<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _________ to __________
Commission File
Number 0-14229
CROWN ANDERSEN INC.
(Exact name of Registrant as specified in its charter)
Delaware 58-1653577
(State of Incorporation) (I.R.S. Employer
Identification No.)
306 Dividend Drive, Peachtree City, Georgia 30269
(Address of principal executive offices)
(770) 486 2000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.10 Per Share
--------------------------------------
(Title of Class)
-------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[x]
At December 19, 1996 there were 1,524,635 shares of the Registrant's common
stock outstanding. The aggregate market value of the Registrant's outstanding
common stock held by non-affiliates of the Registrant as of December 19, 1996
was $9,147,810.
Documents incorporated by reference:
-----------------------------------
Portions of the Registrant's 1996 Annual Report are incorporated by reference in
Part I and Part II hereof. Portions of the Registrant's Proxy Statement for the
1997 Annual Meeting of Stockholders to be held on March 5, 1997 are incorporated
by reference in Part III hereof.
<PAGE>
CROWN ANDERSEN INC.
Annual Report on Form 10-K
For the Fiscal Year Ended September 30, 1996
<TABLE>
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TABLE OF CONTENTS
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PART I
------
Item No. Page No.
- -------- -------
<S> <C> <C>
1 Business 3
2 Properties 10
3 Legal Proceedings 10
4 Submission of Matters to a Vote of 10
Security Holders
4(A) Executive Officers of the Registrant 10
PART II
-------
5 Market for the Registrant's Common
Equity and Related Stockholder Matters 11
6 Selected Financial Data 11
7 Management's Discussion and Analysis of
Financial Condition and Results of 12
Operation
8 Financial Statements and Supplementary 12
Data
9 Changes in and Disagreements with
Accountants on Accounting and Financial 12
Disclosure
PART III
--------
10 Directors and Executive Officers of the 12
Registrant
11 Executive Compensation 12
12 Security Ownership of Certain Beneficial 12
Owners and Management
13 Certain Relationships and Related 13
Transactions
PART IV
-------
14 Exhibits, Financial Statement Schedules 13
and Reports on Form 8-K
Signatures 15
Index to Financial Statement Schedules 16
</TABLE>
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PART I
------
ITEM 1. BUSINESS
- ----------------
General
-------
Crown Andersen Inc. (the "Company" or the "Registrant") has, through its
subsidiaries, designed, manufactured, sold and installed a wide range of
industrial air pollution control and air handling systems, medical, chemical and
industrial waste treatment equipment and systems, molded plastic high integrity
tanks and containers, and related products. The Company is a Delaware
corporation formed in October 1985 to acquire and own all of the stock of
Andersen 2000 Inc. (hereinafter referred to as "Andersen") and Crown Rotational
Molded Products, Inc. (hereinafter referred to as "Crown"). The Company served
as a holding company for these two subsidiaries starting in January 1986. At
that time, it issued shares of its Common Stock to the shareholders of Andersen
and Crown in exchange for their shares of Andersen and Crown Common Stock,
respectively. Late in fiscal year 1994, the Company sold the assets of Crown
Rotational Molded Products, Inc. and Roanoke Industries, Inc. (collectively
"plastics") and is thus no longer involved in plastics molding or high integrity
tanks and containers.
Andersen is engaged in the design, manufacture, sale, and installation of
specialized industrial pollution control equipment and systems, medical,
chemical and industrial waste treatment equipment and systems, heat exchanger
and boiler systems, and industrial fans and blowers. Additionally, Andersen's
wholly-owned subsidiary, Montair Andersen bv in Sevenum, Holland ("Montair
Andersen") manufactures and installs industrial equipment similar to the
Andersen equipment for the European, African, Middle Eastern and Far Eastern
markets. Crown was engaged in the design, manufacture, sale and installation of
high integrity, rotationally molded plastic tanks and refuse containers.
The Company increased its revenues and income from continuing operations in
the period from 1988 through 1992 by introducing new products and providing
specialized, higher margin products and services for specific customer
applications. As an example, the Company expanded its operations to include the
design, manufacture, sale and installation of complex medical, chemical,
municipal and hazardous waste collection, incineration and disposal systems
which require sophisticated engineering services and specialized equipment. As
a result of such strategies, the Company's revenues increased from $15.5 million
in fiscal 1988 to $25.2 million in fiscal 1992, and its income from continuing
operations more than doubled from $816,000 in fiscal 1988 to $1.7 million in
fiscal 1992. However, in fiscal year 1993 revenues and net income declined to
$20.5 million and $0.5 million as a result of decreases in the revenues
generated by the air pollution control products and incinerator businesses, and
an enormous downturn in business at its Dutch operation. Revenues from these
same operations increased to $22.8 million in fiscal 1994 and net income from
the same operations decreased to $0.3 million. The Dutch operation returned to
profitability, but the air pollution control and incinerator businesses did not
recover to 1992 levels in either revenues or net income. The Company made a
major policy decision during fiscal 1994 and brought this to the shareholders
for approval before implementing it. That decision was to exit the plastics
business through a profitable sale of the plastics subsidiaries and to focus on
the environmental businesses in the future. The shareholders approved this
change and the two plastics operations were sold, resulting in a net gain on the
disposal of $1.2 million in fiscal 1994. This resulted in a total net income of
$1.50 million for that year. The financial results were then restated, moving
the plastics business revenues and net income contributions to "discontinued
operations". See "Selected Financial Data," Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements of the Company contained in the Company's 1996 Annual
Report and incorporated by reference in Items 6, 7, and 8, respectively, of this
report. In fiscal 1996, revenues increased 2% to $22.0 million and net income
decreased to $0.5 million as compared to net income of $1.4 million on revenues
of $21.6 million in fiscal 1995. In fiscal 1995, revenues from continuing
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operations increased 54% to $21.6 million and net income increased to $1.4
million as compared to a loss of $0.3 million in fiscal 1994. Additional
information pertaining to the revenues, operating profit or loss, and
identifiable assets for each of the Company's geographic areas for the past
three fiscal years is incorporated herein by reference to Note 11 of the Notes
to Consolidated Financial Statements contained in the Company's 1996 Annual
Report. The 1996 Annual Report is filed as Exhibit 13 to this report.
As used herein, unless otherwise indicated, the term "Company" refers to
Crown Andersen Inc. and its subsidiaries, the term "Andersen" refers to Andersen
2000 Inc. and Montair Andersen bv, and the term "Crown" refers to Crown
Rotational Molded Products, Inc. and Roanoke Industries, Inc.
Business and Products
---------------------
Andersen began operations in 1971 as a manufacturer of particle sizing
instrumentation used primarily in the air pollution control field. In fiscal
1975, Andersen acquired a limited industrial air pollution control equipment
line. During fiscal 1978, Andersen sold the particle sizing instrumentation
segment of its business and expanded its industrial pollution control equipment
segment. In fiscal 1982, Andersen embarked on a program designed to expand its
industrial manufacturing capabilities into related product areas. As a result
of that program, Andersen began to manufacture and sell heavy duty industrial
fans and condensing heat exchange equipment in fiscal 1983. In fiscal 1984,
Andersen began to design, manufacture, and sell chemical and industrial waste
incineration systems as well as spray dryers and began to offer contract
chemical and mechanical engineering services. At the beginning of fiscal 1985,
Andersen acquired 81% of the outstanding stock of Montair van Stratum bv,
Sevenum, The Netherlands, and renamed the company Montair Andersen bv. Andersen
acquired the remaining 19% of Montair Andersen in fiscal 1991. Montair Andersen
manufactures the same pollution control and chemical and industrial waste
incineration products as Andersen but also manufactures small animal isolators
and glove boxes for radioactive or chemically active materials handling. In
fiscal 1990, Andersen began offering turnkey medical waste incineration plants
to its customers and expanded that business in 1991 and 1992. In fiscal 1994,
Andersen expanded its incineration product line to include a new line of solid
waste incinerators. Materials handling products were also added for waste
processing.
Andersen's pollution control systems include high efficiency filtration
systems, wet scrubbers for particulate and gaseous emission collection, sulfur
dioxide removal systems for oil and coal-fired steam boilers and steam
generators, odor control systems, gas coolers and condensers, mechanical
collectors for product recovery, industrial water and waste water treatment
systems, spray dryer systems to produce dry powders from waste liquids which are
produced in gas treating systems, heavy duty industrial fans and blowers used
primarily in high pressure and alloy steel applications in industrial plants,
and heat recovery systems which allow heat recovery from gas streams which
previously could not utilize heat recovery equipment because of their dirty or
corrosive nature. These heat recovery systems are used primarily by the
chemical industries and food processing industries.
Andersen's chemical and industrial waste treatment systems include thermal
oxidation systems (incinerators), waste liquid fired boilers, and chemical
treatment systems for which the company furnishes both engineering designs and
equipment as well as turnkey installation services. All of Andersen's medical
waste processing systems are based on thermal oxidation.
Montair Andersen designs, manufactures and sells industrial pollution
control systems, heat exchangers, incineration systems, and small animal
isolators and glove boxes for radioactive and chemically active materials
handling. The small animal isolators are used for animals such as chickens and
guinea pigs by medical research facilities, pharmaceutical research facilities
and animal husbandry facilities. The radioactive and chemically active
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materials handling glove boxes are used by nuclear fuels processing facilities,
nuclear research facilities, and medical isotope manufacturing operations.
These products are sold to both industrial plants and research facilities.
Montair Andersen also builds specialized industrial machinery for the
electronics, aerospace and chemical process industries and in 1992 began the
manufacture of incinerators as well. The Montair Andersen product line now
includes all of the same incineration systems as Andersen.
Sales and Distribution
----------------------
In general, Andersen's products are marketed to various industrial
manufacturing concerns in the United States by independent sales representatives
in exclusive territories. Sales of Andersen products are made in all regions of
the country, with no one region serving as a dominant market for Andersen
products. International sales result from the efforts of Andersen and Montair
Andersen employees, independent sales representatives in many countries, and by
licensee companies in those countries where the technology has been licensed.
Montair Andersen historically handled sales of its products directly
through employees. This was changed in late 1993 and Montair now uses sales
agents in most countries which it serves.
Facilities And Manufacturing
----------------------------
The corporate offices of the Company are located in a building owned by
Andersen in Peachtree City, Georgia. The corporate offices occupy approximately
2,000 square feet of the building, and the Company makes no payments to Andersen
for the use of this space. The manufacturing facilities operated by each of the
subsidiary companies are described below.
Andersen's manufacturing operations in North America are conducted in
Peachtree City, Georgia. This facility, which is owned by Andersen, has 29,000
square feet of inside manufacturing and office space and 30,000 square feet of
outdoor assembly area. This facility is equipped for heavy steel fabrication
and is located on a three acre tract of property in an industrial park.
Andersen purchased an adjacent property in Peachtree City in 1992 with a 5,000
square feet office building on one acre of property. In 1996, Andersen
purchased another adjacent property with a 3,600 square feet storage building on
1.5 acres of land.
With the acquisition of the remaining 19% of Montair Andersen during 1991,
Andersen now owns the manufacturing facility in the Netherlands, which is larger
and more modern than the one which it operates in Peachtree City, Georgia. This
plant contains approximately 40,000 square feet of space and is located on 4.8
acres of industrial property in Sevenum, The Netherlands. This facility was
certified under the new world standard ISO-9001. Certification was attained in
fiscal year 1994.
Manufacturing equipment in the Peachtree City location and in the Sevenum,
Holland location is owned by Andersen and Montair Andersen, respectively. With
the exception of extremely heavy plate fabrication (over 1/2" thick), these two
facilities are capable of manufacturing all of the products offered by Andersen
and Montair Andersen. Where use of a subcontract manufacturing facility is
financially more attractive than manufacturing in company owned facilities, a
number of subcontractors are used. Andersen has adopted the practice of
purchasing from more than one of these suppliers on a routine basis in an effort
to insure adequate continuing sources of supply for subcontracted items in the
future. The Company has trained a number of employees in inspection procedures
and in quality control to ensure that these products are properly manufactured
before shipment by the subcontractors.
Most of the products sold by Andersen must be custom engineered for a
specific application. For this reason, Andersen normally does not maintain
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finished product in inventory. However, during fiscal 1996, Andersen purchased
certain inventory from a former competitor. Included in this purchase were
certain finished goods that are available for sale as a completed unit.
Andersen inventories some raw materials which can be purchased more economically
in large quantities, particularly some of the high alloy stainless steels.
Andersen believes that its facilities are adequate for its current and
anticipated foreseeable manufacturing needs.
Foreign Operations And Export Sales
-----------------------------------
Montair Andersen manufactures and ships products to all European countries
and to some countries in the Middle East, Africa and Asia. Montair Andersen
also exports small animal isolators and some of its glove boxes to the United
States and Canada for sale by Andersen.
Andersen uses subcontract manufacturers in some foreign countries when
sales are made into those countries. In particular, it is common for Andersen
to use Canadian subcontract manufacturers for sales in Canada. Most of
Andersen's foreign sales in 1995, however, were manufactured in Andersen's plant
in the United States.
Foreign sales in fiscal 1996, 1995, and 1994 accounted for approximately
81%, 88% and 56%, respectively, of the Company's total revenues from continuing
operations. Foreign sales from continuing operations for fiscal 1996, 1995 and
1994 totaled approximately $17.8 million, $19.0 million and $7.9 million,
respectively.
