ITEM 1. BUSINESS
Businesses of Uniroyal Chemical Company, Inc. and Uniroyal Chemical Corporation
Uniroyal Chemical Company, Inc. ("Uniroyal Chemical") is a major multinational manufacturer of a wide variety of specialty chemical products, including specialty elastomers, rubber chemicals, crop protection chemicals and additives for the plastics and lubricants industries. Uniroyal Chemical produces high value added products which are currently marketed in approximately 120 countries. Uniroyal Chemical's products serve a wide variety of end use markets including tires, agriculture, automobiles, plastics, lubricants, petrochemicals, hoses, construction, recreation, mining and appliances. Uniroyal Chemical's business has its origins in the chemical operations of the U.S. Rubber Company, which date back over 90 years.
Uniroyal Chemical Corporation ("UCC") has no operations and its sole material asset is the capital stock of Uniroyal Chemical.
Merger with Crompton & Knowles Corporation
There is incorporated by reference herein Item 1 of the Registrants' Current Report on Form 8-K dated August 21, 1996, for information pertaining to an Agreement and Plan of Merger dated as of April 30, 1996, as amended, by and among UCC, Crompton & Knowles Corporation ("Crompton & Knowles") and Tiger Merger Corp. ("Subcorp"), a wholly owned subsidiary of Crompton & Knowles, whereby Subcorp was merged with and into UCC (the "Merger") effective on August 21, 1996. As a result of the Merger, UCC became a wholly owned subsidiary of Crompton & Knowles. Uniroyal Chemical remained a wholly owned subsidiary of UCC.
ITEM 2.
ITEM 2. PROPERTIES
Uniroyal Chemical and its subsidiaries (including Gustafson, Inc.) ("Gustafson") operate 16 production facilities worldwide. While most manufacturing plants produce a variety of products, three are dedicated to individual products. The four most significant production facilities are in Elmira, Ontario, Canada; Geismar, Louisiana; Naugatuck, Connecticut and Latina, Italy. Gustafson operates four facilities: an equipment manufacturing plant in Eden Prairie, Minnesota and chemical formulation facilities in Marsing, Idaho; Des Moines, Iowa and Pekin, Illinois.
Uniroyal Chemical holds a 50% voting interest in Rubicon Inc. which operates a chemical production facility located in Geismar, Louisiana that in part is dedicated to producing certain intermediates for Uniroyal Chemical.
Uniroyal Chemical conducts research and development in facilities in Bethany, Middlebury and Naugatuck, Connecticut; Guelph, Ontario, Canada and Evesham, England. In addition, Gustafson conducts research and development at a facility in Frisco, Texas. Uniroyal Chemical and Gustafson each also operate field stations for crop protection research and development activities.
Uniroyal Chemical and UCC maintain headquarters facilities at Middlebury, Connecticut.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Uniroyal Chemical and its subsidiaries are involved in claims, litigation, administrative proceedings and investigations of various types in several jurisdictions. A number of such matters involve claims for a material amount of damages and relate to or allege environmental liabilities, including clean up costs associated with hazardous waste disposal sites, natural resource damages, property damage and personal injuries.
Environmental Liabilities. Each quarter, Uniroyal Chemical evaluates and reviews estimates for future remediation and other costs to determine appropriate environmental reserve amounts. For each site, a determination is made of the specific measures that are believed to be required to remediate the site, the estimated total cost to carry out the remediation plan, the portion of the total remediation costs to be borne by Uniroyal Chemical and the anticipated time frame over which payments toward the remediation plan will occur. As a result of current information and analysis, Uniroyal Chemical recorded a special provision of $13.5 million during the third quarter of 1997 for environmental remediation activities. The total amount accrued for such environmental liabilities at December 27, 1997, was $100.6 million. Uniroyal Chemical estimates the potential liabilities to range from $74 million to $133 million at December 27, 1997. It is reasonably possible that Uniroyal Chemical's estimates for environmental remediation liabilities may change in the future should additional sites be identified, further remediation measures be required or undertaken, the interpretation of current laws and regulations be modified or additional environmental laws and regulations be enacted.
Uniroyal Chemical generally assesses the possibility for toxic tort claims. Such liabilities are dependent upon complex factors. Five facilities have been identified where the possibility for toxic tort claims may be significant, i.e. as situations where chemicals are believed to have migrated off-site, thus posing risk of exposure. There are no lawsuits pending involving any of these five facilities. Virtually all, if not all, of the off-site disposal sites to which Uniroyal Chemical may have sent toxic materials pose a possibility for toxic tort claims. There are currently pending five toxic tort claims against Uniroyal Chemical and others arising from these off-site disposal sites.
Uniroyal Chemical has been identified by federal, state or local governmental agencies, and by other potentially responsible parties (a "PRP") under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or comparable state statutes, as a PRP with respect to costs associated with waste disposal sites at various locations in the United States. Because these regulations have been construed to authorize joint and several liability, the Environmental Protection Agency could seek to recover all costs involving a waste disposal site from any one of the PRPs for such site, including Uniroyal Chemical, despite the involvement of other PRPs. In many cases, Uniroyal Chemical is one of several hundred PRPs so identified. In a few instances, Uniroyal Chemical is one of only a handful of PRPs. In certain instances, a number of other financially responsible PRPs are also involved, and Uniroyal Chemical expects that any ultimate liability resulting from such matters will be apportioned between Uniroyal Chemical and such other parties. In addition, Uniroyal Chemical is involved with environmental remediation and compliance activities at some of its current and former sites in the United States and abroad. The more significant of these matters are described below.
. Beacon Heights and Laurel Park - Uniroyal Chemical is a member of the Beacon Heights Coalition, a group of entities engaged in remedial work at the Beacon Heights site in the State of Connecticut pursuant to a Consent Decree entered in 1987. The actions required by this Consent Decree have been essentially completed. There is a continuing requirement for operation and maintenance at the site.
Over many years, Uniroyal Chemical has entered into and performed activities pursuant to a series of Administrative Orders with respect to the Laurel Park site located in the State of Connecticut. The EPA, the State of Connecticut, and the Laurel Park Coalition (consisting of Uniroyal Chemical and a number of other parties) have entered into a Consent Decree governing the design and implementation of the selected remedy. Remedial construction began at the Laurel Park site in July 1996, and is anticipated to be completed in 1998.
Consolidated litigation brought by the Beacon Heights and Laurel Park Coalitions seeking contribution to the costs from the owner/operators of the site and later from other identified generator parties has resulted in substantial recoveries from a number of parties. In November 1996, the United States Court of Appeals for the Second Circuit reversed judgments granted to other defendants in that litigation and the litigation has been remanded and the remaining claims are currently the subject of further proceedings before a Special Master appointed by the Court.
. Cleve Reber - Uniroyal Chemical and three other corporations named in an Administrative Order issued by the EPA have complied with such Order which governs remediation of the site located in the State of Louisiana. The cooperating parties are negotiating a consent agreement with the EPA for operation and maintenance of the site and to resolve all of the EPA's past cost claims.
. Petro Processors - This matter relating to a site in the State of Louisiana was initiated in 1981. Litigation was instituted by the EPA against a number of parties, including Uniroyal, Inc. (which Uniroyal Chemical has agreed to indemnify), seeking cleanup of the Petro Processors site. A Consent Decree was entered to settle the case in February 1984, which required the defendants to clean up the site to the satisfaction of the EPA under supervision of the court. A settlement among the ten defendants, dated December 16, 1983, defines the percentage to be borne by each defendant of the currently estimated future cost of $100 million to complete remediation of the site. Although the allocations are subject to a confidentiality order, Uniroyal Chemical believes that the amount it will pay will not be material to its financial condition or results of operations.
. Vertac - Uniroyal Chemical and its Canadian subsidiary, Uniroyal Chemical Co./Cie. (formerly known as Uniroyal Chemical Ltd./Ltee), were joined with others as defendants in consolidated civil actions brought in the United States District Court, Eastern District of Arkansas, Western Division by the United States of America, the State of Arkansas and Hercules Incorporated ("Hercules") relating to a Vertac Chemical Corporation site in Jacksonville, Arkansas allegedly contaminated by dioxins. Uniroyal Chemical has been dismissed from the litigation. On May 21, 1997, the Court entered an order finding that Uniroyal Chemical Co./Cie. is jointly and severally liable to the United States, and finding that Hercules and Uniroyal Chemical Co./Cie. are liable to each other in contribution. The allocation phase of the proceedings has begun with discovery ongoing and trial scheduled to begin in 1998. No ultimate determination of the amount of Uniroyal Chemical Co./Cie.'s liability, if any, is expected prior to the middle of 1999. In addition, the natural resource damage case filed by several individuals in state court which named Uniroyal Chemical Co./Cie. has been withdrawn without prejudice. These individuals have refiled their case in Federal court against some of the parties but have not as yet named Uniroyal Chemical Co./Cie. as a defendant. Uniroyal Chemical Co./Cie. received a notice from the United States Department of the Interior of its intent to perform a Natural Resource Damage Assessment at the site. In addition, the State of Arkansas has commenced an action for natural resource damages which is currently pending in the State court, but Uniroyal Chemical Co./Cie. has not been named a party in that action.
