<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED DECEMBER 31, 1997
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)
DELAWARE 333-34391 13-3440225
- ---------------------------- --------------------- -------------------
(STATE OR OTHER JURISDICTION (COMMISSION FILE NO.) (IRS EMPLOYER
OF INCORPORATION OR IDENTIFICATION NO.)
ORGANIZATION)
AMPOINT INDUSTRIAL PARK, 995 FOURTH STREET, PERRYSBURG, OHIO 43551
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
419-661-9500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
----- -----
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK AS OF THE LATEST PRACTICABLE DATE.
COMMON STOCK, $.01 PAR VALUE - 1,000 SHARES AT FEBRUARY 10, 1998.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements presented herein are unaudited
but, in the opinion of management, reflect all adjustments necessary to present
fairly such information for the periods and at the dates indicated. Since the
following condensed unaudited financial statements have been prepared in
accordance with Article 10 of Regulation S-X, they do not contain all
information and footnotes normally contained in annual consolidated financial
statements. Accordingly they should be read in conjunction with the Consolidated
Financial Statements and notes thereto appearing in Amendment No. 2 to the
Company's Registration Statement on Form S-4 as filed with the Securities and
Exchange Commission on October 29, 1997. The interim results of operations are
not necessarily indicative of results for the entire year.
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GLASSTECH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
COMPANY COMPANY
DECEMBER 31, JUNE 30,
1997 1997
------------ --------
(UNAUDITED)
(SEE NOTE 1)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,023 $51,805
Restricted cash -- 1,529
Accounts receivable:
Contracts:
Uncompleted, including unbilled amounts of $2,140
($2,188 at June 30, 1997) 3,546 3,652
Completed, less allowance of $101 for doubtful
accounts 1,151 1,676
Trade, less allowance of $40 for doubtful accounts 1,801 1,530
--------- -------
Total accounts receivable 6,498 6,858
Inventory 3,715 4,265
Prepaid expenses 450 481
--------- -------
Total current assets 25,686 64,938
Property, plant and equipment, net 7,786 8,390
Other assets:
Patents, less accumulated amortization of $863
($4,317 at June 30, 1997) 17,419 18,283
Goodwill, less accumulated amortization of $1,315 50,104 --
Reorganization value in excess of amounts allocable to
identifiable assets, less accumulated amortization
of $1,599 at June 30, 1997 -- 7,583
Deferred financing costs and other 4,783 170
--------- -------
Total other assets 72,306 26,036
--------- -------
$ 105,778 $99,364
========= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 1,929 $ 3,413
Billings in excess of costs and estimated earnings on
uncompleted contracts 11,430 10,720
Accrued liabilities 10,710 11,287
--------- -------
Total current liabilities 24,069 25,420
Long-term debt 69,304 42,000
Nonpension postretirement benefit obligation 406 2,712
Shareholder's equity:
Common stock $.01 par value; 1,000 shares authorized
and issued (10,000,000 shares authorized and
1,004,119 issued at June 30, 1997) -- 10
Additional capital 15,750 20,377
Retained earnings 277 8,845
--------- -------
16,027 29,232
Shareholder's basis reduction (4,028) --
--------- -------
Net shareholder's equity 11,999 29,232
--------- -------
$ 105,778 $99,364
========= =======
</TABLE>
See accompanying notes.
3
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GLASSTECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR SUCCESSOR PREDECESSOR
COMPANY COMPANY COMPANY COMPANY
------------ ------------ --------------- ------------
THREE MONTHS THREE MONTHS PERIOD FROM SIX MONTHS
ENDED ENDED JULY 2, 1997 TO ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
------------ ------------ --------------- ------------
(SEE NOTE 1)
<S> <C> <C> <C> <C>
Net revenue $ 15,648 $ 18,865 $ 32,010 $ 39,819
Cost of goods sold 7,791 10,613 16,330 22,937
-------- -------- -------- --------
Gross profit 7,857 8,252 15,680 16,882
Selling, general and administrative expenses 2,682 2,912 5,440 5,920
Research and development expenses 1,000 994 2,006 1,982
Amortization expense 1,089 568 2,179 1,170
-------- -------- -------- --------
Operating profit 3,086 3,778 6,055 7,810
Interest expense (2,389) (1,050) (4,803) (2,100)
Other income, net 157 547 241 1,102
-------- -------- -------- --------
Income before income taxes 854 3,275 1,493 6,812
Income taxes not payable in cash (695) (1,075) (1,216) (2,345)
-------- -------- -------- --------
Net income $ 159 $ 2,200 $ 277 $ 4,467
======== ======== ======== ========
</TABLE>
See accompanying notes.
