<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 quarterly period ended June 30, 1998
OR
Transition report pursuant to Section 13 or 15(d) of the Securities
------ Exchange Act of 1934
For the transition period to
Commission File Number: 333-1992
RBX CORPORATION
RUBATEX CORPORATION
GROENDYK MANUFACTURING COMPANY, INC.
HOOVER-HANES RUBBER CUSTOM MIXING CORP.
MIDWEST RUBBER CUSTOM MIXING CORP.
OLETEX INC.
UNIVERSAL POLYMER & RUBBER COMPANY
UNIVERSAL RUBBER COMPANY
WALTEX CORPORATION
(Exact name of Registrants as specified in their charters)
---------------------------------------------------------
DELAWARE 94-3231901
DELAWARE 54-1563245
DELAWARE 54-1563246
DELAWARE 54-1916475
DELAWARE 34-1662710
DELAWARE 36-3978227
DELAWARE 34-1662276
DELAWARE 58-1916233
DELAWARE 54-1563248
(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
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 shares of Common Stock of RBX Corporation, $0.01 per share par
value, outstanding as of June 30, 1998 was 1,000.
<PAGE>
RBX CORPORATION
Index
-----
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I ............................................... 1
ITEM 1. Financial Statements (unaudited).......... 1
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations ............................... 7
PART II .............................................. 12
ITEM 6. Exhibits and Reports on Form 8-K ......... 12
</TABLE>
<PAGE>
PART I
ITEM 1. Financial Statements
RBX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS
December 31, June 30,
1997 1998
------------ ------------
<S> <C> <C>
Cash and cash equivalents.................................................................... $ 166 $ 135
Accounts receivable, less allowance for doubtful accounts of
$1,505 and $1,761, respectively............................................................ 38,030 38,467
Inventories.................................................................................. 39,810 37,474
Prepaid and other current assets............................................................. 1,184 1,031
------------ ------------
Total current assets..................................................................... 79,190 77,107
Property, plant and equipment, net........................................................... 97,374 93,317
Restricted cash.............................................................................. - 1,492
Intangibles and other assets, net........................................................... 99,357 89,275
------------ ------------
Total assets............................................................................. 275,921 261,191
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable............................................................................. 17,215 16,617
Accrued liabilities.......................................................................... 15,766 25,073
Current portion of postretirement benefit obligation......................................... 2,137 2,137
Current portion of long-term debt............................................................ 350 327
------------ ------------
Total current liabilities................................................................ 35,468 44,154
Long-term debt............................................................................... 205,687 207,410
Postretirement benefit obligation............................................................ 32,910 33,575
Pension benefit obligation................................................................... 9,416 9,159
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) (92,914)
------------ ------------
Total stockholder's equity............................................................... (9,264) (34,811)
------------ ------------
Total liabilities and stockholder's equity............................................... $ 275,921 $ 261,191
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
RBX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
3 Months 3 Months 6 Months 6 Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1997 1998 1997 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales............................................................... $ 72,547 $ 66,790 $144,369 $139,231
Cost of goods sold...................................................... 61,058 59,584 120,895 123,836
-------- -------- -------- --------
Gross profit............................................................ 11,489 7,206 23,474 15,395
Selling, general and administrative costs............................... 6,667 7,690 13,880 15,253
Management fees........................................................ 252 258 503 509
Loss on impairment of long-lived assets................................. - 11,098 - 11,098
Amortization of goodwill and other intangibles.......................... 830 833 1,660 1,666
Other expense........................................................... 31 (344) 31 (318)
-------- -------- -------- --------
Operating income (loss)................................................. 3,709 (12,329) 7,400 (12,813)
Interest expense, including amortization of deferred financing fees..... 4,989 6,415 9,823 12,734
-------- -------- -------- --------
Loss before income taxes................................................ (1,280) (18,744) (2,423) (25,547)
Income tax benefit...................................................... (266) - (467) -
-------- -------- -------- --------
Net loss................................................................ $(1,014) $(18,744) $ (1,956) $(25,547)
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
2
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RBX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
