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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, 2000
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 33-32185-01 13-3440225
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(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)
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, 2000 was 1,000.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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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 approximately 700 patents and patent
application filings worldwide.
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For fiscal year ended June 30, 2000, the Company generated net revenue
and EBITDA (as defined in Footnote (b) under the heading "Selected Financial
Data") of $47.0 million and $7.7 million, respectively. Original Equipment
revenue totaled $27.2 million, or 57.8%, 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.
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 approximately 400 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
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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 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 revolving
credit facility (the "Credit Facility"), which is secured by substantially all
of the assets of the Company and, subject to certain borrowing base limitations,
provides for borrowings up to $10.0 million (See Item 7 "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" for current discussion of the Credit Facility). 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 MARKET FOR SAFETY GLASS PRODUCTS
In the United States, automobile manufacturers purchase their safety
glass products from independent glass manufacturers and processors, except for
DaimlerChrysler Corporation, 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.
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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") which was developed in conjunction with
the Gas Research Institute ("GRI"). FCH is currently available for sale in the
Automotive and Architectural Markets and 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, 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 process, glass processors and
fabricators layer two pieces of annealed glass, which can be
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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, the Quick-Sag System continues to have applications 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
current generation In-Line System was placed into operation in
1999 and is capable of producing complex-shaped glass for both
automotive windshields and back windows.
Original Equipment-Architectural. Systems designed and assembled for the
Architectural Market
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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. Stir Melter's activities have not
been significant to the Company's operations.
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.
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- 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 $4.2 million, $3.4 million and $3.6
million (exclusive of capital expenditures relating to demonstration glass
tempering furnaces) in fiscal years 1998, 1999 and 2000, 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 approximately 400 systems in over 45
countries on six continents. The Company's customers include virtually all major
glass manufacturers and processors, such as DaimlerChrysler Corporation,
Guardian Industries Corp., PPG Industries, Inc. and Visteon Corporation
(formerly a subsidiary of Ford Motor Company) in the United States; Compagnie de
Saint-Gobain, Pilkington plc and Rioglass S.A. in Europe; Asahi Glass Company,
Central Glass Company and Nippon Sheet Glass Company in Japan; Hankuk Glass
Industry Company and Kumgang Korea Chemical Co., Limited 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.
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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 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 1998, 1999 and 2000, Asahi Glass Company, Compagnie de Saint-Gobain,
Guardian Industries Corp., Rioglass S.A. and Visteon Corporation collectively
accounted for 50.9%, 47.6% and 39.1% of total revenue, respectively. In
addition; (i) in fiscal 1998, Asahi Glass Company and Visteon Corporation each
accounted for more than 10.0% of revenue, (ii) in fiscal 1999 Asahi Glass
Company, Compagnie de Saint-Gobain and Visteon Corporation each accounted for
more than 10.0% of revenue and (iii) in fiscal 2000 Asahi Glass Company,
Guardian Industries Corp. and Rioglass S.A. each accounted for more than 10.0%
of revenue.
INTERNATIONAL
The Company's revenue by geographic region for the fiscal years ending
June 30 is as follows (dollars in thousands):
1998 1999 2000
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Europe $11,518 $10,338 $ 8,053
Asia-Pacific 27,654 14,189 5,555
Latin America 5,384 1,638 4,072
Other 1,523 385 333
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Total Non-United States Revenue 46,079 26,550 18,013
United States 23,509 23,995 29,009
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Total Net Revenue $69,588 $50,545 $47,022
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The Company generates a substantial portion of its revenue outside of
the United States and during fiscal 1998, 1999 and 2000, approximately 39.7%,
28.1% and 11.8% of the Company's net revenue was derived from sales of products
to customers 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 economic uncertainties surrounding the
Asia-Pacific region for the previous three years may be subsiding, with the
Company seeing an increase in quoting activity for the region. 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
2001 and beyond, the ultimate impact of this situation on the Company's
financial performance in fiscal 2001 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.
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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 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. 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 owns or holds exclusive rights in 125 patents in the
U.S. and more than 375 patents outside the United States. In addition, the
Company has more than 175 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 will continue for the duration of the patents, subject to minimum
calendar year royalty obligations as follows: 2000-$90, 2001-$150, 2002-$220,
2003-$300 and 2004-$400. Management expects to meet the minimum calendar year
royalty for 2000 and believes the minimum calendar year royalties for the
remainder of the years are obtainable. 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
In an effort to consolidate purchasing and reduce overall operating
costs, the Company is currently working on "partnership" agreements with several
major suppliers. However, the Company will not be obligated to volume
requirements with any supplier and will continue to seek backup suppliers for
use if any of its primary suppliers is unable to fill Company orders. In fiscal
2000, 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, 2000, the Company employed 184 people compared to 192 at
June 30, 1999. 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 $17.4 million at June 30, 2000 as compared to approximately $12.1
million at June 30, 1999. The Company expects to complete a substantial majority
of this backlog within the next 12 months.
11
<PAGE> 12
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, 2005, after which the Company has an option to extend the lease for
one additional five-year period. The 43,200 square foot building is subject to a
three-year lease that will expire on January 31, 2003. The Company also owns an
adjacent 108,000 square foot building that house R&D, tooling design, tooling
production and demonstration glass tempering furnaces. The Company believes that
its current facilities are adequate for its foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS.
