UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
One) THE SECURITIES EXCHANGE ACT OF 1934
[X]
For the quarterly period ended September 30, 1995
____________________________
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-7276
_______________________________________
EXOLON-ESK COMPANY
_______________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 16-0427000
______________________ ____________________________
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
1000 East Niagara Street, Tonawanda, New
York 14150
________________________________________
(Address of Principal Executive Offices)
(Zip Code)
(716) 693-4550
________________________________________
(Registrant's telephone number,
including area code)
_______________________________________________________________
(Former name, former address and former fiscal year, if changed
since last report)
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.....
As of November 11, 1995, the registrant had outstanding 481,995
shares of $1 par value Common Stock and 512,897 shares of $1
par value Class A Common Stock.
Total Pages: 19
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Exolon-ESK Company
Condensed Consolidated Balance Sheet
(in thousands except share amounts)
<CAPTION>
(Unaudited)
ASSETS September 30, December 31,
1995 1994
____________ ___________
<S> <C> <C>
Current assets:
Cash $93 $467
Accounts receivable (less allowance
for doubtful accounts of $327 in
1995 and $307 in 1994) 9,601 6,936
Inventories 19,329 17,104
Prepaid expenses 360 399
Deferred income taxes 535 535
___________ __________
Total Current Assets 29,918 25,441
Investment in Norwegian joint venture 4,944 4,173
Property, plant and equipment, at cost 55,378 53,438
Accumulated depreciation (40,158) (38,043)
___________ __________
Net property, plant and equipment 15,220 15,395
Other assets 342 300
___________ __________
Total Assets $50,424 $45,309
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $2,000 $2,000
Current maturities of long-term debt 1,550 800
Current maturities of capital
lease obligations - 25
Accounts payable 3,691 2,805
Accrued expenses 1,756 1,622
Income taxes payable 1,574 135
___________ ___________
Total Current Liabilities 10,571 7,387
___________ ___________
Deferred income taxes 1,131 1,548
Long-term debt excluding current
installments 13,750 14,900
Other long-term liabilities 4,012 2,846
Stockholder' equity:
Preferred stock
Series A - 19,364 shares issued 276 276
Series B - 19,364 shares issued 166 166
Common stock of $1 par value Author-
ized 600,000 shares, 512,897 issued 513 513
Class A common stock of $1 par value -
Authorized 600,000 shares, 512,897
issued 513 513
Additional paid-in capital 4,345 4,345
Retained earnings 15,877 13,545
Cumulative translation adjustment (362) (362)
Treasury stock, at cost (368) (368)
___________ __________
Total Stockholders' Equity 20,960 18,628
___________ __________
Total Liabilities and Stockholders'
Equity $50,424 $45,309
=========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Exolon-ESK Company
Condensed Statements of Consolidated Income
Unaudited
(in thousands except per share amounts)
<CAPTION>
Three Months Nine Months
Ended September Ended September
30, 1995 30, 1995
1995 1994 1995 1994
_______ _______ _______ _______
<S> <C> <C> <C> <C>
Net Sales $17,094 $15,185 $51,402 $44,592
Cost of Goods Sold 13,042 11,750 39,650 35,354
_______ _______ _______ _______
Gross Profit Before
Depreciation 4,052 3,435 11,752 9,238
_______ _______ ______ _______
Depreciation 762 781 2,286 2,342
Selling, general &
administrative expenses 1,221 1,273 3,784 3,757
Research and development 200 22 226
_______ _______ ______ _______
1,983 2,254 6,092 6,325
_______ _______ ______ _______
Operating Income 2,069 1,181 5,660 2,913
Other Expenses (Income):
Equity in (Earnings) before
income taxes of Norwegian Jt.
