<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the fiscal year ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
GLASSTECH, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 33-32185-01 13-3440225
- -------- ----------- ----------
(State or other jurisdiction of (Commission (IRS Employer
incorporation or organization) file number) Identification No.)
Ampoint Industrial Park, 995 Fourth Street, Perrysburg, Ohio 43551
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (419) 661-9500
Securities registered pursuant to Section 12(d) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[X]
The aggregate market value of the common stock of Glasstech, Inc. held by
non-affiliates of Glasstech, Inc. is not applicable as the common stock of
Glasstech, Inc. is privately held.
The number of shares of common stock, $.01 par value, outstanding as of
September 15, 1998 was 1,000.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
<PAGE> 2
FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K (this "Form
10-K") including those contained in the Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A") section and the attached
financial statements, in the Company's press releases and in oral statements
made by or with the approval of an authorized executive officer of the Company
constitute "forward-looking statements" as that term is defined under the
Private Securities Litigation Reform Act of 1995. These may include statements
projecting, forecasting or estimating Company performance and industry trends.
The achievement of the projections, forecasts or estimates is subject to certain
risks and uncertainties. Actual results and events may differ materially from
those projected, forecasted or estimated. The applicable risks and uncertainties
include general economic and industry conditions that affect all international
businesses, as well as matters that are specific to the Company and the markets
it serves.
General risks that may impact the achievement of such forecasts include
compliance with new laws and regulations; significant raw material price
fluctuations; currency exchange rate fluctuations; business cycles; and
political uncertainties. Specific risks to the Company include risk of recession
in the international markets and industries in which its products are sold; the
concentration of a significant portion of the Company's revenues from
customers whose equipment needs are located in the Asia-Pacific region; the
concentration of a substantial percentage of the Company's sales with a few
major customers, several of whom have significant manufacturing presence in the
Asia-Pacific region; timing of new system orders and the timing of payments due
on such orders; changes in installation schedules, which could lead to deferral
of progress payments or unanticipated production costs; new or emerging
technologies from current competitors, customers' in-house engineering
departments and others; competition from current competitors, customers'
in-house engineering departments and others; and the emergence of a substitute
for glass. In light of these and other uncertainties, the inclusion of a
forward-looking statement herein should not be regarded as a representation by
the Company that the Company's plans and objectives will be achieved.
PART I.
ITEM 1. BUSINESS.
OVERVIEW
The Company designs and assembles glass bending and tempering (i.e.,
strengthening) systems used by glass manufacturers and processors in the
conversion of flat glass into safety glass. The Company sells its systems
worldwide, primarily to automotive glass manufacturers and processors (the
"Automotive Market") and also to architectural glass manufactures and processors
(the "Architectural Market"). The Company's systems are designed to meet
customers' safety glass production requirements for complexity, accuracy and
optical quality while simultaneously enhancing system productivity, flexibility
and cost efficiency. For the Automotive Market, the Company has developed
bending and tempering systems that meet automobile manufacturers' safety glass
specifications for current and future production models. For the Architectural
Market, the Company's energy-efficient processing systems are capable of
producing high-quality bent or flat glass at output rates tailored to meet
customer-specific production requirements. As a result of the long useful life
and growing worldwide installed base of its systems, the Company is able to
complement its sale of complete systems ("Original Equipment") with the sale of
aftermarket products and services consisting of retrofits, tooling (i.e., molds
used to shape automotive glass) and replacement parts (the "Aftermarket"). The
Company's products feature proprietary technologies that have been developed
over the last 25 years and are protected by more than 700 patents and patent
application filings worldwide.
For fiscal year ended June 30, 1998, the Company generated net revenue
and EBITDA (as defined in Footnote (d) under the heading "Selected Financial
Data") of $69.6 million and $18.0 million, respectively. Original Equipment
revenue totaled $48.9 million, or 70.2%, of the Company's total revenue for the
same period. The balance of the Company's revenue was generated through
Aftermarket sales including retrofits, tooling and replacement part sales
intended to maintain or enhance the Company's installed base of systems.
2
<PAGE> 3
A Glasstech system performs a series of processes that bend and
strengthen flat glass in the production of safety glass products such as car
windows. In each system, flat glass supplied by glass manufacturers is conveyed
horizontally on ceramic rollers through a high temperature furnace, a bending
module and a quench module (which completes the tempering process by rapidly
cooling the heated glass). Microprocessor-based controls regulate temperature,
speed and glass location throughout the entire process. In addition, the Company
develops its own proprietary software to control the integrated system. The
modular design of a Glasstech system readily enables the Company to offer
customized systems that meet specific technical requirements of its customers.
Such a design also creates equipment retrofit and upgrade opportunities for the
Company. The Company works closely with its customers as they identify capacity
and functionality requirements for a new system and then throughout the usual 10
to 12 month order, installation and acceptance cycle to ensure satisfaction with
their completed system. Systems designed for the Automotive Market are used to
form and temper glass for automotive back, side and roof windows, as well as to
form and anneal glass used for windshields. Systems designed for the
Architectural Market process curved and flat tempered glass which are used for
skylights, insulating glass, patio doors, furniture and appliances. The Company
has an installed base of more than 390 systems located in over 45 countries on
six continents.
BACKGROUND
The Company was founded in 1971 to manufacture flat glass tempering
systems for the Architectural Market. Building on its success in that market, in
1977 the Company delivered its first bending and tempering system used to
produce simple glass shapes for the Automotive Market. Through continued product
development programs and technological enhancements, the Company manufactured
its first bending and tempering system for complex glass shapes for the
Automotive Market in 1985. This system enables the Company's customers to bend
and form glass while it is still inside the furnace, which results in enhanced
quality, higher yields (i.e., reduced breakage and fewer defects) and more
precision in the final shape of the safety glass product.
In 1988, and again in 1989, the Company was purchased in separate
leveraged buyout transactions. In December 1992, the Company reorganized its
senior management. In May 1993, the Company filed for protection under Chapter
11 of the Federal Bankruptcy Code due to an inability to service indebtedness
incurred in the 1989 leveraged buyout transaction. While under the protection of
Chapter 11, the new management team refocused its business strategy by, among
other things, focusing on the sale of a more profitable product mix and on the
containment of costs. As a result of these efforts, a reorganization of its
senior management and a reorganization of the Company's debt under a bankruptcy
plan of reorganization, the Company emerged from Chapter 11 in January 1995.
Upon consummation of the Reorganization, the Company's debt holders converted
their debt obligations into 100% of the Company's equity, $42.0 million of 10%
Senior Notes and the right to receive certain cash payments.
In 1997, Glasstech Holding Co ("Holding") and Glasstech Sub Co. ("Sub
Co.") were formed to effect the acquisition of the Company by Key Equity Capital
Corporation ("KECC"), certain of KECC's affiliates and certain members of
management of the Company (collectively, the "Key Equity Group"). The
acquisition was consummated on July 2, 1997 pursuant to an Agreement and Plan of
Merger, dated as of June 5, 1997, among Holding, Sub Co. and the Company, as
amended (the "Merger Agreement"). Under the terms of the Merger Agreement, Sub
Co. was merged into the Company, and the Company continued as the surviving
corporation (the "Merger"). The aggregate consideration for the Merger was $77.9
million (the "Purchase Price"). To finance and complete the Merger (including
the payment of related fees and expenses): (i) the Key Equity Group purchased,
for $15.0 million, all of the outstanding shares of capital stock of Holding;
(ii) Holding purchased, for $15.0 million, all of the outstanding shares of
capital stock of Sub Co. (the "Equity Contribution"); (iii) Sub Co. sold 12 3/4%
Senior Notes Due 2004 (the "Old Notes") in an aggregate principal amount of
$70.0 million and
3
<PAGE> 4
the Company issued 70,000 Warrants (received from Holding) to purchase an
aggregate of 877.21 shares of Class A Common Stock of Holding ("Initial
Offering"); and (iv) upon completion of the Merger, the Company, as the
surviving entity, became the obligor on the Old Notes. The Company also entered
into a new $10.0 million revolving credit facility (the "Credit Facility"),
which is secured by substantially all of the assets of the Company. The
foregoing transactions are collectively referred to herein as the
"Transactions." Holding has no significant activities other than its investment
in the Company. In December 1997, the Company completed an exchange offer under
which holders of the Old Notes were offered the opportunity to exchange their
Old Notes for the Company's Series B 12 3/4% Senior Notes Due 2004 (the "Senior
Notes") that were identical to the Old Notes, except that the Senior Notes were
issued in a transaction registered under the Securities Act of 1933, as amended,
and are not subject to certain restrictions on transfer contained in the Old
Notes and do not provide for any registration rights.
Prior to the consummation of the Merger, the Company redeemed its
existing indebtedness at a premium, paid certain Transaction-related expenses
and remitted any remaining unrestricted cash in excess of $2.0 million to its
stockholders. Also, prior to the consummation of the Merger all existing stock
options and common stock warrants of the Company were deemed exercised and
exchanged for their pro rata share of the Purchase Price.
As a result of the Transaction, the financial position and results of
operations of the Company subsequent to the Transaction (the "Successor
Company") are not necessarily comparable to the financial position and results
of operations of the Company prior to the Transaction (the "Predecessor
Company"). Amounts reported for financial reporting purposes in fiscal 1998
represent the activity of the Successor Company beginning July 2, 1997.
The Merger resulted in the Company having substantial goodwill, an
increase in long-term debt, original equity of approximately $11.7 million and a
significant reduction in cash. In addition, the Company incurred an
extraordinary charge of $4.2 million relating to the early extinguishment of
debt and other charges aggregating approximately $3.7 million. These charges are
reflected in the Company's statement of operations for the period of July 1,
1997 through July 2, 1997.
THE MARKET FOR SAFETY GLASS PRODUCTS
In the United States, automobile manufacturers purchase most of their
safety glass products from independent glass manufacturers and processors,
except for Ford Motor Company and Chrysler Corporation, each of which produces a
portion of its safety glass requirements in-house. In Europe and Asia-Pacific,
the majority of automobile glass manufacturers purchase safety glass products
from independent manufacturers and processors. The Company believes that most of
the major glass manufacturers and processors are customers of the Company.
Automotive safety glass products are formed into either simple or
complex shapes. Simple glass, which is relatively flat and has little curvature,
is required to conform to exacting physical dimensions and fracture
requirements. Significant bending technology is not required to process this
type of glass. Unlike simple glass, complex glass has a high degree of
curvature, or "bulge." The more curvature that a piece of glass has, the more
likely it is to develop optical distortions unless it is produced to precise
specifications. For this reason, it is important that the bending of complex
glass be done in a manner that produces consistent, repeatable results subject
to minimal process variation.
In the Automotive Market, the majority of side, back and roof windows
consist of a single piece of tempered glass. The majority of windshields are of
laminated construction, which requires the insertion of a plastic layer between
two pieces of annealed glass.
4
<PAGE> 5
In the Architectural Market, the most common architectural glazing
product worldwide is flat tempered glass. Such glass is used for building
windows, patio doors, shower enclosures, display cases, furniture glass and
appliance glass.
The Company believes that a future trend in the Automotive Market will
be that of increasing use of additional laminated glass for sidelites and
backlites. If this trend materializes, it will mean the use of more glass in
cars since laminated glass requires the use of two pieces of glass where one is
now used for each sidelite and backlite. If this trend develops, it may increase
the need for the Company's equipment.
THE SAFETY GLASS PRODUCTION PROCESS
The Company's systems process flat glass produced by glass
manufacturers into safety glass. The Company designs and assembles Original
Equipment systems that bend and temper flat glass for automotive, industrial and
architectural applications. The Company also designs and assembles systems that
anneal (rather than temper) glass for use in the production of laminated glass
for products such as automotive windshields. The basic fabrication process
involves placing a piece of glass horizontally on a conveyor of ceramic rollers
that transfers the glass through a furnace where it is heated to the desired
temperature. If the glass then requires bending, it generally will be bent into
either a simple or complex shape. The glass is then moved into the quench where,
depending upon the desired end product, it is either tempered or annealed.
Heating Process. Traditionally, all Glasstech systems heated glass with
electric radiant heat ("ERH"). As an alternative, the Company introduced
gas-fired forced convection heat ("FCH"). FCH was developed in conjunction with
the Gas Research Institute ("GRI"). FCH is currently available for sale in the
Automotive and Architectural Markets. FCH offers customers significant
advantages over ERH technology. For example, FCH can be more cost-effective than
ERH, because gas often is less expensive than electricity. In addition, FCH can
heat glass with special coatings faster and more uniformly than ERH, resulting
in lower production costs, faster outputs and higher quality glass. In spite of
FCH's significant advantages, not all product applications justify the
additional capital expense of an FCH furnace. Accordingly, the Company expects
to continue to offer systems with ERH.
Bending Process. Glasstech systems generally bend glass into simple and
complex shapes through one of three techniques. The gravity-sag technique
creates simple shapes by placing a piece of glass on a ring mold, heating it to
its softening point and allowing the shape to form via gravity. The deep bending
technique creates complex shapes by placing the glass on a ring mold, heating it
and pressing the heated glass against a full surface area mold. The cylindrical
bending technique creates simple shapes with a single curve by placing the glass
on rollers, heating it and using a set of flexible rollers to curve the glass.
Tempering Process. Tempering is the process of strengthening heated
glass by cooling it rapidly. Tempered glass is up to five times stronger than
untempered glass and, if broken, fractures into small pieces, reducing the risk
of injury. Conversely, untempered glass will splinter and produce sharp edges.
The process the Company uses to temper safety glass is called "quenching" which
involves moving the heated glass into the quench where, through a
computer-controlled process, it is cooled with air directed on the surfaces of
the glass by an array of nozzles that diffuse air from a large blower or fan.
Glass tempered by a Glasstech system meets international fracture standards.
Annealing Process. The annealing process is a preparatory step in the
process of producing laminated glass, which is used to form most vehicle
windshields. The annealing process is similar to the tempering process, except
that instead of cooling the glass rapidly, it is cooled much more slowly.
Annealed glass breaks more easily upon impact and, unlike tempered glass,
splinters when broken. To complete the lamination
5
<PAGE> 6
process, glass processors and fabricators layer two pieces of annealed glass,
which can be produced by one of the Company's Original Equipment systems, around
a piece of plastic such that the annealed glass adheres to the plastic when
broken. A laminated glass product breaks relatively easily into a spider
web-like pattern without permitting the object creating the impact to break
through the glass, and any glass particles remain adhered to the plastic layer,
thereby reducing the risk of injury to the vehicle's or building's occupants.
PRODUCTS
Original Equipment-Automotive. Systems designed and assembled for the
Automotive Market process flat glass by bending and tempering it to produce
automotive side, back and roof windows and by bending and annealing flat glass
in the production of laminated glass for windshields. The Company sells four
basic systems, which are primarily differentiated by their bending techniques,
to automotive glass manufacturers and processors.
* Quick-Sag System. Introduced in the late 1970s, the Company's
quick-sag system (the "Quick-Sag System") bends and tempers
glass for side, back and roof automotive windows. Using the
gravity-sag technique, the Quick-Sag System produces high
optical-quality glass in simple shapes. Although this is the
Company's oldest system, demand for it continues in markets
such as China, South America and other developing markets.
Such a system may be retrofitted to provide higher output deep
bending or cylindrical bending capabilities if required by the
Company's customers.
