FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1996
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
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SECURITIES ACT OF 1934
For the transition period from to
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Commission File Number 033-17921
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Air & Water Technologies Corporation
__________________________________________________________
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3418759
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(State or other Jurisdiction (I.R.S. Employer Identification Number)
of Corporation)
U.S. Highway 22 West and Station Road, Branchburg, NJ 08876
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(Address of Principal Executive Offices)
Telephone: (908) 685-4600
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 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
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of January 31, 1996.
Class A
$.001 Par Value Common Stock 32,018,004
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(Title of Class) (Number of Shares Outstanding)
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
AIR & WATER TECHNOLOGIES CORPORATION
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CONSOLIDATED BALANCE SHEETS AS OF JANUARY 31, 1996 AND OCTOBER 31, 1995
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(in thousands , except share data)
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[CAPTION]
ASSETS 1996 1995
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(unaudited)
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CURRENT ASSETS:
Cash and cash equivalents $ 11,210 $ 11,168
Accounts receivable, net 98,283 102,360
Costs and estimated earnings in excess of
billings on uncompleted contracts 40,400 44,730
Inventories 12,644 13,047
Prepaid expenses and other current assets 12,357 10,806
Net current assets of discontinued operations 917 1,029
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Total current assets 175,811 183,140
PROPERTY, PLANT AND EQUIPMENT, net 37,576 37,498
INVESTMENTS IN ENVIRONMENTAL TREATMENT FACILITIES 22,449 22,545
DEFERRED DEBT ISSUANCE COSTS 3,288 3,334
GOODWILL 274,498 276,549
NET NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS 580 580
OTHER ASSETS 24,499 24,271
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Total assets $ 538,701 $ 547,917
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LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES:
Current installments of long-term debt $ 353 $ 366
Accounts payable 63,126 65,425
Accrued expenses 94,225 101,278
Billings in excess of costs and estimated earnings on
uncompleted contracts 25,607 25,862
Income taxes payable 2,768 2,777
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Total current liabilities 186,079 195,708
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LONG-TERM DEBT 293,565 289,120
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 authorized, 2,500,000
shares;issued 1,200,000 shares; liquidation value
$60,000 12 12
Common stock par value $.001 authorized 100,000,000
shares; issued 32,107,906 shares 32 32
Additional paid-in capital 427,028 427,028
Accumulated deficit (367,635) (363,865)
Common stock in treasury, at cost (108) (108)
Cumulative currency translation adjustment (272) (10)
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Total stockholders' equity 59,057 63,089
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Total liabilities and stockholders' equity $ 538,701 $ 547,917
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The accompanying notes are an integral part of these statements.
AIR & WATER TECHNOLOGIES CORPORATION
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CONSOLIDATED STATEMENTS OF OPERATIONS
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FOR THE THREE MONTH PERIODS ENDING JANUARY 31, 1996 AND 1995
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(in thousands, except share data)
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(unaudited)
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Three Months
Ending January 31
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1996 1995
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SALES $159,206 $148,451
COST OF SALES 122,351 112,239
Gross margin 36,855 36,212
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 29,063 33,008
DEPRECIATION AND AMORTIZATION 4,929 4,329
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Operating income (loss) 2,863 (1,125)
INTEREST EXPENSE (5,614) (5,722)
INTEREST INCOME 260 121
OTHER EXPENSE, NET (131) (358)
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Loss before income taxes
and minority interest (2,622) (7,084)
INCOME TAXES 323 293
MINORITY INTEREST - 16
NET LOSS $ (2,945) $ (7,393)
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LOSS PER COMMON SHARE
(AFTER PREFERRED STOCK DIVIDENDS) (.12) (.26)
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Weighted average number of shares
outstanding 32,018 32,018
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The accompanying notes are an integral part of these statements.