Venture (260) (194) (771) (260)
Interest expense 381 345 1,090 1,039
Miscellaneous expense (income) (32) 918 159 1,458
_______ _______ ______ _______
89 1,069 478 2,237
_______ _______ ______ _______
Earnings before income taxes
and cumulative effect of
accounting change 1,980 112 5,182 676
Income tax expense 805 283 2,055 651
_______ _______ _______ _______
Earnings (loss) before
cumulative effect of
accounting change 1,175 (171) 3,127 25
Cumulative effect of accounting
change (net of income tax benefit) - - (762) -
_______ _______ _______ _______
Net Earnings (Loss) $1,175 ($171) $2,365 $25
======= ======= ======= =======
PER COMMON SHARE:
Earnings (loss) before cumula-
tive effect of accounting change $1.21 ($0.17) $3.21 $0.01
Cumulative effect of accounting
change - - (0.79) -
_______ _______ _______ _______
Net Earnings (Loss) $1.21 ($0.17) $2.42 $0.01
======= ======= ======= =======
PER CLASS A COMMON SHARE:
Earnings (loss) before cumulative
effect of accounting change $1.14 ($0.16) $3.02 $0.01
Cumulative effect of
accounting change - - (0.74) -
_______ _______ _______ ______
Net Earnings (Loss) $1.14 ($0.16) $2.28 $0.01
======= ======= ======= ======
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Exolon-ESK Company
Condensed Statements of Consolidated Cash Flows
Unaudited
(in thousands)
<CAPTION> Nine Months Ended
September 30,
1995 1994
_________ _________
<S> <C> <C>
Cash Flow from Operating Activities:
Net earnings $2,365 $25
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 2,286 2,342
Cumulative effect of change in accounting
for post-retirement benefits 762 -
Equity in (earnings) of Norwegian
joint venture (771) (247)
(Gain) loss on fixed asset disposals 37 -
Change in Assets and Liabilities:
(Increase) decrease in:
Accounts receivable (2,665) (290)
Inventories (2,225) (872)
Prepaid expenses 39 (6)
Deferred income taxes - -
Other assets (42) 103
(Decrease) Increase in:
Accounts payable 886 (1,232)
Accrued expenses 134 62
Income taxes payable 1,439 (171)
Deferred income taxes (417) (1)
Other long-term liabilities 404 1,106
_________ _________
Net Cash Provided by Operating Activities 2,232 819
Cash Flow from Investing Activities:
Additions to property, plant and
equipment (2,148) (1,542)
Proceeds from fixed asset disposals 137 -
_________ _________
Net Cash (Used) for Investing Activities (2,148) (1,405)
Cash Flow from Financing Activities:
Repayments on long-term construction
financing loans and revolving
credit agreement (400) 569
Principal (repayments) on capital
lease obligations (25) 19
Dividends paid (33) (22)
_________ _________
Net Cash Provided (Used) by Financing
Activities (458) 566
Net (decrease) in cash (374) (20)
Cash at beginning of period 467 113
_________ _________
Cash at end of period $93 $93
========= =========
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
EXOLON-ESK COMPANY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 The financial information is prepared in conformity with
generally accepted accounting principles and such principles are
applied on a basis consistent with those reflected in the 1994 Form
10-K filed with the Securities and Exchange Commission. The financial
information included herein, has been prepared by management without
audit by independent certified public accountants. The information
furnished includes all adjustments and accruals consisting only of
normal recurring accrual adjustments which are in the opinion of
management, necessary for a fair presentation of results for the
interim period ended September 30, 1995.
NOTE 2 Through a wholly-owned non-operating subsidiary, the
Company's 50% interest in the Norwegian joint venture is recorded on
the equity method for financial reporting purposes. The Company's
proportionate share of the venture's net sales and income before
income taxes together with the subsidiary's net income (in thousands)
are as follows:
<TABLE>
Three Months Nine Months
Ended Ended
September 30 September 30
_______________ _______________
<CAPTION>
Joint Venture: 1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net Sales $1,855 $1,725 $5,725 $4,588
Income before income taxes 260 194 771 260
Net Income 187 140 555 187
</TABLE>
NOTE 3 The following are the major classes of inventories (in
thousands) as of September 30, 1995 and December 31, 1994 :
<TABLE>
<CAPTION> September 30, 1995 December 31, 1994
(Unaudited)
__________________ _________________
<S> <C> <C>
Raw Materials $2,459 $3,051
Semi-Finished and Finished Goods 17,789 15,085
Supplies and Other 1,164 1,051
_________ ________
21,412 19,187
Less: LIFO Reserve (2,083) (2,083)
_________ ________
$19,329 $17,104
========= ========
</TABLE>
NOTE 4 The Company entered into a Credit Agree ment on December 22,
1992 with a U.S. bank, providing for borrowings up to $10,000,000
under the revolving portion of the agreement, a $4,000,000, 5 year
term loan and for borrowing up to $2,000,000 under a demand line of
credit.
At September 30, 1995 borrowings of $5,300,000 were
outstanding under the revolving portion, borrowings of $2,000,000 were
outstanding under the term loan portion and borrowings of $2,000,000
were outstanding under the demand line of credit portion of the U.S.
Credit Agreement.
The Company's Canadian subsidiary has a $1,000,000 (Canadian
funds) operating demand loan available as part of a credit facility
provided by a Canadian bank. Borrowings outstanding at September 30,
1995 were $25,000 (Canadian funds).
The Company is liable for making payments with respect to
$8,000,000 of Industrial Revenue Bonds issued by the Village of
Hennepin, Illinois and purchased by an insurance company upon
refinancing of the bonds on January 22, 1993. The bonds mature on
January 1, 2018.
<TABLE>
<CAPTION>
Long Term Debt (in thousands) September
Consists of: 30, 1995 December
(Unaudited) 31, 1994
_________ ________
<S> <C> <C>
Revolving Credit Agreement
with a U.S. bank. Interest
at prime rate plus 1/4% or
LIBOR plus 2 1/2% (9.00% at
September 30, 1995). $5,300 $5,100
Term Loan Agreement with a
U.S. Bank. Interest at prime
rate plus 1/2% or LIBOR plus
2 3/4% (9.25% at September
30, 1995) 2,000 2,600
Industrial Revenue Bond held
by an insurance company.
