<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- -----
Exchange Act of 1934 For the period ended September 30, 1996
OR
____ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
COMMISSION FILE NUMBER: 333-1992
RBX CORPORATION
(Exact name of Registrants as specified in their charters)
---------------------------------------------------------
DELAWARE 94-3231901
(State or other jurisdiction of (I.R.S. Employer
incorporate or organization) Identification No.)
5225 VALLEYPARK DRIVE
ROANOKE, VIRGINIA 24019
(Address of principal executive offices)
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____
-----
The number of Common Shares of RBX Corporation, $0.01 per share par value,
outstanding as of September 30, 1996 was 1,000.
<PAGE>
RBX CORPORATION
Index
-----
<TABLE>
<CAPTION>
Pages
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 1995 and September 30, 1996
(unaudited).................................................................................. 2
Condensed Consolidated Statements of Operations for the quarters ended September 30, 1996
and September 30, 1995 and 9 months ended September 30, 1996 and September 30, 1995
(unaudited)............................................................................... 3
Condensed Consolidated Statements of Cash Flows for the quarters ended September 30, 1996
and September 30, 1995 and 9 months ended September 30, 1996 and September 30, 1995
(unaudited)............................................................................... 4
Notes to Condensed Consolidated Financial Statements (unaudited)............................. 5
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations................................................................................ 9-12
Part II. Other Information
Item 5: Other Information.................................................................... 13
Item 6: Exhibits and reports on Form 8-K..................................................... 13
Signature.................................................................................... 14
</TABLE>
<PAGE>
Part 1 - Financial Information
Item 1 - Financial Statements
RBX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands of dollars, except share data)
<TABLE>
<CAPTION>
ASSETS
December 31, September 30,
1995 1996
----------- -------------
<S> <C> <C>
Cash and cash equivalents............................. $ 5,823 $ 1,858
Accounts receivable, less allowance for doubtful
accounts of $1,678 and $1,815 respectively.......... 38,198 42,899
Inventories........................................... 42,364 42,581
Deferred income taxes................................. 3,129 3,472
Prepaid and other current assets...................... 2,000 3,004
--------- ---------
Total current assets............................. 91,514 93,814
Property, plant and equipment, net.................... 81,277 86,989
Deferred income taxes, non-current.................... 1,411 2,190
Intangibles and other assets, net.................... 111,534 124,902
--------- ---------
Total assets..................................... $ 285,736 $ 307,895
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable...................................... $ 13,886 $ 15,987
Accrued liabilities................................... 14,367 18,405
Current portion of postretirement benefit obligation.. 1,850 1,850
Current portion of long-term debt..................... 356 353
--------- ---------
Total current liabilities........................ 30,459 36,595
Long-term debt........................................ 171,389 177,128
Postretirement benefit obligation..................... 31,745 32,566
Other liabilities..................................... 11,569 11,243
Commitments and contingencies......................... - -
Stockholder's equity:
Common stock, $0.01 par value, 1,000 shares
authorized issued and outstanding............... - -
Additional paid-in-capital........................ 43,895 58,925
Retained deficit.................................. (3,321) (8,562)
--------- ---------
Total stockholder's equity....................... 40,574 50,363
--------- ---------
Total liabilities and stockholder's equity....... $ 285,736 $ 307,895
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
RBX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of dollars)
<TABLE>
<CAPTION>
Predecessor Company Predecessor Company
-------------- -------------- -------------- --------------
3 Months Ended 3 Months Ended 9 Months Ended 9 Months Ended
September 30, September 30, September 30, September 30,
1995 1996 1995 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales................................................ $ 66,115 $ 71,087 $ 209,782 $ 209,625
Cost of goods sold....................................... 54,692 59,742 171,445 177,665
-------------- -------------- -------------- --------------
Gross profit............................................. 11,423 11,345 38,337 31,960
Selling, general and administrative costs................ 6,610 6,757 20,396 20,635
Settlement with former owners............................ 0 0 620 0
Management fees......................................... 171 229 361 730
