UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter ended JULY 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-5276
PROLER INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter.)
Delaware 74-1051251
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
4265 San Felipe, Suite 900 77027
Houston, Texas (Zip Code)
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: [713] 627-3737
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] NO [ ]
Indicate the number of shares outstanding of each of the Registrant's classes of
stock, as of September 8, 1995:
COMMON 4,714,158
(Title of Class) (Number of Shares Outstanding)
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Condensed Consolidated Balance Sheet at July 31, 1995 and
January 31, 1995......................................................... 1
Condensed Consolidated Statement of Operations for the three and
six months ended July 31, 1995 and 1994 ................................. 2
Condensed Consolidated Statement of Cash Flows for the six months ended
July 31, 1995 and 1994 .................................................. 3
Notes to Condensed Consolidated Financial Statements .................... 4
Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................... 9
PART II. OTHER INFORMATION ............................................. 16
SIGNATURE PAGE .......................................................... 17
<PAGE>
PART I
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS JULY 31,1995 JANUARY 31, 1995
------------ ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................................................ $ 499 $ 3,829
Accounts receivable, net ......................................................... 2,048 2,183
Inventories ...................................................................... 2,741 1,752
Maintenance parts ................................................................ 724 906
Prepaid expenses ................................................................. 545 672
-------- --------
Total current assets ..................................................... 6,557 9,342
Investments in joint operations, at equity ........................................... 41,182 34,776
Property, plant and equipment, net ................................................... 20,547 19,245
Other assets ......................................................................... 4,421 2,076
-------- --------
Total assets .......................................................... $ 72,707 $ 65,439
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................................. $ 1,610 $ 2,094
Accrued liabilities .............................................................. 2,374 2,223
-------- --------
Total current liabilities ................................................ 3,984 4,317
Borrowings under revolving line of credit ............................................ 6,500 --
Deferred compensation and other ...................................................... 2,614 2,642
Contingencies
Stockholders' equity:
Common stock ..................................................................... 5,351 5,351
Capital in excess of par value ................................................... 192 192
Retained earnings ................................................................ 60,154 59,025
-------- --------
65,697 64,568
Less treasury stock, at cost ..................................................... (6,088) (6,088)
-------- --------
Total stockholders' equity ............................................... 59,609 58,480
-------- --------
Total liabilities and stockholders' equity ............................ $ 72,707 $ 65,439
======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
1
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31, SIX MONTHS ENDED JULY 31,
------------------------------- -------------------------------
1995 1994 1995 1994
----------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Net sales........................................ $ 2,939 $ 3,581 $ 6,464 $ 11,404
Cost of sales.................................... 3,061 3,282 6,404 10,610
----------- ----------- ------------ --------
Gross profit (loss)........................... (122) 299 60 794
Earnings from joint operations................... 2,308 1,646 4,061 651
Selling, general and administrative
expense........................................ (1,219) (1,077) (2,429) (2,152)
Research and development expense................. (264) (415) (517) (787)
----------- ----------- ------------ ----------
Operating income (loss)...................... 703 453 1,175 (1,494)
----------- ----------- ------------ ----------
Gain on sale of assets, net...................... 318 -- 318 2,894
----------- ----------- ------------ ----------
Other income (expense):
Interest income.............................. 15 84 63 140
Interest expense............................. (109) (69) (159) (249)
Other, net................................... (179) (225) (113) (574)
----------- ----------- ------------ ----------
(273) (210) (209) (683)
----------- ----------- ------------ ----------
Income before income taxes....................... 748 243 1,284 717
Provision for income taxes....................... 93 98 155 148
----------- ----------- ------------ ----------
Net income....................................... $ 655 $ 145 $ 1,129 $ 569
=========== =========== ============ ==========
Weighted average shares outstanding.............. 4,714 4,711 4,714 4,711
=========== =========== ============ ==========
Net income per share............................. $ .14 $ .03 $ .24 $ .12
=========== =========== ============ ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
