<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED December 31, 1997 COMMISSION FILE NUMBER 0-14229
---------------------- -----------
CROWN ANDERSEN INC.
- - ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 58-1653577
- - ----------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
306 Dividend Drive, Peachtree City, Georgia 30269
- - ----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 486-2000
-------------------------
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing such
requirements for the past 90 days. Yes X No
--- ---
============================================================================
Class Outstanding at December 31, 1997
----------------------------- --------------------------------
Common Stock, $0.10 Par Value 1,512,198 shares
Page 1 of 11
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CROWN ANDERSEN INC.
-------------------
INDEX
-----
PAGE NO.
--------
Part I. FINANCIAL INFORMATION:
Consolidated Balance Sheets--
December 31, 1997 and September 30, 1997 3
Consolidated Statements of Income--
Three Months Ended December 31, 1997
and 1996 4
Consolidated Statements of Cash Flows--
Three Months Ended December 31, 1997 5
and 1996
Notes to Consolidated Financial Information 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 11
2
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
------------- --------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents $ 2,762,262 $ 4,894,371
Receivables:
Trade, less allowance of $107,595 and $113,476 for
possible losses 2,701,059 2,683,989
Other 155,884 139,595
Income taxes 29,851 43,602
Costs and estimated earnings in excess of billings on
uncompleted contracts 8,162,285 5,836,898
Inventories 2,592,952 2,566,179
Prepaid expenses 72,456 66,581
Current maturities of long-term note receivable 300,000 300,000
Deferred income taxes 432,114 432,114
----------- -----------
TOTAL CURRENT ASSETS 17,208,863 16,963,329
RESTRICTED CASH 1,036,000 1,036,000
NOTE RECEIVABLE, less current maturities 490,000 490,000
EQUIPMENT HELD FOR RESALE 625,000 670,000
PROPERTY AND EQUIPMENT, less accumulated depreciation 1,614,991 1,661,962
DEFERRED INCOME TAXES 433,942 433,942
OTHER ASSETS 125,107 130,732
----------- -----------
$21,533,903 $21,385,965
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ - $ -
Accounts payable 4,564,533 4,069,018
Accruals:
Income taxes
Compensation 393,123 350,986
Warranty 942,100 1,009,700
Miscellaneous 489,872 394,314
Billings on uncompleted contracts in excess of cost and
estimated earnings 19,214 117,721
Current maturities of long-term debt 100,000 494,736
Deferred income taxes 186,098 189,254
----------- -----------
TOTAL CURRENT LIABILITIES 6,694,940 6,625,729
LONG-TERM DEBT, less current maturities 750,000 775,000
DEFERRED INCOME TAXES 102,917 102,917
----------- -----------
TOTAL LIABILITIES 7,547,857 7,503,646
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY:
Common Stock, $.10 par; shares authorized 5,000,000; issued
1,561,635; outstanding 1,512,198 156,164 156,164
Additional paid-in capital 2,905,801 2,905,801
Treasury stock; 49,437, at cost (319,760) (319,760)
Retained earnings 11,169,171 11,030,288
Foreign currency translation adjustment 74,670 109,816
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 13,986,046 13,882,319
----------- -----------
$21,533,903 $21,385,965
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
<TABLE>
<CAPTION>
CROWN ANDERSEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
=================================
(Unaudited)
FOR THE THREE MONTHS
ENDED DECEMBER 31,
------------------------
1997 1996
----------- ----------
<S> <C> <C>
REVENUES:
Contracts $4,396,241 $4,435,102
Sales 358,205 429,519
Other 16,478 37,635
---------- ----------
4,770,924 4,902,256
---------- ----------
COSTS AND EXPENSES:
Cost of contracts and sales 3,774,698 3,649,377
Selling, general and administrative 843,299 882,811
Interest and other (50,054) (20,623)
---------- ----------
4,567,943 4,511,565
---------- ----------
Income from operations before
taxes on income 202,981 390,691
TAXES ON INCOME 64,100 142,200
---------- ----------
NET INCOME $ 138,881 $ 248,491
========== ==========
AVERAGE SHARES AND EQUIVALENT SHARES
OUTSTANDING 1,512,198 1,531,194
---------- ----------
EARNINGS PER SHARE $0.09 $0.16
---------- ----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Months Ended December 31,
----------------------------
1997 1996
--------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from operations $ 138,881 $ 248,491
Items in income from operations not affecting cash:
Depreciation and amortization 56,616 70,680
Provision for valuation of soil processor unit 45,000 90,000
Deferred income taxes - 21,756
Cash provided by (used for)
Trade and other receivables (47,517) 99,626
Refundable income taxes - (9,763)
Costs and estimated earnings in excess of billings on
uncompleted contracts (2,325,387) (2,029,587)
Inventories (40,089) (89,118)
Prepaid expenses (6,445) 73,354
