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CECO Environmental Corp. Reports Operating Results (10-Q)

November 15, 2010 | About:
10qk

10qk

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CECO Environmental Corp. (CECE) filed Quarterly Report for the period ended 2010-09-30.

Ceco Environmental Corp. has a market cap of $75.67 million; its shares were traded at around $5.286 with a P/E ratio of 44.05 and P/S ratio of 0.54. Ceco Environmental Corp. had an annual average earning growth of 0.4% over the past 10 years.

Highlight of Business Operations:

Selling and administrative expenses decreased by $0.4 million, or 5.7%, from $7.0 million to $6.6 million during the third quarter and decreased by $1.0 million, or 4.6%, from $21.8 million to $20.8 million during the first nine months of 2010 compared to 2009. The three and nine month periods ended September 30, 2010 reflect significant reductions in wages and related fringes due to staff reductions made as part of our streamlining and consolidation efforts. Selling and administrative expense as a percentage of sales decreased from 21.9% to 19.5% for the quarter ended September 30, 2010 and decreased from 21.3% to 20.1% for the nine months ended September 30, 2010. The decrease in selling and administrative expenses as a percentage of sales is primarily due to reduced expenses as discussed above.

Amortization expense remained constant at $0.1 million during the third quarter of 2010 compared to the same period in 2009 and decreased by $0.2 million to $0.4 million in the first nine months of 2010 compared to $0.6 million in the same period of 2009. These decreases were the result of certain definite life intangibles related to earlier acquisitions becoming fully amortized.

Operating income increased by approximately $1.9 million to $1.6 million in the third quarter of 2010 compared to an operating loss of $0.3 million during the same quarter of 2009. The impact of higher revenues and higher margins due to changing product mix in the third quarter as well as reduced selling and administrative costs were the primary factors for the increase in operating income. This increase in operating income was also due to a $600,000 gain on equipment from the sale of one small division and sales of machinery and equipment related to the closed contracting facilities. Operating income for the first nine months of 2010 increased by $2.9 million to $3.6 million compared to operating income of $0.7 million during the same period of 2009. This increase in operating income for the nine months was also due to the $600,000 gain on equipment discussed above as well as a $200,000 decrease in amortization expense which also increased operating income. This increase was also due to the impact of increased revenues and higher margins due to changing product mix as well as reduced selling and administrative costs.

Total bank debt at September 30, 2010 was $3.1 million and $2.7 million at December 31, 2009. The bank debt at September 30, 2010 consists of $1.1 million due on the revolving lines of credit and a term note totaling $2.0 million. Our current credit facility with Fifth Third Bank (the Bank Facility), as amended, includes a revolving line of credit of up to $20 million, including letters of credit, limited to a borrowing base amount computed as 70% of eligible accounts receivable, 50% of unbilled revenues up to $2.0 million, plus 50% of eligible inventories up to $7.5 million. Unused credit availability under our $20.0 million revolving line of credit at September 30, 2010 was $8.0 million. Interest on the outstanding borrowings is charged at the daily LIBOR rate plus 4.0% or the tranche LIBOR rate plus 3.5% for the revolver and the daily LIBOR rate plus 4.25% or the tranche LIBOR rate plus 3.75% for the term note. The weighted average interest rate under the Bank Facility as of September 30, 2010 and September 30, 2009 was 4.07% and 3.44%, respectively.

On November 26, 2009, the Company issued $10.8 million principal amount subordinated convertible promissory notes to a group of investors (the Investor Notes) which includes related parties: Icarus ($2,200,000), Jason DeZwirek ($800,000), and Harvey Sandler Revocable Trust ($800,000), which trust owns over 10% of our outstanding common stock. Interest accrues under the Investor Notes at the annual rate of 6% and is payable as of the end of each calendar quarter. Interest paid for the three and nine month periods was $163,000 and $485,000 respectively. We used the proceeds of the Investor Notes to repay all of our previously existing subordinated debt in the amount of approximately $4.5 million, which debt was accruing interest at rates between 11-12%. The balance of the proceeds will be used for general working capital. Fees of $320,000 were paid for the issuance of this debt and are being amortized over the term of the Investor Notes.

Depreciation and amortization amounted to $1.3 million in for the nine months ended September 30, 2010 compared to $1.9 million for depreciation and amortization in the same period in 2009. This decrease in depreciation and amortization was due to decreased amortization of definite life intangibles from recent acquisitions which are now fully amortized and decreased depreciation expense on now fully depreciated machinery and equipment. Our net investment in working capital (excluding cash and cash equivalents, current portion of debt and working capital from discontinued operations) at September 30, 2010 was $15.5 million as compared to $13.3 million at December 31, 2009. We believe that our working capital needs will remain constant unless we experience a significant increase or decrease in sales and operating income.

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