SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
_________________
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____.
Commission file number 1-3315
PUBLICKER INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-0991870
(State of incorporation) (I.R.S. Employer Identification No.)
One Post Road, Fairfield, Connecticut 06430
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (203) 254-3900
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities Registered Pursuant To Section 12(g) of the Act:
Common Stock ($.10 par value)
Rights to Purchase Class A
Preferred stock, First Series
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 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
As of January 31, 1998, the aggregate market value of the voting common stock
held by non-affiliates of the registrant was $17,348,000.
Number of shares of Common Stock outstanding as of January 31, 1998:
13,040,097
Documents Incorporated By Reference
Part III, Items 10, 11, 12 and 13 are incorporated by reference from the
registrant's definitive proxy statement to be filed pursuant to Regulation 14A
for the 1998 Annual Meeting of Shareholders.<PAGE>
PART I
ITEM 1. BUSINESS
General
Publicker Industries Inc. (the "Company" or "Publicker") was originally
incorporated in 1913 in the Commonwealth of Pennsylvania and became a public
company in 1946 when its shares were first listed on the New York Stock
Exchange. At that time, the Company was one of the largest alcohol producers in
the world and had over 5,000 employees. The Company remained profitable until
the early 1950s when it began a remarkable decline that spanned four decades.
By early 1985, the Company had only 300 employees and was badly in need of a
capital infusion.
Capital Infusion and Rights Offering - 1985
In April 1985, a group of investors represented by Harry I. Freund and Jay S.
Goldsmith of Balfour Investors Inc. (formerly known as Balfour Securities
Corporation), a merchant banking firm that was then engaged in a general
securities brokerage business ("Balfour"), purchased 1,600,000 shares of common
stock of the Company for $4,000,000. This amount was immediately applied to
reduce the Company's working capital deficit. At that time, Messrs. Freund and
Goldsmith were appointed to the Board of Directors of the Company. Balfour also
received options to purchase an additional 400,000 shares of the Company's
common stock at a price of $2.50 per share for five years, which period was
subsequently extended by ten years. These options are now held directly by
Messrs. Freund and Goldsmith and, to date, have not been exercised.
In an offering that commenced in August 1985, the Company made a pro rata
distribution to its shareholders of rights to buy additional common stock.
Under the rights offering, the Company received net proceeds of approximately
$5,137,000. This amount was primarily used to reduce outstanding accounts
payable and accrued liabilities. By the end of 1985, the Company's working
capital deficit had been reduced to less than $1,000,000 and shareholders'
equity had increased to $12,900,000.
Issuance of Subordinated Notes - 1986
In December 1986, the Company issued $30,000,000 principal amount of 13%
Subordinated Notes (the "Subordinated Notes") which, together with the proceeds
from asset dispositions, provided the Company with funds to commence an
acquisition program. Under the terms of the Subordinated Notes, the Company was
required to make annual sinking fund payments of 25% of the principal amount of
the Subordinated Notes beginning December of 1993. In April 1996, the Company
prepaid the remaining $7,500,000 that was due in December 1996.
Environmental Litigation
When the Company departed from its historical business of manufacturing and
selling alcohol, in 1985 it ceased operations at its alcohol manufacturing plant
and bulk liquid storage facility in Philadelphia, Pennsylvania. In March 1986,
the Company sold the facility for $3,000,000. The purchaser of the facility, a
wrecking company, commenced demolition at the site and was in the process of
dismantling the facility when it filed for bankruptcy in January 1987. In June
1987, a fire occurred at the facility which gave rise to suspicion that there
had been releases of hazardous substances at the facility. The United States
Environmental Protection Agency (the "EPA") began conducting remedial actions at
the facility in 1987. In December 1990, the EPA commenced an action in the
United States District Court, Eastern District of Pennsylvania (the "Court"),
against the Company and two other parties seeking recovery of costs incurred by
the EPA and other federal agencies in responding to releases or threatened
releases of hazardous substances at the facility. The Commonwealth of
Pennsylvania intervened as a second plaintiff in 1993, seeking recovery of costs
allegedly incurred by the Pennsylvania Department of Environmental Protection
("PADEP") in responding to such releases or threatened releases at the
facility. In October 1995, the parties agreed on a proposed consent decree
(the "Consent Decree") setting forth the terms of a settlement of this
litigation (the "Settlement"). The Consent Decree was entered by the
Court in April 1996 and is considered final.
Under the terms of the Settlement, in April 1995, the Company deposited
$4,500,000 with the clerk of the Court. Following the entry of the Consent
Decree, additional payments totaling $4,850,000 were made in April and May of
1996. In April 1997, the Company made additional payments totaling $796,000
plus interest. Further payments totaling $4,204,000 plus interest will be made
to the United States and Commonwealth of Pennsylvania over the next five years.
These payments settle of all of the EPA's and PADEP's claims against the Company
and the Company's counterclaims against the EPA relating to the Philadelphia
site, subject only to certain "reopener" provisions in the event of future
discovery of certain defined types of presently unknown conditions or
information pertaining to the site. During 1993, the Company recorded a
liability of $14,350,000 which covered the costs of Settlement.
Acquisitions and Dispositions - 1987 to 1996
Beginning in 1987, the Company entered a period of acquiring and disposing
of businesses. In September 1987, the Company acquired Golding Industries, Inc.
("Golding") for $25,000,000 in cash. It subsequently sold Golding in March 1989
for an aggregate sales price of $43,500,000. In late 1990 and early 1991, the
Company completed the acquisition of ten businesses from a subsidiary of Hanson
PLC for an aggregate purchase price of $31,800,000.
From 1992 through early 1995, the Company undertook a series of dispositions
of businesses and selected assets including the following: the liquidation of
KSI Systems, Inc. in 1992; the sale of American Cryogas Industries, Inc. for
$14,000,000 and the liquidation of Nevco Housewares, Inc. in 1993; the sales
of Douglas-Randall, Inc. for $831,000 and Chatas Glass, Inc. for $290,000 in
1994; and, in 1995, the sale of Associated Testing Laboratories, Inc. for
$2,240,000.
This series of dispositions left the Company with the following businesses:
Bright Star Industries Incorporated ("Bright Star"), Fenwal Electronics, Inc.
("Fenwal"), Masterview Window Company, Inc. ("Masterview"), Greenwald
Industries,Inc. ("Greenwald") and Orr-Schelen-Mayeron & Associates, Inc.
("OSM"). On February 16, 1996, the Company sold substantially all of the assets
of Bright Star, a manufacturer and distributor of flashlights and lanterns, for
$5,540,000, to a company formed by an affiliate of BancBoston Capital and an
investor group. On March 29, 1996, the Company sold substantially all of the
assets of Fenwal, a designer and manufacturer of negative temperature
coefficient thermistors and thermistor assemblies, for $26,483,000, to Elmwood
Sensors, Inc., an affiliate of BTR Dunlop, Inc. On October 31, 1996, the
Company completed the sale of substantially all of the assets of Masterview, a
manufacturer of aluminum windows and doors, for $15,748,000 to an affiliate of
BancBoston Capital. In each instance, the buyer also assumed certain
liabilities, including accounts payable, accrued liabilities and obligations
under leases, contracts and agreements. The sales of Bright Star, Fenwal and
Masterview resulted in an aggregate pre-tax gain of $22,042,000. Following
such sales, the Company's businesses consist of Greenwald and OSM. See
"Description of Business."
These dispositions were consummated generally in order to consolidate the
Company's operations and improve liquidity. The funds generated by the
dispositions enabled the Company to satisfy certain sinking fund obligations
under the Company's Subordinated Notes and to meet the costs associated with the
environmental litigation. In addition, the dispositions generated funds to be
used in connection with the Company's acquisition strategy.
Financing Arrangement - 1995
On October 11, 1995, the Company and certain of it subsidiaries entered into
a three-year credit agreement (the "Loan Agreement") providing for a $13,161,000
revolving credit line ("Revolver"), a $1,750,000 credit facility for future
capital expenditures, and a term loan of $2,149,000 ("Term Notes"). The initial
drawdown under the Loan Agreement of $7,449,000, together with existing cash,
was used to repay a credit facility at one of the Company's subsidiaries and to
satisfy the Company's $7,500,000 December 1995 sinking fund obligation under the
Subordinated Notes. In connection with the sale of businesses in 1996, the
outstanding borrowings under the Revolver and the Term Notes related to
Masterview, Fenwal and Bright Star were repaid. On February 28, 1997, the
Company repaid the remaining balances outstanding under the Revolver and Term
Notes and terminated the Loan Agreement.
