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 1, 2001
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 August 2, 2001
Common stock 28,018,782
PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
UNIROYAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
ASSETS
July 1, October 1,
2001 2000
------------- -------------
Current assets:
Cash and cash equivalents $ 9,154 $ 36,625
Short-term investments (Note 2) - 12,425
Trade accounts receivable (less estimated reserve for
doubtful accounts of $70 and $75, respectively) 3,973 4,392
Inventories (Note 3) 12,157 8,935
Accrued income taxes receivable 7,142 -
Deferred income taxes (Note 9) 1,382 5,460
Net assets of discontinued operations (Note 4) 10,927 5,030
Prepaid expenses and other current assets 1,812 1,326
------------- -------------
Total current assets 46,547 74,193
Property, plant and equipment - net 60,905 46,822
Property, plant and equipment held for sale - net 1,692 2,301
Investments (Note 2) - 8,902
Goodwill - net 22,258 26,519
Deferred income taxes - net (Note 9) 11,050 7,828
Other assets - net 11,510 12,151
------------- -------------
TOTAL ASSETS $ 153,962 $ 178,716
============= =============
UNIROYAL TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
(In thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
July 1, October 1,
2001 2000
------------- -------------
Current liabilities:
Current portion of long-term debt $ 10,467 $ 6,701
Trade accounts payable 10,809 8,261
Accrued expenses:
Compensation and benefits 5,393 8,589
Interest 74 156
Taxes, other than income 234 155
Accrued income taxes - 623
Other 2,269 1,890
------------- -------------
Total current liabilities 29,246 26,375
Long-term debt, net of current portion 13,860 15,462
Other liabilities 23,134 22,495
------------- -------------
Total liabilities 66,240 64,332
------------- -------------
Commitments and contingencies (Note 5)
Minority interest 2,558 7,535
------------- -------------
Stockholders' equity (Note 6):
Preferred stock:
Series C - 0 shares issued and outstanding; par value $0.01; 450
shares authorized - -
Common stock:
32,659,631 and 30,707,976 shares issued or to be issued,
respectively; par value $0.01; 100,000,000 shares authorized 327 307
Additional paid-in capital 105,087 94,296
Retained earnings 23,682 40,575
Unrealized loss on securities held for sale - net - (44)
------------- -------------
129,096 135,134
Less treasury stock at cost - 6,476,273 and 4,841,059 shares,
respectively (43,932) (28,285)
------------- -------------
Total stockholders' equity 85,164 106,849
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 153,962 $ 178,716
============= =============
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 1, July 2, July 1, July 2,
2001 2000 2001 2000
----------- ----------- ----------- -----------
Net sales $ 8,153 $ 8,842 $ 24,799 $ 27,651
Costs, expenses and (other income):
Costs of goods sold 7,597 6,781 21,695 21,507
Selling and administrative (Note 7) 7,273 6,252 23,578 25,134
Depreciation and other amortization 3,958 1,867 11,449 3,523
Provision for uncollectible note receivable - - - 5,387
Loss on assets to be disposed of (Note 8) 502 - 1,295 2,223
Gain on sale of preferred stock investment - - - (2,905)
----------- ----------- ----------- ----------
Loss before interest, income taxes, minority
interest and discontinued operations (11,177) (6,058) (33,218) (27,218)
Interest income 210 1,373 1,542 1,968
Interest expense (359) (618) (1,274) (1,528)
----------- ----------- ----------- -----------
Loss before income taxes, minority interest
and discontinued operations (11,326) (5,303) (32,950) (26,778)
Income tax benefit (Note 9) 2,815 482 7,823 22,278
----------- ----------- ----------- -----------
Loss before minority interest and discon-
tinued operations (8,511) (4,821) (25,127) (4,500)
Minority interest in losses of consolidated
joint venture (Note 7) 1,901 2,126 7,359 5,193
----------- ----------- ----------- -----------
(Loss) income from continuing operations (6,610) (2,695) (17,768) 693
Income from discontinued operations (net of
income taxes) (Note 4) 850 884 1,270 3,023
(Loss) gain on disposition of discontinued
operations (net of income taxes) (Note 4) (370) (16) (395) 57,102
----------- ----------- ----------- -----------
Net (loss) income $ (6,130) $ (1,827) $ (16,893) $ 60,818
=========== =========== =========== ===========
Net (loss) income per share - basic (Note 10)
- ---------------------------------------------
(Loss) income from continuing operations $ (0.25) $ (0.11) $ (0.68) $ 0.03
Income from discontinued operations 0.02 0.04 0.03 2.44
----------- ----------- ----------- -----------
Net (loss) income $ (0.23) $ (0.07) $ (0.65) $ 2.47
=========== =========== =========== ===========
Net (loss) income per share - diluted (Note 10)
- ----------------------------------------------
(Loss) income from continuing operations $ (0.25) $ (0.11) $ (0.68) $ 0.02
Income from discontinued operations 0.02 0.04 0.03 2.10
----------- ----------- ----------- -----------
Net (loss) income $ (0.23) $ (0.07) $ (0.65) $ 2.12
=========== =========== =========== ===========
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 1, July 2, July 1, July 2,
2001 2000 2001 2000
------------ ----------- ------------ ------------
Net (loss) income $ (6,130) $ (1,827) $ (16,893) $ 60,818
Unrealized (loss) gain on securities
available for sale, net of income taxes:
Unrealized gain on securities
available for sale (net of income
tax expense of $34) - - 53 -
Reclassification adjustment for
gains realized in net income - - (9) (100)
------------ ------------ ------------ ------------
Net unrealized (loss) gain - - 44 (100)
------------ ------------ ------------ ------------
Comprehensive (loss) income $ (6,130) $ (1,827) $ (16,849) $ 60,718
============ ============ ============ ============
See notes to condensed consolidated financial statements.
UNIROYAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
----------------------------------
July 1, July 2,
2001 2000
------------ ------------
OPERATING ACTIVITIES:
Net (loss) income $ (16,893) $ 60,818
Deduct income from discontinued operations (875) (60,125)
----------- -----------
(Loss) income from continuing operations (17,768) 693
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and other amortization 11,449 3,523
Deferred tax benefit 703 6,698
Provision for uncollectible note receivable - 5,387
Loss on assets to be disposed of 1,295 2,223
Gain on sale of preferred stock investment - (2,905)
Minority interest in net losses of consolidated joint venture (7,359) (5,193)
Other 286 254
Changes in assets and liabilities:
Decrease (increase) in trade accounts receivable 1,025 (83)
Increase in inventories (4,003) (1,846)
Increase in prepaid expenses and other assets (8,062) (1,272)
Increase in trade accounts payable 2,548 5,591
(Decrease) increase in other accrued expenses (1,025) 6,508
Increase in other liabilities 639 721
----------- -----------
Net cash (used in) provided by continuing operations (20,272) 20,299
Net cash used in discontinued operations (1,502) (41,315)
----------- -----------
Net cash used in operating activities (21,774) (21,016)
----------- -----------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (Note 11) (17,950) (18,786)
Investment purchases of available-for-sale securities (13,015) (52,754)
Investment purchases of held-to-maturity securities (6,002) (10,011)
Proceeds from sales of available-for-sale securities 16,994 -
Proceeds from held-to-maturity securities 23,477 46,025
Proceeds from sale of preferred stock investment - 8,125
Business acquisition (2,750) 613
Proceeds from sale of discontinued operations - 208,976
----------- -----------
Net cash provided by investing activities 754 182,188
----------- -----------
FINANCING ACTIVITIES (Note 11):
Net increase (decrease) in revolving loan balance 3,169 (11,348)
Repayment of term loans (4,759) (90,148)
Proceeds from term loan 95 -
Proceeds from termination of interest rate swaps - 950
Investment by joint venture partner 2,382 4,115
Purchase of treasury stock (7,547) (8,076)
Stock options exercised 209 732
Warrants exercised - 742
----------- -----------
Net cash used in financing activities (6,451) (103,033)
----------- -----------
Net (decrease) increase in cash (27,471) 58,139
Cash and cash equivalents at beginning of period 36,625 4,143
----------- -----------
Cash and cash equivalents at end of period $ 9,154 $ 62,282
=========== ===========
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 1, 2001 and July 2, 2000
1. BASIS OF PRESENTATION
The Company
The interim Condensed Consolidated Financial Statements relate to
Uniroyal Technology Corporation and its wholly-owned subsidiaries
Uniroyal HPP Holdings, Inc., Uniroyal Engineered Products, LLC,
Uniroyal Compound Semiconductors, Inc., UnitechNJ, Inc., BayPlas3,
Inc., UnitechOH, Inc., BayPlas7, Inc. and its majority owned
subsidiary, Uniroyal Liability Management Company, Inc. (the
"Company"). Uniroyal HPP Holdings, Inc. includes its wholly-owned
subsidiary, High Performance Plastics, Inc. ("HPPI"). Uniroyal
Engineered Products, LLC includes its operating divisions,
Naugahyde and Uniroyal Adhesives and Sealants. Uniroyal Compound
Semiconductors, Inc. includes its wholly-owned subsidiaries, Sterling
Semiconductor, Inc. and NorLux Corp., and 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 audited
consolidated financial statements and notes thereto for the fiscal
years ended October 1, 2000, September 26, 1999 and September 27, 1998
included in the Company's annual Report on Form 10-K for the year ended
October 1, 2000, filed with the Securities and Exchange Commission.
The Company's fiscal year ends on the Sunday following the last Friday
in September. As a result, Fiscal 2000 ended on October 1, 2000 and
encompassed a 53-week period as compared to Fiscal 2001 which will end
on September 30, 2001 and encompass a 52-week period. The additional
week in Fiscal 2000 occurred in the first quarter ended January 2,
2000. Therefore, the nine-month period ended July 2, 2000 encompassed
40 weeks of operations compared to 39 weeks of operations for the
nine-month period ended July 1, 2001.
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.
Liquidity
The Company has experienced net operating losses and negative cash
flows over the last twelve months as it continues its transition to the
high technology arena. Investment spending related to start-up costs
and capital expenditures at its joint venture, Uniroyal
Optoelectronics, LLC, and at Sterling Semiconductor, Inc. have been
significant. At July 1, 2001, the Company's principal source of
liquidity is $9,154,000 of cash and cash equivalents and approximately
$4,500,000 of availability under its revolving credit facility. On July
26, 2001, the Company entered into a letter of intent to sell its
Uniroyal Adhesives and Sealants division ("UAS"). Proceeds from the
sale are expected to approximate $25,000,000. The sale is subject to
various contingencies, including the negotiation and execution of a
definitive asset purchase agreement. The Company anticipates that the
sale will close in September, 2001. On August 2, 2001, the Company
received a $5,000,000 loan from Emcore Corporation, with a maturity
date on the earlier of the sale of UAS (see Note 4) or August 2, 2003.
The Company believes it has sufficient liquidity to fund operations
through fiscal 2002. However, if negative cash flows from operations
exceed current estimates, or if the sale of UAS is delayed and/or not
consummated, liquidity could become strained during fiscal 2002. In
that event, the company will need to obtain alternative financing which
could include the sale of certain assets at unfavorable terms or obtain
borrowings, if available, at terms the Company would not deem
acceptable.
