UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
For the Fiscal Year ended March 31, 1996
Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 1-10955
ENVIRONMENTAL ELEMENTS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 52-1303748
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
3700 Koppers St., Baltimore, Maryland 21227
(Address of Principal Executive Offices) (Zip Code)
(410) 368-7000
Registrant's telephone number, including area code
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Common stock, par value $0.01 per share, New York Stock Exchange, Inc.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if the 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 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. [ ]
The aggregate market value of Common Stock held by non-affiliates of the
registrant as of June 3, 1996 was approximately $8.2 million based upon the
closing price of $17/8. The number of shares outstanding of the registrant's
Common Stock as of June 3, 1996 was 6,902,322.
Documents Incorporated by Reference
Portions of the definitive Proxy Statement relating to registrant's Annual
Meeting of Stockholders to be held August 2, 1996 are incorporated by reference
in Part III of this Form 10-K, with the exception of portions that are not
incorporated by reference by their terms.
Portions of the registrant's Annual Report to Stockholders for the year ended
March 31, 1996 are incorporated by reference in Parts I, II and IV of this Form
10-K.
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PART I
ITEM 1. BUSINESS
General
Environmental Elements Corporation (the "Company") designs and supplies
proprietary, large-scale, custom-engineered air pollution control systems which
enable customers to operate their facilities in compliance with regulatory
standards limiting particulate and gaseous emissions. The Company's business
strategy is to provide a broad array of proprietary state-of-the-art
technologies to traditionally intensive users of air pollution control systems,
including two primary customer groups -- electric utilities and private power
generators and pulp and paper producers-- in addition to municipal solid waste
facilities and other industrial customers.
The Company has historically concentrated on systems that reduce particulate
emissions from combustion exhaust streams, specifically electrostatic
precipitators and fabric filter systems (also known as baghouses). For each of
these product lines, the Company has developed proprietary designs for durable,
cost-effective systems. The Company has developed, acquired distribution rights
for, or licensed from others, dry and semi-dry scrubbers for use in gaseous
emissions control.
The Company enters into contracts for original equipment systems, major
rehabilitation and rebuilding services, and ongoing maintenance and repair
services. The Company offers a range of systems and technologies to address the
air pollution control needs of customers in its selected markets. While the
Company, in certain instances, may provide a combination of its systems as an
integrated pollution control solution, its customers typically purchase
individual systems which, in certain instances, may operate in conjunction with
other systems supplied by others. The Company's contracts with its customers
generally require it to design and supply an air pollution control device which
removes specified amounts of gaseous or particulate matter from combustion
exhaust gases. The Company is generally contractually responsible to its
customers for all phases of the design, fabrication, start-up and testing and
(if included in the scope of the Company's contract) field construction of its
systems. The Company's successful completion of its contractual obligations is
generally determined by a performance test or tests of the Company's systems
which are generally conducted by a customer-selected independent testing agency
which verifies that the system is removing gaseous or particulate emissions in
amounts required by the contract. In connection with the expansion of the
Company's technological offerings and a shift in the Company's mix of business,
additional measures of performance may be afforded or required. Such measures
may include availability or reliability guarantees and guarantees with respect
to the consumption of power, reagent, water or other components of variable
operating costs.
The Company does not manufacture or fabricate its systems and generally does
not engage in field construction activities utilizing its own employees, other
than field supervisory personnel. In fiscal 1996, the Company elected to
discontinue its manufacturing and certain direct hire construction activities
previously conducted by its aftermarket subsidiary, Environmental Elements
Services Corporation. In fiscal 1996, the Company relocated the aftermarket
business to the Company's Baltimore headquarters, and now conducts such business
directly.
The Company performs process engineering for its systems, including but not
limited to, the determination of the size, geometry and mechanical, electrical
and structural characteristics of the device needed to meet its contractual
obligations for gaseous or particulate removal, and performs the detail design
of and develops specifications for all structural, electrical, mechanical,
piping, and
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chemical components necessary to make the system. The Company purchases various
components consisting of both off-the-shelf items and items made to its design
and specifications by vendors; enters into subcontracts for field construction
(if included in the scope of the Company's contract), which it supervises; and
manages all technical and commercial aspects of the performance of its
contracts, including the start-up of its systems.
In general, the Company's original equipment contracts vary in length from
12 to 36 months and require performance of a particular project within a
specified time frame. Almost all of the Company's contracts are undertaken on a
fixed price basis. Fixed price contracts require the Company to bear certain
risks of cost overruns, and from time to time the Company experiences a loss in
connection with a contract. In fiscal 1993, the Company incurred a significant
cost overrun in connection with the execution of its first flue gas conditioning
contract, a product no longer offered by the Company.
The Company and its predecessor have been engaged in the air pollution
control business since 1946.
Product Lines and Services
The Company supplies electrostatic precipitators primarily to power
generation and pulp and paper customers. An electrostatic precipitator removes
particulate matter from combustion exhaust streams. The particulate in the gases
is electrically charged as it passes positively charged high-voltage electrodes
and is then attracted to oppositely charged collecting plates. The collected
material is periodically removed from the plates by rapping or vibration. The
Company's precipitators include computerized power control systems which allow
the precipitators to respond automatically to changing operating conditions. The
Company's installed base of electrostatic precipitators is one of the largest in
North America.
The Company supplies a wide range of fabric filter systems to control and
recover dust and other particulates in a variety of utility and industrial
applications for power-generation, pulp and paper, incineration, and other
industrial customers.
The Company offers state-of-the-art semi-dry scrubbing systems for the
reduction of acid gases such as sulfur oxides and hydrogen chloride emissions. A
semi-dry scrubbing system removes objectionable gaseous pollutants and certain
heavy metals from exhaust emissions by causing a chemical reaction, typically
using lime as a reagent, which transforms the pollutants into a readily
disposable particulate. The Company offers its semi-dry scrubbers primarily for
municipal solid waste incineration facilities.
The Company offers a fluidized bed flue gas de-sulfurization dry reactor,
(known as a circulating dry scrubber or "CDS"(registration symbol)) which
has special application to both the power generation and municipal solid
waste incineration acid rain retrofit markets. During fiscal 1994, the Company
booked its first two CDS(registration symbol) systems and in late fiscal 1995
and early fiscal 1996, the Company successfully started up the first of
these systems. The CDS(registration symbol) technology is licensed from Lurgi
GmbH.
The Company supplies original equipment systems, the majority of which are
replacements of aged existing air pollution control systems. In addition,
because of the extreme conditions under which air pollution control systems
operate, maintenance, repair, and rebuilding of these systems is an ongoing
requirement and creates additional demand for the Company's services and
products. The Company engages in complete and partial rehabilitation and
rebuilding of air pollution control systems, often involving design and
installation work, and also provides ongoing maintenance services and spare
parts on a routine or emergency-response basis. Such services may include the
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provision of rebuild project materials, construction services, and field
engineering services including inspection, testing, rebuild supervision, and
equipment performance evaluation services.
Through fiscal 1994, the Company marketed proprietary continuous emissions
monitoring systems ("CEMS"). The Company did not derive the anticipated level of
revenues from this product line. As a result, the Company sold certain CEMS
assets, including its distribution rights to its proprietary system and certain
open customer contracts. In fiscal 1991, the Company licensed certain additional
precipitator and flue gas conditioning techniques from Lurgi GmbH which it
returned to Lurgi in fiscal 1995 due to lack of market demand.
Industry Demand Factors
The market for air pollution control systems and technologies is directly
dependent upon governmental regulation and enforcement of air quality standards.
During the past two decades, federal, state, and municipal governments have
recognized that contamination of the air poses significant threats to public
health and safety, and, in response, have enacted legislation designed to reduce
or eliminate a variety of air pollutants. The Company believes that governmental
regulation of air pollution and its sources will continue to increase and that
it is well positioned to assist customers in its targeted markets to solve their
air pollution control problems.
Given the existence of stringent domestic air emissions standards, domestic
demand for the Company's systems and technologies generally arises from the
following principle sources: need for replacement, rehabilitation and rebuilding
of air pollution control systems on aging electric utilities and on pulp and
paper manufacturing facilities; construction of new electricity-generating
facilities, particularly those operated under cogeneration and "private power"
arrangements; continued expansion of pulp and paper manufacturing capacity; and
construction of new municipal solid waste incineration facilities. Demand from
any one of these sources may vary significantly from year to year depending on
economic, regulatory, and other factors including industry cycles.
Emerging international demand for the Company's products is driven primarily
by a combination of electric generation and other infrastructure improvement and
the passage or enforcement of existing regulations limiting gaseous and
particulate emissions in developing countries.
Markets Served
The Company has historically followed a strategy of limiting its business to
systems and technologies for air pollution control and focusing within that
business on selected markets in which the Company believes it can build upon its
reputation for expertise and reliability. The Company's current targeted markets
are electric utilities and private power generators, pulp and paper producers,
developers of municipal solid waste incineration facilities, and certain other
process industries throughout the United States, Canada, and selected areas of
central Europe, Asia and the Pacific Rim. In its 1995 fiscal year, the Company
received two contract awards for precipitators in Poland and a contract award
for baghouses and spray dryers in the United Kingdom. In its 1996 fiscal year,
the Company received no contracts for work outside North America.
Currently, the Company offers a select line of systems and technologies to
meet the various needs of electric utilities and other electric power generators
for control of air emissions at new and existing facilities. The Company's
principal product sold to the electric-generating market is its
Rigitrode(registration symbol) electrostatic precipitator, which combines
the reliability traditionally associated with European heavy-duty,
bottom-rapped designs and the cost efficiency associated with top-rapped
American models. (In a top-rapped precipitator, the force used to
dislodge dust from the collection plate is
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applied to the top of the plate.) The Company is bidding, and will continue to
bid, a number of large contract opportunities in the utility market.
The Company also offers to the utility industry a range of fabric filter
systems to control particulate emissions. In some recent years, the Company has
been particularly successful in marketing its fabric filter systems to private
power projects which either co-generate electricity and thermal energy or
generate electricity alone for sale to utilities and in fiscal 1994 sold to a
public utility and in fiscal 1995 started-up a pulse jet fabric filter system .
In addition, in response to anticipated substantial demand for solutions to the
requirements of acid rain legislation, the Company, under license from Lurgi
GmbH, has introduced a state-of-the-art CDS(registration symbol) system for
the control of sulfur oxide emissions. The Company also offers a proprietary
semi-dry scrubbing system using rotary atomizer technology which the Company
believes offers the advantages of lighter weight, ease of maintenance, and
economy of operation that are particularly significant to smaller
electricity-generating facilities.
The Company has installed over 500 electrostatic precipitators at pulp and
paper plants in the United States and Canada. The Company attributes its success
in this market to the competitive advantages of its Rigitrode(registration
symbol) precipitator and to its reputation for reliability and service. The
Company has established long-standing relationships, in many cases covering
more than 25 years, with leading firms in the industry.
Municipal solid waste and private waste-to-energy facilities, as well as
hazardous waste incineration plants, must comply with stringent federal and
state environmental standards. Existing regulations require new solid waste
incineration facilities to control both sulfur oxides and hydrogen chloride
emissions. Such systems generally include an acid gas scrubbing tower and a
modular baghouse for collection of particulates. While the Company saw little
activity in this market during the last three fiscal years, the Company has
completed projects with developers of both municipal solid waste and hazardous
waste incinerators, and booked one project in fiscal 1993, two projects in
fiscal 1995, and one project in fiscal 1996. The Company has identified the
incineration market as one which will provide an opportunity to market its
semi-dry scrubbing systems in the future.
In addition to serving the principal markets described above, the Company
sells its systems to customers in petroleum refining and certain materials
processing industries, including mining, metals conversion, cement production,
and steel manufacturing. The Company's sales in these markets consist primarily
of wet scrubbers and electrostatic precipitators. The Company believes that it
is competitive in these other markets.
Bookings and Backlog Information
The information required by this item is contained under the caption
"Bookings and Backlog" in "Management's Discussion and Analysis" in the
Company's 1996 Annual Report to Shareholders.
Research and Development
The Company has an ongoing program for development and commercialization of
new air pollution control technologies and enhancement of existing technologies.
The Company spent approximately $347,000, $512,000, and $323,000 on product
development during fiscal 1996, 1995, and 1994, respectively. The Company has
recently advanced its research and development operations beyond its historical
product development activities to funded research programs.
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Patents
The Company owns or has the rights to a number of patents, patent
applications, and other proprietary technologies which are important to various
aspects of its business. These patents are not, however, considered material to
the conduct of the Company's business as a whole. The Company believes that its
ability to compete in the air pollution control industry depends primarily on
its engineering and technological expertise, rather than on patent protection.
Sales and Marketing
The Company's sales and marketing efforts are organized along market lines
- - -- power industry, industrial, and aftermarket. The Company has integrated field
service resources of the original equipment and aftermarket divisions into
regional sales representation for each of its markets, allowing it to build
long-term customer relationships. The sales efforts are technical in nature and
involve its sales and marketing professionals, supported by the Company's senior
technical and management professionals. A significant portion of the Company's
sales are made through architectural and engineering firms, which play an
important role in the preparation of specifications for air pollution control
systems. The Company's sales and marketing group consists of industry and
regional sales managers and sales representatives.
Although the Company seeks to obtain repeat business from its customers, it
does not depend on any single customer to maintain its level of activity from
year to year. One customer accounted for 21% of the Company's sales in fiscal
1996; another customer accounted for 10% of the Company's sales in fiscal year
1995, and two customers accounted for 12% and 11% of the Company's sales in
fiscal year 1994. At fiscal year end 1996, however, approximately 33% of the
Company's accounts and retainages receivable were due from companies within the
pulp and paper industry and approximately 19% were due from companies within the
power generation industry.
All of the Company's foreign sales were generated from the U.S. Export sales
were less than 10% of consolidated sales in fiscal years 1996, 1995 and 1994. In
order to take advantage of certain overseas market opportunities, the Company
has established licensing agreements with companies in Brazil and the Peoples
Republic of China under which the Company is entitled to royalties based upon
sales in the licensed territory. These agreements do not currently represent a
material source of income. In addition to the license, the Company has
established, with its Chinese licensee, a production joint venture in China
which will produce certain precipitator components for use by the Company and
its licensee.
Suppliers and Subcontractors
Like other companies in its industry, the Company relies on outside
suppliers, manufacturers and fabricators to supply parts and components in
accordance with the Company's specifications. In addition, in cases in which the
Company's scope of work includes installation of equipment, the Company selects
and supervises subcontractors for this work. To date, the Company has not
experienced difficulties either in obtaining fabricated components incorporated
in its systems or in obtaining qualified subcontractors. It has been the
Company's recent experience, however, that in times of recession or other
industry downturns, the Company is more likely to be faced with subcontractor
performance problems and construction claims asserted by certain of its
subcontractors. In response, the Company is required to more aggressively manage
its construction activities and contracts, and, in some cases, be subject to
unanticipated costs.