* Deep Bending System. The Company's deep bending system (the
"Deep Bending System") was first introduced in 1985 in
response to customers' demands for more complex safety glass
shapes that could not be produced by the gravity-sag technique
used in the Quick-Sag System. By using the deep-bending
technique, such systems shape glass with enhanced optical
quality to precise tolerances with deep and complex bends for
automotive side and back windows. To form different shapes of
complex safety glass, the Deep Bending System requires
different sets of tooling, which the Company offers as part of
its aftermarket business.
* Cylindrical Bending System. Introduced in fiscal 1994 to
produce accurate, simple cylindrical bends using flexible
rollers (rather than tooling), the cylindrical bending system
(the "Cylindrical Bending System") produces side and roof
vehicle windows that require a simple cylindrical bend. Prior
to the introduction of this system, it generally was not
cost-effective for the Company to offer a system that produced
glass with a simple cylindrical bend because the Company was
unable to compete favorably against equipment designed
in-house by the Company's customers. With the introduction of
the Cylindrical Bending System, however, the Company now
offers customers the ability to make faster changeovers by
eliminating the tooling requirements typical of its other
bending systems. This feature reduces the customers'
production costs and maximizes their system performance.
* In-line System. Unlike the movement of glass in a Quick-Sag
System or a Deep Bending System, in which glass exits from the
side of the bending module, the glass in an in-line system
(the "In-line System") travels in a straight line throughout
the entire process. An In-line System is capable of producing
higher quality glass at faster output rates and at lower costs
per piece of glass than a side-exit system. The first
generation of the In-line System was introduced in 1985. A
second generation In-Line System was placed into operation in
1995 for the production of windshield glass. The Company
recently introduced an improved version of the In-line System
that is capable of producing complex-shaped glass for
automotive windshields and back windows.
6
<PAGE> 7
Original Equipment-Architectural. Systems designed and assembled for
the Architectural Market process flat glass by tempering or by bending and
tempering it for applications including residential and commercial construction,
furniture, display cases, shower enclosures and appliances.
* Flat Glass Tempering Systems. The Company's initial generation
of flat glass tempering for architectural applications was
introduced in 1971. Current systems can be equipped with
either ERH or FCH heating technology. A system with FCH is
more expensive initially than one with ERH, but offers
significant energy cost savings and output advantages,
particularly for reflective or low-emissivity glass.
* Bending and Tempering Systems. Initially introduced in 1990 in
response to the demand for curved glass from the Architectural
Market, these systems are designed to shape glass of varying
thicknesses into custom-specified curves.
Original Equipment-Other. In 1992, the Company formed Stir-Melter, Inc.
("Stir-Melter"), a wholly owned subsidiary that designs and assembles a
glass-melting system that vitrifies (i.e., changes into a glass-like substance
by fusion due to heat) hazardous waste for safe disposal. Stir-Melter's systems
are rapid glass melters that employ aggressive mechanical stirring action in
combination with direct electrical heating.
Aftermarket Business. Aftermarket products and services complement the
Company's Original Equipment business. Sales in this area consist of the
following items: (i) retrofits (extensions or improvements of current systems);
(ii) tooling (complete sets of bending and tempering equipment designed to
produce specific complex-shaped glass products); (iii) ceramic rollers (used to
convey glass through the furnace); (iv) replacement parts for all the individual
system components; and (v) technical services.
* Retrofits. Retrofits are purchased by customers who want to
increase production capacity, extend bending capability,
increase system efficiency or take advantage of the latest
computer and control system developments. Typical retrofits
and improvements include: (i) extensions of heater length to
increase capacity; (ii) conversions from automotive simple
bending systems to complex bending systems, such as from a
Quick-Sag System to a Deep Bending System; (iii) quench
upgrades; (iv) conversion of a single-function system to a
dual-function system, such as adding a Cylindrical Bending
System to a Quick-Sag System; and (v) computer or control
upgrades.
* Tooling. The Company's customers in the Automotive Market
operate complex bending and tempering systems that require
part-dedicated tooling equipment to produce individual vehicle
window parts that meet precise design and shape
specifications. The Company's tooling products generally
include: (i) bending molds; (ii) bending rings (to press the
glass to the mold); (iii) lift jets (to raise the glass from
the conveyor to the mold); (iv) quench rings (to transport the
glass from the mold to the quench); and (v) quenching heads
(which incorporate nozzles and direct air against the glass
surface).
* Ceramic Rollers. The Company's roller hearth technology was
introduced to eliminate the marks left on glass by older
vertical systems that tempered flat glass by hanging it from
tongs. The ceramic rollers are used to convey the glass
horizontally into and through the furnace and are manufactured
to strict specifications in order to reduce distortion or
markings on the glass surface.
* Replacement Parts. Both proprietary and nonproprietary parts
are offered to replace components used in Glasstech systems.
Customers are encouraged to purchase an initial consignment of
replacement parts when purchasing a new system and to maintain
critical parts in inventory throughout the life of their
system.
7
<PAGE> 8
* Technical Services. The Company's technical services
department provides it with an important competitive
advantage. The customer service staff provides aftermarket
technical support and gathers feedback from customers
regarding specific product improvement recommendations for
Glasstech systems.
PRODUCT DEVELOPMENT
The Company's Research and Development ("R&D") effort is a significant
factor in maintaining its market and technological leadership. The objective of
the Company's R&D effort is to develop new products and to improve existing
products to meet present and future market demands. The Company works closely
with its customers to identify their current and future needs, enabling it to
proactively design creative solutions to meet future industry requirements.
Development proposals are submitted to the Company's Executive Technical
Committee to be analyzed and assessed. Proposals are authorized only when the
committee is satisfied that the proposal meets customer or market needs and the
proposed program can be conducted cost-effectively with a reasonable probability
of achieving the desired level of profitability.
The Company has spent approximately $4.6 million, $4.6 million and $4.2
million (exclusive of expenditures relating to demonstration glass tempering
furnaces) in fiscal years 1996, 1997 and 1998, respectively, on the development
of new systems or on the improvement of existing systems.
MARKETING AND SALES
The Company's sales efforts are conducted by personnel operating in the
Americas, Europe (including Africa and the Middle East) and Asia-Pacific. The
Company's international sales efforts are supplemented by nonexclusive sales
agents retained on a commission basis. Commissions are paid only when sales are
confirmed and payments have been received from the customer. Glasstech Ltd., a
wholly owned subsidiary of the Company, supports the Company's sales efforts in
Europe.
The Company has installed more than 390 systems in over 45 countries on
six continents. The Company's customers include virtually all major glass
manufacturers and processors, such as Chrysler Corporation, Ford Motor Company,
Guardian Industries Corp. and PPG Industries, Inc. in the United States;
Compagnie de Saint-Gobain and Pilkington plc in Europe; Asahi Glass Company,
Central Glass Company and Nippon Sheet Glass Company in Japan; Hankuk Glass
Industry Company and Keumkang Ltd. in Korea; and Shatterprufe (Pty) Limited in
South Africa.
As part of its marketing process, the Company maintains ongoing
customer relationships that enable management to understand its customers' needs
for existing and new product capabilities. Due to the size of a Glasstech
system, from both a physical and economic perspective, a significant commitment
with respect to planning is required on the part of the Company's customers
before they order new equipment and subsequently place it into operation. As
part of this planning process, the customer involves the Company in discussions
that can last up to one or two years before an order is actually placed. At any
point in time, the Company and its customers are involved in numerous
discussions that occur between their respective management teams, technical
staffs and sales/purchasing staffs.
The customer service staff provides aftermarket technical support and
gathers information from customers regarding specific product improvement
recommendations for Glasstech systems. Customer service representatives are also
available to the Company's customers as consultants on a per diem basis. The
Company's technical representatives train the customer's workforce to properly
operate its Glasstech system and consult on specific technical issues or
production goals. The Company's customer service department has
8
<PAGE> 9
a program that provides customers with 24-hour troubleshooting services via
telephone. In-house computers enable the Company to simulate system problems
that a customer might experience and provide the customer with prompt solutions.
Installation of a Glasstech system typically requires 12 months from
the time the customer executes a contract to final acceptance of the system.
Completion of aftermarket sales varies with each product and can take anywhere
from 24 hours to 10 months to complete.
A substantial portion of the Company's revenue historically has been
comprised of sales to a limited number of customers. For example, in fiscal
years 1996, 1997 and 1998, Asahi Glass Company, Chrysler Corporation, Ford Motor
Company, Nippon Sheet Glass Company and Pilkington plc collectively accounted
for 41.6%, 56.9% and 45.1% of total revenue, respectively. In addition, (i) in
fiscal 1996, Pilkington plc accounted for more than 10.0% of revenue; (ii) in
fiscal 1997, Asahi Glass Company, Chrysler Corporation, Nippon Sheet Glass
Company and Pilkington plc each accounted for more than 10.0% of revenue; and
(iii) in fiscal 1998, Asahi Glass Company and Ford Motor Company each accounted
for more than 10.0% of revenue.
INTERNATIONAL
The Company's revenue by geographic region is as follows (dollars in
thousands):
<TABLE>
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
------------------- -----------------
YEARS ENDED JUNE 30, YEAR ENDED JUNE 30
--------------------- ------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Asia-Pacific $23,065 $45,276 $27,654
Europe 9,827 5,030 11,518
Latin American 6,208 2,616 5,384
Other 4,877 1,242 1,523
------- ------- -------
Total Non-United States Sales 43,977 54,164 46,079
United States $18,794 $22,269 $23,509
------- ------- -------
Total Overall Sales $62,771 $76,433 $69,588
======= ======= =======
</TABLE>
The Company also generates a substantial portion of its revenue outside
of the United States. During fiscal 1996, 1997 and 1998, approximately 36.7%,
59.2% and 39.7% of the Company's net revenue was derived from sales of products
located in the Asia-Pacific region (Australia, China, Indonesia, Japan,
Malaysia, New Zealand, Pakistan, the Philippines, Singapore, South Korea,
Taiwan, and Thailand).
Management believes the current economic uncertainties in the
Asia-Pacific region indicate that the timing of orders for the Company's
products will be adversely affected in fiscal 1999. In fiscal 1998, the impact
of this situation was somewhat mitigated by offsetting equipment sales to
customers in other regions of the world, particularly in Europe. However, given
the inherent difficulty in predicting with certainty the timing of contract
signings and geographic areas into which equipment will be delivered in fiscal
1999 and beyond, the ultimate severity of the impact of this situation on the
Company's financial performance in fiscal 1999 and beyond is impossible to
predict. The Company will continue to monitor the situation in the Asia-Pacific
region. Notwithstanding the current economic conditions in the Asia-Pacific
region, the Company believes that given world demographics and long term
economic trends, the Asia-Pacific region will continue to represent a
significant market for the Company's products and it intends to continue its
presence in this area.
9
<PAGE> 10
COMPETITION
The principal competitive factors in the Automotive Market are price
and system capabilities or specifications. The Company's primary competition in
the Automotive Market comes from either (i) the engineering departments of
certain of its customers, such as Pilkington plc and Compagnie de Saint-Gobain,
which design and build glass processing systems in-house or (ii) glass
manufacturers which process safety glass and sell it to automobile
manufacturers, such as Chrysler Corporation and Ford Motor Company, which elect
to purchase processed safety glass rather than install their own Glasstech
system. In either case, the Company primarily competes against its customers by
developing systems with greater capabilities than those currently produced
in-house. Management believes that the Company has a significant share of the
market for technologically advanced systems used to bend and temper automotive
glass into complex shapes and is the only significant independent supplier.
In the Architectural Market, there is significant competition among
manufacturers of flat glass tempering systems, but less significant competition
for bending and tempering systems. The Company's principal competitor in the
Architectural Market is Tamglass Oy of Finland, which competes against the
Company mainly in the market for flat glass tempering systems.
PATENTS AND PROPRIETARY RIGHTS
The Company protects its technology by filing patents and patent
applications in the U.S. and in major markets worldwide. It is the Company's
policy to aggressively pursue patent coverage for significant product
developments. The Company holds over 125 patents in the U.S. and more than 375
patents outside the United States. In addition, the Company has more than 225
patent application filings worldwide. Typically, within each Glasstech system,
several patents cover various controls, bending processes or other aspects of
the equipment. While management does not believe that the loss of any one patent
would have a material adverse effect on the Company's business, it believes that
the Company's patent position is material in the aggregate. In the ordinary
course of business, the Company is required to defend its patented technology
from possible or actual infringement that may occur.
The Company's patents cover a range of products and product features,
including: (i) the Quick-Sag System; (ii) the Company's complex in-furnace
bending process (used in both Deep Bending and In-line Systems); (iii) the
Cylindrical Bending System; (iv) quenching systems; (v) process controls for
systems; and (vi) other aspects of its technologies and equipment. As patents on
some of the Company's older technologies, such as the Quick-Sag System, begin to
expire, the Company continually applies for, and is generally issued, patents
relating to its newer, leading edge technologies.
The Company received funding from GRI for the development of the FCH
technology. Under an agreement with GRI, GRI retained rights to the resulting
U.S. patents. Under the GRI agreement, the Company received two exclusive patent
licenses in the U.S. One license permits the Company to use FCH technology in
systems that produce flat tempered glass (the "Flat License") and the other
license permits the Company to use FCH technology in systems that produce bent
glass (the "Bent License"). The exclusivity with respect to the Flat License and
Bent License expires in 2000 and 2003, respectively. Subject to certain
obligations to exploit FCH technology with respect to the Bent License, the
Company will continue to hold nonexclusive licenses for FCH technology for the
duration of the underlying patents. Under the terms of the GRI agreement, the
Company holds the exclusive rights to the FCH patents outside of the U.S.
Substantially all Company employees execute technology agreements that
have a confidentiality provision and assign patent rights to the Company.
Members of senior management have entered into employment agreements that
contain noncompete provisions.
10
<PAGE> 11
MATERIALS AND SUPPLY ARRANGEMENTS
The Company has reached agreement with many of its suppliers, including
most of its major suppliers, which guarantee firm pricing, generally for one
year, but do not have purchase volume requirements obligating the Company to
purchase certain quantities. Management believes that the Company has made
adequate arrangements with backup suppliers to avoid any material adverse effect
that would occur if one of its primary suppliers were unable to fill Company
orders. In fiscal 1998, the Company did not purchase more than 10% of its
materials and supplies from any one supplier.
ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to a wide variety
of increasingly complex and stringent federal, state and local laws and
regulations, including those governing the use, storage, handling, generation,
treatment, emission, release, discharge and disposal of certain materials,
substances, and wastes, the remediation of contaminated soil and groundwater,
and the health and safety of employees (collectively, the "Environmental Laws").
As such, the nature of the Company's operations exposes it to the risk of claims
with respect to such matters and there can be no assurance that material costs
or liabilities will not be incurred in connection with such claims. Management
believes its operations and properties are in compliance in all material
respects with Environmental Laws. Based upon its experience to date, management
believes that the future cost of compliance with and liability under existing
Environmental Laws will not have a material adverse effect on the Company's
business, financial condition or operating results. However, future events, such
as the discovery of new information, changes in existing Environmental Laws or
their interpretations and more vigorous enforcement policies of regulatory
agencies, may give rise to additional expenditures or liabilities that could be
material.
