SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period
ended September 30, 1998
Commission File Number: 333-10611
UNIFRAX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 34-1535916
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation)
2351 Whirlpool Street, Niagara Falls, NY 14305-2413
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (716) 278-3800
-------------------------------------------
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 _____
<PAGE>
Unifrax Corporation
Form 10-Q
Index
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at
September 30, 1998 and December 31, 1997.....................1
Condensed Consolidated Statements of Income for the
Three-month and nine-month periods ended
September 30, 1998 and 1997..................................2
Condensed Consolidated Statements of Cash Flow for the
Nine-months ended September 30, 1998 and 1997................3
Notes to Condensed Consolidated Financial Statements................4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.....................8
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................14
Item 2. Changes in Securities............................................14
Item 3. Defaults on Senior Securities....................................14
Item 4. Submission of Matters to a Vote of Security Holders .............14
Item 5. Other Information................................................14
Item 6. Exhibits and Report on Form 8-K..................................14
Signatures.................................................................15
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unifrax Corporation
Condensed Consolidated Balance Sheets
(Unaudited - In Thousands, Except Share Data)
<TABLE>
<CAPTION>
December 31 September 30
1997 1998
---- ----
ASSETS
Current assets:
<S> <C> <C>
Cash $ 359 $ 781
Accounts receivable, less allowances of $1,254
and $1,139, respectively 12,720 13,195
Inventories 7,885 9,773
Deferred income taxes 2,320 2,320
Prepaid expenses and other current assets 411 337
--------- --------
Total current assets 23,695 26,406
Property, plant and equipment, at cost 70,907 72,368
Less accumulated depreciation and amortization (33,391) (36,681)
-------- --------
37,516 35,687
Deferred income taxes 24,849 23,340
Organization costs, net of accumulated amortization
of $875 and $1,438, respectively 4,030 3,467
Other assets 372 254
--------- --------
$ 90,462 $ 89,154
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,206 $ 2,491
Accrued expenses 7,568 10,075
------ ------
Total current liabilities 10,774 12,566
Long term debt 115,500 108,400
Note payable--affiliate 7,000 7,000
Accrued postretirement benefit cost 3,209 3,401
Other long-term obligations 158 161
-------- --------
Total liabilities 136,641 131,528
STOCKHOLDERS' DEFICIT
Common stock--$.01 par value; shares authorized--40,000;
shares issued and outstanding--20,000 -- --
Redeemable convertible cumulative preferred stock--
voting $.01 par value;
shares authorized--10,000, shares issued and
outstanding--1,666.67
(aggregate liquidation preference of $2,536
and $2,649, respectively,
including dividends in arrears) -- --
Additional paid-in capital 42,520 42,520
Accumulated deficit (88,406) (84,606)
Accumulated other comprehensive income (293) (288)
----------- -----------
Total stockholders' deficit (46,179) (42,374)
---------- --------
$ 90,462 $ 89,154
========= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Unifrax Corporation
Condensed Consolidated Statements of Income
(Unaudited - In Thousands)
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
-------------------------------- ------------------------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $20,533 $20,767 $65,234 $64,524
Cost of goods sold 10,112 10,396 33,135 32,375
------- ------ ------- ------
Gross profit 10,421 10,371 32,099 32,149
Selling, general and
administrative expenses 5,106 6,110 16,780 17,958
----- ----- ------ ------
Operating income 5,315 4,261 15,319 14,191
Interest expense (3,118) (2,973) (9,462) (9,015)
Other income (expense), net (10) 123 67 226
--------- --------- ----------- ---------
Income before income taxes and
extraordinary item 2,187 1,411 5,924 5,402
Provision for income taxes 892 417 2,421 1,537
------- ---------- --------- -------
Income before extraordinary item 1,295 994 3,503 3,865
Extraordinary item - loss on
extinguishment of debt, net of income
taxes of $28 -- 65 -- 65
----------- --------- ------------- ----------
NET INCOME $ 1,295 $ 929 $ 3,503 $ 3,800
======= ====== ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Unifrax Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited - In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30
1997 1998
----- ----
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 3,503 $ 3,800
Depreciation and amortization 3,838 4,248
Other adjustments and changes in operating
assets and liabilities 5,398 1,201
---------- --------
Cash provided by operating activities 12,739 9,249
INVESTING ACTIVITIES
Capital expenditures (7,063) (1,772)
Deferred software and other costs 14 --
Proceeds from sales of property, plant and equipment 115 45
----------- ---------
Cash used in investing activities (6,934) (1,727)
FINANCING ACTIVITIES
Repurchase of Senior Notes -- (2,000)
Borrowings under revolving loan 12,600 17,450
Repayments of revolving loan (12,300) (19,550)
Repayment of term loan (7,000) (3,000)
---------- -------
Cash used in financing activities (6,700) (7,100)
Net increase/decrease in cash (895) 422
Cash--beginning of period 898 359
----------- ---------
CASH--END OF PERIOD $ 3 $ 781
=========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Unifrax Corporation
Notes to Condensed Consolidated Financial Statements
September 30, 1998
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Unifrax Corporation ("The Company" or "Unifrax") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) considered necessary for a fair presentation have
been included. Results for the period ended September 30, 1998, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998. For further information, refer to the consolidated financial
statements and the notes thereto for the year ended December 31, 1997, included
in the Company's annual report on Form 10-K filed with the Securities and
Exchange Commission. All capitalized terms used in these notes to condensed
consolidated financial statements that are not defined herein have the meanings
given to them in such consolidated financial statements and notes to
consolidated financial statements.
