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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 December 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from to
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Commission file number 333-14913-01
ASTOR HOLDINGS II, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 25-176632
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
8521 SIX FORKS ROAD, RALEIGH, NORTH CAROLINA 27615
(Address of principal executive offices) (Zip code)
(919) 846-8011
(Registrant's telephone number, including area code)
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 / / No /X/
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Shares of Common Stock outstanding as of February 11, 1997: 1,000.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ASTOR HOLDINGS II, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
December 31, December 31,
--------------------- ----------------------
1996 1995 1996(1) 1995(2)
--------- -------- --------- ----------
<S> <C> <C> <C> <C>
Sales $58,731 $39,295 $146,558 $93,490
Cost of sales 46,227 31,292 113,963 75,481
--------- -------- --------- ----------
Gross profit before depreciation 12,504 8,003 32,595 18,009
Selling, general and administrative
expenses 6,524 3,788 15,093 8,877
--------- -------- --------- ----------
Operating profit before interest,
depreciation, amortization, taxes and extraordinary
items 5,980 4,215 17,502 9,132
Other income 164 0 164 0
--------- -------- --------- ----------
EBITDA 6,144 4,215 17,666 9,132
Depreciation and amortization 2,219 1,714 5,564 3,957
Interest expense 3,363 1,824 6,639 3,661
Reorganization expense 0 0 0 856
--------- -------- --------- ----------
Income before taxes and extraordinary items 562 677 5,463 658
Provision for income taxes 271 479 81 1,045
--------- -------- --------- ----------
Income (loss) before extraordinary item 291 198 5,382 (387)
Extraordinary item - gain on cancellation of debt 0 0 0 44,933
Extraordinary item - loss on early extinguishment of debt (3,783) 0 (3,783) 0
(net of tax benefit of $1,963) --------- -------- --------- ----------
Net (loss) income $(3,492) $198 $1,599 $44,546
--------- -------- --------- ----------
--------- -------- --------- ----------
</TABLE>
(1) Astor Holdings II, Inc.'s consolidated income for the nine months
period ended December 31, 1996 includes the results of operations of
Adco Technologies Inc. ("ADCO") for the approximately three months
following the ADCO acquisition on October 8, 1996.
(2) Astor Holdings II Inc.'s consolidated income for the nine months
ended December 31, 1995 includes the results of operations of
Associated British Industries Limited ("ABI") for the approximately
six months following the ABI acquisition on June 28,1995.
The accompanying notes are an integral part of these consolidated condensed
financial statements.
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ASTOR HOLDINGS II, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
(Unaudited)
December 31, March 31,
1996 1996
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $6,926 $1,157
Accounts receivable (net of allowance for doubtful
accounts of $1,010 and $726, respectively) 27,574 23,811
Receivable from affiliates 1,102 566
Inventory 30,686 18,586
Prepaid expenses and other current assets 3,776 3,359
----------- -----------
Total current assets 70,064 47,479
Property, plant and equipment:
Land and improvements 8,112 7,442
Buildings and improvements 11,012 7,078
Machinery and equipment 60,874 40,896
----------- -----------
Total cost 79,998 55,416
Less accumulated depreciation (7,702) (4,461)
----------- -----------
Property, plant and equipment, net 72,296 50,955
Investment in affiliate 4,181 4,040
Goodwill 61,328 29,940
Other intangible assets 10,676 6,572
Deferred tax asset 2,206 3,920
----------- -----------
Total assets $220,751 $142,906
----------- -----------
----------- -----------
Liabilities and Shareholder's Equity
Current liabilities:
Accounts payable $15,939 $16,271
Accrued interest payable 2,387 816
Accrued expenses 15,221 5,770
Current portion of long-term debt 359 4,747
----------- -----------
Total current liabilities 33,906 27,604
Long-term debt 134,205 66,070
Subordinated note due to affiliate 6,398 5,436
Deferred income taxes 5,185 4,782
Other long-term liabilities 3,398 2,657
Shareholder's equity:
Common stock:
Par value $.01 per share, authorized 10,000 shares,
issued and outstanding 1,000 shares 0 0
Additional paid-in capital 36,671 36,671
Retained earnings - net of transfer of $23,864
accumulated deficit as a result of the March 31,
1996 quasi-reorganization 1,599 0
Foreign currency translation adjustment (611) (314)
----------- -----------
Total shareholder's equity 37,659 36,357
----------- -----------
Total liabilities and shareholder's equity $220,751 $142,906
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
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ASTOR HOLDINGS II, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended December 31,
1996 1995
------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $1,599 $44,546
