15.11.2002: Meldung: Ceco Environmental Corp. (CECE): Quarterly Report (engl.)
Results of Operations
The Company"s condensed consolidated statements of operations for the three-month and nine-month periods ended September 30, 2002 and September 30, 2001 reflect the operations of the Company consolidated with the operations of its subsidiaries.
Consolidated net sales for the three-months ended September 30, 2002 were $19.6 million, a decrease of $4.7 million compared to the same period in 2001. Consolidated net sales for the first nine months of 2002 were $57.0 million, a decrease of $10.1 million compared to the same period in 2001. The decrease in sales was principally due to (i.)lower customer demand resulting from the general weakness in the U.S. economy, (ii.)decreased sales associated with businesses sold totaling $0.7 million and $1.5 million during the third quarter and nine months ended September 30, 2002, and (iii.)$2.1 million and $3.4 million in the third quarter and nine months ended September 30, 2002 from the discontinuance of the specialty piping division in the third quarter of 2001. This decline was partially offset by sales from the Company"s newly established subsidiary, CECO Abatement Systems and K&B"s new division, K&B Duct, totaling $1.6 million and $4.2 million in the third quarter and nine months ending September 30, 2002. Net sales include a gain of $0.2 million from the sale of Air Purator Corporation"s assets during the third quarter of 2002.
The Company booked orders of $20.5 million during the third quarter of 2002 and $58.1 million for the first nine months of 2002, as compared to $27.2 million during the third quarter of 2001 and $74.9 million in the nine months of 2001. The decrease in bookings is partially attributable to the inclusion of a large specialty piping division contract booked in the first quarter of 2001. The piping division was discontinued during the third quarter of 2001. The Company has experienced an increase in sales quoting during the third quarter of 2002 compared with the first and second quarters of 2002. While there can be no assurances of future revenues, this increased level of activity may be a trend that is indicative of potentially higher levels of bookings later in 2002 and into 2003.
Gross profit was $3.8 million for the three-month period ended September 30, 2002, a decrease of $1.4 million compared to the same period in 2001. Gross profit as a percentage of revenues for the three-month period ended September 30, 2002 was 19.4% compared with 21.4% for the comparable period in 2001. Gross profit was $11.3 million for the first nine months of 2002, a decrease of $1.5 million compared to the same period in 2001. Gross profit as a percentage of revenues for the first nine months of 2002 was 19.8% compared with 19.0% for the comparable period in 2001. The increase in 2002 is attributable to an increased focus at all levels on project cost management yielding higher margins for Kirk & Blum and CECO Filters.
Selling and administrative expenses decreased $0.5 million during the three months ended September 30, 2002 as compared to the same period in 2001. The decrease is attributed to the Company"s cost control and a reduction in its work force. Selling and administrative expenses were $9.0 million for the first nine months of 2002, a decrease of $0.4 million compared to the same period in 2001. The Company reduced its workforce in May 2002 and again in September 2002 reflecting the consolidation of certain functions and efficiencies gained. On an annualized basis, the impact is expected to result in a savings of approximately $2.0 million, which began to be realized during the third quarter of 2002. The 2001 period included adjustments for the reversal of a contingency reserve held in connection with a customer bankruptcy ($0.2 million), and the reversal of a reserve held in conjunction with the operations discontinued in 1999 ($0.2 million).
Depreciation and amortization decreased by $0.1 million during the three months ended September 30, 2002 as compared to the same period of 2001. Depreciation and amortization decreased $0.4 million to $1.3 million in the first nine months of 2002 primarily resulting from the implementation of Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 requires that ratable amortization of goodwill and intangible assets with indefinite lives be replaced with annual tests for impairment and that intangible assets with finite lives should continue to be amortized over their useful lives. The implementation of SFAS 142 resulted in a favorable impact to results of operations of $0.4 million during the first nine months of 2002 as compared with the same period in 2001.
Other income for the first nine months of 2002 was $0.2 million compared with income of $0.4 million during the same period in 2001. The other income during the nine-month period of 2002 is the result of a fair market value adjustment during the second quarter to a liability recorded in connection with detachable stock warrants to purchase 353,334 shares of common stock at an initial exercise price of $3.60 per share. These warrants were issued along with the Company"s stock issuance of 706,668 shares of common stock on December 31, 2001 to a group of private investors. This liability is accounted for at fair market value and adjustments in future quarters could result in an increase to the liability and a corresponding charge to income. The Company no longer holds shares of Peerless stock which made up the majority of the other income earned during 2001.
Interest expense decreased by $0.2 million to $0.7 million from $0.9 million during the third quarter of 2002. Interest expense decreased $0.7 million to $2.1 million during the first nine months of 2002 compared to the same period of 2001. The decrease is principally due to lower borrowing levels and decreased rates under the bank credit facility.
