-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, jRElRtgmk2Oe1HSlG8D2dAra4KffpW02oRJFLXz7PWMgD7wCF0A10BH15ViTbleh n/FlhuaVvCx4g+cQD2iauA== 0000899243-94-000124.txt : 19940503 0000899243-94-000124.hdr.sgml : 19940503 ACCESSION NUMBER: 0000899243-94-000124 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19940131 FILED AS OF DATE: 19940502 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROLER INTERNATIONAL CORP CENTRAL INDEX KEY: 0000080693 STANDARD INDUSTRIAL CLASSIFICATION: 3312 IRS NUMBER: 741051251 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05276 FILM NUMBER: 94525666 BUSINESS ADDRESS: STREET 1: 4265 SAN FELIPE SUITE 900 CITY: HOUSTON STATE: TX ZIP: 77027 BUSINESS PHONE: 7136273737 MAIL ADDRESS: STREET 1: 4265 SAN FELIPE STREET 2: STE 900 CITY: HOUSTON STATE: TX ZIP: 77027 FORMER COMPANY: FORMER CONFORMED NAME: PROLER STEEL CORP DATE OF NAME CHANGE: 19740129 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 31, 1994 COMMISSION FILE NO. 1-5276 PROLER INTERNATIONAL CORP. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 74-1051251 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 4265 SAN FELIPE, SUITE 900 77027 HOUSTON, TEXAS (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) COMPANY'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 627-3737 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Stock, $1.00 par value per share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No ------ ------ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ((S) 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] State the aggregate market value of the voting stock held by non-affiliates of the registrant 60 days prior to the date of filing. Based on last sale on April 22, 1994: $33,366,000 Indicate the shares outstanding of each of the registrant's classes of common stock, as of the close of the latest practicable date. COMMON STOCK, $1.00 PAR VALUE 4,710,960 - ------------------------------- --------- (TITLE OF CLASS) (NUMBER OF SHARES OUTSTANDING)
DOCUMENTS INCORPORATED BY REFERENCE: Proxy statement for the Company's 1994 Annual Meeting of Stockholders is incorporated by reference into Part III of this report. P A R T I ITEM 1. BUSINESS. (A) CURRENT DEVELOPMENTS Proler International Corp. (the "Company") is primarily engaged, directly and through its wholly-owned subsidiaries and 50 percent or less-owned joint operations, in buying, processing and selling ferrous and other scrap metals. With the asset sales of certain domestic scrap operations discussed below, the Company's principal scrap processing business will be conducted through its joint operations, which primarily make export sales. In general, the joint operations are structured so that policy decisions require the unanimous consent of the participants. As a result, the Company's control over the joint operations is limited and must be exercised in concert with its partners in those operations. The Company accounts for the joint operations under the equity method of accounting. During fiscal 1994, the joint operations had a significant increase in export sales prices and tonnage sold resulting in equity earnings to the Company of $2.8 million compared to an equity loss in fiscal 1993 of $5.7 million. Such equity earnings in fiscal 1994 were reduced in the fourth quarter of the year due to higher inventory buying prices combined with lower sales volumes as compared to the prior quarter, higher repair and maintenance expenses and certain litigation settlement costs. Gross tons of scrap metal inventories in the joint operations were reduced to 418,000 tons at the end of the year from 781,000 tons as of the beginning of the year. The Company's consolidated results of operations improved in fiscal 1994 (primarily from the improvement in the joint operations) as the net loss narrowed to $2.3 million from losses of $9.9 million in fiscal 1993 and $16.3 million in fiscal 1992. The Company repaid all of its remaining bank debt during the year and working capital increased to $12.3 million at January 31, 1994 from $7.1 million at January 31, 1993. The bank debt was repaid over the past two years primarily by using the proceeds from asset sales and the liquidation of inventories in the Company's joint operations. In fiscal 1993 the Company sold its Houston scrap processing facility and its 50 percent interest in one of its joint operations, Maru Shipping Company, Inc. In fiscal 1994, the Company and its partner sold substantially all the assets of the 50 percent owned scrap processing operation, Prolerized Chicago Corporation. Subsequent to January 31, 1994, the Company also sold the assets of the Kansas City, Kansas and Vinton, Texas scrap processing facilities. Certain real estate holdings and other nonoperating assets are currently for sale. With the divestitures of the domestic scrap operations discussed above, the Company's remaining revenues will be derived from the three plants that are collectively involved in the sale of precipitation iron, low residual steel and tin. These plants are located in Coolidge, Arizona, Lathrop, California and Seattle, Washington (collectively, "Western Operations"). Revenues from the Western Operations were $13.7 million, $13.3 million and $11.6 million in fiscal 1994, 1993 and 1992, respectively. The Company continues to implement the business plan described in its 1993 Annual Report on Form 10-K with the goals of restructuring, selling or otherwise disposing of certain underperforming and unproductive assets, and supplementing its core commodity metals business by investing in technologies that profit from processing and recycling waste materials. The Company believes that if it is successful in implementing this business plan, it will be able to make a transition from its current participation in the highly cyclical scrap processing business primarily through joint operations over which it exercises 1 limited control, to a recycling company engaged in environmental services and metals recovery with majority control over its significant assets. During fiscal 1994, there were several accomplishments toward fulfilling the plan in addition to completing the asset sales discussed above. In fiscal 1994 the Company, with its joint operation partners, reduced inventories in the joint operations to more appropriate levels. The Company also recorded operating profits at all of its wholly-owned plants and most of the plants in the joint operations. In October 1993, the Company's credit facilities were amended, resulting in greater flexibility to capitalize on business opportunities. Further, the Company continued to develop and test new waste processing and recovery technologies through its subsidiaries, Proler Environmental Services, Inc. ("Proler Environmental") and Proler Recycling, Inc. ("Proler Recycling"). Proler Environmental's gasification technology uses a thermal conversion process to recycle hydrocarbon and cellulose-based wastes to produce a synthesis gas suitable for sale to industrial users and utilities. The residual ash produced by this process also has potential commercial uses, or may be disposed of as a non-hazardous waste. This technology is being developed by Proler Environmental as a joint project with a major Mexican steel company and is the subject of a pending patent application. The Company has successfully tested the process at its 50 ton per day demonstration plant in Houston, Texas, on automobile shredder residue, tires, cardboard/paper sludge, municipal solid waste and other industrial wastes. The Company is currently assessing the opportunities for and feasibility of various commercial applications of the gasification process, and is having discussions with several companies which may lead to the construction of a 500 ton per day gasification plant. In the event an agreement for the construction of such a gasification plant is consummated in the near future, the Company does not anticipate completion of such a plant until 1996 given the lead time required for construction, permitting and other matters. Management believes that the Company's participation in gasification projects could eventually become a significant part of its future operations. Proler Recycling, headquartered near Coolidge, Arizona, continues to identify and enter new businesses for metals recovery, particularly tin and copper recovery. During fiscal 1994, Proler Recycling sourced additional tin and copper bearing waste material for feedstock. The Company has budgeted capital expenditures in fiscal 1995 of $6 million for plant and equipment to expand its metals recovery business. In addition, the Company may make one or more acquisitions in fiscal 1995 to supplement and expand its metals recovery business. (B) GENERAL DEVELOPMENT OF BUSINESS The Company was incorporated in Texas in 1947 as the successor to a scrap business originally founded by the late Ben and Rose Proler in 1925, and changed its state of incorporation to Delaware in 1966. As noted above, the Company is primarily engaged in buying, processing and selling ferrous and other scrap metals. The Company developed a process (the "Proler Process") which converts bulky and impure scrap into a high purity steel scrap ("Prolerized Scrap") possessing the additional desirable characteristics of homogeneity, high density, uniform size and consistent quality. The Company also processes low- grade ferrous scrap into premium quality scrap for use as a raw material in the production of iron and low residual steel, and into precipitation iron for use in the production of copper. Additionally, the Company recovers and sells certain non-ferrous metals, including zinc, copper, aluminum, brass and tin. Historically, as Prolerized Scrap operations expanded geographically, the Company followed a policy of entering into either corporate or unincorporated joint operations ("joint operations") with scrap operators in various areas. By so doing, the Company was able to capitalize upon its co-venturer's 2 established relationships with suppliers of raw materials, reduce its capital commitments with respect to each plant, and make use of existing regional sales organizations. The Company granted each joint operation an exclusive royalty-free license to use the Proler Process (including any improvements, refinements and additions thereto) and the trademark "Prolerized" within a designated area of operations. Under the Company's joint operation agreements, the transferability of each co- venturer's interest is restricted, and the unincorporated joint operations require unanimous approval of the partners on all policy decisions. With the sale of the Company's domestic operations described above, the Company's Prolerized Scrap business will be conducted through the joint operations, which are involved in selling primarily to foreign markets. The Company's Western Operations produce low residual steel and precipitation iron, which is sold to domestic markets. The following table lists the facilities operated by the Company and its joint operations during fiscal 1994 and the type of material processed by location: CONSOLIDATED FACILITIES TYPE OF MATERIAL PROCESSED ----------------------- -------------------------- Kansas City, Kansas (1) Prolerized and non-ferrous Vinton, Texas (2) Prolerized and non-ferrous Coolidge, Arizona Low residual ferrous, precipitation iron, tin Lathrop, California Precipitation iron Seattle, Washington Low residual ferrous, tin JOINT OPERATION FACILITIES TYPE OF MATERIAL PROCESSED -------------------------- -------------------------- Los Angeles, California Prolerized, other ferrous, and non-ferrous Boston, Massachusetts Prolerized, other ferrous, and non-ferrous Chicago, Illinois (3) Prolerized and non-ferrous Worcester, Massachusetts Prolerized and non-ferrous Jersey City, New Jersey Prolerized and non-ferrous Queens, New York Prolerized Newark, New Jersey Other ferrous Providence, Rhode Island Other ferrous - ------------ (1) Sold in February, 1994 (2) Sold in April, 1994 (3) Sold in October, 1993 3 The following table shows selected financial information for the Company's share of its joint operations; the Company-operated scrap operations; and Western Operations (in thousands):
For the years ended January 31, -------------------------------- 1994 1993 1992 -------- ------- ------- Share of Joint Operations - ------------------------- Net sales................................................. $142,197 $92,419 $99,616 ======== ======= ======= Gross profit (loss)....................................... $ 6,037 $ (337) $ 376 ======== ======= ======= Gross tons shipped........................................ 1,212 950 884 ======== ======= ======= Company Operated Scrap Operations (1) - ------------------------------------- Net sales................................................. $ 29,983 $50,578 $99,250 ======== ======= ======= Gross profit (loss)....................................... $ 318 $ (925) $(2,017) ======== ======= ======= Gross tons shipped........................................ 220 378 755 ======== ======= ======= Western Operations - ------------------ Net sales................................................. $ 13,723 $13,264 $11,640 ======== ======= ======= Gross profit (loss)....................................... $ 719 $ 850 $(1,074) ======== ======= ======= Gross tons shipped........................................ 105 104 88 ======== ======= =======
- ------------ (1) Company operated scrap operations include the Houston and Vinton, Texas and the Kansas City, Kansas facilities. The Houston scrap operation was sold in July, 1992. The Company sold the Kansas City plant in February, 1994 and the Vinton plant in April, 1994. (C) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The Company considers itself to be engaged in a single industry segment, the processing of metals for recycling and activities incidental thereto. The following table presents financial information about the Company's consolidated sales, gross profit (loss) from operations, net operating losses before other income and expenses and federal income tax, and identifiable assets for the last three fiscal years, excluding the Company's joint operations (dollars in thousands):
FOR THE YEARS ENDED JANUARY 31, --------------------------------- 1994 1993 1992 --------- ---------- ---------- Consolidated sales to unaffiliated customers(1).. $43,706 $63,842 $110,890 Gross profit (loss) from operations.............. 1,037 (75) (3,091) Net operating loss............................... 3,501 7,620 11,974 Identifiable assets.............................. 36,471 33,467 53,661
- ----------- (1) Consolidated net sales include $24,448 and $57,354 in fiscal 1993 and 1992, respectively, attributable to the Houston facility which was sold in July, 1992. 4 (D) NARRATIVE DESCRIPTION OF BUSINESS. PRINCIPAL PRODUCTS. The following table shows the percentages of the Company's total sales(1) accounted for by its major product lines during each of the last three fiscal years:
FOR THE YEARS ENDED JANUARY 31, ---------------------------------- PRODUCT LINE 1994 1993 1992 - --------------------- ---------- ---------- ---------- Prolerized Scrap..... 50% 46% 43% Other Ferrous Scrap.. 39 35 38 Precipitation Iron... 6 8 5 Non-Ferrous Scrap.... 4 8 9 Other................ 1 3 5
- ---------- (1) The term "total sales" as used in this Report refers to net sales of the Company and its consolidated subsidiaries combined with the Company's share of the net sales of each joint operation in which it owns an interest. The Company's share of the earnings of the joint operations is accounted for in the Company's Consolidated Statement of Operations using the equity method of accounting. Net sales refers to gross sales less shipping and selling expenses. The following table shows the percentage change in volume of tons shipped of the Company's total volume shipped(1) accounted for by its major product lines during each of the last three fiscal years:
FOR THE YEARS ENDED JANUARY 31, ---------------------------------- 1994 1993 1992 VS. VS. VS. PRODUCT LINE 1993 1992 1991 - --------------------- ---------- ---------- ---------- Prolerized Scrap..... 8% (7)% (9)% Other Ferrous Scrap.. 11 (29) (8) Precipitation Iron... (19) 21 10 Non-Ferrous Scrap.... 22 (21) 32 Other................ (90) 42 (35)
- ---------- (1) The term "total volume shipped" as used in this Report refers to gross tons (2,240 pounds) shipped by the Company and its consolidated subsidiaries combined with the Company's share of the tons shipped of each joint operation in which it owns an interest. The total volume shipped for each of the fiscal years ended January 31, 1994, 1993 and 1992 was approximately 1,537,000, 1,432,000 and 1,727,000 tons, respectively. Excluding the 206,000 tons shipped from the Houston, Texas plant in fiscal 1993, the 25 percent increase in tonnage shipped in fiscal 1994 is attributable to an increase in export sales in the joint operations due to improved market conditions. The Company's Prolerized Scrap plants, precipitation iron plants and detinning plants, as well as its other ferrous scrap and non-ferrous scrap operations, have adequate capacity to meet any foreseeable increase in demand for its products. The product mix sold by the Company is determined primarily by the type of scrap available for purchase by the Company and the demand for such scrap in the Company's selling markets. 5 The Company does not determine contribution to gross profits by its various product lines, which necessarily would involve a number of arbitrary cost allocations. However, it can generally be stated that, while gross profit margins vary between the product lines and from year to year, gross profit margins historically have been higher on Prolerized Scrap than on precipitation iron and other ferrous and non-ferrous scrap. See Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations." PROLERIZED SCRAP. The scrap industry supplies one of the basic raw materials used in the production of iron and steel. The furnaces which are used to produce iron and steel are charged with iron and scrap steel ("ferrous scrap") or with pig iron, which is produced from smelting iron ore in a blast furnace, or with a combination of ferrous scrap and pig iron or hot metal. The proportion of ferrous scrap used to make iron and steel varies, depending upon the type of furnace used, the specifications of the end product desired, the relative costs of ferrous scrap and pig iron to the steel makers, and other considerations. In recent years mini-mills, which predominantly operate electric furnaces and primarily use ferrous scrap as a raw material, have become increasing users of ferrous scrap. Proler Process. In this process, scrap automobiles and other ferrous scrap are conveyed into a specially designed hammer mill that fragmentizes the scrap into small pieces which are cleaned and separated into their ferrous and non- ferrous metal components and automobile shredder residue. The ferrous components are processed into small, fist-sized pieces of Prolerized Scrap, which is either inventoried for later shipment or shipped directly via rail, barge or ocean-going vessel to iron and steel mills or foundries. The non- ferrous metal components are sold to a variety of customers. Automobile shredder residue is disposed of in landfills or used as interim landfill cover. Plants and Joint Operations. The Company has completed the disposition of its domestic Prolerized scrap plants as follows: the Houston plant was sold in July 1992; the Kansas City plant was sold in February, 1994 and the Vinton plant was sold in April, 1994. See Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations". The Company, through its joint operations, also operates five additional Prolerized Scrap plants in the United States. The locations are as follows: Los Angeles, California; Boston (Everett) and Worcester, Massachusetts; Jersey City, New Jersey; and Queens, New York. The Company and its partner sold substantially all of the assets of its 50 percent owned Chicago, Illinois plant in October, 1993. See Note 5 to the Consolidated Financial Statements. Sales. Prolerized Scrap produced at the Company's Houston, Vinton and Kansas City plants was sold to domestic steel producers. Most of the Prolerized Scrap produced at the Los Angeles, Boston, Jersey City, Queens, and Worcester plants is sold to foreign customers. Approximately 71% and 54% of the Company's total sales, including the Company's share of joint operation sales, were to foreign customers during fiscal 1994 and 1993, respectively. Sources of Supply. Raw material for the Proler Process, consisting primarily of scrap automobiles, is purchased on a day-to-day basis from a large number of suppliers, including automobile salvage yards, scrap dealers and truckers. Certain of the joint operations make significant purchases from a few large suppliers. While the joint operations are not dependent on any single source of supply, the loss of a large supplier could cause prices paid for raw materials from other suppliers to increase and at some locations could also cause a reduction in the volume of raw materials available. Accordingly, the loss of a large supplier could have a material adverse effect on the business of the joint operation affected. 6 LOW RESIDUAL STEEL AND PRECIPITATION IRON. Low residual scrap steel generated from the Company's Western Operations is used in making high quality steel. The Company developed a continuous detinning operation initially for the production of precipitation iron. Precipitation iron is used in one of the processes by which copper is extracted from low grade ore. The Company produces both low residual scrap steel and precipitation iron from tin plated steel can clippings, reject cans from can manufacturers and recycled tin cans. This process, which incorporates many of the techniques used in the Proler Process, converts these raw materials into a loosely shredded, relatively pure ferrous scrap suitable for use as feedstock for detinning operations or as precipitation iron in the production of copper. The detinned material can also be baled into low residual bundles consumed by the steel industry to produce various forms of quality steel. In 1990 the steel industry began using steel scrap from container manufacturers before detinning. This resulted in the erosion of one of the Company's markets for detinned scrap and contributed to the abandonment of the Company's detinning operation in Houston during fiscal 1991 and the cessation of detinning at the Company's Coolidge location in the fourth quarter of fiscal 1994. Plants and Sales. The Company presently owns and operates two precipitation iron plants located in Coolidge, Arizona, and Lathrop, California. Detinning operations are conducted at the Seattle plant. Substantially all of the Company's sales of precipitation iron are made under contracts with three major domestic copper producers calling for the sale of a minimum number of tons per month at prices which are determined in relation to certain prevailing scrap prices. Precipitation iron is shipped to customers via truck and rail. The development of processes for producing copper from low grade ore which does not require the use of precipitation iron has reduced demand for sales of precipitation iron. The sales of low residual scrap steel are made to a variety of steel mills and foundries located throughout the country. Sources of Supply. The Company's principal supply of raw material for the production of precipitation iron and low residual scrap is from scrap generated in the manufacture of metal cans and containers. Most of this scrap is purchased directly from container manufacturers. The Company also acquires used cans from municipal waste processors and various scrap dealers. The Company is not dependent upon any single source of supply. The following table shows the gross tons of precipitation iron and low residual scrap steel sold in the Company's Western Operations:
FOR THE YEARS ENDED JANUARY 31, ------------------------------- 1994 1993 1992 ---- ---- ---- Precipitation iron.................. 76,967 76,992 64,280 Low residual scrap steel............ 27,900 28,505 23,809
OTHER FERROUS SCRAP. The Company, through its joint operations, operates four other ferrous scrap plants in Los Angeles, Boston, Newark and Providence. These plants prepare to customers' specifications various grades of ferrous scrap other than Prolerized Scrap, primarily heavy melting and premium grades, for sale to steel producers and foundries. Processing of this type of scrap consists principally of cleaning, sorting and crushing or cutting the scrap into pieces of proper size which are then inventoried for future shipment or shipped directly principally via rail, barge or ship. The major sources 7 of this type of scrap are industrial manufacturing plants, railroads and scrap dealers. Competition to buy this scrap is significant, with the price paid being the most significant competitive factor. NON-FERROUS SCRAP. The non-ferrous metals recovered by several of the Prolerized Scrap plants are processed at facilities in Los Angeles, Jersey City, Boston, Worcester and were previously produced at Vinton and Kansas City. The non-ferrous metal scrap is cleaned and mechanically segregated according to its principal metallic components and shipped to a variety of customers via truck. NON-FERROUS METAL RECOVERY. The Company's Coolidge and Seattle locations also include operations from which tin metal is recovered from the recycling of industrial waste solutions and precipitates. These activities, albeit nominal in the past, are expected to increase in nature and scope in the future. See "Research". The volume of tin pounds sold during fiscal 1994, 1993, and 1992 was 361,300, 427,800 and 310,600, respectively. RAW MATERIALS AND INVENTORY. See "Sources of Supply" above under: "Prolerized Scrap", "Low Residual Steel and Precipitation Iron", and the general discussion under "Other Ferrous Scrap" and "Non-Ferrous Scrap". TRADEMARKS. The Company owns several registered trademarks. While the Company regards these trademarks to be of value, it does not consider its business dependent upon them. WORKING CAPITAL. The Company's working capital needs are generally satisfied through funds generated from operations, distributions from joint operations and short-term borrowings. As of January 31, 1994, the Company had $12.3 million of net working capital. SIGNIFICANT CUSTOMERS. As discussed in Note 10 to the consolidated financial statements and Note 7 to the combined financial statements of the Company's joint operations, the Company and its joint operations have significant customers. The significant customers referred to in Note 10 are associated with operations which the Company has sold. See Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations." BACKLOG. The Company and some of its customers routinely enter into scrap contracts which require delivery of scrap over a period of time. Sales are generally made on a month-to-month or individual order basis. At any point in time the Company may have unfilled commitments with respect to these contracts which will be filled in the normal course of business. At January 31, 1994 the Company had no significant unfulfilled orders. GOVERNMENT BUSINESS. The Company does not contract with the U.S. Government and does not have any contracts subject to renegotiation. COMPETITION. All facets of the business in which the Company is engaged are highly competitive and are characterized by cyclical fluctuations in profitability depending upon the availability and price of raw scrap and the demand and prices for scrap in the iron and steel industries and in the copper and other non-ferrous metals industries. In addition, the level of profitability of the Company's operations is affected by work stoppages or other events involving the relatively few customers in the industries to which the Company sells its products. Competitive forces facing the Company are further complicated by the fact that a number of the Company's principal customers also conduct scrap supply operations, which provide an internal source of supply. As a result, particularly when the end users' output decreases, much of their requirements for scrap may be filled by related party sources. 