Business Strategy
From time to time during the past several years, the Company has considered
the sale of certain of its operating subsidiaries as part of its overall
business strategy. In making the decision in late 1995 to sell Bright Star,
Fenwal and Masterview, the Company's Board of Directors considered the
following factors:
Future Business Acquisitions-- For the fiscal years ended December 31,
1995, 1994 and 1993, the Company reported net losses of approximately
$300,000, $2,300,000 and $9,400,000, respectively. The Company recognized
the need to improve earnings per share for shareholders. In evaluating
the financial condition of the Company and considering ways in which the
Company could improve operating results, the Board of Directors concluded
that the Company is more likely to be able to generate significant income
through the acquisition of new businesses. The sales of Bright Star,
Fenwal and Masterview generated capital for the acquisition of such
businesses.
Liquidity-- By the end of 1995, the Company was obligated or expected to
become obligated to make payments in 1996 of (i) $7,500,000 under the
Subordinated Notes due in December, and (ii) approximately $5,000,000 in
the aggregate to the EPA and Commonwealth of Pennsylvania under the terms
of the Settlement of the Company's environmental litigation upon entry by
the Court of the Consent Decree. In addition, outstanding borrowings under
the Loan Agreement amounted to $5,600,000 at December 31, 1995.
Favorable Sale Market-- The Company believed that the market for
corporate acquisitions was favorable to sellers. This belief was based on
several factors having the combined effect of increased sale prices.
These factors included a high level of activity in the mergers and
acquisition market in recent years and a substantial amount of available
equity capital and a willing institutional lending market providing
financing for acquisitions.
As mentioned above, in 1996 and 1997, the Company met its obligations under
the terms of the Settlement of the environmental litigation, accelerated the
final payment due under the Subordinated Notes and repaid the remaining balances
outstanding under the Revolver and Term Notes and terminated the Loan
Agreement. As of February 28, 1998, the Company had approximately $12,000,000
in cash on hand. The Company intends to use such funds, together with other
specific borrowings, to seek out and acquire one or more businesses. While the
Company is continually reviewing and considering potential acquisition
candidates, it has not yet identified any potential acquisition candidates or
determined the amount or source of any indebtedness which would be incurred to
finance future acquisitions.
Description of Business
The Company operates in two business segments: manufacturing and services.
Detailed descriptions and general developments of the business conducted by each
segment follows:
Manufacturing
The Company's manufacturing segment consists of one subsidiary company -
Greenwald Industries, Inc. Greenwald designs and manufactures coin meter
systems used primarily in the commercial laundry appliance industry. In
addition, Greenwald's products are also sold to the vending, amusement and car
wash industries. Greenwald's sales are made to original equipment manufacturers
as well as distributors and route operators. Established in 1954, Greenwald has
developed an outstanding reputation and believes that it is the leading
manufacturer in its market. In February 1998, Greenwald entered into a joint
venture to develop, manufacture and market smart card systems for the commercial
laundry appliance industry. The primary raw materials used by Greenwald include
rolled and strip steel, metal stamped parts and certain electronic components,
all of which are readily available from multiple sources. Certain of
Greenwald's products are manufactured overseas under the Company's patented
designs and proprietary tooling. The Company believes that an interruption in
the supply of imported products would have a negative short-term impact.
However, production of such products can be sourced from other vendors. The
Company expects a continuing shift from mechanical coin meter systems to
electronic and smart card systems. Greenwald successfully competes against
several other companies due to its reputation for selling higher quality coin
handling equipment at competitive prices. Among Greenwald's customers are
several large original equipment manufacturers. Greenwald experiences a certain
degree of seasonality with sales declines typically occurring during the summer
months. Greenwald's office and
manufacturing operations are located in Chester, Connecticut.
Services
The Company's services segment consists of one subsidiary company -
Orr-Schelen-Mayeron & Associates, Inc. OSM provides general engineering, design
and architectural services. OSM is headquartered in Minneapolis, Minnesota and
its primary customer base is located in the midwestern United States. OSM's
capabilities include all facets of engineering of general construction projects
as well as environmental, transportation and water resource management
engineering services. OSM is one of the largest firms of its type in the
Minneapolis area. Competition for OSM's services are characterized primarily by
reputation, quality of work and cost effectiveness. As of December 31, 1997 and
1996, OSM had contract backlogs of approximately $3,400,000 and $4,400,000,
respectively. Substantially all of OSM's backlog is expected to be completed in
1998.
Employees
As of December 31, 1997, the Company had approximately 220 employees engaged
in manufacturing operations, engineering, marketing, sales, service, and
administrative activities.
Segment Information
During 1997, the Company operated in two business segments: manufacturing and
services. Information about the Company's operations by segment for the years
ended December 31, 1997, 1996 and 1995 is presented in the following table. For
1997, 1996 and 1995 the Company had export sales of approximately $1,003,000,
$805,000 and $1,259,000, respectively. Such sales were primarily to Canada.
Financial Information Relating to Industry
Segments and Classes of Products
(in thousands of dollars)
1997 1996 1995
Net sales to unaffiliated customers:
Manufacturing $17,039 $15,486 $16,680
Services 9,095 8,657 10,276
$26,134 $24,143 $26,956
Income (loss) from operations:1
Manufacturing 2 $3,090 $(286) $1,926
Services 283 (366) (524)
Corporate and other 3 (4,338) (4,754) (3,885)
$(965) $(5,406) $(2,483)
Identifiable Assets:
Manufacturing $9,614 $8,823 $9,110
Services 4,226 3,316 4,006
Corporate and other 14,331 20,956 22,442
$28,171 $33,095 $35,558
Depreciation and Amortization Expense:
Manufacturing $434 $337 $241
Services 248 258 281
Corporate and other 80 189 198
$762 $784 $720
Capital Expenditures
Manufacturing $312 $1,109 $2,197
Services 49 57 162
Corporate and other 20 38 396
$381 $1,204 $2,755
(1) Before interest income, interest expense and items of a nonoperating
nature.
(2) The 1996 loss from operations for the manufacturing segment includes a
special charge of $1,596,000 associated with Greenwald's plant relocation.
(3) The 1997 loss from operations for Corporate includes a non-cash charge
of $768,000 related to the modification and extension of certain common
stock purchase warrants.
<PAGE>
ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT (See Item 10 herein)
The following table sets forth information about the executive officers
of the Company as of February 28, 1998. The business address of each
executive officer is the address of the Company, One Post Road, Fairfield,
Connecticut 06430, and each executive officer is a United States citizen.
Name Age Office and Position
James J. Weis 49 President, Chief Executive Officer
and Director
Antonio L. DeLise 36 Vice President, Chief Financial Officer
and Secretary
There is no family relationship between any of the executive officers of
the Company. Each officer is elected to serve for a term ending with the
next annual meeting of shareholders.
Mr. Weis joined the Company in September 1984 as Assistant to the
President. Mr. Weis was elected Vice President in November 1984, Chief
Financial Officer and Secretary in April 1986, Executive Vice
President-Finance in August 1989 and President, Chief Executive Officer and
Director on March 8, 1995.
Mr. DeLise, a Certified Public Accountant, joined the Company in April
1995 as Vice President, Chief Financial Officer and Secretary. Prior to
joining the Company, Mr. DeLise was employed as a Senior Manager with the
firm of Arthur Andersen LLP and had been with such firm from July 1983
through March 1995.
ITEM 2. PROPERTIES
Operating Properties
The Company owns and leases various properties that are suitable and
adequate for its present needs. All of the Company's facilities are
generally being fully utilized.
Greenwald Industries, Inc.
Greenwald owns a building of approximately 119,000 square feet
containing manufacturing and office space in Chester, CT. This facility
includes 27 acres of land. The building and land are subject to a mortgage
serving a promissory note.
Orr-Schelen-Mayeron & Associates, Inc.
OSM leases approximately 38,000 square feet of office space in
Minneapolis, Minnesota under a lease expiring in 2002.
Executive Offices
The Company's executive offices are located in approximately 1,000 square
feet of space in Fairfield, Connecticut, and are occupied under a lease
expiring in May 2002. The Company also maintains approximately 2,600 square
feet of office space, for general corporate purposes, in New York City under
a lease expiring in 2004.