Other Environmental Matters
. Sundor Canada Inc. - On July 13, 1990, Sundor Canada Inc. ("Sundor") instituted suit against Uniroyal Chemical Co./Cie. and others including the Ontario Ministry of the Environment and the Regional Municipality of Waterloo in the Ontario Court of Justice (General Division) at Toronto claiming that Uniroyal Chemical Co./Cie. and others are responsible for losses resulting from Sundor's recall of packaged juices and fruit due to Sundor's use of the public water derived from Elmira groundwater which was allegedly contaminated by Uniroyal Chemical Co./Cie. A tentative settlement has been reached with Sundor by which the defendants, including Uniroyal Chemical Co./Cie. and its insurer, will pay CD$3,500,000 in the aggregate to Sundor.
. Painesville - Reference is made to Item 1(i) of Part II of the Registrants' Quarterly Report on Form 10-Q for the quarterly period ended June 28, 1997, for information relating to (a) Uniroyal Chemical's Painesville, Lake County, Ohio facility which manufactures nitrile rubber and the discharge of Painesville's wastewater to the Lake County sanitary sewer system for treatment at Lake County's Greater Mentor Wastewater Treatment Plant ("GMWTP"); and (b) a proposed Local Limit aimed at regulating the amount of substances which absorb at 230 nanometers that are discharged in wastewater to the GMWTP. From July 1996 through December 31, 1997, Lake County has assessed against the Painesville facility a total of $487,000 in administrative fines and has ordered Uniroyal Chemical to reimburse it for $106,295 in fines Lake County has paid to the State of Ohio for the GMWTP's violations of its NPDES permit. The Painesville facility appealed Lake County's Reimbursement Order and its initial assessment of administrative fines to the Lake County Court of Common Pleas. Since the parties commenced settlement negotiations in December 1996, all legal proceedings concerning the above-described matters have been stayed voluntarily by agreement of the parties. Uniroyal Chemical anticipates that any fines and/or reimbursements paid to Lake County in connection with the resolution of this matter will not substantially exceed $100,000 in the aggregate.
Uniroyal Chemical intends to assert all meritorious legal defenses and all other equitable factors which are available to it with respect to the above matters. Uniroyal Chemical believes that the resolution of these environmental matters will not have a material adverse effect on its consolidated financial position. While Uniroyal Chemical believes it is unlikely, the resolution of these environmental matters could have a material adverse effect on its consolidated results of operations in any given year if a significant number of these matters are resolved unfavorably.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No response to this item is required as Registrants meet the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K ("No Response Required").
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established market for the Common Stock of Uniroyal Chemical, all of which is owned by UCC, or for the Common Stock of UCC, all of which is owned by Crompton & Knowles. See "BUSINESS - Merger with Crompton & Knowles Corporation" for information about the Merger.
The operations of UCC are conducted through Uniroyal Chemical and its subsidiaries and, therefore, UCC relies on Uniroyal Chemical's cash flow to satisfy its debt obligations and other cash needs. The debt agreements of Uniroyal Chemical restrict its ability to provide funds to UCC. Likewise, the provisions of the debt agreements of UCC restrict its ability to pay dividends, and UCC has never paid cash dividends on shares of its Common Stock. See Note entitled "Long-term Debt" in accompanying notes to Consolidated Financial Statements of Uniroyal Chemical.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
No Response Required.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The response to this item has been limited to an analysis of the results of operations for 1997 as compared with fiscal 1996 as Registrants meet the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K.
Operating Results
Noncomparability
In 1996, Uniroyal Chemical and UCC (collectively, the "Company") changed their fiscal year ends from September 28 to December 27. Accordingly, the results of operations discussed herein compare the year ended December 27, 1997, to the fiscal year ended September 28, 1996. Such results are not necessarily indicative of the Company's future results of operations. The following discussion should be read in conjunction with the Consolidated Financial Statements and the notes thereto contained elsewhere in this Report.
Year ended December 27, 1997 compared to fiscal year ended September 28, 1996
Net Sales
Net sales for 1997 increased by 4% to $1,183.3 million from $1,132.7 for fiscal 1996. The increase was due to a 6% increase in unit volume offset by a 1% decrease in both price and foreign currency translation.
Chemicals and Polymers sales of $496.4 million were up 1% in 1997 compared to fiscal 1996. Unit volume increased 6%, but was offset by lower pricing of 4% and lower foreign currency translation of 1%. Sales of rubber chemicals were lower than 1996 primarily due to lower pricing. Sales increased in both the nitrile rubber and EPDM businesses primarily due to increased unit volume.
Crop Protection sales of $370.1 million were up 5% in 1997 compared to fiscal 1996 primarily due to higher unit volume in the herbicides, insecticide, and fungicide businesses.
Specialties sales of $315.2 million increased 9% in 1997 compared to fiscal 1996 attributable primarily to higher unit volume for urethane prepolymers and specialty additives.
Colors sales of $1.6 million were all incremental to 1997.
Operating Profit
Gross margin as a percentage of net sales of 38.6% increased from 38.1% in the 1996 fiscal year. Operating profit, before special charges of $23.5 million in 1997 and $82.6 million in 1996, increased 18% to $185.9 million from $158.0 million in fiscal 1996. The improvement in operating profit resulted primarily from an increase in unit volume, improved gross margin and lower depreciation and amortization.
Other
Selling, general and administrative expenses of $165.9 million decreased modestly as a percentage of sales. Depreciation and amortization of $63.8 million decreased 6% as a result of certain assets becoming fully depreciated and amortized. Research and development costs of $40.7 million increased 4% from fiscal 1996, but remained constant as a percentage of sales.
Special environmental provisions of $13.5 million in 1997 and $30.0 million in 1996 reflect the Company's current evaluation of its obligation for environmental remediation activities. Severance and other costs of $10.0 million represent planned workforce reductions and other costs relating primarily to certain product liability claims and costs associated with the implementation of SAP software.
Interest expense for 1997 of $96.0 million decreased 10% from fiscal 1996 primarily due to lower levels of indebtedness. Other income of $26.5 million increased $26.2 million versus fiscal 1996 primarily due to a gain of $28.0 million relating to a settlement with the U.S. Department of the Army (refer to footnote on postretirement health care liability). The effective tax rate of 38.0% compares to 40.1% in the prior year after adjusting for the impact of special charges.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
There is incorporated by reference herein the information set forth on the Index to Financial Statements and Financial Statement Schedules on Page.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There is incorporated by reference herein Items 4 and 7 of the Registrants' Current Report on Form 8-K dated September 27, 1996, for information pertaining to the replacement of the accounting firm of Deloitte & Touche LLP with KPMG Peat Marwick LLP to serve as independent certified public accountants for UCC and its subsidiaries. KPMG Peat Marwick LLP is the independent certified public accountant for Crompton & Knowles and its subsidiaries.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
No Response Required.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
No Response Required.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No Response Required.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No Response Required.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The financial statements, and the notes thereto, listed on Page are filed herewith as part of this Report.
2. Financial Statement Schedules
The financial statement schedules listed on page are filed herewith as part of this Report.
3. Exhibits
The exhibits listed in the accompanying Exhibit Index are filed herewith as part of this Report.
(b) Reports on Form 8-K filed in fourth quarter 1997
No Current Report on Form 8-K was filed on behalf of UCC or Uniroyal Chemical during the fiscal fourth quarter of 1997.
(c) Exhibits
See Exhibit Index.
(d) Financial Statement Schedules
See Index to Financial Statements and Financial Statement Schedules on page.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
UNIROYAL CHEMICAL CORPORATION
Date: April 13, 1998 By: /s/ Vincent A. Calarco Vincent A. Calarco President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated this 13th day of April, 1998.
Signature Title
/s/ Vincent A. Calarco Chairman of the Board, Vincent A. Calarco President, Chief Executive Officer and Director
/s/ Charles J. Marsden Vice President and Chief Charles J. Marsden Financial Officer and Director (principal financial officer)
/s/ John T. Ferguson II Vice President, General John T. Ferguson II Counsel, Secretary and Director
/s/ Michael F. Vagnini Controller (principal Michael F. Vagnini accounting officer)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
UNIROYAL CHEMICAL COMPANY, INC.
Date: April 13, 1998 By: /s/ Vincent A. Calarco Vincent A. Calarco President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated this 13th day of April, 1998.