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,564 3,957
Income from debt cancellation 0 (44,933)
Loss from early extinguishment of debt 5,746 0
Equity in income of affiliate (433) (65)
Dividends received from affiliate 107 102
Changes in operating assets and liabilities
(net of businesses acquired on October 8, 1996 and
June 28, 1995)
Cash escrow 0 102
Accounts receivable 4,317 (80)
Receivable from affiliates (214) (39)
Inventory (4,675) (1,337)
Prepaid and other current assets (284) 166
Deposits 0 51
Accounts payable (3,654) (695)
Accrued reorganization costs 0 (466)
Deferred taxes - net (2,354) 128
Accrued interest payable 1,571 178
Accrued expenses 6,084 4,630
Other long-term liabilities (237) 382
------------- ---------------
Net cash provided by operating activities 13,137 6,757
INVESTING ACTIVITIES:
Additions to property, plant and equipment (3,375) (2,591)
Acquisitions of businesses (55,329) (60,831)
Restricted cash 0 175
------------- ---------------
Net cash used in investing activities (58,704) (63,247)
Financing Activities:
Capital lease payments (112) (18)
Proceeds from long-term debt 129,450 67,787
Payment of debt issuance costs (9,677) (6,801)
Payment of long-term debt (68,008) (6,013)
Issuance of stock, net of fees 0 30,377
Payment of PCDR inventory financing 0 (3,600)
Payment of debtor in possession financing 0 (3,500)
Payment of bridge loan payable 0 (5,000)
Payment of pre-petition liabilities 0 (8,827)
Decrease in due to affiliate 0 (6,230)
------------- ---------------
Net cash provided by financing activities 51,653 58,175
Effect of exchange rate changes on cash (317) (349)
Net increase in cash and cash equivalents 5,769 1,336
Cash and cash equivalents at beginning of period 1,157 719
------------- ---------------
Cash and cash equivalents at end of period $6,926 $2,055
------------- ---------------
------------- ---------------
Non-cash investing and financing activities:
Asset acquired by incurring notes payable $0 $5,946
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
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ASTOR HOLDINGS II, INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements of Astor Holdings II, Inc.
(together with its subsidiaries, "Astor Holdings II" or the "Company") are
unaudited and have been prepared in accordance with generally accepted
accounting principles for interim financial information and with Article 10
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
audited financial statements. The unaudited financial statements should be
read in conjunction with the audited financial statements and footnotes for
the year ended March 31, 1996. In the opinion of management, all adjustments
and normal recurring accruals considered necessary for a fair presentation of
the results for the interim period have been included. The interim results
reflected in the accompanying unaudited financial statements are not
necessarily indicative of expected results for the full year.
EBITDA represents earnings before interest expense, income tax expense,
depreciation and amortization expense, extraordinary items and non-recurring
items. Information concerning EBITDA is included as it is used by certain
investors as a measure of a company's ability to service its debt. EBITDA
should not be used as an alternative to, or be construed as more meaningful
than, operating income or cash flows or as an indicator of the operating
performance or liquidity of Astor Holdings II.
NOTE 2 - INVENTORY
December 31, 1996 March 31, 1996
Inventory consists of the following:
(In thousands)
Raw materials 12,701 7,428
Work-in-progress 5,568 4,762
Finished goods 13,288 6,767
Allowance for inventory obsolescence (871) (371)
------ ------
30,686 18,586
------ ------
NOTE 3 - INCOME TAXES
Income tax expenses recorded for the quarters ended December 31, 1996
and December 31, 1995 are greater than those computed by applying the U.S.
federal income tax rate to income before taxes and extraordinary items
primarily due to the non-deductibility of the goodwill amortization. Income
tax expense recorded for the nine month period ended December 31, 1996 is
less than the amount computed by applying the U.S. federal income tax rate to
income before taxes and extraordinary items primarily due to the elimination
of a valuation allowance related to the Company's deferred tax assets in the
quarter ended September 30, 1996. Income tax expense recorded for the nine
month period ended December 31, 1995 is greater than the amount computed by
applying the U.S. federal income tax rate to income before taxes and
extraordinary
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items as a result of taxes being provided on the income of a subsidiary of
the Company which was not part of the consolidated federal tax return for
most of this period.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
As is prevalent in the refining industry, Astor Holdings II's operating
subsidiary, Astor Corporation, is addressing environmental issues, including
issues related to the remediation of contaminated soils and ground water.
