10-Q 1 l89870ae10-q.txt UNIFRAX CORPORATION 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ------------ FORM 10Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 Commission File Number: 333-10611 UNIFRAX CORPORATION (Exact name of registrant as specified in its charter) Delaware 34-1535916 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation) 2351 Whirlpool Street, Niagara Falls, NY 14305-2413 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (716) 278-3800 -------------------------------------------------- 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 --- --- 2 UNIFRAX CORPORATION FORM 10-Q INDEX

3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS UNIFRAX CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED - IN THOUSANDS, EXCEPT SHARE DATA)

See accompanying notes to condensed consolidated financial statement 1 4 UNIFRAX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED - IN THOUSANDS)

See accompanying notes to condensed consolidated financial statements. 2 5 UNIFRAX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED - IN THOUSANDS)

See accompanying notes to condensed consolidated financial statements. 3 6 UNIFRAX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Unifrax Corporation ("The Company" or "Unifrax") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Results for the period ended June 30, 2001, are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. For further information, refer to the consolidated financial statements and the notes thereto for the year ended December 31, 2000, included in the Company's annual report on Form 10-K filed with the Securities and Exchange Commission. All capitalized terms used in these notes to condensed consolidated financial statements that are not defined herein have the meanings given to them in such consolidated financial statements and notes to consolidated financial statements. NOTE B - BUSINESS ACQUISITION On October 4, 2000, the Company acquired the capital stock of certain companies and certain assets of other companies that comprised the high performance insulating ceramic fibers business (the "Ceramic Fiber Business") of Saint-Gobain (the "Acquisition"). The Acquisition has been accounted for under the purchase method of accounting, and the results of operations of the Ceramic Fiber Business have been included in the consolidated statements of operations since the date of acquisition. The initial purchase price of $58,500,000 has been allocated to the assets acquired and liabilities assumed based upon their estimated fair values. The purchase price adjustment process was completed during the second quarter with no significant change in the original allocations. In connection with the Acquisition, Saint-Gobain agreed to compensate the Company for certain liabilities that the Company would be responsible for discharging. Accordingly, during the quarter ended June 30, 2001, Saint-Gobain remitted $9,006,000 to the Company. The following unaudited pro forma information presents the results of operations of the Company as if the Acquisition had taken place at January 1, 2000. These pro forma results of operations have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which actually would have resulted had the Acquisition occurred on the date indicated, or which may result in the future. Six months ended June 30, 2000 -------------------- (In thousands) Net sales $ 85,017 Net income 4,979 On January 27, 2001, the Company acquired a further 83,350 shares of Orient Cerlane Ltd. representing approximately 4.2% of shares outstanding at that time, for approximately $433,000, including related expenses, increasing its ownership to 63.13%. 4 7 1UNIFRAX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 NOTE C - INVENTORIES The components of inventories consist of the following (in thousands):

NOTE D - CONTINGENCIES CERAMIC FIBERS Regulatory agencies and others, including the Company, are currently conducting scientific research and employee monitoring to determine the potential health impact resulting from the inhalation of airborne ceramic fibers. To date, studies of workers with occupational exposure to airborne ceramic fiber have found no clinically significant relationship between prior or current exposure to ceramic fiber and disease in humans; however, independent animal studies have indicated that ceramic fiber inhaled by test animals at elevated doses can produce respiratory disease, including cancer. The results of this research have been inconclusive as to whether or not ceramic fiber exposure presents an unreasonable risk to humans. From time to time Unifrax and other manufacturers of ceramic fibers have been named as defendants in lawsuits alleging death or personal injury or worker's compensation claims as a result of exposure in the manufacture and handling of ceramic fiber and other products. The amount of any liability that might ultimately exist with respect to these claims or any other unasserted claims is presently not determinable. The Company believes the lawsuits brought against it have been without merit and the litigation currently pending, or to its knowledge threatened, will not have a material adverse effect on the financial condition or results of operations of the Company. The Company's belief is based on the fact that, although animal studies have indicated that ceramic fiber inhaled by test animals at elevated doses can cause disease, there is no evidence that exposure to refractory ceramic fiber has resulted in disease in humans. Consistent with customary practice among manufacturers of ceramic fiber products, the Company has entered into agreements with distributors of its product in the United States whereby it agreed to indemnify the U.S. distributors against losses resulting from ceramic fiber claims and the costs to defend against such claims. To the best of the Company's knowledge, there have been no historical, nor are there any current, ceramic fiber exposure claims made against these indemnification agreements. Consequently, the amount of any liability that might ultimately exist with respect to these indemnities is presently not determinable. 