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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1998
OR
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number: 333-1992
RBX CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware 94-3231901
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5221 ValleyPark Drive
Roanoke, Virginia 24019
(Address of principal executive offices)
Registrant's telephone number, including area code: (540) 561-6000
Securities registered pursuant to Section 12(b) of the Act: None
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 __________
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
As of December 31, 1998, there was no voting stock of the Registrant held by
non-affiliates.
The number of shares of Common Stock of RBX Corporation, $0.01 per share par
value, outstanding as of December 31, 1998 was 1,000.
Index
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Page
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PART I............................................................................................... 1
ITEM 1. Business............................................................................... 1
ITEM 2. Properties............................................................................. 4
ITEM 3. Legal Proceedings...................................................................... 4
ITEM 4. Submission of Matters to a Vote of Security Holders.................................... 4
PART II.............................................................................................. 5
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters.............. 5
ITEM 6. Selected Financial Data................................................................ 6
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 8
ITEM 8. Financial Statements and Supplementary Data............................................ 16
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure... 16
PART III............................................................................................. 17
ITEM 10. Directors and Executive Officers of the Registrant..................................... 17
ITEM 11. Executive Compensation................................................................. 19
ITEM 12. Security Ownership of Certain Beneficial Owners and Management......................... 22
ITEM 13. Certain Relationships and Related Transactions......................................... 23
PART IV.............................................................................................. 24
ITEM 14. Exhibits, Financial Statement Schedules, Reports on Form 8-K........................... 24
PART I
ITEM 1. Business
General
RBX Corporation, a Delaware corporation (the "Company"), is a wholly owned
subsidiary of RBX Group, Inc. ("RBX Group"). The Company and RBX Group were
formed by American Industrial Partners Capital Fund II, L.P. ("AIP-CF") to
purchase RBX Investors, Inc. (the "Predecessor") and its subsidiaries in October
1995 (the "Acquisition"). The Company is the successor to the business of RBX
Investors, Inc., which began operations in the 1930s. The Company believes that
it is the leading domestic manufacturer of closed cell rubber foam products, the
second largest domestic custom mixer of rubber polymers and a major competitor
in several niche markets, including cross-linked polyethylene foam.
In July 1998, the Company announced the resignation of Frank H. Roland, Chief
Executive Officer and President, and named Theodore C. Rogers, of American
Industrial Partners, as the new Chief Executive Officer and President.
Simultaneously, the Company announced that its senior management team had been
reorganized into The Office of the President, which is comprised of three Senior
Vice Presidents who are running the Company under Mr. Rogers' direction.
Management has begun the implementation of a reorganization plan designed to
allow the Company to better serve its customers, take advantage of market
opportunities, and reduce its operating costs.
Industry Segments
The Company operates in two industry segments, foam production and custom rubber
mixing.
The Company's foam production operations (the "Foam Group") manufacture closed-
cell rubber foam and cross-linked polyethylene foam. The Foam Group also
manufactures certain products from the foam it produces through downstream
manufacturing processes such as molding, fabrication, and lamination. The Foam
Group includes Rubatex Corporation ("Rubatex"), Groendyk Mfg Co., Inc.
("Groendyk"), and OleTex, Inc. ("OleTex"). Rubatex has three plants which are
located in Virginia, Arkansas, and North Carolina. Groendyk is located in
Virginia and OleTex is located in Illinois. The Company's custom rubber mixing
operations (the "Mixing Group") mix a variety of rubber polymers which are sold
to customers in uncured form. The Mixing Group is comprised of Midwest Rubber
Custom Mixing Corp. ("Midwest"), which is located in Ohio, and Hoover-Hanes
Rubber Custom Mixing Corp. ("Hoover"), which is located in Georgia.
Further information with respect to the Company's industry segments can be found
in the Notes to the Consolidated Financial Statements included elsewhere in this
Annual Report on Form 10-K.
Description of Business
All of the Company's products begin with essentially the same manufacturing
process: the blending of synthetic compounds in a mixer. The Mixing Group then
sells these compounds in uncured sheet or strip form to its customers. The Foam
Group performs additional manufacturing steps, including curing, extruding,
molding, fabrication and lamination, before selling its products to customers.
Principal Products - Foam Group
The Foam Group's principal products are closed cell rubber foam, cross-linked
polyethylene foam, and silicone rubber. These products are formulated to provide
specific performance characteristics based on their end-use applications.
Closed cell rubber foam is elastic and impervious to gases and liquids, which
makes it an ideal material for insulation, sealing, shock absorption and
waterproofing. Products made with closed cell rubber foam include residential
and industrial building insulation, plumbing insulation, automotive gaskets,
home and hardware center products, and a broad range of consumer products such
as wetsuits, ski masks, knee braces and other sports medicine applications, foam
beverage can insulators and computer mouse pads.
-1-
Cross-linked polyethylene foam has many of the same physical properties as
closed cell rubber foam, but is less elastic. It is also relatively less
expensive and is easily thermoformed. Polyethylene foam is used in such
products as athletic mats, marine flotation buoys, ship fenders, shoe insoles
and artificial turf underlay.
Silicone rubber is flame resistant and possesses a number of exceptional
physical and chemical properties which make it suitable for products which are
exposed to extreme temperatures. Silicone-based products are used in certain
high-performance applications including commercial lighting, automobile gaskets,
commercial aircraft, aerospace and electronics.
Products sold in the most basic form include (i) extruded sheets and tubes, used
for insulation in air conditioning, plumbing and refrigeration, and (ii) molded
and continuous sheets which are sold to manufacturers who slit, cut, and
fabricate the material into industrial and consumer products ranging from
automotive gaskets to football padding to children's toys.
Principal Products - Mixing Group
The Mixing Group mixes rubber polymers and chemical additives to customer
specifications. The various ingredients of a custom formulation are carefully
weighed into a mixer which blends the components and feeds the mixture onto a
large mill. The milled rubber is then pulled off the mill in a wide ribbon,
cooled, and then cut into rough sheets or strips of uncured compound. These
sheets and strips are molded or extruded by the customer into a wide variety of
products including automobile tires and parts, industrial belts and hoses,
agricultural tools and equipment and roofing materials.
Raw Materials
The key raw material inputs used in the Company's manufacturing processes are
synthetic polymers, specialty chemicals, carbon black, synthetic fabrics,
natural rubber and polyethylene. Raw materials are purchased from a number of
suppliers through short-term purchasing arrangements, and the Company believes
that there are sufficient sources of supply for the foreseeable future.
The Company expects that it will continue to experience raw material price
fluctuations from time to time. Many of its raw materials are petrochemical
derivatives, which are subject to periodic price fluctuations. Historically,
the Company has been able to pass along increased raw material costs to its
customers. For the majority of its products, the Company's pricing strategy is
flexible enough to permit cost increases to be passed through promptly.
Customers - Foam Group
The Foam Group serves a wide array of industrial and consumer end-user markets.
The Foam Group's base of over 9,000 active customers is comprised of a large
group of core customers who rely on the Company for their ongoing needs and a
smaller number of customers who approach the Company on a project-specific
basis. The Foam Group is able to serve both types of customers because of its
wide range of products, its design and production capabilities and its sales
force which assesses the customers' requirements in order to develop products
which meet their specifications. The size and diversity of the Foam Group's
customer base reduces the Company's reliance on any individual customer or
industry.
The Foam Group's products are sold to end-product manufacturers, intermediate
fabricators and distributors. End-product manufacturers operate in a wide range
of industrial and commercial segments that produce subassemblies and finished
products. Fabricators slice and cut foam into shaped pieces and then sell them
to other manufacturers. Distributors purchase tubes, sheets and buns for resale
to smaller contractors.
-2-
Customers - Mixing Group
The Company's Mixing Group serves more than 250 active customers from a variety
of industries. In most instances, the Company supplies the raw materials for a
given customer formulation and charges the customer on a "cost-plus" basis,
reflecting raw material costs plus a usage fee for time used on the mixing line.
In cases where a customer supplies the raw materials, the Mixing Group charges a
"tolling" fee for providing the mixing service.
Trademarks and Patents
The Company has numerous trademarks and several patents effective in the United
States and several trademarks effective in several foreign countries for varying
lengths of time. Company trademarks include Rubatex(R) under which it markets
particular products, Insul-Tube(R) and Therma-Cel(R) under which it markets
certain insulation products, ENSOLITE(R) under which it markets certain rubber
foam sheets/rolls, SeaTex(R) under which it markets wetsuit material and
Comfortex(R) under which it markets sports/medical material. The Company also
has a number of applications for trademarks pending in the United States and
abroad. Management considers its various trademarks, trademark applications and
patents to be valuable assets but believes that the loss of any one trademark or
patent would not have a material adverse effect on the Company's operations.
Seasonal Nature of Business
The Company participates in a number of markets, some of which have slight
seasonalities, but this wide market participation insulates against significant
seasonal business fluctuations.
Competition
The Company believes that it is a leading supplier in most of its principal
product lines. It faces domestic and foreign competition across its product
lines ranging from divisions of leading national and international manufacturers
to small, regional competitors.
The Company believes that it is the leading domestic manufacturer of closed cell
rubber foam products, the second largest domestic custom mixer of rubber
polymers and a major competitor in several niche markets, including cross-linked
polyethylene foam. Management estimates that there are approximately 20
domestic producers of closed cell foam rubber and believes that it has an
approximate 40% share of the market for domestically produced closed cell foam
rubber.
With a total mixing capacity of approximately 300 million pounds per year, the
Company estimates that it is the second largest domestic custom rubber mixer.
The Company estimates that there are approximately 75 domestic custom mixers, 20
of which have annual capacity greater than 30 million pounds. Because
transportation costs affect a custom mixer's ability to compete, competition
tends to be focused regionally. The Company believes that the significant
discounts it receives through Company-wide raw material purchases, its
proprietary formulations, emphasis on quality control and ability to provide
rapid turnaround of unusual formulations and small orders enable it to compete
effectively in custom rubber mixing.
Environmental Matters
The Company is subject to a wide variety of federal, state and local
environmental laws and regulations ("Environmental Laws") which continue to be
adopted and amended. For information with respect to environmental matters, see
Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this Annual Report on Form 10-K.
-3-
Employees
At December 31, 1998, the Company employed 1,687 persons, of whom approximately
26% were salaried employees, and 74% were hourly employees. Approximately 85%
of the Company's hourly employees are represented by labor unions pursuant to
collective bargaining agreements that expire between September 1999 and August
2002.
ITEM 2. Properties
In addition to its leased 27,000 square foot headquarters in Roanoke, Virginia,
the Company operates seven manufacturing facilities, the majority of which are
located in the southeastern United States. The Company also owns or leases
warehouse facilities throughout the U.S. and owns one manufacturing facility
which is leased to an outside party. The size and location of the Company's
significant facilities are summarized below:
Location Size (Sq. Ft.) Leased/Owned
-------- -------------- ------------
Manufacturing facilities:
Bedford, VA .............. 784,000 Owned
Conover, NC .............. 275,000 Owned
Buchanan, VA ............. 77,000 Owned
Colt, AR ................. 223,000 Leased (a)
Barberton, OH ............ 197,000 Leased
Tallapoosa, GA ........... 165,000 Leased (a)
South Holland, IL ........ 165,000 Leased
Middlefield, OH .......... 119,000 Owned (b)
Warehouses:
Conover, NC .............. 88,000 Leased
Santa Fe Springs, CA ..... 44,000 Leased
St. Louis, MO ............ 28,000 Leased
- ---------------
(a) Subject to a lease with nominal lease payments. The Company has the option
to purchase this property for a nominal amount.
(b) During 1998, the Company sold the business and substantially all of the
assets (excluding land and buildings) of Universal Polymer & Rubber, Inc.
The manufacturing facility in Middlefield, OH is leased to the successor
company.
ITEM 3. Legal Proceedings
From time to time, the Company is involved in various legal proceedings arising
in the ordinary course of business. Management believes that none of the matters
in which the Company is currently involved, either individually or in the
aggregate, should have a material adverse effect on the Company's business or
financial condition.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of 1998.
-4-
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
There is no established public trading market for the Registrant's common
equity. There was no unregistered sale of the Registrant's common equity in
1998.
-5-
ITEM 6. Selected Financial Data
The following selected historical financial data was derived from the audited
historical consolidated financial statements of the Company. The data as of and
for the years ended December 31, 1998, 1997, and 1996 and the data as of
December 31, 1995 was derived from the consolidated financial statements of the
Company. The data for the year ended December 31, 1995 was derived from
information which was extracted from the consolidated financial statements of
the predecessor and from the consolidated financial statements of the Company
and combined for comparative purposes. The data as of and for the year ended
December 31, 1994 is derived from the consolidated financial statements of the
predecessor. The information presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto included
elsewhere in this Annual Report on Form 10-K.
Years Ended December 31,
1994 1995 1996 1997 1998
------------ ------------- ------------ ------------ -------------
(in thousands)
Statement of Operations Data:
Net sales....................... $197,913 $271,967 $275,715 $281,662 $ 263,250
Gross profit (a)................ 32,171 44,379 37,350 38,279 21,615
Selling, general and
administrative costs (a)...... 18,478 26,305 30,474 28,265 28,375
Management fees................. - 598 995 986 1,177
Operating income (loss)......... 13,317 15,575 (24,626) 5,503 (111,717)
Net income (loss) (b)........... 5,652 2,700 (35,056) (28,990) (142,205)
Balance Sheet Data:
Net working capital............. 45,817 61,055 44,671 43,722 15,449
Fixed assets, net............... 93,420 81,277 91,068 97,374 72,797
Total assets.................... 206,268 285,736 280,700 275,921 138,547
Total debt...................... 95,795 171,745 184,892 206,037 206,072
Stockholder's equity............ 33,383 40,574 20,313 (9,264) (151,469)
Other Data:
Capital expenditures............. 5,817 7,146 11,818 15,582 4,286
Depreciation.................... 5,121 7,130 7,124 8,370 10,431
Amortization.................... 459 1,777 4,965 4,278 3,700
Cash flows from:
Operating activities.......... 9,291 10,225 9,137 (2,398) (1,483)
Investing activities.......... (54,660) (207,129) (33,829) (16,698) 1,404
Financing activities.......... 43,547 201,960 22,162 15,969 35
Ratio of earnings to fixed
charges (c)................... 3.6x 1.4x - - -
Adjusted EBITDA (d)............. 20,106 29,433 22,879 22,370 18,817
- ---------------
(a) Certain amounts from prior periods have been reclassified to conform to the
current period presentation.