Quaker State Corporation ("QSC") is responsible for the vast majority of the
costs associated with issues relating to the Company's refineries. Astor
Corporation's potential liability is limited to sharing fifty percent of the
first $5,500,000 of non-ground water remediation with QSC. Astor Corporation
will pay for its share of the above costs by issuing subordinated 9% notes
payable to QSC, which will be due December 31, 2008. As of September 30,
1996, Astor Corporation has issued environmental notes to Quaker State in the
amount of $160,079 for shared costs. The future cost to Astor Corporation for
non-ground water remediation, if any, is not known at this time.
Astor Corporation also has environmental issues related to contamination
at its Titusville, Pennsylvania blending facility. Under the terms of the
L1,450,988 of 8% subordinated debt issued to ABI's former shareholders by
Astor Holdings II's parent corporation, Astor Holdings, Inc. (the "Parent"),
the Parent is entitled to set-off costs in excess of $350,000 relating to
this site against the principal and interest otherwise payable, so long as
the Parent notifies the shareholders by June 28, 1999 of the existence of a
condition that could give rise to a set-off claim. Astor Holdings II
believes it has provided for probable losses with respect to these and other
environmental issues and does not anticipate a material impact on future
operating results.
NOTE 5 - SUMMARY FINANCIAL INFORMATION
The following represents summarized financial information of Astor
Holdings II and its wholly-owned subsidiary Astor Corporation for the nine
months ended December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
Astor
Holdings II, Astor
Inc. Corporation Eliminations Consolidated
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Current assets $ 9,474 $ 71,127 $(10,537) $ 70,064
Non current assets 33,216 148,473 (31,002) 150,687
----------- ----------- ------------ ------------
Total assets $42,690 $219,600 $(41,539) $220,751
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Current liabilities $ (62) $ 44,259 $(10,291) $ 33,906
Non current liabilities 6,398 140,996 1,792 149,186
Preferred stock of
subsidiary -- 1,745 (1,745) --
Stockholder's equity 36,354 32,600 (31,295) 37,659
----------- ----------- ------------ ------------
Total liabilities and
stockholder's equity $42,690 $219,600 $(41,539) $220,751
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Sales $ -- $146,558 $ -- $146,558
Operating income (4) 12,106 -- 12,102
Net income $ (4) $ 1,603 $ -- $ 1,599
</TABLE>
NOTE 6 - SUBSEQUENT EVENT
On January 21, 1997 Astor Corporation commenced an offer to exchange up
to $110 million of its 10 1/2% Series B Senior Subordinated Notes due 2006
for a like amount of its privately-placed 10 1/2% Senior Subordinated Notes
due 2006 issued on October 8, 1996. This offer is being made upon the terms
and subject to the conditions contained in a Registration Statement on Form
S-4 filed with the Securities and Exchange Commission and declared effective
on January 21, 1997.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 1996 WITH THE THREE MONTHS
ENDED DECEMBER 31, 1995
SALES. Sales of Astor Holdings II, Inc. (together with its
subsidiaries, "Astor" or the "Company") increased by $19.4 million, or
49%,from $39.3 million for the three months ended December 31, 1995 to $58.7
million for the three months ended December 31, 1996. Of this sales
increase, $11.3 million is attributable to the acquisition on October 8, 1996
of Adco Technologies Inc. ("ADCO"), a Michigan based manufacturer and
marketer of specialty adhesives and sealants. Excluding the impact of ADCO,
sales increased $8.1 million, or 21%, as a result of: (i) higher wax volume
sales due to the capacity improvements achieved from the capital spending
program completed in January 1996; (ii) higher specialty wax prices realized
throughout the industry in the U.S. pushed by oil price increases; (iii) a
more focused marketing effort provided by the addition of Associated British
Industries Limited's ("ABI") sales force following Astor's acquisition of ABI
on June 28, 1995; and (iv) a product mix shift to higher priced products.