Amortization of goodwill and other intangibles........... 189 990 549 2,791
Other income............................................. (5) (18) (18) (27)
-------------- -------------- -------------- --------------
Operating income ........................................ 4,458 3,387 16,429 7,831
Interest expense, including amortization of deferred
financing fees......................................... 2,224 4,740 6,661 13,898
-------------- -------------- -------------- --------------
Income (loss) before income taxes........................ 2,234 (1,353) 9,768 (6,067)
Income taxes (benefit)................................... 1,404 78 3,888 (827)
-------------- -------------- -------------- --------------
Net income (loss)........................................ $ 830 $ (1,431) $ 5,880 $ (5,240)
============== ============== ============== ==============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
RBX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
Predecessor Company Predecessor Company
---------------- ---------------- ---------------- ----------------
3 Months Ended 3 Months Ended 9 Months Ended 9 Months Ended
September 30, September 30, September 30, September 30,
1995 1996 1995 1996
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Operating activities
Net income (loss)......................................... $ 830 $ (1,431) $ 5,880 $ (5,240)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation........................................... 1,838 1,969 5,513 5,567
Amortization........................................... 294 1,217 852 3,455
Gain on disposition of equipment....................... (1) (18) (14) (27)
Provision for deferred income taxes.................... 100 679 432 (779)
Changes in assets and liabilities net of effect of
business acquisition:
(Increase) decrease in receivables..................... 597 3,263 (5,304) (964)
(Increase) decrease in inventories..................... (581) 343 (2,282) 1,625
Increase in accounts payable........................... 824 535 4,052 1,226
Increase (decrease) in accrued liabilities............. 133 3,246 (445) 3,758
Increase in prepaid and other assets................... (285) (809) (1,004) (1,512)
Increase (decrease) in other liabilities............... 34 (89) 458 496
---------------- ---------------- ---------------- ----------------
Net cash provided by operating activities................. 3,783 8,905 8,138 7,605
Investing activities
Capital expenditures...................................... (2,692) (3,019) (5,748) (5,596)
Acquisitions, net of cash acquired........................ 0 (699) (1,337) (21,237)
Proceeds from disposition of equipment.................... 32 31 96 40
---------------- ---------------- ---------------- ----------------
Net cash used in investing activities..................... (2,660) (3,687) (6,989) (26,793)
Financing activities
Contribution to capital................................... 0 0 0 10,030
Proceeds from borrowings.................................. 2,000 0 4,000 19,500
Payments of financing fees................................ 0 (62) 0 (543)
Proceeds from sale of stock options....................... 561 0 561
Principal payments on long-term debt...................... (2,135) (5,584) (5,916) (13,764)
---------------- ---------------- ---------------- ----------------
Net cash provided by (used in) financing activities....... 426 (5,646) (1,355) 15,223
Net increase (decrease) in cash and cash equivalent....... 1,549 (428) (206) (3,965)
Cash and cash equivalents at beginning of period.......... (1,549) 2,286 206 5,823
---------------- ---------------- ---------------- ----------------
Cash and cash equivalents at end of period................ $ 0 $ 1,858 $ 0 $ 1,858
================ ================ ================ ================
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
RBX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS ARE IN THOUSANDS, EXCEPT AS OTHERWISE NOTED)
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The balance sheet at December 31, 1995 is condensed financial information taken
from the audited balance sheet. The interim financial statements are unaudited.
The financial statements of RBX Investors Inc. and subsidiaries (the
"Predecessor") and RBX Corporation and subsidiaries (the "Company") have been
prepared in accordance with generally accepted accounting principles and, in the
opinion of management, reflect all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation in accordance with generally
accepted accounting principles for the periods presented. The results of
operations and cash flows for the interim periods presented are not necessarily
indicative of the results for the full year.
2. ACQUISITIONS
On October 16, 1995, pursuant to a plan of merger, the Company acquired the
Predecessor for approximately $201.6 million plus direct expenses of the
acquisition of approximately $3.6 million (the "Acquisition"). The purchase cost
was composed of $94.1 million in cash, $3.9 million in Preferred Stock of RBX
Group, Inc. (having an aggregate liquidation value of $9.0 million) and
assumption of $95.5 million in debt and $8.1 million in unpaid seller expenses.