EMPLOYEES
As of June 30, 1998, the Company employed 273 people. The Company has
experienced low personnel turnover throughout its history. The Company has no
union employees, and no attempt has ever been made to organize its workforce.
Management believes that its relations with its employees are good.
BACKLOG
The Company had a backlog (on a percentage of completion basis) of
approximately $34.9 million at June 30, 1998 as compared to approximately $30.3
million at June 30, 1997. The Company expects to complete the substantial
majority of this backlog by the end of fiscal 1999.
ITEM 2. PROPERTIES.
The Company's facilities are located in Perrysburg, Ohio. The Company
leases a 96,800 square foot facility that houses its offices and plant, as well
as an adjacent 43,200 square foot facility for production and storage. The
96,800 square foot facility is subject to a five-year lease that will expire on
December 31, 1999, after which the Company has an option to extend the lease for
two additional five-year periods. The 43,200 square foot building is subject to
a two-year lease that will expire on January 31, 2000. The Company also owns an
adjacent 108,000 square foot building that houses R&D, tooling design, tooling
production and demonstration glass tempering furnaces. The Company believes that
its current facilities are adequate for its foreseeable needs.
11
<PAGE> 12
ITEM 3. LEGAL PROCEEDINGS.
On January 15, 1997, James E. Heider, a former executive officer of the
Company, commenced an action against the Company and Mark Christman, the
President of the Company, in the Common Pleas Court of Wood County, Ohio,
relating to the nonrenewal of his employment agreement. In the amended
complaint, Mr. Heider alleges that the Company breached his written employment
agreement and breached implied and express employment agreements that, according
to the complaint, were created pursuant to certain alleged oral statements. The
complaint also alleges that Mr. Heider was terminated in retaliation for
reporting on the conduct of certain employees and that Mr. Heider was wrongfully
denied the ability to exercise certain stock options. Mr. Heider seeks
compensation of approximately $9.5 million for lost wages, bonuses, back pay,
vacation pay and the value of other fringe benefits he would have received
through continued employment with the Company. The Company believes that this
action is without merit and is barred by the provisions of Mr. Heider's written
employment agreement with the Company. On July 24, 1998, the Company was granted
a motion for summary judgement on all counts. Mr. Heider filed an appeal and the
Company intends to contest this appeal.
On April 14, 1998 the Company filed suit in the United States District
Court for the Northern District of Ohio (the "Court"), against TGL Tempering
Systems Inc., Tamglass, Inc., and Tamglass Ltd. Oy (the "Tamglass Companies")
alleging misappropriation by the Tamglass Companies of the Company's trade
secrets as a result of the Tamglass Companies' unauthorized acquisition of a
Glasstech Architectural Glass Bending and Tempering System. The Court entered
an order which restrains the Tamglass Companies from destroying, moving or
disassembling the Glasstech Architectural Bender, destroying or moving any
other evidence relating to the Tamglass Companies' acquisition or use of the
Company's equipment, and preventing defendants from using or selling any trade
secrets pending completion of expedited discovery. Defendants have not yet
filed an answer to the Company's Complaint and the litigation is just at its
inception. A hearing on the Company's request for a preliminary injunction and
the Tamglass Companies' motion to dismiss for lack of jurisdiction has been
postponed pending submission by Tamglass of, and the Court's review in camera
of, certain Ohio business information relevant to that motion to dismiss.
Settlement discussions between the parties have been initiated.
The Company is subject to other legal proceedings and claims that arise
from time to time in the ordinary course of its business. Management believes
that the amount of any ultimate liability with respect to these actions will not
have a material adverse effect on the financial condition or results of
operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
12
<PAGE> 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED MATTERS.
There is no established public trading market for the common stock of
the Company. The sole shareholder of the Company is Holding, a holding company
formed for the purpose of acquiring all of the outstanding stock of the Company.
Holding has no significant activities other than its investment in the Company.
The Company has not declared or paid cash dividends to Holding. The
Company anticipates that all of its earnings in the near future will be retained
for the development and expansion of its business and, therefore, does not
anticipate paying dividends on its common stock in the foreseeable future.
Declaration of dividends on the common stock will depend upon levels of
indebtedness, future earnings, the operating and financial condition of the
Company, its capital requirements and general business conditions, among other
things. In addition, the agreements governing the Company's indebtedness contain
provisions that restrict the ability of the Company to pay dividends on its
common stock.
13
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected historical consolidated
financial and other data of the Company for the five years ended June 30, 1998
which have been derived primarily from the Company's audited consolidated
financial statements. The information presented below should be read in
conjunction with "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's consolidated financial
statements and notes thereto included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
SUCCESSOR
PREDECESSOR COMPANY REORGANIZED COMPANY COMPANY
-------------------------- --------------------------------------- ----------
YEAR PERIOD FROM PERIOD FROM
ENDED JULY 1, 1994 JAN. 4, 1995 YEAR ENDED JUNE 30,
JUNE 30, THROUGH THROUGH -------------------------------------
1994 JAN. 3, 1995 JUN. 30, 1995 1996 1997 1998
---- ------------ ------------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue $ 51,975 $ 25,948 $ 27,854 $ 62,771 $ 76,433 $ 69,588
Cost of goods sold 33,329 16,576 17,036 39,024 45,603 37,760
--------- --------- --------- --------- --------- ---------
Gross profit 18,646 9,372 10,818 23,747 30,830 31,828
Selling, general and administrative 7,001 3,430 5,105 10,724 12,866 11,035
Research and development 4,520 2,082 2,302 4,557 4,594 4,247
Amortization expense 5,434 2,512 1,203 2,407 2,306 4,356
--------- --------- --------- --------- --------- ---------
Operating profit 1,691 1,348 2,208 6,059 11,064 12,190
Interest expense -- -- (2,077) (4,200) (4,200) (9,643)
Other income (expense) -net (16) 35 784 1,541 2,263 525
--------- --------- --------- --------- --------- ---------
Income before items below 1,675 1,383 915 3,400 9,127 3,072
Reorganization items (a) (271) (1,164) -- -- -- --
Income taxes not payable in cash (b) -- -- (445) (1,418) (2,551) (2,249)
Federal income taxes, current -- -- -- (105) (78) --
Extraordinary gain (c) -- 214,773 -- -- -- --
Cumulative effect on prior years of change in
method of accounting for non-pension
post-retirement benefits -- (1,906) -- -- -- --
--------- --------- --------- --------- --------- ---------
Net income $ 1,404 $ 213,086 $ 470 $ 1,877 $ 6,498 $ 823
========= ========= ========= ========= ========= =========
OTHER DATA:
EBITDA (d) $ 8,736 $ 4,625 $ 4,109 $ 9,780 $ 14,829 $ 18,002
Depreciation and amortization (e) 7,045 3,277 1,901 3,721 3,765 5,812
Capital Expenditures 484 480 680 2,152 990 349
Backlog 21,249 31,941 25,931 38,907 30,307 34,848
CASH FLOW PROVIDED BY (USED IN):
Operating activities $ 8,319 $ 13,803 $ (1,389) $ 22,521 $ 8,973 $ 7,921
Investing activities (468) (479) 90 (1,663) (978) (75,521)
Financing activities -- (6,200) (3,797) 125 (5) 80,721
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital $ 29,062 $ 18,649 $ 21,725 $ 27,599 $ 39,519 $ 6,538
Total assets 85,983 87,952 83,808 95,977 99,364 102,919
Total debts 269,411 42,000 42,000 42,000 42,000 69,357
Shareholders' equity (capital deficiency)(f) (192,912) 20,174 20,644 22,652 29,232 12,545
</TABLE>
14
<PAGE> 15
(a) Reorganization items relate to the period in which the Company was
operating under the protection of Chapter 11 of the Bankruptcy Code.
(b) Income taxes not payable in cash represent the tax effect of certain
acquired temporary differences existing prior to the Transactions and
are recorded as a reduction to goodwill. Such amounts existing prior to
the Reorganization were recorded as a reduction to reorganization value
in excess of amounts allocable to identifiable assets as required by
SOP 90-7.
(c) An extraordinary gain of $214,773 was recognized on January 3, 1995
because the consideration for the discharge of pre-petition liabilities
was less than the carrying value of the recorded liabilities
discharged.
(d) EBITDA for any period means operating profit plus depreciation and
amortization. Management understands that EBITDA is an indicator
customarily used by investors to gauge a company's ability to service
its interest and principal obligations. EBITDA should not be considered
in isolation from, as a substitute for or as being more meaningful than
net income, cash flows from operating, investing and financing
activities, or other income or cash flow statement data prepared in
accordance with generally accepted accounting principles, and should
not be construed as an indication of the Company's operating
performance or as a measure of liquidity. EBITDA, as presented herein,
may be calculated differently by other companies and, as such, EBITDA
amounts presented herein may not be comparable to other similarly
titled measures of other companies.
(e) Depreciation and amortization does not include the amortization of
deferred financing costs, which is recorded with interest expense.
(f) The Company has not declared or paid any dividends to its shareholders.
15
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL OVERVIEW
The Company designs and assembles glass bending and tempering (i.e.,
strengthening) systems which are used by glass manufacturers and processors in
the conversion of flat glass into safety glass. Systems are sold worldwide,
primarily to automotive glass manufacturers and processors and, to a lesser
extent, to architectural glass manufacturers and processors. Revenues generated
by the sale of new systems are referred to below as "Original Equipment."
The Company has an installed base of more than 390 systems in over 45
countries on six continents. As a result of its installed base and the
relatively long useful life of a system, the Company also engages in sales of
aftermarket products and services (retrofit of systems with upgrades, tooling
used to shape glass parts, replacement parts and technical services). Revenues
generated by these types of products are referred to below as "Aftermarket."
In this MD&A section all dollar amounts are in thousands, unless
otherwise indicated.
REVENUES
For financial reporting purposes, the Company includes in income the
ratable portion of profits on uncompleted contracts determined in accordance
with the stage of completion measured by the percentage of costs incurred to
estimated total costs of each contract (generally, Original Equipment, system
retrofits and tooling). Unbilled amounts included in uncompleted contract
receivables represent revenues recognized in excess of amounts billed. Billings
in excess of costs and estimated earnings on uncompleted contracts represent
amounts billed in excess of revenues recognized. Revenue from sales other than
contracts (spare parts and engineering services) is recognized when the products
are shipped.
SELLING EXPENSE
The Company maintains an in-house sales staff and uses the services of
commissioned agents around the world for the sale of Original Equipment and
aftermarket products and services. In addition, the Company maintains a sales
and engineering support office in the United Kingdom. The substantial majority
of the Company's Original Equipment is sold directly to the largest glass
manufacturers and processors in the world or to affiliated companies in which
they participate or control.
RESEARCH AND DEVELOPMENT
The Company believes it is the technological leader in the design and
assembly of glass bending systems. The Company works with customers to identify
product needs and market requirements. Periodically, the Company enters into
joint development agreements with customers. From time to time, the Company
allocates a portion of its R&D resources to complete the transition from new
product development to new product introduction. When the Company does this,
these expenses are charged directly to the contracts relating to the
introduction of new products. The Company considers R&D expenses and new product
introductions a very integral part of its future success.
16
<PAGE> 17
MANAGEMENT'S ESTIMATES RELATED TO ASIA-PACIFIC CONTRACTS
In the ordinary course of business, management continually makes
estimates on a variety of matters ranging from percentage of completion of
products to collectibility of future payments (see Note 2 of Notes to
Consolidated Financial Statements). Due to the economic uncertainties evolving
in the Asia-Pacific region toward the end of fiscal 1997, management undertook a
careful review of each contract from that region which was still incomplete at
June 30, 1997. This review led management to conclude that the then unfolding
uncertainty and instability in the Asia-Pacific region placed the collection of
the final payments on many of these contracts at significant risk. Accordingly,
management increased estimated costs on Asia-Pacific contracts by an amount
equal to the final payments due on these contracts. During the course of fiscal
1998, the substantial majority of these contracts were completed in due course.
Subsequently, aggressive and diligent collection efforts by management resulted
in the eventual collection of the final payments owed on these contracts. In
retrospect, the ultimate collection of these payments had the effect of
deferring revenue recognition from fiscal 1997 to fiscal 1998, with net
revenues, gross profit, operating income, net income and EBITDA being
positively impacted in fiscal 1998 approximately as follows: $5,200, $5,200,
$4,100, $2,500 and $4,100, respectively. Operating income, net income and
EBITDA had less than the full impact of the $5.2 million net revenue increase,
due to bonus calculations and changes in effective tax rates. However, the
increase in estimated costs related to the Asia-Pacific region contracts at
June 30, 1997 had no impact on net cash provided by operating activities since
the cash payments were scheduled to be made, and were made, during fiscal 1998,
all as originally provided in the underlying contracts.
Management believes that the magnitude of the change in estimates
described above represented a unique situation attributed to the following
factors: (1) at the end of fiscal 1997, contracts in process from the
Asia-Pacific region represented a significant percentage of total contracts in
process, both in number of contracts and dollar exposure, and (2) the depth of
the economic uncertainty in that region at June 30, 1997. Management does not
believe that the magnitude of the changes in estimates experienced in fiscal
1998 is likely to recur. No increases in estimated costs of similar magnitude
were made either at June 30, 1996 or June 30, 1998.
17
<PAGE> 18
RESULTS OF OPERATIONS
The following table presents the amounts and the percentage of total
net revenue for certain revenue and expense items for the periods indicated:
<TABLE>
<CAPTION>
SUCCESSOR
PREDECESSOR COMPANY COMPANY
--------------------------------------------------- -----------------------
YEAR ENDED JUNE 30
----------------------------------------------------------------------------------
1996 1997 1998
--------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue(a)
Original Equipment $ 34,214 54.5% $ 50,237 65.7% $ 48,873 70.2%
Aftermarket 28,557 45.5 26,196 34.3 20,715 29.8
----------- ------ ----------- ------ ----------- ------
Total net revenue 62,771 100.0 76,433 100.0 69,588 100.0
Cost of goods sold(a) 39,024 62.2 45,603 59.7 37,760 54.3
----------- ------ ----------- ------ ----------- ------
Gross profit 23,747 37.8 30,830 40.3 31,828 45.7
SG&A expense 10,724 17.1 12,866 16.8 11,035 15.8
R&D expense 4,557 7.2 4,594 6.0 4,247 6.1
Amortization expense(b) 2,407 3.8 2,306 3.0 4,356 6.3
----------- ------ ----------- ------ ----------- ------
Operating profit $ 6,059 9.7% $ 11,064 14.5% $ 12,190 17.5%
=========== ====== =========== ====== =========== ======
Amortization expense(b) 2,407 3.8 2,306 3.0 4,356 6.3
Depreciation expense 1,314 2.1 1,459 1.9 1,456 2.1
----------- ------ ----------- ------ ----------- ------
EBITDA $ 9,780 15.6% $ 14,829 19.4% $ 18,002 25.9%
=========== ====== =========== ====== =========== ======
</TABLE>
(a) Contract revenue and cost of goods sold are recognized on a percentage
completion basis measured by the percentage of costs incurred to the
estimated total costs of each contract.
(b) Amortization expense excludes the amortization of deferred financing costs
that is included with interest expense.
