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 June 29, 1997
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 (IRS 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 4, 1997
Common stock 13,356,517
PART 1- FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
UNIROYAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
ASSETS
June 29, September 29,
1997 1996
--------------- --------------------
Current assets:
Cash and cash equivalents (including restricted cash
and cash equivalents of $764 at September 29, 1996) $ 80 $ 2,023
Trade accounts receivable (less estimated reserve
for doubtful accounts of $339 and $369, respectively) 26,849 25,094
Inventories (Note 2) 34,925 33,170
Prepaid expenses and other current assets 1,790 1,507
Deferred income taxes 7,408 7,408
----------- -----------
Total current assets 71,052 69,202
Property, plant and equipment-net 66,096 63,984
Property, plant and equipment held for sale 11,090 10,832
Note receivable 5,000 5,000
Reorganization value in excess of amounts allocable
to identifiable assets-net 7,723 8,288
Deferred income taxes 1,730 1,485
Other assets 12,669 11,995
----------- -----------
TOTAL ASSETS $ 175,360 $ 170,786
=========== ===========
UNIROYAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Unaudited)
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 29, September 29,
1997 1996
------------------ --------------------
Current liabilities:
Current portion of long-term debt $ 520 $ 659
Trade accounts payable 15,928 16,549
Accrued expenses:
Compensation and benefits 9,618 10,166
Interest 921 2,861
Taxes, other than income 1,432 1,939
State income taxes 200 259
Other 6,698 7,621
---------- ----------
Total current liabilities 35,317 40,054
Long-term debt 87,170 72,116
Other liabilities 15,244 15,117
---------- ----------
Total liabilities 137,731 127,287
---------- ----------
Commitments and contingencies (Note 5)
Stockholders' equity (Note 4):
Preferred stock
Series B - 35 shares issued and outstanding at
September 29, 1996 (redemption value of $150,000
per share); par value $0.01; 1,000 shares authorized - 5,250
Series C - par value $0.01; 450 shares authorized; none issued - -
Commom Stock - par value $0.01; 35,000,000 shares
authorized: 13,407,360 and 13,233,912 shares
issued or to be issued, respectively 135 133
Additional paid-in capital 52,840 52,517
Deficit (15,346) (14,401)
--------- ---------
37,629 43,499
Less treasury stock at cost - 50,843 shares - -
--------- ---------
Total stockholders' equity 37,629 43,499
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 175,360 $ 170,786
========= =========
See notes to condensed consolidated financial statements.
UNIROYAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per share data)
Three Months Ended Nine Months Ended
---------------------------------- -------------------------------------
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
-------------- ------------- ------------- -------------
Net sales $55,702 $56,296 $153,195 $156,464
Costs and expenses:
Costs of goods sold 42,615 44,742 119,851 126,604
Selling and administrative 6,654 7,044 20,274 21,466
Amortization of reorganization value
in excess of amounts allocable
to identifiable assets 188 193 565 577
Depreciation and other amortization 2,084 2,519 6,194 7,506
Reorganization professional fees
subsequent to effective date 13 87 143 465
Excess facility expense - 206 54 855
Gain on sale of division (Notes 8 and 9) - (2,282) - (2,282)
Strike settlement and training expense - - - 808
---------- ---------- ----------- ----------
Income before interest and income taxes 4,148 3,787 6,114 465
Interest expense-net (2,549) (2,462) (7,218) (7,630)
---------- ---------- ----------- ----------
Income (loss) before income taxes 1,599 1,325 (1,104) (7,165)
Income tax (expense) benefit (Note 3) (716) (789) 159 2,220
---------- ---------- ----------- ----------
Net income (loss) $ 883 $ 536 $ (945) $ (4,945)
========== ========== =========== ==========
Net income (loss) per common share
and common stock equivalent (Note 6):
Primary and fully diluted $ 0.07 $ 0.04 $ (0.07) $ (0.38)
========== ========== =========== ==========
Average number of shares used
in computation 13,421,329 14,722,675 13,279,276 13,157,809
========== ========== =========== ==========
See notes to condensed consolidated financial statements.