ITEM 3. LEGAL PROCEEDINGS
Various legal proceedings are pending against the Company. The Company
considers all such proceedings to be ordinary litigation incident to the
character of its businesses. Certain claims are covered by liability
insurance. The Company believes that the resolution of those claims to the
extent not covered by insurance will not, individually or in the aggregate,
have a material adverse effect on the financial position or results of
operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
(a)On July 11, 1996, the New York Stock Exchange ("NYSE")
announced that trading in the Company's common stock would be
suspended before the opening of trading on August 1, 1996. The
NYSE staff indicated that its decision to delist was based on
consideration of certain qualitative listing criteria, including
the reduction in operations due to recent and proposed subsidiary
sales, as well as the Company's failure to meet certain
quantitative listing criteria, including average net income for the
prior three years and net tangible assets. On August 1, 1996, the
Company's common stock began trading on the OTC Bulletin Board
under the symbol PLKR. The Company filed an appeal of the NYSE
staff decision. On November 11, 1996, the NYSE Board of Directors'
Committee for Review affirmed the staff decision to delist the
Company's common stock. The Securities and Exchange Commission by order
dated January 27, 1997 granted the application of the NYSE for removal of
the common stock of the Company from listing and registration on the NYSE
under the Securities and Exchange Act of 1934.
The high and low sales prices of the Company's common stock during
1997 and 1996 are shown below:
1997 1996
High Low High Low
First Quarter $1 1/2 $1 3/8 $2 7/8 $2 1/8
Second Quarter 1 3/8 1 3/16 2 1/2 1 7/8
Third Quarter 1 11/16 1 1/4 2 1 1/4
Fourth Quarter 1 11/16 1 5/16 1 3/4 1 3/8
(b) There were approximately 3,000 registered holders of record of common
stock of the Company as of January 31, 1998.
(c) The Company did not pay dividends on its common stock during the prior
five fiscal years and does not anticipate paying dividends in the
foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data of the Company presented below for the five year
period ended December 31, 1997, have been derived from the consolidated
financial statements of the Company, which have been audited by Arthur Andersen
LLP. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and the Notes
thereto included elsewhere in this report.
Year Ended December 31,
1997 1996 1995 1994 1993
(In thousands, except per share amounts)
Income Statement Data:
Net sales $26,134 $24,143 $26,956 $27,899 $26,716
Income (loss) from
operations1 (965)2 (5,406)3 (2,483) (1,700) (3,216)
Income (loss) from
continuing operations (1,688)2 (3,704)3 (5,266)4 (5,052)5 (21,698)6
Income from discontinued
operations - 1,916 4,975 2,763 3,944
Gain on sale of discontinued
operations, net 609 12,783 - - 8,307
Net income (loss) $(1,079) $10,995 $ (291) $(2,289) (9,447)
Per common share:
Income (loss) from continuing
operations $(.12) $(.24) $(.36) $(.34) $(1.50)
Income from discontinued
operations .04 .96 .34 .19 .85
Net income (loss) $(.08) $.72 $(.02) $(.15) $(.65)
December 31,
1997 1996 1995 1994 1993
(In thousands)
Balance Sheet Data:
Working capital $13,608 $17,434 $2,113 $15,753 $29,461
Total assets 28,171 33,095 35,558 38,514 48,932
Total debt7 1,272 1,762 10,556 14,869 22,082
Other non-current
liabilities 9,604 10,761 11,390 16,509 21,555
Shareholders' equity8 10,873 13,996 (2,594) (2,616) (340)
(1) Represents income (loss) before interest income, interest expense and items
of a nonoperating nature.
(2) The 1997 loss from operations includes a non-cash charge of $768,000
related to the modification and extension of certain common stock purchase
warrants. The loss from continuing operations also includes cost of
pensions - nonoperating of $768,000 and other costs of $270,000.
(3) The 1996 loss from operations includes a special charge of $1,596,000
associated with Greenwald's plant relocation. Loss from continuing
operations also includes cost of pensions - nonoperating of $769,000 and
legal settlements and other income of $156,000.
(4) Includes cost of pensions - nonoperating of $744,000, other costs of
$365,000 and a gain from repurchase of notes of $75,000.
(5) Includes cost of pensions - nonoperating of $768,000, other costs of
$507,000 and a gain from repurchase of notes of $640,000.
(6) Includes cost of pensions - nonoperating of $776,000, other costs of
$14,791,000 and a gain from repurchase of notes of $370,000.
(7) Includes current maturities of long term debt and revolving credit
line borrowings.
(8) No dividends on common shares have been declared or paid during the last
five years.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
For the year ended December 31, 1997, the Company's consolidated sales
increased by 8% to $26,134,000 compared to $24,143,000 for 1996. The increase
in sales was due to a 6% volume improvement coupled with a 2% price increase.
Cost of sales and services decreased from $18,046,000 in 1996 to $17,610,000 in
1997 as manufacturing productivity improvements more than offset the effect of
increased sales and revenues. General and administrative expenses for the year
ended December 31, 1997 decreased by approximately 15% to $7,483,000 from
$8,763,000 for 1996 as a result of overhead expense reductions. Selling
expenses were $1,238,000 in 1997 compared to $1,144,000 in 1996.
The Company's loss from operations for 1997 totaled $965,000 compared to
$5,406,000 for 1996. A non-cash charge of $768,000 was recorded in 1997 related
to the extension and modification of certain common stock purchase warrants.
Excluding this charge, the loss from operations for 1997 was $197,000. The 1996
loss from operations was negatively impacted by a $1,596,000 special charge
associated with Greenwald Industries plant relocation, a $372,000 write down of
certain obsolete inventories and a disruption in business activities caused by
the move.
Interest income increased to $696,000 for 1997 compared to $476,000 for 1996
due to higher amounts of cash investments. Interest expense decreased to
$381,000 during 1997 compared to $847,000 for 1996 due to repayments of the
Company's Subordinated Notes and Revolver and Term Notes in 1996 and 1997.
The Company reported a net loss of $1,079,000, or $.08 per share, for 1997
compared to net income of $10,995,000, or $.72 per share, for 1996. The 1997
results included a loss from continuing operations of $1,688,000, or $.12 per
share, and income from discontinued operations related to the reversal of
certain tax reserves of $609,000, or $.04 per share. The 1996 results included
a loss from continuing operations of $3,704,000, or $.24 per share, and income
from discontinued operations principally related to the gains on the disposition
of several subsidiaries of $14,699,000, or $.96 per share.
Sales for the Company's manufacturing segment (which consists of one
subsidiary company - Greenwald) totaled $17,039,000 as compared to $15,486,000
in 1996. The 10% increase in sales was primarily due to volume improvements.
This segment had income from operations of $3,090,000 in 1997 compared to a loss
from operations of $286,000 in the prior year. The 1996 results were negatively
impacted by the move costs discussed above.
Revenues for the Company's services segment (which consists of one subsidiary
company - OSM) increased by 5% to $9,095,000 for 1997 from $8,657,000 in 1996.
The revenue increase was primarily due to an increase in production employees
and billable salaries. The services segment had income from operations of
$283,000 for 1997 compared to a loss from operations of $366,000 for 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
For the year ended December 31, 1996, the Company had consolidated sales of
$24,143,000 compared to $26,956,000 for 1995. The decrease in sales was due to
a 13% decrease in volume offset by a 3% increase in selling prices. Cost of
sales and services decreased by approximately 10% from $20,012,000 in 1995 to
$18,046,000 in 1996 principally due to reduced sales volume. General and
administrative expenses for the year ended December 31, 1996 increased by
approximately 6% to $8,763,000 from $8,234,000 for 1996. The increase related
to higher consulting and professional fees. Selling expenses of $1,144,000 in
1996 were comparable to $1,193,000 in 1995. The Company's loss from operations
for 1996 totaled $5,406,000 compared to $2,483,000 for 1995.
Interest income and interest expense were favorably impacted in 1996 by the
proceeds received from the sales of several businesses. Interest income
increased to $476,000 for 1996 compared to $138,000 for 1995 due to higher
amounts of cash investments. Interest expense decreased to $847,000 during 1996
compared to $1,887,000 for 1995 due to repayments of the Company's Subordinated
Notes and Revolver and Term Notes in 1996.
The Company reported net income of $10,995,000, or $.72 per share, for 1996
and a net loss of $291,000, or $.02 per share for 1995. The 1996 results
included a loss from continuing operations of $3,704,000, or $.24 per share, and
income and gains from discontinued operations of $14,699,000, or $.96 per
share. The 1995 results included a loss from continuing operations of
$5,266,000, or $.36 per share, and income from discontinued operations of
$4,975,000 or $.34 per share.
Sales for the Company's manufacturing segment totaled $15,486,000 as
compared to $16,680,000 in 1995. The sales decline was attributable to a
disruption in business activities caused by Greenwald's move to a newly
acquired facility in Chester, Connecticut in early 1996. The move was completed
by April 30, 1996. This segment had a loss from operations of $286,000 for
1996 compared to income of $1,926,000 for the prior year. The decrease in
operating income of $2,212,000 was primarily attributable to a $1,596,000
special charge associated with Greenwald's move, a $372,000 write down of
certain obsolete inventories and a disruption in business activities caused by
the move.