4
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GLASSTECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
COMPANY COMPANY
--------------- ------------
PERIOD FROM SIX MONTHS
JULY 2, 1997 TO ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
--------------- ------------
(SEE NOTE 1)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 277 $ 4,467
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 3,316 1,984
Income taxes not payable in cash 1,216 2,345
Nonpension postretirement benefit obligation cost in
excess of payments 15 180
Accretion of debt discount 54 --
Other -- (2)
Changes in assets and liabilities affecting operations:
Restricted cash 1,529 (502)
Accounts receivable 631 (6,033)
Inventory 790 (2,100)
Prepaid expenses (14) (398)
Accounts payable (1,758) (1,102)
Billings in excess of costs and estimated earnings
on uncompleted contracts 538 1,185
Accrued liabilities 3,410 (1,147)
-------- --------
Net cash provided by (used in) operating activities 10,004 (1,123)
INVESTING ACTIVITIES:
Net assets purchased (74,828) --
Increase in long-term notes receivables (656) --
Additions to property, plant and equipment (227) (330)
Other (1) 10
-------- --------
Net cash used in investing activities (75,712) (320)
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt and related
warrants 70,000 --
Proceeds from issuance of stock 15,000 --
Deferred financing costs (4,269) --
-------- --------
Net cash provided by financing activities 80,731 --
-------- --------
Increase (decrease) in cash and cash equivalents 15,023 (1,443)
Cash and cash equivalents at beginning of period -- 43,815
-------- --------
Cash and cash equivalents at end of period $ 15,023 $ 42,372
======== ========
Supplemental disclosure of cash information:
Cash paid (received) during the period for the following:
Interest $ -- $ 2,100
======== ========
Income taxes $ (272) $ 372
======== ========
</TABLE>
See accompanying notes.
5
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GLASSTECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK SHAREHOLDER'S
------------ ADDITIONAL RETAINED BASIS
SHARES AMOUNT CAPITAL EARNINGS REDUCTION TOTAL
------ ------ ------- -------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY
Balance, June 30, 1996 1,000 $ 10 $20,295 $ 2,347 $ -- $22,652
Net income 6,498 6,498
Sale of common stock 4 -- 82 82 82
------ ------- ------- ------- --------- -------
Balance, June 30, 1997 1,004 $ 10 $20,377 $ 8,845 $ -- $29,232
====== ======= ======= ======= ========= =======
SUCCESSOR COMPANY
Issuance of common stock 1 -- 15,750 15,750
Shareholder's basis reduction (4,028) (4,028)
Net income 277 277
------ ------- ------- ------- --------- -------
Balance, December 31, 1997 (unaudited) 1 $ -- $15,750 $ 277 $ (4,028) $11,999
====== ======= ======= ======= ========= =======
</TABLE>
See accompanying notes.
6
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GLASSTECH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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, acquired all of the outstanding stock of the
Company, through a merger of a wholly owned subsidiary into the Company.
The acquisition was accounted for under the purchase method of accounting
for financial reporting purposes and an initial allocation of the purchase
price to the underlying net assets acquired has been made. 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 condensed
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."
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 assigned values of
the net assets acquired.