The Company is subject to 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 repayment of interest and debt 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, which have been derived primarily from
the Company's audited consolidated financial statements. Amounts reported for
financial reporting purposes in fiscal 1998 represent the period from July 2,
1997 to June 30, 1998. 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. All dollar
amounts in this section are in thousands.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
------------------- -----------------
YEARS ENDED JUNE 30,
--------------------------------------------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue $ 62,771 $ 76,433 $ 69,588 $ 50,545 $ 47,022
Cost of goods sold 39,024 45,603 37,760 31,768 29,411
-------- -------- -------- -------- --------
Gross profit 23,747 30,830 31,828 18,777 17,611
Selling, general and administrative 10,724 12,866 11,035 8,632 7,626
Research and development 4,557 4,594 4,247 3,368 3,633
Amortization expense 2,407 2,306 4,356 4,243 4,243
-------- -------- -------- -------- --------
Operating profit 6,059 11,064 12,190 2,534 2,109
Interest expense (4,200) (4,200) (9,643) (9,668) (9,668)
Other income - net 1,541 2,263 525 352 261
-------- -------- -------- -------- --------
Income (loss) before income taxes 3,400 9,127 3,072 (6,782) (7,298)
Income taxes not payable in cash (a) (1,418) (2,551) (2,249) -- --
Federal income taxes, current (105) (78) -- -- --
-------- -------- -------- -------- --------
Net income (loss) $ 1,877 $ 6,498 $ 823 $(6,782) $(7,298)
======== ======== ======== ======== =========
OTHER DATA:
EBITDA (b) $9,780 $14,829 $18,002 $8,242 $7,705
Depreciation and amortization (c) 3,721 3,765 5,812 5,708 5,596
Capital Expenditures 2,152 990 349 47 223
Backlog 38,907 30,307 34,848 12,141 17,394
CASH FLOW PROVIDED BY (USED IN):
Operating activities $22,521 $ 8,973 $ 7,921 $(4,403) $(2,790)
Investing activities (1,663) (978) (75,521) (57) (203)
Financing activities 125 (5) 80,721 -- --
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital $27,599 $39,519 $ 6,538 $ 4,896 $ 3,768
Total assets 95,977 99,364 102,919 88,662 81,111
Total debt 42,000 42,000 69,357 69,464 69,572
Shareholders' equity (capital deficiency)(d) 22,652 29,232 12,545 5,763 (1,535)
</TABLE>
14
<PAGE> 15
(a) 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.
(b) 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.
(c) Depreciation and amortization does not include the amortization of
deferred financing costs, which is recorded with interest expense.
(d) The Company has not declared or paid any dividends to its shareholders
since the Transaction.
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 approximately 400 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 their affiliates.
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. 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. None of operating income, net income
nor EBITDA reflected the full impact of the $5,200 net revenue increase, due to
the manner in which bonuses were calculated and the changes in effective tax
rates. However, the increase in estimated costs for loss exposures 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, 1998, June 30, 1999 or June 30, 2000.
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>
YEARS ENDED JUNE 30
-----------------------------------------------------------------------------
1998 1999 2000
---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue(a)
Original Equipment $ 48,873 70.2% $ 28,885 57.1% $ 27,199 57.8%
Aftermarket 20,715 29.8 21,660 42.9 19,823 42.2
-------- ----- -------- ----- -------- -----
Total net revenue 69,588 100.0 50,545 100.0 47,022 100.0
Cost of goods sold(a) 37,760 54.3 31,768 62.9 29,411 62.6
-------- ----- -------- ----- -------- -----
Gross profit 31,828 45.7 18,777 37.1 17,611 37.4
SG&A expense 11,035 15.8 8,632 17.1 7,626 16.2
R&D expense 4,247 6.1 3,368 6.6 3,633 7.7
Amortization expense(b) 4,356 6.3 4,243 8.4 4,243 9.0
-------- ----- -------- ----- -------- -----
Operating profit $ 12,190 17.5% $ 2,534 5.0% $ 2,109 4.5%
======== ===== ======== ===== ======== =====
Amortization expense(b) 4,356 6.3 4,243 8.4 4,243 9.0
Depreciation expense 1,456 2.1 1,465 2.9 1,353 2.9
-------- ----- -------- ----- -------- -----
EBITDA $ 18,002 25.9% $ 8,242 16.3% $ 7,705 16.4%
======== ===== ======== ===== ======== =====
</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 2000 COMPARED WITH FISCAL YEAR 1999
Net revenue for fiscal 2000 decreased $3,523, or 7.0%, to $47,022 from
$50,545 for fiscal 1999. Original Equipment revenue decreased $1,686, or 5.8%,
to $27,199 for fiscal 2000 compared to $28,885 for fiscal 1999. This decrease in
Original Equipment revenue was due in part to lower new contract signings in
fiscal 1999, which resulted in a low beginning backlog for fiscal 2000. In
addition, the timing and/or deferral of contract signings in the Asia-Pacific
and other foreign regions negatively impacted the Company's ability to generate
revenue in fiscal 2000. Aftermarket revenue decreased $1,837, or 8.5%, to
$19,823 for fiscal 2000 from $21,660 for fiscal 1999. The decrease in
aftermarket revenue was primarily the result a decline in retrofit revenue.
Retrofit revenues fluctuate based on customer demands and are influenced by a
variety of factors, including economic conditions and the customers' retrofit
schedules.
A significant portion of the Company's revenue is generated from
customers outside of the United States. For fiscal 2000, Original Equipment
revenue from foreign customers was $8,683 (31.9% of total Original Equipment
revenue) as compared to $13,698 (47.4% of total Original Equipment revenue) for
fiscal 1999. The percentage of aftermarket revenue from foreign customers
decreased to 47.1% of total aftermarket revenue for fiscal 1999 compared to
59.3% for fiscal 1999.
Gross profit decreased $1,166 to $17,611, at a gross margin percentage
of 37.4% for fiscal 2000 compared to $18,777, at a gross margin of 37.1% for
fiscal 1999. The decline in the gross profit is the result of the decrease in
revenues. The Company's continued efforts to reduce and minimize its production
costs, including factory overhead, has mitigated the effects on the gross
margin.
Selling, general and administrative expenses decreased $1,006, or
11.7%, to $7,626 for fiscal 2000 from $8,632 for fiscal 1999. This decrease was
primarily the result of no incentive compensation costs in
18
<PAGE> 19
fiscal 2000 due to decreased earnings and other cost containment measures
implemented.
Research and development expenses increased $265, or 7.9%, to $3,633
for fiscal 2000 from $3,368 for fiscal 2000. In fiscal 1999, an increased level
of development resources was dedicated to the completion of certain original
equipment contracts.
Operating profit decreased $425, or 16.8%, to $2,109 for fiscal 2000
from $2,534 for fiscal 1999. Operating profit, as a percentage of revenue, was
4.5% for fiscal 2000 as compared to 4.5% for fiscal 1999. The decrease in
operating profit was the result of the decline in gross profit partially offset
by the decrease in selling, general and administrative expenses.
