Item 1. Business
EXOLON-ESK COMPANY
(a) General Development of the Business
The Exolon Company was founded in 1914 as a Massachusetts corporation and reincorporated as a Delaware corporation in 1976. On April 27, 1984, ESK Corporation merged into the Exolon Company and the resulting company was renamed Exolon-ESK Company. (As used herein, the Company refers to Exolon-ESK Company and its wholly owned Canadian Subsidiary.) The Company issued 499,219 shares of its Class A Common Stock and 31,523 shares of its Series B Convertible Preferred Stock to Wacker Chemical Corporation as a result of the merger. In December of 1995, Wacker Chemical Corporation transferred all of its Company stock to Wacker Chemicals (USA), Inc. ("Wacker USA").
The Company is engaged in the business of manufacturing and selling products which are used principally for abrasive, refractory and metallurgical applications. The primary products of the Company are fused aluminum oxide and silicon carbide. Other product lines include fused specialty products sold to the refractory industry.
Effective at the time of the merger, the Company entered into a Restated Patent License Agreement with Elektroschmelzwerk Kempten GmbH ("Kempten"). Both Kempten and Wacker USA are wholly owned subsidiaries of Wacker Chemie GmbH. At the time of the merger, the Company also entered into an exclusive distributorship and sales representation agreement with Kempten for the United States and Canada relating to silicon carbide products. The Company makes sales as a distributor and as a sales representative under this agreement. The Company is currently in discussions with Kempten with regard to amendments of this agreement. Should the agreement be terminated, the Company believes that purchases of the products now covered by the agreement can be made in sufficient quantities and at prevailing market prices from alternative suppliers, including from its Norwegian joint venture. In addition, the Company represents Kempten as a distributor of boron carbide grains to selected markets.
(b) Financial Information about Industry Segments
The Company has only one business segment, the manufacture of abrasive materials and products for abrasive, metallurgical and refractory uses. The Company regards its principal business as being in a single industry segment.
(c) Narrative Description of Business
The Company's crude silicon carbide is produced at the Company's plant in Hennepin, Illinois. The Company produces crude aluminum oxide and certain other products at its plant in Thorold, Canada owned by Exolon-ESK Company of Canada, Ltd. ("Exolon Ltd."), its wholly owned subsidiary. Some of the crude products are sold directly to customers, but most of the crude products are shipped to the Company's plant in Tonawanda, New York, where the Company crushes, grades and formulates the crude products into granular products for sale to customers.
Methods of distribution. While most of the Company's products are sold directly to its customers by sales representatives employed by the Company, a portion of the sales are made through industrial distributors located throughout the United States and Canada. Export sales are made on a direct basis and through agents.
Raw materials. The principal raw materials used by the Company are abrasive grade bauxite, petroleum coke, silica sand and cast iron borings.
The Company purchases many other products such as fiber drums, wood pallets, bags, oil, natural gas, chemicals, electrodes and carbon products.
The abrasive grade bauxite used by the Company presently comes from the Republic of Guinea in West Africa, Australia and The People's Republic of China. Petroleum coke and silica sand originate from United States sources.
Large quantities of electric power are purchased from Ontario Hydro for use by the Company's Canadian furnace plant and from the Illinois Power Company for use in its Hennepin plant. The Company believes that adequate supplies of power will continue to be available. Adequate supplies of raw materials have in general been available to the Company at competitive prices.
Employees. As of December 31, 1996, the Company had 285 employees.
Major Customers. Sales to no one customer accounted for 10% or more of consolidated net sales of the Company for the years ended December 31, 1996 and 1995. In management's opinion, the loss of any one customer would not have a material adverse effect on the Company.
Competition. The industry in which the Company is engaged is highly competitive. Principal North American competition is from three well established North American companies. In addition, substantial quantities of grain are imported and sold in North America by foreign based producers of abrasive grain. Each of the North American competitors, in addition to the Company, have silicon carbide grain processing facilities. Two of the three also have aluminum oxide crude and grain production operations, and one has silicon carbide crude production facilities.
Competition in the industry is based upon pricing, service, and product performance. The Company's products are sold to other manufacturers and, as a result, the distribution to the industry markets is highly competitive. Major customers are continually striving to remain competitive by controlling the costs for raw materials purchased from the Company. In order to meet customer demand and for competitive purposes, the Company maintains substantial inventories. In addition, it has been Company policy to confine its primary operations to the electric furnace production and processing of grain products.
Backlog. As of December 31, 1996, the Company had a consolidated backlog of $3,686,000 as compared to $5,235,000 a year earlier. The decrease in the Company backlog in 1996 is primarily a result of the discontinuance of the former December holiday shut down which resulted in greater shipments. All of this backlog is expected to be shipped in 1997.
Seasonal Effect. The Company's business is generally not seasonal. However, vacation shutdowns by a number of its customers can influence third quarter sales.
Pollution Control. The Company is involved in operations in which there is a continued risk that the environment could be adversely affected. The Company is in frequent contact with the various environmental agencies in the jurisdictions in which it operates in an attempt to maintain environmental compliance. The following represents the primary outstanding environmental issues currently being addressed.
The Company has been directed by the Illinois Environmental Protection Agency to control its sulfur emissions at its Hennepin, Illinois silicon carbide furnace plant. (See information contained in Note 13(a)(i) of the Notes to Financial Statements beginning on page 32.)
The Government of Norway has held discussions with certain Norwegian industries including the abrasive industry concerning the implementation of reduced gaseous emission standards. The Company's Norwegian 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. (See information contained in Note 13(a)(ii) of the Notes to Financial Statements beginning on page 32.)
Management believes all necessary pollution control equipment at the Company's plants in Tonawanda, New York and Thorold, Ontario are in place, and all current pollution control requirements are being met at both plants.
(d) Financial Information about Foreign and Domestic Operations and Export Sales
The Company's wholly owned subsidiary, Norsk Exolon AS is a limited partner in a Norwegian partnership Orkla Exolon KS. See information contained in Note 1.c. of Notes to Financial Statements on page 18. The financial statements of Orkla Exolon KS are included in this Form 10-K on the financial statement schedules on pages 42-56. The Company's interest in the Norwegian partnership is subject to the usual risks of foreign investment, including currency fluctuations.
Currency fluctuation is also a risk associated with the Company's Canadian plant operations. The Company reduces Canadian currency exposure with the use of foreign currency forward contracts as hedges against certain commitments in Canadian dollars.
Item 2.
Item 2. Properties
The Company's main office and grain processing plant are located in Tonawanda, New York. The plant and office buildings, which are owned by the Company, contain 273,000 square feet of space, and occupy 6 of 34 acres owned by the Company at this site. The facilities were originally completed in 1943, and substantial additions to the plant have been made since that date.
The Company has an electric furnace plant situated in Thorold, Ontario, Canada. All plant and office buildings at the plant are owned by the Company, as well as the 43 acres of land on which the facilities are located. In total, the buildings consist of 251,000 square feet of space. The plant was originally built in 1914. Substantial additions have been made in subsequent years, including the construction of a new furnace in 1996.
The Company's Hennepin, Illinois plant includes four outdoor furnace groups and buildings of 47,800 square feet, located on a 78 acre site which is owned by the Company. Construction began in late 1977 and was completed in the Spring of 1979 for three furnace groups. The expansion to a fourth furnace group was completed in 1989. The Company purchased an additional 20 acre parcel adjacent its property in 1995 and has commenced construction of a desulfurization facility as outlined in Note 13(a)(i) on page 32.
The Company has operations in Norway conducted through a joint venture, as outlined in Note 1(c) on page 18. The office and plant of the Norwegian joint venture are located in Gjolme, Norway. The plant and office building, and the land upon which it is situated, are owned by the joint venture. In total, the plant and office consist of 154,000 square feet of space, on 88 acres of land. The plant and office were constructed from 1961-1963, with substantial additions made thereafter.
The Company believes that all of these plants are in good condition and suited for the purposes for which they are operated.
Item 3.
Item 3. Legal Proceedings
a. Environmental Proceedings - Hennepin, Illinois Plant
Reference is made to the information presented under the heading "Environmental Issues - Hennepin, Illinois Plant" appearing under Note 13(a)(i) on page 32 to the Notes to Consolidated Financial Statements contained in this Form 10-K Report.
b. Exolon-ESK Company of Canada, Ltd.
Reference is made to the information presented under the heading "Exolon-ESK Company of Canada, Ltd." appearing under Note 13 (b)(ii) on page 34 to the Notes to Consolidated Financial Statements contained in this Form 10-K Report, which is hereby incorporated herein by reference.
c. Federal Proceedings
Reference is made to the information presented under the heading "Federal Proceedings and Related Matters" appearing under Note 13(b)(i) on page 32 to the Notes to Consolidated Financial Statements contained in this Form 10-K Report. The proceedings described thereunder are hereinafter referred to as the "Antitrust Proceedings".
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders None.
PART II
Item 5.
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
The Company's Common Stock is traded on the Boston Stock Exchange. The quarterly common stock price ranges are as follows:
Price Range of Common Stock Boston Stock Exchange Quarter 1 2 3 4
High- $22-$17 $25 3/4-$17 7/8 $25 3/4-$20 1/4 $32-$26 Low
High- $17 1/2-$16 $18 1/2-$15 $18 1/2-$18 1/2 $22-$18 5/8 Low
Information concerning limitations on the payment of dividends on the Company's Common Stock is hereby incorporated by reference to Notes 7 and 9 to Notes to Consolidated Financial Statements beginning on pages 23 and 27, respectively.
The number of active stockholder accounts of record of the Company's Common Stock, $1 par value, was 182 as of February 14, 1997. The Company did not pay any dividends on its Common Stock in 1996 or 1995.
The shares of the Company's Class A Common Stock, all of which are owned by Wacker Chemical (USA), Inc., are not publicly traded.
Item 6.
Item 6. Selected Financial Data
The "Selected Financial Information" for the five years ended December 31, 1996 appears on pages 7 and 8.
