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Proc-Type: 2001,MIC-CLEAR
Originator-Name: [email protected]
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<SEC-DOCUMENT>0000950116-00-000694.txt : 20000421
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ACCESSION NUMBER: 0000950116-00-000694
CONFORMED SUBMISSION TYPE: 10KSB
PUBLIC DOCUMENT COUNT: 5
CONFORMED PERIOD OF REPORT: 19991231
FILED AS OF DATE: 20000330
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: CECO ENVIRONMENTAL CORP
CENTRAL INDEX KEY: 0000003197
STANDARD INDUSTRIAL CLASSIFICATION: 3564
IRS NUMBER: 132566064
STATE OF INCORPORATION: NY
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10KSB
SEC ACT:
SEC FILE NUMBER: 000-07099
FILM NUMBER: 586802
BUSINESS ADDRESS:
STREET 1: 505 UNIVERSITY AVE
STREET 2: STE 1400
CITY: TORONTO ONTARIO MSG
STATE: A6
BUSINESS PHONE: 4165936543
MAIL ADDRESS:
STREET 1: 111 ELIZABETH STREET SUITE 600
CITY: TORONTO ONTARIO
STATE: A6
FORMER COMPANY:
FORMER CONFORMED NAME: API ENTERPRISES INC
DATE OF NAME CHANGE: 19920703
FORMER COMPANY:
FORMER CONFORMED NAME: ALARM PRODUCTS INTERNATIONAL INC
DATE OF NAME CHANGE: 19851210
</SEC-HEADER>
<DOCUMENT>
<TYPE>10KSB
<SEQUENCE>1
<TEXT>
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
For Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Annual Report Pursuant to Section 13 or 15(a) of the Securities Act of
1934 for the fiscal year ended December 31, 1999
Commission File No. 0-7099
CECO ENVIRONMENTAL CORP.
(Exact Name of Registrant as Specified in Its Charter)
New York 13-2566064
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) No.)
505 University Avenue, Suite 1400
Toronto, Ontario CANADA M5G 1X3
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code:(416) 593-6543
Securities registered under Section 12(b) of the Act: None
Securities registered under Section (g) of the Act:
Common Stock, $0.01 par value per share
(Title of Class)
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 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Issuer's Revenues for its most recent fiscal year: $23,861,782.
Aggregate market value of voting stock held by non-affiliates of
registrant (based on the last sale price on March 23, 2000): $10,534,787
Indicate the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practical date: 8,388,816 shares of
common stock, par value $0.01 per share, as of March 24, 2000.
1
<PAGE>
PART I
Item 1. Business
CECO Environmental Corp. (the "Company") was incorporated in New York
State in 1966. The Company owns 100% of the stock of CECO Group, Inc. ("CECO
Group"). CECO Group owns 100% of the stock of The Kirk & Blum Manufacturing
Company ("Kirk & Blum"), and 93.8% of the common stock of CECO Filters, Inc., a
Delaware corporation ("Filters"), and beneficially owns 100% of the stock of
kbd/Technic, Inc. The Company operates through its wholly owned subsidiary, CECO
Group.
During the 1999 fiscal year the Company underwent a fundamental
transformation. With the acquisition of Kirk & Blum and kbd/Technic,
Inc.("kbd/Technic") on December 7, 1999, the size of the business and the focus
of the Company was fundamentally changed. With the addition of Kirk & Blum,
89.5% of whose net sales arose from the fabrication and installation of
industrial ventilation, dust, fume and mist control systems in 1999, the Company
added a new dimension to its product line and broadens its coverage of air
pollution control technology. In 1999, Kirk & Blum and kbd/Technic had combined
revenue of $72,366,016, while the revenue of the Company and its subsidiaries
(other than Kirk & Blum and kbd/Technic, Inc.) for that period was $17,525,664.
The Company now combines under a single organization both Kirk & Blum,
kbd/Technic and Filters and its subsidiaries.
Change in Corporate Structure
As part of the acquisition of Kirk & Blum, the Company created CECO
Group as a wholly owned subsidiary of the Company for the purpose of holding all
the stock of its operating companies. Immediately following the acquisition of
Kirk & Blum, CECO Group beneficially owned Kirk & Blum, kbd/Technic (through the
voting trust referred to below) and the approximately 93.8% of Filters formerly
held by the Company. The other operating companies controlled by the Company,
Air Purator Corporation and New Busch Co., Inc., are wholly-owned subsidiaries
of Filters.
In connection with this restructuring, Richard Blum, the president of
Kirk & Blum and the Chairman of kbd/Technic, was named the president and chief
executive officer of CECO Group. Mr. Blum's responsibilities include the overall
management and direction of the various CECO operating companies, the management
of Kirk & Blum and integrating the various CECO subsidiaries.