No income tax expense or benefit has been provided for fiscal 2000 and
1999 due to the recorded losses and the uncertainty related to the future
realization of such amounts.
Net loss was $7,298 for fiscal 2000 compared to $6,782 for fiscal 1999.
The net losses were the result of the decline in operating profits.
EBITDA, which is defined as operating profit plus depreciation and
amortization, decreased $537, or 6.5%, to $7,705 for fiscal 2000 from $8,242 for
fiscal 1999.
FISCAL YEAR 1999 COMPARED WITH FISCAL YEAR 1998
Net revenue for fiscal 1999 decreased $19,043, or 27.4%, to $50,545
from $69,588 for fiscal 1998. Original Equipment revenue decreased $19,988, or
40.9%, to $28,885 for fiscal 1999 compared to $48,873 for fiscal 1998. The
continuing economic difficulties in the Asia-Pacific and other foreign regions
have adversely impacted new contract signings of Original Equipment in fiscal
1999, resulting in a decrease in Original Equipment revenue. Aftermarket revenue
increased $945, or 4.6%, to $21,660 for fiscal 1999 from $20,715 for fiscal
1998. The increase in aftermarket revenue was the result of increased tooling
revenue partially offset by a decline in retrofit revenue. Tooling and retrofit
revenue 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.
For fiscal 1999, Original Equipment revenue from foreign customers was
$13,698 (47.4% of total Original Equipment revenue) as compared to $31,287
(64.0% of total Original Equipment revenue) for fiscal 1998. The percentage of
aftermarket revenue from foreign customers decreased to 59.3% of total
aftermarket revenue for fiscal 1999 compared to 71.4% for fiscal 1998.
Gross profit decreased $13,051 to $18,777, at a gross margin percentage
of 37.1% for fiscal 1999 compared to $31,828, at a gross margin of 45.7% for
fiscal 1998. The decline in the gross margin is the result of a shift in the
current product mix from higher margin automotive contracts to lower margin
architectural contracts and developmental (first of a kind) automotive
contracts, which generally carry lower margins. In addition, although the
Company continues to reduce and minimize its production costs (including
reductions in workforce and factory overhead) gross margins have decreased, in
part, as a result of fixed factory overhead being applied to lower production
volume.
Selling, general and administrative expenses decreased $2,403, or
21.8%, to $8,632 for fiscal 1999 from $11,035 for fiscal 1998. This decrease was
primarily the result of lower incentive compensation costs due to decreased
earnings and other cost containment measures implemented, including workforce
reductions.
Research and development expenses decreased $879, or 20.7%, to $3,368
for fiscal 1999 from
19
<PAGE> 20
$4,247 for fiscal 1999. This decrease was primarily the result of an increase in
development resources dedicated to the completion of certain original equipment
contracts and other cost containment measures implemented, including workforce
reductions.
Operating profit decreased $9,656, or 79.2%, to $2,534 for fiscal 1999
from $12,190 for fiscal 1998. Operating profit, as a percentage of revenue, was
5.0% for fiscal 1999 as compared to 17.5% for fiscal 1998. The decrease in
operating profit was the result of the decline in gross profit partially offset
by decreases in selling, general and administrative expenses and research and
development expenses.
No income tax expense or benefit has been provided for fiscal 1999 due
to the recorded loss and the uncertainty related to the future realization of
such amounts. The effective tax rate for fiscal 1998 was 73.2%. 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 increased significantly, resulting in
the unusually high effective tax rate for fiscal 1998.
Net loss was $6,782 for fiscal 1999 compared to net income of $823 for
fiscal 1998. The net loss was the result of the decline in operating profit.
EBITDA, which is defined as operating profit plus depreciation and
amortization, decreased $9,760, or 54.2%, to $8,242 for fiscal 1999 from $18,002
for fiscal 1998.
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 is available to fund working capital requirements as needed, and
to secure standby letters of credit. The Credit Facility provides for borrowings
up to $10,000 (including standby letters of credit), subject to a borrowing base
of certain qualifying assets. At June 30, 2000, the borrowing base approximated
$8,100 and the Company had no outstanding borrowings or standby letters of
credit. The credit facility is secured by substantially all of the assets of the
Company. The Company is in compliance with all material covenants in the Senior
Notes and Credit Facility.
Net cash provided by (or net cash used in) 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 used by operating activities
for fiscal 2000 was $2,790, compared to $4,403 for fiscal 1999. This improvement
in net cash used by operating activities for fiscal 2000 was due in part to an
increase in new system signings and the timing of new system payments.
The Company has a backlog (on a percentage of completion basis) at June
30, 2000 of approximately $17,394 as compared to $12,141 at June 30, 1999. 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 $223 for fiscal 2000 compared to $47 for fiscal 1999. Future
capital expenditures, excluding demonstration furnaces, used
20
<PAGE> 21
to replace or improve operating equipment and facilities are estimated to be
less than $1,000 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.
At June 30, 2000, the Company has net operating loss ("NOL")
carryforwards for regular and alternative minimum tax purposes of approximately
$46,559 and $43,372, respectively, which expire in the years 2009 through 2015.
Although the Company's ability to generate cash has been affected by
the increased interest costs resulting from the Transaction and the lower level
of contract signings in fiscal 2000 and 1999, 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 be dependent upon the
Company's future operating and financial performance, including increasing
contract signings, 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 1998, 1999 and 2000, approximately 39.7%, 28.1% and 11.8%
of the Company's net revenue was derived from sales of products to customers
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 economic uncertainties surrounding the
Asia-Pacific region for the previous three years may be subsiding, with the
Company seeing an increase in quoting activity for the region. 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
2001 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.
21
<PAGE> 22
ITEM 7(a). MARKET RISK EXPOSURES
Based on the Company's current operations and business practices, the
Company does not believe that it has any significant exposure to interest rate,
foreign currency, commodity price, or equity price market risks.