Signature Title
/s/ Vincent A. Calarco President, Chief Executive Vincent A. Calarco Officer and Director
/s/ Charles J. Marsden Vice President and Chief Charles J. Marsden Financial Officer and Director (principal financial officer)
/s/ John T. Ferguson II Vice President, General John T. Ferguson II Counsel and Director
/s/ Michael F. Vagnini Controller (principal Michael F. Vagnini accounting officer)
EXHIBIT INDEX
The exhibit numbers set forth below correspond to the numbers assigned to such exhibits in the Exhibit Table to Item 601 of Regulation S-K.
Exhibit Number Description
2 Agreement and Plan of Merger dated April 30, 1996, by and among Crompton & Knowles Corporation, Tiger Merger Corp. and UCC (incorporated by reference to Exhibit 2 to the Quarterly Report on Form 10-Q for the period ended March 31, 1996).
3.1 Certificate of Incorporation of UCC, effective as of August 21, 1996 (incorporated by reference to Exhibit 3.1 to the Registrants' Annual Report on Form 10-K for the fiscal year ended September 28, 1996 ["1996 Form 10-K"]).
3.2 By-laws of UCC, effective as of August 21, 1996 (incorporated by reference to Exhibit 3.2 to the 1996 Form 10-K).
3.3 Certificate of Incorporation of Uniroyal Chemical (incorporated by reference to Exhibit 3.3 to the Registration Statement on Form S-1 of Uniroyal Chemical, Registration No. 33-66740 ["Form S-1, Registration No. 33-66740"]).
3.4 By-Laws of Uniroyal Chemical (incorporated by reference to Exhibit 3.4 to Form S-1, Registration No. 33-66740).
4.1 Form of Indenture, dated as of February 8, 1993, among UCC and State Street Bank and Trust Company, as Trustee, relating to the 10 1/2% Notes, including form of securities (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-1 of UCC, Registration No. 33-45296 and 33-45295 ["Form S-1, Registration No. 33-45296/45295"]).
4.2 Form of Indenture, dated as of February 8, 1993, among UCC and United States Trust Company of New York, as Trustee, relating to the 11% Notes, including form of securities (incorporated by reference to Exhibit 4.1(a) to Form S-1, Registration No. 33-45296/45295).
4.3 Form of Indenture, dated as of February 8, 1993, among UCC and The Shawmut Bank Connecticut, N.A. as Trustee, relating to the 12% Notes, including form of securities (incorporated by reference to Exhibit 4.1(b) to Form S-1, Registration No. 33-45296/45295).
4.4 Form of Indenture, dated as of September 1, 1993, among Uniroyal Chemical and State Street Bank and Trust Company, as Trustee, relating to $270 million of 9% Notes, including the form of securities (incorporated by reference to Exhibit 4.2 to Form S-1, Registration No. 33-66740).
4.5 Form of $530 Million Dollar Amended and Restated Credit Agreement dated as of December 19, 1996, by and among Uniroyal Chemical, et al., as Borrowers and various banks as Lenders, and Citicorp USA, Inc., as Agent and The Chase Manhattan Bank as Managing Agent (incorporated by reference to Exhibit 10 to the Registrants' Transition Report on Form 10-QT for the transition period from September 29, 1996, to December 28, 1996).
4.6 Form of $600 Million Dollar Second Amended and Restated Credit Agreement dated as of July 25, 1997, by and among Uniroyal Chemical, et al., as Borrowers and various banks as Lenders, and Citicorp USA, Inc., as Agent and The Chase Manhattan Bank as Managing Agent (incorporated by reference to Exhibit 4 to the Registrants' Quarterly Report on Form 10-Q for the quarterly period ended June 28, 1997).
10.1 Form of Assignment and Assumption of Raw Materials Agreement, dated as of October 30, 1989, between UCC and Avery (incorporated by reference to Exhibit 10.1 to Form S-1, Registration No. 33-32770).
10.2 Form of Employment Agreement, dated as of October 30, 1989, among Uniroyal Chemical and the Executive Officers of Uniroyal Chemical (incorporated by reference to Exhibit 10.3 to Form S-1, Registration No. 33-32770).
10.3 Form of Supplemental Executive Retirement Agreement, dated as of October 30, 1989, among Uniroyal Chemical and the Executive Officers of Uniroyal Chemical (incorporated by reference to Exhibit 10.4 to Form S-1, Registration No. 33-32770).
10.4 Amended and Restated Tax Indemnification Agreement, dated as of October 26, 1989, among Avery, Inc., Uniroyal Chemical Holding Company, UCAC, UCC and certain subsidiaries of UCAC ("Tax Indemnification Agreement") (incorporated by reference to Exhibit 10.13 to Form S-1, Registration No. 33-32770).
10.5 Form of Amendment, dated as of December 14, 1990, to the Tax Indemnification Agreement (incorporated by reference to Exhibit 10.26 to Post Effective Amendment No. 3 to the Registration Statement on Form S-1, of UCC and UCAC Registration No. 33-32770, filed on January 15, 1991 ["1991 Form S-1, Registration No. 33-32770"]).
10.6 Uniroyal Chemical Company Long-Term Management Incentive Plan (incorporated by reference to Exhibit 10.5 to the Registration Statement on Form S-1 of UCC, Registration No. 33-45295, filed on January 27, 1992).
10.7 UCC Purchase Right Plan, as amended and restated as of March 16, 1995 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the period ended April 2, 1995 ["April 1995 Form 10-Q"]).
10.8 Form of Amendment, dated as of December 8, 1992, to the Tax Indemnification Agreement (incorporated by reference to Exhibit 10.30 to 1992 Form S-1, Registration Nos. 33-45296/33-45295).
10.9 UCC 1993 Stock Option Plan (incorporated by reference to Exhibit 28.1 to UCC's Registration Statement on Form S-8, Registration No. 33-62030, filed on May 4, 1993).
10.10 Form of Amendment No. 2 to the UCC 1993 Stock Option Plan (incorporated by reference to Exhibit 10.2 to the April 1995 Form 10-Q).
10.11 Form of Executive Stock Option Agreement, dated as of November 15, 1993 (incorporated by reference to Exhibit 10.22 to the 1994 Form 10-K).
10.12 Form of Management Investor and Other Key Personnel Option Agreement, dated as of December 15, 1993 (incorporated by reference to Exhibit 10.23 to the 1994 Form 10-K).
10.13 Form of Non-Employee Director Stock Option Agreement, dated as of September 13, 1994 (incorporated by reference to Exhibit 10.24 to the 1994 Form 10-K).
10.14 Form of Non-Employee Director Stock Option Agreement, dated as of March 5, 1996 (incorporated by reference to Exhibit 10.27 to the 1996 Form 10-K).
10.15 Form of Employment Agreement, dated as of August 21, 1996, between Uniroyal Chemical and four executive officers of Uniroyal Chemical (incorporated by reference to Exhibit 10.28 to the 1996 Form 10-K).
10.16 Form of Supplemental Retirement Agreement, dated as of August 21, 1996, between Uniroyal Chemical and two executive officers of Uniroyal Chemical (incorporated by reference to Exhibit 10.29 the 1996 Form 10-K).
10.17 Form of Supplemental Retirement Agreement, dated as of August 21, 1996, between Uniroyal Chemical and two executive officers of Uniroyal Chemical (incorporated by reference to Exhibit 10.30 to the 1996 Form 10-K).
10.18 Form of Second Amended and Restated Lease Agreement between Middlebury Partnership, as Lessor, and Uniroyal Chemical, as Lessee, dated as of August 28, 1997 (incorporated by reference to Exhibit 10 to the Registrants' Quarterly Report on Form 10-Q for the quarterly period ended September 27, 1997).
12 Computation of earnings to fixed charges ratio for the fiscal years 1993, 1994, 1995, 1996 and 1997 and three months ended December 28, 1996 (filed herewith).
21 Subsidiaries of the Registrants (No Response Required).
27 Financial data schedules for Uniroyal Chemical and UCC (filed herewith).
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
UNIROYAL CHEMICAL CORPORATION UNIROYAL CHEMICAL COMPANY, INC.
FINANCIAL STATEMENTS
Independent Auditors' Report KPMG Peat Marwick LLP Deloitte & Touche LLP
Consolidated Statements of Operations
Consolidated Balance Sheets Uniroyal Chemical Corporation Uniroyal Chemical Company, Inc.
Consolidated Statements of Stockholders' Equity (Deficit) Uniroyal Chemical Corporation Uniroyal Chemical Company, Inc.
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
FINANCIAL STATEMENT SCHEDULES
Schedule I - Condensed Financial Information of Registrant
Schedule II - Valuation and Qualifying Accounts
Certain schedules are omitted because they are not applicable or the required information is provided in the Financial Statements or related notes thereto.
INDEPENDENT AUDITORS' REPORT
Board of Directors Uniroyal Chemical Corporation Uniroyal Chemical Company, Inc.