Interest at a fixed rate of
8 7/8%. Bond maturity is
January 15, 2018. 8,000 8,000
________ ________
$ 15,300 $ 15,700
Less Current maturities 1,550 800
________ ________
$13,750 $14,900
======== ========
</TABLE>
NOTE 5 The Company provides certain health care and life insurance
benefits to eligible retired employees and their spouses.
Participants generally become eligible for these benefits after
achieving certain age and years of service requirements. These
benefits are subject to deductibles, co-payment provisions and other
limitations. The Company may amend or change the plan periodically.
Effective January 1, 1993, the Company adopted for its U.S.
operations only, Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions," which requires that the estimated cost of postretirement
benefits be accrued over the period earned. Prior to 1993, the
Company recognized the costs of these benefits on the pay-as-you-go
basis. The Company's current policy is to fund these benefits on a
pay-as-you-go basis.
The Company's Canadian subsidiary also provides certain
health care and life insurance benefits to eligible retired employees
and their spouses. Participants generally become eligible for these
benefits after achieving certain age and years of service
requirements. The Company adopted SFAS No. 106 effective January 1,
1995 for its Canadian subsidiary and recognized the initial obligation
as a one-time, after-tax charge to earnings of $762,000 in the period
ended March 31, 1995.
The accumulated post-retirement benefits obligation at
January 1, 1995 for the Canadian subsidiary includes the following (in
thousands):
Retirees and beneficiaries $894
Fully eligible active participants 274
------
Total accumulated post-retirement $1,168
benefits obligation ======
The periodic post-retirement benefits cost for 1995 will
approximate $152,000 (Canadian) compared to $75,000 (Canadian) on the
pay-as-you-go basis.
For measuring the post-retirement benefits obligation as of
January 1, 1995, an 8% annual rate of increase in the health care
rates was assumed for the next 6 years and 6% per year thereafter.
Increasing the annual rate of increase in the health care rates by one
percentage point in each year would increase the accumulated post-
retirement benefits obligation by $107,000 and would increase the
periodic post-retirement benefits cost by $17,000 (Canadian). The
group life insurance premiums are not assumed to be subject to
increase. An assumed discount rate of 8% was used.
The Company's current policy is to fund these benefits on a
pay-as-you-go basis.
NOTE 6 COMMITMENTS
(a) LEASE AGREEMENTS
The Company leases certain machinery and equipment under
capital and operating leases. Total minimum lease payments due
through 1998 are approximately $1,042,000 at September 30, 1995.
(b) ROYALTY AGREEMENTS
The Company has a royalty agreement covering production of
crude aluminum oxide at its Thorold, Ontario plant using process
technology acquired as part of the construction and completion of a
furnace plant. A separate royalty agreement covers the production of
certain specialty products for the refractory markets. The agreements
are for a period of 10 years each and expire July 31, 1996 and April
30, 2001 respectively. The royalty expense in U.S. dollars amounted
to $483,000 and $406,000 in the nine months ended September 30, 1995
and 1994, respectively.
NOTE 7 CONTINGENCIES
a. ENVIRONMENTAL ISSUES
HENNEPIN, ILLINOIS PLANT
On October 6, 1994, the Company entered into a Consent Order
(the ``Consent Order '') with the Illinois Attorney General and the
Illinois Environmental Protection Agency (``IEPA'') in complete
settlement of a complaint brought by them which alleged that the
Company had violated certain air quality requirements in the operating
permit for its Hennepin, Illinois plant. The Consent Order provides a
schedule for the Company to install a Continuous Emissions Monitoring
System (``CEMS'') and to implement the required Best Available Control
Technology (``BACT'') for air emissions, pursuant to an IEPA approved
construction and operating permit. The Company is applying for a
construction permit to implement the BACT.
Under the terms of the Consent Order the Company has also
agreed to pay a civil penalty of $1,300,000, payable in installments
of $260,000 each on November 1, 1994, April 1, 1995, February 1, 1996,
January 1, 1997 and November 1, 1997. The Company recorded an
expense of $1,300,000 in the year ended December 31, 1994, which
represents the civil penalty.
In order to comply with the Consent Order and complete
facility improvements, the Company expects to incur capital costs
within the range from $12,000,000 to $14,000,000 over the next two
years. As of September 30, 1995, the Company has incurred
approximately $900,000 of capital costs related to the facility
improvements. The Company expects to finance the costs of the
required capital improvements through an underwritten credit enhanced
bond offering possibly on a tax-exempt basis. The Company will seek
to obtain a modification of its Industrial Revenue Bond Agreement to
allow for the required capital expenditures under the Consent Order.
NORWEGIAN JOINT VENTURE
The Government of Norway has held discussions with certain
Norwegian industries including the abrasive industry concerning the
implementation of reduced gaseous emission standards. The Company's
joint venture is participating in these discussions to help achieve
the Norwegian Government's objectives as well as assuring long term
economic viability for the joint venture.