The Acquisition has been accounted for using the purchase method of accounting,
whereby the excess of the purchase cost over the recorded book value of net
assets acquired has been allocated to the fair value of tangible and
identifiable intangible assets acquired and liabilities assumed based on
independent valuations and other studies that are substantially complete. The
Company does not expect the effect of any final adjustment to such valuations
and studies to result in a material adjustment to the final purchase allocation.
The Acquisition was financed through an equity contribution from RBX Group, Inc.
of $43.9 million in cash and in-kind payments in exchange for all of the
outstanding shares of the Company's common stock, the sale of $100 million in 11
1/4% Senior Subordinated Notes, and proceeds of approximately $61.3 million from
borrowings under the Credit Agreement. In addition, certain options to purchase
the common stock of the Predecessor that were held by continuing management
employees prior to the time of the Acquisition, were converted into options to
acquire the common stock of RBX Group Inc. The rollover of such options does not
represent a change in the basis of underlying assets or liabilities in the
Acquisition, since RBX Group's basis in the options was equal to the predecessor
option holders basis of zero.
Interest on the Senior Subordinated Notes is payable semi-annually on April 15
and October 15 of each year. The terms of the Credit Agreement and the Senior
Subordinated Notes include various financial covenants which place limits on,
among other things, the ability of RBX Corporation and its subsidiaries to incur
additional indebtedness and issue preferred stock, incur liens, pay dividends or
make other distributions, repurchase equity interests or subordinated
indebtedness. As of September 30, 1996 the Company was in compliance with all
covenants which pertain to the Credit Agreement and Senior Subordinated Notes
(see note 6).
On June 10, 1996, Rubatex Corporation, a wholly owned subsidiary of the Company,
acquired certain assets and assumed certain liabilities of the Ensolite(R)
division of Uniroyal Technology Corporation ("Uniroyal") for an aggregate
purchase price of $25.0 million plus direct expenses of approximately $1.8
5
<PAGE>
RBX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
million ("Ensolite Acquisition"). Ensolite is a manufacturer of certain types of
closed-cell foam. The Company obtained the funds necessary to consummate this
transaction from the proceeds of additional Tranche B Term Loans of $10.0
million and an equity contribution by RBX Group of $15.0 million. The equity
contribution was derived from a $10.0 million cash contribution to RBX Group by
American Industrial Partners Capital Fund, L.P. and from a subordinated
unsecured note of $5.0 million issued by RBX Group to Uniroyal, bearing interest
at 11.75% per annum.
3. INVENTORIES
Components of inventory are as follows:
<TABLE>
<CAPTION>
As of As of
December 31, 1995 September 30, 1996
----------------- ------------------
<S> <C> <C>
Raw materials $15,096 $15,342
Work-in-process 4,354 4,193
Finished goods 22,914 23,046
------- -------
$42,364 $42,581
======= =======
</TABLE>
4. INCOME TAXES
During the third quarter, the Company's effective income tax rate changed from
an expense of 39.8% through the first nine months of 1995 to a benefit of 13.63%
through the first nine months of 1996. This change is primarily the result of a
loss in 1996 compared to income in 1995, adjustments for changes in tax
estimates, and an increase in the amount of nondeductible goodwill amortization
for the first nine months of 1996 related to the Acquisition.
5. GOODWILL
In connection with the Ensolite Acquisition, $16.1 million of goodwill
represents the excess of cost over fair value of the net assets acquired and is
being amortized on a straight line basis over 40 years.
6. LONG TERM DEBT
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 Senior Subordinated 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.
In connection with the Ensolite Acquisition (see note 2) and the decline in
sales and operating profits experienced during the end of 1995 and first quarter
of 1996, the Company has entered into an amendment of the Credit Agreement dated
February 28, 1996 (the "Credit Agreement Amendment"). The Credit Agreement
Amendment modified the financial covenants of the Company to provide the Company
with greater flexibility. Such changes to the Company's financial covenants
under the Credit Agreement were not contingent on the consummation of the
Ensolite Acquisition. In addition, the Credit Agreement Amendment modified
certain restrictions under the Credit Agreement that would otherwise prohibit
the consummation of the Ensolite Acquisition, provided an additional $10 million
in term loans which could be borrowed only in connection with the consummation
of the Ensolite Acquisition and provided modified financial covenants with the
consummation of the Ensolite Acquisition. As a result of the amendment, the
Company incurred $0.2 million in financing fees paid at the effective date of
the amendment. The Company also agreed to pay a 0.125% additional applicable
margin on all Tranche A ABR and Eurodollar loans and 0.25% on all Tranche B ABR
and Eurodollar loans effective with the date of the amendment.
