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 December 26, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
Commission File Number: 33-66740
UNIROYAL CHEMICAL COMPANY, INC.
(Exact name of registrant as specified in its charter)
NEW JERSEY 06-114-8490
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
BENSON ROAD
MIDDLEBURY, CONNECTICUT 06749
(Address of principal executive offices) (Zip Code)
Registrants's telephone number, including area code - (203) 573-2000
Securities registered pursuant to Section 12(b) 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
registrants 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 [ ].
None of the voting stock of Uniroyal Chemical Company, Inc. is held by
non-affiliates.
The number of shares of Common Stock of Uniroyal Chemical Company, Inc.
outstanding as of March 26, 1999, was 100 shares of No Class Common Stock.
Documents incorporated by reference
None
Registrant meets the conditions set forth in General Instruction (I)(1)(a) and
(b) of Form 10-K and is therefore filing this Form with the reduced disclosure
format.
INDEX
Page
PART 1
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
The Registrant is not required by Section 13 or 15(d) of the Securities
Exchange Act of 1934 to file this Report, which is being filed to comply with
certain provisions of the indentures applicable to two series of outstanding
public debt of the Registrant.
* * * * * * * * * * * * * * * * * * *
PART I
ITEM 1. BUSINESS
Business of Uniroyal Chemical Company, Inc.
Uniroyal Chemical Company, Inc. ("Uniroyal Chemical" or "Registrant") is
a major multinational manufacturer of a wide variety of specialty chemical and
polymer products, including rubber chemicals, specialty additives for the
plastics and lubricants industries, crop protection chemicals, EPDM rubber,
nitrile rubber and urethane prepolymers. Uniroyal Chemical produces high
value added products which are currently marketed in approximately 120
countries and serve a wide variety of end use markets including tires,
agriculture, automobiles, plastics, lubricants, petrochemicals, hoses,
construction, recreation, mining and appliances. Uniroyal Chemical's business
has its origins in the chemical operations of the U.S. Rubber Company, which
date back over 95 years.
Merger with Uniroyal Chemical Corporation
In December 1998, Uniroyal Chemical Corporation ("UCC"), a Delaware
corporation, was merged with and into the Registrant, with the Registrant
being the surviving corporation ("UCC Merger"). The Registrant was a wholly
owned subsidiary of UCC which was a wholly owned subsidiary of Crompton &
Knowles Corporation. Prior to the UCC Merger, the Registrant and UCC were
each separate registrants making joint filings with the Securities and
Exchange Commission.
Joint Ventures with Bayer Corporation
In November 1998, Crompton & Knowles Corporation ("C & K") and Bayer
Corporation ("Bayer") formed joint ventures to serve the agricultural seed
treatment markets in North America. The business previously operated by
Gustafson, Inc. ("Gustafson"), a unit of the Registrant, a wholly owned
subsidiary of C & K, is the basis of the 50/50 joint ventures. The U.S. joint
venture will be headquartered in Plano, Texas under the former Gustafson
management. The crop protection businesses of the Registrant and Bayer will
continue to operate independently, except for these seed treatment joint
ventures.
Joint Venture with GIRSA
Also, in November 1998, Uniroyal Chemical entered into a joint venture
with GIRSA, a subsidiary of DESC, S.A. de C.V., a Mexican corporation, to
produce Paracril(R) oil-resistant nitrile rubber products in Mexico. Uniroyal
Chemical is contributing its nitrile rubber technology and business, and will
continue to provide sales and technical service support through its existing
organization. GIRSA is contributing its process and manufacturing technology
and will be primarily responsible for the construction of a new plant in
Mexico. Uniroyal Chemical's production facility in Painesville, Ohio will
close by mid-1999.
Merger with Crompton & Knowles Corporation
There is incorporated by reference herein Item 1 of the Current Report on
Form 8-K dated August 21, 1996, for the Registrant and UCC for information
pertaining to an Agreement and Plan of Merger dated as of April 30, 1996, as
amended, by and among UCC, C & K and Tiger Merger Corp. ("Subcorp"), a wholly
owned subsidiary of C & K, whereby Subcorp was merged with and into UCC (the
"Merger") effective on August 21, 1996. As a result of the Merger, UCC became
a wholly owned subsidiary of C & K. Uniroyal Chemical remained a wholly owned
subsidiary of UCC until the UCC Merger in December 1998.
ITEM 2. PROPERTIES
Uniroyal Chemical and its subsidiaries (excluding Gustafson) operate 12
production facilities worldwide. While most manufacturing plants produce a
variety of products, three are dedicated to individual products. The four
most significant production facilities are in Elmira, Ontario, Canada;
Geismar, Louisiana; Naugatuck, Connecticut; and Latina, Italy.
Uniroyal Chemical holds a 50% interest in the Gustafson joint ventures
which operate four facilities: an equipment manufacturing plant in Eden
Prairie, Minnesota and chemical formulation facilities in Marsing, Idaho; Des
Moines, Iowa; and Pekin, Illinois.
Uniroyal Chemical holds a 50% voting interest in Rubicon Inc., which
operates a chemical production facility located in Geismar, Louisiana that in
part is dedicated to producing certain intermediates for Uniroyal Chemical.
Uniroyal Chemical conducts research and development in facilities in
Bethany, Middlebury and Naugatuck, Connecticut; Guelph, Ontario, Canada; and
Evesham, England. In addition, Gustafson conducts research and development at
a facility in Frisco, Texas. Uniroyal Chemical and Gustafson each also
operate field stations for crop protection research and development
activities.
Uniroyal Chemical maintains headquarters facilities at Middlebury,
Connecticut.
ITEM 3. LEGAL PROCEEDINGS
Uniroyal Chemical and its subsidiaries are involved in claims,
litigation, administrative proceedings and investigations of various types in
several jurisdictions. A number of such matters involve claims for a material
amount of damages and relate to or allege environmental liabilities, including
clean up costs associated with hazardous waste disposal sites, natural
resource damages, property damage and personal injuries.
Environmental Liabilities. Each quarter, Uniroyal Chemical evaluates and
reviews estimates for future remediation and other costs to determine
appropriate environmental reserve amounts. For each site, a determination is
made of the specific measures that are believed to be required to remediate
the site, the estimated total cost to carry out the remediation plan, the
portion of the total remediation costs to be borne by Uniroyal Chemical and
the anticipated time frame over which payments toward the remediation plan
will occur. The total amount accrued for such environmental liabilities at
December 26, 1998, was $92 million. Uniroyal Chemical estimates the potential
liabilities to range from $68 million to $126 million at December 26, 1998.
It is reasonably possible that Uniroyal Chemical's estimates for environmental
remediation liabilities may change in the future should additional sites be
identified, further remediation measures be required or undertaken, the
interpretation of current laws and regulations be modified or additional
environmental laws and regulations be enacted.
Uniroyal Chemical generally assesses the possibility for toxic tort
claims. Such liabilities are dependent upon complex factors. Five facilities
have been identified where the possibility for toxic tort claims may be
significant, i.e. as situations where chemicals are believed to have migrated
off-site, thus posing risk of exposure. There are no lawsuits pending
involving any of these five facilities. Virtually all, if not all, of the
off-site disposal sites to which Uniroyal Chemical may have sent toxic
materials pose a possibility for toxic tort claims. There are currently
pending five toxic tort claims against Uniroyal Chemical and others arising
from these off-site disposal sites.
Uniroyal Chemical has been identified by federal, state or local
governmental agencies, and by other potentially responsible parties (a "PRP")
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, or comparable state statutes, as a PRP with respect to
costs associated with waste disposal sites at various locations in the United
States. Because these regulations have been construed to authorize joint and
several liability, the Environmental Protection Agency ("EPA") could seek to
recover all costs involving a waste disposal site from any one of the PRPs for
such site, including Uniroyal Chemical, despite the involvement of other PRPs.
In many cases, Uniroyal Chemical is one of several hundred PRPs so identified.
In a few instances, Uniroyal Chemical is one of only a handful of PRPs. In
certain instances, a number of other financially responsible PRPs are also
involved, and Uniroyal Chemical expects that any ultimate liability resulting
from such matters will be apportioned between Uniroyal Chemical and such other
parties. In addition, Uniroyal Chemical is involved with environmental
remediation and compliance activities at some of its current and former sites
in the United States and abroad. The more significant of these matters are
described below.
. Beacon Heights and Laurel Park - Uniroyal Chemical is a member of the
Beacon Heights Coalition, a group of entities engaged in remedial work at the
Beacon Heights site in the State of Connecticut pursuant to a Consent Decree
entered in 1987. The actions required by this Consent Decree have been
essentially completed. There is a continuing requirement for operation and
maintenance at the site.
Over many years, Uniroyal Chemical has entered into and performed
activities pursuant to a series of Administrative Orders with respect to the
Laurel Park site located in the State of Connecticut. The EPA, the State of
Connecticut, and the Laurel Park Coalition (consisting of Uniroyal Chemical
and a number of other parties) have entered into a Consent Decree governing
the design and implementation of the selected remedy. Remedial construction
began at the Laurel Park site in July 1996, and was completed in 1998.
Operation and maintenance activities at the site are ongoing.
Consolidated litigation brought by the Beacon Heights and Laurel Park
Coalitions seeking contribution to the costs from the owner/operators of the
site and later from other identified generator parties has resulted in
substantial recoveries from a number of parties. Hearings on the remaining
claims have been completed before a Special Master appointed by the Court.
The Special Master has issued a Report and Recommendations to the Court
denying recovery to the Coalitions. The Coalitions intend to file objections
to the Report prior to the Court's ruling in this matter.
. Cleve Reber - Uniroyal Chemical and three other corporations named in an
Administrative Order issued by the EPA have complied with such Order which
governs remediation of the site located in the State of Louisiana. The
cooperating parties have negotiated a consent agreement with the EPA which
resolves all outstanding claims, leaving only ongoing operation and
maintenance activities at the site.
. Petro Processors - This matter relating to a site in the State of
Louisiana was initiated in 1981. Litigation was instituted by the EPA against
a number of parties, including Uniroyal, Inc. (which Uniroyal Chemical has
agreed to indemnify), seeking cleanup of the Petro Processors site. A Consent
Decree was entered to settle the case in February 1984, which required the
defendants to clean up the site to the satisfaction of the EPA under
supervision of the court. A settlement among the ten defendants, dated
December 16, 1983, defines the percentage to be borne by each defendant of the
currently estimated future cost of $89 million to complete remediation of the
site. Although the allocations are subject to a confidentiality order,
Uniroyal Chemical believes that the amount it will pay will not be material to
its financial condition or results of operations.
. Vertac - Uniroyal Chemical and its Canadian subsidiary, Uniroyal
Chemical Co./Cie. (formerly known as Uniroyal Chemical Ltd./Ltee), were joined
with others as defendants in consolidated civil actions brought in the United
States District Court, Eastern District of Arkansas, Western Division by the
United States of America, the State of Arkansas and Hercules
Incorporated ("Hercules") relating to a Vertac Chemical Corporation site in
Jacksonville, Arkansas. Uniroyal Chemical has been dismissed from the
litigation. On May 21, 1997, the Court entered an order finding that Uniroyal
Chemical Co./Cie. is jointly and severally liable to the United States, and
finding that Hercules and Uniroyal Chemical Co./Cie. are liable to each other
in contribution. On October 23, 1998, the Court entered an order granting the
United States's motion for summary judgment against Uniroyal Chemical Co./Cie.
and Hercules as to the amount of its claimed removal and remediation costs of
$102.9 million at the Vertac site. Trial on the allocation of these costs as
between Uniroyal Co./Cie. and Hercules was concluded on November 6, 1998, and
post-trial briefing was completed during February 1999, with a decision
expected during the second quarter of 1999. How much, if any, of the costs
will ultimately be imposed on Uniroyal Chemical Co./Cie. cannot be determined
at this time although Uniroyal Chemical Co./Cie. continues to believe that its
share of liability will be small in comparison to that of Hercules.