Exolon-ESK Company and Subsidiaries
(thousands of dollars except share amounts)
Selected Financial Years Ended December 31, Information 1996 1995 1994 1993 1992 Statement of Operations: Net Sales $77,459 $ 68,592 $59,494 $58,225 $58,387
Cost of Goods Sold 59,620 53,212 46,631 45,860 46,009 Depreciation 2,826 2,873 2,992 3,210 3,182 Selling, General and 5,621 4,958 5,039 5,478 4,673 Administrative Expense Research and 34 22 289 54 64 Development Environmental - - 1,357 - 210 Compliance Charges
Operating Income 9,358 7,527 3,186 3,623 4,249
Other (Income) Expenses: Equity in (Earnings) (673) (793) (431) 32 151 Loss of Norwegian Joint Venture
Interest Expense 1,136 1,469 1,480 1,441 1,367 Other (330) (6) 195 232 495
Earnings before Income Taxes and Cumulative Effect of Accounting 9,225 6,857 1,942 1,918 2,236 Change Income Tax Expense 3,145 2,893 426 712 923
Earnings before Cumulative Effective 6,080 3,964 1,516 1,206 1,313 of Accounting Change Cumulative Effect of Accounting Change - Net of Income Tax - (502) - (1,173) - Benefit Net Earnings $ 6,080 $ 3,462 $ 1,516 $ 33 $ 1,313
Primary Earnings (Loss) per share of Common Stock: Earnings before Cumulative Effect of Accounting $ 6.27 $ 4.07 $ 1.53 $ 1.21 $ 1.42 Change
Cumulative Effect of Accounting Change - Net of Tax - $ (0.52) - $ (1.22) - Benefit Net Earnings (Loss) per $ 6.27 $ 3.55 $ 1.53 $ (0.01) $ 1.42 share
Primary Earnings (Loss) per share of Class A Common Stock: Earnings before Cumulative Effect of Accounting Change $ 5.90 $ 3.82 $ 1.44 $ 1.14 $ 1.16
Cumulative Effect of Accounting Change - Net of Tax Benefit - $ (0.49) - $ (1.15) - Net Earnings (Loss) per $ 5.90 $ 3.33 $ 1.44 $ (0.01) $ 1.16 share
Exolon-ESK Company and Subsidiaries
(thousands of dollars except share amounts)
Selected Financial Years Ended December 31, Information - Continued 1996 1995 1994 1993 1992 Fully Diluted Earnings per share of Common Stock: Earnings before Cumulative Effect of Accounting Change $ 6.05 $ 3.93 $ 1.50 $ 1.20 $ 1.39
Cumulative Effect of Accounting Change - Net of Tax Benefit - $(0.49) - $(1.17) - Net Earnings per share $ 6.05 $ 3.44 $ 1.50 $ 0.03 $ 1.39
Fully Diluted Earnings per share of Class A Common Stock:
Earnings before Cumulative Effect of $ 5.70 $ 3.71 $ 1.42 $ 1.13 $ 1.14 Accounting Change Cumulative Effect of Accounting Change - Net of Tax Benefit - $ (0.47) - $ (1.10) - Net Earnings per share $ 5.70 $ 3.24 $ 1.42 $ 0.03 $ 1.14
Weighted Average Shares Outstanding: Primary: Common 482 482 482 482 482 Stock
Class A 513 513 513 513 513 Common Stock
Fully Common 504 504 504 504 504 Diluted: Stock
Class A 535 535 535 535 535 Common Stock
Dividends per share:
Series A Cumulative $0.8437 $1.1250 $0.8437 $1.1250 $1.1250 Preferred Stock Series B Cumulative $0.8437 $1.1250 $0.8437 $1.0517 $0.8316 Preferred Stock Common Stock - - - - - Class A Common Stock - - - - -
Summary Balance Sheet December 31, Information: 1996 1995 1994 1993 1992 Current Assets $28,301 $ 29,395 $25,441 $25,434 $23,937 Current Liabilities 8,818 7,981 7,387 8,660 8,021 Working Capital 19,483 21,414 18,054 16,774 15,916
Total Assets 61,483 50,215 45,309 45,834 45,925 Long-Term Debt 20,433 15,350 14,900 16,900 18,691 Stockholders' Equity 28,258 22,298 18,628 16,770 16,813
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis reviews certain factors which produced significant changes in the Company's results of operations during the three years ended December 31, 1996.
Results of Operations 1996 Compared to 1995 In 1996, the Company's net sales increased $8,867,000 to $77,459,000, an increase of 13% compared to net sales of $68,592,000 in 1995. The 1996 increase was primarily a result of a 22% increase in the Company's shipment volume of its principal manufactured and purchased products due to a strong demand for abrasive products during 1996, when compared to 1995. Average selling prices for the Company's principal manufactured and purchased products decreased by approximately 8% during 1996, when compared to 1995.
Consolidated net income was $6,080,000 or $6.27 per common share for the year ended December 31, 1996. This compares to consolidated net income of $3,462,000 or $3.55 per share for the 1995 year.
Cost of sales, excluding depreciation, as a percentage of sales declined to 77% in 1996, when compared to 77.6% in 1995; therefore gross margins, as a percent of sales increased to 23% in 1996 compared to 22.4% in 1995.
Total operating expenses including depreciation were $8,481,000 during 1996 versus $7,853,000 during 1995. The 1996 increase in operating expenses of $628,000 is primarily a result of increases in selling and general and administrative expenses. As a result operating income increased to $9,358,000 in 1996 compared to $7,527,000 for the 1995 year.
Depreciation, as a percent of sales, was 3.6% for 1996 compared to 4.2% for 1995.
Selling, general and administrative expenses increased by $663,000 in 1996, due primarily to increases in advertising of $71,000; Commissions of $137,000; sales salaries and incentives of $219,000; and general and administrative salaries and incentives of $254,000. As a percent of net sales, selling and general and administrative expense increased to 7.3% in 1996, from 7.2% for the 1995 year.
Interest expense from continuing operations declined to $1,136,000 in 1996 from $1,469,000 in 1995. The reduction in interest expense is primarily due to lower debt levels in 1996 versus 1995. The average interest rate on the U.S. revolving and demand lines of credit was 8.1% during 1996 compared to 8.4% in 1995. The Company recorded lower average borrowing levels in 1996 on its U.S. and Canadian revolving and demand lines of credit and its U.S. term loan. The average total borrowing outstanding for the three revolving lines of credit combined with the terms loan was $6.2 million for 1996, when compared to $8.9 million for the 1995 year.
The Company's Norwegian joint venture, Orkla Exolon KS, reported the Company's 50% share in the pre-tax income of the venture was $673,000 for the 1996 year versus pre-tax income of $793,000 for the 1995 year. The Company's share of the venture's net sales increased 1% in 1996 to $8,195,000 compared to $8,140,000 in 1995. Net sales, in terms of native currency, increased by 3% in 1996 compared to 1995. The joint venture's gross margins, prior to depreciation, decreased to 21% for the 1996 year versus 24% for 1995, principally due to increased operational costs.
The 1996 income tax provision was $3,145,000, representing an effective rate of 34%. The 1995 income tax provision was $2,893,000 which represented an effective rate of 42%.
Results of Operations 1995 Compared to 1994 In 1995, the Company's net sales increased $9,098,000 to $68,592,000, an increase of 15% compared to net sales of $59,494,000 in 1994. The 1995 increase was primarily a result of an 18% increase in the Company's shipment volume of its principal manufactured and purchased products due to a strong demand for abrasive products during 1995, when compared to 1994. Average selling prices for the Company's principal manufactured and purchased products increased by approximately 1% during 1995, when compared to 1994.
Consolidated net earnings were $3,462,000 or $3.55 per common share for the year ended December 31, 1995. This compares to consolidated net earnings of $1,516,000 or $1.53 per share for the 1994 year. During 1995, the Company adopted the provisions of Statement of Financial Accounting Standards No. 106 (SFAS 106) for its Canadian subsidiary, which resulted in a one time non-cash after tax charge of $502,000 or $.52 per share. This statement requires that the cost of postretirement benefits, including health care and life insurance, be accrued during an employee's active working career. In years prior to 1995, these costs were expensed as paid. The Company's U.S. operations adopted SFAS 106 during 1993. Prior to the effect of this charge related to SFAS 106, the Company's consolidated net earnings were $3,964,000 for the 1995 year or $4.07 per share, when compared to $1,516,000 or $1.53 per share for 1994. In addition, 1994's net earnings were adversely affected by a $1,357,000 unusual charge related to the 1994 settlement of environmental litigation. (This charge is discussed further within Note 10 of the Notes to Consolidated Financial Statements and within the operating expense comparisons that follow.)
Cost of sales, excluding depreciation, as a percentage of sales declined to 77.6% in 1995, when compared to 78.4% in 1994; therefore gross margins, as a percent of sales increased to 22.4% in 1995 compared to 21.6% in 1994. The 1995 enhancement is due primarily to the economies of scale available at the higher sales levels recognized in 1995 and the continued focus on increased manufacturing efficiencies at all Company facilities.
Total operating expenses including depreciation were $7,853,000 during 1995 versus $9,677,000 during 1994. As a result operating income increased to $7,527,000 in 1995 compared to $3,186,000 for the 1994 year. The 1995 decrease in operating expenses of $1,824,000 is a result of the decreases of $119,000, 81,000, $267,000 and $1,357,000 in depreciation, selling and general and administrative, research and development and environmental compliance charges, respectively.
Depreciation, as a percent of sales, was 4.2% for 1995 compared to 5.0% for 1994.
Selling, general and administrative expense decreased by $81,000 in 1995, due principally to a $334,000 reduction in legal fees recorded during 1995 versus the prior year. Other selling and general and administrative expense categories were generally increased, with the exception of reduced health care costs, due to the increased 1995 sales volume of products shipped. As a percent of net sales, selling and general and administrative expense decreased to 7.2% in 1995, from 8.5% for the 1994 year.
Research and development expense decreased by $267,000 for 1995 mainly as a result of the $188,000 decrease in expenses associated with R&D costs related to specialty refractory products at the Company's Canadian operation. During 1995, the Company eliminated R&D spending related to one of its specialty products produced at its Canadian plant.
Interest expense from continuing operations declined to $1,469,000 in 1995 from $1,480,000 in 1994. Higher average interest rates experienced on the Company's variable rate debt were offset by lower average borrowing levels during 1995 versus the 1994 year. The average interest rate on the U.S. revolving and demand lines of credit was 8.4% during 1995 compared to 7.3% in 1994. The Company recorded lower average borrowing levels in 1995 on its U.S. and Canadian revolving and demand lines of credit and its U.S. term loan. The average total borrowing outstanding for the three revolving lines of credit combined with the term loan was $8.9 million for 1995, when compared to $10.5 million for the 1994 year.
The Company's Norwegian joint venture, Orkla Exolon KS, reported the Company's 50% share in the pre-tax income of the venture was $793,000 for the 1995 year versus pre-tax income of $431,000 for the 1994 year. The Company's share of the venture's net sales increased 19% in 1995 to $8,140,000 compared to $6,832,000 in 1994. Net sales, in terms of native currency, increased by 8% in 1995 compared to 1994. The increase in net sales was a result of the 1995 improved product mix and increases in selling prices. The joint venture's gross margins, prior to depreciation, increased to 24% for the 1995 year versus 18% for 1994, principally due to increased operational efficiency and a more favorable product mix.
The 1995 income tax provision was $2,893,000, representing an effective rate of 42%. The 1995 effective rate reflects a rate which is more than the U.S. Federal statutory rate of 34% principally due to the inclusion of state and provincial income taxes. In addition, the Company has reserved $571,000 included in the 1995 tax provision for future taxes payable related to the repatriation of earnings of the Company's foreign subsidiaries.
Liquidity and Capital Resources As of December 31, 1996, working capital (current assets less current liabilities) has decreased to $19,483,000, when compared to $21,414,000 as of December 31, 1995. Accounts receivable increased by $165,000 as of December 31, 1996 versus 1995 year end primarily as a result of the increase in net sales during 1996 versus 1995. Inventory decreased by $1,261,000 at December 31, 1996 when compared to December 31, 1995. Income taxes payable decreased by $863,000 as of December 31, 1996 versus December 31, 1995. Notes payable and long-term debt increased by $5,419,000 due to the $13,000,000 bond issuance related to the Hennepin Facility.
For the year ended December 31, 1996, net cash provided by operating activities was $8,986,000. Outstanding bank indebtedness increased by $6,832,000, and cash reserves, including restricted cash equivalents, increased by $7,831,000 at December 31, 1996 compared to December 31, 1995. Capital expenditures of $6,170,000 were provided both from net cash provided by operating activities and the $13,000,000 bond issuance in Illinois.
The Company's current ratio decreased to 3.2 to 1.0 at December 31, 1996 from 3.7 to 1.0 as of December 31, 1995. The ratio of total liabilities to shareholder's equity was 1.2 to 1.0 as of December 31, 1996 and 1.3 to 1.0 as of December 31, 1995.
Current financial resources including the availability of the revolving and short-term lines of credit financing and anticipated funds from operations are expected to be adequate to meet normal requirements for the year ahead. The Company currently has lines of credit with borrowing capacities of $12,000,000 in the U.S. and $800,000 in Canada.
