-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AMRGxChCGFz7TbOGl/bHS0OqIyS8aGJGP3BWEQTrhMO9JFa297R+DYXku6Cm3ebW 2DUeyMhh7TUiqsd5h19q1g== 0000950152-99-004303.txt : 19990514 0000950152-99-004303.hdr.sgml : 19990514 ACCESSION NUMBER: 0000950152-99-004303 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLASSTECH INC CENTRAL INDEX KEY: 0000857565 STANDARD INDUSTRIAL CLASSIFICATION: GLASS, GLASSWARE, PRESSED OR BLOWN [3220] IRS NUMBER: 133440225 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-32185-01 FILM NUMBER: 99618980 BUSINESS ADDRESS: STREET 1: AMPOINT INDUSTRIAL PARK STREET 2: 995 FOURTH STREET CITY: PERRYSBURG STATE: OH ZIP: 43551 BUSINESS PHONE: 4196619500 MAIL ADDRESS: STREET 1: AMPOINT INDUSTRIAL PARK STREET 2: 995 FOURTH STREET CITY: OERRYBURG STATE: OH ZIP: 43551 10-Q 1 GLASSTECH, INC. FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Quarter Ended March 31 1999 OR [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 GLASSTECH, INC. (Exact name of registrant as specified in its charter) Delaware 33-32185-01 13-3440225 - -------- ----------- ---------- (State or other jurisdiction (Commission (IRS Employer of incorporation or organization) file number) Identification No.) Ampoint Industrial Park, 995 Fourth Street, Perrysburg, Ohio 43551 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (419)-661-9500 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares common stock, $.01 par value as of May 7, 1999 was 1,000. 1 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The condensed consolidated financial statements presented herein are unaudited but, in the opinion of management, reflect all adjustments necessary to present fairly such information for the periods and at the dates indicated. Since the following condensed unaudited financial statements have been prepared in accordance with Article 10 of Regulation S-X, they do not contain all information and footnotes normally contained in annual consolidated financial statements. Accordingly they should be read in conjunction with the Consolidated Financial Statements and notes thereto appearing in the Annual Report on Form 10-K for the fiscal year ended June 30, 1998, as filed with the Securities and Exchange Commission on September 24, 1998. The interim results of operations are not necessarily indicative of results for the entire year. 2 3 GLASSTECH, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) (UNAUDITED)
MARCH 31, 1999 JUNE 30, 1998 ------------------------------- (SEE NOTE 1) ASSETS Current assets: Cash and cash equivalents $ 2,769 $ 13,121 Accounts receivable: Contracts: Uncompleted, including unbilled amounts of $3,997 and $6,841 7,314 7,930 Completed 513 931 Trade, less allowance of $40 for doubtful accounts 1,693 1,144 ------------------------------- 9,520 10,005 Inventory: Replacement and service parts 2,077 1,656 Furnace contracts and other 1,276 2,017 ------------------------------- 3,353 3,673 Prepaid expenses 480 350 ------------------------------- Total current assets 16,122 27,149 Property, plant and equipment, net 7,066 6,947 Other assets: Patents, less accumulated amortization of $3,022 and $1,727 15,260 16,556 Goodwill, less accumulated amortization of $4,516 and $2,629 45,909 47,796 Deferred financing costs and other 4,013 4,471 ------------------------------- Total other assets 65,182 68,823 ------------------------------- $ 88,370 $ 102,919 =============================== LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities: Accounts payable $ 1,831 $ 4,167 Billings in excess of costs and estimated earnings on uncompleted 2,049 4,309 contracts Accrued liabilities: Interest 2,231 4,462 Salaries and wages 1,868 3,851 Contract costs 982 2,382 Other 1,071 1,440 ------------------------------- 6,152 12,135 ------------------------------- Total current liabilities 10,032 20,611 Long-term debt 69,438 69,357 Nonpension postretirement obligation 419 406 Shareholder's equity: Common stock $.01 par value; 1,000 shares authorized, issued and - - outstanding Additional capital 15,750 15,750 Retained earnings (3,241) 823 ------------------------------- 12,509 16,573 Shareholder's basis reduction (4,028) (4,028) ------------------------------- Total shareholder's equity 8,481 12,545 ------------------------------- $ 88,370 $ 102,919 ===============================
See accompanying notes. 3 4 GLASSTECH, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31, 1999 1998 1999 1998 -------------------------------- -------------------------------- (SEE NOTE 1) (SEE NOTE 1) Net revenue $11,291 $16,739 $41,550 $48,749 Cost of goods sold 7,130 9,002 26,035 25,332 -------------------------------- ------------------------------- Gross profit 4,161 7,737 15,515 23,417 Selling, general and administrative expenses 1,951 2,713 6,761 8,153 Research and development expenses 781 1,067 2,663 3,073 Amortization expense 1,061 1,088 3,182 3,267 -------------------------------- ------------------------------- Operating profit 368 2,869 2,909 8,924 Interest expense (2,417) (2,414) (7,251) (7,217) Other income - net 43 121 278 362 -------------------------------- ------------------------------- Income (loss) before income taxes (2,006) 576 (4,064) 2,069 Income taxes not payable in cash - (470) - (1,686) ================================ =============================== Net income (loss) $ (2,006) $ 106 $ (4,064) $ 383 ================================ ===============================
See accompanying notes. 4 5 GLASSTECH, INC. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (DOLLARS IN THOUSANDS) (UNAUDITED)