22
<PAGE> 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Auditors......................................................................................24
Consolidated Balance Sheets as of June 30, 2000 and 1999............................................................25
Consolidated Statements of Operations for the Years Ended June 30, 2000, 1999 and 1998..............................26
Consolidated Statements of Shareholder's Equity (Capital Deficiency) for the Years Ended June
30, 2000, 1999 and 1998........................................................................................27
Consolidated Statements of Cash Flows for the Years Ended June 30, 2000, 1999 and 1998..............................28
Notes to Consolidated Financial Statements..........................................................................29
</TABLE>
23
<PAGE> 24
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, 2000 and 1999, and the related consolidated statements of
operations, shareholder's equity (capital deficiency), and cash flows for each
of the three years in the period ended June 30, 2000. 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 auditing standards generally accepted
in the United States. 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.
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, 2000 and 1999, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 2000, in conformity with accounting principles generally accepted in
the United States. 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 11, 2000
24
<PAGE> 25
GLASSTECH, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30
2000 1999
---------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,668 $ 8,661
Accounts receivable:
Contracts:
Uncompleted, including unbilled amounts of $2,211 and $1,430 4,820 3,602
Completed 1,626 459
Trade, less allowance of $40 for doubtful accounts 1,631 1,469
---------------- -----------------
8,077 5,530
Inventory:
Replacement and service parts 1,675 1,999
Furnace and other 687 1,368
---------------- -----------------
2,362 3,367
Prepaid expenses 279 350
---------------- -----------------
Total current assets 16,386 17,908
Property, plant and equipment, net 5,650 6,789
Other assets:
Patents, less accumulated amortization of $5,181 and $3,454 13,102 14,829
Goodwill, less accumulated amortization of $7,660 and $5,145 42,765 45,280
Deferred financing costs and other 3,208 3,856
---------------- -----------------
Total other assets 59,075 63,965
---------------- -----------------
$ 81,111 $88,662
================ =================
LIABILITIES AND SHAREHOLDER'S EQUITY (CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable $ 2,786 $ 1,710
Billings in excess of costs and estimated earnings on uncompleted contracts 2,289 3,250
Accrued liabilities:
Interest 4,462 4,462
Salaries and wages 1,232 1,702
Contract costs 876 795
Other 973 1,094
---------------- -----------------
7,543 8,053
---------------- -----------------
Total current liabilities 12,618 13,013
Long-term debt 69,572 69,464
Nonpension postretirement benefit obligation 456 422
Shareholder's equity (Capital deficiency):
Common stock $.01 par value; 1,000 shares authorized, issued and outstanding - -
Additional capital 15,750 15,750
Shareholder's basis reduction (4,028) (4,028)
Retained deficit (13,257) (5,959)
---------------- -----------------
Total shareholder's equity (capital deficiency) (1,535) 5,763
---------------- -----------------
$ 81,111 $ 88,662
================ =================
</TABLE>
See accompanying notes.
25
<PAGE> 26
GLASSTECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30
2000 1999 1998
---------------- ----------------- ----------------
<S> <C> <C> <C>
Net revenue $47,022 $50,545 $69,588
Cost of goods sold 29,411 31,768 37,760
-----------------------------------------------------
Gross profit 17,611 18,777 31,828
Selling, general and administrative expenses 7,626 8,632 11,035
Research and development expenses 3,633 3,368 4,247
Amortization expense 4,243 4,243 4,356
-----------------------------------------------------
Operating profit 2,109 2,534 12,190
Interest expense (9,668) (9,668) (9,643)
Other income - net 261 352 525
-----------------------------------------------------
Income (loss) before income taxes (7,298) (6,782) 3,072
Income taxes not payable in cash - - (2,249)
-----------------------------------------------------
Net income (loss) $ (7,298) $ (6,782) $ 823
=====================================================
</TABLE>
See accompanying notes.
26
<PAGE> 27
GLASSTECH, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (CAPITAL DEFICIENCY)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK SHAREHOLDER'S RETAINED
-------------------------- ADDITIONAL BASIS EARNINGS
SHARES AMOUNT CAPITAL REDUCTION (DEFICIT) TOTAL
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance July 2, 1997 1,000 $ - $15,750 $(4,028) $ - $11,722
Net income 823 823
-------------------------------------------------------------------------------------------
Balance, June 30, 1998 1,000 - 15,750 (4,028) 823 12,545
Net loss (6,782) (6,782)
-------------------------------------------------------------------------------------------
Balance, June 30, 1999 1,000 - 15,750 (4,028) (5,959) 5,763
Net loss (7,298) (7,298)
-------------------------------------------------------------------------------------------
Balance, June 30, 2000 1,000 $ - $15,750 $(4,028) $(13,257) $(1,535)
===========================================================================================
</TABLE>
See accompanying notes.
27
<PAGE> 28
GLASSTECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30
2000 1999 1998
---------------- ---------------- -----------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) $ (7,298) $ (6,782) $ 823
Adjustments to reconcile net income (loss)to net cash (used in)
provided by operating activities:
Depreciation and amortization 6,232 6,343 6,447
Accretion of debt discount 107 107 107
Nonpension postretirement benefit obligation expense in excess
of payments 34 17 15
Income taxes not payable in cash - - 2,249
Other - - 7
Changes in assets and liabilities affecting operations:
Restricted cash - - 1,529
Accounts receivable (2,547) 4,475 (2,855)
Inventory 1,005 (965) 832
Prepaid expenses 71 - 86
Accounts payable 1,076 (2,457) 480
Billings in excess of costs and estimated earnings on
uncompleted contracts (961) (1,058) (6,583)
Accrued liabilities (509) (4,083) 4,784
-----------------------------------------------------
Net cash (used in) provided by operating activities (2,790) (4,403) 7,921
INVESTING ACTIVITIES
Additions to property, plant and equipment (223) (47) (349)
Net assets purchased - - (74,796)
Increase in long-term notes receivable - - (656)
Proceeds on sale of demonstration furnace - - 270
Other 20 (10) 10
-----------------------------------------------------
Net cash used in investing activities (203) (57) (75,521)
FINANCING ACTIVITIES
Issuance of long-term debt and related warrants - - 70,000
Issuance of common stock - - 15,000
Deferred financing costs - - (4,279)
-----------------------------------------------------
Net cash provided by financing activities - - 80,721
Increase (decrease) in cash and cash equivalents (2,993) (4,460) 13,121
Cash and cash equivalents at beginning of year 8,661 13,121 -
-----------------------------------------------------
Cash and cash equivalents at end of year $ 5,668 $ 8,661 $13,121
=====================================================
Supplemental disclosure of cash flow information:
Cash paid (received) during the year for the following:
Interest $ 8,925 $ 8,925 $ 4,438
=====================================================
Income taxes $ (21) $ 21 $ (311)
=====================================================
</TABLE>
See accompanying notes.