The Company's future results of operations involve a number of
significant risks and uncertainties. Factors that could affect the
Company's future operating results and cause actual results to vary
materially from expectations include, but are not limited to,
dependence on key personnel, product obsolescence, ability to generate
consistent sales, ability to finance research and development,
government regulation, technological innovations and acceptance,
competition, reliance on certain vendors and credit risks. The
Company's historical sales results and its current backlog do not give
the Company sufficient visibility or predictability to indicate that
the required higher sales levels might be achieved. The Company
currently believes that sales will increase from the third quarter of
fiscal 2001 levels and increase at higher growth rates quarterly
thereafter. If such quarterly sales increases do not materialize, the
Company will have to reduce its expenses and capital expenditures to
maintain cash levels necessary to sustain its operations. The Company's
future success will depend on the Company's increasing its revenues and
reducing its expenses to enable it to reach profitability.
2. INVESTMENTS
At July 1, 2001, the Company had no investments. The Company's
investment portfolio during the nine months ended July 1, 2001,
consisted of marketable corporate debt securities classified as
held-to-maturity and scheduled to mature in less than one year and
available-for-sale debt and equity securities.
Held-to-maturity debt securities were carried at amortized cost. During
the three months ended July 1, 2001 the Company liquidated its
held-to-maturity securities prior to their maturity date and recognized
a loss of approximately $22,000 upon disposal.
Available-for-sale debt securities were carried at fair market value
with the unrealized gains and losses, net of tax, reported in
stockholders' equity until realized. Gains and losses on securities
sold are based upon the specific identification method. At July 1,
2001, there were no available-for-sale debt securities. There were no
realized gains or losses for the three and nine months ended July 1,
2001.
Available-for-sale equity securities were carried at fair market value
with the unrealized gains and losses, net of tax, reported in
stockholders' equity until realized. Gains and losses on equity
securities sold are based upon the specific identification method. At
July 1, 2001, there were no available-for-sale equity securities. The
realized gain on the sale of available-for-sale equity securities for
the nine months ended July 1, 2001 approximated $15,000.
3. INVENTORIES
Inventories consisted of the following (in thousands):
July 1, October 1,
2001 2000
----------- -----------
Raw materials, work in process and supplies $ 6,477 $ 4,482
Finished goods 5,680 4,453
----------- -----------
Total $ 12,157 $ 8,935
=========== ===========
4. DISCONTINUED OPERATIONS
Uniroyal Adhesives and Sealants
On June 26, 2001, the Company entered into a letter of intent to sell
certain net assets of UAS, which comprises its Specialty Adhesives
segment. Proceeds from the sale are expected to approximate
$25,000,000. The sale is subject to various contingencies, including
negotiation and execution of a definitive asset purchase agreement. The
Company anticipates the sale will close in September, 2001 and will
result in a gain.
On December 18, 2000, the Company completed the acquisition of the net
assets of the solvent-based industrial adhesives business of Henkel
Corporation for $2,750,000 in cash, which became part of the operations
of UAS.
The business combination was accounted for by the purchase method in
accordance with Accounting Principles Board Opinion ("APB") No. 16,
Business Combinations. The results of operations of the above named
business is included in the consolidated financial statements from the
date of acquisition forward.
The fair market value of purchased assets was determined to be zero;
therefore, the entire purchase price has been allocated to goodwill on
the date of acquisition. The acquired goodwill was to be amortized over
its estimated useful life of 15 years.
The pro forma effect of this acquisition on the Company's net sales,
income (loss) from continuing operations, net income (loss) and
earnings (loss) per share, had the acquisition occurred on October 2,
2000, is not considered material, either quantitatively or
qualitatively.
High Performance Plastics
On December 24, 1999, the Company entered into a definitive agreement
to sell certain net assets of its High Performance Plastics segment
("HPPI") for $217,500,000 in cash to Spartech Corporation ("Spartech").
The transaction closed on February 28, 2000, and resulted in cash
proceeds of $208,976,000 net of certain transaction costs and
preliminary purchase price adjustments (the "Spartech Sale"). The
ultimate purchase price adjustments have not been agreed to by both
parties. The Company estimates, and has provided for, an ultimate
reduction in the purchase price of approximately $5,100,000, which
would result in a loss of the $5,000,000 holdback as well as an
additional payment from the Company to Spartech of approximately
$100,000. In addition to what the Company has provided for, Spartech is
seeking an additional purchase price reduction up to approximately
$4,237,000. Management believes the ultimate resolution of the purchase
price adjustment should not have a material adverse effect on the
results of operations, cash flows or financial position.
Net Assets and Results of Discontinued Operations
The accompanying interim Condensed Consolidated Financial Statements
reflect the operations of UAS and HPPI as discontinued operations in
accordance with APB Opinion No. 30, Reporting the Results of Operations
-- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and
Transactions.