2
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JULY 31,
-----------------------------------
1995 1994
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................... $ 1,129 $ 569
Adjustments to reconcile net income to cash:
Depreciation.......................................................... 457 514
Gain on sale of assets................................................ (318) (2,894)
Earnings from joint operations........................................ (4,061) (651)
Advances to joint operations, net of distributions and
income taxes....................................................... (2,345) (2,023)
Other................................................................. (144) --
Changes in assets and liabilities, net of effect of assets sold:
Decrease in accounts receivable..................................... 135 4,823
Increase in inventories and maintenance parts....................... (807) (269)
Decrease in prepaid expenses........................................ 127 413
Decrease in other assets............................................ 556 71
Decrease in accounts payable........................................ (484) (1,406)
Increase (decrease) in accrued liabilities.......................... 101 (1,374)
Decrease in deferred compensation and other......................... (132) (25)
----------- ------------
Net cash used in operating activities.................................... (5,786) (2,252)
----------- ------------
Cash flows from investing activities:
Purchases of property, plant and equipment............................... (5,074) (683)
Proceeds from asset sales................................................ 1,030 7,670
----------- ------------
Net cash provided by (used in) investing activities...................... (4,044) 6,987
----------- ------------
Cash flows from financing activities:
Net bank borrowings...................................................... 6,500 --
----------- ------------
Net cash provided by financing activities................................ 6,500 --
----------- ------------
Net increase (decrease) in cash and cash equivalents....................... (3,330) 4,735
Cash and cash equivalents, beginning of period............................. 3,829 7,307
----------- ------------
Cash and cash equivalents, end of period................................... $ 499 $ 12,042
=========== ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Proler
International Corp. and subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments, consisting only of
normal, recurring adjustments considered necessary for a fair presentation, have
been included. For further information, refer to the consolidated financial
statements and footnotes thereto for the year ended January 31, 1995, included
in the Company's 1995 Annual Report on Form 10-K filed pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934. The results for the three and six
months periods included herein are not necessarily indicative of the results of
operations for the entire year. Certain reclassifications have been made in the
prior period financial statements to conform to current classifications.
NOTE 2: INVENTORIES
The Company's inventories are stated at the lower of cost or market using
the first-in, first-out (FIFO) method. As of July 31, 1995 and January 31, 1995
inventories were comprised of the following:
<TABLE>
<CAPTION>
JULY 31, 1995 JANUARY 31, 1995
------------- ----------------
(In Thousands)
<S> <C> <C>
Processed scrap........................................................ $ 1,609 $ 1,057
Unprocessed scrap and other............................................ 1,132 695
------------- ------------
$ 2,741 $ 1,752
============= ============
</TABLE>
NOTE 3: COMBINED JOINT OPERATIONS
A condensed summary of the financial position of the combined joint
operations (100% basis) is as follows:
<TABLE>
<CAPTION>
JULY 31, 1995 JANUARY 31, 1995
------------- ----------------
(In Thousands)
<S> <C> <C>
Current assets......................................................... $ 58,051 $ 50,740
Property and other assets, net......................................... 28,493 26,400
------------ ------------
$ 86,544 $ 77,140
============ ============
Current liabilities.................................................... $ 8,799 $ 8,882
Other liabilities...................................................... 500 436
Stockholders' and partners' equity..................................... 77,245 67,822
------------ ------------
$ 86,544 $ 77,140
============ ============
</TABLE>
4
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Two of the 50%-owned joint operations account for inventories using the
last-in, first-out (LIFO) method while the other joint operations follow FIFO.
Such LIFO inventories are carried at $24.2 million at both July 31, 1995 and
January 31, 1995 and the excess of replacement cost over the LIFO value at those
dates was approximately $22.7 million and $19.1 million. The determination of
inventory under the LIFO method can be made only at the end of the year when
ending quantities and costs are known. While management cannot currently
estimate end of the year LIFO inventory quantities and costs with certainty, the
Company, based on current estimates, recorded additional costs of approximately
$2.2 million and $3.6 million ($1.1 million and $1.8 million net to the
Company's interest) during the three and six months ended July 31, 1995 to
reflect the expected year-end excess of replacement costs over LIFO values. This
amount may be increased or decreased in subsequent fiscal 1996 quarters
depending upon later estimates of year-end quantities and costs.