8 In purchasing its raw scrap and in selling its products, the Company competes with a large number of other scrap dealers and brokers, some of which have greater financial and other resources than the Company, and many of which are small firms operating locally. Competition in the business of the Company involves geographical location of plant, reliability of service and product quality. Prolerized Scrap is sold in connection with other forms of ferrous scrap. While it is a premium, high grade scrap, there are competing processes which also produce a high grade of scrap. Research has been and is currently being conducted by others to develop methods for producing copper from low grade ore which would not require the use of precipitation iron, and several such processes have been developed and are technically feasible. Technological changes in the production of copper could further affect future demand for the Company's products. Foreign sales are subject to additional factors such as foreign exchange regulations, availability of ships and local laws governing the conduct of business in the countries where such sales are made. RESEARCH. The Company continuously updates and improves its operating facilities and processes as technological advances are made. The Company's wholly owned subsidiary, Proler Environmental, has developed and tested a gasification technology which uses thermal conversion to recycle hydrocarbon and cellulose-based wastes to produce a synthesis gas suitable for sale to industrial users and utilities. The residual ash produced by this process also has potential commercial use, or may be disposed of as a non- hazardous waste. This technology was developed by Proler Environmental as a joint project with a major Mexican steel company and is the subject of a pending patent application. The Company has successfully tested the process at its 50 ton per day demonstration plant in Houston, Texas on automobile shredder residue, tires, cardboard/paper sludge, municipal solid waste and other industrial wastes. The Company is currently assessing the opportunities for and feasibility of various commercial applications of the gasification process, and is having discussions with several companies which may lead to the construction of a 500 ton per day gasification plant. The commercial potential of this process will depend on a number of factors, including the amount of capital investment required for site acquisition and construction, which is expected to be significant; the ability to charge tipping fees for waste materials sufficient to earn an adequate return on investment; the availability of long-term sources of suitable waste materials; the ability to economically dispose of the residual ash or convert it to usable purposes and local demand for the synthesis gas produced by the process. Management initially estimates that costs for a 500 ton per day gasification plant could range from $10 million to $20 million. Such a plant could be constructed as a stand-alone facility or in tandem with a cogeneration plant or integrated into a manufacturing operation to continuously recycle processed wastes into reusable feedstock and energy. In the event an agreement for the construction of such a gasification plant is consummated in the near future, the Company does not anticipate completion of such a plant until 1996 at the earliest, given the lead time required for construction, permitting and other matters. Management believes that the Company's participation in gasification projects could eventually become a significant part of its future operations. During fiscal 1994, 1993 and 1992 Proler Environmental expended approximately $1.3 million, $1.1 million and $1.1 million, respectively, in connection with the acquisition and development of equipment. Proler Environmental also incurred $0.2 million of research and development expenses during fiscal 1994, exclusive of overhead incurred by the parent company. Proler Recycling (formerly Proler Elemental Refining, Inc.) is a wholly owned subsidiary of the Company formed in fiscal 1992 and is engaged in exploring methods of recovering metals from industrial wastes. Its mission is to identify and enter new businesses for metals recovery, particularly in the areas 9 of tin and copper recovery. The Company expended approximately $0.4 million on research activities during fiscal 1994 and approximately $0.2 million during each of fiscal 1993 and fiscal 1992. Additionally, the Company expended approximately $0.4 million on capital projects associated with these operations in fiscal 1994. Due to these successful research activities, the Company intends to expand its operations related to the recycling of metal-bearing wastes during fiscal 1995, and has budgeted capital expenditures for a new plant and equipment (exclusive of any potential acquisitions) of $6 million for this purpose. ENVIRONMENTAL MATTERS. Certain materials resulting from the operations of the Company and its joint operations must be handled consistent with various federal and state environmental laws and regulations. As with any business that produces significant amounts of industrial wastes, the Company could face substantial additional costs if past or present disposal practices would no longer be deemed acceptable by the Environmental Protection Agency ("EPA") or state regulatory agencies. In addition, the Company's business could be adversely affected if its methods of processing various materials were found to be in violation of such laws and regulations. The Company and its joint operations can also be required from time to time to clean-up sites now or formerly used in their operations. See further discussion herein and in "Item 3 - - Legal Proceedings", "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 8 to the consolidated financial statements. A principal source of metals reclaimed by the Prolerized Scrap plants is the shredding of automobiles. Presently automobile shredder residue ("ASR") produced in these operations constitutes approximately 20% of the scrap weight of each automobile shredded, and is likely to increase as car manufacturers continue to replace metal parts. The EPA and states such as Massachusetts and California have their own testing protocols to determine whether a waste is hazardous and must be managed as such. To date, however, tests of ASR generated by the Company and its joint operations indicate that levels of lead, cadmium and other contaminants covered by the regulations have generally been within acceptable levels under EPA and applicable state regulations. Pending further study, the EPA has recognized, based on its study of potential contamination of shredder residue at seven shredder sites, that well- managed shredder operations conducted in an environmentally sound manner provide environmental benefits. The Company and its joint operations have implemented supplier education efforts, source control, inspection and testing programs to identify and reduce the sources of lead and certain other heavy metals in ASR. Incoming material is inspected to ensure that the most probable sources of such materials are removed from automobiles before arriving at the plants. Fuel tanks, exhaust systems, leaded wheel weights and batteries are removed prior to shredding. The Company and its joint operations have also taken certain steps to eliminate from the materials they process capacitors contained in obsolete household appliances ("white goods") often shredded along with automobiles. Such capacitors are considered by the Institute of Scrap Recycling Industries to be a likely source of polychlorinated biphenyls ("PCB's") in ASR. The Company continues to evaluate additional methods of reducing levels of heavy metals, PCB's and other contaminants in ASR. Should laws and regulations covering hazardous wastes or toxic substances apply to the handling of ASR as a result of the levels of heavy metals, PCBs and other contaminants, the Company could incur substantial expense in so handling ASR. Even absent such a determination, in recent years the Company and its joint operations incurred significant expenditures to dispose of ASR as landfill fees for this material increased. It should be noted, however, that in certain plant locations, such landfill fees have decreased significantly in fiscal 1994. See "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations." Hugo Neu-Proler Company ("HNP"), a 50% owned joint operation of the Company, is involved in discussions with the Port of Los Angeles (the "Port") and the California Regional Water Quality 10 Control Board (the "RWQCB") concerning proposals for remediation by HNP of certain environmental conditions at that location. HNP and the Port have also been negotiating a renewal of the Company's lease, which is due to expire on August 30, 1994. The Port is in the completion stages of developing an Environmental Impact Report of HNP activities and site conditions in connection with the lease renewal. Under the current lease, HNP would be responsible for remediating certain environmental conditions on the property caused by HNP, the extent and cost of which are uncertain. Currently, HNP estimates that it will incur capital expenditures of a minimum of $4.0 million to $5.0 million in connection with environmental control facilities at the Terminal Island location over the next six-year period. In December, 1992, HNP signed a Memorandum of Understanding with the Port relating to the lease renewal and in fiscal 1994 provided letters of credit totaling $7.9 million ($3.95 million each from the Company and HNP's other owner) to secure HNP's remediation obligations under the lease. HNP is required to provide additional letters of credit and/or incur additional costs of up to $2.0 million (or $1.0 million by each joint owner) in connection with such environmental obligations by September, 1994. HNP has accrued approximately $1.0 million to cover the costs of anticipated remediation at this site. Prior to 1988, the Company operated a metals reclamation and shredding facility on a 13-acre property leased from an unrelated third party in Copperton, Utah. The Company has learned that the EPA has recently identified this property as an "Other Potential Source Area" within the boundaries of the Kennecott (South Zone), an approximate 37-square mile site which has been proposed for listing on the National Priorities List. The Company has incurred approximately $550,000 to remediate this site in late 1993 and early 1994, which amount has been expensed in fiscal 1994. Management is unable to determine at this time the Company's exposure, if any, to claims or actions stemming from the EPA's proposal. The Company anticipates making $2.4 million in capital expenditures for environmental control facilities during fiscal 1995, including those in connection with the Terminal Island facility. Changes in environmental laws and regulations and their interpretation might require the Company or its joint operations to install additional environmental control equipment and to implement additional compliance procedures. EMPLOYEES. As of January 31, 1994, the Company and its consolidated subsidiaries employed 148 people including 53 employed at the Kansas City and Vinton plants. At the same date, the joint operations employed 379 employees. (E) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES. The Company is primarily selling to domestic markets and the joint operations are primarily selling to international markets. The Company made export sales, exclusive of its share of export sales of the joint operations, of $472,000 in fiscal 1992 and none in fiscal 1993 and 1994. 11 The table below summarizes for the last three fiscal years the Company's export sales by geographical area, inclusive of its share of the export sales of each joint operation in which it owns an interest (dollars in thousands):
FOR THE YEARS ENDED JANUARY 31, ------------------------------------------- 1994 1993 1992 ----------- ------------ ------------ To Customers in Europe................. $ -- $ 1,854 $ 3,541 To Customers in the Far and Near East.. 122,086 79,712 84,485 To Customers in Mexico................. -- 795 2,272 To Customers in South America.......... 3,044 1,751 2,458 To Customers in Canada................. 4,961 104 69 To Other Export Customers.............. 2,003 299 -- ----------- ------------ ------------ Total Export Sales..................... $132,094 $84,515 $92,825 =========== ============ ============
Item 2. Properties. The Company's executive offices at 4265 San Felipe, Suite 900 in Houston, Texas occupy 8,500 square feet of leased space. The Company owns approximately 167 acres of land on the Houston, Texas ship channel utilized as the site for Proler Environmental's activities and a nearby 36-acre tract of land previously used in connection with operations at its Houston plant. The five remaining Prolerized Scrap plants are each owned by a joint operation in which the Company or a consolidated subsidiary has an interest. In addition to a Prolerized Scrap plant, these sites include extensive facilities for sorting, handling and processing scrap. The approximate size of each site used by the Company's joint operations and the expiration date of any lease for each are listed separately below:
LOCATION SIZE EXPIRATION DATE OF LEASE -------- ---- ------------------------ Los Angeles, California... 4 acres 02/14/99 Los Angeles, California... 22 acres 08/30/94 (1) Boston, Massachusetts..... 29 acres Property owned(1) Jersey City, New Jersey... 55 acres Property owned(1) Newark, New Jersey........ 16 acres Under negotiation Queens, New York.......... 5 acres Property owned(1) Worcester, Massachusetts.. 21 acres Property owned(1) Providence, Rhode Island.. 16 acres 12/31/99 Providence, Rhode Island.. 6 acres 12/31/99
- --------------- (1) Prolerized Scrap Plant Operation. The Company has been notified that a portion of the Worcester, Massachusetts property owned by one of its joint operations may be taken by eminent domain in order to extend a state highway. The Company owns both of its precipitation iron plants. The plants at Coolidge, Arizona and Lathrop, California are on approximately 80 acres and 15 acres of land, respectively. The Company's Seattle, Washington low residual ferrous and detinning plant is located on approximately two acres of leased land. In addition to the above, the Company owns approximately 171 acres in various parts of the country which are not used in current operations. The Company also holds the 13-acre tract of land on which the Copperton, Utah plant was located under a lease which expires September 30, 1995. In 12 addition, the joint operations own or lease industrial property which is being used for feeder yards or will be used for expansion of facilities. The management of the Company believes that all of the plants operated by the Company or by its joint operations are equipped and maintained to adequately support the present operations at such plants, and are served by transportation and other facilities adequate to permit efficient operation. ITEM 3. LEGAL PROCEEDINGS. As reported in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1992, HNP has been involved in discussions with the RWQCB regarding a cleanup and abatement order issued administratively by the RWQCB on May 15, 1991. HNP and the RWQCB have agreed on certain procedures and a timetable to implement corrective actions to abate the effects of emissions allegedly containing elevated levels of PCB's, which the order alleges have been discharged into the Los Angeles Harbor from HNP's Terminal Island facility. HNP has implemented the corrective action programs in compliance with an agreed upon timetable. If these corrective actions are successful, the RWQCB has informed HNP the order will be rescinded. As reported in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1992, the Company and Herman Proler, individually, have been named as defendants in a case styled Richard Neu v. Hugo Neu & Sons, Inc., pending in the United States District Court for the Central District of California, No. CV-90 0551 WDK (Kx). This case was filed by Richard Neu against Hugo Neu & Sons, Inc. ("HNS"), HNP, the Company, Herman Proler and certain officers and directors of HNS. The plaintiff alleges causes of action arising out of his termination in December, 1988 as general manager of HNP. On April 22, 1993, the Company entered into an agreement with the plaintiff under which the Company would pay plaintiff a total of $450,000 in settlement of this matter, of which at least $175,000 would be covered by the Company's insurance. The settlement agreement with the Company is contingent upon the implementation of a further settlement agreement between the plaintiff and certain other defendants which requires parties other than the Company to obtain certain tax rulings and court approvals on matters unrelated to the Company. Trial is currently set for November 15, 1994. The Court has granted several continuances to permit the implementation of the settlement and it is anticipated that the court will continue to do so in the future if necessary. As reported in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1992, the Company and HNP were parties in a lawsuit styled Proler International Corp. v. Pick-Your-Part Auto Wrecking, Inc. et al in the 165th Judicial District Court, Harris County, Texas. This case was originally brought by the Company on March 24, 1988 against Pick-Your-Part ("PYP") and others for damages arising out of violations of a 1984 Sales Agreement requiring PYP to sell certain scrap materials to the Company and HNP. PYP filed certain counterclaims against the Company and HNP alleging breach of contract, breach of duties of good faith and fair dealing and fraud. The trial of this case began on March 7, 1994. On March 11, 1994, the parties entered into an agreement in settlement of all litigation, claims and counterclaims pursuant to which HNP agreed to pay PYP $1.1 million (of which $550,000 is the Company's share), and PYP and HNP entered into an agreement granting HNP a right of first refusal to purchase PYP's scrap metals for a period of nine years. HNP has accrued $1.4 million as of December 31, 1993 covering this settlement and all of its remaining litigation expenses related to this matter. The Company is also subject to certain other litigation and claims arising in the ordinary course of business. In the opinion of management, the disposition of these claims and lawsuits will not have a material adverse effect on the Company's financial position or results of operations. 13 Item 4. Submission of Matters To a Vote of Security Holders. There were no matters submitted to a vote of security holders during the quarter ended January 31, 1994. EXECUTIVE OFFICERS OF THE COMPANY The following table sets forth the name and age of each executive officer of the Company, all positions and offices held by each person named and the period during which each person named has served as an officer of the Company. Unless otherwise stated below, each person has held such positions and offices for more than the past five years: SERVED AS AN OFFICER OF NAME AGE POSITION AND OFFICES HELD COMPANY SINCE - ---------------------------------- --- --------------------------------------- ------------- Herman Proler 66 Chairman of the Board of Directors, Chief Executive Officer, Director (1) 1948 Michael F. Loy 48 Vice President-Finance, Chief Financial Officer and Secretary (2) 1992 Dennis Caputo 47 Vice President-Environmental and Safety Compliance (3) 1989 Norman Bishop 63 Vice President-Technical (4) 1993 Ian Linton 34 Vice President-Western Operations (5) 1991 David A. Juengel 34 Vice President, Treasurer and Assistant Secretary (6) 1991
- ------------- (1) Prior to December 13, 1985, Herman Proler served as President of the Company, and has been performing the duties of Chairman and CEO since 1985. (2) Mr. Loy joined the Company on August 1, 1992 as Vice President-Finance and Chief Financial Officer and on December 8, 1992 was elected to the additional position of Secretary of the Company. Prior to joining the Company, Mr. Loy served from 1989 to 1992 as Director and President of MFL Consulting Group, Inc. From 1987 to 1989, he served as Director, Vice President and Chief Financial Officer of Cabot Energy Corporation. (3) Mr. Caputo joined the Company on June 8, 1989, as Vice President- Environmental and Safety Compliance. Prior to June 8, 1989, Mr. Caputo was a principal with ENSR Consulting and Engineering. (4) Mr. Bishop joined the Company on February 13, 1989 and served as Vice President of Proler Environmental. He was elected Vice President-Technical of the Company on April 12, 1993. Prior to February 13, 1989, Mr. Bishop was Vice President of Zia Technology, Inc. for seven years. (5) Mr. Linton joined the Company on May 20, 1991. He was elected Vice President-Refining on June 12, 1991 was promoted to Vice President-Western Operations on December 8, 1992. Prior to his employment with the Company, Mr. Linton was employed as Group Manager of Capper Pass & Son Limited, North Humberside, England. 14 (6) Mr. Juengel joined the Company on September 23, 1988 as Tax Manager. He was elected Assistant Vice President of Finance and Accounting on September 11, 1991 and was promoted to Vice President, Treasurer and Assistant Secretary on December 8, 1992. Prior to his employment with the Company, Mr. Juengel was employed as a Tax Manager by Ernst & Young and Coopers & Lybrand. The term of office of each of the above officers is until the next annual meeting of directors or until his successor has been duly elected and qualified. 15 P A R T I I ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND STOCKHOLDER MATTERS The table below summarizes the high and low sales prices reported on the New York Stock Exchange for shares of the Company's common stock. There have been no cash dividends declared for the last two fiscal years. HIGH AND LOW SALES PRICES OF COMMON STOCK BY FISCAL QUARTERS/(1)/
FOR THE YEARS ENDED JANUARY 31, ------------------------------- 1994 1993 --------------- -------------- HIGH LOW HIGH LOW ------- ------ ------- ----- First quarter... $101/4 $ 65/8 $103/8 $71/8 Second quarter.. 10 7 77/8 43/4 Third quarter... 133/8 71/4 65/8 4 Fourth quarter.. 141/2 115/8 91/2 35/8
- ------------ (1) The Company's common stock is traded on the New York Stock Exchange. As of April 14, 1994, there were 436 holders of record of the Company's common stock. The Company's Board of Directors suspended the payment of dividends on the Company's Common Stock in fiscal 1992. Also, the Company's credit agreement with a bank prohibits the payment of cash dividends (see Note 4 to the consolidated financial statements). ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA. The table below sets forth a summary of selected consolidated financial information of the Company and its subsidiaries for the periods indicated:
FOR THE YEARS ENDED JANUARY 31, ------------------------------------------------------------- 1994 1993 1992 1991 1990 ------------ ----------- ----------- ----------- -------- (Dollars in thousands except per share amounts) Net sales (1)............. $43,706 $63,842 $110,890 $107,994 $100,687 ======= ======= ======== ======== ======== Net income (loss)......... $(2,262) $(9,909) $(16,328) $(11,532) $ 4,156 ======= ======= ======== ======== ======== Net income (loss) per share..................... $ (.48) $ (2.10) $ (3.47) $ (2.45) $ .88 ======= ======= ======== ======== ======== Total assets.............. $66,583 $77,799 $119,173 $149,536 $130,863 ======= ======= ======== ======== ======== Long-term debt............ $ -- $ 5,000 $ -- $ -- $ 2,150 ======= ======= ======== ======== ======== Cash dividends per share.. $ -- $ -- $ .325 $ .52 $ .51 ======= ======= ======== ======== ========
- --------- (1) The Company sold its Houston plant in July, 1992 which accounted for most of the revenue decline since that date. 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL The Company has sustained net losses for the past four years although such losses narrowed in fiscal 1994 to $2.3 million from $9.9 million in fiscal 1993 and $16.3 million in fiscal 1992. In general, the Company's results of operations were adversely impacted in fiscal 1992 and 1993 by weak demand and lower sales prices. Since December, 1992, however, domestic and international sales prices have increased, as has tonnage sold to customers. The Company is primarily engaged, directly and through its subsidiaries and its corporate and unincorporated joint operations, in buying, processing for recycling and selling ferrous and other scrap metals. While the Company sells products from its consolidated operations primarily to domestic markets, the joint operations primarily export scrap to foreign markets. The Company's and its joint operations' business is characterized by cyclical fluctuations in profitability depending upon the availability and price of raw scrap and the demand and prices for processed scrap by the iron and steel industries and the non-ferrous metals industries. The Company's unincorporated joint operations are structured so that the participants advance and withdraw funds equally, and policy decisions require the unanimous consent of the participants. The Company makes advances to the joint operations on a regular basis, primarily for the purchase of inventory and for operating costs. The Company receives periodic distributions from its joint operations, primarily for the sales proceeds of shipments. During fiscal 1994, the Company's distributions from joint operations exceeded advances by $16.2 million. The terms of the HPNJ and HPI joint venture agreements expire May 25, 1994 unless extended by unanimous consent of the partners. The Company's future involvement with these joint ventures is uncertain at this time; however, in the event of their dissolution, management anticipates that the carrying value of the underlying assets would be recovered. Raw material for the Proler Process, consisting primarily of scrap automobiles, is purchased on a day-to-day basis from a large number of small suppliers, including automobile salvage yards, scrap dealers and truckers. In order to maintain its sources of supply, the Company and its joint operations purchase raw materials from their suppliers even during periods when they face lower demand and lower prices for the products they sell. The principal supply of raw material for the production of precipitation iron and low residual steel is from scrap generated in the manufacture of metal cans and containers primarily purchased directly from container manufacturers. The Company also acquires used cans from municipal waste processors and various scrap dealers. The Company does not determine contribution to gross profits by its various product lines, which necessarily would involve a number of arbitrary cost allocations. However, it can generally be stated that, while gross profit margins vary between the product lines and from year-to-year, gross profit margins historically have been higher on Prolerized Scrap than on precipitation iron and other ferrous scrap, although in recent years the gross profit margins on Prolerized Scrap declined due to the costs of disposing of automobile shredder residue. As described in "Item 1 - Current Developments", the Company has developed a five-year business plan intended to enable the Company to make a transition from its current participation in the highly cyclical scrap business primarily through its joint operations, to a recycling company engaged in environmental services and metals recovery with majority control of its significant assets. With the 17 divestitures of the domestic scrap operations, the Company's principal scrap processing business will be conducted through its joint operations, with the Company's remaining revenues derived from the Western Operations. LIQUIDITY, FINANCING AND CAPITAL RESOURCES During fiscal 1994, the Company repaid all of its outstanding bank debt, primarily by using the proceeds from the liquidation of inventories in the joint operations. At January 31, 1994, the Company had net working capital of $12.3 million as compared to $7.1 million at January 31, 1993. Subsequent to January 31, 1994, the Company sold its Kansas City, Kansas scrap processing operation for $5.0 million and its Vinton, Texas scrap processing plant for $2.6 million. (See Note 12 to the consolidated financial statements.) Certain real estate and other assets are currently for sale. In October 1993, the Company entered into an amended credit agreement with a bank, described in Note 4 to the consolidated financial statements, which provides for a $15 million revolving line of credit and a $7 million letter of credit facility. No borrowings are outstanding under the revolver and $5.4 million of letters of credit are outstanding under the letter of credit facility. The revolver and letter of credit facility terminate on October 31, 1994 and March 31, 1995, respectively. The Company's ability to borrow against assets of the joint operations may be limited by the Company's inability to grant a direct security interest in those assets to the bank and by certain limitations on the Company's ability to pledge its interests in the joint operations. The Company is engaged in ongoing proceedings and communications with regulatory authorities concerning environmental matters, and ongoing litigation regarding non-environmental matters. An adverse outcome in these legal proceedings, or any significant additional expenditures that may be required in order for the Company or its joint operations to operate in accordance with environmental laws and regulations, or to clean up sites now or formerly used by them, could affect the Company's financial position. Capital expenditures of $2.6 million in fiscal 1994 were primarily for the replacement and improvement of plant and equipment. Included in this amount was approximately $1.3 million of capital expenditures by Proler Environmental. The Company's share of joint operations' capital expenditures for fiscal 1994 was $2.0 million, most of which was also expended for replacement and improvement of plant and equipment. In addition, during fiscal 1994, the Company provided a standby letter of credit in the amount of $3.95 million to assure compliance with environmental covenants in a joint operation's lease for the Los Angeles facility. Further, the Company may have to provide an additional letter of credit and/or incur additional costs of $1.0 million in fiscal 1995 in connection with this facility. See Note 8 to the consolidated financial statements. As discussed in Item 1 - "Current Developments" and "Research", the Company is continuing to develop and test industrial waste processing and recovery technologies. Proler Recycling has budgeted capital expenditures (exclusive of any potential acquisitions) of $6 million in fiscal 1995. Also, Proler Environmental expects to incur significant capital expenditures in the commercial application of its gasification process; however, the amount and timing of such expenditures is uncertain. Management believes that external financing sources, coupled with internally generated funds, will be sufficient to fund such capital outlays. 18 FISCAL 1994 COMPARED TO FISCAL 1993 Consolidated net sales in fiscal 1994 of $43.7 million were 32% lower than consolidated net sales of $63.8 million in fiscal 1993. Consolidated cost of sales in fiscal 1994 of $42.7 million were 33% lower than consolidated cost of sales of $63.9 million in fiscal 1993. The decreases in both consolidated net sales and cost of sales were principally due to the sale of the Company's Houston plant in July, 1992. See Note 5 to the consolidated financial statements. The Company recorded net sales of $24.4 million and $22.6 million cost of sales attributable to the Houston plant in fiscal 1993. With the Company's divestiture of its domestic scrap operations, consolidated sales are expected to further decrease in fiscal 1995. In fiscal 1994, the Company recorded net sales of $21.0 million and $8.1 million attributable to its Kansas City and Vinton plants, respectively. Excluding the Houston plant from fiscal 1993 results, the following table highlights the more significant operating statistics and percentage changes between fiscal years 1994 and 1993 of the remaining Company-operated plants (dollars in thousands):
For the years ended January 31, ------------------------------------ 1994 1993 % Change --------- -------- --------- Sales volumes (gross tons)........ 324,600 294,100 10% Net sales......................... $ 43,706 $ 39,394 11% Cost of sales..................... $ 42,669 $ 41,904 2% Gross profit (loss)............... $ 1,037 $ (2,510) --
