SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 2, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to______
Commission file number 0-20686
UNIROYAL TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 65-0341868
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 N. Tamiami Trail, Suite 900
Sarasota, FL 34236
(Address of principal executive offices) (Zip Code)
(941) 361-2100
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
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 .
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock as of the latest
practicable date.
Total number of shares of outstanding stock as of July 30, 2000
Common stock 26,047,335
PART I - FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
UNIROYAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
ASSETS
July 2, September 26,
2000 1999
--------------- ---------------
Current assets:
Cash and cash equivalents $ 62,284 $ 4,145
Short-term investments (Note 2) 1,002 -
Trade accounts receivable (less estimated reserve for
doubtful accounts of $82 and $88, respectively) 5,469 4,808
Inventories (Note 3) 10,849 8,599
Deferred income taxes 5,052 2,779
Prepaid expenses and other current assets 1,225 1,413
--------------- ---------------
Total current assets 85,881 21,744
Property, plant and equipment - net 52,463 43,804
Property, plant and equipment held for sale (Note 4) 1,851 4,217
Investments (Note 2) 13,098 -
Investment in preferred stock (Note 5) - 5,383
Note receivable (Note 6) - 5,000
Goodwill - net (Note 7) 38,387 1,310
Deferred income taxes - net 9,843 15,350
Other assets - net 12,584 10,148
--------------- ---------------
TOTAL ASSETS $ 214,107 $ 106,956
=============== ================
UNIROYAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
(In thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
July 2, September 26,
2000 1999
--------------- ---------------
Current liabilities:
Current portion of long-term debt $ 5,617 $ 5,282
Trade accounts payable 14,669 9,688
Net liabilities of discontinued operations (Note 8) 4,258 8,380
Accrued expenses:
Compensation and benefits 6,225 7,326
Interest 112 222
Taxes, other than income 399 388
Income taxes payable 5,015 -
Other 3,879 1,055
--------------- ---------------
Total current liabilities 40,174 32,341
Long-term debt, net of current portion 19,306 24,369
Other liabilities 22,816 15,288
--------------- ---------------
Total liabilities 82,296 71,998
--------------- ---------------
Commitments and contingencies (Note 10)
Minority interest 5,110 3,825
Stockholders' equity (Note 9):
Preferred stock:
Series C - 0 shares issued and outstanding; par value
$0.01; 450 shares authorized - -
Common stock:
30,769,242 and 29,362,838 shares issued,
respectively; par value $0.01; 35,000,000 shares
authorized 308 294
Additional paid-in capital 96,691 57,524
Unrealized gain on securities available for sale - net - 100
Retained earnings (deficit) 54,706 (6,112)
--------------- ---------------
151,705 51,806
Less treasury stock at cost - 4,571,407 and 5,343,974
shares, respectively (25,004) (20,673)
--------------- ---------------
Total stockholders' equity 126,701 31,133
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 214,107 $ 106,956
================ ===============
See notes to condensed consolidated financial statements.
UNIROYAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
July 2, June 27, July 2, June 27,
2000 1999 2000 1999
------------ ------------ ------------ ------------
Net sales $ 18,276 $ 18,522 $ 49,574 $ 53,613
Costs, expenses and (other income):
Costs of goods sold 13,877 13,591 38,463 41,256
Selling and administrative (Note 11) 7,117 4,416 27,445 11,849
Depreciation and other amortization 2,101 819 4,219 2,441
Gain on sale of preferred stock investment
(Note 5) - (898) (2,905) (898)
Provision for uncollectible note receivable
(Note 6) - - 5,387 -
Loss on assets to be disposed of (Note 4) - - 2,223 -
------------ ------------ ------------ ------------
(Loss) income before interest, income
taxes, minority interest and discontinued
operations (4,819) 594 (25,258) (1,035)
Interest income (expense) - net 761 (223) 458 (477)
------------ ------------ ------------ ------------
(Loss) income before income taxes,
minority interest and discontinued
operations (4,058) 371 (24,800) (1,512)
Income tax benefit (expense) (Note 12) 121 (446) 21,798 38
------------ ------------ ------------ ------------
Loss before minority interest and
discontinued operations (3,937) (75) (3,002) (1,474)
Minority interest in net losses of
consolidated joint venture 2,126 453 5,193 1,033
------------ ------------ ------------ ------------
(Loss) income from continuing operations (1,811) 378 2,191 (441)
Income from discontinued operations
(net of income taxes) (Note 8) - 1,553 1,525 3,450
(Loss) gain on disposition of discontinued
operations (net of income taxes) (Note 8) (16) - 57,102 -
------------ ------------ ------------ ------------
Net (loss) income $ (1,827) $ 1,931 $ 60,818 $ 3,009
============ ============ ============ ============
Net (loss) income per common share -
- ------------------------------------
basic (Note13)
-----
(Loss) income from continuing operations $ (0.07) $ 0.02 $ 0.09 $ (0.02)
Income from discontinued operations - 0.06 2.38 0.14
------------ ------------ ------------ ------------
Net (loss) income $ (0.07) $ 0.08 $ 2.47 $ 0.12
============ ============ ============ ============
Net (loss) income per common share -
- ------------------------------------
diluted (Note 13)
-------
(Loss) income from continuing operations $ (0.07) $ 0.01 $ 0.08 $ (0.02)
Income from discontinued operations - 0.06 2.04 0.14
------------ ------------ ------------ ------------
Net (loss) income $ (0.07) $ 0.07 $ 2.12 $ 0.12
============ ============ ============ ============
See notes to condensed consolidated financial statements.
UNIROYAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
Three Months Ended Nine Months Ended
--------------------------- --------------------------
July 2, June 27, July 2, June 27,
2000 1999 2000 1999
---------- ---------- ---------- ----------
Net (loss) income $ (1,827) $ 1,931 $ 60,818 $ 3,009
Unrealized (loss) gain on securities available
for sale, net of income taxes:
Unrealized gain on securities
available for sale - 381 - 1,372
Less: reclassification adjustment for
gains realized in net income - (548) (100) (548)
---------- ---------- ---------- ----------
Net unrealized (loss) gain - (167) (100) 824
---------- ---------- ---------- ----------
Comprehensive income (Note 14) $ (1,827) $ 1,764 $ 60,718 $ 3,833
========== ========== ========== ==========
See notes to condensed consolidated financial statements.
UNIROYAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
----------------------------------
July 2, June 27,
2000 1999
----------- -----------
OPERATING ACTIVITIES:
Net income $ 60,818 $ 3,009
Deduct income from discontinued operations (58,627) (3,450)
----------- -----------
Income (loss) from continuing operations 2,191 (441)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,219 2,441
Gain on sale of preferred stock investment (2,905) (898)
Deferred tax provision 6,701 2,223
Provision for uncollectible note receivable 5,387 -
Loss on assets to be disposed of 2,223 -
Minority interest in losses of consolidated joint venture (5,193) (1,033)
Other 288 148
Changes in assets and liabilities:
(Increase) decrease in trade accounts receivable (128) 4,748
(Increase) decrease in inventories (2,016) 2,728
(Increase) decrease in prepaid expenses and other
assets (1,221) 356
Increase (decrease) in trade accounts payable 6,217 (59)
Increase (decrease) in other accrued expenses 6,813 (3,035)
Increase in other liabilities 808 331
----------- -----------
Net cash provided by continuing operations 23,384 7,509
Net cash (used in) provided by discontinued operations (44,400) 10,884
----------- -----------
Net cash (used in) provided by operating activities (21,016) 18,393
----------- -----------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (Note 15) (18,786) (10,132)
Investment purchases (62,765) -
Proceeds from sale of investments 46,025 -
Purchase of preferred stock investment - (9,144)
Proceeds from sale of preferred stock investment 8,125 4,822
Business acquisitions - net of cash 613 (733)
Proceeds from sale of discontinued operations 208,976 -
----------- -----------
Net cash provided by (used in) investing activities 182,188 (15,187)
----------- -----------
FINANCING ACTIVITIES (Note 15):
Repayment of term loans (90,148) (6,405)
Proceeds from term loan - 785
Net (decrease) increase in revolving loan balances (11,348) 1,724
Proceeds from termination of interest rate swaps 950 -
Minority interest capital contributions 4,115 5,725
Stock options exercised 732 311
Exercise (purchase) of warrants 742 (292)
Purchase of treasury stock (8,076) (8,239)
----------- -----------
Net cash used in financing activities (103,033) (6,391)
----------- -----------
Net increase (decrease) in cash 58,139 (3,185)
Cash and cash equivalents at beginning of period 4,145 4,099
----------- -----------
Cash and cash equivalents at end of period $ 62,284 $ 914
=========== ===========
See notes to condensed consolidated financial statements.
UNIROYAL TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Three Months and Nine Months Ended
July 2, 2000 and June 27, 1999
1. BASIS OF PRESENTATION
The interim Condensed Consolidated Financial Statements relate to
Uniroyal Technology Corporation and its wholly-owned subsidiaries
Uniroyal HPP Holdings, Inc., Uniroyal Engineered Products, Inc.,
Uniroyal Optoelectronics, Inc., Sterling Semiconductor, Inc., Unitech
NJ, Inc., BayPlas3, Inc., NorLux Corp. and its majority-owned
subsidiary, Uniroyal Liability Management Company (the "Company").
Uniroyal HPP Holdings, Inc. includes its wholly-owned subsidiary, High
Performance Plastics, Inc. ("HPPI"). Uniroyal Optoelectronics, Inc.
includes its majority-owned joint venture, Uniroyal Optoelectronics,
LLC. Uniroyal Liability Management Company includes its wholly-owned
subsidiary, BayPlas2, Inc. The interim Condensed Consolidated Financial
Statements of the Company are unaudited and should be read in
conjunction with the Company's annual consolidated financial statements
and notes thereto for the fiscal years ended September 26, 1999,
September 27, 1998 and September 28, 1997. See Note 8 for information
concerning the sale of HPPI's business and Note 7 for information
regarding the acquisition of Sterling Semiconductor, Inc.
The Company's fiscal year ends on the Sunday following the last Friday
in September. As a result, Fiscal 2000 will end on October 1, 2000 and
will encompass a 53-week period as compared to Fiscal 1999 which ended
on September 26, 1999, and encompassed a 52-week period. The additional
week in Fiscal 2000 occurred in the first quarter ended January 2,
2000. Therefore, the nine months ended July 2, 2000 encompassed 40
weeks of operations compared to 39 weeks of operations for the nine
months ended June 27, 1999.
Certain reclassifications were made to the prior year interim Condensed
Consolidated Financial Statements to conform to current period
presentations. In the opinion of the Company, all adjustments necessary
for a fair presentation of such interim Condensed Consolidated
Financial Statements have been included. Such adjustments consist only
of normal recurring items. Interim results are not necessarily
indicative of results for a full year. The interim Condensed
Consolidated Financial Statements and notes thereto are presented as
permitted by the Securities and Exchange Commission and do not contain
certain information included in the Company's annual consolidated
financial statements and notes thereto.
2. INVESTMENTS
All investments with an original maturity greater than three months are
accounted for under Statement of Financial Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
Management determines the appropriate classification of securities at
the time of purchase and re-evaluates such designation as of each
balance sheet date.
At July 2, 2000, the Company's investment portfolio consisted of
marketable debt securities classified as held-to-maturity and
available-for-sale. Debt securities are classified as held-to-maturity
when the Company has the positive intent and ability to hold the
securities until maturity. Held-to-maturity securities are recorded
either as short-term or long-term on the balance sheet based upon
contractual maturity date and are stated at amortized cost which
approximates fair value at July 2, 2000. At July 2, 2000, short term
held-to-maturity securities approximated $1,002,000 and long-term
held-to-maturity securities approximated $9,009,000 and mature in
Fiscal 2001 and Fiscal 2002.
Debt securities not classified as held-to-maturity are classified as
available-for-sale and are carried at fair market value, with the
unrealized gains and losses, net of tax, reported in shareholders'
equity until realized. Gains and losses on securities sold are based
upon the specific identification method. At July 2, 2000, long-term
available-for-sale debt securities approximated $4,089,000 and have
maturity dates during Fiscal 2006 and Fiscal 2019. There are no
unrecognized gains or losses as of July 2, 2000, and there have been no
realized gains or losses for the nine months ended July 2, 2000
associated with these investments.
3. INVENTORIES
July 2, September 26,
2000 1999
----------- -------------
Raw materials, work in process
and supplies $ 4,857 $ 4,275
Finished goods 5,992 4,324
----------- ------------
Total $ 10,849 $ 8,599
=========== ============
4. PROPERTY, PLANT AND EQUIPMENT HELD FOR SALE
During the nine months ended July 2, 2000, the Company further reserved
against its Port Clinton, Ohio ("Port Clinton") property, plant and
equipment held for sale in the amount of $2,223,000. An additional
impairment loss was recorded based upon recent negotiations to sell the
property to a new buyer. The current fair value less costs to sell the
property approximates $851,000 at July 2, 2000. The Company expects to
dispose of the remaining Port Clinton assets during the current year.
5. INVESTMENT IN PREFERRED STOCK
During the nine months ended July 2, 2000, the Company converted the
remaining 372,857 shares of its Emcore Corporation ("Emcore") preferred
stock into 372,857 shares of Emcore common stock. The common stock was
then sold in the open market for approximately $8,125,000. This
resulted in a gain of approximately $2,905,000, net of certain
transaction costs. During the nine months ended June 27, 1999, the
Company converted 270,000 shares of the Emcore preferred stock into
270,000 shares of Emcore common stock. The common stock was then sold
in conjunction with a public stock offering by Emcore. The Company
recognized a gain on the sale of approximately $898,000, net of certain
transaction costs.
