SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
[x] ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
Commission File No: 1-10955
THE ENVIRONMENTAL ELEMENTS CORPORATION
401(K) RETIREMENT SAVINGS PLAN
ENVIRONMENTAL ELEMENTS CORPORATION
3700 Koppers Street
Baltimore, Maryland 21227
<PAGE>
ENVIRONMENTAL ELEMENTS CORPORATION
401(K) RETIREMENT SAVINGS PLAN
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND 1995
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
[ARTHUR ANDERSEN LLP LOGO]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Administrative Committee of
the Environmental Elements Corporation
401(K) Retirement Savings Plan:
We have audited the accompanying statements of net assets available for plan
benefits of the Environmental Elements Corporation 401(K) Retirement Savings
Plan (the Plan) as of December 31, 1996 and 1995, and the related statement of
changes in net assets available for plan benefits with fund information for the
year ended December 31, 1996. These financial statements are the responsibility
of the Plan's Administrative Committee. 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 net assets available for plan benefits of the Plan as
of December 31, 1996 and 1995, and the changes in its net assets available for
plan benefits for the year ended December 31, 1996, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of investments
held and reportable transactions are presented for purposes of additional
analysis and are not a required part of the basic financial statements but are
supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. The fund information in the statements of net assets
available for plan benefits and the changes in net assets available for plan
benefits is presented for purposes of additional analysis rather than to present
the net assets available for plan benefits and changes in net assets available
for plan benefits of each fund. The supplemental schedules and fund information
have been subjected to the auditing procedures applied in our audits of the
basic financial statements and, in our opinion, are fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
-----------------------
Baltimore, Maryland,
June 13, 1997
<PAGE>
ENVIRONMENTAL ELEMENTS CORPORATION
401(K) RETIREMENT SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
AS OF DECEMBER 31, 1996 AND 1995
(Notes 1, 2, 3 and 4)
<TABLE>
<CAPTION>
1996 1995
--------------- --------------
<S> <C>
ASSETS:
Investments in Pooled Separate Accounts:
Guaranteed Long-Term Account, at market $ 1,512,219 $ 1,466,068
Guaranteed Short-Term Account, at contract value 191,501 158,566
Growth and Income Stock Account, at market 548,922 433,195
Stock Market Index Account, at market 1,006,073 795,833
-------------- --------------
3,258,715 2,853,662
Environmental Elements Corporation Common Stock, at market 491,967 342,504
Investments held with The Prudential, at market (Note 1) - 172,251
Environmental Elements Service Corporation Investments
held with NationsBank, at market 9,422 90,068
NationsBank Employee Benefit Liquidity Fund, at market 24,104 265
-------------- --------------
Total investments 3,784,208 3,458,750
-------------- --------------
Receivables:
Employer's contributions 21,624 23,458
Employees' contributions 27,589 38,503
-------------- --------------
49,213 61,961
-------------- --------------
Net assets available for plan benefits $ 3,833,421 $ 3,520,711
============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
ENVIRONMENTAL ELEMENTS CORPORATION
401(K) RETIREMENT SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
WITH FUND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1996
(Notes 1, 2 and 3)
<TABLE>
<CAPTION>
Supplemental Fund Information
---------------------------------------------------------------------------------------
Participant Directed
---------------------------------------------------------------------------------------
Environmental
Guaranteed Guaranteed Growth and Elements Corp.
