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Envirotest Systems Corp/DE – ‘10-Q’ for 12/31/96

As of: Friday, 2/14/97 · For: 12/31/96 · Accession #: 912057-97-5609 · File #: 0-21454

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 2/14/97  Envirotest Systems Corp/DE        10-Q       12/31/96    3:32K                                    Merrill Corp/FA

Quarterly Report — Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                      16     57K 
 2: EX-11       Statement re: Computation of Earnings Per Share        1      6K 
 3: EX-27       EX-27 Financial Data Schedule                          2      8K

10-Q — Quarterly Report
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Exhibits and Reports on Form 8-K Financial Statements: Legal Proceedings
1	1st Page - Filing Submission
2	Item 1. Financial Statements:
12	Item 1. Legal Proceedings
14	Item 6. Exhibits and Reports on Form 8-K

10-Q 1st Page of 16 TOC ↑Top Previous Next ↓Bottom Just 1st
 
 UNITED STATES
  Securities and Exchange Commission
 Washington, D.C. 20549-1004
  ----------------------------
 Form 10-Q
(Mark One)                                                                      

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
ACT OF 1934                                                             

For the quarterly period ended December 31, 1996                                
or
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES        
EXCHANGE ACT OF 1934                                                  
For the transition period from             to                                   
         -----------    ------------

ENVIROTEST SYSTEMS CORP.
------------------------
(Exact name of registrant as specified in its charter)

Delaware                     0-21454                   06-0914220 
--------                     -------                   ---------- 
(State or  other jurisdiction     (Commission               (IRS Employer       
 of incorporation)              File Number)          Identification Number)

 ENVIROTEST TECHNOLOGIES, INC.
 -----------------------------
      (Exact name of registrant as specified in its charter)

Delaware            33-57384-01,  33-75406-01          36-2680300 
--------            -------------------------          ---------- 
(State or  other jurisdiction     (Commission               (IRS Employer       
of incorporation)                 File Number)           Identification Number) 

  246 Sobrante Way
   Sunnyvale, California 94086
   ---------------------------
(Address of principal executive offices, including zip code, of registrants)

  (408) 774-6300
  --------------
(Registrants' telephone number, including area code)  

 Indicate by check mark whether the registrants (1) have 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        
registrants were required to file such reports), and (2) have 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 of Common Stock                Outstanding at January 31, 1997
  ---------------------                -------------------------------

Class A Common Stock, $0.01 par value              13,204,396 shares            
Class B Common Stock, $0.01 par value               1,389,749 shares            
Class C Common Stock, $0.01 par value               2,026,111 shares            

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ENVIROTEST SYSTEMS CORP.    

INDEX     
-----     

                                                                      Page No.
                                                                      --------
PART I.  FINANCIAL INFORMATION                                                  
------------------------------                                                  

Item 1.  Financial Statements:                                            

Condensed Consolidated Balance Sheets:                
        December 31, 1996 and September 30, 1996                     3

Condensed Consolidated Statements of Operations:      
        three months ended December 31, 1996 and 1995                5

Condensed Consolidated Statements of Cash Flows:      
        three months ended December 31, 1996 and 1995                6

        Notes to Condensed Consolidated Financial Statements         7

Item 2.   Management's Discussion and Analysis of                         
        Financial Condition and Results of Operations                9

PART II.  OTHER INFORMATION                                                     
---------------------------                                                     

Item 1.  Legal Proceedings                                             12 
Item 6.  Exhibits and Reports on Form 8-K                              14 

SIGNATURES                                                                      
----------                                                                      
Exhibit Index                                                           

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     PART I. FINANCIAL INFORMATION
     Item 1.  Financial Statements
      ENVIROTEST SYSTEMS CORP.
     Condensed Consolidated Balance sheets
      (Amounts in thousands)

                                                                [Download Table]

                                               December 31,        September 30,
                                                  1996                 1996     
                                               ------------        -------------
                                                (unaudited)                     
                                                                                
