<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, 1999
[ ] 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 17, 1999 there were 1,833,822 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 17, 1999
was $10,267,866.
Documents incorporated by reference:
-----------------------------------
Portions of the Registrant's 1999 Annual Report are incorporated by reference in
Part I and Part II hereof. Portions of the Registrant's Proxy Statement for the
2000 Annual Meeting of Stockholders to be held on February 9, 2000 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, 1999
<TABLE>
<CAPTION>
TABLE OF CONTENTS
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PART I
-------
Item No. Page No.
- -------- --------
<S> <C> <C>
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
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14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 11
Signatures 15
Index to Financial Statement Schedules 19
</TABLE>
2
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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.
On December 16, 1998, the Company purchased all of the outstanding stock of
Griffin Environmental Company, Inc. ("Griffin"). Griffin, based in Syracuse, New
York, is a manufacturer of fabric filter and cartridge dust collectors, product
recovery and pollution control equipment.
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, and the term "Griffin" refers to
Griffin Environmental Company, Inc.
Business and Products
---------------------
Andersen began operations in 1971 as a manufacturer of particle sizing
instrumentation used primarily in the air pollution control field. In fiscal
1975, Andersen acquired a limited industrial air pollution control equipment
line. During fiscal 1978, Andersen sold the particle sizing instrumentation
segment of its business and expanded its industrial pollution control equipment
segment. In fiscal 1982, Andersen embarked on a program designed to expand its
industrial manufacturing capabilities into related product areas. As a result of
that program, Andersen began to manufacture and sell heavy duty industrial fans
and condensing heat exchange equipment in fiscal 1983. In fiscal 1984, Andersen
began to design, manufacture, and sell chemical and industrial waste
incineration systems as well as spray dryers and began to offer contract
chemical and mechanical engineering services. 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 and controlled air 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 equipment because of their dirty or
corrosive nature. These heat recovery systems are used primarily by the chemical
industries and food processing industries.
3
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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.
Griffin designs, manufactures, and sells a line of fabric filters and
cartridge dust collectors, process recovery and pollution control equipment for
a variety of industries, including chemicals, food processing, concrete, steel,
other metals, clays, paper, glass, and other industries.
Sales and Distribution
----------------------
In general, Andersen's and Griffin's products are marketed to various
industrial manufacturing concerns in the United States by independent sales
representatives in exclusive territories. Sales of Griffin and Andersen products
are made in all regions of the country, with no one region serving as a dominant
market for these products. International sales result from the efforts of
Andersen, Griffin, and Montair Andersen employees, independent sales
representatives in many countries, and by licensee companies in those countries
where the technology has been licensed. Montair also 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.
Griffin owns a modern manufacturing facility in Syracuse, New York. The
property is located on 10 acres of land and includes a 60,000 square feet
manufacturing and office building.
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, the Syracuse
location, and in the Sevenum, Netherlands location is owned by Andersen,
Griffin, and Montair Andersen,
4
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respectively. With the exception of extremely heavy plate fabrication (over 1/2"
thick), these facilities are capable of manufacturing all of the products
offered by Andersen, Griffin, 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 and
Griffin have adopted the practice of purchasing from more than one of these
suppliers on a routine basis in an effort to insure adequate continuing sources
of supply for subcontracted items in the future. The Company has trained a
number of employees in inspection procedures and in quality control to ensure
that these products are properly manufactured before shipment by the
subcontractors.
Most of the products sold by Andersen and Griffin 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. During
1999 approximately 50% was sold to a customer. 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, however, are manufactured in Andersen's plant in the United
States.
Griffin has occasionally sold its products outside the United States and
Canada, but is only starting its international activities.
Foreign sales in fiscal 1999, 1998, and 1997 accounted for approximately
33%, 62% and 86%, respectively, of the Company's total revenues. Foreign sales
for fiscal 1999, 1998 and 1997 totaled approximately $5.2 million, $8.9 million,
$19.9 million, respectively.
Licensing
---------
Andersen has licensed the manufacture of its products in Japan and India.
During fiscal 1976, Andersen licensed a Japanese firm to manufacture and sell
HEAF(R) and CHEAF(R) gas filtration products in the Far East. Andersen was paid
an initial fee of $70,000 and then established a royalty arrangement for future
sales. The royalty arrangement included a minimum royalty payment on an annual
basis. In late fiscal 1977, Andersen negotiated a transfer of its license to a
second Japanese firm. The second Japanese firm was active in sales of the
HEAF(R) and CHEAF(R) equipment and installed more than 300 systems in Japan
under license from Andersen. This agreement expired in late 1991, and the
Japanese licensee agreed with Andersen to maintain a formal sales cooperation
arrangement in Japan and Korea whereby the Japanese licensee is still allowed
use of the HEAF(R) and CHEAF(R) technologies in Japan and Korea in exchange for
providing sales leads to Andersen for all other Far Eastern countries.
In fiscal 1986, Andersen negotiated a license agreement with Paramount
Pollution Control Pvt Ltd in Baroda, India. Andersen licensed manufacture of all
of its product lines, including those manufactured by Montair Andersen, to the
Indian firm. This agreement called for an initial payment of $85,000 to Andersen
for initial technical exchange and training, followed by royalties calculated as
a percentage of product sales in India in the future. An extension of this
agreement was signed in 1997 for five years.
Griffin licenses a cartridge filter system from a private company in the
United States.
5
<PAGE>
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
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.
Griffin competes with more than 20 companies which offer similar products
in the United States. Some are larger than and some are smaller than Griffin.
Principal Customers
-------------------
During 1999 one customer accounted for approximately 22% of the Company's
consolidated revenues. 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:
<TABLE>
<CAPTION>
<S> <C>
September 30, 1999 - $12,817,698
September 30, 1998 - $10,744,615
September 30, 1997 - $ 9,171,100
September 30, 1996 - $12,299,320
</TABLE>
The increase in backlog in 1999 reflects orders received by Montair and
Griffin. The total backlog had risen to $14,357,653 at the end of October 1999
with new orders at Andersen.
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.
Griffin has never encountered materials shortages which resulted in
production delays.
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 or
Griffin 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 and Griffin's obligation is generally limited to the repair or
replacement of the defective parts. All equipment not manufactured by Andersen
or Griffin 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, 1999, Andersen has established a $120,000 reserve for future
warranty repairs and Griffin had established a $15,000 reserve for warranty
claims.
7
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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
1999, 1998 and 1997.
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 2000. 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 116 individuals as of
September 30, 1999, including 12 officers, 81 technical and manufacturing
people, and 23 others engaged in financial, sales, and secretarial activities.
Approximately 70% of these people are employed at the Peachtree City, Georgia
and at the Syracuse, New York facilities by either Andersen, Griffin, or by the
Company, and 30% are employed at Montair Andersen's Sevenum, The Netherlands
plant.
Seasonal Nature of Business
---------------------------
Andersen's and Griffin's business has not been seasonal in prior years.
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.
Griffin owns its facility in Syracuse, New York, which includes 60,000
square feet of office and manufacturing space located on ten acres of land.
8
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The Company's (through a defunct subsidiary - Struthers Thermo-Flood Corp.)
properties in Winfield, Kansas consisted of six buildings on 13 acres of land,
all of which were owned under capital leases by Thermo-Flood. These facilities
contained approximately 137,400 square feet of manufacturing space and 20,000
square feet of office area. The Company abandoned the Thermo-Flood property in
1992, but received the rights to re-acquire this 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 1999 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 1999 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
1999.