The overall improvement in profit margins in fiscal 1994 is due to price and volume increases. The average shredded scrap prices during fiscal 1994 were 20% higher as compared to average prices during fiscal 1993. The 10% increase in volumes during these comparative periods is primarily attributable to increased volumes at the Company's Kansas City and Vinton plants. The Company's Kansas City plant had lower sales volumes during fiscal 1993 due to the loss of a principal customer. The development of new customers during the latter half of fiscal 1993 and into fiscal 1994 resulted in an increase in volumes sold at that location during fiscal 1994. The increase in volumes sold at the Vinton plant was a result of increased emphasis in procurement activities and less plant downtime. In recent years, the Company had encountered increased costs of ASR disposal. These costs have continued to represent a significant expenditure for the Company and its joint operations. In fiscal 1994, however, the overall per ton disposal cost decreased as compared to fiscal 1993. The Company and its joint operations are continuing to evaluate and further test methods of reducing these costs. Earnings from joint operations increased to $2.8 million compared to a fiscal 1993 loss of $5.7 million. The improvement is primarily a result of increased export sales prices and tonnages sold. The average sales price per ton of scrap was $118 in fiscal 1994 as compared to $98 in fiscal 1993. Tonnage shipped in fiscal 1994 increased 28% or by approximately 585,000 tons as compared to fiscal 1993. The average cost of sales per ton of scrap sold for the year ended January 31, 1994 was $113 compared to $99 for fiscal 1993. Cost of sales per ton would have been approximately $5 lower in fiscal 1994 using replacement cost. The Company's share of the joint operations' general and administrative expenses decreased by approximately $1.4 million primarily because of lower environmental remediation expense and lower legal and professional fees. Also included within earnings from joint operations is the Company's share of a $1.0 million gain recorded in October, 1993 resulting from the sale of assets of the Company's 50 percent-owned Prolerized Chicago Corporation joint operation. See Note 5 to the consolidated financial statements. As anticipated, fourth quarter fiscal 1994 tonnage shipped by the joint operations decreased from volumes shipped in the third quarter. These reduced volumes combined with 19 higher inventory buying prices, higher repair and maintenance expenses and a litigation settlement resulted in a fourth quarter loss from joint operations of $1.2 million. Selling, general and administrative expenses of $4.5 million in fiscal 1994 decreased $3.0 million or 40% compared to fiscal 1993. The decrease is primarily attributable to the decrease in administrative personnel associated with the Company's Houston plant which was sold in July, 1992. Interest expense decreased 54% in fiscal 1994 compared to fiscal 1993 due to the decrease in outstanding bank indebtedness between the years. The Company's interest income in fiscal 1994 decreased 15% compared to fiscal 1993 due to the reduction in interest rates offset by higher cash balances. Included in other expense in fiscal 1994 are costs of approximately $0.5 million associated with the site restoration of leased property on which the Company had operated a precipitation iron plant. The plant was shut down in fiscal 1988. Fiscal 1993 other income included approximately $0.7 million attributable to the settlement of a lawsuit regarding certain deposits in connection with the discontinued Buffalo Steel project. Income taxes for fiscal 1994 increased $3.4 million in comparison to fiscal 1993 resulting in a provision for fiscal 1994 of $0.6 million. The change was principally the result of a $2.7 million decrease in the deferred tax benefit for fiscal 1994 primarily due to asset sales and a $0.7 million increase in taxes at the joint operations. Effective February 1, 1993, the Company changed its method of accounting for income taxes as more fully described in Note 6 to consolidated financial statements. The cumulative effect on prior years of this change decreased fiscal 1994 net loss by $118,000. With the accounting method change, the Company has a net deferred tax asset of $6.4 million, which has been fully reserved as of January 31, 1994. FISCAL 1993 COMPARED TO FISCAL 1992 Weak demand for the Company's products continued during fiscal 1993, resulting in lower sales prices and a significant reduction in the tonnage of products sold. Consolidated net sales in fiscal 1993 of $63.8 million were 42% lower than consolidated net sales of $110.9 million in fiscal 1992. Consolidated cost of sales in fiscal 1993 of $63.9 million were 44% lower than consolidated cost of sales of $114.0 million in fiscal 1992. The decreases in both consolidated net sales and cost of sales were principally due to the sale of the Company's Houston plant in July 1992, which resulted in a net gain on sale of $1.6 million. See Note 5 to the consolidated financial statements. The Company recorded net sales of $24.4 million in fiscal 1993 and $57.4 million in fiscal 1992 attributable to the Houston plant. Cost of sales attributable to the Houston plant were $22.6 million and $55.6 million for fiscal years 1993 and 1992, respectively. 20 Excluding the Houston plant from both fiscal 1993 and 1992, the following table highlights the more significant operating statistics and percentage change of the remaining Company-operated plants (dollars in thousands):
For the years ended January 31, ------------------------------------- 1993 1992 % Change --------- -------- ---------- Sales volumes (gross tons)........ 294,100 384,300 (23)% Net sales......................... $ 39,394 $ 53,536 (26)% Cost of sales..................... $ 41,904 $ 56,323 (26)% Gross profit (loss)............... $ (2,510) $ (2,787) 10 %
Sales declined due to the decrease in tonnage sold, combined with reduced sales prices. However, sales prices began increasing in December, 1992. The average domestic shredded scrap price composite was $102 per ton during fiscal 1992, as compared to a price of $114 per ton in April, 1993. During fiscal 1993, the principal customer of PSC initiated a reduced pricing structure and significantly decreased its purchases from PSC as it expanded its sources for scrap. Although PSC has begun to replace the volume lost as a result of this change by developing new customers, the impact on PSC's operations in fiscal 1993 was significant, resulting in an operating loss by PSC of $0.1 million during fiscal 1993 as compared to operating income of $1.0 million during fiscal 1992. The Company's cost of sales (excluding the Houston plant) decreased as a result of reduced volumes processed, as well as a reduction in site restoration costs as compared to the previous year. The Company (exclusive of its joint operations) incurred $0.5 million in site restoration and clean-up costs in fiscal 1993 as compared to $1.7 million in fiscal 1992. The losses for fiscal 1993 also include a write-down of $0.7 million with respect to the inventory of the Company's pipe division which was liquidated during the fiscal year. Among the higher operating costs encountered by the Company in recent years have been increased costs for disposing of ASR. Although costs of disposing of ASR have declined in recent years from the high point reached in fiscal 1990, these costs still represent a significant expenditure for the Company and its joint operations. The industry and the Company are currently evaluating and testing methods to reduce the cost of ASR disposal. Unless an acceptable and less costly method of disposal is developed, the costs of disposing of ASR will continue to adversely affect the Company and its joint operations. During fiscal 1993, the Company (exclusive of its joint operations) incurred costs to dispose of ASR of $0.8 million as compared to $0.9 million in fiscal 1992. The Company incurred a loss of $5.7 million from joint operations in fiscal 1993, compared to a loss of $3.3 million in fiscal 1992. The losses from the joint operations are primarily the result of a weak international market for scrap which continued in fiscal 1993, resulting in lower sales prices during most of the year. The Company's share of joint operations' tonnage sold increased by 7% in fiscal 1993 as compared to fiscal 1992, and its share of joint operations sales by dollar amount was 8% lower in fiscal 1993 than in fiscal 1992. The loss from the joint operations includes a write-off of $0.7 million representing the acceleration of the amortization of intangible assets of one of the joint operations. The joint operations have, to an even greater degree than the Company, incurred substantial costs (approximately $11.4 million in fiscal 1993 and approximately $12.8 million in fiscal 1992, of which the Company's share was $4.7 million in fiscal 1993 and $5.1 million in fiscal 1992) to dispose of ASR, since the joint operations shred more scrap and consequently generate more ASR, and also incur more third-party costs to dispose of ASR than the Company. Gross profits of the joint operations have also been negatively impacted by increased legal and environmental costs. The Company's share of these costs was $1.9 million in fiscal 1993 as compared to $1.5 million in fiscal 1992. Despite the continued 21 decline in the joint operation sales during fiscal 1993, accumulation of new inventories was curtailed as compared to earlier years and existing inventories were significantly reduced, resulting in the Company's receiving net distributions from the joint operations of $8.5 million in excess of its advances, as compared to net advances of $7.0 million made by the Company to the joint operations in fiscal 1992. Selling, general and administrative costs in fiscal 1993 of $7.5 million were 15% lower than fiscal 1992. The decrease is primarily the result of a decrease in legal costs and a decrease in administrative personnel attributable to the sale of the Company's Houston plant. Interest expense decreased 37% in fiscal 1993 compared to fiscal 1992 due to a decrease in the weighted average interest rate and a decrease of outstanding indebtedness from $35 million to $10 million during fiscal 1993. The Company's interest income in fiscal 1993 decreased 39% compared to fiscal 1992 due to average cash and cash equivalents being lower throughout the year and a reduction of interest rates. Included in other income in fiscal 1993 is $0.7 million attributable to the settlement of a lawsuit regarding certain deposits in connection with the discontinued Buffalo Steel project. The income tax benefit of $2.8 million in fiscal 1993 is principally the result of a deferred tax benefit of $1.7 million from the sale of the Company's shares in Maru and $0.8 million of deferred tax benefit resulting from the sale of assets of the Company's Houston plant. The benefit of $4.9 million in fiscal 1992 is principally the result of a current tax benefit of $3.6 million from the carryback of net operating losses to fiscal years 1989 and 1990 and a deferred tax benefit of $1.5 million resulting from the utilization of net operating loss carryforwards. ENVIRONMENTAL MATTERS AND OTHER CONTINGENCIES The Company's operations are subject to environmental laws and regulations, and the Company is involved in ongoing proceedings and communications with regulatory authorities concerning environmental matters. It is possible that, as a result of these proceedings and communications, the Company may in the future incur additional costs to assure compliance with environmental laws and regulations, or it may be required to modify or curtail operations. In the past, the Company has incurred significant environmental costs in connection with the clean-up and handling of materials at sites operated by the Company. See Note 8 to the consolidated financial statements. NEW ACCOUNTING STANDARDS Effective February 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes." The cumulative effect on prior years of the adoption of SFAS No. 109 decreased net loss by $118,000 or $.03 per share for fiscal 1994. Prior years' financial statements have not been restated to apply the provisions of SFAS No. 109. INFLATION The effect of inflation upon the Company has been less during the past several years than in preceding periods as the inflation rate in general has declined. 22 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required under this item begins on page 25 of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There is no matter required to be disclosed in response to this item. P A R T I I I In accordance with paragraph (3), of General Instruction G to Form 10-K, Part III of this Report is omitted because the Company will file with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year ended January 31, 1994, a definitive proxy statement pursuant to Regulation 14A involving the election of directors, which proxy statement is incorporated herein by reference. P A R T I V ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) & (2) - Financial Statements and Financial Statement Schedules: Reference is made to the index on page 25 of this Report. (3) - Exhibits: References made to the list on pages 68-70 of the exhibits filed with this Report. 23 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE COMPANY HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. PROLER INTERNATIONAL CORP. (COMPANY) May 2, 1994 /S/ HERMAN PROLER HERMAN PROLER, CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE OFFICER) May 2, 1994 /S/ MICHAEL F. LOY MICHAEL F. LOY VICE PRESIDENT - FINANCE (PRINCIPAL FINANCIAL AND ACCOUNTING 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 COMPANY AND IN THE CAPACITIES AND ON THE DATES INDICATED. May 2, 1994 /S/ HERMAN PROLER HERMAN PROLER, DIRECTOR May 2, 1994 /S/ RICHARD B. MAYOR RICHARD B. MAYOR, DIRECTOR May 2, 1994 /S/ JOHN J. MCKENNA John J. McKenna, Director May 2, 1994 /S/ HARVEY ALTER HARVEY ALTER, DIRECTOR 24 INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
PAGE(S) ------- PROLER INTERNATIONAL CORP. AND SUBSIDIARIES: Report of Independent Accountants ........................................................................... 26 Consolidated Financial Statements: Balance Sheets at January 31, 1994 and 1993 ................................................................ 27 Statements of Operations for the three years ended January 31, 1994 ........................................ 28 Statements of Stockholders' Equity for the three years ended January 31, 1994 .............................. 29 Statements of Cash Flows for the three years ended January 31, 1994 ........................................ 30 Notes to Consolidated Financial Statements ................................................................. 31-45 Consolidated Financial Statement Schedules: V - Property, plant and equipment, for the three years ended January 31, 1994 .......................... 46 VI - Accumulated depreciation, depletion and amortization of property, plant and equipment for the three years ended January 31, 1994 ............................................... 47 IX - Short-term borrowings for the three years ended January 31, 1994 ................................... 48 X - Supplementary income statement information for the three years ended January 31, 1994 ................................................................................... 49
PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS: Reports of Independent Accountants .......................................................................... 50-53 Combined Financial Statements: Balance Sheets at January 31, 1994 and 1993 ................................................................ 54 Statements of Operations for the three years ended January 31, 1994 ........................................ 55 Statements of Stockholders' and Partners' Equity for the three years ended January 31, 1994 ....................................................................................... 56 Statements of Cash Flows for the three years ended January 31, 1994 ........................................ 57 Notes to Combined Financial Statements ..................................................................... 58-64 Combined Financial Statement Schedules: V - Property, plant and equipment, for the three years ended January 31, 1994 ............................ 65 VI - Accumulated depreciation, depletion and amortization of property, plant and equipment for the three years ended January 31, 1994 ................................................. 66 X - Supplementary income statement information for the three years ended January 31, 1994 ..................................................................................... 67
Schedules other than those listed above are omitted because they are either not required, not applicable or the required information is presented in the financial statements or notes thereto. 25 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders of Proler International Corp. We have audited the consolidated financial statements and the financial statement schedules of Proler International Corp. and subsidiaries listed in the index on page 25 of this Form 10-K. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules 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 Proler International Corp. and subsidiaries as of January 31, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 31, 1994, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. As discussed in Notes 1 and 6 to consolidated financial statements, the Company changed its method of accounting for income taxes in fiscal 1994. COOPERS & LYBRAND Houston, Texas April 29, 1994 26 PROLER INTERNATIONAL CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JANUARY 31, 1994 AND 1993
1994 1993 -------- -------- ASSETS (in thousands) ------ Current assets: Cash and cash equivalents............................................ $ 7,307 $ 7,057 Accounts receivable, trade........................................... 6,443 4,313 Other receivables.................................................... 165 628 Inventories.......................................................... 1,910 2,046 Maintenance parts.................................................... 1,150 1,447 Prepaid expenses..................................................... 775 527 ------- -------- Total current assets............................................... 17,750 16,018 Investments in joint operations, at equity............................ 26,273 40,138 Property, plant and equipment, net.................................... 18,671 17,443 Other assets.......................................................... 3,889 4,200 ------- -------- Total assets...................................................... $66,583 $77,799 ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Bank debt, current portion........................................... $ -- $ 5,000 Accounts payable, trade.............................................. 2,267 1,649 Accrued liabilities.................................................. 2,971 2,285 Other current liabilities............................................ 200 -- ------- -------- Total current liabilities.......................................... 5,438 8,934 Bank debt, long-term portion.......................................... -- 5,000 Deferred compensation................................................. 2,989 3,329 Deferred federal income taxes......................................... -- 118 Commitments and contingencies Stockholders' equity: Common stock, par value $1 per share; authorized 15,000,000 shares; issued and outstanding, 5,351,460 shares........................... 5,351 5,351 Capital in excess of par value....................................... 192 192 Retained earnings.................................................... 58,731 60,993 ------- -------- 64,274 66,536 Less 640,500 shares of treasury stock, at cost........................ (6,118) (6,118) ------- -------- Total stockholders' equity............................................ 58,156 60,418 ------- -------- Total liabilities and stockholders' equity........................ $66,583 $77,799 ======= ========
The accompanying notes are an integral part of the consolidated financial statements. 27 PROLER INTERNATIONAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE YEARS ENDED JANUARY 31, 1994 (IN THOUSANDS EXCEPT PER SHARE DATA)
1994 1993 1992 --------- -------- -------- Net sales............................................. $ 43,706 $ 63,842 $110,890 Cost of sales......................................... 42,669 63,917 113,981 -------- -------- -------- Gross profit (loss)............................... 1,037 (75) (3,091) Earnings (loss) from joint operations................. 2,768 (5,660) (3,327) Selling, general and administrative expenses.......... (4,538) (7,545) (8,883) -------- -------- -------- Operating loss.................................... (733) (13,280) (15,301) Gain on sale of assets, net........................... -- 1,560 -- Write off of fixed asset and deposit.................. -- -- (3,495) Other income (expense): Interest expense.................................. (835) (1,810) (2,869) Interest income................................... 162 191 311 Other, net........................................ (406) 573 131 -------- -------- -------- (1,079) (1,046) (2,427) -------- -------- -------- Loss before income taxes and accounting change........ (1,812) (12,766) (21,223) Provision (benefit) for income taxes.................. 568 (2,857) (4,895) -------- -------- -------- Loss before accounting change......................... (2,380) (9,909) (16,328) Cumulative effect of change in accounting for income taxes............................................... 118 -- -- -------- -------- -------- Net loss.............................................. $(2,262) $ (9,909) $(16,328) ======== ======== ======== Weighted average shares outstanding................... 4,711 4,708 4,703 ======== ======== ======== Per share: Loss before accounting change...................... $ (.51) $ (2.10) $ (3.47) Cumulative effect of change in accounting for income taxes....................... .03 -- -- -------- -------- -------- Net loss........................................... $ (.48) $ (2.10) $ (3.47) ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 28 PROLER INTERNATIONAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE THREE YEARS ENDED JANUARY 31, 1994 (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
CAPITAL IN EXCESS TOTAL COMMON OF PAR RETAINED TREASURY STOCKHOLDERS' STOCK VALUE EARNINGS STOCK EQUITY ------ --------- -------- -------- ------------ Balance: January 31, 1991............. $5,343 $148 $ 88,758 $(6,118) $ 88,131 Net loss............................... -- -- (16,328) -- (16,328) Cash dividends, $.325 per share........ -- -- (1,528) -- (1,528) Issued 4,080 shares under stock grant.. 4 30 -- -- 34 ------ ---- -------- ------- -------- Balance: January 31, 1992............. 5,347 178 70,902 (6,118) 70,309 Net loss............................... -- -- (9,909) -- (9,909) Issued 4,080 shares under stock grant.. 4 14 -- -- 18 ------ ---- -------- ------- -------- Balance: January 31, 1993............. 5,351 192 60,993 (6,118) 60,418 Net loss............................... -- -- (2,262) -- (2,262) ------ ---- -------- ------- -------- Balance: January 31, 1994............. $5,351 $192 $ 58,731 $(6,118) $ 58,156 ====== ==== ======== ======= ========
The accompanying notes are an integral part of the consolidated financial statements. 29 PROLER INTERNATIONAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE YEARS ENDED JANUARY 31, 1994 (IN THOUSANDS)
1994 1993 1992 --------- --------- --------- Cash flows from operating activities: Net loss......................................................... $ (2,262) $ (9,909) $(16,328) Adjustments to reconcile net loss to cash: Depreciation.................................................... 849 2,184 3,077 Gain on sale of assets.......................................... -- (1,560) -- Provision for bad debts......................................... -- 192 63 Write off of fixed asset and deposit............................ -- -- 3,495 Loss from joint operations and advances, net of distributions........................................... -- -- (3,668) Deferred federal income taxes................................... -- (2,660) (1,496) Cumulative effect of accounting change.......................... (118) -- -- Issuance of common stock under stock grant...................... -- 18 34 Decrease (increase) in assets: Accounts receivable, trade...................................... (2,130) 7,143 (441) Other receivables............................................... 463 2,234 (1,840) Inventories and maintenance parts............................... 433 8,339 19,798 Prepaid expenses................................................ (248) 267 89 Other assets.................................................... 311 35 6,217 Increase (decrease) in liabilities: Accounts payable, trade......................................... 618 (2,421) (4,285) Accrued liabilities............................................. 686 (1,154) (651) Other current liabilities....................................... 200 (298) (3,760) Other liabilities............................................... (340) 50 584 -------- -------- -------- Net cash provided by (used in) operating activities............ (1,538) 2,460 888 -------- -------- -------- Cash flows from investing activities: Purchases of property, plant and equipment...................... (2,628) (2,626) (4,221) Purchase of minority interest in subsidiary..................... -- -- (6,000) Proceeds from sales of property, plant and equipment............ 551 8,700 378 Proceeds from sale of joint operation........................... -- 3,828 -- Distributions from joint operations, net of earnings (loss) and advances....................................................... 12,883 13,831 -- Dividends received from joint operations........................ 982 3,501 32 -------- -------- -------- Net cash provided by (used in) investing activities............ 11,788 27,234 (9,811) -------- -------- -------- Cash flows from financing activities: Net bank borrowings (payments).................................. (10,000) (25,000) 3,000 Principal payments on long-term debt............................ -- -- (2,150) Dividends paid on common stock.................................. -- -- (1,528) -------- -------- -------- Net cash used in financing activities.......................... (10,000) (25,000) (678) -------- -------- -------- Net increase (decrease) in cash and cash equivalents............. 250 4,694 (9,601) Cash and cash equivalents at beginning of year................... 7,057 2,363 11,964 -------- -------- -------- Cash and cash equivalents at end of year......................... $ 7,307 $ 7,057 $ 2,363 ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 30 PROLER INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation and Investments in Joint Operations The consolidated financial statements include the accounts of Proler International Corp. ("the Company") and its majority owned subsidiaries. In January 1992, the Company acquired the 25% minority interest in Prolerized Steel Corporation, which was accounted for as a purchase. In connection with the acquisition approximately $2.2 million of goodwill was recorded and is being amortized over 10 years (see Note 12). All significant intercompany balances and transactions have been eliminated. Certain amounts included in the prior year financial statements have been reclassified to be consistent with the current year presentation with no effect on net earnings (loss) or equity. The consolidated financial statements also include, on the equity method, the Company's share of several joint operations with interests ranging from 33-1/3% to 50% (see Note 3). Included in the Company's consolidated retained earnings at January 31, 1994 and 1993 is approximately $28,857,000 and $44,024,000, respectively, relating to undistributed earnings of the joint operations. Inventories The Company's inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) method. Two of the 50%-owned joint operations account for inventories using the last-in, first-out (LIFO) method while the others follow FIFO. Approximately 62% and 64% of the joint operations' inventory is accounted for using LIFO at January 31, 1994 and 1993, respectively. Such LIFO inventories are carried at $16,927,000 and $40,877,000 at January 31, 1994 and 1993, respectively, and the excess of replacement cost over LIFO value was approximately $21,187,000 and $8,604,000 at January 31, 1994 and 1993, respectively. Federal Income Taxes The Company and its wholly-owned subsidiaries file a consolidated federal income tax return which includes the Company's share of earnings or losses from unincorporated joint operations. Prolerized Steel Corporation through January, 1992 and the corporate joint operations file separate federal income tax returns. Investment tax credits are accounted for using the flow-through method. Effective February 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," as more fully described in Note 6 to consolidated financial statements. Deferred federal income taxes are recorded based upon differences between the tax and financial reporting bases of the Company's assets and liabilities. Certain of the joint operations are organized as partnerships and others as corporations. The Company's share of the earnings (loss) of all joint operations is included in the consolidated statements of operations before income taxes and the provision (benefit) for income taxes includes amounts applicable to its share of earnings (loss) from joint operations. 31 PROLER INTERNATIONAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Per Share Information Per share information has been computed based on the weighted average number of common shares outstanding during the periods presented. The weighted average number of common shares outstanding at January 31, 1994, 1993 and 1992 does not include the effect of stock options which are insignificant. Property, Plant and Equipment The Company primarily uses the straight-line method of providing depreciation over the estimated useful lives of the assets for financial reporting purposes. Estimated useful lives used in computing depreciation fall within the following ranges:
YEARS --------- Machinery and equipment........... 3 to 15 Automobiles, trucks and trailers.. 3 to 5 Buildings......................... 5 to 33 Yard improvements................. 4 to 25 Furniture and fixtures............ 5 to 10
When assets are retired or otherwise disposed, the cost and related accumulated depreciation are removed from the accounts and the resulting gains or losses are reflected in operations. During fiscal 1992, the Company relinquished the licensing of the technology for certain environmental equipment relating to an incineration plant and wrote off approximately $1.2 million. Consolidated Statements of Cash Flows For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Cash paid for income taxes and interest was approximately $30,000 and $487,000, $166,000 and $1,791,000 and $530,000 and $3,192,000, in fiscal 1994, 1993 and 1992, respectively. Concentration of Credit Risk The Company sells its products primarily to steel mills in North America. The Company performs ongoing credit evaluations of its customers and requires letters of credit on foreign sales. The Company maintains reserves for potential credit losses and such losses have been within management's expectations. The Company invests its excess cash in deposits with major banks and in money market securities of companies from a variety of industries. These securities typically mature within ninety days. The Company has not experienced any losses on its money market investments. 32 PROLER INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 2. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS The following are the details of certain balance sheet accounts (dollars in thousands):
Inventories JANUARY 31, ------------------------ 1994 1993 ----------- ----------- Processed scrap......................... $ 1,089 $ 1,233 Unprocessed scrap and other............. 821 813 ------- ------- $ 1,910 $ 2,046 ======= ======= Property, Plant and Equipment, at cost JANUARY 31, ------------------------ 1994 1993 ----------- ----------- Land.................................... $ 791 $ 931 Machinery and equipment................. 16,697 18,443 Automobiles, trucks and trailers........ 434 431 Buildings............................... 2,093 1,675 Yard improvements....................... 4,386 3,477 Furniture and fixtures.................. 272 211 Construction in progress................ 3,715 2,983 Assets held for sale.................... 9,973 9,373 ------- -------- 38,361 37,524 Less accumulated depreciation........... (19,690) (20,081) ------- -------- $18,671 $ 17,443 ======= ======== Other Assets JANUARY 31, ------------------------ 1994 1993 ----------- ----------- Cost in excess of net assets acquired... $ 2,269 $ 2,269 Deferred compensation................... 915 915 Cash surrender value, less loans of $1,624 and $1,439 in 1994 and 1993, respectively..................... 897 796 Other................................... 257 574 -------- -------- 4,338 4,554 Less accumulated amortization........... (449) (354) -------- -------- $ 3,889 $ 4,200 ======== ========
During fiscal 1992 management determined that, under the terms of certain letter agreements, the recoverability of a deposit made in connection with the previously reported discontinued Buffalo Steel project was uncertain and accordingly wrote off $2.3 million. In fiscal 1993, the $750,000 earnest money deposit included in accrued liabilities relating to this matter was recorded in income upon the favorable settlement of the Company's lawsuit regarding this project. 33 PROLER INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Accrued Liabilities JANUARY 31, -------------------------------- 1994 1993 ---------- ----------- Salaries, wages and bonuses..... $ 650 $ 76 Deferred compensation, current.. 406 -- Insurance....................... 314 1,002 Environmental and litigation.... 1,069 850 Other........................... 532 357 ------ ------ $2,971 $2,285 ====== ======