Licensing
---------
Andersen has licensed the manufacture of its products in Japan and India.
During fiscal 1976, Andersen licensed a Japanese firm to manufacture and sell
HEAF(R) and CHEAF(R) gas filtration products in the Far East. Andersen was paid
an initial fee of $70,000 and then established a royalty arrangement for future
sales. The royalty arrangement included a minimum royalty payment on an annual
basis. In late fiscal 1977, Andersen negotiated a transfer of its license to a
second Japanese firm. The second Japanese firm was active in sales of the
HEAF(R) and CHEAF(R) equipment and installed more than 300 systems in Japan
under license from Andersen. This agreement expired in late 1991, and the
Japanese licensee agreed with Andersen to maintain a formal sales cooperation
arrangement in Japan and Korea whereby the Japanese licensee is still allowed
use of the HEAF(R) and CHEAF(R) technologies in Japan and Korea in exchange for
providing sales leads to Andersen for all other Far Eastern countries.
In fiscal 1986, Andersen negotiated a license agreement with Paramount
Pollution Control Pvt Ltd in Baroda, India. Andersen licensed manufacture of
all of its product lines, including those manufactured by Montair Andersen, to
the Indian firm. This agreement called for an initial payment of $85,000 to
Andersen for initial technical exchange and training, followed by royalties
calculated as a percentage of product sales in India in the future. This
agreement expired in early fiscal 1992, but a five-year extension was negotiated
and submitted to the Indian government for approval. The Indian government
approved the extension but imposed terms the Company would not accept.
Revisions to the agreement were negotiated at the end of 1992, and were finally
approved in early fiscal 1993 and the agreement has been extended for five more
years.
Competition
-----------
In the air pollution control field, Andersen competes with three or four
companies of similar size which have similar product lines. In 20 years of
direct competition with these firms, Company management has determined that
these competitors do not have the engineering capabilities that Andersen does,
and most of these companies do not routinely offer auxiliary systems and
installation services with their quotations. Andersen considers the ability to
furnish auxiliary systems and installation as an advantage over its competition.
There are some competitors in the field which are substantially larger than
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Andersen and which may have greater financial resources. However, these larger
companies tend to concentrate on large air pollution control projects associated
with utility plant construction or with large municipal projects. As a result,
they are not routine competitors with Andersen since Andersen does not compete
in these fields.
In medical, chemical and industrial waste incineration, Andersen competes
with a limited number of companies which have greater financial resources.
These waste incineration systems, however, are purchased primarily on the basis
of advanced design features rather than strictly on price. As a result,
Andersen believes that it can be successful in capturing an increasing market
share in the coming years due to its technological capabilities.
With the possible exceptions of sulfur dioxide removal scrubbing systems
for small industrial boilers, scrubbing equipment for medical, chemical and
industrial waste incinerators, and rotary kiln incinerators for chemical and
hazardous waste, Andersen does not consider itself the dominant supplier in
those industries in which it competes. In industrial boiler sulfur dioxide
removal systems and in scrubbing systems for waste incinerators, Andersen
believes, based on industry publications, published market surveys and trade
association records, that it currently holds a 30% or greater market share in
the United States. Internationally Andersen believes it has captured a 15-20%
market share in rotary kiln incinerators for chemical and hazardous wastes.
In the field of condensing heat exchangers, Andersen frequently competes
with two or three other manufacturers offering somewhat different products for
the same purpose. In most of these cases, price is the determining factor.
Demand for this product line has not been high in recent years due to relatively
low energy costs in industrialized countries.
Principal Customers
-------------------
During 1996 two customers accounted for approximately 35% (18% and 17%) of
the Company's consolidated revenue from continuing operations during fiscal
1996. It is the opinion of management that the loss of such customers would not
have a material adverse effect on the operations of the Company. Such business
is not normally repetitive and, therefore, is not dependent upon any single
customer or individual group of customers.
Backlog
-------
The Company's consolidated backlog of firm orders as of the dates set forth
below were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, 1996 - $12,299,320
September 30, 1995 - $10,952,000
September 30, 1994 - $20,088,000
September 30, 1993 - $22,288,300
</TABLE>
Prior to 1991, the entire backlog of firm orders as of the end of any
fiscal year was manufactured, shipped and recognized during the following fiscal
year. In late fiscal 1991, the pollution control systems segment of the
business began receiving orders requiring in excess of two years to complete.
Andersen and Montair Andersen products are normally built to order and thus
are not inventoried. The large reduction in backlog from 1994 to 1995 is the
result of completion of a $12 million order by Andersen for the government in
1995 and timing in receipt of some large orders pending at year end 1995.
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Raw Materials
-------------
Since the beginning of fiscal 1990, Andersen has encountered no shortages
of alloys used to fabricate its products. Andersen inventories high alloy
steels when substantial discounts can be negotiated by purchasing large
quantities and to avoid delays in fabrication and shipment caused by materials
availability problems. Beyond this, however, Andersen generally purchases raw
materials after orders are received for those products which will require those
raw materials.
Patents And Trademarks
----------------------
Andersen owns domestic and foreign patents on its HEAF(R) and CHEAF(R) gas
filtration systems, its sulfur dioxide removal scrubbing systems, a chemical
waste regeneration process for the sulfur dioxide removal system, an
incineration process, and improvements to these product lines which have
occurred in recent years. Andersen was granted patent protection on its
combination spray dryer-scrubber system for air pollution control on
incinerators in 1991. The oldest of the patents expired in 1991 and the newest
expires in 17 years. Andersen holds trademarks on the HEAF(R) and CHEAF(R)
systems, the SUBDEW(R) condensing heat exchanger, and the ANDERSEN(R) name. The
trademarks generally expire 20 years from the date of registration but may be
renewed for one or more additional 20 year periods when they first expire.
While Andersen considers its patents to be valuable assets which sometimes
provide a competitive advantage in the marketplace, Andersen does not believe
that the loss of patent protection on any of its products as a result of the
challenge to the validity of such patents would have a material impact on
Andersen's revenues and earnings. In countries such as Germany and Japan, the
patents on Andersen's products are considered to be substantially more important
than they are on the same products in the United States. For this reason,
Andersen works closely with its licensees to insure that any new patent
applications anticipate potential challenges to their validity in the future.
The validity of Andersen's patents on any of its products has never been
challenged, either in the United States or in foreign countries. Although
Andersen is not aware of any basis upon which such patents might be challenged,
there is no assurance that proceedings challenging these patents will not be
instituted in the future.
The Company examines every product which is developed to determine its
patentability. If the equipment or process is determined to be patentable by
the Company, a patent application is filed, not only in the United States but in
those foreign countries where the product is considered saleable. The patents
are particularly valuable when licensing of manufacturers in foreign countries
is considered.
Product Warranties
------------------
In connection with most contracts for manufacture and sale of Andersen
equipment, the Company warrants the equipment manufactured to be free from
defects in material and workmanship under normal use and service for a period of
eighteen months after shipment, or one year after completion of erection, or one
year after initial operation, whichever occurs first. Andersen's obligation is
generally limited to the repair or replacement of the defective parts. All
equipment not manufactured by Andersen carries only such warranty, if any, as
given by the manufacturer. In addition, Andersen sometimes provides performance
guarantees for equipment and systems which it furnishes. Each proposed
application is carefully evaluated for its potential risk before such guarantees
are offered to the customer. Warranty and performance guarantee related
expenses are recognized as they are incurred. As of September 30, 1996,
Andersen has established an $855,000 reserve for future warranty repairs.
Research And Development
------------------------
Andersen maintains a small development laboratory in its plant. Some of
the research and development activities done by Andersen are conducted in
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Andersen's customers' plants utilizing test equipment and systems designed and
supplied by Andersen. The results of such tests enable Andersen to provide the
customer with a guaranteed performance system if the development work is
successful. The customer is typically charged for rental of Andersen's
equipment during such activities, and the customer is allowed to use, in its own
plant, any developments which result from such testing. Andersen, however,
reserves all rights to patents or other proprietary benefits which might result
from such tests.
Andersen maintains an equipment test facility in Peachtree City, Georgia
and also owns mobile demonstration equipment which is used in testing new
developments in the air pollution control field, mainly at customer plant
locations.
Research and development expenses are expensed in the year incurred. There
were no research and development expenses during fiscal years 1996, 1995 and
1994.
Environmental Controls
----------------------
To a large extent, the demand for the Company's products is dependent upon
the enforcement of federal, state, and international regulations regarding air
pollution, water pollution, and general industrial pollution. There has been a
significant increase in enforcement actions related to hazardous waste disposal
during the past three years outside the United States. This enforcement action
has resulted in a greater demand outside the United States for incineration
systems offered by Andersen. This increased enforcement activity should benefit
both Andersen and Montair in fiscal 1996. On the other hand, any relaxation of
environmental laws and regulations by the federal, state, or international
governments or any delay in the implementation of such laws or regulations could
have an adverse effect on the Company's operations.
In November of 1993 the Company's now defunct Thermo-Flood subsidiary was
named a Potentially Responsible Party ("PRP") under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") by the United
States Environmental Protection Agency ("EPA"). This is discussed under Item 3.
Legal Proceedings in this document.
Employees
---------
The Company and its subsidiaries employed a total of 96 individuals as of
September 30, 1996, including 10 officers, 73 technical and manufacturing
people, and 13 others engaged in financial, sales, and secretarial activities.
Approximately 61% of these people are employed at the Peachtree City, Georgia
facility by either Andersen or by the Company, and 39% are employed at Montair
Andersen's Sevenum, The Netherlands plant.
Seasonal Nature of Business
---------------------------
Andersen's business has never been seasonal.
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ITEM 2. PROPERTIES
- -------------------
Andersen owns six acres of land in Peachtree City, Georgia, with a 15 year
old, 29,000 square feet office and manufacturing facility, a separate 5,000
square feet office building, and a separate 3,600 square feet storage building
located on the land. Andersen owns all of the office furniture and equipment,
all of the manufacturing equipment, and all of the testing equipment at this
facility. Andersen also owns an 80 acre vacant land site in a remote area of
Kern County, California. Andersen processed permit requests through various
state and county agencies in California in fiscal 1982 to enable use of this
property for solid waste disposal from Andersen's scrubber liquid waste
regeneration process. Because of the subsequent slowdown in the oil fields,
Andersen decided to abandon the permit application. Andersen is now interested
in selling the California property.
Montair Andersen owns its facility in Sevenum, The Netherlands, which
includes 40,000 square feet of office and manufacturing space located on 4.8
acres of land. Montair owns all of its manufacturing and office equipment in
Sevenum.
Thermo-Flood's properties in Winfield, Kansas consisted of six buildings on
13 acres of land, all of which were owned under capital leases by Thermo-Flood.
These facilities contained approximately 137,400 square feet of manufacturing
space and 20,000 square feet of office area. The Company abandoned the Thermo-
Flood property in 1992. See Item 3. Legal Proceedings below.
Management believes that the facilities discussed above are adequate for
the current needs of all of the Company's operations for the foreseeable future.
For additional information regarding the Company's property and equipment,
see Note 7 to the Notes to Consolidated Financial Statements contained in the
Company's 1996 Annual Report.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
A discussion of the Company's pending and threatened litigation and
unasserted claims or assessments is set forth under the caption "Commitments and
Contingencies" (Note 12 to the Consolidated Financial Statements) in the
Company's 1996 Annual Report. Such discussion is incorporated herein by
reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
No matters were submitted to a vote of the Company's shareholders, through
the solicitation of proxies or otherwise, during the fourth quarter of fiscal
1996.
ITEM 4(A). EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------
Set forth below in accordance with General Instruction G(3) to Form 10-K
and Instruction 3 to Item 401(b) of Regulation S-K is information as of December
16, 1996 regarding the executive officers (including executive officers who are
also directors) of the Company.
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<TABLE>
<CAPTION>
Occupation During
Name Age The Past Five Years
- ---- --- ----------------------------------------------
<S> <C> <C>
Jack D. Brady 53 Chairman of the Board and Chief Executive
Officer of the Company since 1985; Chairman
of the Board of Ander-sen since 1984;
President and Treasurer of Andersen since
1978; Executive Vice President of Andersen
from 1975 until 1978; Director of Andersen
since 1975; Director of Montair Andersen
since 1984.
Milton Emmanuelli 62 Chief Financial Officer of the Company since
September 21, 1992; elected
Secretary/Treasurer of the Company on
December 16, 1992, and Con-troller/Treasurer
on December 13, 1994.
Thomas Van Remmen 39 Director elect of the Company; Pres-ident of
Andersen since December 2, 1996; General
Manager of Cleaver-Brooks incineration and
watertube boiler div-ision of Aqua-Chem Inc.
from 1986 to 1996.
Randall H. Morgan 48 Secretary of the Company since 1994;
Secretary/Treasurer from 1985 to 1992; Vice
President and Secretary of Ander-sen since
1979.
</TABLE>
The Company has no paid officers. All officers of the Company are also
officers of one or more subsidiaries and are paid by such subsidiaries. See
"Item 11. Executive Compensation."
