-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IxtOKnSZdxORSlFYAyBkNqeXdH1JniUEqwdkkXvreAnepKJtBwR67EM3tmalULD2 mSkttKl1UhS4dNgP5VRO9g== 0000034046-01-500006.txt : 20010606 0000034046-01-500006.hdr.sgml : 20010606 ACCESSION NUMBER: 0000034046-01-500006 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010605 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EXOLON ESK CO CENTRAL INDEX KEY: 0000034046 STANDARD INDUSTRIAL CLASSIFICATION: ABRASIVE ASBESTOS & MISC NONMETALLIC MINERAL PRODUCTS [3290] IRS NUMBER: 160427000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 001-07276 FILM NUMBER: 1654105 BUSINESS ADDRESS: STREET 1: 1000 E NIAGARA ST STREET 2: P O BOX 590 CITY: TONAWANDA STATE: NY ZIP: 14150 BUSINESS PHONE: 7166934550 MAIL ADDRESS: STREET 1: 1000 E NIAGARA STREET STREET 2: P O BOX 590 CITY: TONAWANDA STATE: NY ZIP: 14150 FORMER COMPANY: FORMER CONFORMED NAME: EXOLON CO DATE OF NAME CHANGE: 19840517 10-Q/A 1 ex10qa301asc.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A (Mark QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE One) SECURITIES EXCHANGE ACT OF 1934 [X] For the quarterly period ended March 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-7276 EXOLON-ESK COMPANY _______________________________________________________________ (Exact name of registrant as specified in its charter) Delaware 16-0427000 _______________________________ ___________________________ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1000 East Niagara Street, Tonawanda, New York 14150 ________________________________________________ (Address of Principal Executive Offices) (Zip Code) (716) 693-4550 __________________________________________________ (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ____ As of May 1, 2001 registrant had outstanding 481,995 shares of $1 par value Common Stock and 512,897 shares of $1 par value Class A Common Stock. PART I - FINANCIAL INFORMATION Item 1. Financial Statements Exolon-ESK Company Consolidated Condensed Balance Sheet (in thousands except share amounts) (Unaudited) ASSETS March 31, December 31, 2001 2000 ___________ ____________ Current assets: Cash $3,236 $ 5,093 Accounts receivable (less allowance for doubtful accounts of $121 in 2001 and $150 in 2000) 6,293 5,376 Inventories 15,471 14,120 Prepaid expenses 179 81 Deferred income taxes 319 287 _________ _________ Total Current Assets 25,498 24,957 Investment in Norwegian joint venture 5,034 4,864 Property, plant and equipment, at cost 77,816 77,637 Accumulated depreciation (55,834) (54,996) _________ _________ Net property, plant and equipment 21,982 22,641 Bond sinking fund 4,728 4,420 Other assets 1,627 1,648 _________ _________ Total Assets $58,869 $58,530 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Debt in default $ 20,700 $ 20,700 Note payable 140 - Accounts payable 2,966 2,339 Accrued expenses 1,451 1,212 Income taxes payable 96 378 ________ _________ Total Current Liabilities 25,353 24,629 Deferred income taxes 1,744 1,744 Other long-term liabilities 1,743 1,771 ________ _________ Total Liabilities 28,840 28,144 Stockholders' equity: Preferred stock - Series A - 276 276 19,364 shares issued Preferred stock - Series B - 166 166 19,364 shares issued Common stock, $1 par value - 513 513 512,897 issued, 481,995 outstanding Class A common stock, $1 par value - 513 513 512,897 issued/outstanding Additional paid-in capital 4,345 4,345 Retained earnings 26,388 26,745 Accumulated other comprehensive (1,804) (1,804) income Treasury stock, at cost (368) (368) Total Stockholders' Equity 30,029 30,386 ________ ________ Total Liabilities and Stockholders' $58,869 $58,530 Equity ======== ======== The accompanying notes are an integral part of these statements. Exolon-ESK Company Consolidated Condensed Statements of Operations Unaudited (in thousands except per share amounts) Three Months Ended March 31, 2001 2000 _______ _______ Net sales $12,125 $13,534 Cost of goods sold 10,654 11,175 _______ _______ Gross Profit 1,471 2,359 Operating Expenses Depreciation 859 890 Selling, general & administrative 981 1,118 expenses Research and development - 17 Total Operating Expenses 1,840 2,025 _______ _______ Operating (Loss) Income (369) 334 Other Income (Expense): Equity in Earnings(Loss) before income taxes of Norwegian Jt. 169 (148) venture Interest expense (394) (323) Miscellaneous income(expense) 12 (8) Total Other