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, 1997
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 12, 1997, 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.<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Exolon-ESK Company
Condensed Consolidated Balance Sheet
(in thousands except share amounts)
(Unaudited)
ASSETS March 31, December 31,
1997 1996
Current assets:
Cash $109 $275
Accounts receivable (less allowance
for doubtful accounts of $402 in
1997 and $502 in 1996) 9,845 9,061
Inventories 18,439 18,439
Prepaid expenses 358 526
______ ______
Total Current Assets 28,751 28,301
Investment in Norwegian joint venture 5,824 5,812
Property, plant and equipment, at cost 65,409 61,157
Accumulated depreciation (43,526) (42,772)
________ ________
Net property, plant and equipment 21,883 18,385
Other assets 6,933 8,985
_______ _______
Total Assets $63,391 $61,483
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ - $219
Current maturities of long-term debt 1,467 1,667
Accounts payable 4,134 4,636
Accrued expenses 1,934 1,780
Income taxes payable 608 466
Deferred income taxes - 50
_____ _____
Total Current Liabilities 8,143 8,818
Deferred income taxes 1,436 1,436
Long-term debt excluding current
installments 21,683 20,433
Other long-term liabilities 2,535 2,538
Stockholders' 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 600,000 513 513
shares, 512,897 issued
Additional paid-in capital 4,345 4,345
Retained earnings 24,335 22,999
Cumulative translation adjustment (186) (186)
Treasury stock, at cost (368) -
______ ______
Total Stockholders' Equity 29,594 28,258
_______ _______
Total Liabilities and Stockholders' $63,391 $61,483
Equity ======= =======
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,
1997 1996
------- -------
Net Sales $20,191 $19,846
Cost of Goods Sold 15,608 15,303
------ ------
Gross Profit Before Depreciation 4,583 4,543
------ ------
Depreciation 755 773
Selling, general & administrative
expenses 1,330 1,397
Research and development 15 -
----- -----
2,100 2,170
----- -----
Operating Income 2,483 2,373
Other Expenses (Income):
Equity in (Earnings) before
income taxes of Norwegian
Jt. Venture (12) (158)
Interest expense 252 368
Miscellaneous (income) expense 87 (267)
---- -----
327 (57)
---- -----
Earnings before income taxes and
cumulative effect of
accounting change 2,156 2,430
Income tax expense 808 1,020
----- -----
Earnings before cumulative
effect of accounting change 1,348 1,410
Cumulative effect of accounting change
(net of income tax benefit) - -
----- -----
Net Earnings $1,348 $1,410
====== ======
PER COMMON SHARE:
Earnings before cumulative
effect of accounting change $1.38 $1.45
Cumulative effect of accounting - -
change
----- -----
Net Earnings $1.38 $1.45
===== =====
PER CLASS A COMMON SHARE:
Earnings before cumulative
effect of accounting change $1.29 $1.36
Cumulative effect of accounting - -
change
----- -----
Net Earnings $1.29 $1.36
===== =====
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,
1997 1996
---- ----
Cash Flow from Operating Activities:
Net earnings $1,336 $1,410
Adjustments to reconcile net
income to net cash
provided by operating
activities:
Depreciation 755 773
Cumulative effect of change in
accounting for post- - -
retirement benefits
Equity in (earnings) of
Norwegian joint venture 12 (158)
(Gain) on fixed asset disposals (150)
Deferred income taxes - -
Change in Assets and Liabilities:
(Increase) decrease in:
Accounts receivable (784) (1,467)
Inventories 1,206
Prepaid expenses 167 (372)
Cash equivalents restricted
for capital expenditures 2,132 -
Other assets (92) (43)
(Decrease) Increase in:
Accounts payable (502) (1,652)
Accrued expenses 154 96
Income taxes payable 92 694
Other long-term liabilities (3) (46)
----- -----
Net Cash Provided (Used) by Operating
Activities 3,267 291
Cash Flow from Investing Activities:
Additions to property, plant and (4,253) (743)
equipment
Proceeds from fixed asset - 216
disposals
------- ------
Net Cash (Used) for Investing
Activities (4,253) (527)
Cash Flow from Financing Activities:
Borrowings (repayments) on
long-term construction financing
loans and revolving credit
agreement 831 (200)
Dividends paid (11) -
------ -----
Net Cash Provided (Used) by Financing
Activities 820 (200)
Net (decrease) in cash (166) (436)
Cash at beginning of period 275 440
----- -----
Cash at end of period $109 $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 1996 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, 1997.
