1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
----------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------------- --------------------
Commission file number 0-17575
------------
CHEMPOWER, INC.
-------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 34-1481970
------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
807 EAST TURKEYFOOT LAKE ROAD, AKRON, OHIO 44319
--------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (330) 896-4202
---------------------
NOT APPLICABLE
--------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed
since last report
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes x No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Class Outstanding August 1, 1996
-------------------------------- ------------------------------------
Common Stock, $.10 Par Value 7,565,113 shares
2
CHEMPOWER, INC.
INDEX
PART I. FINANCIAL INFORMATION Page Number
----------------------------- -----------
Item 1. Financial Statements
Condensed balance sheets--September 30, 1996
and December 31, 1995......................... 3
Condensed statements of income--Three and nine
months ended September 30, 1996 and 1995. 4
Condensed statements of cash flows--Nine
months ended September 30, 1996 and 1995...... 5
Notes to condensed financial statements--
September 30, 1996............................ 6-7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
operations.................................... 8-9
PART II. OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K.............. 10
SIGNATURES................................................ 11
3
PART I. FINANCIAL INFORMATION
- -----------------------------
CHEMPOWER, INC.
CONDENSED BALANCE SHEETS
September 30 December 31
1996 1995
------------ ------------
(Unaudited)
ASSETS (Dollars in thousands)
CURRENT ASSETS
Cash and cash equivalents $ 17,053 $ 11,603
Marketable equity securities 3,570 1,084
Trade receivables, less allowances 12,175 22,022
Contracts in progress 5,276 4,608
Inventories 3,649 4,058
Other current assets 1,358 385
------------ ------------
TOTAL CURRENT ASSETS 43,081 43,760
PROPERTY, PLANT &.EQUIPMENT, at cost 12,700 13,638
Less: accumulated depreciation 6,378 6,773
------------ ------------
NET PROPERTY, PLANT & EQUIPMENT 6,322 6,865
INTANGIBLE ASSETS 403 623
OTHER ASSETS 3,118 3,322
------------ ------------
$ 52,924 $ 54,570
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade payables $ 4,297 $ 4,688
Contracts in progress 589 1,465
Payroll related accruals 7,119 7,740
Other current liabilities 2,106 2,726
------------ ------------
TOTAL CURRENT LIABILITIES 14,111 16,619
DEFERRED CREDIT, EXCESS OF ACQUIRED INTEREST OVER COST 648 986
SHAREHOLDERS' EQUITY
Common stock--par value $.10 per share:
Authorized--15,000,000 shares
Issued--7,756,121 shares at September 30
and December 31 776 776
Additional paid-in capital 20,334 20,334
Unrealized gains (losses) on marketable equity
securities, net 141 --
Retained earnings 17,524 16,465
Treasury stock, at cost, 191,008 shares
at September 30 and December 31 (610) (610)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 38,165 36,965
------------ ------------
$ 52,924 $ 54,570
============ ============
<FN>
See Notes To Condensed Financial Statements
- 3 -
4
CHEMPOWER, INC.
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended
September 30 September 30
------------------------ ------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
(Dollars in thousands, except share data)
Revenues......................... $ 14,858 $ 16,430 $ 48,336 $ 55,696
Cost of revenues................. 12,455 13,898 40,761 46,537
---------- ---------- ---------- ----------
Gross profit................ 2,403 2,532 7,575 9,159
Selling, general and adminis-
trative expenses............... 2,260 2,198 7,002 6,958
---------- ---------- ---------- ----------
Operating income............ 143 334 573 2,201
Financial income................. 547 151 853 405
---------- ---------- ---------- ----------
Income before taxes......... 690 485 1,426 2,606
Income taxes..................... 214 177 366 1,002
---------- ---------- ---------- ----------
Net income.................. $ 476 $ 308 $ 1,060 $ 1,604
========== ========== ========== ==========
Net income per Common Share...... $ .06 $ .04 $ .14 $ .22
========== ========== ========== ==========
Weighted average number
of shares outstanding.......... 7,789,104 7,380,557 7,706,392 7,356,190
========== ========== ========== ==========
<FN>
See Notes to Condensed Financial Statements
- 4 -
5
CHEMPOWER, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
September 30
----------------------
1996 1995
--------- ---------
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES............................ $ 7,930 $ 8,263
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment....... 673 10
Purchase of property, plant and equipment ................ (906) (1,172)
Purchase of marketable equity securities.................. (4,396) --
Sale of marketable equity securities...................... 2,149 --
Acquisition of businesses, net of working
capital acquired....................................... -- (4,543)
--------- ---------
Net cash used for investing activities.............. (2,480) (5,705)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock.................... -- 41
Purchase of treasury stock................................ -- (200)
--------- ---------
Net cash used for financing activities............. -- (159)
--------- ---------
Net increase in cash and cash equivalents.......... 5,450 2,399
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............... 11,603 11,864
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..................... $ 17,053 $ 14,263
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Income taxes paid (net of refunds)........................ $ 926 $ 753
========= =========
<FN>
See Notes To Condensed Financial Statements
- 5 -
6
CHEMPOWER, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1996
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of
management, the financial statements reflect all adjustments
(consisting of normal recurring accruals) considered necessary
for a fair presentation. Operating results for the nine month
period ended September 30, 1996 are not necessarily indicative of
the results that may be expected for the entire year of 1996.
