SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 0-5633
ENVIRONMENT ONE CORPORATION
(Name of small business issuer in its charter)
NEW YORK 14-1505298
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)
2773 Balltown Road, Niskayuna, New York 12309-1090
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (518) 346-6161
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Title of each class
Common Stock $.10 par value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to filing requirements for the past 90 days.
Yes [ X ] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosures will 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-KSB or any
amendment to this Form 10-KSB. [ X ]
Revenue for the year ended December 31, 1996: $21,536,430
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of January 30, 1997: $20,707,759
The number of shares of Common Stock, par value $.10 outstanding as of January
30, 1997: 4,219,054
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive proxy statement for its 1997 Annual Meeting
of Shareholders (to be filed no later than April 30, 1997) are incorporated by
reference in response to Items 10 and 11 of Part III of this report.
<PAGE>
Environment One Corporation
Form 10-KSB
Part I
Item 1. Business
The Environment One Corporation (EONE) is an environment-oriented product and
service company which started operations in January 1969. The Company operates
in two business segments: (A) Sewer Systems Business and (B) Detection Systems
Business. In January, 1996, the Company sold its Cirrus Incipient Fire Detector
(IFD) product line to PROTEC Fire Detection, plc of Nelson, Lancashire, England.
Information regarding this sale is set forth below in Item 6. Information
regarding the percentages of total sales attributable to the two business
segments for the past two fiscal years is set forth below in Item 6.
Sewer Systems
Low pressure sewer systems in the market today were pioneered by EONE. It has
proven to be an economical and effective method of handling wastewater in
otherwise difficult real estate developments including: waterfront, hilly
terrain, very flat lands and areas with high water tables. As more and more
communities are looking for cost effective solutions to waste water collection
problems, Environment One Corporation's pressure sewer systems ("EONE Sewers"),
are increasingly used in mainstream municipal and real estate development
applications.
Grinder pumps developed by the Company make the pressure sewer system feasible.
These units accept waste water from point sources, grind it into a fine slurry,
and pressurize it to permit transport through small diameter pipes. This small
diameter pressurized pipe can follow the contour of the terrain, resulting in
reduced costs of installation compared to conventional gravity lines. Several
models of the grinder pump are manufactured with and without storage tanks.
The manufacture of the grinder pump involves use of independent suppliers for
several of the components. Fabrication, machining, assembly and testing of the
assembled units are completed at the Company's plant.
The principal markets served by the pressure sewer systems are city and county
sewer districts, residential builders and land developers along with individual
homeowners. Products are sold to these markets from regional sales offices
across the United States and through a network of more than 30 distributors
throughout the United States, Canada, Europe and Japan. Several other pump
manufacturers offer grinder pumps and compete with EONE in these markets. All
but one offers a centrifugal type of pump. Environment One's positive
displacement pump and tank are unique, offering several distinct advantages over
the centrifugal pump. The Company believes it is well known in this marketplace.
Detection Systems
The Company's Detection Systems' products include: (1) Generator Condition
Monitor; and (2) Hydrogen Control Cabinet. These detection instruments are based
on the Company's expertise in the detection of sub-microscopic particles and gas
monitoring.
Generator Condition Monitor (GCM)
The GCM is designed to provide early warning of certain thermal failure
conditions which could lead to shutdown of hydrogen-cooled electric power
generators. The monitor also facilitates preventative maintenance of such
<PAGE>
equipment. The principal market served is electric utility companies, both
domestic and international. Customers are served by direct sales from the
Company's marketing function or by manufacturers' representatives in certain
parts of the world. There are only two other manufacturers of this equipment
worldwide and the Company is believed to be the leader in this market.
As a companion to the GCM, the Company also manufactures and sells an instrument
for air-cooled electric generators (GCM-A). This extends the marketing of
condition monitors to include hydroelectric and gas turbine driven generating
stations.
As an ancillary product to the GCM, the Company sells tagging compounds under
the name GEN-TAGS that are applied to critical areas of large electric power
generator units. The tagging compounds will assist utilities to quickly locate
"hot spots" developing in generators causing the GCM to alarm at which time a
sample of the overheated tagging compound (pyrolysate) is collected. Analysis of
the sample determines the location of the "hot spot" area. Depending on the area
of overheating, a different "fingerprint" or "chemical signature" will identify
each area for location of potential trouble.
Hydrogen Control Cabinet (HCC)
In 1995, the HCC was added to the detection systems product offerings. The HCC
continuously analyzes the purity of hydrogen and controls the rate of scavenging
in hydrogen-cooled turbine generators. It is vital to maintain the purity of the
hydrogen because it directly affects both efficiency and safety. To maintain a
hydrogen purity of approximately 98% in the generator casing, a small quantity
of hydrogen gas is continuously scavenged from the generator's end seals and
discharged to the atmosphere.
The HCC is designed and manufactured to satisfy the requirements of the General
Electric Company's Power Systems group, located in Schenectady, NY. The HCC will
be used by both domestic and international electric utility companies.
The major components of the HCC are two completely independent, interactive
hydrogen sensors and associated electronics that were designed by Environment
One. The micro-controller based system and explosion proof design represents a
new generation of hydrogen purity analyzer.
The HCC is sold direct by the Detection Systems marketing function and has the
potential for sale to the same customer base as the GCM.
Industry segment information is included in Note 8 to the Company's consolidated
financial statements included in Item 7.
Net Sales Backlog
The backlog of unshipped orders by industry segment is shown below. Generally,
all orders in the backlog at year-end are shipped during the following year. The
backlog has been calculated by EONE's normal practice of including only orders
that are to be delivered within twelve months. While these orders are firm, they
could be subject to change or cancellation in the future. In the past, the
effect of changes and cancellations has not been significant.
<PAGE>
Net Sales Backlog as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Sewer Systems $ 1,403,661 3,385,871
Detection Systems 517,788 249,925
------------ ---------
$ 1,921,449 3,635,796
============ =========
</TABLE>
Sources of Supply
Principal components used in the manufacture of the Company's grinder pump
include a motor, high density polyethylene parts, cast iron parts, fabricated
stainless steel and solid state controls. The principal components of the GCM
and HCC include fabricated aluminum, sheet metal and stainless steel, assembled
miscellaneous electronics, printed circuit boards and mechanical gauges.
The Company does not believe that it is dependent on any one supplier or
subcontractor to the extent that termination or loss of the supplier or
subcontractor relationship would have a material adverse effect on the Company's
business.
Patents
Since inception, the Company has been issued numerous U.S. and foreign patents
and it has filed numerous patent applications relating to product features. The
Company believes that patent protection is important and materially strengthens
its competitive position with respect to all the specific products that it now
markets. The Company, however, does not depend on any single patent or group of
patents.
Research and Development
All research and development costs are charged directly to operations as
incurred. Research and development costs were approximately $177,000 and
$266,000 in 1996 and 1995, respectively.
Environmental
Compliance by the Company with federal, state and local environmental protection
laws during 1996 and 1995 had no material effect upon capital expenditures,
earnings or the competitive position of the Company.
Employees
At December 31, 1996, the Company had 103 full-time employees.
Principal Customers
The Company had sales equaling 6% and 14% of total company revenues to one
customer in 1996 and 1995, respectively.
<PAGE>
Foreign Operations and Export Sales
The Company has entered into foreign markets and license agreements with respect
to certain products. In December 1990, Environment One Corporation Japan Co.
Ltd. was founded in Tokyo, Japan as a 70% owned subsidiary of the Company. The
purpose of this corporation is to promote the adaptation and sales of low
pressure sewer systems in Japan.
Export sales of low pressure sewer systems were approximately 2.8% and 3.7% of
total Company sales in 1996 and 1995, respectively. Export sales of detection
instruments (including IFD) were approximately 4.5% and 7.2% of total Company
sales in 1996 and 1995, respectively.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 (the
"Act") provides a "safe harbor" for forward-looking statements to encourage
companies to provide prospective information about themselves while limiting
unwarranted litigation, provided that the statements are identified as
forward-looking and are accompanied by meaningful cautionary statements
regarding important factors that could cause actual results to differ materially
from those projected in the statement. The Company desires to take advantage of
the "safe harbor" provisions of the Act, and is including the information set
forth below in this Form 10-KSB to point out the inherent difficulties in
predicting the impact of certain factors.
While the Company believes that its assumptions underlying any
forward-looking statements are reasonable, the following information includes
important factors which could cause the Company's actual results to differ
materially from any result which might be projected, forecasted, estimated, or
budgeted by the Company in its forward-looking statements, whether contained in
this Form 10-KSB or otherwise.
1. Heightened competition, including the intensification
of price competition, the entry of new competitors, and
the introduction of new products by new and existing
competitors.
2. Failure to obtain new customers or retain existing
customers.
3. Adverse publicity and news coverage impacting the
Company's reputation and sales potential.
4. Inability to carry out marketing and sales plans due to
unforeseen factors.
5. Significant economic downturns in the geographic market
areas serviced by the Company.
6. Higher service, administrative, or general expenses
occasioned by the need for additional advertising,
marketing, administrative, or management information
systems expenditures.
<PAGE>
7. A lack of availability of raw materials, necessary
manufacturing equipment, or contract manufacturers to
meet the Company's needs.
8. Underutilization of the Company's manufacturing
resources, resulting in production inefficiencies and
higher costs.
9. Start-up expenses, inefficiencies, delays, and
increased depreciation costs in connection with the
start of production in new facilities and expansions of
existing facilities.
10. The acquisition of fixed and other assets, including
inventory and receivables, and the making or incurring
of any expenditures and expenses, including but not
limited to depreciation and research and development
expenses.
11. Any revaluation of assets or related expenses and the
amount of, and any changes to, tax rates.
12. Loss or retirement of key executives.
13. Any activities of parties with which the Company has
agreements or understandings, including matters
affecting any investment or joint venture in which the
Company has an investment.
14. The amount, type, and cost of the financing available
to the Company, and any changes to that financing.
15. Adverse results in significant litigation or regulatory
proceedings.
16. Adverse changes in laws, regulations, interpretations,
and enforcement policies affecting the Company and its
business operations.