28
<PAGE> 29
GLASSTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
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 $77,900 was allocated to the underlying net assets
acquired.
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
were recorded at their predecessor basis. As a result, shareholder's equity of
the Company was reduced by $4,028 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. 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 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 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.
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.
29
<PAGE> 30
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
Goodwill is being amortized on the straight-line basis over 20 years. The
Company periodically reviews goodwill to assess recoverability, generally based
upon expectations of nondiscounted cash flows, excluding interest and taxes, and
operating income.
Deferred financing costs are being amortized over 7 years, the length of the
underlying note agreement.
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 provisions for loss exposures 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.
30
<PAGE> 31
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities (Statement 133)
which establishes new procedures for accounting for derivatives and hedging
activities and supersedes and amends a number of existing standards. Statement
133 is effective for fiscal years beginning after June 15, 2000. Statement 133
is not expected to have a significant impact on the Company.
In December 1999 the SEC released Staff Accounting Bulletin (SAB) No. 101,
Revenue Recognition in Financial Statements. The bulletin provides the staff's
views in applying generally accepted accounting principles to selected revenue
recognition issues. The SEC has since delayed the required implementation until
no later than the fourth quarter of fiscal years beginning after December 15,
1999. The Company is currently evaluating the effect this bulletin may have on
its financial position and results of operations.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF JUNE 30
2000 1999
--------------------------------
<S> <C> <C>
Cost:
Land $ 110 $ 110
Building and leasehold improvements 2,372 2,331
Machinery and equipment 1,095 1,119
Demonstration glass tempering furnaces 4,365 4,360
Office equipment 1,918 1,730
Other 9 9
--------------------------------
9,869 9,659
Less accumulated depreciation and amortization (4,219) (2,870)
--------------------------------
Net property, plant and equipment $5,650 $6,789
================================
</TABLE>
4. NOTES PAYABLE AND LONG-TERM DEBT
In connection with the Transaction, the Company 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"). The offering of
the Old Notes was also structured to permit resales under Rule 144 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 at
$750. These warrants were issued to the initial 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 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. The terms of the Senior
Notes do not require any scheduled principal payments prior to maturity.
31
<PAGE> 32
4. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
The Company also entered into a revolving credit facility ("Credit Facility") in
connection with the Transaction. The Credit Facility is available to fund
working capital requirements as needed, and to secure standby letters of credit.
The Credit Facility provides for borrowings up to $10,000 (including standby
letters of credit), subject to a borrowing base of certain qualifying assets,
and provides for interest on outstanding borrowings at the LIBOR rate plus 2.5%,
payable semi-annually (9.18% at June 30, 2000). The credit facility is secured
by substantially all of the assets of the Company. At June 30, 2000, the Company
had no outstanding borrowings or standby letters of credit under the Credit
Facility and the borrowing base approximated $8,100.
The Senior Notes and Credit Facility, as amended, contain numerous financial and
other covenants which include the maintenance of certain levels of earnings as
defined, restrictions on the payment of dividends and the incurrence of
additional indebtedness as well as certain types of business activities and
investments. The Company believes that it is in material compliance with all
such covenants.
At June 30, 2000 and 1999, the Company believes the carrying value of the Senior
Notes exceeds their fair value. Although the Senior Notes are publicly traded,
the trading volume is so low that the Company is unable to determine their fair
value.
5. EMPLOYEE BENEFIT PLANS
The Company has defined contribution retirement plans that cover substantially
all employees. Contributions for the Employees' Pension Plan, which are based on
participants' compensation, are funded annually, in arrears. Annual expense for
this plan approximated $534, $616 and $639, for the years ended June 30, 2000,
1999 and 1998, respectively. The Company does not match contributions made by
employees under the Employees' Savings Plan, a 401(k) plan.
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.
The components of the net periodic postretirement benefit cost for the years
ended June 30 are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
------------------------------------------------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $17 $16 $16
Interest cost on accumulated postretirement benefit
obligation 36 32 31
Recognized net actuarial loss 3 - -
------------------------------------------------
Net periodic postretirement benefit cost $56 $48 $47
================================================
</TABLE>
32
<PAGE> 33
5. EMPLOYEE BENEFIT PLANS (CONTINUED)
The changes in the accumulated postretirement benefit obligation and amounts
accrued were as follows:
<TABLE>
<CAPTION>
2000 1999
--------------------------------
<S> <C> <C>
Change in accumulated postretirement benefit obligation:
Benefit obligation, beginning of year $527 $405
Service cost 17 16
Interest cost 36 32
Actuarial loss (gain) (12) 106
Benefits paid (22) (32)
--------------------------------
Benefit obligation, end of year $546 $527
================================
Funded status of plan $546 $527
Unrecognized net loss (90) (105)
--------------------------------
Accrued benefit obligation $456 $ 422
================================
</TABLE>
The assumed discount rate used in determining the accumulated postretirement
benefit obligation was 7.0% at June 30, 2000 and 1999. The assumed healthcare
cost trend rates used to measure the expected cost of benefits covered by this
plan ranges principally from 4.25% to 5.75%, and decrease ratably to 4.20% by
fiscal year 2010.