The executive officers of the Company and its subsidiaries are elected
annually by the respective Boards of Directors and serve at the discretion of
such Boards.
PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
- --------------------------------------------------------------
Information relating to the market for, holders of and dividends paid on
the Company's common stock is set forth under the caption "Common Stock
Information" in the Company's 1996 Annual Report. Such information is
incorporated herein by reference. The 1996 Annual Report is filed as Exhibit 13
to this report.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
Selected consolidated financial data for the Company for each year of the
five year period ended September 30, 1996 are set forth under the caption
"Selected Financial Data" in the 1996 Annual Report referred to in Item 5 above.
Such financial data are incorporated herein by reference.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
- ------------------------------------------------------------------------
A discussion of the Company's financial condition and results of operations
is set forth under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the 1996 Annual Report
referred to in Item 5 above. Such discussion is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The consolidated balance sheets of the Company as of September 30, 1996 and
1995 and the Company's consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended September 30,
1996, together with the related notes thereto and the report of independent
certified public accountants thereon dated December 11, 1996, are set forth in
the 1996 Annual Report referred to in Item 5 above. Such consolidated financial
statements, notes and reports are incorporated herein by reference. The Company
is not required to furnish the supplementary financial information specified by
Item 302 of Regulation S-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
- --------------------------------------------------------------------
No independent certified public accountant of the Company has, during the
two fiscal years ended September 30, 1996 or subsequent thereto, resigned,
indicated any intent to resign or been dismissed as the independent certified
public accountants of the Company. There have been no disagreements between the
Company and its independent certified public accountants.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
Information relating to the directors of the Company is set forth under the
caption "Election of Directors-Nominees" in the Company's Proxy Statement for
its 1997 Annual Meeting of Stockholders to be held on March 5, 1997. Such
information is incorporated herein by reference. Information relating to the
executive officers of the Company is, pursuant to Instruction 3 of Item 401(b)
of Regulation S-K and General Instruction G(3) of Form 10-K, set forth as Part
I, Item 4(A) of this report under the caption "Executive Officers of the
Registrant."
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
Information relating to management compensation is set forth under the
captions "Election of Directors - Director Compensation" and "Election of
Directors - Executive Compensation" in the Proxy Statement referred to in Item
10 above. Such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
Information relating to ownership of the Company's $0.10 par value common
stock as of January 1, 1997 by (i) any person or group known to the Company to
be the beneficial owner of more than 5% of the Company's outstanding common
stock, (ii) each nominee for election as a director of the Company at the
Company's 1997 Annual Meeting of Stockholders, and (iii) all directors and
officers of the Company as a group is set forth under the captions "Voting -
Principal Stockholders" and "Election of Directors - Nominees" in the Proxy
Statement referred to in Item 10 above. Such information is incorporated herein
by reference.
-12-
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
Information regarding certain transactions between the Company, its
affiliates and certain other persons is set forth under the caption "Election of
Directors - Certain Relationships and Related Transactions" in the Company's
Proxy Statement referred to in Item 10 above. Such information is incorporated
herein by reference.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(a) Documents Filed as Part of This Report:
(1) Financial Statements.
The following consolidated financial statements are incorporated in
Part II, Item 8 of this report from the Company's 1996 Annual Report
referred to in Item 5 above:
Consolidated Balance Sheets as of September 30, 1996 and 1995;
Consolidated Statements of Income for the three fiscal years ended
September 30, 1996;
Consolidated Statements of Stockholders' Equity for the three fiscal years
ended September 30, 1996;
Consolidated Statements of Cash Flows for the three fiscal years ended
September 30, 1996;
Summary of Accounting Policies;
Notes to Consolidated Financial Statements;
Report of Independent Certified Public Accountants.
(2) Financial Statement Schedules.
The following financial statement schedules are set forth on pages 17 and
18 of this report. All other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission have
been omitted because such schedules are not required under the related
instructions or are inapplicable or because the information required is included
in the consolidated financial statements or notes thereto. See the Index to
Financial Statement Schedules on page 20 hereof.
Report of Independent Certified Public Accountants on Financial Statement
Schedules.
Schedule II - Valuation and Qualifying Accounts and Reserves
(3) Exhibits.
The exhibits listed on the following pages are filed as part of or are
incorporated by reference in this report. Where such filing is made by
incorporation by reference to a previously filed registration statement or
report, such registration statement or report is identified in parentheses.
-13-
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- ---------------------------------------------------
<S> <C>
3(a) Certificate of Incorporation of the Company (Exhibit 3(a) to
the Company's Registration Statement on Form S-4, No. 33-684
(the "Form S-4 Registration Statement")
3(b) Certificate of Amendment of the Certificate of Incorporation
of the Company filed with the Secretary of State of Delaware
on March 18, 1987 (Exhibit 3(b) to the Company's Annual
Report on Form 10-K for the fiscal year ended September 30,
1987)
3(c) Bylaws of the Company (Exhibit 3(b) to the Form S-4
Registration Statement)
4 Common Stock Certificate (Exhibit 4(a) to the Form S-4
Registration Statement)
10(a) Agreement and Plan of Reorganization dated as of September
30, 1985 among the Company, Andersen and Crown (Exhibit 2 to
the Form S-4 Registration Statement)
10(b) 1985 Incentive Stock Option Plan and related form of Option
Agreement (Exhibit 10(a) to the Form S-4 Registration
Statement)
10(c) First 1987 Amendment to the 1985 Incentive Stock Option Plan
(Exhibit 10(c) to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1987)
10(d) Executive Option Plan (Exhibit 10(d) to the Company's Annual
Report on Form 10-K for the fiscal year ended September 30,
1987)
10(e) Key Employee Stock Option Plan (Exhibit 10(e) to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1987)
10(f) 1985 Directors Stock Warrant Plan and related form of Stock
Purchase Warrant (Exhibit 10(b) to the Form S-4 Registration
Statement)
10(g) Cash Incentive Program For Key Employees (Exhibit 10(g) to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1987)
10(h) Employment Agreement dated October 1, 1992 between Jack D.
Brady and the Company
10(i) Employment Agreement dated October 1, 1992 between Crown and
Jack C. Hendricks
10(j) Lease between the City of Winfield, Kansas and the City of
Arkansas City, Kansas, as landlord, and Thermo-Flood, as
tenant, dated as of October 1, 1980 and related documents
regarding industrial revenue bonds issued for Thermo-Flood's
properties in Winfield, Kansas (Exhibit 10(p) to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1988)
10(k) Revolving Credit Agreement dated as of July 25, 1989 among
the Company, Andersen, Crown, Thermo-Flood and The Citizens
and Southern National Bank, together with the related Pledge
Agreement, Security Agreement, Special Revolving Credit Note
and Working Capital Revolving Credit Note (Exhibit 10(s) to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1989)
10(l) Purchase Agreement dated April 30, 1991 between the Company
and Josef A.C. van Stratum for the acquisition by the Company
of the remaining 19% of Montair Andersen stock (Exhibit 2 to
the Company's Report on Form 8-K dated April 30, 1991)
10(m) Agreement for the Purchase of Stock dated as of September 13,
1991 among George T. Condy, Lawrence E. Wiegman, Kenneth
Kirby and Crown for the acquisition of the stock of Roanoke
by Crown (Exhibit 2 to the Company's Report on Form 8-K dated
September 13, 1991)
10(n) Revolving Credit Agreement Amendment dated as of March 31,
1992 among the Company, Andersen, Crown and Thermo-Flood and
NationsBank of Georgia, N.A. (formerly known as The Citizens
and Southern National Bank)- (See Exhibit 10p)
10(o) Second Amendment to Revolving Credit Agreement among the
Company, Andersen, Crown, Thermo-Flood and NationsBank of
Georgia, N.A. (Formerly known as The Citizens and Southern
National Bank) - (See Exhibit 10p)
10(p) Loan agreement dated as of March 31, 1993 among the Company,
Andersen and Crown and NationsBank of Georgia N.A. (Exhibit
10(u) to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1993)
10(q) Agreement for Sale of Roanoke Industries, Inc. assets, dated
July 19, 1994
10(r) Agreement for Sale of Crown Rotational Molded Products, Inc.
assets, dated July 19, 1994 (Exhibit A to the Company's
Notice of Special Meeting and Proxy Statement 1994)
10(s) Asset Purchase Agreement dated December 21, 1995 between the
Cleaver-Brooks Division of Aqua-Chem and Andersen 2000 Inc.
filed with Form 10Q for quarter ended December 31, 1995
10(t) Commercial Loan Agreement, General Security Agreement,
Commercial Promissory Note, and Revolving Note dated June 28,
1996 between South Trust Bank of Georgia, N.A. and Crown
Andersen Inc. and Andersen 2000 Inc. filed with Form 10Q for
the quarter ended June 30, 1996.
13* 1996 Annual Report - Filed herewith
21 Subsidiaries - Filed herewith
</TABLE>
*Portions of the Company's 1996 Annual Report, as indicated in this Annual
Report on Form 10-K, are incorporated herein by reference. Other than as so
noted herein, the 1996 Annual Report is furnished to the Commission solely for
its information and is not deemed to be "filed" with the Commission or subject
to the liabilities of Section 18 of the Securities Exchange Act of 1934.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fiscal quarter ended
September 30, 1996.
(c) Exhibits:
See Item 14 (a)(3) above.
(d) Financial Statement Schedules:
See Item 14 (a)(2) above.
-14-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CROWN ANDERSEN INC.
-------------------
(Registrant)
Date: December 20, 1996 By: /s/ Jack D. Brady
---------------------
Jack D. Brady
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Jack D. Brady Chairman of the Board, December 20, 1996
- --------------------------- President,
Jack D. Brady Principal Executive
Officer and Principal
Financial Officer
/s/ Jack C. Hendricks Director December 20, 1996
- ---------------------------
Jack C. Hendricks
/s/ Milton Emmanuelli Controller/Treasurer December 20, 1996
- --------------------------- and Principal Accounting
Milton Emmanuelli Officer
/s/ Richard A. Beauchamp Director December 20, 1996
- ---------------------------
Richard A. Beauchamp
/s/ J. Don Brock Director December 20, 1996
- ---------------------------
J. Don Brock
/s/ Robert Dressler Director December 20, 1996
- ---------------------------
Robert Dressler
/s/ M. Timothy Yonker Director December 20, 1996
- ---------------------------
M. Timothy Yonker
</TABLE>
-15-
<PAGE>
CROWN ANDERSEN INC.
Page
----
Report of Independent Certified Public Accountants on
Financial Statement Schedules 17
Schedule Schedule No.
-------- ------------
Valuation and Qualifying Accounts and Reserves II 18
All other schedules have been omitted because they are either not required, not
applicable, or the information has otherwise been supplied.
-16-
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors and Stockholders
of Crown Andersen Inc.
Peachtree City, Georgia
The audits referred to in our report dated December 11, 1996, relating to the
consolidated financial statements of Crown Andersen Inc. and Subsidiaries, which
is contained in Item 8 of this Form 10-K, included the audit of the financial
statement schedule listed in the accompanying index. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
BDO SEIDMAN, LLP
Atlanta, Georgia
December 11, 1996
-17-
<PAGE>
SCHEDULE II
-----------
CROWN ANDERSEN INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
=====================================================
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
--------- -------- -------- --------- --------
Balance at Additions
beginning of charged to costs Balance at
Description period and expenses Deductions end of period
----------- ------------- ---------------- ---------- -------------
<S> <C> <C> <C> <C>
September 30, 1996
- ------------------
Allowance for doubtful accounts $166,192 $ 16,878 $ 62,690 $120,380
======== ======== ======== ========
September 30, 1995
- ------------------
Allowance for doubtful accounts $143,607 $ 87,130 $ 64,545 $166,192
======== ======== ======== ========
September 30, 1994
- ------------------
Allowance for doubtful accounts $112,254 $182,872 $151,519 $143,607
======== ======== ======== ========
</TABLE>
-18-
<PAGE>
CROWN ANDERSEN INC.
INDEX TO EXHIBITS
-------------------
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- --------------------------------------------------------- ----
<S> <C> <C>
3(a) Certificate of Incorporation of the Company (Exhibit 3(a)
to the Company's Registration Statement on Form S-4,
No. 33-684 (the "Form S-4 Registration Statement")
3(b) Certificate of Amendment of the Certificate of
Incorporation of the Company filed with the Secretary of
State of Delaware on March 18, 1987 (Exhibit 3(b) to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1987)
3(c) Bylaws of the Company (Exhibit 3(b) to the Form S-4
Registration Statement)
4 Common Stock Certificate (Exhibit 4(a) to the Form S-4
Registration Statement)
10(a) Agreement and Plan of Reorganization dated as of September
30, 1985 among the Company, Andersen and Crown (Exhibit 2
to the Form S-4 Registration Statement)
10(b) 1985 Incentive Stock Option Plan and related form of Option
Agreement (Exhibit 10(a) to the Form S-4 Registration
Statement)
10(c) First 1987 Amendment to the 1985 Incentive Stock Option
Plan (Exhibit 10(c) to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1987)
10(d) Executive Option Plan (Exhibit 10(d) to the Company's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1987)
10(e) Key Employee Stock Option Plan (Exhibit 10(e) to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1987)
10(f) 1985 Directors Stock Warrant Plan and related form of Stock
Purchase Warrant (Exhibit 10(b) to the Form S-4 Registration
Statement)
10(g) Cash Incentive Program For Key Employees (Exhibit 10(g) to
the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1987)
10(h) Employment Agreement dated October 1, 1992 between Jack D.