3 Months 3 Months 6 Months 6 Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1997 1998 1997 1998
--------- -------- ---------- -------
<S> <C> <C> <C> <C>
Operating activities:
Net loss................................................................... $(1,014) $(18,744) $ (1,956) $(25,547)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation............................................................. 2,062 2,459 4,135 4,918
Amortization............................................................. 1,063 1,151 2,120 2,303
Provision for deferred income taxes...................................... (266) - (523) -
Loss on impairment of long-lived assets.................................. - 11,098 - 11,098
Loss (gain) on disposal of property and equipment........................ 31 (344) 31 (318)
Increase (decrease) in cash from changes in assets and liabilities net of
effect of business acquisition:
Accounts receivable.................................................... 905 2,450 (6,363) (437)
Inventories............................................................ 345 4,933 (421) 2,336
Prepaid and other current assets....................................... 296 289 523 153
Accounts payable....................................................... 733 (5,582) 4,676 (596)
Accrued liabilities.................................................... (2,424) 2,033 607 6,447
Other liabilities...................................................... 479 108 641 408
------- -------- -------- --------
Net cash provided by (used in) operating activities........................ 2,210 (149) 3,470 765
Investing activities:
Capital expenditures....................................................... (5,209) (877) (10,353) (2,634)
Acquisitions, net of cash acquired......................................... (140) - (961) -
Proceeds from disposals of property, plant and equipment................... 16 1,625 16 1,630
Increase in restricted cash................................................ - (1,492) - (1,492)
------- -------- -------- --------
Net cash provided by (used in) investing activities........................ (5,333) 744 (11,298) (2,496)
Financing activities:
Proceeds from borrowings................................................... 5,500 15,500 10,500 16,500
Principal payments on long-term debt....................................... (2,086) (14,719) (5,674) (14,800)
------- -------- -------- --------
Net cash provided by financing activities.................................. 3,414 781 4,826 1,700
Net increase (decrease) in cash and cash equivalents....................... 291 (112) (3,002) (31)
Cash and cash equivalents:
Beginning of period...................................................... - 247 3,293 166
------- -------- -------- --------
End of period............................................................ $ 291 $ 135 $ 291 $ 135
======= ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
RBX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except as otherwise noted)
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of RBX Corporation and its wholly owned subsidiaries (the "Company").
The Company'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 interim financial data as of and for the three months and six months ended
June 30, 1998 are unaudited and have been prepared in accordance with generally
accepted accounting principles for interim financial information. Accordingly,
they do not include all of the information and notes required by generally
accepted accounting principles for complete financial statements. In
management's opinion, all adjustments (consisting of adjustments of a normal
recurring nature) necessary for a fair presentation have been included. The
year-end balance sheet information was derived from audited financial
statements, but excludes certain disclosures included in the Company's annual
report on Form 10-K.
These condensed consolidated financial statements should be read in conjunction
with the audited financial statements and notes thereto as well as the other
information included in the Company's annual report on Form 10-K for the year
ended December 31, 1997. The results of operations and cash flows for the
interim periods presented are not necessarily indicative of the results for the
full year or any other interim period.
2. INVENTORIES
Components of inventory are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
-------------------- --------------------
<S> <C> <C>
Raw materials $15,593 $14,468
Work-in-process 4,154 5,311
Finished goods 20,063 17,695
-------------------- --------------------
$39,810 $37,474
==================== ====================
</TABLE>
3. RESTRICTED CASH
Restricted cash represents the proceeds from the sale of certain assets which
collateralized the Senior Secured Notes. Such proceeds must be used to fund
future capital expenditures.
4. 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 Secured Notes and the Senior
Subordinated Notes on a full, unconditional, and joint and several basis.
Indebtedness under the Company's revolving credit facility is guaranteed by RBX
Corporation and its existing and future subsidiaries and is collateralized by a
first-priority lien in all accounts receivable, inventory, and general
intangibles (to the extent related to accounts receivable and inventory).
Separate
4
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RBX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. LONG-TERM DEBT, CONTINUED
financial statements of the guarantor subsidiaries have not been presented as
management has determined that such separate financial statements would not be
material to an investor.