COMMON STOCK SHAREHOLDER'S --------------------------- ADDITIONAL BASIS RETAINED SHARES AMOUNT CAPITAL REDUCTION EARNINGS TOTAL --------------------------------------------------------------------------------------- (SEE NOTE 1) Issuance of common stock 1 $ - $15,750 $ - $ - $15,750 Shareholder's basis reduction (4,028) (4,028) Net income 823 823 --------------------------------------------------------------------------------------- Balance, June 30, 1998 1 - 15,750 (4,028) 823 12,545 Net loss (4,064) (4,064) --------------------------------------------------------------------------------------- Balance, March 31, 1999 1 $ - $15,750 $(4,028) $(3,241) $8,481 =======================================================================================
See accompanying notes. 5 6 GLASSTECH, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED MARCH 31, 1999 1998 ------------------------------ (SEE NOTE1) OPERATING ACTIVITIES Net income (loss) $ (4,064) $ 383 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 4,813 4,975 Income taxes not payable in cash - 1,686 Nonpension postretirement benefit obligation expense in excess of payments 13 15 Accretion of debt discount 81 80 Other - 2 Changes in assets and liabilities affecting operations: Restricted cash - 1,529 Accounts receivable 485 548 Inventory (951) 564 Prepaid expenses (130) 101 Accounts payable (2,336) (967) Billings in excess of costs and estimated earnings on uncompleted contracts (2,260) (1,749) Accrued liabilities (5,983) 1,468 ------------------------------ Net cash provided by (used in) operating activities (10,332) 8,635 INVESTING ACTIVITIES Net assets purchased - (74,828) Increase in long-term notes receivable - (656) Additions to property, plant and equipment (10) (234) Other (10) 2 ------------------------------ Net cash used in investing activities (20) (75,716) FINANCING ACTIVITIES Issuance of long-term debt and related warrants - 70,000 Issuance of common stock - 15,000 Deferred financing costs - (4,281) ------------------------------ Net cash provided by financing activities - 80,719 Increase (decrease) in cash and cash equivalents (10,352) 13,638 Cash and cash equivalents at beginning of year 13,121 - ------------------------------ Cash and cash equivalents at end of period $ 2,769 $ 13,638 ============================== Supplemental disclosure of cash flow information: Cash paid (received) during the period for the following: Interest $ 8,925 $ 4,438 ============================== Income taxes $ 21 $ (272) ==============================
See accompanying notes. 6 7 GLASSTECH, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (UNAUDITED) 1. BASIS OF PRESENTATION Effective July 2, 1997, Glasstech, Inc. (the "Company") was acquired by Glasstech Holding Co. ("Holding") (the "Transaction"). In connection with the Transaction, Holding, a holding company formed for the purpose of completing the Transaction, formed a wholly owned subsidiary, Glasstech Sub Co., which acquired all of the outstanding stock of the Company by merger. Holding has no significant activities other than its investment in the Company. The acquisition was accounted for under the purchase method of accounting for financial reporting purposes and the purchase price was allocated to the underlying net assets acquired. The Transaction resulted in the Company having substantial goodwill and debt. In connection with accounting for the Transaction, the Company applied the provisions of Emerging Issues Task Force Issue 88-16 (EITF 88-16), whereby the carryover equity interests of certain shareholders from the "Predecessor Company" (the Company prior to the transaction) to the "Successor Company" (the Company subsequent to the Transaction) were recorded at their predecessor basis. As a result, shareholder's equity of the Successor Company was reduced by $4,028 with a corresponding reduction to the value of goodwill acquired. The condensed consolidated balance sheet as of June 30, 1998 has been derived from the audited consolidated financial statements at that date but, does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. 2. NOTES PAYABLE AND LONG-TERM DEBT In connection with the Transaction, the Company issued $70,000 of 12 3/4% Senior Notes due 2004 (the "Old Notes") in a private offering exempt from registration under the Securities Act of 1933, as amended (the "1933 Act"). The offering of the Old Notes was also structured to permit resales under Rule 144A of the 1933 Act. In connection with the issuance of the Old Notes, the Company received from Holding warrants to purchase 877 shares of common stock of Holding valued at $750. These warrants were issued to the purchasers of the Old Notes. On December 2, 1997, the Company consummated an exchange offer (the "Exchange Offer") of its $70,000 Series B 12 3/4% Senior Notes Due 2004 (the "New Notes"), which were registered under the 1933 Act, for the Old Notes. The terms of the New Notes are substantially identical to the terms of the Old Notes and as used herein, will be referred to as the "Senior Notes." Interest on the Senior Notes is payable semi-annually on each January 1 and July 1 beginning January 1, 1998. The terms of the Senior Notes do not require any scheduled principal payments prior to maturity. The Company also entered into a $10,000 revolving credit facility (the "Credit Facility") in connection with the Transaction. The Credit Facility expires on July 31, 2007, and provides for interest on outstanding borrowings at the LIBOR rate plus 2% payable semi-annually. The Credit Facility is available to fund working capital requirements as needed and to secure standby letters of credit, which totaled $3,200 at March 31, 1999 and reduces available borrowing levels. The Company had no outstanding borrowings under the Credit Facility at March 31, 1999 and the Credit Facility is secured by substantially all of the assets of the Company. The Senior Notes and Credit Facility contain numerous financial and other covenants which include the maintenance of certain levels of earnings as defined, restrictions on the payment of dividends and additional indebtedness as well as other types of business activities and investments. The Company believes that it is in material compliance with all such covenants. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. FORWARD-LOOKING STATEMENTS - -------------------------- Certain statements in this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") section and the attached financial statements, in the Company's press releases and in oral statements made by or with the approval of an authorized executive officer of the Company constitute "forward-looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995. These may include statements projecting, forecasting or estimating the Company's performance and industry trends. The achievement of projections, forecasts or estimates is subject to certain risks and uncertainties. Actual results and events may differ materially from those that were projected, forecasted or estimated. Applicable risks and uncertainties include general economic and industry conditions that affect all international businesses, as well as matters that are specific to the Company and the markets it serves. General risks that may impact the achievement of such forecasts include: compliance with new laws and regulations; significant raw material price fluctuations; currency exchange rate fluctuations; business cycles; and political uncertainties. Specific risks to the Company include the risk of recession in the international markets and industries in which its products are sold; the concentration of a significant portion of the Company's revenues from customers whose equipment needs are located in the Asia-Pacific region (Australia, China, Indonesia, Japan, Malaysia, New Zealand, Pakistan, the Philippines, Singapore, South Korea, Taiwan, and Thailand); the concentration of a substantial percentage of the Company's sales with a few major customers, several of whom have significant manufacturing presence in the Asia-Pacific region; the timing of new system orders and the timing of payments due on such orders; changes in installation schedules, which could lead to deferral of progress payments or unanticipated production costs; new or emerging technologies from current competitors, customers' in-house engineering departments and others; competition from current competitors, customers' in-house engineering departments and others; and the emergence of a substitute for glass. In light of these and other uncertainties, the inclusion of a forward-looking statement herein should not be regarded as a representation by the Company that the Company's plans and objectives will be achieved. The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report and in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998, as filed with the Securities and Exchange Commission on September 24, 1998. The interim results of operations, historical results and percentage relationships set forth in this MD&A section and the financial statements, including trends that might appear, should not be taken as indicative of future operations. GENERAL OVERVIEW - ---------------- The Company designs and assembles glass bending and tempering (i.e., strengthening) systems which are used by glass manufacturers and processors in the conversion of flat glass into safety glass. Systems are sold worldwide, primarily to automotive glass manufacturers and processors and, to a lesser extent, to architectural glass manufacturers and processors. Revenues generated by the sale of new systems are referred to below as "Original Equipment." The Company has an installed base of more than 390 systems in 45 countries on six continents. As a result of its installed base and the relatively long useful life of a system, the Company also engages in sales of aftermarket products and services (retrofit of systems with upgrades, tooling used to shape glass parts, replacement parts and technical services). Revenues generated by these types of products are referred to below as "Aftermarket." In this MD&A section all dollars amounts are in thousands, unless otherwise indicated. 8 9 REVENUES - -------- For financial reporting purposes, the Company includes in income the ratable portion of profits on uncompleted contracts determined in accordance with the stage of completion measured by the percentage of costs incurred to estimated total costs of each contract (generally, Original Equipment, system retrofits and tooling). Unbilled amounts included in uncompleted contract receivables represent revenues recognized in excess of amounts billed. Billings in excess of costs and estimated earnings on uncompleted contracts represent amounts billed in excess of revenues recognized. Revenue from sales other than contracts (spare parts and engineering services) is recognized when the products are shipped. SELLING EXPENSES - ---------------- The Company maintains an in-house sales staff and uses the services of commissioned agents around the world for the sale of Original Equipment and Aftermarket products and services. In addition, the Company maintains a sales and engineering support office in the United Kingdom. The substantial majority of the Company's Original Equipment is sold directly to the largest glass manufacturers and processors in the world or their affiliates. RESEARCH & DEVELOPMENT - ---------------------- The Company believes it is the technological leader in the design and assembly of glass bending systems. The Company works with customers to identify product needs and market requirements. Periodically, the Company enters into joint development agreements with customers. From time to time, the Company allocates a portion of its research and development resources to complete the transition from new product development to new product introduction. When the Company does this, these expenses are charged directly to the contracts relating to the introduction of new products. The Company considers research and development expenses and new product introductions a very integral part of its future success. MANAGEMENT ESTIMATES - -------------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. At