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The Company's vendor sources for various components, materials and parts
used in its systems, including control switches, electrical components, and
other components, include a substantial number of firms. The Company does not
depend on any one of these vendors to a material extent, and in any event the
Company believes that alternative vendors would be available if needed. With
respect to fabricators, the Company has satisfactory relationships with
fabricators throughout the United States and Canada. Similarly, with respect to
installation subcontractors, the Company has satisfactory relations with firms
throughout the United States and Canada. Based on the number of vendors,
fabricators, and subcontractors and the availability of alternative sources, the
Company does not believe that the loss of its relationship with any one firm
would have a material adverse effect on its business.
The Company operates under an agreement with Teco Industries of Maryland,
Inc., an equipment manufacturer, pursuant to which the manufacturer meets the
Company's domestic requirements for production of certain internal components of
electrostatic precipitators (i.e., electrodes and collecting plates) at
pre-determined prices and terms. The agreement expires on June 30, 1997. The
loss of this supplier, or the supplier's inability to perform, could subject the
Company to a temporary delay and possible cost increases. The Company does not
believe, however, that such loss would have a material adverse effect on the
Company because the Company has at least one other adequate source for these
components. The Company has established relationships with one or more
international sources for such components in connection with international
marketing expansion.
Competition
The Company faces substantial competition in each of its principal markets.
Some of the Company's competitors are larger and have greater financial and
other resources than the Company. The Company competes primarily on the basis of
its engineering and technological expertise and quality of equipment and service
provided. The Company believes that the cost of entry into most of its markets,
its experience and reputation for reliability and service, and its knowledge of
the plants and operations of its customers are principal factors that enhance
its ability to compete effectively for rehabilitation and rebuild contracts as
well as new installations. Additionally, the Company believes that the
successful performance of its installed systems is a key factor in dealing with
its customers, which typically prefer to make significant purchases from a
company with a solid performance history.
Virtually all contracts for the Company's systems and technologies are
obtained through competitive bidding. Customers typically purchase these systems
and technologies after a thorough evaluation of price, service, experience, and
quality. Although price is an important factor and may in some cases be the
governing factor, it is not always determinative, and contracts are often
awarded on the basis of life cycle costs and/or product reliability.
Regulation
Significant environmental laws have been enacted in response to public
concern about the environment. These laws and the implementing regulations
affect nearly every industrial activity. The need to comply with these laws
creates demand for the Company's services. The principal federal legislation
that has created a substantial and growing demand for the Company's systems and
technologies and therefore has the most significant effect on the company's
business is the Clean Air Act of 1970, as amended (the "Clean Air Act"). This
legislation requires compliance with ambient air quality standards and empowers
the Environmental Protection Agency ("EPA") to establish and enforce limits on
the emission of various pollutants from specific types of facilities. The states
have
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primary responsibility for implementing these standards and, in some cases, have
adopted standards more stringent than those established by the EPA.
In 1990, amendments to the Clean Air Act were adopted which address, among
other things, the country's acid rain problem by imposing strict controls on the
emissions of sulfur oxides caused by the combustion of coal and other solid
fuels. The power generation market is the first to face the compliance standards
set by the amendments. Under the legislation, coal-burning power plants are
required to comply with new emissions standards in two phases. The first phase,
beginning with enactment of the amendments and generally ending in 1995 or 1996,
required reduced emissions levels leading to full compliance, with limited
exceptions, by the end of the second phase in the year 2000.
In its operations, the Company is subject to federal, state and local laws
and regulations concerning environmental, safety, occupational and health
standards. Expenditures required in fiscal 1996 by such laws were not material
to the Company's business and the Company is not at a competitive disadvantage
by reason of compliance with such laws.
Bonding and Insurance
The Company is from time to time required to provide bonds guaranteeing that
it will enter into contracts as bid, guaranteeing performance of its contract
obligations, and/or guaranteeing prompt payment of its suppliers and
subcontractors. The Company's current surety commitment is, in management's
opinion, sufficient to support the Company's current levels of bonded business.
In addition, the Company has a bank revolving credit and letter of credit
agreement which provides for issuance of letters of credit for various purposes,
including as substitutes for performance or payment bonds.
The Company currently maintains different types of insurance, including
comprehensive liability and property coverages. The Company does not carry a
separate errors and omissions policy, but limited errors and omissions coverage
is provided under its comprehensive liability policy. While a successful claim
or claims in an amount in excess of the Company's insurance coverage or for
which there is no coverage (including claims arising out of the provision by the
Company of engineering services without a product) could have a material adverse
effect on the Company, the Company believes that it presently maintains adequate
insurance coverage for its business as presently constituted. To the extent that
the Company performs or will perform engineering only services for customers,
the Company will, to the extent practicable, obtain the benefit of contractual
terms which limit or eliminate the exposure which would otherwise be insured by
an errors and omissions policy.
Employees
As of March 31, 1996 the Company had 156 full-time employees, the
substantial majority of whom were engineers and other professionals and
technical employees. The Company also hires contract and other temporary
personnel to meet the requirements of particular contracts, as well as contract
personnel to carry out construction supervisory functions. The Company's
professional staff includes chemical engineers, electrical engineers, mechanical
engineers, civil engineers, and computer scientists. Although the Company
depends on professional employees for performance of its services, it has not
experienced any difficulty in employing such personnel to satisfy its
requirements. None of the Company's employees is represented by a union. The
Company considers its relations with its employees to be good.
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ITEM 2. PROPERTIES
Substantially all of the Company's operations, including administration,
engineering, design, and sales operations are conducted from its Baltimore
headquarters, located in a modern office building with approximately 100,000
square feet of leased space. The Company occupies approximately 50,000 square
feet of this space and subleases a portion of the remaining space. See Note 6 of
the "Notes to Consolidated Financial Statements" in the Company's 1996 Annual
Report to Shareholders, incorporated by reference herein, for a description of
the rent and other lease terms.
The Company additionally leases approximately 9,000 square feet in
Baltimore, Maryland which premises are occupied by its research and development
staff.
The Company is in the process of selling a 20,000 square foot office and
light manufacturing facility located in Jeffersonville, Indiana, which was
previously used in its aftermarket business, which was relocated to Baltimore
during fiscal 1996.
In fiscal 1995, the Company sold its privatized waste water treatment
facility in East Aurora, New York, which it previously treated as a discontinued
operation. The Company maintains limited operational responsibility. See Note 2
of the "Notes of Consolidated Financial Statements" in the Company's 1996 Annual
Report to Shareholders.
The Company believes that its existing facilities are adequate to meet its
current needs and that suitable additional or substitute space will be available
as needed to accommodate any expansion of operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time a party to various legal actions arising in
the ordinary course of its business, some of which may involve claims for
substantial sums. Management, after review and consultation with counsel,
considers that any liability from pending lawsuits and claims will not have any
material effect on the financial position or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol "EEC."
As of June 3, 1996, there were 272 record holders of the Company's Common
Stock. The closing price of the Common Stock on June 3, 1996 was $1 7/8.
The additional information required by this item is contained under
"Investor Information" on page 24 and in Note 10 of the "Notes to Consolidated
Financial Statements" on page 21 of the Company's 1996 Annual Report to
Shareholders. Such information is incorporated herein by reference to the Annual
Report.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data provided on page 23 of the
Company's 1996 Annual Report to Shareholders should be read in conjunction with
"Management's Discussion and Analysis" and the Consolidated Financial Statements
and the "Notes to Consolidated Financial Statements" included in the Company's
1996 Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is contained on pages 8 through 11 of
the Company's 1996 Annual Report to Shareholders. Such information is
incorporated herein by reference to the Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is contained in the Consolidated
Financial Statements and Notes to Consolidated Financial Statements appearing on
pages 12 through 21 of the Company's 1996 Annual Report to Shareholders and the
Quarterly Financial Data appearing in Note 10 of the "Notes to Consolidated
Financial Statements" appearing on page 21 of the Company's 1996 Annual Report
to Shareholders. Such information is incorporated herein by reference to the
Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors - The information with respect to Directors required by this
item is incorporated by reference to the Registrant's 1996 Proxy Statement to be
filed with the Securities and Exchange Commission, under the headings "Election
of Directors," "Directors Continuing in Office," and "Certain Information
Regarding the Board of Directors and Committees of the Board."
(b) Executive Officers - Information regarding executive offices of the
Company appears in the Company's definitive proxy statement for the 1996 Annual
Meeting of Stockholders.
In addition, the following information is being provided in response to the
requirements of Item 405 of Regulation S-K. To the Registrant's knowledge,
during the fiscal year ended March 31, 1996, all filing requirements applicable
to officers, directors, and greater than 10% beneficial owners of the common
shares of the Registrant under Section 16(a) of the Securities Exchange Act of
1934, as amended, were complied with, except that Russell R. Jones, a director
of the Registrant, filed one late report relating to one transaction.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to
the Registrant's 1996 Proxy Statement to be filed with the Securities and
Exchange Commission, under the headings "Executive Compensation and Related
Information."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference to
the Registrant's 1996 Proxy Statement to be filed with the Securities and
Exchange Commission, under the heading "Security Ownership."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference
to the Registrant's 1996 Proxy Statement to be filed with the Securities and
Exchange Commission, under the heading "Certain Relationships and Related
Transactions" and under the heading "Employment and Non-Competition Agreements."
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report:
1. The following consolidated financial statements included in the 1996
Annual Report to Shareholders for the year ended March 31, 1996 are incorporated
herein by reference under Item 8 of this Report:
Page Number in
Annual Report
Consolidated Statements of Operations for the years
ended March 31, 1996, 1995, and 1994 12
Consolidated Balance Sheets as of March 31, 1996
and 1995 13
Consolidated Statements of Cash Flows for the
years ended March 31, 1996, 1995, and 1994 14
Consolidated Statements of Stockholders' Investment
as of March 31, 1996, 1995, and 1994 15
Notes to Consolidated Financial Statements 16-21
Management's Responsibility for Financial Statements 22
Report of Independent Public Accountants 22
Page Number
in 10-K
2. Financial Statement Schedules (included on pages
S-1 of this Report):
Report of Independent Public Accountants on Schedules S-1
Valuation and Qualifying Accounts for the years ended
March 31, 1996, 1995, and 1994 (Schedule II) S-2
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All other schedules have been omitted, since the required information is
included in the consolidated financial statements, including the notes thereto,
or the circumstances requiring inclusion of such schedules are not present.
3. Exhibits
3.1 - Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Form S-1 Registration Statement
(File No. 33-35802) filed with the Commission on May 25, 1990).
3.2 - Certificate of Amendment of the Registrant (incorporated by
reference to Form 10-K filed with the Commission on June 24,
1991).
3.3 - Bylaws of the Registrant (incorporated by reference to Form S-1
Registration Statement (File No. 33-35802) filed with the
Commission on May 25, 1990).
4.1 - Articles IV, V, VI, VIII, IX, X and XI of the Registrant's
Restated Certificate of Incorporation, as amended (included in
Exhibit 3.1 and Exhibit 3.2).
4.2 - Articles I, II, V and VII of the Registrant's Bylaws (included
in Exhibit 3.3).
10.1 - Articles of Lease dated April 15, 1975 between Balkop
Properties Corp., as landlord, and Koppers Company, Inc., and
Assignment of Lease dated June 20, 1989 to Registrant, as
assignee, and Beazer Materials and Services, Inc., as
assignor (incorporated by reference to Form S-1 Registration
Statement (File No. 33-35802) filed with the Commission on
May 25, 1990).
10.2 - The Registrant's Retirement Plan, as amended (incorporated by
reference to Form 10-K filed with the Commission on June 28,
1995).
10.2(a) - First Amendment, dated December 28, 1995, to the
Registrant's Retirement Plan, as amended, filed herewith.
10.2(b) - Second Amendment, dated December 28, 1995, to the
Registrant's Retirement Plan, as amended, filed herewith.
10.3 - The Registrant's 401(k) Retirement Savings Plan, as amended
(incorporated by reference to the Registrant's Form 10-K filed
with the Commission on June 28, 1995).
10.3(a) - First Amendment, dated December 28, 1995, to the Registrant's
401(k) Retirement Savings Plan, as amended, filed herewith.
10.4 - The Registrant's Employee Stock Option Plan, as amended
(incorporated by reference to Form S-8 Registration Statement
(File No. 33-38400) filed with the Commission on December 21,
1990).
10.5 - Environmental Elements Corporation Supplemental Pension
Agreement dated March 1, 1995, between Registrant and Richard
E. Hug, filed herewith.
10.6 - Revolving Credit and Letter of Credit Agreement dated
November 24, 1993 between the Registrant and Mercantile-Safe
Deposit & Trust Company (incorporated by reference to Form
10-Q filed with the Commission on February 14, 1994).
10.6(a) - Waiver and Amendment dated May 26, 1994, to the Revolving
Credit and Letter of Credit Agreement dated November 24, 1993
between the Registrant and Mercantile-Safe Deposit & Trust
Company (incorporated by reference to Form 10-K filed with the
Commission on June 29, 1994).
12
<PAGE>
10.6(b) - Extension Agreement dated November 18, 1994 to the Revolving
Credit and Letter of Credit Agreement dated November 23, 1993
between the Registrant and Mercantile-Safe Deposit & Trust
Company (incorporated by reference to Form 10-K filed with the
Commission on June 28, 1995).
10.6(c) - Second Amendment to Revolving Credit and Letter of Credit
Agreement, First Amendment to Line of Credit Promissory Note
and Security Agreement, dated October 25, 1995 between the
Registrant and Mercantile-Safe Deposit & Trust Company
(incorporated by reference to Form 10-Q filed with the
Commission on February 14, 1996).
10.6(d) - Amendment to Revolving Credit and Letter of Credit Agreement
dated May 10, 1996 between the Registrant and Mercantile-Safe
Deposit & Trust Company, filed herewith.
10.7 - License, Cooperation and Supply Agreement dated May 5, 1988
between the Registrant and Komline-Sanderson Engineering
Corporation (incorporated by reference to Form S-1
Registration Statement (File No. 33-35802) filed with the
Commission on May 25, 1990).
10.8 - [OMITTED].
10.9 - Shareholders' Agreement dated February 2, 1990 by and among the
Registrant and certain shareholders of the Registrant
(incorporated by reference to Amendment No. 1 to Form S-1
Registration Statement (File No. 33-35802) filed with the
Commission on July 5, 1990).
10.10 - Employment Agreement dated March 29, 1996 between Registrant
and Edward H. Verdery, filed herewith.