Brady and the Company
10(i) Employment Agreement dated October 1, 1992 between Crown
and Jack C. Hendricks
10(j) Lease between the City of Winfield, Kansas and the City of
Arkansas City, Kansas, as landlord, and Thermo-Flood, as
tenant, dated as of October 1, 1980 and related documents
regarding industrial revenue bonds issued for Thermo-Flood's
properties in Winfield, Kansas (Exhibit 10(p) to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1988)
10(k) Revolving Credit Agreement dated as of July 25, 1989 among
the Company, Andersen, Crown, Thermo-Flood and The Citizens
and Southern National Bank, together with the related Pledge
Agreement, Security Agreement, Special Revolving Credit Note
and Working Capital Revolving Credit Note (Exhibit 10(s) to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1989)
10(l) Purchase Agreement dated April 30, 1991 between the Company
and Josef A.C. van Stratum for the acquisition by
the Company of the remaining 19% of Montair Andersen
stock (Exhibit 2 to the Company's Report on Form 8-K dated
April 30, 1991)
10(m) Agreement for the Purchase of Stock dated as of September 13,
1991 among George T. Condy, Lawrence E. Wiegman, Kenneth
Kirby and Crown for the acquisition of the stock of Roanoke
by Crown (Exhibit 2 to the Company's Report
on Form 8-K dated September 13, 1991)
10(n) Revolving Credit Agreement Amendment dated as of March 31,
1992 among the Company, Andersen, Crown and Thermo-Flood and
NationsBank of Georgia, N.A. (formerly known as The Citizens
and Southern National Bank)-(See Exhibit 10p)
10(o) Second Amendment to Revolving Credit Agreement among the
Company, Andersen, Crown, Thermo-Flood and NationsBank of
Georgia, N.A. (Formerly known as The Citizens and Southern
National Bank) - (See Exhibit 10p)
10(p) Loan agreement dated as of March 31, 1993 among the Company,
Andersen and Crown and NationsBank of Georgia N.A.
(Exhibit 10(u) to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1993)
10(q) Agreement for Sale of Roanoke Industries, Inc. assets, dated
July 19, 1994
10(r) Agreement for Sale of Crown Rotational Molded Products, Inc.
assets, dated July 19, 1994 (Exhibit A to the Company's
Notice of Special Meeting and Proxy Statement 1994)
10(s) Asset Purchase Agreement dated December 21, 1995 between the
Cleaver-Brooks Division of Aqua-Chem Inc. and Andersen 2000
Inc. filed with Form 10Q for quarter ended December 31, 1995
10(t) Commercial Loan Agreement, General Security Agreement,
Commercial Promissory Note, and Revolving Note dated June 28,
1996 between South Trust Bank of Georgia, N.A. and Crown
Andersen Inc. and Andersen 2000 Inc. filed with Form 10Q for
the quarter ended June 30, 1996
13* 1996 Annual Report - Filed herewith 20
21 Subsidiaries - Filed herewith 41
</TABLE>
*Portions of the Company's 1996 Annual Report, as indicated in this Annual
Report on Form 10-K, are incorporated herein by reference. Other than as so
noted herein, the 1996 Annual Report is furnished to the Commission solely for
its information and is not deemed to be "filed" with the Commission or subject
to the liabilities of Section 18 of the Securities Exchange Act of 1934.
Any exhibit will be furnished upon written request to the Company. There is
a charge of $.50 per page to cover expenses for copying and mailing. Requests
should be addressed to Milton Emmanuelli, Crown Andersen Inc., 306 Dividend
Drive, Peachtree City, Georgia 30269.
-19-
<PAGE>
EXHIBIT 13
CROWN ANDERSEN INC.
1996
ANNUAL
REPORT
<PAGE>
MESSAGE TO SHAREHOLDERS
Revenues from continuing operations continued to grow for the fourth
straight year due to our increased emphasis on the international incinerator
market. During the fourth quarter of 1996, we took a charge against earnings of
about $510,000 for anticipated warranty costs and as a reserve for a serious
refractory failure on one international incineration project. This had a large
negative impact on earnings for the year. This reserve, combined with the cost
overruns on two projects reported at the end of the third quarter, reduced our
pretax income by about $788,000. At an estimated 32% tax rate, this reduced
after tax income by about $536,000 for fiscal 1996 or about $0.35 per share. We
hope to recover some of these costs from either insurance coverage or from the
suppliers and service providers on one project, but we used the conservative
approach for year end and absorbed the entire expected loss.
With our backlog of orders for delivery in 1997 and with enormous
improvements in the quality of people in all departments of the company in the
past half year, we do not expect to repeat this poor earnings performance in
1997. Occasional refractory problems are a risk this industry faces and it is
unfortunate we had to absorb such a large one this year. All of our employees
realize that we must grow substantially so that such events represent a minor
disruption to earnings rather than the overwhelming impact we saw this year.
Our continued improvements in balance sheet strength and stockholder equity
should enable us to continue to grow, and the market remains attractive outside
the United States. We expect an excellent revenue and earnings year in 1997 and
an increase in both domestic and international market share.
Jack D. Brady
Chairman and President
-1-
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(In Thousands, Except Per Share Figures)
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues from continuing operations $22,027 $21,673 $14,104 $12,818 $17,355
Revenues from discontinued operations $ - $ - $ 8,681 $ 7,851 $ 7,891
Income (loss) from continuing operations $ 455 $ 1,366 $ (298) $ (191) $ 1,129
Income from discontinued operations $ - $ - $ 620 $ 551 $ 534
Gain on disposal of discontinued $ - $ - $ 1,179 $ - $ -
operations
Earnings (loss) per share:
Continuing operations $ 0.29 $ 0.87 $ (0.19) $(0.12) $ 0.70
Discontinued operations $ - $ - $ 0.40 $ 0.35 $ 0.33
Gain on disposal of discontinued
operations $ - $ - $ 0.75 $ - $ -
Cumulative effect of accounting change $ - $ - $ - $ 0.07 $ -
Net Income $ 0.29 $ 0.87 $ 0.96 $ 0.03 $ 1.03
Total Assets $22,448 $20,985 $19,290 $17,716 $19,334
Long-term debt $ 1,505 $ 621 $ 1,174 $1,737 $ 1,393
Cash dividends declared per common
share $ - $ - $ - $ - $ -
</TABLE>
BUSINESS INFORMATION
Until the sale of its plastics business in late 1994, Crown Andersen
Inc. was a holding company for Andersen 2000 Inc., headquartered in Peachtree
City, Georgia, and Crown Rotational Molded Products, Inc., headquartered in
Marked Tree, Arkansas. Andersen and Crown owned all of the outstanding stock,
respectively, of Montair Andersen bv, headquartered in Sevenum, The Netherlands,
and Roanoke Industries, Inc., headquartered in Roanoke, Alabama. The Company,
through these subsidiaries, has been involved in the design, manufacture, sale
and installation of industrial pollution control systems, medical, chemical and
hazardous waste disposal systems, heat recovery systems, industrial air handling
systems, spray dryer systems, and non-metallic high integrity tanks and
containers. In late fiscal 1994, the Company sold the assets of Crown
Rotational Molded Products, Inc. and Roanoke Industries, Inc. and is no longer
engaged in the manufacture of non-metallic high integrity tanks and containers.
The Company's pollution control systems include high efficiency air
filtration systems, wet scrubbers for particulate and gaseous emission
collection, sulfur dioxide removal systems for oil and coal fired steam boilers
and steam generators, odor control systems, gas coolers and condensers,
mechanical collectors for product recovery, and industrial water and waste water
treatment systems. The Company's heat recovery systems include two different
types of products. The first is a proprietary condensing heat exchange system
which is used to recover waste heat from gas streams which are dirty or
corrosive. The second is a direct contact heat exchanger, which is a
modification of the Company's wet scrubbing systems.
In the air handling systems line, the Company manufactures industrial
fans and blowers for high pressure and alloy steel applications. Spray dryers
include those used for industrial chemical manufacturing and those used for
disposal of waste liquids to produce a dry end product. The hazardous waste
disposal systems include incinerators and waste liquid evaporators used for
chemical, medical and commercial waste disposal applications and complete
turnkey plants for waste disposal.
The Company's products are marketed to various industrial and
manufacturing concerns throughout the world by independent sales representatives
and by direct employees of the Company. In addition, the Company licenses
foreign manufacturers in India and Japan to manufacture and market its equipment
in those countries and in adjacent countries. As a percentage of revenues,
sales and operations outside the United States accounted for approximately 80.7%
of the Company's total revenues in fiscal 1996. This compares to approximately
88.0% and 56.0% of the Company's total revenues from continuing operations in
fiscal 1995 and 1994, respectively. Foreign sales from continuing operations
for fiscal 1996, 1995 and 1994 totaled approximately $17.8 million, $19.0
million and $7.9 million, respectively.
For information pertaining to revenues, income (loss) before taxes and
identifiable assets for each of the Company's geographic areas for the past
three fiscal years, see Note 11 of the Notes to Consolidated Financial
Statements.
-2-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
Crown Andersen Inc. (Crown Andersen or the Company) is a publicly-
traded holding company for Andersen 2000 Inc. (Andersen) and, through Andersen,
owns all of the outstanding stock of Montair Andersen bv (Montair). As used
herein, unless otherwise indicated, the term "Company" refers to Crown Andersen
and the above-referenced two subsidiaries and "Andersen" refers to Andersen and
Montair.
Late in fiscal 1994, the Company sold the assets of Crown Rotational
Molded Products, Inc. (Crown) and its subsidiary, Roanoke Industries, Inc.
(Roanoke) to Snyder Industries, Inc. The Crown sale was approved by the
shareholders in September 1994. The Company is no longer involved in the
plastics business. Its two remaining subsidiaries are engaged exclusively in
the pollution control and waste processing businesses.
In fiscal 1996, revenues from continuing operations increased 2% to
$22.0 million from $21.7 million in fiscal 1995. However, income from
continuing operations decreased 69% to $0.5 million from the fiscal 1995 level
of $1.4 million as a result of substantial cost overruns incurred by Andersen on
two major overseas projects and a large warranty expense at Montair.
Foreign revenues of continuing operations (including export sales by
Andersen and sales by the Netherlands subsidiary) accounted for 80.7% and 88.0%
of total revenues from continuing operations in fiscal years 1996 and 1995.
Foreign sales transactions are generally guaranteed by bank letters of credit.
The Company has little or no foreign currency exposure on sales by its
Netherlands subsidiary as the Netherlands subsidiary's contracts are payable in
Dutch Guilders, its local currency. As of September 30, 1996, the Company has
cumulative currency adjustments of $302,433. This amount has been reflected as
a line item on the equity section of the balance sheet. (See "Consolidated
Statement of Stockholders' Equity.")
The Company is involved in certain litigation. See Note 12 to the
Consolidated financial Statements for a discussion.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents of $5,200,796 at September 30, 1996
increased $1,449,159 from the September 30, 1995 balance of $3,751,637. The
increase was primarily attributable to a reduction of accounts receivable which
offset $1,148,000 in restricted cash, utilized as collateral for certain letters
of credit, and a $1,000,000 cash payment made for the purchase of equipment
inventory. Cash provided by operating activities amounted to $2,975,360. Net
income plus depreciation and amortization of $1,094,140 and a decrease in
receivables of $2,722,972 more than offset increases in inventories, increases
in cost and estimated earnings in excess of billings on uncompleted contracts.
Cash used for investing activities totaled $1,415,082. This amount
includes restricted cash of $1,148,000 held as collateral by banks against
outstanding letters of credit plus capital expenditures of $367,082 (primarily
at Andersen).
Cash used for financing activities totaled $73,957 and reflects the
purchase of treasury stock amounting to $117,313, partially offset by an
increase in long-term debt of $43,356.
Both Montair and Andersen realized positive operating cash flow in
fiscal 1996, as a result of profitable operations at both locations.
As disclosed in Note 6 to the Consolidated Financial Statements,
during 1994 the Company repossessed certain equipment sold under a lease
arrangement. The Company has reduced the carrying value of this asset to
approximately $1.0 million as of September 30, 1996 and it is reflected as
equipment held for resale in the accompanying consolidated balance sheet. The
Company is attempting to market this equipment for sale.
As indicated in Note 12 of the Notes to the Consolidated Financial
Statements, the Company is one of several defendants in a legal action brought
by various holders of Industrial Revenue Bonds issued by the cities of Winfield
and Arkansas City, Kansas concerning the development of industrial property near
Winfield, Kansas. The Company believes that it has meritorious defenses to the
litigation due to the fact that Crown Andersen was not a party to the
bondholder's agreement, such agreement having been entered into by Struthers
Thermo-Flood Corporation ("STFC") prior to STFC being acquired by the Company.