The natural resource damage case filed by several individuals in state
court which named Uniroyal Chemical Co./Cie. has been withdrawn without
prejudice. These individuals have refiled their case in Federal court against
some of the parties but have not named Uniroyal Chemical Co./Cie. as a
defendant. Uniroyal Chemical Co./Cie. received a notice from the United
States Department of the Interior of its intent to perform a Natural Resource
Damage Assessment at the site. In addition, the State of Arkansas has
commenced an action for natural resource damages which is currently pending in
the State court, but Uniroyal Chemical Co./Cie. has not been named a party in
that action.
. Naugatuck - On February 24, 1999, the Connecticut Department of
Environmental Protection initiated an action in Connecticut State court
against Uniroyal Chemical alleging that Uniroyal Chemical's Naugatuck, CT,
plant had on several occasions improperly discharged hazardous wastes to the
Naugatuck sewage treatment plant and had failed to comply with other
applicable state and Federal requirements regarding its discharges to the
sewage treatment plant.
Uniroyal Chemical intends to assert all meritorious legal defenses and
all other equitable factors which are available to it with respect to the
above matters. Uniroyal Chemical believes that the resolution of these
environmental matters will not have a material adverse effect on its
consolidated financial position. While Uniroyal Chemical believes it is
unlikely, the resolution of these environmental matters could have a material
adverse effect on its consolidated results of operations in any given year if
a significant number of these matters are resolved unfavorably.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No response to this item is required as Registrant meets the conditions
set forth in General Instruction (I)(1)(a) and (b) of Form 10-K ("No Response
Required").
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
There is no established market for the Common Stock of Uniroyal Chemical,
all of which is owned by C & K. See "BUSINESS - Merger with Crompton &
Knowles Corporation" for information about the Merger and "BUSINESS - Merger
with Uniroyal Chemical Corporation" for information about the UCC Merger.
As a result of the UCC Merger, Uniroyal Chemical assumed the obligations
of a debt agreement of UCC ("UCC Debt Agreement"). The operations of UCC were
conducted through Uniroyal Chemical and its subsidiaries and, therefore, UCC
relied on Uniroyal Chemical's cash flow to satisfy its debt obligations and
other cash needs. The debt agreement of Uniroyal Chemical and the UCC Debt
Agreement restrict the ability of Uniroyal Chemical to provide funds and to
pay dividends to C & K. UCC never paid cash dividends on shares of its common
stock. See Note entitled "Long-term Debt" in accompanying notes to
Consolidated Financial Statements of Uniroyal Chemical.
ITEM 6. SELECTED FINANCIAL DATA
No Response Required.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The response to this item has been limited to an analysis of the results
of operations for 1998 as compared with fiscal 1997 as Registrant meets the
conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K.
Reporting Segments
Effective in 1998, Uniroyal Chemical (the "Company") adopted FASB
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information," and redefined its reporting segments. The Company's results are
grouped into two major business categories, "Specialty Chemicals" and
"Polymers." Specialty Chemicals consist of separate reporting segments for
Performance Chemicals (rubber chemicals and specialty additives), Crop
Protection and Other. Polymers consists of one reporting segment which
includes EPDM, urethanes and nitrile rubber.
Overview
Net sales for 1998 increased by 2% to $1,209.6 million from $1,183.3
million for 1997. An increase of 6% was related to the Parent company
transfer of certain international operations of its Colors business to the
Company effective December 27, 1997, offset by lower volume of 4%.
Gross margins as a percentage of net sales increased to 39.7 % from 38.6%
in the prior year. The increase was primarily attributable to lower material
costs, improved pricing and product mix. Operating profit of $156.8 million
declined 3% from the prior year; however, excluding the impact of special
items, operating profit increased 2% to $190.4 million from $185.9 million in
the prior year. Operating profit for the specialty chemical business declined
9% and for the polymers business increased 40%.
Specialty Chemicals
Specialty chemical sales of $867.1 million represent an increase of $26
million from 1997. Operating profit for specialty chemicals was $131.3
million compared to $144.9 million in 1997. An analysis of sales and
operating profit by reporting segment follows.
Performance chemicals sales of $441.8 million decreased 6% versus 1997
primarily attributable to lower volume of 3%, lower pricing of 2% and lower
foreign currency translation of 1%. Rubber chemical sales were 9% lower than
1997 primarily due to lower volume and pricing. Specialty additives sales
decreased 1% primarily due to lower pricing and foreign currency translation.
Performance chemicals operating profit of $50 million decreased 26% from 1997.
The decrease was primarily attributable to lower volume, unfavorable
manufacturing variances and an unfavorable product mix.
Crop protection sales of $348 million decreased 6% versus 1997 primarily
due equally to the deconsolidation of the Gustafson seed treatment business in
December 1998 and lower volume, particularly in the insecticide business.
Operating profit of $78.7 million increased 2% from 1997 primarily due to
lower operating costs and improved pricing and product mix.
Other sales of $77.3 million and operating profit of $2.6 million were
incremental to 1997 as a result of the Parent company transfer of certain
international operations of its Colors business. Sales and operating profit
related to this business were not retroactively included in the 1997
Consolidated Statement of Operations as the impact was not considered
material.
Polymers
Polymers sales of $342.5 million were essentially unchanged from 1997 as
improved pricing of 4% was offset primarily by lower volume. EPDM sales
increased 6% from 1997 primarily due to improved pricing. Urethane and
nitrile rubber sales were lower by 3% and 9%, respectively, due primarily to
lower volume. Polymers operating profit of $77.4 million increased 40% from
1997 primarily attributable to improved pricing and lower raw material costs
in the EPDM business.
Other
Selling, general and administrative expenses of $182.2 million increased
10% versus 1997 primarily attributable to the Parent company transfer of
certain international operations of its Colors business. Depreciation and
amortization of $66.8 million increased 5% primarily as a result of the same
Parent company transfer. Research and development costs of $41.1 million
increased 1% from 1997, but as a percentage of sales, remained constant at
3.4%.
Facility closure costs of $33.6 million represent primarily the write-off
of plant and equipment, severance and other costs related to the closure of
the Company's nitrile rubber facility in Painesville, Ohio. A special
environmental provision of $13.5 million in 1997 reflected the Company's
evaluation of its obligation for environmental remediation activities.
Severance and other costs of $10 million in 1997 represented planned workforce
reductions and other product liability claims and costs associated with
implementation of SAP software.
Interest expense of $86.5 million decreased 10% from 1997 primarily due
to lower levels of indebtedness and lower interest cost on borrowings used to
redeem certain high cost debt in 1998. Other income of $156.8 million in 1998
includes a gain in the amount of $153.4 million resulting from the sale of a
50% interest in the Gustafson seed treatment business. Other income of $26.5
million in 1997 includes a gain of $28 million relating to a settlement with
the U.S. Department of the Army. The effective tax rate excluding the impact
of special items was 37.5% compared to 38.0% in 1997.
Year 2000 Issues
The Company has assessed and continues to assess its Information
Technology ("IT") infrastructures including those systems that are typically
viewed as non-IT systems to determine and address any potential problems that
may result from Year 2000 compliance issues. As generally known, Year 2000
compliance issues pertain to the ability of computerized systems to recognize
and process date sensitive information beginning January 1, 2000. The Company
has performed this assessment over the last two years and has been
implementing appropriate steps to be Year 2000 compliant in both its IT and
non-IT systems.
Under the Company's current environment, IT systems include mission
critical applications that directly support the Company's operations. These IT
systems also include networked personal computers running desktop
applications. Typical non-IT systems within the Company's environment include
process controls and other microcontrollers containing imbedded computer
chips. The Company has completed its assessment of its non-IT systems and is
aggressively undertaking measures to remedy such systems. The Company expects
to complete this remediation by October 1999.
The Company employs a number of major mission critical IT systems in its
Specialty Chemicals and Polymers businesses. These systems are currently being
upgraded to address Year 2000 compliance issues and the Company expects this
to be completed by mid-1999.
The Company has operations in Europe, Asia Pacific, and Latin America
supported by IT systems operating on mid-range computers. The Company is
presently upgrading these IT systems to address Year 2000 compliance and
expects to complete this upgrade by mid-1999.
The Company is actively looking into the overall Year 2000 readiness of
its major business partners including vendors, suppliers, and service
providers in order to determine that the Company's operations will not be
disrupted in the event that any such third party fails to have Year 2000
compliant systems. The Company has received assurances from nearly all of the
major business entities that it conducts business with that these entities
will be able to conduct business beyond January 1, 2000, without any
disruption. The Company continues to provide status information of its Year
2000 compliance effort to its customers and assures its customers that the
Company's IT infrastructure will continue to function properly beyond January
1, 2000.
The Company has spent approximately $2.5 million to assess and correct
Year 2000 compliance issues in its IT infrastructure through December 26,
1998. The Company estimates that it will spend an additional $1.3 million to
complete the remediation of Year 2000 compliance issues in its IT
infrastructure. The Company is committed to allocate funds to remediate any
other Year 2000 compliance issues in the course of its ongoing assessment of
its IT infrastructure. Year 2000 compliance costs are not expected to have a
material effect on the Company's results of operations.
The Company does not expect to have any material risk exposure emanating
from its internal IT infrastructure. While it is not expected to occur,
failure of the Company's suppliers and key customers to address Year 2000
compliance could have a material adverse impact on the Company's operations.
In particular, failure of the Company's energy and telecommunication suppliers
to address Year 2000 compliance could have a material adverse impact on the
Company's operations. The Company is continuing to assess its efforts to
mitigate any potential risk associated with Year 2000 compliance including
development of contingency plans.
New Accounting Standards
In June, 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 130 "Reporting Comprehensive Income" and Statement No. 131
"Disclosure about Segments of an Enterprise and Related Information." The
Company has adopted these standards in 1998.
In February, 1998, the FASB issued Statement No. 132 "Employers'
Disclosures about Pensions and Other Postretirement Benefits" and in June 1998
issued Statement No. 133 "Accounting for Derivative Instruments and Hedging
Activities." The Company has adopted Statement No. 132 in 1998 and will adopt
Statement No. 133 in the first quarter of 2000.
Forward-Looking Statements
Certain statements made in this Form 10-K are forward-looking statements
that involve risks and uncertainties. These statements are based on currently
available information and the Company's actual results may differ
significantly from the results discussed. Investors are cautioned that there
can be no assurance that the actual results will not differ materially from
those suggested in such forward-looking statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to potential losses arising from adverse changes
in foreign exchange and interest rates and, therefore, selectively uses
derivative instruments to manage its exposure to such market risks. The
Company does not enter into derivatives or other financial investments for
trading or speculative purposes. The Company enters into foreign exchange
contracts periodically to hedge currency fluctuations if such fluctuations are
earnings related. Gains and losses on foreign exchange contracts are reflected
in the statements of operations, and are offset by changes in the underlying
value of the hedged transactions. Such hedging activities are not significant
in total.
At December 26, 1998, the Company had an interest rate lock contract
("Interest Hedge") outstanding with a major financial institution for $230
million at a rate of 6.04%. The Interest Hedge expires on September 1, 2000.
