SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934
Date of Report: September 25, 1997
(Date of earliest event reported)
CECO FILTERS, INC.
(Exact Name of Registrant as specified in Charter)
Delaware 0-17804 23-2399315
-------- ------- ----------
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification
incorporation) Number)
1027-29 Conshohocken Road, Conshohocken, PA 19428-0683
- ------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(610) 825-8585
--------------
(Registrant's telephone number, including area code)
-1-
CECO Filters, Inc. hereby amends its current report on Form 8-K
originally filed with Securities and Exchange Commission (the "Commission") on
October 9, 1997 (the "Report"), as set forth in more detail below:
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
BUSCH CO.
Pittsburgh, Pennsylvania
Report on Audit of Financial Statements
For the year ended December 31, 1996
C O N T E N T S
PAGE
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheet, December 31, 1996 2
Statements for the year ended December 31, 1996:
Operations and Retained Earnings 3
Cash Flows 4
Notes to Financial Statements 5-8
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Busch Co.
Pittsburgh, Pennsylvania
We have audited the accompanying balance sheet of Busch Co. as of December 31,
1996 and the related statements of operations and retained earnings and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Busch Co. as of December 31,
1996 and the results of its operations and cash flows for the year then ended in
conformity with generally accepted accounting principles.
As discussed in Note 3 to the financial statements, the Company is involved in
negotiations to sell certain assets and interests of the Company which represent
primarily all of the Company's operations.
Schneider Downs & Co., Inc.
Certified Public Accountants
Pittsburgh, Pennsylvania
July 3, 1997
1
BUSCH CO.
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 992,887
-----------
Accounts receivable:
Trade - contract related 1,973,817
Trade - other 225,934
Commissions 132,241
-----------
2,331,992
-----------
Cost and estimated earnings in excess of
billings on uncompleted contracts 750,942
-----------
Inventory 117,815
-----------
Advances and other prepaids 3,230
-----------
Total Current Assets 4,196,866
-----------
OTHER ASSETS 95,077
-----------
PROPERTY AND EQUIPMENT - AT COST 143,022
Less - Accumulated depreciation 59,998
-----------
83,024
-----------
$4,374,967
===========
LIABILITIES
CURRENT LIABILITIES:
Payments due within one year on long-term debt $ 48,047
Accounts payable 903,826
Billings in excess of cost and estimated earnings
on uncompleted contracts 995,002
Accrued liabilities 653,101
-----------
Total Current Liabilities 2,599,976
-----------
LONG-TERM DEBT 43,992
-----------
STOCKHOLDERS' EQUITY
COMMON STOCK
Authorized and issued 100,000 shares; stated value $.50
per share; outstanding 95,079 shares 50,000
RETAINED EARNINGS 1,777,756
-----------
1,827,756
TREASURY STOCK, at cost 96,757
-----------
1,730,999
-----------
$4,374,967
===========
See notes to financial statements.
2
BUSCH CO.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996
REVENUES $11,301,075
COST OF REVENUES 7,663,529
-----------
Gross Profit 3,637,546
-----------
OPERATING EXPENSES
General, administrative and selling 2,849,511
Interest 1,855
-----------
2,851,366
-----------
Income From Operations 786,180
OTHER INCOME 450,621
-----------
Net Income 1,236,801
RETAINED EARNINGS
Balance, Beginning of year 858,805
Distributions (317,850)
-----------
Balance, End of year $ 1,777,756
===========
See notes to financial statements.
3
BUSCH CO.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,236,801
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 17,820
Changes in assets and liabilities:
Accounts receivable (1,173,256)
Inventory (10,632)
Advances and other prepaids 23,775
Other assets (28,211)
Accounts payable 136,181
Accrued liabilities 287,654
Net increase in billings related to costs and
estimated earnings on uncompleted contracts (88,377)
----------
Net Cash Provided By Operating Activities 401,755
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment (28,515)
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 100,000
Payments on long-term debt (7,961)
Payment of distributions to shareholders (317,850)
----------
Net Cash Used in Financing Activities (225,811)
----------
Net Increase in Cash 147,429
CASH - BEGINNING OF YEAR 845,458
----------
CASH - END OF YEAR $ 992,887
==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 1,855
==========
See notes to financial statements.
