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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1994 COMMISSION FILE NO. 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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4265 SAN FELIPE, SUITE 900 77027
HOUSTON, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
COMPANY'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 627-3737
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
Common Stock, $1.00 par value per share New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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
------ ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S) 229.405 of this chapter) 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. [x]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant 60 days prior to the date of filing.
Based on last sale on April 22, 1994: $33,366,000
Indicate the shares outstanding of each of the registrant's classes of
common stock, as of the close of the latest practicable date.
<TABLE>
<S> <C>
COMMON STOCK, $1.00 PAR VALUE 4,710,960
- ------------------------------- ---------
(TITLE OF CLASS) (NUMBER OF SHARES OUTSTANDING)
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE:
Proxy statement for the Company's 1994 Annual Meeting of Stockholders is
incorporated by reference into Part III of this report.
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P A R T I
ITEM 1. BUSINESS.
(A) CURRENT DEVELOPMENTS
Proler International Corp. (the "Company") is primarily engaged, directly
and through its wholly-owned subsidiaries and 50 percent or less-owned joint
operations, in buying, processing and selling ferrous and other scrap metals.
With the asset sales of certain domestic scrap operations discussed below, the
Company's principal scrap processing business will be conducted through its
joint operations, which primarily make export sales. In general, the joint
operations are structured so that policy decisions require the unanimous consent
of the participants. As a result, the Company's control over the joint
operations is limited and must be exercised in concert with its partners in
those operations.
The Company accounts for the joint operations under the equity method of
accounting. During fiscal 1994, the joint operations had a significant increase
in export sales prices and tonnage sold resulting in equity earnings to the
Company of $2.8 million compared to an equity loss in fiscal 1993 of $5.7
million. Such equity earnings in fiscal 1994 were reduced in the fourth quarter
of the year due to higher inventory buying prices combined with lower sales
volumes as compared to the prior quarter, higher repair and maintenance expenses
and certain litigation settlement costs. Gross tons of scrap metal inventories
in the joint operations were reduced to 418,000 tons at the end of the year from
781,000 tons as of the beginning of the year.
The Company's consolidated results of operations improved in fiscal 1994
(primarily from the improvement in the joint operations) as the net loss
narrowed to $2.3 million from losses of $9.9 million in fiscal 1993 and $16.3
million in fiscal 1992. The Company repaid all of its remaining bank debt during
the year and working capital increased to $12.3 million at January 31, 1994 from
$7.1 million at January 31, 1993. The bank debt was repaid over the past two
years primarily by using the proceeds from asset sales and the liquidation of
inventories in the Company's joint operations.
In fiscal 1993 the Company sold its Houston scrap processing facility and
its 50 percent interest in one of its joint operations, Maru Shipping Company,
Inc. In fiscal 1994, the Company and its partner sold substantially all the
assets of the 50 percent owned scrap processing operation, Prolerized Chicago
Corporation. Subsequent to January 31, 1994, the Company also sold the assets of
the Kansas City, Kansas and Vinton, Texas scrap processing facilities. Certain
real estate holdings and other nonoperating assets are currently for sale.
With the divestitures of the domestic scrap operations discussed above, the
Company's remaining revenues will be derived from the three plants that are
collectively involved in the sale of precipitation iron, low residual steel and
tin. These plants are located in Coolidge, Arizona, Lathrop, California and
Seattle, Washington (collectively, "Western Operations"). Revenues from the
Western Operations were $13.7 million, $13.3 million and $11.6 million in fiscal
1994, 1993 and 1992, respectively.
The Company continues to implement the business plan described in its 1993
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
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limited control, to a recycling company engaged in environmental services and
metals recovery with majority control over its significant assets. During
fiscal 1994, there were several accomplishments toward fulfilling the plan in
addition to completing the asset sales discussed above. In fiscal 1994 the
Company, with its joint operation partners, reduced inventories in the joint
operations to more appropriate levels. The Company also recorded operating
profits at all of its wholly-owned plants and most of the plants in the joint
operations. In October 1993, the Company's credit facilities were amended,
resulting in greater flexibility to capitalize on business opportunities.
Further, the Company continued to develop and test new waste processing and
recovery technologies through its subsidiaries, Proler Environmental Services,
Inc. ("Proler Environmental") and Proler Recycling, Inc. ("Proler Recycling").
Proler Environmental's gasification technology uses a thermal conversion
process to recycle hydrocarbon and cellulose-based wastes to produce a synthesis
gas suitable for sale to industrial users and utilities. The residual ash
produced by this process also has potential commercial uses, or may be disposed
of as a non-hazardous waste. This technology is being developed by Proler
Environmental as a joint project with a major Mexican steel company and is the
subject of a pending patent application. The Company has successfully tested
the process at its 50 ton per day demonstration plant in Houston, Texas, on
automobile shredder residue, tires, cardboard/paper sludge, municipal solid
waste and other industrial wastes. The Company is currently assessing the
opportunities for and feasibility of various commercial applications of the
gasification process, and is having discussions with several companies which may
lead to the construction of a 500 ton per day gasification plant. In the event
an agreement for the construction of such a gasification plant is consummated in
the near future, the Company does not anticipate completion of such a plant
until 1996 given the lead time required for construction, permitting and other
matters. Management believes that the Company's participation in gasification
projects could eventually become a significant part of its future operations.
Proler Recycling, headquartered near Coolidge, Arizona, continues to
identify and enter new businesses for metals recovery, particularly tin and
copper recovery. During fiscal 1994, Proler Recycling sourced additional tin
and copper bearing waste material for feedstock. The Company has budgeted
capital expenditures in fiscal 1995 of $6 million for plant and equipment to
expand its metals recovery business. In addition, the Company may make one or
more acquisitions in fiscal 1995 to supplement and expand its metals recovery
business.
(B) GENERAL DEVELOPMENT OF BUSINESS
The Company was incorporated in Texas in 1947 as the successor to a scrap
business originally founded by the late Ben and Rose Proler in 1925, and changed
its state of incorporation to Delaware in 1966. As noted above, the Company is
primarily engaged in buying, processing and selling ferrous and other scrap
metals. The Company developed a process (the "Proler Process") which converts
bulky and impure scrap into a high purity steel scrap ("Prolerized Scrap")
possessing the additional desirable characteristics of homogeneity, high
density, uniform size and consistent quality. The Company also processes low-
grade ferrous scrap into premium quality scrap for use as a raw material in the
production of iron and low residual steel, and into precipitation iron for use
in the production of copper. Additionally, the Company recovers and sells
certain non-ferrous metals, including zinc, copper, aluminum, brass and tin.
Historically, as Prolerized Scrap operations expanded geographically, the
Company followed a policy of entering into either corporate or unincorporated
joint operations ("joint operations") with scrap operators in various areas. By
so doing, the Company was able to capitalize upon its co-venturer's
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established relationships with suppliers of raw materials, reduce its capital
commitments with respect to each plant, and make use of existing regional sales
organizations.
The Company granted each joint operation an exclusive royalty-free license
to use the Proler Process (including any improvements, refinements and additions
thereto) and the trademark "Prolerized" within a designated area of operations.
Under the Company's joint operation agreements, the transferability of each co-
venturer's interest is restricted, and the unincorporated joint operations
require unanimous approval of the partners on all policy decisions.
With the sale of the Company's domestic operations described above, the
Company's Prolerized Scrap business will be conducted through the joint
operations, which are involved in selling primarily to foreign markets. The
Company's Western Operations produce low residual steel and precipitation iron,
which is sold to domestic markets.
The following table lists the facilities operated by the Company and its
joint operations during fiscal 1994 and the type of material processed by
location:
CONSOLIDATED FACILITIES TYPE OF MATERIAL PROCESSED
----------------------- --------------------------
Kansas City, Kansas (1) Prolerized and non-ferrous
Vinton, Texas (2) Prolerized and non-ferrous
Coolidge, Arizona Low residual ferrous, precipitation iron, tin
Lathrop, California Precipitation iron
Seattle, Washington Low residual ferrous, tin
JOINT OPERATION FACILITIES TYPE OF MATERIAL PROCESSED
-------------------------- --------------------------
Los Angeles, California Prolerized, other ferrous, and non-ferrous
Boston, Massachusetts Prolerized, other ferrous, and non-ferrous
Chicago, Illinois (3) Prolerized and non-ferrous
Worcester, Massachusetts Prolerized and non-ferrous
Jersey City, New Jersey Prolerized and non-ferrous
Queens, New York Prolerized
Newark, New Jersey Other ferrous
Providence, Rhode Island Other ferrous
- ------------
(1) Sold in February, 1994
(2) Sold in April, 1994
(3) Sold in October, 1993
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The following table shows selected financial information for the Company's
share of its joint operations; the Company-operated scrap operations; and
Western Operations (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For the years ended January 31,
--------------------------------
1994 1993 1992
-------- ------- -------
Share of Joint Operations
- -------------------------
Net sales................................................. $142,197 $92,419 $99,616
======== ======= =======
Gross profit (loss)....................................... $ 6,037 $ (337) $ 376
======== ======= =======
Gross tons shipped........................................ 1,212 950 884
======== ======= =======
Company Operated Scrap Operations (1)
- -------------------------------------
Net sales................................................. $ 29,983 $50,578 $99,250
======== ======= =======
Gross profit (loss)....................................... $ 318 $ (925) $(2,017)
======== ======= =======
Gross tons shipped........................................ 220 378 755
======== ======= =======
Western Operations
- ------------------
Net sales................................................. $ 13,723 $13,264 $11,640
======== ======= =======
Gross profit (loss)....................................... $ 719 $ 850 $(1,074)
======== ======= =======
Gross tons shipped........................................ 105 104 88
======== ======= =======
</TABLE>
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(1) Company operated scrap operations include the Houston and Vinton, Texas
and the Kansas City, Kansas facilities. The Houston scrap operation was sold in
July, 1992. The Company sold the Kansas City plant in February, 1994 and the
Vinton plant in April, 1994.
(C) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company considers itself to be engaged in a single industry segment, the
processing of metals for recycling and activities incidental thereto. The
following table presents financial information about the Company's consolidated
sales, gross profit (loss) from operations, net operating losses before other
income and expenses and federal income tax, and identifiable assets for the last
three fiscal years, excluding the Company's joint operations (dollars in
thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
---------------------------------
1994 1993 1992
--------- ---------- ----------
<S> <C> <C> <C>
Consolidated sales to unaffiliated customers(1).. $43,706 $63,842 $110,890
Gross profit (loss) from operations.............. 1,037 (75) (3,091)
Net operating loss............................... 3,501 7,620 11,974
Identifiable assets.............................. 36,471 33,467 53,661
</TABLE>
- -----------
(1) Consolidated net sales include $24,448 and $57,354 in fiscal 1993 and 1992,
respectively, attributable to the Houston facility which was sold in July,
1992.
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(D) NARRATIVE DESCRIPTION OF BUSINESS.
PRINCIPAL PRODUCTS. The following table shows the percentages of the
Company's total sales(1) accounted for by its major product lines during each of
the last three fiscal years:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
----------------------------------
PRODUCT LINE 1994 1993 1992
- --------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Prolerized Scrap..... 50% 46% 43%
Other Ferrous Scrap.. 39 35 38
Precipitation Iron... 6 8 5
Non-Ferrous Scrap.... 4 8 9
Other................ 1 3 5
</TABLE>
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(1) The term "total sales" as used in this Report refers to net sales of the
Company and its consolidated subsidiaries combined with the Company's share
of the net sales of each joint operation in which it owns an interest. The
Company's share of the earnings of the joint operations is accounted for in
the Company's Consolidated Statement of Operations using the equity method
of accounting. Net sales refers to gross sales less shipping and selling
expenses.
The following table shows the percentage change in volume of tons shipped of
the Company's total volume shipped(1) accounted for by its major product lines
during each of the last three fiscal years:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
----------------------------------
1994 1993 1992
VS. VS. VS.
PRODUCT LINE 1993 1992 1991
- --------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Prolerized Scrap..... 8% (7)% (9)%
Other Ferrous Scrap.. 11 (29) (8)
Precipitation Iron... (19) 21 10
Non-Ferrous Scrap.... 22 (21) 32
Other................ (90) 42 (35)
</TABLE>
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(1) The term "total volume shipped" as used in this Report refers to gross tons
(2,240 pounds) shipped by the Company and its consolidated subsidiaries
combined with the Company's share of the tons shipped of each joint
operation in which it owns an interest.
The total volume shipped for each of the fiscal years ended January 31, 1994,
1993 and 1992 was approximately 1,537,000, 1,432,000 and 1,727,000 tons,
respectively. Excluding the 206,000 tons shipped from the Houston, Texas plant
in fiscal 1993, the 25 percent increase in tonnage shipped in fiscal 1994 is
attributable to an increase in export sales in the joint operations due to
improved market conditions.
The Company's Prolerized Scrap plants, precipitation iron plants and detinning
plants, as well as its other ferrous scrap and non-ferrous scrap operations,
have adequate capacity to meet any foreseeable increase in demand for its
products.
The product mix sold by the Company is determined primarily by the type of
scrap available for purchase by the Company and the demand for such scrap in the
Company's selling markets.
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The Company does not determine contribution to gross profits by its various
product lines, which necessarily would involve a number of arbitrary cost
allocations. However, it can generally be stated that, while gross profit
margins vary between the product lines and from year to year, gross profit
margins historically have been higher on Prolerized Scrap than on precipitation
iron and other ferrous and non-ferrous scrap. See Item 7 - "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
PROLERIZED SCRAP. The scrap industry supplies one of the basic raw materials
used in the production of iron and steel. The furnaces which are used to
produce iron and steel are charged with iron and scrap steel ("ferrous scrap")
or with pig iron, which is produced from smelting iron ore in a blast furnace,
or with a combination of ferrous scrap and pig iron or hot metal. The
proportion of ferrous scrap used to make iron and steel varies, depending upon
the type of furnace used, the specifications of the end product desired, the
relative costs of ferrous scrap and pig iron to the steel makers, and other
considerations. In recent years mini-mills, which predominantly operate
electric furnaces and primarily use ferrous scrap as a raw material, have become
increasing users of ferrous scrap.
Proler Process. In this process, scrap automobiles and other ferrous scrap
are conveyed into a specially designed hammer mill that fragmentizes the scrap
into small pieces which are cleaned and separated into their ferrous and non-
ferrous metal components and automobile shredder residue. The ferrous
components are processed into small, fist-sized pieces of Prolerized Scrap,
which is either inventoried for later shipment or shipped directly via rail,
barge or ocean-going vessel to iron and steel mills or foundries. The non-
ferrous metal components are sold to a variety of customers. Automobile
shredder residue is disposed of in landfills or used as interim landfill cover.
Plants and Joint Operations. The Company has completed the disposition of its
domestic Prolerized scrap plants as follows: the Houston plant was sold in July
1992; the Kansas City plant was sold in February, 1994 and the Vinton plant was
sold in April, 1994. See Item 7 - "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
The Company, through its joint operations, also operates five additional
Prolerized Scrap plants in the United States. The locations are as follows: Los
Angeles, California; Boston (Everett) and Worcester, Massachusetts; Jersey City,
New Jersey; and Queens, New York. The Company and its partner sold
substantially all of the assets of its 50 percent owned Chicago, Illinois plant
in October, 1993. See Note 5 to the Consolidated Financial Statements.
Sales. Prolerized Scrap produced at the Company's Houston, Vinton and Kansas
City plants was sold to domestic steel producers. Most of the Prolerized Scrap
produced at the Los Angeles, Boston, Jersey City, Queens, and Worcester plants
is sold to foreign customers. Approximately 71% and 54% of the Company's total
sales, including the Company's share of joint operation sales, were to foreign
customers during fiscal 1994 and 1993, respectively.
Sources of Supply. Raw material for the Proler Process, consisting primarily
of scrap automobiles, is purchased on a day-to-day basis from a large number of
suppliers, including automobile salvage yards, scrap dealers and truckers.
Certain of the joint operations make significant purchases from a few large
suppliers. While the joint operations are not dependent on any single source of
supply, the loss of a large supplier could cause prices paid for raw materials
from other suppliers to increase and at some locations could also cause a
reduction in the volume of raw materials available. Accordingly, the loss of a
large supplier could have a material adverse effect on the business of the joint
operation affected.
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LOW RESIDUAL STEEL AND PRECIPITATION IRON. Low residual scrap steel generated
from the Company's Western Operations is used in making high quality steel. The
Company developed a continuous detinning operation initially for the production
of precipitation iron. Precipitation iron is used in one of the processes by
which copper is extracted from low grade ore.
The Company produces both low residual scrap steel and precipitation iron from
tin plated steel can clippings, reject cans from can manufacturers and recycled
tin cans. This process, which incorporates many of the techniques used in the
Proler Process, converts these raw materials into a loosely shredded, relatively
pure ferrous scrap suitable for use as feedstock for detinning operations or as
precipitation iron in the production of copper. The detinned material can also
be baled into low residual bundles consumed by the steel industry to produce
various forms of quality steel.
In 1990 the steel industry began using steel scrap from container
manufacturers before detinning. This resulted in the erosion of one of the
Company's markets for detinned scrap and contributed to the abandonment of the
Company's detinning operation in Houston during fiscal 1991 and the cessation of
detinning at the Company's Coolidge location in the fourth quarter of fiscal
1994.
Plants and Sales. The Company presently owns and operates two precipitation
iron plants located in Coolidge, Arizona, and Lathrop, California. Detinning
operations are conducted at the Seattle plant. Substantially all of the
Company's sales of precipitation iron are made under contracts with three major
domestic copper producers calling for the sale of a minimum number of tons per
month at prices which are determined in relation to certain prevailing scrap
prices. Precipitation iron is shipped to customers via truck and rail. The
development of processes for producing copper from low grade ore which does not
require the use of precipitation iron has reduced demand for sales of
precipitation iron. The sales of low residual scrap steel are made to a variety
of steel mills and foundries located throughout the country.
Sources of Supply. The Company's principal supply of raw material for the
production of precipitation iron and low residual scrap is from scrap generated
in the manufacture of metal cans and containers. Most of this scrap is
purchased directly from container manufacturers. The Company also acquires used
cans from municipal waste processors and various scrap dealers. The Company is
not dependent upon any single source of supply.
The following table shows the gross tons of precipitation iron and low
residual scrap steel sold in the Company's Western Operations:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Precipitation iron.................. 76,967 76,992 64,280
Low residual scrap steel............ 27,900 28,505 23,809
</TABLE>
OTHER FERROUS SCRAP. The Company, through its joint operations, operates
four other ferrous scrap plants in Los Angeles, Boston, Newark and Providence.
These plants prepare to customers' specifications various grades of ferrous
scrap other than Prolerized Scrap, primarily heavy melting and premium grades,
for sale to steel producers and foundries. Processing of this type of scrap
consists principally of cleaning, sorting and crushing or cutting the scrap into
pieces of proper size which are then inventoried for future shipment or shipped
directly principally via rail, barge or ship. The major sources
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of this type of scrap are industrial manufacturing plants, railroads and scrap
dealers. Competition to buy this scrap is significant, with the price paid being
the most significant competitive factor.
NON-FERROUS SCRAP. The non-ferrous metals recovered by several of the
Prolerized Scrap plants are processed at facilities in Los Angeles, Jersey City,
Boston, Worcester and were previously produced at Vinton and Kansas City. The
non-ferrous metal scrap is cleaned and mechanically segregated according to its
principal metallic components and shipped to a variety of customers via truck.
NON-FERROUS METAL RECOVERY. The Company's Coolidge and Seattle locations
also include operations from which tin metal is recovered from the recycling of
industrial waste solutions and precipitates. These activities, albeit nominal
in the past, are expected to increase in nature and scope in the future. See
"Research". The volume of tin pounds sold during fiscal 1994, 1993, and 1992
was 361,300, 427,800 and 310,600, respectively.
RAW MATERIALS AND INVENTORY. See "Sources of Supply" above under:
"Prolerized Scrap", "Low Residual Steel and Precipitation Iron", and the general
discussion under "Other Ferrous Scrap" and "Non-Ferrous Scrap".
TRADEMARKS. The Company owns several registered trademarks. While the
Company regards these trademarks to be of value, it does not consider its
business dependent upon them.
WORKING CAPITAL. The Company's working capital needs are generally
satisfied through funds generated from operations, distributions from joint
operations and short-term borrowings. As of January 31, 1994, the Company had
$12.3 million of net working capital.
SIGNIFICANT CUSTOMERS. As discussed in Note 10 to the consolidated
financial statements and Note 7 to the combined financial statements of the
Company's joint operations, the Company and its joint operations have
significant customers. The significant customers referred to in Note 10 are
associated with operations which the Company has sold. See Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
BACKLOG. The Company and some of its customers routinely enter into scrap
contracts which require delivery of scrap over a period of time. Sales are
generally made on a month-to-month or individual order basis. At any point in
time the Company may have unfilled commitments with respect to these contracts
which will be filled in the normal course of business. At January 31, 1994 the
Company had no significant unfulfilled orders.
GOVERNMENT BUSINESS. The Company does not contract with the U.S. Government
and does not have any contracts subject to renegotiation.
COMPETITION. All facets of the business in which the Company is engaged are
highly competitive and are characterized by cyclical fluctuations in
profitability depending upon the availability and price of raw scrap and the
demand and prices for scrap in the iron and steel industries and in the copper
and other non-ferrous metals industries. In addition, the level of profitability
of the Company's operations is affected by work stoppages or other events
involving the relatively few customers in the industries to which the Company
sells its products. Competitive forces facing the Company are further
complicated by the fact that a number of the Company's principal customers also
conduct scrap supply operations, which provide an internal source of supply. As
a result, particularly when the end users' output decreases, much of their
requirements for scrap may be filled by related party sources.
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In purchasing its raw scrap and in selling its products, the Company
competes with a large number of other scrap dealers and brokers, some of which
have greater financial and other resources than the Company, and many of which
are small firms operating locally. Competition in the business of the Company
involves geographical location of plant, reliability of service and product
quality. Prolerized Scrap is sold in connection with other forms of ferrous
scrap. While it is a premium, high grade scrap, there are competing processes
which also produce a high grade of scrap.
Research has been and is currently being conducted by others to develop
methods for producing copper from low grade ore which would not require the use
of precipitation iron, and several such processes have been developed and are
technically feasible. Technological changes in the production of copper could
further affect future demand for the Company's products.
Foreign sales are subject to additional factors such as foreign exchange
regulations, availability of ships and local laws governing the conduct of
business in the countries where such sales are made.
RESEARCH. The Company continuously updates and improves its operating
facilities and processes as technological advances are made.
The Company's wholly owned subsidiary, Proler Environmental, has developed
and tested a gasification technology which uses thermal conversion to recycle
hydrocarbon and cellulose-based wastes to produce a synthesis gas suitable for
sale to industrial users and utilities. The residual ash produced by this
process also has potential commercial use, or may be disposed of as a non-
hazardous waste. This technology was developed by Proler Environmental as a
joint project with a major Mexican steel company and is the subject of a pending
patent application. The Company has successfully tested the process at its 50
ton per day demonstration plant in Houston, Texas on automobile shredder
residue, tires, cardboard/paper sludge, municipal solid waste and other
industrial wastes.
The Company is currently assessing the opportunities for and feasibility of
various commercial applications of the gasification process, and is having
discussions with several companies which may lead to the construction of a 500
ton per day gasification plant. The commercial potential of this process will
depend on a number of factors, including the amount of capital investment
required for site acquisition and construction, which is expected to be
significant; the ability to charge tipping fees for waste materials sufficient
to earn an adequate return on investment; the availability of long-term sources
of suitable waste materials; the ability to economically dispose of the residual
ash or convert it to usable purposes and local demand for the synthesis gas
produced by the process. Management initially estimates that costs for a 500
ton per day gasification plant could range from $10 million to $20 million.
Such a plant could be constructed as a stand-alone facility or in tandem with a
cogeneration plant or integrated into a manufacturing operation to continuously
recycle processed wastes into reusable feedstock and energy. In the event an
agreement for the construction of such a gasification plant is consummated in
the near future, the Company does not anticipate completion of such a plant
until 1996 at the earliest, given the lead time required for construction,
permitting and other matters. Management believes that the Company's
participation in gasification projects could eventually become a significant
part of its future operations. During fiscal 1994, 1993 and 1992 Proler
Environmental expended approximately $1.3 million, $1.1 million and $1.1
million, respectively, in connection with the acquisition and development of
equipment. Proler Environmental also incurred $0.2 million of research and
development expenses during fiscal 1994, exclusive of overhead incurred by the
parent company.