Revenues for the Company's services segment decreased by 16% to $8,657,000
for 1996 from $10,276,000 in 1995. The revenue decline was primarily due to a
significant reduction in production employee headcount versus 1995. The
services segment had a loss from operations of $366,000 for 1996 as compared to
a loss of $524,000 for 1995 as a result of a high level of employee turnover and
non-billable time and loss recognition on a number of contracts.
In 1996, the Company completed the sale of substantially all of the assets
of Masterview Window Company, Inc., Fenwal Electronics, Inc. and Bright Star
Industries Incorporated. The aggregate sales price for the dispositions was
$47,771,000. The aggregate pre-tax gain on sale of discontinued operations
recorded in 1996 of $22,042,000 was offset by a provision for income taxes of
$9,259,000, of which $6,468,000 was credited directly to paid-in-capital due to
the utilization of pre-corporate reorganization tax loss carryforwards.
Liquidity
During the year ended December 31, 1997, cash, including short-term
investments, decreased by $5,241,000. Operating activities consumed cash of
$3,046,000, investing activities provided cash of $1,107,000 and financing
activities consumed cash of $3,302,000. Operating activities principally
consisted of the loss from continuing operations coupled with a reduction in
accrued liabilities associated with the environmental payments to the United
States and Commonwealth of Pennsylvania. Investing activities consisted of
additional proceeds of $1,488,000 from the sale of discontinued operations
offset by capital expenditures of $381,000. Financing activities consisted of
repayments of the Company's term loans and note payable of $490,000 and
repurchases of common stock of $3,770,000 offset by $958,000 of proceeds from
the issuance of common stock upon the exercise of common stock purchase warrants
and stock options.
In April 1996, the Consent Decree that settled the Company's environmental
litigation with the EPA and PADEP was entered by the Court and became final. The
Company had previously funded $4,500,000 into a court administered escrow
account. Following the entry of the Consent Decree, additional payments totaling
$4,850,000 were made. In April 1997, the Company made additional payments
totaling $796,000 plus interest. Further payments totaling $4,204,000 plus
interest will be made to the EPA and PADEP over the next five years.
In August 1996, the Board of Directors of the Company authorized the
repurchase of up to 1,000,000 shares of the Company's common stock. The Board
of Directors increased the Company's share repurchase authorization to 3,300,000
in 1997. Through December 31, 1997, the Company had repurchased 2,882,000
shares of common stock under the buy-back program for an aggregate cost of
$3,964,000.
During 1997, the Company's capital expenditures totaled $381,000. The
Company anticipates that its level of capital expenditures for 1998 will be
comparable to those of 1997. The Company has not entered into any material
commitments for acquisitions or capital expenditures and has the ability to
increase or decrease capital expenditure levels as required. The Company
anticipates that it will be able to fund its capital expenditures during 1998
with its available cash resources and its other cash flows as well as through
capital equipment financing.
At December 31, 1997, approximately $79,000,000 of U.S. tax loss
carryforwards (subject to review by the Internal Revenue Service), expiring from
1998 through 2012, were available to offset future taxable income.
Year 2000
The Company has begun modifying and upgrading its existing computer systems
to process transactions in the year 2000 and beyond. While management expects
all systems to be year 2000 compliant, there can be no assuarnce that all such
modifications will be successful. Anticipated spending for these modifications
and upgrades are not expected to have a significant impact on the Company's
on-going results of operations.
Outlook
The Company's primary objective for 1998 is to identify a suitable
acquisition candidate or candidates. As mentioned above, in 1996 and 1997, the
Company met its obligations under the terms of the settlement of its
environmental litigation, made the final payment under the Subordinated Notes
and repaid the remaining balances outstanding under the Revolver and Term Notes
and terminated the Loan Agreement. As of February 28, 1998, the Company had
approximately $12,000,000 in cash on hand. The Company intends to use such
funds, together with other potential borrowings, to seek out and acquire one or
more businesses. While the Company is continually reviewing and considering
potential acquisition candidates, it has not yet identified any specific
acquisition candidates or determined the amount or source of any indebtedness
which would be incurred to finance future acquisitions.
Special Note Regarding Forward-Looking Statements: A number of statements
contained in this discussion and analysis are forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 that involve
risks and uncertainties that could cause actual results to differ materially
from those expressed or implied in the applicable statements. These risks and
uncertainties include but are not limited to: Greenwald's dependance on the
mechanical coin meter market and its potential vulnerability to technological
obsolescence; OSM's dependence on key personnel and general economic conditions
in the Midwest; and the Company's ability to successfully implement its
acquisition strategy including the identification, financing and consummation
of any acquisition transaction.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements, the report of independent
public accountants thereon and related schedules appear beginning on page F-2.
See Index to Consolidated Financial Statements on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this item is hereby incorporated by reference
from the Company's definitive proxy statement to be filed pursuant to Regulation
14A for the 1998 Annual Meeting of Shareholders.
The information with respect to the executive officers of the Company
required by this item is set forth in Item 1A of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is hereby incorporated by reference
from the Company's definitive proxy statement to be filed pursuant to Regulation
14A for the 1998 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is hereby incorporated by reference
from the Company's definitive proxy statement to be filed pursuant to Regulation
14A for the 1998 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is hereby incorporated by reference
from the Company's definitive proxy statement to be filed pursuant to
Regulation 14A for the 1998 Annual Meeting of Shareholders.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Statement Schedules and Exhibits.
1) Financial Statements - See accompanying Index to Consolidated
Financial Statements, Page F-1.
2) Financial Statement Schedules - None
3) Exhibits:
3.1 Amended and Restated Articles of Incorporation, amended and
restated through August 27, 1996. Incorporated by reference from
the Registrant's Form 10-K for the year ended December 31, 1996,
dated March 19, 1997.
3.2 By-Laws as amended through July 17, 1990. Incorporated by
reference from the Registrant's Form 10-K for the year ended
December 31, 1990, dated March 28, 1991.
3.3 Certificate of Designation, Preferences and Rights of Class A
Preferred Stock, First Series. Incorporated by reference from the
Registrant's Registration Statement on Form 8-A, dated September
26, 1988.
4.1 Form of option to purchase common stock of the Registrant issued in
connection with the Stock Purchase Agreement
dated April 12, 1985, among the Registrant, Balfour Securities
Corporation and the Purchasers. Incorporated by reference from the
Registrant's Form 10-K for the year ended December 31, 1994, dated
March 31, 1995.
4.2 Form of Warrant Agreement, dated 1986 between the Registrant and
J. Henry Schroder Bank & Trust Company, as Warrant Agent.
Incorporated by reference from the Registrant's Registration
Statement on Form S-1, dated October 8, 1986.
4.3 Form of Amendment No. 1 to Warrant Agreement, dated August 13,
1997, between the Registrant and Publicker Industries Inc.,
successor to J. Henry Schroder Bank & Trust Company, as Warrant
Agent. Incorporated by reference from the Registrant's Form 8-K,
filed on August 15, 1997.
4.4 Form of Warrant Agreement, dated 1986 between the Registrant and
Drexel Burnham Lambert Incorporated. Incorporated by
reference from the Registrant's Registration Statement on Form S-1,
dated October 8, 1986.
4.5 Form of Amendment No. 1 to Warrant Agreement, dated August 13,
1997, between the Registrant and Harry I. Freund and Jay S.
Goldsmith. Incorporated by reference from the Registrant's
Form 8-K, filed on August 15, 1997.
4.6 Rights Agreement, dated as of August 9, 1988, between the
Registrant and Mellon Financial Services Corporation #17, as
Rights Agent. Incorporated by reference from the Registrant's
Registration Statement on Form 8-A, dated September 26, 1988.
10.1 Agreements dated as of August 1987 between the Registrant and
Harry I. Freund, Jay S. Goldsmith, David L. Herman, and James
J. Weis concerning a change in control of the Registrant.
Incorporated by reference from the Registrant's Form 8
Amendment to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1987, dated December 7,
1987, filed on December 18, 1987.
10.2 Publicker Industries Inc. 1991 Stock Option Plan. Incorporated
by reference from the Registrant's Form 8 Amendment to the
Registrant's Form 10-K for the year ended December 31, 1991, dated
August 14, 1992.
10.3 Employment Agreement between the Registrant and Mr. James J.
Weis dated February 17, 1987. Incorporated by reference from
the Registrant's Form 8 Amendment to the Registrant's Form 10-K
for the year ended December 31, 1991, dated August 14, 1992.
10.4 Publicker Industries Inc. 1993 Long-Term Incentive Plan.
Incorporated by reference from the Registrant's Form 10-K for
the year ended December 31, 1993, dated March 29, 1994.
