<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-27986
ITEQ, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 41-1667001
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2727 ALLEN PARKWAY, SUITE 760, HOUSTON, TEXAS 77019
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 713-285-2700
Indicate by check mark whether the registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes[x] No[ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares of each of the issuer's classes of common
stock, as of the latest practicable date.
28,159,933
(Shares of common stock outstanding as of November 6, 1998)
<PAGE> 2
ITEQ, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1997 and September 30, 1998
(unaudited) 3
Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 1997 (unaudited) and 1998 (unaudited) 4
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1997 (unaudited) and 1998 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10
PART II - OTHER INFORMATION 16
</TABLE>
2
<PAGE> 3
ITEQ, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 9,681 $ 5,462
Due on contracts and other receivables, net 72,881 72,710
Costs and estimated earnings in excess of billings on uncompleted contracts 30,164 29,247
Inventories 13,138 17,683
Prepaid expenses, deposits and other assets 3,538 4,539
Deferred tax asset 7,589 8,552
Assets held for sale 2,925 935
--------- ---------
Total current assets 139,916 139,128
Property and equipment, net 42,198 49,453
Other assets, net 79,373 99,239
--------- ---------
TOTAL ASSETS $ 261,487 $ 287,820
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 24,861 $ 26,488
Accrued liabilities
Job costs 9,498 4,437
Accrued compensation and benefits 6,077 5,983
Accrued expenses and other current liabilities 25,634 16,539
Billings in excess of costs and estimated earnings on uncompleted contracts 8,773 10,372
Current maturities of long-term debt 104 134
Income taxes payable 438 --
--------- ---------
Total current liabilities 75,385 63,953
LONG-TERM LIABILITIES
Long-term debt, less current maturities 89,954 118,784
Deferred tax liability 4,760 4,760
--------- ---------
Total Liabilities 170,099 187,497
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 1,000 shares authorized, no shares issued
or outstanding -- --
Common stock, $.001 par value, 40,000 shares authorized: 26,912 shares
issued and outstanding at December 31, 1997 and 28,298 shares
issued at September 30, 1998 27 28
Additional paid-in capital 119,823 130,744
Treasury stock, at cost, 139 shares at September 30, 1998 -- (1,000)
Retained earnings (deficit) (27,644) (27,594)
Translation adjustment (818) (1,855)
--------- ---------
Total Stockholders' Equity 91,388 100,323
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 261,487 $ 287,820
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE> 4
ITEQ, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
1997 1998 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 74,222 $ 74,035 $ 198,593 $ 224,940
Cost of revenues 58,183 58,037 152,753 172,197
Selling, general and administrative expenses 8,262 9,597 25,431 27,653
Depreciation and amortization 1,837 1,919 5,017 5,405
Merger, acquisition and strategic charges -- 8,800 -- 9,839
--------- --------- --------- ---------
Operating profit (loss) 5,940 (4,318) 15,392 9,846
--------- --------- --------- ---------
Interest expense, net (1,247) (1,723) (4,312) (4,257)
Miscellaneous income, net 109 93 409 116
--------- --------- --------- ---------
Earnings (Loss) from continuing operations before
income tax provision and extraordinary item 4,802 (5,948) 11,489 5,705
Income tax provision (benefit) 1,853 (2,171) 4,488 2,082
--------- --------- --------- ---------
Earnings (Loss) from continuing operations before
extraordinary item 2,949 (3,777) 7,001 3,623
--------- --------- --------- ---------
Loss from discontinued operations, net of income tax
benefit (1,061) (3,527) (887) (3,573)
--------- --------- --------- ---------
Extraordinary loss on early extinguishment of debt,
net of income tax benefit (2,037) -- (2,037) --
--------- --------- --------- ---------
Net earnings (loss) $ (149) $ (7,304) $ 4,077 $ 50
========= ========= ========= =========
BASIC EARNINGS (LOSS) PER SHARE:
Earnings (Loss) from continuing operations $ .11 $ (.13) $ .30 $ .13
Loss from discontinued operations $ (.04) $ (.13) $ (.04) $ (.13)
Extraordinary loss $ (.08) $ .00 $ (.09) $ .00
--------- --------- --------- ---------
Net earnings (loss) per common share $ (.01) $ (.26) $ .17 $ .00
========= ========= ========= =========
Weighted average common shares outstanding 26,499 28,158 23,484 27,526
========= ========= ========= =========
DILUTED EARNINGS (LOSS) PER SHARE:
Earnings (Loss) from continuing operations $ .10 $ (.13) $ .28 $ .13
Loss from discontinued operations $ (.04) $ (.13) $ (.04) $ (.13)
Extraordinary loss $ (.07) $ .00 $ (.08) $ .00
--------- --------- --------- ---------
Net earnings (loss) per common share $ (.01) $ (.26) $ .16 $ .00
========= ========= ========= =========
Weighted average common and common
equivalent shares outstanding 28,280 28,158 24,969 28,645
========= ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE> 5
ITEQ, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1997 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 4,077 $ 50
Adjustments to reconcile net earnings to net cash provided
(used) by operating activities:
Non-cash interest 499 120
Depreciation and amortization 5,916 6,156
Extraordinary losses 3,182 --
Provision (benefit) for deferred income taxes 993 (834)
Changes in assets and liabilities:
Due on contracts and other receivables (3,481) 3,451
Inventories 7,109 (1,752)
Costs and estimated earnings in excess of billings on
uncompleted contracts (3,244) 1,100
Prepaid expenses, deposits and other assets (2,343) (983)
Accounts payable and accrued liabilities (3,954) (19,774)
Billings in excess of costs and estimated earnings on
uncompleted contracts (2,675) 1,599
Other (1,249) (299)
-------- --------
Net cash provided (used) by operating activities 4,830 (11,166)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquired businesses, net of cash acquired (18,955) (23,055)
Contingent purchase consideration paid (3,354) --
Cash received from sales of land, buildings & equipment 82 2,538
Purchases of property and equipment (3,425) (3,999)
-------- --------
Net cash used by investing activities (25,652) (24,516)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term obligations 1,000 --
Net borrowings (payments) under line of credit (4,379) 30,130
Repayment of subordinated debt (15,000) --
Net proceeds from common stock offering 31,795 --
Proceeds from exercise of stock options and warrants 3,697 2,495
Purchase of treasury stock -- (1,000)
-------- --------
Net cash provided by financing activities 17,113 31,625
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (141) (162)
-------- --------
Net decrease in cash and cash equivalents (3,850) (4,219)
Cash and cash equivalents, beginning of period 6,475 9,681
-------- --------
Cash and cash equivalents, end of period $ 2,625 $ 5,462
======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURE OF NON-CASH FINANCING ACTIVITIES
Common stock issued as part of purchase price of GLM $ -- $ 8,438
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE> 6
ITEQ, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with regulation S-X pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although management believes that the
disclosures are adequate to make the information presented not misleading.