The settlement amount will be based on the difference between the rate of
6.04% and the 10 year Treasury rate at the expiration date. A settlement of
the fair market value of the Interest Hedge as of December 26, 1998, would
require a payment of approximately $17 million.
The fair market value of long-term debt is subject to interest rate risk.
The Company's long-term debt amounted to $725.6 million at December 26, 1998.
The fair market value of such debt was $764.7 million, and with respect to
Senior Notes, has been determined based on quoted market prices.
Significant interest rate risk-sensitive instruments as of December 26,
1998, are detailed below and should be read in conjunction with the Long-term
Debt and Financial Instruments Notes to the accompanying consolidated
financial statements.
Interest Rate Sensitivity
(In thousands of dollars)
Year of There- Fair
Maturity 1999 2000 2001 2002 2003 after Total Value
Long-Term
Debt:
Fixed Rate
(US$) $182,261 $173,128 $232,175* $126,612* $714,176 $753,234
Average
Interest
Rate 9.00% 10.50% 11.00% 12.00% 10.55%
Variable Rate
(US$) $ 3,700 $ 3,700 $ 3,700
Average
Interest Rate 7.75% 7.75%
Variable Rate
(primarily
Canadian
Dollars) $ 3,366 $ 500 $ 462 $ 3,440 $ 7,768 $ 7,768
Average
Interest
Rate 5.73% 4.25% 4.25% 5.38% 5.39%
Short-Term Debt:
Variable Rate
(primarily
Belgian
Francs) $17,305 $ 17,305 $ 17,305
Average
Interest
Rate 3.85% 3.85%
Anticipated Transaction Interest Rate
Protection Agreement:
Protection Agreement
(US$) $230,000 $230,000 $ 17,098
6.04% 6.04%
*Represents Notes to Parent.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
There is incorporated by reference herein the information set forth on
the Index to Financial Statements and Financial Statement Schedules on page F-
1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
No Response Required.
ITEM 11. EXECUTIVE COMPENSATION
No Response Required.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No Response Required.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No Response Required.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The financial statements, and the notes thereto, listed on Page F-1 are
filed herewith as part of this Report.
2. Financial Statement Schedules
The financial statement schedule listed on page F-1 is filed herewith as
part of this Report.
3. Exhibits
The exhibits listed in the accompanying Exhibit Index are filed herewith
as part of this Report.
(b) Reports on Form 8-K filed in fourth quarter 1998
A Current Report on Form 8-K was filed by the Registrant on December 21,
1998 ("Form 8-K"), reporting on Item 2 (Acquisition or Disposition of Assets),
Item 5 (Other Events) and Item 7 (Financial Statements and Exhibits). The
Registrant amended its Form 8-K by filing a Current Report on Form 8-K/A on
January 21, 1999, reporting on Items 2, 5 and 7.
(c) Exhibits
See Exhibit Index.
(d) Financial Statement Schedules
See Index to Financial Statements and Financial Statement Schedules on
page F-1.
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.
UNIROYAL CHEMICAL COMPANY, INC.
Date: April 12, 1999 By: /s/ Vincent A. Calarco
Vincent A. Calarco
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated this 12th day of April, 1999.
Signature Title
/s/ Vincent A. Calarco President, Chief Executive
Vincent A. Calarco Officer and Director
/s/ Charles J. Marsden Vice President and Chief
Charles J. Marsden Financial Officer and Director
(principal financial officer)
/s/ John T. Ferguson II Vice President, General Counsel
John T. Ferguson II and Director
/s/ Michael F. Vagnini Controller (principal
Michael F. Vagnini accounting officer)
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
UNIROYAL CHEMICAL COMPANY, INC.
FINANCIAL STATEMENTS PAGE
Independent Auditors' Report F-2
Consolidated Statements of Operations F-3
Consolidated Balance Sheets F-4
Consolidated Statements of Stockholder's F-5
Equity (Deficit)
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial F-7
Statements
FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying S-1
Accounts
Certain schedules are omitted because they are not applicable or
the required information is provided in the Financial Statements
or related notes thereto.
F-1
Independent Auditors' Report
Board of Directors
Uniroyal Chemical Company, Inc.
We have audited the accompanying consolidated balance sheets of
Uniroyal Chemical Company, Inc. and subsidiaries as of December
26, 1998 and December 27, 1997 and the related consolidated
statements of operations, stockholder's equity (deficit) and
cash flows for the fiscal years ended December 26, 1998,
December 27, 1997 and September 28, 1996 and the three-month
period ended December 28, 1996. In connection with our audits
of the consolidated financial statements, we also audited the
consolidated financial statement schedule as listed in the
accompanying index on page F-1. These consolidated financial
statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
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 financial
position of Uniroyal Chemical Company, Inc. and subsidiaries as
of December 26, 1998 and December 27, 1997, and the results of
their operations and their cash flows for the fiscal years ended
December 26, 1998, December 27, 1997 and September 28, 1996 and
the three-month period ended December 28, 1996, in conformity
with generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
Stamford, Connecticut
January 27, 1999
F-2
UNIROYAL CHEMICAL COMPANY, INC.
Consolidated Statements of Operations
(In thousands of dollars)
Three
Year ended Year ended months ended Year ended
December 26, December 27, December 28, September 28,
1998 1997 1996 1996
Net Sales $1,209,649 $1,183,289 $242,338 $1,132,746
Cost of products sold 729,051 727,102 154,031 701,104
Selling, general and
admininstrative 182,188 165,852 40,214 166,716
Depreciation and
amortization 66,836 63,780 15,485 67,946
Research and development 41,130 40,699 9,160 39,014
Facility closure costs 33,600 - - -
Severance and other costs - 10,000 - -
Special environmental
charge - 13,500 - 30,000
Merger and related costs - - - 52,579
Operating profit 156,844 162,356 23,448 75,387
Interest expense 86,512 96,011 24,814 106,456
Other income (156,754) (26,541) (41) (308)
Earnings (loss)
before income taxes
extraordinary loss 227,086 92,886 (1,325) (30,761)
Income taxes 89,777 35,323 (531) 951
Earnings (loss) before
extraordinary loss 137,309 57,563 (794) (31,712)
Extraordinary loss on
early extinguishment
of debt (21,651) (4,958) - (441)
Net earnings (loss) $115,658 $52,605 ($794) ($32,153)
See accompanying notes to consolidated financial statements.
F-3
UNIROYAL CHEMICAL COMPANY, INC.
Consolidated Balance Sheets
(In thousands of dollars)
December 26, December 27,
ASSETS 1998 1997
CURRENT ASSETS
Cash $ 5,561 $ 4,800
Accounts receivable 59,109 210,054
Inventories 217,579 221,249
Other current assets 55,226 65,388
Total current assets 337,475 501,491
NON-CURRENT ASSETS
Property, plant and equipment 368,301 374,421
Costs in excess of acquired net assets 113,611 127,784
Due from Parent 50,885 -
Other assets 264,144 169,864
$ 1,134,416 $ 1,173,560
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES
Notes payable $ 17,305 $ 1,770
Accounts payable 80,291 105,901
Accrued expenses 87,722 99,890
Income taxes payable 41,290 27,262
Total current liabilities 226,608 234,823
NON-CURRENT LIABILITIES
Long-term debt 725,644 864,648
Postretirement health care liability 135,133 141,660
Other liabilities 151,828 166,571
STOCKHOLDER'S EQUITY (DEFICIT)
Additional paid-in capital 173,930 173,930
Accumulated deficit (248,454) (369,762)
Accumulated other comprehensive income (30,273) (38,310)
Total stockholder's deficit (104,797) (234,142)
$ 1,134,416 $ 1,173,560
See accompanying notes to consolidated financial statements.
F-4
UNIROYAL CHEMICAL COMPANY, INC.
Consolidated Statements of Stockholder's Equity (Deficit)
(In thousands of dollars)
Accum-
ulated
Addit- Other
Pref- ional Accum- Compre-
erred Common Paid-in ulated hensive Treasury
Stock Stock Capital Deficit Income Stock Total
Balance,
October 1, 1995 $4,172 $253 $176,799 ($447,460) ($22,105)($10,888)($299,229)
Comprehensive
income:
Net loss (32,153) (32,153)
Equity
adjustment
for
translation
of foreign
currencies (6,018) (6,018)
Equity
adjustment
for pension
liability
(tax of $57) (96) (96)
Total
comprehensive
income (38,267)
Stock options
and other
issuances 1 557 1,928 2,486
Reclassification
due to Merger (4,172) (254) (4,534) 8,960 -
Balance, Sept.28,
1996 - - 172,822 (479,613) (28,219) - (335,010)
Comprehensive
income:
Net loss (794) (794)
Equity
adjustment
for
translation
of foreign
currencies (1,028) (1,028)
Total
comprehensive
income (1,822)
Balance,Dec. 28,
1996 - - 172,822 (480,407) (29,247) - (336,832)
Comprehensive
income:
Net earnings 52,605 52,605
Equity
adjustment
for
translation
of foreign
currencies (6,511) (6,511)
Equity
adjustment
for pension
liability
(tax of ($566)) 953 953
Total
comprehensive
income 47,047
Related Party
Transfer 1,108 58,040 (3,505) 55,643
Balance, Dec. 27,
1997 - - 173,930 (369,762) (38,310) - (234,142)
Comprehensive
income:
Net earnings 115,658 115,658
Equity
adjustment
for
translation
of foreign
currencies 6,230 6,230
Equity
adjustment
for pension
liability
(tax of ($1,073)) 1,807 1,807
Total
comprehensive
income 123,695
Related Party
Transfer 5,650 5,650
Balance, Dec. 26,
1998 - - $173,930 ($248,454) ($30,273) - ($104,797)
See accompanying notes to consolidated financial statements.
F-5
UNIROYAL CHEMICAL COMPANY, INC.
Consolidated Statements of Cash Flows
(In thousands of dollars)
Three
Year Year months Year
ended ended ended ended
Dec. 26, Dec. 27, Dec. 28, Sept. 28,
Increase (decrease) to cash 1998 1997 1996 1996
CASH FLOWS FROM OPERATING
ACTIVITIES
Net earnings (loss) $115,658 $52,605 ($794) ($32,153)
Adjustments to reconcile
net earnings (loss to)
net cash provided by
operations:
Gustafson joint venture gain (153,429) - - -
Facility closure costs 33,600 - - -
Extraordinary loss on early
debt extinguishment 21,651 4,958 - 441
Depreciation and
amortization 66,836 63,780 15,485 67,946
Noncash interest 4,918 14,355 3,567 16,267
Deferred taxes (5,247) 18,414 506 (18,021)
Changes in assets
and liabilities:
Accounts receivable 3,136 (5,772) 19,413 (1,696)
Inventories (9,001) 621 (22,671) (3,627)
Other current assets 7,533 12,833 (2,044) (2,277)
Other assets 406 (4,583) 2,150 1,430
Accounts payable and
accrued expenses (28,253) 6,771 (13,228) 11,609
Income taxes payable 27,717 9,601 (1,108) 3,174
Postretirement health
care liability (3,637)(32,189) (530) (2,095)
Other 1,348 16,134 (8,850) 29,341
Net cash (used) provided
by operations 83,236 157,528 (8,104) 70,339
CASH FLOWS FROM
INVESTING ACTIVITIES
Proceeds from Gustafson
joint venture 180,000 - - -
Capital expenditures (53,585)(36,271) (7,437) (28,574)
Purchase of an interest in
Parent inventories (96,742) - - -
Sale (Purchase) of
Parent Receivables 50,000 (50,000) - -
Other investing activities (5,513) 2,503 11 (2,228)
Net cash (used) proviced
by investing activities 74,160 (83,768) (7,426) (30,802)
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds from borrowings
with Parent 358,787 - - -
Redemption of 11% and 12% notes
and other proceeds(payments)
on long-term borrowings (508,596)(78,239) 22,237 (30,256)
Proceeds (payments) on
short-term borrowings 15,535 (5,903) (403) (24,464)
Premium paid on early
extinguishment of debt (23,177) (6,704) - (338)
Other financing actitivities - - 141 864
Net cash (used) provided
by financing activities (157,451)(90,846) 21,975 (54,194)
CASH
Effect of exchange rates
on cash 816 871 (1,045) 753
Change in cash 761 (16,215) 5,400 (13,904)
Cash at beginning of period 4,800 21,015 15,615 29,519
Cash at end of period $5,561 $4,800 $21,015 $15,615
See accompanying notes to consolidated financial statements.