Fiscal Year 1998 Compared with Fiscal Year 1997
Net revenue for fiscal 1998 decreased $6,845, or 9.0%, to $69,588 from
$76,433 for fiscal 1997. Original Equipment revenue decreased $1,364, or 2.7%,
to $48,873 for fiscal 1998 compared to $50,237 for fiscal 1997. At the end of
fiscal 1997, the Company's backlog of uncompleted contracts contained, both in
dollar amount and number of contracts, a significant number of contracts from
the Asia-Pacific region. This was due to the economic prosperity enjoyed by
that region in fiscal 1996 and, in the case of the Peoples Republic of China,
contracts signed by customers in anticipation of the tightening of import
duties on the Company's equipment which did, in fact, occur. Economic
uncertainties in the Asia-Pacific region, together with the tightening of
import duties in the Peoples Republic of China, resulted in a substantial
reduction in both contract signings and revenues in the Asia-Pacific region in
fiscal 1998. This reduction was somewhat mitigated by offsetting equipment
sales to customers in other regions of the world (see "Business-International"
above). In addition, the financial uncertainties which enveloped the
Asia-Pacific region in late fiscal 1997 caused the Company to change its cost
estimates with respect to contracts in the Asia-Pacific region which were
incomplete at the end of fiscal 1997 (see "General Overview-Management's
Estimates Related to Asia-Pacific Contracts" above). Aftermarket revenue
decreased $5,481, or 20.9%, to $20,715 for fiscal 1998 from $26,196 for fiscal
1997. The decrease in aftermarket revenue was due primarily to a decline
in automotive retrofit and tooling revenue which generally fluctuate based on
customer demands and are influenced by a variety of factors, including economic
conditions and the customers' retrofit schedules and the timing of automotive
manufacturers' design changes, which may impact the release of tooling orders.
A significant portion of the Company's revenue is generated from
customers outside of the United States. For fiscal 1998, Original Equipment
revenue from foreign customers was $31,287 (64.0% of total
18
<PAGE> 19
Original Equipment revenue) as compared to $37,096 (73.8% of total Original
Equipment revenue) for fiscal 1997. The percentage of aftermarket revenue from
foreign customers increased to 71.4% of total aftermarket revenue for fiscal
1998 compared to 66.2% for fiscal 1997.
Gross profit increased $998, to $31,828, or a gross margin percentage
of 45.7%, for fiscal 1998 compared to $30,830, or a gross margin of 40.3%, for
fiscal 1997.
Selling, general and administrative expenses decreased $1,831, or
14.2%, to $11,035 for fiscal 1998 from $12,866 for fiscal 1997. This decrease
was primarily the result of decreases in directors' fees and expenses, personnel
recruitment fees and professional fees.
Research and development expenses decreased $347, or 7.6%, to $4,247
for fiscal 1998 from $4,594 for fiscal 1997. For fiscal 1998, certain
developmental engineering resources were dedicated to the completion of certain
original equipment contracts, thereby causing a reduction in research and
development expenses.
Amortization expense increased $2,050, or 88.9%, to $4,356 for fiscal
1998 from $2,306 for fiscal 1997. The increase in amortization expense resulted
from the amortization of goodwill arising from the Transaction.
Operating profit increased $1,126, or 10.2%, to $12,190 for fiscal 1998
from $11,064 for fiscal 1997. Operating profit, as a percentage of revenue, was
17.5% for fiscal 1998 as compared to 14.5% for fiscal 1997.
Interest expense increased $5,443 to $9,643 for fiscal 1998 from $4,200
for fiscal 1997 as a result of the increased debt and a higher interest rate
beginning July 2, 1997. Other income, net, which is comprised primarily of
interest income, decreased $1,738 to $525 for fiscal 1998 from $2,263 for fiscal
1997 due to reduced cash balances subsequent to July 2, 1997.
The Company's effective tax rate for the period ended June 30, 1998 and
the year ended June 30, 1997 was 73.2% and 28.8%, respectively. The effective
tax rate for fiscal 1998 differs from the Company's statutory tax rate due to
the effects of certain amounts not deductible for income tax purposes,
consisting primarily of goodwill amortization. As a result of the Transaction,
amortization expense related to goodwill has increased significantly, resulting
in the increased effective tax rate in the current period. However, due to the
Company's current tax position, including available net operating loss
carryforwards, no income taxes are currently payable in cash for fiscal 1998.
Net income decreased $5,675, or 87.3%, to $823 for the period ended
June 30, 1998 compared to $6,498 for the year ended June 30, 1997. This decrease
was due to increased interest expense and the increase in the effective tax
rate.
EBITDA, which is defined as operating profit plus depreciation and
amortization, increased $3,173, or 21.4%, to $18,002 for the period ended June
30, 1998 from $14,829 for the year ended June 30, 1997.
Fiscal Year 1997 Compared with Fiscal Year 1996
Net revenue for fiscal 1997 increased $13,662, or 21.8%, to $76,433
from $62,771 for fiscal 1996. Original Equipment revenue increased $16,023, or
46.8%, to $50,237 for fiscal 1997 compared to $34,214 for fiscal 1996. The
increase in Original Equipment revenue was primarily the result of increased
contract signings and demand for the Company's products, particularly automotive
systems. Aftermarket revenue decreased $2,361, or 8.3%, to $26,196 for fiscal
1997 from $28,557 for fiscal 1996. The decrease in aftermarket revenue was due
to a decline in automotive retrofit and tooling revenue partially offset by an
increase in replacement parts revenue. Generally, automotive retrofit and
tooling revenues fluctuate based on customer demands and are
19
<PAGE> 20
influenced by a variety of factors, including economic conditions and the
customers' retrofit and tooling schedules.
A significant portion of the Company's revenue is generated from
customers outside of the United States. For fiscal 1997, Original Equipment
revenue from foreign customers was $37,096 (73.8% of total Original Equipment
revenue) as compared to $24,866 (72.7% of total Original Equipment revenue) for
fiscal 1996. The percentage of aftermarket revenue from foreign customers was
66.2% of total aftermarket revenue for fiscal 1997 compared to 66.9% for fiscal
1996.
Gross profit increased $7,083, after the effect of a one-time expense
of $890 to replace certain components in forced convection heaters, to $30,830,
or a gross margin percentage of 40.3%, for fiscal 1997 compared to $23,747, or a
gross margin of 37.8%, for fiscal 1996. The increase in gross profit was due to
increased revenue for 1997. The increase in the gross margin is the result of a
more profitable product mix (reflecting a shift toward increased sales to the
Automotive Market) for fiscal 1997 as compared to fiscal 1996.
The one-time expense of $0.9 million to fabricate, replace and install
certain components in forced convection heaters was a result of the use of an
inadequate grade of stainless steel in those components. After identifying the
problem, the Company identified an appropriate grade of stainless steel for
fabrication of replacement components to be installed in forced convection
heaters. Based on the Company's past experience, the Company believes that its
materials testing procedures are adequate to prevent a recurrence of a similar
event.
Selling, general and administrative expenses increased $2,142, or
20.0%, to $12,866 for fiscal 1997 from $10,724 for fiscal 1996. This increase
was primarily the result of increases in incentive compensation costs due to
increased earnings and directors' fees and expenses.
Research and development expenses were $4,594 for fiscal 1997 and
$4,557 for fiscal 1996.
Amortization expense for fiscal 1997 was $2,306 compared to $2,407 for
fiscal 1996.
Operating profit increased $5,005, or 82.6%, to $11,064 for fiscal 1997
from $6,059 for fiscal 1996. Operating profit, as a percentage of revenue, was
14.5% for fiscal 1997 as compared to 9.7% for fiscal 1996 due to increased
revenue and a more profitable product mix.
Interest expense for fiscal 1997 and fiscal 1996 was $4,200. Other
income, net, which is comprised primarily of interest income, increased $722, or
46.9%, to $2,263 for fiscal 1997 from $1,541 for fiscal 1996. This increase was
the result of a $7,990, or 18.2%, increase in the average cash balance for
fiscal 1997 as compared to fiscal 1996.
Since the Reorganization, the Company's effective tax rate has been
greater than the statutory tax rate as a result of the amortization expense
relating to the Reorganization that is not deductible for income tax purposes.
The Company's effective tax rate decreased to 28.8% for fiscal 1997 compared to
44.8% for fiscal 1996 as a result of the reduction in the valuation allowance of
deferred taxes and significantly higher pretax income, without an increase in
nondeductible amortization expenses. Income taxes not payable in cash relate to
pre-Reorganization temporary differences, primarily related to patent
amortization, and utilization of pre-Reorganization net operating loss
carryforwards. Income taxes not payable in cash increased $1,133 to $2,551 for
fiscal 1997 from $1,418 for fiscal 1996 due primarily to increased earnings in
fiscal 1997.
20
<PAGE> 21
Net income increased $4,621, after the effect of a one-time expense of
$890 to replace certain components in forced convection heaters, to $6,498 for
fiscal 1997 compared to $1,877 for fiscal 1996. This increase in net income was
due primarily to the increase in operating profit.
EBITDA increased $5,049, or 51.6%, to $14,829 for fiscal 1997 compared
to $9,780 for fiscal 1996. The increase in EBITDA resulted from the increase in
operating profit.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and capital resources were significantly
impacted by the Transaction. The Company's primary sources of liquidity are
funds provided by operations and amounts available under the Credit Facility.
The Senior Notes do not require any principal payments prior to maturity. The
Credit Facility will be used to fund working capital requirements as needed and
to secure standby letters of credit, which totaled $2,706 at June 30, 1998. At
June 30, 1998, the Company was in compliance with all material covenants in the
Senior Notes and Credit Facility.
Net cash provided by operating activities can vary significantly from
quarter to quarter or year to year due to the number of new system signings and
the amount and timing of new system payments. In most instances, progress
payments on new system orders are invoiced or received in advance of revenue
recognition. When progress payments are invoiced or received in advance of such
revenue recognition, the Company increases current liabilities represented by
its billings in excess of costs and estimated earnings on uncompleted contracts.
When the revenue is earned, the Company recognizes the revenue and reduces the
billings in excess of costs and estimated earnings on uncompleted contract
balances. Net cash provided by operating activities for the period ended June
30, 1998 was $7,921, whereas for the year ended June 30, 1997, net cash provided
by operating activities was $8,973. The increase in estimated costs related to
the Asia-Pacific Region contracts at June 30, 1997 had no impact on net cash
provided by operating activities since the cash payments were scheduled to be
made, and were made, during fiscal 1998, all as originally provided in the
underlying contracts.
The Company has a backlog (on a percentage of completion basis) at June
30, 1998 of approximately $34,848 as compared to $30,307 at June 30, 1997. The
Company expects to complete a substantial majority of this backlog within the
next 12 months.
Capital expenditures, including demonstration furnaces classified as
fixed assets, were $349 for fiscal 1998 compared to $990 for fiscal 1997. Future
capital expenditures, excluding demonstration furnaces, used to replace or
improve operating equipment and facilities are estimated to approximate $1,500
per year. In addition, the Company intends to make periodic replacements and
improvements on demonstration furnaces, which are used for customer
demonstrations and research and development purposes. Demonstration furnaces,
which outlive their usefulness for customer demonstrations or research and
development purposes, or both, may be refurbished and sold or put to other
applicable uses.
As of June 30, 1998, the Company had net operating loss ("NOL")
carryforwards for regular and alternative minimum tax purposes of approximately
$36,301 and $33,071, respectively, which expire in the years 2009 through 2013.
These NOL's are subject to annual usage limitations.
Although the Company's ability to generate cash has been affected by
the increased interest costs resulting from the Transaction, management believes
that internally generated funds, together with amounts available under the
Credit Facility, will be sufficient to satisfy the Company's operating cash and
capital expenditure requirements, make required payments under the Credit
Facility and make scheduled interest payments on the Senior Notes. However, the
ability of the Company to satisfy its obligations will ultimately
21
<PAGE> 22
be dependent upon the Company's future financial and operating performance and
upon its ability to renew or refinance borrowings or to raise additional equity
capital as necessary. The Company's business is subject to rapid fluctuations
due to changes in the world markets for the end products produced by its
equipment (largely in the cyclical markets of automobiles and construction),
currency fluctuations, the local economies of those countries where users and
potential users of the Company's equipment are located, geopolitical events and
other macroeconomic forces largely beyond the ability of the Company to predict
or control. Except as discussed below, management is not currently aware of any
trends, demands, commitments or uncertainties which will or which are reasonably
likely to result in a material change in the Company's liquidity.
During fiscal 1996, 1997 and 1998, approximately 36.7%, 59.2% and 39.7%
of the Company's net revenue was derived from sales of products located in the
Asia-Pacific region (Australia, China, Indonesia, Japan, Malaysia, New Zealand,
Pakistan, the Philippines, Singapore, South Korea, Taiwan, and Thailand).
Management believes the current economic uncertainties in the
Asia-Pacific region indicate that the timing of orders for the Company's
products will be adversely affected in fiscal 1999. In fiscal 1998, the impact
of this situation was somewhat mitigated by offsetting equipment sales to
customers in other regions of the world, particularly in Europe. However, given
the inherent difficulty in predicting with certainty the timing of contract
signings and geographic areas into which equipment will be delivered in fiscal
1999 and beyond, the ultimate severity of the impact of this situation on the
Company's financial performance in fiscal 1999 and beyond is impossible to
predict. The Company will continue to monitor the situation in the Asia-Pacific
region. Notwithstanding the current economic conditions in the Asia-Pacific
region, the Company believes that given world demographics and long term
economic trends, the Asia-Pacific region will continue to represent a
significant market for the Company's products and it intends to continue its
presence in this area.
INFLATION
Management believes that the Company's operations have not been
adversely affected by inflation.
YEAR 2000 COMPLIANCE
Since March, 1998, the Company has had a committee reviewing issues and
problems relating to potential year 2000 problems which may arise because
computers, software and firmware programs, applications and information
technology systems (the "IT Systems") and items with embedded microchips (the
"Non-IT Systems" and, together with the IT Systems, the "Systems") only utilize
two digits to refer to a year. The Company has recognized that this year 2000
problem, may cause many of the Systems to fail or perform incorrectly because
they will not properly recognize a year that begins with "20" instead of the
familiar "19." If a computer system or software application used by the Company
or by a third party dealing with the Company fails because of the inability of
the system to properly read the year "2000," this failure could have a material
adverse effect on the Company.
The Company's review and assessment of the year 2000 problem has
focused on four primary areas: (i) the Systems and their relationship to the
Company's operations, (ii) Glasstech systems currently being used by the
Company's customers and currently being sold by the Company, (iii) compliance by
the Company's 50 largest suppliers, and (iv) compliance by the suppliers of the
Company's building and utility systems. The Company has not incurred, and does
not anticipate incurring, material costs related to year 2000 compliance.
The Systems
The Company has completed its review of the Systems, including both the
IT Systems and the Non-IT Systems . In reviewing the Systems, the Company found
that some of them were not year 2000 compliant. The
22
<PAGE> 23
Company has purchased, and is in the process of installing, upgraded versions of
the IT Systems, including the software programs used for financial reporting,
purchasing, order entry, payroll and product design/development that the Company
has been assured are year 2000 compliant by the vendors of those programs. The
Company expects these upgrades to be completed by December 1998. The Company
believes that, with the exception of one of its computer-aided design ("CAD")
systems, its manufacturing and design operations are year 2000 compliant. The
Company is reviewing the non-compliant CAD system to determine if the system
should be upgraded or shut down, because the system's functions can be performed
by other year 2000 compliant systems currently operated by the Company.