For further information, refer to the financial statements and
footnotes thereto included in the Company's Annual Report and
Form 10-K as of December 31, 1995.
NOTE B--ACQUISITION
On May 3, 1995, the Company through its wholly-owned subsidiaries,
Southwick Corp. and Brookfield Corp., purchased all of the issued and
outstanding partnership units of Controlled Power Limited Partnership
("CPC").
Pro forma consolidated information assuming ownership of CPC as of
January 1, 1995 is as follows:
Nine Months Ended Three Months Ended
September 30 September 30
1996 1995 1996 1995
------- ------- ------- -------
(Dollars in thousands, except per share data)
Revenues................. $48,336 $63,628 $14,858 $16,430
Net Income (Loss)........ 1,060 292 476 308
Net Income (Loss)
per Common Share...... $ .14 $ .04 $ .06 $ .04
The pro forma information does not purport to be indicative of results
which would actually have been obtained if the combination had been in
effect for the periods indicated or which may be obtained in the
future.
- 6 -
7
CHEMPOWER, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
September 30, 1996
NOTE C--CONTRACTS IN PROGRESS
Comparative information for fixed-price contracts in progress
at September 30, 1996 and December 31, 1995 is as follows:
September 30 December 31
1996 1995
--------------- -------------
(Dollars in thousands)
Costs incurred on
uncompleted contracts.................. $ 70,516 $ 68,335
Estimated earnings....................... 5,664 5,906
--------------- -------------
$ 76,180 74,241
Less billings to date 71,493 71,098
--------------- -------------
$ 4,687 $ 3,143
=============== =============
Included in the accompanying
balance sheets under contracts
in progress:
Costs and estimated earnings in
excess of related billings on
uncompleted contracts.................. $ 5,276 $ 4,608
Billings in excess of related
costs and estimated earnings
on uncompleted contracts and
provision for estimated losses
on contracts........................... (589) (1,465)
--------------- -------------
$ 4,687 $ 3,143
=============== =============
September 30, 1996 amounts include the operations of CPC. Costs incurred on
uncompleted contracts, estimated earnings, and billings to date for CPC at
September 30, 1996 were $68,394,000, $5,531,000 and $69,910,000,
respectively.
NOTE D--CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an
original maturity of 90 days or less when purchased to be cash
equivalents. Cash equivalents consist primarily of money
market funds.
NOTE E--MARKETABLE EQUITY SECURITIES
The Company has designated its investments in marketable equity securities
as available-for-sale. Those securities are reported at fair value, with net
unrealized gains and losses included in equity, net of applicable taxes.
Unrealized losses that are other than temporary are recognized in earnings.
The following is a summary of marketable equity securities held at
September 30, 1996 (Dollars in thousands):
Unrealized Unrealized
Cost Gains Losses Fair Value
------- ---------- ---------- ----------
$3,331 $258 $19 $3,570
Realized gains and losses on sales of marketable equity securities for the
quarter totaled $342,000 and $0 respectively.
NOTE F--NET INCOME PER COMMON SHARE
The net income per common share amounts have been computed by
dividing net income by the weighted average number of shares
(common and common equivalent) outstanding. For purposes of
this computation, stock options are common equivalent shares.
