-----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, UYVeiwxanUCF4zMQ735+ZiDFcGV+pjBgvbWf6vnlj3bE074IJwZj4DG64Yio0Uhh wwcffxir7ueZAesXSd8HcQ== 0000950152-98-006319.txt : 19980804 0000950152-98-006319.hdr.sgml : 19980804 ACCESSION NUMBER: 0000950152-98-006319 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980522 ITEM INFORMATION: FILED AS OF DATE: 19980803 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OGLEBAY NORTON CO CENTRAL INDEX KEY: 0000073918 STANDARD INDUSTRIAL CLASSIFICATION: WATER TRANSPORTATION [4400] IRS NUMBER: 340158970 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-00663 FILM NUMBER: 98676280 BUSINESS ADDRESS: STREET 1: 1100 SUPERIOR AVE CITY: CLEVELAND STATE: OH ZIP: 44114-2598 BUSINESS PHONE: 2168613300 MAIL ADDRESS: STREET 1: 1100 SUPERIOR AVENUE CITY: CLEVELAND STATE: OH ZIP: 44114-2598 8-K/A 1 OGLEBAY NORTON COMPANY AMENDMENT #1 TO FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A-1 AMENDMENT NO. 1 TO CURRENT REPORT Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 Date of report (Date of earliest event reported): May 22, 1998 OGLEBAY NORTON COMPANY (Exact Name of Registrant as Specified in Charter) Delaware 0-663 34-0158970 -------- ----- ---------- (State of Incorporation) (Commission (I.R.S. Employer File No.) Identification No.) 1100 Superior Avenue - 20th Floor, Cleveland, Ohio 44114-2598 - -------------------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (216) 861-3300 -------------- 2 The undersigned Registrant, Oglebay Norton Company, hereby amends Item 7 of its Current Report on Form 8-K filed with the Securities and Exchange Commission on June 5, 1998 to add the financial statements and pro forma information required by Parts (a) and (b) of Item 7. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements of Business Acquired. The audited and unaudited consolidated financial statements of Global Stone Corporation ("Global Stone") are attached hereto at pages F-1 through F-28. (b) Pro Forma Financial Information The unaudited pro forma combined financial statements of the Registrant are included herein at pages P-1 through P-10. The unaudited pro forma combined financial statements of the Registrant are presented for illustrative purposes only, giving effect to the acquisition of Global Stone. The unaudited pro forma combined financial statements of the Registrant also include the acquisitions of Colorado Silica Sands, Inc. ("Colorado Silica"), acquired on March 9, 1998, the Port Inland operations of Specialty Minerals Inc., a wholly owned subsidiary of Minerals Technology Inc., ("Port Inland"), acquired on April 28, 1998, and the disposal of the assets of the Registrant's discontinued Engineered Materials metallurgical treatment operations ("Engineered Materials"), sold on May 15, 1998. Collectively these transactions are referred to as "Other Recent Transactions", each of which did not meet the definition of a significant subsidiary under Rule 1-02(w) of Regulation S-X requiring separate financial statement presentation. All of the acquisitions will be accounted for using the purchase method of accounting, whereby the purchase price is allocated based on the fair value of the assets acquired and the liabilities assumed. The unaudited pro forma combined balance sheet of the Registrant as of March 31, 1998 gives effect to the acquisition of Global Stone as if this transaction occurred on that date and includes the pro forma adjustments to reflect the combination. The pro forma combined balance sheet also includes the pro forma effects of the Port Inland and Engineered Materials transactions as if they had occurred as of March 31, 1998. 3 Item 7. Financial Statements and Exhibits (Continued) The unaudited pro forma combined statements of operations for the year ended December 31, 1997 and the three months ended March 31, 1998 give effect to the acquisition of Global Stone as if this transaction had occurred on January 1, 1997. The unaudited pro forma combined statement of operations for the year ended December 31, 1997 includes the statements of operations of the Registrant and Global Stone for the fiscal years ended December 31, 1997 and September 30, 1997, respectively, and the pro forma adjustments to reflect the combination. The unaudited pro forma combined statement of operations for the three months ended March 31, 1998, includes the statements of operations of the Registrant and Global Stone for the respective periods and the pro forma adjustments to reflect the combination. The unaudited pro forma combined statements of operations for the year ended December 31, 1997 and for the three months ended March 31, 1998 also include the pro forma effects of the Colorado Silica and Port Inland acquisitions. The sale of the Engineered Materials assets did not result in any gain or additional loss upon disposal. The pro forma results are not necessarily indicative of the results of operations had the acquisitions taken place at the beginning of the respective periods or of future results of the combined companies. The purchase price allocations are preliminary; therefore, final amounts could differ from those reflected in the pro forma combined financial statements. Upon final determination, the purchase prices will be allocated to the assets and liabilities acquired based on fair value as of the date of each respective acquisition. The principal pro forma adjustments to the unaudited pro forma combined statements of operations for the year ended December 31, 1997 and for the three months March 31, 1998 include entries to convert Global Stone's historical statements of income from Canadian generally accepted accounting principles ("Canadian GAAP") to U.S. generally accepted accounting principles ("U.S. GAAP"), to reflect cost depletion related to the pro forma write-up of Global Stone's mineral reserves to estimated fair value, to reflect goodwill amortization related to the pro forma excess of acquisition costs over the fair value of net assets acquired and to reflect interest expense on pro forma debt. The principal pro forma adjustments to the unaudited pro forma combined balance sheet as of March 31, 1998 include entries to convert Global Stone's historical balance sheet from Canadian GAAP to U.S. GAAP, an increase in pro forma debt to finance the purchase of Global Stone's common stock, pro forma write-up of Global Stone's mineral reserves to estimated fair value, a pro forma adjustment to recognize the excess of acquisition costs over the fair value of assets acquired, and the pro forma recognition of a deferred tax liability on the acquisition costs in excess of historical net assets acquired. -2- 4 Item 7. Financial Statements and Exhibits (Continued) (c) Exhibits Exhibit No. Description of Exhibits - ----------- ----------------------- 23.1 Consent of Ernst & Young, Independent Auditors 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. OGLEBAY NORTON COMPANY Date: August 3, 1998 By: /s/ DAVID H. KELSEY ----------------------------- David H. Kelsey Vice President and Chief Financial Officer -3- 5 Item 7(a) Financial Statements of Business Acquired GLOBAL STONE CORPORATION INDEX TO FINANCIAL STATEMENTS
Page No. Audited Consolidated Financial Statements of Global Stone Corporation Report of Ernst & Young, Independent Auditors..................................................F-2 Consolidated Balance Sheets as at September 30, 1997 and 1996..................................F-3 Consolidated Statements of Income and Retained Earnings for the years ended September 30, 1997, 1996 and 1995................................................F-4 Consolidated Statements of Changes in Financial Position for the years ended September 30, 1997, 1996 and 1995.................................................F-5 Notes to Consolidated Financial Statements.....................................................F-6 Unaudited Consolidated Financial Statements of Global Stone Corporation Unaudited Consolidated Interim Balance Sheets as of March 31, 1998 and 1997......................................................................F-24 Unaudited Consolidated Interim Statements of Income and Retained Earnings for the six months ended March 31, 1998 and 1997....................................F-25 Unaudited Consolidated Interim Statements of Changes in Financial Position for the six months ended March 31, 1998 and 1997...............................................F-26 Notes to Unaudited Consolidated Interim Financial Statements...................................F-27
F-1 6 AUDITORS' REPORT To the Directors of GLOBAL STONE CORPORATION We have audited the consolidated balance sheets of GLOBAL STONE CORPORATION as at September 30, 1997 and 1996 and the consolidated statements of income and retained earnings and changes in financial position for each of the years in the three-year period ended September 30, 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 an audit to obtain reasonable assurance 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. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at September 30, 1997 and 1996 and the results of its operations and the changes in its financial position for each of the years in the three-year period ended September 30, 1997 in accordance with accounting principles generally accepted in Canada. Toronto, Canada, /s/ Ernst & Young November 18, 1997 Chartered Accountants (except for notes 17 and 18 which are as of June 19, 1998). F-2 7 GLOBAL STONE CORPORATION Incorporated by continuance under the Canada Business Corporations Act CONSOLIDATED BALANCE SHEETS (EXPRESSED IN CANADIAN DOLLARS) As at September 30
1997 1996 $ $ [000's] [000's] ASSETS CURRENT Cash and temporary investments 5,593 12,113 Accounts receivable [note 5] 24,421 23,242 Income taxes recoverable 187 -- Inventories [notes 2 and 5] 18,799 16,187 Prepaid expenses 937 776 - ----------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 49,937 52,318 - ----------------------------------------------------------------------------------------------------- Capital assets, net [note 3] 176,330 163,807 Deferred financing costs [note 6[a]] 701 857 - ----------------------------------------------------------------------------------------------------- 226,968 216,982 ===================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT Bank indebtedness [note 5] 8,708 6,581 Accounts payable and accrued charges [note 7] 20,459 17,982 Income taxes payable -- 36 Current portion of capital lease obligations [note 4] 1,024 552 Current portion of long-term debt [note 6] 1,766 1,437 - ----------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 31,957 26,588 - ----------------------------------------------------------------------------------------------------- Long-term debt [note 6] 57,728 62,083 Debenture premium [note 6[a]] 1,036 1,412 Capital lease obligations [note 4] 8,850 7,602 Deferred income taxes 6,648 6,955 Provision for pension plan [note 7] -- 123 - ----------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 106,219 104,763 - ----------------------------------------------------------------------------------------------------- Non-controlling interest -- 10 - ----------------------------------------------------------------------------------------------------- Commitments [note 15] SHAREHOLDERS' EQUITY Share capital [note 9] 97,597 94,598 Retained earnings 22,001 18,314 Cumulative translation adjustment 1,151 (703) - ----------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 120,749 112,209 - ----------------------------------------------------------------------------------------------------- 226,968 216,982 =====================================================================================================