The condensed consolidated balance sheet at June 30, 1997 has been derived
from the audited consolidated financial statements at that date but does
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
2. Notes Payable and Long-Term Debt
In connection with the Transaction, the Company issued $70 million of 12
3/4% Senior Notes due 2004 (the "Old Senior Notes"), pursuant to Rule 144A
of the Securities Act of 1933. In connection with the issuance of the Old
Senior Notes, the Company issued warrants to the purchasers of the Old
Senior Notes, for the purchase of approximately 877 shares of common stock
of Holding. On December 2, 1997, the Company consummated an exchange offer
(the "Exchange Offer") of its $70 million Series B 12 3/4% Senior Notes Due
2004 (the "New Senior Notes"), which were registered under the Securities
Act of 1933, for the Old Senior Notes. The terms of the New Senior Notes
are identical to the terms of the Old Senior Notes in all respects, except
the New Senior Notes do not contain certain transfer restrictions and
registration rights that were applicable to the Old Senior Notes. As used
herein, the term "Senior Notes" shall mean, for periods of time prior to
the Exchange Offer, the Old Senior Notes and, for periods of time after the
Exchange Offer, the New Senior Notes, as the case may be. 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 million Revolving Credit Facility in
connection with the Transaction. The Revolving Credit Facility expires on
June 30, 2007, and provides for interest on outstanding borrowings
7
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at the LIBOR rate payable semi-annually. The Revolving Credit Facility will
be used to fund working capital requirements as needed and to secure
standby letters of credit, which totaled $2,150 at December 31, 1997. The
Company had no outstanding borrowings under the Revolving Credit Facility
at December 31, 1997.
The terms of both the Senior Notes and Revolving Credit Facility provide
for various restrictive covenants including the maintenance of certain
financial ratios and tests and the restriction of certain payments and
business activities. At December 31, 1997, the Company was in compliance
with all material covenants in the Senior Notes and the Revolving Credit
Facility.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Cautionary Statement
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations, as well as other sections of this Report, contain certain
"forward-looking statements" (within the meaning of the Private Securities
Litigation Reform Act of 1995). This report should be read in conjunction with
the factors set forth under Item 5 "Other Information" set forth below.
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 375 systems in 40 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). Revenue generated by these types of
products are designated as "Aftermarket" in the table below.
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). For income tax purposes, contracts are accounted for on the
inventory accrual basis whereby income is recognized when the equipment is
accepted by the customer. Unbilled amounts included in uncompleted contract
accounts receivable 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.
Selling Expenses
The Company maintains an in-house sales staff of 7 full-time people 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 & 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. The Company considers development
expenses to be a very integral part of its future success.
9
<PAGE> 10
The following table sets forth the amounts and the percentage of total net
revenue for certain revenue and expense items for the periods indicated (dollars
in thousands).
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR SUCCESSOR PREDECESSOR
COMPANY COMPANY COMPANY COMPANY
------------ ------------ --------------- ------------
THREE MONTHS THREE MONTHS PERIOD FROM SIX MONTHS
ENDED ENDED JULY 2, 1997 TO ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
------------ ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue
Original Equipment $11,460 73.2% $11,268 59.7% $21,640 67.6% $24,781 62.2%
Aftermarket 4,188 26.8 7,597 40.3 10,370 32.4 15,038 37.8
------- ----- ------- ----- ------- ----- ------- -----
Total net revenue 15,648 100.0 18,865 100.0 32,010 100.0 39,819 100.0
Cost of goods sold 7,791 49.8 10,613 56.3 16,330 51.0 22,937 57.6
------- ----- ------- ----- ------- ----- ------- -----
Gross profit 7,857 50.2 8,252 43.7 15,680 49.0 16,882 42.4
Selling, general and 2,682 17.1 2,912 15.4 5,440 17.0 5,920 14.9
administrative
Research and development expense 1,000 6.4 994 5.3 2,006 6.3 1,982 5.0
Amortization expense 1,089 7.0 568 3.0 2,179 6.8 1,170 2.9
------- ----- ------- ----- ------- ----- ------- -----
Operating profit $ 3,086 19.7% $ 3,778 20.0% $ 6,055 18.9% $ 7,810 19.6%
======= ===== ======= ===== ======= ===== ======= =====
EBITDA $ 4,588 29.3% $ 4,751 25.2% $ 9,059 28.3% $ 9,795 24.6%
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
RESULTS OF OPERATIONS
SECOND QUARTER FISCAL 1998 COMPARED WITH SECOND QUARTER FISCAL 1997
Net revenue for the second quarter of fiscal 1998 decreased $3,217, or 17.1%, to
$15,648 from $18,865 for the second quarter of fiscal 1997. The decline was
driven principally by a reduction in aftermarket revenues to $4,188 for the
second quarter of fiscal 1998 from $7,597 for the second quarter of fiscal 1997.
