ITEM 1. BUSINESS
Unifrax Corporation ("Unifrax" or "Company") manufactures heat resistant ceramic fiber products for automotive, commercial, and industrial customers primarily throughout North America. Manufacturing facilities are located in Western New York and Indiana.
Developed by the Company in 1942, ceramic fiber is a white, glassy material belonging to a class of materials known as man-made vitreous fibers (a class which also includes fiberglass and mineral wool). Ceramic fiber possesses several commercially attractive performance properties including stability at very high temperatures, extremely low heat transmission and retention, light weight compared to other heat-resistant materials, chemical stability and corrosion resistance. These properties make ceramic fiber a superior insulating material in high temperature applications.
Ceramic fiber's most common application has been to line industrial furnaces, where high temperatures demand its heat-resistant characteristics. Historically, the industrial furnace-related market has represented the largest percentage of the Company's sales. Increasingly, the Company has applied its expertise to rapidly-growing, high value-added niche markets, including automotive, power generation, and fire protection.
MARKETS
Furnace-Related Markets. Ceramic fiber for furnace-related applications is generally sold to the metal production, petrochemical, and ceramic and glass industries.
Automotive Market. Three product types account for substantially all of the fiber consumed by the automotive industry: paper, catalytic converter gasket material, and insulation heat shields.
Other Markets. Ceramic fiber is being used in several newer applications in niche markets such as power generation, fire protection, and commercial insulation. In these industries, products are often customized to meet special customer needs.
MANUFACTURING AND OPERATIONS
Ceramic fiber is produced by melting a combination of alumina, silica, and other additives in either a submerged electrode furnace (SEF) or in an electric arc furnace. The molten mixture is made into fiber either by blowing an air stream on the molten material flowing from the furnace (blowing process) or by directing the molten material onto a series of spinning wheels (spinning process). The blowing and spinning processes produce fiber with different characteristics, dimensions, and process yields.
The Company also employs advanced manufacturing processes associated with the "wet" manufacture of papers and felts, boards, and other products. These processes use bulk ceramic fiber as a feedstock in combination with binders or other liquids.
The Company's operations in Tonawanda, New York, in early 1997 became certified under the International Quality Standard, ISO 9000, and the rigorous U.S. automotive standard, QS 9000. During 1998, the Company's operations in New Carlisle, Indiana and in Amherst, New York also became certified under ISO 9000.
RAW MATERIALS
Although the Company purchases some of its raw materials from sole suppliers, substitute materials are available from other suppliers on similar terms. Supplier changes would require some level of product and process qualification, but there are no technical barriers identified. The exception is vermiculite, a mineral which is an important raw material in the manufacture of XPE(TM) which is used in automotive catalytic converter gaskets. The Company currently purchases the majority of its requirements of vermiculite from an overseas source and the balance from a U.S. supplier. Because vermiculite from the overseas source has superior performance qualities, the Company believes that over the next two to three years, both it and its competitors will continue to rely on the overseas source.
RESEARCH AND DEVELOPMENT
The research and development group, located at the Company's headquarters, operates in a 9,500 square foot laboratory, including facilities for pilot plant development and traditional research and development activities.
The Company has maintained a strong financial commitment to its research and development program. Research and development expense totaled $2,734,000, $2,770,000, and $2,586,000, or approximately 3.1%, 3.2%, and 3.0% of net sales during the years 1997, 1998, and 1999, respectively.
COMPETITION
The ceramic fiber industry is highly competitive, and some of the Company's competitors are larger and have greater resources than the Company. In the furnace-related markets, competition is based primarily on product quality, price, and service. In the new high growth niche markets, competition is based primarily on product technology, technical specifications, manufacturing process capabilities, quality assurance and price.
The Company has significant competitors in its markets, some of which manufacture ceramic fiber while others purchase ceramic fiber and then reprocess it into products which compete with the Company's products. In the furnace-related markets, the Company's competitors are the Thermal Ceramics business unit of Morgan Crucible, the Premier Refractories International business unit of Cookson Group plc., and the A.P. Green business unit of RHI AG. In the automotive market, the Company's significant competitors include Thermal Ceramics, Minnesota Mining & Manufacturing Company ("3M") and Lydall. Both Lydall and 3M are reprocessors of ceramic fiber.
The Company's significant competitors in its other markets include Lydall and Thermal Ceramics. In some instances, ceramic fiber competes with a limited number of non-ceramic fiber products such as hard brick refractories and mineral wool.
CYCLICALITY AND SEASONALITY
The Company's products are generally used in industries subject to supply and demand cycles which reflect general economic activity. In addition, certain markets historically have been slightly seasonal, with higher sales in the second and fourth quarters and lower sales in the first and third quarters.
BACKLOG
The Company does not consider its backlog significant because it fills most of its orders within one month and substantially all of its orders within three months.
PRODUCT AND HEALTH SAFETY ISSUES
Manufacturers of man-made vitreous fibers ("MMVF") such as fiberglass, mineral wool and ceramic fiber have investigated the potential for adverse health effects associated with the inhalation of airborne fiber. Independent animal studies have indicated that ceramic fiber inhaled by test animals, in large quantities during the course of their lifetimes, can cause fibrosis, lung cancer and mesothelioma, a malignant tumor of the lining of the lungs and chest cavity. Company and industry-sponsored studies of workers with occupational exposure to airborne ceramic fiber, however, to date have found no clinically significant relationship between ceramic fiber exposure and respiratory disease in humans.
The Company has established organization and management systems for the purpose of ensuring that health and safety matters are properly identified, evaluated and addressed throughout the Company's operations. The Company utilizes the knowledge, skills and expertise of a number of external consultants, including an independent advisory board. Comprised of an internationally recognized group of experts in the fields of medicine, pulmonary science, veterinary pathology, toxicology and legislative, regulatory and legal affairs, the Ceramic Fiber Advisory Board ("CFAB") provides advice to the Company regarding proper handling practices for ceramic fiber and other related product management issues.
The Company developed and implemented a comprehensive Product Stewardship Program ("PSP") as one of its management systems. A key element of the PSP is research focused on identifying and evaluating the potential health effects associated with the inhalation of respirable fibers. These studies have taken two forms: human studies, known as epidemiological investigations, and toxicological research, which is generally conducted with test animals. Many of these research activities have been conducted with the participation of other members of the ceramic fiber industry.
The Company's PSP also includes elements designed to identify exposed populations, monitor employee and customer exposures and pursue exposure reductions. Initial assessments indicate that most ceramic fiber exposure is confined to the workplace and to a limited population of about 30,000 persons. Employee and customer exposure monitoring has been conducted by the Company under a rigorous protocol, jointly adopted pursuant to a voluntary consent agreement by the U.S. Environmental Protection Agency ("EPA") and the Refractory Ceramic Fiber Coalition ("RCFC"), the ceramic fiber industry trade association. Under the terms of this agreement, industry and customer workplace monitoring samples were taken for a period of five years concluding in mid-1998.
In the absence of a specific U.S. government standard regulating ceramic fiber exposure, several years ago the industry adopted a recommended exposure guideline ("REG") of one fiber per cubic centimeter of air. Scientific data available to date has been regarded as insufficient for the purpose of defining a specific exposure threshold of acceptably low risk for humans. The industry's voluntary exposure guideline provides a quantitative basis to measure progress in implementing PSP objectives to seek continuous reduction in fiber exposure through initiatives that are technically and economically feasible. During 1997 several participants in the industry, including the Company, voluntarily reduced the REG from one fiber per cubic centimeter to one-half fiber per cubic centimeter based on prudence and not significant risk.
Over time, health research data have been used by various organizations to classify certain man-made fibers. For example, classification terms, such as "possible" (International Agency for Research on Cancer, "IARC"), "probable" (EPA and Health Canada, "HC"), "reasonably anticipated" (National Toxicology Program, "NTP"), and "suspected" (proposed by the American Conference of Governmental Industrial Hygienists, "ACGIH") reflect the view of each organization as to the potential carcinogenicity of ceramic fiber and/or other MMVFs. Each of these classifications reflect concern for human health and uncertainty regarding the potential for airborne ceramic fiber to affect occupational health adversely. These classification determinations have not been followed by exposure standards in the U.S., although the ACGIH recently proposed exposure standards for public comment.
Some regulators in other countries have adopted a variety of regulatory thresholds. Member States of the European Union voted in November 1997, under DG XI, to classify ceramic fiber as "Category 2: Substances which should be regarded as if they are carcinogenic to man" on the basis of animal studies, although refractory ceramic fiber exposure has not been associated with any respiratory disease in humans. If the U.S. were to adopt legislative or regulatory standards severely restricting the use of ceramic fiber or severely limiting fiber exposure, a material adverse effect on the Company's business could result.