(b) Net loss for 1998 includes special charges totaling $119.9 million. Such
charges are comprised of losses on impairment of long-lived assets of
$101.4 million, inventory write downs, severance, and other personnel
related costs of $13.5 million, and write off of start-up costs of $5.0
million.
Net loss for 1997 includes extraordinary losses of $1.8 million for the
early extinguishment of debt.
Net loss for 1996 includes a loss on impairment of long-lived assets of
$26.5 million and additional charges of $8.7 million in the aggregate,
primarily relating to a reassessment of inventory carrying values and
liabilities incurred in connection with severance and certain other
personnel related costs.
Net income for 1994 includes an extraordinary loss of $0.4 million in
connection with early extinguishment of debt.
-6-
(c) In computing the ratio of earnings to fixed charges, "earnings" represent
income (loss) before income taxes, extraordinary items and changes in
accounting principles plus "fixed charges." "Fixed charges" consist of
interest expense, amortization of deferred financing fees and the portion
of rental expense representative of interest. For the years ended December
31, 1996, 1997, and 1998, earnings were insufficient to cover fixed charges
by $43.3 million, $14.8 million, and $137.2 million respectively. For the
two and one-half months ended December 31, 1995, earnings were insufficient
to cover fixed charges by $5.2 million.
(d) Adjusted EBITDA as used herein represents the sum of income before income
taxes, extraordinary items and changes in accounting principles, interest
expense, depreciation and amortization, adjusted to add back the
amortization of purchase accounting write-ups of inventories and other non-
cash items (all as defined in the Credit Agreement) plus subordinated
management fees. Pursuant to the terms of the Credit Agreement, the
Indenture and the Senior Subordinated Indenture, management fees are
subordinated to payments owed under the Credit Agreement, the Notes and
Senior Subordinated Notes. Adjusted EBITDA is calculated as follows:
Years Ended December 31,
1994 1995 1996 1997 1998
------- ------- -------- -------- ---------
(in thousands)
Net income (loss)........................ $ 5,652 $ 2,700 $(35,056) $(28,990) $(142,205)
Income taxes (benefit)................... 3,865 2,130 (8,255) 12,422 85
Extinguishment of debt................... 466 -- -- 1,786 --
Cumulative effect adjustment............. -- -- -- -- 4,952
Interest expense......................... 3,334 10,745 18,685 20,285 25,451
Depreciation............................. 5,121 7,130 7,124 8,370 10,431
Amortization of intangibles.............. 319 1,298 3,943 3,332 2,410
------- ------- -------- -------- ---------
EBITDA................................... 18,757 24,003 (13,559) 17,205 (98,876)
Management fees expensed................. -- 180 995 986 1,177
Management fees paid..................... -- -- (1,060) (1,015) (269)
Amortization of purchase accounting
inventory adjustment.................... 230 3,488 140 -- --
Noncash items as defined in the Credit
Agreement............................... 619 1,344 805 906 1,581
Special Noncash items (1)................ -- -- 34,498 3,273 114,935
------- ------- -------- -------- ---------
EBITDA, as defined in the Credit
Agreement............................... 19,606 29,015 21,819 21,355 18,548
Management fees subordinated to the
Credit Agreement, Senior Secured Notes
and Senior Subordinated Notes........... 500 418 1,060 1,015 269
------- ------- -------- -------- ---------
Adjusted EBITDA.......................... $20,106 $29,433 $ 22,879 $ 22,370 $ 18,817
======= ======= ======== ======== =========
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(1) Special noncash items as allowed by the credit agreements.
Adjusted EBITDA, as presented above, may not be comparable to similarly titled
measures of other companies unless such measures are calculated in substantially
the same fashion. The Company believes that EBITDA, as one indicator of a
company's liquidity, provides useful information, but does not represent cash
available to service debt. EBITDA should not be considered in isolation or as a
substitute for information presented by the Company's consolidated statement of
operations prepared in accordance with generally accepted accounting principles.
For example, EBITDA should not be considered an alternative to net income as an
indicator of operating performance or an alternative to the use of cash flows as
a measure of liquidity. Moreover, EBITDA does not reflect, as does cash flow
from operations, the cash needed to support changes in working capital. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements.
-7-
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
The following discussion and analysis provides information which management
believes is relevant to an understanding of the operations and financial
condition of RBX Corporation and its subsidiaries (the "Company"). This
discussion and analysis should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto and "Selected Financial
Data" included elsewhere in this Annual Report on Form 10-K.
Reorganization
In July 1998, the Company announced the resignation of Frank H. Roland, Chief
Executive Officer and President, and named Theodore C. Rogers, of American
Industrial Partners, as the new Chief Executive Officer and President.
Simultaneously, the Company announced that its senior management team had been
reorganized into The Office of the President, which is comprised of three Senior
Vice Presidents who are running the Company under Mr. Rogers' direction.
Management has implemented a reorganization plan designed to allow the Company
to better serve its customers, take advantage of market opportunities, and
reduce its operating costs.
Actions taken subsequent to the reorganization include: (i) the reduction of the
workforce by approximately 300 employees; (ii) the closure and sale of certain
warehouse facilities to generate cash and reduce costs; (iii) the sale of the
business and substantially all assets (excluding land and buildings) of
Universal Polymer & Rubber, Inc. ("Universal") to generate cash and reduce
operating losses; (iv) the reduction of inventory levels and other working
capital; (v) the merger of certain operations; and (vi) the reorganization of
the field sales force from a plant-based to a market-based structure.
As discussed below and disclosed in the notes to the consolidated financial
statements included in this Form 10-K, the Company has recorded charges totaling
$119.9 million ("Special Charges") in connection with the reorganization of its
operations.
Basis of Presentation
The following tables set forth, for the periods shown, net sales, gross profit,
selling, general and administrative costs ("SG&A"), operating income (loss) and
net income (loss) in millions of dollars and as a percentage of net sales. The
first table sets forth this information including special charges and the second
table sets forth the information excluding special charges.
Including Special Charges:
- --------------------------
Years Ended December 31,
1996 1997 1998
--------------------------- --------------------------- ----------------------------
Net sales.......................... $275.7 100.0% $281.7 100.0% $ 263.3 100.0%
Gross profit....................... 37.4 13.6 38.3 13.6 21.6 8.2
SG&A............................... 30.5 11.1 28.3 10.0 28.4 10.8
Operating income (loss)............ (24.6) (8.9) 5.5 2.0 (111.7) (42.4)
Net loss........................... (35.1) (12.7) (29.0) (10.3) (142.2) (54.0)
-8-
Excluding Special Charges:
- --------------------------
Years Ended December 31,
1996 1997 1998
--------------------------- --------------------------- ---------------------------
Net sales.......................... $275.7 100.0% $281.7 100.0% $263.3 100.0%
Gross profit....................... 37.4 13.6 38.3 13.6 32.1 12.2
SG&A............................... 30.5 11.1 28.3 10.0 25.4 9.6
Operating income (loss)............ (24.6) (8.9) 5.5 2.0 3.2 1.2
Net loss........................... (35.1) (12.7) (29.0) (10.3) (22.3) (8.5)
Results of Operations
1998 Compared to 1997
- ---------------------
Net Sales
Net sales decreased to $263.3 million in 1998 from $281.7 million in 1997, a
decrease of $18.4 million or 6.5%. Net sales for the Company's foam product
operations (the "Foam Group") decreased to $189.9 million in 1998 from $207.8
million in 1997, a decrease of $17.9 million or 8.6%. This decrease is largely
attributable to the disposal of Universal Polymer & Rubber, Inc. ("Universal")
on September 22, 1998. The sale of Universal will eliminate any further
operating losses from this unprofitable business.
Excluding Universal, the Foam Group's net sales decreased to $178.0 million in
1998 from $187.2 million in 1997, a decrease of $9.2 million or 4.9%. This
decrease is attributable to the loss of Ensolite customers due to poor shipping
performance, the loss of fabric laminate customers to Asian competitors, the
loss of fabricated parts customers to lower cost competitors, and reduced
shipments to General Motors Corporation and its suppliers as a result of the
strike at General Motors.
After elimination of sales to the Foam Group, net sales for the Company's custom
rubber mixing operations (the "Mixing Group") decreased slightly to $73.3
million in 1998 compared to $73.5 million in 1997, a decrease of $0.2 million or
0.3%.
Gross Profit
Gross profit decreased to $21.6 million in 1998 from $38.3 million in 1997, a
decrease of $16.7 million or 43.6%. During 1998, the Company recorded special
charges which reduced gross profit by $10.5 million. These charges were
comprised primarily of $7.6 million of inventory write downs and $2.7 million of
severance and other personnel related costs.
Excluding special charges, gross profit decreased to $32.1 million in 1998 from
$38.3 million in 1997, a decrease of $6.2 million or 16.2%. During 1997 the
Company recorded nonrecurring credits of $1.7 million related to an employee
healthcare cost rebate and certain royalties and capitalized Ensolite start-up
costs of $0.9 million. Excluding the effects of these benefits in the prior
year, the decrease in 1998 was $3.6 million which is explained by the decrease
in volume.
Gross profit for the Foam Group excluding special charges decreased to $22.8
million in 1998 from $27.6 million in 1997, a decrease of $4.8 million or 17.4%.
The decrease in gross profit experienced at the Foam Group during 1998 was
primarily volume driven, although, operating losses at the Company's Conover,
North Carolina facility also had an impact, particularly in the first half of
1998.
During the second half of 1998, the Company took a number of actions designed to
improve the operating performance at Conover. As a result of such measures,
Conover's monthly operations improved to the point of being cash neutral by the
end of 1998. Based on the improvements already achieved at Conover, as well as
anticipated future improvements, the Company has decided that continued
production at this location provides enhanced flexibility that is expected to
contribute to improved profitability in the future.
-9-
Despite a slight decrease in sales, gross profit for the Mixing Group increased
to $10.7 million in 1998 from $10.5 million in 1997, an increase of $0.2
million.
SG&A
SG&A increased to $28.4 million in 1998 from $28.3 million in 1997, an increase
of $0.1 million or 0.4%. During 1998, the Company recorded special charges which
increased SG&A by $3.0 million. These charges were comprised primarily of $1.5
million of severance and other personnel related costs and $0.9 million in
accounts receivable write downs.
Excluding special charges, SG&A decreased to $25.4 million in 1998 from $28.3
million in 1997, a decrease of $2.9 million or 10.2%. As a percentage of net
sales exclusive of special charges, SG&A decreased to 9.6% in 1998 from 10.0% in
1997. The decrease in SG&A during 1998 was the result of cost-cutting measures
enacted in the second half of the year.
Operating Income (Loss)
Operating income decreased to an operating loss of $111.7 million in 1998 from
$5.5 million of operating profit in 1997. In connection with the reorganization
of its operations, the Company recorded special charges which reduced operating
income by $114.9 million in 1998. In addition to the special charges discussed
under Gross Profit and SG&A, the Company recorded a loss on the impairment of
long-lived assets of $101.4 million in 1998. The loss on impairment of long-
lived assets is comprised primarily of the write-off of intangibles of $89.4
million and write-down of property, plant and equipment at Conover and Universal
of $11.0 million. Excluding special charges, operating income decreased to $3.2
million in 1998 from $5.5 million in 1997.
Net Loss
The net loss increased to $142.2 million in 1998 from $29.0 million in 1997.
Excluding the special charges referred to above and the write-off of start-up
costs of $5.0 million, the net loss decreased to $22.3 million in 1998 from
$29.0 million in 1997, an improvement of $6.7 million. In addition to the
aforementioned factors, the net loss was impacted by an increase in interest
expense of $5.2 million for the year ended December 31, 1998, due to higher
overall levels of indebtedness and the higher carrying cost of the Senior
Secured Notes.
1997 Compared to 1996
- ---------------------
Net Sales
Net sales increased to $281.7 million in 1997 from $275.7 million in 1996, an
increase of $6.0 million or 2.2%.
Net sales for the Foam Group increased to $207.8 million in 1997 from $204.5
million in 1996, an increase of $3.3 million or 1.6%. The increase in the Foam
Group's net sales was attributable to a $4.5 million increase in net sales at
Rubatex, primarily from the Bedford, Virginia plant, and increases totaling $1.2
million at Groendyk Mfg. Co., Inc. ("Groendyk") and OleTex, Inc. ("OleTex"). A
decrease in sales at Universal of $2.2 million partially offset the gains
experienced at the other companies comprising the Foam Group. Universal's sales
decreased due to a softening in demand for certain of the Company's products as
well as problems associated with the relocation of production from the Company's
Dawsonville, Georgia plant to the Middlefield, Ohio plant which caused delays in
shipping, lost sales and lost customers.
Net sales for the Mixing Group after elimination of intercompany sales increased
to $73.5 million in 1997 compared to $71.2 million in 1996, an increase of $2.3
million or 3.2%. These improvements were the result of strengthened demand in
the Mixing Group's core markets in comparison to the conditions existing in
1996.
-10-
Gross Profit
Gross profit increased to $38.3 million in 1997 from $37.4 million in 1996, an
increase of $0.9 million or 2.4%. As a percentage of net sales, gross profit
remained virtually unchanged between 1997 and 1996 at 13.6%.
Efforts to improve operations and reduce costs at Rubatex's Bedford, Virginia
plant yielded a $5.1 million improvement in gross profit at Bedford; however,
the improvements at Bedford were more than offset by decreased gross profit at
Rubatex's Conover, North Carolina plant. The decrease in gross profit at Conover
was the result of start-up difficulties associated with the relocation of
Ensolite production from Mishawaka, Indiana to the Conover, North Carolina
facility. Such difficulties included: (i) excessive downtime due to technical
difficulties encountered in connection with relocated as well as newly acquired
machinery and equipment; (ii) excessive scrap due to a greater than expected
learning curve associated with running Ensolite material at Conover; and (iii)
training issues associated with the large number of new employees necessary to
support Ensolite production. As a result of the problems at Conover, Foam Group
gross profit decreased to $27.6 million in 1997 from $30.7 million in 1996, a
decrease of $3.1 million or 10.1%.
Gross profit at the Mixing Group increased to $10.5 million in 1997 from $7.9
million in 1996, an increase of $2.6 million. The improvement in the Mixing
Group's gross profit resulted primarily from the increase in net sales and
credits recognized in the third quarter of 1997 of $1.7 million related to an
employee healthcare cost rebate and certain royalties.