ADCO's sales of adhesives and sealants were up 7% in the three months ended
December 31, 1996 compared to the same period in the previous year.
GROSS PROFIT. Gross profit increased by $4.5 million, or 56%, from $8.0
million for the three months ended December 31, 1995 to $12.5 million for the
three months ended December 31, 1996 with $2.8 million of the increase
attributable to ADCO subsequent to its date of acquisition. Gross profit as
a percentage of sales increased from 20.4% for the three months ended
December 31, 1995 to 21.3% for the three months ended December 31, 1996
primarily as a result of the ADCO acquisition. Excluding the impact of the
ADCO acquisition, gross profit as a percentage of sales improved from 20.4%
for the three months ended December 31, 1995 to 20.5% for the three months
ended December 31, 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $2.7 million, or 72%, from $3.8 million
for the three months ended December 31, 1995 to $6.5 million for the three
months ended December 31, 1996. Selling, general and administrative expenses
as a percentage of sales increased from 9.6% to 11.1%. Approximately $1.3
million of the increase is related to the ADCO acquisition. The remaining
increase was primarily associated with the expansion of the Company's
business and higher sales.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased by $0.5 million, or 29%, from $1.7 million for the three months
ended December 31, 1995 to $2.2 million for the three months ended December
31, 1996 primarily due to the ADCO acquisition.
INTEREST EXPENSE, NET. Interest expense, net, increased by $1.6
million, or 84%, from $1.8 million for the three months ended December 31,
1995 to $3.4 million for the three months ended December 31, 1996. During
the three months ended December 31, 1996 the Company had average debt
outstanding of
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$140.0 million with the average interest rate during this period equal to
9.6%. This increase in interest expense, net, was primarily due to the
increased debt incurred in connection with the ADCO acquisition.
NET INCOME BEFORE EXTRAORDINARY ITEM. As a result of the factors
discussed above, net income before extraordinary item increased by $0.1
million from $0.2 million for the three months ended December 31, 1995 to
$0.3 million for the three months ended December 31, 1996.
EXTRAORDINARY ITEM. The $3.8 million extraordinary loss on early
extinguishment of debt in the three months ended December 31, 1996 related to
the write-off of deferred financing costs as a result of the early repayment
of the Union Bank of Switzerland ("UBS") Credit Facility.
COMPARISON OF THE NINE MONTHS ENDED DECEMBER 31, 1996 WITH THE NINE MONTHS
ENDED DECEMBER 31, 1995
SALES. Sales of Astor increased by $53.1 million, or 57%, from $93.5
million for the nine months ended December 31, 1995 to $146.6 million for the
nine months ended December 31, 1996. Of this sales increase, $27.1 million,
or 51%, is related to the ABI acquisition on June 28, 1995, and $11.3
million, or 21%, is attributable to the ADCO acquisition on October 8, 1996.
The remaining increase of $14.7 million, or 28%, is due to increased sales in
the base business primarily as a result of: (i) higher wax volume sales due
to the capacity improvements achieved from the capital spending program
completed in January 1996; (ii) higher specialty wax prices realized
throughout the industry in the U.S. pushed by oil price increases; (iii) a
more focused marketing effort provided by the addition of ABI's sales force;
and (iv) a product mix shift to higher priced products.
GROSS PROFIT. Gross profit increased by $14.6 million, or 81%, from
$18.0 million for the nine months ended December 31, 1995 to $32.6 million
for the nine months ended December 31, 1996. Approximately $8.0 million of
the increase in gross profit is attributable to the ABI acquisition, and $2.8
million is attributable to ADCO subsequent to its date of acquisition. Gross
profit as a percentage of sales increased from 19.3% for the nine months
ended December 31, 1995 to 22.2% for the nine months ended December 31, 1996
as a result of the acquisitions and improved margins in Astor's specialty wax
business. Excluding the effect of the acquisitions, gross profit as a
percentage of sales improved from 13.8% for the nine months ended December
31, 1995 to 15.8% for the nine months ended December 31, 1996, principally as
a result of the factors discussed above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $6.2 million, or 70%, from $8.9 million
for the nine months ended December 31, 1995 to $15.1 million for the nine
months ended December 31, 1996. Selling, general and administrative expenses
as a percentage of sales increased from 9.5% to 10.3%. The increase was
primarily associated with the expansion of the business as a result of the
acquisitions of ABI and ADCO. The $6.2 million increase is comprised of (i)
$4.4 million of additional selling and administrative costs associated with
the acquired ABI and ADCO businesses; (ii) $0.3 million as a result of higher
sales volumes in the base Astor business; and (iii) $1.5 million associated
with planned staff increases to support the new larger company and Astor's
growth strategy.