Net assets of the discontinued operations, the components of which are
combined for UAS and HPPI, have been segregated on the July 1, 2001 and
October 1, 2000 consolidated balance sheets, and are as follows (in
thousands):
July 1, October 1,
Net Assets of Discontinued Operations 2001 2000
------------------------------------- ----------- -----------
Assets:
Cash $ 110 $ 102
Accounts receivable 1,643 1,298
Inventories 2,845 2,144
Deferred income taxes 383 186
Prepaid and other assets 1,290 1,572
Property, plant and equipment - net 10,500 10,564
Goodwill - net 3,853 1,253
----------- -----------
Total assets 20,624 17,119
----------- -----------
Liabilities:
Current portion of long-term debt - 159
Trade payables 4,496 3,734
Other accrued expenses 5,201 8,196
----------- -----------
Total liabilities 9,697 12,089
----------- -----------
Net assets of discontinued operations $ 10,927 $ 5,030
=========== ===========
The results of operations for all periods presented have been restated
for discontinued operations. The operating results of discontinued
operations are combined for UAS and HPPI and are as follows (in
thousands):
For The Three Months Ended
----------------------------
July 1, July 2,
Income from Discontinued Operations 2001 2000
----------------------------------- ----------- -----------
Net sales $ 10,048 $ 9,466
Costs of goods sold 7,502 7,262
Selling and administrative 895 1,040
Depreciation and other amortization 312 260
----------- -----------
Income before interest expense and
income taxes 1,339 904
Interest income - net 3 5
----------- -----------
Income before income taxes 1,342 909
Income tax expense (862) (41)
----------- -----------
Income from discontinued operations $ 480 $ 868
=========== ===========
For The Nine Months Ended
----------------------------
July 1, July 2,
Income from Discontinued Operations 2001 2000
----------------------------------- ----------- -----------
Net sales $ 22,776 $ 76,909
Costs of goods sold 17,808 61,255
Selling and administrative 2,415 6,413
Depreciation and other amortization 852 3,197
Gain on sale of HPPI - (97,239)
----------- -----------
Income before interest expense and
income taxes 1,701 103,283
Interest income (expense) - net 20 (3,602)
----------- -----------
Income before income taxes 1,721 99,681
Income tax expense (846) (39,556)
----------- -----------
Income from discontinued operations $ 875 $ 60,125
=========== ===========
5. COMMITMENTS AND CONTINGENCIES
Litigation
On February 23, 2001, the Company and its wholly owned subsidiary,
Sterling Semiconductor, Inc., were served with a complaint by AFG-NVC,
LLC in the Loudoun County, Virginia Circuit Court. The complaint seeks
approximately $8,106,000 for alleged default under a lease and benefits
that the landlord believes it would have received under such lease. The
Company has filed an answer seeking not less than $7,000,000 for
breaches of contract, fraud and constructive fraud on the part of the
plaintiff. At the present time the Company does not have sufficient
information to determine what liability, if any, the Company might have
in connection with this action.
The Company is engaged in other 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.
Based on information available as of July 1, 2001, 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.
6. STOCKHOLDERS' EQUITY
During the nine months ended July 1, 2001, the Company repurchased
1,000,620 shares of its common stock in the open market for
approximately $7,547,000.
During the nine months ended July 1, 2001, the Company received
1,116,185 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 $9,154,000 (which was calculated
based upon the closing market value of the stock on the day prior to
the exercise dates) and are included as treasury shares as of July 1,
2001.
During the nine months ended July 1, 2001, the Company issued 2,106,060
shares of its common stock (163,046 shares of which came from treasury)
to directors, officers and employees of the Company for the exercise of
the stock options.
7. JOINT VENTURE
During the three months ended July 1, 2001 and July 2, 2000,
approximately $2,668,000 and $3,323,000, respectively, of joint venture
start-up costs are included in selling and administrative costs.
During the nine months ended July 1, 2001 and July 2, 2000,
approximately $10,925,000 and $8,833,000, respectively, of joint
venture start-up costs are included in selling and administrative
costs.
At July 1, 2001, capital contributions funded solely by the Company
have increased the Company's percentage interest in the joint venture's
profits and losses to 64% and correspondingly decreased Emcore's
percentage interest to 36%.
On August 2, 2001, the Company purchased Emcore Corporation's
("Emcore") minority ownership interest in the joint venture. The
purchase was consummated through issuance of 1,965,924 shares of the
Company's common stock valued at approximately $15,134,000. On August
2, 2001, the Company received a $5,000,000 loan, at prime rate, from
Emcore with a maturity date on the earlier of the completion of the
sale of UAS or August, 2, 2003.
The acquisition of the minority interest will be accounted for by the
purchase method in accordance with APB No. 16, Business Combinations.
The purchase price will be allocated to assets purchased and
liabilities assumed based upon the proportional acquired interest in
their fair market value at the date of the acquisition.
8. LOSSES ON ASSETS TO BE DISPOSED OF
During the three months ended July 1, 2001, the Company entered into an
agreement to sell its Port Clinton, Ohio facility for approximately
$851,000, net of certain transaction costs. As a result of the proposed
sale, the Company recorded an additional reserve on the property of
approximately $450,000.
During the three months ended July 1, 2001, the Company further
reserved $52,000 against its Stirling, New Jersey facility
held-for-sale. The additional impairment loss was recorded based upon a
letter of intent to purchase the facility for approximately $841,000,
net of certain transaction costs. During the nine months ended July 1,
2001, the Company has recorded $159,000 of additional impairment losses
associated with this facility.
During the nine months ended July 1, 2001, the Company made a decision
to terminate its lease for a new facility in Sterling, Virginia for the
operations of Sterling Semiconductor, Inc. The decision was made as
result of construction delays and breaches of contract. As a result of
the lease termination, the Company recorded a write-off of
approximately $686,000 for the impairment of assets at that facility.
The Company is currently involved in litigation regarding the lease
termination (Note 5).
9. INCOME TAXES
The provisions for income tax benefit for the three months and nine
months ended July 1, 2001 and July 2, 2000 were calculated through the
use of the estimated annual income tax rates based on projected
annualized income. During the 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 a preferred stock investment and the sale of HPPI
(Note 4).
The Company believes it is more likely than not that the deferred tax
assets currently recorded will be realized through the anticipated sale
of UAS and the expected commencement of commercial operations in the
Compound Semiconductor and Optoelectronics segment. Additionally,
normalized operating income over the last three years provided further
support as to the realizability of the deferred tax assets. If the
Company does not sell UAS and commercial operations of the Compound
Semiconductor and Optoelectronics segment are delayed, the Company may
have to record a valuation allowance against the deferred tax assets.
10. INCOME PER COMMON SHARE
For the three months ended July 1, 2001, the weighted average number of
common shares outstanding for the calculation of basic and diluted
earnings per share was 26,153,559. Inclusion of warrants to purchase
735,770 shares of common stock at $2.1875 per share and additional
stock options to purchase 4,365,972 shares of common stock at various
prices in the calculation of diluted earnings per share would have been
antidilutive.