4
BUSCH CO.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - ORGANIZATION
Busch Co. (the Company) designs and manufactures air handling units for
the metals industry. Also, they are manufacturer's representatives for vendors
that supply components related to this industry. The customer base includes
steel and aluminum producers worldwide and the Company extends credit to these
customers. The Company performs ongoing credit evaluations of its customers'
financial condition and, generally, requires no collateral from its customers.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies consistently applied by
management in the preparation of the accompanying financial statements follows.
Revenue recognition - Revenue from contracts is recognized on the
percentage of completion method as more fully described below. Revenue from
sales of product related to the Company's service representative and distributor
relationships is generally recognized upon shipment to customers.
Management estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash - The Company maintains cash deposits in various banks which at
times exceed federally insured amounts.
Inventory - Cost is stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
Property and equipment - Depreciation is provided on the straight-line
method over estimated useful lives. Repairs and maintenance which do not extend
the lives of the applicable assets are charged to expense as incurred. Profit or
loss resulting from the retirement or other disposition of assets is included in
income.
Patent - Included in other assets in the accompanying balance sheet is
approximately $85,000 related to patent costs. Amortization is provided on the
straight-line basis over estimated useful lives and accumulated amortization
approximated $8,000 at December 31, 1996.
Contracts - Revenues from the design and manufacture of air handling
units are recognized on the percentage of completion method, measured by the
percentage of contract costs incurred to date to estimated total contract costs
for each contract. This method is used because management considers contract
costs to be the best available measure of progress on these contracts.
5
BUSCH CO.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Contract costs include direct material, labor cost and those indirect
costs related to contract performance, such as indirect labor, supplies, tools,
repairs and depreciation costs. General and administrative costs are charged to
expense as incurred. Provisions for estimated losses on uncompleted contracts
are made in the period in which such losses are determined. Changes in job
performance, job conditions and estimated profitability may result in revisions
to contract revenue and costs and are recognized in the period in which the
revisions are made.
The asset, "costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed, the liability, "billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in excess of revenues recognized.
Income taxes - The corporation has elected to be taxed as an S
corporation. Accordingly, the taxable income or loss of the corporation is
included in the personal tax returns of the stockholders. Therefore, no
provision for federal or state income taxes is included in the accompanying
financial statements.
NOTE 3 - SUBSEQUENT EVENT
In 1997, the Company entered into a letter of intent which provides for
the transfer of certain assets, and all rights and interests of the Company. As
of the date of this report, no agreements have been consummated.
NOTE 4 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's cash and cash equivalents,
accounts receivable and note payable approximate their fair value.
NOTE 5 - CONTRACT RECEIVABLES
Contract receivables consist of the following:
Contract receivables billed:
Completed contracts $ 40,107
Contracts in progress 1,920,068
Retained 13,642
------------
$1,973,817
============
6
BUSCH CO.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 6 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings on uncompleted contracts consists of the
following:
Costs incurred on uncompleted contracts $6,286,797
Estimated earnings 3,170,062
----------
9,456,859
Less: billings to date 9,700,919
----------
($244,060)
==========
Included in the accompanying balance sheets under the following
captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 750,942
Billings in excess of costs and estimated
earnings on uncompleted contracts (995,002)
----------
($244,060)
==========
NOTE 7 - LINE OF CREDIT
The Company has a demand line of credit agreement with Mellon Bank in
the amount of $450,000 with interest at the prime rate (8.0% at December 31,
1996) plus .5%. The agreement is collateralized by inventory and equipment and
is due to expire on November 9, 1997.
In 1997, this agreement was amended to provide an additional $200,000
for issuance of letters of credit. All other terms and conditions remain the
same except that the majority stockholder has personally guaranteed this
facility.
NOTE 8 - LONG-TERM DEBT
Long-term debt is as follows:
Note payable to a bank, payable in monthly installments totaling
$4,534 including interest at 9.0% through September 9, 1998 and
a final payment of $5,417,
collateralized by accounts receivable and inventory $92,402
Less payments due within one year 48,047
----------
$44,355
==========
7
BUSCH CO.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 9 - EMPLOYEE RETIREMENT PLANS
The Company has a defined contribution profit sharing plan covering
substantially all full-time employees. Contributions to the plans are determined
annually by management. The plan also contains a participant salary reduction
and employer matching provision. The employer matching portion is limited to 6%
of eligible compensation. Total contributions to the Plan for the year ended
December 31, 1996 were approximately $64,000.
NOTE 10 - LEASES
The Company leases its corporate offices from an entity related through
common ownership. The lease provides for monthly rental payments of
approximately $11,000 and is due to expire on July 31, 1999.
