<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, 1998
[_] 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 16, 1998 there were 1,815,551 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 16, 1998
was $8,351,834.
Documents incorporated by reference:
-----------------------------------
Portions of the Registrant's 1998 Annual Report are incorporated by reference in
Part I and Part II hereof. Portions of the Registrant's Proxy Statement for the
1999 Annual Meeting of Stockholders to be held on February 10, 1999 are
incorporated by reference in Part III hereof.
Page 1 of 20
Index of Exhibits on Page 19
<PAGE>
CROWN ANDERSEN INC.
Annual Report on Form 10-K
For the Fiscal Year Ended September 30, 1998
TABLE OF CONTENTS
-----------------
PART I
------
Item No. Page No.
- -------- --------
1 Business 3
2 Properties 8
3 Legal Proceedings 9
4 Submission of Matters to a Vote of Security Holders 9
4(A) Executive Officers of the Registrant 9
PART II
-------
5 Market for the Registrant's Common Equity and Related 10
Stockholder Matters
6 Selected Financial Data 10
7 Management's Discussion and Analysis of Financial Condition and 10
Results of Operation
8 Financial Statements and Supplementary Data 10
9 Changes in and Disagreements with Accountants on Accounting and 10
Financial Disclosure
PART III
--------
10 Directors and Executive Officers of the Registrant 10
11 Executive Compensation 11
12 Security Ownership of Certain Beneficial Owners and Management 11
13 Certain Relationships and Related Transactions 11
PART IV
-------
14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 11
Signatures 15
Index to Financial Statement Schedules 19
-2-
<PAGE>
PART I
------
ITEM 1. BUSINESS
- ----------------
General
-------
Crown Andersen Inc. (the "Company" or the "Registrant"), through its
subsidiaries, designs, manufactures, sells and installs a wide range of
industrial air pollution control and air handling systems, and a complete line
of medical, chemical and industrial waste treatment equipment and systems. 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 and of 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.
As used hereinafter, 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.
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. 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. In fiscal
1996, Andersen purchased from a former competitor the technology to manufacture
a line of small vertical incinerators, controlled air incinerators and rotary
kiln incinerators.
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
-3-
<PAGE>
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
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 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 manufacturing
building on 1.5 acres of land.
Andersen, through Montair Andersen b.v., now owns its 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,
The Netherlands 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
-4-
<PAGE>
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
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 1998, however, were manufactured in Andersen's plant
in the United States.
Foreign sales in fiscal 1998, 1997, and 1996 accounted for approximately
62%, 86% and 81%, respectively, of the Company's total revenues from continuing
operations. Foreign sales for fiscal 1998, 1997 and 1996 totaled approximately
$8.9 million, $19.9 million, $17.8 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. An extension
of this agreement was signed in 1997 for five years.
Competition
-----------
In the air pollution control field, Andersen competes with three or four
companies of similar size which have similar product lines. In 21 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
-5-
<PAGE>
furnish auxiliary systems and installation as an advantage over its competition.
There are some competitors in the field which are somewhat larger than 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 1998 one customer accounted for approximately 26% of the Company's
consolidated revenues during fiscal 1998. It is the opinion of management that
the loss of such customer 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:
September 30, 1998 - $10,744,615
September 30, 1997 - $ 9,171,100
September 30, 1996 - $12,299,320
September 30, 1995 - $10,952,000
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 reduction in backlog from 1996 to 1997 was due to
timing in receipt of new orders.
-6-
<PAGE>
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, 1998,
Andersen has established a $220,000 reserve for future warranty repairs.
-7-
<PAGE>
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
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.
Research and development expenses are expensed in the year incurred. There
were no company funded research and development expenses during fiscal years
1998, 1997 and 1996.
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 1999. 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.
Employees
---------
The Company and its subsidiaries employed a total of 80 individuals as of
September 30, 1998, including 9 officers, 54 technical and manufacturing people,
and 17 others engaged in financial, sales, and secretarial activities.
Approximately 54% of these people are employed at the Peachtree City, Georgia
facility by either Andersen or by the Company, and 46% are employed at Montair
Andersen's Sevenum, The Netherlands plant.
Seasonal Nature of Business
---------------------------
Andersen's business has never been seasonal.
ITEM 2. PROPERTIES
- -------------------
Andersen owns six acres of land in Peachtree City, Georgia, with a 20 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.
The Company's (through a defunct subsidiary - Strutherss Thermo-Flood
Corp.) properties in Winfield, Kansas consisted of six buildings on 13 acres of
land, all of which were owned
-8-
<PAGE>
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, but received the
property back in 1998 upon settlement of litigation. This property is currently
leased to unrelated companies, but is also offered for sale.
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 6 to the Notes to Consolidated Financial Statements contained in the
Company's 1998 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 1998 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
1998.
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, 1998 regarding the executive officers (including executive officers who are
also directors) of the Company.
<TABLE>
<CAPTION>
Name Age Occupation During The Past Five Years
- ------------------- --- ----------------------------------------------------------
<S> <C> <C>
Jack D. Brady 55 Chairman of the Board, President and Chief Executive
Officer of the Company since 1985; Chairman of the Board
of Andersen since 1984; President and Treasurer of
Andersen from 1978 to 1995; Executive Vice President of
Andersen from 1975 until 1978; Director of Andersen since
1975; Director of Montair Andersen since 1984.
Milton Emmanuelli 64 Chief Financial Officer of the Company since September
21,
1992; elected Secretary/Treasurer of the Company on
December 16, 1992, and Controller/Treasurer on December
13, 1994.
Thomas Van Remmen 41 Director of the Company; President of Andersen since
December 2, 1996; General Manager of Cleaver-Brooks
incineration and watertube boiler division of Aqua-Chem
Inc. from 1986 to 1996.
Randall H. Morgan 50 Secretary of the Company since 1994; Secretary/Treasurer
from 1985 to 1992; Vice President and Secretary of
Andersen 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."
-9-
<PAGE>
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
-------
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 1998 Annual Report. Such information is
incorporated herein by reference. The 1998 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, 1998 are set forth under the caption
"Selected Financial Data" in the 1998 Annual Report referred to in Item 5 above.
Such financial data are incorporated herein by reference.
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 1998 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, 1998 and
1997 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,
1998, together with the related notes thereto and the report of independent
certified public accountants thereon dated December 12, 1998, are set forth in
the 1998 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, 1998 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 1999 Annual Meeting of Stockholders to be held on February 10, 1999. 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."
-10-
<PAGE>
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, 1999 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 1999 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.
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 1998 Annual Report
referred to in Item 5 above:
Consolidated Balance Sheets as of September 30, 1998 and 1997;
Consolidated Statements of Income for the three fiscal years ended
September 30, 1998;
Consolidated Statements of Stockholders' Equity for the three fiscal years
ended September 30, 1998;
Consolidated Statements of Cash Flows for the three fiscal years ended
September 30, 1998;
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
-11-
<PAGE>
information required is included in the consolidated financial statements or
notes thereto. See the Index to Financial Statement Schedules on page 16 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.