ASSETS                                                                          
Current assets:                                                                 
   Cash and cash equivalents                      $143,417          $ 53,104    
   Short-term investments                                -             7,991    
   Settlement due from Commonwealth of                                          
     Pennsylvania                                                     80,000    
     (current portion)                                                          
   Contract receivables, net of allowance for                                   
     doubtful accounts of $468 and $449,                                        
     respectively                                    9,088            10,969    
   Prepaid and other current assets                  6,159             6,432    
                                                  --------          --------    
        Total current assets                       158,664           158,496    

Restricted cash                                     19,111            21,108    
Property, plant and equipment, net                 192,342           192,400    
Assets held under capital lease, net                45,108            46,108    
Assets held for sale, net                           30,276            32,246    
Intangible assets, net                              14,245            14,927    
Deferred debt acquisition costs, net                13,894            13,159    
Deferred charges, net                                1,137             1,189    
Other assets                                         1,675             1,151    
                                                  --------          --------    
         Total assets                             $476,452          $480,784    

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ENVIROTEST SYSTEMS CORP.
     Condensed Consolidated Balance sheets (Continued)
      (Amounts in thousands)

                                                                [Download Table]
                                                                             
LIABILITIES AND STOCKHOLDERS' EQUITY                                         
Current liabilities:                                                         
   Accounts payable                               $  2,525          $  3,825 
   Accrued interest                                  9,467             1,689 
   Current portion of long-term debt                 4,032             4,740 
   Current portion of capital lease and                                      
     long-term debt obligation                       4,800             3,880 
   Other current liabilities                        25,222            27,754 
                                                  --------          -------- 
         Total current liabilities                  46,046            41,888 

Senior long-term debt, net                         199,238           199,192 
Senior subordinated debt                           125,000           125,000 
Capital lease and long-term debt obligation,                                 
   net of current portion                           56,965            58,155 
Other long-term debt, net of current portion        36,997            38,129 
Other long-term liabilities                          5,377             5,266 
                                                  --------          -------- 
         Total liabilities                         469,623           467,630 

Stockholders' equity:                                                        
   Common stock                                        166               166 
   Additional paid-in capital                       60,172            60,172 
   Cumulative currency adjustment                     (247)              (96)
   Retained deficit                                (47,684)          (41,510)
   Other stockholders' equity                       (5,578)           (5,578)
                                                  --------          -------- 
         Total stockholders' equity                  6,829            13,154 
                                                  --------          -------- 
         Total liabilities and stockholders'                                 
           equity                                 $476,452          $480,784 
                                                  --------          -------- 
                                                  --------          -------- 

The accompanying notes are an integral part of the condensed        
consolidated financial statements.    

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ENVIROTEST SYSTEMS CORP.    
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 
(Amounts in thousands, except per share data) 

                                              Three Months Ended
                                              December 31,

                                              1996          1995
                                              --------      --------
                                               (Unaudited)

Contract revenues                                   $31,179       $28,184       
Costs of services                                    24,604        21,892       
                                              --------      --------
Gross profit                                          6,575         6,292       

Selling, general and administrative expenses          4,294         4,177       
Amortization expense                                    672         1,011       
Gain on Pennsylvania settlement                           -       (15,307)      
                                              --------      --------
Income from operations                              1,609        16,411     

Other expense (income):                                                         
Interest expense                                   9,548         8,326    
Other                                                (80)           20    
Interest income                                   (1,685)       (1,095)   
                                              --------      --------
Income (loss) before income taxes              (6,174)        9,160 
Income tax expense                                        -         3,572       
                                              --------      --------
Net income (loss)                                   $(6,174)      $ 5,588       
                                              --------      --------
                                              --------      --------
Earnings (loss) per common and common                                           
equivalent share                                 $ (0.37)      $  0.32    
                                              --------      --------
                                              --------      --------
Weighted average common shares and                                              
common equivalent shares                          16,620        17,265    
                                              --------      --------
                                              --------      --------
Earnings (loss) per common share - assuming                                     
full dilution                                    $ (0.37)      $  0.32    
                                              --------      --------
                                              --------      --------
Weighted average common shares and common                                       
equivalent shares                                 16,620        17,265    
                                              --------      --------
                                              --------      --------

The accompanying notes are an integral part of the condensed consolidated       
financial statements.               