ENVIRONMENTAL REGULATION
The Company's operations and properties are subject to a wide variety of foreign, federal, state and local laws and regulations, including those governing the use, storage, handling, generation, treatment, emission, release, discharge and disposal of certain materials, substances and wastes, the remediation of contamination in the environment, and the health and safety of employees and other persons. As such, the nature of the Company's operations exposes it to the risk of claims with respect to environmental protection and health and safety matters, and there can be no assurance that material costs or liabilities will not be incurred in connection with such claims. Reference is made to the information included in Note 13 to the consolidated financial statements included in this Form 10-K, and to information appearing under the headings "Health and Safety Indemnity" and "Environmental Indemnity" provided under Item 13 of this Form 10-K, which are hereby incorporated herein by reference.
PATENTS AND TRADEMARKS
Although the Company obtains patent protection for certain product innovations, the Company believes that its success depends more heavily on the technical expertise and innovative abilities of its personnel than on its patent protection. The Company believes its trademarks are important in order to develop and support brand image and to differentiate itself from competitors.
EMPLOYEES
As of December 31, 1999, the Company employed approximately 386 persons on a full-time basis, Approximately 65 employees at the Company's Tonawanda plant are members of the Paper, Allied-Industrial, Chemical and Energy Workers International Union (PACE Local 1-2058).
ITEM 2.
ITEM 2. PROPERTIES
The flagship of the Company's operations is located in New Carlisle, Indiana. This facility is believed to be the largest ceramic fiber manufacturing plant in the world, producing blown and spun forms of bulk fiber and blankets. The Company also operates three manufacturing plants in Niagara and Erie Counties in Western New York.
The Company's headquarters is located in Niagara Falls, New York. This site houses salaried and hourly support and management staff as well as application engineers and other professionals dedicated to research and development of new products and applications for ceramic fiber.
The following table provides a description of the Company's principal facilities.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Reference is made to the information included in Note 13 to the consolidated financial statements of the Company included under Item 8 in this Form 10-K, which is hereby incorporated herein by reference.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Company's stock.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with the Company's consolidated financial statements and related notes in Item 8 of this Form 10-K.
(a) "EBITDA" means earnings from operations before interest expense, taxes, profits or losses on sales or disposals of fixed assets, depreciation, and amortization. EBITDA is included because management believes that it is an indicator used by investors to gauge a company's ability to service its interest and principal obligations. EBITDA should not be considered in isolation from, as a substitute for, or as being more meaningful than net income, cash flows from operating, investing and financing activities or other income or cash flow statement data prepared in accordance with generally accepted accounting principles and should not be construed as an indication of the Company's operating performance or as a measure of liquidity. EBITDA, as presented herein, may be calculated differently by other companies and, as such, EBITDA amounts presented herein may not be comparable to other similarly titled measures of other companies.
(b) Prior to consummation of its recapitalization in 1996, the Company was accounted for as a division of Carborundum rather than as a subsidiary, and had no separately identifiable equity other than an amount equal to its net assets captioned as "parent company investment." In connection with the recapitalization, this investment was eliminated and replaced by stockholders' deficit.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS
Statements included in this Management Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this document that do not relate to present or historical conditions are "forward looking statements" within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and of Section 21F of the Securities Exchange Act of 1934, as amended. Forward looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words "believe," "anticipate," "expect," "estimate," "project," "will continue," "will result," or words or phrases of similar meaning. Additional oral or written forward looking statements may be made by the Company from time to time, and such statements may be included in documents filed with the Securities and Exchange Commission. Such forward looking statements involve risks and uncertainties which could cause results or outcomes to differ materially from those expressed in such forward looking statements. Among the important factors on which such statements are based are assumptions concerning the continuing strength of the ceramic fiber market on which the Company is substantially dependent, changing prices for ceramic fiber products, acceptance of new products, the status of health and safety issues affecting the ceramic fiber industry in general and the Company in particular, the Company's continuing ability to operate under the restrictions imposed by the substantial indebtedness which it is subject to, the risks associated with international operations, the impact of environmental regulations on the Company's operations and property and related governmental regulations, and the continuing availability of certain raw materials, including vermiculite which is purchased from an overseas source.
GENERAL
The following section should be read in conjunction with the other information set forth in this document, including the financial statements and the notes thereto.
RESULTS OF OPERATIONS Year Ended December 31, ---------------------- 1997 1998 1999 ---- ---- ----
Net sales 100.0% 100.0% 100.0% Cost of goods sold 50.7 51.2 50.3 ----- ----- ----- Gross profit 49.3 48.8 49.7 Selling, general and administrative 26.3 27.3 27.0 ----- ----- ----- Operating income 23.0% 21.5% 22.7%
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
Net sales decreased $0.4 million or 0.5% from $85.5 million in 1998 to $85.1 million in 1999. Several Unifrax markets for ceramic fiber, including petrochemicals and steel remained weak throughout most of 1999. Also, sales of porosity-controlled products continued to decline due to automotive industry airbag design changes toward systems using less filtration.
Gross profit increased by $0.6 million, or 1.4%, from $41.7 million in 1998 to $42.3 million in 1999. Gross profit as a percentage of net sales increased from 48.8% in 1998 to 49.7% in 1999. The increase in gross profit was due to improved plant operating efficiencies and lower overall production costs.
Selling, general and administrative expenses decreased by $0.4 million or 1.8%, from $23.4 million in 1998 to $23.0 million in 1999 primarily as a result of nonrecurring reductions of liabilities associated with the product stewardship programs and retiree medical and insurance programs, and reduced testing and development expenditures. Selling, general and administrative expenses as a percentage of net sales decreased slightly from 27.3% in 1998 to 27.0% in 1999.
Operating income increased by $1.0 million, or 5.5%, from $18.4 million in 1998 to $19.4 million in 1999. Operating income as a percentage of net sales increased from 21.5% in 1998 to 22.7% in 1999, as a result of the factors previously indicated.
Other expense increased by $0.5 million, or 413.7%, from $0.1 million in 1998 to $0.6 million in 1999 due to increased foreign currency exchange losses relative to Europe and Brazil, and increased losses on disposals of equipment.
Interest expense decreased by $0.6 million, or 5.4%, from $11.9 million in 1998 to $11.3 million in 1999 primarily as a result of the repurchase of $2.0 million of 10.5% Senior Notes and repayment of principal on the term loan and note payable - affiliate, offset in part by increasing interest rates on certain variable-rate borrowings. Interest expense as a percentage of net sales decreased from 13.9% in 1998 to 13.3% in 1999.
Provision for income taxes increased $0.5 million, or 21.1%, from $2.3 million in 1998 to $2.8 million in 1999. The effective income tax rate decreased from 36.3% in 1998 to 36.0% in 1999.
Net income increased by $1.0 million, or 23.0%, from $4.0 million in 1998 to $5.0 million in 1999, as a result of factors previously indicated. Net income as a percentage of net sales increased from 4.7% in 1998 to 5.8% in 1999, as a result of the factors discussed above.
EBITDA increased by $0.8 million, or 3.5%, from $24.0 million in 1998 to $24.8 million in 1999. The increase in EBITDA is principally attributable to the factors affecting operating income which were discussed above. EBITDA as a percent of net sales increased from 28.1% in 1998 to 29.2% in 1999.
Capital Expenditures decreased $0.6 million, or 16.0%, from $3.8 million in 1998 to $3.2 million in 1999, due to lower spending on plant and equipment. Capital expenditures in 1999 included projects to increase capacity, to replace equipment and to reduce costs.
Working capital increased from $4.9 million in 1998 to $9.4 million in 1999. Decreased levels of raw materials and in-process inventories were offset by higher accounts receivable and a reduction in the current portion of long term debt due to the repayment of the note payable - affiliate.
Cash flows from operating activities increased $3.5 million, or 38.0%, from $9.2 million in 1998 to $12.7 million in 1999 as a consequence of the higher net income and inventory change discussed above offset in part by higher accounts receivable. Cash outflows from investing activities decreased $0.6 million from $3.8 million in 1998 to $3.2 million in 1999 due to decreased capital expenditures. Cash outflows from financing activities increased $3.8 million from $5.8 million in 1998 to $9.6 million in 1999.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
Net sales decreased $1.6 million or 1.9% from $87.1 million in 1997 to $85.5 million in 1998. Several Unifrax markets for ceramic fiber, including petrochemicals, steel and power generation, weakened during 1998 as a consequence of global economic pressures and uncertainty. Also, porosity-controlled products continued to be affected by automotive industry airbag design changes toward systems using less filtration.
Gross profit declined by $1.3 million, or 2.8%, from $43.0 million in 1997 to $41.7 million in 1998. Gross profit as a percentage of net sales decreased from 49.3% in 1997 to 48.8% in 1998. The decline in gross profit was due to the lower sales volume and downward pressure on prices in the automotive market and in some traditional markets.
Selling, general and administrative expenses increased by $0.4 million or 1.9%, from $23.0 million in 1997 to $23.4 million in 1998 as a result of inflation and additional testing and development expenditures for new products, offset partially by the effects of the lower sales volume. Selling, general and administrative expenses as a percentage of net sales increased from 26.3% in 1997 to 27.3% in 1998.
Operating income decreased by $1.6 million, or 8.2%, from $20.0 million in 1997 to $18.4 million in 1998. Operating income as a percentage of net sales decreased from 23.0% in 1997 to 21.5% in 1998, as a result of the factors previously indicated.