We have audited the following consolidated financial statements:
Uniroyal Chemical Corporation Consolidated Balance Sheets as of December 27, 1997 and December 28, 1996 Consolidated Statements of Operations, Stockholders' Equity (Deficit) and Cash Flows for the fiscal years ended December 27, 1997 and September 28, 1996, and the three- month period ended December 28, 1996
Uniroyal Chemical Company, Inc. (a wholly-owned subsidiary) and subsidiaries Consolidated Balance Sheets as of December 27, 1997 and December 28, 1996 Consolidated Statements of Operations, Stockholders' Equity (Deficit) and Cash Flows for the fiscal years ended December 27, 1997 and September 28, 1996, and the three- month period ended December 28, 1996
In connection with our audits of the consolidated financial statements referred to above, we have also audited the financial statement schedules for the periods then ended as listed in the accompanying index on page. These consolidated financial statements and financial statement schedules are the responsibility of the Companies' management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Uniroyal Chemical Corporation and Uniroyal Chemical Company, Inc. and its subsidiaries as of December 27, 1997 and December 28, 1996, and the results of their operations and their cash flows for the fiscal years ended December 27, 1997 and September 28, 1996 and the three-month period ended December 28, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/KPMG Peat Marwick LLP KPMG Peat Marwick LLP
Stamford, Connecticut January 29, 1998, except as to Note "Long-term Debt", which is as of April 9, 1998
INDEPENDENT AUDITORS' REPORT
Board of Directors Uniroyal Chemical Corporation Uniroyal Chemical Company, Inc.
We have audited the following consolidated financial statements:
Uniroyal Chemical Corporation Consolidated Statements of Operations, Stockholders' Equity (Deficit) and Cash Flows for the year ended October 1, 1995
Uniroyal Chemical Company, Inc. (a wholly-owned subsidiary) and subsidiaries: Consolidated Statements of Operations, Stockholders' Equity (Deficit) and Cash Flows for the year ended October 1, 1995
Our audits also included the financial statement schedules for the year ended October 1, 1995 listed in the index on page.
These consolidated financial statements and financial statement schedules are the responsibility of the aforementioned Companies' management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the results of the Companies' operations and their cash flows for the year ended October 1, 1995 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
/s/Deloitte & Touche LLP Deloitte & Touche LLP Stamford, Connecticut November 17, 1995
UNIROYAL CHEMICAL CORPORATION UNIROYAL CHEMICAL COMPANY, INC. Consolidated Statements of Operations (In thousands of dollars)
Three months Year ended ended Year ended Year ended Dec.27, Dec.28, Sept.28, Oct.1, 1997 1996 1996 1995
Net Sales $1,183,289 $242,338 $1,132,746 $1,079,321
Cost of products sold 727,102 154,031 701,104 665,980 Selling, general and administrative 165,852 40,214 166,716 165,803 Depreciation and amortization 63,780 15,485 67,946 65,083 Research and development 40,699 9,160 39,014 36,622 Severance and other costs 10,000 - - - Special environmental charge 13,500 - 30,000 - Merger and related costs - - 52,579 - Operating profit 162,356 23,448 75,387 145,833
Interest expense 96,011 24,814 106,456 114,034 Other income (26,541) (41) (308) (2,570)
Earnings (loss) before income taxes and extraordinary charge 92,886 (1,325) (30,761) 34,369 Provision (benefit) for income taxes 35,323 (531) 951 (65,060)
Earnings (loss) before extraordinary charge 57,563 (794) (31,712) 99,429 Extraordinary loss on early extinguishment of debt (4,958) - (441) (8,279)
Net earnings (loss) $52,605 ($794) ($32,153) $91,150
See accompanying notes to consolidated financial statements.
UNIROYAL CHEMICAL CORPORATION Consolidated Balance Sheets (In thousands of dollars)
December 27, December 28, ASSETS 1997 1996 Current Assets Cash $4,800 $21,015 Accounts receivable 210,054 137,238 Inventories 221,249 202,762 Other current assets 65,388 60,848 Total current assets 501,491 421,863
Non-current Assets Property, plant and equipment 374,421 367,962 Costs in excess of acquired net assets 127,784 128,155 Other assets 169,864 215,327 $1,173,560 $1,133,307
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities Current installments of long-term debt $- $731 Notes payable 1,770 8,595 Accounts payable 105,901 97,909 Accrued expenses 99,890 87,313 Income taxes payable 27,262 24,969 Total current liabilities 234,823 219,517 Non-Current Liabilities Long-term debt 864,648 925,982 Postretirement health care liability 141,660 174,025 Other liabilities 166,571 150,615 Stockholders' Equity (Deficit): Additional paid-in capital 173,930 172,822 Accumulated deficit (369,762) (480,407) Cumulative translation adjustment (35,550) (25,534) Pension liability adjustment (2,760) (3,713) Total stockholders' deficit (234,142) (336,832) $1,173,560 $1,133,307
See accompanying notes to consolidated financial statements.
UNIROYAL CHEMICAL COMPANY, INC. Consolidated Balance Sheets For the year ended 1997 and 1996 (In thousands of dollars)
December 27, December 28, ASSETS 1997 1996 Current Assets Cash $4,800 $21,015 Accounts receivable 210,054 137,238 Inventories 221,249 202,762 Other current assets 65,388 60,848 Total current assets 501,491 421,863
Non-current Assets Property, plant and equipment 374,421 367,962 Costs in excess of acquired net assets 127,784 128,155 Other assets 169,864 215,327 $1,173,560 $1,133,307
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities Current installments of long-term debt $- $731 Notes payable 1,770 8,595 Accounts payable 105,901 97,909 Accrued expenses 99,890 87,313 Income taxes payable 27,262 24,969 Total current liabilities 234,823 219,517 Non-current Liabilities Long-term debt 864,648 925,982 Postretirement health care liability 141,660 174,025 Other liabilities 166,571 150,615 Stockholders' Equity (Deficit) Common stock 1 1 Additional paid-in capital 175,612 174,504 Accumulated deficit (371,445) (482,090) Cumulative translation adjustment (35,550) (25,534) Pension liability adjustment (2,760) (3,713) Total stockholders' deficit (234,142) (336,832) $1,173,560 $1,133,307
See accompanying notes to consolidated financial statements.
UNIROYAL CHEMICAL CORPORATION Consolidated Statements of Stockholders' Equity (Deficit) (In thousands of dollars)
Three months Year ended ended Year ended Year ended Dec.27, Dec.28, Sept.28, Oct.1, 1997 1996 1996 1995 PREFERRED STOCK Balance at beginning of year $ - $ - $4,172 $4,172 Reclassification due to Merger - - (4,172) - Balance at end of year - - - 4,172
COMMON STOCK Balance at beginning of year - - 253 91 Stock options and other issuances - - 1 3 IPO proceeds, net - - - 134 Reclassification of redeemable capital - - - 25 Reclassification due to Merger - - (254) - Balance at end of year - - - 253
ADDITIONAL PAID IN CAPITAL Balance at beginning of year 172,822 172,822 176,799 - Stock options and other issuances - - 557 294 IPO proceeds, net - - - 146,492 Reclassification of redeemable capital - - - 30,013 Reclassification due to Merger - - (4,534) - Related party transfer 1,108 - - - Balance at end of year 173,930 172,822 172,822 176,799
ACCUMULATED DEFICIT Balance at beginning of year (480,407) (479,613)(447,460) (538,610) Net earnings (loss) 52,605 (794) (32,153) 91,150 Related party transfer 58,040 - - - Balance at end of year (369,762) (480,407)(479,613) (447,460)
ACCUMULATED TRANSLATION ADJUSTMENT Balance at beginning of year (25,534) (24,506) (18,488) (9,964) Equity adjustment for translation of foreign currencies (6,511) (1,028) (6,018) (8,524) Related party transfer (3,505) - - - Balance at end of year (35,550) (25,534) (24,506) (18,488)
PENSION LIABILITY ADJUSTMENT Balance at beginning of year (3,713) (3,713) (3,617) (1,903) Equity adjustment for pension liability 953 - (96) (1,714) Balance at end of year (2,760) (3,713) (3,713) (3,617)
TREASURY STOCK Balance at beginning of year - - (10,888) (5,945) Stock options and other issuances - - 1,928 99 Reclassification of redeemable capital - - - (5,042) Reclassification due to Merger - - 8,960 - Balance at end of year - - - (10,888)
Total stockholders' deficit ($234,142) ($336,832)($335,010) ($299,229)
See accompanying notes to consolidated financial statements.