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      ENVIROTEST SYSTEMS CORP.
     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
      (Amounts in thousands)

                                                        Three Months Ended
                                                          December 31,
                                                        1996          1995
                                                       -------       -------
                                                         (Unaudited)

Cash flows from operating activities                    $  6,853       $ 31,807 
                                                        --------      --------
Cash flows from investing activities:                                           
 Maturity of short-term investments                       7,991          1,347
  Purchases of property, plant, and equipment             (3,638)       (27,596)
                                                        --------      --------
Net cash provided by (used in) investing                            
        activities                                         4,353        (26,249)

Cash flows from financing activities:                                           

 Proceeds from sale of Pennsylvania receivable           79,405              -
 Proceeds from borrowings of long-term debt                   -         17,000
 Decrease in restricted cash                              1,997         14,837
 Repayment of long-term debt                               (980)             -
 Repayment of obligations under capital lease            (1,130)             -
  Capitalization of loan fees                               (190)          (573)
 Other                                                        -            121
                                                        --------      --------
     Net cash provided by financing activities           79,102         31,385

Effect of exchange rate on cash                                5             13 
                                                        --------      --------
Net increase in cash and cash equivalents                 90,313         36,956 
Cash and cash equivalents, beginning of                                         
 period                                                  53,104         17,079
                                                        --------      --------
Cash and cash equivalents, end of period                $143,417        $54,035 

The accompanying notes are an integral part of the condensed consolidated       
financial statements.                 

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    ENVIROTEST SYSTEMS CORP.
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.   Basis of Presentation                                              

 The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote        
disclosures normally included in financial statements prepared in accordance    
with generally accepted accounting principles have been condensed or omitted    
pursuant to such rules and regulations. In the opinion of management, all       
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included.                                           

   The accompanying condensed consolidated financial statements should be read
in conjunction with the Company's audited consolidated financial statements and 
related footnotes included in the Company's Annual Report on Form 10-K for the  
year ended September 30, 1996 filed with the Securities and Exchange Commission.

Operating results for the interim periods shown in this report are not  
necessarily indicative of the results to be expected for any other interim      
period or the full fiscal year.                                                 

2.  Deferred Charges                                                            

The Company incurs significant expenses associated with bringing new    
emissions testing programs into operation, including staff recruiting and       
training, public information and similar pre-operating costs. These expenses are
deferred and amortized over a twelve month period beginning with the            
commencement of the emissions program. At December 31, 1996, the Company had    
incurred and deferred approximately $1.1 million, net of accumulated            
amortization, of such expenses relating to the Indiana and Connecticut emissions
programs. The Company expects that its results of operations during any fiscal  
period that includes the commencement of a program will be adversely impacted by
this accelerated. amortization.                                                 

3.  Pennsylvania Settlement                                                     

On December 11, 1996, the Company sold its right to receive the two     
remaining installment payments totaling $80 million (the "Receivable Assets") in
principal amount due under a settlement agreement with the Commonwealth of      
Pennsylvania (the "Settlement Agreement") for approximately $79,405,000.        

  The transaction was effected through a sale of the Receivables Assets from
Envirotest Partners, a Pennsylvania general partnership owned by Envirotest and 
ETI, to a newly formed wholly owned subsidiary of the Company, ES Funding Corp. 
("Funding"). Funding, in turn, transferred the Receivables Assets to an         
affiliate of a Pennsylvania bank. Funding and Partners provided certain         
representations in connection with the transaction, including representations as
to enforceability of the Settlement Agreement against the Commonwealth, and     
agreed to repurchase the Receivables Assets if Partners fails to comply with its
obligations under the Settlement                                                

7 

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Agreement.                                                                      

The Settlement Agreement also requires the Company to use its best      
efforts to dispose of the assets it acquired to perform vehicle emissions       
testing services in Pennsylvania. If the net proceeds received by the Company   
from the sale of the assets is less than $55 million, Pennsylvania is           
obligated to pay the Company fifty percent of the difference up to $11          
million no later than July 31, 1998. The amount of this contingent payment      
was reduced from $15 million in an amendment to the Settlement Agreement that   
permitted the Company to complete sale of the receivable assets.  Should the    
net proceeds from the sale of the real estate and other program related         
assets exceed $55 million, the Company is obligated to pay the Commonwealth     
75% of the amount by which the net proceeds exceed $55 million. Based upon      
the experience with recent sales of these assets, and the sufficiency of        
reserves, the Company has increased its estimates of the residual value of      
the remaining real estate by 4 million and the Company is of the opinion        
that upon final disposition of properties no loss will be recognized.           