Interest expense decreased by $0.6 million, or 5.1%, from $12.5 million in 1997 to $11.9 million in 1998 as a result of the repurchase of $2.0 million of 10.5% Senior Notes, voluntary prepayment of principal on the term loan, lower interest rates on borrowings, and conversion of the amount due affiliates into preferred stock of the Company. Interest expense as a percentage of net sales decreased from 14.4% in 1997 to 13.9% in 1998.
Provision for income taxes increased $0.4 million, or 20.7%, from $1.9 million in 1997 to $2.3 million in 1998. The effective income tax rate increased from 25.8% in 1997 to 36.3% in 1998. The effective income tax rate for 1997 was less than that which would be expected due to the recognition of $1.0 million of deferred tax assets resulting from the Recapitalization which were, prior to 1997, unrecognized.
Net income decreased by $1.6 million, or 27.3%, from $5.6 million in 1997 to $4.0 million in 1998, as a result of factors previously indicated. Net income as a percentage of net sales decreased from 6.4% in 1997 to 4.7% in 1998, as a result of the factors discussed above.
EBITDA decreased by $1.4 million, or 5.4%, from $25.4 million in 1997 to $24.0 million in 1998. The decrease in EBITDA is attributable to the factors affecting operating income which were discussed above, offset partially by an increase in depreciation and amortization from $5.3 million in 1997 to $5.7 million in 1998, resulting from the capacity expansion in New Carlisle. EBITDA as a percent of net sales decreased from 29.1% in 1997 to 28.1% in 1998.
Capital Expenditures decreased $5.6 million, or 59.4%, from $9.4 million in 1997 to $3.8 million in 1998, due primarily to the completion of the investment in capacity expansion in New Carlisle. Capital expenditures in 1998 included projects to replace worn equipment, to reduce costs and to increase capacity in certain processes.
Working capital decreased from $12.9 million in 1997 to $4.9 million in 1998. Increased levels of raw materials and in-process inventories were offset by the reclassification of the note payable--affiliate from long term to current liabilities, and also the current portion of long term debt to current liabilities.
Cash flows from operating activities decreased $4.8 million, or 33.9%, from $14.0 million in 1997 to $9.2 million in 1998 as a consequence of the lower net income and inventory change discussed above. Cash outflows from investing activities decreased $5.5 million from $9.3 million in 1997 to $3.8 million in 1998 due to decreased capital expenditures. Cash outflows from financing activities increased $0.5 million from $5.3 million in 1997 to $5.8 million in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's Credit Agreement provides for a $25.0 million term loan and a $20.0 million revolving credit facility. The revolving credit facility is available for working capital and other corporate purposes. Loans under the Credit Agreement bear interest at a rate based upon LIBOR or the lender's prime rate plus a negotiated margin. The Credit Agreement and the indenture for the Company's 10.5% Senior Notes contain certain restrictive covenants including requirements that the Company meet certain financial ratio tests and limitations on the ability of the Company to incur additional indebtedness. At December 31, 1999, the Company was in compliance with all Credit Agreement and Indenture covenants.
During 1999 the Company made payments of principal totaling $3.8 million on its Term Loan thereby reducing the balance outstanding from $10.0 million at December 31, 1998 to $6.2 million at December 31, 1999. As of December 31, 1999 the Company had borrowed $4.9 million against its $20.0 million revolving credit facility.
On March 3, 1999, the Company repurchased $2 million face value of Senior Notes.
Management believes that cash flows from operations and borrowings under the available credit facility will be adequate to meet the Company's operating requirements and planned capital expenditures over the next 12 months. See "Forward Looking Statements."
As of October 30, 1996, the Company entered into a tax sharing agreement with its principal stockholder, Unifrax Holding Co. ("Holding"). The results of its operations are now included in the consolidated U.S. corporate income tax return of Holding. The Company's provision for income taxes is computed as if the Company filed its annual tax returns on a separate Company basis. The current portion of the income tax provision will be satisfied by a payment to or from Holding.
At December 31, 1999, the Company had Federal and state net operating loss carryforwards totaling approximately $15.5 million which will be available to offset future taxable income. These net operating loss carryforwards expire in 2011 through 2019.
LEGAL PROCEEDINGS
Reference is made to the information included in Note 13 to the consolidated financial statements of the Company included under Item 8 in this Form 10-K, which is hereby incorporated herein by reference.
IMPACT OF YEAR 2000
In prior years, the Company discussed the nature and progress of its plans to become Year 2000 ready. During 1999, the Company completed its remediation and testing of systems. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The Company expensed approximately $75,000 during 1999 in connection with remediating its systems. The Company is not aware of any material problems resulting from Year 2000 issues, either with its products, its internal systems, or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The intended use of the derivative and its designation as either a fair value hedge, a cash flow hedge, or a foreign currency hedge, will determine when the gains or losses on the derivatives are to be reported in earnings and when they are to be reported as a component of other comprehensive income. The new standard must be adopted for year 2000 financial reporting. The impact of compliance with SFAS No. 133 has not yet been determined by the Company.
SUBSEQUENT EVENTS
On February 4, 2000, the Company announced that Holding had entered into a non-binding letter of intent to explore the purchase of Carborundum Insulation Technology, the worldwide ceramic fibers business of Compagne de Saint-Gobain. The proposed acquisition is subject to various conditions, including the execution of a definitive purchase agreement and the satisfactory completion of due diligence. It is expected that the acquisition, if consummated, will be completed by the end of the second quarter of 2000.
ITEM 7A.
ITEM 7A. MARKET RISK DISCLOSURES
The Company is exposed to certain market risks, principally changes in interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates. The Company does not enter into derivatives or other financial instruments for trading or speculative purposes.
The Company has various long-term indebtedness outstanding at December 31, 1999, and has also entered into interest rate swap agreements to effectively convert fixed-rate debt with a notional principal amount of $25,000,000 to variable-rate debt.. The interest impact of an increase in interest rates of 100 basis points (1%) would be as follows:
Instrument Interest Rate Impact on Earnings ---------- ------------- ------------------ (in thousands)
Loan and Security Agreement Variable, based on LIBOR $ (112)
Senior Notes Fixed -
Interest Rate Swap Agreement Variable (250) ---- (362) Less tax benefit 127 --- Net income reduction $ (235) ============
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Page in Form 10K -------- Report of Independent Auditors 15 Consolidated Balance Sheets as of December 31, 1998 and 1999 16 Consolidated Statements of Income for the Years Ended December 31, 1997, 1998 and 1999 17 Consolidated Statements of Stockholders' Deficit for the Years Ended December 31, 1997, 1998 and 1999 18 Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1998 and 1999 19 Notes to Consolidated Financial Statements 20
Report of Independent Auditors
Board of Directors Unifrax Corporation
We have audited the accompanying consolidated balance sheets of Unifrax Corporation as of December 31, 1998 and 1999, and the related consolidated statements of income, stockholders' deficit and cash flows for each of the three years in the period ended December 31, 1999. Our audits also included the financial statement schedule listed in the index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Unifrax Corporation at December 31, 1998 and 1999 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Buffalo, New York February 17, 2000
Unifrax Corporation
Consolidated Balance Sheets
See accompanying notes to consolidated financial statements.
Unifrax Corporation
Consolidated Statements of Income
See accompanying notes to consolidated financial statements.
Unifrax Corporation
Consolidated Statements of Stockholders' Deficit
(In Thousands)
See accompanying notes to consolidated financial statements.
Unifrax Corporation
Consolidated Statements of Cash Flows
See accompanying notes to consolidated financial statements.
Unifrax Corporation
Notes to Consolidated Financial Statements
December 31, 1999
1. Organization And Basis Of Presentation
Prior to October 30, 1996, the date on which Unifrax Corporation ("Unifrax" or "Company") completed a comprehensive recapitalization (the "Recapitalization"), Unifrax and its predecessor, the North American Fibers Division of The Carborundum Company ("Carborundum") was an indirect wholly-owned subsidiary of The British Petroleum Company p.l.c. ("BP"). As a result of the Recapitalization, Unifrax Holding Co. ("Holding") and BP own 90% and 10%, respectively, of the Company. Pursuant to the Recapitalization, BP America Inc. ("BP America") a subsidiary of BP, agreed to indemnify the Company, subject to certain limitations, against all liabilities, if any, that might result from any claims for wrongful death or personal injury caused by exposure to refractory ceramic fiber products manufactured by Unifrax prior to the consummation of the Recapitalization, and against certain environmental liabilities arising prior to consummation of the Recapitalization.
2. Significant Accounting Policies
Certain Risks and Uncertainties
The Company manufactures heat resistant ceramic fiber products for sale generally to automotive, commercial, and industrial customers primarily throughout North America. Manufacturing facilities are located in Western New York and Indiana. The Company maintains adequate allowances for potential credit losses, performs ongoing credit evaluations, and generally does not require collateral.
Approximately 17% of the Company's employees are represented by a labor union and are covered under a collective bargaining agreement which expires in 2004.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions, balances and profits are eliminated upon consolidation.