2
<PAGE>
The Kirk & Blum Manufacturing Company
Kirk & Blum, with headquarters in Cincinnati, Ohio, is a leading
provider of turnkey engineering, design, manufacturing and installation services
in the air pollution control industry. Kirk & Blum's business is focused on
designing, building, and installing systems that remove airborne contaminants
from industrial facilities as well as equipment that control emissions from such
facilities. Kirk & Blum serves its customers from offices and plants in
Cincinnati, OH; Indianapolis, IN; Defiance, OH; Louisville and Lexington, KY;
Columbia, TN; and Greensboro, NC; In October 1998, Engineering News Record
ranked Kirk & Blum as the largest specialty sheet metal contractor in the
country. With a diversified base of more than 1,500 active customers, Kirk &
Blum provides services to a number of industries including aerospace, ceramics,
metalworking, printing, paper, food, foundries, metal plating, woodworking,
chemicals, tobacco, glass, automotive, and pharmaceuticals.
Kirk & Blum has three lines of business, all evolving from the original
air pollution systems business. The largest line of business, located in seven
strategic locations, is with respect to air pollution control systems and
industrial ventilation. This line of business includes fabricating, designing,
engineering, and installing industrial ventilation, dust, fume, and mist control
systems, as well as automotive spray booth systems, industrial and process
piping, and other industrial sheet metal work. Well known customers include
General Motors, Procter & Gamble, Ingersoll Milling Machine, Toyota, Saturn,
Matsushita, and Alcoa.
Kirk & Blum also provides custom metal fabrication services at its
Cincinnati, Ohio and Lexington, Kentucky locations. These operations fabricate
parts, subassemblies, and customized products for air pollution and non-air
pollution applications from sheet, plate, and structurals. These operations give
Kirk & Blum the ability to meet project schedules and cost targets in air
pollution control projects while generating additional fabrication revenue in
support of non-air pollution control industries in the tri-state region
surrounding Cincinnati. Customers include Siemens Energy & Automation, Duriron
and Eastman Chemical.
Kirk & Blum also manufactures component parts for industrial air
systems at its Cincinnati, Ohio location. This division provides standard and
custom components for contractors and companies that design and/or install their
own air systems. Products include angle rings, elbows, cut-offs, and other
components used in ventilation systems. Major distributors of this division's
products include N.B. Handy, Three States Supply, Albina Pipe Bending, and
Indiana Supply.
kbd/Technic, Inc.
Kbd/Technic, a sister company of Kirk & Blum, is a specialty
engineering firm concentrating in industrial ventilation, dust and fume control.
Services offered include air system testing and balancing, source emission
testing, industrial ventilation engineering, turnkey project engineering
(civil/structural, electrical), sound and vibration system engineering, and
other special projects. In addition to generating service revenue, kbd/Technic,
Inc. often serves as a referral source for other Kirk & Blum divisions.
Customers include General Motors, Ford, Baldwin Graphic Products, Emtec, and
Heidelberg & Harris.
3
<PAGE>
CECO Filters, Inc.
Filters is located in Conshohocken, Pennsylvania. Filters manufactures
and sells industrial air filters known as fiber bed mist eliminators. The
filters are used to trap, collect and remove solid soluble and liquid
particulate matter suspended in an air or other gas stream whether generated in
a point source emission or otherwise. The principal functions which can be
performed by use of the filters are (a) the removal of damaging mists and
particles (for example, in process operations that could cause downstream
corrosion and damage to equipment), (b) the removal of pollutants and (c) the
recovery of valuable materials for reuse. The filters are also used to collect
fine insoluble particulates. Filters' filters are used by, among others, the
chemical and electronics industries; manufacturers of various acids, vegetable
and animal based cooking oils, textile products, alkalies, chlorine, paper,
computers, automobiles, asphalt, pharmaceutical products and chromic acid;
electric generating facilities including cogeneration facilities; and end users
of pollution control products such as incinerators.
Filters holds a US Patent for a device with the trade names of the
N-SERT(R) and X-SERT(R) prefilter. This device is used to protect the filter's
surface from becoming coated with insoluble solids. Field performance has
demonstrated the effectiveness of this device. Filters also holds a patent for
its N-ESTED(R) multiple-bed fiberbed TWIN-PAK(R) filter, which permits an
increase in filter surface area of 60% or more, thus decreasing energy
consumption and improving collection efficiency. The device also permits the
user to increase the capacity of the emission generating source without an
energy or major modification penalty.
Filters' filters range in size from 2 to 20 feet in height and are
typically either 16 or 24 inches in diameter. The cages used in Filters' filter
assemblies may be stainless steel, carbon steel, titanium or fiberglass mesh.
The filter material used in approximately 75% of Filters' filters is fiberglass,
which may be purchased in various grades of fiber diameter and chemical
resistance depending on the specific requirements of the customer. Filter
material may also be made of polyester, polypropelene or ceramic materials.
Filters' filters are manufactured with different levels of efficiency in the
collectibility of particulates, depending on the requirements of the customer.