4.  Income Taxes                                                                

The deferred tax asset has been fully reserved as of December 31, 1996. 
The amount of the deferred tax asset considered realizable, however, could      
change in the near term if estimates of future taxable income are revised.      

5.  Legal Proceedings                                                           

 The State of Connecticut has made certain claims stating that the Company
owes the State $2.4 million plus accruing amounts for certain cost savings in   
the start up of the enhanced testing program in Connecticut.  The Company cannot
predict the outcome of this complaint.  However, the Company believes that it   
has valid defense against these claims.                                         

As previously disclosed, the Company is a defendant in Grendell, et al. 
V. Ohio EPA. et al, a taxpayers' class action suit originally filed on          
October 3, 1996 in Geauga County Court of Common Pleas, State of Ohio.  The     
case has been remanded to the Common Pleas Court in Franklin County, Ohio.      
Plaintiffs are political opponents to Ohio's motor vehicle emission             
inspection program, known as "E Check," and seek to enjoin the program and      
Envirotest's Ohio contracts as invalid and void based on three Ohio             
constitutional provisions.  No case management schedule has been issued by      
the Court.  The Company believes that it has valid defenses to the claims       
contained in the complaint and intends to defend the matter vigorously.         

  On January 30, 1997, Ron Young, as relator, filed an original action for a
writ of quo warranto and ancillary relief in the Ohio Supreme Court.  The action
names Betty D. Montgomery, Attorney General, as the respondent.  The complaint  
requests that the Court require respondent to establish by what authority the   
Ohio General Assembly enacted Am. Sub. S.B. 18, the State's most recent version 
of a motor vehicle inspection and maintenance ("I/M") program.                  

Apart from the question of standing, Envirotest believes that there are 
significant legal issues as to whether his action is encompassed within the     
scope and purpose of this extraordinary writ.  Envirotest filed a motion to     
intervene as an additional party respondent on February 4, 1997.  The Attorney  
General has twenty-one days from the date of service to respond.  Envirotest    
believes it appears to be a necessary and indispensable party to the            
litigation, and that its motion should be sustained.                            

See Part II., Item 1 - Legal Proceedings for further discussion.        

The Company is a party to various other legal proceedings and claims in 
the ordinary course of business. The Company does not believe that the          
outcome of any pending matters will have a material adverse affect on its       
consolidated financial position or results of operations.                       

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      ENVIROTEST SYSTEMS CORP.

Item 2.                                                                         

     MANAGEMENTS DISCUSSION AND ANALYSIS
      OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General                                                                         

The Company conducts its current operations directly and through its    
principal wholly owned subsidiaries, Envirotest Technologies, Inc. ("ETI"),     
Envirotest Wisconsin, Inc. and Systems Control, Inc., a Washington corporation. 
The Company's British Columbia, Canada operations are conducted through a       
British Columbia partnership, Ebco-Hamilton Partners ("EHP"), which is wholly   
owned by the Company (through its subsidiaries).                                

Results of Operations                                                           

 Contract revenues increased to $31.2 million in fiscal first quarter 1997
from $28.2 million in fiscal first quarter 1996, an increase of $3.0 million or 
10.6%. This increase is primarily attributable to a $2.8 million increase in    
revenue generated from the implementation of a new contract with the State of   
Ohio, additional revenue of $2.0 million from the Washington State program      
acquired on January 30, 1996, and a $1.0 million increase in the British        
Columbia program resulting from a one time adjustment in the scheduling         
requirements for testing.  The increase in revenue was partially offset by a    
decrease in revenue of $1.6 million in the Colorado program as more vehicles    
were scheduled for testing in the corresponding first fiscal quarter 1996.      
The Connecticut program also experienced a decrease of $l.2 million as          
compared to the comparable quarter.  The test volume in the comparable          
quarter included tests that had been extended by the State of Connecticut       
during the commencement of the new program in fiscal 1995.  In addition,        
revenue also decreased $0.5 million as a result of the expiration of the        
California Quality Assurance contract which ceased September 30, 1996.          