Accounts payable 509,938 43,964
Accrued expenses 89,937 (144,705)
Billings on uncompleted contracts in excess of costs and
estimated earnings (98,507) 83,779
Other (8,680) 15,782
----------- -----------
Cash used for operating activities (1,686,253) (1,525,741)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in restricted cash - 112,000
Capital expenditures (22,692) (8,866)
----------- -----------
Cash provided by (used for) investing activities (22,692) 103,134
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction in long-term debt (419,736) (568,653)
Retirement of common stock - (246,874)
----------- -----------
Cash used for financing activities (419,736) (815,527)
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (3,428) (4,238)
----------- -----------
CASH AND CASH EQUIVALENTS:
Net decrease during the year (2,132,109) (2,242,372)
Balance at beginning of year 4,894,371 5,200,796
----------- -----------
BALANCE AT END OF PERIOD $ 2,762,262 $ 2,958,424
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
===========================================
1. Condensed footnotes:
-------------------
As contemplated by the Securities and Exchange Commission instructions to
Form 10-Q, the following footnotes have been condensed and therefore do not
contain all disclosures required in connection with annual financial statements.
Reference should be made to the notes to Crown Andersen Inc.'s annual financial
statements set forth in its Form 10-K for the year ended September 30, 1997.
2. Earnings per share:
------------------
Earnings per share is computed based on the weighted average of common
shares, comon stock options (using the treasury stock method) in accordance with
FAS 128 "Earnings Per Share." The stock options outstanding during 1996 and
1997 were antidilutive and thus did not affect earnings per share.
3. Stock options:
-------------
As of December 31, 1997, options to purchase 44,000 shares at an average
price of $6.44 were outstanding under the Company's stock option plan.
The Company also has outstanding warrants to purchase 15,000 shares of
common stock under the Directors Stock Warrant Plan at $10.50 per share.
4. Revenue recognition:
-------------------
Revenues from contracts are 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 to the most recent estimate of costs to
complete. Revenues other than contracts are recorded when the product is
shipped or the service is rendered to the customers.
5. Inventories:
-----------
Inventories were $2,701,059 and $2,566,179 as of December 31, 1997 and
September 30, 1997. Included in inventories is approximately $1,761,000 related
to incineration equipment purchased from a former competitor.
6. Restricted cash:
---------------
As of December 31, 1997, $1,036,000 of the Company's short-term investments
were held by banks as collateral for an outstanding letter of credit. The
letter of credit expires in 1999.
7. Equipment held for resale:
-------------------------
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. Through December 31, 1997, the carrying
value of this unit has been reduced to $625,000. The adjustments to carrying
value have been charged to operations in each respective year.
8. Commitments and contingencies:
------------------------------
There are no significant changes to the information discussed in the
Company's annual report on Form 10K for the year ended September 30, 1997 (Note
11 to the Consoli-dated Financial Statements), except as noted below:
6
<PAGE>
The Company filed a Form 8K on January 15, 1998 to report the following
event:
On December 30, 1997, the Circuit Court of Cowley County, Kansas granted
summary judgment in favor of Textron Investment Management Company, Farm Bureau
Mutual Insurance Company and others against Crown Andersen Inc. on the issue of
liability for the payment of principal and interest due on certain industrial
revenue bonds. No monetary amount of the judgment was specified in the order.
The Registrant intends to move for reconsideration based in part upon certain
legal arguments which were not considered or ruled upon by the trial court,
after which the Registrant would have the right to appeal any final judgment.
In the event of a final judgment, the Registrant would receive title to the
underlying Kansas property which will reduce any adverse financial impact upon
the Registrant.
In the opinion of 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 the final resolution of this matter will not result in
a material adverse effect on the Company's financial statements or its
operations.
* * *
The financial information included in this report has not been certified
and should not be relied upon to the same extent as certified financial
statements. The financial information included in this report reflects all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the interim period. Nevertheless, the results
shown are for interim periods and are not necessarily indicative of results to
be expected for the year.