17. Natural disasters, work stoppages, and other events
beyond the control of the Company.
The foregoing list of factors should not be construed as
exhaustive, or as any admission regarding the adequacy of disclosures made by
the Company prior to the filing of this Form 10-KSB.
<PAGE>
Item 2. Property
The Company's headquarters in Niskayuna, New York is located in a modern,
concrete and steel frame, electrically and gas heated and air conditioned
building on approximately 35 acres of wooded land owned in fee. This facility is
subject to a mortgage as described in Note 2 to the Company's consolidated
financial statements included in Item 7. All segments of the business are
operated from the Company's headquarters.
Management believes that the Company's facilities are well maintained, in good
operating condition, adequately covered by insurance and are well adapted to its
present needs.
Item 3. Legal Proceedings
The Company is not involved in any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Price Range of Common Stock
The Company's common stock is traded on the National Association of Securities
Dealers Automated Quotation System (NASDAQ) under the trading symbol EONE. The
following table sets forth the high and low sales prices of the common stock for
the calendar quarters indicated, as reported by the NASDAQ:
<TABLE>
<CAPTION>
1996 High Low
<S> <C> <C>
Quarter 1 5 1/2 4 3/4
Quarter 2 6 4 1/2
Quarter 3 5 3/4 4 3/4
Quarter 4 6 5 3/8
1995 High Low
Quarter 1 3 1/4 2 1/4
Quarter 2 4 1/4 2 3/8
Quarter 3 4 7/8 3 7/8
Quarter 4 5 1/2 4 5/8
</TABLE>
<PAGE>
Approximate Number of Security Holders
Title of Class: Approximate Number of Holders at 12/31/96:
Common Stock $.10 par value 2144 (1)
(1) Includes shareholders of record in "nominee" or "street" name held by
brokers and others.
Dividends
The Company paid no dividends on its common stock during 1996 and 1995. The
Company's policy with regard to payment of dividends is evaluated annually with
consideration given to future growth and operating fund requirements. Currently,
Company policy is not to pay dividends.
Item 6. Management's Discussion and Analysis and Results of Operations
Cash provided from operations, as shown by the statement of cash flows (Item 7),
for 1996 was $927,000. This represented a decrease of $60,000 when compared to
1995. Major working capital components of the operating cash flow decrease from
1995 were the increase in receivables of $2,210,000 as fourth quarter revenue in
1996 increased 42.3%, or $1,852,000, over the same period in 1995 and the
increase in inventory of $423,000 to accommodate the growth in sales. Offsetting
this were increases in accounts payable, income taxes payable and accrued
expenses of $774,000, $348,000 and $462,000, respectively. In addition, the
Company accrued for the new deferred executive compensation plan that resulted
in $369,000 of non-cash expense. Investment in capital expenditures for 1996
amounted to $424,000 and represented a decrease of $58,000 over 1995. The major
components of capital expenditures in 1996 were the installation of an advanced
telephone system at the Company's headquarters along with tooling and equipment
expenditures in the Sewer Systems Business for cost reduction, enhanced product
performance and to improve the manufacturing process.
In January, 1996, the Company concluded an agreement with PROTEC Fire Detection,
plc of Nelson, Lancashire, England for the sale of its Cirrus IFD product line.
In a two-stage transaction with an approximate value of $750,000, the Company
transferred all Cirrus IFD assets and operations to PROTEC and simultaneously
entered into a product technology development contract that was concluded during
1996.
In September, 1996, the Company recognized the potential uncollectibility of a
note receivable from General Testing Corporation incurring a pre-tax write-off
of $136,000. After failure to receive timely payments on the note, the Company,
through legal counsel, served notice of default on the note to General Testing
Corporation. General Testing Corporation did not cure the payment defaults in
the period required. The Company is pursuing collection on the note.
<PAGE>
The following table shows selected balance sheet information for 1996 and 1995
expressed in thousands of dollars:
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
Current Assets ......................... $ 7,614 4,896
Current Liabilities .................... 3,628 2,465
Working Capital ........................ 3,986 2,431
Total Assets ........................... 11,255 8,722
Long-Term Debt ......................... 1,500 1,839
Shareholders' Equity ................... 5,713 4,348
</TABLE>
Summary
The following table shows a summary of operating results for the years 1996 and
1995 expressed as a percentage of sales:
<TABLE>
<CAPTION>
1996 1995
---- -----
<S> <C> <C>
Net Sales
Sewer Systems ....................... 86.9 % 87.7 %
Detection Systems ................... 8.8 12.3
Corporate ........................... 4.3 0.0
----- -----
Total Sales ................... 100.0 100.0
Cost of Sales .......................... 66.2 66.7
----- -----
Gross Margin ........................... 33.8 33.3
Selling, Marketing and G&A ............. 23.6 24.0
----- -----
Income from Operations ................. 10.2 9.3
Other Expense .......................... .8 1.7
----- -----
Income Before Income Taxes............. 9.4 7.6
Income Tax Expense ..................... 3.6 2.9
----- -----
Net Income ............................. 5.8 % 4.7 %
===== =====
</TABLE>
Notes: Amounts referred to below are set forth in Item 7. Gross changes
between years include all businesses. Detailed revenue and cost
analyses exclude the effect of the sale of the IFD as part of Detection
Systems.
<PAGE>
Twelve Months Ended December 31, 1996 and 1995
Revenues for the period increased by $4,196,000 or 24.2% when compared to 1995.
Sewer Systems sales increased by $3,511,000 while Detection Systems sales
increased $960,000. The Company also realized $300,000 in revenue from the IFD
product development contract. Offsetting these increases was a reduction in
revenue of $575,000 due to the sale of the IFD in January 1996. The increase in
sales in Sewer Systems is attributable to the emphasis the Company has placed on
sales and marketing. New distribution agreements and new sales offices are
adding up to increased growth which has resulted in record shipments for the
year.
The Detection Systems revenue increase is attributable to increases in both GCM
and HCC on a year to year comparative basis. Sales of GCM improved as utility
companies increased their budgets for this type of capital equipment over 1995
levels. In regard to HCC, the Company began shipping units in the fourth quarter
of 1995 with 1996 sales reflecting a full year's revenue stream.
Costs of Sales increased by $2,693,000 when compared to 1995. As a percent of
sales, costs of sales remained flat at 66.2% in 1996 versus 66.7% in 1995. Both
direct and indirect components of cost of sales remained virtually flat on a
comparative basis resulting in a slight improvement in gross margin of .5% to
33.8% in 1996.
Selling and Marketing costs increased $394,000 when compared to 1995. Sewer
Systems costs in this category increased $641,000 while costs in Detection
Systems increased $77,000. Offsetting these increases were costs avoided due to
the sale of the IFD. Contributing to the increase in Sewer Systems marketing
costs were expenses associated with the operations of sales offices opened in
Florida and Minnesota during 1995 and 1996, respectively, the hiring of a
national sales manager in 1996, sales literature, travel and living expenses and
increased internal sales commissions. Detection Systems marketing costs
increased primarily due to increased internal sales commissions and travel and
living expenses.
General and Administrative costs, including research and development (R&D)
expenses, increased $516,000 over 1995. Excluding R&D, general and
administrative costs rose $605,000. The increase in general and administrative
costs is primarily a result of a new growth performance sharing and deferred
executive compensation plan adopted in 1996. This plan allows for bonus and
deferred compensation to be paid and/or accrued only if the Company, as a whole,
meets specified targets for growth in sales, growth in earnings and return on
assets. The 1995 profit sharing plan allowed for bonus to be paid and/or accrued
on earnings only as long as loan principal payments were met. Other general and
administrative expenses showing increases in 1996 over 1995 were labor costs,
investor relations, training and miscellaneous expenses. Decreases in year to
year expenses were realized in expenses for consultants and allocations of labor
overhead and facilities.
Research and development labor costs decreased $77,000 while non-labor costs
decreased $12,000. R&D costs in Sewer Systems increased $26,000 while costs in
Detection Systems decreased $97,000. The decrease in Detection Systems costs is
primarily a result of reductions in expenditures related to the development of
the HCC that were incurred in 1995.
<PAGE>
Twelve Months Ended December 31, 1996 and 1995 (con't.)
Interest expense decreased to $249,000 in 1996 when compared to $328,000 in
1995. The Company reduced short-term line of credit borrowing in 1996 by
$475,000 while paying back $338,000 in principal payments on its long-term debt.
The Company's borrowing rate over bank prime rate was also reduced to prime for
the line of credit and prime plus one-half point for the term loan. Continued
control over expenses and capital expenditures, strong cash inflow, reductions
in borrowing and reduced interest rates all contributed to the reduction in
interest expense on a comparative basis.
Income Taxes during 1996 and 1995 were $767,000 and $507,000 respectively. As a
percent of income before taxes, both years were approximately 38%.
Liquidity
With sources of cash from operations, the operating line of credit and the sale
of Cirrus IFD, the Company was able to meet its working capital needs and
capital expenditure requirements in 1996. The Company's line of credit remains
at $2.5 million, of which the Company had borrowed $75,000 as of December 31,
1996. The Company complied with all applicable loan covenants throughout 1996
and 1995.
Management believes that the Company will be able to meet its cash requirements
in 1997 as a result of cash generated from operations and amounts available
under the existing line of credit. The line of credit, which expires in April of
1997, is being negotiated with the Company's lender. Although no assurances can
be given, management is confident that this negotiation will result in a
successful outcome.
Effects of Inflation and Changing Prices
The impact of general inflation on the Company's operations has not been
significant to date and the Company believes inflation will continue to have an
insignificant impact. In response to the limited effect of inflation and
changing prices on the Company's manufacturing and operating costs, the Company
has historically used selling price adjustments, cost containment programs and
improved operating efficiencies to offset the otherwise negative impact on its
operations.
