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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
For the Fiscal Year ended March 31, 1997
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 6, 1997 was approximately $10.5 million based upon the
closing price of $2.25. The number of shares outstanding of the registrant's
Common Stock as of June 6, 1997 was 6,967,401.
Documents Incorporated by Reference
Portions of the definitive Proxy Statement relating to registrant's Annual
Meeting of Stockholders to be held July 31, 1997 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, 1997 are incorporated by reference in Parts I, II and IV of this Form
10-K.
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 generally does not manufacture or fabricate its systems or
engage in field construction activities utilizing its own employees, other than
field supervisory personnel. The Company fabricates, through its joint venture
production facility in the People's Republic of China, precipitator internals
for use by the Company's licensee in China and for our use in other selected
markets. In fiscal 1996, the Company elected to discontinue the manufacturing
and certain direct hire construction activities previously conducted by its
aftermarket subsidiary, Environmental Elements Services Corporation, and
relocated the aftermarket business to the Company's Baltimore headquarters,
where it 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 chemical
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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.
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 desulfurization dry reactor,
(known as a circulating dry scrubber or "CDS"(R) which has special
application to both the power generation and municipal solid waste incineration
acid rain retrofit markets. During fiscal 1996 and fiscal 1997, the Company
successfully started up its first two CDS(R) systems and successfully
completed its performance obligations. The CDS(R) 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
provision of rebuild project materials, construction services, and field
engineering services including inspection, testing, rebuild supervision, and
equipment performance evaluation services.
In fiscal 1997, the Company entered into its first alliance agreement with a
customer under which the Company provides dedicated engineering and field
service personnel who will perform inspection, engage in problem-solving and
material planning, and make parts recommendations on a system-wide basis, with
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a goal of reducing our customer's total life cycle costs. The Company intends to
continue to focus on opportunities for similar alliances with other important
customers.
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. The Company started up two
precipitator projects in Poland in fiscal 1996, and in fiscal 1997, the
Company's baghouse and spray dryer emissions control system for a municipal and
medical waste incinerator in the United Kingdom commenced operations. In its
1997 fiscal year, the Company received and commenced execution of an award to
supply reverse air fabric filter emissions systems at a municipal solid waste
incineration plant in Korea. The Company's precipitator technology will be
installed in a power plant in China, through a contract awarded to the Company's
licensee in fiscal 1997.
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(R)
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
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 recent years, the Company has been
particularly successful in marketing its fabric filter systems to private power
projects which either cogenerate electricity and thermal energy or generate
electricity alone for sale to utilities and in fiscal 1995 started-up a pulse
jet fabric filter system in the utility market . In addition, in response to
anticipated substantial demand for solutions to the
4
requirements of acid rain legislation, the Company, under license from Lurgi
GmbH, has introduced a state-of-the-art CDS(R) 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(R) 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. In fiscal 1997, we successfully
placed into operation our emissions system on a municipal and medical waste
incinerator in England and a waste-to-energy facility in New York. Also in
fiscal 1997, we were awarded a contract to retrofit a waste-to-energy facility
in Georgia. 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 1997 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 $139,000, $347,000, and $512,000 on product
development during fiscal 1997, 1996, and 1995, respectively. Among other
important product development activities, the Company has developed wide plate
spacing precipitators and has introduced them into the utility market.
The Company has recently advanced its research and development operations
beyond its historical product development activities to funded research
programs. The Company is developing, and has applied for patents on an advanced
technology for the control of sub-micron sized particulate emissions from
utility and industrial boilers in order to respond to increasingly stringent
regulations for fine particulate emissions.
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. While these patents are not considered material to the
conduct of the Company's business as a whole, the Company views its pending
patent applications with respect to its fine particulate agglomerator technology
as potentially providing the Company with a significant advantage in the
marketing of its precipitators. Generally, however, 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.
5
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. Three customers accounted for 33% of the Company's sales in fiscal
1997; one customer accounted for 21% of the Company's sales in fiscal 1996; and
another customer accounted for 10% of the Company's sales in fiscal year 1995.
At fiscal year end 1997, however, approximately 63% of the Company's accounts
and retainages receivable were due from companies within the pulp and paper
industry and approximately 13% were due from companies within the power
industry.
All of the Company's foreign sales were generated from the United States.
Export sales were less than 10% of consolidated sales in fiscal years 1997,
1996, and 1995. In order to take advantage of certain overseas market
opportunities, the Company has established licensing agreements with companies
in Brazil and the People's 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.
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
6
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 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 1997 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
7
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, 1997, the Company had 134 full-time employees, of whom 121
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.
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 1997 Annual
Report to Shareholders, incorporated by reference herein, for a description of
the rent and other lease terms.
The Company additionally leases approximately 31,000 square feet of office
and warehouse space in Baltimore, Maryland for its research and development, and
aftermarket operations.
Shortly after the close of fiscal 1997, the Company sold 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 1997 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.
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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 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
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal year 1997.
9
PART II
ITEM5. 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 6, 1997, there were 248 record holders of the Company's Common
Stock. The closing price of the Common Stock on June 6, 1997 was $2.25.
The additional information required by this item is contained under
"Investor Information" on page 25 and in Note 10 of the "Notes to Consolidated
Financial Statements" on page 21 of the Company's 1997 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 1997 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
1997 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 10 of
the Company's 1997 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 11 through 21 of the Company's 1997 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 1997 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
None.
10
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 1997 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 1997 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, 1997, 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 each of Mr. F. Bradford Smith
and Mr. E. H. Verdery, directors and executive officers 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 1997 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 1997 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 1997 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."