In the opinion of management, the unaudited consolidated financial
statements contain all adjustments, consisting of only normal recurring
adjustments, necessary to present fairly the financial position as of September
30, 1998, the results of operations for the three and nine months ended
September 30, 1997 and 1998, and the cash flows for the nine months ended
September 30, 1997 and 1998.
The unaudited consolidated financial statements include the accounts of
ITEQ, Inc. and its wholly-owned subsidiaries ("ITEQ" or the "Company").
Significant intercompany balances and transactions have been eliminated. Certain
reclassifications have been made to the prior period's consolidated financial
statements to conform with the current period presentation.
Basic earnings per share is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the period.
Weighted average number of shares of common stock outstanding for diluted
earnings per share includes the dilutive effect of common stock equivalents. The
only reconciling difference between the numerators and denominators for basic
and diluted earnings per share is the impact of common stock options and
warrants outstanding calculated using the treasury stock method.
The Company implemented Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income," effective January 1, 1998. This standard
requires that all items required to be recognized under this standard as
components of comprehensive income, such as the Company's foreign currency
translation adjustments, be reported in a financial statement. The Company's
comprehensive income (loss) was as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1997 1998 1997 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Income (Loss) $ (149) $(7,304) $ 4,077 $ 50
Foreign currency
translation adjustments (267) (787) (777) (1,037)
------- ------- ------- -------
Total $ (416) $(8,091) $ 3,300 $ (987)
======= ======= ======= =======
</TABLE>
6
<PAGE> 7
ITEQ. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2 - DUE ON CONTRACTS AND OTHER RECEIVABLES
At December 31, 1997, and September 30, 1998, due on contracts and
other receivables consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
<S> <C> <C>
Billings on completed contracts and contracts in progress $ 69,263 $ 68,340
Retained contract receivables 4,599 5,017
Allowance for doubtful accounts (981) (647)
-------- --------
Total $ 72,881 $ 72,710
======== ========
</TABLE>
NOTE 3 - INVENTORIES
Inventories consist of costs for which no related revenue has been
recognized. Inventories include materials used in the manufacturing process,
labor, overhead and purchased parts and are valued at the lower of cost or
market. Cost is determined by the average cost for materials and the first-in,
first-out (FIFO) method for purchased parts. At December 31, 1997 and September
30, 1998, inventories consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
<S> <C> <C>
Raw materials $ 6,910 $ 6,526
Work in progress 5,027 10,583
Finished goods 1,201 574
------- -------
Total $13,138 $17,683
======= =======
</TABLE>
NOTE 4 - OTHER ASSETS
At December 31, 1997 and September 30, 1998, other assets consist of
the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
<S> <C> <C>
Excess of costs over net assets acquired, net of
accumulated amortization of $7,787 and $9,604 at
December 31, 1997 and September 30, 1998, respectively $65,867 $86,207
Licenses, trademarks and tradenames, net of accumulated
amortization of $1,639 and $2,056 at December 31, 1997
and September 30, 1998, respectively 11,607 11,398
Other 1,899 1,634
------- -------
Total $79,373 $99,239
======= =======
</TABLE>
NOTE 5 - BUSINESS ACQUISITIONS
On October 28, 1997, the Company issued approximately 9,541 shares of
ITEQ common stock in exchange for all the outstanding shares of Astrotech
International Corporation ("Astrotech") common stock. The merger has been
accounted for as a pooling-of-interests and, accordingly, the Company's
consolidated financial statements have been restated to include the accounts and
operations of Astrotech. In addition, all outstanding options to purchase
Astrotech common stock were converted into options to
7
<PAGE> 8
ITEQ, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
purchase shares of ITEQ common stock, as adjusted for the exchange ratio. In
connection with the merger, the Company amended and restated its Certificate of
Incorporation to, among other things, increase its authorized shares of common
stock from 30,000 to 40,000.
Effective April 1, 1998, the Company purchased the assets of Reliable
Steel Fabricators, Inc. ("Reliable") for approximately $4,000 in cash. This
acquisition has been accounted for as a purchase, and accordingly, Reliable's
results of operations have been included in the Company's financial statements
from April 1, 1998 forward. Reliable is a manufacturer of storage tanks serving
the Pacific Northwest.
Effective June 1, 1998, the Company purchased the assets of G.L.M.
Tanks and Equipment, Ltd. ("GLM"), a Canadian company, for a total purchase
price of approximately $28,500, consisting of 796 shares of the Company's common
stock, valued at approximately $8,400, and cash consideration of approximately
$20,100. This acquisition has been accounted for as a purchase, and accordingly,
GLM's results of operations have been included in the Company's financial
statements from June 1, 1998 forward. GLM is a manufacturer of storage tanks and
process equipment in western Canada.