In response to the lawsuit, STFC filed a liquidation proceeding under Chapter 7
of the Federal Bankruptcy Act. The Trustee in Bankruptcy abandoned the property
on September 17, 1992. The Bankruptcy Court entered an order of no distribution
on February 10, 1994. STFC was dissolved in March 1995. The Company and its
counsel believe that there is a strong likelihood of a favorable outcome with no
adverse financial results for the Company. Another less likely outcome could
result in the bondholders obtaining a judgement against the Company in an amount
representing the balance due on the lease plus interest and attorney fees, less
any revenue received from the sale of the property and less any income received
from the property during the pendency of litigation. If a judgement were to be
rendered against the Company for such amount, payment would be made using the
Company's existing cash reserves or from funds available under its credit
facility.
On June 28, 1996, the Company signed financing agreements with a U.S.
bank under which the Company was granted a $5 million revolving line of credit
and a $1 million term loan. In connection with this refinancing, the Company
paid the outstanding balance at the predecessor bank. As of September 30, 1996,
the Company had not made any borrowings against its $5.0 million U.S. line of
-3-
<PAGE>
credit and the $0.5 million credit facility available to the Montair operation.
Because of this credit facility, profitable operations, and $4.5 million
received from the sale of the plastics business, the Company has adequate cash
reserves to meet its short-term cash needs.
Under the current loan agreement, the Company is required to obtain
the bank's consent to pay cash dividends, purchase treasury stock, or to sell
assets which constitute collateral. The Company obtained permission to purchase
up to $400,000 of treasury stock.
As a result of a 7% increase in the value of the U.S. dollar against
the Dutch guilder, the Company's equity decreased by $98,879 during the year
ended September 30, 1996, as the foreign currency translation adjustment
decreased from $401,312 to $302,433.
RESULTS OF OPERATIONS
Revenues:
Revenues of $22,026,508 in fiscal 1996 increased $353,339 (1.6%) from
fiscal 1995 revenues of $21,673,169. An increase in revenues of $1,194,216
(26%) at Montair more than offset a revenue decline at the U.S. operation of
$840,877. Foreign sales (including export sales by Andersen and sales by the
Netherlands subsidiary) were $17.8 million and $19.0 million for fiscal years
1996 and 1995, and accounted for 81% and 88% of revenues in fiscal years 1996
and 1995, respectively. All changes in revenues are related to the quantity of
products sold, not to pricing changes.
The Company's revenue levels in the United States continued to be
adversely affected by the absence of any new hazardous waste incineration
facility permits in the United States. The Company estimates that U.S.
revenues have been reduced by approximately $2 - $3 million per year from 1992
levels as a result of the Federal government's failure to review permit
applications for such facilities. The Company anticipates that foreign revenues
will offset these domestic revenue losses. Because of the uncertainty in
changes in United States regulations, it is impossible to predict changes in
demands for the Company's products in the domestic market.
The Company has been successful and will continue to rely on the
international market to replace most, if not all, of the lost U.S. business in
the future. The Company expects to at least maintain the current revenue levels
in fiscal 1997.
Revenues of $21,673,169 in fiscal 1995 increased $7,569,328 (53.7%)
from fiscal 1994, primarily as a result of a revenue increase of 74% at
Andersen.
Cost of Sales:
Cost of sales increased $1,278,974 (8%) to $17,773,950 in fiscal 1996
from fiscal 1995 costs of $16,494,976, primarily as a result of substantial cost
overruns on two Andersen projects in Thailand and Saudi Arabia and a large
warranty expense incurred at Montair.
In fiscal 1995, cost of sales increased $5,024,628 (44%) from 1994
levels as a result of higher revenues, primarily at Andersen.
Selling, General and Administrative Costs:
Selling, general and administrative costs in fiscal 1996 increased
$535,990 (16.6%) to $3,763,962 from the 1995 levels. The increase is primarily
attributable to U.S. operations and reflects increases in commissions, salaries,
professional fees, travel expenses and major building and maintenance work. As
a percentage of revenues, selling, general and administrative expenses were
17.1%, 14.9% and 19.3% of revenues for fiscal years 1996, 1995 and 1994.
In fiscal 1995, these expenses increased $508,835 (18.7%), primarily
as a result of a $360,000 reduction in the valuation of equipment held for
resale and to increases in salaries at the U.S. operation.
Interest and Other (Income) Expenses:
Interest and other (income) expenses for fiscal 1996 resulted in a
credit of $183,858 compared to a credit of $167,353 for fiscal 1995. The higher
credit of $16,505 in fiscal 1996 is primarily attributable to lower bad debt
expense, offset by slightly higher net interest costs. Interest income on
short-term investments exceeded interest expense in both fiscal years. The
change of $521,902 in fiscal 1995 from 1994 reflects a substantial reduction in
net interest costs as a result of interest income realized on short-term
investments.
Taxes on Income:
In fiscal 1996, the effective tax rate on income from continuing
operations was 32.3% compared to 35.5% in fiscal 1995. The fiscal 1994 rate was
32.4% and reflected adjustments in deferred taxes.
-4-
<PAGE>
Income from Continuing Operations:
Income from continuing operations for fiscal 1996 was $455,054 or
$0.29 per share compared to income of $1,366,074 or $0.87 per share in fiscal
1995 and a loss of $297,632 or $0.19 per share in fiscal 1994.
Gain on Disposal of Discontinued Operations
In fiscal 1994, the Company realized a gain of $1,178,785 ($0.75 per
share) net of $867,708 in taxes from the sale of the assets of its plastics
business.
Net Income
The decline in net income from continuing operations of $911,020 (67%)
in fiscal 1996 was attributable to a decrease in gross margin of 4.5% as a
result of substantial cost overruns on two Andersen projects in Thailand and
Saudi Arabia.
The average shares and equivalent shares outstanding were 1,560,618 in
fiscal 1996 and 1,561,635 in fiscal years 1995 and 1994. The unexercised
options and warrants are antidilutive for all periods.
Discontinued Operations:
Plastics Rotational Molding
In fiscal 1994, the Company reclassified the operating income from its
plastics business as a discontinued operation following the Company's
announcement on March 31, 1994 to sell this business. Operating income (less
applicable income taxes) from this business segment for fiscal year 1994 was
$620,224 or $0.40 per share.
Effects of Inflation:
During fiscal 1996 and fiscal 1995, the Company has not experienced
any abnormal increases in costs of materials or supplies for manufacturing in
any of its domestic operations. In most cases the Company has been successful
in passing materials cost increases on to its customers. The Company continues
to incur cost increases associated with travel related expenses, primarily in
air fares.
-5-
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
1996 1995
-------------- -----------
<S> <C> <C>
ASSETS (Note 8)
CURRENT:
Cash and cash equivalents $ 5,200,796 $ 3,751,637
Receivables:
Trade, less allowance of
$120,380 and $166,192 for
possible losses 2,655,281 5,415,756
Other 48,403 92,848
Income taxes 294,960 157,094
Costs and estimated earnings in
excess of billings on
uncompleted contracts (Note 3) 6,121,410 5,859,652
Inventories (Note 4) 1,955,127 671,672
Prepaid expenses 126,688 43,018
Current maturities of long-term note
receivable (Note 2) 300,000 100,000
Deferred income taxes 403,935 289,785
----------- -----------
TOTAL CURRENT ASSETS 17,106,600 16,381,462
RESTRICTED CASH (Note 5) 1,148,000 -
NOTE RECEIVABLE, less current
maturities (Note 2) 790,000 1,090,000
EQUIPMENT HELD FOR RESALE (Note 6) 1,031,554 1,396,954
PROPERTY AND EQUIPMENT, less
accumulated depreciation (Note 7) 1,862,639 1,815,541
DEFERRED INCOME TAXES (Note 9) 280,944 157,700
OTHER ASSETS 228,717 143,035
----------- -----------
$22,448,454 $20,984,692
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable (Note 8) $ - $ -
Accounts payable 5,099,140 4,678,832
Accruals:
Income taxes (Note 9) - 201,000
Compensation 303,201 414,993
Warranty 939,000 476,000
Miscellaneous 336,170 414,125
Billings on uncompleted contracts in
excess of cost and
estimated earnings (Note 3) 13,419 190,889
Current maturities of long-term debt
(Note 8) 738,253 579,987
Deferred income taxes (Note 9) 249,225 327,114
----------- -----------
TOTAL CURRENT LIABILITIES 7,678,408 7,282,940
LONG-TERM DEBT, less current maturities
(Note 8) 1,504,533 621,253
DEFERRED INCOME TAXES (Note 9) 137,122 190,970
----------- -----------
TOTAL LIABILITIES 9,320,063 8,095,163
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' EQUITY: (Notes 8 and 10)
Common Stock, $.10 par; shares
authorized 5,000,000; issued
1,561,635; outstanding 1,544,635
and 1,561,635 156,164 156,164
Additional paid-in capital 2,905,801 2,905,801
Treasury stock; 17,000 shares, at
cost (117,313) -
Retained earnings 9,881,306 9,426,252
Foreign currency translation
adjustment 302,433 401,312
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 13,128,391 12,889,529
----------- -----------
$22,448,454 $20,984,692
=========== ===========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
-6-
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Contracts $20,112,990 $20,305,645 $12,167,516
Sales 1,881,427 1,328,546 1,663,933
Other 32,091 38,978 272,392
----------- ----------- -----------
22,026,508 $21,673,169 14,103,841
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of contracts and sales 17,773,950 16,494,976 11,470,348
Selling, general and administrative 3,763,962 3,227,972 2,719,137
Interest and other (income) expense (183,858) (167,353) 354,549
----------- ----------- -----------
21,354,054 19,555,595 14,544,034
----------- ----------- -----------
Income (loss) from continuing
operations before taxes on income 672,454 2,117,574 (440,193)
TAXES (TAX BENEFIT) ON INCOME (NOTE 9) 217,400 751,500 (142,561)
----------- ----------- -----------
Income (loss) from continuing
operations 455,054 1,366,074 (297,632)
DISCONTINUED OPERATIONS (NOTE 2):
Income from discontinued operations, less
applicable taxes on income of $429,000 - - 620,224
Gain on disposal of discontinued
operations less applicable taxes
of $868,000 - - 1,178,785
----------- ----------- -----------
NET INCOME $ 455,054 $ 1,366,074 $ 1,501,377
=========== =========== ===========
AVERAGE SHARES AND EQUIVALENT SHARES
OUTSTANDING 1,560,618 1,561,635 1,561,635
EARNINGS PER SHARE: =========== =========== ===========
Continuing operations $0.29 $0.87 $ (0.19)
Discontinued operations - - 0.40
Gain on disposal of discontinued
operations - - 0.75
----------- ----------- -----------
Net income $0.29 $0.87 $ 0.96
=========== =========== ===========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
-7-
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
Foreign
Common Stock Additional Currency
--------------------------- Paid-In Retained Treasury Translation
Shares Amount Capital Earnings Stock Adjustment
----------- ---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1993 1,593,135 $ 159,314 $3,085,920 $6,558,801 $ - $226,383
Net income - - - 1,501,377
Retirement of common stock (31,500) (3,150) (180,119) - - -
Change in translation adjustment - - - - - 63,169
--------- ---------- ---------- ---------- --------- --------
BALANCE, SEPTEMBER 30, 1994 1,561,635 156,164 2,905,801 8,060,178 - 289,552
Net income - - - 1,366,074 -
Change in translation adjustment - - - - - 111,760
--------- ---------- ---------- ---------- --------- --------
BALANCE, SEPTEMBER 30, 1995 1,561,635 156,164 2,905,801 9,426,252 - 401,312
Net income - - - 455,054 -
Purchase of treasury stock (17,000) - - - (117,313) -
Change in translation adjustment - - - - - (98,879)
--------- ---------- ---------- ---------- --------- --------
BALANCE, SEPTEMBER 30, 1996 1,544,635 $ 156,164 $2,905,801 $9,881,306 $(117,313) $302,433
========= ========== ========== ========== ========= ========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
-8-
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (Loss) from continuing
operations $ 455,054 $ 1,366,074 $ (297,632)
Items in income from continuing
operations not affecting cash:
Depreciation and amortization 279,086 318,552 322,279
Provision for valuation of soil
processor unit 360,000 360,000 152,914
Provision for abandoned medical
waste contract - - 184,000
Deferred income taxes (352,563) (930,997) 179,944
Gain on sales of fixed assets (14,698) (20,992) (26,361)
Cash provided by (used for)
Trade and other receivables 2,722,972 (2,589,007) 654,134
Refundable income taxes 134,983 (42,010) (197,819)
Costs and estimated earnings in
excess of billings on
uncompleted contracts (261,758) (1,021,392) (1,666,420)
Inventories (276,656) 153,363 (84,121)
Prepaid expenses (85,747) 105,240 (37,661)
Other assets - - 183,739
Accounts payable 486,689 1,356,135 425,592
Accrued expenses (194,080) 336,167 271,724
Billings on uncompleted contracts
in excess of costs and
estimated earnings (177,298) 166,567 (143,973)
Other (100,624) 12,031 (169,521)
----------- ----------- ----------
2,975,360 (430,269) (249,182)
Cash used for continuing operations
Cash provided by discontinued
operations - - 331,866
----------- ----------- ----------
Cash provided by (used for) operating
activities 2,975,360 (430,269) 82,684
----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted cash (Note 5) (1,148,000) - -
Proceeds on sale of plastics segment,
net of selling and
cost of $254,780 in 1995 and net of
cash sold with segment
and cost of sales of $681,266 in
1994 - 4,960,260 35,616
Collection of note receivable 100,000 - -
Proceeds from sale of fixed assets 35,748 98,886 46,158
Capital expenditures (402,830) (109,834) (42,295)
----------- ----------- ----------
Cash provided by (used for) investing
activities (1,415,082) 4,949,312 39,479
----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction in notes payable - (339,064) (20,540)
Proceeds from long term loan 1,000,000 - -
Reduction in long-term debt (956,644) (579,381) (580,165)
Retirement of common stock (117,313) - (183,269)
----------- ----------- ----------
Cash used for financing activities (73,957) (918,445) (783,974)
----------- ----------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (37,162) 13,380 (4,697)
----------- ----------- ----------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) during the year 1,449,159 3,613,978 (666,508)
Balance at beginning of year 3,751,637 137,659 804,167
----------- ----------- ----------
BALANCE AT END OF YEAR $ 5,200,796 $ 3,751,637 $ 137,659
=========== =========== ==========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
-9-
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
NATURE OF BUSINESS
Crown Andersen Inc. (Crown Andersen) is a publicly traded holding
company for Andersen 2000 Inc. (Andersen). Andersen owns all of the outstanding
stock of Montair Andersen bv (Montair). Andersen and Montair are engaged
primarily in the business of designing, manufacturing and selling specialized
industrial equipment including industrial pollution control systems, medical and
hazardous waste disposal systems, heat recovery systems, industrial air handling
systems and spray dryer systems. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not require
collateral.