F-6
Notes to Consolidated Financial Statements
Accounting Policies
Basis of Presentation
Uniroyal Chemical Corporation ("UCC") was incorporated in Delaware in December
1988 for the sole purpose of acquiring Uniroyal Chemical Company, Inc. (the
"Company") in October 1989. In December 1998, UCC was merged into the Company
with the Company being the surviving corporation. All information has been
restated to reflect the combined operations of both companies.
On August 21, 1996, Crompton & Knowles Corporation ("Parent") acquired all of
the issued and outstanding capital stock of UCC (the "Merger"), at which time
UCC became a wholly-owned subsidiary of the Parent.
In connection with the Merger, the Company incurred $52.6 million of merger
and related costs. As of December 26, 1998, these accruals were fully
realized.
Change of Year End
On September 27, 1996 the Board of Directors approved a change in the
Company's fiscal year end from the last Saturday in September to the last
Saturday in December.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of all
majority-owned subsidiaries. Other affiliates in which the Company has a 20%
to 50% ownership are accounted for in accordance with the equity method. All
significant intercompany balances and transactions have been eliminated in
consolidation.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles which requires the Company to make
estimates and assumptions that affect the amounts and disclosures reported in
the financial statements and accompanying notes. Actual results could differ
from these estimates.
Inventory Valuation
Inventories are valued at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) basis.
Property, Plant and Equipment
Property, plant and equipment are carried at cost, less accumulated
depreciation. Depreciation expense ($47.9 million in 1998, $44.7 million in
1997, $10.6 million for the three months ended December 28, 1996 and $46.2
million in 1996) is computed generally on the straight-line method using the
following ranges of asset lives: buildings and improvements: 10 to 40 years,
machinery and equipment: 3 to 25 years, and furniture and fixtures: 3 to 10
years.
Renewals and improvements which extend the useful lives of the assets are
capitalized. Capitalized leased assets and leasehold improvements are
depreciated over their useful lives or the remaining lease term, whichever is
shorter. Expenditures for maintenance and repairs are charged to expense as
incurred.
Long-Lived Assets
The Company evaluates the recoverability of the carrying value of long-lived
assets of each of its businesses by assessing whether the projected cash flows
of each of its businesses is sufficient to recover the existing unamortized
cost of these assets. On this basis, if the Company determines that any assets
have been permanently impaired, the amount of the impaired assets is written-
off against earnings in the quarter in which the impairment is determined.
Intangible Assets
The excess cost over the fair value of net assets of businesses acquired is
being amortized on a straight-line basis over 20 to 40 years. Accumulated
amortization was $32.4 million and $31.4 million in 1998 and 1997,
respectively.
Patents, unpatented technology, trademarks and other intangibles of $56.4
million in 1998 and $76.5 million in 1997, included in other assets, are being
amortized principally on a straight-line basis over their estimated useful
lives ranging from 6 to 20 years. Accumulated amortization was $118.8 million
and $121.4 million in 1998 and 1997, respectively.
Financial Instruments
Financial instruments are presented in the accompanying consolidated financial
statements at either cost or fair value as required by generally accepted
accounting principles.
Translation of Foreign Currencies
Balance sheet accounts denominated in foreign currencies are translated
generally at the current rate of exchange as of the balance sheet date, while
revenues and expenses are translated at average rates of exchange during the
periods presented. The cumulative foreign currency adjustments resulting from
such translation are included in the accumulated other comprehensive income
account in the stockholder's equity (deficit) section of the consolidated
balance sheets. For foreign subsidiaries operating in highly inflationary
economies, monetary balance sheet accounts and related revenue and expenses
are translated at current rates of exchange while non-monetary balance sheet
accounts and related revenues and expenses are translated at historical
exchange rates. The resulting translation gains and losses related to those
countries are reflected in operations and are not significant in any of the
years presented.
Research and Development
Research and development costs are expensed as incurred.
Income Taxes
A provision has not been made for U.S. income taxes which would be payable if
undistributed earnings of foreign subsidiaries of approximately $217 million
at December 26, 1998, were distributed to the Company in the form of
dividends, since certain foreign countries limit the extent of repatriation of
earnings, while for others, the Company's intention is to permanently
reinvest such foreign earnings. The determination of the amount of the
unrecognized deferred tax liability related to undistributed earnings is not
practicable.
Comprehensive Income
Effective in the first quarter of 1998, the Company adopted FASB Statement No.
130 "Reporting Comprehensive Income." The Statement establishes standards for
reporting "Comprehensive Income" and its components in the consolidated
financial statements. The adoption of this statement had no impact on the
Company's net earnings (loss) or stockholder's equity (deficit). Statement No.
130 requires unrealized foreign currency translation adjustments and the
minimum pension liability adjustment, which prior to adoption were reported
separately in stockholder's equity (deficit), to be included in "Accumulated
Other Comprehensive Income." The balance of accumulated other comprehensive
income includes accumulated translation adjustments and minimum pension
liability in the amounts of $29.3 million and $1 million and $35.5 million and
$2.8 million at December 26, 1998 and December 27, 1997, respectively.
Statements of Cash Flows
Cash includes bank term deposits of three months or less. Cash payments during
the fiscal years ended 1998, 1997, the three months ended December 28, 1996
and fiscal year ended 1996 included interest payments of $88.5 million, $82.8
million, $28.7 million, and $90.8 million and income tax payments of $66
million, $11.8 million, $7.7 million and $16.9 million, respectively.
Other Disclosures
Included in accounts receivable are allowances for doubtful accounts in the
amount of $6.8 million in 1998 and $6.1 million in 1997. Included in accrued
expenses are environmental liabilities in the amount of $16.2 million in 1998
and $15.4 million in 1997. Included in other liabilities are environmental
liabilities in the amount of $75.6 million in 1998 and $84.7 million in 1997.
In 1997, the Company incurred a $10 million charge related to severance ($4.9
million) and other non-recurring costs ($5.1 million). As of December 26,
1998, the balance to be realized in 1999 was not significant.
Joint Ventures
In November 1998, the Company and Bayer Corporation formed a joint venture to
serve the agricultural seed treatment markets in North America. The basis of
the joint venture is the Company's Gustafson seed treatment business. The
Company received cash proceeds of $180 million in the transaction which
resulted in a fourth quarter pre-tax gain of $153.4 million. Also, in November
1998, the Company announced the formation of a joint venture with GIRSA, a
subsidiary of DESC, S.A. de C.V. to produce nitrile rubber products in Mexico.
The joint venture will result in the closure of the Company's existing nitrile
rubber facility in Painesville, Ohio. In connection with the facility closure,
the Company incurred a charge of $33.6 million summarized as follows:
(In thousands) Charge Realized Balance
Write-off of long lived assets $13,811 $13,811 $ -
Facility closure and maintenance costs 12,239 - 12,239
Severance and other costs 7,550 778 6,772
$33,600 $14,589 $19,011
Related Party Transactions
In September 1998, the Company entered into an inventory purchase agreement in
which the Company may purchase an undivided interest of up to $150 million in
inventories from the Parent. The amount purchased under the inventory
purchase agreement at December 26, 1998, was $96.7 million and is included in
other assets.
On December 27, 1997, the Parent transferred certain international operations
of its Colors business to the Company at cost for the business purposes of
consolidating operations. The transfer included assets in the amount of $76.4
million and liabilities of $20.8 million. Sales and net earnings related to
these operations in 1997 of $83.7 million and $2.6 million respectively, have
not been included in the Consolidated Statement of Operations. Financial
statements have not been restated for prior years as the impact was not
considered material.
In June 1997, the Company entered into an accounts receivable purchase
agreement with the Parent in which the Company may purchase an undivided
interest of up to $150 million in domestic accounts receivable from the Parent
with recourse. The amount outstanding under the accounts receivable purchase
agreement was $50 million at December 27, 1997 and was included in accounts
receivable in the Consolidated Balance Sheet. In September 1998, this
agreement was terminated and the Company sold the outstanding receivables back
to the Parent.
Accounts Receivable Program
In December 1998, the Parent entered into a five year agreement to sell up to
$82 million of domestic accounts receivable to an agent bank. The program
reduces financing costs versus borrowings under the revolving credit agreement
and diversifies the Parent's sources of financing. At December 26, 1998, $89
million of domestic accounts receivable had been transferred under this
agreement to the Parent. At December 26, 1998, $80 million of domestic
accounts receivable was sold by the Parent at a cost of approximately 5.85%.
Inventories
(In thousands) 1998 1997
Finished goods $160,135 $151,229
Work in process 15,436 14,786
Raw materials and supplies 42,008 55,234
$217,579 $221,249
Property, Plant and Equipment
(In thousands) 1998 1997
Land and improvements $ 23,098 $ 21,799
Buildings and improvements 98,486 105,664
Machinery and equipment 492,726 507,289
Furniture and fixtures 34,964 24,854
Construction in progress 44,071 30,728
693,345 690,334
Less accumulated depreciation 325,044 315,913
$368,301 $374,421
Leases
The future minimum rental payments under operating leases having initial or
remaining non-cancelable lease terms in excess of one year (as of December 26,
1998) total $80.3 million as follows: $6.7 million in 1999, $5.8 million in
2000, $5.0 million in 2001, $4.5 million in 2002, $4.3 million in 2003, and
$54.0 million in later years. Total rental expense for all operating leases
was $9.2 million in 1998, $8.4 million in 1997, $2.0 million for the three
months ended December 28, 1996 and $8.1 million in 1996.
Real estate taxes, insurance and maintenance expenses generally are
obligations of the Company and, accordingly, are not included as part of
rental payments. It is expected that, in the normal course of business, leases
that expire will be renewed or replaced by leases on other properties.
Long-term Debt
(In thousands) 1998 1997
9% Senior Notes Due 2000 $182,261 $226,623
10.5% Senior Notes Due 2002 173,128 235,998
11% Senior Subordinated Notes - 232,175
12% Subordinated Discount Notes - 115,971
11% Notes to Parent 232,175 -
12% Notes to Parent 126,612 -
Credit Agreement 6,280 50,800
Other 5,188 3,081
$725,644 $864,648
9% Senior Notes
The 9% Senior Notes Due September 2000 are an obligation of the Company and
are unsecured. Interest is payable semi-annually. The 9% Senior Notes are not
redeemable prior to maturity, except upon a change in control (as defined in
the related indenture) whereupon an offer shall be made to purchase the 9%
Senior Notes then outstanding at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest.