SG&A
SG&A decreased to $28.3 million in 1997 from $30.5 million in 1996, a decrease
of $2.2 million or 7.2%. As a percentage of net sales, SG&A decreased to 10.0%
in 1997 from 11.1% in 1996. In 1996, SG&A included $3.4 million of fourth-
quarter charges incurred in connection with severance and other personnel
related costs and certain other items. Excluding these 1996 charges, SG&A was
$27.1 million in 1996, indicating an increase during 1997 of $1.2 million or
4.4%.
Operating Income (Loss)
Operating income increased to $5.5 million in 1997 from an operating loss of
$24.6 million in 1996. The operating loss recorded in 1996 included a loss on
impairment of long-lived assets of $26.5 million related to the Bedford
operations and additional fourth-quarter charges of $8.7 million related
primarily to inventory write-offs and certain personnel related costs. Excluding
the fourth-quarter charges, operating income decreased to $5.5 million in 1997
from $10.6 million in 1996, a decrease of $5.1 million. The decrease, which is
attributable to the difficulties encountered at Conover, would have been greater
except for the improvements in the Company's other operations which partially
offset the effects of Conover.
Net Loss
The net loss improved to $29.0 million in 1997 from $35.1 million in 1996, an
improvement of $6.1 million or 17.4%. In addition to the factors discussed
elsewhere herein, the net loss in 1997 was impacted by an increase in interest
expense of $1.6 million and charges in the fourth quarter of $18.8 million to
establish a full valuation allowance against the Company's deferred tax assets
and $1.8 million to reflect an extraordinary loss on extinguishment of debt.
Liquidity and Capital Resources
The Company's primary source of liquidity is cash flow from operations and
borrowings under a revolving credit facility. Pursuant to its operating
strategy, the Company maintains minimal or no cash balances and is substantially
dependent upon, among other things, the availability of adequate working capital
financing to support inventories and accounts receivable. The Company is party
to a credit agreement which provides for a $25 million revolving credit facility
subject to a borrowing base formula. As of December 31, 1998, $2.8 million of
the revolving credit facility was used for standby letters of credit primarily
related to the Company's casualty insurance program. Borrowings against the
revolving credit facility were $5.5 million and unused borrowing capacity was
$16.7 million at December 31, 1998. The revolving credit facility matures in
December 2002.
-11-
The Company is highly leveraged. At December 31, 1998, the Company's
indebtedness was $206.1 million and its stockholder's equity was a deficit of
$151.5 million. For the years ended December 31, 1996, 1997, and 1998, the
Company's earnings were insufficient to cover fixed charges by $43.3 million,
$14.8 million, and $137.2 million respectively. The problems at Conover (see
"Results of Operations") had a negative impact on the Company's results of
operations during 1998, particularly in the first half of the year. If the
improvements which occurred in the second half of 1998 do not continue or if
operating performance deteriorates, the Company may be required to take
additional measures to ensure the availability of sufficient cash to sustain
operations. Such measures may include, among other things, reducing or delaying
capital expenditures, selling assets, restructuring or refinancing its
indebtedness, or seeking additional equity capital. There is no assurance that
any of these measures can be effected on satisfactory terms, if at all.
During the second half of 1998, the Company took a number of actions to improve
the operating performance at Conover. As a result of such measures, Conover's
monthly operations improved to the point of being cash neutral by the end of
1998. Based on the improvements already achieved at Conover as well as
anticipated future improvements, the Company has decided that continued
production at this location provides enhanced flexibility that is expected to
contribute to improved profitability in the future.
The Company's indebtedness contains certain restrictions which, among other
things, limit its ability to incur additional indebtedness, issue preferred
stock, incur liens, pay dividends, make certain other restricted payments,
consummate certain asset sales, enter into certain transactions with affiliates,
merge or consolidate with any other person or sell, assign, transfer, lease,
convey or otherwise dispose of substantially all of its assets. In addition, the
Company's indebtedness contains certain financial covenants including
maintenance of a minimum level of earnings before interest, taxes, depreciation
and amortization ("EBITDA") for the four consecutive quarters ending December
31, 1998.
During the second quarter of 1998, the Company and its lenders entered into an
amendment to the Credit Agreement which waived the financial covenants to which
the Company was subject through the end of 1998 and established a requirement
with respect to the maintenance of a minimum level of EBITDA for the four
consecutive quarters ending September 30, 1998 and December 31, 1998. The
Company was in compliance with the terms of its indebtedness as of December 31,
1998.
In February 1999, the Company and its lenders entered into a second amendment to
the Credit Agreement which waived the financial covenants to which the Company
was subject through December 31, 1999 and established requirements with respect
to the maintenance of a minimum level of EBITDA for the four consecutive
quarters ending March 31, 1999, June 30, 1999, September 30, 1999, and December
31, 1999. The amendment also provides for a revised limitation on capital
spending.
Interest payments on the Senior Secured Notes and Senior Subordinated Notes are
required during 1999 as follows: $6.0 million in January; $5.6 million in April;
$6.0 million in July; and $5.6 million in October. The Senior Secured Notes and
the Senior Subordinated Notes mature as follows: $100 million in January 2003
and $100 million in October 2005.
The Company receives substantial ongoing financial and management services from
American Industrial Partners ("AIP"), an affiliate of the majority owners of the
Company's stockholder. AIP has deferred cash payments with respect to the
management fees it charges the Company; however, the accrual of such fees has
continued.
Cash Flow From Operating Activities
Cash used in operating activities was $1.5 million in 1998 compared to cash used
of $2.4 million in 1997. An overall reduction in working capital contributed to
the decrease in cash required to support operating activities as did a reduction
of the net loss before special charges.
-12-
Cash Flow From Investing Activities
Cash provided by investing activities was $1.4 million in 1998 compared to cash
used of $16.7 million in 1997. Capital expenditures were $4.3 million in 1998
compared to $15.6 million in 1997. Net proceeds from the disposal of business
and from disposal of property, plant and equipment totaled $5.7 million in 1998.
On September 22, 1998, the Company completed the sale of the business and
substantially all of the assets (excluding land and buildings) of Universal, a
subsidiary that was engaged primarily in manufacturing solid molded rubber
products and certain small-profile rubber extrusions. Cash proceeds of $3.5
million were received in connection with the sale, with $2.9 million of such
proceeds used to reduce indebtedness under the Company's revolving credit
facility and the remaining $0.6 million cash was restricted to use for capital
expenditures.
Cash Flow From Financing Activities
Cash provided by financing activities was less than $0.1 million in 1998
compared to $16.0 million in 1997. Borrowings against the revolving credit
facility increased to $5.5 million as of December 31, 1998, from $5.0 million as
of December 31, 1997, an increase of $0.5 million. In total, debt was nearly
unchanged at the end of 1998 compared to the end of 1997.
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization
Adjusted earnings before interest, taxes, depreciation, and amortization
("Adjusted EBITDA") decreased to $18.8 million in 1998 from $22.4 million in
1997, a decrease of $3.6 million or 16.1%.
During the second half of 1998, the Company realized improvements in operating
performance as a result of the reorganization plan which the Company began to
implement in July of 1998. Adjusted EBITDA by quarter for 1998 was as follows:
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
------------ ------------ ------------ ------------ ------------
Adjusted EBITDA (in millions)................... $3.3 $2.4 $5.5 $7.6 $18.8
Management believes EBITDA is one indicator of a company's liquidity; however,
EBITDA, as presented above, may not be comparable to similarly titled measures
of other companies unless such measures are calculated in substantially the same
fashion. The Company believes that EBITDA, while providing useful information,
does not represent cash available to service debt and that it should not be
considered in isolation or as a substitute for the consolidated statement of
operations prepared in accordance with generally accepted accounting principles.
For example, EBITDA should not be considered an alternative to net income as an
indicator of operating performance or an alternative to the use of cash flows as
a measure of liquidity. Moreover, EBITDA does not reflect, as does cash flow
from operations, the cash needed to support changes in working capital.
Labor Relations
In December 1998, the Company opened contract negotiations with the union at its
Bedford, Virginia plant seeking a five-year agreement in exchange for a
commitment on the Company's part to move work into the plant. The union
terminated these negotiations in February 1999, thereby deferring any further
discussions until the current contract expires in September 1999. In the past,
the Bedford plant has experienced labor stoppages and the Company can provide no
assurance that an agreement can be reached with the Bedford union prior to the
existing contract's expiration in September 1999.
-13-
Disclosure Regarding Forward-Looking Statements
The information included or incorporated by reference herein may include
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. All
statements, other than statements of historical facts included herein, regarding
the Company's financial position, business strategy and cost cutting plans may
constitute forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to have been correct.
Actual results could differ materially from the Company's expectations.
Information on significant potential risks and uncertainties not discussed
herein may be found in the Company's filings with the Securities and Exchange
Commission.
Year 2000
Introduction
The arrival of the Year 2000 poses a unique challenge to all enterprises which
depend on computers, computer software and other equipment including machinery
and equipment utilizing microprocessors in conducting their normal operations.
As the Year 2000 approaches, such systems may become unable to function properly
or may even fail completely as the result of programming which recognizes dates
using only two digits rather than four. Consequently, operations could be
disrupted or temporarily halted if the deficiencies in such systems are not
corrected in a timely manner. Operations could also be disrupted or temporarily
halted if raw materials suppliers or service providers are not prepared and as a
result of Year 2000 become unable to supply materials or provide services.
Additionally, there could be a reduction in demand if customers are not prepared
for the Year 2000.
The Company's State of Readiness
The Company has undertaken a comprehensive assessment and corrective action
program designed to ensure that its essential information technology ("IT")
systems will appropriately recognize the Year 2000. Beginning in 1995, the
Company started a project to replace substantially all of its primary IT
systems. Management estimates that this project will be completed by the end of
the second quarter of 1999. Corrective action related to the Company's other
essential IT systems is also expected to be completed by the end of the second
quarter of 1999.
The Company is also performing an assessment of its non-IT systems. Non-IT
systems include systems utilizing embedded technology such as microcontrollers.
The manufacturing processes employed by the Company do not rely heavily on
embedded technology; however, the Company is working with its suppliers of
machinery and equipment to ensure that the manufacturing process is not halted
by such equipment as the Year 2000 approaches.
The Company is currently evaluating the Year 2000 readiness of its raw materials
suppliers and service providers to more fully assess the nature and magnitude of
the risk posed by its business partners. Management estimates that this
assessment will be completed by the end of the second quarter of 1999.
The Costs to Address the Company's Year 2000 Issues
The project to replace the Company's essential IT systems would have occurred
regardless of the existence of Year 2000 issues; however, the replacement
project is expected to provide Year 2000 readiness with respect to such systems.
The Company estimates capital expenditures of approximately $3.3 million in
connection with updating its primary IT systems, $2.6 of which had been spent as
of December 31, 1998.
The Risks of the Company's Year 2000 Issues
The Company currently believes that its raw materials suppliers, service
providers and customers pose the greatest risk to operations as the Year 2000
approaches. The Company's manufacturing processes could be hampered or halted
altogether if raw materials are not available. Further, demand for the
Company's products could be adversely affected if the Company's customers are
not prepared for the advent of the Year 2000.
-14-
The Company's Contingency Plans
The Company has not completed the development of a formal contingency plan, but
expects to do so by the end of the second quarter of 1999. Any such plan will
likely include adjustment of production levels based on demand and the
availability of raw materials as well as the manual operation of equipment
ordinarily controlled by computer.
Conclusion
The Company's assessment of the impact of Year 2000 issues and the related
timing associated with completion of efforts to resolve Year 2000 issues are
based on management's estimates, which were developed utilizing certain
assumptions with respect to future events. Based on these estimates and
assumptions, management believes it will achieve Year 2000 readiness in a timely
manner for essential IT systems. However, actual circumstances could differ
from those anticipated by management thereby altering the timetable for
completion, the effectiveness of implementation and the related costs of Year
2000 compliance programs.
Environmental Matters
The Company is subject to a wide variety of federal, state and local
environmental laws and regulations ("Environmental Laws") which continue to be
adopted and amended. These Environmental Laws regulate, among other things, air
and water emissions and discharges at the Company's manufacturing facilities;
the generation, storage, treatment, transportation and disposal of solid and
hazardous waste by the Company; the release of hazardous substances, pollutants
and contaminants into the environment at properties operated by the Company and
at other sites; and, in some circumstances, the environmental condition of
property prior to transfer or sale to the Company. Risks of significant
environmental costs and liabilities are inherent in the operations and
facilities of the Company, as well as other participants in the industry. The
Company believes, however, that its current operations are in substantial
compliance with Environmental Laws.
The Company anticipates capital expenditures of approximately $1.7 million in
the aggregate over the next three to five years relating to environmental
matters. These expenditures include, among other things, making improvements in
the Company's underground storage tank systems, designing and installing air
emission control equipment and implementing spill control plans. As a result of
internal evaluations and discussions with its advisors and consultants, the
Company estimates that the cost of the Company's known potential environmental
liabilities ranges from $1.8 million to $2.9 million. Based on the reasonably
expected amount of such liabilities, the Company has established a reserve on
its balance sheet for environmental liabilities, which as of December 31, 1998
was approximately $2.2 million. Management believes such amounts, under
existing laws and regulations, are adequate to cover presently identified
environmental liabilities, but no assurance can be given that such amounts will
be adequate to cover the ultimate costs of these liabilities, or the cost of
environmental liabilities that may arise or be identified in the future.
Although management expects that any cash outlays with respect to such matters
would be made over a number of years, the timing of any such expenditures cannot
be determined.
The Company has been named as a "potentially responsible party" at two federal
"Superfund" sites and one other site where its wastes are alleged to have been
disposed of. Based upon information known to the Company concerning the size of
these sites, their years of operation, the number of past users and the
characteristics of the Company's waste streams, management believes that the
Company's proportionate share of the cost of the necessary investigation and
eventual remedial work that may need to be performed at such sites will not be
material. A"potentially responsible party" under applicable federal regulations
would have joint and several liability for the total costs of any cleanup or
other remediation. The Company does not presently have any cost sharing
arrangements with any other potentially responsible parties. However, the
Company has no reasonable basis to believe that any other potentially
responsible party will be unable to make its pro rata contribution with respect
to any cleanup or other remediation.
The Company's leased Barberton, Ohio facility was listed in the Comprehensive
Environmental Response, Compensation and Liability Information System
("CERCLIS") index with the designation "No Further Remedial Action Planned."