6. NOTE RECEIVABLE
In March of 2000, the Company fully reserved its note receivable and
related accrued interest from RBX Group, Inc. ("RBX") in the amount of
$5,387,000. This was a result of a determination that based on recent
events at RBX, which included the effects of a prolonged strike at its
major facility, the financial condition of RBX had deteriorated such
that collectibility of the note receivable and related accrued interest
was in doubt. On June 22, 2000, the Company settled all outstanding
claims and counterclaims with RBX for a cash payment of $250,000. Such
amount is included in selling and administrative costs for the period
ended July 2, 2000.
7. ACQUISITION OF STERLING SEMICONDUCTOR, INC.
On May 31, 2000, the Company completed a merger with Sterling
Semiconductor, Inc. ("Sterling") whereby Sterling became a wholly-owned
subsidiary of the Company. Sterling is a developer and manufacturer of
silicon carbide ("SiC") semiconductor wafer substrates, related
semiconductor devices and substrates with epitaxial thin film coatings.
Under the terms of the merger agreement, the Company exchanged 1.1965
shares of its common stock for each share of Sterling's issued and
outstanding preferred and common stocks and exchanged Company employee
stock options for 1.1965 shares of the Company's common stock for each
share of Sterling common stock covered by an outstanding Sterling
employee stock option (the majority of which were vested). This
resulted in an issuance of 1,531,656 shares of the Company's common
stock valued at approximately $31,655,000, the issuance of 508,219 of
Company employee stock options valued at approximately $8,959,000, and
the payment of approximately $2,000 for fractional shares. The total
purchase price, including acquisition costs, approximated $41,226,000.
The Company common stock issued was valued based upon the average
market value of such shares on the dates surrounding the final purchase
price adjustment, which occurred on April 30, 2000. The Company
employee stock options issued were recorded at fair value calculated
using the Black-Sholes option-pricing model.
The Sterling merger was accounted for by the purchase method in
accordance with the Accounting Principles Board Opinion No. 16,
"Business Combinations." The results of operations of Sterling are
included in the Condensed Consolidated Financial Statements for the
period June 1, 2000 through July 2, 2000. The purchase price has been
allocated to the assets purchased and liabilities assumed based on
their preliminary estimated fair market values at the date of
acquisition as follows (in thousands):
Working capital $ (403)
Property, plant and equipment 1,840
Deferred tax asset 3,955
Other assets 1,251
Goodwill 37,749
Notes payable (1,051)
Other liabilities (2,639)
-------------
Net value of purchased assets 40,702
Value of common stock and employee
stock options issued (40,614)
Cash paid for fractional shares (2)
Accrued acquisition costs (699)
-------------
Cash acquired at acquisition $ (613)
=============
The acquired preliminary goodwill will be amortized over its estimated
useful life of 5 years. The Company is in the process of completing its
final purchase price allocation and determination of related goodwill
and other intangibles. Subject to the receipt of a definitive
appraisal, the Company may account for some portion of the preliminary
goodwill as acquired in-process research and development in the quarter
ending October 1, 2000.
The following pro forma data summarize the results of operations for
the periods indicated as if the Sterling acquisition had been completed
as of the beginning of the periods presented. The pro forma data gives
effect to actual operating results prior to the acquisition, adjusted
to include the pro forma effect of interest expense, amortization of
intangibles and income taxes. These pro forma results are not
necessarily indicative of the results that would have actually been
obtained if the acquisition occurred as of the beginning of the periods
presented or that may be obtained in the future.
Nine months ended
-----------------------------
July 2, June 27,
2000 1999
----------- -----------
Pro forma net sales $ 51,738 $ 54,976
Pro forma net income (loss) $ 52,685 $ (4,711)
Pro forma earnings (loss) per share:
Basic $ 2.14 $ (0.19)
Diluted $ 1.84 $ (0.19)
The acquisition costs for Sterling primarily include approximately
$428,000 paid to an investment banking firm that employs relatives of
one of the Company's executive officers and approximately $128,000 paid
to a law firm of which one of the Company's directors is a senior
partner.
8. DISCONTINUED OPERATIONS
On December 24, 1999, the Company entered into a definitive agreement
to sell certain net assets of its High Performance Plastics Segment for
$217,500,000 in cash to Spartech Corporation. The transaction closed on
February 28, 2000, and resulted in cash proceeds of approximately
$208,976,000, net of certain transaction costs and working capital
adjustments and a gain on the sale of approximately $58,349,000 (net of
taxes of approximately $38,890,000). The purchase price will ultimately
be adjusted by changes in working capital and costs to complete the
modernization at the Stamford, Connecticut facility. Pursuant to the
asset purchase agreement, Spartech held back $5,000,000 of the purchase
price pending resolution of any such adjustments. The Company has been
discussing these adjustments with Spartech and while the Company
expects (and has provided for) a reduction in purchase price of
approximately $3,100,000, the Company does not believe that these
adjustments will involve a reduction in the purchase price by more than
5%.
The Condensed Consolidated Financial Statements reflect the
discontinued operations of HPPI in accordance with Accounting
Principles Board Opinion No. 30, "Reporting Results of Operations."
Net liabilities of the discontinued operations of the High Performance
Plastics Segment have been segregated on the July 2, 2000 and September
26, 1999 balance sheets, the components of which are as follows (in
thousands):
July 2, September 26,
Net Liabilities of Discontinued Operations 2000 1999
------------------------------------------ ------------- -------------
Assets:
Cash $ 101 $ 37
Receivables 23 18,261
Inventories 52 30,028
Deferred income taxes 1,933 2,030
Prepaid and other assets 2,334 1,712
Property, plant and equipment - net 252 45,099
Intangibles and other assets - 15,400
------------- -------------
Total assets 4,695 112,567
------------- -------------
Liabilities:
Current portion of long-term debt 158 8,805
Trade payables 400 13,323
Accrued income taxes 2,910 -
Other accrued expenses 4,233 7,429
Long-term debt, net of current portion - 84,552
Deferred income taxes 1,202 6,322
Other liabilities 50 516
------------- -------------
Total liabilities 8,953 120,947
------------- -------------
Net liabilities of discontinued operations $ 4,258 $ 8,380
============= =============
The results of operations for all periods presented have been restated
for discontinued operations. The operating results of discontinued
operations are as follows (in thousands):
For the Three Months Ended
------------------------------------
July 2, June 27,
Income from Discontinued Operations 2000 1999
----------------------------------- ------------- -----------
Net sales $ 32 $ 32,564
Costs of goods sold 166 22,697
Selling and administrative 175 3,669
Depreciation and other amortization 26 1,468
------------ -----------
(Loss) income before interest expense and
income taxes (335) 4,730
Interest expense (1) (2,216)
------------ -----------
(Loss) income before income taxes (336) 2,514
Income tax benefit (expense) 320 (961)
------------ -----------
Net (loss) income from discontinued operations $ (16) $ 1,553
============ ===========
For the Nine Months Ended
-----------------------------------
July 2, June 27,
Income from Discontinued Operations 2000 1999
----------------------------------- ------------ -----------
Net sales $ 54,986 $ 95,835
Costs of goods sold 44,299 67,741
Selling and administrative 4,102 11,551
Depreciation and other amortization 2,501 4,295
Gain on sale of HPPI (97,239) -
------------ -----------
Income before interest expense and income taxes 101,323 12,248
Interest expense (3,620) (6,495)
------------ ------------
Income before income taxes 97,703 5,753
Income tax expense (39,076) (2,303)
------------ -----------
Net income from discontinued operations $ 58,627 $ 3,450
============ ===========
9. STOCKHOLDERS' EQUITY
On March 10, 2000, the Company declared a two-for-one stock split in
the form of a 100% stock dividend to its common shareholders of record
on March 20, 2000. The Condensed Consolidated Financial Statements
presented herein retroactively reflect the effect of the split.