10.5% Senior Notes
The 10.5% Senior Notes Due May 2002 are an obligation of the Company and are
unsecured. Interest is payable semi-annually. The 10.5% Senior Notes require
that upon a change in control (as defined in the related indentures), an offer
shall be made to purchase all of the notes at a purchase price equal to 101%
of the principal amount thereof, plus accrued and unpaid interest.
Debt Redemptions and Repurchases
During 1998, the Company redeemed the outstanding 11% Senior Subordinated
Notes at a price of 105.5% of the principal amount thereof and the 12%
Subordinated Discount Notes at a price of 100% of the principal amount
thereof. In conjunction with this redemption, the Company issued 11% and 12%
Notes equal in principal and maturity to the notes redeemed that are held by
the Parent. In addition, the Company repurchased in the open market $44.4
million of 9% Senior Notes and $62.8 million of 10.5% Senior Notes. As a
result of the redemptions and repurchases, the Company recognized an
extraordinary loss of $21.7 million, net of tax benefit of $13.3 million.
During 1997, the Company repurchased in the open market $24 million of 9%
Senior Notes and $47.1 million of 10.5% Senior Notes. As a result of the
repurchases, the Company recognized an extraordinary loss of $5.0 million, net
of tax benefit of $3.3 million.
During 1996, the Company repurchased $17.2 million of 9% Senior Notes in the
open market and redeemed $2.2 million in connection with the Merger. As a
result of the repurchase, the Company recognized an extraordinary loss of $441
thousand, net of tax benefit of $293 thousand.
Credit Agreement
In 1998, the Parent amended its revolving credit agreement with a syndicate of
banks. The termination date was extended to September 2003 from August 2001.
Borrowings under the credit agreement are divided into three tranches and were
amended as follows: Tranche I provides a maximum of $329 million available to
the Parent for working capital and general corporate purposes. Tranche II
provides a maximum of $66 million available to the Company for working capital
and general corporate purposes. Tranche III provides up to $150 million of
borrowings by the European and Canadian subsidiaries of the Parent and the
Company. Borrowings may be denominated in U.S. dollars or the subsidiary's
local currency. As a result of the Accounts Receivable Program, the Parent was
required to permanently reduce its available borrowings under the credit
agreement from $600 million to $545 million.
The credit agreement calls for interest based upon various options including a
spread (currently .5%) over LIBOR that varies according to certain debt ratios
for the trailing four fiscal quarters. In addition, the Company must pay a
commitment fee (currently .15%) on the total unused portion of the credit
agreement based upon certain debt ratios for the trailing four fiscal
quarters. At December 26, 1998, the Company's borrowings under the credit
agreement of $6.3 million bore a weighted average interest rate of 6.9%.
Debt Covenants
The Company's various debt agreements contain covenants which limit the
ability to incur additional debt, transfer funds between affiliated companies,
pay cash dividends or make certain other payments. In addition, the credit
agreement requires the Parent to maintain certain financial ratios.
Maturities
In 1998, the scheduled maturities of long-term debt during the next five
fiscal years are: 1999 - none; 2000 - $185.6 million; 2001 - $0.5 million;
2002 - $173.6 million; 2003 - $239.3 million; and thereafter - $126.6 million.
Financial Instruments
At December 26, 1998, the Company had an interest rate lock contract
("Interest Hedge") outstanding with a major financial institution for $230
million at a rate of 6.04%. The Interest Hedge expires on September 1, 2000.
The settlement amount will be based on the difference between the rate of
6.04% and the 10 year U.S. Treasury rate at the expiration date. A settlement
of the fair market value of the Interest Hedge as of December 26, 1998 would
require payment of approximately $17 million.
The carrying amounts for cash, accounts receivable, notes payable, accounts
payable and other current liabilities approximate their fair value because of
the short maturities of these instruments. The fair market values of long-term
debt were $764.7 million and $938.5 million in 1998 and 1997, respectively,
and with respect to the Senior and Subordinated Notes have been determined
based on quoted market prices.
Income Taxes
The components of earnings (loss) before income taxes and extraordinary loss,
and the provision (benefit) for income taxes are as follows:
Three
months
Year ended Year ended ended Year ended
December 26, December 27, December 28, September 28,
(In thousands) 1998 1997 1996 1996
Pretax Earnings (Loss):
Domestic $142,283 $57,391 $ 5,649 $(66,250)
Foreign 84,803 35,495 (6,974) 35,489
$227,086 $92,886 $ (1,325) $(30,761)
Income Taxes:
Domestic
Current $ 71,535 $ 1,860 $ 92 $ 2,261
Deferred (7,262) 18,125 2,104 (13,612)
64,273 19,985 2,196 (11,351)
Foreign
Current 23,489 15,049 (1,129) 16,416
Deferred 2,015 289 (1,598) (4,114)
25,504 15,338 (2,727) 12,302
Total
Current 95,024 16,909 (1,037) 18,677
Deferred (5,247) 18,414 506 (17,726)
$ 89,777 $35,323 $ (531) $ 951
The provision (benefit) for income taxes differs from the Federal statutory
rate for the following reasons:
Three
months
Year ended Year ended ended Year ended
December 26, December 27, December 28, September 28,
(In thousands) 1998 1997 1996 1996
Provision (benefit) at
statutory rate $80,144 $32,510 $(463) $(10,766)
Nondeductible merger
and related costs - - - 11,132
Impact of valuation
allowance 2,474 (3,616) - (2,905)
Foreign dividends
impact - 524 119 3,077
Goodwill amortization 3,969 1,142 378 1,092
Foreign income tax
rate differential (4,335) 1,759 (553) (362)
State income taxes, net
of federal benefit 5,350 2,248 18 (1,877)
Other, net 2,175 756 (30) 1,560
Actual provision (benefit)
for income taxes $89,777 $35,323 $ (531) $ 951
Provisions have been made for deferred taxes based on differences between
financial statement and tax bases of assets and liabilities using currently
enacted tax rates and regulations. The components of the net deferred tax
assets and liabilities are as follows:
(In thousands) 1998 1997
Deferred tax assets:
Pension and other postretirement $ 72,526 $ 72,564
Accruals for environmental remediation 28,439 31,974
Other accruals 36,248 30,859
NOL carryforwards 14,651 22,363
Inventories and other 12,037 8,776
Deferred tax liabilities:
Property, plant and equipment (52,214) (60,517)
Intangibles (5,538) (10,055)
Other (4,853) (2,389)
Net deferred tax asset before valuation
allowance 101,296 93,575
Valuation allowance (14,940) (12,466)
Net deferred tax asset after valuation
allowance $ 86,356 $ 81,109
Net deferred taxes (in thousands) include $32,021 and $35,489 in current
assets and $54,335 and $45,620 in long-term assets in 1998 and 1997,
respectively.
As of December 26, 1998, the Company's foreign subsidiaries had aggregate NOL
carryforwards of $30 million which can be used to reduce future taxable income
in those countries. During 1998, the Company utilized its remaining $35
million of domestic NOL carryforwards.
Pension and Postretirement Health Care Liabilities
The Company has several defined benefit and defined contribution pension plans
which cover substantially all employees in the United States and Canada.
Pension benefits for retired employees of the Company in other countries are
generally covered by government-sponsored plans. The defined benefit plans
provide retirement benefits based on the employees' years of service and
compensation during employment. The Company will make contributions to the
defined benefit plans at least equal to the minimum amounts required by law,
while contributions to the defined contribution plans are determined as a
percentage of each covered employees' salary.
The Company also provides health and life insurance benefits for certain
retired and active employees and their beneficiaries and covered dependents in
the U.S. and Canada. Postretirement benefits for retired employees in other
countries are generally covered by government-sponsored plans.
Effective in 1998, the Company adopted FASB Statement No. 132, "Employers'
Disclosures about Pension and Other Postretirement Benefits."
Pension cost-defined benefit
(In thousands) 1998 1997 1996
Service cost $ 6,903 $ 6,037 $ 5,817
Interest cost 15,129 14,386 12,858
Expected return on plan assets (14,901) (13,777) (8,327)
Amortization of prior service cost 381 405 (1,000)
Amortization of unrecognized
transition obligation (96) (132) (32)
Recognized actuarial gain (56) 20 12
Curtailments 2,570 - -
Net cost $ 9,930 $ 6,939 $ 9,328
Postretirement health care cost
(In thousands) 1998 1997 1996
Service cost $ 1,224 $ 1,143 $ 1,250
Interest cost 9,563 9,840 9,738
Expected return on plan assets (3,271) (910) 10
Amortization of prior service cost (5,968) (5,920) (5,483)
Recognized actuarial loss (1,639) (671) (2,476)
Net cost $ (91) $ 3,482 $ 3,039
Benefit obligation Pension (defined benefit) Postretirement
(In thousands) 1998 1997 1998 1997
Benefit obligation at
beginning of year $233,341 $185,997 $148,599 $137,511
Service cost 6,903 6,037 1,224 1,143
Interest cost 15,129 14,386 9,563 9,840
Foreign currency exchange impact (1,724) (3,693) (432) 368
Plan participants contributions 122 105 44 103
Amendments - 2,319 (238) -
Curtailments 1,526 - - -
Plan mergers - 15,414 - 10,875
Actuarial (gain)/loss (4,868) 28,429 (4,989) (1,250)
Benefits paid (13,183) (15,653) (8,176) (9,991)
Benefit obligation at end of year $237,246 $233,341 $145,595 $148,599
Plan assets
Fair value of plan assets at
beginning of year $189,789 $133,293 $ 40,002 $ 5,601
Actual return on plan assets 15,947 33,237 3,271 910
Government contributions - - - 31,371
Plan mergers - 28,015 - 4,761
Employer contributions 3,865 11,368 5,812 7,247
Foreign currency exchange impact (1,949) (576) - -
Plan participants contributions 122 105 44 103
Benefits paid (13,183) (15,653) (8,176) (9,991)
Fair value of plan assets at
end of year $194,591 $189,789 $ 40,953 $ 40,002
Unfunded status $ 42,655 $ 43,552 $104,642 $108,597
Components of unfunded status
Pension (defined benefit) Postretirement
(In thousands) 1998 1997 1998 1997
Unrecognized net (gain) loss $ 4,858 $ 7,477 $ (2,972) $ 1,137
Unrecognized prior service cost (2,338) 700 (27,519) (34,200)
Unrecognized net transition asset (211) (307) - -
Prepaid benefit cost (1,585) (1,481) - -
Accrued benefit liability 46,321 43,708 135,133 141,660
Intangible asset (3,437) (3,785) - -
Equity adjustment to minimum
Liability (953) (2,760) - -
Net amount recognized $ 42,655 $ 43,552 $104,642 $108,597
Postretirement health care costs are generally not pre-funded (except for
certain government-related plans) and are paid by the Company as incurred.
For plans with benefit obligations in excess of plan assets, the aggregate
benefit obligation was $217.2 million in 1998 and $213.3 million in 1997, and
the aggregate fair value of plan assets was $172.6 million in 1998 and $167.2
million in 1997.
The weighted-average discount rate used to calculate the projected benefit
obligation ranged from 5.75%-7% in 1998 and 6%-8% in 1997. The expected
long-term rate of return on plan assets ranged from 7.75%-9% in 1998 and from
7%-9% in 1997. The assumed rate of compensation increase ranged from 2%-4% in
1998 and 2%-5.5% in 1997.