3. INVESTMENTS IN JOINT OPERATIONS The Company has historically conducted a significant portion of its business through joint operations. Certain of these joint operations are organized as partnerships and others as corporations. The agreements governing the operations generally provide that all decisions will be made unanimously by the partners/shareholders. In the more significant joint operations, the Company's other partner is Hugo Neu & Sons, Inc. or one of its subsidiaries. The principal joint operations included in the summary of financial information and the Company's percentage interest owned are as follows:
Hugo Neu-Proler Company 50 % Prolerized New England Company 50 % Prolerized Chicago Corporation (a) 50 % HPNJ 50 % HPI 49 % Prolerized Schiabo-Neu Company 331/3%
- ---------------------------- (a) Sold in October, 1993 The terms of the HPNJ and HPI agreements expire May 25, 1994 unless extended by unanimous consent of the partners. The Company's future involvement with these joint ventures is uncertain at this time; however, in the event of their dissolution, management anticipates that the carrying value of the underlying assets would be recovered. 34 PROLER INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED A summary of the financial position of the combined joint operations (100% basis) is as follows (dollars in thousands):
JANUARY 31, --------------------- 1994 1993 -------- -------- Current assets, primarily inventory.. $48,593 $ 78,764 Property, plant and equipment, net... 26,416 28,244 Other................................ 252 483 ------- -------- $75,261 $107,491 ======= ======== Current liabilities.................. $ 9,708 $ 8,700 Other liabilities.................... 639 252 Stockholders' and partners' equity... 64,914 98,539 ------- -------- $75,261 $107,491 ======= ========
The Company's investment in the joint operations and its percentage interest in the above assets and liabilities as of January 31, 1994 and 1993 is set forth below (dollars in thousands):
JANUARY 31, --------------------- 1994 1993 -------- -------- Current assets, primarily inventory.. $23,432 $36,986 Property, plant and equipment, net... 11,626 12,438 Other assets......................... 126 241 Less: Liabilities................... (4,948) (4,262) Adjustment to conform reporting periods............................. (3,963) (5,265) ------- ------- Net investment....................... $26,273 $40,138 ======= =======
A summary of the results of operations of the combined joint operations is as follows (dollars in thousands): Combined 100% Basis:
FOR THE YEARS ENDED JANUARY 31, ------------------------------------ 1994 1993 1992 -------- -------- -------- Net sales........................ $307,455 $198,575 $214,749 ======== ======== ======== Gross profit (loss).............. $ 13,095 $ (1,012) $ (131) ======== ======== ======== Earnings (loss).................. $ 5,304 $(11,582) $ (7,961) ======== ======== ========
Company Percentage Interest:
FOR THE YEARS ENDED JANUARY 31, ------------------------------------ 1994 1993 1992 -------- -------- -------- Net sales....................... $142,197 $ 92,419 $ 99,616 ======== ======== ======== Gross profit (loss)............. $ 6,037 $ (337) $ 376 ======== ======== ======== Earnings (loss)................. $ 2,768 $ (5,660) $ (3,327) ======== ======== ========
35 PROLER INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 4. BANK DEBT In October 1993, the Company executed an amended and restated credit agreement with a bank which provides for a $15 million revolving line of credit and a $7 million letter of credit facility. The agreement is collateralized by substantially all of the Company's assets, including its rights to cash distributions from certain joint operations. As of January 31, 1994, no borrowings were outstanding on the revolving line of credit and $5.4 million of letters of credit were outstanding under the letter of credit facility. The revolving line of credit and letter of credit facility terminate on October 31, 1994 and March 31, 1995, respectively. Amounts available under the agreement are computed in accordance with a borrowing base formula and are generally limited by values assigned to accounts receivable and inventory. A commitment fee of 1/2 percent per annum is charged on the unused portion of the revolving line of credit. Borrowings under the line of credit facility bear interest at the bank's prime rate. Under the terms of the credit agreement, the Company must maintain, among other things, a minimum net worth of $55 million, specified ratios of current assets to current liabilities and specified levels of earnings before interest, taxes, depreciation and amortization as computed in accordance with the agreement. In addition, the Company is restricted as to the payment of cash dividends, limited as to incurring additional indebtedness, and limited to incurring capital expenditures in excess of certain amounts. 5. SALES OF ASSETS On June 25, 1992, the Company sold its 255 shares of capital stock in Maru Shipping Company, Inc. ("Maru"), a 50% owned joint operation, to Hugo Neu & Sons, Inc., the other joint interest owner, for a purchase price of $3.8 million in cash. The purchase price, combined with a $3.5 million cash dividend received in May, 1992, approximated the carrying cost of the Company's investment in Maru as of January 31, 1992. The Company's share of pre-tax earnings was $554,000 in fiscal 1992. On July 23, 1992, the Company sold the assets associated with its ferrous and non-ferrous scrap processing plant located in Houston, Texas to an unrelated third party for $8.8 million. The assets sold included real estate on which the plant is located, improvements, fixtures and equipment, and certain intangibles including contract rights and customer and supplier lists. The Company recorded net sales of $24.4 million and $57.4 million attributable to operations at this plant in fiscal 1993 and 1992, respectively and a gross profit of $1.8 million in both years. In October, 1993, substantially all of the assets of Prolerized Chicago Corporation, a 50%-owned joint operation, were sold to an unrelated third party for an aggregate consideration of approximately $2.4 million. The Company recognized a pre-tax gain of approximately $0.5 million attributable to its interest in this sales transaction. Such amount is included in earnings (loss) from joint operations. The Company's share of this joint operation's pre-tax earnings (loss) was $442,000, $149,000 and $(21,000) in fiscal 1994, 1993, and 1992, respectively. 36 PROLER INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 6. INCOME TAXES The Company adopted the provisions of Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes" effective February 1, 1993 and the cumulative effect of this change is a decrease in net loss of $118,000 or $.03 per share for fiscal 1994. Prior years' financial statements have not been restated to apply the provisions of SFAS No. 109. This statement changes the criteria for the recognition and measurement of deferred tax assets or liabilities, including net operating loss carryforwards. The provision (benefit) for income taxes is comprised of the following (dollars in thousands):
FOR THE YEARS ENDED JANUARY 31, --------------------------------- 1994 1993 1992 ------- ----------- ----------- Current: Federal............................... $ 291 $ (367) $(3,553) State................................. 277 170 154 Deferred: Federal............................... -- (2,660) (1,496) ----- ------- ------- Provision (benefit) for income taxes.. $ 568 $(2,857) $(4,895) ===== ======= =======
The difference between the effective rates reflected in the provision (benefit) for income taxes and the amounts which would be determined by applying the statutory federal tax rate to earnings (loss) before income taxes are analyzed below (dollars in thousands):
FOR THE YEARS ENDED JANUARY 31, ---------------------------------- 1994 1993 1992 --------- ----------- ---------- Provision (benefit) for income taxes at statutory rate.... $ (616) $(4,340) $(7,216) Increases (reductions) resulting from: Effect of undistributed earnings of 75% owned subsidiary.. -- -- 127 Effect of undistributed earnings of corporate joint operations.............................................. (167) 274 2 Effect of liquidating distribution of corporate joint operation............................................... 258 -- -- Federal income taxes of corporate joint operations and foreign sales corporations.......................... 357 (19) 37 State income taxes, net................................... 202 112 68 Earnings of foreign sales corporations.................... (518) (2) (14) Goodwill amortization..................................... 77 -- -- Net operating loss carryforward for financial reporting purposes not currently utilizable....................... 1,039 1,107 2,110 Other, net................................................ (64) 11 (9) ------ ------- ------- Provision (benefit) for income taxes...................... $ 568 $(2,857) $(4,895) ====== ======= =======
37 PROLER INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Deferred taxes are recorded based upon differences between the financial statement and tax bases of assets and liabilities and available tax credit carryforwards. Temporary differences and carryforwards which give rise to these deferred tax assets and liabilities at January 31, 1994 are as follows (dollars in thousands):
January 31, 1994 ---------------- Deferred tax assets: Deferred compensation $ 843 Reserves not currently deductible for tax 940 Net operating loss and other tax carryforwards 6,720 Other 226 ------- 8,729 ------- Deferred tax liabilities: Deferred gain on involuntary conversion of a property 899 Depreciation 1,476 ------- 2,375 ------- Net deferred tax asset 6,354 Valuation allowance (6,354) ------- $ -- =======
Deferred income taxes are provided for differences in the recognition of revenue and expenses for tax and financial statement purposes and their effect was as follows (dollars in thousands):
FOR THE YEARS ENDED JANUARY 31, ---------------------------------- 1994 1993 1992 ------------ -------- --------- Earnings and distributions from corporate joint operations.. $ 4 $ (71) $ 15 Depreciation................................................ (11) (604) (163) Deferred compensation....................................... 22 (127) (172) Deferred gain on sale of Houston plant...................... -- (550) -- Deferred income on sale of Maru Shipping Company, Inc....... -- (1,156) -- Accrued liabilities......................................... 329 519 (333) Net operating loss carryforward for financial reporting purposes utilized currently................................ (276) (523) (829) Other, net.................................................. (68) (148) (14) ------------ -------- -------- Provision (benefit) for deferred federal income taxes....... $ -- $ (2,660) $ (1,496) ============ ======== ========
The Company has net operating loss carryforwards at January 31, 1994 for regular tax and alternative minimum tax reporting purposes which amounted to approximately $17 million and $10 million, respectively. The net operating loss carryforwards expire at various dates through 2009. The Company also has alternative minimum tax and investment tax credit carryforwards of approximately $0.7 million and $0.3 million, respectively, which expire at various dates. 38 PROLER INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMETNS, CONTINUED 7. STOCKHOLDERS' EQUITY On June 12, 1975, the Company authorized 500,000 shares of $1 par value preferred stock of which 50,000 shares have been designated as Series A Junior Participating Preferred Stock. No shares have been issued under this authorization. Stockholder Rights Plan. In September 1988 the Company adopted a stockholder rights plan and declared a dividend distribution of one preferred stock purchase right on each outstanding share of the Company's common stock. Pursuant to the terms of the rights plan, the number of rights associated with each share of common stock was proportionately adjusted to reflect the three- for-one split of the Company's common stock on July 17, 1989, so that from and after that date each share of common stock entitles the holder to one-third of one preferred stock purchase right. The rights may become exercisable if a person or group acquires 20% or more of the Company's common stock or announces an offer to acquire 30% or more of the common stock. Each right initially will entitle stockholders to buy one one-hundredth of a share of the Company's Series A Junior Participating Preferred Stock, $1 par value per share, at a price of $200. If the Company is acquired in a merger or other business combination at any time after the rights become exercisable and the Company is not the surviving corporation or its common stock is changed or exchanged or 50% or more of the Company's assets or earning power is sold or transferred, each such right will entitle its holder to purchase common shares of the acquiring company having a market value of twice the exercise price of each right (i.e., at a 50% discount). If a 20% or greater holder acquires the Company and the Company is the surviving corporation and its common stock is not changed or exchanged, or such holder engages in one or more "self-dealing" transactions as set forth in the Rights Agreement or increases its beneficial ownership of the Company by more than one percent in a transaction involving the Company, each right will entitle its holder, other than the acquiror, to purchase common stock of the Company (or under certain circumstances to receive cash, preferred stock, or other securities of the Company), at a similar 50% discount from market value at that time. Prior to acquisition by a person or group of beneficial ownership of 20% or more of the Company's common stock, the rights are redeemable for one cent per right at the option of the Board of Directors. In addition, the rights may be redeemed by stockholder action at one cent per right when certain procedures are complied with in connection with an acquisition proposal. Stock Option Plan. The Company has a stock option plan whereby key employees may be granted options to purchase up to 180,000 shares of the Company's common stock at a price, determined by a committee of the Board of Directors, which cannot be less than 50% of the fair market value of the common stock on the date of grant. No options have been granted at less than 100% of the fair market value of the common stock on the date of the grant. At January 31, 1994, a total of 33,155 shares remained available for grant under the plan. A summary of activity relating to stock options is as follows: 39 PROLER INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
STOCK OPTIONS --------------- Outstanding, January 31, 1991 ($14.00 to $23.00 per share).. 175,490 Granted ($13.00 per share)................................ 3,000 Exercised................................................. -- Cancelled (1)............................................. (44,315) ------- Outstanding, January 31, 1992 ($13.00 to $23.00 per share).. 134,175 Granted ($5.375 per share)................................ 12,000 Exercised................................................. -- Cancelled (1)............................................. (34,310) ------- Outstanding, January 31, 1993 ($5.375 to $23.00)............ 111,865 Granted ($8.00 to $10.875 per share)...................... 53,000 Exercised................................................. -- Cancelled (1)............................................. (18,020) ------- Outstanding, January 31, 1994 ($5.375 to $23.00)............ 146,845 =======
(1) These cancelled options of former employees are available for reissuance under the stock option plan. The options are exercisable in three equal annual installments commencing on the first anniversary of the date of grant. At January 31, 1994, 21,000 options at $19.21 per share, 5,250 options at $23.00 per share, 18,795 at $22.50 per share, 33,800 at $14.00 per share, 2,000 at $13.00 per share, 4,000 at $5.375 per share, and 8,000 at $8.00 per share were exercisable. Incentive Compensation Plan. The Company has a plan whereby key employees have the opportunity to earn annual bonus awards based on their achievement of performance goals approved by the Compensation Committee of the Board of Directors. Under the plan, a portion of each award (twenty-five percent for fiscal 1994) will be payable in restricted shares of common stock. One-third of the shares of stock awarded will vest each year on the anniversary of the last day of the fiscal year to which the award pertains. The issuance of the shares is contingent upon the employee remaining employed by the Company on each vesting date, subject to the exceptions provided in the Plan. For the fiscal year ended January 31, 1994 cash awards of $219,000 and 9,590 shares were awarded to seven employees. Stock Grant Agreement. The Company had a stock grant agreement with one of its officers. Through January 31, 1993, this officer received 20,400 shares of the Company's common stock, the total provided in the agreement. 8. COMMITMENTS AND CONTINGENCIES Commitments. As a joint venturer, the Company and one of its subsidiaries are jointly and severally liable for the liabilities of the Company's unincorporated joint operations. The joint operations lease certain tracts of real estate and improvements under cancelable and non-cancelable agreements. Total rent expense was approximately $2,800,000, $2,900,000 and 40 PROLER INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATE FINANCIAL STATEMENTS, CONTINUED $2,600,000 in 1994, 1993 and 1992, respectively, related to these lease agreements. The Company and its joint operations' minimum rental commitments (100% basis) under non-cancelable leases as of January 31, 1994 are as follows (dollars in thousands):
Year Ending January 31, ----------- 1995................................ $ 596 1996................................ 543 1997................................ 551 1998................................ 555 1999................................ 458 Thereafter.......................... 245 ------ $2,948 ======
Certain of these leases provide for additional rentals based on increases of the fair market value of the property leased and call for payment of property taxes by the lessor. In addition, most leases contain renewal clauses. The Company and its subsidiaries lease certain tracts of real estate under cancelable agreements. Total rent expense was approximately $133,000, $93,000 and $491,000 in fiscal 1994, 1993, and 1992 respectively. Contingencies. Certain materials resulting from the Company's operations must be handled consistent with federal and state environmental laws and regulations. Compliance with such laws and regulations were an area of concern to the Company as questions were being raised as to whether automobile shredder residue, ("ASR" or "fluff") contains excessive concentrations of certain heavy metals, polychlorinated biphenyls ("PCB's") and other contaminants. A 1988 Environmental Protection Agency ("EPA") study released in 1990 concerning potential contamination in ASR indicated that the potential risk depends on the constituent make up of the fluff and the management practices at the sites where the fluff is generated. Pending further study, the EPA recognized that shredding operations that are well managed and conducted in an environmentally sound manner provide valuable environmental benefits. The Company has successfully implemented source control programs to identify and to reduce the sources of lead and certain other heavy metals in ASR. To date, tests of ASR generated by the Company and its joint operations indicate that levels of PCB's, lead, cadmium, and other contaminants are generally within acceptable levels under EPA and state procedures. The Company continues to evaluate additional methods of further reducing contaminants in ASR. As with any business that produces significant amounts of industrial wastes, the Company could face substantial additional costs if past disposal practices would no longer be deemed acceptable by the EPA or state regulatory agencies, although it does not currently expect this result. Hugo Neu-Proler Company ("HNP"), a 50% owned joint operation of the Company, is involved in discussions with the Port of Los Angeles and the California Regional Water Quality Control Board (the "RWQCB") concerning proposals for remediation by HNP of certain environmental conditions at that location. HNP and the Port have also been negotiating a renewal of the Company's lease, which is due to expire on August 30, 1994. The Port is in the completion stages of developing an Environmental Impact Report of HNP activities and site conditions in connection with the lease renewal. Under the current lease, HNP would be responsible for remediating certain environmental conditions on the property 41 PROLER INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED caused by HNP, the extent and cost of which are uncertain. Currently, HNP estimates that it will incur capital expenditures of a minimum of $4.0 million to $5.0 million in connection with environmental control facilities at the Terminal Island location over the next six-year period. In December 1992, HNP signed a Memorandum of Understanding with the Port relating to the lease renewal and in fiscal 1994 provided letters of credit totaling $7.9 million ($3.95 million each from the Company and HNP's other owner) to secure HNP's remediation obligations under the lease. HNP is required to provide additional letters of credit and/or incur additional costs of up to $2.0 million (or $1.0 million by each joint owner) in connection with such environmental obligations by September, 1994. HNP has accrued approximately $1.0 million to cover the costs of anticipated remediation at this site. As reported earlier, the EPA contacted the Company in August 1989 regarding testing for possible contamination at a site in Tampa, Florida previously operated by MRI Corporation, a wholly-owned subsidiary of the Company. The Company and the EPA took split soil and groundwater samples from the site for analysis. The Company has learned that in late 1990, an EPA consultant issued a report recommending that further consideration be given to possible ranking this site using the EPA's hazardous ranking package. Based on that recommendation the EPA took additional samples at the site in 1992. The Company had previously conducted extensive clean-up operations at the Tampa site when it was closed in 1988. The financial implications of the Company's current investigation or any agency action are uncertain at this time and the Company is continuing to evaluate whether any further corrective action is necessary or appropriate. MRI Corporation has been notified that it may be a potentially responsible party ("PRP") with respect to three sites in Hillsborough County, Florida. In addition, in October 1992, Hillsborough County filed an action seeking contribution, response cost recovery, and damages from PRP's at one of these sites and named the Company, among others, as a defendant in this action. Based on information provided to the Company, management believes that MRI Corporation's involvement is de minimis and amounts ultimately payable, if any, will not have a material adverse effect on the Company's financial position or results of operations. The Company and its chairman, among others, have been named as defendants in a lawsuit pending in the United States District Court for the Central District of California, by a former manager of a joint operation. The plaintiff alleges causes of action arising out of his termination in December 1988 as general manager of HNP. On April 22, 1993, the parties entered into an agreement under which the Company would pay plaintiff a total of $450,000 in settlement of this matter, of which at least $175,000 would be covered by the Company's insurance. The settlement agreement with the Company is contingent upon the implementation of a further settlement agreement between the plaintiff and certain other defendants which required parties other than the Company to obtain certain tax rulings and court approvals on matters unrelated to the Company. Trial is currently set for November 15, 1994. The Court has granted several continuances to permit the implementation of the settlement and it is anticipated that the Court will continue to do so in the future if necessary. In March, 1988, the Company commenced an action against a vendor claiming that the vendor breached a 1984 sales agreement requiring the vendor to sell certain scrap materials to the Company and HNP. The vendor filed certain counterclaims against the Company and HNP alleging breach of contract, breach of duties of good faith and fair dealing and fraud. The trial of this case began on March 7, 1994. On March 11, 1994, the parties entered into an agreement in settlement of all litigation, claims and counterclaims pursuant to which HNP agreed to pay the vendor $1.1 million (of which $550,000 is the Company's share). The vendor and HNP also entered into an agreement granting HNP a right of first 42 PROLER INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDTED FINANCIAL STATEMENTS, CONTINUED refusal to purchase the vendor's scrap metals for a period of nine years. HNP has accrued $1.4 million as of December 31, 1993 covering this settlement and all of its remaining litigation expenses related to this matter. The Company is also subject to certain other litigation and claims arising in the ordinary course of business. In the opinion of management, the disposition of these claims and lawsuits will not have a material adverse effect on the Company's financial position or results of operations. 9. RELATED PARTY TRANSACTIONS Certain joint operations sell recycled metal overseas through foreign sales corporations. To facilitate these sales, two of the other joint operations' partners act as agents and are paid commission expenses which totaled approximately $1,651,000, $1,087,000 and $1,190,000 for the years ended January 31, 1994, 1993 and 1992, respectively, net to the Company. The Company received funds in excess of costs for various items sold to the joint operations which amounted to approximately $308,000, $106,000 and $221,000 for the years ended January 31, 1994, 1993 and 1992, respectively. During 1994, 1993 and 1992, the Company recorded legal and professional fees of approximately $459,000, $1,263,000 and $501,000, respectively, for services rendered by firms of which two of the Company's directors have an ownership interest. 10. SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION The Company is engaged principally in the processing of ferrous and non-ferrous metals for recycling. Excluding the Company's share of the joint operations, sales to unaffiliated customers which exceeded 10% of total consolidated net sales were made to two, two and three customers in fiscal 1994, 1993 and 1992, respectively. Sales to these customers were: 1994 - 15% and 27%; 1993 -18% and 11%; and 1992 - 17%, 14% and 11% of total sales. The table below summarizes for the last three fiscal years the Company's export sales (including its share of the export sales of each joint operation in which it owns an interest) by geographical area (dollars in thousands):
FOR THE YEARS ENDED JANUARY 31, -------------------------------- 1994 1993 1992 ---------- ------- -------- To Customers in Europe................. $ -- $ 1,854 $ 3,541 To Customers in the Far and Near East.. 122,086 79,712 84,485 To Customers in Mexico................. -- 795 2,272 To Customers in South America.......... 3,044 1,751 2,458 To Customers in Canada................. 4,961 104 69 To Other Export Customers.............. 2,003 299 -- -------- ------- -------- Total Export Sales..................... $132,094 $84,515 $92,825 ======== ======= ========
43 PROLER INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 11. EMPLOYEE BENEFIT PLANS Tax Deferred Savings and Retirement Plan and Trust In April, 1990 the Company began a Tax Deferred Savings and Retirement Plan and Trust (401K) Plan for the employees of the Company and its 100% owned subsidiaries. Eligible employees may contribute up to 15% of their compensation to this plan and their contributions are matched by the Company at an amount equal to 50% of each employee's contribution up to $1,000, 25% of each employee's contribution from $1,001 to $2,000 and 10% of each employee's contribution in excess of $2,000 up to the statutory limit. The Company contributed approximately $55,000, $51,000 and $118,000 to this plan for the years ended January 31, 1994, 1993, and 1992, respectively. Deferred Compensation Plan The Company has a deferred compensation plan (the "Plan") covering selected key executives. The Company accrues currently the estimated present value of the future payments to be made to each plan participant at the time of retirement. The Plan excludes prior service and, in the event of permanent disability, the participant will be entitled to receive a monthly benefit for a period of ten years following the latter of the date of retirement or attainment of age 65. All benefits will be equal to 50% of the current participants' annual salary in the year the participant enters the Plan. Net periodic deferred compensation costs for the years ended January 31, 1994, 1993 and 1992 included the following components (dollars in thousands):
FOR THE YEARS ENDED JANUARY 31, ------------------------------- 1994 1993 1992 --------- --------- --------- Service cost-benefits earned during the period.. $ 47 $ 147 $ 246 Interest cost on projected benefit obligation... 213 212 211 Net amortization and deferral................... 95 95 95 --------- --------- --------- Net periodic deferred compensation costs........ $ 355 $ 454 $ 552 ========= ========= =========
The unfunded obligations for plan benefits and the amount recognized in the Company's balance sheet at January 31, 1994 and 1993 are reconciled as follows (dollars in thousands):
1994 1993 -------- ------- Actuarial present value of benefit obligations: Accumulated and projected benefit obligation........ $3,487 $3,329 Unrecognized prior service cost..................... (653) (726) Unrecognized net gain (loss)........................ (181) 5 Unrecognized transition obligation.................. (173) (194) Adjustment required to recognize minimum liability.. 915 915 ------- ------ Deferred compensation liability..................... $3,395 $3,329 ======= ======
The assumed discount rate used to compute the present value of benefit obligations was 6.5% and 7.0% for fiscal 1994 and 1993, respectively. The vested portion of the projected benefit obligation as of January 31, 1994, 1993 and 1992 was $3,304,000, $3,301,000 and $546,000, respectively. 44 PROLER INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 12. SUBSEQUENT EVENT Effective February 28, 1994, Prolerized Steel Corporation, a wholly-owned subsidiary of the Company, sold substantially all of its assets used in connection with the operation of a scrap metal processing facility located in Kansas City, Kansas. The assets were sold to an unrelated third party for a purchase price of approximately $5.0 million. On April 29, 1994, the Company's Vinton, Texas scrap processing facility was sold to an unrelated third party for approximately $2.6 million. The Company recorded net sales of $29.1 million, $20.9 million and $25.8 million and gross profit (loss) of $0.6 million, $0.1 million and $(1.6) million attributable to the operations at the Kansas City and Vinton plants in fiscal 1994, 1993, and 1992, respectively. 13. UNAUDITED QUARTERLY FINANCIAL INFORMATION The following is a summary of quarterly financial results for fiscal 1994 and 1993 (dollars in thousands except per share data). The results for the quarters beginning August 1, 1992, among other things, reflect the sale of the Houston facility in late July, 1992.