Federal and state income tax benefit was $0.2 million during the third quarter of 2002 compared with a tax provision of $0.2 million for the same period in 2001. The federal and state income tax benefit in the third quarter of 2002 was adjusted to reflect the Company"s effective tax rate for 2002. The federal and state income tax benefit was $0.6 million for the first nine months of 2002, an increase of $0.2 million from the comparable period in 2001. The effective income tax rate for the nine months of 2002 was 62% compared with 55% in the same period of 2001. The effective tax rate during 2002 is affected by certain permanent differences including non-deductible interest expense. The effective income tax rate during 2001 was affected by non-deductible goodwill amortization and interest expense.
Net income for the quarter ended September 30, 2002 was $61,000 compared with a net income of $190,000 for the same period in 2001. Net loss for the nine months ended September 30, 2002 and 2001 was ($341,000) and ($268,000), respectively.
Our backlog consists of orders we have received for products and services we expect to ship and deliver within the next 12 months. Our backlog, as of September 30, 2002 was $19.8 million compared to $18.6 million as of December 31, 2001. There can be no assurances that backlog will be replicated or increased or translated into higher revenues in the future. The success of our business depends on a multitude of factors that are out of our control. Our operating results can be affected by the introduction of new products, new manufacturing technologies, rapid change of the demand for its products, decrease in average selling prices over the life of the product as competition increases and our dependence to some degree on efforts of intermediaries to sell a portion of our product.
Financial Condition, Liquidity and Capital Resources
At September 30, 2002 and December 31, 2001 cash and cash equivalents totaled $116,000 and $53,000, respectively.
Cash provided by operating activities for the nine-month period ended September 30, 2002 was $1.2 million compared to $3.9 million for the comparable period in 2001.
Total bank and related debt as of September 30, 2002 was $17.0 million as compared to $17.7 million at December 31, 2001, a decrease of $0.7 million, due to net repayments under the bank credit facilities. Unused credit availability at September 30, 2002, was $1.9 million under the bank line of credit.
The senior secured credit facility was amended in November 2002: by reducing scheduled principal payments under the Term A loan, reducing coverage requirements under the financial covenants from September 2002 through December 2003, by requiring a principal payment of $1.0 million against the Term B loan and extending the maturity date of the revolving line of credit to January 2004. The amendment also includes a provision for the reduction in the current interest rate margins based on the achievement of certain coverage levels under the financial covenant for leverage.
Investing activities used cash of $0.2 million during the first nine months of 2002 compared with cash used of $0.5 million for the same period in 2001. Capital expenditures for property and equipment, and leasehold improvements were $0.2 million for the first nine months of 2002 and were primarily for manufacturing and engineering equipment. Capital expenditures for property and equipment are anticipated to be in the range of $0.5 million to $0.7 million for 2002 and will be funded by cash from operations and/or line of credit borrowing.
On December 31, 2001, the Company issued a number of shares of common stock based upon the Company meeting a certain operating performance target. The number of shares are subject to adjustment in the event the targeted operating performance is not met. The Company does not believe it will meet the targeted operating performance. However, the number of shares will be determined as of December 31, 2002.
Financing activities used cash of $0.9 million during the first nine months of 2002 compared with cash used of $3.7 million during the same period of 2001. Current year financing activities included net payments under bank credit facilities.
We desire to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 and are making this cautionary statement in connection with such safe harbor legislation. This Form 10-Q, the Annual Report to Shareholders, Form 10-K or Form 8-K of the Company or any other written or oral statements made by or on our behalf may include forward-looking statements which reflect our current views with respect to future events and financial performance. The words "believe," "expect," "anticipate," "intends," "estimate," "forecast," "project," "should" and similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All forecasts and projections in this Form 10-Q are "forward-looking statements," and are based on management"s current expectations of our near-term results, based on current information available pertaining to us.
We wish to caution investors that any forward-looking statements made by or on our behalf are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. These uncertainties and other risk factors include, but are not limited to: changing economic and political conditions in the United States and in other countries, war, changes in governmental spending and budgetary policies, governmental laws and regulations surrounding various matters such as environmental remediation, contract pricing, and international trading restrictions, customer product acceptance, continued access to capital markets, and foreign currency risks. We wish to caution investors that other factors might, in the future, prove to be important in affecting our results of operations. New factors emerge from time to time and it is not possible for management to predict all such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or a combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Investors are further cautioned not to place undue reliance on such forward-looking statements as they speak only to our views as of the date the statement is made. We undertake no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events or otherwise.
CECO Environmental Corp.
3120 Forrer Street
Cincinnati, OH 45209
Tel. (513) 458-2600