The Company's joint venture has appointed a project group to
complete a study and define a project to minimize sulfur and dust
emissions which was presented to the Norwegian State Pollution Control
Authority on March 1, 1995. The authority will need one year for the
internal study of the report and a decision on the method for
environmental compliance should be implemented by March 1996. The
corrective actions proposed by the joint venture included capital
investments costing approximately 4.5 million krone (approximately
$705,000 at the September 30, 1995 exchange rate). The full costs
associated with the implementation of these corrective actions are, as
yet, not known as a result of various alternatives presently being
considered by the Norwegian joint venture.
b. LEGAL MATTERS
The Company is currently involved in certain legal matters
as described in (a) above, and as further described below including
certain employment and environmental matters. The Company is unable
to determine at this time if it will be subject to civil or criminal
penalties and if received, the potential amount of such penalties. In
addition to the potential liabilities that the Company may experience
in the legal proceedings brought by the Department of Justice and
third parties, the Company may incur material expenses in defending
against the actions, and it may incur such expenses even if it is
found to have no liability for any of the charges asserted against it.
In June 1993, the Company commenced a legal action in
Ontario, Canada Court (General Division) against one of its former
officers and certain former employees of Exolon-Canada on various
charges related to allegations that they defrauded the Company and
Exolon-Canada of money, property and services over many years. The
Company is seeking $2,000,000 in damages together with such other
damages that may be determined. A reasonable estimation of the
Company's potential recovery, if any, cannot be made at this time.
In February 1994, the Company, its President, its former
Executive Vice President and certain other parties were the subject of
an indictment under federal antitrust laws (the "Antitrust
Proceedings") which alleged, among other things, that: sometime prior
to the mid-1980's and continuing into 1992, the defendants and unnamed
co-conspirators entered into and engaged in a combination and
conspiracy to fix the prices of artificial abrasive grain in restraint
of interstate trade; during the same period, the Company and its
President willfully violated the terms of a permanent injunction dated
November 16, 1948 on the Company and its officers against entering
into conspiracies or combinations to fix prices of artificial abrasive
grain; and that the Company's former Executive Vice President
destroyed documents and made false declarations in response to a grand
jury subpoena issued in an investigation of price fixing for
artificial abrasive grain.
On December 8, 1994, in an ex parte proceeding the U.S.
Defense Logistics Agency (the "DLA") issued a Memorandum of Decision
that temporarily suspended the defendants in the Antitrust Proceedings
from contracting with the U.S. Government under procurement or non-
procurement programs pending the completion of the Antitrust
Proceedings. On January 31, 1995, the DLA amended the Memorandum of
Decision (as amended, the "DLA Suspension") to include under the DLA
Suspension sixteen alleged affiliates of the defendants including the
Company's subsidiary, Exolon-ESK Company of Canada Ltd., and Orkla-
Exolon A/S K/S, the Norwegian partnership in which the Company's
subsidiary, Norsk Exolon A/S, has a 50% partnership interest. The DLA
Suspension alleges as causes for the suspension (i) the indictments of
the parties in the Antitrust Proceedings, and (ii) on separate
occasions in October and November of 1994 the Company's President (who
has been indefinitely suspended pending the outcome of the Antitrust
Proceedings) and former Executive Vice President individually made
alleged false certifications in DLA sales contracts denying the
existence within the past three years of any indictments of the kind
involved in the pending Antitrust Proceedings.
In general, the DLA Suspension provides, during the term of
the suspension, that the suspended parties will be prohibited from
entering into new contracts, or renewing or extending old contracts
with the U.S. government or its agencies, unless the head of the
contracting agency states in writing that there is a compelling reason
to do so; that the suspended parties may not conduct business with the
U.S. Government as an agent or representative of other contractors;
that no U.S. Government contractor may award a suspended party a
subcontract in excess of $25,000 unless there is compelling reason to
do so and the contracting party complies with certain notification
provisions; and, that each suspended party's relationship to any
organization doing business with the government will be examined to
determine the impact of those ties on the responsibility of the other
organization to be a government contractor or subcontractor.
At this time, the Company is not able to predict the amount
and nature of criminal penalties or fines that might be imposed
against the Company or its President or former Executive Vice
President, if any of them were convicted of any of the charges alleged
in the Antitrust Proceedings, but if the Antitrust Proceedings were
resolved in a manner adverse to the Company, such penalties or fines
could be substantial and could materially adversely affect the
Company. The Company believes there are meritorious defenses to the
alleged violations and, accordingly, the Company believes that the DLA
Suspension against it will be lifted at the conclusion of the
Antitrust Proceedings. The Company intends to vigorously defend
against the Antitrust Proceedings and to seek to have the DLA
Suspension against it lifted as soon as possible.
The DLA Suspension, for so long as it remains in force, will
prevent the Company from purchasing crude abrasive grains from U.S.