4
<PAGE>
Eventually, the filter material contained in Filters' filters will
become saturated with insoluble solids or corroded and require replacement. The
life of the filter material will be primarily dependent on the nature of the
particles collected and the filtration atmosphere. Filter life generally ranges
from 3 months to 15 years. The filters can be returned to Filters for
replacement of the filter material, or can be replaced on-site by the customer.
Filters sells replacement filter material segments with the trade name of
SITE-PAK(R) for on-site installation by the customer and compressor kits to be
used in connection with on-site replacement.
Filters has exclusive rights to engineer, market and sell the patented
Catenary Grid Scrubber(TM). This device is designed for use with heat and mass
transfer operations and particulate control. Filters designs complete systems
centered around these devices.
A significant portion of Filters' business consists of the sale of
replacement filter material segments for its filters and for filters made by
other manufacturers. The replacement process for filters made by other
manufacturers involves modification of the cages to permit the insertion of
replacement segments. Once modification of the cage and replacement of filter
material has been completed by Filters, subsequent replacement of the filter
material can be made on-site by the customer.
During 1999, Filters continued to implement the results of its new
design strategies by utilizing standard components customized for specific
customer needs. These unique designs are characterized by ease of use,
flexibility in application and the ability to achieve complete product recycle
when the customer's use is satisfied. This strategy enables Filters to offer the
same units or applications in widely disparate industries with the possibility
to reuse the units once the original use is satisfied. It also allows Filters
the flexibility to sell or rent the systems. The rental approach allows Filters
to reuse the units after cleaning and repacking, resulting in a higher return on
capital employed.
Air Purator Corporation
Air Purator Corporation ("APC"), a wholly owned subsidiary of Filters,
is engaged in the manufacture of specialty needled fiberglass fabrics. Some of
the fabrics are coated to permit their use in certain highly corrosive
applications. The fabrics are mainly used in a particulate collection device
known as a pulse jet baghouse which is fabricated by a number of companies.
Before APC's fabric is placed into the baghouse, the fabric will generally be
sewn into a shape resembling a tube closed at one end, called a bag. The bag is
then placed in an enclosed cylindrical apparatus known as a bag holder. APC
mainly sells its fabrics to the bag fabricator. Other applications include the
recovery of valuable materials such as carbon black. There are many domestic and
foreign fabricators with which APC deals. APC's flagship product line is known
in the field under the Huyglas(R) trade name. Other products include Dynaglas(R)
and GNT products.
5
<PAGE>
A felted fiberglass fabric developed by APC and targeted to compete
with other fabrics sold for dust collection in industrial applications is now
being marketed. This product may allow Filters to compete for a larger share of
the global market for filter fabric media and may add to Filters' established
position with the Huyglas(R) trade name. APC recently developed two new products
that are capable of higher temperature exposure and less costly final
fabrication. These products, once commercialized, could improve the operating
results of APC.
APC is presently engaged in the development of additional products
based on its proprietary technology. One of its sales personnel is designated as
a "Product Champion" and is vigorously pursuing various applications outside of
uses traditionally associated with such fabrics. Several new products are
currently being tested, but APC is unable to predict whether these efforts will
result in the successful development of marketable products.
New Busch Co., Inc.
Busch, a wholly-owned subsidiary of Filters, is engaged in the business
of marketing, selling, designing and assembling ventilation, environmental and
process-related products, and providing manufacturer's representative services
to certain companies or manufacturers. Busch consists of two divisions: Busch
INTERNATIONAL and Busch MARTEC. In 1999, Busch generated approximately 58.5% of
Filters' consolidated net sales.
Busch INTERNATIONAL, the larger division of Busch, designs and supplies
custom air systems to steel, aluminum, chemical, paper, glass, cement, power
generation, and related industries on an international level. As part of its
system designs, it supplies custom engineered precision-manufactured products
specializing in air related applications. In addition, Busch INTERNATIONAL
provides a wide range of special services, including conceptual studies,
application engineering, and system start-up. Busch employs an engineering staff
experienced in aerodynamic, mechanical, civil, and electrical disciplines. These
personnel are utilized entirely to support Busch's air systems work. Areas of
expertise include turbine inlet filtration, evaporative cooling, gas absorption,
scrubbers, acoustics, and corrosion control.
Busch INTERNATIONAL is noted as a premier supplier of custom engineered
solutions for the control of fume and oil mist emissions from steel and aluminum
rolling mills. Busch's Fume-Shield Systems are designed and supplied by Busch
and are devised to contain, capture, convey, and clean contaminated air. Busch
International fume exhaust systems and air-curtain hoods are designed to provide
high efficiency control of oil mist and fumes.
6
<PAGE>
Busch INTERNATIONAL also designs, manufactures and supplies ventilation
and other air handling equipment for industrial use. It also provides systems
for corrosion protection, fugitive emissions control, evaporative cooling, oil
mist collection, mill building ventilation, crane cab ventilation and other air
handling applications. Some of these air handling units are the MRV-80, MRV-81,
N-DUR-AIR, RE-TREAT(R), and PCR.