However, such facility was delisted from the CERCLIS index on August 31, 1995,
based on a follow-up site investigation that year by a United Stated Environment
Protection Agency ("U.S. EPA") contractor. The property remains identified on
the Ohio 1994 Master Sites List, with a designation of "medium priority." The
Ohio EPA issued
-15-
a complaint with respect to the Barberton facility in 1991 and, although such
complaint remains open, the Company believes that all noted items have been
corrected. Although some further investigation or cleanup of the site may be
required, the Company does not expect that the costs of those activities would
have a material adverse effect on the Company's financial condition, operations
or liquidity. Any such costs would likely be incurred over several years.
Impact of Inflation
The Company believes that inflation has not had a significant effect on its
results of operations over the periods presented. Many of the Company's raw
materials are petrochemical derivatives. Substantial increases in costs of such
materials could adversely affect the operations of the Company, although the
Company believes such cost increases could be passed on to customers in less
than a one year period.
ITEM 8. Financial Statements and Supplementary Data
The Company's 1998 consolidated financial statements are presented on pages F-1
through F-21 of this Annual Report on Form 10-K.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
-16-
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Set forth below is the name, age as of December 31, 1998, and a brief account of
the business experience of each person who is, or was at December 31, 1998, a
director or executive officer of the Company.
Name Age Position
- --------------------------------------------------- --- ------------------------------------------------------------
Theodore C. Rogers................................. 64 President, Chief Executive Officer
John C. Cantlin.................................... 50 Senior Vice President, Chief Financial Officer and Treasurer
Timothy J. Bernlohr................................ 39 Senior Vice President - Sales and Marketing
Mark T. Dobbins.................................... 53 Senior Vice President - Human Resources
Alfred H. Turner................................... 58 Vice President - Information Systems
Harry L. Schickling................................ 60 Vice President and Secretary
Lynn A. Bakker..................................... 52 Vice President - Technology
Tom H. Barrett..................................... 68 Chairman of the Board and Director
W. Richard Bingham................................. 63 Director
Robert J. Klein.................................... 34 Director
Steven W. Schaefer................................. 61 Director
Mr. Rogers has been the President and Chief Executive Officer of the Company
since July 1, 1998 and has been a director of the Company since it was acquired
by AIP. Mr. Rogers co-founded AIP and has been a director and officer of the
firm since 1989. He is also a limited partner of American Industrial Partners
II, L.P. ("AIP-LP") and an officer and director of American Industrial Partners
Corporation ("AIPCorp."). From 1980 to 1987, he served as Chairman, President
and Chief Executive Officer of NL Industries, Inc., a petroleum service and
chemical company. Mr. Rogers is a former director of Allied Stores Corporation,
Allied-Signal Inc., Parsons Corporation, MCorp and Southwest Bancshares Inc. He
is currently a director of Easco, Inc., Great Lakes Carbon Corporation, Steel
Heddle Group, Sweetheart Holdings, Inc., Stanadyne Automotive Corp., Bucyrus
International, Inc. and Derby International.
Mr. Cantlin has been a Vice President of the Company since September 1997. He
received the Senior Vice President designation effective July 1, 1998. Prior to
joining the Company, Mr. Cantlin spent seven years as the Executive Vice
President of Finance and Corporate Secretary of Stockham Valves, Inc. He also
has ten years experience as Chief Financial Officer of several divisions of FMC
Corporation.
Mr. Bernlohr has been a Vice President of the Company since July 1, 1997. He
received the Senior Vice President designation effective July 1, 1998. Prior to
joining the Company, Mr. Bernlohr spent 16 years with Armstrong World Industries
("Armstrong") and spent his last five years at Armstrong as Division Sales &
Marketing Manager for North America.
Mr. Dobbins has been a Vice President of the Company since November 1996. He
received the Senior Vice President designation effective July 1, 1998. Between
1991 and 1996, Mr. Dobbins was Vice President -- Human Resources for Halstead
Industries, Inc. Prior to 1991, Mr. Dobbins spent seven years as Director of
Training and Industrial Relations as well as Director International Human
Resources for ICI Americas Corporation. Prior experience included Vice
President -- Human Resources Engineered Products/ITT Grinnell and various human
resource assignments with Cutler-Hammer Corporation and Masonite Corporation.
Mr. Turner has been a Vice President of the Company since March 1997. Prior to
joining the Company, Mr. Turner spent four years as the Director of Information
Systems for OSI, Specialities Division of Witco Chemical Corporation. Prior to
1993, Mr. Turner held the Senior Information Services role at TRACO, Robertson-
Ceco Corporation and Amca Corporation.
Mr. Schickling has been a Vice President of the Company since 1990. He joined
the Company in 1980 as Manager of Software Systems and also held the position of
Environmental and Legal Director before his promotion to Vice
-17-
President. Immediately before coming to the Company, Mr. Schickling headed the
Navy Field Engineering Office in Charleston, SC. Prior to that he held various
positions with Honeywell, Inc., Sears Roebuck & Company and the U.S. Navy.
Mr. Bakker has been a Vice President of the Company since July 1998. Prior to
joining the Company, Mr. Bakker spent seven years at Perma-Flex N.A., first as
Vice President & General Manager, and then as Executive Vice President. Prior
to 1991, Mr. Bakker served as Plant Chemist and Director of Research &
Development for Uniroyal Plastics, and as Research Chemist for American Roller
Company.
Mr. Barrett has been a director of the Company since it was acquired by AIP.
Mr. Barrett is the former Chairman, President and Chief Executive Officer of
Goodyear Tire & Rubber Company, where he also served in various executive
capacities from 1953 to 1991. Mr. Barrett joined AIP in 1992 and is a limited
partner of AIP-LP, the general partner of AIP-CF, and is a director and officer
of AIPCorp, and a director of AO Smith Corporation, Rubbermaid Inc. and Air
Products & Chemicals, Inc. He is also a trustee of Mutual Life Insurance
Company of New York.
Mr. Bingham has been a director of the Company since it was acquired by AIP.
Mr. Bingham co-founded AIP and has been a director and officer of the firm since
1989. He is also a limited partner of AIP-LP and an officer and director of
AIPCorp. Prior to co-founding AIP, Mr. Bingham was a Managing Director of
Shearson Lehman Brothers Inc. from 1984 until late 1987. Prior to joining
Shearson Lehman Brothers, Mr. Bingham was director of the Corporate Finance
Department, member of the Board, and, most recently, head of Mergers and
Acquisitions at Lehman Brothers Kuhn Loeb Inc. Prior thereto, he directed
investment banking operations at Kuhn Loeb & Company where he was a partner and
member of the Board and Executive Committee. Mr. Bingham is currently a
director of Sweetheart Holdings Inc., Stanadyne Automotive Corp. and Bucyrus
International, Inc. He formerly served on the boards of Avis, Inc., ITT Life
Insurance Corporation and Valero Energy Corporation.
Mr. Klein has been a director of the Company since it was acquired by AIP. Mr.
Klein has been an employee of AIP since 1992. From 1991 to 1992, he was an
associate at The First Boston Corporation and prior thereto was an associate
with Acadia Partners, L.P. From 1986 to 1988, he served as a financial analyst
in the mergers and acquisitions department of Morgan Stanley & Co. Incorporated.
Mr. Klein is a director of Easco, Inc. and Steel Heddle Group, Inc.
Mr. Schaefer is the former President and Chief Executive Officer of the Company,
where he served from April 1993 to October 1996. Between 1983 and 1993, Mr.
Schaefer was employed at Occidental Petroleum Corporation in a variety of
officer positions, including Vice President, Occidental Petroleum Corp.;
Executive Vice President, Polymers and Plastics Division; and Senior Vice
President, PVC Products Division. Prior to 1983, Mr. Schaefer held a variety of
line and senior management positions at Diamond Shamrock, most recently as
Corporate Director, Human Resources and Vice President and General Manager,
Plastics Division.
-18-
ITEM 11. Executive Compensation
Summary Compensation Table. The following table sets forth information
concerning the compensation for Mr. Rogers, President and Chief Executive
Officer of the Company, and the five other most highly compensated officers of
the Company.
Annual Compensation
-----------------------
Name and Principal Position Year Salary Bonus All Other Compensation
- --------------------------------------- ---- ------- ----- ----------------------
Theodore C. Rogers (1) 1998 $ - $ - $ -
President, Chief Executive Officer 1997 - - -
1996 - - -
John C. Cantlin (2) 1998 190,000 25,000 (8) 1,970(9)/14,863 (12)
Senior Vice President, Chief 1997 63,333 (4) 25,000 (8) 118(9)/15,833 (10)
Financial Officer and Treasurer 1996 - - -
Timothy J. Bernlohr (3) 1998 156,375 30,000 (8) 3,203(9)/67,867 (11)
Senior Vice President - Marketing and 1997 112,500 (5) 30,000 (8) 236(9)/38,500 (11)
Sales 1996 - - -
Mark T. Dobbins 1998 160,500 - 387(9)/42,739 (12)
Senior Vice President - Human Resources 1997 150,000 - 354 (9)
1996 - - -
Lynn A. Bakker 1998 74,621 (6) - 98(9)/12,917(10)/44,405 (12)
Vice President - Technology 1997 - - -
1996 - - -
Alfred H. Turner, Vice President - 1998 132,600 - 3,278(9)/117,372 (12)
Information Systems 1997 104,167 (7) - 268(9)/10,425 (10)
1996 - - -
- -----------------
(1) Mr. Rogers' predecessor, Frank H. Roland, was paid salary, bonus and all
other compensation as follows: 1998 salary $168,807; 1998 all other
compensation $247,381; 1997 salary $330,000; 1997 all other compensation
$4,101; 1996 salary $288,919; and 1996 all other compensation $4,134. Mr.
Rogers receives no compensation from the Company for his services.
(2) Mr. Cantlin's predecessor, Thomas F. Lemker, was paid salary, bonus and all
other compensation as follows: 1998 all other compensation $13,750; 1997
salary $96,250; 1997 all other compensation $112,060; 1996 salary $179,586;
and 1996 all other compensation $4,134.
(3) Mr. Bernlohr's predecessor, Roger C. Dickson, was paid salary, bonus and
all other compensation as follows: 1997 salary $14,166; 1997 all other
compensation $125,433; 1996 salary $168,329; and 1996 all other
compensation $4,134.
(4) Reflects Mr. Cantlin's earnings from September 1997 (when he joined the
Company) through December 1997. His annual salary was $190,000.
(5) Reflects Mr. Bernlohr's earnings from May 1997 (when he joined the Company)
through December 1997. His annual salary for 1997 was $150,000.
(6) Reflects Mr. Bakker's earnings from July 1998 (when he joined the Company)
through December 1998. His annual salary for 1998 was $155,000.
(7) Reflects Mr. Turner's earnings from March 1997 (when he joined the Company)
through December 1997. His annual salary for 1997 was $125,100.
(8) Reflects guaranteed minimum bonus.
-19-
(9) Reflects term life insurance premiums paid by the Company and amounts
contributed under the Company's 401(k) plan for each executive.
(10) Reflects signing bonus.
(11) Reflects payments of $38,500 and $38,500 in 1997 and 1998, respectively,
made by the Company to compensate Mr. Bernlohr for the forfeiture of stock
options and performance restricted shares of his prior employer and
relocation expenses of $29,367 in 1998.
(12) Reflects payments made by the Company for relocation expenses.
Stock Options and Stock Appreciation Rights ("SARs"). No options to acquire
common stock, $.01 par value, of RBX Group (the "Common Stock") or SARs were
granted to any named executive officer of the Company during the year ended
December 31, 1998. The following table provides information on options exercised
during 1998 for the named executive officers and the value of such unexercised
options as of the end of such year. No SARs were outstanding in 1998.
Aggregated Option Exercises for 1998
and Option Values as of December 31, 1998 Table(1)
Shares Number of Securities Value of Unexercised
Acquired Value Underlying Unexercised Options In-the-Money Options
on Realized as of December 31, 1998 as of December 31, 1998
Exercise ($) (#) Exercisable/Unexercisable(1) (#) Exercisable/Unexercisable(2)
-------- -------- -------------------------------- --------------------------------
Frank H. Roland...... -- -- 5,223 $391,725 / $ --
Harry L. Schickling.. -- -- 3,176 / 1,200 $238,200 / $ --
- -----------------
(1) Represents outstanding Rollover Options (as defined) and Incentive Options
(as defined).
(2) Amounts shown are based on the estimated fair value of the Common Stock as
of December 31, 1998 at $100 per share
Rollover Options. At the time of the Acquisition, certain options held by
management were converted into options to acquire common stock of RBX Group (the
"Rollover Options").
Incentive Options. On October 16, 1995, the Board of Directors of RBX Group
adopted the Management Stock Option Plan (the "Management Stock Option Plan").
The purposes of the Management Stock Option Plan are to motivate and retain
certain management employees of the Company and its subsidiaries and attract and
retain talented individuals as employees by allowing them to acquire an
ownership interest in the Company. The Management Stock Option Plan provides
for the grant of up to 40,000 stock options (the "Incentive Options"), subject
to adjustment for stock splits and similar capital changes. As of December 31,
1998, 6,000 Incentive Options were outstanding and 34,000 Incentive Options were
available for future grants.
The Chief Executive Officer administers the Management Stock Option Plan subject
to the review and approval of the Board of Directors. On October 16, 1995,
awards of Incentive Options were granted to certain management employees of the
Company. The term of any Incentive Option shall not exceed ten years. Options
under the Management Stock Option Plan are not intended to be "incentive stock
options" within the meaning of Section 422A of the Internal Revenue Code or any
successor provisions.
The Board of Directors selects the participants and establishes the terms and
conditions of each Incentive Option grant.
-20-
Pension Plans
Pension Plans. The Company maintains a noncontributory defined benefit pension
plan (the "Plan") covering certain of the Company's employees, including the
executive officers listed in the foregoing tables. The accrued monthly benefit
ordinarily payable under the Plan is equal to 1/12 multiplied by: (i) 0.5% of
the average compensation (including merit bonuses) received by a participant
during the five consecutive calendar years of employment that would produce the
highest such average (the "Final Average Compensation") times the years of
service of the participant with the Company and certain related or predecessor
employers not in excess of 35 years ("Years of Benefit Service") plus (ii) 0.5%
of the Final Average Compensation that is in excess of the Social Security
taxable wage base times Years of Benefit Service.