-12-
<PAGE>
Exhibit No. Description
- ----------- -----------------------------------------------------------------
13(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.
10(u) Loan Documents Modification Agreement dated February 28, 1997
between Crown Andersen Inc., Andersen 2000 Inc., and SouthTrust
Bank of Georgia, N.A., filed with Form 10Q for the quarter ended
March 31, 1997.
10(v) 1998 Directors Warrant Plan
10(w) 1998 Incentive Stock Option Plan
10(x) Loan Documents Modification Agreement dated February 21, 1998 and
March 29, 1998 between Crown Andersen Inc., Andersen 2000 Inc and
SouthTrust Bank of Georgia N.A., filed with Form 10Q for quarter
ended March 31, 1998.
13* 1998 Annual Report - Filed herewith
21 Subsidiaries - Filed herewith
27 Financial Data Schedule - Filed herewith
*Portions of the Company's 1998 Annual Report, as indicated in this Annual
Report on Form 10-K, are incorporated herein by reference. Other than as so
noted herein, the 1998 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.
-13-
<PAGE>
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fiscal quarter ended
September 30, 1998.
(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 15, 1998 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>
<S> <C> <C>
/s/ Jack D. Brady Chairman of the Board, President, December 15, 1998
--------------------------------
Jack D. Brady Principal Executive Officer and
Principal Financial Officer
/s/ Jack C. Hendricks Director December 15, 1998
--------------------------------
Jack C. Hendricks
/s/ Milton Emmanuelli Controller/Treasurer And December 15, 1998
--------------------------------
Milton Emmanuelli Principal Accounting Officer
/s/ Richard A. Beauchamp Director December 15, 1998
--------------------------------
Richard A. Beauchamp
/s/ Lester K. Legatski Director December 15, 1998
--------------------------------
Lester K. Legatski
/s/ Thomas Van Remmen Director December 15, 1998
--------------------------------
Thomas Van Remmen
</TABLE>
-15-
<PAGE>
CROWN ANDERSEN INC.
INDEX TO FINANCIAL STATEMENT SCHEDULES
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, 1998, relating to
the consolidated financial statements of Crown Andersen Inc. and Subsidiaries,
which is incorporated in Item 8 of the Form 10-K by reference to the Annual
Report to Stockholders for the year ended September 30, 1998, 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, 1998
-17-
<PAGE>
SCHEDULE II
-----------
CROWN ANDERSEN INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
=====================================================
<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, 1998
- ------------------
Allowance for doubtful accounts $113,476 $(7,072) $ 7,080 $ 99,324
======== ======= ======= ========
September 30, 1997
- ------------------
Allowance for doubtful accounts $120,380 $25,302 $32,206 $113,476
======== ======= ======= ========
September 30, 1996
- ------------------
Allowance for doubtful accounts $166,192 $16,878 $62,690 $120,380
======== ======= ======= ========
</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)
Revolving Credit Agreement Amendment dated as of March 31, 1992 among the Company, Andersen,
10(n) Crown and Thermo-Flood and NationsBank of Georgia, N.A. (formerly known as The Citizens and
Southern National Bank)- (See Exhibit 10p)
Second Amendment to Revolving Credit Agreement among the Company, Andersen, Crown, Thermo-Flood
10(o) 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
Agreement for Sale of Crown Rotational Molded Products, Inc. assets, dated July 19, 1994 (Exhibit
10(r) 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
10(u) Loan Documents Modification Agreement dated February 28, 1997 between Crown Andersen Inc. and
Andersen 2000 Inc. and SouthTrust Bank of Georgia, N.A. filed with Form 10Q for the quarter ended
March 31, 1997.
10(v) 1998 Directors Warrant Plan
10(w) 1998 Incentive Stock Option Plan
10(x) Loan Documents Modification Agreement dated February 21, 1998 and March 29, 1998 between Crown
Andersen Inc, Andersen 2000 Inc and SouthTrust Bank of Georgia N.A., filed with Form 10Q for
quarter ended March 31, 1998
13* 1998 Annual Report - Filed herewith 21
21 Subsidiaries - Filed herewith
27 Financial Data Schedule - Filed Herewith
</TABLE>
-19-
<PAGE>
*Portions of the Company's 1998 Annual Report, as indicated in this Annual
Report on Form 10-K, are incorporated herein by reference. Other than as so
noted herein, the 1998 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.
-20-
<PAGE>
EXHIBIT 13
----------
CROWN ANDERSEN INC.
1998
ANNUAL
REPORT
<PAGE>
MESSAGE TO SHAREHOLDERS
Economic meltdown in Asia effectively stopped incoming orders from Indonesia,
Thailand, Malaysia and Korea in fiscal year 1998. The substantial downturn in
revenues for Crown Andersen Inc. in fiscal 1998 was the result. The loss for
the year was also the result of this enormous downturn in revenues, combined
with the litigation settlement on our Kansas property. All of our employees
turned their attention to the U.S. domestic market and to those international
markets which remained active and minimally affected by the Asian problems.
These efforts were successful in replacing much of the lost Asian business, but
not until it was too late to have any significant positive impact on the 1998
financial results.
At the end of fiscal 1998, and in the early months of fiscal 1999, we
experienced a dramatic upturn in U.S. domestic business and a significant
increase in foreign market penetration other than Asia. Incoming orders at
year-end and promised contracts suggest that we will return to 1997 revenues and
earnings levels in fiscal 1999 and should be able to resume growth at the rate
we have previously experienced after that. On December 16, 1998, we acquired
Griffin Environmental Co., Inc in Syracuse, New York, to add to our air
pollution control equipment products. Griffin is a well established
manufacturer of fabric filtration systems (baghouses) which are sold to many
domestic industries and which have great world wide appeal. The Griffin
acquisition opens markets to Crown Andersen which the Company never before
competed in. It also became apparent at the end of 1998 that the United States
Environmental Protection Agency would adopt new pollution control standards for
hazardous waste incineration facilities in early 1999 which should break the log
jam of orders for plant upgrades during 1999. For six years, operators of
incineration plants in the United States have not known what regulations they
will be facing. This has virtually stopped progress in these plants and the new
regulations should result in a significant market upturn for Crown Andersen Inc.
in these plants.
As we discussed in our Annual Report last year, we wanted to resolve outstanding
litigation and start with a "clean slate" at the earliest possible opportunity.
We felt this would enhance stock price. We did not, however, predict the
severity of the Asian downturn. The Kansas settlement was the first step in the
process of resolving litigation and it was successfully implemented in 1998.
The market did not treat us well after the settlement, but the Asian problem was
the more likely cause of the stock price downturn. We are now aggressively
concentrating all of our efforts on assimilating the Griffin acquisition,
dramatically growing our domestic markets for all products, and becoming better
prepared to address growth in the international markets when the Asian crisis is
over and when other international markets develop.