Busch INTERNATIONAL'S patented Jet*Star(R) heat and transfer device is
an excellent strip cooler, strip dryer, coil cooler, and strip blow-off system
and is gaining significant market penetration for its ability to rapidly cool or
heat metal or other materials. The rapid cooling permits higher throughput than
competitive processes. Busch is presently involved in supplying Jet*Star(R) for
new and upgrade mill construction work.
Busch MARTEC acts as a manufacturers' representative with manufacturers
relating to air and fluids products. Busch MARTEC does business almost
exclusively in the Pittsburgh and tri-state area. Busch MARTEC also supplies
certain products to the other Busch divisions.
U.S. Facilities Management
In 1999, Filters closed its U.S. Facilities Management division.
Customers
No customers comprised 10% or more of Kirk & Blum's net revenues for
1999.
During 1999, one customer comprised approximately 14% of Filters'
consolidated net revenues for 1999. During 1998, one customer comprised
approximately 11% of Filters' consolidated net revenues. In 1997, no customer
comprised more than 10% of Filters' consolidated net revenues.
Because the demand for Filters' filters, replacement segments, fabric
material, scrubbers and consulting services is not constant but can fluctuate
due to economic conditions, filter life and other factors beyond Filters'
control, Filters is unable to predict the level of purchases by its largest
customers, or any other customer, in the future.
While Filters is exploring targeting larger industrial markets, Filters
is also continuing to service specialty market areas, where it believes it has a
competitive advantage over its larger competitors who generally have much
greater resources than Filters. In the year ended December 31, 1999, Filters and
its subsidiaries continued to develop additional market areas, including storage
facility vent emission control and its related odor control, new dry particulate
emission control and combination scrubber-fiber bed filter systems, while also
implementing changes to reach larger industrial markets, such as machining,
automotive and asphalt markets. In recent years Filters added capabilities to
penetrate the semiconductor and printed circuit board markets through its filter
technology and its patented scrubbers.
7
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Other Aspects of the Kirk & Blum Acquisition
Employment Agreements, Bonuses and Stock Purchase Warrants
In connection with such acquisition, CECO Group entered into a
five-year employment agreement with Richard J. Blum. Lawrence J. Blum and David
D. Blum entered into five-year employment agreements with Kirk and Blum. These
employment agreements provide for annual salaries of $206,000, $100,000 and
$154,000, respectively, for the three Blums. These agreements granted Richard,
Lawrence and David Blum warrants to purchase 448,000, 217,000 and 335,000 shares
of common stock of the Company, respectively, at $2.9375, the closing price of
the Company's common stock on December 7, 1999. These warrants become
exercisable at the rate of 25% per year over the four years following December
7, 1999. The warrants have a term of ten years.
In addition, the employment agreements provide that each of the Blums
will be paid a bonus with respect to each of the fiscal years ended as of
December 31, of 2000, 2001, 2002, 2003 and 2004 equal to, in the aggregate, (i)
25% of the net income of the Company before interest and taxes in excess of
$4,000,000 as reported on the Company's audited financial statements filed with
the Securities and Exchange Commission with respect to such year, less (ii) the
contribution made on behalf of such employees to any profit sharing or 401(k)
plan by the Company, CECO Group, Kirk & Blum or any affiliate (other than
contributions made by the employees) with respect to such fiscal year. Of such
aggregate bonus, Richard J. Blum will receive 44.8%, Lawrence J. Blum will
receive 21.7% and David D. Blum will receive 33.5%.
None of these bonuses will be paid if the Company or CECO Group is in
default under any financing agreement with any bank or other financial
institution or any other material agreement to which the Company or CECO Group
is a party, or if the payment of such bonus would cause the Company or CECO
Group to be in default under any such agreement. If no bonuses are paid as a
result of the operation of the foregoing sentence, the unpaid bonuses will
accrue interest at the rate of 8% per annum. Any accrued and unpaid bonuses and
interest will be paid as soon as the Company or CECO Group ceases to be in
default under such agreements and such payment would not cause a default under
any such agreement. The payment of these bonuses is also subject to a
subordination agreement in favor of the banks providing the financing described
below.
8
<PAGE>
Bank Financing
The financing for the transaction was provided by a bank loan facility
in the amount of $25 million in term loans and a $10 million revolving credit
facility. The $14.5 term loan has a maturity of November 30, 2004; the $8.5
million term loan has a maturity of May 31, 2006; and the $2 million term loan
has a maturity of 90 days after December 7, 1999. Interim payments of principal
are required with respect to the $14.5 million and the $8.5 million term loans.
The Company borrowed against the cash value of life insurance owned by Kirk &
Blum in order to repay the $2 million term loan. The bank loan facility was
provided by PNC Bank, National Association, The Fifth Third Bank and Bank One,
N.A. (the "Bank Facility"). This financing replaced the financing provided to
the Company and its subsidiaries in March, 1999 by PNC Bank, and National
Association.