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 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 related to the Company's revolving credit
facility. The amendment 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.
As of June 30, 1998, the Company had available unused borrowing capacity of
$15.2 million under the revolving credit facility.
5. IMPAIRMENT LOSS
In an ongoing effort to focus the Company on its core business, management has
determined that Universal Polymer & Rubber, Inc. ("Universal"), a subsidiary
engaged primarily in manufacturing solid molded rubber products and certain
small-profile rubber extrusions, is not a strategic fit with the Company's other
operations. As a result, management has committed itself to a plan of disposal
and recorded an impairment loss to reduce the carrying value of Universal's net
assets to fair value based on the expected net cash flows from the disposal. It
is expected that the disposal of Universal will generate cash which must be used
for capital investment in the Company's other operations.
6. CONTINGENCIES
The Company is highly leveraged. At June 30, 1998, the Company's indebtedness
was $207.7 million and its stockholder's equity was a deficit of $34.8 million.
The Company has experienced continued operating losses at Rubatex's Conover,
North Carolina plant, due to ongoing difficulties associated with the relocation
of Ensolite production from Mishawaka, Indiana. These operating losses have had
a negative impact on the Company's results of operations and liquidity.
Due to the ongoing poor performance of Conover, the Company replaced the
operations manager during the second quarter of 1998 and made selected headcount
reductions and has taken other cost control measures. Management is currently
evaluating more radical actions which may be necessary to stop the losses
currently being incurred at Conover. Such actions may include shifting
production of certain products to other plants and reducing or eliminating
production at Conover.
Additionally, management is continually monitoring its use of working capital,
taking cost reduction measures where practical and carefully controlling the
timing of capital expenditures to ensure the availability of sufficient working
capital to meet its ongoing needs.
If improvements in Conover's operating performance do not materialize in a
timely manner, 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,
5
<PAGE>
RBX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. CONTINGENCIES (CONTINUED)
selling assets, restructuring 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.
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, 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, the Company is responsible for the environmental
clean-up of certain property for contamination which occurred prior to the
Company's ownership. 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, 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 estimate, will be sufficient
to satisfy anticipated costs of known remediation requirements. As a result of
factors such as the continuing evolution of environmental laws and regulatory
requirements, the availability and application of technology, and the
identification of presently unknown RBX 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.
7. SUBSEQUENT EVENTS
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 made up of three Senior
Vice Presidents who will run the Company under Mr. Rogers' direction. The
Office of the President is currently evaluating a restructuring of the Company's
business to better serve its customers, take advantage of market opportunities
and reduce its operating costs.
Initial restructuring activities are likely to include the following: (i)
merging certain operations; (ii) moving production of certain products from
Conover to other plants; (iii) reducing costs through headcount reductions and
other measures; (iv) reducing inventory levels; and (v) refocusing the Company's
efforts on its more profitable businesses and products. The Company expects to
record a restructuring charge in the third quarter in connection with these
activities. The amount of the restructuring charge has not yet been determined.
6
<PAGE>
ITEM 2: 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 subsidiaries (the "Company"). This discussion
and analysis should be read in conjunction with the condensed consolidated
financial statements and notes thereto included in this Form 10-Q as well as the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
BASIS OF PRESENTATION
The following table sets 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.
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------------------------------- ----------------------------------------------
1997 1998 1997 1998
----------------------- ----------------------- ----------------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales......... $72.5 100.0% $ 66.8 100.0% $144.4 100.0% $139.2 100.0%
Gross profit...... 11.5 15.9 7.2 10.8 23.5 16.3 15.4 11.1
SG&A.............. 6.7 9.2 7.7 11.5 13.9 9.6 15.3 11.0
Operating income(loss). 3.7 5.1 (12.3) (18.4) 7.4 5.1 (12.8) (9.2)
Net income (loss)..... (1.0) (1.4) (18.7) (28.0) (2.0) (1.4) (25.5) (18.3)
</TABLE>
RESULTS OF OPERATIONS
Net Sales
- ---------
Net sales decreased to $66.8 million for the three months ended June 30, 1998
compared to $72.5 million for the same period in 1997, a decrease of $5.7
million or 7.9%. Net sales decreased to $139.2 million for the six months ended
June 30, 1998 from $144.4 million for the comparable period in 1997, a decrease
of $5.2 million or 3.6%.