NOTE B - INVENTORIES
The components of inventory consist of the following (in thousands):
December 31 September 30
1997 1998
------------- ------------
Raw materials and supplies $1,598 $2,447
Work in process 1,551 1,935
Finished products 4,410 4,886
------- ------
7,559 9,268
Adjustment to LIFO Cost 326 505
--------- ---------
$ 7,885 $9,773
======== ======
<PAGE>
NOTE C - CONTINGENCIES
Ceramic Fibers
Regulatory agencies and others, including the Company, have been investigating
the potential health impact associated with the inhalation of airborne ceramic
fibers. To date, the results of this research have been inconclusive.
Various legal proceedings and claims have been made against manufacturers of
ceramic fibers, including the Company, alleging death or personal injury as a
result of exposure in the manufacture and handling of ceramic fiber and other
products. The amount of any liability that might ultimately exist with respect
to these claims is presently not determinable.
Consistent with customary practice among manufacturers of ceramic fiber
products, the Company, while a division of BP America, had entered into
agreements with distributors of its product whereby the Company had agreed to
provide a limited indemnification to selected distributors and customers against
losses resulting from ceramic fiber claims and the costs to defend against such
claims. The amount of any liability that might ultimately exist with respect to
these indemnities is presently not determinable.
Pursuant to the Unifrax Corporation Recapitalization Agreement
("Recapitalization Agreement"), BP America Inc. and certain of its affiliates
(collectively "BPA"), has agreed to indemnify the Company against liabilities
for personal injury and wrongful death attributable to exposure, prior to the
Closing, to refractory ceramic fibers manufactured by the Company. BPA has
agreed to indemnify the Company against all liabilities arising from exposure
claims pending at the time of the Closing. For all other claims arising from
alleged exposure occurring solely prior to Closing, BPA has agreed to indemnify
the Company against 80% of all losses, until the total loss which the Company
incurs reaches $3.0 million, after which time BPA has agreed to indemnify the
Company against 100% of such losses. BPA has agreed to indemnify the Company
against all punitive damages attributable to the conduct of the Company prior to
Closing. Where losses arise from alleged exposure both before and after Closing,
the losses will be allocated between BPA and the Company, pro rata, based on the
length of exposure or pursuant to arbitration if initiated by the Company.
To maintain indemnity protection, the Company must continue its Product
Stewardship Program consistent with the program maintained by the Company prior
to Closing, as modified in a commercially reasonable manner in accordance with
changing regulatory, scientific and technical factors. Unifrax intends to defend
ceramic fiber claims vigorously.
Environmental Matters
The Company is subject to loss contingencies pursuant to various federal, state
and local environmental laws and regulations. These include possible obligations
to remove or mitigate the effects on the environment of the placement, storage,
disposal or release of certain chemical or petroleum substances by the Company
or by other parties.
Under the terms of the Recapitalization Agreement, BPA assumed liability, and
the rights to recovery from third parties, for environmental remediation and
other similar required actions with respect to certain environmental obligations
of Unifrax existing as of the Closing Date.