6
<PAGE>
RBX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
On April 15, 1996, the Company obtained revised loan covenant restrictions by
amending the Credit Agreement ("Credit Agreement Amendment No. 2") due to the
decline in sales and operating profits compared to prior year's quarters. As a
result of Credit Agreement Amendment No. 2 and the additional Tranche B loan
required to complete the Ensolite Acquisition, the Company incurred $0.3 million
in financing fees paid at the consummation of the Ensolite Acquisition. The
Company also agreed to pay a 0.25% additional applicable margin on all Tranche B
ABR and Eurodollar loans effective as of the date of Credit Agreement Amendment
No. 2.
As of September 30, 1996, the Company had an outstanding irrevocable standby
letter of credit of $2.2 million as part of its casualty insurance program. At
September 30, 1996, the Company had available unused borrowing capacity under
the revolving credit facility of $27.8 million.
During the third quarter of 1996, the Company prepaid $4.0 million of term loan
amortization payments that were due to be paid in December, 1997.
The Company's Credit Agreement includes certain financial covenants including
leverage ratios, interest expense ratios, and minimum levels of Earnings Before
Interest, Taxes, Depreciation and Amortization (EBITDA), as defined by the
Credit Agreement. As of September 30, 1996, the Company was in compliance with
all the covenants.
However, due to the increases in covenant requirements in future quarters and
the current level of Company's operating profits, it is probable that the
Company will fail to meet the covenant requirements on December 31, 1996. The
Company is negotiating with lenders for relief from the future covenant
restrictions. There can be no assurance that any such amendment will be entered
into or, if entered into, what the definitive terms and conditions will be.
7. 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 are not expected to have a material adverse 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.
Reserves have been recorded which, in management's best estimate, will be
sufficient to satisfy anticipated costs of known remediation requirements. At
September 30, 1996, approximately $2.0 million for estimated environmental
remediation costs have been accrued of which $1.4 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 RBX
7
<PAGE>
RBX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
8. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities of the Company for the nine month
period ended September 30, 1996 are as follows:
<TABLE>
<S> <C>
Acquisition of Ensolite:
Fair value of assets acquired $ 27,700
Cash paid (21,237)
Non-cash capital contribution (5,000)
---------
Liabilities assumed $ 1,463
=========
</TABLE>
8
<PAGE>
MGMDISC. DOC
ITEM 2: (Pages 9-12)
RBX CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
As further discussed in Note 2 to the Company's Condensed Consolidated Financial
Statements, pursuant to a plan of merger, the Company acquired RBX Investors Inc
(the "Predecessor") on October 16, 1995, (the "Acquisition Transactions"). In
addition, the Company acquired Ensolite on June 10, 1996. The Ensolite
acquisition was accounted for using the purchase method of accounting and
accordingly, the operating results of the Company reflect the operations of
Ensolite subsequent to the date of its acquisition.
Excluding the impact of Ensolite, the Company has experienced a decline in sales
and operating profits for the quarter and nine months ended September 30, 1996
compared to the same periods last year. The decline is primarily related to
lower sales volumes and lower price realizations in the Mixing Group and certain
foam markets and to continued operating difficulties at the Bedford, Virginia
plant of the Company's Rubatex subsidiary. The decline at Bedford began in the
last half of 1995, and, although there was some improvement in the second
quarter of 1996, the third quarter results were lower than the previous quarter
and the comparable quarter last year. The earlier decline in sales was
attributed to an overall decrease in demand for rubber foam products in the
second half of 1995 paired with quality and service problems at Bedford.