The Company's investment in the joint operations and its percentage
interest in their assets and liabilities as of July 31, 1995 and January 31,
1995 are set forth below:
<TABLE>
<CAPTION>
JULY 31, 1995 JANUARY 31, 1995
------------- ----------------
(In Thousands)
<S> <C> <C>
Current assets......................................................... $ 26,356 $ 23,889
Property and other assets, net......................................... 12,485 11,609
Liabilities............................................................ (4,260) (4,349)
Adjustment to conform reporting periods................................ 6,601 3,627
------------- -------------
Net investment......................................................... $ 41,182 $ 34,776
============= =============
</TABLE>
A summary of the results of operations of the combined joint operations is
as follows (in thousands):
Combined 100% Basis:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31, SIX MONTHS ENDED JULY 31,
----------------------------------- ------------------------------------
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales.......................... $ 93,536 $ 76,056 $ 172,164 $ 146,055
============= ============= ============= =============
Gross profit....................... $ 5,500 $ 4,643 $ 11,566 $ 3,788
============= ============= ============= =============
Earnings........................... $ 4,369 $ 2,981 $ 8,514 $ 682
============= ============= ============= =============
</TABLE>
Company Percentage Interest:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31, SIX MONTHS ENDED JULY 31,
----------------------------------- ------------------------------------
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales.......................... $ 43,888 $ 35,653 $ 80,191 $ 68,794
============= ============= ============= =============
Gross profit....................... $ 2,561 $ 2,430 $ 5,213 $ 2,101
============= ============= ============= =============
Earnings........................... $ 2,308 $ 1,646 $ 4,061 $ 651
============= ============= ============= =============
</TABLE>
5
NOTE 4: ASSET SALES
In July, 1995, the Company sold a 65 acre tract of real estate in Houston to
an unrelated third party for $5.23 million. The consideration included $1.03
million in cash and a $4.2 million promissory note bearing interest at a bank's
prime rate. The note is payable in 66 monthly installments with the first six
payments of interest only, the next 59 payments of $61,000 of principal and
interest and a final payment of the remaining balance in January, 2001 (which
payment would approximate $2.0 million at current interest rates). The gain on
sale of $1.6 million is being accounted for using the installment method of
accounting and, accordingly, a $0.3 million gain on sale was recorded during the
quarter ended July 31, 1995 and $1.3 million of the gain was deferred. The note
receivable, net of the deferred gain, is included in other assets in the
accompanying balance sheet.
In February, 1994, Prolerized Steel Corporation, a wholly-owned subsidiary
of the Company, sold the assets of its scrap metal processing facility located
in Kansas City, Kansas to an unrelated third party for approximately $5.1
million. Also, in April, 1994, the assets of the Company's Vinton, Texas scrap
processing facility were sold to an unrelated third party for approximately $2.6
million. The Company recorded gains on these two sales totaling $2.9 million in
the quarter ended April 30, 1994. The Company recorded net sales of $4.7 million
and operating profit of $0.1 million attributable to the operations at the
Kansas City and Vinton plants during the six months ended July 31, 1994.
NOTE 5: INCOME TAXES
Approximately $64,000 and $126,000 of the provision for income taxes relates
to the Company's share of income taxes attributable to its corporate joint
operations for the three and six months ended July 31, 1995, respectively. The
provision for the comparable 1994 periods related to its corporate joint
operations. Most of the provision for federal income taxes otherwise payable in
all periods presented was eliminated by the utilization of net operating loss
carryforwards.
NOTE 6: BANK CREDIT FACILITIES
As of July 31, 1995, borrowings of $6.5 million were outstanding under the
Company's $15 million revolving line of credit and $6.2 million of letters of
credit were outstanding under the $7 million letter of credit facility. Under
the terms of the agreement with the bank, the Company is required to maintain,
among other things, a minimum net worth and other specified financial covenants.
In addition, the Company is limited as to the payment of cash dividends,
incurring additional indebtedness and incurring capital expenditures in excess
of certain amounts. In July, 1995, the agreement was amended to, among other
things, provide for the termination of the revolving line of credit and the
letter of credit facilities on December 31, 1996 and June 30, 1997,
respectively.
6
NOTE 7: CONTINGENCIES
Certain materials resulting from the Company's operations must be handled
consistent with federal and state environmental laws and regulations. As with
any business that produces significant amounts of industrial wastes, the Company
could face substantial additional costs if past disposal practices would no
longer be deemed acceptable by the federal or state regulatory agencies,
although this result is not currently expected.
Hugo Neu-Proler Company ("HNP"), a 50% owned joint operation of the Company,
and the Port of Los Angeles are in the final stages of negotiating the renewal
of HNP's lease, the original term of which expired on August 30, 1994. In
December 1992, HNP signed a Memorandum of Understanding with the Port relating
to the lease renewal and in fiscal 1994 and 1995 provided letters of credit
totaling $9.78 million ($4.89 million each from the Company and HNP's other
owner) to secure HNP's remediation obligations under the lease. In connection
with the lease renewal, the Port has prepared and released for public comment an
Environmental Impact Report ("EIR"). The comment period for the EIR has
concluded and the Port is responding to the comments received. 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 four-year period. In addition, HNP
has accrued approximately $0.4 million as of July 31, 1995 to cover the costs of
anticipated remediation at this site.