UNIROYAL TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
------------------------------------
June 29, June 30,
1997 1996
---------- ----------
OPERATING ACTIVITIES:
Net loss $ (945) $(4,945)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 6,194 7,506
Deferred tax benefit (245) (2,987)
Amortization of reorganization value in excess of
amounts allocable to identifiable assets 565 577
Amortization of Senior Secured Notes discount 84 74
Amortization of refinancing and debt issuance costs 310 357
Gain on sale of division (Notes 8 and 9) - (2,282)
Other 250 128
Changes in assets and liabilities:
(Increase) decrease in trade accounts receivable-net (1,512) 1,136
Increase in inventories (1,689) (2,397)
(Increase) decrease in prepaid expenses
and other assets (111) 450
Decrease in trade accounts payable (703) (682)
Decrease in other accrued expenses (6,088) (1,242)
(Decrease) increase in other liabilities (395) 858
-------- --------
Net cash used in operating activities (4,285) (3,449)
-------- --------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (Note 7) (10,436) (6,190)
Proceeds from sale of assets (Notes 8 and 9) 4,657 19,641
Payment for purchase of C. Gunther Company,
net of cash acquired (1,379) -
-------- --------
Net cash (used in) provided by investing activities (7,158) 13,451
-------- --------
FINANCING ACTIVITIES:
Repurchase of Senior Secured Notes (243) -
Other increase (decrease) in debt-net 14,993 (4,789)
Preferred stock redeemed (5,250) -
Stock options exercised - 12
-------- --------
Net cash provided by (used in) financing activities 9,500 (4,777)
-------- --------
Net (decrease) increase in cash (1,943) 5,225
Cash and cash equivalents at beginning of period 2,023 291
-------- --------
Cash and cash equivalents at end of period $ 80 $ 5,516
======== ========
See notes to condensed consolidated financial statements.
UNIROYAL TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For The Three Months and Nine Months Ended
June 29, 1997 and June 30, 1996
(Unaudited)
1. BASIS OF PRESENTATION
The interim Condensed Consolidated Financial Statements of Uniroyal
Technology Corporation and its wholly owned subsidiaries UTCMI
Corporation, ULC Corporation and C. Gunther Company (the "Company") are
unaudited and should be read in conjunction with the Company's audited
financial statements and notes thereto for the fiscal years ended
September 29, 1996, October 1, 1995 and October 2, 1994. The Company's
fiscal year ends on the Sunday following the last Friday in September.
Certain reclassifications were made to the prior year financial statements
to conform to current period presentations. In the opinion of the Company,
all adjustments necessary for a fair presentation of such 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 Financial Statements
and notes thereto.
2. INVENTORIES
Inventories consisted of the following (in thousands):
June 29, September 29,
1997 1996
--------- ------------
Raw materials and supplies $ 19,765 $ 17,058
Work in process 2,959 4,400
Finished goods 12,201 11,712
--------- ---------
Total $ 34,925 $ 33,170
========= =========
3. INCOME TAXES
The provisions for income tax (expense) benefit for the three months and
nine months ended June 29, 1997 and June 30, 1996 were calculated through
the use of the estimated annual income tax rates based on projected
annualized income (loss).
4. STOCKHOLDERS' EQUITY
On December 16, 1996 the Company redeemed 15 shares of Series B Preferred
Stock for $2,250,000. On February 4, 1997 the Company redeemed the
remaining 20 shares of Series B Preferred Stock for $3,000,000.
On December 18, 1996, the Board of Directors designated a new series of
preferred stock of the Company termed Series C Junior Participating
Preferred Stock, $0.01 par value ("Series C Preferred") and reserved 450
shares of the Series C Preferred for issuance. At the same time, the Board
of Directors declared a dividend of a right to acquire 1/100,000 of a
share of Series C Preferred to the holder of each share of common stock
(the "Rights") under a Shareholder Rights Plan. The Rights will trade with
the common stock and be detachable from the common stock and exercisable
only in the event of an acquisition of or grant of the right to acquire
15% or more of the common stock by one party or common group or a tender
offer or exchange offer to acquire 15% or more of the common stock.