The compensation covered by the Plan generally corresponds to the annual salary
and merit bonus amounts reported in the preceding summary compensation table.
For calendar years starting on and after January 1, 1994, the total compensation
that can be considered for any purpose under the Plan (the "Pay Limit") is
limited to $150,000 pursuant to requirements imposed by the Internal Revenue
Code of 1986, as amended (the "Code"). The Code also places certain other
limitations on the annual benefits that may be paid under the Plan. However,
the benefits payable under the Plan are not reduced for any Social Security
payments that may be received by a participant.
The Company has also adopted an unfunded supplemental retirement plan for
certain designated employees (the "SERP") which is designed to supplement the
benefits payable to participants under the Plan and certain other plans of the
Company. The annual benefit ordinarily payable under the SERP is equal to 50%
of the participant's Final Average Compensation (as determined under the Plan),
calculated based on a maximum compensation of $235,840 (or, if greater, the
amount of the Pay Limit then in effect), but reduced by (i) the sum of all
benefits under the Plan and any other qualified plans maintained by the Company,
(ii) the amount of monthly Social Security benefit payments received by the
participant, and (iii) the amount of any long-term disability payments to the
participant. The SERP has the effect of establishing a minimum pension level
for participating executives, regardless of participation in the Qualified
Plans.
Director Compensation
Mr. Barrett receives an annual fee of $150,000 for his service as Chairman of
the Board of Directors. Mr. Schaefer receives an annual retainer of $15,000,
plus $1,000 per meeting of the Board of the Directors. All other Directors
receive no fee or annual retainer for their services as Directors. Each of the
Directors is reimbursed for out-of-pocket expenses incurred in connection with
attending meetings.
Compensation Committee Interlocks and Insider Participation
There is currently no compensation committee of the Board of Directors. In
general, the principal decisions respecting compensation of executive officers
are made by the Board of Directors.
Employment Agreements
Mr. Cantlin is party to an employment arrangement which remains in effect at
least until September 1, 2000, unless terminated earlier for cause. The
arrangement provides for a base salary of $190,000 and incentive compensation
based on the Company's financial performance.
Mr. Bernlohr is party to an employment arrangement which remains in effect at
least until April 1, 2000, unless terminated earlier for cause. The arrangement
provides for an annual base salary of $150,000 and incentive compensation based
on the Company's performance.
Mr. Dobbins is party to an employment arrangement which remains in effect at
least until November 18, 1999, unless terminated earlier for cause. The
arrangement provides for an annual base salary of $150,000 and incentive
compensation based on the Company's performance.
-21-
Mr. Turner is party to an employment arrangement which remains in effect at
least until March 1, 2000, unless terminated earlier for cause. The arrangement
provides for an annual base salary of $125,100 and incentive compensation based
on the Company's performance.
Mr. Bakker is party to an employment agreement which remains in effect at least
until March 1, 2002, unless terminated earlier for cause. The arrangement
provides for an annual base salary of $155,000 and incentive compensation based
on the Company's performance.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
As of December 31, 1998, RBX Group was the only holder of record of shares of
the Company's common stock, par value $.01 per share. As of December 31, 1998,
there were 15 holders of record of shares of Common Stock of RBX Group. The
following table sets forth certain information regarding beneficial ownership of
Common Stock as of March 23, 1999, assuming the exercise of stock options
exercisable within 60 days of such date, by (i) each person who is known by the
Company to be the beneficial owner of more than 5% of the Common Stock, (ii)
each of the Company's directors and the named executive officers in the Summary
Compensation Table and (iii) all directors and executive officers as a group. To
the knowledge of the Company, each stockholder has sole voting and investment
power as to the shares of Common Stock shown unless otherwise noted. Except as
indicated below, the address for each such person is c/o RBX Corporation, 5221
ValleyPark Drive, Roanoke, Virginia 24019.
Name Number (1) Percentage (2)
---- ---------- --------------
American Industrial Partners Capital Fund II, L.P.(3)(4).............. 394,275 73.4%
American Industrial Partners Capital Fund, L.P.(3)(4)................. 100,000 18.6%
Tom H. Barrett........................................................ 1,000 *
W. Richard Bingham(4)................................................. 494,275 92.0%
Theodore C. Rogers(4)................................................. 494,275 92.0%
Robert J. Klein....................................................... 150 *
All directors and executive officers as a group (11 persons).......... 503,267 93.6%
- --------------------
* Represents less than 1%.
(1) Beneficial ownership is determined in accordance with Rule 13d-3 of the
Securities and Exchange Commission. In computing the number of shares of
Common Stock beneficially owned by a person and the percentage of
beneficial ownership of that person, shares of Common Stock subject to
options held by that person that are currently exercisable or exercisable
within 60 days are deemed outstanding. Such shares, however, are not deemed
outstanding for the purposes of computing the percentage ownership of each
other person. The persons named in this table have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where
applicable and except as indicated in the other footnotes to this table.
(2) Based upon 499,275 shares of Common Stock and 38,208 Rollover Options
outstanding as of March 23, 1999.
(3) The address of such entities is One Maritime Plaza, Suite 2525, San
Francisco, CA 94111.
(4) Messrs. Bingham and Rogers share investment and voting power with respect
to the securities owned by AIP-CF and American Industrial Partners Capital
Fund, L.P., but each disclaims beneficial ownership of any shares of Common
Stock. The business address of Mr. Bingham is One Maritime Plaza, Suite
2525, San Francisco, CA 94111, and the business address of Mr. Rogers is
551 Fifth Avenue, Suite 3800, New York, NY 10176.
The total amount of authorized capital stock of the Company is 1,000 shares of
common stock, $0.01 par value per share, and no shares of preferred stock. The
total amount of authorized capital stock of the RBX Group is 1,000,000 shares of
Common Stock, 100,000 shares of preferred stock, par value $0.01 per share (the
"Preferred Stock") and 90,000 shares of non-voting Series A preferred stock, par
value $0.01 per share (the "Series A Preferred Stock"). As of December 31,
1998, 1,000 shares of the Company's Common Stock were issued and outstanding,
499,275 shares of RBX Group's Common Stock were issued and outstanding and
90,000 shares of RBX Group's Series A Preferred Stock were issued and
outstanding. All of the issued and outstanding shares of Series A Preferred are
held by AEA Investors, Inc. or affiliates thereof.
-22-
The issued and outstanding shares of the Company's common stock are validly
issued, fully paid and nonassessable. The holders of outstanding shares of the
Company's common stock are entitled to receive dividends out of assets legally
available therefor at such times and in such amounts as the Board of Directors
may from time to time determine. The shares of the Company's common stock are
neither redeemable nor convertible, and the holders thereof have no preemptive
or subscription rights to purchase any securities of the Company. Upon
liquidation, dissolution or winding up of the Company, the holders of the
Company's common stock are entitled to receive pro rata the assets of the
Company which are legally available for distribution, after payment of all debts
and other liabilities and subject to the prior rights of any holders of any
preferred stock then outstanding. Each outstanding share of the Company's
common stock is entitled to one vote on all matters submitted to a vote of
stockholders.
ITEM 13. Certain Relationships and Related Transactions
Acquisition Arrangements
AIP-CF, certain related investors and management investors have entered into a
stockholders' agreement (the "Stockholders' Agreement") with RBX Group pursuant
to which such persons were granted certain registration rights and participation
rights. Pursuant to the Stockholders' Agreement, AIP-CF has the right to elect
the majority of the directors of RBX Group.
Upon the closing of the acquisition of Ensolite, the Company paid a fee of
$400,000 to AIP and reimbursed AIP for its out-of-pocket expenses in connection
with the negotiation of the acquisition of Ensolite and for providing certain
investment banking services to the Company, including the arrangement and
negotiation of the terms of the related agreements and financing.
Management Services Agreement
AIP has provided, and expects to provide, substantial ongoing financial and
management services to the Company utilizing the extensive operating and
financial experience of AIP's principals. AIP receives an annual fee of
$850,000 for providing general management, financial and other corporate
advisory services to the Company, payable semiannually, and is reimbursed for
out-of-pocket expenses. The fees are paid to AIP pursuant to a management
services agreement among AIP, RBX Group, the Company and the Company's
subsidiaries and are subordinated in right of payment to the Senior Secured
Notes, the Credit Agreement and the Senior Subordinated Notes.
AIP has deferred cash payments with respect to the management fees it charges
the Company; however, the accrual of such fees has continued.
-23-
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, Reports on Form 8-K
(a)(1) Financial Statements
See Part II
(a)(2) Financial Statement Schedules
RBX Corporation
Schedule II - Valuation and Qualifying Accounts
(in thousands)
Balance at Charged to Balance at
Description Beginning of Year Costs and Expenses Deductions (a) End of Year
------------ ------------------- ------------------- -------------------- -------------------
Allowance for doubtful
accounts:
1998..................... $1,505 $2,019 $2,065 $1,459
1997..................... $1,337 $ 645 $ 477 $1,505
1996..................... $1,678 $ 531 $ 872 $1,337
(a) Accounts charged off during the year, net of recoveries of accounts
previously charged off.
(a)(3) Exhibits
Exhibit No. Item
- ----------------- ----------------------------------------------------------------------------------------------------------
3.1 Certificate of Incorporation of RBX Corporation. (a)
3.2 By-laws of RBX Corporation. (a)
4.1 Indenture, dated as of October 16, 1995, among RBX Corporation, each Subsidiary Guarantor and
United States Trust Company of New York, as Trustee. (a)
4.2 Forms of Series A and Series B 11 1/4% Senior Subordinated Notes including the Form of
Subsidiary Guarantees. (a)
4.3 Purchase Agreement, dated as of October 6, 1995, among RBX Corporation, each Subsidiary
Guarantor (effective as of October 16, 1995), Donaldson, Lufkin & Jenrette Securities
Corporation and Chemical Securities Inc. (a)
4.4 Registration Rights Agreement, dated as of October 16, 1995, by and among RBX Corporation,
each Subsidiary Guarantor, Donaldson, Lufkin & Jenrette Securities Corporation and Chemical
Securities Inc. (a)
4.5 Stockholders Agreement, dated as of October 16, 1995, among RBX Group, Inc., American
Industrial Partners Capital Fund II, L.P. and certain other signatories thereto. (a)
4.6 Securities Purchase Agreement, dated as of June 10, 1996, among RBX Group, Inc. and American
Industrial Partners Capital Fund, L.P. (b)
-24-
4.7 Stockholders Agreement, dated as of June 10, 1996, among RBX Group, Inc.
and American Industrial Partners Capital Fund, L.P. (b)
4.8 Indenture, dated as of December 11, 1997, among RBX Corporation, each
Subsidiary Guarantor and State Street Bank and Trust Company, as trustee
(the "Trustee"). (c)
4.9 Forms of 12% Series A and Series Senior Secured Notes including the Form
of Subsidiary Guarantees. (c)
4.10 Purchase Agreement, dated as of December 5, 1997, among RBX Corporation,
each Subsidiary Guarantor (effective as of October 16, 1995), Donaldson,
Lufkin & Jenrette Securities Corporation and Chase Securities Inc. (c)
4.11 Registration Rights Agreement, dated as of December 11, 1997, by and
among RBX Corporation, each Subsidiary Guarantor, Donaldson, Lufkin &
Jenrette Securities Corporation and Chase Securities Inc. (c)
4.12 Company Security Agreement, dated as of December 11, 1997, made by RBX
Corporation in favor of the Trustee. (c)
4.13 Company Pledge Agreement, dated as of December 11, 1997, made by RBX
Corporation in favor of the Trustee. (c)
4.14 Company Copyright Security Agreement, dated as of December 11, 1997,
made by RBX Corporation in favor of the Trustee. (c)
4.15 Company Patent Security Agreement, dated as of December 11, 1997, made
by RBX Corporation in favor of the Trustee. (c)
4.16 Company Trademark Security Agreement, dated as of December 11, 1997,
made by RBX Corporation in favor of the Trustee. (c)
4.17 Subsidiaries' Security Agreement, dated as of December 11, 1997, made by
each of the Subsidiary Guarantors in favor of the Trustee. (c)
4.18 Subsidiaries' Pledge Agreement, dated as of December 11, 1997, made by
each of the Subsidiary Guarantors in favor of the Trustee. (c)
4.19 Subsidiaries' Copyright Security Agreement, dated as of December 11,
1997, made by each of the Subsidiary Guarantors in favor of the Trustee.
(c)
4.20 Subsidiaries' Patent Security Agreement, dated as of December 11, 1997,
made by each of the Subsidiary Guarantors in favor of the Trustee. (c)
4.21 Subsidiaries' Trademark Security Agreement, dated as of December 11,
1997, made by each of the Subsidiary Guarantors in favor of the Trustee.
(c)
10.1 Credit Agreement, dated as of December 11, 1997, among RBX Corporation,
the several banks and other financial institutions from time to time
parties thereto (the "Lenders") and The Chase Manhattan Bank, as agent
(the "Agent"). (c)
10.2 Senior Security Agreement, dated as of December 11, 1997, made by RBX
Corporation and each of the Subsidiary Guarantors in favor of the Agent.
(c)
10.3 Guarantee Agreement, dated as of December 11, 1997, made by each of the
Subsidiary Guarantors in favor of the Agent. (c)
10.4 Intercreditor Agreement, dated as of December 11, 1997, by and among RBX
Corporation, each of the Subsidiary Guarantors, the Agent and the
Trustee. (c)
-25-
10.5 Agreement and Plan of Merger, dated as of August 2, 1995, by and among
RBX Investors, Inc., RBX Group, Inc., RBX-AIP Acquisition, Inc. and AEA
Investors, Inc. (a)
10.6 Amendment to Agreement and Plan of Merger, dated as of September 25,
1995, by and among RBX Investors, Inc., RBX Group, Inc., RBX-AIP
Acquisition, Inc. and AEA Investors, Inc. (a)
10.7 Management Services Agreement, dated as of October 16, 1996, by and
among RBX Group, Inc., RBX Corporation, each of the Subsidiary
Guarantors, and American Industrial Partners. (a)
10.8 Management Stock Option Plan Adopted by the Board of Directors of RBX
Group, Inc. as of October 16, 1995. (a)
10.9 Employment Agreement between RBX Corporation and John C. Cantlin. (c)
10.10 Employment Agreement between RBX Corporation and Tim Bernlohr. (c)
10.11 Employment Agreement between RBX Corporation and Mark T. Dobbins. (c)
10.12 Employment Agreement between RBX Corporation and Alfred H. Turner. (c)
10.13 Executive Employees Supplemental Retirement Plan as Amended and Restated
December 15, 1993. (a)
10.14 Pension Plan effective as of January 1, 1991. (a)
10.15 Amendment No. 1, Waiver and Agreement, dated as of June 30, 1998. (d)
10.16 Amendment No. 2, Waiver and Agreement, dated as of February 19, 1999.
10.17 Employment Agreement between RBX Corporation and Lynn A. Bakker.
12.1 Computation of earnings to fixed charges.
18.1 Independent Accountants' Preferability Letter, Change in Method of
Accounting for Determination of Goodwill Impairment (e)
21.1 Subsidiaries of RBX Corporation.
27.1 Financial Data Schedule.
- ----------------
(a) - Incorporated by reference to Registration Statement on Form S-4, File
No. 333-1992, filed on March 5, 1996 and amended on April 15, 1996 and
on April 24, 1996.