THREE MONTHS ENDED ------------------------------------------------------------------------------- APRIL 30, JULY 31, OCTOBER 31, JANUARY 31, 1993 1993 1993 1994 -------- -------- ----------- ----------- Net sales............................... $ 8,169 $10,031 $12,386 $ 13,120 ======= ======= ======= ======== Gross profit............................ $ 125 $ 18 $ 369 $ 525 ======= ======= ======= ======== Income (loss) before accounting change.. $(1,258) $ 74 $ 2,104 $ (3,300) ======= ======= ======= ======== Cumulative effect of accounting change.. $ 118 $ -- $ -- $ -- ======= ======= ======= ======== Net income (loss)....................... $(1,140) $ 74 $ 2,104 $ (3,300) ======= ======= ======= ======== Income (loss) before accounting change per share....................... $ (.27) $ .02 $ .45 $ (.71) ======= ======= ======= ======== Cumulative effect of accounting change per share.............................. $ .03 $ -- $ -- $ -- ======= ======= ======= ======== Net income (loss) per share............. $ (.24) $ .02 $ .45 $ (.71) ======= ======= ======= ========
THREE MONTHS ENDED ------------------------------------------------------------------------------- APRIL 30, JULY 31, OCTOBER 31, JANUARY 31, 1992 1992 1992 1993 -------- -------- ----------- ----------- Net sales............................... $22,846 $21,939 $11,908 $ 7,149 ======= ======= ======= ======= Gross profit (loss)..................... $ 907 $ 414 $ (648) $ (748) ======= ======= ======= ======= Gain on sale of assets, net............. $ -- $ 1,560 $ -- $ -- ======= ======= ======= ======= Net loss................................ $(2,599) $(1,436) $(1,936) $(3,938) ======= ======= ======= ======= Net loss per share...................... $ (.55) $ (.31) $ (.41) $ (.83) ======= ======= ======= =======
45 PROLER INTERNATIONAL CORP. AND SUBSIDIARIES SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT FOR THE THREE YEARS ENDED JANUARY 31, 1994 (IN THOUSANDS)
===================================================================================================================== COL. A COL. B COL. C COL. D COL. E COL. F - --------------------------------------------------------------------------------------------------------------------- OTHER BALANCE AT CHANGES BALANCE AT BEGINNING ADDITIONS ADD (DEDUCT) END OF CLASSIFICATION OF PERIOD AT COST RETIREMENTS DESCRIBE(1) PERIOD - --------------------------------------------------------------------------------------------------------------------- 1994: Land................................ $ 931 $ -- $ -- $ (140) $ 791 --------- --------- ----------- ------------ ---------- Depreciable property: Machinery and equipment ........... 18,443 32 632 (1,146) 16,697 Automobiles, trucks and trailers .. 431 51 48 -- 434 Buildings ......................... 1,675 11 2 409 2,093 Yard improvements ................. 3,477 249 47 707 4,386 Furniture and fixtures ............ 211 62 1 -- 272 --------- --------- ----------- ------------ ---------- 24,237 405 730 (30) 23,882 --------- --------- ----------- ------------ ---------- Assets held for sale ............... 9,373 -- 1,005 1,605 9,973 --------- --------- ----------- ------------ ---------- Construction in progress ........... 2,983 2,223 56 (1,435) 3,715 --------- --------- ----------- ------------ ---------- Total property, plant and equipment......................... $ 37,524 $ 2,628 $ 1,791 $ -- $ 38,361 ========= ========= =========== ============ ========== 1993: Land ............................... $ 7,151 $ -- $ 2,027 $ (4,193) $ 931 --------- --------- ----------- ------------ ---------- Depreciable property: Machinery and equipment ........... 43,399 345 22,768 (2,533) 18,443 Automobiles, trucks and trailers... 2,275 25 1,869 -- 431 Buildings.......................... 4,885 11 1,661 (1,560) 1,675 Yard improvements ................. 4,532 4 1,074 15 3,477 Furniture and fixtures............. 889 129 809 2 211 --------- --------- ----------- ------------ ---------- 55,980 514 28,181 (4,076) 24,237 --------- --------- ----------- ------------ ---------- Assets held for sale ............... -- -- -- 9,373 9,373 --------- --------- ----------- ------------ ---------- Construction in progress ........... 2,959 2,112 984 (1,104) 2,983 --------- --------- ----------- ------------ ---------- Total property, plant and equipment ......................... $ 66,090 $ 2,626 $ 31,192 $ -- $ 37,524 ========= ========= =========== ============ ========== 1992: Land ............................... $ 7,174 $ 67 $ 90 $ -- $ 7,151 --------- --------- ----------- ------------ ---------- Depreciable property: Machinery and equipment ........... 40,868 348 605 2,788 43,399 Automobiles, trucks and trailers ......................... 2,705 60 479 (11) 2,275 Buildings ......................... 4,797 65 6 29 4,885 Yard improvements ................. 4,246 26 16 276 4,532 Furniture and fixtures ............ 777 43 41 110 889 --------- --------- ----------- ------------ ---------- 53,393 542 1,147 3,192 55,980 Construction in progress ........... 3,895 3,612 1,356 (3,192) 2,959 --------- --------- ----------- ------------ ---------- Total property, plant and equipment ......................... $ 64,462 $ 4,221 $ 2,593 $ -- $ 66,090 ========= ========= =========== ============ ==========
- ------------- (1) Transfer to fixed assets from construction in progress and reclassification between certain categories. 46 PROLER INTERNATIONAL CORP. AND SUBSIDIARIES SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT FOR THE THREE YEARS ENDED JANUARY 31, 1994 (IN THOUSANDS)
=================================================================================================================== COL. A COL. B COL. C COL. D COL. E COL. F - ------------------------------------------------------------------------------------------------------------------- ADDITIONS OTHER BALANCE AT CHARGED TO CHANGES BALANCE AT BEGINNING COSTS AND ADD (DEDUCT) END OF DESCRIPTION OF PERIOD EXPENSES RETIREMENTS DESCRIBE (1) PERIOD - ------------------------------------------------------------------------------------------------------------------- 1994: Depreciable property: Machinery and equipment........... $14,042 $ 454 $ 451 $(1,148) $12,897 Automobiles, trucks and trailers.. 383 30 46 -- 367 Buildings......................... 1,332 69 5 58 1,454 Yard improvements................. 1,671 231 7 198 2,093 Furniture and fixtures............ 59 39 1 -- 97 ------- ------ ------- ------- ------- 17,487 823 510 (892) 16,908 Assets held for sale............... 2,594 26 730 892 2,782 ------- ------ ------- ------- ------- Total accumulated depreciation... $20,081 $ 849 $ 1,240 $ -- $19,690 ======= ====== ======= ======= ======= 1993: Depreciable property: Machinery and equipment........... $34,513 $1,554 $19,973 $(2,052) $14,042 Automobiles, trucks and trailers.. 1,950 109 1,681 5 383 Buildings......................... 2,602 195 1,114 (351) 1,332 Yard improvements................. 2,315 271 719 (196) 1,671 Furniture and fixtures............ 569 55 565 -- 59 ------- ------ ------- ------ ------- 41,949 2,184 24,052 (2,594) 17,487 Assets held for sale............... -- -- -- 2,594 2,594 ------- ------ ------- ------- ------- Total accumulated depreciation... $41,949 $2,184 $24,052 $ -- $20,081 ======= ====== ======= ======= ======= 1992: Depreciable property: Machinery and equipment........... $32,789 $2,208 $ 492 $ 8 $34,513 Automobiles, trucks and trailers.. 2,187 215 444 (8) 1,950 Buildings......................... 2,368 234 -- -- 2,602 Yard improvements................. 1,977 338 -- -- 2,315 Furniture and fixtures............ 529 82 42 -- 569 ------- ------ ------- ------- ------- Total accumulated depreciation... $39,850 $3,077 $ 978 -- $41,949 ======= ====== ======= ======= =======
(1) Reclassification between certain categories 47 PROLER INTERNATIONAL CORP. AND SUBSIDIARIES SCHEDULE IX - SHORT-TERM BORROWINGS FOR THE THREE YEARS ENDED JANUARY 31, 1994 (IN THOUSANDS)
================================================================================================================= COL A. COL. B COL. C COL. D COL. E COL. F - ----------------------------------------------------------------------------------------------------------------- MAXIMUM AVERAGE WEIGHTED WEIGHTED AMOUNT AMOUNT AVERAGE BALANCE AVERAGE OUTSTANDING OUTSTANDING INTEREST RATE CATEGORY OF AGGREGATE AT END INTEREST DURING THE DURING THE DURING THE SHORT-TERM BORROWINGS OF PERIOD RATE PERIOD PERIOD PERIOD - ----------------------------------------------------------------------------------------------------------------- 1994: Borrowings from Banks............ $ -- 6.00% $10,000 $ 3,407(2) 5.06%(2) 1993: Borrowings from Banks............ $ 5,000 6.00% $35,000 $27,237(2) 6.36%(2) 1992: Borrowings from Banks(1)......... $35,000 6.50% $37,500 $33,623(2) 8.87%(2)
- --------- (1) Uncollateralized notes due at various dates throughout the year. (2) Weighted average of monthly borrowings 48 PROLER INTERNATIONAL CORP. AND SUBSIDIARIES SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE THREE YEARS ENDED JANUARY 31, 1994 (IN THOUSANDS)
=============================================================== COL. A COL. B - ---------------------------------------------------------------- CHARGED TO COSTS AND ITEM EXPENSES - ---------------------------------------------------------------- 1994: 1. Maintenance and repairs..................... $1,860 3. Taxes, other than payroll and income taxes.. $ 516 1993: 1. Maintenance and repairs..................... $3,066 3. Taxes, other than payroll and income taxes.. $ 833 1992: 1. Maintenance and repairs..................... $6,402 3. Taxes, other than payroll and income taxes.. $1,374
Items 2, 4 and 5, depreciation and amortization of intangible assets; preoperating costs and similar deferrals; royalties and advertising costs, have been omitted in each year as they were either none or less than 1% of net sales. 49 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders of Proler International Corp. We have audited the combined financial statements and financial statement schedules of Proler International Corp.'s Joint Operations listed in the Index on page 25 of this Form 10-K. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements and financial statement schedules based on our audits. We did not audit the financial statements of certain joint operations which statements reflect total assets of approximately 19% and 23% of the related combined assets as of January 31, 1994 and 1993, respectively, and net sales of approximately 22%, 20% and 22% of the related combined total net sales for the years ended January 31, 1994, 1993 and 1992, respectively. Those statements were audited by another auditor whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for such joint operations, is based solely upon the reports of the other auditor. 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 and the reports of the other auditor provide a reasonable basis for our opinion. In our opinion, based upon our audits and the reports of the other auditor, the financial statements referred to above present fairly, in all material respects, the combined financial position of Proler International Corp.'s Joint Operations as of January 31, 1994 and 1993 and the combined results of their operations and their cash flows for each of the three years in the period ended January 31, 1994 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole and the reports of the other auditor, present fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND Houston, Texas April 29, 1994 50 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Partners of Prolerized Schiabo-Neu Company We have audited the accompanying consolidated balance sheets of the Prolerized Schiabo-Neu Company and its wholly-owned subsidiary, Prolerized Schiabo Neu Foreign Sales Corporation, as of December 31, 1993 and 1992, and the related consolidated statements of income, equity balances, and cash flows for each of the three years in the period ended December 31, 1993 and the consolidated financial statement schedules (not presented separately herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Prolerized Schiabo-Neu Company and its wholly-owned subsidiary, Prolerized Schiabo Neu Foreign Sales Corporation as of December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. In addition, the consolidated financial statement schedules referred to above, when considered in relation to the basic consolidated financial statement taken as a whole, present fairly the information required to be included therein. LA GUARDIA & PETRELLA March 14, 1994 Bridge Plaza Building Fort Lee, New Jersey 51 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors of Maru Shipping Company, Inc. We have audited the accompanying balance sheet of Maru Shipping Company, Inc. as of December 31, 1991, and the related statement of income, retained earnings, and cash flows for the year then ended and the financial statement schedules (not presented separately herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. 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 audit provides 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 Maru Shipping Company, Inc. as of December 31, 1991, and the results of its operations and its cash flows for year ended December 31, 1991, in conformity with generally accepted accounting principles. In addition, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly the information required to be included therein. LA GUARDIA & PETRELLA March 16, 1992 Bridge Plaza Building Fort Lee, New Jersey 52 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Dover Barge Company We have audited the accompanying balance sheets of Dover Barge Company as of January 31, 1994 and 1993, and the related statements of income, stockholders' equity, and cash flows for each of the three years in the period ended January 31, 1994 and the financial statement schedules (not presented separately herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Dover Barge Company at January 31, 1994 and 1993, and the results of its operations and cash flows for each of the three years in the period ended January 31, 1994, in conformity with generally accepted accounting principles. In addition, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly the information required to be included therein. LA GUARDIA & PETRELLA February 28, 1994 Bridge Plaza Building Fort Lee, New Jersey 53 PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS COMBINED BALANCE SHEETS JANUARY 31, 1994 AND 1993
1994 1993 -------- -------- ASSETS (in thousands) ------ Current assets: Cash and cash equivalents......................................... $ 2,164 $ 1,956 Accounts receivable: Trade............................................................ 5,627 3,097 Affiliates....................................................... 12,512 7,799 Other............................................................ 304 701 Inventories....................................................... 27,196 64,030 Prepaid expenses and other........................................ 790 1,181 ------- -------- Total current assets............................................. 48,593 78,764 Property, plant and equipment, net................................. 26,416 28,244 Deferred charges and other assets.................................. 252 483 ------- -------- Total assets................................................... $75,261 $107,491 ======= ======== LIABILITIES AND STOCKHOLDERS' AND PARTNERS' EQUITY -------------------------------------------------- Current liabilities: Accounts payable: Trade............................................................ $ 4,774 $ 2,968 Affiliates....................................................... 149 701 Accrued expenses................................................. 4,785 2,931 Note payable, affiliate........................................... -- 2,100 ------- -------- Total current liabilities........................................ 9,708 8,700 Other liabilities.................................................. 639 252 Commitments and contingencies Stockholders' and partners' equity................................. 64,914 98,539 ------- -------- Total liabilities and stockholders' and partners' equity.. ...... $75,261 $107,491 ======= ========
The accompanying notes are an integral part of the combined financial statements. 54 PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS COMBINED STATEMENTS OF OPERATIONS FOR THE THREE YEARS ENDED JANUARY 31, 1994 (IN THOUSANDS)
1994 1993 1992 --------- --------- --------- Net sales..................................... $307,455 $198,575 $214,749 Cost of sales................................. 294,360 199,587 214,880 -------- -------- -------- Gross profit (loss).......................... 13,095 (1,012) (131) Selling, general and administrative expenses.. 8,658 11,407 10,070 -------- -------- -------- Operating income (loss)...................... 4,437 (12,419) (10,201) Other income (expense): Interest income.............................. 94 73 1,059 Interest expense............................. (84) (35) (262) Litigation settlement costs.................. (1,400) -- -- Gain on asset sales.......................... 1,003 -- -- Other, net................................... 1,254 799 1,443 -------- -------- -------- Total other................................ 867 837 2,240 -------- -------- -------- Earnings (loss).......................... $ 5,304 $(11,582) $ (7,961) ======== ======== ========
The accompanying notes are an integral part of the combined financial statements. 55 PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS COMBINED STATEMENTS OF STOCKHOLDERS' AND PARTNERS' EQUITY FOR THE THREE YEARS ENDED JANUARY 31, 1994 (IN THOUSANDS)
RETAINED EARNINGS AND COMMON PARTNERSHIP STOCK CAPITAL TOTAL ------- ------------ ------------- Balances at January 31, 1991.... $ 422 $114,281 $114,703 Loss............................ -- (7,961) (7,961) Advances, net of distributions.. -- 29,744 29,744 ----- -------- -------- Balances at January 31, 1992.... 422 136,064 136,486 Liquidation of joint operation.. (255) (14,338) (14,593) Loss............................ -- (11,582) (11,582) Distributions, net of advances.. -- (11,772) (11,772) ----- -------- -------- Balances at January 31, 1993.... 167 98,372 98,539 Earnings........................ -- 5,304 5,304 Distributions, net of advances.. -- (38,929) (38,929) ----- -------- -------- Balances at January 31, 1994.... $ 167 $ 64,747 $ 64,914 ===== ======== ========
The accompanying notes are an integral part of the combined financial statements. 56 PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS COMBINED STATEMENTS OF CASH FLOWS FOR THE THREE YEARS ENDED JANUARY 31, 1994
1994 1993 1992 --------- --------- --------- Cash flows from operating activities: Earnings (loss)...................................... $ 5,304 $(11,582) $ (7,961) Adjustments to reconcile earnings (loss) to cash: Depreciation........................................ 5,132 5,232 5,937 Advances, net of distributions...................... -- -- 29,744 Gain on asset sales.................................. (1,003) -- -- Litigation settlement costs.......................... 1,400 -- -- Decrease (increase) in assets: Accounts receivable, trade.......................... (2,530) 2,144 (567) Accounts receivable, affiliates..................... (4,713) (60) (2,175) Accounts receivable, other.......................... 397 (433) (2) Inventories......................................... 36,834 14,585 (18,407) Prepaid expenses and other.......................... 391 (216) (700) Deferred charges and other assets................... 231 7,175 424 Increase (decrease) in liabilities: Accounts payable, trade............................. 1,806 (920) (2,131) Accounts payable, affiliates........................ (552) (200) 508 Accrued expenses.................................... 454 (995) (505) Other liabilities................................... 387 214 (207) -------- -------- -------- Net cash provided by operating activities........... 43,538 14,944 3,958 -------- -------- -------- Cash flows from investing activities: Purchases and transfers of property, plant and equipment........................................... (4,123) (3,731) (2,844) Proceeds from sales of property, plant and equip- ment................................................ 1,822 2,967 120 Liquidation of joint operation....................... -- (14,593) -- Distributions, net of advances....................... (38,929) (11,772) -- -------- -------- -------- Net cash used in investing activities............... (41,230) (27,129) (2,724) -------- -------- -------- Cash flows from financing activities: Net affiliate borrowings (repayments)................ (2,100) 2,100 -- Deposit in ship acquisition fund..................... -- -- (200) -------- -------- -------- Net cash provided by (used in) financing activities. (2,100) 2,100 (200) -------- -------- -------- Net increase (decrease) in cash and cash equivalents.................................... 208 (10,085) 1,034 Cash and cash equivalents at beginning of year........ 1,956 12,041 11,007 -------- -------- -------- Cash and cash equivalents at end of year.............. $ 2,164 $ 1,956 $ 12,041 ======== ======== ========
The accompanying notes are an integral part of the combined financial statements. 57 PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS NOTES TO COMBINED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies of Proler International Corp.'s ("Proler") joint operations are outlined below. Joint Operations The combined financial statements include all joint operations of (collectively the "Company") Proler as presented below. All significant balances and transactions between the combined joint operations have been eliminated in combination. Certain amounts included in the prior year financial statements have been reclassified to be consistent with the current year presentation.