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DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased by $1.6 million, or 41%, from $4.0 million for the nine months
ended December 31, 1995 to $5.6 million for the nine months ended December
31, 1996, primarily due to the acquisitions of ABI and ADCO.
INTEREST EXPENSE, NET. Interest expense, net, increased by $2.9
million, or 81%, from $3.7 million for the nine months ended December 31,
1995 to $6.6 million for the nine months ended December 31, 1996. During
this period the Company had average debt outstanding of $96.7 million with
the average interest rate during this period equal to 9.2%. This increase in
interest expense, net, was primarily due to the increased debt incurred in
connection with the acquisitions of ABI and ADCO.
REORGANIZATION EXPENSE. The $0.9 million of reorganization expense for
the nine months ended December 31, 1995 was attributable to professional fees
associated with the emergence of Petrowax PA Inc. (Astor Corporation's
predecessor) from bankruptcy. No costs related to such reorganization
occurred in the 1996 period or are expected in the future.
NET INCOME BEFORE EXTRAORDINARY ITEMS. As a result of the factors
discussed above, the acquisitions of ABI and ADCO and improved performance of
Astor's business, net income before extraordinary items for the nine months
ended December 31, 1996 was $5.4 million while the nine month period ended
December 31, 1995 showed a $0.4 million net loss before extraordinary items.
EXTRAORDINARY ITEMS. The $3.8 million extraordinary loss on early
extinguishment of debt in the nine months ended December 31, 1996 related to
the write-off of deferred financing costs as a result of the early repayment
of the UBS Credit Facility. An extraordinary item resulting from the gain on
cancellation of debt of $44.9 million was recorded in fiscal year 1996
reflecting the discharge of pre-bankruptcy petition indebtedness of Petrowax
PA Inc., Astor Corporation's predecessor.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the nine months ended
December 31, 1996 was $13.1 million compared to $6.8 million for the nine
months ended December 31, 1995. The $13.1 million of net cash provided in
the nine months ended December 31, 1996 was primarily due to cash flow from
operating profits of $12.6 million and a $0.5 million source of cash from
working capital, resulting from an increase in accrued expenses and a
decrease in accounts receivable, which offset increased inventories and
decreased accounts payable. The $6.8 million source of cash provided for the
nine months ended December 31, 1995 was primarily due to $3.7 million of cash
flow from operating profits and a $3.1 million source of cash from working
capital, resulting from an increase in accrued expenses, which offset
increased inventories and decreased accounts payable.
Cash used in investing activities for the nine months ended December 31,
1996 and 1995 was $58.7 million and $63.2 million, respectively. Cash used
in investing activities for the nine months ended December 31, 1996 included
the ADCO acquisition cost of $55.3 million (net of cash acquired) and capital
expenditures of $3.4 million. Cash used for the nine months ended December
31, 1995 included the ABI acquisition costs of $60.8 million and capital
expenditures
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of $2.6 million. Astor expects to fund future capital expenditures primarily
from cash generated from operating activities.
Cash provided by financing activities for the nine months ended December
31, 1996 was $51.7 million due to (i) proceeds from the long-term debt
issuance of $119.8 million, net of fees, and (ii) the repayment of the $68.0
million of outstanding indebtedness under the UBS Credit Facility. Cash
provided by financing activities of $58.2 million for the nine months ended
December 31, 1995 was due to (i) proceeds from the long-term debt issuance of
$61.0 million, net of fees, (ii) $30.4 million from the issuance of stock and
warrants, net of fees, and (iii) the repayment of $33.2 million of existing
debt and settlement of bankruptcy claims.