See accompanying notes F-3 8 GLOBAL STONE CORPORATION CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (EXPRESSED IN CANADIAN DOLLARS) Years ended September 30
1997 1996 1995 $ $ $ [000's] [000's] [000's] SALES OF LIME AND LIMESTONE Gross revenue 182,417 149,145 101,752 Freight charges 31,172 25,462 14,363 - ----------------------------------------------------------------------------------------------------- NET REVENUE 151,245 123,683 87,389 - ----------------------------------------------------------------------------------------------------- OPERATING EXPENSES Cost of lime and limestone sales 121,466 95,892 65,867 Selling and administration 15,480 13,595 10,096 Gain on sale of capital assets, net (365) (1,267) -- - ----------------------------------------------------------------------------------------------------- 136,581 108,220 75,963 - ----------------------------------------------------------------------------------------------------- OPERATING INCOME 14,664 15,463 11,426 Unusual items [note 13] 3,782 -- -- - ----------------------------------------------------------------------------------------------------- Operating income before interest, income taxes and non-controlling interest 10,882 15,463 11,426 - ----------------------------------------------------------------------------------------------------- Interest on long-term debt and debt expenses 5,977 5,559 3,259 Other interest expense, net 515 54 751 - ----------------------------------------------------------------------------------------------------- 6,492 5,613 4,010 - ----------------------------------------------------------------------------------------------------- Income before income taxes and non-controlling interest 4,390 9,850 7,416 Provision for income taxes [note 10] 713 2,806 1,807 Non-controlling interest (10) (509) (172) - ----------------------------------------------------------------------------------------------------- NET INCOME FOR THE YEAR 3,687 7,553 5,781 Retained earnings, beginning of year 18,314 10,761 4,980 - ----------------------------------------------------------------------------------------------------- RETAINED EARNINGS, END OF YEAR 22,001 18,314 10,761 ===================================================================================================== EARNINGS PER SHARE [note 11] 0.12 0.30 0.27 FULLY DILUTED EARNINGS PER SHARE [note 11] 0.12 0.27 0.25 =====================================================================================================
See accompanying notes F-4 9 GLOBAL STONE CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION (EXPRESSED IN CANADIAN DOLLARS) Years ended September 30
1997 1996 1995 $ $ $ [000's] [000's] [000's] OPERATING ACTIVITIES Net income for the year 3,687 7,553 5,781 Add (deduct) items not involving cash Depreciation and depletion 13,810 12,470 8,086 Amortization of deferred financing costs 156 157 86 Amortization of debenture premium (376) (242) -- Gain on sale of capital assets, net (365) (1,267) (54) Deferred income taxes (307) (463) 328 Decrease in pension plan obligation (123) (661) (414) Non-controlling interest (10) (509) (172) Unusual items 1,980 -- -- Net change in non-cash working capital balances related to operations (1,698) (4,477) (63) - ----------------------------------------------------------------------------------------------------- CASH PROVIDED BY OPERATING ACTIVITIES 16,754 12,561 13,578 - ----------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Issuance of share capital and warrants 3,000 25,295 15,466 Conversion of long-term debt to share capital (3,000) -- -- Share offering costs (1) (783) (16) Increase in long-term debt -- 31,855 30,000 Repayment of long-term debt (1,036) (6,619) (18,719) Deferred financing costs -- (67) (1,033) Increase in capital lease obligations 2,307 -- 1,653 Repayment of capital lease obligations (587) (359) (129) Investment by minority shareholder -- 253 124 - ----------------------------------------------------------------------------------------------------- CASH PROVIDED BY FINANCING ACTIVITIES 683 49,575 27,346 - ----------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Acquisition of St. Clair Lime Company, James River Limestone Company Inc., Veizey's Quarry Ltd. and Middletown Quarry, net of cash acquired and bank indebtedness assumed [note 8] -- (43,924) -- Acquisition of Global Stone (UK) Ltd., Detroit Lime Company, PenRoc Inc. and Delta Carbonate Inc., net of cash acquired and bank indebtedness assumed [note 8] -- -- (24,117) Capital asset purchases (26,746) (21,864) (17,172) Proceeds from sale of capital assets 899 3,193 -- Cumulative translation adjustment (237) 865 (1,236) - ----------------------------------------------------------------------------------------------------- CASH USED IN INVESTING ACTIVITIES (26,084) (61,730) (42,525) - ----------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH DURING THE YEAR (8,647) 406 (1,601) Cash position, beginning of year 5,532 5,126 6,727 - ----------------------------------------------------------------------------------------------------- CASH POSITION, END OF YEAR (3,115) 5,532 5,126 ===================================================================================================== REPRESENTED BY Cash and temporary investments 5,593 12,113 8,007 Bank indebtedness (8,708) (6,581) (2,881) - ----------------------------------------------------------------------------------------------------- (3,115) 5,532 5,126 =====================================================================================================
See accompanying notes F-5 10 GLOBAL STONE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN CANADIAN DOLLARS UNLESS OTHERWISE INDICATED) September 30, 1997 1. SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements of Global Stone Corporation [the "Company"] have been prepared in accordance with accounting principles generally accepted in Canada, which conform in all material respects with accounting principles generally accepted in the United States except as outlined in note 17. The significant accounting policies followed by the Company are summarized below: BASIS OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and all subsidiaries. Non-controlling interest represents the non-controlling shareholder's proportionate share, or 40%, of the equity in the Company's consolidated subsidiary, Global Stone (UK) Ltd. ["Global Stone (UK)"]. TRANSLATION OF FOREIGN CURRENCIES The Company's foreign subsidiaries are considered to be self-sustaining operations and their accounts are translated into Canadian dollars using the current rate method, under which all assets and liabilities are translated at the exchange rates prevailing at the year end, and revenue and expenses [including depreciation, depletion and amortization] are translated at the average rates of exchange during the year. Gains and losses on translation of these account balances are deferred and shown as a separate item in shareholders' equity. Gains or losses on foreign currency long-term debt that is designated as a hedge of net investments in self-sustaining foreign operations are also included as translation adjustments in shareholders' equity. INVENTORIES Inventories are valued at the lower of average cost, determined on a monthly basis using the fully-absorbed method, or net realizable value. Cost includes direct labour, operating overheads and material costs as well as depreciation and depletion at the operating properties, but excludes administrative expenses. Consumables and maintenance spares are valued at the lower of acquisition cost less an obsolescence provision, and replacement cost. DEFERRED FINANCING COSTS Costs related to long-term financing that are not related to a specific acquisition are deferred and amortized on a straight-line basis over the term to maturity of the related debt instrument. F-6 11 GLOBAL STONE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN CANADIAN DOLLARS UNLESS OTHERWISE INDICATED) September 30, 1997 POST-RETIREMENT BENEFITS Substantially all of the Company's employees are covered under one of the Company's pension plans, union-sponsored plans or group retirement related savings schemes to which the Company contributes. Pension costs and obligations of the Company's defined benefit plans are actuarially determined on the basis of management's best estimate assumptions using the projected unit credit method. Adjustments arising from plan amendments, changes in assumptions and experience gains or losses are amortized to income on a straight-line basis over the expected average remaining service life of the related employee group. For defined contribution plans, union-sponsored plans and group retirement related savings schemes, the Company expenses the annual contributions specified by these plans. The Company also provides certain health care and life insurance benefits for retired employees and their dependents. The cost of these benefits is expensed when paid. CAPITAL ASSETS Capital assets are initially recorded at cost and depreciated or depleted over their remaining estimated useful lives as follows: Property, plant and equipment 2 - 25 years, straight-line Mineral reserves Unit of production basis The Company incurs advance costs on the removal of overburden to expose the usable limestone. These costs are carried as deferred quarry development costs and charged to depreciation and depletion as the related limestone is quarried. The Company defers costs related to the acquisition of aggregates or industrial mineral operations until a property is acquired or the acquisition is abandoned. If the property is acquired, the acquisition costs are capitalized and allocated to specific acquired assets and are amortized in accordance with the Company's accounting policy for the related assets. If the acquisition is abandoned, the costs are charged to depreciation and depletion in the year in which the abandonment decision is made. Interest incurred during the construction of capital assets is capitalized. Construction in progress is not depreciated until the capital asset is put into operation. Amounts paid for extraction rights are amortized over the total output allowed under the rights based on the unit of production basis. The Company ascribes a value to acquired mineral reserves which reflects the extent, quality and comparative values for similar materials in the geographic area. The capital value is depleted on a per ton basis as the reserve is consumed. Reviews of reserves and amortization rates are carried out by the Company [including the use of consulting geologists] on a periodic basis and adjustments are made if significant variances are identified. The amounts shown for mineral F-7 12 GLOBAL STONE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN CANADIAN DOLLARS UNLESS OTHERWISE INDICATED) September 30, 1997 reserves do not necessarily represent future values and changes in legislation, market conditions or extraction constraints may have a material effect on future carrying values and operating results. INCOME TAXES The Company follows the deferral method of accounting for income taxes. Under this method, timing differences between the period in which income and expenses are reported for income tax purposes and the period in which they are recorded in the accounts result in deferred income taxes. FINANCIAL INSTRUMENTS The carrying values of cash and temporary investments, accounts receivable, bank indebtedness, accounts payable and accrued charges approximate their fair values due to the short-term nature of the instruments. The Company estimates the fair value of its capital lease obligations and long-term debt by discounting expected future cash flows at current interest rates. 2. INVENTORIES Inventories consist of the following:
1997 1996 $ $ [000's] [000's] Finished goods 6,357 4,405 Work in progress 3,462 2,272 Consumables and maintenance spares 8,980 9,510 - -------------------------------------------------------------------------------- 18,799 16,187 ================================================================================
F-8 13 GLOBAL STONE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN CANADIAN DOLLARS UNLESS OTHERWISE INDICATED) September 30, 1997 3. CAPITAL ASSETS Capital assets consist of the following:
ACCUMULATED NET DEPRECIATION AND BOOK COST DEPLETION VALUE $ $ $ [000's] [000's] [000's] 1997 Property, plant and equipment 107,436 28,855 78,581 Land and mineral reserves 56,351 3,130 53,221 Property, plant and equipment under capital lease 17,040 3,622 13,418 Construction in progress 19,809 -- 19,809 Land under capital lease 3,359 -- 3,359 Deferred quarry development costs 13,285 6,466 6,819 Deferred acquisition costs 745 296 449 Extraction rights 725 51 674 - ----------------------------------------------------------------------------------------------------- 218,750 42,420 176,330 ===================================================================================================== ACCUMULATED NET DEPRECIATION AND BOOK COST DEPLETION VALUE $ $ $ [000's] [000's] [000's] 1996 Property, plant and equipment 93,974 19,780 74,194 Land and mineral reserves 54,774 1,587 53,187 Property, plant and equipment under capital lease 14,733 2,263 12,470 Construction in progress 16,275 -- 16,275 Land under capital lease 3,269 -- 3,269 Deferred quarry development costs 5,748 2,331 3,417 Deferred acquisition costs 427 116 311 Extraction rights 725 41 684 - ----------------------------------------------------------------------------------------------------- 189,925 26,118 163,807 =====================================================================================================
During 1997, interest of $699,000 [1996 - $868,000; 1995 - $360,000] was capitalized on major projects under construction. F-9 14 GLOBAL STONE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN CANADIAN DOLLARS UNLESS OTHERWISE INDICATED) September 30, 1997 4. CAPITAL LEASE OBLIGATIONS The Company's commitment with respect to capital leases is as follows:
$ [000's] 1998 2,068 1999 2,191 2000 7,135 2001 690 Thereafter 105 - -------------------------------------------------------------------------------- Minimum lease payments 12,189 Less amount representing interest [11.09%] 2,315 - -------------------------------------------------------------------------------- Net minimum lease payments 9,874 Less current portion 1,024 - -------------------------------------------------------------------------------- 8,850 ================================================================================
The carrying values of the capital lease obligations approximate fair values. 5. BANK INDEBTEDNESS At September 30, 1997, the Company had the following credit facilities from a Canadian chartered bank [the "bank"]: [a] an operating facility of $2.5 million, repayable on demand and bearing interest at the prime rate of the bank plus 0.125% [the "operating facility"]; [b] a revolving facility of $8.8 million, which can be drawn down in either Canadian dollars or U.S. dollars, repayable within one year, subject to 364-day extensions at the discretion of the bank. Canadian dollar loans bear interest at the prime rate of the bank plus 0.125% while U.S. dollar loans bear interest at the bank's floating rate for U.S. dollar commercial loans plus 0.375% or LIBOR plus 1.125% [the "revolving facility"]; and [c] a revolving term facility of U.S. $4.8 million, which can be drawn down in either Canadian dollars or U.S. dollars, with repayment terms through to 1998. Canadian dollar loans bear interest at the prime rate of the bank plus 0.375% while U.S. dollar loans bear interest at the bank's floating rate for U.S. dollar commercial loans plus 0.125% or LIBOR plus 1.125% [the "revolving term facility"]. LIBOR averaged 5.726% in 1997. When the revolving facility and revolving term facility are drawn down in U.S. dollars, repayments will be denominated in U.S. dollars. The outstanding balances under the operating facility and revolving facility were Cdn. $492,000 [1996 - Cdn. $2,500,000] and Cdn. $8,708,000 [comprising U.S. $2,250,000 and Cdn. $5,600,000] [1996 - U.S. $750,000 and Cdn $3,060,000], respectively. The amount drawn in U.S. dollars bears interest at the bank's floating rate for U.S. dollar commercial loans plus 0.375% which was 8.875% at year end. The amount drawn in Canadian dollars bears interest at the prime rate of the bank plus 0.375%, which was 4.75% at year end. F-10 15 GLOBAL STONE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN CANADIAN DOLLARS UNLESS OTHERWISE INDICATED) September 30, 1997 Collateral for the operating facility and revolving facility is a first charge over receivables and inventories and all proceeds thereof of the Company and its North American subsidiaries. 6. LONG-TERM DEBT Long-term debt consists of the following:
1997 1996 $ $ [000's] [000's] 10.625% Senior Secured Series A Debentures [a] 53,350 53,350 Cominco subordinated debenture [b] -- 3,000 Amount due to non-controlling shareholder of Global Stone (UK) [U.K.(pound)150,000] [c] 333 320 Amount due to vendor of St. Clair Lime Company [U.S. $4,206,650; 1996 - U.S. $5,030,000] [d] 5,811 6,850 - ----------------------------------------------------------------------------------------------------- 59,494 63,520 Less current portion 1,766 1,437 - ----------------------------------------------------------------------------------------------------- 57,728 62,083 =====================================================================================================
[a] 10.625% SENIOR SECURED SERIES A DEBENTURES The facility was secured by the issue of $53.35 million Senior Series A Debentures [the "Debentures"] with a seven-year term and a fixed interest rate of 10.625%. The holders of the Debentures share with the bank on a pro-rata basis the collateral associated with the revolving term facility [note 5[b]]. The Company may redeem the Debentures, in whole or in part, at any time prior to maturity in amounts not less than $1,000,000. F-11 16 GLOBAL STONE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN CANADIAN DOLLARS UNLESS OTHERWISE INDICATED) September 30, 1997 On February 15, 1995, the Company completed a private placement for a $55 million debt facility with a group of leading North American life assurance companies. At that time, $30 million of the facility was drawn down. The remaining facility was drawn down in December 1995. Further Debentures with a par value of $23,350,000 were sold for $25 million producing a net discounted interest rate of 8.699%, a reflection of the lower interest rate prevailing in the market. The difference of the par value and the proceeds of these debentures was recorded as debenture premium on the consolidated balance sheets of the Company to be amortized over the term of the Debentures. Costs of issuing the Debentures, including underwriting commissions, amounted to $1,100,000 and are recorded in the accounts as deferred financing costs to be amortized to income over the term of the Debentures. The unamortized balance at September 30, 1997 was $701,000 [1996 - $857,000]. Repayments are required as follows:
$ [000's] 1999 14,227 2000 14,227 2001 14,227 2002 10,669 - ------------------------------------------------------------------------------ 53,350 ==============================================================================
The fair value of the Debentures is approximately $57,153,000 at September 30, 1997. [b] COMINCO SUBORDINATED DEBENTURE On October 21, 1996, the outstanding $3 million loan from Cominco Ltd. ["Cominco"] was converted into 545,454 common shares. No proceeds were received by the Company as a result of this conversion. [c] AMOUNT DUE TO NON-CONTROLLING SHAREHOLDER OF GLOBAL STONE (UK) LTD. This loan, which bears interest at 12% per annum, was incurred by Global Stone (UK) Ltd. from its 40% non-controlling shareholder, Electra Investment Trust Plc. The outstanding balance at year end is repayable in equal annual instalments between October 26, 1996 and October 26, 1998. Collateral for this borrowing is a fixed and floating charge on the assets of Global Stone (UK) Ltd. F-12 17 GLOBAL STONE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN CANADIAN DOLLARS UNLESS OTHERWISE INDICATED) September 30, 1997 [d] AMOUNT DUE TO VENDOR OF ST. CLAIR LIME COMPANY The balance of the purchase price is satisfied by a discount note payable which is stated at its present value of U.S.$ 5,030,000 [Cdn. $6,850,000] using a 5.5% discount rate. The discount note is to be repaid by five annual payments of blended interest and principal of U.S. $1.2 million, the first payment having been paid on December 1, 1996 being reduced by a non-refundable deposit of U.S. $100,000 which was paid in 1995. 7. PENSION PLANS The Company maintains two separate defined benefit pension plans, one for the unionized employees of Global Stone (Ingersoll) Ltd. ["Ingersoll"] and one for the unionized employees of Global Stone Tenn Luttrell Company ["Tenn Luttrell"], providing retirement, death and termination benefits. The funded status of these plans is as follows:
