SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One) FORM 10-K
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 1-7276
EXOLON-ESK COMPANY
------------------
(Exact name of registrant as
specified in its charter)
Delaware 16-0427000
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(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
1000 East Niagara Street, Tonawanda, NY 14150
------------------------------------
(Address of Principal Executive Offices)
(716) 693-4550
--------------
(Registrant's telephone number, including area code)
Name of each
exchange on which
Title of each class registered
------------------ ----------
Common stock $1 par Boston Stock
value Exchange
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
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
At March 18, 1999 the aggregate market value of the publicly
traded voting stock held by nonaffiliates of the Registrant was
$2,804,963 based upon the closing price of the Registrant's
Common Stock on that date as reported by the Boston Stock
Exchange. Solely for the purposes of this calculation all
persons who are or may be Officers or Directors of the Registrant
and all persons or groups that have filed Schedules 13D with
respect to the Registrant's stock have been deemed to be
affiliates.
As of March 18, 1999, the Registrant had outstanding 481,995
shares of $1 par value Common Stock.
Documents Incorporated by Reference
None.
PART I
Item 1. Business
EXOLON-ESK COMPANY
(a) General Development of the Business
The Exolon Company was founded in 1914 as a Massachusetts
corporation and reincorporated as a Delaware corporation in 1976.
On April 27, 1984, ESK Corporation merged into the Exolon Company
and the resulting company was renamed Exolon-ESK Company. (As
used herein, the Company refers to Exolon-ESK Company and its
wholly owned Canadian Subsidiary.) The Company issued 499,219
shares of its Class A Common Stock and 31,523 shares of its
Series B Convertible Preferred Stock to Wacker Chemical
Corporation as a result of the merger. In December of 1995,
Wacker Chemical Corporation transferred all of its Company stock
to Wacker Chemicals (USA), Inc. ( Wacker USA ).
The Company is engaged in the business of manufacturing and
selling products which are used principally for abrasive,
refractory and metallurgical applications. The primary products
of the Company are fused aluminum oxide and silicon carbide.
Other product lines include fused specialty products sold to the
refractory industry.
Effective at the time of the merger, the Company entered
into a Restated Patent License Agreement with Elektroschmelzwerk
Kempten GmbH ("Kempten"). Both Kempten and Wacker USA are wholly
owned subsidiaries of Wacker Chemie GmbH. At the time of the
merger, the Company also entered into an exclusive
distributorship and sales representation agreement with Kempten
for the United States and Canada relating to silicon carbide
products which was set to expire on December 31, 1997. In July
1997, Kempten and the Company entered into a new two-year
distributorship and sales representation agreement for silicon
carbide products for the years 1998 and 1999. In addition, the
Company represents Kempten as a distributor of boron carbide
grains to selected markets.
(b) Financial Information about Industry Segments
The Company has only one business segment, the manufacture
of abrasive materials and products for abrasive, metallurgical
and refractory uses. The Company regards its principal business
as being in a single industry segment.
(c) Narrative Description of Business
The Company's crude silicon carbide is produced at the
Company's plant in Hennepin, Illinois. The Company produces
crude aluminum oxide and certain other products at its plant in
Thorold, Canada owned by Exolon-ESK Company of Canada, Ltd.
("Exolon Ltd."), its wholly owned subsidiary. Some of the crude
products are sold directly to customers, but most of the crude
products are shipped to the Company's plant in Tonawanda, New
York, where the Company crushes, grades and formulates the crude
products into granular products for sale to customers.
Methods of distribution. While most of the Company's
products are sold directly to its customers by sales
representatives employed by the Company, a portion of the sales
are made through industrial distributors located throughout the
United States and Canada. Export sales are made on a direct
basis and through agents.
Raw materials. The principal raw materials used by the
Company are abrasive grade bauxite, petroleum coke, silica sand
and cast iron borings.
The Company purchases many other products such as fiber
drums, wood pallets, bags, oil, natural gas, chemicals,
electrodes and carbon products.
The abrasive grade bauxite used by the Company presently
comes from the Republic of Guinea in West Africa, Australia and
The People's Republic of China. Petroleum coke and silica sand
originate from United States sources.
Large quantities of electric power are purchased from
Ontario Hydro for use by the Company's Canadian furnace plant and
from the Illinois Power Company for use in its Hennepin plant.
The Company believes that adequate supplies of power will
continue to be available. Adequate supplies of raw materials
have in general been available to the Company at competitive
prices.
Employees. As of December 31, 1998, the Company had 256
employees.
Major Customers. Sales to no one customer accounted for 10%
or more of consolidated net sales of the Company for the years
ended December 31, 1998, 1997 and 1996. In management's opinion,
the loss of any one customer would not have a material adverse
effect on the Company.
Competition. The industry in which the Company is engaged
is highly competitive. Principal North American competition is
from three well-established North American companies. In
addition, substantial quantities of grain are imported and sold
in North America by foreign based producers of abrasive grain.
Each of the North American competitors, in addition to the
Company, have silicon carbide grain processing facilities. Two
of the three also have aluminum oxide crude and grain production
operations, and one has silicon carbide crude production
facilities.
Competition in the industry is based upon pricing, service,
and product performance. The Company's products are sold to
other manufacturers and, as a result, the distribution to the
industry markets is highly competitive. Major customers are
continually striving to remain competitive by controlling the
costs for raw materials purchased from the Company. In order to
meet customer demand and for competitive purposes, the Company
maintains substantial inventories. In addition, it has been
Company policy to confine its primary operations to the electric
furnace production and processing of grain products.
Backlog. As of December 31, 1998, the Company had a
consolidated backlog of $4,560,000 as compared to $5,792,000 a
year earlier. The decrease in the Company's backlog in 1998 is
primarily due to the decrease in demand that we experienced in
the fourth quarter. All of this backlog is expected to be
shipped in 1999.
Seasonal Effect. The Company's business is generally not
seasonal. However, vacation shutdowns by a number of its
customers can influence third quarter sales.
Pollution Control. The Company is involved in operations in
which there is a continued risk that the environment could be
adversely affected. The Company is in frequent contact with the
various environmental agencies in the jurisdictions in which it
operates in an attempt to maintain environmental compliance.
Reference is made to Note 13 of the Notes to Consolidated
Financial Statements beginning on page 31, which is incorporated
herein by reference.
Management believes all necessary pollution control
equipment at the Company's plants in Tonawanda, New York and
Thorold, Ontario are in place, and all current pollution control
requirements are being met at both plants.
(d) Financial Information about Foreign and Domestic Operations
and Export Sales
The Company's wholly owned subsidiary, Norsk Exolon AS, is a
limited partner in a Norwegian partnership Orkla Exolon KS. See
information contained in Note 1.(c). of Notes to Financial
Statements on page 19. The Company's interest in the Norwegian
partnership is subject to the usual risks of foreign investment,
including currency fluctuations.
Currency fluctuation is also a risk associated with the
Company's Canadian plant operations.
Item 2. Properties
The Company's main office and grain processing plant are
located in Tonawanda, New York. The plant and office buildings,
which are owned by the Company, contain 273,000 square feet of
space, and occupy 6 of 34 acres owned by the Company at this
site. The facilities were originally completed in 1943, and
substantial additions to the plant have been made since that
date.
The Company has an electric furnace plant situated in
Thorold, Ontario, Canada. All plant and office buildings at the
plant are owned by the Company, as well as the 43 acres of land
on which the facilities are located. In total, the buildings
consist of 251,000 square feet of space. The plant was
originally built in 1914. Substantial additions have been made
in subsequent years, including the construction of a new furnace
in 1996.
The Company's Hennepin, Illinois plant includes four outdoor
furnace groups and buildings of 47,800 square feet, located on a
78 acre site which is owned by the Company. Construction began
in late 1977 and was completed in the Spring of 1979 for three
furnace groups. The expansion to a fourth furnace group was
completed in 1989. The Company purchased an additional 20 acre
parcel adjacent its property in 1995 and has completed
construction of a desulfurization facility as outlined in Note
13(a)(i) on page 31.
The Company has operations in Norway conducted through a
joint venture, as outlined in Note 1(c) on page 19. The office
and plant of the Norwegian joint venture are located in Gjolme,
Norway. The plant and office building, and the land upon which
it is situated, are owned by the joint venture. In total, the
plant and office consist of 154,000 square feet of space, on 88
acres of land. The plant and office were constructed from
1961-1963, with substantial additions made thereafter.
The Company believes that all of these plants are in good
condition and suited for the purposes for which they are
operated.