Revenue Recognition
Revenue is recognized at the time of shipment to the customer. Provisions are recorded for probable future returns and uncollectible accounts as revenue is recognized.
Inventories
Inventories are stated at the lower of cost or market. The cost of substantially all inventories is determined by the last-in, first-out method (LIFO).
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation is computed principally using the straight-line method over the estimated useful lives of the assets which range from 3 years to 20 years for machinery and equipment, and 20 years to 45 years for land improvements and buildings. Expenditures for renewals and improvements that extend the useful life of an asset are capitalized. Expenditures for routine repairs and maintenance are generally charged to operations when incurred.
Financing Costs
Financing costs are being amortized on a straight line basis over periods ranging from 5 to 7 years.
Impairment of Long Lived Assets
The Company reviews asset carrying amounts whenever events or circumstances indicate that such carrying amounts may not be recoverable. When considered impaired, the carrying amount of the asset is reduced, by a charge to income, to its current fair value.
Environmental Liabilities
Environmental expenditures that relate to current or future revenues are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations and that are not allocable to current or future earnings are expensed. Liabilities for environmental costs are recognized when environmental assessments or clean-ups are probable and the associated costs can be reasonably estimated.
Income Taxes
As of October 30, 1996, the Company entered into a tax sharing agreement with Holding. The results of the Company's operations are currently included in the consolidated U.S. corporate income tax return of Holding. The Company's provision for income taxes is computed as if the Company filed its annual tax returns on a separate company basis. The current portion of the income tax provision is satisfied by a payment to or from Holding.
Income taxes are accounted for under the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rate and laws that apply in the periods in which the deferred tax asset or liability is expected to be realized or settled.
Investment tax credits are accounted for using the flow-through method.
Accounting for Stock Based Compensation
The Company accounts for stock options granted under its stock-based compensation plan in accordance with the intrinsic value based method of accounting as prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), as allowed under Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). Accordingly, compensation cost for stock options is measured as the excess, if any, of the fair market value of the Company's stock at the date of grant over the amount an employee must pay to acquire the stock.
Advertising Costs
Advertising costs, which consist principally of advertisements in trade journals, brochures, and attendance at trade shows, are expensed as incurred. Advertising costs totaled $792,000, $810,000 and $771,000 for the years ended December 31, 1997, 1998 and 1999, respectively.
Research and Development Costs
Product research and development costs are charged to expense as incurred. Research and development expense for the years ended December 31, 1997, 1998 and 1999 was $2,734,000, $2,770,000, and $2,586,000, respectively.
Health, Safety and Environmental Quality Programs
Costs associated with the Company's Health, Safety and Environmental Quality ("HSEQ") programs, which include the Company's Product Stewardship Program, the Ceramic Fibers Advisory Board, ongoing employee health studies and workplace exposure monitoring studies, are expensed as incurred. Amounts charged to operations during the years ended December 31, 1997, 1998 and 1999 relating to HSEQ and testing in connection with research and development totaled $1,253,000, $1,738,000 and $1,374,000, respectively, and are included in selling, general and administrative expenses in the accompanying statements of income.
Financial Instruments
The Company has entered into interest rate swap agreements to effectively convert a portion of fixed-rate debt into variable-rate debt. All payments and receipts under the swap agreements are recorded as adjustments to interest expense.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The intended use of the derivative and its designation as either a fair value hedge, a cash flow hedge, or a foreign currency hedge, will determine when the gains or losses on the derivatives are to be reported in earnings and when they are to be reported as a component of other comprehensive income. The new standard must be adopted for year 2000 financial reporting. The impact of compliance with SFAS No. 133 has not yet been determined by the Company.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
3. Inventories
Major classes of inventories are as follows:
December 31 1998 1999 ---- ---- (In Thousands)
Raw material and supplies $ 3,459 $ 4,006 In-process 2,008 1,480 Finished product 4,341 3,459 -------- -------- 9,808 8,945 Adjustment to LIFO cost 535 458 -------- -------- $ 10,343 $ 9,403 ======== ========
The cost of inventories determined on the LIFO method exceeds the current cost of inventories principally as a result of reduced manufacturing costs.
4. Property, Plant and Equipment
Property, plant and equipment consist of the following:
December 31 1998 1999 ---- ---- (In Thousands)
Land and land improvements $ 1,982 $ 1,929 Buildings 18,793 18,761 Machinery, equipment, furniture and fixtures 50,759 51,068 Construction in progress 2,829 4,697 -------- -------- 74,363 76,455 Less accumulated depreciation (37,656) (40,854) -------- --------- $ 36,707 $ 35,601
For the years ended December 31, 1997, 1998 and 1999, depreciation expense amounted to $4,383,000, $4,739,000 and $4,534,000, respectively.
5. Long Term Debt and Note Payable -- Affiliate
Long term debt consists of the following:
December 31 1998 1999 ---- ---- (In Thousands)
10 1/2% Senior Notes due 2003 $ 98,000 $ 96,000 Loan and Security Agreement: Term loan 10,000 6,250 Revolving loan 1,700 4,900 --------- --------- 109,700 107,150 Less current portion 3,750 6,250 --------- --------- Long term debt $ 105,950 $ 100,900 ========= =========
The Company's Loan and Security Agreement dated as of October 30, 1996 ("Loan Agreement") enables the Company to borrow up to $45,000,000 as follows: a term loan of $25,000,000 (reduced by repayments subsequent to October 30, 1996) and revolving loans plus letter of credit obligations not to exceed $20,000,000. Interest rates on the revolving loan and term loan range from LIBOR plus 1.00% to LIBOR plus 1.75%, as defined. A fee of .25% is charged on the average daily amount by which the revolving credit amount available exceeds the outstanding principal balance of revolving loans plus the letter of credit obligations. As of December 31, 1999, the Company had a letter of credit in effect of $624,000 required by the State of New York for Worker's Compensation. The weighted average interest rate on the obligations outstanding at December 31, 1999 was 8.00% (7.04% at December 31, 1998). All outstanding amounts under the Loan Agreement mature October 2001.
The Loan Agreement contains various restrictive covenants which include, but are not limited to, a minimum net worth requirement, a minimum fixed charge coverage ratio, a minimum interest coverage ratio, and restrictions on capital expenditures, distributions, and incurring debt, as defined. Borrowings under the Loan Agreement are secured by assets of the Company including, but not limited to, accounts receivable, inventory, equipment and fixtures.
On August 25, 1998, the Company repurchased $2 million face value of Senior Notes, and on March 3, 1999, the Company repurchased an additional $2 million face value of Senior Notes.
The note payable -- affiliate, plus accrued interest at the prime lending rate, was repaid November 1, 1999.
Maturities of long-term debt are as follows (in thousands):
2000 $ 6,250 2001 4,900 2002 - 2003 96,000
Interest payments made in 1997, 1998 and 1999 amounted to $12,417,000, $12,031,000 and $11,813,000, respectively.
6. Fair Value of Financial Instruments
At December 31, 1998 and 1999, the carrying amount and the fair value of the Company's financial instruments were as follows. Bracketed amounts in the carrying amount column represent liabilities for potential cash outflows. Bracketed amounts in the fair value column represent estimated cash outflows required to currently settle the financial instrument at current market rates.
December 31, 1998 December 31, 1999 ----------------- ----------------- Carrying Fair Carrying Fair Amount Value Amount Value ------ ----- ------ ----- (In Thousands) Assets: Cash and cash equivalents $ 43 $ 43 $ -- $ -- Liabilities: Long-term debt (including current maturities) (116,700) (120,620) (107,150) (105,350) Interest rate swap agreement -- -- -- (173)
The following methods and assumptions were used by the Company in estimating the fair values of financial instruments. The carrying amount reported in the balance sheet for cash and cash equivalents approximates fair value. The fair value of the Company's senior notes was estimated using quoted prices. The fair value of variable rate loans approximate carrying amounts. The fair value of interest rate swap agreements was determined using discounted cash flows.
Effective October 1, 1999, the Company entered into interest rate swap agreements to effectively convert fixed-rate debt with a notional principal amount of $25,000,000 to variable-rate debt. Under the agreements, the Company receives from the banks an amount for interest based upon a fixed rate of 6.2% per annum, and pays the banks an amount for interest based upon the established LIBOR rate, which at December 31, 1999 was 6.48%. All payments and receipts under the swap agreements are recorded as adjustments to interest expense.
7. Related Party Transactions
Kirtland Capital Partners II L.P. ("Kirtland"), the principal shareholder of Holding, and the Company have entered into an Advisory Services Agreement pursuant to which Kirtland provides management consulting and financial advisory services to the Company for an annual fee initially in the amount of $300,000. The Company paid $300,000 in each of 1997, 1998, 1999 to Kirtland in connection with the Advisory Services Agreement.
As a consequence of the Recapitalization, Holding advanced the Company $2,250,000 in December, 1996. During 1997 this advance was converted to 1,500 shares of 6% cumulative preferred stock. To preserve its 10% ownership in the Company, BP subsequently exchanged interest owed to it on the Note payable-affiliate for 166.67 shares of 6% cumulative preferred stock.