6. 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>
2000 1999
--------------------------------
<S> <C> <C>
Deferred income tax liabilities:
Contract revenues $(3,261) $(4,664)
Tax basis differences on purchased assets (1,530) (497)
Property, plant and equipment (613) (756)
--------------------------------
Total deferred income tax liabilities (5,404) (5,917)
Deferred income tax assets:
Federal income tax operating loss carryovers 17,692 16,376
Accrued liabilities and reserves 565 630
Other 421 402
--------------------------------
Total deferred income tax assets 18,678 17,408
Less valuation allowance 13,274 11,491
--------------------------------
Net deferred income tax assets 5,404 5,917
--------------------------------
Total deferred income taxes--net $ - $ -
================================
</TABLE>
33
<PAGE> 34
6. FEDERAL INCOME TAX (CONTINUED)
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>
2000 1999 1998
------------------------------------------------
<S> <C> <C> <C>
Statutory U. S. Federal tax rate (34.0)% (34.0)% 34.0%
Increase (reduction) in tax rate
resulting from:
Effect of increase (reduction) in valuation reserve
for deferred income taxes 22.1 20.9 -
Amortization of goodwill 11.8 12.7 32.5
State income taxes - - 4.3
Other 0.1 0.4 2.4
------------------------------------------------
Effective tax rate -% -% 73.2%
================================================
</TABLE>
At June 30, 2000, the Company has net operating loss carryforwards for regular
and alternative minimum tax purposes of approximately $46,559 and $43,372,
respectively, which expire in the years 2009 through 2015. 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.
7. LEASES
The Company leases manufacturing, warehouse and office buildings under long-term
agreements. The Company has the option to renew the manufacturing and office
buildings leases for one additional five-year period at slightly higher rates.
Total rental expense amounted to $415, $397 and $391, respectively for each of
the three years in the period ended June 30, 2000. Total rental commitments
under the operating leases for fiscal years subsequent to June 30, 2000 are as
follows: 2001--$429, 2002--$429, 2003--$388, 2004--$165 and in aggregate $1,411.
8. GEOGRAPHIC AND CUSTOMER INFORMATION
The Company operates in one industry segment, the design and manufacturer of
glass bending and tempering equipment. The Company's net revenues from external
customers are derived from glass bending and tempering equipment and related
replacement parts and service. The Company's net revenues from external
customers by geographic areas and customers who represent 10% or more of total
sales for 2000, 1999 and 1998 are presented below. Long-lived assets, consisting
of property, plant and equipment, patents and goodwill, located outside the
United States are not significant.
34
<PAGE> 35
8. GEOGRAPHIC AND CUSTOMER INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
2000 1999 1998
------------------------------------------------
<S> <C> <C> <C>
Net Revenue by Geographic Location:
United States $29,009 $23,995 $23,509
Europe 8,053 10,338 11,518
Asia-Pacific 5,555 14,189 27,654
Latin America 4,072 1,638 5,384
Other 333 385 1,523
------------------------------------------------
$47,022 $50,545 $69,588
================================================
</TABLE>
<TABLE>
<CAPTION>
2000 1999 1998
------------------------------------------------
<S> <C> <C> <C>
Major customers percentage of net revenue:
Customer A 16.5% 2.4% 1.2%
Customer B 11.7 17.7 13.4
Customer C 10.3 - -
Customer D 6.4 10.2 9.7
Customer E 6.0 17.3 14.9
</TABLE>
9. TRANSACTIONS WITH AFFILIATE
Upon consummation of the Transaction, the Company entered into an advisory
agreement with Key Equity Capital Corporation ("KECC"), a major shareholder, at
an annual expense of $200 adjusted to $150 effective October 1, 1998. Effective
June 30, 2000, Blue Point Capital Partners ("BPCP") succeeded KECC's interest in
the advisory agreement.
In connection with the Transaction, the Company advanced $656 to Holding. The
advances were made to Holding to permit Holding to satisfy certain obligations
it entered into in connection with the Transactions.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
35
<PAGE> 36
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 48 Director, President and Chief Executive Officer
John S. Baxter 60 Senior Vice President, Marketing and Sales
Kenneth H. Wetmore 53 Vice President, General Counsel and Secretary
Ronald A. McMaster, Ph.D. 61 Vice President, Corporate Development
Diane S. Tymiak 43 Vice President, Treasurer and Chief Financial Officer
Larry E. Elliott 51 Vice President, Manufacturing
James P. Schnabel 40 Vice President, Development and Engineering
David P. Given 46 Director
John A. LeMay 34 Director
James M. Papada, III 52 Director
Edmund S. Wright 57 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 financial capacities since that time.
Larry E. Elliott joined the Company in July 1996 as Vice President and
currently serves as Vice President, Manufacturing. 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.
36
<PAGE> 37
James P. Schnabel was elected Vice President in 1997 and currently
serves as Vice President Development and Engineering. Mr. Schnabel joined the
Company in 1984 and has served in various engineering capacities with the
Company since that time.
David P. Given became a Managing Partner of Blue Point Capital
Partners, L.P. ("BPCP"), a venture capital firm, effective June 30, 2000. See
"Certain Relationships and Certain Transactions." Prior to joining BPCP, Mr.
Given had been President of KECC since 1995 and joined KECC as a Vice President
in 1990. Mr. Given serves as a director of several privately held companies.
Upon the consummation of the Transactions, Mr. Given began to serve as Director.
John A. LeMay became a Principal with BPCP, effective June 30, 2000.
Prior to joining BPCP, Mr. LeMay joined KECC as a Vice President in 1998. Prior
to joining KECC, Mr. LeMay was employed by the Boston Consulting Group, Inc. and
Salomon Brothers, Inc. Mr. LeMay became a Director in May 1999.
James M. Papada is Chairman of the Board of Directors and CEO of
Technitrol, Inc. (NYSE: TNL), a diversified manufacturer of components for
electrical and electronic equipment. From 1978 to 1982 and from 1988 to 1999 Mr.
Papada was a partner with the law firm of Stradley, Ronon, Stevens & Young,
located in Philadelphia, Pennsylvania. 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 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 is also a director of Fairmount Minerals, Inc., Unifrax Corporation,
Stonebridge Industries, Inc. and STAM, Inc. 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 or BPCP, is $20,000 per year.
Under the Stockholders' Agreement (as defined herein), Messrs. Given
and LeMay 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.