Proler Recycling (formerly Proler Elemental Refining, Inc.) is a wholly
owned subsidiary of the Company formed in fiscal 1992 and is engaged in
exploring methods of recovering metals from industrial wastes. Its mission is
to identify and enter new businesses for metals recovery, particularly in the
areas
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of tin and copper recovery. The Company expended approximately $0.4 million on
research activities during fiscal 1994 and approximately $0.2 million during
each of fiscal 1993 and fiscal 1992. Additionally, the Company expended
approximately $0.4 million on capital projects associated with these operations
in fiscal 1994. Due to these successful research activities, the Company intends
to expand its operations related to the recycling of metal-bearing wastes during
fiscal 1995, and has budgeted capital expenditures for a new plant and equipment
(exclusive of any potential acquisitions) of $6 million for this purpose.
ENVIRONMENTAL MATTERS. Certain materials resulting from the operations of
the Company and its joint operations must be handled consistent with various
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 or present disposal practices would no
longer be deemed acceptable by the Environmental Protection Agency ("EPA") or
state regulatory agencies. In addition, the Company's business could be
adversely affected if its methods of processing various materials were found to
be in violation of such laws and regulations. The Company and its joint
operations can also be required from time to time to clean-up sites now or
formerly used in their operations. See further discussion herein and in "Item 3
- - Legal Proceedings", "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 8 to the consolidated
financial statements.
A principal source of metals reclaimed by the Prolerized Scrap plants is the
shredding of automobiles. Presently automobile shredder residue ("ASR")
produced in these operations constitutes approximately 20% of the scrap weight
of each automobile shredded, and is likely to increase as car manufacturers
continue to replace metal parts. The EPA and states such as Massachusetts and
California have their own testing protocols to determine whether a waste is
hazardous and must be managed as such. To date, however, tests of ASR generated
by the Company and its joint operations indicate that levels of lead, cadmium
and other contaminants covered by the regulations have generally been within
acceptable levels under EPA and applicable state regulations.
Pending further study, the EPA has recognized, based on its study of
potential contamination of shredder residue at seven shredder sites, that well-
managed shredder operations conducted in an environmentally sound manner provide
environmental benefits. The Company and its joint operations have implemented
supplier education efforts, source control, inspection and testing programs to
identify and reduce the sources of lead and certain other heavy metals in ASR.
Incoming material is inspected to ensure that the most probable sources of such
materials are removed from automobiles before arriving at the plants. Fuel
tanks, exhaust systems, leaded wheel weights and batteries are removed prior to
shredding. The Company and its joint operations have also taken certain steps
to eliminate from the materials they process capacitors contained in obsolete
household appliances ("white goods") often shredded along with automobiles.
Such capacitors are considered by the Institute of Scrap Recycling Industries to
be a likely source of polychlorinated biphenyls ("PCB's") in ASR. The Company
continues to evaluate additional methods of reducing levels of heavy metals,
PCB's and other contaminants in ASR. Should laws and regulations covering
hazardous wastes or toxic substances apply to the handling of ASR as a result of
the levels of heavy metals, PCBs and other contaminants, the Company could incur
substantial expense in so handling ASR. Even absent such a determination, in
recent years the Company and its joint operations incurred significant
expenditures to dispose of ASR as landfill fees for this material increased. It
should be noted, however, that in certain plant locations, such landfill fees
have decreased significantly in fiscal 1994. See "Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Hugo Neu-Proler Company ("HNP"), a 50% owned joint operation of the Company,
is involved in discussions with the Port of Los Angeles (the "Port") and the
California Regional Water Quality
10
<PAGE>
Control Board (the "RWQCB") concerning proposals for remediation by HNP of
certain environmental conditions at that location. HNP and the Port have also
been negotiating a renewal of the Company's lease, which is due to expire on
August 30, 1994. The Port is in the completion stages of developing an
Environmental Impact Report of HNP activities and site conditions in connection
with the lease renewal. Under the current lease, HNP would be responsible for
remediating certain environmental conditions on the property caused by HNP, 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 December, 1992, HNP signed a Memorandum of
Understanding with the Port relating to the lease renewal and in fiscal 1994
provided letters of credit totaling $7.9 million ($3.95 million each from the
Company and HNP's other owner) to secure HNP's remediation obligations under the
lease. HNP is required to provide additional letters of credit and/or incur
additional costs of up to $2.0 million (or $1.0 million by each joint owner) in
connection with such environmental obligations by September, 1994. HNP has
accrued approximately $1.0 million to cover the costs of anticipated remediation
at this site.
Prior to 1988, the Company operated a metals reclamation and shredding
facility on a 13-acre property leased from an unrelated third party in
Copperton, Utah. The Company has learned that the EPA has recently identified
this property as an "Other Potential Source Area" within the boundaries of the
Kennecott (South Zone), an approximate 37-square mile site which has been
proposed for listing on the National Priorities List. The Company has incurred
approximately $550,000 to remediate this site in late 1993 and early 1994, which
amount has been expensed in fiscal 1994. Management is unable to determine at
this time the Company's exposure, if any, to claims or actions stemming from the
EPA's proposal.
The Company anticipates making $2.4 million in capital expenditures for
environmental control facilities during fiscal 1995, including those in
connection with the Terminal Island facility. Changes in environmental laws and
regulations and their interpretation might require the Company or its joint
operations to install additional environmental control equipment and to
implement additional compliance procedures.
EMPLOYEES. As of January 31, 1994, the Company and its consolidated
subsidiaries employed 148 people including 53 employed at the Kansas City and
Vinton plants. At the same date, the joint operations employed 379 employees.
(E) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES.
The Company is primarily selling to domestic markets and the joint
operations are primarily selling to international markets. The Company made
export sales, exclusive of its share of export sales of the joint operations, of
$472,000 in fiscal 1992 and none in fiscal 1993 and 1994.
11
<PAGE>
The table below summarizes for the last three fiscal years the Company's
export sales by geographical area, inclusive of its share of the export sales of
each joint operation in which it owns an interest (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------------------
1994 1993 1992
----------- ------------ ------------
<S> <C> <C> <C>
To Customers in Europe................. $ -- $ 1,854 $ 3,541
To Customers in the Far and Near East.. 122,086 79,712 84,485
To Customers in Mexico................. -- 795 2,272
To Customers in South America.......... 3,044 1,751 2,458
To Customers in Canada................. 4,961 104 69
To Other Export Customers.............. 2,003 299 --
----------- ------------ ------------
Total Export Sales..................... $132,094 $84,515 $92,825
=========== ============ ============
</TABLE>
Item 2. Properties.
The Company's executive offices at 4265 San Felipe, Suite 900 in
Houston, Texas occupy 8,500 square feet of leased space. The Company owns
approximately 167 acres of land on the Houston, Texas ship channel utilized as
the site for Proler Environmental's activities and a nearby 36-acre tract of
land previously used in connection with operations at its Houston plant.
The five remaining Prolerized Scrap plants are each owned by a joint
operation in which the Company or a consolidated subsidiary has an interest. In
addition to a Prolerized Scrap plant, these sites include extensive facilities
for sorting, handling and processing scrap. The approximate size of each site
used by the Company's joint operations and the expiration date of any lease for
each are listed separately below:
<TABLE>
<CAPTION>
LOCATION SIZE EXPIRATION DATE OF LEASE
-------- ---- ------------------------
<S> <C> <C>
Los Angeles, California... 4 acres 02/14/99
Los Angeles, California... 22 acres 08/30/94 (1)
Boston, Massachusetts..... 29 acres Property owned(1)
Jersey City, New Jersey... 55 acres Property owned(1)
Newark, New Jersey........ 16 acres Under negotiation
Queens, New York.......... 5 acres Property owned(1)
Worcester, Massachusetts.. 21 acres Property owned(1)
Providence, Rhode Island.. 16 acres 12/31/99
Providence, Rhode Island.. 6 acres 12/31/99
</TABLE>
- ---------------
(1) Prolerized Scrap Plant Operation.
The Company has been notified that a portion of the Worcester,
Massachusetts property owned by one of its joint operations may be taken by
eminent domain in order to extend a state highway.
The Company owns both of its precipitation iron plants. The plants at
Coolidge, Arizona and Lathrop, California are on approximately 80 acres and 15
acres of land, respectively. The Company's Seattle, Washington low residual
ferrous and detinning plant is located on approximately two acres of leased
land.
In addition to the above, the Company owns approximately 171 acres in
various parts of the country which are not used in current operations. The
Company also holds the 13-acre tract of land on which the Copperton, Utah plant
was located under a lease which expires September 30, 1995. In
12
<PAGE>
addition, the joint operations own or lease industrial property which is being
used for feeder yards or will be used for expansion of facilities.
The management of the Company believes that all of the plants operated by
the Company or by its joint operations are equipped and maintained to adequately
support the present operations at such plants, and are served by transportation
and other facilities adequate to permit efficient operation.
ITEM 3. LEGAL PROCEEDINGS.
As reported in the Company's Annual Report on Form 10-K for the fiscal year
ended January 31, 1992, HNP has been involved in discussions with the RWQCB
regarding a cleanup and abatement order issued administratively by the RWQCB on
May 15, 1991. HNP and the RWQCB have agreed on certain procedures and a
timetable to implement corrective actions to abate the effects of emissions
allegedly containing elevated levels of PCB's, which the order alleges have been
discharged into the Los Angeles Harbor from HNP's Terminal Island facility. HNP
has implemented the corrective action programs in compliance with an agreed upon
timetable. If these corrective actions are successful, the RWQCB has informed
HNP the order will be rescinded.
As reported in the Company's Annual Report on Form 10-K for the fiscal year
ended January 31, 1992, the Company and Herman Proler, individually, have been
named as defendants in a case styled Richard Neu v. Hugo Neu & Sons, Inc.,
pending in the United States District Court for the Central District of
California, No. CV-90 0551 WDK (Kx). This case was filed by Richard Neu against
Hugo Neu & Sons, Inc. ("HNS"), HNP, the Company, Herman Proler and certain
officers and directors of HNS. The plaintiff alleges causes of action arising
out of his termination in December, 1988 as general manager of HNP. On April
22, 1993, the Company entered into an agreement with the plaintiff under which
the Company would pay plaintiff a total of $450,000 in settlement of this
matter, of which at least $175,000 would be covered by the Company's insurance.
The settlement agreement with the Company is contingent upon the implementation
of a further settlement agreement between the plaintiff and certain other
defendants which requires parties other than the Company to obtain certain tax
rulings and court approvals on matters unrelated to the Company. Trial is
currently set for November 15, 1994. The Court has granted several continuances
to permit the implementation of the settlement and it is anticipated that the
court will continue to do so in the future if necessary.
As reported in the Company's Annual Report on Form 10-K for the fiscal year
ended January 31, 1992, the Company and HNP were parties in a lawsuit styled
Proler International Corp. v. Pick-Your-Part Auto Wrecking, Inc. et al in the
165th Judicial District Court, Harris County, Texas. This case was originally
brought by the Company on March 24, 1988 against Pick-Your-Part ("PYP") and
others for damages arising out of violations of a 1984 Sales Agreement requiring
PYP to sell certain scrap materials to the Company and HNP. PYP filed certain
counterclaims against the Company and HNP alleging breach of contract, breach of
duties of good faith and fair dealing and fraud. The trial of this case began
on March 7, 1994. On March 11, 1994, the parties entered into an agreement in
settlement of all litigation, claims and counterclaims pursuant to which HNP
agreed to pay PYP $1.1 million (of which $550,000 is the Company's share), and
PYP and HNP entered into an agreement granting HNP a right of first refusal to
purchase PYP's scrap metals for a period of nine years. HNP has accrued $1.4
million as of December 31, 1993 covering this settlement and all of its
remaining litigation expenses related to this matter.
The Company is also subject to certain other litigation and claims arising
in the ordinary course of business. In the opinion of management, the
disposition of these claims and lawsuits will not have a material adverse effect
on the Company's financial position or results of operations.
13
<PAGE>
Item 4. Submission of Matters To a Vote of Security Holders.
There were no matters submitted to a vote of security holders during the
quarter ended January 31, 1994.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the name and age of each executive officer
of the Company, all positions and offices held by each person named and the
period during which each person named has served as an officer of the Company.
Unless otherwise stated below, each person has held such positions and offices
for more than the past five years:
<TABLE>
SERVED
AS AN
OFFICER OF
NAME AGE POSITION AND OFFICES HELD COMPANY SINCE
- ---------------------------------- --- --------------------------------------- -------------
<S> <C> <C> <C>
Herman Proler 66 Chairman of the Board of Directors,
Chief Executive Officer, Director (1) 1948
Michael F. Loy 48 Vice President-Finance, Chief Financial
Officer and Secretary (2) 1992
Dennis Caputo 47 Vice President-Environmental
and Safety Compliance (3) 1989
Norman Bishop 63 Vice President-Technical (4) 1993
Ian Linton 34 Vice President-Western Operations (5) 1991
David A. Juengel 34 Vice President, Treasurer and
Assistant Secretary (6) 1991
</TABLE>
- -------------
(1) Prior to December 13, 1985, Herman Proler served as President of the
Company, and has been performing the duties of Chairman and CEO since 1985.
(2) Mr. Loy joined the Company on August 1, 1992 as Vice President-Finance and
Chief Financial Officer and on December 8, 1992 was elected to the
additional position of Secretary of the Company. Prior to joining the
Company, Mr. Loy served from 1989 to 1992 as Director and President of MFL
Consulting Group, Inc. From 1987 to 1989, he served as Director, Vice
President and Chief Financial Officer of Cabot Energy Corporation.
(3) Mr. Caputo joined the Company on June 8, 1989, as Vice President-
Environmental and Safety Compliance. Prior to June 8, 1989, Mr. Caputo was
a principal with ENSR Consulting and Engineering.
(4) Mr. Bishop joined the Company on February 13, 1989 and served as Vice
President of Proler Environmental. He was elected Vice President-Technical
of the Company on April 12, 1993. Prior to February 13, 1989, Mr. Bishop
was Vice President of Zia Technology, Inc. for seven years.
(5) Mr. Linton joined the Company on May 20, 1991. He was elected Vice
President-Refining on June 12, 1991 was promoted to Vice President-Western
Operations on December 8, 1992. Prior to his employment with the Company,
Mr. Linton was employed as Group Manager of Capper Pass & Son Limited,
North Humberside, England.
14
<PAGE>
(6) Mr. Juengel joined the Company on September 23, 1988 as Tax Manager. He
was elected Assistant Vice President of Finance and Accounting on September
11, 1991 and was promoted to Vice President, Treasurer and Assistant
Secretary on December 8, 1992. Prior to his employment with the Company,
Mr. Juengel was employed as a Tax Manager by Ernst & Young and Coopers &
Lybrand.
The term of office of each of the above officers is until the next annual
meeting of directors or until his successor has been duly elected and qualified.
15
<PAGE>
P A R T I I
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND STOCKHOLDER MATTERS
The table below summarizes the high and low sales prices reported on the
New York Stock Exchange for shares of the Company's common stock. There have
been no cash dividends declared for the last two fiscal years.
HIGH AND LOW SALES PRICES OF COMMON STOCK BY FISCAL QUARTERS/(1)/
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------
1994 1993
--------------- --------------
HIGH LOW HIGH LOW
------- ------ ------- -----
<S> <C> <C> <C> <C>
First quarter... $101/4 $ 65/8 $103/8 $71/8
Second quarter.. 10 7 77/8 43/4
Third quarter... 133/8 71/4 65/8 4
Fourth quarter.. 141/2 115/8 91/2 35/8
</TABLE>
- ------------
(1) The Company's common stock is traded on the New York Stock Exchange.
As of April 14, 1994, there were 436 holders of record of the
Company's common stock.
The Company's Board of Directors suspended the payment of dividends on the
Company's Common Stock in fiscal 1992. Also, the Company's credit agreement
with a bank prohibits the payment of cash dividends (see Note 4 to the
consolidated financial statements).
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The table below sets forth a summary of selected consolidated financial
information of the Company and its subsidiaries for the periods indicated:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------------------------------------
1994 1993 1992 1991 1990
------------ ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands except per share amounts)
Net sales (1)............. $43,706 $63,842 $110,890 $107,994 $100,687
======= ======= ======== ======== ========
Net income (loss)......... $(2,262) $(9,909) $(16,328) $(11,532) $ 4,156
======= ======= ======== ======== ========
Net income (loss) per
share..................... $ (.48) $ (2.10) $ (3.47) $ (2.45) $ .88
======= ======= ======== ======== ========
Total assets.............. $66,583 $77,799 $119,173 $149,536 $130,863
======= ======= ======== ======== ========
Long-term debt............ $ -- $ 5,000 $ -- $ -- $ 2,150
======= ======= ======== ======== ========
Cash dividends per share.. $ -- $ -- $ .325 $ .52 $ .51
======= ======= ======== ======== ========
</TABLE>
- ---------
(1) The Company sold its Houston plant in July, 1992 which accounted for most
of the revenue decline since that date.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The Company has sustained net losses for the past four years although such
losses narrowed in fiscal 1994 to $2.3 million from $9.9 million in fiscal 1993
and $16.3 million in fiscal 1992. In general, the Company's results of
operations were adversely impacted in fiscal 1992 and 1993 by weak demand and
lower sales prices. Since December, 1992, however, domestic and international
sales prices have increased, as has tonnage sold to customers.
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 unincorporated joint operations are structured so that the
participants advance and withdraw funds equally, and policy decisions require
the unanimous consent of the participants. The Company makes advances to the
joint operations on a regular basis, primarily for the purchase of inventory and
for operating costs. The Company receives periodic distributions from its joint
operations, primarily for the sales proceeds of shipments. During fiscal 1994,
the Company's distributions from joint operations exceeded advances by $16.2
million.
The terms of the HPNJ and HPI joint venture agreements expire May 25, 1994
unless extended by unanimous consent of the partners. The Company's future
involvement with these joint ventures is uncertain at this time; however, in the
event of their dissolution, management anticipates that the carrying value of
the underlying assets would be recovered.
Raw material for the Proler Process, consisting primarily of scrap
automobiles, is purchased on a day-to-day basis from a large number of small
suppliers, including automobile salvage yards, scrap dealers and truckers. In
order to maintain its sources of supply, the Company and its joint operations
purchase raw materials from their suppliers even during periods when they face
lower demand and lower prices for the products they sell. The principal supply
of raw material for the production of precipitation iron and low residual steel
is from scrap generated in the manufacture of metal cans and containers
primarily purchased directly from container manufacturers. The Company also
acquires used cans from municipal waste processors and various scrap dealers.
The Company does not determine contribution to gross profits by its various
product lines, which necessarily would involve a number of arbitrary cost
allocations. However, it can generally be stated that, while gross profit
margins vary between the product lines and from year-to-year, gross profit
margins historically have been higher on Prolerized Scrap than on precipitation
iron and other ferrous scrap, although in recent years the gross profit margins
on Prolerized Scrap declined due to the costs of disposing of automobile
shredder residue.
As described in "Item 1 - Current Developments", the Company has developed
a five-year business plan intended to enable the Company to make a transition
from its current participation in the highly cyclical scrap business primarily
through its joint operations, to a recycling company engaged in environmental
services and metals recovery with majority control of its significant assets.
With the
17
<PAGE>
divestitures of the domestic scrap operations, the Company's principal scrap
processing business will be conducted through its joint operations, with the
Company's remaining revenues derived from the Western Operations.
LIQUIDITY, FINANCING AND CAPITAL RESOURCES
During fiscal 1994, the Company repaid all of its outstanding bank debt,
primarily by using the proceeds from the liquidation of inventories in the joint
operations. At January 31, 1994, the Company had net working capital of $12.3
million as compared to $7.1 million at January 31, 1993. Subsequent to January
31, 1994, the Company sold its Kansas City, Kansas scrap processing operation
for $5.0 million and its Vinton, Texas scrap processing plant for $2.6 million.
(See Note 12 to the consolidated financial statements.) Certain real estate and
other assets are currently for sale.
In October 1993, the Company entered into an amended credit agreement with
a bank, described in Note 4 to the consolidated financial statements, which
provides for a $15 million revolving line of credit and a $7 million letter of
credit facility. No borrowings are outstanding under the revolver and $5.4
million of letters of credit are outstanding under the letter of credit
facility. The revolver and letter of credit facility terminate on October 31,
1994 and March 31, 1995, respectively. The Company's ability to borrow against
assets of the joint operations may be limited by the Company's inability to
grant a direct security interest in those assets to the bank and by certain
limitations on the Company's ability to pledge its interests in the joint
operations.
The Company is engaged in ongoing proceedings and communications with
regulatory authorities concerning environmental matters, and ongoing litigation
regarding non-environmental matters. An adverse outcome in these legal
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.
Capital expenditures of $2.6 million in fiscal 1994 were primarily for the
replacement and improvement of plant and equipment. Included in this amount was
approximately $1.3 million of capital expenditures by Proler Environmental. The
Company's share of joint operations' capital expenditures for fiscal 1994 was
$2.0 million, most of which was also expended for replacement and improvement of
plant and equipment. In addition, during fiscal 1994, the Company provided a
standby letter of credit in the amount of $3.95 million to assure compliance
with environmental covenants in a joint operation's lease for the Los Angeles
facility. Further, the Company may have to provide an additional letter of
credit and/or incur additional costs of $1.0 million in fiscal 1995 in
connection with this facility. See Note 8 to the consolidated financial
statements.
As discussed in Item 1 - "Current Developments" and "Research", the Company
is continuing to develop and test industrial waste processing and recovery
technologies. Proler Recycling has budgeted capital expenditures (exclusive of
any potential acquisitions) of $6 million in fiscal 1995. Also, Proler
Environmental expects to incur significant capital expenditures in the
commercial application of its gasification process; however, the amount and
timing of such expenditures is uncertain. Management believes that external
financing sources, coupled with internally generated funds, will be sufficient
to fund such capital outlays.
18
<PAGE>
FISCAL 1994 COMPARED TO FISCAL 1993
Consolidated net sales in fiscal 1994 of $43.7 million were 32% lower than
consolidated net sales of $63.8 million in fiscal 1993. Consolidated cost of
sales in fiscal 1994 of $42.7 million were 33% lower than consolidated cost of
sales of $63.9 million in fiscal 1993. The decreases in both consolidated net
sales and cost of sales were principally due to the sale of the Company's
Houston plant in July, 1992. See Note 5 to the consolidated financial
statements. The Company recorded net sales of $24.4 million and $22.6 million
cost of sales attributable to the Houston plant in fiscal 1993. With the
Company's divestiture of its domestic scrap operations, consolidated sales are
expected to further decrease in fiscal 1995. In fiscal 1994, the Company
recorded net sales of $21.0 million and $8.1 million attributable to its Kansas
City and Vinton plants, respectively.
Excluding the Houston plant from fiscal 1993 results, the following table
highlights the more significant operating statistics and percentage changes
between fiscal years 1994 and 1993 of the remaining Company-operated plants
(dollars in thousands):
<TABLE>
<CAPTION>
For the years ended January 31,
------------------------------------
1994 1993 % Change
--------- -------- ---------
<S> <C> <C> <C>
Sales volumes (gross tons)........ 324,600 294,100 10%
Net sales......................... $ 43,706 $ 39,394 11%
Cost of sales..................... $ 42,669 $ 41,904 2%
Gross profit (loss)............... $ 1,037 $ (2,510) --
</TABLE>
The overall improvement in profit margins in fiscal 1994 is due to price
and volume increases. The average shredded scrap prices during fiscal 1994 were
20% higher as compared to average prices during fiscal 1993. The 10% increase in
volumes during these comparative periods is primarily attributable to increased
volumes at the Company's Kansas City and Vinton plants. The Company's Kansas
City plant had lower sales volumes during fiscal 1993 due to the loss of a
principal customer. The development of new customers during the latter half of
fiscal 1993 and into fiscal 1994 resulted in an increase in volumes sold at that
location during fiscal 1994. The increase in volumes sold at the Vinton plant
was a result of increased emphasis in procurement activities and less plant
downtime.
In recent years, the Company had encountered increased costs of ASR
disposal. These costs have continued to represent a significant expenditure for
the Company and its joint operations. In fiscal 1994, however, the overall per
ton disposal cost decreased as compared to fiscal 1993. The Company and its
joint operations are continuing to evaluate and further test methods of reducing
these costs.