Net sales for the Company's foam product operations (the "Foam Group") decreased
to $49.5 million for the quarter ended June 30, 1998 from $54.3 million for the
quarter ended June 30, 1997, a decrease of $4.8 million or 8.8%. The Foam
Group's net sales decreased to $103.9 million for the six months ended June 30,
1998 from $107.5 million for the six months ended June 30, 1997, a decrease of
$3.6 million or 3.3%.
When compared to the same period in 1997, net sales for the second quarter of
1998 were down for all operations within the Foam Group with the largest
shortfalls occurring at Rubatex and Universal. Rubatex's sales were adversely
impacted by reduced shipments to General Motors and its suppliers as a result of
the strike and all of the Foam Group suffered from a general softening in its
markets. The decline in Universal's net sales has continued into the second
quarter primarily as a result of soft demand for certain of its key products.
In an ongoing effort to focus the Company on its core business, management has
determined that Universal, a subsidiary engaged primarily in manufacturing solid
molded rubber products and certain small-profile rubber extrusions, is not a
strategic fit with the Company's other operations. As a result, management has
committed itself to a plan of disposal and recorded an impairment loss to reduce
the carrying value of Universal's net assets to fair value based on the expected
net cash flows from the disposal. It is expected that the disposal of Universal
will generate cash which must be used for capital investment in the Company's
other operations.
7
<PAGE>
Net sales at the Company's custom rubber mixing operations (the "Mixing Group")
decreased to $17.3 million in the second quarter of 1998 compared to $18.2
million in the second quarter of 1997, a decrease of $0.9 million or 4.9%. The
Mixing Group's net sales for the six months ended June 30, 1998 decreased to
$35.3 million compared to $36.9 million for the same period in 1997, a decrease
of $1.6 million or 4.3%. The General Motors strike had a negative impact on the
Mixing Group's net sales in the second quarter of 1998.
Gross Profit
- ------------
Gross profit decreased to $7.2 million for the second quarter of 1998 from $11.5
million for the second quarter of 1997, a decrease of $4.3 million. For the six
months ended June 30, 1998, gross profit decreased to $15.4 million from $23.5
million for the same period in 1997, a decrease of $8.1.
Foam Group gross profit decreased to $5.3 million in the second quarter of 1998
from $9.1 million in the second quarter of 1997, a decrease of $3.8 million.
Although Rubatex's Conover, North Carolina plant made the largest contribution
to the decline, decreases in gross profit were experienced at all of the Foam
Group's operations. In addition to the effects of Conover, the Foam Group's
gross profit in the second quarter of 1998 suffered from decreased volume and
reduced overhead absorption due to a $4.0 million reduction in inventories
between March 31, 1998 and June 30, 1998.
The decrease in gross profit at Conover is primarily the result of continued
difficulties associated with the production of Ensolite materials at the plant.
Due to the ongoing poor performance of Conover, the Company replaced the
operations manager during the second quarter of 1998 and made selected headcount
reductions and has taken other cost control measures. Management is currently
evaluating more radical actions which may be necessary to reduce or eliminate
the losses currently being incurred at Conover. Such actions may include
shifting production of certain products to other plants and reducing or
eliminating production at Conover (See Subsequent Events below).
Mixing Group gross profit decreased to $2.3 million in the second quarter of
1998 from $2.6 million in the second quarter of 1997, a decrease of $0.3 million
or 11.5%. The decrease is due to reduced volume through the plants which
resulted from decreased demand for custom mixed rubber during the second quarter
of 1998. Mixing Group gross profit increased to $5.0 million for the six months
ended June 30, 1998 compared to $4.9 million for the same period in the prior
year, an increase of $0.1 million or 2.0%.