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: 1997 1996
----- ------
Net Sales $ 1,902 $1,911
Income before
income taxes 12 158
Net Income 9 114
NOTE 3 The following are the major classes of inventories (in
thousands) as of March 31, 1997 and December 31, 1996:
March 31, December 31,
1997 1996
(Unaudited)
--------- -----------
Raw Materials $2,593 $3,581
Semi-Finished and
Finished Goods 17,514 16,294
Supplies and Other 1,090 925
-------- --------
21,197 20,800
Less: LIFO Reserve (2,758) (2,361)
-------- --------
$18,439 $18,439
======== ========
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, 1997 borrowings of $1,550,000 were
outstanding under the revolving portion, borrowings of
$600,000 were outstanding under the term loan portion
and there were no amounts 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.
There were no amounts outstanding at March 31, 1997.
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.
The Company is also liable for making payments with
respect to $13,000,000 of Industrial Revenue Bonds
issued by the Upper Illinois River Valley Development
Authority for the construction of a desulfurization
plant at the Company's Hennepin, Illinois facility.
Bonds totaling $8,405,000 are tax-enhanced and mature
December 1, 2021. The remaining bonds mature December
1, 2011. The bonds bear interest, which is payable
periodically, in arrears, to a bank as trustee, at a
variable rate determined by market rates for similar
instruments at the time of adjustment.
March 31, December 31,
Long Term Debt (in 1997 1996
thousands) Consists of: (Unaudited)
---------- ---------
Revolving credit and term $1,550 $ 300
loan agreement with a U.S.
bank. Interest at prime
rate plus /% or LIBOR
(8.25% at March 31, 1997).
Term Loan Agreement with a 600 800
U.S. Bank. Interest at
prime rate plus /% or LIBOR
(8.19% at December 31,
1996)
Industrial Revenue Bond 8,000 8,000
held by an insurance
company. Interest is at a
fixed rate of 8 %. Bond
maturity is January 1,
2018.
Industrial revenue bond. 13,000 13,000
Interest is variable (4.48%
at March 31, 1997). The
bonds are payable annually
through December 1, 2021.
-------- --------
$ 23,150 $ 22,100
Less Current maturities 1,667 1,667
-------- --------
$21,483 $20,433
======== ========
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 any 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 was party to a royalty agreement which
expired in 1996 and covered production of crude
aluminum oxide at its Thorold, Ontario plant using
process technology acquired as part of the construction
and completion of a new furnace plant. The Company is
also party to a separate royalty agreement which covers
production of specialty product for refractory market,
and expires April 30, 2001. This Agreement is
currently the subject to litigation as outlined under
Note 7(b)(ii) in this Form 10-Q Report. Royalty
expense in U.S. dollars amounted to $205,000 in the
first quarter of 1996 and no royalty payment was made
in 1997.
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 obtained final approval for a construction
permit to implement the BACT during 1996. The Company
purchased a 20 acre parcel of land adjacent to its
property in 1995 and construction has commenced.
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 $13,000,000 to
$14,000,000 over the next two years. As of December
31, 1996, the Company has incurred approximately
$4,340,000 of capital costs related to the facility
improvements. The Company has obtained a modification
of its Industrial Revenue Bond Agreement to allow for
the required capital expenditures under the Consent
Order. The cost of these required capital improvements
is being financed with the $13,000,000 of proceeds from
long-term bonds, a portion of which are tax-exempt,
issued by the Upper Illinois River Valley Development
Authority.
(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 Consent Decree dated
November 16, 1948 against the Company and its officers,
which permanently enjoined them from 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 July 12, 1996 a Plea
Agreement was executed by the United States Department
of Justice and the Company in full settlement of the
Criminal Antitrust Proceedings pending against the
Company. The Plea Agreement was approved by the
Federal District Court for the Western District of New
York, and sentencing occurred on December 9, 1996. In
accordance with the Plea Agreement, the Company pled
guilty to contempt of court in violation of the 1948
Consent Decree described in (b) above. All other
charges against the Company were dismissed. The
Company paid a fine of $100,000 and a $200 special
assessment. There are no conditions of probation or
any further penalties. In addition, all antitrust and
consent decree violation charges against individual
former officers of the Company as set forth in (a) and
(b) above were dismissed.
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 KS, the Norwegian partnership
in which the Company's subsidiary, Norsk Exolon AS, 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.
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 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. 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. The Company is
actively seeking to have the DLA suspension lifted as
it has favorably resolved all federal criminal
litigation resulting in the suspension.
On October 18, 1994, a lawsuit 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. S 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
lawsuit 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 these 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.