During the nine months ended July 2, 2000, the Company repurchased
625,317 shares of its common stock in the open market for approximately
$7,773,000.
During the nine months ended July 2, 2000, the Company repurchased
47,984 shares of its common stock from its benefit plans for
approximately $303,000.
During the nine months ended July 2, 2000, the Company received 102,994
shares of its common stock in lieu of cash for the exercise of stock
options from officers and employees of the Company. These shares were
valued at approximately $1,268,000 (which was calculated based upon the
closing market value of the stock on the day prior to the respective
exercise dates) and are included as treasury shares as of July 2, 2000.
Subsequent to July 2, 2000, and as of August 10, 2000, the Company
repurchased 274,500 shares of its common stock in the open market for
approximately $4,021,000.
10. COMMITMENTS AND CONTINGENCIES
Litigation
The Company is engaged in litigation arising from the ordinary course
of business. Management believes the ultimate outcome of such
litigation will not have a material adverse effect upon the Company's
results of operations, cash flows or financial position.
Environmental Factors
The Company is subject to a wide range of federal, state and local laws
and regulations designed to protect the environment and worker health
and safety. The Company's management emphasizes compliance with these
laws and regulations. The Company has instituted programs to provide
guidance and training and to audit compliance with environmental laws
and regulations at Company owned or leased facilities. The Company's
policy is to accrue environmental and cleanup-related costs of a
non-capital nature when it is probable both that a liability has been
incurred and that the amount can be reasonably estimated.
In connection with the sale of substantially all of the net assets of
HPPI to Spartech on February 28, 2000, the Company conducted
environmental assessments of two of the plants of HPPI in compliance
with the laws of the states of Connecticut and New Jersey relating to
transfers of industrial real property. The environmental assessment of
the Connecticut property indicated that a separate parcel purchased by
the Company in 1995 was contaminated with total petroleum hydrocarbons
(TPHS), DDT and other pesticide chemicals. The Company has removed
approximately one-half of the soil on the property at a cost of
approximately $1,400,000 (through July 2, 2000). The Company has
retained environmental consultants to review its options with regard to
the remaining soil on the premises. Testing at the Hackensack, New
Jersey, facility is still underway. In total the Company has estimated
the cost of its environmental liabilities to approximate $3,800,000. At
July 2, 2000, approximately $2,400,000 is accrued for environmental
clean-up costs and is included in net liabilities of discontinued
operations.
Based on information available as of July 2, 2000, the Company believes
that the costs of known environmental matters either have been
adequately provided for or are unlikely to have a material adverse
effect on the Company's operations, cash flows or financial position.
Manufacturing Delays
The Compound Semiconductor and Optoelectronics Segment is experiencing
rapid growth and the Company has added a significant number of new
employees. The Company has a newly-constructed plant in Tampa, Florida
to manufacture epitaxial wafers and package-ready dies for use in
HB-LEDs. Various startup issues, including equipment and process
issues, have delayed commercial production at this facility. The
Company expects to reach commercial production levels by the end of
2000, although it is not certain that the schedule will be met. The
Company is planning to build additional significant capacity at the
Tampa facility and a newly leased facility for the Compound
Semiconductor business within the next year.
11. JOINT VENTURE
During the three months and nine months ended July 2, 2000, the
Optoelectronics joint venture recorded sales of approximately $28,000
and $1,544,000, respectively. The sales were primarily a result of
product supplied by the joint venture partner, Emcore Corporation.
There were sales by the Optoelectronics joint venture during the three
months and nine months ended June 27, 1999 of $253,000 and $338,000,
respectively.
During the three months ended July 2, 2000 and June 27, 1999,
approximately $3,323,000, and $1,266,000, respectively, of joint
venture start-up costs are included in selling and administrative
costs.
During the nine months ended July 2, 2000 and June 27, 1999,
approximately $8,833,000 and $2,472,000, respectively, of joint venture
start-up costs are included in selling and administrative costs.
12. INCOME TAXES
The provisions for income tax benefit (expense) for the three months
and nine months ended July 2, 2000 and June 27, 1999 were calculated
through the use of the estimated annual income tax rates based on
projected annualized income. During nine months ended July 2, 2000, the
Company reduced the deferred tax valuation allowance relating to
capital loss carryforwards and recognized a tax benefit of $13,702,000.
The capital losses were used to offset capital gains which resulted
from the sale of the Emcore stock (Note 5) and the High Performance
Plastics Segment (Note 8).
13. INCOME PER COMMON SHARE
For the three months ended July 2, 2000, the weighted average number of
common shares outstanding for the calculation of basic and diluted
earnings per share was 25,258,953. Inclusion of stock options to
purchase 5,404,935 shares of common stock at various prices and
warrants to purchase 735,770 shares of common stock at $2.1875 per
share in the calculation of diluted earnings per share would have been
antidilutive.
The reconciliation of the numerators and denominators of the basic and
diluted earnings per share computation for the three months ended June
27, 1999 is as follows (dollars in thousands):
Three Months Ended
June 27, 1999
----------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------------------------------------------------------------
Income from continuing
operations before dis-
continued operations $ 378
Basic EPS
---------
Income available to
common stockholders $ 378 23,882,836 $ 0.02
=========
Effect of Dilutive Securities
-----------------------------
Stock options 1,540,636
Warrants 543,264
----------
Diluted EPS
-----------
Income available to
common stockholders $ 378 25,966,736 $ 0.01
========= ========== =========
The reconciliation of numerators and denominators of the basic and
diluted earnings per share computation for the nine months ended July
2, 2000 is as follows (dollars in thousands):
Nine Months Ended
July 2, 2000
--------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------------------------------------------------------------
Income from continuing
operations before dis-
continued operations $ 2,191
Basic EPS
---------
Income available to
common stockholders $ 2,191 24,596,681 $ 0.09
=========
Effect of Dilutive Securities
-----------------------------
Stock options 3,324,820
Warrants 748,848
----------
Diluted EPS
-----------
Income available to
common stockholders $ 2,191 28,670,349 $ 0.08
========= ========== =========
For the nine months ended June 27, 1999, the weighted average number of
common shares outstanding for the calculation of basic and diluted
earnings per share was 24,379,922. Inclusion of warrants to purchase
1,075,070 shares of common stock at $2.1875 per share and additional
stock options to purchase 3,942,700 shares of common stock at various
prices in the calculation of diluted earnings per share would have been
antidilutive.
