<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 September 30, 1999
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
(Exact name of Registrants as specified in their charters)
----------------------------------------------------------
Delaware 94-3231901
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5221 ValleyPark Drive
Roanoke, Virginia 24019
(Address of principal executive offices)
Registrant's telephone number, including area code: (540) 561-6000
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 September 30, 1999 was 1,000.
<PAGE>
Index
-----
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
<PAGE>
PART I
ITEM 1. Financial Statements (unaudited)
RBX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------------ -------------------
ASSETS
<S> <C> <C>
Cash and cash equivalents................................................ $ 122 $ 130
Accounts receivable, less allowance for doubtful accounts of $1,459 and
$1,514, respectively.................................................... 33,474 35,051
Inventories.............................................................. 25,450 25,889
Prepaid and other current assets......................................... 426 410
--------- ---------
Total current assets..................................................... 59,472 61,480
Property, plant and equipment, net....................................... 72,797 69,140
Restricted cash.......................................................... - 1,792
Intangibles and other assets, net........................................ 6,278 5,306
--------- ---------
Total assets............................................................. $ 138,547 $ 137,718
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable......................................................... $ 12,726 $ 17,283
Accrued liabilities...................................................... 27,940 25,353
Current portion of postretirement benefit obligation..................... 3,030 3,030
Current portion of long-term debt........................................ 327 327
--------- ---------
Total current liabilities................................................ 44,023 45,993
Long-term debt........................................................... 205,745 209,250
Postretirement benefit obligation........................................ 30,083 30,685
Pension benefit obligation............................................... 8,461 7,736
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................................................... (209,572) (215,753)
--------- ---------
Total stockholder's equity............................................... (151,469) (157,650)
--------- ---------
Total liabilities and stockholder's equity............................... $ 138,547 $ 137,718
========= =========
</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 9 Months 9 Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1998 1999 1998 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales....................................... $ 63,962 $61,152 $ 203,193 $190,708
Cost of goods sold.............................. 67,457 51,892 191,293 159,761
--------- ------- --------- --------
Gross profit.................................... (3,495) 9,260 11,900 30,947
Selling, general and administrative costs....... 8,613 4,537 23,866 16,870
Management fees................................. 302 363 811 998
Loss on impairment of long-lived assets......... 90,351 - 101,449 -
Amortization of goodwill and other intangibles.. 744 - 2,410 -
Other expense (income).......................... 238 (50) (80) (42)
--------- ------- --------- --------
Operating income (loss)......................... (103,743) 4,410 (116,556) 13,121
Interest expense, including amortization of
deferred financing fees........................ 6,411 6,470 19,145 19,302
--------- ------- --------- --------
Loss before cumulative effect adjustment........ (110,154) (2,060) (135,701) (6,181)
Cumulative effect adjustment.................... 4,952 - 4,952 -
--------- ------- --------- --------
Net loss........................................ $(115,106) $(2,060) $(140,653) $ (6,181)
========= ======= ========= ========
</TABLE>
See notes to condensed consolidated financial statements
2
<PAGE>
RBX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
3 Months 3 Months 9 Months 9 Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1998 1999 1998 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.......................................... $(115,106) $(2,060) $(140,653) $ (6,181)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation................................... 3,507 1,964 8,425 5,892
Amortization................................... 1,066 324 3,369 972
Special charges................................ 108,789 - 119,887 -
(Gain) loss on disposal of equipment........... 238 (50) (80) (42)
Increase (decrease) in cash from changes in
assets and liabilities:
Accounts receivable............................ (573) 207 (1,010) (1,577)
Inventories.................................... 2,671 (88) 5,007 (439)
Prepaid and other current assets............... 304 (79) 457 16
Intangibles and other assets................... (51) - (51) -
Accounts payable............................... 423 1,871 (173) 4,557
Accrued liabilities............................ (1,688) (2,049) 4,759 (2,787)
Other liabilities.............................. 152 (843) 560 (123)
--------- ------- --------- --------
Net cash provided by (used in) operating (268) (803) 497 288
activities....................................... --------- ------- --------- --------
INVESTING ACTIVITIES
Capital expenditures.............................. (1,043) (1,685) (3,677) (3,786)
Proceeds from disposals of property, plant and
equipment........................................ 4,060 1,792 5,690 1,793
Increase in restricted cash....................... (120) (1,792) (1,612) (1,792)
--------- ------- --------- --------
Net cash provided by (used in) investing 2,897 (1,685) 401 (3,785)
activities....................................... --------- ------- --------- --------
FINANCING ACTIVITIES
Proceeds from borrowings.......................... 7,500 8,000 24,000 19,750
Principal payments on long-term debt.............. (10,082) (5,582) (24,882) (16,245)
--------- ------- --------- --------
Net cash provided by (used in) financing (2,582) 2,418 (882) 3,505
activities....................................... --------- ------- --------- --------
Net increase (decrease) in cash and cash
equivalents...................................... 47 (70) 16 8
Cash and cash equivalents:
Beginning of period.............................. 135 200 166 122
--------- ------- --------- --------
End of period.................................... $ 182 $ 130 $ 182 $ 130
========= ======= ========= ========
</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").