<PAGE>
Item 7. Financial Statements
Index to Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheet as of December 31, 1996
Consolidated Statements of Operations for the Years Ended
December 31, 1996 and 1995
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996 and 1995
Notes to Consolidated Financial Statements
<PAGE>
Independent Auditors' Report
The Shareholders and Board of Directors
Environment One Corporation:
We have audited the consolidated financial statements of Environment One
Corporation and subsidiary as listed in the accompanying index. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Environment One
Corporation and subsidiary as of December 31, 1996, and the results of their
operations and their cash flows for each of the years in the two-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Albany, New York
February 14, 1997
<PAGE>
<TABLE>
<CAPTION>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheet
December 31, 1996
Assets
<S> <C>
Current assets:
Cash .................................................... $ 62,637
Receivables:
Trade (note 2) ...................................... 4,860,264
Other ............................................... 163,248
-----------
5,023,512
Less allowance for doubtful accounts ................ 92,091
Net receivables ................................ 4,931,421
Inventories (note 2):
Finished products ................................... 364,079
Work in process ..................................... 469,001
Raw materials and supplies .......................... 1,439,020
-----------
Total inventories .............................. 2,272,100
Prepaid expenses and other current assets (note 5) ...... 347,577
-----------
Total current assets ........................... 7,613,735
-----------
Property, plant and equipment (note 2):
Land and land improvements .............................. 334,491
Building and building improvements ...................... 2,271,832
Machinery and equipment ................................. 5,024,175
Construction in progress ................................ 50,689
-----------
7,681,187
Less accumulated depreciation ........................... 4,310,173
-----------
Net property, plant and equipment .............. 3,371,014
Patents and other assets, net ................................ 148,906
Deferred income taxes (note 5) ............................... 120,886
-----------
$11,254,541
===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheet, Continued
December 31, 1996
Liabilities and Shareholders' Equity
<S> <C>
Current liabilities:
Current installments of long-term debt (note 2) .............. $ 338,100
Note payable - bank (note 2) ................................. 75,000
Accounts payable ............................................. 1,918,866
Income taxes payable (note 5) ................................ 309,544
Accrued expenses:
Payroll and related costs (note 6) ....................... 460,623
Taxes, other than on income .............................. 47,025
Interest ................................................. 17,632
Warranty ................................................. 211,223
Accrued pension liability (note 6) ........................... 250,123
------------
Total current liabilities ........................... 3,628,136
Long-term debt, excluding current installments (note 2) ........... 1,500,494
Deferred compensation (note 6) .................................... 369,461
------------
Total liabilities ................................... 5,498,091
------------
Minority interest ................................................. 43,068
------------
Shareholders' equity (note 4):
Common stock of $.10 par value per share. Authorized 6,000,000
shares; issued 4,169,970 shares .......................... 416,997
Additional paid-in capital ................................... 7,446,789
Accumulated deficit .......................................... (2,076,164)
------------
5,787,622
Less cost of common shares in treasury (19,494 shares) ....... (74,240)
------------
Total shareholders' equity .......................... 5,713,382
------------
Commitments (note 3)
$ 11,254,541
============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Consolidated Statements of Operations
Years ended December 31, 1996 and 1995
1996 1995
------------ ------------
<S> <C> <C>
Sales of products and contract revenues .... $ 21,536,430 17,340,432
Cost of sales and contract services ........ 14,258,235 11,565,534
------------ ------------
Gross margin ...................... 7,278,195 5,774,898
------------ ------------
Operating expenses:
Selling and marketing ................. 2,502,644 2,108,320
General and administrative ............ 2,568,645 2,052,664
------------ ------------
Total operating expenses .......... 5,071,289 4,160,984
------------ ------------
Income from operations ............ 2,206,906 1,613,914
------------ ------------
Other income (expense):
Interest expense ...................... (248,725) (328,176)
Miscellaneous income (note 1(a)) ...... 46,774 29,765
Minority interest in loss of subsidiary 16,237 13,008
------------ ------------
(185,714) (285,403)
------------ ------------
Income before income taxes ........ 2,021,192 1,328,511
Income tax expense (note 5) ................ 766,505 507,134
------------ ------------
Net income ........................ $ 1,254,687 821,377
============ ============
Per share amounts:
Net income per common share ....... $ .29 .20
============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1996 and 1995
Total
Additional share-
Common paid-in Accumulated Treasury holders'
stock capital deficit stock equity
----- ------- ------- ----- ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 ....... $ 411,401 7,268,461 (4,152,228) (46,852) 3,480,782
Exercise of options (13,600 shares
of common stock) .............. 1,360 10,540 -- (11,250) 650
Issuance of 15,000 shares of common
stock from treasury ........... -- 16,114 -- 28,886 45,000
Net income - 1995 .................. -- -- 821,377 -- 821,377
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1995 ....... 412,761 7,295,115 (3,330,851) (29,216) 4,347,809
Exercise of options (22,600 shares
of common stock) .............. 2,260 16,778 -- (14,340) 4,698
Tax benefit from exercise of options
-- 38,182 -- -- 38,182
Acquisition of 6,775 shares of
common stock .................. -- -- -- (34,490) (34,490)
Issuance of 999 shares of common
stock from treasury ........... -- 1,189 -- 3,806 4,995
Issuance of 19,755 shares of common
stock ......................... 1,976 95,525 -- -- 97,501
Net income - 1996 .................. -- -- 1,254,687 -- 1,254,687
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 ....... $ 416,997 7,446,789 (2,076,164) (74,240) 5,713,382
========== ========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1996 and 1995
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................. $ 1,254,687 821,377
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................... 596,293 570,412
Gain on sale of equipment and patents ............ (291,544) --
Loss on write-off of note receivable ............. 135,533 --
Minority interest in loss of subsidiary .......... (16,237) (13,008)
Non-cash compensation expense .................... 102,496 45,000
Accrual for deferred compensation ................ 369,461 --
Deferred income taxes ............................ (271,539) 54,921
Increase in receivables .......................... (2,209,701) (426,498)
Increase in inventories .......................... (422,539) (154,823)
Decrease (increase) in prepaid expenses .......... 4,378 (14,543)
Increase (decrease) in accounts payable .......... 774,313 (34,960)
Increase in income taxes payable ................. 347,726 --
Increase in accrued expenses ..................... 461,827 99,904
Increase in other current liabilities ............ 92,186 39,967
----------- -----------
Net cash provided by operating activities .... 927,340 987,749
----------- -----------
Cash flows from investing activities:
Capital expenditures, including patents ................ (423,701) (482,000)
Proceeds from sale of equipment and patents ............ 300,000 --
----------- -----------
Net cash used in investing activities ........ (123,701) (482,000)
----------- -----------
Cash flows from financing activities:
Net decrease in note payable to bank ................... (475,000) (450,000)
Proceeds from issuance of common stock ................. 4,698 650
Purchases of treasury stock ............................ (34,490) --
Capital contribution by minority interest .............. 10,775 25,722
Proceeds from long-term debt ........................... -- 153,967
Principal payments on long-term debt ................... (338,100) (338,100)
Principal payments on capital lease obligations ........ -- (29,688)
Loan financing fees .................................... -- (886)
----------- -----------
Net cash used in financing activities ........ (832,117) (638,335)
----------- -----------
Net decrease in cash ....................................... (28,478) (132,586)
Cash at beginning of year .................................. 91,115 223,701
----------- -----------
Cash at end of year ........................................ $ 62,637 91,115
=========== ===========
<PAGE>
<CAPTION>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Consolidated Statements of Cash Flows (continued)
Years ended December 31, 1996 and 1995
1996 1995
----------- -----------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ............................................ $ 251,503 334,407
=========== ===========
Income taxes ........................................ $ 689,173 275,378
=========== ===========
Supplemental disclosure of non-cash financing activity:
Exchange of 2,390 and 2,000 shares of common stock in
partial payment of exercise price on options during 1996
and 1995, respectively ................................ $ 14,340 11,250
=========== ===========
Tax benefit from exercise of stock options .............. $ 38,182 --
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
(1) Summary of Significant Accounting Policies
(a) Description of Business
Environment One Corporation (the "Company") is an
environment-oriented product and service company, which started
operations in January of 1969. The Company operates in two
business segments: (1) low pressure sewer systems, and (2)
detection systems.
The Sewer Systems business primarily manufactures and services
grinder pumps pioneered by the Company to make low pressure
sewer systems feasible. The low pressure sewer system has proven
to be an economical and effective method of sewering otherwise
difficult land developments including: waterfront, hilly
terrain, very flat lands and areas with high water tables. As
more and more communities are looking for cost effective
solutions to waste water collection problems, Environment One
Corporation's solution, EONE Sewers(TM), is increasingly used in
mainstream municipal and developer applications. The principal
markets served by the Company are city and county sewer
districts, builders, land developers, and individual homeowners.
Products are sold by direct sales from the Company's marketing
function and through dealer networks across the United States,
Canada, Europe, and Japan. There are other pump manufacturers
offering grinder pumps for these markets. All but one of the
Company's competitors offer a centrifugal type of pump.
The Detection Systems business manufactures the Generator Condition
Monitor, the Cirrus Incipient Fire Detector ("IFD") (see further
discussion below), and the Hydrogen Control Cabinet. The
Generator Condition Monitor is designed to provide early warning
of certain thermal failure conditions, which could lead to
shutdown of hydrogen cooled electric power generators. The
Cirrus IFD provides unique capabilities that allow for area fire
detection often not attainable by any other means, such as
operational stability in adverse ambient conditions, an air
sampling system that allows for small, low maintenance,
electrically inert sample heads that are adjustable to different
levels of sensitivity resulting in low false alarm rates. During
1995, the Hydrogen Control Cabinet was added to the Detection
Systems product offerings. The Hydrogen Control Cabinet
continuously analyzes the purity of hydrogen and controls the
rate of scavenging in hydrogen cooled turbine generators. The
Detection Systems products are sold by direct sales from the
Company's marketing function and through an independent network
of distributors in the United States, Canada, and a few
countries overseas. There are believed to be only two other
manufacturers of this type of detection systems equipment
worldwide.
<PAGE>
The Company concluded an agreement with PROTEC Fire Detection, plc
of Nelson, Lancashire, England on January 16, 1996 for the sale
of its Cirrus IFD product line. As a part of this agreement, the
Company sold all Cirrus IFD assets, with a net book value at the
date of sale of $8,456, for a realized gain of $291,544. The
gain, net of certain other expenses, is included in
miscellaneous income in the accompanying 1996 consolidated
statement of operations.