Government stockpiles, but is not otherwise expected to impact the
Company's operations as the Company does not otherwise deal with the
U.S. Government as a contractor or subcontractor. As long as there is
an adequate supply of crude abrasive grains and the U.S. Government
does not sell from its stockpiles of such grains at below market
prices, the DLA Suspension is not expected to have a material adverse
effect on the Company's operations. Presently, and for at least the
next one year period, the Company expects crude abrasive grains to be
in adequate supply. However, the Company is unable to predict under
what circumstances the U.S. Government might choose to sell from its
stockpiles, and if it were to undertake an aggressive program of
selling abrasive grains at below market prices the Company could be
placed at a disadvantage in relation to its competitors.
On October 18, 1994, a law suit was commenced in the U.S.
District court for the Eastern District of Pennsylvania (No. 94-CV-
6332) under the title "General Refractories Company v. Washington
Mills Electro Minerals Corporation and Exolon-ESK Company." The suit
purports to be a class action seeking treble damages from the
defendants for allegedly conspiring with unnamed co-conspirators
during the period from January 1, 1985 through the date of the
complaint to fix, raise, maintain and stabilize the price of
artificial abrasive grains and to allocate among themselves their
major customers or accounts for purchases of artificial grains, in
violation of Section 1 of the Sherman Act, 15 U.S.C. Section 1. The
plaintiffs allegedly paid more for abrasive grain products than they
would have paid in the absence of such anti-trust violations and were
allegedly damaged in an amount that they are presently unable to
determine. On or about July 17, 1995, a law suit captioned ``Arden
Architectural Specialties, Inc. v. Washington Mills Electro Minerals
Corporation and Exolon-ESK Company,'' (95-CV-05745(m)), was commenced
in the United States District Court for the Western District of New
York. The Arden Architectural Specialties complaint purports to be a
class action that is based on the same matters alleged in the General
Refractories complaint. The Company believes that it has meritorious
defenses to the allegations, and it intends to vigorously defend
against the charges.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1995 WITH THE NINE
MONTHS ENDED SEPTEMBER 30, 1994
NET SALES. Total net sales increased by 15% to $51,402,000 during
the nine months ended September 30, 1995 from $44,592,000 in the first
nine months of 1994. The $6,810,000 increase is principally a result
of a 16% increase in shipment volume of the Company's primary
manufactured and purchased products in the first nine months of 1995
when compared to the first nine months of 1994 as a result of the
continuation of a strong abrasives, steel and automotive market within
the U.S.
GROSS PROFIT. Gross profit prior to depreciation expense was
$11,752,000 in the first nine months of 1995 when compared to
$9,238,000 in the first nine months of 1994. As a percent of net
sales, gross margins were 23% in the first nine months of 1995
compared to 21% in the same period of 1994.
OPERATING EXPENSES. Total operating expenses decreased to
$6,092,000 in the nine months ended September 30, 1995 from $6,325,000
in the same period of 1994. Operating expenses as a percent of sales
declined to 12% in the first nine months of 1995 compared to 14% in
the first nine months of 1994. The Company's largest portion of
operating expense, selling, general and administrative expense,
increased marginally to $3,784,000 in the first nine months of 1995
when compared to $3,757,000 during the first nine months of 1994. As
a percent of net sales, selling and general and administrative expense
decreased to 7% in the first nine months of 1995 from 8% in the same
period of 1994.
OPERATING INCOME. Operating income increased by 94% to
$5,660,000 in the nine months ended September 30, 1995 from
$2,913,000 in the nine months ended September 30, 1994, principally a
result of the increase in net sales, improved gross margins and the
reduction of operating expenses.
NORWEGIAN JOINT VENTURE. The Company's Norwegian joint venture,
Orkla Exolon A/S, reported the Company's 50% share in the pre-tax
earnings of the venture was $771,000 for the nine months ended
September 30, 1995 versus $260,000 in the nine months ended September
30, 1994. The Company's share in the venture's net sales was
$5,725,000 in the nine months ended September 30, 1995 when compared
to $4,588,000 in the nine months ended September 30, 1994. The 25%
increase in net sales resulted primarily from an increase in shipment
volume, an improved product mix and increases in selling prices. The
joint venture's gross margins, prior to depreciation, increased to 28%
for the nine months ended September 30, 1995 versus 19% for the nine
months ended September 30, 1994 principally due to increased operating
efficiency resulting from increased sales, an improved product mix and
overhead cost reductions.
INTEREST AND MISCELLANEOUS EXPENSE. Interest expense increased
marginally in the first nine months of 1995 due to higher average
interest rates. Average borrowing levels of the Company's bank debt
were reduced by approximately $400,000 in the first nine months of
1995. Miscellaneous expense decreased by $1,299,000 in the nine
months ended September 30, 1995 compared to the first nine months of
1994. The decrease in miscellaneous expense is principally a result
of the Company's recording of $1,350,000 of environmental reserves in
the first nine months of 1994, when compared to the non-recording of
environmental reserves in the first nine months of 1995.