11
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 1997
Annual Report to Shareholders for the year ended March 31, 1997 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, 1997, 1996, and 1995 11
Consolidated Balance Sheets as of March 31, 1997
and 1996 12
Consolidated Statements of Cash Flows for the
years ended March 31, 1997, 1996, and 1995 13
Consolidated Statements of Stockholders' Investment
as of March 31, 1997, 1996, and 1995 14
Notes to Consolidated Financial Statements 15-21
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, 1997, 1996, and 1995 (Schedule II) S-2
12
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 (incorporated by reference to Form
10-K filed with the Commission on June 26, 1996).
10.2(b)- Second Amendment, dated December 28, 1995, to the Registrant's
Retirement Plan, as amended (incorporated by reference to Form
10-K filed with the Commission on June 26, 1996).
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 (incorporated by
reference to Form 10-K filed with the Commission on June 26,
1996).
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 (incorporated by reference to Form 10-K filed with the
Commission on June 26, 1996).
10.5(a)- Environmental Elements Corporation Supplemental Pension
Agreement dated July 1, 1996 between Registrant and John C.
Nichols, filed herewith.
13
10.6- Revolving Credit and Letter of Credit Agreement dated November
24, 1993 between the Registrant and Mercantile-Safe Deposit and
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 and Trust Company
(incorporated by reference to Form 10-K filed with the
Commission on June 29, 1994).
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 and 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 and 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 and Trust Company (incorporated by referenced to Form
10-K filed with the Commission on June 26, 1996).
10.6(e)- Letter Amendment dated May 5, 1997 to Revolving Credit and
Letter of Credit Agreement between the Registrant and
Mercantile-Safe Deposit and Trust Company dated November 23,
1993.
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- Description of Executive Bonus Plan, with respect to executive
officers, adopted February 19, 1997, filed herewith.
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 (incorporated by reference to Form 10-K filed
with the Commission on June 26, 1996).
10.11- Separation and Non-Competition Agreement dated April 1, 1997
between Registrant and F. Bradford Smith, filed herewith.
10.12- Agreement dated May 26, 1993 between the Registrant and Teco
Industries of Maryland, Inc. filed with the Commission on August
13, 1993.
11- Statement re: Computation of Income per Share, filed herewith.
13- A copy of the 1997 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 (incorporated by reference to
Form 10-K filed with the Commission on June 26, 1996).
(b) No reports on Form 8-K were filed during the quarter ended March 31, 1997.
14
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/ James B. Sinclair
- -------------------------------------
James B. Sinclair
Chief 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/ E. H. Verdery June 16, 1997
- ------------------------------------- -------------
E. H. Verdery Date
Chairman of the Board of Directors,
President and Chief Executive Officer
June , 1997
- ------------------------------------- -------------
Fred Hittman Date
Director
/s/ Richard E. Hug June 18, 1997
- ------------------------------------- -------------
Richard E. Hug Date
Director
/s/ Russell R. Jones June 16, 1997
- ------------------------------------- -------------
Russell R. Jones Date
Director
/s/ John C. Nichols June 18, 1997
- ------------------------------------- -------------
John C. Nichols Date
Director and Secretary
June , 1997
- ------------------------------------- -------------
F. Bradford Smith Date
Director
/s/ Samuel T. Woodside June 18, 1997
- ------------------------------------- -------------
Samuel T. Woodside Date
Director
15
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To Board of Directors and Shareholders of the Environmental Elements
Corporation:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in the 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 19,
1997. Our audits were made for the purpose of forming an opinion on those
consolidated financial statements taken as a whole. The schedule listed in the
index above is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states 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 19, 1997
S-1
Schedule II
ENVIRONMENTAL ELEMENTS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
Reserve for
Allowance for Discontinued
Doubtful Accounts Operations
----------------- ----------
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
Charged (credited) to profit and loss (59,000) --
(Deductions) additions (124,000) (91,000)
------------ -----------
Balance, March 31, 1997 $ 113,000 $ --
=========== ===========
S-2
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 (incorporated by reference to Form
10-K filed with the Commission on June 26, 1996).
10.2(b)- Second Amendment, dated December 28, 1995, to the Registrant's
Retirement Plan, as amended (incorporated by reference to form
10-K filed with the Commission on June 26, 1996).
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 (incorporated by
reference to Form 10-K filed with the Commission on June 26,
1996).
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 (incorporated by reference to Form 10-K filed with the
Commission on June 26, 1996).
10.5(a)- Environmental Elements Corporation Supplemental Pension
Agreement dated July 1, 1996 between Registrant and John C.
Nichols, filed herewith.
10.6- Revolving Credit and Letter of Credit Agreement dated November
24, 1993 between the Registrant and Mercantile-Safe Deposit and
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 and Trust Company
(incorporated by reference to Form 10-K filed with the
Commission on June 29, 1994).
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 and 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 and 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 and Trust Company (incorporated by referenced to Form
10-K filed with the Commission on June 26, 1996).
10.6(e)- Letter Amendment dated May 5, 1997 to Revolving Credit and
Letter of Credit Agreement between the Registrant and
Mercantile-Safe Deposit and Trust Company dated November 23,
1993.
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- Description of Executive Bonus Plan, with respect to executive
officers, adopted February 19, 1997, filed herewith.
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 (incorporated by reference to Form 10-K filed
with the Commission on June 26, 1996).
10.11- Separation and Non-Competition Agreement dated April 1, 1997
between Registrant and F. Bradford Smith, filed herewith.
10.12- Agreement dated May 26, 1993 between the Registrant and Teco
Industries of Maryland, Inc. filed with the Commission on August
13, 1993.
11- Statement re: Computation of Income per Share, filed herewith.
13- A copy of the 1997 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 (incorporated by reference to
Form 10-K filed with the Commission on June 26 , 1996.)