14. COMPREHENSIVE INCOME
Comprehensive income is defined as the change in the equity of a
business during a period from transactions and other events and
circumstances from non-owner sources. It includes all changes in equity
during a period except those resulting from investments by owners and
distributions to owners. The changes in unrealized gains and losses on
equity securities available for sale are included in comprehensive
income. The unrealized (loss) gain on securities available for sale is
shown net of a tax benefit of $107,000 for the three months ended June
27, 1999 and net of tax expense of $527,000 for the nine months ended
June 27, 1999. There were no unrealized gains or losses on securities
available for sale for the three months and nine months ended July 2,
2000.
15. STATEMENTS OF CASH FLOWS
Supplemental disclosures of cash flow information are as follows:
Payments for income taxes and interest expense were (in thousands):
Nine Months Ended
------------------------------
July 2, June 27,
2000 1999
---------- ---------
Interest payments (net of capitalized
interest) - continuing operations $ 1,620 $ 505
Interest payments (net of capitalized
interest ) - discontinued operations 4,685 4,838
Income tax payments - continuing operations 6,267 450
Income tax payments - discontinued
operations 267 348
The purchases of property, plant and equipment and net cash used in
financing activities for the nine months ended July 2, 2000 and June
27, 1999 do not include $2,600,000 and $19,098,000, respectively,
related to property held under capital leases. The new leases relate to
property, plant and equipment purchased for Uniroyal Optoelectronics,
LLC.
During the nine months ended July 2, 2000 and June 27, 1999, the
Company made matching contributions to its 401(k) Savings Plan of
$219,000 and $199,000, respectively, through the re-issuance of 17,206
and 39,344 common shares from treasury, respectively.
16. SEGMENT INFORMATION
Segment information for the three months and nine months ended July 2,
2000 and June 27, 1999 is as follows (in thousands):
For the Three Months Ended For the Nine Months Ended
-------------------------------- ------------------------------
July 2, June 27, July 2, June 27,
2000 1999 2000 1999
-------------- ----------- ------------- -------------
Net Sales:
Coated Fabrics $ 8,538 $ 10,289 $ 25,831 $ 33,494
Specialty Adhesives 9,434 7,980 21,923 19,781
Compound Semiconductors and
Optoelectronics 304 253 1,820 338
------------- ----------- ------------ -------------
Total $ 18,276 $ 18,522 $ 49,574 $ 53,613
============= =========== ============ =============
Operating (Loss) Income:
Coated Fabrics $ 605 $ 1,466 $ 230 $ 3,102
Specialty Adhesives 1,239 790 1,960 1,160
Compound Semiconductors and
Optoelectronics (4,961) (1,382) (11,048) (2,864)
Corporate (1,702) (280) (16,400) (2,433)
------------- ----------- ------------ -------------
Total $ (4,819) $ 594 $ (25,258) $ (1,035)
============= =========== ============ =============
Segment information as of July 2, 2000 and September 26, 1999 is as
follows (in thousands):
July 2, September 26,
2000 1999
------------- -------------
Identifiable Assets:
Coated Fabrics $ 22,809 $ 23,547
Specialty Adhesives 15,591 15,972
Compound Semiconductors and Optoelectronics 77,762 22,474
Corporate 97,945 44,963
------------- -------------
Total $ 214,107 $ 106,956
============= ==============
ITEM 2. Management's Discussion and Analysis Of Financial Condition
and Results Of Operations
Third Quarter Fiscal 2000 Compared with
the Third Quarter Fiscal 1999
Net Sales. The Company's net sales from continuing operations decreased in the
third quarter of Fiscal 2000 by approximately 1% to $18,276,000 from $18,522,000
in the third quarter of Fiscal 1999. The decrease is primarily attributable to
the Fiscal 1998 sale of the Coated Fabrics Segment's automotive operations and
the gradual phase-out of those operations. Excluding automotive sales from both
periods, sales from continuing operations increased 16% in the third quarter of
Fiscal 2000 compared to the third quarter of Fiscal 1999.
Net sales by the Coated Fabrics Segment decreased in the third quarter of Fiscal
2000 by approximately 17% to $8,538,000 from $10,289,000 in the third quarter of
Fiscal 1999. The decrease was principally due to the sale in Fiscal 1998 of the
Coated Fabrics Segment's automotive operations and the gradual phase-out of the
automotive business. There were no automotive sales in the third quarter of
Fiscal 2000 compared to $2,816,000 in the third quarter of Fiscal 1999.
Excluding the automotive sales from the prior year period, net sales by the
Coated Fabrics Segment increased approximately 14% as a result of an overall
increase in volume and selling prices for Naugahyde(R) vinyl coated fabrics.
Net sales by the Specialty Adhesives Segment increased in the third quarter of
Fiscal 2000 by approximately 18% to $9,434,000 from $7,980,000 in the third
quarter of Fiscal 1999. This increase is attributable to an increase in
industrial adhesives sales as well as sales of roofing adhesives.
Net sales by the Compound Semiconductor and Optoelectronics Segment were
$304,000 in the third quarter of Fiscal 2000. The Compound Semiconductor and
Optoelectronics Segment is in the development stage. The Compound Semiconductor
and Optoelectronics Segment had sales of $253,000 during the third quarter of
Fiscal 1999 from inventories provided to the Optoelectronics joint venture under
a supply agreement with its joint venture partner. The Compound Semiconductor
and Optoelectronics Segment includes the results of Sterling Semiconductor,
Inc., ("Sterling"), for one month. Sterling Semiconductor, Inc. was acquired by
the Company on May 31, 2000. The Company anticipates limited sales for its
Optoelectronics business during the fourth quarter due to continued ramp-up of
equipment and qualification time by its customers.
(Loss) Income Before Interest, Income Taxes, Minority Interest and Discontinued
Operations. Loss before interest, income taxes, minority interest and
discontinued operations for the third quarter of Fiscal 2000 was $4,819,000,
compared to income of $594,000 for the third quarter of Fiscal 1999. The
increase in the loss is attributable to startup losses for the Compound
Semiconductor and Optoelectronics Segment. The start-up losses for the Compound
Semiconductor and Optoelectronics Segment also include $629,000 of goodwill
amortization as a result of the purchase of certain assets of Sterling. The
goodwill is being amortized over five years. Also, during the third quarter of
Fiscal 2000, there were no corporate allocations to the discontinued operations
of the High Performance Plastics Segment. Prior year third quarter corporate
allocations were $1,147,000.