8. Accrued Expenses
Accrued expenses consist of the following:
December 31 1998 1999 ---- ---- (In Thousands)
Accrued compensation and employee benefits $ 2,726 $ 3,806 Ceramic fiber product stewardship and monitoring 742 536 Interest 1,989 1,913 Other 1,682 1,444 -------- --------- $ 7,139 $ 7,699 ======== =========
9. Pension and Other Retirement Benefits
The Company sponsors a qualified defined benefit pension plan (the "Plan") covering its hourly union employees. Benefits under this plan are based on length of service.
The following tables summarize certain information with respect to the Plan:
December 31 1998 1999 ---- ---- (In Thousands) Change in Benefit Obligation Benefit obligation at beginning of year $ 785 $ 1,023 Service cost 43 41 Interest cost 54 66 Benefits paid - (19) Actuarial loss 33 (149) Amendment 108 -
Benefit obligation at end of year 1,023 962
Change in Plan Assets Fair value of plan assets at beginning of year $ 753 $ 839 Actual return on plan assets 86 106 Benefits paid - (19)
Fair value of plan assets at end of year 839 926
Funded status (184) (36) Unrecognized prior service cost 108 101 Unrecognized actuarial gains (24) (212) Additional minimum liability (84) - Accrued pension obligation $ (184) $ (147)
Unrecognized gains and losses are amortized on a straight-line basis over a period approximating the average remaining service period for active participants.
The Company also sponsors a qualified defined contribution, money-purchase pension plan for its salaried employees. Under the money-purchase plan, the Company contributes an amount equal to 2.5% of an employee's applicable annual compensation to investment accounts as directed by the employee. The annual expense for the money purchase plan was $422,000, $426,000 and $435,000 for the years ended December 31, 1997, 1998 and 1999, respectively.
The Company also sponsors a defined contribution 401(k) plan which is available to substantially all non-union employees of the Company. Company contributions, representing a 50% matching of employee contributions up to a maximum of 6% of the employee's base pay, amounted to $428,000, $427,000 and $480,000 during the years ended December 31, 1997, 1998 and 1999, respectively.
In addition to pension benefits, the Company also provides certain health care benefits to retired employees who meet eligibility requirements. The Company's policy is to fund other postretirement benefits as insurance premiums or claims become due.
The following table summarizes certain information with respect to the Company's other postretirement benefits.
December 31 1998 1999 ---- ---- (In Thousands)
Change in Benefit Obligation
Benefit obligation at beginning of year $ 2,268 $ 2,820 Service cost 214 95 Interest cost 159 110 Plan participant's contributions - 7 Curtailment - 36 Actuarial loss (gain) 182 (1,391) Benefits paid (3) (33)
Benefit obligation at end of year 2,820 1,644 Unrecognized prior service cost - (276) Unrecognized actuarial gains 687 1,988 Accrued postretirement benefit cost $ 3,507 $ 3,356
Weighted Average Assumptions as of December 31 Discount rate 6.5% 7.5%
Pursuant to the Recapitalization, BP America retained responsibility for all postretirement medical and/or life insurance coverage for retirees or other employees terminated prior to the Closing Date and for any employee who receives benefits under other plans as defined in the Agreement.
The assumed annual rate of future increase in per capita cost of health care benefits (health care cost trend rate) for 2000 and beyond is 6% for all beneficiaries. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one percentage point change in assumed health care cost trend rates would have the following effect:
Unrecognized gains and losses are amortized on a straight-line basis over a period approximating the average remaining service period for active participants.
10. Income Taxes
The provision for income taxes consists of the following:
Year Ended December 31 1997 1998 1999 ---- ---- ---- (In Thousands) Current: Federal $ 100 $ - $ 53 State 35 32 38 ------- ------- ------- 135 32 91 Deferred 1,802 2,273 2,701 ------- ------- ------- $ 1,937 $ 2,305 $ 2,792 ======= ======= =======
The provision for income taxes differs from the amount computed by applying the statutory income tax rate as follows:
Year Ended December 31 1997 1998 1999 ---- ---- ---- (In Thousands)
Income before income taxes at 34% $ 2,551 $ 2,159 $ 2,641 Permanent income tax disallowances 66 62 63 State taxes, net of federal benefit 291 21 24 Impact of income tax rate changes on deferred income taxes - - 2,054 Reduction of valuation allowance (1,000) - (2,078) Other 29 63 88 -------- ------- ------- $ 1,937 $ 2,305 $ 2,792 ======== ======= =======
Deferred income taxes reflect the net effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. At December 31, 1998 and 1999, the major components of deferred tax assets and liabilities were as follows:
December 31 1998 1999 ---- ---- (In Thousands) Deferred tax liabilities Property, plant and equipment $ - $ (866) Deferred charges (47) - -------- --------- Gross deferred tax liabilities (47) (866)
Deferred tax assets Tax goodwill and other intangible assets 26,296 23,034 Property, plant and equipment 1,559 - Net operating loss carryforward 6,631 7,186 Accrued liabilities 1,252 1,511 Accrued postretirement benefit cost 1,389 1,275 Inventory 1,156 1,112 Other 160 209 --------- ---------- Gross deferred tax assets 38,443 34,327 Valuation allowance 13,500 11,422 --------- ---------- Deferred tax assets, net of valuation allowance 24,943 22,905 --------- ---------- Net deferred tax asset $ 24,896 $ 22,039 ========= ==========
The Recapitalization agreement provided for an election to have the Recapitalization (see Note 1) treated as an asset purchase for income tax purposes, with a resulting increase in the tax basis of assets. The historical cost basis of assets and liabilities was retained for financial reporting purposes.
At December 31, 1999, the Company has Federal and state net operating loss carryforwards totaling approximately $15,504,000 which will be available to offset future taxable income. These net operating loss carryforwards expire in 2011 through 2019. The Company paid $125,000, $11,000 and $80,000 for income taxes during the years ended December 31, 1997, 1998 and 1999, respectively.
11. Stock Options
Effective October 30, 1996 the Company established the Unifrax Corporation 1996 Stock Option Plan to make awards of stock options to officers and key employees for up to 1,505 shares of common stock. The options are granted at the approximate fair value of the underlying shares at the date of grant and generally vest in equal amounts over a four year period from the grant date. The options expire ten years after grant. A summary of stock option activity and exercise prices is as follows:
The weighted-average remaining contractual life of the options at December 31, 1999 is 7.04 years.
The Company has elected to account for its employee stock options in accordance with APB 25 and related interpretations, as permitted by SFAS 123. As a result, no compensation expense for employee stock options has been recognized in the financial statements. Companies electing to account for employee stock options in accordance with APB 25 must make pro forma disclosures of net income as if the fair value based method of accounting in SFAS 123 had been applied. The fair value of each option on the date of grant was $453.45, which was estimated at the date of grant using the minimum value method and the following weighted-average assumptions: risk free interest rate of 6%, dividend yield of 0%, and a weighted-average expected life of the option of 6 years. If the fair value based method accounting provision of SFAS 123 had been adopted, net income would have been $5,492,000, $3,965,000 and $4,888,000 for the years ended December 31, 1997, 1998, and 1999, respectively. The effects of applying SFAS 123 for providing pro forma disclosures are not likely to be representative of the effects on reported net income for future years.
12. Lease Commitments and Rentals
The Company rents three manufacturing facilities and certain equipment under various operating leases. The lease agreement for one of the facilities expires 2014 and contains options which allow the Company to extend the lease term for up to two additional five year periods. The lease agreement for a second facility expires 2004 and contains options which allow the Company to extend the lease term for up to two additional five year periods, or to purchase the facility for a purchase price equal to fair value. Total rental expense was $1,580,000, $1,788,000 and $1,717,000 for the years ended December 31, 1997, 1998 and 1999, respectively.
Future minimum lease payments under all non-cancelable operating leases having a remaining term in excess of one year as of December 31, 1999 are as follows (in thousands):
2000 $ 821 2001 815 2002 742 2003 742 2004 672 Thereafter 5,677 ----- $ 9,469
13. Contingencies
Ceramic Fibers
Regulatory agencies and others, including the Company, are currently conducting scientific research to determine the potential health impact resulting from the inhalation of airborne ceramic fibers. To date, studies of workers with occupational exposure to airborne ceramic fiber have found no clinically significant relationship between prior or current exposure to ceramic fiber and disease in humans; however, independent animal studies have indicated that ceramic fiber inhaled by test animals at elevated doses can produce respiratory disease, including cancer. The results of this research have been inconclusive as to whether or not ceramic fiber exposure presents an unreasonable risk to humans.
From time to time Unifrax and other manufacturers of ceramic fibers have been named as defendants in lawsuits alleging death or personal injury as a result of exposure in the manufacture and handling of ceramic fiber and other products. The amount of any liability that might ultimately exist with respect to these claims or any other unasserted claims is presently not determinable. The Company believes the lawsuits brought against it have been without merit and the litigation currently pending, or to its knowledge threatened, will not have a material adverse effect on the financial condition or results of operations of the Company. The Company's belief is based on the fact that, although animal studies have indicated that ceramic fiber inhaled by test animals at elevated doses can cause disease, there is no evidence that exposure to refractory ceramic fiber has resulted in disease in humans.