In April 1994, the Company sold its measurements division which had
previously been a component of the Detection Systems business.
As part of the consideration received in this sale, the Company
accepted a five-year promissory note receivable of $141,458.
During 1996, the Company determined that the remaining balance
on the note was uncollectible and recorded a loss on the
write-off of the outstanding balance of $135,533. The loss is
included in miscellaneous income in the accompanying 1996
consolidated statement of operations.
(b)Principles of Consolidation
The consolidated financial statements include the financial
statements of Environment One Corporation and its majority-owned
foreign subsidiary, which was incorporated in 1990. All
significant intercompany balances and transactions have been
eliminated in consolidation.
(c)Net Income Per Common Share
Net income per common share is based upon 4,269,499 weighted average
common and common equivalent shares outstanding in 1996 and
4,090,065 shares in 1995. When dilutive, stock options are
included as common equivalent shares using the treasury stock
method. Fully diluted net income per common share is not
materially different from primary net income per common share.
(d)Revenues, Costs and Inventories
Sales and related cost of sales are recognized when products are
shipped to customers. Inventories are valued at the lower of
cost or market (net realizable value), costs being determined
principally on the basis of standards, which approximate average
current production costs.
(e)Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation on
property, plant and equipment is computed using the
straight-line method for financial reporting purposes, and
accelerated methods for income tax purposes. For financial
reporting purposes, the Company provides for depreciation of
property, plant and equipment over the following estimated
useful lives:
<TABLE>
<CAPTION>
<S> <C>
Land improvements 5-20 years
Building and building improvements 5-45 years
Machinery and equipment 2-20 years
</TABLE>
<PAGE>
(f)Patents and Other Assets
The costs of patents covering products expected to be viable are
deferred and amortized on a straight-line basis over twenty
years from the date of filing or seventeen years from the date
of issue, whichever is greater. The deferred costs of specific
patent applications are written off if a patent application is
rejected. Loan financing fees are amortized over the term of the
loan to which they relate.
(g)Research and Development
All research and development costs are charged directly to
operations as incurred. Research and development costs of
approximately $177,000 and $266,000 during 1996 and 1995,
respectively, are included in general and administrative
expenses.
(h)Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
(i)Foreign Currency Translation
Accounts of the foreign subsidiary have been translated into U.S.
dollars substantially in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 52.
(j)Stock Option Plans
Prior to January 1, 1996, the Company accounted for its stock option
plan in accordance with the provisions of Accounting Principles
Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. As such, compensation
expense would be recorded on the date of grant only if, and to
the extent that, the current market price of the underlying
stock exceeded the exercise price. On January 1, 1996, the
Company adopted SFAS No. 123, Accounting for Stock-Based
Compensation, which permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards
on the date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of APB Opinion No.
25 and provide pro forma net income and pro forma earnings per
share disclosures for employee stock option grants made in 1995
and future years as if the fair-value based method defined in
SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure requirements of SFAS No. 123.
<PAGE>
(k)Impairment of Long-Lived Assets and Long-Lived Assets
To Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, on January 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell. Adoption of
SFAS No. 121 did not have a material impact on the Company's
financial position, results of operations or liquidity.
(l)Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to
prepare these consolidated financial statements in conformity
with generally accepted accounting principles.
Actual results could differ from those estimates.
(2) Short-term and Long-term Debt
The Company has available a $2,500,000 line of credit of which
$2,425,000 is available at December 31, 1996. The line is
secured by trade accounts receivable and inventories. The
Company had $75,000 outstanding on this line of credit at
December 31, 1996. The interest rate on this short-term
borrowing at December 31, 1996 was based upon the bank's prime
rate and was 8.25%. The line of credit, unless extended or
renewed, expires on April 30, 1997.
The Company's long-term debt consisted of the following at December
31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Construction note, payable in
installments of $28,175 monthly
beginning January 1, 1995, plus
interest based on the bank's prime
rate plus 1/2% at December 31, 1996
(8.75% at December 31, 1996), maturing
December 2000, secured by real property $ 1,838,594
Less installments due within one year 338,100
-----------
Long-term debt, excluding current
installments $ 1,500,494
===========
</TABLE>
<PAGE>
The line of credit and construction loan agreements require
compliance with certain financial loan covenants related to
minimum current, debt service coverage and debt to worth ratios,
as well as minimum working capital and net worth, and
limitations on capital expenditures. At December 31, 1996, the
Company was in compliance with these covenants.
Future principal payments on long-term debt are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 338,100
1998 338,100
1999 338,100
2000 824,294
------------
$ 1,838,594
============
</TABLE>
The Company is not required to maintain compensating balances
pursuant to the credit terms under its line of credit with the
bank.
(3) Leases
The Company is a party to noncancellable operating leases for the
rental of equipment and office space. Total rent expense
incurred by the Company under operating leases during 1996 and
1995 was $17,057 and $17,679, respectively.
The future minimum lease payments under noncancellable operating
leases as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Year ending
-----------
<S> <C>
1997 $ 12,488
1998 8,248
---------
$ 20,736
=========
</TABLE>
(4) Shareholders' Equity
During 1996 and 1995, 22,600 and 13,600 shares of the Company's
common stock were issued upon exercise of stock options for
$19,038 and $11,900, respectively. In addition, during 1996,
10,000 shares of common stock were issued to the Company's
Chairman as compensation and valued in the amount of $47,501 and
999 shares of common stock held in treasury were issued as
compensation to other individuals and valued in the amount of
$4,995. During 1995, 15,000 shares of common stock held in
treasury were issued to the Company's Chairman as compensation
and valued in the amount of $45,000.
<PAGE>
(a)Amended and Restated Stock Option Plan
The Company's Amended and Restated Stock Option Plan was established
in 1971 authorizing 100,000 shares for option grants. During
1991, the shareholders approved an amendment to the plan,
authorizing 400,000 shares for option grants. Under the plan,
options to purchase common shares may be granted to directors,
officers and other key employees of the Company, and such shares
may be authorized and unissued shares, or issued and reacquired
shares, as determined by the Board of Directors. The option
price per share may not be less than the fair market value of a
share of common stock on the date the option is granted, and the
maximum term of an option may not exceed ten years. Options
granted under the plan generally are exercisable 20% per year
beginning one year from the date of grant. During 1996 and 1995,
the Company granted options for 38,182 and 163,044 shares,
respectively, under this plan.
At December 31, 1996 and 1995, the Company has reserved 316,976 and
304,894 shares, respectively, of its common stock for the
exercise of stock options under this plan, of which 246,285 and
123,550 shares, respectively, were exercisable. The
weighted-average exercise price per share of those options
exercisable under this plan was $3.14 and $2.30 at December 31,
1996 and 1995, respectively.
(b)1996 Incentive Compensation Plan
During 1996, the Company adopted a stock award and incentive plan
that permits the issuance of incentive stock options,
non-qualified stock options, stock appreciation rights (SARS)
and restricted stock awards to selected directors, officers and
key employees of the Company, and such shares may be authorized
and unissued shares, or issued and reacquired shares, as
determined by the Board of Directors. The plan allows grants for
options on 300,000 shares of common stock and provides that the
term of each award be determined by the Committee of the Board
of Directors ("Committee") charged with administering the plan,
but cannot exceed 10 years.
Under the terms of the plan, options granted may be either
non-qualified or incentive stock options and the exercise price,
determined by the Committee, may not be less than the fair
market value of a share of common stock on the date of grant.
SARS, and SARS granted in tandem with an option, shall be
exercisable only to the extent the underlying option is
exercisable, and in no event less than six months from the date
of grant, and the grant price shall be equal to the exercise
price of the underlying option. In addition, the Committee may
grant restricted stock to participants of the plan at no cost.
Other than the restrictions that limit the sale and transfer of
these shares, participants are entitled to all rights of a
shareholder. During 1996, the Company granted incentive stock
options for 24,000 shares under this plan.
At December 31, 1996, the Company had reserved 24,000 shares of its
common stock for the exercise of options under this plan. None
of the options were exercisable at December 31, 1996.
<PAGE>
(c)Plans for Non-Employee Directors
During 1996, the Company adopted a non-qualified stock option plan
for the benefit of all directors who are not employees of the
Company. The plan allows grants for options on 100,000 shares of
common stock and such shares may be authorized and unissued
shares, or issued and reacquired shares, as determined by a
committee of the Board of Directors comprised of disinterested
directors.
The option price per share may not be less than the fair market
value of a share of common stock on the date the option is
granted , and the maximum term of an option may not exceed ten
years. Options granted under the plan shall become exercisable
in full one year from the date of grant. During 1996, the
Company granted 9,090 shares under this plan.
At December 31, 1996, the Company had reserved 9,090 shares of its
common stock for the exercise of options under this plan. None
of the options were exercisable at December 31, 1996.
In addition, during 1996, the Company established a stock grant
plan for non-employee directors that entitles each non-employee
director to receive a stock grant equivalent to $10,000 on
September 1st of each year following election to the Board of
Directors. The grant is in lieu of all cash compensation for
their participation on the Board of Directors. For the year
ended December 31, 1996, the Company granted the equivalent of
$50,000 in common stock, which has been recognized as non-cash
compensation expense in the accompanying 1996 consolidated
statement of operations.
<PAGE>
The following table summarizes, by date of grant, the number of
options issued and the exercise price per share. Options are
generally exercisable 20% per year beginning one year from date
of grant and expire ten years from date of grant:
<TABLE>
<CAPTION>
Number of Options
Date of Grant Issued Option Price
- ------------- ----------------- ------------
<S> <C> <C>
June 1988 .................. 22,500 $ 0.9375
======= ========
May 1990.................... 19,000 $ 2.3750
======= ========
July 1991 .................. 16,500 $ 1.4375
======= ========
July 1992 .................. 30,000 $ 2.8750
======= ========
April 1993 ................. 47,000 $ 2.6250
======= ========
May 1994 ................... 41,000 $ 2.3750
======= ========
May 1995 ................... 48,500 $ 3.0000
======= ========
May 1995 ................... 100,000 (a) $ 2.8500
======= ========
December 1995 .............. 14,544 (b) $ 5.5000
======= ========
May 1996 ................... 23,182 (a) $ 5.2500
======= ========
July 1996 .................. 36,500 $ 5.1300
======= ========
September 1996 ............. 2,500 $ 5.3750
======= ========
December 1996 .............. 9,090 (b) $ 5.5000
======= ========
(a) Exercisable 50% at date of grant and 50% one year from the date of grant.