RBX Corporation's subsidiaries, Rubatex Corporation, OleTex, Inc., Groendyk Mfg
Co., Inc., Midwest Rubber Custom Mixing Corp., and Hoover-Hanes Rubber Custom
Mixing Corp., operate manufacturing facilities which are located in the
southeastern United States, Ohio, and Illinois. The Company is a wholly owned
subsidiary of RBX Group, Inc. ("RBX Group"), a non-operating holding company.
The interim financial data as of and for the three months and nine months ended
September 30, 1999 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, 1998. 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, September 30,
1998 1999
---- ----
<S> <C> <C>
Raw materials.......................... $10,759 $11,138
Work-in-process........................ 3,539 3,558
Finished goods......................... 11,152 11,193
------- -------
$25,450 $25,889
======= =======
</TABLE>
3. 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 on all accounts receivable, inventory, and general
intangibles (to the extent related to accounts receivable and inventory).
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.
4
<PAGE>
RBX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
3. Long-Term Debt, continued
The Company's indebtedness contains certain restrictions which, among other
things, restrict its ability to incur additional indebtedness, issue preferred
stock, incur liens, pay dividends, make certain other restricted payments,
consummate certain asset sales, enter into certain transactions with affiliates,
merge or consolidate with any other person or sell, assign, transfer, lease,
convey or otherwise dispose of substantially all of its assets. In addition, the
Company's indebtedness contains certain financial covenants, including
maintenance of a minimum level of earnings before interest, taxes, depreciation
and amortization ("EBITDA").
In February 1999, as anticipated at the time of the first amendment to the
Credit Agreement, the Company and its lenders entered into a second amendment to
the Credit Agreement which waived the financial covenants to which the Company
was subject through December 31, 1999 and established requirements with respect
to the maintenance of a minimum level of EBITDA for the four consecutive
quarters ending March 31, 1999, June 30, 1999, September 30, 1999, and December
31, 1999. The amendment also provides for a revised limitation on capital
spending. The Company was in compliance with the terms of its indebtedness as of
September 30, 1999.
As of September 30, 1999, the Company had available unused borrowing capacity of
$14.8 million under the revolving credit facility.
4. Contingent Liabilities
The Company is highly leveraged. At September 30, 1999, the Company's
indebtedness was $209.6 million and its stockholder's equity was a deficit of
$157.7 million.
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
5
<PAGE>
RBX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
5. Segment Information
Summarized financial information for the Company's reportable segments follows.
The information designated as "Other" represents corporate related items which
are not allocated to reportable segments.
<TABLE>
<CAPTION>
3 Months 3 Months 9 Months 9 Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1998 1999 1998 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Foam Group:
Revenues.......................... $ 45,920 $ 44,145 $149,794 $136,762
Segment profits................... 1,562 3,581 316 11,295
Total assets...................... 110,059 104,716 110,059 104,716
Mixing Group:
Revenues.......................... 18,042 17,007 53,399 53,946
Segment profits................... 1,796 1,847 5,480 6,116
Total assets...................... 26,993 25,822 26,993 25,822
Other:
Revenues.......................... - - - -
Segment loss...................... (118,464) (7,488) (146,449) (23,592)
Total assets...................... 7,180 7,180 7,180 7,180
Total:
Revenues.......................... 63,962 61,152 203,193 190,708
Net loss.......................... (115,106) (2,060) (140,653) (6,181)
Total assets...................... 144,232 137,718 144,232 137,718
</TABLE>
The following table presents the details of "Other" segment loss.
<TABLE>
<CAPTION>
3 Months 3 Months 9 Months 9 Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1998 1999 1998 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Corporate expenses.................. $ 746 $ 655 $ 1,968 $ 3,292
Management fees..................... 302 363 811 998
Depreciation and amortization....... 2,216 324 4,638 972
Interest expense.................... 6,411 6,146 19,145 18,330
Special charges..................... 108,789 - 119,887 -
-------- ------ -------- -------
$118,464 $7,488 $146,449 $23,592
======== ====== ======== =======
</TABLE>
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, 1998.