We continue to maintain a strong balance sheet and we plan to return to growth
in fiscal 1999 and the future.
Respectfully submitted,
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,
---------------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues from continuing operations $14,326 $23,144 $22,027 $21,673 $14,104
Revenues from discontinued operations $ - $ - $ - $ - $ 8,681
Income (loss) from continuing operations $(1,126) $ 1,149 $ 455 $ 1,366 $ (298)
Income from discontinued operations $ - $ - $ - $ - $ 620
Gain on disposal of discontinued operations $ - $ - $ - $ - $ 1,179
Earnings (loss) per share:
Continuing operations $ (0.74) $ 0.76 $ 0.29 $ 0.87 $ (0.19)
Discontinued operations $ - $ - $ - $ - $ 0.40
Gain on disposal of discontinued
operations $ - $ - $ - $ - $ 0.75
Net Income $ (0.74) $ 0.76 $ 0.29 $ 0.87 $ 0.96
Total Assets $18,084 $21,386 $22,448 $20,985 $19,290
Long-term debt $ - $ 775 $ 1,505 $ 621 $ 1,174
Cash dividends declared per common share $ - $ - $ - $ - $ -
</TABLE>
BUSINESS INFORMATION
Crown Andersen Inc. is a holding company for Andersen 2000 Inc.,
headquartered in Peachtree City, Georgia, and Montair Andersen bv, headquartered
in Sevenum, The Netherlands. The Company, through these subsidiaries, is
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, and spray dryer
systems.
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 62.0% of
the Company's total revenues in fiscal 1998. This compares to approximately
85.6% and 80.7% of the Company's total revenues in fiscal 1997 and 1996,
respectively. Foreign sales for fiscal 1998, 1997 and 1996 totaled approximately
$8.9 million, $19.9 million and $17.8 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). The Company
is engaged exclusively in the pollution control and waste processing equipment
businesses.
In fiscal 1998, revenues decreased 38% to $14.3 million from $23.1
million in fiscal 1997. The Company incurred a net loss of $1,126,031 in fiscal
1998, as compared to net income of $1,148,982 in fiscal 1997. Fiscal 1998
results reflect cost of litigation settlement and the effect of lower revenue
due to the economic crisis in Asia.
Foreign revenues (including export sales by Andersen and sales by
Montair) accounted for 62.0% and 86.1% of total revenues in fiscal years 1998
and 1997, respectively. Foreign sales transactions are generally guaranteed by
bank letters of credit. The Company has little or no foreign currency exposure
on sales by Montair as its contracts are payable in Dutch Guilders, its local
currency. As of September 30, 1998, the Company has cumulative currency
adjustments of $192,954. This amount has been reflected as a line item in 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 $1,171,097 at September 30, 1998
decreased $3,723,274 from the September 30, 1997 balance of $4,894,371. The
decrease resulted from a litigation settlement and a reduction of accounts
payable. Cash used by operating activities amounted to $2,010,158.
Cash used for investing activities totaled $1,262,519. This amount
includes the value of assets received in litigation settlement of $1,500,000 and
capital expenditures of $62,519, partly offset by capital expenditures by
collection of notes receivable of $300,000.
Cash used for financing activities totaled $470,709. This amount
reflects a reduction of long-term debt of $494,736, offset by issuance of
treasury stock of $24,027.
Montair realized a positive operating cash flow in fiscal 1998 as a
result of profitable operations and a reduction in accounts receivable. At
Andersen, an operating loss and the cost of the litigation settlement
contributed to a negative operating cash flow.
As disclosed in Note 5 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
$490,000 as of September 30, 1998 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 and has a number of active negotiations
underway for its sale.
During fiscal 1998, the Company settled the litigation over principal
and interest for certain Kansas property formerly occupied by Struthers Thermo-
Flood Corporation, a former Crown Andersen subsidiary. Under terms of the
settlement, the Company paid $1,630,000 in cash and issued a one year, non-
interest bearing promissory note in the amount of $670,000. In exchange, the
Company received the rights (without further obligation) to transfer title of
this property to a purchaser or to the Company. The Company is in the process of
negotiations with potential purchasers. The estimated value of these assets is
presently $1,500,000. This transaction was recorded as of June 30, 1998 and the
Company recognized a net loss of approximately $900,000. The Company's September
30, 1998 balance sheet includes these assets as "property held for sale" and the
note payable of $670,000.
As of September 30, 1998, 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 $3.4 million remained available for borrowing under these
credit facilities as $2.0 million in letters of credit are outstanding against
the U.S. line of credit. The Company expects to utilize its existing credit
facility to fund anticipated cash needs resulting
-3-
<PAGE>
from a temporary slowdown in its business in the short term and a commitment to
acquire Griffin Environmental Co., Inc. as discussed in Note 14 to the Financial
Statements.
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 $295,733 of net treasury stock
purchases is reflected in the Company's balance sheet as of September 30, 1998.
The year 2000 issue relates to computer programs and systems that
recognize dates using two digit year data rather than four digit year data. As a
result, such programs and systems may fail or provide incorrect information for
dates after December 31, 1999. If the year 2000 issue were to cause disruption
to the Company's internal information technology systems or to the information
technology systems of entities with whom the Company has commercial
relationships, material adverse effects to the Company's operations could
result.
The Company's internal computer programs and systems consist of
programs and systems relating to virtually all segments of the Company's
business, including customer database management, marketing, order-processing,
production budgeting, financing reporting, customer service, investor relations,
proposal generation, cash management and other key information systems. These
systems include personal computers, phones, ancillary sources and third-party
software programs.
The Company has not yet completed its reviews of these programs and
systems, but does not expect that any remediation relating to such programs and
systems that might be necessary following such reviews will cause the Company to
incur material costs or present implementation challenges that cannot be
addressed prior to the end of calender 1999. The Company expects to complete its
reviews of these programs and systems during fiscal 1999.
The computer programs and operating systems used by entities with whom
the Company has commercial relationships also pose potential problems relating
to the year 2000 issue, which may affect the Company's operations in a variety
of ways. These risks are more difficult to assess than those posed by internal
programs and systems and the Company has not yet completed the process of
formulating a plan for assessing them.
The Company expects to complete the formulation of its plan for
assessing the programs and systems of the entities with whom it has commercial
relationships and the identification of the related risks and uncertainties by
the end of fiscal 1999. Once such assessment and identification has been
completed, the Company intends to resolve any material risks and uncertainties
that are identified by: 1) communicating further with the relevant vendors and
service providers, 2) working internally to identify alternative sourcing, and
3) formulating contingency plans to deal with such material risks and
uncertainties. The Company expects the resolution of such material risks and
uncertainties to be an ongoing process until all year 2000 problems are
satisfactorily resolved.
As of September 30, 1998, the Company's equity in its Montair
operation had increased in value by $83,128 from September 30, 1997 as a result
of an increase in the foreign currency translation adjustment, reflecting a 5%
decrease in the U.S. dollar against the Dutch guilder.