The Company in its long-term cash planning normally covers capital expenditures with funds generated internally. Where abnormally large capital expenditure programs are involved, long- term financing vehicles are sometimes used. Total 1997 normal capital expenditures are forecasted at $3,000,000 to maintain and upgrade production facilities. The Company believes that funds generated internally should be sufficient to finance normal capital expenditure requirements in 1997. In addition to the Company's recurring capital expenditures of approximately $3,000,000 during 1997, the Company will incur capital costs within the range of $8,000,000 to $10,000,000 over the year to comply with its environmental permit in Illinois. As of December 31, 1996, the Company has incurred approximately $4,340,000 of capital costs related to the facility improvements. The Company is financing the costs of the required capital improvements through a bond offering of $13,000,000 of which $8,405,000 is on a tax-exempt basis. The Company has obtained a modification of its Industrial Revenue Bond Agreement to allow for the required capital expenditures under the Consent Order. For further information see Note 13(a) to the Notes to Consolidated Financial Statements beginning on page 32.
Reference is made to the descriptions of the certain legal matters, under the caption Legal Proceedings under Item 3 beginning on page 5 of this Form 10-K Report.
A table presented below, to assist further in interpreting the changes in financial operations for the three years indicated, sets forth the following (i) percentages which certain items presented in the financial statements bear to net sales of the Company and (ii) change of such items as compared to the indicated prior year.
Period to Period
Increase (Decrease) in Relationship Relationship to Net Sales to Net Sales Years Ended December 31, Years Ended 1996 1995 1994 1995-96 1994-95
Net Sales 100.0 % 100.0 % 100.0 % 0 % 0 % Cost of Goods Sold, excluding Depreciation 77.0 77.6 78.4 (0.6) (0.8) Depreciation 3.6 4.2 5.0 (0.6) (0.8) Selling, General and Administrative Expense 7.3 7.2 8.5 0.1 (1.3)
Research and Development 0.4 (0.4) Environmental Compliance Charges - - 2.3 - (2.3) 87.9 89.0 94.6 (1.1) (5.6) Operating Income 12.1 11.0 5.4 1.1 5.6
Other (Income) Expense: Equity in Loss (Income) of Norwegian Joint Venture (0.9) (1.2) (0.7) 0.3 (0.5) Interest Expense 1.5 2.2 2.5 (0.7) (0.3) Other (0.4) 0.3 (0.4) (0.3)
0.2 1.0 2.1 (0.8) (1.1) Income Before Income Taxes and Cumulative Effect of Accounting Change 11.9 10.0 3.3 1.9 6.7 Income Tax Expense 4.1 4.2 0.7 (0.1) 3.5 Income Before Cumulative Effect of Accounting Change 7.8 5.8 2.6 2.0 3.2 Cumulative Effect of Accounting Change - (0.8) - 0.8 (0.8)
Net Income 7.8 % 5.0 % 2.6 % 2.8 % 2.4 %
Item 8.
Item 8. Financial Statements and Supplementary Data
The Consolidated Financial Statements, together with the report thereon of Ernst & Young LLP dated January 14, 1997, appear on pages 13 through 36 to follow.
Report of Independent Auditors
Board of Directors Exolon-ESK Company
We have audited the accompanying consolidated balance sheets of Exolon-ESK Company and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Exolon-ESK Company and subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note 10 to the financial statements, in 1995 the Company changed its method of accounting for postretirement benefits other than pensions for its Canadian subsidiary.
S/ Ernst & Young LLP
Buffalo, New York January 14, 1997
Exolon-ESK Company and Subsidiaries Consolidated Statements of Operations (In thousands, except per share amounts)
Year Ended December 31
1996 1995 1994 Net Sales $77,459 $ 68,592 $59,494 Cost of Goods Sold 59,620 53,212 46,631 Gross Profit Before Depreciation 17,839 15,380 12,863 Depreciation 2,826 2,873 2,992 Selling, General & Administrative 5,621 4,958 5,039 Expenses Research and Development 34 22 289 Environmental Compliance Charges - - 1,357
Operating Income 9,358 7,527 3,186 Other (Income) Expenses: Interest Expense 1,136 1,469 1,480 Equity in Income of Norwegian (673) (793) (431) Joint Venture Other (330) (6) 195 Income before Income Taxes and Cumulative Effect of Accounting Change 9,225 6,857 1,942 Income Tax Expense 3,145 2,893 426 Income before Cumulative Effect of 6,080 3,964 1,516 Accounting Change
Cumulative Effect of Accounting Change - Net of Income Tax Benefit of $282 - (502) - Net Income $ 6,080 $ 3,462 $ 1,516 Primary Earnings Per Common Share: Income before Cumulative Effect $ 6.27 $ 4.07 $ 1.53 of Accounting Change
Cumulative Effect of Accounting - (0.52) - Change Net Income $ 6.27 $ 3.55 $ 1.53
Primary Earnings Per Class A Common Share: Income before Cumulative Effect $ 5.90 $ 3.82 $ 1.44 of Accounting Change Cumulative Effect of Accounting - (0.49) - Change Net Income $ 5.90 $ 3.33 $ 1.44
Fully Diluted Earnings Per Common Share: Income before Cumulative Effect $ 6.05 $ 3.93 $ 1.50 of Accounting Change Cumulative Effect of Accounting - (0.49) - Change Net Income $ 6.05 $ 3.44 $ 1.50
Fully Diluted Earnings Per Class A Common Share: Income before Cumulative Effect $ 5.70 $ 3.71 $ 1.42 of Accounting Change Cumulative Effect of Accounting - (0.47) - Change Net Income $ 5.70 $ 3.24 $ 1.42
Weighted Average Shares Outstanding (in thousands): Common Stock 482 482 482 Class A Common Stock 513 513 513
The accompanying notes to consolidated financial statements are an integral part of these statements.
Exolon-ESK Company and Subsidiaries Consolidated Balance Sheets (In thousands, except share amounts)
December 31
1996 1995 Assets
Current assets: Cash $ 275 $ 440 Accounts receivable (less allowance for doubtful accounts of $502 in 1996 and $419 in 1995) 9,061 8,896 Inventories 18,439 19,700 Prepaid expenses 526 359
Total Current Assets 28,301 29,395 Investment in Norwegian joint venture 5,812 5,230 Property, plant and equipment 18,385 15,193 Cash equivalents restricted for capital 7,996 - additions Other assets 989 397 Total Assets $61,483 $ 50,215
Liabilities and Stockholders' Equity Current liabilities: Cash overdraft $ 1,413 $ - Notes payable 219 - Current maturities of long-term debt 1,667 1,550
Accounts payable 3,223 3,229 Accrued expenses 1,780 1,713 Income taxes payable 466 1,329 Deferred income taxes 50 160 Total Current Liabilities 8,818 7,981
Deferred income taxes 1,436 1,300 Long-term debt 20,433 15,350 Accrued postretirement benefit costs 2,429 2,608 Other long-term liabilities 109 678 Commitments and Contingencies
Stockholders' equity: Preferred stock Series A (liquidation preference-$484) 276 276 Series B (liquidation preference-$484) 166 166 Common stock, issued 512,897, 513 513 outstanding 481,995 ($1 par value)
Class A common stock, issued 512,897 513 513 ($1 par value) Additional paid-in capital 4,345 4,345 Retained earnings 22,999 16,952 Cumulative translation adjustment (186) (99) Treasury stock, at cost (368) (368)
Total Stockholders' Equity 28,258 22,298 Total Liabilities and Stockholders' Equity $61,483 $ 50,215
The accompanying notes to consolidated financial statements are an integral part of these statements.
Exolon-ESK Company and Subsidiaries Consolidated Statements of Cash Flows (In thousands) Year Ended December 31
1996 1995 1994 Cash Flow from Operating Activities: Net income $ 6,080 $3,462 $ 1,516 Adjustments to reconcile net income to cash provided by operating activities:
Depreciation 2,826 2,873 2,992 Cumulative effect of change in accounting for post-retirement - 502 - benefits Equity in income of Norwegian (673) (793) (431) joint venture (Gain) loss on fixed asset 29 16 (56) disposals
Deferred income taxes 26 729 176 Foreign currency adjustments 4 (2) (14) Change in Assets and Liabilities: Accounts receivable (165) (1,960) 656 Inventories 1,261 (2,596) (347)
Prepaid expenses (167) 40 (26) Other assets (98) (97) 155 Cash overdraft 1,413 - - Accounts payable (6) 424 (639) Accrued expenses 67 91 6
Income taxes payable (863) 1,194 (590) Other liabilities and accrued (748) (344) 778 postretirement benefit costs 2,906 77 2,660 Net Cash Provided by Operating 8,986 3,539 4,176 Activities
Cash Flow from Investing Activities: Capital expenditures (6,170) (2,695) (2,068) Purchases of restricted cash (7,996) - - equivalents Proceeds from fixed asset 123 8 328 disposals Net Cash Used for Investing Activities (14,043) (2,687) (1,740)
Cash Flow from Financing Activities: Net (payments of) proceeds from (7,800) 1,200 (2,000) long-term debt Proceeds from issuance of long-term 13,000 - - debt Deferred financing fees (494) - -
Net proceeds from (payments of) notes 219 (2,000) - payable Dividends paid (33) (54) (32) Principal payments under capital lease - (25) (50) obligations Net Cash Provided by (Used for) 4,892 (879) (2,082) Financing Activities Net (Decrease) Increase in Cash (165) (27) 354
Cash at Beginning of Year 440 467 113 Cash at End of Year $ 275 $ 440 $ 467
Supplemental Disclosures of Cash Flow Information: Cash paid during the year for: Interest $ 1,171 $1,493 $ 1,465 Income Taxes $ 3,983 $ 991 $ 852
The accompanying notes to consolidated financial statements are an integral part of these statements.
Exolon-ESK Company and Subsidiaries Consolidated Statements of Stockholders' Equity (In thousands, except share amounts)
Year ended December 31
1996 1995 1994 Series A preferred stock $ 276 $ 276 $ 276
Series B preferred stock 166 166 166
Total preferred stock $ 442 $ 442 $ 442
Common stockholders' equity:
Common stock $ 513 $ 513 $ 513 Class A common stock 513 513 513
Additional paid-in capital 4,345 4,345 4,345
Retained earnings: Balance, beginning of year 16,952 13,545 12,061
Net income 6,080 3,462 1,516
Preferred stock dividends- 1996 - $0.8438 per share; 1995 - $1.4062 per share; 1994 - $0.8437 per share (33) (55) (32)
Balance, end of year 22,999 16,952 13,545
Cumulative translation adjustment:
Balance, beginning of year (99) (362) (736) Change in cumulative (87) 263 374 translation adjustment
Balance, end of year (186) (99) (362)
Treasury stock, at cost (368) (368) (368)
Total common stockholders' equity, $ 27,816 $ 21,856 $ 18,186 end of year
The accompanying notes to consolidated financial statements are an integral part of these statements.
EXOLON-ESK COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 and 1994
1. Summary of Significant Accounting Policies
a. Revenue recognition
The Company recognizes revenue at the time of shipment to the customer. Provision is made for anticipated losses at the time the loss is known.
b. Principles of consolidation
The accompanying consolidated financial statements include the accounts of the Exolon-ESK Company and its wholly-owned subsidiaries Exolon-ESK Company of Canada, Ltd., Norsk Exolon AS, and Exolon-ESK International Sales Corporation (the Company ). All significant intercompany balances and transactions have been eliminated.
c. Investment in Norwegian joint venture
Norwegian Operations. The Company's wholly-owned subsidiary, Norsk Exolon AS is a limited partner in a Norwegian partnership, Orkla Exolon KS (the "Partnership"), which is engaged in the manufacture and sale of silicon carbide crude and grain products. Norsk Exolon AS has a 50% interest in the Partnership, with another Norwegian company, Orkla AS, owning the balance. The furnace plant, processing plant and other facilities of the Partnership were constructed in the early 1960's under the guidance and technical direction of the Company. The partnership began manufacturing operations during 1963. The investment is stated at cost plus the Company's share of undistributed earnings and translation adjustments since acquisition. The earnings of the joint venture are reportable for Norwegian tax purposes by the partners. Taxes attributable to Norsk Exolon AS's share of earnings from the joint venture are included as a component of income taxes (Note 8).
d. Inventories
Inventories are stated at the lower of cost or market. Approximately 70 and 75% of the dollar value of inventories is stated at last-in, first-out (LIFO) cost at December 31, 1996 and 1995, with the balance being stated at average cost.
e. Property, plant and equipment
Property, plant and equipment is stated at cost. Maintenance and repairs are charged to expense as incurred and renewals and betterments are capitalized. Depreciation is computed for financial reporting purposes using straight-line and declining balance methods over the estimated useful lives of the assets as follows: buildings, 15-50 years; machinery and equipment, 3-20 years.
f. Foreign currency translation
The Company has determined that the United States dollar is the functional currency of the Canadian subsidiary and that the Norwegian krone is the functional currency of the Norwegian subsidiary and the joint venture.