Gross profit increased to $6.6 million in fiscal first quarter 1997 from
$6.3 million in fiscal first quarter 1996, an increase of $0.3 million, or      
4.8%. As a percentage of contract revenues, gross profit decreased to 21.1%     
in fiscal first quarter 1997 from 22.3% in fiscal first quarter 1996, an        
absolute decrease of 1.2%. This decrease was mainly attributable to the lower   
revenues in the Connecticut program, and the lower gross margin in the new      
Ohio program due to higher start-up costs then anticipated. This decrease was   
partially offset by the contribution from the newly acquired Washington         
program and the improvement in margins in the Colorado and British Columbia     
programs.                                                                       

  Selling, general and administrative ("SG&A") expenses were $4.3 million in
fiscal first quarter 1997 as compared to $4.2 million in fiscal first quarter   
1996. As a percentage of contract revenues, SG&A expenses decreased to 13.8% in 
fiscal first quarter 1997 from 14.8% in fiscal first quarter 1996, an absolute  
decrease of 1.0%.                                                               

   Amortization expense decreased to $0.7 million in fiscal first quarter 1997
from $ 1.0 million in fiscal first quarter 1996, a decrease of $0.3 million.    
The decrease is attributable to expiration of the California Quality Assurance  
contract as of September 30, 1996.                                              

First fiscal quarter 1996 included a one time gain on the Pennsylvania  
settlement of $15.3 million.                                                    

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Income from operations decreased to $1.6 million in fiscal first quarter
1997 from $16.4 million in fiscal first quarter 1996, a decrease of $14.8       
million. Income from operations as a percentage of contract revenues decreased  
to 5.2% in fiscal first quarter 1997 from 58.2% in fiscal first quarter 1996 an 
absolute decrease of 53.0%.  This decrease was primarily attributable to the    
gain of $15.3 million reflected on the Pennsylvania settlement in fiscal first  
quarter of 1996.                                                                

Interest expense increased to $9.5 million in fiscal first quarter 1997 
from $8.3 million in fiscal first quarter 1996, an increase of $1.2 million.    
The increase in interest expense was primarily attributable to debt associated  
with the start-up of new programs in Wisconsin, Washington, and Indiana.        

   Interest income increased to $1.7 million in fiscal first quarter 1997 from
$1.1 million in fiscal first quarter of 1996, an increase of $0.6 million.  The 
increase in interest income was primarily attributable to interest earned on the
amounts due under the Pennsylvania settlement.                                  

  There was no income tax benefit on the pretax loss in fiscal first quarter
1997 compared to an income tax expense of $3.6 million in fiscal first quarter  
1996.  The benefit was lower than the combined federal and state effective tax  
rate of approximately 39% as a result of recording a valuation allowance to     
fully reserve the deferred tax asset.                                           

Net loss was $6.2 million in fiscal first quarter 1997 compared to a net
income of $5.6 million in fiscal first quarter 1996, a decrease of $11.8        
million.                                                                        

Liquidity, Capital Resources and Commitments                                    

Cash and cash equivalents, short-term investments and restricted cash   
increased to $162.5 million at December 31, 1996 from $82.2 million at September
30, 1996. The increase of $80.3 million was primarily a result of the proceeds  
of $79.4 million received as a result of the Company selling its right to       
receive the two remaining installment payments totaling $80 million from the    
Commonwealth of Pennsylvania.                                                   

   The Company's primary uses of cash are the funding of the Company's capital
expenditure requirements, payments on capital and operating leases, interest    
payments and other working capital needs. The Company's capital and operating   
leases currently require minimum lease payments of approximately $15.7 million  
in fiscal year 1997, decreasing to approximately $14.3 million through 1999 and 
decreasing thereafter as certain leases are scheduled to expire.                