10.5 Publicker Industries Inc. Non-employee Director Stock Option Plan.
Incorporated by reference from the Registrant's Form 10-K for
the year ended December 31, 1993, dated March 29, 1994.
10.6 Consulting Arrangement between the Registrant and Harry I.
Freund and Jay S. Goldsmith. Incorporated by reference from the
Registrant's Form 10-K/A for the year ended December 31, 1995,
dated May 15, 1996.
10.7 Asset Purchase Agreement dated March 29, 1996 among Fenwal
Electronics, Inc., Registrant, as sellers, and Elmwood Sensors,
Inc. as buyer. Incorporated by reference from Registrant's
Form 8-K dated April 15, 1996.
10.8 Asset Purchase Agreement dated August 16, 1996 among Masterview
Window Company, Inc., Registrant, Hanten
Acquisition Co., as sellers, and Masterview Acquisition Corp.,
as buyer. Incorporated by reference from Registrant's Form 10-Q
for the quarter ended September 30, 1996, dated November 14,
1996.
21.1 Subsidiaries of Registrant. Filed herewith.
23.1 Consent letter from Independent Public Accountants. Filed
herewith.
27.1 Financial Data Schedule (EDGAR version only). Filed herewith.
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, hereunto duly authorized.
PUBLICKER INDUSTRIES INC.
(Registrant)
Date March 20, 1998 By:/s/ JAMES J. WEIS
James J. Weis, President,
Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date March 20, 1998 By:/s/ JAMES J. WEIS
James J. Weis, President,
Chief Executive Officer and
Director
Date March 20, 1998 By:/s/ ANTONIO L. DELISE
Antonio L. DeLise, Vice President,
Chief Financial Officer, Secretary and
Principal Financial and Accounting Officer
Date March 20, 1998 By:/s/ CLIFFORD B. COHN
Clifford B. Cohn, Director
Date March 20, 1998 By:/s/ HARRY I. FREUND
Harry I. Freund, Director
Date March 20, 1998 By: /s/ JAY S. GOLDSMITH
Jay S. Goldsmith, Director
Date March 20, 1998 By:/s/ DAVID L. HERMAN
David L. Herman, Director
Date March 20, 1998 By:/s/ L. G. SCHAFRAN
L. G. Schafran, Director
<PAGE>
PUBLICKER INDUSTRIES INC.
AND SUBSIDIARY COMPANIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of independent public accountants F-2
Consolidated balance sheets as of December 31, 1997 and 1996 F-3
Consolidated statements of income (loss) for the years ended
December 31, 1997, 1996 and 1995 F-4
Consolidated statements of shareholders' equity for the years
ended December 31, 1997, 1996 and 1995 F-5
Consolidated statements of cash flows for the years ended
December 31, 1997, 1996 and 1995 F-6
Notes to consolidated financial statements F-7 through F-15
All schedules required by Regulation S-X have been omitted because they are
not applicable or because the required information is included in the financial
statements or notes thereto.
<PAGE>
PUBLICKER INDUSTRIES INC.
AND SUBSIDIARY COMPANIES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Publicker Industries Inc.:
We have audited the accompanying consolidated balance sheets of Publicker
Industries Inc. (a Pennsylvania corporation) and subsidiary companies as of
December 31, 1997 and 1996, and the related consolidated statements of income
(loss), shareholders' equity and cash flows for each of the three years in the
period ended December 31, 1997. 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 Publicker Industries Inc. and
subsidiary companies as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Stamford, Connecticut
January 30, 1998
<PAGE>
PUBLICKER INDUSTRIES INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS AS OF
DECEMBER 31, 1997 AND 1996
1997 1996
(in thousands except per share data)
ASSETS
Current assets:
Cash, including short-term investments of
$11,779 in 1997 and $18,173 in 1996 (Note 1) $13,077 $18,318
Trade receivables, less allowance for doubtful
accounts (1997 - $68; 1996 - $92) (Note 1) 3,935 3,008
Inventories (Note 1) 2,461 2,506
Other 691 667
Total current assets 20,164 24,499
Property, plant and equipment (Note 1):
Land 234 234
Buildings and leasehold improvements 2,331 2,326
Machinery and equipment 3,555 3,322
Less - accumulated depreciation (2,197) (1,778)
3,923 4,104
Goodwill (Note 1) 2,672 2,752
Other assets (Note 6) 1,412 1,740
$28,171 $33,095
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (Note 3) $134 $489
Trade accounts payable 1,091 1,564
Accrued liabilities (Notes 6 and 10) 5,331 5,012
Total current liabilities 6,556 7,065
Long-term debt (Note 3) 1,138 1,273
Other non-current liabilities (Notes 6 and 10) 9,604 10,761
Total liabilities 17,298 19,099
Shareholders' equity (Notes 4 and 7):
Common shares, $0.10 par value,
Authorized - 40,000,000 shares Issued - 16,551,849
shares in 1997 and 16,037,937 shares in 1996 1,655 1,604
Additional paid-in capital 49,915 48,240
Accumulated deficit (since January 1, 1984) (32,816) (31,737)
Common shares held in treasury, at cost (7,881) (4,111)
Total shareholders' equity 10,873 13,996
$28,171 $33,095
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
PUBLICKER INDUSTRIES INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
(in thousands except per share data)
Sales and revenues:
Sales of goods $17,039 $15,486 $16,680
Revenues from services 9,095 8,657 10,276
26,134 24,143 26,956
Costs and expenses:
Cost of sales 11,705 11,894 12,774
Cost of services 5,905 6,152 7,238
General and administrative expenses 7,483 8,763 8,234
Selling expenses 1,238 1,144 1,193
Warrant expense (Note 7) 768 - -
Relocation charge (Note 11) - 1,596 -
27,099 29,549 29,439
Income (loss) from operations (965) (5,406) (2,483)
Other (income) expenses:
Interest income (696) (476) (138)
Interest expense 381 847 1,887
Cost of pensions-nonoperating (Note 6) 768 769 744
Other (income) expense 270 (156) 290
723 984 2,783
Income (loss) from continuing operations
before income taxes (1,688) (6,390) (5,266)
Income tax benefit - 2,686 -
Income (loss) from continuing operations (1,688) (3,704) (5,266)
Discontinued operations (Note 2):
Income from discontinued operations,
net of income taxes - 1,916 4,975
Gain on sale of discontinued
operations, net of income taxes 609 12,783 -
Net income (loss) $(1,079) $10,995 $(291)
Basic earnings (loss) per common share
(Note 1):
Continuing operatio ns $(.12) $(.24) $(.36)
Discontinued operations .04 .96 .34
$(.08) $.72 $(.02)
The accompanying notes to consolidated financial statements are an integral part
of these statements.<PAGE>
PUBLICKER INDUSTRIES INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Common Shares Additional Accumulated Common Share-
Shares Paid-in Deficit Treasury holders'
Issued Amount Capital Since 1-1-84 Shares Equity
(in thousands except share data)
Balance -
December 31, 1994 14,950,937 $1,495 $41,942 $(42,441) $(3,612) $(2,616)
Issuance of Common
Shares 455,000 46 546 - - 592
Purchase of Common
Shares - - - - (279) (279)
Net loss - - - (291) - (291)
Balance -
December 31, 1995 15,405,937 1,541 42,488 (42,732) (3,891) (2,594)
Issuance of Common
Shares 632,000 63 583 - - 646
Purchase of Common
Shares - - - - (220) (220)
Net income - - - 10,995 - 10,995
Charge in lieu of income
taxes (Note 5) - - 5,169 - - 5,169
Balance -
December 31, 1996 16,037,937 1,604 48,240 (31,737) (4,111) 13,996
Issuance of Common
Shares:
Stock option plans 27,000 2 29 - - 31
Stock purchase
warrants 486,912 49 878 - - 927
Expense related to
extension of common
stock purchase warrants - - 768 - - 768
Purchase of Common Shares - - - - (3,770) (3,770)
Net loss - - - (1,079) - (1,079)
Balance-
December 31, 1997 16,551,849 $1,655 $49,915 $(32,816) $(7,881) $10,873
(1) Represents common shares held in treasury of 3,440,252 at December 31, 1997,
678,352 at December 31, 1996, and 545,027 at December 31, 1995.
The accompanying notes to consolidated financial statements are an integral part
of these statements.