UNIROYAL CHEMICAL COMPANY, INC. Consolidated Statements of Stockholders' Equity (Deficit) (In thousands of dollars)
Three months Year ended ended Year ended Year ended Dec.27, Dec.28, Sept.28, Oct.1, 1997 1996 1996 1995 COMMON STOCK Balance at beginning and end of year $1 $1 $1 $1
ADDITIONAL PAID IN CAPITAL Balance at beginning of year 174,504 174,504 172,018 - Capital contribution - - 2,486 147,022 Adjustment of amount due to to Uniroyal Chemical Corporation - - - 24,996 Related party transfer 1,108 - - - Balance at end of year 175,612 174,504 174,504 172,018
ACCUMULATED DEFICIT Balance at beginning of year (482,090) (481,296) (449,143) (540,293) Net earnings (loss) 52,605 (794) (32,153) 91,150 Related party transfer 58,040 - - - Balance at end of year (371,445) (482,090) (481,296) (449,143)
ACCUMULATED TRANSLATION ADJUSTMENT Balance at beginning of year (25,534) (24,506) (18,488) (9,964) Equity adjustment for translation of foreign currencies (6,511) (1,028) (6,018) (8,524) Related party transfer (3,505) - - - Balance at end of year (35,550) (25,534) (24,506) (18,488)
PENSION LIABILITY ADJUSTMENT Balance at beginning of year (3,713) (3,713) (3,617) (1,903) Equity adjustment for pension liability 953 - (96) (1,714) Balance at end of year (2,760) (3,713) (3,713) (3,617)
Total stockholders' deficit ($234,142) ($336,832) ($335,010) ($299,229)
See accompanying notes to consolidated financial statements.
UNIROYAL CHEMICAL CORPORATION UNIROYAL CHEMICAL COMPANY, INC. Consolidated Statements of Cash Flows (In thousands of dollars)
Three months Year Year ended ended Year ended ended Dec.27, Dec.28, Sept.28, Oct.1, 1997 1996 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES Net earnings (loss) $52,605 ($794) ($32,153) $91,150 Adjustments to reconcile net earnings (loss) to net cash provided (used) by operations: Depreciation and amortization 63,780 15,485 67,946 65,083 Noncash interest 14,355 3,567 16,267 18,781 Deferred income taxes 18,414 506 (18,021) (79,340) Changes in assets and liabilities: Accounts receivable (5,772) 19,413 (1,696) (26,565) Inventories 621 (22,671) (3,627) (8,425) Other current assets 12,833 (2,044) (2,277) 5,787 Other assets (2,961) 2,150 1,826 6,552 Accounts payable and accrued expenses 6,771 (13,228) 11,609 21,440 Income taxes payable 6,233 (1,108) 2,881 (1,136) Postretirement health care liabilities (32,189) (530) (2,095) (150) Other 16,134 (8,850) 29,341 (13,165) Net cash provided(used)by operations 150,824 (8,104) 70,001 80,012
CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions - - - (98,497) Capital expenditures (36,271) (7,437) (28,574) (69,495) Purchase of receivables (50,000) - - - Other investing activities 2,503 11 (2,228) (6,838) Net cash (used) by investing activities (83,768) (7,426) (30,802) (174,830)
CASH FLOWS FROM FINANCING ACTIVITIES Proceeds (payments) on short-term borrowings (5,903) (403) (24,464) 9,301 Proceeds (payments) on long-term borrowings (78,239) 22,237 (30,256) (146,807) Proceeds from sale of common stock, net - - - 146,626 Other financing activities - 141 864 (4,886) Net cash provided (used) by financing activities (84,142) 21,975 (53,856) 4,234
CASH Effect of exchange rates on cash 871 (1,045) 753 (1,241) Change in cash (16,215) 5,400 (13,904) (91,825) Cash at beginning of period 21,015 15,615 29,519 121,344 Cash at end of period $4,800 $21,015 $15,615 $29,519
UNIROYAL CHEMICAL CORPORATION UNIROYAL CHEMICAL COMPANY, INC.
Notes to Consolidated Financial Statements
Accounting Policies
Basis of Presentation Uniroyal Chemical Corporation ("UCC") was incorporated in Delaware in December 1988 for the sole purpose of acquiring Uniroyal Chemical Company, Inc. ("Uniroyal Chemical") in October 1989. Uniroyal Chemical, a New Jersey corporation, is a direct wholly-owned subsidiary of UCC. Herein, UCC and Uniroyal Chemical, collectively, are referred to as the "Company".
On August 21, 1996, Crompton & Knowles Corporation ("Parent") acquired all of the issued and outstanding capital stock of UCC, the "Merger", at which time UCC became a wholly-owned subsidiary of the Parent. Uniroyal Chemical remained a direct wholly-owned subsidiary of UCC.
UCC is dependent on cash flow from Uniroyal Chemical and its subsidiaries to service its debt and meet its other cash needs. Accordingly, the consolidated financial statements of Uniroyal Chemical set forth herein are presented on a basis of accounting which reflects all of the adjustments to account for the acquisition of Uniroyal Chemical by UCC and substantially all of the operations (primarily interest expense), assets and liabilities of UCC.
Certain amounts in the accompanying consolidated financial statements have been reclassified to conform with the current year presentation.
Change of Year End On September 27, 1996 the Board of Directors approved a change in the Company's fiscal year end from the last Saturday in September to the last Saturday in December.
Principles of Consolidation The accompanying consolidated financial statements include the accounts of all majority-owned subsidiaries. Other affiliates in which the Company has a 20% to 50% ownership are accounted for in accordance with the equity method. All significant intercompany balances and transactions within the Company have been eliminated in consolidation.
Translation of Foreign Currencies Balance sheet accounts denominated in foreign currencies are translated generally at the current rate of exchange as of the balance sheet date, while revenues and expenses are translated at average rates of exchange during the periods presented. The cumulative foreign currency adjustments resulting from such translation are reported as a component of stockholders' equity (deficit). For foreign subsidiaries operating in highly inflationary economies, monetary balance sheet accounts and related revenue and expenses are translated at the current rates of exchange while non-monetary balance sheet accounts and related revenues and expenses are translated at historical exchange rates. The resulting translation gains and losses related to those countries are reflected in operations and are not significant in any of the years presented.
Property, Plant and Equipment Property, plant and equipment are carried at cost, less accumulated depreciation. Depreciation expense ($44.7 million in 1997, $10.6 million for the three months ended December 28, 1996, $46.2 million in 1996 and $44.2 million in 1995) is computed generally on the straight-line method using the following ranges of asset lives: buildings and improvements: 10 to 40 years, machinery and equipment: 3 to 25 years, and furniture and fixtures: 3 to 10 years.
Renewals and improvements which extend the useful lives of the assets are capitalized. Capitalized leased assets and leasehold improvements are depreciated over their useful lives or the remaining lease term, whichever is shorter. Expenditures for maintenance and repairs are charged to expense as incurred.
Inventory Valuation Inventories are valued at the lower of cost or market. Cost is determined principally using the first-in, first out (FIFO) basis.
Intangible Assets The excess cost over the fair value of net assets of businesses acquired is being amortized on a straight-line basis over 20 to 40 years. Accumulated amortization was $31.4 million and $26.5 million in 1997 and 1996, respectively.
Patents, unpatented technology, trademarks and other intangibles of $76.5 million in 1997 and $91.8 million in 1996, included in other assets, are being amortized principally on a straight-line basis over their estimated useful lives ranging from 6 to 20 years. Accumulated amortization was $121.4 million and $106.7 million in 1997 and 1996, respectively.
Long-Lived Assets In March, 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company adopted the new standard in the first quarter of 1996. The effect of the adoption did not materially impact the Company's financial position or results of operations.
The Company evaluates the recoverability of the carrying value of the intangible assets of each of its businesses by assessing whether the projected earnings and cash flows of each of its businesses is sufficient to recover the existing unamortized cost of these assets. On this basis, if the Company determines that any assets have been permanently impaired, the amount of the impaired assets is written off against earnings in the quarter in which the impairment is determined.
Research and Development Research and development costs are expensed as incurred.
Income Taxes A provision has not been made for U.S. income taxes which would be payable if undistributed earnings of foreign subsidiaries of approximately $137.5 million at December 27, 1997, were distributed to the Company in the form of dividends, since certain foreign countries limit the extent of repatriation of earnings, while for others, the Company's intention is to permanently reinvest such foreign earnings.
Statement of Cash Flows Cash includes bank term deposits of three months or less. Cash payments during the fiscal year ended 1997, the three months ended December 28, 1996, and fiscal years ended 1996 and 1995 included interest payments of $82.8 million, $28.7 million, $90.8 million and $99.4 million and income tax payments of $11.8 million, $7.7 million, $16.9 million and $8.7 million, respectively.
Financial Instruments Financial instruments are presented in the accompanying consolidated financial statements at either cost or fair value as required by generally accepted accounting principles.
Other Disclosures Included in accounts receivable are allowances for doubtful accounts in the amount of $6.1 million in 1997 and $3.7 million in 1996.