(b) Exercisable in full one year from the date of grant.
</TABLE>
<PAGE>
The following table summarizes stock option transactions during 1996
and 1995:
<TABLE>
<CAPTION>
Weighted-Average
Option shares Exercise Price Per Share
------------- ------------------------
<S> <C> <C>
Balance at December 31, 1994 ............... 155,450 $ 2.09
Options granted ............................ 163,044 3.13
Options exercised .......................... (13,600) 0.88
Options expired ............................ -- --
--------
Balance at December 31, 1995 ............... 304,894 2.70
Options granted ............................ 71,272 5.22
Options exercised .......................... (22,600) 0.84
Options expired ............................ (3,500) 2.45
--------
Balance at December 31, 1996 ............... 350,066 3.34
========
</TABLE>
<PAGE>
The per share weighted-average fair value of stock options granted
during 1996 and 1995 was $3.22 and $1.89 on the date of grant
using the Black Scholes option-pricing model with the following
weighted-average assumptions: 1996 - expected dividend yield of
0%, risk-free interest rate of approximately 6.5%, volatility of
approximately 37%, and an expected life of 5 years; 1995 -
expected dividend yield of 0%, risk-free interest rate of
approximately 6.5%, volatility of approximately 37%, and an
expected life of 5 years.
The Company applies APB Opinion No. 25 in accounting for its stock
option plans and, accordingly, no compensation cost has been
recognized for its stock options in the accompanying
consolidated statements of operations. Had the Company
determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the
Company's net income and net income per common share would have
been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
------------- -----------
<S> <C> <C>
Net income:
As reported ..................... $ 1,254,687 821,377
============= ===========
Pro forma ....................... $ 1,088,114 753,481
============= ===========
Net income per common share:
As reported ..................... $ .29 $ .20
============= ===========
Pro forma ....................... $ .25 $ .18
============= ===========
</TABLE>
Proforma net income and net income per common share reflect only
options granted in 1996 and 1995. Therefore, the full impact of
calculating compensation cost for stock options under SFAS No.
123 is not reflected in the pro forma amounts presented above
because compensation cost is reflected over the options' vesting
periods, generally 5 years, and compensation cost for options
granted prior to January 1, 1995 is not considered.
<PAGE>
(5) Income Taxes
Income tax expense for the years ended December 31, 1996 and 1995
consists of:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Current:
Federal .................... $ 958,044 382,213
State ...................... 80,000 70,000
----------- -----------
1,038,044 452,213
Deferred ........................ (271,539) 54,921
----------- -----------
$ 766,505 507,134
=========== ===========
</TABLE>
<PAGE>
The following table reconciles the expected tax expense at the
Federal statutory rate to the effective tax rate.
<TABLE>
<CAPTION>
1996 1995
---- ----
Amount % Amount %
--------- ---- --------- ----
<S> <C> <C> <C> <C>
Computed expected
tax expense ........................ $ 687,205 34.0% $ 451,694 34.0%
State taxes, net of
Federal benefit .................... 52,800 2.6 46,200 3.5
Research and experi-
mentation credit ................... (6,600) (0.3) (38,433) (2.9)
Nondeductible loss of foreign subsidiary 12,881 0.6 10,320 0.8
Nondeductible expenses ................. 15,247 0.8 12,322 0.9
Other .................................. 4,972 0.2 25,031 1.9
--------- ---- --------- ----
$ 766,505 37.9% $ 507,134 38.2%
========= ==== ========= ====
</TABLE>
For the year ended December 31, 1996, the deferred income tax
benefit of $271,539 results from the changes in temporary
differences. The tax effects of temporary differences that give
rise to deferred tax assets and deferred tax liabilities as of
December 31, 1996 are presented below:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Accounts receivable, due to allowance for
doubtful accounts ........................................ $ 31,311
Inventories, principally due to additional costs
inventoried for tax purposes pursuant to the Tax Reform
Act of 1986 and inventory reserves ....................... 64,703
Warranty accrual ............................................ 71,816
Pension accrual ............................................. 85,042
Deferred compensation ....................................... 125,617
---------
Total gross deferred tax assets ...................... 378,489
Less valuation allowance ............................. --
---------
378,489
Deferred tax liabilities:
Prepaid expenses ............................................. (11,334)
Property, plant and equipment, due to differences in
depreciation lives and methods ............................ (4,731)
---------
Net deferred tax asset .............................. $ 362,424
=========
</TABLE>
At December 31, 1995, the net deferred tax asset was $90,885 and
there was no recorded valuation allowance.
At December 31, 1996, the Company has New York State investment tax
credit carryforwards of approximately $114,000.
<PAGE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible. Management considers the projected
future taxable income and tax planning strategies, as well as
carryback opportunities, in making this assessment. Based upon the
level of historical taxable income, projections for future taxable
income and carryback opportunities over the periods in which the
deferred tax assets are deductible, management believes it is more
likely than not the Company will realize the benefits of these
deductible differences. The amount of the deferred tax asset
considered realizable, however, could be reduced in the near term if
estimates of future taxable income are reduced.
At December 31, 1996, $241,538 of deferred tax assets are included in
other current assets.
(6) Employee Benefit Plans
(a)Retirement and Profit Sharing Plans
The Company has a defined benefit pension plan available to all
employees. Effective January 1, 1993, the Plan was amended to be
non-contributory. The benefits are based on years of service and
the employees' earnings history during the years of employment.
The Company's funding policy is to contribute annually the
maximum amount that can be deducted for Federal income tax
purposes. Contributions are intended to provide not only for
benefits attributed to service rendered to date but also for
those expected to be earned in the future. Plan assets consist
of group annuity contracts which represent investments in
mortgages and bonds.
The following table sets forth the Plan's funded status and amounts
recognized in the Company's consolidated balance sheet at
December 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Accumulated benefit obligation, including vested
benefits of $847,041 ..................................... $ (896,654)
===========
Projected benefit obligation for service rendered to date.... (1,519,893)
Plan assets at fair value ................................... 831,821
-----------
Deficiency of plan assets over projected benefit
obligation ............................................... (688,072)
Unrecognized prior service cost ............................. 181,086
Unrecognized net loss from past experience different
from that assumed and effects of changes in
assumptions .............................................. 283,044
Unrecognized net asset at January 1, 1987 being
recognized over 15 years ................................. (26,181)
-----------
Accrued pension cost ...................................... $ (250,123)
===========
</TABLE>
<PAGE>
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Service cost - benefits earned during
the period ............................... $ 143,561 134,772
Interest cost on projected benefit
obligation ............................... 94,985 86,818
Actual return on plan assets ................. (40,671) (60,310)
Net amortization and deferral ................ 1,247 19,083
--------- ---------
Net periodic pension cost ................ $ 199,122 180,363
========= =========
</TABLE>
Assumptions used in accounting for the pension plan as of December
31, 1996 and 1995 were:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Discount rate ........................................ 7.25% 7.25%
Rate of increase in compensation levels .............. 6.00% 6.00%
Expected long-term rate of return on assets .......... 8.00% 8.00%
</TABLE>
During 1990, the Company established a profit sharing plan that
covers substantially all employees of Environment One
Corporation. Profit sharing expense was $132,852 in 1995. There
was no profit sharing expense in 1996.
During 1992, the Company established a 401(k) savings plan that is
available to all employees who meet certain eligibility
requirements. The Company does not contribute to this plan.
(b)Deferred Compensation Plans
(i) Growth Performance Sharing
During 1996, the Company established a Growth Performance
Sharing ("GPS") plan for all employees based on the
achievement of certain objectives that include sales
growth, profit growth and return on assets. During 1996,
the Company recorded $357,126 of expense under the GPS
plan, and at December 31, 1996 the unpaid portion, in the
amount of $248,381, is included in accrued payroll and
related costs in the accompanying 1996 consolidated
balance sheet.
<PAGE>
(ii) Deferred Compensation Plan
Effective January 1, 1996, the Company adopted the Deferred
Compensation Plan for Certain Executive Employees (the
"Plan"), which is a non-qualified deferred compensation
plan for a select group of management and
highly-compensated employees. The purpose of the Plan is
to permit eligible employees to defer the receipt of up to
75% of future GPS bonuses, to have the deferred GPS
bonuses applied to acquire shares of common stock, and to
have the shares distributed at a future date selected by
the employee or, if earlier, upon the employee's
involuntary termination of employment. The Company will
match an additional amount equal to 25% of the deferred
GPS bonus. During 1996, the Company recorded $369,461 of
expense under the Plan.
(7) Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
(a)Cash, Accounts Receivable, Accounts Payable and Accrued Expenses
The carrying amount of cash, accounts receivable, accounts payable
and accrued expenses approximates fair value because of the
short maturity of these instruments.
(b)Note Payable and Long-term Debt
The interest rates on the Company's note payable and long-term debt
are periodically reset according to changes in the bank's prime
rate which are reflective of current market rates (see note 2).
Consequently, the carrying value of the note payable and
long-term debt approximates fair value.
(8) Industry Segment Information
The Company's operations consist of two segments that are concerned
with the development, production and marketing of products.
Sewer Systems consists of products designed to transport and
treat sanitary sewer waste. Operations of the Detection Systems
segment include the production and sale of products designed to
protect equipment and facilities and until January 1996 included
the production and sale of the Cirrus IFD product line as
discussed in note 1(a). For the year ended December 31, 1996,
the revenue, income from operations and total assets
specifically attributable to the Cirrus IFD product line have
been recorded within Corporate due to the sale of this product
line. Also, during 1996 the Company established a Growth
Performance Sharing plan, as discussed in note 6(b), that is
based on the Company's achievement of certain objectives. The
expenses recorded by the Company under this plan have been
presented within Corporate because such expenses are based upon
the performance of the Company as a whole. Total revenue
includes sales to unaffiliated customers; there are no
intersegment sales.