Earnings from joint operations increased to $2.8 million compared to a
fiscal 1993 loss of $5.7 million. The improvement is primarily a result of
increased export sales prices and tonnages sold. The average sales price per ton
of scrap was $118 in fiscal 1994 as compared to $98 in fiscal 1993. Tonnage
shipped in fiscal 1994 increased 28% or by approximately 585,000 tons as
compared to fiscal 1993. The average cost of sales per ton of scrap sold for the
year ended January 31, 1994 was $113 compared to $99 for fiscal 1993. Cost of
sales per ton would have been approximately $5 lower in fiscal 1994 using
replacement cost. The Company's share of the joint operations' general and
administrative expenses decreased by approximately $1.4 million primarily
because of lower environmental remediation expense and lower legal and
professional fees. Also included within earnings from joint operations is the
Company's share of a $1.0 million gain recorded in October, 1993 resulting from
the sale of assets of the Company's 50 percent-owned Prolerized Chicago
Corporation joint operation. See Note 5 to the consolidated financial
statements. As anticipated, fourth quarter fiscal 1994 tonnage shipped by the
joint operations decreased from volumes shipped in the third quarter. These
reduced volumes combined with
19
<PAGE>
higher inventory buying prices, higher repair and maintenance expenses and a
litigation settlement resulted in a fourth quarter loss from joint operations of
$1.2 million.
Selling, general and administrative expenses of $4.5 million in fiscal 1994
decreased $3.0 million or 40% compared to fiscal 1993. The decrease is
primarily attributable to the decrease in administrative personnel associated
with the Company's Houston plant which was sold in July, 1992.
Interest expense decreased 54% in fiscal 1994 compared to fiscal 1993 due
to the decrease in outstanding bank indebtedness between the years. The
Company's interest income in fiscal 1994 decreased 15% compared to fiscal 1993
due to the reduction in interest rates offset by higher cash balances.
Included in other expense in fiscal 1994 are costs of approximately $0.5
million associated with the site restoration of leased property on which the
Company had operated a precipitation iron plant. The plant was shut down in
fiscal 1988. Fiscal 1993 other income included approximately $0.7 million
attributable to the settlement of a lawsuit regarding certain deposits in
connection with the discontinued Buffalo Steel project.
Income taxes for fiscal 1994 increased $3.4 million in comparison to fiscal
1993 resulting in a provision for fiscal 1994 of $0.6 million. The change was
principally the result of a $2.7 million decrease in the deferred tax benefit
for fiscal 1994 primarily due to asset sales and a $0.7 million increase in
taxes at the joint operations.
Effective February 1, 1993, the Company changed its method of accounting
for income taxes as more fully described in Note 6 to consolidated financial
statements. The cumulative effect on prior years of this change decreased
fiscal 1994 net loss by $118,000. With the accounting method change, the
Company has a net deferred tax asset of $6.4 million, which has been fully
reserved as of January 31, 1994.
FISCAL 1993 COMPARED TO FISCAL 1992
Weak demand for the Company's products continued during fiscal 1993,
resulting in lower sales prices and a significant reduction in the tonnage of
products sold. Consolidated net sales in fiscal 1993 of $63.8 million were 42%
lower than consolidated net sales of $110.9 million in fiscal 1992.
Consolidated cost of sales in fiscal 1993 of $63.9 million were 44% lower than
consolidated cost of sales of $114.0 million in fiscal 1992. The decreases in
both consolidated net sales and cost of sales were principally due to the sale
of the Company's Houston plant in July 1992, which resulted in a net gain on
sale of $1.6 million. See Note 5 to the consolidated financial statements. The
Company recorded net sales of $24.4 million in fiscal 1993 and $57.4 million in
fiscal 1992 attributable to the Houston plant. Cost of sales attributable to
the Houston plant were $22.6 million and $55.6 million for fiscal years 1993 and
1992, respectively.
20
<PAGE>
Excluding the Houston plant from both fiscal 1993 and 1992, the following
table highlights the more significant operating statistics and percentage change
of the remaining Company-operated plants (dollars in thousands):
<TABLE>
<CAPTION>
For the years ended January 31,
-------------------------------------
1993 1992 % Change
--------- -------- ----------
<S> <C> <C> <C>
Sales volumes (gross tons)........ 294,100 384,300 (23)%
Net sales......................... $ 39,394 $ 53,536 (26)%
Cost of sales..................... $ 41,904 $ 56,323 (26)%
Gross profit (loss)............... $ (2,510) $ (2,787) 10 %
</TABLE>
Sales declined due to the decrease in tonnage sold, combined with reduced sales
prices. However, sales prices began increasing in December, 1992. The average
domestic shredded scrap price composite was $102 per ton during fiscal 1992, as
compared to a price of $114 per ton in April, 1993.
During fiscal 1993, the principal customer of PSC initiated a reduced
pricing structure and significantly decreased its purchases from PSC as it
expanded its sources for scrap. Although PSC has begun to replace the volume
lost as a result of this change by developing new customers, the impact on PSC's
operations in fiscal 1993 was significant, resulting in an operating loss by PSC
of $0.1 million during fiscal 1993 as compared to operating income of $1.0
million during fiscal 1992.
The Company's cost of sales (excluding the Houston plant) decreased as a
result of reduced volumes processed, as well as a reduction in site restoration
costs as compared to the previous year. The Company (exclusive of its joint
operations) incurred $0.5 million in site restoration and clean-up costs in
fiscal 1993 as compared to $1.7 million in fiscal 1992. The losses for fiscal
1993 also include a write-down of $0.7 million with respect to the inventory of
the Company's pipe division which was liquidated during the fiscal year.
Among the higher operating costs encountered by the Company in recent years
have been increased costs for disposing of ASR. Although costs of disposing of
ASR have declined in recent years from the high point reached in fiscal 1990,
these costs still represent a significant expenditure for the Company and its
joint operations. The industry and the Company are currently evaluating and
testing methods to reduce the cost of ASR disposal. Unless an acceptable and
less costly method of disposal is developed, the costs of disposing of ASR will
continue to adversely affect the Company and its joint operations. During
fiscal 1993, the Company (exclusive of its joint operations) incurred costs to
dispose of ASR of $0.8 million as compared to $0.9 million in fiscal 1992.
The Company incurred a loss of $5.7 million from joint operations in fiscal
1993, compared to a loss of $3.3 million in fiscal 1992. The losses from the
joint operations are primarily the result of a weak international market for
scrap which continued in fiscal 1993, resulting in lower sales prices during
most of the year. The Company's share of joint operations' tonnage sold
increased by 7% in fiscal 1993 as compared to fiscal 1992, and its share of
joint operations sales by dollar amount was 8% lower in fiscal 1993 than in
fiscal 1992. The loss from the joint operations includes a write-off of $0.7
million representing the acceleration of the amortization of intangible assets
of one of the joint operations. The joint operations have, to an even greater
degree than the Company, incurred substantial costs (approximately $11.4 million
in fiscal 1993 and approximately $12.8 million in fiscal 1992, of which the
Company's share was $4.7 million in fiscal 1993 and $5.1 million in fiscal 1992)
to dispose of ASR, since the joint operations shred more scrap and consequently
generate more ASR, and also incur more third-party costs to dispose of ASR than
the Company. Gross profits of the joint operations have also been negatively
impacted by increased legal and environmental costs. The Company's share of
these costs was $1.9 million in fiscal 1993 as compared to $1.5 million in
fiscal 1992. Despite the continued
21
<PAGE>
decline in the joint operation sales during fiscal 1993, accumulation of new
inventories was curtailed as compared to earlier years and existing inventories
were significantly reduced, resulting in the Company's receiving net
distributions from the joint operations of $8.5 million in excess of its
advances, as compared to net advances of $7.0 million made by the Company to the
joint operations in fiscal 1992.
Selling, general and administrative costs in fiscal 1993 of $7.5 million
were 15% lower than fiscal 1992. The decrease is primarily the result of a
decrease in legal costs and a decrease in administrative personnel attributable
to the sale of the Company's Houston plant.
Interest expense decreased 37% in fiscal 1993 compared to fiscal 1992 due
to a decrease in the weighted average interest rate and a decrease of
outstanding indebtedness from $35 million to $10 million during fiscal 1993.
The Company's interest income in fiscal 1993 decreased 39% compared to fiscal
1992 due to average cash and cash equivalents being lower throughout the year
and a reduction of interest rates.
Included in other income in fiscal 1993 is $0.7 million attributable to the
settlement of a lawsuit regarding certain deposits in connection with the
discontinued Buffalo Steel project.
The income tax benefit of $2.8 million in fiscal 1993 is principally the
result of a deferred tax benefit of $1.7 million from the sale of the Company's
shares in Maru and $0.8 million of deferred tax benefit resulting from the sale
of assets of the Company's Houston plant. The benefit of $4.9 million in fiscal
1992 is principally the result of a current tax benefit of $3.6 million from the
carryback of net operating losses to fiscal years 1989 and 1990 and a deferred
tax benefit of $1.5 million resulting from the utilization of net operating loss
carryforwards.
ENVIRONMENTAL MATTERS AND OTHER CONTINGENCIES
The Company's operations are subject to environmental laws and regulations,
and the Company is 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 8 to the consolidated financial statements.
NEW ACCOUNTING STANDARDS
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 decreased net loss by $118,000 or $.03 per share for fiscal 1994. Prior
years' financial statements have not been restated to apply the provisions of
SFAS No. 109.
INFLATION
The effect of inflation upon the Company has been less during the past
several years than in preceding periods as the inflation rate in general has
declined.
22
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required under this item begins on page 25 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There is no matter required to be disclosed in response to this item.
P A R T I I I
In accordance with paragraph (3), of General Instruction G to Form 10-K,
Part III of this Report is omitted because the Company will file with the
Securities and Exchange Commission not later than 120 days after the end of the
fiscal year ended January 31, 1994, a definitive proxy statement pursuant to
Regulation 14A involving the election of directors, which proxy statement is
incorporated herein by reference.
P A R T I V
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) & (2) - Financial Statements and Financial Statement Schedules:
Reference is made to the index on page 25 of this Report.
(3) - Exhibits: References made to the list on pages 68-70 of the
exhibits filed with this Report.
23
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934, THE COMPANY HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
PROLER INTERNATIONAL CORP.
(COMPANY)
May 2, 1994 /S/ HERMAN PROLER
HERMAN PROLER,
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
May 2, 1994 /S/ MICHAEL F. LOY
MICHAEL F. LOY
VICE PRESIDENT - FINANCE
(PRINCIPAL FINANCIAL AND ACCOUNTING 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 COMPANY
AND IN THE CAPACITIES AND ON THE DATES INDICATED.
May 2, 1994 /S/ HERMAN PROLER
HERMAN PROLER, DIRECTOR
May 2, 1994 /S/ RICHARD B. MAYOR
RICHARD B. MAYOR, DIRECTOR
May 2, 1994 /S/ JOHN J. MCKENNA
John J. McKenna, Director
May 2, 1994 /S/ HARVEY ALTER
HARVEY ALTER, DIRECTOR
24
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
<S> <C>
PAGE(S)
-------
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES:
Report of Independent Accountants ........................................................................... 26
Consolidated Financial Statements:
Balance Sheets at January 31, 1994 and 1993 ................................................................ 27
Statements of Operations for the three years ended January 31, 1994 ........................................ 28
Statements of Stockholders' Equity for the three years ended January 31, 1994 .............................. 29
Statements of Cash Flows for the three years ended January 31, 1994 ........................................ 30
Notes to Consolidated Financial Statements ................................................................. 31-45
Consolidated Financial Statement Schedules:
V - Property, plant and equipment, for the three years ended January 31, 1994 .......................... 46
VI - Accumulated depreciation, depletion and amortization of property, plant and
equipment for the three years ended January 31, 1994 ............................................... 47
IX - Short-term borrowings for the three years ended January 31, 1994 ................................... 48
X - Supplementary income statement information for the three years ended
January 31, 1994 ................................................................................... 49
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS:
Reports of Independent Accountants .......................................................................... 50-53
Combined Financial Statements:
Balance Sheets at January 31, 1994 and 1993 ................................................................ 54
Statements of Operations for the three years ended January 31, 1994 ........................................ 55
Statements of Stockholders' and Partners' Equity for the three years ended
January 31, 1994 ....................................................................................... 56
Statements of Cash Flows for the three years ended January 31, 1994 ........................................ 57
Notes to Combined Financial Statements ..................................................................... 58-64
Combined Financial Statement Schedules:
V - Property, plant and equipment, for the three years ended January 31, 1994 ............................ 65
VI - Accumulated depreciation, depletion and amortization of property, plant and
equipment for the three years ended January 31, 1994 ................................................. 66
X - Supplementary income statement information for the three years ended
January 31, 1994 ..................................................................................... 67
</TABLE>
Schedules other than those listed above are omitted because they are either not
required, not applicable or the required information is presented in the
financial statements or notes thereto.
25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Proler International Corp.
We have audited the consolidated financial statements and the financial
statement schedules of Proler International Corp. and subsidiaries listed in the
index on page 25 of this Form 10-K. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedules 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 Proler
International Corp. and subsidiaries as of January 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended January 31, 1994, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information required to be included therein.
As discussed in Notes 1 and 6 to consolidated financial statements, the
Company changed its method of accounting for income taxes in fiscal 1994.
COOPERS & LYBRAND
Houston, Texas
April 29, 1994
26
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
-------- --------
ASSETS (in thousands)
------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................ $ 7,307 $ 7,057
Accounts receivable, trade........................................... 6,443 4,313
Other receivables.................................................... 165 628
Inventories.......................................................... 1,910 2,046
Maintenance parts.................................................... 1,150 1,447
Prepaid expenses..................................................... 775 527
------- --------
Total current assets............................................... 17,750 16,018
Investments in joint operations, at equity............................ 26,273 40,138
Property, plant and equipment, net.................................... 18,671 17,443
Other assets.......................................................... 3,889 4,200
------- --------
Total assets...................................................... $66,583 $77,799
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Bank debt, current portion........................................... $ -- $ 5,000
Accounts payable, trade.............................................. 2,267 1,649
Accrued liabilities.................................................. 2,971 2,285
Other current liabilities............................................ 200 --
------- --------
Total current liabilities.......................................... 5,438 8,934
Bank debt, long-term portion.......................................... -- 5,000
Deferred compensation................................................. 2,989 3,329
Deferred federal income taxes......................................... -- 118
Commitments and contingencies
Stockholders' equity:
Common stock, par value $1 per share; authorized 15,000,000 shares;
issued and outstanding, 5,351,460 shares........................... 5,351 5,351
Capital in excess of par value....................................... 192 192
Retained earnings.................................................... 58,731 60,993
------- --------
64,274 66,536
Less 640,500 shares of treasury stock, at cost........................ (6,118) (6,118)
------- --------
Total stockholders' equity............................................ 58,156 60,418
------- --------
Total liabilities and stockholders' equity........................ $66,583 $77,799
======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
27
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE YEARS ENDED JANUARY 31, 1994
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1993 1992
--------- -------- --------
<S> <C> <C> <C>
Net sales............................................. $ 43,706 $ 63,842 $110,890
Cost of sales......................................... 42,669 63,917 113,981
-------- -------- --------
Gross profit (loss)............................... 1,037 (75) (3,091)
Earnings (loss) from joint operations................. 2,768 (5,660) (3,327)
Selling, general and administrative expenses.......... (4,538) (7,545) (8,883)
-------- -------- --------
Operating loss.................................... (733) (13,280) (15,301)
Gain on sale of assets, net........................... -- 1,560 --
Write off of fixed asset and deposit.................. -- -- (3,495)
Other income (expense):
Interest expense.................................. (835) (1,810) (2,869)
Interest income................................... 162 191 311
Other, net........................................ (406) 573 131
-------- -------- --------
(1,079) (1,046) (2,427)
-------- -------- --------
Loss before income taxes and accounting change........ (1,812) (12,766) (21,223)
Provision (benefit) for income taxes.................. 568 (2,857) (4,895)
-------- -------- --------
Loss before accounting change......................... (2,380) (9,909) (16,328)
Cumulative effect of change in accounting for income
taxes............................................... 118 -- --
-------- -------- --------
Net loss.............................................. $(2,262) $ (9,909) $(16,328)
======== ======== ========
Weighted average shares outstanding................... 4,711 4,708 4,703
======== ======== ========
Per share:
Loss before accounting change...................... $ (.51) $ (2.10) $ (3.47)
Cumulative effect of change in
accounting for income taxes....................... .03 -- --
-------- -------- --------
Net loss........................................... $ (.48) $ (2.10) $ (3.47)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
28
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED JANUARY 31, 1994
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
CAPITAL
IN EXCESS TOTAL
COMMON OF PAR RETAINED TREASURY STOCKHOLDERS'
STOCK VALUE EARNINGS STOCK EQUITY
------ --------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Balance: January 31, 1991............. $5,343 $148 $ 88,758 $(6,118) $ 88,131
Net loss............................... -- -- (16,328) -- (16,328)
Cash dividends, $.325 per share........ -- -- (1,528) -- (1,528)
Issued 4,080 shares under stock grant.. 4 30 -- -- 34
------ ---- -------- ------- --------
Balance: January 31, 1992............. 5,347 178 70,902 (6,118) 70,309
Net loss............................... -- -- (9,909) -- (9,909)
Issued 4,080 shares under stock grant.. 4 14 -- -- 18
------ ---- -------- ------- --------
Balance: January 31, 1993............. 5,351 192 60,993 (6,118) 60,418
Net loss............................... -- -- (2,262) -- (2,262)
------ ---- -------- ------- --------
Balance: January 31, 1994............. $5,351 $192 $ 58,731 $(6,118) $ 58,156
====== ==== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
29
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED JANUARY 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................................... $ (2,262) $ (9,909) $(16,328)
Adjustments to reconcile net loss to cash:
Depreciation.................................................... 849 2,184 3,077
Gain on sale of assets.......................................... -- (1,560) --
Provision for bad debts......................................... -- 192 63
Write off of fixed asset and deposit............................ -- -- 3,495
Loss from joint operations and advances,
net of distributions........................................... -- -- (3,668)
Deferred federal income taxes................................... -- (2,660) (1,496)
Cumulative effect of accounting change.......................... (118) -- --
Issuance of common stock under stock grant...................... -- 18 34
Decrease (increase) in assets:
Accounts receivable, trade...................................... (2,130) 7,143 (441)
Other receivables............................................... 463 2,234 (1,840)
Inventories and maintenance parts............................... 433 8,339 19,798
Prepaid expenses................................................ (248) 267 89
Other assets.................................................... 311 35 6,217
Increase (decrease) in liabilities:
Accounts payable, trade......................................... 618 (2,421) (4,285)
Accrued liabilities............................................. 686 (1,154) (651)
Other current liabilities....................................... 200 (298) (3,760)
Other liabilities............................................... (340) 50 584
-------- -------- --------
Net cash provided by (used in) operating activities............ (1,538) 2,460 888
-------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment...................... (2,628) (2,626) (4,221)
Purchase of minority interest in subsidiary..................... -- -- (6,000)
Proceeds from sales of property, plant and equipment............ 551 8,700 378
Proceeds from sale of joint operation........................... -- 3,828 --
Distributions from joint operations, net of earnings (loss) and
advances....................................................... 12,883 13,831 --
Dividends received from joint operations........................ 982 3,501 32
-------- -------- --------
Net cash provided by (used in) investing activities............ 11,788 27,234 (9,811)
-------- -------- --------
Cash flows from financing activities:
Net bank borrowings (payments).................................. (10,000) (25,000) 3,000
Principal payments on long-term debt............................ -- -- (2,150)
Dividends paid on common stock.................................. -- -- (1,528)
-------- -------- --------
Net cash used in financing activities.......................... (10,000) (25,000) (678)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents............. 250 4,694 (9,601)
Cash and cash equivalents at beginning of year................... 7,057 2,363 11,964
-------- -------- --------
Cash and cash equivalents at end of year......................... $ 7,307 $ 7,057 $ 2,363
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
30
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Investments in Joint Operations
The consolidated financial statements include the accounts of Proler
International Corp. ("the Company") and its majority owned subsidiaries. In
January 1992, the Company acquired the 25% minority interest in Prolerized Steel
Corporation, which was accounted for as a purchase. In connection with the
acquisition approximately $2.2 million of goodwill was recorded and is being
amortized over 10 years (see Note 12). All significant intercompany balances
and transactions have been eliminated. Certain amounts included in the prior
year financial statements have been reclassified to be consistent with the
current year presentation with no effect on net earnings (loss) or equity.
The consolidated financial statements also include, on the equity method, the
Company's share of several joint operations with interests ranging from 33-1/3%
to 50% (see Note 3). Included in the Company's consolidated retained earnings
at January 31, 1994 and 1993 is approximately $28,857,000 and $44,024,000,
respectively, relating to undistributed earnings of the joint operations.
Inventories
The Company's inventories are stated at the lower of cost or market using the
first-in, first-out (FIFO) method. Two of the 50%-owned joint operations
account for inventories using the last-in, first-out (LIFO) method while the
others follow FIFO. Approximately 62% and 64% of the joint operations'
inventory is accounted for using LIFO at January 31, 1994 and 1993,
respectively. Such LIFO inventories are carried at $16,927,000 and $40,877,000
at January 31, 1994 and 1993, respectively, and the excess of replacement cost
over LIFO value was approximately $21,187,000 and $8,604,000 at January 31, 1994
and 1993, respectively.
Federal Income Taxes
The Company and its wholly-owned subsidiaries file a consolidated federal
income tax return which includes the Company's share of earnings or losses from
unincorporated joint operations. Prolerized Steel Corporation through January,
1992 and the corporate joint operations file separate federal income tax
returns. Investment tax credits are accounted for using the flow-through
method.
Effective February 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," as more fully
described in Note 6 to consolidated financial statements. Deferred federal
income taxes are recorded based upon differences between the tax and financial
reporting bases of the Company's assets and liabilities.
Certain of the joint operations are organized as partnerships and others as
corporations. The Company's share of the earnings (loss) of all joint
operations is included in the consolidated statements of operations before
income taxes and the provision (benefit) for income taxes includes amounts
applicable to its share of earnings (loss) from joint operations.
31
<PAGE>
PROLER INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Per Share Information
Per share information has been computed based on the weighted average number
of common shares outstanding during the periods presented. The weighted average
number of common shares outstanding at January 31, 1994, 1993 and 1992 does not
include the effect of stock options which are insignificant.
Property, Plant and Equipment
The Company primarily uses the straight-line method of providing depreciation
over the estimated useful lives of the assets for financial reporting purposes.
Estimated useful lives used in computing depreciation fall within the following
ranges:
<TABLE>
<CAPTION> YEARS
---------
<S> <C><C> <C>
Machinery and equipment........... 3 to 15
Automobiles, trucks and trailers.. 3 to 5
Buildings......................... 5 to 33
Yard improvements................. 4 to 25
Furniture and fixtures............ 5 to 10
</TABLE>
When assets are retired or otherwise disposed, the cost and related
accumulated depreciation are removed from the accounts and the resulting gains
or losses are reflected in operations.
During fiscal 1992, the Company relinquished the licensing of the
technology for certain environmental equipment relating to an incineration plant
and wrote off approximately $1.2 million.
Consolidated Statements of Cash Flows
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with original maturities of three months
or less to be cash equivalents. Cash paid for income taxes and interest was
approximately $30,000 and $487,000, $166,000 and $1,791,000 and $530,000 and
$3,192,000, in fiscal 1994, 1993 and 1992, respectively.
Concentration of Credit Risk
The Company sells its products primarily to steel mills in North America.
The Company performs ongoing credit evaluations of its customers and requires
letters of credit on foreign sales. The Company maintains reserves for
potential credit losses and such losses have been within management's
expectations.
The Company invests its excess cash in deposits with major banks and in
money market securities of companies from a variety of industries. These
securities typically mature within ninety days. The Company has not experienced
any losses on its money market investments.
32
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS
The following are the details of certain balance sheet accounts (dollars in
thousands):
<TABLE>
<CAPTION>
Inventories JANUARY 31,
------------------------
1994 1993
----------- -----------
<S> <C> <C>
Processed scrap......................... $ 1,089 $ 1,233
Unprocessed scrap and other............. 821 813
------- -------
$ 1,910 $ 2,046
======= =======
Property, Plant and Equipment, at cost JANUARY 31,
------------------------
1994 1993
----------- -----------
<S> <C> <C>
Land.................................... $ 791 $ 931
Machinery and equipment................. 16,697 18,443
Automobiles, trucks and trailers........ 434 431
Buildings............................... 2,093 1,675
Yard improvements....................... 4,386 3,477
Furniture and fixtures.................. 272 211
Construction in progress................ 3,715 2,983
Assets held for sale.................... 9,973 9,373
------- --------
38,361 37,524
Less accumulated depreciation........... (19,690) (20,081)
------- --------
$18,671 $ 17,443
======= ========
Other Assets JANUARY 31,
------------------------
1994 1993
----------- -----------
<S> <C> <C>
Cost in excess of net assets acquired... $ 2,269 $ 2,269
Deferred compensation................... 915 915
Cash surrender value, less loans of
$1,624 and $1,439 in 1994 and
1993, respectively..................... 897 796
Other................................... 257 574
-------- --------
4,338 4,554
Less accumulated amortization........... (449) (354)
-------- --------
$ 3,889 $ 4,200
======== ========
</TABLE>
During fiscal 1992 management determined that, under the terms of certain
letter agreements, the recoverability of a deposit made in connection with the
previously reported discontinued Buffalo Steel project was uncertain and
accordingly wrote off $2.3 million. In fiscal 1993, the $750,000 earnest money
deposit included in accrued liabilities relating to this matter was recorded in
income upon the favorable settlement of the Company's lawsuit regarding this
project.