Item 3. Legal Proceedings
Reference is made to the information included in Note 13 to
the Consolidated Financial Statements, which is incorporated
herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters
The Company's Common Stock is traded on the Boston Stock
Exchange. The quarterly Common Stock price ranges are as
follows:
Price Range of Common Stock Boston Stock
Exchange
Quarter
1 2 3 4
High-Low 1998 $33-1/2-$38 $38-$35-1/2 $36-1/2-$28 $33-$29-1/2
High-Low 1997 $29 - $26 $31 - $27 $31 -$29-1/2 $37 - $32
Information concerning limitations on the payment of
dividends on the Company's Common Stock is hereby incorporated by
reference to Notes 7 and 9 to Notes to Consolidated Financial
Statements beginning on pages 23 and 26, respectively.
The number of stockholder accounts of record of the
Company's Common Stock, $1 par value, was 159 as of March 11,
1999. The Company did not pay any dividends on its Common Stock
in 1998 or 1997.
The shares of the Company's Class A Common Stock, all of
which are owned by Wacker Chemical (USA), Inc., are not publicly
traded.
Item 6. Selected Financial Data
Selected Financial Information Years Ended December 31,
1998 1997 1996 1995 1994
(thousands of dollars except share amounts)
Statement of Operations:
Net Sales $65,578 $78,096 $77,459 $68,592 $59,494
Gross profit before 10,961 17,286 17,839 15,380 12,863
depreciation
Operating Income 2,124 9,355 9,358 7,527 3,186
Income before Cumulative
Effective of Accounting Change 22 5,254 6,080 3,964 1,516
Cumulative Effect of Accounting
Change -
Net of Income Tax Benefit - - - (502) -
--------------------------------------
Net Income $ 22 $ 5,254 $ 6,080 $ 3,462 $ 1,516
======================================
Basic Earnings (Loss) per share of
Common Stock:
Income before Cumulative
Effect of Accounting Change $(0.02) $5.41 $6.27 $4.06 $1.53
Cumulative Effect of Accounting
Change -
Net of Tax Benefit - - - (0.52) -
---------------------------------------
Net Income (Loss) per share $(0.02) $5.41 $6.27 $3.54 $1.53
=======================================
Basic Earnings (Loss) per share of
Class A Common Stock:
Income before Cumulative
Effect of Accounting Change $(0.02) $5.08 $5.90 $3.81 $1.44
Cumulative Effect of Accounting
Change -
Net of Tax Benefit - - - (0.49) -
---------------------------------------
Net Income (Loss) per share $(0.02) $5.08 $5.90 $3.32 $1.44
=======================================
Selected Financial Information Years Ended December 31,
- Continued
1998 1997 1996 1995 1994
(thousands of dollars except share amounts)
Diluted Earnings per share of
Common Stock:
Income before Cumulative
Effect of Accounting Change $ (0.02)$ 5.21 $ 6.03 $ 3.93 $ 1.50
Cumulative Effect of Accounting
Change -
Net of Tax Benefit - - - $ (0.49) -
---------------------------------------
Net Income per share $ (0.02)$ 5.21 $ 6.03 $ 3.44 $ 1.50
=======================================
Diluted Earnings per share of Class A
Common Stock:
Income before Cumulative
Effect of Accounting Change $ (0.02)$ 4.91 $ 5.69 $ 3.71 $ 1.42
Cumulative Effect of Accounting
Change -
Net of Tax Benefit - - - $ (0.47) -
---------------------------------------
Net Income per share $ (0.02)$ 4.91 $ 5.69 $ 3.24 $ 1.42
=======================================
Dividends per share:
Series A Cumulative $1.1250 $1.1250 $0.8437 $1.1250 $0.8437
Preferred Stock
Series B Cumulative $1.1250 $1.1250 $0.8437 $1.1250 $0.8437
Preferred Stock
Common Stock - - - - -
Class A Common Stock - - - - -
Summary Balance Sheet
Information: December 31,
1998 1997 1996 1995 1994
(thousands of dollars)
Current Assets $34,594 $29,260 $28,301 $29,395 $25,441
Current Liabilities 6,728 6,082 8,818 7,981 7,387
--------------------------------------
Working Capital 27,866 23,178 19,483 21,414 18,054
Total Assets 71,286 63,277 61,483 50,215 45,309
Long-Term Debt 27,643 20,033 20,433 15,350 14,900
Stockholders' Equity 32,576 32,789 28,258 22,298 18,628
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Forward-Looking Statements
Statements included in this Management Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this
document that do not relate to present or historical conditions are
"forward-looking statements" within the meaning of that term in
Section 27A of the Securities Act of 1933, as amended, and in Section
21F of the Securities Exchange Act of 1934, as amended. Additional
oral or written statements may be made by the Company from time to
time, and such statements may be included in documents filed with the
Securities and Exchange Commission. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors,
which may cause the actual results, performance or achievements of the
Company to be materially different from those expressed or implied by
such forward-looking statements. Such factors include economic
slowdowns and recessions; the availability and pricing of raw
materials used in the manufacture of the Company's products; the
reliable operation of the Company's manufacturing facilities and
equipment; the Company's ability to effectively compete in the
industries in which it does business; the Company's ability to
successfully negotiate new labor agreements and otherwise maintain
favorable relations with its employees, a majority of whom are
unionized; the Company's ability to comply with existing and future
environmental laws and regulations, the accuracy of its current
estimates of existing environmental liabilities and the possibility
that currently unknown environmental liabilities may be discovered.
The table presented below sets forth the following: (i)
percentages which certain items presented in the financial statements
bear to net sales of the Company and (ii) change of such items as
compared to the indicated prior year.
Period to
Period
Increase
(Decrease)
in Relationship
Relationship to Net Sales to
Net Sales
Years Ended December 31, Years Ended
1998 1997 1996 1997-98 1996-97
Net Sales 100.0 % 100.0 % 100.0 % 0 % 0 %
Cost of Goods Sold,
excluding Depreciation 83.3 77.9 77.0 5.4 0.9
Depreciation 5.0 3.5 3.6 1.5 (0.1)
Selling, General and
Administrative
Expense 8.3 6.6 7.3 1.8 (0.7)
Research and
Development 0.2 - - 0.2 -
------------------------------------------
96.8 88.0 87.9 8.8 0.1
------------------------------------------
Operating Income 3.2 12.0 12.1 (8.8) (0.1)
Other (Income) Expense:
Equity in Loss
(Income) of Norwegian
Joint Venture (0.6) (0.6) (0.9) 0.0 0.3
Interest Expense 1.8 1.2 1.5 0.6 (0.3)
Other 1.3 0.3 (0.4) 1.0 0.7
----------------------------------------
2.5 0.9 0.2 1.6 0.7
----------------------------------------
Income Before Income
Taxes and Cumulative
Effect of
Accounting Change 0.7 11.1 11.9 (10.4) (0.8)
Income Tax Expense 0.7 4.4 4.1 (3.7) (0.3)
-----------------------------------------
Net Income 0.0 % 6.7 % 7.8 % (6.7)% (1.1) %
=========================================
The following discussion and analysis reviews certain factors
which produced significant changes in the Company's results of
operations during the three years ended December 31, 1998.
Results of Operations 1998 Compared to 1997
In 1998, the Company's net sales decreased $12,518,000 to
$65,578,000, a decrease of 16% compared to net sales of $78,096,000 in
1997. The decline in sales was due to volume decreases caused by a
decrease in demand combined with an increase in foreign competition.
Consolidated net income was $22,000 for the year ended December
31, 1998. This compares to consolidated net income of $5,254,000 for
1997. The decrease in net income is primarily due to the loss in
sales volume and increased manufacturing costs.
Cost of sales, excluding depreciation, as a percentage of sales
increased to 83% in 1998, when compared to 78% in 1997 primarily as a
result of increased costs in silicon carbide production related to the
startup of our pollution abatement facility in Illinois.
Total operating expenses including depreciation were $8,837,000
during 1998 versus $7,931,000 during 1997. The 1998 increase in
operating expenses is primarily a result of increased depreciation
expense related to the startup of the pollution abatement facility in
Illinois and increased general and administrative expenses related to
year 2000 compliance efforts.
Depreciation, as a percent of sales, was 5.0% for 1998 compared
to 3.5% for 1997. The 1998 increase was due to the mid-year startup
of the pollution abatement facility in Illinois.
Selling, general and administrative expenses increased by
$331,000 in 1998, due primarily to increased expenditures related to
year 2000 compliance efforts and increased selling costs.
Interest expense from continuing operations increased to
$1,179,000 in 1998 versus $938,000 in 1997. The increase in interest
expense is primarily due to the interest costs incurred relative to
the startup of the pollution abatement facility in July.
The Company's 50% share of the pre-tax earnings of its Norwegian
joint venture, Orkla Exolon KS, was $385,000 for 1998 versus $437,000
for 1997. The joint venture's gross margin, prior to depreciation,
was 19% for both 1998 and 1997.
The 1998 income tax provision was $430,000, representing an
effective rate of 95%. This is due to $662,000 of foreign currency
translation losses, which are not deductible for income tax
calculations. Net of these losses the income tax provision would
represent 38.5% of taxable income. The 1997 income tax provision was
$3,432,000 which represented an effective rate of 39.5%.