<PAGE>
<TABLE>
<CAPTION>
Sales to unaffiliated customers Income (loss) from operations
--------------------------------- -----------------------------
1996 1995 1996 1995
-------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Sewer Systems $ 18,724,259 15,212,914 2,237,321 1,734,186
Detection Systems 1,893,907 2,127,518 463,638 (97,370)
Corporate 918,264 - (494,053) (22,902)
-------------- ------------- ----------- -----------
Total $ 21,536,430 17,340,432 2,206,906 1,613,914
============== ============= =========== ===========
<CAPTION>
Total assets
-------------------------------
1996 1995
Sewer Systems $ 8,728,565 6,446,760
Detection Systems 999,135 1,113,824
Corporate 1,517,974 1,161,331
-------------- -------------
Total $ 11,245,674 8,721,915
============== =============
<CAPTION>
Property, plant and equipment
--------------------------------------------------------
Additions Depreciation and amortization
---------------------- -----------------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sewer Systems .......... $319,050 349,518 441,867 397,584
Detection Systems ...... 29,800 18,157 47,568 28,577
Corporate .............. 54,918 80,424 74,170 126,577
-------- -------- -------- --------
Total ................ $403,768 448,099 563,605 552,738
======== ======== ======== ========
<CAPTION>
Amortization and abandonment
of intangible assets
----------------------------
1996 1995
---------- ----------
Sewer Systems $ 32,688 16,721
Detection systems - 953
---------- ----------
Total $ 32,688 17,674
========== ==========
</TABLE>
Export sales of low pressure sewer systems were approximately 2.8%
and 3.7% of total Company sales in 1996 and 1995, respectively.
Export sales of detection instruments were approximately 4.5%
and 7.2% of total Company sales in 1996 and 1995, respectively.
<PAGE>
(9) Business and Credit Concentrations
(a)Concentration of Credit Risk and Sales to Major Customers
Financial instruments which potentially subject the Company to a
concentration of credit risk principally consist of trade
receivables. The Company sells products to customers primarily
in the United States. The Company's top eight customers
comprised approximately 43% and 53% of trade accounts receivable
at December 31, 1996 and 1995, respectively. To reduce credit
risk, the Company performs ongoing credit evaluations of
customers but generally does not require collateral. Allowances
are maintained for potential credit losses, and such losses have
been within management's expectations.
In addition, during 1996 and 1995, sales to a single customer
amounted to 6% and 14% of consolidated sales, respectively.
(b)Concentration of Purchasing Risk
During 1996 and 1995, approximately 52% and 51%, respectively, of
the Company's purchases were made from ten vendors. No
individual vendor comprised more than 10% of total purchases in
1996 and 1995.
<PAGE>
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None
Environment One Corporation
Form 10-KSB
Part III
Item 9. Directors and Executive Officers of the Company
<TABLE>
<CAPTION>
Date
Name Position Office Began Age
---- -------- ------------ ---
<S> <C> <C> <C>
Walter W. Aker Director Dec 1968 78
John L. Allen Director May 1993 53
Stephen V. Ardia Chairman May 1995 55
President, CEO Sept 1996
David M. Doin Vice President Sept 1991 41
Angelo Dounoucos Director May 1988 64
President, CEO Retired, Sept 1996
Lars Grenback Director May 1993 53
Robert G. James Director May 1984 72
Rolf E. Soderstrom Director May 1991 64
Philip W. Welsh Treasurer May 1995 39
</TABLE>
<PAGE>
All executive officers of the Corporation are included in the preceding table.
Executive officers serve until the Board of Directors' meeting immediately
following the Annual Meeting of Shareholders or until their successors are
elected.
Directors elected at the Company's Annual Meeting serve until the next Annual
Meeting. All of the above directors were elected by the Shareholders at the
Annual Meeting held May 23, 1996.
Business Experience During the Past Five Years:
Walter W. Aker
He was vice president of the Company from 1968 to 1975 and from 1982 to 1993. He
was elected corporate secretary from 1976 to 1993.
John L. Allen
He is managing partner for the Financial Services Practice, North America, for
Heidrick & Struggles, Inc., a global executive search firm. He is located in the
New York, NY office and is also a director of the firm. Prior to his joining the
firm in 1991, he had 24 years in banking including nearly thirteen as a chief
executive officer of Amoskeag Bank Shares, Inc. and Key Bank of Southeastern New
York. He has a bachelor of science degree in business administration from
Rochester Institute of Technology, a master of public administration from the
Graduate School of Public Affairs, State University of New York (SUNY) Albany,
and is a graduate of the Harvard Business School Program for Management
Development.
Stephen V. Ardia
He was elected president and chief executive officer on September 1, 1996. He
received his master of business administration from Rutgers University and a
bachelor of science degree from the U.S. Merchant Marine Academy. After working
with Goulds Pumps, Inc. since 1965, he became its president in 1985. He retired
in 1994 joining Environment One Corporation as chairman in May, 1995. He
presently serves as a member of the board of directors of MaxTec Holdings of
Dallas, Texas.
David M. Doin
He was elected vice president in September, 1991 and also serves as the general
manager of the Detection Systems Business. He received his bachelor of science
degree in business from the State University of New York at Albany in 1983. He
joined the Company in 1977 in Measurement Services sales and was appointed
product manager, Scientific Instruments, in 1981.
Angelo Dounoucos
He was vice president and director of Environment One Corporation from 1969 to
1976. He rejoined the Company in 1986 after eight years as a project marketing
manager at the General Electric Corporate Research and Development Center. He
was elected president on January 1, 1989 and chief executive officer on March
14, 1990. He retired as president and chief executive officer on September 1,
1996.
<PAGE>
Business Experience of Executive Officers During the Past Five Years (con't.)
Lars Grenback
He received his bachelor of economics and business administration degree from
Uppsala University, Sweden in 1969 and his university certificate in marketing,
advertising and public relations in 1970. Since 1975, he has been working with
the low pressure sewer system in the Scandinavian countries and has been
president of Svensk Kommunalteknik AB since 1980.
Robert G. James
He received his bachelor of science degree from Northwestern University, his
master's degree in business administration from Harvard Business School in 1948
and his doctorate in economics from the Harvard Graduate School in 1952. He is
vice chairman of Enterprise Asset Management Inc. He is also a Certified Public
Accountant.
Rolf E. Soderstrom
He received his bachelor of science degree in engineering from Tufts University
and his master's degree from Northeastern University. He has thirty-five years
of line management experience as vice president of Motorola, executive vice
president of Codex Corporation and assistant general manager of the Systems
Division of the Foxboro Company. He is president of the TCS Group, a management
consulting firm; director of AG-BAG International Limited, a farm equipment
supplier, a director of Walpole Massachusetts Cooperative Bank; and a managing
director of the Nassau Group, a private investment banking company.
Philip W. Welsh
He was elected treasurer in May, 1995 and also serves as the director of
finance. He received his bachelor of science degree in business from the
Pennsylvania State University in 1979 and his master of business administration
from the California State University at Long Beach in 1987. Before joining the
Company in 1992, he had worked for Hughes Aircraft Company in Los Angeles,
California as a finance and accounting manager.
Item 10. Executive Compensation
Information required by this item is contained in the Company's Proxy Statement
for its May 15, 1997 Annual Meeting, which is incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Information required by this item is contained in the Company's Proxy Statement
for its May 15, 1997 Annual Meeting, which is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions
None
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
Exhibits
3.1 Registrant's Certificate of Incorporation, as amended, incorporated by
reference to Exhibit 3.1 to Form 10-Q Report for the period ending
6/30/88. (File No. 1-7037)
3.2 Registrant's by-laws, as amended, incorporated by reference to Exhibit
3.2 to Form 10-Q Report for the period ending 6/30/88. (File No.
1-7037)
3.3 Registrant's amendment to Certificate of Incorporation.
4.1 Specimen of Registrant's Common Stock Certificate incorporated by
reference to Exhibit 4.0 of Registration Statement. (File No. 2-38321)
4.2 $2,500,000 Secured Working Capital Revolving Line of Credit Loan dated
August 19, 1992 between the Registrant and Fleet Bank of New York
incorporated by reference to previously filed form 10-KSB.
4.3 $3,000,000 Loan and Security Agreement dated December 30, 1992 between
the Registrant and Fleet Bank of New York incorporated by reference to
previously filed form 10-KSB.
4.4 Note and Secured Revolving Line of Credit Agreement Modification
Agreement No. 2 dated March 20, 1995 between the Registrant and Fleet
Bank of New York incorporated by reference to previously filed form
10-KSB.
4.5 Note and Loan and Security Agreement Modification Agreement No. 2 dated
March 20, 1995 between the Registrant and Fleet Bank of New York
incorporated by reference to previously filed form 10-KSB.
4.6 Note and Secured Revolving Line of Credit Agreement Modification
Agreement No. 3 dated March 30, 1995 between the Registrant and Fleet
Bank of New York incorporated by reference to previously filed form
10-KSB.
4.7 Note and Loan and Security Agreement Modification Agreement No. 3 dated
March 30, 1995 between the Registrant and Fleet Bank of New York
incorporated by reference to previously filed form 10-KSB.
4.8 Note and Secured Revolving Line of Credit Agreement Modification
Agreement No. 4 dated October 18, 1995 between the Registrant and Fleet
Bank of New York incorporated by reference to previously filed form
10-KSB.
4.9 Note and Loan and Security Agreement Modification Agreement No. 4 dated
October 18, 1995 between the Registrant and Fleet Bank of New York
incorporated by reference to previously filed form 10-KSB.
4.10 Building Loan Agreement Modification Agreement dated November 15, 1995
between the Registrant and Fleet Bank of New York incorporated by
reference to previously filed form 10-KSB.
<PAGE>
4.11 $2,500,000 Secured Working Capital Revolving Line of Credit Note dated
October 18, 1995 between the Registrant and Fleet Bank of New York
incorporated by reference to previously filed form 10-KSB.