Basis of Presentation
The following tables set forth, for the periods shown, net sales, gross profit,
selling, general and administrative costs ("SG&A"), operating income (loss) and
net loss in millions of dollars and as a percentage of net sales including 1998
special charges and excluding 1998 special charges. A discussion of the special
charges is presented in the notes to the consolidated financial statements for
the year ended December 31, 1998.
Including 1998 special charges:
- -------------------------------
<TABLE>
<CAPTION>
Quarter Ended September 30, Nine Months Ended September 30,
--------------------------------------------------------------------------------------------------------
1998 1999 1998 1999
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $ 64.0 100.0% $61.2 100.0% $ 203.2 100.0% $190.7 100.0%
Gross profit (loss)..... (3.5) (5.5) 9.3 15.2 11.9 5.9 30.9 16.2
SG&A.................... 8.6 13.4 4.5 7.4 23.9 11.8 16.9 8.9
Operating income (loss). (103.7) (162.0) 4.4 7.2 (116.6) (57.4) 13.1 6.9
Net loss................ (115.1) (179.8) (2.1) (3.4) (140.7) (69.2) (6.2) (3.3)
</TABLE>
Excluding 1998 special charges:
- -------------------------------
<TABLE>
<CAPTION>
Quarter Ended September 30, Nine Months Ended September 30,
--------------------------------------------------------------------------------------------------------
1998 1999 1998 1999
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $64.0 100.0% $61.2 100.0% $203.2 100.0% $190.7 100.0%
Gross profit (loss)..... 7.0 10.9 9.3 15.2 22.4 11.0 30.9 16.2
SG&A.................... 5.6 8.8 4.5 7.4 20.9 10.2 16.9 8.9
Operating income (loss). 0.1 0.2 4.4 7.2 (1.7) (0.8) 13.1 6.9
Net loss................ (6.3) (9.8) (2.1) (3.4) (20.8) (10.2) (6.2) (3.3)
</TABLE>
Results of Operations
Net Sales
Net sales decreased to $61.2 million for the three months ended September 30,
1999 compared to $64.0 million for the same period in 1998, a decrease of $2.8
million or 4.4%. Net sales decreased to $190.7 million for the nine months
ended September 30, 1999 from $203.2 million for the comparable period in 1998,
a decrease of $12.5 million or 6.2%.
The decrease in net sales is primarily attributable to the sale of the Universal
Polymer & Rubber, Inc. ("Universal") business in 1998. Excluding Universal, net
sales for the three months ended September 30, 1999 increased by $0.6 million;
however, net sales for the nine months ended September 30, 1999, after the
exclusion of Universal, decreased by $0.6 million.
7
<PAGE>
Excluding Universal, net sales for the Company's foam product operations (the
"Foam Group") increased to $44.1 million for the quarter ended September 30,
1999 from $42.5 million for the quarter ended September 30, 1998, an increase of
$1.6 million or 3.8%. Excluding Universal, the Foam Group's net sales decreased
to $136.8 million for the nine months ended September 30, 1999 from $137.9
million for the nine months ended September 30, 1998, a decrease of $1.1 million
or 1.0%.
After elimination of sales to the Foam Group, net sales at the Company's custom
rubber mixing operations (the "Mixing Group") decreased to $17.0 million in the
third quarter of 1999 from $18.0 million for the third quarter of 1998, a
decrease of $1.0 million or 5.6%. The Mixing Group's net sales for the nine
months ended September 30, 1999 increased to $53.9 million compared to $53.4
million for the same period in 1998, an increase of $0.5 million or 1.0%.
Gross Profit
Gross profit increased to $9.3 million for the three months ended September 30,
1999 from a gross loss of $3.5 million for the three months ended September 30,
1998, an increase of $12.8 million. For the nine months ended September 30,
1999, gross profit increased to $30.9 million from $11.9 million for the same
period in 1998, an increase of $19.0 million.
During the third quarter of 1998, the Company recorded special charges which
reduced gross profit by $10.5 million. Excluding these special charges, gross
profit for the third quarter of 1999 increased by $2.3 million compared to the
third quarter of 1998 and gross profit for the nine months ended September 30,
1999 increased by $8.5 million compared to the nine months ended September 30,
1998.