Long-term Short-term Income Stock Stock Market Common
Account Account Account Index Account Stock
--------------- --------------- ---------------- --------------- ---------------
<S> <C>
ADDITIONS:
Contributions-
Employer $ - $ - $ - $ - $ 73,923
Participant 164,356 33,751 85,130 100,744 71,332
---------- -------- -------- ---------- --------
Total 164,356 33,751 85,130 100,744 145,255
Interest income 83,396 7,695 - - -
Realized and unrealized gains - - 93,337 176,385 66,441
---------- -------- -------- ---------- --------
Total additions 247,752 41,446 178,467 277,129 211,696
---------- -------- -------- ---------- --------
DEDUCTIONS:
Benefit distributions (196,048) (8,493) (42,037) (93,163) (62,233)
---------- -------- -------- ---------- --------
TRANSFERS AMONG FUNDS (5,553) (18) (20,703) 26,274 -
---------- -------- -------- ---------- --------
NET INCREASE (DECREASE) FOR YEAR 46,151 32,935 115,727 210,240 149,463
NET ASSETS AVAILABLE FOR PLAN BENEFITS,
beginning of year 1,466,068 158,566 433,195 795,833 342,504
---------- -------- -------- ---------- --------
NET ASSETS AVAILABLE FOR PLAN BENEFITS,
end of year $1,512,219 $191,501 $548,922 $1,006,073 $491,967
========== ======== ======== ========== ========
</TABLE>
<TABLE>
<CAPTION>
Supplemental Fund Information
---------------------------------------------------------------------------
Nonparticipant
Participant Directed Directed
---------------------------------------------------- --------------------
Environmental
Elements NationsBank
Investments Service Corp. Employee
Held Investments Benefit
With The Held With Liquidity Contributions
Prudential NationsBank Fund Receivable Total
--------------- ------------------ --------------- ----------------- -----------
<S> <C>
ADDITIONS:
Contributions-
Employer $ - $ 2,974 $ - $ (1,834) $ 75,063
Participant - 7,491 23,419 (10,914) 475,309
--------- --------- ------- -------- ----------
Total - 10,465 23,419 (12,748) 550,372
Interest income - 4,632 420 - 96,143
Realized and unrealized gains - 489 - - 336,652
--------- --------- ------- -------- ----------
Total additions - 15,586 23,839 (12,748) 983,167
--------- --------- ------- -------- ----------
DEDUCTIONS:
Benefit distributions (2,450) (266,033) - - (670,457)
--------- --------- ------- -------- ----------
TRANSFERS AMONG FUNDS (169,801) 169,801 - - -
--------- --------- ------- -------- ---------
NET INCREASE (DECREASE) FOR YEAR (172,251) (80,646) 23,839 (12,748) 312,710
NET ASSETS AVAILABLE FOR PLAN BENEFITS,
beginning of year 172,251 90,068 265 61,961 3,520,711
--------- --------- ------- -------- ----------
NET ASSETS AVAILABLE FOR PLAN BENEFITS,
end of year $ - $ 9,422 $24,104 $ 49,213 $3,833,421
========= ========= ======= ======== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
ENVIRONMENTAL ELEMENTS CORPORATION
401(K) RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
DECEMBER 31, 1996 AND 1995
1. PLAN DESCRIPTION:
The Environmental Elements Corporation 401(K) Retirement Savings Plan (the EEC
Plan), a defined contribution 401(K) plan, was established effective October 1,
1989. Effective December 31, 1994, the Environmental Elements Service
Corporation Thrift Incentive Plan (the EESC Plan) was merged with the EEC Plan
(collectively referred to as the Plan), as described in Note 1. Employees of
Environmental Elements Corporation and Environmental Elements Service
Corporation are eligible to join the Plan on January 1, April 1, July 1 or
October 1 following the completion of six months of service. The Plan is subject
to the provisions of the Employee Retirement Income Security Act of 1974
(ERISA). The Plan is administered by employees of the Environmental Elements
Corporation.
Under the terms of the Plan, an employee must make a salary reduction
contribution to the Plan in order to participate. Participants may contribute
from 1% to 20% of their annual compensation on a pre-tax basis. These amounts
are invested in one or more investment alternatives based upon the decisions of
the Plan participants. Allocations of income are based on the proportion of each
participant's account balance to the total of all account balances within each
fund. On termination of service, a participant may elect to receive either a
lump-sum amount equal to the value of his or her account, or installments over
various time periods. The Plan also provides for partial or complete
distributions of their account balance upon attainment of age 59-1/2 or in the
case of financial hardship, as determined by the Administrative Committee.
Effective August 1, 1990, the Plan was amended to provide for Employer matching
contributions. The Environmental Elements Corporation (the Employer) will match
50% of the first 3% of the participant's contribution to the Plan. The Employer
match is made in the form of Employer common stock from authorized but unissued
shares of Environmental Elements Corporation stock. Participants become fully
vested in Employer matching contributions upon completion of five years of
service. A year of service is defined as a twelve consecutive month period in
which an employee completes one thousand hours of service. Voluntary
contributions by participants are fully vested when made. Nonvested employer
contributions forfeited are used to reduce future employer contributions.
As referred to above, effective December 31, 1994, the Environmental Elements
Corporation 401(K) Retirement Savings Plan (the EEC Plan) was merged with the
Environmental Elements Service Corporation Thrift Incentive Plan (the EESC
Plan). After this merger, the EEC Plan was the surviving plan. The assets of the
EEC Plan remained with Connecticut General Life Insurance Company during 1994.
The assets of the EESC Plan remained with their previous custodian, The
Prudential during the 1995 plan year. In January 1996, the assets were
transferred from the Prudential to NationsBank pursuant to agreements of the
Merger.
<PAGE>
- 2 -
2. SIGNIFICANT ACCOUNTING POLICIES:
Basis of Financial Statements
The accompanying financial statements are presented on the accrual basis of
accounting.