1997 1996 $ $ [000's] [000's] PLAN FOR UNIONIZED EMPLOYEES OF INGERSOLL Plan assets at market value 6,968 5,050 Projected benefit obligations 6,552 5,818 - ----------------------------------------------------------------------------------------------------- EXCESS (DEFICIENCY) OF PLAN ASSETS OVER PROJECTED BENEFIT OBLIGATIONS 416 (768) ===================================================================================================== PLAN FOR UNIONIZED EMPLOYEES OF TENN LUTTRELL Plan assets at market value 1,171 984 Projected benefit obligations 1,184 949 - ----------------------------------------------------------------------------------------------------- EXCESS (DEFICIENCY) OF PLAN ASSETS OVER PROJECTED BENEFIT OBLIGATIONS (13) 35 =====================================================================================================
The total pension expense, including pension expense for the above defined benefit plans, contributions to contribution plans, union-sponsored plans and group retirement related savings schemes, for the year amounted to $1,371,000 [1996 - $1,144,000; 1995 - $998,000]. As at September 30, 1997, the excess of the amount expensed over the amount funded was included in the consolidated balance sheets in accounts payable and accrued charges [1997 - $123,000; 1996 - $129,000] and in provision for pension plan [1997 - nil; 1996 - $123,000]. F-13 18 GLOBAL STONE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN CANADIAN DOLLARS UNLESS OTHERWISE INDICATED) September 30, 1997 8. ACQUISITIONS AND RELATED FINANCING (a) ACQUISITIONS IN 1996 VEIZEY'S QUARRY LTD. On February 26, 1996, the Company acquired all of the outstanding shares of SBC (Quarries) Ltd., [subsequently renamed Veizey's Quarry Ltd.], located in the U.K., for a price of (pound)560,000 [Cdn $1.3 million]. The purchase price was settled in cash out of existing resources. ST. CLAIR LIME COMPANY On December 21, 1995, the Company purchased the assets of St. Clair Lime, the only lime producer in Oklahoma. The purchase was financed from the second drawdown of the Debentures facility [note 6[a]]. The purchase price was U.S. $15.1 million [approximately Cdn. $20.4 million] satisfied by an initial cash payment of U.S. $10.1 million and a discount note payable with a present value of U.S. $5.0 million [note 6[d]]. JAMES RIVER LIMESTONE COMPANY INC. On June 28, 1996, the Company acquired the principal assets including inventories of James River Limestone Company Inc. for a purchase price of U.S. $6.8 million [Cdn $9.2 million]. The purchase price was settled in cash out of the proceeds of a share issue [note 9]. MIDDLETOWN QUARRY On August 29, 1996, the Company purchased, through its wholly owned subsidiary, Global Stone Chemstone Corporation, the principal assets of the Middletown, Virginia operation of Redland Genstar Inc., and entered into a 100-year lease in respect of the mineral reserves for a price of U.S. $9 million [Cdn. $12 million]. The purchase price was settled in cash out of the proceeds of a share issue [note 9]. These acquisitions have been accounted for under the purchase method of accounting. The contract price, which in the aggregate amounted to $43,924,000, including legal, banking and related acquisition costs, were allocated to assets and liabilities on the following basis:
$ [000's] NET ASSETS ACQUIRED Land and mineral reserves 17,984 Property, plant and equipment 24,629 Inventories 3,003 Accounts receivable 223 Accounts payable and accrued liabilities (1,586) Capital lease obligation (329) - ---------------------------------------------------------------------------- 43,924 ============================================================================
F-14 19 GLOBAL STONE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN CANADIAN DOLLARS UNLESS OTHERWISE INDICATED) September 30, 1997 CONSIDERATION GIVEN Contract price for Veizey's Quarry Ltd., St Clair Lime Company, James River Limestone Company Inc. and Middletown Quarry 42,894 Acquisition costs 1,030 - -------------------------------------------------------------------------------- 43,924 ================================================================================
(b) ACQUISITIONS IN 1995 GLOBAL STONE (UK) LTD. On November 1, 1994, the Company purchased from Federated Aggregates Plc ("Federated") a 60% interest in a United Kingdom Company which was subsequently renamed Global Stone (UK), for (pound)520,000 (Cdn. $1,097,000), payment being made by the issue of 206,321 common shares of the Company from treasury (note 9). At that time, Federated was a shareholder of the Company managed by certain directors and officers of the Company. The purchase price was determined by independent valuations. Global Stone (UK) Ltd.'s assets comprised a limestone dimension stone quarry in Tetbury, Gloucestershire, which has subsequently been sold in 1996, and a 40% interest in a development property at Somerley, Hampshire which owns extraction rights to 4 million tonnes of sand and gravel. DETROIT LIME COMPANY ("DETROIT LIME") On January 1, 1995, the Company paid a deposit of U.S. $5,000,000 (Cdn. $7,079,000) from existing cash resources and an increased bank line of credit to acquire (i) inventories and other working capital and (ii) a ten-year lease of substantially all the capital assets of Detroit Lime. The lease is being accounted for as a capital lease. The deposit and the net present value of the minimum payments under this lease, aggregating to Cdn. $12,741,000, have been capitalized and allocated to the assets acquired. Detroit Lime produces lime products from its plant in Detroit, using limestone purchased from independent Michigan quarries. PENROC INC. & DELTA CARBONATE INC. On June 28, 1995, the Company acquired the assets of PenRoc Inc. and Delta Carbonate Inc. (now Global Stone PenRoc), situated in York, Pennsylvania, for the sum of U.S. $7,400,000 (Cdn. $10,167,000). The purchase price was paid from existing cash balances. The assets comprise three high purity limestone quarries, construction aggregates processing, ground calcium carbonate and high brightness white filler plants, together with inventories. These acquisitions have been accounted for under the purchase method of accounting. The contract price, which in the aggregate amounted to $25,089,000, including legal and related acquisition costs, were allocated to assets and liabilities on the following basis: F-15 20 GLOBAL STONE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN CANADIAN DOLLARS UNLESS OTHERWISE INDICATED) September 30, 1997
$ [000's] NET ASSETS ACQUIRED Land and mineral reserves 5,369 Property, plant and equipment 18,385 Extraction rights 725 Inventories 6,980 Working capital (including cash of $59,000 and bank indebtedness of $171,000) (74) Long-term debt (320) Capital lease obligation (net of $7,079,000 deposit) (5,662) Non-controlling interest in Global Stone (UK) Ltd. (314) - ----------------------------------------------------------------------------------------------------- 25,089 ===================================================================================================== CONSIDERATION GIVEN Contract price for Global Stone (UK) Ltd., Detroit Lime Company and PenRoc Inc. and Delta Carbonate Inc. 24,005 Acquisition costs 1,084 - ----------------------------------------------------------------------------------------------------- 25,089 =====================================================================================================
9. SHARE CAPITAL Share capital consists of the following:
# $ [000's] AUTHORIZED Preferred shares with a par value of $1 each unlimited Common shares without par value unlimited ISSUED COMMON SHARES, SEPTEMBER 30, 1994 19,387,600 58,901 Share options exercised 200,000 600 Share warrants exercised 4,589,650 13,861 Issued for acquisition 206,321 1,097 - ----------------------------------------------------------------------------------------------------- COMMON SHARES, SEPTEMBER 30, 1995 24,383,571 74,459 - ----------------------------------------------------------------------------------------------------- Share options exercised 50,000 150 Issued for cash under public offering 2,500,000 13,375 Issued to Cominco for cash 2,200,000 11,770 - ----------------------------------------------------------------------------------------------------- COMMON SHARES, SEPTEMBER 30, 1996 29,133,571 99,754 - ----------------------------------------------------------------------------------------------------- Issued in redemption of the Cominco debenture 545,454 3,000 - ----------------------------------------------------------------------------------------------------- COMMON SHARES, SEPTEMBER 30, 1997 29,679,025 102,754 =====================================================================================================
F-16 21 GLOBAL STONE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN CANADIAN DOLLARS UNLESS OTHERWISE INDICATED) September 30, 1997 SHARE ISSUE COSTS, SEPTEMBER 30, 1994 4,357 Incurred during fiscal 1995 16 - ------------------------------------------------------------------------------- SHARE ISSUE COSTS, SEPTEMBER 30, 1995 4,373 Incurred during fiscal 1996 783 - ------------------------------------------------------------------------------- SHARE ISSUE COSTS, SEPTEMBER 30, 1996 5,156 Incurred during fiscal 1997 1 - ------------------------------------------------------------------------------- SHARE ISSUE COSTS, SEPTEMBER 30, 1997 5,157 - ------------------------------------------------------------------------------- SHARE CAPITAL, NET OF SHARE ISSUE COSTS 97,597 ===============================================================================
The Company has share options outstanding at September 30, 1997 which are exercisable as follows:
SHARE OPTIONS PRICE EXPIRY DATE # $ 385,000 3.00 January 31, 2002 30,000 3.28 July 30, 2003 650,000 5.07 April 9, 2004 30,000 4.00 July 28, 2004 30,000 4.80 December 12, 2004 100,000 4.35 May 1, 2005 80,000 4.65 August 2, 2005 120,000 4.25 October 30, 2005 116,000 4.50 January 25, 2006 658,000 4.85 November 18, 2006 --------------------------------------------------------------- 2,199,000 ===============================================================
SHAREHOLDING OF COMINCO LTD. At September 30, 1997, Cominco owned 4,619,094 shares which represented 15.6% of the outstanding share capital of the Company. F-17 22 GLOBAL STONE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN CANADIAN DOLLARS UNLESS OTHERWISE INDICATED) September 30, 1997 10. INCOME AND OTHER TAXES Income and other taxes vary from the amount that would be computed by applying the combined federal and provincial income tax rate of approximately 44.5% [1996 - - 44.3%; 1995 - 44.5%] for the following reasons:
1997 1996 1995 $ $ $ [000's] [000's] [000's] Income taxes based on income before income taxes 1,961 4,393 3,300 Increase (decrease) in income taxes resulting from Manufacturing and processing profits deduction -- -- (8) Lower income tax rates on earnings of U.S. subsidiaries (3,032) (3,013) (1,505) Capital taxes 159 326 104 Losses not tax effected 1,013 909 -- Other 612 191 (84) - ----------------------------------------------------------------------------------------------------- PROVISION FOR INCOME TAXES 713 2,806 1,807 =====================================================================================================