As reported earlier, the EPA contacted the Company in August 1989 regarding
testing for possible contamination at a site in Tampa, Florida previously
operated by MRI Corporation, a wholly-owned subsidiary of the Company. The
Company and the EPA took split soil and groundwater samples from the site for
analysis. The Company has learned that in late 1990, an EPA consultant issued a
report recommending that further consideration be given to the possibility of
ranking this site using the EPA's hazardous ranking package. Based on that
recommendation the EPA took additional samples at the site in 1992. The Company
had previously conducted extensive clean-up operations at the Tampa site when 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 two 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.
7
The Company is also subject to certain other litigation and claims arising
in the ordinary course of business. In the opinion of management, the ultimate
resolution of these claims and lawsuits will not have a material adverse effect
on the Company's financial position or results of operations.
NOTE 8: PER SHARE INFORMATION
Per share calculations are based on the average number of common shares
outstanding during the period. The per share calculations do not include the
common equivalent shares attributable to the assumed exercise of outstanding
stock options since the effect was not significant for all periods presented.
8
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is primarily engaged, through its wholly-owned subsidiaries and
its 50% or less-owned joint operations, in buying, processing for recycling and
selling ferrous and other scrap metals. The Company's principal scrap processing
business is conducted through its joint operations, which primarily make export
sales. The Company's wholly-owned subsidiary, Proler Recycling, Inc. ("Proler
Recycling") owns and operates three plants which collectively sell precipitation
iron, low residual steel, tin and other products in the domestic market. The
Company's and its joint operations' business is characterized by cyclical
fluctuations in profitability depending on the availability and price of raw
scrap and the demand and prices for processed scrap by the domestic and foreign
iron and steel industries and the nonferrous metals industries.
The joint operations are structured so that the participants advance and
withdraw funds equally, and 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 makes advances to the joint operations, on a regular
basis, primarily for the purchase of inventory and for operating costs. The
Company receives distributions from the joint operations, primarily from the
sales proceeds of shipments. During the first six months of fiscal 1996, the
Company's advances to joint operations exceeded distributions from joint
operations by $2.5 million.
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 and secondary materials. The Company continues to
believe that if it is successful in implementing this business plan, it will be
able to make a transition from its current participation in the highly cyclical
scrap processing business primarily through joint operations over which it
exercises limited control, to a recycling company engaged in environmental
services, energy supply and metals recovery with majority control over its
significant assets. The Company is also seeking to enter into complementary
lines of business, including specialty chemicals and industrial energy
facilities.
In implementing its business plan, during the past three years the Company
has sold the assets of its domestic scrap facilities in Chicago, Houston, Kansas
City and Vinton. As described in Note 4 to the financial statements, the Company
also sold a 65 acre tract of real estate on the Houston ship channel in July,
1995. With the sales of the domestic steel scrap operations, the Company's
principal scrap processing business is conducted through its joint operations,
with the Company's remaining revenues derived from the Proler Recycling plants.
Proler Recycling has substantially completed the construction of new plant
facilities in Coolidge, Arizona, which are designed to recover copper, tin and
other metals and chemicals derived from the production process of electronic
printed circuit boards. It has also begun the marketing of specialty chemicals
to a variety of industries.
9
LIQUIDITY, FINANCING AND CAPITAL RESOURCES
The Company currently meets its working capital requirements principally
from distributions from the joint operations and, to the extent necessary,
borrowings under its revolving line of credit. As of July 31, 1995, the Company
had working capital of $2.6 million, a decline from the $5.0 million reported as
of January 31, 1995. Contributing to the decline was the Company's financing of
the new plant facilities at Coolidge, Arizona amounting to approximately $4.8
million and net advances to the joint operations of $2.5 million, primarily for
inventory purchases and operating costs. Between the same periods, the Company's
share of combined working capital in the joint ventures increased from $23.4
million to $29.0 million.
The Company's credit agreement with a bank provides for a $15 million
revolving line of credit and a $7 million letter of credit facility as more
fully described in Note 6 to the condensed consolidated financial statements.
The revolving line of credit and the letter of credit facilities have been
amended to terminate on December 31, 1996 and June 30, 1997, 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.
As of July 31, 1995, borrowings of $6.5 million were outstanding under the
revolving line of credit and $6.2 million of letters of credit were outstanding
under the letter of credit facility, including $4.89 million in letters of
credit issued in connection with a lease at a joint operation's Los Angeles
facility. Subsequent to July 31, 1995, the Company has borrowed up to an
additional $5.3 million under the revolver and has outstanding borrowings of
$8.8 million as of September 13, 1995.