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
15, 1999 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 56 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 65 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 42 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 51 Secretary of the Company since 1994;
Secretary/Treasurer from 1985 to 1992; Vice President
and Secretary of Andersen since 1979.
Thomas Graziano 56 Director of the Company, President of Griffin
Environmental Company, Inc. since April 1999; Self-
employed (consultant) 1997 to 1998; President, Howden
Fan Company 1998 - January 1999; Senior Vice
President, Fischback and Moore, 1994 to 1996.
</TABLE>
9
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The Company has no paid officers. All officers of the Company are also
officers of one or more subsidiaries and are paid by such subsidiaries. See
"Item 11. Executive Compensation."
The executive officers of the Company and its subsidiaries are elected
annually by the respective Boards of Directors and serve at the discretion of
such Boards.
PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
- --------------------------------------------------------------------------
MATTERS
- -------
Information relating to the market for, holders of and dividends paid on
the Company's common stock is set forth under the caption "Common Stock
Information" in the Company's 1999 Annual Report. Such information is
incorporated herein by reference. The 1999 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, 1999 are set forth under the caption
"Selected Financial Data" in the 1999 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 OPERATIONS
- -------------
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 1999 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, 1999 and
1998 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,
1999, together with the related notes thereto and the report of independent
certified public accountants thereon dated December 17, 1999, are set forth in
the 1999 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, 1999 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 2000 Annual Meeting of Stockholders to be held on February 9, 2000. 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
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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, 2000 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 2000 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 1999 Annual Report
referred to in Item 5 above:
Consolidated Balance Sheets as of September 30, 1999 and 1998;
Consolidated Statements of Income for the three fiscal years ended
September 30, 1999;
Consolidated Statements of Stockholders' Equity for the three fiscal years
ended September 30, 1999;
Consolidated Statements of Cash Flows for the three fiscal years ended
September 30, 1999;
Summary of Accounting Policies;
Notes to Consolidated Financial Statements;
Report of Independent Certified Public Accountants.
(2) Financial Statement Schedules.
The following financial statement schedules are set forth on pages 17
and 18 of this report. All other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission have
been omitted because such schedules are not required under the related
instructions or are inapplicable or because the information required is included
in the consolidated financial statements or notes thereto. See the Index to
Financial Statement Schedules on page 16 hereof.
11
<PAGE>
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>
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- ---------------------------------------------------------------
<S> <C>
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 (Exhibit3(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 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 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
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- ---------------------------------------------------------------
<S> <C>
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* 1999 Annual Report - Filed herewith
21 Subsidiaries - Filed herewith
27 Financial Data Schedule - Filed herewith
</TABLE>
*Portions of the Company's 1999 Annual Report, as indicated in this Annual
Report on Form 10-K, are incorporated herein by reference. Other than as so
noted herein, the 1999 Annual Report is furnished to the Commission solely for
its information and is not deemed to be "filed" with the Commission or subject
to the liabilities of Section 18 of the Securities Exchange Act of 1934.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fiscal quarter ended
September 30, 1999.
(c) Exhibits:
See Item 14 (a)(3) above.
(d) Financial Statement Schedules:
See Item 14 (a)(2) above.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CROWN ANDERSEN INC.
-------------------
(Registrant)
Date: December 20, 1999 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:
/s/ Jack D. Brady Chairman of the Board, December 20, 1999
- -------------------------- President, Principal
Jack D. Brady Executive Officer and
Principal Financial
Officer
/s/ Jack C. Hendricks Director December 20, 1999
- --------------------------
Jack C. Hendricks
/s/ Milton Emmanuelli Controller/Treasurer and December 20, 1999
- -------------------------- Principal Accounting Officer
Milton Emmanuelli
/s/ Richard A. Beauchamp Director December 20, 1999
- --------------------------
Richard A. Beauchamp
/s/ L. Karl Legatski Director December 20, 1999
- --------------------------
L. Karl Legatski
/s/ Thomas Van Remmen Director December 20, 1999
- --------------------------
Thomas Van Remmen
/s/ Michael P. Marshall Director December 20, 1999
- --------------------------
Michael P. Marshall
/s/ Ruyintan E. Mehta Director December 20, 1999
- --------------------------
Ruyintan E. Mehta
/s/ Thomas Graziano Director December 20, 1999
- --------------------------
Thomas Graziano
/s/ Rene C. W. Francken Director December 20, 1999
- --------------------------
Rene C. W. Francken
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 17, 1999, 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, 1999, 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 17, 1999
17
<PAGE>
SCHEDULE II
-----------
CROWN ANDERSEN INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
=====================================================
<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, 1999
- ------------------
Allowance for doubtful $ 99,324 $77,988 $ 2,769 $174,543
accounts =========== ================ ========== =============
September 30, 1998
- ------------------
Allowance for doubtful $113,476 $(7,072) $ 7,080 $ 99,324
accounts =========== ================ ========== =============
September 30, 1997
- ------------------
Allowance for doubtful $120,380 $25,302 $32,206 $113,476
accounts =========== ================ ========== =============
</TABLE>
18
<PAGE>
CROWN ANDERSEN INC.
------------------
INDEX TO EXHIBITS
------------------
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ------------- ------------------------------------------------------------------------------------------ -------
<S> <C> <C>
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)
</TABLE>
19
<PAGE>
<TABLE>
<S> <C>
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* 1999 Annual Report - Filed herewith
21 Subsidiaries - Filed herewith
27 Financial Data Schedule - Filed herewith
</TABLE>
*Portions of the Company's 1999 Annual Report, as indicated in this Annual
Report on Form 10-K, are incorporated herein by reference. Other than as so
noted herein, the 1999 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.
1999
ANNUAL
REPORT
<PAGE>
CROWN ANDERSEN INC.
1999
ANNUAL
REPORT
<PAGE>
MESSAGE TO SHAREHOLDERS
Although we were successful in replacing much of our lost Asian
business with U.S. domestic business in fiscal 1999, we were not able to return
to profitability or to the revenues and earnings levels of the 1995 through 1997
period.
Two projects at Andersen 2000 accounted for the revenues and earnings
shortfalls in 1999. Unfortunately, as a system supplier, Andersen had no control
over either project. The largest was a Resource Conservation and Recovery Act
(RCRA) permitted hazardous waste incineration plant in Louisiana. A Federal and
State Permit to Operate was issued for the plant on February 19, 1999. The $30+
million plant upgrade was started with Andersen as the supplier of the air
pollution control equipment. The plant was the largest such facility in the
world and would have operated at the lowest emission rate of any hazardous waste
incinerator in the world. After several court challenges to the permit,
opponents of the plant were successful in finding a judge in Louisiana who ruled
that the permit had been improperly granted. This stopped any further work on
the project. After investing over $10 million in the project, the owners could
not continue to fund the project with the anticipated continuing litigation. The
plant may never be completed. Instead of Andersen booking in excess of $5
million in revenues and the profits on those revenues, Andersen wrote off some
$100,000+ in engineering, travel, permit review, legal, and meeting costs
associated with helping the owners secure the permit and with starting detailed
design. If the project is ever re-started, these costs may be recovered.
However, we have elected to write them off entirely and the project is not
included in year 2000 projections.