June 30, 1998 and 1997, the estimated costs of contracts in the Asia-Pacific region included provisions for loss exposures related to final payments that would be due upon completion of such contracts in fiscal years 1998 and 1999. At the time these estimates were made, the Asia-Pacific region was undergoing a period of financial instability and uncertainty that placed receipt of these future final contract payments at risk. During the nine months ended March 31, 1999 and 1998, the Company was successful in the collection of final payments on contracts completed during that time. These changes in estimates resulted in additional contract revenues of $647 and $3,306 for the nine months ended March 31, 1999 and 1998. At March 31, 1999, the loss exposure related to future final payments in this region is not considered significant. These changes in cost estimates related to the Asia-Pacific Region contracts at June 30, 1998 and 1997 had no impact on net cash provided by operating activities since the cash payments were made as originally provided in the underlying contracts. 9 10 RESULTS OF OPERATIONS - --------------------- The following table sets forth the amounts and the percentage of total net revenue for certain revenue and expense items for the periods indicated:
THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, MARCH 31, 1999 1998 1999 1998 --------------------------------------------------------------------------------------- Net revenue (a) Original Equipment $ 6,336 56.1% $12,419 74.2% $25,631 61.7% $34,059 69.9% Aftermarket 4,955 43.9 4,320 25.8 15,919 38.3 14,690 30.1 ------- ----- ------- ----- ------- ----- ------- ----- Total net revenue 11,291 100.0 16,739 100.0 41,550 100.0 48,749 100.0 Cost of goods sold (a) 7,130 63.1 9,002 53.8 26,035 62.7 25,332 52.0 ------- ----- ------- ----- ------- ----- ------- ----- Gross profit 4,161 36.9 7,737 46.2 15,515 37.3 23,417 48.0 Selling, general and 1,951 17.3 2,713 16.2 6,761 16.3 8,153 16.7 administrative Research and development expense 781 6.9 1,067 6.4 2,663 6.4 3,073 6.3 Amortization expense (b) 1,061 9.4 1,088 6.5 3,182 7.6 3,267 6.7 ------- ----- ------- ----- ------- ----- ------- ----- Operating profit $ 368 3.3% $ 2,869 17.1% $ 2,909 7.0% $ 8,924 18.3% ======= ===== ======= ===== ======= ===== ======= ===== Amortization expense (b) 1,061 9.4 1,088 6.5 3,182 7.6 3,267 6.7 Depreciation expense 342 3.0 414 2.5 1,153 2.8 1,239 2.5 ------- ----- ------- ----- ------- ----- ------- ----- EBITDA $ 1,771 15.7% $ 4,371 26.1% $ 7,244 17.4% $13,430 27.5% ======= ===== ======= ===== ======= ===== ======= =====
(a) Contract revenues and cost of goods sold are recognized on a percentage completion basis measured by the percentage of costs incurred to the estimated total costs of each contract. (b) Amortization expense excludes the amortization of deferred financing costs, which is included with interest expense. THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THE THREE MONTHS ENDED MARCH 31, 1998 Net revenue for the three months ended March 31, 1999 decreased $5,448, or 32.5%, to $11,291 from $16,739 for the three months ended March 31, 1998. Original Equipment revenue decreased $6,083, or 49.0%, to $6,336 for the three months ended March 31, 1999 compared to $12,419 for the three months ended March 31, 1998. The continuing economic difficulties in the Asia-Pacific and other foreign regions have adversely impacted new contract signings for Original Equipment in fiscal 1999, resulting in a decrease in Original Equipment revenue. Aftermarket revenue increased $635, or 14.7% to $4,955 for the three months ended March 31, 1999 from $4,320 for the three months ended March 31, 1998. The increase in aftermarket revenue was the result of an increase in tooling and replacement parts revenue, partially offset by a decline in retrofit revenue. A significant portion of the Company's net revenue is generated from customers outside the United States. For the three months ended March 31, 1999, Original Equipment revenue from foreign customers was $3,348 (52.8% of total Original Equipment revenue) as compared to $8,351 (67.2% of total Original Equipment revenue) for the three months ended March 31, 1998. For the three months ended March 31, 1999 and 1998 approximately 34.8% and 44.8%, respectively, of the Company's net revenue was derived from sales of products to customers located in the Asia-Pacific region. The percentage of aftermarket revenue from foreign customers decreased to 51.1% of total aftermarket revenue for the three months ended March 31, 1999 compared to 75.0% for the three months ended March 31, 1998. The portion of the Company's net revenue generated from customers outside the United States can fluctuate from time to time depending on location of contract signings. Gross profit decreased $3,576, or 46.2%, to $4,161 for the three months ended March 31, 1999 as compared to $7,737 for the three months ended March 31, 1998. The gross margin decreased to 36.9% from 46.2% as a result of a shift in the current product mix from higher margin automotive contracts to lower margin architectural contracts and developmental (first of a kind) automotive contracts, which generally carry lower margins. While the Company continues to reduce and minimize its production costs (including factory overhead) gross margins have decreased, in part, as a result of fixed factory overhead being applied to lower production volume. Based upon current operating results and the currently expected product mix and related percentage of completion, management believes the gross margins for fiscal 1999, will be lower than the gross margins for fiscal 1998. 