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 March 31, 1996
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 May 10, 1996, 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.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Exolon-ESK Company
Condensed Consolidated Balance Sheet
(in thousands except share amounts)
(Unaudited)
March 31, December 31,
ASSETS 1996 1995
_________ ___________
Current assets:
Cash $4 $440
Accounts receivable (less allowance
for doubtful accounts of $409 in
1996 and $419 in 1995) 10,363 8,896
Inventories 18,494 19,700
Prepaid expenses 731 359
______ ______
Total Current Assets 29,592 29,395
Investment in Norwegian joint venture 5,388 5,230
Property, plant and equipment, at cost 56,064 55,903
Accumulated depreciation (40,967) (40,710)
_______ _______
Net property, plant and equipment 15,097 15,193
Other assets 440 397
_______ _______
Total Assets $50,517 $50,215
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $2,000 -
Current maturities of long-term 1,550 1,550
debt
Accounts payable 1,577 3,229
Accrued expenses 1,809 1,713
Income taxes payable 2,023 1,329
Deferred income taxes 160 160
______ ______
Total Current Liabilities 9,119 7,981
Deferred income taxes 1,300 1,300
Long-term debt excluding current
installments 13,150 15,350
Other long-term liabilities 3,240 3,286
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
Authorized 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 18,362 16,952
Cumulative translation adjustment (99) (99)
Treasury stock, at cost (368) (368)
______ ______
Total Stockholders' Equity 23,708 22,298
______ ______
Total Liabilities and Stockholders'
Equity $50,517 $50,215
======= =======
The accompanying notes are an integral part of these statements.
Exolon-ESK Company
Condensed Statements of Consolidated Income
Unaudited
(in thousands except per share amounts)
Three Months Ended
March 31,
1996 1995
_______ ______
Net Sales $19,846 $17,177
Cost of Goods Sold 15,303 13,399
______ ______
Gross Profit Before Depreciation 4,543 3,778
______ _______
Depreciation 773 762
Selling, general & administrative
expenses 1,397 1,234
Research and development - 18
_____ _____
2,170 2,014
_____ _____
Operating Income 2,373 1,764
Other Expenses (Income):
Equity in (Earnings) before
income taxes of Norwegian
Jt. Venture (158) (230)
Interest expense 368 330
Miscellaneous (income)
expense (267) 144
_____ _____
(57) 244
_____ _____
Earnings before income taxes
and cumulative effect of
accounting change 2,430 1,520
Income tax expense 1,020 582
_____ _____
Earnings before cumulative
effect of accounting change 1,410 938
Cumulative effect of accounting change
(net of income tax benefit) - (762)
_____ ______
Net Earnings $1,410 $176
===== =====
PER COMMON SHARE:
Earnings before cumulative
effect of accounting change $1.45 $0.96
Cumulative effect of
accounting change - (0.79)
_____ _____
Net Earnings $1.45 $0.17
PER CLASS A COMMON SHARE:
Earnings before cumulative
effect of accounting change $1.36 $0.90
Cumulative effect of
accounting change - 0.74
_____ _____
Net Earnings $1.36 $0.16
===== =====
The accompanying notes are an integral part of these
statements.
Exolon-ESK Company
Condensed Statements of Consolidated Cash Flows
Unaudited
(in thousands)
Three Months Ended
March 31,
1996 1995
_______ _______
Cash Flow from Operating Activities:
Net earnings $1,410 $176
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation 773 762
Cumulative effect of change in
accounting for post-retirement
benefits - 762
Equity in (earnings) of
Norwegian joint venture (158) (230)
(Gain) on fixed asset disposals (150) -
Deferred income taxes - (413)
Change in Assets and Liabilities:
(Increase) decrease in:
Accounts receivable (1,467) (1,832)
Inventories 1,206 192
Prepaid expenses (372) (6)
Other assets (43) (43)
(Decrease) Increase in:
Accounts payable (1,652) (478)
Accrued expenses 96 138
Income taxes payable 694 579
Other long-term liabilities (46) 333
______ ______
Net Cash Provided (Used) by Operating
Activities 291 (60)
Cash Flow from Investing Activities:
Additions to property, plant and (743) (676)
equipment
Proceeds from fixed asset 216 -
disposals ______ ______
Net Cash (Used) for Investing
Activities (527) (676)
Cash Flow from Financing Activities:
Borrowings (repayments) on
long-term construction financing
loans and revolving credit
agreement (200) 295
Dividends paid - (22)
______ ______
Net Cash Provided (Used) by Financing
Activities (200) 273
Net (decrease) in cash (436) (463)
Cash at beginning of period 440 467
______ ______
Cash at end of period $4 $4
====== ======
The accompanying notes are an integral part of these
statements.
