<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter ended October 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-5276
PROLER INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter.)
Delaware 74-1051251
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
4265 San Felipe, Suite 900 77027
Houston, Texas (Zip Code)
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: [713] 627-3737
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 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
Indicate the number of shares outstanding of each of the Registrant's classes of
stock, as of December 9, 1994:
Common 4,710,960
------ ---------
(Title of Class) (Number of Shares Outstanding)
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
--------
<S> <C>
Condensed Consolidated Balance Sheet at October 31, 1994
and January 31, 1994 1
Condensed Consolidated Statement of Operations for the three
and nine months ended October 31, 1994 and 1993 2
Condensed Consolidated Statement of Cash Flows for the nine
months ended October 31, 1994 and 1993 3
Notes to Condensed Consolidated Financial Statements 4
Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION 14
SIGNATURE PAGE 15
</TABLE>
<PAGE>
PART I
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS October 31, 1994 January 31, 1994
------ ----------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,382 $ 7,307
Accounts receivable, net 2,009 6,608
Inventories 2,539 3,060
Prepaid expenses 716 775
------- -------
Total current assets 10,646 17,750
Investments in joint operations, at equity 33,316 26,273
Property, plant and equipment, net 17,910 18,671
Other assets 1,933 3,889
------- -------
Total assets $63,805 $66,583
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------
Current liabilities:
Accounts payable, trade $ 1,831 $ 2,267
Accrued liabilities 2,699 2,971
Deferred revenue 250 200
------- -------
Total current liabilities 4,780 5,438
Deferred compensation 2,947 2,989
Contingencies
Stockholders' equity:
Common stock 5,351 5,351
Capital in excess of par value 192 192
Retained earnings 56,653 58,731
------- -------
62,196 64,274
Less treasury stock, at cost (6,118) (6,118)
------- -------
Total stockholders' equity 56,078 58,156
------- -------
Total liabilities and stockholders' equity $63,805 $66,583
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
1
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended October 31, Nine Months Ended October 31,
------------------------------ -----------------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 3,699 $12,386 $15,103 $30,586
Cost of sales 4,055 11,910 15,176 29,822
------- ------- ------- -------
Gross profit (loss) (356) 476 (73) 764
Earnings (loss) from joint
operations (488) 2,881 163 3,959
General and administrative
expense (1,175) (1,011) (3,327) (3,154)
Research and development expense (554) (107) (1,341) (252)
------- ------- ------- -------
Operating income (loss) (2,573) 2,239 (4,578) 1,317
------- ------- ------- -------
Gain on sale of assets, net -- -- 2,894 --
------- ------- ------- -------
Other income (expense):
Interest income 109 51 249 129
Interest expense (154) (156) (403) (665)
Other, net 40 (5) (23) 184
------- ------- ------- -------
(5) (110) (177) (352)
------- ------- ------- -------
Income (loss) before income
taxes and accounting change (2,578) 2,129 (1,861) 965
Provision for income taxes 69 25 217 45
------- ------- ------- -------
Income (loss) before accounting
change (2,647) 2,104 (2,078) 920
Cumulative effect of change in
accounting for income taxes -- -- -- 118
------- ------- ------- -------
Net income (loss) $(2,647) $ 2,104 $(2,078) $ 1,038
======= ======= ======= =======
Weighted average shares
outstanding 4,711 4,711 4,711 4,711
======= ======= ======= =======
Income (loss) per share:
Income (loss) before accounting
change $(.56) $.45 $(.44) $ .19
Cumulative effect of change in
accounting for income taxes -- -- -- .03
------- ------- ------- -------
Net income (loss) $(.56) $.45 $(.44) $ .22
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
2
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended October 31,
-------------------------------
1994 1993
--------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(2,078) $ 1,038
Adjustments to reconcile net income (loss) to cash:
Depreciation 714 859
Gain on sale of assets (2,894) --
Cumulative effect of accounting change -- (118)
Earnings from joint operations and advances,
net of distributions (7,043) --
Decrease (increase) in assets, net of effects of assets sold:
Accounts receivable, net 4,539 (751)
Inventories 12 (555)
Prepaid expenses 59 (303)
Other assets 155 331
Increase (decrease) in liabilities, net of effects of assets sold:
Accounts payable, trade (499) (122)
Accrued liabilities (547) 529
Deferred compensation (42) (433)
------- --------
Net cash (used in) provided by operating activities (7,624) 475
------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment (1,971) (2,275)
Proceeds from asset sales 7,670 419
Distributions from joint operations, net of earnings
and advances -- 12,631
------- --------
Net cash provided by investing activities 5,699 10,775
------- --------
Cash flows from financing activities:
Payments on bank debt -- (10,000)
------- --------
Net cash used in financing activities -- (10,000)
------- --------
Net increase (decrease) in cash and cash equivalents (1,925) 1,250
Cash and cash equivalents, beginning of period 7,307 7,057
------- --------
Cash and cash equivalents, end of period $ 5,382 $ 8,307
======= ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Proler International Corp. and subsidiaries (the "Company") have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 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
only of normal, recurring adjustments considered necessary for a fair
presentation, have been included. For further information, refer to the
consolidated financial statements and footnotes thereto for the year ended
January 31, 1994, included in the Company's 1994 Annual Report on Form 10-K
filed pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
The results for the three and nine months ended October 31, 1994 are not
necessarily indicative of the results of operations for the entire year. Certain
reclassifications have been made in the prior period financial statements to
conform to current classifications.