In addition, the Company also leases automobiles and certain office
equipment. Total rent expense approximated $203,000 for the year ended December
31, 1996.
Following is a schedule, by year, of the future minimum rental payments
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of December 31, 1996:
1997 $214,000
1998 198,000
1999 103,000
2000 13,000
2001 2,000
--------
$530,000
========
NOTE 11 - BACKLOG
The following schedule shows a reconciliation of backlog representing
the amount of revenue the Company expects to realize from work to be performed
on uncompleted contracts in progress at December 31, 1996 and from contractual
agreements on which work has not yet begun:
Balance, December 31, 1995 $ 4,763,531
Contract adjustments 45,123
New contracts, 1996 10,930,030
------------
15,738,684
Less contract revenue recognized, 1996 9,347,755
------------
Balance, December 31, 1996 $ 6,390,929
============
As of December 31, 1996, certain contracts have been omitted from the
backlog reconciliation due to management's uncertainty as to the continuation of
these contracts. The total contract price, contract revenue recognized during
1996 and backlog associated with these contracts, amounted to approximately
$2,547,000, $104,000 and $2,443,000, respectively.
In addition, between January 1, 1997 and June 30, 1997, the Company
entered into additional contracts with a value of approximately $6,880,000.
8
BUSCH CO.
Pittsburgh, Pennsylvania
Report on Review of Financial Statements
For the six Months Ended June 30, 1997
C O N T E N T S
PAGE
INDEPENDENT ACCOUNTANTS' REVIEW REPORT 1
FINANCIAL STATEMENTS
Balance Sheet, June 30, 1997 2
Statements for the year ended June 30, 1997:
Operations and Retained Earnings 3
Cash Flows 4
Notes to Financial Statements 5-8
To the Stockholders
Busch Co.
Pittsburgh, Pennsylvania
We have reviewed the accompanying balance sheet of Busch Co. as of June 30, 1997
and the related statements of operations and retained earnings, and cash flows
for the six months then ended, in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants. All information included in these financial statements is
the representation of the management of Busch Co.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
As discussed in Note 3 to the financial statements, the Company entered into an
asset purchase agreement to sell certain assets and interests of the Company
which represent primarily all of the Company's operations.
Schneider Downs & Co., Inc.
Certified Public Accountants
Pittsburgh, Pennsylvania
October 3, 1997
1
BUSCH CO.
BALANCE SHEET
JUNE 30, 1997
ASSETS
CURRENT ASSETS
Cash and cash equivalents $1,443,807
----------
Accounts receivable:
Trade - contract related 2,595,020
Trade - other 330,460
Commissions 244,180
----------
3,169,660
----------
Cost and estimated earnings in excess of
billings on uncompleted contracts 234,394
----------
Inventory 145,379
----------
Advances and other prepaids 13,059
----------
Total Current Assets 5,006,299
----------
OTHER ASSETS 92,323
----------
PROPERTY AND EQUIPMENT - AT COST 201,639
Less - Accumulated depreciation 69,821
----------
131,818
----------
$5,230,440
==========
LIABILITIES
CURRENT LIABILITIES
Accounts payable $1,259,691
Billings in excess of cost and estimated
earnings on uncompleted contracts 1,070,310
Accrued liabilities 1,126,884
----------
Total Current Liabilities 3,456,885
----------
STOCKHOLDERS' EQUITY
COMMON STOCK
Authorized and issued 100,000 shares; stated value $.50
per share; outstanding 95,079 shares 50,000
RETAINED EARNINGS 1,820,312
----------
1,870,312
TREASURY STOCK, at cost 96,757
----------
1,773,555
----------
$5,230,440
==========
See notes to financial statements.
2
BUSCH CO.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
REVENUES $6,606,368
COST OF REVENUES 4,270,758
----------
Gross Profit 2,335,610
----------
COMMISSION INCOME 297,474
----------
OPERATING EXPENSES
General, administrative and selling 2,131,019
Interest 4,133
----------
2,135,152
----------
Income from Operations 497,932
INTEREST INCOME 27,931
----------
Net Income 525,863
RETAINED EARNINGS
Balance, Beginning of period 1,777,756
Distributions (483,307)
----------
Balance, End of period $1,820,312
==========
See notes to financial statements.
