UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
One) SECURITIES EXCHANGE ACT OF 1934
[X]
For the quarterly period ended March 31, 2000
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 April 28, 2000 registrant had outstanding 481,995 shares
of $1 par value Common Stock and 512,897 shares of $1 par value
Class A Common Stock.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Exolon-ESK Company
Consolidated Condensed Balance Sheet
(in thousands except share amounts)
(Unaudited)
ASSETS March 31, December 31,
2000 1999
---------- ------------
Current assets:
Cash $5,816 $ 5,328
Accounts receivable (less allowance
for doubtful accounts of $150 in 6,078 6,109
2000 and $150 in 1999)
Income Taxes Recoverable 194 759
Inventories 15,686 16,929
Prepaid expenses 338 237
Deferred income taxes 250 249
--------- ---------
Total Current Assets 28,362 29,611
Investment in Norwegian joint venture 5,316 5,464
Property, plant and equipment, at cost 77,111 76,633
Accumulated depreciation (52,428) (51,564)
--------- ---------
Net property, plant and equipment 24,683 25,069
Bond sinking fund 3,630 3,335
Other assets 1,586 1,609
--------- ---------
Total Assets $63,577 $65,088
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable $ 1,299 $ 1,436
Current maturities of long-term debt
and sinking fund requirements 967 967
Accounts payable 2,939 3,754
Accrued expenses 1,301 1,550
--------- ---------
Total Current Liabilities 6,506 7,707
Deferred income taxes 2,340 2,342
Long-term debt excluding current portions 19,833 19,833
Other long-term liabilities 2,134 2,296
--------- ---------
Total Liabilities 30,813 32,178
--------- ---------
Stockholders' equity:
Preferred stock - Series A -
19,364 shares issued 276 276
Preferred stock - Series B -
19,364 shares issued 166 166
Common stock, $1 par value -
512,897 issued, 481,995 outstanding 513 513
Class A common stock, $1 par value -
512,897 issued/outstanding 513 513
Additional paid-in capital 4,345 4,345
Retained earnings 28,647 28,793
Accumulated other comprehensive
income (1,328) (1,328)
Treasury stock, at cost (368) (368)
------- --------
Total Stockholders' Equity 32,764 32,910
------- --------
Total Liabilities and Stockholders'
Equity $63,577 $65,088
======== ========
The accompanying notes are an integral part of these statements.
Exolon-ESK Company
Consolidated Condensed Statements of Operations
Unaudited
(in thousands except per share amounts)
Three Months
Ended March 31,
--------------
2000 1999
------ ------
Net sales $13,534 $14,223
Cost of goods sold 11,175 12,041
------ -------
Gross Profit 2,359 2,182
------ -------
Operating Expenses
Depreciation 890 915
Selling, general & administrative
expenses 1,118 1,232
Research and development 17 17
------ -------
Total Operating Expenses 2,025 2,164
------ -------
Operating (Loss) Income 334 18
------ -------
Other Income (Expense):
Equity in (Loss)Earnings before
income taxes of Norwegian (148) (74)
Jt. venture
Interest expense (323) (399)
Miscellaneous income(expense) (8) 588
------ ------
Total Other Income(Expense) (479) 115
------ ------
Earnings before income taxes (145) 133
Income tax benefit (expense) 9 (56)
Net (Loss)Earnings ($136) $77
====== ======
Earnings Per Common Share:
Basic ($0.15) $0.07
Diluted ($0.14) $0.07
Earnings Per Class A Common Share:
Basic ($0.15) $0.06
Diluted ($0.14) $0.06
The accompanying notes are an integral part of these statements.
Exolon-ESK Company
Consolidated Condensed Statements of Cash Flows
Unaudited
(in thousands)
Three Months
Ended March 31,
2000 1999
----- -----
Net cash provided by operating activities $1,408 $2,220
------ ------
Cash Flow from Investing Activities:
Capital expenditures (478) (409)
----- -----
Cash Flow from Financing Activities:
Net payments on long-term debt (137) (1,292)
Payments to bond sinking fund (294) (262)
Dividends paid (11) -
----- ------
Net Cash (Used in)Provided by Financing
Activities (442) (1,554)
----- ------
Net increase in cash 488 257
Cash at beginning of period 5,328 5,289
----- -----
Cash at end of period $5,816 $5,546
====== ======
The accompanying notes are an integral part of these
statements.