PUBLICKER INDUSTRIES INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
(in thousands)
Cash flows from operating activities:
Loss from continuing operations $(1,688) $(3,704) $(5,266)
Adjustments to reconcile loss to
net cash used in continuing operations:
Warrant expense 768 - -
Income tax benefit - (2,686) -
Depreciation and amortization 762 784 720
Gain on sale of assets - (290) -
Gain from repurchase of notes - - (75)
Changes in operating assets and
liabilities (Note 1) (2,560) (5,408) (2,804)
Net cash used in continuing
operations (2,718) (11,304) (7,425)
Income from discontinued operations 609 14,699 4,975
Adjustments to reconcile income to
net cash provided by (used in)
discontinued operations:
Gain on sale of discontinued
operations (609) (19,251) -
Charge in lieu of income taxes - 7,855 -
Increase in net assets of
discontinued operations (328) (6,931) (679)
Net cash provided by (used in)
discontinued operations (328) (3,628) 4,296
Net cash used in operating
activities (3,046) (14,932) (3,129)
Cash flows from investing activities:
Proceeds from sale of discontinued
operations 1,488 45,852 2,240
Proceeds from sale of assets - 601 -
Capital expenditures (381) (1,204) (2,755)
Net cash provided by (used in)
investing activities 1,107 45,249 (515)
Cash flows from financing activities:
Repurchase or redemption of 13%
Subordinated Notes - (7,500) (7,425)
Borrowings (repayments) under
revolving credit lines - (3,502) 1,475
Proceeds from issuance of term
loans and notes payable - - 4,163
Repayment of term loans and
notes payable (490) (2,297) (282)
Proceeds from the issuance of
common shares 958 646 592
Purchase of treasury stock (3,770) (220) (279)
Net cash used in financing
activities (3,302) (12,873) (1,756)
Net increase (decrease) in cash (5,241) 17,444 (5,400)
Cash - beginning of period 18,318 874 6,274
Cash - end of period $13,077 $18,318 $874
The accompanying notes to consolidated financial statements are an integral
part of these statements.<PAGE>
PUBLICKER INDUSTRIES INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of Publicker
Industries Inc. (the "Company") and its wholly-owned subsidiaries. All
significant intercompany transactions are eliminated in consolidation.
Short-term investments
Short-term investments consist of certain liquid instruments with original
maturities of three months or less including U.S. Treasury obligations,
repurchase agreements and money market funds.
Inventories
Inventories are recorded at cost, determined on a first-in, first-out, or
FIFO, basis and do not exceed net realizable values. Inventories at December
31, 1997 and 1996 consisted of the following:
1997 1996
(in thousands)
Raw materials and supplies $1,407 $1,589
Work in process 282 250
Finished goods 772 667
$2,461 $2,506
Depreciation and amortization
Property, plant and equipment are stated at cost. Improvements and
replacements are capitalized, while expenditures for maintenance and repairs are
charged to expense as incurred. Depreciation and amortization is computed using
the straight-line method over estimated useful lives of 3 to 7 years for
machinery and equipment and 7 to 39 years for buildings and leasehold
improvements.
Goodwill is amortized on a straight-line basis over a forty-year period.
Accumulated amortization was $553,000 and $472,000 as of December 31, 1997 and
1996, respectively. At each balance sheet date, the Company evaluates the
realizability of goodwill based upon expectations of non-discounted cash flows
and operating income for each subsidiary having a goodwill balance. Based upon
its most recent analysis, the Company believes that no material impairment of
goodwill exists at December 31, 1997.
Revenue Recognition
Revenues are generally recorded when title passes to the customer. One of the
Company's businesses performs services under long-term contracts. Revenues on
long-term contracts are recognized under the percentage-of-completion method of
accounting. The percentage-of-completion method of reporting income from
contracts takes into account the cost, estimated earnings and revenue to date on
contracts not yet completed. The amount of revenue recognized is the portion of
the total contract price that the cost expended to date bears to the anticipated
final total cost, based on current estimates of costs to complete. Contract
cost includes all materials, labor, overhead and subcontract costs related to
the projects. In the event a loss on a contract is anticipated, such losses are
recorded in full as they are identified. As of December 31, 1997 and 1996, net
costs and estimated earnings in excess of billings on uncompleted contracts,
which have been classified as trade receivables, totaled $926,000 and $604,000,
respectively, all of which are expected to be billed and collected within one
year. Net costs and estimated earnings in excess of billings are billable based
on the terms of the contract which may include shipment of the Company's
product, achievement of contractual milestones or completion of the contract.
Use of Estimates
The preparation of these financial statements required the use of certain
estimates by management in determining the entity's assets, liabilities,
revenues and expenses. While all available information has been considered,
actual amounts could differ from those reported. The most significant estimate
with regard to these financial statements relates to the revenue recognition on
long-term contracts.
Cash Flow Information
Cash paid for interest during 1997, 1996 and 1995 was $413,000, $651,000 and
$1,838,000, respectively. Cash paid for income taxes during 1996 was
$1,912,000. No income taxes were paid in 1997 and 1995. Changes in operating
assets and liabilities consisted of the following:
1997 1996 1995
(in thousands)
Restricted cash $ - $4,500 $(4,500)
Trade receivables (927) 809 1,560
Inventories 45 381 (167)
Other current assets (24) 48 (85)
Other assets 208 134 (947)
Trade accounts payable (473) (1,949) 457
Accrued liabilities (232) (8,702) 5,997
Other non-current liabilities (1,157) (629) (5,119)
$(2,560) $(5,408) $(2,804)
Earnings (loss) per common share
During 1997, the Company adopted FASB Statement 128 Earnings Per Share.
Basic net income (loss) per common share is based on net income divided by the
weighted average number of common shares outstanding during each year
(14,057,396 in 1997, 15,294,504 in 1996 and 14,760,586 in 1995). Diluted net
income (loss) per common share assumes issuance of the net incremental shares
from stock options and warrants at the later of the beginning of the year or
date of issuance. Diluted net income (loss) per share was not computed for
1997, 1996 and 1995 as the effect of stock options and warrants were
antidilutive.
Note 2 - DISCONTINUED OPERATIONS
In 1996, the Company completed the sale of substantially all of the
assets of Masterview Window Company, Inc. ("Masterview"), Fenwal Electronics,
Inc. ("Fenwal") and Bright Star Industries Incorporated ("Bright Star"). The
aggregate sales price for the dispositions was $47,771,000. A portion of the
sales prices amounting to $1,919,000 at December 31, 1996, was held in escrow to
cover potential purchase price adjustments, indemnity claims and certain
environmental remediation activities. During 1997, an additional $1,488,000 in
cash was received principally relating to the finalization of the Masterview
purchase price adjustment.
Masterview, Fenwal and Bright Star have been reflected as discontinued
operations in the accompanying financial statements. Net sales of discontinued
operations for the years ended December 31, 1996 and 1995 were $27,640,000
and $50,530,000, respectively. The aggregate pre-tax gain on sale of
discontinued operations recorded in 1996 of $22,042,000 was offset by a
provision for income taxes of $9,259,000, of which $6,468,000 was credited
directly to paid-in-capital due to the utilization of pre-corporate
reorganization tax loss carryforwards. The pre-tax income from discontinued
operations in 1996 of $3,303,000 was offset by a provision for income taxes of
$1,387,000 which was also credited directly to paid-in-capital (see Note 5).
Note 3 - DEBT
Debt at December 31, 1997 and 1996 consisted of the following:
1997 1996
(in thousands)
Note payable $1,272 $1,396
Loan Agreement Term Notes - 366
$1,272 $1,762
In December 1995, the Company entered into a $1,600,000 note payable in
connection with the purchase of a building and land in Chester, Connecticut.
The note amortizes on a 120 month straight-line basis, is secured by the
building and land and bears a 9% interest rate.
In 1995, the Company's operating subsidiaries entered into a three year
$17,060,000 credit agreement ("Loan Agreement"). The Loan Agreement provided for
a revolving credit line ("Revolver"), term promissory notes ("Term Notes") and
a credit facility for future capital expenditure financing. The Loan Agreement
was secured by substantially all of the Company's assets. In connection with
the sale of businesses in 1996, the outstanding borrowings under the Revolver
and the Term Notes related to Masterview, Fenwal and Bright Star were repaid.
In February 1997, the Company repaid the remaining balances outstanding under
the Revolver and Term Notes and terminated the Loan Agreement. Upon repayment
of the Loan Agreement, or portions thereof, before maturity, the Company paid a
prepayment penalty equal to 3% in 1996 and 2% in 1997.
In December 1986, the Company issued $30 million of 13% Subordinated
Notes due December 1996. In April 1996, the Company redeemed all of its
remaining 13% Subordinated Notes. The redemption price was equal to the
principal amount of $7,500,000, plus accrued interest to the redemption date.