NOTE 2: INVENTORIES
The Company's inventories are stated at the lower of cost or market using the
first-in, first-out (FIFO) method. As of October 31, 1994 and January 31, 1994
inventories were comprised of the following:
<TABLE>
<CAPTION>
October 31, 1994 January 31, 1994
---------------- ----------------
(In Thousands)
<S> <C> <C>
Processed scrap $1,047 $1,089
Unprocessed scrap and other 763 821
Maintenance parts 729 1,150
------ ------
$2,539 $3,060
====== ======
</TABLE>
4
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
NOTE 3: COMBINED JOINT OPERATIONS
A condensed summary of the financial position of the combined joint operations
(100% basis) is as follows:
<TABLE>
<CAPTION>
October 31, 1994 January 31, 1994
---------------- ----------------
(In Thousands)
<S> <C> <C>
Current assets $48,415 $48,593
Property and other assets, net 26,343 26,668
------- -------
$74,758 $75,261
======= =======
Current liabilities $ 9,175 $ 9,708
Other liabilities 565 639
Stockholders' and partners' equity 65,018 64,914
------- -------
$74,758 $75,261
======= =======
</TABLE>
Two of the 50%-owned joint operations account for inventories using the last-
in, first-out (LIFO) method while the other joint operations follow FIFO. Such
LIFO inventories are carried at $18.6 million and $16.9 million at October 31,
1994 and January 31, 1994, respectively, and the excess of replacement cost over
the LIFO value at those dates was approximately $21.2 million. As of October
31, 1994, approximately $1.6 million of LIFO income, net to the Company's
interest, generated by these two joint operations has been deferred since
management cannot currently estimate their year-end inventory quantities and
costs with certainty. The excess of replacement cost over the LIFO value may be
increased or decreased in the fourth quarter of fiscal 1995 depending upon
actual year-end inventory quantities and costs.
The Company's investment in the joint operations and its percentage interest in
their assets and liabilities as of October 31, 1994 and January 31, 1994 are set
forth below:
<TABLE>
<CAPTION>
October 31, 1994 January 31, 1994
----------------- -----------------
(In Thousands)
<S> <C> <C>
Current assets $22,344 $23,432
Property and other assets, net 11,378 11,752
Liabilities (4,425) (4,948)
Adjustment to conform reporting periods 4,019 (3,963)
------- -------
Net investment $33,316 $26,273
======= =======
</TABLE>
5
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
A summary of the results of operations of the combined joint operations is as
follows (in thousands):
Combined 100% Basis:
<TABLE>
<CAPTION>
Three months ended October 31, Nine months ended October 31,
------------------------------- -----------------------------
1994 1993 1994 1993
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $53,674 $87,343 $199,729 $234,256
======= ======= ======== ========
Gross profit $ 1,135 $ 6,421 $ 4,924 $ 11,881
======= ======= ======== ========
Earnings (loss) $ (144) $ 5,921 $ 538 $ 8,340
======= ======= ======== ========
</TABLE>
Company Percentage Interest:
<TABLE>
<CAPTION>
Three months ended October 31, Nine months ended October 31,
------------------------------ -----------------------------
1994 1993 1994 1993
------- ------- ------- --------
<S> <C> <C> <C> <C>
Net sales $24,464 $40,076 $ 93,258 $108,326
======= ======= ======== ========
Gross profit $ 302 $ 2,896 $ 2,403 $ 5,373
======= ======= ======== ========
Earnings (loss) $ (488) $ 2,881 $ 163 $ 3,959
======= ======= ======== ========
</TABLE>
NOTE 4: ASSET SALES
Effective February 28, 1994, Prolerized Steel Corporation, a wholly-owned
subsidiary of the Company, sold substantially all of its assets used in
connection with the operation of a scrap metal processing facility located in
Kansas City, Kansas. The assets were sold to an unrelated third party for a
purchase price of approximately $5.1 million. Also, on April 29, 1994, the
Company's Vinton, Texas scrap processing facility was sold to an unrelated third
party for approximately $2.6 million. The Company recorded a gain on the sale
of these assets of $2.9 million.