AIR & WATER TECHNOLOGIES CORPORATION
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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FOR THE THREE MONTH PERIODS ENDING JANUARY 31, 1996 AND 1995
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(in thousands)
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(unaudited)
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1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,945) $ (7,393)
Adjustments to reconcile net loss to net cash provided
by (used for) continuing operations -
Depreciation and amortization 4,929 4,329
Other, net 269 194
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2,253 (2,870)
Changes in assets and liabilities -
(Increase) decrease in assets -
Accounts receivable 4,077 (4,884)
Costs and estimated earnings in excess of
billings on uncompleted contracts 4,330 1,812
Inventories 403 338
Prepaid expenses and other current assets (3,904) 193
Other assets 76 (1,286)
Increase (decrease) in liabilities -
Accounts payable (2,307) 1,999
Accrued expenses (5,953) (10,169)
Billings in excess of costs and estimated
earnings on uncompleted contracts (255) (4,432)
Income taxes (9) 391
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Net cash used for continuing operations (1,289) (18,908)
Net cash provided by (used for) discontinued operations 112 (277)
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Net cash used for operating activities (1,177) (19,185)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of business 2,353 11,588
Capital expenditures (1,983) (1,429)
Investment in environmental treatment facilities 215 (43)
Other, net (2,052) (1,209)
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Net cash provided by (used for) investing activities (1,467) 8,907
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of notes payable and long-term debt (68) (63)
Net borrowings under credit facilities 4,500 11,641
Cash dividends paid (825) (825)
Other, net (921) (1,962)
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Net cash provided by financing activities 2,686 8,791
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Net increase (decrease) in cash and cash equivalents 42 (1,487)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 11,168 11,021
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,210 $ 9,534
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 7,497 $ 7,593
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The accompanying notes are an integral part of these statements.
AIR & WATER TECHNOLOGIES CORPORATION
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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
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JANUARY 31, 1996
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(unaudited)
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(1) Basis of Presentation:
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The interim consolidated financial statements and the
following notes should be read in conjunction with the notes
to the consolidated financial statements of Air & Water
Technologies Corporation and its consolidated subsidiaries
(the "Company") as included in its Form 10-K filed with the
Securities and Exchange Commission for the fiscal year ended
October 31, 1995. The interim information reflects all
adjustments, including normal recurring accruals, which are,
in the opinion of management, necessary for a fair
presentation of the results for the interim period. Results
for the interim period are not necessarily indicative of
results to be expected for the full year.
(2) Commitments and Contingencies:
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The Company and its subsidiaries are parties to various
legal actions arising in the normal course of their
businesses, some of which involve claims for substantial
sums. The Company believes that the disposition of such
actions, individually or in the aggregate, will not have a
material adverse effect on the consolidated financial
position or results of operations of the Company taken as a
whole.
(3) Reclassifications:
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Certain reclassifications have been made to conform the 1995
consolidated financial statements to the 1996 presentation.
ITEM II.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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The following information should be read in conjunction with the
unaudited interim consolidated financial statements and the notes
thereto included in this Quarterly Report and the audited
financial statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in the
Company's Form 10-K filed with the Securities and Exchange
Commission for the fiscal year ended October 31, 1995.
Results of Operations
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Summarized below is certain financial information relating to the
core segments of the Company (in thousands):
Three Months Ended January 31
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1996 1995
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Sales:
PSG (Contract Operations) $ 64,034 $ 41,785
Metcalf & Eddy 47,138 51,185
Research - Cottrell 48,649 54,072
Other and eliminations (615) 1,409
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$159,206 $148,451
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Cost of Sales:
PSG (Contract Operations) $ 56,676 $ 35,086
Metcalf & Eddy 27,800 31,879
Research - Cottrell 38,490 44,532
Other and eliminations (615) 742
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$122,351 $112,239
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Selling, General and Administrative Expenses:
PSG (Contract Operations) $ 3,478 $ 3,396
Metcalf & Eddy 15,612 17,901
Research - Cottrell 8,320 8,489
Other and eliminations - 542
Corporate (unallocated) 1,653 2,680
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$ 29,063 $ 33,008
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Depreciation and Amortization:
PSG (Contract Operations) $ 1,964 $ 1,285
Metcalf & Eddy 1,464 1,336
Research - Cottrell 1,389 1,466
Other and eliminations - 92
Corporate (unallocated) 112 150
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$ 4,929 $ 4,329
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Operating Income (Loss):
PSG (Contract Operations) $ 1,916 $ 2,018
Metcalf & Eddy 2,262 69
Research - Cottrell 450 (415)
Other and eliminations - 33
Corporate (unallocated) (1,765) (2,830)
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$ 2,863 $ (1,125)
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PSG (Contract Operations)
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Operating income was $1.9 million during the three month
period ended January 31, 1996 and consistent with the prior
period. The results include additional sales of $23.4
million related to the PRASA contract under which PSG
operates, maintains and manages Puerto Rico's water and
wastewater treatment facilities. The profitability of this
five-year contract is contingent upon achieving certain
incentive revenues and operating efficiencies in which a
significant amount is expected to be realized during the
later years of the contract. As a result, this contract has
not had a significant impact on PSG's current operating
income.
Metcalf & Eddy
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Operating income increased by $2.2 million during the three
month period ended January 31, 1996. The higher operating
income was attributable primarily to personnel overhead and
facilities cost reductions during the latter half of the
prior fiscal year which resulted in a decrease in selling,
general and administrative expenses of $2.3 million. Sales
decreased by $4.0 million during the three month period
ended January 31, 1996 as a result of delays in the release
of certain task orders and the severe winter weather. In
addition, estimated favorable pricing adjustments of $1.3
million offset the impact of the reduced sales volume.