- 7 -
8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The discussion of Results of Operations are grouped as follows:
CONSOLIDATED --- Represents consolidated data of Chempower, Inc. and
subsidiaries.
CONSTRUCTION SERVICES--- This category consists of Chempower, Inc.,
Global Power Company and its Global Erectors division,
excluding Manufacturing Services.
MANUFACTURING SERVICES--- This category consists of CPC and the
Company's three divisions: Houston Products, Owens Precision Fabricators
and Advanced Coil Industries.
RESULTS OF OPERATIONS
Current three months compared to the same period last year.
Consolidated
Revenues for the thirteen week period ended September 30, 1996 were
$14,858,000 a decrease of 9.6% from $16,430,000 in 1995. This decrease was
attributable to the decline in the number of projects available in the
Construction and Manufacturing Services.
Selling, general and administrative expenses increased 2.8% to
$2,260,000 for the third quarter of 1996 as compared to $2,198,000 during the
same period of 1995.
Operating income decreased in 1996 to $143,000 from $334,000 in 1995.
This decrease was due to lower Construction Services revenues.
Financial income increased to $546,000 in 1996 from $151,000 in 1995 due
to realized gains on the sale of marketable equity securities and dividend
income.
Net income for the third quarter of 1996 was $476,000 or $.06 per share
compared to $308,000 or $.04 per share in the same period of 1995. Net income as
a percent of revenues increased to 3.2% in 1996 as compared to 1.9% in 1995.
Construction Services
Construction Services revenues were $6,654,000 for the third quarter as
compared to $7,358,000 for the same period in 1995. This decrease was
attributable to the decline in the number of projects available in the
marketplace. Construction Services revenues represented 44.8% of total revenues
in 1996 and 1995.
Cost of Construction Services revenues represented 93.7% of Construction
Services revenues in 1996 versus 90.0% in 1995.
Operating loss in Construction Services increased from $184,000 during
the third quarter of 1995 to $615,000 for the same period in 1996. This increase
is due to the loss of Construction Services revenues and lower gross margins on
the work performed during the third quarter.
Manufacturing Services
Manufacturing Services revenues decreased 9.6% during the third quarter
of 1996 to $8,204,000 as compared to $9,072,000 from the same period of 1995.
This decrease was primarily the result of a decrease in the amount of work
performed by CPC.
Cost of Manufacturing Services revenues represented 75.9% of
Manufacturing Services revenues versus 80.2% in 1995. The decrease in cost
reflects an increase in higher margin work performed in the period.
Operating income increased to $1,301,000 in 1996 from $969,000 in 1995,
due to the higher margin work mentioned above.
Current nine months compared to the same period last year.
Consolidated
Revenues for the twenty-six week period ended September 30, 1996 were
$48,336,000 a decrease from $55,696,000 or 13.2% from 1995. This decrease was
attributable to the decline in the number of projects available in the
Construction Services marketplace.
Selling, general and administrative expenses remained constant at
$7,002,000 for the first nine months of 1996 as compared to $6,958,000 during
the same period of 1995.
Operating income decreased in 1996 to $573,000 compared to $2,201,000 in
1995. This decrease was due to lower Construction Services revenues.
Financial income increased to $852,000 in 1996 from $405,000 in 1995.
This increase was mainiy due to realized gains on investments in equity
securities and dividend income.
Net income for the first nine months of 1996 was $1,060,000 or $.14 per
share compared to $1,604,000 or $.22 per share in the same period of 1995. Net
income as a percent of revenues decreased to 2.2% in 1996 as compared to 2.9% in
1995.
Construction Services
Construction Services revenues were $25,109,000 for the first nine
months as compared to $35,832,000 for the same period in 1995. This decrease was
attributable to the decline in the number of projects available in the
marketplace. Construction Services revenues represented 51.9% of total revenues
in 1996 as compared to 64.3% of total revenues in 1995.
Cost of Construction Services revenues represented 89.8% of Construction
Services revenues in 1996 versus 88.5% in 1995.
8
9
Operating income in Construction Services decreased from $1,282,000
during the first nine months of 1995 to an operating loss of $478,000 in 1996.
This decrease is due to the loss of Construction Services revenues and lower
gross margins on the work performed during the period.