CONSOLIDATION
The financial statements include the accounts of Crown Andersen Inc.
and its subsidiaries discussed above. All material intercompany accounts and
transactions have been eliminated.
FOREIGN CURRENCY TRANSLATION
Foreign currencies have been translated into United States dollars for
inclusion in the financial statements under the provisions of Statement No. 52
of the Financial Accounting Standards Board. Accordingly, assets and
liabilities of Montair, Andersen's 100% owned Netherlands subsidiary, are
translated using the exchange rate in effect at the balance sheet date. Results
of operations of Montair are translated using the average exchange rates
prevailing throughout the period. The effect of the difference in these rates
is included in stockholders' equity as the foreign currency translation
adjustment.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain Significant Estimates and Vulnerability Due to Certain Concentrations
The following are significant estimates made by management:
The Company contracts are accounted for under the percentage of
completion of contract method of accounting. Under this method, the percentage
of contract revenue to be recognized currently is based on management's
estimates of costs incurred and an estimate of total estimated costs. These
estimates are reviewed by management monthly and adjusted. However, due to
uncertainties inherent in the estimation process, actual results could differ
from those estimates.
At September 30, 1996, approximately $1,800,000 of inventories were
purchased as part of a December 1995 acquisition of a product line of a former
competitor. Management has developed a program to reduce this inventory to
desired levels over the near term and believes no loss will be incurred on the
disposition of such inventory. No estimate can be made of a range of amounts of
loss that are reasonably possible should that program not be successful.
Crown Andersen's policy is to reduce the carrying value of certain
specialized equipment held for sale for changes in the market value of such
equipment. During each of the fiscal years 1996 and 1995, the Company has
charged $360,000 to operations. During fiscal 1994 the Company charged
approximately $153,000 to operations. The Company believes that this equipment
will be sold in the near future and no loss will be incurred in the disposition
of the equipment. See Note 6.
The Company is involved in certain litigation which may result in
losses to the Company. See Note 12.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's principal financial instruments, as contemplated under
SFAS No. 107, are represented by its receivables and its notes payable. A
majority of the Company's receivables are short-term in nature and bear interest
at rates which the Company believes represent current market rates, that is,
rates at which the Company currently renews or extends funds, accordingly,
carrying value is deemed to approximate fair value. The Company notes payable
bear interest at rates which change periodically with market interest rates,
accordingly, carrying value is deemed to approximate fair value.
INVENTORIES
Inventories are valued at the first-in, first out (FIFO) basis.
Maintenance and office supplies are not inventoried.
REVENUE RECOGNITION
For financial reporting purposes, income from long-term contracts is
reported on the percentage of completion method. Under this method, the
percentage of contract revenue to be recognized currently is based on the ratio
of costs incurred to date to total estimated contract costs, after giving effect
-10-
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
to the most recent estimates of costs to complete. Provision is made for any
losses on an individual contract basis in the period in which losses are first
determinable. Contracts are reported primarily on the percentage of completion
method for income tax purposes, except for contracts of Montair which are
reported on the completed contract method for Dutch income tax purposes. Sales
of products and services are recorded when the product is shipped or the service
is rendered to the customer.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Expenditures for additions
are capitalized while expenditures for maintenance and repairs are charged to
expense as incurred. For financial reporting purposes, buildings and equipment
are depreciated using primarily the straight-line method. For tax purposes,
equipment is depreciated using accelerated methods. The estimated useful lives
of the assets range from 3-15 years for equipment and 10-30 years for buildings.
TAXES ON INCOME
Income taxes are calculated using the liability method specified by
Statement of Accounting Standards No. 109, "Accounting For Income Taxes".
Deferred income taxes reflect the impact of temporary differences between the
amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations.
U.S. income taxes are not provided on the accumulated undistributed
earnings of Montair as it is the Company's intention to indefinitely reinvest
such earnings and not to transfer them in a taxable transaction. The deferred
taxes attributable to the undistributed earnings of Montair are not significant.
STOCK OPTIONS AND WARRANTS
Proceeds from the sale of common stock issued on exercise of options
and warrants are credited to common stock at par value, and the excess amounts
received and tax benefits are credited to additional paid-in capital at the time
the options and warrants are exercised. The Company makes no charge to earnings
with respect to these options and warrants.
EARNINGS PER SHARE
Earnings per share are computed on the basis of the weighted average
number of shares outstanding during each year. It is assumed that all dilutive
stock options are exercised at the later of the beginning of each year or the
time of issuance and that the proceeds are used to purchase shares of the
Company's common stock at the average market price during the period. The stock
options outstanding were antidilutive, and thus did not affect earnings per
share.
RESEARCH AND DEVELOPMENT
Research and development expenditures are expensed in the year
incurred. During 1996, 1995 and 1994 there were no research and development
expenditures.
WARRANTY COSTS
The Company warrants its products generally for a period of one year
after shipment or installation. Provision for estimated warranty cost is
recorded at the time of installation.
EMPLOYEE BENEFIT PLAN
The Company has a 401(k) plan in which all employees can contribute a
portion of their pre-tax wages into investment accounts for retirement. The
contributions are matched 27% by the Company up to 7% of gross wages. The
Company has charged plan contributions to operations when due and has funded the
plan accordingly. No additional contributions are required, but the Company can
make contributions from profits at its discretion. Contributions for 1996, 1995
and 1994 totaled approximately $21,397, $18,295 and $18,632, respectively.
STATEMENTS OF CASH FLOWS
Cash and cash equivalents include interest bearing checking accounts
and bank certificates of deposit with original maturities of three months or
less. Interest payments on debt were approximately $91,275, $119,000 and
$166,000 for the years ended September 30, 1996, 1995 and 1994, respectively.
Income taxes paid were approximately $845,000, $1,562,000 and $399,000 during
the same periods. During fiscal 1996, the Company acquired certain inventories
from a former competitor in exchange for $1,000,000 cash and $1,020,000 note,
payable to the former competitor.
-11-
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ACQUISITION OF BUSINESS
Effective September 30, 1991, Crown Rotational Molded Products, Inc.
(Crown), a former subsidiary of the Company, acquired all of the issued and
outstanding capital stock of Roanoke Industries, Inc. (Roanoke) pursuant to an
Agreement for the Purchase of Stock (the "Agreement") dated as of September 13,
1991 among the stockholders of Roanoke and Crown. The Company accounted for
this transaction as a purchase, and accordingly, the original purchase price was
allocated to assets (approximately $1.69 million) and liabilities (approximately
$1.89 million) acquired based upon their fair values at the date of acquisition.
Roanoke was sold in fiscal 1994 (See Note 2).
NOTE 2. DISCONTINUED OPERATIONS
During 1994, after shareholder approval, the Company sold the net
assets of Crown and Roanoke to a single buyer for $7.1 million and recognized a
gain of approximately $1.2 million. Approximately $700,000 was received in cash
prior to September 30, 1994 and $5.2 million was due and received on October 18,
1994. The remaining $1.2 million is due from the buyer under a note agreement.
This note of $1.2 million bears interest at 7% per annum, payable in two equal
installments each year. The principal is payable in seven installments over 60
months, two payments of $50,000 each were received by the Company during March
and September 1996. Four additional payments of $150,000 are due on March 30,
1997; September 30, 1997; March 29, 1998; and September 29, 1998. The seventh
and final principal payment of $490,000 is due on September 29, 1999.
The plastics business has been presented as discontinued operations
and the consolidated balance sheet at September 30, 1994 and consolidated
statements of operations and cash flows for all periods presented have been
restated to conform with this presentation. Financial results of the plastics
business included in discontinued operations for the year ended September 30,
1994 are as follows:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
Revenues $8,681
------
Costs and Expenses
Cost of sales 5,909
Selling, general and administrative 1,193
Interest and other 530
------
7,632
------
Income before taxes 1,049
Taxes on income 429
------
Net Income $ 620
======
</TABLE>
Effective June 30, 1989, the operations of the Company's Struthers
Thermo-Flood Corporation (STFC) subsidiary were substantially curtailed due to
continuing financial problems resulting primarily from significant losses on two
waste heat boiler contracts. The STFC technology was sold to the Babcock &
Wilcox Company on January 19, 1990. During fiscal 1992, STFC vacated the leased
Kansas property after it was discovered that it had been contaminated with
organic solvents prior to the time of the acquisition of STFC by the Company.
STFC filed for Chapter 7 bankruptcy protection on August 12, 1992, and the
trustee completed liquidation of STFC during February, 1994. STFC was dissolved
in fiscal year 1995. Litigation has arisen in connection with the property
formerly leased by STFC. See Note 12.
NOTE 3. CONTRACTS IN PROGRESS
Information relative to contracts in progress is as follows:
<TABLE>
<CAPTION>
September 30,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Costs and estimated earnings of
$7,947,080 and $6,598,580 $ 34,632,738 $ 26,663,593
Billings applicable thereto (28,524,447) (20,994,830)
------------ ------------
Net Amount $ 6,107,991 $ 5,668,763
============ ============
Included in the accompanying balance
sheets in:
Current assets $ 6,121,410 $ 5,859,652
Current liabilities (13,419) (190,889)
------------ ------------
Net Amount $ 6,107,991 $ 5,668,763
============ ============
</TABLE>
NOTE 4. INVENTORIES
Inventories were $1,955,127 and $671,672 as of September 30, 1996 and
September 30, 1995. Included in inventories of $1,955,127 at September 30, 1996
is approximately $1,761,000 related to incineration equipment purchased from a
former competitor. The purchase price also included other assets and was paid
$1,000,000 in cash and the remaining $1,020,000 is payable in three semi annual
installments commencing on December 31, 1996 under a non-interest bearing
promissory note. (See Note 8).
-12-
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. RESTRICTED CASH
As of September 30, 1996, $1,148,000 of the Company's short-term cash
investments were held by banks as collateral for outstanding letters of credit.
The letters of credit expire through 1999. (See Note 8).
NOTE 6. EQUIPMENT HELD FOR SALE
On September 30, 1992, the Company sold a soil processor unit under a
financing-type lease arrangement. As a result of the customer's default, the
Company, during 1994, terminated the lease and repossessed the equipment. On
September 30, 1994, the Company reclassified this asset as equipment held for
resale and reduced its carrying value from approximately $2.1 million to $1.8
million. The Company employs an outside appraiser and reviews the carrying
value of this unit on a periodic basis. During fiscal years 1996 and 1995, the
carrying value of this unit has been reduced to $1,031,554 and $1,396,954,
respectively. These adjustments to the carrying value have been charged to
operations in each respective year.
NOTE 7. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
September 30,
----------------------------
1996 1995
-------------- ------------
<S> <C> <C>
Land $ 481,037 $ 396,147
Buildings 2,117,595 2,169,623
Machinery and equipment 1,074,110 1,152,229
Office furniture and fixtures 1,055,028 1,050,724
Vehicles 97,355 105,263
----------- -----------
4,825,125 4,873,986
Less accumulated depreciation (2,962,486) (3,048,445)
----------- -----------
Net property and equipment $ 1,862,639 $ 1,815,541
=========== ===========
</TABLE>
Depreciation expense amounted to $249,086, $283,805 and $307,014 for
the fiscal years ended September 30, 1996, 1995 and 1994 respectively.