10.11 - Underwriting and Continuing Indemnity Agreement by and among
Reliance Insurance Company, United Pacific Insurance, and
Planet Insurance Company and Registrant and certain of its
subsidiaries dated as of February 8, 1991, (incorporated by
reference to Form 10-K filed with the Commission on June
23, 1992).
10.12 - Agreement dated May 26, 1993 between the Registrant and Teco
Industries of Maryland, Inc. (incorporated by reference to Form
10-Q filed with the Commission on August 13, 1993).
11 - Statement re: Computation of Income per Share, filed herewith.
13 - A copy of the 1996 Annual Report to Shareholders is attached
hereto. Such report, except for those portions thereof which
are incorporated by reference in this Form 10-K, is furnished
for the information of the Commission and is not deemed
"filed."
21 - Subsidiaries of the Registrant, filed herewith.
(b) No reports on Form 8-K were filed during the quarter ended March 31, 1996.
13
<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.
Environmental Elements Corporation
(Registrant)
/s/ F. Bradford Smith
-----------------------------------
F. Bradford Smith
Chief Financial Officer (Principal Financial Officer)
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/ F. Bradford Smith June 20, 1996
- - ---------------------------------------
F. Bradford Smith Date
Chairman of the Board of Directors and
Chief Financial Officer (Principal Financial Officer)
/s/ Edward H. Verdery June 20, 1996
- - ---------------------------------------
Edward H. Verdery Date
Director, President, and Chief Executive Officer
June , 1996
- - ---------------------------------------
Richard E. Hug Date
Director, Chairman Emeritus
June , 1996
- - ---------------------------------------
John C. Nichols Date
Director and Secretary
/s/ Fred Hittman June 20, 1996
- - ---------------------------------------
Fred Hittman Date
Director
/s/ Russell R. Jones June 20, 1996
- - ---------------------------------------
Russell R. Jones Date
Director
/s/ Raymond A. Mason June 20, 1996
- - ---------------------------------------
Raymond A. Mason Date
Director
/s/ James E. Kyne June 20, 1996
- - ---------------------------------------
James E. Kyne Date
Controller (Principal Accounting Officer)
14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To Environmental Elements Corporation:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in Environmental Elements
Corporation and subsidiaries' annual report to shareholders incorporated by
reference in this Form 10-K, and have issued our report thereon dated May 10,
1996. Our audits were made for the purpose of forming an opinion on those
consolidated financial statements taken as a whole. The schedules listed in the
index above are the responsibility of the Company's management and are presented
for purposes of complying with the Securities and Exchange Commission's rules
and are not part of the basic financial statements. These schedules have been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly state in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
Arthur Andersen, LLP
Baltimore, Maryland,
May 10, 1996
S-1
<PAGE>
SCHEDULE II
ENVIRONMENTAL ELEMENTS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MARCH 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
Reserve for
Allowance for Discontinued
Doubtful Accounts Operations
<S> <C>
Balance, March 31, 1993 $ 465,000 $ 355,000
Charged to profit and loss 60,000 --
(Deductions) additions (23,000) (36,000)
--------------- ---------------
Balance, March 31, 1994 502,000 319,000
Charged (credited) to profit and loss (248,000) --
(Deductions) additions (4,000) (211,000)
--------------- ---------------
Balance, March 31, 1995 250,000 108,000
Charged (credited) to profit and loss 46,000 --
(Deductions) additions -- (17,000)
--------------- ---------------
Balance, March 31, 1996 $ 296,000 $ 91,000
_______________ _______________
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
3.1 - Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Form S-1 Registration Statement
(File No. 33-35802) filed with the Commission on May 25, 1990).
3.2 - Certificate of Amendment of the Registrant (incorporated by
reference to Form 10-K filed with the Commission on June 24,
1991).
3.3 - Bylaws of the Registrant (incorporated by reference to Form S-1
Registration Statement (File No. 33-35802) filed with the
Commission on May 25, 1990).
4.1 - Articles IV, V, VI, VIII, IX, X and XI of the Registrant's
Restated Certificate of Incorporation, as amended (included in
Exhibit 3.1 and Exhibit 3.2).
4.2 - Articles I, II, V and VII of the Registrant's Bylaws (included
in Exhibit 3.3).
10.1 - Articles of Lease dated April 15, 1975 between Balkop
Properties Corp., as landlord, and Koppers Company, Inc., and
Assignment of Lease dated June 20, 1989 to Registrant, as
assignee, and Beazer Materials and Services, Inc., as
assignor (incorporated by reference to Form S-1
Registration Statement (File No. 33-35802) filed with the
Commission on May 25, 1990).
10.2 - The Registrant's Retirement Plan, as amended (incorporated by
reference to Form 10-K filed with the Commission on June 28,
1995).
10.2(a) - First Amendment, dated December 28, 1995, to the Registrant's
Retirement Plan, as amended, filed herewith.
10.2(b) - Second Amendment, dated December 28, 1995, to the Registrant's
Retirement Plan, as amended, filed herewith.
10.3 - The Registrant's 401(k) Retirement Savings Plan, as amended
(incorporated by reference to the Registrant's Form 10-K filed
with the Commission on June 28, 1995).
10.3(a) - First Amendment, dated December 28, 1995, to the Registrant's
401(k) Retirement Savings Plan, as amended, filed herewith.
10.4 - The Registrant's Employee Stock Option Plan, as amended
(incorporated by reference to Form S-8 Registration Statement
(File No. 33-38400) filed with the Commission on December 21,
1990).
10.5 - Environmental Elements Corporation Supplemental Pension
Agreement dated March 1, 1995, between Registrant and Richard
E. Hug, filed herewith.
10.6 - Revolving Credit and Letter of Credit Agreement dated
November 24, 1993 between the Registrant and Mercantile-Safe
Deposit & Trust Company (incorporated by reference to Form
10-Q filed with the Commission on February 14, 1994).
10.6(a) - Waiver and Amendment dated May 26, 1994, to the Revolving
Credit and Letter of Credit Agreement dated November 24, 1993
between the Registrant and Mercantile-Safe Deposit & Trust
Company (incorporated by reference to Form 10-K filed with the
Commission on June 29, 1994).
<PAGE>
10.6(b) - Extension Agreement dated November 18, 1994 to the Revolving
Credit and Letter of Credit Agreement dated November 23, 1993
between the Registrant and Mercantile-Safe Deposit & Trust
Company (incorporated by reference to Form 10-K filed with the
Commission on June 28, 1995).
10.6(c) - Second Amendment to Revolving Credit and Letter of Credit
Agreement, First Amendment to Line of Credit Promissory Note
and Security Agreement, dated October 25, 1995 between the
Registrant and Mercantile-Safe Deposit & Trust Company
(incorporated by reference to Form 10-Q filed with the
Commission on February 14, 1996).
10.6(d) - Amendment to Revolving Credit and Letter of Credit Agreement
dated May 10, 1996 between the Registrant and Mercantile-Safe
Deposit & Trust Company, filed herewith.
10.7 - License, Cooperation and Supply Agreement dated May 5, 1988
between the Registrant and Komline-Sanderson Engineering
Corporation (incorporated by reference to Form S-1
Registration Statement (File No. 33-35802) filed with the
Commission on May 25, 1990).
10.8 - [OMITTED].
10.9 - Shareholders' Agreement dated February 2, 1990 by and among the
Registrant and certain shareholders of the Registrant
(incorporated by reference to Amendment No. 1 to Form S-1
Registration Statement (File No. 33-35802) filed with the
Commission on July 5, 1990).
10.10 - Employment Agreement dated March 29, 1996 between Registrant
and Edward H. Verdery, filed herewith.
10.11 - Underwriting and Continuing Indemnity Agreement by and among
Reliance Insurance Company, United Pacific Insurance, and
Planet Insurance Company and Registrant and certain of its
subsidiaries dated as of February 8, 1991, (incorporated by
reference to Form 10-K filed with the Commission on June
23, 1992).
10.12 - Agreement dated May 26, 1993 between the Registrant and Teco
Industries of Maryland, Inc. (incorporated by reference to form
10-Q filed with the Commission on August 13, 1993).
11 - Statement re: Computation of Income per Share, filed herewith.
13 - A copy of the 1996 Annual Report to Shareholders is attached
hereto. Such report, except for those portions thereof which
are incorporated by reference in this Form 10-K, is furnished
for the information of the Commission and is not deemed
"filed."
21 - Subsidiaries of the Registrant, filed herewith.
EXHIBIT 10.2(a)
FIRST AMENDMENT TO THE RETIREMENT PLAN OF
ENVIRONMENTAL ELEMENTS CORPORATION
Pursuant to the powers of amendment reserved under Section 11.1 of the
Retirement Plan of Environmental Elements Corporation, as amended and restated
effective as of January 1, 1989, said Plan shall be and the same is hereby
further amended by Environmental Elements Corporation (the "Employer"),
effective as of January 1, 1989, as follows:
FIRST CHANGE
Section 4.1(b) shall be amended by the additional of the following
sentence immediately at the end thereof as follows:
"Further, in no event in any Plan Year shall the disparity permitted
under the Plan exceed the annual overall permitted disparity limit
described in Reg. Section 1.401(1)-5(a)."
SECOND CHANGE
Section 4.7(a)(2) shall be deleted in its entirety and the following
shall be substituted in lieu thereof:
"(2) 100% of the Participant's average monthly Compensation for the
period of 3 consecutive Limitation Years during which he has the
greatest Compensation from the Employer."
The Retirement Plan of Environmental Elements Corporation, as amended
and restated effective as of January 1, 1989, and as amended by the foregoing
changes is hereby ratified and confirmed in all respects.
IN WITNESS WHEREOF, The Employer has caused this First Amendment to be
executed this 28 day of December, 1995.
ATTEST: ENVIRONMENTAL ELEMENTS
CORPORATION
/s/ John C. Nichols By: /s/ E. H. Verdery
- - ------------------------------ ---------------------------------
John C. Nichols, Secretary E. H. Verdery, President
[Corporate Seal]
EXHIBIT 10.2(b)
SECOND AMENDMENT TO THE RETIREMENT PLAN OF
ENVIRONMENTAL ELEMENTS CORPORATION
Pursuant to the powers of amendment reserved under Section 11.1 of the
Retirement Plan of Environmental Elements Corporation, as amended and restated
effective as of January 1, 1989, as amended by First Amendment effective January
1, 1989, said Plan shall be and the same is hereby further amended by
Environmental Elements Corporation (the "Employer"), effective as of April 1,
1995, as follows:
FIRST AND ONLY CHANGE
Section 4.2 shall be amended by the additional of the following
immediately at the end thereof as follows:
"(d) Effective April 1, 1995, an early retirement window will open
for all vested Participants who are not Highly Compensated Employees.
Specifically, any Participant (as described in the first sentence
hereof) who is (or will be, if he retires pursuant to this early
retirement window) eligible for early retirement and who retires
early during the period from April 19, 1995, through October 31, 1995,
shall be entitled to receive an additional 2 years of credit in the
calculation of both his service and his age for purposes of early
retirement eligibility, and for purposes of receiving the supplemental
benefit described in Section 4.2(b), but not for benefit accrual
purposes."
The Retirement Plan of Environmental Elements Corporation, as amended
and restated effective as of January 1, 1989, as amended by First Amendment
effective January 1, 1989, and as amended by the foregoing change is hereby
ratified and confirmed in all respects.
IN WITNESS WHEREOF, The Employer has caused this Second Amendment to be
executed this 28 day of December, 1995.
ATTEST: ENVIRONMENTAL ELEMENTS
CORPORATION
/s/ J. C. Nichols By: /s/ E. H. Verdery
- - ------------------------------ ---------------------------------
J. C. Nichols, Secretary E. H. Verdery, President
[Corporate Seal]
EXHIBIT 10.3(a)
FIRST AMENDMENT TO THE ENVIRONMENTAL ELEMENTS CORPORATION
401 (K) RETIREMENT SAVINGS PLAN
Pursuant to the powers of amendment reserved under Section 13.02 of the
Environmental Elements Corporation 401(k) Retirement Savings Plan, as
effective as of October 1, 1989, said Plan shall be and the same is hereby
amended by Environmental Elements Corporation (the "Employer"), effective as
of the dates specified herein, as follows:
FIRST CHANGE
Effective as of October 1, 1989, the title of Section 6.01(A)(2) shall
be deleted in its entirety and the following shall be substituted in lieu
thereof as follows:
"Participant's Nonforfeitable Accrued Benefit Exceeds $3,500"
SECOND CHANGE
Effective as of October 1, 1989, Section 14.03(f) shall be amended by
the addition of the following sentence immediately at the end thereof as
follows:
"Further, to compute an Employee's ADP, elective deferrals will be taken
into account for a Plan Year only if the elective deferral relates to
Compensation that either (1) would have been received by the Employee in
the Plan Year but for the Employee's election to defer under the
arrangement, or (2) is attributable to services performed by the
Employee in the Plan Year and, but for the Employee's election to defer,
would have been received by the Employee within 2 1/2 months after the
close of the Plan Year."
THIRD CHANGE
Effective as of October 1, 1989, Section 14.03(h) shall be amended by
the addition of the following sentence immediately at the end thereof as
follows:
"Elective deferrals may be treated as matching contributions only if the
conditions described in Reg. (Section)1.401(m)-1(b)(5) are satisfied."
FOURTH CHANGE
Effective as of October 1, 1989, Section 14.03(k) shall be amended by
the addition of the following sentence immediately at the end thereof as
follows:
<PAGE>
"Qualified matching contributions may be treated as elective
contributions only if the conditions described in Reg.
(Section)1.401(k)-1(b)(5) are satisfied."
FIFTH CHANGE
Effective as of October 1, 1989, Section 14.03(l) shall be amended by
the addition of the following sentence immediately at the end thereof as
follows:
"Qualified non-elective contributions may be treated as elective
contributions only if the conditions described in Reg.
(Section)1.401(k)-1(b)(5) are satisfied. Qualified non-elective
contributions may be treated as matching contributions only if the
conditions described in Reg. (Section)1.401(m)-1(b)(5) are satisfied."
SIXTH CHANGE
Effective as of October 1, 1989, Section 6.04 of the EEC Article C
Adoption Agreement shall be deleted in its entirety and the following
shall be substituted in lieu thereof:
"6.04 ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND SURVIVING
SPOUSES. The annuity distribution requirements of Section 6.04:
(Choose (a) or (b))
[X] (a) Do not apply to a Participant, unless the Participant is
described in Section 6.04(E) of the Plan (relating to the
profit sharing exception to the joint and survivor
requirements).
[ ] (b) Apply to all Participants."