Consistent with customary practice among manufacturers of ceramic fiber products, the Company has entered into agreements with distributors of its product whereby it agreed to indemnify the distributors against losses resulting from ceramic fiber claims and the costs to defend against such claims. To the best of the Company's knowledge, there have been no historical, nor are there any current, ceramic fiber exposure claims made against these indemnification agreements. Consequently, the amount of any liability that might ultimately exist with respect to these indemnities is presently not determinable.
Pursuant to the Recapitalization Agreement, BP America Inc. and certain of its affiliates (collectively "BP America"), have agreed to indemnify the Company against liabilities for personal injury and wrongful death attributable to exposure which occurred prior to the Closing to refractory ceramic fibers manufactured by the Company. BP America has agreed to indemnify the Company against all liabilities arising from exposure claims pending at the time of the Closing. For all other claims arising from alleged exposure occurring solely prior to Closing, BP America has agreed to indemnify the Company against 80% of all losses, until the total loss which the Company incurs reaches $3.0 million, after which time BP America has agreed to indemnify the Company against 100% of such losses. BP America has agreed to indemnify the Company against all punitive damages attributable to the conduct of the Company prior to Closing. Where losses arise from alleged exposure both before and after closing, the losses will be allocated between BP America and the Company, pro rata, based on the length of exposure or pursuant to arbitration if initiated by the Company. To date the Company has incurred no claims losses applicable to the $3.0 million total mentioned above.
The Company cannot avail itself of this indemnity for losses attributable to the Company's failure to maintain a Product Stewardship Program consistent with the program maintained by the Company prior to Closing, as modified in a commercially reasonable manner in accordance with changing regulatory, scientific and technical factors. BP shall not indemnify the Company with respect to any liabilities for wrongful death or personal injury to the extent caused by the failure of the Company to maintain a Product Stewardship Program consistent with that maintained by the Company prior to the Closing. In the Company's opinion, the Product Stewardship Program has been maintained in a manner consistent with these requirements. Unifrax intends to defend ceramic fiber claims vigorously.
Environmental Matters
The Company is subject to loss contingencies pursuant to various federal, state and local environmental laws and regulations. These include possible obligations to remove or mitigate the effects on the environment of the placement, storage, disposal or release of certain chemical or petroleum substances by the Company or by other parties.
The Company may be named as a potentially responsible party ("PRP") pursuant to the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended ("CERCLA" or "Superfund") or comparable state law in connection with off-site disposal of hazardous substances at three sites, and The Carborundum Company has entered into a Consent Decree with the New York State Department of Environmental Conservation to remediate contamination at the facility located in Sanborn, New York. While the Company's ultimate clean-up liability at the sites at which the Company is a potential PRP is not presently determinable, the Company does not expect to incur any material liability with respect to any of these sites, individually or in the aggregate, as a result of its activities at these sites. Furthermore, BP America has agreed to indemnify the Company for certain environmental liabilities, which might ultimately exist, under the Recapitalization Agreement. In addition, BP America has assumed liability for other potential off-site clean-up obligations associated with Carborundum. The locations at which the Company has maintained potential off-site liability and the Carborundum Sanborn, New York facility are described below.
Kline Trail Site. In 1984, the Company voluntarily advised the State of Indiana of potential unauthorized disposal of waste at an Indiana site by a transporter. No response from the state has been received, and no further information about the potential for remediation costs at the site has been received by the Company. It is expected that little or no liability will be associated with this site.
PCB Inc., Site. The New Carlisle, Indiana, facility received a request for information from the EPA in 1994 concerning potential responsibility for cleanup of the PCB Treatment site located in Kansas City, Kansas and Kansas City, Missouri. Records indicate that a number of capacitors from the New Carlisle facility of the Company were sent to the PCB Treatment site. A response documenting the timely destruction of those materials was submitted to the EPA. In September 1997 the EPA contacted BP America via letter to verify that a total of 10,900 pounds of capacitors and transformers had been sent to the site by BP America/Carborundum. No additional information on clean-up timing or cost has since been received. Based on the total pounds delivered by all parties to the site, the liability, if any, ultimately attributable to BP America or the Company is not expected to have a material adverse effect on the Company's financial position.
Osage Metals Site. Osage Metals Co., Inc. was a scrap metal business in Kansas City, Kansas, that reclaimed metals from various sources, including metal from used transformers and capacitors. Osage purchased transformer and capacitor scrap metal from PCB Treatment Co., Inc. ("PCB Inc." above) and others. An EPA sampling of soil at the Osage site indicated the presence of PCB and lead contamination. In early 1998 BP America was notified by the EPA that it was potentially liable under CERCLA for response costs at the Osage site. In 1999 BP America made a de minimus payment which substantially settled its environmental obligations for this site. Consequently, the liability, if any, ultimately attributable to BP America or the Company is not expected to have a material adverse effect on the Company's financial position.
Shulman Site. The Company has potential liability with respect to the Shulman site in St. Joseph County, Indiana. The site is a landfill which the Company believes to have been contaminated by chemicals migrating from an adjacent facility. Plant trash from the New Carlisle facility was hauled to the site. An agreement has been reached pursuant to which the Company, as part of a response group, agreed to assume approximately 5% of certain response costs, which to date includes $1.7 million for installation of a water line. The Company's share of that cost is under $100,000. The owner of the adjacent facility has assumed the bulk of site remediation costs to date. It is anticipated that site remediation will ultimately involve installing a clay cap over the site, the cost of which is not yet known.
Sanborn Site. Under the terms of an agreement with BP America, Unifrax leases a portion of the present manufacturing facilities on this site. The Carborundum Company's Sanborn, New York site was used by a number of former Carborundum operations. Testing in the area has found that contamination by volatile organic compounds is present in the soil and groundwater. Neither past nor current operations of Unifrax are believed to have contributed to, or to be contributing to, the existence of this contamination. While The Carborundum Company entered into a Consent Decree with the State of New York under which it was to conduct remedial activities at the site, BP America has taken title to and assumed liability for the remediation of this property as of October 30, 1996. Efforts to remediate the site, chiefly by means of soil vapor extraction, are expected to continue for some time.
Under the terms of the Recapitalization Agreement, BP America assumed liability, and the rights to recovery from third parties, for environmental remediation and other similar required actions with respect to certain environmental obligations of Unifrax including the above, which existed as of the Closing Date.
The Company may, in the future, be involved in further environmental assessments or clean-ups. While the ultimate requirement for any such remediation, and its cost, is presently not known, and while the amount of any future costs could be material to the results of operations in the period in which they are recognized, the Company does not expect these costs, based upon currently known information and existing requirements, to have a material adverse effect on its financial position.
Legal Proceedings
In addition to the ceramic fiber and environmental matters discussed above, BP/Carborundum and Unifrax are involved in litigation relating to various claims arising out of their operations in the normal course of business, including product liability claims. While the outcomes of this litigation could be material to the results of operations in the period recognized, based on the current claims asserted the management of the Company believes that the ultimate liability, if any, resulting from such matters will not have a material adverse effect on the Company's financial position.
The Carborundum Company has been named in numerous legal claims alleging pre-Closing asbestos exposure. None of the current or past products of Unifrax are asbestos-containing materials, as defined by OSHA (29CFR1900.1001(b)). For these claims related to pre-Closing Carborundum Company matters, BP America has responsibility under the Recapitalization Agreement and is managing the claims directly.
14. Stockholders' Equity
Effective September 30, 1997, Unifrax Corporation issued and sold 1,500 shares of 6% cumulative preferred stock of the Company to Unifrax Holding Co. in satisfaction of an advance of $2.25 million made by Unifrax Holding Co. to the Company on December 20, 1996. The advance was then canceled effective September 30, 1997. The preferred stock thereby acquired by Unifrax Holding Co. is cumulative with an annual dividend of 6% with dividend payments subject to various covenants in the Company's loan agreements.
Unifrax Corporation also issued and sold BP Exploration (Alaska) Inc. 166.67 shares of 6% cumulative preferred stock at $1,500 per share, as satisfaction in part for interest owed through October 30, 1997, on the note payable--affiliate.
The preferred stock is redeemable, in full, at the option of the Company, at $1,500 per share, which equals the stated value of the preferred stock. The preferred stock is convertible, at the option of the stockholder, into an equal number of shares of common stock. The number of shares into which the preferred stock is convertible is subject to adjustment for subsequent stock dividends payable on the common stock, stock splits or reverse stock splits, and other modifications to the common stock.
Dividends in arrears totaled $336,250 at December 31, 1999 or $224 per share ($186,250 or $124 per share at December 31, 1998).
15. Subsequent Events
On February 4, 2000, the Company announced that its parent company, Unifrax Holding Co., had entered into a non-binding letter of intent to explore the purchase of Carborundum Insulation Technology, the worldwide ceramic fibers business of Compagne de Saint-Gobain. The proposed acquisition is subject to various conditions, including the execution of a definitive purchase agreement and the satisfactory completion of due diligence. It is expected that the acquisition, if consummated, will be completed by the end of the second quarter of 2000.