This 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, 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 net revenue is generated from customers
outside the United States. For the second quarter of fiscal 1998, Original
Equipment revenue from foreign customers was $7,673 (67.0% of total Original
Equipment revenue) as compared to $8,399 (74.5% of total Original Equipment
revenue) for the second quarter of fiscal 1997. The percentage of aftermarket
revenue from foreign customers increased to 63.7% of total aftermarket revenue
for the second quarter of fiscal 1998 compared to 63.3% for the second quarter
of fiscal 1997. The portion of the Company's net revenue generated from
customers outside the United States can fluctuate from time to time depending on
location of contract signings.
Although gross profit declined by $395 for the second quarter of fiscal 1998 as
compared to the second quarter of fiscal 1997, gross margin increased to 50.2%
from 43.7% as a result of a more favorable product mix for the second quarter of
fiscal 1998. Given the inherent uncertainty in the timing of receipt of orders
by the Company, the gross margin for the second quarter of fiscal 1998 may not
be indicative of what the gross margin will be for the remainder of the year.
Selling, general and administrative expenses decreased $230, or 7.9%, to $2,682
for the second quarter of fiscal 1998 from $2,912 for the second quarter of
fiscal 1997. The decrease is primarily the result of decreases in directors'
fees and expenses and personnel recruitment fees.
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Research and development expenses were $1,000 for the second quarter of fiscal
1998 and were comparable to the $994 incurred for the second quarter of fiscal
1997.
Amortization expense increased $521, or 91.7%, to $1,089 for the second quarter
of fiscal 1998 from $568 for the second quarter of fiscal 1997. The increase in
amortization expense resulted from the amortization of goodwill arising from the
Transaction.
Operating profit decreased $692, or 18.3%, to $3,086 for the second quarter of
fiscal 1998 from $3,778 for the second quarter of fiscal 1997. The decrease in
operating profit was the result of the decrease in net revenue and gross profit
and the increase in amortization expense.
Interest expense increased $1,339 to $2,389 for the second quarter of fiscal
1998 from $1,050 for the second quarter of fiscal 1997 as a result of the
increased debt and a higher interest rate beginning July 2, 1997 and is
consistent with interest in the first quarter of fiscal 1998. Other income, net,
which is comprised primarily of interest income, decreased $390 to $157 for the
second quarter of fiscal 1998 from $547 for the second quarter of fiscal 1997
due to reduced cash balances subsequent to July 2, 1997.
The Company's effective tax rate for the second quarters of fiscal 1998 and 1997
was 81.4% and 32.8%, respectively. The fiscal 1998 effective tax rate 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, income taxes currently
payable in cash will not be significant in fiscal 1998.
Net income decreased $2,041, or 92.8%, to $159 for the second quarter of fiscal
1998 compared to $2,200 for the second quarter of fiscal 1997. This decrease was
due to decreased operating profit, increased interest expense and the increase
in the effective income tax rate.
EBITDA, which is defined as operating profit plus depreciation and amortization,
decreased $163, or 3.4%, to $4,588 for the second quarter of fiscal 1998 from
$4,751 for the second quarter of fiscal 1997. The decrease in EBITDA was the
result of the decrease in net revenue and gross profit.
PERIOD FROM JULY 2, 1997 TO DECEMBER 31, 1997 COMPARED WITH THE SIX MONTHS ENDED
DECEMBER 31, 1996
Net revenue for the period ended December 31, 1997 decreased $7,809, or 19.6%,
to $32,010 from $39,819 for the six months ended December 31, 1996. Original
Equipment revenue decreased $3,141, or 12.7%, to $21,640 for the period ended
December 31, 1997 compared to $24,781 for the six months ended December 31,
1996, resulting primarily from a decrease in automotive Original Equipment
revenue. Automotive Original Equipment revenue for the six months ended December
31, 1996 was unusually high because the manufacture of several units for export
to China were accelerated to meet customer imposed importation deadlines of
December 31, 1996. Aftermarket revenue decreased $4,668, or 31.0%, to $10,370
for the period ended December 31, 1997 from $15,038 for the six months ended
December 31, 1996. This 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, the customers' retrofit schedules and the timing of
automotive manufacturers' design changes which may impact the release of tooling
orders.