During the three months ended April 30, 1994, the Company recorded net sales of
$4.7 million and an operating profit of $0.1 million attributable to the
operations at the Kansas City and Vinton plants. For the three months and nine
months ended October 31, 1993, these plants contributed net sales of $8.8
million and $20.2 million, respectively, and operating profit of $0.5 million
and $0.2 million, respectively.
NOTE 5: INCOME TAXES
Effective February 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income
Taxes." The cumulative effect on prior years of the adoption of SFAS No. 109
increased net income by $118,000 or $.03 per share for the nine months ended
October 31, 1993.
6
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
The provision for income taxes for the nine months ended October 31, 1994 is
for alternative minimum tax ($50,000) and the Company's share of income taxes
attributable to its corporate joint operations ($167,000).
NOTE 6: BANK CREDIT FACILITIES
As of October 31, 1994, no borrowings were outstanding under the Company's $15
million revolving line of credit and $6.2 million of letters of credit were
outstanding under the $7 million letter of credit facility. Under the terms of
the agreement with the bank, the Company is required to maintain, among other
things, a minimum net worth and other specified financial covenants. In
addition, the Company is restricted as to the payment of cash dividends, limited
as to incurring additional indebtedness and limited as to incurring capital
expenditures in excess of certain amounts.
The Company and the bank are negotiating an amendment to the agreement to,
among other things, extend the term of the revolving line of credit to June 30,
1996 and the letter of credit facility to December 31, 1996.
NOTE 7: CONTINGENCIES
Certain materials resulting from the Company's operations must be handled
consistent with federal and state environmental laws and regulations. As with
any business that produces significant amounts of industrial wastes, the Company
could face substantial additional costs if past disposal practices would no
longer be deemed acceptable by the federal or state regulatory agencies,
although this result is not currently expected.
Hugo Neu-Proler Company ("HNP"), a 50% owned joint operation of the Company,
and the Port of Los Angeles are in the final stages of negotiating the renewal
of HNP's lease, the original term of which expired on August 30, 1994. In
December 1992, HNP signed a Memorandum of Understanding with the Port relating
to the lease renewal and in fiscal 1994 and 1995 provided letters of credit
totaling $9.8 million ($4.89 million each from the Company and HNP's other
owner) to secure HNP's remediation obligations under the lease. The Port is
developing an Environmental Impact Report in connection with the lease renewal.
Under the current lease, HNP would be responsible for remediating certain
environmental conditions on the property, the extent and cost of which are
uncertain. Currently, HNP estimates that it will incur capital expenditures of
a minimum of $4.0 million to $5.0 million in connection with environmental
control facilities at the Terminal Island location over the next six-year
period. In addition, HNP has accrued approximately $0.6 million as of October
31, 1994 to cover the costs of anticipated remediation at this site.
As reported earlier, the EPA contacted the Company in August 1989 regarding
testing for possible contamination at a site in Tampa, Florida previously
operated by MRI Corporation, a wholly-owned subsidiary of the Company. The
Company and the EPA took split soil and groundwater samples from the site for
analysis. The Company has learned that in late 1990, an EPA consultant issued a
report recommending that further consideration be given to the possibility of
ranking this site using the EPA's hazardous ranking package. Based on that
recommendation the EPA took additional samples at the site in 1992. The Company
had previously conducted extensive clean-up operations at the Tampa site when
7
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
it was closed in 1988. The financial implications of the Company's current
investigation or any agency action are uncertain at this time, and the Company
is continuing to evaluate whether any further corrective action is necessary or
appropriate.