4.12 Note and Secured Revolving Line of Credit Agreement Modification
Agreement No. 5 dated June 17, 1996 between the Registrant and Fleet
Bank of New York.
4.13 Note and Loan and Security Agreement Modification Agreement No. 5 dated
June 17, 1996 between the Registrant and Fleet Bank of New York.
10.1 Registrant's 1972 Stock Option Plan incorporated by reference to
Exhibit 10.1 to Form 10-K Report for the year ended 12/31/88. (File No.
1-7037)
10.2 Registrant's 1996 Incentive Compensation Plan incorporated by reference
to Exhibit 10.2 to Form 10-KSB for the year ended 12/31/96 by Form S-8
filed 10/31/96. (Registration No. 33-15225)
10.3 Registrant's 1996 Incentive Compensation Plan for Non-Employee
Directors incorporated by reference to Exhibit 10.3 to Form 10-KSB for
the year ended 12/31/96 by Form S-8 filed 10/31/96. (Registration No.
33-15221)
10.4 Registrant's Non-Employee Directors Stock Grant Plan incorporated by
reference to Exhibit 10.4 to Form 10-KSB for the year ended 12/31/96 by
Form S-8 filed 10/31/96. (Registration No. 33-15223)
10.5 Registrant's Amended and Restated Stock Option Plan incorporated by
reference to Exhibit 10.5 to Form 10-KSB for the year ended 12/31/96 by
Form S-8 filed 10/31/96. (Registration No. 33-15227)
10.6 Registrant's Deferred Compensation Plan for Certain Executive Employees
of Environment One Corporation incorporated by reference to Exhibit
10.6 to Form 10-KSB for the year ended 12/31/96 by Form S-8 filed
10/31/96. (Registration No. 33-15229)
23.1 Consent of Independent Auditors, KPMG Peat Marwick, LLP.
Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter ended December 31,
1996.
<PAGE>
Environment One Corporation
Form 10-KSB
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this Annual Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Environment One Corporation
(Registrant)
/s/Stephen V. Ardia
- -------------------
Stephen V. Ardia Date: March 25, 1997
Chairman, President and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934 this report
has been signed by the following persons, which included the chairman, chief
executive officer, director of finance and a majority of the Board of Directors
on behalf of the Registrant and in the capacities and on the dates indicated.
/s/Stephen V. Ardia /s/Angelo Dounoucos
- ------------------- -------------------
Stephen V. Ardia Angelo Dounoucos
Chairman, President and CEO Director
Date: March 25, 1997 Date: March 25, 1997
/s/Philip W. Welsh /s/Lars Grenback
- ------------------ ----------------
Philip W. Welsh Lars Grenback
Director of Finance and Treasurer Director
Date: March 25, 1997 Date: March 25, 1997
/s/Walter W. Aker /s/Robert G. James
- ----------------- ------------------
Walter W. Aker Robert G. James
Director Director
Date: March 25, 1997 Date: March 25, 1997
/s/John L. Allen /s/Rolf E. Soderstrom
- ---------------- ---------------------
John L. Allen Rolf E. Soderstrom
Director Director
Date: March 25, 1997 Date: March 25, 1997
Exhibit 3.3
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
ENVIRONMENT-ONE CORPORATION
Under Section 805 of the Business Corporation Law
The undersigned, being the Chairman and Secretary of
Environment-One Corporation (the "Corporation"), do hereby certify that:
1. The name of the corporation is Environment-One Corporation.
The name under which the Corporation was formed is Environmental Technology,
Inc.
2. The Corporation's Certificate of Incorporation was filed on
December 10, 1968.
3. The Corporation's Certificate of Incorporation is amended to
provide for a classified Board of Directors and related matters dealing with the
Board of Directors as set forth in the following Article FOURTH which shall
replace in full the current Article FOURTH:
The Board of Directors shall be divided into three classes as
nearly equal in number as possible. Initially, the directors of the first class
shall be nominated and elected for a term of one year; the directors of the
second class for a term of two years; and the directors of the third class for a
term of three years; and at each annual election the successors to the class of
directors whose terms shall expire in that year shall be elected to hold office
for the term of three years, so that the term of office of one class of
directors shall expire in each year. The current directors shall be assigned a
designated class as determined by the Board of Directors, and the number of
directors on the Board shall be determined from time to time by resolution of
the Board of Directors. When the number of directors is changed, any newly
created directorships or any decrease in directorships shall be so apportioned
among the classes so as to make all classes as nearly equal in number as
possible. When the number of directors is increased by the Board of Directors
and any newly created directorships are filled by the Board of Directors, there
shall be no classification of the additional directors until the next annual
meeting of stockholders. Any or all of the directors may be removed from office
by shareholders only for cause and only upon the affirmative vote of the holders
of not less than eighty percent (80%) of the outstanding shares of common stock
entitled to vote generally in the election of directors.
The provisions of this Article FOURTH may only be amended,
revised or repealed by the affirmative vote of the holders of not less than
seventy-five (75%) of the outstanding shares of common stock entitled to vote.
4. This Amendment to the Certificate of Incorporation was
authorized by a vote of the Board of Directors, followed by the affirmative vote
of the holders of more than a majority of all outstanding share of the stock of
the Corporation entitled to vote thereon at a meeting of the shareholders duly
noticed and held in accordance with the New York Business Corporation Law.
<PAGE>
IN WITNESS WHEREOF, we have signed this Certificate the 8th day
of October, 1996 and affirm that its contents are true under penalties of
perjury.
/s/ Stephen V. Ardia
--------------------
Stephen V. Ardia, Chairman
CEO and President
/s/ Edward J. Grogan
--------------------
Edward J. Grogan, Secretary
NOTE AND SECURED REVOLVING LINE OF
CREDIT AGREEMENT MODIFICATION AGREEMENT NO. 5
THIS AGREEMENT, made this 17th day of June, 1996, by and between FLEET
BANK f/k/a FLEET BANK OF NEW YORK, a bank organized and existing under the laws
of the State of New York, and having its principal banking house located at 69
State Street, Albany, New York 12201 (herein called the "Bank") and
ENVIRONMENT-ONE CORPORATION, a New York corporation with its principal place of
business at P.O. Box 773, 2773 Balltown Road, Schenectady, New York 12309
(herein called the "Borrower").
W I T N E S S E T H:
WHEREAS, the Borrower did execute and deliver to the Bank a Business
Purpose Promissory Note (Demand - Line of Credit) in the face amount of Two
Million Five Hundred Thousand and no/100 Dollar ($2,500,000.00) dated as of
October 2, 1992 (herein called the "Prior Note"); and
WHEREAS, the Prior Note was subject to the terms and conditions of a
Secured Revolving Line of Credit Agreement also dated as of October 2, 1992 by
and between the Bank and the Borrower (the "Line of Credit Agreement"); and
WHEREAS, the Prior Note and the Line of Credit Agreement were modified
by the parties pursuant to the terms of a Note and Line of Credit Agreement
Modification Agreement by and between the Borrower and the Bank dated the 23rd
day of March, 1994 and a Letter Agreement dated May 10, 1994 (collectively the
"Modification Agreement"); and
WHEREAS, the Prior Note and the Line of Credit Agreement were further
modified by the parties pursuant to the terms of a Note and Line of Credit
Agreement Modification Agreement No. 2 by and between the Borrower and the Bank
dated the 20th day of March, 1995 (the "Modification Agreement No. 2"); and
WHEREAS, the Prior Note and the Line of Credit Agreement were further
modified by the parties pursuant to the terms of a Note and Line of Credit
Agreement Modification Agreement No. 3 by and between the Borrower and the Bank
dated the 30th day of March, 1995 (the "Modification Agreement No. 3"); and
WHEREAS, the Prior Note and the Line of Credit Agreement were further
modified by the parties pursuant to the terms of a Note and Line of Credit
Agreement Modification Agreement No. 4 by and between the Borrower and the Bank
dated the 18th day of October, 1995 (the "Modification Agreement No. 4").
Pursuant to the terms of Modification Agreement No. 4, the Prior Note was
modified, replaced and restated in its entirety by a Line of Credit Note in the
face amount of $2,500,000.00 dated October 18, 1995, executed by the Borrower in
favor of the Bank (the "Note"); and
WHEREAS, the Borrower and the Bank desire to further modify certain
terms of the Note and the Line of Credit Agreement, but only pursuant to the
terms and conditions of this Note and Line of Credit Agreement Modification
Agreement No. 5.
NOW, THEREFORE, in pursuance of said agreement and in consideration of
the mutual promises, covenants and agreements herein contained and other good
and valuable consideration, receipt of which is acknowledged by the parties
hereto, the Borrower and the Bank mutually agree and covenant as follows:
<PAGE>
1. The definition of "Maturity Date" in the Note is hereby amended to
read April 30, 1997.
2. The definition of "Floating Rate" on page 1 of the Note is hereby
modified to read in its entirety as follows:
"Floating Rate - The Fleet Bank Prime Rate, as such rate
changes from time to time."
3. The definition of "Libor Fixed Rate" on page 3 of the Note is hereby
modified to read in its entirety as follows:
"Libor Fixed Rate - A per annum rate fixed at the Libor
Rate, plus two percent (2.00%)."
4. The in the Line of Credit Agreement, as modified, that the Borrower
pay to the Bank a one-quarter of one percent fee on the unused portion of the
Note is hereby eliminated.
5. All the other terms and conditions of the Note and the Line of
Credit Agreement, as previously modified pursuant to the terms of the
Modification Agreement, the Modification Agreement No. 2, the Modification
Agreement No. 3 and the Modification Agreement No. 4, remain in full force and
effect, with the exception of the modifications set forth in paragraphs 1
through 4 above.
6. The Borrower hereby warrants and covenants to the Bank that as of
the date of this Agreement, there are no disputes, offsets, claims or
counterclaims of any kind or nature whatsoever under the Prior Note, the Note,
the Line of Credit Agreement, the Modification Agreement, the Modification
Agreement No. 2, the Modification Agreement No. 3, the Modification Agreement
No. 4 or any of the documents executed in connection therewith or herewith or
the obligations represented or evidenced thereby or hereby.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Note and Line
of Credit Agreement Modification Agreement No. 5 as of the 17th day of June,
1996.