5 8 UNIFRAX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 Pursuant to the Recapitalization Agreement, BP America Inc. and certain of its affiliates (collectively "BP America"), have agreed to indemnify the Company against liabilities for personal injury and wrongful death attributable to exposure which occurred prior to October 30, 1996 (the "BP Closing") to refractory ceramic fibers manufactured by the Company. BP America has agreed to indemnify the Company against all liabilities arising from exposure claims pending at the time of the BP Closing. For all other claims arising from alleged exposure occurring solely prior to the BP Closing, BP America has agreed to indemnify the Company against 80% of all losses, until the total loss which the Company incurs reaches $3.0 million, after which time BP America has agreed to indemnify the Company against 100% of such losses. BP America has agreed to indemnify the Company against all punitive damages attributable to the conduct of the Company prior to the BP Closing. Where losses arise from alleged exposure both before and after closing, the losses will be allocated between BP America and the Company, pro rata, based on the length of exposure or pursuant to arbitration if initiated by the Company. To date the Company has incurred no claims losses applicable to the $3.0 million total mentioned above. The Company cannot avail itself of this indemnity for losses attributable to the Company's failure to maintain a Product Stewardship Program consistent with the program maintained by the Company prior to the BP Closing, as modified in a commercially reasonable manner in accordance with changing regulatory, scientific and technical factors. BP shall not indemnify the Company with respect to any liabilities for wrongful death or personal injury to the extent caused by the failure of the Company to maintain a Product Stewardship Program consistent with that maintained by the Company prior to the BP Closing. In the Company's opinion, the Product Stewardship Program has been maintained in a manner consistent with these requirements. Unifrax intends to defend ceramic fiber claims vigorously. Pursuant to a Warranty Agreement executed in conjunction with the Acquisition, SEPR agreed to indemnify the Company, subject to certain maximums as established in the Warranty Agreement, against losses resulting from alleged or actual exposure to ceramic fibers which occurred prior to October 4, 2000 (the "SEPR Closing"). Where losses arise from alleged exposure both before and after the SEPR Closing, the losses will be determined pro rata, temporis. ENVIRONMENTAL MATTERS The Company is subject to loss contingencies pursuant to various federal, state and local environmental laws and regulations and is currently involved in several actions regarding the clean-up of disposal sites alleged to contain hazardous and/or toxic wastes generated over a number of years. These include possible obligations to remove or mitigate the effects on the environment of the placement, storage, disposal or release of certain chemical or petroleum substances by the Company or by other parties. In addition, The Carborundum Company has entered into a Consent Decree with the New York State Department of Environmental Conservation to remediate contamination at the facility located in Sanborn, New York. While the Company's ultimate clean-up liability at the various sites is not presently determinable, the Company does not expect to incur any material liability with respect to any of these sites, individually or in the aggregate, as a result of its activities at these sites. Furthermore, BP America has agreed to indemnify the Company for certain environmental liabilities, which might ultimately exist, under the Recapitalization Agreement. In addition, BP America has assumed liability for other potential off-site clean-up obligations associated with Carborundum. The locations at which the Company has maintained potential off-site liability in the U.S. and the Carborundum Sanborn, New York facility are described below. 6 9 UNIFRAX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 Kline Trail Site. In 1984, the Company voluntarily advised the State of Indiana of potential unauthorized disposal of waste at an Indiana site by a transporter. No response from the state has been received, and no further information about the potential for remediation costs at the site has been received by the Company. It is expected that little or no liability will be associated with this site. PCB Inc., Site. The New Carlisle, Indiana, facility received a request for information from the EPA in 1994 concerning potential responsibility for cleanup of the PCB Treatment site located in Kansas City, Kansas and Kansas City, Missouri. Records indicate that a number of capacitors from the New Carlisle facility of the Company were sent to the PCB Treatment site. A response documenting the timely destruction of those materials was submitted to the EPA. In September 1997 the EPA contacted BP America via letter to verify that a total of 10,900 pounds of capacitors and transformers had been sent to the site by BP America/Carborundum. EPA has offered a settlement for less than $100,000. Based on that offer and information on the total pounds delivered by all parties to the site, the liability, if any, ultimately attributable to BP America or the