Manufacturing Services
Manufacturing Services revenues increased 16.9% for the first nine
months of 1996 to $23,227,000 as compared to $19,864,000 from the same period of
1995. This increase was primarily the result of the inclusion of operations from
CPC for a full nine months.
Cost of Manufacturing Services revenues represented 78.4% of
Manufacturing Services revenues versus 74.6% in 1995. This increase was due to
the inclusion of CPC operations during the year. A majority of the products
manufactured by CPC (i.e. electrical metal-clad switchgear and power
distribution systems) offer a lower rate of margin as compared to other products
manufactured in this segment. In addition, increased competition in the
marketplace resulted in lower sales pricing by the Houston Products division.
Operating income decreased to $2,802,000 in 1996 from $3,134,000 in 1995
due to the lower rates of margin as a result of the competitive and economic
factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES:
Working capital (current assets less current liabilities) at September
30, 1996 increased to $28,970,000 from $27,141,000 at December 31, 1995. The
ratio of current assets to current liabilities was 3.1 at the end of the third
quarter of 1996 compared to 2.6 at the end of 1995. The Company currently has a
$10,000,000 line of credit with FirstMerit First National Bank of Ohio. As of
September 30, 1996, there was no borrowing against credit facilities available
to the Company.
During the first nine months of 1996, capital disposals, net of
accumulated depreciation amounted to $492,000. The majority of the Company's
disposals related to its mobile industrial vacuum loaders and peripheral
accessories. The Company has determined it to be more economical to rent this
type of equipment rather than to own.
During the last year, the Company has increased its investment
strategies to include marketable equity securities. This was done to take
advantage of the rise in equity market returns and offset lower rates of return
on its short-term investments.
The Company's current cash, funds available under its credit facility
and future cash flow from operations, should be sufficient to meet capital
requirements and short-term working capital needs.
EVENTS, TRANSACTIONS, AND TRENDS:
On September 11, 1996, the Company and American Eco Corporation entered
into an agreement pursuant to which American Eco would acquire the Company in a
cash merger at a price of $6.20 per share. The merger agreement was submitted
to the Chempower shareholders for their approval at a Special Meeting of
Shareholders on November 12, 1996. At this meeting, Chempower shareholders
approved the merger, however, the merger agreement remains subject to
arrangement of financing and requisite regulatory approvals. American Eco, a
corporation organized under the laws of Ontario, Canada, is an integrated
industrial services company which acts as a single-source environmental
remediation and industrial maintenance provider to the petrochemical, petroleum
refining, utility, and pulp and paper industries in the United States and
Canada.
The Company is experiencing a slow-down in Construction Services. This
is primarily the result of the electric utilities delaying maintenance outages
as the result of the impending deregulation in the electric power industry. The
limited number of projects available in the marketplace has caused strong
competition for lower profit margin work. The Company expects this slow-down to
continue through 1996 and could have an adverse impact of Construction Services.
The Company continues to look for opportunities to expand Manufacturing
Services through the acquisition of additional businesses and through internal
growth.
9
10
PART II. OTHER INFORMATION
---------------------------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
2.1 Agreement and Plan of Merger, By and Among
American Eco Corporation, Sub Acquisition
Corp., and Chempower, Inc., dated as of
September 10, 1996 (incorporated by
reference to the Company's Proxy Statement
on Schedule 14A, filed with the commission
and mailed to shareholders on October 11,
1996)
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during
the three months ended September 30, 1996.
- 10 -
11
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.
CHEMPOWER, INC.
(Registrant)
Date November 13, 1996 /s/ Robert E. Rohr
--------------------- --------------------------------------
Robert E. Rohr
Vice President of Finance and
Treasurer
(on behalf of the Registrant and
as Principal Financial officer)
- 11 -
12
EXHIBIT INDEX
Pagination By
Sequential
Exhibit Exhibit Numbering
Number Description System
------ ----------- ------
2.1 Agreement and Plan of Merger, By and Among American Eco
Corporation, Sub Acquisition Corp., and Chempower, Inc., dated
as of September 10, 1996 (incorporated by reference to the
Company's Proxy Statement on Schedule 14A, filed with the
commission and mailed to shareholders on October 11, 1996)
27.1 Financial Data Schedule