SG&A
- ----
SG&A increased to $7.7 million in the second quarter of 1998 from $6.7 million
in the second quarter of 1997, an increase of $1.0 million or 14.9%. SG&A
increased to $15.3 million for the six months ended June 30, 1998 from $13.9
million for the six months ended June 30, 1997, an increase of $1.4 million or
10.1%. As a percentage of net sales, SG&A increased to 11.5% for the second
quarter of 1998 from 9.2% for the second quarter of 1997. The increase in SG&A
in the second quarter is primarily attributable to severance costs of $0.6
million with the remainder due to increases in other employee benefit costs.
Operating Income
- ----------------
Operating income decreased to a loss of $12.3 million for the second quarter of
1998 compared to income of $3.7 million for the second quarter of 1997.
Operating income decreased to a loss of $12.8 million for the six months ended
June 30, 1998 compared to income of $7.4 million for the six months ended June
30, 1997. Operating income was impacted by a loss on impairment of $11.1
million related to Universal, decreases in gross profit and increases in SG&A as
discussed above.
Net Loss
- --------
The second-quarter net loss increased to $18.7 million from $1.0 million in the
prior year. The net loss for the six months ended June 30, 1998 increased to
$25.5 million from $2.0 million for the six months ended June 30, 1997. In
addition to the aforementioned factors, the net loss was impacted by an increase
in
8
<PAGE>
interest expense of $2.9 million for the six months ended June 30, 1998, due
to higher overall levels of indebtedness and the higher carrying cost of the
Senior Secured Notes.
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 to 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's credit
agreement provides for a $25.0 million revolving credit facility, subject to a
borrowing base formula, $2.8 million of which is reserved for an irrevocable
standby letter of credit. As of June 30, 1998, borrowings on the line of credit
were $7.0 million and unused borrowing capacity under the Credit Agreement was
$15.2 million.
The Company is highly leveraged. At June 30, 1998, the Company's indebtedness
was $207.7 million and its stockholder's equity was a deficit of $34.8 million.
The problems at Conover (see "Results of Operations") have had a negative impact
on the Company's results of operations. If improvements in Conover's operating
performance do not materialize in a timely manner, 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 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.
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 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 related to the Company's revolving credit
facility. The amendment 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 minimum level of EBITDA for the four consecutive quarters
ending September 30, 1998 and December 31, 1998.
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 will
continue.
Cash Flow From Operating Activities
- -----------------------------------
Cash flow from operating activities for the second quarter of 1998 decreased to
cash used of $0.1 million from cash provided of $2.2 million for the second
quarter of 1997. Cash flow from operating activities decreased to cash provided
of $0.8 million for the six months ended June 30, 1998 from cash provided of
$3.5 million for the same period in 1997. The increased net loss in the second
quarter of 1998 was the primary contributor to the decreased operating cash
flows of the same period; however, the cash effect of the increased net loss was
partially mitigated by cash provided through decreases in working capital for
both the three months and six months ended June 30, 1998.
Cash Flow From Investing Activities
- -----------------------------------
Cash flow from investing activities was cash used of $0.7 million for the second
quarter of 1998 compared to cash used of $5.3 million for the second quarter of
1997. Cash used in investing activities was $2.5 million for the six months
ended June 30, 1998 compared to $11.3 million for the six months ended June 30,
1997.
9
<PAGE>
Capital expenditures were $2.6 million for the six months ended June 30, 1998
compared to $10.4 million for the six months ended June 30, 1997. During the
second quarter, the company sold property generating proceeds of $1.6 million
which must be used to fund future capital expenditures.
Cash Flow From Financing Activities
- -----------------------------------
Cash provided by financing activities decreased to $0.8 million in the second
quarter of 1998 from $3.4 million in the second quarter of 1997. Cash flow from
financing activities decreased to $1.7 million for the first half of 1998
compared to $4.8 million for the first half of 1997. For the six months ended
June 30, 1998, proceeds from borrowings under the revolving credit facility were
$16.5 million and principal repayments were $14.5 million.