Although management believes efforts in the first half of 1996 were
substantially successful at improving quality and service, a return to the
higher sales levels has not yet materialized. Management's emphasis has been re-
focused on cost reductions in light of the current sales levels. Programs are
underway to improve substantially the Bedford manufacturing management
information systems to better identify and control the cost of the production
processes. Management is also undertaking reviews of inventory valuations in
light of: (i) low inventory turnover; (ii) the costs carried in inventory
related to the higher manufacturing cost structures in place prior to full
implementation of cost reductions; and (iii) how inventory levels are being
maintained to service various market segments. In addition, management is
reviewing the impact of lower cash flows on valuation of long-lived assets at
Bedford.
BASIS OF PRESENTATION
The following table sets forth, for the periods shown, net sales, cost of goods
sold, gross profit, selling, general and administrative expense, operating
income and net income in millions of dollars and as a percentage of net sales.
<TABLE>
<CAPTION>
Three months ended September 30 Nine Months Ended September 30
-------------------------------- ---------------------------------------
1995 1996 1995 1996
---- ---- ---- ----
$ % $ % $ % $ %
----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales 66.1 100.0 71.1 100.0 209.8 100.0 209.6 100.0
Cost of goods sold 54.7 82.8 59.8 84.1 171.5 81.7 177.6 84.7
Gross profit 11.4 17.2 11.3 15.9 38.3 18.3 32.0 15.3
SG&A 6.6 10.0 6.8 9.6 20.4 9.7 20.6 9.8
Operating income 4.5 6.8 3.4 4.8 16.4 7.8 7.8 3.7
Net income 0.8 1.2 (1.4) (2.0) 5.9 2.8 (5.2) (2.5)
</TABLE>
9
<PAGE>
COMPARISON OF RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 Compared to Three Months Ended September
30, 1995
Net Sales. Net sales increased to $71.1 million for the three months ended
- ----------
September 30, 1996 from $66.1 million for the comparable period in 1995, an
increase of $5.0 million or 7.6%. Ensolite added $6.4 million in the quarter.
Without Ensolite, sales would have decreased by $1.4 million or 2.1%. Sales for
the Foam group increased to $53.5 million from $46.7 million, an increase of
$6.8 million or 14.6%. Excluding Ensolite, sales increased $0.4 million or 0.9%.
Sales increased by $0.5 million at the OleTex operation, which had experienced a
decline in demand in the last half of 1995, but has sustained higher levels of
sales in 1996. A sales decline of 5.4% at the Bedford operation of Rubatex
related to lower sales of fabricated parts and insulation was offset by
increases at the other Rubatex operations related to line set insulation and
grip products. Sales of the Mixing Group decreased to $19.3 million in 1996 from
$20.8 million in the third quarter of 1995, a decrease of $1.5 million or 7.2%
due to a general economic slow down in their markets, which resulted in lower
sales volumes and lower price realizations.
Gross Profit. Gross profit decreased to $11.3 million in the third quarter of
- -------------
1996 from $11.4 million in the third quarter of 1995, a decrease of $0.1 million
or 0.9%. As a percentage of net sales, gross profit decreased to 15.9% in the
third quarter of 1996 from 17.2% in the same period in 1995. The increased
profits associated with the Ensolite sales as well as improved profits at OleTex
and Universal Polymer were offset by lower profits at Rubatex, Groendyk and the
Mixing Group. Lower sales volumes are one cause for the lower profits. In
addition, competitive markets have caused lower margins due to lower price
realizations at the Mixing Group and in the plastic insulation market at
Rubatex. Gross profit at Rubatex's Bedford operations was down 48.0% due to the
combination of lower sales and lower productivity related to start-up production
of a new extrusion product.
SG&A SG&A was $6.8 million in the quarter ended September 30, 1996, an increase
- ----
of $0.2 million, from the third quarter of 1995. As a percentage of sales, SG&A
decreased to 9.6% in the quarter from 10.0% in the 1995 period.
Operating Income. Operating income decreased to $3.4 million in the third
- ----------------
quarter of 1996 from $4.5 million in 1995, a decrease of $1.1 million or 24.4%.
As a percentage of net sales, operating income decreased to 4.8% in 1996 from
6.8% in 1995. Besides the effect of the changes in gross profit and SG&A,
operating profit declined by $0.9 million from a combination of higher
amortization and management fees related to the structure of the Company as
compared with the Predecessor.