RESULTS OF OPERATIONS
Revenues:
Revenues of $14,326,090 in fiscal 1998 decreased $8,817,582 (38.1%)
from fiscal 1997 revenues of $23,143,672. The decrease in revenues was largely
attributable to Andersen. Foreign sales (including export sales by Andersen and
sales by Montair) were $8.9 million and $19.9 million for fiscal years 1998 and
1997, and accounted for 62% and 86% of revenues in fiscal years 1998 and 1997,
respectively. All changes in revenues are related to the quantity of products
sold, not to pricing changes.
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 five years because of uncertainty in changes in
United States regulations. However, the Company experienced an increase in
domestic business in late 1998 and expects this to increase in 1999. There has
been a substantial slowdown in the Asian markets which the Company has served in
the last five years, and the slowdown is just now being offset by other markets.
The Company has received orders with a value in excess of $6.0 million recently
and expects to receive even more in the next few months. These are all outside
Asia. Because of timing, these new orders were not received in time to have a
significant impact on fiscal 1998 results. The Company expects more
uncertainties for the next 2-3 years in the Asian markets because of currency
problems in countries where the Company has been doing business.
Revenues of $23,143,672 in fiscal 1997 increased $1,117,164 (5.1%)
from fiscal 1996, primarily due to a revenue increase at Andersen.
-4-
<PAGE>
Cost of Sales:
Cost of sales decreased $5,733,501 (31.5%) to $12,462,027 in fiscal
1998 from fiscal 1997 costs of $18,195,528, primarily as a result of lower
revenues and an 8.3% decline in gross margin. The margin decline was largely
attributable to fixed costs not related to revenue levels at Andersen
operations.
In fiscal 1997, cost of sales increased $421,578 (2.4%) from 1996
levels as a result of higher revenues.
Selling, General and Administrative Costs:
Selling, general and administrative costs in fiscal 1998 decreased
$618,988 (17.8%) to $2,844,874 from the 1997 levels. The decrease was primarily
attributable to U.S. operations and reflects lower expenditures for commissions,
salaries, and a reduction in the valuation provision on equipment held for
resale. As a percentage of revenues, selling, general and administrative costs
were 19.9%, 15% and 17.1% of revenues for fiscal years 1998, 1997 and 1996,
respectively.
In fiscal 1997, these expenses decreased $300,100 (8.0%) as a result
of decreases in commissions, travel and professional fees.
Interest and Other (Income) Expenses:
Interest and other (income) expenses for fiscal 1998 resulted in a
credit of $147,780, compared to a credit of $109,200 for fiscal 1997. The higher
credit of $38,580 in fiscal 1998 includes rental income recorded in 1998 and a
decrease in bad debt expense. The change of $74,658 in fiscal 1997 from fiscal
1996 was attributable to lower interest income and higher bad debt expense.
Loss on Litigation Settlement:
The net loss on litigation settlement amounted to $900,000 in fiscal
1998. This amount represents cash payments of $2,300,000 (including $670,000 in
a short-term note payable) plus legal and other costs, less the value of assets
acquired of $1,500,000. (See discussion under "Liquidity and Capital Resources"
above and Note 7 to Consolidated Financial Statements.)
Taxes (Tax Benefit) on Income:
In fiscal 1998, the effective tax rate (benefit) was 35.0%, compared
to 27.9% in fiscal 1997. The fiscal 1996 rate was 32.3%. The lower tax rate of
27.9% in fiscal 1997 reflects tax savings resulting from the Company's
significant foreign export revenues and its participation in a shared foreign
sales corporation.
Net Income (Loss)
In fiscal 1998, the Company realized a net loss of $1,126,031,
compared with net income of $1,148,982 reported for fiscal 1997. The earnings
decline in fiscal 1998 was attributable to the litigation settlement of $900,000
recorded in 1998 and the decline in the Company's revenues resulting from the
economic crisis in Asia.
The average shares outstanding were 1,514,728, 1,516,466 and 1,560,618
for fiscal years 1998, 1997 and 1996. The unexercised options and warrants are
antidilutive for all periods.
Effects of Inflation:
During fiscal 1998 and fiscal 1997, 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.
FORWARD-LOOKING STATEMENTS
Certain forward-looking statements are made in this Management's
Discussion and Analysis and Message to Shareholders in this Annual Report. The
Company's results may differ materially from those in the forward-looking
statements. Forward-looking statements are based on management's current views
and assumptions, and involve risks and uncertainties that significantly affect
expected results. For example, operating results may be affected by external
factors. Such factors include, but are not limited to, changes in the regulatory
environment, general conditions in the environmental industry, the Company's
competitive position, and economic conditions in international markets.
-5-
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS (Note 8)
CURRENT:
Cash and cash equivalents $ 1,171,097 $ 4,894,371
Receivables:
Trade, less allowance of $99,324 and $113,476 for
possible losses 2,432,605 2,683,989
Other 63,285 139,595
Income taxes 1,354,594 43,602
Costs and estimated earnings in excess of billings on
uncompleted contracts (Note 1) 4,686,555 5,836,898
Inventories (Note 2) 2,341,955 2,566,179
Prepaid expenses 82,819 66,581
Current maturities of long-term note receivable (Note 3) 490,000 300,000
Deferred income taxes 148,730 432,114
----------- -----------
TOTAL CURRENT ASSETS 12,771,640 16,963,329
RESTRICTED CASH (Note 4) 1,036,000 1,036,000
NOTE RECEIVABLE, less current maturities (Note 3) - 490,000
EQUIPMENT HELD FOR RESALE (Note 5) 490,000 670,000
PROPERTY AND EQUIPMENT, less accumulated depreciation (Note 6) 1,573,913 1,661,962
DEFERRED INCOME TAXES (Note 9) 601,513 433,942
PROPERTY HELD FOR SALE (Note 7) 1,500,000 -
OTHER ASSETS 111,051 130,732
----------- -----------
$18,084,117 $21,385,965
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable (Note 7) $ 670,000 $ -
Accounts payable 2,025,031 4,069,018
Accruals:
Compensation 254,704 350,986
Warranty 333,000 1,009,700
Miscellaneous 603,872 394,314
Billings on uncompleted contracts in excess of cost and
estimated earnings (Note 1) 6,113 117,721
Current maturities of long-term debt (Note 8) 775,000 494,736
Deferred income taxes (Note 9) 531,164 189,254
----------- -----------
TOTAL CURRENT LIABILITIES 5,198,884 6,625,729
LONG-TERM DEBT, less current maturities (Note 8) - 775,000
DEFERRED INCOME TAXES (Note 9) 21,790 102,917
----------- -----------
TOTAL LIABILITIES 5,220,674 7,503,646
----------- -----------
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 1,515,571 and 1,512,198 156,164 156,164
Additional paid-in capital 2,905,801 2,905,801
Treasury stock; 46,064 and 49,437 shares, at cost (295,733) (319,760)
Retained earnings 9,904,257 11,030,288
Foreign currency translation adjustment 192,954 109,826
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 12,863,443 13,882,319
----------- -----------
$18,084,117 $21,385,965
=========== ===========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
-6-
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Contracts $12,334,981 $21,074,139 $20,112,990
Sales 1,974,274 2,030,197 1,881,427
Other 16,835 39,336 32,091
----------- ----------- -----------
14,326,090 23,143,672 22,026,508
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of contracts and sales 12,462,027 18,195,528 17,773,950
Selling, general and administrative 2,844,874 3,463,862 3,763,962
Interest and other income (147,780) (109,200) (183,858)
Loss on litigation settlement (Note 7) 900,000 - -