3
BUSCH CO.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 525,863
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 10,896
Changes in assets and liabilities:
Accounts receivable (837,668)
Inventory (27,564)
Advances and other prepaids (9,829)
Other assets 1,682
Accounts payable 355,865
Accrued liabilities 473,783
Net increase in billings related to costs and
estimated earnings on uncompleted contracts 591,856
----------
Net Cash Provided By Operating Activities 1,084,884
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment (58,618)
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt (92,039)
Payment of distributions to stockholders (483,307)
----------
Net Cash Used in Financing Activities (575,346)
----------
Net Increase in Cash 450,920
CASH - BEGINNING OF PERIOD 992,887
----------
CASH - END OF PERIOD $1,443,807
==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 4,133
----------
See notes to financial statements.
4
BUSCH CO.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 1 - ORGANIZATION
Busch Co. (the Company) designs and manufactures air handling units for
the metals industry. Also, they are manufacturer's representatives for vendors
that supply components related to this industry. The customer base includes
steel and aluminum producers worldwide and the Company extends credit to these
customers. The Company performs ongoing credit evaluations of its customers'
financial condition and, generally, requires no collateral from its customers.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies consistently applied by
management in the preparation of the accompanying financial statements follows.
Revenue recognition - Revenue from contracts is recognized on the
percentage of completion method as more fully described below. Revenue from
sales of product related to the Company's service representative and distributor
relationships is generally recognized upon shipment to customers.
Management estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash - The Company maintains cash deposits in various banks which at
times exceed federally insured amounts.
Inventory - Cost is stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
Property and equipment - Depreciation is provided on the straight-line
method over estimated useful lives. Repairs and maintenance which do not extend
the lives of the applicable assets are charged to expense as incurred. Profit or
loss resulting from the retirement or other disposition of assets is included in
income.
Patent - Included in other assets in the accompanying balance sheet is
approximately $85,000 related to patent costs. Amortization is provided on the
straight-line basis over estimated useful lives and accumulated amortization
approximated $9,000 at June 30, 1997.
Contracts - Revenues from the design and manufacture of air handling
units are recognized on the percentage of completion method, measured by the
percentage of contract costs incurred to date to estimated total contract costs
for each contract. This method is used because management considers contract
costs to be the best available measure of progress on these contracts.
5
BUSCH CO.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Contract costs include direct material, labor cost and those indirect
costs related to contract performance, such as indirect labor, supplies, tools,
repairs and depreciation costs. General and administrative costs are charged to
expense as incurred. Provisions for estimated losses on uncompleted contracts
are made in the period in which such losses are determined. Changes in job
performance, job conditions and estimated profitability may result in revisions
to contract revenue and costs and are recognized in the period in which the
revisions are made.
The asset, "costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The liability, "billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in excess of revenues recognized.
Income taxes - The corporation has elected to be taxed as an S
corporation. Accordingly, the taxable income or loss of the corporation is
included in the personal tax returns of the stockholders. Therefore, no
provision for federal or state income taxes is included in the accompanying
financial statements.
NOTE 3 - SUBSEQUENT EVENT
On September 25, 1997, the Company entered into an asset purchase
agreement with CECO Filters, Inc. (CECO) for the sale of certain assets, and all
rights and interests of the Company. The sale was effective July 1, 1997, and
includes certain construction contracts, certain real property leases, all
inventories, goodwill, all rights pursuant to warranties, representations and
guaranties and all rights, titles and interests in trademarks, service marks,
trade names and trade styles. Also, as of July 1, 1997, operations will be
conducted by CECO.
The accompanying financial statements do not reflect any adjustments
that result from the discontinuance of the Company.
NOTE 4 - CONTRACT RECEIVABLES
Contract receivables consist of the following:
Contract receivables billed:
Completed contracts $ 411,197
Contracts in progress 2,183,823
----------
$2,595,020
==========
6
BUSCH CO.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 5 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings on uncompleted contracts consists of the
following:
Costs incurred on uncompleted contracts $ 7,526,876
Estimated earnings 4,255,444
----------
11,782,320
Less: billings to date 12,618,236
----------
($835,916)
==========
Included in the accompanying balance sheet under the following
captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 234,394
Billings in excess of costs and estimated
earnings on uncompleted contracts (1,070,310)
----------
($835,916)
==========
NOTE 6 - EMPLOYEE RETIREMENT PLANS
The Company has a defined contribution profit sharing plan covering
substantially all full-time employees. Contributions to the plans are determined
annually by management. The plan also contains a participant salary reduction
and employer matching provision. As determined by the provisions of the plan,
the Company matches the employees' basic voluntary contributions. Company
matching contributions to the plan were approximately $40,000 for the six month
period ended June 30, 1997.