NOTE 6 - MERGER, ACQUISITION AND STRATEGIC CHARGES
For the nine months ended September 30, 1998, the Company recorded
nonrecurring merger, acquisition and strategic charges totaling $9,839 of which
$8,800 was recorded in the third quarter.
Merger and acquisition costs of $1,054 related to the terminated
purchase agreement with Matrix Service Company and the termination of the
proposed tender offer for McConnell Dowell Corporation Limited and other
acquisition related activity.
The Company incurred a strategic charge of $8,785. The charge included
the costs, estimated as incremental job costs, to combine the operations of the
Company and Astrotech including losses associated with two plant closings
and business integration and reorganization costs. The Company also incurred
severance costs and other benefits associated with employee terminations,
including that of the Company's former president and chief operating officer,
and legal and accounting services fees. A small amount of additional future
costs are expected to be incurred and be recognized in the fourth quarter of
1998 and the first quarter of 1999.
NOTE 7 - DISCONTINUED OPERATIONS
ALLIED
During August 1997 and effective on August 31, 1997, management of ITEQ
adopted plans to discontinue certain of its low margin generic fabrication
operations at its Allied subsidiary. Allied has ceased operations and the net
receivables/payables are expected to be settled in the fourth quarter of 1998.
Net assets of Allied of $ 2,079 are included in the September 30, 1998
consolidated balance sheet.
Operating losses during the phase out period have been included in the
loss from discontinued operations. Losses before tax of $4,392 have been
incurred through September 30, 1998.
8
<PAGE> 9
ITEQ, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The loss from discontinued operations included in the statement of operations is
reflected net of the effective income tax rate for the applicable period.
Interest expense has been allocated based on intercompany debt balances.
After-tax interest expense of $336 has been included in the estimated loss on
disposal for the nine months ended September 30, 1998. Discontinued operations
have not been separated in the consolidated statements of cash flows and,
therefore, amounts for certain captions will not agree with the respective
consolidated statements of operations. The loss from these discontinued
operations amounted to $804, net of $452 income tax benefit, in the third
quarter of 1998 and $1,259, net of $708 income tax benefit for the nine months
ended September 30, 1998.
FILTRATION GROUP
During September 1998 and effective on September 30, 1998, management
of ITEQ adopted plans to discontinue the operations of its filtration group.
The majority of the filtration group's operations relate to
manufacturing fabric filters, wet and dry scrubbers and FRP fans. Management
intends to sell the filtration group businesses over the next year. Net assets
of the filtration group of $24,689 are included in the September 30, 1998
consolidated balance sheet. Management believes that the company will not incur
additional losses from operations or the sale of the filtration group; therefore
no additional losses have been accrued.
Sales from the filtration group's discontinued operations were $15,911
and $7,057 for the three months ended September 30, 1997 and 1998 and $43,829
and $31,044 for the nine months ended September 30, 1997 and 1998, respectively.
Summary operating results through September 30, 1998, the date of measurement,
were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1998 September 30, 1998
------------------ ------------------
<S> <C> <C>
Revenues $ 7,057 $31,044
Operating loss 4,047 3,284
Interest expense 288 731
Loss before income taxes 4,288 3,644
Income tax benefit 1,565 1,330
Net loss from discontinued operations 2,723 2,314
</TABLE>
The earnings (loss) from discontinued operations included in the
statements of operations are reflected net of the effective income tax rate for
the applicable period.
Interest expense has been allocated based on the investment in
subsidiaries. After-tax interest expense of $183 and $464 has been included in
the discontinued operations for the filtration group for the three and nine
months ended September 30, 1998, respectively. Discontinued operations have not
been separated in the consolidated statement of cash flows and, therefore,
amounts for certain captions will not agree with the respective consolidated
statement of operations.
NOTE 8 - LONG-TERM OBLIGATIONS
As of September 30, 1998, the Company was not in compliance with the
leverage ratio and the interest coverage ratio covenants of its loan agreement.
Management is currently negotiating an amendment which is expected to be in
place by year end and therefore this debt continues to be classified as
noncurrent in the accompanying consolidated balance sheets.
9
<PAGE> 10
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
GENERAL
Since its inception in 1990 the Company has experienced substantial
growth through a combination of strategic acquisitions and internal growth. Due
to the magnitude of these acquisitions and the integration of the acquired
operations with the Company's existing businesses, results of operations for
prior periods are not necessarily comparable with or indicative of results of
operations for current or future periods.
The Company records most of its revenues using the
percentage-of-completion method. Under this method, the Company recognizes as
revenues that portion of the total contract price which the cost of work
completed to date bears to the estimated total cost of the work included in the
contract. Because contracts may extend over more than one fiscal period,
revisions of cost and profit estimates are made periodically and are reflected
in the accounting period in which they are determined. If the estimate of total
costs on a contract indicates a loss, the total anticipated loss is recognized
immediately. Contract costs include all direct material, labor and
subcontracting costs and those indirect costs related to contract performance,
such as supplies, tools and repairs.
The Company recognizes revenue from certain short-term contracts using
the completed contract method. Revenue is recognized when a project is
substantially complete. The contracts under this revenue recognition method are
typically less than three months in duration.
The Company historically has experienced quarterly fluctuations in its
operating results. Operating results in any quarter are dependent upon the
timing of equipment and system sales, which may vary considerably among periods.
The Company's results of operations are affected by certain conditions
outside the Company's control, including overall economic conditions and
specifically the demand for industrial products and services. The Company's
results of operations for the nine months ended September 30, 1998 were
adversely affected by the Company's internal focus following the October 1997
merger with Astrotech.