Inventories and property, plant and equipment of the Canadian subsidiary are translated at historical exchange rates and all other assets and liabilities are translated at year-end exchange rates. Income statements of the Canadian subsidiary are translated at average rates for the year, except for depreciation, which is translated at historical rates. Gains and losses arising as a result of the translation of the financial statements of the Canadian subsidiary are reflected directly in the results of operations.
Assets and liabilities of the Norwegian subsidiary and joint venture are translated at year-end exchange rates and the income statements are translated at the average exchange rates for the year. Resulting translation adjustments are recorded as a separate component of equity.
Net gains (losses) arising as a result of the remeasurement of the Canadian subsidiary's financial statements into the United States dollar and from other foreign currency transactions amounted to $42,000, ($30,000), and ($143,000) in 1996, 1995, and 1994, respectively.
g. Income taxes
Deferred income taxes are determined based on differences between financial reporting and tax bases of assets and liabilities as measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
The Company does not provide U.S. Federal income taxes on the entire balance of the undistributed earnings of foreign subsidiaries as these earnings are considered to be permanently reinvested. In 1995, the Company decided to repatriate up to $3,100,000 of undistributed earnings from its Canadian subsidiary through a future stock redemption and has provided for all applicable income taxes in the 1995 statement of operations. At December 31, 1996, undistributed earnings of the Canadian and Norwegian foreign subsidiaries combined were $11,108,000.
Investment tax credits are accounted for using the flow-through method.
h. Earnings per share
Primary earnings per share of Common Stock and Class A Common Stock are based on the weighted average number of shares of the respective classes outstanding during each year. Earnings applicable to Common Stock and Class A Common Stock are determined by using the earnings entitlement of each (as discussed in Note 9) and giving effect to the total current dividend requirements on the preferred stock. On a fully-diluted basis, both net earnings and shares outstanding are adjusted to assume the conversion of convertible Series A and Series B Preferred Stock from the date of issue.
i. Currency forward contracts
From time to time, the Company enters into currency forward contracts in management of foreign currency transaction exposure. Forward foreign currency exchange contracts are purchased to reduce the impact of foreign currency fluctuations on operating results. Realized and unrealized gains and losses on these contracts are recorded in net income currently, with the exception of gains and losses on contracts designated to hedge specific foreign currency commitments which are deferred and recognized in net income in the period of the commitment transaction. The discount or premium of the forward contract is recognized over the life of the contract. At December 31, 1996, the Company did not have any open currency forward contracts.
j. Environmental remediation and compliance
Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable, and the cost can be reasonably estimated. At December 31, 1996 and 1995, liabilities for environmental costs of $260,000 and $780,000 were recorded in other accrued liabilities.
k. Long-lived assets
In March 1995, the Financial Accounting Standards Board issued Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of , which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company adopted Statement No. 121 in 1996. The effect of this adoption was not material.
l. Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
2. Inventories
If the average cost method, which would approximate current or replacement costs, had been used for valuing all inventories of the Company, inventories would have been $2,361,000 and $2,070,000 higher than reported at December 31, 1996 and 1995, respectively.
The following are the major classes of inventories as of December 31 (in thousands):
1996 1995 Raw Materials $ 3,581 $ 2,119
Semi-Finished and Finished 16,294 18,640 Goods Supplies and Other 925 1,011 20,800 21,770 Less: LIFO Reserve (2,361) (2,070)
$ 18,439 $ 19,700
3. Property, Plant and Equipment
Property, plant and equipment consists of (in thousands): 1996 1995
Land $ 283 $ 283
Buildings 7,804 8,233 Machinery & equipment 47,941 45,087
Construction in progress 5,129 2,300
61,157 55,903 Less - accumulated 42,772 40,710 depreciation
$ 18,385 $ 15,193
During 1996, the Company capitalized interest costs totaling $104,000.
4. Business Segment Information
The Company manufactures abrasive materials and products for abrasive, metallurgical and refractory uses. The Company regards its principal business as being in a single industry segment. The Company conducts operations through its manufacturing facilities in the United States and Canada, and its equity interest in a Norwegian joint venture.
The Company had sales to one major customer which accounted for approximately 12% of consolidated net sales in 1994. No one customer accounted for 10% or more of net sales in 1996 or 1995. Sales between Canada and the United States are made at cost plus a margin which approximates the gross profit generally received for sales of similar products by the Canadian entity.
5. Investment in Norwegian Joint Venture
The Company's 50% share of the results of operations of the Norwegian joint venture has been determined after adjustments to reflect the application of United States generally accepted accounting principles relating principally to the recording of depreciation and pension expenses and adjustments to the carrying values of the ventures's year-end inventories. The Company's share of the venture's assets, liabilities, and results of operations is set forth in the following condensed financial information (in thousands):
December 31 Balance Sheet Data 1996 1995
Current assets $5,081 $4,704 Non-current assets 2,752 2,644 Current liabilities 1,391 1,458 Non-current Liabilities 319 363
Statement of Operations 1996 1995 1994 Net Sales $8,195 $8,140 $6,832 Gross profit 1,709 2,097 1,221 Income before income taxes 673 793 431
The Company does not provide U.S. Federal income taxes on the undistributed earnings of the Norwegian joint venture as these earnings are permanently reinvested. At December 31, 1996, undistributed earnings of the joint venture were $4,791,000.
6. Notes Payable
The Company's Canadian subsidiary has a $1,000,000 (Canadian funds) operating demand loan available as part of a credit facility provided by a Canadian bank. The demand loan had a balance of $219,000 as of December 31, 1996 and a zero balance as of December 31, 1995 and 1994. The approximate average borrowings (Canadian funds) outstanding during 1996, 1995 and 1994 equaled $46,000, $83,000 and $204,000, respectively, with approximate weighted average interest rates of 4.8%, 9.9% and 6.9%, respectively. The maximum amount of short-term debt (Canadian funds) outstanding as of any month-end during 1996, 1995 and 1994 was $300,000, $200,000 and $425,000, respectively.
The Canadian agreement requires the subsidiary to maintain specified financial ratios and minimum net worth levels. The maintenance of financial covenants may preclude the Canadian subsidiary's transfer of funds, by dividend or otherwise, to the U.S. parent company. All borrowings under the Canadian agreement are guaranteed by the Company and the Canadian bank has a security interest in the Canadian accounts receivable, inventory and machinery and equipment. Interest on the borrowings is based upon the Canadian prime rate.
7. Long-Term Debt
Long-term debt consists of (in thousands): 1996 1995
Revolving credit and term loan $ 300 $ 7,100 agreement with a U.S. Bank. Interest at prime rate plus 1/4% or LIBOR (8.5% at December 31, 1996).
Term loan agreement with a U.S. Bank. 800 1,800 Interest at prime rate plus 1/2% or LIBOR (8.19% at December 31, 1996).
Industrial revenue bond held by an 8,000 8,000 insurance company. Interest is at a fixed rate of 8 7/8%. Bond maturity is January 1, 2018.
Industrial revenue bond. Interest is 13,000 - variable (4.91% at December 31, 1996). The bonds are payable annually through December 1, 2021.
$22,100 $16,900 Less - current maturities 1,667 1,550
$20,433 $15,350
U.S. Credit Agreement
The Company's Credit Agreement dated December 22, 1992 with a U.S. bank provides for borrowings up to $10,000,000 under the revolving portion of the agreement, a $4,000,000 term loan and for borrowing up to $2,000,000 under a demand line of credit.
At December 31, 1996 borrowings of $300,000 were outstanding under the revolving portion of the Credit Agreement. The revolving portion converts, in whole or any portion, to a term note on March 31, 1999. Any principal balance of the revolver which is not converted is required to be repaid by the conversion date. Upon conversion, the term loan is payable in sixteen quarterly principal installments as follows: fifteen equal quarterly installments, each equal to the lesser of $250,000 or 2.5% of the principal balance of the revolver converted on the conversion date beginning April 1, 1999 and continuing to October 1, 2002 and one final payment on January 1, 2003 in an amount equal to the remaining balance of the term note. The Company must pay a commitment fee equal to 0.15% per annum on the unused portion of the revolving credit facility.
At December 31, 1996 borrowings of $800,000 were outstanding under the term loan portion of borrowings under the Credit Agreement. The term loan is due in equal quarterly principal payments of $200,000 through January 1, 1998.
In addition to the revolver and term loan under the Credit Agreement, the Company has a $2,000,000 demand line of credit. At December 31, 1996 no amounts were outstanding under this line of credit.
Borrowings under the Credit Agreement bear interest at either a defined base rate, contingent upon the bank's prime lending rate, or a rate based on the London Interbank Offered Rate (LIBOR). The Company has the option to convert the interest rate on all or a portion of the principal of its borrowings from the base rate to the rate based on LIBOR. Interest is payable monthly.
The U.S. Credit Agreement requires the Company to maintain certain financial covenants, including the maintenance of specified working capital; debt to tangible net worth ratios; minimum tangible net worth levels; a minimum current ratio; and minimum cash flow ratios. In addition, the agreement sets forth limits on capital expenditures and dividends. The agreement contains certain other covenants including restriction on mergers, consolidations and sales of assets. The Company is precluded from paying or declaring any dividends or other distributions on its Common Stock without written consent from its U.S. bank. The Company may declare Preferred Stock dividends not to exceed $100,000 in the aggregate in any fiscal year.
As collateral for the U.S. Credit Agreement, the bank has security interest in all U.S. accounts receivable and inventory as well as certain additional assets of the Tonawanda, New York facility.
Industrial Revenue Bonds
The Company is liable for making payments with respect to $8,000,000 of Industrial Revenue Bonds issued by the Village of Hennepin, Illinois and purchased by an insurance company. The bonds mature on January 1, 2018 and require quarterly interest payments. The bonds bear interest, payable to a bank as trustee at a fixed rate of 8-7/8%. Amortization of principal commences in January, 1999 until maturity in the year 2018. The bond agreement contains certain restrictive covenants which are consistent with the covenants contained in the U.S. Credit Agreement.
The Company is also liable for making payments with respect to $13,000,000 of Industrial Revenue Bonds issued by the Upper Illinois River Valley Development Authority for the construction of a desulfurization plant at the Company's Hennepin, Illinois facility. Bonds totaling $8,405,000 are tax-enhanced and mature December 1, 2021. The remaining bonds mature December 1, 2011. The bonds bear interest, which is payable periodically, in arrears, to a bank as trustee, at a variable rate determined by market rates for similar instruments at the time of adjustment. The bond agreement contains certain restrictive covenants which are consistent with the covenants contained in the U.S. Credit Agreement.
In support of the $13,000,000 bond issue, the Company obtained a $13,000,000 letter of credit from its principal U.S. bank for the benefit of the trustee of the bonds. A letter of credit fee equal to 0.75% per annum is payable to the bank periodically, in arrears. The letter of credit expires in December 2001 and is renewable annually thereafter. The letter of credit agreement requires the Company to make voluntary redemptions of the bonds quarterly sufficient to redeem all of the bonds within 15 years. The letter of credit agreement also requires the Company to deposit with the bank, and to assign and pledge to the bank as collateral security, an amount equal to the Company's excess cash flow, as defined, up to a maximum of $4,333,333; however, such funds held in the deposit account may be used by the Company for the redemption of the bonds.