In accordance with the purchase agreement described in Note 3, CECO
shall assume all obligations accruing after the closing date and shall become
the plan sponsor.
7
BUSCH CO.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 7 - LEASES
The Company leases its corporate offices from an entity related through
common ownership. The lease provides for monthly rental payments of
approximately $11,000 and is due to expire on July 31, 2001.
In addition, the Company also leases automobiles and certain office
equipment. Total rent expense approximated $116,000 for the six months ended
June 30, 1997.
Following is a schedule, by year, of the future minimum rental payments
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of June 30, 1997:
1998 $227,000
1999 192,000
2000 169,000
2001 154,000
--------
$742,000
========
In accordance with the purchase agreement described in Note 3, CECO has
assumed these lease obligations.
NOTE 8 - BACKLOG
The following schedule shows a reconciliation of backlog representing
the amount of revenue the Company expects to realize from work to be performed
on uncompleted contracts in progress at June 30, 1997 and from contractual
agreements on which work has not yet begun:
Balance, December 31, 1996 $ 6,390,929
Contract adjustments 490,289
New contracts, 1997 7,356,333
------------
14,237,551
Less - Contract revenue recognized, June 30, 1997 5,680,521
------------
Balance, June 30, 1997 $ 8,557,030
============
8
(b) Pro Forma Financial Information.
CECO FILTERS, INC. AND CONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1996
(NOTE 1)
- --------------------------------------------------------------------------------
CECO PRO FORMA
FILTERS, INC. --------------------------------------
AND ADJUSTMENTS CONSOLIDATED
SUBSIDIARIES ----------- ------------
ASSETS
Current assets:
Cash $ 374,186 ($ 12,500) (F) $ 261,686
( 100,000) (H)
Accounts receivable 2,077,045 2,165,562 (G) 4,242,607
Inventories 565,371 145,379 (G) 710,750
Prepaid expenses and other current assets 40,439 100,000 (A) 140,439
Deferred income taxes 58,735 58,735
----------- ---------- -----------
Total current assets 3,115,776 2,298,441 5,414,217
Property and equipment, net 1,782,087 131,818 (G) 1,913,905
Intangible and other assets, at cost, net 88,144 12,500 (F) 177,316
76,672 (G)
Goodwill 1,601,637 (G) 1,701,637
100,000 (H)
Investment in CECO Environmental Corp. 230,000 230,000
----------- ---------- -----------
$5,216,007 $4,221,068 $9,437,075
=========== ========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term obligations $ 400,000 $1,040,576 (E) $1,440,576
Current portion of long-term debt 83,100 250,000 (C) 333,100
Current portion of capital lease obligation 6,043 6,043
Accounts payable and accrued expenses 1,205,795 14,930 (G) 1,220,725
Billings in excess of costs and estimated
earnings on uncompleted contracts 2,165,562 (G) 2,165,562
Accrued income taxes 276,976 ( 200,000) (B) 76,976
----------- ---------- -----------
Total current liabilities 1,971,914 3,271,068 5,242,982
Long-term debt, less current portion 1,132,869 750,000 (C) 1,882,869
Subordinated note payable to CECO Environmental Corp. 500,000 (D) 500,000
Capital lease obligation, less current portion 9,882 9,882
----------- ---------- -----------
3,114,665 4,521,068 7,635,733
----------- ---------- -----------
Shareholders' equity:
Common stock 6,868 6,868
Capital in excess of par value 915,984 915,984
Retained earnings 1,178,490 (300,000) (B) 878,490
----------- ---------- -----------
Total shareholders' equity 2,101,342 (300,000) 1,801,342
----------- ---------- -----------
$5,216,007 $4,221,068 $9,437,075
=========== ========== ===========
CECO FILTERS, INC. AND CONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(NOTE 2)
- --------------------------------------------------------------------------------
CECO
FILTERS, INC.