During the three months ended December 29, 1996, the Board of Directors
declared a dividend of $105,000 for the period July 1, 1996 through
September 30, 1996 on the Series B Preferred Stock equal to 8% per annum
of the redemption price for the shares of Series B Preferred Stock
($150,000 per share). Pursuant to the Company's Amended and Restated
Certificate of Incorporation, the dividends were paid by the delivery of
32,796 shares of the Company's common stock. Such dividends were charged
to additional paid-in capital.
Effective January 1, 1997 the Board of Directors declared a dividend of
$98,000 for the period October 1, 1996 through December 31, 1996 on the
Series B Preferred Stock equal to 8% per annum of the redemption price for
the outstanding shares of Series B Preferred Stock ($150,000 per share).
Pursuant to the Company's Amended and Restated Certificate of
Incorporation, the dividends were paid by the delivery of 33,136 shares of
the Company's common stock. Such dividends were charged to additional
paid-in capital.
On February 4, 1997 the Board of Directors declared a dividend of $17,000
on the 20 shares of Series B Preferred Stock redeemed on February 4, 1997
equal to 8% per annum of the redemption price for the shares of Series B
Preferred Stock ($150,000 per share). Pursuant to the Company's Amended
and Restated Certificate of Incorporation, the dividends were paid by the
delivery of 7,516 shares of the Company's common stock. Such dividends
were charged to additional paid-in capital.
5. COMMITMENTS AND CONTINGENCIES
Bankruptcy Proceedings
Notwithstanding the confirmation and effectiveness of the Plan of
Reorganization (the "Plan") of the Company's predecessors (the
"Predecessor Companies"), the United States Bankruptcy Court for the
Northern District of Indiana, South Bend Division (the "Bankruptcy Court")
continues to have jurisdiction to, among other things, resolve disputed
prepetition claims and to resolve other matters that may arise in
connection with or related to the Predecessor Companies' Plan. The Company
has resolved, through negotiation or through dismissal by the Bankruptcy
Court, approximately $38,000,000 in disputed claims. A total of 9,861,986
shares of the Company's common stock have been issued to the holders of
unsecured claims against the Predecessor Companies in settlement of the
allowed unsecured claims against the estates of the Predecessors Companies
and to the Company's ESOP. The Company retained 50,843 shares of common
stock which are included in the treasury stock. The remaining shares are
being held pending resolution of certain retiree medical claims.
Litigation
Uniroyal Retirees Benefits, Inc. ("URBI"), an organization that is
unaffiliated with the Company, administers a medical, prescription drug
and life insurance program for certain retired employees of the
Predecessor Companies and certain affiliates of the Predecessor Companies.
This program is funded by the Company in accordance with the terms of an
agreement entered into by and between the predecessors of URBI and the
Company in connection with the Predecessor Companies' Plan. The Company
had disputes with URBI concerning the eligibility of certain participants
in URBI's medical plan and level of payment due. URBI had filed a
complaint with the United States District Court for the Northern District
of Indiana, South Bend Division, claiming the Company had breached its
agreement relating to funding URBI's operations. The case was transferred
to the Bankruptcy Court. The Company filed counterclaims against URBI
claiming breach of contract, fraud, negligent misrepresentation, unjust
enrichment, declaratory judgment and clarification or reformation of
contract. The Bankruptcy Court ruled in favor of URBI with respect to
certain matters and in favor of the Company with respect to other matters.
The Company filed an appeal from the Bankruptcy Court's December 20, 1995
ruling with the United States District Court for the Northern District of
Indiana, South Bend Division.
On February 13, 1997 the Company entered into a settlement agreement with
URBI which was approved by the Bankruptcy Court on February 25, 1997. The
settlement agreement settles and resolves all previous claims asserted or
assertable, resolves all issues and disputes with respect to intention,
effect and interpretation of the original agreement, and provides a future
formula pursuant to which the Company will make payments to URBI in order
for URBI to provide medical, drug, and life benefits to the participants.
The agreement remains in effect until there are no participants or
eligible lives (as defined in the agreement).