FLEET BANK ENVIRONMENT-ONE CORPORATION
By:/s/ Kevin P. Harrigan By: /s/ Angelo Dounoucos
- ------------------------ ------------------------
Kevin P. Harrigan, Angelo Dounoucos, President
Vice President and Chief Executive Officer
By: /s/ Philip Welsh
---------------------
Philip Welsh, Treasurer
STATE OF NEW YORK )
) ss.:
COUNTY OF Schenectady )
On this 17th day of June, 1996, before me personally appeared Angelo
Dounoucos, to me known, who being by me duly sworn, did depose and say that he
resides at 720 St. Davids Lane, Schenectady, New York 12309, that he is the
President and Chief Executive Officer of ENVIRONMENT-ONE CORPORATION, the
corporation described in and which executed the above instrument; and that he
signed his name thereto by order of the Board of Directors of said corporation.
/s/ Carol J. Hicks
------------------
Carol J. Hicks
Notary Public State of New York
No. 5022470
STATE OF NEW YORK ) Qualified in Schenectady County
) ss.: Commission Expires January 10, 1998
COUNTY OF Schenectady )
On this 17th day of June, 1996, before me personally appeared Philip
Welsh, to me known, who being by me duly sworn, did depose and say that he
resides at 13 Nottingham Way S., Clifton Park, New York 12065, that he is the
Treasurer of ENVIRONMENT-ONE CORPORATION, the corporation described in and which
executed the above instrument; and that he signed his name thereto by order of
the Board of Directors of said corporation.
/s/ Carol J. Hicks
------------------
Carol J. Hicks
STATE OF NEW YORK ) Notary Public State of New York
) ss.: No. 5022470
COUNTY OF Albany ) Qualified in Schenectady County
Commission Expires January 10, 1998
<PAGE>
On this 17th day of May, 1996, before me personally appeared Kevin P.
Harrigan, to me known, who being by me duly sworn, did depose and say that he
resides at 201 Autumn Run, Schenectady, New York 12309, that he is a Vice
President of FLEET BANK, the corporation described in and which executed the
above instrument; and that he signed his name thereto by order of the Board of
Directors of said corporation.
/s/Paul A. Schwarz
------------------
Paul A. Schwarz
Notary Public in the State of New York
Residing in Schenectady County
My Commission Expires 5/31/96
NOTE AND LOAN AND SECURITY
AGREEMENT MODIFICATION AGREEMENT NO. 5
This Agreement dated this 17th day of June, 1996, between
ENVIRONMENT-ONE CORPORATION, a New York corporation with its principal place of
business at P. O. Box 773, 2773 Balltown Road, Schenectady, New York 12301
(hereinafter called the "Borrower"), and FLEET BANK f/k/a FLEET BANK OF NEW
YORK, a bank organized and existing under the laws of the State of New York
having its principal banking house located at 69 State Street, Albany, New York
12207 (hereinafter called the "Lender").
W I T N E S S E T H:
WHEREAS, the Borrower did execute and deliver to the Lender a Three
Million and no/100 Dollar ($3,000,000.00) Business Promissory Note dated
December 30, 1992 (hereinafter called the "Note"); and
WHEREAS, the Note was subject to the terms and conditions in a Loan and
Security Agreement also dated the 30th day of December, 1992 between the
Borrower and the Lender (hereinafter called the "Loan and Security Agreement");
and
WHEREAS, the Note and the Loan and Security Agreement were modified by
the parties pursuant to the terms of a Note and Loan and Security Agreement
Modification Agreement by and between the Borrower and the Lender dated the 23rd
day of March, 1994 (the "Modification Agreement"); and
WHEREAS, the Note and the Loan and Security Agreement were modified by
the parties pursuant to the terms of a Note and Loan and Security Agreement
Modification Agreement No. 2 by and between the Borrower and the Lender dated
the 20th day of March, 1995 (the "Modification Agreement No. 2"); and
WHEREAS, the Note and the Loan and Security Agreement were modified by
the parties pursuant to the terms of a Note and Loan and Security Agreement
Modification Agreement No. 3 by and between the Borrower and the Lender dated
the 30th day of March, 1995 (the "Modification Agreement No. 3"); and
WHEREAS, the Note and the Loan and Security Agreement were modified by
the parties pursuant to the terms of a Note and Loan and Security Agreement
Modification Agreement No. 4 by and between the Borrower and the Lender dated
the 18th day of October, 1995 (the "Modification Agreement No. 4"); and
WHEREAS, the Borrower and the Lender desire to further modify certain
terms of the Note and the Loan and Security Agreement, but only pursuant to the
terms and conditions of this Note and Loan and Security Agreement Modification
Agreement No. 5.
NOW, THEREFORE, in pursuance of said agreement and in consideration of
the mutual promises, covenants and agreements herein contained and other good
and valuable consideration, receipt of which is acknowledged by the parties
hereto, the Borrower and the Lender mutually agree and covenant as follows:
1. The interest rate set forth in the first paragraph of the Note is
hereby modified as follows:
<PAGE>
"The Borrower agrees to pay interest on the disbursed, unpaid
principal from the date hereof, computed on a 360 day basis, but
chargeable on actual days, at a per annum rate equal to .50% above the
"Fleet Bank Prime Rate", adjusted as of the date said "Fleet Bank Prime
Rate" is changed at the Lender. The "Fleet Bank Prime Rate" is that
rate announced from time to time by the Lender as a reference point for
determining interest rates charged on certain loans and is not
necessarily the lowest rate at which the Lender lends."
2. Except as expressly modified hereunder, all the terms and conditions
of the Note, as previously modified pursuant to the terms of the Modification
Agreement, the Modification Agreement No. 2, Modification Agreement No. 3 and
Modification Agreement No. 4, remain in full force and effect, with the
exception of the modifications set forth in paragraph 1 above. All the terms and
conditions of the Loan and Security Agreement, as previously modified pursuant
to the terms of the Modification Agreement, the Modification Agreement No. 2,
Modification Agreement No. 3 and Modification Agreement No. 4, shall continue to
apply to the Note as further modified hereunder.
4. The Borrower hereby warrants and covenants to the Lender that as of
the date of this Agreement, there are no disputes, offsets, claims or
counterclaims of any kind or nature whatsoever under the Note, the Loan and
Security Agreement, the Modification Agreement, the Modification Agreement No.
2, the Modification Agreement No. 3, the Modification Agreement No. 4 or any of
the documents executed in connection therewith or herewith or the obligations
represented or evidenced thereby or hereby.
IN WITNESS WHEREOF, the parties hereto have executed this Note and Loan
and Security Agreement Modification Agreement No. 5 as of the 17th day of June,
1996.
FLEET BANK ENVIRONMENT-ONE CORPORATION
By:/s/Kevin P. Harrigan By: /s/Angelo Dounoucos
- ----------------------- -------------------
Kevin P. Harrigan, Angelo Dounoucos, President
Vice President and Chief Executive Officer
By: /s/Philip W. Welsh
------------------
Philip Welsh, Treasurer
STATE OF NEW YORK )
) ss.:
COUNTY OF Schenectady )
On this 17th day of June, 1996, before me personally appeared Angelo
Dounoucos, to me known, who being by me duly sworn, did depose and say that he
resides at 729 St. Davids Lane, Schenectady, New York 12309, that he is the
President and Chief Executive Officer of ENVIRONMENT-ONE CORPORATION, the
corporation described in and which executed the above instrument; and that he
signed his name thereto by order of the Board of Directors of said corporation.
<PAGE>
/s/ Carol J. Hicks
------------------
Carol J. Hicks
Notary Public State of New York
No. 5022470
STATE OF NEW YORK ) Qualified in Schenectady County
) ss.: Commission Expires January 10, 1998
COUNTY OF Schenectady )
On this 17th day of June, 1996, before me personally appeared Philip
Welsh, to me known, who being by me duly sworn, did depose and say that he
resides at 13 Nottingham Way S., Clifton Park, New York 12065, that he is the
Treasurer of ENVIRONMENT-ONE CORPORATION, the corporation described in and which
executed the above instrument; and that he signed his name thereto by order of
the Board of Directors of said corporation.
/s/ Carol J. Hicks
------------------
Carol J. Hicks
Notary Public State of New York
No. 5022470
STATE OF NEW YORK ) Qualified in Schenectady County
) ss.: Commission Expires January 10, 1998
COUNTY OF Albany )
On this 17th day of May, 1996, before me personally appeared Kevin P.
Harrigan, to me known, who being by me duly sworn, did depose and say that he
resides at 201 Autumn Run, Schenectady, New York 12309, that he is a Vice
President of FLEET BANK, the corporation described in and which executed the
above instrument; and that he signed his name thereto by order of the Board of
Directors of said corporation.
/s/Paul A. Schwarz
------------------
Paul A. Schwarz
Notary Public in the State of New York
Residing in Schenectady County
My Commission Expires 5/31/96
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Shareholders and Board of Directors
Environment One Corporation:
We consent to the incorporation by reference in the registration statements on
Form S-8 (Nos. 33-15221, 33-15223, 33-15225, 33-15227, and 33-15229) of
Environment One Corporation of our report dated February 14, 1997, relating to
the consolidated balance sheet of Environment One Corporation and subsidiary as
of December 31, 1996, and the related consolidated statements of operations,
shareholders' equity and cash flows for the years ended December 31, 1996 and
1995, which report appears in the December 31, 1996 annual report on Form 10-KSB
of Environment One Corporation.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Albany, New York
March 25, 1997
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 62,637
<SECURITIES> 0
<RECEIVABLES> 5,023,512
<ALLOWANCES> 92,091
<INVENTORY> 2,272,100
<CURRENT-ASSETS> 7,613,735
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<DEPRECIATION> 4,310,173
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<BONDS> 1,500,494
0
0
<COMMON> 416,997
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<TOTAL-LIABILITY-AND-EQUITY> 11,254,541
<SALES> 21,536,430
<TOTAL-REVENUES> 21,536,430
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<EXTRAORDINARY> 0
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<NET-INCOME> 1,254,687
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