SEVENTH CHANGE
Effective as of January 1, 1995, Section 3.04(d) of the EESC Article D
Adoption Agreement shall be deleted in its entirety and the following
shall be substituted in lieu thereof:
"[X] (d) Modifications to Top Heavy Minimum Allocation.
(Choose (1) or (2))
[ ] (1) The Employer will satisfy the top heavy minimum allocation
by making any necessary additional contribution to the
following defined contribution plan maintained by the
Employer:
______________________________________________________________.
[X] (2) In lieu of 3%, substitute the following percentage to
determine the top heavy minimum allocation: 0%."
- 2 -
<PAGE>
EIGHTH CHANGE
Effective as of April 1, 1991, Section 6.04 of the EESC Article D
Adoption Agreement shall be deleted in its entirety and the following shall be
substituted in lieu thereof:
"6.04 ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND SURVIVING
SPOUSES. The annuity distribution requirements of Section 6.04:
(Choose (a) or (b))
[X] (a) Do not apply to a Participant, unless the Participant is
described in Section 6.04(E) of the Plan (relating to the
profit sharing exception to the joint and survivor
requirements).
[ ] (b) Apply to all Participants."
The Environmental Elements Corporation 401(k) Retirement Savings Plan,
as effective as of October 1, 1989, and as amended by the foregoing changes is
hereby ratified and confirmed in all respects.
IN WITNESS WHEREOF, The Employer has caused this First Amendment to be
executed this 28 day of December, 1995.
ATTEST: ENVIRONMENTAL ELEMENTS
CORPORATION
/s/ J. C. Nichols By: /s/ E. H. Verdery
- - ------------------------------ ---------------------------------
J. C. Nichols, Secretary E. H. Verdery, President
[Corporate Seal]
- 3 -
EXHIBIT 10.5
ENVIRONMENTAL ELEMENTS CORPORATION
SUPPLEMENTAL PENSION AGREEMENT
THIS AGREEMENT is made this 1st day of March, 1995, by and between
Environmental Elements Corporation ("Corporation") and Richard E. Hug
("Executive").
WHEREAS, the Executive performed valuable services for the Corporation
and the Corporation desires to provide the Executive with certain supplemental
retirement benefits to replace a benefit shortfall under the Retirement Plan of
Environmental Elements Corporation ("Retirement Plan") that will occur as a
result of benefit limitations imposed by changes in the law, the imposition of
salary caps under the Retirement Plan and changes in the benefit formula under
the Retirement Plan.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and undertakings hereinafter set forth, and other good and valuable
consideration, receipt of which is hereby acknowledged, the Corporation and the
Executive hereby agree as follows:
1. Recitals. The foregoing recitals are made a part of this Agreement.
2. Supplemental Pension Payment. Commencing March 1995, the Corporation
shall pay the amount of $909.35 per month as a supplemental pension payment to
the Executive for the remainder of the Executive's life and continuing after his
death in the same amount to his wife, Lois-Ann S. Hug, for the remainder of her
life. In the event that Lois-Ann S. Hug predeceases the Executive, such
supplemental pension payments shall cease upon the death of the Executive. Each
monthly supplemental pension payment shall be paid on or before the first day
of each calendar month to which the payment is attributable.
3. Corporation's Obligations To Be Unsecured. The Corporation and the
Executive understand and agree that the Corporation's obligations under this
Agreement shall not be secured in any manner. The Corporation shall not be
required to reserve or otherwise set aside, physically or legally, any funds
for the payment of its obligations hereunder. Neither the Executive, nor
Lois-Ann S. Hug, nor any other person shall be deemed to have any property
interest, legal or equitable, in any specific asset of the Corporation as a
result of entering into this Agreement and, to the extent that any person
acquires any rights to receive payments under the provisions of this Agreement,
such rights shall be no greater than, nor shall they have any preference or
priority over, the rights of any unsecured creditor of the Corporation.
4. Other Plans. Nothing in this Agreement shall be construed to affect
the rights of the Executive, his surviving spouse, other beneficiaries, or his
estate to receive
<PAGE>
any retirement or death benefits under any pension, insurance, other deferred
compensation, or other retirement plans of the Corporation.
5. Non-Alienation Provision. Neither the Executive nor any other person
or persons who may become entitled to payment of any amount under this Agreement
shall have any right to anticipate, commute, pledge, encumber, alienate, sell,
transfer, assign or otherwise dispose of the right to receive payments
hereunder, all of which payments and the rights thereto are expressly hereby
declared to be non-assignable and not subject to the debts, contracts,
liabilities, engagements or torts of the Executive or such persons.
6. Withholding of Taxes. The Corporation shall have the right to
withhold from all amounts payable pursuant to this Agreement any federal, state
or local taxes of any kind required by law to be withheld.
7. Amendments. This Agreement shall not be amended nor modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors, assigns and legal representatives.
8. Binding Agreement. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto, and their respective heirs,
legatees, beneficiaries, personal representatives and other legal
representatives, successors and assigns.
9. Controlling Law. This Agreement shall be construed according to the
laws of the State of Maryland, other than the conflict of laws principles
thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal as of the day and year first above written.
ATTEST: ENVIRONMENTAL ELEMENTS CORPORATION
/s/ Lisa A. Morris By: /s/ F. Bradford Smith
- - ------------------------------ -----------------------------(SEAL)
Lisa A. Morris F. Bradford Smith
President and Chief Executive Officer
WITNESS:
/s/ Karen Brown /s/ Richard E. Hug
- - ------------------------------ ---------------------------------(SEAL)
Karen Brown Richard E. Hug
EXHIBIT 10.6(d)
(Mercantile logo) MERCANTILE-SAFE DEPOSIT & TRUST COMPANY
Nicholas C. Richardson
Assistant Vice President
(410) 237-5216
May 10, 1996
Mr. F. Bradford Smith
Chairman of the Board
Environmental Elements Corporation
3700 Koppers Street
Baltimore, Maryland 21227
Dear Brad:
When we met last week, you pointed out that Tom McCord and I had inadvertently
retained, in its original form, the current ratio requirement in the recast loan
documents associated with Environmental Elements Corporation's Secured Revolving
Credit. I appreciate your drawing my attention to this inconsistency and its
need to be corrected. In our meeting, you also confirmed that the Tangible Net
Worth for Environmental Elements Corporation's year ended March 31, 1996, will
be approximately $200,000 below the Minimum Tangible Net Worth as set forth in
the financial covenants associated with the Revolving Credit Agreement with
Mercantile. I will address the concerns outlined above in the following
paragraphs.
Mercantile-Safe Deposit & Trust Company is willing to adjust the minimum
current ratio from 1.25 to 1.00 retroactively from the period beginning November
1, 1995. This ratio requirement will revert to 1.25 at the date of the sale of
Environmental Elements Corporation's Jeffersonville facility.
Mercantile-Safe Deposit & Trust is also willing to temporarily reduce the
Minimum Tangible Net Worth requirement by $500,000 to $9,500,000, as of March
31, 1996 and reverting back to $10,000,000 as of September 30, 1996.
I believe that these changes will address your concerns. If you should need
additional documentation or clarification, please do not hesitate to call me.
Respectfully,
/s/ Nicholas C. Richardson
Nicholas C. Richardson
NCR/sr
Two Hopkins Plaza / P.O. Box 1477 / Baltimore, Maryland 21203
Fax: (410) 237-5703
Affiliate Mercantile Bankshares Corporation
EXHIBlT 10.10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 29th day of March, 1996, by and
between ENVIRONMENTAL ELEMENTS CORPORATION, a Delaware corporation with
principal offices at 3700 Koppers Street, Baltimore, Maryland 21227 (hereinafter
referred to as "Employer") and EDWARD H. VERDERY residing at Fishing Creek Farm,
1227 Cherry Tree Lane, Annapolis, Maryland 21403 (hereinafter referred to as
"Employee").
1. Employer agrees to continue to employ Employee, and Employee hereby
accepts such continued employment, for an initial term expiring March 31, 1997.
The initial term shall be subject to automatic renewal terms of one year each,
unless either party to the Agreement shall have given written notice not
less than ninety (90) days prior to the annual renewal date that they
wish to terminate this Agreement.
2. Employee is engaged in the capacity set forth on Schedule A hereto
and agrees to serve Employer faithfully and diligently in that capacity wherever
Employer is or may in the future be engaged in such business during the term of
this Agreement, and to perform such other services as may be assigned by the
Board of Directors of the Employer. Employee also agrees to devote his undivided
full-time attention to the business of Employer.
3. In the event that Employer gives Employee notice of Employer's
intention not to renew this Agreement or any renewal other than for Cause,
Employee shall upon any such expiration be entitled to a severance payment equal
to one times the annual salary in effect for Employee in the month prior to the
termination (the "Annual Salary"). In the event this Agreement is terminated
due to a Change in Control or in the event that Employer terminates this
Agreement or any renewal other than for Cause, Employee shall be entitled to a
severance payment equal to (i) one times the Annual Salary and (ii) the
product of one twelfth of the Annual Salary times the number of months between
the effective date of the termination and the date on which this Agreement
would otherwise terminate. Such severance shall be paid with full benefits
in equal biweekly installments or, at Employee's election, exclusive of
benefits, in a lump sum payment made within 60 days of the effective
termination date. For the purposes of this Agreement, the term "Cause"
means (i) Employer's good faith determination that there has been any gross
neglect of duty or misconduct of the Employee in discharging any of his duties
and responsibilities as an employee of the Employer or any of its
subsidiaries, (ii) Employer's good faith determination that there has been
fraud, theft or embezzlement committed against the Employer or any subsidiary
or customer of the Employer, (iii) Employee's conviction of a felony or any
other crime involving moral turpitude, (iv) a violation by Employee of
any covenant or negative covenant set forth in Paragraph 5 hereof. A
Change in Control for the purpose of this Agreement shall mean the acquisition
of a controlling interest in the Employer by any entity or other shareholder
not currently holding a controlling interest.
4. For the term of this Agreement, any renewal thereof, and any period
for which Employee is entitled to receive compensation under this Agreement
(whether or not such payment
<PAGE>
is accelerated at Employee's option), Employee will not engage in, acquire any
interest in, participate in, become employed by, or provide consulting services
to, either directly or indirectly, other than through the ownership of publicly
traded stock, any other business in competition with the air pollution control
business of Employer or any of its related or affiliated corporations.
5. Any stock options granted to you shall become immediately exercisable
in full upon a change in control of the Company, which shall be defined as set
forth in incentive stock option agreements for stock option grants previously
made to you.
IN WITNESS WHEREOF, the parties have caused this Employment Agreement to
be executed on the day and year first above written, and have hereunto set their
hand and seals.
ATTEST: ENVIRONMENTAL ELEMENTS
CORPORATION
/s/ Cleo P. Braver By: /s/ F. Bradford Smith
- - ------------------------------ -----------------------------(SEAL)
Cleo P. Braver F. Bradford Smith
Chairman of the Board
WITNESS:
/s/ Blaire A. Freed /s/ Edward H. Verdery
- - ------------------------------ ---------------------------------(SEAL)
Blaire A. Freed Edward H. Verdery
- 2 -
<PAGE>
SCHEDULE A
Schedule of Capacity For Which Engaged
(Paragraph 2 of the Employment Agreement)
A. Name of Employee: Edward H. Verdery
B. Capacity: The capacity for which the Employee is engaged for the
purposes of Paragraph 2 of the Employment Agreement to
which this Schedule is attached is President and Chief
Executive Officer.
- 3 -
EXHIBIT 11
ENVIRONMENTAL ELEMENTS CORPORATION
STATEMENT REGARDING COMPUTATION OF INCOME PER SHARE
FOR THE YEARS ENDED MARCH 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
PRIMARY: 1996 1995 1994
<S> <C>
Common shares outstanding................................ 6,879,699 6,846,099 6,834,150
Dilutive effect of common stock equivalents:
Stock options......................................... -- 7,970 77,741
--------- --------- ---------
Weighted average number of shares........................ 6,879,699 6,854,069 6,911,891
========= ========= =========
FULLY DILUTED:
Common shares outstanding................................ 6,879,699 6,846,099 6,834,150
Dilutive effect of common stock equivalents:
Stock options....................................... -- 23,196 30,311
--------- --------- ---------
Weighted average number of shares........................ 6,879,699 6,869,295 6,864,461
========= ========= =========
</TABLE>
EXHIBIT 13
1996 ANNUAL REPORT
CUSTOMER
SATISFACTION
[Inset photo appears here]
[Annual report cover photo appears here]
ENVIRONMENTAL
ELEMENTS
CORPORATION
Customer: n.
A person who buys goods or services,
esp. on a regular basis.
Satisfaction: n.
1. The fulfillment of a need or expectation.
2. A source of gratification.
<PAGE>
[Photo appears here]
Environmental Elements' Corporate Headquarters in Baltimore, Maryland
Environmental Elements Corporation, a leading supplier of air pollution
control systems for fifty years, began as a division of Koppers Company, Inc.,
was an independent private company from 1983 to 1990, and became a publicly held
company in July 1990.
Environmental Elements designs and supplies large-scale,
custom-engineered equipment and systems which enable its customers to comply
with regulations limiting particulate and gaseous emissions. The Company strives
to develop and refine its technologies and to provide its customers with high
quality, innovative, cost-effective products and services.
TABLE OF CONTENTS
Financial Highlights 1
Letter to Shareholders 2
Management's Discussion and Analysis 8
Consolidated Financial Statements 12
Management's Responsibility for Financial Statements 22
Report of Independent Public Accountants 22
Selected Consolidated Financial Data 23
Investor Information, Board of Directors, and Senior Management 24
Information and Customer Service Inside Back Cover
Certain of the statements included in this annual report are forward-looking
statements. These statements involve risks and uncertainties that could cause
the actual results to differ from those expressed in or implied by such
statements. These factors include the loss of bookings, increased competition,
changes in environmental regulations, and other factors. Information on factors
that could affect the Company's financial results are set forth in the Company's
filings with the Securities and Exchange Commission including the recently filed
report on Form 10-K for the Company's fiscal year ended March 31, 1996.