Aggregate annual maturities of long-term debt are as follows:
1997 $ 1,667,000 1998 867,000
1999 989,000
2000 997,000
2001 997,000 2002 $ 16,583,000 and beyond
8. Income Taxes
The components of income tax expense are as follows (in thousands):
1996 1995 1994 Current provision (benefit): United States Federal $ 1,850 $ 1,226 $ 68
State 271 178 76 Foreign 995 768 112
Total Current 3,116 2,172 256 Deferred provision (benefit): United States
Federal (45) 494 152 State 6 (36) 65
Foreign 68 263 (47) Total Deferred 29 721 170 Total $ 3,145 $ 2,893 $ 426
The actual tax expense differs from the expected tax expense computed by applying the U.S. Federal corporate tax rate of 34% to earnings before income taxes as follows (in thousands):
1996 1995 1994
Computed expected tax expense $3,137 $2,332 $ 660 Effect of differing tax rates applicable to foreign subsidiary income (407) (267) (109) Utilization of Norwegian net operating losses not previously recognized - - (149)
Recognition of investment tax credits - - (214) Effect of permanent differences 47 9 (16) State and Provincial taxes, net of 486 465 217 Federal benefit Non-deductible environmental penalties - - 442 Norwegian tax reserve - - (225)
U.S. reserve for dividend repatriation - 571 - Other (118) (217) (180) Total income tax expense $3,145 $2,893 $ 426 Effective tax rate 34.1% 42.2% 21.9%
Deferred income tax liabilities and assets include the following (in thousands):
1996 1995 Deferred tax liabilities:
Excess tax depreciation $ 2,044 $2,235 Norwegian tax assessment 59 59 reserve
Dividend repatriation reserve 571 571 Pension and payroll accruals 114 52
Gross deferred tax liabilities $ 2,788 $2,917
Deferred tax assets: Norwegian NOL (53) (180)
Inventory accounting methods (38) (192) Accounts receivable and other (47) (22) asset reserves
Post retirement accrual (1,039) (1,044)
Other, net (125) (19) Gross deferred tax assets $(1,302) $(1,457)
Net deferred tax liability at $ 1,486 $1,460 end of year
During the fourth quarter of 1996, the Company recorded an adjustment to reduce income tax expense related to quarters one, two and three of 1996 by approximately $433,000.
9. Capital Stock
The Company has two classes of Common Stock. At December 31, 1996 there were 600,000 shares of $1 par value Common Stock authorized, of which 512,897 shares were issued and 481,995 shares were outstanding. At the same date there were 600,000 shares of $1 par value Class A Common Stock, of which 512,897 shares were issued and outstanding.
Additionally, there were 100,000 shares of no par value Preferred Stock authorized. At December 31, 1996 there were 19,364 shares of Series A and 19,364 shares of Series B Preferred Stock outstanding.
At December 31, 1996, the shares of Series A and Series B Preferred Stock are entitled to receive, when declared by the Board of Directors, cumulative annual cash dividends at the rate of $1.125 per share. The Series A and Series B Preferred Stock have a preference upon liquidation of $25.00 each per share. Each share of Series A and Series B Preferred Stock is convertible into 1.125 shares of Common Stock and Class A Common Stock, respectively. The shares of Common Stock, voting with the shares of the Series A Preferred Stock, have the right to elect one-half of the members of the Board of Directors and the shares of Class A Common Stock voting with the Series B Preferred Stock, owned by Wacker Chemical (USA), Inc. ("Wacker USA"), have the right to elect the remaining one-half of the members of the Board of Directors.
10. Pension and Other Retirement Benefits
The Company sponsors contributory and non-contributory pension plans in the United States and Canada covering substantially all hourly and salaried employees with the exception of union employees at the Company's Hennepin plant, who are covered by a union-sponsored pension plan. The Company's U.S. defined contribution plan which covers all of its domestic salaried employees and its Canadian defined contribution plan covering substantially all Canadian employees, provide for the Company to make regular contributions based on salaries of eligible employees. Payments upon retirement or termination of employment are based on vested amounts credited to individual accounts. Contributions to the U.S. defined contribution plan totaled $176,000 in 1996, $146,000 in 1995, and $147,000 in 1994. Contributions to the Canadian defined contribution plan were $78,000 in 1996, $66,000 in 1995 and $65,000 in 1994. The Company also provides a defined benefit plan for hourly employees at the Tonawanda plant. Benefits are based primarily on years of service. The Company's policy for this plan is to contribute annually at least the minimum amount required by the Employee Retirement Income Security Act of 1974, as amended. Total pension expense for all plans amounted to $393,000, $361,000, and $391,000 in 1996, 1995 and 1994, respectively.
The Company also participates in a collectively bargained, union- sponsored multiemployer pension plan which benefits employees of the Company's Hennepin, Illinois facility who are union members. Company contributions to this plan were $139,000, $125,000 and $112,000 for 1996, 1995 and 1994, respectively. This plan is not administered by the Company. Contributions are determined in accordance with the provisions of the negotiated labor contract.
The following table summarizes the funded status of the Company's Tonawanda hourly employees defined benefit plan and the related amounts recognized in the Company's consolidated balance sheet as of December 31, 1996 and 1995 (in thousands):
December 31
1996 1995 Actuarial present value of accumulated benefit obligations, including vested benefit obligations of $1,539 at December 31, 1996 and $1,475 at ($1,540) ($1,475) December 31, 1995 Projected benefit obligations ($1,540) ($1,475) Plan assets at fair value, primarily 2,421 2,036 equity securities
Plan assets in excess of plan obligations 881 561 Unrecognized net loss at transition, being amortized over approximately 17 120 137 years Unrecognized prior service cost 150 162 Unrecognized gain arising since (623) (428) transition
Prepaid pension expense $528 $432
The actuarially computed pension cost for 1996, 1995 and 1994 included the following components (in thousands):
1996 1995 1994
Service costs $ 57 $ 54 $ 59 Interest on projected benefit obligation 118 106 100 Actual return on plan assets (464) (404) (54)
Amortization of transition liability and 332 324 (18) deferrals
Net periodic pension expense $ 43 $ 80 $ 87
Unrecognized gain (losses) and prior service costs are amortized on a straight-line basis over a period approximating the average remaining service period for active employees.
An assumed discount rate of 8% has been used in determining the actuarial present value of the projected benefit obligation. The expected long-term rate of return on plan assets is 7%.
Benefits under the Canadian subsidiary's pension plans are based on employee and employer matching contributions for defined contribution plan and years of service for the defined benefit plan. The Company has applied for the termination of the Canadian defined benefit plan with the Pension Commission of Ontario. Upon formal procedural approval by the Pension Commission of Ontario, the defined benefit plan will be terminated and a projection of the employees benefits at retirement age will be calculated and subsequently rolled over into the defined contribution plan. The defined benefit plan had a surplus of approximately $120,000 (Canadian) as of December 31, 1993, the date of the most recent actuarial valuation. Assets of the plan at December 31, 1996 and 1995 included 26,000 shares of the Common Stock of Exolon-ESK Company valued at $926,000 (Canadian) at December 31, 1996.
In addition to providing pension benefits, the Company provides certain health care and life insurance benefits to eligible retired employees and their spouses. Participants generally become eligible for these benefits after achieving certain age and years of service requirements. These benefits are subject to deductibles, co-payment provisions and other limitations. The Company may amend or change the plan periodically. The Company's policy is to fund these benefits on a pay-as-you-go basis.
The amounts recognized in the Company's December 31, 1996 and 1995 balance sheets for its U.S. operations were as follows (in thousands):
December 31 1996 1995
Accumulated postretirement benefits obligation:
Retirees $1,045 $ 887 Fully eligible active 435 366
Terminated participants not 40 39 yet receiving benefits Total accumulated postretirement $1,520 $1,292 benefits obligation
Unrecognized prior service cost 25 -
Unrecognized gain (302) (623)
Accrued postretirement benefit $1,797 $1,915 obligation
Net periodic postretirement benefit costs for 1996, 1995 and 1994 included the following components (in thousands):
1996 1995 1994
Service cost - benefits earned $ 11 $ 12 $ 14 Interest cost 98 92 115
Amortization (33) (42) (4) Net periodic postretirement $ 76 $ 62 $125 benefit cost
For measuring the postretirement benefit obligation as of December 31, 1996 an 8% annual rate of increase in health care rates was assumed for the next 6 years and 6% per year thereafter applicable to Blue Cross and Medicare Reimbursements. It was also assumed that reimbursable expenses for post-1990 retirees would be at least equal to the dollar reimbursement limitation. Increasing the annual rate of increase in health care rates by one percentage point would increase the accumulated post-retirement obligation by $53,000 and would increase the periodic post-retirement cost by $8,000. Group life insurance premiums and limitations on dollar reimbursements (applicable to post-1990 retirees) are not assumed to be subject to increases. An assumed discount rate of 8% has been used in determine the actuarial present value of the projected benefit obligation.
Unrecognized gains and losses are amortized on a straight-line basis over the average remaining service period of active participants.
The Company's Canadian subsidiary also provides certain health care and life insurance benefits to eligible retired employees and their spouses. Participants generally become eligible for these benefits after achieving certain age and years of service requirements. The Company adopted SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions effective January 1, 1995 for its Canadian subsidiary and recognized the initial obligation as a one-time, after-tax charge to earnings of $502,000 (net of income tax effect of $282,000) in the year ended December 31, 1995.
The amounts recognized in the December 31, 1996 and 1995 balance sheets were as follows (in thousands):
December 31 1996 1995
Accumulated postretirement benefits obligation:
Retirees $ 885 $ 445 Fully eligible active participants 323 151
Total accumulated postretirement benefits $ 1,208 $ 596 obligation
Unrecognized net loss (gain) 446 (233) Accrued postretirement benefit obligation $ 762 $ 829
Net periodic postretirement benefit costs for 1996 and 1995 included the following components (in thousands):
1996 1995
Service cost - benefits earned during the $ 10 $ 13 period Interest cost 45 61
Amortization (17) (42)
Net periodic postretirement benefit cost $ 38 $ 74
The pro forma effect of the change on years prior to 1995 was not determinable.
For measuring the post-retirement benefits obligation, an 8% annual rate of increase in the health care rates was assumed for the next 5 years and 6% per year thereafter. Increasing the annual rate of increase in the health care rates by one percentage point in each year would increase the accumulated post-retirement benefits obligation by $108,000 and would increase the periodic post-retirement benefits cost by $12,000. The group life insurance premiums are not assumed to be subject to increase. An assumed discount rate of 8% was used.
Unrecognized gains and losses are amortized on a straight-line basis over the average remaining service period of active participants.
The Company's current policy is to fund these benefits on a pay- as-you-go basis.
The accrued postretirement benefits obligation has been recorded in the Company's balance sheet as follows (in thousands):
December 31 1996 1995
Accrued expenses $ 130 $ 136
Accrued postretirement 2,429 2,608 $2,559 $2,744
11. Related Party Transactions
The Company purchased combined totals of $3,740,000, $4,320,000 and $2,626,000 of products from its affiliates, Elektroschmelzwerk Kempten GmbH, and its Norwegian joint venture during 1996, 1995 and 1994, respectively.
The Company has a royalty agreement with an affiliate of a shareholder of the Company as described in Note 12(b).