   The Company's capital expenditures include maintenance capital expenditures
for existing facilities, and development and construction expenditures for new  
emissions facilities. The Company's development and construction capital        
expenditures are dependent on the number of contracts it is awarded, and are    
only incurred after the contract has been signed.  After signing a contract, the
Company may incur significant development and construction expenditures, which  
the Company expects to finance with existing cash resources, internally         
generated funds, additional borrowings and alternative financing sources,       
including leasing alternatives. It generally takes one to two years after a     
contract has been signed for a program to begin operations and generate         
revenues, depending on the size of the program.                                 

   The Company's principal commitments at December 31, 1996 consist of capital
expenditure requirements for the completion of implementation of the Indiana    
program estimated at                                                            

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$2.4 million.  Also in fiscal 1997, the Company intends to spend                
approximately $1.2 million on maintenance capital expenditures.                 

  The Company believes that its existing cash resources, cash generated from
operations and alternative financing sources, including leasing alternatives,   
will be sufficient to complete implementation of the Indiana program and to meet
its liquidity requirements for the foreseeable future.                          

Recent Accounting Pronouncements                                                

Statement of Financial Accounting Standards No. 123 - Accounting for    
Stock-Based Compensation will be effective for the Company's 1997 fiscal year.  
This statement introduces a fair-value based method of accounting for           
stock-based compensation. It encourages, but does not require, companies to     
recognize compensation expense for grants of stock, stock options and other     
equity instruments to employees based on the new fair-value accounting rules.   
Companies that choose not to adopt the new fair-value accounting rules will be  
required to disclose pro forma net income and earnings per share under the new  
method. Management has not yet determined which method it will adopt.           

Certain sections of this Form 10-Q, including "Management's Discussion  
and Analysis of Financial Condition and Results of Operations," contain         
forward looking statements within the meaning of Section 21E of the             
Securities Exchange Act of 1934, with respect to the Company's expectations     
or belief concerning future events.  The Company cautions that these            
statements are further qualified by important factors that could cause actual   
results to differ materially from those in the forward looking statements.      
The forward looking statements include, without limitation, the amounts of      
reserves recognized and ultimate outcome of pending litigation.                 

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      ENVIROTEST SYSTEMS CORP.
      PART II. OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS                                                      

As previously disclosed, the Company's new contract with the state of   
Connecticut began January 1, 1995, with enhanced testing scheduled to begin on  
April 3, 1995.  Just prior to the startup of enhanced testing, the State decided
to continue the old testing procedure and phase in the enhanced testing.        
Additionally, the Company was unable to build two facilities, one due to the    
State's inability to provide the land the contract required and the other due to
the inability to obtain zoning.  The State claimed that it was entitled to be   
paid for the cost savings to the Company for not having performed the enhanced  
test and not having built the facilities.  The Company claimed additional costs 
incurred when the State unilaterally changed the test.  After unsuccessful      
settlement negotiations, the Commissioner of Department of Motor Vehicles       
rendered a decision on February 9, 1996 that the Company owed the State         
$2.4 million plus other non-qualified amounts for 1995 and additional accruing  
amounts until the enhanced test was performed and the facilities built.  In     
accordance with the contract and to protect its rights, the Company appealed the
Commissioner's decision to binding arbitration at the American Arbitration      
association.  On May 1, 1996, prior to the appointment of the arbitrators, the  
State filed a complaint in the Superior Court at Hartford to enjoin the         
arbitration from going forward claiming that the American Arbitration           
Association had no power to administer hearings in this manner.  The State has  
taken no further action on this matter and no hearing date with regard to the   
State's complaint has been scheduled.                                           

As previously disclosed, the Company is a defendant in Grendell, et al. 
V. Ohio EPA. et al, a taxpayers' class action suit originally filed on          
October 3, 1996 in Geauga County Court of Common Pleas, State of Ohio.  The     
case has been remanded to the Common Pleas Court in Franklin County, Ohio.      
Plaintiffs are political opponents to Ohio's motor vehicle emission             
inspection program, known as "E Check," and seek to enjoin the program and      
Envirotest's Ohio contracts as invalid and void based on three Ohio             
constitutional provisions.  No case management schedule has been issued by      
the Court.  The Company believes that it has valid defenses to the claims       
contained in the complaint and intends to defend the matter vigorously.         