The second project was a Middle Eastern incinerator project where Andersen
was the selected equipment supplier, but where the war in Kosovo delayed the
project start date by more than one year. This multi-unit project will proceed
in 2000 and will continue through at least 2001.
At fiscal year end, our backlog had increased to its highest level in three
years and incoming orders in September remained higher than at any time in 1998
or 1999. The Griffin operation in Syracuse appears headed for a record 2000 and
Montair Andersen in Holland has substantially improved its return on investment,
while entering the new year with its largest backlog ever. Andersen 2000 in
Peachtree City received several large orders at fiscal year end and expected
several more before the end of December 1999.
All of our operations are staffed for anticipated rapid growth and we
expect great improvements in the financial results for 2000. If the Asian
economies continue to improve and if new U.S. regulations (particularly in
hazardous waste processing) are enforced, we should be able to achieve record
revenues and earnings in fiscal 2000.
We have challenged our management at each operation to concentrate on
margin improvements and on increased market share in all product lines. If all
goes per plan, the 2000 Message to Shareholders will be much easier for me to
write and much easier for you to read.
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,
---------------------------------------------
1999 1998 1997 1996 1995
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues from continuing operations $15,680 $14,326 $23,144 $22,027 $21,673
Net Income (Loss) $ (577) $(1,126) $ 1,149 $ 455 $ 1,366
Earnings (loss) per share $ (0.33) $ (0.74) $ 0.76 $ 0.29 $ 0.87
Total Assets $19,747 $18,084 $21,386 $22,448 $20,985
Long-term debt $ 19 $ - $ 775 $ 1,505 $ 621
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, Griffin Environmental Company, Inc.,
headquartered in Syracuse, New York, 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, dust collectors, 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.
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.
In the dust collector line, the Company manufactures fabric filter and
cartridge dust collection, product recovery and pollution control equipment for
a variety of industries, including chemicals, food processing, concrete, steel,
other metals, clays, paper, glass, and other industries.
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 33.3% of
the Company's total revenues in fiscal 1999. This compares to approximately
62.0% and 85.6% of the Company's total revenues in fiscal 1998 and 1997,
respectively. Foreign sales for fiscal 1999, 1998 and 1997 totaled approximately
$5.2 million, $8.9 million and $19.9 million, respectively.
For information pertaining to revenues, income (loss) before taxes and
identifiable assets for each of the Company's geographic areas for the past
three fiscal years, see Note 12 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), Griffin Environmental
Company, Inc. (Griffin), 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 1999, revenues increased 9% to $15.7 million from $14.3 million
in fiscal 1998. The Company incurred a net loss of $576,690 in fiscal 1999, as
compared to a net loss of $1,126,031 in fiscal 1998. Fiscal 1999 results reflect
a decline in revenues from the 1995 -1997 period as a result of the economic
crisis in Asia. The net loss in fiscal 1998 also reflected the cost of
litigation settlement.
Foreign revenues (including export sales by Andersen and sales by Montair)
accounted for 33.3% and 62.0% of total revenues in fiscal years 1999 and 1998,
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, 1999, the Company had cumulative currency
adjustments of $41,500. 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 13 to the
Consolidated Financial Statements for a discussion.
Liquidity and Capital Resources
Cash and cash equivalents of $1,653,516 at September 30, 1999 increased
$482,419 from the September 30, 1998 balance of $1,171,097. The increase
resulted from income tax refunds received during the year, and an increase in
accounts payable. Cash provided by operating activities amounted to $2,307,636.
Cash used for investing activities totaled $1,918,439. This amount includes
$2,296,010 for the acquisition of Griffin and capital expenditures of $112,429
(mostly at Griffin), partly offset by the collection of a note receivable of
$490,000.
Cash provided by financing activities totaled $97,591. This amount reflects
$977,198 received from the sale of Common Stock ($900,000 from a private
placement), offset by reductions in notes payable ($691,735) and long-term debt
($187,872).
Montair operations were profitable in fiscal 1999. However, Montair
realized a negative cash flow from operations as a result of increases in
receivables and inventories. At Andersen, the positive cash flow from operations
was the result of income tax refunds and increases in payables.
As disclosed in Note 6 to the Consolidated Financial Statements, during
1994 the Company repossessed certain equipment 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 active negotiations underway for its sale.
As discussed in Note 13 to Consolidated Financial Statements, on June 17,
1999, the Company filed a claim for arbitration in Singapore seeking to settle a
contractual dispute with a customer in connection with the sale of equipment in
Indonesia. The equipment has been delivered, installed and, in management's
opinion, has operated in accord with the contract. The customer is claiming the
equipment has not met certain performance specifications, but
3
<PAGE>
has provided no evidence to support this position. The Company's claim is for
$2.3 million. As of September 30, 1999, the Company has recorded $1.9 million in
accounts receivable and costs and estimated earnings in excess of billings on
uncompleted contracts associated with this customer. Management believes that it
will prevail and recover the amount claimed in this dispute. Accordingly, no
specific reserve has been established for this matter. The inability of
management to satisfactorily resolve this matter with the customer and collect
the outstanding receivable could have a material unfavorable effect on the
Company's financial position and liquidity.
The Company had a $5.0 million line of credit and a term loan with a U.S.
bank. During 1999, the Company's bank notified the Company that the bank was not
going to renew the line of credit beyond September 30, 1999 and was reducing the
available borrowing limit to $2.0 million. As of September 30, 1999, there were
no amounts outstanding under the line of credit. However, there was $675,000
outstanding on the term loan and $500,000 on letters of credit issued by this
bank and guaranteed by the line of credit. The letters of credit expire in June
2000. Since September 30, 1999, the Company has continued to make scheduled debt
payments to this bank. The bank has not made any demands for payment.
The Company has been actively seeking financing from other sources since
mid September 1999 to replace this line of credit. The discussions for other
financing include banks with similar collateral requirements and mortgage loans
on the Company's real estate holdings. The Company has reviewed the current
collateral available to it and has determined that there exists sufficient
collateral to refinance its loan obligation and obtain the necessary cash to
fund operations in fiscal 2000. The Company's cash flow projections for fiscal
2000 indicate a need for about $900,000 of working capital in excess of
anticipated bank balances. This is projected to occur in January and February
2000 as the Company incurs costs associated with payments on the term loan, tax
deposits and investments in its contracts. The inability of the Company to be
able to obtain necessary financing within a timely fashion could have an
unfavorable impact on the Company's ability to maintain projected operating
levels and to meet certain obligations when they become due.
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 $270,235 of net treasury stock purchases
is reflected in the Company's balance sheet as of September 30, 1999.
As of September 30, 1999, the Company's equity in its Montair operation had
decreased in value by $151,454 from September 30, 1998 as a result of a decrease
in the foreign currency translation adjustment, reflecting a 10% increase in the
U.S. dollar against the Dutch guilder.
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 completed its reviews of these programs and systems, and
does not expect that any revisions to such programs and systems found necessary
will cause the Company to incur material costs or present implementation
challenges that cannot be addressed prior to the end of calendar 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. The Company was completing its assessment of these
external programs at the time this report was prepared but does not anticipate
any significant problems.
4
<PAGE>
The Company does not believe there will be any significant impact
resulting from entities with whom it has commercial relationships.