MRI Corporation has been notified that it may be a potentially responsible
party ("PRP") with respect to three sites in Hillsborough County, Florida. In
addition, in October 1992, Hillsborough County filed an action seeking
contribution, response cost recovery, and damages from PRP's at one of these
sites and named the Company, among others, as a defendant in this action. Based
on information provided to the Company, management believes that MRI
Corporation's involvement is de minimis and amounts ultimately payable, if any,
will not have a material adverse effect on the Company's financial position or
results of operations.
The Company is also subject to certain other litigation and claims arising in
the ordinary course of business. In the opinion of management, the ultimate
resolution of these claims and lawsuits will not have a material adverse effect
on the Company's financial position or results of operations.
NOTE 8: PER SHARE INFORMATION
Per share calculations are based on the average number of common
shares outstanding during the period. The per share calculations do not include
the common equivalent shares attributable to the assumed exercise of outstanding
stock options since the effect was not significant for all periods presented.
8
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is primarily engaged, directly and through its subsidiaries and its
corporate and unincorporated joint operations, in buying, processing for
recycling and selling ferrous and other scrap metals. While the Company sells
products from its consolidated operations primarily to domestic markets, the
joint operations primarily export scrap to foreign markets. The Company's and
its joint operations' business is characterized by cyclical fluctuations in
profitability depending upon the availability and price of raw scrap and the
demand and prices for processed scrap by the iron and steel industries and the
non-ferrous metals industries.
The Company's joint operations are structured so that the participants advance
and withdraw funds equally. In general, policy decisions of the joint
operations require the unanimous consent of the participants. As a result, the
Company's control over its joint operations is limited and must be exercised in
concert with its partners in those operations. The Company has made advances to
the joint operations, on a regular basis, primarily for the purchase of
inventory and for operating costs. The Company receives distributions from its
joint operations, primarily from sales of inventory. During the nine months
ended October 31, 1994, the Company's advances to joint operations exceeded
distributions from joint operations by $7.0 million. The Company expects
distributions to exceed advances in the fourth quarter of fiscal 1995 due to
increased shipping activity.
The terms of the agreements covering the HPI and HPNJ joint operation in
Newark, New Jersey expired May 25, 1994. This joint operation has consistently
reported net losses since it was acquired in 1989, including a loss of $1.7
million, net to the Company's interest, for the nine months ended October 31,
1994. The Company intends to liquidate its investment in this joint operation
over the course of the next several months.
The Company continues to implement the business plan described in its 1994
Annual Report on Form 10-K with the goals of restructuring, selling or otherwise
disposing of certain underperforming and unproductive assets, and supplementing
its core commodity metals business by investing in technologies that profit from
processing and recycling waste materials. The Company believes that if it is
successful in implementing this business plan, it will be able to make a
transition from its current participation in the highly cyclical scrap
processing business primarily through joint operations over which it exercises
limited control, to a recycling company engaged in environmental services and
metals recovery with majority control over its significant assets. As
previously reported, the Company completed the planned divestiture of its
domestic scrap steel operations in April, 1994. Accordingly, the Company's
principal scrap steel processing business will be conducted through its joint
operations. In fiscal 1995, the Company is continuing to develop and test new
waste processing and recovery technologies through its two subsidiaries, Proler
Recycling, Inc. ("Proler Recycling") and Proler Environmental Services, Inc.
("Proler Environmental"). See 1994 Annual Report on Form 10-K.
9
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
LIQUIDITY, FINANCING AND CAPITAL RESOURCES
As of October 31, 1994, the Company had net working capital of $5.9 million
compared to $12.3 million of net working capital as of January 31, 1994. As
discussed in Note 4 to the financial statements, the Company received proceeds
in the first quarter of $7.7 million from the sale of its Kansas City and Vinton
scrap processing plants. Working capital and such sales proceeds have been used
to fund the joint operations (as discussed above) and to fund the Company's
operations and capital expenditures.