Results of Operations 1997 Compared to 1996
In 1997, the Company's net sales increased $637,000 to
$78,096,000, an increase of 1% compared to net sales of $77,459,000 in
1996.
Consolidated net income was $5,254,000 for the year ended
December 31, 1997. This compares to consolidated net income of
$6,080,000 for 1996. The reduction in earnings is primarily due to a
decrease in earnings of $236,000 related to the Norwegian joint
venture, increased expenses related to foreign currency translations
and a one-time insurance settlement recorded in 1996.
Cost of sales, excluding depreciation, as a percentage of sales
increased to 78% in 1997, when compared to 77% in 1996 as a result of
increased costs in raw materials and utilities; therefore gross
margins, as a percent of sales decreased to 22% in 1997 compared to
23% in 1996.
Total operating expenses including depreciation were $7,931,000
during 1997 versus $8,481,000 during 1996. The 1997 decrease in
operating expenses of $550,000 is primarily a result of decreases in
selling and general and administrative expenses.
Depreciation, as a percent of sales, was 3.5% for 1997 compared
to 3.6% for 1996.
Selling, general and administrative expenses decreased by
$550,000 in 1997, due primarily to decreases in consulting fees, legal
fees, sales salaries and incentives, and general and administrative
salaries. As a percent of net sales, selling and general and
administrative expense decreased to 6.6% in 1997, from 7.3% for the
1996 year.
Interest expense from continuing operations declined to $938,000
in 1997 from $1,136,000 in 1996. The reduction in interest expense is
primarily due to lower debt levels in 1997 versus 1996, exclusive of
debt used to finance construction of the desulfurization facility at
the Company's Hennepin, Illinois facility, for which interest totaling
$346,000 was capitalized during 1997 ($114,000 for 1996).
During 1998, the company decided to discontinue its pursuit of
the purchase of a foreign company. Costs of $408,000 related to this
activity were expenses in the third quarter.
The Company's 50% share of the pre-tax earnings of its Norwegian
joint venture, Orkla Exolon KS, was $437,000 for 1997 versus $673,000
for 1996. The joint venture's gross margins, prior to depreciation,
decreased to 19% for the 1997 year versus 21% for 1996, principally
due to increased operational costs.
The 1997 income tax provision was $3,432,000, representing an
effective rate of 39.5%. The 1996 income tax provision was $3,145,000
which represented an effective rate of 34%.
Liquidity and Capital Resources
As of December 31, 1998, working capital (current assets less
current liabilities) increased to $27,866,000, when compared to
$23,178,000 as of December 31, 1997. Accounts receivable decreased by
$2,257,000 as of December 31, 1998 versus December 31, 1997.
Inventory increased by $3,583,000 at December 31, 1998 when compared
to December 31, 1997. Accounts payable increased $452,000 as of
December 31, 1998 versus December 31, 1997. Long-term debt increased
by $7,610,000 versus December 31, 1997.
For the year ended December 31, 1998, net cash provided by
operating activities was $623,000. Outstanding bank indebtedness
increased by $7,610,000 at December 31, 1998 compared to December 31,
1997. Capital expenditures of $4,040,000 were funded by bank
indebtedness.
The Company's current ratio increased to 5.1 to 1.0 at December
31, 1998 from 4.8 to 1.0 as of December 31, 1997. The ratio of total
liabilities to stockholder's equity was 1.2 to 1.0 as of December 31,
1998 and .9 to 1.0 as of December 31, 1997.
Current financial resources including the availability of the
revolving line of credit financing and anticipated funds from
operations are expected to be adequate to meet normal requirements for
the year ahead. The Company currently has lines of credit with
borrowing capacities of $10,000,000 in the U.S. and $1,000,000
(Canadian funds) in Canada.
The Company in its long-term cash planning normally covers
capital expenditures with funds generated internally. Where
abnormally large capital expenditure programs are involved, long-term
financing vehicles are sometimes used. Total 1999 normal capital
expenditures are forecasted at $3,000,000 to maintain and upgrade
production facilities. The Company believes that funds generated
internally should be sufficient to finance normal capital expenditure
requirements in 1999.
Reference is made to the information included in Note 13 to the
Consolidated Financial Statements beginning on page 31 which is
incorporated herein by reference.
Employees
As of December 31, 1998, the Company employed 256 persons. Of
these, approximately 177 (or 69%) work under three collective
bargaining agreements. During 1998, the Company and the hourly
workers at its Tonawanda, New York facility reached agreement on a new
three-year collective bargaining agreement. This agreement covers 72
production and maintenance workers represented by the local branch of
the United Steelworkers of America, Local 4447, AFL-CIO and expires on
October 31, 2001.
Impact of Year 2000
The Year 2000 (Y2K) Issue is the result of computer programs
being written using two digits rather than four to define the
applicable year. Any of the Company's computer programs or hardware
that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar
normal business activities.
The Company's plan to resolve the Year 2000 Issue involves the
following four phases: assessment, remediation, testing/reassessment,
and implementation. To date, the Company has fully completed its
assessment of all major and secondary systems that could be
significantly affected by the Year 2000. The completed assessment
indicated that most of the Company's significant information
technology systems could be affected. That assessment has also
indicated that there was two manufacturing systems also affected. It
was determined that there is little, if any, risk associated with the
remaining production and manufacturing systems. Further, the Company
has determined that there is no risk with respect to the products it
has sold and continues to sell. In addition, the Company has gathered
information about the Year 2000 compliance status of its significant
suppliers and continues to monitor their compliance.
For its information technology exposures, the Company has decided
to completely replace the existing software and associated hardware.
To date, the Company has installed the new information systems at its
Tonawanda, New York facility, which includes the corporate
headquarters. The process is completed to the extent that both
critical and daily processing is active and is Y2K compliant.
Of the two manufacturing systems affected, only one (a control
room) represents a significant concern. Upgrade of the affected
technology has been assessed, a specific solution specified, and the
project approved. Completion of this project is to occur in 1999. The
other system is a mix station and is non-critical with respect to
compliance. This equipment is not required until December 2000. An
assessment and action plan has been developed but will not be
implemented until first Quarter, 2000.
Secondary systems have been evaluated and are either currently in
compliance or are expected to be in compliance by March 31, 1999.
The Company has queried its significant suppliers that do not
share information systems with the Company (external agents). To
date, the Company is not aware of any external agent with a Year 2000
issue that would materially impact the Company's results of
operations, liquidity, or capital resources. However, the Company has
no means of ensuring that external agents will be Year 2000 ready.
The inability of external agents to complete their Year 2000
resolution process in a timely fashion could materially impact the
Company. The effect of non-compliance by external agents is not
determinable.
The Company has, and will continue to utilize both internal and
external resources to replace, test, and implement the software and
certain hardware for Year 2000 modifications. The total cost of the
Year 2000 project is estimated at $1,935,000, which includes $723,000
for the purchase of new software and hardware that will be
capitalized, $985,000 for the control room, and $227,000 that will be
expensed and incurred. To date, the Company has incurred
approximately $900,000 related to all phases of the Year 2000 project.
Management of the Company believes that it has an effective
program in place to resolve the Year 2000 issue in a timely manner.
As noted above, the Company has not yet completed all necessary phases
of the Year 2000 program. In the event that the Company does not
complete any additional phases, the Company reasonably expects it
would be able to take customer orders, manufacture and ship products,
invoice customers, and collect payments. In addition, disruptions in
the economy generally resulting from Year 2000 issues could also
materially adversely affect the Company. The amount of potential
liability and lost revenue cannot be reasonably estimated at this
time.
The Company currently is developing contingency plans in place in
the event it, its customers, or vendors, do not complete all phases of
the Year 2000 program. Currently the plan has addressed staffing, to
ensure availability of technical, support, and managerial staff into
January 2000.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to various market risks, including changes
in foreign currency exchange rates and interest rates. Market risk is
the potential loss arising from adverse changes in market rates and
prices, such as foreign currency exchange and interest rates. The
Company does not enter into derivatives or other financial instruments
for trading or speculative purposes. The Company has entered into
financial instruments to manage and reduce the impact of changes in
interest rates.
A portion of the Company's operations consists of manufacturing
and sales activities in foreign jurisdictions, principally Canada and
Norway. As a result, the Company's financial results could be
significantly affected by factors such as changes in foreign currency
exchange rates or weak economic conditions in the foreign markets in
which the Company distributes its products. The Company's operating
results are exposed to changes in exchange rates between U.S. dollar
and the Canadian dollar and between the U.S. dollar and the Norwegian
Kroner. Had the U.S. dollar been 10% stronger relative to the
Canadian dollar and the Norwegian Kroner during 1998, net income would
have been lower by $1.2 million.