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
for the years ended March 31, 1996 1995 1994
(in thousands except per share and employee data)
<S> <C>
Continuing Operations
Bookings.................................................. $ 57,100 $ 79,300 $ 64,700
Backlog................................................... 37,400 41,500 40,400
Sales..................................................... 61,214 77,923 72,567
Operating Loss............................................ (3,354) (1,856) (6,892)
Loss from Continuing Operations........................... (3,855) (2,068) (6,845)
Net Income (Loss)......................................... (3,504) 37 (6,804)
Per Share Data:
Loss from Continuing Operations........................... (0.56) (0.30) (0.99)
Net Income (Loss)......................................... (0.51) 0.01 (0.98)
Cash and Short-term Investments.............................. 2,124 6,563 10,913
Working Capital.............................................. 3,848 7,670 8,864
Stockholders' Investment..................................... $ 9,851 $ 13,333 $ 13,139
Current Ratio................................................ 1.22 1.28 1.42
Total Debt as a Percentage of Total Capital.................. 22% 23% 20%
Weighted Average Shares Outstanding.......................... 6,880 6,869 6,912
Ending Shares Outstanding.................................... 6,902 6,862 6,832
Number of Full-time Employees................................ 156 231 256
</TABLE>
The 1996 Annual Meeting will be held at 9:00 a.m. on Friday, August 2,
1996 at the Company's headquarters building, 3700 Koppers Street, Baltimore,
Maryland 21227. Please call us at 410-368-7340 if you need directions.
ENVIRONMENTAL ELEMENTS CORPORATION -1-
<PAGE>
LETTER TO SHAREHOLDERS
Dear Fellow Shareholder:
Fiscal 1996 was an important transition year for Environmental Elements
Corporation. We completed a major restructuring and repositioning of our
Company, paving the way for future solid growth and profitability -- which we
expect to achieve by the current fiscal year's end. Although we reported an
operating loss for the year, EEC's business posture strengthened considerably
toward year end and has continued to improve. And, as highlighted on the cover
of this Annual Report to Shareholders, underpinning our decisions about the
future structure and direction of EEC has been our overriding commitment to
extraordinary customer satisfaction. In this letter, we intend to share with you
some of the highlights of last year, as well as some of the developments and
trends which we believe will influence our Company this year and for the years
to come.
Fiscal 1996 Highlights
(bullet) Bookings and backlog rose sharply during the second half of
last year. Bookings in the fourth quarter were at their highest level since
the September 1994 quarter, and second half pulp and paper orders were at their
highest level in more than two years.
(bullet) Late in the year one of the first Clean Air Act Amendment
mandated waste-to-energy plant air pollution control retrofits was awarded
to EEC. At year end, our total of backlog and committed but not awarded
projects was in excess of $60 million, the highest level in several years.
(bullet) Our break-even level was driven to the lowest point in the Company's
recent history, reflecting the significant restructuring of our organization
which has been accomplished since late 1993.
(bullet) We made major strides in the international arena, including the
culmination of a license and joint venture arrangement with an
established Chinese precipitator supplier.
(bullet) Through continued focus on customer satisfaction, we solidified our
number one market position in our segments of the air pollution control
equipment industry.
(bullet) We ended the year in solid financial condition, enabling us to
pursue business opportunities as they arise.
The year also saw a major realignment of duties at the top management level.
In September, F. Bradford Smith was named Chairman of the Board of Directors and
Richard E. Hug became Chairman Emeritus. Edward H. Verdery, who joined EEC in
late 1993, was named President and Chief Executive Officer.
Gregory R. Carleton joined EEC in July 1995 as Vice President of Business
Development. Mr. Carleton's recent experience is especially strong in
aftermarket sales and marketing. In late March, F. Bradford Smith assumed the
additional role of Chief Financial Officer on an interim basis. He held this
role previously from 1983 through 1990. Shortly after year end, S. Michael
Dunseith assumed overall operating responsibility for all EEC business units as
Vice President of Operations. Mr. Dunseith, who has been with EEC for several
years, has held positions of increasing responsibility, most recently as head of
our successful Systems business. This team combines experience in our business,
dedication to customer satisfaction, and a no-nonsense profit orientation.
- - -2- ENVIRONMENTAL ELEMENTS CORPORATION
<PAGE>
LETTER TO SHAREHOLDERS
Operational Overhaul Completed
Our customers have been telling us that they want to look to a single source
for help in managing their air pollution issues and in solving their air
pollution problems. We have been listening. Following year end, we completed the
long and difficult task of overhauling our operations into fully functional
integrated business units -- EEC Teams -- each servicing specific market or
customer groups. These Teams are Power, Industrial, Repair and Rebuild Projects,
and Parts. On an operating basis -- before corporate overhead expense -- each of
these units was profitable in fiscal 1996. The restructuring has resulted in
better and more profitable order execution, a trend we expect will continue in
the years ahead. Customer service has also been enhanced by our substantial
investment in increased productivity through technology, people and systems over
the past several years, and by the major restructuring efforts begun in late
1993, including the elimination of marginal and unprofitable businesses.
Operating Expenses Plummet
Reflecting our initiatives since 1993, selling, general and administrative
expenses are now running at a rate of less than $8 million per year, 40% or
almost $5 million per year below 1993 levels. Our goal is to reduce these costs
to 10% of revenue in order to make EEC profitable in virtually any market
environment and to foster the Company's reputation as one of the air pollution
control industry's lowest cost quality suppliers.
In our most recent fiscal year, we continued to prune our overhead structure.
As part of our response to our customers' desire for an integrated air pollution
management solution source, we consolidated our Aftermarket operations in
Jeffersonville, Indiana with our Baltimore headquarters, closing the Indiana
facility which will be sold. We also merged certain divisions and eliminated our
low-profit, direct-hire fabrication and construction businesses. Our aim is to
concentrate the resources and efforts of a seamless organization on providing
differentiated, value- added products, systems and services to our customers in
a way which enhances customer satisfaction.
Results Impeded by Difficult Industry Conditions
Our cost cutting efforts bore fruit in fiscal 1996. Our operating loss, prior
to a large restructuring charge and before net interest expense, was up only
fractionally from that of a year ago despite a 21% sales decline. The decline in
sales to $61.2 million from $77.9 million in fiscal 1995 reflected extremely
difficult industry conditions, particularly early in the year, caused by the
absence of firm regulatory actions or guidance on environmental matters, and by
unstable conditions in the power and the pulp and paper industries -- major
markets for our products and services. After gains in the most recent year of
$351,000, or $0.05 per share, from the sale of our waste-water treatment plant
in mid 1995, and including the recent year's restructuring charge of $951,000,
or $0.14 per share on an after-tax basis, the fiscal 1996 net loss after all
adjustments was $3.5 million, compared to net income of $37,000 a year earlier,
or $0.51 and $0.01 per share, respectively.
ENVIRONMENTAL ELEMENTS CORPORATION -3-
<PAGE>
LETTER TO SHAREHOLDERS
Our financial condition remains solid. Working capital at the end of last
year was $3.8 million, of which more than half was cash or equivalents. We ended
the year with no long-term debt and with stockholders' equity of $9.9 million,
equal to $1.43 per share. Cash expected from the sale of our former aftermarket
facility will enhance our liquidity and working capital positions.
Bookings and Backlog Surge at Year End
Although bookings at $57.1 million for the year were down from the prior
year's level, during the second half of fiscal 1996 they rose very
significantly--over 80%--from year earlier levels. And, year-end backlog at
$37.4 million against $41.5 million a year earlier, was up 28% from midyear.
Importantly, this $37.4 million backlog represents a significantly greater
portion of the volume we need to break even than has been the case at the
beginning of any recent prior year, thus reducing somewhat our dependence on
near-term market conditions. During the year we also received over $25 million
in commitments which were still active and outstanding at year end. These
commitments are not included in either bookings or backlog figures. Although we
are keenly aware of the risks of our market, we are nonetheless cautiously
optimistic regarding the current fiscal year.
Significant Orders Received
A number of important orders were received during fiscal 1996, including:
(bullet) Multiple contracts valued in excess of $4 million from
Willamette Industries to furnish four electrostatic precipitators for that
company's Hawesville and Bennettsville, Kentucky mills.
(bullet) Multiple contracts valued at $7.5 million from Weyerhaeuser
Corporation to engineer and deliver replacement precipitators at that
company's Valiant, Oklahoma and Grande Prairie, Alberta, Canada mills.
(bullet) A $5.3 million order from Carolina Power and Light to engineer and
deliver a replacement precipitator for a 650 megawatt boiler at its Roxboro,
North Carolina station. This is our third major order from CP&L in the last
three years.
(bullet) A $6 million order from Commonwealth Edison to engineer, deliver and
erect a replacement precipitator for a 352 megawatt boiler at its Waukegan,
Illinois station.
(bullet) A $4.5 million commitment from Westinghouse to engineer and
retrofit a rotary atomizer semi-dry scrubber for the Bay County, Florida
waste-to-energy facility. This is one of the first contracts to be let as a
result of the 1990 Clean Air Act Amendment requirements for the retrofitting
of municipal waste incineration and waste-to-energy plants nationwide.
- - -4- ENVIRONMENTAL ELEMENTS CORPORATION
<PAGE>
LETTER TO SHAREHOLDERS
Commitments received in fiscal 1996 included $11 million for a large
waste-to-energy plant to be built in the Eastern U.S., and $14 million for our
unique Circulating Dry Scrubber (CDS(registration symbol)) flue gas
desulfurization system for an independent power plant to be built in Puerto
Rico. Introduced in this country by EEC in 1991, the CDS(R) has special
application in power generation. During late fiscal 1995 and in fiscal 1996
the first two units utilizing this unique technology were successfully started
up.
Commitment to Research and Development Strengthened
In fiscal 1996, we further strengthened our commitment to research and
development. Our research teams have consistently produced product improvements
which have developed and maintained EEC's reputation as the technical leader in
the U.S. air pollution control field.
During fiscal 1996, we began commercial testing of a potentially significant
product modification which could have broad applications and which could
significantly increase the collecting efficiency of present and future
precipitators at a lower cost to the customer. Preliminary qualitative results
are encouraging, and quantitative testing of a full-size industrial installation
will begin in the first quarter of this fiscal year. While this technology may
not be ready for full-scale commercialization for two or more years, other large
customers have expressed strong interest in specialty full-scale demonstrations,
and we expect to begin another full-size industrial demonstration project soon.
Expansion into International Markets Continued
We remain steadfast in our belief that the international markets represent a
major opportunity for EEC. Over the past year, we have made important headway
abroad.
In November 1995, we established a joint venture and licensing arrangement
with Bengbu Environmental Protection Equipment Factory, a Chinese manufacturer
of electrostatic precipitators for the power and cement industries. EEC has
licensed certain technologies to Bengbu, which is based in Anhui Province,
China, a country of strategic importance due to its tremendous need for
coal-fired electric generating capacity. The joint venture Company will produce
EEC designed precipitator parts for customers in that country and will export
components to EEC. In February 1996, our Chinese licensee/joint venture partner
received its first contract utilizing EEC technology, covering the supply of
material and engineering for an electrostatic precipitator to be installed at
the 125 megawatt Sudong Power Plant in Anhui Province.
In addition to enabling Bengbu to provide state-of-the-art air pollution
technology to locally funded power plant projects, our China-based license and
joint venture arrangements will enable us to better serve our international
power project developer and other Pacific Rim customers.
During the year, we also received our second direct contract in Poland. In
addition, we collaborated with a potential Polish partner on a number of
proposals and other marketing and technology matters which we expect may bear
fruit in the current year and beyond.
ENVIRONMENTAL ELEMENTS CORPORATION -5-
<PAGE>
LETTER TO SHAREHOLDERS
We will continue to aggressively pursue business opportunities in other parts
of Asia and in Central Europe. As we grow EEC's international business, our
standard procedure should mirror that of our Chinese venture. We will form
partnerships or joint venture alliances with local companies, swapping our
technology for an equity interest in the venture and a license revenue stream.
This strategy permits our international partners to best serve their local
customers, provides EEC an on-the-ground presence from which to better serve our
international customers, and also provides EEC maximum leverage on its valuable
technology base at acceptable risk and cost.
Aftermarket Strategy Refined
In early fiscal 1997, we completed the reorganization and repositioning of
our Aftermarket activities as two business units and profit centers--Repair and
Rebuild Projects, and Parts. This portion of our business represents a
significant growth opportunity for EEC and is now more closely aligned with our
traditional Systems business. The realignment should maximize our penetration in
this challenging market environment.
Because of the extreme conditions under which air pollution control systems
operate, the maintenance, repair and rebuilding of these systems must be an
ongoing process, and should generate continuing demand for the Company's
services and parts. Aftermarket Repair and Rebuild Projects and Parts sales,
which represented less than 20% of EEC's overall revenue in the latest fiscal
year, are expected to grow at a 15% or better annual pace through the end of
this decade.
Our optimism is based on the fact that today we are by far the largest
supplier of particulate air pollution control equipment to the power and to the
pulp and paper industries, and yet we are servicing only a fraction of our own
installed equipment base. We believe that EEC's dominant position, solid
reputation and strong relationship with original equipment customers give us
important leverage in the Aftermarket arena. Additionally, our growing installed
base of gaseous air pollution control systems provides another specialized
aftermarket customer need which we are well positioned to fill.
In another related move, we are pursuing a number of multi-year, full-service
contracts, whereby EEC would supply not only complete air pollution control
equipment inspection, service, and maintenance requirements of our customers,
but would also fill their new and replacement equipment needs at regularly
scheduled intervals. Increasingly, our customers are exploring the outsourcing
of their equipment service and maintenance needs to a limited number of
reputable providers, thus enabling them to concentrate on what they do best. Our
integrated full-service capabilities, our reputation for quality service, and
our dedication to customer satisfaction position us particularly well to
responsively address this emerging customer need.
These strategies will lead EEC beyond the area of air pollution control and
mandate that we add products and services that are related to what we do, but
tied to our strength--our relationship with our customers--thereby broadening
our sales base and making us less dependent on only the U.S. air pollution
control equipment market.
- - -6- ENVIRONMENTAL ELEMENTS CORPORATION
<PAGE>
LETTER TO SHAREHOLDERS
Outlook
While we cannot predict the timing, we believe the domestic market for our
products and services will rebound if for no other reason than that much of the
air pollution equipment now in place is at the end of its life cycle and must be
replaced. Based on industry input and our customer contacts, we believe that a
positive shift in buying patterns for new air pollution control equipment to
replace outmoded or underperforming units may occur toward the end of this
fiscal year. In fact, since last fall we have experienced a gradual, albeit
modest, pickup in orders. If this positive trend continues, EEC will soon cross
the break-even threshold to profitability. Firm regulatory action or even
guidance, delayed for so long, could come at any time and would provide further
impetus to this year's results. Because of our reduced overheads and flexible
team alignment, when sales do pick up, profits should expand rapidly.
EEC's Dimensions Extended Significantly
Today, EEC is a radically different Company than it was only a few years ago.
We have a new, restructured management team. We have completely repositioned the
Company. Our customers are now served by dedicated teams of specialists who can
offer them the wide range of products and services they have told us they need.
We have a new vision: To become a world-class provider of solutions built on our
strength as a supplier of original equipment.