The annual maturities of the Company's long-term debt are as follows (in
thousands):
Year
1998 $ 134
1999 147
2000 160
2001 176
2002 192
Thereafter 463
$ 1,272
Note 4 - SHAREHOLDERS' EQUITY
The Company has 1,000,000 shares of authorized and unissued Class A
Preferred Stock, without par value. On August 9, 1988, the Company declared a
dividend of one Right for each outstanding share of its common stock. Each
Right entitles the holder to purchase one one-hundredth of a share of a new
series of Class A Preferred Stock at an exercise price of $7.50, subject to
adjustment to prevent dilution. The Rights become exercisable 10 days after a
person or group acquires 20% or more of the Company's common stock or announces
a tender or exchange offer for 30% or more of the Company's common stock. If,
after the Rights become exercisable, the Company is party to a merger or similar
business combination transaction, each Right not held by a party to such
transaction may be used to purchase common stock having a market value of two
times the exercise price. The Rights, which have no voting power, may be
redeemed by the Company at $.01 per Right and expire on August 8, 1998.
In August, 1996, the Company's shareholders approved an increase in the
authorized shares of the Company's common stock, par value $.10 per share, from
30,000,000 to 40,000,000. Also in August, 1996, the Board of Directors of the
Company authorized the repurchase of up to 1,000,000 shares of the Company's
common stock. The Board of Directors increased the Company's share repurchase
authorization to 3,300,000 shares in 1997. Through December 31, 1997, the
Company had repurchased 2,882,100 shares of common stock under the buy-back
program for an aggregate cost of $3,964,000.
Note 5 - INCOME TAXES
As of December 31, 1997, approximately $79,000,000 of U.S. tax loss
carryforwards (subject to review by the Internal Revenue Service), expiring from
1998 through 2012, were available to offset future taxable income. The
carryforwards expire as follows (in thousands):
Year
1998 $ 5,000
1999 5,000
2000 12,000
2001 9,000
2002 25,000
2003-2012 23,000
$ 79,000
As a result of a corporate revaluation during 1984, tax benefits resulting
from the utilization in subsequent years of net operating loss carryforwards
existing as of the date of the corporate revaluation will be excluded from the
results of operations and directly credited to additional paid-in capital when
realized. As of December 31, 1997, approximately $5,000,000 of the Company's
U.S. tax loss carryforwards predated the corporate revaluation. Approximately
$16,000,000 of the Company's U.S. tax loss carryforwards were utilized in 1996.
No income tax provision or benefit was recognized in 1997 and 1995 because
the tax benefit associated with the Company's operating losses were offset in
full by an increase in the valuation allowance. In 1997, the Company reversed
$609,000 of tax reserves provided in 1996 relating to the sales of certain
subsidiaries. The consolidated provision for income taxes for the year ended
December 31, 1996, consisted of the following (in thousands):
Current provision
Federal $ 358
State 2,433
2,791
Deferred provision
Federal (623)
State (117)
Change in valuation allowance 740
-
Charge in lieu of income taxes 5,169
Total consolidated income tax provision $ 7,960
The difference between the federal statutory tax rate and the effective
tax rate for 1996 was as follows:
Federal statutory tax rate 35.0%
State taxes, net of federal benefit 5.8
Other, net 1.2
Actual tax rate 42.0%
The significant temporary differences which gave rise to the deferred tax
provision were as follows (in thousands):
Discontinued operations reserves $ (893)
Pension expense 236
Other, net (83)
$ (740)
The components of net deferred taxes are as follows:
1997 1996
(in thousands)
Net operating loss carryforward $ 27,749 $ 31,017
Pension expense 1,845 1,910
Discontinued operations reserves 178 851
Depreciation 175 (159)
Other, net 144 159
30,091 33,778
Less valuation allowance (30,091) (33,778)
Net deferred taxes $ - $ -
As of December 31, 1997, approximately $2,000,000 of deferred tax assets
predated the corporate revaluation. Subsequent adjustments to the valuation
allowance with respect to such deferred tax assets would be directly credited to
additional paid-in capital.
Note 6 - EMPLOYEE BENEFITS
The Company and its subsidiaries maintain a 401(k) plan for substantially all
of the Company's employees. The assets of the Company's 401(k) plan are held by
an outside fund manager and are invested in accordance with the instructions of
the individual plan participants. The Company sponsors a defined benefit
pension plan which was frozen in 1993. Several other defined benefit plans were
terminated in 1996 and 1995. These actions did not have any material effect on
the Company's financial statements. The assets of the defined benefit pension
plan are managed by an outside trustee and invested primarily in a low duration
bond fund.
The Company's 401(k) contributions totaled $190,000, $156,000 and $181,000
in 1997, 1996 and 1995, respectively. Consolidated pension expense includes
amounts related to discontinued product lines and related plant closings in
prior years totaling $768,000, $769,000 and $744,000 in 1997, 1996 and 1995,
respectively.
Net periodic pension cost for Company sponsored defined benefit pension plans
for 1997, 1996 and 1995 included the following components:
1997 1996 1995
(in thousands)
Interest cost on projected benefit
obligation $ 766 $ 1,228 $ 815
Actual return on plan assets (327) (759) (305)
Net amortization and deferral 306 290 221
Net periodic pension cost $ 745 $ 759 $ 731
The following table sets forth the plans' estimated funded status at
December 31, 1997 and 1996.
1997 1996
(in thousands)
Accumulated vested and projected benefit obligation $10,775 $11,220
Plan assets at fair value 4,253 4,247
Projected benefit obligation (in excess of)
less than plan assets (6,522) (6,973)
Unrecognized net (gain) loss (524) (461)
Unrecognized net obligation at January 1, 1986,
net of amortization 1,775 2,078
Adjustment to recognize minimum pension liability (1,251) (1,502)
Pension liability $(6,522) $(6,858)
A discount rate of 7.25% and expected long-term rate of return of 8%
were used in accounting for pensions in 1997, 1996 and 1995.
As of December 31, 1997, accrued pension liabilities were $6,522,000, of
which $1,032,000 was included in accrued liabilities and $5,490,000 was
included in other noncurrent liabilities. As of December 31, 1996, accrued
pension liabilities were $6,858,000, of which $1,200,000 was included in
accrued liabilities and $5,658,000 was included in other noncurrent
liabilities. Accrued liabilities also included accrued payroll and other
employment related accruals of approximately $1,518,000 and $1,346,000 as of
December 31, 1997 and 1996, respectively.
Note 7 - STOCK OPTIONS AND WARRANTS
At December 31, 1997, the Company has several fixed stock option plans,
which are described below. The Company applies APB Opinion 25 Accounting for
Stock Issued to Employees and related interpretations in accounting for its
plans. The exercise price of each option granted was equal to the market
price of the Company's common stock on the date of grant. Accordingly, no
compensation cost has been recognized for the fixed stock option plans. Had
compensation cost been determined based on the fair value at the grant dates
for awards under the fixed option plans consistent with the method of FASB
Statement 123 Accounting for Stock-Based Compensation, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below:
1997 1996 1995
(in thousands except per share data)
Net income (loss) As reported $(1,079) $10,995 $(291)
Pro forma $(1,253) $10,470 $(953)
Earnings per share As reported $(.08) $ .72 $(.02)
Pro forma $(.09) $ .68 $(.06)
For purposes of the pro forma disclosure, the fair value of each option
grant is estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions used for grants in 1997,
1996 and 1995: dividend yield of zero; risk-free interest rate of
approximately 6%; and expected lives of 5 years. The expected volatility rate
was 54% in 1997 and 67% in both 1996 and 1995.
Under the stock option plans for directors, officers and key employees
adopted by shareholders of the Company, the Company may grant stock options,
restricted stock options, stock appreciation rights, performance awards and
other stock-based awards equivalent to up to 4,300,000 shares of common stock.
The plans are administered by the Board of Directors of the Company. Subject
to the express provisions of the plans, the Board has full and final authority
to determine the terms of options granted to key employees under the plans
including (a) the purchase price of the shares covered by each option, (b)
whether any payment will be required upon grant of the option, (c) the
individuals to whom, and the time at which, options shall be granted, (d) the
number of shares to be subject to each option, (e) when an option can be
exercised and whether in whole or in installments, (f) whether the options are
immediately transferable, (g) whether the exercisability of the options is
subject to risk of forfeiture or other condition and (h) whether the stock
issued upon exercise of an option is subject to repurchase by the Company, and
the terms of such repurchase. The term of the options granted during 1997,
1996 and 1995 was five years from the date of grant and such options were
immediately exercisable. The exercise price of each option granted was equal
to the market price of the Company's common stock on the date of grant.
Under the Non-employee Director Stock Option Plan, on July 1 of each year
commencing July 1994, the Chairman of the Board and the Vice Chairman of the
Board each automatically receives an option to purchase for five years
125,000 shares of common stock and each other non-employee director
automatically receives an option to purchase for five years 30,000 shares of
common stock.