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 1995 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 March 31, 1996.
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:
Three Months Ended
March 31
Joint Venture: 1996 1995
_____ _____
Net Sales $1,911 $1,848
Income before
income taxes 158 230
Net Income 114 166
NOTE 3 The following are the major classes of inventories (in
thousands) as of March 31, 1996 and December 31, 1995:
March 31,
1996 December 31,
(Unaudited) 1995
__________ ________
Raw Materials $2,797 $2,119
Semi-Finished and
Finished Goods 16,531 18,640
Supplies and Other 1,236 1,011
_______ _______
20,564 21,770
Less: LIFO Reserve (2,070) (2,070)
_______ _______
$18,494 $19,700
======= =======
NOTE 4 The Company entered into a Credit Agreement 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 March 31, 1996 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 March 31, 1996 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.
March 31,
Long Term Debt (in thousands) 1996 December
Consists of: (Unaudited) 31, 1995
_________ ________
Revolving Credit Agreement
with a U.S. bank. Interest
at prime rate plus % or
LIBOR plus 2 % (8.5% at March
31, 1996). $5,300 $ 7,100
Term Loan Agreement with a
U.S. Bank. Interest at prime
rate plus % or LIBOR plus
2 % (8.75% at March 31,
1996) 1,400 1,800
Industrial Revenue Bond held
by an insurance company.
Interest at a fixed rate of
8 %. Bond maturity is
January 15, 2018. 8,000 8,000
________ _______
$ 14,700 $ 16,900
Less Current maturities 1,550 1,550
_______ _______
$13,150 $15,350
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 reserves the right to amend,
change, or terminate the benefits at ant time.
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 $502,000 in the year
ended December 31, 1995. The Company's current policy
is to fund these benefits on a pay-as-you-go basis.
NOTE 6 Commitments
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
$205,000 in the first quarter of 1996 and $180,000 in
the first quarter of 1995.
NOTE 7 Contingencies
a. Environmental Issues
(i) 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 anticipates obtaining final approval for a
construction permit to implement the BACT on June 8,
1996.
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 March 31,
1996, the Company has incurred approximately $1,400,000
of capital costs related to the facility improvements.
The Company is seeking to finance the costs of the
required capital improvements through an underwritten
credit enhanced bond offering possibly on a tax-exempt
basis through the State of Illinois. Alternatively,
straight financing is also being pursued. The Company
has obtained a modification of its Industrial Revenue
Bond Agreement to allow for the required capital
expenditures under the Consent Order.
(ii) Norwegian Joint Venture
The Government of Norway 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 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 has prepared an internal study of
the report and the Authority s draft for new
concessions was presented to the joint venture in
February 1996. Based on a consensus for the
metallurgical industry, the joint venture has initiated
discussions with the Authority to obtain acceptable
emissions levels. The costs associated with the
implementation of environmental expenditures are
uncertain as a result of various alternatives presently
being considered by the Norwegian joint venture.
b. Legal Matters
(i) Federal Proceedings and Related Matters
In February 1994, the Company, its former 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: (a)prior to the
mid-1980's and from the mid 1980's 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; (b) during the
same period, the Company and its former 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 (c)
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 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 former President 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. A jury trial on a separate
criminal complaint against the Company and the former
Executive Vice President based on the alleged false
certifications in DLA sales contracts found the Company
and the former Executive Vice President not guilty of
all charges.
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 former
President or former Executive Vice President, if any of
them were convicted of any of the charges alleged in
the Antitrust Proceedings. However, 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. 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, unless the head
of the contracting agency states in writing that there
is a compelling reason to permit such purchase.
Nonetheless, it is not otherwise expected to impact the
Company's operations as the Company does not 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
this grain from its stockpiles 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.
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.