Results of Operations
Revenues:
Revenues of $15,680,201 in fiscal 1999 increased $1,354,111 (9.5%) from
fiscal 1998 revenues of $14,326,090. The increase includes revenues of
$2,546,083 contributed by Griffin, the newly acquired subsidiary. Revenues at
Andersen and Montair declined $1,192,152. Foreign sales (including export sales
by Andersen and sales by Montair) were $5.2 million and $8.9 million for years
1999 and 1998, and accounted for 33.3% and 62.0% of revenues in fiscal years
1999 and 1998, 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 some 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
during fiscal 1999. Domestic revenues accounted for 66.7% of total revenues in
fiscal 1999. This trend is expected to continue in fiscal 2000 as a result of
the additional revenues generated by Griffin. In the international market, the
Montair subsidiary received an order for $3.1 million- its largest ever, near
the end of fiscal 1999.
Revenues of $14,326,090 in fiscal 1998 decreased $8,817,582 (38%) from
fiscal 1997, primarily due to a revenue decrease at Andersen related to the
Asian downturn.
Cost of Sales:
Cost of sales increased $670,279 (5.4%) to $13,132,306 in fiscal 1999 from
fiscal 1998 costs of $12,462,027, primarily as a result of higher volume. In
fiscal 1998, cost of sales decreased $5,733,501 (31.5%) from 1997 levels as a
result of lower volume.
Overall, the average combined gross margin improved 3.2% during 1999. The
gross profit margin in 1998 was 13%. A significant portion of the improvement in
the margin was primarily associated with Griffin's operations which generated a
gross profit margin of approximately 22% for the dust collector's segment of the
Company's business during 1999. The incinerator/pollution control segment of the
Company's business (which is comprised of the remaining subsidiaries'
operations) generated a gross profit margin of approximately 15.2% during 1999.
Selling, General and Administrative Costs:
Selling, general and administrative costs in fiscal 1999 increased $630,119
(22.1%) to $3,474,993 from the 1998 levels. The increase was entirely
attributable to the expense reported by Griffin. Without the addition of
Griffin, these costs declined $47,930. As a percentage of revenues, selling,
general and administrative costs were 22.2%, 19.9% and 15.0% of revenues for
fiscal years 1999, 1998 and 1997, respectively.
In fiscal 1998, these expenses decreased $618,988 (17.8%) as a result of
decreases in commissions, salaries, and a reduction in the valuation provision
on equipment held for resale.
Interest and Other Income
Interest and other income for fiscal 1999 resulted in a credit of $23,208,
compared to a credit of $147,780 for fiscal 1998. The lower credit reflects a
substantial reduction in interest income, as cash available for investment was
used to settle litigation and for the acquisition of Griffin. The higher credit
of $38,580 in 1998 as compared to 1997 was due to rental income recorded in 1998
and a decrease in bad debt expense.
5
<PAGE>
Loss on Litigation Settlement:
The Company recorded a loss on litigation settlement of $900,000 in fiscal
1998. (See discussion in Note 8 to Consolidated Financial Statements.)
Taxes (Tax Benefit) on Income:
In fiscal 1999, the effective tax rate (benefit) was 36.2%, compared to
35.0% (benefit) in fiscal 1998. The fiscal 1997 rate was 27.9% and reflects tax
savings from significant export revenues.
Deferred tax assets arising from net operating loss carryforwards had a
significant contribution to the 1999 tax benefit. Management believes that
sufficient taxable income will be generated in future years in order to fully
recover these net operating loss carryforwards.
Net Income (Loss)
In fiscal 1999, the Company realized a net loss of $576,690, compared to a
net loss of $1,126,031 reported for fiscal 1998. The fiscal 1999 loss is
attributable to decline in export revenues experienced by the Company during the
last two years as a result of the economic crisis in Asia. The loss recorded in
fiscal 1998 reflected the effect of the $900,000 litigation settlement and lower
export revenues.
The average number of shares outstanding were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Basic 1,770,262 1,514,728 1,516,466
Diluted 1,770,262 1,514,728 1,516,466
</TABLE>
Effects of Inflation:
During fiscal 1999 and fiscal 1998, 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 in the 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.
6
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS (Note 9)
CURRENT:
Cash and cash equivalents $ 1,653,516 $ 1,171,097
Receivables:
Trade, less allowance of $174,543 and $99,324 for
possible losses 4,924,700 2,432,605
Other 41,928 63,285
Income taxes - 1,354,594
Costs and estimated earnings in excess of billings on
uncompleted contracts (Note 2) 2,635,324 4,686,555
Inventories (Note 3) 2,364,616 2,341,955
Prepaid expenses 154,708 82,819
Current maturities of long-term note receivable (Note 4) - 490,000
Deferred income taxes 152,868 148,730
----------- -----------
TOTAL CURRENT ASSETS 11,927,660 12,771,640
RESTRICTED CASH (Note 5) 1,036,000 1,036,000
EQUIPMENT HELD FOR RESALE (Note 6) 490,000 490,000
PROPERTY AND EQUIPMENT, less accumulated depreciation (Note 7) 2,806,522 1,573,913
DEFERRED INCOME TAXES (Note 10) 1,027,251 601,513
PROPERTY HELD FOR SALE (Note 8) 1,500,000 1,500,000
GOODWILL, net of accumulated amortization of $49,090 (Note 1) 834,833 -
OTHER ASSETS 124,253 111,051
----------- -----------
$19,746,519 $18,084,117
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable (Notes 1, 8 and 9) $ 393,171 $ 670,000
Accounts payable 3,801,352 2,025,031
Accruals:
Income taxes 4,714 -
Compensation 357,015 254,704
Warranty 228,000 333,000
Miscellaneous 417,507 603,872
Billings on uncompleted contracts in excess of cost and
estimated earnings (Note 2) - 6,113
Current maturities of long-term debt (Note 9) 783,265 775,000
Deferred income taxes (Note 10) 378,322 531,164
----------- -----------
TOTAL CURRENT LIABILITIES 6,363,346 5,198,884
LONG-TERM DEBT, less current maturities (Note 9) 18,744 -
DEFERRED INCOME TAXES (Note 10) 251,932 21,790
----------- -----------
TOTAL LIABILITIES 6,634,022 5,220,674
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 13)
STOCKHOLDERS' EQUITY: (Notes 9 and 11)
Common Stock, $.10 par; shares authorized 5,000,000; issued
1,873,635; outstanding 1,832,939 and 1,515,571 187,364 156,164
Additional paid-in capital 3,826,301 2,905,801
Treasury stock; 40,696 and 46,064 shares, at cost (270,235) (295,733)
Retained earnings 9,327,567 9,904,257
Foreign currency translation adjustment 41,500 192,954
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 13,112,497 12,863,443
----------- -----------
$19,746,519 $18,084,117
=========== ===========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
7
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
CONSOLIDATED STATEMENTS OF OPERATIONS:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Contracts $13,701,913 $12,334,981 $21,074,139
Sales 1,915,368 1,974,274 2,030,197
Other 62,920 16,835 39,336
----------- ----------- -----------
15,680,201 14,326,090 23,143,672
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of contracts and sales 13,132,306 12,462,027 18,195,528
Selling, general and administrative 3,474,993 2,844,874 3,463,862
Interest and other income (23,208) (147,780) (109,200)
Loss on litigation settlement (Note 8) - 900,000 -
----------- ----------- -----------
16,584,091 16,059,121 21,550,190
Income (loss) from operations before
taxes on income (903,890) (1,733,031) 1,593,482
TAXES (TAX BENEFIT) ON INCOME/LOSS (Note 10) (327,200) (607,000) 444,500
----------- ----------- -----------
NET INCOME (LOSS) $ (576,690) $(1,126,031) $ 1,148,982
=========== =========== ===========
AVERAGE NUMBER OF SHARES - BASIC 1,770,262 1,514,728 1,516,466
AVERAGE NUMBER OF SHARES - DILUTED 1,770,262 1,514,728 1,516,466
EARNINGS (LOSS) PER SHARE
BASIC $ (0.33) $ (0.74) $ 0.76
DILUTED $ (0.33) $ (0.74) $ 0.76
</TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net Income (Loss) $ (576,690) $(1,126,031) $ 1,148,982
Other Comprehensive Income
Foreign Currency Translation Adjustment (151,454) $ 83,128 (192,607)
----------- ----------- -----------
COMPREHENSIVE INCOME (LOSS) $ (728,144) $(1,042,903) $ 956,375
=========== =========== ===========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
8
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999
<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, 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
Net Loss - - - (576,690) - -
Sale of stock 312,000 31,200 920,500 - - -
Issuance of treasury stock 5,368 - - - 25,498 -
Change in translation adjustment - - - - - (151,454)
--------- -------- ---------- ----------- --------- -----------
Balance, September 30, 1999 1,832,939 $187,364 $3,826,301 $ 9,327,567 $(270,235) $ 41,500
========= ======== ========== =========== ========= ===========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
9
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (576,690) $(1,126,031) $ 1,148,982
Items in income from operations not affecting cash:
Depreciation and amortization 302,068 215,949 258,431
Provision for valuation of soil processor unit - 180,000 361,554
Deferred income taxes (561,448) 364,446 (228,560)
Loss on sales of fixed assets - - 893
Cash provided by (used for) (net of effects of purchase of
Griffin Environmental Company, Inc.)