Current income tax expense for the year is $1,020,000 [1996 - $3,269,000; 1995 - $1,479,000] and deferred income tax recovery is $307,000 [1996 - deferred income tax recovery of $463,000; 1995 deferred income tax expense of $328,000]. The Company has share issue costs of approximately $784,000 which are available to reduce taxable income and taxes payable in future years. These costs are deductible on a straight-line basis over five years beginning in the year in which they occur. Any tax recoveries will be credited to share issue costs in share capital in the period in which they are realized. 11. EARNINGS PER SHARE Basic earnings per share are calculated on the basis of the weighted average number of shares outstanding during the year which amounted to 29,632,826 [1996 - - 25,583,571; 1995 - 21,370,842]. Fully diluted earnings per share show the effect on earnings per share which would result if all the outstanding share options were exercised and converted into common shares and the convertible Cominco debenture was converted into common shares, at the beginning of the fiscal year or the date of issuance if later. 12. RELATED PARTY TRANSACTIONS Related party transactions not disclosed elsewhere in these consolidated financial statements include legal services received from a law practice with which a director of the Company is a partner [1997 - $13,516; 1996 - $116,571; 1995 - $226,000]. F-18 23 GLOBAL STONE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN CANADIAN DOLLARS UNLESS OTHERWISE INDICATED) September 30, 1997 13. UNUSUAL ITEMS Unusual items of $3,782,000 represent certain costs associated with the flood in July 1997 and for restructuring of the mining operation at Tenn Luttrell. The restructuring costs relate to the write-off of certain development costs due to a change in mining method from open-pit to underground that had been previously capitalized. Restructuring costs also include related severance costs. 14. SEGMENTED INFORMATION The Company operates in one dominant industry segment, the manufacture and distribution of lime and related products for a wide variety of end uses, and primarily in one geographic segment, North America. 15. COMMITMENTS The Company is committed to spending approximately $5 million on capital expenditures, relating to a number of ongoing projects at several of its locations. 16. CONTINGENCY The Company has been named in a lawsuit for alleged damages arising from blasting and dust nuisance operations at one of its locations. The Company believes that this claim is without merit and is vigorously defending its case. 17. SIGNIFICANT DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ["GAAP"] These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada, which differ in some respects from those in the United States. The following note presents amounts that would have been reported had the Company's consolidated financial statements been prepared in accordance with United States generally accepted accounting principles. F-19 24 GLOBAL STONE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN CANADIAN DOLLARS UNLESS OTHERWISE INDICATED) September 30, 1997 [a] Reconciliation of operating income and net income between Canadian and United States GAAP:
1997 1996 1995 $ $ $ - ----------------------------------------------------------------------------------------------------------- [000's] [000's] [000's] Operating income, as reported under Canadian GAAP 14,664 15,463 11,426 Unusual item [g] (3,782) - - - ----------------------------------------------------------------------------------------------------------- Operating income, as reported under U.S. GAAP 10,882 15,463 11,426 - ----------------------------------------------------------------------------------------------------------- Net income, as reported under Canadian GAAP 3,687 7,553 5,781 Post-retirement benefit adjustment to set up liability (net of deferred tax) [e] (202) (196) (177) Adjustment to pension expense to comply with U.S. GAAP (net of deferred tax) [f] (46) (86) (103) - ----------------------------------------------------------------------------------------------------------- NET INCOME IN ACCORDANCE WITH U.S. GAAP 3,439 7,271 5,501 =========================================================================================================== NET INCOME PER COMMON SHARE [i] $0.12 $0.28 $0.26 DILUTED INCOME PER SHARE [i] $0.12 $0.28 $0.25 ===========================================================================================================
F-20 25 GLOBAL STONE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN CANADIAN DOLLARS UNLESS OTHERWISE INDICATED) September 30, 1997 [b] Deferred Taxation: Statement of Financial Accounting Standards ["SFAS"] No. 109 "Accounting for Income Taxes" requires the use of the liability method of accounting for income taxes. At September 30, 1997 and 1996, the Corporation's deferred tax assets and liabilities under the requirements of SFAS No. 109 were as follows:
1997 1996 $ $ [000's] [000's] ------------------- ----------------- ASSETS: Tax benefit of loss carry forwards 8,767 5,030 Accumulated pension and post-retirement benefit obligation 2,207 2,004 Alternative minimum tax 2,768 2,062 Other 532 255 - ----------------------------------------------------------------------------------------------------- 14,274 9,351 Valuation allowance (2,672) (1,742) - ----------------------------------------------------------------------------------------------------- 11,602 7,609 - ----------------------------------------------------------------------------------------------------- LIABILITIES: - ----------------------------------------------------------------------------------------------------- Capital Assets 16,043 12,560 - ----------------------------------------------------------------------------------------------------- NET DEFERRED TAXES (4,441) (4,951) =====================================================================================================
At October 1, 1996, the valuation allowance was $1.742 million. During the year, the valuation allowance increased by $0.93 million, primarily as a result of the increase in net operating loss carry forwards not recognized as deferred tax assets. [c] As a result of differences between Canadian/U.S. GAAP, selected consolidated balance sheet amounts under U.S. GAAP would be as follows:
1997 1996 $ $ [000's] [000's] - ----------------------------------------------------------------------------------------------------- [i] PENSION PLAN LIABILITY Balance under Canadian GAAP 123 252 Adjustment to pension liability [f] 606 524 - ----------------------------------------------------------------------------------------------------- BALANCE UNDER U.S. GAAP 729 776 =====================================================================================================
F-21 26 GLOBAL STONE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN CANADIAN DOLLARS UNLESS OTHERWISE INDICATED) September 30, 1997 [ii] ACCRUED POST-RETIREMENT BENEFIT OBLIGATION Balance under Canadian GAAP 0 0 Adjustment to set up post-retirement benefit liability [e] 4,214 3,872 -------------------------------------------------------------------------------------------- BALANCE UNDER U.S. GAAP 4,214 3,872 ============================================================================================ [iii] SHAREHOLDERS' EQUITY Balance under Canadian GAAP 120,749 112,209 Post-retirement benefit adjustment to set-up liability (net of deferred tax) [e] (1,033) (831) Adjustment to pension expense to comply with U.S.GAAP (net of deferred tax) [f] (337) (292) -------------------------------------------------------------------------------------------- BALANCE UNDER U.S. GAAP 119,379 111,086 ============================================================================================ [iv] DEFERRED INCOME TAX Balance under Canadian GAAP 6,648 6,955 Effect of U.S. GAAP adjustments on deferred tax balance (2,207) (2,004) -------------------------------------------------------------------------------------------- BALANCE UNDER U.S. GAAP 4,441 4,951 ============================================================================================ [v] CAPITAL ASSETS Balance under Canadian GAAP 176,330 163,807 Additional amounts assigned to capital assets as a result of acquisitions [e] 1,243 1,269 -------------------------------------------------------------------------------------------- BALANCE UNDER U.S. GAAP 177,573 165,076 ============================================================================================
[d] U.S. GAAP requires disclosure, on a cash basis, of interest paid (net of amounts capitalized) and income taxes paid. During 1997, $6,692,000 of interest was paid in cash [1996 - $5,933,000; 1995 - $4,292,000]. The amount of income taxes paid (refunded) in cash during 1997 was $1,243,000 [1996 - ($239,000); 1995 - $2,115,000]. [e] Under U.S. GAAP, post-retirement benefits are charged against income on an accrual basis. In addition, on the acquisition of an operation, the obligation for post-retirement benefits is recognized as part of the purchase equation. Under Canadian GAAP, the cost of these benefits is expensed when paid. [f] Pension expense calculated under U.S. GAAP differs from that calculated under Canadian GAAP primarily as a result of differences in interest rates, discount rates and treatment of experience gains and losses. [g] Under U.S. GAAP, an unusual item is classified separately as an operating expense. Under Canadian GAAP, it is classified as a non-operating expense. F-22 27 GLOBAL STONE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN CANADIAN DOLLARS UNLESS OTHERWISE INDICATED) September 30, 1997 [h] Under U.S. GAAP, all non-cash investing and financing transactions are to be excluded from the statement of changes in financial position and the change in bank indebtedness is treated as a financing activity. The exclusion of non-cash transactions and the inclusion of changes in bank indebtedness changes the balance for cash provided by financing activities for the year ended September 30, 1997 under U.S. GAAP to $0.5 million [1996 - $46.5 million; 1995 - $27.5 million]. Cash used in investing activities for the year ended September 30, 1997 under U.S. GAAP would be $23.8 million [1996 - $55.0 million; 1995 - $39.8 million]. Non-cash transactions that have been eliminated from these activities include the issue of shares on the conversion of long term debt; additions to capital assets arising from capital lease transactions; the financing of the St. Clair Lime Co. purchase by debt; and the issuance of shares to acquire Global Stone (UK) Ltd. [i] In 1998, the Company retroactively adopted the requirements under SFAS No. 128 concerning the calculation of earnings per share, which is effective for fiscal periods ending after December 15, 1997. [j] Under U.S. GAAP, the Company accounts for its share option plan under the principles of Accounting Principles Board Opinion No. 25 and related interpretations, which in the Company's circumstances results in no compensation expense being recorded. 18. SUBSEQUENT EVENT On May 15, 1998, Oglebay Norton Acquisition Limited, a subsidiary of Oglebay Norton Company, a Cleveland, Ohio-based company, announced that it had taken up approximately 98.6% of the outstanding common shares of Global Stone Corporation that were deposited in acceptance of its offer dated April 24, 1998. Oglebay Norton Acquisition Limited has also sent to non-depositing shareholders the required notice pursuant to the compulsory acquisition provisions of the Canada Business Corporations Act to acquire the remaining outstanding common shares of Global Stone Corporation at the $7.80 per share offer price. F-23 28 GLOBAL STONE CORPORATION CONSOLIDATED INTERIM BALANCE SHEETS - UNAUDITED