The Coated Fabrics Segment had income before interest, income taxes, minority
interest and discontinued operations in the third quarter of Fiscal 2000 of
$605,000 versus income of $1,466,000 in the third quarter of Fiscal 1999. The
decrease was primarily due to the phase-out of the sales of the automotive
business and certain incremental costs related to the closure of the Port
Clinton, Ohio facility previously used to produce automotive products.
The Specialty Adhesives Segment had income before interest, income taxes,
minority interest and discontinued operations in the third quarter of Fiscal
2000 of $1,239,000 compared to income of $790,000 in the third quarter of Fiscal
1999. The increase is attributable to an increase in sales of higher margin
industrial products as well as increased sales of roofing adhesives.
The Compound Semiconductor and Optoelectronics Segment incurred a loss before
interest, income taxes, minority interest and discontinued operations of
$4,961,000 in the third quarter of Fiscal 2000 compared to a loss of $1,382,000
in the third quarter of Fiscal 1999. The losses related to start-up costs of the
Optoelectronics joint venture which have increased as the joint venture adds
staff in research and development and prepares to commence commercial
production. Losses include goodwill amortization of $629,000 during the third
quarter of Fiscal 2000 attributable to the purchase of certain assets of
Sterling which were acquired by the Company on May 31, 2000. The goodwill
associated with the acquisition is being amortized over five years. Subject to
the receipt of a definitive appraisal, the Company may account for some portion
of the Sterling purchase consideration as acquired in-process research and
development in the quarter ending October 1, 2000.
Approximately $1,702,000 of costs, recorded in the third quarter of Fiscal 2000
were not allocated to any business segment compared to $280,000 in the third
quarter of Fiscal 1999. During the third quarter of Fiscal 2000, there were no
corporate allocations to the discontinued operations of the High Performance
Plastics Segment. The prior year quarter corporate allocations were $1,147,000.
Net loss from discontinued operations of the High Performance Plastics Segment
was $16,000 in the third quarter of Fiscal 2000 as compared to income of
$1,553,000 in the third quarter of Fiscal 1999. The High Performance Plastics
Segment was sold on February 28, 2000, and no operating results are included in
this third quarter of Fiscal 2000 as compared to three months of operating
results in the third quarter of Fiscal 1999. The Company is currently in
discussions with the buyer of the High Performance Plastics Segment relative to
purchase price adjustments. While the Company expects (and has provided for) a
reduction in purchase price of approximately $3,100,000, the Company does not
believe that these adjustments will involve a reduction in the purchase price by
more than 5%.
Interest Income (Expense). Interest income in the third quarter of Fiscal 2000
was $761,000 as compared to interest expense of $223,000 in the third quarter of
Fiscal 1999. Income from the investment of the proceeds received for the sale of
the Company's High Performance Plastics Segment on February 28, 2000 offset an
increase in debt relating to capitalized lease obligations incurred to finance
the construction of the facility and the purchase of machinery and equipment at
the Compound Semiconductor and Optoelectronics Segment.
Income Tax Benefit (Expense). Income tax benefit in the third quarter of Fiscal
2000 was $121,000 compared to an expense of $446,000 in the third quarter of
Fiscal 1999. The provisions for income tax benefit (expense) were calculated
through the use of the estimated income tax rates based on annualized income.
First Three Quarters Fiscal 2000 Compared with
the First Three Quarters Fiscal 1999
Net Sales. The Company's net sales decreased in the first three quarters of
Fiscal 2000 by approximately 8% ($4,039,000) to $49,574,000 from $53,613,000 in
the first three quarters of Fiscal 1999, primarily due to the sale of the
automotive operations of the Coated Fabrics Segment in Fiscal 1998 and the
gradual phase-out of those operations. Excluding automotive sales from both
periods, sales increased 16% in the first three quarters of Fiscal 2000 compared
to the first three quarters of Fiscal 1999. The 16% increase, excluding
automotive sales from both periods, was due to an increase in sales from the
Compound Semiconductor and Optoelectronics Segment and the inclusion of forty
weeks in the first three quarters of Fiscal 2000 versus thirty-nine weeks in the
first three quarters of Fiscal 1999.
Net sales by the Coated Fabrics Segment decreased in the first three quarters of
Fiscal 2000 by approximately 23% ($7,663,000) to $25,831,000 from $33,494,000 in
the first three quarters of Fiscal 1999 due to the sale of the automotive
operations and the gradual phase-out of its automotive business. Automotive
sales approximated $631,000 in the first three quarters of Fiscal 2000 compared
to $11,599,000 in the first three quarters of Fiscal 1999. Excluding automotive
sales from both periods, sales of Naugahyde(R) vinyl-coated fabrics increased by
approximately 15%, due to strong growth in the transportation division and the
inclusion of forty weeks in the first three quarters of Fiscal 2000 versus
thirty-nine weeks in the first three quarters of Fiscal 1999.
Net sales by the Specialty Adhesives Segment increased in the first three
quarters of Fiscal 2000 by approximately 11% ($2,142,000) to $21,923,000 from
$19,781,000 in the first three quarters of Fiscal 1999, primarily due to
increased sales of its industrial adhesives and sealant products and the
inclusion of forty weeks in the first three quarters of Fiscal 2000 versus
thirty-nine weeks in the first three quarters of Fiscal 1999.
Net sales by the Compound Semiconductor and Optoelectronics Segment for the
first three quarters of Fiscal 2000 were $1,820,000 compared to $338,000 in the
first three quarters of Fiscal 1999. The Compound Semiconductor and
Optoelectronics Segment began limited commercial sales and production in the
first nine months of Fiscal 2000 but is still in the development stage.
Loss Before Interest, Income Taxes, Minority Interest and Discontinued
Operations. Loss before interest, income taxes, minority interest and
discontinued operations for the first three quarters of Fiscal 2000 was
$25,258,000, compared to a loss of $1,035,000 for the first three quarters of
Fiscal 1999. The greater loss is due to a number of non-recurring and unusual
items including the gain realized on the sale of the investment in the preferred
stock of Emcore Corporation ($2,905,000); the write-off of a note receivable
(and related accrued interest) related to the sale of the Ensolite closed cell
foam division, due to the deterioration of the financial condition of the buyer
(RBX Group, Inc.) as a result of a prolonged strike at its major facility and
the ultimate settlement of the note with RBX Group, Inc. ($5,387,000); a
reduction in the fair value of certain property, plant and equipment related to
the Company's Port Clinton, Ohio facility which is expected to be disposed of
this year ($2,223,000); incentive payments and benefit costs to and for officers
and directors related to the achievement of certain strategic initiatives
($5,449,000); a loss of revenues associated with the gradual phase-out of the
automotive operations of the Coated Fabrics Segment and start-up losses for the
Compound Semiconductor and Optoelectronics Segment. Also during the first three
quarters of Fiscal 2000, there were no corporate allocations to the discontinued
operations of the High Performance Plastics Segment. The prior year corporate
allocations for the first three quarters of Fiscal 1999 were $3,388,000.