NOTE 8. NOTES PAYABLE AND LONG-TERM DEBT
<TABLE>
<CAPTION>
Notes payable and long-term debt September 30, 1996 September 30, 1995
consisted of the following: ---------------------------- --------------------------
Long- Long-
Current Term Current Term
Notes Notes Notes Notes
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Note, payable in 48 monthly payments of
$50,508, including interest at a
fixed rate of 7.15%, paid in 1996 $ - $ - $ - $ 859,605
7.375% mortgage note, payable to a bank
$3,022 quarterly, plus interest,
through July 2012 - 302,963 - 341,635
Non-interest bearing,discounted to
8.25% note, payable to a corporation;
face amount of $1,020,000 due December
31, 1997, issued for purchase of
inventory - 964,823 - -
Note, payable to a bank in 31 monthly
payments of $8,333 plus interest at the
prime rate (8.25% at September 30, 1996),
balance of $741,667 payable on
February 28, 1999 - 975,000 - -
-------- ---------- -------- ----------
TOTAL $ - 2,242,786 $ - $1,201,240
======== ========
Less current maturities 738,253 579,987
---------- ----------
Total long-term debt $1,504,533 $ 621,253
========== ==========
</TABLE>
-13-
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
Property and equipment, inventories and trade accounts receivable at
Montair totaling $2,704,867 at September 30, 1996 are pledged as collateral to
one Dutch bank for the 7.375% mortgage note and a Dutch line-of-credit.
All assets of the U.S. Company are pledged as collateral on the note
payable and the U.S. revolving line of credit.
The Company has a $5.0 million line of credit with a U.S. bank which
expires February 28, 1997. As of September 30, 1996, letters of credit
amounting to $1.8 million had been issued against this line of credit and the
amount of $3.2 million remained available for borrowings. The Company also has
a $500,000 line of credit at a Dutch bank. No borrowings had been made against
this Dutch line of credit as of September 30, 1996.
The weighted average interest rate on the U.S. line-of-credit was
approximately 8.25% and 8.40% during 1996 and 1995, respectively. In connection
with the U.S. bank credit agreement, the Company is required to maintain certain
financial statement covenants. The Company's U.S. bank line-of-credit and term
loan limits the Company's ability to pay dividends on its stock, purchase
treasury stock, or sell assets which constitute collateral, so long as any of
the collateralized obligations remain unpaid or the agreement is in effect.
The weighted average interest rate on a Dutch line-of-credit during
fiscal 1996 and 1995 was approximately 9.0% for both years. Interest expense
for all debt during fiscal 1996, 1995 and 1994 totalled approximately $91,300,
$119,000, and $160,000 respectively.
Future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year ending September 30, Amount
------------------------- ----------
<S> <C>
1997 $ 738,253
1998 500,266
1999 791,376
2000 16,376
2001 16,376
After 2001 180,139
----------
$2,242,786
==========
</TABLE>
NOTE 9. TAXES ON INCOME
The components of income (loss) from continuing operations before taxes
on income consisted of the following:
<TABLE>
<CAPTION>
Year ended September 30,
-------------------------------------
1996 1995 1994
-------- ---------- ---------
<S> <C> <C> <C>
U.S. Operations $548,450 $2,007,123 $(668,385)
The Netherlands Operations 124,004 110,451 228,192
-------- ---------- ---------
$672,454 $2,117,574 $(440,193)
======== ========== =========
</TABLE>
Significant components of the provision for income taxes attributable
are as follows:
<TABLE>
<CAPTION>
Year ended September 30,
-------------------------------------
1996 1995 1994
-------- ---------- ---------
<S> <C> <C> <C>
Continuing Operations:
Current:
Federal $397,817 $1,444,426 $ (94,000)
Foreign 136,754 (12,938) (63,000)
State 37,004 178,387 (5,000)
-------- ---------- ---------
571,575 1,609,875 (162,000)
-------- ---------- ---------
Deferred (reduction):
Federal (249,941) (833,384) (114,161)
Foreign (91,250) 60,429 158,000
State (12,984) (85,420) 24,400
-------- ---------- ---------
(354,175) (858,375) 19,439
-------- ---------- ---------
Total taxes on income - continuing
operations $217,400 $ 751,500 $(142,561)
======== ========== =========
</TABLE>
-14-
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Year Ended September 30, 1994
--------------------------------------------
<S> <C>
NOTE 9. TAXES ON INCOME (CONTINUED)
Discontinued operations:
Current:
Federal $ 560,000
State 103,000
----------
663,000
----------
Deferred (reduction):
Federal 585,000
State 49,000
----------
634,000
----------
Total taxes on income - discontinued operations $1,297,000
==========
</TABLE>
Deferred income taxes reflect the impact of "temporary differences"
between the amounts of assets and liabilities for financial reporting purposes
and such amounts as measured by tax laws and regulations. The sources of
temporary differences and their effect on deferred taxes are as follows:
<TABLE>
<CAPTION>
September 30, 1996 September 30, 1995
------------------------------- -----------------------------
Deferred Deferred Tax Deferred Deferred Tax
Tax Assets Liabilities Tax Assets Liabilities
---------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Deferred gain on sale of plastics
business $ - $161,697 $ - $ 193,000
Valuation allowance - equipment held
for resale 281,420 - 157,700 -
Warranty accrual 308,321 - 164,000 -
Work in process - 189,809 - 308,000
Property and equipment - 17,947 - 17,084
Compensation accruals 38,235 - 74,000 -
Allowance for accounts receivable,
inventories and other 56,903 16,894 51,785 -
-------- -------- -------- ------------
$684,879 $386,347 $447,485 $ 518,084
======== ======== ======== ============
</TABLE>
The effective tax rates on income from continuing operations before
taxes on income differs from the federal statutory rates. The following summary
reconciles taxes at the federal statutory rates with the effective rates:
<TABLE>
<CAPTION>
Year ended September 30,
-----------------------------------------------
1996 1995 1994
-------- -------- ----------
<S> <C> <C> <C>
Taxes on income at statutory rate 34.0% 34.0% 34.0%
Increase (reduction) in taxes realized from:
Foreign tax difference 0.4 0.5 (4.7)
State income taxes, net of federal tax
benefit 2.3 2.9 2.2
Other (4.4) (1.9) 0.9
-------- -------- --------
Taxes on income at the effective rate 32.3% 35.5% 32.4%
======== ======== ========
</TABLE>
NOTE 10. STOCK OPTIONS AND WARRANTS
Crown Andersen has an incentive stock option plan and a directors stock
warrant plan. The incentive plan is limited to employees, and options granted
thereunder are exercisable upon issuance and expire five years from the date of
grant. The directors stock warrant plan is to compensate non-employee
directors for their services on the Board and committees of the Board. Under
the plan, each non-employee director has the right to purchase warrants for up
to 10,000 shares of common stock. Each year warrants vest for the purchase of
1,000 shares until all warrants are vested. During fiscal year ended September
30, 1996, warrants for the purchase of 17,688 shares of common stock expired and
at September 30, 1996, 13,000 warrants are vested.
During the fiscal year ended September 30, 1996, the Company granted
options to purchase 12,000 shares of Common Stock at a price of $7.50 per share.
As of September 30, 1996 there were 82,400 shares outstanding under the
Incentive Stock Option Plan at an average exercise price of $8.44 and warrants
to purchase 25,000 shares of common stock at an average price of $11.15.
-15-
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. SEGMENT INFORMATION AND MAJOR CUSTOMERS
The Company's continuing operations comprise a single industry segment,
pollution control systems. Information regarding the Company's geographic
segments of its continuing operations is set forth below.
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------
1996 1995 1994
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Revenues:
U.S. operations
Domestic $ 4,255 $ 2,614 $ 6,204
Export 11,991 14,472 3,629
The Netherlands operations 5,781 4,587 4,271
------- ------- -------
Total $22,027 $21,673 $14,104
======= ======= =======
Income (loss) before taxes:
U.S. operations $ 548 $ 2,008 $ (668)
The Netherlands operations 124 110 228
------- ------- -------
Total $ 672 $ 2,118 $ (440)
======= ======= =======
Identifiable assets:
U.S. operations $18,899 $18,051 $16,596
The Netherlands operations 3,549 2,934 2,694
------- ------- -------
Total $22,448 $20,985 $19,290
======= ======= =======
</TABLE>
During fiscal year 1996 two customers accounted for 35% (18% and 17%) of
the Company's consolidated revenues from continuing operations and in 1995 two
customers accounted for 62% (45% and 17%) of the total consolidated revenues.
It is management's opinion that the loss of such customers would not have a
material adverse effect of the Company's operations. Historically the Company
has not been dependent on repetitive business.
NOTE 12. COMMITMENTS AND CONTINGENCIES
(a) The Company has employment agreements with three officers with
expiration dates through 1999. Under the terms of the agreements, the salaries
range from $63,000 to $150,000, and can increase 5% per year if certain levels
of consolidated net earnings are attained. Upon termination by the employer for
any reason other than disobedience, dishonesty, disloyal insubordination by the
employee, or upon termination in connection with certain dissolutions or changes
in ownership of employer, the employee will receive a minimum payment of twice
the annual salary at the time of termination.
(b) The Company has the following pending or threatened litigation and
unasserted claims or assessments:
S-P Construction Company, et al, v. Andersen 2000 Inc., et al. This claim
- -------------------------------------------------------------
involves a suit by various insurance companies for subrogation of claims paid by
them to the owners (and others) of an electric power cogeneration plant in
Medford, Oregon. Andersen 2000 Inc. (Andersen 2000) was one of numerous
subcontractors on this job. Andersen 2000 supplied a venturi scrubbing system
and other related equipment for the plant, which are alleged to have been
defective, contributing to the plant's alleged failure to operate as expected.
Plaintiffs' claim against Andersen 2000 is for in excess of $1,145,310, which
includes the sales price of the equipment supplied by Andersen 2000 and other
damages. Andersen 2000's primary defenses are that the equipment was not
defective, that the equipment operated as designed, and that any failure of the
plant to perform as hoped for is due to the owners' or operator's failure to
burn fuel of the grade required by the boilers (supplied by another company)
which in turn affected the performance of the Andersen 2000 air pollution
control units.
In 1995, the case was taken off a State Court of Medford, Oregon trial
calendar in order for the insurance companies and their Underwriters to pursue
claims against their insureds for overpayment and fraudulent submission of
insurance claims. A stay was entered in the Medford, Oregon State Court case.
The insurance companies' related claims have now gone to trial and/or been
resolved via dispositive motion. The United States Court of Appeals for the
Ninth Circuit has affirmed an order from the United States District Court of
California which granted dispositive motions of insured's Biomass One, L.P. and
S-P Construction.
It is expected that counsel for Underwriters will soon ask that the stay in
the above-styled case be lifted. The trial court has entered an order previously
which bifurcated for early trial the issues involved with applicable guaranties
and the fuel specifications which applied to the guaranties. When the stay of
the case is lifted, the case will proceed to trial. As this case proceeds to
trial, the Company remains optimistic, and in their opinion, the final
resolution of this matter will not result in a materially adverse effect on the
Company's financial statements or its operations.
Textron Investment Management Company, et al. v. Crown Andersen Inc., Struthers
- -------------------------------------------------------------------------------
Thermo-Flood Corporation, et al. This case involves a suit by various holders
- -------------------------------
of Industrial Revenue Bonds issued by the Cities of Winfield and Arkansas City,
Kansas concerning the development of industrial property near Winfield, Kansas.
-16-
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Beginning in October of 1980, Struthers Thermo-Flood Corporation ("STFC")
was a tenant at the property in question pursuant to a 20-year lease. The lease
payments made by STFC were to be used to retire bonds issued to the above named
bondholders. In June of 1987, Crown Andersen acquired the stock of STFC from
Struthers Wells Corporation. At the time of Crown Andersen's acquisition of the
stock of STFC, soil and groundwater at the leased property were heavily
contaminated due in part to operations conducted on adjacent property by a
division of the General Electric Company. The contamination of the leased
property was not known to, discovered by, or reported to Crown Andersen at the
time of its acquisition of the stock of STFC, although it appears that the
existence of the contamination was well-known to the landlord (the Cities of
Winfield, Kansas and Arkansas City, Kansas) and to Struthers Wells Corporation.
In the sale to Crown Andersen, Struthers Wells Corporation represented that
there were no violations of law relating to the property and no claims against
the property. In March of 1990, the Kansas Department of Health made a public
finding that the soil and groundwater contamination at the property constituted
a hazard to human health.
After operations at STFC began to decline, STFC management attempted to
market the leased property. To date, all prospective purchasers have declined
to acquire STFC's interest in the lease upon being informed of the extent of the
soil and groundwater contamination., Thus, STFC has been unable to find a buyer
for its interest in the property, and the cost to clean up the property will
very likely exceed its value.
Because of the finding of the Kansas Department of Health referred to
above, and because any commercial use of the property by STFC has been
completely frustrated by the existence of the contamination, on March 24, 1992,
STFC gave notice to the landlords and the bondholders of its intention to
abandon the property.
Following STFC's abandonment of the property, and its failure to pay the
next lease payment when it became due, the bondholders filed the referenced
lawsuit. In response to the lawsuit STFC has filed a liquidation proceeding
under Chapter 7 of the Bankruptcy Code. The trustee in bankruptcy abandoned the
property on September 17, 1992. The bankruptcy court entered an order of no
distribution on February 10, 1994. Additionally, the filing of a petition under
Chapter 7 of the Bankruptcy Code resulted in a complete and permanent transfer
of control from Crown Andersen to the Bankruptcy Trustee. The above items led
to the Company not including STFC in the Company's consolidated financial
statements. STFC was dissolved on March 27, 1995.