----------- ----------- -----------
16,059,121 21,550,190 21,354,054
Income (loss) from operations before
taxes on income (1,733,031) 1,593,482 672,454
TAXES (TAX BENEFIT) ON INCOME/LOSS (NOTE 9) (607,000) 444,500 217,400
----------- ----------- -----------
NET INCOME (LOSS) $(1,126,031) $ 1,148,982 $ 455,054
=========== =========== ===========
AVERAGE SHARES AND EQUIVALENT SHARES
OUTSTANDING 1,514,728 1,516,466 1,560,618
=========== =========== ===========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE $ (0.74) $ 0.76 $ 0.29
=========== =========== ===========
</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, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
Foreign
Additional Currency
Common Stock Paid-In Retained Treasury Translation
--------------------
Shares Amount Capital Earnings Stock Adjustment
--------- -------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
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
Net income - - - 1,148,982
Purchase of treasury stock (40,000) - - - (246,875)
Issuance of treasury stock 7,563 - - - 44,428
Change in translation adjustment - - - - - (192,607)
--------- -------- ---------- ----------- --------- ---------
BALANCE, SEPTEMBER 30, 1997 1,512,198 156,164 2,905,801 11,030,288 (319,760) 109,826
Net loss - - - (1,126,031) - -
Issuance of treasury stock 3,373 - - - 24,027 -
Change in translation adjustment - - - - - 83,128
--------- -------- ---------- ----------- --------- ---------
BALANCE, SEPTEMBER 30, 1998 1,515,571 $156,164 $2,905,801 $ 9,904,257 $(295,733) $ 192,954
========= ======== ========== =========== ========= =========
</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,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $(1,126,031) $ 1,148,982 $ 455,054
Items in income from operations not affecting cash:
Depreciation and amortization 215,949 258,431 279,086
Provision for valuation of soil processor unit 180,000 361,554 360,000
Deferred income taxes 364,446 (228,560) (352,563)
Loss on sales of fixed assets - 893 (14,698)
Cash provided by (used for)
Trade and other receivables 352,290 (316,478) 2,722,972
Refundable income taxes (116,031) 14,220 134,983
Costs and estimated earnings in excess of billings on
uncompleted contracts 1,150,343 284,512 (261,758)
Inventories 240,845 (635,290) (276,656)
Prepaid expenses (13,524) 56,133 (85,747)
Accounts payable (2,064,978) (863,577) 486,689
Accrued expenses (1,758,599) 445,098 (194,080)
Increase in notes payable from litigation settlement 670,000 - -
Billings on uncompleted contracts in excess of costs
and estimated earnings (111,608) 104,302 (177,298)
Other 6,740 (31,604) (100,624)
----------- ----------- -----------
Cash provided by (used for) operating activities (2,010,158) 598,616 2,975,360
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in restricted cash - 112,000 (1,148,000)
Assets received in litigation settlement (1,500,000) - -
Collection of note receivable 300,000 300,000 100,000
Proceeds from sale of fixed assets - 1,182 35,748
Capital expenditures (62,519) (161,073) (402,830)
----------- ----------- -----------
Cash provided by (used for) investing activities (1,262,519) 252,109 (1,415,082)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long term loan - - 1,000,000
Reduction in long-term debt (494,736) (943,755) (956,644)
Issuance (purchase) of common stock 24,027 (202,447) (117,313)
----------- ----------- -----------
Cash used for financing activities (470,709) (1,146,202) (73,957)
----------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 20,112 (10,948) (37,162)
----------- ----------- -----------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) during the year (3,723,274) (306,425) 1,449,159
Balance at beginning of year 4,894,371 5,200,796 3,751,637
----------- ----------- -----------
BALANCE AT END OF YEAR $ 1,171,097 $ 4,894,371 $ 5,200,796
=========== =========== ===========
</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 in consolidation.
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 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.
Due to the relatively large nature of the Company's typical contract,
individual contracts may represent significant portions of trade receivables and
costs and estimated earnings in excess of billings on completed contracts.
During fiscal year 1998, one contract represented 27 percent of trade
receivables. Additionally, two contracts represented 57 percent of costs and
estimated earnings in excess of billings on completed contracts; both of these
latter two contracts are supported by irrevocable letters of credit.
At September 30, 1998, 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 fiscal year 1998, the Company charged $180,000 to operations.
During fiscal years 1997 and 1996, the Company charged $361,554 and $360,000 to
operations, respectively. 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 5.
At September 30, 1998, the Company holds property and equipment with an
estimated carrying value of $1,500,000 received from the net settlement of
certain outstanding litigation existing in prior years.
-10-
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
Management has based this estimated valuation on the results of marketing this
property to interested third parties. Actual results could differ from this
estimate.
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 and
consists of incineration equipment, raw materials and supplies to be used on job
sites. 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
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. Deferred tax assets are
reflected net of valuation allowances, if any, if it is more likely than not
that such assets will be realized.
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.
During fiscal 1997, the Company has adopted the disclosure-only positions
of SAFS No. 123, "Accounting for Stock Based Compensation," but applies
Accounting Principles Board Opinion No. 25 and related interpretations in
accounting for its stock option plans. The adoption of SFAS No. 123 did not have
any material effect on the Company's earnings for the periods presented in these
financial statements.
-11-
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
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.
RESEARCH AND DEVELOPMENT
Research and development expenditures are expensed in the year incurred.
For the periods presented 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 1998, 1997
and 1996 totaled approximately $22,507, $22,690, and $21,397, 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 $98,909, $101,504, and $91,275 for
the years ended September 30, 1998, 1997 and 1996, respectively. Income taxes
paid were approximately $361,000, $466,000 and $845,000 during the same periods.
In connection with certain litigation and settlement and acquisitions of assets
received, the Company incurred debt of $670,000.
-12-
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
NOTE 1. CONTRACTS IN PROGRESS
Information relative to contracts in progress is as follows:
<TABLE>
<CAPTION>
September 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Costs and estimated earnings of $6,487,987 and $6,539,071 $26,354,348 $24,450,994
Billings applicable thereto (21,673,906) (18,731,817)
----------- -----------
Net Amount $ 4,680,442 $ 5,719,177
=========== ===========
Included in the accompanying balance sheets in:
Current assets $ 4,686,555 $ 5,836,898
Current liabilities (6,113) (117,721)
----------- -----------
Net Amount $ 4,680,442 $ 5,719,177
=========== ===========
</TABLE>
NOTE 2. INVENTORIES
Inventories were $2,341,955 and $2,566,179 as of September 30, 1998 and
September 30, 1997. Included in inventories at September 30, 1998 and 1997 is
approximately $1,761,000 related to incineration equipment purchased from a
former competitor.