INTEREST OF PROLER FORM OF INTERNATIONAL COMMENCED BUSINESS CORP. AND INTERESTS JOINT OPERATION OPERATION ORGANIZATION SUBSIDIARIES OF OTHERS --------------- --------- ------------ ------------- ---------------------- Hugo Neu-Proler Company......................... 1962 Partnership 50% Hugo Neu & Sons, Inc.-50% Prolerized Chicago Corporation (1).............. 1963 Corporation 50% M.S. Kaplan Company-50% Maru Shipping Company, Inc. (1)................. 1964 Corporation 50% Hugo Neu & Sons, Inc.- 50% Prolerized New England Company (3).............. 1966 Partnership 50% Hugo Neu Steel Products, Inc.-50%(2) Prolerized Schiabo-Neu Company.................. 1967 Partnership 331/3% Hugo Neu & Sons, Inc.-331/3% Schiavone-Bonomo Corp.-331/3% Dover Barge Company............................. 1967 Corporation 331/3% Hugo Neu & Sons, Inc.-331/3% Schiavone-Bonomo Corp.-331/3% Worcester Recycling, Inc. (3)................... 1972 Corporation 50% Hugo Neu Steel Products, Inc.-50%(2) Pacific Bulk Loading, Inc....................... 1972 Corporation 50% Hugo Neu & Sons, Inc.-50% H. Finkelman, Inc.(3)........................... 1977 Corporation 50% Hugo Neu Steel Products, Inc.-50%(2) Alameda Street Metal Corp....................... 1985 Corporation 50% Hugo Neu & Sons, Inc.-50% HPI............................................. 1989 Partnership 49% Hugo Neu & Sons, Inc.-49% Intercontinent Chartering Corporation-2% HPNJ............................................ 1989 Partnership 50% Hugo Neu & Sons, Inc.-50%
(1) See Note 4 to the combined financial statements. (2) A subsidiary of Hugo Neu & Sons, Inc. (3) Proleride Transport Systems, Inc., a wholly-owned subsidiary of Proler International Corp., is the Partner in this venture. 58 PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED Amounts are included as of December 31, and the years then ended for all joint operations except for Dover Barge Company which is as of January 31, and for the years then ended. The terms of the HPNJ and HPI agreements expire May 25, 1994 unless extended by unanimous consent of the partners. The Company's future involvement with these joint ventures is uncertain at this time; however, in the event of their dissolution, management anticipates that the carrying value of the underlying assets would be recovered. Approximately $28,857,000 and $44,024,000 of stockholders' and partners' equity at January 31, 1994 and 1993, respectively, and approximately $2,768,000, $(5,660,000) and $(3,327,000) of earnings (loss) for the years ended January 31, 1994, 1993 and 1992, respectively, are attributable to Proler International Corp. and one of its subsidiaries based upon their ownership interest. The remaining equity and net earnings are attributable to the other owners and partners. Inventories Inventories are stated at the lower of cost or market, cost being determined using the last-in, first-out (LIFO) and the first-in, first-out (FIFO) methods, for the joint operations as follows (dollars in thousands):
JANUARY 31, -------------------- 1994 1993 -------- ------- First-in, first out: Processed........... $ 9,134 $22,512 Unprocessed......... 1,135 641 -------- ------- 10,269 23,153 -------- ------- Last-in, first out: Processed........... 15,766 40,390 Unprocessed......... 1,161 487 -------- ------- 16,927 40,877 -------- ------- $ 27,196 $64,030 ======== =======
The excess of replacement cost over LIFO value was approximately $21,187,000 and $8,604,000 at January 31, 1994 and 1993, respectively. Federal Income Taxes Some of the joint operations are organized as partnerships and others as corporations. There is no provision for income taxes on joint operations reflected in the combined statement of earnings. 59 PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED Property, Plant and Equipment Depreciation is computed on the straight-line method for the major portion of the joint operations' assets. Lives used in computing depreciation fall within the following ranges:
YEARS ----- Machinery and equipment 3 to 13 Floating equipment 4 to 14 Automobiles, trucks and trailers 3 to 8 Buildings 5 to 25 Yard Improvements 4 to 25 Furniture and fixtures 5 to 10
When assets are retired or otherwise disposed, the costs and related accumulated depreciation are removed from the accounts and any gains or losses are reflected in income. Combined Statements of Cash Flows For the purposes of the Combined Statement of Cash Flows, the Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Cash paid for income taxes was approximately $500,000, $241,000 and $298,000 for fiscal 1994, 1993 and 1992, respectively. Concentration of Credit Risk The Company sells its products primarily to steel mills in the Far and Near East. The Company performs ongoing credit evaluations of its customers and requires letters of credit on all foreign sales. The Company maintains reserves for potential credit losses and such losses have been within management's expectations. The Company invests its excess cash in deposits with major banks and in money market securities of companies from a variety of industries. These securities typically mature within ninety days. The Company has not experienced any losses on its money market investments. 2. RELATED PARTY TRANSACTIONS Certain joint operations sell recycled metal overseas through foreign sales corporations. To facilitate these sales, two of the joint operations' partners other than the Company act as agents and are paid commissions generally equal to approximately 1% of gross sales. Commission expenses totaled approximately $3,540,000, $2,315,000 and $2,552,000 for the years ended January 31, 1994, 1993 and 1992, respectively. 60 PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED 3. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS (DOLLARS IN THOUSANDS)
Property, Plant and Equipment, at cost JANUARY 31, ---------------------- 1994 1993 -------- -------- Land................................. $ 5,065 $ 5,086 Machinery and equipment.............. 55,797 56,492 Floating equipment................... 1,338 1,338 Automobiles, trucks and trailers..... 5,127 5,006 Buildings............................ 9,886 9,816 Yard improvements.................... 9,966 10,077 Furniture and fixtures............... 1,026 983 Construction in process.............. 171 154 -------- -------- 88,376 88,952 Less accumulated depreciation...... (61,960) (60,708) -------- -------- $ 26,416 $ 28,244 ======== ======== Accrued Liabilities JANUARY 31, ---------------------- 1994 1993 -------- -------- Environmental accruals............... $ 972 $ 1,446 Accrued benefit plan contributions... 402 571 Accrued property taxes............... 239 450 Accrued litigation settlement costs.. 1,400 -- Accrued salaries..................... 147 97 Other accrued liabilities............ 1,625 367 -------- -------- $ 4,785 $ 2,931 ======== ========
4. SALES OF ASSETS In October, 1993, substantially all of the assets of Prolerized Chicago Corporation were sold to an unrelated third party for an aggregate consideration of approximately $2.4 million. The sale resulted in a gain of approximately $1.0 million. Net sales were $5.3 million, $1.4 million and $4.2 million and cost of sales was $5.2 million, $2.0 million and $4.0 million in fiscal 1994, 1993 and 1992, respectively. On June 25, 1992, Proler International Corp. sold its 255 shares of capital stock in Maru Shipping Company, Inc. ("Maru") to Hugo Neu & Sons, Inc., Maru's other 50% joint interest owner. The purchase price approximated the Company's net investment as of January 31, 1992. Since the Company no longer has an investment in Maru, its accounts have been eliminated in the accompanying financial statements as of February 1, 1992. Maru had revenues of approximately $2.3 million and operating expenses of approximately $1.9 million for the year ended January 31, 1992. 61 PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED 5. EMPLOYEE BENEFIT PLANS Six of the joint operations of the Company have adopted the employee defined contribution plan of Hugo Neu & Sons, Inc. Contributions by the joint operations to the trustee of the plan amounted to approximately $639,000, $571,000 and $522,000 for the fiscal years 1994, 1993, and 1992, respectively. One of the joint operations of the Company has adopted a separate pension plan for all executive administrative employees. The plan, among other things, provides for amortization of prior service costs over 30 years. The cost of the plan was approximately $35,000 and $14,000 for the fiscal years 1994 and 1992, respectively. No contribution was necessary in fiscal year 1993. This plan is expected to be terminated in 1994. In addition to the above plans, the processing and yard employees of several of the joint operations are covered under union administered plans. 6. COMMITMENTS AND CONTINGENCIES Commitments. The joint operations lease certain tracts of real estate and improvements under cancelable and non-cancelable agreements. Total rental expense was approximately $2,800,000, $2,900,000 and $2,600,000 in fiscal years 1994, 1993, and 1992, respectively. Minimum rental commitments under non- cancelable leases as of January 31, 1994 are as follows (dollars in thousands):
YEAR ENDING JANUARY 31, ----------- 1995........ $ 489 1996........ 425 1997........ 425 1998........ 425 1999........ 425 Thereafter.. 245 ------ $2,434 ======
Certain of these leases provide for additional rentals based on increases of the fair market value of the property leased and call for payment of property taxes by the lessor. In addition, most leases contain renewal clauses. Contingencies. Certain materials resulting from the Company's operations must be handled consistent with federal and state environmental laws and regulations. Compliance with such laws and regulations were an area of concern to the Company as questions were being raised as to whether automobile shredder residue, ("ASR" or "fluff") contains excessive concentrations of certain heavy metals, polychlorinated biphenyls ("PCB's") and other contaminants. A 1988 Environmental Protection Agency ("EPA") study released in 1990 concerning potential contamination in ASR indicated that the potential risk depends on the constituent make up of the fluff and the management practices at the sites where the fluff is generated. Pending further study, the EPA recognized that shredding operations that are well managed and conducted in an environmentally sound manner provide valuable environmental benefits. The Company has successfully implemented source control programs to identify and to reduce the sources of lead and certain other heavy metals in ASR. To date, tests of ASR generated by joint operations indicate that levels of PCB's, lead, cadmium, and other contaminants are generally within 62 PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED acceptable levels under EPA and state procedures. The Company continues to evaluate additional methods of further reducing contaminants in ASR. As with any business that produces significant amounts of industrial wastes, the joint operations could face substantial additional costs if past disposal practices would no longer be deemed acceptable by the EPA or state regulatory agencies, although it does not currently expect this result. Hugo Neu-Proler Company ("HNP"), a 50% owned joint operation of the Company, is involved in discussions with the Port of Los Angeles and the California Regional Water Quality Control Board (the "RWQCB") concerning proposals for remediation by HNP of certain environmental conditions at that location. HNP and the Port have also been negotiating a renewal of the Company's lease, which is due to expire on August 30, 1994. The Port is in the completion stages of developing an Environmental Impact Report of HNP activities and site conditions in connection with the lease renewal. Under the current lease, HNP would be responsible for remediating certain environmental conditions on the property caused by HNP, the extent and cost of which are uncertain. Currently, HNP estimates that it will incur capital expenditures of a minimum of $4.0 million to $5.0 million in connection with environmental control facilities at the Terminal Island location over the next six-year period. In December 1992, HNP signed a Memorandum of Understanding with the Port relating to the lease renewal and in fiscal 1994 provided letters of credit totaling $7.9 million ($3.95 million each from the Company and HNP's other owner) to secure HNP's remediation obligations under the lease. HNP is required to provide additional letters of credit and/or incur additional costs of up to $2.0 million (or $1.0 million by each joint owner) in connection with such environmental obligations by September, 1994. HNP has accrued approximately $1.0 million to cover the costs of anticipated remediation at this site. Proler, its chairman, and HNP, among others, have been named as defendants in a lawsuit pending in the United States District Court for the Central District of California, by a former manager of HNP. The plaintiff alleges causes of action arising out of his termination in December 1988. On April 22, 1993, the parties entered into an agreement under which Proler would pay plaintiff a total of $450,000 in settlement of this matter, of which at least $175,000 would be covered by Proler's insurance. The settlement agreement with Proler is contingent upon the implementation of a further settlement agreement between the plaintiff and certain other defendants which requires parties other than Proler and HNP to obtain certain tax rulings and court approvals on matters unrelated to Proler and HNP. Trial is currently set for November 15, 1994. The Court has granted several continuances to permit the implementation of the settlement and it is anticipated that the Court will continue to do so in the future if necessary. In March, 1988, Proler commenced an action against Pick-Your-Part Auto Wrecking, Inc. ("PYP") claiming that PYP breached a 1984 sales agreement requiring PYP to sell certain scrap materials to Proler and HNP. PYP filed certain counterclaims against Proler and HNP alleging breach of contract, breach of good faith and fair dealing and fraud. The trial of this case began on March 7, 1994. On March 11, 1994, the parties entered into an agreement in settlement of all litigation, claims and counterclaims pursuant to which HNP agreed to pay PYP $1.1 million. PYP and HNP also entered into an agreement granting HNP a right of first refusal to purchase PYP's scrap metals for a period of nine years. HNP has accrued $1.4 million as of December 31, 1993 covering this settlement and all of its remaining litigation expenses related to this matter. 63 PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED The Company is also subject to certain other litigation and claims arising in the ordinary course of business. In the opinion of management, the disposition of these claims and lawsuits will not have a material adverse effect on the Company's financial position and results of operations. 7. SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION The Company is principally engaged in the processing of ferrous and non- ferrous metals for recycling. Sales to unaffiliated customers which exceeded 10% of total consolidated net sales were made to two customers in fiscal 1994 and one customer in fiscal 1992. Sales to these customers were: 15% and 11% in 1994 and 12% in 1992 of total sales. The table below summarizes the export sales by geographic area (dollars in thousands).
FOR THE YEARS ENDED JANUARY 31, -------------------------------------- 1994 1993 1992 -------- -------- -------- To Customers in Europe................. $ -- $ 3,709 $ 7,868 To Customers in the Far and Near East.. 263,661 170,925 181,131 To Customers in Mexico................. -- 1,590 3,996 To Customers in South America.......... 6,572 3,502 5,207 To Customers in Canada................. 10,009 220 208 To Other Export Customers.............. 4,005 598 -- -------- -------- -------- Total Export Sales.................... $284,247 $180,544 $198,410 ======== ======== ========
64 PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT FOR THE THREE YEARS ENDED JANUARY 31, 1994 (IN THOUSANDS)
=========================================================================================================== COL. A COL. B COL. C COL. D COL. E COL. F - ----------------------------------------------------------------------------------------------------------- OTHER BALANCE AT CHANGES BALANCE AT BEGINNING ADDITIONS ADD (DEDUCT) END OF CLASSIFICATION OF PERIOD AT COST RETIREMENTS DESCRIBE (1) PERIOD - ----------------------------------------------------------------------------------------------------------- 1994: Land....................... $ 5,086 $ 29 $ 50 $ -- $ 5,065 ------- ------- ----------- ----------- ---------- Depreciable property: Machinery and equipment... 56,492 1,818 3,334 821 55,797 Floating equipment........ 1,338 -- -- -- 1,338 Automobiles, trucks and trailers................. 5,006 697 576 -- 5,127 Buildings................. 9,816 95 52 27 9,886 Yard improvements......... 10,077 553 664 -- 9,966 Furniture and fixtures.... 983 66 23 -- 1,026 ------- ------- ----------- ----------- ---------- 83,712 3,229 4,649 848 83,140 Construction in progress... 154 865 -- (848) 171 ------- ------- ----------- ----------- ---------- Total property, plant and equipment................ $88,952 $ 4,123 $ 4,699 $ -- $ 88,376 ======= ======= =========== =========== ========== 1993: Land....................... $ 3,575 $ 1,511 $ -- $ -- $ 5,086 ------- ------- ----------- ----------- ---------- Depreciable property: Machinery and equipment... 55,551 1,254 313 -- 56,492 Floating equipment........ 7,620 -- 6,282 -- 1,338 Automobiles, trucks and trailers................. 4,750 410 154 -- 5,006 Buildings................. 9,399 113 -- 304 9,816 Yard improvements......... 9,937 194 54 -- 10,077 Furniture and fixtures.... 1,000 91 108 -- 983 ------- ------- ----------- ----------- ---------- 88,257 2,062 6,911 304 83,712 Construction in progress... 543 158 243 (304) 154 ------- ------- ----------- ----------- ---------- Total property, plant and equipment................ $92,375 $ 3,731 $ 7,154 $ -- $ 88,952 ======= ======= =========== =========== ========== 1992: Land....................... $ 3,575 $ -- $ -- $ -- $ 3,575 ------- ------- ----------- ----------- ---------- Depreciable property: Machinery and equipment... 52,735 1,587 679 1,908 55,551 Floating equipment........ 7,620 -- -- -- 7,620 Automobiles, trucks and trailers................. 5,577 165 337 (655) 4,750 Buildings................. 9,409 -- 10 -- 9,399 Yard improvements......... 9,543 212 60 242 9,937 Furniture and fixtures.... 896 126 29 7 1,000 ------- ------- ----------- ----------- ---------- 85,780 2,090 1,115 1,502 88,257 Construction in progress... 1,291 754 -- (1,502) 543 ------- ------- ----------- ----------- ---------- Total property, plant and equipment................ $90,646 $ 2,844 $ 1,115 $ -- $ 92,375 ======= ======= =========== =========== ==========
- ------------- (1) Transfer to fixed assets from construction in progress and reclassification between certain categories. 65 PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT FOR THE THREE YEARS ENDED JANUARY 31, 1994 (IN THOUSANDS)
===================================================================================================== COL. A COL. B COL. C COL. D COL. E COL. F - ----------------------------------------------------------------------------------------------------- ADDITIONS OTHER BALANCE AT CHARGED TO CHANGES BALANCE AT BEGINNING COST AND ADD (DEDUCT) END OF DESCRIPTION OF PERIOD EXPENSE RETIREMENTS DESCRIBE PERIOD - ----------------------------------------------------------------------------------------------------- 1994: Depreciable property: Machinery and equipment... $42,556 $3,402 $2,690 $ -- $43,268 Floating equipment........ 1,122 39 -- -- 1,161 Automobiles, trucks and trailers................. 3,852 562 502 -- 3,912 Buildings................. 4,230 444 52 -- 4,622 Yard improvements......... 8,393 559 613 -- 8,339 Furniture and fixtures.... 555 126 23 -- 658 ------- ------ ------ ------- ------- Total accumulated depreciation............. $60,708 $5,132 $3,880 $ -- $61,960 ======= ====== ====== ======= ======= 1993: Depreciable property: Machinery and equipment... $39,325 $3,456 $ 225 $ -- $42,556 Floating equipment........ 4,767 39 3,684 -- 1,122 Automobiles, trucks and trailers................. 3,498 474 120 -- 3,852 Buildings................. 3,776 454 -- -- 4,230 Yard improvements......... 7,748 700 55 -- 8,393 Furniture and fixtures.... 549 109 103 -- 555 ------- ------ ------ ------- ------- Total accumulated depreciation............. $59,663 $5,232 $4,187 $ -- $60,708 ======= ====== ====== ======= ======= 1992: Machinery and equipment... $35,615 $3,581 $ 561 $ 690 $39,325 Floating equipment........ 4,401 366 -- -- 4,767 Automobiles, trucks and trailers................. 3,954 644 306 (794) 3,498 Buildings................. 3,379 444 45 (2) 3,776 Yard improvements......... 6,911 790 57 104 7,748 Furniture and fixtures.... 461 112 26 2 549 ------- ------ ------ ------- ------- Total accumulated depreciation............. $54,721 $5,937 $ 995 $ -- $59,663 ======= ====== ====== ======= =======
(1) Reclassification between certain categories 66 PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE THREE YEARS ENDED JANUARY 31, 1994 (IN THOUSANDS)
COL. A COL. B -------------------------------------------- ------- 1994: 1. Maintenance and repairs..................... $9,574 3. Taxes, other than payroll and income taxes.. $1,822 1993: 1. Maintenance and repairs..................... $7,797 3. Taxes, other than payroll and income taxes.. $ 818 1992: 1. Maintenance and repairs..................... $7,959 3. Taxes, other than payroll and income taxes.. $1,350
Items 2, 4 and 5, depreciation and amortization of intangible assets; preoperating costs and similar deferrals; royalties and advertising costs, have been omitted in each year as they were either none or less than 1% of net sales and revenues. 67 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3.1 Certificate of Incorporation of Proler International Corp. as amended to date. (Filed as Exhibit III.1 to the Company's Form 10-K for the fiscal year ended January 31, 1990 and incorporated herein by reference.) 3.2 By-laws of Proler International Corp. as amended to date. (Filed as Exhibit III.2 to the Company's Form 10-K for the fiscal year ended January 31, 1993 and incorporated herein by reference.) 4.1 Rights Agreement dated as of September 26, 1988 between Proler International Corp. and Texas Commerce Bank National Association. (Filed as Exhibit 4.1 to the Company's Form 10-Q for the fiscal quarter ended October 31, 1988 and incorporated herein by reference.) 10.1 Joint Venture Agreement dated January 5, 1962, between Hugo Neu Corporation and Proler Steel Corporation, related to Hugo Neu-Proler Company. (Filed as Exhibit 13.1 to the Company's Registration Statement No. 2-24928 and incorporated herein by reference.) 10.2 Amendments to Joint Venture Agreement dated January 5, 1962. (Filed as Exhibit 13.1(a) to the Company's Registration Statement No. 2- 40782 and incorporated herein by reference.) 10.3 Joint Venture Agreement dated October 13, 1965, between Hugo Neu- Steel Products, Inc. and Proleride Transport Systems, Inc., related to Prolerized New England Company. (Filed as Exhibit 13.15 to the Company's Registration Statement No. 2-24928 and incorporated herein by reference.) 10.4 Amendments to Joint Venture Agreement dated October 13, 1965. (Filed as Exhibit 13.2(a) to the Company's Registration Statement No. 2-40782 and incorporated herein by reference.) 10.5 Guaranty Agreement dated October 13, 1965, relating to Prolerized New England Company. (Filed as Exhibit 13.2(b) to the Company's Registration Statement No. 2-40782 and incorporated herein by reference.) 10.6 Joint Venture Agreement dated June 27, 1966, between Proler Steel Corporation, Hugo Neu Corporation and Schiavone-Bonomo Corporation related to Prolerized Schiabo-Neu Company. (Filed as Exhibit 13.22 to the Company's Registration Statement No. 2-24928 and incorporated herein by reference.) 10.7 Amendments to Joint Venture Agreement dated June 27, 1966. (Filed as Exhibit 13.4(a) to the Company's Registration Statement No. 2- 40782 and incorporated herein by reference.)