Trade and other receivables (1,822,729) 352,290 (316,478)
Refundable income taxes 1,074,514 (116,031) 14,220
Costs and estimated earnings in excess of billings on
uncompleted contracts 2,051,231 1,150,343 284,512
Inventories 412,107 240,845 (635,290)
Prepaid expenses (36,936) (13,524) 56,133
Accounts payable 1,519,776 (2,064,978) (863,577)
Accrued expenses (52,417) (1,758,599) 445,098
Increase in notes payable from litigation settlement - 670,000 -
Billings on uncompleted contracts in excess of costs
and estimated earnings (6,113) (111,608) 104,302
Other 4,273 6,740 (31,604)
----------- ----------- -----------
Cash provided by (used for) operating activities 2,307,636 (2,010,158) 598,616
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in restricted cash - - 112,000
Investment in Griffin Environmental Company, Inc. (2,296,010) - -
Cash paid for litigation settlement - (1,500,000) -
Collection of note receivable 490,000 300,000 300,000
Proceeds from sale of fixed assets - - 1,182
Capital expenditures (112,429) (62,519) (161,073)
----------- ----------- -----------
Cash provided by (used for) investing activities (1,918,439) (1,262,519) 252,109
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in notes payable (691,735) - -
Reduction in long-term debt (187,872) (494,736) (943,755)
Issuance (purchase) of common stock 977,198 24,027 (202,447)
----------- ----------- -----------
Cash provided by (used for) financing activities 97,591 (470,709) (1,146,202)
----------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (4,369) 20,112 (10,948)
----------- ----------- -----------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) during the year 482,419 (3,723,274) (306,425)
Balance at beginning of year 1,171,097 4,894,371 5,200,796
----------- ----------- -----------
BALANCE AT END OF YEAR $ 1,653,516 $ 1,171,097 $ 4,894,371
=========== =========== ===========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
10
<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 by (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. On December 16, 1998, Crown Andersen purchased
Griffin Environmental Company, Inc. (Griffin). (See Note 1).
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. Estimates
of costs incurred include irrevocable commitments to purchase specialized
materials and equipment unique to the project. 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 1999, the Company had a contract with a customer which accounted
for $3,502,983 or 22% of total revenues recognized during fiscal 1999. As of
September 30, 1999, the Company had completed 82% of this contract. Also as of
September 30, 1999, a contract resulted in costs and estimated earnings in
excess of billings and accounts receivable of approximately $1,900,000 or 10% of
total assets. On June 17, 1999, the Company filed a claim for arbitration in
Singapore seeking to settle a contractual dispute with this customer. No
provision for estimated losses
11
<PAGE>
has been recorded by management associated with this completed contract. (See
Note 13 to the Consolidated Financial Statements.)
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 related
to 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. A balance of approximately $900,000 remained at September 30,
1999. 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. No amounts were charged to operations during 1999. During fiscal
years 1998 and 1997, the Company charged $180,000 and $361,554 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 6.)
At September 30, 1999, 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. 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 13.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's principal financial instruments, as contemplated under
SFAS No. 107, are represented by its contract costs, 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.
12
<PAGE>
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.
GOODWILL
Goodwill represents the excess of the purchase price of acquired
subsidiaries over the fair market value of the subsidiary's assets and
liabilities. Goodwill is amortized on a straight-line basis over the periods
benefitted, principally fifteen years.
The Company's operational policy for the assessment and measurement of
any impairment in the value of goodwill is to evaluate the recoverability and
remaining life and determine whether it should be completely or partially
written off or the amortization period accelerated. The Company will recognize
an impairment if undiscounted estimated future operating cash flows of the
acquired business are determined to be less than the carrying amount. The
amount of the impairment, if any, is measured based on projected discounted
future operating cash flows using a discount rate reflecting the Company's
average cost of funds.
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 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 for options issued to employees. 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.
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
13
<PAGE>
price during the period. For the year ended September 30, 1999, there were
100,710 of potentially dilutive weighted average shares outstanding.
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 1999, 1998
and 1997 totaled approximately $20,319, $22,507, and $22,690, 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 $122,909, $98,909, and
$101,504 for the years ended September 30, 1999, 1998 and 1997, respectively.
Income taxes refunded were approximately $1.1 million in 1999. Income taxes
paid were $361,000 and $466,000 for 1998 and 1997.
14
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ACQUISITION OF BUSINESS
On December 16, 1998 the Company purchased all the outstanding shares of
stock of Griffin. Griffin is a manufacturer of fabric filter and cartridge dust
collector, product recovery and pollution control equipment. Griffin sells its
equipment to a wide variety of industries, including chemicals, food processing,
concrete, steel, other metals, clays, paper, glass, and other industries.
The Company purchased Griffin for approximately $2.6 million. This was
comprised of cash of $2.3 million and a one-year promissory note of $273,000
secured by a second mortgage on the real estate. The note bears annual interest
at 4.33% payable monthly, and the principal is due on December 16, 1999.
The acquisition included 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 was accounted for under the purchase method of accounting whereby
all assets and liabilities were valued at their current fair market values at
December 16, 1998. The Company recorded goodwill of $883,924 in connection with
this acquisition.