Income(Expense) (213) (479) _______ _______ Earnings before income taxes (582) (145) Income tax benefit (expense) 269 9 _______ _______ Net (Loss)Earnings ($313) ($136) ======= ======= Basic and Diluted Earnings Per Share: Common ($0.33) ($0.15) Class A Common ($0.32) ($0.14) The accompanying notes are an integral part of these statements. Exolon-ESK Company Consolidated Condensed Statements of Cash Flows Unaudited (in thousands) Three Months Ended March 31, 2001 2000 _______ _______ Net cash provided by(used in) operating ($1,466) $1,408 activities ________ _______ Cash Flow from Investing Activities: Capital expenditures (179) (478) ________ _______ Cash Flow from Financing Activities: Net borrowing(repayments) on long- 140 (137) term debt Payments to bond sinking fund (308) (294) Dividends paid (44) (11) ________ _______ Net Cash (Used in)Provided by Financing (212) (442) Activities ________ _______ Net (decrease)increase in cash (1,857) 488 Cash at beginning of period 5,093 5,328 ________ _______ Cash at end of period $3,236 $5,816 ======= ======= The accompanying notes are an integral part of these statements. EXOLON-ESK COMPANY NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) The purpose of this amendment is to correct an error in the financial statements: NOTE 1 The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results for the period ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. For further information, refer to the financial statements and footnotes thereto for the year ended December 31, 2000 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission. NOTE 2 As of the date of this report, the Company continues to finalize the details of a Merger Agreement that was announced on March 14, 2001 via an 8-K Current Report. In addition, the details of the Merger Agreement were included in Form 14C that was filed with the SEC on March 26, 2001. The Company is in the process of responding to SEC comments and anticipates this transaction will close by the end of July 2001. At present, due to the pending Merger Agreement the Company's credit situation with its financial institutions has not changed since the disclosures made in the Company's 10-K that was filed on or about March 16, 2001. The Company continues to be in default of its financial covenants it has with its creditors and for this reason the Bond issuances it has have been reclassified on the balance sheet as debt in default in the current liability section. It does not appear there will be any remedy to this situation until the Merger Agreement is finalized and the new parent company, Washington Mills, makes arrangements for alternate financing. NOTE 3 The following are the major classes of inventories (in thousands) as of March 31, 2001 and December 31, 2000: March 31, 2001 December 31, (Unaudited) 2000 ____________ ___________ Raw Materials $550 $1,041 Semi-Finished and 16,953 15,223 Finished Goods Supplies and Other 1,030 918 ________ _______ 18,533 17,182 Less: LIFO Reserve (3,062) (3,062) ________ _______ $15,471 $14,120 ======== ======= NOTE 4 Contingencies a. Environmental issues (i) Hennepin, Illinois Plant On October 6, 1994, the Company entered into a Consent Order (the "Consent Order") with the Illinois Attorney General and the Illinois Environmental Protection Agency ("IEPA") in complete settlement of a complaint brought by them, which alleged that the Company had violated certain air quality requirements in the operating permit for its Hennepin, Illinois plant. The Consent Order provided a schedule for the Company to install a Continuous Emissions Monitoring System ("CEMS") and to implement the required Best Available Control Technology ("BACT") for air emissions, pursuant to an IEPA approved construction and operating permit. During 1998, the Company completed installation of the CEMS and implementation of the BACT as required by the Consent Order. A revised construction permit was received on December 27, 1999, verifying that the project was in compliance with all applicable Board emissions and utilized BACT for sulfur dioxide. The air quality analysis showed compliance with the allowable sulfur dioxide increment. In January 2001, an additional one-year temporary permit was applied for with the IEPA to permit the Company additional time to install a heater designed to improve the H2S removal efficiency. A Title V permit is anticipated to be applied