10 11 Selling, general and administrative expenses decreased $762, or 28.1%, to $1,951 for the three months ended March 31, 1999 as compared to $2,713 for the three months ended March 31, 1998. This decrease was primarily the result of lower incentive compensation costs due to decreased earnings and other cost containment measures implemented (including manpower reductions) in all areas of the Company. Research and development expenses decreased $286, or 26.8%, to $781 for the three months ended March 31, 1999 as compared to $1,067 for the three months ended March 31, 1998. This decrease was primarily the result of the dedication of certain developmental resources to the completion of certain original equipment contracts and other cost containment measures implemented (including manpower reductions) in all areas of the Company. Amortization expense was $1,061 for the three months ended March 31, 1999 and $1,088 for the three months ended March 31, 1998. Operating profit decreased $2,501, or 87.2%, to $368 for the three months ended March 31, 1999 as compared to $2,869 for the three months ended March 31, 1998. Operating profit as a percentage of revenue, was 3.3% for the three months ended March 31, 1999 and 17.1% for the three months ended March 31, 1998. The decrease in operating profit was the result of the decline in gross profit partially offset by decreases in selling, general and administrative expenses and research and development expenses. Interest expense was $2,417 for the three months ended March 31, 1999 and $2,414 for the three months ended March 31, 1998. No income tax expense or benefit has been provided in the three months ended March 31, 1999 due to the recorded loss and the uncertainty related to the future realization of such amounts. The effective tax rate for the three months ended March 31, 1998 was 81.6%. The Company's effective tax rates differ from the statutory rate due primarily to goodwill amortization, which is not deductible for income tax purposes, and the effects of not recognizing the income tax benefit of recorded losses. Net loss was $2,006 for the three months ended March 31, 1999 compared to net income of $106 for the three months ended March 31, 1998. The net loss was the result of the decline in operating profit. EBITDA, which is defined as operating profit plus depreciation and amortization, was $1,771 for the three months ended March 31, 1999 compared to $4,371 for the three months ended March 31, 1998. The decrease in EBITDA was the result of the decline in operating profit. NINE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THE NINE MONTHS ENDED MARCH 31, 1998 Net revenue for the nine months ended March 31, 1999 decreased $7,199, or 14.8%, to $41,550 from $48,749 for the nine months ended March 31, 1998. Original Equipment revenue decreased $8,428, or 24.7%, to $25,631 for the nine months ended March 31, 1999 compared to $34,059 for the nine months ended March 31, 1998. The continuing economic difficulties in the Asia-Pacific and other foreign regions have adversely impacted new contract signings of Original Equipment in fiscal 1999; resulting in a decrease in Original Equipment revenue. However, revenues from the United Sates and Europe have partially offset this impact. Aftermarket revenue increased $1,229, or 8.4% to $15,919 for the nine months ended March 31, 1999 from $14,690 for the nine months ended March 31, 1998. The increase in aftermarket revenue was the result of an increase in retrofit and tooling revenue. For the nine months ended March 31, 1999, Original Equipment revenue from foreign customers was $12,526 (48.9% of total Original Equipment revenue) as compared to $23,989 (70.4% of total Original Equipment revenue) for the nine months ended March 31, 1998. For the nine months ended March 31, 1999 and 1998 approximately 29.8% and 46.2%, respectively, of the Company's net revenue was derived from sales of products to customers located in the Asia-Pacific region. As sales in the Asia-Pacific region declined in fiscal 1999, sales in the United States and Europe have increased. The percentage of aftermarket revenue from foreign customers decreased to 61.6% of total aftermarket revenue for the nine months ended March 31, 1999 compared to 69.6% for the nine months ended March 31, 1998. The portion of the Company's net revenue generated from customers outside the 11 12 United States can fluctuate from time to time depending on location of contract signings. Gross profit decreased $7,902, or 33.7%, to $15,515 for the nine months ended March 31, 1999 as compared to $23,417 for the nine months ended March 31, 1998. The gross margin decreased to 37.3% from 48.0% as a result of a shift in the current product mix from higher margin automotive contracts to lower margin architectural contracts and developmental (first of a kind) automotive contracts, which generally carry lower margins. While the Company continues to reduce and minimize its production costs (including factory overhead) gross margins have decreased, in part, as a result of fixed factory overhead being applied to lower production volume. Based upon current operating results and the currently expected product mix and related percentage of completion, management believes the gross margins for fiscal 1999 will be lower than the gross margins for fiscal 1998. Selling, general and administrative expenses decreased $1,392, or 17.1%, to $6,761 for the nine months ended March 31, 1999 as compared to $8,153 for the nine months ended March 31, 1998. This decrease was primarily the result of lower incentive compensation costs due to decreased earnings and other cost containment measures implemented (including manpower reductions) in all areas of the Company. Research and development expenses decreased $410, or 13.3% to $2,663 for the nine months ended March 31, 1999 as compared to $3,073 for the nine months ended March 31, 1998. This decrease was primarily the result of the dedication of certain developmental resources to the completion of certain original equipment contracts and other cost containment measures implemented (including manpower reductions) in all areas of the Company. Amortization