  On January 30, 1997, Ron Young, as relator, filed an original action for a
writ of quo warranto and ancillary relief in the Ohio Supreme Court.  The action
names Betty D. Montgomery, Attorney General, as the respondent.  The complaint  
requests that the Court require respondent to establish by what authority the   
Ohio General Assembly enacted Am. Sub. S.B. 18, the State's most recent version 
of a motor vehicle inspection and maintenance ("I/M") program.                  

A relator needs authority to request a writ of quo warranto.  Typically,
only the State Attorney General has the right to bring such an action.  Mr.     
Young, a member of the Ohio House of Representatives, asserts that the          
Attorney General is disqualified from bringing an action for a writ.  In        
addition to asserting his standing to request a writ of quo warranto,           
Representative Young's complaint seeks to invalidate Envirotest's contracts     
awarded pursuant to Ohio's I/M statutes on state and federal constitutional     
grounds.                                                                        

Apart from the question of standing, Envirotest believes that there are 
significant legal issues as to whether his action is encompassed within the     
scope and purpose of this extraordinary writ.  Envirotest filed a motion to     
intervene as an additional party respondent on February 4, 1997.  The Attorney  
General has twenty-one days from the date of service to respond.  Envirotest    
believes                                                                        

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it appears to be a necessary and indispensable party to the litigation,         
and that its motion should be sustained.                                        

The Company is a party to various other legal proceedings and claims in 
the ordinary course of business.  The Company does not believe that the         
outcome of any pending matters will have a material adverse affect on its       
consolidated financial position or results of operations.                       

13

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Item 6.  EXHIBITS AND REPORTS ON FORM 8-K                                       

(a)  Exhibits                                                 

(11) Statement of Computation of Earnings Per Share 
(27) Financial Data Schedule                        

a.   Reports on Form 8-K                                                

The Registrants filed the following reports on Form 8-K during the last 
quarter:                                                                        

1.   The Company filed a Report on Form 8-K on December 12, 1996 that   
included information under Item 5 ("Other Events").  The Report was filed for   
the purpose of disclosing that the Company had sold its right to receive the two
remaining installment payments totaling $80 million in principal amount due to  
the Company under its Settlement Agreement with the Commonwealth of Pennsylvania
for approximately $79,405,000.  The Report did not include any financial        
statements.                                                                     

14

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      SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused their report to be signed on their behalf by the   
undersigned thereunto duly authorized.                                          

  ENVIROTEST SYSTEMS CORP.
(Registrant)

       ENVIROTEST TECHNOLOGIES, INC.
(Registrant)

Date:  February 14, 1997               /s/F. Robert Miller                      
F. Robert Miller      
               President and Chief Executive Officer

Date:  February 14, 1997               /s/Raj Modi                              
Raj Modi              
                 Vice President, Chief Financial Officer
           Treasurer and Assistant Secretary
       (Principal Financial Officer)

15

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      ENVIROTEST SYSTEMS CORP.

     EXHIBIT INDEX

Exhibit                                                                         
Number                                      Page No.                            

(11)          Statement of Computation Earnings Per Share                       
(27)          Financial Data Schedule                                           

16

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘10-Q’ Filing	Date	First	Last	Other Filings

	7/31/98	8
Filed on:	2/14/97	15
	2/4/97	8	12
	1/31/97	1
	1/30/97	8	12
For Period End:	12/31/96	1	10
	12/12/96	14		8-K
	12/11/96	7
	10/3/96	8	12
	9/30/96	7	10	10-K, 10-K405/A
	5/1/96	12
	2/9/96	12
	1/30/96	9
	12/31/95	2
	4/3/95	12
	1/1/95	12
				List all Filings

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Filing Submission 0000912057-97-005609 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Envirotest Systems Corp/DE – ‘10-Q’ for 12/31/96

As of: Friday, 2/14/97 · For: 12/31/96 · Accession #: 912057-97-5609 · File #: 0-21454

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