33
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
Accrued Liabilities JANUARY 31,
--------------------------------
1994 1993
---------- -----------
<S> <C> <C>
Salaries, wages and bonuses..... $ 650 $ 76
Deferred compensation, current.. 406 --
Insurance....................... 314 1,002
Environmental and litigation.... 1,069 850
Other........................... 532 357
------ ------
$2,971 $2,285
====== ======
</TABLE>
3. INVESTMENTS IN JOINT OPERATIONS
The Company has historically conducted a significant portion of its
business through joint operations. Certain of these joint operations are
organized as partnerships and others as corporations. The agreements governing
the operations generally provide that all decisions will be made unanimously by
the partners/shareholders. In the more significant joint operations, the
Company's other partner is Hugo Neu & Sons, Inc. or one of its subsidiaries.
The principal joint operations included in the summary of financial
information and the Company's percentage interest owned are as follows:
<TABLE>
<CAPTION>
<S> <C>
Hugo Neu-Proler Company 50 %
Prolerized New England Company 50 %
Prolerized Chicago Corporation (a) 50 %
HPNJ 50 %
HPI 49 %
Prolerized Schiabo-Neu Company 331/3%
</TABLE>
- ----------------------------
(a) Sold in October, 1993
The terms of the HPNJ and HPI agreements expire May 25, 1994 unless
extended by unanimous consent of the partners. The Company's future involvement
with these joint ventures is uncertain at this time; however, in the event of
their dissolution, management anticipates that the carrying value of the
underlying assets would be recovered.
34
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
A summary of the financial position of the combined joint operations (100%
basis) is as follows (dollars in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
---------------------
1994 1993
-------- --------
<S> <C> <C>
Current assets, primarily inventory.. $48,593 $ 78,764
Property, plant and equipment, net... 26,416 28,244
Other................................ 252 483
------- --------
$75,261 $107,491
======= ========
Current liabilities.................. $ 9,708 $ 8,700
Other liabilities.................... 639 252
Stockholders' and partners' equity... 64,914 98,539
------- --------
$75,261 $107,491
======= ========
</TABLE>
The Company's investment in the joint operations and its percentage interest
in the above assets and liabilities as of January 31, 1994 and 1993 is set forth
below (dollars in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
---------------------
1994 1993
-------- --------
<S> <C> <C>
Current assets, primarily inventory.. $23,432 $36,986
Property, plant and equipment, net... 11,626 12,438
Other assets......................... 126 241
Less: Liabilities................... (4,948) (4,262)
Adjustment to conform reporting
periods............................. (3,963) (5,265)
------- -------
Net investment....................... $26,273 $40,138
======= =======
</TABLE>
A summary of the results of operations of the combined joint operations is as
follows (dollars in thousands):
Combined 100% Basis:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
------------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Net sales........................ $307,455 $198,575 $214,749
======== ======== ========
Gross profit (loss).............. $ 13,095 $ (1,012) $ (131)
======== ======== ========
Earnings (loss).................. $ 5,304 $(11,582) $ (7,961)
======== ======== ========
</TABLE>
Company Percentage Interest:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
------------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Net sales....................... $142,197 $ 92,419 $ 99,616
======== ======== ========
Gross profit (loss)............. $ 6,037 $ (337) $ 376
======== ======== ========
Earnings (loss)................. $ 2,768 $ (5,660) $ (3,327)
======== ======== ========
</TABLE>
35
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
4. BANK DEBT
In October 1993, the Company executed an amended and restated credit agreement
with a bank which provides for a $15 million revolving line of credit and a $7
million letter of credit facility. The agreement is collateralized by
substantially all of the Company's assets, including its rights to cash
distributions from certain joint operations. As of January 31, 1994, no
borrowings were outstanding on the revolving line of credit and $5.4 million of
letters of credit were outstanding under the letter of credit facility.
The revolving line of credit and letter of credit facility terminate on
October 31, 1994 and March 31, 1995, respectively. Amounts available under the
agreement are computed in accordance with a borrowing base formula and are
generally limited by values assigned to accounts receivable and inventory. A
commitment fee of 1/2 percent per annum is charged on the unused portion of the
revolving line of credit. Borrowings under the line of credit facility bear
interest at the bank's prime rate.
Under the terms of the credit agreement, the Company must maintain, among
other things, a minimum net worth of $55 million, specified ratios of current
assets to current liabilities and specified levels of earnings before interest,
taxes, depreciation and amortization as computed in accordance with the
agreement. In addition, the Company is restricted as to the payment of cash
dividends, limited as to incurring additional indebtedness, and limited to
incurring capital expenditures in excess of certain amounts.
5. SALES OF ASSETS
On June 25, 1992, the Company sold its 255 shares of capital stock in Maru
Shipping Company, Inc. ("Maru"), a 50% owned joint operation, to Hugo Neu &
Sons, Inc., the other joint interest owner, for a purchase price of $3.8 million
in cash. The purchase price, combined with a $3.5 million cash dividend
received in May, 1992, approximated the carrying cost of the Company's
investment in Maru as of January 31, 1992. The Company's share of pre-tax
earnings was $554,000 in fiscal 1992.
On July 23, 1992, the Company sold the assets associated with its ferrous and
non-ferrous scrap processing plant located in Houston, Texas to an unrelated
third party for $8.8 million. The assets sold included real estate on which the
plant is located, improvements, fixtures and equipment, and certain intangibles
including contract rights and customer and supplier lists. The Company recorded
net sales of $24.4 million and $57.4 million attributable to operations at this
plant in fiscal 1993 and 1992, respectively and a gross profit of $1.8 million
in both years.
In October, 1993, substantially all of the assets of Prolerized Chicago
Corporation, a 50%-owned joint operation, were sold to an unrelated third party
for an aggregate consideration of approximately $2.4 million. The Company
recognized a pre-tax gain of approximately $0.5 million attributable to its
interest in this sales transaction. Such amount is included in earnings (loss)
from joint operations. The Company's share of this joint operation's pre-tax
earnings (loss) was $442,000, $149,000 and $(21,000) in fiscal 1994, 1993, and
1992, respectively.
36
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. INCOME TAXES
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes" effective
February 1, 1993 and the cumulative effect of this change is a decrease in net
loss of $118,000 or $.03 per share for fiscal 1994. Prior years' financial
statements have not been restated to apply the provisions of SFAS No. 109. This
statement changes the criteria for the recognition and measurement of deferred
tax assets or liabilities, including net operating loss carryforwards. The
provision (benefit) for income taxes is comprised of the following (dollars in
thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
---------------------------------
1994 1993 1992
------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal............................... $ 291 $ (367) $(3,553)
State................................. 277 170 154
Deferred:
Federal............................... -- (2,660) (1,496)
----- ------- -------
Provision (benefit) for income taxes.. $ 568 $(2,857) $(4,895)
===== ======= =======
</TABLE>
The difference between the effective rates reflected in the provision
(benefit) for income taxes and the amounts which would be determined by applying
the statutory federal tax rate to earnings (loss) before income taxes are
analyzed below (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
----------------------------------
1994 1993 1992
--------- ----------- ----------
<S> <C> <C> <C>
Provision (benefit) for income taxes at statutory rate.... $ (616) $(4,340) $(7,216)
Increases (reductions) resulting from:
Effect of undistributed earnings of 75% owned subsidiary.. -- -- 127
Effect of undistributed earnings of corporate joint
operations.............................................. (167) 274 2
Effect of liquidating distribution of corporate joint
operation............................................... 258 -- --
Federal income taxes of corporate joint operations
and foreign sales corporations.......................... 357 (19) 37
State income taxes, net................................... 202 112 68
Earnings of foreign sales corporations.................... (518) (2) (14)
Goodwill amortization..................................... 77 -- --
Net operating loss carryforward for financial reporting
purposes not currently utilizable....................... 1,039 1,107 2,110
Other, net................................................ (64) 11 (9)
------ ------- -------
Provision (benefit) for income taxes...................... $ 568 $(2,857) $(4,895)
====== ======= =======
</TABLE>
37
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Deferred taxes are recorded based upon differences between the financial
statement and tax bases of assets and liabilities and available tax credit
carryforwards. Temporary differences and carryforwards which give rise to these
deferred tax assets and liabilities at January 31, 1994 are as follows (dollars
in thousands):
<TABLE>
<CAPTION>
January 31, 1994
----------------
<S> <C>
Deferred tax assets:
Deferred compensation $ 843
Reserves not currently deductible for tax 940
Net operating loss and other tax carryforwards 6,720
Other 226
-------
8,729
-------
Deferred tax liabilities:
Deferred gain on involuntary conversion of a property 899
Depreciation 1,476
-------
2,375
-------
Net deferred tax asset 6,354
Valuation allowance (6,354)
-------
$ --
=======
</TABLE>
Deferred income taxes are provided for differences in the recognition
of revenue and expenses for tax and financial statement purposes and their
effect was as follows (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
----------------------------------
1994 1993 1992
------------ -------- ---------
<S> <C> <C> <C>
Earnings and distributions from corporate joint operations.. $ 4 $ (71) $ 15
Depreciation................................................ (11) (604) (163)
Deferred compensation....................................... 22 (127) (172)
Deferred gain on sale of Houston plant...................... -- (550) --
Deferred income on sale of Maru Shipping Company, Inc....... -- (1,156) --
Accrued liabilities......................................... 329 519 (333)
Net operating loss carryforward for financial reporting
purposes utilized currently................................ (276) (523) (829)
Other, net.................................................. (68) (148) (14)
------------ -------- --------
Provision (benefit) for deferred federal income taxes....... $ -- $ (2,660) $ (1,496)
============ ======== ========
</TABLE>
The Company has net operating loss carryforwards at January 31, 1994 for
regular tax and alternative minimum tax reporting purposes which amounted to
approximately $17 million and $10 million, respectively. The net operating loss
carryforwards expire at various dates through 2009. The Company also has
alternative minimum tax and investment tax credit carryforwards of approximately
$0.7 million and $0.3 million, respectively, which expire at various dates.
38
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMETNS, CONTINUED
7. STOCKHOLDERS' EQUITY
On June 12, 1975, the Company authorized 500,000 shares of $1 par value
preferred stock of which 50,000 shares have been designated as Series A Junior
Participating Preferred Stock. No shares have been issued under this
authorization.
Stockholder Rights Plan. In September 1988 the Company adopted a
stockholder rights plan and declared a dividend distribution of one preferred
stock purchase right on each outstanding share of the Company's common stock.
Pursuant to the terms of the rights plan, the number of rights associated with
each share of common stock was proportionately adjusted to reflect the three-
for-one split of the Company's common stock on July 17, 1989, so that from and
after that date each share of common stock entitles the holder to one-third of
one preferred stock purchase right. The rights may become exercisable if a
person or group acquires 20% or more of the Company's common stock or announces
an offer to acquire 30% or more of the common stock. Each right initially will
entitle stockholders to buy one one-hundredth of a share of the Company's Series
A Junior Participating Preferred Stock, $1 par value per share, at a price of
$200.
If the Company is acquired in a merger or other business combination at any
time after the rights become exercisable and the Company is not the surviving
corporation or its common stock is changed or exchanged or 50% or more of the
Company's assets or earning power is sold or transferred, each such right will
entitle its holder to purchase common shares of the acquiring company having a
market value of twice the exercise price of each right (i.e., at a 50%
discount). If a 20% or greater holder acquires the Company and the Company is
the surviving corporation and its common stock is not changed or exchanged, or
such holder engages in one or more "self-dealing" transactions as set forth in
the Rights Agreement or increases its beneficial ownership of the Company by
more than one percent in a transaction involving the Company, each right will
entitle its holder, other than the acquiror, to purchase common stock of the
Company (or under certain circumstances to receive cash, preferred stock, or
other securities of the Company), at a similar 50% discount from market value at
that time.
Prior to acquisition by a person or group of beneficial ownership of 20% or
more of the Company's common stock, the rights are redeemable for one cent per
right at the option of the Board of Directors. In addition, the rights may be
redeemed by stockholder action at one cent per right when certain procedures are
complied with in connection with an acquisition proposal.
Stock Option Plan. The Company has a stock option plan whereby key
employees may be granted options to purchase up to 180,000 shares of the
Company's common stock at a price, determined by a committee of the Board of
Directors, which cannot be less than 50% of the fair market value of the common
stock on the date of grant. No options have been granted at less than 100% of
the fair market value of the common stock on the date of the grant. At January
31, 1994, a total of 33,155 shares remained available for grant under the plan.
A summary of activity relating to stock options is as follows:
39
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
STOCK OPTIONS
---------------
<S> <C>
Outstanding, January 31, 1991 ($14.00 to $23.00 per share).. 175,490
Granted ($13.00 per share)................................ 3,000
Exercised................................................. --
Cancelled (1)............................................. (44,315)
-------
Outstanding, January 31, 1992 ($13.00 to $23.00 per share).. 134,175
Granted ($5.375 per share)................................ 12,000
Exercised................................................. --
Cancelled (1)............................................. (34,310)
-------
Outstanding, January 31, 1993 ($5.375 to $23.00)............ 111,865
Granted ($8.00 to $10.875 per share)...................... 53,000
Exercised................................................. --
Cancelled (1)............................................. (18,020)
-------
Outstanding, January 31, 1994 ($5.375 to $23.00)............ 146,845
=======
</TABLE>
(1) These cancelled options of former employees are available for reissuance
under the stock option plan.
The options are exercisable in three equal annual installments commencing on
the first anniversary of the date of grant. At January 31, 1994, 21,000 options
at $19.21 per share, 5,250 options at $23.00 per share, 18,795 at $22.50 per
share, 33,800 at $14.00 per share, 2,000 at $13.00 per share, 4,000 at $5.375
per share, and 8,000 at $8.00 per share were exercisable.
Incentive Compensation Plan. The Company has a plan whereby key employees
have the opportunity to earn annual bonus awards based on their achievement of
performance goals approved by the Compensation Committee of the Board of
Directors. Under the plan, a portion of each award (twenty-five percent for
fiscal 1994) will be payable in restricted shares of common stock. One-third of
the shares of stock awarded will vest each year on the anniversary of the last
day of the fiscal year to which the award pertains. The issuance of the shares
is contingent upon the employee remaining employed by the Company on each
vesting date, subject to the exceptions provided in the Plan. For the fiscal
year ended January 31, 1994 cash awards of $219,000 and 9,590 shares were
awarded to seven employees.
Stock Grant Agreement. The Company had a stock grant agreement with one of
its officers. Through January 31, 1993, this officer received 20,400 shares of
the Company's common stock, the total provided in the agreement.
8. COMMITMENTS AND CONTINGENCIES
Commitments. As a joint venturer, the Company and one of its subsidiaries
are jointly and severally liable for the liabilities of the Company's
unincorporated joint operations.
The joint operations lease certain tracts of real estate and improvements
under cancelable and non-cancelable agreements. Total rent expense was
approximately $2,800,000, $2,900,000 and
40
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATE FINANCIAL STATEMENTS, CONTINUED
$2,600,000 in 1994, 1993 and 1992, respectively, related to these lease
agreements. The Company and its joint operations' minimum rental commitments
(100% basis) under non-cancelable leases as of January 31, 1994 are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
Year Ending
January 31,
-----------
1995................................ $ 596
1996................................ 543
1997................................ 551
1998................................ 555
1999................................ 458
Thereafter.......................... 245
------
$2,948
======
</TABLE>
Certain of these leases provide for additional rentals based on
increases of the fair market value of the property leased and call for payment
of property taxes by the lessor. In addition, most leases contain renewal
clauses.
The Company and its subsidiaries lease certain tracts of real estate
under cancelable agreements. Total rent expense was approximately $133,000,
$93,000 and $491,000 in fiscal 1994, 1993, and 1992 respectively.
Contingencies. Certain materials resulting from the Company's
operations must be handled consistent with federal and state environmental laws
and regulations. Compliance with such laws and regulations were an area of
concern to the Company as questions were being raised as to whether automobile
shredder residue, ("ASR" or "fluff") contains excessive concentrations of
certain heavy metals, polychlorinated biphenyls ("PCB's") and other
contaminants. A 1988 Environmental Protection Agency ("EPA") study released in
1990 concerning potential contamination in ASR indicated that the potential risk
depends on the constituent make up of the fluff and the management practices at
the sites where the fluff is generated. Pending further study, the EPA
recognized that shredding operations that are well managed and conducted in an
environmentally sound manner provide valuable environmental benefits. The
Company has successfully implemented source control programs to identify and to
reduce the sources of lead and certain other heavy metals in ASR. To date,
tests of ASR generated by the Company and its joint operations indicate that
levels of PCB's, lead, cadmium, and other contaminants are generally within
acceptable levels under EPA and state procedures. The Company continues to
evaluate additional methods of further reducing contaminants in ASR. 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 EPA or state regulatory agencies, although it
does not currently expect this result.
Hugo Neu-Proler Company ("HNP"), a 50% owned joint operation of the
Company, is involved in discussions with the Port of Los Angeles and the
California Regional Water Quality Control Board (the "RWQCB") concerning
proposals for remediation by HNP of certain environmental conditions at that
location. HNP and the Port have also been negotiating a renewal of the
Company's lease, which is due to expire on August 30, 1994. The Port is in the
completion stages of developing an Environmental Impact Report of HNP activities
and site conditions in connection with the lease renewal. Under the current
lease, HNP would be responsible for remediating certain environmental conditions
on the property
41
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
caused by HNP, 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 December 1992, HNP
signed a Memorandum of Understanding with the Port relating to the lease renewal
and in fiscal 1994 provided letters of credit totaling $7.9 million ($3.95
million each from the Company and HNP's other owner) to secure HNP's remediation
obligations under the lease. HNP is required to provide additional letters of
credit and/or incur additional costs of up to $2.0 million (or $1.0 million by
each joint owner) in connection with such environmental obligations by
September, 1994. HNP has accrued approximately $1.0 million 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
possible 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 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 and its chairman, among others, have been named as
defendants in a lawsuit pending in the United States District Court for the
Central District of California, by a former manager of a joint operation. The
plaintiff alleges causes of action arising out of his termination in December
1988 as general manager of HNP. On April 22, 1993, the parties entered into an
agreement under which the Company would pay plaintiff a total of $450,000 in
settlement of this matter, of which at least $175,000 would be covered by the
Company's insurance. The settlement agreement with the Company is contingent
upon the implementation of a further settlement agreement between the plaintiff
and certain other defendants which required parties other than the Company to
obtain certain tax rulings and court approvals on matters unrelated to the
Company. Trial is currently set for November 15, 1994. The Court has granted
several continuances to permit the implementation of the settlement and it is
anticipated that the Court will continue to do so in the future if necessary.
In March, 1988, the Company commenced an action against a vendor
claiming that the vendor breached a 1984 sales agreement requiring the vendor to
sell certain scrap materials to the Company and HNP. The vendor filed certain
counterclaims against the Company and HNP alleging breach of contract, breach of
duties of good faith and fair dealing and fraud. The trial of this case began
on March 7, 1994. On March 11, 1994, the parties entered into an agreement in
settlement of all litigation, claims and counterclaims pursuant to which HNP
agreed to pay the vendor $1.1 million (of which $550,000 is the Company's
share). The vendor and HNP also entered into an agreement granting HNP a right
of first
42
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDTED FINANCIAL STATEMENTS, CONTINUED
refusal to purchase the vendor's scrap metals for a period of nine years. HNP
has accrued $1.4 million as of December 31, 1993 covering this settlement and
all of its remaining litigation expenses related to this matter.
The Company is also subject to certain other litigation and claims
arising in the ordinary course of business. In the opinion of management, the
disposition of these claims and lawsuits will not have a material adverse effect
on the Company's financial position or results of operations.
9. RELATED PARTY TRANSACTIONS
Certain joint operations sell recycled metal overseas through foreign
sales corporations. To facilitate these sales, two of the other joint
operations' partners act as agents and are paid commission expenses which
totaled approximately $1,651,000, $1,087,000 and $1,190,000 for the years ended
January 31, 1994, 1993 and 1992, respectively, net to the Company.
The Company received funds in excess of costs for various items sold
to the joint operations which amounted to approximately $308,000, $106,000 and
$221,000 for the years ended January 31, 1994, 1993 and 1992, respectively.
During 1994, 1993 and 1992, the Company recorded legal and
professional fees of approximately $459,000, $1,263,000 and $501,000,
respectively, for services rendered by firms of which two of the Company's
directors have an ownership interest.
10. SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION
The Company is engaged principally in the processing of ferrous and
non-ferrous metals for recycling. Excluding the Company's share of the joint
operations, sales to unaffiliated customers which exceeded 10% of total
consolidated net sales were made to two, two and three customers in fiscal 1994,
1993 and 1992, respectively. Sales to these customers were: 1994 - 15% and 27%;
1993 -18% and 11%; and 1992 - 17%, 14% and 11% of total sales.
The table below summarizes for the last three fiscal years the
Company's export sales (including its share of the export sales of each joint
operation in which it owns an interest) by geographical area (dollars in
thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
--------------------------------
1994 1993 1992
---------- ------- --------
<S> <C> <C> <C>
To Customers in Europe................. $ -- $ 1,854 $ 3,541
To Customers in the Far and Near East.. 122,086 79,712 84,485
To Customers in Mexico................. -- 795 2,272
To Customers in South America.......... 3,044 1,751 2,458
To Customers in Canada................. 4,961 104 69
To Other Export Customers.............. 2,003 299 --
-------- ------- --------
Total Export Sales..................... $132,094 $84,515 $92,825
======== ======= ========
</TABLE>
43
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. EMPLOYEE BENEFIT PLANS
Tax Deferred Savings and Retirement Plan and Trust
In April, 1990 the Company began a Tax Deferred Savings and Retirement Plan
and Trust (401K) Plan for the employees of the Company and its 100% owned
subsidiaries. Eligible employees may contribute up to 15% of their compensation
to this plan and their contributions are matched by the Company at an amount
equal to 50% of each employee's contribution up to $1,000, 25% of each
employee's contribution from $1,001 to $2,000 and 10% of each employee's
contribution in excess of $2,000 up to the statutory limit. The Company
contributed approximately $55,000, $51,000 and $118,000 to this plan for the
years ended January 31, 1994, 1993, and 1992, respectively.
Deferred Compensation Plan
The Company has a deferred compensation plan (the "Plan") covering selected
key executives. The Company accrues currently the estimated present value of
the future payments to be made to each plan participant at the time of
retirement. The Plan excludes prior service and, in the event of permanent
disability, the participant will be entitled to receive a monthly benefit for a
period of ten years following the latter of the date of retirement or attainment
of age 65. All benefits will be equal to 50% of the current participants'
annual salary in the year the participant enters the Plan.
Net periodic deferred compensation costs for the years ended January 31, 1994,
1993 and 1992 included the following components (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Service cost-benefits earned during the period.. $ 47 $ 147 $ 246
Interest cost on projected benefit obligation... 213 212 211
Net amortization and deferral................... 95 95 95
--------- --------- ---------
Net periodic deferred compensation costs........ $ 355 $ 454 $ 552
========= ========= =========
</TABLE>
The unfunded obligations for plan benefits and the amount recognized
in the Company's balance sheet at January 31, 1994 and 1993 are reconciled as
follows (dollars in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated and projected benefit obligation........ $3,487 $3,329
Unrecognized prior service cost..................... (653) (726)
Unrecognized net gain (loss)........................ (181) 5
Unrecognized transition obligation.................. (173) (194)
Adjustment required to recognize minimum liability.. 915 915
------- ------
Deferred compensation liability..................... $3,395 $3,329
======= ======
</TABLE>
The assumed discount rate used to compute the present value of benefit
obligations was 6.5% and 7.0% for fiscal 1994 and 1993, respectively. The
vested portion of the projected benefit obligation as of January 31, 1994, 1993
and 1992 was $3,304,000, $3,301,000 and $546,000, respectively.