The Company has various long-term indebtedness outstanding at
December 31, 1998. The interest impact of an increase in interest
rates of 100 basis points (1%) would be as follows (in thousands):
Instrument Interest Rate Impact on Earnings
---------- ------------- ------------------
Revolving credit and LIBOR plus 250 $ (76)
term loan agreement points or
Prime plus 25
points
Village of Hennepin, Fixed -
Illinois Industrial -------
Revenue Bonds
Upper Illinois River Variable (a) -
Valley Development
Authority Industrial
Revenue Bonds
Net income reduction (76)
before tax
Less tax benefit 29
-------
Net income reduction $ (47)
(a) The Company has entered into interest rate swap agreements to
manage its interest rate market risk exposure with respect to
this financial instrument. Under the swap agreement, the Company
has effectively fixed the interest rate on the related
obligations at a weighted average of 4.85% and either pays to, or
receives from a counter-party an amount equal to the difference
between the fixed rate and the current variable rate. The
weighted average variable rate at December 31, 1998 was 4.55%.
The interest rate swap agreements mature in December 2001.
Item 8. Financial Statements and Supplementary Data
The Consolidated Financial Statements, together with the report
thereon of Ernst & Young LLP dated January 16, 1999, appear on pages
14 through 36 to follow.
Report of Independent Auditors
Board of Directors
Exolon-ESK Company
We have audited the accompanying consolidated balance sheets of
Exolon-ESK Company and subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1998. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Exolon-ESK Company and subsidiaries at December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
S/ Ernst & Young LLP
Buffalo, New York
January 16, 1999
Exolon-ESK Company and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)
Year Ended December 31,
1998 1997 1996
Net Sales $ 65,578 $ 78,096 $ 77,459
Cost of Goods Sold 54,617 60,810 59,620
---------------------------
Gross Profit Before Depreciation 10,961 17,286 17,839
Depreciation 3,252 2,734 2,826
Selling, General & Administrative 5,479 5,148 5,621
Expenses
Research and Development 106 49 34
--------------------------
Operating Income 2,124 9,355 9,358
Other Income (Expense):
Interest Expense (1,179) (938) (1,136)
Equity in Income of Norwegian 385 437 673
Joint Venture
Abandoned Acquistion Costs (408) - -
Other (470) (168) 330
--------------------------
Income before Income Taxes 452 8,686 9,225
Income Tax Expense 430 3,432 3,145
--------------------------
Net Income $ 22 $ 5,254 $ 6,080
==========================
Basic (Loss) Income Per Share:
Per Common Share $ (0.02) $ 5.41 $ 6.27
==========================
Per Class A Common Share $ (0.02) $ 5.08 $ 5.90
==========================
Diluted (Loss) Income Per Share:
Per Common Share $ (0.02) $ 5.21 $ 6.03
==========================
Per Class A Common $ (0.02) $ 4.91 $ 5.69
==========================
See accompanying notes to the consolidated financial statements.
Exolon-ESK Company and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share amounts)
December 31,
Assets 1998 1997
Current assets:
Cash $ 5,289 $ 2,503
Accounts receivable (less allowance for
doubtful accounts of $249 in 1998 and
$350 in 1997) 7,325 9,582
Income taxes recoverable 1,124 -
Inventories 20,219 16,636
Prepaid expenses 96 183
Deferred income taxes 541 356
------------------
Total Current Assets 34,594 29,260
Investment in Norwegian joint venture 5,594 5,505
Property, plant and equipment 27,078 26,290
Bond sinking fund 2,422 885
Other assets 1,598 1,337
------------------
Total Assets $ 71,286 $ 63,277
==================
Liabilities and Stockholders' Equity
Current liabilities:
Note payable $ 503 $ -
Current maturities of long-term debt and
sinking fund requirements 967 1,367
Accounts payable 3,113 2,661
Accrued expenses 2,145 1,858
Income taxes payable - 196
-----------------
Total Current Liabilities 6,728 6,082
Deferred income taxes 1,979 1,834
Long-term debt 27,643 20,033
Other long-term liabilities 2,360 2,539
------------------
Total liabilities 38,710 30,488
------------------
Commitments and Contingencies
Stockholders' equity:
Preferred stock
Series A (liquidation preference - $484) 276 276
Series B (liquidation preference - $484) 166 166
Common stock, issued 512,897,
outstanding 481,995 ($1 par value) 513 513
Class A common stock, issued 512,897
($1 par value) 513 513
Additional paid-in capital 4,345 4,345
Retained earnings 28,188 28,209
Accumulated other comprehensive income (1,057) (865)
Treasury stock, at cost (368) (368)
------------------
Total Stockholders' Equity 32,576 32,789
------------------
Total Liabilities and Stockholders' Equity $ 71,286 $ 63,277
==================
See accompanying notes to the consolidated financial statements.
Exolon-ESK Company and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31,
Cash Flow from Operating Activities: 1998 1997 1996
Net income $ 22 $5,254 $6,080
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation 3,252 2,734 2,826
Equity in income of Norwegian joint
venture (385) (437) (673)
(Gain) loss on fixed asset disposals - (23) 29
Deferred income taxes (40) 47 26
Foreign currency adjustments - 10 4
Change in Assets and Liabilities:
Accounts receivable 2,257 (521) (165)
Income taxes recoverable (1,124) - -
Inventories (3,583) 1,803 1,261
Prepaid expenses 87 343 (167)
Other assets (261) (37) (98)
Cash overdraft - (1,413) 1,413
Accounts payable 452 (562) (6)
Accrued expenses 287 78 67
Income taxes payable (196) (270) (863)
Other liabilities and accrued
postretirement benefit costs (179) 1 (748)
Other 34 - -
---------------------
Net Cash Provided by Operating Activities 623 7,007 8,986
---------------------
Cash Flow from Investing Activities:
Capital expenditures (4,040) (10,617)(6,170)
Proceeds from (purchases of)
restricted cash equivalents - 7,996 (7,996)
Proceeds from fixed asset disposals - 1 123
---------------------
Net Cash Used for Investing Activities (4,040) (2,620)(14,043)
---------------------
Cash Flow from Financing Activities:
Payments to bond sinking fund (1,467) (867) -
Net (payments of) proceeds from
long-term debt 7,210 (700) (7,800)
Proceeds from issuance of long-term debt - - 13,000
Deferred financing fees - (329) (494)
Net proceeds from (payments of) notes
payable 503 (219) 219
Dividends paid (43) (44) (33)
---------------------
Net Cash Provided by (Used for) Financing
Activities 6,203 (2,159) 4,892
---------------------
Net (Decrease) Increase in Cash 2,786 2,228 (165)
Cash at Beginning of Year 2,503 275 440
---------------------
Cash at End of Year $ 5,289 $2,503 $ 275
=====================
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $1,399 $1,261 $1,171
Income Taxes $1,789 $3,710 $3,983
See accompanying notes to the consolidated financial statements.
Exolon-ESK Company and Subsidiaries
Consolidated Statements of Stockholders' Equity
(In thousands, except share amount)
Series Addi-
A/B tional Other
Pref. Common Paid-in Retained Comp. Treas.
Stock Stock Capital Earnings Income Stock Total
----- ----- ------- ------- ------ ----- -----
Balance -
Jan. 1, 1996 $ 442 $ 1,026 $ 4,345 $16,952 $ (99) $ (368) $22,298
Net income - - - 6,080 - - 6,080
Foreign currency
translation adj. - - - - (87) - (87)
-----
Comprehensive
income - - - - - - 5,993
Preferred stock -----
dividends -
$0.8438/share - - - (33) - - (33)
--------------------------------------------------------
Balance -
Dec. 31, 1996 442 1,026 4,345 22,999 (186) (368) 28,258
Net income - - - 5,254 - - 5,254
Foreign currency
transation adj. - - - - (679) - (679)
-----
Comprehensive
income - - - - - - 4,575
-----
Preferred
stock dividends
$1.125/share - - - (44) - - (44)
--------------------------------------------------------
Balance -
Dec. 31, 1997 442 1,026 4,345 28,209 (865) (368) 32,789
Net income - - - 22 - - 22
Foreign currency
transation adj. - - - - (192) - (192)
------
Comprehensive loss - - - - - - (170)
------
Preferred stock
dividends -
$1.125/share - - - (43) - - (43)
--------------------------------------------------------
Balance -
December 31, 1998 $442 $1,026 $4,345 $28,188 $(1,057) $(368) $32,576
========================================================
See accompanying notes to the consolidated financial statements.