for in year 2002. In the summer of 2001, the Company will proceed with the replacement of the liner of the Lagoon 1 and related pond matters. Discussions are ongoing with the IEPA. A revised construction permit has been applied for to complete the project. (ii) Superfund Site A Special Notice of Liability was received by the Company from the US EPA for the Remedial Design/Remedial Action Phase of the Lenz Oil Services, Inc. Superfund Site. The Company is one of over seventy potentially responsible parties. The Notice alleged joint and several liability based upon the premise that the soil and ground water were contaminated with oil and solvent waste containing hazardous constituents. The Company entered into a Consent Decree with the U.S. EPA in February 2001 and settled the claim for approximately $165,000. The payment will be made in the second quarter of 2001. (iii) Norwegian Joint Venture The Government of Norway held discussions with certain Norwegian industries including the abrasive industry concerning the implementation of reduced gaseous emission standards. The Company's joint venture is participating in these discussions to help achieve the Norwegian Government's objectives as well as assuring long-term economic viability for the joint venture. The Norwegian State Pollution Control Authority has issued limits regarding dust emissions and Sulfur Dioxide emissions that will apply to all Norwegian silicon carbide producers. Specific target emission limits have been set, and a compliance timetable ranging from the present until January 1, 2001 has been established. The costs associated with achieving compliance with these limits have been tightly controlled as a result of various alternatives presently being considered by the Norwegian joint venture. The joint venture has met the sulfur requirements with changes in production techniques and raw material procurement including low sulfur coke. b. Legal Matters (i) Federal Proceedings and Related Matters On October 18, 1994, a lawsuit was commenced in the U.S. District Court for the Eastern District of Pennsylvania (No. 94-CV-6332) under the title "General Refractories Company v. Washington Mills Electro Minerals Corporation and Exolon-ESK Company." The suit purports to be a class action seeking treble damages from the defendants for allegedly conspiring with unnamed co-conspirators during the period from January 1, 1985 through the date of the complaint to fix, raise, maintain and stabilize the price of artificial abrasive grains and to allocate among themselves their major customers or accounts for purchases of artificial grains. The plaintiffs allegedly paid more for abrasive grain products than they would have paid in the absence of such anti-trust violations and were allegedly damaged in an amount that they are presently unable to determine. On or about July 17, 1995, a lawsuit captioned "Arden Architectural Specialties, Inc. v. Washington Mills Electro Minerals Corporation and Exolon-ESK Company," (95-CV- 05745(m)), was commenced in the United States District Court for the Western District of New York. The Arden Architectural Specialties complaint purports to be a class action that is based on the same matters alleged in the General Refractories complaint. In October 1997, the Norton Company was named an additional defendant in both cases. The ultimate liability, if any, that could result from these lawsuits cannot presently be determined, although the Company believes that it has meritorious defenses to the allegations, and it intends to vigorously defend against the charges. Discovery was completed in January 2000. On October 4, 2000 a decision and order was filed in the case denying the Norton Company's motion to dismiss. NOTE 5 Comprehensive Income During the three months ended March 31, 2001 and 2000, total comprehensive income, which was comprised of net income and foreign currency translation adjustments, equaled net income. NOTE 6 Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share (in thousands except share information): Three Months Ended March 31, 2001 2000 _____ ____ Numerator: Net income ($324) ($147) available to common ===== ===== stockholders after preferred stock dividends Numerator for basic earnings per share: Common stockholders (50%) (162) (73) Class A common (162) (74) stockholders (50%) _____ _____ (324) (147) Effect of Dilutive Securities- Preferred