44
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
12. SUBSEQUENT EVENT
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 $5.0 million.
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 net sales of $29.1 million, $20.9 million and $25.8
million and gross profit (loss) of $0.6 million, $0.1 million and $(1.6) million
attributable to the operations at the Kansas City and Vinton plants in fiscal
1994, 1993, and 1992, respectively.
13. UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following is a summary of quarterly financial results for fiscal 1994 and
1993 (dollars in thousands except per share data). The results for the quarters
beginning August 1, 1992, among other things, reflect the sale of the Houston
facility in late July, 1992.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------
APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
1993 1993 1993 1994
-------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales............................... $ 8,169 $10,031 $12,386 $ 13,120
======= ======= ======= ========
Gross profit............................ $ 125 $ 18 $ 369 $ 525
======= ======= ======= ========
Income (loss) before accounting change.. $(1,258) $ 74 $ 2,104 $ (3,300)
======= ======= ======= ========
Cumulative effect of accounting change.. $ 118 $ -- $ -- $ --
======= ======= ======= ========
Net income (loss)....................... $(1,140) $ 74 $ 2,104 $ (3,300)
======= ======= ======= ========
Income (loss) before accounting
change per share....................... $ (.27) $ .02 $ .45 $ (.71)
======= ======= ======= ========
Cumulative effect of accounting change
per share.............................. $ .03 $ -- $ -- $ --
======= ======= ======= ========
Net income (loss) per share............. $ (.24) $ .02 $ .45 $ (.71)
======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------
APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
1992 1992 1992 1993
-------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales............................... $22,846 $21,939 $11,908 $ 7,149
======= ======= ======= =======
Gross profit (loss)..................... $ 907 $ 414 $ (648) $ (748)
======= ======= ======= =======
Gain on sale of assets, net............. $ -- $ 1,560 $ -- $ --
======= ======= ======= =======
Net loss................................ $(2,599) $(1,436) $(1,936) $(3,938)
======= ======= ======= =======
Net loss per share...................... $ (.55) $ (.31) $ (.41) $ (.83)
======= ======= ======= =======
</TABLE>
45
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
FOR THE THREE YEARS ENDED JANUARY 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
=====================================================================================================================
COL. A COL. B COL. C COL. D COL. E COL. F
- ---------------------------------------------------------------------------------------------------------------------
OTHER
BALANCE AT CHANGES BALANCE AT
BEGINNING ADDITIONS ADD (DEDUCT) END OF
CLASSIFICATION OF PERIOD AT COST RETIREMENTS DESCRIBE(1) PERIOD
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
1994:
Land................................ $ 931 $ -- $ -- $ (140) $ 791
--------- --------- ----------- ------------ ----------
Depreciable property:
Machinery and equipment ........... 18,443 32 632 (1,146) 16,697
Automobiles, trucks and trailers .. 431 51 48 -- 434
Buildings ......................... 1,675 11 2 409 2,093
Yard improvements ................. 3,477 249 47 707 4,386
Furniture and fixtures ............ 211 62 1 -- 272
--------- --------- ----------- ------------ ----------
24,237 405 730 (30) 23,882
--------- --------- ----------- ------------ ----------
Assets held for sale ............... 9,373 -- 1,005 1,605 9,973
--------- --------- ----------- ------------ ----------
Construction in progress ........... 2,983 2,223 56 (1,435) 3,715
--------- --------- ----------- ------------ ----------
Total property, plant and
equipment......................... $ 37,524 $ 2,628 $ 1,791 $ -- $ 38,361
========= ========= =========== ============ ==========
1993:
Land ............................... $ 7,151 $ -- $ 2,027 $ (4,193) $ 931
--------- --------- ----------- ------------ ----------
Depreciable property:
Machinery and equipment ........... 43,399 345 22,768 (2,533) 18,443
Automobiles, trucks and trailers... 2,275 25 1,869 -- 431
Buildings.......................... 4,885 11 1,661 (1,560) 1,675
Yard improvements ................. 4,532 4 1,074 15 3,477
Furniture and fixtures............. 889 129 809 2 211
--------- --------- ----------- ------------ ----------
55,980 514 28,181 (4,076) 24,237
--------- --------- ----------- ------------ ----------
Assets held for sale ............... -- -- -- 9,373 9,373
--------- --------- ----------- ------------ ----------
Construction in progress ........... 2,959 2,112 984 (1,104) 2,983
--------- --------- ----------- ------------ ----------
Total property, plant and
equipment ......................... $ 66,090 $ 2,626 $ 31,192 $ -- $ 37,524
========= ========= =========== ============ ==========
1992:
Land ............................... $ 7,174 $ 67 $ 90 $ -- $ 7,151
--------- --------- ----------- ------------ ----------
Depreciable property:
Machinery and equipment ........... 40,868 348 605 2,788 43,399
Automobiles, trucks and
trailers ......................... 2,705 60 479 (11) 2,275
Buildings ......................... 4,797 65 6 29 4,885
Yard improvements ................. 4,246 26 16 276 4,532
Furniture and fixtures ............ 777 43 41 110 889
--------- --------- ----------- ------------ ----------
53,393 542 1,147 3,192 55,980
Construction in progress ........... 3,895 3,612 1,356 (3,192) 2,959
--------- --------- ----------- ------------ ----------
Total property, plant and
equipment ......................... $ 64,462 $ 4,221 $ 2,593 $ -- $ 66,090
========= ========= =========== ============ ==========
</TABLE>
- -------------
(1) Transfer to fixed assets from construction in
progress and reclassification between certain categories.
46
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE THREE YEARS ENDED JANUARY 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
===================================================================================================================
COL. A COL. B COL. C COL. D COL. E COL. F
- -------------------------------------------------------------------------------------------------------------------
ADDITIONS OTHER
BALANCE AT CHARGED TO CHANGES BALANCE AT
BEGINNING COSTS AND ADD (DEDUCT) END OF
DESCRIPTION OF PERIOD EXPENSES RETIREMENTS DESCRIBE (1) PERIOD
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994:
Depreciable property:
Machinery and equipment........... $14,042 $ 454 $ 451 $(1,148) $12,897
Automobiles, trucks and trailers.. 383 30 46 -- 367
Buildings......................... 1,332 69 5 58 1,454
Yard improvements................. 1,671 231 7 198 2,093
Furniture and fixtures............ 59 39 1 -- 97
------- ------ ------- ------- -------
17,487 823 510 (892) 16,908
Assets held for sale............... 2,594 26 730 892 2,782
------- ------ ------- ------- -------
Total accumulated depreciation... $20,081 $ 849 $ 1,240 $ -- $19,690
======= ====== ======= ======= =======
1993:
Depreciable property:
Machinery and equipment........... $34,513 $1,554 $19,973 $(2,052) $14,042
Automobiles, trucks and trailers.. 1,950 109 1,681 5 383
Buildings......................... 2,602 195 1,114 (351) 1,332
Yard improvements................. 2,315 271 719 (196) 1,671
Furniture and fixtures............ 569 55 565 -- 59
------- ------ ------- ------ -------
41,949 2,184 24,052 (2,594) 17,487
Assets held for sale............... -- -- -- 2,594 2,594
------- ------ ------- ------- -------
Total accumulated depreciation... $41,949 $2,184 $24,052 $ -- $20,081
======= ====== ======= ======= =======
1992:
Depreciable property:
Machinery and equipment........... $32,789 $2,208 $ 492 $ 8 $34,513
Automobiles, trucks and trailers.. 2,187 215 444 (8) 1,950
Buildings......................... 2,368 234 -- -- 2,602
Yard improvements................. 1,977 338 -- -- 2,315
Furniture and fixtures............ 529 82 42 -- 569
------- ------ ------- ------- -------
Total accumulated depreciation... $39,850 $3,077 $ 978 -- $41,949
======= ====== ======= ======= =======
</TABLE>
(1) Reclassification between certain categories
47
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
FOR THE THREE YEARS ENDED JANUARY 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
=================================================================================================================
COL A. COL. B COL. C COL. D COL. E COL. F
- -----------------------------------------------------------------------------------------------------------------
MAXIMUM AVERAGE WEIGHTED
WEIGHTED AMOUNT AMOUNT AVERAGE
BALANCE AVERAGE OUTSTANDING OUTSTANDING INTEREST RATE
CATEGORY OF AGGREGATE AT END INTEREST DURING THE DURING THE DURING THE
SHORT-TERM BORROWINGS OF PERIOD RATE PERIOD PERIOD PERIOD
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994:
Borrowings from
Banks............ $ -- 6.00% $10,000 $ 3,407(2) 5.06%(2)
1993:
Borrowings from
Banks............ $ 5,000 6.00% $35,000 $27,237(2) 6.36%(2)
1992:
Borrowings from
Banks(1)......... $35,000 6.50% $37,500 $33,623(2) 8.87%(2)
</TABLE>
- ---------
(1) Uncollateralized notes due at various dates throughout the year.
(2) Weighted average of monthly borrowings
48
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE THREE YEARS ENDED JANUARY 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
===============================================================
COL. A COL. B
- ----------------------------------------------------------------
CHARGED TO
COSTS AND
ITEM EXPENSES
- ----------------------------------------------------------------
<S> <C>
1994:
1. Maintenance and repairs..................... $1,860
3. Taxes, other than payroll and income taxes.. $ 516
1993:
1. Maintenance and repairs..................... $3,066
3. Taxes, other than payroll and income taxes.. $ 833
1992:
1. Maintenance and repairs..................... $6,402
3. Taxes, other than payroll and income taxes.. $1,374
</TABLE>
Items 2, 4 and 5, depreciation and amortization of intangible assets;
preoperating costs and similar deferrals; royalties and advertising costs, have
been omitted in each year as they were either none or less than 1% of net sales.
49
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Proler International Corp.
We have audited the combined financial statements and financial statement
schedules of Proler International Corp.'s Joint Operations listed in the Index
on page 25 of this Form 10-K. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
and financial statement schedules based on our audits. We did not audit the
financial statements of certain joint operations which statements reflect total
assets of approximately 19% and 23% of the related combined assets as of January
31, 1994 and 1993, respectively, and net sales of approximately 22%, 20% and 22%
of the related combined total net sales for the years ended January 31, 1994,
1993 and 1992, respectively. Those statements were audited by another auditor
whose reports have been furnished to us, and our opinion, insofar as it relates
to the amounts included for such joint operations, is based solely upon the
reports of the other auditor.
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 and the reports of the other auditor provide a
reasonable basis for our opinion.
In our opinion, based upon our audits and the reports of the other auditor,
the financial statements referred to above present fairly, in all material
respects, the combined financial position of Proler International Corp.'s Joint
Operations as of January 31, 1994 and 1993 and the combined results of their
operations and their cash flows for each of the three years in the period ended
January 31, 1994 in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedules referred to
above, when considered in relation to the basic financial statements taken as a
whole and the reports of the other auditor, present fairly, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND
Houston, Texas
April 29, 1994
50
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners of
Prolerized Schiabo-Neu Company
We have audited the accompanying consolidated balance sheets of the Prolerized
Schiabo-Neu Company and its wholly-owned subsidiary, Prolerized Schiabo Neu
Foreign Sales Corporation, as of December 31, 1993 and 1992, and the related
consolidated statements of income, equity balances, and cash flows for each of
the three years in the period ended December 31, 1993 and the consolidated
financial statement schedules (not presented separately herein). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Prolerized Schiabo-Neu Company and its wholly-owned subsidiary, Prolerized
Schiabo Neu Foreign Sales Corporation as of December 31, 1993 and 1992, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles. In addition, the consolidated financial
statement schedules referred to above, when considered in relation to the basic
consolidated financial statement taken as a whole, present fairly the
information required to be included therein.
LA GUARDIA & PETRELLA
March 14, 1994
Bridge Plaza Building
Fort Lee, New Jersey
51
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
of Maru Shipping Company, Inc.
We have audited the accompanying balance sheet of Maru Shipping Company, Inc.
as of December 31, 1991, and the related statement of income, retained earnings,
and cash flows for the year then ended and the financial statement schedules
(not presented separately herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Maru Shipping Company, Inc. as
of December 31, 1991, and the results of its operations and its cash flows for
year ended December 31, 1991, in conformity with generally accepted accounting
principles. In addition, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly the information required to be included therein.
LA GUARDIA & PETRELLA
March 16, 1992
Bridge Plaza Building
Fort Lee, New Jersey
52
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Dover Barge Company
We have audited the accompanying balance sheets of Dover Barge Company as of
January 31, 1994 and 1993, and the related statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended January
31, 1994 and the financial statement schedules (not presented separately
herein). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements 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 financial position of Dover Barge Company at January
31, 1994 and 1993, and the results of its operations and cash flows for each of
the three years in the period ended January 31, 1994, in conformity with
generally accepted accounting principles. In addition, the financial statement
schedules referred to above, when considered in relation to the basic financial
statements taken as a whole, present fairly the information required to be
included therein.
LA GUARDIA & PETRELLA
February 28, 1994
Bridge Plaza Building
Fort Lee, New Jersey
53
<PAGE>
PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS
COMBINED BALANCE SHEETS
JANUARY 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
-------- --------
ASSETS (in thousands)
------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................... $ 2,164 $ 1,956
Accounts receivable:
Trade............................................................ 5,627 3,097
Affiliates....................................................... 12,512 7,799
Other............................................................ 304 701
Inventories....................................................... 27,196 64,030
Prepaid expenses and other........................................ 790 1,181
------- --------
Total current assets............................................. 48,593 78,764
Property, plant and equipment, net................................. 26,416 28,244
Deferred charges and other assets.................................. 252 483
------- --------
Total assets................................................... $75,261 $107,491
======= ========
LIABILITIES AND STOCKHOLDERS' AND PARTNERS' EQUITY
--------------------------------------------------
Current liabilities:
Accounts payable:
Trade............................................................ $ 4,774 $ 2,968
Affiliates....................................................... 149 701
Accrued expenses................................................. 4,785 2,931
Note payable, affiliate........................................... -- 2,100
------- --------
Total current liabilities........................................ 9,708 8,700
Other liabilities.................................................. 639 252
Commitments and contingencies
Stockholders' and partners' equity................................. 64,914 98,539
------- --------
Total liabilities and stockholders' and partners' equity.. ...... $75,261 $107,491
======= ========
</TABLE>
The accompanying notes are an integral part of the
combined financial statements.
54
<PAGE>
PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS
COMBINED STATEMENTS OF OPERATIONS
FOR THE THREE YEARS ENDED JANUARY 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Net sales..................................... $307,455 $198,575 $214,749
Cost of sales................................. 294,360 199,587 214,880
-------- -------- --------
Gross profit (loss).......................... 13,095 (1,012) (131)
Selling, general and administrative expenses.. 8,658 11,407 10,070
-------- -------- --------
Operating income (loss)...................... 4,437 (12,419) (10,201)
Other income (expense):
Interest income.............................. 94 73 1,059
Interest expense............................. (84) (35) (262)
Litigation settlement costs.................. (1,400) -- --
Gain on asset sales.......................... 1,003 -- --
Other, net................................... 1,254 799 1,443
-------- -------- --------
Total other................................ 867 837 2,240
-------- -------- --------
Earnings (loss).......................... $ 5,304 $(11,582) $ (7,961)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
55
<PAGE>
PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS
COMBINED STATEMENTS OF STOCKHOLDERS' AND PARTNERS' EQUITY
FOR THE THREE YEARS ENDED JANUARY 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
EARNINGS AND
COMMON PARTNERSHIP
STOCK CAPITAL TOTAL
------- ------------ -------------
<S> <C> <C> <C>
Balances at January 31, 1991.... $ 422 $114,281 $114,703
Loss............................ -- (7,961) (7,961)
Advances, net of distributions.. -- 29,744 29,744
----- -------- --------
Balances at January 31, 1992.... 422 136,064 136,486
Liquidation of joint operation.. (255) (14,338) (14,593)
Loss............................ -- (11,582) (11,582)
Distributions, net of advances.. -- (11,772) (11,772)
----- -------- --------
Balances at January 31, 1993.... 167 98,372 98,539
Earnings........................ -- 5,304 5,304
Distributions, net of advances.. -- (38,929) (38,929)
----- -------- --------
Balances at January 31, 1994.... $ 167 $ 64,747 $ 64,914
===== ======== ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
56
<PAGE>
PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS
COMBINED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED JANUARY 31, 1994
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Earnings (loss)...................................... $ 5,304 $(11,582) $ (7,961)
Adjustments to reconcile earnings (loss) to cash:
Depreciation........................................ 5,132 5,232 5,937
Advances, net of distributions...................... -- -- 29,744
Gain on asset sales.................................. (1,003) -- --
Litigation settlement costs.......................... 1,400 -- --
Decrease (increase) in assets:
Accounts receivable, trade.......................... (2,530) 2,144 (567)
Accounts receivable, affiliates..................... (4,713) (60) (2,175)
Accounts receivable, other.......................... 397 (433) (2)
Inventories......................................... 36,834 14,585 (18,407)
Prepaid expenses and other.......................... 391 (216) (700)
Deferred charges and other assets................... 231 7,175 424
Increase (decrease) in liabilities:
Accounts payable, trade............................. 1,806 (920) (2,131)
Accounts payable, affiliates........................ (552) (200) 508
Accrued expenses.................................... 454 (995) (505)
Other liabilities................................... 387 214 (207)
-------- -------- --------
Net cash provided by operating activities........... 43,538 14,944 3,958
-------- -------- --------
Cash flows from investing activities:
Purchases and transfers of property, plant and
equipment........................................... (4,123) (3,731) (2,844)
Proceeds from sales of property, plant and equip-
ment................................................ 1,822 2,967 120
Liquidation of joint operation....................... -- (14,593) --
Distributions, net of advances....................... (38,929) (11,772) --
-------- -------- --------
Net cash used in investing activities............... (41,230) (27,129) (2,724)
-------- -------- --------
Cash flows from financing activities:
Net affiliate borrowings (repayments)................ (2,100) 2,100 --
Deposit in ship acquisition fund..................... -- -- (200)
-------- -------- --------
Net cash provided by (used in) financing activities. (2,100) 2,100 (200)
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents.................................... 208 (10,085) 1,034
Cash and cash equivalents at beginning of year........ 1,956 12,041 11,007
-------- -------- --------
Cash and cash equivalents at end of year.............. $ 2,164 $ 1,956 $ 12,041
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
57
<PAGE>
PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of Proler International Corp.'s
("Proler") joint operations are outlined below.
Joint Operations
The combined financial statements include all joint operations of
(collectively the "Company") Proler as presented below. All significant
balances and transactions between the combined joint operations have been
eliminated in combination. Certain amounts included in the prior year financial
statements have been reclassified to be consistent with the current year
presentation.
<TABLE>
<CAPTION>
INTEREST OF
PROLER
FORM OF INTERNATIONAL
COMMENCED BUSINESS CORP. AND INTERESTS
JOINT OPERATION OPERATION ORGANIZATION SUBSIDIARIES OF OTHERS
--------------- --------- ------------ ------------- ----------------------
<S> <C> <C> <C> <C> <C>
Hugo Neu-Proler Company......................... 1962 Partnership 50% Hugo Neu & Sons,
Inc.-50%
Prolerized Chicago Corporation (1).............. 1963 Corporation 50% M.S. Kaplan
Company-50%
Maru Shipping Company, Inc. (1)................. 1964 Corporation 50% Hugo Neu & Sons,
Inc.- 50%
Prolerized New England Company (3).............. 1966 Partnership 50% Hugo Neu Steel
Products, Inc.-50%(2)
Prolerized Schiabo-Neu Company.................. 1967 Partnership 331/3% Hugo Neu & Sons,
Inc.-331/3%
Schiavone-Bonomo
Corp.-331/3%
Dover Barge Company............................. 1967 Corporation 331/3% Hugo Neu & Sons,
Inc.-331/3%
Schiavone-Bonomo
Corp.-331/3%
Worcester Recycling, Inc. (3)................... 1972 Corporation 50% Hugo Neu Steel
Products, Inc.-50%(2)
Pacific Bulk Loading, Inc....................... 1972 Corporation 50% Hugo Neu & Sons,
Inc.-50%
H. Finkelman, Inc.(3)........................... 1977 Corporation 50% Hugo Neu Steel
Products, Inc.-50%(2)
Alameda Street Metal Corp....................... 1985 Corporation 50% Hugo Neu & Sons,
Inc.-50%
HPI............................................. 1989 Partnership 49% Hugo Neu & Sons,
Inc.-49%
Intercontinent
Chartering
Corporation-2%
HPNJ............................................ 1989 Partnership 50% Hugo Neu & Sons,
Inc.-50%
</TABLE>
(1) See Note 4 to the combined financial statements.
(2) A subsidiary of Hugo Neu & Sons, Inc.
(3) Proleride Transport Systems, Inc., a wholly-owned subsidiary of Proler
International Corp., is the Partner in this venture.
58
<PAGE>
PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
Amounts are included as of December 31, and the years then ended for all joint
operations except for Dover Barge Company which is as of January 31, and for the
years then ended.
The terms of the HPNJ and HPI agreements expire May 25, 1994 unless
extended by unanimous consent of the partners. The Company's future involvement
with these joint ventures is uncertain at this time; however, in the event of
their dissolution, management anticipates that the carrying value of the
underlying assets would be recovered.
Approximately $28,857,000 and $44,024,000 of stockholders' and partners'
equity at January 31, 1994 and 1993, respectively, and approximately $2,768,000,
$(5,660,000) and $(3,327,000) of earnings (loss) for the years ended January 31,
1994, 1993 and 1992, respectively, are attributable to Proler International
Corp. and one of its subsidiaries based upon their ownership interest. The
remaining equity and net earnings are attributable to the other owners and
partners.
Inventories
Inventories are stated at the lower of cost or market, cost being
determined using the last-in, first-out (LIFO) and the first-in, first-out
(FIFO) methods, for the joint operations as follows (dollars in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1994 1993
-------- -------
<S> <C> <C>
First-in, first out:
Processed........... $ 9,134 $22,512
Unprocessed......... 1,135 641
-------- -------
10,269 23,153
-------- -------
Last-in, first out:
Processed........... 15,766 40,390
Unprocessed......... 1,161 487
-------- -------
16,927 40,877
-------- -------
$ 27,196 $64,030
======== =======
</TABLE>
The excess of replacement cost over LIFO value was approximately $21,187,000
and $8,604,000 at January 31, 1994 and 1993, respectively.
Federal Income Taxes
Some of the joint operations are organized as partnerships and others as
corporations. There is no provision for income taxes on joint operations
reflected in the combined statement of earnings.
59
<PAGE>
PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
Property, Plant and Equipment
Depreciation is computed on the straight-line method for the major portion of
the joint operations' assets. Lives used in computing depreciation fall within
the following ranges:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEARS
-----
Machinery and equipment 3 to 13
Floating equipment 4 to 14
Automobiles, trucks and trailers 3 to 8
Buildings 5 to 25
Yard Improvements 4 to 25
Furniture and fixtures 5 to 10
</TABLE>
When assets are retired or otherwise disposed, the costs and related
accumulated depreciation are removed from the accounts and any gains or losses
are reflected in income.
Combined Statements of Cash Flows
For the purposes of the Combined Statement of Cash Flows, the Company
considers all highly liquid investments with original maturities of three months
or less to be cash equivalents. Cash paid for income taxes was approximately
$500,000, $241,000 and $298,000 for fiscal 1994, 1993 and 1992, respectively.
Concentration of Credit Risk
The Company sells its products primarily to steel mills in the Far and
Near East. The Company performs ongoing credit evaluations of its customers and
requires letters of credit on all foreign sales. The Company maintains reserves
for potential credit losses and such losses have been within management's
expectations.
The Company invests its excess cash in deposits with major banks and
in money market securities of companies from a variety of industries. These
securities typically mature within ninety days. The Company has not experienced
any losses on its money market investments.
2. RELATED PARTY TRANSACTIONS
Certain joint operations sell recycled metal overseas through foreign
sales corporations. To facilitate these sales, two of the joint operations'
partners other than the Company act as agents and are paid commissions generally
equal to approximately 1% of gross sales. Commission expenses totaled
approximately $3,540,000, $2,315,000 and $2,552,000 for the years ended January
31, 1994, 1993 and 1992, respectively.