The Company may, in the future, be involved in further environmental assessments
or clean-ups. While the ultimate requirement for any such remediation, and its
cost, is presently not known, and while the amount of any future costs could be
material to the results of operations in the period in which they are
recognized, the Company does not expect these costs, based upon currently known
information and existing requirements, to have a material adverse effect on its
financial position.
Prior to divestment, the Company owned a site in Sanborn, NY, at which extensive
remediation activity is currently being undertaken. The site was used by a
number of former Carborundum operations other than the Company. Testing has
indicated that certain contamination is present in the soil. Neither past nor
current operations of the Company are believed to have contributed to, or to be
contributing to, the existence of the contamination. BPA has assumed
responsibility for implementing remedial activities specified by the State of
New York which required removal of the contamination, chiefly by means of soil
vapor extraction. Under the terms of an agreement, BPA has taken title to and
assumed liability for the remediation of this property as of October 30, 1996.
Unifrax leases a portion of the present manufacturing facilities on this site.
Legal Proceedings
The Company is involved in litigation relating to claims arising out of its
operations in the normal course of business, including product liability claims.
From time to time the Company has been named as a defendant in lawsuits
involving alleged injury suffered from exposure to ceramic fiber. The Company
believes that it is not presently a party to any litigation the outcome of which
would have a material adverse effect on its financial condition or results of
operations. Pursuant to the Recapitalization Agreement, BPA agreed to indemnify
the Company, subject to certain limitations, against all currently known
lawsuits and certain future lawsuits alleging exposure to ceramic fiber.
Various other legal proceedings and claims have been made against the Company in
the ordinary course of business. While the amounts could be material to the
results of operations in the period recognized, in the opinion of management of
the Company, the ultimate liability, if any, resulting from such matters will
not have a material adverse effect on the Company's financial position.
<PAGE>
NOTE D - LONG TERM DEBT
During the second quarter of 1998, the Company entered into a Consent and Second
Amendment to the Loan and Security Agreement (the "Consent and Amendment").
Under the provisions of the Consent and Amendment:
a) the banks have consented, under certain circumstances, to allow
the Company to prepay, prior to December 31, 1998, up to $10
million of the Senior Notes or the note payable affiliate,
b) the interest rates on the revolving loan and term loan were
revised to range from LIBOR plus 1.00% to LIBOR plus 1.75%, and
c) the Company is permitted to borrow, prior to December 31, 1998, up
to $7 million under the term loan facility.
On August 25, 1998 the Company repurchased $2 million of Senior Notes for a
total of $2,092,500. The excess of the purchase price over book value has been
shown on the accompanying Statement of Income as an extraordinary item net of
applicable income taxes.
NOTE E - COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income". Statement 130 establishes
new rules for the reporting and display of comprehensive income and its
components. The adoption of this Statement had no impact on the Company's net
income or stockholders' deficit. Statement 130 requires the Company's cumulative
translation adjustment, which prior to adoption was reported separately in
stockholders' equity, to be included in other comprehensive income. Prior year
financial statements have been reclassified to conform with the requirements of
Statement 130. During the three months and nine months ended September 30, 1998,
total comprehensive income, which was comprised of net income and foreign
currency translation adjustments, amounted to approximately $968,000 and
$3,805,000, respectively ($1,269,000 and $3,338,000, respectively for 1997).
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward Looking Statements
Statements included in this Management Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this
document that do not relate to present or historical conditions are
"forward looking statements" within the meaning of that term in
Section 27A of the Securities Act of 1933, as amended, and of Section
21F of the Securities Exchange Act of 1934, as amended. Additional
oral or written statements may be made by the Company from time to
time, and such statements may be included in documents filed with the
Securities and Exchange Commission. Such forward looking statements
involve risks and uncertainties which could cause results or outcomes
to differ materially from those expressed in such forward looking
statements. Among the important factors on which such statements are
based are assumptions concerning the continuing strength of the
ceramic fiber market on which the Company is substantially dependent,
changing prices for ceramic fiber products, acceptance of new
products, the status of health and safety issues affecting the
ceramic fiber industry in general and the Company in particular, the
Company's continuing ability to operate under the restrictions
imposed by the substantial indebtedness which it is subject to, the
risks associated with international operations, the impact of
environmental regulations on the Company's operations and property
and related governmental regulations, and the continuing availability
of certain raw materials, including vermiculite which is purchased
from a source in China.