For the period ended December 31, 1997, Original Equipment revenue from foreign
customers was $15,638 (72.3% of total Original Equipment revenue) as compared to
$19,787 (79.8% of total Original Equipment revenue) for the six months ended
December 31, 1996. The percentage of aftermarket revenue from foreign customers
decreased to 57.8% of total aftermarket revenue for the period ended December
31, 1997 compared to
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66.4% for the six months ended December 31, 1996. The portion of the Company's
net revenue generated from customers outside the United States can fluctuate
from time to time depending on location of contract signings.
Although gross profit declined by $1,202 for the period ended December 31, 1997
as compared to the six months ended December 31, 1996, gross margin increased to
49.0% from 42.4% as a result of a more favorable product mix for the period
ended December 31, 1997. Given the inherent uncertainty in the timing of receipt
of orders by the Company, the gross margin for the period ended December 31,
1997 may not be indicative of what the gross margin will be for the remainder of
the year.
Selling, general and administrative expenses decreased $480, or 8.1%, to $5,440
for the period ended December 31, 1997 from $5,920 for the six months ended
December 31, 1996. The decrease is primarily the result of decreases in
directors' fees and expenses, personnel recruitment fees, professional fees and
advertising expenditures.
Research and development expenses were $2,006 for the period ended December 31,
1997 and were comparable to the $1,982 incurred for the six months ended
December 31, 1996.
Amortization expense increased $1,009, or 86.2%, to $2,179 for the period ended
December 31, 1997 from $1,170 for the six months ended December 31, 1996. The
increase in amortization expense resulted from the amortization of goodwill
arising from the Transaction.
Operating profit decreased $1,755, or 22.5%, to $6,055 for the period ended
December 31, 1997 from $7,810 for the six months ended December 31, 1996. The
decrease in operating profit was the result of the decrease in net revenue and
gross profit and the increase in amortization expense.
Interest expense increased $2,703 to $4,803 for the period ended December 31,
1997 from $2,100 for the six months ended December 31, 1996 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 $861 to $241 for
the period ended December 31, 1997 from $1,102 for the six months ended December
31, 1996 due to reduced cash balances subsequent to July 2, 1997.
The Company's effective tax rate for the period ended December 31, 1997 and the
six months ended December 31, 1996 was 81.5% and 34.4%, respectively. The fiscal
1998 effective tax rate 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, income taxes currently payable in cash will not be significant in
fiscal 1998.
Net income decreased $4,190, or 93.8%, to $277 for the period ended December 31,
1997 compared to $4,467 for the six months ended December 31, 1996. This
decrease was due to decreased operating profit, increased interest expense and
the increase in the effective income tax rate.
EBITDA, which is defined as operating profit plus depreciation and amortization,
decreased $736, or 7.5%, to $9,059 for the period ended December 31, 1997 from
$9,795 for the six months ended December 31, 1996. The decrease in EBITDA was
the result of the decrease in net revenue and gross profit.
12
<PAGE> 13
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 its Revolving Credit Facility. The Senior
Notes do not require any principal payments prior to maturity. The Revolving
Credit Facility will be used to fund working capital requirements as needed and
to secure standby letters of credit, which totaled $2,150 at December 31, 1997.
At December 31, 1997, the Company was in compliance with all material covenants
in the Revolving Credit Facility and the Senior Notes.
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, the amount and
timing of new system payments, and revenue recognition on these systems. 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. Due to the timing of receipt of cash
progress payments and the revenue recognized on previous system signings and the
release of $1,529 of cash previously used to collateralize standby letters of
credit, net cash provided by operating activities for the period ended December
31, 1997 was $10,004, whereas for the six months ended December 31, 1996, net
cash used in operating activities was $1,123. The reduced level of net cash
provided by operating activities for the six months ended December 31, 1996 was
principally the result of the significant number of new system progress payments
received in the quarter ending June 30, 1996.
The Company has a backlog (on a percentage of completion basis) at December 31,
1997 of approximately $47,125 as compared to $30,307 at June 30, 1997. The
Company expects to complete a substantial majority of this backlog within the
next twelve months.