An action for damages was brought against Exolon-ESK
Company and Exolon-ESK Company of Canada, Ltd. by
International Oxide Fusion Inc. of Niagara Falls,
Ontario in December, 1996. This action has been
brought on the basis that the Thorold, Ontario facility
is in the possession of technology that was provided in
1990 to Exolon-ESK Company to produce MagChrome and
Fused MgO and has refused to pay further royalty
payments. International Oxide Fusion Inc. claims
damages for loss of royalty payments from the furnaces
in Thorold, Ontario which they allege use this
technology. Exolon-ESK Company and Exolon-ESK Company
of Canada, Ltd. have filed a Statement of Defense and
Counterclaim against International Oxide Fusion Inc.,
Edward J. Bielawski, Robert Thiel (the principals of
International Oxide Fusion Inc.), Thomas Farr and
Fusion Unlimited (Niagara) Inc. which was issued in
January, 1997 in Toronto, Ontario. At this time, the
Company is not in a position to reasonably estimate
the range of any loss or gain. The Plaintiffs seek
approximately $182 million as damages, which management
considers to be beyond any reasonable understanding.
The Company's counterclaim is in the amount of
approximately $22 million.
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. While actions against several Defendants
have been dismissed, we have received a $75,000
recovery from one defendant and expect a minimum
recovery of $164,000 from another defendant. A
reasonable estimation of any further 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 $375,000
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, 1997 with the
Three Months Ended March 31, 1996
Net Sales. Total net sales increased by 2% to $20,191,000
during the three months ended March 31, 1997 from $19,846,000 in
the first three months of 1996.
Gross Profit. Gross profit prior to depreciation expense
was $4,582,000 in the first three months of 1997 when compared to
$4,543,000 in the first three months of 1996. As a percent of
net sales, gross margins were 23% in both the first three months
of 1997 and 1996.
Operating Expenses. Total operating expenses decreased to
$2,085,000 in the three months ended March 31, 1997 from
$2,170,000 in the same period of 1996. Operating expenses as a
percent of sales declined to 10% in the first three months of
1997 compared to 11% in the first three months of 1996. The
Company's largest portion of operating expense, selling, general
and administrative expense, decreased to $1,330,000 in the first
three months of 1996 when compared to $1,397,000 during the first
three months of 1996. As a percent of net sales, selling and
general and administrative expense decreased to 6.6% in the first
three months of 1997 from 7% in the same period of 1996.
Operating Income. Operating income increased by 5% to
$2,497,000 in the three months ended March 31, 1997 from
$2,373,000 in the three months ended March 31, 1996, principally
a result of the increase in net sales and decreased 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 $12,000 for the three
months ended March 31, 1997 versus $158,000 in the three months
ended March 31, 1996. The Company's share in the venture's net
sales was $1,902,000 in the three months ended March 31, 1997
when compared to $1,911,000 in the three months ended March 31,
1996. The joint venture's gross margins, prior to depreciation,
decreased to 18% for the three months ended March 31, 1997 versus
22% for the three months ended March 31, 1996 primarily due to a
change in product mix and reduced prices in the first quarter of
1997 when compared to the 1996 first quarter.
Interest and Miscellaneous Expense. Interest expense
decreased by $116,000 in the first three months of 1997. Average
borrowing levels of the Company's bank debt were increased by
approximately $6,500,000 in the first three months of 1997 due to
the bond financing of the capital project in Illinois, when
compared to the first three months of 1996.
Miscellaneous expense of $87,000 was reported in the first
three months of 1997 compared to miscellaneous income of $267,000
in the quarter ended March 31, 1996. 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.
Income Tax. The Company's effective tax rate was 37% for
the three months ended March 31, 1997 when compared to 42% for
the three months ended March 31, 1996.
Liquidity and Capital Resources
As of March 31, 1997, working capital (current assets less
current liabilities) has increased to $20,608,000, when compared
to $20,473,000 as of December 31, 1996. Accounts receivable
increased by $784,000 as of March 31, 1997 versus 1996 year end
primarily as a result of the increase in sales levels during the
first three months of 1997. Accounts payable decreased by
$502,000 in the past three months of 1997 when compared to
December 31, 1996. Current maturities of long term debt have
decreased by $2,083,000 as of March 31, 1997 versus March 31,
1996 as a result of the reduction in the outstanding term note
and demand note.
For the three months ended March 31, 1997, net cash provided
by operating activities was $1,135,000. Cash reserves decreased
by $166,000 at March 31, 1997 compared to December 31, 1996. Net
cash provided by operating activities in addition to the
reduction in cash reserves was used to fund $4,253,000 of capital
expenditures in the three months ended March 31, 1997.
The Company's current ratio increased to 3.5 to 1.0 at March
31, 1997 from 3.2 to 1.0 as of December 31, 1996. The ratio of
total liabilities to shareholder's equity improved to 1.1 to 1.0
as of March 31, 1997 from 1.2 to 1.0 as of December 31, 1996.
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; (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; and (5) a civil
lawsuit brought against the Company in December 1996 by
International Oxide Fusion, Inc.