As noted in "General" above, the Company regularly makes advances to the
joint operations and receives periodic distributions primarily from the proceeds
of shipments. Approximately sixty percent of the joint operations' current
inventory is subject to outstanding sales orders. Currently, the export markets
in which the joint operations sell are continuing to experience increased demand
and higher sales prices (coupled with increased cost of inventory purchases, as
discussed below). However, the joint operations purchase inventory to maintain
sources of supply, even in periods of lower demand and lower sales prices. Given
these factors and the cyclical nature of the scrap markets, the Company's
liquidity could be adversely affected if lower sales, coupled with continued
inventory purchases, result in accumulation of excess inventories at the joint
operations.
Proler Recycling has substantially completed construction of new plant
facilities in Coolidge and incurred construction costs related thereto of $4.8
million in the first half of fiscal 1996. In addition, the Company's share of
capital expenditures in the joint operations was $2.0 million in the first half
of fiscal 1996. The Company has been negotiating a transfer of its interest in
two joint operations, HPI and HPNJ, to its co-venturer, Hugo Neu Corporation, as
an alternative to a complete termination of the venture itself. The Company is
committed to liquidating its interest in this venture and will continue to
pursue
10
consummation of this transaction. The Company would receive certain
distributions on completion of such liquidation. In July, 1995 the Company sold
certain real estate, as discussed in Note 4, and has other real estate and
non-operating assets for sale.
The Company and its joint operations are 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. In the
past, the Company has incurred significant environmental costs in connection
with the clean-up and handling of materials at sites operated by the Company.
See Note 7 to the condensed consolidated financial statements.
The Company's consolidated balance sheet included elsewhere herein presents
the Company's share of the joint operations using the equity method of
accounting in accordance with generally accepted accounting principles. The
following table presents a proforma condensed combined balance sheet of the
Company assuming its proportionate share of the joint operations is combined
with the Company. Management believes this presentation is informative of the
Company's financial condition since the majority of the Company's underlying
investment in its joint operations consists of net current assets.
PROFORMA CONDENSED COMBINED BALANCE SHEET
AS OF JULY 31, 1995
<TABLE>
<CAPTION>
PROPORTIONATE
SHARE OF COMBINED
COMPANY JOINT OPERATIONS COMPANY
-------------- ---------------- -------------
(in thousands)
<S> <C> <C> <C>
Current assets..................................... $ 6,557 $ 32,957 $ 39,514
Investments in joint operations.................... 41,182 -- --
Property and other assets, net..................... 24,968 12,485 37,453
-------------- ------------- -------------
$ 72,707 $ 45,442 $ 76,967
============== ============= =============
Current liabilities................................ $ 3,984 $ 4,010 $ 7,994
Borrowings under revolving line of credit.......... 6,500 -- 6,500
Other liabilities.................................. 2,614 250 2,864
Stockholders' and partners' equity................. 59,609 41,182 59,609
-------------- ------------- -------------
$ 72,707 $ 45,442 $ 76,967
============== ============= =============
</TABLE>
11
<PAGE>
RESULTS OF OPERATIONS
The Company's consolidated results of operations included elsewhere
herein present the Company's share of the joint operations using the equity
method of accounting in accordance with generally accepted accounting
principles. The following table presents a proforma condensed combined statement
of operations of the Company assuming its proportionate share of the joint
operations is combined with the Company. Management believes this presentation
is informative of the Company's results of operations given that a significant
portion of the Company's business is conducted through the joint operations.
PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 31, 1995
<TABLE>
<CAPTION>
PROPORTIONATE
SHARE OF COMBINED
COMPANY JOINT OPERATIONS COMPANY
-------------- ---------------- -------------
(in thousands)
<S> <C> <C> <C>
Net sales.......................................... $ 6,464 $ 80,191 $ 86,655
Cost of sales...................................... 6,404 74,978 81,382
-------------- ------------- -------------
Gross profit.................................. 60 5,213 5,273
Earnings from joint operations..................... 4,061 -- --
Selling, general and administrative
expense....................................... (2,429) (1,884) (4,313)
Research and development expense................... (517) -- (517)
-------------- ------------- -------------
Operating income............................... 1,175 3,329 443
Other income, net.................................. 109 732 841
-------------- ------------- -------------
Income before income taxes......................... 1,284 4,061 1,284
Provision for income taxes......................... 155 -- 155
-------------- ------------- -------------
Net income ........................................ $ 1,129 $ 4,061 $ 1,129
============== ============= =============
</TABLE>
The Proler Recycling plants experienced a loss for the three months
ended July 31, 1995 and had a small gross profit for the six months ended July
31, 1995. Comparable prior year gross profit of $299,000 and $794,000,
respectively, include the operations of sold plants, although such plants
operated at approximate breakeven results. Consolidated net sales and cost of
sales decreased 43% and 40%, respectively, during the six months ended July 31,
1995 as compared to the six months ended July 31,
12
1994 principally due to the sale of the Company's Kansas City and Vinton plants
during the first quarter of fiscal 1995. The Company recorded $4.7 million in
net sales and $4.6 million in cost of sales attributable to these plants during
the six months ended July 31, 1994.