AND
SUBSIDIARIES BUSCH CO. TOTAL
Net revenues $5,467,487 $6,903,842 $12,371,329
---------- ---------- -----------
Costs and expenses:
Cost of revenues 2,797,027 4,270,758 7,067,785
Selling and administrative 1,897,766 2,120,123 4,017,889
Management fees, CECO Environmental Corp. 120,000 120,000
Depreciation and amortization 199,260 10,896 210,156
---------- ---------- -----------
5,014,053 6,401,777 11,415,830
---------- ---------- -----------
Income from operations 453,434 502,065 955,499
Interest income (expense), net (49,378) 23,798 (25,580)
---------- ---------- -----------
Income before income taxes 404,056 525,863 929,919
Income taxes 161,000 161,000
---------- ---------- -----------
Net income $ 243,056 $ 525,863 $ 768,919
========== ========== ===========
Net income per share $.03
====
Weighted average number of
common shares outstanding 6,867,667
==========
PRO FORMA
ADJUSTMENTS CONSOLIDATED
Net revenues $12,371,329
-----------
Costs and expenses:
Cost of revenues 7,067,785
Selling and administrative $ 50,000 (I) 4,236,870
50,000 (L)
118,981 (N)
Management fees, CECO Environmental Corp. 120,000
Depreciation and amortization 20,020 (K) 230,176
------- ----------
239,001 11,654,831
------- ----------
Income from operations (239,001) 716,498
Interest income (expense), net 108,767) (J) (134,347)
------- ----------
Income before income taxes (347,768) 582,151
Income taxes 70,861 (M) 231,861
------- ----------
Net income ($418,629) $ 350,290
======= ==========
Net income per share $.05
====
Weighted average number of
common shares outstanding 6,867,667
==========
CECO FILTERS, INC. AND CONSOLIDATED SUBSIDIARIES
------------------------------------------------
Explanatory Notes to Pro Forma Consolidated Condensed Financial Statements
--------------------------------------------------------------------------
For the Six Months Ended June 30, 1997
--------------------------------------
1. The pro forma consolidated condensed balance sheet is based on the
consolidated balance sheet of CECO Filters, Inc. ("CECO") to reflect
the acquisition of Busch Co. ("Busch") by CECO, which took place on
September 25, 1997 ("closing date") (effective date of July 1, 1997),
as if it had taken place on June 30, 1997, after giving effect to the
pro forma adjustments to reflect the following:
CECO paid $2,100,000 for essentially all of the assets and business of
Busch on the closing date. As part of the transaction, CECO obtained a
non-compete agreement from one of the stockholders of Busch pursuant to
which he will be paid a total of $900,000, of which $100,000 (A) was
paid on the closing date, and $200,000 is to be paid on July 1, 1998,
1999, 2000, and 2001. In addition, a sign-on bonus of $500,000 was paid
to this stockholder ($300,000 net of income taxes) (B) on the
transaction date.
The total cash required at closing amounted to $2,540,576 and is net of
certain of Busch's accrued expenses which CECO agreed to assume. CECO
financed this transaction with a bank term loan in the amount of
$1,000,000 (C); a $500,000 (D) subordinated, unsecured loan from CECO
Environmental Corp. ("CEC"), its parent company; and $1,040,576 (E)
from its $1,500,000 bank line of credit. The bank term loan requires 48
monthly principal payments of $20,833, plus interest at 8.75% per
annum, commencing October 1, 1997. Under the terms of a subordination
agreement between CEC and CECO's lender, principal repayment under the
unsecured loan from CEC cannot commence until after September 30, 1999.
Interest on the CEC loan is at 10% per annum. Interest on the bank line
of credit is at 1/2 % over the bank's prime lending rate (current
effective rate is 9%). CECO incurred financing fees of $ 12,500 (F)
related to the bank financing.
The net assets acquired are summarized as follows (G):
Accounts receivable related to jobs in process $2,165,562
Inventory 145,379
Equipment 131,818
Patents 76,672
Goodwill 1,601,637
Billings in excess of costs and estimated
earnings on uncompleted contracts ( 2,165,562)
Accrued expenses ( 14,930)
----------
Total $1,940,576
==========
CECO incurred approximately $100,000 (H) in costs associated with the
transaction, which was funded internally.
CECO FILTERS, INC. AND CONSOLIDATED SUBSIDIARIES
------------------------------------------------
Explanatory Notes to Pro Forma Consolidated
Condensed Financial Statements - Continued
------------------------------------------
For the Year Ended December 31, 1996
------------------------------------
2. The pro forma consolidated condensed statement of operations is based
on the individual statements of CECO and Busch for the year ended
December 31, 1996, after giving effect to the pro forma adjustments
necessary to reflect the acquisition described in Note 1, as if it had
taken place on January 1, 1996.