Although there can be no assurance that the Company has identified and
corrected, or will identify and correct, every year 2000 problem found in the
Systems, the Company believes that it has a comprehensive program in place to
identify and correct any such problems. The Company is in the process of
developing contingency plans for use in the event of the failure of any of the
Systems and expects to have this process completed by December 1998.
Glasstech Systems
The Company assessed the year 2000 compliance of the Glasstech systems
currently in service. The Company determined that the majority of the Glasstech
systems currently in service should continue to operate after the year 2000;
however, the internal date function on certain systems may not perform properly,
which would require the end-user of a Glasstech system to make certain manual
changes to the maintenance reports printed by the system. The Company has
identified one type of software within certain Glasstech systems which, if not
properly reset, may cause this type of Glasstech system to fail. The Company has
addressed the year 2000 problems in all of the Glasstech systems currently being
sold, and has put out a service bulletin on the Glasstech systems currently in
service to inform customers of the problems. The Company intends to make
software upgrades available to its customers by December 1998 that address these
problems.
Suppliers
The Company has commenced a program to determine the year 2000
compliance efforts of its equipment and raw materials suppliers. The Company
sent out questionnaires to its 50 largest suppliers and, as of September 15,
1998, the Company had received responses from approximately 80% of these
suppliers. The Company intends to complete this review by December 1998. This
program has not yet revealed any material problems.
However, this program is ongoing and the Company's efforts with respect
to specific problems identified will depend in part on its assessment of the
likelihood that any such problems may have a material adverse impact on the
Company. Unfortunately, the Company cannot fully control the conduct of its
suppliers, and there can be no guarantee that year 2000 problems originating
with a supplier will not occur. As discussed under "Business--Materials and
Supply Arrangements," the Company believes that it has made adequate
arrangements with backup suppliers to avoid any material adverse effect that
would occur if one of its primary suppliers were unable to fill the Company's
orders for any reason, including as a result of year 2000 problems.
Building and Utility Suppliers
The Company is currently reviewing its building and utility systems
(gas, electrical, telephone, etc.) for the impact of the year 2000 problem. The
Company intends to complete this review by March 1999. If the Company did not
receive utility service from certain of these suppliers, the Company could be
unable to produce Glasstech systems or take orders for new systems. While the
Company is working diligently with all of its utility suppliers and has no
reason to expect that they will not be able to provide service after the year
2000,
23
<PAGE> 24
there can be no assurance that these suppliers will be able to meet the
Company's requirements. In the case of these suppliers, an acceptable
contingency plan has not yet been developed. Because of the nature of these
suppliers and the fact that they are often the only suppliers of a given service
available in the Company's geographic region, management believes that it may
prove impossible to develop an acceptable contingency plan for certain of the
building and utility systems. The failure of any such supplier to fully
remediate its systems for year 2000 compliance could cause a shut down of the
Company's manufacturing and design facility, which could impact the Company's
ability to meet its obligations to supply Glasstech systems to its customers and
could have a material adverse affect on the Company.
24
<PAGE> 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Auditors........................................................................26
Consolidated Balance Sheets as of June 30, 1998 and 1997..............................................27
Consolidated Statements of Income for the Years Ended June 30, 1998, 1997 and 1996....................28
Consolidated Statements of Shareholders' Equity for the Years Ended June 30, 1998, 1997 and 1996......29
Consolidated Statements of Cash Flows for the Years Ended June 30, 1998, 1997 and 1996................30
Notes to Consolidated Financial Statements............................................................31
</TABLE>
25
<PAGE> 26
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholder
Glasstech, Inc.
We have audited the accompanying consolidated balance sheets of
Glasstech, Inc. as of June 30, 1998 and 1997, and the related consolidated
statements of income, shareholder's equity, and cash flows for each of the three
years in the period ended June 30, 1998. Our audits also included the Financial
Statement Schedule listed in the index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as an evaluation of the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As more fully described in the notes to the consolidated financial
statements, effective July 2, 1998, the Company was acquired by Glasstech
Holding Co. The acquisition was accounted for under the purchase method of
accounting for financial reporting purposes. As a result of this acquisition,
the consolidated financial statements for the period after the acquisition are
presented on a different cost basis than that for the period before the
acquisition and, therefore, are not comparable.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Glasstech, Inc. at June 30, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
the June 30, 1998, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
ERNST & YOUNG LLP
Toledo, Ohio
August 14, 1998
26
<PAGE> 27
GLASSTECH, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30
1998 1997
-------------------------------------------
SUCCESSOR COMPANY PREDECESSOR COMPANY
(NOTE 1)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,121 $51,805
Restricted cash - 1,529
Accounts receivable:
Contracts:
Uncompleted, including unbilled amounts of $6,841 and $2,188 7,930 3,652
Completed 931 1,676
Trade, less allowance of $40 for doubtful accounts 1,144 1,530
-------------------------------------------
10,005 6,858
Inventory:
Replacement and service parts 1,656 2,084
Furnace contracts and other 2,017 2,182
-------------------------------------------
3,673 4,266
Prepaid expenses 350 481
-------------------------------------------
Total current assets 27,149 64,939
Property, plant and equipment, net 6,947 8,390
Other assets:
Patents, less accumulated amortization of $1,727 and $4,317 16,556 18,283
Goodwill, less accumulated amortization of $2,629 47,796 -
Reorganization value in excess of amounts allocable to identifiable assets less
accumulated amortization of $1,599 - 7,583
Deferred financing costs and other 4,471 169
-------------------------------------------
Total other assets 68,823 26,035
-------------------------------------------
$102,919 $99,364
===========================================
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Accounts payable $ 4,167 3,413
Billings in excess of costs and estimated earnings on uncompleted contracts 4,309 10,720
Accrued liabilities:
Interest 4,462 2,100
Salaries and wages 3,851 3,606
Contract costs 2,382 3,780
Other 1,440 1,801
-------------------------------------------
12,135 11,287
-------------------------------------------
Total current liabilities 20,611 25,420
Long-term debt 69,357 42,000
Nonpension postretirement benefit obligation 406 2,712
Shareholders' equity:
Common stock $.01 par value; 1,000 shares authorized, issued and
outstanding (10,000,000 shares authorized; 1,004,119 shares issued and
outstanding at June 30, 1997) - 10
Additional capital 15,750 20,377
Retained earnings 823 8,845
-------------------------------------------
16,573 29,232
Shareholders' basis reduction (4,028) -
-------------------------------------------
Total shareholders' equity 12,545 29,232
-------------------------------------------
$102,919 $99,364
===========================================
</TABLE>
See accompanying notes.
27
<PAGE> 28
GLASSTECH, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30
1998 1997 1996
------------------------------------------------------------
SUCCESSOR PREDECESSOR
COMPANY COMPANY
(NOTE 1)
<S> <C> <C> <C>
Net revenue $69,588 $76,433 $62,771
Cost of goods sold 37,760 45,603 39,024
------------------------------------------------------------
Gross profit 31,828 30,830 23,747
Selling, general and administrative expenses 11,035 12,866 10,724
Research and development expenses 4,247 4,594 4,557
Amortization expense 4,356 2,306 2,407
------------------------------------------------------------
Operating profit 12,190 11,064 6,059
Interest expense (9,643) (4,200) (4,200)
Other income - net 525 2,263 1,541
------------------------------------------------------------
Income before income taxes 3,072 9,127 3,400
Income taxes not payable in cash (2,249) (2,551) (1,418)
Federal income taxes, current - (78) (105)
============================================================
Net income $ 823 $ 6,498 $ 1,877
============================================================
</TABLE>
See accompanying notes.
28
<PAGE> 29
GLASSTECH, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK SHAREHOLDERS'
------------------------- ADDITIONAL BASIS RETAINED
SHARES AMOUNT CAPITAL REDUCTION EARNINGS TOTAL
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY (NOTE 1)
Balance July 1, 1995 1,000,001 $ 10 $ 20,164 $ - $ 470 $ 20,644
Net income 1,877 1,877
Issuance of common stock warrants 131 131
----------------------------------------------------------------------------------
Balance, June 30, 1996 1,000,001 10 20,295 - 2,347 22,652
Net income 6,498 6,498
Issuance of common stock 4,118 - 82 82
----------------------------------------------------------------------------------
Balance, June 30, 1997 1,004,119 $ 10 $ 20,377 $ $ 8,845 $ 29,232
==================================================================================
SUCCESSOR COMPANY (NOTE 1)
Issuance of common stock 1,000 $ - $ 15,750 $ - $ - $ 15,750
Shareholders' basis reduction (4,028) (4,028)
Net income 823 823
----------------------------------------------------------------------------------
Balance, June 30, 1998 1,000 $ - $ 15,750 $(4,028) $ 823 $ 12,545
==================================================================================
</TABLE>
See accompanying notes.
29
<PAGE> 30
GLASSTECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30
1998 1997 1996
----------------------------------
SUCCESSOR PREDECESSOR
COMPANY COMPANY
(NOTE 1)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 823 $ 6,498 $ 1,877
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 6,447 3,764 3,721
Income taxes not payable in cash 2,249 2,551 1,418
Nonpension postretirement benefit obligation expense
in excess of payments 15 159 377
Accretion of debt discount 107 - -
Other 7 11 13
Changes in assets and liabilities affecting operations:
Restricted cash 1,529 (111) 1,095
Accounts receivable (2,855) 1,397 3,978
Inventory 832 (1,697) 246
Prepaid expenses 86 (166) 6
Accounts payable 480 (450) 817
Billings in excess of costs and estimated earnings
on uncompleted contracts (6,583) (4,917) 8,274
Accrued liabilities 4,784 1,934 699
----------------------------------
Net cash provided by operating activities 7,921 8,973 22,521
INVESTING ACTIVITIES
Net assets purchased (74,796) - -
Increase in long-term notes receivable (656) - -
Additions to property, plant and equipment (349) (990) (2,152)
Proceeds on sale of demonstration furnace 270 - 491
Other 10 12 (2)
----------------------------------
Net cash used in investing activities (75,521) (978) (1,663)
FINANCING ACTIVITIES
Issuance of long-term debt and related warrants 70,000 - -
Issuance of common stock 15,000 82 -
Deferred financing costs (4,279) (87) -
Issuance of stock warrants - - 131
Other - - (6)
----------------------------------
Net cash provided by (used in) financing activities 80,721 (5) 125
----------------------------------
Increase in cash and cash equivalents 13,121 7,990 20,983
Cash and cash equivalents at beginning of year - 43,815 22,832
----------------------------------
Cash and cash equivalents at end of year $ 13,121 $ 51,805 $ 43,815
==================================
Supplemental disclosure of cash flow information:
Cash paid (received) during the year for the following:
Interest $ 4,438 $ 4,200 $ 4,177
==================================
Income taxes $ (311) $ 337 $ 105
==================================
</TABLE>
See accompanying notes.
30
<PAGE> 31
GLASSTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. BASIS OF PRESENTATION
Effective July 2, 1997, Glasstech, Inc. (the "Company") was acquired by
Glasstech Holding Co. ("Holding") (the "Transaction"). In connection with the
Transaction, Holding, a holding company formed for the purpose of completing the
Transaction, formed a wholly owned subsidiary, Glasstech Sub Co. ("Sub Co."),
which acquired all of the outstanding stock of the Company. Subsequently, Sub
Co. was merged into the Company. Holding has no significant activities other
than its investment in the Company. The acquisition was accounted for under the
purchase method of accounting for financial reporting purposes and the purchase
price of approximately $77.9 million has been allocated to the underlying net
assets acquired. The Transaction resulted in the Company having substantial
goodwill, increased debt and a significant reduction in cash.
As a result of the Transaction, the financial position and results of
operations of the Company subsequent to the Transaction are not necessarily
comparable to the financial position and results of operations of the Company
prior to the Transaction. In the accompanying consolidated financial statements,
the Company's financial position and results of operations prior to the
Transaction are indicated as relating to the "Predecessor Company" while the
financial position and results of operations subsequent to the Transaction are
indicated as relating to the "Successor Company." Amounts reported for financial
reporting purposes in fiscal 1998 represent the activity of the Successor
Company beginning July 2, 1997.
In connection with accounting for the Transaction, the Company applied
the provisions of Emerging Issues Task Force Issue 88-16 (EITF 88-16), whereby
the carryover equity interests of certain shareholders from the Predecessor
Company to the Successor Company were recorded at their predecessor basis. As a
result, shareholder's equity of the Successor Company has been reduced by $4.028
million with a corresponding reduction to the value of goodwill acquired.
The Company has two wholly owned subsidiaries, Glasstech Ltd., a
corporation in the United Kingdom, and Stir-Melter, Inc., a domestic subsidiary,
which are consolidated for financial reporting purposes. The Company will file a
separate Company tax return for its tax year ended June 30, 1998. Such separate
Company return will include Stir-Melter, Inc. for the 2-day period ended July 2,
1997. Holding and Stir-Melter, Inc. will file separate Company returns for their
tax years ended June 30, 1998. All significant intercompany amounts and
transactions have been eliminated.
The Company designs and manufactures glass bending and tempering
equipment and markets and sells such equipment worldwide to both automotive
glass fabricators and architectural glass producers. Glasstech Ltd. provides
engineering, sales, and service support in Europe, the Middle East, and Africa.
Stir-Melter, Inc. designs and markets glass-melting equipment for the treatment
of certain waste products.
2. SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
For financial reporting purposes, the Company includes in income the ratable
portion of profits on uncompleted contracts determined in accordance with the
stage of completion measured by the percentage of costs incurred to
31
<PAGE> 32
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
estimated total costs of each contract. For income tax purposes, contracts are
accounted for on the inventory accrual basis, whereby income is recognized when
the customer accepts the equipment. Unbilled amounts included in uncompleted
contract accounts receivables represent revenues recognized in excess of amounts
billed. Billings in excess of costs and estimated earnings on uncompleted
contracts represent amounts billed in excess of revenues recognized.
Revenue from sales other than contracts is recognized when the products
are shipped.
CREDIT PRACTICES
Credit terms are granted to customers and periodically revised based on
evaluations of the customer's financial condition with collateral generally not
being required. In certain instances, letters of credit may be obtained to
secure payment. Credit losses relating to customers consistently have been
within management's expectations.
CASH AND CASH EQUIVALENTS
The Company considers all unrestricted highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
Restricted cash primarily represents cash collateral for outstanding
standby letters of credit issued on behalf of the Company in support of the
Company's performance obligations under various sales contracts. These funds
become available upon performance under the applicable sales contracts or
expiration of the underlying letter of credit, or both.
INVENTORY
Inventory is stated at the lower of cost or market determined by the
first-in, first-out ("FIFO") method.
DEPRECIATION AND AMORTIZATION
Depreciation is based on the estimated useful lives of the assets and
is generally computed using accelerated methods. Amortization of leasehold
improvements is provided on the straight-line basis over the estimated useful
lives of the assets or the terms of the leases, whichever is shorter. The useful
lives range from 10 to 40 years for building and leasehold improvements; 3 to 12
years for machinery and equipment; 7 to 12 years for demonstration glass
tempering furnaces; and 3 to 12 years for office equipment and other.