expense was $3,182 for the nine months ended March 31, 1999 and $3,267 for the nine months ended March 31, 1998. Operating profit decreased $6,015, or 67.4%, to $2,909 for the nine months ended March 31, 1999 as compared to $8,924 for the nine months ended March 31, 1998. Operating profit as a percentage of revenue, was 7.0% for the nine months ended March 31, 1999 and 18.3% for the nine months ended March 31, 1998. The decrease in operating profit was the result of the decline in gross profit partially offset by decreases in selling, general and administrative expenses and research and development expenses. Interest expense was $7,251 for the nine months ended March 31, 1999 and $7,217 for the nine months ended March 31, 1998. No income tax expense or benefit has been provided in the nine months ended March 31, 1999 due to the recorded loss and the uncertainty related to the future realization of such amounts. The effective tax rate for the nine months ended March 31, 1998 was 81.5%. The Company's effective tax rates differ from the statutory rate due primarily to goodwill amortization, which is not deductible for income tax purposes, and the effects of not recognizing the income tax benefit of recorded losses. Net loss was $4,064 for the nine months ended March 31, 1999 compared to net income of $383 for the nine months ended March 31, 1998. The net loss was the result of the decline in operating profit. EBITDA, which is defined as operating profit plus depreciation and amortization, was $7,244 for the nine months ended March 31, 1999 compared to $13,430 for the nine months ended March 31, 1998. The decrease in EBITDA was the result of the decline in operating profit. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Company's liquidity and capital resources were significantly impacted by the Transaction. The Company's primary sources of liquidity are funds provided by operations and amounts available under the Credit Facility. The Senior Notes do not require any principal payments prior to maturity. The Credit Facility is available to fund working capital requirements as needed and to secure standby letters of credit, which totaled $3,200 at March 31, 1999, and reduces available borrowing levels. The Company had no outstanding borrowings under the Credit 12 13 Facility at March 31, 1999 and the Credit Facility is secured by substantially all of the assets of the Company. Net cash provided by operating activities can vary significantly from quarter to quarter due to the number of new system signings and the amount and timing of new system payments. In most instances, progress payments on new system orders are invoiced or received in advance of revenue recognition. When progress payments are invoiced or received in advance of such revenue recognition, the Company increases current liabilities represented by its billings in excess of costs and estimated earnings on uncompleted contracts. When the revenue is earned, the Company recognizes the revenue and reduces the billings in excess of costs and estimated earnings on uncompleted contract balances. Net cash used by operating activities for the nine months ended March 31, 1999 was $10,332 whereas for the nine months ended March 31, 1998, net cash provided by operating activities was $8,635. The decrease in net cash provided by operating activities for the nine months ended March 31, 1999 was due in part to fewer new system signings, the timing of new system payments and to the interest payments totaling $8,925 made on July 1, 1998 and January 1, 1999. Only one interest payment of $4,438 was required for the nine months ended March 31, 1998. The Company has a backlog (on a percentage of completion basis) at March 31, 1999 of approximately $13,279 as compared to $34,848 at June 30, 1998. The Company expects to complete this backlog within the next twelve months. The decrease in backlog is the result of the continuing economic difficulties in the Asia-Pacific and other foreign regions, which have adversely impacted contract signings of Original Equipment in fiscal 1999. Capital expenditures, including demonstration furnaces classified as fixed assets, were $10 for the nine months ended March 31, 1999 and $234 for the nine months ended March 31, 1998. In addition, during the first quarter of fiscal 1999 certain non-contract furnace inventory, with a value of $1,271, was transferred to demonstration furnaces. Future capital expenditures, excluding demonstration furnaces, used to replace or improve operating equipment and facilities are estimated to be less than $500 for the year. In addition, the Company intends to make periodic replacements and improvements on demonstration furnaces, which are used for customer demonstrations and research and development purposes. Demonstration furnaces, which outlive their usefulness for customer demonstrations or research and development purposes, or both, may be refurbished and sold or put to other applicable uses. As of June 30, 1998, the Company had net operating loss ("NOL") carryforwards for regular and alternative minimum tax purposes of approximately $35,703 and $32,311, respectively, which expire in the years 2009 through 2013. These NOL's are subject to annual usage limitations which, if not utilized in a given year, may be utilized in a subsequent year. Although the Company's ability to generate cash has been affected by the increased interest costs resulting from the Transaction and, more recently, from fewer new system signings, management believes that internally generated funds, together with amounts available under the Credit Facility, will be sufficient to satisfy the Company's operating cash and capital expenditure requirements, make required payments under the Credit Facility and make scheduled interest payments on the Senior Notes. However, the ability of the Company to satisfy its obligations will ultimately be dependent upon the Company's future