The Company is also 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 operated facilities. The Company's policy is to accrue
environmental and cleanup-related costs of a non-capital nature when it is
probable that a liability has been incurred and that the amount can be
reasonably estimated. Claims arising in connection with real property
owned by the Company are not affected by a settlement agreement entered
into in connection with the Predecessor Companies' Plan with the United
States Environmental Protection Agency, the United States Department of
the Interior, and the states of Wisconsin and Indiana. In connection with
the acquisition of a manufacturing facility in South Bend, Indiana, the
Company assumed costs of remediation of soil and ground water
contamination which the Company estimates will cost not more than
$1,000,000 over a five-to-seven year period. The Company has placed
$1,000,000 in an escrow account to be used for such remediation in
accordance with the terms of the purchase agreement. As of June 29, 1997
the Company had incurred approximately $71,000 of remediation costs in
respect of such facility.
Based on information available as of June 29, 1997, the Company believes
that the costs of known environmental matters are unlikely to have a
material adverse effect on the Company's operations, cash flows or
financial position.
6. INCOME (LOSS) PER COMMON SHARE
The computations of primary and fully diluted income (loss) per common
share for the three months and nine months ended June 29, 1997 and June
30, 1996 are based on the weighted average number of common shares issued
and outstanding (or to be issued pursuant to the Predecessor Companies'
Plan) less the average number of shares held in treasury for the period.
Primary and fully diluted income per common share for the three months
ended June 29, 1997 and June 30, 1996 include the assumed conversion of
the then outstanding Preferred Stock, if any, and the exercise of all
stock options and warrants having exercise prices less than the average
market price of the common stock using the treasury stock method. Primary
and fully diluted loss per common share for the nine months ended June 29,
1997 and June 30, 1996 do not include the assumed conversion of the then
outstanding Preferred Stock nor the exercise of the warrants and the
employee stock options since their inclusion would have been
anti-dilutive. The convertible preferred stock issued to the PBGC, the
warrants and stock options are considered to be common stock equivalents.
(See Note 4 for information regarding the redemption of the Series B
Preferred Stock.)
7. STATEMENTS OF CASH FLOWS
Supplemental disclosures of cash flow information are as follows (in
thousands):
Nine Months Ended
June 29, June 30,
1997 1996
--------- ---------
Interest payments $ 9,204 $ 9,474
Income tax payments 70 654
The decrease in other accrued expenses in operating activities during the
nine months ended June 29, 1997 includes a $2,633,000 reduction in the
restructuring reserve related to the sale of the Ensolite Division (see
Note 8) for the write-down of property, plant and equipment no longer
utilized after the expiration of the tolling agreement.
The purchases of property, plant and equipment and net cash used in
financing activities for the nine months ended June 29, 1997 and June 30,
1996 do not include $77,000 and $846,000, respectively, related to
property held under capitalized leases.
Net cash used in financing activities for the nine months ended June 29,
1997 and June 30, 1996 does not include the dividends paid on the Series B
Preferred Stock since they were paid with the issuance of 73,448 and
88,636 shares, respectively, of the Company's common stock.
During the second quarter of Fiscal 1996 the Company made a matching
contribution to its 401(k) Savings Plan. The contribution was made to the
401(k) Savings Plan by the re-issuance of the 52,369 common shares of
treasury stock and the issuance of 8,279 additional common shares. No
contribution was made during the nine months ended June 29, 1997.
8. SALE OF ENSOLITE DIVISION
Pursuant to an asset purchase agreement dated June 10, 1996, the Company
sold substantially all of its assets, net of certain liabilities, of its
Ensolite closed-cell foam division to Rubatex Corporation ("Rubatex") for
$25,000,000 consisting of cash in the amount of $20,000,000 and a
promissory note of the parent of Rubatex in the amount of $5,000,000 (the
"Ensolite Sale"). Interest on the promissory note is payable semi-annually
at 11.75% per annum. The promissory note matures on May 1, 2006. In the
third quarter ended June 30, 1996, the Company recognized a pre-tax gain
on the sale of approximately $2,282,000 net of transaction costs, the
write-down of certain fixed assets not acquired by Rubatex and after
consideration of reserves for severance and incentive packages for
Ensolite employees, facility clean-up costs and the recognition of
Ensolite's pro rata share of the Company's transition obligation in
accordance with Statement of Financial Accounting Standards No. 106
"Employer's Accounting for Postretirement Benefits Other Than Pensions".