The following is selective proforma financial information on the Company's
operations as if the purchase of Griffin occurred as October 1, 1998 (in
thousands, except per share data):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revenues $16,350 $20,263
Net Loss (615) (865)
Earnings (loss) per share (0.35) (0.48)
</TABLE>
NOTE 2. CONTRACTS IN PROGRESS
Information relative to contracts in progress is as follows:
<TABLE>
<CAPTION>
September 30,
----------------------------
1999 1998
------------- ------------
<S> <C> <C>
Costs $ 13,324,686 $ 19,866,361
Estimated earnings 5,197,296 6,487,987
Billings applicable thereto (15,886,658) (21,673,906)
------------- ------------
Net Amount $ 2,635,324 $ 4,680,442
============= ============
Included in the accompanying balance sheets in:
Current assets $ 2,635,324 $ 4,686,555
Current liabilities - (6,113)
------------- ------------
Net Amount $ 2,635,324 $ 4,680,442
============= ============
</TABLE>
15
<PAGE>
NOTE 3. INVENTORIES
Inventories were $2,364,616 and $2,341,955 as of September 30, 1999 and
September 30, 1998. Included in inventories at September 30, 1999 and 1998 is
approximately $861,000 and $1,761,000 related to incineration equipment
purchased from a former competitor, respectively.
NOTE 4. 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
with interest at 7% per annum. The final payment of this note ($490,000) was
paid on September 28, 1999.
NOTE 5. RESTRICTED CASH
As of September 30, 1999, $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 2000.
NOTE 6. 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. Through the year ended September 30, 1998, the
carrying value of this unit has been reduced to $490,000. No adjustments were
recorded in fiscal 1999. Adjustments to the carrying value totaling $180,000 and
$361,554 in 1998 and 1997 have been charged to operations in each respective
year.
NOTE 7. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
September 30,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
Land $ 805,574 $ 461,933
Buildings 2,489,948 2,028,806
Machinery and equipment 1,229,519 948,578
Office furniture and fixtures 1,166,350 1,023,865
Vehicles 65,228 97,401
----------- -----------
5,756,619 4,560,583
Less accumulated depreciation (2,950,097) (2,986,670)
----------- -----------
Net property and equipment $ 2,806,522 $ 1,573,913
=========== ===========
</TABLE>
Depreciation expense amounted to $248,715, $193,450 and $221,805 for the
fiscal years ended September 30, 1999, 1998 and 1997, respectively.
16
<PAGE>
NOTE 8. 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 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,
1999 balance sheet includes these assets as "property held for sale." The
$670,000 note was paid in May 1999.
NOTE 9. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
September 30,
------------------
1999 1998
-------- --------
<S> <C> <C>
Note payable to a bank in 31 monthly payments
of $8,333 plus interest at the prime rate (8.50% at
September 30, 1999), final balloon payment due
on September 30, 1999 $675,000 $775,000
Note payable to an individual due October 2000
payable in monthly installments of $8,333 plus
interest at 1% over prime, collateralized by
mortgage on Griffin's facility 127,009 -
-------- --------
TOTAL $802,009 $775,000
======== ========
Less current maturities 783,265 775,000
-------- --------
Total long-term debt $ 18,744 -
======== ========
</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 had a $5.0 million line of credit and a term loan with a U.S.
bank. During 1999, the Company's bank notified the Company that the bank was not
going to renew the line of credit beyond September 30, 1999 and was reducing the
available borrowing limit to $2.0 million. As of September 30, 1999, there were
no amounts outstanding under the line of credit. However, there was $675,000
outstanding on the term loan and $500,000 on letters of credit issued by this
bank and guaranteed by the line of credit. The letters of credit expire in June
2000. Since September 30, 1999, the Company has continued to make scheduled debt
payments to this bank. The bank has not made any demands for payment.
The Company has been actively seeking financing from other sources since
mid September 1999 to replace this line of credit. The discussions for other
financing include banks with similar collateral requirements and mortgage loans
on the Company's real estate holdings. The Company has reviewed the current
collateral available to it and has determined that there exists sufficient
collateral to refinance its loan obligation and obtain the necessary cash to
fund
17
<PAGE>
NOTE 9. LONG-TERM DEBT (continued)
operations in fiscal 2000. The Company's cash flow projections for fiscal 2000
indicate a need for about $900,000 of working capital in excess of anticipated
bank balances. This is projected to occur in January and February 2000 as the
Company incurs costs associated with payments on the term loan, tax deposits and
investments in its contracts. The inability of the Company to be able to obtain
necessary financing within a timely fashion could have an unfavorable impact on
the Company's ability to maintain projected operating levels and to meet certain
obligations when they become due.
A subsidiary of the Company has a $500,000 line of credit with another U.S.
bank and as of September 30, 1999, $120,000 had been borrowed against this line.
The Company also has a $400,000 line of credit at a Dutch bank. Property and
equipment, inventories and trade accounts receivables at Montair totaling
$2,584,873 at September 30, 1999 are pledged as collateral to one Dutch bank for
the Dutch line of credit. No borrowings had been made against this line as of
September 30, 1999.
The weighted average interest rate on the U.S. line-of-credit was
approximately 8.50% during 1999 and 1998, 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 was not in compliance with certain provisions under its U.S. bank line
of credit. The Company obtained waivers from the financial institution for this
condition through September 30, 1999.
Interest expense for all debt during fiscal 1999, 1998 and 1997 totaled
approximately $122,234, $104,174, and $170,880, respectively.
NOTE 10. TAXES ON INCOME
The components of income (loss) before taxes on income consisted of the
following:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
U.S. Operations $(1,077,520) $(1,838,195) $1,097,696
The Netherlands Operations 173,630 105,164 495,786
----------- ----------- ----------
$ (903,890) $ 1,733,031 $1,593,482
=========== =========== ==========
</TABLE>
Significant components of the provision for income taxes attributable are
as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal - $ (928,841) $ 462,426
Foreign 44,110 (15,075) 191,506
State (24,734) (39,680) 19,812
---------- ---------- ---------
19,376 (983,596) 673,744
---------- ---------- ---------
Deferred (reduction):
Federal (232,087) 354,364 (177,032)
Foreign (73,532) 51,090 (20,972)
State (40,957) (28,858) (31,240)
---------- ---------- ---------
Total taxes (benefit) on income (346,576) 376,596 (229,244)
---------- ---------- ---------
$ (327,200) $ (607,000) $ 444,500
========== ========== =========
</TABLE>
18
<PAGE>
NOTE 10. TAXES ON INCOME (continued)
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, 1999 September 30, 1998
-------------------------- --------------------------
Deferred Deferred Tax Deferred Deferred Tax
Tax Assets Liabilities Tax Assets Liabilities
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Basis in Kansas building $ - $249,517 $ - $249,517
Federal net operating loss 396,334 - - -
State net operating loss 128,574 - 99,170 -
Deferred gain on sale of plastics business - - - 79,310
Valuation allowance - equipment held for resale 502,343 - 502,343 -
Warranty accrual 45,600 - 83,600 -
Work in process - 130,662 - 202,337
Property and equipment - 6,184 - 20,790
Depreciation - 243,891 - -
Compensation accruals 30,818 - 30,818 -
Allowance for accounts receivable, inventories
and other 76,450 - 34,312 -
---------- -------- -------- --------
$1,180,119 $630,254 $750,243 $551,954
========== ======== ======== ========
</TABLE>
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,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Taxes (benefit) at statutory rate (34.0%) (34.0%) 34.0%
Increase (reduction) in taxes realized from:
Foreign tax difference (0.4) 0.2 (0.1)
State income taxes, net of federal tax benefit (3.1) (2.7) 0.1
Permanent differences 1.3% 0.7 0.7
Foreign sales corporation - - 3.9
Other - 0.8 (2.9)
----- ----- ----
(36.2%) (35.0%) 27.9%
===== ===== ====
</TABLE>
Deferred tax assets arising from net operating loss carryforwards had a
significant contribution to the 1999 tax benefit. Management believes that
sufficient taxable income will be generated in future years in order to fully
recover these net operating loss carryforwards.