Company is not expected to have a material adverse effect on the Company's financial position. Shulman Site. The Company has potential liability with respect to the Shulman site in St. Joseph County, Indiana. The site is a landfill which the Company believes to have been contaminated by chemicals migrating from an adjacent facility. Plant trash from the New Carlisle facility was hauled to the site. An agreement has been reached pursuant to which the Company, as part of a response group, agreed to assume approximately 5% of certain response costs, which to date includes $1.7 million for installation of a water line. The Company's share of that cost is less than $100,000. The owner of the adjacent facility has assumed the bulk of site remediation costs to date. It is anticipated that site remediation will ultimately involve installing a clay cap over the site, the cost of which is not yet known. Sanborn Site. Under the terms of an agreement with BP America, Unifrax leases a portion of the present manufacturing facilities on this site. The Carborundum Company's Sanborn, New York site was used by a number of former Carborundum operations. Testing in the area has found that contamination by volatile organic compounds is present in the soil and groundwater. Neither past nor current operations of Unifrax are believed to have contributed to, or to be contributing to, the existence of this contamination. While The Carborundum Company entered into a Consent Decree with the State of New York under which it was to conduct remedial activities at the site, BP America has taken title to and assumed liability for the remediation of this property as of October 30, 1996. Efforts to remediate the site, chiefly by means of soil vapor extraction, are expected to continue for some time. Under the terms of the Recapitalization Agreement, BP America assumed liability, and the rights to recovery from third parties, for environmental remediation and other similar required actions with respect to certain environmental obligations of Unifrax including the above, which existed as of the BP Closing. Pursuant to the Warranty Agreement executed in conjunction with the sale of its ceramic fiber business to Unifrax, SEPR also agreed to indemnify the Company against certain environmental liabilities related to activities conducted at the various acquired sites prior to the SEPR Closing, subject to certain maximums as established in the Warranty Agreement. 7 10 UNIFRAX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 The Company may, in the future, be involved in further environmental assessments or clean-ups. While the ultimate requirement for any such remediation, and its cost, is presently not known, and while the amount of any future costs could be material to the results of operations in the period in which they are recognized, the Company does not expect these costs, based upon currently known information and existing requirements, will have a material adverse effect on its financial position. LEGAL PROCEEDINGS In addition to the ceramic fiber and environmental matters discussed above, BP/Carborundum and Unifrax are involved in litigation relating to various claims arising out of their operations in the normal course of business, including product liability claims. While the outcomes of this litigation could be material to the results of operations in the period recognized, based on the current claims asserted the management of the Company believes that the ultimate liability, if any, resulting from such matters will not have a material adverse effect on the Company's financial position. The Carborundum Company has been named in numerous legal claims alleging pre-BP Closing asbestos exposure. None of the current or past Unifrax-related products are asbestos-containing materials, as defined by OSHA (29CFR1900.1001(b)). For these claims related to pre-BP Closing Carborundum Company matters, BP America has responsibility under the Recapitalization Agreement and is managing the claims directly. Also, SEPR has indemnified Unifrax for any future asbestos claims which may arise related to alleged pre-SEPR Closing asbestos exposures associated with products or sites sold by SEPR to Unifrax. NOTE E - COMPREHENSIVE INCOME Comprehensive income for the three-month and six-month periods ended June 30, 2000 and 2001 consisted of the following (in thousands):

NOTE F - INTEREST RATE SWAP AGREEMENTS Effective October 1, 1999, the company entered into interest rate swap agreements to effectively convert fixed-rate debt with a notional principal amount of $25,000,000 to variable-rate debt. Under the agreements the Company receives from, or pays to, the banks an amount computed as the difference between interest based upon a fixed rate of 6.2% per annum, and interest based upon the established LIBOR rate, which at June 30, 2001 was 4.1%. 8 11 UNIFRAX CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (Statement 133), requires companies to recognize all of their derivative instruments as either assets or liabilities in the statement of financial position at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as either a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. For derivative instruments that are designated and qualify as a fair value hedge (i.e., hedging the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk), the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings during the period of the change in fair values. The Company's interest rate swap agreements involve an exchange of the obligation to make fixed rate interest payments for the obligation to make floating rate interest payments over the life of the agreements without an exchange of the underlying principal amount. As a result of adoption of Statement 133 as of January 1, 2001, the Company recognized the fair value of the interest rate swap agreements ($147,000 at June 30, 2001) as a current asset, with an offsetting increase in the balance of its long term debt. NOTE G - STOCKHOLDERS EQUITY SERIES A PREFERRED STOCK On January 20, 2001, the Company declared and paid a dividend on its redeemable cumulative Series A preferred stock of $22.822 per share on 20,500 shares, for a total of $467,849. 