EXOLON-ESK COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 and 1996
1. Summary of Significant Accounting Policies
a. Revenue recognition
The Company recognizes revenue at the time of shipment to the
customer. Provision is made for anticipated losses at the time the
loss is known.
b. Principles of consolidation
The accompanying consolidated financial statements include the
accounts of the Exolon-ESK Company and its wholly-owned subsidiaries
Exolon-ESK Company of Canada, Ltd., Norsk Exolon AS, and Exolon-ESK
International Sales Corporation (the "Company"). All significant
intercompany balances and transactions have been eliminated.
c. Investment in Norwegian joint venture
The Company's wholly-owned subsidiary, Norsk Exolon AS is a
limited partner in a Norwegian partnership, Orkla Exolon KS (the
"Partnership"), which is engaged in the manufacture and sale of
silicon carbide crude and grain products. Norsk Exolon AS has a 50%
interest in the Partnership, with another Norwegian company, Orkla AS,
owning the balance. The furnace plant, processing plant and other
facilities of the Partnership were constructed in the early 1960's
under the guidance and technical direction of the Company. The
partnership began manufacturing operations during 1963. The
investment is stated at cost plus the Company's share of undistributed
earnings and translation adjustments since acquisition. The earnings
of the joint venture are reportable for Norwegian tax purposes by the
partners. Taxes attributable to Norsk Exolon AS's share of earnings
from the joint venture are included as a component of income taxes
(Note 8).
d. Inventories
Inventories are stated at the lower of cost or market.
Approximately 65% of the dollar value of inventories is stated at
last-in, first-out (LIFO) cost at December 31, 1998 and 1997, with the
balance being stated at average cost.
e. Property, plant and equipment
Property, plant and equipment is stated at cost. Maintenance and
repairs are charged to expense as incurred and renewals and
betterments are capitalized. Depreciation is computed for financial
reporting purposes using straight-line and declining balance methods
over the estimated useful lives of the assets as follows: buildings,
15-50 years; machinery and equipment, 3-20 years.
f. Deferred financing fees
Deferred financing fees are being amortized on a straight-line
basis over the life of the related debt.
g. Foreign currency translation
The Company has determined that the United States dollar is the
functional currency of the Canadian subsidiary and that the Norwegian
krone is the functional currency of the Norwegian subsidiary and the
joint venture.
Inventories and property, plant and equipment of the Canadian
subsidiary are translated at historical exchange rates and all other
assets and liabilities are translated at year-end exchange rates.
Income statements of the Canadian subsidiary are translated at average
rates for the year, except for depreciation, which is translated at
historical rates. Gains and losses arising as a result of the
translation of the financial statements of the Canadian subsidiary are
reflected directly in the results of operations.
Assets and liabilities of the Norwegian subsidiary and joint
venture are translated at year-end exchange rates and the income
statements are translated at the average exchange rates for the year.
Resulting translation adjustments are recorded as a separate component
of equity.
Net gains (losses) arising as a result of the remeasurement of
the Canadian subsidiary's financial statements into the United States
dollar and from other foreign currency transactions amounted to
($662,000), ($317,000), and $42,000 in 1998, 1997, and 1996,
respectively.
h. Income taxes
Deferred income taxes are determined based on differences between
financial reporting and tax bases of assets and liabilities as
measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
The Company does not provide U.S. Federal income taxes on the
entire balance of the undistributed earnings of foreign subsidiaries
as these earnings are considered to be permanently reinvested. In
1995, the Company decided to repatriate up to $3,100,000 of
undistributed earnings from its Canadian subsidiary through a future
stock redemption and has provided for all applicable income taxes in
the 1995 statement of operations. At December 31, 1998, undistributed
earnings of the Canadian and Norwegian foreign subsidiaries combined
were $12,985,000.
Investment tax credits are accounted for using the flow-through
method.
i. Currency forward contracts
From time to time, the Company enters into currency forward
contracts in management of foreign currency transaction exposure.
Forward foreign currency exchange contracts are purchased to reduce
the impact of foreign currency fluctuations on operating results.
Realized and unrealized gains and losses on these contracts are
recorded in net income currently, with the exception of gains and
losses on contracts designated to hedge specific foreign currency
commitments which are deferred and recognized in net income in the
period of the commitment transaction. The discount or premium of the
forward contract is recognized over the life of the contract.
j. Environmental remediation and compliance
Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. Expenditures that relate to
an existing condition caused by past operations, and which do not
contribute to current or future revenue generation, are expensed.
Liabilities are recorded when environmental assessments and/or
remedial efforts are probable, and the cost can be reasonably
estimated.
k. Long-lived assets
In March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of", which requires
impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement No. 121 also
addresses the accounting for long-lived assets that are expected to
be disposed of. The Company adopted Statement No. 121 in 1996. The
effect of this adoption was not material.
l. Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from those estimates.
2. Inventories
If the average cost method, which would approximate current or
replacement costs, had been used for valuing all inventories of the
Company, inventories would have been $3,237,000 and $3,351,000 higher
than reported at December 31, 1998 and 1997, respectively.
The following are the major classes of inventories as of December
31 (in thousands):
1998 1997
---- ----
Raw Materials $ 1,669 $ 2,839
Semi-Finished and Finished
Goods 20,822 16,183
Supplies and Other 965 965
------ ------
23,456 19,987
Less: LIFO Reserve (3,237) (3,351)
------ ------
$ 20,219 $ 16,636
====== ======
3. Property, Plant and Equipment
Property, plant and equipment consists of (in thousands):
1998 1997
---- ----
Land $ 283 $ 283
Buildings 7,903 7,860
Machinery & equipment 66,352 49,614
Construction in progress 729 13,605
------ ------
75,267 71,362
------ ------
Less - accumulated 48,189 45,072
depreciation ------ ------
$27,078 $26,290
======= =======
During 1998 and 1997, the Company capitalized interest costs
totaling $262,000 and $346,000, respectively.
4. Business Segment Information
The Company manufactures abrasive materials and products for
abrasive, metallurgical and refractory uses. The Company regards its
principal business as being in a single industry segment. The Company
conducts operations through its manufacturing facilities in the United
States and Canada, and its equity interest in a Norwegian joint
venture.
No one customer accounted for 10% or more of net sales in 1998 or
1997.
5. Investment in Norwegian Joint Venture
The Company's 50% share of the results of operations of the
Norwegian joint venture has been determined after adjustments to
reflect the application of United States generally accepted accounting
principles relating principally to the recording of depreciation and
pension expenses and adjustments to the carrying values of the
ventures's year-end inventories. The Company's share of the venture's
assets, liabilities, and results of operations is set forth in the
following condensed financial information (in thousands):
December 31,
Balance Sheet Data 1998 1997
Current assets $4,521 $4,563
Non-current assets 3,095 2,599
Current liabilities 1,503 1,332
Non-current liabilities 207 246
Statement of Operations 1998 1997 1996
Net sales $7,498 $8,037 $8,195
Gross profit 1,483 1,551 1,709
Income before income taxes 385 437 673
The Company does not provide U.S. Federal income taxes on the
undistributed earnings of the Norwegian joint venture as these
earnings are permanently reinvested. At December 31, 1998 and 1997,
undistributed earnings of the joint venture were $5,334,000 and
$5,044,000, respectively.
6. Notes Payable
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. The demand loan had a balance of
$503,000 (US funds), $0 and $219,000 (US Funds) as of December 31,
1998, 1997 and 1996, respectively.
The Canadian agreement requires the subsidiary to maintain
specified financial ratios and minimum net worth levels. The
maintenance of financial covenants may preclude the Canadian
subsidiary's transfer of funds, by dividend or otherwise, to the U.S.
parent company. All borrowings under the Canadian agreement are
guaranteed by the Company and the Canadian bank has a security
interest in the Canadian accounts receivable, inventory and machinery
and equipment. Interest on the borrowings is based upon the Canadian
prime rate.
7. Long-Term Debt
Long-term debt consists of (in thousands):
1998 1997
Revolving credit and term loan $ 7,610 $ 400
agreement with a U.S. Bank. Interest
at prime rate plus 1/4% or LIBOR plus
2-1/2% (7-3/4% at December 31, 1998).
Industrial revenue bond held by an 8,000 8,000
insurance company. Interest is at a
fixed rate of 8.875%. Bond maturity is
January 1, 2018.
Industrial revenue bond. Interest is 13,000 13,000
variable (4.90% at December 31, 1998).
The bonds are payable annually through
December 1, 2021.
------- -------
$28,610 $21,400
Less - current maturities 967 1,367
------- -------
$27,643 $20,033
======= =======
U.S. Credit Agreement
The Company's Credit Agreement dated December 22, 1992 with a
U.S. bank provides for borrowings up to $10,000,000 under the
revolving credit facility.