The assumed health care cost trend rate ranged from 9.31%-7.4% and is assumed
to decrease gradually to a range of 6.07%-5.5% in 2020 and remain level
thereafter. An increase in the assumed health care cost trend rate of 1% in
each year would increase the accumulated postretirement benefit obligation by
$7.7 million and $8.6 million, and would increase the service and interest
cost by $563 thousand and $598 thousand in 1998 and 1997, respectively. A
decrease in the assumed health care cost trend rate of 1% in each year would
decrease the accumulated postretirement benefit obligation by $8.6 million and
$9.8 million, and would decrease the service and interest cost by $654
thousand and $706 thousand in 1998 and 1997, respectively.
The Company's net cost for all pension plans, including defined contribution
plans, was $13.5 million, $10.4 million, and $12.6 million in 1998, 1997, and
1996, respectively.
Contingencies
The Company is involved in claims, litigation, administrative proceedings and
investigations of various types in several jurisdictions. A number of such
matters involve claims for a material amount of damages and relate to or
allege environmental liabilities, including clean-up costs associated with
hazardous waste disposal sites, natural resource damages, property damage and
personal injury. The Company and some of its subsidiaries have been
identified by federal, state or local governmental agencies, and by other
potentially responsible parties (each a "PRP") under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, or
comparable state statutes, as a PRP with respect to costs associated with
waste disposal sites at various locations in the United States. In addition,
the Company is involved with environmental remediation and compliance
activities at some of its current and former sites in the United States and
abroad.
Each quarter, the Company evaluates and reviews estimates for future
remediation and other costs to determine appropriate environmental reserve
amounts. For each site, a determination is made of the specific measures that
are believed to be required to remediate the site, the estimated total cost to
carry out the remediation plan, the portion of the total remediation costs to
be borne by the Company and the anticipated time frame over which payments
toward the remediation plan will occur. The total amount accrued for such
environmental liabilities at December 26, 1998 was $92 million. The Company
estimates its potential environmental liability to range from $68 million
to $126 million at December 26, 1998. It is reasonably possible that the
Company's estimates for environmental remediation liabilities may change
in the future should additional sites be identified, further remediation
measures be required or undertaken, the interpretation of current laws and
regulations be modified or additional environmental laws and regulations be
enacted.
On May 21, 1997, the United States District Court, Eastern District of
Arkansas, entered an order finding that Uniroyal Chemical Co./Cie. is jointly
and severally liable to the United States and Hercules and Uniroyal Chemical
Co./Cie. are liable to each other in contribution with respect to the
remediation of the Vertac Chemical Corporation site in Jacksonville, Arkansas.
On October 23, 1998, the Court entered an order granting the United States's
motion for summary judgment against Uniroyal Chemical Co./Cie and Hercules for
removal and remediation costs of $102.9 million at the Vertac site. Trial on
the allocation of these costs as between Uniroyal Chemical Co./Cie. and
Hercules has concluded and a decision is expected during the second quarter of
1999.
The Company intends to assert all meritorious legal defenses and all other
equitable factors which are available to it with respect to the above matters.
The Company believes that the resolution of these environmental matters will
not have a material adverse effect on its consolidated financial position.
While the Company believes it is unlikely, the resolution of these
environmental matters could have a material adverse effect on its consolidated
results of operations in any given year if a significant number of these
matters are resolved unfavorably.
Business Segment Data
Effective in 1998, the Company adopted FASB Statement No. 131 "Disclosures
about Segments of an Enterprise and Related Information" which established
revised standards for reporting information about operating segments. Pursuant
to Statement No. 131, the Company redefined its reporting segments into two
major business categories, "Specialty Chemicals" and "Polymers." Specialty
Chemicals includes reporting segments of Performance Chemicals (rubber
chemicals and specialty additives), Crop Protection and Other. Polymers
consists of one reporting segment which includes EPDM, urethanes and nitrile
rubber.
The accounting policies of the operating segments are the same as those
described in the summary of accounting policies. The Company evaluates a
segment's performance based on several factors, of which a primary financial
measure is operating profit. In computing operating profit, the following
items have not been deducted: interest expense, other income and income taxes.
Corporate assets are principally cash, other assets maintained for general
corporate purposes and certain related party transactions. Inter-segment
sales are not significant. The Company has investments in unconsolidated
affiliates in the Performance Chemicals segment in the amount of $31.1
million, $20.9 million and $20.7 million in 1998, 1997 and 1996, respectively,
and the Crop Protection segment in the amount of $11.9 million in 1998. A
summary of business data for the Company's reportable segments for the
applicable periods follows:
Information by Business Segment
Three
months
Year ended Year ended ended Year ended
December 26, December 27, December 28, September 28,
(In thousands) 1998 1997 1996 1996
Sales
Specialty Chemicals
Performance Chemicals $ 441,800 $ 469,434 $115,450 $ 467,046
Crop Protection 348,000 370,091 48,768 352,878
Other 77,322 1,610 - -
867,122 841,135 164,218 819,924
Polymers 342,527 342,154 78,120 312,822
$1,209,649 $1,183,289 $242,338 $1,132,746
Operating Profit
Specialty Chemicals
Performance Chemicals $ 50,010 $ 67,730 $ 19,087 $ 59,382
Crop Protection 78,747 77,343 (6,229) 69,859
Other 2,569 (130) - -
131,326 144,943 12,858 129,241
Polymers 77,414 55,485 12,438 45,372
General corporate expenses (18,296) (14,572) (1,848) (16,647)
Special items (33,600) (23,500) - (82,579)
$ 156,844 $ 162,356 $ 23,448 $ 75,387
Depreciation and Amortization
Specialty Chemicals
Performance Chemicals $ 26,437 $ 26,116 $ 6,423 $ 29,685
Crop Protection 20,844 20,478 5,240 22,372
Other 2,668 - - -
49,949 46,594 11,663 52,057
Polymers 16,887 17,186 3,822 15,889
$ 66,836 $ 63,780 $ 15,485 $ 67,946
Year ended Year ended Year ended
December 26, December 27, December 28,
(In thousands) 1998 1997 1996
Segment Assets
Specialty Chemicals
Performance Chemicals $ 414,026 $ 455,231 $473,576
Crop Protection 276,914 343,497 374,442
Other 85,759 75,470 -
776,699 874,198 848,018
Polymers 204,529 244,562 264,274
Corporate 153,188 54,800 21,015
$1,134,416 $1,173,560 $1,133,307
Three
months
Year ended Year ended ended Year ended
December 26, December 27, December 28, September 28,
1998 1997 1996 1996
Capital Expenditures
Specialty Chemicals
Performance Chemicals $ 23,243 $ 18,867 $ 3,727 $ 17,176
Crop Protection 10,234 8,696 1,615 4,061
Other 4,171 - - -
37,648 27,563 5,342 21,237
Polymers 15,937 8,708 2,095 7,337
$ 53,585 $ 36,271 $ 7,437 $ 28,574
Geographic Information
Sales are attributed based on location of customer.
Three
months
Year ended Year ended ended Year ended
December 26, December 27, December 28, September 28,
(In thousands) 1998 1997 1996 1996
Sales
United States $ 648,644 $ 671,217 $ 140,487 $ 637,061
Canada 76,176 88,803 17,420 80,811
Latin America 96,432 96,057 17,559 90,502
Europe/Africa 278,216 209,554 40,526 205,682
Asia/Pacific 110,181 117,658 26,346 118,690
$1,209,649 $1,183,289 $ 242,338 $1,132,746
Year ended Year ended Year ended
December 26, December 27, December 28,
(In thousands) 1998 1997 1996
Property, plant and equipment
United States $ 264,109 $ 279,693 $ 289,195
Canada 22,149 20,825 21,381
Latin America 7,213 6,016 4,918
Europe/Africa 62,207 56,744 39,628
Asia/Pacific 12,623 11,134 12,840
$ 368,301 $ 374,412 $ 367,962
Schedule II
UNIROYAL CHEMICAL COMPANY, INC.
Valuation and Qualifying Accounts
(In thousands of dollars)
Additions
Balance at charged to Balance
beginning costs and Recurring at end
of year expenses (1) of year
Description
Year ended
December 26, 1998:
Allowance for
doubtful receivables $ 6,098 $ 4,420 $ (3,709) (2) $ 6,809
Accumulated
amortization of cost
in excess of acquired
net assets $ 31,442 $ 5,099 $ (4,189) (2) $ 32,352
Accumulated
amortization of other
intangible assets $121,367 $13,879 $(16,438) (2) $118,808
Year ended
December 27, 1997:
Allowance for
doubtful receivables $ 3,741 $ 1,338 $ 1,019 $ 6,098
Accumulated
amortization of cost
in excess of acquired
net assets $ 26,534 $ 4,639 $ 269 $ 31,442
Accumulated
amortization of other
intangible assets $106,655 $15,151 $ (439) $121,367
Three Months ended
December 28, 1996:
Allowance for
doubtful receivables $ 3,333 $ 421 $ (13) $ 3,741
Accumulated
amortization of cost
in excess of acquired
net assets $ 25,491 $ 1,415 $ (372) $ 26,534
Accumulated
amortization of other
intangible assets $102,938 $ 3,438 $ 279 $106,655
Year ended
September 28, 1996:
Allowance for
doubtful receivables $ 2,873 $ 1,568 $ (1,108) $ 3,333
Accumulated
amortization of cost
in excess of acquired
net assets $ 21,281 $ 3,887 $ 323 $ 25,491
Accumulated
amortization of other
intangible assets $ 87,813 $15,622 $ (497) $102,938
(1) Represents accounts written off as uncollectible, net of recoveries
(allowance of doubtful receivables only), and the translation effect of
accounts denominated in foreign currencies.
(2) Includes the disposition of the Gustafson seed treatment business.
EXHIBIT INDEX
The exhibit numbers set forth below correspond to the numbers assigned to
such exhibits in the Exhibit Table to Item 601 of Regulation S-K.
Exhibit
Number Description
2.1 Agreement and Plan of Merger dated April 30, 1996, by and among Crompton
& Knowles Corporation, Tiger Merger Corp. and UCC (incorporated by
reference to Exhibit 2 to the Registrant's Quarterly Report on Form 10-Q
for the period ended March 31, 1996).
2.2 Limited Liability Company Agreement by and between Gustafson, Inc. and
Trace Chemicals, Inc., effective as of September 23, 1998 (incorporated
by reference to Exhibit 2.1 of the Current Report on Form 8-K/A of C & K
dated January 21, 1999 ["C & K Form 8K/A"]).
2.3 First Amendment to Limited Liability Company Agreement by and among GT
Seed Treatment Inc. (f/k/a Gustafson, Inc.), Ecart Inc. (f/k/a Trace
Chemicals, Inc.) and Bayer Corporation, dated as of November 20, 1998
(incorporated by reference to Exhibit 2.2 of the C & K Form 8K/A).
2.4 Purchase Agreement by and among C & K, the Registrant, Trace Chemicals,
Inc. and Gustafson, Inc., as Sellers, and Bayer Corporation, as
Purchaser, and Gustafson LLC, as the Company, dated as of November 20,
1998 (incorporated by reference to Exhibit 2.3 of the C & K Form 8K/A).
2.5 Purchase Agreement by and between Uniroyal Chemical Co./Cie and Bayer
Inc., effective as of November 20, 1998 (incorporated by reference to
Exhibit 2.4 of the C & K Form 8K/A).
2.6 Partnership Agreement of Gustafson Partnership by and between Uniroyal
Chemical Co./Cie and Bayer Inc., effective as of November 20, 1998
(incorporated by reference to Exhibit 2.5 of the C & K Form 8K/A).