Stock Dividends - - _____ _____ Net income available to common ($324) ($147) stockholders after assumed ===== ===== conversion of preferred stock Numerator for diluted earnings per share: Common stockholders (50%) (162) (73) Class A common (162) (74) stockholders (50%) _____ _____ ($324) ($147) ===== ===== NOTE 6 Earnings Per Share - Con't Denominator: Common stock Denominator for basic earnings per share - 481,995 481,995 weighted average shares Effect of dilutive securities - - - convertible preferred _____ _____ stock Denominator for diluted earnings per share - adjusted weighted average 481,995 481,995 shares and assumed ======= ======= conversions Class A common stock: Denominator for basic earnings per share - 512,897 512,897 weighted average shares Effect of dilutive securities - - - convertible preferred _____ _____ stock Denominator for diluted earnings per share - adjusted weighted average 512,897 512,897 shares and assumed ======= ======= conversions Basic Earnings Per Share: Common Stock ($0.33) ($0.15) Class A Common Stock ($0.32) ($0.14) Dilutive Earnings Per Share: Common Stock ($0.33) ($0.15) Class A Common Stock ($0.32) ($0.14) The effect of the convertible preferred stock was not considered for 2001 and 2000 because the effect would have been anti-dilutive. NOTE 7 Accounting for Derivatives Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The intended use of the derivative and its designation as either a fair value hedge or cash flow hedge determines when the gains or losses on the derivatives are to be reported in earnings and when they are to be reported as a component of other comprehensive income. The change in fair value of derivatives not designated as hedges will be immediately recognized in earnings. To manage its exposure to interest rate fluctuations on its variable rate debt, the Company has entered into two interest rate swap agreements. The first agreement has a notional amount of $4,595,000 through December 17, 2001 based on LIBOR at 6.20%. The second agreement has a notional value of $8,405,000 through December 17, 2001 based on the BMA Municipal Bond Index at 4.2%. Net payments or receipts under the swap agreements are recorded as adjustments to interest expense. The adoption of SFAS 133 on January 1, 2001 had an immaterial impact on the Company's financial position. Given the minor amount of derivatives, the Company has chosen not to designate the swap agreements as hedges and will record changes in fair value in interest expense. During the quarter ended March 31, 2001, the Company recorded additional interest expense of $80,000 related to its derivative instruments. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Comparison of the three months ended March 31, 2001 with the three months ended March 31, 2000. Net Sales. Net sales decreased $1,409,000 to $12,125,000 in the first three months of 2001, a decrease of 10% compared to net sales of $13,534,000 in the first three months of 2000. The decline in sales was due to a decrease in volume and increased pressure on prices resulting from a decrease in demand combined with an increase in foreign competition. Gross Profit. Gross profit before depreciation expense was $1,471,000 in the first three months of 2001 compared to $2,359,000 in the first three months of 2000. As a percent of sales, gross margins were 12.1% in the first three months of 2001 compared to 17.4% in the first three months of 2000. The decrease in gross profit as a percent of net sales was attributed to lower sales volumes and unfavorable product mix sales. Operating Expenses. Operating expenses including depreciation, were $1,840,000 during the first three months of 2001 versus $2,025,000 during the first three months of 2000. The decrease in operating expenses is a result of spending reductions of $137,000 in selling and general and administrative expenses. Depreciation as a percent of sales was 7.1% in the first three months of 2001 compared to 6.6% for the first three months of 2000. Operating Income. Operating income was a loss of $369,000 in the first three months of 2001 compared to income of $334,000 in the first three months of 2000. The decrease in operating income is primarily due to lower sales volumes and unfavorable product mix sales as noted above. Norwegian Joint Venture. The company's 50% share of the pre-tax earnings of its Norwegian joint venture, Orkla Exolon A/S