INCOME TAX. The Company's effective tax rate was 40% for the
nine months ended September 30, 1995 when compared to 96% for the nine
months ended September 30, 1994. The decrease is primarily a result
of the non-recurrence of $1,350,000 of non-deductible environmental
reserves as recorded in the nine months ended September 30, 1994 and
the tax effects therefrom.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE. The Company adopted
Statement of Financial Accounting Standards No. 106, ``Employers'
Accounting for Postretirement Benefits Other Than Pensions '', for its
Canadian operations, effective January 1, 1995. The Standard requires
that the estimated cost of postretirement benefits be accrued over the
period earned. Prior to 1995, the Company's Canadian subsidiary
recognized the costs of these benefits on the pay-as-you-go basis.
The Company's current policy is to fund these benefits on a pay-as-
you-go basis. The Company recognized the obligation due to this
adoption as a one-time, after tax charge to earnings of $762,000 in
the first three months of 1995. As a result of this accounting method
change, periodic post retirement benefit costs for 1995 will
approximate $152,000 (Canadian) compared to $75,000 (Canadian) on a
pay-as-you-go basis.
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1995 WITH THE THREE
MONTHS ENDED SEPTEMBER 30, 1994
NET SALES. Total net sales increased by 13% to $17,094,000 in
the three months ended September 30, 1995 from $15,185,000 in the
three months ended September 30, 1994. Shipment volume of the
Company's primary manufactured and purchased products increased by
approximately 14% in the third quarter of 1995, when compared to the
same period during 1994.
GROSS PROFIT. Gross profit prior to depreciation expense was
$4,052,000 in the three months ended September 30, 1995 when compared
to $3,435,000 in the three months ended September 30, 1994. As a
percent of net sales, gross margins were 24% in the third quarter of
1995 compared to 23% in the third quarter of 1994. The 1995 increase
in gross margins is primarily a result of the increase in net sales
experienced by the Company in the third quarter of 1995 when compared
to the third quarter of 1994.
OPERATING EXPENSES. Total operating expenses decreased by
$271,000 or 12% to $1,983,000 in the three month period ended
September 30, 1995 from $2,254,000 during the same period of 1994.
Research and development expense declined by $200,000 in the 1995
third quarter when compared to the 1994 third quarter. In addition,
selling, general and administrative expense decreased by $52,000 in
the third quarter of 1995 when compared to the third quarter of 1994.
As a percent of net sales, selling general and administrative expense
decreased to 7% in the third quarter of 1995 from 8% in the same 1994
period.
OPERATING INCOME. Operating income increased by $888,000 or 75%
to $2,069,000 in the third quarter of 1995 from $1,181,000 in the
third quarter of 1994, primarily as a result of the increase in sales
and gross profit and the reduction of operating expenses.
NORWEGIAN JOINT VENTURE. The Norwegian joint venture Orkla
Exolon-A/S, reported the Company's 50% share in the pre-tax earnings
of the venture was $260,000 for the three months ended September 30,
1995 versus a pre-tax profit of $194,000 during the three months ended
September 30, 1994. The Company's share in the venture's net sales
was $1,855,000 in the three months ended September 30, 1995 when
compared to $1,725,000 in the three months ended September 30, 1994.
The 8% increase in net sales resulted primarily from an increase in
shipment volume.
INTEREST AND MISCELLANEOUS EXPENSE. Interest expense increased
by $36,000 to $381,000 in the third quarter of 1995 from $345,000
during the third quarter of 1994. The 10% increase resulted from
higher average interest rates on the Company's revolver and operating
lines of credit during the third quarter of 1995 when compared to the
third quarter of 1994. Miscellaneous expense decreased by $950,000 in
the three months ended September 30, 1995. The decrease in
miscellaneous expense is principally a result of the Company's
recording of $864,000 of environmental reserves in the third quarter
of 1994, when compared to the non-recording of environmental reserves
in the third quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1995, working capital (current assets less
current liabilities) has increased to $19,347,000, when compared to
$18,054,000 as of December 31, 1994. Accounts receivable increased by
$2,665,000 as of September 30, 1995 versus 1994 year end primarily as
a result of the increase in net sales during the first nine months of
1995 versus 1994. Inventory increased by $2,225,000 at September 30,
1995 when compared to December 31, 1994. Accounts payable and income
taxes payable increased by $886,000 and $1,439,000, respectively as of
September 30, 1995 versus December 31, 1994. The adverse effect of
the payable increases were offset by the $400,000 decrease in long-
term debt recorded in the first nine months of 1995.
For the nine months ended September 30, 1995, net cash provided
by operating activities was $2,232,000. Outstanding bank indebtedness
decreased by $400,000, and cash reserves decreased by $374,000 at
September 30, 1995 compared to December 31, 1994. Net cash provided
by operating activities was sufficient to fund $2,148,000 of capital
expenditures in the nine months ended September 30, 1995.