Patents are being amortized on the straight-line basis over their
estimated useful lives of 10 to 15 years.
Reorganization value in excess of amounts allocable to identifiable
assets and, beginning in fiscal 1998, goodwill is being amortized on the
straight-line basis over 20 years.
Deferred financing costs are being amortized over 7 years, the length
of the underlying note agreement.
32
<PAGE> 33
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK OPTIONS
The Company accounts for employee stock options in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APBO No. 25"). The disclosure requirements of Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
are not material.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
At June 30, 1997, the estimated costs of contracts in the Asia-Pacific
region included provisions for loss exposures related to final payments that
would be due upon completion of such contracts in fiscal year 1998. At the time
these estimates were made, the Asia-Pacific region was beginning a period of
financial instability and uncertainty that placed receipt of these future final
contract payments at risk. During fiscal 1998, the Company was successful in the
collection of these final contract payments. These changes in estimates in
fiscal 1998 resulted in additional contract revenues of $5,200 for the year
ended June 30, 1998. The increase in estimated costs related to the Asia-Pacific
Region contracts at June 30, 1997 had no impact on net cash provided by
operating activities since the cash payments were scheduled to be made, and were
made, during fiscal 1998, all as originally provided in the underlying
contracts.
NEW ACCOUNTING STANDARDS
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("FAS
130") and No. 131 "Disclosure About Segments of an Enterprise and Related
Information" ("FAS 131") which are effective for periods beginning after
December 31, 1997. FAS 130 will not have a material effect on the consolidated
financial statements, and the Company has not determined the impact of FAS 131.
33
<PAGE> 34
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF JUNE 30,
1998 1997
-----------------------------
SUCCESSOR PREDECESSOR
COMPANY COMPANY
<S> <C> <C>
Cost:
Land $ 110 $ 110
Building and leasehold improvements 2,329 2,512
Machinery and equipment 1,160 1,830
Demonstration glass tempering furnaces 3,044 4,776
Office equipment 1,693 2,456
Other 9 17
-----------------------------
8,345 11,701
Less accumulated depreciation and amortization
(1,398) (3,311)
-----------------------------
Net property, plant and equipment $ 6,947 $ 8,390
=============================
</TABLE>
4. NOTES PAYABLE AND LONG-TERM DEBT
In connection with the Transaction, the Sub Co. issued $70,000 of
12-3/4% Senior Notes due 2004 (the "Old Notes") in a private offering exempt
from registration under the Securities Act of 1933, as amended (the "1933 Act"),
and intended to permit resales under Rule 144A of the 1933 Act. In connection
with the issuance of the Old Notes, the Company received from Holding warrants
to purchase 877 shares of common stock of Holding valued for financial reporting
purposes at $750. Following the merger of Sub Co. into the Company, the Company
became the obligor on the Old Notes. These warrants were issued to the
purchasers of the Old Notes. On December 2, 1997, the Company consummated an
exchange offer (the "Exchange Offer") of its $70,000 Series B 12-3/4% Senior
Notes Due 2004 (the "New Notes"), which were issued in a transaction registered
under the 1933 Act, for the Old Notes. The terms of the New Notes are
substantially identical to the terms of the Old Notes and as used herein, will
be referred to as the "Senior Notes." Interest on the Senior Notes is payable
semi-annually on each January 1 and July 1 beginning January 1, 1998. The terms
of the Senior Notes do not require any scheduled principal payments prior to
maturity.
The Company also entered into a $10,000 revolving credit facility
("Credit Facility") in connection with the Transaction. The Credit Facility
expires on June 30, 2007, and provides for interest on outstanding borrowings at
the LIBOR rate plus 2% (7.6875% at June 30, 1998) payable semi-annually. The
Credit Facility also secures standby letters of credit, which totaled $2,706 at
June 30, 1998, with such amounts reducing available borrowing levels. The
Company had no outstanding borrowings under the Credit Facility at June 30,
1998. The Credit Facility is secured by substantially all of the assets of the
Company.
The Senior Notes and the Credit Facility contain numerous financial and
other covenants which include the maintenance of certain levels of earnings as
defined, restrictions on the payment of dividends, the incurrence of additional
indebtedness, and as certain types of business activities and investments. The
Company believes that it is in material compliance with all such covenants.
34
<PAGE> 35
4. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED
Long-term debt at June 30, 1997 consisted of $42,000 of 10% senior
notes, which were repaid prior to the Transaction.
At June 30, 1998 and 1997, the carrying value of the Company's
long-term debt approximates its fair value based on the Company's incremental
borrowing rates.
5. COMMON STOCK
Effective January 5, 1995, the Company adopted a nonqualified stock
option plan (the "Plan") authorizing issuance of up to 5% of the Company's
outstanding common stock on a fully diluted basis. The Plan provided for
granting options to officers and key employees to purchase shares of the
Company's common stock at a price established by the Board of Directors, which
approximated fair market value. Options had terms of 10 years and became vested
and exercisable in 20% increments beginning on the grant date and on each
successive anniversary date of the grant. Options for 58,823 shares were
authorized and granted under the Plan at an exercise price of $20.00 per share.
In addition, the Company granted options for an additional 181,646 shares under
separate agreements. The options were granted at an exercise price of $20.00 per
share with terms identical to those contained in the Plan. No options were
exercised or cancelled through June 30, 1996. During 1997, options for 4,118
shares were exercised and options for 6,176 shares were cancelled. All remaining
outstanding options were exercised in connection with the Transaction.
During 1996, the Company issued 65,290 common stock purchase warrants
to certain directors for total proceeds of $131. Subject to certain
anti-dilution provisions, each warrant entitled the holder to purchase one share
of the Company's common stock for $25.00 per share through January 5, 2001. No
warrants were exercised through June 30, 1997. All warrants were exercised in
connection with the Transaction.
6. EMPLOYEE BENEFIT PLANS
The Company has defined contribution retirement plans which cover
substantially all employees. Contributions, which are based on participants'
compensation, are funded annually and approximated $639, $604 and $541, for the
years ended June 30, 1998, 1997 and 1996, respectively.
In addition, Glasstech provides certain retiree healthcare insurance
benefits to eligible retired employees. Employees are generally eligible for
benefits upon retirement and completion of a specified number of years of
creditable service. These benefits are provided at the discretion of Glasstech
and are subject to revision or termination at any time. The Company funds such
costs as they are incurred.
35
<PAGE> 36
6. EMPLOYEE BENEFIT PLANS (CONTINUED)
The components of the net periodic postretirement benefit cost at June
30 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------
SUCCESSOR PREDECESSOR
COMPANY COMPANY
<S> <C> <C> <C>
Service cost (benefits earned during
the period) $ 16 $ 117 $ 206
Interest cost on accumulated
postretirement benefit obligation 31 128 200
Net amortization and deferral - (55) 9
------------------------------
Net periodic postretirement benefit
cost $ 47 $ 190 $ 415
==============================
</TABLE>
The components of the accumulated postretirement benefit obligation and
amounts accrued at June 30 were as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------------
SUCCESSOR PREDECESSOR
COMPANY COMPANY
<S> <C> <C>
Actuarial present value of benefit obligations:
Retirees and dependents $ 181 $ 174
Eligible active employees 100 97
Other active employees 124 120
Unrecognized prior service credit - 2,009
Unrecognized net gain 1 312
-------------------------------
Total accrued postretirement benefits $ 406 $2,712
===============================
</TABLE>
Effective February 1, 1997, the Company portion of the retiree health
care insurance benefits was revised to a fixed monthly contribution amount.
Prior to this date, the Company's monthly contribution was the actual cost in
excess of a fixed monthly contribution by each retiree. The effect of this
amendment reduced the Company's nonpension postretirement benefit obligation by
approximately $2,009, which, prior to the Transaction, was being amortized on
the straight-line method over approximately 20 years.
Assumed health care cost inflation was based on an initial rate of 8.6%
declining ratably over 14 years to an ultimate rate of 5.5%. A one percentage
point increase in these rates would have no impact on the accumulated
postretirement benefit obligation at June 30, 1998 or the net postretirement
benefit cost for 1998. The assumed discount rate used in determining the
accumulated postretirement benefit obligation was 8.25% at June 30, 1998 and
1997.
36
<PAGE> 37
7. FEDERAL INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred income tax liabilities and assets at June
30 are as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------------------
SUCCESSOR PREDECESSOR
COMPANY COMPANY
<S> <C> <C>
Deferred income tax liabilities:
Contract revenues $ (5,469) $ (5,388)
Property, plant and equipment (816) (892)
-------------------------------------
Total deferred income tax liabilities (6,285) (6,280)
Deferred income tax assets:
Federal income tax operating loss carryovers 13,794 7,155
Accrued liabilities and reserves 1,044 2,326
Excess tax basis on purchased assets 1,006 2,404
Other 321 431
-------------------------------------
Total deferred income tax assets 16,165 12,316
Less valuation reserve 9,880 6,036
-------------------------------------
Net deferred income tax assets 6,285 6,280
-------------------------------------
Total deferred income taxes - net $ - $ -
=====================================
</TABLE>
A valuation allowance has been recorded against the Company's deferred
income tax assets due to the uncertainties surrounding the realization of any
future tax benefit.
The consolidated effective income tax rate differs from the statutory
U. S. federal tax rate for the following reasons and by the following
percentages:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------------
SUCCESSOR PREDECESSOR
COMPANY COMPANY
<S> <C> <C> <C>
Statutory U. S. federal tax rate 34.0% 34.0% 34.0%
Increase (reduction) in tax rate
resulting from:
Amortization of goodwill and
excess reorganization value 32.5 2.2 6.8
State income taxes 4.3 - -
Effect of reduction in valuation
reserve for deferred income taxes - (8.6) -
Other 2.4 1.2 4.0
------------------------------------------------
Effective tax rate 73.2% 28.8% 44.8%
================================================
</TABLE>
The "Effect of reduction in valuation reserve for deferred income
taxes" in 1997 represents the effect of changes in post reorganization temporary
differences fully reserved by the Company's valuation reserve.
37
<PAGE> 38
7. FEDERAL INCOME TAXES (CONTINUED)
At June 30, 1998, the Company has net operating loss carryforwards for
regular and alternative minimum tax purposes of approximately $36,301 and
$33,071, respectively, which expire in the years 2009 through 2013. Such loss
carryforwards have annual usage limitations which, if not utilized in a given
year, may be utilized in subsequent years.
Income taxes not payable in cash represent the tax effect of certain
acquired temporary differences and are recorded as a reduction to goodwill or,
prior to the Transaction, reorganization value in excess of amounts allocated to
identifiable assets.
8. FOREIGN SALES AND SALES CONCENTRATION
Revenues by geographic region are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------
SUCCESSOR PREDECESSOR
COMPANY COMPANY
<S> <C> <C> <C>
United States $23,509 $22,269 $18,794
Asia-Pacific 27,654 45,276 23,065
Europe 11,518 5,030 9,827
Latin America 5,384 2,616 6,208
Other 1,523 1,242 4,877
--------------------------------------------------
$69,588 $76,433 $62,771
==================================================
</TABLE>
Five customers accounted for approximately 45%, 57%, 42%, of net sales
during the years ended June 30, 1998, 1997 and 1996, respectively.
9. LEASES
The Company leases a manufacturing and office building under a
long-term agreement. The minimum annual rental associated with this lease
through its expiration on December 31, 1999 is approximately $300. The Company
has the option to renew the lease for two additional five-year periods at
slightly higher rates. Total rental expense amounted to $300 for each of the
three years in the period ended June 30, 1998.
10. TRANSACTIONS WITH AFFILIATE
Upon consummation of the Transaction and in connection with the related
offering of the Old Notes and the warrants, the Company paid a $1,000 financing
fee to Key Equity Capital Corporation ("KECC"). In addition, the Company also
entered into an advisory agreement with KECC at an annual expense of $200.
11. LEGAL PROCEEDINGS
On January 15, 1997, James E. Heider, a former executive officer of the
Company, commenced an action against the Company and Mark Christman, the
President of the Company, in the Common Pleas Court of Wood County, Ohio,
relating to the nonrenewal of his employment agreement. In the amended
complaint, Mr.
38
<PAGE> 39
11. LEGAL PROCEEDINGS (CONTINUED)
Heider alleges that the Company breached his written employment agreement and
breached implied and express employment agreements that, according to the
complaint, were created pursuant to certain alleged oral statements. The
complaint also alleges that Mr. Heider was terminated in retaliation for
reporting on the conduct of certain employees and that Mr. Heider was wrongfully
denied the ability to exercise certain stock options. Mr. Heider seeks
compensation of approximately $9.5 million for lost wages, bonuses, back pay,
vacation pay and the value of other fringe benefits he would have received
through continued employment with the Company. The Company believes that this
action is without merit and is barred by the provisions of Mr. Heider's written
employment agreement with the Company. On July 24, 1998, the Company was granted
a motion for summary judgement on all counts. Mr. Heider filed an appeal and the
Company intends to contest this appeal.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
39
<PAGE> 40
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth the names and ages of the Company's
executive officers (the "Executive Management") and the directors of the Company
and Holding (the "Directors"). The officers and directors of the Company and
Holding are identical and management believes that they will continue to be
identical for the foreseeable future.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Mark D. Christman 46 Director, President and Chief Executive Officer
John S. Baxter 58 Senior Vice President, Marketing and Sales
Kenneth H. Wetmore 51 Vice President, General Counsel and Secretary
Ronald A. McMaster, Ph.D. 58 Vice President, Corporate Development
Diane S. Tymiak 41 Vice President, Treasurer and Chief Financial Officer
Larry E. Elliott 47 Vice President, Manufacturing and Engineering
James P. Schnabel 37 Vice President, Development
David P. Given 44 Director
Jon Kleinke 34 Director
James M. Papada, III 50 Director
Edmund S. Wright 55 Director
</TABLE>
Mark D. Christman has been President and Chief Operating Officer of the
Company since December 31, 1992. Mr. Christman joined the Company in 1976, and
since that time has served in various capacities, including Vice President,
Treasurer, Chief Financial Officer and Executive Vice President. Upon the
consummation of the Transactions, Mr. Christman was elected Director, President
and Chief Executive Officer.
John S. Baxter has been Senior Vice President, Marketing and Sales,
since 1992. Mr. Baxter joined the Company in 1981 and was Managing Director of
Glasstech Ltd. from 1981 to 1992. Prior to joining the Company, Mr. Baxter was
employed by Triplex Safety Glass, a subsidiary of Pilkington plc, for five
years. From July 1997 to February 1998, Mr. Baxter was a Director.
Kenneth H. Wetmore joined the Company in 1988 as General Counsel and
was elected Secretary in 1989 and Vice President in 1991. Mr. Wetmore is also
President of Stir-Melter, Inc. Prior to joining the Company, Mr. Wetmore was
employed by Owens Corning Fiberglas Corp. for 19 years.
Ronald A. McMaster, Ph.D. has been Vice President, Corporate
Development since 1988. Dr. McMaster joined the Company in 1977 and has served
in various capacities, including Vice President, Research and Development and
Vice President, Advanced Engineering. Mr. McMaster and Mr. Christman are first
cousins.
Diane S. Tymiak has been Vice President, Treasurer and Chief Financial
Officer since 1993. Ms. Tymiak joined the Company in 1980 and has served in
various capacities since that time, most recently as Treasurer.