At December 31, 1998 borrowings of $7,610,000 were outstanding
under the revolving portion of the Credit Agreement. The revolving
portion converts, in whole or any portion, to a term note on January
2, 2000. Any principal balance of the revolver which is not converted
is required to be repaid by the conversion date. Upon conversion, the
term loan is payable in sixteen quarterly principal installments as
follows: fifteen equal quarterly installments, each equal to the
lesser of $250,000 or 2.5% of the principal balance of the revolver
converted on the conversion date beginning April 1, 1999 and
continuing to October 1, 2002 and one final payment on January 1, 2003
in an amount equal to the remaining balance of the term note. The
Company must pay a commitment fee equal to 0.15% per annum on the
unused portion of the revolving credit facility.
Borrowings under the Credit Agreement bear interest at either a
defined base rate, contingent upon the bank's prime lending rate, or a
rate based on the London Interbank Offered Rate (LIBOR). The Company
has the option to convert the interest rate on all or a portion of the
principal of its borrowings from the base rate to the rate based on
LIBOR. Interest is payable monthly.
The U.S. Credit Agreement requires the Company to maintain
certain financial covenants. In addition, the agreement sets forth
limits on capital expenditures and dividends and contains certain
other covenants including restriction on mergers, consolidations and
sales of assets. The Company is precluded from paying or declaring
any dividends or other distributions on its Common Stock without
written consent from its U.S. bank. The Company may declare Preferred
Stock dividends not to exceed $100,000 in the aggregate in any fiscal
year.
As collateral for the U.S. Credit Agreement, the bank has
security interest in all U.S. accounts receivable and inventory as
well as certain additional assets of the Tonawanda, New York facility.
Industrial Revenue Bonds
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. The bonds
bear interest, payable to a bank as trustee at a fixed rate of 8.875%.
Amortization of principal commences in January, 1999 until maturity in
the year 2018. The bond agreement contains certain restrictive
covenants which are consistent with the covenants contained in the
U.S. Credit Agreement.
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. The bond agreement contains
certain restrictive covenants which are consistent with the covenants
contained in the U.S. Credit Agreement.
In support of the $13,000,000 bond issue, the Company obtained a
$13,000,000 letter of credit from its principal U.S. bank for the
benefit of the trustee of the bonds. A letter of credit fee equal to
0.75% per annum is payable to the bank periodically, in arrears. The
letter of credit expires in December, 2001 and is renewable annually
thereafter. The letter of credit agreement requires the Company to
make voluntary quarterly contributions to a sinking fund in an amount
which would be sufficient to provide for the redemption of all of the
bonds within 15 years. The letter of credit agreement also requires
the Company to contribute to the sinking fund, an amount equal to the
Company's excess cash flow, up to a maximum of $4,333,333 in the
aggregate. At December 31, 1998, the Company was not required to
include an amount under this provision. At December 31, 1997, the
amount required under this provision was $500,000 and has been
included in current maturities of long-term debt.
The bond sinking fund had a balance of $2,422,000 and $885,000 at
December 31, 1998 and 1997, respectively. The sinking fund monies are
invested in certificates of deposit with the bond trustee.
Aggregate annual maturities of long-term debt and scheduled
sinking fund requirements are as follows:
1999 $967,000
2000 $1,537,000
2001 $1,728,000
2002 $1,728,000
2003 $6,484,000
Thereafter $13,833,000
8. Income Taxes
The components of income before income taxes are as follows (in
thousands):
1998 1997 1996
---------------------------
Domestic $ 250 $ 5,142 $ 5,711
Foreign 202 3,544 3,514
---------------------------
Total $452 $8,686 $9,225
===========================
The components of income tax expense are as follows (in
thousands):
1998 1997 1996
--------------------------
Current provision
(benefit):
United States
Federal $ 171 $ 1,540 $ 1,850
State 16 339 271
Foreign 281 1,506 995
--------------------------
Total $ 468 $ 3,385 $ 3,116
--------------------------
Current
Deferred provision
(benefit):
United States
Federal $ (84) $ 13 $ (45)
State (9) 7 6
Foreign 55 27 68
---------------------------
Total Deferred $ (38) $ 47 $ 29
---------------------------
Total $ 430 $ 3,432 $ 3,145
===========================
The actual tax expense differs from the expected tax expense
computed by applying the U.S. Federal corporate tax rate of 34% to
earnings before income taxes as follows (in thousands):
1998 1997 1996
-------------------
Computed expected tax expense $ 154 $2,954 $3,137
Effect of differing tax rates
applicable to foreign
subsidiary income (14) (317) (407)
Effect of permanent differences 9 15 47
State and Provincial taxes, net of 127 797 486
Federal benefit
Effect of foreign currency 146 70 (9)
remeasurement
Other 8 (87) (109)
-------------------
Total income tax expense $ 430 $3,432 $3,145
===================
Effective tax rate 95.1% 39.5% 34.1%
Deferred income tax liabilities and assets include the following
(in thousands):
1998 1997
-------------
Deferred tax liabilities:
Excess tax depreciation $ 1,804 $1,732
Taxes on foreign earnings
expected to be repatriated 571 571
Pension and payroll accruals 191 210
Other 50 51
----- -----
Gross deferred tax liabilities 2,616 2,564
----- -----
Deferred tax assets:
Inventory accounting methods (24) (29)
Accounts receivable and other (76) (112)
asset reserves
Post retirement accrual (935) (945)
Other, net (143) -
----- ----
Gross deferred tax assets (1,178) (1,086)
----- -----
Net deferred tax liability at $ 1,438 $1,478
end of year ===== =====
9. Capital Stock
The Company has two classes of Common Stock. At December 31,
1998 there were 600,000 shares of $1 par value Common Stock
authorized, of which 512,897 shares were issued and 481,995 shares
were outstanding. At the same date there were 600,000 shares of $1
par value Class A Common Stock, of which 512,897 shares were issued
and outstanding.
Additionally, there were 100,000 shares of no par value Preferred
Stock authorized. At December 31, 1998 there were 19,364 shares of
Series A and 19,364 shares of Series B Preferred Stock outstanding.
At December 31, 1998, the shares of Series A and Series B
Preferred Stock are entitled to receive, when declared by the Board of
Directors, cumulative annual cash dividends at the rate of $1.125 per
share. The Series A and Series B Preferred Stock have a preference
upon liquidation of $25.00 each per share. Each share of Series A and
Series B Preferred Stock is convertible into 1.125 shares of Common
Stock and Class A Common Stock, respectively. The shares of Common
Stock, voting with the shares of the Series A Preferred Stock, have
the right to elect one-half of the members of the Board of Directors
and the shares of Class A Common Stock voting with the Series B
Preferred Stock, owned by Wacker Chemical (USA), Inc. ("Wacker USA"),
have the right to elect the remaining one-half of the members of the
Board of Directors.
10. Pension and Other Retirement Benefits
The Company sponsors contributory and non-contributory pension
plans in the United States and Canada covering substantially all
hourly and salaried employees with the exception of union employees at
the Company's Hennepin plant, who are covered by a union-sponsored
pension plan. The Company's U.S. defined contribution plan, which
covers all of its domestic salaried employees, and its Canadian
defined contribution plan covering substantially all Canadian
employees, provide for the Company to make regular contributions based
on salaries of eligible employees. Payments upon retirement or
termination of employment are based on vested amounts credited to
individual accounts. Contributions to the U.S. defined contribution
plan totaled $204,000 in 1998, $200,000 in 1997, and $176,000 in 1996.
Contributions to the Canadian defined contribution plan were $62,000
in 1998, $56,000 in 1997, and $78,000 in 1996. The Company also
provides a defined benefit plan for hourly employees at the Tonawanda
plant. Benefits are based primarily on years of service. The
Company's policy for this plan is to contribute annually at least the
minimum amount required by the Employee Retirement Income Security Act
of 1974, as amended.
The Company also participates in a collectively bargained, union-
sponsored multiemployer pension plan which benefits employees of the
Company's Hennepin, Illinois facility who are union members. Company
contributions to this plan were $180,000, $180,000 and $139,000 for
1998, 1997 and 1996, respectively. This plan is not administered by
the Company. Contributions are determined in accordance with the
provisions of the negotiated labor contract.
Total pension expense for all plans amounted to $400,000,
$454,000, and $393,000 in 1998, 1997 and 1996, respectively.