Interest of $7.1 million is due in connection with the Senior Secured notes in
July, 1998. After July, 1998, interest payments in connection with the Senior
Secured Notes and Senior Subordinated Notes are required as follows: $5.6
million in October; $6.0 million in January; $5.6 million in April; and $6.0
million in July. The Senior Secured Notes and the Senior Subordinated Notes
mature as follows: $100 million in January 2003 and $100 million in October
2005.
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization
- ------------------------------------------------------------------------
Adjusted earnings before interest, taxes, depreciation and amortization
("Adjusted EBITDA"), decreased to $2.4 million for the second quarter of 1998,
from $6.9 million for the second quarter of 1997, a decrease of $4.5 million.
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.
SUBSEQUENT EVENTS
On July 7, 1998, the Company announced the resignation of Frank H. Roland, Chief
Executive Officer and President and named Theodore C. Rogers, of AIP, 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 made up of three Senior Vice Presidents who will run the
Company under Mr. Rogers' direction. The Office of the President is currently
evaluating a restructuring of the Company's business to better serve its
customers, take advantage of market opportunities and reduce its operating
costs.
Initial restructuring activities are likely to include the following: (i)
merging certain operations; (ii) moving production of certain products from
Conover to other plants; (iii) reducing costs through headcount reductions and
other measures; (iv) reducing inventory levels; and (v) refocusing the Company's
efforts on its more profitable businesses and products. The Company expects to
record a restructuring charge in the third quarter in connection with these
activities. The amount of the restructuring charge has not yet been determined.
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
10
<PAGE>
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 be 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.
NEW ACCOUNTING STANDARDS
In April, 1998, the Accounting Standards Executive Committee ("AcSEC") of the
American Institute of Certified Public Accountants issued Statement of Position
98-5 (the "SOP"), "Reporting on the Costs of Start-Up Activities." The SOP
requires that the costs of start-up activities be expensed as incurred.
Management estimates that previously capitalized start-up costs of approximately
$5.4 million meet the definitions set forth in the SOP. Initial adoption of the
SOP must be reported as a cumulative effect of a change in accounting
principles. The SOP is effective for fiscal years beginning after December 15,
1998; however, earlier application is encouraged. The Company intends to adopt
the provisions of the SOP in the third quarter of 1998.
11
<PAGE>
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit No. ITEM
- ----------- ----------------------------------------------------------------
10.15 Amendment No. 1, Waiver and Agreement, dated as of June 30, 1998
27.1 Financial Data Schedule.
__________________________
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 1998.
On July 7, 1998 the Company issued a report on Form 8-K to announce that Frank
H. Roland resigned as a Director, President and Chief Executive Officer of the
Company and its wholly-owned subsidiaries.
12
<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: August 14, 1998 /s/ John C. Cantlin
----------------------- ----------------------
JOHN C. CANTLIN
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER & TREASURER
13
<PAGE>
EXHIBIT 10.15
AMENDMENT NO. 1, WAIVER AND AGREEMENT, dated as of June
30, 1998 (this "Amendment"), to the Credit Agreement dated
as of December 11, 1997 (the "Credit Agreement"), among RBX
CORPORATION, a Delaware corporation (the "Borrower"), the
Lenders (as defined in the preamble to the Credit
Agreement), THE CHASE MANHATTAN BANK, a New York banking
corporation, as agent (in such capacity, the "Agent") for
the Lenders and as the issuing bank (in such capacity, the
"Issuing Bank").
A. The Lenders and the Issuing Bank have extended, and have agreed to
extend, credit to the Borrower, in each case pursuant to the terms and subject
to the conditions set forth in the Credit Agreement.
B. The Borrower has requested that each Lender and the Agent grant a
limited waiver of compliance by the Borrower with the provisions of Section 8.1,
8.5 and 8.6 of the Credit Agreement, and the Agent and the Lenders are willing
to grant such limited waiver, on the terms and subject to the conditions set
forth herein.
C. The Borrower has requested that the Required Lenders and the Agent
amend the Credit Agreement to include a minimum Consolidated EBITDA test as
provided herein, and the Agent and the Required Lenders are willing to so amend
the Credit Agreement, on the terms and subject to the conditions set forth
herein.