Larry E. Elliott joined the Company in July 1996 as Vice President,
Development. In December 1996, he was elected as Vice President, Manufacturing
and Engineering. Prior to joining the Company, Mr. Elliott was employed by the
glass division of Ford Motor Company for 25 years, most recently as Supervisor,
Fabrication Facilities Engineering.
40
<PAGE> 41
James P. Schnabel was elected Vice President, Development in 1997. He
has served in various engineering capacities with the Company since 1984, most
recently as Director, Product Development.
David P. Given has been President of KECC, a venture capital firm,
since 1995. Mr. Given joined KECC as a Vice President in 1990 and serves as a
director of several privately-held companies. Upon the consummation of the
Transactions, Mr. Given began to serve as Director.
Jon Kleinke has been employed as an Associate by KECC, a venture
capital firm, since 1996. Prior to joining KECC, Mr. Kleinke was employed for
nine years by the General Electric Company in various financial analysis
positions. Immediately prior to joining KECC, Mr. Kleinke attended the
University of Chicago and earned his MBA. Mr. Kleinke became a Director in
February 1998.
James M. Papada is a partner with the law firm of Stradley, Ronon,
Stevens & Young, located in Philadelphia, Pennsylvania from 1978 until 1982 and
from 1988 to the present. From 1983 to 1988, Mr. Papada was Chief Operating
Officer of Hordis Brothers, Inc., the largest independent glass
processor/fabricator in the United States. Mr. Papada also serves as Chairman of
the Board of Directors of Technitrol, Inc. (NYSE: TNL), a diversified
manufacturer of components for electrical and electronic equipment and is also a
director of Parra-Chem Southern, Inc. and CTA, Incorporated. Mr. Papada became a
Director in February 1998.
Edmund S. Wright has been a business consultant since 1995. Prior to
that, Mr. Wright was President and CEO of North American Refractory Company from
1981 to 1994, Vice Chairman of NARCO, Canada, Inc. from 1989 to 1994, Chairman
of ZIRCOA, Inc. from 1989 to 1994, President of Tri-Star Refractories, Inc. from
1990 to 1994 and Chairman of Dakota Catalyst Products, Inc. from 1995 to 1997.
Mr. Wright has been a director of Fairmount Minerals, Inc. from 1995 to the
present and of Unifrax Corporation from 1996 to the present. Mr. Wright became a
Director in February 1998.
All Directors hold office until the next annual meeting of shareholders
and until their successors have been elected and qualified. Executive Officers
serve at the discretion of the Board. Compensation of Directors, not employed by
the Company or affiliated with KECC, is $20,000 per year.
Under the Stockholders' Agreement (as defined herein), Messrs. Given
and Kleinke serve as directors as representatives of KECC, and Mr. Christman
serves as a director by virtue of his position as President and Chief Executive
Officer of the Company and Holding.
41
<PAGE> 42
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the compensation received by the
Company's Chief Executive Officer and the four other highest paid executive
officers (together with the Chief Executive Officer, the "Named Executive
Officers") for services to the Company in fiscal years 1998 and 1997.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL ALL OTHER
COMPENSATION COMPENSATION
------------ ------------
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS (A)
'-------------------------- ----------- ------ ----- ---
<S> <C> <C> <C> <C>
Mark D. Christman 1998 $309,634 $970,000 -
President and Chief Executive Officer.................... 1997 291,110 700,000 -
John S. Baxter 1998 233,254 296,000 -
Senior Vice President, Marketing and Sales............... 1997 219,516 215,000 -
Kenneth H. Wetmore 1998 200,080 136,000 -
Vice President, General Counsel and Secretary............ 1997 190,448 115,000 -
Larry E. Elliott 1998 163,275 136,000 -
Vice President, Manufacturing and Engineering............ 1997 154,160 - (b)$40,179
James P. Schnabel 1998 144,690 136,000 -
Vice President, Development.............................. 1997 128,688 32,000 -
</TABLE>
(a) No Named Executive Officer received other compensation or perquisites with
an aggregate value that exceeded the lesser of $50,000 or 10% of their
respective salaries and bonuses except as noted.
(b) In 1997, Mr. Elliott received (i) a defined contribution pension plan equal
to 5% of the first $150,000 of salary under the Company's pension plan,
(ii) imputed income on life insurance provided by the Company, and (iii) a
moving allowance of $27,662.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-
UNEXERCISED THE-MONEY
OPTIONS OPTIONS
AT JUNE 30, 1998 AT JUNE 30, 1998
VALUE (#) ($)
SHARES ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
---- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Mark D. Christman 58,707 $2,212,250 - -
John S. Baxter 10,294 387,955 - -
Kenneth H. Wetmore 5,882 221,678 - -
Larry E. Elliott - - - -
James P. Schnabel - - - -
</TABLE>
42
<PAGE> 43
EMPLOYMENT AGREEMENTS AND ARRANGEMENTS
Mr. Christman has entered into a five-year employment agreement with
Holding and the Company pursuant to which Mr. Christman serves as the President
and Chief Executive Officer of Holding and the Company (the "President"). Mr.
Christman is paid a base salary subject to certain cost-of-living adjustments,
and receives customary executive benefits. Additionally, pursuant to his
agreement and the Stockholders Agreement (as defined herein), he is entitled to
receive no less than 40% of all distributions from the Performance Bonus Pool
(as defined herein), participate in the Restricted Stock Program (as defined
herein), and participate in the Performance Share Program (as defined herein).
See "Management Incentive Plans." The employment agreement also contains a
noncompetition provision that prohibits Mr. Christman from competing or holding
certain ownership interests in other businesses that compete against the Company
for the later of five years after the initial date of the agreement or two years
following the termination of Mr. Christman's employment (unless Mr. Christman is
terminated without cause, in which case no restriction shall apply). The
employment agreement is renewable by the Company for one-year successive terms
upon completion of the initial five-year term.
Each of the other members of Executive Management also entered into an
employment agreement (each, an "Employment Agreement" and, collectively with the
President's employment agreement, the "Employment Agreements") that is
substantially similar to Mr. Christman's agreement, but is paid a base salary
per year, subject to certain cost-of-living adjustments.
MANAGEMENT INCENTIVE PLANS
In connection with the Transactions, the Company established: (i) a
performance bonus pool (the "Performance Bonus Pool"); (ii) a restricted stock
plan (the "Restricted Stock Program"); and (iii) a performance share program
(the "Performance Share Program"), all of which were designed to retain and
reward members of Executive Management. No table describing options granted in
the last fiscal year has been included, because the Company has not granted any
options in the past fiscal year and no options are currently outstanding.
Performance Bonus Pool. Each member of Executive Management is eligible
to receive a distribution from the Performance Bonus Pool. Amounts made
available by the Company pursuant to the Performance Bonus Pool at the end of
each fiscal year are based on the operating results of the Company for such
fiscal year. If EBITDA (which for such purpose will be computed before deducting
any fees payable to KECC) is between $14.0 million and $15.0 million for such
fiscal year, then amounts available for distribution pursuant to the Performance
Bonus Pool will generally be 5.0% of EBITDA. If EBITDA is more than $15.0
million but not over $16.0 million, then amounts available for distribution
pursuant to the Performance Bonus Pool will generally be 7.5% of EBITDA. If
EBITDA is more than $16.0 million, then amounts available for distribution
pursuant to the Performance Bonus Pool will generally be 10.0% of EBITDA. The
Directors, at their discretion, but after consultation with the President, will
distribute the Performance Bonus Pool among the members of Executive Management
using its discretion; but Mr. Christman, under the terms of his employment
agreement, is entitled to receive at least 40% of the Performance Bonus Pool.
The Directors are required to distribute the entire amount of the Performance
Bonus Pool among some or all members of Executive Management.
Restricted Stock Program. Simultaneous with the consummation of the
Transactions, Holding and the members of the Key Equity Group entered into a
stockholders agreement (the "Stockholders Agreement"), pursuant to which Holding
established the Restricted Stock Program. Under the terms of the Restricted
Stock Program, members of Executive Management were granted, under their
employment agreements, in the
43
<PAGE> 44
aggregate, 1,667 shares of restricted Class C Common Stock (as defined herein)
of Holding. The restricted Class C Common Stock may not be sold or otherwise
transferred while the restrictions are in effect and may be forfeited to the
Company if the recipient leaves the Company before the restrictions lapse. The
shares of Class C Common Stock are non-voting and the restrictions will
generally lapse in equal amounts over a four-year period. However, all such
restrictions will lapse upon a Change of Control (as defined in the Employment
Agreements).
Performance Share Program. The Performance Share Program was
established under the Stockholders Agreement. Under the terms of the Performance
Share Program, members of Executive Management purchased shares of Class D
Common Stock of Holding (the "Class D Holders") by paying $0.01 in cash and
paying for the balance by issuing to Holding promissory notes in consideration
therefor and pledging such shares to Holding to secure such debt. Upon the
occurrence of a Liquidity Event (as defined herein), a final determination of
the number of shares of Class D Common Stock that will be retained by members of
Executive Management will be made based upon the achievement by the Key Equity
Group of certain goals relating to its return on the Equity Contribution, as
adjusted to account for the value attributable to the Warrants. "Liquidity
Event" is defined in the Stockholders Agreement as the first to occur of (i) the
sale of Holding and (ii) a public offering of any of Holding's securities (each,
a "Liquidity Event"). The Company will have the right to repurchase shares of
Class D Common Stock under certain circumstances upon a termination of
employment.
EMPLOYEES' PENSION PLAN AND EMPLOYEES' SAVINGS PLAN
The Company's Employees' Pension Plan and Employees' Savings Plan cover
substantially all of its employees. Under the Employees' Pension Plan, the
Company may make annual contributions to the participants equal to 5% of each
participant's compensation up to $160,000 ($150,000 for fiscal years 1997 and
1996). For the fiscal years ended June 30, 1996, 1997 and 1998, the Company made
contributions under the Employees' Pension Plan of approximately $541,000
$604,000 and $639,000, respectively. The Company does not match contributions
made by employees under the Employees' Savings Plan, a 401(k) plan.
44
<PAGE> 45
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGMENT.
Holding owns 100% of the issued and outstanding common stock of the
Company. As of September 15, 1998, the following entities or persons owned the
outstanding Common Stock of Holding as set forth below.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
------------------------- ------------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF
SHARES(a) OWNERSHIP(b) SHARES(c) OWNERSHIP
--------- ------------ --------- ---------
<S> <C> <C> <C> <C>
Key Equity Capital Corporation
127 Public Square, 28th Floor
Cleveland, Ohio 44114-1306(d)(e) 1,550 37.5% 8,405 100.0%
Key Equity Partners 97
127 Public Square, 28th Floor
Cleveland, Ohio 44114-1306(e) -- -- -- --
David Given(f)
127 Public Square, 28th Floor
Cleveland, Ohio 44114-1306 1,550 37.5% 8,405 100.0%
Executive Management(g)
Mark D. Christman 1,010 24.4% -- --
John S. Baxter 175 4.2% -- --
Kenneth H. Wetmore 125 3.0% -- --
Ronald A. McMaster, Ph.D 150 3.6% -- --
Diane S. Tymiak 90 2.2% -- --
Larry E. Elliot 35 0.9% -- --
James P. Schnabel 75 1.8% -- --
Key Equity Group(h) 3,210 77.6% 8,405 100.0%
James M. Papada, III 25 0.6% -- --
Edmund S. Wright 25 0.6% -- --
All officers and directors as a group 3,260 78.8% 8,405 100.0%
<CAPTION>
CLASS C COMMON STOCK CLASS D COMMON STOCK
------------------------- ------------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF
SHARES OWNERSHIP SHARES OWNERSHIP
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Key Equity Capital Corporation
127 Public Square, 28th Floor
Cleveland, Ohio 44114-1306(d)(e) -- -- -- --
Key Equity Partners 97
127 Public Square, 28th Floor
Cleveland, Ohio 44114-1306(e) 3,335 66.7% -- --
David Given(f)
127 Public Square, 28th Floor
Cleveland, Ohio 44114-1306 3,335 66.7% -- --
Executive Management(g)
Mark D. Christman 834 16.7% 4,000 40.0%
John S. Baxter 267 5.3% 1,800 18.0%
Kenneth H. Wetmore 133 2.7% 1,000 10.0%
Ronald A. McMaster, Ph.D 67 1.3% 500 5.0%
Diane S. Tymiak 100 1.9% 700 7.0%
Larry E. Elliot 133 2.7% 1,000 10.0%
James P. Schnabel 133 2.7% 1,000 10.0%
Key Equity Group(h) 5,002 100.0% 10,000 100.0%
James M. Papada, III -- -- -- --
Edmund S. Wright -- -- -- --
All officers and directors as a group 5,002 100.0% 10,000 100.0%
</TABLE>
(a)Does not include shares of Class A Common Stock issuable upon conversion of
Class B Common Stock, or following the occurrence of a Conversion Event, Class C
Common Stock.
(b)Assumes 877.21 shares of Class A Common Stock issuable pursuant to the
Warrants are outstanding.
(c)Does not include shares of Class B Common Stock issuable upon conversion of
Class A Common Stock.
(d)KECC is a wholly owned subsidiary of Key Bank, N.A., which is a wholly owned
subsidiary of KeyCorp, a bank holding corporation.
(e)Mr. Given is the President and Director of KECC and is a partner of KEP 97.
Accordingly, Mr. Given may be deemed to beneficially own the shares owned by
KECC and KEP 97. Mr. Given disclaims beneficial ownership of the shares owned by
KECC.
(f)Includes all the shares of Class A Common Stock and Class B Common Stock
owned by KECC and all the shares of Class C Common Stock owned by KEP 97,
because as the President and a Director of KECC and a partner of KEP 97, Mr.
Given may be deemed to beneficially own all such shares.
(g)Simultaneously with the consummation of Transactions, Executive Management
purchased 1,660 shares of Class A Common Stock on the same terms and conditions
as those shares of Class A Common Stock that are purchased by KECC. In addition,
Executive Management received 1,667 shares of Class C Common Stock in connection
with the Restricted Stock Plan and up to 10,000 shares of Class D Common Stock
that may be earned under the Performance Share Program.
(h)The Key Equity Group is comprised of Executive Management, KECC and KEP 97.
45
<PAGE> 46
STOCKHOLDERS AGREEMENT
Simultaneously with the consummation of the Transactions, members of
the Key Equity Group and Holding entered into a Stockholders' Agreement (the
"Stockholders Agreement") which, together with the Amended and Restated
Certificate of Incorporation of Holding (the "Certificate of Incorporation"),
governs the terms of the capital stock of Holding.
Classes of Common Stock. The authorized shares of capital stock of
Holding (the "Common Stock") consists of: (i) 18,072 authorized shares of Class
A Voting Common Stock, $0.01 par value (the "Class A Common Stock"); (ii) 13,070
authorized shares of Class B Non-Voting Common Stock, $0.01 par value (the
"Class B Common Stock"); (iii) 5,002 shares of Class C Stock Non-Voting Common
Stock, $0.01 par value (the "Class C Common Stock"); and (iv) 10,000 shares of
Class D Non-Voting Common Stock, $0.01 par value (the "Class D Common Stock").
The holders of Class A Common Stock have the right to vote on all matters to be
voted on by the stockholders of Holding. At every meeting of stockholders of
Holding, each holder of Class A Common Stock is entitled to one vote per share.