Excluding special charges, gross profit for the Foam Group increased to $7.0
million in the third quarter of 1999 from $6.1 million in the third quarter of
1998, an increase of $0.9 million or 14.8%. For the nine months ended September
30, 1999, gross profit excluding special charges increased to $23.1 million from
$16.7 million for the nine months ended September 30, 1998, an increase of $6.4
million or 38.3%.
The improvements in gross profit are largely attributable to the cost cutting
measures implemented in connection with the reorganization of the Company's
operations, improvements in operating performance at the Company's Conover,
North Carolina facility, and reduced depreciation.
Mixing Group gross profit remained unchanged at $2.4 million in the third
quarter of 1999 compared to the third quarter of 1998. Mixing Group gross
profit increased to $8.0 million for the nine months ended September 30, 1999
from $7.5 million for the same period in 1998, an increase of $0.5 million or
6.7%.
SG&A
SG&A decreased to $4.5 million in the third quarter of 1999 from $8.6 million in
the third quarter of 1998, a decrease of $4.1 million. For the nine months
ended September 30, 1999, SG&A decreased to $16.9 million from $23.9 million for
the same period in 1998, a decrease of $7.0 million or 29.3%. As a percentage
of net sales, SG&A decreased to 8.9% in 1999 from 11.8% in 1998.
During the third quarter of 1998 the Company recorded special charges which
increased SG&A by $3.0 million. Excluding special charges, SG&A decreased by
$1.1 million in the third quarter of 1999 compared to the third quarter of 1998.
Excluding special charges, the decrease was $4.0 million for the nine months
ended September 30, 1999 compared to the same period in the prior year.
The decreases in SG&A are primarily a result of cost cutting measures including
savings associated with headcount reductions. The sale of Universal accounted
for a reduction of $0.5 million for the third quarter of 1999 compared to the
third quarter of 1998 and $1.7 million for the nine months ended September 30,
1999 compared to the same period in the prior year.
8
<PAGE>
Operating Income
Operating income increased to $4.4 million for the three months ended September
30, 1999 compared to an operating loss of $103.7 million for the three months
ended September 30, 1998, an improvement of $108.1 million. Operating income
increased to $13.1 million for the nine months ended September 30, 1999 compared
to an operating loss of $116.6 million for the same period in the prior year.
During 1998, the Company recorded special charges which reduced operating income
by $103.8 million and $114.9 million in the third quarter and nine months ended
September 30, 1998, respectively. Excluding special charges operating income
increased $4.3 million in the third quarter of 1999 compared to the third
quarter of 1998 and increased $14.8 million for the nine months ended September
30, 1999 compared to the nine months ended September 30, 1998.
The aforementioned cost cutting measures and improvements in Conover's operating
performance are the primary contributors to the improvement in operating income.
A reduction in depreciation and amortization resulting from impairment losses
recorded in the second and third quarters of 1998 also contributed to the
improvement in operating income in 1999. Depreciation and amortization decreased
by $2.3 million for the third quarter of 1999 compared to the third quarter of
1998 and decreased $4.9 million for the nine months ended September 30, 1999
compared to the same period in the prior year.
Net Loss
The third-quarter net loss decreased to $2.1 million from $115.1 million in the
prior year. The net loss for the nine months ended September 30, 1999 decreased
to $6.2 million from $140.7 million for the comparable period in 1998. Excluding
the 1998 special charges, the net loss decreased by $4.2 million for the third
quarter of 1999 compared to the third quarter of 1998 and $14.6 million for the
nine months ended September 30, 1999 compared to the nine months ended September
30, 1998.
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, $0.9 million of which is reserved
for irrevocable standby letters of credit. As of September 30, 1999, borrowings
on the line of credit were $9.3 million and unused borrowing capacity under the
Credit Agreement was $14.8 million. The revolving credit facility matures in
December 2002.
The Company is highly leveraged. At September 30, 1999, the Company's
indebtedness was $209.6 million and its stockholder's equity was a deficit of
$157.7 million.
The Company's indebtedness contains certain restrictions which, among other
things, restrict its ability to incur additional indebtedness, issue preferred
stock, incur liens, pay dividends, make certain other restricted payments,
consummate certain asset sales, enter into certain transactions with affiliates,
merge or consolidate with any other person or sell, assign, transfer, lease,
convey or otherwise dispose of substantially all of its assets. In addition, the
Company's indebtedness contains certain financial covenants including
maintenance of a minimum level of earnings before interest, taxes, depreciation
and amortization ("EBITDA").