The purchase price was adjusted for changes in working capital, as defined
in the asset purchase agreement, between October 1, 1995 and June 10,
1996. The change in working capital resulted in additional proceeds and
select assets due to the Company from Rubatex of approximately $700,000.
Such amount has been included in the pre-tax gain on sale.
The Company and Rubatex also entered into an earn-out agreement whereby
the Company could earn between $.15 and $.20 per board foot of Ensolite
products produced by Rubatex in excess of the base volume as defined in
such agreement during each of the four year periods following the closing
of the Ensolite Sale with a maximum earn-out of $3,000,000 during the four
year period following the closing of the sale. The Company earned $356,000
during the first year following the close.
9. SALE OF THE AUTOMOTIVE OPERATION OF THE COATED FABRICS SEGMENT
The Company has agreed to sell certain assets of the automotive operation
of the Coated Fabrics Segment located at the Company's Port Clinton, Ohio
and Stoughton, Wisconsin facilities.
As of September 29, 1996, the Company had established reserves for the
impairment of assets to be disposed of related to the Port Clinton, Ohio
automotive operation of the Coated Fabrics Segment. The Company does not
expect to incur a significant gain or loss on the sale of the automotive
operations of the Coated Fabrics Segment located at the Company's Port
Clinton, Ohio and Stoughton, Wisconsin facilities.
The Company can earn up to an additional $3,198,000 on the sale of the
automotive operation of the Coated Fabrics Segment located at the
Company's Stoughton, Wisconsin location subject to the Company meeting
certain production requirements and obtaining certain customer purchase
orders.
10. ACQUISITION OF C. GUNTHER COMPANY
On March 31, 1997 the Company acquired 100% of the common stock of C.
Gunther Company, a manufacturer of mirror mastic adhesive, for $1,650,000
in cash and 100,000 shares of common stock of the Company. The purchase
price was adjusted for changes in working capital between January 31, 1997
and March 31, 1997, as defined in the purchase agreement. This resulted in
an increase in the purchase price of $86,500 which was paid in cash.
The business combination was accounted for by the purchase method in
accordance with the Accounting Principle Board Opinion No.16. The results
of operations of C. Gunther Company are included in the condensed
consolidated financial statements as of the beginning of the third quarter
of Fiscal 1997.
The Company acquired cash and working capital in the transaction and
recorded $1,457,000 in goodwill (included in "other assets"), which will
be amortized over the estimated useful life of the asset of 25 years.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Third Quarter Fiscal 1997 Compared with
the Third Quarter Fiscal 1996
Net Sales. The Company's net sales decreased in the third quarter of Fiscal 1997
by approximately 1% ($594,000) to $55,702,000 from $56,296,000 in the third
quarter of Fiscal 1996. During Fiscal 1996, the Company sold its Ensolite
specialty foams division. Included in the third quarter of Fiscal 1996 are net
sales of Ensolite of approximately $5,771,000. Excluding such sales from prior
period amounts, net sales of the Company's continuing businesses increased
approximately 10% in the third quarter of Fiscal 1997 compared to the third
quarter of Fiscal 1996. This increase is attributable to increased net sales in
all three business segments of the Company.
Net sales by the High Performance Plastics Segment increased moderately
($70,000) in the third quarter of Fiscal 1997 to $29,978,000 from $29,908,000 in
the third quarter of Fiscal 1996. The Royalite division recorded increased
volume in the specialty product categories which offset declines in commodity
product categories. The Polycast division's volume was up modestly versus the
third quarter of Fiscal 1996.
Net sales by the Coated Fabrics Segment increased in the third quarter of Fiscal
1997 approximately 25% ($3,634,000) to $18,293,000 from $14,659,000 in the third
quarter of Fiscal 1996 principally due to increased sales to the automotive
industry for a new coated vinyl product for door panels introduced in late
Fiscal 1995. Volume increases were also recorded in the Naugahyde(R) product
line.