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 warrants to purchase
735,770 shares of common stock at $2.1875 per share and additional
stock options to purchase 5,404,935 shares of common stock at various
prices in the calculation of diluted earnings per share would have been
antidilutive.
For the nine months ended July 1, 2001, the weighted average number of
common shares outstanding for the calculation of basic and diluted
earnings per share was 25,954,340. Inclusion of warrants to purchase
735,770 shares of common stock at $2.1875 per share and additional
stock options to purchase 4,365,972 shares of common stock at various
prices 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 nine months ended July
2, 2000 is as follows:
Nine Months Ended
July 2, 2000
-------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
-------------------------------------------------
Income from continuing
operations $ 693,000 $ 0.03
======
Basic EPS
---------
Income attributable to
common stockholders $ 693,000 24,596,681
Effect of Dilutive Securities
-----------------------------
Stock options 3,324,820
Warrants 748,848
----------
Diluted EPS
-----------
Income attributable to
common stockholders $ 693,000 28,670,349 $ 0.02
=========== ========== ========
11. STATEMENTS OF CASH FLOWS
Supplemental disclosures of cash flow information are as follows:
Payments for income taxes and interest expense were (in thousands):
For The Nine Months Ended
----------------------------
July 1, July 2,
(Loss) Income from Discontinued Operations 2001 2000
------------------------------------------ ----------- -----------
Interest payments (net of capitalized
interest) - continuing operations $ 1,202 $ 1,620
Interest payments (net of capitalized
interest) - discontinued operations 9 4,685
Income tax payments - continuing
operations 373 6,267
Income tax payments - discontinued
operations 1,981 267
The purchases of property, plant and equipment and net cash used in
financing activities for the nine months ended July 1, 2001 and July 2,
2000 do not include $3,500,000 and $2,600,000, respectively, related to
property held under capital leases. The new leases relate to equipment
purchased for the Compound Semiconductor and Optoelectronics segment.
During the nine months ended July 1, 2001 and July 2, 2000, the Company
made matching contributions to its 401(k) Savings Plan of approximately
$124,000 and $219,000, respectively, through the reissuance of 19,933
and 17,206 common shares from treasury, respectively.
During the nine months ended July 1, 2001, the Company issued 8,641
restricted shares of its common stock and recorded compensation expense
of approximately $54,000 under the 2000 Stock Purchase Plan. In
accordance with the 2000 Stock Purchase Plan, the restrictions lapse
ratably on an annual basis over a three-year period.
During the nine months ended July 1, 2001, the Company made special
discretionary contributions to its 401(k) Savings Plan for the plan
years ended December 31, 2000 and December 31, 1999. These special
contributions were valued at approximately $2,235,000 and were funded
through the reissuance of 298,612 shares of common stock from treasury.
The liability and related compensation expense for the special
discretionary contributions were accrued at October 1, 2000.
12. SEGMENT INFORMATION
Segment information for the three months and nine months ended July 1,
2001 and July 2, 2000 is as follows (in thousands):
For the Three Months Ended For the Nine Months Ended
------------------------------ ----------------------------
July 1, July 2, July 1, July 2,
2001 2000 2001 2000
----------- ----------- ----------- -----------
Net sales:
Coated Fabrics $ 6,989 $ 8,538 $ 21,465 $ 25,831
Compound Semiconductor
and Optoelectronics 1,164 304 3,334 1,820
----------- ----------- ----------- -----------
Total $ 8,153 $ 8,842 $ 24,799 $ 27,651
=========== =========== =========== ===========
(Loss) income before interest,
income taxes, minority
interest and discontinued
operations:
Coated Fabrics $ (202) $ 615 $ (267) $ 683
Compound Semiconductor
and Optoelectronics (8,238) (5,007) (26,476) (11,094)
Corporate (2,737) (1,666) (6,475) (16,807)
----------- ----------- ----------- -----------
Total $ (11,177) $ (6,058) $ (33,218) $ (27,218)
=========== =========== =========== ===========
Segment information as of July 1, 2001 and October 1, 2000 is as
follows (in thousands):
July 1, July 2,
2001 2000
----------- -----------
Identifiable Assets:
Coated Fabrics $ 20,119 $ 20,915
Compound Semiconductor and
Optoelectronics 90,503 74,823
Corporate 32,413 77,948
Discontinued Operations 10,927 5,030
----------- -----------
Total $ 153,962 $ 178,716
=========== ===========
13. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133 establishes accounting and reporting standards for derivative
instruments and 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 accounting for changes in the fair value of a derivative
(that is, gains and losses) depends upon the intended use of the
derivative and resulting designation. In July 1999, FASB issued SFAS
No. 137, Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of SFAS No. 133, which postponed the
effective date of SFAS No. 133 for one year. In June 2000, FASB issued
SFAS No. 138, Accounting for Certain Derivative Instruments and Certain
Hedging Activities, an amendment to SFAS No. 133. The Company adopted
SFAS No. 133 (as amended by SFAS No. 138) as of October 2, 2000. The
adoption of this statement had no impact on the Company's financial
position or results of operations.
The FASB has issued SFAS No. 141, Business Combinations and No. 142,
Goodwill and Other Intangible Assets. SFAS No. 141 will require that
the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 and that the use of the
pooling-of-interest method is no longer allowed. SFAS No. 142 requires
that upon adoption, amortization of goodwill will cease and instead,
the carrying value of goodwill will be evaluated for impairment on an
annual basis. Identifiable intangible assets will continue to be
amortized over their useful lives and reviewed for impairment in
accordance with SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS No.
142 is effective for fiscal years beginning after December 15, 2001;
however, the Company may elect early adoption of this statement on
October 1, 2001, the beginning of its 2002 fiscal year. The Company is
evaluating the impact of the adoption of these standards and has not
yet determined the effect of adoption on its financial position and
results of operations.