In addition, as a condition to obtaining the bank financing, the
Company placed $5 million of subordinated debt. The proceeds of the bank loans
and the additional $5 million of subordinated debt were used to pay the purchase
prices for Kirk & Blum and kbd/Technic, to pay expenses incurred in connection
with the acquisitions, to refinance existing indebtedness and for working
capital purposes. In connection with these loans, the banks providing the loan
facility received a lien on substantially all the assets of the Company and its
subsidiaries.
Subordinated Debt
The subordinated debt was provided to the Company in the amount of
$4,000,000 by Can-Med Technology, Inc. d/b/a Green Diamond Oil Corp., $500,000
by ICS Trustee Services, Inc. and $500,000 by Harvey Sandler. ICS Trustee
Services, Inc. and Harvey Sandler are not affiliated with the Company. Green
Diamond Oil Corp. is owned 50.1% by Icarus Investment Corp., a corporation owned
50% by Phillip DeZwirek, the Chairman of the Board of Directors and Chief
Executive Officer of the Company and a major stockholder and 50% by Jason
DeZwirek, Phillip DeZwirek's son and a director and secretary of the Company and
a major stockholder of the Company. The promissory notes which were issued to
evidence the subordinated debt provide that they accrue interest at the rate of
12% per annum, payable semi-annually subject to the subordination agreement with
the banks providing the financing referred to above.
In consideration for the subordinated lenders making the Company the
subordinated loans, the Company issued to the subordinated lenders warrants to
purchase up to 1,000,000 shares of the Company's common stock for $2.25 per
share, the closing price of the Company's common stock on the day that the
subordinated lenders entered into an agreement with the Company to provide the
subordinated loans. The warrants are exercisable from June 6, 2000 until 5:30
p.m. New York time on December 7, 2009. In connection with such warrants, the
subordinated lenders were granted certain registration rights with respect to
their warrants and shares of common stock of the Company into which the warrants
are convertible.
9
<PAGE>
The kbd/Technic, Inc. Voting Trust
Kbd/Technic may engage in engineering services in the State of Ohio and
in other states. In order to be a corporation licensed to perform engineering
services in the state of Ohio, Ohio law requires that a majority of the stock of
kbd/Technic, Inc. be owned by a licensed engineer. CECO Group has therefore
arranged that the stock of kbd/Technic, Inc. be owned by a voting trust of which
Richard J. Blum, the president of CECO Group, is the trustee. CECO Group remains
the beneficial owner of 100% of the stock of kbd/Technic, Inc.
Peerless Manufacturing Company
The Company purchased 177,900 shares of the common stock of Peerless
Manufacturing Company ("Peerless"), which represented 12.25% of the outstanding
Stock of Peerless. The Company acquired the common stock for purposes of
pursuing the possibility of acquiring the majority or all of the stock of
Peerless. The Company subsequently sold 28,400 shares of Peerless and is no
longer intending to purchase additional shares for the purpose of obtaining
control.
Government Regulations
The Company and its subsidiaries have not been materially impacted by
existing government regulation, nor is the Company aware of any probable
government regulation that would materially affect its operations. The Company's
costs in complying with environmental laws has been negligible.
During 1999 and 1998, Filters estimates that $33,000 and $97,000
respectively, has been expended on Filters' research and development programs.
Such costs are generally included as factors in determining Filters' pricing
procedures. Kirk & Blum has expended minimal amounts on research and
development. Any such costs are included as factors in determining the price of
its products.
Suppliers
Kirk & Blum purchases its raw materials (mainly angle iron and sheet
plate products) from a variety of sources. When possible, Kirk & Blum secures
these materials from steel mills. Other materials are purchased from a variety
of steel service centers. Kirk & Blum does not anticipate any shortages in the
near future.
10
<PAGE>
Filters purchases all of its chemical grade fiberglass as needed from
Manville Corporation, which Filters believes is the only domestic supplier of
such fiberglass. However, there are foreign suppliers of chemical grade
fiberglass, and, based on current conditions, Filters believes that it could
obtain such material from foreign suppliers on acceptable terms. Filters
believes that there is sufficient supply of raw materials for the other
components of its filters and does not anticipate any shortages in the near
future.
APC purchases its raw material from a variety of sources and does not
anticipate any shortages in the near future.
While Filters depends upon two suppliers for certain specialty items,
including glass and chemicals, Filters believes it has a good relationship with
such suppliers and does not anticipate any difficulty in continuing to receive
such items on terms acceptable to the Company.
Busch purchases a majority of its fans from New York Blower and a
majority of its louvers and dampers from American Warming. Busch purchases
additional materials from a variety of sources and does not anticipate any
shortages in the near future. Busch believes it has a good relationship with
such suppliers and does not anticipate any difficulty in continuing to receive
such items on terms acceptable to Busch.
Competition and Marketing
Kirk & Blum is the largest industrial sheet metal contractor in the
United States. Kirk & Blum believes that it is the largest provider of the types
of industrial ventilation systems that it produces. While there are equipment
manufacturers that are larger, Kirk & Blum believes that there are no systems
contractors who are larger.