(b) - Incorporated by reference to RBX Corporation's Quarterly Report on Form
10-Q for the period ended June 30, 1996, filed on August 14, 1996 and
amended on August 20, 1996.
(c) - Incorporated by reference to RBX Corporation's Annual Report on Form
10-K for the year ended December 31, 1997, filed on March 31, 1998.
(d) - Incorporated by reference to RBX Corporation's Quarterly Report on Form
10-Q for the period ended June 30, 1998, filed on August 14, 1998.
(e) - Incorporated by reference to RBX Corporation's Quarterly Report on Form
10-Q for the period ended September 30, 1998, filed on November 13,
1998.
-26-
(b) Reports Filed on Form 8-K
On July 8, 1998 the Company filed a Form 8-K referencing a July 7, 1998 press
release announcing the resignation of Frank H. Roland as Director, President and
Chief Executive Officer of the Company and its wholly owned subsidiaries.
-27-
RBX CORPORATION
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report................................... F-2
Consolidated Financial Statements
Consolidated Balance Sheets.................................. F-3
Consolidated Statements of Operations........................ F-4
Consolidated Statements of Cash Flows........................ F-5
Consolidated Statements of Changes in Stockholder's Equity... F-6
Notes to Consolidated Financial Statements................... F-7
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
RBX Corporation
Roanoke, Virginia
We have audited the accompanying consolidated balance sheets of RBX Corporation
and subsidiaries (the Company) as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholder's equity, and cash flows for
each of the three years in the period ended December 31, 1998. Our audits also
included the financial statement schedule listed in the index at Item 14 (a)(2).
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of RBX Corporation and subsidiaries as
of December 31, 1997 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As discussed in Note 11 to the consolidated financial statements, the Company
changed its method of accounting for start-up costs and its method for measuring
impairment of intangible assets.
DELOITTE & TOUCHE LLP
Richmond, Virginia
February 26, 1999
F-2
RBX CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1998
(in thousands, except share data)
1997 1998
---- ----
ASSETS
Cash and cash equivalents................................................ $ 166 $ 122
Accounts receivable, less allowance for doubtful accounts of $1,505 and
$1,459, respectively.................................................... 38,030 33,474
Inventories.............................................................. 39,810 25,450
Prepaid and other current assets......................................... 1,184 426
-------- ---------
Total current assets..................................................... 79,190 59,472
Property, plant and equipment, net....................................... 97,374 72,797
Intangibles and other assets, net........................................ 99,357 6,278
-------- ---------
Total assets............................................................. $275,921 $ 138,547
======== =========
LIABILTIES AND STOCKHOLDER'S EQUITY
Accounts payable......................................................... $ 17,215 $ 12,726
Accrued liabilities...................................................... 15,766 27,940
Current portion of postretirement benefit obligation..................... 2,137 3,030
Current portion of long-term debt........................................ 350 327
-------- ---------
Total current liabilities................................................ 35,468 44,023
Long-term debt........................................................... 205,687 205,745
Postretirement benefit obligation........................................ 32,910 30,083
Pension benefit obligation............................................... 9,416 8,461
Other liabilities........................................................ 1,704 1,704
Commitments and contingencies............................................ -- --
Stockholder's equity:
Common stock, $0.01 par value, 1,000 shares authorized, issued and
outstanding.......................................................... -- --
Additional paid-in capital............................................ 58,103 58,103
Accumulated deficit................................................... (67,367) (209,572)
-------- ---------
Total stockholder's equity............................................... (9,264) (151,469)
-------- ---------
Total liabilities and stockholder's equity............................... $275,921 $ 138,547
======== =========
See notes to consolidated financial statements
F-3
RBX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1996, 1997 and 1998
(in thousands)
1996 1997 1998
-------- -------- ---------
Net sales................................................ $275,715 $281,662 $ 263,250
Cost of goods sold....................................... 238,365 243,383 241,635
-------- -------- ---------
Gross profit............................................. 37,350 38,279 21,615
-------- -------- ---------
Selling, general and administrative costs................ 30,474 28,265 28,375
Management fees.......................................... 995 986 1,177
Loss on impairment of long-lived assets.................. 26,498 - 101,449
Amortization of goodwill and other intangibles........... 3,943 3,332 2,410
Other expense (income)................................... 66 193 (79)
-------- -------- ---------
Operating income (loss).................................. (24,626) 5,503 (111,717)
Interest expense, including amortization of deferred
financing fees.......................................... 18,685 20,285 25,451
-------- -------- ---------
Loss before income taxes................................. (43,311) (14,782) (137,168)
Income tax expense (benefit)............................. (8,255) 12,422 85
-------- -------- ---------
Loss before extraordinary item and cumulative effect
adjustment.............................................. (35,056) (27,204) (137,253)
Extraordinary item: loss on extinguishment of debt, net
of income tax effect of $--............................. - 1,786 -
Cumulative effect adjustment: change in accounting for
start-up costs, net of income tax effect of $--......... - - 4,952
-------- -------- ---------
Net loss................................................. $(35,056) $(28,990) $(142,205)
======== ======== =========
See notes to consolidated financial statements
F-4
RBX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1997 and 1998
(in thousands)
1996 1997 1998
-------- --------- ---------
OPERATING ACTIVITIES
Net loss.................................................. $(35,056) $ (28,990) $(142,205)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Special charges........................................ - - 119,887
Loss on impairment of long-lived assets................ 26,498 - -
Extraordinary item: loss on extinguishment of debt..... - 1,786 -
Depreciation........................................... 7,124 8,370 10,431
Amortization........................................... 4,965 4,278 3,700
Provision for deferred income taxes.................... (7,668) 12,208 -
Loss (gain) on disposal of equipment................... 66 193 (79)
Increase (decrease) in cash from changes in assets and
liabilities net of effect of business acquisition and
special charges:
Accounts receivable................................. 8,196 (4,290) 1,472
Inventories......................................... 5,431 (1,175) 4,596
Prepaid and other current assets.................... (864) 953 677
Other assets........................................ - 50 (51)
Accounts payable.................................... (1,913) 4,348 (3,992)
Accrued liabilities................................. 2,236 (1,010) 6,970
Other liabilities................................... 122 881 (2,889)
-------- --------- ---------
Net cash provided by (used in) operating activities....... 9,137 (2,398) (1,483)
-------- --------- ---------
INVESTING ACTIVITIES
Capital expenditures...................................... (11,818) (15,582) (4,286)
Acquisitions, net of cash acquired........................ (22,042) (1,423) -
Proceeds from disposal of business........................ - - 3,500
Proceeds from disposals of property, plant and equipment.. 31 307 2,190
-------- --------- ---------
Net cash provided by (used in) investing activities....... (33,829) (16,698) 1,404
-------- --------- ---------
FINANCING ACTIVITIES
Contributions to capital.................................. 10,030 - -
Dividends to RBX Group.................................... (235) (587) -
Proceeds from borrowings.................................. 27,000 135,250 29,000
Principal payments on long-term debt...................... (13,853) (116,855) (28,965)
Payments of financing fees................................ (780) (1,839) -
-------- --------- ---------
Net cash provided by financing activities................. 22,162 15,969 35
-------- --------- ---------
Net decrease in cash and cash equivalents................. (2,530) (3,127) (44)
Cash and cash equivalents:
Beginning of period.................................... 5,823 3,293 166
-------- --------- ---------
End of period.......................................... $ 3,293 $ 166 $ 122
======== ========= =========
See notes to consolidated financial statements
F-5
RBX CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
For the years ended December 31, 1996, 1997 and 1998
(in thousands)
Additional Total
Common Paid-in Accumulated Stockholder's
Stock Capital Deficit Equity
----- ------- ------- ------
Balances at December 31, 1995............ $ -- $43,895 $ (3,321) $ 40,574
Capital contribution..................... -- 15,030 -- 15,030
Dividend to RBX Group.................... -- (235) -- (235)
Net loss................................. -- -- (35,056) (35,056)
------- ------- --------- ---------
Balances at December 31, 1996............ -- 58,690 (38,377) 20,313
Dividend to RBX Group.................... -- (587) -- (587)
Net loss................................. -- -- (28,990) (28,990)
------- ------- --------- ---------
Balances at December 31, 1997............ -- 58,103 (67,367) (9,264)
Net loss................................. -- -- (142,205) (142,205)
------- ------- --------- ---------
Balances at December 31, 1998............ $ -- $58,103 $(209,572) $(151,469)
======= ======= ========= =========
See notes to consolidated financial statements
F-6
RBX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except as otherwise noted)
1. Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the accounts of RBX
Corporation and its wholly owned subsidiaries (the "Company"). RBX
Corporation's subsidiaries, Rubatex Corporation, OleTex, Inc., Groendyk Mfg Co.,
Inc., Universal Polymer & Rubber, Inc., Midwest Rubber Custom Mixing Corp., and
Hoover-Hanes Rubber Custom Mixing Corp., operate manufacturing facilities which
are located in the southeastern United States, Ohio, and Illinois. The Company
is a wholly owned subsidiary of RBX Group, Inc., ("RBX Group") a non-operating
holding company.
Principles of Consolidation and Business
The Company manufactures rubber and plastics products which are used in a wide
range of applications including athletic equipment, sports medicine wraps,
neoprene wetsuits, hardware center products, other consumer products, automotive
components, insulation for refrigeration and air conditioning systems, and other
industrial products.
The accounts of RBX Corporation and its subsidiaries are included in the
consolidated financial statements after elimination of significant intercompany
transactions and profits and losses.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less when purchased to be cash equivalents. The carrying amount
of cash equivalents approximates fair value because of the short maturity of
those investments.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined under
the first-in, first-out (FIFO) method and includes material, labor and overhead.
The Company periodically evaluates the need to record adjustments for impairment
of inventory. Inventory in excess of the Company's estimated usage requirements
is written down to its estimated net realizable value. Inherent in the
estimates of net realizable value are management's estimates related to the
Company's future manufacturing schedules, customer demand, possible alternative
uses and ultimate realization of inventory.
Property, Plant and Equipment
Property, plant and equipment is stated at cost net of accumulated depreciation.
Depreciation of plant and equipment is provided by the straight-line method over
the estimated useful lives of the related assets, ranging from 20-40 years for
buildings and improvements and 3-14 years for machinery and equipment.
Goodwill and Other Intangible Assets
As discussed in Footnote 11, the Company wrote off the remaining carrying value
of its goodwill and other intangible assets in September of 1998. Prior to that
date, the Company amortized its acquired goodwill on a straight-line basis over
40 years. Customer Lists were amortized on a straight-line basis over 18 - 25
years.
F-7
RBX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. Significant Accounting Policies - (Continued)
Asset Impairment
The Company assesses impairment of long-lived assets such as property, plant and
equipment and goodwill whenever changes or events indicate that the carrying
value may not be recoverable. Long-lived assets are written down to fair value
if the sum of the expected future undiscounted cash flows is less than the
carrying amount in the case of an analysis performed under SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." Effective September 30, 1998, the Company elected to change
its method of measuring impairment under APB Opinion No. 17 "Intangible Assets,"
from an undiscounted cash flow approach to a fair value method based on
discounted cash flows.
Deferred Financing Costs
Deferred financing costs are amortized using the effective interest method over
the life of the related debt.
Fair Value of Financial Instruments
The Company generally uses quoted market prices to determine the fair value of
its indebtedness. If quoted market prices are not available, management
estimates fair value based on the present value of estimated future cash flows
using a discount rate commensurate with the risks involved. The carrying
amounts of other assets and liabilities qualifying as financial instruments
approximate fair value.
Revenue
Revenue is recognized when products are shipped to customers. Sales returns and
allowances are treated as a reduction to sales and are provided based on
historical experience and current estimates.
Research and Development
Research and development expenditures, which are expensed as incurred, were
approximately $3,469, $3,686 and $3,530 for the years ended December 31, 1996,
1997 and 1998, respectively.
Income Taxes
The Company accounts for income taxes using the liability method, whereby
deferred tax liabilities and assets are determined based on the temporary
differences between the financial statement and tax bases of assets and
liabilities by applying enacted statutory tax rates applicable to future years
in which the differences are expected to reverse.
Business and Credit Concentrations
The Company's customers are not concentrated in any specific geographic region
or any specific industry. No single customer accounted for a significant amount
of the Company's sales, and there were no significant accounts receivable from a
single customer. The Company reviews a customer's credit history before
extending credit. The Company establishes an allowance for doubtful accounts
based upon factors surrounding the credit risk of specific customers, historical
trends and other information.
F-8
RBX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. Significant Accounting Policies - (Continued)
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the balance sheets and the
reported amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
Comprehensive Income
The Company adopted the provisions of Statement No. 130, "Reporting
Comprehensive Income," in 1998 and had no items of comprehensive income to
report in 1998, 1997 or 1996.
Reclassifications
Certain amounts from prior periods have been reclassified to conform to the
current period presentation.
2. Acquisitions
In 1996, Rubatex Corporation acquired certain assets and assumed certain
liabilities of the Ensolite division of Uniroyal Technology Corporation. The
unaudited consolidated results of operations on a pro forma basis as though the
acquisition had taken place at the beginning of 1996 are as follows: net sales -
$287,501; net loss - $(35,474).