ITEM 2. Management's Discussion and Analysis Of Financial Condition and
Results Of Operations
Third Quarter Fiscal 2001 Compared with the Third Quarter Fiscal 2000
Net Sales. The Company's net sales from continuing operations decreased
in the third quarter of fiscal 2001 by approximately 8% to $8,153,000
from $8,842,000 in the third quarter of fiscal 2000. The decrease is
attributable to a softening in the transportation, industrial equipment
and recreational vehicle markets at the Coated Fabrics segment. The
decline was partially offset by an increase in sales at the Compound
Semiconductor and Optoelectronics segment.
Net sales by the Coated Fabrics segment decreased in the third quarter
of fiscal 2001 approximately 18% to $6,989,000 from $8,538,000 in the
third quarter of fiscal 2000. The decrease is due to a lower sales
volume as a result of the continued softening in the transportation,
industrial equipment and recreational vehicle markets.
Net sales by the Compound Semiconductor and Optoelectronics segment
were $1,164,000 in the third quarter of fiscal 2001 versus $304,000 in
the third quarter of fiscal 2000. The increase in sales is primarily
due to the acquisition of Sterling Semiconductor, Inc. in May of fiscal
2000. The sales in the third quarter of fiscal 2000 were from wafer
sales produced by the partner of the Optoelectronics joint venture. The
Optoelectronics joint venture is expected to commence commercial
operations in the fourth quarter of fiscal 2001.
Loss 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 2001 was
$11,177,000 compared to a loss of $6,058,000 for the third quarter of
fiscal 2000. Losses for the third quarter of fiscal 2001 are
attributable to a softening of sales in the Coated Fabrics segment,
intangible asset amortization associated with the purchase acquisition
of Sterling Semiconductor, Inc. and the continuing start-up costs
associated with the Compound Semiconductor and Optoelectronics segment.
The Coated Fabrics segment had a loss before interest, income taxes,
minority interest and discontinued operations of $202,000 in the third
quarter of fiscal 2001 versus income before interest, income taxes,
minority interest and discontinued operations of $615,000 in the third
quarter of fiscal 2000. The increase in the loss is primarily due to
the overall reduction in sales volume and an increase in costs
associated with retiree medical benefits.
The Compound Semiconductor and Optoelectronics segment incurred a loss
before interest, income taxes, minority interest and discontinued
operations of $8,238,000 in the third quarter of fiscal 2001 compared
to a loss of $5,007,000 in the third quarter of fiscal 2000. The losses
relate to start-up costs of the Optoelectronics joint venture which
have increased as the joint venture gets closer to the commencement of
commercial operations and the amortization of intangible assets
associated with the May, 2000 acquisition of Sterling Semiconductor,
Inc., which is also in the development stage.
Approximately $2,737,000 of other expenses incurred in the third
quarter of fiscal 2001 compared to $1,666,000 in the third quarter of
fiscal 2000 was not allocated to any segment of the Company's
businesses. The increase in unallocated items is attributable to a
number of unusual items in the third quarter of fiscal 2001. These
items include an increase in reserves of assets held-for-sale of
approximately $502,000 and an increase in reserves related to pending
and threatened litigation of $334,000. In addition, the third quarter
of fiscal 2000 included a benefit of $250,000 related to a settlement
payment received on outstanding litigation.
Income from discontinued operations of the Specialty Adhesives and High
Performance Plastics segments was $480,000 in the third quarter of
fiscal 2001 compared to $868,000 in the third quarter of fiscal 2000.
The reduction in income is due to the revision of certain income tax
provisions primarily related to the sale of the High Performance
Plastics segment.
Interest Income (Expense). Interest income for the third quarter of
fiscal 2001 was $210,000 compared to interest income in the third
quarter of fiscal 2000 of $1,373,000. The decrease is attributable to a
lower level of interest income earned on the investment of the proceeds
received from the fiscal 2000 sale of net assets of the Company's High
Performance Plastics segment in the third quarter of fiscal 2001
compared to the third quarter of fiscal 2000 as a result of a reduction
in investment balances during the same time period.
Interest expense was $359,000 in the third quarter of fiscal 2001
compared to $618,000 in the third quarter of fiscal 2000. The decrease
in interest expense is due to the capitalization of interest in the
third quarter of fiscal 2001 of approximately $258,000 compared to no
capitalized interest in the third quarter of fiscal 2000. Including
capitalized interest, overall interest costs were comparable
period-to-period primarily due to the addition of capitalized leases
subsequent to the third quarter of fiscal 2000 at a higher interest
rate which offset the effect of an overall reduction in debt.
Income Tax Benefit. Income tax benefit, excluding the tax effects
related to discontinued operations, in the third quarter of fiscal 2001
was $2,815,000 compared to a $482,000 benefit in the third quarter of
fiscal 2000. The provisions for income tax benefit were calculated
through the use of the estimated income tax rates based on annualized
income (loss).
First Three Quarters Fiscal 2001 Compared with the First Three Quarters
Fiscal 2000
Net Sales. The Company's net sales from continuing operations decreased
in the first three quarters of fiscal 2001 by approximately 10% to
$24,799,000 from $27,651,000 in the first three quarters of fiscal
2000. The decrease is attributable to a softening in the
transportation, industrial equipment and recreational vehicle markets
at the Coated Fabrics segment as well as the first three quarters of
fiscal 2000 containing 40 weeks compared to 39 weeks for the first
three quarters of fiscal 2001. The decline was partially offset by an
increase in sales at the Compound Semiconductor and Optoelectronics
segment.
Net sales by the Coated Fabrics segment decreased in the first three
quarters of fiscal 2001 approximately 17% to $21,465,000 from
$25,831,000 in the first three quarters of fiscal 2000. The decrease is
due to a lower sales volume as a result of the softening in the
transportation, industrial equipment and recreational vehicle markets.