On October 8, 1996 the Company completed the ACDO acquisition. This
acquisition was financed through the private placement of $110.0 million of
101/2% Senior Subordinated Notes maturing October 15, 2006 (the "Notes").
The remaining net proceeds from the Notes were used to repay outstanding
indebtedness under the UBS Credit Facility and expenses. The Company also
entered into a senior credit agreement (the "Senior Bank Facility") with The
Chase Manhattan Bank (the "Bank") providing for a six year term loan,
denominated in pounds sterling, in an amount equivalent to $20.0 million (the
"Bank Term Loan") and a six year revolving credit facility in an amount
equivalent to $30.0 million (the "Revolving Credit Facility").
The Company's primary capital requirements consist of debt service and
capital expenditures. The required debt amortization payment under the
Senior Bank Facility for the next five fiscal years are: (i) no amortization
payments in fiscal year 1997, (ii) $1.4 million in fiscal year 1998, (iii)
$1.8 million in fiscal year 1999, (iv) $3.0 million for fiscal year 2000 and
(v) $4.5 million in fiscal year 2001. The Bank Term Loan and Revolving
Credit Facility borrowings under the Senior Bank Facility bear interest, at
the election of the Company, at an interest rate determined either by the
Bank's prime lending rate plus an initial margin of 1.25% or the eurodollar
rate specified in the Senior Bank Facility plus an initial margin of 2.5%.
The Senior Bank Facility and the Notes impose various restrictions and
covenants on the Company, including, among other things, financial covenants
relating to the maintenance of minimum fixed charge coverage ratios and
interest coverage ratios as well as restrictions on indebtedness, guarantees,
acquisitions, capital expenditures, investments, loans, liens and other
restricted payments, and asset sales. In addition, the Senior Bank Facility
and the Notes limit Astor Corporation, its subsidiaries and Astor Holdings
II's ability to declare or pay any dividend on, or make any payment on
account of, or set apart assets for a sinking or other analogous fund for,
the purchase, redemption, defeasance, retirement or other acquisition of, any
shares of any class of capital stock of Astor Corporation, any of its
subsidiaries or Astor Holdings II or any warrants or options to purchase any
such capital stock, whether now or hereafter outstanding. The Company
estimates that approximately $3.5 million is required annually for
maintenance and improvements of its facilities. The Company's principal
source of cash to fund these capital requirements is net cash provided by
operating activities. As of December 31, 1996, the Company had available
$26.0 million under its existing borrowing facilities, subject to certain
borrowing base limitations.
SEASONALITY. Revenues and earnings of the Company's two business
segments, specialty waxes and adhesives and sealants, tend to the seasonal
due to the decline in candle wax sales in December resulting from customer
purchase patterns and the decline of roofing and building construction
projects in the winter months. Both segments are also impacted by fewer work
and shipping days because of scheduled plant shutdowns during the winter
holidays. These factors have historically resulted in seasonal fluctuations
in the performance of Astor and ADCO, with the summer quarters being the
stronger and the winter quarters being the weaker.
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FOREIGN EXCHANGE EXPOSURE. The functional currency for the majority of
Astor's foreign operations is the applicable local currency. The bulk of
Astor's foreign sales, raw materials, expenses, assets, and liabilities
(including bank debt) are denominated in the local currency, providing for a
natural hedge for currency exposure. For a small portion of foreign sales
transactions, Astor uses forward foreign exchange contracts to mitigate
exposure. There were no significant contracts outstanding at December 31,
1996. The translation from the applicable foreign currency to U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect
at the balance sheet date and for revenue and expense accounts using a
weighted average exchange rate during the period. Adjustments resulting from
such translation were $0.3 million for the fiscal year ended March 31, 1996.
RECENT DEVELOPMENTS
MANAGEMENT. On February 1, 1997, Kurt B. Larsen resigned as a director
of Astor Holdings, Inc., Astor Holdings II, Inc. and Astor Corporation. Mr.
Larsen had been a director of all three companies since June 1995.