68 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.8 Lease Agreement dated August 1, 1974 between The City of Los Angeles and Hugo Neu & Sons, Inc. and Proler Steel Corporation. (Filed as Exhibit X.12 to Company's Form 10-K for the fiscal year ended January 31, 1981 and incorporated herein by reference.) 10.9 Split Dollar Agreement between Proler International Corp. and Elaine Proler, effective as of September 12, 1980. (Filed as Exhibit X.15 to Company's Form 10-K for the year ended January 31, 1982 and incorporated herein by reference.)* 10.10 Proler International Corp. Medical Reimbursement Plan as amended and restated effective February 1, 1991. (Filed as Exhibit X.12 to the Company's Form 10-K for the fiscal year ended January 31, 1992 and incorporated herein by reference.)* 10.11 Order No. 5472 dated November 6, 1985, approved the first amendment to permit No. 266 to Hugo Neu-Proler Company and resets compensation to be paid under the lease agreement dated August 1, 1974 for the period commencing August 31, 1984 through August 30, 1989. (Filed as Exhibit X.15 to Company's Form 10-K for the year ended January 31, 1986 and incorporated herein by reference.) 10.12 Amendment to Joint Venture Agreement dated August 2, 1962. (Filed as Exhibit 13.5 to the Company's Registration No. 2-24928 and incorporated herein by reference.) 10.13 Letter Agreement dated December 1, 1987, between Proler International Corp. and Robert L. Mueller regarding salary continuation upon severance of employment. (Filed as Exhibit X-17 to the Company's Form 10-K for the year ended January 31, 1988 and incorporated herein by reference.)* 10.14 Proler International Corp. Deferred Compensation Agreement for Robert L. Mueller dated December 1, 1987, as amended January 3, 1994.* 10.15 Severance Agreement dated December 20, 1993 between Robert Mueller and Proler International Corp.* 10.16 Proler International Corp. Deferred Compensation Agreement for Herman Proler dated December 22, 1987, as amended December 21, 1989. (Filed as Exhibit X.19 to the Company's Form 10-K for the fiscal year ended January 31, 1990 and incorporated herein by reference.)* 10.17 Proler International Corp. Executive Deferred Compensation Plan dated December 31, 1989. (Filed as Exhibit X.20 to the Company's Form 10-K for the fiscal year ended January 31, 1990 and incorporated herein by reference.)*
69 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.18 HPI Joint Venture Agreement between Hugo Neu & Sons Inc., the Company and Intercontinent Chartering Corporation dated May 25, 1989 (Filed as Exhibit X.21 to the Company's Form 10-K for the fiscal year ended January 31, 1991 and incorporated herein by reference.) 10.19 HPNJ Joint Venture Agreement between Hugo Neu & Sons Inc. and the Company dated May 25, 1989 (Filed as Exhibit X.22 to the Company's Form 10-K for the fiscal year ended January 31, 1991 and incorporated herein by reference.) 10.20 Proler International Corp. 1988 Stock Option Agreement (Filed as Exhibit X.23 to the Company's Form 10-K for the fiscal year ended January 31, 1991 and incorporated herein by reference.) 10.21 First Amended and Restated Credit Agreement Between Proler International Corp., Prolerized Steel Corporation, Proleride Transport Systems, Inc., Proler Recycling, Inc. and Proler Environmental Services, Inc., and Texas Commerce Bank National Association, dated effective as of August 31, 1993. (Filed as Exhibit 10 to the Company's Form 10Q for the Quarter ended October 31, 1993 and incorporated herein by reference). 10.22 Security Agreement dated August 31, 1992 by and among the Company, Prolerized Steel Corporation, Proleride Transport Systems, Inc., Proler Environmental Services, Inc. and Texas Commerce Bank National Association (Filed as Exhibit X.25 to the Company's Form 10-K for the fiscal year ended January 31, 1993 and incorporated herein by reference.) 10.23 Proler International Corp. Deferred Compensation Agreement for Norman Bishop dated effective April 16, 1993. (Filed as Exhibit X to the Company's Form 10Q for the Quarter ended April 30, 1993 and incorporated herein by reference).* 10.24 Proler International Corp. 1993 Incentive Compensation Plan. 21 Subsidiaries of Proler International Corp. 23 Consents of Accountants
- -------------------- * Indicates an agreement with management. 70 EX-10.14 2 DEF COMP PLAN PROLER INTERNATIONAL CORP. DEFERRED COMPENSATION PLAN FOR ROBERT L. MUELLER Proler International Corp., a Delaware corporation (the "Corporation'), hereby establishes this Deferred Compensation Plan (the "Plan"), for the purpose of providing additional compensation on a deferred basis to Robert L. Mueller ("Mueller"). I. The Effective Date of the Plan shall be December 11, 1987. ---------------------------------------------------------- II. Payment of Deferred Compensation -------------------------------- A. Mueller shall receive as deferred compensation an aggregate amount of $1,125,000, payable in monthly installments of $9,375 each, with the first such installment due and payable on January 1, 1995 and subsequent installments due and payable of the first day of each succeeding month until 120 installments have been paid. B. If Mueller does not live to receive all of the installments of deferred compensation to which he is entitled under the terms of this Plan, the balance of the installments remaining unpaid at the date of his death shall be paid to the beneficiary or beneficiaries designated by Mueller or, if no such designation has been made, to the executor or administrator of Mueller's estate or to his heirs at law if no administration is had on Mueller's estate. III. Forfeiture of Deferred Compensation. ------------------------------------ For purposes of the preceding paragraph, the term "Corporation" shall include subsidiaries of the Corporation and joint ventures to which the Corporation or its subsidiaries are parties. Payment of deferred compensation to Mueller under the Plan may also be terminated by the Corporation if Mueller breaches any of his obligations under Articles Ninth or Tenth of that certain Severance Agreement between the Corporation and Mueller dated as of December 20, 1993. IV. Assignment. ----------- Mueller, his designated beneficiaries, spouse and his heirs shall have no right to commute, sell, transfer, assign or otherwise convey any right to receive any payment under this Plan. Any such attempted assignment or transfer shall terminate such Mueller's participation in the Plan and the Corporation shall have no further liability to him hereunder. V. Governing Law. -------------- This Plan shall be subject to and construed under the laws of the State of Texas. EX-10.15 3 SEVERANCE AGREEMENT SEVERANCE AGREEMENT THIS SEVERANCE AGREEMENT is made and entered into as of December 20, 1993, by and between Robert L. Mueller (hereinafter referred to as "Mueller") and Proler International Corp. (hereinafter referred to as the "Company"). WITNESSETH: ----------- WHEREAS, Mueller is currently employed as the President and Chief Operating Officer of the Company, and also serves as a Director of the Company and as an officer or director of certain subsidiaries and affiliates of the Company; WHEREAS, Mueller desires to resign from his employment as the President and Chief Operating Officer of the Company, as well as from his position as a Director of the Company and any and all offices and directorships of subsidiaries and affiliates of the Company; WHEREAS, the Company desires to accept the aforesaid resignations of Mueller; and WHEREAS, Mueller and the Company mutually desire to avoid and resolve any and all actual and potential differences between them, including, without limitation, differences arising out of Mueller's employment with the Company and Mueller's receipt of compensation and benefits from the Company; NOW, THEREFORE, in consideration of the premises and mutual promises herein contained, it is mutually agreed as follows: FIRST: Mueller hereby tenders, and the Company hereby accepts, Mueller's immediate resignation from (i) his employment as the President and Chief Operating Officer of the Company, (ii) his position as a Director of the Company and (iii) all offices and directorships of subsidiaries and affiliates of the Company. SECOND: In any and all press releases and other public communications made by either party, the sole stated reason for the Mueller's resignation shall be that Mueller has retired to pursue personal interests; provided, however, that neither the making of such statements nor Mueller's resignation itself are to be construed as meaning or suggesting that Mueller has retired or is retiring by or for reason of his age. Rather, Mueller and the Company expressly agree that Mueller's resignation is for personal reasons and is not due to his age and should not be considered a retirement by or for reason of Mueller's age. THIRD: For purposes of the "Salary Continuation Agreement" between Mueller and the Company (hereinafter called the "SCA"), evidenced by a letter agreement dated December 1, 1987, the Company shall treat Mueller's resignation as a termination without cause, and will provide Mueller with the benefits specified in Section 1 of the SCA through June 30, 1994. These benefits shall include Mueller's continuing participation in the Company's Medical Reimbursement Plan, as well as the use of his company car, until June 30, 1994. The Company shall bear the cost of maintenance and Mueller shall bear the fuel costs with respect to such car. FOURTH: The "Proler International Corp. Deferred Compensation Agreement for Robert L. Mueller" shall be amended to, among other things, (i) provide Mueller with $1,125,000.00 in aggregate amount of deferred compensation payable in 120 monthly installments of $9,375.00 each beginning on January 1, 1995; and (ii) make Mueller's non-competition obligation applicable to the business of subsidiaries and affiliates of the Company. Eight business days after execution of this Agreement by Mueller, the Company and Mueller shall execute the Amendment to the Deferred Compensation Agreement attached hereto as Exhibit A (such agreement, as amended, hereinafter called the "DCA"). FIFTH: Eight business days after the execution of this Agreement by Mueller, the stock option agreement under which the Company granted to Mueller effective June 15, 1993, an option to purchase 8,000 shares of the Company's Common Stock at a price of $8.00 per share, shall be amended so that the option may be exercised at any time after January 1, 1994 and before June 30, 1994 and shall expire on midnight of June 30, 1994. SIXTH: All options granted to Mueller under the Company's 1988 Stock Option Plan, other than the option referred to in Article Fifth above and the options to purchase 9,000 shares at $14 per share granted on December 7, 1990, are hereby terminated; and Mueller shall surrender to the Company all stock option agreements evidencing such terminated options. SEVENTH: The Company shall pay Mueller an aggregate amount of $84,000 as a severance payment, such amount to be paid in six monthly installments of $14,000 each beginning January 31, 1994. EIGHTH: Mueller shall provide consulting services to the Company, as an independent contractor and not as an employee, for the period from January 1, 1994 through December 31, 1994. Mueller shall consult and cooperate with and advise the officers of the Company or the Board of Directors of the Company as and when requested by any of them upon reasonable notice, to the best of Mueller's ability, with respect to such matters involving the business and affairs of the Company as they may request or present to Mueller. Such services shall include but not be limited to consultation on matters for which Mueller was responsible during his employment by the Company. Mueller shall not be required to provide more than 240 hours of consulting services in the aggregate or more than 40 hours in any calendar month. The Company shall reimburse Mueller for reasonable travel expenses incurred by Mueller if he travels at the Company's request while providing consulting services. It is understood that Mueller's availability to render consulting services at the times and places requested by the Company is subject to his absences on account of illness, reasonable vacations and other consulting obligations or business commitments that Mueller may have. The Company agrees to cooperate with Mueller in scheduling consulting services requested by it to reasonably accommodate such competing interests, and Mueller agrees to use his best efforts to comply with, and to give priority to, the Company's request for services. NINTH: Mueller shall not, during the consulting period provided for in Article Eighth hereof and until December 31, 1994, directly or indirectly, participate in the ownership, operation, or control of or be connected as an officer, employee, partner, director or otherwise with or act as a consultant or adviser to any person, firm or other entity that is engaged in competition with the Company in any of the businesses being conducted by the Company on the date of this Agreement in any geographic area where the Company currently conducts such businesses. For purposes of this Article Ninth, the term "Company" shall include all subsidiaries and affiliates of the Company and all joint ventures in which the Company or its subsidiaries have an interest. It is expressly and mutually agreed that the foregoing restriction on competition contains reasonable geographic, temporal and activity restrictions that are necessary to protect the Company's legitimate business interests, and have been fashioned by both parties to achieve that protection. TENTH: Mueller agrees that he will not without the written consent of the Board of Directors of the Company (i) use for his benefit or disclose any information obtained or developed by him while in the employ of the Company or information relating to any customers, suppliers, products, employees, financial affairs, or methods of operation, design, distribution, procurement or production, of the Company or any of its subsidiaries, affiliates or joint ventures, or any confidential matter, except information which at the time is available to others in the business or generally known to the public other than as a result of disclosure by him not permitted hereunder, or (ii) take with him upon leaving the Company's employ, any document or paper relating to any of the foregoing or any other property of the Company or any of its subsidiaries, affiliates or joint ventures. Without limiting the foregoing, Mueller acknowledges that the confidential information covered by this Article Tenth includes all technical and other information related to (i) the gasification by thermal treatment of hydrocarbon and/or cellulose based material (solids and liquids), (ii) the design, construction, operation and commercialization of plants utilizing such gasification technology and (iii) the commercialization and exploitation of such gasification technology. ELEVENTH: Mueller acknowledges that the Company's business is highly competitive and that a violation on his part of any of the covenants set forth in Articles Ninth and Tenth hereof would cause immeasurable and irreparable damage to the Company and its subsidiaries, affiliates and joint ventures. Mueller accordingly agrees, without limiting the remedies available, that any violation of any of such covenants may be enjoined by any court of competent jurisdiction. TWELFTH: Mueller shall be withdrawn as a participant in the "Proler International Corp. 1993 Incentive Compensation Plan," and shall be entitled to no award thereunder. THIRTEENTH: The Company acknowledges that Mueller is 100% vested in the Company's 401(k) Plan. Mueller's rights and obligations with respect to the 401(k) Plan shall be determined in accordance with the provisions of the plan. Mueller and his spouse shall be offered an opportunity to continue their group health plan coverage under the Company's Group Insurance Plan in accordance with the requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"). To the extent that (i) Mueller and his spouse each elect to continue their coverage under the Company's Group Insurance Plan pursuant to COBRA ("COBRA coverage") and (ii) Mueller or his spouse is actually receiving COBRA coverage, then Company agrees that, for the first six (6) months of COBRA coverage only, Mueller and his spouse shall be charged (subject to reimbursement under the Company's Medical Reimbursement Plan) a monthly premium for COBRA coverage that shall be the same as if Mueller had not terminated employment and had continued to cover himself and his spouse under the Company's Group Insurance Plan. Thereafter, Mueller and his spouse shall be required to pay the standard premium rate for COBRA coverage as determined by the Company in accordance with its usual procedures for COBRA compliance. Furthermore, Mueller understands and agrees that the availability of and limitations on any such continuing coverage shall be determined in accordance with the provisions of COBRA. FOURTEENTH: Mueller shall fully, completely and freely cooperate with the Company, and its attorneys and other agents, in preparing for and pursuing or defending any actual or threatened legal action, in whatever forum, in which the Company or one of its subsidiaries is or may become a party without seeking or receiving compensation, except for reimbursement of reasonable travel expenses incurred at the Company's request. FIFTEENTH: Mueller shall remove from the Company's offices all personal property belonging to him before January 5, 1994. SIXTEENTH: In consideration of the payments and agreements contained in this Agreement, and with the exception of rights created by or pursuant to this Agreement, the SCA, and the DCA, Mueller does hereby fully and forever release, acquit, forgive and forever discharge the Company, its directors, officers, employees, attorneys and subsidiaries from any and all claims, demands and causes of action whatsoever, of every name, nature of description, whether arising out of contract, tort or otherwise and whether based on common law, statute or administrative regulation, and whether known or unknown, which Mueller now has or might have, including without limitation those in any way relating to Mueller's service as a director or officer of, or his employment by, the Company or any of its subsidiaries or the termination of any such service or employment. SEVENTEENTH: In consideration of the mutual promises and agreements contained in this Agreement, and with the exception of rights created by or pursuant to this Agreement, the SCA and the DCA, the Company does hereby fully and forever release, acquit, forgive and discharge Mueller, his successors and assigns, from any and all claims, demands and causes of action whatsoever, of every name, nature of description, whether arising out of contract, tort or otherwise and whether based on common law, statute or administrative regulation, and, whether known or unknown, which the Company now has or might have, including without limitation all claims in any way relating to Mueller's service as a director or officer of, or his employment by, the Company or any of its subsidiaries or the termination of any such service or employment. EIGHTEENTH: The Company shall have the right to withhold from any amount payable to Mueller hereunder or under the DCA or the SCA amounts sufficient to satisfy any withholding tax requirements. NINETEENTH: Mueller acknowledges that he: (1) has received and has read this Severance Agreement, including all Exhibits; (2) is fully informed of the terms, conditions and effect of signing this Severance Agreement; (3) has had ample opportunity to ask questions of Company personnel and to obtain the advice of competent legal and other counsel and/or advisors concerning the terms, conditions and effects of signing this Severance Agreement, including all Exhibits; (4) has relied solely on his own judgment and on the advice of such counselors and advisors with whom he has considered it appropriate, desirable, or necessary to consult in making the decision to sign this Severance Agreement; (5) has made his decision voluntarily without any pressure from the Company or its employees either to accept or reject this Severance Agreement; (6) understands that he has seven days following his execution of this Severance Agreement to revoke such acceptance; and (7) understands that any such revocation of his prior acceptance of this Severance Agreement must be done in writing and be delivered to the Company at 4265 San Felipe, Suite 900, Houston, Texas 77027. TWENTIETH: If within seven days following Mueller's acceptance of this Agreement, Mueller revokes such acceptance in accordance with clauses (6) and (7) of Article Nineteenth, then all of the rights and obligations of the parties hereunder shall be deemed rescinded and the parties shall be restored to their respective rights and obligations as they existed immediately prior to execution of this Agreement. TWENTY-FIRST: This Severance Agreement is made and entered into in the State of Texas, and shall in all respects be interpreted, enforced and governed under the laws of the State of Texas. The language of all parts of this Severance Agreement shall in all cases be construed as a whole, according to its fair meaning, and not strictly for or against any of the parties. TWENTY-SECOND: Should any provision of this Severance Agreement be declared or be determined by any court to be unenforceable or invalid as drafted, it may and shall be reformed or modified by a court of competent jurisdiction to the form of an enforceable and valid provision that achieves, to the greatest extent possible, the result intended by the parties in drafting and agreeing to the unenforceable and invalid provision. Should a court of competent jurisdiction decline to so reform or modify such a provision or determine that no enforceable and valid provision can be created to achieve the intended result, the unenforceability and invalidity of the remaining parts, terms or provisions of this Severance Agreement shall not be affected thereby and said unenforceable or invalid part, term, or provision shall be deemed not to be a part of this Severance Agreement. TWENTY-THIRD: This Severance Agreement sets forth the entire agreement between the parties hereto, and fully supersedes any and all prior agreements or understanding between the parties hereto pertaining to the subject matter hereof. EXECUTED on the dates set forth below, but effective as of the 20th day of December 1993. PROLER INTERNATIONAL CORP. By:______________________________________ Date:____________________________________ _________________________________________ Robert L. Mueller Date:____________________________________ EXHIBIT A SECOND AMENDMENT TO PROLER INTERNATIONAL CORP. DEFERRED COMPENSATION AGREEMENT FOR ROBERT L. MUELLER THIS AMENDMENT, dated this 3rd day of January, 1994, to that certain Deferred Compensation Agreement entered into by and between Proler International Corp. (the "Corporation"), and Robert L. Mueller ("Mueller"), dated the 1st day of December, 1987; W I T N E S S E T H: -------------------- WHEREAS, the Corporation and Mueller entered into that certain Deferred Compensation Agreement dated December 1, 1987 providing for the payment of deferred compensation by the Corporation to Mueller, and amended said agreement effective December 31, 1989 (such agreement as amended herein called the "Agreement"); and WHEREAS, the Corporation and Mueller believe that it is in their mutual best interests to modify the Agreement as hereinafter set forth; NOW, THEREFORE, in consideration of the mutual promises of the parties herein contained, the parties hereto agree as follows: 1. Section II of the Agreement is hereby amended so as hereafter to read in its entirety as follows: "II. Payment of Deferred Compensation -------------------------------- A. Mueller shall receive as deferred compensation an aggregate amount of $1,125,000, payable in monthly installments of $9,375 each, with the first such installment due and payable on January 1, 1995 and subsequent installments due and payable of the first day of each succeeding month until 120 installments have been paid. B. If Mueller does not live to receive all of the installments of deferred compensation to which he is entitled under the terms of this Plan, the balance of the installments remaining unpaid at the date of his death shall be paid to the beneficiary or beneficiaries designated by Mueller or, if no such designation has been made, to the executor or administrator of Mueller's estate or to his heirs at law if no administration is had on Mueller's estate." 2. Section III and IV of the Agreement are hereby deleted. 3. Section V of the Agreement is hereby renumbered as Section III and amended by adding thereto the following paragraph: "For purposes of the preceding paragraph, the term "Corporation" shall include subsidiaries of the Corporation and joint ventures to which the Corporation or its subsidiaries are parties. Payment of deferred compensation to Mueller under the Plan may also be terminated by the Corporation if Mueller breaches any of his obligations under Articles Ninth or Tenth of that certain Severance Agreement between the Corporation and Mueller dated as of December 20, 1993." 4. Section VI of the Agreement is hereby deleted. 5. Section VIII of the Agreement is hereby renumbered as Section IV. 6. Section IX of the Agreement is hereby deleted. 7. Section X of the Agreement is hereby renumbered as Section V. 8. The Plan as hereinabove amended is hereby ratified and, as so amended, shall read in its entirety as set forth on Annex A hereto. ANNEX A PROLER INTERNATIONAL CORP. DEFERRED COMPENSATION PLAN FOR ROBERT L. MUELLER Proler International Corp., a Delaware corporation (the "Corporation'), hereby establishes this Deferred Compensation Plan (the "Plan"), for the purpose of providing additional compensation on a deferred basis to Robert L. Mueller ("Mueller"). I. The Effective Date of the Plan shall be December 11, 1987. ---------------------------------------------------------- II. Payment of Deferred Compensation -------------------------------- A. Mueller shall receive as deferred compensation an aggregate amount of $1,125,000, payable in monthly installments of $9,375 each, with the first such installment due and payable on January 1, 1995 and subsequent installments due and payable of the first day of each succeeding month until 120 installments have been paid. B. If Mueller does not live to receive all of the installments of deferred compensation to which he is entitled under the terms of this Plan, the balance of the installments remaining unpaid at the date of his death shall be paid to the beneficiary or beneficiaries designated by Mueller or, if no such designation has been made, to the executor or administrator of Mueller's estate or to his heirs at law if no administration is had on Mueller's estate. III. Forfeiture of Deferred Compensation. ------------------------------------ For purposes of the preceding paragraph, the term "Corporation" shall include subsidiaries of the Corporation and joint ventures to which the Corporation or its subsidiaries are parties. Payment of deferred compensation to Mueller under the Plan may also be terminated by the Corporation if Mueller breaches any of his obligations under Articles Ninth or Tenth of that certain Severance Agreement between the Corporation and Mueller dated as of December 20, 1993. IV. Assignment. ----------- Mueller, his designated beneficiaries, spouse and his heirs shall have no right to commute, sell, transfer, assign or otherwise convey any right to receive any payment under this Plan. Any such attempted assignment or transfer shall terminate such Mueller's participation in the Plan and the Corporation shall have no further liability to him hereunder. V. Governing Law. -------------- This Plan shall be subject to and construed under the laws of the State of Texas. EX-10.24 4 93 INCENTIVE COMP PLAN PROLER INTERNATIONAL CORP. 1993 INCENTIVE COMPENSATION PLAN ARTICLE I DEFINITIONS As used in this Plan, the following capitalized terms have the meanings hereinafter set forth, unless the context reasonably requires different meaning. 1.1 Award. "Award" means the amount determined under Section 5.2. 1.2 Beneficiary. "Beneficiary" means a person designated by the Participant, in accordance with Section 6.5, to receive any portion of any Award distributable under the Plan on account of the death of the Participant. 1.3 Board. "Board" means the Board of Directors of the Company. 1.4 Code. "Code" means the Internal Revenue Code of 1986, as amended. 1.5 Committee. "Committee" means the Compensation Committee of the Board. 1.6 Company. "Company" means Proler International Corp., a Delaware corporation, or any successor which assumes the Plan. 1.7 Company Stock. "Company Stock" shall mean shares of the Company's common stock, $1.00 par value, including those reserved under Section 2.2 for issuance in connection with any stock payment under Section 6.3. 1.8 Disability. "Disability" means a physical or mental impairment that, in the discretion of the Committee, prevents the Participant from performing the material duties of his Employment with the Company or a Subsidiary. 1.9 Effective Date. "Effective Date" means May 10, 1993, the effective date of the Plan. 1.10 Employee. "Employee" means a key Employee of the Company or of any designated Subsidiary. 1.11 Employment. "Employment" means employment by the Company or a Subsidiary. In this regard, neither the transfer of a Participant from employment by the Company to employment by a Subsidiary nor the transfer of a Participant from Employment by a Subsidiary to employment by the Company shall be deemed to be a termination of Employment of the Participant. Moreover, the Employment of a Participant shall not be deemed to have been terminated because of his absence from active employment on account of temporary illness or during authorized vacation or during temporary leaves of absence from active employment granted by the Company or a Subsidiary for reasons of professional advancement, education, health, or government service, or during military leave for any period if the Participant returns to active employment within 90 days after the termination of his military leave, or during any period required to be treated as a leave of absence by virtue of any valid law or agreement. 1.12 Incentive Designation. "Incentive Designation" means a separate written notice prepared each year by the Committee for each Participant that (i) is subject to the terms and provisions of the Plan, (ii) is signed by a member of the Committee, and (iii) contains the Participant's Individual Incentive Goals for the Year and the Participant's minimum, target and maximum Award for the Year. 1.13 Individual Incentive Goal. "Individual Incentive Goal" or "Goal" means a performance objective for the Year that is prescribed for a Participant by the Committee and set out in the Participant's Incentive Designation. 1.14 Market Price. "Market Price" means the daily reported closing price per share of Common Stock on the New York Stock Exchange for the day upon which the Market Price is to be determined or the last preceding trade date if no trading of the Company Stock occurs on the date for which the Market Price is to be determined. In the event the Company Stock is no longer publicly traded, the Market Price of the Company Stock as of a particular date shall be determined using such method as shall be determined by the Committee. 1.15 Participant. "Participant" means each Employee of the Company or a Subsidiary who at any time during the Year is selected by the Committee to participate in the Plan. 1.16 Plan. "Plan" means the Proler International Corp. 1993 Incentive Compensation Plan, as set forth herein, and as it may hereafter be amended from time to time. 1.17 Subsidiary. "Subsidiary" means any wholly-owned subsidiary of the Company or of any wholly-owned subsidiary thereof or any other corporation or business venture in which the Company owns, directly or indirectly, a significant financial interest if the Committee designates such corporation or business venture to be a Subsidiary for the purposes of this Plan for any Year, and if the board of directors (or equivalent governing authority) of such corporation or business venture consents to being designated as a Subsidiary. 1.18 Year. "Year" means the twelve-month period corresponding to the fiscal year of the Company. ARTICLE II PURPOSE AND COMPANY STOCK RESERVE 2.1 Purpose. The purpose of the Plan is to promote the growth and general prosperity of the Company, motivate key Employees to achieve strategic, financial and operating objectives, reward improvement in financial performances, offer a total compensation package that is competitive in the industry thus permitting the Company to attract and retain superior personnel for positions of substantial responsibility, and to provide key Employees with an additional incentive to contribute to the success of the Company. 2.2 Company Stock Reserve. A Company Stock reserve shall be established to which shall be credited 100,000 shares of Company Stock. In the event that the shares of Company Stock should, as a result of a stock split or stock dividend or combination of shares or any other change, or exchange for other securities, by reclassification, reorganization, merger, consolidation, recapitalization or otherwise, be increased or decreased or changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation, the number of shares then remaining in the Company Stock reserve shall be appropriately adjusted to reflect such action. If any such adjustment shall result in a fractional share, such fraction shall be disregarded. Upon the distribution of shares as Awards hereunder, this reserve shall be reduced by the number of shares so distributed, and upon the reacquisition of any shares hereunder, the reserve shall be increased by such number of shares and such reacquired shares shall again be subject to distribution under the Plan. In the discretion of the Committee, distributions of shares of Company Stock may be made from authorized but unissued shares or from treasury shares. All authorized and unissued shares distributed in accordance with the Plan shall be fully paid and nonassessable shares and free from preemptive rights. ARTICLE III ADMINISTRATION 3.1 Composition of the Committee. The Plan shall be administered by the Committee. The members of the Committee shall be "disinterested persons" as such term is defined from time to time in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, or any successor rule. The Committee shall designate a secretary, without regard to whether that person is a member of the Committee, who shall keep the minutes of the proceedings and all records, documents, and data pertaining to its administration of the Plan. Meetings shall be held at such times and places as shall be determined by the Committee. 