60
<PAGE>
PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
3. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Property, Plant and Equipment, at cost JANUARY 31,
----------------------
1994 1993
-------- --------
<S> <C> <C>
Land................................. $ 5,065 $ 5,086
Machinery and equipment.............. 55,797 56,492
Floating equipment................... 1,338 1,338
Automobiles, trucks and trailers..... 5,127 5,006
Buildings............................ 9,886 9,816
Yard improvements.................... 9,966 10,077
Furniture and fixtures............... 1,026 983
Construction in process.............. 171 154
-------- --------
88,376 88,952
Less accumulated depreciation...... (61,960) (60,708)
-------- --------
$ 26,416 $ 28,244
======== ========
Accrued Liabilities JANUARY 31,
----------------------
1994 1993
-------- --------
Environmental accruals............... $ 972 $ 1,446
Accrued benefit plan contributions... 402 571
Accrued property taxes............... 239 450
Accrued litigation settlement costs.. 1,400 --
Accrued salaries..................... 147 97
Other accrued liabilities............ 1,625 367
-------- --------
$ 4,785 $ 2,931
======== ========
</TABLE>
4. SALES OF ASSETS
In October, 1993, substantially all of the assets of Prolerized Chicago
Corporation were sold to an unrelated third party for an aggregate consideration
of approximately $2.4 million. The sale resulted in a gain of approximately
$1.0 million. Net sales were $5.3 million, $1.4 million and $4.2 million and
cost of sales was $5.2 million, $2.0 million and $4.0 million in fiscal 1994,
1993 and 1992, respectively.
On June 25, 1992, Proler International Corp. sold its 255 shares of capital
stock in Maru Shipping Company, Inc. ("Maru") to Hugo Neu & Sons, Inc., Maru's
other 50% joint interest owner. The purchase price approximated the Company's
net investment as of January 31, 1992. Since the Company no longer has an
investment in Maru, its accounts have been eliminated in the accompanying
financial statements as of February 1, 1992. Maru had revenues of approximately
$2.3 million and operating expenses of approximately $1.9 million for the year
ended January 31, 1992.
61
<PAGE>
PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
5. EMPLOYEE BENEFIT PLANS
Six of the joint operations of the Company have adopted the employee defined
contribution plan of Hugo Neu & Sons, Inc. Contributions by the joint
operations to the trustee of the plan amounted to approximately $639,000,
$571,000 and $522,000 for the fiscal years 1994, 1993, and 1992, respectively.
One of the joint operations of the Company has adopted a separate pension
plan for all executive administrative employees. The plan, among other things,
provides for amortization of prior service costs over 30 years. The cost of the
plan was approximately $35,000 and $14,000 for the fiscal years 1994 and 1992,
respectively. No contribution was necessary in fiscal year 1993. This plan is
expected to be terminated in 1994.
In addition to the above plans, the processing and yard employees of several
of the joint operations are covered under union administered plans.
6. COMMITMENTS AND CONTINGENCIES
Commitments. The joint operations lease certain tracts of real estate and
improvements under cancelable and non-cancelable agreements. Total rental
expense was approximately $2,800,000, $2,900,000 and $2,600,000 in fiscal years
1994, 1993, and 1992, respectively. Minimum rental commitments under non-
cancelable leases as of January 31, 1994 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
JANUARY 31,
-----------
<S> <C> <C>
1995........ $ 489
1996........ 425
1997........ 425
1998........ 425
1999........ 425
Thereafter.. 245
------
$2,434
======
</TABLE>
Certain of these leases provide for additional rentals based on
increases of the fair market value of the property leased and call for payment
of property taxes by the lessor. In addition, most leases contain renewal
clauses.
Contingencies. Certain materials resulting from the Company's
operations must be handled consistent with federal and state environmental laws
and regulations. Compliance with such laws and regulations were an area of
concern to the Company as questions were being raised as to whether automobile
shredder residue, ("ASR" or "fluff") contains excessive concentrations of
certain heavy metals, polychlorinated biphenyls ("PCB's") and other
contaminants. A 1988 Environmental Protection Agency ("EPA") study released in
1990 concerning potential contamination in ASR indicated that the potential risk
depends on the constituent make up of the fluff and the management practices at
the sites where the fluff is generated. Pending further study, the EPA
recognized that shredding operations that are well managed and conducted in an
environmentally sound manner provide valuable environmental benefits. The
Company has successfully implemented source control programs to identify and to
reduce the sources of lead and certain other heavy metals in ASR. To date,
tests of ASR generated by joint operations indicate that levels of PCB's, lead,
cadmium, and other contaminants are generally within
62
<PAGE>
PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
acceptable levels under EPA and state procedures. The Company continues to
evaluate additional methods of further reducing contaminants in ASR. As with
any business that produces significant amounts of industrial wastes, the joint
operations could face substantial additional costs if past disposal practices
would no longer be deemed acceptable by the EPA or state regulatory agencies,
although it does not currently expect this result.
Hugo Neu-Proler Company ("HNP"), a 50% owned joint operation of the
Company, is involved in discussions with the Port of Los Angeles and the
California Regional Water Quality Control Board (the "RWQCB") concerning
proposals for remediation by HNP of certain environmental conditions at that
location. HNP and the Port have also been negotiating a renewal of the
Company's lease, which is due to expire on August 30, 1994. The Port is in the
completion stages of developing an Environmental Impact Report of HNP activities
and site conditions in connection with the lease renewal. Under the current
lease, HNP would be responsible for remediating certain environmental conditions
on the property caused by HNP, 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 December
1992, HNP signed a Memorandum of Understanding with the Port relating to the
lease renewal and in fiscal 1994 provided letters of credit totaling $7.9
million ($3.95 million each from the Company and HNP's other owner) to secure
HNP's remediation obligations under the lease. HNP is required to provide
additional letters of credit and/or incur additional costs of up to $2.0 million
(or $1.0 million by each joint owner) in connection with such environmental
obligations by September, 1994. HNP has accrued approximately $1.0 million to
cover the costs of anticipated remediation at this site.
Proler, its chairman, and HNP, among others, have been named as
defendants in a lawsuit pending in the United States District Court for the
Central District of California, by a former manager of HNP. The plaintiff
alleges causes of action arising out of his termination in December 1988. On
April 22, 1993, the parties entered into an agreement under which Proler would
pay plaintiff a total of $450,000 in settlement of this matter, of which at
least $175,000 would be covered by Proler's insurance. The settlement agreement
with Proler is contingent upon the implementation of a further settlement
agreement between the plaintiff and certain other defendants which requires
parties other than Proler and HNP to obtain certain tax rulings and court
approvals on matters unrelated to Proler and HNP. Trial is currently set for
November 15, 1994. The Court has granted several continuances to permit the
implementation of the settlement and it is anticipated that the Court will
continue to do so in the future if necessary.
In March, 1988, Proler commenced an action against Pick-Your-Part Auto
Wrecking, Inc. ("PYP") claiming that PYP breached a 1984 sales agreement
requiring PYP to sell certain scrap materials to Proler and HNP. PYP filed
certain counterclaims against Proler and HNP alleging breach of contract, breach
of good faith and fair dealing and fraud. The trial of this case began on March
7, 1994. On March 11, 1994, the parties entered into an agreement in settlement
of all litigation, claims and counterclaims pursuant to which HNP agreed to pay
PYP $1.1 million. PYP and HNP also entered into an agreement granting HNP a
right of first refusal to purchase PYP's scrap metals for a period of nine
years. HNP has accrued $1.4 million as of December 31, 1993 covering this
settlement and all of its remaining litigation expenses related to this matter.
63
<PAGE>
PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
The Company is also subject to certain other litigation and claims arising
in the ordinary course of business. In the opinion of management, the
disposition of these claims and lawsuits will not have a material adverse effect
on the Company's financial position and results of operations.
7. SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION
The Company is principally engaged in the processing of ferrous and non-
ferrous metals for recycling. Sales to unaffiliated customers which exceeded 10%
of total consolidated net sales were made to two customers in fiscal 1994 and
one customer in fiscal 1992. Sales to these customers were: 15% and 11% in 1994
and 12% in 1992 of total sales.
The table below summarizes the export sales by geographic area (dollars in
thousands).
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
--------------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
To Customers in Europe................. $ -- $ 3,709 $ 7,868
To Customers in the Far and Near East.. 263,661 170,925 181,131
To Customers in Mexico................. -- 1,590 3,996
To Customers in South America.......... 6,572 3,502 5,207
To Customers in Canada................. 10,009 220 208
To Other Export Customers.............. 4,005 598 --
-------- -------- --------
Total Export Sales.................... $284,247 $180,544 $198,410
======== ======== ========
</TABLE>
64
<PAGE>
PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
FOR THE THREE YEARS ENDED JANUARY 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
===========================================================================================================
COL. A COL. B COL. C COL. D COL. E COL. F
- -----------------------------------------------------------------------------------------------------------
OTHER
BALANCE AT CHANGES BALANCE AT
BEGINNING ADDITIONS ADD (DEDUCT) END OF
CLASSIFICATION OF PERIOD AT COST RETIREMENTS DESCRIBE (1) PERIOD
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
1994:
Land....................... $ 5,086 $ 29 $ 50 $ -- $ 5,065
------- ------- ----------- ----------- ----------
Depreciable property:
Machinery and equipment... 56,492 1,818 3,334 821 55,797
Floating equipment........ 1,338 -- -- -- 1,338
Automobiles, trucks and
trailers................. 5,006 697 576 -- 5,127
Buildings................. 9,816 95 52 27 9,886
Yard improvements......... 10,077 553 664 -- 9,966
Furniture and fixtures.... 983 66 23 -- 1,026
------- ------- ----------- ----------- ----------
83,712 3,229 4,649 848 83,140
Construction in progress... 154 865 -- (848) 171
------- ------- ----------- ----------- ----------
Total property, plant and
equipment................ $88,952 $ 4,123 $ 4,699 $ -- $ 88,376
======= ======= =========== =========== ==========
1993:
Land....................... $ 3,575 $ 1,511 $ -- $ -- $ 5,086
------- ------- ----------- ----------- ----------
Depreciable property:
Machinery and equipment... 55,551 1,254 313 -- 56,492
Floating equipment........ 7,620 -- 6,282 -- 1,338
Automobiles, trucks and
trailers................. 4,750 410 154 -- 5,006
Buildings................. 9,399 113 -- 304 9,816
Yard improvements......... 9,937 194 54 -- 10,077
Furniture and fixtures.... 1,000 91 108 -- 983
------- ------- ----------- ----------- ----------
88,257 2,062 6,911 304 83,712
Construction in progress... 543 158 243 (304) 154
------- ------- ----------- ----------- ----------
Total property, plant and
equipment................ $92,375 $ 3,731 $ 7,154 $ -- $ 88,952
======= ======= =========== =========== ==========
1992:
Land....................... $ 3,575 $ -- $ -- $ -- $ 3,575
------- ------- ----------- ----------- ----------
Depreciable property:
Machinery and equipment... 52,735 1,587 679 1,908 55,551
Floating equipment........ 7,620 -- -- -- 7,620
Automobiles, trucks and
trailers................. 5,577 165 337 (655) 4,750
Buildings................. 9,409 -- 10 -- 9,399
Yard improvements......... 9,543 212 60 242 9,937
Furniture and fixtures.... 896 126 29 7 1,000
------- ------- ----------- ----------- ----------
85,780 2,090 1,115 1,502 88,257
Construction in progress... 1,291 754 -- (1,502) 543
------- ------- ----------- ----------- ----------
Total property, plant and
equipment................ $90,646 $ 2,844 $ 1,115 $ -- $ 92,375
======= ======= =========== =========== ==========
</TABLE>
- -------------
(1) Transfer to fixed assets from construction in progress and
reclassification between certain categories.
65
<PAGE>
PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE THREE YEARS ENDED JANUARY 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
=====================================================================================================
COL. A COL. B COL. C COL. D COL. E COL. F
- -----------------------------------------------------------------------------------------------------
ADDITIONS OTHER
BALANCE AT CHARGED TO CHANGES BALANCE AT
BEGINNING COST AND ADD (DEDUCT) END OF
DESCRIPTION OF PERIOD EXPENSE RETIREMENTS DESCRIBE PERIOD
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994:
Depreciable property:
Machinery and equipment... $42,556 $3,402 $2,690 $ -- $43,268
Floating equipment........ 1,122 39 -- -- 1,161
Automobiles, trucks and
trailers................. 3,852 562 502 -- 3,912
Buildings................. 4,230 444 52 -- 4,622
Yard improvements......... 8,393 559 613 -- 8,339
Furniture and fixtures.... 555 126 23 -- 658
------- ------ ------ ------- -------
Total accumulated
depreciation............. $60,708 $5,132 $3,880 $ -- $61,960
======= ====== ====== ======= =======
1993:
Depreciable property:
Machinery and equipment... $39,325 $3,456 $ 225 $ -- $42,556
Floating equipment........ 4,767 39 3,684 -- 1,122
Automobiles, trucks and
trailers................. 3,498 474 120 -- 3,852
Buildings................. 3,776 454 -- -- 4,230
Yard improvements......... 7,748 700 55 -- 8,393
Furniture and fixtures.... 549 109 103 -- 555
------- ------ ------ ------- -------
Total accumulated
depreciation............. $59,663 $5,232 $4,187 $ -- $60,708
======= ====== ====== ======= =======
1992:
Machinery and equipment... $35,615 $3,581 $ 561 $ 690 $39,325
Floating equipment........ 4,401 366 -- -- 4,767
Automobiles, trucks and
trailers................. 3,954 644 306 (794) 3,498
Buildings................. 3,379 444 45 (2) 3,776
Yard improvements......... 6,911 790 57 104 7,748
Furniture and fixtures.... 461 112 26 2 549
------- ------ ------ ------- -------
Total accumulated
depreciation............. $54,721 $5,937 $ 995 $ -- $59,663
======= ====== ====== ======= =======
</TABLE>
(1) Reclassification between certain categories
66
<PAGE>
PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE THREE YEARS ENDED JANUARY 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B
-------------------------------------------- -------
<C> <S> <C>
1994:
1. Maintenance and repairs..................... $9,574
3. Taxes, other than payroll and income taxes.. $1,822
1993:
1. Maintenance and repairs..................... $7,797
3. Taxes, other than payroll and income taxes.. $ 818
1992:
1. Maintenance and repairs..................... $7,959
3. Taxes, other than payroll and income taxes.. $1,350
</TABLE>
Items 2, 4 and 5, depreciation and amortization of intangible assets;
preoperating costs and similar deferrals; royalties and advertising costs, have
been omitted in each year as they were either none or less than 1% of net sales
and revenues.
67
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1 Certificate of Incorporation of Proler International Corp. as
amended to date. (Filed as Exhibit III.1 to the Company's Form 10-K
for the fiscal year ended January 31, 1990 and incorporated herein
by reference.)
3.2 By-laws of Proler International Corp. as amended to date. (Filed as
Exhibit III.2 to the Company's Form 10-K for the fiscal year ended
January 31, 1993 and incorporated herein by reference.)
4.1 Rights Agreement dated as of September 26, 1988 between Proler
International Corp. and Texas Commerce Bank National Association.
(Filed as Exhibit 4.1 to the Company's Form 10-Q for the fiscal
quarter ended October 31, 1988 and incorporated herein by
reference.)
10.1 Joint Venture Agreement dated January 5, 1962, between Hugo Neu
Corporation and Proler Steel Corporation, related to Hugo Neu-Proler
Company. (Filed as Exhibit 13.1 to the Company's Registration
Statement No. 2-24928 and incorporated herein by reference.)
10.2 Amendments to Joint Venture Agreement dated January 5, 1962. (Filed
as Exhibit 13.1(a) to the Company's Registration Statement No. 2-
40782 and incorporated herein by reference.)
10.3 Joint Venture Agreement dated October 13, 1965, between Hugo Neu-
Steel Products, Inc. and Proleride Transport Systems, Inc., related
to Prolerized New England Company. (Filed as Exhibit 13.15 to the
Company's Registration Statement No. 2-24928 and incorporated herein
by reference.)
10.4 Amendments to Joint Venture Agreement dated October 13, 1965.
(Filed as Exhibit 13.2(a) to the Company's Registration Statement
No. 2-40782 and incorporated herein by reference.)
10.5 Guaranty Agreement dated October 13, 1965, relating to Prolerized
New England Company. (Filed as Exhibit 13.2(b) to the Company's
Registration Statement No. 2-40782 and incorporated herein by
reference.)
10.6 Joint Venture Agreement dated June 27, 1966, between Proler Steel
Corporation, Hugo Neu Corporation and Schiavone-Bonomo Corporation
related to Prolerized Schiabo-Neu Company. (Filed as Exhibit 13.22
to the Company's Registration Statement No. 2-24928 and incorporated
herein by reference.)
10.7 Amendments to Joint Venture Agreement dated June 27, 1966. (Filed
as Exhibit 13.4(a) to the Company's Registration Statement No. 2-
40782 and incorporated herein by reference.)
</TABLE>
68
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.8 Lease Agreement dated August 1, 1974 between The City of Los Angeles
and Hugo Neu & Sons, Inc. and Proler Steel Corporation. (Filed as
Exhibit X.12 to Company's Form 10-K for the fiscal year ended
January 31, 1981 and incorporated herein by reference.)
10.9 Split Dollar Agreement between Proler International Corp. and Elaine
Proler, effective as of September 12, 1980. (Filed as Exhibit X.15
to Company's Form 10-K for the year ended January 31, 1982 and
incorporated herein by reference.)*
10.10 Proler International Corp. Medical Reimbursement Plan as amended and
restated effective February 1, 1991. (Filed as Exhibit X.12 to the
Company's Form 10-K for the fiscal year ended January 31, 1992 and
incorporated herein by reference.)*
10.11 Order No. 5472 dated November 6, 1985, approved the first amendment
to permit No. 266 to Hugo Neu-Proler Company and resets compensation
to be paid under the lease agreement dated August 1, 1974 for the
period commencing August 31, 1984 through August 30, 1989. (Filed
as Exhibit X.15 to Company's Form 10-K for the year ended January
31, 1986 and incorporated herein by reference.)
10.12 Amendment to Joint Venture Agreement dated August 2, 1962. (Filed
as Exhibit 13.5 to the Company's Registration No. 2-24928 and
incorporated herein by reference.)
10.13 Letter Agreement dated December 1, 1987, between Proler
International Corp. and Robert L. Mueller regarding salary
continuation upon severance of employment. (Filed as Exhibit X-17
to the Company's Form 10-K for the year ended January 31, 1988 and
incorporated herein by reference.)*
10.14 Proler International Corp. Deferred Compensation Agreement for
Robert L. Mueller dated December 1, 1987, as amended January 3,
1994.*
10.15 Severance Agreement dated December 20, 1993 between Robert Mueller
and Proler International Corp.*
10.16 Proler International Corp. Deferred Compensation Agreement for
Herman Proler dated December 22, 1987, as amended December 21, 1989.
(Filed as Exhibit X.19 to the Company's Form 10-K for the fiscal
year ended January 31, 1990 and incorporated herein by reference.)*
10.17 Proler International Corp. Executive Deferred Compensation Plan
dated December 31, 1989. (Filed as Exhibit X.20 to the Company's
Form 10-K for the fiscal year ended January 31, 1990 and
incorporated herein by reference.)*
</TABLE>
69
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.18 HPI Joint Venture Agreement between Hugo Neu & Sons Inc., the
Company and Intercontinent Chartering Corporation dated May 25, 1989
(Filed as Exhibit X.21 to the Company's Form 10-K for the fiscal
year ended January 31, 1991 and incorporated herein by reference.)
10.19 HPNJ Joint Venture Agreement between Hugo Neu & Sons Inc. and the
Company dated May 25, 1989 (Filed as Exhibit X.22 to the Company's
Form 10-K for the fiscal year ended January 31, 1991 and
incorporated herein by reference.)
10.20 Proler International Corp. 1988 Stock Option Agreement (Filed as
Exhibit X.23 to the Company's Form 10-K for the fiscal year ended
January 31, 1991 and incorporated herein by reference.)
10.21 First Amended and Restated Credit Agreement Between Proler
International Corp., Prolerized Steel Corporation, Proleride
Transport Systems, Inc., Proler Recycling, Inc. and Proler
Environmental Services, Inc., and Texas Commerce Bank National
Association, dated effective as of August 31, 1993. (Filed as
Exhibit 10 to the Company's Form 10Q for the Quarter ended October
31, 1993 and incorporated herein by reference).
10.22 Security Agreement dated August 31, 1992 by and among the Company,
Prolerized Steel Corporation, Proleride Transport Systems, Inc.,
Proler Environmental Services, Inc. and Texas Commerce Bank National
Association (Filed as Exhibit X.25 to the Company's Form 10-K for
the fiscal year ended January 31, 1993 and incorporated herein by
reference.)
10.23 Proler International Corp. Deferred Compensation Agreement for
Norman Bishop dated effective April 16, 1993. (Filed as Exhibit X to
the Company's Form 10Q for the Quarter ended April 30, 1993 and
incorporated herein by reference).*
10.24 Proler International Corp. 1993 Incentive Compensation Plan.
21 Subsidiaries of Proler International Corp.
23 Consents of Accountants
</TABLE>
- --------------------
* Indicates an agreement with management.
70
<PAGE>
PROLER INTERNATIONAL CORP.
DEFERRED COMPENSATION PLAN
FOR
ROBERT L. MUELLER
Proler International Corp., a Delaware corporation (the
"Corporation'), hereby establishes this Deferred Compensation Plan
(the "Plan"), for the purpose of providing additional compensation
on a deferred basis to Robert L. Mueller ("Mueller").
I. The Effective Date of the Plan shall be December 11, 1987.
----------------------------------------------------------
II. Payment of Deferred Compensation
--------------------------------
A. Mueller shall receive as deferred compensation an
aggregate amount of $1,125,000, payable in monthly installments of
$9,375 each, with the first such installment due and payable on
January 1, 1995 and subsequent installments due and payable of the
first day of each succeeding month until 120 installments have been
paid.
B. If Mueller does not live to receive all of the
installments of deferred compensation to which he is entitled under
the terms of this Plan, the balance of the installments remaining
unpaid at the date of his death shall be paid to the beneficiary or
beneficiaries designated by Mueller or, if no such designation has
been made, to the executor or administrator of Mueller's estate or
to his heirs at law if no administration is had on Mueller's
estate.
III. Forfeiture of Deferred Compensation.
------------------------------------
For purposes of the preceding paragraph, the term
"Corporation" shall include subsidiaries of the Corporation and
joint ventures to which the Corporation or its subsidiaries are
parties. Payment of deferred compensation to Mueller under the
Plan may also be terminated by the Corporation if Mueller breaches
any of his obligations under Articles Ninth or Tenth of that
certain Severance Agreement between the Corporation and Mueller
dated as of December 20, 1993.
IV. Assignment.
-----------
<PAGE>
Mueller, his designated beneficiaries, spouse and his heirs
shall have no right to commute, sell, transfer, assign or otherwise
convey any right to receive any payment under this Plan. Any such
attempted assignment or transfer shall terminate such Mueller's
participation in the Plan and the Corporation shall have no further
liability to him hereunder.
V. Governing Law.
--------------
This Plan shall be subject to and construed under the laws of
the State of Texas.
<PAGE>
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT is made and entered into as of
December 20, 1993, by and between Robert L. Mueller (hereinafter
referred to as "Mueller") and Proler International Corp.
(hereinafter referred to as the "Company").
WITNESSETH:
-----------
WHEREAS, Mueller is currently employed as the President and
Chief Operating Officer of the Company, and also serves as a
Director of the Company and as an officer or director of certain
subsidiaries and affiliates of the Company;
WHEREAS, Mueller desires to resign from his employment as the
President and Chief Operating Officer of the Company, as well as
from his position as a Director of the Company and any and all
offices and directorships of subsidiaries and affiliates of the
Company;
WHEREAS, the Company desires to accept the aforesaid
resignations of Mueller; and
WHEREAS, Mueller and the Company mutually desire to avoid and
resolve any and all actual and potential differences between them,
including, without limitation, differences arising out of Mueller's
employment with the Company and Mueller's receipt of compensation
and benefits from the Company;
NOW, THEREFORE, in consideration of the premises and mutual
promises herein contained, it is mutually agreed as follows:
FIRST: Mueller hereby tenders, and the Company hereby
accepts, Mueller's immediate resignation from (i) his employment as
the President and Chief Operating Officer of the Company, (ii) his
position as a Director of the Company and (iii) all offices and
directorships of subsidiaries and affiliates of the Company.