NOTE 3. NOTE RECEIVABLE
During 1994, the Company sold the net assets of its plastics business to
a single buyer for $7.1 million. Approximately $5.9 million was received in cash
and the remainder was due from the buyer under a $1.2 million note agreement.
This note bears interest at 7% per annum. 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 and two payments of $150,000 each were
received during March and September 1997 and March and September 1998. As of
September 30, 1998, the balance due under the note was $490,000 which is due on
September 30, 1999.
NOTE 4. RESTRICTED CASH
As of September 30, 1998, $1,036,000 of the Company's short-term cash
investments were held by banks as collateral for an outstanding letter of
credit. The letter of credit expires in 1999. (See Note 8).
NOTE 5. 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
sale 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 1998 and 1997, the
carrying value of this unit has been reduced to $490,000 and $670,000,
respectively. These adjustments to the carrying value have been charged to
operations in each respective year.
NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
September 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Land $ 461,933 $ 452,347
Buildings 2,028,806 1,945,121
Machinery and equipment 948,578 975,071
Office furniture and fixtures 1,023,855 991,493
Vehicles 97,401 94,752
----------- -----------
4,560,583 4,458,784
Less accumulated depreciation (2,986,670) (2,796,822)
----------- -----------
Net property and equipment $ 1,573,913 $ 1,661,962
=========== ===========
</TABLE>
Depreciation expense amounted to $193,450, $221,805 and $249,086 for the
fiscal years ended September 30, 1998, 1997 and 1996 respectively.
-13-
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
NOTE 7. LITIGATION SETTLEMENT
During fiscal 1998, the Company settled the litigation over principal and
interest for certain Kansas property formerly occupied by Struthers Thermo-Flood
Corporation, a former Crown Andersen subsidiary. Under terms of the settlement,
the Company paid $1,630,000 in cash and issued a one year, non-interest bearing
promissory note in the amount of $670,000. In exchange, the Company received
the rights (without further obligation) to transfer title of this property to a
purchaser or to the Company. The Company is in the process of negotiations with
potential purchasers. The estimated value of these assets is presently
$1,500,000. This transaction was recorded as of June 30, 1998 and the Company
recognized a net loss of approximately $900,000. The Company's September 30,
1998 balance sheet includes these assets as "property held for sale" and the
note payable of $670,000.
NOTE 8. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
September 30,
--------------------
1998 1997
-------- ----------
<S> <C> <C>
Non-interest bearing,discounted to 8.25% note,
payable to a corporation; face amount of
$1,020,000; paid in 1998. $ - $ 394,736
Note, payable to a bank in 31 monthly payments
of $8,333 plus interest at the prime rate
(8.50% at September 30, 1998), balance
of $741,667 payable on February 28, 1999 775,000 875,000
-------- ----------
TOTAL 775,000 1,269,736
Less current maturities 775,000 494,736
-------- ----------
Total long-term debt $ - $ 775,000
======== ==========
</TABLE>
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, 1999. As of September 30, 1998, letters of credit
amounting to $2.0 million had been issued against this line of credit and the
amount of $3.0 million remained available for borrowings. The Company also has
a $400,000 line of credit at a Dutch bank. Property and equipment, inventories
and trade accounts receivable at Montair totaling $1,777,526 at September 30,
1998 are pledged as collateral to one Dutch bank for the Dutch line-of-credit.
No borrowings had been made against this Dutch line of credit as of September
30, 1998.
The weighted average interest rate on the U.S. line-of-credit was
approximately 8.50% during 1998 and 1997, 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
Company is not in compliance with certain provisions under their U.S. bank line
of credit. The Company has obtained waivers from the financial institution for
this condition through September 30, 1998 and anticipates that the financial
institution will continue to grant waivers through the maturity of the line of
credit in March 1999.
Interest expense for all debt during fiscal 1998, 1997 and 1996 totaled
approximately $104,174, $170,880, and $91,300, respectively.
-14-
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. TAXES ON INCOME
The components of income (loss) before taxes on income consisted of the
following:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
U.S. Operations $(1,838,195) $1,097,696 $ 548,450
The Netherlands Operations 105,164 495,786 124,004
------------ ------------ -----------
$ 1,733,031 $1,593,482 $ 672,454
============ ============ ===========
</TABLE>
Significant components of the provision for income taxes attributable are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------
1998 1997 1996
---------- ---------- -----------
<S> <C> <C> <C>
Current:
Federal $(928,841) $ 462,426 $ 397,817
Foreign (15,075) 191,506 136,754
State (39,680) 19,812 37,004
--------- --------- ----------
(983,596) 673,744 571,575
--------- --------- ----------
Deferred (reduction):
Federal 354,364 (177,032) (249,941)
Foreign 51,090 (20,972) (91,250)
State (28,858) (31,240) (12,984)
-------- --------- ----------
376,596 (229,244) (354,175)
--------- --------- ----------
Total taxes on income $(607,000) $ 444,500 $ 217,400
========== ========= ==========
</TABLE>
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. The sources of temporary
differences and their effect on deferred taxes are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
-------------------------------- --------------------------------
Deferred Deferred Tax Deferred Deferred Tax
Tax Assets Liabilities Tax Assets Liabilities
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Basis in Kansas building $ - $ 249,517 $ - $ -
State net operating loss 99,170 - 13,342 -
Deferred gain on sale of plastics business - 79,310 - 127,868
Valuation allowance - equipment held for resale 502,343 - 433,942 -
Warranty accrual 83,600 - 342,000 -
Work in process - 202,337 - 140,842
Property and equipment - 21,790 - 23,461
Compensation accruals 30,818 - 45,612 -
Allowance for accounts receivable, inventories and other 34,312 - 31,160 -
---------- ------------ --------- ------------
$ 750,243 $ 551,954 $ 866,056 $ 292,171
========== ============ ========= ============
</TABLE>
-15-
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. TAXES ON INCOME (CONTINUED)
The effective tax rates on income/loss 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,
-----------------------------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Taxes (benefit) at statutory rate (34.0%) 34.0% 34.0%
Increase (reduction) in taxes realized from:
Foreign tax difference .2 (0.1) 0.4
State income taxes, net of federal tax benefit (2.7) 0.1 2.3
Permanent differences .7 0.7 -
Foreign sales corporation - 3.9 -
Other .8 (2.9) (4.4)
---- ---- ----
(35.0%) 27.9% 32.5%
==== ==== ====
</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 20,000 shares of common stock. Each year warrants vest
for the purchase of 2,000 shares until all warrants are vested. During
fiscal year ended September 30, 1998, warrants to purchase 40,000 shares of
common stock at an average price of $4.23 per share were granted under the
newly adopted 1998 Directors Warrant Plan, and at September 30, 1998,
14,000 warrants were vested.