CDN $'000 AS AT MARCH 31 1998 1997 ASSETS CURRENT Cash and temporary investments 7,214 4,933 Accounts receivable 26,652 26,591 Inventories 19,507 16,383 Prepaid expenses 1,989 2,597 - ---------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 55,362 50,504 - ---------------------------------------------------------------------------------------------------- Capital assets 187,041 171,372 Deferred financing costs 623 779 - ---------------------------------------------------------------------------------------------------- TOTAL CAPITAL ASSETS 187,664 172,151 - ---------------------------------------------------------------------------------------------------- 243,026 222,655 ==================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT Bank indebtedness 15,349 10,895 Accounts payable and accrued charges 21,178 15,417 Income taxes payable 154 (647) Current portion of capital lease obligation 1,696 608 Current portion of long term debt 15,750 1,523 - ---------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 54,127 27,796 - ---------------------------------------------------------------------------------------------------- LONG TERM Long term debt 42,240 58,057 Capital lease obligation 9,662 8,558 Deferred income tax 6,675 7,008 Provision for pension plan - 64 Debenture premium 854 1,218 - ---------------------------------------------------------------------------------------------------- TOTAL LONG TERM LIABILITIES 59,431 74,905 - ---------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 113,558 102,701 - ---------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Share capital 97,597 97,597 Retained earnings 26,340 20,909 Cumulative translation adjustment 5,531 1,448 - ---------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 129,468 119,954 - ---------------------------------------------------------------------------------------------------- 243,026 222,655 ====================================================================================================
F-24 29 GLOBAL STONE CORPORATION CONSOLIDATED INTERIM STATEMENTS OF INCOME AND RETAINED EARNINGS - UNAUDITED
CDN $'000 SIX MONTHS ENDED MARCH 31 1998 1997 SALES OF LIME & LIMESTONE Gross revenue 94,946 85,983 Freight charges 15,650 14,782 - ------------------------------------------------------------------------------------- NET REVENUE 79,296 71,201 - ------------------------------------------------------------------------------------- OPERATING EXPENSES Cost of lime and limestone sales 62,700 57,981 Selling and administration 7,317 7,682 Gain on sale of capital assets, net (44) (326) - ------------------------------------------------------------------------------------- 69,973 65,337 - ------------------------------------------------------------------------------------- OPERATING INCOME 9,323 5,864 - ------------------------------------------------------------------------------------- Interest expense, net (3,752) (2,880) - ------------------------------------------------------------------------------------- Income before income taxes and non controlling interest 5,571 2,984 Provision for income taxes 1,232 456 - ------------------------------------------------------------------------------------- 4,339 2,528 Non-controlling interest - 67 - ------------------------------------------------------------------------------------- NET INCOME FOR THE PERIOD 4,339 2,595 Retained earnings, beginning of period 22,001 18,314 - ------------------------------------------------------------------------------------- Retained earnings, end of period 26,340 20,909 ===================================================================================== Earnings per share $0.15 $0.09 Fully diluted earnings per share $0.14 $0.09 - -------------------------------------------------------------------------------------
F-25 30 GLOBAL STONE CORPORATION CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN FINANCIAL POSITION - UNAUDITED
CDN $'000 SIX MONTHS ENDED MARCH 31 1998 1997 OPERATING ACTIVITIES Net income for the period 4,339 2,595 Add (deduct) items not involving cash Depreciation and depletion 7,344 6,875 Amortization of deferred financing costs 78 78 Amortization of debenture premium (181) (194) Gain on sale of capital assets, net (44) (326) Deferred income taxes (147) - Non-controlling interest - (67) Net change in non-cash working capital balances related to operations (2,003) (8,162) - ------------------------------------------------------------------------------------- CASH PROVIDED BY OPERATING ACTIVITIES 9,386 799 - ------------------------------------------------------------------------------------- FINANCING ACTIVITIES Issue of share capital and warrants - 3,000 Conversion of long-term debt to share capital - (3,000) Share offering costs - (1) Repayment of long-term debt (1,369) (1,277) Increase in capital lease obligations 1,437 1,193 Repayment of capital lease obligations (765) (181) - ------------------------------------------------------------------------------------- CASH USED IN FINANCING ACTIVITIES (697) (266) - ------------------------------------------------------------------------------------- INVESTING ACTIVITIES Capital asset purchases (14,131) (11,614) Cumulative translation adjustment 422 (413) - ------------------------------------------------------------------------------------- CASH USED IN INVESTING ACTIVITIES (13,709) (12,027) - ------------------------------------------------------------------------------------- DECREASE IN CASH DURING PERIOD (5,020) (11,494) Cash position, beginning of period (3,115) 5,532 - ------------------------------------------------------------------------------------- CASH POSITION, END OF PERIOD (8,135) (5,962) =====================================================================================
F-26 31 NOTES TO UNAUDITED CONSOLIDATED INTERIM STATEMENTS These unaudited consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in Canada, which differ in some respects from those in the United States. The following note presents amounts that would have been reported had the Company's unaudited consolidated interim financial statements been prepared in accordance with United States generally accepted accounting principles. Management believes that all adjustments considered necessary for a fair presentation of the results of operations for such periods have been made. [a] Reconciliation of net income between Canadian and United States GAAP (in 000's):
SIX MONTHS ENDED SIX MONTHS ENDED MARCH 31, 1998 MARCH 31, 1997 - ----------------------------------------------------------------------------------------------------- Net income under Canadian GAAP $4,339 $2,595 Post-retirement benefit adjustment to set-up liability (net of deferred tax) [c] (106) (96) Adjustment to pension expense to comply with U.S. GAAP (net of deferred tax) [d] (23) (22) - ----------------------------------------------------------------------------------------------------- NET INCOME IN ACCORDANCE WITH U.S. GAAP $4,210 $2,477 ===================================================================================================== FULLY DILUTED NET INCOME PER COMMON SHARE [f] $0.14 $0.08 DILUTED INCOME PER SHARE [f] $0.14 $0.08 =====================================================================================================
[b] As a result of differences between Canadian/U.S. GAAP, selected consolidated balance sheet amounts under U.S. GAAP would be as follows:
MARCH 31, 1998 MARCH 31, 1997 -------------------------------------------------------------------------------------------- [i] PENSION PLAN LIABILITY Balance under Canadian GAAP $ 0 $ 188 Adjustment to pension liability [d] 649 565 -------------------------------------------------------------------------------------------- BALANCE UNDER U.S. GAAP $ 649 $ 753 ============================================================================================ [ii] ACCRUED POST-RETIREMENT BENEFIT OBLIGATION Balance under Canadian GAAP $ 0 $ 0 Adjustment to set up post-retirement benefit liability [c] 4,391 4,037 -------------------------------------------------------------------------------------------- BALANCE UNDER U.S. GAAP $ 4,391 $ 4,037 ============================================================================================ [iii] SHAREHOLDERS' EQUITY Balance under Canadian GAAP $129,468 $119,954 Post-retirement benefit adjustment to set-up liability (net of deferred tax) [c] (1,138) (927) Adjustment to pension expense (net of deferred tax) [d] (361) (314) -------------------------------------------------------------------------------------------- BALANCE UNDER U.S. GAAP $127,969 $118,713 ============================================================================================ [iv] DEFERRED INCOME TAXES Balance under Canadian GAAP $ 6,675 $ 7,008 Effect of U.S. GAAP adjustments on deferred income tax balance (2,310) (2,104) -------------------------------------------------------------------------------------------- BALANCE UNDER U.S. GAAP $ 4,365 $ 4,904 ============================================================================================
F-27 32 NOTES TO UNAUDITED CONSOLIDATED INTERIM STATEMENTS [v] CAPITAL ASSETS Balance under Canadian GAAP $187,041 $171,372 Additional amount assigned to capital assets as a result of acquisition [c] 1,231 1,257 -------------------------------------------------------------------------------------------- BALANCE UNDER U.S. GAAP $188,272 $172,629 ============================================================================================