Kirk & Blum faces substantial competition with respect to its contract
fabrication services. Kirk & Blum focuses on securing relationships and
contracts with manufacturers that need its services on a long-term basis.
Kirk & Blum believes that it is the second largest supplier in the
component parts industry. Its major competitor is Mid West Metal Products. Kirk
& Blum believes that it is the only provider in this market segment that uses a
network of stocking distributors.
The arena in which kbd/Technic competes is highly fragmented.
kbd/Technic believes that it is one of the largest consulting firms providing
only air engineering consulting services. Larger consulting engineering
companies may provide some of the services provided by kbd/Technic, however,
they do not concentrate on air engineering consulting services. Such consulting
engineering companies, however, generally will have greater resources than
kbd/Technic.
11
<PAGE>
With respect to Filters' products, Monsanto Corporation is dominant in
the fiber bed mist eliminator industry. Monsanto's financial resources are far
greater than Filters, and Monsanto can undertake much more extensive marketing
and advertising programs than Filters. Monsanto is also a competitor of Busch.
Certain other competitors also have greater financial resources than Filters.
Filters competes by stressing its exclusive products, including
SITE-PAK(R) segments that permit on-site filter media replacement capability and
prefilters, its patented product that protects the surface of a fiber bed filter
from becoming plugged with solids, and its patented multiple-bed fiberbed
filters that dramatically increase the surface area of a filter. Also, the
Company believes that Filters is the only U.S. manufacturer of fiber bed mist
eliminators whose filter material can be replaced on-site by a customer. The
Company believes that Filters is price competitive within the market for filters
with similar efficiency.
Manufacturers of electrostatic precipitators and wet scrubbers may also
be deemed to be in competition with Filters, because those devices are also
effective in removing particulates from an air or another gas stream. While such
devices may have higher operating costs than fiber bed mist eliminators,
replacement of the component parts of such devices is rare as compared to fiber
bed mist eliminators.
Filters and its subsidiaries each face substantial competition. APC and
Filters each face competition from other forms of environmental control and
material recovery devices including scrubbers and electrostatic precipitators
and from other filter fabric media that can also be fabricated into bags for
baghouses. These fabrics and fibers include, Teflon(R), Goretex(R), woven
fiberglass (both treated and non-treated), polyester, Ryton(R), Nomex(R) and
several other fabrics.
Kirk & Blum markets its ventilation systems through direct solicitation
of existing customers and through its marketing personnel. Kirk & Blum also
utilizes some finders arrangements.
Filters and its subsidiaries' marketing efforts have consisted of
telemarketing and direct solicitation of orders from existing customers. Filters
and its subsidiaries also utilize direct mail solicitation and selected
advertising in trade journals and product guides and trade shows.
Filters and its subsidiaries also utilize sales representatives located
in the United States, Canada and overseas and Special Sales Directors, each
focused on specific industries. Busch, in addition to using direct solicitation
and some sales representatives, also participates in industrial shows.
12
<PAGE>
Employees
As of December 31, 1999, the Company had one full-time employee. CECO
Group and its subsidiaries had 638 full-time employees and 8 part-time employees
as of December 31, 1999. None of the Company's employees are currently unionized
other than certain employees of Kirk & Blum. As of December 31, 1999, Kirk &
Blum had 450 union employees in eleven separate locals. Kirk & Blum is a party
to eleven union contracts; ten are with different locals of the Sheet Metal
Workers International Association and one is with the Pipe Fitters. Three of the
contracts expire in 2000, one in May, one in June and one in July. Six of the
contracts expire in May 2001. The remaining two contracts expire in April of
2002. The Company considers its relationship with its employees to be
satisfactory.
Key Employees
The operations of Kirk & Blum are largely dependent on Richard Blum.
The loss of Richard Blum to Kirk & Blum could have a material adverse effect
upon the operations of Kirk & Blum.
In 1999, Filters' operations were largely dependent on the efforts of
its President, Dr. Steven I. Taub. The loss to Filters of Dr. Taub could have a
material adverse effect upon the operations of Filters. Filters has obtained key
man life insurance in face amount of $5 million on the life of Dr. Taub in an
effort to reduce, to the extent possible, the immediate adverse economic impact
to its business that could occur if it were to lose the services of Dr. Taub.
Product Liability Insurance
The Company's subsidiaries carry product liability insurance covering
its respective products, excluding environmental liability.
Patents
Filters currently holds one US patent for its N-SERT(R) and X-SERT(R)
prefilters. Filters also holds a patent on its Twin Pak(R) multiple bed fiberbed
filter and an exclusive world-wide license to the patent on the Catenary
Grid(TM) Scrubber, Ultra-violet Enhanced Cantenary Grid Scrubber, and the Narrow
Gap Venturi Scrubber, along with fluoropolymer media for difusion filtration.