During fiscal year ended September 30, 1998, options to purchase
100,000 shares of common stock at a price of $4.25 per share were granted
under the newly adopted 1998 Incentive Stock Option Plan. As of September
30, 1998, there were options to purchase 144,000 shares outstanding under
the Incentive Stock Option Plan at an average exercise price of $4.92 and
warrants to purchase 55,000 shares of common stock at an average price of
$5.94.
The Company has adopted the disclosure-only provision of SFAS No. 123,
"Accounting for Stock-Based Compensation." The fair value of stock options
granted in each earnings per share disclosure presented is the estimated
present value at the grant date using the Black-Scholes option pricing
model with the following weighted average assumptions: zero dividend yield;
expected volatility of 25%; a risk-free interest rate of 5.50% (5.05% for
1996): and expected option life of five years. No proforma disclosures
showing the effect on net income and earnings per share has been issued as
the amounts are not material to operations and do not effect earnings per
share.
The following tables summarizes activity on stock options and warrants:
<TABLE>
<CAPTION>
OPTIONS WARRANTS
------------------------------------- -----------------------------------
Weighted Average Weighted Average
No. Of Shares Exercise Price No. Of Shares Exercise Price
------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
Outstanding at September 30, 1995 76,300 $ 8.58 42,688 $ 9.49
Granted 12,000 7.50 - -
Expired Or Cancelled (5,900) 8.22 (17,688) $12.13
-------- ------ ------- ------
Outstanding At September 30, 1996 82,400 8.44 25,000 11.15
Granted - - - -
Expired Or Cancelled (33,600) 10.55 (10,000) 12.13
------- ------ ------- ------
Outstanding At September 30, 1997 48,800 7.00 15,000 $10.50
Granted 100,000 4.25 40,000 4.23
Expired Or Cancelled (4,800) 12.13 - -
-------- ------ -------- ------
Outstanding At September 30, 1998 144,000 $ 4.92 55,000 $ 5.94
-------- ------ -------- ------
</TABLE>
-16-
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. STOCK OPTIONS AND WARRANTS (CONTINUED)
Weighted average fair value of options granted during the year ended:
September 30, 1996 $ 4,565
September 30, 1997 $ -
September 30, 1998 $199,901
The weighted average remaining life of options and warrants outstanding
at September 30, 1998 was five years. The range of exercise prices was $4.19 -
$12.13.
NOTE 11. SEGMENT INFORMATION AND MAJOR CUSTOMERS
The Company's operations comprise a single industry segment, pollution
control systems. Information regarding the Company's geographic segments of its
operations is set forth below.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1998 1997 1996
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Revenues:
U.S. operations
Domestic $ 5,448 $ 3,217 $ 4,255
Export 5,305 14,954 11,991
The Netherlands operations 3,573 4,973 5,781
------- ------- -------
Total $14,326 $23,144 $22,027
======= ======= =======
Income (loss) before taxes:
U.S. operations $(1,838) $ 1,098 $ 548
The Netherlands operations 105 496 124
------- ------- -------
Total $(1,733) $ 1,594 $ 672
======= ======= =======
Identifiable assets:
U.S. operations $15,516 $18,776 $18,899
The Netherlands operations 2,568 2,610 3,549
------- ------- -------
Total $18,084 $21,386 $22,448
======= ======= =======
</TABLE>
During fiscal year 1998 one customer accounted for 26% of the Company's
consolidated revenues and in 1997 one customer accounted for 28% of the
consolidated revenues. In fiscal 1996 two customers accounted for 35% (18% and
17%) of the Company's consolidated revenue. 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 two officers with expiration
dates through 2001. Under the terms of the agreements, the salaries range from
$95,000 to $160,000, 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, disloyalty, 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:
-17-
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
S. P. Construction Company, et al, V. Andersen 2000 Inc., et al. This claim
- ---------------------------------------------------------------
involves a suit by various 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. Plaintiff's 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. This case has been
dormant for several years, with no activity of any kind. The Company believes it
has no liability of any sort in this case and will defend this position
vigorously if the case ever becomes active again. However, the Company believes
that this case may have been dropped by the Plaintiffs and will ask that the
case be dismissed in fiscal 1999.
Georgia Gulf Corporation V. Andersen 2000 Inc. On October 16, 1996, Georgia Gulf
- ---------------------------------------------
Corporation ("Georgia Gulf") filed suit against Andersen alleging that Andersen
has violated a contractual agreement by and between the parties, dated on our
about November 9, 1990, pursuant to which Andersen 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
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, resulting in damages to Georgia
Gulf in excess of $10,000,000. The $10,000,000 figure is a modification of the
former $3,000,000 claim as prayed for in Georgia Gulf's original complaint.
Relying in part on allegations made in the related federal lawsuit filed
by Andersen against the Nebraska Boiler Company, Georgia Gulf moved for partial
summary judgment on the issue of liability. The district court granted Georgia
Gulf's motion and rendered summary judgment in favor of Georgia Gulf on June 18,
1997 on the issue of liability only. On October 29, 1997, Andersen filed its
original brief to the Court of appeals for the First Circuit of Louisiana
alleging that jury questions remain as to various affirmative defenses.
Subsequent to the court's granting of summary judgment in its favor and after
Andersen filed its notice of appeal, Georgia Gulf filed an amended complaint on
October 15, 1997. In its amended complaint, Georgia Gulf increased the amount of
damages it is seeking to include both past and future lost profits in the amount
of $10,000,000 allegedly resulting from the shutdown of the boiler for repair
work. In addition, Georgia Gulf has added Andersen's insurance carrier, Twin
City Fire Insurance Company, as a defendant to this action.
On September 25, 1998, the Court of Appeals reversed the trial court's
grant of summary judgment in favor of Georgia Gulf. The ruling was based on the
existence of genuine issues of fact which remain for a jury's resolution.
Georgia Gulf has filed an application for writ of certiorari to the Louisiana
Supreme Court seeking a review of the Court of Appeals' ruling reversing the
trial court's summary judgment Order in favor of Georgia Gulf. If the Court of
Appeals' ruling is upheld, the case will be returned to the lower court for a
trial on liability and damages. The Company and its legal counsel are optimistic
that the decision of the Court of Appeals will be upheld. 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.
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.
(c) Montair operates in the Netherlands, and will be affected by the
impending European Monetary Union conversion of their monetary system to the
Euro dollar. Management believes that the effects of the currency translation,
and cost of implementation of the conversion to the accounting system and
information systems, is not expected to have a significant impact on the
Company's financial position or results of operations.
-18-
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME ("SFAS
130"), which establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity, except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS 130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements.
SFAS 130 is effective for financial statements for period beginning
after December 15, 1997 and requires comparative information for earlier years
to be restated. Results of operations and financial position will be unaffected
by implementation of this standard.