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<PAGE> 38
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 2000, 1999 and 1998.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL ALL OTHER
COMPENSATION COMPENSATION
----------------------- ------------
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS(a) (b)
--------------------------- ----------- ------ -------- ---
<S> <C> <C> <C> <C>
Mark D. Christman 2000 $296,140 $ 228,000 $14,264
President and Chief Executive Officer.................... 1999 289,909 1,058,000 13,848
1998 309,634 970,000 13,348
John S. Baxter 2000 231,847 70,000 14,708
Senior Vice President, Marketing and Sales............... 1999 226,935 322,000 14,400
1998 233,254 296,000 13,900
Kenneth H. Wetmore 2000 201,002 40,000 14,162
Vice President, General Counsel and Secretary............ 1999 196,932 170,000 14,076
1998 200,080 136,000 13,481
Ronald A. McMaster 2000 184,004 15,000 15,098
Vice President, Corporate Development.................... 1999 180,160 72,000 14,400
1998 179,464 66,000 23,900
James P. Schnabel 2000 159,254 35,000 14,120
Vice President, Development.............................. 1999 146,574 148,000 13,632
1998 144,690 136,000 13,132
</TABLE>
(a) Represent bonus amounts paid in the fiscal years listed but related to prior
year performance.
(b) Represents (i) a pension plan contribution equal to 5% of each Named
Executive Officer's first $160,000 of compensation under the Company's pension
plan and (ii) imputed income on life insurance provided by the Company.
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
38
<PAGE> 39
completion of the initial five-year term.
39
<PAGE> 40
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 and Holding have
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 neither the Company
nor Holding has granted any options to Executive Management in the past fiscal
year and no options to Executive Management are currently outstanding.
Performance Bonus Pool. Each member of Executive Management is eligible
to receive a distribution from the Performance Bonus Pool (based upon a
calculated EBITDA as defined in the Employment Agreements). Amounts made
available by the Company pursuant to the Performance Bonus Pool at the end of
each fiscal year are based on the calculated EBITDA of the Company for such
fiscal year or the average calculated EBITDA for all fiscal years, whichever is
greater (as defined in the Employment Agreements). If calculated EBITDA (which
for such purpose will be computed before deducting any fees payable to KECC or
BPCP subsequent to June 30, 2000) is between $14.0 million and $15.0 million as
of such fiscal year, then amounts available for distribution pursuant to the
Performance Bonus Pool will generally be 5.0% of calculated EBITDA. If
calculated 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 calculated EBITDA. If calculated EBITDA is more than $16.0
million, then amounts available for distribution pursuant to the Performance
Bonus Pool will generally be 10.0% of calculated 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 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
40
<PAGE> 41
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. For the fiscal years ended June 30,
1998, 1999 and 2000, the Company's expense under the Employees' Pension Plan
approximated $639,000 $616,000 and $534,000, respectively. The Company does not
match contributions made by employees under the Employees' Savings Plan, a
401(k) plan.
41
<PAGE> 42
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Holding owns 100% of the issued and outstanding common stock of the
Company. As of September 15, 2000, 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 CLASS C COMMON STOCK CLASS D COMMON STOCK
------------------------ --------------------- --------------------- ---------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF NUMBER OF PERCENT OF NUMBER OF PERCENT OF
SHARES(a) OWNERSHIP(b) SHARES(c) OWNERSHIP SHARES OWNERSHIP SHARES OWNERSHIP
--------- ------------ --------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Key Equity Capital Corporation
127 Public Square, 28th Floor
Cleveland, Ohio 44114-1306 (d) 1,550 37.5% 8,405 100.0% -- -- -- --
Key Equity Partners 97
127 Public Square, 28th Floor
Cleveland, Ohio 44114-1306 (e) -- -- -- -- 3,335 66.7% -- --
David Given (e)
127 Public Square, 28th Floor
Cleveland, Ohio 44114-1306 -- -- -- -- 3,335 66.7% -- --
Executive Management (f)
Mark D. Christman 1,010 24.4% -- -- 834 16.7% 4,000 40.0%
John S. Baxter 175 4.2% -- -- 267 5.3% 1,800 18.0%
Kenneth H. Wetmore 125 3.0% -- -- 133 2.7% 1,000 10.0%
Ronald A. McMaster, Ph.D. 150 3.6% -- -- 67 1.3% 500 5.0%
Diane S. Tymiak 90 2.2% -- -- 100 1.9% 700 7.0%
Larry E. Elliot 35 0.9% -- -- 133 2.7% 1,000 10.0%
James P. Schnabel 75 1.8% -- -- 133 2.7% 1,000 10.0%
Key Equity Group (g) 3,210 77.6% 8,405 100.0% 5,002 100.0% 10,000 100.0%
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% 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 a partner of KEP 97. Accordingly, Mr. Given may be deemed to
beneficially own the shares owned by KEP 97.
(f) Simultaneously with the consummation of Transaction, 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.
(g) The Key Equity Group is comprised of Executive Management, KECC and KEP 97.
42
<PAGE> 43
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, 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)
43
<PAGE> 44
make any loans or advances to any stockholders or any employees of Holding or
any of its subsidiaries other than advances to 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 BPCP 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 may also be able to participate.
44
<PAGE> 45
ITEM 13. CERTAIN RELATIONSHIPS AND CERTAIN TRANSACTIONS.
Upon consummation of the Transaction, 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 received an
annual fee of $200,000, payable quarterly in arrears. Effective October 1, 1998,
this fee was adjusted to $150,000.
Effective June 30, 2000, Messrs. Given and LeMay resigned their positions
with KECC and their affiliates and became a Managing Partner and Principal of
BPCP, respectively. In addition, effective June 30, 2000, an affiliate of BPCP
and KECC entered into an Investment Management Agreement, pursuant to which the
affiliate of BPCP agreed to manage KECC's existing investments, which includes
its investment in Holding. As a result of entering into the Investment
Management Agreement, the affiliate of BPCP effectively succeeded to KECC's
interest in the fees payable under the advisor agreement.
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.