On November 12, 1998, the Company announced actions currently underway
to restructure its management organization, reduce its underlying cost structure
and refocus the Company's efforts on providing superior customer service in
order to return the Company to its historical level of profitability and growth.
These actions include a multi-step strategic plan designed to enhance future
operations which was developed based on an in-depth review of the Company's
operations and systems.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997
Revenues
Revenues for the three months ended September 30, 1998 decreased $187
from the three months ended September 30, 1997 primarily due to decreased
revenues for the process group which was partially offset by increased revenues
from internal growth by the storage systems group and by the August 1997
acquisition of Exell, Inc. ("Exell"), the April 1998 acquisition of Reliable
Steel Fabricators, Inc. ("Reliable") and the June 1998 acquisition of G.L.M.
Tanks and Equipment, Ltd. ("GLM").
10
<PAGE> 11
Cost of Revenues
Cost of revenues for the three months ended September 30, 1998
decreased $146.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended
September 30, 1998 increased by $1,335 primarily due to a full quarter of
expense from the Exell, Reliable and GLM acquisitions.
Depreciation and Amortization
Depreciation and amortization expense for the three months ended
September 30, 1998 increased $82 primarily due to a full quarter of expense from
the Exell, Reliable and GLM acquisitions.
Merger, Acquisition and Strategic Charges
For the three months ended September 30, 1998, the Company recorded
nonrecurring merger, acquisition and strategic charges totaling $8,800.
Merger and acquisition costs of $15 related to acquisition activity.
The Company incurred a strategic charge of $8,785. The charge included
the costs, estimated as incremental job costs, to combine the operations of the
Company and Astrotech including losses associated with two plant closings and
business integration and reorganization costs. The Company also incurred
severance costs and other benefits associated with employee terminations,
including that of the Company's former president and chief operating officer,
and legal and accounting services fees. A small amount of additional future
costs are expected to be incurred and be recognized in the fourth quarter of
1998 and the first quarter of 1999.
Interest Expense, net
Interest expense for the three months ended September 30, 1998 and 1997
was $1,723 and $1,247, respectively. The increase in interest expense is a
result of higher overall debt balances in 1998 resulting from the GLM and
Reliable acquisitions.
Income Taxes
The effective tax rate for the three months ended September 30, 1998
and 1997 was approximately 37% and 39%, respectively.
Discontinued Operations
During August 1997 and effective on August 31, 1997, management of ITEQ
adopted plans to discontinue certain of its low margin generic fabrication
operations at its Allied subsidiary. Allied has ceased operations and the net
receivables/payables are expected to be settled in the fourth quarter of 1998.
The loss from these discontinued operations for the three months ended September
30, 1997 and September 30, 1998 was $1,965 and $804, respectively, net of $1,086
and $452 income tax benefit, respectively.
11
<PAGE> 12
During September 1998 and effective on September 30, 1998, management
of ITEQ adopted plans to discontinue the operations of its filtration group.
Management intends to sell the filtration group businesses over the next year.
The earnings (loss) from these discontinued operations for the three months
ended September 30, 1997 and September 30, 1998 was $904 and $(2,723),
respectively, net of $466 and $(1,565) income tax provision (benefit),
respectively.
Extraordinary Loss
During the quarter ended September 30, 1997, the Company repaid its
unsecured subordinated notes using available proceeds under its revolving credit
facility. The Company incurred a non-cash extraordinary loss of $2,037 net of
taxes of $1,145, related to the write-off of unamortized debt issuance and
discount costs.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1997
Revenues
Revenues for the nine months ended September 30, 1998 increased $26,347
from the nine months ended September 30, 1997 primarily due to increased
revenues from internal growth by the storage systems group and by the May 1997
acquisition of Trusco, the August 1997 acquisition of Exell, the April 1998
acquisition of Reliable and the June 1998 acquisition of GLM, partially offset
by decreased revenues for Graver.
Cost of Revenues
Cost of revenues for the nine months ended September 30, 1998 increased
$19,444 primarily due to the increased revenues as discussed above.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the nine months ended
September 30, 1998 increased by $2,222 primarily attributable to acquisitions.
Depreciation and Amortization
Depreciation and amortization expense for the nine months ended
September 30, 1998 increased by $388 primarily attributable to acquisitions.
Merger, Acquisition and Strategic Charges
For the nine months ended September 30, 1998, the Company recorded
nonrecurring merger, acquisition and strategic charges totaling $9,839 of which
$8,800 was recorded in the third quarter.
Merger and acquisition costs of $1,054 related to the terminated
purchase agreement with Matrix Service Company and the termination of the
proposed tender offer for McConnell Dowell Corporation Limited and other
acquisition related activity.
The Company incurred a strategic charge of $8,785. The charge included
the costs, estimated as incremental job costs, to combine the operations of the
Company and Astrotech including losses associated with two plant closings and
business integration and reorganization costs. The Company also incurred
severance costs and other benefits associated with employee terminations,
including that of the Company's former president and chief operating officer,
and legal and accounting services fees. A small amount of additional future
costs are expected to be incurred and be recognized in the fourth quarter of
1998 and the first quarter of 1999.
12
<PAGE> 13
Interest Expense, net
Interest expense for the nine months ended September 30, 1998 and 1997
was $4,257 and $4,312, respectively. The decrease in interest expense reflects
the application of the net proceeds of the May 1997 stock offering to reduce
debt and the refinancing of existing credit facilities in October 1997 in
connection with the merger with Astrotech substantially offset by additional
interest expense for increased debt balances resulting from the GLM and Reliable
acquisitions.
Income Taxes
The effective tax rate for the nine months ended September 30, 1998 and
1997 was approximately 37% and 39%, respectively.