Related Party Transactions On December 27, 1997, the Parent transferred its European and Asian specialty chemical businesses to the Company at cost for the business purpose of consolidating operations. The transfer included assets in the amount of $76.4 million and liabilities of $20.8 million. Sales and net earnings related to these operations in 1997 of $83.7 million and $2.6 million respectively, have not been included in the Consolidated Statement of Operations. Financial statements have not been restated for prior years as the impact was not considered material.
In June 1997, the Company entered into an accounts receivable purchase agreement with the Parent in which the Company may purchase an undivided interest of up to $150 million in domestic accounts receivable from the Parent with recourse. Interest is paid to the Company by the Parent equal to the interest rate charged on the Company's credit agreement. The amount outstanding under the accounts receivable purchase agreement was $50 million and is included in accounts receivable in the Consolidated Balance Sheet at December 27, 1997.
Acquisitions During fiscal 1995, Uniroyal Chemical acquired the worldwide crop protection business of Solvay Duphar, B.V. (the "Duphar Acquisition") , along with three smaller acquisitions, at an aggregate cost of $98.5 million. The acquisitions have been accounted for using the purchase method of accounting and, accordingly, the acquired assets and liabilities have been recorded at their fair values at the dates of acquisition. The excess cost of purchase price over fair value of net assets acquired in the amount of $16.1 million is being amortized over 20 years. The operating results of each acquisition are included in the consolidated statement of operations from the dates of acquisition.
Inventories (in thousands) 1997 1996 Finished Goods $151,229 $148,552 Work in process 14,786 9,296 Raw materials and supplies 55,234 44,914 $221,249 $202,762
Property, Plant and Equipment (In thousands) ) 1997 1996 Land and improvements $ 21,799 $ 20,545 Buildings and improvements 105,664 88,431 Machinery and equipment 507,289 477,541 Furniture and fixtures 24,854 21,857 Construction in progress 30,728 22,015 690,334 630,389 Less accumulated depreciation 315,913 262,427 $374,421 $367,962
Leases The future minimum rental payments under operating leases having initial or remaining non-cancelable lease terms in excess of one year (as of December 27, 1997) total $88.3 million as follows: $8.1 million in 1998, $7.2 million in 1999, $5.6 million in 2000, $4.9 million in 2001, $4.5 million in 2002, and $58.0 million in later years. Total rental expense for all operating leases was $8.4 million in 1997, $2.0 million for the three months ended December 28, 1996, $8.1 million in 1996 and $6.6 million in 1995. Real estate taxes, insurance and maintenance expenses generally are obligations of the Company and, accordingly, are not included as part of rental payments. It is expected that, in the normal course of business, leases that will expire will be renewed or replaced by leases on other properties.
Accrued Expenses (In thousands) ) 1997 1996 Accrued interest $ 16,725 $ 17,875 Current portion of environmental liability 15,376 18,903 Other accruals 67,789 50,535 $ 99,890 $ 87,313
Long-term Debt (In thousands) ) 1997 1996 9% Senior Notes Due 2000 $226,623 $250,583 10.5% Senior Notes Due 2002 235,998 283,078 11% Senior Subordinated Notes Due 2003 232,175 232,175 12% Subordinated Discount Notes Due 2005 115,971 103,215 Credit Agreement 50,800 54,466 Other 3,081 3,196 $864,648 $926,713 Less amounts due within one year - (731) $864,648 $925,982
9% Senior Notes The 9% Senior Notes Due 2000 are an obligation of Uniroyal Chemical and are unsecured. Interest is payable semi-annually. The 9% Senior Notes are not redeemable prior to maturity, except upon a change in control (as defined in the related indenture) whereupon an offer shall be made to purchase the 9% Senior Notes then outstanding at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest. In connection with the Merger, such an offer was made, resulting in $2.2 million of principal being redeemed. The 9% Senior Notes rank pari passu in right of payment with all existing and future senior indebtedness of Uniroyal Chemical.
10.5% Senior Notes The 10.5% Senior Notes Due 2002 are an obligation of UCC and are unsecured. Interest is payable semi-annually.
11% Senior Subordinated Notes The 11% Senior Subordinated Notes Due 2003 are an obligation of UCC and are unsecured. Interest is payable semi-annually. The 11% Senior Subordinated Notes are redeemable in whole or in part, at the option of UCC at any time after May 1, 1998, at prices commencing at 105.5% of par of the then outstanding principal amount, plus accrued and unpaid interest, declining ratably to par by May 1, 2000. On April 8, 1998, UCC called all of the outstanding 11% Senior Subordinated Notes for redemption on May 8, 1998, at a price of 105.5% of the principal amount thereof plus accrued and unpaid interest pursuant to the terms of the notes and related indentures.
12% Subordinated Discount Notes The 12% Subordinated Discount Notes Due 2005 are an unsecured obligation of UCC and have a final accreted value of $126.6 million at May 1, 1998. Beginning on such date, cash interest will accrue on these securities and will be payable semi- annually. The Notes are redeemable in whole or in part, at the option of UCC at any time after May 1, 1998, at 100% of their principal amount, plus accrued and unpaid interest. On April 8, 1998, UCC called all of the outstanding 12% Subordinated Discount Notes for redemption on May 8, 1998, at a price of 100% of the principal amount plus accrued and unpaid interest pursuant to the terms of the notes and related indentures.
Merger Waivers The note indentures require that upon a change in control (as defined in the related indentures), an offer shall be made to purchase all of the notes at a purchase price equal to 101% of the principal amounts (or accreted value), thereof, plus accrued and unpaid interest. In connection with the Merger, waivers of the requirement were obtained, except the 9% Senior Notes for which an offer to purchase was made.
Debt Repurchases During 1997, the Company repurchased in the open market $24.0 million of 9% Senior Notes and $47.1 million of 10.5% Senior Notes. As a result of the repurchases, the Company recognized an extraordinary charge of $5.0 million, net of tax benefit of $3.3 million.
During 1996, the Company repurchased $17.2 million of 9% Senior Notes in the open market. As a result of this repurchase, the Company recognized an extraordinary charge of $441 thousand, net of tax benefit of $293 thousand.
Credit Agreement In July 1997, the Parent increased its revolving credit agreement with a syndicate of banks to $600 million (from $530 million) which extends through August 2001. Borrowings under the credit agreement are divided into three tranches. Tranche I provides a maximum of up to $300 million available to the Parent for working capital and general corporate purposes. Tranche II provides a maximum of up to $150 million available to the Company for working capital and general corporate purposes. Tranche III allows up to $150 million of borrowings by the European and Canadian subsidiaries of the Company and the Parent. Borrowings may be denominated in U.S. dollars or the subsidiary's local currency.
The credit agreement calls for interest based upon various options including a spread over LIBOR that varies according to certain debt ratios for the trailing four fiscal quarters. In addition, the Company must pay a commitment fee (currently .175%) on the total unused portion of the credit agreement based upon certain debt ratios for the trailing four fiscal quarters. At December 27, 1997, borrowings under the credit agreement for the Company of $50.8 million bore a weighted average interest rate of 7.7%.
Debt Covenants The Company's various debt agreements contain covenants which limit the ability to incur additional debt, transfer funds between affiliated companies, pay cash dividends or make certain other payments. In addition, the credit agreement requires the Company to maintain certain financial ratios.
Maturities In 1997, the scheduled maturities of long-term debt during the next five fiscal years and years thereafter were 1998 none; 1999 - $0.9 million; 2000 - $227.1 million; 2001 - $51.3 million; 2002 - $236.4 million and years thereafter $349.0 million.
Financial Instruments At December 27, 1997, the Company had an interest rate swap contract ("the Swap") outstanding for $270 million with a major financial institution. Net receipts or payments on the Swap are accrued and recognized as adjustments to interest expense. The Swap requires the Company to make semi-annual payments to its counterparty of an amount ranging from 5.89%-6.25% in 1998 and 5.68% in 1999 with the last payment due on December 31, 1999. The Swap requires the counterparty to make semi-annual payments at a fixed rate of 5.24%. The Company paid $1.9 million under the Swap in 1997. A settlement of the fair market value of the Swap as of December 27, 1997 would require a payment of approximately $4.2 million.
At December 27, 1997, the Company had an interest rate lock contract ("Interest Hedge") outstanding with a major financial institution for $230 million at a rate of 6.04%. The interest hedge expires on September 1, 2000, which corresponds to the date of maturity of the 9% Senior Notes payable. Upon expiration an amount of settlement is computed based upon the difference between the rate of 6.04% and the 10 year Treasury rate. A settlement of the fair market value of the interest hedge as of December 27, 1997 would require payment of approximately $1.6 million.
The carrying amounts for cash, accounts receivable, notes payable, accounts payable and other current liabilities approximate fair value because of the short maturities of these instruments. The fair market values of long term debt (including current installments) were $938.5 million and $995.8 million in 1997 and 1996, respectively, and with respect to the notes have been determined based on quoted market prices.