APC holds two patents on the Huyglas material. All of the prefilters, the
multiple bed units and the Huyglas material have contributed to Filters'
performance during 1999. Busch holds an exclusive license to the patent on the
JET*STAR(R) strip cooler, strip dryer, coil cooler, and strip blow-off systems.
Busch also holds an exclusive license on the patent on the flexible nozzle
material used in connection with the JET*STAR(R) systems and the process of
using water in addition to air used in the JET*STAR(R) systems. There is no
assurance that measurable revenues will accrue to the Company or its
subsidiaries as a result of their patents or licenses.
13
<PAGE>
Acquisition of Shares of Filters by the Company
The Company made open market purchases of 65,800 shares of Filters in
1999. In connection with the acquisition of Kirk & Blum and kbd/Technic, the
Company transferred the Filters shares to the CECO Group. As of December 31,
1999 the CECO Group owned 6,439,606 shares of Filters, representing 93.8% of
Filters' common stock.
CECO Group intends to purchase additional shares of Filters common
stock if such additional shares become available at a price that the CECO Group
considers reasonable.
Item 2. Properties
The Company maintains its executive offices in Toronto, Ontario and its
operating offices in Cincinnati, Ohio.
Kirk & Blum's headquarters are located in Cincinnati, Ohio at a 236,178
square foot facility owned by Kirk & Blum. Functions performed in this facility
include sales, manufacturing and design. Located in this facility are
manufacturing capabilities for custom metal fabrication component parts, as well
as the headquarters of kbd/Technic and manufacturing for air pollution control
systems.
Kirk & Blum also own a 30,000 square foot facility in Indianapolis,
Indiana, a 35,000 square foot facility in Louisville, Kentucky, and a 33,400
square foot facility in Lexington, Kentucky.
Kirk & Blum leases a 28,920 square foot facility in Columbia, Tennessee
and an 18,000 square foot facility in Greensboro, North Carolina. The lease for
the Columbia property has current annual rent payments of $43,380 and expires at
the end of 2000. The Greensboro facility lease has annual lease payments of
$52,404 and is renewed on an annual basis.
Filters owns a plant facility in Conshohocken, Pennsylvania. On March
16, 1999 CECO refinanced the property with a seven year commercial mortgage from
PNC Bank, National Association at 7.75%, which was repaid in December 1999.
Filters, for APC's operations, leases 11,500 square feet of space from
BTR North America, Inc. for the premises in Taunton, Massachusetts for annual
rental of $54,625. This lease expires on February 28 of each year and is
renewable yearly upon mutual consent and APC continues to lease the premises as
a tenant-at-will.
14
<PAGE>
Busch maintains its offices in Pittsburgh, Pennsylvania. The lease that
Busch was assigned in connection with the acquisition of the Busch assets, is
dated January 10, 1980 and extends through July 31, 2002. The lease is for
approximately 12,000 square feet at an annual rental of $82,398. The rental
amount will be adjusted commencing August 1, 2000. Andrew M. Halapin, the former
principal owner of Busch, is the beneficial owner of the property in which
Busch's offices are located.
All properties owned by Kirk & Blum and Filters are subject to
mortgages to secure the amounts owed under the Bank Facility.
The Company considers the properties adequate for their respective uses.
Item 3. Legal Proceedings
There are no material pending legal proceedings to which the Company or
any of its subsidiaries is a party or to which any of their property is subject.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the shareholders of the Company was held on
November 16, 1999. At the meeting, the Company's four directors were elected,
the Company's 1999 Employee Stock Purchase Plan ("Stock Plan") was adopted, and
the appointment of Margolis & Company P.C. as the Company's accountants was
ratified. The votes for each of the directors were 4,870,000, with 17,000
against and 22,000 abstentions. The votes for the Stock Plan were 4,650,220,
with 19,687 against and 31,200 abstentions. The votes for the appointment of
Margolis & Company P.C. was 4,795,000, with 17,200 against and 30,500
abstentions.
PART II
Item 5. Market of the Registrant's Common Equity and Related Stockholder
Matters.
(a) The Company's common stock is traded in the over-the-counter market
and is quoted in the NASDAQ automated quotation system under the symbol CECE.
The following table sets forth the range of bid prices for the common stock of
the Company as reported in the NASDAQ system during the periods indicated, and
represents prices between broker-dealers, which do not include retail mark-ups
and mark-downs, or any commissions to the broker-dealers. The bid prices do not
reflect prices in actual transactions.
15
<PAGE>
CECE Common Stock - Bids CECE Common Stock - Bids
High Low High Low
---- --- ---- ---
1998 1999
1st Quarter $4.00 $2.625 1st Quarter $4.5000 $2.25
2nd Quarter $4.00 $2.375 2nd Quarter $4.6250 $3.00
3rd Quarter $3.00 $1.531 3rd Quarter $3.7500 $2.0625
4th Quarter $3.25 $1.406 4th Quarter $4.000 $1.7188
2000
1st Quarter $3.375 $2.0625
(through March 20, 2000)
(b) The approximate number of beneficial holders of common stock of the
Company as of March 22, 2000 was 1,900.