Discontinued Operations
During August 1997 and effective on August 31, 1997, management of ITEQ
adopted plans to discontinue certain of its low margin generic fabrication
operations at its Allied subsidiary. Allied has ceased operations and the net
receivables/payables are expected to be settled in the fourth quarter of 1998.
The loss from these discontinued operations for the nine months ended September
30, 1997 and September 30, 1998 was $2,789 and $1,259, respectively, net of
$1,511 and $708 income tax benefit, respectively.
During September 1998 and effective on September 30, 1998, management
of ITEQ adopted plans to discontinue the operations of its filtration group.
Management intends to sell the filtration group businesses over the next year.
The earnings (loss) from these discontinued operations for the three months
ended September 30, 1997 and September 30, 1998 was $1,902 and ($2,314),
respectively, net of $1,000 and $(1,330) income tax provision (benefit),
respectively.
Extraordinary Loss
During the quarter ended September 30, 1997, the Company repaid its
unsecured subordinated notes using available proceeds under its revolving credit
facility. The Company incurred a non-cash extraordinary loss of $2,037 net of
taxes of $1,145, related to the write-off of unamortized debt issuance and
discount costs.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company's cash position was $5,462 compared
with $9,681 at December 31, 1997. Net working capital at September 30, 1998 was
$75,175 compared to $64,531 at December 31, 1997.
The Company's existing capital resources consist of cash balances and
cash provided by its operating activities. The Company's operating activities
used $11,166 in cash during the nine months ended September 30, 1998. Cash used
by operations includes cash payments of $7,360 for merger, acquisition and
strategic charges which were accrued as of December 31, 1997.
The Company's cash requirements consist of its general working capital
needs, capital expenditures, obligations under its leases and indebtedness, and
capital required for future acquisitions. The Company's general working capital
requirements consist of salary costs and related overhead and the purchase price
of materials and components, and may also include subcontracts with respect to
which such costs are incurred. Management anticipates that the Company will make
capital expenditures of approximately $6,000 in 1998 as compared to
approximately $5,377 in 1997.
13
<PAGE> 14
In October 1997, in connection with the merger with Astrotech, the
Company refinanced its and Astrotech's existing credit facilities under a new
non-amortizing revolving credit facility with various financial institutions
with a commitment amount of up to $175,000 maturing in October 2002 and bearing
interest, at the Company's option, at BankBoston, N.A.'s ("BankBoston")
customary base rate or at BankBoston's Eurodollar rate plus, in either case, an
agreed upon margin ranging from 0% to 2.5% for the applicable base rate margin,
and from 1% to 1.75% for the applicable Eurodollar rate margin. This credit
facility is secured by substantially all of the assets of the Company, a pledge
of the stock of the Company's domestic subsidiaries and guarantees entered into
by such subsidiaries.
The Company's credit facility requires the Company to maintain certain
levels of working capital and stockholders' equity and contains other
restrictive covenants. This instrument also limits the ability of the Company to
incur additional indebtedness and to make acquisitions and certain investments.
As of September 30, 1998, the Company was not in compliance with the leverage
ratio and the interest coverage ratio covenants of its loan agreement.
Management is currently negotiating an amendment which is expected to be in
place by year end and therefore this debt continues to be classified as
noncurrent in the accompanying consolidated balance sheets.
Except with respect to funding any future acquisitions, management
believes that cash generated from operations will be sufficient to meet the
Company's anticipated cash requirements for 1998. Management further believes
that the Company could obtain additional capital to make acquisitions primarily
through either issuances of common or preferred stock or debt or lease
financing, although no assurance can be given with respect to whether such
financing would be available when required or whether such financing can be
obtained on terms acceptable to the Company.
YEAR 2000 ISSUE
The Company is facing the Year 2000 issue which arises from the past
practice of utilizing two digits (as opposed to four) to represent the year in
some computer programs and software and could result in computational or
operational errors as dates are compared across the century boundary. The Year
2000 problem could result in system failures or miscalculations causing
disruptions of the operations of the Company, its vendors and its customers.
The Company has developed a multi-phase plan to resolve potential Year
2000 problems relating to its information technology ("IT") systems and embedded
chip technology contained in certain of its facilities and a limited number of
products it produces, including identifying and evaluating all IT systems and
embedded chip technology according to their potential business impact;
identifying IT systems and embedded chip technology that use date functions and
assessing them for Year 2000 functionality; reprogramming or replacing
equipment/systems, where necessary, to ensure Year 2000 readiness; testing the
code modifications and new equipment/systems to ensure successful operation in a
post-1999 environment; and adoption of contingency plans in the case of
potential Year 2000 failures. The Company currently is in the process of
identifying IT systems and embedded chip technology utilizing date functions and
assessing them for Year 2000 compliance. The Company expects remediation of most
of its critical systems and embedded chip technology to be completed by June 30,
1999.
The Company relies on numerous third-party vendors and suppliers for a
wide variety of goods and services, including raw materials, banking,
telecommunications and utilities such as water and electricity. Many of the
Company's operations would be adversely affected if these supplies and services
were curtailed as a result of a supplier's Year 2000 noncompliance. The Company
is currently contacting its third party vendors to ensure that they have an
effective plan in place to address the Year 2000 problem. The Company, however,
has received little information from these vendors to date and does not have
sufficient information to assess whether its external relationships will be Year
2000 ready. The
14
<PAGE> 15
Company intends to make further communications in January 1999 with those
vendors who do not respond to the Company by December 31, 1998.
The Company currently estimates that its Year 2000 costs will not
exceed $500, of which approximately $200 is expected to be spent through
December 31, 1998. Certain of these costs may or may not be recurring. The
Company expects cash flow from operations to be sufficient to fund these
expenditures.