On behalf of all members of the EEC management team and its directors, we
encourage you to attend the annual meeting on August 2, 1996, when we will
review the events of fiscal 1996 and the Company's outlook.
Sincerely,
/s/ E. H. Verdery /s/ F. B. Smith
E. H. Verdery F. B. Smith
President and Chairman of the Board and
Chief Executive Officer Chief Financial Officer
June, 1996
ENVIRONMENTAL ELEMENTS CORPORATION -7-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
General
The Company designs and supplies systems and equipment and provides
aftermarket products and services that enable its customers to comply with
regulations limiting particulate and gaseous emissions. The Company generally is
contractually responsible for all phases of design, fabrication and, if included
in the scope of the Company's contract, field construction of its equipment and
systems. The Company faces substantial competition in each of its principal
markets. Substantially all contracts for the Company's systems are awarded
through competitive bidding, and are undertaken on a fixed-price basis. Like
others in its industry, the Company relies on outside suppliers, manufacturers,
and fabricators to supply parts and components in accordance with the Company's
designs and specifications. When the Company's scope of work includes
installation of equipment, the Company selects and supervises subcontractors for
this work. The Company's successful completion of its contractual obligations is
usually determined by performance testing of its systems.
Information pertaining to continuing operations in the Company's consolidated
financial statements reflects the activities of its air pollution control
business. Information relating to discontinued operations is discussed in Note 2
of "Notes to Consolidated Financial Statements."
Bookings and Backlog
Bookings represent work for which the Company has entered into a signed
agreement or has received a notice to proceed. Bookings during fiscal 1996 were
$57.1 million, a 28% decrease from fiscal 1995 bookings. It is the Company's
opinion that current effects of uncertainty created by regulatory rule making
have been significant factors contributing to the reduction of orders in fiscal
1996. Bookings increased significantly in the second half of the latest fiscal
year.
The Company expects that about 70% of the March 31, 1996 backlog will be
executed during its next fiscal year. Due to timing effects of bookings,
differences in project gross margins, and varying lengths of time required to
perform contracts (typically 12-36 months), annual bookings activity and backlog
levels at period end are not necessarily predictive of future operating results.
Sales and Income
The following table sets forth the amounts and percentage relationships to
sales of selected items in the Company's consolidated statements of operations
for the periods indicated:
<TABLE>
<CAPTION>
for the years ended March 31, 1996 1995 1994 1996 1995 1994
(in millions) (percentage of net sales)
<S> <C>
Sales.................................................. $61.2 $77.9 $72.6 100.0% 100.0% 100.0%
Cost of Sales.......................................... 54.6 69.1 66.0 89.2 88.7 90.9
Gross profit........................................... 6.6 8.8 6.6 10.8 11.3 9.1
Selling, general and administrative expense............ 9.0 10.7 11.7 14.7 13.7 16.1
Restructuring charge................................... 1.0 -- 1.8 1.7 -- 2.5
Operating income (loss)................................ (3.4) (1.9) (6.9) (5.6) (2.4) (9.5)
Interest and other income, net......................... (0.5) (0.2) 0.1 (0.8) (0.3) 0.1
Continuing operations pre-tax income (loss)............ $(3.9) $(2.1) $(6.8) (6.4)% (2.7)% (9.4)%
</TABLE>
- - -8- ENVIRONMENTAL ELEMENTS CORPORATION
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Fiscal 1996 Compared to Fiscal 1995
Fiscal 1996 sales decreased 21% or $16.7 million to $61.2 million from $77.9
million the year before. The decrease in sales reflects contract booking
activity, mix, and job progress. Lower than expected available orders in the air
pollution control marketplace has resulted in reduced bookings and a resultant
decrease in sales. Overcapacity in the industry has produced significant pricing
pressure which has affected profitability in both years.
Cost of sales decreased 21% or $14.5 million to $54.6 million from $69.1
million. Cost of sales increased as a percentage of sales to 89.2% from 88.7%
primarily as a result of direct hire construction cost overruns. During the
second half of the year, the Company exited its direct hire construction
activities.
Selling, general and administrative expenses decreased 16% or $1.7 million to
$9.0 million from $10.7 million. Cost reductions from restructuring actions
taken during the prior fiscal year, together with further restructuring and
other cost reductions during the current fiscal year were the primary factors in
the decrease. Selling, general and administrative expenses, as a percentage of
sales, increased to 14.7% from 13.7% because sales decreased by a greater
percentage than SG&A. SG&A expenses at the end of fiscal 1996 were running at a
rate of approximately 60% of SG&A levels four years earlier.
The Company has taken a series of actions during fiscal years 1994 through
1996 to realign its organization to better serve its markets and reduce costs
and expenses. The actions included reorganization of its original equipment
systems and aftermarket businesses and a significant reduction in work force.
The Company recorded charges of $1.8 million in fiscal year 1994 and $951,000 in
fiscal year 1996 representing the cost of these actions. These charges
represented primarily cash expenditures, most of which had been paid by the end
of fiscal 1996. (See Note 7 of "Notes to Consolidated Financial Statements.")
Interest and other expense, net, increased $322,000. The increase was
primarily due to a decrease in interest income on the Company's investment
portfolio as a result of lower interest rates and a decrease in cash available
for investment.
The gain on disposal of discontinued operations decreased to $351,000 from
$2.1 million. Both amounts reflect primarily the gain on sale of the Company's
Water Treatment Privatization Project, sold in fiscal 1995. No further material
income or expense is expected from this transaction.
Fiscal 1995 Compared to Fiscal 1994
Fiscal 1995 sales increased 7% or $5.3 million to $77.9 million from $72.6
million in fiscal 1994. The increase in sales reflects contract booking
activity, mix, and job progress.
Cost of sales increased 5% or $3.2 million to $69.1 million from $65.9
million. Cost of sales decreased as a percentage of sales to 88.7% from 90.9%
primarily as a result of better execution margins, and cost of sales in fiscal
1994 being affected by unutilized capacity, costs of litigation and settlement
associated with a subcontractor claim, and costs of technology transfer and
market entry for the Company's first two circulating dry scrubber projects.
Selling, general and administrative expenses decreased 9% or $1.0 million to
$10.7 million from $11.7 million. Cost reductions from restructuring actions
taken during the prior fiscal year was the primary factor in the decrease,
offset for the most part by increases in certain expenses in the aftermarket
business and higher levels of spending in research and development. Selling,
general and administrative expenses as a percentage of sales decreased to 13.7%
from 16.1% as a result of the decrease in expenses and increase in sales.
ENVIRONMENTAL ELEMENTS CORPORATION -9-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Interest and other expense, net, increased $283,000. The increase was
primarily due to a decrease in interest income on the Company's investment
portfolio as a result of a decrease in cash available for investment.
The gain on disposal of discontinued operations increased to $2.1 million
from $41,000. The increase reflects the gain on sale of the Company's Water
Treatment Privatization Project.
Liquidity and Capital Resources
Cash and short-term investments decreased $4.4 million during fiscal 1996.
This was principally due to the Company's $3.4 million operating loss.
Historically, the Company has required minimal investment in operating working
capital.
Despite negative cash flows during the past three years, the Company had
liquid working capital and financial positions as of March 31, 1996. Since the
initial public offering in July 1990, the Company has not been dependent on bank
financing. The Company's contracts typically provide for progress payments based
upon the achievement of performance milestones or actual monthly job progress.
In addition, contracts often provide that customers retain a portion of the
contract price until the achievement of performance guarantees has been
demonstrated. The Company seeks to manage project cash flows in its payment
terms negotiations with customers and suppliers, and in adherence to project
budgets and schedules.
Because the Company's business is not capital intensive, the Company has not
traditionally experienced significant capital expenditures. During fiscal 1996,
total purchases of property and equipment were $0.9 million compared to $2.0
million in fiscal 1995 and $2.4 million in fiscal 1994. Most of the fiscal 1996
capital expenditures were for increased productivity and for renovation of
building space leased to tenants. Fiscal 1995 purchases of property and
equipment were primarily for increased productivity and for reorganizing and
upgrading offices. During fiscal 1995, the Company acquired the assets of Field
Service Associates, Inc., at a cost of $0.3 million to expand its aftermarket
business. The Company anticipates capital expenditures of less than $1 million
during fiscal 1997, of which approximately $0.1 million was committed as of
March 31, 1996. Funds will be provided from operations, cash and short-term
investments, and the sale of the Company's former aftermarket facility.
Although the Company experienced an operating loss during the year ended
March 31, 1996, the Company believes that its operating trends are improving.
However, there can be no assurance that such improved trends will materialize or
continue. If the Company were not able to sustain a trend of improved operating
results, operating losses could continue to adversely affect the Company's
liquidity and capital resource positions. Under those circumstances, the Company
believes that its current liquidity and capital resources, i.e. those currently
available and those which could be obtained, would be adequate to maintain its
ongoing business during at least the next two fiscal years. In addition to the
Company's liquidity and capital resource positions, the Company believes that it
has the potential to generate cash flows through a number of alternatives which
include utilizing certain fixed asset financing options and the ability to
further reduce operating costs. As a result of its recent investments to upgrade
its infrastructure, the Company has the flexibility to minimize or delay
additional capital expenditures for the foreseeable future.
The Company believes that under certain circumstances increased bookings may
require the Company to seek external financing to provide temporary liquidity
support. In such event, the Company would expect to obtain such financing either
from its existing bank credit facility or other sources which the Company
believes would be available.
- - -10- ENVIRONMENTAL ELEMENTS CORPORATION
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Dividends
The Board of Directors did not declare a dividend during fiscal 1996 due to
the Company's operating results. Any future determination as to the payment of
dividends on common stock will depend on future profitability and capital
requirements of the Company and/or on such other factors as the Board of
Directors may consider. The Company intends to retain most of its future
earnings to finance growth and development of its business.
ENVIRONMENTAL ELEMENTS CORPORATION -11-
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
for the years ended March 31, 1996 1995 1994
<S> <C>
Sales........................................... $ 61,214,000 $ 77,923,000 $ 72,567,000
Cost of sales................................... 54,593,000 69,100,000 65,946,000
Gross Profit............................ 6,621,000 8,823,000 6,621,000
Selling, general and administrative expenses.... 9,024,000 10,679,000 11,698,000
Restructuring charge............................ 951,000 -- 1,815,000
9,975,000 10,679,000 13,513,000
Operating Loss......................... (3,354,000) (1,856,000) (6,892,000)
Interest and other expense, net................. (501,000) (179,000) 104,000
Loss from Continuing Operations
before Income Taxes.................. (3,855,000) (2,035,000) (6,788,000)
Provision for income taxes...................... -- 33,000 57,000
Loss from Continuing Operations........ (3,855,000) (2,068,000) (6,845,000)
Gain on disposal of discontinued operations, net 351,000 2,105,000 41,000
Net Income ( Loss)...................... $ (3,504,000) $ 37,000 $ (6,804,000)
Per share of common stock and common stock equivalents:
Loss from continuing operations............. $ (0.56) $ (0.30) $ (0.99)
Income from discontinued operations......... 0.05 $ 0.31 $ 0.01
Net Income (Loss).......................... $ (0.51) $ 0.01 $ (0.98)
</TABLE>
The accompanying notes are an integral part of these statements.
- - -12- ENVIRONMENTAL ELEMENTS CORPORATION
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
as of March 31, 1996 1995
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 2,124,000 $ 3,748,000
Short-term investments........................................ -- 2,815,000
Accounts and retainage receivable, net of allowance for
doubtful accounts of $296,000 and $250,000 in 1996 and
1995, respectively 10,027,000 18,455,000
Unbilled contract costs and fees.............................. 4,825,000 6,769,000
Inventories................................................... 2,032,000 2,234,000
Prepaid expenses and other current assets..................... 2,011,000 1,256,000
Net current assets of discontinued operations................. 64,000 68,000
Total Current Assets...................................... 21,083,000 35,345,000
Property and equipment:
Capital lease, building and improvements...................... 8,269,000 7,772,000
Machinery, equipment, furniture and fixtures.................. 6,527,000 6,123,000
14,796,000 13,895,000
Less--Accumulated depreciation and amortization.............. 6,092,000 4,884,000
Property and equipment, net............................... 8,704,000 9,011,000
Other assets...................................................... 392,000 878,000
Total Assets.............................................. $ 30,179,000 $ 45,234,000
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Notes payable.................................................$ -- $ 865,000
Accounts payable.............................................. 12,186,000 19,218,000
Billings in excess of contract costs and fees................. 2,391,000 1,713,000
Accrued payroll and related expenses.......................... 675,000 1,136,000
Accrued and other current liabilities......................... 1,883,000 4,643,000
Deferred taxes................................................ 100,000 100,000
Total Current Liabilities................................. 17,235,000 27,675,000
Long-term capital lease obligation................................ 2,662,000 2,858,000
Deferred taxes.................................................... 100,000 100,000
Other non-current liabilities..................................... 176,000 1,085,000
Net long-term liabilities of discontinued operations.............. 155,000 183,000
Commitments and contingencies
Total Liabilities......................................... 20,328,000 31,901,000
Stockholders' investment:
Common stock, par value $.01 per share, 6,920,224 shares issued 69,000 69,000
Paid-in capital............................................... 27,763,000 27,763,000
Cumulative translation adjustment............................. (136,000) (71,000)
Retained deficit ............................................ (17,738,000) (14,134,000)
Treasury stock, 17,902 and 58,018 shares held in 1996 and 1995,
respectively................................................. (107,000) (294,000)
Total Stockholders' Investment............................ 9,851,000 13,333,000
Total Liabilities and Stockholders' Investment............ $ 30,179,000 $ 45,234,000
</TABLE>
The accompanying notes are an integral part of these statements.