19
<PAGE>
NOTE 11. STOCK OPTIONS AND WARRANTS
Crown Andersen has an employee 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 granted by
the Warrant Committee for shares of common stock. Warrants for the purchase of
shares vest ratably over five years until all warrants are vested. During fiscal
year ended September 30, 1999 and 1998, warrants to purchase 260,000 and 40,000
shares of common stock at an average price of $4.47 and $4.23 per share were
granted under the 1998 Directors Warrant Plan, respectively. At September 30,
1999, 16,000 warrants were vested.
During fiscal year ended September 30, 1999 and 1998, options to purchase
177,900 and 100,000 shares of common stock at a price of $4.50 and $4.25 per
share were granted under the 1998 Incentive Stock Option Plan, respectively. As
of September 30, 1999, there were options to purchase 309,900 shares outstanding
under the Incentive Stock Option Plan at an average exercise price of $4.44 and
warrants to purchase 300,000 shares of common stock at an average price of
$4.45.
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 42% (35% for 1998); a risk-free interest rate of 5.50% (5.05% for 1996): and
expected option life of five years. Proforma effects on net income would be to
reduce earnings by $477,784 and $184,569 in 1999 and 1998, respectively.
Accordingly, the effects on earnings per share would result in a calculated
balance of $(0.50) and $(0.82) per share in 1999 and 1998, respectively.
The following tables summarizes activity on stock options and warrants:
<TABLE>
<CAPTION>
OPTIONS WARRANTS
------------------------------ ------------------------------
Weighted Weighted
Average Average
No. Of Shares Exercise Price No. Of Shares Exercise Price
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
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
Granted 177,900 4.50 260,000 4.47
Exercised (12,000) 4.31 -
Expired Or Cancelled - - (15,000) 6.88
------- ------ ------- ------
Outstanding At September 30, 1999 309,900 $ 4.44 300,000 $4 .45
======= ====== ======= ======
</TABLE>
Weighted average fair value of options granted during the year ended:
September 30, 1997 $ -
September 30, 1998 $199,901
September 30, 1999 $656,134
The weighted average remaining life of options and warrants outstanding at
September 30, 1999 was six years. The range of exercise prices was $4.19 -
$4.60.
20
<PAGE>
NOTE 12. SEGMENT INFORMATION AND MAJOR CUSTOMERS
The Company operates in two industry segments: pollution control systems
and dust collectors. Information regarding the Company's geographic segments of
its operations is set forth below.
<TABLE>
<CAPTION>
Year ended September 30,
----------------------------
1999 1998 1997
--------- -------- -------
<S> <C> <C> <C>
(In Thousands)
Revenues:
U.S. operations
Domestic $10,403 $ 5,448 $ 3,217
Export 1,038 5,305 14,954
The Netherlands operations 4,239 3,573 4,973
------- ------- -------
Total $15,680 $14,326 $23,144
======= ======= =======
Income (loss) before taxes:
U.S. operations $(1,078) $(1,838) $ 1,098
The Netherlands operations 174 105 496
------- ------- -------
Total $ (904) $(1,733) $ 1,594
======= ======= =======
Identifiable assets:
U.S. operations $16,669 $15,516 $18,776
The Netherlands operations 3,077 2,568 2,610
------- ------- -------
Total $19,746 $18,084 $21,386
======= ======= =======
</TABLE>
During fiscal year 1999 one customer accounted for 22% of the Company's
consolidated revenues and in 1998 one customer accounted for 26% of the
consolidated revenues. In fiscal 1997 one customer accounted for 28% 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.
The Company has two reportable segments: Incinerator/Pollution Control and
Dust Collectors. The incinerators/pollution control segment based in Peachtree
City, Georgia, and in Sevenum, The Netherlands, 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 dust collector
segment is based in Syracuse, New York, and manufactures fabric filter and
cartridge dust collection, product recovery and pollution control equipment for
a variety of industries.
The accounting policies of the segments are the same as those described in
the summary of accounting policies. The Company evaluates performance based on
profit or loss from operations before income taxes. Intersegment sales and
transfers are accounted for at current market prices. The Company's reportable
segments are strategic business units that offer different products and
services. They are managed separately.
21
<PAGE>
CROWN ANDERSEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. SEGMENT INFORMATION AND MAJOR CUSTOMERS (continued)
Key financial data by segment: (in thousands)
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------------------------------
1999 1998
------------------------------------- ------------------------------------
Pollution Pollution
Control/ Dust Control/ Dust
Incinerator Collection Total Incinerator Collection Total
----------- ---------- ----- ----------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues from customers $ 13,144 $2,536 $15,680 $14,326 - $14,326
Intersegment revenues - 10 10 - - -
Depreciation and
amortization 239 63 302 216 - 216
Segment pre-tax
income (loss) (757) (147) (904) (1,733) - (1,733)
Segment assets 15,854 2,392 18,246 18,084 - 18,084
Expenditures for
segment assets 18 94 112 63 - 63
</TABLE>
Reconciliation of segments assets to total consolidated assets:
Segment assets $18,246
Property held for sale (unallocated to segment) 1,500
-------
Total Consolidated Assets $19,746
=======
NOTE 13. COMMITMENTS AND CONTINGENCIES
(a) The Company has employment agreements with three 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 a five-year consulting agreement with a director and
owner of 300,000 shares of the Company stock acquired in a private placement.
Under this consulting agreement the director will be paid a monthly fee of
$5,000 or 0.5% of the market value of the 300,000 shares of Common Stock,
whichever is greater.
(c) The Company has the following pending or threatened litigation and
unasserted claims or assessments:
22
<PAGE>
NOTE 13. COMMITMENTS AND CONTINGENCIES (continued)
S.P. Construction Company, et al, v. Andersen 2000 Inc., et al. This claim
- ---------------------------------------------------------------
involved a suit by various insurance companies for subrogation of claims paid by
them to the owners and others of an electric power cogeneration plant in
Medford, Oregon. Andersen 2000 Inc. ("Andersen 2000") was one of numerous
subcontractors on this job. This case has been dormant for many years, with no
activity of any kind. Management believes it is possible that this case may be
dropped by the Plaintiffs within the next calendar year.
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 or 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.
Although there have been some efforts to resolve this matter through
mediation, it is doubtful that mediation is a real possibility in this case.
Both sides have initiated discovery to prepare the case for trial. At this
point, the Company has not seen credible evidence supporting Georgia Gulf's
claims for damages. At the earliest, this case would be set for trial in the
summer or fall of 2000. 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.
Andersen 2000 Inc. v. PT Indah Kiat Pulp & Paper Corporation. On June 17, 1999,
- ------------------------------------------------------------
the Company filed a claim for arbitration in Singapore seeking to settle a
contractual dispute with a customer in connection with the sale of equipment in
Indonesia. The equipment has been delivered, installed and, in management's
opinion, has operated in accord with the contract. The customer is claiming the
equipment has not met certain performance specifications, but has provided no
evidence to support this position. The Company's claim is for $2.3 million. As
of September 30, 1999, the Company has recorded $1.9 million in accounts
receivable and cost and estimated earnings in excess of billings on uncompleted
contracts. As a collateral matter, the Company has filed an action in U.S.