3. Inventories
Components of inventory are as follows:
1997 1998
---- ----
Raw materials................................. $15,593 $10,759
Work-in-process............................... 4,154 3,539
Finished goods................................ 20,063 11,152
------- -------
$39,810 $25,450
======= =======
4. Property, Plant and Equipment
Major classes of property, plant and equipment are as follows:
1997 1998
---- ----
Land...................................... $ 2,470 $ 1,342
Buildings and improvements................ 26,745 24,429
Machinery and equipment................... 79,415 66,545
Construction-in-progress.................. 5,373 3,290
-------- -------
114,003 95,606
Less: accumulated depreciation............ 16,629 22,809
-------- -------
$ 97,374 $72,797
======== =======
F-9
RBX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
5. Intangibles and Other Assets
Major components of intangibles and other assets are as follows:
1997 1998
---- ----
Goodwill...................................... $ 58,125 $ --
Customer lists................................ 36,050 --
Deferred financing fees....................... 8,415 8,465
Other......................................... 5,671 --
-------- ------
108,261 8,465
Less: accumulated amortization................ 8,904 2,187
-------- ------
$ 99,357 $6,278
======== ======
6. Accrued Liabilities
Major components of accrued liabilities are as follows:
1997 1998
---- ----
Interest...................................... $ 3,085 $ 7,967
Personnel related excluding vacation.......... 5,615 7,726
Vacation...................................... 3,599 3,131
Other......................................... 3,467 9,116
------- -------
$15,766 $27,940
======= =======
7. Long-Term Debt
Long-term debt of the Company is as follows:
1997 1998
---- ----
Senior secured notes.......................... $100,000 $100,000
Senior subordinated notes..................... 100,000 100,000
Revolving credit facility..................... 5,000 5,500
Other......................................... 1,037 572
-------- --------
206,037 206,072
Less: current portion......................... 350 327
-------- --------
$205,687 $205,745
======== ========
F-10
RBX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. Long-Term Debt (Continued)
Senior Secured Notes - On December 11, 1997, RBX Corporation sold $100 million
in 12.00% Senior Secured Notes (the "Secured Notes") due January 15, 2003,
pursuant to Rule 144A under the Securities Act of 1933. The Secured Notes are
collateralized by (i) a first priority lien on a substantial portion of the
owned and leased manufacturing facilities and on substantially all of the
equipment and general intangibles, including trademarks and patents, (ii) a
second priority lien on inventory, receivables and general intangibles (to the
extent related to inventory and receivables) and (iii) a first priority lien on
all of the capital stock of RBX Corporation's existing and future subsidiaries.
Interest is payable semi-annually on January 15 and July 15 of each year,
commencing July 15, 1998. The Secured Notes may be redeemed after July 15, 1999
at a redemption premium. The proceeds from the issuance of the Senior Secured
Notes were used to repay the Term Notes and the outstanding indebtedness under
the Old Revolving Credit Facility and pay issuance costs. An extraordinary loss
on extinguishment of debt of $1,786 was recognized in 1997 .
The Company exchanged the Secured Notes for a new issue of debt securities of
RBX Corporation (the "New Secured Notes") registered under the Securities Act of
1933. The terms of the New Secured Notes are substantially identical to those of
the Secured Notes.
Senior Subordinated Notes - On October 16, 1995, RBX Corporation sold $100
million in 11.25% Senior Subordinated Notes (the "Subordinated Notes") due
October 15, 2005, pursuant to Rule 144A under the Securities Act of 1933. The
Subordinated Notes are general unsecured obligations subordinated in right of
payment to all other senior indebtedness of the Company. Interest is payable
semi-annually on April 15 and October 15 of each year, commencing in 1996. The
Subordinated Notes may be redeemed after October 14, 2000 at a redemption
premium. Under certain circumstances as defined in the Indenture, RBX
Corporation may redeem, at a premium, up to one-third of the Subordinated Notes
prior to October 15, 1998.
The Company exchanged the Subordinated Notes for a new issue of debt securities
of RBX Corporation (the "New Subordinated Notes") registered under the
Securities Act of 1933. The terms of the New Subordinated Notes are
substantially identical to those of the Subordinated Notes.
Revolving Credit Facility - On December 11, 1997, the Company entered into a
credit agreement (the "Credit Agreement") which provides for a $25 million
revolving credit facility (the "Revolving Credit Facility") subject to a
borrowing base formula. As of December 31, 1997 and 1998, $2.2 and $2.8 million,
respectively, of the Revolving Credit Facility was used for irrevocable standby
letters of credit primarily in connection with the Company's casualty insurance
program. The Company's indebtedness under the Credit Agreement is guaranteed by
RBX Corporation and its existing and future subsidiaries and is collateralized
by a first priority interest in all accounts receivable, inventory, and general
intangibles (to the extent related to accounts receivable and inventory).
Indebtedness under the Revolving Credit Facility will, at the Company's option,
bear interest at (i) the higher of (a) the lenders prime rate, (b) the secondary
market for three month certificates of deposit plus 1% and (c) the federal funds
rate plus 0.5%, plus in each case, 1.5% or (ii) the Eurodollar Rate (as defined)
plus 2.5%. As of December 31, 1997 and 1998, the interest rates in effect were
10.0% and 8.0%, respectively. The Revolving Credit Facility matures in December,
2002. At December 31, 1998, the Company had available unused borrowing capacity
of $16.7 million under the Revolving Credit Facility.
F-11
RBX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. Long-Term Debt (Continued)
Covenants and Restrictions - The Company's indebtedness contains certain
restrictions which, among other things, restrict its ability to incur additional
indebtedness, issue preferred stock, incur liens, pay dividends, make certain
other restricted payments, consummate certain asset sales, enter into certain
transactions with affiliates, merge or consolidate with any other person or
sell, assign, transfer, lease, convey or otherwise dispose of substantially all
of its assets. In addition, the Company's indebtedness contains certain
financial covenants including maintenance of a consolidated interest expense
coverage ratio, a leverage ratio, and maintenance of a minimum level of earnings
before interest, taxes, depreciation and amortization ("EBITDA").
During the second quarter of 1998, the Company and its lenders entered into an
amendment to the Credit Agreement which waived the financial covenants to which
the Company was subject through the end of 1998 and established a requirement
with respect to the maintenance of a minimum level of EBITDA for the four
consecutive quarters ending September 30, 1998 and December 31, 1998. The
Company was in compliance with the terms of its indebtedness as of December 31,
1998.
RBX Corporation is a holding company with no assets or operations other than its
investments in its subsidiaries. All of RBX Corporation's subsidiaries are
wholly owned and have guaranteed the Notes on a full, unconditional, and joint
and several basis. Management has determined that separate financial statements
of the guarantor subsidiaries would not be material to an investor. Accordingly,
separate financial statements of the guarantor subsidiaries have not been
presented.
The fair value of long-term debt was $196,537 and $103,072 at December 31, 1997
and 1998, respectively. Publicly traded debt is valued based on quoted market
values. The amounts recorded for other long-term debt approximate fair value,
since such debt is primarily variable rate debt.
Required principal repayment of long-term debt is as follows:
1999............................................ $ 327
2000............................................ 245
2001............................................ --
2002............................................ 5,500
2003............................................ 100,000
Thereafter...................................... 100,000
8. Income Taxes
The Company files a consolidated income tax return with its parent, RBX Group
and its tax provision is determined on a separate return basis. Significant
components of income taxes are as follows:
1996 1997 1998
---- ---- ----
Current:
Federal.......................... $ (544) $ -- $ --
State............................ (43) 214 85
------- ------- -----
(587) 214 85
------- ------- -----
Deferred:
Federal.......................... (6,336) 10,820 --
State............................ (1,332) 1,388 --
------- ------- -----
(7,668) 12,208 --
------- ------- -----
$(8,255) $12,422 $ 85
======= ======= =====
F-12
RBX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. Income Taxes (Continued)
Temporary differences giving rise to significant components of the Company's
deferred tax assets and liabilities are as follows:
1997 1998
---- ----
Deferred tax liabilities:
Accumulated depreciation................... $ 11,156 $ 5,344
Accumulated amortization................... 11,801 --
-------- --------
22,957 5,344
-------- --------
Deferred tax assets:
Employee benefits.......................... 14,018 13,245
Net operating loss carryforwards........... 15,463 30,537
Alternative minimum tax credits............ 6,529 6,529
Accumulated amortization................... -- 6,177
Pension benefits........................... 3,768 3,411
Other...................................... 1,993 2,802
-------- --------
41,771 62,701
Valuation allowance.......................... (18,814) (57,357)
-------- --------
22,957 5,344
-------- --------
Deferred income taxes........................ $ -- $ --
======== ========
Realization of deferred tax assets is dependent upon sufficient future taxable
income during the period that temporary difference and carryforwards are
expected to be available to reduce taxable income. The Company periodically
evaluates its deferred tax asset to determine the need for a valuation allowance
given the Company's expectations with respect to future taxable income as well
as the expiration dates of the Company's net operating loss carryforwards.
The reconciliation of income taxes computed at the Federal statutory tax rate to
actual income tax expense is as follows:
1996 1997 1998
---- ---- ----
Federal statutory rate (34.0)% (34.0)% (34.0)%
Effect of:
Change in valuation allowance............. -- 105.2 23.0
Loss on impairment of long-lived assets... 14.7 -- 10.7
State taxes, net of Federal benefit....... (2.1) 0.9 --
Amortization of goodwill.................. 1.3 2.5 0.2
Other..................................... 1.0 0.4 0.1
----- ----- ----
(19.1)% 75.0% --%
===== ===== ====
The Company has net operating loss carryforwards of approximately $75.0 million
for federal income tax purposes. Such carryforwards expire as follows: 2011 -
$17.3 million; 2012 - $19.3 million; and 2013 - $38.4 million. The Company also
has approximately $6.5 million of alternative minimum tax credits which can be
carried forward indefinitely.
F-13
RBX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. Pension and Other Postretirement Benefits
In 1998, the Company adopted Statement of Financial Accounting Standard No. 132,
"Employers Disclosures about Pensions and Other Postretirement Benefits," which
changes disclosure requirements related to pension and other postretirement
benefit obligations. This statement does not impact the Company's consolidated
financial position, results of operations or cash flows. The effect of the new
statement is limited to the form and content of disclosures.
The Company sponsors certain qualified and nonqualified pension plans and other
postretirement benefit plans for employees. The following table provides a
reconciliation of the changes in the plans' benefit obligations and fair value
of assets as well as information with respect to the plans' funded status.
Pension Benefits Other Benefits
---------------- --------------
1997 1998 1997 1998
---- ---- ---- ----
Reconciliation of benefit obligation:
Obligation, beginning of year................. $39,590 $44,686 $ 28,539 $ 31,014
Service cost.................................. 1,257 1,271 479 461
Interest cost................................. 3,066 3,093 2,128 1,921
Plan amendments............................... 5 423 -- --
Actuarial (gain) loss......................... 3,493 (261) 1,942 (1,907)
Benefit payments.............................. (2,725) (3,075) (2,074) (2,942)
Curtailments.................................. -- (264) -- (440)
------- ------- -------- --------
Obligation, end of year....................... 44,686 45,873 31,014 28,107
------- ------- -------- --------
Reconciliation of fair value of plan assets:
Fair value of plan assets, beginning of year.. 32,847 36,944 -- --
Actual return on plan assets.................. 5,680 5,063 -- --
Company contributions......................... 1,142 1,392 2,074 2,942
Benefit payments.............................. (2,725) (3,075) (2,074) (2,942)
------- ------- -------- --------
Fair value of plan assets, end of year........ 36,944 40,324 -- --
------- ------- -------- --------
Funded status:
Funded status................................. (7,742) (5,549) (31,014) (28,107)
Unrecognized net gain......................... (2,126) (3,694) (4,033) (5,006)
Unrecognized prior service cost............... 452 782 -- --
------- ------- -------- --------
Accrued benefit liability..................... $(9,416) $(8,461) $(35,047) $(33,113)
======= ======= ======== ========
F-14
RBX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. Pension and Other Postretirement Benefits (Continued)
The following table provides the components of net periodic benefit cost for the
plans:
Pension Benefits Other Benefits
---------------- --------------
1996 1997 1998 1996 1997 1998
---- ---- ---- ---- ---- ----
Service cost........................... $ 1,257 $ 1,257 $ 1,271 $ 632 $ 479 $ 461
Interest cost.......................... 2,866 3,066 3,093 2,400 2,128 1,921
Expected return on plan assets......... (2,640) (3,055) (3,455) -- -- --
Amortization:
Unrecognized net (gain) loss......... 285 20 2 (58) (268) (277)
Unrecognized prior service cost...... -- 39 70 -- -- --
------- ------- ------- ------ ------ ------
Net periodic benefit cost.............. 1,768 1,327 981 2,974 2,339 2,105
Effect of curtailments................. -- -- (241) -- -- (440)
------- ------- ------- ------ ------ ------
Net periodic benefit cost after
curtailments........................... $ 1,768 $ 1,327 $ 740 $2,974 $2,339 $1,665
======= ======= ======= ====== ====== ======
Prior service costs are amortized using the straight line method over the
average remaining service period of employees expected to receive benefits under
the plans. Gains and losses in excess of 10% of the greater of the benefit
obligation and market value of assets are also amortized over the average
remaining service period of employees expected to receive benefits under the
plans.
The assumptions used in the measurement of the Company's benefit obligation are
shown in the following table:
1997 1998
---- ----
Weighted average assumptions as of December 31:
Discount rate................................. 7.25% 7.00%
Expected return on plan assets................ 9.50% 9.50%
Rate of compensation increase................. 4.25% 4.00%
For measurement purposes, a 6% annual rate of increase of covered health care
benefits was assumed for 1998. The rate was assumed to decline to 5% by 1999.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A 1% change in assumed health care cost
trend rates would have the following effects:
1% Increase 1% Decrease
----------- -----------
Effect on total of service and interest cost
components of net periodic postretirement
health care benefit cost....................... $ 236 $ (196)
Effect on the health care component of the
accumulated postretirement benefit obligation.. 2,259 (1,886)
Certain of the Company's hourly and salaried employees participate in defined
contribution plans to which they contribute each month and which may be matched
in part by the Company in accordance with plan provisions and terms established
in various collective bargaining agreements. Company contributions related to
these plans were approximately $903, $1,024, and $993 for the years ended
December 31, 1996, 1997 and 1998, respectively.
F-15
RBX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. Contingent Liabilities
The Company and its subsidiaries are involved in various suits and claims in the
normal course of business. In the opinion of management, after consultation with
counsel, the ultimate liabilities and losses, if any, that may result from such
suits and claims will not have a material effect on the financial position, and
results of operations or liquidity of the Company.