The Company's current ratio decreased to 2.8 to 1.0 a t September
30, 1995 from 3.5 to 1.0 as of December 31, 1994. The ratio of total
liabilities to shareholder's equity was 1.5 to 1.0 as of September 30,
1995 and 1.4 to 1.0 as of December 31, 1994. Management believes that
the cash provided by operations and long-term borrowing arrangements
will provide adequate funds for current commitments and other
requirements in the near future.
The Company has been directed by the Illinois Environmental
Protection Agency ("IEPA") to control its sulfur emissions at its
Hennepin, Illinois silicon carbide furnace plant. For further
information see Note 7(a) to the Notes to Consolidated Financial
Statements beginning on page 7, which is incorporated herein by
reference.
Reference is made to the descriptions of the following legal
matters, under the caption ``Legal Matters'' beginning on page 8 of
this Form 10-Q Report, which descriptions are incorporated herein by
reference: (i) a legal action commenced in June 1993 by the Company in
Ontario, Canada seeking $2,000,000 in damages against certain former
officers and employees; (ii) antitrust proceedings commenced in
February 1994 against the Company and others; (iii) a temporary
suspension imposed upon the Company and others in December 1994 by the
U.S. Defense Logistics Agency; and (iv) civil law suits brought
against the Company and others commenced by General Refractories
Company in October 1994 and by Arden Architectural Specialties, Inc.
In July 1995.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
a. Environmental Proceedings - Hennepin, Illinois Plant
Reference is made to the information presented under the
heading "Environmental Issues - Hennepin, Illinois Plant" appearing
under Note 7(a) to the Notes to Consolidated Financial Statements
beginning on page 7 of this Form 10-Q Report, which is hereby
incorporated herein by reference.
b. Exolon-ESK Company and Exolon-ESK Company of Canada, Ltd. v.
Michael Perrotto, et al.
Reference is made to the information contained in "PART II,
Item 1. Legal Proceedings, under the heading "Exolon-ESK Company and
Exolon-ESK Company of Canada, Ltd. v. Michael Perrotto, et al." in the
Company's Form 10-Q Report for the period ended September 30, 1993,
which is hereby incorporated herein by reference.
c. Federal Proceedings
Reference is made to the information contained in Part I,
Item 3. Legal Proceedings under the heading "Federal Indictments"
contained in the Company's 1993 Form 10-K Report, which is hereby
incorporated herein by reference.
Reference is made to the information concerning the DLA
Suspension contained in Note 7(b) ``Legal Matters '' of the Notes to
Consolidated Financial Statements beginning on page 8 of this Form
10-Q, which is hereby incorporated herein by reference.
d. General Refractories Company v. Washington Mills Electro
Minerals Corporation and Exolon-ESK Company
The description of a class action lawsuit relating to claims
under the Sherman Act brought by General Refractories Company against
Washington Mills Electro Mineral Corporation and the Company,
appearing under the heading ``Legal Matters'' under Note 7(b) to the
Notes to Consolidated Financial Statements on Page 10 of the Company's
Form 10-Q reported for the period ended March 31, 1995, is hereby
incorporated herein by reference. On or about July 17, 1995, a law
suit captioned ``Arden Architectural Specialties, Inc. v. Washington
Mills Electro Minerals Corporation and Exolon-ESK Company, '' (95-CV-
05745(m)), was commenced in the United States District Court for the
Western District of New York. The Arden Architectural Specialties
complaint purports to be a class action that is based on the same
matters alleged in the General Refractories complaint.
ITEM 2. CHANGE IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K
Computation of Earnings Per Share, Exhibit 11
Financial Data Schedule, Exhibit 27
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
EXOLON-ESK COMPANY
/S/ J.A. Bernardoni
_____________________________________
James A. Bernardoni, Acting Principal
Executive, Financial, and Accounting
Officer
/S/ J.A. Bernardoni
_____________________________________
James A. Bernardoni, Acting Principal
Executive, Financial, and Accounting
Officer
Date: November 9, 1995
<PAGE>
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit Description Reference
No.