ENVIRONMENTAL ELEMENTS CORPORATION -13-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
for the years ended March 31, 1996 1995 1994
<S> <C>
Cash flows from operating activities:
Net income (loss)................................................... $ (3,504,000) $ 37,000 $ (6,804,000)
Non-cash items:
Depreciation and amortization................................... 1,242,000 969,000 900,000
Gain on disposal of discontinued operations,
net of provision for income taxes............................ (351,000) (2,105,000) (41,000)
Deferred tax benefit .......................................... (100,000) --
Stock contributions to savings plan............................. 87,000 108,000 136,000
(Increase) decrease in accounts and retainages receivable, net...... 8,428,000 (6,757,000) 4,845,000
(Increase) decrease in unbilled contract costs and fees............ 1,944,000 (3,234,000) 5,217,000
(Increase) decrease in inventories................................. 202,000 78,000 (368,000)
(Increase) decrease in prepaid expenses and other current assets.... (755,000) 8,000 (198,000)
Increase (decrease) in accounts payable............................. (7,032,000) 7,110,000 (5,442,000)
Increase (decrease) in billings in excess of contract costs and fees 678,000 (1,494,000) (1,732,000)
Increase (decrease) in accrued payroll and related expenses......... (461,000) 210,000 (163,000)
Increase (decrease) in accrued and other current liabilities........ (2,760,000) (425,000) 256,000
(Increase) decrease in net assets of discontinued operations........ (24,000) (682,000) 158,000
Increase (decrease) in other non-current liabilities................ (425,000) (278,000) (103,000)
Net Cash Flows Used in Operating Activities................... (2,731,000) (6,555,000) (3,339,000)
Cash flows from investing activities:
Proceeds from short-term investments................................ 2,815,000 3,437,000 3,128,000
Purchases of property and equipment................................. (901,000) (1,984,000) (2,368,000)
Disposals of property and equipment, net............................ -- 200,000 353,000
Proceeds from disposal of discontinued operations................... 351,000 3,287,000 --
(Increase) decrease in other assets................................. (32,000) (33,000) 100,000
Net Cash Flows Provided by Investing Activities............... 2,233,000 4,907,000 1,213,000
Cash flows from financing activities:
Increase (decrease) in borowings under line of credit.............. (865,000) 865,000 --
Issuance of common stock............................................ -- -- 29,000
Payments under capital lease obligation............................. (196,000) (179,000) (164,000)
Change in cumulative translation adjustment......................... (65,000) 49,000 9,000
Purchase of treasury stock.......................................... -- -- (507,000)
Net Cash Flows (Used in) Provided by Financing Activities .... (1,126,000) 735,000 (633,000)
Net Decrease in Cash and Cash Equivalents..................... (1,624,000) (913,000) (2,759,000)
Cash and Cash Equivalents, beginning of year............................ 3,748,000 4,661,000 7,420,000
Cash and Cash Equivalents, end of year.................................. $ 2,124,000 $ 3,748,000 $ 4,661,000
</TABLE>
The accompanying notes are an integral part of these statements.
- - -14- ENVIRONMENTAL ELEMENTS CORPORATION
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
Cumulative Retained
Common Treasury Paid-in Translation Earnings
Changes in Amounts Stock Stock Capital Adjustment (Deficit) Total
<S> <C>
Balance, March 31, 1993 $ 69,000 $ -- $27,647,000 $ (129,000) $(7,311,000) $20,276,000
Net loss................. -- -- -- -- (6,804,000) (6,804,000)
Purchase of treasury stock -- (507,000) -- -- -- (507,000)
Issuance of common stock under
employee savings plan from:
common stock...... -- -- 87,000 -- -- 87,000
treasury.......... -- 62,000 -- -- (13,000) 49,000
Issuance of common stock
under stock option plan -- -- 29,000 -- -- 29,000
Translation adjustment... -- -- -- 9,000 -- 9,000
Balance, March 31, 1994 69,000 (445,000) 27,763,000 (120,000) (14,128,000) 13,139,000
Net income............... -- -- -- -- 37,000 37,000
Issuance of common stock from
treasury under employee
savings plan -- 151,000 -- -- (43,000) 108,000
Translation adjustment... -- -- -- 49,000 -- 49,000
Balance, March 31, 1995 69,000 (294,000) 27,763,000 (71,000) (14,134,000) 13,333,000
Net loss................. -- -- -- -- (3,504,000) (3,504,000)
Issuance of common stock from
treasury under employee
savings plan -- 187,000 -- -- (100,000) 87,000
Translation adjustment... -- -- -- (65,000) -- (65,000)
Balance, March 31, 1996 $ 69,000 $(107,000) $27,763,000 $(136,000) $(17,738,000) $9,851,000)
</TABLE>
Changes in Common Shares
Balance, March 31, 1993 6,892,044
Issuance of common stock under
employee savings plan (12,142 from treasury)........ 30,322
Issuance of common stock under
stock option plan................................... 10,000
Purchase of treasury shares.......................... (100,000)
Balance, March 31, 1994 6,832,366
Issuance of common stock from treasury
under employee savings plan......................... 29,840
Balance, March 31, 1995 6,862,206
Issuance of common stock from treasury
under employee savings plan......................... 40,116
Balance, March 31, 1996 6,902,322
The accompanying notes are an integral part of these statements.
ENVIRONMENTAL ELEMENTS CORPORATION -15-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany balances and transactions have
been eliminated in consolidation. 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.
Cash and Cash Equivalents
Cash equivalents consist primarily of investments in short-term, highly
liquid securities having an original maturity of three months or less at the
time of acquisition. Cash and cash equivalents are stated at cost plus accrued
interest, which approximates market value. As of March 31, 1996 and 1995,
$571,000 and $268,000, respectively, of repurchase agreements were included in
this caption.
Short-Term Investments
Short-term investments consist primarily of investment grade securities which
can be readily purchased or sold using established markets. Short-term
investments are stated at cost, adjusted for discount and amortization plus
accrued interest which approximates market value.
Accounts and Retainages Receivable
As of March 31, 1996 and 1995, accounts and retainages receivable, net of
allowance for doubtful accounts, include current accounts receivable of
$7,788,000 and $16,052,000, respectively, and retainages of $2,239,000 and
$2,403,000, respectively. Retainages as of March 31, 1996 include approximately
$2,007,000 in amounts which become due in fiscal 1997, based on applicable
contract terms.
Long-Term Contracts
The Company records sales from long-term contracts using the
percentage-of-completion method. Under this method, the Company recognizes as
sales that portion of the total contract price which the cost of work completed
bears to the estimated total cost of the work covered by the contract. Because
contracts may extend over more than one fiscal period, revisions of cost and
profit estimates are made periodically and are reflected in the accounting
period in which they are determined. If the estimate of total costs on a
contract indicates a loss, the total anticipated loss is recognized immediately.
Unbilled contract costs and fees represent sales recognized in excess of
amounts billed. All unbilled contract costs and fees are expected to be
collected in fiscal 1997. Billings in excess of contract costs and fees
represent billings in excess of sales recognized.
The Company provides for warranty expenses on contracts based on estimates
which take into account historical experience. Warranty expenses are included in
cost of sales and in accrued liabilities, respectively, in the accompanying
consolidated financial statements.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventories consist principally of purchased parts held for use in contracts and
as spare parts.
Property and Equipment
Major improvements are capitalized at cost, while replacements and
maintenance and repairs which do not improve or extend the life of the affected
assets are charged to expense as incurred. Depreciation and amortization of
property and equipment is computed on the straight-line method over estimated
useful lives of three to forty years by major asset class.
- - -16- ENVIRONMENTAL ELEMENTS CORPORATION
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
The Company provides for income taxes using the liability method pursuant to
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes." Deferred income taxes are provided for temporary differences arising
between the tax basis of assets and liabilities and their respective book basis
as reported in the financial statements. Because the Company has operated at a
loss during two of the past three years, income taxes are not material.
Per Share Data
Per share data has been presented on a fully diluted basis and is based upon
the weighted average number of shares of common stock outstanding during each
year. Primary per share data for each of the three years ended March 31, 1996,
1995 and 1994 was equal to fully diluted income per share data.
The average number of shares used in the computations of per share data for
each of the years ended March 31, 1996, 1995 and 1994 totaled 6,880,000,
6,869,000, and 6,912,000, respectively.
Note 2
Discontinued Operations
Prior to fiscal year 1990, the Company adopted plans to dispose of the Sound
Control Systems division (SCS) and the Water Treatment Privatization Project
(the Project). As a result, the accompanying consolidated financial statements
include only the Company's Air Pollution Control Systems business in continuing
operations.
The Company has completed its final SCS contract and, except for final
contract closeout, all SCS activities have ceased.
During fiscal year 1995, the Company sold its Water Treatment
Privatization Project. The Company retains certain operating responsibilities
and contingent liabilities until final turnover of the plant. During fiscal
1996, the Company received an additional payment of $351,000 in connection
with this sale. The 1995 gain on the transaction and the 1996 additional
payment have been recorded in the "Gain on disposal of discontinued operations"
caption in the Consolidated Statements of Operations. No further material
payments are expected in connection with this transaction.
Note 3
Credit Facility
As of March 31, 1996, the Company and its subsidiaries had a bank credit
facility, secured by the assets of the Company, providing for revolving line of
credit borrowings and letters of credit issuances of up to $7,000,000, with
interest charges at the bank's prime rate plus 1/2% (8.75% at March 31, 1996).
At March 31, 1996, no borrowings were outstanding under this facility, and a
total of $2,000,000 of letters of credit were outstanding. The credit facility
expires on December 1, 1997.
During fiscal years 1996, 1995, and 1994, the maximum borrowings under lines
of credit totaled $4,365,000, $3,020,000, and $920,000, respectively. Average
borrowings during such years were $1,363,000, $898,000, and $32,000, and the
weighted average interest rates on such borrowings were 9.0%, 7.7%, and 6.0% in
fiscal years 1996, 1995 and 1994, respectively.
Note 4
Income Taxes
As of March 31, 1996, the Company had available, for Federal tax purposes,
estimated net operating loss carryforwards of approximately $16,830,000 to
offset future taxable income. The carryforwards will expire between 2008 and
2010. As of March 31, 1996, the Company also had an alternative minimum tax
credit carryforward of approximately $498,000 which has no expiration date. As
of March 31,1996 and 1995, the Company had alternative minimum tax net operating
loss carryforwards of approximately $16,650,000 and $10,280,000 respectively.
The provisions for income taxes included in results from continuing
operations as well as provisions in the amount of $100,000 in 1995 included in
the gain from disposition of discontinued operations, are primarily related to
current state income taxes.
ENVIRONMENTAL ELEMENTS CORPORATION -17-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The reconciliation of the provision for income taxes computed at statutory
rates to the provision for income taxes provided on loss from continuing
operations consists primarily of a valuation reserve equal to Federal taxes at
the statutory rate, since the recovery of tax loss carryforwards is dependent on
profitable future operations. Other reconciling items are not material.
The significant components of the deferred tax asset (liability), stated by
source of the difference between financial accounting and tax basis as of March
31, 1996 and 1995 are as follows:
Deferred income tax assets (liabilities):
================================================================================
1996 1995
================================================================================
Operating loss carryforward and tax credits ....$ 6,988,000 $ 4,531,000
Reserves, accrued liabilities and other......... 1,060,000 2,456,000
Valuation allowance............................. (7,712,000) (6,618,000)
Property, plant, equipment and other............ (536,000) (569,000)
Net deferred income tax liability..........$ (200,000) $ (200,000)
Note 5
Employee Benefit Plans
Pension Plan
The Company maintains a defined benefit pension plan covering the majority of
employees. Contributions to the plan are based on the actuarially determined
costs thereof, and the Company's funding policy has been to contribute an amount
at least sufficient to meet the funding standards under the Employee Retirement
Income Security Act of 1974. Contributions are intended to provide not only for
benefits attributed to service to date, but also for those expected to be earned
in the future.
Pension expense for the years ended March 31, 1996, 1995, and 1994 consisted
of:
================================================================================
1996 1995 1994
================================================================================
Service .............................$ 322,000 $ 494,000 $ 546,000
Net amortization and deferral........ 120,000 (543,000) (244,000)
Interest cost........................ 620,000 527,000 517,000
Actual return on assets.............. (722,000) (21,000) (253,000)
Net pension expense.............$ 340,000 $ 457,000 $ 566,000
The funded status of the Plan as of the most recent actuarial valuations was:
<TABLE>
<CAPTION>
=================================================================================================================
12/31/95 12/31/94
=================================================================================================================
<S> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of $7,657,000
and $6,466,000 in 1996 and 1995, respectively.............................. $7,817,000 $6,989,000
Projected benefit obligation for service rendered to date........................ $8,149,000 $7,449,000
Plan assets, consisting primarily of fixed income investments, at fair value..... 7,884,000 6,818,000
Projected benefit obligation in excess of plan assets......................... (265,000) (631,000)
Unrecognized net loss from past experience different from that assumed and.......
changes in assumptions........................................................ 623,000 621,000
Prior service cost not yet recognized in net periodic pension cost............... 358,000 405,000
Unrecognized net asset at transition............................................. (23,000) (82,000)
Prepaid pension cost.......................................................... $ 693,000 $ 313,000
</TABLE>
- - -18- ENVIRONMENTAL ELEMENTS CORPORATION
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For purposes of determining the actuarial present value of the projected
benefit obligation, weighted average discount rates of 8.1% and 8.5% in 1996 and
1995, respectively, were used. Rates of increase in future compensation
levels between 3.5% and 6.5%, and an 8% expected long-term rate of return on
plan assets were assumed.
Savings Plan
The Company's Retirement Savings Plan (the "Savings Plan") is qualified under
sections 401(a) and 401(k) of the Internal Revenue Code. All employees of the
Company are eligible to participate in the Savings Plan upon completion of six
months of employment. Under the Savings Plan's salary deferral provisions,
participating employees may elect to defer specified portions of their
compensation. Elective contributions made by employees are fully vested at all
times. The Company makes matching contributions in the form of shares of common
stock at the rate of 50% of the first 3% of each participant's compensation for
each calendar year. Employees fully vest in Company contributions after the
completion of five years of service. Contributions by the Company were $87,000,
$107,000, and $136,000 in 1996, 1995, and 1994, respectively.
Stock Option Plan
The Company's Stock Option plan authorizes the granting to employees of
options to purchase up to an aggregate of 650,000 shares of common stock at
prices not less than fair market value at the date of grant. Options may not be
exercised during the first year after grant, and generally thereafter 20% of the
options granted become exercisable on each of the first through fifth
anniversaries of grant. Options granted expire between five and ten years from
the date of grant. As of March 31, 1996, the average exercise price for
outstanding options was $4.68 per share and expiration dates ranged from
December 21, 1999 to July 31, 2005. The options price range per share is $2.63
to $17.00.
Changes in outstanding stock options during the year were:
================================================================================
1996 1995 1994
================================================================================
Outstanding March 31, ........... 465,000 396,000 260,000
Granted....................... 83,000 102,000 146,000
Exercised..................... -- -- (10,000)
Cancelled..................... (33,000) (33,000) --
Outstanding March 31, ........... 515,000 465,000 396,000
There were options for a total of 269,000 shares exercisable as of March 31,
1996 at an average price of $4.72 per share.
Note 6
Commitments and Contingencies
Commitments
The principal office facilities of the Company and its subsidiaries are
occupied under a lease expiring in January 2002, with bargain renewal periods
extending to January 2037. The lease has been capitalized using an 8.9% interest
rate. Principal and interest on this lease commitment are being amortized using
the effective-interest method.