Three Months Ended September 30, 1998 Compared With Three Months
Ended September 30, 1997
Net sales for the third quarter of 1998 increased by $0.3 million or
1.1% from $20.5 million in 1997 to $20.8 million in 1998.
Gross profit remained unchanged at $10.4 million in both 1997 and
1998. Gross profit as a percentage of net sales decreased from 50.8%
in 1997 to 49.9% in 1998. The gross profit decrease was primarily due
to lower selling prices as a result of competition in automotive
products, offset in part by a one time decrease in royalty
liabilities.
Selling, general and administrative expenses increased by $1.0
million, or 19.7% from $5.1 million in 1997 to $6.1 million in 1998,
primarily as a result of recruitment and relocation costs for sales
and marketing personnel, the non-recurring elimination of a $0.3
million liability in 1997 relating to the provision for an airborne
emissions study, increased new product development and testing
expenses, and additional resources on strategic development
initiatives. Selling, general and administrative expenses as a
percentage of net sales increased from 24.9% to 29.4% in 1998.
Operating income decreased by $1.0 million, or 19.8%, from $5.3
million in 1997 to $4.3 million in 1998. Operating income as a
percentage of net sales decreased from 25.9% in 1997 to 20.5% in
1998, as a result of the factors previously indicated.
Interest expense decreased by $0.1 million, or 4.7% from $3.1 million
in 1997 to $3.0 million in 1998 due primarily to the lower level of
long term debt. Interest expense decreased as a percentage of net
sales from 15.2% in 1997 to 14.3% in 1998.
Provision for income taxes decreased by $0.5 million, or 53.3% from
$0.9 million in 1997 to $0.4 million in 1998. The effective income
tax rate decreased from 40.8% in 1997 to 29.6% in 1998, primarily as
a result of recognizing deferred tax benefits resulting from the
Recapitalization which were previously unrecognized.
Extraordinary items net of income taxes were $0.1 million in 1998,
compared to zero in 1997, and related to the excess of purchase price
over book value of $2 million Senior Notes repurchased on August 25,
1998.
Net income decreased by $0.4 million or 28.3% from $1.3 million in
1997 to $0.9 million in 1998, as a result of the factors previously
indicated. Net income as a percentage of net sales decreased from
6.3% in 1997 to 4.5% in 1998.
Nine Months Ended September 30, 1998 Compared With Nine Months
Ended September 30, 1997
Net sales for the first nine months of 1998 decreased by $0.7 million
or 1.1% from $65.2 million in 1997 to $64.5 million in 1998 due to
lower sales in porosity controlled products and some traditional
blanket applications.
Gross profit remained the same in 1997 and 1998 at $32.1 million.
Gross profit as a percentage of net sales increased from 49.2% in
1997 to 49.8% in 1998. The increase was due to fewer outside
purchases and resales of ceramic fiber and a one time decrease in
royalty liabilities, offset in part by the lower sales and by
increased price competition in several markets.
Selling, general and administrative expenses increased by $1.2
million or 7.0% from $16.8 million in 1997 to $18.0 million in 1998,
primarily as a result of recruitment and relocation costs for sales
and marketing personnel, the non-recurring elimination of a $0.3
million liability in 1997 relating to the provision for an airborne
emissions study, increased new product development and testing
expenses and additional resource allocation on strategic development
initiatives. Selling, general and administrative expenses as a
percentage of sales increased from 25.7% in 1997 to 27.8% in 1998.
Operating income decreased by $1.1 million, or 7.4% from $15.3
million in 1997 to $14.2 million in 1998. Operating income as a
percentage of net sales decreased from 23.5% in 1997 to 22.0% in
1998, as a result of the factors previously indicated.
Interest expense decreased by $0.5 million or 4.7% from $9.5 million
in 1997 to $9.0 million in 1998 primarily due to the lower level of
long term debt. Interest expense as a percentage of net sales
decreased from 14.5% in 1997 to 14.0% in 1998.
Provision for income taxes decreased $0.9 million, or 36.5%, from
$2.4 million in 1997 to $1.5 million in 1998. The effective income
tax rate decreased from 37.1% in 1997 to 28.5% in 1998, primarily as
a result of recognizing deferred tax benefits resulting from the
Recapitalization which were previously unrecognized.