The following tables summarize certain information with respect
to the Company's Tonawanda hourly employees defined benefit plan:
December 31,
Change in Benefit Obligation 1998 1997
----------------------------------------------------------
Benefit obligation at beginning $1,658 $1,540
of year
Service cost 60 59
Interest cost 132 123
Plan amendments 259 -
Actuarial loss 309 36
Benefits paid (256) (100)
----- -----
Benefit obligation at end of year 2,162 1,658
----- -----
Change in Plan Assets
Fair value of plan assets at 3,082 2,421
beginning of year
Actual return on plan assets 673 761
Benefits paid (256) (100)
----- -----
Fair value of plan assets at end 3,499 3,082
of year ----- -----
Funded status 1,337 1,424
Unrecognized net loss at
transition, being amortized
over approximately 17 years 86 103
Unrecognized prior service cost 385 138
Unrecognized actuarial gains (1,254) (1,155)
------- -------
Prepaid pension cost $554 $510
======= =======
Components of Net Periodic Pension Cost 1998 1997 1996
---------------------------------------------------------------------
Service cost $60 $59 $57
Interest cost 132 123 118
Expected return on plan assets (215) (169) (146)
Amortization of transition 17 17 17
obligation
Amortization of prior service 12 12 12
cost
Recognized net actuarial gains (49) (24) (15)
---- ---- ----
Net periodic pension expense $(43) $18 $43
==== ==== ====
Weighted Average Assumptions as of December 31
Discount rate 8% 8% 8%
Expected return on plan assets 7% 7% 7%
Unrecognized gains and prior service costs are amortized on a straight-
line basis over a period approximating the average remaining service
period for active employees.
In addition to providing pension benefits, 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. For certain retirees, these benefits are subject to
deductibles, co-payment provisions and other limitations. The Company
may amend or change the plan periodically. The Company's policy is to
fund these benefits on a pay-as-you-go basis.
The following tables summarize certain information with respect to
the Company's postretirement benefit plans:
December 31,
1998 1997
---------------
Change in Benefit Obligation
Benefit obligation at beginning
of year $2,551 $2,728
Service cost 26 33
Interest cost 194 210
Actuarial gain (72) (99)
Benefits paid (210) (274)
Effect of changes in foreign
currency exchange rates (68) (47)
---- ----
Benefit obligation at end of 2,421 2,551
Unrecognized prior service cost (21) (24)
Unrecognized actuarial gains 111 23
---- ----
Accrued postretirement benefit $2,511 $2,550
obligation ===== =====
Components of Net Periodic
Post Retirement Benefit Cost 1998 1997 1996
------------------------------------------------------------------
Service cost $26 $33 $20
Interest cost 194 210 144
Amortization of prior service cost 2 2 -
Recognized net actuarial losses (gains) 7 20 (50)
Net periodic postretirement --- --- ---
benefit cost $229 $265 $114
==== ==== ====
Weighted Average Assumptions as of December 31
Discount Rate 8% 8% 8%
Unrecognized gains and losses and prior service costs are amortized
on a straight-line basis over a period approximating the average<PAGE>
remaining service period for active employees.
For measuring the postretirement benefit obligation as of
December 31, 1998 an 8% annual rate of increase in health care rates
was assumed, decreasing to 6% per year in 2002 and thereafter. It was
also assumed that reimbursable expenses for post-1990 U.S. retirees
would be at least equal to the dollar reimbursement limitation.
Assumed health care cost trend rates have a significant effect on
the amounts reported for the health care plans. A one percentage
point change in assumed health care cost trend rates would have the
following effect:
One One
Percentage Percentage
Point Point
Increase Decrease
Effect on total of service
and interest cost components $15 ($13)
Effect on postretirement
benefit obligation 116 (121)
11. Related Party Transactions
The Company purchased combined totals of $2,854,000,
$3,130,000 and $3,740,000 of products from its affiliates,
Elektroschmelzwerk Kempten GmbH, and its Norwegian joint venture
during 1998, 1997 and 1996, respectively.
The Company has a royalty agreement with an affiliate of a
shareholder of the Company as described in Note 12(b).
12. Commitments
a. Lease agreements
The Company leases certain machinery and equipment under
operating leases. Amounts charged to expense for the years ended
December 31, 1998, 1997 and 1996 were $295,000, $366,000 and $428,000,
respectively. Total minimum lease payments, at December 31, 1998,
under operating leases are summarized as follows (in thousands):
1999 $90,000
2000 22,000
-------
$112,000
b. 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 was
also party to a separate Royalty Agreement which covered production of
specialty product for the refractory market, and expires April 30,
2001. Royalty expense in U.S. dollars amounted $73,000, $0, and
$419,000 in years ended December 31, 1998, 1997 and 1996,
respectively. The Royalty Agreement was terminated and all causes of
action related to it were terminated in March 1999 for $500,000 Cdn.
13. 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.
During 1998, the Company completed installation of the
CEMS and implementation of the BACT as required by the
Consent Order. The Company incurred capital costs of
$13,517,000 in connection with the project. The cost
of these required capital improvements was financed
principally 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 Norwegian State Pollution Control Authority has
issued limits regarding dust emissions and Sulfur
Dioxide emissions that will apply to all Norwegian
silicon carbide producers. Specific target emission
limits have been set, and a compliance timetable
ranging from the present until January 1, 2001 has been
established. The costs associated with achieving
compliance with these limits are uncertain as a result
of various alternatives presently being considered by
the Norwegian joint venture. Management believes the
joint venture can meet the sulfur requirements with
changes in production techniques and raw material
procurement including low sulfur coke. Based upon
current known information the Company estimates the
future costs associated with achieving compliance with
these limits would approximate $2 million.
b. Legal Matters
(i) Federal Proceedings and Related Matters
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. 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. In October 1997, the
Norton Company was named an additional defendant in
both cases. The ultimate liability, if any, that could
result from these lawsuits cannot presently be
determined, although the Company believes that it has
meritorious defenses to the allegations, and it intends
to vigorously defend against the charges.
(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 alleged that
the Thorold, Ontario facility was in the possession of
technology that was provided in 1990 to Exolon-ESK
Company to produce MagChrome and Fused Magnesium Oxide
and had refused to pay further royalty payments.
International Oxide Fusion Inc. claimed damages for
loss of royalty payments from the number 4 furnace. A
separate, unrelated lawsuit was commenced by The
Exolon-ESK Company of Canada, Ltd. against Theeb, Ltd.
and Edward J. Bielawski in August, 1997. The action
arose out of a 1985 contract in connection with a crane
and its runway system. A Settlement and Full Release
was reached by the parties in March 1999 for $500,000
Cdn. for both of these matters collectively.
In June 1993, the Company commenced a civil 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) ( the "Defendants") on various charges
related to allegations that they defrauded the Company
and Exolon-Canada of money, property and services over
many years (the Perrotto Case ). Summary Judgment was
granted on the issue of liability against Paul Perrotto
and Michael Perrotto on July 16, 1997 with a Reference
(hearing) directed in Toronto on the issue of damages.
The hearing is scheduled for May 1999. The action
remains ongoing against various other Defendants.
14. Fair Value Of Financial Instruments
At December 31, 1998 and 1997, the carrying amount and the fair
value of the Company's financial instruments were as follows (in
thousands). Bracketed amounts in the carrying amount column represent
liabilities for potential cash outflows. Bracketed amounts in the fair
value column represent estimated cash outflows required to currently
settle the financial instrument at current market rates.
December 31,
1998 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
------- ----- ------ -----
Assets:
Cash $5,289 $5,289 $2,503 $2,503
Liabilities:
Note Payable (503) (503) - -
Revolving credit and term (7,610) (7,610) (400) (400)
loan agreement
Variable rate industrial (13,000) (13,000) (13,000)(13,000)
revenue bonds
Fixed rate industrial (8,000) (10,793) (8,000)(10,918)
revenue bonds
The following methods and assumptions were used by the Company in
estimating the fair values of financial instruments. The carrying
amount reported in the balance sheet for cash approximates fair value.
The fair value of the Company's note payable, revolving credit and
term loan agreement, and variable rate industrial revenue bonds
approximate carrying amounts, as the underlying debt instruments are
comprised of notes that are re-priced on a short-term basis. The fair
value of the fixed rate industrial revenue bonds has been estimated
using the discounted cash flow method.
During 1998, the Company entered into an interest rate swap agreement
with a bank to manage its exposure to interest rate movements by
effectively fixing the interest rates on its variable rate industrial
revenue bonds ($13,000,000 face amount) through December 17, 2001.
The fixed interest payments are at a weighted average 4.85%. Interest
rate differentials paid or received under these agreements are
recognized as adjustments to interest expense in the period paid or
received.