If the Company's Year 2000 issues were unresolved, potential
consequences would include, among other possibilities, the inability to
accurately and timely process customers' orders, process financial transactions,
bill customers, or report accurate data to management, shareholders, customers,
and others as well as business interruptions or shutdowns, financial losses, and
litigation related to Year 2000 issues.
The Company is developing contingency/recovery plans aimed at ensuring
the continuity of critical business functions before and after December 31,
1999. As part of that process, the Company plans to develop reasonably likely
failure scenarios for its critical IT systems and external relationships and the
embedded systems in its critical facilities. Once these scenarios are
identified, the Company will develop plans that are designed to reduce the
impact on the Company, and provide methods of returning to normal operations, if
one or more of those scenarios occur. The Company cannot guarantee that it will
be able to resolve all of its Year 2000 issues. The Company expects
contingency/recovery planning to be substantially complete by September 30,
1999.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. All statements other than statements of
historical facts included in the preceding discussion regarding the Company's
financial position, business strategy, and plans of management for future
operations are forward-looking statements. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
15
<PAGE> 16
PART II --- OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
As of September 30, 1998, the Company was not in compliance with the
leverage ratio and the interest coverage ratio covenants of its loan agreement.
Management is currently negotiating an amendment which is expected to be in
place by year end and therefore this debt continues to be classified as
noncurrent in the accompanying consolidated balance sheets.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
(a) EXHIBITS:
<S> <C>
3.1 -- Amended and Restated Certificate of Incorporation
of the Registrant. (Filed as Appendix E to the Joint
Proxy Statement/Prospectus of the Registrant and
Astrotech on October 3, 1997 and incorporated herein
by reference).
3.2 -- Amended and Restated Bylaws of the Registrant.
(Filed as an exhibit to Form 10-Q for the quarter
ended September 30, 1997 and incorporated herein by
reference).
4.1 -- See Exhibits 3.1 and 3.2 for provisions of the
Certificate of Incorporation and Bylaws of the
Registrant defining the rights of holders of Common
Stock.
4.2 -- Revolving Credit Agreement dated as of October 28,
1997 by and among the Registrant, the Guarantors and
various lending institutions including Deutsche Bank
AG as Documentation Agent and BankBoston, N.A. as
Agent. (Filed as an exhibit to Form 10-Q for the
quarter ended September 30, 1997 and incorporated
herein by reference).
4.3 -- Warrant Agreement, dated November 18, 1996, between
the Registrant and International Mezzanine Capital,
B.V. ("Mezzanine"). (Filed as an exhibit to Form 8-K
dated December 5, 1996 and incorporated herein by
reference).
4.4 -- Warrant Agreement dated November 18, 1996, between
the Registrant and First Commerce Corporation ("First
Commerce"). (Filed as an exhibit to Form 8-K dated
December 5, 1996 and incorporated herein by
reference).
4.5 -- Registration Rights Agreement dated November 18,
1996, among the Registrant, Mezzanine, and First
Commerce. (Filed as an exhibit to Form 8-K dated
December 5, 1996 and incorporated herein by
reference).
4.6 -- Rights Agreement dated as of September 4, 1998
between ITEQ, Inc. and Harris Trust Savings Bank, as
Rights Agent, which includes as Exhibit C thereto the
Form of Right Certificate. (Filed as an exhibit to
Form 8-K filed September 15, 1998 and incorporated
herein by reference.)
*10.1 -- Severance Agreement dated September 17, 1998 between
the Registrant and John Camardella.
*27 -- Financial Data Schedule.
- -------------
* Filed herewith.
</TABLE>
(b) REPORTS ON FORM 8-K.
During the quarter ended September 30, 1998, the Company filed a Form
8-K dated September 15, 1998, with respect to the Shareholder Rights
Plan.
16
<PAGE> 17
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.
ITEQ, INC.
Date: November 16, 1998 /s/ Lawrance W. McAfee
--------------------------------
Lawrance W. McAfee
Executive Vice President and
Chief Financial Officer
Date: November 16, 1998 /s/ Kathryn S. Henderson
--------------------------------
Kathryn S. Henderson
Corporate Controller
17
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ----------
<S> <C>
*10.1 -- Severance Agreement dated September 17, 1998 between the
Registrant and John Camardella.
*27 -- Financial Data Schedule.
- -------------
* Filed herewith.
</TABLE>
<PAGE> 1
EXHIBIT 10.1
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT, dated as of the 17th day of September, 1998,
is by and between ITEQ, Inc., a Delaware corporation (the "Company"), and John
Camardella ("Employee").
In consideration of the payments described below, the agreements set
forth in this Agreement and other good and valuable consideration, the adequacy,
mutuality, receipt and sufficiency of which are hereby acknowledged, the Company
and Employee hereby agree as follows:
1. Employment Agreement. The employment agreement, dated as of April
28, 1998, between ITEQ, Inc. and Employee ("Employment Agreement") is hereby
terminated in its entirety, and neither party shall have any further rights,
duties or obligations arising thereunder or any way attributable thereto except
as otherwise specifically provided herein.
2. Obligations of Employee.
a. Transition Services. Employee shall continue to be an
employee of the Company through September 20, 1998 (the "Termination Date").