7
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
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). The Company is
engaged exclusively in the pollution control and waste processing businesses.
Liquidity and Capital Resources:
- - -------------------------------
Cash and cash equivalents at December 31, 1997 decreased $2,132,109 from
the September 30, 1997 balance of $4,894,371. The decrease was primarily
attributable to an increase in costs and estimated earnings in excess of
billings on uncompleted contracts and a reduction of long-term debt. The
increase in costs and estimated earnings in excess of billings is related to
unbilled costs on a major international project for which a substantial payment
was received in January 1998. Cash used for operating activities amounted to
$1,686,253. The increase in costs and estimated earnings stated above more than
offset net income plus depreciation of $240,497 and an increase in payables.
Montair realized a positive operating cash flow as a result of profitable
operations.
Cash used for investing activities totaled $22,692 as a result of capital
expenditures incurred at both Andersen and Montair.
Cash used for financing activities reflect a reduction in long-term debt of
$419,736.
As disclosed in Note 7 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 $625,000 as of
December 31, 1997 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 8 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. On December 30, 1997,
the Circuit Court of Cowley County, Kansas granted summary judgment in favor of
Textron Investment Management Company, Farm Bureau Mutual Insurance Company and
others against Crown Andersen Inc. on the issue of liability for the payment of
principal and interest due on certain industrial revenue bonds. No monetary
amount of the judgment was specified in the order. The Company intends to move
for reconsideration based in part upon certain legal arguments which were not
considered or ruled upon by the trial court, after which the Company would have
the right to appeal any final judgment. In the event of a final judgment, the
Company would receive title to the underlying Kansas property which will reduce
any adverse financial impact upon the Company. In the opinion of 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 would pay for any judgment
using its existing cash reserves or funds available under its credit
8
<PAGE>
facility. The Company believes the final resolution of this matter will not
result in a material adverse effect on the Company's financial statements or its
operations.
As of December 31, 1997, the Company had no borrowings against its $5.0
million line of credit and the $0.4 million credit facility available to
Montair. The amount of $4.2 million remained available for borrowing under
these credit facilities as $1.3 million in letters of credit are outstanding
against the U.S. line of credit. Because of this credit facility, profitable
operations, and the retention of cash from prior years, 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. A total of $319,760 in treasury stock has been
purchased as of December 31, 1997.
In the year 2000, many computer programs with date sensitive software may
recognize year 2000 as the year 1900. This could result in a system failure or
miscalculations causing disruption in processing business transactions. The
Company has been informed that its accounting software is year 2000 compliant.
The computer hardware is also year 2000 compliant. The Company's engineering
software is also unaffected by year 2000 and the Company is actively changing
its FORTRAN computer system over to a more modern system. However, there can be
no guarantees that all the Company's systems that will be affected have been
identified.
As of December 31, 1997, the Company's equity in its Montair operation had
declined in value by $35,156 from September 30, 1997 as a result of a decrease
in the foreign currency translation adjustment, reflecting a 3% increase in the
U.S. dollar against the Dutch guilder.
Results of Operations:
- - ---------------------
Revenues.
- - ---------
Revenues for the first quarter of fiscal 1998 were $4,770,924 compared with
$4,902,256 for the comparable period in fiscal 1997 and $5,904,724 for the last
quarter of fiscal 1997. Foreign sales (including export sales by Andersen and
sales by Montair) were $3.6 million and $4.3 million for the first quarter of
fiscal 1998 and 1997, respectively, and accounted for 74.6% and 87.0% of
revenues, respectively. All changes in revenues are related to the quantity of
product sold, not to pricing changes. Revenues at Andersen declined 2% and
accounted for 64% of the total revenue decrease.
The Company continues to rely on the international market for most of its
revenues. Demand for the Company's products in the domestic market has remained
low over the last three years because of uncertainty in changes in United States
regulations. While there are some uncertainties in the foreign markets because
of currency problems in countries where the Company does business, to date, the
Company has not experienced a decline in bidding activity. Asian slowdowns have
been offset by both domestic activity and activity in South America. The
Company believes it can at least maintain the current revenue levels in fiscal
1998, based on current bidding activity.
First quarter 1998 revenues decreased $1,133,800 (19.2%) from the preceding
quarter revenues, primarily as a result of timing on contracts which resulted in
a revenue decline of $862,968 at Andersen.
Cost of Sales.
- - --------------
For the first quarter of fiscal 1998, cost of sales totaled $3,774,698
compared with $3,649,377 in the comparable period of fiscal 1997 and $4,783,417
in the fourth quarter of 1997.