Excluding the sold plants from the results of operations, the following
table highlights the more significant operating information of the Proler
Recycling plants (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JULY 31, ENDED JULY 31,
---------------------------- ---------------------------
1995 1994 1995 1994
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Sales volumes (gross tons) ................. 17,453 27,291 37,914 49,298
Net sales................................... $ 2,939 $ 3,395 $ 6,464 $ 6,737
Cost of sales............................... 3,061 3,189 6,404 5,956
---------- ---------- ---------- ---------
Gross profit (loss)......................... $ (122) $ 206 $ 60 $ 781
========== ========== ========== =========
</TABLE>
The sales volume decrease in the second quarter is primarily
attributable to reduced demand for precipitation iron by the copper mining
customers and lower tin production and sales due to operational problems
experienced at the Coolidge tin recovery unit. Sales price increases of 21% and
28% in the three and six month periods ended July 31, 1995, respectively, for
precipitation iron substantially offset the effect of the reduced volumes sold.
The decline in gross profit is primarily attributable to higher costs incurred
in the tin recovery unit. Management has taken action to increase precipitation
iron sales and to remedy operational problems in the tin recovery unit.
Earnings from joint operations increased from $1.6 million and $0.7
million in the second quarter and first half of fiscal 1995 to $2.3 million and
$4.1 million in the comparable periods of fiscal 1996. The fiscal 1995 second
quarter included non-recurring income of $1.8 million attributable to the sale
of inventory which had no cost basis and which substantially offset losses
incurred in certain of the joint ventures.
13
<PAGE>
The following table highlights the more significant per ton operating
information for the joint operations:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JULY 31, ENDED JULY 31,
---------------------------- ----------------------------
1995 1994 1995 1994
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Sales volumes (gross tons) ................. 637,000 601,000 1,196,000 1,136,000
Net sales................................... $ 147 $ 127 $ 144 $ 129
Cost of sales............................... 138 125(a) 134 128(a)
---------- ---------- ---------- -----------
Gross profit................................ $ 9 $ 2 $ 10 $ 1
========== ========== =========== ===========
</TABLE>
------------
(a) Excludes the effect of tonnage sold with no cost basis
Gross profit margins in the joint operations improved in the first half
of fiscal 1996 for a combination of reasons. Nonferrous sales prices more than
doubled this year contributing to over half the increase in gross profit between
the first six months of fiscal 1995 and 1996, despite a 10% nonferrous sales
volume decrease in 1996. Ferrous gross profits also more than doubled between
the same periods. Increased foreign demand of ferrous scrap resulted in a 6%
volume increase and an 8% sales price increase, which were partially offset by a
7% increase in cost of sales due to higher buying costs. The joint operations
primarily make export sales but compete to buy scrap in the domestic market.
Research and development expenses for the three and six months ended
July 31, 1995 decreased 36% and 34% compared to the same periods in 1994 due
mainly to reduced research activities at Proler Recycling. The focus of Proler
Recycling during the latter half of fiscal 1995 to date has been on the
completion of construction of its new recycling facilities at its Coolidge
location.
General and administrative expenses increased 13% for both the three
and six months periods ended July 31, 1995 compared to the same periods in 1994
primarily due to increases in personnel related costs.
Interest income declined 82% and 55% for the three and six months ended
July 31, 1995 compared to the same periods of 1994 due to a decline in average
cash balances. Interest expense increased in the second quarter of fiscal 1996
compared to the second quarter of fiscal 1995 due to an increase in outstanding
bank borrowings. The comparable six month periods presented show a decline in
interest expense in fiscal 1996 which is a result of approximately $0.1 million
of interest costs associated with the payment of a tax dispute being incurred in
the first quarter of fiscal 1995.
14
Other expense, net (which includes real estate costs of $198,000 and
$366,000 for the three and six months ended July 31, 1995, respectively and
costs of $253,000 and $511,000 for the comparable 1994 periods) decreased 20%
and 80% compared to the same periods in 1994 primarily due to increased income
from parts and equipment sales and lower real estate costs.