12. Commitments
a. Lease agreements
The Company leases certain machinery and equipment under operating leases. Amounts charged to expense for the years ended December 31, 1996, 1995 and 1994 were $428,000, $370,000 and $351,000, respectively. Total minimum lease payments, at December 31, 1996, under operating leases are summarized as follows (in thousands):
1997 $363,000 1998 312,000 1999 96,000
$771,000
b. Royalty agreements
The Company was party to a royalty agreement which expired in 1996 and covered production of crude aluminum oxide at its Thorold, Ontario plant using process technology acquired as part of the construction and completion of a new furnace plant. The Company is also party to a separate royalty agreement which covers production of specialty product for refractory market, and expires April 30, 2001. This Agreement is currently the subject of litigation as outlined under Note 13(b)(ii) on page 34 in this Form 10-K Report. Royalty expense in U.S. dollars amounted to $419,000, $725,000 and $543,000 in the years ended December 31, 1996, 1995 and 1994, respectively.
13. 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 provides 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. The Company obtained final approval for a construction permit to implement the BACT during 1996. The Company purchased a 20 acre parcel of land adjacent to its property in 1995 and construction has commenced.
Under the terms of the Consent Order the Company has also agreed to pay a civil penalty of $1,300,000, payable in installments of $260,000 each on November 1, 1994, April 1, 1995, February 1, 1996, January 1, 1997 and November 1, 1997. The Company recorded an expense of $1,300,000 in the year ended December 31, 1994, which represents the civil penalty.
In order to comply with the Consent Order and complete facility improvements, the Company expects to incur capital costs within the range from $13,000,000 to $14,000,000 over the next two years. As of December 31, 1996, the Company has incurred approximately $4,340,000 of capital costs related to the facility improvements. The Company has obtained a modification of its Industrial Revenue Bond Agreement to allow for the required capital expenditures under the Consent Order. The cost of these required capital improvements is being financed with the $13,000,000 of proceeds from long-term bonds, a portion of which are tax-exempt, issued by the Upper Illinois River Valley Development Authority.
(ii) 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 Company's joint venture appointed a project group to complete a study and define a project to minimize sulfur and dust emissions which was presented to the Norwegian State Pollution Control Authority on March 1, 1995. The Authority has prepared an internal study of the report and the Authority's draft for new concessions was presented to the joint venture in February 1996. Based on a consensus for the metallurgical industry, the joint venture has initiated discussions with the Authority to obtain acceptable emissions levels. The costs associated with the implementation of environmental expenditures are uncertain as a result of various alternatives presently being considered by the Norwegian joint venture.
b. Legal matters
(i) Federal Proceedings and Related Matters
In February 1994, the Company, its former President, its former Executive Vice President and certain other parties were the subject of an indictment under federal antitrust laws (the "Antitrust Proceedings") which alleged, among other things, that: (a) prior to the mid-1980's and from the mid 1980's continuing into 1992, the defendants and unnamed co-conspirators entered into and engaged in a combination and conspiracy to fix the prices of artificial abrasive grain in restraint of interstate trade; (b) during the same period, the Company and its former President willfully violated the terms of a Consent Decree dated November 16, 1948 against the Company and its officers, which permanently enjoined them from entering into conspiracies or combinations to fix prices of artificial abrasive grain; and that (c) the Company's former Executive Vice President destroyed documents and made false declarations in response to a grand jury subpoena issued in an investigation of price fixing for artificial abrasive grain. On July 12, 1996 a Plea Agreement was executed by the United States Department of Justice and the Company in full settlement of the Criminal Antitrust Proceedings pending against the Company. The Plea Agreement was approved by the Federal District Court for the Western District of New York, and sentencing occurred on December 9, 1996. In accordance with the Plea Agreement, the Company pled guilty to contempt of court in violation of the 1948 Consent Decree described in (b) above. All other charges against the Company were dismissed. The Company paid a fine of $100,000 and a $200 special assessment. There are no conditions of probation or any further penalties. In addition, all antitrust and consent decree violation charges against individual former officers of the Company as set forth in (a) and (b) above were dismissed.
On December 8, 1994, in an ex parte proceeding the U.S. Defense Logistics Agency (the "DLA") issued a Memorandum of Decision that temporarily suspended the defendants in the Antitrust Proceedings from contracting with the U.S. Government under procurement or non- procurement programs pending the completion of the Antitrust Proceedings. On January 31, 1995, the DLA amended the Memorandum of Decision (as amended, the "DLA Suspension") to include under the DLA Suspension sixteen alleged affiliates of the defendants including the Company's subsidiary, Exolon-ESK Company of Canada Ltd., and Orkla Exolon KS, the Norwegian partnership in which the Company's subsidiary, Norsk Exolon AS, has a 50% partnership interest. The DLA Suspension alleges as causes for the suspension (i) the indictments of the parties in the Antitrust Proceedings, and (ii) on separate occasions in October and November of 1994 the Company's former President and former Executive Vice President individually made alleged false certifications in DLA sales contracts denying the existence within the past three years of any indictments of the kind involved in the pending Antitrust Proceedings. A jury trial on a separate criminal complaint against the Company and the former Executive Vice President based on the alleged false certifications in DLA sales contracts found the Company and the former Executive Vice President not guilty of all charges.
In general, the DLA Suspension provides, during the term of the suspension, that the suspended parties will be prohibited from entering into new contracts, or renewing or extending old contracts with the U.S. Government or its agencies, unless the head of the contracting agency states in writing that there is a compelling reason to do so; that the suspended parties may not conduct business with the U.S. Government as an agent or representative of other contractors; that no U.S. Government contractor may award a suspended party a subcontract in excess of $25,000 unless there is compelling reason to do so and the contracting party complies with certain notification provisions; and, that each suspended party's relationship to any organization doing business with the government will be examined to determine the impact of those ties on the responsibility of the other organization to be a government contractor or subcontractor.
The DLA Suspension, for so long as it remains in force, will prevent the Company from purchasing crude abrasive grains from U.S. Government stockpiles, but it is not otherwise expected to impact the Company's operations as the Company does not deal with the U.S. Government as a contractor or subcontractor. As long as there is an adequate supply of crude abrasive grains and the U.S. Government does not sell this grain from its stockpiles at below market prices, the DLA Suspension is not expected to have a material adverse effect on the Company's operations. Presently, and for at least the next one year period, the Company expects crude abrasive grains to be in adequate supply. However, the Company is unable to predict under what circumstances the U.S. Government might choose to sell from its stockpiles. If it were to undertake an aggressive program of selling abrasive grains at below market prices, the Company could be placed at a disadvantage in relation to its competitors. The Company is actively seeking to have the DLA suspension lifted as it has favorably resolved all federal criminal litigation resulting in the suspension.
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, in violation of Section 1 of the Sherman Act, 15 U.S.C. S 1. 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. The Company believes that it has meritorious defenses to the allegations, and it intends to vigorously defend against the charges.
In addition to the potential liabilities that the Company may experience in the legal proceedings brought by these third parties, the Company may incur material expenses in defending against the actions, and it may incur such expenses even if it is found to have no liability for any of the charges asserted against it.
(ii) Exolon-ESK Company of Canada, Ltd.
An action for damages was brought against Exolon-ESK Company and Exolon-ESK Company of Canada, Ltd. by International Oxide Fusion Inc. of Niagara Falls, Ontario in December, 1996. This action has been brought on the basis that the Thorold, Ontario facility is in the possession of technology that was provided in 1990 to Exolon-ESK Company to produce MagChrome and Fused MgO and has refused to pay further royalty payments. International Oxide Fusion Inc. claims damages for loss of royalty payments from the furnaces in Thorold, Ontario which they allege use this technology. Exolon-ESK Company and Exolon-ESK Company of Canada, Ltd. have filed a Statement of Defense and Counterclaim against International Oxide Fusion Inc., Edward J. Bielawski, Robert Thiel (the principals of International Oxide Fusion Inc.), Thomas Farr and Fusion Unlimited (Niagara) Inc. which was issued in January, 1997 in Toronto, Ontario. At this time, the Company is not in a position to reasonably estimate the range of any loss or gain. The Plaintiffs seek approximately $182 million as damages, which management considers to be beyond any reasonable understanding. The Company's counterclaim is in the amount of approximately $22 million.
In June 1993, the Company commenced a legal action in Ontario, Canada Court (General Division) against one of its former officers and certain former employees of Exolon-ESK Company of Canada, Ltd. (Exolon-Canada) on various charges related to allegations that they defrauded the Company and Exolon-Canada of money, property and services over many years (the Canadian Case ). The Company is seeking $2,000,000 in damages together with such other damages that may be determined. While actions against several Defendants have been dismissed, we have received a $40,000 recovery and expect a minimum recovery of an additional thirty-five thousand dollars ($35,000.00) from at least one remaining defendant and $164,000 from another defendant beyond that. A reasonable estimation of any further potential recovery, if any, cannot be made at this time.
On February 29, 1996, the Company and Exolon-Canada entered into a Final Release (the Release ) with their insurance carriers whereby they agreed to release the carriers from all claims based on the activities of the defendants in the Canadian Case in consideration of a payment of $535,000 Canadian (approximately $375,000 U.S.). Under the terms of the Release, the insurance carriers denied any liability, and the payment may not be indicative of the amount of any recovery that may be obtained from the defendants. The insurance carriers have subrogated all of their third party rights and claims to Exolon-ESK Company of Canada, Ltd.
14. Fair Value of Financial Instruments
The carrying amounts reported in the Company's balance sheets for cash and restricted cash equivalents approximate fair value. The carrying amounts reported in the Company's balance sheets for long- term debt, including current portion, approximate fair value, as the underlying long-term debt instruments are comprised of notes that are repriced on a short-term basis, except for a fixed rate industrial revenue bond for which the interest rate approximates current interest rates for similar borrowings.
15. Quarterly Financial Data (unaudited)
Summarized quarterly financial data for 1996, 1995 and 1994 is as follows:
Quarter (thousands of dollars except First Second Third Fourth per share amounts)
Year Ended December 31, 1996
Net Sales $19,846 $19,739 $18,903 $18,971 Gross Profit Before 4,543 4,695 4,274 4,327 Depreciation
Net Income $ 1,410 $ 1,604 $ 1,074 $ 1,992 Primary Earnings Per Common $1.45 $1.65 $1.10 $2.07 Share
Primary Earnings Per Class $1.36 $1.55 $1.04 $1.95 A Common Share
Year Ended December 31, 1995 Net Sales $17,177 $17,131 $17,094 $17,190
Gross Profit Before 3,778 3,922 4,052 3,628 Depreciation
Earnings Before Cumulative 938 1,014 1,175 837 Effect of Accounting Change
Cumulative Effect of (762) - - 260 Accounting Change
Net Income $ 176 $ 1,014 $ 1,175 $ 1,097 Primary Earnings Per Common Share Before Cumulative $0.96 $1.04 $1.21 $0.86 Effect of Accounting Change
Cumulative Effect of (0.79) - - 0.27 Accounting Change Primary Earnings Per Common $0.17 $1.04 $1.21 $1.13 Share
Primary Earnings Per Class A Common Share Before $0.90 $0.98 $1.14 $0.80 Cumulative Effect of Accounting Change
Cumulative Effect of (0.74) - - 0.25 Accounting Change Primary Earnings Per Class $0.16 $0.98 $1.14 $1.05 A Common Share
Year Ended December 31, 1994 Net Sales $14,155 $15,252 $15,185 $14,902
Gross Profit Before 2,644 3,159 3,435 3,625 Depreciation
Net Income (Loss) $ 121 $ 75 $ (171) $ 1,491 Primary Earnings (Loss) Per $0.11 $0.07 $(0.17) $1.52 Common Share
Primary Earnings (Loss) Per $0.11 $0.06 $(0.16) $1.43 Class A Common Share
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Reference is made to the form 8-K's dated October 12, 1994 and October 24, 1994 which are hereby incorporated herein by reference.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
See the information relating to directors and officers of the Company under the captions "Election of Directors", contained in the Company's definitive Proxy Statement dated April 1, 1997 relating to the Annual Meeting of Shareholders to be held on April 30, 1997, which is hereby incorporated by reference.
Item 11.