EXOLON-ESK COMPANY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 The accompanying unaudited consolidated condensed
financial statements have been prepared in accordance
with generally accepted accounting principles for interim
financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes
required by generally accepted accounting principles for
complete financial statements. In the opinion of
management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair
presentation have been included. Results for the period
ended March 31, 2000 are not necessarily indicative of
the results that may be expected for the year ending
December 31, 2000.
For further information, refer to the financial
statements and footnotes thereto for the year ended
December 31, 1999 included in the Company's Annual Report
on Form 10-K filed with the Securities and Exchange
Commission.
NOTE 2 The following are the major classes of inventories (in
thousands) as of March 31, 2000 and December 31, 1999:
March 31,
2000 December 31,
(Unaudited) 1999
------------ -----------
Raw Materials $777 $1,092
Semi-Finished and
Finished Goods 17,231 17,713
Supplies and Other 740 1,186
--------- --------
18,748 19,991
Less: LIFO Reserve (3,062) (3,062)
--------- --------
$15,686 $16,929
========= ========
NOTE 3 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 provided 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.
During 1998, the Company completed installation of the
CEMS and implementation of the BACT as required by the Consent
Order. A revised construction permit was received on December
27, 1999, verifying that the project was in compliance with
all applicable Board emissions and utilized BACT for sulfur
dioxide. The air quality analysis showed compliance with the
allowable sulfur dioxide increment.
(ii) Superfund Site
A Special Notice of Liability was received by the Company
from the US EPA for the Remedial Design/Remedial Action Phase
of the Lenz Oil Services, Inc. Superfund Site. The Company is
one of over seventy potentially responsible parties. The
Notice alleges joint and several liability based upon the
premise that the soil and ground water were contaminated with
oil and solvent waste containing hazardous constituents. The
ultimate liability that could result from this Site and Notice
cannot be presently determined. A period of negotiations is
scheduled to occur during 2000.
(iii) 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 have been tightly
controlled as a result of various alternatives presently being
considered by the Norwegian joint venture. The joint venture
has met the sulfur requirements with changes in production
techniques and raw material procurement including low sulfur
coke.
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.
NOTE 4 Comprehensive Income
During the three months ended March 31, 2000 and
1999, total comprehensive income, which was
comprised of net income and foreign currency
translation adjustments, equaled net income.
NOTE 5 Earnings Per Share
The following table sets forth the computation of basic
and diluted earnings per share (in thousands except share
information):
Three Months Ended
March 31,
2000 1999
------ ------
Numerator: Net income
available to common ($147) $ 66
stockholders after preferred ====== =======
stock dividends
Numerator for basic earnings
per share:
Common stockholders (50%) (73) 33
Class A common (74) 33
stockholders (50%) ------ ------
(147) 66
Effect of Dilutive Securities-
Preferred Stock Dividends - -
Net income available to common
stockholders after assumed
conversion of preferred stock ($147) $ 66
====== ======
Numerator for diluted earnings
per share:
Common stockholders (50%) (73) 33
Class A common
stockholders (50%) (74) 33
------ ------
($147) $ 66
====== ======
Note 5:
Earnings Per Share - Con't
Denominator: Common stock
Denominator for basic 481,995 481,995
earnings per share -
weighted average shares
Effect of dilutive
securities - convertible - -
preferred stock ------ ------
Denominator for diluted
earnings per share -
adjusted weighted average
shares and assumed 481,995 481,995
conversions ====== ======
Class A common stock:
Denominator for basic
earnings per share - 512,897 512,897
weighted average shares
Effect of dilutive
securities - convertible - -
preferred stock ------ ------
Denominator for diluted
earnings per share -
adjusted weighted average
shares and assumed 512,897 512,897
conversions ====== ======
Basic Earnings Per Share:
Common Stock ($0.15) $0.07
Class A Common Stock ($0.14) $0.06
Dilutive Earnings Per Share:
Common Stock ($0.15) $0.07
Class A Common Stock ($0.14) $0.06
The effect of the convertible preferred stock was not
considered for 2000 and 1999 because the effect would have
been anti-dilutive.
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, 2000 with the
three months ended March 31, 1999.