(ii) Exolon-ESK Company of Canada, LTD.
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-ESK Company of Canada, LTD. (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 Canadian
Case ). 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.
On February 29, 1996, the Company and Exolon-Canada
entered into a Final Release (the Release ) with their
insurance carriers whereby they agreed to release the
carriers from all claims based on the activities of the
defendants in the Canadian Case in consideration of a
payment of $535,000 Canadian (approximately $390,000
U.S.). Under the terms of the Release, the insurance
carriers denied any liability, and the payment may not
be indicative of the amount of any recovery that may be
obtained from the defendants. The insurance carriers
have subrogated all of their third party rights and
claims to Exolon-ESK Company of Canada, Ltd.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Comparison of the Three Months Ended March 31, 1996 with the
Three Months Ended March 31, 1995
Net Sales. Total net sales increased by 16% to $19,846,000
during the three months ended March 31, 1996 from $17,177,000 in
the first three months of 1995. The $2,669,000 increase is
principally a result of a 14% increase in shipment volume of the
Company s primary manufactured and purchased products in the
first three months of 1996 when compared to the first three
months of 1995 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 $4,543,000 in the first three months of 1996 when compared to
$3,778,000 in the first three months of 1995. As a percent of
net sales, gross margins were 23% in the first three months of
1996 compared to 22% in the same period of 1995.
Operating Expenses. Total operating expenses increased to
$2,170,000 in the three months ended March 31, 1996 from
$2,014,000 in the same period of 1995. Operating expenses as a
percent of sales declined to 11% in the first three months of
1996 compared to 12% in the first three months of 1995. The
Company's largest portion of operating expense, selling, general
and administrative expense, increased to $1,397,000 in the first
three months of 1996 when compared to $1,234,000 during the first
three months of 1995. As a percent of net sales, selling and
general and administrative expense decreased to 7% in the first
three months of 1996 from 7.2% in the same period of 1995.
Operating Income. Operating income increased by 35% to
$2,373,000 in the three months ended March 31, 1996 from
$1,764,000 in the three months ended March 31, 1995, principally
a result of the increase in net sales and improved gross margins.
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 $158,000 for the three
months ended March 31, 1996 versus $230,000 in the three months
ended March 31, 1995. The Company's share in the venture's net
sales was $1,911,000 in the three months ended March 31, 1996
when compared to $1,848,000 in the three months ended March 31,
1995. The joint venture's gross margins, prior to depreciation,
decreased to 22% for the three months ended March 31, 1996 versus
27% for the three months ended March 31, 1995 primarily due to
higher raw material and power costs incurred in the first quarter
of 1996 when compared to the 1995 first quarter.
Interest and Miscellaneous Expense. Interest expense
increased marginally in the first three months of 1996. Average
borrowing levels of the Company s bank debt were reduced by
approximately $600,000 in the first three months of 1996 when
compared to the first three months of 1995.
Miscellaneous income of $267,000 was reported in the first
three months of 1996 compared to miscellaneous expense of
$144,000 in the quarter ended March 31, 1995. The Company
recorded $320,000 in miscellaneous income during the first
quarter of 1996 due to a payment for the settlement with its
insurance carrier of a claim related to a legal action in
Ontario, Canada Court. For further information, reference is
made to Note 7(b)(ii) beginning on page 9 of this Form 10-Q
report.
Income Tax. The Company's effective tax rate was 42% for
the three months ended March 31, 1996 when compared to 38% for
the three months ended March 31, 1995.
Liquidity and Capital Resources
As of March 31, 1996, working capital (current assets less
current liabilities) has decreased to $20,473,000, when compared
to $21,414,000 as of December 31, 1995. Accounts receivable
increased by $1,467,000 as of March 31, 1996 versus 1995 year end
primarily as a result of the increase in sales levels during the
first three months of 1996 versus the 1995 year. Inventory
decreased by $1,206,000 at March 31, 1996 when compared to
December 31, 1995. Income taxes payable increased by $694,000 as
of March 31,1996 versus December 31, 1995. The adverse effect of
the income tax payable increase was offset by the $1,652,000
decrease in accounts payable recorded in the first three months
of 1996, when compared to December 31, 1995. In addition, the
Company borrowed $2,000,000 on a short term note with a low
interest rate during the first quarter of 1996 increasing current
liabilities as of March 31, 1996.