Extraordinary items were $0.1 million in 1998, compared to zero in
1997, and related to the excess of purchase price over book value of
$2 million Senior Notes repurchased on August 25, 1998.
Net income increased by $0.3 million, or 8.5% from $3.5 million in
1997 to $3.8 million in 1998, as a result of factors previously
indicated. Net income as a percentage of net sales increased from
5.4% in 1997 to 5.9% in 1998.
Liquidity and Capital Resources
During the nine-month period ended September 30, 1998, the Company's
cash flows from operating activities decreased by $3.5 million or
27.4%, from $12.7 million in 1997 to $9.2 million in 1997. This
decrease was the result of increases in the level of inventories and
reductions in the level of accounts payable, offset in part by higher
net income, depreciation and accrued expenses.
Cash outflows from investing activities decreased $5.2 million or
75.1% from $6.9 million in 1997 to $1.7 million in 1998. This
decrease was due to lower capital spending as a result of the
completion of the expansion project at the New Carlisle, Indiana,
facility.
Cash outflows from financing activities increased by $0.4 million
from $6.7 million in 1997 to $7.1 million in 1998. During 1998 the
Company made voluntary prepayments of principal of $3.0 million on
its Term Loan, repurchased $2 million of Senior Notes and repaid $2.1
million against its $20 million revolving credit facility.
Management believes that cash flows from operations and the available
credit facility will be sufficient to fund operating and capital
expenditure needs for 1998.
During the second quarter of 1998, the company entered into a Consent
and Second Amendment to the Loan and Security Agreement (the "Consent
and Amendment"). Under the provisions of the Consent and Amendment:
a) the banks have consented, under certain circumstances, to allow
the Company to prepay, prior to December 31, 1998, up to $10
million of the Senior Notes or the note payable-affiliate,
b) the interest rates on the revolving loan and term loan were
revised to range from
LIBOR plus 1.00% to LIBOR plus 1.75%, and
c) the company is permitted to borrow, prior to December 31, 1998,
up to $7 million under the term loan facility.
On August 25, 1998 the Company repurchased $2 million of Senior Notes
for a total of $2,092,500. The excess of the purchase price over book
value has been shown on the Statement of Income as an extraordinary
item net of applicable income taxes.
Impact of Year 2000
Some of the Company's older computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs would recognize a date using "00" as the year 1900 rather than the year
2000. This could have caused a system failure or miscalculation resulting in
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
The Company has completed an assessment of its Year 2000 readiness and believes
it has identified all significant areas with potential date-related problems.
The company has determined which of those identified areas are critical to the
normal operation of the business, and has developed a remediation plan for those
critical areas. Of those critical systems, the Company has completed and put
into production corrections or upgrades to all but one identified system as of
September 30, 1998. The completed systems include all line of business software,
support software, networks and plant production control systems, with the
exception of payroll. That final critical system, payroll, is being addressed by
the outsourcing vendor and is on schedule for conversion to a Year 2000
compliant version in the first quarter of 1999. The Company is working with the
payroll vendors to assure that this timetable is met.
In addition to the critical systems identified, there are other systems or
pieces of equipment which assist in the day to day operation of the company, but
are not vital to business operations. An action plan is in place to provide for
the Year 2000 readiness of these other items either through upgrade, repair or
replacement. This is a continuous process which is underway now, and will be
continuing through 1999. Although the Company expects that these other items
will be Year 2000 compliant by late 1999, the Company does not believe these
other items will seriously disrupt the orderly conduct of its business even if
not corrected or replaced within the time frame.
It is the Company's current policy to keep much of its operational software on
maintenance contracts which provide the most current versions of the software as
a part of the contracts. Most vendors have supplied Year 2000 compliant software
as a part of their normal product enhancement and evolution, and these upgrades
have been or are being applied to achieve Year 2000 readiness. The Company
understands from these software vendors that they have performed substantial
product quality assurance testing of their products prior to general release,
contributing to their assurance of their products' Year 2000 readiness. In
addition, the Company, as part of its implementation process, has performed
additional testing and verification prior to production cutover. Although the
software has been tested to the best of the supplier's and the Company's
ability, there is no absolute assurance
that these various software systems are indeed Year 2000 compliant.