In February 1999, as anticipated at the time of the first amendment to the
Credit Agreement, the Company and its lenders entered into a second amendment to
the Credit Agreement which waived the financial covenants to which the Company
was subject through December 31, 1999 and established requirements with respect
to the maintenance of a minimum level of EBITDA for the four consecutive
quarters ending March 31, 1999, June 30, 1999, September 30, 1999, and December
31, 1999. The amendment also
9
<PAGE>
provides for a revised limitation on capital spending. The Company was in
compliance with the terms of its indebtedness as of September 30, 1999.
Interest payments on the Senior Secured Notes and Senior Subordinated Notes are
required during the remainder of 1999 and the first nine months of 2000 as
follows: $5.6 million in October 1999; $6.0 million in January 2000; $5.6
million in April 2000; and $6.0 million in July 2000. The Senior Secured Notes
and the Senior Subordinated Notes are due $100 million in January 2003 and $100
million in October 2005, respectively.
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.
Workers at the Company's Bedford, Virginia plant are currently on strike (see
Labor Relations section). The Company anticipates that cash flows will be
negatively impacted by a continued work stoppage.
Cash Flow From Operating Activities
Cash flow from operating activities for the third quarter of 1999 increased to
cash used of $0.8 million from cash used of $0.3 million for the third quarter
of 1998. Cash flow provided by operating activities for the nine months ended
September 30, 1999 decreased to $0.3 million from $0.5 million for the same
period in 1998.
Cash Flow From Investing Activities
Cash used in investing activities for the third quarter of 1999 was $1.7 million
compared to cash provided of $2.9 million in the third quarter of 1998. For the
nine months ended September 30, 1999, cash used in investing activities was $3.8
million compared to cash provided of $0.4 million for the same period in 1998.
Capital expenditures increased to $1.7 million in the third quarter of 1999 from
$1.0 million in the third quarter of 1998. For the nine months ended September
30, 1999, capital expenditures increased to $3.8 million from $3.7 million for
the same period in the prior year.
In September 1999, the Company completed the sale of the Universal land and
buildings, which generated cash proceeds of $1.8 million. In 1998, proceeds were
derived from the sale of the Universal business and certain other properties in
unrelated transactions.
The Company is currently evaluating investment alternatives which include: (i)
the systematic refurbishment of the Company's sixteen mixers; (ii) the purchase
of machinery and equipment which would improve production processes and provide
cost savings; (iii) the addition of a production line which would add an
attractive family of products to the Company's cross-linked polyethelene foam
operations; and (iv) an investment in a venture which would provide access to an
expanded market for certain plastic extruded products currently manufactured by
the Company. These projects, if approved, would require spending in excess of
normal maintenance capital and investment requirements. Any such spending would
likely be financed through a combination of cash flow from operations to the
extent available and borrowings on the revolver. Although these investments may
be necessary to generate further improvements in the Company's operating
performance, the Company's overall indebtedness would be increased and available
borrowing capacity on the Company's revolver would be diminished.
Cash Flow From Financing Activities
Cash provided by financing activities increased to $2.4 million in the third
quarter of 1999 compared to cash used of $2.6 million in the third quarter of
1998. Cash provided by financing activities increased to $3.5 million for the
nine months ended September 30, 1999 compared to cash used of $0.9 million for
the
10
<PAGE>
nine months ended September 30, 1998. In the first nine months of 1999, the
Company borrowed $19.7 million and repaid $16.2 million on the revolving credit
facility.
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization
Adjusted earnings before interest, taxes, depreciation and amortization
("Adjusted EBITDA"), increased to $6.8 million for the three months ended
September 30, 1999 from $5.5 million for the comparable period in 1998, an
increase of $1.3 million. Adjusted EBITDA increased to $20.6 million for the
nine months ended September 30, 1999 from $11.2 million for the comparable
period in 1998, an increase of $9.4 million.
On a twelve-month-trailing basis, Adjusted EBITDA was $28.2 million as of
September 30, 1999.
Management believes EBITDA is one indicator of a company's liquidity; however,
EBITDA, as presented above, may not be comparable to similarly titled measures
of other companies unless such measures are calculated in substantially the same
fashion. The Company believes that EBITDA, while providing useful information,
does not represent cash available to service debt and that it should not be
considered in isolation or as a substitute for the consolidated statement of
operations prepared in accordance with generally accepted accounting principles.
For example, EBITDA should not be considered an alternative to net income as an
indicator of operating performance or an alternative to the use of cash flows as
a measure of liquidity. Moreover, EBITDA does not reflect, as does cash flow
from operations, the cash needed to support changes in working capital.