Net sales of the Specialty Adhesives Segment decreased in the third quarter of
Fiscal 1997 by approximately 37% ($4,298,000) to $7,431,000 from $11,729,000 in
the third quarter of Fiscal 1996. During Fiscal 1996, the Company sold its
Ensolite specialty foams division. Included in the third quarter of Fiscal 1996
are net sales of Ensolite of approximately $5,771,000. Excluding such sales from
prior period amounts, net sales of the Specialty Adhesives Segment increased
approximately 25% in the third quarter of Fiscal 1997 compared to the third
quarter of Fiscal 1996. The sales increases were due to increased demand from
the roofing market as well as the acquisition of C. Gunther Company at the
beginning of the third quarter in Fiscal 1997.
Income Before Interest and Income Taxes. Income before interest and income taxes
for the third quarter of Fiscal 1997 increased approximately 10% to $4,148,000,
as compared to $3,787,000 for the third quarter of Fiscal 1996. Included in
income before interest and income taxes for the third quarter of Fiscal 1996 is
the gain from the Ensolite Sale of $2,282,000. Excluding the gain from the
Ensolite Sale from the previous year period, income before interest and income
taxes increased by approximately 176% in the third quarter of Fiscal 1997
compared to the third quarter of Fiscal 1996.
The High Performance Plastics Segment's income before interest and income taxes
for the third quarter of Fiscal 1997 increased approximately 15% ($403,000) to
$3,173,000 from $2,770,000 in the third quarter of Fiscal 1996. The increase was
due to a favorable sales mix of higher margin specialty products as well as the
absence of certain professional and development costs incurred in the third
quarter of Fiscal 1996 at Royalite.
The Coated Fabrics Segment had income before interest and income taxes in the
third quarter of Fiscal 1997 of $1,147,000 compared to a loss of $1,314,000 in
the third quarter of Fiscal 1996 primarily due to volume increases. Also
contributing to the significant decrease in the loss was the impact of the
Company's decision in September 1996 to dispose of the segment's Port Clinton,
Ohio manufacturing operation. As a result of that decision, in Fiscal 1996 the
Company established reserves associated with long-lived assets to be disposed of
in accordance with SFAS No. 121.
The Specialty Adhesives Segment had income before interest and income taxes in
the third quarter of Fiscal 1997 of $344,000 from $2,524,000 in the third
quarter of Fiscal 1996 which resulted primarily from the Ensolite Sale on June
10, 1996. The Company recognized a gain of $2,282,000 on the sale. After
consideration of the gain on sale, income before interest and income taxes was
$242,000 for the third quarter of Fiscal 1996 which also included the results of
Ensolite up to the time of sale. Excluding the effects of the sale, income
before interest and income taxes increased $102,000 in the third quarter of
Fiscal 1997 as compared to the third quarter of Fiscal 1996 due to increased
adhesives and sealant sales to the roofing industry, the earnings from the
acquisition of C. Gunther Company and selected price increases.
Amortization of reorganization value in excess of amounts allocable to
identifiable assets in the third quarter of Fiscal 1997 was $188,000 as compared
to $193,000 in Fiscal 1996.
Not allocated to the segments in the third quarter of Fiscal 1997 was
approximately $328,000 of miscellaneous expense. There was no such amount in the
third quarter of Fiscal 1996.
Interest Expense. Interest expense in the third quarter of Fiscal 1997 increased
to $2,549,000 from $2,462,000 in the third quarter of Fiscal 1996. The increase
in interest expense is primarily due to increased borrowings under the Company's
revolving credit agreement.
Income Tax Expense. Income tax expense in the third quarter of Fiscal 1997 was
$716,000 as compared to $789,000 in the third quarter of Fiscal 1996. The
provisions for income tax expense were calculated through the use of the
estimated income tax rates based on projected annualized income.
First Three Quarters of Fiscal 1997 Compared with
the First Three Quarters of Fiscal 1996
Net Sales. The Company's net sales decreased in the first three quarters of
Fiscal 1997 by approximately 2% (3,269,000) to $153,195,000 from $156,464,000 in
the first three quarters of Fiscal 1996. During Fiscal 1996 the Company sold its
Ensolite specialty foams division. Included in the first three quarters of
Fiscal 1996 are net sales of Ensolite of approximately $17,220,000. Excluding
such sales from the prior period amounts, net sales of the Company's continuing
businesses increased by approximately 10% in the first three quarters of Fiscal
1997 compared to the first three quarters of Fiscal 1996. This increase is
attributable to increased net sales in all three business segments of the
Company.