The Company expended $1.3 million during the nine months ended October 31, 1994
on research and development activities through Proler Recycling and Proler
Environmental. Proler Recycling has also commenced the construction of a new
plant located on existing Company property in Coolidge, Arizona. This plant
will increase the Company's capacity to recycle metal-bearing wastes from a
variety of industries and is expected to become operational in early 1995. The
total estimated plant construction cost of approximately $4.5 million is being
funded from general working capital.
The Company continues to assess the opportunities for and feasibility of
various commercial applications of Proler Environmental's gasification process,
and is having discussions with several companies which may lead to the
construction of one or more full-scale gasification plants. The construction
and other associated costs of a full-scale plant would likely exceed $20
million, a portion of which would be borne and financed by the Company.
However, the Company does not anticipate incurring any significant expenditures
in the next year, in that respect, given the lead time required for permitting,
construction and other matters if an agreement for the construction of a
gasification plant were reached.
Capital expenditures of $2.0 million in the nine months ended October 31, 1994
were for the construction of the new Proler Recycling plant ($1.2 million) and
for the replacement and improvement of other plant and equipment ($0.8 million).
The Company's share of joint operations' capital expenditures for the first nine
months of fiscal 1995 was $1.6 million.
The Company is engaged in ongoing proceedings and communications with
regulatory authorities concerning environmental matters. An adverse outcome in
these proceedings, or any significant additional expenditures that may be
required in order for the Company or its joint operations to operate in
accordance with environmental laws and regulations, or to clean up sites now or
formerly used by them, could affect the Company's financial position.
RESULTS OF OPERATIONS
Consolidated net sales decreased 70% in the third quarter of fiscal 1995
compared to the same quarter in fiscal 1994, and decreased 51% during the nine
months ended October 31, 1994 compared to the same period in the prior year.
Similar declines were experienced in cost of sales during the periods presented.
These decreases were principally due to the sale of the Company's Kansas City
and Vinton plants during the first quarter of fiscal 1995. The Company recorded
net sales and cost of sales of $20.2 million and
10
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
$20.0 million, respectively, for the nine months ended October 31, 1993
attributable to these plants. The first nine months of fiscal 1995 included $4.7
million in net sales and $4.6 million in cost of sales attributable to these
plants.
Excluding the Kansas City and Vinton plants from the results of operations, the
following table highlights the more significant operating information of the
remaining Company-operated plants (dollars in thousands):
<TABLE>
<CAPTION>
For the three months For the nine months
ended October 31, ended October 31,
--------------------- --------------------
1994 1993 1994 1993
---------- --------- ---------- --------
<S> <C> <C> <C> <C>
Sales volumes (gross tons) 26,317 28,580 75,615 77,687
Net sales $ 3,699 $ 3,612 $10,436 $10,361
Cost of sales 4,055 3,587 10,546 9,772
------- ------- ------- -------
Gross profit (loss) $ (356) $ 25 $ (110) $ 589
======= ======= ======= =======
</TABLE>
The increase in cost of sales of the Company-operated plants during the fiscal
1995 periods presented as compared to the fiscal 1994 periods is due partially
to non-recurring disposal charges and costs associated with the development of a
new recycling program involving waste streams from certain manufacturing
processes. Additionally, the Company has experienced increases in the purchase
cost of scrap material used in the manufacture of precipitation iron.
Corresponding sales price increases were less than the cost increases because
the majority of the Company's precipitation iron sales are under fixed-price
annual contracts. These contracts were recently renegotiated and increases in
sales prices will be reflected in future periods. The above table also includes
approximately $685,000 and $651,000 for the nine months ended October 31, 1994
and 1993, respectively, of net costs attributable to the Company's real estate
holdings.
The results of the joint operations for the three months and nine months ended
October 31, 1994 were significantly lower than the corresponding periods of
1993. There are a number of contributing factors to the reduction in earnings.
Tonnage sold was lower by 40% (411,000 tons from 685,000 tons) and 24%
(1,547,000 tons from 2,039,000 tons) for the three and nine month 1994 periods,
respectively, compared to the same periods of 1993, primarily due to reduced
foreign demand. Further, despite sales prices increasing in 1994, gross profit
margins were eroded by higher costs of buying and processing inventory. The
joint operations primarily make export sales and the sales prices realized
during the year have been less than those in the domestic market. However, the
joint operations compete to buy scrap in the domestic market where higher sales
prices have resulted in higher buying prices. The 1993 and 1994 nine month
results also include losses of $0.5 million and $1.7 million, respectively,
attributable to the HPI and HPNJ joint operation in Newark, New Jersey.