The comparison of net sales to the prior year is also affected by the
first three quarters of fiscal 2000 containing 40 weeks as compared to
39 weeks for the first three quarters of fiscal 2001.
Net sales by the Compound Semiconductor and Optoelectronics segment
were $3,334,000 in the first three quarters of fiscal 2001 versus
$1,820,000 in the first three quarters of fiscal 2000. The increase in
sales is due to the acquisition of Sterling Semiconductor, Inc. in May
of fiscal 2000. The Optoelectronics joint venture is expected to
commence commercial operations in the fourth quarter of fiscal 2001.
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 2001 was
$33,218,000 compared to a loss of $27,218,000 for the first three
quarters of fiscal 2000. The increase in the loss is attributable to
start-up costs for the Compound Semiconductor and Optoelectronics
segment and a decline in sales associated with the Coated Fabrics
segment. The loss in the first three quarters of fiscal 2000 was due in
part to a large number of unusual items and was partially offset by the
gain on the sale of a preferred stock investment.
The Coated Fabrics segment had a loss before interest, income taxes,
minority interest and discontinued operations in the first three
quarters of fiscal 2001 of $267,000 versus income of $683,000 in the
first three quarters of fiscal 2000. The decrease was primarily a
result of the decline in revenues for the first three quarters of
fiscal 2001 versus the first three quarters of fiscal 2000. The first
three quarters in fiscal 2000 were impacted by a $657,000 write-down of
certain assets to be disposed of.
The Compound Semiconductor and Optoelectronics segment incurred a loss
before interest, income taxes, minority interest and discontinued
operations of $26,476,000 in the first three quarters of fiscal 2001
compared to a loss of $11,094,000 in the first three quarters of fiscal
2000. The losses relate to start-up costs of the Optoelectronics joint
venture which have increased as the joint venture moves closer to the
commencement of commercial operations and the amortization of
intangible assets associated with the May, 2000 acquisition of Sterling
Semiconductor, Inc., which is also in the development stage. Included
in the first three quarters of fiscal 2001 is a $686,000 write-off of
certain assets to be disposed of related to termination of a lease for
a proposed new facility.
Approximately $6,475,000 of costs and unusual items incurred in the
first three quarters of fiscal 2001 compared to $16,807,000 in the
first three quarters of fiscal 2000 were not allocated to any segment
of the Company's business. Unusual items in the first three quarters of
fiscal 2001 included a write-down of the Port Clinton, Ohio facility
held-for-sale of approximately $450,000, a write-down of the Stirling,
New Jersey facility held-for-sale of approximately $159,000, and an
increase in certain litigation reserves of $334,000. Unusual items in
the first three quarters of fiscal 2000 included the gain recognized on
the sale of a preferred stock investment ($2,905,000); the write-off of
a note receivable ($5,387,000); a reduction in the fair value of the
Company's Port Clinton, Ohio facility held-for-sale ($1,566,000); and
incentive payments and benefit costs for officers and directors related
to the achievement of certain strategic initiatives ($5,449,000).
Overall non-allocated costs have been reduced due to a reduction of
corporate overhead as a result of the sale of net assets of the High
Performance Plastics segment.
Income from discontinued operations of the Specialty Adhesives and High
Performance Plastics segments was $875,000 in the first three quarters
of fiscal 2001 compared to $60,125,000 in the first three quarters of
fiscal 2000. This difference is due to the sale of net assets, and
resulting gain, of the High Performance Plastics segment in the second
quarter of fiscal 2000.
Interest Income (Expense). Interest income for the first three quarters
of fiscal 2001 was $1,542,000 compared to interest income in the first
three quarters of fiscal 2000 of $1,968,000. The decrease is
attributable to a lower level of interest income earned on the
investment of the proceeds received from the sale of net assets of the
Company's High Performance Plastics segment in the second quarter of
fiscal 2000. Overall investment balances have decreased
period-to-period.
Interest expense was $1,274,000 in the first three quarters of fiscal
2001 compared to $1,528,000 in the first three quarters of fiscal 2000.
Overall, interest expense has increased slightly period-to-period after
consideration of capitalized interest for the Compound Semiconductor
and Optoelectronics segment of approximately $616,000 in the first
three quarters of fiscal 2001 versus capitalized interest of $287,000
in the first three quarters of fiscal 2000. The slight increase in
interest expense, before consideration of capitalized interest, is due
to the addition of capital leases subsequent to the third quarter of
fiscal 2000 at a higher interest rate which more than offset the effect
of an overall reduction in debt.
Income Tax Benefit. Income tax benefit, excluding the tax effects
related to discontinued operations, in the first three quarters of
fiscal 2001 was $7,823,000 compared to a $22,278,000 benefit in the
first three quarters of fiscal 2000. The provisions for income tax
benefit were calculated through the use of the estimated income tax
rates based on annualized income. The first two 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 the capital gains resulting
from the sale of net assets of the High Performance Plastics Segment
and the sale of an investment in preferred stock.
Liquidity and Capital Resources
For the first three quarters of fiscal 2001, continuing operations used
$20,272,000 of cash as compared to $20,299,000 provided by continuing
operations during the first three quarters of fiscal 2000. The increase
in cash used by continuing operations for the first three quarters of
fiscal 2001 resulted primarily from an increase in start-up costs for
the Compound Semiconductor and Optoelectronics segment, an increase in
inventories for the Compound Semiconductor and Optoelectronics segment
as commercial operations commence and a decrease in other accrued
expenses as a result of income tax and bonus payments made.
Net cash provided by investing activities for the first three quarters
of fiscal 2001 was $754,000 compared to $182,188,000 provided by
investing activities during the first three quarters of fiscal 2000.