D. The Borrower intends to enter into an agreement or agreements to sell
(the "Warehouse Sales") certain real property prior to December 31, 1998, in
form and substance reasonably satisfactory to the Agent. In addition, the
Borrower intends to enter into an agreement to sell (the "Universal Polymer
Sale") its Subsidiary, Universal Polymer & Rubber, Inc., a Delaware corporation,
prior to December 31, 1998, in form and substance reasonably satisfactory to the
Agent. The Borrower expects to receive not less than $6,000,000 aggregate gross
cash proceeds from the Warehouse Sales and the Universal Polymer Sale prior to
December 31, 1998.
E. Capitalized terms used but not defined herein shall have the meanings
assigned to them in the Credit Agreement.
Accordingly, in consideration of the mutual agreements herein contained and
other good and valuable consideration, the sufficiency and receipt of which are
hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Waiver. The Lenders hereby waive compliance with the
provisions of (a) Section 8.1(a) of the Credit Agreement for the four
consecutive fiscal quarters ending on (i) June 30, 1998, (ii) September 30,
1998, and (iii) December 31, 1998, (b) Section 8.1(b) of the Credit Agreement
for the fiscal quarters ending on (i) June 30, 1998, (ii) September 30, 1998,
and (iii) December 31, 1998 and (c) Sections 8.5 and 8.6 of the Credit Agreement
to the extent, but only to the extent, necessary to permit the Warehouse Sales
and the Universal Polymer Sale.
SECTION 2. Agreement. (a) The Borrower hereby covenants and agrees with the
Agent and the Lenders that the Borrower will consummate the Warehouse Sales and
the Universal Polymer Sale pursuant to an agreement or agreements reasonably
satisfactory in form and substance to the Agent, for not less than $6,000,000
aggregate gross cash proceeds to be received prior to December 31, 1998.
(b) Failure to comply with this Section 2 shall constitute an Event of
Default under the Credit Agreement, without regard to any applicable grace
periods under the Credit Agreement.
<PAGE>
SECTION 3. Amendment. Section 8.1 (Financial Condition Covenants) of the
Credit Agreement is hereby amended by inserting immediately after the words,
"September 30, 2002 6.5 to 1.00" in the last line of paragraph (b), the
following:
"(c) Maintenance of Minimum Consolidated EBITDA. Permit for any period of
four consecutive fiscal quarters ending on any date set forth below,
Consolidated EBITDA for such period to be less than the amount set forth
opposite such date below:
<TABLE>
<CAPTION>
Date Consolidated EBITDA
---- -------------------
<S> <C>
September 30, 1998 $11,000,000
December 31, 1998 $18,500,000"
</TABLE>
SECTION 4. Representations and Warranties. To induce the other parties
hereto to enter into this Amendment, the Borrower represents and warrants to the
Agent, the Issuing Bank and each of the Lenders that:
(a) This Amendment has been duly authorized, executed and
delivered by it and constitutes its legal, valid and binding
obligation, enforceable in accordance with its terms except as such
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors'
rights generally and by general principles of equity (regardless of
whether such enforceability is considered as a proceeding at law or in
equity).
(b) Before and after giving effect to this Amendment, the
representations and warranties set forth in Section 5 of the Credit
Agreement are true and correct in all material respects on and as of
the date hereof with the same effect as though made on and as of the
date hereof, except to the extent such representations and warranties
expressly relate to an earlier date.
(c) Before and after giving effect to this Amendment, no Default
or Event of Default has occurred and is continuing.
SECTION 5. Fees. In consideration of the agreements of the Lenders
contained in Sections 1 through 3 of this Amendment, the Borrower agrees to pay
to the Agent, for the account of each Lender that delivers an executed
counterpart of this Amendment prior to 5:00 p.m., New York City time, on June
30, 1998, an amendment fee (an "Amendment Fee") in an amount equal to .0020% of
such Lender's Commitment (whether used or unused) as of the Effective Date.