Net Income. Net income decreased to a net loss of $1.4 million for the three
- ----------
months ended September 30, 1996 from net income of $0.8 million for the
comparable period in 1995, a decrease of $2.2 million. Interest expense
increased $2.5 million in 1996 due to the increase in debt related to the
Acquisition Transactions and the acquisition of Ensolite.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September 30,
1995
Net Sales. Net sales decreased to $209.6 million for the nine months ended
- ---------
September 30, 1996 from $209.8 million for the comparable period in 1995, a
decrease of $0.2 million or 0.1%. Ensolite added sales of $7.7 million since
its acquisition. Without Ensolite, sales would have decreased by $7.9 million or
3.8%. Sales for the Foam Group increased to $154.5 million from $150.0 million,
an increase of $4.5 million or 3.0%. Sales at Rubatex, excluding Ensolite, and
OleTex were down 2.2% and 7.0% respectively. This represents an improvement over
the first half of the year when sales for those two operations were off by 2.9%
and 13.9% respectively. The sales decline for Rubatex was at the Bedford
operation which has experienced a 6.9% decline in sales. Declines are associated
with lower fabrication, sheets, insulation and extrusion sales. Sales of the
Mixing Group decreased to $60.8 million from $65.0 million for the first nine
months of 1995, a decrease of $4.2 million or 6.5%. Business in the Mixing
Group's markets continues to be down from prior year's level.
10
<PAGE>
Gross Profit. Gross profit decreased to $32.0 million in the first nine months
- ------------
of 1996 from $38.3 million in the first nine months of 1995, a decrease of $6.3
million or 16.5%. As a percentage of net sales, gross profit decreased to 15.3%
in the first nine months of 1996 from 18.3% in the first nine months of 1995.
The Bedford operation experienced a 48.9% decrease in gross profit due to lower
sales, lower material yields and poorer labor efficiencies. Rubatex was also
hurt by lower pricing in plastic insulation and higher material costs associated
with lower material yields. In addition, the year to date results were
negatively impacted by an inventory loss of $0.7 million at Groendyk taken in
the first quarter of 1996. OleTex had lower gross profit due to lower sales
volumes. The Mixing Group also experienced a decline in gross profit due to the
impact of lower sales volumes and margins.
SG&A. SG&A increased to $20.6 million in the first nine months of 1996 from
- ----
$20.4 million for the same period in 1995. As a percentage of sales, SG&A
increased to 9.8% in the first nine months from 9.7% in the same period of 1995.
Operating Income. Operating income decreased to $7.8 million in the first nine
- ----------------
months of 1996 from $16.4 million for the same period in 1995, a decrease of
$8.6 million or 52.4%. Most of the decrease is related to the decrease of $6.3
million in gross profit, discussed previously. In addition, the combination of a
$2.6 million increase in increased amortization of goodwill and management fees,
partially offset by the impact of $0.6 million settlement with former owners in
1995, reduced operating profit by $2.0 million.
Net Income. Net income decreased to a net loss of $5.2 million for the first
- ----------
nine months of 1996 from net income of $5.9 million for the comparable period in
1995, a decrease of $11.1 million. Interest expense increased $7.2 million in
1996 due to the increased debt related to the Acquisition Transactions and the
acquisition of Ensolite.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity is cash flow from operations,
supplemented by borrowings under the Credit Agreement.
Cash Flow From Operating Activities. Cash flows from operations for the three
- -----------------------------------
months ended September 30, 1996 and the three months ended September 30, 1995
was $8.9 million and $3.8 million, respectively. For the first nine months of
1996 cash flow from operations was $7.6 million compared to $8.1 million in the
same period of 1995. Receivables and inventories were reduced by a combined $3.6
million in the third quarter of 1996 despite sales increasing by $0.5 million
from the second quarter. The improvement relates to management focus upon
improving the velocity of working capital.
Cash Flows From Investing Activities. The Company's cash used in investing
- ------------------------------------
activities was $3.7 million in the three months ended September 30, 1996
compared to $2.7 million in the same period of 1995. The Ensolite acquisition
required $0.7 million in the 1996 third quarter. In addition, $1.6 million has
been spent in the quarter as part of the $7.4 million project to relocate the
Ensolite equipment from Indiana to Rubatex's Conover, North Carolina plant. The
rest of this project will be spent over the next three quarters. Other major
projects in the next twelve to eighteen months include $3.7 million for the
modernization/expansion of Groendyk and $2.3 million for the modernization of
the Mix/Mill area of the Rubatex-Bedford facility.