Labor Relations
On September 10, 1999 the contract with the primary union at the Company's
Bedford, Virginia plant expired and the union subsequently voted to go out on
strike. The Bedford plant has continued to operate using salaried personnel
supplemented by temporary laborers and hourly workers that have crossed the
picket line. There has been essentially no dialogue since the union broke-off
negotiations during the Company's presentation of its last contract offer.
Recently, the Company received a request from the union to meet to discuss
certain issues in connection with the Company's last contract offer; however, as
of November 15, 1999, there has been no progress toward reaching a settlement.
The Company can provide no assurance that a collective bargaining agreement will
be reached with the union. The Company anticipates that a continued work
stoppage would have a negative impact on its financial position and results of
operations.
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 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.
11
<PAGE>
Year 2000
Introduction
The arrival of the Year 2000 poses a unique challenge to all enterprises which
depend on computers, computer software and other equipment including machinery
and equipment utilizing microprocessors in conducting their normal operations.
As the Year 2000 approaches, such systems may become unable to function properly
or may even fail completely as the result of programming which recognizes dates
using only two digits rather than four. Consequently, operations could be
disrupted or temporarily halted if the deficiencies in such systems are not
corrected in a timely manner. Operations could also be disrupted or temporarily
halted if raw materials suppliers or service providers are not prepared and as a
result of Year 2000 become unable to supply materials or provide services.
Additionally, there could be a reduction in demand if customers are not prepared
for the Year 2000.
The Company's State of Readiness
The Company has undertaken a comprehensive assessment and corrective action
program designed to ensure that its essential information technology ("IT")
systems will appropriately recognize the Year 2000. Beginning in 1995, the
Company started a project to replace substantially all of its primary IT
systems. As of September 30, 1999, the Company has replaced substantially all of
its primary IT systems and completed its corrective action program with respect
to its essential IT systems.
The Company is also performing an assessment of its non-IT systems. Non-IT
systems include systems utilizing embedded technology such as microcontrollers.
The manufacturing processes employed by the Company do not rely heavily on
embedded technology; however, the Company is working with its suppliers of
machinery and equipment to ensure that the manufacturing process is not halted
by such equipment as the Year 2000 approaches.
The Company is continuing to monitor and evaluate the Year 2000 readiness of its
raw materials suppliers and service providers to more fully assess the nature
and magnitude of the risk posed by its business partners.
The Costs to Address the Company's Year 2000 Issues
The project to replace the Company's essential IT systems would have occurred
regardless of the existence of Year 2000 issues; however, the replacement
project is expected to provide Year 2000 readiness with respect to such systems.
As of September 30, 1999, capital expenditures have totaled approximately $2.9
million in connection with updating the Company's primary IT systems.
The Risks of the Company's Year 2000 Issues
The Company currently believes that its raw materials suppliers, service
providers and customers pose the greatest risk to operations as the Year 2000
approaches. The Company's manufacturing processes could be hampered or halted
altogether if raw materials are not available. Further, demand for the Company's
products could be adversely affected if the Company's customers are not prepared
for the advent of the Year 2000.
The Company's Contingency Plans
The Company believes that the contingency plans it has in place adequately
address the risks associated with the advent of the Year 2000; however, no
assurances can be provided that such plans would prove to be effective in the
event that the arrival of the Year 2000 has a catastrophic impact on the
Company, its customers and vendors, or on the economy as a whole.
Year 2000 Conclusion
The Company's assessment of the impact of Year 2000 issues and the effectiveness
of its efforts to resolve Year 2000 issues are based on management's estimates,
which were developed utilizing certain
12
<PAGE>
assumptions with respect to future events. Based on these estimates and
assumptions, management believes it will achieve Year 2000 readiness in a timely
manner for essential IT systems. However, actual circumstances could differ from
those anticipated by management thereby altering the timetable for completion,
the effectiveness of implementation and the related costs of Year 2000
compliance programs.
13
<PAGE>
PART II
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Item
- ----------- --------
27.1 Financial Data Schedule.
- -----------
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September 30,
1999.
14
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
RBX CORPORATION
---------------
(Registrant)
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John C. Cantlin Senior Vice President, Chief Financial Officer
- ----------------------- and Treasurer November 15, 1999
JOHN C. CANTLIN
/s/ Thomas W. Tomlinson Corporate Controller
- ----------------------- November 15, 1999
THOMAS W. TOMLINSON
</TABLE>
15
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