Item 11. Executive Compensation
See the information relating to "Compensation of Executive Officers" presented in the Company's definitive Proxy Statement dated April 1, 1997 relating to the Annual Meeting of Shareholders to be held on April 30, 1997, which is incorporated herein by reference, except that information appearing under the headings "Report of the Executive Committee on Executive Compensation" and "Summary Share Performance Graph" is not incorporated herein and should not be deemed to be included in this document for any purpose.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
See the information relating to directors and officers of the Company under the captions "Security Ownership of Certain Beneficial Owners and Management", contained in the Company's definitive Proxy Statement dated April 1, 1997 relating to the Annual Meeting of Shareholders to be held on April 30, 1997, which is hereby incorporated by reference.
Item 13.
Item 13. Certain Relationships and Related Transactions
See the information relating to directors and officers of the Company under the captions "Certain Related Party Transactions", contained in the Company's definitive Proxy Statement dated April 1, 1997 relating to the Annual Meeting of Shareholders to be held on April 30, 1997, which is hereby incorporated by reference.
PART IV Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report
Page In Form 10-K
1) Report of Independent Auditors: 13
Financial Statements: Consolidated Statements of Operations, three years ended 14 December 31, 1996
Consolidated Balance Sheets at 15 December 31, 1996 and 1995
Consolidated Statements of Cash Flows, three years ended December 31, 16
Consolidated Statements of Changes in Stockholders' Equity, three years 17 ended December 31, 1996
Notes to Consolidated Financial 18-36 Statements
2) Financial Statement Schedule for three years ended December 31, 1996:
II. Valuation and qualifying accounts 41
All other required schedules have been omitted because they do not apply to the Company.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (Continued)
(a) (3) Exhibits
Exhibit Description Reference No.
3A Certificate of Amendment of Exhibit 3A Restated Certificate of Incorporation dated April 30, 1997 3A(1) Certificate of Merger Exhibit 3A(1) to the Report on Form 10-K for the year ended December 31, 1995*
3F Certificate of Amendment of Exhibit 3F to the Report Restated Certificate of on Form 10-K for the Incorporation dated April year ended December 31, 23, 1986 1994*
3G Certificate of Amendment of Exhibit 3G to the Report Restated Certificate of on Form 10-K for the Incorporation dated May 4, year ended December 31, 1987 1994*
3I Restated Bylaws containing Exhibit 3I all previous amendments adopted
4 Instruments Defining Rights Articles of of Security Holders Incorporation, Exhibits 3A, and Exhibits 3F and 3G to the Report on Form 10-K for the year ended December 31, 1994*
10D(23) Revolving Credit Agreement Exhibit 10D(23) to the dated December 22, 1992 Report on Form 10-K for the year ended December 31, 1992*
10D(23)A Amendment Credit Agreement Exhibit 10D(23)A dated December 1, 1996
10D(24) Industrial Revenue Bond Exhibit 10D(24) to the Agreement dated January 1, Report on Form 10-K for 1993. the year ended December 31, 1992*
10D(25) Industrial Revenue Bond Loan Exhibit 10D(25) Agreement dated December 1,
10D(26) Building Loan Agreement Exhibit 10D(26) dated December 1, 1996
10F Stockholder's Agreement Exhibit 10F to the dated as of April 26, 1984 Report on Form 10-K for between the Registrant and the year ended December Wacker Chemical Corporation 31, 1995*
10G Restated License Agreement Exhibit 10G to the dated as of April 26, 1984 Report on Form 10-K for among Elektroschmelzwerk the year ended December Kempten GmbH, ESK 31, 1995* Corporation and the Registrant
10H Distributorship Agreement Exhibit 10H to the dated April 27, 1984 between Report on Form 10-K for Elektroschmelzwerk Kempten the year ended December GmbH, and the Registrant 31, 1995 *
10I Indemnification Agreement Exhibit 10I to the dated as of December 15, Report on Form 10-K for 1984 between Wacker Chemical the year ended December Corporation and the 31, 1995* Registrant
10K Contract between Theeb, Ltd. Exhibit 10K to the and The Exolon-ESK Company Report on Form 10-K for of Canada, Ltd. dated the year ended December February 28, 1985 31, 1992*
10M Federal Indictments dated Exhibit 10M to the February 11, 1994 Report on Form 10-K for the year ended December 31, 1993*
11 Statement of computation of Exhibit 11 per share earnings
22 Subsidiaries of the Exhibit 22 registrant
27 Financial Data Schedule Exhibit 27
(b) Reports on Form 8-K:
None.
(c) All exhibits required by Item 601 of Regulation S-K are included in Item 14(a)(3).
(d) Separate Financial Statements of Subsidiary Not Consolidated and 50% Owned
See the accompanying index to Orkla Exolon KS financial statements and financial statement schedules on pages 49-64.
* Incorporated herein by reference.
Exolon-ESK Company and Subsidiaries Valuation and Qualifying Accounts Three Years Ended December 31, 1996 (thousands of dollars)
Additions Balance Charged at to Costs Balance Description Beginning and at End of Year Expenses Deductions of Year
Deducted from assets - Allowance for doubtful accounts
Year ended December $419 $70 $13 (a) $502 31, 1996
Year ended December $309 $110 -- $419 31, 1995 Year ended December $307 $20 ($18)(a) $309 31, 1994
Allowance for slow- moving and obsolete inventory
Year ended December $136 $161 -- $297 31, 1996
Year ended December $136 -- -- $136 31, 1995 Year ended December $616 -- $480 $136 31, 1994
(a) Uncollectible accounts written off, net of recoveries.
Orkla Exolon KS, Orkanger - Norway
Page
Report of independent auditors 43
Balance sheets at December 31, 1996 and 1995 44
Statements of income and retained earnings for the three years ended December 31, 1996, 1995 and 1994 46
Statements of cash flows for the three years ended December 31, 1996, 1995 and 1994 47
Notes to the financial statements 49
Financial schedules for the three years ended December 31, 1996, 1995 and 1994:
II Valuation and qualifying accounts and reserves 56
All other schedules are omitted as the required information is inapplicable or the information is presented in the financial statements or related notes.
To the Partners of
Orkla Exolon KS
Trondheim, January 27, 1997
Report of Independent Auditors.
We have audited the accompanying balance sheets of Orkla Exolon KS as of December 31, 1996 and 1995, and the related statements of income and cash flows for each of the three years in the period ended December 31, 1996. These financial statements and related schedules referred to below 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 audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Orkla Exolon KS as of December 31, 1996 and 1995, and the results of its operations and cash flows for the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the index to financial statements are presented for purposes of complying with the Securities and Exchange Commission' s rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole .
ERNST & YOUNG - TRONDHEIM AS
Hans J Jonassen State Authorized Public Accountant, (Norway)
BALANCE SHEET AT DECEMBER 31st
Assets NOK 1996 NOK 1995
Current
Cash 8,850,868 14,461,939
Trade receivables, less allowance for doubtful accounts of NOK 343,000 in 1996 22,645,379 16,499,168 and NOK 266,000 in 1995
Other accounts receivable and prepayments 1,996,892 2,776,714 Receivable from related parties (Note 4) 5,008,807 5,570,011 Inventories (Note 3)26,980,000 20,194,000
Total current assets 65,481,946 59,501,832
Long-Term Receivables and Other Assets (Note 5) 7,475,205 7,025,136
Property, Plant and Equipment
At cost Land 507,930 507,930
Buildings 18,127,175 18,127,175 Machinery, equipment and installations 47,136,413 43,779,235 65,771,518 62,414,340
Accumulated depreciation (37,779,588) (35,989,310)
Net property, plant and equipment 27,991,930 26,425,030
Total assets 100,949,081 92,951,998
The accompanying notes are an integral part of these financial statements.
BALANCE SHEET AT DECEMBER 31st
Liabilities and Partners' Interest NOK 1996 NOK 1995
Current Liabilities
Bank indebtedness (Note 6) 3,000,000 3,000,000 Accounts payable and accrued expenses 14,447,518 14,960,958 Portion of long-term debt repayable within one year (Note 7) 483,334 483,334
Total current liabilities 17,930,852 18,444,292
Long-Term Debt
Mortgage loans (Note 7) 4,591,665 5,074,999 Portion repayable within one year (Note 7) (483,334) (483,334)
Total long-term debt 4,108,331 4,591,665
Partners' Interest
Paid-in capital (Note 8)11,349,100 11,349,100 Retained earnings 67,560,798 58,566,941
Total partners' interest 78,909,898 69,916,041
Total liabilities and partners' interest 100,949,081 92,951,998
Commitments and Contingent Liabilities (Note 9)
The accompanying notes are an integral part of these financial statements
STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE YEARS ENDED DECEMBER 31st
Income from Operations NOK 1996 NOK 1995 NOK 1994
Sales 106,157,825 103,426,909 96,220,973 Cost of sales exclusive of depreciation shown below 84,023,411 78,782,750 79,020,248
Gross income 22,134,414 24,644,159 17,200,725
Depreciation 2,581,303 2,129,670 1,597,094 Selling, general and administrative expenses 11,189,839 12,742,064 9,129,804 Bad debts, net 77,000 (107,430) 94,260
Income from operations 8,286,272 9,879,855 6,379,567
Other Income / Expense
Interest on mortgage loans and bank overdraft (502,782) (394,659) (631,827) Interest income 484,312 489,941 156,774 Foreign exchange gain / loss 726,055 103,165 (245,073)
Income / loss from other activities 707,585 198,447 (720,126)
Income for the year 8,993,857 10,078,302 5,659,441
Retained earnings at January 1st 58,566,941 48,488,639 42,829,198
Retained earnings at December 31st 67,560,798 58,566,941 48,488,639
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31st
Cash Flows from Operating Activities NOK 1996 NOK 1995 NOK 1994
Net income 8,993,857 10,078,302 5,659,441
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 2,581,303 2,129,670 1,597,094 Gain / Loss sale property, plant & equipment (143,005) (250,000) (452,521)
Change in assets and liabilities:
Increase / Decrease in receivables and prepayments (4,805,185) 154,370 1,302,797 Increase / Decrease in inventories (6,786,000) 766,000 892,000 Increase / Decrease in pension benefit plan / prepaid pension premiums (450,069) (559,000) (585,129) Increase / Decrease in accounts payable and accrued expenses (513,440) 1,631,531 1,557,980
(10,116,396) 3,872,571 4,312,221
Cash flow from operating activities (1,122,539) 13,950,873 9,971,662
STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31st
Cash Flow from Investment Activities NOK 1996 NOK 1995 NOK 1994
Capital expenditures (4,266,203) (8,641,711) (2,575,169) Sale of property, plant and equipment 261,005 250,000 715,000
Cash flow from investment activities (4,005,198) (8,391,711) (1,860,169)
Cash Flow from Financial Activities
Increase in bank indebtedness 0 0 2,282,000 Repayment of long-term debt (483,334) (483,334) (2,230,762)
Cash from financial activities (483,334) (483,334) 51,238
Net increase (decrease) in cash and cash equivalents (5,611,071) 5,075,828 8,162,731
Cash and cash equivalents at the beginning of year 14,461,939 9,386,111 1,223,380
Cash and cash equivalents at the end of year 8,850,868 14,461,939 9,386,111
Supplemental disclosure of cash flow information
Cash paid during the year for interest: 443,312 403,178 584,058
The accompanying notes are an integral part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS (All amounts expressed in NOK)
1) Operations
The company is organized as a limited partnership under Norwegian law. The main business activity is the manufacture and processing in Norway of Silicon Carbide, an abrasive product.