SECOND: In any and all press releases and other public
communications made by either party, the sole stated reason for the
Mueller's resignation shall be that Mueller has retired to pursue
personal interests; provided, however, that neither the making of
such statements nor Mueller's resignation itself are to be
construed as meaning or suggesting that Mueller has retired or is
retiring by or for reason of his age. Rather, Mueller and the
<PAGE>
Company expressly agree that Mueller's resignation is for personal
reasons and is not due to his age and should not be considered a
retirement by or for reason of Mueller's age.
THIRD: For purposes of the "Salary Continuation Agreement"
between Mueller and the Company (hereinafter called the "SCA"),
evidenced by a letter agreement dated December 1, 1987, the Company
shall treat Mueller's resignation as a termination without cause,
and will provide Mueller with the benefits specified in Section 1
of the SCA through June 30, 1994. These benefits shall include
Mueller's continuing participation in the Company's Medical
Reimbursement Plan, as well as the use of his company car, until
June 30, 1994. The Company shall bear the cost of maintenance and
Mueller shall bear the fuel costs with respect to such car.
FOURTH: The "Proler International Corp. Deferred Compensation
Agreement for Robert L. Mueller" shall be amended to, among other
things, (i) provide Mueller with $1,125,000.00 in aggregate amount
of deferred compensation payable in 120 monthly installments of
$9,375.00 each beginning on January 1, 1995; and (ii) make
Mueller's non-competition obligation applicable to the business of
subsidiaries and affiliates of the Company. Eight business days
after execution of this Agreement by Mueller, the Company and
Mueller shall execute the Amendment to the Deferred Compensation
Agreement attached hereto as Exhibit A (such agreement, as amended,
hereinafter called the "DCA").
FIFTH: Eight business days after the execution of this
Agreement by Mueller, the stock option agreement under which the
Company granted to Mueller effective June 15, 1993, an option to
purchase 8,000 shares of the Company's Common Stock at a price of
$8.00 per share, shall be amended so that the option may be
exercised at any time after January 1, 1994 and before June 30,
1994 and shall expire on midnight of June 30, 1994.
SIXTH: All options granted to Mueller under the Company's
1988 Stock Option Plan, other than the option referred to in
Article Fifth above and the options to purchase 9,000 shares at $14
per share granted on December 7, 1990, are hereby terminated; and
Mueller shall surrender to the Company all stock option agreements
evidencing such terminated options.
SEVENTH: The Company shall pay Mueller an aggregate amount of
$84,000 as a severance payment, such amount to be paid in six
monthly installments of $14,000 each beginning January 31, 1994.
<PAGE>
EIGHTH: Mueller shall provide consulting services to the
Company, as an independent contractor and not as an employee, for
the period from January 1, 1994 through December 31, 1994. Mueller
shall consult and cooperate with and advise the officers of the
Company or the Board of Directors of the Company as and when
requested by any of them upon reasonable notice, to the best of
Mueller's ability, with respect to such matters involving the
business and affairs of the Company as they may request or present
to Mueller. Such services shall include but not be limited to
consultation on matters for which Mueller was responsible during
his employment by the Company. Mueller shall not be required to
provide more than 240 hours of consulting services in the aggregate
or more than 40 hours in any calendar month. The Company shall
reimburse Mueller for reasonable travel expenses incurred by
Mueller if he travels at the Company's request while providing
consulting services. It is understood that Mueller's availability
to render consulting services at the times and places requested by
the Company is subject to his absences on account of illness,
reasonable vacations and other consulting obligations or business
commitments that Mueller may have. The Company agrees to cooperate
with Mueller in scheduling consulting services requested by it to
reasonably accommodate such competing interests, and Mueller agrees
to use his best efforts to comply with, and to give priority to,
the Company's request for services.
NINTH: Mueller shall not, during the consulting period
provided for in Article Eighth hereof and until December 31, 1994,
directly or indirectly, participate in the ownership, operation, or
control of or be connected as an officer, employee, partner,
director or otherwise with or act as a consultant or adviser to any
person, firm or other entity that is engaged in competition with
the Company in any of the businesses being conducted by the Company
on the date of this Agreement in any geographic area where the
Company currently conducts such businesses. For purposes of this
Article Ninth, the term "Company" shall include all subsidiaries
and affiliates of the Company and all joint ventures in which the
Company or its subsidiaries have an interest. It is expressly and
mutually agreed that the foregoing restriction on competition
contains reasonable geographic, temporal and activity restrictions
that are necessary to protect the Company's legitimate business
interests, and have been fashioned by both parties to achieve that
protection.
TENTH: Mueller agrees that he will not without the written
consent of the Board of Directors of the Company (i) use for his
benefit or disclose any information obtained or developed by him
<PAGE>
while in the employ of the Company or information relating to any
customers, suppliers, products, employees, financial affairs, or
methods of operation, design, distribution, procurement or
production, of the Company or any of its subsidiaries, affiliates
or joint ventures, or any confidential matter, except information
which at the time is available to others in the business or
generally known to the public other than as a result of disclosure
by him not permitted hereunder, or (ii) take with him upon leaving
the Company's employ, any document or paper relating to any of the
foregoing or any other property of the Company or any of its
subsidiaries, affiliates or joint ventures. Without limiting the
foregoing, Mueller acknowledges that the confidential information
covered by this Article Tenth includes all technical and other
information related to (i) the gasification by thermal treatment of
hydrocarbon and/or cellulose based material (solids and liquids),
(ii) the design, construction, operation and commercialization of
plants utilizing such gasification technology and (iii) the
commercialization and exploitation of such gasification technology.
ELEVENTH: Mueller acknowledges that the Company's business is
highly competitive and that a violation on his part of any of the
covenants set forth in Articles Ninth and Tenth hereof would cause
immeasurable and irreparable damage to the Company and its
subsidiaries, affiliates and joint ventures. Mueller accordingly
agrees, without limiting the remedies available, that any violation
of any of such covenants may be enjoined by any court of competent
jurisdiction.
TWELFTH: Mueller shall be withdrawn as a participant in the
"Proler International Corp. 1993 Incentive Compensation Plan," and
shall be entitled to no award thereunder.
THIRTEENTH: The Company acknowledges that Mueller is 100%
vested in the Company's 401(k) Plan. Mueller's rights and
obligations with respect to the 401(k) Plan shall be determined in
accordance with the provisions of the plan. Mueller and his spouse
shall be offered an opportunity to continue their group health plan
coverage under the Company's Group Insurance Plan in accordance
with the requirements of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"). To the extent
that (i) Mueller and his spouse each elect to continue their
coverage under the Company's Group Insurance Plan pursuant to COBRA
("COBRA coverage") and (ii) Mueller or his spouse is actually
receiving COBRA coverage, then Company agrees that, for the first
six (6) months of COBRA coverage only, Mueller and his spouse shall
be charged (subject to reimbursement under the Company's Medical
<PAGE>
Reimbursement Plan) a monthly premium for COBRA coverage that shall
be the same as if Mueller had not terminated employment and had
continued to cover himself and his spouse under the Company's Group
Insurance Plan. Thereafter, Mueller and his spouse shall be
required to pay the standard premium rate for COBRA coverage as
determined by the Company in accordance with its usual procedures
for COBRA compliance. Furthermore, Mueller understands and agrees
that the availability of and limitations on any such continuing
coverage shall be determined in accordance with the provisions of
COBRA.
FOURTEENTH: Mueller shall fully, completely and freely
cooperate with the Company, and its attorneys and other agents, in
preparing for and pursuing or defending any actual or threatened
legal action, in whatever forum, in which the Company or one of its
subsidiaries is or may become a party without seeking or receiving
compensation, except for reimbursement of reasonable travel
expenses incurred at the Company's request.
FIFTEENTH: Mueller shall remove from the Company's offices
all personal property belonging to him before January 5, 1994.
SIXTEENTH: In consideration of the payments and agreements
contained in this Agreement, and with the exception of rights
created by or pursuant to this Agreement, the SCA, and the DCA,
Mueller does hereby fully and forever release, acquit, forgive and
forever discharge the Company, its directors, officers, employees,
attorneys and subsidiaries from any and all claims, demands and
causes of action whatsoever, of every name, nature of description,
whether arising out of contract, tort or otherwise and whether
based on common law, statute or administrative regulation, and
whether known or unknown, which Mueller now has or might have,
including without limitation those in any way relating to Mueller's
service as a director or officer of, or his employment by, the
Company or any of its subsidiaries or the termination of any such
service or employment.
SEVENTEENTH: In consideration of the mutual promises and
agreements contained in this Agreement, and with the exception of
rights created by or pursuant to this Agreement, the SCA and the
DCA, the Company does hereby fully and forever release, acquit,
forgive and discharge Mueller, his successors and assigns, from any
and all claims, demands and causes of action whatsoever, of every
name, nature of description, whether arising out of contract, tort
or otherwise and whether based on common law, statute or
administrative regulation, and, whether known or unknown, which the
<PAGE>
Company now has or might have, including without limitation all
claims in any way relating to Mueller's service as a director or
officer of, or his employment by, the Company or any of its
subsidiaries or the termination of any such service or employment.
EIGHTEENTH: The Company shall have the right to withhold from
any amount payable to Mueller hereunder or under the DCA or the SCA
amounts sufficient to satisfy any withholding tax requirements.
NINETEENTH: Mueller acknowledges that he:
(1) has received and has read this Severance Agreement,
including all Exhibits;
(2) is fully informed of the terms, conditions and
effect of signing this Severance Agreement;
(3) has had ample opportunity to ask questions of
Company personnel and to obtain the advice of
competent legal and other counsel and/or advisors
concerning the terms, conditions and effects of
signing this Severance Agreement, including all
Exhibits;
(4) has relied solely on his own judgment and on the
advice of such counselors and advisors with whom he
has considered it appropriate, desirable, or
necessary to consult in making the decision to sign
this Severance Agreement;
(5) has made his decision voluntarily without any
pressure from the Company or its employees either
to accept or reject this Severance Agreement;
(6) understands that he has seven days following his
execution of this Severance Agreement to revoke
such acceptance; and
(7) understands that any such revocation of his prior
acceptance of this Severance Agreement must be done
in writing and be delivered to the Company at 4265
San Felipe, Suite 900, Houston, Texas 77027.
TWENTIETH: If within seven days following Mueller's
acceptance of this Agreement, Mueller revokes such acceptance in
accordance with clauses (6) and (7) of Article Nineteenth, then all
<PAGE>
of the rights and obligations of the parties hereunder shall be
deemed rescinded and the parties shall be restored to their
respective rights and obligations as they existed immediately prior
to execution of this Agreement.
TWENTY-FIRST: This Severance Agreement is made and entered
into in the State of Texas, and shall in all respects be
interpreted, enforced and governed under the laws of the State of
Texas. The language of all parts of this Severance Agreement shall
in all cases be construed as a whole, according to its fair
meaning, and not strictly for or against any of the parties.
TWENTY-SECOND: Should any provision of this Severance
Agreement be declared or be determined by any court to be
unenforceable or invalid as drafted, it may and shall be reformed
or modified by a court of competent jurisdiction to the form of an
enforceable and valid provision that achieves, to the greatest
extent possible, the result intended by the parties in drafting and
agreeing to the unenforceable and invalid provision. Should a court
of competent jurisdiction decline to so reform or modify such a
provision or determine that no enforceable and valid provision can
be created to achieve the intended result, the unenforceability and
invalidity of the remaining parts, terms or provisions of this
Severance Agreement shall not be affected thereby and said
unenforceable or invalid part, term, or provision shall be deemed
not to be a part of this Severance Agreement.
TWENTY-THIRD: This Severance Agreement sets forth the entire
agreement between the parties hereto, and fully supersedes any and
all prior agreements or understanding between the parties hereto
pertaining to the subject matter hereof.
EXECUTED on the dates set forth below, but effective as of the
20th day of December 1993.
PROLER INTERNATIONAL CORP.
By:______________________________________
Date:____________________________________
_________________________________________
Robert L. Mueller
Date:____________________________________
<PAGE>
EXHIBIT A
SECOND AMENDMENT TO
PROLER INTERNATIONAL CORP.
DEFERRED COMPENSATION AGREEMENT
FOR ROBERT L. MUELLER
THIS AMENDMENT, dated this 3rd day of January, 1994, to that
certain Deferred Compensation Agreement entered into by and between
Proler International Corp. (the "Corporation"), and Robert L.
Mueller ("Mueller"), dated the 1st day of December, 1987;
W I T N E S S E T H:
--------------------
WHEREAS, the Corporation and Mueller entered into that certain
Deferred Compensation Agreement dated December 1, 1987 providing
for the payment of deferred compensation by the Corporation to
Mueller, and amended said agreement effective December 31, 1989
(such agreement as amended herein called the "Agreement"); and
WHEREAS, the Corporation and Mueller believe that it is in
their mutual best interests to modify the Agreement as hereinafter
set forth;
NOW, THEREFORE, in consideration of the mutual promises of the
parties herein contained, the parties hereto agree as follows:
1. Section II of the Agreement is hereby amended so as
hereafter to read in its entirety as follows:
"II. Payment of Deferred Compensation
--------------------------------
A. Mueller shall receive as deferred compensation
an aggregate amount of $1,125,000, payable in monthly
installments of $9,375 each, with the first such
installment due and payable on January 1, 1995 and
subsequent installments due and payable of the first day
of each succeeding month until 120 installments have been
paid.
B. If Mueller does not live to receive all of the
installments of deferred compensation to which he is
entitled under the terms of this Plan, the balance of the
<PAGE>
installments remaining unpaid at the date of his death
shall be paid to the beneficiary or beneficiaries
designated by Mueller or, if no such designation has been
made, to the executor or administrator of Mueller's
estate or to his heirs at law if no administration is had
on Mueller's estate."
2. Section III and IV of the Agreement are hereby deleted.
3. Section V of the Agreement is hereby renumbered as
Section III and amended by adding thereto the following paragraph:
"For purposes of the preceding paragraph, the term
"Corporation" shall include subsidiaries of the Corporation
and joint ventures to which the Corporation or its
subsidiaries are parties. Payment of deferred compensation to
Mueller under the Plan may also be terminated by the
Corporation if Mueller breaches any of his obligations under
Articles Ninth or Tenth of that certain Severance Agreement
between the Corporation and Mueller dated as of December 20,
1993."
4. Section VI of the Agreement is hereby deleted.
5. Section VIII of the Agreement is hereby renumbered as
Section IV.
6. Section IX of the Agreement is hereby deleted.
7. Section X of the Agreement is hereby renumbered as
Section V.
8. The Plan as hereinabove amended is hereby ratified and,
as so amended, shall read in its entirety as set forth on Annex A
hereto.
<PAGE>
ANNEX A
PROLER INTERNATIONAL CORP.
DEFERRED COMPENSATION PLAN
FOR
ROBERT L. MUELLER
Proler International Corp., a Delaware corporation (the
"Corporation'), hereby establishes this Deferred Compensation Plan
(the "Plan"), for the purpose of providing additional compensation
on a deferred basis to Robert L. Mueller ("Mueller").
I. The Effective Date of the Plan shall be December 11, 1987.
----------------------------------------------------------
II. Payment of Deferred Compensation
--------------------------------
A. Mueller shall receive as deferred compensation an
aggregate amount of $1,125,000, payable in monthly installments of
$9,375 each, with the first such installment due and payable on
January 1, 1995 and subsequent installments due and payable of the
first day of each succeeding month until 120 installments have been
paid.
B. If Mueller does not live to receive all of the
installments of deferred compensation to which he is entitled under
the terms of this Plan, the balance of the installments remaining
unpaid at the date of his death shall be paid to the beneficiary or
beneficiaries designated by Mueller or, if no such designation has
been made, to the executor or administrator of Mueller's estate or
to his heirs at law if no administration is had on Mueller's
estate.
III. Forfeiture of Deferred Compensation.
------------------------------------
For purposes of the preceding paragraph, the term
"Corporation" shall include subsidiaries of the Corporation and
joint ventures to which the Corporation or its subsidiaries are
parties. Payment of deferred compensation to Mueller under the
Plan may also be terminated by the Corporation if Mueller breaches
any of his obligations under Articles Ninth or Tenth of that
certain Severance Agreement between the Corporation and Mueller
dated as of December 20, 1993.
<PAGE>
IV. Assignment.
-----------
Mueller, his designated beneficiaries, spouse and his heirs
shall have no right to commute, sell, transfer, assign or otherwise
convey any right to receive any payment under this Plan. Any such
attempted assignment or transfer shall terminate such Mueller's
participation in the Plan and the Corporation shall have no further
liability to him hereunder.
V. Governing Law.
--------------
This Plan shall be subject to and construed under the laws of
the State of Texas.
<PAGE>
PROLER INTERNATIONAL CORP.
1993 INCENTIVE COMPENSATION PLAN
ARTICLE I
DEFINITIONS
As used in this Plan, the following capitalized terms have the meanings
hereinafter set forth, unless the context reasonably requires different meaning.
1.1 Award. "Award" means the amount determined under Section 5.2.
1.2 Beneficiary. "Beneficiary" means a person designated by the
Participant, in accordance with Section 6.5, to receive any portion of any Award
distributable under the Plan on account of the death of the Participant.
1.3 Board. "Board" means the Board of Directors of the Company.
1.4 Code. "Code" means the Internal Revenue Code of 1986, as amended.
1.5 Committee. "Committee" means the Compensation Committee of the Board.
1.6 Company. "Company" means Proler International Corp., a Delaware
corporation, or any successor which assumes the Plan.
1.7 Company Stock. "Company Stock" shall mean shares of the Company's
common stock, $1.00 par value, including those reserved under Section 2.2 for
issuance in connection with any stock payment under Section 6.3.
1.8 Disability. "Disability" means a physical or mental impairment that, in
the discretion of the Committee, prevents the Participant from performing the
material duties of his Employment with the Company or a Subsidiary.
1.9 Effective Date. "Effective Date" means May 10, 1993, the effective date
of the Plan.
1.10 Employee. "Employee" means a key Employee of the Company or of any
designated Subsidiary.
1.11 Employment. "Employment" means employment by the Company or a
Subsidiary. In this regard, neither the transfer of a Participant from
employment by the Company to employment by a Subsidiary nor the transfer of a
Participant from Employment by a Subsidiary
<PAGE>
to employment by the Company shall be deemed to be a termination of Employment
of the Participant. Moreover, the Employment of a Participant shall not be
deemed to have been terminated because of his absence from active employment on
account of temporary illness or during authorized vacation or during temporary
leaves of absence from active employment granted by the Company or a Subsidiary
for reasons of professional advancement, education, health, or government
service, or during military leave for any period if the Participant returns to
active employment within 90 days after the termination of his military leave, or
during any period required to be treated as a leave of absence by virtue of any
valid law or agreement.
1.12 Incentive Designation. "Incentive Designation" means a separate
written notice prepared each year by the Committee for each Participant that (i)
is subject to the terms and provisions of the Plan, (ii) is signed by a member
of the Committee, and (iii) contains the Participant's Individual Incentive
Goals for the Year and the Participant's minimum, target and maximum Award for
the Year.
1.13 Individual Incentive Goal. "Individual Incentive Goal" or "Goal" means
a performance objective for the Year that is prescribed for a Participant by the
Committee and set out in the Participant's Incentive Designation.
1.14 Market Price. "Market Price" means the daily reported closing price
per share of Common Stock on the New York Stock Exchange for the day upon which
the Market Price is to be determined or the last preceding trade date if no
trading of the Company Stock occurs on the date for which the Market Price is to
be determined. In the event the Company Stock is no longer publicly traded, the
Market Price of the Company Stock as of a particular date shall be determined
using such method as shall be determined by the Committee.
1.15 Participant. "Participant" means each Employee of the Company or a
Subsidiary who at any time during the Year is selected by the Committee to
participate in the Plan.
1.16 Plan. "Plan" means the Proler International Corp. 1993 Incentive
Compensation Plan, as set forth herein, and as it may hereafter be amended from
time to time.
1.17 Subsidiary. "Subsidiary" means any wholly-owned subsidiary of the
Company or of any wholly-owned subsidiary thereof or any other corporation or
business venture in which the Company owns, directly or indirectly, a
significant financial interest if the Committee designates such corporation or
business venture to be a Subsidiary for the purposes of this Plan for any Year,
and if the board of directors (or equivalent governing authority) of such
corporation or business venture consents to being designated as a Subsidiary.
1.18 Year. "Year" means the twelve-month period corresponding to the fiscal
year of the Company.
ARTICLE II
PURPOSE AND COMPANY STOCK RESERVE
<PAGE>
2.1 Purpose. The purpose of the Plan is to promote the growth and general
prosperity of the Company, motivate key Employees to achieve strategic,
financial and operating objectives, reward improvement in financial
performances, offer a total compensation package that is competitive in the
industry thus permitting the Company to attract and retain superior personnel
for positions of substantial responsibility, and to provide key Employees with
an additional incentive to contribute to the success of the Company.
2.2 Company Stock Reserve. A Company Stock reserve shall be established to
which shall be credited 100,000 shares of Company Stock. In the event that the
shares of Company Stock should, as a result of a stock split or stock dividend
or combination of shares or any other change, or exchange for other securities,
by reclassification, reorganization, merger, consolidation, recapitalization or
otherwise, be increased or decreased or changed into or exchanged for a
different number or kind of shares of stock or other securities of the Company
or of another corporation, the number of shares then remaining in the Company
Stock reserve shall be appropriately adjusted to reflect such action. If any
such adjustment shall result in a fractional share, such fraction shall be
disregarded. Upon the distribution of shares as Awards hereunder, this reserve
shall be reduced by the number of shares so distributed, and upon the
reacquisition of any shares hereunder, the reserve shall be increased by such
number of shares and such reacquired shares shall again be subject to
distribution under the Plan. In the discretion of the Committee, distributions
of shares of Company Stock may be made from authorized but unissued shares or
from treasury shares. All authorized and unissued shares distributed in
accordance with the Plan shall be fully paid and nonassessable shares and free
from preemptive rights.
ARTICLE III
ADMINISTRATION
3.1 Composition of the Committee. The Plan shall be administered by the
Committee. The members of the Committee shall be "disinterested persons" as such
term is defined from time to time in Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, or any successor rule. The Committee shall designate a
secretary, without regard to whether that person is a member of the Committee,
who shall keep the minutes of the proceedings and all records, documents, and
data pertaining to its administration of the Plan. Meetings shall be held at
such times and places as shall be determined by the Committee.
3.2 Administration by Committee. Subject to the express provisions of the
Plan, the Committee shall have sole discretion and authority to determine from
among Employees the ones to whom and the times at which Awards may be made.
Subject to the express provisions of the Plan, the Committee shall also have
complete authority to interpret and construe the Plan, to prescribe, amend, and
rescind rules relating to it, to determine the provisions of Incentive
Designations, and to make all other determinations, including factual
determinations, that the Committee deems to be necessary or advisable in its
discretion for the administration of the Plan and the Awards made hereunder.
<PAGE>
3.3 Action by Committee. A majority of the members of the Committee shall
constitute a quorum for the transaction of business, and the vote of a majority
of those members present at any meeting at which a quorum is present shall
decide any question brought before the meeting and shall be the act of the
Committee. In addition, the Committee may take any other action otherwise proper
under the Plan by an affirmative vote, taken without a meeting, of a majority of
its members.
3.4 Reliance Upon Information. The Committee shall not be liable for any
decision or action taken in good faith in connection with the administration of
the Plan. Without limiting the generality of the foregoing, any such decision or
action taken by the Committee in reliance upon any information supplied to it by
any officer of the Company, the Company's legal counsel or the Company's
independent accountants in connection with the administration of the Plan shall
be deemed to have been taken in good faith.
ARTICLE IV
PARTICIPATION
4.1 Participation. For each Year, the Committee shall select those
Employees of the Company or a Subsidiary who shall be Participants. Selected
Employees shall be notified in writing as early as reasonably practical before
or during each Year. An Employee shall be a Participant in the Plan only with
respect to each Year for which he has been selected by the Committee and
selection as a Participant in one Year does not guarantee selection in any
subsequent Year. The Committee may withdraw its approval of an Employee's
participation at any time during the Year and, in such event, the Employee will
not be entitled to an Award hereunder for that Year, unless the Committee
determines otherwise in its discretion.
ARTICLE V
AWARD DETERMINATION
5.1 Assignment of Individual Incentive Goals. As early as practical before
or during each Year, the Committee shall, in its discretion, assign Individual
Incentive Goals for each Participant, which Goals shall be incorporated into an
Incentive Designation for the Participant. An Individual Incentive Goal shall
either be (i) a specific job assignment or a quantitative financial performance
objective for the Year or (ii) a subjective and qualitative assessment made by
the Committee concerning the Participant's overall performance level and his
particular contributions to the Company's success during the Year.