[c] Under U.S. GAAP, the post-retirement benefits are charged against income on an accrual basis. In addition, on the acquisition of an operation, the obligation for post-retirement benefits is recognized as part of the purchase equation. Under Canadian GAAP, the cost of these benefits is expensed when paid. [d] Pension expense calculated under U.S. GAAP differs from that calculated under Canadian GAAP primarily as a result of differences in interest rates, discount rates and treatment of experience gains and losses. [e] Under U.S. GAAP, all non-cash investing and financing transactions are to be excluded from the statement of changes in financial position and the change in bank indebtedness is treated as a financing activity. The exclusion of non-cash transactions and the inclusion of changes in bank indebtedness changes the balance for cash provided by financing activities for the six months ended March 31, 1998 under U.S. GAAP to $2.3 million [March 1997 - $7.6 million]. Cash used in investing activities for the six month ended March 31, 1998 under U.S. GAAP would be $12.3 million [1997 - $10.8 million]. Non-cash transactions that have been eliminated from these activities include the issue of shares on the conversion of long term debt; and additions to capital assets arising from capital lease transactions. [f] In 1998, the Company retroactively adopted the requirements under SFAS No. 128 concerning the calculation of earnings per share, which is effective for fiscal periods ending after December 15, 1997. [g] Under U.S. GAAP, the Company accounts for its share option plan under the principles of Accounting Principles Board Opinion No. 25 and related interpretations, which in the Company's circumstances results in no compensation expense being recorded. F-28 33 Item 7(b) Pro Forma Financial Information OGLEBAY NORTON COMPANY INDEX TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
Page No. Unaudited Pro Forma Combined Statement of Operations for the year ended December 31, 1997.............................................................P-2 Unaudited Pro Forma Combined Statement of Operations for the three months ended March 31, 1998........................................................P-3 Notes to Unaudited Pro Forma Combined Statements of Operations............................................................................P-4 Unaudited Pro Forma Combined Balance Sheet as of March 31, 1998...........................................................................P-7 Notes to Unaudited Pro Forma Combined Balance Sheet as of March 31, 1998...........................................................................P-8
P-1 34 OGLEBAY NORTON COMPANY UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL PRO FORMA ------------------------------ ------------------------------------------------ OGLEBAY NORTON GLOBAL STONE OTHER RECENT COMPANY CORPORATION (a) ADJUSTMENTS (b) TRANSACTIONS (c) COMBINED -------------- --------------- --------------- ---------------- ----------- NET SALES AND OPERATING REVENUES $145,185 $ 110,395 $ 27,084 $ 282,664 COSTS AND EXPENSES Costs of goods sold and operating expenses 98,421 78,576 $ 306 (d) 16,881 194,184 Depreciation, amortization and depletion 8,947 10,090 2,599 (e) 3,106 24,742 General, administrative and selling expenses 13,352 11,312 (560) (f) 2,978 27,082 Gain on sale of assets (263) 263 (g) Unusual items 2,759 (g) 2,759 ----------- ----------- ----------- ------------- ----------- 120,720 99,715 5,367 22,965 248,767 ----------- ----------- ----------- ------------- ----------- INCOME FROM OPERATIONS 24,465 10,680 (5,367) 4,119 33,897 Unusual items (2,759) 2,759 (g) Gain on sale of assets 5,548 263 (g) 5,811 Interest, dividends and other income 2,693 146 62 2,901 Interest expense (2,834) (4,892) (18,042) (h) (2,051) (27,819) Other expense (4,296) (4,296) ----------- ----------- ----------- ------------- ----------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND MINORITY INTEREST 25,576 3,175 (20,387) 2,130 10,494 Income taxes 7,220 524 (7,168) (i) 816 1,392 Minority interest (7) (7) ----------- ----------- ----------- ------------- ------------ INCOME FROM CONTINUING OPERATIONS 18,356 2,658 (13,219) 1,314 9,109 DISCONTINUED OPERATIONS: - Loss from operations (841) (841) Loss from disposal (1,263) (1,263) ----------- ----------- ----------- ------------- ------------ Loss from discontinued operations (2,104) (2,104) ----------- ----------- ----------- ------------- ------------ NET INCOME $ 16,252 $ 2,658 $ (13,219) $ 1,314 $ 7,005 =========== =========== =========== ============= ============ PER SHARE AMOUNTS: Income (loss) per common share - basic: Continuing operations $ 3.84 $ 1.90 Discontinued operations (0.44) (0.44) ----------- ------------ NET INCOME PER SHARE $ 3.40 $ 1.46 =========== ============ Income (loss) per common share - assuming dilution: Continuing operations $ 3.81 $ 1.89 Discontinued operations (0.44) (0.44) ----------- ------------ NET INCOME PER SHARE - ASSUMING DILUTION $ 3.37 $ 1.45 =========== ============
P-2 35 ' OGLEBAY NORTON COMPANY UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL PRO FORMA -------------------------------- ------------------------------------------- OGLEBAY NORTON GLOBAL STONE OTHER RECENT COMPANY CORPORATION (a) ADJUSTMENTS (b) TRANSACTIONS (c) COMBINED -------------- ---------------- ---------------- ---------------- ---------- NET SALES AND OPERATING REVENUES $14,308 $ 29,038 $ 1,110 $ 44,456 COSTS AND EXPENSES Costs of goods sold and operating expenses 9,099 20,444 $ 78 (d) 729 30,350 Depreciation, amortization and depletion 961 2,660 650 (e) 134 4,405 General, administrative and selling expenses 3,795 2,600 (140) (f) 592 6,847 ----------- ----------- ---------- ---------- ---------- 13,855 25,704 588 1,455 41,602 ----------- ----------- ---------- ---------- ---------- INCOME FROM OPERATIONS 453 3,334 (588) (345) 2,854 Gain on sale of assets 16 20 36 Interest, dividends and other income 478 31 24 533 Interest expense (781) (1,383) (4,622) (h) (513) (7,299) Other expense (486) (486) ----------- ----------- ---------- ---------- ---------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (320) 2,002 (5,210) (834) (4,362) Income taxes (100) 385 (1,831) (i) (300) (1,846) ----------- ----------- ---------- ---------- ---------- NET INCOME (LOSS) $ (220) $ 1,617 $ (3,379) $ (534) $ (2,516) =========== =========== ========== ========== ========== PER SHARE AMOUNTS: NET INCOME (LOSS) PER SHARE - BASIC $ (0.05) $ (0.53) =========== ========== NET INCOME (LOSS) PER SHARE - ASSUMING DILUTION $ (0.05) $ (0.52) =========== ==========
P-3 36 OGLEBAY NORTON COMPANY NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS) The unaudited pro forma combined statements of operations for the year ended December 31, 1997 and three months ended March 31, 1998 were prepared as if Oglebay Norton Company ("Company" or "Oglebay Norton") had acquired Global Stone Corporation ("Global Stone") at January 1, 1997. The unaudited pro forma combined statement of operations for the year ended December 31, 1997 should be read in conjunction with the audited financial statements and related notes thereto of Oglebay Norton included in its Annual Report on (Form 10-K) for the year ended December 31, 1997 and the audited financial statements and related notes thereto of Global Stone for the fiscal year ended September 30, 1997, included herewith. The unaudited pro forma combined statement of operations for the three months ended March 31, 1998 should be read in conjunction with the unaudited financial statements and related notes thereto of Oglebay Norton included in its Quarterly Report on (Form 10-Q) for the three months ended March 31, 1998 and the unaudited financial statements and related notes thereto of Global Stone for the six months ended March 31, 1998, included herein. The unaudited pro forma combined statements of operations are not necessarily indicative of operating results that would have been achieved had the acquisition been consummated at the beginning of the periods presented and should not be construed as being representative of future operations. (a) The statements of income of Global Stone were converted to U.S. dollars from Canadian dollars using the monthly average exchange rate in effect the month the transaction occurred, which resulted in annual average exchange rates approximating: US$1.00 to Cdn$1.37 for the twelve month period ended September 30, 1997; and US$1.00 to Cdn$1.43 for the three month period ended March 31, 1998. Global Stone's historical financial statements were prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"). (b) The unaudited pro forma combined statements of operations contain pro forma adjustments to conform Global Stone's historical statements of income to U.S. generally accepted accounting principles ("U.S. GAAP"). (c) Other recent transactions include the acquisitions of the Colorado Silica industrial sand operations and Port Inland limestone operations by Oglebay in March and April 1998, respectively. Other recent transactions also include the May 1998 asset sale of Oglebay's Engineered Materials metallurgical treatment operations. The Engineered Materials business segment was classified as a discontinued operation at December 31, 1997. The sale of the Engineered Materials assets did not result in any gain or additional loss upon disposal. These transactions did not meet the definition of a significant subsidiary under Rule 1-02(w) of Regulation S-X requiring separate financial statement presentation. P-4 37 OGLEBAY NORTON COMPANY NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS) (d) Under Canadian GAAP, the cost of postretirement benefits is expensed when paid. Under U.S. GAAP, these benefits are charged against income on an accrual basis. Pension expense calculated under U.S. GAAP differs from that calculated under Canadian GAAP primarily as a result of differences in interest rates, discount rates and treatment of experience gains and losses. The pro forma adjustments reflect accrued postretirement benefits, the adjustments to pension expense and the related tax effects necessary to conform Global Stone's historical statements of income to U.S. GAAP. (e) Pro forma depletion expense for Global Stone was computed based on total estimated proven and probable mineral reserves, tons of mineral reserves mined in fiscal 1997 and the pro forma write-up ($86,141) to estimated fair value of Global Stone's mineral reserves. Pro forma goodwill amortization was computed based on the purchase price in excess of fair market value ($33,595) amortized over a 40-year period. The pro forma adjustments to depletion and amortization expense are as follows:
Three Year Ended Months Ended December 31, 1997 March 31, 1998 ----------------- -------------- Pro forma depletion expense adjustment $1,759 $440 Pro forma amortization expense adjustment 840 210 ------ ---- $2,599 $650 ====== ====
(f) Pro forma reduction of general and administrative expense is a result of the combination of Oglebay and Global Stone. Estimated expense savings, which primarily represent Global Stone public company costs, are as follows:
Three Year Ended Months Ended December 31, 1997 March 31, 1998 ----------------- -------------- Insurance costs $175 $ 44 Shareholder relations, annual report and public relations costs 125 31 Board of Directors fees and expenses 110 27 Audit and legal fees 90 23 Other miscellaneous costs 60 15 ---- ---- $560 $140 ==== ====
P-5 38 OGLEBAY NORTON COMPANY NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS) (g) Under U.S. GAAP, the unusual items would have been classified separately as a component of income from operations instead of as a non-operating expense under Canadian GAAP. Under U.S. GAAP gains on the sale of assets would have been classified separately as a component of non-operating income instead of as a component of income from operations under Canadian GAAP. (h) Pro Forma Combined interest expense reflects $174,515 borrowed under the Senior Credit Facility, with an assumed average borrowing rate approximating 8%, and $100,000 borrowed under the Senior Subordinated Facility, with an assumed average borrowing rate approximating 10%, outstanding as of January 1, 1997. The borrowed funds were used to purchase all of the outstanding common shares of Global Stone for $172,480. The funds were also used to refinance Global Stone's short-term bank debt of $10,835 and Senior Secured 10.625% Debentures of $37,661 (of which $10,043 was current) and pay a debenture call premium of $3,289 due to a change-in-control provision in the Debenture. The borrowed funds were further used to refinance Oglebay's variable rate term loan of $19,250 (of which $5,500 was current) and revolving credit debt of $25,000 for other recent transactions and pay finance costs of $6,000. (i) Income tax expense on pro forma adjustments related to Oglebay and Global Stone was computed using effective tax rates approximating 35% and 44%, respectively. P-6 39 OGLEBAY NORTON COMPANY UNAUDITED PROFORMA COMBINED BALANCE SHEET MARCH 31, 1998 (DOLLARS IN THOUSANDS)
HISTORICAL PRO FORMA --------------------------- ------------------------------------------ OGLEBAY NORTON GLOBAL STONE OTHER RECENT COMPANY CORPORATION(a) ADJUSTMENTS(b) TRANSACTIONS(c) COMBINED -------------- ------------ ------------- ------------ ---------- ASSETS Cash and cash equivalents $ 20,864 $ 5,092 $ (5,878) $ 20,078 Accounts receivable 9,703 18,814 325 28,842 Deferred income taxes 3,050 3,050 Inventories 5,822 13,770 1,788 21,380 Prepaid expenses and other assets 6,113 1,404 6,887 14,404 Discontinued operations 13,738 (13,738) ------------ ------------ ----------- ------------ Total Current Assets 59,290 39,080 (10,616) 87,754 Properties, equipment and mineral reserves 311,763 167,271 $ 86,141 (d) 30,254 595,429 Less accumulated depreciation, amortization and depletion 156,327 35,236 191,563 ------------ ------------ ------------ ----------- ------------ 155,436 132,035 86,141 30,254 403,866 Debt Finance Costs 441 (441)(e) 6,000 (e) 6,000 Goodwill 33,595 (d) 4,225 37,820 Prepaid Pension Costs and Other Assets 41,623 2,067 43,690 ------------ ------------ ------------ ----------- ------------ TOTAL ASSETS $ 256,349 $ 171,556 $ 125,595 $ 25,930 $ 579,130 ============ ============ ============ =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Short-term debt $ 10,835 $ (10,835)(f) Current portion of capital lease obligations 1,197 $ 1,197 Current portion of long-term debt $ 8,728 11,118 (15,543)(f) 4,303 Accounts payable 4,850 8,793 13,643 Payrolls and other accrued compensation 3,067 1,476 4,543 Accrued expenses 12,488 4,681 $ 930 18,099 Income taxes 1,768 109 1,877 ------------ ------------ ------------ ----------- ------------ Total Current Liabilities 30,901 38,209 (26,378) 930 43,662 Capital Lease Obligations, less current portion 6,821 6,821 Long-Term Debt, less current portion 36,700 29,818 (41,368)(f) 249,515 (f) 25,000 299,665 Other Long-Term Liabilities 25,881 603 (603)(e) 25,881 Postretirement Benefits Obligation 24,314 3,557 (g) 27,871 Deferred Income Taxes 21,172 4,712 33,595 (d) (1,630)(g) 57,849 STOCKHOLDERS' EQUITY Common stock 7,253 68,895 (68,895)(h) 7,253 Additional capital 7,218 7,218 Cumulative foreign currency translation adjustment 3,904 (3,904)(h) Retained earnings 137,457 18,594 (18,594)(h) 137,457 ------------ ------------ ------------ ------------ 151,928 91,393 (91,393) 151,928 Treasury stock (33,952) (33,952) Unallocated ESOP shares (595) (595) ------------ ------------ ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 117,381 91,393 (91,393) 117,381 ------------ ------------ ------------ ----------- ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 256,349 $ 171,556 $ 125,595 $ 25,930 $ 579,130 ============ ============ ============ =========== ============
P-7 40 OGLEBAY NORTON COMPANY NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET (DOLLARS IN THOUSANDS) The unaudited pro forma combined balance sheet as of March 31, 1998 was prepared as if Oglebay Norton Company ("Company" or "Oglebay Norton") had acquired Global Stone Corporation ("Global Stone") at March 31, 1998. The unaudited pro forma combined balance sheet as of March 31, 1998 should be read in conjunction with the audited financial statements and related notes thereto of Oglebay Norton, included in its Annual Report on (Form 10-K) for the year ended March 31, 1998 and the unaudited financial statements and related notes thereto of Oglebay Norton, included in its Quarterly Report on (Form 10-Q) for the three months ended March 31, 1998. The unaudited pro forma combined balance sheet as of March 31, 1998 should also be read in conjunction with the audited financial statements and related notes thereto of Global Stone for the fiscal year ended September 30, 1997 and the unaudited financial statements and related notes thereto of Global Stone for the six months ended March 31, 1998, which are included herein. (a) The unaudited balance sheet of Global Stone was converted to U.S. dollars from Canadian dollars using the exchange rate of US$1.00 to Cdn.$1.42 in effect at March 31, 1998. Global Stone's historical financial statements were prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"). (b) The unaudited pro forma combined balance sheet contains pro forma adjustments to conform Global Stone's balance sheet as of March 31, 1998 to U.S. generally accepted accounting principles ("U.S. GAAP"). (c) Other recent transactions include the acquisition of the Port Inland limestone operations by Oglebay on April 28, 1998. Other recent transactions also include the May 1998 asset sale of Oglebay's Engineered Materials metallurgical treatment operations. The Engineered Materials business segment was classified as a discontinued operation at December 31, 1997. These transactions did not meet the definition of a significant subsidiary under Rule 1-02(w) of Regulation S-X requiring separate financial statement presentation. P-8 41 OGLEBAY NORTON COMPANY NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET (DOLLARS IN THOUSANDS) (d) The purchase price for Global Stone in excess of the net assets acquired was allocated to mineral reserves, to write-up these assets to their estimated fair value, and to record goodwill as follows: Purchase of Global Stone's common stock $172,480 Call premium on Global Stone's Senior Secured 10.625% Debentures 3,289 Unamortized finance costs on Global Stone's Senior Secured 10.625% Debentures 441 Unamortized premium on Global Stone's Senior Secured 10.625% Debentures (603) U.S. GAAP adjustment to Global Stone's retained earnings related to pension and postretirement benefits obligation 1,058 U.S. GAAP adjustment to Global Stone's mineral reserves related to pension and postretirement benefits obligation 869 Global Stone's historical net assets acquired (91,393) -------- Purchase price in excess of Global Stone's historical net assets acquired 86,141 Recognition of deferred tax liability on purchase price in excess of historical net assets acquired 33,595 -------- Total excess purchase price $119,736 ======== Pro forma allocation of excess purchase price: Mineral reserves $ 86,141 Goodwill 33,595 -------- $119,736 ========
(e) Finance costs totaling $6,000 were capitalized in connection with the Senior Credit Facility and Senior Subordinated Facility. Unamortized financing costs of $441 and an unamortized premium of $603 related to the Senior Secured 10.625% Debentures included in Global Stone's historical March 31, 1998 balance sheet were included as part of the purchase price of Global Stone. (f) In connection with the Global Stone Acquisition, $174,515 was borrowed under the Senior Credit Facility and $100,000 was borrowed under the Senior Subordinated Facility assumed to be outstanding as of January 1, 1997. The borrowed funds were used to purchase all of the outstanding common shares of Global Stone for $172,480. The funds were also used to refinance Global Stone's short-term bank debt of $10,835 and Senior Secured 10.625% Debentures of $37,661 (of which $10,043 was current) and pay a debenture call premium of $3,289, due to a change-in-control provision in the Debenture. The borrowed funds were further used to refinance Oglebay's variable rate term loan of $19,250 (of which $5,500 was current) and revolving credit debt of $25,000 for other recent transactions and pay finance costs of $6,000. P-9 42 OGLEBAY NORTON COMPANY NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET (DOLLARS IN THOUSANDS) (g) Under Canadian GAAP, the cost of postretirement benefits is expensed when paid. Under U.S. GAAP, these benefits are charged against income on an accrual basis. Pension expense calculated under Canadian GAAP differs from that calculated under U.S. GAAP primarily as a result of differences in interest rates, discount rates and treatment of experience gains and losses. The pro forma adjustments reflect the recording of accrued postretirement benefits, the necessary adjustments to pension expense and the related tax effects as of March 31, 1998. (h) Elimination of Global Stone's stockholders' equity upon combination. P-10 EX-23.1 2 EXHIBIT 23.1 1 Exhibit 23.1 Consent of Independent Auditors We consent to the incorporation by reference in the following Registration Statements of Oglebay Norton Company of our report dated November 18, 1997, (except for Notes 17 and 18, which are as of June 19, 1998), with respect to the consolidated financial statements of Global Stone Corporation as at September 30, 1997 and 1996 and for each of the years in the three-year period ended September 30, 1997, included in this Form 8-K/A-1 of Oglebay Norton Company filed with the Securities and Exchange Commission: Registration Statement Number 33-58819 on Form S-8 dated April 26, 1995, pertaining to the Oglebay Norton Company Director Stock Plan; Registration Statement Number 33-21006 on Form S-8 dated April 21, 1988, pertaining to the Oglebay Norton Company Employee Stock Ownership Plan and Trust; Registration Statement Number 33-29046 on Form S-8 dated June 9, 1989, pertaining to the Oglebay Norton Company Employee Stock Ownership Plan and Trust. Toronto, Canada /s/ Ernst & Young July 31, 1998 Chartered Accountants -----END PRIVACY-ENHANCED MESSAGE-----