2) Summary of Significant Accounting Policies
a. Taxes
No provisions for taxes are made in the financial statements of the company because, as a limited partnership, it is not subject to income tax, the tax effect of its activities accruing to the partners.
b. Inventories
Finished goods and work in progress are stated at the lower of average production cost and market. Cost comprises raw materials, power, direct labor and manufacturing overhead. Raw materials and supplies are stated at the lower of average purchase cost and market. Cost comprises materials, freight and handling.
c. Property, plant and equipment and related depreciation
Property, plant and equipment are stated at cost. Depreciation has been recorded on the basis of cost using the straight line method at the following rates which are estimated to depreciate the assets over their useful lives in the business:
Land 0% Buildings 2% Machinery and installations 6% Equipment and vehicles 10%
Maintenance and repairs are expensed as incurred, major renewals and betterments are capitalized.
d. Translation of foreign currencies
Transactions denominated in foreign currencies are translated into Norwegian kroner at the approximate exchange rates ruling at the date of the individual transaction. Foreign currency denominated assets and liabilities are translated into Norwegian kroner at the approximate exchange rates ruling at the year end.
e. Pension
The company has an insured pension plan which provides pension for eligible employees on retirement at the age of 67 years or earlier in the event of disability, and for widows, widowers and dependent children of deceased employees covered by the plan. The basis for the pension on retirement is the final salary at that date. Number of service years required to obtain full pension is 30 years. The pension benefits are secured by collective insurance policy. The company's insured pension is coordinated with the obligatory state pension scheme and is a benefit plan per. FASB 87.
f. Revenue recognition
Net sales for goods and services are recorded at the time of delivery. The amount reported in the statement of income exclude VAT, discounts and bank fee regarding customers.
g. Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
3) Inventories
Inventories consist of: 1996 1995 1994
Finished Goods 12,735,000 7,385,000 7,895,000 Work in progress 10,345,000 8,937,000 8,469,000 Raw materials 2,365,000 2,836,000 2,800,000 Supplies (net)*) 1,535,000 1,036,000 1,796,000
26,980,000 20,194,000 20,960,000
*) Supplies are included net of an obsolescence provision of NOK 1 282 000.
4) Related Party Transactions
Amounts receivable from/payable to related parties consist of:
1996 1995 1994 Receivable from: The Exolon - ESK Company, New York, USA 308,668 963,436 522,343 Orkla Exolon AS 4,700,139 4,606,575 4,691,889 Norsk Exolon AS 0 0 0
Total receivable from related parties 5,008,807 5,570,011 5,214,232
Payable to: Orkla AS 2,000 106,440 76,600
Sales
Exolon-ESK Company 4,382,908 5,255,893 5,567,746 ESK Germany 0 0 679,386
Total sales to related parties 4,382,908 5,255,893 6,247,132
The Exolon - ESK Company, New York, USA is the ultimate holding company of Norsk Exolon AS. Norsk Exolon AS is a limited partner (50% interest) in Orkla Exolon AS, with another Norwegian company owning the remaining partnership interest.
Purchases
Purchases of goods and services from related parties during the year were as follows:
1996 1995 1994
Orkla AS 318,250 341,607 337,633 Borregaard 1,449,534 297,422 0 The Exolon - ESK Company, New York, USA 0 0 0 Elektroschmelzwerk, Kempten, Germany 795,965 371,500 215,100
Total purchases from related parties 2,563,749 1,010,529 552,733
5) Additional Pension Plan Disclosures
1. Description of the plan The pension plan covers all groups of employees in the company, (92 current employees and 75 pensioners). The benefit is based on years of service and final salary levels. Plans are administrated by the independent insurance company Uni Storebrand. The assumptions used are:
Discount rate 6.0 % Assumed rate of return - plan assets 7.0 % Salary increase 3.0 % Assumed pension increase 2.0 %
Average social security tax 14.1 %
Funded plan assets are primarily invested as follows:
Governmental- or governmental guaranteed bonds app. 45.0 % Domestic and foreign shares app. 20.0 % Private marked loans, within 60 % of appraised loan value on real estate app. 20.0 % Real estate investments app. 10.0 % Short term investment app. 5.0 %
2. Net periodic pension cost recognized as expense for the periods presented.
1996 1995
Service cost component (502,282) (387,000) Interest cost component (1,147,845) (990,000) Actual return on plan assets for the period 1,891,196 1,715,000 Amortization of transitlongitude assets 196,640 197,000 Net total of other components 12,359 12,000 ________ ________ The net periodic pension cost (-) return (+) 450,068 547,000 ======== ======= 3. Funding status
Fair value of plan assets 28,282,035 26,286,000 Pension benefit obligations Projected benefit obligation (1,805,588) 0 Accumulated benefit obligation (18,349,040) (17,434,000) Vested benefit obligation 0 0 Amount of unrecognized prior service cost 0 0 Amount of unrecognized net gain or loss (348,487) (1,314,149) Amount of remaining unrecognized net obligations/ net assets existing at the date of initial application (201,087) (213,446) Amount of additional liabilities recognized pursuant to the minimum liabilities provisions 0 0 Rest revaluation of pension premium fund (102,628) (299,269) Amount of net pension asset recognized in the balance sheet. 7,475,205 7,025,136 ========= =========
6) Bank Indebtedness
The company has an overdraft facility of NOK 3,000,000. The company pays a commission on the total facility of 1%. Interest on the amount utilized is the banks prime rate + 0.5%. In addition, the bank is committed to lend the company up to NOK 3,000,000 in equivalent DEM amount until June 23, 1997. The interest rate is LIBOR +1.0%. These loan-facilities are secured on properties, plant and equipment, raw materials, work in progress and finished goods. Unused line of credit at December 31, 1996 was NOK 3,000,000 and NOK 3,000,000 at December 31, 1995.
7) Long-Term Debt
Long-term debt consist of: Interest Lender Security rate 1996 1995 1994
SND First mortgage 6.80% 4,591,667 5,075,000 5,558,333 (Buildings, machinery and equipment) _________ _________ _________
Mortgage loans as of December 31st 4,591,667 5,075,000 5,558,333
Repayment terms
1997 483,334 1998 483,334 1999 483,334 2000 483,334 2001 onwards 2,658,331
8) Paid-in Capital
The paid-in capital is as follows: Share in partnership NOK
Norsk Exolon AS, Orkanger 42.3285% 4,803,900 Orkla AS, Oslo 42.3285% 4,803,900 Orkla Exolon AS, Orkanger 15.3430% 1,741,300
100.0000% 11,349,100
9) Commitments and Contingent Liabilities
The Norwegian State Pollution Control Authority (SFT) has presented new environmental standards for the company .
Formally the new standards are to be approved by the Norwegian government before they are set into force which is expected to be executed in 1997.
The new standards will demand reductions in dust- and sulfur emission.
In order to retain future permission for sulfur, SO2 and dust emission the company has to meet the requirements from the government within a period of 5 year from formal approval of the new standards.
There are uncertainties connected to which technological methods to use to meet environmental requirements. The necessary future investments are preliminary estimated to NOK 35,000,000.
10) Unrecorded Adjustments
The adjustments shown below have been made to present the accompanying financial statements in accordance with US generally accepted accounting principles and Exolon ESK company accounting principles: Increase(+)/ decrease(-)in: Statement Retained of income earnings
1996 512,468 10,182,585 1995 16,579 9,670,117 1994 *) (56,955) 9,653,538 1993 (Change in N GAAP re. Acc. principles for pensions) (261,450) 1993 *) 766,758 9,971,943 1992 **) (9,667,305) 9,205,185
*) Differences in 1996 and 1995 is due to: Statement of income: 1996 1995 Effect of different depreciation rates 397,823 (392,421) Effect of different capital expenditures 0 200,000 Effect on accounting of pension per FASB 87 196,640 209,000 Effect on different loss/gain on disposal fixed assets (81,995) 0
512,468 16,579 Retained earnings: Inventory obsolescence (supplies) (1,282,000) (1,282,000) Benefit plan per FASB 87 (102,629) (299,268) Fixed assets 11,567,215 11,251,385 10,182,586 9,670,117
**)The decrease in difference between retained earnings per US GAAP and local books in 1992 is mostly due to change in Norwegian accounting principles
Valuation and Qualifying Accounts and Reserves Schedule II Realized Addition losses Balance charged on at to cost Balance accounts beginning and at end of receiv- Classifications of period expenses period ables
Year ended December 31,
Allowance for doubtful 266,000 77,000 343,000 0 accounts
Inventory supplies 1,282,000 - 1,282,000 - obsolescence
Year ended December 31,
Allowance for doubtful 380,000 (114,000) 266,000 6,570 accounts
Inventory supplies 1,282,000 - 1,282,000 - obsolescence
Year ended December 31,
Allowance for doubtful 343,000 37,000 380,000 57,260 accounts
Inventory supplies 1,282,000 - 1,282,000 - obsolescence
Pursuant to the requirements of Section 13 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.
March 24, 1997 EXOLON-ESK COMPANY
By
J. Fred Silver, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
J. Fred Silver, Michael H. Bieger, President and Chief Vice President - Executive Officer Finance and Chief Financial Officer
Theodore E. Dann, Jr. Chairman of the Board March 24, 1997
Brent D. Baird Director March 24, 1997
Craig A. Rogerson Director March 24, 1997
Dr. Bernhard G. Frank Director March 24, 1997
Dr. Hans Herrmann Director March 24, 1997
Patrick W.E. Hodgson Director March 24, 1997
EXHIBIT INDEX
Exhibit Description Reference No.
3A Certificate of Amendment of Exhibit 3A Restated Certificate of Incorporation dated April 30, 1997
3A(1) Certificate of Merger Exhibit 3A(1) to the report on Form 10-K for the year ended December 31, 1995*
3F Certificate of Amendment of Exhibit 3F to the report Restated Certificate of on Form 10-K for the Incorporation dated April year ended December 31, 23, 1986 1994*
3G Certificate of Amendment of Exhibit 3G to the report Restated Certificate of on Form 10-K for the Incorporation dated May 4, year ended December 31, 1987 1994*
3H Amendment of Certificate of Exhibit 3H to the Report Incorporation dated October on Form 10-Q for the 28, 1992 quarter ended September 30, 1992*
3I Restated Bylaws containing Exhibit 3I all previous amendments adopted
4 Instruments Defining Rights Articles of of Security Holders Incorporation, Exhibits 3A, and Exhibits 3F and 3G to the Report on Form 10-K for the year ended December 31, 1994*
10D(23) Revolving Credit Agreement Exhibit 10D(23) to the dated December 22, 1992 Report on Form 10-K for the year ended December 31, 1992*
10D(23)A Amendment Credit Agreement Exhibit 10D(23)A dated December 1, 1996
10D(24) Industrial Revenue Bond Exhibit 10D(24) to the Agreement dated January 1, Report on Form 10-K for 1993. the year ended December 31, 1992*
10D(25) Industrial Revenue Bond Exhibit 10D(25) Loan Agreement dated December 1, 1996
10D(26) Building Loan Agreement Exhibit 10D(26) dated December 1, 1996
10F Stockholder's Agreement Exhibit 10F to the dated as of April 26, 1984 report on Form 10-K for between the Registrant and the year ended December Wacker Chemical Corporation 31, 1995*
10G Restated License Agreement Exhibit 10G to the dated as of April 26, 1984 report on Form 10-K for among Elektroschmelzwerk the year ended December Kempten GmbH, ESK 31, 1995* Corporation and the Registrant
10H Distributorship Agreement Exhibit 10H to the dated April 27, 1984 report on Form 10-K for between Elektroschmelzwerk the year ended December Kempten GmbH and the 31, 1995* Registrant
10I Indemnification Agreement Exhibit 10I to the dated as of December 15, report on Form 10-K for 1984 between Wacker the year ended December Chemical Corporation and 31, 1995* the Registrant
10M Federal Indictments dated Exhibit 10M to the February 11, 1994 Report on Form 10-K for the year ended December 31, 1993*
11 Statement of computation of Exhibit 11 per share earnings
22 Subsidiaries of the Exhibit 22 Registrant 27 Financial Data Schedule Submitted electronically
* Incorporated herein by reference.