Income Taxes The components of earnings (loss) before income taxes and extraordinary loss and the provision (benefit) for income taxes are as follows:
Three months Year ended ended Year ended Year ended Dec.27, Dec.28, Sept.28, Oct.1, (In thousands) 1997 1996 1996 1995
Pretax Earnings (Loss): Domestic $57,391 $5,649 ($66,250) $17,269 Foreign 35,495 (6,974) 35,489 17,100 $92,886 ($1,325) ($30,761) $34,369 Taxes Domestic Current $1,860 $92 $2,261 $3,753 Deferred 18,125 2,104 (13,612) (73,983) 19,985 2,196 (11,351) (70,230) Foreign Current 15,049 (1,129) 16,416 9,234 Deferred 289 (1,598) (4,114) (4,064) 15,338 (2,727) 12,302 5,170 Total Current 16,909 (1,037) 18,677 12,987 Deferred 18,414 506 (17,726) (78,047) $35,323 ($531) $951 ($65,060)
The provision (benefit) for income taxes differs from the Federal statutory rate for the following reasons:
Three months Year ended ended Year ended Year ended Dec.27, Dec.28, Sept.28, Oct.1, (In thousands) 1997 1996 1996 1995
Provision (benefit) at statutory rate $32,510 ($463) ($10,766) $12,029 Nondeductible merger and related costs - - 11,132 - Impact of valuation allowance (3,616) - (2,905) (78,880) Foreign dividends impact 524 119 3,077 2,367 Goodwill amortization 1,142 378 1,092 1,092 Foreign income tax rate differential 1,759 (553) (362) (2,127) State income taxes, net of federal benefit 2,248 18 (1,877) 555 Other, net 756 (30) 1,560 (96) Actual provision (benefit) for income taxes $35,323 ($531) $951 ($65,060)
Provisions have been made for deferred taxes based on differences between financial statement and tax bases of assets and liabilities using currently enacted tax rates and regulations. The components of the net deferred tax assets and liabilities are as follows:
(In thousands) 1997 1996
Deferred tax assets: Pension and other postretirement benefits $72,564 $84,713 Accruals for environmental remediation 31,974 30,427 Other accruals 30,859 29,959 AMT credit and NOL carryforwards 22,363 33,399 Inventories and other 8,776 10,181 Deferred tax liabilities: Property, plant and equipment (60,517) (54,824) Intangibles (10,055) (14,015) Other (2,389) (4,235) Net deferred tax asset before valuation allowance 93,575 115,605 Valuation allowance (12,466) (16,082) Net deferred tax asset after valuation allowance $81,109 $99,523
Net deferred taxes (in thousands) include $35,491 and $32,507 in current assets, $45,843 and $67,308 in long-term assets, $2 and $114 in current liabilities and $223 and $178 in long-term liabilities in 1997 and 1996, respectively.
The Company had domestic NOL carryforwards of $35 million, expiring in the year 2007, which can be used to reduce future Federal taxable income, while certain of the Companies' foreign subsidiaries had aggregate NOL carryforwards of $30 million which can be used to reduce future taxable income in those countries. As a result of the Company's stock offering in 1995 and the Merger, the Company has undergone an "ownership change" within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended. Consequently, the Federal NOL carryforward is subject to an annual limitation as prescribed thereunder.
Postretirement Health Care Liability The Company provides health and life insurance benefits for certain retired and active employees and their beneficiaries and covered dependents in the U.S. and Canada. Postretirement benefits for retired employees in other countries are generally covered by government-sponsored plans. The Company's cost information for December, 1996 has not been updated from September, 1996 as the change was not considered material.
Net postretirement health care cost included the following components:
December 28, September 28, October 1, (In thousands) 1997 1996 1995 Service cost-benefits earned during the period $ 1,144 $ 1,250 $ 1,315 Interest cost on accumulated postretirement benefit obligation 9,839 9,738 9,899 Actual return on plan assets (910) 10 (677) Net amortization and deferral (6,628) (7,959) (5,751) Net postretirement health care cost $ 3,445 $ 3,039 $ 4,786
Postretirement health care costs are generally not pre-funded (except for certain government-related plans) and are paid by the Company as incurred. The accumulated postretirement health care liability is as follows:
December 27, September 28, (In thousands) 1997 1996 Fully eligible and other active plan participants $ 37,893 $ 40,658 Retirees 110,706 96,851 Accumulated post retirement benefit obligation 148,599 137,509 Plan assets at fair value 40,002 5,601 Unfunded status 108,597 131,908 Unrecognized reduction in prior service cost 34,200 43,158 Unrecognized net loss (1,137) (511) Postretirement health care liability $ 141,660 $174,555
The weighted-average discount rate used to calculate the accumulated health care liability in 1997 and 1996 ranged from 7% - - 7.5% and 7%-8%, respectively. The expected long-term rate of return on plan assets was 8% in 1997 and 3.5% in 1996. The assumed health care cost trend rate ranged from 12.7% - 8.8% and is assumed to decrease gradually to a range of 6.07% - 5.5% in 2020 and remain level thereafter.
An increase in the assumed health care cost rate of 1% in each year would increase the postretirement health care liability by approximately $9 million.
The U.S. Department of the Army funded certain costs during 1997 related to postretirement medical and life insurance benefits of retirees of Uniroyal Chemical who worked at the Joliet Army Ammunition Plant in Joliet, Illinois. Uniroyal Chemical operated the plant for the Army on a cost reimbursement basis from the 1940's until 1993. The funds are held in trust in satisfaction of the government's liability to reimburse Uniroyal Chemical for these costs. At the same time, the government waived its claim to certain funds held in pension trusts for the benefit of these Joliet retirees. The resulting pretax gain to the Company amounted to $28 million and is included in other income.
Pensions The Company has several defined benefit and defined contribution plans which cover substantially all employees in the United States and Canada. Pension benefits for retired employees of the Company in other countries are generally covered by government- sponsored plans. The defined benefit plans provide retirement benefits based on the employees' years of service and compensation during employment. The Company will make contributions to the defined benefit plans at least equal to the minimum amounts required by law, while contributions to the defined contribution plans are determined as a percentage of each covered employees' salary. The Company's cost information for December, 1996 has not been updated from September, 1996 as the change was not considered material.
The Company's net pension cost for the defined benefit plans included the following components:
December 27, September 28, October 1, (In thousands) 1997 1996 1995 Service cost-benefits earned during the period $ 5,981 $ 5,765 $ 4,851 Interest cost on projected benefit obligation 14,189 12,676 11,449 Actual return on plan assets (13,777) (8,327) (13,442) Net amortization and deferral 293 (1,020) 6,143 Net pension cost $ 6,686 $ 9,094 $ 9,001
The funded status and the (accrued) prepaid pension cost of the defined benefit pension plans are as follows:
December 27, September 28, 1997 1996 Accumulated Assets Exceed Accumulated Assets Exceed Benefits Accumulated Benefits Accumulated Exceed Benefits Exceed Benefits (In thousands) Assets Assets Vested benefit obligation $ 177,514 $18,478 $131,830 $15,968 Non-vested benefit obligation 9,617 84 11,790 99 Accumulated benefit obligation 187,131 18,562 143,620 16,067 Excess of projected benefit obligation over accumulated benefit obligation 22,759 1,675 22,219 1,601 Projected benefit obligation 209,890 20,237 165,839 17,668 Plan assets at fair value 167,199 22,589 113,469 19,824 Funded status (42,691) 2,352 (52,370) 2,156 Unrecognized prior service cost 1,062 (362) 12,040 (406) Unrecognized net (gain) loss 3,804 (203) 3,675 45 Unrecognized net transition asset - (306) (741) (430) Equity adjustment to recognize minimum liability (2,760) - (3,713) - (Accrued) prepaid pension cost $ (40,585) $ 1,481 $(41,109) $ 1,365
The weighted-average discount rate used to calculate the projected benefit obligation ranged from 6% - 8% in 1997 and 6.25% - 8% in 1996. The expected long-term rate of return on plan assets ranged from 7% - 9% in 1997 and from 6.25% - 9% in 1996. The assumed rate of compensation increase ranged from 2% - 5.5% in 1997 and 2% - 6% in 1996.
The Company's net cost for all pension plans, including defined benefit plans, was $10.4 million, $12.6 million and $12.3 million in 1997, 1996 and 1995, respectively.
Contingencies The Company is involved in claims, litigation, administrative proceedings and investigations of various types in several jurisdictions. A number of such matters involve claims for a material amount of damages and relate to or allege environmental liabilities, including clean-up costs associated with hazardous waste disposal sites, natural resource damages, property damage and personal injury. The Company and some of its subsidiaries have been identified by Federal, state or local governmental agencies, and by other potentially responsible parties (a "PRP") under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or comparable state statutes, as a PRP with respect to costs associated with waste disposal sites at various locations in the United States. In addition, the Company is involved with environmental remediation and compliance activities at some of its current and former sites in the United States and abroad.