Capital expenditures, including demonstration furnaces classified as fixed
assets, were $227 for the period ended December 31, 1997 compared to $330 for
the six months ended December 31, 1996. 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, 1997, the Company had net operating loss ("NOL") carryforwards
for regular and alternative minimum tax purposes of approximately $21,045 and
$17,517, respectively, which expire in the years 2009 and 2011. These NOL's are
subject to annual usage limitations.
Although the Company's ability to generate cash will be affected by the
increased interest costs resulting from the Transaction, management believes
that internally generated funds, together with amounts available under the
Revolving Credit Facility, will be sufficient to satisfy the Company's operating
cash requirements, capital expenditure requirements and make required payments
under the Revolving Credit Facility and scheduled interest payments on the
Senior Notes. However, the ability of the Company to satisfy its obligations
will ultimately 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
13
<PAGE> 14
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 the first six months of fiscal 1998, approximately
36.7%, 59.2% and 46.9% of the Company's net revenues were 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). Given the significant economic uncertainties facing this
region, and the impact of those uncertainties on customers' capital expenditure
plans and local demand for the products manufactured by the Company's customers
in that region, the Company cannot predict with any degree of certainty what
final impact the economic issues facing the Asia Pacific region will ultimately
have on the Company's future contract signings.
Recently, expected signings of several equipment purchase contracts from
customers in the Asia Pacific region have been deferred. Management believes the
current economic uncertainties in the Asia Pacific region indicate that the
timing of orders for the Company's products will likely be adversely affected.
The impact of this situation on fiscal 1998 financial performance has been
somewhat mitigated by offsetting equipment sales to customers in other regions
of the world. 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, 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 Asian
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.
14
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims that arise in the
ordinary course of business. In the opinion of management, the amount of
any ultimate liability with respect to these actions will not materially
affect the financial statements of the Company.
ITEM 5. OTHER INFORMATION
5.1 CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOUR" OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.
Certain statements in the Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Financial Statements included
in this Quarterly Report on Form 10-Q, 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 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 economies in which its products are sold; the cyclicality
of the automotive industry and architectural markets; 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 and others;
competition from current competitors, customer 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.
5.2 CHANGES IN DIRECTORSHIPS
As of February 9, 1998, the Boards of Directors of the Company and Holding
executed a unanimous written consent which increased the size of their
respective boards to five, accepted the resignation of John S. Baxter as a
director of the Company and Holding, and elected Jon Kleinke, James M.
Papada and Edmund S. Wright as directors of the Company and Holding.
Mr. Kleinke, age 33, is an Associate with Key Equity Capital Corporation,
the principal stockholder of Holding.
15
<PAGE> 16
Mr. Papada, age 49, is a partner with the law firm of Stradley, Ronon,
Stevens & Young, which is located in Philadelphia, Pennsylvania. 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.
Mr. Wright, age 55, is a business consultant and director of Unifrax
Corporation.
The compensation of all directors not employed by the Company or affiliated
with Key Equity Capital Corporation shall be $20,000 per year.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
<S> <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.
25.1* Statement of Eligibility and Qualification on Form T-1 Under the Trust Indenture Act of 1939 of United
States Trust Company of New York, as Trustee Under the Indenture
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) No reports on Form 8-K were filed during the second quarter.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GLASSTECH, INC.
Date: February 11, 1998
--------------------
By: /s/ Mark D. Christman
----------------------------
Mark D. Christman
President
By: /s/ Diane S. Tymiak
----------------------------
Diane S. Tymiak
Vice President and Chief Financial Officer
(Principal Accounting Officer)
17
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-02-1998
<PERIOD-END> DEC-31-1997
<CASH> 15,023
<SECURITIES> 0
<RECEIVABLES> 6,639
<ALLOWANCES> (141)
<INVENTORY> 3,715
<CURRENT-ASSETS> 25,686
<PP&E> 8,616
<DEPRECIATION> (830)
<TOTAL-ASSETS> 105,778
<CURRENT-LIABILITIES> 24,069
<BONDS> 69,304
0
0
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<OTHER-SE> 11,999
<TOTAL-LIABILITY-AND-EQUITY> 105,778
<SALES> 32,010
<TOTAL-REVENUES> 32,010
<CGS> 16,330
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<OTHER-EXPENSES> 9,625
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