9 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS Statements included in this Management Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this document that do not relate to present or historical conditions are "forward looking statements" within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and of Section 21F of the Securities Exchange Act of 1934, as amended. Forward looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words "believe," "anticipate," "expect," "estimate," "project," "will continue," "will result," or words or phrases of similar meaning. Additional oral or written forward looking statements may be made by the Company from time to time, and such statements may be included in documents filed with the Securities and Exchange Commission. Such forward looking statements involve risks and uncertainties which could cause results or outcomes to differ materially from those expressed in such forward looking statements. Among the important factors on which such statements are based are assumptions concerning the continuing strength of the ceramic fiber market on which the Company is substantially dependent, changing prices for ceramic fiber products, acceptance of new products, the status of health and safety issues affecting the ceramic fiber industry in general and the Company in particular, the Company's continuing ability to operate under the restrictions imposed by the substantial indebtedness which it is subject to, the risks associated with international operations, foreign laws, and with transactions in foreign currencies, risks associated with the impact of environmental regulations on the Company's operations and property and related governmental regulations, and the continuing availability of certain raw materials, including vermiculite which is purchased from an overseas source. THREE MONTHS ENDED JUNE 30, 2001 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2000 Net sales for the second quarter of 2001 increased by $19.6 million or 86.1% from $22.8 million in 2000 to $42.4 million in 2001. Sales for the second quarter of 2001 included the addition of the Saint-Gobain worldwide ceramic fiber business which was acquired by Unifrax in October 2000 (the "Acquisition"). Gross profit increased by $8.3 million or 70.2% from $11.8 million in 2000 to $20.1 million in 2001. Gross profit as a percentage of net sales decreased from 51.8% in 2000 to 47.4% in 2001. The increase in gross profit was due to the higher sales volume. The lower overall gross profit percentage of net sales reflects the effect of lower gross margins in some of the recently-acquired businesses, and weaker margins in North America. Selling, general, and administrative expenses increased by $5.8 million or 90.9% from $6.3 million in 2000 to $12.1 million in 2001. SG&A expenses for the second quarter of 2001 included the addition of the Saint-Gobain worldwide ceramic fiber business acquired by Unifrax in October 2000. SG&A expenses were also higher due to additional depreciation and amortization costs associated with the Acquisition. Selling, general, and administrative expenses as a percentage of net sales increased from 27.9% in 2000 to 28.6% in 2001. Operating income increased by $2.5 million or 46.0% from $5.5 million in 2000 to $8.0 million in 2001, as a result of the factors previously indicated. Operating income as a percentage of net sales decreased from 23.9% in 2000 to 18.8% in 2001. 10 13 Interest expense increased by $0.4 million or 15.2% from $2.7 million in 2000 to $3.1 million in 2001 due primarily to the additional debt associated with the Acquisition of the Saint-Gobain ceramic fiber business, offset in part by lower interest costs on certain variable rate borrowings. Interest expense decreased as a percentage of net sales from 11.7% in 2000 to 7.3% in 2001. Provision for income taxes increased by $0.5 million or 56.5% from $1.0 million in 2000 to $1.5 million in 2001. The effective income tax rate reduced from 35.1% in 2000 to 31.1% in 2001 primarily as a result of the effective income tax rates of the Company's foreign subsidiaries. Net income increased by $1.5 million or 84.4% from $1.8 million in 2000 to $3.3 million in 2001, as a result of the factors previously indicated. Net income as a percentage of net sales remained at 7.8% in both 2000 and 2001. SIX MONTHS ENDED JUNE 30, 2001 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2000 Net Sales in the first six months of 2001 increased by $39.2 million or 83.9% from $46.8 million in 2000 to $86.0 million in 2001. Sales for the first six months of 2001 included the addition of the Saint-Gobain worldwide ceramic fiber business which was acquired by Unifrax in October 2000 (the "Acquisition"). Gross profit increased by $16.4 million or 67.2% from $24.5 million in 2000 to $40.9 million in 2001. Gross profit as a percentage of net sales decreased from 52.3% in 2000 to 47.6% in 2001. The increase in gross profit was due to the higher sales volume related to the Acquisition. The lower overall gross profit percentage of net sales reflects the effect of lower gross margins in some of the recently-acquired overseas businesses, and weaker margins in North America. Selling, general, and administrative expenses increased by $12.2 million or 95.4% from $12.8 million in 2000 to $25.0 million in 