Schedule II
Valuation and Qualifying Accounts
Unifrax Corporation (Dollars In Thousands)
(a) Uncollectible accounts written off, net of recoveries.
(b) Returns from customers during the year.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The directors and executive officers of the Company are as follows:
Mr. Kelly has been President and Chief Executive Officer of the Company since February 1996. He joined Carborundum in 1972 as an engineer, and served in several positions, including Vice President of Carborundum's worldwide ceramic fiber business from 1993 to 1996, Vice President of Carborundum's domestic ceramic fiber business from 1989 to 1993, and Vice President of Carborundum's European operations from 1986-1989.
Mr. Roos has been Vice President and Chief Financial Officer of the Company since February 1996, and has been Chief Financial Officer of the Company since 1995. He joined Carborundum in 1985 and served in several financial planning, control and business strategy positions until he left in 1991 to become Vice President, Finance and Administration, of The Airolite Company, a metal products manufacturer. He rejoined Carborundum in 1993 as Director of Finance, Planning and Control.
Mr. Brooks has been Vice President, Sales and Marketing of the Company since May 1998. Previously he was President of Monofrax, Inc., a unit of Cookson Group/Vesuvius Refractories, since January 1997. Mr. Brooks originally joined Carborundum in 1980 and served in several positions, including Marketing Manager of Carborundum's domestic ceramic fiber business from 1988 to 1993 and General Manager of the Monofrax Refractories Division from 1993 to 1996.
Mr. O'Gorman has been Vice President, Operations of the Company since February 1996. He joined Carborundum in 1990 and served as General Manager, Manufacturing and Engineering of its worldwide ceramic fiber business from 1993 to 1995 and Manager, Manufacturing for its domestic ceramic fiber business from 1990 to 1993.
Mr. Viola has been Vice President, Acquisitions and Strategic Development of the Company since May 1998. Previously he had been Vice President, Sales and Marketing of the Company since February 1996. Mr. Viola joined Carborundum in 1978 and served in several positions, including General Manager, Sales and Marketing for Carborundum's worldwide ceramic fiber business from 1993 to 1995 and Manager of the Automotive Products Group of Carborundum's Structural Ceramics Division from 1991 to 1993.
Dr. Boymel has been Vice President, Research and Development of the Company since February 1996 and Manager of Technology since 1989. He joined Carborundum in 1981.
Mr. Kuchera has been Vice President, Human Resources of the Company since February 1996 and was Manager of Human Resources for Carborundum's domestic ceramic fiber business from 1988 to 1996. He joined Carborundum in 1981 and served in several human resource positions in connection with a number of different Carborundum business units.
Mr. Pilecki has been Vice President, Engineering and Purchasing of the Company since February 1996. He joined Carborundum's ceramic fiber business in 1976 and has served in various engineering and manufacturing positions, including domestic engineering manager since 1990 and worldwide engineering and purchasing manager since 1993.
Mr. Cason has been Vice President, Risk Management, of the Company since 1997, and Director of Health, Safety, and Environment, since 1996. He joined Carborundum in 1993 as Director of Health, Safety, and Environmental Quality.
Mr. Lancaster has been a Managing Partner of Kirtland since 1995, and is a member of Kirtland Capital Partners Advisory Board. He is a Director of Fairmount Minerals, Ltd., Management Reports, Inc., PVC Container Corp., R Tape Corp., Shore Bridge Corp., and STERIS Corp.
Mr. Manning is currently self-employed as a management consultant. From 1987 to 1994, he was Senior Vice President of The Lubrizol Corporation and President of Lubrizol Petroleum Chemicals Co. Mr. Manning is a Director of Robbins and Myers, Inc., Fletcher Paper Company and Park Avenue Marble Co.
Mr. Nestor has been with Kirtland since 1986, has been a Managing Partner of Kirtland since 1995, and is a member of Kirtland Capital Partners Advisory Board. He is Chairman of TruSeal Technologies, Inc., and a Director of Fairmount Minerals Ltd., R Tape Corp., and Profile Metal Forming, Inc.
Mr. Turben has been with Kirtland since 1977 and has been a Managing Partner of Kirtland since 1995. He is Chairman of the Board of Kirtland Capital Corp. and serves as Chairman of The Hickory Group, PVC Container Corp. and Harrington & Richardson 1871, Inc., Chairman of the Executive Committee of Fairmount Minerals Ltd., and a Director of NACCO Industries, TruSeal Technologies, Inc., Stonebridge Industries, Inc., Gries Financial Corp., and Instron Corp.
Mr. Wright has been affiliated with Kirtland since 1985. He is past Chairman of Dakota Catalyst Products Inc. and from 1981 to 1994 was President and Chief Executive Officer of North American Refractories Company. Mr. Wright is a director of Fairmount Minerals Ltd., Glasstech, Inc., STAM, Inc. and Stonebridge Industries, Inc.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Compensation of Directors
All non-Executive Directors receive an annual retainer of $10,000 which is paid in approximately quarterly installments.
The following table sets forth the respective amounts of compensation of the Chief Executive Officer and the next four highest-paid executive officers of the Company (the "named executive officers") for 1997, 1998 and 1999.
* All Other Compensation includes Company match on 401k savings plan and Company contribution to defined contribution pension plan.
STOCK OPTION GRANTS, EXERCISES AND YEAR-END VALUES
The following tables set forth information regarding grants of Unifrax Corporation stock options to the named executive officers. The stock options which were granted in 1996 and 1998 relate to shares of common stock of Unifrax Corporation. No options were granted in 1997 or 1999 and no options were exercised during 1997, 1998 or 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
Number of Securities Underlying Value of Unexercised In-The- Unexercised Options at FY-End Money Options at FY-End Name Exercisable/Unexercisable Exercisable/Unexercisable (a) - ---- ------------------------- -----------------------------
W. Kelly 282.00 / 94.25 -0- D. Brooks 80.50 / 80.75 -0- K. O'Gorman 120.75 / 40.50 -0- P. Viola 120.75 / 40.50 -0- J. Cason 40.25 / 13.50 -0-
(a) There are no options that are considered to be in-the-money as of December 31, 1999.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Of the 20,000 shares of common stock of Unifrax Corporation outstanding, Unifrax Holding Co. owns 18,000 shares or 90% and BP Exploration (Alaska) Inc., a subsidiary of BP, owns 2,000 shares or 10%. Of the 1666.67 shares of cumulative preferred stock outstanding, Unifrax Holding Co. owns 1500 shares or 90% and BP Exploration (Alaska) Inc., owns 166.67 shares or 10%. The following own shares of Unifrax Holding Co. and, consequently, have a beneficial interest in Unifrax Corporation.
* Less than 1.0%
(a) "Kirtland" includes Kirtland Capital Partners II L.P. and its affiliates. Kirtland Capital Corporation is the general partner of Kirtland and exercises voting control and investment discretion with respect to Kirtland's investment in Unifrax. John F. Turben, John G. Nestor and Raymond A. Lancaster are advisory board members of Kirtland Capital Corporation.
(b) Excludes shares held by Kirtland of which Messrs. Turben, Nestor and Lancaster may be deemed to be beneficial owners as a result of their control of Kirtland. Messrs. Turben, Nestor and Lancaster disclaim any such beneficial ownership.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information included in Notes 1 and 13 of the financial statements contained in Item 8, which is hereby incorporated herein by reference.
RELATIONSHIP WITH BP AND ITS SUBSIDIARIES
Stockholders Agreement. On October 30, 1996, Unifrax Holding Co. ("Holding") and BP Exploration (Alaska), Inc. ("BPX") entered into an agreement relating to their respective ownership of stock of the Company (the "Stockholders Agreement"). This agreement (i) in certain circumstances grants BPX preemptive rights and rights of first refusal with respect to issuances and sales, respectively, of stock of the Company; (ii) grants BP piggyback registration rights with respect to equity securities of the Company; (iii) restricts in certain circumstances the ability of the Company to enter into certain dilutive or non-arm's length transactions; and (iv) grants BP the right to participate in certain circumstances in sales by Unifrax Holding of Holding's common stock of the Company.
Recapitalization Agreement. Pursuant to the Unifrax Corporation Recapitalization Agreement ("Recapitalization Agreement"), BP America, Inc. ("BP America") has agreed to indemnify the Company as set forth below.
General Indemnity. The Recapitalization Agreement provides that, subject to certain limitations, BP America and certain of its affiliates shall jointly and severally indemnify the Company and Holding against, among other things, any and all claims, damages, losses, expenses, costs, penalties, liens, fines, assessments, obligations or liabilities of any kind, arising from all the discontinued operations of the Company or its subsidiaries. The discontinued operations include but are not limited to certain previously divested businesses, any other former Carborundum business not part of the Company or its foreign subsidiaries, and the Sanborn, New York, real estate transferred from the Company to a BP subsidiary prior to Closing. BP America also has agreed to indemnify the Company and Holding for any breach of a representation or warranty set forth in the Recapitalization Agreement.