11
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Partially offsetting the decline in gross profit in the joint operations, the
Company recorded income of $2.4 million, net to its interest, during the nine
months ended October 31, 1994 attributable to the sale of inventory which had no
cost basis. During the comparable nine month period in 1993, the Company
recorded sales of inventory which had no cost basis of $1.1 million. The
production and accounting process utilized by the joint operations to record
inventory quantities (particularly shredded scrap) relies on significant
estimates which can be affected by weight imprecisions, moisture and other
factors. Such factors historically have a tendency to understate actual scrap
quantities. In periods, such as 1993 and 1994, when certain inventories are
substantially depleted, unrecorded quantities which have no cost basis are
realized.
The following table highlights the more significant per ton operating
information (100% basis) for the joint operations, excluding the tonnage sold
with no cost basis:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended October 31, Ended October 31,
------------------- ----------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales Price $131 $127 $129 $115
Cost of Sales 131 118 129 111
---- ---- ---- ----
Gross Margin $ -- $ 9 $ -- $ 4
</TABLE>
Research and development expense for the three and nine months ended October
31, 1994 increased significantly compared to the same periods of fiscal 1994.
The Company has intensified its efforts towards the research, development and
marketing of technologies involving the processing and recycling of waste
materials as discussed above.
General and administrative expenses for the three and nine months ended
October 31, 1994 increased 16% and 5%, respectively, compared to the same
periods in 1993 primarily due to increases in personnel related costs.
Interest income increased for the three and nine months ended October 31,
1994 as compared to the same periods in 1993 due to an increase in average cash
balances. Interest expense for the nine months ended October 31, 1994 decreased
40% compared to the same period in 1993 due to the decrease in outstanding bank
indebtedness between such periods.
Effective February 1, 1993, the Company changed its method of accounting for
income taxes as more fully described in Note 5 to consolidated financial
statements.
12
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
ENVIRONMENTAL MATTERS
The Company and its joint operations are subject to environmental laws and
regulations and are involved in ongoing proceedings and communications with
regulatory authorities concerning environmental matters. It is possible that,
as a result of these proceedings and communications, the Company may in the
future incur additional costs to assure compliance with environmental laws and
regulations, or it may be required to modify or curtail operations. In the
past, the Company has incurred significant environmental costs in connection
with the clean-up and handling of materials at sites operated by the Company.
See Note 7 to consolidated financial statements.
13
<PAGE>
PART II
OTHER INFORMATION
Items 1 through 5 are not applicable.
- -------------------------------------
Item 6(a) Exhibits:
- ------------------
27 Financial Data Schedule
Item 6(b) is not applicable.
- ---------------------------
14
<PAGE>
SIGNATURES
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.
PROLER INTERNATIONAL CORP.
--------------------------
(Registrant)
Date: December 14, 1994 /s/ Herman Proler
----------------- -------------------------------------------------
Herman Proler
Chairman of the Board
(Principal Executive Officer)
Date: December 14, 1994 /s/ Michael F. Loy
----------------- -------------------------------------------------
Michael F. Loy
Vice President - Finance and Chief Financial
Officer
(Principal Financial and Accounting Officer)
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PROLER
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-START> FEB-01-1994
<PERIOD-END> OCT-31-1994
<CASH> 5,382
<SECURITIES> 0
<RECEIVABLES> 2,009
<ALLOWANCES> 0
<INVENTORY> 2,539
<CURRENT-ASSETS> 10,646
<PP&E> 33,617
<DEPRECIATION> 15,707
<TOTAL-ASSETS> 63,805
<CURRENT-LIABILITIES> 4,780
<BONDS> 0
<COMMON> 5,351
0
0
<OTHER-SE> 50,727
<TOTAL-LIABILITY-AND-EQUITY> 63,805
<SALES> 15,103
<TOTAL-REVENUES> 15,103
<CGS> 15,176
<TOTAL-COSTS> 15,176
<OTHER-EXPENSES> 1,341
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 403
<INCOME-PRETAX> (1,861)
<INCOME-TAX> 217
<INCOME-CONTINUING> (2,078)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,078)
<EPS-PRIMARY> (.44)
<EPS-DILUTED> (.44)
</TABLE>