The Committee shall assign such percentage weight factors to the Individual
Incentive Goals as it considers appropriate in its discretion, and such factors
shall also be incorporated into the Participant's Incentive Designation. The
total of the percentage weight factors shall be 100%.
<PAGE>
An appropriate performance range shall be established by the Committee for
each Individual Incentive Goal and incorporated into the Participant's Incentive
Designation. The key performance points are as follows:
(a) Minimum Performance. The minimum performance level below which the
Individual Incentive Goal will not be achieved. Performance at this
level would earn the minimum portion of the Award that is allocated to
the particular Individual Incentive Goal being evaluated.
(b) Target Performance. The performance level chosen for the Year as the
desired and expected level of performance. The target performance
shall be set at a challenging but realistically achievable level.
Performance at this level would earn the target portion of the Award
that is allocated to the particular Individual Incentive Goal being
evaluated.
(c) Maximum Performance. The performance level chosen for the Year that
would be exceptional or significantly beyond the target level.
Performance at this level would earn the maximum portion of the Award
that is allocated to the particular Individual Incentive Goal being
evaluated.
All determinations concerning the extent to which any Goal has been
achieved shall be made by the Committee in its discretion. The Committee shall
have the power to add, delete or modify Individual Incentive Goals, and their
corresponding weighted percentages, at any time during a Year in its discretion
in order to reflect organizational, financial, and business strategy objectives.
5.2 Award Determination. The Incentive Designation shall incorporate a
minimum, target and maximum Award, expressed as percentages of the Participant's
annual base salary for the Year, which percentages shall be determined in the
discretion of the Committee, provided that such percentages shall be less than
100% of the Participant's annual base salary. As soon as practical after the end
of a Year, the Committee shall determine the actual amount of the Award, if any,
payable to the Participant based on its determination of the extent to which the
Participant has achieved his Individual Incentive Goals for the Year and the
percentage weighting factors that are assigned to each such Goal.
5.3 Effect of Awards on Shareholder Status. No Participant shall have
rights as a shareholder with respect to shares of Company Stock payable under
the Plan until issuance of a certificate or certificates for such shares.
Accordingly, no Participant shall have any right to vote, sell, exchange,
transfer, pledge, hypothecate, dispose of or otherwise exercise any rights of a
shareholder with respect to Company Stock allocated under Section 6.3 to an
Award until issuance of a certificate or certificates for such shares.
ARTICLE VI
DISTRIBUTIONS AND PAYMENTS
<PAGE>
6.1 Payor of Awards. Subject to the following provisions hereof, any Award
payable under the Plan with respect to a Participant for a given Year shall be
the obligation of, and paid by, the Company.
6.2 Cash Payment. Seventy-five percent (75%) of the Award is to be paid by
the Company to the Participant in the form of a single sum payment in cash as
soon as administratively practicable following the last day of the Year;
provided, however, the Committee reserves the right to change, in its
discretion, at any time and from time to time, the percentage of Awards payable
in cash, provided that in the case of an Award included in an Incentive
Designation that has been delivered to a Participant, the Participant is
notified of any such change prior to his receipt of the Award. The Company shall
deduct from the portion of the Award that is paid in cash any taxes required to
be withheld for federal, state or local taxes.
6.3 Stock Payment
(a) Amount, Vesting, Timing of Payment of Company Stock. Twenty-five
percent (25%) of the Award is to be paid in the form of Company Stock;
provided, however, the Committee reserves the right to change or to
eliminate, in its discretion, at any time and from time to time, the
percentage of Awards payable in Company Stock, provided that (i) the
percentage payable in Company Stock does not exceed 50% and (ii) in the
case of an Award included in an Incentive Designation that has been
delivered to a Participant, the Participant is notified of any such change
prior to his receipt of the Award. The number of shares of Company Stock
shall be determined by dividing the portion of the Award payable in Company
Stock by the Market Price of the Company Stock on the first day of the Year
to which the Award pertains; provided, however, that for the year ending
January 31, 1994 such number of shares of Company Stock shall be determined
by dividing the portion of the Award payable in Company Stock by the Market
Price of the Company Stock on the date the Plan is approved by the
Committee. Subject to Sections 6.4, 6.5 and 6.6, the shares of Company
Stock determined in accordance with the immediately preceding sentence
shall vest thirty-three and 1/3 percent (33.33%) on each anniversary of the
last day of the Year to which the Award pertains as long as the Participant
remains in Employment on each such anniversary date. Subject to Sections
6.4, 6.5 and 6.6, in the event that a Participant fails to be in Employment
on an anniversary date, any nonvested shares of Company Stock shall be
forfeited, in which event such shares shall become available for any other
stock payment due to any Participant who is or may become entitled to a
stock payment under the Plan. Subject to Section 6.3(c) and Section 6.3(d),
vested shares of Company Stock, but not any shares of Company Stock which
are not vested, shall be paid by the Company as soon as administratively
practicable following each anniversary of the last day of the Year to which
an Award pertains, commencing with the first anniversary of the last day of
such Year and continuing with each anniversary thereafter on which the
Participant is in Employment, until all vested shares of Company Stock
payable under the Plan with respect to each Award have been paid to the
Participant entitled thereto.
(b) Adjustments for Changes in the Company's Capital Structure. In the
event that the shares of Company Stock should, as a result of a stock split
or stock dividend
<PAGE>
or combination of shares or any other change, or exchange for other
securities, by reclassification, reorganization, merger, consolidation,
recapitalization or otherwise, be increased or decreased or changed into or
exchanged for a different number or kind of shares of stock or other
securities of the Company or of another corporation, the number of shares
then allocated for the stock payment portion of an Award shall be
appropriately adjusted to reflect such action. If any such adjustment shall
result in a fractional share, such fraction shall be disregarded. In the
event any such transaction shall result in holders of Common Stock
acquiring the right to receive other securities or other property in
addition to or in lieu of Common Stock, the Committee may make such
adjustments or take such action as, in its discretion, it deems appropriate
to reflect such transaction.
(c) Obligation to Issue Company Stock. The Company shall not be
required to issue any shares of Company Stock if the issuance of such
shares would, in the opinion of legal counsel for the Company, constitute a
violation by the Participant, the Company or a Subsidiary of any provisions
of any law or regulation of any governmental authority, including the
Securities Act of 1933 (the "Securities Act") and the Securities Exchange
Act of 1934 (the "Exchange Act"). Specifically, the Company shall not be
required to issue shares of Company Stock unless either (i) a registration
statement under the Securities Act is in effect with respect to such
shares, (ii) the Committee has received an opinion of counsel, in form and
substance satisfactory to it, or other evidence satisfactory to it, to the
effect that such registration is not required and that such shares may be
resold or transferred by the Participant without such a registration
statement being in effect, or (iii) the Committee has received evidence
satisfactory to it to the effect that the Participant is acquiring such
shares for investment and not with a view to the distribution thereof and
unless the certificate issued representing such shares bears, in addition
to any other legends deemed advisable by counsel, the following legend:
The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities
laws of any State and may not be sold or transferred except upon such
registration or upon receipt by the Company of an opinion of counsel
satisfactory to the Company, in form and substance satisfactory to the
Company, that registration is not required for such sale or transfer.
Any determination in this connection by the Committee shall be final,
binding and conclusive. At such time as a registration statement under the
Securities Act is in effect with respect to any shares of Company Stock
represented by certificates bearing the above legend or at such time as, in
the opinion of counsel, such legend is no longer required solely for
compliance with applicable securities laws, then the holders of such
certificates shall be entitled to exchange such certificates for
certificates representing a like number of shares but without such legend.
The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Securities Act (as now in effect
or as hereafter amended). The Company shall not be obligated to take any
other affirmative action in order to cause the issuance of shares of
Company Stock to comply with any law or regulation of any governmental
authority.
<PAGE>
(d) Withholding. The Committee may require the Participant or
Beneficiary to pay to the Company an amount equal to any federal, state or
local taxes (which the Committee deems necessary or appropriate to be
withheld in connection with the issuance of Company Stock) in such forms of
payment as may be permitted by the Committee. In the event that Participant
or Beneficiary does not pay the Company the amount required for withholding
taxes, the employer (for payroll tax purposes) of the Participant shall
have the right to withhold such amount from any sum payable, or to become
payable, to the Participant. The Committee, in its discretion, may
institute procedures for withholding of shares of Company Stock to be
delivered to the Participant in order to satisfy applicable tax withholding
requirements, but only to the extent that such tax withholding procedures,
in the opinion of legal counsel, comply with applicable tax and securities
laws and regulations.
6.4 Retirement of Participant. In the event that a Participant should
retire for age from Employment at or after the date on which he attains the age
of 65 years ("Retirement Date"), any non-vested portion of any Award previously
granted to the Participant shall continue to vest and become payable to the
Participant as provided in Section 6.3(a) to the same extent as if the
Participant had remained in Employment and, in the event that the Participant
should die or incur a Disability after his Retirement Date, but before any
previously granted Award becomes 100% vested, such Award shall become 100%
vested and nonforfeitable as of the date of death or Disability and shall
thereafter be payable as described in Sections 6.5 and 6.6. Notwithstanding the
immediately preceding sentence, a Participant shall not continue to accrue
vesting of non-vested shares awarded if the Committee determines, in its
discretion, that the Participant has engaged in conduct which is detrimental to,
or in competition with, the Company or any of its Subsidiaries or affiliates.
6.5 Death of Participant. Upon the death of a Participant, any non-vested
portion of an Award previously granted to the Participant shall become 100%
vested and nonforfeitable. In the event of a Participant's death during a Year,
the Committee in its discretion shall determine what portion of an Award for the
Year, if any, shall be granted with respect to Participant's completed
performance of services for that Year. Each Participant shall have the right to
designate a Beneficiary to receive any Award payable at the death of
Participant, and to specify the time and manner of payment thereof to such
Beneficiary in accordance with rules established by the Committee. The
designation of Beneficiary shall be delivered in writing to the Committee, or
such representative thereof as the Committee may designate, and may be changed
at any time by written notice delivered to the Committee or its representative.
If no such designation of Beneficiary is delivered by a Participant to the
Committee or its delegate, or if all of the designated Beneficiaries have
predeceased the Participant or otherwise cease to exist, any Award payable, in
whole or in part, at the death of Participant shall be paid to the legal
representative of the Participant's estate in a single payment of cash and
Company Stock as soon as administratively practicable following the death of
Participant. Notwithstanding Sections 6.2 and 6.3(a), in the event of the
Participant's death, any payment hereunder that would otherwise be made in
Company Stock may be made in cash in the discretion of the Committee.
6.6 Disability. Upon a termination of his Employment due to Disability, any
non-
<PAGE>
vested portion of an Award previously granted to the Participant shall become
100% vested and nonforfeitable. In the event of Participant's termination of
Employment due to Disability during a Year, the Committee in its discretion
shall determine what portion of an Award for the Year, if any, shall be granted
with respect to Participant's completed performance of services for that Year.
Any Award payable, in whole or in part, on the date of termination of Employment
due to Disability shall be paid to the Participant (or to his guardian or legal
representative, if applicable) in a single payment of cash and Company Stock as
soon as administratively practicable thereafter. Notwithstanding Sections 6.2
and 6.3(a), in the event of the Participant's Disability, any payment hereunder
that would otherwise be made in Company Stock may be made in cash in the
discretion of the Committee.
6.7 Forfeiture. Except as provided in Sections 6.5 and 6.6, until such time
as the full amount of his Award has been actually distributed to the
Participant, his right to receive any unpaid or unvested amount thereof shall be
wholly contingent and shall be forfeited if, prior to the payment thereof, the
Participant at any time prior to his termination of Employment with the Company
or a Subsidiary for any reason, voluntary or involuntary, should engage in
conduct which is determined by the Committee to be detrimental to, or in
competition with, the Company or any of its Subsidiaries or affiliates.
6.8 Nonalienation of Benefits. Interests of Participants in this Plan or in
any securities to be issued pursuant to this Plan are not transferable by the
Participant other than in accordance with Rule 16b-3 promulgated by the
Securities and Exchange Commission, or any successor or similar provisions
thereto. No right or benefit under this Plan shall be subject to anticipation,
alienation, sale, assignment, pledge, encumbrance, or charge, and any attempt to
anticipate, alienate, sell, assign, pledge, encumber, or charge the same will be
void. No right or benefit hereunder shall in any manner be liable for or subject
to any debts, contracts, liabilities, or torts of the person entitled to such
benefits. If any Participant or Beneficiary hereunder shall become bankrupt or
attempt to anticipate, alienate, assign, sell, pledge, encumber, or charge any
right or benefit hereunder, or if any creditor shall attempt to subject the same
to a writ of garnishment, attachment, execution, sequestration, or any other
form of process or involuntary lien or seizure, then such right or benefit
shall, in the discretion of the Committee, cease and terminate.
ARTICLE VII
TERMINATION OR AMENDMENT OF THE PLAN
7.1 Termination or Amendment. The Committee may modify, revise or terminate
this Plan at any time and from time to time; provided, however, that any such
amendment to the Plan that would require the vote or approval of a specified
percentage of the Company's stockholders in order to assure that the Plan
complies with Rule 16b-3 promulgated by the Securities and Exchange Commission,
or any successor or similar provisions thereto, shall only be made upon
obtaining such required stockholder vote, or taking such other action in
connection with such amendment as the Board deems advisable to operate the Plan
in accordance with Rule 16b-3 or any successor or similar rule.
<PAGE>
7.2 Cancellation Following Award. Termination or amendment of the Plan
shall not adversely affect rights or obligations under the Plan with respect to
any vested portion of Awards, unless the consent of the affected Participant or
Beneficiary is obtained.
ARTICLE VIII
MISCELLANEOUS
8.1 Other Compensation Plans. The adoption of the Plan shall not affect any
other compensation plans in effect for the Company or any Subsidiary or
affiliate of the Company, nor shall the Plan preclude the Company or any
Subsidiary or affiliate thereof from establishing any other forms of incentive
or other compensation for Employees.
8.2 Powers of the Company. The existence of outstanding and unpaid Awards
under the Plan shall not affect in any way the right or power of the Company or
any Subsidiary to make or authorize any adjustments, recapitalization,
reorganization or other changes in the Company's or Subsidiary's capital
structure or in its business, or any merger or consolidation of the Company or
any Subsidiary, or any issue of bonds, debentures, common or preferred stock, if
applicable, or the dissolution or liquidation of the Company or any Subsidiary,
or any sale or transfer of all or any part of its assets or business, or any
other act or proceeding, whether of a similar character or otherwise.
8.3 Dissolution, Sale of Assets, Merger of the Company; Change in Control.
Should the Company (or any successor thereto) elect to dissolve, enter into a
sale of substantially all its assets, or enter into any merger, consolidation or
reorganization incident to which it is not the surviving entity, unless the
surviving or successor entity shall formally agree to assume the Plan, the Plan
shall terminate with respect to the Company or any Subsidiary (or any successor
thereto) on the earlier of the date of closing or the effective date, whichever
may be applicable, of such transaction and the full amount of any non-vested
portion of Awards previously granted to a Participant shall become 100% vested
and non-forfeitable and shall be promptly paid to each such Participant (or
Beneficiary) in a single lump sum payment of cash and/or Company Stock. Any
payment hereunder that would otherwise be made in Company Stock may be made in
cash in the sole discretion of the Committee.
Notwithstanding anything to the contrary contained in this Plan, in the
event of a change in control of the Company, as defined below, any non-vested
portion of an Award previously granted to a Participant shall become 100% vested
and non-forfeitable upon (i) the termination of the Participant's employment by
the Company following such change in control or (ii) the voluntary resignation
of the Participant as a result of a substantial diminution of the Participant's
duties and responsibilities or compensation following such change in control.
For purposes of this provision, a change in control of the Company shall mean:
(i) the merger or consolidation of the Company with another company in which the
Company is the surviving entity and those persons who are holders of common
stock of the Company immediately prior to the consummation of such transaction
will not, immediately after the consummation thereof, be in control of the
surviving or successor entity; or (ii) the acquisition by any individual,
corporation,
<PAGE>
partnership, trust, entity or other person or any group thereof of the
beneficial ownership (as such terms are used in Section 13(d) of the Securities
Exchange Act of 1934, as amended) of voting securities representing 51% or more
of the combined voting power of the Company's then outstanding voting
securities; or (iii) the acquisition by any individual, corporation,
partnership, trust, entity or other person or any group thereof of the
beneficial ownership (as such terms are used in Section 13(d) of the Securities
Exchange Act of 1934, as amended) of voting securities representing 20% or more
of the combined voting power of the Corporation's then outstanding voting
securities and the reconstitution of the Board of Directors of the Company such
that a majority of the directors are the nominees of such person or group.
8.4 Plan Binding on Successors. The Plan shall be binding upon the
successors and assigns of the Company and any Subsidiary.
8.5 Plan Not a Contract. Neither this Plan nor any Incentive Designation
shall be deemed to constitute a contract between the Company, a Subsidiary and
any Participant or to be in consideration of or an inducement for the Employment
of any Participant or Employee. Nothing contained in this Plan or any Incentive
Designation shall be deemed to give any Participant or Employee the right to be
retained in the service of the Company or any Subsidiary or affiliate of the
Company or to interfere with the right of the Company or any Subsidiary or
affiliate of the Company to discharge any Participant or Employee at any time
with or without cause, regardless of the effect which such discharge shall have
upon him as a Participant of the Plan .
8.6 Liability of Employer. Each Participant, Beneficiary or any other
person who claims any benefit under this Plan shall be entitled to look only to
the Participant's employer for satisfaction or payment of such benefit.
8.7 Payment of Plan Expenses. The Company will pay all expenses that may
arise in connection with the administration of this Plan.
8.8 Headings. Any headings or subheadings in this Plan are inserted for
convenience of reference only and are to be ignored in the construction of any
provisions thereof. All references in this Plan to Articles and Sections are to
Articles and Sections of this Plan unless specified otherwise.
8.9 Gender and Tense. Any words herein used in the masculine shall be read
and construed in the feminine where they would so apply. Words in the singular
shall be read and construed as though in the plural in all cases where they
would so apply.
8.10 Governing Law. This Plan shall be construed in accordance with the
laws of the State of Texas without regard to the conflicts of law provisions
thereof, to the extent federal law does not preempt Texas law.
8.11 Severability. In the event that any provision of this Plan shall be
held illegal, invalid, or unenforceable for any reason, such provision shall be
fully severable, but shall not affect the remaining provisions of the Plan, and
the Plan shall be construed and enforced as if
<PAGE>
the illegal, invalid, or unenforceable provision had never been included herein.
8.12 No Guarantee of Tax Consequences. Neither the Company, Subsidiary nor
the Committee makes any commitment or guarantee that any federal or state tax
treatment will apply or be available to any person participating or eligible to
participate in this Plan.
8.13 Notice. Whenever any notice is required or permitted hereunder, such
notice must be in writing and personally delivered or sent by mail. Any notice
required or permitted to be delivered hereunder shall be deemed to be delivered
on the date which it is personally delivered, or, whether actually received or
not, on the third business day after it is deposited in the United States mail,
certified or registered, postage prepaid, addressed to the person who is to
receive it at the address which such person has theretofore specified by written
notice delivered in accordance herewith. Any party may change, at any time and
from time to time, by written notice to the other, the address which it or he
had theretofore specified for receiving notices. Until changed in accordance
herewith, the Company or a Subsidiary shall be entitled to use the address of a
Participant as it appears in the personnel records of his employer. Any person
entitled to notice hereunder may waive such notice.
8.14 Stockholder Approval. Notwithstanding any other provisions of the
Plan, in order for the Plan to continue as effective, on or before the date
which occurs twelve (12) months after the date the Plan is adopted by the Board,
the Plan must be approved by the stockholders holding at least a majority of the
Common Stock present or represented and entitled to vote at a duly held
stockholders' meeting of the Company, and no shares of Company Stock shall be
issued under the Plan until such approval has been secured.
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
The following table provides certain information as to (i) each direct and
indirect subsidiary of the Company and (ii) each of the Company's joint
operations:
<TABLE>
<CAPTION>
RELATIONSHIP
TO COMPANY
OR A
NAME OF ENTERPRISE SUBSIDIARY (1)
------------------ --------------
<S> <C>
The Company: Proler International Corp., a Delaware corporation
Subsidiaries of the Company included in consolidated financial statements:
Prolerized Steel Corporation, a Texas Corporation............................... 100%
Proleride Transport Systems, Inc., a Texas corporation.......................... 100%
Buffalo Steel Corporation, a Texas corporation.................................. 100%
Gulf Coast Metals, Inc., a Texas corporation; a wholly owned subsidiary
of Buffalo Steel Corporation................................................... 100%
MRI Corporation, a Delaware corporation......................................... 100%
Proler Environmental Services, Inc., a Delaware corporation..................... 100%
Proler Recycling, Inc., (formerly Proler Elemental Refining, Inc.)
a Delaware corporation......................................................... 100%
Joint Operations of the Company included in combined financial statements filed
for unconsolidated subsidiaries:
Hugo Neu-Proler Company, a partnership under the laws of California............. 50% (2)
Prolerized Chicago Corporation, an Illinois corporation......................... 50%
Maru Shipping Company, Inc., a Panamanian corporation........................... 50% (2)
Prolerized New England Company, a partnership under the laws of New York........ 50% (2)(3)
Prolerized Schiabo-Neu Company, a partnership under the laws of New York........ 331/3%(2)
Dover Barge Company, a Delaware corporation..................................... 331/3%
Worcester Recycling, Inc., a Massachusetts corporation.......................... 50% (3)
Prolerized New England Foreign Sales Corporation, a Virgin Island corporation... 50% (4)
Prolerized Schiabo-Neu Foreign Sales Corporation, a Virgin Island corporation... 331/3%(5)
Hugo Neu-Proler Foreign Sales Corporation, a Virgin Island corporation.......... 50% (6)
Pacific Bulk Loading, Inc., a California corporation............................ 50%
Bulkloader, Inc., a Massachusetts corporation................................... 50% (4)
Pacific Industrial Metal Corporation, a California corporation.................. 50% (7)
H. Finkelman, Inc., a Maine corporation......................................... 50% (3)
B. Rovner & Co., Inc. a New Hampshire corporation............................... 50% (4)
Point Comfort Venture, a partnership under the laws of Texas.................... 50%
Alameda Street Metal Corp., a California corporation............................ 50%
HPNJ, a partnership under the laws of New York.................................. 50% (2)
HPI, a partnership under the laws of New York................................... 49% (2)
HPNJ Foreign Sales Corporation, a Virgin Islands corporation.................... 50%
</TABLE>
(1) Percentage of voting stock or share in profits owned by the Company except
as otherwise indicated.
(2) Control can be exercised by the Company only by unanimous consent of the
partners.
(3) Owned by Proleride Transport Systems, Inc.
(4) Owned by Prolerized New England Company, a partnership. See footnote (2).
(5) Owned by Prolerized Schiabo-Neu Company, a partnership. See footnote (2).
(6) Owned by Hugo Neu-Proler Company, a partnership. See footnote (2).
(7) Owned by Pacific Bulk Loading, Inc.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Proler International Corp. on Form S-8 (File No. 33-35013) of our reports
dated April 29, 1994, on our audits of the consolidated financial statements and
financial statement schedules of Proler International Corp. and the combined
financial statements and financial statement schedules of Proler International
Corp.'s Joint Operations as of January 31, 1994 and 1993, and for the years
ended January 31, 1994, 1993 and 1992, which reports are included in this Annual
Report on Form 10-K.
COOPERS & LYBRAND
Houston, Texas
April 29, 1994
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Proler International Corp. on Form S-8 (File No. 33-35013) of our reports
dated March 14, 1994 and February 28, 1994, respectively, on our audits of the
consolidated financial statements and financial statement schedules of
Prolerized Schiabo-Neu Company as of December 31, 1993 and 1992 and for the
years ended December 31, 1993, 1992 and 1991 and Dover Barge Company as of
January 31, 1994 and 1993, and for the years ended January 31, 1994, 1993 and
1992 (not presented separately therein), which reports are included in this
Annual Report on Form 10-K.
LA GUARDIA & PETRELLA
Fort Lee, New Jersey
April 29, 1994
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Proler International Corp. on Form S-8 (File No. 33-35013) of our report
dated March 16, 1992, on our audit of the financial statements and financial
statement schedules of Maru Shipping Company, as of December 31, 1991 and for
the year ended December 31, 1991 (not presented separately therein), which
report is included in this Annual Report on Form 10-K.
LA GUARDIA & PETRELLA
Fort Lee, New Jersey
April 29, 1994