Research-Cottrell
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Operating income increased by $.9 million during the three
month period ended January 31, 1996. The increase resulted
from the incremental operating income ($1.1 million) earned
in several business units, primarily, R-C International,
Custodis, Ecodyne and Flex-Kleen. These business units had
higher sales volumes of $8.8 million. In addition, REECO
generated an additional $.6 million of operating income on
slightly lower sales volume due to improved project
execution. Partially offsetting these improved results were
lower operating income generated in APCD and KVB ($1.0
million) which combined, had lower sales volume of $12.9
million. KVB's reduced volume resulted from significant
shipments and services required in the prior period to meet
the demand requirements of utility customers under the 1990
Clean Air Act. KVB continues to make progress in resolving
software issues on systems previously shipped to certain
utilities which have created problems in collecting
receivables due to claims and back-charges; it has also
continued to incur additional software, warranty and project
close-out costs in resolving this situation. APCD's reduced
sales volume and profitability reflects delays in new order
bookings in both the utility and industrial markets.
Corporate and Other
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The corporate (unallocated) selling, general and
administrative expenses decreased by $1.0 million during the
three month period ended January 31, 1996 due to cost
reduction efforts, including personnel related costs and
professional fees.
Financial Condition
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Cash used by operations for the three month period ended
January 31, 1996 amounted to $1.2 million primarily due to
cash outlays for the previously established unusual charge
reserves. The Company also utilized $3.8 million of cash
for capital expenditures, investments in environmental
treatment facilities and other investment activities during
the period. These cash requirements were funded principally
through proceeds from the prior year sale of its hazardous
waste transfer station operations and borrowings under the
Company's credit facility discussed below.
The Company has a three-year $130 million Senior Secured
Credit Facility ("Credit Facility") with First Chicago and
Societe Generale acting as co-agents for a syndicate which
includes seven additional banks. It is primarily designed to
finance working capital requirements and allow for the
issuance of letters of credit, both subject to limitations
and secured by a first security interest in substantially
all of the assets of the Company.
Of the total commitment, borrowings are limited to the sum
of a percentage of certain eligible receivables,
inventories, net property, plant and equipment and costs and
estimated earnings in excess of billings and bear interest
at LIBOR (currently 5.25%), as defined, plus .725% or at a
defined bank rate approximating prime (currently 8.25%).
The Credit Facility also allows for certain additional
borrowings, including, among other things, project financing
and foreign borrowing facilities, subject to limitations.
The Credit Facility contains certain financial and other
restrictive covenants with respect to the Company,
including, among other things, the maintenance of certain
financial ratios, and restrictions on the incurrence of
additional indebtedness, acquisitions, the sale of assets,
the payment of dividends and the repurchase of subordinated
debt. In addition, the agreement requires CGE to maintain a
minimum 40% ownership interest in the Company.
Under the Credit Facility at January 31, 1996 the Company
had outstanding borrowings of $48.0 million (capacity of
$66.5 million) and issued and outstanding letters of credit
of $20.5 million (capacity of $63.5 million). The Company
expects its operations to generate sufficient cash in the
near term to fund its estimated working capital
requirements, capital expenditures and cash outlays for the
reserves established in connection with fiscal year 1994
unusual charges. The Company believes that it has the
ability to manage its cash needs and is currently continuing
its efforts to control its expenses as well as reducing its
working capital requirements.
The businesses of the Company have not historically required
significant ongoing capital expenditures. For the three
months ended January 31, 1996 and the years ended October
31, 1995 and 1994 total capital expenditures were $2.0
million, $7.9 million and $5.5 million, respectively. At
January 31, 1996, the Company had no material outstanding
purchase commitments for capital expenditures.
PART II. OTHER INFORMATION
ITEM I. Legal Proceedings
The Company and its subsidiaries are parties to various legal
actions arising in the normal course of their businesses, some
of which involve claims for substantial sums. The Company
believes that the disposition of such actions, individually or
in the aggregate, will not have a material adverse effect on the
consolidated financial position or results of operations of the
Company taken as a whole.
ITEM 2-5
There are no reportable items under Part II, items 2 through 5.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 11. Computation of per share earnings.
Exhibit 27. Financial Data Supplement
SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf, by the undersigned thereunto duly authorized.
AIR & WATER TECHNOLOGIES CORPORATION
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(registrant)
Date February 27, 1996 /s/ Alain Brunais
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Alain Brunais
Chief Financial Officer