Net sales by the High Performance Plastics Segment increased in the first three
quarters of Fiscal 1997 by approximately 3% ($2,698,000) to $87,752,000 from
$85,054,000 in the first three quarters of Fiscal 1996. The increase was
principally due to improved sales at the Polycast division as well as a moderate
increase at the Royalite division.
Net sales by the Coated Fabrics Segment increased in the first three quarters of
Fiscal 1997 approximately 20% ($8,564,000) to $51,142,000 from $42,578,000 in
the first three quarters of Fiscal 1996 principally due to increased net sales
in the automotive industry resulting from the Company's new coated vinyl product
line introduced in late Fiscal 1995 which is being used for door panel
applications.
Net sales of the Specialty Adhesives Segment decreased in the first three
quarters of Fiscal 1997 by approximately 50% ($14,531,000) to $14,301,000 from
$28,832,000 in the first three quarters of Fiscal 1996. During Fiscal 1996 the
company sold its Ensolite specialty foams division. Included in the first three
quarters of Fiscal 1996 are net sales of Ensolite of approximately $17,220,000.
Excluding such sales from the prior period, net sales of the Specialty Adhesives
Segment increased by approximately 23%. The increase is attributable to
increased net sales of the company's adhesive and sealant products used
primarily in the commercial roofing industry.
Income Before Interest and Income Taxes. Income before interest and income taxes
for the first three quarters of Fiscal 1997 was $6,114,000, compared to income
before interest and income taxes of $465,000 for the first three quarters of
Fiscal 1996.
The High Performance Plastics Segment's income before interest and income taxes
for the first three quarters of Fiscal 1997 increased approximately 27%
($1,607,000) to $7,481,000 from $5,874,000 in the first three quarters of Fiscal
1996. The increase was primarily attributable to increased sales of Royalite(R)
thermoplastic sheet and Polycast(R) acrylic products. The increase was also due
to the establishment of the $808,000 reserve in Fiscal 1996 for estimated back
pay and related employment taxes and employee retraining costs in settlement of
a strike by Polycast employees as well as a planned inventory reduction which
lowered production levels in the second quarter of Fiscal 1996 and led to a
temporary higher cost structure. Royalite also incurred certain nonrecurring
professional and development costs in the third quarter of Fiscal 1996.
The Coated Fabrics Segment had income before interest and income taxes of
$65,000 in the first three quarters of Fiscal 1997 compared to a loss before
interest and income taxes of $5,184,000 in the first three quarters of Fiscal
1996 primarily due to increased sales. Also contributing to the increase in
income before interest and income taxes was the impact of the Company's decision
effective in Fiscal 1996 to dispose of the segment's Port Clinton, Ohio
manufacturing operation. As a result of that decision, in Fiscal 1996 the
Company established reserves associated with long-lived assets to be disposed of
in accordance with SFAS No. 121.
The Specialty Adhesives Segment had a loss before interest and income taxes of
$322,000 in the first three quarters of Fiscal 1997 as compared to income before
interest and income taxes of $352,000 in the first three quarters of Fiscal
1996. The Company recognized a gain of $2,282,000 on the sale of the Ensolite
specialty foam division. After consideration of the gain on sale, the loss
before interest and income taxes for the first three quarters of Fiscal 1996 was
$1,930,000. Excluding the effects of the sale, the loss before interest and
income taxes in the first three quarters of Fiscal 1997 decreased as compared to
the three quarters of Fiscal 1996 primarily due to increased sales.
Amortization of reorganization value in excess of amounts allocable to
identifiable assets in the first three quarters of Fiscal 1997 and 1996 was
$565,000 and $577,000 respectively.
Not allocated to the segments in the first three quarters of Fiscal 1997 was
approximately $545,000 of miscellaneous expense. There were no such amounts in
the first three quarters of Fiscal 1996.
Interest Expense. Interest expense in the first three quarters of Fiscal 1997
decreased to $7,218,000 from $7,630,000 in the first three quarters of Fiscal
1996. The decrease is due to the interest income earned by the company on the
$5,000,000 note issued by Rubatex, Inc. as part of the Ensolite Sale in June
1996 which was partially offset by increased borrowings under the Company's
revolving credit line.