Crown Andersen has filed an Answer denying any liability to the
bondholders, principally on the grounds of lack of privity of contract between
Crown Andersen and the bondholders. Crown Andersen has also filed cross-claims
against Struthers Wells Corporation and the Cities asserting claims for, among
other things, concealment, misrepresentation and breach of the warranties and
representations in the Stock Purchase Agreement by which Crown Andersen acquired
STFC from Struthers Wells. Struthers Wells Corporation, a co-defendant in the
case, filed a petition for Chapter 11 in the United States Bankruptcy Court for
the Western District of Pennsylvania. Discovery has been completed in this
case. Crown Andersen filed a motion for summary judgment. A mediation occurred
in the fall of 1995 without resolution, although settlement conversations have
ensued. A trial date has been indefinitely postponed.
The Plaintiffs have dismissed their claims against the Cities and in return
the Cities have dismissed all claims against Crown Andersen. The remaining
claim of the Plaintiffs against Crown Andersen is based upon the alleged
indemnification of Struthers Wells Corporation for unpaid balance of Struthers
Thermo-Flood lease payments. The Company believes that Struthers Wells
Corporation is not entitled to indemnification.
On February 3, 1995, Plaintiffs amended their petition to assert claims for
(1) liability for payment of the Industrial Revenue Bond based upon a theory of
estoppel; (2) liability for the financial obligations of STFC based upon a
theory that Crown Andersen was the "alter ego" of STFC; and (3) damages for
Crown Andersen's preference over other creditors in the liquidation of the
assets of STFC. Crown Andersen filed an answer denying liability under the
theories set forth in the Amended Petition. Motions for summary judgment which
are pending before the court may resolve the issue of Crown Andersen's
liability.
In the opinion of the management of the Company and its legal counsel,
two possible outcomes exist. The first and more likely is a ruling from the
court or a jury in favor of the Company, resulting in no significant financial
effect upon the Company. A second and less likely is a ruling by the court or a
jury against the Company, in an amount of the past due lease payments of
approximately $1,900,000 plus interest and attorneys fees, less any proceeds
from a sale of the property. This net amount is estimated not to exceed
$1,000,000.
The Company believes that the first outcome is more likely to occur and
therefore the final resolution of this matter will not result in a material
adverse effect on the Company's financial statements or its operations.
United States Environmental Protection Agency v. Struthers Thermo-Flood
- -----------------------------------------------------------------------
Corporation. STFC was named as a potentially responsible party ("PRP") under
- -----------
Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA")
by the United States Environmental Protection Agency ("EPA") in November, 1993.
The potential exposure to Crown Andersen or STFC as a PRP is unknown at this
time. A factual defense to any liability on the part of STFC or Crown Andersen
is that neither party contributed to the contamination upon or around the
Property at any time during Crown Andersen's ownership of STFC. Discovery and
environmental testing have revealed that STFC, during its ownership by Struthers
Wells, may have contributed to the contamination upon and around the Property.
The involvement by the EPA strengthens the basis for Crown Andersen's defenses
against liability for the
-17-
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. COMMITMENTS AND CONTINGENCIES (continued)
unpaid balance of STFC's lease payments, interest and attorneys' fees, which
should be the ultimate exposure of the Company in this lawsuit. Additional
parties may be named as defendants in this lawsuit based upon their potential
liability for the contamination upon and around the Property due to the
depreciation of the market value and loss of the use of the Property.
No adversarial actions have been pursued against STFC in this case,
subsequent to the PRP letter of notification. A revised plan for remediation of
the contamination at Strother Field has been completed, but not provided to the
Company at this time.
The evidence to date indicates that the contamination upon the STFC
property, if contributed by STFC, was the result of activities conducted by STFC
prior to its purchase by Crown Andersen. If the EPA or PRPs attempt to join a
parent of STFC into the case, Struthers Wells Corporation was the parent of STFC
during the time any releases could have occurred upon the property by STFC. The
Company believes that no liability would accrue to the Company beyond STFC,
which is in Chapter 7 bankruptcy.
Crown Andersen has not been formally named as a PRP at this time.
Furthermore, based upon the available information, it does not appear likely
that Crown will be held responsible for any liability which may be attributed to
STFC for cleanup costs. However, t here is a chance that the EPA or a PRP may
bring an action in the future which attempts to recover cleanup costs from Crown
Andersen. The Company and its legal counsel believe a suit by the EPA or a PRP
would not have merit, under the available information. The Company believes
that the final resolution of this matter will not result in a material adverse
effect on the Company's financial statements or its operations.
Georgia Gulf Corporation v. Andersen 2000 Inc.. On October 16, 1996, Georgia
- ----------------------------------------------
Gulf Corporation ("Georgia Gulf") filed suit against Andersen 2000 Inc.
("Andersen 2000") as styled above alleging that Andersen 2000 has violated a
contractual agreement by and between the parties, dated on or about November 9,
1990, pursuant to which Andersen 2000 agreed to design, supply, and install a
natural gas and hazardous liquid waste fired boiler at the Georgia Gulf plant in
Plaquemine, Louisiana. Georgia Gulf alleges that Andersen 2000 warranted that
the project would be free from defects in material and workmanship and would
perform in accordance with the project specifications., Georgia Gulf further
alleges, however, that the project was defective as to its design, workmanship
and/or materials and, as a result, failed to perform in accordance with the
project specifications so as to constitute a breach of warranty and breach of
contract by Andersen 2000, resulting in damages to Georgia Gulf in excess of
$3,000,000.
On November 11, 1996, Andersen 2000 filed an Answer admitting that Georgia
Gulf and Andersen 2000 entered into a contract in 1990 regarding a natural gas
and hazardous liquid waste fired boiler at the Georgia Gulf plant in Plaquemine,
Louisiana, but denying all other allegations made by Georgia Gulf. The
litigation is in its initial stages and discovery has yet to be exchanged. As
such, the Company is unable to comment on the prospects of a favorable or
unfavorable outcome. The Company believes that the final resolutiion of this
matter will not result in a material adverse effect on the Company's financial
statements or its operations.
The Company is involved in various additional litigation matters arising in
the ordinary course of business. Management believes that the final resolution
of these matters will not result in a material adverse effect on the Company's
financial statements and its operations.
NOTE 13. RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets Being Disposed of" which provides
guidance on how and when impairment losses are recognized on long-lived assets.
This statement is effective for fiscal years that begin after December 31, 1995
and when adopted, is not expected to have a material impact on the Company.
The FASB has issued SFAS No. 123 "Accounting for Stock-Based Compensation"
which establishes financial accounting and reporting standards for stock-based
employee compensation plans. This statement was issued by the FASB during
October 1995 and is effective for transactions entered into in fiscal years that
begin after December 15, 1995. The Company has not yet determined the impact of
this statement on its financial statements.
Subsequent to September 30, 1996, the American Institute of Certified
Public Accountants issued Statement of Position 96-1, "Environmental Remediation
Liabilities." This statement provides guidance on accrual of environmental
remediation liabilities when the criteria of SFAS No. 5, "Accounting for
Contingencies", are met. The provisions of this Statement are effective for
fiscal years beginning after December 15, 1996. The Company has not yet
determined the effect of this Statement on its financial statements.
NOTE 14. SIGNIFICANT FOURTH QUARTER ACTIVITY
During the fourth quarter of 1996, the Company increased its warranty
reserve by $463,000 to $939,000. This was based on anticipated cost overruns to
complete certain contracts of the Company.
-18-
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
of Crown Andersen Inc.
Peachtree City, Georgia
We have audited the accompanying consolidated balance sheets of Crown Andersen
Inc. and Subsidiaries as of September 30, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended September 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 audits 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 consolidated financial position of Crown
Andersen Inc. and Subsidiaries as of September 30, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1996, in conformity with generally
accepted accounting principles.
BDO SEIDMAN, LLP
Atlanta, Georgia
December 11, 1996
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
COMMON STOCK INFORMATION (UNAUDITED)
The Company's common stock is traded in the NASDAQ National Market System
under the NASDAQ symbol "CRAN". The following table shows the quarterly high
and low closing sale prices of the Company's common stock for the past two
fiscal years as reported by NASDAQ. The Company had approximately 251
shareholders of record as of December 13, 1996, in addition to approximately
1,800 beneficial holders.
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30, 1996
----------------------
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL QUARTER
First $8.75 $6.75
Second 8.75 6.38
Third 7.75 6.63
Fourth 7.38 6.00
YEAR ENDED
SEPTEMBER 30, 1995
----------------------
HIGH LOW
--------- ---------
FISCAL QUARTER
First $7.75 $6.00
Second 7.81 6.00
Third 8.25 6.38
Fourth 9.50 6.25
</TABLE>
No cash dividends have ever been paid by the Company or any of its
subsidiaries. The Company's ability to pay cash dividends is restricted by the
terms of a loan agreement with a bank. See Note 8 of the Notes to Consolidated
Financial Statements.
-19-
<PAGE>
CROWN ANDERSEN INC.
<TABLE>
<S> <C> <C>
CORPORATE OFFICERS AND SUBSIDIARIES TRANSFER AGENT
DIRECTORS
ANDERSEN 2000 INC. Wachovia Bank and
JACK D. BRADY 306 Dividend Dr. Trust Company
Chairman of the Board, Peachtree City, GA 30269 Winston-Salem, North
President, and (770) 486-2000 Carolina 27102
Chief Executive Officer FAX: (770) 487 5066
LEGAL COUNSEL
JACK C. HENDRICKS
Vice Chairman of the Board Jack D. Brady Decker & Hallman,
Chairman and CEO P.C.
RICHARD A. BEAUCHAMP Atlanta, Georgia
Director Thomas Van Remmen
(President, Amari Truck President and COO AUDITORS
Distribution Corp.
(Contract transportation Kenny M. Graves BDO Seidman, LLP
company) Senior Vice President Atlanta, Georgia
ROBERT DRESSLER John M. Golumbeski ANNUAL MEETING
Director Vice-President,
(Managing Director, Manufacturing The 1997 Annual
Corporate Finance Meeting of
Raymond James and Jay Kaufman Stockholders will be
Associates, Inc.) Vice-President, Purchasing held on March 5,
(investment bankers) 1997, at 10:00 a.m.
Randall Morgan at the Company's
LESTER K. LEGATSKI Vice-President, Finance and corporate offices,
Director Controller/Treasurer 306 Dividend Drive,
(President, Celtec Inc.) Peachtree City,
(development and Douglas Topley Georgia.
application of Vice-President, Sales
membrane technology for
liquid separators) Milton Emmanuelli
Secretary
THOMAS VAN REMMEN
Director MONTAIR ANDERSEN BV
(President of Andersen Heuvelsestraat 14
2000 Inc.) 5976 NG
Sevenum, Holland
MILTON EMMANUELLI 31 77 467 2473
Chief Financial Officer and TELEX: 58783 MONTA NL
Controller/Treasurer FAX: 31 77 467 3012
RANDALL MORGAN A.T.J. Wagemans
Secretary Managing Director
Jack D. Brady
Director
Rene Francken
Manager, Administration And
Sales
Johan Grubben
Manager, Engineering
</TABLE>
===============================================================================
FORM 10-K REPORT
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K TO THE SECURITIES AND
EXCHANGE COMMISSION FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996, IS AVAILABLE
TO STOCKHOLDERS AT NO CHARGE UPON WRITTEN REQUEST. PLEASE SEND REQUESTS TO:
MILTON EMMANUELLI, CHIEF FINANCIAL OFFICER
CROWN ANDERSEN INC.
306 DIVIDEND DRIVE, PEACHTREE CITY, GEORGIA 30269
-20-
<PAGE>
EXHIBIT 21 - SUBSIDIARIES
-------------------------
CROWN ANDERSEN INC.
A DELAWARE CORPORATION
306 DIVIDEND DRIVE
PEACHTREE CITY, GEORGIA 30269
PHONE: (770) 486 2000
FAX: (770) 487 5066
ANDERSEN 2000 INC.
A DELAWARE CORPORATION
306 DIVIDEND DRIVE
PEACHTREE CITY, GEORGIA 30269
PHONE: (770) 486 2000
FAX: (770) 487 5066
MONTAIR ANDERSEN BV
A NETHERLANDS REGISTERED CORPORATION
AND WHOLLY OWNED SUBSIDIARY OF
ANDERSEN 2000 INC.
HEUVELSESTRAAT 14
5967 NG SEVENUM
THE NETHERLANDS
PHONE: 77 467 2473
FAX: 77 467 3012
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,200,796
<SECURITIES> 0
<RECEIVABLES> 2,775,661
<ALLOWANCES> 120,380
<INVENTORY> 1,955,127
<CURRENT-ASSETS> 17,106,600
<PP&E> 1,862,639
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,448,454
<CURRENT-LIABILITIES> 7,678,408
<BONDS> 1,504,533
0
0
<COMMON> 156,164
<OTHER-SE> 12,972,227
<TOTAL-LIABILITY-AND-EQUITY> 22,448,454
<SALES> 21,994,417
<TOTAL-REVENUES> 22,026,058
<CGS> 17,773,950
<TOTAL-COSTS> 21,354,054
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (183,858)
<INCOME-PRETAX> 672,454
<INCOME-TAX> 217,400
<INCOME-CONTINUING> 672,454
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 455,054
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
</TABLE>