Future payments under the office building lease are $445,000 per year through
2002, and total, with bargain renewal options, $7,739,000. Of this amount,
$4,882,000 represents imputed interest and the balance of $2,857,000 as of March
31, 1996 is included in the consolidated financial statements as a current
liability ($195,000) and a long-term capital lease obligation ($2,662,000).
The Company and certain subsidiaries use office facilities and equipment
under operating leases. Rent expense for the years ended March 31,1996,1995, and
1994 totaled $155,000, $146,000, and $133,000, respectively.
ENVIRONMENTAL ELEMENTS CORPORATION -19-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Litigation
The Company is, from time to time, a party to various legal actions arising
in the ordinary course of its business, some of which may involve claims for
substantial sums. In management's opinion, the resolution of these matters will
not have a material adverse effect on the Company's financial position.
Post-Employment Benefits
The Company provides limited health care and life insurance benefits for
certain employees upon retirement. In addition, employees terminated in
connection with the elimination of manufacturing operations in prior years were
eligible to receive certain health care and life insurance benefits upon
termination. These benefit plans are not funded.
The Company has determined that the total liability for post-retirement and
post-termination health care and life insurance benefits at March 31, 1996,
1995, and 1994 was $211,000, $594,000, and $999,000, respectively. The accrual
is determined by application of the terms of the current benefit plans, effects
of Medicare for eligible employees, relevant actuarial assumptions and
health-care cost trend rates projected at an annual rate of 8%. A 1% increase in
the annual trend rate would increase the accumulated post-retirement benefit
obligation by approximately $4,000; the annual costs would not be materially
affected. There is no effect on cash flow as a result of current recognition of
future post-retirement benefits.
Concentration of Credit Risk and Major Customers
As of March 31, 1996, approximately 33% of the Company's accounts and
retainages receivable were due from companies in the pulp and paper industry and
19% were due from companies in the power industry. One customer accounted for
21% of the Company's sales in fiscal 1996; another customer accounted for 10% of
the Company's sales in fiscal year 1995; and two other customers accounted for
12% and 11% of the Company's sales in fiscal year 1994.
Note 7
Restructuring Charges
In the second quarter of fiscal 1996, the Company decided to further reduce
its overhead and other fixed costs by relocating its aftermarket business
operations to its Baltimore offices. The costs of this action, totaling $951,000
and consisting primarily of salary and related costs and manufacturing cessation
costs, were recorded as a restructuring charge during the year.
In fiscal 1994, the Company restructured its business, through a
reorganization of its original equipment systems business into industry-oriented
divisions and a reduction in work force. The Company recorded a charge of
$1,815,000 representing the cost of these actions.
Note 8
Acquisition
In fiscal year 1995, the Company acquired certain assets of Field Service
Associates, Inc., which provides construction, repair and replacement parts
services for air cleaning equipment. The cash purchase was completed for a cost
of $314,000.
Note 9
Supplemental Cash Flow Information
In non-cash financing transactions, the Company issued 40,116 treasury
shares, 29,840 treasury shares, and 30,322 shares (12,142 from treasury) in
fiscal 1996, 1995, and 1994, respectively, as matching contributions under its
Savings Plan. As a result, retained earnings decreased $100,000, $43,000, and
$13,000 in 1996, 1995 and 1994, respectively, and paid-in capital increased
$87,000 in 1994.
The Company purchased 100,000 shares of its stock at a cost of $507,000
during fiscal 1994. The shares in treasury are intended to be used for matching
shares in the Company's 401(k) savings plan and for employee stock options.
- - -20- ENVIRONMENTAL ELEMENTS CORPORATION
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts paid for interest during the years ended March 31, 1996, 1995, and
1994 were $360,000, $392,000, and $375,000, respectively. Amounts paid for
income taxes in fiscal year 1996 were $133,000. In fiscal years 1995 and 1994,
the Company had net tax cash benefits of $30,000 and $3,000, respectively.
Note 10
Quarterly and Selected Financial Data [Unaudited]
<TABLE>
<CAPTION>
=============================================================================================================================
fiscal year 1996 quarters ended 3/31/96 12/31/95 9/30/95 6/30/95
=============================================================================================================================
<S> <C>
Sales........................................... $13,604,000 $12,830,000 $16,085,000 $18,695,000
Gross profit.................................... 1,488,000 1,934,000 1,405,000 1,794,000
Loss from continuing operations................. (437,000) (206,000) (2,253,000) (959,000)
Net Loss........................................ $ (437,000) $ (206,000) $(2,252,000) $ (609,000)
Income (loss) per share
Continuing operations......................... $ (.06) $ (.03) $ (.33) $ (.14)
Discontinued operations....................... -- -- -- .05
Net Loss per share.............................. $ (.06) $ (.03) $ (.33) $ (.09)
=============================================================================================================================
Stock price
High........................................ $ 2 5/8 $ 2 1/4 $ 3 1/2 $ 3
Low......................................... $ 2 $ 1 5/8 $ 2 $ 2 1/2
</TABLE>
<TABLE>
<CAPTION>
=============================================================================================================================
fiscal year 1995 quarters ended 3/31/95 12/31/94 9/30/94 6/30/94
=============================================================================================================================
<S> <C>
Sales........................................... $ 23,330,000 $ 22,937,000 $ 16,342,000 $ 15,314,000
Gross profit.................................... 2,928,000 2,447,000 1,950,000 1,498,000
Income (loss) from continuing operations........ 377,000 (537,000) (910,000) (998,000)
Net income (loss)............................... $ 377,000 $ 1,562,000 $ (910,000) $ (992,000)
Income (loss) per share
Continuing operations......................... $ .05 $ (.08) $ (.13) $ (.14)
Discontinued operations....................... -- .31 -- --
- - -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) per share..................... $ .05 $ .23 $ (.13) $ (.14)
=============================================================================================================================
Stock price
High........................................ $ 3 3/8 $ 4 1/8 $ 4 5/8 $ 4 5/8
Low......................................... $ 2 1/2 $ 3 1/4 $ 3 1/2 $ 3 1/8
</TABLE>
ENVIRONMENTAL ELEMENTS CORPORATION -21-
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The consolidated financial statements of Environmental Elements Corporation
and subsidiaries have been prepared by the Company in accordance with generally
accepted accounting principles. The financial information presented is the
responsibility of management and accordingly includes amounts upon which
judgment has been applied, or estimates made, based on the best information
available.
The financial statements have been audited by Arthur Andersen LLP,
independent public accountants, for each of the three years ended March 31,
1996.
The consolidated financial statements, in the opinion of management, present
fairly the financial position, results of operations and cash flows of the
Company as of the stated dates and for the stated periods in conformity with
generally accepted accounting principles. The Company believes that its
accounting systems and related internal controls used to record and report
financial information provide reasonable assurance that financial records are
reliable and that transactions are recorded in accordance with established
policies and procedures.
/s/ E. H. Verdery /s/ F. B. Smith /s/ James E. Kyne
E. H. Verdery F. B. Smith James E. Kyne
President and Chairman of the Board & Controller &
Chief Executive Officer Chief Financial Officer Chief Accounting Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Environmental Elements Corporation:
We have audited the accompanying consolidated balance sheets of Environmental
Elements Corporation (a Delaware corporation) and subsidiaries as of March 31,
1996 and 1995, and the related consolidated statements of operations,
stockholders' investment and cash flows for each of the three years in the
period ended March 31, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Environmental Elements
Corporation and subsidiaries as of March 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended March 31, 1996 in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Baltimore, Maryland
May 10, 1996
- - -22- ENVIRONMENTAL ELEMENTS CORPORATION
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
for the years ended March 31, 1996 1995 1994 1993 1992
Consolidated Statements of Operations Data
<S> <C>
Sales............................ $ 61,214,000 $ 77,923,000 $ 72,567,000 $ 80,721,000 $ 92,213,000
Cost of sales.................... 54,593,000 69,100,000 65,946,000 78,179,000 75,931,000
Gross Profit............. 6,621,000 8,823,000 6,621,000 2,542,000 16,282,000
Selling, general & admin. expense 9,024,000 10,679,000 11,698,000 12,930,000 12,329,000
Restructuring charge............. 951,000 -- 1,815,000 1,039,000 --
9,975,000 10,679,000 13,513,000 13,969,000 12,329,000
Operating Income (Loss).. (3,354,000) (1,856,000) (6,892,000) (11,427,000) 3,953,000
Interest and other expense, net . (501,000) (179,000) 104,000 78,000 1,055,000
Income (Loss) from
Continuing Operations
before Income Taxes..... (3,855,000) (2,035,000) (6,788,000) (11,349,000) 5,008,000
Provision for income tax ....... -- 33,000 57,000 54,000 330,000
Income (Loss) from
Continuing Operations.. (3,855,000) (2,068,000) (6,845,000) (11,403,000) 4,678,000
Net effect of discontinued
operations.................... 351,000 2,105,000 41,000 676,000 774,000
Cumulative effect of change
in accounting principle....... -- -- -- (515,000) --
Net Income (Loss)........ $(3,504,000) $ 37,000 $(6,804,000) $(11,242,000) $ 5,452,000
Earnings per share:
From Continuing Operations $ (0.56) $ (0.30) $ (0.99) $ (1.62) $ 0.66
Net Income (Loss)........ $ (0.51) $ 0.01 $ (0.98) $ (1.60) $ 0.77
Dividends declared............... $ -- $ -- $ -- $ -- $ 0.03
Average shares outstanding....... 6,880,000 6,869,000 6,912,000 7,035,000 7,045,000
Balance Sheet Data
Working capital.................. $ 3,848,000 $ 7,670,000 $ 8,864,000 $ 16,898,000 $ 27,105,000
Total assets..................... 30,179,000 45,234,000 39,173,000 53,149,000 59,255,000
Short-term debt.................. 195,000 1,044,000 164,000 150,000 138,000
Long-term debt .................. 2,662,000 2,858,000 3,037,000 3,201,000 3,351,000
Stockholders' investment......... $ 9,851,000 $13,333,000 $13,139,000 $ 20,276,000 $ 31,394,000
</TABLE>
ENVIRONMENTAL ELEMENTS CORPORATION -23-
<PAGE>
INVESTOR INFORMATION
Corporate Address -- 3700 Koppers Street (bullet) Baltimore, Maryland 21227
(bullet) (410) 368-7000
Transfer Agent and Register
Chemical Mellon Shareholder Services, L.L.C. (bullet) Securityholder Relations
Department
Overpeck Centre (bullet) 85 Challenger Road (bullet) Ridgefield Park,
New Jersey 07660 (bullet) 1-800-526-0801
For inquiries concerning shareholders' records or certificates, please contact
the transfer agent. Shareholders whose certificates are missing or destroyed
should immediately notify the transfer agent. In the event of any change in
address, please notify the transfer agent in writing. If possible, please
enclose a recent mailing label and indicate you are a shareholder of
Environmental Elements Corporation.
Common Stock -- The Common Stock of the Company trades on the New York Stock
Exchange under the symbol "EEC." A substantial number of the Company's shares
are held in nominee accounts at banks and brokerage firms. These accounts, which
include most mutual funds and other institutional investments, are cumulatively
represented by one "of record" depository account. There were 274 shareholders
of record as of March 31, 1996.
Investor Relations -- To obtain, without cost, a copy of the annual report filed
with the Securities & Exchange Commission on Form 10-K or other information on
the Company, copies of earnings press releases and 10-Q filings, or for
investment analyst inquiries, please contact Lisa A. Morris, Investor Relations
Administrator, at (410) 368-7340.
BOARD OF DIRECTORS
<TABLE>
<S> <C>
Fred Hittman(dagger)* Richard E. Hug* Russell R. Jones(dagger)*
President & Chief Executive Officer Chairman Emeritus Former General Manager
Hittman Materials & Environmental Elements Corporation Bethlehem Steel Company
Medical Components, Inc. Sparrows Point Plant
Raymond A. Mason(dagger)* John C. Nichols F. Bradford Smith
Chairman, President & Senior Vice President & Chairman of the Board &
Chief Executive Officer Corporate Secretary Chief Financial Officer
Legg Mason, Inc. Environmental Elements Corporation Environmental Elements Corporation
Edward H. Verdery
President & Chief Executive Officer
Environmental Elements Corporation
</TABLE>
(dagger) Audit Committee (*) Compensation Committee
SENIOR MANAGEMENT
<TABLE>
<S> <C>
Edward H. Verdery F. Bradford Smith John C. Nichols
President & Chief Executive Officer Chairman of the Board & Senior Vice President &
Chief Financial Officer Corporate Secretary
Gregory R. Carleton S. Michael Dunseith
Vice President of Vice President of Operations
Business Development
</TABLE>
Printed on Recycled Paper
[recycled logo]
- - -24- ENVIRONMENTAL ELEMENTS CORPORATION
<PAGE>
[Photo appears here]
Electrostatic Precipitator with Rigid Discharge Electrodes handling 1,700,000
ACFM from a lignite fired steam boiler.
INFORMATION AND CUSTOMER SERVICE
Power, Industrial, Repair and Rebuild Projects
Environmental Elements Corporation (bullet) 3700 Koppers Street
(bullet) Baltimore, Maryland 21227
Phone: (410) 368-7000 (bullet) (800) 333-4331
Emergency Service and Parts Hotline
Phone: (800) 928-4357
(800) 928-HELP
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
All of Environmental Elements Corporation's subsidiaries as of March 31,
1996, are listed below. The Company owns 100 percent of the voting securities of
each such subsidiary.
<TABLE>
<CAPTION>
State or Country
Subsidiary of Organization or Incorporation
<S> <C>
Environmental Elements Service Corporation Delaware
Environmental Elements Investment Corp. Delaware
Environmental Elements Technologies Corporation Delaware
Environmental Elements (Canada) Limited Ontario
Environmental Elements (United Kingdom) Limited United Kingdom
Environmental Elements (Norway) Norway
Environmental Elements Pacific, Inc. Nevada
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,124,000
<SECURITIES> 0
<RECEIVABLES> 10,027,000
<ALLOWANCES> 296,000
<INVENTORY> 2,032,000
<CURRENT-ASSETS> 21,083,000
<PP&E> 14,796,000
<DEPRECIATION> 6,092,000
<TOTAL-ASSETS> 30,179,000
<CURRENT-LIABILITIES> 17,235,000
<BONDS> 0
0
0
<COMMON> 69,000
<OTHER-SE> 9,782,000
<TOTAL-LIABILITY-AND-EQUITY> 30,179,000
<SALES> 61,214,000
<TOTAL-REVENUES> 61,214,000
<CGS> 54,593,000
<TOTAL-COSTS> 9,975,000
<OTHER-EXPENSES> 501,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,855,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,855,000)
<DISCONTINUED> 351,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,504,000)
<EPS-PRIMARY> (.51)
<EPS-DILUTED> (.51)
</TABLE>