Cash Flows From Financing Activities: Concurrent with the Acquisition
- ------------------------------------
Transactions, the Company entered into the Credit Agreement with certain banks.
The Credit Agreement had a maximum borrowing capacity of $100 million including
$30 million in a revolving credit facility and is secured by the assets of the
Company and its subsidiaries. The Company uses $2.2 million of its line of
credit for standby letters of credit as part of its casualty insurance program
which leaves availability under the revolving credit facility at $27.8 million.
At the end of the third quarter of 1996, $27.8 million remained available
under this facility. In addition, the Company utilized excess cash to prepay
$4.0 million of term loan, thereby
11
<PAGE>
reducing amortization requirements scheduled for December 1997 by a like amount.
In the fourth quarter, the Company expects to increase its revolver borrowings
by approximately $5MM to fund capital spending and interest payments.
EBITDA: Earnings Before Interest Taxes Depreciation and Amortization (EBITDA) as
- ------
defined by the Credit Agreement, prior to subordinated management fees,
increased to $7.0 million for three months ended September 30, 1996 from $6.9
million for the comparable period in 1995, an increase of $0.1 million. This
represents the first quarter this year that EBITDA has exceeded the amount from
the prior year's same quarter and represents the third consecutive quarter that
EBITDA improved from the preceding three month period.
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 income statement
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 the working capital.
The Company's Credit Agreement includes certain financial covenants including
leverage ratios, interest expense ratios, and minimum levels of Earnings Before
Interest, Taxes, Depreciation and Amortization (EBITDA), as defined by the
Credit Agreement. As of September 30, 1996, the Company was in compliance with
all of these covenants.
However, due to the increases in covenant requirements in future quarters and
the current level of Company's operating profits, it is probable that the
Company will fail to meet the covenant requirements on December 31, 1996. The
Company is negotiating with lenders for relief from the future covenant
restrictions. There can be no assurance that any such amendment will be entered
into or, if entered into, what the definitive terms and conditions will be.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
The information herein may include "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities 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 including its Prospectus
dated May 2, 1996.
12
<PAGE>
PART II: OTHER INFORMATION
ITEM 5: OTHER INFORMATION
On October 1, 1996, the Company announced that Frank Roland has been elected
President and Chief Executive Officer of the Company effective October 1, 1996.
He has also become a member of the Board of Directors effective October 1, 1996.
Mr. Roland succeeds Steven W. Schaefer who will remain with the Company in an
advisory capacity through the end of 1996 to insure an orderly transition. Mr.
Schaefer will continue as a Director.
Mr. Roland joined the Company at the beginning of 1995 when the rubber and
plastics business of Halstead Industries, Inc. was acquired. He has been serving
as President and Chief Operating Officer of Rubatex, the largest of the
Company's operating subsidiaries.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits - See Exhibit Index.
b. No report on Form 8-K was filed during the quarter ended September 30,
1996.