Cost of sales increased $125,321 (3.4%) from the first quarter of fiscal
1997 even though revenues decreased $131,332, resulting in a decrease in gross
margin of 4.7%. This was largely attributable to operations at Andersen where
the mix of products shipped changed to more lower margin, non-proprietary
products than in the past.
9
<PAGE>
First quarter 1998 cost of sales were $1,008,719 (21.1%) lower than in the
fourth quarter of 1997, primarily as a result of lower revenues.
Selling, General and Administrative Costs.
- - ------------------------------------------
Selling, general and administrative costs for the first three months of
fiscal 1998 were $843,299 compared with $882,811 for the first fiscal quarter of
1997 and $819,875 in the fourth quarter of fiscal 1997. The decrease of $39,512
(4.4%) from the comparable quarter in 1997 is primarily attributable to the
Netherlands operation and reflects decreases in commissions and salaries. As a
percentage of revenues, selling, general and administrative expenses were 17.7%,
18.0% and 13.9% for the fiscal quarters of 1998 and 1997 and the fourth quarter
of 1997. Expenses for the current 1998 quarter increased $23,424 (2.9%) from
the preceding fiscal quarter as a result of higher legal and accounting fees at
the U.S. operations and higher employee costs and commissions at Montair.
Interest and Other (Income) Expenses.
- - -------------------------------------
Interest and other (income) expenses for the first three months of fiscal
1998 resulted in a credit of $50,054 compared with a credit of $20,623 for the
first quarter of 1997 and a credit of $44,872 for the fourth quarter of 1997.
The credits in all periods reflect a substantial reduction in net interest costs
as a result of offsetting interest income realized on short-term investments.
The higher credit in fiscal 1998 reflects lower bad debt expense recorded at the
Montair operation.
Taxes on Income.
- - ----------------
The effective tax rate for the first quarter of fiscal 1998 was 31.6%
compared to 36.4% for the first quarter of fiscal 1997 and 0.7% (benefit) for
the fourth quarter of fiscal 1997.
Net Income.
- - -----------
Net income for the first quarter of fiscal 1998 was $138,881 or $0.09 per
share, compared with $248,491 or $0.16 per share for the first quarter of fiscal
1997 and $348,761 or $0.23 per share for the fourth quarter of 1997.
The decrease in earnings of $109,610 was the result of lower revenues and
lower operating margins of 4.7%. The earnings decline was attributable to the
U.S. operations and reflects a slight change to lower margin, non-proprietary
products during the quarter and to price pressures in Asia due to enormous
exchange rate changes. Net income at Montair remained on target with prior
period levels.
Net earnings decreased $209,880 from the preceding fiscal quarter,
primarily as a result of lower revenues and lower operating margins.
Shares Outstanding.
- - -------------------
The average shares and equivalent shares outstanding were 1,512,198,
1,531,194 and 1,512,198 for the first fiscal quarter of 1998, the first fiscal
quarter of 1997 and the fourth fiscal quarter of 1997.
10
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
====================================
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit 27. Financial Data Schedules
(b) No reports were filed on Form 8K during the quarter ended
December 31, 1997.
SIGNATURES
==========
Pursuant to the requirements 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.
Dated: February 9, 1998 By: /s/ Jack D. Brady
------------------ -----------------------------
Jack D. Brady
Chairman of the Board
(Duly Authorized Officer)
Dated: February 9, 1998 By: /s/ Milton Emmanuelli
----------------- -----------------------------
Milton Emmanuelli
Secretary and Treasurer
(Principal Financial Officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 2,762,262
<SECURITIES> 0
<RECEIVABLES> 2,808,654
<ALLOWANCES> 107,595
<INVENTORY> 2,592,952
<CURRENT-ASSETS> 17,208,863
<PP&E> 1,614,991
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,533,903
<CURRENT-LIABILITIES> 6,694,940
<BONDS> 750,000
0
0
<COMMON> 156,164
<OTHER-SE> 13,829,882
<TOTAL-LIABILITY-AND-EQUITY> 21,533,903
<SALES> 4,754,446
<TOTAL-REVENUES> 4,770,924
<CGS> 3,774,698
<TOTAL-COSTS> 4,567,943
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (50,054)
<INCOME-PRETAX> 202,981
<INCOME-TAX> 64,100
<INCOME-CONTINUING> 202,981
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 138,881
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