was income of $169,000 for the first three months of 2001 versus a loss of $148,000 in the first three months of 2000. Interest and Miscellaneous Income. Interest expense increased to $394,000 in the first three months of 2001 versus $323,000 in the first three months of 2000 principally due to the adoption of SFAS No. 133, which required recognition of an unrealized loss of $80,000 on interest rate derivatives held by the Company. Miscellaneous income of $12,000 was received in the first three months of 2001 versus miscellaneous expense of $8,000 incurred in the first three months of 2000. Income Tax. The Company's effective tax rate for the first three months of 2001 was an overall 47% tax benefit comprised of a 38% effective tax rate benefit on US losses and 37% effective tax rate benefit on foreign losses versus an overall 6% tax benefit comprised of a 42% effective tax rate expense on US income and 36% effective tax rate benefit on foreign losses for the first three months of 2000. Liquidity and Capital Resources As of March 31, 2001, working capital (current assets less current liabilities) has decreased by $135,000 to $193,000 when compared to $328,000 as of December 31, 2000. Inventories have increased by $1,351,000 from $14,120,000 as of December 31, 2000 to $15,471,000 as of March 31, 2001. For the three months ended March 31, 2001, net cash used in operating activities was $1,466,000. Cash reserves decreased by $1,857,000 as of March 31, 2001 compared to December 31, 2000. Net cash was used to reduce net outstanding debt by $168,000 and to fund capital expenditures of $179,000. The Company's current ratio remained at 1.0 to 1.0 at March 31, 2001 and December 31, 2000. The ratio of total liabilities to shareholders' equity remained 1.0 to 1.0 as of March 31, 2001 and December 31, 2000. Management believes that future cash provided by operations and long- term borrowing arrangements will provide adequate funds for current commitments and other requirements. Reference is made to the information included in Notes to Consolidated Condensed Financial Statements of the Company, which is hereby incorporated herein by reference. Impact of New Accounting Pronouncements Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The intended use of the derivative and its designation as either a fair value hedge or cash flow hedge determines when the gains or losses on the derivatives are to be reported in earnings and when they are to be reported as a component of other comprehensive income. The change in fair value of derivatives not designated as hedges will be immediately recognized in earnings. To manage its exposure to interest rate fluctuations on its variable rate debt, the Company has entered into two interest rate swap agreements. The first agreement has a notional amount of $4,595,000 through December 17, 2001 based on LIBOR at 6.20%. The second agreement has a notional value of $8,405,000 through December 17, 2001 based on the BMA Municipal Bond Index at 4.2% Net payments or receipts under the swap agreements are recorded as adjustments to interest expense. The adoption of SFAS 133 on January 1, 2001 had an immaterial impact on the Company's financial position. Given the minor amount of derivatives, the Company has chosen not to designate the swap agreements as hedges and will record changes in fair value in interest expense. During the quarter ended March 31, 2001, the Company recorded additional interest expense of $80,000 related to its derivative instruments. PART II - OTHER INFORMATION Item 1. Legal Proceedings Reference is made to the information included in Note 3 to the Consolidated Condensed Financial Statements of the Company included under Part I, Item 1 of this Form 10-Q/A, which is hereby incorporated herein by reference. Item 2. Change in Securities - None Item 3. Defaults Upon Senior Securities - None Item 4. Submission of Matters to a Vote of Security Holders - None Item 5. Other Information - None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - None (b) Reports on Form 8-K - None SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EXOLON-ESK COMPANY /s/J. Fred Silver _______________________ J. Fred Silver President and Chief Executive Officer /s/Michael G. Pagano _______________________ Michael G. Pagano Vice President Finance and Chief Financial Officer Date: June 4, 2001 -----END PRIVACY-ENHANCED MESSAGE-----