13
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, each of the
Registrants has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RBX CORPORATION
---------------
(REGISTRANT)
Date: November 14, 1996 /s/ Thomas F. Lemker
----------------- -----------------------------
THOMAS F. LEMKER
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER & TREASURER
14
<PAGE>
RBX CORPORATION
---------------
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. ITEM
- ----------- ------------------------------------------------------------
<S> <C>
3.1 Certificate of Incorporation of RBX Corporation.*
3.2 By-laws of RBX Corporation.*
3.3 Certificate of Incorporation of each Subsidiary Guarantor.*
3.4 By-laws of each Subsidiary Guarantor.*
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.*
4.2 Forms of Series A and Series B 11 1/4% Senior Subordinated
Notes including the Form of Subsidiary Guarantees.*
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.*
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.*
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.*
4.6 Securities Purchase Agreement, , dated as of June 10, 1996,
among RBX Group, Inc. and American Industrial Partners
Capital Fund, L.P. **
4.7 Stockholders Agreement, dated as of June 10, 1996, among RBX
Group, Inc. and American Industrial Partners Capital Fund,
L.P. **
10.1 Credit Agreement (the "Credit Agreement"), dated as of
October 16, 1995, among RBX Corporation, RBX Group, Inc.,
the several banks and other financial institutions from time
to time parties thereto (the "Lenders") and Chemical Bank
(the "Agent").*
10.2 Amendment No. 1. dated as of February 28, 1995, to the
Credit Agreement among RBX Corporation, RBX Group, Inc., the
Lenders and the Agent.*
10.3 Amendment No. 2 dated as of April 15, 1996, to the Credit
Agreement among RBX Corporation, RBX Group, Inc., and the
Lenders and the Agent. **
10.4 Security Agreement, dated as of October 16, 1995, made by
RBX Corporation, in favor of the Agent.*
10.5 Pledge Agreement, dated as of October 16, 1995, made by RBX
Corporation in favor of the Agent.*
10.6 Form of Security Agreement, dated as of October 16, 1995,
made by each Subsidiary Guarantor in favor of the Agent.*
10.7 Form of Pledge Agreement, dated as of October 16, 1995, made
by each Subsidiary Guarantor in favor of the Agent.*
</TABLE>
_________________________________
* Incorporated by reference to Registration Statement on Form S-4, File #333-
1992, filed on March 5, 1996 and amended on April 15, 1996 and on April 24,
1996.
** Incorporated by reference to RBX Corporation's Quarterly Report on Form 10-
Q for the period ended June 30, 1996, File #333-1992, filed on August 14,
1996 and amended on August 20, 1996.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. ITEM
- ----------- -----------------------------------------------------------
<S> <C>
10.8 Form of Subsidiaries' Guarantee, dated as of October 16,
1995, made by each Subsidiary Guarantor in favor of the
Agent.*
10.9 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.*
10.10 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.*
10.11 Management Services Agreement, dated as of October 16, 1995,
by and among RBX Group, Inc., RBX Corporation, each of the
Subsidiary Guarantors, and American Industrial Partners.*
10.12 Management Stock Option Plan Adopted by the Board of
Directors of RBX Group, Inc. as of October 16, 1995.*
10.13 Employment Agreement between RBX Corporation and Steven W.
Schaefer.*
10.14 Employment Agreement between RBX Corporation and John D.
Fisher.*
10.15 Employment Agreement between RBX Corporation and Thomas F.
Lemker.*
10.16 Employment Agreement between RBX Corporation and Frank H.
Roland.*
10.17 Employment Agreement between RBX Corporation and Gerald J.
Kirschke*.
10.18 Executive Employees Supplemental Retirement Plan as Amended
and Restated December 15, 1993.*
10.19 Pension Plan effective as of January 1, 1991.*
27 Financial Data Schedule.
</TABLE>
_________________________________
* Incorporated by reference to Registration Statement on Form S-4, File #333-
1992, filed on March 5, 1996 and amended on April 15, 1996 and on April 24,
1996.
** Incorporated by reference to RBX Corporation's Quarterly Report on Form 10-
Q for the period ended June 30, 1996, File #333-1992, filed on August 14,
1996 and amended on August 20, 1996.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,858
<SECURITIES> 0
<RECEIVABLES> 44,714
<ALLOWANCES> 1,815
<INVENTORY> 42,581
<CURRENT-ASSETS> 93,814
<PP&E> 93,683
<DEPRECIATION> 6,694
<TOTAL-ASSETS> 307,895
<CURRENT-LIABILITIES> 36,595
<BONDS> 177,128
0
0
<COMMON> 0
<OTHER-SE> 50,363
<TOTAL-LIABILITY-AND-EQUITY> 307,895
<SALES> 209,625
<TOTAL-REVENUES> 209,625
<CGS> 177,665
<TOTAL-COSTS> 199,030
<OTHER-EXPENSES> 2,764
<LOSS-PROVISION> 318
<INTEREST-EXPENSE> 13,898
<INCOME-PRETAX> (6,067)
<INCOME-TAX> (827)
<INCOME-CONTINUING> (5,240)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,240)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