Income Tax Benefit. Income tax benefit in the first three quarters of Fiscal
1997 was $159,000 as compared to $2,220,000 in the first three quarters of
Fiscal 1996. The provisions for income tax benefit were calculated through the
use of the estimated income tax rates based on projected annualized income.
Liquidity and Capital Resources
For the first three quarters of Fiscal 1997, operating activities used
$4,285,000 of cash as compared to $3,449,000 used during the first three
quarters of Fiscal 1996. The increase in cash used in operating activities for
the Fiscal 1997 period is primarily attributable to costs associated with the
relocation of the Specialty Adhesives Segment operations to a new manufacturing
facility as well as payments made against reserves established in connection
with the Ensolite Sale.
Net cash used in investing activities for the first three quarters of Fiscal
1997 was $7,158,000 as compared to $13,451,000 provided during the first three
quarters of Fiscal 1996. Approximately $4,657,000 of cash was provided from the
sale of the Company's Stoughton, Wisconsin automotive operations of the Coated
Fabrics Segment during the first three quarters of Fiscal 1997 and $19,641,000
of cash was provided from the sale of the Company's Ensolite division during the
first three quarters of Fiscal 1996. Cash was used to purchase property, plant
and equipment during the comparable periods. The Company does not have any
significant specific commitments for the purchase of property, plant and
equipment.
Net cash provided by financing activities was $9,500,000 during the first three
quarters of Fiscal 1997 as compared to $4,777,000 used during the first three
quarters of Fiscal 1996. The Company redeemed the remaining 35 shares of the
Series B Preferred Stock at par value of $5,250,000 during the first three
quarters of Fiscal 1997. The principal source of cash during the first three
quarters of Fiscal 1997 was borrowings under the Company's revolving line of
credit.
The Company had approximately $80,000 in cash and cash equivalents on June 29,
1997 as compared to approximately $2,023,000 at September 29, 1996. Working
capital at June 29, 1997 was $35,735,000 compared to $29,148,000 at September
29, 1996. The Company had borrowings of $15,546,000 under its $25,000,000
revolving credit facility (subject to a borrowing base limitation of
approximately $21,133,000 at June 29, 1997). The principal uses of cash during
the first three quarters of Fiscal 1997 were to pay the semi-annual interest
payment on the Company's Senior Secured Notes and to redeem the remaining
outstanding shares of its Series B Preferred Stock. The Company believes that
cash from its operations and its ability to borrow under the revolving credit
facility mentioned above provide it 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 facility 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 upon
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 . There can be no assurance that
the Company would be able to obtain such refinancing or additional financing.
The Company believes that it currently has sufficient liquidity to finance its
existing level of operations.
Effects of Inflation
The markets in which the Company sells products are competitive. In particular,
the Company has generally encountered effective resistance to price increases in
connection with its sales of coated fabrics to the automotive industry and its
sales of acrylics to the aerospace industry. Thus, in an inflationary
environment the Company might not in all instances be able to pass through to
consumers general price increases; the Company's operations could 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 Information
Statements made herein that are forward-looking in nature within the meaning of
the Private Securities Litigation Reform Act of 1995 are subject to risks and
uncertainties that could cause actual results to differ materially. Such risks
and uncertainties include, but are not limited to, those related to business
conditions and the financial strength of the various markets served by the
Company, the level of spending for such products and the ability of the Company
to successfully manufacture and market its products.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
(a) The Company knows of no material 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.
(b) No legal proceedings were terminated during the third quarter
ended June 29, 1997, other than routine litigation incidental to
the Company's business.
Item 2. Changes in Securities
On March 31, 1997, the Company issued 100,000 shares of Common
Stock, par value $0.01 per share, to the Charles A. Gunther
Revocable Trust in a private placement, exempt under Regulation D
from registration. The shares were issued as partial consideration
for the purchase of the common stock of C. Gunther Company by the
Company.
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
1. None.
(b) Reports on Form 8-K
1. None.
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 12, 1997 By: /s/ George J. Zulanas, Jr.
--------------- ---------------------------
George J. Zulanas, Jr.
Vice President, Treasurer and
Chief Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)