Net Sales. Net sales decreased $689,000 to $13,534,000 in the
first three months of 2000, a decrease of 5% compared to net
sales of $14,233,000 in the first three months of 1999. The
decline in sales was due to a decrease in volume and increased
pressur e on prices resulting from a decrease in demand
combined with an increase in foreign competition.
Gross Profit. Gross profit before depreciation expense was
$2,359,000 in the first three months of 2000 compared to
$2,182,000 in the first three months of 2000. As a percent of
sales, gross margins were 17.4% in the first three months of
2000 compared to 15.3% in the first three months of 1999. The
increase in gross profit as a percent of net sales was
attribu ted to overall cost reduction efforts at all
facilities, which included running furnaces using off peak
electricity and reducing general and administrative expenses.
Operating Expenses. Operating expenses including depreciation,
were $2,025,000 during the first three months of 2000 versus
$2,164, 000 during the first three months of 1999. The
decreas e in operating expenses is a result of spending
reductions of $114,000 in selling and general and
administrative expenses. Depreciation as a percent of sales
was 6.6% in the first three months of 2000 compared to 6.4%
for the first three months of 1999.
Operating Income. Operating income was $334,000 in the first
three months of 2000 compared to $18,000 in the first three
months of 1999. The increase in operating income is primarily
due to cost reduction efforts noted above.
Norwegian Joint Venture. The company's 50% share of the pre-
tax earnings of its Norwegian joint venture, Orkla Exolon A/S
was a loss of $148,000 for the first three months of 2000
versus a loss of $74,000 in the first three months of 1999.
Interest and Miscellaneous Income. Interest expense decreased
to $323,000 in the first three months of 2000 versus $399,000
in the first three months of 1999. The decrease in interest
expense is primarily due to lower outstanding balances on the
Company's line of credit. Miscellaneous expense of $8,000 was
received in the first three months of 2000 versus
miscellaneous income of $588,000 incurred in the first three
months of 1999. In 1999, the Company's miscellaneous income
was due to the settlement of a business interruption claim in
Thorold related to an incident in 1998 and class action
settlements of two antitrust litigation claims from suppliers
of materials to Exolon-ESK.
Income Tax. The Company's effective tax rate for the first
three months of 2000 was an overall 6% tax benefit comprised
of a 42% effective tax rate expense on US income and 36%
effective tax rate benefit on foreign losses versus a combined
effective tax rate expense of 42% for the first three months
of 1999.
Liquidity and Capital Resources
As of March 31, 2000, working capital (current assets less
current liabilities) has decreased by $48,000 to $21,856,000
when compared to $21,904,000 as of December 31, 1999.
Inventories have decreased by $1,243,000 from $16,929,000 as
of December 31, 1999 to $15,686,000 as of March 31, 2000.
For the three months ended March 31, 2000, net cash provided
by operating activities was $1,408,000. Cash reserves
increas ed by $488,000 as of March 31, 2000 compared to
December 31, 1999. Net cash provided by operating activities
was used to reduce outstanding debt by $431,000 and to fund
capital expenditures of $478,000.
The Company's current ratio increased to 4.4 to 1.0 at March
31, 2000 from 3.8 to 1.0 as of December 31, 1999. The ratio of
total liabilities to shareholders' equity remained 1.0 to 1.0
as of March 31, 2000 and December 31, 1999. 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.
Reference is made to the information included in Note 3(b) to
the Notes to Consolidated Condensed Financial Statements under
the caption Legal Matters , which is hereby incorporated
herein by reference.
Impact of the Year 2000
The Company is not aware of any material problems resulting
from Year 2000 issues, either with its products, its internal
systems, or the products and services of third parties. The
Company will continue to monitor its mission critical computer
applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that
may arise are addressed properly.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to the information included in Note 3
to the Consolidated Condensed Financial Statements of the
Company included under Part I, Item 1 of this Form 10-Q, which
is hereby incorporated herein by reference.
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
(a) Exhibits
The following exhibits are included herein:
27 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
EXOLON-ESK COMPANY
/s/J. Fred Silver
________________________
J. Fred Silver
President and Chief Executive Officer
/s/Michael G. Pagano
________________________
Michael G. Pagano
Vice President Finance and
Chief Financial Officer
Date: May 4, 2000
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