For the three months ended March 31, 1996, net cash provided
by operating activities was $291,000. Cash reserves decreased by
$436,000 at March 31, 1996 compared to December 31, 1995. Net
cash provided by operating activities in addition to the
reduction in cash reserves was used to fund $743,000 of capital
expenditures in the three months ended March 31, 1996.
The Company's current ratio decreased to 3.3 to 1.0 at March
31, 1996 from 3.7 to 1.0 as of December 31, 1995. The ratio of
total liabilities to shareholder's equity improved to 1.1 to 1.0
as of March 31, 1996 from 1.3 to 1.0 as of December 31, 1995.
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)(i) to the Notes to Consolidated
Financial Statements on page 7, which is incorporated herein by
reference.
Reference is made to the descriptions of the following legal
matters, within Note 7(b) to the Notes to Consolidated Financial
Statements under the caption Legal Matters beginning on page 8
of this Form 10-Q Report, which descriptions are incorporated
herein by reference: (1) 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; (2) antitrust
proceedings commenced in February 1994 against the Company and
others; (3) a temporary suspension imposed upon the Company and
others in December 1994 by the U.S. Defense Logistics Agency; and
(4) 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)(i) to the Notes to
Consolidated Financial Statements on page 7 of this
Form 10-Q Report, which is 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." (the Perrotto Case )
in the Company's Form 10-Q Report for the period ended
September 30, 1993, which is hereby incorporated herein
by reference.
On February 29, 1996, the Company and Exolon-Canada
entered into a Final Release (the Release ) with their
insurance carriers whereby they agreed to release the
carriers from all claims based on the activities of the
defendants in the Perrotto Case, in consideration of a
payment of $535,000 Canadian (approximately $390,000
U.S.). Under the terms of the Release, the insurance
carriers denied any liability, and the payment may not
be indicative of the amount of any recovery that may be
obtained from the defendants. The insurance carriers
have subrogated all of their third party rights and
claims to Exolon-Canada.
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. The proceedings described thereunder are
hereinafter referred to as the Antitrust Proceedings.
Reference is made to the information concerning the DLA
Suspension contained in Note 7(b)(i) of the Notes to
Consolidated Financial Statements beginning on page 8
of this Form 10-Q, which is 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 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 on Form 8-K
Computation of Earnings Per Share, Exhibit 11
Financial Data Schedule, Exhibit 27
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. Fred Silver
___________________________
J. Fred Silver
President and
Chief Executive Officer
/S/James A. Bernardoni
___________________________
James A. Bernardoni
Vice President Finance and
Principal Accounting Officer
Date: May 10, 1996
EXHIBIT INDEX
Exhibit
No. Description Reference
______ _______________________ _____________________
3A Restated Certificate of Exhibit 3A to the report
Incorporation on Form 10-K for the year
ended December 31, 1995*
3A(1) Certificate of Merger Exhibit 3A(1) to the
report on Form 10-K for
the year ended December
31, 1995*
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, 1995*
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, 1995*
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, 1995*
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, 1995*
Chemical Corporation and
the Registrant
*Incorporated herein by reference
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
Exhibit 11
Exolon-ESK Company and Subsidiaries
Computation of Earnings Per Share
(In Thousands, Except Per Share Data)
Three Months
Ended March 31,
____________
1996 1995
_______ ______
Net earnings $1,410 $176
Less Preferred Stock
Dividends:
Series A (5) (5)
Series B (5) (5)
_____ _____
Undistributed earnings $1,400 $166
Net earnings attributable
to:
Common Stock (50.0%) 700 83
Class A Common Stock 700 83
(50.0%) _____ _____
$1,400 $166
====== =====
Net earnings per share of
Common Stock: $1.45 $0.17
Primary
Fully Diluted $1.40 $0.17
Net earnings per share of
Class A Common Stock:
Primary $1.36 $0.16
Fully Diluted $1.32 $0.16
Weighted Average Shares
Outstanding:
Primary:
482,000 482,000
Common Stock
Class A Common Stock 513,000 513,000
Fully Diluted:
Common Stock 504,000 504,000
Class A Common Stock 535,000 535,000
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
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442
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