3.2 Administration by Committee. Subject to the express provisions of the Plan, the Committee shall have sole discretion and authority to determine from among Employees the ones to whom and the times at which Awards may be made. Subject to the express provisions of the Plan, the Committee shall also have complete authority to interpret and construe the Plan, to prescribe, amend, and rescind rules relating to it, to determine the provisions of Incentive Designations, and to make all other determinations, including factual determinations, that the Committee deems to be necessary or advisable in its discretion for the administration of the Plan and the Awards made hereunder. 3.3 Action by Committee. A majority of the members of the Committee shall constitute a quorum for the transaction of business, and the vote of a majority of those members present at any meeting at which a quorum is present shall decide any question brought before the meeting and shall be the act of the Committee. In addition, the Committee may take any other action otherwise proper under the Plan by an affirmative vote, taken without a meeting, of a majority of its members. 3.4 Reliance Upon Information. The Committee shall not be liable for any decision or action taken in good faith in connection with the administration of the Plan. Without limiting the generality of the foregoing, any such decision or action taken by the Committee in reliance upon any information supplied to it by any officer of the Company, the Company's legal counsel or the Company's independent accountants in connection with the administration of the Plan shall be deemed to have been taken in good faith. ARTICLE IV PARTICIPATION 4.1 Participation. For each Year, the Committee shall select those Employees of the Company or a Subsidiary who shall be Participants. Selected Employees shall be notified in writing as early as reasonably practical before or during each Year. An Employee shall be a Participant in the Plan only with respect to each Year for which he has been selected by the Committee and selection as a Participant in one Year does not guarantee selection in any subsequent Year. The Committee may withdraw its approval of an Employee's participation at any time during the Year and, in such event, the Employee will not be entitled to an Award hereunder for that Year, unless the Committee determines otherwise in its discretion. ARTICLE V AWARD DETERMINATION 5.1 Assignment of Individual Incentive Goals. As early as practical before or during each Year, the Committee shall, in its discretion, assign Individual Incentive Goals for each Participant, which Goals shall be incorporated into an Incentive Designation for the Participant. An Individual Incentive Goal shall either be (i) a specific job assignment or a quantitative financial performance objective for the Year or (ii) a subjective and qualitative assessment made by the Committee concerning the Participant's overall performance level and his particular contributions to the Company's success during the Year. The Committee shall assign such percentage weight factors to the Individual Incentive Goals as it considers appropriate in its discretion, and such factors shall also be incorporated into the Participant's Incentive Designation. The total of the percentage weight factors shall be 100%. An appropriate performance range shall be established by the Committee for each Individual Incentive Goal and incorporated into the Participant's Incentive Designation. The key performance points are as follows: (a) Minimum Performance. The minimum performance level below which the Individual Incentive Goal will not be achieved. Performance at this level would earn the minimum portion of the Award that is allocated to the particular Individual Incentive Goal being evaluated. (b) Target Performance. The performance level chosen for the Year as the desired and expected level of performance. The target performance shall be set at a challenging but realistically achievable level. Performance at this level would earn the target portion of the Award that is allocated to the particular Individual Incentive Goal being evaluated. (c) Maximum Performance. The performance level chosen for the Year that would be exceptional or significantly beyond the target level. Performance at this level would earn the maximum portion of the Award that is allocated to the particular Individual Incentive Goal being evaluated. All determinations concerning the extent to which any Goal has been achieved shall be made by the Committee in its discretion. The Committee shall have the power to add, delete or modify Individual Incentive Goals, and their corresponding weighted percentages, at any time during a Year in its discretion in order to reflect organizational, financial, and business strategy objectives. 5.2 Award Determination. The Incentive Designation shall incorporate a minimum, target and maximum Award, expressed as percentages of the Participant's annual base salary for the Year, which percentages shall be determined in the discretion of the Committee, provided that such percentages shall be less than 100% of the Participant's annual base salary. As soon as practical after the end of a Year, the Committee shall determine the actual amount of the Award, if any, payable to the Participant based on its determination of the extent to which the Participant has achieved his Individual Incentive Goals for the Year and the percentage weighting factors that are assigned to each such Goal. 5.3 Effect of Awards on Shareholder Status. No Participant shall have rights as a shareholder with respect to shares of Company Stock payable under the Plan until issuance of a certificate or certificates for such shares. Accordingly, no Participant shall have any right to vote, sell, exchange, transfer, pledge, hypothecate, dispose of or otherwise exercise any rights of a shareholder with respect to Company Stock allocated under Section 6.3 to an Award until issuance of a certificate or certificates for such shares. ARTICLE VI DISTRIBUTIONS AND PAYMENTS 6.1 Payor of Awards. Subject to the following provisions hereof, any Award payable under the Plan with respect to a Participant for a given Year shall be the obligation of, and paid by, the Company. 6.2 Cash Payment. Seventy-five percent (75%) of the Award is to be paid by the Company to the Participant in the form of a single sum payment in cash as soon as administratively practicable following the last day of the Year; provided, however, the Committee reserves the right to change, in its discretion, at any time and from time to time, the percentage of Awards payable in cash, provided that in the case of an Award included in an Incentive Designation that has been delivered to a Participant, the Participant is notified of any such change prior to his receipt of the Award. The Company shall deduct from the portion of the Award that is paid in cash any taxes required to be withheld for federal, state or local taxes. 6.3 Stock Payment (a) Amount, Vesting, Timing of Payment of Company Stock. Twenty-five percent (25%) of the Award is to be paid in the form of Company Stock; provided, however, the Committee reserves the right to change or to eliminate, in its discretion, at any time and from time to time, the percentage of Awards payable in Company Stock, provided that (i) the percentage payable in Company Stock does not exceed 50% and (ii) in the case of an Award included in an Incentive Designation that has been delivered to a Participant, the Participant is notified of any such change prior to his receipt of the Award. The number of shares of Company Stock shall be determined by dividing the portion of the Award payable in Company Stock by the Market Price of the Company Stock on the first day of the Year to which the Award pertains; provided, however, that for the year ending January 31, 1994 such number of shares of Company Stock shall be determined by dividing the portion of the Award payable in Company Stock by the Market Price of the Company Stock on the date the Plan is approved by the Committee. Subject to Sections 6.4, 6.5 and 6.6, the shares of Company Stock determined in accordance with the immediately preceding sentence shall vest thirty-three and 1/3 percent (33.33%) on each anniversary of the last day of the Year to which the Award pertains as long as the Participant remains in Employment on each such anniversary date. Subject to Sections 6.4, 6.5 and 6.6, in the event that a Participant fails to be in Employment on an anniversary date, any nonvested shares of Company Stock shall be forfeited, in which event such shares shall become available for any other stock payment due to any Participant who is or may become entitled to a stock payment under the Plan. Subject to Section 6.3(c) and Section 6.3(d), vested shares of Company Stock, but not any shares of Company Stock which are not vested, shall be paid by the Company as soon as administratively practicable following each anniversary of the last day of the Year to which an Award pertains, commencing with the first anniversary of the last day of such Year and continuing with each anniversary thereafter on which the Participant is in Employment, until all vested shares of Company Stock payable under the Plan with respect to each Award have been paid to the Participant entitled thereto. (b) Adjustments for Changes in the Company's Capital Structure. In the event that the shares of Company Stock should, as a result of a stock split or stock dividend or combination of shares or any other change, or exchange for other securities, by reclassification, reorganization, merger, consolidation, recapitalization or otherwise, be increased or decreased or changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation, the number of shares then allocated for the stock payment portion of an Award shall be appropriately adjusted to reflect such action. If any such adjustment shall result in a fractional share, such fraction shall be disregarded. In the event any such transaction shall result in holders of Common Stock acquiring the right to receive other securities or other property in addition to or in lieu of Common Stock, the Committee may make such adjustments or take such action as, in its discretion, it deems appropriate to reflect such transaction. (c) Obligation to Issue Company Stock. The Company shall not be required to issue any shares of Company Stock if the issuance of such shares would, in the opinion of legal counsel for the Company, constitute a violation by the Participant, the Company or a Subsidiary of any provisions of any law or regulation of any governmental authority, including the Securities Act of 1933 (the "Securities Act") and the Securities Exchange Act of 1934 (the "Exchange Act"). Specifically, the Company shall not be required to issue shares of Company Stock unless either (i) a registration statement under the Securities Act is in effect with respect to such shares, (ii) the Committee has received an opinion of counsel, in form and substance satisfactory to it, or other evidence satisfactory to it, to the effect that such registration is not required and that such shares may be resold or transferred by the Participant without such a registration statement being in effect, or (iii) the Committee has received evidence satisfactory to it to the effect that the Participant is acquiring such shares for investment and not with a view to the distribution thereof and unless the certificate issued representing such shares bears, in addition to any other legends deemed advisable by counsel, the following legend: The shares of stock represented by this certificate have not been registered under the Securities Act of 1933 or under the securities laws of any State and may not be sold or transferred except upon such registration or upon receipt by the Company of an opinion of counsel satisfactory to the Company, in form and substance satisfactory to the Company, that registration is not required for such sale or transfer. Any determination in this connection by the Committee shall be final, binding and conclusive. At such time as a registration statement under the Securities Act is in effect with respect to any shares of Company Stock represented by certificates bearing the above legend or at such time as, in the opinion of counsel, such legend is no longer required solely for compliance with applicable securities laws, then the holders of such certificates shall be entitled to exchange such certificates for certificates representing a like number of shares but without such legend. The Company may, but shall in no event be obligated to, register any securities covered hereby pursuant to the Securities Act (as now in effect or as hereafter amended). The Company shall not be obligated to take any other affirmative action in order to cause the issuance of shares of Company Stock to comply with any law or regulation of any governmental authority. (d) Withholding. The Committee may require the Participant or Beneficiary to pay to the Company an amount equal to any federal, state or local taxes (which the Committee deems necessary or appropriate to be withheld in connection with the issuance of Company Stock) in such forms of payment as may be permitted by the Committee. In the event that Participant or Beneficiary does not pay the Company the amount required for withholding taxes, the employer (for payroll tax purposes) of the Participant shall have the right to withhold such amount from any sum payable, or to become payable, to the Participant. The Committee, in its discretion, may institute procedures for withholding of shares of Company Stock to be delivered to the Participant in order to satisfy applicable tax withholding requirements, but only to the extent that such tax withholding procedures, in the opinion of legal counsel, comply with applicable tax and securities laws and regulations. 6.4 Retirement of Participant. In the event that a Participant should retire for age from Employment at or after the date on which he attains the age of 65 years ("Retirement Date"), any non-vested portion of any Award previously granted to the Participant shall continue to vest and become payable to the Participant as provided in Section 6.3(a) to the same extent as if the Participant had remained in Employment and, in the event that the Participant should die or incur a Disability after his Retirement Date, but before any previously granted Award becomes 100% vested, such Award shall become 100% vested and nonforfeitable as of the date of death or Disability and shall thereafter be payable as described in Sections 6.5 and 6.6. Notwithstanding the immediately preceding sentence, a Participant shall not continue to accrue vesting of non-vested shares awarded if the Committee determines, in its discretion, that the Participant has engaged in conduct which is detrimental to, or in competition with, the Company or any of its Subsidiaries or affiliates. 6.5 Death of Participant. Upon the death of a Participant, any non-vested portion of an Award previously granted to the Participant shall become 100% vested and nonforfeitable. In the event of a Participant's death during a Year, the Committee in its discretion shall determine what portion of an Award for the Year, if any, shall be granted with respect to Participant's completed performance of services for that Year. Each Participant shall have the right to designate a Beneficiary to receive any Award payable at the death of Participant, and to specify the time and manner of payment thereof to such Beneficiary in accordance with rules established by the Committee. The designation of Beneficiary shall be delivered in writing to the Committee, or such representative thereof as the Committee may designate, and may be changed at any time by written notice delivered to the Committee or its representative. If no such designation of Beneficiary is delivered by a Participant to the Committee or its delegate, or if all of the designated Beneficiaries have predeceased the Participant or otherwise cease to exist, any Award payable, in whole or in part, at the death of Participant shall be paid to the legal representative of the Participant's estate in a single payment of cash and Company Stock as soon as administratively practicable following the death of Participant. Notwithstanding Sections 6.2 and 6.3(a), in the event of the Participant's death, any payment hereunder that would otherwise be made in Company Stock may be made in cash in the discretion of the Committee. 6.6 Disability. Upon a termination of his Employment due to Disability, any non- vested portion of an Award previously granted to the Participant shall become 100% vested and nonforfeitable. In the event of Participant's termination of Employment due to Disability during a Year, the Committee in its discretion shall determine what portion of an Award for the Year, if any, shall be granted with respect to Participant's completed performance of services for that Year. Any Award payable, in whole or in part, on the date of termination of Employment due to Disability shall be paid to the Participant (or to his guardian or legal representative, if applicable) in a single payment of cash and Company Stock as soon as administratively practicable thereafter. Notwithstanding Sections 6.2 and 6.3(a), in the event of the Participant's Disability, any payment hereunder that would otherwise be made in Company Stock may be made in cash in the discretion of the Committee. 6.7 Forfeiture. Except as provided in Sections 6.5 and 6.6, until such time as the full amount of his Award has been actually distributed to the Participant, his right to receive any unpaid or unvested amount thereof shall be wholly contingent and shall be forfeited if, prior to the payment thereof, the Participant at any time prior to his termination of Employment with the Company or a Subsidiary for any reason, voluntary or involuntary, should engage in conduct which is determined by the Committee to be detrimental to, or in competition with, the Company or any of its Subsidiaries or affiliates. 6.8 Nonalienation of Benefits. Interests of Participants in this Plan or in any securities to be issued pursuant to this Plan are not transferable by the Participant other than in accordance with Rule 16b-3 promulgated by the Securities and Exchange Commission, or any successor or similar provisions thereto. No right or benefit under this Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge the same will be void. No right or benefit hereunder shall in any manner be liable for or subject to any debts, contracts, liabilities, or torts of the person entitled to such benefits. If any Participant or Beneficiary hereunder shall become bankrupt or attempt to anticipate, alienate, assign, sell, pledge, encumber, or charge any right or benefit hereunder, or if any creditor shall attempt to subject the same to a writ of garnishment, attachment, execution, sequestration, or any other form of process or involuntary lien or seizure, then such right or benefit shall, in the discretion of the Committee, cease and terminate. ARTICLE VII TERMINATION OR AMENDMENT OF THE PLAN 7.1 Termination or Amendment. The Committee may modify, revise or terminate this Plan at any time and from time to time; provided, however, that any such amendment to the Plan that would require the vote or approval of a specified percentage of the Company's stockholders in order to assure that the Plan complies with Rule 16b-3 promulgated by the Securities and Exchange Commission, or any successor or similar provisions thereto, shall only be made upon obtaining such required stockholder vote, or taking such other action in connection with such amendment as the Board deems advisable to operate the Plan in accordance with Rule 16b-3 or any successor or similar rule. 7.2 Cancellation Following Award. Termination or amendment of the Plan shall not adversely affect rights or obligations under the Plan with respect to any vested portion of Awards, unless the consent of the affected Participant or Beneficiary is obtained. ARTICLE VIII MISCELLANEOUS 8.1 Other Compensation Plans. The adoption of the Plan shall not affect any other compensation plans in effect for the Company or any Subsidiary or affiliate of the Company, nor shall the Plan preclude the Company or any Subsidiary or affiliate thereof from establishing any other forms of incentive or other compensation for Employees. 8.2 Powers of the Company. The existence of outstanding and unpaid Awards under the Plan shall not affect in any way the right or power of the Company or any Subsidiary to make or authorize any adjustments, recapitalization, reorganization or other changes in the Company's or Subsidiary's capital structure or in its business, or any merger or consolidation of the Company or any Subsidiary, or any issue of bonds, debentures, common or preferred stock, if applicable, or the dissolution or liquidation of the Company or any Subsidiary, or any sale or transfer of all or any part of its assets or business, or any other act or proceeding, whether of a similar character or otherwise. 8.3 Dissolution, Sale of Assets, Merger of the Company; Change in Control. Should the Company (or any successor thereto) elect to dissolve, enter into a sale of substantially all its assets, or enter into any merger, consolidation or reorganization incident to which it is not the surviving entity, unless the surviving or successor entity shall formally agree to assume the Plan, the Plan shall terminate with respect to the Company or any Subsidiary (or any successor thereto) on the earlier of the date of closing or the effective date, whichever may be applicable, of such transaction and the full amount of any non-vested portion of Awards previously granted to a Participant shall become 100% vested and non-forfeitable and shall be promptly paid to each such Participant (or Beneficiary) in a single lump sum payment of cash and/or Company Stock. Any payment hereunder that would otherwise be made in Company Stock may be made in cash in the sole discretion of the Committee. Notwithstanding anything to the contrary contained in this Plan, in the event of a change in control of the Company, as defined below, any non-vested portion of an Award previously granted to a Participant shall become 100% vested and non-forfeitable upon (i) the termination of the Participant's employment by the Company following such change in control or (ii) the voluntary resignation of the Participant as a result of a substantial diminution of the Participant's duties and responsibilities or compensation following such change in control. For purposes of this provision, a change in control of the Company shall mean: (i) the merger or consolidation of the Company with another company in which the Company is the surviving entity and those persons who are holders of common stock of the Company immediately prior to the consummation of such transaction will not, immediately after the consummation thereof, be in control of the surviving or successor entity; or (ii) the acquisition by any individual, corporation, partnership, trust, entity or other person or any group thereof of the beneficial ownership (as such terms are used in Section 13(d) of the Securities Exchange Act of 1934, as amended) of voting securities representing 51% or more of the combined voting power of the Company's then outstanding voting securities; or (iii) the acquisition by any individual, corporation, partnership, trust, entity or other person or any group thereof of the beneficial ownership (as such terms are used in Section 13(d) of the Securities Exchange Act of 1934, as amended) of voting securities representing 20% or more of the combined voting power of the Corporation's then outstanding voting securities and the reconstitution of the Board of Directors of the Company such that a majority of the directors are the nominees of such person or group. 8.4 Plan Binding on Successors. The Plan shall be binding upon the successors and assigns of the Company and any Subsidiary. 8.5 Plan Not a Contract. Neither this Plan nor any Incentive Designation shall be deemed to constitute a contract between the Company, a Subsidiary and any Participant or to be in consideration of or an inducement for the Employment of any Participant or Employee. Nothing contained in this Plan or any Incentive Designation shall be deemed to give any Participant or Employee the right to be retained in the service of the Company or any Subsidiary or affiliate of the Company or to interfere with the right of the Company or any Subsidiary or affiliate of the Company to discharge any Participant or Employee at any time with or without cause, regardless of the effect which such discharge shall have upon him as a Participant of the Plan . 8.6 Liability of Employer. Each Participant, Beneficiary or any other person who claims any benefit under this Plan shall be entitled to look only to the Participant's employer for satisfaction or payment of such benefit. 8.7 Payment of Plan Expenses. The Company will pay all expenses that may arise in connection with the administration of this Plan. 8.8 Headings. Any headings or subheadings in this Plan are inserted for convenience of reference only and are to be ignored in the construction of any provisions thereof. All references in this Plan to Articles and Sections are to Articles and Sections of this Plan unless specified otherwise. 8.9 Gender and Tense. Any words herein used in the masculine shall be read and construed in the feminine where they would so apply. Words in the singular shall be read and construed as though in the plural in all cases where they would so apply. 8.10 Governing Law. This Plan shall be construed in accordance with the laws of the State of Texas without regard to the conflicts of law provisions thereof, to the extent federal law does not preempt Texas law. 8.11 Severability. In the event that any provision of this Plan shall be held illegal, invalid, or unenforceable for any reason, such provision shall be fully severable, but shall not affect the remaining provisions of the Plan, and the Plan shall be construed and enforced as if the illegal, invalid, or unenforceable provision had never been included herein. 8.12 No Guarantee of Tax Consequences. Neither the Company, Subsidiary nor the Committee makes any commitment or guarantee that any federal or state tax treatment will apply or be available to any person participating or eligible to participate in this Plan. 8.13 Notice. Whenever any notice is required or permitted hereunder, such notice must be in writing and personally delivered or sent by mail. Any notice required or permitted to be delivered hereunder shall be deemed to be delivered on the date which it is personally delivered, or, whether actually received or not, on the third business day after it is deposited in the United States mail, certified or registered, postage prepaid, addressed to the person who is to receive it at the address which such person has theretofore specified by written notice delivered in accordance herewith. Any party may change, at any time and from time to time, by written notice to the other, the address which it or he had theretofore specified for receiving notices. Until changed in accordance herewith, the Company or a Subsidiary shall be entitled to use the address of a Participant as it appears in the personnel records of his employer. Any person entitled to notice hereunder may waive such notice. 8.14 Stockholder Approval. Notwithstanding any other provisions of the Plan, in order for the Plan to continue as effective, on or before the date which occurs twelve (12) months after the date the Plan is adopted by the Board, the Plan must be approved by the stockholders holding at least a majority of the Common Stock present or represented and entitled to vote at a duly held stockholders' meeting of the Company, and no shares of Company Stock shall be issued under the Plan until such approval has been secured. EX-21 5 CORP AND SUBSIDIARIES PROLER INTERNATIONAL CORP. AND SUBSIDIARIES The following table provides certain information as to (i) each direct and indirect subsidiary of the Company and (ii) each of the Company's joint operations:
RELATIONSHIP TO COMPANY OR A NAME OF ENTERPRISE SUBSIDIARY (1) ------------------ -------------- The Company: Proler International Corp., a Delaware corporation Subsidiaries of the Company included in consolidated financial statements: Prolerized Steel Corporation, a Texas Corporation............................... 100% Proleride Transport Systems, Inc., a Texas corporation.......................... 100% Buffalo Steel Corporation, a Texas corporation.................................. 100% Gulf Coast Metals, Inc., a Texas corporation; a wholly owned subsidiary of Buffalo Steel Corporation................................................... 100% MRI Corporation, a Delaware corporation......................................... 100% Proler Environmental Services, Inc., a Delaware corporation..................... 100% Proler Recycling, Inc., (formerly Proler Elemental Refining, Inc.) a Delaware corporation......................................................... 100% Joint Operations of the Company included in combined financial statements filed for unconsolidated subsidiaries: Hugo Neu-Proler Company, a partnership under the laws of California............. 50% (2) Prolerized Chicago Corporation, an Illinois corporation......................... 50% Maru Shipping Company, Inc., a Panamanian corporation........................... 50% (2) Prolerized New England Company, a partnership under the laws of New York........ 50% (2)(3) Prolerized Schiabo-Neu Company, a partnership under the laws of New York........ 331/3%(2) Dover Barge Company, a Delaware corporation..................................... 331/3% Worcester Recycling, Inc., a Massachusetts corporation.......................... 50% (3) Prolerized New England Foreign Sales Corporation, a Virgin Island corporation... 50% (4) Prolerized Schiabo-Neu Foreign Sales Corporation, a Virgin Island corporation... 331/3%(5) Hugo Neu-Proler Foreign Sales Corporation, a Virgin Island corporation.......... 50% (6) Pacific Bulk Loading, Inc., a California corporation............................ 50% Bulkloader, Inc., a Massachusetts corporation................................... 50% (4) Pacific Industrial Metal Corporation, a California corporation.................. 50% (7) H. Finkelman, Inc., a Maine corporation......................................... 50% (3) B. Rovner & Co., Inc. a New Hampshire corporation............................... 50% (4) Point Comfort Venture, a partnership under the laws of Texas.................... 50% Alameda Street Metal Corp., a California corporation............................ 50% HPNJ, a partnership under the laws of New York.................................. 50% (2) HPI, a partnership under the laws of New York................................... 49% (2) HPNJ Foreign Sales Corporation, a Virgin Islands corporation.................... 50%
(1) Percentage of voting stock or share in profits owned by the Company except as otherwise indicated. (2) Control can be exercised by the Company only by unanimous consent of the partners. (3) Owned by Proleride Transport Systems, Inc. (4) Owned by Prolerized New England Company, a partnership. See footnote (2). (5) Owned by Prolerized Schiabo-Neu Company, a partnership. See footnote (2). (6) Owned by Hugo Neu-Proler Company, a partnership. See footnote (2). (7) Owned by Pacific Bulk Loading, Inc. EX-23 6 CONSENTS CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Proler International Corp. on Form S-8 (File No. 33-35013) of our reports dated April 29, 1994, on our audits of the consolidated financial statements and financial statement schedules of Proler International Corp. and the combined financial statements and financial statement schedules of Proler International Corp.'s Joint Operations as of January 31, 1994 and 1993, and for the years ended January 31, 1994, 1993 and 1992, which reports are included in this Annual Report on Form 10-K. COOPERS & LYBRAND Houston, Texas April 29, 1994 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Proler International Corp. on Form S-8 (File No. 33-35013) of our reports dated March 14, 1994 and February 28, 1994, respectively, on our audits of the consolidated financial statements and financial statement schedules of Prolerized Schiabo-Neu Company as of December 31, 1993 and 1992 and for the years ended December 31, 1993, 1992 and 1991 and Dover Barge Company as of January 31, 1994 and 1993, and for the years ended January 31, 1994, 1993 and 1992 (not presented separately therein), which reports are included in this Annual Report on Form 10-K. LA GUARDIA & PETRELLA Fort Lee, New Jersey April 29, 1994 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Proler International Corp. on Form S-8 (File No. 33-35013) of our report dated March 16, 1992, on our audit of the financial statements and financial statement schedules of Maru Shipping Company, as of December 31, 1991 and for the year ended December 31, 1991 (not presented separately therein), which report is included in this Annual Report on Form 10-K. LA GUARDIA & PETRELLA Fort Lee, New Jersey April 29, 1994 -----END PRIVACY-ENHANCED MESSAGE-----