financial and operating performance and upon its ability to renew or refinance borrowings or to raise additional equity capital as necessary. The Company's business is subject to rapid fluctuations due to changes in the world markets for the end products produced by its equipment (largely in the cyclical markets of automobiles and construction), currency fluctuations, the local economies of those countries where users and potential users of the Company's equipment are located, geopolitical events and other macroeconomic forces largely beyond the ability of the Company to predict or control. Except as discussed below, management is not currently aware of any trends, demands, commitments or uncertainties which will or which are reasonably likely to result in a material change in the Company's liquidity. During fiscal 1997, 1998 and for the nine months ended March 31, 1999 approximately 59.2%, 39.7% and 29.8% of the Company's net revenue was derived from sales of products to customers located in the Asia-Pacific region (Australia, China, Indonesia, Japan, Malaysia, New Zealand, Pakistan, the Philippines, Singapore, South 13 14 Korea, Taiwan, and Thailand). Given the continuing significant economic uncertainties facing this region, and the impact of those uncertainties on customers' capital expenditure plans and local demand for the products manufactured by the Company's customers in that region, the Company cannot predict with any degree of certainty what final impact the economic issues facing the Asia-Pacific region will ultimately have on the Company's future contract signings. Management believes the current economic uncertainties in the Asia-Pacific region indicate that the timing of orders for the Company's products will be adversely affected. The impact of this situation on fiscal 1999 financial performance has been somewhat mitigated by offsetting equipment sales to customers in other regions of the world. However, given the inherent difficulty in predicting with certainty the timing of contract signings and geographic areas into which equipment will be delivered in fiscal 2000 and beyond, the ultimate severity of the impact of this situation on the Company's financial performance in fiscal 2000 and beyond is impossible to predict. The Company will continue to monitor the situation in the Asia-Pacific region. Notwithstanding the current economic conditions in the Asia-Pacific region, the Company believes that given world demographics and long term economic trends, the Asia-Pacific region will continue to represent a significant market for the Company's products and it intends to continue its presence in this area. YEAR 2000 COMPLIANCE Since March, 1998, the Company has had a committee reviewing issues and problems relating to potential year 2000 problems which may arise because computers, software and firmware programs, applications and information technology systems (the "IT Systems") and items with embedded microchips (the "Non-IT Systems" and, together with the IT Systems, the "Systems") only utilize two digits to refer to a year. The Company has recognized that this year 2000 problem may cause many of the Systems to fail or perform incorrectly because they will not properly recognize a year that begins with "20" instead of the familiar "19." If a computer system or software application used by the Company or by a third party dealing with the Company fails because of the inability of the system to properly read the year "2000," this failure could have a material adverse effect on the Company. The Company's review and assessment of the year 2000 problem has focused on four primary areas: (i) the Systems and their relationship to the Company's operations, (ii) Glasstech systems currently being used by the Company's customers and currently being sold by the Company, (iii) compliance by the Company's largest suppliers, and (iv) compliance by the suppliers of the Company's building and utility systems. The Company has not incurred, and does not anticipate incurring, material costs related to year 2000 compliance. The Systems The Company has completed its review of the Systems, including both the IT Systems and the Non-IT Systems. In reviewing the Systems, the Company found that some of them were not year 2000 compliant. The Company has purchased and installed upgraded versions of the IT Systems, including the software programs used for financial reporting, purchasing, order entry, payroll and product design/development that the Company has been assured are year 2000 compliant by the vendors of those programs. The majority of these upgrades were completed by December 1998 and the final upgrade will be completed by August 1999. The Company believes that, with the exception of one of its computer-aided design ("CAD") systems, its manufacturing and design operations are year 2000 compliant. The Company has completed its review of the non-compliant CAD system and is expected to have an upgraded version operational by August 1999. Although there can be no assurance that the Company has identified and corrected, or will identify and correct, every year 2000 problem found in the Systems, the Company believes that it has a comprehensive program in place to identify and correct any such problems. The Company does have contingency plans developed in the event of a failure in any of the Systems. 