The Coated Fabrics Segment's income before interest, income taxes, minority
interest and discontinued operations in the first three quarters of Fiscal 2000
was $230,000 compared to income of $3,102,000 in the first three quarters of
Fiscal 1999. The decrease is attributable to the write-down to fair value of
certain assets to be disposed of, the loss of revenues from the gradual
phase-out of its automotive operations, as well as certain incremental costs
related to the closure of the Port Clinton, Ohio facility previously used to
produce automotive products.
The Specialty Adhesives Segment's income before interest, income taxes, minority
interest and discontinued operations in the first three quarters of Fiscal 2000
was $1,960,000 versus $1,160,000 in the first three quarters of Fiscal 1999. The
increase is due to the increase in sales volume of branded industrial products
and the inclusion of forty weeks in the first three quarters of Fiscal 2000
versus thirty-nine weeks in the first three quarters of Fiscal 1999.
The Compound Semiconductor and Optoelectronics Segment's loss before interest,
income taxes, minority interest and discontinued operations in the first three
quarters of Fiscal 2000 was $11,048,000 compared to a loss of $2,864,000 in the
first three quarters of Fiscal 1999. The losses relate to the start-up and
training costs of the Compound Semiconductor and Optoelectronics Segment. Also
contributing to the increase in loss is the goodwill amortization of $629,000
during the third quarter of Fiscal 2000 attributable to the purchase of certain
assets of Sterling which were acquired by the Company on May 31, 2000. The
goodwill associated with the acquisition is being amortized over five years.
Subject to the receipt of a definitive appraisal, the Company may account for
some portion of the Sterling purchase consideration as acquired in-process
research and development in the quarter ending October 1, 2000.
Approximately $16,400,000 of costs, non-recurring and unusual items recorded in
the first three quarters of Fiscal 2000 were not allocated to any business
segment compared to $2,433,000 of unallocated costs for the first three quarters
of Fiscal 1999. Included in the non-allocated items in Fiscal 2000 are the gain
realized on the sale of the investment in the preferred stock of Emcore
Corporation ($2,905,000); the write-off of the RBX Group, Inc. note (and related
accrued interest) ($5,387,000); a reduction in the fair value of certain
property, plant and equipment related to the Company's Port Clinton, Ohio
facility which is expected to be disposed of this year ($1,566,000); and
incentive payments and benefit costs to and for officers and directors related
to the achievement of certain strategic initiatives ($5,449,000). Also during
the first three quarters of Fiscal 2000, there were no corporate allocations to
the discontinued operations of the High Performance Plastics Segment. Prior year
corporate allocations for the first three quarters of Fiscal 1999 were
$3,388,000.
Net income from discontinued operations of the High Performance Plastics Segment
increased to $58,627,000 in the first three quarters of Fiscal 2000 compared to
$3,450,000 in the first three quarters of Fiscal 1999. The increase is
attributable to the net effect of the gain recognized on the February 28, 2000
sale of the High Performance Plastics Segment of approximately $58,349,000 (net
of taxes of approximately $38,890,000) and operating income for the period
September 27, 1999 to February 28, 2000. The decline in operations is primarily
a result of production inefficiencies at the Stamford, Connecticut facility due
to a major plant modernization and only five months of operations in the first
three quarters of Fiscal 2000 versus nine months of operations in the first
three quarters of Fiscal 1999. The decline in operations was partially offset by
the suspension of a corporate allocation to this Segment in the first three
quarters of Fiscal 2000.
Interest Income (Expense). Interest income for the first three quarters of
Fiscal 2000 was $458,000 as compared to interest expense of $477,000 in the
first three quarters of Fiscal 1999. The interest income earned on the
investment of the proceeds received from the sale of the Company's High
Performance Plastics Segment on February 28, 2000 was partially offset by an
increase in the debt relating to capitalized lease obligations incurred to
finance the construction of the facility and the purchase of machinery and
equipment at the Compound Semiconductor and Optoelectronics Segment for the
first three quarters of Fiscal 2000.
Income Tax Benefit. Income tax benefit in the first three quarters of Fiscal
2000 was $21,798,000 as compared to $38,000 in the first three quarters of
Fiscal 1999. The provisions for income tax benefit were calculated through the
use of the estimated income tax rates based upon annualized income. The first
three quarters of Fiscal 2000 benefited from the reversal of $13,702,000 of
deferred tax valuation allowance related to capital loss carryforwards. The
reversal was due to the use of the capital losses to offset capital gains
resulting from the sale of the preferred stock of Emcore Corporation and the
sale of the High Performance Plastics Segment.
Liquidity and Capital Resources
For the first three quarters of Fiscal 2000, continuing operations provided
$23,384,000 of cash as compared to $7,509,000 provided by continuing operations
during the first three quarters of Fiscal 1999. The increase in cash provided by
continuing operations for the first three quarters of Fiscal 2000 resulted
primarily from an increase in income taxes payable as a result of the High
Performance Plastics Segment sale, an increase in accounts payable and an
increase in certain accrued and other expenses in connection with special
incentive costs awarded to officers and other liabilities recorded in connection
with the High Performance Plastics Segment sale.
Net cash provided by investing activities for the first three quarters of Fiscal
2000 was $182,188,000 as compared to $15,187,000 used in investing activities
during the first three quarters of Fiscal 1999. During the first three quarters
of Fiscal 2000, the purchase of machinery and equipment primarily related to the
new Optoelectronics production facility in Tampa, Florida and the modernization
of the High Performance Plastics' Polycast production facility in Stamford,
Connecticut. Significant cash provided by investing activities during the first
three quarters of Fiscal 2000 included net cash proceeds from the sale of the
High Performance Plastics Segment of $208,976,000, the sale of the remaining
Emcore Corporation preferred stock for $8,125,000, net of certain transaction
costs, and was offset by the net effect of debt securities purchased and sold.
Net cash used in financing activities during the first three quarters of Fiscal
2000 was $103,033,000 as compared to $6,391,000 of cash used during the first
three quarters of Fiscal 1999. The primary use of cash in financing activities
during the first three quarters of Fiscal 2000 was to repay the outstanding
borrowings at a syndicate headed by Fleet National Bank as a result of the sale
of the High Performance Plastics Segment.
On July 2, 2000, the Company had approximately $62,284,000 in cash and cash
equivalents as compared to approximately $4,145,000 at September 26, 1999.