15
PART II
OTHER INFORMATION
ITEMS 1 THROUGH 3 ARE NOT APPLICABLE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
The Company's annual meeting of shareholders was held on June 20, 1995.
At the annual meeting, shareholders voted in favor of the election of Steven F.
Gilliland and Richard B. Mayor as directors of the Company. The total number of
shares entitled to vote at the annual meeting was 4,714,158 of which 3,905,429
shares were present in person or by proxy.
Mr. Gilliland was elected as a director by a vote of 3,670,996 shares,
with 234,433 shares withholding authority to vote. Mr. Mayor was elected by a
vote of 3,668,796 shares, with 236,633 shares withholding authority to vote.
In addition to Mr. Gilliland and Mr. Mayor who were elected at the
meeting, Herman Proler, John McKenna, and Harvey Alter continued as directors of
the Company after the meeting.
ITEM 5 IS NOT APPLICABLE.
ITEM 6(A) EXHIBITS:
10 Amendment to Second Amended and Restated Credit Agreement
27.1 Financial Data Schedule as of July 31, 1995 and for the period then ended
27.2 Amended Financial Data Schedule as of July 31, 1994 and for the period
then ended
ITEM 6(B) IS NOT APPLICABLE.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROLER INTERNATIONAL CORP.
(Registrant)
Date: SEPTEMBER 13, 1995 /s/ HERMAN PROLER
Herman Proler
Chairman of the Board
(Principal Executive Officer)
Date: SEPTEMBER 13, 1995 /s/ MICHAEL F. LOY
Michael F. Loy
Vice President - Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
17
Exhibit 10
AMENDMENT TO SECOND AMENDED AND
RESTATED CREDIT AGREEMENT
This AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(this Agreement"), effective as of July 31, 1995, is entered into by and among
PROLER INTERNATIONAL CORP., a Delaware corporation ( Borrower"), the undersigned
Subsidiaries of the Borrower, as Guarantors ( Guarantors"), and TEXAS COMMERCE
BANK NATIONAL ASSOCIATION, a national banking association ( Bank"). Capitalized
terms used herein, unless otherwise defined, are as defined in the hereafter
referenced Credit Agreement.
WHEREAS, Borrower and Bank have executed that certain Second
Amended and Restated Credit Agreement dated as of December 20,1994, (the Credit
Agreement"); and
WHEREAS, in connection therewith, certain Subsidiaries of the
Borrower executed the Credit Agreement to evidence their guaranty of the
Borrower's Obligations thereunder; and
WHEREAS, Borrower has requested Bank to modify certain terms of
the Credit Agreement; and
WHEREAS, Bank has agreed to do so, provided Borrower and the
Guarantors ratify and confirm all of their obligations under the Credit
Agreement and the Security Documents.
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. AMENDMENT TO SECTION 1.01. Section 1.01 is hereby amended by
deleting the date "June 30, 1996" where it appears in the definition of
"Termination Date" and substituting therefor the date "December 31, 1996" and by
deleting the date "December 31, 1996" where it appears in the definition of
"Termination Date" and substituting therefor the date "June 30, 1997".
2. AMENDMENT TO SECTION 7.03. Section 7.03 of the Credit
Agreement is hereby amended by deleting subparagraph (a) thereof and
substituting therefor the following:
(a) The Borrower shall not permit the ratio of
Consolidated Current Assets to Consolidated Current Liabilities to be
less than 2.5 to 1.0 at the end of any fiscal quarter of the Borrower,
PROVIDED, notwithstanding the definition of `Joint Ventures', or
anything else herein contained, for purposes of this Section 7.03(a)
only (but not any other sections or subsections of 7.03), Consolidated
Current Assets and Consolidated Current Liabilities shall include
-1-
that portion of the current assets and current liabilities of the Joint
Ventures equal to that portion of the Credit Parties' ownership interest
therein."
3. RATIFICATION. (a) Borrower acknowledges that the liens and
security interests of each of the Security Documents and all terms thereof are
hereby brought forward for the benefit of Bank and remain in full force and
effect.
(b) Except as amended and modified by this Agreement, (i) the
Credit Agreement, the Note and the Security Documents shall continue in full
force and effect and (ii) nothing in this Agreement releases any right, claim,
lien, security interest or entitlement of Bank created by or contained in any of
such documents nor is Borrower released from any covenant, warranty or
obligation created by or contained therein.
4. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Bank that (a) this Agreement has been duly executed and delivered on
behalf of Borrower, (b) this Agreement constitutes a valid and legally binding
agreement enforceable against Borrower in accordance with its terms, (c) the
representations and warranties contained in the Credit Agreement and the
Security Documents are true and correct on and as of the date hereof in all
material respects as though made as of the date hereof except as heretofore
otherwise disclosed in writing to Bank (other than those of such representations
and warranties which by their express terms speak to a date on or before the
date hereof), (d) no Default exists under the Credit Agreement or any of the
Security Documents and (e) the execution, delivery and performance of this
Agreement has been duly authorized by Borrower.
5. COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be construed as an original, but all of which
together shall constitute one and the same instrument.
6. GUARANTORS RATIFICATION. The Guarantors execute this Agreement
for the purpose of acknowledging and approving same, ratifying the Guaranty of
each of them and reaffirming that the Guaranty is in full force and effect and
remain the joint and several liability of each Guarantor, notwithstanding the
amendments made herein.
7. CHOICE OF LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas, except that the
laws of the United States of America and any rules, regulations or orders issued
or promulgated thereunder applicable to the affairs and transactions of Bank
otherwise preempt Texas law, in which event such federal law shall control.
8. FINAL AGREEMENT OF THE PARTIES. THIS AGREEMENT, AND THE CREDIT
AGREEMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE A LOAN AGREEMENT" AS DEFINED
IN SECTION 26.02(A) OF THE TEXAS BUSINESS AND COMMERCE CODE, AND REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR
-2-
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers thereunto duly authorized as of the
date first above written.
BORROWER:
PROLER INTERNATIONAL CORP.
By: /s/ M.F. LOY
Name: M. F. Loy
Title: Vice President
GUARANTORS:
PROLERIZED STEEL CORPORATION
By: /s/ M.F. LOY
Name: M. F. Loy
Title: Vice President Finance
PROLERIDE TRANSPORT SYSTEMS, INC.
By: /s/ M.F. LOY
Name: M. F. Loy
Title: Vice President Finance
PROLER RECYCLING, INC.
By: /s/ M.F. LOY
Name: M. F. Loy
Title: Vice President Finance
-3-
PROLER ENVIRONMENTAL SERVICES, INC.
By: /s/ M.F. LOY
Name: M. F. Loy
Title: Vice President Finance
-4-
BANK:
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By: /s/ STEPHEN H. OGLESBY
Name: Stephen H. Oglesby
Title: Executive Vice President
-5-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF PROLER INTERNATIONAL CORP. AND SUBSIDIARIES AS OF
JULY 31, 1995 AND THE RELATED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
SIX MONTH PERIOD ENDED JULY 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JUL-31-1995
<CASH> 499
<SECURITIES> 0
<RECEIVABLES> 2,048
<ALLOWANCES> 0
<INVENTORY> 2,741
<CURRENT-ASSETS> 6,557
<PP&E> 35,763
<DEPRECIATION> 15,216
<TOTAL-ASSETS> 72,707
<CURRENT-LIABILITIES> 3,984
<BONDS> 0
<COMMON> 5,351
0
0
<OTHER-SE> 54,258
<TOTAL-LIABILITY-AND-EQUITY> 72,707
<SALES> 6,464
<TOTAL-REVENUES> 6,464
<CGS> 6,404
<TOTAL-COSTS> 6,404
<OTHER-EXPENSES> 517
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 159
<INCOME-PRETAX> 1,284
<INCOME-TAX> 155
<INCOME-CONTINUING> 1,129
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,129
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF PROLER INTERNATIONAL CORP. AND SUBSIDIARIES AS OF
JULY 31, 1994 AND THE RELATED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX
MONTH PERIOD ENDED JULY 31, 1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JUL-31-1994
<CASH> 12,042
<SECURITIES> 0
<RECEIVABLES> 1,725
<ALLOWANCES> 0
<INVENTORY> 1,974
<CURRENT-ASSETS> 16,949
<PP&E> 32,346
<DEPRECIATION> 15,524
<TOTAL-ASSETS> 64,735
<CURRENT-LIABILITIES> 3,046
<BONDS> 0
<COMMON> 5,351
0
0
<OTHER-SE> 53,374
<TOTAL-LIABILITY-AND-EQUITY> 64,735
<SALES> 11,404
<TOTAL-REVENUES> 11,404
<CGS> 10,610
<TOTAL-COSTS> 10,610
<OTHER-EXPENSES> 787
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 249
<INCOME-PRETAX> 717
<INCOME-TAX> 148
<INCOME-CONTINUING> 569
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 569
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