2.7 Joint Venture and Shareholders Agreement dated September 18, 1998, by
and between Uniroyal Chemical and GIRSA S.A. de C.V. (incorporated by
reference to Exhibit 2.6 of the 1998 Annual Report on Form 10-K of C & K
["C & K 1998 Form 10-K"]).
2.8 Certificate of Ownership and Merger Merging UCC with and into the
Registrant dated December 4, 1998, and effective December 9, 1998,
pursuant to Sections 103 and 253 of the General Corporation Law of the
State of Delaware (filed herewith).
2.9 Certificate of Merger of UCC with and into the Registrant dated December
8, 1998, and effective December 9, 1998, pursuant to Section 14A:10-5.1
of the Business Corporation Act of the State of New Jersey (filed
herewith).
3.1 Certificate of Incorporation of Uniroyal Chemical (incorporated by
reference to Exhibit 3.3 to the Registration Statement on Form S-1 of
Uniroyal Chemical, Registration No. 33-66740 ["Form S-1, Registration
No. 33-66740"]).
3.2 By-Laws of Uniroyal Chemical (incorporated by reference to Exhibit 3.4
to Form S-1, Registration No. 33-66740).
4.1 Form of Indenture, dated as of February 8, 1993, among UCC and State
Street Bank and Trust Company, as Trustee, relating to the 10 1/2% Notes,
including form of securities (incorporated by reference to Exhibit 4.1
to the Registration Statement on Form S-1 of UCC, Registration No.
33-45296 and 33-45295 ["Form S-1, Registration No. 33-45296/45295"]).
4.2 Form of First Supplemental Indenture, dated as of December 9, 1998,
among UCC, as Issuer, the Registrant, as successor to the Issuer, and
State Street Bank and Trust Company, as Trustee, relating to the 10 1/2%
Notes (incorporated by reference to Exhibit 4.4 of the C & K 1998 Form
10-K).
4.3 Form of Indenture, dated as of February 8, 1993, among UCC and United
States Trust Company of New York, as Trustee, relating to the 11% Notes,
including form of securities (incorporated by reference to Exhibit
4.1(a) to Form S-1, Registration No. 33-45296/45295).
4.4 Form of Indenture, dated as of February 8, 1993, among UCC and The
Shawmut Bank Connecticut, N.A., as Trustee, relating to the 12% Notes,
including form of securities (incorporated by reference to Exhibit
4.1(b) to Form S-1, Registration No. 33-45296/45295).
4.5 Form of Indenture, dated as of September 1, 1993, among Uniroyal
Chemical and State Street Bank and Trust Company, as Trustee, relating
to $270 million of 9% Notes, including form of securities (incorporated
by reference to Exhibit 4.2 to Form S-1, Registration No. 33-66740).
4.6 Form of US$600 Million Dollar Second Amended and Restated Credit
Agreement dated as of July 25, 1997, by and among Uniroyal Chemical, et
al., as Borrowers and various banks as Lenders, Citicorp Securities,
Inc., as Arranger, Citicorp USA, Inc., as Agent, and The Chase
Manhattan Bank as Managing Agent (incorporated by reference to Exhibit 4
to the Registrants' Quarterly Report on Form 10-Q for the quarterly
period ended June 28, 1997).
4.7 Form of US$600 Million Dollar Third Amended and Restated Credit
Agreement dated as of March 31, 1998, by and among Uniroyal Chemical, et
al, as Borrowers and various banks as Lenders, Citicorp USA, Inc., as
Agent, and The Chase Manhattan Bank, Corestates Bank, N.A. and First
Union National Bank as Managing Agents (incorporated by reference to
Exhibit 4 to C & K's Quarterly Report on Form 10-Q for the quarterly
period ended June 27, 1998).
10.1 Form of Assignment and Assumption of Raw Materials Agreement, dated as
of October 30, 1989, between UCC and Avery (incorporated by reference to
Exhibit 10.1 to Form S-1, Registration No. 33-32770).
10.2 Amended and Restated Tax Indemnification Agreement, dated as of
October 26, 1989, among Avery, Inc., Uniroyal Chemical Holding Company,
Uniroyal Chemical Acquisition Corporation ("UCAC"), UCC and certain
subsidiaries of UCAC ("Tax Indemnification Agreement") (incorporated by
reference to Exhibit 10.13 to Form S-1, Registration No. 33-32770).
10.3 Form of Amendment, dated as of December 14, 1990, to the Tax
Indemnification Agreement (incorporated by reference to Exhibit 10.26 to
Post Effective Amendment No. 3 to the Registration Statement on Form
S-1, of UCC and UCAC Registration No. 33-32770, filed on January 15,
1991 ["1991 Form S-1, Registration No. 33-32770"]).
10.4 Uniroyal Chemical Company Long-Term Management Incentive Plan
(incorporated by reference to Exhibit 10.5 to the Registration Statement
on Form S-1 of UCC, Registration No. 33-45295, filed on January 27,
1992).
10.5 UCC Purchase Right Plan, as amended and restated as of March 16, 1995
(incorporated by reference to Exhibit 10.1 to the Quarterly Report on
Form 10-Q for the period ended April 2, 1995 ["April 1995 Form 10-Q"]).
10.6 Form of Amendment, dated as of December 8, 1992, to the Tax
Indemnification Agreement (incorporated by reference to Exhibit 10.30 to
1992 Form S-1, Registration Nos. 33-45296/33-45295).
10.7 UCC 1993 Stock Option Plan (incorporated by reference to Exhibit 28.1 to
UCC's Registration Statement on Form S-8, Registration No. 33-62030,
filed on May 4, 1993).
10.8 Form of Amendment No. 2 to the UCC 1993 Stock Option Plan (incorporated
by reference to Exhibit 10.2 to the April 1995 Form 10-Q).
10.9 Form of Executive Stock Option Agreement, dated as of November 15, 1993
(incorporated by reference to Exhibit 10.22 to the Registrant's 1994
Annual Report on Form 10-K ["1994 Form 10-K"]).
10.10 Form of Management Investor and Other Key Personnel Option Agreement,
dated as of December 15, 1993 (incorporated by reference to Exhibit
10.23 to the 1994 Form 10-K).
10.11 Form of Non-Employee Director Stock Option Agreement, dated as of
September 13, 1994 (incorporated by reference to Exhibit 10.24 to the
1994 Form 10-K).
10.12 Form of Non-Employee Director Stock Option Agreement, dated as of March
5, 1996 (incorporated by reference to Exhibit 10.27 to the Registrant's
1996 Annual Report on Form 10-K ["1996 Form 10-K"]).
10.13 Form of Employment Agreement, dated as of August 21, 1996, between
Uniroyal Chemical and four executive officers of Uniroyal Chemical
(incorporated by reference to Exhibit 10.28 to the 1996 Form 10-K).
10.14 Form of Supplemental Retirement Agreement, dated as of August 21, 1996,
between Uniroyal Chemical and two executive officers of Uniroyal
Chemical (incorporated by reference to Exhibit 10.29 the 1996 Form 10-
K).
10.15 Form of Supplemental Retirement Agreement, dated as of August 21, 1996,
between Uniroyal Chemical and two executive officers of Uniroyal
Chemical (incorporated by reference to Exhibit 10.30 to the 1996 Form
10-K).
10.16 Form of Second Amended and Restated Lease Agreement between Middlebury
Partnership, as Lessor, and Uniroyal Chemical, as Lessee, dated as of
August 28, 1997 (incorporated by reference to Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended September 27, 1997).
12 Computation of earnings to fixed charges ratio for the fiscal years
1994, 1995, 1996, 1997 and 1998 and three months ended December 28, 1996
(filed herewith).
21 Subsidiaries of the Registrant (No Response Required).
27 Financial data schedule for the Registrant (filed herewith).
EXHIBIT 2.8
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
UNIROYAL CHEMICAL CORPORATION
WITH AND INTO
UNIROYAL CHEMICAL COMPANY, INC.
Pursuant to Sections 103 and 253 of the General Corporation Law
of the State of Delaware
Uniroyal Chemical Corporation ("the Corporation"), a
Delaware corporation, does hereby certify to the following facts
relating to the merger of the Corporation with and into Uniroyal
Chemical Company, Inc. ("UCCI"), a New Jersey corporation, with
UCCI remaining as the surviving corporation:
First: The Corporation is incorporated pursuant to the
General Corporation Law of the State of Delaware ("GCL"). UCCI
is incorporated pursuant to the Business Corporation Act of the
State of New Jersey ("the Act").
Second: The Corporation owns all of the outstanding shares
of stock of UCCI.
Third: The Board of Directors of the Corporation, by
consents executed by the individual directors dated the 4th day
of December, 1998, duly adopted resolutions authorizing the
merger of the Corporation with and into UCCI pursuant to Section
253 of the GCL. A true copy of such resolutions is annexed
hereto as Exhibit A. Such resolutions have not been modified or
rescinded and are in full force and effect on the date hereof.
Fourth: Uniroyal Chemical Company, Inc. shall be the
surviving corporation.
Fifth: The Certificate of Incorporation of Uniroyal Chemical
Company, Inc. shall be the Certificate of Incorporation of the
surviving corporation.
Sixth: The merger has been consented to by a majority of the
outstanding stock of the Corporation entitled to vote thereon by
consent in lieu of a meeting pursuant to the provisions of
Section 228 of the General Corporation Law of the State of
Delaware, with the holder of 100% of the stock of the Corporation
having so consented.
Seventh: Uniroyal Chemical Company, Inc., the surviving non-
Delaware corporation, does hereby agree that it may be served
with process in the State of Delaware in any proceeding for
enforcement of any obligation of any constituent corporation of
the State of Delaware, as well as for enforcement of any
obligation of UCCI arising from the merger of UCCI and the
Corporation, including any suit or other proceeding to enforce
the right of any stockholders as determined in appraisal
proceedings pursuant to Section 262 of the General Corporation
Law of the State of Delaware. UCCI irrevocably appoints the
Secretary of State of the State of Delaware as its agent to
accept service of process in any suit or proceedings identified
above, and does specify the following address to which a copy of
such process shall be mailed by the Secretary of State:
Uniroyal Chemical Company, Inc.
World Headquarters
Benson Road
Middlebury, CT 06749
Att: General Counsel
Eighth: The merger shall be effective as of the 9th day of
December, 1998.
IN WITNESS WHEREOF, Uniroyal Chemical Corporation has caused
this Certificate of Ownership and Merger to be executed by its
Secretary this 4th day of December, 1998.
UNIROYAL CHEMICAL CORPORATION
By: /s/Barry J. Shainman
Barry J. Shainman
Secretary
EXHIBIT A
RESOLUTIONS
OF THE BOARD OF DIRECTORS
OF
UNIROYAL CHEMICAL CORPORATION
MERGER
RESOLVED, that Uniroyal Chemical Corporation ("the
Corporation"), a Delaware corporation, be merged with and into
Uniroyal Chemical Company, Inc. ("UCCI"), a wholly owned
subsidiary of the Corporation, with UCCI remaining as the
surviving corporation (the "Surviving Corporation"), all in
accordance with these resolutions, and that the appropriate
officers of the Corporation be and hereby are authorized and
directed to file a Certificate of Ownership and Merger effecting
the Merger with the Secretary of the State of the State of
Delaware; and further
RESOLVED, that the Certificate of Incorporation of UCCI
shall be the Certificate of Incorporation of the Surviving
Corporation; and further
RESOLVED, that the By-laws of UCCI as in effect immediately
prior to the Merger shall be the By-laws of the Surviving
Corporation; and further
RESOLVED, that the directors of UCCI immediately prior to
the Merger shall be the directors of the Surviving Corporation,
each to hold office until their respective successors are duly
elected or appointed and qualified; and further
RESOLVED, that the appropriate officers of the Corporation,
and each of them hereby is, authorized and directed to execute
and acknowledge in the name and on behalf of the Corporation a
Certificate of Ownership and Merger setting forth, among other
things, a copy of these resolutions and the date of their
adoption; and that such officers are hereby authorized and
directed to cause such executed Certificate of Ownership and
Merger to be filed in the Office of the Secretary of the State of
Delaware, all in accordance with Sections 103 and 253 of the
General Corporation Law of the State of Delaware (the "GCL"); and
further
RESOLVED, that the Plan of Merger, pursuant to Section
14A:10-5.1 of the Business Corporation Act of the State of New
Jersey and dated the 4th day of December, 1998, is hereby
approved.