On February 4, 1997, Kevin A. Quinn was elected Vice President, General
Counsel and Secretary of Astor Holdings, Inc., Astor Holdings II, Inc. and
Astor Corporation. From 1993 to 1996 Mr. Quinn served with Schering-Plough
Corporation, a pharmaceutical company, in several senior legal positions,
including Associate General Counsel and Secretary from 1994 to 1996. Prior
to joining Schering-Plough Corporation, Mr. Quinn was Vice President,
Associate General Counsel and Secretary of The Pittston Company, a
diversified mining, air freight, and security services firm. Mr. Quinn is 55
years of age.
ENVIRONMENTAL DISCLOSURE. As disclosed in previous filings by the
Company with the Securities and Exchange Commission, the Company's Titusville
facility is located near the Cyclops Site, which has evidence of soil and
groundwater contamination and has been the subject of an Expanded Site
Inspection by an EPA contractor. Costs of remediation of the Cyclops Site
have been estimated to range between $4 million and $15 million in 1995
dollars for soil remediation. No cost estimate is available for the
remediation, if any, of groundwater at this site. Based upon investigations
conducted to date, the Company believes that other parties are likely
responsible for the contamination at the Cyclops Site. Under certain
Environmental Laws, remediation costs for this site would be borne by parties
who have owned or operated the site or are responsible for its contamination.
An EPA investigation, the conclusions of which management believes to be
inaccurate, indicated that a former subsidiary of ABI (which has since been
merged into the Company) formerly owned the Cyclops Site and disposed of
wastes there. Recently, the Company received a request from the current owner
of the Cyclops Site to share the cost of a voluntary investigation and
cleanup of the Cyclops Site under the Pennsylvania Land Recycling and
Environmental Remediation Standards Act. The voluntary investigation and
cleanup of this site may accelerate the incurrence of remediation costs by
responsible parties. Based on the Company's investigations to date, however,
the Company believes that ABI's former subsidiary never owned or operated the
Cyclops Site, or arranged for the disposal of or transported hazardous waste
there and that a different company with some common ownership and a similar
name was the prior owner. Because of the proximity of the Company's property
to the Cyclops Site and other unknown factors, there can be no assurance that
the Company will not incur some liability relating to the Cyclops Site. Under
the terms of the ABI acquisition agreement between the Parent and ABI, the
Parent is entitled to set-off, against the principal and interest otherwise
payable on L1,450,988 of subordinated debt issued to ABI's former
stockholders, any costs relating to the Cyclops Site, so long as the Parent
notifies the stockholders by June 28, 1999 of the existence of the condition
giving rise to the set-off claim. After October 1, 1996, any such set-off by
the Parent will result in corresponding reductions in the mirror intercompany
notes to Astor Holdings II from its subsidiaries and from Astor Holdings II
to the Parent.
FORWARD LOOKING STATEMENTS
The foregoing "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains "forward looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended, which
represent the Company's expectations or beliefs concerning future events,
including, but not limited to, the following: statements regarding future
capital expenditures and the source of funding for future capital
expenditures; statements regarding the Company's primary capital
requirements; statements regarding the Company's required debt amortization
payments under the Senior Bank Facility; statements regarding the amounts
required annually for maintenance and improvements of the Company's
facilities and the source of cash to fund such capital requirements; and
statements regarding seasonal fluctuations in the Company's future
performance. The Company cautions that these statements are further
qualified by important factors that could cause actual results to differ
materially from those in the forward looking statements, including without
limitation, the following: growth in the business, as a result of
acquisitions or internal growth, affecting future capital expenditures;
technological change in equipment used in developing and manufacturing the
Company's products; damage, destruction or other casualty loss with respect
to the Company's fixed plant or equipment; insufficient cash flow from
operations to fund anticipated capital expenditures and scheduled debt
payments; changes in
11
<PAGE>
the Company's debt and capital structure, including amendments to the Senior
Bank Facility; and shifts in product mix changing the effect of seasonality
on the Company's future performance. Results actually achieved thus may
differ materially from expected results included in these and other forward
looking statements.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON 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
10. Second Amendment to Agreement, dated as of December 1, 1996, by
and between Lube & Wax Ventures L.L.C. and Astor Corporation.
27. Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the three months
ended December 31, 1996.
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated: February 11, 1997
ASTOR HOLDINGS II, INC.