The net proceeds from the sale and redemption of investments were
offset by the expenditures for capital equipment and a business
acquisition. During the first three quarters of fiscal 2001, the
purchase of machinery and equipment primarily related to the Compound
Semiconductor and Optoelectronics segment. The first three quarters of
fiscal 2000 benefited from the sale of net assets of the High
Performance Plastics segment.
Net cash used in financing activities during the first three quarters
of fiscal 2001 was $6,451,000 compared to $103,033,000 of cash used
during the first three quarters of fiscal 2000. Purchases of Company
common stock in the open market and repayment of term loans were
partially offset by borrowings under the Company's revolving line of
credit facility and a capital contribution from the Optoelectronics
joint venture partner during the first three quarters of fiscal 2001.
The significant amount of cash used during the first three quarters of
fiscal 2000 were a result of debt repayment in connection with the sale
of net assets of the High Performance Plastics segment.
On July 1, 2001, the Company had approximately $9,154,000 in cash and
cash equivalents as compared to approximately $36,625,000 at October 1,
2000. Working capital at July 1, 2001 was $17,301,000 compared to
$47,818,000 at October 1, 2000. On July 1, 2001, the Company had
outstanding borrowings of approximately $4,435,000 under its
$10,000,000 revolving credit facility with the CIT Group/Business
Credit, Inc. (subject to a borrowing base limitation of approximately
$8,907,000 at July 1, 2001). The principal uses of cash during the
first three quarters of fiscal 2001 were to fund capital expenditures
and operating losses for the Compound Semiconductor and Optoelectronics
segment and to repurchase Company stock for treasury. The Company plans
to spend an additional $20 - $25 million on capital expenditures for
the Compound Semiconductor and Optoelectronics segment over the next
twelve months.
The Company has experienced net operating losses and negative cash
flows over the last twelve months as it continues its transition to the
high technology arena. Investment spending related to start-up costs
and capital expenditures at its joint venture, Uniroyal
Optoelectronics, LLC, and at Sterling Semiconductor, Inc. have been
significant. On July 26, 2001, the Company entered into a letter of
intent to sell its Uniroyal Adhesives and Sealants division ("UAS").
Proceeds from the sale are expected to approximate $25,000,000. The
sale is subject to various contingencies, including the negotiation and
execution of a definitive asset purchase agreement. The Company
anticipates that the sale will close in September, 2001. On August 2,
2001, the Company received a $5,000,000 loan from Emcore Corporation,
with a maturity date on the earlier of the sale of UAS (see Note 4) or
August 2, 2003. The Company believes it has sufficient liquidity to
fund operations through fiscal 2002. However, if negative cash flows
from operations exceed current estimates, or if the sale of UAS is
delayed and/or not consummated, liquidity could become strained during
fiscal 2002. In that event, the company will need to obtain alternative
financing which could include the sale of certain assets at unfavorable
terms or obtain borrowings, if available, at terms the Company would
not deem acceptable.
The Company's future results of operations involve a number of
significant risks and uncertainties. Factors that could affect the
Company's future operating results and cause actual results to vary
materially from expectations include, but are not limited to,
dependence on key personnel, product obsolescence, ability to generate
consistent sales, ability to finance research and development,
government regulation, technological innovations and acceptance,
competition, reliance on certain vendors and credit risks. The
Company's historical sales results and its current backlog do not give
the Company sufficient visibility or predictability to indicate that
the required higher sales levels might be achieved. The Company
currently believes that sales will increase from the third quarter of
fiscal 2001 levels and increase at higher growth rates quarterly
thereafter. If such quarterly sales increases do not materialize, the
Company will have to reduce its expenses and capital expenditures to
maintain cash levels necessary to sustain its operations. The Company's
future success will depend on the Company's increasing its revenues and
reducing its expenses to enable it to reach profitability.
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.
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 including our ability to raise
cash;
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.
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 and investment portfolio.
At July 1, 2001, the Company had approximately $9,154,000 of cash and
cash equivalents subject to variable short-term interest rates and
approximately $4,435,000 of floating rate revolving credit advances.
Because of the short-term nature or floating rates, 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 the net balance, a change of one percent in the interest rate
would cause a change in net interest income of approximately $47,000 on
an annual basis.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
(a) On February 23, 2001, the Company and its wholly owned
subsidiary, Sterling Semiconductor, Inc., were served with a
complaint by AFG-NVC, LLC in the Loudoun County, Virginia Circuit
Court. The complaint seeks approximately $8,106,000 for alleged
default under a lease and benefits that the landlord believes it
would have received under such lease. The Company has filed an
answer seeking from the plaintiff not less than $7,000,000 for
breaches of contract, fraud and constructive fraud on the part of
the plaintiff. At the present time the Company does not have
sufficient information to determine what liability, if any, the
Company might have in connection with this action.
The Company knows of no other 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 1, 2001, 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
On May 22, 2001, the Company announced the election of Howard F. Curd
to its Board of Directors. Mr. Curd is President and Chief Executive
Officer of Jesup & Lamont Group Holdings, Inc., a diversified financial
holding company, and the son of Howard R. Curd, Chairman and Chief
Executive Officer of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.65 Registration Rights Agreement between Uniroyal Technology
Corporation and Emcore Corporation pursuant to the Membership
Interest Purchase Agreement.
(b) Reports on Form 8-K
Report on Form 8-K dated July 23, 2001 related to the
negotiations to buy out the joint venture partner in Uniroyal
Optoelectronics, LLC.
Report on Form 8-K dated August 6, 2001 related to the completion
of the acquisition of Emcore Corporation's minority ownership
interest in Uniroyal Optoelectronics, LLC.
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.
DATE: August 15, 2001 By: /s/ George J. Zulanas, Jr.
--------------- ---------------------------
George J. Zulanas, Jr.,
Executive Vice President,
Treasurer and Chief Financial
Officer