Working capital at July 2, 2000 was $45,707,000 compared to a working capital
deficit of $10,597,000 at September 26, 1999. On July 2, 2000, the Company had
outstanding borrowings of $3,079,000 under its $10,000,000 revolving credit
facility with the CIT Group/Business Credit, Inc. (subject to a borrowing base
limitation of approximately $9,375,000 at July 2, 2000). The principal uses of
cash during the first three quarters of Fiscal 2000 were to repay debt ,
repurchase shares in the open market and fund capital expenditures and operating
losses at the new Optoelectronics facility in Tampa, Florida. The Company plans
to spend an additional $75.0 - $85.0 million on capital expenditures for the
Compound Semiconductor and Optoelectronics Segment over the next three years for
expansion. The Company plans to fund these expenditures with the proceeds from
the sale of the High Performance Plastics Segment and/or additional financing as
needed. The Company believes that cash from its operations, its ability to
borrow under the revolving credit facility mentioned above and proceeds from the
sale of the High Performance Plastics Segment will provide sufficient liquidity
to finance its existing level of operations and meet its debt service
obligations. However, there can be no assurance that the Company's operations
together with amounts available under the revolving credit facilities will
continue to be sufficient to finance its existing level of operations and meet
its debt service obligations. The Company's ability to meet its debt service and
other obligations depends on its future performance, which in turn, is subject
to general economic conditions and to financial, business and other factors,
including factors beyond the Company's control. If the Company is unable to
generate sufficient cash flow from operations, it may be required to refinance
all or a portion of its existing debt or obtain additional financing including
equity financing. There can be no assurance that the Company will be able to
obtain such refinancing or additional financing.
Effects of Inflation
The markets in which the Company sells products are competitive. Thus, in an
inflationary environment the Company may not in all instances be able to pass
through to consumers general price increases; certain of the Company's
operations may be materially impacted if such conditions were to occur. The
Company has not in the past been adversely impacted by general price inflation.
Year 2000
Many software applications and operational programs written in the past were not
designed to recognize calendar dates beginning in the Year 2000. The failure of
such applications or systems to properly recognize the dates beginning in the
Year 2000 could result in miscalculations or system failures which could result
in an adverse impact on the Company's operations.
The Company instituted a Year 2000 task force that reports to the Audit
Committee of the Board of Directors. The Company also initiated a comprehensive
project, overseen by the task force, to prepare its computer systems,
communication systems and manufacturing/testing equipment for the Year 2000. The
project primarily included three phases: 1) identification and assessment of all
software, hardware and equipment that could potentially be affected by the Year
2000 issue, 2) remedial action necessary to bring such systems into compliance
and 3) further testing, if necessary. The Company completed all phases of its
project. The Company primarily used internal resources in its Year 2000 project
and incurred costs of less than $800,000.
The Company also contacted critical suppliers of products and services and
customers to determine the extent to which the Company might be vulnerable to
such parties' failure to resolve their own Year 2000 issues. The Company does
not have a concentration of dependence on these parties. The effect, if any, on
the Company's results of operations from the failure of such parties to be Year
2000 ready is not reasonably estimable.
The Company formulated contingency plans with respect to its reasonably likely
worst case scenario which is the unavailability of critical raw materials. The
contingency plans for critical raw materials include alternate materials or
sources and advance inventory purchases of certain raw materials.
As of the date of this report, the Company had not experienced any significant
disruptions in any of its systems on January 1, 2000, nor had any supplier or
customer of the Company made us aware of any significant disruptions. The
Company will continue to monitor this issue through the remainder of the
calendar year.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risks
The Company is exposed to various market risks, including changes in interest
rates. The Company's earnings and cash flows are subject to fluctuations due to
changes in interest rates on its floating rate revolving credit advances. The
Company's risk management policy includes the use of derivative financial
instruments (interest rate swaps) to manage its interest rate exposure. The
counter parties are major financial institutions. The Company does not enter
into derivatives or other financial instruments for trading or speculative
purposes. During the second quarter of Fiscal 2000, the Company liquidated all
of its interest rate swap instruments for cash proceeds and a gain of $950,000.
At July 2, 2000, approximately $3.1 million of the Company's floating rate
revolving credit advances was not covered under an interest swap agreement. For
floating rate debt, interest changes generally do not affect the fair market
value but do impact future earnings and cash flows assuming other factors are
held constant. Based upon this balance, a change of one percent in the interest
rate would cause a change in interest expense of approximately $31,000 on an
annual basis.
Forward Looking Statements
Certain statements contained in or incorporated by reference into this report
are "forward looking statements" within the meaning of the United States Private
Securities Litigation Reform Act of 1995. Forward looking statements include
statements which are predictive in nature, which depend upon or refer to future
events or conditions, which include words such as "expects," "anticipates,"
"intends," "plans," "believes," "estimates," or similar expressions. In
addition, any statements concerning future financial performance (including
future revenues, earnings or growth rates), ongoing business strategies or
prospects, and possible future actions, which may be provided by management, are
also forward looking statements as defined by the United States Private
Securities Litigation Reform Act of 1995. Forward looking statements are based
on current expectations and projections about future events and are subject to
risks, uncertainties and assumptions about the Company, economic and market
factors and the industries in which we do business, among other things. These
statements are not guaranties of future performance and we have no specific
intention to update these statements.
These forward looking statements, like any forward looking statements, involve
risks and uncertainties that could cause actual results to differ materially
from those projected or anticipated. Among the important factors which could
cause actual results to differ materially from those in the forward looking
statements are:
o cancellations, rescheduling or delays in product shipments;
o manufacturing capacity constraints;
o lengthy sales and qualification cycles;
o difficulties in the production process;
o the effectiveness of our capital expenditure programs;
o our future financial performance;
o delays in developing and commercializing new products;
o competition;
o changes in the industries in which we compete or plan to compete,
especially the HB-LED and semiconductor industries, including overall
growth of the industries;
o the continued acceptance of our products;
o availability and performance of key personnel;
o relations with employees, customers, suppliers and venture partners;
o our ability to obtain and protect key intellectual property;
o acquisitions and our success in integrating the acquired businesses;
and
o economic conditions generally and in our industries.
For a discussion of important factors that could cause actual results to differ
materially from the forward looking statements contained in or incorporated by
reference into this prospectus, please read Exhibit 99.1 filed herewith entitled
"Risk Factors."
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
(a) The Company knows of no pending legal proceedings to which the
Company or any of its subsidiaries is a party or of which any of
their property is the subject other than routine litigation
incidental to the Company's business or legal proceedings in
which an adverse outcome would not be expected to have a material
impact on the Company.
(b) No legal proceedings were terminated during the nine months ended
July 2, 2000, other than routine litigation incidental to the
Company's business.
Item 2. Changes in Securities
None.
Item 3. Default upon 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
10.55 Uniroyal Technology Corporation Long Term Growth Plan (as
amended to August 3, 2000).
99.1 Risk Factors.
(b) Reports on Form 8-K
Report on Form 8-K dated June 6, 2000 related to the updated
description of capital stock and updated Financial Statement
Schedule II for the fiscal years ended September 26, 1999
September 27, 1998 and September 28, 1997.
Report on Form 8-K dated June 14, 2000 related to the merger with
Sterling Semiconductor, Inc. on May 31, 2000.
Report on Form 8-K/A dated August 14, 2000 related to the merger
with Sterling Semiconductor, Inc.
SIGNATURE
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.
/S/ George J. Zulanas, Jr.
DATE: August 16, 2000 By: --------------------------
George J. Zulanas, Jr.,
Executive Vice President, Treasurer
and Chief Financial Officer