A summary of the Company's fixed stock option plans as of December 31,
1997, 1996 and 1995 and changes during the years then ending is presented
below:
1997 1996 1995
Average Average Average
exercise exercise exercise
Shares price Shares price Shares price
Balance at January 1 1,938,500 $1.69 2,068,500 $1.45 1,760,000 $1.29
Granted 250,000 1.31 525,000 1.85 569,500 1.87
Exercised (27,000) 1.15 (592,000) 1.09 (255,000) 1.24
Canceled (31,000) 1.58 (63,000) .89 (6,000) 1.13
Balance at December 31 2,130,500 1.65 1,938,500 1.69 2,068,500 1.45
All of the options outstanding are immediately exercisable when granted.
The weighted average fair value of options granted during 1997, 1996 and 1995
were $.70, $1.21 and $1.16 per share, respectively. The exercise price of
stock options outstanding at December 31, 1997 ranges from $1.25 to $2.00 and
the weighted average contractual life is approximately 2.4 years.
In April 1985, the Company issued 1.6 million shares of common stock at
$2.50 per share in a private placement. Under the terms of this agreement,
the agent for the purchasers received options to buy 400,000 shares of the
Company's common stock held in treasury at a price of $2.50 per share for five
years, which period was subsequently extended by ten years. These options are
held by two members of the Company's Board of Directors.
In December 1990, pursuant to an employment agreement with an officer, the
Company issued options to buy 200,000 shares of the Company's common stock at
a price of $1.375 per share for five years. These options were exercised in
1995. In January 1996, the Company issued options to two members of the
Company's Board of Directors to buy 200,000 shares of the Company's common
stock at a price of $2.50 per share for five years.
In December 1986, the Company issued $30 million of 13% Subordinated Notes
(see Note 3) together with detachable warrants ("Warrants") to purchase
3,600,000 shares of the Company's common stock for five years, which period
was subsequently extended by five years. In addition, the Company issued
1,200,000 Underwriter's Warrants to purchase the Company's common stock for
five years, which period was subsequently extended by five years. Each
Warrant and Underwriter Warrant entitles its holder to purchase 1.024 shares
of common stock for $1.95 per share (subject to adjustment in certain
circumstances). Unexercised warrants were to expire on December 15, 1996
(December 17, 1996, in the case of the Underwriter's Warrants).
On November 8, 1996, the Company's Board of Directors, acting upon the
recommendation of a special committee of disinterested directors, determined
it would be in the Company's best interests to modify the Warrants and
Underwriter's Warrants owned by any holder who exercises, at the current
exercise price of $1.95 per share of common stock, 25% of the warrants owned
on December 15, 1996 (December 17, 1996, in the case of the Underwriter's
Warrants). Shareholders of the Company subsequently approved the modification
on July 2, 1997 ("the Approval Date"). As of July 2, 1997, a total of 2,257,050
warrants were outstanding entitling the warrant holders to purchase an
aggregate of 2,311,220 shares of common stock.
The modification resulted in the following changes to the holder's
unexercised Warrants and Underwriter's Warrants (i.e., the 75% balance of the
warrants owned on December 15, 1996 or December 17, 1996, as the case may be)
(the "Remaining Modified Warrants"):
(a)Five-Year Extension - The expiration date of the holder's
Remaining Modified Warrants was extended to July 2, 2002.
(b)Increased Exercise Price - The exercise price of the holder's
Remaining Modified Warrants was increased from $1.95 per share to (i)
$2.00 per share, during the year ending on the first anniversary of
the Approval Date, (ii) $2.10 per share, during the year ending on
the second anniversary of the Approval Date, (iii) $2.20 per share,
during the year ending on the third anniversary of the Approval Date,
(iv) $2.30 per share, during the year ending on the fourth
anniversary of the Approval Date, and (v) $2.40 per share, during the
year ending on the fifth anniversary of the Approval Date.
In September 1997, a total of 486,912 shares of common stock were issued
pursuant to the exercise of 475,500 warrants. The net proceeds received
amounted to $927,000. As of December 31, 1997, there are 1,426,500 Remaining
Modified Warrants. Members of the Company's Board of Directors hold 1,417,500
of the Remaining Modified Warrants. A non-cash charge to income of $768,000
was recorded in 1997 based on the fair value of the Remaining Modified
Warrants.
Note 8 - LEASES
The Company leases certain office space, vehicles and office equipment
under operating leases that expire over the next seven years. Certain of
these operating leases provide the Company with the option, after the initial
lease term, to either purchase the property or renew the lease. Total rent
expense for all operating leases amounted to approximately $882,000 in 1997,
$958,000 in 1996, and $1,254,000 in 1995.
Minimum payments for operating leases having initial or remaining
noncancellable terms in excess of one year are as follows (amounts in
thousands):
Year
1998 $ 858
1999 870
2000 856
2001 866
2002 701
Remainder 363
Total minimum lease payments $4,514
The Company subleases certain office space. Income under these leases is
approximately $758,000 for the remainder of the sublease terms.
The Company and Balfour Investors Inc. ("Balfour"), are parties to a
License Agreement, dated as of October 26, 1994, with respect to a portion of
the office space leased by the Company in New York City. The Chairman and
Vice Chairman of the Company's Board of Directors are the only shareholders
of Balfour. The term of the License Agreement commenced on January 1, 1995
and will expire on June 30, 2004, unless sooner terminated pursuant to law or
the terms of the License Agreement. The License Agreement provides for
Balfour to pay the Company an amount equal to 40% of the rent paid by the
Company under its lease, including base rent, electricity, water, real estate
tax escalations and operation and maintenance escalations. In addition,
Balfour has agreed to reimburse the Company for 40% of the cost of insurance
which the Company is obligated to maintain under the terms of its lease with
respect to the premises. The base rent payable by Balfour under the License
Agreement is $7,724 per month through September 30, 1999 and $8,312 per month
thereafter.
Note 9 - BUSINESS SEGMENT INFORMATION
Reference is made to Item 1 - Description of Business and Segment
Information included elsewhere in this Annual Report on Form 10-K.
Note 10 - ENVIRONMENTAL LITIGATION
On April 12, 1996, a Consent Decree among the Company, the United States
Environmental Protection Agency and the Pennsylvania Department of
Environmental Protection ("PADEP") was entered by the court which resolved all
of the United States' and PADEP's claims against the Company for recovery of
costs incurred in responding to releases of hazardous substances at a facility
previously owned and operated by the Company. The Company had previously funded
$4,500,000 into a court administered escrow account. Following the entry of the
Consent Decree, additional payments totaling $4,850,000 were made in April and
May of 1996. In April 1997, the Company made additional payments totaling
$796,000 plus interest. Further payments totaling $4,204,000 plus interest will
be made to the United States and Commonwealth of Pennsylvania over the next
five years.
Note 11- RELOCATION CHARGE
During the fourth quarter of 1995, the Company decided to move the
operations of its Greenwald Industries, Inc. subsidiary from a leased facility
in Brooklyn, New York to a newly acquired facility in Chester, Connecticut.
A special charge of $1,596,000 was recorded in 1996 which included $627,000
in severance costs associated with 110 terminated employees, $246,000 for
lease termination costs and $723,000 for costs related to plant and employee
relocation, recruiting and training new personnel and for temporary living
allowances. The move was completed by April 30, 1996.
PUBLICKER INDUSTRIES INC. Exhibit 21.1
AND SUBSIDIARY COMPANIES
LIST OF SIGNIFICANT SUBSIDIARIES
State of Jurisdiction
Subsidiary of Incorporation
Boxsterview, Inc. Delaware
Continental Distilling Corporation Delaware
Darkrats, Inc. Delaware
Fentronics, Inc. Delaware
Greenwald Industries, Inc. Delaware
Hanten Acquisition Co. Delaware
Kidde Systems, Inc. Delaware
LTA Disposition Corporation Delaware
Nevco Housewares, Inc. Delaware
Orr-Schelen-Mayeron & Associates, Inc. Minnesota
Publicker Chemical Corporation Louisiana
Publicker Gasohol, Inc. Delaware
Publicker, Inc. Delaware
Rouglas-Dandall, Inc. Delaware
Sagrocry, Inc. Pennsylvania
PUBLICKER INDUSTRIES INC. Exhibit 23.1
AND SUBSIDIARY COMPANIES
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports included in this Form 10-K into the Company's
previously filed Registration Statement on Form S-1 File No. 33-9344,
Registration Statement on Form S-3 File No. 33-9344, Registration Statement
on Form S-8 File No. 33-56838 and Registration Statement on Form S-8 File No.
33-88876.
Arthur Andersen LLP
Stamford, Connecticut
March 18, 1998
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