The Company is subject to federal, state and local environmental laws which
regulate air and water emissions and discharges; the generation, storage,
treatment, transportation and disposal of solid and hazardous waste; and, the
release of hazardous substances, pollutants and contaminants into the
environment. In addition, in some circumstances, the Company is responsible for
the environmental condition of the property prior to transfer or sale to the
Company. The Company is involved in various environmental remediation activities
resulting from past operations, including designation as a potentially
responsible party, with others, at various EPA designated Superfund sites. In
developing its estimate of environmental remediation costs, the Company
considers, among other things, currently available technological solutions,
alternative cleanup methods and risk-based assessments of the contamination, and
estimates developed by independent environmental consultants. The Company does
not maintain insurance coverage for environmental matters and does not
anticipate recoveries from other potentially responsible third parties.
Amounts have been recorded which, in management's best estimate, will be
sufficient to satisfy anticipated costs of known remediation requirements. At
December 31, 1998, approximately $2.2 million for estimated environmental
remediation costs was accrued of which $1.0 million relates to estimated costs
to remove underground storage tanks; substantially all of this amount is
included in long-term liabilities. Expenditures relating to costs currently
accrued are expected to be made over the next 5 to 10 years. As a result of
factors such as the continuing evolution of environmental laws and regulatory
requirements, the availability and application of technology, the identification
of presently unknown remediation sites, estimated costs for future environmental
compliance and remediation are necessarily imprecise, and it is not possible to
predict the amount or timing of future costs of environmental remediation
requirements which may subsequently be determined. Based upon information
presently available, such future costs are not expected to have a material
adverse effect on the Company's competitive or financial position or its ongoing
results of operations. However, such costs could be material to results of
operations in a future period.
11. Special Charges
Introduction
On July 7, 1998, the Company announced the resignation of Frank H. Roland, Chief
Executive Officer and President and named Theodore C. Rogers, of American
Industrial Partners, as the new Chief Executive Officer and President.
Simultaneously, the Company announced that its senior management team had been
reorganized into The Office of the President, which is comprised of three Senior
Vice Presidents who will run the Company under Mr. Rogers' direction. Management
has begun the implementation of a reorganization plan designed to allow the
Company to better serve its customers, take advantage of market opportunities,
and reduce its operating costs.
The actions which have currently been taken include: (i) the reduction of the
workforce by approximately 300 employees; (ii) the closure and sale of certain
warehouse facilities to generate cash and reduce costs; (iii) the sale of the
business and substantially all assets excluding land and buildings of Universal
Polymer & Rubber, Inc. ("Universal") to generate cash and reduce operating
losses; (iv) the reduction of inventory levels and other working capital
requirements; (v) the merger of certain operations; and (vi) the reorganization
of the field sales force from a plant based to a market based structure.
F-16
RBX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
11. Special Charges (Continued)
In connection with the reorganization of the Company's operations, the following
special charges were recorded.
Loss on impairment of long-lived assets.......... $101,449
--------
Charges included in cost of goods sold:
Inventory write downs........................... 7,614
Severance and other personnel related charges... 2,659
Other........................................... 244
--------
10,517
--------
Charges included in SG&A:
Severance and other personnel related charges... 1,522
Accounts receivable write downs................. 857
Other........................................... 590
--------
2,969
--------
Write-off of start-up costs...................... 4,952
--------
$119,887
========
Loss on impairment of long-lived assets
Due to a variety of factors including decreased sales levels, the poor
performance of Rubatex's Conover plant and the resulting impact on the Company's
liquidity and financial position, the sale of the Universal business, as well as
management's reassessment of the Company's expected future cash flows, the
Company evaluated the carrying value of its long-lived assets and determined
that such assets were impaired. Accordingly, the Company recorded a loss on
impairment of long-lived assets totaling $101,449 which is comprised primarily
of the write off of intangibles of $89,429 and write down of property, plant and
equipment at Conover and Universal of $10,988.
On September 22, 1998, the Company completed the sale of the business and
substantially all of the assets (excluding land and buildings) of Universal, a
subsidiary that was engaged primarily in manufacturing solid molded rubber
products and certain small-profile rubber extrusions. Cash proceeds of $3,500
were received in connection with the sale, with $2,927 of such proceeds used to
reduce indebtedness under the Company's revolving credit facility and the
remaining $573 representing restricted cash. The land and buildings were leased
to the purchaser under a renewable five-year lease. The loss related to
Universal, which has been included in the loss on impairment of long-lived
assets, totaled $11,726 with $11,098 of this amount recognized in the second
quarter of 1998 and the remainder recognized in the third quarter of 1998. The
sale of this unprofitable subsidiary was the result of management's efforts to
focus the Company on its core business and the determination that Universal's
business was not a strategic fit with the Company's other operations.
F-17
RBX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
11. Special Charges (Continued)
Based on Conover's poor performance and management's revised expectations with
respect to future cash flows from Conover's operations, the Company reassessed
the carrying values of the long-lived assets related to Conover and determined
that there was an impairment; accordingly, a loss on impairment of $39,171 was
recorded in the third quarter which is comprised of the write off of allocated
intangibles of $31,278 and the write down of property, plant and equipment of
$7,893.
The Company has continually evaluated whether events and circumstances have
occurred that would indicate that the remaining balance of goodwill and other
intangible assets may not be recoverable. Due to the Company's poor operating
performance and the resulting reorganization actions undertaken by management,
the Company recently performed an in-depth evaluation of the carrying value of
its intangible assets.
In connection with this evaluation, the Company elected to change its method of
measuring impairment under APB Opinion No. 17 "Intangible Assets," from an
undiscounted cash flow approach to a fair value approach based on discounted
cash flows effective September 30, 1998. The Company believes that a fair value
approach is preferable in that such method more closely approximates the fair
value of its intangible assets and the related measurement of impairment. Using
this method, the Company will estimate enterprise value using a discounted cash
flow approach, whenever events or circumstances have occurred that indicate
impairment. When the aggregate carrying value of the Company's goodwill and
other intangible assets exceeds their fair value, measured by reference to
enterprise value, the difference is charged to operations.
In connection with this change in method, the Company recorded a loss on
impairment of intangible assets of $50,552, representing the recorded carrying
amount of the Company's remaining goodwill and other intangible assets as of
September 30, 1998.
Inventory Write Downs
Under the direction of the Company's new senior management team a reassessment
of the Company's obsolescence reserves was completed during the third quarter of
1998 and an inventory write down of $7,614 was recorded. The reassessment was
influenced by decreased sales levels, revised expectations with respect to
future demand for certain products, substantial reductions to overall inventory
levels and the reorganization of the field sales force from a plant based to a
market based structure.
Severance and Other Personnel Related Costs
The charges of $4,181 for severance and other personnel related costs were
incurred primarily in connection with a reduction in the workforce of
approximately 300 employees, which represents a 16% decrease in headcount.
Write-off of Start-Up Costs
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5 (the
"SOP"), "Reporting on the Costs of Start-Up Activities" which requires that the
costs of start-up activities be expensed as incurred. The Company implemented
the provisions of the SOP and, accordingly, has recorded a cumulative effect
adjustment of $4,952. The adjustment is comprised of $5,438 of costs capitalized
in connection with the start up of the Ensolite business in Conover, North
Carolina, net of accumulated depreciation of $486.
F-18
RBX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. Fourth-Quarter Adjustments
1997 Fourth-Quarter Adjustments - During the fourth quarter of 1997, the Company
recorded a valuation allowance of $18,814 against its deferred tax assets.
1996 Fourth-Quarter Adjustments - In connection with the decline in
profitability experienced at Rubatex's Bedford Virignia plant, management
reassessed the carrying value of the long-lived assets related to the Bedford
operations and determined that there was an impairment; accordingly, a loss on
impairment of $26,498 was recorded in the fourth quarter of 1996 based on the
excess of the carrying value of the Bedford long-lived assets over its
discounted expected future cash flows.
The Company also recorded additional fourth-quarter charges of $8,698. Such
charges included $4,896 related to obsolescence, book-to-physical and other
inventory adjustments, $2,537 for liabilities incurred in connection with
severance and other personnel related costs, and $1,265 in the aggregate for
certain other items.
13. Commitments
The Company is obligated under lease agreements, principally relating to the
rental of warehouse facilities and transportation equipment. Future minimum
rental payments required under operating leases for the years ended December 31,
are as follows:
1999................................... $2,264
2000................................... 1,489
2001................................... 1,266
2002................................... 462
2003................................... 232
Thereafter............................. -
Rental expense for all operating leases was approximately $2,826, $3,187 and
$3,403 for the years ended December 31, 1996, 1997 and 1998, respectively.
14. Related-Party Transactions
The Company receives substantial ongoing financial and management services from
American Industrial Partners (AIP), an affiliate of the majority owners of the
Company's stockholder. Management and consulting fees expense related to AIP
were $850 each year for 1996, 1997 and 1998, plus reimbursement for out-of-
pocket expenses. AIP has deferred cash payments with respect to the management
fees it charged the Company during 1998; however, the accrual of such fees has
continued. In 1996, the Company paid a fee of $400 to AIP and reimbursed out-of-
pocket expenses for investment banking services provided by AIP in connection
with the Ensolite Acquisition. The Company paid a member of the Board of
Directors a fee of $150 each year in 1996, 1997 and 1998.
F-19
RBX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. Supplemental Cash Flow Information
Payments for interest and income taxes are as follows:
1996 1997 1998
---- ---- ----
Interest............................. $18,138 $19,850 $19,279
Income taxes......................... 875 194 174
In connection with the issuance of the Senior Secured Notes, the Company
received proceeds of $97,250, which were net of underwriting discounts of
$2,750.
The Company acquired assets, assumed liabilities and made cash payments in
connection with the Ensolite Acquisition as follows:
Fair value of assets acquired................... $29,359
Liabilities assumed............................. (894)
Noncash capital contribution.................... (5,000)
-------
Cash payments $23,465
=======
16. Segment and Related Information
In 1998, the Company adopted Statement of Financial Accounting Standards No.
131, Disclosures About Segments of an Enterprise and Related Information ("SFAS
131"). SFAS 131 changes the way the Company views its reportable operating
segments. Information for 1997 and 1996 has also been presented for comparative
purposes.
The Company has five operating subsidiaries which have been aggregated into two
reportable segments (the foam group and the mixing group) since the long-term
financial performance of these reportable segments is affected by similar
economic conditions.
The Company's foam production operations (the "Foam Group") manufacture closed-
cell rubber foam and cross-linked polyethelene foam. The Foam Group also
manufactures certain products from the foam it produces through downstream
manufacturing processes such as molding, fabrication, and lamination. The Foam
Group includes Rubatex, Groendyk, and OleTex. Rubatex has three plants located
in Virginia, Arkansas, and North Carolina. Groendyk is located in Virginia and
OleTex is located in Illinois.
The Company's custom rubber mixing operations (the "Mixing Group") mix a variety
of rubber polymers which are sold to customers in uncured form. The Mixing
Group is comprised of Midwest Rubber Custom Mixing Corp., which is located in
Ohio and Hoover-Hanes Rubber Custom Mixing Corp, which is located in Georgia.
F-20
RBX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
16. Segment and Related Information (Continued)
Summarized financial information for the Company's reportable segments follows.
The information designated as "Other" represents corporate related items which
are not allocated to reportable segments.
1996 1997 1998
---- ---- ----
Foam Group:
Revenues.................................. $204,502 $207,803 $ 189,905
Segment profits........................... 5,792 3,841 2,431
Total assets.............................. 113,735 124,088 105,948
Capital expenditures...................... 10,699 14,862 4,009
Depreciation and amortization............. 5,455 6,446 7,497
Mixing Group:
Revenues.................................. 71,213 73,534 73,345
Segment profits........................... 5,673 7,635 8,100
Total assets.............................. 19,779 22,709 26,248
Capital expenditures...................... 1,119 720 277
Depreciation and amortization............. 628 670 799
Other:
Revenues.................................. -- 325 --
Segment loss.............................. (46,521) (40,466) (152,736)
Total assets.............................. 147,186 129,124 6,351
Capital expenditures...................... -- -- --
Depreciation and amortization............. 6,006 5,532 5,835
Total:
Revenues.................................. 275,715 281,662 263,250
Net loss.................................. (35,056) (28,990) (142,205)
Total assets.............................. 280,700 275,921 138,547
Capital expenditures...................... 11,818 15,582 4,286
Depreciation and amortization............. 12,089 12,648 14,131
The following table presents the details of "Other" segment loss.
1996 1997 1998
---- ---- ----
Corporate expenses........................ $ 3,614 $ 401 $ 1,591
Management fees........................... 995 986 1,177
Depreciation and amortization............. 4,984 4,586 4,545
Special charges........................... 26,498 -- 119,887
Interest expense.......................... 18,685 20,285 25,451
Income tax expense (benefit).............. (8,255) 12,422 85
Extraordinary item........................ -- 1,786 --
---------- ------- ----------
$46,521 $40,466 $152,736
======= ======= ========
F-21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
RBX CORPORATION
---------------
(Registrant)
Signature Title Date
- ---------------------------------- ------------------------------------------------- ----------------------
/s/ John C. Cantlin Senior Vice President, Chief Financial Officer March 31, 1999
- ---------------------------------- and Treasurer
JOHN C. CANTLIN
/s/ Thomas W. Tomlinson Corporate Controller March 31, 1999
- ----------------------------------
THOMAS W. TOMLINSON
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant in
the capacities and on the dates indicated.
Signature Title Date
- ---------------------------------- ------------------------------------------------- ----------------------
/s/ Theodore C. Rogers President and Chief Executive Officer March 31, 1999
- ---------------------------------- (Principal Executive Officer) and Director
THEODORE C. ROGERS
/s/ John C. Cantlin Senior Vice President, Chief Financial Officer March 31, 1999
- ---------------------------------- (Principal Financial Officer and Principal
JOHN C. CATLIN Accounting Officer) and Treasurer
/s/ Tom H. Barrett Chairman of the Board and Director March 31, 1999
- ----------------------------------
TOM H. BARRETT
/s/ W. Richard Bingham Director March 31, 1999
- ----------------------------------
W. RICHARD BINGHAM
/s/ Robert J. Klein Director March 31, 1999
- ----------------------------------
ROBERT J. KLEIN
/s/ Steven W. Schaefer Director March 31, 1999
- ----------------------------------
STEVEN W. SCHAEFER
Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act
The registrant has not sent an annual report or proxy material to its security
holders.