct hire construction activities, a business segment the Company
substantially exited in late fiscal 1996.
Cost of sales decreased 30% or $9,502,000 to $22,079,000 from $31,581,000,
primarily as a result of the sales decrease. The decrease in cost of sales
as a percentage of sales resulted primarily from elimination of low margin
direct hire construction activities and to improved execution margins.
Selling, general and administrative expenses decreased 25% or $1,399,000 to
$3,983,000 from $5,322,000 primarily as a result of the Company's
restructuring in the third quarter of fiscal 1996 and the resultant
reductions in business costs. Selling, general and administrative expenses
as a percentage of sales remained essentially constant due to the decrease
in expenses and sales.
Interest and other expense, net of income, increased $153,000. The net
increase is primarily a result of an increase in interest expense and a
decrease in interest income as a result of a decrease in cash available for
investment.
There was no provision for income taxes in either period reported.
The fiscal 1995 gain on disposal of discontinued operations of $351,000 was
due primarily to collection of a contingent purchase price related to the
prior sale of the Company's Water Treatment Privatization Project.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow used in operations in the current year was primarily the
result of an increase in the working capital required by contracts in
process. Historically, the Company has required minimal investment in
operating working capital (excludes cash, short-term investments and notes
payable), but it does experience fluctuations in working capital required
depending upon the stage of completion of various contracts and related
payment and terms negotiated as a part of the overall original contract's
terms and conditions.
The Company believes it has liquidity and capital resources sufficient to
maintain its business for the foreseeable future because its balance sheet
continues to be liquid, no significant capital expenditures are required,
historically the Company has required a minimal investment in operating
working capital, significant bank borrowings are not regularly relied upon
in the ordinary course of business, and the Company believes it would be
able to obtain modifications to its banking arrangements should such become
necessary or desirable.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were submitted to a vote of securities holders
at the Annual Meeting of Stockholders held on August 2, 1996:
(a) The stockholders ratified the selection of Arthur Andersen
LLP to serve as independent public accountants of the Company
for the fiscal year ending March 31, 1997. The matter was
approved by a vote of 5,939,946 for, 20,056 against and 15,759
abstaining.
(b) The stockholders elected F Bradford Smith (5,900,251 for and
74,620 withheld) as a Class III director for a three year term
expiring at the 1999 Annual Meeting or until his successor is
duly elected and qualified. The names of all other directors
whose term of office as a director continued after the meeting
are as follows: Richard E. Hug, Edward H. Verdery, Russell R.
Jones , Fred Hittman, and John C. Nichols.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1996.
10
<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.
ENVIRONMENTAL ELEMENTS CORPORATION
(Registrant)
/s/ F. B. Smith
F. B. Smith
Chairman of the Board and
Chief Financial Officer
Date: November 14, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Mar-31-1996
<PERIOD-END> Sep-30-1996
<CASH> 662,000
<SECURITIES> 0
<RECEIVABLES> 9,468,000
<ALLOWANCES> 322,000
<INVENTORY> 1,348,000
<CURRENT-ASSETS> 18,558,000
<PP&E> 14,873,000
<DEPRECIATION> 6,517,000
<TOTAL-ASSETS> 27,301,000
<CURRENT-LIABILITIES> 15,041,000
<BONDS> 0
0
0
<COMMON> 69,000
<OTHER-SE> 9,201,000
<TOTAL-LIABILITY-AND-EQUITY> 27,301,000
<SALES> 25,757,000
<TOTAL-REVENUES> 25,757,000
<CGS> 22,079,000
<TOTAL-COSTS> 3,983,000
<OTHER-EXPENSES> 292,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (597,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (597,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (597,000)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