The total Year 2000 project cost is estimated at approximately $250,000 which
includes $100,000 for the purchase of new software or equipment that will be
capitalized, and $150,000 that will be expensed as incurred. To date the company
has incurred and expensed approximately $125,000 primarily for the assessment
effort and remediation of the line of business software.
All funds used for Year 2000 remediation have been a part of normal operating
expenses and on-going capital budgeting. The external and extraordinary Year
2000 Information Technology remediation costs are estimated to total less than
5% of the IT budget.
The costs of the project and the completion date of the remaining items are
based on management's best estimates which were derived using numerous
assumptions of future events, including the continued availability of certain
resources and other factors. However there can be no guarantee that these
estimates will be achieved and actual results could differ materially from those
anticipated. Specific factors that might cause material differences include but
are not limited to the availability and cost of personnel trained in this area,
the ability to locate and correct all relevant computer codes and similar
uncertainties.
The Company's review of the status of key supplier's Year 2000 readiness leads
management to expect that there will be no material adverse impact in key
suppliers' ability to provide the Company with the products and services needed
for the orderly conduct of business in the year 2000 and beyond. In addition,
the Company has not been able to identify any probable indirect material adverse
impact on its operations or financial condition likely to result from the
effects of the Year 2000 problems on its vendors, customers, agents, or other
third parties, but the ability to assess such effects is extremely limited and
the failure of third parties to appropriately address Year 2000 problems could
have material adverse effects on the Company.
The only Year 2000 problem that the Company has identified and considers
reasonably likely of occurrence that might materially adversely affect the
Company's results of operations or financial condition would be if the Company's
payroll vendor were unable to deliver a Year 2000 compliant upgrade on the
promised schedule. The vendor has indicated to the Company that they have a Year
2000 compliant version of their software running in production with several
other customers. The Company is working with them and monitoring the project
closely to assure timely completion of the effort. Should the payroll vendor not
be able to deliver a Year 2000 compliant version of their software on their
indicated schedule the Company would be required to calculate its payroll
information on a manual basis, until an alternative payroll service provider can
be identified and qualified.
Effects of New Accounting Pronouncements
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income". Statement 130 establishes
new rules for the reporting and display of comprehensive income and its
components. The adoption of this Statement had no impact
on the Company's net income or stockholders' deficit. Statement 130 requires the
Company's cumulative translation adjustment, which prior to adoption was
reported separately in stockholders' equity, to be included in other
comprehensive income. Prior year financial statements have been reclassified to
conform with the requirements of Statement 130. During the three months and nine
months ended September 30, 1998, total comprehensive income, which was comprised
of net income and foreign currency translation adjustments, amounted to
approximately $968,000 and $3,805,000, respectively ($1,269,000 and $3,338,000,
respectively for 1997).
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
Note D of notes to the condensed consolidated financial
statements included in this report is incorporated herein by
reference.
Item 3. Defaults on Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the period covered
by this report.
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS 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.
UNIFRAX CORPORATION
Date: November 13, 1998 By: /s/ William P. Kelly
----------------- --------------------
William P. Kelly, President and
Chief Executive Officer
Date: November 13, 1998 By: /s/ Mark D. Roos
----------------- --------------------
Mark D. Roos, Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNIFRAX
CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET AS OF
SEPTEMBER 30, 1998, AND THEIR CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE
PERIOD ENDED SEPTEMBER 30, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 781
<SECURITIES> 0
<RECEIVABLES> 13,709
<ALLOWANCES> 1,139
<INVENTORY> 9,773
<CURRENT-ASSETS> 26,406
<PP&E> 72,368
<DEPRECIATION> (36,681)
<TOTAL-ASSETS> 89,154
<CURRENT-LIABILITIES> 12,566
<BONDS> 115,400
<COMMON> 0
0
0
<OTHER-SE> (42,374)
<TOTAL-LIABILITY-AND-EQUITY> 89,154
<SALES> 64,524
<TOTAL-REVENUES> 64,524
<CGS> 32,375
<TOTAL-COSTS> 32,375
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,015
<INCOME-PRETAX> 5,402
<INCOME-TAX> 1,537
<INCOME-CONTINUING> 3,865
<DISCONTINUED> 0
<EXTRAORDINARY> 65
<CHANGES> 0
<NET-INCOME> 3,800
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