The FASB has issued SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information." This statement provides guidelines for
disclosure of financial performance data for identifiable business units and is
effective for fiscal years beginning after December 15, 1997, and when adopted,
will not affect the Company's current disclosures.
In February 1998, the Financial Accounting Standards Board issued
Statement of financial Accounting Standards No. 132, "Employers Disclosures
about Pension and Other Postretirement Benefits" ("SFAS 132"). SFAS 132 revises
employers' disclosures about pension and other postretirement benefit but does
not change existing measurement or recognition requirements related to such
plans. SFAS 132 also requires additional information on changes in the benefit
obligations and fair values of plan assets. The Company does not currently offer
postretirement benefits and anticipates that the adoption of SFAS 132 will not
have an effect on the Company's financial position or results of operations.
In June 1998, the Financial Accounting Standards board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments," ("SFAS 133"). SFAS 133 requires that an entity recognize all
derivatives as either assets or liabilities and measure those instruments as
fair market value. Under certain circumstances, a portion of the derivative's
gain or loss is initially reported as a component of other comprehensive income
and subsequently reclassified into income when the transaction affects earnings.
For a derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. The Company does not currently use
derivative instruments either in hedging activities or for investment purposes.
Accordingly, the Company anticipates that the adoption of SFAS 133 will not have
an effect on the Company's financial position or results of operations.
NOTE 14. SUBSEQUENT EVENT (AS OF DECEMBER 16, 1998)
On December 16, 1998 the Company purchased all the outstanding shares
of stock of Griffin Environmental Company, Inc. ("Griffin"). Griffin is a
manufacturer of fabric filter and cartridge dust collector pollution control
equipment. Griffin sells its pollution control equipment to a wide variety of
industries, including concrete, steel, other metals, clays, paper, glass, and
other industries.
The Company purchased Griffin for $2.5 million. This was comprised of
cash of $2.2 million and a one-year promissory note of $271,000 secured by a
second mortgage on the real estate. The note bears interest at 4.33% payable
monthly and the principal is due on December 16, 1999.
The acquisition includes the purchase of assets comprised primarily of
inventories, accounts receivable, and property, plant, and equipment.
Liabilities assumed in the acquisition consist primarily of trade accounts
payable, customer deposits, long term debt, and other accrued liabilities. The
transaction will be accounted for under the purchase method of accounting
whereby all assets and liabilities will be valued at their current fair market
value at December 16, 1998.
-19-
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended September 30, 1998. 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, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1998, in conformity with generally
accepted accounting principles.
BDO SEIDMAN, LLP
Atlanta, Georgia
December 11, 1998 (except for Note 14, which is as of December 16, 1998)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
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 215 shareholders of
record as of December 16, 1998, in addition to approximately 1,800 beneficial
holders.
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30, 1998
------------------
HIGH LOW
------ -----
<S> <C> <C>
FISCAL QUARTER
First $6.96 $6.75
Second 6.50 5.63
Third 4.50 3.19
Fourth 2.50 2.50
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30, 1997
------------------
HIGH LOW
------ -----
<S> <C> <C>
FISCAL QUARTER
First $6.63 $5.63
Second 7.00 5.38
Third 7.00 5.75
Fourth 8.25 6.38
</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 to the Notes to Consolidated Financial
Statements.
-20-
<PAGE>
CROWN ANDERSEN INC.
<TABLE>
<CAPTION>
CORPORATE OFFICERS AND DIRECTORS SUBSIDIARIES TRANSFER AGENT
<S> <C> <C>
ANDERSEN 2000 INC. Wachovia Bank and Trust Company
JACK D. BRADY 306 Dividend Dr. Winston-Salem, North Carolina 27102
Chairman of the Board, President, Peachtree City, GA 30269
and Chief Executive Officer 1 (770) 486-2000 LEGAL COUNSEL
FAX: 1 (770) 487 5066
JACK C. HENDRICKS Decker & Hallman, P.C.
Vice Chairman of the Board Atlanta, Georgia
(Retired President of Company) Jack D. Brady
Chairman and CEO AUDITORS
RICHARD A. BEAUCHAMP
Director Thomas Van Remmen BDO Seidman, LLP
(Retired President, Ameritruck President and COO Atlanta, Georgia
Distribution Corp.)
(Contract transportation company) Kenny M. Graves ANNUAL MEETING
Senior Vice President
LESTER K. LEGATSKI The 1999 Annual Meeting of Stockholders
Director John M. Golumbeski will be held on February 10, 1999, at
(President, CelTech, Inc.) Vice-President, Manufacturing 10:00 a.m. at the Company's corporate
(Development and application of offices, 306 Dividend Drive, Peachtree
membrane technology for liquid Jay Kaufman City, Georgia.
separations) Vice-President, Purchasing
THOMAS VAN REMMEN Randall Morgan
Director Vice-President, Finance and
(President of Andersen 2000 Inc.) Controller/Treasurer
MICHAEL P. MARSHALL Milton Emmanuelli
Director Secretary
(President of Marshall & Co.)
(Private Investment Company) MONTAIR ANDERSEN BV
Heuvelsestraat 14
MILTON EMMANUELLI 5976 NG
Chief Financial Officer and Sevenum, Holland
Controller/Treasurer 31 77 467 2473
FAX: 31 77 467 3012
RANDALL MORGAN
Secretary A.T.J. Wagemans, Managing Director
Jack D. Brady, Director
Rene Francken
Manager, Administration And Sales
</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, 1998, 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
-21-
<PAGE>
EXHIBIT 21 - SUBSIDIARIES
-------------------------
CROWN ANDERSEN INC.
A Delaware Corporation
306 Dividend Drive
Peachtree City, Georgia 30269
Phone: 1 (770) 486 2000
Fax: 1 (770) 487 5066
Andersen 2000 Inc.
A Delaware Corporation
306 Dividend Drive
Peachtree City, Georgia 30269
Phone: 1 (770) 486 2000
Fax: 1 (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: 31 77 467 2473
Fax: 31 77 467 3012
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 1,171,097
<SECURITIES> 0
<RECEIVABLES> 2,531,929
<ALLOWANCES> 99,324
<INVENTORY> 2,341,955
<CURRENT-ASSETS> 12,771,640
<PP&E> 1,573,913
<DEPRECIATION> 0
<TOTAL-ASSETS> 18,084,117
<CURRENT-LIABILITIES> 5,198,884
<BONDS> 0
0
0
<COMMON> 156,164
<OTHER-SE> 12,707,279
<TOTAL-LIABILITY-AND-EQUITY> 18,084,117
<SALES> 14,309,255
<TOTAL-REVENUES> 14,326,090
<CGS> 12,462,027
<TOTAL-COSTS> 16,059,021
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (147,780)
<INCOME-PRETAX> (1,733,031)
<INCOME-TAX> (607,000)
<INCOME-CONTINUING> (1,126,031)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,126,031)
<EPS-PRIMARY> (0.74)
<EPS-DILUTED> (0.74)
</TABLE>