The pro forma adjustments are as follows:
(I) Amortization of covenant not to compete of $100,000.
(J) Increase in interest expense of $217,534 as a result of
$1,000,000 bank term loan, $500,000 loan from CEC, and the use
of bank line of credit of $1,040,576.
(K) Amortization of goodwill over 40 years amounting to $40,041.
(L) Increase in salary of former officer of Busch as part of new
employment agreement.
(M) Pro forma income taxes have been provided to reflect an
effective tax rate of 40%.
(N) Incentive compensation under new employment agreement for
former officer of Busch.
CECO FILTERS, INC. AND CONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
JUNE 30, 1997
(NOTE 1)
- --------------------------------------------------------------------------------
CECO
FILTERS, INC.
AND PRO FORMA
--------------------------------------
SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------------ --------------------------------------
ASSETS
Current assets:
Cash $ 724,376 ($ 12,500) (F) $ 611,876
( 100,000) (H)
Accounts receivable 806,845 2,165,562 (G) 2,972,407
Inventories 490,816 145,379 (G) 636,195
Prepaid expenses and other current assets 42,100 100,000 (A) 142,100
Recoverable income taxes 200,000 (B) 200,000
Deferred income taxes 58,735 58,735
----------- ---------- ----------
Total current assets 2,122,872 2,498,441 4,621,313
Property and equipment, net 1,774,792 131,818 (G) 1,906,610
Intangible and other assets, at cost, net 107,484 12,500 (F) 196,656
76,672 (G)
Goodwill 1,601,637 (G) 1,701,637
100,000 (H)
Investment in CECO Environmental Corp. 230,000 230,000
----------- ---------- ----------
$4,235,148 $4,421,068 $8,656,216
=========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term obligations $1,040,576 (E) $1,040,576
Current portion of long-term debt $ 66,959 250,000 (C) 316,959
Current portion of capital lease obligation 6,043 6,043
Accounts payable and accrued expenses 684,464 14,930 (G) 699,394
Billings in excess of costs and estimated
earnings on uncompleted contracts 2,165,562 (G) 2,165,562
Accrued income taxes 32,686 32,686
----------- ---------- ----------
Total current liabilities 790,152 3,471,068 4,261,220
Long-term debt, less current portion 1,094,336 750,000 (C) 1,844,336
Subordinated note payable to CECO Environmental Corp. 500,000 (D) 500,000
Capital lease obligation, less current portion 6,262 6,262
----------- ---------- ----------
1,890,750 4,721,068 6,611,818
----------- ---------- ----------
Shareholders' equity:
Common stock 6,868 6,868
Capital in excess of par value 915,984 915,984
Retained earnings 1,421,546 ( 300,000) (B) 1,121,546
----------- ---------- ----------
Total shareholders' equity 2,344,398 ( 300,000) 2,044,398
----------- ---------- ----------
$4,235,148 $4,421,068 $8,656,216
=========== ========== ==========
CECO FILTERS, INC. AND CONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1996
(NOTE 2)
- --------------------------------------------------------------------------------
CECO
FILTERS, INC.