Except as otherwise required by law, a holder of Class B Common Stock, Class C
Common Stock or Class D Common Stock has no voting rights with respect to such
Common Stock.
Control. The Certificate of Incorporation requires Holding to obtain
the approval by vote or written consent of 55% of the then outstanding shares of
Class A Common Stock, in addition to any other vote required by law, in order to
do any of the following: (i) redeem, purchase or otherwise acquire for value any
shares of Common Stock or any other shares of its capital stock, except as
specifically permitted in the Stockholders Agreement; (ii) authorize or issue,
or obligate itself to authorize or issue, additional shares of Common Stock or
any other shares of its capital stock except as contemplated in the Certificate
of Incorporation or in the Stockholders Agreement; (iii) amend, alter or repeal
the Certificate of Incorporation or the By-Laws of Holding (the "By-Laws"); (iv)
declare or pay any dividends or make any distributions with respect to any of
its capital stock; or (v) except as specifically permitted by the Stockholders
Agreement, effect, or obligate itself to effect, any sale, lease, assignment,
transfer or other conveyance of all or substantially all of the assets of
Holding or any subsidiary thereof, or any consolidation or merger involving
Holding or any subsidiary thereof, or any reclassification or other change of
capital stock, or any recapitalization or reorganization or any dissolution,
liquidation or winding up of Holding or any subsidiary thereof, except for the
merger into Holding of, or the transfer of assets to Holding from, any wholly
owned subsidiary.
In addition, the Stockholders Agreement provides that Holding will not,
and will not permit any of its subsidiaries (including the Company), to take any
of the following actions without the written consent of KECC or Key Equity
Partners 97, a general partnership comprised of certain affiliates of KECC ("KEP
97"): (i) acquire any assets (other than in the ordinary course of business),
capital stock, or any other interest in another business or entity; (ii) sell,
lease, transfer, mortgage, pledge, or encumber all or substantially all of its
assets; (iii) dispose of any business entity or product line or any division or
subsidiary; (iv) enter into any merger, consolidation, reorganization or
recapitalization, or any agreement to do any of the foregoing or reclassify any
of its equity securities; (v) issue any equity security, or issue any options,
warrants, convertible securities, or other rights (contingent or otherwise) to
acquire any equity securities, except for shares of Class A Common Stock issued
pursuant to the Warrants and the issuance of stock to an employee of Holding or
any of its subsidiaries in accordance with a stock purchase or award program
plan or the conversion of stock as described in the Certificate of
Incorporation; (vi) form or acquire any subsidiary except those now existing;
(vii) except as otherwise contemplated by the Stockholders Agreement, declare or
pay any dividends or distributions on the Common Stock or other equity
securities or redeem or repurchase any Common Stock; (viii) grant its consent to
a transfer of stock otherwise prohibited by the Stockholders Agreement; (ix)
incur, assume or guaranty any indebtedness for borrowed money in excess of
certain amounts in any fiscal year; (x) make any loans or advances to any
stockholders or any employees of Holding or any of its subsidiaries other than
advances to
46
<PAGE> 47
employees in the ordinary course of business which do not exceed certain amounts
per year; (xi) make capital expenditures in excess of certain amounts in any
fiscal year; (xii) except as otherwise contemplated by the Stockholders
Agreement, enter into any transaction with any stockholder or any affiliate of
Holding or its subsidiaries or any stockholder that is on terms less favorable
to Holding and its subsidiaries than could be obtained from unaffiliated third
parties on an arm's-length basis; (xiii) amend its Certificate of Incorporation
or By-Laws; or (xiv) enter into any agreement to do any of the foregoing.
Conversion. Each holder of Class B Common Stock is entitled at any time
and from time to time to convert any or all of the shares of that holder's Class
B Common Stock into the same number of shares of Class A Common Stock as
provided in the Certificate of Incorporation; each holder of Class A Common
Stock is entitled at any time and from time to time to convert any or all of the
shares of that holder's Class A Common Stock into the same number of shares of
Class B Common Stock as provided in the Certificate of Incorporation; provided
that in the case of a conversion from Class B Common Stock, which is non-voting,
into Class A Common Stock, which is voting, the holder of shares to be converted
would be permitted under applicable law to hold the total number of shares of
Class A Common Stock which would be held after giving effect to the conversion.
The conversion of the Class B Common Stock held by KECC could result in a change
of control of Holding and the Company, since Holding is the sole stockholder of
the Company.
Each holder of Class C Common Stock is entitled to convert any or all
of the shares of that holder's Class C Common Stock into the same number of
shares of Class A Common Stock only upon the occurrence of any public offering
or public sale of securities of the Corporation (including a public offering
registered under the Securities Act and a sale pursuant to Rule 144 of the
Securities Act or any similar rule then in effect) (any such offering, a
"Conversion Event"). In addition, each holder of Class C Common Stock is
entitled to convert shares of Class C Common Stock if such holder reasonably
believes that a Conversion Event will be consummated. The Company is obligated,
upon written request of the holder of Class C Common Stock, to effect such
conversion in a timely manner so as to enable each such holder to participate in
such Conversion Event. If any shares of Class C Common Stock are converted into
shares of Class A Common Stock in connection with a Conversion Event and such
shares of Class A Common Stock are not actually distributed, disposed of or sold
pursuant to such Conversion Event, such shares of Class A Common Stock will
promptly be converted back into the same number of shares of Class C Common
Stock that had been the subject of the request for conversion.
Restrictions on Transfer. Generally, the shares of Common Stock are
subject to certain restrictions on transfer contained in the Stockholders
Agreement. The shares of Common Stock may be transferred among affiliates and
immediate family members without restrictions as long as the recipient complies
with the provisions of the Stockholders Agreement and the applicable rules and
regulations of the Commission. In addition, Holding may repurchase shares of
Common Stock from departing members of Executive Management.
Preemptive Rights. The holders of Common Stock have a pro rata right to
participate in all future offerings of shares of equity securities of Holding or
any securities convertible into or exchangeable for or carrying rights or
options to purchase any shares or any other equity securities of the Company.
Certain Rights of KECC and KEP 97. KECC and KEP 97 have the right, in
the future to exercise a right to require Holding to repurchase their shares of
Common Stock any time after June 2004. In addition, KECC and KEP 97 also have
certain demand registration rights pursuant to which members of Executive
Management also be able to participate.
47
<PAGE> 48
ITEM 13. CERTAIN RELATIONSHIPS AND CERTAIN TRANSACTIONS.
KECC received a financing fee in an amount equal to $1.0 million for
its assistance in structuring, arranging and closing the Transactions.
The Company arranged for the payment of success bonuses to members of
Executive Management in connection with the successful completion of the
Transactions. The aggregate amount of such success bonuses was $2.7 million, the
allocation of which was as follows: (i) Mark D. Christman received $1,865,000;
(ii) John S. Baxter received $280,000; (iii) Kenneth H. Wetmore received
$165,000; (iv) Diane S. Tymiak received $165,000; (v) Larry E. Elliott received
$95,000; and (vi) James P. Schnabel, Jr. received $95,000.
Upon consummation of the Transactions, the Company entered into an
advisory agreement with KECC, pursuant to which KECC consults with the Directors
and members of Executive Management on such general business and financial
matters as may be requested by the Board of Directors, including: (i) corporate
strategy; (ii) budgeting of future corporate investment; and (iii) acquisition
and divestiture strategies. In exchange for such services, KECC receives an
annual fee of $200,000, payable quarterly in arrears.
The Company has advanced to Holding the sum of $656,399. The advances
have been made to Holding to permit Holding to satisfy certain obligations it
entered into in connection with the Transactions, including, without limitation,
obligations to loan funds to members of Executive Management to allow them to
satisfy certain tax liabilities. The tax liabilities resulted from the members
of Executive Management making certain elections under Section 83(b) of the Code
with respect to the shares of Class C Common Stock.
48
<PAGE> 49
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements:
See Index to Consolidated Financial Statements and Financial
Statement Schedules on page 23 included herein.
(a) (2) Financial Statement Schedule:
Schedule II--Valuation and Qualifying Accounts on page S-1.
All other schedules are omitted as the required information is not
applicable or not present in amounts sufficient to require
submission of the schedule, or because the information is
presented in the consolidated financial statements or related
notes.
(a) (3) Exhibits:
<TABLE>
<S> <C> <C>
2.1* Agreement and Plan of Merger
2.2* Amendment to Agreement and Plan of Merger
3.1* Restated Certificate of Incorporation of the Registrant
3.2* By-laws of the Registrant
4.1* Indenture (including form of Note)
4.2* First Supplemental Indenture
10.1* Financing and Security Agreement between NationsBank, N.A. and the Registrant
10.2* Plant and Office Lease
10.3* Warehouse Lease
10.4* Advisory Agreement between the Registrant and Key Equity Capital Corporation
10.5* Form of Exchange Agent Agreement between United States Trust Company of New York and the
Registrant
10.6* Employment Agreement among Glasstech Holding Co., the Registrant and John S. Baxter
10.7* Employment Agreement among Glasstech Holding Co., the Registrant and Mark D. Christman
10.8* Employment Agreement among Glasstech Holding Co., the Registrant and Larry E. Elliott
10.9* Employment Agreement among Glasstech Holding Co., the Registrant and Ronald A. McMaster
10.10* Employment Agreement among Glasstech Holding Co., the Registrant and James P. Schnabel, Jr.
10.11* Employment Agreement among Glasstech Holding Co., the Registrant and Diane S. Tymiak
10.12* Employment Agreement among Glasstech Holding Co., the Registrant and Kenneth H. Wetmore
10.13* Securities Purchase Agreement between the Registrant, as successor to Glasstech Sub Co., and CIBC Wood
Gundy Securities Corp.
10.14* Registration Rights Agreement between the Registrant, as successor to Glasstech Sub Co., and CIBC Wood
Gundy Securities Corp.
21.1* List of Subsidiaries.
27.1** Financial Data Schedule
</TABLE>
*Incorporated by reference from the Company's Registration
Statement on Form S-4 (Registration No. 333-34391) (the "Form
S-4") filed on August 26, 1997. Each of the above exhibits has the
same exhibit number in the Form S-4.
**Filed herewith.
(b) Reports on Form 8-K:
No reports have been filed during the last quarter of the fiscal
year covered by this report on Form 10-K. .
49
<PAGE> 50
SIGNATURES
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.
<TABLE>
<S> <C>
GLASSTECH, INC.
Date: September 23, 1998 /s/ Mark D. Christman
----------------------------------------------------
MARK D. CHRISTMAN
President and Chief Executive Officer
</TABLE>
PURSUANT TO THE REQUIREMENTS OF SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<S> <C>
Date: September 23, 1998 /s/ Mark D. Christman
----------------------------------------------------
MARK D. CHRISTMAN
Director, President and Chief Executive Officer
(Principal Executive Officer)
Date: September 23, 1998 /s/ Diane S. Tymiak
----------------------------------------------------
DIANE S. TYMIAK
Vice President, Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: September 23, 1998 /s/ David P. Given
----------------------------------------------------
DAVID P. GIVEN
Director
Date: September 23, 1998 /s/ Jon Kleinke
----------------------------------------------------
JON KLEINKE
Director
Date: September 23, 1998 /s/ James M. Papada, III
----------------------------------------------------
JAMES M. PAPADA, III
Director
Date: September 23, 1998 /s/ Edmund S. Wright
----------------------------------------------------
EDMUND S. WRIGHT
Director
</TABLE>
50
<PAGE> 51
GLASSTECH, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
CHARGED BALANCE
BALANCE AT TO AMOUNT AT
BEGINNING COSTS AND CHARGED END OF
DESCRIPTION OF PERIOD EXPENSES OFF PERIOD
----------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended June 30, 1998:
Allowance for doubtful accounts $ 141 $ (101) $ -- $ 40
========== ========== ========== ==========
Accrued contract costs $ 3,780 $ 1,717 $ 3,115 $ 2,382
========== ========== ========== ==========
Year ended June 30, 1997:
Allowance for doubtful accounts $ 178 $ (37) $ -- $ 141
========== ========== ========== ==========
Accrued contract costs $ 2,701 $ 3,364 $ 2,285 $ 3,780
========== ========== ========== ==========
Year ended June 30, 1996:
Allowance for doubtful accounts $ 281 $ (103) $ -- $ 178
========== ========== ========== ==========
Accrued contract costs $ 2,674 $ 1,615 $ 1,588 $ 2,701
========== ========== ========== ==========
</TABLE>
S-1
<PAGE> 52
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
2.1* Agreement and Plan of Merger
2.2* Amendment to Agreement and Plan of Merger
3.1* Restated Certificate of Incorporation of the Registrant
3.2* By-laws of the Registrant
4.1* Indenture (including form of Note)
4.2* First Supplemental Indenture
10.1* Financing and Security Agreement between NationsBank, N.A. and the Registrant
10.2* Plant and Office Lease
10.3* Warehouse Lease
10.4* Advisory Agreement between the Registrant and Key Equity Capital Corporation
10.5* Form of Exchange Agent Agreement between United States Trust Company of New York and the
Registrant
10.6* Employment Agreement among Glasstech Holding Co., the Registrant and John S. Baxter
10.7* Employment Agreement among Glasstech Holding Co., the Registrant and Mark D. Christman
10.8* Employment Agreement among Glasstech Holding Co., the Registrant and Larry E. Elliott
10.9* Employment Agreement among Glasstech Holding Co., the Registrant and Ronald A. McMaster
10.10* Employment Agreement among Glasstech Holding Co., the Registrant and James P. Schnabel, Jr.
10.11* Employment Agreement among Glasstech Holding Co., the Registrant and Diane S. Tymiak
10.12* Employment Agreement among Glasstech Holding Co., the Registrant and Kenneth H. Wetmore
10.13* Securities Purchase Agreement between the Registrant, as successor to Glasstech Sub Co., and CIBC Wood
Gundy Securities Corp.
10.14* Registration Rights Agreement between the Registrant, as successor to Glasstech Sub Co., and CIBC Wood
Gundy Securities Corp.
21.1* List of Subsidiaries.
27.1** Financial Data Schedule
</TABLE>
*Incorporated by reference from the Company's Registration
Statement on Form S-4 (Registration No. 333-34391) (the "Form
S-4") filed on August 26, 1997. Each of the above exhibits has the
same exhibit number in the Form S-4.
**Filed herewith.
E-1
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-02-1997
<PERIOD-END> JUN-30-1998
<CASH> 13,121
<SECURITIES> 0
<RECEIVABLES> 10,045
<ALLOWANCES> (40)
<INVENTORY> 3,673
<CURRENT-ASSETS> 27,149
<PP&E> 8,345
<DEPRECIATION> (1,398)
<TOTAL-ASSETS> 102,919
<CURRENT-LIABILITIES> 20,611
<BONDS> 69,357
0
0
<COMMON> 0
<OTHER-SE> 12,545
<TOTAL-LIABILITY-AND-EQUITY> 102,919
<SALES> 69,588
<TOTAL-REVENUES> 69,588
<CGS> 37,760
<TOTAL-COSTS> 37,760
<OTHER-EXPENSES> 19,638
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,643
<INCOME-PRETAX> 3,072
<INCOME-TAX> 2,249
<INCOME-CONTINUING> 823
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 823
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