15. Earnings Per Share
The following table sets forth the computation of basic and
diluted earnings per share (in thousands except share and per share
information):
Numerator: 1998 1997 1996
----------------------
Net income $ 22 $ 5,254 $ 6,080
Preferred stock dividends (44) (44) (32)
---- ---- -----
Net income available to common $ (22) $ 5,210 $ 6,048
stockholders ==== ===== =====
Numerator for basic earnings per share:
Common Stockholders (50%) $ (11) 2,605 3,024
Class A common stockholders (50%) (11) 2,605 3,024
---- ----- -----
(22) 5,210 6,048
Effect of diluted securities -
preferred stock dividends - 44 32
---- ---- ---
Net income available to common
stockholders after assumed
conversion of preferred stock $ (22) $ 5,254 $ 6,080
==== ===== =====
Numerator for diluted earnings per
share:
Common stockholders (50%) $ (11) $ 2,627 $ 3,040
Class A common stockholders (50%) (11) 2,627 3,040
---- ----- -----
$ (22) $ 5,254 $ 6,080
==== ===== =====
Denominator:
Common stock:
Denominator for basic earnings per
share - weighted average shares 481,995 481,995 481,995
Effect of dilutive securities -
convertible preferred stock - 21,785 21,785
------- ------- -------
Denominator for diluted earnings per
share - adjusted weighted average
shares and assumed conversions 481,995 503,780 503,780
======= ======= =======
Class A common stock:
Denominator for basic earnings per
share - weighted averages shares 512,897 512,897 512,897
Effect of dilutive securities -
convertible preferred stock - 21,785 21,785
------- ------- -------
Denominator for diluted earnings per
share - adjusted weighted average
shares and assumed conversions 512,897 534,682 534,682
======= ======= =======
Basic earnings per share:
Common stock ($0.02) $5.41 $6.27
Class A common stock ($0.02) $5.08 $5.90
Diluted earnings per share:
Common stock ($0.02) $5.21 $6.03
Class A common stock ($0.02) $4.91 $5.69
The effect of the convertible preferred stock was not considered for
1998 because their effort would have been antidilutive.
16. Quarterly Financial Data (unaudited)
Summarized quarterly financial data for 1998 and 1997 is as
follows:
Quarter
(thousands of dollars except per First Second Third Fourth
share amounts)
---------------------------------------------------------------------
Year Ended December 31, 1998
--------------------------------
Net Sales $20,351 $17,718 $14,598 $12,911
Gross Profit Before Depreciation 4,394 3,564 1,941 1,062
Abandoned Acquisition Costs - - (408) -
Net Income (Loss) 1,197 831 (774) (1,232)
Basic Earnings Per Common Share 1.23 0.85 (0.83) (1.27)
Basic Earnings Per Class A Common 1.16 0.80 (0.78) (1.20)
Share
----------------------------
Year Ended December 31, 1997
----------------------------
Net Sales $20,193 $20,034 $19,166 $18,703
Gross Profit Before Depreciation 4,583 4,889 4,549 3,265
Net Income (Loss) 1,348 1,492 1,378 1,036
Basic Earnings Per Common Share 1.39 1.54 1.42 1.06
Basic Earnings Per Class A Common 1.30 1.45 1.33 1.00
Share
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
See the information relating to directors and officers of the
Company under the captions "Election of Directors", contained in the
Company's definitive Proxy Statement dated March 19, 1999 relating to
the Annual Meeting of Shareholders to be held on April 28, 1999, which
is hereby incorporated by reference.
Item 11. Executive Compensation
See the information relating to "Compensation of Executive
Officers" presented in the Company's definitive Proxy Statement dated
March 19, 1999 relating to the Annual Meeting of Shareholders to be
held on April 28, 1999, which is incorporated herein by reference,
except that information appearing under the headings "Report of the
Executive Committee on Executive Compensation" and "Summary Share
Performance Graph" is not incorporated herein and should not be deemed
to be included in this document for any purpose.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
See the information relating to directors and officers of the
Company under the captions "Security Ownership of Certain Beneficial
Owners and Management", contained in the Company's definitive Proxy
Statement dated March 19, 1999 relating to the Annual Meeting of
Shareholders to be held on April 28, 1999, which is hereby
incorporated by reference.
Item 13. Certain Relationships and Related Transactions
See the information relating to directors and officers of the
Company under the captions "Certain Related Party Transactions",
contained in the Company's definitive Proxy Statement dated March 19,
1999 relating to the Annual Meeting of Shareholders to be held on
April 28, 1999, which is hereby incorporated by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
(a) The following documents are filed as part of this
report
Page In
Form 10-K
1) Report of Independent Auditors 14
Financial Statements:
Consolidated Statements of
Operations, three years
ended December 31, 1998 15
Consolidated Balance Sheets at
December 31, 1998 and 1997 16
Consolidated Statements of Cash
Flows, three years ended
December 31, 1998 17
Consolidated Statements of Changes
in Stockholders' Equity, three
years ended December 31, 1998 18
Notes to Consolidated Financial
Statements 19
2) Financial Statement Schedule for three
years ended December 31, 1998:
II Valuation and qualifying accounts 40
All other required schedules have been
omitted because they do not apply to the
Company, or the information is presented
in the consolidated financial statements
or the notes thereto.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K (Continued)
(a) (3) Exhibits
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*
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)A Amendment Credit Agreement Exhibit 10D(23)A to the
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, 1997*
10D(25) Industrial Revenue Bond Exhibit 10D(25) to the
Loan Agreement dated Report on Form 10-K for
December 1, 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*
Exhibit Description Reference
No.
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 July 30, 1997 between report on Form 10-K for
Elektroschmelzwerk Kempten the year ended December
GmbH, and the Registrant 31, 1997*
10I Indemnification Agreement Exhibit 10I to the
dated as of December 15, Report on Form 10-K for
1984 between Wacker the year ended December
Chemical Corporation and 31, 1995*
the Registrant
22 Subsidiaries of the Exhibit 22
registrant
27 Financial Data Schedule Exhibit 27
(b) Reports on Form 8-K:
None.
(c) All exhibits required by Item 601 of Regulation S-K
are included in Item 14(a)(3).
* Incorporated herein by reference.
Exolon-ESK Company and Subsidiaries
Valuation and Qualifying Accounts
Three Years Ended December 31, 1998
(thousands of dollars)
Balance at Additions
Beginning Charged to Balance
of Costs and at End
Description Year Expenses Adjustments of Year
-----------------------------------------------------------------------
Deducted from assets -
Allowance for
doubtful accounts
Year ended December 31, 1998 $350 - ($101)(a) $249
Year ended December 31, 1997 $502 $10 ($162)(a) $350
Year ended December 31, 1996 $419 $70 $13 (b) $502
Allowance for
slow-moving and
obsolete inventory
Year ended December 31, 1998 $196 $120 ($59) $257
Year ended December 31, 1997 $297 $101 -- $196
Year ended December 31, 1996 $136 $161 -- $297
(a) Uncollectible accounts written off, net of recoveries.
(b) Bad debt recoveries.
Pursuant to the requirements of Section 13 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.
March 15, 1999 EXOLON-ESK COMPANY
By: S/ J. Fred Silver
J. Fred Silver, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
S/ J. Fred Silver S/ Michael H. Bieger
----------------- --------------------
J. Fred Silver, Michael H. Bieger,
President and Chief Vice President -
Executive Officer Finance and Chief
Financial Officer
S/Theodore E. Dann, Jr.
-----------------------
Theodore E. Dann, Jr. Chairman of the Board March 15, 1999
S/Brent D. Baird
----------------
Brent D. Baird Director March 15, 1999
S/Craig A. Rogerson
-------------------
Craig A. Rogerson Director March 15, 1999
S/Dr. Fritz Petersen
--------------------
Dr. Fritz Petersen Director March 15, 1999
S/David A. Shellabarger
-----------------------
David A. Shellabarger Director March 15, 1999
S/Patrick W.E. Hodgson
----------------------
Patrick W.E. Hodgson Director March 15, 1999
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*
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) 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, 1997*
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*
Exhibit Description Reference
No.
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 July 30, 1997 between report on Form 10-K for
Elektroschmelzwerk Kempten the year ended December
GmbH and the Registrant 31, 1997*
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
22 Subsidiaries of the Exhibit 22
Registrant
27 Financial Data Schedule Submitted electronically
* Incorporated herein by reference.
Exhibit 22
SUBSIDIARIES OF THE REGISTRANT
The subsidiaries listed below have been included in the
Consolidated Financial Statements of the Registrant. See Note
1 of Notes to Consolidated Financial Statements.
Place of Percentage
Subsidiaries of the Registrant Incorporation Owned
---------------------------------------------------------------
Exolon-ESK Company of Canada, Dominion of 100%
Ltd. Canada
Norsk Exolon AS Kingdom of 100%
Norway
Exolon-ESK International Sales U.S. Virgin 100%
Corp. Islands
<TABLE> <S> <C>
<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,289
<SECURITIES> 0
<RECEIVABLES> 8,698
<ALLOWANCES> 249
<INVENTORY> 20,219
<CURRENT-ASSETS> 34,594
<PP&E> 75,267
<DEPRECIATION> 48,189
<TOTAL-ASSETS> 71,286
<CURRENT-LIABILITIES> 6,728
<BONDS> 20,033
0
442
<COMMON> 1,026
<OTHER-SE> 31,108
<TOTAL-LIABILITY-AND-EQUITY> 71,286
<SALES> 65,578
<TOTAL-REVENUES> 65,578
<CGS> 54,617
<TOTAL-COSTS> 8,731
<OTHER-EXPENSES> 599
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<INTEREST-EXPENSE> 1,179
<INCOME-PRETAX> 452
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