(c) The Company has paid no dividends during the fiscal year ended
December 31, 1998 or the fiscal year ended December 31, 1999. The Company does
not expect to pay dividends in the foreseeable future. The Company and its
subsidiaries are parties to various loan documents which prevent the Company
from paying any dividends.
Item 6. Management's Discussion and Analysis of Financial Conditions and
Results of Operations.
Overview
The Company's principal operating units are comprised of Kirk & Blum
Manufacturing Company, kbd/Technic, Inc., CECO Filters, Inc., Air Purator
Corporation and New Busch Co., Inc. which provide innovative solutions to
industrial ventilation and air quality problems through dust, mist, and fume
control systems, particle, and chemical control technologies.
The Company's Systems segment consists of Kirk & Blum Manufacturing
Company, kbd/Technic, Inc. and New Busch Co., Inc. Kirk & Blum is a leading
provider of turnkey engineering, design, manufacturing and installation services
in the air pollution control industry. Kirk & Blum's business is focused on
designing, building and installing systems which remove airborne contaminants
from industrial facilities as well as equipment that control emissions from such
facilities. Busch is engaged in providing system based solutions for industrial
ventilation and air pollution control problems through its design, fabrication,
supplying equipment and installation of equipment used to control the
environment in and around industrial plants with a variety of standard,
proprietary and patented technologies including its JET*STAR(R) cooling system.
kbd/Technic, Inc. is a specialty-engineering firm concentrating in industrial
ventilation. kbd/Technic provides air systems testing and balancing, source
emissions testing, industrial ventilation engineering, turnkey project
engineering (civil, structural and electrical), and sound and vibration systems
engineering. These companies have extensive knowledge and experience in
providing complete turnkey systems in new installations and revising existing
systems.
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The Company's Media segment consists of CECO Filters, Inc. and Air
Purator Corporation. CECO manufactures and markets filters known as fiber bed
mist eliminators, designed to trap, collect and remove solid soluble and liquid
particulate matter suspended in an air or other gas stream whether generated
from a point source emission or otherwise. CECO offers innovative patented
technologies, Catenary Grid and Narrow Gap Venturi Scrubbers, designed for
use with heat and mass transfer operations and particulate control. Air Purator
Corporation designs and manufactures high performance filter media and bags for
use in high temperature pulse jet baghouses, a highly effective type of baghouse
for capturing submicron particulate from gas streams.
The following discussion of the Company's results of operations and
financial condition should read in conjunction with the Consolidated Financial
Statement and Notes thereto (including Note 18, Segment Reporting) and other
financial information included elsewhere in this report.
Results of Operations
The Company's consolidated statement of operations for the years ended
December 31, 1999 and 1998 reflect the operations of the Company consolidated
with the operations of its subsidiaries. As of December 31, 1999, the Company
owned approximately 94% of the outstanding Common Stock of CECO. Minority
interest on the consolidated statement of operations has been presented as a
reduction in income for each year.
The following table sets forth line items shown on the consolidated
statement of operations, as a percentage of total revenues, for the years ended
December 31, 1999 and 1998. This table should be read in conjunction with the
consolidated financial statements and notes thereto.
17
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YEAR ENDED
DECEMBER 31,
1999 1998
----- -----
Revenues:
Net sales - products 42.1% 51.8%
Contract revenues 57.9 48.2
----- -----
Total revenues 100.0 100.0
----- -----
Costs and expenses:
Cost of revenues - products 23.6 29.6
Cost of revenues - contracts 41.2 32.5
Selling and administrative 30.3 26.5
Depreciation and amortization 3.1 2.7
----- -----
98.2 91.3
----- -----
Income from continuing operations before investment
income and interest expense 1.8 8.7
Investment income 2.1 .3
Interest expense 2.7 1.2
----- -----
Income from continuing operations before income
taxes and minority interest 1.2 7.8
Provision for income taxes .6 3.1
----- -----
Income from continuing operations before
minority interest .6 4.7
Minority interest - (.3)
----- -----
Income from continuing operations .6 4.4
----- -----
Discontinued operations 2.1 1.9
----- -----
Net income (loss) (1.5)% 2.5%
===== =====
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Revenues:
Consolidated total revenues for 1999 increased $2,109,000 (9.7 %) to
$23,862,000 versus 1998 total revenues of $21,753,000. This increase was
primarily the combination of increased revenues from the Systems segment of
$3,549,000 offset by decreases in Media and other segments of $688,000 and
$406,000, respectively. Consolidated revenues reflect additional revenues of
$6,336,000 from Kirk & Blum Manufacturing Company and kbd/Technic, Inc. for the
period from December 7, 1999 (acquisition date) through December 31, 1999.
Systems segment revenues reflect lower revenues from Busch in 1999
compared to 1998 as the result of a general decline in the metals industry.
Demand at rolling mills for fume exhaust systems and Busch's proprietary
JET*STAR(R) cooling technology declined in 1999.