14 15 Glasstech Systems The Company assessed the year 2000 compliance of the Glasstech systems currently in service. The Company determined that the majority of the Glasstech systems currently in service should continue to operate after the year 2000; however, the internal date function on certain systems may not perform properly, which would require the end-user of a Glasstech system to make certain manual changes to the maintenance reports printed by the system. The Company has identified one type of software within certain Glasstech systems which, if not properly reset, may cause this type of Glasstech system to fail. The Company has addressed the year 2000 problems in all of the Glasstech systems currently being sold, and has put out a service bulletin on the Glasstech systems currently in service to inform customers of the problems. The Company has made software and hardware upgrades available to its customers that address these problems. Suppliers The Company has completed a program to determine the year 2000 compliance efforts of its equipment and raw materials suppliers. The Company sent out questionnaires to its 47 largest suppliers and the Company has received responses from all of these suppliers. This program has not revealed any material problems. Unfortunately, the Company cannot fully control the conduct of its suppliers, and there can be no guarantee year 2000 problems originating with a supplier will not occur. The Company believes that it has made adequate arrangements with backup suppliers to avoid any material adverse effect that would occur if one of its primary suppliers were unable to fill the Company's orders for any reason, including as a result of year 2000 problems. Building and Utility Suppliers The Company has completed reviews of its building and utility systems (gas, electrical, telephone, etc.) for the impact of the year 2000 problem. These suppliers have stated they are year 2000 compliant. If the Company did not receive utility service from certain of these suppliers, the Company may be unable to produce Glasstech systems or take orders for new systems. While the Company continues working diligently with all of its utility suppliers and has no reason to expect that they will not be able to provide service after the year 2000, there can be no assurance that these suppliers will be able to meet the Company's requirements. In the case of these suppliers, an acceptable contingency plan has not yet been developed. Because of the nature of these suppliers and the fact that they are often the only suppliers of a given service available in the Company's geographic region, management believes that it may prove impossible to develop an acceptable contingency plan for certain of the building and utility systems. The failure of any such supplier to fully remediate its systems for year 2000 compliance could cause a shut down of the Company's manufacturing and design facility, which could impact the Company's ability to meet its obligations to supply Glasstech systems to its customers and could have a material adverse affect on the Company. 15 16 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is subject to legal proceedings and claims that arise in the ordinary course of business. In the opinion of management, the amount of any ultimate liability with respect to these actions will not materially affect the financial statements of the Company. ITEM 5. OTHER INFORMATION The Company may, from time to time, repurchase its Senior Notes in the open market, in privately negotiated transactions or by other means, depending on market conditions. To date, the Company has not purchased any Senior Notes. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits -------- 2.1-a Agreement and Plan of Merger 2.2-a Amendment to Agreement and Plan of Merger 3.1-a Restated Certificate of Incorporation of the Registrant 3.2-a By-laws of the Registrant 4.1-a Indenture (including form of Note) 4.2-a First Supplemental Indenture 10.1-a Financing and Security Agreement between NationsBank, N.A. and the Registrant 10.1.1-b Second Amendment to Financing and Security Agreement between NationsBank N.A. and the Registrant 10.2-a Plant and Office Lease 10.3-a Warehouse Lease 10.4-a Advisory Agreement between the Registrant and Key Equity Capital Corporation 10.5-a Form of Exchange Agent Agreement between United States Trust Company of New York and the Registrant 10.6-a Employment Agreement among Glasstech Holding Co., the Registrant and John S. Baxter 10.7-a Employment Agreement among Glasstech Holding Co., the Registrant and Mark D. Christman 10.8-a Employment Agreement among Glasstech Holding Co., the Registrant and Larry E. Elliott 10.9-a Employment Agreement among Glasstech Holding Co., the Registrant and Ronald A. McMaster 10.10-a Employment Agreement among Glasstech Holding Co., the Registrant and James P. Schnabel, Jr. 10.11-a Employment Agreement among Glasstech Holding Co., the Registrant and Diane S. Tymiak 10.12-a Employment Agreement among Glasstech Holding Co., the Registrant and Kenneth H. Wetmore 10.13-a Securities Purchase Agreement between the Registrant, as successor to Glasstech Sub Co., and CIBC Wood Gundy Securities Corp. 10.14-a Registration Rights Agreement between the Registrant, as successor to Glasstech Sub Co., and CIBC Wood Gundy Securities Corp. 27.1* Financial Data Schedule a - Incorporated by reference from the Company's Registration Statement on Form S-4 (Registration No. 333-34391) (the "Form S-4") filed on August 26, 1997. Each of the above exhibits has the same exhibit number in the Form S-4. b - Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1998 using the same exhibit number as above. ** Filed herewith. (b) No reports on Form 8-K were filed during the fiscal quarter covered by this report. 16 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GLASSTECH, INC., a Delaware Corporation Date: May 12, 1999 /s/ Mark D. Christman --------------- ------------------------------------------ MARK D. CHRISTMAN President and Chief Executive Officer /s/ Diane S. Tymiak DIANE S. TYMIAK ------------------------------------------ Vice President and Chief Financial Officer (Principal Accounting Officer) 17 EX-27 2 EXHIBIT 27
5 1,000 9-MOS JUN-30-1999 JUL-01-1998 MAR-31-1999 2,769 0 9,560 (40) 3,353 16,122 9,623 (2,557) 88,370 10,032 69,438 0 0 0 8,481 88,370 41,550 41,550 26,035 26,035 12,606 0 7,251 (4,064) 0 (4,064) 0 0 0 (4,064) 0 0
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