Until the Termination Date, Employee, while not full time, shall assist, as
required by the Company, in effecting an orderly management transition of the
Company.
b. Company Property. Immediately upon the Termination Date,
Employee shall turn over to the Company any and all Company property which (i)
is then in his possession or under his custody or control and (ii) has not
otherwise been provided for in this Agreement.
c. No Raid. In consideration of the payments and other
benefits to be received by Employee pursuant to Section 3 hereof, until
September 20, 1999, (i) Employee shall not either in the Employee's individual
capacity or as agent for another, hire or offer to hire or entice away any
person who has been an officer, employee, or agent of the Company at any
time during the
<PAGE> 2
immediately preceding year or in any other manner persuade or attempt
to persuade any of such persons to discontinue their relationship with the
Company or any of its affiliates, nor divert or attempt to divert from the
Company or any of its affiliates any business whatsoever by influencing or
attempting to influence any customer or supplier of the Company or any of its
affiliates to diminish or discontinue its business with the Company or such
affiliate.
d. Resignation; Releases. Contemporaneously with execution of this
Agreement, Employee has executed and delivers to the Company the resignation in
the form attached hereto as Exhibit A; and the Company and the Employee have
executed and delivered to each other at the Termination Date the Releases in the
forms attached hereto as Exhibits B and C.
e. Confidentiality. From and after the date hereof, Employee agrees not
to disclose to any third person or use for any purpose any of the Company's
Proprietary Information (as hereinafter defined). For purposes of this
Agreement, "Proprietary Information" shall mean any information, data, records,
reports, documents and agreements relating to the Company, its subsidiaries, its
and their respective businesses or any Company representative disclosed to or
received by Employee (including, without limitation, customer lists, price
discounts, sales information, Company methods of doing business, accounting
procedures, production methods, engineering designs and any other items that are
not published for general distribution to the public); provided that
"Proprietary Information" shall not include (i) information which is or becomes
generally available to the public other than as a result of a disclosure in
violation of this Agreement and (ii) information disclosed pursuant to any
applicable law, rule, regulation or order. Employee agrees to keep the terms and
conditions of this Agreement confidential; provided that Employee may disclose
the terms of this
2
<PAGE> 3
agreement to his spouse, attorney and/or accountant if he obtains the prior
agreement of such person to hold such information in confidence.
f. Disparaging Remarks. The Company and the Employee agree not
to make any statements, written or oral, intended to in any way injure the
reputation, goodwill or other business interests of the other.
3. Obligations of the Company.
a. Severance Payment. Subject to the last sentence of the
paragraph 3(a), within ten days after the Termination Date, the Company shall
deliver to Employee the amount of $300,000 (the "Payment") by check, or by wire
transfer to an account designated by Employee in writing. The Payment shall be
in full satisfaction of, and Employee hereby waives any and all rights to
receive any and all amounts otherwise owed by the Company to Employee including,
without limitation, any unpaid salary, bonus or severance payments. Employee
acknowledges and agrees that all applicable withholding deduction, including
those for benefits, FICA and income taxes, shall be withheld from the Payment.
b. Other Benefits. Employee shall be entitled to participate
in the Company's stock purchase, stock option, 401(k) and any other incentive
compensation plans through the Termination Date. Thereafter, Employee's rights
with respect to each such plan shall be as specified in the plan, and by
applicable law. The Company will provide copies of such plans, or summaries of
their economic terms, to Employee at Employee's request.
4. Bridge Loan. Company and Employee agree that, anything else in this
Agreement to the contrary notwithstanding, Employee acknowledges the outstanding
$215,000 unsecured bridge loan (the "Bridge Loan") extended by the Company to
Employee to purchase the real estate on
3
<PAGE> 4
which his Houston residence (the "Home," which is presently under construction
in Fort Bend County, Texas) is situated. Employee recognizes that Employer has
reimbursed Employee $48,750.00 for moving expenses plus the tax gross-up thereon
of $18,662.00. Employer is hereby released from any additional obligation
related to Employee's moving expenses or tax gross-up thereon. Employer hereby
forgives $150,000.00 of the bridge loan. The $65,000 balance of the bridge loan
shall be deducted from the $300,000 payable to Employee under paragraph 3(a),
thereby making the amount due Employee $235,000 subject to the deductions
described in the last sentence of paragraph 3(a).
5. Severability. If any provision of this Agreement shall be adjudged
by a court of competent jurisdiction to be void or unenforceable, that finding
shall in no way effect any other provision of this Agreement or the validity or
enforceability of this Agreement.
6. Further Assurances; Future Cooperation. Each party to this Agreement
agrees to do such things as may be reasonably requested by the other party to
this Agreement in order more effectively to consummate or document the
transactions contemplated by this Agreement.
7. Binding Agreement; Captions. This Agreement is binding upon, and
shall inure to the benefit of, the parties to this Agreement and their
respective legal representatives, heirs, devisees, legatees, successors and
assigns. Titles and captions of or in this Agreement are inserted only as a
matter of convenience and for reference and in no way effect the scope of this
Agreement or the intent of its provisions.
8. Entire Agreement. This Agreement constitutes the entire agreement of
the parties hereto with respect to the subject matter hereof, supersedes all
prior agreements of any of the parties
4
<PAGE> 5
to this Agreement with respect to its subject matter, including, without
limitation, the Employment Agreement, and may not be amended except in writing
signed by both parties.
9. Binding Arbitration. Should any dispute arise between the parties
with respect to this Agreement or the rights, duties and obligations of the
parties hereunder, each of the parties irrevocably agrees that the exclusive
remedy of each of them shall be to commence binding arbitration proceedings
under the rules of the American Arbitration Association, with any such
arbitration proceeding to be conducted in Houston, Texas, applying the
substantive law of the State of Texas. Each party agrees to deposit with the
neutral arbitrator an amount equal to 50% of the arbitrator's preliminary
estimate of the costs of arbitration (excluding counsel fees) as security for
costs. Actual costs of arbitration (including counsel fees of both parties)
shall be apportioned by the arbitrator in such a manner as he shall deem
equitable in light of any financial award.
10. Miscellaneous. Failure of any party to this Agreement at any time
or times to require the performance of any provision of this Agreement shall in
no manner affect the right to enforce the same; and the waiver by any party to
this Agreement of any provision (or a breach of any provision) of this
Agreement, whether by conduct or otherwise, shall not be deemed or construed
either as a further or continuing waiver of any such provision or breach or as a
waiver of any other provision (or a breach of any other provision) of this
Agreement. This Agreement shall be governed by, construed and enforced in
accordance with the laws of the State of Texas.