RESOLVED, that upon surrender of any certificates of stock
of the Corporation, UCCI shall issue on a pro rata basis stock of
UCCI to such surrendering shareholders of the Corporation by
issuing one share of UCCI for each share of the Corporation
surrendered.
FIRST SUPPLEMENTAL INDENTURE
RESOLVED, that the form, terms and provisions of the First
Supplemental Indenture (the "First Supplemental Indenture") to be
executed and delivered on or about December 9, 1998, by the
Corporation, UCCI and State Street Bank and Trust Company, as
trustee (the "Trustee"), and the transactions contemplated
thereby including, without limitation, the assumption by UCCI of
all of the Corporation's obligations under the (i) the Indenture,
dated as of February 8, 1993 (the "Indenture"), between the
Corporation (as successor to UCC Investors Holding, Inc.), and
the Trustee, relating to the 10 1/2% Senior Notes Due 2002 of the
Corporation and (ii) the Securities (as defined in the
Indenture), be, and they hereby are, approved and adopted in all
respects, and the President, any Vice President, the Treasurer,
any Assistant Treasurer, the Secretary, any Assistant Secretary
or any other authorized legal representative of the Corporation
(each, an "Officer" and collectively, the "Officers") be, and
each of them hereby is, authorized and directed to (a) execute
and deliver, in the name and on behalf of the Corporation, the
First Supplemental Indenture and any other agreements and
documents required in connection therewith in substantially the
form hereby approved with such changes therein (substantial or
otherwise) as the Officer executing same shall, by execution
thereof, approve and (b) perform the obligations and carry out
the duties of the Corporation under the First Supplemental
Indenture, the Indenture and the Securities and under all such
other agreements and documents required to be executed and
delivered in connection therewith; and further
CERTIFICATION OF RESOLUTIONS
RESOLVED, that in connection with the transactions
contemplated in the foregoing resolutions, the Secretary and the
Assistant Secretary of the Corporation be, and each of them
hereby is, authorized, in the name and on behalf of the
Corporation, to certify any more formal or detailed resolutions
as such officers may deem necessary, necessary, desirable or
advisable to effectuate the intent and purposes of the foregoing
resolutions; and that such officers be, and each of them hereby
is, authorized and directed to annex such resolutions to these
resolutions, and thereupon such resolutions shall be deemed the
resolutions of the Board of Directors as if set forth at length
in these resolutions; and further
FURTHER ACTIONS
RESOLVED, that the appropriate officers of the Corporation
be, and each of hereby is, authorized and empowered in the name
and on behalf of the Corporation to take or cause to be taken any
and all such further actions, to execute and deliver or cause to
be executed and delivered all such other documents, instruments
and agreements, and to make such filings, in the name and on
behalf of the Corporation, to incur and pay all such fees and
expenses and to engage such advisors as they shall in their
judgment determine to be necessary, desirable or advisable to
carry out fully the intent and purposes of the foregoing
resolutions and the execution by such officers of any such
document, instrument or agreement or the payment of any such
expenses or the doing by them of any act in connection with the
foregoing matters shall conclusively establish their authority
therefor and the approval of the documents, instruments or
agreements so executed, the expenses so paid, the filings so made
and the actions so taken; and further
RATIFICATION
RESOLVED, that all actions previously taken by any director
or officer of the Corporation in connection with the transactions
contemplated by the foregoing resolutions be, and they hereby
are, adopted, ratified, confirmed and approved in all respects.
The undersigned, Secretary of Uniroyal Chemical Corporation,
a Delaware corporation, does hereby certify that the foregoing
resolutions were duly adopted by the Board of Directors of said
Corporation by consent of all of the members of the Board of
Directors pursuant to Section 141(f) of the General Corporation
Law of the State of Delaware, which consents are dated the 4th
day of December, 1998, and that as of the date hereof such
resolutions have not been amended or repealed and remain in full
force and effect.
IN WITNESS WHEREOF, I have set my hand in my capacity as
Secretary this 4th day of December 1998.
/s/Barry J. Shainman
Barry J. Shainman
Secretary
EXHIBIT 2.9
CERTIFICATE OF MERGER
OF
UNIROYAL CHEMICAL CORPORATION
WITH AND INTO
UNIROYAL CHEMICAL COMPANY, INC.
Pursuant to Section 14A:120-5.1 of the Business Corporation Act
of the State of New Jersey
Pursuant to Section 14A:10-5.1 of the Business Corporation
Act of the State of New Jersey, the undersigned corporation,
Uniroyal Chemical Corporation ("the Corporation"), a Delaware
Corporation executes this Certificate of Merger in connection
with its merger with and into its wholly owned subsidiary,
Uniroyal Chemical Company, Inc. ("the Merger").
First. The names and states of incorporation of the merged
corporations are Uniroyal Chemical Corporation, a Delaware
Corporation, and Uniroyal Chemical Company, Inc. a New Jersey
Corporation.
Second. The name of the corporation surviving the merger is
Uniroyal Chemical Company, Inc. ("the Surviving Corporation").
Third. The following Plan of Merger was approved by the
written consent of the board of directors of the Corporation on
the 4th day of December, 1998.
PLAN OF MERGER
Plan of Merger dated this 4th day of December, 1998,
pursuant to Section 14A:10-5.1 of the Business Corporation Act of
the State of New Jersey, and Section 253 of the General
Corporation Law of the State of Delaware ("the GCL"), for the
merger of Uniroyal Chemical Corporation ("the Corporation"), a
Delaware corporation with and into Uniroyal Chemical Company,
Inc. ("UCCI"), a New Jersey corporation, with UCCI the surviving
corporation ("the Surviving Corporation").
1. The corporations purposing to merge are Uniroyal
Chemical Corporation, a Delaware corporation, and Uniroyal
Chemical Company, Inc., a New Jersey corporation; with the
Corporation merging into UCCI, and with UCCI being the Surviving
Corporation.
2. The Certificate of Incorporation and By-laws of UCCI
shall be the Certificate of Incorporation and By-laws of the
Surviving Corporation.
3. UCCI will assume all of the obligations of the
Corporation and all of the estates, properties, rights and
privileges of the Corporation shall vest in and be possessed by
UCCI.
4. The 100 shares of UCCI stock held by the Corporation,
representing all of the outstanding stock of UCCI, shall be
cancelled by UCCI after the merger.
5. Upon surrender of the certificates of stock of the
Corporation, UCCI shall issue on a pro rata basis stock of UCCI
to such surrendering shareholders of the Corporation by issuing
one share of UCCI for each share of the Corporation surrendered.
6. The Secretary of the Corporation shall submit this
Plan of Merger to the shareholders of the Corporation for
approval.
7. The directors of UCCI immediately prior to the
effective time of the merger shall be the directors of the
Surviving Corporation and such individuals shall serve until
their respective successors are duly elected and qualified or
their earlier death, resignation or removal.
8. The officers of UCCI immediately prior to the
effective time of the merger shall be the officers of the
Surviving Corporation until their respective successors are duly
elected and/or appointed and qualified in the manner provided in
the charter documents of the Surviving Corporation or as
otherwise provided by law.
9. Merger shall be effective as of the 9th day of
December, 1998.
Fourth: This merger is permitted by the applicable laws of
the State of Delaware, and of the State of New Jersey.
Fifth: UCCI has outstanding 100 shares of no class common
stock, all of which are owned by the Corporation.
Sixth: The shareholders of the Corporation are entitled to
vote on this merger pursuant to Section 14A:10-5.1(g)(6) of the
Business Corporation Act of the State of New Jersey. The
Corporation has outstanding 100 shares of common stock, all of
which are owned by a single shareholder, Crompton & Knowles
Corporation, a Massachusetts corporation.
Seventh: The shareholder of all of the outstanding stock of
the Corporation has voted all 100 shares for the Plan of Merger
by written consent dated the 4th day of December, 1998.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate of Merger on this 8th day of December, 1998.
UNIROYAL CHEMICAL CORPORATION
By: /s/John T. Ferguson II
John T. Ferguson II
Vice President
State of Connecticut )
County of New Haven )
On this 8th day of December, 1998 before me came John T.
Ferguson II and he acknowledged that he signed the above document
on behalf of Uniroyal Chemical Corporation and that the facts
stated therein are true and correct.
/s/Marlene P. Magone
Notary Public
Marlene P. Magone
Notary Public
My Commission Expires April 30, 2000
EXHIBIT 12
UNIROYAL CHEMICAL COMPANY, INC.
Computation of Earnings to Fixed Charges Ratio
(In thousands of dollars)
Three
Year Year Months Year Year Year
Ended Ended Ended Ended Ended Ended
Dec.26, Dec.27, Dec.28, Sep.28, Oct.1, Oct.2,
1998 1997 1996 1996 1995 1994
Earnings (loss) before
fixed charges:
Income (loss) from
continuing
operations
before income
taxes (1) $227,086 $ 92,886 $(1,325) $(30,761) $ 34,369 $(204,925)
Interest and
debt expense 86,512 96,011 24,814 106,456 114,034 128,567
Undistibuted
(earnings) loss
of less than
50% owned
affiliates (682) 2,135 149 362 149 (32)
Interest portion
of rent expense 3,055 3,138 663 2,705 2,193 2,051
Earnings (loss
before fixed
charges: $315,971 $194,170 $24,301 $ 78,762 $150,745 $ (74,339)
Fixed charges:
Interest and
debt expense 86,512 96,011 24,814 106,456 114,034 128,567
Interest portion of
rent expense 3,055 3,138 663 2,705 2,193 2,051
Capitalized
interest 947 364 68 1,677 2,518 378
Fixed charges: $ 90,514 $ 99,513 $25,545 $110,838 $118,745 $ 130,996
Deficiency in earnings
available to cover
fixed charges 1,244 32,076 205,335
Ratio of earnings to
fixed charges 3.49 1.95 1.27
(1) Includes $33.6 million of facility closure costs in 1998, $10.0 million of
severance and other costs and a $13.5 million special environmental provision
in 1997, $52.6 million of merger and related costs and a $30 million special
environmental provision in the year ended September 28, 1996, and a $191
million write-off of intangible assets in the year ended October 2, 1994.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the
Form 10-K for the year ended December 26, 1998 and is qualified
in it's entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000862612
<NAME> UNIROYAL CHEMICAL COMPANY, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-END> DEC-26-1998
<CASH> 5,561
<SECURITIES> 0
<RECEIVABLES> 59,109
<ALLOWANCES> 6,809
<INVENTORY> 217,579
<CURRENT-ASSETS> 337,475
<PP&E> 368,301
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0
0
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<TOTAL-LIABILITY-AND-EQUITY> 1,134,416
<SALES> 1,209,649
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