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
J. Fred Silver
President and Chief Executive Officer
Michael H. Bieger
Chief Financial Officer
Date: May 12, 1997
EXHIBIT INDEX
Exhibit Description Reference
No.
3A Certificate of Amendment of Exhibit 3A to the report
Restated Certificate of on Form 10-K for the
Incorporation dated April year ended December 31,
30, 1997 1996*
3A(1) Certificate of Merger Exhibit 3A(1) to the
report on Form 10-K for
the year ended December
31, 1995*
3F Certificate of Amendment of Exhibit 3F to the report
Restated Certificate of on Form 10-K for the
Incorporation dated April year ended December 31,
23, 1986 1994*
3G Certificate of Amendment of Exhibit 3G to the report
Restated Certificate of on Form 10-K for the
Incorporation dated May 4, year ended December 31,
1987 1994*
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 Restated Bylaws containing Exhibit 3I to the report
all previous amendments on Form 10-K for the
adopted year ended December 31,
1996*
4 Instruments Defining Rights Articles of
of Security Holders Incorporation, Exhibits
3A, and Exhibits 3F and
3G to the Report on Form
10-K for the year ended
December 31, 1994*
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(23) Amendment Credit Agreement Exhibit 10D(23)A to the
A dated December 1, 1996 report on Form 10-K for
the year ended December
31, 1996*
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*
10D(25) Industrial Revenue Bond Loan Exhibit 10D(25) to the
Agreement dated December 1, report on Form 10-K for
1996 the year ended December
31, 1996*
10D(26) Building Loan Agreement Exhibit 10D(26) to the
dated December 1, 1996 report on Form 10-K for
the year ended December
31, 1996*
10F Stockholder's Agreement Exhibit 10F to the
dated as of April 26, 1984 report on Form 10-K for
between the Registrant and the year ended December
Wacker Chemical Corporation 31, 1995*
10G Restated License Agreement Exhibit 10G to the
dated as of April 26, 1984 report on Form 10-K for
among Elektroschmelzwerk the year ended December
Kempten GmbH, ESK 31, 1995*
Corporation and the
Registrant
10H Distributorship Agreement Exhibit 10H to the
dated April 27, 1984 between report on Form 10-K for
Elektroschmelzwerk Kempten the year ended December
GmbH and the Registrant 31, 1995*
10I Indemnification Agreement Exhibit 10I to the
dated as of December 15, report on Form 10-K for
1984 between Wacker Chemical the year ended December
Corporation and the 31, 1995*
Registrant
10M Federal Indictments dated Exhibit 10M to the
February 11, 1994 Report on Form 10-K for
the year ended December
31, 1993*
11 Statement of computation of Exhibit 11
per share earnings
27 Financial Data Schedule Submitted electronically
* Incorporated herein by reference.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 109
<SECURITIES> 0
<RECEIVABLES> 10,247
<ALLOWANCES> 402
<INVENTORY> 18,439
<CURRENT-ASSETS> 28,751
<PP&E> 65,409
<DEPRECIATION> 43,526
<TOTAL-ASSETS> 63,391
<CURRENT-LIABILITIES> 8,143
<BONDS> 20,133
0
442
<COMMON> 1,026
<OTHER-SE> 28,126
<TOTAL-LIABILITY-AND-EQUITY> 63,391
<SALES> 20,191
<TOTAL-REVENUES> 20,191
<CGS> 15,609
<TOTAL-COSTS> 2,085
<OTHER-EXPENSES> 89
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 252
<INCOME-PRETAX> 2,156
<INCOME-TAX> 808
<INCOME-CONTINUING> 1,348
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,348
<EPS-PRIMARY> 1.39
<EPS-DILUTED> 1.34
</TABLE>
Exhibit 11
Exolon-ESK Company and Subsidiaries
Computation of Earnings Per Share
(In Thousands, Except Per Share Data)
Three Months
Ended March 31,
1997 1996
Net earnings $1,348 $1,410
Less Preferred Stock Dividends:
Series A (5) (5)
Series B (5) (5)
Undistributed earnings $1,338 $1,400
Net earnings attributable to:
Common Stock (50.0%) 669 700
Class A Common Stock 669 700
(50.0%)
$1,338 $1,400
Net earnings per share of
Common Stock:
Primary $1.39 $1.45
Fully Diluted $1.34 $1.40
Net earnings per share of
Class A Common Stock:
Primary $1.30 $1.36
Fully Diluted $1.26 $1.32
Weighted Average Shares
Outstanding:
Primary:
Common Stock 482,000 482,000
Class A Common Stock 513,000 513,000
Fully Diluted:
Common Stock 504,000 504,000
Class A Common Stock 535,000 535,000