Health and Safety Indemnity. Pursuant to the Recapitalization Agreement, BP America has agreed to indemnify the Company and Holding against liabilities for personal injury and wrongful death attributable to exposure prior to the Closing to refractory ceramic fibers manufactured by the Company. BP America has agreed to indemnify the Company and Holding against all liabilities arising from exposure claims pending at the time of the Closing. For all other claims arising from alleged exposure occurring solely prior to Closing, BP America has agreed to indemnify the Company and Holding against 80% of all losses, until the total loss which the Company incurs reaches $3.0 million, after which time BP America has agreed to indemnify the Company and Holding against 100% of such losses. BP America has agreed to indemnify the Company and Holding against all punitive damages attributable to the conduct of the Company prior to Closing. Where losses arise from alleged exposure both before and after Closing, the losses will be allocated between BP America and the Company, pro rata, based on the length of exposure or pursuant to arbitration if initiated by the Company.
The Company cannot avail itself of this indemnity for losses attributable to the Company's failure to maintain a Product Stewardship Program consistent with the program maintained by the Company prior to Closing, as modified in a commercially reasonable manner in accordance with changing regulatory, scientific and technical factors. BP America shall not indemnify the Company with respect to any liabilities for wrongful death or personal injury to the extent caused by the failure of the Company to maintain a Product Stewardship Program consistent with that maintained by the Company prior to October 30, 1996.
Environmental Indemnity. Pursuant to the Recapitalization Agreement, and subject to certain limitations, BP America has agreed to indemnify the Company and Holding against environmental liabilities arising from pre-closing conditions. The Recapitalization Agreement also provides that BP America shall indemnify the Company and Holding against off-site liabilities caused by the transport, storage or disposal of hazardous substances as well as for the remedial obligations at the Sanborn, New York site.
Non-compete Agreement. At the Closing, BP entered into the Non-compete Agreement with Holding providing that for a period of five years from the Closing, BP and its affiliates will not, anywhere in the world, own, advise, consult, manage, operate, join, control, be associated with or participate in the ownership, management, operation or control of any business that competes with the Company or its subsidiaries. Holding paid BP $10 million for the Non-compete Agreement.
Sanborn Lease. Prior to the Closing, the Company transferred the real property located in Sanborn, New York (the "Sanborn Property") to a subsidiary of BP America. BP America leased the real property comprising the Sanborn Property currently used by the Company in its operations to the Company in accordance with the terms and conditions of a 20 year lease (the "Lease"). The Lease provides that the Company will be responsible for taxes, utilities and insurance. The Company has an option to purchase the property for $1.00 at any time during the 20-year lease term. The Company will utilize this facility pursuant to a lease, rather than fee ownership, in order to preserve maximum flexibility for possible consolidation of operations in the future.
RELATIONSHIP WITH KIRTLAND AND UNIFRAX HOLDING CO.
Kirtland Advisory Services Agreement. Kirtland and the Company have entered into an Advisory Services Agreement pursuant to which Kirtland will provide management consulting and financial advisory services to the Company for an annual fee initially in the amount of $300,000, which amount may be increased up to $500,000 with the approval of the members of the Board of Directors of the Company who do not have a direct financial interest in any person receiving payments under the Advisory Services Agreement. In addition, if the Company completes an acquisition, Kirtland will be entitled to receive a fee in an amount which will approximate 1% of the gross purchase price of the acquisition (including assumed debt). The Advisory Services Agreement included customary indemnification provisions in favor of Kirtland.
Tax Sharing Agreement. Holding will file a consolidated federal income tax return, under which the federal income tax liability of Holding and its subsidiaries will be determined on a consolidated basis. Holding has entered into a tax sharing agreement with the Company (the "Tax Sharing Agreement"). The Tax Sharing Agreement provides that in any year in which the Company is included in any consolidated tax return of Holding and has taxable income, the Company will pay to Holding (except with respect to tax benefits resulting from the Non-compete Agreement between BP and Holding) the amount of the tax liability that the Company would have had on such date if it had been filing a separate return. Conversely, if the Company generates losses or credits which actually reduce the consolidated tax liability of Holding and its other subsidiaries, if any, Holding will credit to the Company the amount of such reduction in the consolidated tax liability. In the event any state and local income taxes are determinable on a combined or consolidated basis, the Tax Sharing Agreement provides for a similar allocation between Holding and the Company of such state and local taxes.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
Page in Form 10-K ---------
(1) FINANCIAL STATEMENTS
Audited consolidated financial statements of the 14 Company 14 as of December 31, 1998 and 1999, and for the three years in the period ended December 31, 1999.
(2) FINANCIAL STATEMENT SCHEDULE
II - Valuation and Qualifying Accounts 34
All other schedules have been omitted as the required information is not applicable or the information is presented in the financial statements or the notes thereto.
(3) EXHIBITS
2.1(i) Unifrax Corporation Recapitalization Agreement
3.1(i) Certificate of Incorporation of the Registrant
3.2(iii) Consent of Stockholders for Amendment of Certificate of Incorporation
3.3(iii) Certificate of Amendment to Certificate of Incorporation
3.4(i) By-laws of the Registrant
4.1(i) Form of Indenture (including form of Note)
10.1(i) Form of Loan and Security Agreement among Unifrax Corporation, Bank of America Illinois and the lenders party thereto (Credit Agreement)
10.2(ii) First Amendment to Loan and Security Agreement
10.3(iv) Second Amendment to Loan and Security Agreement
10.4(i)* 1996 Stock Option Plan
10.5(ii) Unifrax Corporation Noncompetition Agreement
10.6(i) Lease relating to Tonawanda plant
10.7 Amendment to lease relating to Tonawanda plant
10.8(i) Lease relating to Amherst plant
10.9(i) Sanborn Lease
10.10(i) Covenant Not to Compete between The British Petroleum Company p.l.c., its affiliates, and the Unifrax Corporation and Societe Europeenne des Produits Refractaires, and its affiliates (portions of this Exhibit have been omitted and were filed separately with the Commission pursuant to a request for confidential treatment)
10.11(i) Product Distribution Agreement between the Unifrax Corporation and Societe Europeenne des Produits Refractaires (portions of this Exhibit have been omitted and were filed separately with the Commission pursuant to a request for confidential treatment)
10.12(i) Distributed Product License Agreement between the Unifrax Corporation and Societe Europeenne des Produits Refractaires (portions of this Exhibit have been omitted and were filed separately with the Commission pursuant to a request for confidential treatment)
10.13(i) License Agreement between the Unifrax Corporation and Societe Europeenne des Produits Refractaires (portions of this Exhibit have been omitted and were filed separately with the Commission pursuant to a request for confidential treatment)
10.14(i) Trademark License and Consent Agreement between the Unifrax Corporation and Societe Europeenne des Produits Refractaires
10.15(i) Conversion Agreement between the Unifrax Corporation and Societe Europeenne des Produits Refractaires (portions of this Exhibit have been omitted and were filed separately with the Commission pursuant to a request for confidential treatment)
10.16(i) XPE(TM) License Agreement between the Unifrax Corporation and Societe Europeenne des Produits Refractaires
10.17(i) Form of Covenant Not to Compete between Holding and BP
10.18(i) Form of Stockholders Agreement among the Company, BPX and Holding
10.19(iii) Amendment to Stockholders Agreement dated September 30, 1997, among the Company, BP Exploration (Alaska), Inc. and Holding
10.20(iii) Stock Purchase Agreement dated September 30, 1997, between the Company and Holding
10.21(iii) Stock Purchase Agreement dated September 30, 1997, between the Company and BP Exploration (Alaska), Inc.
10.22(i) Tax Sharing Agreement between the Company and Holding
10.23(i) Advisory Services Agreement between the Company and Kirtland Capital Corporation
10.24(i) Form of BP Note
10.25(v) Termination Agreement dated December 4, 1998 relative to the Conversion Agreement and the purchase of certain assets from SEPR
10.26* Retirement Select Basic Plan document and Trust Agreement
12.1 Computation of Ratio of Earnings to Fixed Charges
21.1 Subsidiaries of the Registrant
27.1 Financial Data Schedule
(i) Incorporated by reference to the exhibits filed with the Registration Statement on Form S-1 of Unifrax Investment Corp (Registration No. 333-10611).
(ii) Incorporated by reference to the exhibits filed with Form 10-K for the fiscal year ended December 31, 1996 for Unifrax Corporation.
(iii) Incorporated by reference to the exhibits filed with Form 10-K for the fiscal year ended December 31, 1997 for Unifrax Corporation.
(iv) Incorporated by reference to the exhibits filed with Form 10-Q for the fiscal quarter ended June 30, 1998 for Unifrax Corporation.
(v) Incorporated by reference to the exhibits filed with Form 10-K for the fiscal year ended December 31, 1998 for Unifrax Corporation.
* Indicates a management contract or compensatory plan or arrangement.
(b) No reports on Form 8-K have been filed during the period covered by this report.
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, on March 28, 2000.
UNIFRAX CORPORATION.
By: /s/William P. Kelly ---------------------------- William P. Kelly, 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 and on the dates indicated.