SECTION 6. Conditions to Effectiveness. This Amendment shall become
effective as of the date first above written (the "Effective Date") when (a) the
Agent shall have received counterparts of this Amendment that, when taken
together, bear the signatures of the Borrower and all the Lenders and (b) the
Agent shall have received the Amendment Fees.
SECTION 7. Effect of Amendment. Except as expressly set forth herein,
this Amendment shall not by implication or otherwise limit, impair, constitute a
waiver of, or otherwise affect the rights and remedies of the Lenders, the Agent
or the Borrower under the Credit Agreement or any other Loan Document, and shall
not alter, modify, amend or in any way affect any of the terms, conditions,
obligations, covenants or agreements contained in the Credit Agreement or any
other Loan Document, all of which are ratified and affirmed in all respects and
shall continue in full force and effect. Nothing herein shall be deemed to
entitle the Borrower to a consent to, or a waiver, amendment, modification or
other change of, any of the terms, conditions, obligations, covenants, or
agreements contained in the Credit Agreement or any other Loan Document in
similar or different circumstances. After the date hereof, any reference to the
Credit Agreement shall mean the Credit Agreement as modified hereby. This
Amendment shall constitute a "Loan Document" for all purposes of the Credit
Agreement and the other Loan Documents.
<PAGE>
SECTION 8. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 9. Counterparts. This Amendment may be executed in counterparts
(and by different parties hereto on different counterparts), each of which shall
constitute an original but all of which when taken together shall constitute a
single contract. Delivery of an executed signature page to the Amendment by
facsimile transmission shall be effective as delivery of a manually signed
counterpart of this Amendment.
SECTION 10. Expenses. The Borrower agrees to reimburse the Agent for its
out-of-pocket expenses in connection with this Amendment, including the
reasonable fees, charges and disbursements of Cravath, Swaine & Moore, counsel
for the Agent.
SECTION 11. Notices. All notices shall be given in accordance with the
provisions of Sections 11.2 of the Credit Agreement.
SECTION 12. Headings. The headings of this Amendment are for the purposes
of reference only and shall not limit or otherwise affect the meaning hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers as of the day and year
first above written.
RBX CORPORATION,
by
/s/ Frank Roland
-------------------------------
Name: Frank Roland
-------------------------
Title: President and CEO
------------------------
THE CHASE MANHATTAN BANK, individually and
as Agent and Issuing Bank,
by
/s/ William J. Caggiano
-------------------------------
Name: William J. Caggiano
-------------------------
Title: Mananging Director
------------------------
BANKBOSTON, N.A.,
by
/s/ Mary Ann Blatsos
-------------------------------
Name: Mary Ann Blatsos
-------------------------
Title: Assistant Vice President
------------------------
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001010143
<NAME> RUBATEX CORP
[CIK] 0001010181
[NAME] GROENDYK MANUFACTURING
[CIK] 0001010182
[NAME] HOOVER HANES RUBBER CUSTOM MIXING CORP
[CIK] 0001010147
[NAME] MIDWEST RUBBER CUSTOM MIXING CORP
[CIK] 0001010148
[NAME] OLETEX INC
[CIK] 0001010150
[NAME] UNIVERSAL RUBBER CO
[CIK] 0001010152
[NAME] WALTEX CORP
[CIK] 0001059444
[NAME] UNIVERSAL POLYMER & RUBBER INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,627
<SECURITIES> 0
<RECEIVABLES> 40,228
<ALLOWANCES> 1,761
<INVENTORY> 37,474
<CURRENT-ASSETS> 77,107
<PP&E> 114,734
<DEPRECIATION> 21,417
<TOTAL-ASSETS> 261,191
<CURRENT-LIABILITIES> 44,154
<BONDS> 207,410
0
0
<COMMON> 0
<OTHER-SE> (34,811)
<TOTAL-LIABILITY-AND-EQUITY> 261,191
<SALES> 139,231
<TOTAL-REVENUES> 139,231
<CGS> 123,836
<TOTAL-COSTS> 152,362
<OTHER-EXPENSES> (318)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,734
<INCOME-PRETAX> (25,547)
<INCOME-TAX> 0
<INCOME-CONTINUING> (25,547)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25,547)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