Valuation of Investments
Investments in the Guaranteed Long-Term Account (GLTA) are reported at market
value, as the investment is not fully benefit responsive. The market value of
the investments was determined by discounting the future cash flows based on a
five-year U.S. Treasury Note rate. It is management's belief, after discussions
with Connecticut General Life Insurance Company, that this is the best rate to
use in determining the market value of GLTA. The market value is estimated to
equal contract value.
Investments in the Guaranteed Short-Term Account (GSTA) are fully benefit
responsive and are reported at contract value. Similar procedures are used by
CIGNA for determining the contract value of the GSTA. The contract value was
estimated to equal fair value.
Guaranteed Investment Contracts (GICs) may have elements of risk due to the lack
of a secondary market and resale restrictions which may result in the inability
to sell a contract at a fair price and may substantially delay the sale of a
contract. In addition, GICs may be subject to credit risk based on the ability
of the insurance company to meet interest or principal payments, or both, as
they become due.
All other investments are stated at market value, as determined by the trustee
or custodians. Investments in the Growth and Income Stock Account and the Stock
Market Index Account are held by Connecticut General Life Insurance Company
(CIGNA) and are stated at market. The investments in Environmental Elements
Corporation, Environmental Elements Service Corporation Investments and the
Employee Benefit Liquidity Fund are held by NationsBank and are stated at
market.
Income Taxes
The Plan obtained a determination letter, in which the Internal Revenue Service
stated that the Plan, as amended, was in compliance with the applicable
requirements of the Internal Revenue Code. The administrative committee believes
that the Plan is currently designed and being operated in compliance with the
applicable requirements of the Internal Revenue Code and that the related trust
was qualified and tax exempt as of the financial statement dates.
Administrative Expenses
All administrative expenses are borne by the Employer and, as such, have not
been included in the accompanying financial statements.
<PAGE>
- 3 -
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
3. INVESTMENTS HELD:
The accompanying supplemental Schedule of Investments Held represents a detailed
listing of all investments held by the Plan as of December 31, 1996.
4. GUARANTEED ACCOUNTS:
The GSTA contains investments in a variety of money market instruments, with
average maturities generally not exceeding six months. The GLTA invests in a
portfolio of high equity, fixed income instruments. The GSTA and GLTA pay a
fixed rate which is adjusted every month and six months, respectively. During
1996, the GSTA and GLTA paid an average yield of 4.4% and 5.6%, respectively.
5. SCHEDULE OF REPORTABLE TRANSACTIONS:
The accompanying supplemental Schedule of Reportable Transactions represents a
listing of all transactions or series of transactions whose current value at the
time of the transaction is in excess of 5% of the current value of plan assets
as of December 31, 1995.
<PAGE>
Schedule I
ENVIRONMENTAL ELEMENTS CORPORATION
401(K) RETIREMENT SAVINGS PLAN
SCHEDULE OF INVESTMENTS HELD
AS OF DECEMBER 31, 1996
(Notes 2 and 4)
<TABLE>
<CAPTION>
Market
Description of Investments Cost Value
- ------------------------------------------------------ ---------- ----------
<S> <C>
Investments in Pooled Separate Accounts:
Guaranteed Long-Term Account $1,512,219 $1,512,219
Guaranteed Short-Term Account 191,501 191,501
Growth and Income Stock Account 296,636 548,922
Stock Market Index Account 407,925 1,006,073
---------- ----------
2,408,281 3,258,715
Environmental Elements Corporation Common Stock 962,906 491,967
Environmental Elements Service Corporation Investments
held with NationsBank 9,422 9,422
NationsBank Employee Benefit Liquidity Fund 24,104 24,104
---------- ----------
$3,404,713 $3,784,208
========== ==========
</TABLE>
The accompanying notes are an integral part of this schedule.
<PAGE>
Schedule II
ENVIRONMENTAL ELEMENTS CORPORATION
401(K) RETIREMENT SAVINGS PLAN
SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(Note 5)
<TABLE>
<CAPTION>
Assets Sold
Price of --------------------------------------------------
Assets Gain (Loss)
Description of Assets Purchased Proceeds Cost on Sale
- ------------------------------------- ------------ -------------- ----------- -------------
<S> <C>
Guaranteed Long-Term Account $ 269,453 $ 209,164 $ 209,164 $ -
NationsBank Employee
Benefit Liquidity Fund 495,353 471,514 471,514 -
Environmental Elements Service
Corporation Investments Held
with NationsBank 275,534 356,831 356,342 489
</TABLE>
The accompanying notes are an integral part of this schedule.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees have duly caused this annual report to be signed on its behalf by the
undersigned hereunto duly authorized.
ENVIRONMENTAL ELEMENTS CORPORATION 401(K)
RETIREMENT SAVINGS PLAN
/s/ John C. Nichols June 26, 1997
- ------------------- -------------
John C. Nichols Date
Plan Administrator