5
<PAGE> 6
IN WITNESS WHEREOF, this Severance Agreement is executed as of the 17th
day of September, 1998.
ITEQ, INC.
By: /s/ MARK E. JOHNSON
----------------------------------
Mark E. Johnson,
Chairman of the Board and
Chief Executive Officer
JOHN CAMARDELLA
/s/ JOHN CAMARDELLA
-------------------------------------
6
<PAGE> 7
EXHIBIT A
RESIGNATION
September 20, 1998
ITEQ, Inc.
2727 Allen Parkway
Suite 760
Houston, Texas 77019
Attention: Chairman of the Board
Gentlemen:
I hereby resign as the President and a director of ITEQ, Inc. and from
any office, directorship or other position that I hold with any subsidiary or
affiliate of ITEQ, Inc., in each case effective immediately.
Very truly yours,
/s/ JOHN CAMARDELLA
-----------------------------------
John Camardella
<PAGE> 8
EXHIBIT B
RELEASE
For and in consideration of the sum of One Dollar and other good and
valuable consideration in hand paid to John Camardella ("Employee") by ITEQ,
Inc. ("Company"), the receipt of which is hereby acknowledged, and the
sufficiency of which is hereby confessed, Employee has remised, released, and
forever discharged and by these presents does remise, release and forever
discharge the said Company and each of its subsidiaries and affiliates and the
directors, officers, agents, representatives, and employees of each of them, and
its and their successors and assigns (collectively, the "Released Parties") of
and from all, and all manner of action, and actions, cause and causes of action,
suits, dues, accounts, reckonings, bonds, bills, specialties, covenants,
contracts, controversies, agreements, promises, variances, trespasses, damages,
judgments, executions, claims and demands whatsoever, in law or in equity,
against the Released Parties which Employee ever had, now have or which his
assigns, hereafter can, shall or may have, for, upon or by reason of any matter,
cause or thing whatsoever from the beginning of the world to the date of these
presents.
This release shall not, however, affect the obligations of the Company
(i) under that certain Severance Agreement dated as of September 17, 1998, by
and between Employee and the Company or (ii) under the Company's charter, bylaws
or any preexisting contractual indemnity agreement between the Company and
Employee.
Executed and Effective as of the 20th day of September, 1998.
/s/ JOHN CAMARDELLA
---------------------------------------
John Camardella
<PAGE> 9
EXHIBIT C
RELEASE
For and in consideration of the sum of One Dollar and other good and
valuable consideration in hand paid to ITEQ, Inc. (the "Company) by John
Camardella (the "Employee"), the receipt of which is hereby acknowledged, and
the sufficiency of which is hereby confessed, Employee has remised, released,
and forever discharged and by these presents does remise, release and forever
discharge Employee, his personal representatives and heirs and their successors
and assigns (collectively, the "Released Parties") of and from all, and all
manner of action, and actions, cause and causes of action, suits, dues,
accounts, reckonings, bonds, bills, specialties, covenants, contracts,
controversies, agreements, promises, variances, trespasses, damages, judgments,
executions, claims and demands whatsoever, in law or in equity, against the
Released Parties which the Company ever had, now have or which its assigns,
hereafter can, shall or may have, for, upon or by reason of any matter, cause or
thing whatsoever from the beginning of the world to the date of these presents.
This release shall not, however, affect the obligations of the Employee
under that certain Severance Agreement dated as of September 17, 1998, by and
between Employee and the Company.
Executed and Effective as of the 20th day of September, 1998.
ITEQ, INC.
By: /s/ MARK E. JOHNSON
----------------------------------------
Mark E. Johnson
Chairman and Chief Executive Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 5,462
<SECURITIES> 0
<RECEIVABLES> 72,710
<ALLOWANCES> 0
<INVENTORY> 17,683
<CURRENT-ASSETS> 139,128
<PP&E> 49,453
<DEPRECIATION> 0
<TOTAL-ASSETS> 287,820
<CURRENT-LIABILITIES> 63,953
<BONDS> 0
0
0
<COMMON> 28
<OTHER-SE> 100,295
<TOTAL-LIABILITY-AND-EQUITY> 287,820
<SALES> 224,940
<TOTAL-REVENUES> 224,940
<CGS> 172,197
<TOTAL-COSTS> 172,197
<OTHER-EXPENSES> 42,897
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,257
<INCOME-PRETAX> 5,705
<INCOME-TAX> 2,082
<INCOME-CONTINUING> 3,623
<DISCONTINUED> (3,573)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,411
<SECURITIES> 0
<RECEIVABLES> 36,330
<ALLOWANCES> 0
<INVENTORY> 6,663
<CURRENT-ASSETS> 73,847
<PP&E> 15,100
<DEPRECIATION> 0
<TOTAL-ASSETS> 139,023
<CURRENT-LIABILITIES> 38,654
<BONDS> 0
0
0
<COMMON> 17
<OTHER-SE> 56,777
<TOTAL-LIABILITY-AND-EQUITY> 139,023
<SALES> 198,593
<TOTAL-REVENUES> 198,593
<CGS> 152,753
<TOTAL-COSTS> 152,753
<OTHER-EXPENSES> 30,448
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,312
<INCOME-PRETAX> 11,489
<INCOME-TAX> 4,488
<INCOME-CONTINUING> 7,001
<DISCONTINUED> (887)
<EXTRAORDINARY> (2,037)
<CHANGES> 0
<NET-INCOME> 4,077
<EPS-PRIMARY> .17
<EPS-DILUTED> .16
</TABLE>