By: /s/ Boyd D. Wainscott
---------------------------------
Boyd D. Wainscott
Chief Executive Officer
Dated: February 11, 1997
By: /s/ John F. Gottshall
---------------------------------
John F. Gottshall
Chief Financial Officer
II-2
<PAGE>
EXHIBIT 10
SECOND AMENDMENT TO AGREEMENT
THIS SECOND AMENDMENT TO AGREEMENT (the "Second Amendment") is made
effective as of December 1, 1996, by and between Lube & Wax Ventures, L.L.C.
("L&W"), a Delaware limited liability company and Astor Corporation
("Astor"), a Delaware corporation.
WHEREAS, L&W and Astor are parties to that certain Agreement (the
"Agreement"), dated as of October 1, 1996, as amended by the First Amendment
to Agreement dated October 24, 1996; and
WHEREAS, L&W and Astor desire to amend the Agreement as set forth herein.
NOW, THEREFORE, for and in consideration of the mutual covenants and
promises contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to
legally bind themselves and their respective successors and permitted
assigns, L&W and Astor do hereby amend the Agreement as follows:
1. Sections 4.1(d) and 4.1(e) of the Agreement shall be amended to change
the Daily Average Volume Per Month for these two subsections from two
separate amounts of 200 barrels for VTB delivered East of the Mississippi
River and 400 barrels for VTB delivered West of the Mississippi River to a
combined total of 600 barrels of VTB regardless of delivery location.
2. The establishment of negotiated prices for Product lifted pursuant to
the last sentence of Section 4.1(c) for the Products specifically described
herein for the period from December 1, 1996 through September 31, 1997 shall
be as follows:
(a) For each month in which Astor lifts an average daily volume in
excess of 660 barrels of VTB, VTB delivered to Astor's customers West
of the Mississippi River in excess of 440 barrels per day shall be
priced at Base Koch plus $7.00 per barrel; minus, if Base Koch is in
excess of Koch for the month of delivery, 50% of the amount of such
excess; or, if Koch for the month of delivery is in excess of Base
Koch, plus 50% of the amount of such excess.
(b) For each month in which Astor lifts an average daily volume in
excess of 660 barrels of VTB, VTB delivered to Astor's plant and
customers at Conros, Alabama and Canada shall be priced at Base Koch
plus $6.00 per barrel; minus, if Base Koch is in excess of Koch for
the month of delivery, 50% of the amount of such excess; or, if Koch
for the month of delivery is in excess of Base Koch, plus 50% of the
amount of such excess.
(c) Base Koch shall equal $23.3470 per barrel.
3. Capitalized terms not otherwise defined herein shall have the meanings
given them in the Agreement.
<PAGE>
4. Except as modified herein, all terms, conditions and covenants of the
Agreement shall remain in full force and effect. L&W remains under no
obligation to sell to Astor any more than the minimum Daily Average Volume
Per Month. This Second Amendment may be executed in multiple counterparts,
all of which when taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment
as of the date first above written.
LUBE & WAX VENTURES, L.L.C. ASTOR CORPORATION
By: /s/ R.E. Gemmer By: /s/ Joseph L. Sauve
--------------------------- ---------------------------
Name: R.E. Gemmer Name: Joseph L. Sauve
------------------------- -------------------------
Title: Title: Vice President
------------------------ ------------------------
By: /s/ K.O. Johnson
---------------------------
Name: K.O. Johnson
-------------------------
Title:
-------------------------
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 6,926
<SECURITIES> 0
<RECEIVABLES> 28,584
<ALLOWANCES> 1,010
<INVENTORY> 30,686
<CURRENT-ASSETS> 70,064
<PP&E> 79,998
<DEPRECIATION> (7,702)
<TOTAL-ASSETS> 220,751
<CURRENT-LIABILITIES> 33,906
<BONDS> 134,205
0
0
<COMMON> 0
<OTHER-SE> 37,659
<TOTAL-LIABILITY-AND-EQUITY> 220,751
<SALES> 146,558
<TOTAL-REVENUES> 146,558
<CGS> 113,963
<TOTAL-COSTS> 132,919
<OTHER-EXPENSES> 1,537
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,639
<INCOME-PRETAX> 5,463
<INCOME-TAX> 81
<INCOME-CONTINUING> 5,382
<DISCONTINUED> 0
<EXTRAORDINARY> (3,783)
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