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<PAGE> 46
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements:
See Index to Consolidated Financial Statements 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:
2.1(a) Agreement and Plan of Merger
2.2(a) Amendment to Agreement and Plan of Merger
3.1(a) Restated Certificate of Incorporation of the
Registrant
3.2(a) By-laws of the Registrant
4.1(a) Indenture (including form of Note)
4.2(a) First Supplemental Indenture
10.1(a) Financing and Security Agreement between Bank of
America, N.A., (f/k/a NationsBank, N.A.) and the
Registrant
10.1.1(b) Second Amendment to Financing and Security Agreement
between Bank of America, N.A., (f/k/a NationsBank,
N.A.) and the Registrant
10.1.2(c) Third Amendment to Financing and Security Agreement
between Bank of America, N.A., (f/k/a NationsBank,
N.A.) and the Registrant
10.2(a) Plant and Office Lease
10.3(a) Warehouse Lease
10.4(a) Advisory Agreement between the Registrant and Key
Equity Capital Corporation
10.5(a) Form of Exchange Agent Agreement between United
States Trust Company of New York and the Registrant
10.6(a) Employment Agreement among Glasstech Holding Co., the
Registrant and John S. Baxter
10.7(a) Employment Agreement among Glasstech Holding Co., the
Registrant and Mark D. Christman
10.8(a) Employment Agreement among Glasstech Holding Co., the
Registrant and Larry E. Elliott
10.9(a) Employment Agreement among Glasstech Holding Co., the
Registrant and Ronald A. McMaster
10.10(a) Employment Agreement among Glasstech Holding Co., the
Registrant and James P. Schnabel, Jr.
10.11(a) Employment Agreement among Glasstech Holding Co., the
Registrant and Diane S. Tymiak
10.12(a) Employment Agreement among Glasstech Holding Co., the
Registrant and Kenneth H. Wetmore
10.13(a) Securities Purchase Agreement between the Registrant,
as successor to Glasstech Sub Co., and CIBC Wood
Gundy Securities Corp.
10.14(a) Registration Rights Agreement between the Registrant,
as successor to Glasstech Sub Co., and CIBC Wood
Gundy Securities Corp.
21.1(a) List of Subsidiaries.
27.1(d) Financial Data Schedule
(a)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.
(b)Incorporated by reference from the Company's Quarterly Report
on Form 10-Q filed on February 11, 1999.
(c)Incorporated by reference from the Company's Annual Report on
Form 10-K filed on September 23, 1999.
(d) 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.
46
<PAGE> 47
47
<PAGE> 48
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>
<CAPTION>
<S> <C>
GLASSTECH, INC.
Date: September 26, 2000 /s/ Mark D. Christman
------------------------------------------------------------
MARK D. CHRISTMAN
President and Chief Executive Officer
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.
Date: September 26, 2000 /s/ Mark D. Christman
------------------------------------------------------------
MARK D. CHRISTMAN
Director, President and Chief Executive Officer
(Principal Executive Officer)
Date: September 26, 2000 /s/ Diane S. Tymiak
------------------------------------------------------------
DIANE S. TYMIAK
Vice President, Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: September 26, 2000 /s/ David P. Given
------------------------------------------------------------
DAVID P. GIVEN
Director
Date: September 26, 2000 /s/ John LeMay
------------------------------------------------------------
JOHN LEMAY
Director
Date: September 26, 2000 /s/ James M. Papada, III
------------------------------------------------------------
JAMES M. PAPADA, III
Director
Date: September 26, 2000 /s/ Edmund S. Wright
------------------------------------------------------------
EDMUND S. WRIGHT
Director
</TABLE>
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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
----------- ---------- ---------- ------- ------
<S> <C> <C> <C> <C>
Year ended June 30, 2000:
Allowance for doubtful accounts $ 40 $ -- $ -- $ 40
====== ====== ====== ========
Accrued contract costs $ 795 $1,963 $1,884 $ 874
====== ====== ====== ========
Year ended June 30, 1999:
Allowance for doubtful accounts $ 40 $ -- $ -- $ 40
====== ====== ====== ========
Accrued contract costs $2,382 $1,694 $3,281 $ 795
====== ====== ====== ========
Year ended June 30, 1998:
Allowance for doubtful accounts $ 141 $ (101) $ -- $ 40
====== ====== ====== ========
Accrued contract costs $3,780 $1,717 $3,115 $ 2,382
====== ====== ====== ========
</TABLE>
S-1
<PAGE> 50
EXHIBIT INDEX
2.1(a) Agreement and Plan of Merger
2.2(a) Amendment to Agreement and Plan of Merger
3.1(a) Restated Certificate of Incorporation of the Registrant
3.2(a) By-laws of the Registrant
4.1(a) Indenture (including form of Note)
4.2(a) First Supplemental Indenture
10.1(a) Financing and Security Agreement between Bank of
America, N.A., (f/k/a NationsBank, N.A.) and the
Registrant
10.1.1(b) Second Amendment to Financing and Security Agreement
between Bank of America, N.A., (f/k/a NationsBank, N.A.)
and the Registrant
10.1.2(c) Third Amendment to Financing and Security Agreement
between Bank of America, N.A., (f/k/a NationsBank, N.A.)
and the Registrant
10.2(a) Plant and Office Lease
10.3(a) Warehouse Lease
10.4(a) Advisory Agreement between the Registrant and Key Equity
Capital Corporation
10.5(a) Form of Exchange Agent Agreement between United States
Trust Company of New York and the Registrant
10.6(a) Employment Agreement among Glasstech Holding Co., the
Registrant and John S. Baxter
10.7(a) Employment Agreement among Glasstech Holding Co., the
Registrant and Mark D. Christman
10.8(a) Employment Agreement among Glasstech Holding Co., the
Registrant and Larry E. Elliott
10.9(a) Employment Agreement among Glasstech Holding Co., the
Registrant and Ronald A. McMaster
10.10(a) Employment Agreement among Glasstech Holding Co., the
Registrant and James P. Schnabel, Jr.
10.11(a) Employment Agreement among Glasstech Holding Co., the
Registrant and Diane S. Tymiak
10.12(a) Employment Agreement among Glasstech Holding Co., the
Registrant and Kenneth H. Wetmore
10.13(a) Securities Purchase Agreement between the Registrant, as
successor to Glasstech Sub Co., and CIBC Wood Gundy
Securities Corp.
10.14(a) Registration Rights Agreement between the Registrant, as
successor to Glasstech Sub Co., and CIBC Wood Gundy
Securities Corp.
21.1(a) List of Subsidiaries.
27.1(d) Financial Data Schedule
(a) 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.
(b) Incorporated by reference from the Company's Quarterly Report
on Form 10-Q filed on February 11, 1999.
(c) Incorporated by reference from the Company's Annual Report on
Form 10-K filed on September 23, 1999.
(d) Filed herewith.
E-1