____________ ________________________ ___________________________
<S> <C> <C>
3A Restated Certificate of Exhibit 3A to the report
Incorporation on Form 10-K for the year
ended December 31, 1989*
3A(1) Certificate of Merger Exhibit 3A(1) to the
report on Form 10-K for
the year ended December
31, 1989*
3E Amendment to By-Laws dated Exhibit 3E to the report
March 23, 1991 on Form 10-Q for the
quarter ended March 23,
1991*
3F Certificate of Amendment of Exhibit 3F to the report
Restated Certificate of on Form 10-K for the year
Incorporation dated April ended December 31, 1994*
23, 1986
3G Certificate of Amendment of Exhibit 3G to the report
Restated Certificate of on Form 10-K for the year
Incorporation dated May 4, ended December 31, 1994*
1987
3H Amendment of Certificate of Exhibit 3H to the Report
Incorporation dated October on Form 10-Q for the
28, 1992 quarter ended September
30, 1992*
3I By-Laws Exhibit 3I to the report
on Form 10-K for the year
ended December 31, 1994*
4 Instruments Defining Rights Articles of
of Security Holders Incorporation, Exhibits
3A, 3B and 3C to the
report on Form 10-K for
the year ended December
31, 1989*
10D(23) Revolving Credit Agreement Exhibit 10D(23) to the
dated December 22, 1992 Report on Form 10-K for
the year ended December
31, 1992*
10D(24) Industrial Revenue Bond Exhibit 10D(24) to the
Agreement dated January 1, Report on Form 10-K for
1993. the year ended December
31, 1992*
10F Stockholder's Agreement Exhibit 10F to the report
dated as of April 26, 1984 on Form 10-K for the year
between the Registrant and ended December 31, 1989*
Wacker Chemical Corporation
10G Restated License Agreement Exhibit 10G to the report
dated as of April 26, 1984 on Form 10-K for the year
among Elektroschmelzwerk ended December 31, 1989*
Kempten GmbH, ESK
Corporation and the
Registrant
10H Distributorship Agreement Exhibit 10H to the report
dated April 27, 1984 on Form 10-K for the year
between Elektroschmelzwerk ended December 31, 1989*
Kempten GmbH and the
Registrant
10I Indemnification Agreement Exhibit 10I to the report
dated as of December 15, on Form 10-K for the year
1984 between Wacker ended December 31, 1989*
Chemical Corporation and
the Registrant
10K Contract between Theeb, Exhibit 10K to the
Ltd. and the Exolon-ESK Report on Form 10-K for
Company of Canada, Ltd. the year ended December
dated February 28, 1985 31, 1992*
10M Federal Indictments dated Exhibit 10M to the Report
February 11, 1994 on Form 10-K for the year
ended December 31, 1993*
11 Statement of computation of Page 19
per share earnings
15 Statement re Unaudited None
Interim Financial
Information
18 Letter re Change in None
Accounting Principles
19 Report Furnished to None
Security Holders
22 Published Report Regarding None
Matters Submitted to Vote
of Security Holders
23 Consents of Experts and None
Counsel
24 Power of Attorney None
27 Financial Data Schedule Submitted electronically
99 Conditional Exhibits None
* Incorporated herein by reference
</TABLE>
<PAGE>
<TABLE>
Exhibit 11
Exolon-ESK Company and Subsidiaries
Computation of Earnings Per Share
(In Thousands, Except Per Share Data)
<CAPTION> Three Months Nine Months
Ended Ended
September 30, September 30
1995 1994 1995 1994
______ ______ ______ ______
<S> <C> <C> <C> <C>
Net earnings (loss)
$1,175 ($171) $2,365 $25
Less Preferred Stock Dividends:
Series A (6) - (16) (11)
Series B (6) - (16) (11)
______ ______ ______ ______
Undistributed earnings (loss) $1,163 ($171) $2,333 $3
Net earnings (loss) attributable
to:
Common Stock (50.0%) 581.5 (85.5) 1,166.5 1.5
Class A Common Stock (50.0%) 581.5 (85.5) 1,166.5 1.5
______ ______ _______ _____
$1,163 ($171) $2,333 $3
====== ====== ======= =====
Net earnings (loss) per
share of Common Stock:
Primary $1.21 ($0.17) $2.42 $0.01
Fully Diluted $1.17 - $2.35 -
Net earnings (loss) per
share of Class A Common Stock:
Primary $1.13 ($0.16) $2.28 $0.01
Fully Diluted $1.10 - $2.21 -
Weighted Average Shares
Outstanding:
Primary:
Common Stock 482,000 482,000 482,000 482,000
Class A Common Stock 513,000 513,000 513,000 513,000
Fully Diluted:
Common Stock 504,000 504,000 504,000 504,000
Class A Common Stock 535,000 535,000 535,000 535,000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET, CONDENSED STATEMENTS OF CONSOLIDATED
INCOME AND CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOW AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 93,000
<SECURITIES> 0
<RECEIVABLES> 9,601,000
<ALLOWANCES> 327,000
<INVENTORY> 19,329,000
<CURRENT-ASSETS> 29,918,000
<PP&E> 55,378,000
<DEPRECIATION> (40,158,000)
<TOTAL-ASSETS> 50,424,000
<CURRENT-LIABILITIES> 10,571,000
<BONDS> 0
<COMMON> 1,026,000
0
442,000
<OTHER-SE> 19,492,000
<TOTAL-LIABILITY-AND-EQUITY> 50,424,000
<SALES> 51,402,000
<TOTAL-REVENUES> 51,402,000
<CGS> 39,650,000
<TOTAL-COSTS> 39,650,000
<OTHER-EXPENSES> 5,480,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,090,000
<INCOME-PRETAX> 5,182,000
<INCOME-TAX> 2,055,000
<INCOME-CONTINUING> 3,127,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 762,000
<NET-INCOME> 2,365,000
<EPS-PRIMARY> 2.42
<EPS-DILUTED> 2.35
</TABLE>