2001. SG&A expenses for the first quarter of 2001 included the addition of the Saint-Gobain worldwide ceramic fiber business acquired by Unifrax in October 2000. SG&A expenses were also higher due to additional depreciation and amortization costs associated with the Acquisition and higher third party professional services. Selling, general, and administrative expenses as a percentage of net sales increased from 27.3% in 2000 to 29.0% in 2001. Operating income increased by $4.2 million or 36.5% from $11.7 million in 2000 to $15.9 million in 2001, as a result of the factors previously indicated. Operating income as a percentage of net sales decreased from 25.0% in 2000 to 18.5% in 2001. Interest expense increased by $1.3 million or 24.1% from $5.3 million in 2000 to $6.6 million in 2001 due primarily to the additional debt associated with the acquisition of the Saint-Gobain ceramic fiber business, offset in part by lower interest costs on certain variable rate borrowings. Interest expense decreased as a percentage of net sales from 11.4% in 2000 to 7.7% in 2001. Provision for income taxes increased by $0.8 million or 36.7% from $2.2 million in 2000 to $3.0 million in 2001. The effective income tax rate reduced from 34.9% in 2000 to 32.8% in 2001, primarily as a result of the effective income tax rates of the Company's foreign subsidiaries. Net income increased by $2.0 million or 47.3% from $4.1 million in 2000 to $6.1 million in 2001, as a result of the factors previously indicated. Net income as a percentage of net sales decreased from 8.8% in 2000 to 7.0% in 2001. 11 14 LIQUIDITY AND CAPITAL RESOURCES During the six-month period ended June 30, 2001, the Company's cash flows from operating activities increased by $6.4 million or 69.7%, from $9.2 million in 2000 to $15.6 million in 2001. This increase was principally due to higher net income and depreciation and amortization resulting from the addition of the Saint-Gobain worldwide ceramic fiber business which was acquired by Unifrax in October 2000, offset in part by payments of various incentives related to year 2000 performance. In addition, in connection with the Acquisition, Saint-Gobain agreed to compensate the Company for certain liabilities that the Company would be responsible for discharging. During the six-month period ended June 30, 2001, Saint-Gobain remitted $9,006,000 to the Company. Cash used by investing activities remained constant at $3.0 million, with lower capital spending in 2001 offset by additional acquisition costs and purchase of additional equity in the Indian subsidiary. Cash used by financing activities increased by $3.6 million or 58.6% from $6.2 million in 2000 to $9.8 million in 2001. During the first six months of 2001 the Company borrowed $1.5 million on its term loan facility and repaid a $1.5 million promissory note to Saint-Gobain. The Company also repaid $6.3 million of its term loans, and paid a dividend of $0.5 million on its redeemable cumulative Series A preferred stock. Management believes that cash flows from operations and the available credit facility will be sufficient to fund normal operating requirements and planned capital expenditures over the next 12 months. See "Forward Looking Statements". As of October 30, 1996, the Company entered into a tax sharing agreement with the principal stockholder, Unifrax Holding Co. ("Holding"). The results of its operations are now included in the consolidated U.S. corporate income tax return of Holding. The Company's provision for income taxes is computed as if the Company filed its annual tax returns on a separate Company basis. The current portion of the income tax provision will be satisfied by a payment to or from Holding. At December 31, 2000, the Company had Federal and State net operating loss carryforwards totaling approximately $13.0 million which will be available to offset future taxable income. These net operating loss carryforwards expire in 2011 through 2019. LEGAL PROCEEDINGS Reference is made to the information included in Note D to the condensed consolidated financial statements of the Company included under Item 1 in this Form 10-Q, which is hereby incorporated herein by reference. EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The intended use of the derivative and its designation as either a fair value hedge, a cash flow hedge, or a foreign currency hedge, will determine when the gains or losses on the derivatives are to be reported in earnings and when they are to be reported as a component of other comprehensive income. The Company has adopted SFAS No. 133, as of January 1, 2001. The impact of the adoption is included in the information shown in Note F to the condensed consolidated financial statements of the Company included under Item 1 in this Form 10-Q, 12 15 which is hereby incorporated herein by reference. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 13 16 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Reference is made to the information included in Note D to the condensed consolidated financial statements of the Company and included in this Form 10-Q, which is hereby incorporated herein by reference. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS ON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None. (b) No reports on Form 8-K have been filed during the period covered by this report. 14 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. UNIFRAX CORPORATION Date: August 10, 2001 By: /s/ William P. Kelly ------------------------ ----------------------------------- William P. Kelly, President and Chief Executive Officer Date: August 10, 2001 By: /s/ Mark D. Roos ------------------------ ----------------------------------- Mark D. Roos, Sr. Vice President and Chief Financial Officer 15

UNIFRAX CORP 10-Q