Federal Court seeking to maintain in place with Bank of America a defects
liability bond pending the outcome of the arbitration. Management believes that
it will
23
<PAGE>
NOTE 13. COMMITMENTS AND CONTINGENCIES (continued)
prevail and recover the amount claimed in this dispute. Accordingly, no specific
reserve has been established for this matter. The inability of management to
satisfactorily resolve this matter with the customer and collect the outstanding
receivable could have a material unfavorable effect on the Company's financial
statements.
Environmental Protection Agency Notice Dated September 27, 1999. On September
- ---------------------------------------------------------------
27, 1999 Crown Andersen received a "General Notice Letter" from Region VII of
the United States Environmental Protection Agency concerning the Strother Field
Industrial Park Superfund Site in Cowley County, Kansas. The purpose of the
Notice was to advise the Company of its potential liability for clean-up costs
at the site. The basis for EPA's legal position appears to be that the Company
is the owner of the Site as the result of a Deed to the Company from the Cities
of Winfield and Arkansas City, Kansas in August 1999. The Company believes that
this Deed violates the terms of a settlement agreement dated May 13, 1998
between Textron Investment Management Company, Inc., et al. and the Company.
The Company has filed a Disclaimer of this Deed, which disclaims any legal
interest or title to this property. Management expects that EPA's legal
position against the Company will not prevail and that the terms of the
settlement agreement will be upheld. Because legal title to the Site was
transferred inappropriately to the Company, and because that transaction has
been disclaimed and refuted by the Company, we believe that the Notice of
potential responsibility for clean-up costs at the site does not apply.
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.
(d) 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.
NOTE 14. 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. Results of operations and financial position have been
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.
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
24
<PAGE>
NOTE 14. RECENT ACCOUNTING PRONOUNCEMENTS (continued)
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.
The effective date, as amended, is for fiscal years beginning after June 15,
2000. 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.
25
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
of Crown Andersen Inc.
Peachtree City, Georgia
We have audited the accompanying consolidated balance sheets of Crown Andersen
Inc. and Subsidiaries as of September 30, 1999 and 1998, and the related
consolidated statements of operations and comprehensive income, stockholders'
equity, and cash flows for each of the three years in the period ended September
30, 1999. 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, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1999, in conformity with generally
accepted accounting principles.
BDO SEIDMAN, LLP
Atlanta, Georgia
December 17, 1999
================================================================================
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 198
shareholders of record as of December 13, 1999, in addition to approximately
1,800 beneficial holders.
<TABLE>
<CAPTION>
Year Ended
September 30, 1999
------------------
High Low
---- ---
<S> <C> <C>
FISCAL QUARTER
First $4.75 $2.88
Second 5.63 4.50
Third 7.69 5.50
Fourth 8.00 7.50
<CAPTION>
Year Ended
September 30, 1998
------------------
High Low
---- ---
FISCAL QUARTER
First $6.96 $6.75
Second 6.50 5.63
Third 4.50 3.19
Fourth 2.50 2.50
</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 9 to the Notes to Consolidated Financial
Statements.
26
<PAGE>
CROWN ANDERSEN INC.
<TABLE>
<S> <C> <C>
CORPORATE OFFICERS/DIRECTORS SUBSIDIARIES TRANSFER AGENT
Jack D. Brady ANDERSEN 2000 INC. Registrar and Transfer Company
Chairman of the Board, President, and Chief 306 Dividend Dr. Cranford, NJ 07016
Executive Officer Peachtree City, GA 30269
1 (770) 486-2000
Jack C. Hendricks FAX: 1 (770) 487 5066
Vice Chairman of the Board e-mail: [email protected]
-----------------------------
(Retired President of Company) LEGAL COUNSEL
Jack D. Brady
Richard A. Beauchamp Chairman and CEO Decker & Hallman, P.C.
Director Atlanta, Georgia
(Retired President, Ameritruck Thomas Van Remmen
Distribution Corp.) President and COO
(Contract transportation company)
Kenny M. Graves
L. Karl Legatski Senior Vice President AUDITORS
Director
(President, CelTech, Inc.) John M. Golumbeski BDO Seidman, LLP
(Development and application of membrane Vice-President, Atlanta, Georgia
technology for liquid separations) Manufacturing
Thomas Van Remmen Jay Kaufman
Director Vice-President, Purchasing
(President of Andersen 2000 Inc.) ANNUAL MEETING
Randall Morgan
Michael P. Marshall Vice-President, Finance and The 1999 Annual Meeting of Stock-
Director Controller/Treasurer holders will be held on February 9,
(President of Marshall & Co.) 1999, at 10:00 a.m. at the Company's
(Private Investment Company) Milton Emmanuelli corporate offices, 306 Dividend Drive,
Secretary Peachtree City, Georgia.
Ruyintan E. Mehta
Director MONTAIR ANDERSEN BV
(President Mehta Associates) Heuvelsestraat 14
(Private Investment Company) 5976 NG, Sevenum, Holland
31 77 467 2473
Thomas Graziano FAX: 31 77 467 3012
Director e-mail: [email protected]
---------------
(President Griffin Environmental Company, Inc.)
A.T.J. Wagemans
Rene C.W. Francken Managing Director
Director
(Manager of Sales, Montair Andersen b.v.) Jack D. Brady, Director
Milton Emmanuelli Rene Francken
Chief Financial Officer and Manager, Administration
Controller/Treasurer And Sales
Randall Morgan GRIFFIN ENVIRONMENTAL
Secretary COMPANY, INC.
7066 Interstate Island Rd.
Syracuse NY 13209
(315) 451 5300
FAX: (315) 451 2338
e-mail: [email protected]
--------------------------
Thomas Graziano, President
Kerry Kresge
Vice President, Finance
David Young
Vice President, 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, 1999, 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
27
<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
www.crownandersen.com
---------------------
e-mail: [email protected]
---------------------
Andersen 2000 Inc.
A Delaware Corporation
306 Dividend Drive
Peachtree City, Georgia 30269
Phone: 1 (770) 486 2000
Fax: 1 (770) 487 5066
www.crownandersen.com
---------------------
e-mail: [email protected]
---------------------
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
www.crownandersen.com
---------------------
e-mail: [email protected]
---------------
Griffin Environmental Company, Inc.
A New York Corporation
7066 Interstate Island Road
Syracuse New York 13204
Phone: 1 (315) 451 5300
Fax: 1(315) 451 2338
www.griffinenviro.com
e-mail: [email protected]
--------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 1,653,516
<SECURITIES> 0
<RECEIVABLES> 5,099,243
<ALLOWANCES> 174,543
<INVENTORY> 2,364,616
<CURRENT-ASSETS> 11,927,660
<PP&E> 2,806,522
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,746,519
<CURRENT-LIABILITIES> 6,363,346
<BONDS> 0
0
0
<COMMON> 187,364
<OTHER-SE> 12,925,133
<TOTAL-LIABILITY-AND-EQUITY> 19,746,519
<SALES> 15,617,281
<TOTAL-REVENUES> 15,680,201
<CGS> 13,132,306
<TOTAL-COSTS> 16,584,091
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (23,208)
<INCOME-PRETAX> (903,890)
<INCOME-TAX> (327,200)
<INCOME-CONTINUING> (576,690)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (576,690)
<EPS-BASIC> (0.33)
<EPS-DILUTED> (0.33)
</TABLE>