Each quarter, the Company evaluates and reviews estimates for future remediation and other costs to determine appropriate environmental reserve amounts. For each site, a determination is made of the specific measures that are believed to be required to remediate the site, the estimated total cost to carry out the remediation plan, the portion of the total remediation costs to be borne by the Company and the anticipated time frame over which payments toward the remediation plan will occur. As a result of current information and analysis, the Company recorded a special provision of $13.5 million during the third quarter of 1997 for environmental remediation activities. The total amount accrued for such environmental liabilities at December 27, 1997 was $100.6 million. The Company estimates its potential environmental liability to range from $74 million to $133 million at December 27, 1997. It is reasonably possible that the Company's estimates for environmental remediation liabilities may change in the future should additional sites be identified, further remediation measures be required or undertaken, the interpretation of current laws and regulations be modified or additional environmental laws and regulations be enacted.
The Company intends to assert all meritorious legal defenses and all other equitable factors which are available to it with respect to the above matters. The Company believes that the resolution of these environmental matters will not have a material adverse effect on its consolidated financial position. While the Company believes it is unlikely, the resolution of these environmental matters could have a material adverse effect on its consolidated results of operations in any given year if a significant number of these matters are resolved unfavorably.
Business Segment Data The Company and its subsidiaries operate in one industry segment, the manufacture and sale of specialty chemicals and elastomers.
Information by Major Geographic Segment
Three months Year ended ended Year ended Year ended Dec.27, Dec.28, Sept.28, Oct.1, (In thousands) 1997 1996 1996 1995
Net sales and transfer between geographic areas: United States $1,042,850 $213,717 $978,081 $942,635 Americas 219,418 47,040 201,913 181,926 Europe/Africa 158,150 23,374 181,268 135,805 Asia/Pacific 56,217 13,501 58,800 58,124 $1,476,635 $297,632 $1,420,062 $1,318,490
Less transfers between geographic areas: United States $173,476 $36,659 $150,863 $141,063 Americas 62,975 16,658 61,253 51,821 Europe/Africa 55,813 1,751 74,386 45,285 Asia/Pacific 1,082 226 814 1,000 $293,346 $55,294 $287,316 $239,169
Net sales from geographic areas to unaffiliated customers: United States $869,374 $177,058 $827,218 $801,572 Americas 156,443 30,382 140,660 130,105 Europe/Africa 102,337 21,623 106,882 90,520 Asia/Pacific 55,135 13,275 57,986 57,124 $1,183,289 $242,338 $1,132,746 $1,079,321
Export sales included in United States sales: Americas $30,066 $4,860 $31,633 $30,300 Europe/Africa 107,157 18,967 90,074 80,136 Asia/Pacific 62,523 13,071 60,911 51,380 $199,746 $36,898 $182,618 $161,816
Operating Profit United States $116,318 $26,584 $35,001 $116,887 Americas 34,129 7,463 17,420 19,036 Europe/Africa 9,926 (10,732) 25,453 12,522 Asia/Pacific 1,983 133 (2,487) (2,612) $162,356 $23,448 $75,387 $145,833
Identifiable assets United States $890,454 $897,328 $893,912 $922,151 Americas 84,023 94,867 88,972 88,800 Europe/Africa 166,634 107,379 117,209 125,430 Asia/Pacific 32,449 33,733 32,525 35,326 $1,173,560 $1,133,307 $1,132,618 $1,171,707
UNIROYAL CHEMICAL CORPORATION SCHEDULE I Condensed Financial Information of Registrant Condensed Statements of Operations and Accumulated Deficit (In thousands of dollars)
Three months Year ended ended Year ended Year ended Dec.27, Dec.28, Sept.28, Oct.1, 1997 1996 1996 1995
Equity in income of consolidated subsidiaries $101,639 $10,594 $15,429 $107,455
Selling, general and administrative 354 106 551 523 Interest expense 68,899 17,414 68,677 76,943
Earnings (loss) before income taxes and extraordinary loss 32,386 (6,926) (53,799) 29,989
Provision (benefit) for income taxes (24,210) (6,132) (21,646) (69,440)
Earnings (loss) before extraordinary loss 56,596 (794) (32,153) 99,429
Extraordinary loss on early (3,991) - - (8,279) extinguishment of debt
Net earnings (loss) 52,605 (794) (32,153) 91,150
Accumulated deficit, beginning of year (480,407) (479,613) (447,460) (538,610)
Related party transfer 58,040 - - -
Accumulated deficit, end of year ($369,762) ($480,407) ($479,613) ($447,460)
UNIROYAL CHEMICAL CORPORATION SCHEDULE I Condensed Financial Information of Registrant Condensed Balance Sheets For the year end December 27, 1997 and December 28, 1996 (In thousands of dollars)
1997 1996
ASSETS Current Assets Cash $48 $48 Total current assets 48 48
Non-Current Assets Investment in consolidated subsidiaries 365,406 294,960 Deferred income taxes 474 9,334 Other assets 15,581 19,038 $381,509 $323,380
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities Accrued expenses $25,773 $36,584
Non-Current Liabilities Long-term debt 584,144 618,468 Other liabilities 5,734 5,160 Stockholders' Equity (Deficit) Additional paid-in capital 173,930 172,822 Accumulated deficit (369,762) (480,407) Accumulated translation adjustment (35,550) (25,534) Pension liability adjustment (2,760) (3,713) Total stockholders' deficit (234,142) (336,832) $381,509 $323,380
UNIROYAL CHEMICAL CORPORATION SCHEDULE I Condensed Financial Information of Registrant Condensed Statements of Cash Flows (In thousands of dollars)
Three Year months Year Year ended ended ended ended Dec.27, Dec.28, Sept.28, Oct.1, 1997 1996 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES Net earnings (loss) $52,605 ($794) ($32,153) $91,150 Adjustments to reconcile net earnings (loss) to net cash provided (used) by operations: Equity in income of consolidated subsidiaries (101,639) (10,594) (15,429) (107,455) Amortization 315 47 315 323 Noncash interest 16,780 3,599 13,417 15,927 Allocation of current tax provision (36,570) (8,329) (31,307) (34,787) Deferred income taxes 8,860 2,489 9,625 (36,665) Change in assets and liabilities, net (10,707) 13,582 101 (2,983) Dividends from consolidated subsidiaries 117,436 - 52,887 63,527 Other - - 313 (180)
Net cash provided (used) by operations 47,080 - (2,231) (11,143)
CASH FLOWS FROM INVESTING ACTIVITIES Return of capital - - - 45,666
CASH FLOWS FROM FINANCING ACTIVITIES Payments on long-term borrowings (47,080) - - (187,595) Proceeds from sale of common stock, net - - - 146,626 Purchase of treasury stock - - - (1,161) Other financing activities - - 2,209 7,499 Net cash provided (used) by financing activities (47,080) - 2,209 (34,631)
Change in cash - - (22) (108) Cash at beginning of year 48 48 70 178 Cash at end of year $48 $48 $48 $70
Schedule II
UNIROYAL CHEMICAL CORPORATION UNIROYAL CHEMICAL COMPANY, INC. Valuation and Qualifying Accounts (In thousands of dollars)
Additions Balance at charged to Adjustments Balance beginning costs and at end of year expenses Recurring Other of year
Fiscal Year ended December 27, 1997: Allowance for doubtful accounts $ 3,741 $ 1,338 $ 1,019 (1) $ - $ 6,098 Accumulated amortization of cost in excess of acquired net assets 26,534 4,639 269 (2) - 31,442 Accumulated amortization of other intangible assets 106,655 15,151 (439)(2) - 121,367
Three months ended December 28, 1996: Allowance for doubtful accounts $ 3,333 $ 421 $ (13)(1) $ - $ 3,741 Accumulated amortization of cost in excess of acquired net assets 25,491 1,415 (372)(2) - 26,534 Accumulated amortization of other intangible assets 102,938 3,438 279 (2) - 106,655
Fiscal Year ended September 28, 1996: Allowance for doubtful accounts $ 2,873 $ 1,568 $ (1,108)(1) $ - $ 3,333 Accumulated amortization of cost in excess of acquired net assets 21,281 3,887 323 (2) - 25,491 Accumulated amortization of other intangible assets 87,813 15,622 (497)(2) - 102,938
Fiscal Year ended October 1, 1995: Allowance for doubtful accounts $ 2,452 $ 708 $ (287)(1) $ - $ 2,873 Accumulated amortization of cost in excess of acquired net assets 17,194 3,953 134 (2) - 21,281 Accumulated amortization of other intangible assets 73,981 14,647 (815)(2) - 87,813
(1) Represents accounts written off as uncollectible (net of recoveries), and the translation effect of accounts denominated in foreign currencies. (2) Represents the translation effect of intangible assets denominated in foreign currencies.