AND
SUBSIDIARIES BUSCH CO. TOTAL
------------- --------- -----
Net revenues $9,847,697 $11,751,696 $21,599,393
---------- ----------- -----------
Costs and expenses:
Cost of revenues 5,187,732 7,663,529 12,851,261
Selling and administrative 3,316,716 2,831,691 6,148,407
Management fees, CECO Environmental Corp. 240,000 240,000
Depreciation and amortization 341,599 17,820 359,419
---------- ----------- -----------
9,086,047 10,513,040 19,599,087
---------- ----------- -----------
Income from operations 761,650 1,238,656 2,000,306
Interest income (expense), net (154,837) 1,855 (152,982)
---------- ----------- -----------
Income before income taxes 606,813 1,240,511 1,847,324
Income taxes 205,788 205,788
---------- ----------- -----------
Net income $ 401,025 $ 1,240,511 $ 1,641,536
========== =========== ===========
Net income per share $.06
====
Weighted average number of
common shares outstanding 6,867,667
=========
PRO FORMA
-----------------------------------------
ADJUSTMENTS CONSOLIDATED
----------- ------------
Net revenues $21,599,393
-----------
Costs and expenses:
Cost of revenues 12,851,261
Selling and administrative $ 100,000 (I) 6,701,645
100,000 (L)
353,238 (N)
Management fees, CECO Environmental Corp. 240,000
Depreciation and amortization 40,041 (K) 399,460
------- ----------
593,279 20,192,366
------- ----------
Income from operations (593,279) 1,407,027
Interest income (expense), net (217,534) (J) (370,516)
------- ----------
Income before income taxes (810,813) 1,036,511
Income taxes 208,816 (M) 414,604
------- ----------
Net income ($1,019,629) $ 621,907
======= ==========
Net income per share $.09
====
Weighted average number of
common shares outstanding 6,867,667
=========
CECO FILTERS, INC. AND CONSOLIDATED SUBSIDIARIES
------------------------------------------------
Explanatory Notes to Pro Forma Consolidated Condensed Financial Statements
--------------------------------------------------------------------------
For the Year Ended December 31, 1996
------------------------------------
1. The pro forma consolidated condensed balance sheet is based on the
consolidated balance sheet of CECO Filters, Inc. ("CECO") to reflect
the acquisition of Busch Co. ("Busch") by CECO, which took place on
September 25, 1997 ("closing date") (effective date of July 1, 1997),
as if it had taken place on December 31, 1996, after giving effect to
the pro forma adjustments to reflect the following:
CECO paid $2,100,000 for essentially all of the assets and business of
Busch on the closing date. As part of the transaction, CECO obtained a
non-compete agreement from one of the stockholders of Busch pursuant to
which he will be paid a total of $900,000, of which $100,000 (A) was
paid on the closing date, and $200,000 is to be paid on July 1, 1998,
1999, 2000, and 2001. In addition, a sign-on bonus of $500,000 was paid
to this stockholder ($300,000 net of income taxes) (B) on the closing
date.
The total cash required at closing amounted to $2,540,576 and is net of
certain of Busch's accrued expenses which CECO agreed to assume. CECO
financed this transaction with a bank term loan in the amount of
$1,000,000 (C); a $500,000 (D) subordinated, unsecured loan from CECO
Environmental Corp. ("CEC"), its parent company; and $1,040,576 (E)
from its $1,500,000 bank line of credit. The bank term loan requires 48
monthly principal payments of $20,833, plus interest at 8.75% per
annum, commencing October 1, 1997. Under the terms of a subordination
agreement between CEC and CECO's lender, principal repayment under the
unsecured loan from CEC cannot commence until after September 30, 1999.
Interest on the CEC loan is at 10% per annum. Interest on the bank line
of credit is at 1/2 % over the bank's prime lending rate (current
effective rate is 9%). CECO incurred financing fees of $ 12,500 (F)
related to the bank financing.
The net assets acquired are summarized as follows (G):
Accounts receivable related to jobs in process $2,165,562
Inventory 145,379
Equipment 131,818
Patents 76,672
Goodwill 1,601,637
Billings in excess of costs and estimated
earnings on uncompleted contracts (2,165,562)
Accrued expenses (14,930)
----------
Total $1,940,576
==========
CECO incurred approximately $100,000 (H) in costs associated with the
transaction, which was funded internally.
CECO FILTERS, INC. AND CONSOLIDATED SUBSIDIARIES
------------------------------------------------
Explanatory Notes to Pro Forma Consolidated
Condensed Financial Statements - Continued
------------------------------------------
For the Six Months Ended June 30, 1997
--------------------------------------
2. The pro forma consolidated condensed statement of operations is based
on the individual statements of CECO and Busch for the six months ended
June 30, 1997, after giving effect to the pro forma adjustments
necessary to reflect the acquisition described in Note 1, as if it had
taken place on January 1, 1997.
The pro forma adjustments are as follows:
(I) Amortization of covenant not to compete of $50,000.
(J) Increase in interest expense of $108,767 as a result of
$1,000,000 bank term loan, $500,000 loan from CEC, and the use
of bank line of credit of $1,040,576.
(K) Amortization of goodwill over 40 years amounting to $20,020.
(L) Increase in salary of former officer of Busch as part of new
employment agreement.
(M) Pro forma income taxes have been provided to reflect an
effective tax rate of 40%.
(N) Incentive compensation under new employment agreement for
former officer of Busch.
(c) Exhibits.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report or amendment to be signed on its
behalf by the undersigned hereunto duly authorized.
SIGNATURE
CECO FILTERS, INC.
By:/s/ Steven I. Taub
------------------
Steven I. Taub
President
DATE: December 8, 1997
-2-